FULL TEXT CASES Art.

1869 to 1883
AGENCY
Art. I869: Kinds of Agency, Form of Agency
FIRST DIVISION [G.R. No. 102784. February 28, 1996]
ROSA LIM, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES, respondents.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS ARE
OBLIGATORY IN WHATEVER FORM ENTERED; PLACE OF SIGNATURE
IMMATERIAL; PARTY BOUND THEREON THE MOMENT SHE AFFIXED
HER SIGNATURE. - Rosa Lims 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. 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 petitioners signature
thereto immaterial.
2. ID.; ID.; CONTRACT OF AGENCY; NO FORMALITIES REQUIRED. - 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 the third parties such as those mentioned in Articles
1357 and 1358; and the third is when the form is required for the
purppose of proving the existence of the contract, such as those
provided in the Statute of Frauds in Article 1403. 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.

3. REMEDIAL LAW; EVIDENCE; WEIGHT THEREOF NOT DETERMINED BY

SUPERIORITY IN NUMBERS OF WITNESSES. - 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.
4. ID.; ID.; CREDIBILITY; FINDINGS OF THE TRIAL AND APPELLATE COURTS
GENERALLY NOT INTERFERED WITH ON APPEAL. - 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. 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 circumstances 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.
5. CRIMINAL LAW; ESTAFA WITH ABUSE OF CONFIDENCE; ELEMENTS. - 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).
6. ID.; ID.; ID.; PRESENT IN CASE AT BAR. 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 damaged and prejudice to the
private respondent.
APPEARANCES OF COUNSEL
Zosa & Quijano Law Offices for petitioner.

The Solicitor General for respondents.

DECISION
HERMOSISIMA, JR., J.:
This is a petition to review the Decision of the Court of Appeals in CAG.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]
After arraignment and trial on the merits, the trial court rendered
judgment, the dispositive portion of which reads:
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;
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 of 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 PETITIONERS BRIEF;
II
THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE THAT THE PAROL
EVIDENCE RULE WAS WAIVED WHEN THE PRIVATE PROSECUTOR CROSSEXAMINED THE PETITIONER AND AURELIA NADERA AND WHEN
COMPLAINANT WAS CROSS-EXAMINED 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 letter[7] to petitioner asking for the return of said ring or the
proceeds of the sale thereof. In response, petitioner, thru counsel, wrote a
letter[8] to private respondents 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. 1(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 for 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 fact 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 Price
Mga Uri Halaga
1 ring 3.35 dolo P 169,000.00
1 bracelet 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 HIND I 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 Lims 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. x x x.
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:
Every will, other than a holographic will, must be subscribed at
the end thereof by the testator himself x x x.

The testator or the person requested by him to write his name and the
instrumental witnesses of the will, shall also sign, as aforesaid, each and
every page thereof, except the last, on the left margin x x x.
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 petitioners 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 1 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
petitioners counsel:
Q: Do you know if Rosa Lim in fact returned the jewelries ?
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 P 140,000.00, 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:
x x x 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]
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.
WHEREFORE, the petition is DENIED and the Decision of the Court of
Appeals is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
FIRST DIVISION
[G.R. No. 142950. March 26, 2001]
EQUITABLE
PCI
BANK,
formerly
EQUITABLE
BANKING
CORPORATION, petitioner, vs. ROSITA KU, respondent.
DECISION
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 residential house and lot located in La Vista,
Quezon City, was registered in respondents name.
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.
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.
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 non-party
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 Affidavit[9] 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;
(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.
(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).
(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.
(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.

(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 2[10] 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.
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.

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
Appeals[16] 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 days; andCity Fair
Corporation vs. NLRC,[22] which also concerned a tardy appeal.
The Court finds these arguments to be persuasive, especially in light of
the merits of the petition.
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).
xxx xxx xxx (Exhibit "B")
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-in-law 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.
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.
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.

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 son-in-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.
PIO ALTERA (Sgd.) PACIENTE CORDERO
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 father-in-law. Petitioner further
states that she redeemed the property with her own money as her co-heirs
were bereft of funds for the purpose.
The pacto de retro document was eventually found.
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.
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.
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.
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 parentsin-law who were the vendees-a-retro.
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".
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-a-retro, 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.
Reconsideration having been denied by the Appellate Court, the case is
before us on review.
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.
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 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
SPOUSES FERNANDO and LOURDES VILORIA,Petitioners,- versus CONTINENTAL AIRLINES, INC.,Respondent.
G.R. No. 188288
January 16, 2012
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 plaintiffsappellees is herebyREVERSED 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 re-issuance 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 non-transferable, 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.
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
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 nontransferable; (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 States or
Canada and any place outside thereof to which tariffs in
force in those countries apply.8
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
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:
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 subagent 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 non-refundable 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 well-settled 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.
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 employer-employee 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
onculpa 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 principal-agency 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 reissuance 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 extracontractual 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 non-transferable
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 nontransferability 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 ticket42 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 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:
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)

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.

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.

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

This Court made a similar ruling in Central Bank of the Philippines v.

Court of Appeals.46 Thus:

[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)

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 P17,000.00 debt within
3 years as stipulated, they are both liable for damages.
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
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.48The 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
WHEREFORE, premises considered, the instant Petition is DENIED.
SO ORDERED.
Article 1873. Communication of Existence of Agency
SECOND DIVISION
[G.R. No. 118375. 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 1994[1], 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.
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 non-binding 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 raised[12] 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.
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
estoppel[25] 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.
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.
SO ORDERED.

YUN KWAN BYUNG,

Petitioner,

G.R. No. 163553

Present:
CARPIO, J., Chairperson,
CARPIO MORALES,*
LEONARDO-DE CASTRO,**
DEL CASTILLO, and
ABAD, JJ.

- versus -

PHILIPPINE
AMUSEMENT
GAMING CORPORATION,
Respondent.

AND
Promulgated:
December 11, 2009

x---------------------------------------------------x

DECISION
CARPIO, J.:

SECOND DIVISION
The Case
Yun Kwan Byung (petitioner) filed this Petition for Review[1]assailing the Court
of Appeals Decision[2]dated 27 May 2003 in CA-G.R. CV No. 65699 as well as
the Resolution[3]dated 7 May 2004 denying the Motion for Reconsideration.
In the assailed decision, the Court of Appeals (CA) affirmed the Regional Trial
Courts Decision[4]dated6 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
financialARRANGEMENT/TRANSACTION between PLAYERS
and ABS shall only be binding upon said PLAYERS and ABS.[11]

PAGCOR claims that this notice is a standard precautionary measure[12]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 1883[26]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 2152[30]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 2014[42]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. 9487[43](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 Pres
idential 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. xxx
(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:
[52]

1. Three floors of the Grand Boulevard Hotel 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.
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.
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.
SO ORDERED.

Article 1874- Sale of Land through Agent; Requirement

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 AGUSTINLUSTENBERGER 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 Shares5conveying 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 toP350,000.00.12 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 forP700,000.00. 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 IntervenorsThird 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)-O-15
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 Third-Party
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 intervenors-appellees
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 coheirs, 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 co-heirs 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 co-heirs 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.
[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.
DECISION
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
ofP6,282,000.00. Cruz, Jr. has no written authority from Dieselman to sell the
lot.
In turn, Cristeta Polintan, through a letter[3] dated May 19,
1988, authorized Felicisima ("Mimi") Noble[4] 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 refundable within two weeks should AF Realty
disapprove Ranullo's action on the matter.
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 atP4,000.00 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 attorneys 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 Sale[13] 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.
The dispositive portion of the trial courts 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 attorneys
fees in the amount of P50,000.00 and to pay the costs.
"The counterclaim of defendants is necessarily dismissed.
"The counterclaim and/or the complaint in intervention are likewise
dismissed
"SO ORDERED.[15]
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.
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 attorneys 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]
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.
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 Polintans 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.
xxxxxxxxx
"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 thesame 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:
ART. 1409. The following contracts are inexistent and void from the very
beginning:
xxx
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived. (Emphasis supplied)
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
Appeals,[24] the sale was authorized by a board resolution of respondent
Dieselman dated May 27, 1988.
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 testimony[25] that 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.
SO ORDERED.
[Syllabus]
FIRST DIVISION
[G.R. No. 114311. November 29, 1996]
COSMIC LUMBER CORPORATION, petitioner, vs. COURT OF APPEALS and
ISIDRO PEREZ, respondents.
DECISION
BELLOSILLO, J.:
COSMIC LUMBER CORPORATION through its General Manager executed
on 28 January 1985 a Special Power of Attorney appointing Paz G. VillamilEstrada as attorney-in-fact x x x 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 pre-trial 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 owners duplicate copy of Title No. 37649 needed
to segregate from Lot No. 443 the portion sold by the attorney-in-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 attorney-in-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 petitioners attorney in fact
Villamit-Estrada was not authorized to sell the subject property 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 Villamil-Estrada 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 x x x lot x x x (No.) 443 x x x 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 x x x x
We agree with petitioner. The authority granted Villamil-Estrada 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
petitioners land through a compromise agreement, Villamil-Estrada acted
without or in obvious authority. The saleipso 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 petitioners 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 x x x x 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 x x x x Neither could Attorney Ortega bind
them validly in the compromise because he had no special
authority x x x x
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 x x x
x x x x 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 x x x x
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 Appellate Court (now Court of
Appeals) shall exercise x x x x (2) Exclusive original jurisdiction over action for
annulment of judgments of the Regional Trial Courts x x x x 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 VillamilEstrada 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 petitioners property was sold to the deforciant, literally for a
song. Thus completely kept unaware of its agents 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 complaint3for 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 onlyP600,000.00 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 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.
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 defendantappellee 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 the Promissory
Notes they executed in favor of defendant-appellee Manila Credit
Corporation;
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;
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
Whereas, in G.R. No. 199341, MCC presented the following
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.
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:
(1) x x x
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.26Bare 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.38They 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:
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.
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
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.
SO ORDERED.
Article 1875. Agency Presumed to be with Compensation
GENEVIEVE LIM, G.R. No. 163720
Petitioner,
Present:
PUNO, J.,
- versus - Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
FLORENCIO SABAN, CHICO-NAZARIO, JJ.
Respondent.
Promulgated:
December 16, 2004

x-------------------------------------------------------------------x
DECISION
TINGA, J.:
Before the Court is a Petition for Review on Certiorari assailing
the Decision[1] dated October 27, 2003 of the Court of Appeals, Seventh
Division, in CA-G.R. V No. 60392.[2]
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 checks[8] 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 Decision[11] dismissing Sabans
complaint, declaring the four (4) checks issued by Lim as stale and nonnegotiable, 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
[12]
its Decision 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]
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]
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 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.

The Court gives due course to the petition, but agrees with the result reached
by the Court of Appeals.
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 theP600,000.00the
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 theP113,257.00 earmarked for taxes and P50,000.00 for
commission, and received the balance of P130,000.00 on June 28, 1994. Thus,
a total ofP230,000.00 went directly to Ybaez. Apparently, although the
amount actually paid by Lim was P393,257.00, Ybaez rounded off the amount
toP400,000.00 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 ofP600,000.00 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.
Article 1878- Necessity of Special Powers of Attorney; Instances

[G.R. NO. 148116 : April 14, 2004]

ANTONIO K. LITONJUA and AURELIO K. LITONJUA, JR., Petitioners, v. MARY
ANN GRACE FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA, represented by
GREGORIO T. ELEOSIDA, HEIRS OF DOMINGO B. TICZON, represented by
MARY MEDIATRIX T. FERNANDEZ, CRISTETA TICZON, EVANGELINE JILL R.
TICZON, ERLINDA T. BENITEZ, DOMINIC TICZON, JOSEFINA LUISA
PIAMONTE, JOHN DOES and JANE DOES, Respondents.
DECISION
CALLEJO, SR., J.:
This is a Petition for Review on Certiorariof the Decision1 of the Court of
Appeals in CA-G. R. CV No. 64940, which reversed and set aside the June 23,
1999 Decision2 of the Regional Trial Court of Pasig City, Branch 68, in Civil
Case No. 65629, as well as its Resolution dated April 30, 2001 denying the
petitioners motion for reconsideration of the aforesaid decision.
The heirs of Domingo B. Ticzon3 are the owners of a parcel of land located in
San PabloCity, covered by Transfer Certificate of Title (TCT) No. T-36766 of
the Register of Deeds of San PabloCity.4 On the other hand, the heirs of Paz
Ticzon Eleosida, represented by Gregorio T. Eleosida, are the owners of a

parcel of land located in San PabloCity, covered by TCT No. 36754, also of
the Register of Deeds of San Pablo City.5
The Case for the Petitioners
Sometime in September 1995, Mrs. Lourdes Alimario and Agapito Fisico
who worked as brokers, offered to sell to the Petitioners, Antonio K.
Litonjua and Aurelio K. Litonjua, Jr., the parcels of land covered by TCT Nos.
36754 and 36766. The petitioners were shown a locator plan and copies of
the titles showing that the owners of the properties were represented by
Mary Mediatrix Fernandez and Gregorio T. Eleosida, respectively. The
brokers told the petitioners that they were authorized by respondent
Fernandez to offer the property for sale. The Petitioners, thereafter, made
two ocular inspections of the property, in the course of which they saw
some people gathering coconuts.
In the afternoon of November 27, 1995, the petitioners met with
respondent Fernandez and the two brokers at the petitioners office in
MandaluyongCity.6 The petitioners and respondent Fernandez agreed that
the petitioners would buy the property consisting of 36,742 square meters,
for the price of P150 per square meter, or the total sum of P5,098,500. They
also agreed that the owners would shoulder the capital gains tax, transfer
tax and the expenses for the documentation of the sale. The petitioners and
respondent Fernandez also agreed to meet on December 8, 1995to finalize
the sale. It was also agreed upon that on the said date, respondent
Fernandez would present a special power of attorney executed by the
owners of the property, authorizing her to sell the property for and in their
behalf, and to execute a deed of absolute sale thereon. The petitioners
would also remit the purchase price to the owners, through respondent
Fernandez. However, only Agapito Fisico attended the meeting. He
informed the petitioners that respondent Fernandez was encountering
some problems with the tenants and was trying to work out a settlement
with them.7 After a few weeks of waiting, the petitioners wrote respondent
Fernandez on January 5, 1995, demanding that their transaction be finalized
by January 30, 1996.8 cralawred
When the petitioners received no response from respondent Fernandez, the
petitioners sent her another Letter9 dated February 1, 1996, asking that the
Deed of Absolute Sale covering the property be executed in accordance with
their verbal agreement dated November 27, 1995. The petitioners also

demanded the turnover of the subject properties to them within fifteen

days from receipt of the said letter; otherwise, they would have no option
but to protect their interest through legal means.
Upon receipt of the above letter, respondent Fernandez wrote the
petitioners on February 14, 199610and clarified her stand on the matter in
this wise:chanroblesvirtua1awlibrary
1) It is not true I agreed to shoulder registration fees and other
miscellaneous expenses, etc. I do not recall we ever discussed about them.
Nonetheless, I made an assurance at that time that there was no
liens/encumbrances and tenants on my property (TCT 36755).
2) It is not true that we agreed to meet on December 8, 1995in order to sign
the Deed of Absolute Sale. The truth of the matter is that you were the one
who emphatically stated that you would prepare a Contract to Sell and
requested us to come back first week of December as you would be leaving
the country then. In fact, what you were demanding from us was to apprise
you of the status of the property, whether we would be able to ascertain
that there are really no tenants. Ms. Alimario and I left your office, but we
did not assure you that we would be back on the first week of December.
Unfortunately, some people suddenly appeared and claiming to be tenants
for the entire properties (including those belonging to my other relatives.)
Another thing, the Barangay Captain now refuses to give a certification that
our properties are not tenanted.
Thereafter, I informed my broker, Ms. Lulu Alimario, to relay to Mr. Agapito
that due to the appearance of alleged tenants who are demanding for a
one-hectare share, my cousin and I have thereby changed our mind and that
the sale will no longer push through. I specifically instructed her to inform
you thru your broker that we will not be attending the meeting to be held
sometime first week of December.
In view thereof, I regret to formally inform you now that we are no longer
selling the property until all problems are fully settled. We have not
demanded and received from you any earnest money, thereby, no
obligations exist. In the meantime, we hope that in the future we will

eventually be able to transact business since we still have other properties

in San PabloCity.11 cralawred
Appended thereto was a copy of respondent Fernandez letter to the
petitioners dated January 16, 1996, in response to the latters January 5,
1996letter.12 cralawred
On April 12, 1996, the petitioners filed the instant Complaint for specific
performance with damages13against respondent Fernandez and the
registered owners of the property. In their complaint, the petitioners
alleged, inter alia, the following:chanroblesvirtua1awlibrary
4. On 27 November 1995, defendants offered to sell to plaintiffs two (2)
parcels of land covered by Transfer Certificates of Title Nos. 36766 and
36754 measuring a total of 36,742 square meters in Barrio Concepcion, San
PabloCity. After a brief negotiation, defendants committed and specifically
agreed to sell to plaintiffs 33,990 square meters of the two (2)
aforementioned parcels of land atP150. 00 per square meter.
5. The parties also unequivocally agreed to the
following:chanroblesvirtua1awlibrary
(a) The transfer tax and all the other fees and expenses for the titling of the
subject property in plaintiffs names would be for defendants account.
(b) The plaintiffs would pay the entire purchase price of P5,098,500. 00 for
the aforementioned 33,990 square meters of land in plaintiffs office on 8
December 1995.
6. Defendants repeatedly assured plaintiffs that the two (2) subject parcels
of land were free from all liens and encumbrances and that no squatters or
tenants occupied them.
7. Plaintiffs, true to their word, and relying in good faith on the commitment
of defendants, pursued the purchase of the subject parcels of lands. On 5
January 1996, plaintiffs sent a letter of even date to defendants, setting the
date of sale and payment on 30 January 1996.
7. 1Defendants received the letter on 12 January 1996but did not reply to it.

8. On 1 February 1996, plaintiffs again sent a letter of even date to

defendants demanding execution of the Deed of Sale.
8. 1Defendants received the same on 6 February 1996. Again, there was no
reply. Defendants thus reneged on their commitment a second time.
9. On 14 February 1996, defendant Fernandez sent a written
communication of the same date to plaintiffs enclosing therein a copy of her
16 January 1996letter to plaintiffs which plaintiffs never received
before. Defendant Fernandez stated in her 16 January 1996 letter that
despite the meeting of minds among the parties over the 33,990 square
meters of land for P150. 00 per square meter on 27 November 1995,
defendants suddenly had a change of heart and no longer wished to sell the
same. Paragraph 6 thereof unquestionably shows defendants previous
agreement as above-mentioned and their unjustified breach of their
obligations under it.
10. Defendants cannot unilaterally, whimsically and capriciously cancel a
perfected contract to sell.
11. Plaintiffs intended to use the subject property for their subdivision
project to support plaintiffs quarry operations, processing of aggregate
products and manufacture of construction materials. Consequently, by
reason of defendants failure to honor their just obligations, plaintiffs
suffered, and continue to suffer, actual damages, consisting in unrealized
profits and cost of money, in the amount of at least P5 Million.
12. Plaintiffs also suffered sleepless nights and mental anxiety on account of
defendants fraudulent actuations for which reason defendants are liable to
plaintiffs for moral damages in the amount of at least P1. 5 Million.
13. By reason of defendants above-described fraudulent actuations,
plaintiffs, despite their willingness and ability to pay the agreed purchase
price, have to date been unable to take delivery of the title to the subject
property. Defendants acted in a wanton, fraudulent and malevolent manner
in violating the contract to sell. By way of example or correction for the
public good, defendants are liable to plaintiff for exemplary damages in the
amount of P500,000. 00.

14. Defendants bad faith and refusal to honor their just obligations to
plaintiffs constrained the latter to litigate and to engage the services of
undersigned counsel for a fee in the amount of at leastP250,000.
00.14 cralawred
The petitioners prayed that, after due hearing, judgment be rendered in
their favor ordering the respondents to
(a) Secure at defendants expense all clearances from the appropriate
government agencies that will enable defendants to comply with their
obligations under the Contract to Sell;chanroblesvirtuallawlibrary
(b) Execute a Contract to Sell with terms agreed upon by the
parties;chanroblesvirtuallawlibrary
(c) Solidarily pay the plaintiffs the following
amounts:chanroblesvirtua1awlibrary
1. P5,000,000. 00 in actual damages;chanroblesvirtuallawlibrary
2. P1,500,000. 00 in moral damages;chanroblesvirtuallawlibrary
3. P500,000. 00 in exemplary damages;chanroblesvirtuallawlibrary
4. P250,000. 00 in attorneys fees.15 cralawred
On July 5, 1996, respondent Fernandez filed her Answer to the
complaint.16 She claimed that while the petitioners offered to buy the
property during the meeting of November 27, 1995, she did not accept the
offer; thus, no verbal contract to sell was ever perfected. She specifically
alleged that the said contract to sell was unenforceable for failure to comply
with the statute of frauds. She also maintained that even
assuming arguendothat she had, indeed, made a commitment or promise to
sell the property to the Petitioners, the same was not binding upon her in
the absence of any consideration distinct and separate from the price. She,
thus, prayed that judgment be rendered as
follows:chanroblesvirtua1awlibrary

1. Dismissing the Complaint, with costs against the

plaintiffs;chanroblesvirtuallawlibrary

received petitioners February 1, 1996Letter, she sent a Reply-Letter dated

February 14, 1996.

2. On the COUNTERCLAIM, ordering plaintiffs to pay defendant moral

damages in the amount of not less than P2,000,000. 00 and exemplary
damages in the amount of not less than P500,000. 00 and attorneys fees
and reimbursement expenses of litigation in the amount of P300,000.
00.17 cralawred

After trial on the merits, the trial court rendered judgment in favor of the
petitioners on June 23, 1999,20 the dispositive portion of which
reads:chanroblesvirtua1awlibrary

On September 24, 1997, the trial court, upon motion of the Petitioners,
declared the other respondents in default for failure to file their responsive
pleading within the reglementary period.18 At the pre-trial conference held
on March 2, 1998, the parties agreed that the following issues were to be
resolved by the trial court: (1) whether or not there was a perfected
contract to sell; (2) in the event that there was, indeed, a perfected contract
to sell, whether or not the respondents breached the said contract to sell;
and (3) the corollary issue of damages.19 cralawred
Respondent Fernandez testified that she requested Lourdes Alimario to look
for a buyer of the properties in San PabloCityon a best offer basis. She was
later informed by Alimario that the petitioners were interested to buy the
properties. On November 27, 1995, along with Alimario and another person,
she met with the petitioners in the latters office and told them that she was
at the conference merely to hear their offer, that she could not bind the
owners of the properties as she had no written authority to sell the same.
The petitioners offered to buy the property at P150 per square meter. After
the meeting, respondent Fernandez requested Joy Marquez to secure a
barangay clearance stating that the property was free of any tenants. She
was surprised to learn that the clearance could not be secured. She
contacted a cousin of hers, also one of the owners of the property, and
informed him that there was a prospective buyer of the property but that
there were tenants thereon. Her cousin told her that he was not selling his
share of the property and that he was not agreeable to the price of P150 per
square meter. She no longer informed the other owners of the petitioners
offer. Respondent Fernandez then asked Alimario to apprise the petitioners
of the foregoing developments, through their agent, Agapito Fisico. She was
surprised to receive a letter from the petitioners dated January 5, 1996.
Nonetheless, she informed the petitioners that she had changed her mind in
pursuing the negotiations in a Letter dated January 18, 1996. When she

WHEREFORE, in view of the foregoing, the Court hereby renders judgment

in favor of plaintiffs ANTONIO K. LITONJUA and AURELIO K. LITONJUA and
against defendants MARY MEDIATRIX T. FERNANDEZ, HEIRS OF PAZ TICZON
ELEOSIDA, represented by GREGORIO T. ELEOSIDA, JOHN DOES and JANE
DOES; HEIRS OF DOMINGO B. TICZON, represented by MARY MEDIATRIX T.
FERNANDEZ, CRISTETA TICZON, EVANGELINE JILL R. TICZON, ERLINDA T.
BENITEZ, DOMINIC TICZON, JOSEFINA LUISA PIAMONTE, JOHN DOES and
JANE DOES, ordering defendants to:
1. execute a Contract of Sale and/or Absolute Deed of Sale with the terms
agreed upon by the parties and to secure all clearances from the concerned
government agencies and removal of any tenants from the subject property
at their expense to enable defendants to comply with their obligations
under the perfected agreement to sell; andcralawlibrary
2. pay to plaintiffs the sum of Two Hundred Thousand (P200,000. 00) Pesos
as and by way of attorneys fees.21 cralawred
On appeal to the Court of Appeals, the respondents ascribed the following
errors to the court a quo:chanroblesvirtua1awlibrary
I. THE LOWER COURTERRED IN HOLDING THAT THERE WAS A PERFECTED
CONTRACT OF SALEOF THE TWO LOTS ON NOVEMBER 27, 1995.
II. THE LOWER COURTERRED IN NOT HOLDING THAT THE VERBAL CONTRACT
OF SALE AS CLAIMED BY PLAINTIFFS-APPELLEES ANTONIO LITONJUA AND
AURELIO LITONJUA WAS UNENFORCEABLE.
III. THE LOWER COURTERRED IN HOLDING THAT THE LETTER OF
DEFENDANT-APPELLANT FERNANDEZ DATED JANUARY 16, 1996WAS A
CONFIRMATION OF THE PERFECTED SALEAND CONSTITUTED AS WRITTEN
EVIDENCE THEREOF.

IV. THE LOWER COURTERRED IN NOT HOLDING THAT A SPECIAL POWER OF

ATTORNEY WAS REQUIRED IN ORDER THAT DEFENDANT-APPELLANT
FERNANDEZ COULD NEGOTIATE THE SALEON BEHALF OF THE OTHER
REGISTERED CO-OWNERS OF THE TWO LOTS.
V. THE LOWER COURTERRED IN AWARDING ATTORNEYS FEES IN THE
DISPOSITIVE PORTION OF THE DECISION WITHOUT STATING THE BASIS IN
THE TEXT OF SAID DECISION.22 cralawred
On February 28, 2001, the appellate court promulgated its decision
reversing and setting aside the judgment of the trial court and dismissing
the petitioners complaint, as well as the respondents counterclaim.23 The
appellate court ruled that the petitioners failed to prove that a sale or a
contract to sell over the property between the petitioners and the private
respondent had been perfected.
Hence, the instant Petition for Review on Certiorariunder Rule 45 of the
Revised Rules of Court.
The petitioners submit the following issues for the Courts
resolution:chanroblesvirtua1awlibrary
A. WHETHER OR NOT THERE WAS A PERFECTED CONTRACT OF
SALEBETWEEN THE PARTIES.
B. WHETHER OR NOT THE CONTRACT FALLS UNDER THE COVERAGE OF THE
STATUTE OF FRAUDS.
C. WHETHER OR NOT THE DEFENDANTS DECLARED IN DEFAULT ARE
BENEFITED BY THE ASSAILED DECISION OF THE COURT OF
APPEALS.24 cralawred
The petition has no merit.
The general rule is that the Courts jurisdiction under Rule 45 of the Rules of
Court is limited to the review of errors of law committed by the appellate
court. As the findings of fact of the appellate court are deemed continued,
this Court is not duty-bound to analyze and calibrate all over again the
evidence adduced by the parties in the court a quo.25 This rule, however, is

not without exceptions, such as where the factual findings of the Court of
Appeals and the trial court are conflicting or contradictory.26 Indeed, in this
case, the findings of the trial court and its conclusion based on the said
findings contradict those of the appellate court. However, upon careful
review of the records of this case, we find no justification to grant the
petition. We, thus, affirm the decision of the appellate court.
On the first and second assignment of errors, the petitioners assert that
there was a perfected contract of sale between the petitioners as buyers
and the respondents-owners, through respondent Fernandez, as sellers. The
petitioners contend that the perfection of the said contract is evidenced by
the January 16, 1996Letter of respondent Fernandez.27 The pertinent
portions of the said letter are as follows:chanroblesvirtua1awlibrary
[M]y cousin and I have thereby changed our mindand that the sale will
no longerpush through. I specifically instructed her to inform you thru your
broker that we will not be attending the meeting to be held sometime first
week of December.
In view thereof, I regret to formally inform you now that we are no longer
sellingthe property until all problems are fully settled. We have not
demanded and received from you any earnest money, thereby, no
obligations exist28 cralawred
The petitioners argue that the letter is a sufficient note or memorandum of
the perfected contract, thus, removing it from the coverage of the statute of
frauds. The letter specifically makes reference to a sale which respondent
Fernandez agreed to initially, but which the latter withdrew because of the
emergence of some people who claimed to be tenants on both parcels of
land. According to the Petitioners, the respondents-owners, in their answer
to the complaint, as well as respondent Fernandez when she testified,
admitted the authenticity and due execution of the said letter. Besides,
when the petitioner Antonio Litonjua testified on the contract of sale
entered into between themselves and the respondents-owners, the latter
did not object thereto. Consequently, the respondents-owners thereby
ratified the said contract of sale. The petitioners thus contend that the
appellate courts declaration that there was no perfected contract of sale
between the petitioners and the respondents-owners is belied by the
evidence, the pleadings of the parties, and the law.

The petitioners contention is bereft of merit. In its decision, the appellate

court ruled that the Letter of respondent Fernandez dated January 16,
1996is hardly the note or memorandum contemplated under Article 1403(2)
(e) of the New Civil Code, which reads:chanroblesvirtua1awlibrary
Art. 1403. The following contracts are unenforceable, unless they are
ratified:chanroblesvirtua1awlibrary
(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the
writing, or secondary evidence of its contents:chanroblesvirtua1awlibrary
(e) An agreement for the leasing for a longer period than one year, or for
the sale of real property or of an interest therein.29 cralawred
The appellate court based its ruling on the following
disquisitions:chanroblesvirtua1awlibrary
In the case at bar, the letter dated January 16, 1996 of defendant-appellant
can hardly be said to constitute the note or memorandum evidencing the
agreement of the parties to enter into a contract of sale as it is very clear
that defendant-appellant as seller did not accept the condition that she will
be the one to pay the registration fees and miscellaneous expenses and
therein also categorically denied she had already committed to execute the
deed of sale as claimed by the plaintiffs-appellees. The letter, in fact, stated
the reasons beyond the control of the defendant-appellant, why the sale
could no longer push through because of the problem with tenants. The trial
court zeroed in on the statement of the defendant-appellant that she and
her cousin changed their minds, thereby concluding that defendantappellant had unilaterally cancelled the sale or backed out of her previous
commitment. However, the tenor of the letter actually reveals a consistent
denial that there was any such commitment on the part of defendantappellant to sell the subject lands to plaintiffs-appellees. When defendantappellant used the words changed our mind, she was clearly referring to the
decision to sell the property at all (not necessarily to plaintiffs-appellees)
and notin selling the property to herein plaintiffs-appellees as defendantappellant had not yet made the final decision to sell the property to said

plaintiffs-appellees. This conclusion is buttressed by the last paragraph of

the subject letter stating that we are no longer selling the property until all
problems are fully settled. To read a definite previous agreement for the
sale of the property in favor of plaintiffs-appellees into the contents of this
letter is to unduly restrict the freedom of the contracting parties to
negotiate and prejudice the right of every property owner to secure the
best possible offer and terms in such sale transactions. We believe,
therefore, that the trial court committed a reversible error in finding that
there was a perfected contract of sale or contract to sell under the
foregoing circumstances. Hence, the defendant-appellant may not be held
liable in this action for specific performance with damages.30 cralawred
In Rosencor Development Corporation v. Court of Appeals ,31 the term
statute of frauds is descriptive of statutes which require certain classes of
contracts to be in writing. The statute does not deprive the parties of the
right to contract with respect to the matters therein involved, but merely
regulates the formalities of the contract necessary to render it enforceable.
The purpose of the statute is to prevent fraud and perjury in the
enforcement of obligations, depending for their existence on the unassisted
memory of witnesses, by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the party to be charged.
The statute is satisfied or, as it is often stated, a contract or bargain is taken
within the statute by making and executing a note or memorandum of the
contract which is sufficient to state the requirements of the statute.32 The
application of such statutepresupposes the existence of a perfected contract.
However, for a note or memorandum to satisfy the statute, it must be
complete in itself and cannot rest partly in writing and partly in parol. The
note or memorandum must contain the names of the parties, the terms and
conditions of the contract and a description of the property sufficient to
render it capable of identification.33 Such note or memorandum must
contain the essential elements of the contract expressed with certainty that
may be ascertained from the note or memorandum itself, or some other
writing to which it refers or within which it is connected, without resorting
to parol evidence.34 To be binding on the persons to be charged, such note
or memorandum must be signed by the said party or by his agent duly
authorized in writing.35 cralawred
In City of Cebu v. Heirs of Rubi ,36 we held that the exchange of written
correspondence between the parties may constitute sufficient writing to

evidence the agreement for purposes of complying with the statute of

frauds.
In this case, we agree with the findings of the appellate court that there was
no perfected contract of sale between the respondents-owners, as sellers,
and the Petitioners, as buyers.
There is no documentary evidence on record that the respondents-owners
specifically authorized respondent Fernandez to sell their properties to
another, including the petitioners. Article 1878 of the New Civil Code
provides that a special power of attorney is necessary to enter into any
contract by which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration,37 or to create or
convey real rights over immovable property,38 or for any other act of strict
dominion.39 Any sale of real property by one purporting to be the agent of
the registered owner without any authority therefor in writing from the said
owner is null and void.40 The declarations of the agent alone are generally
insufficient to establish the fact or extent of her authority.41 In this case, the
only evidence adduced by the petitioners to prove that respondent
Fernandez was authorized by the respondents-owners is the testimony of
petitioner Antonio Litonjua that respondent Fernandez openly represented
herself to be the representative of the respondents-owners,42 and that she
promised to present to the petitioners on December 8, 1996 a written
authority to sell the properties.43 However, the petitioners claim was belied
by respondent Fernandez when she testified,
thus:chanroblesvirtua1awlibrary
QMadam Witness, what else did you tell to the
plaintiffs?chanroblesvirtualawlibrary
AI told them that I was there representing myself as one of the owners of
the properties, and I was just there to listen to his proposal because that
time, we were just looking for the best offer and I did not have yet any
written authorities from my brother and sisters and relatives. I cannot agree
on anything yet since it is just a preliminary meeting, and so, I have to
secure authorities and relate the matters to my relatives, brother and
sisters, sir.
QAnd what else was taken up?chanroblesvirtualawlibrary

AMr. Antonio Litonjua told me that they will be leaving for another country
and he requested me to come back on the first week of December and in
the meantime, I should make an assurance that there are no tenants in our
properties, sir.44 cralawred
The petitioners cannot feign ignorance of respondent Fernandez lack of
authority to sell the properties for the respondents-owners. It must be
stressed that the petitioners are noted businessmen who ought to be very
familiar with the intricacies of business transactions, such as the sale of real
property.
The settled rule is that persons dealing with an assumed agent are bound at
their peril, and if they would hold the principal liable, to ascertain not only
the fact of agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to prove it.45 In this
case, respondent Fernandez specifically denied that she was authorized by
the respondents-owners to sell the properties, both in her answer to the
complaint and when she testified. The Letter dated January 16, 1996relied
upon by the petitioners was signed by respondent Fernandez alone, without
any authority from the respondents-owners. There is no evidence on record
that the respondents-owners ratified all the actuations of respondent
Fernandez in connection with her dealings with the petitioners. As such,
said letter is not binding on the respondents as owners of the subject
properties.
Contrary to the petitioners contention, the letter of January 16, 199646 is
not a note or memorandum within the context of Article 1403(2) because it
does not contain the following: (a) all the essential terms and conditions of
the sale of the properties; (b) an accurate description of the property
subject of the sale; and, (c) the names of the respondents-owners of the
properties. Furthermore, the letter made reference to only one property,
that covered by TCT No. T-36755.
We note that the petitioners themselves were uncertain as to the specific
area of the properties they were seeking to buy. In their complaint, they
alleged to have agreed to buy from the respondents-owners 33,990 square
meters of the total acreage of the two lots consisting of 36,742 square
meters. In their Letter to respondent Fernandez dated January 5, 1996, the
petitioners stated that they agreed to buy the two lots, with a total area of
36,742 square meters.47 However, in their Letter dated February 1, 1996,

the petitioners declared that they agreed to buy a portion of the properties
consisting of 33,990 square meters.48 When he testified, petitioner Antonio
Litonjua declared that the petitioners agreed to buy from the respondentsowners 36,742 square meters at P150 per square meter or for the total
price of P5,098,500.49 cralawred

SECOND DIVISION
CAROLINA HERNANDEZ-NIEVERA, DEMETRIO P.
HERNANDEZ, JR., and MARGARITA H. MALVAR,
Petitioners,

The failure of respondent Fernandez to object to parol evidence to prove (a)

the essential terms and conditions of the contract asserted by the
petitioners and, (b) her authority to sell the properties for the respondentsregistered owners did not and should not prejudice the respondents-owners
who had been declared in default.50 cralawred
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of
the appellate court is AFFIRMED IN TOTO. Costs against the petitioners.
SO ORDERED.
Plus Patrimonio vs. Gutierrez Case

G.R. No. 171165

Present:
- versus

CARPIO, J., Chairperson,

NACHURA,
PERALTA,

WILFREDO HERNANDEZ, HOME INSURANCE AND

GUARANTY CORPORATION, PROJECT MOVERS
REALTY AND DEVELOPMENT CORPORATION,
MARIO P. VILLAMOR and LAND BANK OF THE
PHILIPPINES,
Respondents.

ABAD, and
MENDOZA, JJ.

Article 1879. Scope of Authority to Sell/Mortgage

Promulgated:
Republic of the Philippines
Supreme Court
Manila

February 14, 2011

x---------------------------------------------------------------------------------------x

DECISION

PERALTA, J.:

This Rule 45 petition for review assails the October 19, 2005 Decision[1] of the
Court of Appeals in CA-G.R. CV No. 83852,[2] as well as the January 11, 2006
Resolution[3] in the same case which denied reconsideration. The said
decision had reversed and set aside the August 30, 2004 judgment[4] rendered
by the Regional Trial Court (RTC) of San Pablo City, Laguna, Branch 32 in Civil
Case No. SP-5742(2000) one for rescission of a memorandum of agreement
and declaration of nullity of a deed of assignment and conveyance, with
prayer for preliminary injunction and damages.

The facts follow.

Project Movers Realty & Development Corporation (PMRDC), one of

the respondents herein, is a duly organized domestic corporation engaged in
real estate development.Sometime in 1995, it entered through its president,
respondent Mario Villamor (Villamor), into various agreements with corespondents Home Insurance & Guaranty Corporation (HIGC)[5] and Land
Bank of the Philippines (LBP), in connection with the construction of the
Isabel Homes housing project in Batangas and of the Monumento Plaza
commercial and recreation complex in Caloocan City. In its Asset Pool
Formation Agreement, PMRDC conveyed to HIGC the constituent assets of
the two projects,[6] whereas LBP agreed to act as trustee of the resulting Asset
Pool[7] for a consideration.[8] The execution of the projects would be funded
largely through securitization, a method of sourcing development funds by
the issuance of participation certificates against the direct backing assets of
the projects,[9] whereby LBP would act as the nominal issuer of such
certificates with the Asset Pool itself acting as the real issuer.[10] HIGC, in turn,
would provide guaranty coverage to these participation certificates in
accordance with its Contract of Guaranty with PMRDC and LBP. [11]

On November 13, 1997, PMRDC entered into a Memorandum of

Agreement (MOA) whereby it was given the option to buy pieces of land
owned by petitioners Carolina Hernandez-Nievera (Carolina), Margarita H.
Malvar (Margarita) and Demetrio P. Hernandez, Jr. (Demetrio). Demetrio,
under authority of a Special Power of Attorney to Sell or Mortgage,[12] signed
the MOA also in behalf of Carolina and Margarita. In the aggregate, the realty
measured 4,580,451 square meters and was segregated by agreement into

Area I and Area II, respectively pertaining to the parcels covered by Transfer
Certificate of Title (TCT) Nos. T-3137, T-3138, T-3139 and T-3140 on the one
hand, and on the other by TCT Nos. T-3132, T-3133, T-3134, T-3135 and T3136, all issued by the Register of Deeds of Laguna. The MOA materially
provides:

1.
THAT, the consideration for the sale of the parcels
of land (Areas I and II) shall be TWENTY-FIVE PESOS (Php
25.00) per square meter or a total of PESOS: ONE HUNDRED
FOURTEEN MILLION FIVE HUNDRED ELEVEN TWO HUNDRED
SEVENTY (Php114,511,270.00);

1.
THAT, the VENDEE shall have the option to
purchase the above-described parcels of land within a
period of twelve (12) months from the date of this
instrument and that the VENDEE shall pay the vendor
option money in the following amounts and on the dates
herein specified:

Area I
PESOS: SIX MILLION (Php6,000,000.00)
payable in two (2) equal installments of
PESOS: THREE MILLION (Php3,000,000.00),
the first installment due on or before
November 20, 1997; the second installment
due on or before December 15, 1997, both
installments to be covered by postdated
checks upon signing of this Agreement.

Area II
Option money of PESOS: EIGHT MILLION
FIVE
HUNDRED
THOUSAND
(Php8,500,000.00) payable within thirty

(30) days after conveyance to the Isabel

Homes Asset Pool.

2.
THAT, should the VENDEE exercise the option to
purchase the parcels of land within the stipulated period,
the VENDEE shall complete the TWENTY-FIVE (25%)
PERCENT downpayment inclusive of the option money
within the said stipulated period. Balance of the TWENTY
FIVE (25%) PERCENT downpayment exclusive of the option
money for Area I is PESOS: TEN MILLION FOUR HUNDRED
EIGHTY-TWO THOUSAND TWO HUNDRED SIXTY-TWO
(Php10,482,262.00) and for Area II is PESOS: THREE
MILLION SIX HUNDRED FORTY-FIVE THOUSAND FIVE
HUNDRED FIFTY- SIX (Php3,645,556.00).

The balance of the purchase price in the amount of

PESOS: EIGHTY-FIVE MILLION EIGHT HUNDRED EIGHTYTHREE FOUR HUNDRED FIFTY-SIX (Php85,883,456.00) shall
be payable within two (2) years in eight (8) quarterly
installments covered by postdated checks. Schedule of
payments shall be as follows:

3.
THAT, should the VENDEE fail to exercise its
option to purchase the said described parcels of land within
the stipulated period, the option money shall be forfeited
in favor of the VENDOR and that the VENDEE shall return to
the VENDOR all the Transfer Certificates of Title covering
the said described parcels of land within a period of THIRTY
(30) DAYS from the stipulated period, FREE FROM ALL LIENS
AND ENCUMBRANCES;

4.
THAT, the VENDOR, at the request of the VENDEE,
shall agree to convey the parcels of land to any bank or
financial institution by way of mortgage or to a Trustee by
way of a Trust Agreement at any time from the date of this
instrument, PROVIDED, HOWEVER, that the VENDOR is not
liable for any mortgage or loans or obligations that will be
incurred by way of mortgage of Trust Agreement that the
VENDEE might enter into;

5.
It is agreed that the VENDOR shall have the sole
responsibility in the settlement of the tenants and eviction of
the tenants and eviction of the occupants of the described
parcels of land after all consideration have been fully paid by
the VENDEE to the VENDOR;

January 31, 1999 Php 10,735,432.00

April 30, 1999 10,735,432.00
July 31, 1999 10,735,432.00
October 31, 1999 10,735,432.00
January 31, 2000 10,735,432.00
April 30, 2000 10,735,432.00
July 30, 2000 10,735,432.00
October 31, 2000 10,735,432.00

6.
THAT, all taxes including capital gains tax, transfer
tax and documentary stamps tax shall be for the account of
the VENDOR;

7.
THAT, the VENDOR hereby warrants valid title to,
and peaceful possession of the said described parcels of land
after all considerations have been fully paid.[13]

As an implementation of the MOA, the lands within Area I were then

mortgaged to Solid Bank for which petitioners received consideration from
PMRDC.[14]

Later on, PMRDC saw the need to convey additional properties to and
augment the value of its Asset Pool to support the collateralization of
additional participation certificates to be issued.[15] Thus, on March 23, 1998,
it entered with LBP and Demetrio the latter purportedly acting under
authority of the same special power of attorney as in the MOA into a Deed of
Assignment and Conveyance (DAC)[16] whereby the lands within Area II
covered by TCT Nos. T-3132, T-3133, T-3134, T-3135 and T-3136 were
transferred and assigned to the Asset Pool in exchange for a number of shares
of stock which supposedly had already been issued in the name and in favor
of Demetrio. These pieces of land are the subject of the present controversy
as far as they are affected by the explicit provision in the DAC which dispensed
with the stipulated obligation of PMRDC in the MOA to pay option money
should it opt to buy the properties.[17]

PMRDC admittedly did not avail of its option to purchase the lands in
Area II in the twelve months that passed after the execution of the
MOA. Although PMRDC delivered to petitioners certain checks representing
the money, the same however allegedly bounced.[18] Hence, on January 8,
1999, petitioners demanded the return of the corresponding TCTs.[19] In
its January 21, 1999 letter to Demetrio, however, PMRDC, through Villamor,
stated that the TCTs could no longer be delivered back to petitioners as the
covered properties had already been conveyed and assigned to the Asset Pool
pursuant to the March 23, 1998 DAC. In the correspondence that ensued,
petitioners disowned Demetrios signature in the DAC and labeled it a mere
forgery. They explained that Demetrio could not have entered into the said
agreement as his power of attorney was limited only to selling or mortgaging
the properties and not conveying the same to the Asset Pool. Boldly, they
asserted that the fraudulent execution of the DAC was made possible through
the connivance of all the respondents.[20]

With that final word, petitioners instituted an action before the RTC
of San Pablo City, Laguna, Branch 32 for the rescission of the MOA, as well as

for the declaration of nullity of the DAC. They prayed for the issuance of a
writ of preliminary injunction and for the payment of damages.[21]

Ruling for petitioners, the trial court, on August 30, 2004, declared the MOA
to be an option contract and ordered its rescission. It, likewise, declared the
DAC null and void as it made a definite finding of forgery of Demetrios
signature as well as fraud in its execution, and accordingly, adjudged
respondents PMRDC and Villamor liable to petitioner for damages.[22] The
dispositive portion of the decision reads:

WHEREFORE, PREMISES CONSIDERED, judgment is

hereby rendered in the favor of the plaintiffs and against the
defendants as follows:

1. Rescinding the Memorandum of

Agreement (MOA) executed between the plaintiffs
and Project Movers Realty [&] Development
Corporation (PMRDC);

2. Declaring null and void the Deed of

Assignment and Conveyance (DAC) executed
between Project Movers Realty [&] Development
Corporation, Land Bank of the Philippines and
Demetrio Hernandez whose signature is forged;
3. Ordering Transfer Certificate of Title Nos.
T-3132, T-3133, T-3134 and T-3135, all in the names
of the plaintiffs, which are in the custody of the
Court, to be delivered to plaintiffs immediately and
the plaintiffs are ordered to issue a corresponding
receipt of said certificates of title signed by all the
plaintiffs to be submitted to the OIC-Branch Clerk of
Court of this Court within five (5) days from receipt
of said titles;

4. Ordering defendants Mario Villamor and

Wilfredo Hernandez to pay plaintiffs, jointly and
severally, the following:

a. Actual damages of P500,000.00;

b. Moral damages of P200,000.00;
c. Exemplary damages of P200,000.00;
d. Attorneys
of P300,000.00;

fees

in

the

by the evidence and, hence, following the legal presumption of regularity in

the execution of notarized deeds, it upheld the validity of the DAC.[25] The
Court of Appeals noted that the incompatibility in the terms of the MOA and
the DAC clearly signified the intention of the parties to have the MOA novated
by subsequent agreement and have the properties conveyed to the Asset
Pool in exchange for PMRDC shares to be issued to Demetrio. This, according
to the appellate court, completely changed the original obligations of PMRDC
as provided in the MOA. It noted further that it was premature to order the
release of the subject TCTs to petitioners at this stage of the proceedings,
because that would amount to an execution of the decision.[26]

amount

e. And the costs of the suit.

With the denial of their motion for reconsideration,[27] petitioners filed the
instant petition for review attributing error to the Court of Appeals in
declining to rescind the MOA and declare the DAC null and void.

SO ORDERED.[23]

Aggrieved, respondents filed a notice of appeal and elevated the matter to

the Court of Appeals. On October 19, 2005, the Court of Appeals issued the
assailed Decision reversing and setting aside the trial courts decision as
follows:

WHEREFORE, based on the foregoing, the appeal is

GRANTED. The decision dated August 30, 2004 of the
Regional Trial Court, Branch 32, San Pablo City in Civil Case
No. SP-5742 (2000) is REVERSED and SET ASIDE and a new
one is entered declaring the Deed of Conveyance valid and
thus, the Transfer Certificates of Title subject of this case are
ordered returned to HIGC.No costs.
SO ORDERED.[24]

Central to the ruling of the Court of Appeals is its contrary finding that the
allegation of forgery of Demetrios signature in the DAC was not established

Petitioners insist that the obligation of PMRDC to deliver back the

TCTs arises on its failure to exercise the option to purchase the lands
according to the terms of the MOA, and that the deliberate refusal of PMRDC
to perform such obligation gives ground for the rescission of the MOA. This
thesis is perched on petitioners argument that the MOA could not have
possibly been novated by the DAC because first, Demetrios signature therein
has been forged, and second, Demetrio could not have validly assented to the
DAC in behalf of Carolina and Margarita because his special power was
limited only to selling or mortgaging the properties and excludes conveying
and assigning the said properties to the Asset Pool for consideration.[28] They
also point out that the DAC itself is infirm insofar as it stipulated to convey
the lands to the Asset Pool as the latter supposedly is neither a registered
corporation nor a partnership and does not possess a legal personality.[29]

Commenting on the petition, PMRDC and Villamor advance that

petitioners allegation of fraud and forgery are all factual matters that are
inappropriate in a Rule 45 petition.[30]More importantly, they aver that the
novation of the MOA by the DAC is unmistakable as the DAC itself has made
an express reference to the MOA provisions on the payment of option money
and, hence, has expressly modified the pertinent terms thereof.[31]

HIGC and its president, Wilfredo Hernandez, both represented by the

Office of the Government Corporate Counsel (OGCC),[32] and LBP[33] are of the
same view.[34] In addition, HIGC explains that contrary to petitioners belief,
the transfer of the properties under the DAC is valid as the conveyance has
been made to the Asset Pool with LBP, an entity with juridical entity, acting
as trustee thereof.[35] Addressing the issue of forgery and fraud in the
execution of the DAC, HIGC maintains that these factual matters remain to be
mere allegations which nothing in the records of the case could conclusively
prove, except the self-serving testimony of petitioners themselves.[36]

The Court denies the petition.

Petitioners cause stems from the failure of PMRDC to restore to

petitioners the possession of the TCTs of the lands within Area II upon its
failure to exercise the option to purchase within the 12-month period
stipulated in the MOA. Respondents maintain, however, that said obligation,
dependent as it is on the exercise of the option to purchase, has altogether
been expressly obliterated by the terms of the DAC whereby petitioners,
through Demetrio as attorney-in-fact, have agreed to novate the terms of the
MOA by extinguishing the core obligations of PMRDC on the payment of
option money. This seems to suggest that with the execution of the DAC,
PMRDC has already entered into the exercise of its option except that its
obligation to deliver the option money has, by subsequent agreement
embodied in the DAC, been substituted instead by the obligation to issue
participation certificates in Demetrios name but which, likewise, has not yet
been performed by PMRDC. But petitioners stand against the validity of the
DAC on the ground that the signature of Demetrio therein was spurious.

Firmly settled is the jurisprudential rule that forgery cannot be

presumed from a mere allegation but rather must be proved by clear, positive
and convincing evidence by the party alleging the same.[37] The burden to
prove the allegation of forgery in this case has not been conclusively
discharged by petitioners because first, nothing in the records supports the
allegation except only perhaps Demetrios explicit self-serving disavowal of his
signature in open court.[38] Second, while in fact Demetrio at the trial of the
case had committed to have the subject signature examined by an

expert,[39] nevertheless, the trial had terminated without the results of the
examination being submitted in evidence.Third, the claim of forgery,
unsubstantiated as it is, becomes even more unremarkable in light of the fact
that the DAC involved in this case is a notarized deed guaranteed by public
attestation in accordance with law, such that the execution thereof enjoys
the legal presumption of regularity in the absence of compelling proof to the
contrary.[40]

Yet the inquiry on the validity of the DAC does not terminate with the
finding alone of the genuineness of Demetrios signature therein, because
petitioners also stand against its validity on the ground of Demetrios nonauthority to execute the same. They claim that the execution of the DAC
would be beyond the power of Demetrio to perform as his authority is limited
only to selling or mortgaging the properties and does not include assigning
and conveying said properties to the Asset Pool in consideration of shares of
stocks for his lone benefit. For their part, respondents, who believe
Demetrios power of attorney was broad enough to effectuate a novation of
PMRDCs core obligations in the MOA or, at the least, implement the
provisions thereof through the DAC, invoke the 4th and 5th whereas-clauses in
the DAC which, in relation to each other, supposedly pertain to that certain
provision in the MOA which authorizes the conveyance of the properties to
the Asset Pool in exchange for corporate shares.[41]
The 4th and 5th whereas-clauses in the DAC read as follows:

WHEREAS, on November 3, 1997, PMRDC and

LANDOWNER have entered into a Memorandum of
Agreement whereby the former agreed to convey to the
Isabel Homes Asset Pool certain real properties located at
Sta. Maria, Laguna;

[WHEREAS], the LANDOWNER and PMRDC have

agreed to revise and modify the said Memorandum of
Agreement, whereby the LANDOWNER shall dispense with
the option money as a requisite to the sale and purchase of
the properties by PMRDC, and agreed to convey absolutely

and unqualifiedly the same properties directly to the Isabel

Homes Asset Pool for and in exchange of shares of stock or
equity in PMRDC.[42]

While indeed we find no provision in the MOA such as that alluded to in the
aforequoted 4th whereas-clause in the DAC which purportedly embodies an
agreement by the parties to assign and convey the subject properties to the
Asset Pool, we surmise that the clause could be referring to paragraph 5 of
the MOA which stipulates a commitment on the part of petitioners to give
their consent to an assignment and conveyance of the properties to the Asset
Pool but only once a request therefor is made by PMRDC. Paragraph 5 reads:

5. THAT, the VENDOR at the request of the VENDEE

shall agree to convey the parcels of land to any bank or
financial institution by way of mortgage or to a Trustee by
way of a Trust Agreement at any time from the date of this
instrument, PROVIDED, HOWEVER, that the VENDOR is not
liable for any mortgage or loans or obligations that will be
incurred by way of mortgage of Trust Agreement that the
VENDEE might enter into;[43]

Petitioners profess, however, that no such request was ever intimated to

them at any time during the subsistence of the PMRDCs right to exercise the
option to buy. But respondents are quick to reason that a request is
unnecessary because Demetrio has been legally enabled by his special power
to give such consent and accordingly execute the DAC, effect a novation of
the MOA, and extinguish the stipulated obligations of PMRDC therein, or at
least that he could assent to the implementation of the MOA provisions in
the way that transpired. We agree.

Demetrios special power of attorney granting the powers to sell and/or

mortgage reads in part:

1. To sell and/or mortgage in favor of any person,

corporation, partnership, private banking or financial
institution, government or semi-government banking or
financial institution for such price or amount and under such
terms and conditions as our aforesaid attorney-in-fact may
deem just and proper, parcels of land more particularly
described as follows:
xxx
2. To carry out the authority aforestated, to sign, execute and
deliver such deeds, instruments and other papers that may
be required or necessary;
3. To further attain the authority herein given, to do and
perform such acts and things that may be necessary or
incidental to fully carry out the authority herein granted.[44]

It is in the context of this vesture of power that Demetrio,

representing his shared interest with Carolina and Margarita, entered into
the MOA with PMRDC. It is likewise within this same context that Demetrio
later on entered into the DAC and accordingly extinguished the previously
subsisting obligation of PMRDC to deliver the stipulated option money and
replaced said obligation with the delivery instead of participation certificates
in favor of Demetrio.
The powers conferred on Demetrio were exclusive only to selling and
mortgaging the properties. Between these two specific powers, the power to
sell is quite controversial because it is the sale transaction which bears close
resemblance to the deal contemplated in the DAC. In fact, part of the
testimony of Atty. Danilo Javier, counsel for respondent HIGC and head of its
legal department at the time, is that in the execution of the DAC, respondents
had relied on Demetrios special power of attorney and also on his supposed
agreement to be paid in kind, i.e., in shares of stock, as consideration for the
assignment and conveyance of the subject properties to the Asset
Pool.[45] What petitioners miss, however, is that the power conferred on
Demetrio to sell for such price or amount[46] is broad enough to cover the
exchange contemplated in the DAC between the properties and the

corresponding corporate shares in PMRDC, with the latter replacing the cash
equivalent of the option money initially agreed to be paid by PMRDC under
the MOA. Suffice it to say that price is understood to mean the cost at which
something is obtained, or something which one ordinarily accepts voluntarily
in exchange for something else, or the consideration given for the purchase
of a thing.[47]

Thus, it becomes clear that Demetrios special power of attorney to

sell is sufficient to enable him to make a binding commitment under the DAC
in behalf of Carolina and Margarita. In particular, it does include the authority
to extinguish PMRDCs obligation under the MOA to deliver option money and
agree to a more flexible term by agreeing instead to receive shares of stock
in lieu thereof and in consideration of the assignment and conveyance of the
properties to the Asset Pool. Indeed, the terms of his special power of
attorney allow much leeway to accommodate not only the terms of the MOA
but also those of the subsequent agreement in the DAC which, in this case,
necessarily and consequently has resulted in a novation of PMRDCs integral
obligations. On this score, we quote with approval the decision of the Court
of Appeals, aptly citing the case ofCalifornia Bus Lines, Inc. v. State Investment
House, Inc.[48] thus

There are two ways which could indicate, in fine, the

presence of novation and thereby produce the effect of
extinguishing an obligation by another which substitutes the
same. The first is when novation has been explicitly stated
and declared in unequivocal terms. The second is when the
old and the new obligations are incompatible on every
point. The test of incompatibility is whether the two
obligations can stand together, each one having its
independent existence. If they cannot, they are
incompatible, and the latter obligation novates the
first. Corollarily, changes that breed incompatibility must be
essential in nature and not merely accidental. The
incompatibility must take place in any of the essential
elements of the obligation such as its object, cause or
principal conditions thereof; otherwise, the change would be

merely modificatory in nature and insufficient to extinguish

the original obligation.[49]

In view of the foregoing, the Court finds no useful purpose in

addressing all the other issues raised in this petition.

A final note. Section 10, Book IV, Title III, Chapter 3[50] of the Revised
Administrative Code of 1987 has designated the OGCC to act as the principal
law office of government-owned or controlled corporations (GOCCs) in
connection with any judicial or quasi-judicial proceeding. Yet between the
two respondents GOCCs in this case LBP and HIGC it is only the latter for
which the OGCC has entered its appearance. Nowhere in the records is it
shown that the OGCC has ever entered its appearance in this case as principal
legal counsel of respondent LBP, or that at the very least it has given express
conformity to the LBP legal departments representation.[51]

In Land Bank of the Philippines v. Martinez,[52] citing Land Bank of the

Philippines v. Panlilio-Luciano,[53] we explained that the legal department of
LBP is not expressly authorized by its charter to appear in behalf of the
corporation in any proceeding as the mandate of the law is explicit enough to
place the said department under the OGCCs power of control and
supervision. We held in that case:

[Section 10] mandates the OGCC, and not the LBP

Legal Department, as the principal law office of the LBP.
Moreover, it establishes the proper hierarchical order in
that the LBP Legal Department remains under the control
and supervision of the OGCC. x x x

At the same time, the existence of the OGCC does

not render the LBP Legal Department a superfluity. We do
not doubt that the LBP Legal Department carries out vital
legal services to LBP. However, the performance of such

functions cannot deprive the OGCCs role as overseer of the

LBP Legal Department and its mandate of exercising control
and supervision over all GOCC legal departments. For the
purpose of filing petitions and making submissions before
this Court, such control and supervision imply express
participation by the OGCC as principal legal counsel of LBP.
xxx

It should also be noted that the aforementioned

Section 10, Book IV, Title III, Chapter 3 of the Administrative
Code of 1987 authorizes the OGCC to receive the attorney's
fees adjudged in favor of their client GOCCs, such fees
accruing to a special fund of the OGCC. Evidently, the nonparticipation of the OGCC in litigations pursued by GOCCs
would deprive the former of its due funding as authorized by
law. Hence, this is another reason why we cannot sustain
Attys. Beramo and Berbao's position that the OGCC need not
participate in litigations pursued by LBP.

It may strike as disruptive to the flow of a GOCCs

daily grind to require the participation of the OGCC as its
principal law office, or the exercise of control and supervision
by the OGCC over the acts of the GOCCs legal departments.
For reasons such as proximity and comfort, the GOCC may
find it convenient to rely instead on its in-house legal
departments,
or
more
irregularly,
on
private
practitioners. Yet the statutory role of the OGCC as principal
law office of GOCCs is one of long-standing, and we have to
recognize such function as part of public policy. Since the
jurisdiction of the OGCC includes all GOCCs, its perspective
is less myopic than that maintained by a particular legal
department of a GOCC. It is not inconceivable that left to its
own devices, the legal department of a given GOCC may
adopt a legal position inconsistent with or detrimental to
other GOCCs. Since GOCCs fall within the same
governmental framework, it would be detrimental to have
GOCCs foisted into adversarial positions by their respective

legal departments. Hence, there is indubitable wisdom in

having one overseer over all these legal departments which
would ensure that the legal positions adopted by the GOCCs
would not conflict with each other or the government.

x x x Certainly, Section 10, Book IV, Title III, Chapter 3 of the

Administrative Code of 1987 can be invoked by adverse
parties or by the courts in citing as deficient the exclusive
representation of LBP by its Legal Department. Then again, if
neither the adverse parties nor the courts of jurisdiction
choose to contest this point, there would be no
impediment to the litigation to maintain. x x x[54]

WHEREFORE, the Petition is DENIED. The October 19, 2005 Decision and
January 11, 2006 Resolution of the Court of Appeals, in CA- G.R. CV No. 83852,
are herebyAFFIRMED.

SO ORDERED.
Article 1883. Acts of Agent in his own name; Right of action of Parties

G.R. No. 77638 July 12, 1990

MARITIME AGENCIES & SERVICES, INC., petitioner,
vs.
COURT OF APPEALS, and UNION INSURANCE SOCIETY OF CANTON,
LTD., respondents.
G.R. No. 77674 July 12, 1990
UNION INSURANCE SOCIETY OF CANTON, LTD., petitioner,
vs.

COURT OF APPEALS, HONGKONG ISLAND CO., LTD., MARITIME AGENCIES

& SERVICES, INC., and/or VIVA CUSTOMS BROKERAGE, respondents.
Del Rosario & Del Rosario for petitioner in G.R. No. 77638.
Zapa Aguillardo & Associates for petitioner in G.R. No. 77674.
Bito, Misa & Lozada for Hongkong Island Co. Ltd. and Macondray & Co., Inc.

CRUZ, J.:
Transcontinental Fertilizer Company of London chartered from Hongkong
Island Shipping Company of Hongkong the motor vessel named "Hongkong
Island" for the shipment of 8073.35 MT (gross) bagged urea from
Novorossisk, Odessa, USSR to the Philippines, the parties signing for this
purpose a Uniform General Charter dated August 9, 1979. 1
Of the total shipment, 5,400.04 MT was for the account of Atlas Fertilizer
Company as consignee, 3,400.04 to be discharged in Manila and the
remaining 2,000 MT in Cebu. 2 The goods were insured by the consignee
with the Union Insurance Society of Canton, Ltd. for P6,779,214.00 against
all risks. 3
Maritime Agencies & Services, Inc. was appointed as the charterer's agent
and Macondray Company, Inc. as the owner's agent. 4
The vessel arrived in Manila on October 3, 1979, and unloaded part of the
consignee's goods, then proceeded to Cebu on October 19, 1979, to
discharge the rest of the cargo. On October 31, 1979, the consignee filed a
formal claim against Maritime, copy furnished Macondray, for the amount
of P87,163.54, representing C & F value of the 1,383 shortlanded bags. 5 On
January 12, 1980, the consignee filed another formal claim, this time against
Viva Customs Brokerage, for the amount of P36,030.23, representing the
value of 574 bags of net unrecovered spillage. 6
These claims having been rejected, the consignee then went to Union,
which on demand paid the total indemnity of P113,123.86 pursuant to the

insurance contract. As subrogee of the consignee, Union then filed on

September 19, 1980, a complaint for reimbursement of this amount, with
legal interest and attorney's fees, against Hongkong Island Company, Ltd.,
Maritime Agencies & Services, Inc. and/or Viva Customs Brokerage. 7 On
April 20, 1981, the complaint was amended to drop Viva and implead
Macondray Company, Inc. as a new defendant. 8
On January 4, 1984, after trial, the trial court rendered judgment holding the
defendants liable as follows:
(a) defendants Hongkong Island Co., Ltd., and its local agent
Macondray & Co., Inc. to pay the plaintiff the sum of
P87,163.54 plus 12% interest from April 20, 1981 until the
whole amount is fully paid, P1,000.00 as attorney's fees and
to pay one-half (1/2) of the costs; and
(b) defendant Maritime Agencies & Services, Inc., to pay the
plaintiff the sum of P36,030.23, plus 12% interest from April
20, 1981 until the whole amount is fully paid, P600.00 as
attorney's fees and to pay one-half (1/2) of the costs. 9
Petitioner appealed the decision to the Court of Appeals, which rendered a
decision on November 28, 1986, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is modified,
finding the charterer Transcontinental Fertilizer Co., Ltd.
represented by its agent Maritime Agencies & Services, Inc.
liable for the amount of P87,163.54 plus interest at 12%
plus attorney's fees of P1,000.00. Defendant Hongkong
Island Co., Ltd. represented by Macondray Co., Inc. are
accordingly exempted from any liability. 10
Maritime and Union filed separate motions for reconsideration which were
both denied. The movants are now before us to question the decision of the
respondent court.
In G.R. No. 77638, Maritime pleads non-liability on the ground that it was
only the charterer's agent and should not answer for whatever
responsibility might have attached to the principal. It also argues that the

respondent court erred in applying Articles 1734 and 1735 of the Civil Code
in determining the charterer's liability.

to perform the duty involved" in accordance with the terms of most voyage
charters. 14

In G.R. No. 77674, Union asks for the modification of the decision of the
respondent court so as to make Maritime solidarily and solely liable, its
principal not having been impleaded and so not subject to the jurisdiction of
our courts.

This is true in the present cases where the charterer was responsible for
loading, stowage and discharging at the ports visited, while the owner was
responsible for the care of the cargo during the voyage. Thus, Par. 2 of the
Uniform General Charter read:

These two cases were consolidated and given due course, the parties being
required to submit simultaneous memoranda. All complied, including
Hongkong Island Company, Ltd., and Macondray Company, Inc., although
they pointed out that they were not involved in the petitions.
There are three general categories of charters, to wit, the demise or
"bareboat charter," the time charter and the voyage charter.
A demise involves the transfer of full possession and control of the vessel
for the period covered by the contract, the charterer obtaining the right to
use the vessel and carry whatever cargo it chooses, while manning and
supplying the ship as well. 11
A time charter is a contract to use a vessel for a particular period of time,
the charterer obtaining the right to direct the movements of the vessel
during the chartering period, although the owner retains possession and
control. 12
A voyage charter is a contract for the hire of a vessel for one or a series of
voyages usually for the purpose of transporting goods for the charterer. The
voyage charter is a contract of affreightment and is considered a private
carriage. 13
Tested by those definitions, the agreement entered into in the cases at bar
should be considered. This brings us to the basic question of who, in this
kind of charter, shall be liable for the cargo.
A voyage charter being a private carriage, the parties may freely contract
respecting liability for damage to the goods and other matters. The basic
principle is that "the responsibility for cargo loss falls on the one who agreed

2. Owners are to be responsible for loss of or damage to the

goods or for delay in delivery of the goods only in case the
loss, damage or delay has been caused by the improper or
negligent stowage of the goods or by personal want of due
diligence on the part of the Owners or their Manager to
make the vessel in all respects seaworthy and to secure that
she is properly manned, equipped and supplied or by the
personal act or default of the Owners or their Manager.
And the Owners are responsible for no loss or damage or
delay arising from any other cause whatsoever, even from
the neglect or default of the Captain or crew or some other
person employed by the Owners onboard or ashore for
whose acts they would, but for this clause, be responsible,
or from unseaworthiness of the vessel on loading or
commencement of the voyage or at any time whatsoever.
Damage caused by contact with or leakage, smell or
evaporation from other goods or by the inflammable or
explosive nature or insufficient package of other goods not
to be considered as caused by improper or negligent
stowage, even if in fact so caused.
while Clause 17 of Additional Clauses to Charter party provided:
The cargo shall be loaded, stowed and discharged free of
expense to the vessel under the Master's supervision.
However, if required at loading and discharging ports the
vessel is to give free use of winches and power to drive
them gear, runners and ropes. Also slings, as on board.
Shore winchmen are to be employed and they are to be for

Charterers' or Shippers' or Receivers' account as the case

may be. Vessel is also to give free use of sufficient light, as
on board, if required for night work. Time lost through
breakdown of winches or derricks is not to count as laytime.
In Home Insurance Co. v. American Steamship Agencies, Inc., 15 the trial
court rejected similar stipulations as contrary to public policy and, applying
the provisions of the Civil Code on common carriers and of the Code of
Commerce on the duties of the ship captain, held the vessel liable in
damages for loss of part of the cargo it was carrying. This Court reversed,
declaring as follows:
The provisions of our Civil Code on common carriers were
taken from Anglo-American law. Under American
jurisprudence, a common carrier undertaking to carry a
special cargo or chartered to a special person only, becomes
a private carrier. As a private carrier, a stipulation
exempting the owner from liability for the negligence of its
agent is not against public policy, and is deemed valid.
Such doctrine we find reasonable. The Civil Code provisions
on common carriers should not be applied where the carrier
is not acting as such but as a private carrier. The stipulation
in the charter party absolving the owner from liability for
loss due to the negligence of its agent would be void only if
the strict public policy governing common carriers is
applied. Such policy has no force where the public at large is
not involved, as in the case of a ship totally chartered for
the use of a single party.
Nevertheless, this ruling cannot benefit Hongkong, because there was no
showing in that case that the vessel was at fault. In the cases at bar, the trial
court found that 1,383 bags were shortlanded, which could only mean that
they were damaged or lost on board the vessel before unloading of the
shipment. It is not denied that the entire cargo shipped by the charterer in
Odessa was covered by a clean bill of lading. 16 As the bags were in good
order when received in the vessel, the presumption is that they were
damaged or lost during the voyage as a result of their negligent improper
stowage. For this the ship owner should be held liable.

But we do agree that the period for filing the claim is one year, in
accordance with the Carriage of Goods by Sea Act. This was adopted and
embodied by our legislature in Com. Act No. 65 which, as a special law,
prevails over the general provisions of the Civil Code on prescription of
actions. Section 3(6) of that Act provides as follows:
In any event, the carrier and the ship shall be discharged
from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the
date when the goods should have been delivered; Provided,
that if a notice of loss for damage; either apparent or
concealed, is not given as provided for in this section, that
fact shall not effect or prejudice the right of the shipper to
bring suit within one year after the delivery of the goods or
the date when the goods should have been delivered.
This period was applied by the Court in the case of Union Carbide,
Philippines, Inc. v. Manila Railroad Co., 17 where it was held:
Under the facts of this case, we held that the one-year
period was correctly reckoned by the trial court from
December 19, 1961, when, as agreed upon by the parties
and as shown in the tally sheets, the cargo was discharged
from the carrying vessel and delivered to the Manila Port
Service. That one-year period expired on December 19,
1962. Inasmuch as the action was filed on December 21,
1962, it was barred by the statute of limitations.
The one-year period in the cases at bar should commence on October 20,
1979, when the last item was delivered to the consignee. 18 Union's
complaint was filed against Hongkong on September 19, 1980, but tardily
against Macondray on April 20, 1981. The consequence is that the action is
considered prescribed as far as Macondray is concerned but not against its
principal, which is what matters anyway.
As regards the goods damaged or lost during unloading, the charterer is
liable therefor, having assumed this activity under the charter party "free of
expense to the vessel." The difficulty is that Transcontinental has not been
impleaded in these cases and so is beyond our jurisdiction. The liability
imposable upon it cannot be borne by Maritime which, as a mere agent, is

not answerable for injury caused by its principal. It is a well-settled principle

that the agent shall be liable for the act or omission of the principal only if
the latter is undisclosed. 19
Union seeks to hold Maritime liable as ship agent on the basis of the ruling
of this Court in the case of Switzerland General Insurance
Co., Ltd. v. Ramirez. 20 However, we do not find that case is applicable.
In that case, the charterer represented itself on the face of the bill of lading
as the carrier. The vessel owner and the charterer did not stipulate in the
Charter party on their separate respective liabilities for the cargo. The
loss/damage to the cargo was sustained while it was still on board or under
the custody of the vessel. As the charterer was itself the carrier, it was made
liable for the acts of the ship captain who was responsible for the cargo
while under the custody of the vessel.
As for the charterer's agent, the evidence showed that it represented the
vessel when it took charge of the unloading of the cargo and issued cargo
receipts (or tally sheets) in its own name. Claims against the vessel for the
losses/damages sustained by that cargo were also received and processed
by it. As a result, the charterer's agent was also considered a ship agent and
so was held to be solidarily liable with its principal.
The facts in the cases at bar are different. The charterer did not represent
itself as a carrier and indeed assumed responsibility ability only for the
unloading of the cargo, i.e, after the goods were already outside the custody
of the vessel. In supervising the unloading of the cargo and issuing Daily
Operations Report and Statement of Facts indicating and describing the dayto-day discharge of the cargo, Maritime acted in representation of the
charterer and not of the vessel. It thus cannot be considered a ship agent.
As a mere charterer's agent, it cannot be held solidarily liable with
Transcontinental for the losses/damages to the cargo outside the custody of
the vessel. Notably, Transcontinental was disclosed as the charterer's
principal and there is no question that Maritime acted within the scope of
its authority.
Hongkong and Macondray point out in their memorandum that the
appealed decision is not assailed insofar as it favors them and so has
become final as to them. We do not think so. First of all, we note that they
were formally impleaded as respondents in G.R No. 77674 and submitted

their comment and later their memorandum, where they discussed at

length their position vis-a-vis the claims of the other parties. Secondly, we
reiterate the rule that even if issues are not formally and specifically raised
on appeal, they may nevertheless be considered in the interest of justice for
a proper decision of the case.itc-asl Thus, we have held that:
Besides, an unassigned error closely related to the error
properly assigned, or upon which the determination of the
question raised by the error properly assigned is dependent,
will be considered by the appellate court notwithstanding
the failure to assign it as error.
At any rate, the Court is clothed with ample authority to
review matters, even if they are not assigned as errors in
their appeal, if it finds that their consideration is necessary
in arriving at a just decision of the case. 21
xxx xxx xxx
Issues, though not specifically raised in the pleadings in the
appellate court, may, in the interest of justice, be properly
considered by said court in deciding a case, if they are
questions raised in the trial court and are matters of record
having some bearing on the issue submitted which the
parties failed to raise or the lower court ignore(d). 22
xxx xxx xxx
While an assignment of error which is required by law or
rule of court has been held essential to appellate review,
and only those assigned will be considered, there are a
number of cases which appear to accord to the appellate
court a broad discretionary power to waive this lack of
proper assignment of errors and consider errors not
assigned. 23
In his decision dated January 4, 1984, Judge Artemon de Luna of the
Regional Trial Court of Manila held:

The Court, on the basis of the evidence, finds nothing to

disprove the finding of the marine and cargo surveyors that
of the 66,390 bags of urea fertilizer, 65,547 bags were
"discharged ex-vessel" and there were "shortlanded" "1,383
bags", valued at P87,163.54. This sum should be the
principal and primary liability and responsibility of the
carrying vessel. Under the contract for the transportation of
goods, the vessel's responsibility commence upon the actual
delivery to, and receipt by the carrier or its authorized
agent, until its final discharge at the port of Manila.
Defendant Hongkong Island Co., Ltd., as "shipowner" and
represented by the defendant Macondray & Co., Inc., as its
local agent in the Philippines, should be responsible for the
value of the bags of urea fertilizer which were shortlanded.
The remainder of the claim in the amount of P36,030.23,
representing the value of the 574 bags of unrecovered
spillages having occurred after the shipment was discharged
from the vessel unto the ex-lighters as well as during the
discharge from the lighters to the truck which transported
the shipment to the consignee's warehouses should be for
the account of the defendant Maritime Agencies & Services,
Inc.
We affirm the factual findings but must modify the legal conclusions. As
previously discussed, the liability of Macondray can no longer be enforced
because the claim against it has prescribed; and as for Maritime, it cannot
be held liable for the acts of its known principal resulting in injury to Union.
The interest must also be reduced to the legal rate of 6%, conformably to
our ruling in Reformina v. Tomol 24 and Article 2209 of the Civil Code, and
should commence, not on April 20, 1981, but on September 19, 1980, date
of the filing of the original complaint.
WHEREFORE, the decision of the respondent court is SET ASIDE and that of
the trial court is REINSTATED as above modified. The parties shall bear their
respective costs.

DECISION

CARPIO MORALES, J.:

On challenge via petition for review on certiorari is the Court of Appeals
Decision of December 8, 2004 and Resolution of April 14, 2005 in CA-G.R. CV
No. 763091 reversing the trial courts decision2 against Jose Teofilo T.
Mercado a.k.a. Don Pepito Mercado (respondent) and accordingly
dismissing the complaint of Jesus M. Gozun (petitioner).
In the local elections of 1995, respondent vied for the gubernatorial post in
Pampanga. Upon respondents request, petitioner, owner of JMG Publishing
House, a printing shop located in San Fernando, Pampanga, submitted to
respondent draft samples and price quotation of campaign materials.
By petitioners claim, respondents wife had told him that respondent
already approved his price quotation and that he could start printing the
campaign materials, hence, he did print campaign materials like posters
bearing respondents photograph,3 leaflets containing the slate of party
candidates,4 sample ballots,5 poll watcher identification cards,6 and stickers.
Given the urgency and limited time to do the job order, petitioner availed of
the services and facilities of Metro Angeles Printing and of St. Joseph
Printing Press, owned by his daughter Jennifer Gozun and mother Epifania
Macalino Gozun, respectively.7
Petitioner delivered the campaign materials to respondents headquarters
along Gapan-Olongapo Road in San Fernando, Pampanga.8

SO ORDERED.
G.R. No. 167812

JESUS M. GOZUN, petitioner,

vs.
JOSE TEOFILO T. MERCADO a.k.a. DON PEPITO MERCADO, respondent.

December 19, 2006

Meanwhile, on March 31, 1995, respondents sister-in-law, Lilian Soriano

(Lilian) obtained from petitioner "cash advance" of P253,000 allegedly for
the allowances of poll watchers who were attending a seminar and for other
related expenses. Lilian acknowledged on petitioners 1995 diary9 receipt of
the amount.10
Petitioner later sent respondent a Statement of Account11 in the total
amount of P2,177,906 itemized as follows:P640,310 for JMG Publishing
House; P837,696 for Metro Angeles Printing; P446,900 for St. Joseph
Printing Press; and P253,000, the "cash advance" obtained by Lilian.
On August 11, 1995, respondents wife partially paid P1,000,000 to
petitioner who issued a receipt12 therefor.
Despite repeated demands and respondents promise to pay, respondent
failed to settle the balance of his account to petitioner.
Petitioner and respondent being compadres, they having been principal
sponsors at the weddings of their respective daughters, waited for more
than three (3) years for respondent to honor his promise but to no avail,
compelling petitioner to endorse the matter to his counsel who sent
respondent a demand letter.13 Respondent, however, failed to heed the
demand.14
Petitioner thus filed with the Regional Trial Court of Angeles City on
November 25, 1998 a complaint15 against respondent to collect the
remaining amount of P1,177,906 plus "inflationary adjustment" and
attorneys fees.
In his Answer with Compulsory Counterclaim,16 respondent denied having
transacted with petitioner or entering into any contract for the printing of
campaign materials. He alleged that the various campaign materials
delivered to him were represented as donations from his family, friends and
political supporters. He added that all contracts involving his personal
expenses were coursed through and signed by him to ensure compliance
with pertinent election laws.

On petitioners claim that Lilian, on his (respondents) behalf, had obtained

from him a cash advance of P253,000, respondent denied having given her
authority to do so and having received the same.
At the witness stand, respondent, reiterating his allegations in his Answer,
claimed that petitioner was his over-all coordinator in charge of the conduct
of seminars for volunteers and the monitoring of other matters bearing on
his candidacy; and that while his campaign manager, Juanito "Johnny"
Cabalu (Cabalu), who was authorized to approve details with regard to
printing materials, presented him some campaign materials, those were
partly donated.17
When confronted with the official receipt issued to his wife acknowledging
her payment to JMG Publishing House of the amount of P1,000,000,
respondent claimed that it was his first time to see the receipt, albeit he
belatedly came to know from his wife and Cabalu that the P1,000,000
represented "compensation [to petitioner] who helped a lot in the
campaign as a gesture of goodwill."18
Acknowledging that petitioner is engaged in the printing business,
respondent explained that he sometimes discussed with petitioner
strategies relating to his candidacy, he (petitioner) having actively
volunteered to help in his campaign; that his wife was not authorized to
enter into a contract with petitioner regarding campaign materials as she
knew her limitations; that he no longer questioned the P1,000,000 his wife
gave petitioner as he thought that it was just proper to compensate him for
a job well done; and that he came to know about petitioners claim against
him only after receiving a copy of the complaint, which surprised him
because he knew fully well that the campaign materials were donations.19
Upon questioning by the trial court, respondent could not, however,
confirm if it was his understanding that the campaign materials delivered by
petitioner were donations from third parties.20
Finally, respondent, disclaiming knowledge of the Comelec rule that if a
campaign material is donated, it must be so stated on its face,
acknowledged that nothing of that sort was written on all the materials
made by petitioner.21

As adverted to earlier, the trial court rendered judgment in favor of

petitioner, the dispositive portion of which reads:
WHEREFORE, the plaintiff having proven its (sic) cause of action by
preponderance of evidence, the Court hereby renders a decision in
favor of the plaintiff ordering the defendant as follows:
1. To pay the plaintiff the sum of P1,177,906.00 plus 12% interest
per annum from the filing of this complaint until fully paid;
2. To pay the sum of P50,000.00 as attorneys fees and the costs of
suit.

1. . . . when it dismissed the complaint on the ground that there is

no evidence, other than petitioners own testimony, to prove that
Lilian R. Soriano was authorized by the respondent to receive the
cash advance from the petitioner in the amount of P253,000.00.
xxxx
2. . . . when it dismissed the complaint, with respect to the amounts
due to the Metro Angeles Press and St. Joseph Printing Press on the
ground that the complaint was not brought by the real party in
interest.
x x x x25

SO ORDERED.

22

Also as earlier adverted to, the Court of Appeals reversed the trial courts
decision and dismissed the complaint for lack of cause of action.
In reversing the trial courts decision, the Court of Appeals held that other
than petitioners testimony, there was no evidence to support his claim that
Lilian was authorized by respondent to borrow money on his behalf. It
noted that the acknowledgment receipt23 signed by Lilian did not specify in
what capacity she received the money. Thus, applying Article 131724 of the
Civil Code, it held that petitioners claim for P253,000 is unenforceable.
On the accounts claimed to be due JMG Publishing House P640,310,
Metro Angeles Printing P837,696, and St. Joseph Printing Press
P446,900, the appellate court, noting that since the owners of the last two
printing presses were not impleaded as parties to the case and it was not
shown that petitioner was authorized to prosecute the same in their behalf,
held that petitioner could not collect the amounts due them.
Finally, the appellate court, noting that respondents wife had
paid P1,000,000 to petitioner, the latters claim ofP640,310 (after excluding
the P253,000) had already been settled.
Hence, the present petition, faulting the appellate court to have erred:

By the contract of agency a person binds himself to render some service or

to do something in representation or on behalf of another, with the consent
or authority of the latter.26 Contracts entered into in the name of another
person by one who has been given no authority or legal representation or
who has acted beyond his powers are classified as unauthorized contracts
and are declared unenforceable, unless they are ratified.27
Generally, the agency may be oral, unless the law requires a specific
form.28 However, a special power of attorney is necessary for an agent to, as
in this case, borrow money, unless it be urgent and indispensable for the
preservation of the things which are under administration.29 Since nothing
in this case involves the preservation of things under administration, a
determination of whether Soriano had the special authority to borrow
money on behalf of respondent is in order.
Lim Pin v. Liao Tian, et al.30 held that the requirement of a special power of
attorney refers to the nature of the authorization and not to its form.
. . . The requirements are met if there is a clear mandate from the
principal specifically authorizing the performance of the act. As
early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680)
stated that such a mandate may be either oral or written. The one
thing vital being that it shall be express. And more recently, We
stated that, if the special authority is not written, then it must
be duly established by evidence:

"the Rules require, for attorneys to compromise the litigation of

their clients, a special authority. And while the same does not state
that the special authority be in writing the Court has every reason to
expect that, if not in writing, the same be duly established by
evidence other than the self-serving assertion of counsel himself
that such authority was verbally given him."31 (Emphasis and
underscoring supplied)
Petitioner submits that his following testimony suffices to establish that
respondent had authorized Lilian to obtain a loan from him, viz:
Q : Another caption appearing on Exhibit "A" is cash advance, it
states given on 3-31-95 received by Mrs. Lilian Soriano in behalf of
Mrs. Annie Mercado, amount P253,000.00, will you kindly tell the
Court and explain what does that caption means?

apparent authority as his agent, and holds him out to the public as such,
respondent cannot be permitted to deny the authority.
Petitioners submission does not persuade. As the appellate court observed:
. . . Exhibit "B" [the receipt issued by petitioner] presented by
plaintiff-appellee to support his claim unfortunately only indicates
the Two Hundred Fifty Three Thousand Pesos (P253,0000.00)
was received by one Lilian R. Soriano on 31 March 1995, but
without specifying for what reason the said amount was delivered
and in what capacity did Lilian R. Soriano received [sic] the money.
The note reads:
"3-31-95
261,120 ADVANCE MONEY FOR TRAINEE

A : It is the amount representing the money borrowed from me by

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

RECEIVED BY
RECEIVED FROM JMG THE AMOUNT OF 253,000 TWO
HUNDRED FIFTY THREE THOUSAND PESOS
(SIGNED)

Q : Considering that this is a substantial amount which according to

you was taken by Lilian Soriano, did you happen to make her
acknowledge the amount at that time?
A : Yes, sir.32 (Emphasis supplied)
Petitioners testimony failed to categorically state, however, whether the
loan was made on behalf of respondent or of his wife. While petitioner
claims that Lilian was authorized by respondent, the statement of
account marked as Exhibit "A" states that the amount was received by Lilian
"in behalf of Mrs. Annie Mercado."
Invoking Article 187333 of the Civil Code, petitioner submits that respondent
informed him that he had authorized Lilian to obtain the loan, hence,
following Macke v. Camps34 which holds that one who clothes another with

LILIAN R. SORIANO
3-31-95"
Nowhere in the note can it be inferred that defendant-appellant
was connected with the said transaction. Under Article 1317 of the
New Civil Code, a person cannot be bound by contracts he did not
authorize to be entered into his behalf.35 (Underscoring supplied)
It bears noting that Lilian signed in the receipt in her name alone, without
indicating therein that she was acting for and in behalf of respondent. She
thus bound herself in her personal capacity and not as an agent of
respondent or anyone for that matter.

It is a general rule in the law of agency that, in order to bind the principal by
a mortgage on real property executed by an agent, it must upon its face
purport to be made, signed and sealed in the name of the principal,
otherwise, it will bind the agent only. It is not enough merely that the agent
was in fact authorized to make the mortgage, if he has not acted in the
name of the principal. x x x36 (Emphasis and underscoring supplied)
On the amount due him and the other two printing presses, petitioner
explains that he was the one who personally and directly contracted with
respondent and he merely sub-contracted the two printing establishments
in order to deliver on time the campaign materials ordered by respondent.

WHEREFORE, the petition is GRANTED. The Decision dated December 8,

2004 and the Resolution dated April 14, 2005 of the Court of Appeals are
hereby REVERSED and SET ASIDE.
The April 10, 2002 Decision of the Regional Trial Court of Angeles City,
Branch 57, is REINSTATED mutatis mutandis, in light of the foregoing
discussions. The trial courts decision is modified in that the amount payable
by respondent to petitioner is reduced to P924,906.
SO ORDERED.
G.R. No. 95703 August 3, 1992

Respondent counters that the claim of sub-contracting is a change in

petitioners theory of the case which is not allowed on appeal.
In Oco v. Limbaring,37 this Court ruled:
The parties to a contract are the real parties in interest in an action
upon it, as consistently held by the Court. Only the contracting
parties are bound by the stipulations in the contract; they are the
ones who would benefit from and could violate it. Thus, one who is
not a party to a contract, and for whose benefit it was not expressly
made, cannot maintain an action on it. One cannot do so, even if
the contract performed by the contracting parties would
incidentally inure to one's benefit.38 (Underscoring supplied)
In light thereof, petitioner is the real party in interest in this case. The trial
courts findings on the matter were affirmed by the appellate court.39 It
erred, however, in not declaring petitioner as a real party in interest insofar
as recovery of the cost of campaign materials made by petitioners mother
and sister are concerned, upon the wrong notion that they should have
been, but were not, impleaded as plaintiffs.
In sum, respondent has the obligation to pay the total cost of printing his
campaign materials delivered by petitioner in the total of P1,924,906, less
the partial payment of P1,000,000, or P924,906.

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

vs.
HON. COURT OF APPEALS, EDERLINDA M. GALLARDO, DANIEL MANZO and
RUFINO S. AQUINO,respondents.
L.M. Maggay & Associates for petitioner.

GRIO-AQUINO, J.:
This petition for review seeks reversal of the decision dated September 18,
1990 of the Court of Appeals, reversing the decision of the Regional Trial
Court of Makati, Branch 150, which dismissed the private respondents'
complaint and awarded damages to the petitioner, Rural Bank of Bombon.
On January 12, 1981, Ederlinda M. Gallardo, married to Daniel Manzo,
executed a special power of attorney in favor of Rufina S. Aquino
authorizing him:
1. To secure a loan from any bank or lending institution for
any amount or otherwise mortgage the property covered by
Transfer Certificate of Title No. S-79238 situated at Las
Pias, Rizal, the same being my paraphernal property, and
in that connection, to sign, or execute any deed of mortgage
and sign other document requisite and necessary in

securing said loan and to receive the proceeds thereof in

cash or in check and to sign the receipt therefor and
thereafter endorse the check representing the proceeds of
loan. (p. 10, Rollo.)
Thereupon, Gallardo delivered to Aquino both the special power of attorney
and her owner's copy of Transfer Certificate of Title No. S-79238 (19963-A).
On August 26, 1981, a Deed of Real Estate Mortgage was executed by
Rufino S. Aquino in favor of the Rural Bank of Bombon (Camarines Sur), Inc.
(hereafter, defendant Rural Bank) over the three parcels of land covered by
TCT No. S-79238. The deed stated that the property was being given as
security for the payment of "certain loans, advances, or other
accommodations obtained by the mortgagor from the mortgagee in the
total sum of Three Hundred Fifty Thousand Pesos only (P350,000.00), plus
interest at the rate of fourteen (14%) per annum . . ." (p. 11, Rollo).
On January 6, 1984, the spouses Ederlinda Gallardo and Daniel Manzo filed
an action against Rufino Aquino and the Bank because Aquino allegedly left
his residence at San Pascual, Hagonoy, Bulacan, and transferred to an
unknown place in Bicol. She discovered that Aquino first resided at Sta.
Isabel, Calabanga, Camarines Sur, and then later, at San Vicente, Calabanga,
Camarines Sur, and that they (plaintiffs) were allegedly surprised to discover
that the property was mortgaged to pay personal loans obtained by Aquino
from the Bank solely for personal use and benefit of Aquino; that the
mortgagor in the deed was defendant Aquino instead of plaintiff Gallardo
whose address up to now is Manuyo, Las Pias, M.M., per the title (TCT No.
S-79238) and in the deed vesting power of attorney to Aquino; that
correspondence relative to the mortgage was sent to Aquino's address at
"Sta. Isabel, Calabanga, Camarines Sur" instead of Gallardo's postal address
at Las Pias, Metro Manila; and that defendant Aquino, in the real estate
mortgage, appointed defendant Rural Bank as attorney in fact, and in case
of judicial foreclosure as receiver with corresponding power to sell and that
although without any express authority from Gallardo, defendant Aquino
waived Gallardo's rights under Section 12, Rule 39, of the Rules of Court and
the proper venue of the foreclosure suit.
On January 23, 1984, the trial court, thru the Honorable Fernando P.
Agdamag, temporarily restrained the Rural Bank "from enforcing the real

estate mortgage and from foreclosing it either judicially or extrajudicially

until further orders from the court" (p.36, Rollo).
Rufino S. Aquino in his answer said that the plaintiff authorized him to
mortgage her property to a bank so that he could use the proceeds to
liquidate her obligation of P350,000 to him. The obligation to pay the Rural
Bank devolved on Gallardo. Of late, however, she asked him to pay the Bank
but defendant Aquino set terms and conditions which plaintiff did not agree
to. Aquino asked for payment to him of moral damages in the sum of
P50,000 and lawyer's fees of P35,000.
The Bank moved to dismiss the complaint and filed counter-claims for
litigation expenses, exemplary damages, and attorney's fees. It also filed a
crossclaim against Aquino for P350,000 with interest, other bank charges
and damages if the mortgage be declared unauthorized.
Meanwhile, on August 30, 1984, the Bank filed a complaint against
Ederlinda Gallardo and Rufino Aquino for "Foreclosure of Mortgage"
docketed as Civil Case No. 8330 in Branch 141, RTC Makati. On motion of
the plaintiff, the foreclosure case and the annulment case (Civil Case No.
6062) were consolidated.
On January 16, 1986, the trial court rendered a summary judgment in Civil
Case No. 6062, dismissing the complaint for annulment of mortgage and
declaring the Rural Bank entitled to damages the amount of which will be
determined in appropriate proceedings. The court lifted the writ of
preliminary injunction it previously issued.
On April 23, 1986, the trial court, in Civil Case No. 8330, issued an order
suspending the foreclosure proceedings until after the decision in the
annulment case (Civil Case No. 6062) shall have become final and executory.
The plaintiff in Civil Case No. 6062 appealed to the Court of Appeals, which
on September 18, 1990, reversed the trial court. The dispositive portion of
the decision reads:
UPON ALL THESE, the summary judgment entered by the
lower court is hereby REVERSED and in lieu thereof,
judgment is hereby RENDERED, declaring the deed of real

estate mortgage dated August 26, 1981, executed between

Rufino S. Aquino with the marital consent of his wife Bibiana
Aquino with the appellee Rural Bank of Bombon, Camarines
Sur, unauthorized, void and unenforceable against plaintiff
Ederlinda Gallardo; ordering the reinstatement of the
preliminary injunction issued at the onset of the case and at
the same time, ordering said injunction made permanent.
Appellee Rural Bank to pay the costs. (p. 46, Rollo.)
Hence, this petition for review by the Rural Bank of Bombon, Camarines Sur,
alleging that the Court of Appeals erred:
1. in declaring that the Deed of Real Estate Mortgage was
unauthorized, void, and unenforceable against the private
respondent Ederlinda Gallardo; and
2. in not upholding the validity of the Real Estate Mortgage
executed by Rufino S. Aquino as attorney-in-fact for
Gallardo, in favor of the Rural Bank of Bombon, (Cam. Sur),
Inc.
Both assignments of error boil down to the lone issue of the validity of the
Deed of Real Estate Mortgage dated August 26, 1981, executed by Rufino S.
Aquino, as attorney-in-fact of Ederlinda Gallardo, in favor of the Rural Bank
of Bombon (Cam. Sur), Inc.
The Rural Bank contends that the real estate mortgage executed by
respondent Aquino is valid because he was expressly authorized by Gallardo
to mortgage her property under the special power of attorney she made in
his favor which was duly registered and annotated on Gallardo's title. Since
the Special Power of Attorney did not specify or indicate that the loan would
be for Gallardo's benefit, then it could be for the use and benefit of the
attorney-in-fact, Aquino.
However, the Court of Appeals ruled otherwise. It held:
The Special Power of Attorney above quoted shows the
extent of authority given by the plaintiff to defendant

Aquino. But defendant Aquino in executing the deed of Real

Estate Mortgage in favor of the rural bank over the three
parcels of land covered by Gallardo's title named himself as
the mortgagor without stating that his signature on the
deed was for and in behalf of Ederlinda Gallardo in his
capacity as her attorney-in-fact.
At the beginning of the deed mention was made of
"attorney-in-fact of Ederlinda H. Gallardo," thus: " (T)his
MORTGAGE executed by Rufino S. Aquino attorney in fact of
Ederlinda H. Gallardo, of legal age, Filipino, married to
Bibiana Panganiban with postal address at Sta. Isabel . . .,"
but which of itself, was merely descriptive of the person of
defendant Aquino. Defendant Aquino even signed it plainly
as mortgagor with the marital consent yet of his wife
Bibiana P. Aquino who signed the deed as "wife of
mortgagor."
xxx xxx xxx
The three (3) promissory notes respectively dated August
31, 1981, September 23, 1981 and October 26, 1981, were
each signed by Rufino Aquino on top of a line beneath
which is written "signature of mortgagor" and by Bibiana P.
Aquino on top of a line under which is written "signature of
spouse," without any mention that execution thereof was
for and in behalf of the plaintiff as mortgagor. It results,
borne out from what were written on the deed, that the
amounts were the personal loans of defendant Aquino. As
pointed out by the appellant, Aquino's wife has not been
appointed co-agent of defendant Aquino and her signature
on the deed and on the promissory notes can only mean
that the obligation was personally incurred by them and for
their own personal account.
The deed of mortgage stipulated that the amount obtained
from the loans shall be used or applied only for "fishpond
(bangus and sugpo production)." As pointed out by the
plaintiff, the defendant Rural Bank in its Answer had not
categorically denied the allegation in the complaint that

defendant Aquino in the deed of mortgage was the

intended user and beneficiary of the loans and not the
plaintiff. And the special power of attorney could not be
stretched to include the authority to obtain a loan in said
defendant Aquino's own benefit. (pp. 40-41, Rollo.)
The decision of the Court of Appeals is correct. This case is governed by the
general rule in the law of agency which this Court, applied in "Philippine
Sugar Estates Development Co. vs. Poizat," 48 Phil. 536, 538:
It is a general rule in the law of agency that, in order to bind
the principal by a mortgage on real property executed by an
agent, it must upon its face purport to be made, signed and
sealed in the name of the principal, otherwise, it will bind
the agent only. It is not enough merely that the agent was in
fact authorized to make the mortgage, if he has not acted in
the name of the principal. Neither is it ordinarily sufficient
that in the mortgage the agent describes himself as acting
by virtue of a power of attorney, if in fact the agent has
acted in his own name and has set his own hand and seal to
the mortgage. This is especially true where the agent
himself is a party to the instrument. However clearly the
body of the mortgage may show and intend that it shall be
the act of the principal, yet, unless in fact it is executed by
the agent for and on behalf of his principal and as the act
and deed of the principal, it is not valid as to the principal.
In view of this rule, Aquino's act of signing the Deed of Real Estate Mortgage
in his name alone as mortgagor, without any indication that he was signing
for and in behalf of the property owner, Ederlinda Gallardo, bound himself
alone in his personal capacity as a debtor of the petitioner Bank and not as
the agent or attorney-in-fact of Gallardo. The Court of Appeals further
observed:
It will also be observed that the deed of mortgage was
executed on August 26, 1981 therein clearly stipulating that
it was being executed "as security for the payment of
certain loans, advances or other accommodation obtained
by the Mortgagor from the Mortgagee in the total sum of
Three Hundred Fifty Thousand Pesos only (P350,000.00)"

although at the time no such loan or advance had been

obtained. The promissory notes were dated August 31,
September 23 and October 26, 1981 which were
subsequent to the execution of the deed of mortgage. The
appellant is correct in claiming that the defendant Rural
Bank should not have agreed to extend or constitute the
mortgage on the properties of Gallardo who had no existing
indebtedness with it at the time.
Under the facts the defendant Rural Bank appeared to have
ignored the representative capacity of Aquino and dealt
with him and his wife in their personal capacities. Said
appellee Rural Bank also did not conduct an inquiry on
whether the subject loans were to benefit the interest of
the principal (plaintiff Gallardo) rather than that of the
agent although the deed of mortgage was explicit that the
loan was for purpose of the bangus and sugpo production of
defendant Aquino.
In effect, with the execution of the mortgage under the
circumstances and assuming it to be valid but because the
loan taken was to be used exclusively for Aquino's business
in the "bangus" and "sugpo" production, Gallardo in effect
becomes a surety who is made primarily answerable for
loans taken by Aquino in his personal capacity in the event
Aquino defaults in such payment. Under Art. 1878 of the
Civil Code, to obligate the principal as a guarantor or surety,
a special power of attorney is required. No such special
power of attorney for Gallardo to be a surety of Aquino had
been executed. (pp. 42-43, Rollo.)
Petitioner claims that the Deed of Real Estate Mortgage is enforceable
against Gallardo since it was executed in accordance with Article 1883 which
provides:
Art. 1883. If an agent acts in his own name, the principal has
no right of action against the persons with whom the agent
has contracted; neither have such persons against the
principal.

In such case the agent is the one directly bound in favor of

the person with whom he has contracted, as if the
transaction were his own, except when the contract
involves things belonging to the principal.
The above provision of the Civil Code relied upon by the petitioner Bank, is
not applicable to the case at bar. Herein respondent Aquino acted
purportedly as an agent of Gallardo, but actually acted in his personal
capacity. Involved herein are properties titled in the name of respondent
Gallardo against which the Bank proposes to foreclose the mortgage
constituted by an agent (Aquino) acting in his personal capacity. Under
these circumstances, we hold, as we did in Philippine Sugar Estates
Development Co. vs. Poizat, supra, that Gallardo's property is not liable on
the real estate mortgage:
There is no principle of law by which a person can become
liable on a real mortgage which she never executed either in
person or by attorney in fact. It should be noted that this is
a mortgage upon real property, the title to which cannot be
divested except by sale on execution or the formalities of a
will or deed. For such reasons, the law requires that a
power of attorney to mortgage or sell real property should
be executed with all of the formalities required in a deed.
For the same reason that the personal signature of Poizat,
standing alone, would not convey the title of his wife in her
own real property, such a signature would not bind her as a
mortgagor in real property, the title to which was in her
name. (p. 548.)
WHEREFORE, finding no reversible error in the decision of the Court of
Appeals, we AFFIRM it in toto. Costs against the petitioner.
SO ORDERED.