Article 1869

1.) 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 CA-G.R. CR No. 10290, entitled People v. Rosa Lim, promulgated on August
30, 1991.
On January 26, 1989, an Information for Estafa was filed against petitioner Rosa Lim before Branch 92 of the Regional Trial Court of Quezon
City.i[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.ii[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.iii[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.iv[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:

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 CROSS-EXAMINED 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)v[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 Avi[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 lettervii[7] to petitioner asking for the return of said
ring or the proceeds of the sale thereof. In response, petitioner, thru counsel, wrote a letterviii[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.ix[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.x[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.xi[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.xii[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.xiii[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.xiv[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.xv[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.xvi[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.xvii[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.xviii[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).xix[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.

2.) 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).xx[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.xxi[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].xxii[3]

On June 13, 2000,xxiii[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.xxiv[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.xxv[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.xxvi[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.xxvii[8] Appended as Annex
A to petitioners Reply is an Affidavitxxviii[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 2xxix[10] and 10,xxx[11] Rule 13 of the Rules of Court. To support this contention, petitioner cites Philippine
Long Distance Telephone Co. vs. NLRC.xxxi[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.xxxii[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.xxxiii[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,xxxiv[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 Appealsxxxv[16]
involved a delay of six days; Siguenza vs. Court of Appeals,xxxvi[17] thirteen days; Pacific Asia Overseas Shipping Corporation vs.
NLRC,xxxvii[18] one day; Cortes vs. Court of Appeals,xxxviii[19] seven days; Olacao vs. NLRC,xxxix[20] two days; Legasto vs. Court of
Appeals,xl[21] two days; and City Fair Corporation vs. NLRC,xli[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.

3.) DOMINGA CONDE, petitioner, vs. THE HONORABLE COURT OF APPEALS,.

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 parents-
in-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.

Villoria vs Continanental Airlines

DECISION

REYES, J.

This is a petition for review under Rule 45 of the Rules of Court from the January 30, 2009 Decision 1 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 attorney’s fees and costs of suit to
plaintiffs-appellees is hereby REVERSED and SET ASIDE.

Defendant-appellant’s counterclaim is DENIED.

Costs against plaintiffs-appellees.

SO ORDERED.

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 Fernando’s 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 Continental’s 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 CAI’s 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 attorney’s fees.7

CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a refund as the subject tickets are non-refundable;
(b) Fernando cannot insist on using the ticket in Lourdes’ name for the purchase of a round trip ticket to Los Angeles since the same is non-
transferable; (c) as Mager is not a CAI employee, CAI is not liable for any of her acts; (d) CAI, its employees and agents did not act in bad faith
as to entitle Spouses Viloria to moral and exemplary damages and attorney’s 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) carrier’s 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 RTC’s 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 Mager’s 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 defendant’s 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. Mager’s misleading misrepresentations. Continental Airlines agent Ms. Mager further relied on and exploited
plaintiff Fernando’s need and told him that they must book a flight immediately or risk not being able to travel at all on the
couple’s preferred date. Unfortunately, plaintiffs spouses fell prey to the airline’s and its agent’s unethical tactics for
baiting trusting customers.”10

Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAI’s 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 CAI’s agent in view of CAI’s 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 Court’s Ruling

On appeal, the CA reversed the RTC’s April 3, 2006 Decision, holding that CAI cannot be held liable for Mager’s 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 CAI’s agent. Furthermore,
contrary to Spouses Viloria’s claim, the contractual relationship between Holiday Travel and CAI is not an agency but that of a sale.
 Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who was in turn a ticketing agent of
Holiday Travel who was in turn a ticketing agent of Continental Airlines. Proceeding from this premise, they contend that
Continental Airlines should be held liable for the acts of Mager. The trial court held the same view.

We do not agree. By the contract of agency, a person binds him/herself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter. The elements of agency are:
(1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in
relation to a third person; (3) the agent acts as a representative and not for him/herself; and (4) the agent acts within the
scope of his/her authority. As the basis of agency is representation, there must be, on the part of the principal, an actual
intention to appoint, an intention naturally inferable from the principal’s 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 CAI’s 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-à-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 latter’s reversal of the RTC’s 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 CAI’s 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 CAI’s 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 CAI’s alleged breach of its
undertaking in its March 24, 1998 letter.

The Respondent’s Case

In its Comment, CAI claimed that Spouses Viloria’s 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 Viloria’s 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 Viloria’s claim that they are not aware of CAI’s 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 CA’s 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
Travel’s agents and employees such as Mager?

c. Assuming that CAI is bound by the acts of Holiday Travel’s 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 non-transferable 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 Court’s 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 CA’s 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 CAI’s 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 CAI’s 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 Viloria’s 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 Travel’s 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 CAI’s acts in recognition of Holiday Travel’s 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 principal’s 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 agent’s 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 CAI’s agent, does it necessarily follow that CAI is liable for the fault or negligence of Holiday
Travel’s 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 Court’s pronouncements in China Air Lines will reveal that an airline company is not completely exonerated
from any liability for the tort committed by its agent’s employees. A prior determination of the nature of the passenger’s cause of action is
necessary. If the passenger’s cause of action against the airline company is premised on culpa aquiliana or quasi-delict for a tort committed by
the employee of the airline company’s 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
company’s 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 agent’s 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 agent’s employees. Article 2180 of the Civil Code does not make the principal vicariously liable for the tort
committed by its agent’s employees and the principal-agency relationship per se does not make the principal a party to such tort; hence, the need
to prove the principal’s own fault or negligence.

On the other hand, if the passenger’s 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 company’s 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 Viloria’s cause of action on the basis of Mager’s 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 CAI’s alleged liability can be substantiated. Apart from their claim that
CAI must be held liable for Mager’s supposed fraud because Holiday Travel is CAI’s agent, Spouses Viloria did not present evidence that CAI
was a party or had contributed to Mager’s 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 CAI’s behalf, in order to deny Spouses Viloria’s request for a refund or Fernando’s use of Lourdes’ ticket
for the re-issuance of a new one, and simultaneously claim that they are not bound by Mager’s supposed misrepresentation for purposes of
avoiding Spouses Viloria’s 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 Mager’s acts, which were performed in compliance with Holiday Travel’s obligations as CAI’s agent.

However, a person’s vicarious liability is anchored on his possession of control, whether absolute or limited, on the tortfeasor.
Without such control, there is nothing which could justify extending the liability to a person other than the one who committed the tort. As this
Court explained in Cangco v. Manila Railroad Co.:25

With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is competent for
the legislature to elect — and our Legislature has so elected — to limit such liability to cases in which the person upon
whom such an obligation is imposed is morally culpable or, on the contrary, for reasons of public policy, to extend that
liability, without regard to the lack of moral culpability, so as to include responsibility for the negligence of those
persons whose acts or omissions are imputable, by a legal fiction, to others who are in a position to exercise an
absolute or limited control over them. The legislature which adopted our Civil Code has elected to limit extra-contractual
liability — with certain well-defined exceptions — to cases in which moral culpability can be directly imputed to the
persons to be charged. This moral responsibility may consist in having failed to exercise due care in one's own acts, or in
having failed to exercise due care in the selection and control of one's agent or servants, or in the control of persons who,
by reasons of their status, occupy a position of dependency with respect to the person made liable for their conduct. 26
(emphasis supplied)

It is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over Mager by preponderant evidence. The
existence of control or supervision cannot be presumed and CAI is under no obligation to prove its denial or nugatory assertion. Citing Belen v.
Belen,27 this Court ruled in Jayme v. Apostol,28 that:

In Belen v. Belen, this Court ruled that it was enough for defendant to deny an alleged employment relationship. The
defendant is under no obligation to prove the negative averment. This Court said:

“It is an old and well-settled rule of the courts that the burden of proving the action is
upon the plaintiff, and that if he fails satisfactorily to show the facts upon which he bases his claim,
the defendant is under no obligation to prove his exceptions. This [rule] is in harmony with the
provisions of Section 297 of the Code of Civil Procedure holding that each party must prove his own
affirmative allegations, etc.”29 (citations omitted)

Therefore, without a modicum of evidence that CAI exercised control over Holiday Travel’s employees or that CAI was equally at fault, no
liability can be imposed on CAI for Mager’s 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.
Mager’s 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 Fernando’s 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 Mager’s 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 Mager’s 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 Mager’s alleged fraud, which is Fernando’s 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 Mager’s 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 Fernando’s vitiated consent, Spouses Viloria likewise asked for a
refund based on CAI’s 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 defendant’s 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 party’s 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 CAI’s 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 Fernando’s 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 CAI’s 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 CAI’s 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) carrier’s 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 Fernando’s purchase of a new ticket.

CAI’s 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 CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as payment for the purchase of a new ticket is unjustified as
the non-transferability of the subject tickets was not clearly stipulated, it cannot, however be considered substantial. The endorsability of the
subject tickets is not an essential part of the underlying contracts and CAI’s failure to comply is not essential to its fulfillment of its undertaking
to issue new tickets upon Spouses Viloria’s surrender of the subject tickets. This Court takes note of CAI’s willingness to perform its principal
obligation and this is to apply the price of the ticket in Fernando’s 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, CAI’s 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 Viloria’s demand for rescission cannot prosper as CAI cannot be solely faulted for the fact that their agreement
failed to consummate and no new ticket was issued to Fernando. Spouses Viloria have no right to insist that a single round trip ticket between
Manila and Los Angeles should be priced at around $856.00 and refuse to pay the difference between the price of the subject tickets and the
amount fixed by CAI. The petitioners failed to allege, much less prove, that CAI had obliged itself to issue to them tickets for any flight anywhere
in the world upon their surrender of the subject tickets. In its March 24, 1998 letter, it was clearly stated that “[n]on-refundable tickets may be
used as a form of payment toward the purchase of another Continental ticket” 42 and there is nothing in it suggesting that CAI had obliged itself to
protect Spouses Viloria from any fluctuation in the prices of tickets or that the surrender of the subject tickets will be considered as full payment
for any ticket that the petitioners intend to buy regardless of actual price and destination. The CA was correct in holding that it is CAI’s right and
exclusive prerogative to fix the prices for its services and it may not be compelled to observe and maintain the prices of other airline companies.43

The conflict as to the endorsability of the subject tickets is an altogether different matter, which does not preclude CAI from fixing the
price of a round trip ticket between Manila and Los Angeles in an amount it deems proper and which does not provide Spouses Viloria an excuse
not to pay such price, albeit subject to a reduction coming from the value of the subject tickets. It cannot be denied that Spouses Viloria had the
concomitant obligation to pay whatever is not covered by the value of the subject tickets whether or not the subject tickets are transferable or not.

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

[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)

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)

Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the purchase of Fernando’s round trip ticket is offset
by Spouses Viloria’s liability for their refusal to pay the amount, which is not covered by the subject tickets. Moreover, the contract between
them remains, hence, CAI is duty bound to issue new tickets for a destination chosen by Spouses Viloria upon their surrender of the subject
tickets and Spouses Viloria are obliged to pay whatever amount is not covered by the value of the subject tickets.

This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals.46 Thus:

Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island
Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply
with his obligation to pay his 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.48 The award of exemplary damages is likewise not warranted. Apart
from the requirement that the defendant acted in a wanton, oppressive and malevolent manner, the claimant must prove his entitlement to moral
damages.49

WHEREFORE, premises considered, the instant Petition is DENIED.

 SO ORDERED.

Article 1873

1.) CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA QUEAÑO, respondents.

DECISION

TINGA, J.:

Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of the Sixteenth Division of the respondent Court of
Appeals promulgated on 21 December 19941 , which affirmed in toto the decision handed down by the Regional Trial Court (RTC) of Pasay
City.2

The case arose when on 11 August 1981, private respondent Aurora Queaño (Queaño) 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.1ªvvphi1.nét

The operative facts follow:

Queaño applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos (₱200,000.00), which Naguiat granted. On 11 August
1980, Naguiat indorsed to Queaño Associated Bank Check No. 090990 (dated 11 August 1980) for the amount of Ninety Five Thousand Pesos
(₱95,000.00), 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 Queaño, also dated 11 August 1980 and for the amount of Ninety Five Thousand Pesos (₱95,000.00). The
proceeds of these checks were to constitute the loan granted by Naguiat to Queaño.3

To secure the loan, Queaño executed a Deed of Real Estate Mortgage dated 11 August 1980 in favor of Naguiat, and surrendered to the latter the
owner’s duplicates of the titles covering the mortgaged properties.4 On the same day, the mortgage deed was notarized, and Queaño issued to
Naguiat a promissory note for the amount of TWO HUNDRED THOUSAND PESOS (₱200,000.00), with interest at 12% per annum, payable on
11 September 1980.5 Queaño also issued a Security Bank and Trust Company check, postdated 11 September 1980, for the amount of TWO
HUNDRED THOUSAND PESOS (₱200,000.00) 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, Queaño 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, Queaño received a letter from Naguiat’s lawyer, demanding settlement of the loan. Shortly thereafter, Queaño and one
Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the meeting, Queaño told Naguiat that she did not receive the proceeds of the loan, adding
that the checks were retained by Ruebenfeldt, who purportedly was Naguiat’s 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, Queaño 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
Queaño the owner’s 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 Queaño 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 raised12 as the Supreme
Court is not a trier of facts.13 The resolution of factual issues is the function of lower courts, whose findings on these matters are received with
respect and are in fact generally binding on the Supreme Court.14 A question of law which the Court may pass upon must not involve an
examination of the probative value of the evidence presented by the litigants.15 There is a question of law in a given case when the doubt or
difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or the
falsehood of alleged facts.16

Surely, there are established exceptions to the rule on the conclusiveness of the findings of facts of the lower courts.17 But Naguiat’s 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 Queaño 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 Queaño 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
Queaño’s account.1awphi1.nét

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
Queaño the checks she issued or indorsed to Queaño, pending delivery by the latter of additional collateral. Ruebenfeldt served as agent of
Naguiat on the loan application of Queaño’s friend, Marilou Farralese, and it was in connection with that transaction that Queaño came to know
Naguiat.23 It was also Ruebenfeldt who accompanied Queaño in her meeting with Naguiat and on that occasion, on her own and without Queaño
asking for it, Reubenfeldt actually drew a check for the sum of ₱220,000.00 payable to Naguiat, to cover for Queaño’s alleged liability to Naguiat
under the loan agreement.24

The Court of Appeals recognized the existence of an "agency by estoppel25 citing Article 1873 of the Civil Code.26 Apparently, it considered
that at the very least, as a consequence of the interaction between Naguiat and Ruebenfeldt, Queaño got the impression that Ruebenfeldt was the
agent of Naguiat, but Naguiat did nothing to correct Queaño’s impression. In that situation, the rule is clear. One who clothes another with
apparent authority as his agent, and holds him out to the public as such, cannot be permitted to deny the authority of such person to act as his
agent, to the prejudice of innocent third parties dealing with such person in good faith, and in the honest belief that he is what he appears to be.27
The Court of Appeals is correct in invoking the said rule on agency by estoppel.1awphi1.nét

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 Queaño 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.

2.) YUN KWAN BYUNG, Petitioner, vs.PHILIPPINE AMUSEMENT AND GAMING CORPORATION, Respondent.
 DECISION

CARPIO, J.:

The Case

Yun Kwan Byung (petitioner) filed this Petition for Review1 assailing the Court of Appeals’ Decision2 dated 27 May 2003 in CA-G.R. CV No.
65699 as well as the Resolution3 dated 7 May 2004 denying the Motion for Reconsideration. In the assailed decision, the Court of Appeals (CA)
affirmed the Regional Trial Court’s Decision4 dated 6 May 1999. The Regional Trial Court of Manila, Branch 13 (trial court), dismissed
petitioner’s 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 PAGCOR’s 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 Hotel’s 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 PAGCOR’s casino treasury. 10

As additional information for the junket players playing in the gaming room leased to ABS Corporation, PAGCOR posted a notice written in
English and Korean languages which reads:

NOTICE
This GAMING ROOM is exclusively operated by ABS under arrangement with PAGCOR, the former is solely accountable for all PLAYING
CHIPS wagered on the tables. Any financial ARRANGEMENT/TRANSACTION between PLAYERS and ABS shall only be binding upon said
PLAYERS and ABS.11

PAGCOR claims that this notice is a standard precautionary measure12 to avoid confusion between junket players of ABS Corporation and
PAGCOR’s players.

PAGCOR argues that petitioner is not a PAGCOR player because under PAGCOR’s 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 PAGCOR’s
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 court’s 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 CA’s decision and resolution, petitioner elevated the case before this Court.

The Ruling of the Trial Court

The trial court ruled that based on PAGCOR’s 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 PAGCOR’s 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
PAGCOR’s charter. Hence, the Junket Agreement is void. Since the Junket Agreement is not permitted by PAGCOR’s 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 petitioner’s complaint, the trial court concluded that petitioner’s 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 petitioner’s theory. Petitioner’s 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 PAGCOR’s 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 petitioner’s view. A void contract has no force and effect from the very beginning. It produces no effect either against or
in favor of anyone. Neither can it create, modify or extinguish the juridical relation to which it refers. Necessarily, the Junket Agreement, being
void from the beginning, cannot give rise to an implied agency. The CA explained that it cannot see how the principle of implied agency can be
applied to this case. Article 188326 of the Civil Code applies only to a situation where the agent is authorized by the principal to enter into a
particular transaction, but instead of contracting on behalf of the principal, the agent acts in his own name.27

The CA concluded that no such legal fiction existed between PAGCOR and ABS Corporation. PAGCOR entered into a Junket Agreement to
lease to ABS Corporation certain gaming areas. It was never PAGCOR’s intention to deal with the junket players. Neither did PAGCOR intend
ABS Corporation to represent PAGCOR in dealing with the junket players. Representation is the basis of agency but unfortunately for petitioner
none is found in this case.28

The CA added that the special gaming chips, while belonging to PAGCOR, are mere accessories in the void Junket Agreement with ABS
Corporation. In Article 1883, the phrase "things belonging to the principal" refers only to those things or properties subject of a particular
transaction authorized by the principal to be entered into by its purported agent. Necessarily, the gambling chips being mere incidents to the void
lease agreement cannot fall under this category.29

The CA ruled that Article 215230 of the Civil Code is also not applicable. The circumstances relating to negotiorum gestio are non-existent to
warrant an officious manager to take over the management and administration of PAGCOR.31

Fourth, petitioner asks for equitable relief.32

The CA explained that although petitioner was never a party to the void Junket Agreement, petitioner cannot deny or feign blindness to the signs
and warnings all around him. The notices, the special gambling chips, and the separate gaming areas were more than enough to alert him that he
was playing under different terms. Petitioner persisted and continued to play in the casino. Petitioner also enjoyed the perks extended to junket
players of ABS Corporation. For failing to heed these signs and warnings, petitioner can no longer be permitted to claim equitable relief. When
parties do not come to court with clean hands, they cannot be allowed to profit from their own wrong doing. 33

The Issues

Petitioners raise three issues in this petition:

1. Whether the CA erred in holding that PAGCOR is not liable to petitioner, disregarding the doctrine of implied agency, or agency by
estoppel;

2. Whether the CA erred in using intent of the contracting parties as the test for creation of agency, when such is not relevant since the
instant case involves liability of the presumed principal in implied agency to a third party; and

3. Whether the CA erred in failing to consider that PAGCOR ratified, or at least adopted, the acts of the agent, ABS Corporation. 34

The Ruling of the Court

The petition lacks merit.

Courts will not enforce debts arising from illegal gambling

Gambling is prohibited by the laws of the Philippines as specifically provided in Articles 195 to 199 of the Revised Penal Code, as amended.
Gambling is an act beyond the pale of good morals,35 and is thus prohibited and punished to repress an evil that undermines the social, moral, and
economic growth of the nation.36 Presidential Decree No. 1602 (PD 1602),37 which modified Articles 195-199 of the Revised Penal Code and
repealed inconsistent provisions,38 prescribed stiffer penalties on illegal gambling.39

As a rule, all forms of gambling are illegal. The only form of gambling allowed by law is that stipulated under Presidential Decree No. 1869,
which gave PAGCOR its franchise to maintain and operate gambling casinos. The issue then turns on whether PAGCOR can validly share its
franchise with junket operators to operate gambling casinos in the country. Section 3(h) of PAGCOR’s 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 PAGCOR’s 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 PAGCOR’s 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
operator’s 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 PAGCOR’s charter and is therefore
void.

Since the Junket Agreement violates PAGCOR’s charter, gambling between the junket player and the junket operator under such agreement is
illegal and may not be enforced by the courts. Article 201442 of the Civil Code, which refers to illegal gambling, states that no action can be
maintained by the winner for the collection of what he has won in a game of chance.

Although not raised as an issue by petitioner, we deem it necessary to discuss the applicability of Republic Act No. 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 Presidential Decree No. 1869 otherwise
known as the PAGCOR Charter, is hereby further amended to read as follows:

xxx

(2) Section 3(h) is hereby amended to read as follows:

"SEC. 3. Corporate Powers. -

"x x x

"(h) to enter into, make, conclude, perform, and carry out contracts of every kind and nature and for any lawful purpose which are necessary,
appropriate, proper or incidental to any business or purpose of the PAGCOR, including but not limited to investment agreements, joint venture
agreements, management agreements, agency agreements, whether as principal or as an agent, manpower supply agreements, or any other similar
agreements or arrangements with any person, firm, association or corporation." (Boldfacing supplied)

PAGCOR sought the amendment of its charter precisely to address and remedy the legal impediment raised in Senator Jaworski v. Phil.
Amusement and Gaming Corp.

Unfortunately for petitioner, RA 9487 cannot be applied to the present case. The Junket Agreement was entered into between PAGCOR and ABS
Corporation on 25 April 1996 when the PAGCOR charter then prevailing (PD 1869) prohibited PAGCOR from entering into any arrangement
with a third party that would allow such party to actively participate in the casino operations.

It is a basic principle that laws should only be applied prospectively unless the legislative intent to give them retroactive effect is expressly
declared or is necessarily implied from the language used.44 RA 9487 does not provide for any retroactivity of its provisions. All laws operate
prospectively absent a clear contrary language in the text,45 and that in every case of doubt, the doubt will be resolved against the retroactive
operation of laws.46
Thus, petitioner cannot avail of the provisions of RA 9487 as this was not the law when the acts giving rise to the claimed liabilities took place.
This makes the gambling activity participated in by petitioner illegal. Petitioner cannot sue PAGCOR to redeem the cash value of the gambling
chips or recover damages arising from an illegal activity for two reasons. First, petitioner engaged in gambling with ABS Corporation and not
with PAGCOR. Second, the court cannot assist petitioner in enforcing an illegal act. Moreover, for a court to grant petitioner’s prayer would
mean enforcing the Junket Agreement, which is void.

Now, to address the issues raised by petitioner in his petition, petitioner claims that he is a third party proceeding against the liability of a
presumed principal and claims relief, alternatively, on the basis of implied agency or agency by estoppel.

Article 1869 of the Civil Code states that implied agency is derived from the acts of the principal, from his silence or lack of action, or his failure
to repudiate the agency, knowing that another person is acting on his behalf without authority. Implied agency, being an actual agency, is a fact to
be proved by deductions or inferences from other facts.47

On the other hand, apparent authority is based on estoppel and can arise from two instances. First, the principal may knowingly permit the agent
to hold himself out as having such authority, and the principal becomes estopped to claim that the agent does not have such authority. Second, the
principal may clothe the agent with the indicia of authority as to lead a reasonably prudent person to believe that the agent actually has such
authority.48 In an agency by estoppel, there is no agency at all, but the one assuming to act as agent has apparent or ostensible, although not real,
authority to represent another.49

The law makes no presumption of agency and proving its existence, nature and extent is incumbent upon the person alleging it. 50 Whether or not
an agency has been created is a question to be determined by the fact that one represents and is acting for another. 51

Acts and conduct of PAGCOR negates the existence of an implied agency or an agency by estoppel

Petitioner alleges that there is an implied agency. Alternatively, petitioner claims that even assuming that no actual agency existed between
PAGCOR and ABS Corporation, there is still an agency by estoppel based on the acts and conduct of PAGCOR showing apparent authority in
favor of ABS Corporation. Petitioner states that one factor which distinguishes agency from other legal precepts is control and the following
undisputed facts show a relationship of implied agency:

1. Three floors of the Grand Boulevard Hotel52 were leased to PAGCOR for conducting gambling operations;53

2. Of the three floors, PAGCOR allowed ABS Corporation to use one whole floor for foreign exchange gambling, conducted by
PAGCOR dealers using PAGCOR facilities, operated by PAGCOR employees and using PAGCOR chips bearing the PAGCOR
logo;54

3. PAGCOR controlled the release, withdrawal and return of all the gambling chips given to ABS Corporation in that part of the
casino and at the end of the day, PAGCOR conducted an inventory of the gambling chips; 55

4. ABS Corporation accounted for all gambling chips with the Commission on Audit (COA), the official auditor of PAGCOR; 56

5. PAGCOR enforced, through its own manager, all the rules and regulations on the operation of the gambling pit used by ABS
Corporation.57

Petitioner’s 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. PAGCOR’s actions
did not mislead the public into believing that an agency can be implied from the arrangement with the junket operators, nor did it hold out ABS
Corporation with any apparent authority to represent it in any capacity. The Junket Agreement was merely a contract of lease of facilities and
services.

The players brought in by ABS Corporation were covered by a different set of rules in acquiring and encashing chips. The players used a
different kind of chip than what was used in the regular gaming areas of PAGCOR, and that such junket players played specifically only in the
third floor area and did not mingle with the regular patrons of PAGCOR. Furthermore, PAGCOR, in posting notices stating that the players are
playing under special rules, exercised the necessary precaution to warn the gaming public that no agency relationship exists.1avvphi1

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

1.) Pahud et al vs CA

DECISION

NACHURA, J.:

For our resolution is a petition for review on certiorari assailing the April 23, 2003 Decision 1 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 Baños, 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 Shares 5 conveying in favor of petitioners (the
Pahuds, for brevity) their respective shares from the lot they inherited from their deceased parents for ₱525,000.00. 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 ₱35,792.31 to the Los Baños Rural Bank where the subject property was mortgaged. 10 The bank issued a
release of mortgage and turned over the owner’s copy of the OCT to the Pahuds.11 Over the following months, the Pahuds made more payments
to Eufemia and her siblings totaling to ₱350,000.00.12 They agreed to use the remaining ₱87,500.0013 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, Virgilio’s 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 Agreement 17 was signed with seven (7) of the co-heirs
agreeing to sell their undivided shares to Virgilio for ₱700,000.00. 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 ₱700,000.00 from Virgilio. 19 Virgilio then sold the entire property to spouses
Isagani Belarmino and Leticia Ocampo (Belarminos) sometime in 1994. The Belarminos immediately constructed a building on the subject
property.

Alarmed and bewildered by the ongoing construction on the lot they purchased, the Pahuds immediately confronted Eufemia who confirmed to
them that Virgilio had sold the property to the Belarminos.20 Aggrieved, the Pahuds filed a complaint in intervention21 in the pending case for
judicial partition.1avvphil

After trial, the RTC upheld the validity of the sale to petitioners. The dispositive portion of the decision reads:

WHEREFORE, the foregoing considered, the Court orders:

1. the sale of the 7/8 portion of the property covered by OCT No. O (1655) O-15 by the plaintiffs as heirs of deceased Sps. Pedro San
Agustin and Agatona Genil in favor of the Intervenors-Third Party plaintiffs as valid and enforceable, but obligating the Intervenors-
Third Party plaintiffs to complete the payment of the purchase price of ₱437,500.00 by paying the balance of ₱87,500.00 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
co-heirs, namely: Milagros, Minerva, and Zenaida, executed their respective special power of attorneys29 authorizing Eufemia to represent them
in the sale of their shares in the subject property.30

While the sale with respect to the 3/8 portion is void by express provision of law and not susceptible to ratification, 31 we nevertheless uphold its
validity on the basis of the common law principle of estoppel.

Article 1431 of the Civil Code provides:

Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved
as against the person relying thereon.

True, at the time of the sale to the Pahuds, Eufemia was not armed with the requisite special power of attorney to dispose of the 3/8 portion of the
property. Initially, in their answer to the complaint in intervention,32 Eufemia and her other co-heirs denied having sold their shares to the Pahuds.
During the pre-trial conference, however, they admitted that they had indeed sold 7/8 of the property to the Pahuds sometime in 1992. 33 Thus, the
previous denial was superseded, if not accordingly amended, by their subsequent admission.34 Moreover, in their Comment,35 the said 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 sister’s 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 latter’s 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 vendor’s 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.

2.) AF Realty vs Dieselman

SANDOVAL-GUTIERREZ, J.:

Petition for review on certiorari assailing the Decision dated December 10, 1992 and the Resolution (Amending Decision) dated August 5, 1993
of the Court of Appeals in CA-G.R. CV No. 30133.

Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation and a registered owner of a parcel of commercial lot consisting
of 2,094 square meters, located at 104 E. Rodriguez Avenue, Barrio Ugong, Pasig City, Metro Manila. The property is covered by Transfer
Certificate of Title No. 39849 issued by the Registry of Deeds of the Province of Rizal.1

On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman, issued a letter denominated as "Authority To Sell Real
Estate"2 to Cristeta N. Polintan, a real estate broker of the CNP Real Estate Brokerage. Cruz, Jr. authorized Polintan "to look for a buyer/buyers
and negotiate the sale" of the lot at P3,000.00 per square meter, or a total of P6,282,000.00. Cruz, Jr. has no written authority from Dieselman to
sell the lot.

In turn, Cristeta Polintan, through a letter3 dated May 19, 1988, authorized Felicisima ("Mimi") Noble4 to sell the same lot.
Felicisima Noble then offered for sale the property to AF Realty & Development, Inc. (AF Realty) at P2,500.00 per square meter.5 Zenaida
Ranullo, board member and vice-president of AF Realty, accepted the offer and issued a check in the amount of P300,000.00 payable to the order
of Dieselman. Polintan received the check and signed an "Acknowledgement Receipt"6 indicating that the amount of P300,000.00 represents the
partial payment of the property but 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 at P4,000.00 per square meter.8 AF Realty replied that it has paid an initial down payment of P300,000.00 and is
willing to pay the balance.9

However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF Realty the return of the title of the lot earlier delivered
by Polintan.10

Claiming that there was a perfected contract of sale between them, AF Realty filed with the Regional Trial Court, Branch 160, Pasig City a
complaint for specific performance (Civil Case No. 56278) against Dieselman and Cruz, Jr.. The complaint prays that Dieselman be ordered to
execute and deliver a final deed of sale in favor of AF Realty.11 In its amended complaint,12 AF Realty asked for payment of P1,500,000.00 as
compensatory damages; P400,000.00 as attorney's fees; and P500,000.00 as exemplary damages.

In its answer, Dieselman alleged that there was no meeting of the minds between the parties in the sale of the property and that it did not
authorize any person to enter into such transaction on its behalf.

Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation (Midas) executed a Deed of Absolute Sale13 of the same
property. The agreed price was P2,800.00 per square meter. Midas delivered to Dieselman P500,000.00 as down payment and deposited the
balance of P5,300,000.00 in escrow account with the PCIBank.

Constrained to protect its interest in the property, Midas filed on April 3, 1989 a Motion for Leave to Intervene in Civil Case No. 56278. Midas
alleged that it has purchased the property and took possession thereof, hence Dieselman cannot be compelled to sell and convey it to AF Realty.
The trial court granted Midas' motion.

After trial, the lower court rendered the challenged Decision holding that the acts of Cruz, Jr. bound Dieselman in the sale of the lot to AF
Realty.14 Consequently, the perfected contract of sale between Dieselman and AF Realty bars Midas' intervention. The trial court also held that
Midas acted in bad faith when it initially paid Dieselman P500,000.00 even without seeing the latter's title to the property. Moreover, the notarial
report of the sale was not submitted to the Clerk of Court of the Quezon City RTC and the balance of P5,300,000.00 purportedly deposited in
escrow by Midas with a bank was not established.1âwphi1.nêt

The dispositive portion of the trial court's Decision reads:

"WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendant to execute and deliver to plaintiffs the final
deed of sale of the property covered by the Transfer Certificate of Title No. 39849 of the Registry of Deed of Rizal, Metro Manila
District II, including the improvements thereon, and ordering defendants to pay plaintiffs attorney's fees in the amount of P50,000.00
and to pay the costs.

"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 attorney's fees awarded therein, plus the amount of P300,000.00
unless, in the case of the said P300,000.00, the same is still deposited with the Court which should be restituted to plaintiffs.

"SO ORDERED."17

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 Polintan's purported
authority, for it is a legal truism in our jurisdiction that a spring cannot rise higher than its source. Succinctly stated, the alleged sale of
the subject property was effected through persons who were absolutely without any authority whatsoever from Dieselman.

"The argument that Dieselman ratified the contract by accepting the P300,000.00 as partial payment of the purchase price of the
subject property is equally untenable. The sale of land through an agent without any written authority is void.

xxx xxx xxx

"On the contrary, anent the sale of the subject property by Dieselman to intervenor Midas, the records bear out that Midas purchased
the same from Dieselman on 30 July 1988. The notice of lis pendens was subsequently annotated on the title of the property by
plaintiffs on 15 August 1988. However, this subsequent annotation of the notice of lis pendens certainly operated prospectively and
did not retroact to make the previous sale of the property to Midas a conveyance in bad faith. A subsequently registered notice of lis
pendens surely is not proof of bad faith. It must therefore be borne in mind that the 30 July 1988 deed of sale between Midas and
Dieselman is a document duly certified by notary public under his hand and seal. x x x. Such a deed of sale being public document
acknowledged before a notary public is admissible as to the date and fact of its execution without further proof of its due execution
and delivery (Bael vs. Intermediate Appellate Court, 169 SCRA617; Joson vs. Baltazar, 194 SCRA 114) and to prove the defects and
lack of consent in the execution thereof, the evidence must be strong and not merely preponderant x x x."18

We agree with the Court of Appeals.

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors.
Just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate
some of its functions to individual officers or agents appointed by it.19 Thus, contracts or acts of a corporation must be made either by the board
of directors or by a corporate agent duly authorized by the board.20 Absent such valid delegation/authorization, the rule is that the declarations of
an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of
such director, are held not binding on the corporation.21

In the instant case, it is undisputed that respondent Cruz, Jr. has no written authority from the board of directors of respondent Dieselman to sell
or to negotiate the sale of the lot, much less to appoint other persons for the same purpose. Respondent Cruz, Jr.'s lack of such authority precludes
him from conferring any authority to Polintan involving the subject realty. Necessarily, neither could Polintan authorize Felicisima Noble.
Clearly, the collective acts of respondent Cruz, Jr., Polintan and Noble cannot bind Dieselman in the purported contract of sale.

Petitioner AF Realty maintains that the sale of land by an unauthorized agent may be ratified where, as here, there is acceptance of the benefits
involved. In this case the receipt by respondent Cruz, Jr. from AF Realty of the P300,000.00 as partial payment of the lot effectively binds
respondent Dieselman.22

We are not persuaded.

Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil Code takes precedence. This is well stressed in
Yao Ka Sin Trading vs. Court of Appeals:23

"Since a corporation, such as the private respondent, can act only through its officers and agents, all acts within the powers of said
corporation may be performed by agents of its selection; and, except so far as limitations or restrictions may be imposed by special
charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural
person govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the
corporation; and agents when once appointed, or members acting in their stead, are subject to the same rules, liabilities, and
incapacities as are agents of individuals and private persons." (Emphasis supplied)

Pertinently, Article 1874 of the same Code provides:

"ART. 1874. When a sale of piece of land or any interest therein is through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void." (Emphasis supplied)

Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not authorized by respondent Dieselman to sell its lot, the
supposed contract is void. Being a void contract, it is not susceptible of ratification by clear mandate of Article 1409 of the Civil Code, thus:

"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, 1988.1âwphi1.nêt

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 testimony25 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.

3.) Cosmic lumber corp. vs CA

BELLOSILLO, J.:

COSMIC LUMBER CORPORATION through its General Manager executed on 28 January 1985 a Special Power of Attorney
appointing Paz G. Villamil-Estrada as attorney-in-fact —

. . . to initiate, institute and file any court action for the ejectment of third persons and/or squatters of the entire lot 9127 and
443 and covered by TCT Nos. 37648 and 37649, for the said squatters to remove their houses and vacate the premises in
order that the corporation may take material possession of the entire lot, and for this purpose, to appear at the 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 owner's 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 petitioner's attorney-in-fact Villamil-Estrada was
not authorized to sell the subject propety may be raised as a defense in the execution of the compromise judgment as it does not bind
petitioner, but not as a ground for annulment of judgment because it does not affect the jurisdiction of the trial court over the action
nor does it amount to extrinsic fraud. 8

Petitioner challenges this verdict. It argues that the decision of the trial court is void because the compromise agreement upon which it
was based is void. Attorney-in-fact 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 . . . lot . . . (No.) 443 . . . for the said squatters to remove their houses and vacate the premises in order that the
corporation may take material possession of the entire lot . . ."

We agree with petitioner. The authority granted 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 petitioner's land through a compromise agreement, Villamil-Estrada
acted without or in obvious authority. The sale ipso jure is consequently void. So is the compromise agreement. This being the case,
the judgment based thereon is necessarily void. Antipodal to the opinion expressed by respondent court in resolving petitioner's
motion for reconsideration, the nullity of the settlement between Villamil-Estrada and Perez impaired the jurisdiction of the trial court
to render its decision based on the compromise agreement. In Alviar v. Court of First Instance of La Union, 14 the Court held —

. . . this court does not hesitate to hold that the judgment in question is null and void ab initio. It is not binding upon and
cannot be executed against the petitioners. It is evident that the compromise upon which the judgment was based was not
subscribed by them . . . Neither could Attorney Ortega bind them validly in the compromise because he had no special
authority . . .

As the judgment in question is null and void ab initio, it is evident that the court acquired no jurisdiction to render it, much
less to order the execution thereof . . .

. . . A judgment, which is null and void ab initio, rendered by a court without jurisdiction to do so, is without legal efficacy
and may properly be impugned in any proceeding by the party against whom it is sought to be enforced . . .

This ruling was adopted in Jacinto v. Montesa,15 by Mr. Justice J. B.L. Reyes, a much-respected authority on civil law, where the
Court declared that a judgment based on a compromise entered into by an attorney without specific authority from the client is void.
Such judgment may be impugned and its execution restrained in any proceeding by the party against whom it is sought to be enforced.
The Court also observed that a defendant against whom a judgment based on a compromise is sought to be enforced may file a
petition for certiorari to quash the execution. He could not move to have the compromise set aside and then appeal from the order of
denial since he was not a party to the compromise. Thus it would appear that the obiter of the appellate court that the alleged nullity of
the compromise agreement should be raised as a defense against its enforcement is not legally feasible. Petitioner could not be in a
position to question the compromise agreement in the action to revive the compromise judgment since it was never privy to such
agreement. Villamil-Estrada who signed the compromise agreement may have been the attorney-in-fact but she could not legally bind
petitioner thereto as she was not entrusted with a special authority to sell the land, as required in Art. 1878, par. (5), of the Civil Code.

Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the Court of Appeals to annul and set aside judgments
of Regional Trial Courts. 16 "Thus, the Intermediate Appellant Court (now Court of Appeals) shall exercise . . . (2) Exclusive original
jurisdiction over action for annulment of judgments of the Regional Trial Courts . . ." However, certain requisites must first be
established before a final and executory judgment can be the subject of an action for annulment. It must either be void for want of
jurisdiction or for lack of due process of law, or it has been obtained by fraud. 17

Conformably with law and the above-cited authorities, the petition to annul the decision of the trial court in Civil Case No. D-7750
before the Court of Appeals was proper. Emanating as it did from a void compromise agreement, the trial court had no jurisdiction to
render a judgment based thereon. 18

It would also appear, and quite contrary to the finding of the appellate court, that the highly reprehensible conduct of attorney-in-fact
Villamil-Estrada in Civil Case No. 7750 constituted an extrinsic or collateral fraud by reason of which the judgment rendered thereon
should have been struck down. Not all the legal semantics in the world can becloud the unassailable fact that petitioner was deceived
and betrayed by its attorney-in-fact, Villamil-Estrada deliberately concealed from petitioner, her principal, that a compromise
agreement had been forged with the end-result that a portion of petitioner's property was sold to the deforciant, literally for a song.
Thus completely kept unaware of its agent's artifice, petitioner was not accorded even a fighting chance to repudiate the settlement so
much so that the judgment based thereon became final and executory.

For sure, the Court of Appeals restricted the concept of fraudulent acts within too narrow limits. Fraud may assume different shapes
and be committed in as many different ways and here lies the danger of attempting to define fraud. For man in his ingenuity and fertile
imagination will always contrive new schemes to fool the unwary.

There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where it is one the effect of which prevents a party
from hearing a trial, or real contest, or from presenting all of his case to the court, or where it operates upon matters, not pertaining to
the judgment itself, but to the manner in which it was procured so that there is not a fair submission of the controversy. In other words,
extrinsic fraud refers to any fraudulent act of the prevailing party in the litigation which is committed outside of the trial of the case,
whereby the defeated party has been prevented from exhibiting fully his side of the case by fraud or deception practiced on him by his
 opponent. 19 Fraud is extrinsic where the unsuccessful party has been prevented from exhibiting fully his case, by fraud or deception
practiced on him by his opponent, as by keeping him away from court, a false promise of a compromise; or where the defendant never
had knowledge of the suit, being kept in ignorance by the acts of the plaintiff; or where an attorney fraudulently or without authority
connives at his defeat; these and similar cases which show that there has never been a real contest in the trial or hearing of the case are
reasons for which a new suit may be sustained to set aside and annul the former judgment and open the case for a new and fair
hearing. 20

It may be argued that petitioner knew of the compromise agreement since the principal is chargeable with and bound by the
knowledge of or notice to his agent received while the agent was acting as such. But the general rule is intended to protect those who
exercise good faith and not as a shield for unfair dealing. Hence there is a well-established exception to the general rule as where the
conduct and dealings of the agent are such as to raise a clear presumption that he will not communicate to the principal the facts in
controversy. 21 The logical reason for this exception is that where the agent is committing a fraud, it would be contrary to common
sense to presume or to expect that he would communicate the facts to the principal. Verily, when an agent is engaged in the
perpetration of a fraud upon his principal for his own exclusive benefit, he is not really acting for the principal but is really acting for
himself, entirely outside the scope of his agency. 22 Indeed, the basic tenets of agency rest on the highest considerations of justice,
equity and fair play, and an agent will not be permitted to pervert his authority to his own personal advantage, and his act in secret
hostility to the interests of his principal transcends the power afforded him. 23

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

SO ORDERED.

4.) Spouses Bautista vs. Spouses Jalandoni

DECISION

MENDOZA, J.:

Before the Court are two consolidated petitions for review under Rule 45 assailing the January 27, 2006 Amended Decision1 of the Court of
Appeals CA) in CA G.R. CV No. 84648 and its October 12, 2011 Resolution2 denying the motion for reconsideration filed by Manila Credit
Corporation (MCC). The controversy stemmed from a complaint3 for cancellation of titles with damages filed by Spouses Mila and Antonio
Jalandoni (Spouses Jalandoni) against Spouses Eliseo and Emperatriz Bautista (Spouses Baustista), the Register of Deeds of Makati City,4
Spouses Eduardo and Ma. Teresa Tongco (Spouses Tongco). and Manila Credit Corporation MCC).

Spouses Jalandoni were the registered owners of two (2) parcels of land, covered by Transfer Certificate of Title (TCT) Nos. 2010485 and
201049.6 The two lots were located in Muntinlupa City, each parcel of land containing an area of Six Hundred (600) square meters, more or less,
amounting to ₱1,320,000.00 per lot.

In May 1997, the Spouses Jalandoni applied for a loan with a commercial bank and, as a security thereof, they offered to constitute a real estate
mortgage over their two lots. After a routine credit investigation, it was discovered that their titles over the two lots had been cancelled and new
TCT Nos. 206091 and 205624 were issued in the names of Spouses Baustista. Upon further investigation, they found out that the bases for the
cancellation of their titles were two deeds of absolute sale,7 dated April 4, 1996 and May 4, 1996, purportedly executed and signed by them in
favor of Spouses Baustista.

Aggrieved, Spouses Jalandoni filed a complaint for cancellation of titles and damages claiming that they did not sell the subject lots and denied
having executed the deeds of absolute sale. They asserted that the owner's duplicate certificates of title were still in their possession; that their
signatures appearing on the deeds of absolute sale were forged and that said deeds were null and void and transferred no title in favor of Spouses
Bautista; that they never met the Spouses Bautista; that they did not appear before the notary public who notarized the deeds of absolute sale; that
the community tax certificates indicated in the deeds of absolute sale were not issued to them and that the entries therein were forged and
falsified; that Spouses Bautista paid a grossly inadequate price of only ₱600,000.00 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 ₱1,700,000.00 and the other lot for ₱3,493,379.82 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 ₱1,200,000.00; 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 ₱3,493,3 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 ₱1,320,000.00 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 ₱100,000.00 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 ₱50,000.00 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
₱50,000.00 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 ₱1,700,000.00 for the property covered by TCT No. 205624 and ₱3,493,379.82 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 defendant-appellee Manila Credit Corporation;

3. Ordering the Register of Deeds of Muntinlupa City to reinstate Transfer Certificates of Title Nos. 201048 and 201049 in the name
of plaintiffs-appellants Spouses Mila J alandoni and Antonio J alandoni, free from any mortgage or lien;

4. Defendants-appellants Spouses Eliseo Bautista and Emperatriz Bautista are liable to pay their obligation under 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 (₱50,000.00)
by way of moral damages;

6. Ordering defendants-appellants jointly and severally to pay plaintiffs-appellants the amount of Twenty Five Thousand Pesos
(₱25,000.00) by way of exemplary damages; and

7. Ordering defendants-appellants jointly and severally to pay plaintiffs-appellants the amount of Twenty Five Thousand Pesos
(₱25,000.00) 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.26 Bare allegations, unsubstantiated by evidence, are not equivalent to proof under the Rules of Court.27

Spouses Bautista insist that they were innocent purchasers for value, entitled to the protection of the law. They stress that their purchase of the
subject properties were all coursed through Nasino, who represented that she knew Spouses Jalandoni and that they were selling their properties
at a bargain price because they were in dire need of money. Considering that the Register of Deeds cancelled the titles of Spouses Jalandoni and
subsequently issued new titles in their names, they assert that these were regularly and validly issued in their names. Moreover, they aver that
they were not privy to any fraud committed in the sale of the subject properties.28

The Court finds no merit in their arguments.

"A buyer in good faith is one who buys the property of another without notice that some other person has a right to or interest in such property.
He is a buyer for value if he pays a full and fair price at the time of the purchase or before he has notice of the claim or interest of some other
person in the property."29 "Good faith connotes an honest intention to abstain from taking unconscientious advantage of another."30 To prove
good faith, the following conditions must be present: (a) the seller is the registered owner of the land; (b) the owner is in possession thereof; and
(3) at the time of the sale, the buyer was not aware of any claim or interest of some other person in the property, or of any defect or restriction in
the title of the seller or in his capacity to convey title to the property. All these conditions must be present, otherwise, the buyer is under
obligation to exercise extra ordinary diligence by scrutinizing the certificates of title and examining all factual circumstances to enable him to
ascertain the seller's title and capacity to transfer any interest in the property.31

Tested by these conditions, Spouses Bautista cannot be deemed purchasers in good faith.1âwphi1 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 Bautista’s claim of good faith is negated by their failure to verify the extent and nature of Nasino’s 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, Eliseo’s claim
that he did not require Nasino to give him a copy of the special power of attorney because he trusted her is unacceptable. Well settled is the rule
that persons dealing with an assumed agency are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it.34 As stated,
Spouses Bautista's failure to observe the required degree of caution in ascertaining the genuineness and extent of Nasino's authority is tantamount
to bad faith that precludes them from claiming the rights of a purchaser in good faith.35

Spouses Bautista next argue that they could not be held liable for moral and exemplary damages. In light of the foregoing circumstances, the
Court finds the award of moral and exemplary damages in order.

Moral damages are treated as compensation to alleviate physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury resulting from a wrong.36 Though moral damages are not capable of
pecuniary estimation, the amount should be proportional to and in approximation of the suffering inflicted.37

On the other hand, exemplary damages may be imposed by way of example or correction for the public good.38 They are "imposed not to enrich
one party or impoverish another, but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions."39

Coming now to the petition of MCC, it claims to be a mortgagee in good faith and asserts that it had no participation in the forgery of the deeds of
sale. It argues that since the mortgaged lots were registered lands, it is not required to go beyond their titles to determine the condition of the
property and may rely on the correctness of the certificates of title.

Generally, the law does not require a person dealing with registered land to go beyond the certificate of title to determine the liabilities attaching
to the property.40 In the absence of suspicion, a purchaser or mortgagee has a right to rely in good faith on the certificates of title of the
mortgagor and is not obligated to undertake further investigation.41 For indeed the Court in several cases declared that a void title may be the
source of a valid title in the hands of an innocent purchaser for value.42

Where the owner, however, could not be charged with negligence in the keeping of its duplicate certificates of title or with any act which could
have brought about the issuance of another title relied upon by the purchaser or mortgagee for value, then the innocent registered owner has a
better right over the mortgagee in good faith.43 For "the law protects and prefers the lawful holder of registered title over the transferee of a
vendor bereft of any transmissible rights."44

In the case of C.N. Hodges v. Dy Buncio Co. Inc.45 which was relied upon by the Court in the cases of Baltazar v. Court of Appeals.46 Torres v.
Court of Appeals.47 and in the more recent case of Sanchez v. Quinio.48 the Court held that:

The claim of indefeasibility of the petitioner's title under the Torrens land title system would be correct if previous valid title to the same parcel of
land did not exist. The respondent had a valid title x x x It never parted with it; it never handed or delivered to anyone its owner's duplicate of the
transfer certificate of title; it could not be charged with negligence in the keeping of its duplicate certificate of title or with any act which could
have brought about the issuance of another certificate upon which a purchaser in good faith and for value could rely. If the petitioner's contention
as to indefeasibility of his title should be upheld, then registered owners without the least fault on their part could be divested of their title and
deprived of their property. Such disastrous results which would shake and destroy the stability of land titles had not been foreseen by those who
had endowed with indefeasibility land titles issued under the Torrens system. [Emphases supplied]

Thus, in the case of Tomas v. Philippine National Bank,49 the Court stated that:

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.

5.) Heirs of Sarili vs. Lagrosa

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on Certiorari1 are the Decision2 dated May 20, 2010 and Resolution3 dated August 26, 2010 of the Court of
Appeals (CA) in CA-G.R. CV No. 76258 which: (a) set aside the Decision4 dated May 27, 2002 of the Regional Trial Court of Caloocan City,
Branch 131 (RTC) in Civil Case No. C-19152; (b) cancelled Transfer Certificate of Title (TCT) No. 2622185 in the name of Victorino Sarili
(Victorino) married to Isabel Amparo (Sps. Sarili); (c) reinstated TCT No. 559796 in the name of respondent Pedro F. Lagrosa (respondent); and
(d) awarded respondent moral damages, attorney’s fees and litigation expenses.

The Facts

On February 17, 2000, respondent, represented by his attorney-in-fact Lourdes Labios Mojica (Lourdes) via a special power of attorney dated
November 25, 19997 (November 25, 1999 SPA), filed a complaint8 against Sps. Sarili and the Register of Deeds of Caloocan City (RD) before
the RTC, alleging, among others, that he is the owner of a certain parcel of land situated in Caloocan City covered by TCT No. 55979 (subject
property) and has been religiously paying the real estate taxes therefor since its acquisition on November 29, 1974. Respondent claimed that he is
a resident of California, USA, and that during his vacation in the Philippines, he discovered that a new certificate of title to the subject property
was issued by the RD in the name of Victorino married to Isabel Amparo (Isabel), i.e., TCT No. 262218, by virtue of a falsified Deed of Absolute
Sale9 dated February 16, 1978 (February 16, 1978 deed of sale) purportedly executed by him and his wife, Amelia U. Lagrosa (Amelia). He
averred that the falsification of the said deed of sale was a result of the fraudulent, illegal, and malicious acts committed by Sps. Sarili and the RD
in order to acquire the subject property and, as such, prayed for the annulment of TCT No. 262218, and that Sps. Sarili deliver to him the
possession of the subject property, or, in the alternative, that Sps. Sarili and the RD jointly and severally pay him the amount of ₱1,000,000.00,
including moral damages as well as attorney’s fees.10

In their answer,11 Sps. Sarili maintained that they are innocent purchasers for value, having purchased the subject property from Ramon B.
Rodriguez (Ramon), who possessed and presented a Special Power of Attorney12 (subject SPA) to sell/dispose of the same, and, in such
capacity, executed a Deed of Absolute Sale13 dated November 20, 1992 (November 20, 1992 deed of sale) conveying the said property in their
favor. In this relation, they denied any participation in the preparation of the February 16, 1978 deed of sale, which may have been merely
devised by the "fixer" they hired to facilitate the issuance of the title in their names.14 Further, they interposed a counterclaim for moral and
exemplary damages, as well as attorney’s fees, for the filing of the baseless suit.15

During the pendency of the proceedings, Victorino passed away16 and was substituted by his heirs, herein petitioners.17

The RTC Ruling

On May 27, 2002, the RTC rendered a Decision18 finding respondent’s signature on the subject SPA as "the same and exact replica"19 of his
signature in the November 25, 1999 SPA in favor of Lourdes.20 Thus, with Ramon’s authority having been established, it declared the November
20, 1992 deed of sale21 executed by the latter as "valid, genuine, lawful and binding"22 and, as such, had validly conveyed the subject property
in favor of Sps. Sarili. It further found that respondent "acted with evident bad faith and malice" and was, therefore, held liable for moral and
exemplary damages.23 Aggrieved, respondent appealed to the CA.

The CA Ruling

In a Decision24 dated May 20, 2010, the CA granted respondent’s appeal and held that the RTC erred in its ruling since the November 20, 1992
deed of sale, which the RTC found "as valid and genuine," was not the source document for the transfer of the subject property and the issuance
of TCT No. 262218 in the name of Sps. Sarili25 but rather the February 16, 1978 deed of sale, the fact of which may be gleaned from the
Affidavit of Late Registration26 executed by Isabel (affidavit of Isabel). Further, it found that respondent w as "not only able to preponderate his
claim over the subject property, but [has] likewise proved that his and his wife’s signatures in the [February 16, 1978 deed of sale] x x x were
forged."27 "[A] comparison by the naked eye of the genuine signature of [respondent] found in his [November 25, 1999 SPA] in favor of
[Lourdes], and those of his falsified signatures in [the February 16, 1978 deed of sale] and [the subject SPA] shows that they are not similar."28 It
also observed that "[t]he testimony of [respondent] denying the authenticity of his purported signature with respect to the [February 16, 1978
deed of sale] was not rebutted x x x."29 In fine, the CA declared the deeds of sale dated February 16, 1978 and November 20, 1992, as well as the
subject SPA as void, and consequently ordered the RD to cancel TCT No. 262218 in the name of Victorino married to Isabel, and consequently
reinstate TCT No. 55979 in respondent’s name. Respondent’s claims for moral damages and attorney’s fees/litigation expenses were also granted
by the CA.30

Dissatisfied, petitioners moved for reconsideration which was, however, denied in a Resolution31 dated August 26, 2010, hence, the instant
petition.

The Issues Before the Court

The main issue in this case is whether or not there was a valid conveyance of the subject property to Sps. Sarili. The resolution of said issue
would then determine, among others, whether or not: (a) TCT No. 262218 in the name of Victorino married to Isabel should be annulled; and (b)
TCT No. 55979 in respondent’s name should be reinstated.

The Court’s Ruling

The petition lacks merit.

Petitioners essentially argue that regardless of the fictitious February 16, 1978 deed of sale, there was still a valid conveyance of the subject
property to Sps. Sarili who relied on the authority of Ramos (as per the subject SPA) to sell the same. They posit that the due execution of the
subject SPA between respondent and Ramon and, subsequently, the November 20, 1992 deed of sale between Victorino and Ramon were duly
established facts and that from the authenticity and genuineness of these documents, a valid conveyance of the subject land from respondent to
Victorino had leaned upon.32

The Court is not persuaded.

It is well-settled that even if the procurement of a certificate of title was tainted with fraud and misrepresentation, such defective title may be the
source of a completely legal and valid title in the hands of an innocent purchaser for value. Where innocent third persons, relying on the
correctness of the certificate of title thus issued, acquire rights over the property, the court cannot disregard such rights and order the total
cancellation of the certificate. The effect of such an outright cancellation would be to impair public confidence in the certificate of title, for
everyone dealing with property registered under the Torrens system would have to inquire in every instance whether the title has been regularly
or irregularly issued. This is contrary to the evident purpose of the law.33

The general rule is that every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor and
the law will in no way oblige him to go beyond the certificate to determine the condition of the property. Where there is nothing in the certificate
of title to indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore further
than what the Torrens Title upon its face indicates in quest for any hidden defects or inchoate right that may subsequently defeat his right
thereto.34

However, a higher degree of prudence is required from one who buys from a person who is not the registered owner, although the land object of
the transaction is registered. In such a case, the buyer is expected to examine not only the certificate of title but all factual circumstances
necessary for him to determine if there are any flaws in the title of the transferor.35 The buyer also has the duty to ascertain the identity of the
person with whom he is dealing with and the latter’s legal authority to convey the property.36

The strength of the buyer’s inquiry on the seller’s capacity or legal authority to sell depends on the proof of capacity of the seller. If the proof of
capacity consists of a special power of attorney duly notarized, mere inspection of the face of such public document already constitutes sufficient
inquiry. If no such special power of attorney is provided or there is one but there appears to be flaws in its notarial acknowledgment, mere
inspection of the document will not do; the buyer must show that his investigation went beyond the document and into the circumstances of its
execution.37

In the present case, it is undisputed that Sps. Sarili purchased the subject property from Ramos on the strength of the latter’s ostensible authority
to sell under the subject SPA. The said document, however, readily indicates flaws in its notarial acknowledgment since the respondent’s
community tax certificate (CTC) number was not indicated thereon. Under the governing rule on notarial acknowledgments at that time,38 i.e.,
Section 163(a) of Republic Act No. 7160, otherwise known as the "Local Government Code of 1991," when an individual subject to the
community tax acknowledges any document before a notary public, it shall be the duty of the administering officer to require such individual to
exhibit the community tax certificate.39 Despite this irregularity, however, Sps. Sarili failed to show that they conducted an investigation beyond
the subject SPA and into the circumstances of its execution as required by prevailing jurisprudence. Hence, Sps. Sarili cannot be considered as
innocent purchasers for value.

The defective notarization of the subject SPA also means that the said document should be treated as a private document and thus examined
under the parameters of Section 20, Rule 132 of the Rules of Court which provides that "before any private document offered as authentic is
received in evidence, its due execution and authenticity must be proved either: (a) by anyone who saw the document executed or written; or (b)
by evidence of the genuineness of the signature or handwriting of the maker x x x." Settled is the rule that a defective notarization will strip the
document of its public character and reduce it to a private instrument, and the evidentiary standard of its validity shall be based on preponderance
of evidence.40

The due execution and authenticity of the subject SPA are of great significance in determining the validity of the sale entered into by Victorino
and Ramon since the latter only claims to be the agent of the purported seller (i.e., respondent). Article 1874 of the Civil Code provides that
"[w]hen 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." In other words, if the subject SPA was not proven to be duly executed and authentic, then it cannot be said that the foregoing
requirement had been complied with; hence, the sale would be void.

After a judicious review of the case, taking into consideration the divergent findings of the RTC and the CA on the matter,41 the Court holds that
the due execution and authenticity of the subject SPA were not sufficiently established under Section 20, Rule 132 of the Rules of Court as
above-cited.

While Ramon identified the signature of respondent on the subject SPA based on his alleged familiarity with the latter’s signature,42 he,
however, stated no basis for his identification of the signatures of respondent’s wife Amelia and the witness, Evangeline F. Murral,43 and even
failed to identify the other witness,44 who were also signatories to the said document. In other words, no evidence was presented to authenticate
the signatures of the other signatories of the subject SPA outside from respondent.45

Besides, as the CA correctly observed, respondent’s signature appearing on the subject SPA is not similar46 to his genuine signature appearing in
the November 25, 1999 SPA in favor of Lourdes,47 especially the signature appearing on the left margin of the first page.48

Unrebutted too is the testimony of respondent who, during trial, attested to the fact that he and his wife, Amelia, had immigrated to the USA since
1968 and therefore could not have signed the subject SPA due to their absence.49

Further, records show that the notary public, Atty. Ramon S. Untalan, failed to justify why he did not require the presentation of respondent’s
CTC or any other competent proof of the identity of the person who appeared before him to acknowledge the subject SPA as respondent’s free
and voluntary act and deed despite the fact that he did not personally know the latter and that he met him for the first time during the
notarization.50 He merely relied on the representations of the person before him51 and the bank officer who accompanied the latter to his
office,52 and further explained that the reason for the omission of the CTC was "because in [a] prior document, [respondent] has probably given
us already his residence certificate."53 This "prior document," was not, however, presented during the proceedings below, nor the CTC number
ever identified.

Thus, in light of the totality of evidence at hand, the Court agrees with the CA’s conclusion that respondent was able to preponderate his claims
of forgery against the subject SPA.54 In view of its invalidity, the November 20, 1992 sale relied on by Sps. Sarili to prove their title to the
subject property is therefore void.1âwphi1

At this juncture, it is well to note that it was, in fact, the February 16, 1978 deed of sale which – as the CA found – was actually the source of the
issuance of TCT No. 262218. Nonetheless, this document was admitted to be also a forgery.55 Since Sps. Sarili’s claim over the subject property
is based on forged documents, no valid title had been transferred to them (and, in turn, to petitioners). Verily, when the instrument presented is
forged, even if accompanied by the owner’s duplicate certificate of title, the registered owner does not thereby lose his title, and neither does the
assignee in the forged deed acquire any right or title to the property.56 Accordingly, TCT No. 262218 in the name of Victorino married to Isabel
should be annulled, while TCT No. 55979 in the name of respondent should be reinstated.

Anent the award of moral damages, suffice it to say that the dispute over the subject property had caused respondent serious anxiety, mental
anguish and sleepless nights, thereby justifying the aforesaid award.57 Likewise, since respondent was constrained to engage the services of
counsel to file this suit and defend his interests, the awards of attorney’s fees and litigation expenses are also sustained.58
The Court, however, finds a need to remand the case to the court a quo in order to determine the rights and obligations of the parties with respect
to the house Sps. Sarili had built59 on the subject property in bad faith in accordance with Article 449 in relation to Articles 450, 451, 452, and
the first paragraph of Article 546 of the Civil Code which respectively read as follows:

ART. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without right to indemnity.

ART. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the demolition of the work, or that
the planting or sowing be removed, in order to replace things in their former condition at the expense of the person who built, planted or sowed;
or he may compel the builder or planter to pay the price of the land, and the sower the proper rent.

ART. 451. In the cases of the two preceding articles, the landowner is entitled to damages from the builder, planter or sower.

ART. 452. The builder, planter or sower in bad faith is entitled to reimbursement for the necessary expenses of preservation of the land.

xxxx

ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been
reimbursed therefor. (Emphases and underscoring supplied)

xxxx

To be deemed a builder in good faith, it is essential that a person asserts title to the land on which he builds, i.e. , that he be a possessor in concept
of owner, and that he be unaware that there exists in his title or mode of acquisition any flaw which invalidates it.60 Good faith is an intangible
and abstract quality with no technical meaning or statutory definition, and it encompasses, among other things, an honest belief, the absence of
malice and the absence of design to defraud or to seek an unconscionable advantage. It implies honesty of intention, and freedom from
knowledge of circumstances which ought to put the holder upon inquiry.61 As for Sps. Sarili, they knew – or at the very least, should have
known – from the very beginning that they were dealing with a person who possibly had no authority to sell the subject property considering the
palpable irregularity in the subject SPA’s acknowledgment. Yet, relying solely on said document and without any further investigation on
Ramos’s capacity to sell Sps. Sarili still chose to proceed with its purchase and even built a house thereon. Based on the foregoing it cannot be
seriously doubted that Sps. Sarili were actually aware of a flaw or defect in their title or mode of acquisition and have consequently built the
house on the subject property in bad faith under legal contemplation. The case is therefore remanded to the court a quo for the proper application
of the above-cited Civil Code provisions.

WHEREFORE, the petition is DENIED. The Decision dated May 20, 2010 and Resolution dated August 26, 2010 of the Court of Appeals in CA-
G.R. CV No. 76258 are AFFIRMED. However the case is REMANDED to the court a quo for the proper application of Article 449 in relation to
Articles 450 451 452 and the first paragraph of Article 546 of the Civil Code with respect to the house Spouses Victorino Sarili and Isabel
Amparo had built on the subject property as herein discussed.

SO ORDERED.