G.R. No.

102784 February 28, 1996 I

ROSA LIM, petitioner, THE RESPONDENT COURT VIOLATED THE CONSTITUTION, THE
vs. RULES OF COURT AND THE DECISION OF THIS HONORABLE
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents. COURT IN NOT PASSING UPON THE FIRST AND THIRD ASSIGNED
ERRORS IN PETIIONER'S BRIEF;
DECISION
II
HERMOSISIMA, JR., J.:
THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE
This is a petition to review the Decision of the Court of Appeals in CA-G.R. THAT THE PAROL EVIDENCE RULE WAS WAIVED WHEN THE
CR No. 10290, entitled "People v. Rosa Lim," promulgated on August 30, PRIVATE PROSECUTOR CROSS-EXAMINED THE PETITIONER AND
1991. AURELIA NADERA AND WHEN COMPLAINANT WAS CROSS-
EXAMINED BY THE COUNSEL FOR THE PETITIONER AS TO THE
On January 26, 1989, an Information for Estafa was filed against petitioner TRUE NATURE OF THE AGREEMENT BETWEEN THE PARTIES
Rosa Lim before Branch 92 of the Regional Trial Court of Quezon City.1 The WHEREIN IT WAS DISCLOSED THAT THE TRUE AGREEMENT OF
Information reads: THE PARTIES WAS A SALE OF JEWELRIES AND NOT WHAT WAS
EMBODIED IN THE RECEIPT MARKED AS EXHIBIT "A" WHICH
That on or about the 8th day of October 1987, in Quezon City, WAS RELIED UPON BY THE RESPONDENT COURT IN AFFIRMING
Philippines and within the jurisdiction of this Honorable Court, THE JUDGMENT OF CONVICTION AGAINST HEREIN PETITIONER;
the said accused with intent to gain, with unfaithfulness and/or and
abuse of confidence, did, then and there, wilfully, unlawfully
and feloniously defraud one VICTORIA SUAREZ, in the following III
manner, to wit: on the date and place aforementioned said
accused got and received in trust from said complainant one (1) THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE THE
ring 3.35 solo worth P169,000.00, Philippine Currency, with the PRINCIPLE ENUNCIATED BY THIS HONORABLE COURT TO THE
obligation to sell the same on commission basis and to turn EFFECT THAT "ACCUSATION" IS NOT, ACCORDING TO THE
over the proceeds of the sale to said complainant or to return FUNDAMENTAL LAW, SYNONYMOUS WITH GUILT: THE
said jewelry if unsold, but the said accused once in possession PROSECUTION MUST OVERTHROW THE PRESUMPTION OF
thereof and far from complying with her obligation despite INNOCENCE WITH PROOF OF GUILT BEYOND REASONABLE
repeated demands therefor, misapplied, misappropriated and DOUBT. TO MEET THIS STANDARD, THERE IS NEED FOR THE
converted the same to her own personal use and benefit, to the MOST CAREFUL SCRUTINY OF THE TESTIMONY OF THE STATE,
damage and prejudice of the said offended party in the amount BOTH ORAL AND DOCUMENTARY, INDEPENDENTLY OF
aforementioned and in such other amount as may be awarded WHATEVER DEFENSE IS OFFERED BY THE ACCUSED. ONLY IF THE
under the provisions of the Civil Code. JUDGE BELOW AND THE APPELLATE TRIBUNAL COULD ARRIVE
AT A CONCLUSION THAT THE CRIME HAD BEEN COMMITTED
CONTRARY TO LAW.2 PRECISELY BY THE PERSON ON TRIAL UNDER SUCH AN
EXACTING TEST SHOULD SENTENCE THUS REQUIRED THAT
After arraignment and trial on the merits, the trial court rendered EVERY INNOCENCE BE DULY TAKEN INTO ACCOUNT. THE PROOF
judgment, the dispositive portion of which reads: AGAINST HIM MUST SURVIVE THE TEST OF REASON; THE
STRONGEST SUSPICION MUST NOT BE PERMITTED TO SWAY
WHEREFORE, in view of the foregoing, judgment is hereby JUDGMENT. (People v. Austria, 195 SCRA 700)5
rendered:
Herein the pertinent facts as alleged by the prosecution.
1. Finding accused Rosa Lim GUILTY beyond reasonable doubt
of the offense of estafa as defined and penalized under Article On or about October 8, 1987, petitioner Rosa Lim who had come from
315, paragraph 1(b) of the Revised Penal Code; 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
2. Sentencing her to suffer the Indeterminate penalty of FOUR one (1) bracelet worth P170,000.00, to be sold on commission basis. The
(4) YEARS and TWO (2) MONTHS of prision correccional as agreement was reflected in a receipt marked as Exhibit "A"6 for the
minimum, to TEN (10) YEARS of prision mayor as maximum; prosecution. The transaction took place at the Sir Williams Apartelle in
Timog Avenue, Quezon City, where Rosa Lim was temporarily billeted.
3. Ordering her to return to the offended party Mrs. Victoria
Suarez the ring or its value in the amount of P169,000 without On December 15, 1987, petitioner returned the bracelet to Vicky Suarez,
subsidiary imprisonment in case insolvency; and 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
4. To pay costs.3 demands, wrote a demand letter7 to petitioner asking for the return of said
ring or the proceeds of the sale thereof. In response, petitioner, thru
On appeal, the Court of Appeals affirmed the judgment of conviction with counsel, wrote a letter8 to private respondent's counsel alleging that Rosa
the modification that the penalty imposed shall be six (6) years, eight (8) Lim had returned both ring and bracelet to Vicky Suarez sometime in
months and twenty-one (21) days to twenty (20) years in accordance with September, 1987, for which reason, petitioner had no longer any liability
Article 315, paragraph 1 of the Revised Penal Code.4 to Mrs. Suarez insofar as the pieces of jewelry were concerned. Irked, Vicky
Suarez filed a complaint for estafa under Article 315, par l(b) of the Revised
Petitioner filed a motion for reconsideration before the appellate court on Penal Code for which the petitioner herein stands convicted.
September 20, 1991, but the motion was denied in a Resolution dated
November 11, 1991. Petitioner has a different version.

In her final bid to exonerate herself, petitioner filed the instant petition for Rosa Lim admitted in court that she arrived in Manila from Cebu sometime
review alleging the following grounds: in October 1987, together with one Aurelia Nadera, who introduced
petitioner to private respondent, and that they were lodged at the
1
Williams Apartelle in Timog, Quezon City. Petitioner denied that the whole proceeds of sale thereof to the owner of the
transaction was for her to sell the two pieces of jewelry on commission jewelries at his/her residence; my compensation or
basis. She told Mrs. Suarez that she would consider buying the pieces of commission shall be the over-price on the value of
jewelry far her own use and that she would inform the private complainant each jewelry quoted above. I am prohibited to sell
of such decision before she goes back to Cebu. Thereafter, the petitioner any jewelry on credit or by installment; deposit, give
took the pieces of jewelry and told Mrs. Suarez to prepare the "necessary for safekeeping: lend, pledge or give as security or
paper for me to sign because I was not yet prepare (d) to buy it."9 After the guaranty under any circumstance or manner, any
document was prepared, petitioner signed it. To prove that she did not jewelry to other person or persons.
agree to the terms of the receipt regarding the sale on commission basis,
petitioner insists that she signed the aforesaid document on the upper kung hindi ko maipagbili ay isasauli ko ang lahat ng
portion thereof and not at the bottom where a space is provided for the alahas sa loob ng taning na panahong nakatala sa
signature of the person(s) receiving the jewelry. 10 itaas; kung maipagbili ko naman ay dagli kong
isusulit at ibibigay ang buong pinagbilhan sa may-ari
On October 12, 1987 before departing for Cebu, petitioner called up Mrs. ng mga alahas sa kanyang bahay tahanan; ang aking
Suarez by telephone in order to inform her that she was no longer gantimpala ay ang mapapahigit na halaga sa
interested in the ring and bracelet. Mrs. Suarez replied that she was busy nakatakdang halaga sa itaas ng bawat alahas HINDI
at the time and so, she instructed the petitioner to give the pieces of ko ipinahihintulutang ipa-u-u-tang o ibibigay na
jewelry to Aurelia Nadera who would in turn give them back to the private hulugan ang alin mang alahas, ilalagak,
complainant. The petitioner did as she was told and gave the two pieces of ipagkakatiwala; ipahihiram; isasangla o ipananagot
jewelry to Nadera as evidenced by a handwritten receipt, dated October kahit sa anong paraan ang alin mang alahas sa ibang
12, 1987. 11 mga tao o tao.

Two issues need to be resolved: First, what was the real transaction I sign my name this . . . day of . . . 19 . . . at Manila,
between Rosa Lim and Vicky Suarez a contract of agency to sell on NILALAGDAAN ko ang kasunduang ito ngayong ika _____ ng
commission basis as set out in the receipt or a sale on credit; and, second, dito sa Maynila.
was the subject diamond ring returned to Mrs. Suarez through Aurelia
Nadera?
___________________
Signature of Persons who
Petitioner maintains that she cannot be liable for estafa since she never
received jewelries (Lagda
received the jewelries in trust or on commission basis from Vicky Suarez.
ng Tumanggap ng mga
The real agreement between her and the private respondent was a sale on
Alahas)
credit with Mrs. Suarez as the owner-seller and petitioner as the buyer, as
indicated by the bet that petitioner did not sign on the blank space
provided for the signature of the person receiving the jewelry but at the
upper portion thereof immediately below the description of the items Address: . . . . . . . . . . . .
taken. 12

Rosa Lim's signature indeed appears on the upper portion of the receipt
The contention is far from meritorious. 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
The receipt marked as Exhibit "A" which establishes a contract of agency to a contract of agency to sell on commission basis to a contract of sale.
sell on commission basis between Vicky Suarez and Rosa Lim is herein Neither does it indicate absence or vitiation of consent thereto on the part
reproduced in order to come to a proper perspective: of Rosa Lim which would make the contract void or voidable. The moment
she affixed her signature thereon, petitioner became bound by all the
THIS IS TO CERTIFY, that I received from Vicky terms stipulated in the receipt. She, thus, opened herself to all the legal
Suarez PINATUTUNAYAN KO na aking tinanggap kay obligations that may arise from their breach. This is clear from Article 1356
___________ the following jewelries: of the New Civil Code which provides:

ang mga alahas na sumusunod: Contracts shall be obligatory in whatever form they may have
been entered into, provided all the essential requisites for their
Description Price validity are present. . . .
Mga Uri Halaga
However, there are some provisions of the law which require certain
formalities for particular contracts. The first is when the form is required
l ring 3.35 dolo P 169,000.00 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
1 bracelet 9;170,000.00
purpose of proving the existence of the contract, such as those provided in
the Statute of Frauds in article 1403. 13 A contract of agency to sell on
total P 339,000.00 commission basis does not belong to any of these three categories, hence
Kabuuan 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
in good condition, to be sold in CASH ONLY within . . . days from
strictly prescribes the location of the signature of the parties thereto. This
date of signing this receipt na nasa mabuting kalagayan upang
is in the case of notarial wills found in Article 805 of the Civil Code, to wit:
ipagbili ng KALIWAAN (ALCONTADO) lamang sa loob ng . . . araw
mula ng ating pagkalagdaan:
Every will, other than a holographic will, must be subscribed at
the end thereof by the testator himself . . . .
if I could not sell, I shall return all the jewelry within
the period mentioned above; if I would be able to
The testator or the person requested by him to write his name
sell, I shall immediately deliver and account the
and the instrumental witnesses of the will, shall also sign, as
2
 aforesaid, each and every page thereof, except the last, on Exhibit A. The instruction by the complaining witness to
the left margin. . . . appellant to deliver the ring to Aurelia Nadera is vehemently
denied by the complaining witness, who declared that she did
In the case before us, the parties did not execute a notarial will but a not authorize and/or instruct appellant to do so. And thus, by
simple contract of agency to sell on commission basis, thus making the delivering the ring to Aurelia without the express authority and
position of petitioner's signature thereto immaterial. consent of the complaining witness, appellant assumed the
right to dispose of the jewelry as if it were hers, thereby
Petitioner insists, however, that the diamond ring had been returned to committing conversion, a clear breach of trust, punishable
Vicky Suarez through Aurelia Nadera, thus relieving her of any liability. under Article 315, par. 1(b), Revised Penal Code.
Rosa Lim testified to this effect on direct examination by her counsel:
We shall not disturb this finding of the respondent court. It is well settled
Q: And when she left the jewelries with you, what did you that we should not interfere with the judgment of the trial court in
do thereafter? determining the credibility of witnesses, unless there appears in the record
some fact or circumstance of weight and influence which has been
A: On October 12, I was bound for Cebu. So I called up Vicky overlooked or the significance of which has been misinterpreted. The
through telephone and informed her that I am no longer reason is that the trial court is in a better position to determine questions
interested in the bracelet and ring and that I will just return it. involving credibility having heard the witnesses and having observed their
deportment and manner of testifying during the trial. 18
Q: And what was the reply of Vicky Suarez?
Article 315, par. 1(b) of the Revised Penal Code provides:
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 Art. 315. Swindling (estafa). Any person who shall defraud
and when I informed her that Aurelia was there, she instructed another by any of the means mentioned hereinbelow shall be
me to give the pieces of jewelry to Aurelia who in turn will give punished by:
it back to Vicky.
xxx xxx xxx
Q: And you gave the two (2) pieces of jewelry to Aurelia
Nadera? (b) By misappropriating or converting, to the prejudice of
another, money, goods, or any other personal property
A: Yes, Your Honor. 14 received by the offender in trust or on commission, or for
administration, or under any other obligation involving the duty
This was supported by Aurelia Nadera in her direct examination by to make delivery of or to return the same, even though such
petitioner's counsel: obligation be totally or partially guaranteed by a bond; or by
denying having received such money, goods, or other property.
Q: Do you know if Rosa Lim in fact returned the jewelries?
xxx xxx xxx
A: She gave the jewelries to me.
The elements of estafa with abuse of confidence under this subdivision are
Q: Why did Rosa Lim give the jewelries to you? 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
A: Rosa Lim called up Vicky Suarez the following morning any other obligation involving the duty to make delivery of, or to return,
and told Vicky Suarez that she was going home to Cebu and the same; (2) That there be misappropriation or conversion of such money
asked if she could give the jewelries to me. 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
Q: And when did Rosa Lim give to you the jewelries? 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
A: Before she left for Cebu. 15 of misappropriation of the goods by the defendant) 19

On rebuttal, these testimonies were belied by Vicky Suarez herself: 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
Q: It has been testified to here also by both Aurelia Nadera Exhibit "A" proves that petitioner Rosa Lim received the pieces of jewelry
and Rosa Lim that you gave authorization to Rosa Lim to turn in trust from Vicky Suarez to be sold on commission basis. Second,
over the two (2) pieces of jewelries mentioned in Exhibit "A" to petitioner misappropriated or converted the jewelry to her own use; and,
Aurelia Nadera, what can you say about that? third, such misappropriation obviously caused damage and prejudice to
the private respondent.
A: That is not true sir, because at that time Aurelia Nadera is
highly indebted to me in the amount of P140,000.00, so if I gave WHEREFORE, the petition is DENIED and the Decision of the Court of
it to Nadera, I will be exposing myself to a high risk. 16< Appeals is hereby AFFIRMED.

The issue as to the return of the ring boils down to one of credibility. G.R. No. 199990 February 4, 2015
Weight of evidence is not determined mathematically by the numerical
superiority of the witnesses testifying to a given fact. It depends upon its SPOUSES ROLANDO and HERMINIA SALVADOR, Petitioners,
practical effect in inducing belief on the part of the judge trying the vs.
case.17 In the case at bench, both the trial court and the Court of Appeals SPOUSES ROGELIO AND ELIZABETH RABAJA and ROSARIO
gave weight to the testimony of Vicky Suarez that she did not authorize GONZALES, Respondents.
Rosa Lim to return the pieces of jewelry to Nadera. The respondent court,
in affirming the trial court, said: DECISION

. . . This claim (that the ring had been returned to Suarez thru MENDOZA, J.:
Nadera) is disconcerting. It contravenes the very terms of
3
This is a petition for review on certiorari seeking to reverse and set aside Spouses Salvador filed their answer with counterclaim and cross-
the August 22, 2011 Decision1 and the January 5, 2012 Resolution2 of the claim12 contending that there was no meeting of the minds between the
Court of Appeals (CA) in CA-G.R. CV No. 90296 which affirmed with parties and that the SPA in favor of Gonzales was falsified. In fact, they
modification the March 29, 2007 Decision of the Regional Trial Court filed a case for falsification against Gonzales, but it was dismissed because
Branch 214 (RTC-Branch 214), Mandaluyong City in Civil Case No. MC-03- the original of the alleged falsified SPAcould not be produced. They further
2175, for rescission of a contract (rescission case). averred that they did not receive any payment from Spouses Rabaja
through Gonzales. In her defense, Gonzales filed her answer13 stating that
The Facts the SPA was not falsified and that the payments of Spouses Rabaja
amounting to ₱950,000.00 were all handed over to Spouses Salvador.
This case stemmed from a dispute involving the sellers, petitioner spouses
Rolando and Herminia Salvador (Spouses Salvador); the sellers' agent, The pre-trial conference began but attempts to amicably settle the case
Rosario Gonzales (Gonzales),· and the buyers, respondent Spouses Rogelio were unsuccessful. It was formally reset to February 4, 2005, but Spouses
and Elizabeth Rabaja (Spouses Rabaja), over a parcel of land situated at No. Salvador and their counsel failed to attend. Consequently, the RTC issued
25, Merryland Village, 375 Jose Rizal Street, Mandaluyong City (subject the pre-trial order14 declaring Spouses Salvador in default and allowing
property),covered by Transfer Certificate of Title (TCT) No. 13426 and Spouses Rabaja to present their evidence ex parte against Spouses
registered in the names of Spouses Salvador. From 1994 until 2002, Salvador and Gonzales to present evidence in her favor.
Spouses Rabaja were leasing an apartment in the subject lot.
A motion for reconsideration,15 dated March 28, 2005, was filed by
Sometime in July 1998, Spouses Rabaja learned that Spouses Salvador Spouses Salvador on the said pre-trial order beseeching the liberality of the
were looking for a buyer of the subject property. Petitioner Herminia court. The rescission case was then re-raffled to RTC-Br. 214 after the
Salvador (Herminia)personally introduced Gonzales to them as the Presiding Judge of RTC-Br. 212 inhibited herself. In the Order,16 dated
administrator of the said property. Spouses Salvador even handed to October 24, 2005, the RTC-Br. 214 denied the motion for reconsideration
Gonzales the owner’s duplicate certificate of title over the subject because Spouses Salvador provided a flimsy excuse for their non-
property. On July, 3, 1998, Spouses Rabaja made an initial payment of appearance in the pre-trial conference. Thereafter, trial proceeded and
₱48,000.00 to Gonzales in the presence of Herminia. Gonzales then Spouses Rabaja and Gonzales presented their respective testimonial and
presented the Special Power of Attorney3 (SPA),executed by Rolando documentary evidence.
Salvador (Rolando) and dated July 24, 1998. On the same day, the parties
executed the Contract to Sell4 which stipulated that for a consideration of RTC Ruling
₱5,000,000.00, Spouses Salvador sold, transferred and conveyed in favor
of Spouses Rabaja the subject property. Spouses Rabaja made several On March 29, 2007, the RTC-Br. 214 rendered a decision17 in favor of
payments totalling ₱950,000.00, which were received by Gonzales Spouses Rabaja. It held that the signature of Spouses Salvador affixed in
pursuant to the SPA provided earlier as evidenced by the check vouchers the contract to sell appeared to be authentic. It also held that the contract,
signed by Gonzales and the improvised receiptssigned by Herminia. although denominated as "contract to sell," was actually a contract of sale
because Spouses Salvador, as vendors, did not reserve their title to the
Sometime in June 1999, however, Spouses Salvador complained to property until the vendees had fully paid the purchase price. Since the
Spouses Rabaja that they did not receive any payment from Gonzales. This contract entered into was a reciprocal contract, it could bevalidly
prompted Spouses Rabaja to suspend further payment of the purchase rescinded by Spouses Rabaja, and in the process, they could recover the
price; and as a consequence, they received a notice to vacate the subject amount of ₱950,000.00 jointly and severally from Spouses Salvador and
property from Spouses Salvador for non-payment of rentals. Gonzales. The RTC stated that Gonzales was undoubtedly the attorney-in-
fact of Spouses Salvador absent any taint of irregularity. Spouses Rabaja
Thereafter, Spouses Salvador instituted an action for ejectment against could not be faulted in dealing with Gonzales who was duly equipped with
Spouses Rabaja. In turn, Spouses Rabaja filed an action for rescission of the SPA from Spouses Salvador.
contract against Spouses Salvador and Gonzales, the subject matter of the
present petition. The RTC-Br. 214 then ruled that the amount of ₱593,400.00 garnished
from the time deposit account of Spouses Rabaja, representing the award
In the action for ejectment, the complaint was filed before the of rental arrearages in the separate ejectment suit, should be returned by
Metropolitan Trial Court of Mandaluyong City, Branch 60 (MeTC),where it Spouses Salvador.18 The court viewed that such amount was part of the
was docketed as Civil Case No. 17344. In its August 14, 2002 Decision,5 the purchase price of the subject property which must be returned. It also
MeTC ruled in favor of Spouses Salvador finding that valid grounds existed awarded moral and exemplary damages in favor of Spouses Rabaja and
for the eviction of Spouses Rabaja from the subject property and ordering attorney’s fees in favor of Gonzales. The dispositive portion of the said
them to pay back rentals. Spouses Salvador were able to garnish the decision reads:
amount of ₱593,400.006from Spouses Rabaja’s time deposit account
pursuant to a writ of execution issued by the MeTC.7 Spouses Rabaja WHEREFORE, this court renders judgment as follows:
appealed to the Regional Trial Court, Branch 212, Mandaluyong City (RTC-
Br. 212)which reversed the MeTC ruling in its March 1, 2005 decision.8 The a. Ordering the "Contract to Sell" entered into by the plaintiff
RTC-Br. 212 found that no lease agreement existed between the parties. and defendant spouses Rolando and Herminia Salvador on July
Thereafter, Spouses Salvador filed an appeal with the CA which was 24, 1998 as RESCINDED;
docketed as CAG.R. SP No. 89259. On March 31, 2006, the CA ruled in
favor of Spouses Salvador and reinstated the MeTC ruling ejecting Spouses b. Ordering defendant spouses Rolando and Herminia Salvador
Rabaja.9 Not having been appealed, the CA decision in CA-G.R. SP No. and defendant Rosario S. Gonzales jointly and severally liable to
89259 became final and executory on May 12, 2006.10 pay plaintiffs:

Meanwhile, the rescission case filed by Spouses Rabaja against Spouses 1. the amount of NINE HUNDRED FIFTY THOUSAND
Salvador and Gonzales and docketed as Civil Case No. MC No. 03-2175 was PESOS (₱950,000.00), representing the payments
also raffled to RTC-Br. 212. In their complaint,11 dated July 7, 2003, Spouses made by the latter for the purchase of subject
Rabaja demanded the rescission of the contract to sell praying that the property;
amount of ₱950,000.00 they previously paid to Spouses Salvador be
returned to them. They likewise prayed that damages be awarded due to 2. the amount of TWENTY THOUSAND PESOS
the contractual breach committed by Spouses Salvador. (₱20,000.00), as moral damages;

4
 3. the amount of TWENTY THOUSAND PESOS IN THEIR BEHALF, GIVEN THE MERITORIOUS DEFENSES RAISED IN THEIR
(₱20,000.00), as exemplary damages; ANSWER THAT CATEGORICALLY AND DIRECTLY DISPUTE RESPONDENTS
SPS. RABAJA’S CAUSE OF ACTION.
4. the amount of ONE HUNDRED THOUSAND PESOS
(₱100,000.00), as attorney’s fees; II

5. the cost of suit. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE TRIAL COURT
GRAVELY ERRED IN GIVING CREDENCE TO THE TESTIMONY OF
c. Ordering defendant Spouses Rolando and Herminia Salvador RESPONDENT GONZALES THAT PAYMENTS WERE INDEED REMITTED TO
to pay plaintiffs the amount of FIVE HUNDRED NINETY THREE AND RECEIVED BY PETITIONER HERMINIA SALVADOR EVEN AS THE
THOUSAND PESOS (₱593,000.00) (sic), representing the amount IMPROVISED RECEIPTS WEREEVIDENTLY MADE UP AND FALSIFIED BY
garnished from the Metrobank deposit of plaintiffs as payment RESPONDENT GONZALES.
for their alleged back rentals;
III
d. Ordering the defendant Spouses Rolando and Herminia
Salvador to pay defendant Rosario Gonzales on her cross-claim THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE TRIAL COURT
in the amount of ONE HUNDRED THOUSAND PESOS GRAVELY ERRED IN RESCINDING THE CONTRACT TO SELL WHENTHERE IS
(₱100,000.00); NOTHING TO RESCIND AS NO VALID CONTRACT TO SELL WAS ENTERED
INTO, AND IN DIRECTING THE REFUND OF THE AMOUNT OF ₱950,000.00
e. Dismissing the counterclaims of the defendants against the WHEN THE EVIDENCECLEARLY SHOWS THAT SAID AMOUNT WAS PAIDTO
plaintiff. AND RECEIVED BY RESPONDENT GONZALES ALONE WHO
MISAPPROPRIATED THE SAME.
SO ORDERED.19
IV
Gonzales filed a motion for partial reconsideration, but it was denied by
the RTC-Br. 114 in its Order,20 dated September 12, 2007. Undaunted, THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT’S
Spouses Salvador and Gonzales filed an appeal before the CA. DECISION FOR PETITIONERS TO RETURN THE AMOUNT OF ₱543,400.00
REPRESENTING RENTALS IN ARREARS GARNISHED OR WITHDRAWN BY
CA Ruling VIRTUE OF A WRIT OF EXECUTION ISSUED IN AN EJECTMENT CASE WHICH
WAS TRIED AND DECIDED BY ANOTHER COURT.
On March 29, 2007, the CA affirmed the decision of the RTC-Br. 114 with
modifications. It ruled that the "contract to sell" was indeed a contract of V
sale and that Gonzales was armed with an SPA and was, in fact, introduced
to Spouses Rabaja by Spouses Salvador as the administrator of the THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE LOWER COURT
property. Spouses Rabaja could not be blamed if they had transacted with GRAVELY ERRED IN AWARDING DAMAGES TO RESPONDENTS SPS. RABAJA,
Gonzales. The CA then held that Spouses Salvador should return the THERE BEING NO FACTUAL AND LEGAL BASES FOR SUCH AWARD. VI THE
amount of ₱593,400.00 pursuant to a separate ejectment case, reasoning COURT OF APPEALS ERRED IN NOT HOLDING THAT THE TRIAL COURT
that Spouses Salvador misled the court because an examination of CA-G.R. GRAVELY ERRED IN AWARDING ₱100,000.00 TO RESPONDENT GONZALES
SP No. 89260showed that Spouses Rabaja were not involved in that case. AS ATTORNEY’S FEES WHEN RESPONDENT GONZALES, IN FACT,
CA-G.R. SP No. 59260 was an action between Spouses Salvador and COMMITTED FORGERY AND FALSIFICATION IN DEALING WITH THE
Gonzales only and involved a completely different residential apartment PROPERTY OF PETITIONERS AND MISAPPROPRIATED THE MONIES PAID TO
located at 302-C Jupiter Street, Dreamland Subdivision, Mandaluyong City. HER BY RESPONDENTS SPS. RABAJA, THUS GIVING PREMIUM TO HER
FRAUDULENT ACTS.22
The CA, however, ruled that Gonzales was not solidarily liable with Spouses
Salvador. The agent must expressly bind himself or exceed the limit of his The foregoing can be synthesized into three main issues. First, Spouses
authority in order to be solidarily liable. It was not shown that Gonzales as Salvador contend that the order of default must be lifted because
agent of Spouses Salvador exceeded her authority or expressly bound reasonable grounds exist to justify their failure to attend the pre-trial
herself to be solidarily liable. The decretal portion of the CA decision reads: conference on February 4, 2005. Second, Spouses Salvador raise in issue
WHEREFORE, the appeal is PARTLY GRANTED. The assailed Decision dated the veracity of the receipts given by Gonzales, the SPA and the validity of
March 29, 2007 and the Order dated September 12, 2007, of the Regional the contract to sell. They claim that the improvised receipts should not be
Trial Court, Branch 214, Mandaluyong City, in Civil Case No. MC-03-2175, given credence because these were crude and suspicious, measuring only
are AFFIRMED with MODIFICATION in that Rosario Gonzalez is not jointly by 2 x 2 inches which showed that Gonzales misappropriated the payments
and severally liable to pay Spouses Rabaja the amounts enumerated in of Spouses Rabaja for herself and did not remit the amount of ₱950,000.00
paragraph (b) of the Decision dated March 29, 2007. to them. As there was no consideration, then no valid contract to sell
existed. Third, Spouses Salvador argue that the ejectment case, from which
SO ORDERED.21 the amount of ₱593,400.00 was garnished, already became final and
executory and could not anymore be disturbed. Lastly, the award of
Spouses Salvador filed a motion for reconsideration but it was denied by damages in favor of Spouses Rabaja and Gonzales was improper absent
the CA in its January 5, 2012 Resolution. any legal and factual bases.

Hence, this petition. On January 21, 2013, Spouses Salvador filed their supplemental
petition23 informing the Court that RTC-Br. 213 had rendered a decision in
ASSIGNMENT OF ERRORS Civil Case No. MC00-1082, an action for rescission of the SPA. The said
decision held that Spouses Salvador properly revoked the SPA in favor of
I Gonzales due to loss of trust and confidence. On September 11, 2013,
Gonzales filed her comment to the supplemental petition,24 contending
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE LOWER COURT that the RTC-Branch 213 decision had no bearing because it had not yet
GRAVELY ABUSED ITS DISCRETION IN DECLARING PETITIONERS IN DEFAULT attained finality. On even date, Spouses Rabaja filed their
AND IN DEPRIVING THEM OF THE OPPORTUNITY TO CROSS-EXAMINE Comment,25 asserting that the present petition is a mere rehash of the
RESPONDENTS SPS. RABAJA AS WELL AS TO PRESENT EVIDENCE FOR AND previous arguments of Spouses Salvador before the CA. On November 15,
5
2013, Spouses Salvador replied that they merely wanted to show that the the rationale for the deletion of the phrase "as in default" in the amended
findings by the RTC-Br. 213 should be given weight as a full-blown trial was provision, to wit:
conducted therein.26
1. This is a substantial reproduction of Section 2 of the former Rule 20 with
The Court’s Ruling the change that, instead of defendant being declared "as in default" by
reason of his non-appearance, this section now spells out that the
As a general rule, the Court’s jurisdiction in a Rule 45 petition is limited to procedure will be to allow the ex parte presentation of plaintiff’s evidence
the review of pure questions of law. A question of law arises when the and the rendition of judgment on the basis thereof. While actually the
doubt or difference exists as to what the law is on a certain state of facts. procedure remains the same, the purpose is one of semantical propriety or
Negatively put, Rule 45 does not allow the review of questions of fact. A terminological accuracy as there were criticisms on the use of the word
question of fact exists when the doubt or difference arises as to the truth "default" in the former provision since that term is identified with the
or falsity of the allegations.27 failure to file a required answer, not appearance in court.

The present petition presents questions of fact because it requires the Still, in the same book, Justice Regalado clarified that while the order of
Court to examine the veracity of the evidence presented during the trial, default no longer obtained, its effects were retained, thus:
such as the improvised receipts, the SPA given to Gonzales and the
contract to sell. Even the petitioner spouses themselves concede and ask Failure to file a responsive pleading within the reglementary period, and
the Court to consider questions of fact,28 but the Court finds no reason to not failure to appear at the hearing, is the sole ground for an order of
disturb the findings of fact of the lower courts absent any compelling default, except the failure to appear at a pre-trial conference wherein the
reason to the contrary. effects of a default on the part of the defendant are followed, that is, the
plaintiff shall be allowed to present evidence ex parte and a judgment
The failure of Spouses Salvador based thereon may be rendered against defendant.
to attend pre-trial conference
warrants the presentation of From the foregoing, the failure of a party to appear at the pre-trial has
evidence ex parte by Spouses indeed adverse consequences. If the absent party is the plaintiff, then his
Rabaja case shall be dismissed. If it is the defendant who fails to appear, then the
plaintiff is allowed to present his evidence ex parte and the court shall
On the procedural aspect, the Court reiterates the rule that the failure to render judgment based on the evidence presented. Thus, the plaintiff is
attend the pre-trial conference does not result in the default of an absent given the privilege to present his evidence without objection from the
party. Under the 1997 Rules of Civil Procedure, a defendant is only defendant, the likelihood being that the court will decide in favor of the
declared in default if he fails to file his Answer within the reglementary plaintiff, the defendant having forfeited the opportunity to rebut or
period.29 On the other hand, if a defendant fails to attend the pre-trial present its own evidence.31 The stringent application of the rules on pre-
conference, the plaintiff can present his evidence ex parte. Sections 4 and trial is necessitated from the significant role of the pre-trial stage in the
5, Rule 18 of the Rules of Court provide: litigation process. Pretrial is an answer to the clarion call for the speedy
disposition of cases. Although it was discretionary under the 1940 Rules of
Sec. 4. Appearance of parties. Court, it was made mandatory under the 1964 Rules and the subsequent
amendments in 1997.32 "The importance of pre-trial in civil actions cannot
It shall be the duty of the parties and their counsel to appear at the pre- be overemphasized."33
trial. The non-appearance of a party may be excused only if a valid cause is
shown therefor or if a representative shall appear in his behalf fully There is no dispute that Spouses Salvador and their counsel failed to
authorized in writing to enter into an amicable settlement, to submit to attend the pre-trial conference set on February 4, 2005 despite proper
alternative modes of dispute resolution, and to enter into stipulations or notice. Spouses Salvador aver that their non-attendance was due to the
admissions of facts and of documents. fault of their counsel as he forgot to update his calendar.34 This excuse
smacks of carelessness, and indifference to the pre-trial stage. It simply
Sec. 5. Effect of failure to appear. cannot be considered as a justifiable excuse by the Court. As a result of
their inattentiveness, Spouses Salvador could no longer present any
The failure of the plaintiff to appear when so required pursuant to the next evidence in their favor. Spouses Rabaja, as plaintiffs, were properly
preceding section shall be cause for dismissal of the action. The dismissal allowed by the RTC to present evidence ex parte against Spouses Salvador
shall be with prejudice, unless otherwise ordered by the court. A similar as defendants. Considering that Gonzales as co-defendant was able to
failure on the part of the defendant shall be cause to allow the plaintiff to attend the pre-trial conference, she was allowed to present her evidence.
present his evidence ex parteand the court to render judgment on the The RTC could only render judgment based on the evidence presented
basis thereof. during the trial.

[Emphasis supplied] Gonzales, as agent of Spouses

Salvador, could validly receive
The case of Philippine American Life & General Insurance Company v. the payments of Spouses
Joseph Enario30 discussed the difference between the non-appearance of a Rabaja
defendant in a pre-trial conference and the declaration of a defendant in
default in the present Rules of Civil Procedure. The decision instructs: Even on the substantial aspect, the petition does not warrant
consideration. The Court agrees with the courts below in finding that the
Prior to the 1997 Revised Rules of Civil Procedure, the phrase "as in contract entered into by the parties was essentially a contract of sale
default" was initially included in Rule 20 of the old rules, and which read as which could be validly rescinded. Spouses Salvador insist that they did not
follows: receive the payments made by Spouses Rabaja from Gonzales which
totalled ₱950,000.00 and that Gonzales was not their duly authorized
Sec. 2. A party who fails to appear at a pre-trial conference may be non- agent. These contentions, however, must fail in light of the applicable
suited or considered as in default. provisions of the New Civil Code which state:

It was, however, amended in the 1997 Revised Rules of Civil Procedure. Art. 1900. So far as third persons are concerned, an act is deemed to have
Justice Regalado, in his book, REMEDIAL LAW COMPENDIUM, explained been performed within the scope of the agent's authority, if such act is
within the terms of the power of attorney, as written, even if the agent has
6
in fact exceeded the limits of his authority according to an understanding Nevertheless, the assailed decision of the CA must be modified with
between the principal and the agent. respect to the amount of ₱593,400.00 garnished by Spouses Salvador and
ordered returned to Spouses Rabaja. The RTC ordered the return of the
xxxx amount garnished holding that it constituted a part of the purchase price.
The CA ruled that Spouses Salvador misled the Court when they improperly
Art. 1902. A third person with whom the agent wishes to contract on cited CA-G.R. SP No. 89260 to prove their entitlement to the said amount.
behalf of the principal may require the presentation of the power of Both courts erred in their ruling. First, the garnishment of the amount of
attorney, or the instructions as regards the agency. Private or secret orders ₱593,400.00 against Spouses Rabaja was pursuant to the CA decision in
and instructions of the principal do not prejudice third persons who have CA-G.R. SP No. 89259, an entirely different case involving an action for
relied upon the power of attorney or instructions shown them. ejectment, and it does not concern the rescission case which is on appeal
before this Court. Moreover, the decision on the ejectment case is final
xxxx and executory and an entry of judgment has already been made.41 Nothing
is more settled in law than that when a final judgment is executory, it
Art. 1910. The principal must comply with all the obligations which the thereby becomes immutable and unalterable. The judgment may no longer
agent may have contracted within the scope of his authority. be modified in any respect, even if the modification is meant to correct
what is perceived to be an erroneous conclusion of fact or law, and
Persons dealing with an agent must ascertain not only the fact of agency, regardless of whether the modification is attempted to be made by the
but also the nature and extent of the agent’s authority. A third person with court which rendered it or by the highest Court of the land. The doctrine is
whom the agent wishes to contract on behalf of the principal may require founded on consideration of public policy and sound practice that, at the
the presentation of the power of attorney, or the instructions as regards risk of occasional errors, judgments must become final at some definite
the agency. The basis for agency is representation and a person dealing point in time.42
with an agent is put upon inquiry and must discover on his own peril the
authority of the agent.35 The March 31, 2006 CA decision43 in CA-G.R. SP No. 89259has long been
final and executory and cannot any more be disturbed by the Court. Public
According to Article 1990 of the New Civil Code, insofar as third persons policy dictates that once a judgment becomes final, executory and
are concerned, an act is deemed to have been performed within the scope unappealable, the prevailing party should not be denied the fruits of his
of the agent's authority, if such act is within the terms of the power of victory by some subterfuge devised by the losing party. Unjustified delay in
attorney, as written. In this case, Spouses Rabaja did not recklessly enter the enforcement of a judgment sets at naught the role and purpose of the
into a contract to sell with Gonzales. They required her presentation of the courts to resolve justiciable controversies with finality.44
power of attorney before they transacted with her principal. And when
Gonzales presented the SPA to Spouses Rabaja, the latter had no reason Meanwhile, in ruling that the garnishment was improper and thus ordering
not to rely on it. the return of the garnished amount, the CA referred to its decision in CA-
G.R. SP No. 89260. Spouses Salvador, however, clarified in its motion for
The law mandates an agent to act within the scope of his authority which reconsideration45 before the CA and in the present petition46 that the
what appears in the written terms of the power of attorney granted upon garnishment was pursuant to CA-G.R. SP No. 89259, and not CA-G.R. SP
him.36 The Court holds that, indeed, Gonzales acted within the scope of her No. 89260, another ejectment case involving another property. A perusal
authority. The SPA precisely stated that she could administer the property, of the records reveals that indeed the garnishment was pursuant to the
negotiate the sale and collect any document and all payments related to ejectment case in the MeTC, docketed as Civil Case No. 17344,47 where
the subject property.37 As the agent acted within the scope of his Spouses Rabaja were the defendants. The MeTC decision was then
authority, the principal must comply with all the obligations.38 As correctly reinstated by the CA in CA-G.R. SP No. 89259, not CA-G.R. SP No. 89260.
held by the CA, considering that it was not shown that Gonzales exceeded There, a writ of execution48 and notice of pay49 were issued against
her authority or that she expressly bound herself to be liable, then she Spouses Rabaja in the amount of ₱591,900.00.
could not be considered personally and solidarily liable with the principal,
Spouses Salvador.39 Second, Spouses Rabaja’s appeal with the RTC never sought relief in
returning the garnished amount.50 Such issue simply emerged in the RTC
Perhaps the most significant point which defeats the petition would be the decision. This is highly improper because the court’s grant of relief is
fact that it was Herminia herself who personally introduced Gonzalez to limited only to what has been prayed for in the complaint or related
Spouses Rabaja as the administrator of the subject property. By their own thereto, supported by evidence, and covered by the party’s cause of
ostensible acts, Spouses Salvador made third persons believe that action.51
Gonzales was duly authorized to administer, negotiate and sell the subject
property. This fact was even affirmed by Spouses Salvador themselves in If Spouses Rabaja would have any objection on the manner and propriety
their petition where they stated that they had authorized Gonzales to look of the execution, then they must institute their opposition to the execution
for a buyer of their property.40 It is already too late in the day for Spouses proceeding a separate case. Spouses Rabaja can invoke the Civil Code
Salvador to retract the representation to unjustifiably escape their provisions on legal compensation or set-off under Articles 1278, 1279 and
principal obligation. 1270.52 The two obligations appear to have respectively offset each other,
compensation having taken effectby operation of law pursuant to the said
As correctly held by the CA and the RTC, considering that there was a valid provisions of the Civil Code, since all the requisites provided in Art. 1279 of
SPA, then Spouses Rabaja properly made payments to Gonzales, as agent the said Code for automatic compensation are duly present.
of Spouses Salvador; and it was as if they paid to Spouses Salvador. It is of
no moment, insofar as Spouses Rabaja are concerned, whether or not the No award of actual, moral and
payments were actually remitted to Spouses Salvador. Any internal matter, exemplary damages
arrangement, grievance or strife between the principal and the agent is
theirs alone and should not affect third persons. If Spouses Salvador did The award of damages to Spouses Rabaja cannot be sustained by this
not receive the payments or they wish to specifically revoke the SPA, then Court. The filing alone of a civil action should not be a ground for an award
their recourse is to institute a separate action against Gonzales. Such of moral damages in the same way that a clearly unfounded civil action is
action, however, is not any more covered by the present proceeding. not among the grounds for moral damages.53 Article 2220 of the New Civil
Code provides that to award moral damages in a breach of contract, the
The amount of ₱593,400.00 defendant must act fraudulently or in bad faith. In this case, Spouses
should not be returned by Rabaja failed to sufficiently show that Spouses Salvador acted in a
Spouses Salvador
7
fraudulent manner or with bad faith when it breached the contract of sale. The amounts awarded are subject to interest at the legal rate of 6% per
Thus, the award of moral damages cannot be warranted. annum to be reckoned from the date of finality of this judgment until fully
paid."
As to the award of exemplary damages, Article 2229 of the New Civil Code
provides that exemplary damages may be imposed by way of example or As aforestated, this is without prejudice to the invocation by either party
correction for the public good, in addition to the moral, temperate, of the Civil Code provisions on legal compensation or set-off under Articles
liquidated or compensatory damages.54 The claimant must first establish 1278, 1279 and 1270.
his right to moral, temperate, liquidated or compensatory damages. In this
case, considering that Spouses Rabaja failed to prove moral or SO ORDERED.
compensatory damages, then there could be no award of exemplary
damages. AGENCY-ESTOPPEL

With regard to attorney’s fees, neither Spouses Rabaja nor Gonzales is G.R. No. 166044 June 18, 2012
entitled to the award.1âwphi1 The settled rule is that no premium should
be placed on the right to litigate and that not every winning party is COUNTRY BANKERS INSURANCE CORPORATION, Petitioner,
entitled to an automatic grant of attorney’s fees.55 The RTC reasoned that vs.
Gonzales was forced to litigate due to the acts of Spouses Salvador. The KEPPEL CEBU SHIPYARD, UNIMARINE SHIPPING LINES, INC., PAUL
Court does not agree. Gonzales, as agent of Spouses Salvador, should have RODRIGUEZ, PETER RODRIGUEZ, ALBERT HONTANOSAS, and BETHOVEN
expected that she would be called to litigation in connection with her QUINAIN, Respondents.
fiduciary duties to the principal.
DECISION
In view of all the foregoing, the CA decision should be affirmed with the
following modifications: LEONARDO-DE CASTRO, J.:

1. The order requiring defendant Spouses Rolando and This is a petition for review on certiorari1 to reverse and set aside the
Herminia Salvador to pay plaintiffs the amount of Five Hundred January 29, 2004 Decision2 and October 28, 2004 Resolution3 of the Court
Ninety Three Thousand (₱593,000.00) Pesos, representing the of Appeals in CA-G.R. CV No. 58001, wherein the Court of Appeals affirmed
amount garnished from the Metrobank deposit of plaintiffs as with modification the February 10, 1997 Decision4 of the Regional Trial
for their back rentals should be deleted; Court (RTC) of Cebu City, Branch 7, in Civil Case No. CBB-13447.

2. The award of moral damages in the amount of Twenty Hereunder are the undisputed facts as culled from the records of the case.
Thousand (₱20,000.00) Pesos; exemplary damages in the
amount of Twenty Thousand (₱20,000.00) Pesos, and attorney’s On January 27, 1992, Unimarine Shipping Lines, Inc. (Unimarine), a
fees in the amount of One Hundred Thousand (₱100,000.00) corporation engaged in the shipping industry, contracted the services of
Pesos in favor of Spouses Rabaja should be deleted; and Keppel Cebu Shipyard, formerly known as Cebu Shipyard and Engineering
Works, Inc. (Cebu Shipyard), for dry docking and ship repair works on its
3. The award of attorney’s fees in amount of One Hundred vessel, the M/V Pacific Fortune.5
Thousand (₱100,000.00) Pesos in favor of Gonzales should be
deleted. On February 14, 1992, Cebu Shipyard issued Bill No. 26035 to Unimarine in
consideration for its services, which amounted to
The other amounts awarded are subject to interest at the legal rate of 6% ₱4,486,052.00.6 Negotiations between Cebu Shipyard and Unimarine led to
per annum, to be reckoned from the date of finality of this judgment until the reduction of this amount to ₱3,850,000.00. The terms of this
fully paid. agreement were embodied in Cebu Shipyard’s February 18, 1992 letter to
the President/General Manager of Unimarine, Paul Rodriguez, who signed
WHEREFORE, the petition is PARTLY GRANTED. The March 29, 2007 his conformity to said letter, quoted in full below:
Decision of the Regional Trial Court, Branch 214, Mandaluyong City, in Civil
Case No. MC-03-2175, is MODIFIED to read as follows: 18 February 1992
Ref No.: LL92/0383
"WHEREFORE, this Court renders judgment as follows:
UNIMARINE SHIPPING LINES, INC.
a. Ordering the "Contract to Sell" entered into by Spouses C/O Autographics, Inc.
Rogelio and Elizabeth Rabaja and Spouses Rolando and Gorordo Avenue, Lahug, Cebu City
Herminia Salvador on July 24, 1998 as RESCINDED;
Attention: Mr. Paul Rodriguez
b. Ordering Spouses Rolando and Herminia Salvador to pay
Spouses Rogelio and Elizabeth Rabaja: President/General Manager

1. The amount of Nine Hundred Fifty Thousand This is to confirm our agreement on the shiprepair bills charged for the
(₱950,000.00) Pesos, representing the payments repair of MV Pacific Fortune, our invoice no. 26035.
made by the latter for the purchase of the subject
property; and The shiprepair bill (Bill No. 26035) is agreed at a negotiated amount of
₱3,850,000.00 excluding VAT.
2. The cost of suit;
Unimarine Shipping Lines, Inc. ("Unimarine") will pay the above amount of
c. Dismissing the counterclaims of Spouses Rolando and [₱3,850,000.00] in US Dollars to be fixed at the prevailing USDollar to
Herminia Salvador and Rosario Gonzales against Spouses Philippine Peso exchange rate at the time of payment. The payment terms
Rogelio and Elizabeth Rabaja. to be extended to Unimarine is as follows:

8
 Installments Amount Because Unimarine failed to remit the first installment when it became due
Due Date
on May 30, 1992, Cebu Shipyard was constrained to deposit the peso
check corresponding to the initial installment of ₱2,350,000.00. The check,
12
1st Installment ₱2,350,000.00 however,
30 Maywas
1992dishonored by the bank due to insufficient funds. Cebu
Shipyard faxed a message to Unimarine, informing it of the situation, and
reminding it to settle its account immediately.13
2nd Installment ₱1,500,000.00 30 Jun 1992
On June 24, 1992, Cebu Shipyard again faxed a message14 to Unimarine, to
Unimarine will deposit post-dated checks equivalent to the above amounts confirm Paul Rodriguez’s promise that Unimarine will pay in full the
in Philippine Peso and an additional check amount of ₱385,000.00, ₱3,850,000.00, in US Dollars on July 1, 1992.
representing 10% [Value Added Tax] VAT on the above bill of
₱3,850,000.00. In the event that Unimarine fails to make full payment on Since Unimarine failed to deliver on the above promise, Cebu Shipyard, on
the above due dates in US Dollars, the post-dated checks will be deposited July 2, 1992, through a faxed letter, asked Unimarine if the payment could
by CSEW in payment of the amounts owned by Unimarine and Unimarine be picked up the next day. This was followed by another faxed message on
agree that the 10% VAT (₱385,000.00) shall also become payable to CSEW. July 6, 1992, wherein Cebu Shipyard reminded Unimarine of its promise to
pay in full on July 28, 1992. On August 24, 1992, Cebu Shipyard again
Unimarine in consideration of the credit terms extended by CSEW and the faxed15 Unimarine, to inform it that interest charges will have to be
release of the vessel before full payment of the above debt, agree to imposed on their outstanding debt, and if it still fails to pay before August
present CSEW surety bonds equal to 120% of the value of the credit 28, 1992, Cebu Shipyard will have to enforce payment against the sureties
extended. The total bond amount shall be ₱4,620,000.00. and take legal action.

Yours faithfully, On November 18, 1992, Cebu Shipyard, through its counsel, sent
Unimarine a letter,16 demanding payment, within seven days from receipt
of the letter, the amount of ₱4,859,458.00, broken down as follows:
SHIPYARD & ENG'G WORKS, INC. Conforme:

(SGD) B#26035 MV PACIFIC FORTUNE 4,486,052.00

KENG TAT LESS: ADJUSTMENT:
urer/VP-Admin.
CN#00515-03/19/92 (636,052.00)
PAUL RODRIGUEZ
--------------------
Unimarine Shipping
Lines, Inc.7
3,850,000.00
In compliance with the agreement, Unimarine, through Paul Rodriguez,
secured from Country Bankers Insurance Corp. (CBIC), through the latter’s
agent, Bethoven Quinain (Quinain), CBIC Surety Bond No. G (16) Add: VAT on repair bill no. 26035 385,000.00
294198 (the surety bond) on January 15, 1992 in the amount of --------------------
₱3,000,000.00. The expiration of this surety bond was extended to January
15, 1993, through Endorsement No. 331529 (the endorsement), which was
later on attached to and formed part of the surety bond. In addition to 4,235,000.00
this, Unimarine, on February 19, 1992, obtained another bond from
Plaridel Surety and Insurance Co. (Plaridel), PSIC Bond No. G (16)-0036510 in
the amount of ₱1,620,000.00. Add: Interest/penalty charges: 189,888.00
Debit Note No. 02381
On February 17, 1992, Unimarine executed a Contract of Undertaking in
favor of Cebu Shipyard. The pertinent portions of the contract read as
follows: Debit Note No. 02382 434,570.00
--------------------
Messrs, Uni-Marine Shipping Lines, Inc. ("the Debtor") of Gorordo Avenue, 4,859,458.0017
Cebu City hereby acknowledges that in consideration of Cebu Shipyard &
Engineering Works, Inc. ("Cebu Shipyard") at our request agreeing to
Due to Unimarine’s failure to heed Cebu Shipyard’s repeated demands,
release the vessel specified in part A of the Schedule ("name of vessel")
Cebu Shipyard, through counsel, wrote the sureties CBIC18 on November
prior to the receipt of the sum specified in part B of the Schedule ("Moneys
18, 1992, and Plaridel,19 on November 19, 1992, to inform them of
Payable") payable in respect of certain works performed or to be
Unimarine’s nonpayment, and to ask them to fulfill their obligations as
performed by Cebu Shipyard and/or its subcontractors and/or material and
sureties, and to respond within seven days from receipt of the demand.
equipment supplied or to be supplied by Cebu Shipyard and/or its
subcontractors in connection with the vessel for the party specified in part
However, even the sureties failed to discharge their obligations, and so
C of the Schedule ("the Debtor"), we hereby unconditionally, irrevocably
Cebu Shipyard filed a Complaint dated January 8, 1993, before the RTC,
undertake to make punctual payment to Cebu Shipyard of the Moneys
Branch 18 of Cebu City, against Unimarine, CBIC, and Plaridel. This was
Payable on the terms and conditions as set out in part B of the Schedule.
docketed as Civil Case No. CBB-13447.
We likewise hereby expressly waive whatever right of excussion we may
have under the law and equity.
CBIC, in its Answer,20 said that Cebu Shipyard’s complaint states no cause
of action. CBIC alleged that the surety bond was issued by its agent,
This contract shall be binding upon Uni-Marine Shipping Lines, Inc., its
Quinain, in excess of his authority. CBIC claimed that Cebu Shipyard should
heirs, executors, administrators, successors, and assigns and shall not be
have doubted the authority of Quinain to issue the surety bond based on
discharged until all obligation of this contract shall have been faithfully and
the following:
fully performed by the Debtor.11

9
 1. The nature of the bond undertaking (guarantee payment), CBIC presented Dakila Rianzares, the Senior Manager of its Bonding
and the amount involved. Department. Her duties included the evaluation and approval of all
applications for and reviews of bonds issued by their agents, as authorized
2. The surety bond could only be issued in favor of the under the Special Power of Attorney and General Agency Contract of CBIC.
Department of Public Works and Highways, as stamped on the Rianzares testified that she only learned of the existence of CBIC Surety
upper right portion of the face of the bond.21 This stamp was Bond No. G (16) 29419 when she received the summons for this case.
covered by documentary stamps. Upon investigation, she found out that the surety bond was not reported
to CBIC by Quinain, the issuing agent, in violation of their General Agency
3. The issuance of the surety bond was not reported, and the Contract, which provides that all bonds issued by the agent be reported to
corresponding premiums were not remitted to CBIC.22 CBIC’s office within one week from the date of issuance. She further stated
that the surety bond issued in favor of Unimarine was issued beyond
CBIC added that its liability was extinguished when, without its knowledge Quinain’s authority. Rianzares added that she was not aware that an
and consent, Cebu Shipyard and Unimarine novated their agreement endorsement pertaining to the surety bond was also issued by Quinain.33
several times. Furthermore, CBIC stated that Cebu Shipyard’s claim had
already been paid or extinguished when Unimarine executed an After the trial, the RTC was faced with the lone issue of whether or not
Assignment of Claims23 of the proceeds of the sale of its vessel M/V CBIC was liable to Cebu Shipyard based on Surety Bond No. G (16) 29419.34
Headline in favor of Cebu Shipyard. CBIC also averred that Cebu Shipyard’s
claim had already prescribed as the endorsement that extended the surety On February 10, 1997, the RTC rendered its Decision, the fallo of which
bond’s expiry date, was not reported to CBIC. Finally, CBIC asseverated reads:
that if it were held to be liable, its liability should be limited to the face
value of the bond and not for exemplary damages, attorney’s fees, and WHEREFORE, judgment is hereby rendered in favor of the plaintiff Cebu
costs of litigation.24 Shipyard & Engineering Works, Incorporated and against the defendants:

Subsequently, CBIC filed a Motion to Admit Cross and Third Party 1. Ordering the defendants Unimarine Shipping Lines,
Complaint25 against Unimarine, as cross defendant; Paul Rodriguez, Albert Incorporated, Country Bankers Insurance Corporation and
Hontanosas, and Peter Rodriguez, as signatories to the Indemnity Plaridel Surety and Insurance Corporation to pay plaintiff jointly
Agreement they executed in favor of CBIC; and Bethoven Quinain, as the and severally the amount of ₱4,620,000.00 equivalent to the
agent who issued the surety bond and endorsement in excess of his value of the surety bonds;
authority, as third party defendants.26
2. Ordering further defendant Unimarine to pay plaintiff the
CBIC claimed that Paul Rodriguez, Albert Hontanosas, and Peter Rodriguez amount of ₱259,458.00 to complete its entire obligation of
executed an Indemnity Agreement, wherein they bound themselves, ₱4,859,458.00;
jointly and severally, to indemnify CBIC for any amount it may sustain or
incur in connection with the issuance of the surety bond and the 3. To pay plaintiff jointly and severally the amount of
endorsement.27 As for Quinain, CBIC alleged that he exceeded his authority ₱100,000.00 in attorney’s fees and litigation expenses;
as stated in the Special Power of Attorney, wherein he was authorized to
solicit business and issue surety bonds not exceeding ₱500,000.00 but only 4. For Cross defendant Unimarine Shipping Lines, Incorporated
in favor of the Department of Public Works and Highways, National Power and Third party defendants Paul Rodriguez, Peter Rodriguez and
Corporation, and other government agencies.28 Alber[t] Hontanosas: To indemnify jointly and severally, cross
plaintiff and third party plaintiff Country Bankers Insurance
On August 23, 1993, third party defendant Hontanosas filed his Answer Corporation whatever amount the latter is made to pay to
with Counterclaim, to the Cross and Third Party Complaint. Hontanosas plaintiff.35
claimed that he had no financial interest in Unimarine and was neither a
stockholder, director nor an officer of Unimarine. He asseverated that his The RTC held that CBIC, "in its capacity as surety is bound with its principal
relationship to Unimarine was limited to his capacity as a lawyer, being its jointly and severally to the extent of the surety bond it issued in favor of
retained counsel. He further denied having any participation in the [Cebu Shipyard]" because "although the contract of surety is in essence
Indemnity Agreement executed in favor of CBIC, and alleged that his secondary only to a valid principal obligation, his liability to [the] creditor is
signature therein was forged, as he neither signed it nor appeared before said to be direct, primary[,] and absolute, in other words, he is bound by
the Notary Public who acknowledged such undertaking.29 the principal."36 The RTC added:

Various witnesses were presented by the parties during the course of the Solidary obligations on the part of Unimarine and CBIC having been
trial of the case. Myrna Obrinaga testified for Cebu Shipyard. She was the established and expressly stated in the Surety Bond No. 29419 (Exh. "C"),
Chief Accountant in charge of the custody of the documents of the [Cebu Shipyard], therefore, is entitled to collect and enforce said obligation
company. She corroborated Cebu Shipyard’s allegations and produced in against any and or both of them, and if and when CBIC pays, it can compel
court the documents to support Cebu Shipyard’s claim. She also testified its co-defendant Unimarine to reimburse to it the amount it has paid.37
that while it was true that the proceeds of the sale of Unimarine’s vessel,
M/V Headline, were assigned to Cebu Shipyard, nothing was turned over The RTC found CBIC’s contention that Quinain acted in excess of his
to them.30 authority in issuing the surety bond untenable. The RTC held that CBIC is
bound by the surety bond issued by its agent who acted within the
Paul Rodriguez admitted that Unimarine failed to pay Cebu Shipyard for apparent scope of his authority. The RTC said:
the repairs it did on M/V Pacific Fortune, despite the extensions granted to
Unimarine. He claimed that he signed the Indemnity Agreement because [A]s far as third persons are concerned, an act is deemed to have been
he trusted Quinain that it was a mere pre-requisite for the issuance of the performed within the scope of the agent’s authority, if such act is within
surety bond. He added that he did not bother to read the documents and the terms of the powers of attorney as written, even if the agent has in
he was not aware of the consequences of signing an Indemnity Agreement. fact exceeded the limits of his authority according to an understanding
Paul Rodriguez also alleged to not having noticed the limitation "Valid only between the principal and the agent.38
in favor of DPWH" stamped on the surety bond.31 However, Paul Rodriguez
did not contradict the fact that Unimarine failed to pay Cebu Shipyard its All the defendants appealed this Decision to the Court of Appeals.
obligation.32

10
Unimarine, Paul Rodriguez, Peter Rodriguez, and Albert Hontanosas argued rejected Hontanosas’s claim that his signature in the Indemnity Agreement
that Unimarine’s obligation under Bill No. 26035 had been extinguished by was forged, as he was not able to prove it.46
novation, as Cebu Shipyard had agreed to accept the proceeds of the sale
of the M/V Headline as payment for the ship repair works it did on M/V The Court of Appeals affirmed the award of attorney’s fees and litigation
Pacific Fortune. Paul Rodriguez and Peter Rodriguez added that such expenses to Cebu Shipyard since it was able to clearly establish the
novation also freed them from their liability under the Indemnity defendants’ liability, which they tried to dodge by setting up defenses to
Agreement they signed in favor of CBIC. Albert Hontanosas in turn release themselves from their obligation.47
reiterated that he did not sign the Indemnity Agreement.39 [SC1
CBIC48 and Unimarine, together with third party defendants-
CBIC, in its Appellant’s Brief,40 claimed that the RTC erred in enforcing its appellants49 filed their respective Motions for Reconsideration. This was,
liability on the surety bond as it was issued in excess of Quinain’s authority. however, denied by the Court of Appeals in its October 28, 2004
Moreover, CBIC averred, its liability under such surety had been Resolution for lack of merit.
extinguished by reasons of novation, payment, and prescription. CBIC also
questioned the RTC’s order, holding it jointly and severally liable with Unimarine elevated its case to this Court via a petition for review on
Unimarine and Plaridel for the amount of ₱4,620,000.00, a sum larger than certiorari, docketed as G.R. No. 166023, which was denied in a Resolution
the face value of CBIC Surety Bond No. G (16) 29419, and why the RTC did dated January 19, 2005.50
not hold Quinain liable to indemnify CBIC for whatever amount it was
ordered to pay Cebu Shipyard. The lone petitioner in this case, CBIC, is now before this Court, seeking the
reversal of the Court of Appeals’ decision and resolution on the following
On January 29, 2004, the Court of Appeals promulgated its decision, with grounds:
the following dispositive portion:
A.
WHEREFORE, in view of the foregoing, the respective appeal[s] filed by
Defendants-Appellants Unimarine Shipping Lines, Inc. and Country Bankers THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN
Insurance Corporation; Cross-Defendant-Appellant Unimarine Shipping APPLYING THE PROVISIONS OF ARTICLE 1911 OF THE CIVIL
Lines, Inc. and; Third-Party Defendants-Appellants Paul Rodriguez, Peter CODE TO HOLD PETITIONER LIABLE FOR THE ACTS DONE BY ITS
Rodriguez and Albert Hontanosas are hereby DENIED. The decision of the AGENT IN EXCESS OF AUTHORITY.
RTC in Civil Case No. CEB-13447 dated February 10, 1997 is AFFIRMED with
modification that Mr. Bethoven Quinain, CBIC’s agent is hereby held jointly B.
and severally liable with CBIC by virtue of Surety Bond No. 29419 executed
in favor of plaintiff-appellee CSEW.41 THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN
HOLDING THAT AN EXTENSION OF THE PERIOD FOR THE
In its decision, the Court of Appeals resolved the following issues, as it had PERFORMANCE OF AN OBLIGATION GRANTED BY THE
summarized from the parties’ pleadings: CREDITOR TO THE PRINCIPAL DEBTOR IS NOT SUFFICIENT TO
RELEASE THE SURETY.
I. Whether or not UNIMARINE is liable to [Cebu Shipyard] for a
sum of money arising from the ship-repair contract; C.

II. Whether or not the obligation of UNIMARINE to [Cebu ASSUMING THAT PETITIONER IS LIABLE UNDER THE BOND, THE
Shipyard] has been extinguished by novation; HONORABLE COURT OF APPEALS NONETHELESS SERIOUSLY
ERRED IN AFFIRMING THE SOLIDARY LIABILITY OF PETITIONER
III. Whether or not Defendant-Appellant CBIC, allegedly being BEYOND THE VALUE OF THE BOND.
the Surety of UNIMARINE is liable under Surety Bond No.
29419[;] D.

IV. Whether or not Cross Defendant-Appellant UNIMARINE and THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
Third-Party Defendants-Appellants Paul Rodriguez, Peter PETITIONER JOINTLY AND SEVERALLY LIABLE FOR ATTORNEY’S
Rodriguez, Albert Hontanosas and Third-Party Defendant FEES IN THE AMOUNT OF ₱100,000.00.51
Bethoven Quinain are liable by virtue of the Indemnity
Agreement executed between them and Cross and Third Party Issue
Plaintiff CBIC;
The crux of the controversy lies in CBIC’s liability on the surety bond
V. Whether or not Plaintiff-Appellee [Cebu Shipyard] is entitled Quinain issued to Unimarine, in favor of Cebu Shipyard.
to the award of ₱100,000.00 in attorney’s fees and litigation
expenses.42 CBIC avers that the Court of Appeals erred in interpreting and applying the
rules governing the contract of agency. It argued that the Special Power of
The Court of Appeals held that it was duly proven that Unimarine was Attorney granted to Quinain clearly set forth the extent and limits of his
liable to Cebu Shipyard for the ship repair works it did on the former’s M/V authority with regard to businesses he can transact for and in behalf of
Pacific Fortune. The Court of Appeals dismissed CBIC’s contention of CBIC. CBIC added that it was incumbent upon Cebu Shipyard to inquire and
novation for lack of merit.43 CBIC was held liable under the surety bond as look into the power of authority conferred to Quinain. CBIC said:
there was no novation on the agreement between Unimarine and Cebu
Shipyard that would discharge CBIC from its obligation. The Court of The authority to bind a principal as a guarantor or surety is one of those
Appeals also did not allow CBIC to disclaim liability on the ground that powers which requires a Special Power of Attorney pursuant to Article
Quinain exceeded his authority because third persons had relied upon 1878 of the Civil Code. Such power could not be simply assumed or
Quinain’s representation, as CBIC’s agent.44 Quinain was, however, held inferred from the mere existence of an agency. A person who enters into a
solidarily liable with CBIC under Article 1911 of the Civil Code.45 contract of suretyship with an agent without confirming the extent of the
latter’s authority does so at his peril. x x x.52
Anent the liability of the signatories to the Indemnity Agreement, the
Court of Appeals held Paul Rodriguez, Peter Rodriguez, and Albert CBIC claims that the foregoing is true even if Quinain was granted the
Hontanosas jointly and severally liable thereunder. The Court of Appeals authority to transact in the business of insurance in general, as "the
11
authority to bind the principal in a contract of suretyship could Art. 1910. The principal must comply with all the obligations which the
nonetheless never be presumed."53 Thus, CBIC claims, that: agent may have contracted within the scope of his authority.

[T]hird persons seeking to hold the principal liable for transactions entered As for any obligation wherein the agent has exceeded his power, the
into by an agent should establish the following, in case the same is principal is not bound except when he ratifies it expressly or tacitly.
controverted:
Art. 1911. Even when the agent has exceeded his authority, the principal is
6.6.1. The fact or existence of the agency. solidarily liable with the agent if the former allowed the latter to act as
though he had full powers.
6.6.2. The nature and extent of authority.54
Our law mandates an agent to act within the scope of his authority.62 The
To go a little further, CBIC said that the correct Civil Code provision to scope of an agent’s authority is what appears in the written terms of the
apply in this case is Article 1898. CBIC asserts that "Cebu Shipyard was power of attorney granted upon him.63 Under Article 1878(11) of the Civil
charged with knowledge of the extent of the authority conferred on Mr. Code, a special power of attorney is necessary to obligate the principal as a
Quinain by its failure to perform due diligence investigations."55 guarantor or surety.

Cebu Shipyard, in its Comment56 first assailed the propriety of the petition In the case at bar, CBIC could be held liable even if Quinain exceeded the
for raising factual issues. In support, Cebu Shipyard claimed that the Court scope of his authority only if Quinain’s act of issuing Surety Bond No. G
of Appeals’ application of Article 1911 of the Civil Code was founded on (16) 29419 is deemed to have been performed within the written terms of
findings of facts that CBIC now disputes. Thus, the question is not purely of the power of attorney he was granted.64
law.
However, contrary to what the RTC held, the Special Power of Attorney
Discussion accorded to Quinain clearly states the limits of his authority and
particularly provides that in case of surety bonds, it can only be issued in
The fact that Quinain was an agent of CBIC was never put in issue. What favor of the Department of Public Works and Highways, the National
has always been debated by the parties is the extent of authority or, at the Power Corporation, and other government agencies; furthermore, the
very least, apparent authority, extended to Quinain by CBIC to transact amount of the surety bond is limited to ₱500,000.00, to wit:
insurance business for and in its behalf.
SPECIAL POWER OF ATTORNEY
In a contract of agency, a person, the agent, binds himself to represent
another, the principal, with the latter’s consent or authority.57 Thus, agency KNOW ALL MEN BY THESE PRESENTS:
is based on representation, where the agent acts for and in behalf of the
principal on matters within the scope of the authority conferred upon That, COUNTRY BANKERS INSURANCE CORPORATION, a corporation duly
him.58 Such "acts have the same legal effect as if they were personally done organized and existing under and by virtue of the laws of the Philippines,
by the principal. By this legal fiction of representation, the actual or legal with head offices at 8th Floor, G.F. Antonino Building, T.M. Kalaw Street,
absence of the principal is converted into his legal or juridical presence."59 Ermita, Manila, now and hereinafter referred to as "the Company" hereby
appoints BETHOVEN B. QUINAIN with address at x x x to be its General
The RTC applied Articles 1900 and 1911 of the Civil Code in holding CBIC Agent and Attorney-in-Fact, for and in its place, name and stead, and for its
liable for the surety bond. It held that CBIC could not be allowed to own use and benefit, to do and perform the following acts and things:
disclaim liability because Quinain’s actions were within the terms of the
special power of attorney given to him.60 The Court of Appeals agreed that 1. To conduct, manage, carry on and transact
CBIC could not be permitted to abandon its obligation especially since third insurance business as usually pertains to a General
persons had relied on Quinain’s representations. It based its decision on Agency of Fire, Personal Accident, Bond, Marine,
Article 1911 of the Civil Code and found CBIC to have been negligent and Motor Car (Except Lancer).
less than prudent in conducting its insurance business for its failure to
supervise and monitor the acts of its agents, to regulate the distribution of 2. To accept, underwrite and subscribe policies of
its insurance forms, and to devise schemes to prevent fraudulent insurance for and in behalf of the Company under
misrepresentations of its agents.61 the terms and conditions specified in the General
Agency Contract executed and entered into by and
This Court does not agree. Pertinent to this case are the following between it and its said Attorney-in-Fact subject to
provisions of the Civil Code: the following Schedule of Limits:

Art. 1898. If the agent contracts in the name of the principal, exceeding the - SCHEDULE OF LIMITS -
scope of his authority, and the principal does not ratify the contract, it shall
be void if the party with whom the agent contracted is aware of the limits a. FIRE:
of the powers granted by the principal. In this case, however, the agent is
liable if he undertook to secure the principal’s ratification. xxxx

Art. 1900. So far as third persons are concerned, an act is deemed to have b. PERSONAL ACCIDENT:
been performed within the scope of the agent’s authority, if such act is
within the terms of the power of attorney, as written, even if the agent has xxxx
in fact exceeded the limits of his authority according to an understanding
between the principal and the agent. c. MOTOR CAR:

Art. 1902. A third person with whom the agent wishes to contract on xxxx
behalf of the principal may require the presentation of the power of
attorney, or the instructions as regards the agency. Private or secret orders d. MARINE:
and instructions of the principal do not prejudice third persons who have
relied upon the power of attorney or instructions shown to them. xxxx

12
 e. BONDS: agents’ powers in their contracts, it even stamped its surety bonds with
the restrictions, in order to alert the concerned parties. Moreover, its
xxxx company procedures, such as reporting requirements, show that it has
designed a system to monitor the insurance contracts issued by its agents.
Surety Bond (in favor of Dept. of Pub. Works and CBIC cannot be faulted for Quinain’s deliberate failure to notify it of his
transactions with Unimarine. In fact, CBIC did not even receive the
Highways, Nat’l. Power Corp. & other…. 500,000.00 premiums paid by Unimarine to Quinain.
Government agencies)65
Furthermore, nowhere in the decisions of the lower courts was it stated
CBIC does not anchor its defense on a secret agreement, mutual that CBIC let the public, or specifically Unimarine, believe that Quinain had
understanding, or any verbal instruction to Quinain. CBIC’s stance is the authority to issue a surety bond in favor of companies other than the
grounded on its contract with Quinain, and the clear, written terms Department of Public Works and Highways, the National Power
therein. This Court finds that the terms of the foregoing contract Corporation, and other government agencies. Neither was it shown that
specifically provided for the extent and scope of Quinain’s authority, and CBIC knew of the existence of the surety bond before the endorsement
Quinain has indeed exceeded them. extending the life of the bond, was issued to Unimarine. For one to
successfully claim the benefit of estoppel on the ground that he has been
Under Articles 1898 and 1910, an agent’s act, even if done beyond the misled by the representations of another, he must show that he was not
scope of his authority, may bind the principal if he ratifies them, whether misled through his own want of reasonable care and circumspection.71
expressly or tacitly. It must be stressed though that only the principal, and
not the agent, can ratify the unauthorized acts, which the principal must It is apparent that Unimarine had been negligent or less than prudent in its
have knowledge of.66 Expounding on the concept and doctrine of dealings with Quinain. In Manila Memorial Park Cemetery, Inc. v.
ratification in agency, this Court said: Linsangan,72 this Court held:

Ratification in agency is the adoption or confirmation by one person of an It is a settled rule that persons dealing with an agent are bound at their
act performed on his behalf by another without authority. The substance peril, if they would hold the principal liable, to ascertain not only the fact
of the doctrine is confirmation after conduct, amounting to a substitute for of agency but also the nature and extent of authority, and in case either is
a prior authority. Ordinarily, the principal must have full knowledge at the controverted, the burden of proof is upon them to establish it. The basis
time of ratification of all the material facts and circumstances relating to for agency is representation and a person dealing with an agent is put
the unauthorized act of the person who assumed to act as agent. Thus, if upon inquiry and must discover upon his peril the authority of the agent. If
material facts were suppressed or unknown, there can be no valid he does not make such an inquiry, he is chargeable with knowledge of the
ratification and this regardless of the purpose or lack thereof in concealing agent’s authority and his ignorance of that authority will not be any
such facts and regardless of the parties between whom the question of excuse.
ratification may arise. Nevertheless, this principle does not apply if the
principal’s ignorance of the material facts and circumstances was willful, or In the same case, this Court added:
that the principal chooses to act in ignorance of the facts. However, in the
absence of circumstances putting a reasonably prudent man on inquiry, [T]he ignorance of a person dealing with an agent as to the scope of the
ratification cannot be implied as against the principal who is ignorant of latter’s authority is no excuse to such person and the fault cannot be
the facts.67 (Emphases supplied.) thrown upon the principal. A person dealing with an agent assumes the
risk of lack of authority in the agent. He cannot charge the principal by
Neither Unimarine nor Cebu Shipyard was able to repudiate CBIC’s relying upon the agent’s assumption of authority that proves to be
testimony that it was unaware of the existence of Surety Bond No. G (16) unfounded. The principal, on the other hand, may act on the presumption
29419 and Endorsement No. 33152. There were no allegations either that that third persons dealing with his agent will not be negligent in failing to
CBIC should have been put on alert with regard to Quinain’s business ascertain the extent of his authority as well as the existence of his
transactions done on its behalf. It is clear, and undisputed therefore, that agency.73
there can be no ratification in this case, whether express or implied.
Unimarine undoubtedly failed to establish that it even bothered to inquire
Article 1911, on the other hand, is based on the principle of estoppel, if Quinain was authorized to agree to terms beyond the limits indicated in
which is necessary for the protection of third persons. It states that the his special power of attorney. While Paul Rodriguez stated that he has
principal is solidarily liable with the agent even when the latter has done business with Quinain more than once, he was not able to show that
exceeded his authority, if the principal allowed him to act as though he had he was misled by CBIC as to the extent of authority it granted Quinain. Paul
full powers. However, for an agency by estoppel to exist, the following Rodriguez did not even allege that he asked for documents to prove
must be established: Quinain’s authority to contract business for CBIC, such as their contract of
agency and power of attorney. It is also worthy to note that even with the
1. The principal manifested a representation of the agent’s Indemnity Agreement, Paul Rodriguez signed it on Quinain’s mere
authority or knowingly allowed the agent to assume such assurance and without truly understanding the consequences of the terms
authority; of the said agreement. Moreover, both Unimarine and Paul Rodriguez
could have inquired directly from CBIC to verify the validity and effectivity
2. The third person, in good faith, relied upon such of the surety bond and endorsement; but, instead, they blindly relied on
representation; and the representations of Quinain. As this Court held in Litonjua, Jr. v. Eternit
Corp.74 :
3. Relying upon such representation, such third person has
changed his position to his detriment.68 A person dealing with a known agent is not authorized, under any
circumstances, blindly to trust the agents; statements as to the extent of
In Litonjua, Jr. v. Eternit Corp.,69 this Court said that "[a]n agency by his powers; such person must not act negligently but must use reasonable
estoppel, which is similar to the doctrine of apparent authority, requires diligence and prudence to ascertain whether the agent acts within the
proof of reliance upon the representations, and that, in turn, needs proof scope of his authority. The settled rule is that, persons dealing with an
that the representations predated the action taken in reliance."70 assumed agent are bound at their peril, and if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature
This Court cannot agree with the Court of Appeals’ pronouncement of and extent of authority, and in case either is controverted, the burden of
negligence on CBIC’s part. CBIC not only clearly stated the limits of its proof is upon them to prove it. In this case, the petitioners failed to
13
discharge their burden; hence, petitioners are not entitled to damages owners in favor of CRC or its assignee/s and the same delivered to the
from respondent EC.75 latter together with the original certificate of title upon payment of the
purchase price less the advances made by CRC in accordance with
In light of the foregoing, this Court is constrained to release CBIC from its Paragraphs 2 and 3 above; provided, that payment shall be made by CRC
liability on Surety Bond No. G (16) 29419 and Endorsement No. 33152. This only upon presentation by the co-owners to CRC of certificate/s and/or
Court sees no need to dwell on the other grounds propounded by CBIC in clearances, with corresponding receipts, issued by the appropriate
support of its prayer. government office/s or agency/ies to the effect that capital gains tax, real
estate taxes on the Property and local transfer tax and other taxes, fees
WHEREFORE, this petition is hereby GRANTED and the complaint against or charges due on the transaction and/or on the Property have been
CBIC is DISMISSED for lack of merit. The January 29, 2004 Decision and paid.
October 28, 2004 Resolution of the Court of Appeals in CA-G.R. CV No.
58001 is MODIFIED insofar as it affirmed CBIC’s liability on Surety Bond No. 9. This option shall be effective from [the] date of your acceptance as
G (16) 29419 and Endorsement No. 33152. indicated by your conformity below and for a period of one (1) month from
and after CRC shall have been notified in writing by the co-owners that an
SO ORDERED. original certificate of title has been issued in their names and that they are
ready to execute the xxx deed of sale.3 (Emphasis and underscoring ours)
G.R. No. 169442
Respondents asked for several cash advances which reached the total
REPUBLIC OF THE PHILIPPINES, represented by the PRIVATIZATION AND amount of, more or less, Two Hundred Seventeen Thousand Pesos
MANAGEMENT OFFICE (PMO),Petitioner (P217,000.00), to be deducted from the purchase price of Four Hundred
vs. Thousand Pesos (₱400,000.00). After paying cash advances to
ANTONIO V. BANEZ, LUISITA BANEZ VALERA, NENA BANEZ HOJILLA, and respondents, CRC constructed staff houses and introduced improvements
EDGARDO B. HOJILLA, JR., Respondents on the subject property. As respondents would be staying abroad for a
time, they executed a Special Power of Attorney (SPA) in favor of Edgardo
DECISION B. Hojilla (Hojilla). The SPA authorized Hojilla to perform the following:

PEREZ, J.: 1. To take all steps necessary to cause a portion of the lot covered by Tax
Declaration No. 40185 in the name of Urbano Bañez which is the subject of
Assailed and sought to be annulled in this Petition for Review our "Offer to Sell" to Cellophil Resources Corporation containing an area
on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure is the xxx to be brought under the operation of Republic Act No. 496, as
Decision1 of the Court of Appeals dated 23 August 2005 in CA-G.R. CV No. amended, and to cause the issuance in our name of the corresponding
70137, entitled "Cellophil Resources Corporation v. Antonio V. Banez, original certificate of title.
Luisita Banez Valera, Nena Banez Hojilla and Edgardo B. Hojilla, Jr.," which
affirmed the Order2 of the Regional Trial Court (RTC), Branch 1, Bangued, 2. To do all acts and things and to execute all papers and documents of
Abra, dated 16 August 2000, that dismissed the complaint of petitioner whatever nature or kind required for the accomplishments of the aforesaid
Republic of the Philippines, represented by Privatization and Management purpose.
Office (PMO), for specific performance, recovery of possession, and
damages against respondents Antonio V. Banez, Luisita Bañez Valera, Nena HEREBY GRANTING AND GIVING unto our said attorney full power and
Bañez Hojilla and Edgardo B. Hojilla, Jr., docketed as Civil Case No. 1853. authority whatsoever requisite or necessary or proper to be done in or
about the premises as fully to all intents and purposes as we might or
The facts as culled from the records are as follows: could lawfully do if personally present (with power of substitution and
revocation), and hereby ratifying and confirming all that our said attorney
In 1976, Antonio V. Bañez, Luisita Bañez Valera, and Nena Bañez Hojilla shall do or cause to be done under and by virtue of these presents.4
(collectively, respondents) offered for sale a parcel of land (subject
property), with an area of 20,000 sq m in Barangay Calaba, Bangued, Abra However, CRC stopped its operation. The Development Bank of the
to Cellophil Resources Corporation (CRC). Pursuant to the offer to sell on 7 Philippines and National Development Company took over CRC’s operation
December 1981, respondents executed a Letter Agreement irrevocably and turned over CRC’s equity to Asset Privatization Trust (APT), which is a
giving CRC the option to purchase the subject property, which CRC government agency created by virtue of Proclamation No. 50, as amended.
accepted. The pertinent portion of the Letter Agreement (hereinafter The APT’s function is to take title to and possession of, provisionally
referred to as Contract), to wit: manage and dispose of nonperforming assets of government financial
institutions. Upon the expiration of APT’s term on 31 December 2000, the
1. The purchase price shall be Twenty Pesos xxx per square meter or a total government issued Executive Order (E.O.) No. 323, which created the
amount of Four Hundred Thousand Pesos (₱400,000.00). Privatization and Management Office (PMO). By virtue of E.O. No. 323, the
powers, functions, and duties of APT were transferred to the PMO. Thus,
2. The co-owners shall take all necessary steps to cause the CRC Portion the original party, CRC, is now represented by the Republic of the
to be brought under the operation of Republic Act No. 496, as amended, Philippines through the PMO (hereinafter referred to as petitioner), the
and to cause the issuance in their name of the corresponding original successor of the defunct APT.
certificate of title, all of the foregoing to be accomplished within a
reasonable time from date hereof. xxx As alleged by petitioner, respondents declared afterwards the subject
property as Urbano Bañez property, rented out to third parties the staff
xxxx houses petitioner constructed, and ordered its guards to prohibit the
petitioner from entering the compound, which impelled petitioner to file a
7. The co-owners hereby confirm their agreement and permission to CRC’s complaint for specific performance, recovery of possession, and damages
entry into, construction of building[s] and improvements, and occupancy against respondents, including Hojilla, on 10 April 2000. Among others, the
of, any portion of the Property, and xxx waive any right of action they may complaint prayed for respondents to surrender and deliver the title of the
have against CRC respecting such entry, construction, or occupancy by the subject property, and execute a deed of absolute sale in favor of petitioner
latter of any Portion of the Property. upon full payment. It mentioned three letters sent to respondents on 29
May 1991, 24 October 1991, and 6 July 1999.
8. An absolute deed of sale containing the above provisions and standard
warranties on conveyances of real property shall be executed by the co- In the Complaint, it was alleged that:
14
"[t]here is no justification, legal or otherwise for the [respondents] to set in; (5) the laches of one nullified the laches of the other; and (6) laches
dispossess (sic) the [petitioner] from the subject property. [Petitioner] is cannot be used to defeat justice or to perpetuate fraud and injustice.
more than willing and able to pay the [respondents] the balance of the
purchase price of the subject parcel of land but its inability to do so was Ruling of the Court of Appeals
due to the [respondents’] failure to produce the original certificate of title
of the subject parcel of land and to execute the pertinent deed of sale, as The Court of Appeals affirmed the ruling of the RTC in a Decision dated 23
well as the unjustified occupation by the [respondents] of the property and August 2005 on the ground that the complaint was barred by the Statute
[of] the staff houses built by [petitioner and that] such actions of the of Limitations. Contrary to petitioner’s arguments, the Court of Appeals
[respondents] are contrary to their undertaking under condition no. 7 of found that the extrajudicial demand to respondents did not serve to toll
the subject letter agreement, that is, for [respondents] to permit the running of the prescriptive period. The Court of Appeals ruled that the
[petitioner’s] entry into and occupancy of any portion of the subject record is bereft of evidence that would attest that written extrajudicial
property and their waiver of any right of action they may have against demands were sent to respondents. While petitioner sent demand letters
[petitioner] respecting such entry and occupancy of any portion of the dated 29 May 1991 and 24 October 1991, these demand letters were not
property. And despite repeated demands made by [petitioner] upon the considered as demand letters because the letters simply called the
[respondents] for them to vacate and turnover the subject parcel of land attention of Hojilla to return the properties and unlock the gates. As
and the staff houses to [petitioner], the last of which was in a letter dated regards the letter dated 6 July 1999, the Court of Appeals ruled that
July 6, 1999, the said [respondents] have failed and neglected and still fail because the letter was addressed to Hojilla, who was only an attorney-in-
and neglect to do so up to the present time."5 fact authorized to register the property, it was not binding upon the
respondents. The Court of Appeals also gave no probative value to the 6
Ruling of the RTC July 1999 letter for having no proof of service.

On 23 June 2000, Hojilla filed a Motion to Dismiss on the grounds that he With regard to the issue of running of prescriptive period against the State,
was not a real party-in-interest and that the action was barred by the the Court of Appeals opined that because the subject property is a
Statute of Limitations, which Motion the RTC granted in an Order dated 16 patrimonial property of the State when APT became the controlling
August 2000 based on Article 1144(1) of the Civil Code, which bars actions stockholder of CRC, prescription may run against the State. Thus, the
filed beyond ten (10) years upon the execution of the written contract. reasonable period within which to register the property is three (3) years.
According to the RTC, the letters petitioner sent to respondents were not According to the Court of Appeals, the cause of action of petitioner
demands for respondents to comply with their obligation to deliver the accrued three (3) years from the time the Contract was executed on 7
title as to interrupt the running of the prescriptive period. The pertinent December 1981 or, to say the least, on 15 August 1984 when Hojilla sent
portion of the RTC Order reads: the acknowledgment letter dated 15 August 1984, at which time it became
clear that respondents could no longer fulfill their obligation.
In the instant case, the defendants were given [enough] time from
December 7, 1981 to comply with their obligation, hence, after a Hence, petitioner is before us raising the following arguments:
reasonable period of time, the plaintiff should have demanded compliance
of defendants’ undertakings or initiated any other action to protect its A. The Court of Appeals erred in ruling that the running of the
interest without waiting for the statute of limitations to bar their claim.6 prescriptive period was not interrupted when respondents
acknowledged their still unfulfilled obligation to initiate
The RTC resolved that because the written contract was executed on 7 proceedings for the registration of title of the subject property
December 1981, then the complaint that was filed more than eighteen (18) and at the same time committed that they will only claim the
years since the contract was executed was beyond the 10-year prescriptive full payment of the property upon presentation of a clean title
period. Within that 18-year period, there was no act on the part of and execution of a Deed of Sale signed by the heirs as stated in
petitioner, whether judicial or extrajudicial, to interrupt prescription. the letter dated August 15, 1984.

While petitioner paid cash advances to respondents for the processing of B. The Court of Appeals erred in affirming the outright dismissal
the registration of the title, "which totaled to more or less ₱217,000.00 as of petitioner’s suit for specific performance, recovery of
of September 7, 1984 xxx to the filing of this suit, [petitioner] has not possession and damages on the basis of prescription even as it
demanded compliance by [respondents] of their obligation, that is, the is evident that there is a need to fix a period considering that
execution of the absolute deed of sale and the delivery of the Original the performance of the condition or obligation is dependent
Certificate of Title to the property to [petitioner] upon payment of the upon the will of respondents.
purchase price stipulated. There were letters addressed to [respondents]
but these were not demands for compliance of [respondents’] obligation C. The Court of Appeals erred in ignoring certain manifest
and which is not sufficient under the law to interrupt the prescriptive equitable considerations which militate against a resort to a
period."7 purely mathematical computation of the prescriptive period
and in disregarding the provision of the irrevocable offer that
The RTC further stated that: the option remains effective for a period of one month from
and after notice that a certificate of title has been issued.9
"[t]he parties could not have contemplated that the delivery of the
property and the payment thereof could be made indefinitely and render The main issue is whether or not the complaint for specific performance
uncertain the status of the land. The failure of either [of the] parties to was filed beyond the prescriptive period.
demand performance of the obligation of the other for an unreasonable
length of time renders the contract ineffective."8 Petitioner’s Arguments

The motion for reconsideration was likewise denied in an Order dated 5 The petitioner argues that although there is a 10-year limitation within
January 2001. which to file a case based on a written contract, the period was
interrupted due to a written acknowledgment of respondents’ obligation
On appeal, petitioner argued that the RTC erred when it dismissed the and demand by petitioner. The argument is based on Article 1155 of the
complaint. Petitioner averred that: (1) its claim was not yet barred by Civil Code, which provides that the running of the prescriptive period is
prescription; (2) the period of prescription had been interrupted by interrupted when there is a written extrajudicial demand by the creditors,
extrajudicial demand; (3) the Statute of Limitation did not run against the and when there is any written acknowledgment of the debt by the debtor.
State; (4) petitioner’s claim not having prescribed, laches could not have
15
The petitioner referred to the letter sent by Hojilla to the former dated 15 letter dated 15 August 1984 served as a written acknowledgment of debt
August 1984, and letters given by petitioner to Hojilla dated 29 May 1991, or obligation of respondents.
24 October 1991, and 6 July 1999. In the letter dated 15 August 1984,
respondents affirmed their undertaking that they will claim full payment of In Philippine National Railways v. NLRC,13 it was stated that a written
the property upon presentation of a clean title and the execution of the acknowledgment of debt or obligation effectively interrupts the running of
Absolute Deed of Sale, which reads, "[t]he Bañez heirs will only claim for the prescriptive period and sets the same running anew.14 Hence, because
the full payment of the property upon presentation of a clean title and Hojilla’s letter dated 15 August 1984 served as a written acknowledgement
execution of a Deed of Sale signed by the heirs."10 of the respondents’ debt or obligation, it interrupted the running of the
prescriptive period and set the same running anew with a new expiry
Based on Hojilla’s representation as stated in the letter dated 15 August period of 15 August 1994.
1984, petitioner argues that Hojilla is estopped by his own acts and for
misleading petitioner because "respondents not only failed to comply with Petitioner’s letters dated 29 May
their commitment to deliver a certificate of title but where [sic] they also 1991 and 24 October 1991
[misled] petitioner into believing that they were working on the title of the
subject property even as they had[,] at the back of their mind[s], the With regard to the letters petitioner sent to Hojilla dated 29 May 1991 and
running of the statute of limitations as an arsenal once petitioner demands 24 October 1991, the RTC ruled that these letters were insufficient under
the fulfillment of their obligation."11 the law to interrupt the prescriptive period because these were not
demand letters. We lift the pertinent portion from the letter dated 29 May
The petitioner further added that because there was no period fixed for 1991, which demanded respondents to return the properties and to unlock
the fulfillment or performance of the obligation to deliver the title, the the gates:
least the court should have done was to fix the period pursuant to Article
1197 of the Civil Code. Under the agreement to purchase the lot, APT-CRC shall pay the whole of
the purchase price thereof when the certificate of title and other
Finally, the petitioner posits that pursuant to paragraph 9 of the Contract, documents enumerated therein are presented to it. Clearly, the
its obligation is conditioned upon respondents’ obligation, which is to consummation of the sale is within your control. x x x
deliver the title. Thus, because the respondents failed to deliver such, the
obligation of petitioner never ripened. In view of the foregoing, demand is hereby made upon you and your
principals, the heirs of Urbano Bañez, to return the properties withdrawn
Respondents’ Arguments and to unlock the gates leading to the staffhouses (sic), within fifteen
(15) days from receipt thereof, otherwise we will be constrained to
The arguments of respondents, which are aligned with the reasons of the institute the necessary action to protect the interest of APT-
lower courts, rely on Article 1144 of the Civil Code, which provides that CRC.15 (Emphasis and underscoring ours)
actions upon a written contract must be brought within ten (10) years
from execution. Because the complaint was filed beyond the 10-year In the same vein, the letter dated 24 October 1991 demanded respondents
prescriptive period, the action was already barred by the Statute of to discontinue the construction, repair, demolition, and occupancy of
Limitations. Further, during such period, petitioner failed to act either several staff houses. A pertinent portion of the 24 October 1991 letter
judicially or extrajudicially to effectively interrupt the running of the reads:
prescriptive period. Thus, the complaint must be dismissed for having been
extinguished by the Statute of Limitations. Considering that these action (sic) are unauthorized, they constitute
violations of the irrevocable option to purchase dated December 7, 1981,
Our Ruling which remains valid, binding and effective to this day. Demand is hereby
made upon you to discontinue such unauthorized acts and vacate the
We rule in favor of the petitioner. premises within fifteen (15) days from receipt hereof.16 x x x (Emphasis
and underscoring ours)
We deem material, for the resolution of the issues in this case, the letters
that were exchanged by the parties. We do not agree with the lower courts. Clearly, the 29 May 1991 and 24
October 1991 letters demanded respondents to return the properties,
We shall discuss each letter in seriatim. discontinue the construction, repair, demolition and occupancy of several
staff houses, and unlock the gates, which is to enforce respondents’
Hojilla’s letter dated 15 August 1984 obligations pursuant to paragraph 7 of the Contract which reads:

In Hojilla’s letter to petitioner dated 15 August 1984, Hojilla updated 7. The co-owners hereby confirm their agreement and permission to CRC’s
petitioner of the status of the subject property’s title, in this wise: entry into, construction of building and improvements, and occupancy of,
any portion of the Property, and hereby accordingly waive any right of
The preparation of the advance survey plan, technical description and action they may have against CRC respecting such entry, construction, or
Engineer’s Certificate pursuant to Land Administrative Order No. 10- 4 has occupancy by the latter of any Portion of the Property.17
been submitted to the Regional Land Office, and approved by the Regional
Director. The letters dated 29 May 1991 and 24 October 1991 are deemed demand
letters as contemplated under Article 1155. They are demand letters to
Atty. Valera is now in the process of preparing the petition papers of the enforce respondents’ obligation under the Contract, which is to cede
Calaba property for submission to the local court.12 possession to petitioner. The letters interrupted the running of the
prescriptive period which commenced to run anew.
There is no other logical conclusion but that the 15 August 1984 letter is an
acknowledgment of respondents’ commitment under the Contract. The Petitioner’s letter dated 6 July 1999
letter served to update petitioner of the status of the subject property’s
title, an obligation agreed upon by the parties in the Contract. It would be Compared to the letters dated 29 May and 24 October 1991, which
specious to argue that respondents did not acknowledge the existence of demanded Hojilla to surrender possession of the subject property, this
the Contract and yet, send correspondence to petitioner updating it of the time, in petitioner’s letter to Hojilla dated 6 July 1999, petitioner
status of the application for title on the subject property. Therefore, the demanded Hojilla to produce the title of the subject property. However,
despite the fact that the letter was a clear demand of the nature
16
contemplated by law that would interrupt the prescriptive period, the conferred upon him, such that, the acts of the agent have the same legal
Court of Appeals found that (1) the letter did not effectively interrupt the effect as if they were personally done by the principal.20 Because there is
prescriptive period because the complaint had long prescribed; (2) the an express authority granted upon Hojilla to represent the respondents as
letter was addressed to the wrong party; and, finally, (3) the letter did not evidenced by the SPA, Hojilla’s actions bind the respondents.
bear any proof of service or receipt.
As agent, the representations and guarantees of Hojilla are considered
We do not agree. representations and guarantees of the principal. This is the principle of
agency by promissory estoppel. We refer to the evidence on record. It was
Hojilla’s SPA Hojilla who administered and/or managed the subject property.21 Based on
Hojilla’s letter dated 15 August 1984 to petitioner, Hojilla made the
We refer to the SPA, which granted the authority of Hojilla. representation that besides being the attorney-in-fact of the respondents
with limited authority to register the property, he was also their agent with
When respondents went abroad pending the performance of their regard to respondents’ other obligations related to the Contract. The
obligations in the Contract, they authorized Hojilla to register the subject pertinent portion of the 15 August 1984 letter of Hojilla to petitioner
property— a single obligation in the whole range of obligations in the reads:
Contract. The SPA appeared to have left no representative to fulfill
respondents’ obligations in the Contract on their behalf except for Hojilla’s Regarding our loan with the National Electrification Administration (NEA),
authority to register the subject property. The pertinent portion of the SPA Hon. Mel Mathay who is helping the Bañez heirs has initiated negotiations
reads: with NEA for Abreco to purchase our lot in front of the Provincial Jail to
offset our loan with NEA.22
1. To take all steps necessary to cause a portion of the lot covered by Tax
Declaration No. 40185 in the name of Urbano Bañez which is the subject Also, one glaring fact that cannot escape us is Hojilla’s representation and
of our "Offer to Sell" to Cellophil Resources Corporation containing an guarantee that petitioner’s obligation will only arise upon presentation of a
area xxx to be brought under the operation of Republic Act No. 496, as clean title and execution of a Deed of Sale signed by the respondents’
amended, and to cause the issuance in our name of the corresponding heirs, which reads, "[t]he Bañez heirs will only claim for the full payment
original certificate of title. of the property upon presentation of a clean title and execution of a
Deed of Sale signed by the heirs."23
2. To do all acts and things and to execute all papers and documents of
whatever nature or kind required for the accomplishments of the aforesaid If Hojilla knew that he had no authority to execute the Contract and
purpose. receive the letters on behalf of respondents, he should have opposed
petitioner’s demand letters. However, having received the several demand
HEREBY GRANTING AND GIVING unto our said attorney full power and letters from petitioner, Hojilla continuously represented himself as the
authority whatsoever requisite or necessary or proper to be done in or duly authorized agent of respondents, authorized not only to administer
about the premises as fully to all intents and purposes as we might or and/or manage the subject property, but also authorized to register the
could lawfully do if personally present (with power of substitution and subject property and represent the respondents with regard to the latter’s
revocation), and hereby ratifying and confirming all that our said attorney obligations in the Contract. Hojilla also assured petitioner that petitioner’s
shall do or cause to be done under and by virtue of these obligation to pay will arise only upon presentation of the title.
presents.18 (Emphasis and underscoring ours)
Clearly, the respondents are estopped by the acts and representations of
This was read simply by the lower courts as limiting Hojilla’s authority to their agent. Falling squarely in the case at bar is our pronouncement
the registration of the subject property under the name of his principal, in Philippine National Bank v. IAC (First Civil Cases Div.),24 "[h]aving given
and all the necessary acts for such purpose. It observed that nowhere in that assurance, [Hojilla] may not turn around and do the exact opposite of
the SPA was Hojilla authorized as administrator or agent of respondents what [he] said [he] would do. One may not take inconsistent positions. A
with respect to the execution of the Contract. party may not go back on his own acts and representations to the
prejudice of the other party who relied upon them."25
In the case at bar, the reliefs prayed for by petitioner include the execution
of the Contract such as delivery of the subject title, recovery of possession Assuming further that Hojilla exceeded his authority, the respondents are
of the subject property, execution of the deed of sale or transfer of still solidarily liable because they allowed Hojilla to act as though he had
absolute ownership upon full payment of the balance, and damages for full powers by impliedly ratifying Hojilla’s actions—through action by
alleged violation of respondents of the Contract for non-delivery of the omission.26 This is the import of the principle of agency by estoppel or the
title and refusal to vacate the subject property. Indeed, following the doctrine of apparent authority.
reading of the lower courts of the scope of Hojilla’s authority, Hojilla is
neither the proper party to execute the Contract nor the proper party to In an agency by estoppel or apparent authority, "[t]he principal is bound by
receive the demand letters on behalf of respondents. the acts of his agent with the apparent authority which he knowingly
permits the agent to assume, or which he holds the agent out to the public
This strict construction of the tenor of the SPA will render the obligatory as possessing."27
force of the Contract ineffective. Construction is not a tool to prejudice or
commit fraud or to obstruct, but to attain justice. Ea Est Accipienda The respondents’ acquiescence of Hojilla’s acts was made when they failed
Interpretatio Quae Vitio Caret. To favor the lower court’s interpretation of to repudiate the latter’s acts. They knowingly permitted Hojilla to
the scope of Hojilla’s power is to defeat the juridical tie of the Contract— represent them and petitioners were clearly misled into believing Hojilla’s
the vinculum juris of the parties. As no one was authorized to represent authority. Thus, the respondents are now estopped from repudiating
respondents in the Contract, then petitioner cannot enforce the Contract, Hojilla’s authority, and Hojilla’s actions are binding upon the respondents.
as it were. This is an absurd interpretation of the SPA. It renders the
Contract ineffective for lack of a party to execute the Contract. Receipt of the Letters

Contrary to the findings of the lower court, the present case is a case of an Time and time again, this Court has reiterated it is not a trier of facts and
express agency, where, Hojilla, the agent, binds himself to represent parties may raise only questions of law.1âwphi1The jurisdiction of the
another, the principal, who are herein respondents, with the latter’s Court is limited to reviewing errors of law and findings of fact of the Court
express consent or authority.19 In a contract of agency, the agent acts for of Appeals are conclusive because it is not the Court’s function to review,
and in behalf of the principal on matters within the scope of the authority
17
examine, and evaluate or weigh the evidence all over again.28 The rule, their obligation to deliver the title and asked for a new period to do so. It
however, is not without exceptions, viz.: states:

(1) [W]hen the [conclusion is a finding] grounded entirely on speculations, The preparation of the advance survey plan, technical description and
surmises [and] conjectures; Engineer’s Certificate pursuant to Land Administrative Order No. 10-4 has
been submitted to the Regional Land Office, and approved by the Regional
(2) [W]hen the inference made is manifestly mistaken, absurd or Director.
impossible;
Atty. Valera is now in the process of preparing the petition papers of the
(3) [W]hen there is grave abuse of discretion; Calaba property for submission to the local court.

(4) [W]hen the judgment is based on a misapprehension of facts; xxxx

(5) [W]hen the findings of fact are conflicting; The Bañez heirs will only claim for the full payment of the property upon
presentation of a clean title and execution of a Deed of Sale signed by the
(6) [W]hen xxx the Court of Appeals[, in making its findings,] went beyond heirs.36
the issues of the case [and the same is] contrary to the admissions of both
the appellant and the appellee; The accrual of the cause of action to demand the titling of the land cannot
be earlier than 15 August 1984. So that, the petitioner can sue on the
(7) [W]hen the findings are contrary to [those] of the trial court; contract until 15 August 1994. Prior to the expiration of the aforesaid
period, the petitioner sent a demand letter to Hojilla dated 29 May 1991. A
(8) [W]hen the findings [of fact] are conclusions without citation of specific few months thereafter, petitioner sent another demand letter to Hojilla
evidence on which they are based; dated 24 October 1991.37 The prescriptive period was interrupted on 29
May 1991.The consequence is stated in Article 1155 of the Civil Code. It
(9) [W]hen the facts set forth in the petition as well as in the petitioner’s states, "[t]he prescription of actions is interrupted when they are filed
main and reply briefs are not disputed by the respondents; before the court, when there is a written extrajudicial demand by the
creditors, and when there is any written acknowledgment of the debt by
(10) [W]hen the findings of fact [of the Court of Appeals] are premised on the debtor." Following the law, the new ten-year period for the filing of a
the supposed absence of evidence and contradicted by the evidence on case by the petitioner should be counted from 29 May 1991, ending on 29
record and May 2001. The complaint at bar was filed on 10 April 2000, well within the
required period.
(11) [When] the Court of Appeals manifestly overlooked certain irrelevant
facts not disputed by the parties, which, if properly considered, would Notably, before the expiration of the new prescriptive period, the
justify a different conclusion.29 petitioner again sent a new demand letter on 6 July 1999, which again
caused the same to run anew, which will expire on 6 July 2009. The
In the case at bar, the findings of the RTC and the Court of Appeals are complaint filed on 10 April 2000 was timely.
contradictory: the RTC did not make any finding on the receipt of the
demand letters by Hojilla, while the Court of Appeals resolved that The Contract and True Intent of the Parties
assuming arguendo that the letters were demand letters contemplated
under Article 1155 of the Civil Code, the same are unavailing because the Based on the stipulation in the Contract, the parties agreed that payment
letters do not bear any proof of service of receipt by respondents. shall be made only upon presentation of the title and other documents of
the subject property to petitioner. Paragraph 8 of the Contract reads:
A perusal of the records reveals that only the 24 October 1991 letter has
no proof of receipt.30 The demand letters dated 29 May 199131 and 6 July 8. An absolute deed of sale containing the above provisions and standard
199932 contain proofs of receipt. warranties on conveyances of real property shall be executed by the co-
owners in favor of CRC or its assignee/s and the same delivered to the
Thus, the core issue of whether or not the action has prescribed. latter together with the original certificate of title upon payment of the
purchase price less the advances made by CRC in accordance with
An action based on a written contract must be brought within ten (10) Paragraphs 2 and 3 above; provided, that payment shall be made by CRC
years from the time the right of action accrued. Accordingly, a cause of only upon presentation by the co-owners to CRC of certificate/s and/or
action on a written contract accrues only when an actual breach or clearances, with corresponding receipts, issued by the appropriate
violation thereof occurs.33 A cause of action has three elements, to wit: (1) government office/s or agency/ies to the effect that capital gains tax, real
a right in favor of the plaintiff by whatever means and under whatever law estate taxes on the Property and local transfer tax and other taxes, fees
it arises or is created; (2) an obligation on the part of the named defendant or charges due on the transaction and/or on the Property have been
to respect or not to violate such right; and (3) an act or omission on the paid.38 (Emphasis and underscoring ours)
part of such defendant violative of the right of the plaintiff or constituting
a breach of the obligation of the defendant to the plaintiff.34 The true intent of the parties is further enunciated in Hojilla's letter to
petitioner dated 15 August 1984, which stated, "[t]he Baiiez heirs will only
By the contract between the herein parties, the cause of action accrued at claim for the full payment of the property upon presentation of a clean
the point when the reasonable time within which to present the title title and execution of a Deed of Sale signed by the heirs."39
lapsed. The parties did not determine the date when the respondents must
present the title and other documents to the petitioner. The parties only To rule in favor of respondents despite their failure to perform their
agreed that the respondents must present the same within a "reasonable obligations is the height of injustice. Respondents cannot benefit from
time." Reasonable time means "so much time as is necessary under the their own inaction and failure to comply with their obligations in the
circumstances for a reasonably prudent and diligent man to do, Contract and let the petitioner suffer from respondents' own default.
conveniently, what the contract or duty requires that should be done,
having a regard for the rights and possibility of loss, if any, to the other WHEREFORE, the petition is GRANTED. The Decision of the Court of
party."35 Such reasonable time was determined by the respondents Appeals dated 23 August 2005 in CA-G.R. CV No. 70137, affirming the
through the letter dated 15 August 1984. The respondents acknowledged Order of the Regional Trial Court, which ruled that the action has
prescribed, is reversed and set aside. Let the records of this case
18
be REMANDED to the court of origin, which is DIRECTED to admit the before the Pasay City RTC,8 seeking the annulment of the mortgage deed.
Answer with Counterclaim of the petitioner for further trial on the merits. The trial court eventually stopped the auction sale.9
The respondents are further ordered to return possession of the subject
property to petitioner. No pronouncement as to costs. 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
SO ORDERED. 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
G.R. No. 118375 October 3, 2003 eleven assignments of error. The Court of Appeals promulgated the
decision now assailed before us that affirmed in toto the RTC decision.
CELESTINA T. NAGUIAT, petitioner, Hence, the present petition.
vs.
COURT OF APPEALS and AURORA QUEAÑO, respondents. Naguiat questions the findings of facts made by the Court of Appeals,
especially on the issue of whether Queaño had actually received the loan
DECISION proceeds which were supposed to be covered by the two checks Naguiat
had issued or indorsed. Naguiat claims that being a notarial instrument or
TINGA, J.: public document, the mortgage deed enjoys the presumption that the
recitals therein are true. Naguiat also questions the admissibility of various
Before us is a Petition for Review on Certiorari under Rule 45, assailing the representations and pronouncements of Ruebenfeldt, invoking the rule on
decision of the Sixteenth Division of the respondent Court of Appeals the non-binding effect of the admissions of third persons.11
promulgated on 21 December 19941 , which affirmed in toto the decision
handed down by the Regional Trial Court (RTC) of Pasay City.2 The resolution of the issues presented before this Court by Naguiat
involves the determination of facts, a function which this Court does not
The case arose when on 11 August 1981, private respondent Aurora exercise in an appeal by certiorari. Under Rule 45 which governs appeal by
Queaño (Queaño) filed a complaint before the Pasay City RTC for certiorari, only questions of law may be raised12 as the Supreme Court is
cancellation of a Real Estate Mortgage she had entered into with not a trier of facts.13 The resolution of factual issues is the function of lower
petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision, courts, whose findings on these matters are received with respect and are
declaring the questioned Real Estate Mortgage void, which Naguiat in fact generally binding on the Supreme Court.14 A question of law which
appealed to the Court of Appeals. After the Court of Appeals upheld the the Court may pass upon must not involve an examination of the probative
RTC decision, Naguiat instituted the present petition.1ªvvphi1.nét 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
The operative facts follow: 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
Queaño applied with Naguiat for a loan in the amount of Two Hundred
Thousand Pesos (₱200,000.00), which Naguiat granted. On 11 August Surely, there are established exceptions to the rule on the conclusiveness
1980, Naguiat indorsed to Queaño Associated Bank Check No. 090990 of the findings of facts of the lower courts.17 But Naguiat’s case does not
(dated 11 August 1980) for the amount of Ninety Five Thousand Pesos fall under any of the exceptions. In any event, both the decisions of the
(₱95,000.00), which was earlier issued to Naguiat by the Corporate appellate and trial courts are supported by the evidence on record and the
Resources Financing Corporation. She also issued her own Filmanbank applicable laws.
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 Against the common finding of the courts below, Naguiat vigorously insists
of these checks were to constitute the loan granted by Naguiat to that Queaño received the loan proceeds. Capitalizing on the status of the
Queaño.3 mortgage deed as a public document, she cites the rule that a public
document enjoys the presumption of validity and truthfulness of its
To secure the loan, Queaño executed a Deed of Real Estate Mortgage contents. The Court of Appeals, however, is correct in ruling that the
dated 11 August 1980 in favor of Naguiat, and surrendered to the latter presumption of truthfulness of the recitals in a public document was
the owner’s duplicates of the titles covering the mortgaged properties.4 On defeated by the clear and convincing evidence in this case that pointed to
the same day, the mortgage deed was notarized, and Queaño issued to the absence of consideration.18 This Court has held that the presumption of
Naguiat a promissory note for the amount of TWO HUNDRED THOUSAND truthfulness engendered by notarized documents is rebuttable, yielding as
PESOS (₱200,000.00), with interest at 12% per annum, payable on 11 it does to clear and convincing evidence to the contrary, as in this case.19
September 1980.5Queaño also issued a Security Bank and Trust Company
check, postdated 11 September 1980, for the amount of TWO HUNDRED On the other hand, absolutely no evidence was submitted by Naguiat that
THOUSAND PESOS (₱200,000.00) and payable to the order of Naguiat. 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
Upon presentment on its maturity date, the Security Bank check was contract of loan. For the Civil Code provides that the delivery of bills of
dishonored for insufficiency of funds. On the following day, 12 September exchange and mercantile documents such as checks shall produce the
1980, Queaño requested Security Bank to stop payment of her postdated effect of payment only when they have been cashed.20 It is only after the
check, but the bank rejected the request pursuant to its policy not to checks have produced the effect of payment that the contract of loan may
honor such requests if the check is drawn against insufficient funds.6 be deemed perfected. Art. 1934 of the Civil Code provides:

On 16 October 1980, Queaño received a letter from Naguiat’s lawyer, "An accepted promise to deliver something by way of commodatum or
demanding settlement of the loan. Shortly thereafter, Queaño and one simple loan is binding upon the parties, but the commodatum or simple
Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the meeting, loan itself shall not be perfected until the delivery of the object of the
Queaño told Naguiat that she did not receive the proceeds of the loan, contract."
adding that the checks were retained by Ruebenfeldt, who purportedly
was Naguiat’s agent.7 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
Naguiat applied for the extrajudicial foreclosure of the mortgage with the objects of the contract are the loan proceeds which Queaño would enjoy
Sheriff of Rizal Province, who then scheduled the foreclosure sale on 14 only upon the encashment of the checks signed or indorsed by Naguiat. If
August 1981. Three days before the scheduled sale, Queaño filed the case indeed the checks were encashed or deposited, Naguiat would have
certainly presented the corresponding documentary evidence, such as the
19
returned checks and the pertinent bank records. Since Naguiat presented Yun Kwan Byung (petitioner) filed this Petition for Review1 assailing the
no such proof, it follows that the checks were not encashed or credited to Court of Appeals’ Decision2 dated 27 May 2003 in CA-G.R. CV No. 65699 as
Queaño’s account.1awphi1.nét well as the Resolution3 dated 7 May 2004 denying the Motion for
Reconsideration. In the assailed decision, the Court of Appeals (CA)
Naguiat questions the admissibility of the various written representations affirmed the Regional Trial Court’s Decision4dated 6 May 1999. The
made by Ruebenfeldt on the ground that they could not bind her following Regional Trial Court of Manila, Branch 13 (trial court), dismissed
the res inter alia acta alteri nocere non debet rule. The Court of Appeals petitioner’s demand against respondent Philippine Amusement and
rejected the argument, holding that since Ruebenfeldt was an authorized Gaming Corporation (PAGCOR) for the redemption of gambling chips.
representative or agent of Naguiat the situation falls under a recognized
exception to the rule.22 Still, Naguiat insists that Ruebenfeldt was not her The Facts
agent.
PAGCOR is a government-owned and controlled corporation tasked to
Suffice to say, however, the existence of an agency relationship between establish and operate gambling clubs and casinos as a means to promote
Naguiat and Ruebenfeldt is supported by ample evidence. As correctly tourism and generate sources of revenue for the government. To achieve
pointed out by the Court of Appeals, Ruebenfeldt was not a stranger or an these objectives, PAGCOR is vested with the power to enter into contracts
unauthorized person. Naguiat instructed Ruebenfeldt to withhold from of every kind and for any lawful purpose that pertains to its business.
Queaño the checks she issued or indorsed to Queaño, pending delivery by Pursuant to this authority, PAGCOR launched its Foreign Highroller
the latter of additional collateral. Ruebenfeldt served as agent of Naguiat Marketing Program (Program). The Program aims to invite patrons from
on the loan application of Queaño’s friend, Marilou Farralese, and it was in foreign countries to play at the dollar pit of designated PAGCOR-operated
connection with that transaction that Queaño came to know Naguiat. 23 It casinos under specified terms and conditions and in accordance with
was also Ruebenfeldt who accompanied Queaño in her meeting with industry practice.5
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 The Korean-based ABS Corporation was one of the international groups
to Naguiat, to cover for Queaño’s alleged liability to Naguiat under the loan that availed of the Program. In a letter-agreement dated 25 April 1996
agreement.24 (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 Court of Appeals recognized the existence of an "agency by the Grand Boulevard Hotel in Manila (Casino Filipino). The relevant
estoppel25 citing Article 1873 of the Civil Code.26Apparently, it considered stipulations of the Junket Agreement state:
that at the very least, as a consequence of the interaction between
Naguiat and Ruebenfeldt, Queaño got the impression that Ruebenfeldt 1. PAGCOR will provide ABS Corporation with separate junket
was the agent of Naguiat, but Naguiat did nothing to correct Queaño’s chips. The junket chips will be distinguished from the chips
impression. In that situation, the rule is clear. One who clothes another being used by other players in the gaming tables.
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 ABS Corporation will distribute these junket chips to its players
his agent, to the prejudice of innocent third parties dealing with such and at the end of the playing period, ABS Corporation will
person in good faith, and in the honest belief that he is what he appears to collect the junket chips from its players and make an accounting
be.27 The Court of Appeals is correct in invoking the said rule on agency by to the casino treasury.
estoppel.1awphi1.nét
2. ABS Corporation will assume sole responsibility to pay the
More fundamentally, whatever was the true relationship between Naguiat winnings of its foreign players and settle the collectibles from
and Ruebenfeldt is irrelevant in the face of the fact that the checks issued losing players.
or indorsed to Queaño were never encashed or deposited to her account
of Naguiat. 3. ABS Corporation shall hold PAGCOR absolutely free and
harmless from any damage, claim or liability which may arise
All told, we find no compelling reason to disturb the finding of the courts a from any cause in connection with the Junket Agreement.
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 5. In providing the gaming facilities and services to these foreign
which is supposed to secure the loan is null and void. The consideration of players, PAGCOR is entitled to receive from ABS Corporation a
the mortgage contract is the same as that of the principal contract from 12.5% share in the gross winnings of ABS Corporation or 1.5
which it receives life, and without which it cannot exist as an independent million US dollars, whichever is higher, over a playing period of
contract.28 A mortgage contract being a mere accessory contract, its 6 months. PAGCOR has the option to extend the period.6
validity would depend on the validity of the loan secured by it.29
Petitioner, a Korean national, alleges that from November 1996 to March
WHEREFORE, the petition is denied and the assailed decision is affirmed. 1997, he came to the Philippines four times to play for high stakes at the
Costs against petitioner. 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
SO ORDERED. 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
G.R. No. 163553 December 11, 2009 chips for encashment with PAGCOR’s employees or agents, PAGCOR
refused to redeem them.8
YUN KWAN BYUNG, Petitioner,
vs. Petitioner brought an action against PAGCOR seeking the redemption of
PHILIPPINE AMUSEMENT AND GAMING CORPORATION, Respondent. 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.
DECISION Petitioner alleges that every time he would come to Manila, PAGCOR
would extend to him amenities deserving of a high roller. A PAGCOR
CARPIO, J.: 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
The Case PAGCOR employees, the gambling chips, equipment and furnitures
belonged to PAGCOR, and PAGCOR enforced all the regulations dealing
20
with the operation of foreign exchange gambling pits. Petitioner states (a) A specific area in the casino(s) or gaming pit shall be put up
that he was able to redeem his gambling chips with the cashier during his solely and exclusively for players and patrons utilizing foreign
first few winning trips. But later on, the casino cashier refused to encash currencies;
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 (b) The Corporation shall appoint and designate a duly
Manila.9 accredited commercial bank agent of the Central Bank, to
handle, administer and manage the use of foreign currencies in
PAGCOR claims that petitioner, who was brought into the Philippines by the casino(s);
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 (c) The Corporation shall provide an office at casino(s)
provided ABS Corporation with distinct junket chips. ABS Corporation exclusively for the employees of the designated bank, agent of
distributed these chips to its junket players. At the end of each playing the Central Bank, where the Corporation shall maintain a dollar
period, the junket players would surrender the chips to ABS Corporation. account which will be utilized exclusively for the above purpose
Only ABS Corporation would make an accounting of these chips to and the casino dollar treasury employees;
PAGCOR’s casino treasury.10
(d) Only persons with foreign passports or certificates of
As additional information for the junket players playing in the gaming identity (for Hong Kong patron only) duly issued by the
room leased to ABS Corporation, PAGCOR posted a notice written in government or country of their residence will be allowed to
English and Korean languages which reads: play in the foreign exchange gaming pit;

NOTICE (e) Only foreign exchange prescribed to form part of the

Philippine International Reserve and the following foreign
This GAMING ROOM is exclusively operated by ABS under arrangement exchange currencies: Australian Dollar, Singapore Dollar, Hong
with PAGCOR, the former is solely accountable for all PLAYING CHIPS Kong Dollar, shall be used in this gaming pit;
wagered on the tables. Any financial ARRANGEMENT/TRANSACTION
between PLAYERS and ABS shall only be binding upon said PLAYERS and (f) The disbursement, administration, management and
ABS.11 recording of foreign exchange currencies used in the casino(s)
shall be carried out in accordance with existing foreign
PAGCOR claims that this notice is a standard precautionary measure12 to exchange regulations, and periodical reports of the transactions
avoid confusion between junket players of ABS Corporation and PAGCOR’s in such foreign exchange currencies by the Corporation shall be
players. duly recorded and reported to the Central Bank thru the
designated Agent Bank; and
PAGCOR argues that petitioner is not a PAGCOR player because under
PAGCOR’s gaming rules, gambling chips cannot be brought outside the (g) The Corporation shall issue the necessary rules and
casino. The gambling chips must be converted to cash at the end of every regulations for the guidance and information of players
gaming period as they are inventoried every shift. Under PAGCOR’s rules, it qualified to participate in the foreign exchange gaming pit, in
is impossible for PAGCOR players to accumulate two million dollars worth order to make certain that the terms and conditions as above
of gambling chips and to bring the chips out of the casino premises.13 set forth are strictly complied with.

Since PAGCOR disclaimed liability for the winnings of players recruited by The trial court held that only PAGCOR could use foreign currency in its
ABS Corporation and refused to encash the gambling chips, petitioner filed gaming tables. When PAGCOR accepted only a fixed portion of the dollar
a complaint for a sum of money before the trial court.14 PAGCOR filed a earnings of ABS Corporation in the concept of a lease of facilities, PAGCOR
counterclaim against petitioner. Then, trial ensued. shared its franchise with ABS Corporation in violation of the PAGCOR’s
charter. Hence, the Junket Agreement is void. Since the Junket Agreement
On 6 May 1999, the trial court dismissed the complaint and counterclaim. is not permitted by PAGCOR’s charter, the mutual rights and obligations of
Petitioner appealed the trial court’s decision to the CA. On 27 May 2003, the parties to this case would be resolved based on agency and estoppel.16
the CA affirmed the appealed decision. On 27 June 2003, petitioner moved
for reconsideration which was denied on 7 May 2004. The trial court found that the petitioner wanted to redeem gambling chips
that were specifically used by ABS Corporation at its gaming tables. The
Aggrieved by the CA’s decision and resolution, petitioner elevated the case gambling chips come in distinctive orange or yellow colors with stickers
before this Court. 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
The Ruling of the Trial Court 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
The trial court ruled that based on PAGCOR’s charter, 15 PAGCOR has no previous junket operators and PAGCOR merely continued using them.
authority to lease any portion of the gambling tables to a private party like However, the gambling chips used in the regular casino games were of a
ABS Corporation. Section 13 of Presidential Decree No. 1869 or the different quality.17
PAGCOR’s charter states:
The trial court pointed out that PAGCOR had taken steps to warn players
Sec. 13. Exemptions - brought in by all junket operators, including ABS Corporation, that they
were playing under special rules. Apart from the different kinds of
xxx gambling chips used, the junket players were confined to certain gaming
rooms. In these rooms, notices were posted that gambling chips could only
(4) Utilization of Foreign Currencies – The Corporation shall have the right be encashed there and nowhere else. A photograph of one such notice,
and authority, solely and exclusively in connection with the operations of printed in Korean and English, stated that the gaming room was exclusively
the casino(s), to purchase, receive, exchange and disburse foreign operated by ABS Corporation and that ABS Corporation was solely
exchange, subject to the following terms and conditions: 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
21
concluded that petitioner had been alerted to the existence of these particular transaction, but instead of contracting on behalf of the principal,
special gambling rules, and the mere fact that he continued to play under the agent acts in his own name.27
the same restrictions over a period of several months confirms his
acquiescence to them. Otherwise, petitioner could have simply chose to The CA concluded that no such legal fiction existed between PAGCOR and
stop gambling.18 ABS Corporation. PAGCOR entered into a Junket Agreement to lease to
ABS Corporation certain gaming areas. It was never PAGCOR’s intention to
In dismissing petitioner’s complaint, the trial court concluded that deal with the junket players. Neither did PAGCOR intend ABS Corporation
petitioner’s demand against PAGCOR for the redemption of the gambling to represent PAGCOR in dealing with the junket players. Representation is
chips could not stand. The trial court stated that petitioner, a stranger to the basis of agency but unfortunately for petitioner none is found in this
the agreement between PAGCOR and ABS Corporation, could not under case.28
principles of equity be charged with notice other than of the apparent
authority with which PAGCOR had clothed its employees and agents in The CA added that the special gaming chips, while belonging to PAGCOR,
dealing with petitioner. Since petitioner was made aware of the special are mere accessories in the void Junket Agreement with ABS Corporation.
rules by which he was playing at the Casino Filipino, petitioner could not In Article 1883, the phrase "things belonging to the principal" refers only to
now claim that he was not bound by them. The trial court explained that in those things or properties subject of a particular transaction authorized by
an unlawful transaction, the courts will extend equitable relief only to a the principal to be entered into by its purported agent. Necessarily, the
party who was unaware of all its dimensions and whose ignorance of them gambling chips being mere incidents to the void lease agreement cannot
exposed him to the risk of being exploited by the other. Where the parties fall under this category.29
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 The CA ruled that Article 215230 of the Civil Code is also not applicable. The
to come to the rescue of any party. The trial court ruled that it would leave circumstances relating to negotiorum gestio are non-existent to warrant an
the parties where they are.19 officious manager to take over the management and administration of
PAGCOR.31
The Ruling of the Court of Appeals
Fourth, petitioner asks for equitable relief.32
In dismissing the appeal, the appellate court addressed the four errors
assigned by petitioner. The CA explained that although petitioner was never a party to the void
Junket Agreement, petitioner cannot deny or feign blindness to the signs
First, petitioner maintains that he was never a junket player of ABS and warnings all around him. The notices, the special gambling chips, and
Corporation. Petitioner also denies seeing a notice that certain gaming the separate gaming areas were more than enough to alert him that he
rooms were exclusively operated by entities under special agreement.20 was playing under different terms. Petitioner persisted and continued to
play in the casino. Petitioner also enjoyed the perks extended to junket
The CA ruled that the records do not support petitioner’s theory. players of ABS Corporation. For failing to heed these signs and warnings,
Petitioner’s own testimony reveals that he enjoyed special petitioner can no longer be permitted to claim equitable relief. When
accommodations at the Grand Boulevard Hotel. This similar parties do not come to court with clean hands, they cannot be allowed to
accommodation was extended to players brought in by ABS Corporation profit from their own wrong doing.33
and other junket operators. Petitioner cannot disassociate himself from
ABS Corporation for it is unlikely that an unknown high roller would be The Issues
accorded choice accommodations by the hotel unless the accommodation
was facilitated by a junket operator who enjoyed such privilege.21 Petitioners raise three issues in this petition:

The CA added that the testimonies of PAGCOR’s employees affirming that 1. Whether the CA erred in holding that PAGCOR is not liable to
notices were posted in English and Korean in the gaming areas are credible petitioner, disregarding the doctrine of implied agency, or
in the absence of any convincing proof of ill motive. Further, the specified agency by estoppel;
gaming areas used only special chips that could be bought and exchanged
at certain cashier booths in that area.22 2. Whether the CA erred in using intent of the contracting
parties as the test for creation of agency, when such is not
Second, petitioner attacks the validity of the contents of the notice. Since relevant since the instant case involves liability of the presumed
the Junket Agreement is void, the notice, which was issued pursuant to the principal in implied agency to a third party; and
Junket Agreement, is also void and cannot affect petitioner.23
3. Whether the CA erred in failing to consider that PAGCOR
The CA reasoned that the trial court never declared the notice valid and ratified, or at least adopted, the acts of the agent, ABS
neither did it enforce the contents thereof. The CA emphasized that it was Corporation.34
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, The Ruling of the Court
petitioner included, that special rules applied to certain gaming areas even
if the very agreement giving rise to these rules is void.24 The petition lacks merit.

Third, petitioner takes the position that an implied agency existed between Courts will not enforce debts arising from illegal gambling
PAGCOR and ABS Corporation.25
Gambling is prohibited by the laws of the Philippines as specifically
The CA disagreed with petitioner’s view. A void contract has no force and provided in Articles 195 to 199 of the Revised Penal Code, as amended.
effect from the very beginning. It produces no effect either against or in Gambling is an act beyond the pale of good morals,35 and is thus prohibited
favor of anyone. Neither can it create, modify or extinguish the juridical and punished to repress an evil that undermines the social, moral, and
relation to which it refers. Necessarily, the Junket Agreement, being void economic growth of the nation.36 Presidential Decree No. 1602 (PD
from the beginning, cannot give rise to an implied agency. The CA 1602),37 which modified Articles 195-199 of the Revised Penal Code and
explained that it cannot see how the principle of implied agency can be repealed inconsistent provisions,38 prescribed stiffer penalties on illegal
applied to this case. Article 188326of the Civil Code applies only to a gambling.39
situation where the agent is authorized by the principal to enter into a

22
As a rule, all forms of gambling are illegal. The only form of gambling view of the legal principle of delegata potestas delegare non potest,
allowed by law is that stipulated under Presidential Decree No. 1869, inasmuch as there is nothing in the charter to show that it has been
which gave PAGCOR its franchise to maintain and operate gambling expressly authorized to do so.41
casinos. The issue then turns on whether PAGCOR can validly share its
franchise with junket operators to operate gambling casinos in the Similarly, in this case, PAGCOR, by taking only a percentage of the earnings
country. Section 3(h) of PAGCOR’s charter states: of ABS Corporation from its foreign currency collection, allowed ABS
Corporation to operate gaming tables in the dollar pit. The Junket
Section 3. Corporate Powers. - The Corporation shall have the following Agreement is in direct violation of PAGCOR’s charter and is therefore void.
powers and functions, among others:
Since the Junket Agreement violates PAGCOR’s charter, gambling between
xxx 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,
h) to enter into, make, perform, and carry out contracts of every kind and which refers to illegal gambling, states that no action can be maintained by
for any lawful purpose pertaining to the business of the Corporation, or in the winner for the collection of what he has won in a game of chance.
any manner incident thereto, as principal, agent or otherwise, with any
person, firm, association, or corporation. Although not raised as an issue by petitioner, we deem it necessary to
discuss the applicability of Republic Act No. 948743 (RA 9487) to the
xxx present case.

The Junket Agreement would be valid if under Section 3(h) of PAGCOR’s RA 9487 amended the PAGCOR charter, granting PAGCOR the power to
charter, PAGCOR could share its gambling franchise with another entity. In enter into special agreement with third parties to share the privileges
Senator Jaworski v. Phil. Amusement and Gaming Corp.,40 the Court under its franchise for the operation of gambling casinos:
discussed the extent of the grant of the legislative franchise to PAGCOR on
its authority to operate gambling casinos: Section 1. The Philippine Amusement and Gaming Corporation (PAGCOR)
franchise granted under Presidential Decree No. 1869 otherwise known as
A legislative franchise is a special privilege granted by the state to the PAGCOR Charter, is hereby further amended to read as follows:
corporations. It is a privilege of public concern which cannot be exercised
at will and pleasure, but should be reserved for public control and xxx
administration, either by the government directly, or by public agents,
under such conditions and regulations as the government may impose on (2) Section 3(h) is hereby amended to read as follows:
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 "SEC. 3. Corporate Powers. -
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 "x x x
rendered and the duty of the grantee to the public in exercising the
franchise are almost always defined in clear and unequivocal language. "(h) to enter into, make, conclude, perform, and carry out contracts of
every kind and nature and for any lawful purpose which are necessary,
After a circumspect consideration of the foregoing discussion and the appropriate, proper or incidental to any business or purpose of the
contending positions of the parties, we hold that PAGCOR has acted PAGCOR, including but not limited to investment agreements, joint
beyond the limits of its authority when it passed on or shared its franchise venture agreements, management agreements, agency agreements,
to SAGE. whether as principal or as an agent, manpower supply agreements, or any
other similar agreements or arrangements with any person, firm,
In the Del Mar case where a similar issue was raised when PAGCOR association or corporation." (Boldfacing supplied)
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 PAGCOR sought the amendment of its charter precisely to address and
Resolution dated 24 August 2001, partially granted the motions for remedy the legal impediment raised in Senator Jaworski v. Phil.
clarification filed by respondents therein insofar as it prayed that PAGCOR Amusement and Gaming Corp.
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 Unfortunately for petitioner, RA 9487 cannot be applied to the present
jai-alai. case. The Junket Agreement was entered into between PAGCOR and ABS
Corporation on 25 April 1996 when the PAGCOR charter then prevailing
In the case at bar, PAGCOR executed an agreement with SAGE whereby the (PD 1869) prohibited PAGCOR from entering into any arrangement with a
former grants the latter the authority to operate and maintain sports third party that would allow such party to actively participate in the casino
betting stations and Internet gaming operations. In essence, the grant of operations.
authority gives SAGE the privilege to actively participate, partake and share
PAGCOR’s franchise to operate a gambling activity. The grant of franchise It is a basic principle that laws should only be applied prospectively unless
is a special privilege that constitutes a right and a duty to be performed by the legislative intent to give them retroactive effect is expressly declared
the grantee. The grantee must not perform its activities arbitrarily and or is necessarily implied from the language used.44 RA 9487 does not
whimsically but must abide by the limits set by its franchise and strictly provide for any retroactivity of its provisions. All laws operate
adhere to its terms and conditionalities. A corporation as a creature of the prospectively absent a clear contrary language in the text,45 and that in
State is presumed to exist for the common good. Hence, the special every case of doubt, the doubt will be resolved against the retroactive
privileges and franchises it receives are subject to the laws of the State and operation of laws.46
the limitations of its charter. There is therefore a reserved right of the
State to inquire how these privileges had been employed, and whether Thus, petitioner cannot avail of the provisions of RA 9487 as this was not
they have been abused. (Emphasis supplied) the law when the acts giving rise to the claimed liabilities took place. This
makes the gambling activity participated in by petitioner illegal. Petitioner
Thus, PAGCOR has the sole and exclusive authority to operate a gambling cannot sue PAGCOR to redeem the cash value of the gambling chips or
activity. While PAGCOR is allowed under its charter to enter into operator’s recover damages arising from an illegal activity for two reasons. First,
or management contracts, PAGCOR is not allowed under the same charter petitioner engaged in gambling with ABS Corporation and not with
to relinquish or share its franchise. PAGCOR cannot delegate its power in PAGCOR. Second, the court cannot assist petitioner in enforcing an illegal
23
act. Moreover, for a court to grant petitioner’s prayer would mean There is no implied agency in this case because PAGCOR did not hold out
enforcing the Junket Agreement, which is void. 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
Now, to address the issues raised by petitioner in his petition, petitioner arrangement with the junket operators, nor did it hold out ABS
claims that he is a third party proceeding against the liability of a presumed Corporation with any apparent authority to represent it in any capacity.
principal and claims relief, alternatively, on the basis of implied agency or The Junket Agreement was merely a contract of lease of facilities and
agency by estoppel. services.

Article 1869 of the Civil Code states that implied agency is derived from the The players brought in by ABS Corporation were covered by a different set
acts of the principal, from his silence or lack of action, or his failure to of rules in acquiring and encashing chips. The players used a different kind
repudiate the agency, knowing that another person is acting on his behalf of chip than what was used in the regular gaming areas of PAGCOR, and
without authority. Implied agency, being an actual agency, is a fact to be that such junket players played specifically only in the third floor area and
proved by deductions or inferences from other facts.47 did not mingle with the regular patrons of PAGCOR. Furthermore, PAGCOR,
in posting notices stating that the players are playing under special rules,
On the other hand, apparent authority is based on estoppel and can arise exercised the necessary precaution to warn the gaming public that no
from two instances. First, the principal may knowingly permit the agent to agency relationship exists.1avvphi1
hold himself out as having such authority, and the principal becomes
estopped to claim that the agent does not have such authority. Second, For the second assigned error, petitioner claims that the intention of the
the principal may clothe the agent with the indicia of authority as to lead a parties cannot apply to him as he is not a party to the contract.
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 We disagree. The Court of Appeals correctly used the intent of the
assuming to act as agent has apparent or ostensible, although not real, contracting parties in determining whether an agency by estoppel existed
authority to represent another.49 in this case. An agency by estoppel, which is similar to the doctrine of
apparent authority requires proof of reliance upon the representations,
The law makes no presumption of agency and proving its existence, nature and that, in turn, needs proof that the representations predated the action
and extent is incumbent upon the person alleging it.50 Whether or not an taken in reliance.62
agency has been created is a question to be determined by the fact that
one represents and is acting for another. 51 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
Acts and conduct of PAGCOR negates the existence of an implied agency or have been known and relied upon in good faith and as a result of the
an agency by estoppel 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
Petitioner alleges that there is an implied agency. Alternatively, petitioner lacking in this case.
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 In the entire duration that petitioner played in Casino Filipino, he was
and conduct of PAGCOR showing apparent authority in favor of ABS dealing only with ABS Corporation, and availing of the privileges extended
Corporation. Petitioner states that one factor which distinguishes agency only to players brought in by ABS Corporation. The facts that he enjoyed
from other legal precepts is control and the following undisputed facts special treatment upon his arrival in Manila and special accommodations
show a relationship of implied agency: 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
1. Three floors of the Grand Boulevard Hotel52 were leased to he was dealing with PAGCOR. Petitioner cannot be considered as an
PAGCOR for conducting gambling operations;53 innocent third party and he cannot claim entitlement to equitable relief as
well.
2. Of the three floors, PAGCOR allowed ABS Corporation to use
one whole floor for foreign exchange gambling, conducted by For his third and final assigned error, petitioner asserts that PAGCOR
PAGCOR dealers using PAGCOR facilities, operated by PAGCOR ratified the acts of ABS Corporation.
employees and using PAGCOR chips bearing the PAGCOR logo;54
The trial court has declared, and we affirm, that the Junket Agreement is
3. PAGCOR controlled the release, withdrawal and return of all void. A void or inexistent contract is one which has no force and effect
the gambling chips given to ABS Corporation in that part of the from the very beginning. Hence, it is as if it has never been entered into
casino and at the end of the day, PAGCOR conducted an and cannot be validated either by the passage of time or by
inventory of the gambling chips;55 ratification.64 Article 1409 of the Civil Code provides that contracts
expressly prohibited or declared void by law, such as gambling contracts,
4. ABS Corporation accounted for all gambling chips with the "cannot be ratified."65
Commission on Audit (COA), the official auditor of PAGCOR;56
WHEREFORE, we DENY the petition. We AFFIRM the Court of Appeals’
5. PAGCOR enforced, through its own manager, all the rules and Decision dated 27 May 2003 as well as the Resolution dated 7 May 2004 as
regulations on the operation of the gambling pit used by ABS modified by this Decision.
Corporation.57
SO ORDERED.
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 FORMAL REQUIREMENTS
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 GENERAL POWER
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 SPECIAL POWER
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
G.R. No. 187769 June 4, 2014

24
ALVIN PATRIMONIO, Petitioner, Only Marasigan filed his answer to the complaint. In the RTC’s order dated
vs. December 22, 1997,Gutierrez was declared in default.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.
The Ruling of the RTC
DECISION
The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that the
BRION, J.: petitioner, in issuing the pre-signed blank checks, had the intention of
issuing a negotiable instrument, albeit with specific instructions to
Assailed in this petition for review on certiorari1 under Rule 45 of the Gutierrez not to negotiate or issue the check without his approval. While
Revised Rules of Court is the decision2 dated September 24, 2008 and the under Section 14 of the Negotiable Instruments Law Gutierrez had the
resolution3 dated April 30, 2009 of the Court of Appeals (CA) in CA-G.R. CV prima facie authority to complete the checks by filling up the blanks
No. 82301. The appellate court affirmed the decision of the Regional Trial therein, the RTC ruled that he deliberately violated petitioner’s specific
Court (RTC) of Quezon City, Branch 77, dismissing the complaint for instructions and took advantage of the trust reposed in him by the latter.
declaration of nullity of loan filed by petitioner Alvin Patrimonio and
ordering him to pay respondent Octavio Marasigan III (Marasigan) the sum Nonetheless, the RTC declared Marasigan as a holder in due course and
of ₱200,000.00. accordingly dismissed the petitioner’s complaint for declaration of nullity
of the loan. It ordered the petitioner to pay Marasigan the face value of
The Factual Background the check with a right to claim reimbursement from Gutierrez.

The facts of the case, as shown by the records, are briefly summarized The petitioner elevated the case to the Court of Appeals (CA), insisting that
below. Marasigan is not a holder in due course. He contended that when
Marasigan received the check, he knew that the same was without a date,
The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered and hence, incomplete. He also alleged that the loan was actually between
into a business venture under the name of Slam Dunk Corporation (Slum Marasigan and Gutierrez with his check being used only as a security.
Dunk), a production outfit that produced mini-concerts and shows related
to basketball. Petitioner was already then a decorated professional The Ruling of the CA
basketball player while Gutierrez was a well-known sports columnist.
On September 24, 2008, the CA affirmed the RTC ruling, although premised
In the course of their business, the petitioner pre-signed several checks to on different factual findings. After careful analysis, the CA agreed with the
answer for the expenses of Slam Dunk. Although signed, these checks had petitioner that Marasigan is not a holder in due course as he did not
no payee’s name, date or amount. The blank checks were entrusted to receive the check in good faith.
Gutierrez with the specific instruction not to fill them out without previous
notification to and approval by the petitioner. According to petitioner, the The CA also concluded that the check had been strictly filled out by
arrangement was made so that he could verify the validity of the payment Gutierrez in accordance with the petitioner’s authority. It held that the
and make the proper arrangements to fund the account. loan may not be nullified since it is grounded on an obligation arising from
law and ruled that the petitioner is still liable to pay Marasigan the sum of
In the middle of 1993, without the petitioner’s knowledge and consent, ₱200,000.00.
Gutierrez went to Marasigan (the petitioner’s former teammate), to secure
a loan in the amount of ₱200,000.00 on the excuse that the petitioner After the CA denied the subsequent motion for reconsideration that
needed the money for the construction of his house. In addition to the followed, the petitioner filed the present petition for review on certiorari
payment of the principal, Gutierrez assured Marasigan that he would be under Rule 45 of the Revised Rules of Court.
paid an interest of 5% per month from March to May 1994.
The Petition
After much contemplation and taking into account his relationship with the
petitioner and Gutierrez, Marasigan acceded to Gutierrez’ request and The petitioner argues that: (1) there was no loan between him and
gave him ₱200,000.00 sometime in February 1994. Gutierrez Marasigan since he never authorized the borrowing of money nor the
simultaneously delivered to Marasigan one of the blank checks the check’s negotiation to the latter; (2) under Article 1878 of the Civil Code, a
petitioner pre-signed with Pilipinas Bank, Greenhills Branch, Check No. special power of attorney is necessary for an individual to make a loan or
21001764 with the blank portions filled out with the words "Cash" "Two borrow money in behalf of another; (3) the loan transaction was between
Hundred Thousand Pesos Only", and the amount of "₱200,000.00". The Gutierrez and Marasigan, with his check being used only as a security; (4)
upper right portion of the check corresponding to the date was also filled the check had not been completely and strictly filled out in accordance
out with the words "May 23, 1994" but the petitioner contended that the with his authority since the condition that the subject check can only be
same was not written by Gutierrez. used provided there is prior approval from him, was not complied with; (5)
even if the check was strictly filled up as instructed by the petitioner,
On May 24, 1994, Marasigan deposited the check but it was dishonored for Marasigan is still not entitled to claim the check’s value as he was not a
the reason "ACCOUNT CLOSED." It was later revealed that petitioner’s holder in due course; and (6) by reason of the bad faith in the dealings
account with the bank had been closed since May 28, 1993. between the respondents, he is entitled to claim for damages.

Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent The Issues
several demand letters to the petitioner asking for the payment of
₱200,000.00, but his demands likewise went unheeded. Consequently, he Reduced to its basics, the case presents to us the following issues:
filed a criminal case for violation of B.P. 22 against the petitioner, docketed
as Criminal Case No. 42816. 1. Whether the contract of loan in the amount of ₱200,000.00
granted by respondent Marasigan to petitioner, through
On September 10, 1997, the petitioner filed before the Regional Trial Court respondent Gutierrez, may be nullified for being void;
(RTC) a Complaint for Declaration of Nullity of Loan and Recovery of
Damages against Gutierrez and co-respondent Marasigan. He completely 2. Whether there is basis to hold the petitioner liable for the
denied authorizing the loan or the check’s negotiation, and asserted that payment of the ₱200,000.00 loan;
he was not privy to the parties’ loan agreement.

25
 3. Whether respondent Gutierrez has completely filled out the serving assertion of the party claiming that such authority was verbally
subject check strictly under the authority given by the given, thus:
petitioner; and
The requirements of a special power of attorney in Article 1878 of the Civil
4. Whether Marasigan is a holder in due course. Code and of a special authority in Rule 138 of the Rules of Court refer to
the nature of the authorization and not its form. The requirements are met
The Court’s Ruling if there is a clear mandate from the principal specifically authorizing the
performance of the act. As early as 1906, this Court in Strong v. Gutierrez-
The petition is impressed with merit. Repide (6 Phil. 680) stated that such a mandate may be either oral or
written, the one vital thing being that it shall be express. And more
We note at the outset that the issues raised in this petition are essentially recently, We stated that, if the special authority is not written, then it must
factual in nature. The main point of inquiry of whether the contract of loan be duly established by evidence:
may be nullified, hinges on the very existence of the contract of loan – a
question that, as presented, is essentially, one of fact. Whether the x x x the Rules require, for attorneys to compromise the litigation of their
petitioner authorized the borrowing; whether Gutierrez completely filled clients, a special authority. And while the same does not state that the
out the subject check strictly under the petitioner’s authority; and whether special authority be in writing the Court has every reason to expect that, if
Marasigan is a holder in due course are also questions of fact, that, as a not in writing, the same be duly established by evidence other than the
general rule, are beyond the scope of a Rule 45 petition. self-serving assertion of counsel himself that such authority was verbally
given him.(Home Insurance Company vs. United States lines Company, et
The rule that questions of fact are not the proper subject of an appeal by al., 21 SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis
certiorari, as a petition for review under Rule 45 is limited only to supplied).
questions of law, is not an absolute rule that admits of no exceptions. One
notable exception is when the findings off act of both the trial court and The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner
the CA are conflicting, making their review necessary.5 In the present case, Should be Nullified for Being Void; Petitioner is Not Bound by the Contract
the tribunals below arrived at two conflicting factual findings, albeit with of Loan.
the same conclusion, i.e., dismissal of the complaint for nullity of the loan.
Accordingly, we will examine the parties’ evidence presented. A review of the records reveals that Gutierrez did not have any authority to
borrow money in behalf of the petitioner.1âwphi1Records do not show
I. Liability Under the Contract of Loan that the petitioner executed any special power of attorney (SPA) in favor of
Gutierrez. In fact, the petitioner’s testimony confirmed that he never
The petitioner seeks to nullify the contract of loan on the ground that he authorized Gutierrez (or anyone for that matter), whether verbally or in
never authorized the borrowing of money. He points to Article 1878, writing, to borrow money in his behalf, nor was he aware of any such
paragraph 7 of the Civil Code, which explicitly requires a written authority transaction:
when the loan is contracted through an agent. The petitioner contends
that absent such authority in writing, he should not be held liable for the ALVIN PATRIMONIO (witness)
face value of the check because he was not a party or privy to the
agreement. ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney
in writing authorizing him to borrow using your money?
Contracts of Agency May be Oral Unless The Law Requires a Specific Form
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
Article 1868 of the Civil Code defines a contract of agency as a contract
whereby a person "binds himself to render some service or to do xxxx
something in representation or on behalf of another, with the consent or
authority of the latter." Agency may be express, or implied from the acts of Marasigan however submits that the petitioner’s acts of pre-signing the
the principal, from his silence or lack of action, or his failure to repudiate blank checks and releasing them to Gutierrez suffice to establish that the
the agency, knowing that another person is acting on his behalf without petitioner had authorized Gutierrez to fill them out and contract the loan
authority. in his behalf.

As a general rule, a contract of agency may be oral.6 However, it must be Marasigan’s submission fails to persuade us.
written when the law requires a specific form, for example, in a sale of a
piece of land or any interest therein through an agent. In the absence of any authorization, Gutierrez could not enter into a
contract of loan in behalf of the petitioner. As held in Yasuma v. Heirs of De
Article 1878 paragraph 7 of the Civil Code expressly requires a special Villa,9 involving a loan contracted by de Villa secured by real estate
power of authority before an agent can loan or borrow money in behalf of mortgages in the name of East Cordillera Mining Corporation, in the
the principal, to wit: absence of an SPA conferring authority on de Villa, there is no basis to hold
the corporation liable, to wit:
Art. 1878. Special powers of attorney are necessary in the following cases:
The power to borrow money is one of those cases where corporate officers
xxxx as agents of the corporation need a special power of attorney. In the case
at bar, no special power of attorney conferring authority on de Villa was
(7) To loan or borrow money, unless the latter act be urgent and ever presented. x x x There was no showing that respondent corporation
indispensable for the preservation of the things which are under ever authorized de Villa to obtain the loans on its behalf.
administration. (emphasis supplied)
xxxx
Article 1878 does not state that the authority be in writing. As long as the
mandate is express, such authority may be either oral or written. We Therefore, on the first issue, the loan was personal to de Villa. There was
unequivocably declared in Lim Pin v. Liao Tian, et al.,7 that the requirement no basis to hold the corporation liable since there was no authority,
under Article 1878 of the Civil Code refers to the nature of the express, implied or apparent, given to de Villa to borrow money from
authorization and not to its form. Be that as it may, the authority must be petitioner. Neither was there any subsequent ratification of his act.
duly established by competent and convincing evidence other than the self
26
xxxx Another significant point that the lower courts failed to consider is that a
contract of loan, like any other contract, is subject to the rules governing
The liability arising from the loan was the sole indebtedness of de Villa (or the requisites and validity of contracts in general.13 Article 1318 of the Civil
of his estate after his death). (citations omitted; emphasis supplied). Code14enumerates the essential requisites for a valid contract, namely:

This principle was also reiterated in the case of Gozun v. Mercado,10 where 1. consent of the contracting parties;
this court held:
2. object certain which is the subject matter of the contract;
Petitioner submits that his following testimony suffices to establish that and
respondent had authorized Lilian to obtain a loan from him.
3. cause of the obligation which is established.
xxxx
In this case, the petitioner denied liability on the ground that the contract
Petitioner’s testimony failed to categorically state, however, whether the lacked the essential element of consent. We agree with the petitioner. As
loan was made on behalf of respondent or of his wife. While petitioner we explained above, Gutierrez did not have the petitioner’s written/verbal
claims that Lilian was authorized by respondent, the statement of account authority to enter into a contract of loan. While there may be a meeting of
marked as Exhibit "A" states that the amount was received by Lilian "in the minds between Gutierrez and Marasigan, such agreement cannot bind
behalf of Mrs. Annie Mercado. the petitioner whose consent was not obtained and who was not privy to
the loan agreement. Hence, only Gutierrez is bound by the contract of
It bears noting that Lilian signed in the receipt in her name alone, without loan.
indicating therein that she was acting for and in behalf of respondent. She
thus bound herself in her personal capacity and not as an agent of True, the petitioner had issued several pre-signed checks to Gutierrez, one
respondent or anyone for that matter. of which fell into the hands of Marasigan. This act, however, does not
constitute sufficient authority to borrow money in his behalf and neither
It is a general rule in the law of agency that, in order to bind the principal should it be construed as petitioner’s grant of consent to the parties’ loan
by a mortgage on real property executed by an agent, it must upon its face agreement. Without any evidence to prove Gutierrez’ authority, the
purport to be made, signed and sealed in the name of the principal, petitioner’s signature in the check cannot be taken, even remotely, as
otherwise, it will bind the agent only. It is not enough merely that the sufficient authorization, much less, consent to the contract of loan.
agent was in fact authorized to make the mortgage, if he has not acted in Without the consent given by one party in a purported contract, such
the name of the principal. x x x (emphasis supplied). contract could not have been perfected; there simply was no contract to
speak of.15
In the absence of any showing of any agency relations or special authority
to act for and in behalf of the petitioner, the loan agreement Gutierrez With the loan issue out of the way, we now proceed to determine whether
entered into with Marasigan is null and void. Thus, the petitioner is not the petitioner can be made liable under the check he signed.
bound by the parties’ loan agreement.
II. Liability Under the Instrument
Furthermore, that the petitioner entrusted the blank pre-signed checks to
Gutierrez is not legally sufficient because the authority to enter into a loan The answer is supplied by the applicable statutory provision found in
can never be presumed. The contract of agency and the special fiduciary Section 14 of the Negotiable Instruments Law (NIL) which states:
relationship inherent in this contract must exist as a matter of fact. The
person alleging it has the burden of proof to show, not only the fact of Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in
agency, but also its nature and extent.11 As we held in People v. Yabut:12 any material particular, the person in possession thereof has a prima facie
authority to complete it by filling up the blanks therein. And a signature on
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or a blank paper delivered by the person making the signature in order that
Geminiano Yabut, Jr., in Caloocan City cannot, contrary to the holding of the paper may be converted into a negotiable instrument operates as a
the respondent Judges, be licitly taken as delivery of the checks to the prima facie authority to fill it up as such for any amount. In order,
complainant Alicia P. Andan at Caloocan City to fix the venue there. He did however, that any such instrument when completed may be enforced
not take delivery of the checks as holder, i.e., as "payee" or "indorsee." against any person who became a party thereto prior to its completion, it
And there appears to beno contract of agency between Yambao and must be filled up strictly in accordance with the authority given and within
Andan so as to bind the latter for the acts of the former. Alicia P. Andan a reasonable time. But if any such instrument, after completion, is
declared in that sworn testimony before the investigating fiscal that negotiated to a holder in due course, it is valid and effectual for all
Yambao is but her "messenger" or "part-time employee." There was no purposes in his hands, and he may enforce it as if it had been filled up
special fiduciary relationship that permeated their dealings. For a contract strictly in accordance with the authority given and within a reasonable
of agency to exist, the consent of both parties is essential, the principal time.
consents that the other party, the agent, shall act on his behalf, and the
agent consents so to act. It must exist as a fact. The law makes no This provision applies to an incomplete but delivered instrument. Under
presumption thereof. The person alleging it has the burden of proof to this rule, if the maker or drawer delivers a pre-signed blank paper to
show, not only the fact of its existence, but also its nature and extent. This another person for the purpose of converting it into a negotiable
is more imperative when it is considered that the transaction dealt with instrument, that person is deemed to have prima facie authority to fill it
involves checks, which are not legal tender, and the creditor may validly up. It merely requires that the instrument be in the possession of a person
refuse the same as payment of obligation.(at p. 630). (emphasis supplied) other than the drawer or maker and from such possession, together with
the fact that the instrument is wanting in a material particular, the law
The records show that Marasigan merely relied on the words of Gutierrez presumes agency to fill up the blanks.16
without securing a copy of the SPA in favor of the latter and without
verifying from the petitioner whether he had authorized the borrowing of In order however that one who is not a holder in due course can enforce
money or release of the check. He was thus bound by the risk the instrument against a party prior to the instrument’s completion, two
accompanying his trust on the mere assurances of Gutierrez. requisites must exist: (1) that the blank must be filled strictly in accordance
with the authority given; and (2) it must be filled up within a reasonable
No Contract of Loan Was Perfected Between Marasigan And Petitioner, as time. If it was proven that the instrument had not been filled up strictly in
The Latter’s Consent Was Not Obtained. accordance with the authority given and within a reasonable time, the
27
maker can set this up as a personal defense and avoid liability. However, if In the present case, Marasigan’s knowledge that the petitioner is not a
the holder is a holder in due course, there is a conclusive presumption that party or a privy to the contract of loan, and correspondingly had no
authority to fill it up had been given and that the same was not in excess of obligation or liability to him, renders him dishonest, hence, in bad faith.
authority.17 The following exchange is significant on this point:

In the present case, the petitioner contends that there is no legal basis to WITNESS: AMBET NABUS
hold him liable both under the contract and loan and under the check
because: first, the subject check was not completely filled out strictly Q: Now, I refer to the second call… after your birthday. Tell us what you
under the authority he has given and second, Marasigan was not a holder talked about?
in due course.
A: Since I celebrated my birthday in that place where Nap and I live
Marasigan is Not a Holder in Due Course together with the other crew, there were several visitors that included
Danny Espiritu. So a week after my birthday, Bong Marasigan called me up
The Negotiable Instruments Law (NIL) defines a holder in due course, thus: again and he was fuming mad. Nagmumura na siya. Hinahanap niya si…
hinahanap niya si Nap, dahil pinagtataguan na siya at sinabi na niya na
Sec. 52 — A holder in due course is a holder who has taken the instrument kailangan I-settle na niya yung utang ni Nap, dahil…
under the following conditions:
xxxx
(a) That it is complete and regular upon its face;
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa
(b) That he became the holder of it before it was overdue, and kung saan ang tsekeng tumalbog… (He told me that we have to fix it up
without notice that it had been previously dishonored, if such before it…) mauwi pa kung saan…
was the fact;
xxxx
(c) That he took it in good faith and for value;
Q: What was your reply, if any?
(d) That at the time it was negotiated to him he had no notice
of any infirmity in the instrument or defect in the title of the A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
person negotiating it.(emphasis supplied)
(Whose check is it that you are referring to or talking about?)
Section 52(c) of the NIL states that a holder in due course is one who takes
the instrument "in good faith and for value." It also provides in Section Q: What was his answer?
52(d) that in order that one may be a holder in due course, it is necessary
that at the time it was negotiated to him he had no notice of any infirmity A: It was Alvin’s check.
in the instrument or defect in the title of the person negotiating it.
Q: What was your reply, if any?
Acquisition in good faith means taking without knowledge or notice of
equities of any sort which could beset up against a prior holder of the A: I told him do you know that it is not really Alvin who borrowed money
instrument.18 It means that he does not have any knowledge of fact which from you or what you want to appear…
would render it dishonest for him to take a negotiable paper. The absence
of the defense, when the instrument was taken, is the essential element of xxxx
good faith.19
Q: What was his reply?
As held in De Ocampo v. Gatchalian:20
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang
In order to show that the defendant had "knowledge of such facts that his maiipit dito.(T.S.N., Ambet Nabus, July 27, 2000; pp.65-71; emphasis
action in taking the instrument amounted to bad faith," it is not necessary supplied)21
to prove that the defendant knew the exact fraud that was practiced upon
the plaintiff by the defendant's assignor, it being sufficient to show that Since he knew that the underlying obligation was not actually for the
the defendant had notice that there was something wrong about his petitioner, the rule that a possessor of the instrument is prima facie a
assignor's acquisition of title, although he did not have notice of the holder in due course is inapplicable. As correctly noted by the CA, his
particular wrong that was committed. inaction and failure to verify, despite knowledge of that the petitioner was
not a party to the loan, may be construed as gross negligence amounting
It is sufficient that the buyer of a note had notice or knowledge that the to bad faith.
note was in some way tainted with fraud. It is not necessary that he should
know the particulars or even the nature of the fraud, since all that is Yet, it does not follow that simply because he is not a holder in due course,
required is knowledge of such facts that his action in taking the note Marasigan is already totally barred from recovery. The NIL does not
amounted bad faith. provide that a holder who is not a holder in due course may not in any case
recover on the instrument.22 The only disadvantage of a holder who is not
The term ‘bad faith’ does not necessarily involve furtive motives, but in due course is that the negotiable instrument is subject to defenses as if
means bad faith in a commercial sense. The manner in which the it were non-negotiable.23 Among such defenses is the filling up blank not
defendants conducted their Liberty Loan department provided an easy within the authority.
way for thieves to dispose of their plunder. It was a case of "no questions
asked." Although gross negligence does not of itself constitute bad faith, it On this point, the petitioner argues that the subject check was not filled up
is evidence from which bad faith may be inferred. The circumstances strictly on the basis of the authority he gave. He points to his instruction
thrust the duty upon the defendants to make further inquiries and they not to use the check without his prior approval and argues that the check
had no right to shut their eyes deliberately to obvious facts. (emphasis was filled up in violation of said instruction.
supplied).
Check Was Not Completed Strictly Under The Authority Given by The
Petitioner
28
Our own examination of the records tells us that Gutierrez has exceeded ALEJANDRO NG WEE, WESTMONT INVESTMENT CORP., ANTHONY T.
the authority to fill up the blanks and use the check.1âwphi1 To repeat, REYES, SIMEON CUA, VICENTE CUALOPING, HENRY CUALOPING, MARIZA
petitioner gave Gutierrez pre-signed checks to be used in their business SANTOSTAN, and MANUEL ESTRELLA, Respondents
provided that he could only use them upon his approval. His instruction
could not be any clearer as Gutierrez’ authority was limited to the use of x-----------------------x
the checks for the operation of their business, and on the condition that
the petitioner’s prior approval be first secured. G.R. No. 221058

While under the law, Gutierrez had a prima facie authority to complete the WESTMONT INVESTMENT, CORPORATION, Petitioner,
check, such prima facie authority does not extend to its use (i.e., vs.
subsequent transfer or negotiation)once the check is completed. In other ALEJANDRO NG WEE, Respondent.
words, only the authority to complete the check is presumed. Further, the
law used the term "prima facie" to underscore the fact that the authority x-----------------------x
which the law accords to a holder is a presumption juris tantumonly;
hence, subject to subject to contrary proof. Thus, evidence that there was G.R. No. 221109
no authority or that the authority granted has been exceeded may be
presented by the maker in order to avoid liability under the instrument. MANUEL ESTRELLA, Petitioner,
vs.
In the present case, no evidence is on record that Gutierrez ever secured ALEJANDRO NG WEE, Respondent.
prior approval from the petitioner to fill up the blank or to use the check.
In his testimony, petitioner asserted that he never authorized nor x-----------------------x
approved the filling up of the blank checks, thus:
G.R. No. 221135
ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write
the date, May 23, 1994? SIMEON CUA, VICENTE CUALOPING, and HENRY CUALOPING, Petitioners,
vs.
WITNESS: No, sir. ALEJANDRO NG WEE, Respondent.

Q: Did you authorize anyone including Nap Gutierrez to put the word cash? x-----------------------x
In the check?
G.R. No. 221218
A: No, sir.
ANTHONY T. REYES, Petitioner,
Q: Did you authorize anyone including Nap Gutierrez to write the figure vs.
₱200,000 in this check? ALEJANDRO NG WEE, LUIS JUAN VIRATA, UEM-MARA PHILIPPINES CORP.,
WESTMONT INVESTMENT CORP., MARIZA SANTOS-TAN, SIMEON CUA,
A: No, sir. VICENTE CUALOPING, HENRY CUALOPING, and MANUEL
ESTRELLA, Respondent.
Q: And lastly, did you authorize anyone including Nap Gutierrez to write
the words ₱200,000 only xx in this check? RESOLUTION

A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24 VELASCO, JR, J.:

Notably, Gutierrez was only authorized to use the check for business Before this Court are the following recourses from Our July 5, 2017
expenses; thus, he exceeded the authority when he used the check to pay Decision:
the loan he supposedly contracted for the construction of petitioner's
house. This is a clear violation of the petitioner's instruction to use the a. Motion for Partial Reconsideration1 filed by Luis Juan L. Virata
checks for the expenses of Slam Dunk. It cannot therefore be validly (Virata);
concluded that the check was completed strictly in accordance with the
authority given by the petitioner. b. Motion for Reconsideration2 of Mariza Santos-Tan
(SantosTan );
Considering that Marasigan is not a holder in due course, the petitioner
can validly set up the personal defense that the blanks were not filled up in c. Motion for Reconsideration3 of Manuel Estrella (Estrella);
accordance with the authority he gave. Consequently, Marasigan has no
right to enforce payment against the petitioner and the latter cannot be d. Motion for Partial Reconsideration4 of Alejandro Ng Wee (Ng
obliged to pay the face value of the check. Wee);

WHEREFORE, in view of the foregoing, judgment is hereby rendered e. Motion for Reconsideration5 of Simeon Cua, Vicente
GRANTING the petitioner Alvin Patrimonio's petition for review on Cualoping, and Henry Cualoping (Cua and the Cualopings );
certiorari. The appealed Decision dated September 24, 2008 and the
Resolution dated April 30, 2009 of the Court of Appeals are consequently f. Motion for Reconsideration6 of Anthony T. Reyes (Reyes); and
ANNULLED AND SET ASIDE. Costs against the respondents.
g. Motion for Reconsideration7 of Westmont Investment
SO ORDERED. Corporation (Wincorp)

G.R. No. 220926 The Court notes that the grounds relied upon by the movants Virata,
Estrella, Ng Wee, Cua and the Cualopings, Reyes, and Wincorp are the
LUIS JUAN L. VIRATA and UEMMARA PHILIPPINES CORPORATION (now same or substantially similar to those raised in their respective petitions at
known as CAVITEXINFRASTRUCTURE CORPORATION), Petitioners bar. The same have been amply discussed, thoroughly considered,
vs. exhaustively threshed out and resolved in Our July 5, 2017 Decision. Said
29
motions for reconsideration, perforce, must suffer the same fate of denial. of action.8 Here, the grant of the cross-claim is but the logical consequence
Meanwhile, the Court deems it necessary to discuss the issues raised by of the Court's finding that the Side Agreements, although not binding on
Santos-Tan, who is only now participating in the proceedings, in her plea Ng Wee and the other investors, are binding against the parties thereto.
for reconsideration. And under the terms of the Side Agreements, the only liability of Power
Merge is not to pay for the promissory notes it issued, but to return and
Respondent Santos-Tan never appealed the September 30, 2014 Decision deliver to Wincorp all the rights, titles and interests conveyed to it by
and October 14, 2015 Resolution of the Court of Appeals (CA) in CA-G.R CV. Wincorp over the Hottick obligations. It may be, as Santos-Tan argued, that
No. 97817 holding her liable with her co-parties to Ng Wee. Hence, she Power Merge made drawdowns from the credit line facility, and that its
maintains that the Court does not have jurisdiction over her person and receipt of a significant sum thereunder makes it liable to the investors.
that, insofar as she is concerned, the CA ruling had already attained finality However, any payment made by Virata for this liability would nevertheless
and can no longer be modified. And when the Court promulgated its July 5, still be subject to the right of reimbursement from Wincorp by virtue of the
2017 Decision granting Virata’s cross-claim against her, the Court allegedly Side Agreements.
altered the CA’s final ruling as to her by increasing her exposure, in net
effect. In his Dissent, esteemed Associate Justice Noel G. Tijam (Justice Tijam)
submits that the Wincorp directors-specifically Cua, the Cualopings,
Additionally, Santos-Tan was allegedly deprived of her right to due process Santos-Tan and Estrella-should not be jointly and solidarily liable with
since she was not afforded the opportunity to rebut the issue pertaining to Virata, Wincorp, Ong, and Reyes to pay Ng Wee the amount of his
Virata's counterclaim, a claim that was allegedly not raised in Virata’s investment. Justice Tijam stressed that there is lack of proof that the said
appeal but was granted nonetheless. directors assented to the execution of the Side Agreements, barring the
Court from holding them personally accountable for fraud. Neither can
On the merits, Santos-Tan argues that the cross-claim should not have they be held liable for gross negligence since they exercised due diligence
been granted because the February 15 and March 15, 1999 Side in conducting the affairs of Wincorp.
Agreements that served as the basis thereof never got the imprimatur of
the Board of Directors of Wincorp. Moreover, Santos-Tan points out that, The court finds the submissions meritless.
as established, Power Merge made a total of P2,183,755,253.11 of
drawdowns from its Credit Line Facility. Considering Power Merge’s receipt Section 31 of the Corporation Code expressly states:
of the said amount, it would be iniquitous and immoral to require Santos-
Tan and her co-directors in Wincorp to reimburse Virata of whatever the Section 31. Liability of directors, trustees or officers. - Directors or trustees
latter would be required to pay Ng Wee. who willfully and knowingly vote for or assent to patently unlawful acts of
the corporation or who are guilty of gross negligence or bad faith in
The arguments do not persuade. directing the affairs of the corporation or acquire any personal or
pecuniary interest in conflict with their duty as such directors or trustees
It is at the height of error for respondent Santos-Tan to claim that the shall be liable jointly and severally for all damages resulting therefrom
Court does not have jurisdiction over her person. Clear in the petitions is suffered by the corporation, its stockholders or members and other
that Virata and Reyes specifically imp leaded Santos-Tan as one of the persons.
party respondents in their petitions, docketed as G.R. Nos. 220926 and
221218, respectively. Through her designation as a party respondent in the When a director, trustee or officer attempts to acquire or acquire, in
said appeals, the Court validly acquired jurisdiction over her person, and violation of his duty, any interest adverse to the corporation in respect of
prevented the assailed September 30, 2014 Decision and October 14, 2015 any matter which has been reposed in him in confidence, as to which
Resolution of the CA in CA-G.R CV. No. 97817 from attaining finality as to equity imposes a disability upon him to deal in his own behalf, he shall be
her. liable as a trustee for the corporation and must account for the profits
which otherwise would have accrued to the corporation.
Santos-Tan’s claim that she was denied of due process when the Court
granted Virata’s cross-claim is likewise unavailing. In Our July 5, 2017 Decision, the Court explicated the liabilities of the
board directors, thus:
Virata raised his claim against his co-parties as early as the filing of his
Answer to Ng Wee’s Complaint. The claim was then ventilated in trial G.R. No. 221135: The liabilities of
where the extent of the liability of each party had been ascertained. V Cua and the Cualopings
irata, Santos-Tan, and their co-parties would contest the findings of the
trial court to the CA, but to no avail. Eventually, the controversy was On the other hand, the liabilities of Cua and the Cualopings are more
elevated to this Court. straightforward. They admit of approving the Credit Line Agreement and
its subsequent Amendment during the special meetings of the Wincorp
The implication of Virata’s persistent plea, up to this Court, to be absolved board of directors, but interpose the defense that they did so because the
of civil liability is to shift the burden entirely to his co-parties. Otherwise screening committee found the application to be above board. They deny
stated, he was essentially re-asserting his cross-claim, as against Santos- knowledge of the Side Agreements and of Power Merge's inability to pay.
Tan included. However, Santos-Tan inexplicably waived her right to
address the allegations in Virata's bid for exoneration in his petition, We are not persuaded.
despite having been impleaded as party respondent.
Cua and the Cualopings cannot effectively distance themselves from
The perceived denial of due process right is therefore illusory. Santos-Tan liability by raising the defenses they did. As ratiocinated by the CA:
had all the opportunity to counter Virata’s allegations in his petition, but
did not avail of the same. She only has herself to blame, not only for failing Such submission creates a loophole, especially in this age of
to appeal the appellate court's ruling, but also for her conscious refusal to compartmentalization, that would create a nearly fool-proof scheme
even file a comment on the petitions in the case at bar. whereby well-organized enterprises can evade liability for financial fraud.
Behind the veil of compartmentalized departments, such enterprise could
Furthermore, even though the cross-claim was not explicitly raised as an induce the investing public to invest in a corporation which is financially
issue in Virata’s petition, the request therefor is subsumed under the unable to pay with promises of definite returns on investment. If we follow
general prayer for equitable relief. Jurisprudence teaches that the Court's the reasoning of defendants-appellants, we allow the masterminds and
grant of relief is limited to what has been prayed for in the Complaint or profiteers from the scheme to take the money and run without fear of
related thereto, supported by evidence, and covered by the party's cause liability from law simply because the defrauded investor would be hard-
30
pressed to identify or pinpoint from among the various departments of a should be released from liability. Estrella appealed to the CA, but the
corporation which directly enticed him to part with his money. adverse ruling was sustained.

Petitioners Cua and the Cualopings bewail that the above-quoted We agree with the findings of the courts a quo.
statement is overarching, sweeping, and bereft of legal or factual basis. But
as per the records, the totality of circumstances in this case proves that The minutes of the February 9, 1999 and March 11, 1999 Wincorp Special
they are either complicit to the fraud, or at the very least guilty of gross Board Meetings were considered as damning evidence against Estrella, just
negligence, as regards the "sans recourse" transactions from the Power as they were for Cua and the Cualopings. Although they were said to be
Merge account. unreliable insofar as Tankiansee is concerned, the trial court rightly
distinguished between the circumstances of Estrella and Tankiansee to
The board of directors is expected to be more than mere rubber stamps of justify holding Estrella liable.
the corporation and its subordinate departments. It wields all corporate
powers bestowed by the Corporation Code, including the control over its For perspective, Tankiansee was exempted from liability upon establishing
properties and the conduct of its business. Being stewards of the company, that it was physically impossible for him to have participated in the said
the board is primarily charged with protecting the assets of the meetings since his immigration records clearly show that he was outside
corporation in behalf of its stakeholders. the country during those specific dates. In contrast, no similar evidence of
impossibility was ever offered by Estrella to support his position that he
Cua and the Cualopings failed to observe this fiduciary duty when they and Tankiansee are similarly situated.
assented to extending a credit line facility to Power Merge. In PED Case No.
20-2378, the SEC discovered that Power Merge is actually Wincorp’s Estrella submitted his departure records proving that he had left the
largest borrower at about 30% of the total borrowings. It was then country in July 1999 and returned only in February of 2000. Be that as it
incumbent upon the board of directors to have been more circumspect in may, this is undoubtedly insufficient to establish his defense that he was
approving its credit line facility, and should have made an independent not present during the February 9, 1999 and March 11, 1999 board
evaluation of Power Merge’s application before agreeing to expose it to a meetings.
₱2,500,000,000.00 risk.
Instead, the minutes clearly state that Estrella was present during the
Had it fulfilled its fiduciary duty, the obvious warning signs would have meetings when the body approved the grant of a credit line facility to
cautioned it from approving the loan in haste. To recapitulate: (1) Power Power Merge. Estrella would even admit being present during the
Merge has only been in existence for two years when it was granted a February 9, 1999 meeting, but attempted to evade responsibility by
credit facility; (2) Power Merge was thinly capitalized with only claiming that he left the meeting before the "other matters," including
₱37,500,000.00 subscribed capital; (3) Power Merge was not an ongoing Power Merge's application, could have been discussed.
concern since it never secured the necessary permits and licenses to
conduct business, it never engaged in any lucrative business, and it did Unfortunately, no concrete evidence was ever offered to confirm Estrella’s
not file the necessary reports with the SEC; and (4) no security other than alibi. In both special meetings scheduled, Estrella averred that he
its Promissory Notes was demanded by Wincorp or was furnished by accompanied his wife to a hospital for her cancer screening and for
Power Merge in relation to the latter’s drawdowns. dialogues on possible treatments. However, this claim was never
corroborated by any evidence coming from the hospital or from his wife's
It cannot also be ignored that prior to Power Merge’s application for a physicians. Aside from his mere say-so, no other credible evidence was
credit facility, its controller Virata had already transacted with Wincorp. A presented to substantiate his claim. Thus, the Court is not inclined to lend
perusal of his records with the company would have revealed that he was credence to Estrella’s self-serving denials.
a surety for the Hettick obligations that were still unpaid at that time. This
means that at the time the Credit Line Agreement was executed on Neither can petitioner Estrella be permitted to raise the defense that he is
February 15, 1999, Virata still had direct obligations to Wincorp under the a mere nominee of John Anthony Espiritu, the then chairman of the
Hettick account. But instead of impleading him in the collection suit Wincorp board of directors. It is of no moment that he only had one
against Hottick, Wincorp’s board of directors effectively released Virata nominal share in the corporation, which he did not even pay for, just as it
from liability, and, ironically, granted him a credit facility in the amount of is inconsequential whether or not Estrella had been receiving
₱1,300,000,000.00 on the very same day. compensation or honoraria for attending the meetings of the board.

This only goes to show that even if Cua and the Cualopings are not guilty of The practice of installing undiscerning directors cannot be tolerated, let
fraud, they would nevertheless still be liable for gross negligence in alone allowed to perpetuate. This must be curbed by holding accountable
managing the affairs of the company, to the prejudice of its clients and those who fraudulently and negligently perform their duties as corporate
stakeholders. Under such circumstances, it becomes immaterial whether directors, regardless of the accident by which they acquired their
or not they approved of the Side Agreements or authorized Reyes to sign respective positions.
the same since this could have all been avoided if they were vigilant
enough to disapprove the Power Merge credit application. Neither can the In this case, the fact remains that petitioner Estrella accepted the
business judgment rule apply herein for it is elementary in corporation law directorship in the Wincorp board, along with the obligations attached to
that the doctrine admits of exceptions: bad faith being one of them, gross the position, without question or qualification. The fiduciary duty of a
negligence, another. The CA then correctly held petitioners Cua and the company director cannot conveniently be separated from the position he
Cualopings liable to respondent Ng Wee in their personal capacity. occupies on the trifling argument that no monetary benefit was being
derived therefrom. The gratuitous performance of his duties and functions
G.R. No. 221109: The liability of is not sufficient justification to do a poor job at steering the company away
Manuel Estrella from foreseeable pitfalls and perils. The careless management of corporate
affairs, in itself, amounts to a betrayal of the trust reposed by the
To refresh, Estrella echoes the defense of Tankiansee, who was exempted corporate investors, clients, and stakeholders, regardless of whether or not
from liability by the trial court. He claims that just like Tankiansee, he was the board or its individual members are being paid. The RTC and the CA,
not present during Wincorp’s special board meetings where Power therefore, correctly disregarded the defense of Estrella that he is a mere
Merge's credit line was approved and subsequently amended. Both also nominee. (citations omitted, emphasis added)
claimed that they protested and opposed the board's actions. But despite
the parallels in their defenses, the trial court was unconvinced that Estrella As regards Santos-Tan, she would likewise be liable in her personal
capacity under Section 31 of the Corporation Code.9 Her liability is no
31
different from that of Cua and the Cualopings. She cannot utilize the enforcing the surety agreement against Virata when Hottick defaulted, the
separate juridical personality of Wincorp as a shield when she, along with Wincorp board approved a resolution excluding Virata as a party
the other board members, approved the credit line application of Power respondent in the collection suit to be filed against Hottick and its
Merge in the amount of ₱2,500,000,000.00 despite the glaring signs that it proprietors. What is more, this resolution was approved by the movant-
would be unable to make good its obligation, to wit: directors on February 9, 1999, the very same day Virata’s credit line
application for Power Merge in the maximum amount of
(1) Power Merge has only been in existence for two years when ₱1,300,000,000.00 was given the green light.
it was granted a credit facility;
As further noted in the assailed Decision:
(2) Power Merge was thinly capitalized with only ₱37,500, 000.
00 subscribed capital; It must be remembered that the special meeting of Wincorp’s board of
directors was conducted on February 9 and March 11 of 1999, while the
(3)Power Merge was not an ongoing concern since it never Credit Line Agreement and its Amendment were entered into on February
secured the necessary permits and licenses to conduct business, 15 and March 15 of 1999, respectively. But as indicated in Power Merge's
it never engaged in any lucrative business, and it did not file the schedule of drawdowns, Wincorp already released to Power Merge the
necessary reports with the SEC; and sum of ₱1,133,399,958.45 as of February 12, 1999, before the Credit Line
Agreement was executed. And as of March 12, 1999, prior to the
(4)No security other than its Promissory Notes was demanded Amendment, ₱1,805,018,228.05 had already been released to Power
by Wincorp or was furnished by Power Merge in relation to the Merge.
latter’s drawdowns.1âwphi1
The fact that the proceeds were released to Power Merge before the
Had Santos-Tan and the members of the board fulfilled their fiduciary duty signing of the Credit Line Agreement and the Amendment thereto lends
to protect the corporation for the sake of its stakeholders, the obvious credence to Virata’s claim that Wincorp did not intend for Power Merge to
warning signs would have cautioned them from approving Power Merge’s be strictly bound by the terms of the credit facility; and that there had
loan application and credit limit increase in haste. The failure to heed these already been an understanding between the parties on what their
warning signs, to Our mind, constitutes gross negligence, if not fraud, for respective obligations will be, although this agreement had not yet been
which the members of the board could be held personally accountable. reduced into writing. The underlying transaction would later on be
revealed in black and white through the Side Agreements, the tenor of
The contention that the Side Agreements were without the imprimatur of which amounted to Wincorp’s intentional cancellation of Power Merge
its board of directors cannot be given credence. The totality of and Virata’s obligation under their Promissory Notes. In exchange, Virata
circumstances supports the conclusion ·that the Wincorp directors and Power Merge assumed the obligation to transfer equity shares in UPDI
impliedly ratified, if not furtively authorized, the signing of the Side and the tollway project in favor of Wincorp. An arm’s length transaction
Agreements in order to lay the groundwork for the fraudulent scheme. has indeed taken place, substituting Virata and Power Merge's obligations
Thus, even though it is quite understandable that there is no document under the Promissory Notes, in pursuance of the Memorandum of
traceable to said Wincorp directors expressly authorizing the execution of Agreement and Waiver and Quitclaim executed by Virata and Wincorp.
the said documents, We are not precluded from holding the same. Thus, as far as Wincorp, Power Merge, and Virata are concerned, the
Promissory Notes had already been discharged.
The Court expounded on the concept of corporate ratification m Board of
Liquidators v. Heirs of Kalaw10 in the following wise: To emphasize, there were clear warning signs that Power Merge would not
have been able to pay the almost ₱2.5 billion face value of its promissory
Authorities, great in number, are one in the idea that "ratification by a notes. To Our mind, the Wincorp board of directors' approval of the credit
corporation of an unauthorized act or contract by its officers or others line agreement, notwithstanding these telltale signs and the above
relates back to the time of the act or contract ratified, and is equivalent to outlined circumstances, establishes the movant-directors' liability to Ng
original authority;" and that "[t]he corporation and the other party to the Wee. For if these do not attest to their privity to Wincorp’s fraudulent
transaction are in precisely the same position as if the act or contract had scheme, they would, at the very least, convincingly prove that the
been authorized at the time." The language of one case is expressive: movantdirectors are guilty of gross negligence in managing the company
"The adoption or ratification of a contract by a corporation is nothing affairs. The movant-board directors should not have allowed the exclusion
more nor less than the making of an original contract.The theory of of Virata from the collection suit against Hottick knowing that he is a
corporate ratification is predicated on the right of a corporation to surety thereof. As revealed by their subsequent actions, this was not a
contract, and any ratification or adoption is equivalent to a grant of prior mere error in judgment but a calculated maneuver to defraud its investors.
authority." (emphasis added) Hence, the Court did not err when it ruled that Sec. 31 of the Corporation
Code must be applied, and the separate juridical personality of Wincorp,
And in University of Mindanao, Inc. v. Bangko Sentral ng Pilipinas, 11 We pierced.
have discussed that:
Moreover, the Court finds it highly suspect that the movant-directors,
Implied ratification may take the form of silence, acquiescence, acts aside from Estrella, did not question why the case proceeded without the
consistent with approval of the act, or acceptance or retention of board chairman, John Anthony B. Espiritu (Espiritu). There were seventeen
benefits. However, silence, acquiescence, retention of benefits, and acts (17) named defendants in Civil Case No. 00-99006 with the Regional Trial
that may be interpreted as approval of the act do not by themselves Court, Branch 39 in Manila, which included the entire composition of the
constitute implied ratification. For an act to constitute an implied Wincorp board of directors. If the movant-directors truly believed that
ratification, there must be no acceptable explanation for the act other they are on par with each other in terms of participation, then they should
than that there is an intention to adopt the act as his or her own. x x x have instituted a cross-claim against Espiritu, or at least objected against
(emphasis added) his being dropped as a party defendant.

In the case at bar, it can be inferred from the attendant circumstances that WHEREFORE, premises considered, the following motions are
the Wincorp board ratified, if not approved, the Side hereby DENIED for lack of merit:
Agreements.1âwphi1 Guilty of reiteration, Virata’s prior transactions with
Wincorp is recorded in the latter's books. The Wincorp directors are a. Motion for Partial Reconsideration filed by Luis Juan L. Virata;
chargeable with knowledge of the surety agreement that Virata executed
to secure the Hottick obligations to its investors. However, instead of b. Motion for Reconsideration of Mariza Santos-Tan;
32
 c. Motion for Reconsideration of Manuel Estrella; LITE's representative that it would take time to subdivide the lot and
respondent F.P. HOLDINGS was not receptive to the purchase of only half
d. Motion for Partial Reconsideration of Alejandro Ng Wee; of the front lot. After a few days, Atty. Mamaril wrote Metro Drug (ATTN:
MELDIN AL ROY) expressing CITY-LITE's desire to buy the entire front lot of
e. Motion for Reconsideration of Simeon Cua, Vicente the subject property instead of only half thereof provided the asking price
Cualoping, and Henry Cualoping; of P6,250.00/square meter was reduced and that payment be in
installment for a certain period. Roy made a counter offer dated 25
f. Motion for Reconsideration of Anthony T. Reyes; and September 1991 as follows:

g. Motion for Reconsideration of Westmont Investment Dear Atty. Mamaril,

Corporation.
This has reference to your letter dated September
No further pleadings or motions will be entertained. 24, 1991 in connection with the interest of your
clients, Mr. Antonio Teng/City-Lite Realty
Let entry of judgment be issued. Corporation and/or any of their subsidiaries to buy a
portion of the Violago Property fronting E. Rodriguez
G.R. No. 138639 February 10, 2000 Sr. Avenue with an area of 9,192 square meters.

CITY-LITE REALTY CORPORATION, petitioner, We are pleased to inform you that we are prepared
vs. to consider the above offer subject to the following
COURT OF APPEALS and F.P. HOLDINGS & REALTY CORP., METRO DRUG major terms and conditions: 1. The price shall be
INC., MELDIN AL G. ROY, VIEWMASTER CONSTRUCTION CORP., and the P6,250.00/square meter or a total of
REGISTER OF DEEDS OF QUEZON CITY, respondent. P57,450,000.00; 2. The above purchase price shall be
paid to the owner as follows: (a) P15.0 Million
BELLOSILLO, J.: downpayment; (b) balance payable within six (6)
months from date of downpayment without
This is a petition for review on certiorari filed by CITY-LITE REALTY interest. Should your client find the above major
CORPORATION (CITY-LITE) seeking to annul the 20 October 1998 Decision terms and conditions acceptable, please advise us in
of the Court of Appeals1 which reversed the Decision of the Regional Trial writing by tomorrow, September 26, 1991, so that
Court of Quezon City in its Civil Case No. Q-92-11068 declaring that a
contract of sale over the subject property was perfected and that Metro
Drug Inc. and Meldin Al G. Roy had the authority to sell the property.2 Very truly yours,

Private respondent F. P. HOLDINGS AND REALTY CORPORATION (F.P.

HOLDINGS), formerly the Sparta Holdings (Inc., was the registered owner MELDIN AL G. ROY
of a parcel of land situated along E. Rodriguez Avenue, Quezon City, also
known as the "Violago Property" or the "San Lorenzo Ruiz Commercial
Center," with an area of 71,754 square meters, more or less, and covered we can start formal discussions on the matter . . . .
by Transfer Certificate of Title No. T-19599. The property was offered for
sale to the general public through the circulation of a sales brochure
containing the following information:

A parcel of land including buildings and other improvements

thereon located along E. Rodriguez Avenue, Quezon City, with a
total lot area of 71,754 square meters — 9,192 square meters
in front, 23,332 square meters in the middle, and 39,230 square
meters at the back. But the total area for sale excludes 5,000
square meters covering the existing chapel and adjoining areas On 26 September 1991 CITY-LITE's officers and Atty. Mamaril met with Roy
which be donated to the Archdiocese of Manila thus reducing at the Manila Mandarin Hotel in Makati to consummate the transaction.
the total saleable area to 66,754 square meters. Asking price After some discussions, the parties finally reached an agreement and Roy
was P6,250.00/square meter with terms of payment negotiable. agreed to sell the property to CITY-LITE provided only that the latter
Broker's commission was 2.0% of selling price, net of submit its acceptance in writing to the terms and conditions of the sale as
withholding taxes and other charges. As advertised, contact contained in his letter of 25 September 1991. Later that afternoon after
person was Meldin Al G. Roy, Metro Drug Inc., with address at meeting with Roy at the Manila Mandarin Hotel, Atty. Mamaril and
5/F Metro House, 345 Sen. Gil Puyat Avenue, Makati City. Antonio Teng of CITY-LITE conveyed their formal acceptance of the terms
and conditions set forth by Roy in separate letters both dated 26
The front portion consisting of 9,192 square meters is the subject of this September 1991.
litigation.
However, for some reason or another and despite demand, respondent
On 22 August 1991 respondent Meldin Al G. Roy sent a sales brochure, F.P. HOLDINGS refused to execute the corresponding deed of sale in favor
together with the location plan and copy of the Transfer Certificate of Title of CITY-LITE of the front lot of the property. Upon its claim of protecting its
No. T-19599 of the Register of Deeds of Quezon City, to Atty. Gelacio interest as vendee of the property in suit, CITY-LITE registered an adverse
Mamaril, a practicing lawyer and a licensed real estate broker. Atty. claim to the title of the property with the Register of Deeds of Quezon City
Mamaril in turn passed on these documents to Antonio Teng, Executive which was annotated in the Memorandum of Encumbrance of Transfer
Vice-President, and Atty. Victor P. Villanueva, Legal Counsel, of CITY-LITE. Certificate of Title No. T-19599 under Entry No. PE-1001 dated 27
September 1991.
In a letter dated 19 September 1991 sent to Metro Drug (ATTN: MELDIN AL
ROY) after an initial meeting with Meldin Al Roy that day, CITY-LITE On 30 September 1991 CITY-LITE's counsel demanded in writing that
conveyed its interest to purchase a portion or one-half (1/2) of the front Metro Drug (ATTN: MELDIN AL G. ROY) comply with its commitment to
lot of the "Violago Property. Apparently, Roy subsequently informed CITY- CITY-LITE by executing the proper deed of conveyance of the property
33
under pain of court action. On 4 October 1991 F.P. HOLDINGS filed a and that the authority of Roy was only limited to that of a mere liaison or
petition for the cancellation of the adverse claim against CITY-LITE with the contact person.
Regional Trial Court of Quezon City, docketed as LRC Case No. 91-10257,
which was raffled to Br. 84. We cannot sustain petitioner. On the issue of whether a contract of sale
was perfected between petitioner CITY-LITE and respondent F.P.
On 8 October 1991 Edwin Fernandez, President of F.P. HOLDINGS, in a HOLDINGS acting through its agent Meldin Al G. Roy of Metro Drug, Art.
move to amicably settle with CITY-LITE, met with the latter's officers during 1874 of the Civil Code provides: "When the sale of a piece of land or any
which he offered properties located in Caloocan City and in Quezon interest therein is through an agent, the authority of the latter shall be in
Boulevard, Quezon City, as substitute for the property, but CITY-LITE writing; otherwise, the sale shall be void." Petitioner anchors the authority
refused the offer because "it did not suit its business needs." With the of Metro Drug and Meldin Al G. Roy on (a) the testimonies of petitioner's
filing of the petition of F.P. HOLDINGS for the cancellation of the adverse three (3) witnesses and the admissions of Roy and the lawyer of Metro
claim, CITY-LITE caused the annotation of the first notice of lis Drug; (b) the sales brochure specifying Meldin Al G. Roy as a contact
pendens which was recorded in the title of the property under Entry No. person; (c) the guard posted at the property saying that Metro Drug was
4605. the authorized agent; and, (d) the common knowledge among brokers that
Metro Drug through Meldin Al G. Roy was the authorized agent of F.P.
On 2 December 1991 the RTC-Br. 84 of Quezon City dismissed F.P. HOLDINGS to sell the property. However, and more importantly, the Civil
HOLDINGS' petition declaring that CITY-LITE's adverse claim had factual Code requires that an authority to sell a piece of land shall be in writing.
basis and was not "sham and frivolous." Meanwhile, F.P. HOLDINGS caused The absence of authority to sell can be determined from the written
the resurvey and segregation of the property and asked the Register of memorandum issued by respondent F.P. HOLDINGS' President requesting
Deeds of Quezon City to issue separate titles which the latter did on 17 Metro Drug's assistance in finding buyers for the property. The
January 1992 by issuing Transfer Certificate of Title No. T-51671. memorandum in part stated: "We will appreciate Metro Drug's assistance
in referring to us buyers for the property. Please proceed to hold
Following the dismissal of F.P. HOLDINGS' petition for the cancellation of preliminary negotiations with interested buyers and endorse formal offers
the adverse claim, CITY-LITE instituted a complaint against F.P. HOLDINGS to us for our final evaluation and appraisal." This obviously meant that
originally for specific performance and damages and caused the Meldin Al G. Roy and/or Metro Drug was only to assist F.P. HOLDINGS in
annotation of the second notice of lis pendens on the new certificate of looking for buyers and referring to them possible prospects whom they
title. After the annotation of the second lis pendens, the property was were supposed to endorse to F.P. HOLDINGS. But the final evaluation,
transfered to defendant VIEWMASTER CONSTRUCTION CORP. appraisal and acceptance of the transaction could be made only by F.P.
(VIEWMASTER) for which Transfer Certificate of Title No. T-52398 was HOLDINGS. In other words, Meldin Al G. Roy and/or Metro Drug was only
issued. However the notice of lis pendens was carried over and annotated a contact person with no authority to conclude a sale of the property. In
on the new certificate of title. fact, a witness for petitioner even admitted that Roy and/or Metro Drug
was a mere broker,4 and Roy's only job was to bring the parties together
In view of the conveyance during the pendency of the suit, the original for a possible transaction.5 Consequently, we hold that for lack of a written
complaint for specific performance and damages was amended with leave authority to sell the "Violago Property" on the part of Meldin Al G. Roy
of court to implead VIEWMASTER as a necessary party and the Register of and/or Metro Drug, the sale should be as it is declared null and void.
Deeds of Quezon City as nominal defendant with the additional prayer for Therefore the sale could not produce any legal effect as to transfer the
the cancellation of VIEWMASTER's certificate of title. The case was subject property from its lawful owner, F.P. HOLDINGS, to any interested
thereafter raffled to Br. 85 of the Regional Trial Court of Quezon City. party including petitioner CITY-LITE.

On 4 October 1995 the court a quo rendered its decision in favor of CITY- WHEREFORE, the appealed Decision of the Court of Appeals being in
LITE ordering F.P. HOLDINGS to execute a deed of sale of the property in accord with law and the evidence is AFFIRMED. Costs against petitioner
favor of CITY-LITE for the total consideration of P55,056,250.00 payable as CITY-LITE REALTY CORPORATION.1âwphi1.nêt
follows: P15 Million as downpayment to be payable immediately upon
execution of the deed of sale and the balance within six (6) months from SO ORDERED.
downpayment, without interest. The court also directed the Register of
Deeds of of Quezon City to cancel Transfer Certificate of Title No. T-52398 URITA PAHUD, SOLEDAD PAHUD, and IAN LEE CASTILLA (represented by
or any subsequent title it had issued affecting the subject property, and to Mother and Attorney-in-Fact VIRGINIA CASTILLA), Petitioners,
issue a new one in the name of CITY-LITE upon the presentation of the vs.
deed of sale and other requirements for the transfer. It likewise ordered COURT OF APPEALS, SPOUSES ISAGANI BELARMINO and LETICIA
the defendants, except VIEWMASTER and the Register of Deeds of Quezon OCAMPO, EUFEMIA SAN AGUSTIN-MAGSINO, ZENAIDA SAN AGUSTIN-
City, to pay CITY-LITE jointly and severally P800,000.00 by way of nominal McCRAE, MILAGROS SAN AGUSTIN-FORTMAN, MINERVA SAN AGUSTIN-
damage, P250,000.00 for attorney's fees, and to pay the costs. ATKINSON, FERDINAND SAN AGUSTIN, RAUL SAN AGUSTIN, ISABELITA
SAN AGUSTIN-LUSTENBERGER and VIRGILIO SAN AGUSTIN, Respondents.
On 30 October 1995 VIEWMASTER filed a motion for reconsideration of
the decision of the lower court questioning its ruling that a perfected DECISION
contract of sale existed between CITY-LITE and F.P. HOLDINGS as there was
no definite agreement over the manner of payment of the purchase price, NACHURA, J.:
citing in support thereof Toyota Shaw Inc. v. Court of Appeals.3 However
the motion for reconsideration was denied. For our resolution is a petition for review on certiorari assailing the April
23, 2003 Decision1 and October 8, 2003 Resolution2 of the Court of Appeals
In the challenged Decision of 20 October 1998 the Court of Appeals (CA) in CA-G.R. CV No. 59426. The appellate court, in the said decision and
reversed and set aside the judgment of the Regional Trial Court of Quezon resolution, reversed and set aside the January 14, 1998 Decision3 of the
City. On 10 May 1999 the Court of Appeals denied CITY-LITE's motion to Regional Trial Court (RTC), which ruled in favor of petitioners.
reconsider its decision.
The dispute stemmed from the following facts.
Petitioner CITY-LITE is now before us assailing the Court of Appeals for
declaring that no contract of sale was perfected between it and During their lifetime, spouses Pedro San Agustin and Agatona Genil were
respondent F.P. HOLDINGS because of lack of a definite agreement on the able to acquire a 246-square meter parcel of land situated in Barangay
manner of paying the purchase price and that respondents Metro Drug Anos, Los Baños, Laguna and covered by Original Certificate of Title (OCT)
and Meldin Al G. Roy were not authorized to sell the property to CITY-LITE, No. O-(1655) 0-15.4 Agatona Genil died on September 13, 1990 while
34
Pedro San Agustin died on September 14, 1991. Both died intestate, Agatona Genil in favor of Third-party defendant Spouses Isagani
survived by their eight (8) children: respondents Eufemia, Raul, Ferdinand, and Leticia Belarmino as not a valid sale and as inexistent;
Zenaida, Milagros, Minerva, Isabelita and Virgilio.
4. declaring the defendant Virgilio San Agustin and the Third-
Sometime in 1992, Eufemia, Ferdinand and Raul executed a Deed of Party defendants spouses Isagani and Leticia Belarmino as in
Absolute Sale of Undivided Shares5conveying in favor of petitioners (the bad faith in buying the portion of the property already sold by
Pahuds, for brevity) their respective shares from the lot they inherited the plaintiffs in favor of the Intervenors-Third Party Plaintiffs
from their deceased parents for ₱525,000.00.6 Eufemia also signed the and the Third-Party Defendant Sps. Isagani and Leticia
deed on behalf of her four (4) other co-heirs, namely: Isabelita on the basis Belarmino in constructing the two-[storey] building in (sic) the
of a special power of attorney executed on September 28, 1991,7 and also property subject of this case; and
for Milagros, Minerva, and Zenaida but without their apparent written
authority.8 The deed of sale was also not notarized.9 5. declaring the parties as not entitled to any damages, with the
parties shouldering their respective responsibilities regarding
On July 21, 1992, the Pahuds paid ₱35,792.31 to the Los Baños Rural Bank the payment of attorney[’]s fees to their respective lawyers.
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 No pronouncement as to costs.
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 SO ORDERED.22
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 Not satisfied, respondents appealed the decision to the CA arguing, in the
drafted an extra-judicial settlement of estate to facilitate the transfer of main, that the sale made by Eufemia for and on behalf of her other co-
the title to the Pahuds, Virgilio refused to sign it.15 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
On July 8, 1993, Virgilio’s co-heirs filed a complaint16 for judicial partition of the findings of the trial court. In disposing the issue, the CA ruled:
the subject property before the RTC of Calamba, Laguna. On November 28,
1994, in the course of the proceedings for judicial partition, a Compromise WHEREFORE, in view of the foregoing, the Decision dated January 14,
Agreement17 was signed with seven (7) of the co-heirs agreeing to sell their 1998, rendered by the Regional Trial Court of Calamba, Laguna, Branch 92
undivided shares to Virgilio for ₱700,000.00. The compromise agreement in Civil Case No. 2011-93-C for Judicial Partition is hereby REVERSED and
was, however, not approved by the trial court because Atty. Dimetrio SET ASIDE, and a new one entered, as follows:
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 (1) The case for partition among the plaintiffs-appellees and
Pahuds.18lawphil.net appellant Virgilio is now considered closed and terminated;

On December 1, 1994, Eufemia acknowledged having received (2) Ordering plaintiffs-appellees to return to intervenors-
₱700,000.00 from Virgilio.19 Virgilio then sold the entire property to appellees the total amount they received from the latter, plus
spouses Isagani Belarmino and Leticia Ocampo (Belarminos) sometime in an interest of 12% per annum from the time the complaint [in]
1994. The Belarminos immediately constructed a building on the subject intervention was filed on April 12, 1995 until actual payment of
property. the same;

Alarmed and bewildered by the ongoing construction on the lot they (3) Declaring the sale of appellant Virgilio San Agustin to
purchased, the Pahuds immediately confronted Eufemia who confirmed to appellants spouses, Isagani and Leticia Belarmino[,] as valid and
them that Virgilio had sold the property to the Belarminos.20 Aggrieved, binding;
the Pahuds filed a complaint in intervention21 in the pending case for
judicial partition.1avvphil (4) Declaring appellants-spouses as buyers in good faith and for
value and are the owners of the subject property.
After trial, the RTC upheld the validity of the sale to petitioners. The
dispositive portion of the decision reads: No pronouncement as to costs.

WHEREFORE, the foregoing considered, the Court orders: SO ORDERED.23

1. the sale of the 7/8 portion of the property covered by OCT Petitioners now come to this Court raising the following arguments:
No. O (1655) O-15 by the plaintiffs as heirs of deceased Sps.
Pedro San Agustin and Agatona Genil in favor of the I. The Court of Appeals committed grave and reversible error
Intervenors-Third Party plaintiffs as valid and enforceable, but when it did not apply the second paragraph of Article 1317 of
obligating the Intervenors-Third Party plaintiffs to complete the the New Civil Code insofar as ratification is concerned to the
payment of the purchase price of ₱437,500.00 by paying the sale of the 4/8 portion of the subject property executed by
balance of ₱87,500.00 to defendant Fe (sic) San Agustin respondents San Agustin in favor of petitioners;
Magsino. Upon receipt of the balance, the plaintiff shall
formalize the sale of the 7/8 portion in favor of the II. The Court of Appeals committed grave and reversible error in
Intervenor[s]-Third Party plaintiffs; holding that respondents spouses Belarminos are in good faith
when they bought the subject property from respondent
2. declaring the document entitled "Salaysay sa Pagsang-ayon Virgilio San Agustin despite the findings of fact by the court a
sa Bilihan" (Exh. "2-a") signed by plaintiff Eufemia San Agustin quo that they were in bad faith which clearly contravenes the
attached to the unapproved Compromise Agreement (Exh. "2") presence of long line of case laws upholding the task of giving
as not a valid sale in favor of defendant Virgilio San Agustin; utmost weight and value to the factual findings of the trial court
during appeals; [and]
3. declaring the sale (Exh. "4") made by defendant Virgilio San
Agustin of the property covered by OCT No. O (1655)-O-15 III. The Court of Appeals committed grave and reversible error
registered in the names of Spouses Pedro San Agustin and in holding that respondents spouses Belarminos have superior
rights over the property in question than petitioners despite the
35
 fact that the latter were prior in possession thereby misapplying admitted that they had indeed sold 7/8 of the property to the Pahuds
the provisions of Article 1544 of the New Civil Code.24 sometime in 1992.33 Thus, the previous denial was superseded, if not
accordingly amended, by their subsequent admission.34 Moreover, in their
The focal issue to be resolved is the status of the sale of the subject Comment,35 the said co-heirs again admitted the sale made to
property by Eufemia and her co-heirs to the Pahuds. We find the petitioners.36
transaction to be valid and enforceable.
Interestingly, in no instance did the three (3) heirs concerned assail the
Article 1874 of the Civil Code plainly provides: 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
Art. 1874. When a sale of a piece of land or any interest therein is through annulment of the sale of their respective shares against Eufemia and the
an agent, the authority of the latter shall be in writing; otherwise, the sale Pahuds. Instead, they opted to remain silent and left the task of raising the
shall be void. 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
Also, under Article 1878,25 a special power of attorney is necessary for an attorney-in-fact, to impugn the validity of the first transaction because to
agent to enter into a contract by which the ownership of an immovable allow them to do so would be tantamount to giving premium to their
property is transmitted or acquired, either gratuitously or for a valuable sister’s dishonest and fraudulent deed. Undeniably, therefore, the silence
consideration. Such stringent statutory requirement has been explained in and passivity of the three co-heirs on the issue bar them from making a
Cosmic Lumber Corporation v. Court of Appeals:26 contrary claim.

[T]he authority of an agent to execute a contract [of] sale of real estate It is a basic rule in the law of agency that a principal is subject to liability
must be conferred in writing and must give him specific authority, either to for loss caused to another by the latter’s reliance upon a deceitful
conduct the general business of the principal or to execute a binding representation by an agent in the course of his employment (1) if the
contract containing terms and conditions which are in the contract he did representation is authorized; (2) if it is within the implied authority of the
execute. A special power of attorney is necessary to enter into any agent to make for the principal; or (3) if it is apparently authorized,
contract by which the ownership of an immovable is transmitted or regardless of whether the agent was authorized by him or not to make the
acquired either gratuitously or for a valuable consideration. The express representation.37
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 By their continued silence, Zenaida, Milagros and Minerva have caused the
includes a sale as a necessary ingredient of the act mentioned. For the Pahuds to believe that they have indeed clothed Eufemia with the
principal to confer the right upon an agent to sell real estate, a power of authority to transact on their behalf. Clearly, the three co-heirs are now
attorney must so express the powers of the agent in clear and estopped from impugning the validity of the sale from assailing the
unmistakable language. When there is any reasonable doubt that the authority of Eufemia to enter into such transaction.
language so used conveys such power, no such construction shall be given
the document.27 Accordingly, the subsequent sale made by the seven co-heirs to Virgilio
was void because they no longer had any interest over the subject
In several cases, we have repeatedly held that the absence of a written property which they could alienate at the time of the second
authority to sell a piece of land is, ipso jure, void,28 precisely to protect the transaction.38 Nemo dat quod non habet. Virgilio, however, could still
interest of an unsuspecting owner from being prejudiced by the alienate his 1/8 undivided share to the Belarminos.
unwarranted act of another.
The Belarminos, for their part, cannot argue that they purchased the
Based on the foregoing, it is not difficult to conclude, in principle, that the property from Virgilio in good faith. As a general rule, a purchaser of a real
sale made by Eufemia, Isabelita and her two brothers to the Pahuds property is not required to make any further inquiry beyond what the
sometime in 1992 should be valid only with respect to the 4/8 portion of certificate of title indicates on its face.39 But the rule excludes those who
the subject property. The sale with respect to the 3/8 portion, purchase with knowledge of the defect in the title of the vendor or of facts
representing the shares of Zenaida, Milagros, and Minerva, is void because sufficient to induce a reasonable and prudent person to inquire into the
Eufemia could not dispose of the interest of her co-heirs in the said lot status of the property.40Such purchaser cannot close his eyes to facts
absent any written authority from the latter, as explicitly required by law. which should put a reasonable man on guard, and later claim that he acted
This was, in fact, the ruling of the CA. 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
Still, in their petition, the Pahuds argue that the sale with respect to the neglect by closing his eyes to the possibility of the existence of a defect in
3/8 portion of the land should have been deemed ratified when the three the vendor’s title, will not make him an innocent purchaser for value, if
co-heirs, namely: Milagros, Minerva, and Zenaida, executed their afterwards it turns out that the title was, in fact, defective. In such a case,
respective special power of attorneys29 authorizing Eufemia to represent he is deemed to have bought the property at his own risk, and any injury
them in the sale of their shares in the subject property.30 or prejudice occasioned by such transaction must be borne by him.41

While the sale with respect to the 3/8 portion is void by express provision In the case at bar, the Belarminos were fully aware that the property was
of law and not susceptible to ratification,31we nevertheless uphold its registered not in the name of the immediate transferor, Virgilio, but
validity on the basis of the common law principle of estoppel. 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
Article 1431 of the Civil Code provides: 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,
Art. 1431. Through estoppel an admission or representation is rendered and that the compromise agreement signed by the heirs was not approved
conclusive upon the person making it, and cannot be denied or disproved by the RTC following the opposition of the counsel for Eufemia and her six
as against the person relying thereon. 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
True, at the time of the sale to the Pahuds, Eufemia was not armed with transferor and are bound by any judgment or decree which may be
the requisite special power of attorney to dispose of the 3/8 portion of the rendered for or against the transferor.45 Furthermore, had they verified the
property. Initially, in their answer to the complaint in status of the property by asking the neighboring residents, they would
intervention,32 Eufemia and her other co-heirs denied having sold their have been able to talk to the Pahuds who occupy an adjoining business
shares to the Pahuds. During the pre-trial conference, however, they establishment46 and would have known that a portion of the property had
36
already been sold. All these existing and readily verifiable facts are seller shall cause the release of the property from any encumbrance and
sufficient to suggest that the Belarminos knew that they were buying the deliver to the purchaser the title to the property; 2) balance shall be paid
property at their own risk. by the purchaser to the seller on or before the end of January 1985; 3)
upon full payment, the seller shall deliver to the purchaser a deed of
WHEREFORE, premises considered, the April 23, 2003 Decision of the Court absolute sale duly signed by its registered owner, the appellees. On the
of Appeals as well as its October 8, 2003 Resolution in CA-G.R. CV No. same date, Pineda, out of the downpayment received from the appellants,
59426, are REVERSED and SET ASIDE. Accordingly, the January 14, 1998 paid the appellees’ mortgage obligation with the GSIS in the sum of
Decision of Branch 92 of the Regional Trial Court of Calamba, Laguna is P112,690.75 (Exhs. "D-1" to "D-3", pp. 41-43, Ibid).
REINSTATED with the MODIFICATION that the sale made by respondent
Virgilio San Agustin to respondent spouses Isagani Belarmino and Leticia "Pineda then requested the appellees for a written authority for the
Ocampo is valid only with respect to the 1/8 portion of the subject release of the title from the GSIS (pp. 18-19, November 9, 1989, TSN). On
property. The trial court is ordered to proceed with the partition of the January 1, 1985, the appellees gave Pineda the aforementioned authority
property with dispatch. with the understanding that Pineda will personally deliver the title to the
appellees (Exh. "E", p. 44, Ibid). The record shows that pursuant to the
SO ORDERED. agreement to sell the following payments were made by the appellants to
Pineda: 1) $25,000.00 on December 26, 1984; 2) $10,000.00 on January 18,
.R. No. 127094 February 6, 2002 1985; 3) P50,000.00 on January 24, 1985; 4) $500.00 on February 1,
1985; and 5) $330 on February 7, 1985 (Exhs. "4" to "8", pp. 55-57, Ibid).
ALEJANDRIA PINEDA and SPOUSES ADEODATO DUQUE, JR., and The appellants physically occupied the premises on June or July 1985 (Pre-
EVANGELINE MARY JANE DUQUE, petitioners, Trial Order, p. 156, Records).
vs.
COURT OF APPEALS and SPOUSES NELSON BAÑEZ and MERCEDES "Upon their return to the Philippines sometime in March 1985, the
BAÑEZ, respondents. appellees discovered that the appellants were occupying the White Plains
property. They talked with appellant Atty. Adeodato Duque who showed
PARDO, J.: interest in buying the property and the latter mentioned that they gave
money to Mrs. Pineda to facilitate the redemption of her property in the U.
The Case S. (pp. 23-26, November 9, 1989, TSN). Appellees alleged that they
confronted Pineda on their title to the property but the latter replied that
The case is an appeal via certiorari from the decision of the Court of she gave the title to the appellants. They did not insist on its return from
Appeals,1 affirming that of the Regional Trial Court, Quezon City, Branch the appellants as the latter were interested in buying the property (pp. 33-
76, declaring that the Bañez spouses are the lawful owners of the property 35, November 9, 1989, TSN).
in question and the petitioners could not convey title to the Duque
spouses who were buyers in bad faith. "A series of communications ensued between the representatives of the
appellees and Ms. Pineda with regards to the status of the exchange
The Facts agreement which resulted in its rescission for failure of Pineda to clear her
mortgage obligation of the California property (Exhs. "B", "C" & "D", pp.
The facts, as found by the Court of Appeals, are as follows: 24-29; 35-37, Folder of Exhibits). Negotiations for the purchase of the
property were held between the appellants and the appellees but the
"Appellees Nelson Bañez and Mercedes Bañez are the original owners of a same failed which resulted in the appellees demanding for the appellants
parcel of land together with its improvements located at 32 Sarangaya St., to vacate the property (Exhs. "F" to "F-12", pp. 81-93, Ibid).
White Plains, Quezon City while Ms. Alejandria Pineda is the owner of a
house located at 5224 Buchanan St., Los Angeles, California. "Appellees claim that upon their return to the Philippines on July 1987,
they discovered from the Register of Deeds that the title over their White
"On January 11, 1983, the appellees and Alejandria Pineda, together with Plains property was cancelled and a new one was issued in the name of
the latter’s spouse Alfredo Caldona, executed an ‘Agreement to Exchange Alejandria Pineda. They also discovered a fictitious deed of sale dated
Real Properties’ (Exh. "A", p. 16, Folder of Exhibits). In the agreement, the September 5, 1979 in favor of Pineda. Appellees alleged that the deed of
parties agreed to: 1) exchange their respective properties; 2) Pineda to pay absolute sale is fictitious and their signatures a forgery (pp. 37-39,
an earnest money in the total amount of $12,000.00 on or before the first November 9, 1989, TSN). Appellants maintained that on December 22,
week of February 1983; and 3) to consummate the exchange of properties 1986, they discovered the property was registered in the name of Pineda
not later than June 1983. It appears that the parties undertook to clear the by virtue of a deed of sale and they informed the appellees of the
mortgages over their respective properties. At the time of the execution of existence of the deed of sale in a meeting in the United States on March
the exchange agreement, the White Plains property was mortgaged with 1987 (pp. 3-4, October 22, 1990, TSN).
the Government Service Insurance System (GSIS) while the California
property had a total mortgage obligation of $84,000.00 (Exh. "A-2", p. 18, "During that meeting, an agreement was reached by the appellants and
Ibid). the appellees for the sale of the property at $89,000.00. Appellees alleged
that the purchase price was reduced to $60,000.00 which appellants failed
"In the meantime, the appellees were allowed to occupy or lease to a to pay (pp. 40- 41, November 10, 1989, TSN). They admitted however to
tenant Pineda’s California property (Exh. "A-1", p. 17, Ibid) and Pineda was have received the sum of P 100,000.00 from Atty. Duque (pp. 51-
authorized to occupy appellees’ White Plains property (Complaint; p. 8. 52, November 10, 1989, TSN). On the other hand, the appellants alleged
Records). Pursuant to the exchange agreement, Alejandria Pineda paid the that the purchase price of $89,000.00 was conditioned that all payments
appellees the total amount of $12,000.00 broken down as follows: 1) made to Pineda as well as expenses incurred will be considered as forming
$5,000.00, on January 1983; 2) $4,000.00 on April 1983; 3) $3,000.00 on part of the purchase price (pp. 3-4, October 22, 1990, TSN). The records
January 1985 (Exh. "C" & "D", pp. 28; 36 Ibid). are silent as to what happened to this agreement.

"On December 18, 1984, unknown to the appellees, Alejandria Pineda and "On September 3, 1987, the present complaint was filed before the court a
the appellants Adeodato C. Duque, Jr. and Evangeline Mary Jane Duque quo. Since the record of this case was burned during the fire that razed the
executed an ‘Agreement to Sell’ over the White Plains property whereby Quezon City Hall Building sometime in June 1988, the record was
Pineda sold the property to the appellants for the amount of reconstituted upon petition of the plaintiffs Nelson S. Bañez and Mercedes
P1,600,000.00 (Exh. "1", p. 51, Ibid). The contract provides that: 1) upon Bañez, without objection from the defendant Duques. For failure to serve
signing of the agreement, the purchaser shall pay P450,000.00 and the summons by personal delivery on defendant Alejandria Pineda,
37
an alias writ of summons was issued by publication. After the lapse of sixty "10. Ordering defendants spouses Duques to pay plaintiffs
(60) days from the last publication of summons, the court, upon motion, Bañezes the sum of P 100,000.00 by way of moral damages,
declared Pineda in default in its order dated March 4, 1988. Thereafter, plus the sum of P50,000.00 by way of exemplary damages;
defendant spouses Adeodato and Evangeline Mary Jane L. Duque,
appellants herein, filed their Answer."2 "11. Ordering herein defendant Pineda and defendants spouses
Duques to pay jointly and severally the sum of P50,000.00, plus
On February 17, 1992, the trial court rendered a decision, the decretal 10% of the sums awarded to plaintiffs by way of reasonable
portion of which reads as follows: attorney’s fees; and

"WHEREFORE, prescinding from the foregoing, judgment is hereby "12. Both defendants to pay the costs.
rendered:
"SO ORDERED."3
"1. Declaring plaintiffs spouses Nelson S. Bañez and Mercedes
Bañez the absolute owners in fee simple title of the house and In time, petitioners appealed the decision to the Court of Appeals.4
lot in question located at 32 Sarangaya St., White Plains,
Quezon City, entitled as such to all the rights blossoming forth On September 18, 1992, respondents Nelson and Mercedes Bañez filed
from such ownership. with the Court of Appeals a motion for execution pending appeal.5 On April
27, 1993, the Court of Appeals denied the motion for lack of merit.6
"2. Declaring as null and void ab-initio for being a patent forgery
that Deed of Absolute Sale dated September 5, 1979 (Exh. I) On May 20, 1996, the Court of Appeals promulgated a decision, the
purportedly executed by plaintiffs in favor of defendant dispositive portion of which reads:
Alejandria Pineda;
"WHEREFORE, premises considered, the decision appealed from is
"3. Declaring as null and void that TCT No. T-338857 (Exh. H) of AFFIRMED with the modification that rental payments should commence
the land records of Quezon City, issued January 03, 1986 in the on January 1986 (not August 1985) and appellants are liable for attorney’s
name of Alejandria (dra) B. Pineda, widow, of legal age, Filipino fees only in the sum of P50,000.00."7
and the Register of Deeds of Quezon City, after the finality of
this decision, is hereby ordered to cancel said Certificate of Title On June 26, 1996, petitioners filed a motion for reconsideration of the
and, in lieu thereof, to issue a new Certificate of Title in the above quoted decision.8 On November 7, 1996, the Court of Appeals
name of plaintiffs Nelson S. Bañez, married to Mercedez Bañez, denied the motion.9
both of legal age, Filipinos and residents of No. 32 Sarangaya
St., White Plains, Quezon City, covering the lot in question. Hence, this appeal.10

"4. Declaring as null and void ab-initio that certain "Agreement The Issue
to Sell" dated December 18, 1988 (Exh. 1) executed by and
between defendant Alejandria Pineda and spouses defendants The issue raised is whether petitioners validly acquired the subject
Adeodata C. Duque, Jr. and Evangeline Mary Jane Duque, over property.
the house and lot in question;
The Court's Ruling
"5. Declaring alleged vendees, defendants Adeodato Duque, Jr.
and Evangeline Mary Jane Duque as purchasers in bad faith of We deny the petition. The issue raised is factual. In an appeal via certiorari,
the house and land in suit and as builders in bad faith over we may not review the findings of fact of the Court of Appeals.11
whatever improvements introduced by them in the house and
lot in question; Nevertheless, it appears that the Bañez spouses were the original owners
of the parcel of land and improvements located at 32 Sarangaya St., White
"6. Ordering herein defendants Adeodato Duque, Jr. and Plains, Quezon City. On January 11, 1983, the Bañez spouses and petitioner
Evangeline Mary Jane Duque, their heirs, and assigns, and all Pineda executed an agreement to exchange real properties. However, the
persons claiming under them to vacate and peacefully exchange did not materialize.
surrender possession of the premises in question located at no.
32 Sarangaya St., White Plains, Quezon City. Afterwhich, said Petitioner Pineda’s "sale" of the property to petitioners Duque was not
defendants, their heirs and assigns are likewise ordered to authorized by the real owners of the land, respondent Bañez. The Civil
respect and not to molest the peaceful possession of plaintiffs Code provides that in a sale of a parcel of land or any interest therein
spouses Bañezes over the premises in question; made through an agent, a special power of attorney is essential.12 This
authority must be in writing, otherwise the sale shall be void.13 In his
"7. Ordering defendants spouses Duques to pay plaintiffs the testimony, petitioner Adeodato Duque confirmed that at the time he
sum of P10,000.00 monthly rentals since August 1985 until they "purchased" respondents’ property from Pineda, the latter had no Special
shall have peacefully surrendered physical possession of the Power of Authority to sell the property.14
premises in question to plaintiffs;
A special power of attorney is necessary to enter into any contract by
"8. Ordering plaintiffs spouses Bañez to reimburse defendants which the ownership of an immovable is transmitted or acquired for a
spouses the sum of P 100,000.00 representing the amount they valuable consideration.15 Without an authority in writing, petitioner Pineda
received when said defendants Duques offered a proposal to could not validly sell the subject property to petitioners Duque. Hence, any
buy the premises in question (Exh. N, p. 487, dated July 24, "sale" in favor of petitioners Duque is void.16
1987), with interest at the legal rate, which amount however
shall be deducted from the accumulated past rentals due the Further, Article 1318 of the Civil Code lists the requisites of a valid and
plaintiffs; perfected contract, namely: "(1) consent of the contracting parties; (2)
object certain which is the subject matter of the contract; (3) cause of the
"9. Ordering defendant Pineda to pay plaintiffs the sum of obligation which is established."17 Pineda was not authorized to enter into
P200,000.00 by way of moral damages, plus the sum of P a contract to sell the property. As the consent of the real owner of the
100,000.00 by way of exemplary damages; property was not obtained, no contract was perfected.18
38
Consequently, petitioner Duque failed to validly acquire the subject entered into a leased contract with defendant corporation,
property. plaintiff Efren Roque (could) no longer assert the unregistered
deed of donation and say that his father, Felipe, was no longer
The Fallo the owner of the subject property at the time the lease on the
subject property was agreed upon.
WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of
the Court of Appeals,19 in toto. "The registration of the Deed of Donation after the execution of
the lease contract did not affect the latter unless he had
No costs. knowledge thereof at the time of the registration which plaintiff
had not been able to establish. Plaintiff knew very well of the
G.R. No. 148775 January 13, 2004 existence of the lease. He, in fact, met with the officers of the
defendant corporation at least once before he caused the
SHOPPER’S PARADISE REALTY & DEVELOPMENT registration of the deed of donation in his favor and although
CORPORATION, petitioner, the lease itself was not registered, it remains valid considering
vs. that no third person is involved. Plaintiff cannot be the third
EFREN P. ROQUE, respondent. person because he is the successor-in-interest of his father,
Felipe Roque, the lessor, and it is a rule that contracts take
DECISION effect not only between the parties themselves but also
between their assigns and heirs (Article 1311, Civil Code) and
VITUG, J.: therefore, the lease contract together with the memorandum
of agreement would be conclusive on plaintiff Efren Roque. He
On 23 December 1993, petitioner Shopper’s Paradise Realty & is bound by the contract even if he did not participate therein.
Development Corporation, represented by its president, Veredigno Moreover, the agreements have been perfected and partially
Atienza, entered into a twenty-five year lease with Dr. Felipe C. Roque, executed by the receipt of his father of the downpayment and
now deceased, over a parcel of land, with an area of two thousand and deposit totaling to P500,000.00."1
thirty six (2,036) square meters, situated at Plaza Novaliches, Quezon City,
covered by Transfer of Certificate of Title (TCT) No. 30591 of the Register The Trial court ordered respondent to surrender TCT No. 109754 to the
of Deeds of Quezon City in the name of Dr. Roque. Petitioner issued to Dr. Register of Deeds of Quezon City for the annotation of the questioned
Roque a check for P250,000.00 by way of "reservation payment." Contract of Lease and Memorandum of Agreement.
Simultaneously, petitioner and Dr. Roque likewise entered into a
memorandum of agreement for the construction, development and On appeal, the Court of Appeals reversed the decision of the trial court and
operation of a commercial building complex on the property. Conformably held to be invalid the Contract of Lease and Memorandum of Agreement.
with the agreement, petitioner issued a check for another P250,000.00 While it shared the view expressed by the trial court that a deed of
"downpayment" to Dr. Roque. donation would have to be registered in order to bind third persons, the
appellate court, however, concluded that petitioner was not a lessee in
The contract of lease and the memorandum of agreement, both notarized, good faith having had prior knowledge of the donation in favor of
were to be annotated on TCT No. 30591 within sixty (60) days from 23 respondent, and that such actual knowledge had the effect of registration
December 1993 or until 23 February 1994. The annotations, however, insofar as petitioner was concerned. The appellate court based its findings
were never made because of the untimely demise of Dr. Felipe C. Roque. largely on the testimony of Veredigno Atienza during cross-
The death of Dr. Roque on 10 February 1994 constrained petitioner to deal examination, viz;
with respondent Efren P. Roque, one of the surviving children of the late
Dr. Roque, but the negotiations broke down due to some disagreements. "Q. Aside from these two lots, the first in the name of Ruben
In a letter, dated 3 November 1994, respondent advised petitioner "to Roque and the second, the subject of the construction involved
desist from any attempt to enforce the aforementioned contract of lease in this case, you said there is another lot which was part of
and memorandum of agreement". On 15 February 1995, respondent filed development project?
a case for annulment of the contract of lease and the memorandum of
agreement, with a prayer for the issuance of a preliminary injunction, "A. Yes, this was the main concept of Dr. Roque so that the
before Branch 222 of the Regional Trial Court of Quezon City. Efren P. adjoining properties of his two sons, Ruben and Cesar, will
Roque alleged that he had long been the absolute owner of the subject comprise one whole. The other whole property belongs to
property by virtue of a deed of donation inter vivos executed in his favor Cesar.
by his parents, Dr. Felipe Roque and Elisa Roque, on 26 December 1978,
and that the late Dr. Felipe Roque had no authority to enter into the "Q. You were informed by Dr. Roque that this property was
assailed agreements with petitioner. The donation was made in a public given to his three (3) sons; one to Ruben Roque, the other to
instrument duly acknowledged by the donor-spouses before a notary Efren, and the other to Cesar Roque?
public and duly accepted on the same day by respondent before the notary
public in the same instrument of donation. The title to the property, "A. Yes.
however, remained in the name of Dr. Felipe C. Roque, and it was only
transferred to and in the name of respondent sixteen years later, or on 11 "Q. You did the inquiry from him, how was this property given
May 1994, under TCT No. 109754 of the Register of Deeds of Quezon City. to them?
Respondent, while he resided in the United States of America, delegated to
his father the mere administration of the property. Respondent came to "A. By inheritance.
know of the assailed contracts with petitioner only after retiring to the
Philippines upon the death of his father. "Q. Inheritance in the form of donation?

On 9 August 1996, the trial court dismissed the complaint of respondent; it "A. I mean inheritance.
explained:
"Q. What I am only asking you is, were you told by Dr. Felipe C.
"Ordinarily, a deed of donation need not be registered in order Roque at the time of your transaction with him that all these
to be valid between the parties. Registration, however, is three properties were given to his children by way of donation?
important in binding third persons. Thus, when Felipe Roque
39
 "A. What Architect Biglang-awa told us in his exact word: "Yang office of the Register of Deeds for the province or city where
mga yan pupunta sa mga anak. Yong kay Ruben pupunta kay the land lies." (emphasis supplied)
Ruben. Yong kay Efren palibhasa nasa America sya, nasa
pangalan pa ni Dr. Felipe C. Roque." A person dealing with registered land may thus safely rely on the
correctness of the certificate of title issued therefore, and he is not
"x x x xxx xxx required to go beyond the certificate to determine the condition of the
property7 but, where such party has knowledge of a prior existing interest
"Q. When was the information supplied to you by Biglang-awa? which is unregistered at the time he acquired a right thereto, his
Before the execution of the Contract of Lease and knowledge of that prior unregistered interest would have the effect of
Memorandum of Agreement? registration as regards to him.8

"A. Yes. The appellate court was not without substantial basis when it found
petitioner to have had knowledge of the donation at the time it entered
"Q. That being the case, at the time of the execution of the into the two agreements with Dr. Roque. During their negotiation,
agreement or soon before, did you have such information petitioner, through its representatives, was apprised of the fact that the
confirmed by Dr. Felipe C. Roque himself? subject property actually belonged to respondent.

"A. Biglang-awa did it for us. It was not shown that Dr. Felipe C. Roque had been an authorized agent of
respondent.
"Q. But you yourself did not?
In a contract of agency, the agent acts in representation or in behalf of
"A. No, because I was doing certain things. We were a team and another with the consent of the latter.9 Article 1878 of the Civil Code
so Biglang-awa did it for us. expresses that a special power of attorney is necessary to lease any real
property to another person for more than one year. The lease of real
"Q. So in effect, any information gathered by Biglang-awa was property for more than one year is considered not merely an act of
of the same effect as if received by you because you were administration but an act of strict dominion or of ownership. A special
members of the same team? power of attorney is thus necessary for its execution through an
agent.1awphil.ne+
"A. Yes."2
The Court cannot accept petitioner’s argument that respondent is guilty of
In the instant petition for review, petitioner seeks a reversal of the decision laches. Laches, in its real sense, is the failure or neglect, for an
of the Court of Appeals and the reinstatement of the ruling of the Regional unreasonable and unexplained length of time, to do that which, by
Trial Court; it argues that the presumption of good faith it so enjoys as a exercising due diligence, could or should have been done earlier; it is
party dealing in registered land has not been overturned by the negligence or omission to assert a right within a reasonable time,
aforequoted testimonial evidence, and that, in any event, respondent is warranting a presumption that the party entitled to assert it either has
barred by laches and estoppel from denying the contracts. abandoned or declined to assert it.10

The existence, albeit unregistered, of the donation in favor of respondent Respondent learned of the contracts only in February 1994 after the death
is undisputed. The trial court and the appellate court have not erred in of his father, and in the same year, during November, he assailed the
holding that the non-registration of a deed of donation does not affect its validity of the agreements. Hardly, could respondent then be said to have
validity. As being itself a mode of acquiring ownership, donation results in neglected to assert his case for unreasonable length of time.
an effective transfer of title over the property from the donor to the
donee.3 In donations of immovable property, the law requires for its Neither is respondent estopped from repudiating the contracts. The
validity that it should be contained in a public document, specifying therein essential elements of estoppel in pais, in relation to the party sought to be
the property donated and the value of the charges which the donee must estopped, are: 1) a clear conduct amounting to false representation or
satisfy.4 The Civil Code provides, however, that "titles of ownership, or concealment of material facts or, at least, calculated to convey the
other rights over immovable property, which are not duly inscribed or impression that the facts are otherwise than, and inconsistent with, those
annotated in the Registry of Property (now Registry of Land Titles and which the party subsequently attempts to assert; 2) an intent or, at least,
Deeds) shall not prejudice third persons."5 It is enough, between the an expectation, that this conduct shall influence, or be acted upon by, the
parties to a donation of an immovable property, that the donation be other party; and 3) the knowledge, actual or constructive, by him of the
made in a public document but, in order to bind third persons, the real facts.11 With respect to the party claiming the estoppel, the conditions
donation must be registered in the registry of Property (Registry of Land he must satisfy are: 1) lack of knowledge or of the means of knowledge of
Titles and Deeds).6 Consistently, Section 50 of Act No. 496 (Land the truth as to the facts in question; 2) reliance, in good faith, upon the
Registration Act), as so amended by Section 51 of P.D. No. 1529 (Property conduct or statements of the party to be estopped; and 3) action or
Registration Decree), states: inaction based thereon of such character as to change his position or
status calculated to cause him injury or prejudice.12 It has not been shown
"SECTION 51. Conveyance and other dealings by registered that respondent intended to conceal the actual facts concerning the
owner.- An owner of registered land may convey, mortgage, property; more importantly, petitioner has been shown not to be totally
lease, charge or otherwise deal with the same in accordance unaware of the real ownership of the subject property.
with existing laws. He may use such forms of deeds, mortgages,
leases or other voluntary instruments as are sufficient in law. Altogether, there is no cogent reason to reverse the Court of Appeals in its
But no deed, mortgage, lease, or other voluntary instrument, assailed decision.
except a will purporting to convey or affect registered land shall
take effect as a conveyance or bind the land, but shall operate WHEREFORE, the petition is DENIED, and the decision of the Court of
only as a contract between the parties and as evidence of Appeals declaring the contract of lease and memorandum of agreement
authority to the Register of Deeds to make registration. entered into between Dr. Felipe C. Roque and Shopper’s Paradise Realty &
Development Corporation not to be binding on respondent is AFFIRMED.
"The act of registration shall be the operative act to convey or No costs.
affect the land insofar as third persons are concerned, and in all
cases under this Decree, the registration shall be made in the SO ORDERED.
40