SECOND DIVISION SO ORDERED.
2
[G.R. No. 188288. January 16, 2012.]
SPOUSES FERNANDO and
LOURDES VILORIA, petitioners, vs. CONTIN
ENTAL AIRLINES, INC., respondent.
DECISION
REYES, J p:
This is a petition for review under Rule 45 of the Rules
of Court from the January 30, 2009 Decision 1 of the Special
Thirteenth Division of the Court of Appeals (CA) in CA-G.R.
CV No. 88586 entitled "Spouses Fernando and
Lourdes Viloria v.Continental Airlines, Inc.," the dispositive
portion of which states:
WHEREFORE, the Decision of the Regional
Trial Court, Branch 74, dated 03 April 2006,
awarding US$800.00 or its peso equivalent at the
time of payment, plus legal rate of interest from 21
July 1997 until fully paid, [P]100,000.00 as moral
damages, [P]50,000.00 as exemplary damages,
[P]40,000.00 as attorney's fees and costs of suit to
plaintiffs-appellees is
hereby REVERSED and SET ASIDE.
Defendant-appellant's counterclaim is DENIED.
Costs against plaintiffs-appellees.
On April 3, 2006, the Regional Trial Court of Antipolo
City, Branch 74 (RTC) rendered a Decision, giving due course to
the complaint for sum of money and damages filed by petitioners
Fernando Viloria (Fernando) and Lourdes Viloria(Lourdes),
collectively called Spouses Viloria, against
respondent Continental Airlines, Inc. (CAI). As culled from the
records, below are the facts giving rise to such complaint.
On or about July 21, 1997 and while in the United
States, Fernando purchased for himself and his wife, Lourdes,
two (2) round trip airline tickets from San Diego, California to
Newark, New Jersey on board Continental Airlines. Fernando
purchased the tickets at US$400.00 each from a travel agency
called "Holiday Travel" and was attended to by a certain
Margaret Mager (Mager). According to Spouses Viloria,
Fernando agreed to buy the said tickets after Mager informed
them that there were no available seats at Amtrak, an intercity
passenger train service provider in the United States. Per the
tickets, Spouses Viloria were scheduled to leave for Newark on
August 13, 1997 and return to San Diego on August 21,
1997. DaACIH
Subsequently, Fernando requested Mager to reschedule
their flight to Newark to an earlier date or August 6, 1997. Mager
informed him that flights to Newark
via Continental Airlines were already fully booked and offered
the alternative of a round trip flight via Frontier Air. Since flying
with Frontier Air called for a higher fare of US$526.00 per
passenger and would mean traveling by night, Fernando opted to
request for a refund. Mager, however, denied his request as the
subject tickets are non-refundable and the only option
that Continental Airlines can offer is the re-issuance of new
tickets within one (1) year from the date the subject tickets were
issued. Fernando decided to reserve two (2) seats with Frontier
Air.
As he was having second thoughts on traveling via
Frontier Air, Fernando went to the Greyhound Station where he
saw an Amtrak station nearby. Fernando made inquiries and was
told that there are seats available and he can travel on Amtrak
anytime and any day he pleased. Fernando then purchased two
(2) tickets for Washington, D.C.
From Amtrak, Fernando went to Holiday Travel and
confronted Mager with the Amtrak tickets, telling her that she
had misled them into buying the Continental Airlines tickets by
misrepresenting that Amtrak was already fully booked. Fernando
reiterated his demand for a refund but Mager was firm in her
position that the subject tickets are non-refundable.
Upon returning to the Philippines, Fernando sent a letter
to CAI on February 11, 1998, demanding a refund and alleging
that Mager had deluded them into purchasing the subject
tickets. 3
In a letter dated February 24,
1998, Continental Micronesia informed Fernando that his
complaint had been referred to the Customer Refund Services
of Continental Airlines at Houston, Texas. 4
In a letter dated March 24, 1998, Continental Micronesia
denied Fernando's request for a refund and advised him that he
may take the subject tickets to any Continental ticketing location
for the re-issuance of new tickets within two (2) years from the
date they were issued. Continental Micronesia informed
Fernando that the subject tickets may be used as a form of
payment for the purchase of another Continental ticket, albeit
with a re-issuance fee. 5
On June 17, 1999, Fernando went to Continental's
ticketing office at Ayala Avenue, Makati City to have the subject
tickets replaced by a single round trip ticket to Los Angeles,
California under his name. Therein, Fernando was informed that
Lourdes' ticket was non-transferable, thus, cannot be used for the
purchase of a ticket in his favor. He was also informed that a
round trip ticket to Los Angeles was US$1,867.40 so he would
have to pay what will not be covered by the value of his San
Diego to Newark round trip ticket. aTSEcA
In a letter dated June 21, 1999, Fernando demanded for
the refund of the subject tickets as he no longer wished to have
them replaced. In addition to the dubious circumstances under
which the subject tickets were issued, Fernando claimed that
CAI's act of charging him with US$1,867.40 for a round trip
ticket to Los Angeles, which other airlines priced at US$856.00,
and refusal to allow him to use Lourdes' ticket, breached its
undertaking under its March 24, 1998 letter. 6
On September 8, 2000, Spouses Viloria filed a complaint
against CAI, praying that CAI be ordered to refund the money
they used in the purchase of the subject tickets with legal interest
from July 21, 1997 and to pay P1,000,000.00 as moral damages,
P500,000.00 as exemplary damages and P250,000.00 as
attorney's fees. 7
CAI interposed the following defenses:
(a) Spouses Viloria have no right to ask for a refund as the
subject tickets are non-refundable; (b) Fernando cannot insist on
using the ticket in Lourdes' name for the purchase of a round trip
ticket to Los Angeles since the same is non-transferable; (c) as
Mager is not a CAI employee, CAI is not liable for any of her
acts; (d) CAI, its employees and agents did not act in bad faith as
to entitle Spouses Viloria to moral and exemplary damages and
attorney's fees. CAI also invoked the following clause printed on
the subject tickets:
3. To the extent not in conflict with the foregoing
carriage and other services performed by each
carrier are subject to: (i) provisions contained in
this ticket, (ii) applicable tariffs, (iii) carrier's
conditions of carriage and related regulations
which are made part hereof (and are available on
 application at the offices of carrier), except in
transportation between a place in the United States
or Canada and any place outside thereof to which
tariffs in force in those countries apply. 8
According to CAI, one of the conditions attached to their
contract of carriage is the non-transferability and non-
refundability of the subject tickets.
The RTC's Ruling
Following a full-blown trial, the RTC rendered its April
3, 2006 Decision, holding that Spouses Viloria are entitled to a
refund in view of Mager's misrepresentation in obtaining their
consent in the purchase of the subject tickets. 9 The relevant
portion of the April 3, 2006 Decision states:
Continental Airlines agent Ms. Mager was in bad
faith when she was less candid and diligent in
presenting to plaintiffsspouses their booking
options. Plaintiff Fernando clearly wanted to travel
via AMTRAK, but defendant's agent misled him
into purchasing Continental Airlines tickets
instead on the fraudulent misrepresentation that
Amtrak was fully booked. In fact, defendant
Airline did not specifically denied (sic) this
allegation. SDHETI
Plainly, plaintiffs spouses, particularly plaintiff
Fernando, were tricked into
buying Continental Airline tickets on Ms. Mager's
misleading
misrepresentations. Continental Airlines agent Ms.
Mager further relied on and exploited plaintiff
Fernando's need and told him that they must book
a flight immediately or risk not being able to travel
at all on the couple's preferred date. Unfortunately,
plaintiffs spouses fell prey to the airline's and its
agent's unethical tactics for baiting trusting
customers." 10
Citing Articles 1868 and 1869 of the Civil Code, the
RTC ruled that Mager is CAI's agent, hence, bound by her bad
faith and misrepresentation. As far as the RTC is concerned,
there is no issue as to whether Mager was CAI's agent in view of
CAI's implied recognition of her status as such in its March 24,
1998 letter.
The act of a travel agent or agency being involved
here, the following are the pertinent New Civil
Code provisions on agency:
Art. 1868. By the contract of agency a
person binds himself to render some
service or to do something in
representation or on behalf of another,
with the consent or authority of the latter.
Art. 1869. Agency may be express, or
implied from the acts of the principal,
from his silence or lack of action, or his
failure to repudiate the agency, knowing
that another person is acting on his behalf
without authority.
Agency may be oral, unless the law
requires a specific form.
As its very name implies, a travel agency binds
itself to render some service or to do something in
representation or on behalf of another, with the
consent or authority of the latter. This court takes
judicial notice of the common services rendered by
travel agencies that represent themselves as such,
specifically the reservation and booking of local
and foreign tours as well as the issuance of airline
tickets for a commission or fee.
 The services rendered by Ms. Mager of Holiday
Travel agency to the plaintiff spouses on July 21,
1997 were no different from those offered in any
other travel agency. Defendant airline impliedly if
not expressly acknowledged its principal-agent
relationship with Ms. Mager by its offer in the
letter dated March 24, 1998 — an obvious attempt
to assuage plaintiffs spouses' hurt feelings. 11
Furthermore, the RTC ruled that CAI acted in bad faith
in reneging on its undertaking to replace the subject tickets
within two (2) years from their date of issue when it charged
Fernando with the amount of US$1,867.40 for a round trip ticket
to Los Angeles and when it refused to allow Fernando to use
Lourdes' ticket. Specifically:
Tickets may be reissued for up to two years from
the original date of issue. When defendant airline
still charged plaintiffsspouses US$1,867.40 or
more than double the then going rate of
US$856.00 for the unused tickets when the same
were presented within two (2) years from date of
issue, defendant airline exhibited callous treatment
of passengers. 12 CScaDH
The Appellate Court's Ruling
On appeal, the CA reversed the RTC's April 3, 2006
Decision, holding that CAI cannot be held liable for Mager's act
in the absence of any proof that a principal-agent relationship
existed between CAI and Holiday Travel. According to the
CA,Spouses Viloria, who have the burden of proof to establish
the fact of agency, failed to present evidence demonstrating that
Holiday Travel is CAI's agent. Furthermore, contrary
to Spouses Viloria's claim, the contractual relationship between
Holiday Travel and CAI is not an agency but that of a sale.
Plaintiffs-appellees assert that Mager was a sub-
agent of Holiday Travel who was in turn a
ticketing agent of Holiday Travel who was in turn
a ticketing agent of Continental Airlines.
Proceeding from this premise, they contend
that ContinentalAirlines should be held liable for
the acts of Mager. The trial court held the same
view.
We do not agree. By the contract of agency, a
person binds him/herself to render some service or
to do something in representation or on behalf of
another, with the consent or authority of the latter.
The elements of agency are: (1) consent, express
or implied, of the parties to establish the
relationship; (2) the object is the execution of a
juridical act in relation to a third person; (3) the
agent acts as a representative and not for
him/herself; and (4) the agent acts within the scope
of his/her authority. As the basis of agency is
representation, there must be, on the part of the
principal, an actual intention to appoint, an
intention naturally inferable from the principal's
words or actions. In the same manner, there must
be an intention on the part of the agent to accept
the appointment and act upon it. Absent such
mutual intent, there is generally no agency. It is
likewise a settled rule that persons dealing with an
assumed agent are bound at their peril, if they
would hold the principal liable, to ascertain not
only the fact of agency but also the nature and
extent of authority, and in case either is
controverted, the burden of proof is upon them to
establish it. Agency is never presumed, neither is it
created by the mere use of the word in a trade or
business name. We have perused the evidence and
documents so far presented. We find nothing
except bare allegations of plaintiffs-appellees that
Mager/Holiday Travel was acting in behalf
 of Continental Airlines. From all sides of legal
prism, the transaction in issue was simply a
contract of sale, wherein Holiday Travel buys
airline tickets from Continental Airlines and then,
through its employees, Mager included, sells it at a
premium to clients. 13
The CA also ruled that refund is not available
to Spouses Viloria as the word "non-refundable" was clearly
printed on the face of the subject tickets, which constitute their
contract with CAI. Therefore, the grant of their prayer for a
refund would violate the proscription against impairment of
contracts.
Finally, the CA held that CAI did not act in bad faith
when they charged Spouses Viloria with the higher amount of
US$1,867.40 for a round trip ticket to Los Angeles. According to
the CA, there is no compulsion for CAI to charge the lower
amount of US$856.00, which Spouses Viloria claim to be the fee
charged by other airlines. The matter of fixing the prices for its
services is CAI's prerogative, which Spouses Viloria cannot
intervene. In particular:
It is within the respective rights of persons owning
and/or operating business entities to peg the
premium of the services and items which they
provide at a price which they deem fit, no matter
how expensive or exhorbitant said price may
seemvis-à-vis those of the competing companies.
The Spouses Viloria may not intervene with the
business judgment ofContinental Airlines. 14
The Petitioners' Case
In this Petition, this Court is being asked to review the
findings and conclusions of the CA, as the latter's reversal of the
RTC's April 3, 2006 Decision allegedly lacks factual and legal
bases. Spouses Viloria claim that CAI acted in bad faith when it
required them to pay a higher amount for a round trip ticket to
Los Angeles considering CAI's undertaking to re-issue new
tickets to them within the period stated in their March 24, 1998
letter. CAI likewise acted in bad faith when it disallowed
Fernando to use Lourdes' ticket to purchase a round trip to Los
Angeles given that there is nothing in Lourdes' ticket indicating
that it is non-transferable. As a common carrier, it is CAI's duty
to inform its passengers of the terms and conditions of their
contract and passengers cannot be bound by such terms and
conditions which they are not made aware of. Also, the subject
contract of carriage is a contract of adhesion; therefore, any
ambiguities should be construed against CAI. Notably, the
petitioners are no longer questioning the validity of the subject
contracts and limited its claim for a refund on CAI's alleged
breach of its undertaking in its March 24, 1998 letter. ECcTaS
The Respondent's Case
In its Comment, CAI claimed that Spouses Viloria's
allegation of bad faith is negated by its willingness to issue new
tickets to them and to credit the value of the subject tickets
against the value of the new ticket Fernando requested. CAI
argued that Spouses Viloria's sole basis to claim that the price at
which CAI was willing to issue the new tickets is
unconscionable is a piece of hearsay evidence — an
advertisement appearing on a newspaper stating that airfares
from Manila to Los Angeles or San Francisco cost
US$818.00. 15 Also, the advertisement pertains to airfares in
September 2000 and not to airfares prevailing in June 1999, the
time when Fernando asked CAI to apply the value of the subject
tickets for the purchase of a new one. 16 CAI likewise argued
that it did not undertake to protect Spouses Viloria from any
changes or fluctuations in the prices of airline tickets and its only
obligation was to apply the value of the subject tickets to the
purchase of the newly issued tickets.
With respect to Spouses Viloria's claim that they are not
aware of CAI's restrictions on the subject tickets and that the
terms and conditions that are printed on them are ambiguous,
CAI denies any ambiguity and alleged that its representative
informed Fernando that the subject tickets are non-transferable
when he applied for the issuance of a new ticket. On the other
hand, the word "non-refundable" clearly appears on the face of
the subject tickets.
CAI also denies that it is bound by the acts of Holiday
Travel and Mager and that no principal-agency relationship
exists between them. As an independent contractor, Holiday
Travel was without capacity to bind CAI.
Issues
To determine the propriety of disturbing the CA's
January 30, 2009 Decision and whether Spouses Viloria have the
right to the reliefs they prayed for, this Court deems it necessary
to resolve the following issues:
a. Does a principal-agent relationship exist
between CAI and Holiday Travel?
b. Assuming that an agency relationship exists
between CAI and Holiday Travel, is CAI
bound by the acts of Holiday Travel's
agents and employees such as Mager?
c. Assuming that CAI is bound by the acts of
Holiday Travel's agents and employees,
can the representation of Mager as to
unavailability of seats at Amtrak be
considered fraudulent as to vitiate the
consent of Spouse Viloria in the purchase
of the subject tickets?
d. Is CAI justified in insisting that the subject
tickets are non-transferable and non-
refundable?
e. Is CAI justified in pegging a different price for
the round trip ticket to Los Angeles
requested by Fernando?
f. Alternatively, did CAI act in bad faith or renege
its obligation to Spouses Viloria to apply
the value of the subject tickets in the
purchase of new ones when it refused to
allow Fernando to use Lourdes' ticket and
in charging a higher price for a round trip
ticket to Los Angeles?
This Court's Ruling
I. A principal-agent relationship exists between CAI and
Holiday Travel.
With respect to the first issue, which is a question of fact
that would require this Court to review and re-examine the
evidence presented by the parties below, this Court takes
exception to the general rule that the CA's findings of fact are
conclusive upon us and our jurisdiction is limited to the review
of questions of law. It is well-settled to the point of being
axiomatic that this Court is authorized to resolve questions of
fact if confronted with contrasting factual findings of the trial
court and appellate court and if the findings of the CA are
contradicted by the evidence on record. 17 ISAcHD
According to the CA, agency is never presumed and that
he who alleges that it exists has the burden of
proof.Spouses Viloria, on whose shoulders such burden rests,
presented evidence that fell short of indubitably demonstrating
the existence of such agency.
We disagree. The CA failed to consider undisputed facts,
discrediting CAI's denial that Holiday Travel is one of its agents.
Furthermore, in erroneously characterizing the contractual
relationship between CAI and Holiday Travel as a contract of
sale, the CA failed to apply the fundamental civil law principles
governing agency and differentiating it from sale.
In Rallos v. Felix Go Chan & Sons Realty
Corporation, 18 this Court explained the nature of an agency and
spelled out the essential elements thereof:
Out of the above given principles, sprung the
creation and acceptance of the relationship of
agency whereby one party, called the principal
(mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in
transactions with third persons. The essential
elements of agency are: (1) there is consent,
express or implied of the parties to establish the
relationship; (2) the object is the execution of a
juridical act in relation to a third person; (3) the
agent acts as a representative and not for himself,
and (4) the agent acts within the scope of his
authority.
Agency is basically personal, representative,
and derivative in nature. The authority of the agent
to act emanates from the powers granted to him by
his principal; his act is the act of the principal if
done within the scope of the authority. Qui facit
per alium facit se. "He who acts through another
acts himself." 19
Contrary to the findings of the CA, all the elements of an
agency exist in this case. The first and second elements are
present as CAI does not deny that it concluded an agreement
with Holiday Travel, whereby Holiday Travel would enter into
contracts of carriage with third persons on CAI's behalf. The
third element is also present as it is undisputed that Holiday
Travel merely acted in a representative capacity and it is CAI and
not Holiday Travel who is bound by the contracts of carriage
entered into by Holiday Travel on its behalf. The fourth element
is also present considering that CAI has not made any allegation
that Holiday Travel exceeded the authority that was granted to it.
In fact, CAI consistently maintains the validity of the contracts
of carriage that Holiday Travel executed
with Spouses Viloria and that Mager was not guilty of any
fraudulent misrepresentation. That CAI admits the authority of
Holiday Travel to enter into contracts of carriage on its behalf is
easily discernible from its February 24, 1998 and March 24,
1998 letters, where it impliedly recognized the validity of the
contracts entered into by Holiday Travel with Spouses Viloria.
When Fernando informed CAI that it was Holiday Travel who
issued to them the subject tickets, CAI did not deny that Holiday
Travel is its authorized agent.
Prior to Spouses Viloria's filing of a complaint against it,
CAI never refuted that it gave Holiday Travel the power and
authority to conclude contracts of carriage on its behalf. As
clearly extant from the records, CAI recognized the validity of
the contracts of carriage that Holiday Travel entered into
with Spouses Viloria and considered itself bound
with SpousesViloria by the terms and conditions thereof; and this
constitutes an unequivocal testament to Holiday Travel's
authority to act as its agent. This Court cannot therefore allow
CAI to take an altogether different position and deny that
Holiday Travel is its agent without condoning or giving
imprimatur to whatever damage or prejudice that may result
from such denial or retraction to Spouses Viloria, who relied on
good faith on CAI's acts in recognition of Holiday Travel's
authority. Estoppel is primarily based on the doctrine of good
faith and the avoidance of harm that will befall an innocent party
due to its injurious reliance, the failure to apply it in this case
would result in gross travesty of justice. 20 Estoppel bars CAI
from making such denial.
As categorically provided under Article 1869 of the Civil
Code, "[a]gency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on
his behalf without authority." SITCcE
Considering that the fundamental hallmarks of an agency
are present, this Court finds it rather peculiar that the CA had
branded the contractual relationship between CAI and Holiday
Travel as one of sale. The distinctions between a sale and an
agency are not difficult to discern and this Court, as early as
1970, had already formulated the guidelines that would aid in
differentiating the two (2) contracts. In Commissioner of Internal
Revenue v. Constantino, 21 this Court extrapolated that the
primordial differentiating consideration between the two (2)
contracts is the transfer of ownership or title over the property
subject of the contract. In an agency, the principal retains
ownership and control over the property and the agent merely
acts on the principal's behalf and under his instructions in
furtherance of the objectives for which the agency was
established. On the other hand, the contract is clearly a sale if the
parties intended that the delivery of the property will effect a
relinquishment of title, control and ownership in such a way that
the recipient may do with the property as he pleases.
Since the company retained ownership of the
goods, even as it delivered possession unto the
dealer for resale to customers, the price and terms
of which were subject to the company's control,
the relationship between the company and the
dealer is one of agency, tested under the following
criterion:
"The difficulty in distinguishing between
contracts of sale and the creation of an
agency to sell has led to the establishment
of rules by the application of which this
difficulty may be solved. The decisions
say the transfer of title or agreement to
transfer it for a price paid or promised is
the essence of sale. If such transfer puts
the transferee in the attitude or position of
an owner and makes him liable to the
transferor as a debtor for the agreed price,
and not merely as an agent who must
account for the proceeds of a resale, the
transaction is a sale; while the essence of
an agency to sell is the delivery to an
agent, not as his property, but as the
property of the principal, who remains the
owner and has the right to control sales,
fix the price, and terms, demand and
receive the proceeds less the agent's
commission upon sales made. 1 Mechem
on Sales, Sec. 43; 1 Mechem on Agency,
Sec. 48; Williston on Sales, 1; Tiedeman
on Sales, 1." (Salisbury v. Brooks, 94 SE
117, 118-119) 22
As to how the CA have arrived at the conclusion that the
contract between CAI and Holiday Travel is a sale is certainly
confounding, considering that CAI is the one bound by the
contracts of carriage embodied by the tickets being sold by
Holiday Travel on its behalf. It is undisputed that CAI and not
Holiday Travel who is the party to the contracts of carriage
executed by Holiday Travel with third persons who desire to
travel via Continental Airlines, and this conclusively indicates
the existence of a principal-agent relationship. That the principal
is bound by all the obligations contracted by the agent within the
scope of the authority granted to him is clearly provided under
Article 1910 of the Civil Code and this constitutes the very
notion of agency.
II. In actions based on quasi-delict, a principal can only be
held liable for the tort committed by its agent's employees if
it has been established by preponderance of evidence that the
principal was also at fault or negligent or that the principal
exercise control and supervision over them.
 Considering that Holiday Travel is CAI's agent, does it
necessarily follow that CAI is liable for the fault or negligence of
Holiday Travel's employees? Citing China Air Lines, Ltd. v.
Court of Appeals, et al., 23 CAI argues that it cannot be held
liable for the actions of the employee of its ticketing agent in the
absence of an employer-employee relationship.
An examination of this Court's pronouncements
in China Air Lines will reveal that an airline company is not
completely exonerated from any liability for the tort committed
by its agent's employees. A prior determination of the nature of
the passenger's cause of action is necessary. If the passenger's
cause of action against the airline company is premised on culpa
aquiliana or quasi-delict for a tort committed by the employee of
the airline company's agent, there must be an independent
showing that the airline company was at fault or negligent or has
contributed to the negligence or tortuous conduct committed by
the employee of its agent. The mere fact that the employee of the
airline company's agent has committed a tort is not sufficient to
hold the airline company liable. There is no vinculum
juris between the airline company and its agent's employees and
the contractual relationship between the airline company and its
agent does not operate to create a juridical tie between the airline
company and its agent's employees. Article 2180 of the Civil
Code does not make the principal vicariously liable for the tort
committed by its agent's employees and the principal-agency
relationship per se does not make the principal a party to such
tort; hence, the need to prove the principal's own fault or
negligence. aHTCIc
On the other hand, if the passenger's cause of action for
damages against the airline company is based on contractual
breach or culpa contractual, it is not necessary that there be
evidence of the airline company's fault or negligence. As this
Court previously stated in China Air Lines and reiterated in Air
France vs. Gillego, 24 "in an action based on a breach of
contract of carriage, the aggrieved party does not have to prove
that the common carrier was at fault or was negligent. All that he
has to prove is the existence of the contract and the fact of its
non-performance by the carrier."
Spouses Viloria's cause of action on the basis of Mager's
alleged fraudulent misrepresentation is clearly one of tort or
quasi-delict, there being no pre-existing contractual relationship
between them. Therefore, it was incumbent
upon SpousesViloria to prove that CAI was equally at fault.
However, the records are devoid of any evidence by
which CAI's alleged liability can be substantiated. Apart from
their claim that CAI must be held liable for Mager's supposed
fraud because Holiday Travel is CAI's agent, Spouses Viloriadid
not present evidence that CAI was a party or had contributed to
Mager's complained act either by instructing or authorizing
Holiday Travel and Mager to issue the said misrepresentation.
It may seem unjust at first glance that CAI would
consider Spouses Viloria bound by the terms and conditions of
the subject contracts, which Mager entered into with them on
CAI's behalf, in order to deny Spouses Viloria's request for a
refund or Fernando's use of Lourdes' ticket for the re-issuance of
a new one, and simultaneously claim that they are not bound by
Mager's supposed misrepresentation for purposes of
avoiding Spouses Viloria's claim for damages and maintaining
the validity of the subject contracts. It may likewise be argued
that CAI cannot deny liability as it benefited from Mager's acts,
which were performed in compliance with Holiday Travel's
obligations as CAI's agent. acCTIS
However, a person's vicarious liability is anchored on his
possession of control, whether absolute or limited, on the
tortfeasor. Without such control, there is nothing which could
justify extending the liability to a person other than the one who
committed the tort. As this Court explained in Cangco v. Manila
Railroad Co.: 25
With respect to extra-contractual obligation
arising from negligence, whether of act or
 omission, it is competent for the legislature to
elect — and our Legislature has so elected — to
limit such liability to cases in which the person
upon whom such an obligation is imposed is
morally culpable or, on the contrary, for reasons
of public policy, to extend that liability, without
regard to the lack of moral culpability, so as to
include responsibility for the negligence of those
persons whose acts or omissions are imputable,
by a legal fiction, to others who are in a position
to exercise an absolute or limited control over
them. The legislature which adopted our Civil
Code has elected to limit extra-contractual liability
— with certain well-defined exceptions — to cases
in which moral culpability can be directly imputed
to the persons to be charged. This moral
responsibility may consist in having failed to
exercise due care in one's own acts, or in having
failed to exercise due care in the selection and
control of one's agent or servants, or in the control
of persons who, by reasons of their status, occupy
a position of dependency with respect to the
person made liable for their conduct.26 (emphasis
supplied)
It is incumbent upon Spouses Viloria to prove that CAI
exercised control or supervision over Mager by preponderant
evidence. The existence of control or supervision cannot be
presumed and CAI is under no obligation to prove its denial or
nugatory assertion. Citing Belen v. Belen, 27 this Court ruled
in Jayme v. Apostol, 28 that:
In Belen v. Belen, this Court ruled that it was
enough for defendant to deny an alleged
employment relationship. The defendant is under
no obligation to prove the negative averment. This
Court said:
"It is an old and well-settled rule of the
courts that the burden of proving the
action is upon the plaintiff, and that if he
fails satisfactorily to show the facts upon
which he bases his claim, the defendant is
under no obligation to prove his
exceptions. This [rule] is in harmony with
the provisions of Section 297 of the Code
of Civil Procedure holding that each party
must prove his own affirmative
allegations, etc." 29 (citations omitted)
Therefore, without a modicum of evidence that CAI
exercised control over Holiday Travel's employees or that CAI
was equally at fault, no liability can be imposed on CAI for
Mager's supposed misrepresentation.
III. Even on the assumption that CAI may be held liable for
the acts of Mager, still, Spouses Viloria are not entitled to a
refund. Mager's statement cannot be considered a causal
fraud that would justify the annulment of the subject
contracts that would oblige CAI to
indemnify Spouses Viloria and return the money they paid
for the subject tickets.
Article 1390, in relation to Article 1391 of the Civil
Code, provides that if the consent of the contracting parties was
obtained through fraud, the contract is considered voidable and
may be annulled within four (4) years from the time of the
discovery of the fraud. Once a contract is annulled, the parties
are obliged under Article 1398 of the same Code to restore to
each other the things subject matter of the contract, including
their fruits and interest.
On the basis of the foregoing and given the allegation
of Spouses Viloria that Fernando's consent to the subject
contracts was supposedly secured by Mager through fraudulent
means, it is plainly apparent that their demand for a refund is
tantamount to seeking for an annulment of the subject contracts
on the ground of vitiated consent. IDEHCa
Whether the subject contracts are annullable, this Court
is required to determine whether Mager's alleged
misrepresentation constitutes causal fraud. Similar to the dispute
on the existence of an agency, whether fraud attended the
execution of a contract is factual in nature and this Court, as
discussed above, may scrutinize the records if the findings of the
CA are contrary to those of the RTC.
Under Article 1338 of the Civil Code, there is fraud
when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. In order that
fraud may vitiate consent, it must be the causal (dolo causante),
not merely the incidental (dolo incidente), inducement to the
making of the contract. 30 In Samson v. Court of
Appeals, 31 causal fraud was defined as "a deception employed
by one party prior to or simultaneous to the contract in order to
secure the consent of the other." 32
Also, fraud must be serious and its existence must be
established by clear and convincing evidence. As ruled by this
Court in Sierra v. Hon. Court of Appeals, et al., 33 mere
preponderance of evidence is not adequate:
Fraud must also be discounted, for according to
the Civil Code:
Art. 1338. There is fraud when, through
insidious words or machinations of one of
the contracting parties, the other is
induced to enter into a contract which
without them, he would not have agreed
to. TCAScE
Art. 1344. In order that fraud may make a
contract voidable, it should be serious and
should not have been employed by both
contracting parties.
To quote Tolentino again, the "misrepresentation
constituting the fraud must be established by full,
clear, and convincing evidence, and not merely by
a preponderance thereof. The deceit must be
serious. The fraud is serious when it is sufficient to
impress, or to lead an ordinarily prudent person
into error; that which cannot deceive a prudent
person cannot be a ground for nullity. The
circumstances of each case should be considered,
taking into account the personal conditions of the
victim." 34
After meticulously poring over the records, this Court
finds that the fraud alleged by Spouses Viloria has not been
satisfactorily established as causal in nature to warrant the
annulment of the subject contracts. In fact, Spouses Viloriafailed
to prove by clear and convincing evidence that Mager's statement
was fraudulent. Specifically, Spouses Viloria failed to prove that
(a) there were indeed available seats at Amtrak for a trip to New
Jersey on August 13, 1997 at the time they spoke with Mager on
July 21, 1997; (b) Mager knew about this; and (c) that she
purposely informed them otherwise.
This Court finds the only proof of Mager's alleged fraud,
which is Fernando's testimony that an Amtrak had assured him of
the perennial availability of seats at Amtrak, to be wanting. As
CAI correctly pointed out and as Fernando admitted, it was
possible that during the intervening period of three (3) weeks
from the time Fernando purchased the subject tickets to the time
he talked to said Amtrak employee, other passengers may have
cancelled their bookings and reservations with Amtrak, making it
possible for Amtrak to accommodate them. Indeed, the existence
of fraud cannot be proved by mere speculations and conjectures.
Fraud is never lightly inferred; it is good faith that is. Under the
Rules of Court, it is presumed that "a person is innocent of crime
or wrong" and that "private transactions have been fair and
regular." 35 Spouses Viloriafailed to overcome this presumption.
IV. Assuming the contrary, Spouses Viloria are nevertheless
deemed to have ratified the subject contracts.
Even assuming that Mager's representation is causal
fraud, the subject contracts have been impliedly ratified
whenSpouses Viloria decided to exercise their right to use the
subject tickets for the purchase of new ones. Under Article 1392
of the Civil Code, "ratification extinguishes the action to annul a
voidable contract."
Ratification of a voidable contract is defined under
Article 1393 of the Civil Code as follows:
Art. 1393. Ratification may be effected expressly
or tacitly. It is understood that there is a tacit
ratification if, with knowledge of the reason which
renders the contract voidable and such reason
having ceased, the person who has a right to
invoke it should execute an act which necessarily
implies an intention to waive his right.
Implied ratification may take diverse forms, such as by
silence or acquiescence; by acts showing approval or adoption of
the contract; or by acceptance and retention of benefits flowing
therefrom. 36
Simultaneous with their demand for a refund on the
ground of Fernando's vitiated consent, Spouses Viloria likewise
asked for a refund based on CAI's supposed bad faith in reneging
on its undertaking to replace the subject tickets with a round trip
ticket from Manila to Los Angeles. IEAaST
In doing so, Spouses Viloria are actually asking for a
rescission of the subject contracts based on contractual breach.
Resolution, the action referred to in Article 1191, is based on the
defendant's breach of faith, a violation of the reciprocity between
the parties 37 and in Solar Harvest, Inc. v. Davao Corrugated
Carton Corporation, 38 this Court ruled that a claim for a
reimbursement in view of the other party's failure to comply with
his obligations under the contract is one for rescission or
resolution.
However, annulment under Article 1390 of the Civil
Code and rescission under Article 1191 are two (2) inconsistent
remedies. In resolution, all the elements to make the contract
valid are present; in annulment, one of the essential elements to a
formation of a contract, which is consent, is absent. In resolution,
the defect is in the consummation stage of the contract when the
parties are in the process of performing their respective
obligations; in annulment, the defect is already present at the
time of the negotiation and perfection stages of the contract.
Accordingly, by pursuing the remedy of rescission under Article
1191, the Vilorias had impliedly admitted the validity of the
subject contracts, forfeiting their right to demand their
annulment. A party cannot rely on the contract and claim rights
or obligations under it and at the same time impugn its existence
or validity. Indeed, litigants are enjoined from taking inconsistent
positions. 39
V. Contracts cannot be rescinded for a slight or casual
breach.
CAI cannot insist on the non-transferability of the subject tickets.
Considering that the subject contracts are not annullable
on the ground of vitiated consent, the next question is:
"DoSpouses Viloria have the right to rescind the contract on the
ground of CAI's supposed breach of its undertaking to issue new
tickets upon surrender of the subject tickets?"
Article 1191, as presently worded, states:
The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon
him. IDSaTE
 The injured party may choose between the
fulfilment and the rescission of the obligation,
with the payment of damages in either case. He
may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of
a period.
This is understood to be without prejudice to the
rights of third persons who have acquired the
thing, in accordance with articles 1385 and 1388
and the Mortgage Law.
According to Spouses Viloria, CAI acted in bad faith and
breached the subject contracts when it refused to apply the value
of Lourdes' ticket for Fernando's purchase of a round trip ticket
to Los Angeles and in requiring him to pay an amount higher
than the price fixed by other airline companies.
In its March 24, 1998 letter, CAI stated that "non-
refundable tickets may be used as a form of payment toward the
purchase of another Continental ticket for $75.00, per ticket,
reissue fee ($50.00, per ticket, for tickets purchased prior to
October 30, 1997)."
Clearly, there is nothing in the above-quoted section of
CAI's letter from which the restriction on the non-transferability
of the subject tickets can be inferred. In fact, the words used by
CAI in its letter supports the position ofSpouses Viloria, that
each of them can use the ticket under their name for the purchase
of new tickets whether for themselves or for some other person.
Moreover, as CAI admitted, it was only when Fernando
had expressed his interest to use the subject tickets for the
purchase of a round trip ticket between Manila and Los Angeles
that he was informed that he cannot use the ticket in Lourdes'
name as payment.
Contrary to CAI's claim, that the subject tickets are non-
transferable cannot be implied from a plain reading of the
provision printed on the subject tickets stating that "[t]o the
extent not in conflict with the foregoing carriage and other
services performed by each carrier are subject to: (a) provisions
contained in this ticket, . . . (iii) carrier's conditions of carriage
and related regulations which are made part hereof (and are
available on application at the offices of carrier) . . . ." As a
common carrier whose business is imbued with public interest,
the exercise of extraordinary diligence requires CAI to
inform Spouses Viloria, or all of its passengers for that matter, of
all the terms and conditions governing their contract of carriage.
CAI is proscribed from taking advantage of any ambiguity in the
contract of carriage to impute knowledge on its passengers of
and demand compliance with a certain condition or undertaking
that is not clearly stipulated. Since the prohibition on
transferability is not written on the face of the subject tickets and
CAI failed to inform Spouses Viloriathereof, CAI cannot refuse
to apply the value of Lourdes' ticket as payment for Fernando's
purchase of a new ticket.
CAI's refusal to accept Lourdes' ticket for the purchase of a
new ticket for Fernando is only a casual breach.
Nonetheless, the right to rescind a contract for non-
performance of its stipulations is not absolute. The general rule is
that rescission of a contract will not be permitted for a slight or
casual breach, but only for such substantial and fundamental
violations as would defeat the very object of the parties in
making the agreement. 40 Whether a breach is substantial is
largely determined by the attendant circumstances. 41
While CAI's refusal to allow Fernando to use the value
of Lourdes' ticket as payment for the purchase of a new ticket is
unjustified as the non-transferability of the subject tickets was
not clearly stipulated, it cannot, however be considered
substantial. The endorsability of the subject tickets is not an
essential part of the underlying contracts and CAI's failure to
comply is not essential to its fulfillment of its undertaking to
issue new tickets upon Spouses Viloria's surrender of the subject
tickets. This Court takes note of CAI's willingness to perform its
principal obligation and this is to apply the price of the ticket in
Fernando's name to the price of the round trip ticket between
Manila and Los Angeles. CAI was likewise willing to accept the
ticket in Lourdes' name as full or partial payment as the case may
be for the purchase of any ticket, albeit under her name and for
her exclusive use. In other words, CAI's willingness to comply
with its undertaking under its March 24, 1998 cannot be doubted,
albeit tainted with its erroneous insistence that Lourdes' ticket is
non-transferable. AaHcIT
Moreover, Spouses Viloria's demand for rescission
cannot prosper as CAI cannot be solely faulted for the fact that
their agreement failed to consummate and no new ticket was
issued to Fernando. Spouses Viloria have no right to insist that a
single round trip ticket between Manila and Los Angeles should
be priced at around $856.00 and refuse to pay the difference
between the price of the subject tickets and the amount fixed by
CAI. The petitioners failed to allege, much less prove, that CAI
had obliged itself to issue to them tickets for any flight anywhere
in the world upon their surrender of the subject tickets. In its
March 24, 1998 letter, it was clearly stated that "[n]on-
refundable tickets may be used as a form of payment toward the
purchase of another Continental ticket" 42 and there is nothing in
it suggesting that CAI had obliged itself to
protect Spouses Viloria from any fluctuation in the prices of
tickets or that the surrender of the subject tickets will be
considered as full payment for any ticket that the petitioners
intend to buy regardless of actual price and destination. The CA
was correct in holding that it is CAI's right and exclusive
prerogative to fix the prices for its services and it may not be
compelled to observe and maintain the prices of other airline
companies. 43
The conflict as to the endorsability of the subject tickets
is an altogether different matter, which does not preclude CAI
from fixing the price of a round trip ticket between Manila and
Los Angeles in an amount it deems proper and which does not
provide Spouses Viloria an excuse not to pay such price, albeit
subject to a reduction coming from the value of the subject
tickets. It cannot be denied that Spouses Viloria had the
concomitant obligation to pay whatever is not covered by the
value of the subject tickets whether or not the subject tickets are
transferable or not.
There is also no showing that Spouses Viloria were
discriminated against in bad faith by being charged with a higher
rate. The only evidence the petitioners presented to prove that the
price of a round trip ticket between Manila and Los Angeles at
that time was only $856.00 is a newspaper advertisement for
another airline company, which is inadmissible for being
"hearsay evidence, twice removed." Newspaper clippings are
hearsay if they were offered for the purpose of proving the truth
of the matter alleged. As ruled in Feria v. Court of Appeals,: 44
[N]ewspaper articles amount to "hearsay evidence,
twice removed" and are therefore not only
inadmissible but without any probative value at all
whether objected to or not, unless offered for a
purpose other than proving the truth of the matter
asserted. In this case, the news article is admissible
only as evidence that such publication does exist
with the tenor of the news therein
stated. 45 (citations omitted)
The records of this case demonstrate that both parties
were equally in default; hence, none of them can seek judicial
redress for the cancellation or resolution of the subject contracts
and they are therefore bound to their respective obligations
thereunder. As the 1st sentence of Article 1192 provides:
Art. 1192. In case both parties have committed a
breach of the obligation, the liability of the first
infractor shall be equitably tempered by the
 courts. If it cannot be determined which of the
parties first violated the contract, the same shall be
deemed extinguished, and each shall bear his own
damages. (emphasis supplied)
Therefore, CAI's liability for damages for its refusal to
accept Lourdes' ticket for the purchase of Fernando's round trip
ticket is offset by Spouses Viloria's liability for their refusal to
pay the amount, which is not covered by the subject tickets.
Moreover, the contract between them remains, hence, CAI is
duty bound to issue new tickets for a destination chosen
by Spouses Viloria upon their surrender of the subject tickets
and Spouses Viloria are obliged to pay whatever amount is not
covered by the value of the subject tickets.
This Court made a similar ruling in Central Bank of the
Philippines v. Court of Appeals. 46 Thus:
Since both parties were in default in the
performance of their respective reciprocal
obligations, that is, Island Savings Bank failed to
comply with its obligation to furnish the entire
loan and Sulpicio M. Tolentino failed to comply
with his obligation to pay his P17,000.00 debt
within 3 years as stipulated, they are both liable
for damages.
Article 1192 of the Civil Code provides that in
case both parties have committed a breach of their
reciprocal obligations, the liability of the first
infractor shall be equitably tempered by the courts.
WE rule that the liability of Island Savings Bank
for damages in not furnishing the entire loan is
offset by the liability of Sulpicio M. Tolentino for
damages, in the form of penalties and surcharges,
for not paying his overdue P17,000.00
debt. . . . . 47
Another consideration that militates against the propriety
of holding CAI liable for moral damages is the absence of a
showing that the latter acted fraudulently and in bad faith. Article
2220 of the Civil Code requires evidence of bad faith and fraud
and moral damages are generally not recoverable in culpa
contractual except when bad faith had been proven. 48The
award of exemplary damages is likewise not warranted. Apart
from the requirement that the defendant acted in a wanton,
oppressive and malevolent manner, the claimant must prove his
entitlement to moral damages. 49 HDAECI
WHEREFORE, premises considered, the instant
Petition is DENIED.
SO ORDERED.
Carpio, Perez, Sereno and Perlas-Bernabe, * JJ., concur.
Footnotes
*Additional Member in lieu of Associate Justice Arturo D. Brion
per Special Order No. 1174 dated January 9, 2012.
1.Penned by Associate Justice Monina Arevalo-Zenarosa, with
Associate Justices Isaias P. Dicdican and Ramon M. Bato,
Jr., concurring; rollo, pp. 42-54.
2.Id. at 53.
3.Id. at 64.
4.Id. at 65.
5.Id. at 67.
6.Id. at 68.
7.Id. at 69-76.
8.Id. at 80.
9.Id. at 77-85.
10.Id. at 84.
11.Id. at 83.
12.Id. at 84.
13.Id. at 50-51.
14.Id. at 52.
15.Id. at 214.
16.Id. at 215.
17.See Heirs of Jose Lim v. Lim, G.R. No. 172690, March 3, 2010,
614 SCRA 141, 147; Ontimare, Jr. v. Spouses Elep, G.R.
No. 159224, January 20, 2006, 479 SCRA 257, 265.
18.171 Phil 222 (1978).
19.Id. at 226-227, citing Articles 1868 and 1881, New Civil Code;
11 Manresa 422-423; 4 Sanchez Roman 478, 2nd Ed.; 25
Scaevola, 243, 262; Tolentino, Comments, Civil Code of
the Philippines, p.340, vol. 5, 1959 Ed., Columbia
University Club v. Higgins, D.C.N.Y., 23 f. Supp. 572,
574; Valentine Oil Co. v. Young, 109 P. 2d 180, 185; 74
C.J.S. 4; Valentine Oil Co. v. Powers, 59 N.W. 2d 160, 163,
157 Neb. 87; Purnell v. City of Florence, 175 So. 417, 27
Ala. App. 516; Stroman Motor Co. v. Brown; 243 P. 133,
126 Ok. 36.
20.Philippine Airlines, Inc. v. CA, 325 Phil 303, 323 (1996).
21.G.R. No. L-25926, February 27, 1970, 31 SCRA 779.
22.Id. at 785.
23.264 Phil 15 (1990).
24.G.R. No. 165266, December 15, 2010, 638 SCRA 472.
25.38 Phil 768 (1918).
26.Id. at 775-776.
27.13 Phil 202 (1909).
28.G.R. No. 163609, November 27, 2008, 572 SCRA 41.
29.Id. at 51-52.
30.See Tongson v. Emergency Pawnshop Bula, Inc., G.R. No.
167874, 15 January 2010, 610 SCRA 150, 159,
citing Woodhouse v. Halili, 93 Phil 526, 537 (1953).
31.G.R. No. 108245, November 25, 1994, 238 SCRA 397.
32.Id. at 404.
33.G.R. No. 90270, July 24, 1992, 211 SCRA 785.
34.Id. at 793, citing Tolentino, Commentaries on the Civil Code,
Vol. 4, pp. 508, 514.
35.Trinidad v. Intermediate Appellate Court, G.R. No. 65922,
December 3, 1991, 204 SCRA 524, 530, citing Rule 131,
Sections 5(a) and 5(p).
36.Acuña v. Batac Producers Coop. Mktg. Ass., 126 Phil 896, 902
(1967).
37.Heirs of Sofia Quirong, v. Development Bank of the Philippines,
G.R. No. 173441, December 3, 2009, 606 SCRA 543, 550.
38.G.R. No. 176868, July 26, 2010, 625 SCRA 448.
39.Gonzales v. Climax Mining Ltd., 492 Phil 682, 697 (2005).
40.See Barredo v. Leaño, G.R. No. 156627, June 4, 2004, 431
SCRA 106, 115.
 41.See Central Bank of the Philippines v. Spouses Bichara, 385
Phil 553, 565 (2000), citing Vermen Realty Development
Corporationv. Court of Appeals, et al. , 224 SCRA 549,
555.
42.Rollo, p. 67.
43.Id. at 52.
44.382 Phil 412 (2000).
45.Id. at 423.
46.223 Phil 266 (1985).
47.Id. at 276-277.
48.See Yobido v. Court of Appeals, 346 Phil 1, 13 (1997).
49.Mahinay v. Atty. Velasquez, Jr., 464 Phil 146, 150 (2004).
||| (Spouses Viloria v. Continental Airlines, Inc., G.R. No. 188288,
[January 16, 2012], 679 PHIL 61-97)

SECOND DIVISION
[G.R. No. 45976. July 20, 1939.]
PACIFIC COMMERCIAL COMPANY, plaintif
f-appellant, vs. ALFREDO L. YATCO, defendant-
appellee.
E. P. Revilla for appellant.
Solicitor-General Tuason for appellee.
SYLLABUS
1. PAYMENT OF TAX ON MERCHANT SALES BY
MANUFACTURER AND OWNER OF SUGAR; PAYMENT
OF ANOTHER TAX BY ONE; WHO MADE THE SALE
DOES NOT CONSTITUTE DOUBLE TAXATION. — V. M.
Co. already paid the merchant sales tax for the sales of sugar, in
its capacity as manufacturer and owner of the sugar sold. It is
said that the payment of another tax by the plaintiff, who effected
the sale, constitutes double taxation, there having been only one
sale. In Gil Hermanos vs. Hord (10 Phil., 218), this question was
already decided in the sense that there is no double taxation. The
case at bar is identical in all respects.
2. ID.; ID.; DECISION IN GIL HERMANOS vs.
HORD, SUPRA, HAS NOT BEEN REVERSED. — It is said
that the decision in Gil Hermanos vs. Hord, supra, was reversed
in Atkins, Kroll & Co. V8. Posadas (48 Phil., 352), and other
cases. This, however, is not correct. Neither in Atkins, Kroll &
Co. vs. Posadas, nor in the other cases mentioned by the plaintiff,
has the decision in Gil Hermanos V8. Hord been reversed.
Although a distinct result was reached in these cases, this WAS
only because they have been found to be different from the case
of Gil Hermanos vs. Hord. On the contrary, in F. E. Zuellig,
Inc.vs. Collector of Internal Revenue (51 Phil., 629), the doctrine
in Gil Hermanos was followed.
3. ID.; ID.; ID.; COMMISSION MERCHANT. — The
question of whether the appellant, in connection with the sugar
delivered in its warehouses and thereafter sold to the purchasers,
acted as a commission merchant, presents no doubt. A
commission merchant i8 one engaged in the purchase or sale for
another of personal property which, for this purpose, is placed in
his possession and at his disposal. He maintains a relation not
only with his principal and the purchasers or vendors, but also
with the property which is the subject matter of the transaction.
In the present case, the sugar was shipped by V. M. Co., and
upon arrival at the port of destination, the plaintiff received and
transferred it for deposit in its warehouses until the purchaser
called for it. The deposit of the sugar in the warehouses of the
plaintiff was made upon its own account and at its own risk until
it was sold and taken by the purchaser. There is, therefore, no
doubt that the plaintiff, after taking the sugar on board until it
was sold, had it in its possession and at its own risk,
circumstances determinative of its status as a commission
merchant in connection with the sale of sugar under these
conditions.
4. ID; ID.; ID.; COMMERCIAL BROKER. — The
plaintiff merely acted as a commercial broker as to the sale of the
sugar delivered to the purchaser on board. The broker, unlike the
commission merchant, has no relation with the thing he sells or
buys. He is merely an intermediary between the purchaser and
the vendor. He acquires neither the possession nor the custody of
the things sold. His only office is to bring together the parties to
 the transaction. These circumstances are present in connection
with the plaintiff's sale of the sugar which was delivered to the
purchaser on board. The sugar sold under these conditions was
shipped by the plaintiff at its expense and risk until it reached its
destination, where it was later taken on board by the purchaser.
The plaintiff never had possession of the sugar at any time. The
circumstance that the bill of lading was sent to the plaintiff does
not alter its character of being merely a broker, or constitute
possession by it of the sugar shipped, inasmuch as the same was
sent to it for the sole purpose of turning it over to the purchaser
for the collection of the price. The sugar did not come to its
possession in any sense.
DECISION
AVANCEÑA, C. J p:
The plaintiff, a corporation engaged in business as a
merchant, with offices in Manila, Cebu and Iloilo, during the
period from April 1, 1934 to December 31, 1935, sold in the
Philippines, for the account of Victorias Milling Co., another
Philippine corporation, refined sugar, manufactured by the said
corporation, up to the total amount of P1,126,135.96, having
received by way of commission for this sale the amount of
P29,534.29. The corporation Victorias Milling Co., paid to the
Collector of Internal Revenue for this sale the amount of
P16,944.90 as merchant sales tax in its capacity as manufacturer
and owner of the sugar sold. Notwithstanding this payment made
by Victorias Milling Co., the Collector of Internal Revenue also
collected from the plaintiff the same tax for the same amount of
P16,944.90
The sales of this sugar were made by the plaintiff in two
ways. The plaintiff looked for purchasers of the sugar, and once
the corresponding purchase order is obtained from them, the
same is sent to the office of Victorias Milling Co., in Manila,
which, in turn, endorsed the order to its office in Negros, with
instructions to ship the sugar thus ordered to Manila, Cebu or
Iloilo, as the case may be. At times, the purchase is made for the
delivery of the sugar ex-warehouse of the plaintiff and at other
times for delivery ex-ship. In all cases, the bill of lading is sent to
the plaintiff. If the sugar was to be delivered ex-ship, all that the
plaintiff did was to hand over the bill of lading to the purchaser
and collect the price. If it was for delivery ex-warehouse, the
sugar is first deposited in the warehouse of the plaintiff before
delivery to the purchaser.
The court found that of the price of sugar sold by the
plaintiff, the amount of P558,550.41 corresponds to sugar sold
for delivery ex-warehouse and that of P567,585.55 corresponds
to sugar sold for delivery ex-ship, and considering that in the
first case the plaintiff acted as a commission merchant, and in the
second case as a broker, it ordered the defendant to return to the
plaintiff the amount collected from it, by way of tax on the sale
of sugar to be delivered ex-ship, and denied the prayer in the
complaint for the return of the amount paid for the sales of sugar
to be delivered ex-warehouse.
Both parties appealed from this decision.
The appeal raises three questions: (a) whether there is
double taxation in the present case; (b) whether the plaintiff
acted as a commission merchant as to the sugar delivered ex-
warehouse; (c) whether the plaintiff acted as a
merecommercial broker as to the sugar delivered ex-ship.
As to the first question, it should be borne in mind that
Victorias Milling Co. already paid the merchant sales tax for the
sales of sugar, in its capacity as manufacturer and owner of the
sugar sold. It is said that the payment of another tax by the
plaintiff, who effected the sale, constitutes double taxation, there
having been only one sale. In Gil Hermanos vs. Hord (10 Phil.,
218), this question was already decided in the sense that there is
no double taxation. In that case, Aldecoa & Co., remitted abaca
to Gil Hermanos, which the latter sold on commission for the
account of the former. Aldecoa & Co. paid the tax of one-third of
1 per cent upon the value of the abaca sold by Gil Hermanos, and
the latter also paid another one-third of per cent for the same
sale. It was held that, although there was only one sale, this is not
a case of double taxation, because the tax is not upon property or
products, but upon occupation or industry. The tax was paid by
Aldecoa & Co. and Gil Hermanos in consideration of the
occupation or industry in which each is engaged. The value of
the thing sold is taken into account only as a basis for the fixing
of the amount of the tax and not as the reason and purpose
thereof. The case at bar is identical in all respects.
It is said that this decision was reversed in Atkins, Kroll
& Co. vs. Posadas (48 Phil., 352), and other cases. This,
however, is not correct. Neither in Atkins, Kroll & Co. vs.
Pasadas, nor in the other cases mentioned by the plaintiff, has the
decision in Gil Hermanos vs. Hord been reversed. Although a
distinct result was reached in these cases, this was only because
they have been found to be different from the case of Gil
Hermanos vs. Hord. On the contrary, in F. E. Zuellig, Inc.vs.
Collector of Internal Revenue (61 Phil., 629), the doctrine in Gil
Hermanos was followed.
The question of whether the appellant, in connection
with the sugar delivered ex-warehouse and thereafter sold to the
purchasers, acted as a commission merchant, presents no doubt.
A commission merchant is one engaged in the purchase or sale
for another of personal property which, for this purpose, is
placed in his possession and at his disposal. He maintains a
relation not only with his principal and the purchasers or
vendors, but also with the property which is the subject matter of
the transaction. In the present case, the sugar was shipped by
Victorias Milling Co., and upon arrival at the port of destination,
the plaintiff received and transferred it for deposit in its
warehouses until the purchaser called for it. The deposit of the
sugar in the warehouses of the plaintiff was made upon its own
account and at its own risk until it was sold and taken by the
purchaser. There is, therefore, no doubt that the plaintiff, after
taking the sugar on board until it was sold, had it in its
possession and at its own risk, circumstances determinative of its
status as a commission merchant in connection with the sale of
sugar under these conditions.
There is also no doubt on the question of whether the
plaintiff merely acted as a commercial broker as to the sale of the
sugar delivered to the purchaser ex-ship. The broker, unlike the
commission merchant, has no relation with the thing he sells or
buys. He is merely an intermediary between the purchaser and
the vendor. He acquires neither the possession nor the custody of
the things sold. His only office is to bring together the parties to
the transaction. These circumstances are present in connection
with the plaintiff's sale of the sugar which was delivered to the
purchaser ex-ship. The sugar sold under these conditions was
shipped by the plaintiff at its expense and risk until it reached its
destination, where it was later taken ex-ship by the purchaser.
The plaintiff never had possession of the sugar at any time. The
circumstance that the bill of lading was sent to the plaintiff does
not alter its character of being merely a broker, or constitute
possession by it of the sugar shipped, inasmuch as the same was
sent to it for the sole purpose of turning it over to the purchaser
for the collection of the price. The sugar did not come to its
possession in any sense.
In view of the foregoing, the appealed decision is
affirmed, without special pronouncement as to the costs. So
ordered.
Villa-Real, Imperial, Diaz, Laurel, and Concepcion,
JJ., concur.
Separate Opinions
MORAN, J., dissenting:
I regret to dissent from the majority opinion penned by
our illustrious and beloved Chief Justice.
The tax on the sale made by the
plaintiff Pacific Commercial Company, for the account of
Victorias Milling Company, has already been paid by the latter,
as the majority admits. Hence, to require
the Pacific Commercial Company to pay the same tax is clearly
to impose double taxation upon one and the same sale.
But the majority maintains that this is not a case of
double taxation, because the tax in question is not a tax "upon
property or products, but upon occupation or industry."
Although, in my opinion, the tax, according to the language of
the law, is imposed upon the transaction rather than upon the
occupation, or, at most, upon both, I would say that the
distinction made by the majority is not of much importance. The
important thing is, as the majority holds, that the value of the
transaction "is taken into account only as a basis for the fixing of
the amount of the tax"; which means, in the last analysis, that the
transaction is the basis of the tax and that, as a consequence,
where there is only one transaction, there is no more basis but for
a single tax. In the present case, there is only one sale, that made
by the plaintiff in the name of Victorias Milling Company, and
two taxes cannot be de manded of these two companies because
they have brought about only one basis for the payment of one
tax. To impose two taxes upon them would be like holding that
the plaintiff has effected one sale and the Victorias
Milling Company another, which is not true, as both have
realized but one sale. To make this sale twice as a basis for the
collection of two taxes is unjust and unlawful, because a single
transaction is thereby pluralized and, moreover, in such case, the
proportion between the amount of the total tax collected and the
true value of the only transaction made would exceed the rate
fixed by law. The Government is not entitled to receive more
than one tax for a single transaction.
Note that the law imposes the tax upon the vendor of
merchandise. In the present case, who sold the merchandise?
Was it the Victorias Milling Company or
the Pacific Commercial Company? As to this, there is no
controversy on the facts. The Victorias Milling Company sold
the merchandise through the Pacific Commercial Company, or,
otherwise ,stated, the latter sold the merchandise in the former's
name. The Victorias Milling Company is the vendor in law, and
the PacificCommercial Company is the vendor in fact; one
completes the personality of the other and both constitute one
efficient subject of the sale. In reality, therefore, there is but one
vendor and but one sale and only one thing sold, hence, only one
tax may be collected, which may be paid by Victorias
Milling Company or by the Pacific Commercial Company,
alternatively.
It is true that the doctrine laid down in Gil Hermanos vs.
Hord (10 Phil., 218), and F. E. Zuellig, Inc. vs. Collector of
Internal Revenue (51 Phil., 629), supports the theory held by the
majority; but this doctrine runs counter to that established in
Atkins, Kroll & Co. Is. Posadas (48 Phil., 352). In this case,
Atkins, Kroll & Co., through Macleod & Co., Inc., a commission
merchant, shipped a certain amount of copra to the United States.
The Government sought to collect the total tax on the
consignment both from the owner of the copra as well as from
the commission merchant, and this court held that the
Government "has no legal right to levy and collect the same tax
from two different persons on one consignment abroad on one
shipment of the same copra" (page 359). In other words, this
court held that for a single consignment, the Government is not
entitled to collect two taxes, one from the owner of the
merchandise and the other from the commission merchant. It is
true that it had to do with a consignment and not a sale; but both
transactions are governed by the same legal provision, namely
section 1459 of the Administrative Code.
Upon the question at issue, our jurisprudence is
wavering, if not confusing and contradictory, and I had wished
 that this court make a revision thereof to lay down clearly and
definitely a more just and equitable doctrine for the good of
commerce. In my opinion, the Government has no right to
receive more than one tax for a single transaction. A contrary
doctrine would be detrimental to local merchants. If a foreign
merchant sells his merchandise through a resident commission
merchant, the Government will not collect more than one tax,
and will do so from the commission merchant. But if a resident
merchant makes a similar transaction, the Government will
collect the tax twice, from the merchant and from the
commission merchant. I do not believe that the legislator
intended a measure so unjust to the merchants of the country.
||| (Pacific Commercial Co. v. Yatco, G.R. No. 45976, [July 20,
1939], 68 PHIL 398-405)

FIRST DIVISION
[G.R. No. 46722. June 27, 1940.]
PACIFIC COMMERCIAL COMPANY, plaintif
f-appellant, vs. ALFREDO L. YATCO, as
Collector of Internal Revenue of the
Philippines, defendant-appellee.
E. P. Sevilla for appellant.
Solicitor-General Ozaeta and Assistant Solicitor-
General Concepcion for appellee.
SYLLABUS
1. CONSIGNMENT TAX; CONSIGNOR. — In the
instant case, it appears that the bills of lading covering the sugar
in question were indorsed in blank and delivered to the plaintiff
by the agent of the seller before the vessels left port. This
indorsement operates to pass title to, and constitutes a
constructive but nonetheless complete delivery of, the
merchandise to the plaintiff at the point of shipment. (4 R. C. L.,
p. 31.) Under such circumstance, plaintiff alone could logically
ship the cargo to its New York office. The tax imposed by law is
on merchandise "consigned abroad" and not from one party to
another within the Philippines. The party, therefore, who ships
the merchandise abroad is the consignor upon whom the
consignment tax applies, irrespective of who made out the bills
of lading or placed said merchandise on board the vessels.
DECISION
MORAN, J p:
The stipulation of facts discloses that in August, 1932,
plaintiff Pacific Commercial Company, a Philippine corporation,
purchased for its New York office, 6,000 tons of centrifugal
sugar from the Calamba Sugar Estate Planters at the prices
specified in the letters-contract. It was agreed, inter alia, that the
freight charges shall be paid at destination by the New York
office and that payment would be made upon delivery of the
shipping documents. On January 28; 1933, the seller loaded
3,000 tons of sugar on board the s. s. Chastine Maersk, and on
March 30, 1933, another 3,000 tons on board the s. s. Ferndale.
The first vessel sailed from Manila at 6 p. m. of January 28,
1933, and the second, at 12.05 p. m. of March 31, 1933. After the
cargo has been loaded on, and before the vessels left port, one
Amado M. Honorio as agent of the Calamba Sugar Estate
Planters indorsed in blank and delivered to plaintiff the shipping
documents. Payments were correspondingly made by the
plaintiff which were later debited to the account of its New York
office. The defendant Collector of Internal Revenue assessed a
consignment tax of P13,479.04, including surcharge, which
plaintiff paid under protest and for the recovery of which an
action was brought in the Court of First Instance of Manila. The
complaint having been dismissed, the present appeal was taken.
Plaintiff contends that it is not subject to the
consignment tax provided in section 1459 of the Revised
Administrative Code, because, upon the facts of the case, it is a
consignee, not a consignor, of the sugar in question. Reliance is
 placed upon the stipulation in the contracts to the effect that
shipment is to be made by the seller.
A condition in a contract is at best prima facie evidence,
and is by no means conclusive, of what actually transpired after
its execution. In the instant case, it appears that the bills of lading
covering the sugar in question were indorsed in blank and
delivered to the plaintiff by the agent of the seller before the
vessels left port. This indorsement operates to pass title to, and
constitutes a constructive but nonetheless complete delivery of,
the merchandise to the plaintiff at the point of shipment. (4 R. C.
L. p., 31.) Under such circumstance, plaintiff alone could
logically ship the cargo to its New York office.
Appellant seems to labor under an erroneous impression
that it could not be a consignor because the vendor was the party
"who made out and signed the bills of lading and placed the
sugar on board the ship." Be this as it may, a matter which is
disputed by the appellee, the making out of bills of lading and
the placing of the merchandise aboard the ship supply no
decisive criterion for determining who the actual consignor is,
for the application of the tax in question. The tax imposed by law
is on merchandise "consigned aboard" and not from one party to
another within the Philippines. The party, therefore, who ships
the merchandise aboard is the consignor upon whom the
consignment tax applies, irrespective of who made out the bills
of lading of placed said merchandise on board the vessel.
Judgment is affirmed, with costs against appellant.
Avanceña, C.J., Imperial, Diaz, Laurel, and Concepcion,
JJ., concur.
||| (Pacific Commercial Co. v. Yatco, G.R. No. 46722, [June 27,
1940], 70 PHIL 285-287)

FIRST DIVISION
[G.R. No. 144805. June 8, 2006.]
EDUARDO V. LITONJUA, JR. and ANTONIO
K. LITONJUA, petitioners, vs. ETERNIT
CORPORATION (now ETERTON MULTI-
RESOURCES CORPORATION),
ETEROUTREMER, S.A. and FAR EAST
BANK & TRUST COMPANY, respondents.
DECISION
CALLEJO, SR., J p:
On appeal via a Petition for Review on Certiorari is the
Decision 1 of the Court of Appeals (CA) in CA-G.R. CV No.
51022, which affirmed the Decision of the Regional Trial Court
(RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well
as the Resolution 2 of the CA denying the motion for
reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly
organized and registered under Philippine laws. Since 1950, it
had been engaged in the manufacture of roofing materials and
pipe products. Its manufacturing operations were conducted on
eight parcels of land with a total area of 47,233 square meters.
The properties, located in Mandaluyong City, Metro Manila,
were covered by Transfer Certificates of Title Nos. 451117,
451118, 451119, 451120, 451121, 451122, 451124 and 451125
under the name of Far East Bank & Trust Company, as trustee.
Ninety (90%) percent of the shares of stocks of EC were owned
by Eteroutremer S.A. Corporation (ESAC), a corporation
organized and registered under the laws of Belgium. 3 Jack
Glanville, an Australian citizen, was the General Manager and
President of EC, while Claude Frederick Delsaux was the
Regional Director for Asia of ESAC. Both had their offices in
Belgium.
In 1986, the management of ESAC grew concerned
about the political situation in the Philippines and wanted to stop
its operations in the country. The Committee for Asia of ESAC
instructed Michael Adams, a member of EC's Board of Directors,
to dispose of the eight parcels of land. Adams engaged the
services of realtor/broker Lauro G. Marquez so that the
properties could be offered for sale to prospective buyers.
Glanville later showed the properties to Marquez.
Marquez thereafter offered the parcels of land and the
improvements thereon to Eduardo B. Litonjua, Jr. of the Litonjua
& Company, Inc. In a Letter dated September 12, 1986, Marquez
declared that he was authorized to sell the properties for
P27,000,000.00 and that the terms of the sale were subject to
negotiation. 4
Eduardo Litonjua, Jr. responded to the offer. Marquez
showed the property to Eduardo Litonjua, Jr., and his brother
Antonio K. Litonjua. The Litonjua siblings offered to buy the
property for P20,000,000.00 cash. Marquez apprised Glanville of
the Litonjua siblings' offer and relayed the same to Delsaux in
Belgium, but the latter did not respond. On October 28, 1986,
Glanville telexed Delsaux in Belgium, inquiring on his
position/counterproposal to the offer of the Litonjua siblings. It
was only on February 12, 1987 that Delsaux sent a telex to
Glanville stating that, based on the "Belgian/Swiss decision," the
final offer was "US$1,000,000.00 and P2,500,000.00 to cover all
existing obligations prior to final liquidation." 5
Marquez furnished Eduardo Litonjua, Jr. with a copy of
the telex sent by Delsaux. Litonjua, Jr. accepted the
counterproposal of Delsaux. Marquez conferred with Glanville,
and in a Letter dated February 26, 1987, confirmed that the
Litonjua siblings had accepted the counter-proposal of Delsaux.
He also stated that the Litonjua siblings would confirm full
payment within 90 days after execution and preparation of all
documents of sale, together with the necessary governmental
clearances. 6
The Litonjua brothers deposited the amount of
US$1,000,000.00 with the Security Bank & Trust Company,
Ermita Branch, and drafted an Escrow Agreement to expedite the
sale. 7
Sometime later, Marquez and the Litonjua brothers
inquired from Glanville when the sale would be implemented. In
a telex dated April 22, 1987, Glanville informed Delsaux that he
had met with the buyer, which had given him the impression that
"he is prepared to press for a satisfactory conclusion to the
sale." 8 He also emphasized to Delsaux that the buyers were
concerned because they would incur expenses in bank
commitment fees as a consequence of prolonged period of
inaction. 9
Meanwhile, with the assumption of Corazon C. Aquino
as President of the Republic of the Philippines, the political
situation in the Philippines had improved. Marquez received a
telephone call from Glanville, advising that the sale
would nolonger proceed. Glanville followed it up with a Letter
dated May 7, 1987, confirming that he had been instructed by his
principal to inform Marquez that "the decision has been taken at
a Board Meeting not to sell the properties on which Eternit
Corporation is situated." 10
Delsaux himself later sent a letter dated May 22, 1987,
confirming that the ESAC Regional Office had decided not to
proceed with the sale of the subject land, to wit:
May 22, 1987
Mr. L.G. Marquez
L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines
Dear Sir:
Re: Land of Eternit Corporation
I would like to confirm officially that our Group
has decided not to proceed with the sale of the
land which was proposed to you. EaSCAH
The Committee for Asia of our Group met recently
(meeting every six months) and examined the
position as far as the Philippines are (sic)
concerned. Considering [the] new political
situation since the departure of MR. MARCOS
and a certain stabilization in the Philippines,
the Committee has decided not to stop our
operations in Manila. In fact, production has
started again last week, and (sic) to recognize the
participation in the Corporation.
We regret that we could not make a deal with you
this time, but in case the policy would change at a
later state, we would consult you again.
xxx xxx xxx
 Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.) 11
When apprised of this development, the Litonjuas,
through counsel, wrote EC, demanding payment for damages
they had suffered on account of the aborted sale. EC, however,
rejected their demand.
The Litonjuas then filed a complaint for specific
performance and damages against EC (now the Eterton Multi-
Resources Corporation) and the Far East Bank & Trust
Company, and ESAC in the RTC of Pasig City. An amended
complaint was filed, in which defendant EC was substituted by
Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V.
Tan, Stock Ha T. Tan and Deogracias G. Eufemio were
impleaded as additional defendants on account of their purchase
of ESAC shares of stocks and were the controlling stockholders
of EC.
In their answer to the complaint, EC and ESAC alleged
that since Eteroutremer was not doing business in the
Philippines, it cannot be subject to the jurisdiction of Philippine
courts; the Board and stockholders of EC never approved any
resolution to sell subject properties nor authorized Marquez to
sell the same; and the telex dated October 28, 1986 of Jack
Glanville was his own personal making which did not bind EC.
On July 3, 1995, the trial court rendered judgment in
favor of defendants and dismissed the amended
complaint. 12The fallo of the decision reads:
WHEREFORE, the complaint against Eternit
Corporation now Eterton Multi-Resources
Corporation and Eteroutremer, S.A. is dismissed
on the ground that there is no valid and binding
sale between the plaintiffs and said defendants.
The complaint as against Far East Bank and Trust
Company is likewise dismissed for lack of cause
of action.
The counterclaim of Eternit Corporation now
Eterton Multi-Resources Corporation and
Eteroutremer, S.A. is also dismissed for lack of
merit. 13
The trial court declared that since the authority of the
agents/realtors was not in writing, the sale is void and not merely
unenforceable, and as such, could not have been ratified by the
principal. In any event, such ratification cannot be given any
retroactive effect. Plaintiffs could not assume that defendants had
agreed to sell the property without a clear authorization from the
corporation concerned, that is, through resolutions of the Board
of Directors and stockholders. The trial court also pointed out
that the supposed sale involves substantially all the assets of
defendant EC which would result in the eventual total cessation
of its operation. 14
The Litonjuas appealed the decision to the CA, alleging
that "(1) the lower court erred in concluding that the real estate
broker in the instant case needed a written authority from
appellee corporation and/or that said broker had no such written
authority; and (2) the lower court committed grave error of law
in holding that appellee corporation is not legally bound for
specific performance and/or damages in the absence of an
enabling resolution of the board of directors." 15They averred
that Marquez acted merely as a broker or go-between and not as
agent of the corporation; hence, it was not necessary for him to
be empowered as such by any written authority. They further
claimed that an agency by estoppel was created when the
corporation clothed Marquez with apparent authority to negotiate
for the sale of the properties. However, since it was a bilateral
 contract to buy and sell, it was equivalent to a perfected contract AUTHORITY FROM RESPONDENT ETERNIT
of sale, which the corporation was obliged to BEFORE THE SALE CAN BE
consummate. cSHIaA PERFECTED. CIcTAE
In reply, EC alleged that Marquez had no written III
authority from the Board of Directors to bind it; neither were
Glanville and Delsaux authorized by its board of directors to THE COURT OF APPEALS ERRED IN NOT
offer the property for sale. Since the sale involved substantially HOLDING THAT GLANVILLE AND
all of the corporation's assets, it would necessarily need the DELSAUX HAVE THE NECESSARY
authority from the stockholders. AUTHORITY TO SELL THE SUBJECT
PROPERTIES, OR AT THE VERY LEAST,
On June 16, 2000, the CA rendered judgment affirming WERE KNOWINGLY PERMITTED BY
the decision of the RTC. 16 The Litonjuas filed a motion for RESPONDENT ETERNIT TO DO ACTS
reconsideration, which was also denied by the appellate court. WITHIN THE SCOPE OF AN APPARENT
The CA ruled that Marquez, who was a real estate AUTHORITY, AND THUS HELD THEM OUT
broker, was a special agent within the purview of Article 1874 of TO THE PUBLIC AS POSSESSING POWER TO
the New Civil Code. Under Section 23 of the Corporation Code, SELL THE SAID PROPERTIES. 17
he needed a special authority from EC's board of directors to Petitioners maintain that, based on the facts of the case,
bind such corporation to the sale of its properties. Delsaux, who there was a perfected contract of sale of the parcels of land and
was merely the representative of ESAC (the majority stockholder the improvements thereon for "US$1,000,000.00 plus
of EC) had no authority to bind the latter. The CA pointed out P2,500,000.00 to cover obligations prior to final liquidation."
that Delsaux was not even a member of the board of directors of Petitioners insist that they had accepted the counter-offer of
EC. Moreover, the Litonjuas failed to prove that an agency by respondent EC and that before the counter-offer was withdrawn
estoppel had been created between the parties. by respondents, the acceptance was made known to them
through real estate broker Marquez.
In the instant petition for review, petitioners aver that Petitioners assert that there was no need for a written
authority from the Board of Directors of EC for Marquez to
I validly act as broker/middleman/intermediary. As broker,
THE COURT OF APPEALS ERRED IN Marquez was not an ordinary agent because his authority was of
HOLDING THAT THERE a special and limited character in most respects. His only job as a
WAS NO PERFECTED CONTRACT OF SALE. broker was to look for a buyer and to bring together the parties to
the transaction. He was not authorized to sell the properties or to
II make a binding contract to respondent EC; hence, petitioners
argue, Article 1874 of the New Civil Code does not apply.
THE APPELLATE COURT COMMITTED
GRAVE ERROR OF LAW IN HOLDING THAT In any event, petitioners aver, what is important and
MARQUEZ NEEDED A WRITTEN decisive was that Marquez was able to communicate both the
offer and counter-offer and their acceptance of respondent EC's
counter-offer, resulting in a perfected contract of sale.
Petitioners posit that the testimonial and documentary
evidence on record amply shows that Glanville, who was the
President and General Manager of respondent EC, and Delsaux,
who was the Managing Director for ESAC Asia, had the
necessary authority to sell the subject property or, at least, had
been allowed by respondent EC to hold themselves out in the
public as having the power to sell the subject properties.
Petitioners identified such evidence, thus:
1. The testimony of Marquez that he was chosen
by Glanville as the then President and General
Manager of Eternit, to sell the properties of said
corporation to any interested party, which
authority, as hereinabove discussed, need not be in
writing.
2. The fact that the NEGOTIATIONS for the sale
of the subject properties spanned SEVERAL
MONTHS, from 1986 to 1987;
3. The COUNTER-OFFER made by Eternit
through GLANVILLE to sell its properties to the
Petitioners;
4. The GOOD FAITH of Petitioners in believing
Eternit's offer to sell the properties as evidenced
by the Petitioners' ACCEPTANCE of the counter-
offer;
5. The fact that Petitioners DEPOSITED the price
of [US]$1,000,000.00 with the Security Bank and
that an ESCROW agreement was drafted over the
subject properties;
6. Glanville's telex to Delsaux inquiring
"WHEN WE (Respondents) WILL IMPLEMENT
ACTION TO BUY AND SELL";
7. More importantly, Exhibits "G" and "H" of the
Respondents, which evidenced the fact that
Petitioners' offer was allegedly REJECTED by
both Glanville and Delsaux. 18
Petitioners insist that it is incongruous for Glanville and
Delsaux to make a counter-offer to petitioners' offer and
thereafter reject such offer unless they were authorized to do so
by respondent EC. Petitioners insist that Delsaux confirmed his
authority to sell the properties in his letter to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group
has decided not to proceed with the sale of the
land which was proposed to you.
The Committee for Asia of our Group met recently
(meeting every six months) and examined the
position as far as the Philippines are (sic)
concerned. Considering the new political situation
since the departure of MR. MARCOS and a
certain stabilization in the Philippines, the
Committee has decided not to stop our operations
in Manila[.] [I]n fact production started again last
week, and (sic) to reorganize the participation in
the Corporation. SITCcE
We regret that we could not make a deal with
you this time, but in case the policy would
change at a later stage we would consult you
again.
In the meantime, I remain
Yours sincerely,
 C.F.
DE
LS
AU
X1
9
Petitioners further emphasize that they acted in good
faith when Glanville and Delsaux were knowingly permitted by
respondent EC to sell the properties within the scope of an
apparent authority. Petitioners insist that respondents held
themselves to the public as possessing power to sell the subject
properties.
By way of comment, respondents aver that the issues
raised by the petitioners are factual, hence, are proscribed by
Rule 45 of the Rules of Court. On the merits of the petition,
respondents EC (now EMC) and ESAC reiterate their
submissions in the CA. They maintain that Glanville, Delsaux
and Marquez had no authority from the stockholders of
respondent EC and its Board of Directors to offer the properties
for sale to the petitioners, or to any other person or entity for that
matter. They assert that the decision and resolution of the CA are
in accord with law and the evidence on record, and should be
affirmed in toto.
Petitioners aver in their subsequent pleadings that
respondent EC, through Glanville and Delsaux, conformed to the
written authority of Marquez to sell the properties. The authority
of Glanville and Delsaux to bind respondent EC is evidenced by
the fact that Glanville and Delsaux negotiated for the sale of 90%
of stocks of respondent EC to Ruperto Tan on June 1, 1997.
Given the significance of their positions and their duties in
respondent EC at the time of the transaction, and the fact that
respondent ESAC owns 90% of the shares of stock of respondent
EC, a formal resolution of the Board of Directors would be a
mere ceremonial formality. What is important, petitioners
maintain, is that Marquez was able to communicate the offer of
respondent EC and the petitioners' acceptance thereof. There
was no time that they acted without the knowledge of
respondents. In fact, respondent EC never repudiated the acts of
Glanville, Marquez and Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of
respondents that the issues raised by petitioner in this case are
factual. Whether or not Marquez, Glanville, and Delsaux were
authorized by respondent EC to act as its agents relative to the
sale of the properties of respondent EC, and if so, the boundaries
of their authority as agents, is a question of fact. In the absence
of express written terms creating the relationship of an agency,
the existence of an agency is a fact question.20 Whether an
agency by estoppel was created or whether a person acted within
the bounds of his apparent authority, and whether the principal is
estopped to deny the apparent authority of its agent are, likewise,
questions of fact to be resolved on the basis of the evidence on
record. 21 The findings of the trial court on such issues, as
affirmed by the CA, are conclusive on the Court, absent evidence
that the trial and appellate courts ignored, misconstrued, or
misapplied facts and circumstances of substance which, if
considered, would warrant a modification or reversal of the
outcome of the case. 22
It must be stressed that issues of facts may not be raised
in the Court under Rule 45 of the Rules of Court because the
Court is not a trier of facts. It is not to re-examine and assess the
evidence on record, whether testimonial and documentary. There
are, however, recognized exceptions where the Court may delve
into and resolve factual issues, namely:
(1) When the conclusion is a finding grounded
entirely on speculations, surmises, or conjectures;
(2) when the inference made is manifestly
mistaken, absurd, or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment
is based on a misapprehension of facts; (5) when
 the findings of fact are conflicting; (6) when the
Court of Appeals, in making its findings, went
beyond the issues of the case and the same is
contrary to the admissions of both appellant and
appellee; (7) when the findings of the Court of
Appeals are contrary to those of the trial court; (8)
when the findings of fact are conclusions without
citation of specific evidence on which they are
based; (9) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by
the parties, which, if properly considered, would
justify a different conclusion; and (10) when the
findings of fact of the Court of Appeals are
premised on the absence of evidence and are
contradicted by the evidence on record. 23
We have reviewed the records thoroughly and find that
the petitioners failed to establish that the instant case falls under
any of the foregoing exceptions. Indeed, the assailed decision of
the Court of Appeals is supported by the evidence on record and
the law. DAaIEc
It was the duty of the petitioners to prove that respondent
EC had decided to sell its properties and that it had empowered
Adams, Glanville and Delsaux or Marquez to offer the properties
for sale to prospective buyers and to accept any counter-offer.
Petitioners likewise failed to prove that their counter-offer had
been accepted by respondent EC, through Glanville and Delsaux.
It must be stressed that when specific performance is sought of a
contract made with an agent, the agency must be established by
clear, certain and specific proof. 24
Section 23 of Batas Pambansa Bilang 68, otherwise
known as the Corporation Code of the Philippines, provides:
SEC. 23. The Board of Directors or Trustees. —
Unless otherwise provided in this Code, the
corporate powers of all corporations formed under
this Code shall be exercised, all business
conducted and all property of such corporations
controlled and held by the board of directors or
trustees to be elected from among the holders of
stocks, or where there is no stock, from among the
members of the corporation, who shall hold office
for one (1) year and until their successors are
elected and qualified.
Indeed, a corporation is a juridical person separate and
distinct from its members or stockholders and is not affected by
the personal rights, obligations and transactions of the
latter. 25 It may act only through its board of directors or, when
authorized either by its by-laws or by its board resolution,
through its officers or agents in the normal course of business.
The general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of
incorporation, by-laws, or relevant provisions of law. 26
Under Section 36 of the Corporation Code, a corporation
may sell or convey its real properties, subject to the limitations
prescribed by law and the Constitution, as follows:
SEC. 36. Corporate powers and capacity. —
Every corporation incorporated under this Code
has the power and capacity:
xxx xxx xxx
7. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal
property, including securities and bonds of other
corporations, as the transaction of a lawful
business of the corporation may reasonably and
necessarily require, subject to the limitations
prescribed by the law and the Constitution.
 The property of a corporation, however, is not the
property of the stockholders or members, and as such, may not
be sold without express authority from the board of
directors. 27 Physical acts, like the offering of the properties of
the corporation for sale, or the acceptance of a counter-offer of
prospective buyers of such properties and the execution of the
deed of sale covering such property, can be performed by the
corporation only by officers or agents duly authorized for the
purpose by corporate by-laws or by specific acts of the board of
directors. 28 Absent such valid delegation/authorization, the rule
is that the declarations of an individual director relating to the
affairs of the corporation, but not in the course of, or connected
with, the performance of authorized duties of such director, are
not binding on the corporation. 29
While a corporation may appoint agents to negotiate for
the sale of its real properties, the final say will have to be with
the board of directors through its officers and agents as
authorized by a board resolution or by its by-laws. 30 An
unauthorized act of an officer of the corporation is not binding
on it unless the latter ratifies the same expressly or impliedly by
its board of directors. Any sale of real property of a corporation
by a person purporting to be an agent thereof but without written
authority from the corporation is null and void. The declarations
of the agent alone are generally insufficient to establish the fact
or extent of his/her authority. 31
By the contract of agency, a person binds himself to
render some service or to do something in representation on
behalf of another, with the consent or authority of the
latter. 32 Consent of both principal and agent is necessary to
create an agency. The principal must intend that the agent shall
act for him; the agent must intend to accept the authority and act
on it, and the intention of the parties must find expression either
in words or conduct between them. 33
An agency may be expressed or implied from the act of
the principal, from his silence or lack of action, or his failure to
repudiate the agency knowing that another person is acting on
his behalf without authority. Acceptance by the agent may be
expressed, or implied from his acts which carry out the agency,
or from his silence or inaction according to the
circumstances. 34 Agency may be oral unless the law requires a
specific form. 35 However, to create or convey real rights over
immovable property, a special power of attorney is
necessary. 36 Thus, when a sale of a piece of land or any portion
thereof is through an agent, the authority of the latter shall be in
writing, otherwise, the sale shall be void. 37
In this case, the petitioners as plaintiffs below, failed to
adduce in evidence any resolution of the Board of Directors of
respondent EC empowering Marquez, Glanville or Delsaux as its
agents, to sell, let alone offer for sale, for and in its behalf, the
eight parcels of land owned by respondent EC including the
improvements thereon. The bare fact that Delsaux may have
been authorized to sell to Ruperto Tan the shares of stock of
respondent ESAC, on June 1, 1997, cannot be used as basis for
petitioners' claim that he had likewise been authorized by
respondent EC to sell the parcels of land. CIAHDT
Moreover, the evidence of petitioners shows that Adams
and Glanville acted on the authority of Delsaux, who, in turn,
acted on the authority of respondent ESAC, through its
Committee for Asia, 38 the Board of Directors of respondent
ESAC, 39 and the Belgian/Swiss component of the management
of respondent ESAC. 40 As such, Adams and Glanville engaged
the services of Marquez to offer to sell the properties to
prospective buyers. Thus, on September 12, 1986, Marquez
wrote the petitioner that he was authorized to offer for sale the
property for P27,000,000.00 and the other terms of the sale
subject to negotiations. When petitioners offered to purchase the
property for P20,000,000.00, through Marquez, the latter relayed
petitioners' offer to Glanville; Glanville had to send a telex to
Delsaux to inquire the position of respondent ESAC to
petitioners' offer. However, as admitted by petitioners in their
Memorandum, Delsaux was unable to reply immediately to the
telex of Glanville because Delsaux had to wait for confirmation
from respondent ESAC. 41 When Delsaux finally responded to
Glanville on February 12, 1987, he made it clear that, based on
the "Belgian/Swiss decision" the final offer of respondent ESAC
was US$1,000,000.00 plus P2,500,000.00 to cover all existing
obligations prior to final liquidation. 42 The offer of Delsaux
emanated only from the "Belgian/Swiss decision," and not the
entire management or Board of Directors of respondent ESAC.
While it is true that petitioners accepted the counter-offer of
respondent ESAC, respondent EC was not a party to the
transaction between them; hence, EC was not bound by such
acceptance.
While Glanville was the President and General Manager
of respondent EC, and Adams and Delsaux were members of its
Board of Directors, the three acted for and in behalf of
respondent ESAC, and not as duly authorized agents of
respondent EC; a board resolution evincing the grant of such
authority is needed to bind EC to any agreement regarding the
sale of the subject properties. Such board resolution is not a mere
formality but is a condition sine qua non to bind respondent EC.
Admittedly, respondent ESAC owned 90% of the shares of
stocks of respondent EC; however, the mere fact that a
corporation owns a majority of the shares of stocks of another, or
even all of such shares of stocks, taken alone, will not justify
their being treated as one corporation. 43
It bears stressing that in an agent-principal relationship,
the personality of the principal is extended through the facility of
the agent. In so doing, the agent, by legal fiction, becomes the
principal, authorized to perform all acts which the latter would
have him do. Such a relationship can only be effected with the
consent of the principal, which must not, in any way, be
compelled by law or by any court. 44
The petitioners cannot feign ignorance of the absence of
any regular and valid authority of respondent EC empowering
Adams, Glanville or Delsaux to offer the properties for sale and
to sell the said properties to the petitioners. A person dealing
with a known agent is not authorized, under any circumstances,
blindly to trust the agents; statements as to the extent of his
powers; such person must not act negligently but must use
reasonable diligence and prudence to ascertain whether the agent
acts within the scope of his authority. 45 The settled rule is that,
persons dealing with an assumed agent are bound at their peril,
and if they would hold the principal liable, to ascertain not only
the fact of agency but also the nature and extent of authority, and
in case either is controverted, the burden of proof is upon them to
prove it. 46 In this case, the petitioners failed to discharge their
burden; hence, petitioners are not entitled to damages from
respondent EC. cCEAHT
It appears that Marquez acted not only as real estate
broker for the petitioners but also as their agent. As gleaned from
the letter of Marquez to Glanville, on February 26, 1987, he
confirmed, for and in behalf of the petitioners, that the latter had
accepted such offer to sell the land and the improvements
thereon. However, we agree with the ruling of the appellate court
that Marquez had no authority to bind respondent EC to sell the
subject properties. A real estate broker is one who negotiates the
sale of real properties. His business, generally speaking, is only
to find a purchaser who is willing to buy the land upon terms
fixed by the owner. He has no authority to bind the principal by
signing a contract of sale. Indeed, an authority to find a
purchaser of real property does not include an authority to
sell. 47
Equally barren of merit is petitioners' contention that
respondent EC is estopped to deny the existence of a principal-
agency relationship between it and Glanville or Delsaux. For an
agency by estoppel to exist, the following must be established:
(1) the principal manifested a representation of the agent's
authority or knowlingly allowed the agent to assume such
authority; (2) the third person, in good faith, relied upon such
representation; (3) relying upon such representation, such third
person has changed his position to his detriment. 48 An agency
 by estoppel, which is similar to the doctrine of apparent 6.Id. at 397-398.
authority, requires proof of reliance upon the representations, and
that, in turn, needs proof that the representations predated the 7.Id. at 240.
action taken in reliance. 49 Such proof is lacking in this case. In 8.Id. at 241.
their communications to the petitioners, Glanville and Delsaux
positively and unequivocally declared that they were acting for 9.Id.
and in behalf of respondent ESAC. 10.Id. at 399.
11.Id. at 349-400.
Neither may respondent EC be deemed to have ratified
the transactions between the petitioners and respondent ESAC, 12.Id. at 163-175.
through Glanville, Delsaux and Marquez. The transactions and 13.Id. at 174-175.
the various communications inter se were never submitted to the
Board of Directors of respondent EC for ratification. 14.Id. at 173-174.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for 15.Id. at 47-48.
lack of merit. Costs against the petitioners.
16.Id. at 40-53.
SO ORDERED.
17.Id. at 15.
Panganiban, C.J., Austria-Martinez and Chico-Nazario, JJ., concur.
18.Id. at 29-30.
Ynares-Santiago, J., is on leave.
19.Id. at 30-31.
20.Weathersby v. Gore, 556 F.2d 1247 (1977).
Footnotes 21.Cavic v. Grand Bahama Development Co., Ltd., 701 F.2d 879
(1983).
1.Penned by Associate Justice Remedios A. Salazar-Fernando, with 22.Culaba v. Court of Appeals, G.R. No. 125862, April 15, 2004,
Associate Justices Fermin A. Martin, Jr. and Salvador J. 427 SCRA 721, 729; Litonjua v. Fernandez, G.R. No.
Valdez, Jr. (retired), concurring; rollo, pp. 40-53. 148116, April 14, 2004, 427 SCRA 478, 489.
2.Rollo, pp. 54-55. 23.Nokom v. National Labor Relations Commission, 390 Phil.
3.Id. at 11, 61. 1228, 1242-1243 (2000). (citations omitted)

4.Id. at 394-395. 24.Blair v. Sheridan, 10 S.E. 414 (1889).

5.Id. at 396. 25.Philippine National Bank v. Ritratto Group, Inc., 414 Phil. 494,
503 (2001).
26.San Juan Structural and Steel Fabricators, Inc. v. Court of 44.Orient Air Services and Hotel Representatives v. Court of
Appeals, 357 Phil. 631, 644 (1998). Appeals, 274 Phil. 927, 939 (1991).
27.Traders Royal Bank v. Court of Appeals, G.R. No. 78412, 45.Hill v. Delta Loan and Finance Company, 277 S.W. 2d 63, 65.
September 26, 1989, 177 SCRA 788, 792.
46.Litonjua v. Fernandez, supra note 22, at 494; Culaba v. Court
28.BPI Leasing Corporation v. Court of Appeals, G.R. No. 127624, of Appeals, supra note 22, at 730; BA Finance
November 18, 2003, 416 SCRA 4, 11. Corporation v. Court of Appeals, G.R. No. 94566, July 3,
1992, 211 SCRA 112, 116.
29.AF Realty & Development, Inc. v. Dieselman Freight Services,
Co., 424 Phil. 446, 454 (2002). 47.Donnan v. Adams, 71 S.W. 580.
30.De Liano v. Court of Appeals, 421 Phil. 1033, 1052 (2001). 48.Carolina-Georgia Carpet and Textiles, Inc. v. Pelloni, 370 So.
2d 450 (1979).
31.Litonjua v. Fernandez, supra note 22, at 493.
49.Id.
32.Article 1868, NEW CIVIL CODE.
33.Ellison v. Hunsinger, 75 S.E. 2d. 884 (1953); Dominion
Insurance Corporation v. Court of Appeals, 426 Phil. 620, ||| (Litonjua Jr. v. Eternit Corp., G.R. No. 144805, [June 8, 2006],
626 (2002). 523 PHIL 588-612)
34CIVIL CODE, Art. 1870.
35.CIVIL CODE, Art. 1869, paragraph 2.
36.CIVIL CODE, Art. 1878(12).
37.CIVIL CODE, Art. 1874.
38.Exhibits "H" and "H-1," rollo, p. 166.
39.Exhibits "G" and "G-1," id.
40.Exhibits "C" and "C-1," id. at 165.
41.Rollo, p. 396.
42.Exhibits "C" and "C-1," rollo, p. 165.
43.Philippine National Bank v. Ritratto Group, Inc., supra note 25,
at 503.

EN BANC
[G.R. No. L-30573. October 29, 1971.]
VICENTE M. DOMINGO, represented by his
heirs, ANTONIA RAYMUNDO VDA.
DE DOMINGO, RICARDO, CESAR,
AMELIA, VICENTE JR., SALVADOR, IRENE
and JOSELITO, all
surnamed DOMINGO, petitioners-appellants, vs
. GREGORIO M. DOMINGO, intervenor-
respondent.
Teofilo Leonin for petitioners-appellants.
Osorio, Osorio & Osorio for respondent-appellee.
Teofilo P. Purisima in his own behalf as intervenor-
respondent.
SYLLABUS
1. CIVIL LAW; AGENCY; ARTICLES 1891 AND 1909 OF THE
NEW CIVIL CODE; DUTY OF AGENT TO PRINCIPAL. — The
duties and liabilities of a broker to his employer are essentially those
which an agent owes to his principal. Consequently, the decisive
legal provisions are found in Articles 1891 and 1909 of the New
Civil Code. The aforecited provisions demand the utmost good faith,
fidelity, honesty, candor and fairness on the part of the agent, the real
estate broker in this case, to his principal, the vendor. The law
imposes upon the agent the absolute obligation to make a full
disclosure or complete account to his principal of all his transactions
and other material facts relevant to the agency, so much so that the
law as amended does not countenance any stipulation exempting the
agent from such an obligation and considers such an exemption as
void. The duly of an agent is likened to that of a trustee. This is not a
technical or arbitrary rule but a rule founded on the highest and truest
principle of morality as well as of the strictest justice.
2. ID.; ID.; ID.; ID.; EFFECT OF BREACH OF LOYALTY. — An
agent who takes a secret profit in the nature of a bonus, gratuity or
personal benefit from the vendee, without revealing the same to his
principal, the vendor, is guilty of a breach of his loyalty to the
principal and forfeits his right to collect the commission from his
principal, even if the principal does not suffer any injury by reason of
such breach of fidelity, or that he obtained better results or that the
agency is a gratuitous one, or that usage or custom allows it, because
the rule is to prevent the possibility of any wrong, not to remedy or
repair an actual damage.
3. ID.; ID.; ID.; ID.; ID.; TAKING OF SECRET PROFIT,
TANTAMOUNT TO BREACH. — By taking such profit or bonus or
gift orpropina from the vendee, the agent thereby assumes a position
wholly inconsistent with that of being an agent for his principal, who
has a right to treat him, insofar as his commission is concerned, as if
no agency had existed. The fact that the principal may have been
benefited by the valuable services of the said agent does not
exculpate the agent who has only himself to blame for such a result
by reason of his treachery or perfidy.
4. ID.; ID.; ID.; ID.; ID.; LIABILITY FOR ESTAFA. — Because of
his responsibility under the aforecited Article 1720, an agent is
likewise liable for estafa for failure to deliver to his principal the
total amount collected by him in behalf of his principal and cannot
retain the commission pertaining to him by subtracting the same
from his collections.
5. ID.; ID.; ID.; ID.; ID.; ID.; PRINCIPAL ENTITLED TO
RECOVERY OF COMMISSIONS PAID. — Where a principal has
paid an agent or broker a commission while ignorant of the fact that
the latter has been unfaithful, the principal may recover back the
commission paid, since an agent or broker who has been unfaithful is
not entitled to any compensation. If the agent does not conduct
himself with entire fidelity towards his principal, but is guilty of
taking a secret profit or commission in regard the matter in which he
is employed, he loses his right to compensation on the ground that he
has taken a position wholly inconsistent with that of agent for his
employer, and which gives his employer, upon discovering it, the
right to treat him so far as compensation, at least, is concerned as if
no agency had existed. This may operate to give to the principal the
benefit of valuable services rendered by the agent, but the agent has
only himself to blame for that result.
6. ID.; ID.; ID.; ID.; ID.; ACCOUNTABILITY OF AGENT FOR
ALL PROFITS RECEIVED. — As a general rule, it is a breach of
good faith and loyalty to his principal for an agent, while the agency
exists, so to deal with the subject matter thereof, or with information
acquired during the course of the agency, as to make a profit out of it
for himself in excess of his lawful compensation; and if he does so
he may be held as a trustee and may be compelled to account to his
principal for all profits, advantages, rights, or privileges acquired by
him in such dealings, whether in performance or in violation of his
duties, and be required to transfer them to his principal upon being
reimbursed for his expenditures for the same, unless the principal has
consented to or ratified the transaction knowing that benefit or profit
would accrue, or had accrued, to the agent, or unless with such
knowledge he has allowed the agent so as to change his condition
that he cannot be put in status quo. The application of this rule is not
affected by the fact that the principal did not suffer any injury by
reason of the agent's dealings, or that he in fact obtained better
results; nor is it affected by the fact that there is a usage or custom to
the contrary, or that the agency is a gratuitous one.
7. ID.; ID.; ID.; ID.; WHEN INAPPLICABLE. — The duty
embodied in Article 1891 of the New Civil Code will not apply if the
agent or broker acted only as a middleman with the task of merely
bringing together the vendor and vendee, who themselves thereafter
will negotiate on the terms and conditions of the transaction. Neither
would the rule apply if the agent or broker had informed the principal
of the gift or bonus or profit he received from the purchaser and his
principal did not object thereto. Herein defendant-appellee
Gregorio Domingo was not merely a middleman of the petitioner-
appellant VicenteDomingo and the buyer Oscar de Leon. He was the
broker and agent of said petitioner-appellant only. And herein
petitioner-appellant was not aware of the gift of One Thousand Pesos
(P1,000.00) received by Gregorio Domingo form the prospective
buyer; much less did he consent to his agent's accepting such a gift.
DECISION
MAKASIAR, J p:
Petitioner-appellant Vicente M. Domingo, now deceased and
represented by his heirs, Antonina Raymundo vda. de Domingo,
Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all
surnamed Domingo, sought the reversal of the majority decision
dated March 12, 1969 of the Special Division of Five of the Court of
Appeals affirming the judgment of the trial court, which sentenced
the said Vicente M. Domingo to pay Gregorio
M. Domingo P2,307.50 and the intervenor Teofilo P. Purisima
P2,607.50 with legal interest on both amounts from the date of the
filing of the complaint, to pay Gregorio Domingo P1,000.00 as moral
and exemplary damages and P500.00 as attorney's fees plus costs.
The following facts were found to be established by the majority of
the Special Division of Five of the Court of Appeals:
In a document Exhibit "A" executed on June 2, 1956, Vicente
M. Domingo granted Gregorio Domingo, a real estate broker, the
exclusive agency to sell his lot No. 883 of Piedad Estate with an area
of about 88,477 square meters at the rate of P2.00 per square meter
(or for P176,954.00) with a commission of 5% on the total price, if
the property is sold by Vicente or by anyone else during the 30-day
duration of the agency or if the property is sold by Vicente within
three months from the termination of the agency to a purchaser to
whom it was submitted by Gregorio during the continuance of the
agency with notice to Vicente. The said agency contract was in
triplicate, one copy was given to Vicente, while the original and
another copy were retained by Gregorio.
On June 3, 1956, Gregorio authorized the intervenor Teofilo P.
Purisima to look for a buyer, promising him one-half of the 5%
commission.
Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio
as a prospective buyer.
Oscar de Leon submitted a written offer which was very much lower
than the price of P2.00 per square meter (Exhibit "B"). Vicente
directed Gregorio to tell Oscar de Leon to raise his offer. After
several conferences between Gregorio and Oscar de Leon, the latter
raised his offer to P109,000.00 on June 20, 1956 as evidenced by
Exhibit "C", to which Vicente agreed by signing Exhibit "C". Upon
demand of Vicente, Oscar de Leon issued to him a check in the
amount of P1,000.00 as earnest money, after which Vicente advanced
to Gregorio the sum of P300.00. Oscar de Leon confirmed his former
offer to pay for the property at P1.20 per square meter in another
letter, Exhibit "D". Subsequently, Vicente asked for an additional
amount of P1,000.00 as earnest money, which Oscar de Leon
promised to deliver to him. Thereafter, Exhibit "C" was amended to
the effect that Oscar de Leon will vacate on or about September 15,
1956 his house and lot at Denver Street, Quezon City which is part of
the purchase price. It was again amended to the effect that Oscar will
vacate his house and lot on December 1, 1956, because his wife was
on the family way and Vicente could stay in lot No. 883 of Piedad
Estate until June 1, 1957, in a document dated June 30, 1956 (the
year 1957 therein is a mere typographical error) and marked Exhibit
"D". Pursuant to his promise to Gregorio, Oscar gave him as a gift
or propina the sum of One Thousand Pesos (P1,000.00) for
succeeding in persuading Vicente to sell his lot at P1.20 per square
meter or a total in round figure of One Hundred Nine Thousand
Pesos (P109,000.00). This gift of One Thousand Pesos (P1,000.00)
was not disclosed by Gregorio to Vicente. Neither did Oscar pay
Vicente the additional amount of One Thousand Pesos (P1,000.00)
by way of earnest money. When the deed of sale was not executed on
August 1, 1956 as stipulated in Exhibit "C" nor on August 16, 1956
as extended by Vicente, Oscar told Gregorio that he did not receive
his money from his brother in the United States, for which reason he
was giving up the negotiation including the amount of One Thousand
Pesos (P1,000.00) given as earnest money to Vicente and the One
Thousand Pesos (P1,000.00) given to Gregorio as propina or gift.
When Oscar did not see him after several weeks, Gregorio sensed
something fishy. So, he went to Vicente and read a portion of Exhibit
"A" marked Exhibit "A-1" to the effect that Vicente was still
committed to pay him 5% commission, if the sale is consummated
within three months after the expiration of the 30-day period of the
exclusive agency in his favor from the execution of the agency
contract on June 2, 1956 to a purchaser brought by Gregorio to
Vicente during the said 30-day period. Vicente grabbed the original
of Exhibit "A" and tore it to pieces. Gregorio held his peace, not
wanting to antagonize Vicente further, because he had still the
duplicate of Exhibit "A". From his meeting with Vicente, Gregorio
proceeded to the office of the Register of Deeds of Quezon City,
where he discovered Exhibit "G", a deed of sale executed on
September 17, 1956 by Amparo Diaz, wife of Oscar de Leon, over
their house and lot at No. 40 Denver Street, Cubao, Quezon City, in
favor of Vicente as down payment by Oscar de Leon on the purchase
price of Vicente's lot No. 883 of Piedad Estate. Upon thus learning
that Vicente sold his property to the same buyer, Oscar de Leon and
his wife, he demanded in writing payment of his commission on the
sale price of One Hundred Nine Thousand Pesos (P109,000.00),
Exhibit "H". He also conferred with Oscar de Leon, who told him
that Vicente went to him and asked him to eliminate Gregorio in the
transaction and that he would sell his property to him for One
Hundred Four Thousand Pesos (P104,000.00). In Vicente's reply to
Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not
entitled to the 5 % commission because he sold the property not to
Gregorio's buyer, Oscar de Leon, but to another buyer, Amparo Diaz,
wife of Oscar de Leon.
The Court of Appeals found from the evidence that Exhibit "A", the
exclusive agency contract, is genuine; that Amparo Diaz, the vendee,
being the wife of Oscar de Leon, the sale by Vicente of his property
is practically a sale to Oscar de Leon since husband and wife have
common or identical interests; that Gregorio and intervenor Teofilo
Purisima were the efficient cause in the consummation of the sale in
favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de
Leon paid Gregorio the sum of One Thousand Pesos (P1,000.00) as
"propina" or gift and not as additional earnest money to be given to
the plaintiff, because Exhibit "66", Vicente's letter addressed to Oscar
de Leon with respect to the additional earnest money, does not
appear to have been answered by Oscar de Leon and therefore there
is no writing or document supporting Oscar de Leon's testimony that
he paid an additional earnest money of One Thousand Pesos
(P1,000.00) to Gregorio for delivery to Vicente, unlike the first
amount of One Thousand Pesos (P1,000.00) paid by Oscar de Leon
to Vicente as earnest money, evidenced by the letter Exhibit "4"; and
that Vicente did not even mention such additional earnest money in
his two replies Exhibits "I" and "J" to Gregorio's letter of demand of
the 5% commission.
The three issues in this appeal are (1) whether the failure on the part
of Gregorio to disclose to Vicente the payment to him by Oscar de
Leon of the amount of One Thousand Pesos (P1,000.00) as gift or
"propina" for having persuaded Vicente to reduce the purchase price
from P2.00 to P1.20 per square meter, so constitutes fraud as to cause
a forfeiture of his 5% commission on the sale price; (2) whether
Vicente or Gregorio should be liable directly to the intervenor
Teofilo Purisima for the latter's share in the expected commission of
Gregorio by reason of the sale; and (3) whether the award of legal
interest, moral and exemplary damages, attorney's fees and costs,
was proper.
Unfortunately, the majority opinion penned by Justice Edilberto
Soriano and concurred in by Justice Juan Enriquez did not touch on
these issues which were extensively discussed by Justice Magno
Gatmaitan in his dissenting opinion. However, Justice Esguerra, in
his concurring opinion, affirmed that it does not constitute breach of
trust or fraud on the part of the broker and regarded the same as
merely part of the whole process of bringing about the meeting of the
minds of the seller and the purchaser and that the commitment from
the prospective buyer that he would give a reward to Gregorio if he
could effect better terms for him from the seller, independent of his
legitimate commission, is not fraudulent, because the principal can
reject the terms offered by the prospective buyer if he believes that
such terms are onerous or disadvantageous to him. On the other
hand, Justice Gatmaitan, with whom Justice Antonio Cañizares
concurred, held the view that such an act on the part of Gregorio was
fraudulent and constituted a breach of trust, which should deprive
him of his right to the commission.
The duties and liabilities of a broker to his employer are essentially
those which an agent owes to his principal. 1
Consequently, the decisive legal provisions are found in Articles
1891 and 1909 of the New Civil Code.
"Art. 1891. Every agent is bound to render an
account of his transactions and to deliver to the
principal whatever he may have received by virtue
of the agency, even though it may not be owing to
the principal.
"Every stipulation exempting the agent from the
obligation to render an account shall be void."
 xxx xxx xxx
"Art. 1909. The agent is responsible not only for
fraud, but also for negligence, which shall be
judged with more or less rigor by the courts,
according to whether the agency was or was not
for a compensation."
Article 1891 of the New Civil Code amends Article 1720 of the old
Spanish Civil Code which provides that:
"Art. 1720. Every agent is bound to give an
account of his transaction and to pay to the
principal whatever he may have received by virtue
of the agency, even though what he has received is
not due to the principal."
The modification contained in the first paragraph of Article 1891
consists in changing the phrase "to pay" to "to deliver", which latter
term is more comprehensive than the former.
Paragraph 2 of Article 1891 is a new addition designed to stress the
highest loyalty that is required to an agent — condemning as void
any stipulation exempting the agent from the duty and liability
imposed on him in paragraph one thereof.
Article 1909 of the New Civil Code is essentially a reinstatement of
Article 1726 of the old Spanish Civil Code which reads thus:
"Art. 1726. The agent is liable not only for fraud,
but also for negligence, which shall be judged with
more or less severity by the courts, according to
whether the agency was gratuitous or for a price or
reward."
The aforecited provisions demand the utmost good faith, fidelity,
honesty, candor and fairness on the part of the agent, the real estate
broker in this case, to his principal, the vendor. The law imposes
upon the agent the absolute obligation to make a full disclosure or
complete account to his principal of all his transactions and other
material facts relevant to the agency, so much so that the law as
amended does not countenance any stipulation exempting the agent
from such an obligation and considers such an exemption as void.
The duty of an agent is likened to that of a trustee. This is not a
technical or arbitrary rule but a rule founded on the highest and truest
principle of morality as well as of the strictest justice. 2
Hence, an agent who takes a secret profit in the nature of a bonus,
gratuity or personal benefit from the vendee, without revealing the
same to his principal, the vendor, is guilty of a breach of his loyalty
to the principal and forfeits his right to collect the commission from
his principal, even if the principal does not suffer any injury by
reason of such breach of fidelity, or that he obtained better results or
that the agency is a gratuitous one, or that usage or custom allows it;
because the rule is to prevent the possibility of any wrong, not to
remedy or repair an actual damage. 3 By taking such profit or bonus
or gift orpropina from the vendee, the agent thereby assumes a
position wholly inconsistent with that of being an agent for his
principal, who has a right to treat him, insofar as his Commission is
concerned, as if no agency had existed. The fact that the principal
may have been benefited by the valuable services of the said agent
does not exculpate the agent who has only himself to blame for such
a result by reason of his treachery or perfidy.
This Court has been consistent in the rigorous application of Article
1720 of the old Spanish Civil Code. Thus, for failure to deliver sums
of money paid to him as an insurance agent for the account of his
employer as required by said Article 1720, said insurance agent was
convicted of estafa. 4 An administrator of an estate was likewise
liable under the same Article 1720 for failure to render an account of
his administration to the heirs unless the heirs consented thereto or
are estopped by having accepted the correctness of his account
previously rendered. 5
Because of his responsibility under the aforecited Article 1720, an
agent is likewise liable for estafa for failure to deliver to his principal
the total amount collected by him in behalf of his principal and
cannot retain the commission pertaining to him by subtracting the
same from his collections. 6
A lawyer is equally liable under said Article 1720 if he fails to
deliver to his client all the money and property received by him for
his client despite his attorney's lien. 7 The duty of a commission
agent to render a full account of his operations to his principal was
reiterated in Duhart, etc. vs. Macias. 8
The American jurisprudence on this score is well-nigh unanimous.
"Where a principal has paid an agent or broker a
commission while ignorant of the fact that the
latter has been unfaithful, the principal may
recover back the commission paid, since an agent
or broker who has been unfaithful is not entitled to
any compensation.
xxx xxx xxx
"In discussing the right of the principal to recover
commissions retained by an unfaithful agent, the
court in Little vs. Phipps (1911) 208 Mass. 331, 94
NE 260, 34 LRA (NS) 1046, said: 'It is well settled
that the agent is bound to exercise the utmost good
faith in his dealings with his principal. As Lord
Cairns said, this rule "is not a technical or arbitrary
rule. It is a rule founded on the highest and truest
principles of morality." Parker vs. McKenna
(1874) LR 10 Ch (Eng) 96, 118.. If the agent does
not conduct himself with entire fidelity towards his
principal, but is guilty of taking a secret profit or
commission in regard the matter in which he is
employed, he loses his right to compensation on
the ground that he has taken a position wholly
inconsistent with that of agent for his employer,
and which gives his employer, upon discovering it,
the right to treat him so far as compensation, at
least, is concerned as if no agency had existed.
This may operate to give to the principal the
benefit of valuable services rendered by the agent,
but the agent has only himself to blame for that
result.'
xxx xxx xxx
"The intent with which the agent took a secret
profit has been held immaterial where the agent
has in fact entered into a relationship inconsistent
with his agency, since the law condemns the
corrupting tendency of the inconsistent
relationship. Little vs. Phipps (1911) 94 NE
260." 9
"As a general rule, it is a breach of good faith and
loyalty to his principal for an agent, while the
agency exists, so to deal with the subject matter
thereof, or with information acquired during the
course of the agency, as to make a profit out of it
for himself in excess of his lawful compensation:
and if he does so he may be held as a trustee and
may be compelled to account to his principal for
all profits, advantages, rights, or privileges
acquired, by him in such dealings, whether in
performance or in violation of his duties, and be
required to transfer them to his principal upon
being reimbursed for his expenditures for the
same, unless the principal has consented to or
ratified the transaction knowing that benefit or
profit would accrue, or had accrued, to the agent,
or unless with such knowledge he has allowed the
agent so as to change his condition that he cannot
be put in status quo. The application of this rule is
not affected by the fact that the principal did not
suffer any injury by reason of the agent's dealings,
or that he in fact obtained better results; nor is it
affected by the fact that there is a usage or custom
 to the contrary, or that the agency is a gratuitous
one." (Emphasis supplied.) 10
In the case at bar, defendant-appellee Gregorio Domingo as the
broker, received a gift or propina in the amount of One Thousand
Pesos (P1,000.00) from the prospective buyer Oscar de Leon,
without the knowledge and consent of his principal, herein
petitioner-appellant Vicente Domingo. His acceptance of said
substantial monetary gift corrupted his duty to serve the interests
only of his principal and undermined his loyalty to his principal, who
gave him a partial advance of Three Hundred Pesos (P300.00) on his
commission. As a consequence, instead of exerting his best to
persuade his prospective buyer to purchase the property on the most
advantageous terms desired by his principal, the broker, herein
defendant-appellee Gregorio Domingo, succeeded in persuading his
principal to accept the counter-offer of the prospective buyer to
purchase the property at P1.20 per square meter or One Hundred
Nine Thousand Pesos (P109,000.00) in round figure for the lot of
88,477 square meters, which is very much lower than the price of
P2.00 per square meter or One Hundred Seventy-Six Thousand Nine
Hundred Fifty-Four Pesos (P176,954.00) for said lot originally
offered by his principal.
The duty embodied in Article 1891 of the New Civil Code will not
apply if the agent or broker acted only as a middleman with the task
of merely bringing together the vendor and vendee, who themselves
thereafter will negotiate on the terms and conditions of the
transaction. Neither would the rule apply if the agent or broker had
informed the principal of the gift or bonus or profit he received from
the purchaser and his principal did not object thereto 11 Herein
defendant appellee GregorioDomingo was not merely a middleman
of the petitioner-appellant Vicente Domingo and the buyer Oscar de
Leon. He was the broker and agent of said petitioner-appellant only.
And therein petitioner-appellant was not aware of the gift of One
Thousand Pesos (P1,000.00) received by Gregorio Domingo from
the prospective buyer; much less did he consent to his agent's
accepting such a gift.
The fact that the buyer appearing in the deed of sale is Amparo Diaz,
the wife of Oscar de Leon, does not materially alter the situation;
because the transaction, to be valid, must necessarily be with the
consent of the husband Oscar de Leon, who is the administrator of
their conjugal assets including their house and lot at No. 40 Denver
Street, Cubao, Quezon City, which were given as part of and
constituted the down payment on, the purchase price of herein
petitioner-appellant's lot No. 883 of Piedad Estate. Hence, both in
law and in fact, it was still Oscar de Leon who was the buyer.
As a necessary consequence of such breach of trust, defendant-
appellee Gregorio Domingo must forfeit his right to the commission
and must return the part of the commission he received from his
principal.
Teofilo Purisima, the sub-agent of Gregorio Domingo, can only
recover from Gregorio Domingo his one-half share of whatever
amounts Gregorio Domingo received by virtue of the transaction as
his sub-agency contract was with Gregorio Domingo alone and not
with Vicente Domingo, who was not even aware of such sub-agency.
Since Gregorio Domingo received from VicenteDomingo and Oscar
de Leon respectively the amounts of Three Hundred Pesos (P300.00)
and One Thousand Pesos (P1,000.00) or a total of One Thousand
Three Hundred Pesos (P1,300.00), one-half of the same, which is Six
Hundred Fifty Pesos (P650.00), should be paid by
Gregorio Domingo to Teofilo Purisima.
Because Gregorio Domingo's clearly unfounded complaint caused
Vicente Domingo mental anguish and serious anxiety as well as
wounded feelings, petitioner-appellant Vicente Domingo should be
awarded moral damages in the reasonable amount of One Thousand
Pesos (P1,000.00) and attorney's fees in the reasonable amount of
One Thousand Pesos (P1,000.00), considering that this case has been
pending for the last fifteen (15) years from its filing on October 3,
1956.
WHEREFORE, the judgment is hereby rendered, reversing the
decision of the Court of Appeals and directing the defendant-appellee
Gregorio Domingo: (1) to pay to the heirs of Vicente Domingo the
sum of One Thousand Pesos (P1,000.00) as moral damages and One
Thousand Pesos (P1,000.00) as attorney's fees; (2) to pay Teofilo
Purisima the sum of Six Hundred Fifty Pesos (P650.00); and (3) to
pay the costs.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro,
Fernando, Teehankee, Barredo and Villamor, JJ., concur.
Footnotes
1.12 Am. Jur. 2d 835; 134 ALR 1346; 1 ALR 2d 987; Brown vs.
Coates, 67 ALR 2d 943; Haymes vs. Rogers, 17 ALR 2d
896; Moore vs. Turner, 32 ALR 2d 713.
2.See also Manresa, Vol. 2, p. 461, 4th ed.
3.12 Am. Jur. 2d. Sec. 171, 811-12.
4.U.S. vs. Kiene, 7 Phil. 736.
5.Ojinaga vs. Estate of Perez, 9 Phil. 185.
6.U.S. vs. Reyes, 36 Phil. 791.
7.In Re: Bamberger, 49 Phil. 962.
8.54 Phil. 513.
9.134 ALR, Ann. pp. 1346, 1347-1348; see also 1 ALR 2d, 987.
10.3 CJS, 53-54; see also 12 Am. Jur. 2d 835-841, 908-912.
11.12 Am. Jur. 2d, 835-841, 908-912; Raymond vs. Davis, Jan. 3,
1936, 199 NE 321, 102 ALR, 1112-1115, 1116-1121.
||| (Domingo v. Domingo, G.R. No. L-30573, [October 29, 1971], 149
PHIL 183-196)

FIRST DIVISION
[G.R. No. L-39822. January 31, 1978.]
ANTONIO E. PRATS, doing business under the
name of Philippine Real Estate
Exchange, petitioner, vs. HON.COURT OF APPEAL
S, ALFONSO DORONILA and PHILIPPINE
NATIONAL BANK, respondents.
SYNOPSIS
Private respondent offered to sell his 300-hectare land to the Social
Security System at P4.00 per square meter. He received and accepted
a counter-offer of P3.25 per square meter. But since the System did
not take definite action on the transaction, private respondent granted
petitioner an exclusive 60-day option and authority to sell the
property on condition that if no written offer was made to private
respondent until the last day of the authorization, the authority shall
expire and become null and avoid. The option should have expired
on April 18, 1968, but this was extended by private respondent to
May 18, 1968.
During the period of his authorization, petitioner diligently took steps
to bring back together private respondent and the Social Security
System. On March 16, 1968, he wrote the System inviting the
chairman to discuss the officer of the sale of the property. On May
16, 1968, he made a formal written offer to sell the property at P6.00
per square meter. Thereafter, respondent received a telegram dated
May 17, 1968 from the System informing him that it was considering
the purchase ofhis property. However, since respondent did not
receive a written offer for the purchase of the property during
petitioner's period of authorization (except a latter dated May 18,
1968 coming from petitioner himself on behalf of an undisclosed
buyer who was willing to buy at P4.50 per square meter), respondent
informed petitioner in a lot or that pursuant to their agreement the
latter's authority was deemed terminated.
Thereafter, on June 19, 1968, respondent renewed his offer to sell his
300-hectare land to the System. The transaction was finalized on July
30, 1968, with the System buying at its original counter
offer of P3.25 per square meter.
Petitioner presented his statement of account to respondent for
professional services as real estate broker in the
amount ofP1,380,000. Respondent refused to pay. Hence, petitioner
sued respondent to recover the sum plus damages. The
trial courtfound for the petitioner, but on appeal,
the Court of Appeals reversed the decision on factual findings that
petitioner was not the efficient procuring in bringing about the sale
(prescinding from the fact of expiration of his exclusive authority).
Hence, this petition.
The Supreme Court found no basis in law to reverse the factual
findings of the Appellate Court and to grant relief to petitioner.
However, in equity, noting that petitioner had diligently taken steps
to bring back together respondent and the Social Security System,
the Supreme Court affirmed the decision appealed from, but ordered
respondent to pay petitioner the amount of P100,000, and set aside
that portion of the decision ordering petitioner to pay respondent
attorney's fees.
SYLLABUS
1. APPEAL; FACTUAL
FINDINGS OF THE COURT OF APPEALS, CONCLUSIVE ON
THE SUPREME COURT. — The factual
findings of the Court of Appeals are conclusive on the
Supreme Court.
2. EQUITY; PRINCIPAL AND AGENT; ALTHOUGH AGENT IS
NOT THE EFFICIENT PROCURING CAUSE, HE MAY BE
COMPENSATED FROM EFFORTS EXERTED TO BRING
PRINCIPAL AND BUYER TOGETHER. — In an action by a real
estate broker to recover commission from the principal, although
the Court of Appeals' factual findings provide no basis in law to
grant relief to the broker, since said court found that the broker was
not the efficient procuring cause in bringing about the sale,
nevertheless, relief in equity may be granted where it appears that the
agent had diligently taken steps to bring back together the principal
and the prospective buyer.
3. CONTRACTS; PARTIES BOUND BY TERMS AND
CONDITIONS THEREOF. — Where the contract between the real
estate broker and the principal requires the former to present to the
latter a written offer by the prospective buyer within the periodof the
broker's authorization, otherwise the broker's authorization shall
expire and become null and void, the failure of the broker to present
such written offer within the stipulated period will terminate the
broker's authorization.
DECISION
FERNANDEZ, J p:
This is a petition for certiorari to review the
decision of the Court of Appeals in CA-G.R. No. 45974-R entitled
"Antonio E. Prats, doing business under the name of Philippine Real
Estate Exchange, versus Alfonso Doronila and the Philippine
National Bank", the dispositive part of which reads:
"In view of all the foregoing, it is our considered
opinion and hold that the decision of the
lower court he, as it is hereby reversed, and the
complaint, dismissed. On appellant's counterclaim,
judgment is hereby rendered directing appellee to
pay attorney's fees in the sum of P10,000 to
appellant, no moral damages as therein claimed
being awarded for lack ofevidence to justify the
same. The injunction issued by the lower court on
the P2,000,000.00 cash deposit of the appellant is
hereby lifted. No special pronouncement as to
costs.
SO ORDERED." 1
On September 23, 1958 Antonio E. Prats, doing business under the
name of "Philippine Real Estate Exchange" instituted against
Alfonso Doronila and Philippine National Bank Civil Case No. Q-
12412 in the Court of First Instance of Rizal at Quezon City to
recover a sum of money and damages.
The complaint stated that defendant Alfonso Doronila was the
registered owner of 300 hectares of land situated in Montalban,
Rizal, covered by Transfer Certificates of Title Nos. 77011, 77013,
216747 and 216750; that defendant Doronila had for sometime tried
to sell his aforesaid 300 hectares of land and for that purpose had
designated several agents; that at one time, he had offered the same
property to the Social Security System but failed to consummate any
sale; that his offer to sell to the Social Security System having failed,
defendant Doronila on February 14, 1968 gave the plaintiff an
exclusive option and authority in writing to negotiate the sale of his
aforementioned property, which exclusive option and authority the
plaintiff caused to be published in the Manila Times on February 22,
1968; that it was the agreement between plaintiff and defendant
Doronila that the basic price shall be P3.00 per square meter; that
plaintiff shall be entitled to a commission of 10% based on P2.10 per
square meter or at any price finally agreed upon and if the property
be sold over and above P300 per square meter, the excess shall be
credited and paid to the plaintiff in addition to his 10% commission
based on P2.10 per square meter; that as a result of the grant of the
exclusive option and authority to negotiate the sale of his 300
hectares of land situated in Montalban, Rizal, in favor of the plaintiff,
the defendant Doronila, on February 20, 1968, wrote a letter to the
Social Security System withdrawing his previous offer to sell the
same land and requesting the return to him of all papers concerning
his offered property; that the Social Security System, complying with
said request of defendant Doronila, returned all the papers thereon
and defendant Doronila, in turn, gave them to the plaintiff as his duly
authorized real estate broker; that by virtue ofthe exclusive written
option and authority granted him and relying upon the announced
policy of the President of the Philippines to promote low housing
program, the plaintiff immediately worked to negotiate the
sale of defendant Doronila's 300 hectares of land to the Social
Security System, making the necessary contacts and representations
to bring the parties together, namely, the owner and the buyer, and
bring about the ultimate sale of the land by defendant Doronila to the
Social Security System; that February 27, 1968, after plaintiff had
already contacted the Social Security System, its Deputy
Administrator, Reynaldo J. Gregorio, wrote a letter to defendant
Doronila inviting the latter to a conference regarding the property in
question with Administrator Teodoro, Chairman Gaviola and said
Reynaldo J. Gregorio on March 4, 1968 at 10:00 o'clock in the
morning, stating that the SSS would like to take up the offer of the
lot; that having granted plaintiff the exclusive written option and
authority to negotiate the sale of his 300 hectares of land, defendant
Doronila in a letter dated February 28, 1968 declined the invitation
extended by the Social Security System to meet with its
Administrator and Chairman, and requested them instead "to deal
directly" with the plaintiff; that on March 16, 1968, at the
suggestion of defendant Doronila , the plaintiff wrote a letter to the
Social Security System to the effect that plaintiff would be glad to sit
with the officials of the Social Security System to discuss the
sale of the property of the defendant Doronila; that on March 18,
1968, the Social Security System sent a telegram to defendant
Doronila to submit certain documents regarding the property offered;
that on May 6, 1968, a written offer to sell the 300 hectares of land
belonging to defendant Doronila was formally made by the plaintiff
to the Social Security System and accordingly, on May 7, 1968, the
Social Security System Administrator dispatched the following
telegram to defendant Doronila "SSS considering purchase your
property for its housing project Administrator Teodoro"; that a few
days thereafter, the plaintiff accompanied the defendant Doronila to
the China Banking Corporation to arrange the matter of clearing
payment by check and delivery of the titles over the property to the
Social Security System; that having been brought together by the
plaintiff, the defendant Doronila and the officials of Social Security
System, on May 29, 1968 and on June 4, 1968, met at the
office of the SSS Administrator wherein the price for the
purchase of the defendant Doronila's 300 hectares of land was,
among others, taken up; that on June 20, 1968, the Social Security
Commission passed Resolution No. 636 making a counter-
offer of P3.25 per square meter subject to an appraisal report; that on
June 27, 1968, Resolution No. 662 was adopted by the Social
Security Commission authorizing the Toples & Harding (Far East)
Inc. to conduct an appraisal of the property and to submit a report
thereon; that pursuant thereto, the said company submitted its
appraisal report specifying that the present value of the property is
P3.34 per square meter and that a housing program development
would sent the highest and best use thereof; that on July 18, 1968,
the Social Security Commission, at its regular meeting; taking
note of the favorable appraisal report of the Toples & Harding (Far
East) Inc., passed Resolution No. 738, approving the
purchase of defendant Doronila's 300 hectares of land in Montalban,
Rizal, at a price of P3.25 per square meter or for a total purchase
price of Nine Million Seven Hundred Fifty Thousand Pesos
(P9,750,000.00), appropriating the said amount for the purpose and
authorizing the SSS Administrator to sign the necessary documents
to implement the said resolution; that on July 30, 1968, defendant
Doronila and the Social Security System executed the corresponding
deed of absolute the 300 hectares ofland in Montalban, Rizal,
covered by Transfer Certificate of Title Nos. 7701, 77013, 216747
and 216750 under the terms ofwhich the total price of P9,750,000.00
shall be payable as follows: (a) 60% of the agreed purchase price, or
Five Million Eight Hundred Fifty Thousand Pesos (P5,850,000.00)
immediately after signing the deed of sale, and (b) the
balance of 40% of the agreed price, or Three Million Nine Hundred
Thousand Pesos (3,900,000.00) thirty days after the signing of the
deed ofabsolute sale; that on August 21, 1968, after payment of the
purchase price, the deed of absolute sale executed by defendant
Doronila in favor of the Social Security System was presented for
registration in the Office of the Register of Deeds of Rizal, and
Transfer Certificates of Title Nos. 226574, 226575, 226576, and
226577 in the name of the Social Security System were issued; that
defendant Doronila has received the full purchase price for his 300
hectares of and in the total amount ofP9,750,000.00, which amount
he deposited in his bank Account No. 0012-443 with the defendant
Philippine National Bank; that on September 17, 1968, the plaintiff
presented his statement to, and demanded of defendant Doronila the
payment ofhis professional fee as real estate broker as computed
under the agreement of February 14, 1968 in the total
amount ofP1,380,000.00; that notwithstanding such demand; the
defendant Doronila, in gross and evident bad faith, after having
availedof the services of plaintiff as real estate broker, refused to pay
the professional fees due him; that as a result of defendant Doronila's
gross and evident bad faith and unjustified refusal to pay plaintiff the
professional fees due him under the agreement, the latter has suffered
and continues to suffer mental anguish, serious anxiety, and social
humiliation for which defendant Doronila shall be held liable to pay
moral damages; and, that by reason likewise of the aforesaid
act of defendant Doronila, the plaintiff has been compelled to file
this action and to engage the services of counsel at a stipulated
professional fee of P250,000.00.
In his answer filed on November 18, 1968, the defendant Doronila
alleged that when the plaintiff offered the answering defendant's
property to the Social Security System on May 6, 1968, said
defendant had already offered his property to, and had a closed
transaction or contract of sale of, said property with the Social
Security System; that the letter agreement had become null and void
because defendant Doronila had not received any written offer from
any prospective buyers of the plaintiff during the agreed period of 60
days until the last day of the authorization which was April 13, 1968
counting from February 14, 1968; that it is not true that plaintiff
brought together defendant Doronila and the officials of the Social
Security System to take up the purchase price of defendant
Doronila's property for the simple reason that the plaintiff's offer was
P6.00 per square meter and later on reduced to P4.50 per square
meter because the SSS Chairman had already a closed transaction
with the defendant Doronila at the price of P3.25 per square meter
and that the offer of the plaintiff refused by the officials of the Social
Security System; and defendant Doronila did not answer the
statement of collection of the plaintiff because the latter had no right
to demand the payment for services not rendered according to the
agreement of the parties. The answering defendant interposed a
counterclaim for damages and attorney's fees.
On January 18, 1969, the plaintiff and defendant Alfonso Doronila
submitted the following stipulation of facts:
"STIPULATION OF FACTS
COME NOW the plaintiff and defendant
DORONILA, I their respective undersigned
counsel, and to this Honorable Court, by
way of abbreviating the proceeding in the case at
bar, without prejudice to
presentation of explanatory evidence, respectfully
submit the following STIPULATION OF FACTS:
1.
That defendant Doronila was the registered
owner of 300 hectares of land, situated in
Montalban, Rizal, covered by Transfer
Certificates of Title Nos. 77011, 77013, 216747
(formerly TCT No. 116621) and 216750 (formerly
TCT No. 77012).
2.
That on July 3, 1967, defendant DORONILA
under his letter (marked Annex '1' of the answer)
addressed to the SSS Chairman, offered his said
property to the Social Security System (SSS) at
P4.00 per square meter.
That on July 17, 1967 (Annex '2' of the Answer)
the SSS Chairman, Mr. Ramon G. Gaviola, Jr.,
replied to defendant DORONILA, as follows:
'This will acknowledge your
letter of July 3rd, 1967 relative to your
offer for sale of your real estate property.
In this regard, may I please be
informed as to how many hectares,
out of the total 300 hectares offered, are
located in Quezon City and how many
hectares are located in Montalban, Rizal.
Likewise, as regards your offer ofP4.00
per square meter, would there be any
possibility that the same be reduced to
P3.25 per square meter? Finally and
before I submit your proposal for process
it is requested that the NAWASA certify to
the effect that they have no objection to
having this parcel of land subdivided for
residential house purposes.
Thank you for your offer and may
I hear from you at the earliest possible
time.'
2-a
That on July 19, 1967, defendant DORONILA
wrote a letter (a, xerox copy, attached hereto
marked as Annex '2-a' for DORONILA) to
NAWASA, and that in reply thereto, on July 25,
1967, the NAWASA wrote the following letter
(Xerox copy attached hereto to be marked as
Annex '2-b' for DORONILA) to defendant
DORONILA.
'In connection with your proposed
subdivision plan of your properties
adjacent to our Novaliches Watershed, this
Office would like to impose the following
conditions:
1. Since your property is an
immediate boundary of our Novaliches
Watershed, a 20-meter road should be
constructed along our common boundary.
2. That no waste or drainage water
from the subdivision should flow towards
the watershed.
3. That the liquid from the septic
tanks or similar waste water should be
treated before it is drained to the Alat
River above our Alat Dam.
The above conditions are all
safeguards to the drinking water of the
people of Manila and Suburbs. It is
therefore expected that we all cooperate to
make our drinking water safer from any
pollution.'
3.
That on July 19, 1967, defendant DORONILA
wrote another letter (marked as Annex '3' on his
Answer) addressed to the SSS Chairman, Mr.
Ramon G. Gaviola, Jr., stating, among others, the
following:
'In this connection, I have your
counter-offer of P3.25 per square meter
against my offer of P4.00 per square
meter, although your counter-offer is
lower comparing to the prices of adjacent
properties, I have to consider the
difference as my privilege and opportunity
to contribute or support the Presidential
policy to promote low cost housing in this
country particularly to the SSS members
by accepting gladly your counter-
offer of P3.25 per square meter with the
condition that it should be paid in cash and
such payment shall be made within a
period of 30 days from the above stated
date' (2nd paragraph of letter dated July
18, 1967, Annex '3' of the Answer).
3.a
That on August 10, 1967, the SSS Chairman, Mr.
Ramon G. Gaviola, Jr., wrote the following (Xerox
copy attached hereto and marked as Annex '2-c' for
DORONILA: addressed to defendant
DORONILA:
'With reference to your letter,
dated July 1967, please be informed that
the same is now with the Administrator for
study and comment. The Commission will
act on receipt of information re such
studies.
With the assurance that you will
be periodically informed of developments,
we remain.'
3-b
That on October 30, 1967, Mr. Pastor B. Sajorda,
'By authority of Atty. Alfonso Doronila, property
owner', wrote the following request (Xerox copy
attached hereto and marked as Annex '2-d' for
DORONILA) addressed to Realtor Vicente L.
Narciso for a certification regarding the actual
prices of DORONILA's property quoted as
follows:
'May I have the honor to request
for your certification as a member of the
Board of Realtor regarding the actual
prices of my real estate raw-land
properties described as Lots 3-B-7, 26-B,
6 and 4-C-3 all adjacent to each other,
containing a total area of 3,000,000 square
meters, all registered in the
name of Alfonso Doronila, covered by
T.C.T. Nos. 116631, 77013, 77011, and
71012, located at Montalban, Rizal, all
adjacent to the Northern portion of the
NAWASA properties in Quezon City
including those other surrounding adjacent
properties and even those properties
located before reaching my own properties
coming from Manila.
This request is purposely made for
my references in case decided to sell my
said properties mentioned above.'
3-c
That on November 3, 1961, Realtor Vicente
Narciso wrote the following reply (Xerox copy
attached hereto and marked as Annex '2-e' for
DORONILA) to Mr. Pastor B. Sajorda:
'As per your request dated
(October 30, 1967, regarding prices of raw
land, it is my finding that the fair market
value of raw land in the vicinity of the
NAWASA properties at Quezon City and
Montalban, Rizal, including the
properties of Atty. Alfonso Doronila, more
particularly known as lots 3-B-7, 26-B,
and 4-C-3 containing approximately
3,000,000 square meters is P3.00 to P3.50
per square meter.
Current prices before reaching
Doronila's property range from P6.00 to
P7.00 per square meter.
4.
That on February 14, 1968, defendant
DORONILA granted plaintiff an exclusive option
and authority (Annex 'A' ofcomplaint), under the
following terms and conditions:
'1. The price of the property is
THREE (P3.00) PESOS per square meter.
2. A commission of TEN (10%)
PERCENT will be paid to us based on
P2.10 per square meter, or at any price that
you (DORONILA) finally agree upon, and
all expenses shall be for our account,
including preparation ofthe corresponding
deed of conveyance, documentary stamps
and registration fee, whether the sale is
caused directly or indirectly by us within
the time of this option. If the property is
sold over and above P3.00 per square
meter, the excess amount shall be credited
and the herein brokers. In addition to the
10% commission based on P2.10 per
square meter, provided the brokers shall
pay the corresponding taxes to the
owner of the excess amount over P3.00
per square meter, unless paid by check
which would the be deductible as
additional expenses.
3. This exclusive option and
authority is good for a period of sixty (60)
days from the date of your conformity;
provided, however, that should
negotiations have been started with a
buyer, said period is automatically
extended until said negotiations is
terminated, but not more than fifteen (15)
days;
4. The written offers must be
made by the prospective buyers, unless
they prefer to have us take the offer for
and in their behalf some buyers do not
want to be known in the early stages of the
negotiations;
5. If no written offer is made to
you until the last day of this authorization,
this option and authority shall expire and
become null and void;
6. It is clearly understood that
prospective buyers and all parties
interested in this property shall be referred
 to us, and that you will not even quote a
price directly to any agent or buyer. You
agree to refer all agents or brokers to us
DURING the time this option is in force;
and
7. There are some squatters
occupying small portions of the property,
which fact will be reported to the
prospective buyers, and said squatters will
be removed at our expense." (Annex
'A' of the complaint.).
Very truly yours,
PHILIPPINE REAL
ESTATE EXCHANGE
(Sgd.) ANTONIO E. PRATS
General Manager
CONFORME:
(Sgd.) ALFONSO DORONILA'
Date: February 14, 1968
5.
That on February 19, 1968, plaintiff wrote the
following letter to defendant DORONILA (Annex
'4' of the Answer), quoted as follows:
February 19, 1968
Don Alfonso Doronila
Plaza Ferguzon
Ermita, Manila
Dear Don Alfonso:
In view of the exclusive option extended to us for
the sale of your property consisting 300 hectares
located at Montalban, Rizal, we earnestly request
that you take immediate steps to withdraw any and
all papers pertaining to this property offered to the
SOCIAL SECURITY SYSTEM.
Very truly yours,
PHILIPPINE REAL
ESTATE EXCHANGE
(Sgd.) ANTONIO E. PRATS
General Manager
AEP/acc
RECEIVED ORIGINAL:
By: (Sgd.) ROGELIO DAPITAN'
6.
That on February 20, 1968, pursuant to the letter
dated February 19, 1968 of plaintiff, defendant
DORONILA wrote a letter (Annex 'B' of the
complaint) to the SSS Administrator stating:
'Inasmuch as the SSS has not
acted on my offer to sell a 300 hectare lot
located in Montalban, Rizal, for the last
five (5) months I respectfully requested
for the return of all my papers concerning
this offered property.'
7.
That on February 27, 1968, defendant
DORONILA received the following letter (Annex
'C' of the complaint) from the SSS Deputy
Administrator, Mr. Reynaldo J. Gregorio, to wit:
 'May I take this
opportunity of inviting you in
behalf of Administrator Teodoro, to meet
with him, Chairman Gaviola and myself
on Friday, March 4, 10:00 A.M. lot offer.
Thanks and regards.
8.
That on February 28, 1968, defendant
DORONILA wrote the following letter (Annex
'D' of the complaint) to the SSS Deputy
Administrator:
'Thank you for your invitation to
meet Administrator Teodoro, Chairman
Gaviola and your goodself, to take up my
former offer to sell my property to the
Social Security System.
Since the SSS had not acted on
my offer dated July 19, 1967, more than
seven (7) months ago, I have asked for the
return of my papers, as per my
letter of February 20, 1968, and which you
have kindly returned to me.
As of February 20, 1968, I gave
the Philippine Real Estate Exchange an
exclusive option and authority to negotiate
the sale of this 300 hectare land, and I am
no longer at liberty to negotiate its sale
personally; I shall therefore request you
communicate directly with the Philippine
Real Exchange, P. O. Box 84, Quezon
City, and deal with them directly if you are
still interested in my property.
With my kind personal regards, I
am'
9.
That on March 16, 1968, plaintiff, acting upon the
letter of defendant DORONILA dated February
28, 1968 (Annex 'D' for plaintiff), wrote the
following letter to SSS Administrator:
'Don Alfonso Doronila,
owner of the 300 hectare land located at
Montalban, Rizal, adjoining the Quezon
City boundary, has informed us that the
Administrator of the SOCIAL SECURITY
SYSTEM, through Mr. Reynaldo J.
Gregorio, has invited him to meet with the
Administrator and Chairman Gaviola to
take up the former offer to sell his
property to the SSS.
'In his letter to the Administrator
dated February 20, 1968 (which has been
received by the SSS on the same day). Mr.
Doronila advised you that as of February
20, 1968, he gave the PHILIPPINE REAL
ESTATE EXCHANGE (PHILREX) the
exclusive option and authority to negotiate
the sale of his 300 hectare land in
Montalban, and that he is no longer at
liberty to negotiate its sale personally, and
that, if you are still interested in this
property, the SSS should communicate
directly with the PHILIPPINE REAL
ESTATE EXCHANGE.
'It is by virtue of this arrangement
that Mr. Doronila now refers to us your
 invitation and his reply to the SSS and has
requested us to get in touch with you.'
'While, at present we have several
prospective buyers interested in this
property, we shall, in compliance with the
request of Mr. Doronila, be happy to sit
down with you and Chairman Ramon
Gaviola, Jr.'
'Please let us know when it will be
convenient to hold the conference.'
10.
That on April 18, 1968, defendant DORONILA
extended the plaintiff exclusive option and
authority to expire May 18, 1968. (Annex 'B' —
Reply, letter of Doronila to SSS Deputy
Administrator dated May 8, 1968).
11.
That on May 6, 1968, plaintiff made a formal
written offer to the Social Security System to sell
the 300 hectare land ofdefendant DORONILA at
the price of P6.00 per square meter, a Xerox
copy of which, bearing the stamp or receipt of the
Social Security System is attached hereof as
Annex 'D'-plaintiff.
12.
That on May 17, 1968, the defendant DORONILA
received the following telegram (Annex 'E' of the
complaint) from the SSS Administrator, reading:
'SSS CONSIDERING
PURCHASE YOUR PROPERTY FOR
ITS HOUSING PROJECT'
13.
That on May 18, 1968, after plaintiff's exclusive
option and authority had been extended, plaintiff
wrote the following letter (Annex 'A-
Reply' of plaintiff's REPLY TO ANSWER) to
defendant DORONILA, to wit:
'CONFIDENTIAL'
'In our conference last Monday,
May 13, 1968, you have been definitely
advised by responsible parties that the
SOCIAL SECURITY SYSTEM is
acquiring your 300-hectare land at
Montalban, Rizal, adjoining the Quezon
City Boundary - and that said property
will be acquired in accordance with
exclusive option and authority you gave
the PHILIPPINE REAL ESTATE
EXCHANGE. You were assured in that
conference that the property will be
acquired definitely, but, as it has been
mentioned during the conference, it may
take from 30 to 60 days to have all the
papers prepared and to effect the
corresponding payment. The telegram
from the SSS confirming these
negotiations has already been received by
you, a copy of which you yourself have
kindly furnished us.
'Pursuant to paragraph 3 of the terms of the option
that you have kindly extended, we still have fifteen
days more from today; May 18, 1968, within
which to finish the negotiations for the sale of your
property to the SSS. For your convenience, we
quote the pertinent portion of paragraph 3 of the
option:
 '. . . provided, however, that
should negotiation have been started with
a buyer, said period is automatically
extended until said negotiation is
terminated, but no more than fifteen (15)
days.'
'Please be assured that we will do
our very best to complete these
negotiations for the sale of your property
within this fifteen-day period. In the
meantime, we hope you will also observe
the provisions of paragraph 6 of the
exclusive option you have extended to us.'
14.
That on May 18, 1968, plaintiff wrote the
following letter (Xerox copy attached and marked
hereof as Annex 'H' for plaintiff) addressed to
defendant DORONILA, to wit:
'By virtue of the exclusive option
and authority you have granted the
PHILIPPINE REAL ESTATE
EXCHANGE to negotiate the sale of your
300-hectare land located at Montalban,
Rizal, adjoining the Quezon City
boundary, which properties are covered by
Transfer Certificate of Titles Nos. 116631,
77011, 77012 and 77013, of the
Registry ofDeeds for the
Province of Rizal, we hereby make a firm
offer, for and in behalf of our buyer, to
purchase said property at the
price of FOUR PESOS AND FIFTY
CENTAVOS (P4.50) per square meter, or
the total amount ofTHIRTEEN MILLION
FIVE HUNDRED THOUSAND
(P13,500,000.00) PESOS, Philippine
Currency, payable in Cash and D.B.P.
Progress Bonds, on a ratio to be decided
between you and our principal.'
'To expedite the negotiations, we
suggest that we sit down sometime early
next week with our principal to take up the
final arrangement and other details in
connection with the purchase of the
subject property.'
'To give you further
assurance of the validity of this offer, we
refer you to the CHINA BANKING
CORPORATION (Trust Department) who
has already been apprised of these
negotiations, to which Bank we strongly
recommend that this transaction be
coursed through, for your own security
and protection.'
15.
That on May 30, 1968, plaintiff wrote the
following letter (Xerox copy attached hereto, and
marked as Annex 'I' for plaintiff) to defendant
DORONILA, quoted as follows:
'This is to advise you that the
SOCIAL SECURITY SYSTEM agreed to
purchase your 300-hectare land located at
Montalban, Rizal, which purchase can be
conformed by the Chairman of the
SOCIAL SECURITY COMMISSION.
The details will have to be taken up
between you and the Chairman, and we
 suggest that you communicate with the
Chairman at your earliest convenience.'
'This negotiation was made by
virtue of the exclusive option and
authority you have granted the
PHILIPPINE REAL ESTATE
EXCHANGE, which option is in full force
and effect, and covers the transaction
referred above.'
16.
That on June 6, 1968, defendant DORONILA
wrote the following letter (Annex '7' for
DORONILA), to the plaintiff, to wit:
'I have to inform you officially,
that I have not received any written offer
from the SSS or others, to purchase my
Montalban property of which you were
given an option and exclusive authority as
appearing in your letter-contract dated
February 14, 1968, during the 60
days of your exclusive authority which
expired on April 14, 1968, nor during the
extension which was properly a new
exclusive authority of 30 days from April
18, which expired on May 18, 1968, nor
during the provided 15 days grace, in case
that you have closed any transaction to
terminate it during that period, which also
expired on June 3, 1968.'
'As stated in said letter, we have
the following condition:
'5. If no written
offer is made to you until
the last day of this
authorization, this option
and authority shall expire
and becomes null and void.'
'As I have informed
you, that on April 16, 1968
or two days after your
option expired I have signed
an agreement to sell my
property to a
group of buyers to whom I
asked later that the
effectivity of said
agreement will be after your
new authority has expired
will be on June 2, and they
have accepted; As your
option has expired, and they
know that there was no
written offer made by the
SSS for any price ofmy
property, aside of their
previous letter announcing
me that they are ready to
pay, I was notified on June
4, 1968 by their
representative, calling my
attention about our
agreement; that is why I am
writing you, that having
expired your option and
exclusive authority to offer
for sale my said property, I
notified only this afternoon
said to comply our
agreement.
 'Hoping for your
consideration on the matter,
as we have to be guided by
contracts that we have to
comply, I hereby express to
you my sincere sentiments.'
17.
That on June 19, 1968, defendant DORONILA
wrote the following letter (Annex '5' of the
Answer) to the SSS Administrator, renewing his
offer to sell his 300 hectare land to the SSS at
P4.00 per square meter, to wit:
'This is to renew my offer to sell
my properties located at Montalban, Rizal
identified as Lot Nos. 3-B-7, 26-B, 6, and
4-C-3, registered in my name in the
office of the Registry of Deeds of Rizal
under T.C.T. Nos. 116631, 77013, 77011
and 216750, containing a total area of 300
hectares or 3,000.000 square meters.
You will recall that last year, I
offered to the Social Security System the
same properties at the price of Four
(P4.00) pesos per square meter. After 3
ocular inspection of Chairman Gaviola,
one of said inspections accompanied by
Commissioner Arroyo and after receiving
the written appraisal report of Manila
realtor Vicente L. Narciso, the System
then made a counter-offer of Three pesos
and twenty-five (P3.25) per square meter
which I accepted under the condition that
the total amount be paid within a
period of thirty (30) days from the
date of my acceptance (July 19, 1967). My
acceptance was motivated by the fact that
within said period of time I had hoped to
repurchase my sugarcane hacienda in
Iloilo with the proceeds I expected from
the sale. No action was however taken by
the System thereon.
Recently, the same properties
were offered by Antonio E. Prats of the
Philippine Real Estate Exchange to the
Presidential Assistant on Housing, at the
price of six pesos (P6.00) per square
meter, who referred it to the System, but
against no action had been taken by the
System.
Considering the lapse of time
since our original offer during which
prices of real estate have increased
considerably, on the one hand, and in
cooperation with the System's
implementation of our government's
policy to provide low cost houses to its
members, on the other hand, I am
renewing my offer to sell my properties to
the system only at the same price of P4.00
per square meter, or for a total
amount of twelve million pesos
(P12,000,000.00), provided the total
amount is paid in cash within a
period of fifteen (15) days from this date.'
18.
That on June 20, 1968, the Social Security
Commission passed Resolution No. 636 by which
the SSS formalized its counter-offer of P3.25 per
square meter. (See Annex 'F' of the complaint)
19.
That on June 25, 1968, the SSS Administrator, Mr.
Gilberto Teodoro, wrote the following reply letter
(Annex '6' of the Answer) to defendant
DORONILA, to wit:
'This has reference to your letter
dated June 9, 1968 renewing your offer to
sell your property located at Montalban,
Rizal containing an area of 300 hectares at
P4.00 per square meter. Please be
informed that the said letter was submitted
for the consideration of the Social Security
Commission at its last meeting on June 20,
1968 and pursuant to its Resolution No.
636, current series, it decided that the
System reiterate its counter-offer for P3.25
per square meter subject to a favorable
appraisal report by a reputable appraisal
entity as regards particularly to price and
housing project feasibility. Should this
counter-offer be acceptable to you, kindly
so indicate by signing hereunder your
conformity thereon.
Trusting that the foregoing
sufficiently advises you on the matter, I
remain
Very truly yours,
GILBERTO TEODORO
Administrator
CONFORME: With condition that the sale will
consummated within Twenty (20) days from this
date.
ALFONSO DORONILA
Returned and received the original by
June 25/68
Admtr's Office'
20.
That on June 27, 1968, the Social Security
Commission passed Resolution No. 662
authorizing the Toples & Harding (Far East) to
conduct an appraisal of the property of defendant
DORONILA and to submit a report thereon. (See
Annex 'F' ofthe complaint)
21.
That on July 17, 1968, the Social Security
Commission taking note of the report of Toples &
Harding (Far East), passed Resolution No. 738,
approving the purchase of the 300 hectare
land of defendant DORONILA, at the
price of P3.25 per square meter, for a total
purchase price of NINE MILLION SEVEN
HUNDRED FIFTY THOUSAND PESOS
(P9,750,000.00), and appropriating the said
amount of money for the purpose. (See Annex
'F' of the complaint).
22.
That on July 30, 1968, defendant DORONILA
executed the deed of absolute sale (Annex
'G' of the complaint) over his 300-hectare land,
situated in Montalban, Rizal, covered by TCT Nos.
77011, 77013, 216747 (formerly TCT No. 116631)
and 216750 (formerly TCT No. 77012), in BOLINAO,
favor of the Social Security System, for the total JR.
purchase price of NINE MILLION SEVEN By: (Sgd.)
HUNDRED FIFTY THOUSAND PESOS
(P9,750,000.00), Philippine currency, which
deed of sale was presented for registration in the
Office of the Register of Deeds of Rizal on August
21, 1968. Counsel for the plaintiff
23. Suite 305, Shurdut Bldg.
That defendant DORONILA had received the full Intramuros, Manila
purchase price of NINE MILLION SEVEN
HUNDRED FIFTY THOUSAND PESOS (Sgd.) E. V. Obon
(P9,750,000.00), Philippine Currency, in two Atty. EUGENIO V. OBON
installments.
Counsel for the defendant
24.
9 West Point Street
That on September 17, 1968, plaintiff presented
his STATEMENT OF ACCOUNT, dated Quezon City
September 16, 1968 (Xerox copy ofwhich is
attached hereto and marked as Annex 'J' plaintiff to ALFONSO DORONILA
defendant DORONILA for the payment of his Counsel for the defendant
professional services as real estate broker in the
amount of P1,380,000.00, as computed on the 428 Plaza de Ferguson
basis of the letter-agreement, Annex 'A'of the
Ermita, Manila" 2
complaint, which defendant failed to pay.
Manila, for Quezon City, January 18, 1968.
The trial court rendered its decision dated December 12, 1969, the
Respectfully
dispositive part of which reads:
submitted:
CRISPIN D. "WHEREFORE, judgment is hereby rendered in
BAIZAS & favor plaintiff, ordering defendant Alfonso
ASSOCIATE Doronila, under the first causeof action, to pay to
S plaintiff the sum of P1,380,000.00 with interest
and A.N. thereon at the rate of 6% per annum from
September 23, 1968 until fully paid; and under the
 second Cause of Action, to pay plaintiff the
sum of P200,000.00 as moral damages; the
sum of P100,000. as exemplary damages; the
sum of P150,000.00 as attorney's fees, including
the expenses oflitigation and costs of this suit.
The writ of preliminary injunction issued in this
case is hereby made permanent; and the defendant
Philippine National Bank is hereby ordered to pay
to the plaintiff the amount of P1,380,000.00 and
interest on the P1,380,000.00 to be computed
separately out P2,000,000.00 which it presently
holds under a fixed time deposit.
SO ORDERED.
December 12, 1969, Quezon City, Philippines.
(SGD.) LOURDES P. SAN DIEGO
J u d g e" 3
The defendant appealed to the Court of Appeals where the appeal
was docketed as CA-G.R. No. 45974-R.
In a decision promulgated on September 19, 1974,
the Court of Appeals reversed the decision of the trial court and
dismissed the complaint because:
"In any event, since it has been found that the
authority of appellee expired on June 2, 1968,
rather than June 12, 1968 as the
lower court opined, the inquiry would be whether
up to that time, a written offer was made by
appellee in behalf ofthe SSS. The stipulation is
clear on this point. There should he a written offer
by the prospective buyer or by appellee for or in
their behalf, and that if no such written offer is
made until the last day of the authorization, the
option and authority shall expire and become null
and void. Note that the emphasis is placed on the
need of a written offer to save the authority from
an automatic termination on the last day of the
authorization. We note such emphasis with special
significance in view of the condition relative to
automatic extension of not more than 15 days if
negotiations have been started. The question then
is when are negotiations deemed started? In the
light of the provisions just cited, it would be when
a response is given by the prospective buyer
showing his interest to buy the property when an
offer is made by the seller or broker and make an
offer of the price. Strictly, therefore, prior to May
29, 1968, there were no negotiations yet started
within the contemplation of the letter-
agreement of brokerage (Exh. A) Nevertheless,
appellant extended appellee's exclusive authority
on expire on May 18, 1968 (par. 10,
Stipulation of Facts; R.A. p. 89), which was
automatically extended by 15 days under their
agreement, to expire on June 2, 1968, if the period
extended up to May 18, 1968, was a new authority.
For, it may even be considered as taking the
place of the 15-day automatic extension, since
appellee's pretension is that negotiations have been
started within the original period of 60 days.
Appellant, in fixing the expiry date on June 2,
1968, has thus made a liberal concession in
favor of appellee, when he chose not to regard the
extension up to May 18, 1968 as the automatic
extension which ought to have been no more than
15 days, but which he generously stretched twice
as long." 4
The petitioner assigned the following errors:
"I
THE
RESPONDENT COURT OF APPEALS ERRED
CONCLUDING THAT PETITIONER WAS NOT
THE EFFICIENT PROCURING CAUSE IN
BRINGING ABOUT THE SALE PRIVATE
RESPONDENT DORONILA'S LAND TO THE
SSS.
II
THE
RESPONDENT COURT OF APPEALS ERRED
CONCLUDING THAT THERE WAS FAILURE
ON THE PART OF HEREIN PETITIONER TO
COMPLY WITH THE TERMS
CONDITIONS OF HIS CONTRACT WITH
PRIVATE RESPONDENT.
III
THE
RESPONDENT COURT OF APPEALS ERRED
IN CONCLUDING THAT PETITIONER IS NOT
ENTITLED TO HIS COMMISSION.
IV
THE
RESPONDENT COURT OF APPEALS ERRED
IN AWARDING ATTORNEY'S FEES TO
PRIVATE RESPONDENT DORONILA
INSTEAD OF AFFIRMING THE
AWARD OF MORAL AND EXEMPLARY
DAMAGES AS WELL AS ATTORNEY'S FEES
TO PETITIONER." 5
The Court in its Resolution of May 23, 1975 originally denied the
petition for lack of merit but upon petitioner's motion for
reconsideration and supplemental petition invoking equity, resolved
in its Resolution of August 20, 1975 to give due course thereto.
From the stipulation of facts and the evidence of record, it is clear
that the offer of defendant Doronila to sell the 300 hectaresof land in
question to the Social Security System was formally accepted by the
System only on June 20, 1968 after the exclusive authority, Exhibit
A, in favor of the plaintiff, petitioner herein, had expired. The
respondent court's factual findings that petitioner was not the
efficient procuring cause in bringing about the sale (prescinding from
the fact of expiration of his exclusive authority) which are admittedly
final for purposes of the present petition, provide no basis in law to
grant relief to petitioner. The following pertinent excerpts from
respondent court's extensive decision amply demonstrate this:
"It is noted, however, that even in his brief, when
he said —
'According to the testimony of the
plaintiff-appellee a few days before May
29, 1968, he arranged with Mr. Gilberto
Teodoro, SSS Administrator, a meeting
with Doronila. He talked with Mr. Teodoro
over the telephone and fixed the
date of the meeting with defendant-
appellant Doronila for May 29, 1968, and
that he was specifically requested by Mr.
Teodoro not to be present at the meeting,
as he, Teodoro, wanted to deal directly
with the defendant-appellant alone. (Tsn.,
pp. 44-46, March 1, 1969). Finding
nothing wrong with such a request, as the
sale could be caused directly or indirectly
(Exh. 'A'), and believing that as a broker
 all that he needed to do to be entitled to
his commission was to bring about a
meeting between the buyer and the seller
as to ripen into a sale, plaintiff-appellee
readily acceded to the request.'
appellee is not categorical that it was
through his efforts that the meeting took
place on May 29, 1968. He refers to a
telephone call he made 'a few days before
May 29, 1968,' but in the conversation he
had with Mr. Teodoro, the latter requested
him not to be present in the meeting. From
these facts, it is manifest that the SSS
officials never wanted to be in any way
guided by, or otherwise subject to, the
mediation or intervention of, appellee
relative to the negotiation for the
purchase of the property. It is thus more
reasonable to conclude that if a meeting was
held on May 29, 1968, it was done
independently, and not by virtue of,
appellee's wish or efforts to hold such
meeting." 6
xxx xxx xxx
". . . It is even doubtful if he tried to make any
arrangement for meeting at all, because on May
18, 1968, he told appellant:
'. . . we hereby make a firm offer,
for and in behalf of our buyer, to purchase
said property at the price ofFour Pesos and
Fifty Centavos (P4.50) per square meter . .
. .'
"As this offer is evidently made in behalf of buyer
other than the SSS which had never offered the
price of P4.50 per square meter, appellee could not
have at the same time arranged a meeting between
the SSS officials and appellant with a view to
consummating the sale in favor of the SSS which
had made an offer of only P3.25 per sq. m. and
thus lose the much bigger profit he would realize
with a higher price of P4.50 per sq. meter. This
'firm offer' of P4.50 per sq. m. made by appellee
betrayed his lack of any efficient intervention in
the negotiations with the SSS for the purchase by
it of appellant's property. . . . " 7
xxx xxx xxx
". . . This becomes more evident when it is
considered that on May 6, 1968 he was making his
first offer to sell the property at P6.00 per sq. m. to
the SSS to which offer he received no answer. It is
this cold indifference of the SSS to him that must
have prompted him to look for other buyers,
resulting in his making the firm offer of P4.51 per
sq. m. on May 18, 1968, a fact which only goes to
show that for being ignored by the SSS, he gave
up all effort to deal with the SSS. . . . ." 8
xxx xxx xxx
". . . For him to claim that it was he who aroused
the interest of the SSS in buying appellant's
property is to ignore the fact that as early as June,
(July) 1967, the SSS had directly dealt with
appellant to such an extent that the price of P3.25
as offered by the SSS was accepted by appellant,
the latter imposing only the condition that the
price should be paid in cash, and within 30 days
from the date of the acceptance. It can truly be said
then that the interest of SSS to acquire the property
had been sufficiently aroused for there to be any
 need for appellee to stimulate it further. Appellee
should know this fact for according to him, the 10-
day grace period was agreed upon to give the SSS
a chance to pay the price of the land at P3.25 per
sq. m., as a 'compromise' to appellant's insistence
that the SSS be excluded from appellee's option or
authority to sell the land." 9
". . . There should be a written offer by the
prospective buyer or by appellee for or in their
behalf, and that if no such written offer is made
until the last day of the authorization, the option
and authority shall expired and become null and
void. . . . Yet, no such written offer was made. . . .
" 10
In equity, however, the Court notes that petition diligently taken
steps to bring back together respondent Doronila and the SSS, among
which may be mentioned the following:
In July, 1967, prior to February 14, 1968, respondent Doronila had
offered to sell the land in question to the Social Security System.
Direct negotiations were made by Doronila with the SSS. The SSS
did not then accept the offer of Doronila. Thereafter, Doronila
executed the exclusive authority in favor of petitioner Prats on
February 14, 1968. cdrep
Prats communicated with the Office of the Presidential Housing
Commission on February 23, 1968 offering the Doronila
property. Prats wrote a follow-up letter on April 18, 1968 which was
answered by the Commission with the suggestion that the property
be offered directly to the SSS. Prats wrote the SSS on March 16,
1968, inviting Chairman Ramon Gaviola, Jr. to discuss the
offer of the sale of the property in question to the SSS. On May 6,
1968, Prats made a formal written offer to the Social Security System
to sell the 300-hectare land of Doronila at the price of P6.00 per
square meter. Doronila received on May 17, 1968 from the SSS
Administrator a telegram that the SSS was considering the
purchase of Doronila's property for its housing project. Prats and his
witness Raagas testified that Prats had several dinner and lunch
meetings with Doronila and/or his nephew, Atty. Manuel D. Asencio,
regarding the progress of the negotiations with the SSS.
Atty. Asencio had declared that he and his uncle, Alfonso Doronila,
were invited several times by Prats, sometimes to luncheons and
sometimes to dinner. On a Sunday, June 2, 1968, Prats and Raagas
had luncheon in Sulu Hotel in Quezon City and they were joined
later by Chairman Gaviola of the SSS.
The Court has noted on the other hand that Doronila finally sold the
property to the Social Security System at P3.25 per square meter
which was the very same price counter-offered by the Social Security
System and accepted by him in July, 1967 when he alone was
dealing exclusively with the said buyer long before Prats came into
the picture but that on the other handPrats' efforts somehow were
instrumental in bringing them together again and finally
consummating the transaction the same price of P3.25 square meter,
although such finalization was after the expiration of Prats' extended
exclusive authority. Still, such price was higher than that stipulated in
the exclusive authority granted by Doronila to Prats.
Under the circumstances, the Court grants in equity the sum of One
Hundred Thousand Pesos (P100,000.00) by compensation for his
efforts and assistance in the transaction, which however was
finalized and consummated after the expiration of his exclusive
authority and sets aside the P10,000.00-attorneys' fees award
adjudged against him by respondent court.
WHEREFORE, the decision appealed from is hereby affirmed, with
the modification that private respondent Alfonso Doronila in equity
is ordered to pay petitioner or his heirs the amount of One Hundred
Thousand Pesos (P100,000.00) and that the portion of the said
decision sentencing petitioner Prats to pay respondent Doronila
attorneys' fees in the sum of P10,000.00 is set aside. cdphil
The lifting of the injunction issued by the lower court on the
P2,000,000.00 cash deposit of respondent Doronila as ordered by
respondent court is hereby affirmed, with the exception of the
sum of One Hundred Thousand Pesos (P100,000.00) which is
ordered segregated therefrom to satisfy the award herein given to
petitioner; the lifting of said injunction, as herein ordered, is
immediately executory upon promulgation hereof.
No pronouncement as to costs.
Teehankee (Chairman), Makasiar, Muñoz Palma and Guerrero,
JJ., concur.

Footnotes

1.Rollo, pp. 110-111. The decision was written by Justice Pacifico

Castro and concurred in by Justice Guillermo S. Santos
and Justice Jose C. Bautista.
2.Record on Appeal, pp. 76-102, Rollo, p. 57.
3.Record on Appeal, pp. 183-184, Rollo, p. 57.
4.Rollo, pp. 98-100.
5.Brief for Petitioner, pp. 28-29, Rollo, p. 352.
6.Pp. 35-36, Court of Appeals decision.
7.Pp. 36-37, ibid.
8.Pp. 37, ibid.
9.Pp. 39, ibid.
10.Pp. 40-41, ibid.
||| (Prats v. Court of Appeals, G.R. No. L-39822, [January 31, 1978],
171 PHIL 322-347)

SECOND DIVISION
[G.R. No. 94753. April 7, 1993.]
MANOTOK BROTHERS, INC., petitioner, vs.
THE HONORABLE COURT OF APPEALS,
THE HONORABLE JUDGEOF THE
REGIONAL TRIAL COURT OF MANILA
(Branch VI), and SALVADOR
SALIGUMBA, respondents.
Antonio C. Ravelo for petitioner.
Remigio M. Trinidad for private respondent.
SYLLABUS
1. CIVIL LAW; AGENCY; AGENT'S COMMISSION; WHEN
ENTITLED' RULE; APPLICATION IN CASE AT BAR. — In an
earlier case, this Court ruled that when there is a close, proximate
and causal connection between the agent's efforts and labor and the
principal's sale of his property, the agent is entitled to a commission.
We agree with respondent Court that the City of Manila ultimately
became the purchaser of petitioner's property mainly through the
efforts of private respondent. Without discounting the fact that when
Municipal Ordinance No. 6603 was signed by the City Mayor on
May 17, 1968, private respondent's authority had already expired, it
is to be noted that the ordinance was approved on April 26, 1968
when private respondent's authorization was still in force. Moreover,
the approval by the City Mayor came only three days after the
expiration of private respondent's authority. It is also worth
emphasizing that from the records, the only party given a written
authority by petitioner to negotiate the sale from July 5, 1966 to May
14, 1968 was private respondent.
DECISION
CAMPOS, JR., J p:
Petitioner Manotok Brothers., Inc., by way of the instant Petition
docketed as G.R. No. 94753 sought relief from this Court's
Resolution dated May 3, 1989, which reads:
"G.R. No. 78898 (Manotok Brothers, Inc. vs.
Salvador Saligumba and Court of Appeals). —
Considering the manifestation ofcompliance by
counsel for petitioner dated April 14, 1989 with
the resolution of March 13, 1989 which required
the petitioner to locate private respondent and to
inform this Court of the present address of said
private respondent, theCourt Resolved to
DISMISS this case, as the issues cannot be joined
as private respondent's and counsel's addresses
cannot be furnished by the petitioner to
this court." 1
In addition, petitioner prayed for the issuance of a preliminary
injunction to prevent irreparable injury to itself pending resolution by
this Court of its cause. Petitioner likewise urged this Court to hold in
contempt private respondent for allegedly adopting sinister ploy to
deprive petitioner of its constitutional right to due process. LibLex
Acting on said Petition, this Court in a Resolution 2 dated October 1,
1990 set aside the entry of judgment made on May 3, 1989 in case
G.R. No. 78898; admitted the amended petition; and issued a
temporary restraining order to restrain the execution of the judgment
appealed from.
The amended petition 3 admitted, by this Court sought relief from
this Court's Resolution abovequoted. In the alternative, petitioner
begged leave of court to re-file its Petition for Certiorari 4 (G.R. No.
78898) grounded on the allegation that petitioner was deprived of its
opportunity to be heard.
The facts as found by the appellate court, revealed that petitioner
herein (then defendant-appellant) is the owner of a certain
parcel of land and building which were formerly leased by the
City of Manila and used by the Claro M. Recto High School, at M.F.
Jhocson Street, Sampaloc Manila.
By means of a letter 5 dated July 5, 1966, petitioner authorized
herein private respondent Salvador Saligumba to negotiate with the
City of Manila the sale of the aforementioned property for not less
than P425,000.00. In the same writing, petitioner agreed to pay
private respondent a five percent (5%) commission in the event the
sale is finally consummated and paid.
Petitioner, on March 4, 1967, executed another letter 6 extending the
authority of private respondent for 120 days. Thereafter, another
extension was granted to him for 120 more days, as evidenced by
another letter 7 dated June 26, 1967.
Finally, through another letter 8 dated November 16, 1967, the
corporation with Rufino Manotok, its President, as signatory,
authorized private respondent to finalize and consummate the
sale of the property to the City of Manila for not less than
P410,000.00. With this letter came another extension of 180 days.
The Municipal Board of the City of Manila eventually, on April 26,
1968, passed Ordinance No. 6603, appropriating the
sum ofP410,816.00 for the purchase of the property which private
respondent was authorized to sell. Said ordinance however, was
signed by the City Mayor only on May 17, 1968, one hundred eighty
three (183) days after the last letter of authorization.
On January 14, 1969, the parties signed the deed of sale of the
subject property. The initial payment of P200,000.00 having been
made, the purchase price was fully satisfied with a second payment
on April 8, 1969 by a check in the amount ofP210,816.00.
Notwithstanding the realization of the sale, private respondent never
received any commission, which should have amounted to
P20,554.50. This was due to the refusal of petitioner to pay private
respondent said amount as the former does not recognize the latter's
role as agent in the transaction.
Consequently, on June 29, 1969, private respondent filed a complaint
against petitioner, alleging that he had successfully negotiated the
sale of the property. He claimed that it was because of his efforts that
the Municipal Board of Manila passed Ordinance No. 6603 which
appropriated the sum for the payment of the property subject of the
sale.
Petitioner claimed otherwise. It denied the claim of private
respondent on the following grounds: (1) private respondent would
be entitled to a commission only if the sale was consummated and
the price paid within the period given in the respective
letters of authority; and (2) private respondent was not the person
responsible for the negotiation and consummation of the sale, instead
it was Filomeno E. Huelgas, the PTA president for 1967-1968 of the
Claro M. Recto High School. As a counterclaim, petitioner (then
defendant-appellant) demanded the sum of P4,000.00 as attorney's
fees and for moral damages.
Thereafter, trial ensued. Private respondent, then plaintiff, testified as
to the efforts undertaken by him to ensure the consummation of the
sale. He recounted that it first began at a meeting with
Rufino Manotok at the office of Fructuoso Ancheta,
principal of C.M. Recto High School. Atty. Dominador Bisbal, then
president of the PTA, was also present. The meeting was set
precisely to ask private respondent to negotiate the sale of the school
lot and building to the City of Manila. Private respondent then went
to Councilor Mariano Magsalin, the author of the Ordinance which
appropriated the money for the purchase of said property, to present
the project. He also went to the Assessor's Office for appraisal of the
value of the property. While these transpired and his
letters of authority expired, Rufino Manotok always renewed the
former's authorization until the last was given, which was to remain
in force until May 14, 1968. After securing the report of the appraisal
committee, he went to the City Mayor's Office, which indorsed the
matter to the Superintendent of City Schools ofManila. The latter
office approved the report and so private respondent went back to the
City Mayor's Office, which thereafter indorsed the same to the
Municipal Board for appropriation. Subsequently, on April 26, 1968,
Ordinance No. 6603 was passed by the Municipal Board for the
appropriation of the sum corresponding to the purchase price.
Petitioner received the full payment of the purchase price, but private
respondent did not receive a single centavo as commission. cdll
Fructuoso Ancheta and Atty. Dominador Bisbal both testified
acknowledging the authority of private respondent regarding the
transaction.
Petitioner presented as its witnesses Filomeno Huelgas and the
petitioner's President, Rufino Manotok.
Huelgas testified to the effect that after being inducted as PTA
president in August, 1967 he followed up the sale from the start with
Councilor Magsalin until after it was approved by the Mayor on May
17, 1968. He. also said that he came to know Rufino Manotok only
in August, 1968, at which meeting the latter told him that he would
be given a "gratification" in the amount of P20,000.00 if the sale was
expedited.
Rufino Manotok confirmed that he knew Huelgas and that there was
an agreement between the two of them regarding the "gratification".
On rebuttal, Atty. Bisbal said that Huelgas was present in the PTA
meetings from 1965 to 1967 but he never offered to help in the
acquisition of said property. Moreover, he testified that Huelgas was
aware of the fact that it was private respondent who was negotiating
the sale of the subject property.
Thereafter, the then Court of First Instance (now, Regional
Trial Court) rendered judgment sentencing petitioner and/or
RufinoManotok to pay unto private respondent the
sum of P20,540.00 by way of his commission fees with legal interest
thereon from the date of the filing of the complaint until payment.
The lower court also ordered petitioner to pay private respondent the
amount of P4,000.00 as and for attorney's fees. 9
Petitioner appealed said decision, but to no avail.
Respondent Court of Appeals affirmed the said ruling of the
trial court. 10
Its Motion for Reconsideration having been denied by respondent
appellate court in a Resolution dated June 22, 1987, petitioner
seasonably elevated its case on Petition for Review on Certiorari on
August 10, 1987 before this Court, docketed as G.R. No. 78898.
Acting on said Petition, this Court issued a Minute
Resolution 11 dated August 31, 1987 ordering private respondent to
comment on said Petition.
It appearing that the abovementioned Resolution was returned
unserved with the postmaster's notation "unclaimed", thisCourt in
another Resolution 12 dated March 13, 1989, required petitioner to
locate private respondent and to inform this Courtof the present
address of private respondent within ten (10) days from notice. As
petitioner was unsuccessful in its efforts to locate private respondent,
it opted to manifest that private respondent's last address was the
same as that address to which this. Court's Resolution was
forwarded.
Subsequently, this Court issued a Resolution dated May 3, 1989
dismissing petitioner's case on the ground that the issues raised in the
case at bar cannot be joined. Thus, the above-entitled case became
final and executory by the entry of judgment on May 3, 1989.
Thereafter, on January 9, 1990 private respondent filed a Motion to
Execute the said judgment before the court of origin. Upon
discovery of said development, petitioner verified with
the court of origin the circumstances by which private respondent
obtained knowledge of the resolution of this Court. Sensing a
fraudulent scheme employed by private respondent, petitioner then
instituted this instant Petition for Relief, on August 30, 1990. On
September 13, 1990, said petition was amended to include, in the
alternative, its petition to re-file its Petition for Certiorari (G.R. No.
78898).
The sole issue to be addressed in this petition is whether or not
private respondent is entitled to the five percent (5%) agent's
commission.
It is petitioner's contention that as a broker, private respondent's job
is to bring together the parties to a transaction. Accordingly, if the
broker does not succeed in bringing the minds of the purchaser and
the vendor to an agreement with respect to the sale, he is not entitled
to a commission.
Private respondent, on the other hand, opposes petitioner's position
maintaining that it was because of his efforts that a purchase actually
materialized between the parties.
We rule in favor of private respondent.
At first sight, it would seem that private respondent is not entitled to
any commission as he was not successful in consummating the sale
between the parties, for the sole reason that when the Deed of Sale
was finally executed, his extended authority had already expired. By
this alone, one might be misled to believe that this case squarely falls
within the ambit ofthe established principle that a broker or agent is
not entitled to any commission until he has successfully done the job
given to him. 13
Going deeper however into the case would reveal that it is within the
coverage of the exception rather than of the general rule, the
exception being that enunciated in the
case of Prats vs. Court of Appeals. 14 In the said case,
this Court ruled in favorof claimant-agent, despite the
expiration of his authority, when a sale was finally
consummated. LibLex
In its decision in the abovecited case, this Court said, that while it
was respondent court's (referring to the Court of Appeals) factual
findings that petitioner Prats (claimant-agent) was not the efficient
procuring cause in bringing about the sale (prescinding from the
fact of expiration of his exclusive authority), still petitioner was
awarded compensation for his services. And We quote:
"In equity, however, the Court notes that petitioner
had diligently taken steps to bring back together
respondent Doronila and the SSS,.
xxx xxx xxx
The court has noted on the other hand that
Doronila finally sold the property to the Social
Security System at P3.25 per square meter which
was the very same price counter-offered by the
Social Security System and accepted by him in
July, 1967 when he alone was dealing exclusively
with the said buyer long before Prats came into the
picture but that on the other hand Prats' efforts
somehow were instrumental in bringing them
together again and finally consummating the
transaction at the same price of P3.25 per square
 meter, although such finalization was after the
expiration of Prats' extended exclusive authority.
xxx xxx xxx
Under the circumstances, the Court grants in
equity the sum of One hundred Thousand Pesos
(P100,000.00) by way ofcompensation for his
efforts and assistance in the transaction, which
however was finalized and consummated after the
expiration of his exclusive
authority . . ." 15 (Emphasis supplied.).
From the foregoing, it follows then that private respondent herein,
with more reason, should be paid his commission, While
inPrats vs. Court of Appeals, the agent was not even the efficient
procuring cause in bringing about the sale, unlike in the case at bar,
it was still held therein that the agent was entitled to compensation.
In the case at bar, private respondent is the efficient procuring cause
for without his efforts, the municipality would not have anything to
pass and the Mayor would not have anything to approve.
In an earlier case, 16 this Court ruled that when there is a close,
proximate and causal connection between the agent's efforts and
labor and the principal's sale of his property, the agent is entitled to a
commission.
We agree with respondent Court that the City of Manila ultimately
became the purchaser of petitioner's property mainly through the
efforts of private respondent. Without discounting the fact that when
Municipal Ordinance No. 6603 was signed by the City Mayor on
May 17, 1968, private respondent's authority had already expired, it
is to be noted that the ordinance was approved on April 26, 1968
when private respondent's authorization was still in force. Moreover,
the approval by the City Mayor came only three days after the
expiration of private respondent's authority. It is also worth
emphasizing that from the records, the only party given a written
authority by petitioner to negotiate the sale from July 5, 1966 to May
14, 1968 was private respondent.
Contrary to what petitioner advances, the case of Danon vs.
Brimo, 17 on which it heavily anchors its justification for the
denialof private respondent's claim, does not apply squarely to the
instant petition. Claimant-agent in said case fully comprehended the
possibility that he may not realize the agent's commission as he was
informed that another agent was also negotiating the sale and thus,
compensation will pertain to the one who finds a purchaser and
eventually effects the sale. Such is not the case herein. On the
contrary, private respondent pursued with his goal of seeing that the
parties reach an agreement, on the belief that he alone was
transacting the business with the City Government as this was what
petitioner made it to appear.
While it may be true that Filomeno Huelgas followed up the matter
with Councilor Magsalin, the author of Municipal Ordinance No.
6603 and Mayor Villegas, his intervention regarding the purchase
came only after the ordinance had already been passed — when the
buyer has already agreed to the purchase and to the price for which
said property is to be paid. Without the efforts of private respondent
then, Mayor Villegas would have nothing to approve in the first
place. It was actually private respondent's labor that had set in
motion the intervention of the third party that produced the sale,
hence he should be amply compensated. cdll
WHEREFORE, in the light of the foregoing and finding no
reversible error committed by respondent Court, the
decision of theCourt of Appeals is hereby AFFIRMED. The
temporary restraining order issued by this Court in its Resolution
dated October 1, 1990 is hereby lifted.
SO ORDERED.
Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur.
Footnotes
1.Rollo of G.R. No. 94753, p. 12.
2.Ibid., p. 77.
 3.Ibid., p. 47.
4.Rollo of G.R. No. 78898, p. 12.
5.Supra, note 1 at p. 156.
6.Ibid., p. 160.
7.Ibid., p. 161.
8.Ibid., p. 162.
9.Decision rendered by then Court of Instance, Branch VI, Manila
in Civil Case No. 76997, Rollo, pp. 13-18.
10.Penned by Associate Justice Vicente V. Mendoza and concurred
in by Associate Justices Manuel C. Herrera and Jorge S.
Imperial. Rollo, pp. 19-28.
11.Supra, note 4 at p. 67.
12.Ibid., p. 69.
13.Ramos vs. Court of Appeals, 63 SCRA 331 (1975).
14.81 SCRA 360 (1978).
15.Ibid., pp. 383-385.
16.Reyes vs. Manaoat, et al., 8 C.A. Rep. 2d 368 (1965).
17.42 Phil. 133 (1921).
||| (Manotok Brothers, Inc. v. Court of Appeals, G.R. No. 94753,
[April 7, 1993])

SECOND DIVISION
[G.R. No. 150678. February 18, 2005.]
BIENVENIDO R. MEDRANO and IBAAN
RURAL
BANK, petitioners, vs. COURT OF APPEALS,
PACITA G. BORBON, JOSEFINA E. ANTONIO
and ESTELA A. FLOR, respondents.
DECISION
CALLEJO, SR., J p:
This is a petition for review of the
Decision 1 of the Court of Appeals (CA) affirming in toto the
Decision 2 of the Regional TrialCourt (RTC) of Makati City, Branch
135, in Civil Case No. 15664 which awarded to the respondents their
5% broker's commission.
The facts are as follows:
Bienvenido R. Medrano was the Vice-Chairman of Ibaan Rural
Bank, a bank owned by the Medrano family. In 1986,
Mr.Medrano asked Mrs. Estela Flor, a cousin-in-law, to look for a
buyer of a foreclosed asset of the bank, 3 a 17-hectare mango
plantation priced at P2,200,000.00, located in Ibaan, Batangas. 4
Mr. Dominador Lee, a businessman from Makati City, was a
client of respondent Mrs. Pacita G. Borbon, a licensed real estate
broker. The two met through a previous transaction where Lee
responded to an ad in a newspaper put up by Borbon for an 8-hectare
property in Lubo, Batangas, planted with atis trees. Lee expressed
that he preferred a land with mango trees instead. Borbon promised
to get back to him as soon as she would be able to find a property
according to his specifications. jur2005cd
Borbon relayed to her business associates and friends that she had a
ready buyer for a mango orchard. Flor then advised her that her
cousin-in-law owned a mango plantation which was up for sale. She
told Flor to confer with Medrano and to give them a written authority
to negotiate the sale of the property. 5 Thus, on September 3,
1986, Medrano issued the Letter ofAuthority, as follows:
Mrs. Pacita G. Borbon & Miss Josefina E. Antonio
Campos Rueda Building
Tindalo, Makati, M.M.
Mrs. Estela A. Flor & Miss Maria Yumi S. Karasig
23 Mabini Street
Quezon City, M.M. ICHcaD
Dear Mesdames:
This letter will serve as your authority* to
negotiate with any prospective buyer for the
sale of a certain real estate property more
specifically a mango plantation which is described
more particularly therein below:
 Location : Barrio Tulay-na-Patpat, Ibaan,
Batangas
Lot Area : 17 hectares (more or less) per
attached Appendix "A"
Improvements : 720 all fruit-bearing
mango trees
(carabao variety) and other trees
Price : P2,200,000.00
For your labor and effort in finding a purchaser
thereof, I hereby bind myself to pay you a
commission of 5% of the total purchase price to be
agreed upon by the buyer and seller. DACTSH
Very truly
yours,
(Sgd.)
B.R. Medra
no
Owner
* Subject to price sale. 6
The respondents arranged for an ocular inspection of the property
together with Lee which never materialized — the first time was due
to inclement weather; the next time, no car was available for the
tripping to Batangas. 7 Lee then called up Borbon and told her that
he was on his way to Lipa City to inspect another property, and
might as well also take a look at the property Borbon was offering.
Since Lee was in a hurry, the respondents could no longer
accompany him at the time. Thus, he asked for the exact
address of the property and the directions on how to reach the lot in
Ibaan from Lipa City. Thereupon, Lee was instructed to get in touch
with Medrano's daughter and also an officer of the bank, Mrs. Teresa
Ganzon, regarding the property. 8
Two days after the visit, respondent Josefina Antonio called Lee to
inquire about the result of his ocular inspection. Lee told her that the
mango trees "looked sick" so he was bringing an agriculturist to the
property. Three weeks thereafter, Antonio called Lee again to make a
follow-up of the latter's visit to Ibaan. Lee informed her that he
already purchased the property and had made a down
payment of P1,000,000.00. The remaining balance of P1,200,000.00
was to be paid upon the approvalof the incorporation papers of the
corporation he was organizing by the Securities and Exchange
Commission. According to Antonio, Lee asked her if they had
already received their commission. She answered "no," and Lee
expressed surprise over this. 9
A Deed of Sale was eventually executed on November 6, 1986
between the bank, represented by its President/General Manager
Teresa M. Ganzon (as Vendor) and KGB Farms, Inc., represented by
Dominador Lee (as Vendee), for the purchase
price of P1,200,000.00. 10 Since the sale of the property was
consummated, the respondents asked from the petitioners their
commission, or 5% of the purchase price. The petitioners refused to
pay and offered a measly sum of P5,000.00 each. 11Hence, the
respondents were constrained to file an action against herein
petitioners.
The petitioners alleged that Medrano issued the letter of authority in
favor of all the respondents, upon the representation ofFlor that she
had a prospective buyer. Flor was the only person known
to Medrano, and he had never met Borbon and
Antonio. Medrano had asked that the name of their prospective buyer
be immediately registered so as to avoid confusion later on, but Flor
failed to do so. Furthermore, the other officers of the bank had never
met nor dealt with the respondents in connection with the sale of the
property. Ganzon also asked Lee if he had an agent and the latter
replied that he had none. The petitioners also denied that the
purchase price of the property was P2,200,000.00 and alleged that
the property only cost P1,200,000.00. The petitioners further
contended that the letter of authority signed by Medrano was not
binding or enforceable against the bank because the latter had a
personality separate and distinct from that of Medrano. Medrano, on
the other hand, denied liability, considering that he was not the
registered owner of the property, but the bank. The petitioners,
likewise, filed a counterclaim as they were constrained to hire the
services of counsel and suffered damages. 12
After the case was submitted for decision, Medrano died, but no
substitution of party was made at this time. 13
The trial court resolved the case based on the following common
issues:
1. Whether or not the letter of authority is binding
and enforceable against the defendant
Bank only or both defendants; and
2. Whether or not the plaintiffs are entitled to any
commission for the sale of the subject
property. 14
On September 21, 1994, the trial court rendered a Decision in
favor of the respondents. The petitioners were ordered to pay, jointly
and severally, the 5% broker's commission to herein respondents.
The trial court found that the letter of authority was valid and binding
as against Medrano and the Ibaan Rural bank. Medrano signed the
said letter for and in behalf of the bank, and as owner of the property,
promising to pay the respondents a 5% commission for their efforts
in looking for a purchaserof the property. He is, therefore, estopped
from denying liability on the basis of the letter of authority he issued
in favor of the respondents. The trial court further stated that the
sale of the property could not have been possible without the
representation and intervention of the respondents. As such, they are
entitled to the broker's commission of 5% of the selling
price of P1,200,000.00 as evidenced by the
deed of sale. 15 The fallo of the decision reads as follows:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the plaintiffs and
against the defendants, for the latter, jointly and
severally:
1. To pay plaintiffs the sum of P60,000.00
representing their five percent (5%)
commission of the purchase price of the property
sold based on Exh. "D" or "9" plus legal interest
from date of filing of the herein complaint until
fully paid; EAICTS
2. To pay plaintiffs the sum of P20,000.00 as and
for attorney's fees;
3. To pay the plaintiffs the sum of P10,000.00 as
litigation expenses;
4. To pay the costs of the proceedings. 16
Unable to agree with the RTC decision, petitioner Ibaan Rural Bank
filed its notice of appeal. 17
On October 10, 1994, the heirs of Bienvenido Medrano filed a
Motion for Reconsideration 18 praying that the late
BienvenidoMedrano be substituted by his heirs. They further prayed
that the trial court's decision as far as Medrano was concerned be set
aside and dismissed considering his demise. The trial court denied
the motion for reconsideration. 19 Hence, the heirs ofMedrano also
filed their notice of appeal. 20
On appeal, the petitioners reiterated their stance that the
letter of authority was not binding and enforceable, as the same was
signed by Medrano, who was not actually the owner of the property.
They refused to give the respondents any commission, since the
latter did not perform any act to consummate the sale. The petitioners
pointed out that the respondents (1) did not verify the real
owner of the property; (2) never saw the property in question; (3)
never got in touch with the registered owner of the property; and (4)
neither did they perform any act of assisting their buyer in having the
property inspected and verified. 21 The petitioners further raised the
trial court's error in not dismissing the case against LETTER-AUTHORITY AND YET
Bienvenido Medrano considering his death. ERRONEOUSLY GRANTED THE
PRIVATE-RESPONDENTS' DEMAND,
On May 3, 2001, the CA promulgated the assailed decision affirming NOTWITHSTANDING THE NON-
the finding of the trial court that the letter of authority was valid and PERFORMANCEOF THEIR
binding. Applying the principle of agency, the appellate court ruled OBLIGATION
that Bienvenido Medrano constituted the respondents as his agents, THEREUNDER; ASHaDT
granting them authority to represent and act on behalf of the former
in the sale of the 17-hectare mango plantation. The CA also ruled that IV. THE COURT OF APPEALS ERRED IN
the trial court did not err in finding that the respondents were the PRESUMING BAD FAITH UPON THE
procuring causeof the sale. Suffice it to state that were it not for the PETITIONERS;
respondents, Lee would not have known that there was a mango
orchard offered for sale. V. THE COURT OF APPEALS ERRED IN
PLACING THE BURDEN OF PROOF
UPON THE DEFENDANTS-
PETITIONERS;
The CA further ruled that an action for a sum of money continues
even after the death of the defendant, and shall remain as a money VI. THE COURT OF APPEALS FAILED TO
claim against the estate of the deceased. SUBSTANTIATE ITS CONCLUSION
WITH EVIDENCE AND INSTEAD
Undaunted by the CA's unfavorable decision, the petitioners filed the RELIED ON INFERENCE;
instant petition, raising eight (8) assignments of errors, to wit:
VII. THE COURT OF APPEALS FAILED TO
I. THE COURT OF APPEALS ERRED WHEN IT SUBSTANTIATE ITS CONCLUSION
FOUND THE PRIVATE RESPONDENTS WITH EVIDENCE AND MERELY
TO BE THE PROCURING RELIED ON SPECULATION AND
CAUSE OFTHE SALE; SURMISE;
II. THE COURT OF APPEALS ERRED IN VIII. THE COURT OF APPEALS MISAPPRECI
GIVING CREDENCE TO THE LETTER- ATED THE FACTS PRESENTED
AUTHORITY OF PETITIONER BEFORE IT, AND CONSEQUENTLY
MR. MEDRANO; FAILED TO CONSIDER REASONABLY
III. THE COURT OF APPEALS MADE A THE TWO (2) BASIC
MISTAKE WHEN IT CORRECTLY ARGUMENTS OF THE
RECOGNIZED THE EXTENT OF THE PETITIONERS. 22
PRIVATE RESPONDENTS' The petition is denied.
OBLIGATION AND AUTHORITY
CONTAINED IN MEDRANO'S
The records disclose that respondent Pacita Borbon is a licensed real
estate broker 23 and respondents Josefina Antonio and Estela A. Flor
are her associates. 24 A broker is generally defined as one who is
engaged, for others, on a commission, negotiating contracts relative
to property with the custody of which he has no concern; the
negotiator between other parties, never acting in his own name but in
the name of those who employed him; he is strictly a middleman and
for some purposes the agent of both parties. A broker is one whose
occupation is to bring parties together, in matters of trade, commerce
or navigation. 25 For the respondents' participation in finding a buyer
for the petitioners' property, the petitioners refuse to pay them
commission, asserting that they are not the efficient procuring
cause of the sale, and that the letter of authority signed by
petitioner Medrano is not binding against the petitioners.
"Procuring cause" is meant to be the proximate cause. 26 The term
"procuring cause," in describing a broker's activity, refers to a
cause originating a series of events which, without break in their
continuity, result in accomplishment of prime objective ofthe
employment of the broker — producing a purchaser ready, willing
and able to buy real estate on the owner's terms. 27 A broker will be
regarded as the "procuring cause" of a sale, so as to be entitled to
commission, if his efforts are the foundation on which the
negotiations resulting in a sale are begun. 28 The broker must be the
efficient agent or the procuring cause of the sale. The means
employed by him and his efforts must result in the sale. He must find
the purchaser, and the sale must proceed from his efforts acting as
broker. 29
Indeed, the evidence on record shows that the respondents were
instrumental in the sale of the property to Lee. Without their
intervention, no sale could have been consummated. They were the
ones who set the sale of the subject land in motion. 30Upon being
informed by Flor that Medrano was selling his mango orchard,
Borbon lost no time in informing Lee that they had found a property
according to his specifications. An ocular inspection of the property
together with Lee was immediately planned; unfortunately, it never
pushed through for reasons beyond the respondents' control. Since
Lee was in a hurry to see the property, he asked the respondents the
exact address and the directions on how to reach Ibaan, Batangas.
The respondents thereupon instructed him to look for Teresa Ganzon,
an officer of the Ibaan Rural Bank and the person to talk to regarding
the property. While the letter-authority issued in favor of the
respondents was non-exclusive, no evidence was adduced to show
that there were other persons, aside from the respondents, who
informed Lee about the property for sale. Ganzon testified that no
advertisement was made announcing the sale of the lot, nor did she
give any authority to other brokers/agents to sell the subject
property. 31 The fact that it was Lee who personally called Borbon
and asked for directions prove that it was only through the
respondents that Lee learned about the property for
sale. 32 Significantly, too, Ms. Teresa Ganzon testified that there
were no other persons other than the respondents who inquired from
her about the sale of the property to Lee. 33 It can thus be readily
inferred that the respondents were the only ones who knew about the
property for sale and were responsible in leading a buyer to its
consummation. All these circumstances lead us to the inescapable
conclusion that the respondents were the procuring cause of the sale.
When there is a close, proximate and causal connection between the
broker's efforts and the principal's sale of his property, the broker is
entitled to a commission. 34
The petitioners insist that the respondents are not entitled to any
commission since they did not actually perform any
acts of"negotiation" as required in the letter-authority. They refuse to
pay the commission since according to them, the respondents'
participation in the transaction was not apparent, if not nil. The
respondents did not even look at the property themselves; did not
introduce the buyer to the seller; did not hold any conferences with
the buyer, nor take part in concluding the sale. For the non-
compliance of this obligation "to negotiate," the petitioners argue, the
respondents are not entitled to any commission. aIcDCA
We find the argument specious. The letter of authority must be read
as a whole and not in its truncated parts. Certainly, it was not the
intention of Medrano to expect the respondents to do just that (to
negotiate) when he issued the letter of authority. The clear intention
is to reward the respondents for procuring a buyer for the property.
Before negotiating a sale, a broker must first and foremost bring in a
prospective buyer. It has been held that a broker earns his pay merely
by bringing the buyer and the seller together, even if no sale is
eventually made. 35 The essential feature of a broker's conventional
employment is merely to procure a purchaser for a property ready,
able, and willing to buy at the price and on the terms mutually agreed
upon by the owner and the purchaser. And it is not a prerequisite to
the right to compensation that the broker conduct the negotiations
between the parties after they have been brought into contact with
each other through his efforts. 36 The case of Macondray v.
Sellner 37 is quite instructive:
The business of a real estate broker or agent,
generally, is only to find a purchaser, and the
settled rule as stated by the courts is that, in the
absence of an express contract between the broker
and his principal, the implication generally is that
the broker becomes entitled to the usual
commissions whenever he brings to his principal a
party who is able and willing to take the property
and enter into a valid contract upon the terms then
named by the principal, although the particulars
may be arranged and the matter negotiated and
completed between the principal and the purchaser
directly.
Notably, there are cases where the right of the brokers to recover
commissions were upheld where they actually took no part in the
negotiations, never saw the customer, and even some in which they
did nothing except advertise the property, as long as it can be shown
that they were the efficient cause of the sale. 38
In the case at bar, the role of the respondents in the transaction is
undisputed. Whether or not they participated in the
negotiations of the sale is of no moment. Armed with an authority to
procure a purchaser and with a license to act as broker, we see no
reason why the respondents can not recover compensation for their
efforts when, in fact, they are the procuring cause of the sale. 39
Anent the validity of the letter-authority signed by Medrano, we find
no reversible error with the findings of the appellate and trial courts
that the petitioners are liable thereunder. Such factual findings
deserve this Court's respect in the absence of any cogent reason to
reverse the same. Medrano's obligation to pay the respondents
commission for their labor and effort in finding a purchaser or a
buyer for the described parcel of land is unquestionable. In the
absence of fraud, irregularity or illegality in its execution, such letter-
authority serves as a contract, and is considered as the law between
the parties. As such,Medrano can not renege on the promise to pay
commission on the flimsy excuse that he is not the registered
owner of the property. The evidence shows that he comported
himself to be the owner of the property. His testimony is quite
telling:
Q Mr. Medrano, do you know any of the plaintiffs
in this case, Pacita Borbon, Josefina
Antonio, and Stella (sic) F. Flor?
WITNESS
A I know only Stella (sic) F. Flor. The rest, I do
not know them. I have never met them, up
to now. EHTIcD
Q How about the co-defendant Ibaan Rural Bank?
A I know co-defendant Ibaan Rural Bank, having
been the founder and at one time or
another, I have served several capacities
from President to Chairman of the Board.
 Q Are you familiar with a certain parcel of land
located at Barrio Tulay na Patpat, Ibaan,
Batangas, with an area of 17 hectares?
A Yes, Sir. I used to own that property but later on
mortgaged it to Ibaan Rural Bank.
Q And what, if any, [did] the bank do to your
property after you have mortgaged the
same to it?
A After many demands for payment or
redemption of my mortgage, which I
failed to do so, the Ibaan Rural Bank sold
it.
Q After it was foreclosed?
A Yes, Sir.
Q Do you recall having made any transaction with
plaintiff Stella (sic) F. Flor regarding the
property?
A Yes, Sir. Since she is the first cousin of my wife,
I remember [that] she came to my office
once and requested for a letter of authority
which I issued [in] September 1986, I
think, and I gave her the
letter of authority. 40
As to the liability of the bank, we quote with favor the
disquisition of the respondent court, to wit:
Further, the appellants cannot use the flimsy
excuse (only to evade liability) that "(w)hat
Mr. Medrano represented to the plaintiffs-
appellees, without the knowledge or consent of the
defendant Bank, did not bind the Bank. Res inter
alios acta alteri nocere non debet." (page 8 of the
Appellant's Brief; page 35 of the Rollo). While it
may be true that technically the Ibaan Rural Bank
did not authorize Bienvenido R. Medrano to sell
the land under litigation or that the latter was no
longer an officer of the said bank, still, these
circumstances do not convince this Court fully
well to absolve the bank. Note that, as former
President of the said bank, it is improbable that he
(Bienvenido R. Medrano) was completely
oblivious of the developments therein. By
reason of his past association with the
officers of the said bank (who are, in fact, his
relatives), it is unbelievable that Bienvenido
R. Medrano could simply have issued the said
letter of authority without the knowledge ofthe
said officers. Granting por aguendo that
Bienvenido R. Medrano did not act on
behalf of the bank, however, We doubt that he had
no financial and/or material interest in the said sale
— a fact that could not possibly have eluded Our
attention. 41
From all the foregoing, there can be no other conclusion than the
respondents are indeed the procuring cause of the sale. If not for the
respondents, Lee would not have known about the mango plantation
being sold by the petitioners. The sale was consummated. The bank
had profited from such transaction. It would certainly be iniquitous if
the respondents would not be rewarded their commission pursuant to
the letter of authority.
WHEREFORE, the petition is DENIED due course. The
Decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Puno, Tinga and Chico-Nazario, JJ., concur.
Austria-Martinez, J., took no part.
Footnotes 22.Rollo, pp. 16-17.
1.Penned by Associate Justice Jose L. Sabio, Jr., with Associate
Justices Ma. Alicia Austria-Martinez (now an Associate 23.Exhibit "A," Records, p. 168.
Justice of the Supreme Court) and Hilarion L. Aquino 24.TSN, 4 December 1987, p. 6.
(retired), concurring.
25.Tan v. Gullas, 393 SCRA 334 (2002).
2.Penned by Judge Omar U. Amin.
26.Black's Law Dictionary, Fifth Edition.
3.Records, p. 8.
27.Clark v. Ellsworth, 66 Ariz. 119, 184 P.2d 821 (1947).
4.TSN, 4 January 1989, p. 6.
28.See Mohamed v. Robbins, 23 Ariz. App. 195, 531 P.2d 928, 930
5.TSN, 4 December 1987, pp. 7-8. (1975).
6.Exhibit "B," Records, p. 153. 29.Danon v. Brimo, 48 Phil. 133 (1921).
7.TSN, 4 December 1987, pp. 9-10; TSN, 15 March 1989, p. 9. 30.Tan v. Gullas, supra.
8.TSN, 15 March 1989, p. 10 31.TSN, 11 September 1990, p. 5.
9.TSN, 11 May 1989, pp. 8-9. 32.TSN, 4 December 1987, p. 11.
10.Exhibit "D," Records, p. 178. 33.TSN, 11 September 1990, p. 5.
11.TSN, 15 March 1989, p. 14. 34.Manotok Brothers, Inc. v. Court of Appeals, 221 SCRA 224
12.Records, pp. 8-10. (1993).

13.Id. at 320. 35.Tan v. Gullas, supra.

14.Id. 36.Wickersham v. T. D. Harris, 313 F.2d 468 (1963).

15.Id. at 229. 37.33 Phil. 370 (1916).

16.Id. at 321. 38.Libby v. Ivers & Pond Piano Co., 317 Mass. 478, 58 N.E.2d
834 (1945); Gleason v. Nelson, 162 Mass. 245, 38 N.E.
17.Id. at 322. 497 (1894); Clarkv. Ellsworth, supra.
18.Id. at 325-327. 39.Wickersham v. Harris, supra.
19.Id. at 370-371. 40.TSN, 6 November 1990, pp. 5-6.
20.Id. at 372. 41.Rollo, p. 41.
21.Rollo, p. 39.
||| (Medrano v. Court of Appeals, G.R. No. 150678, [February 18,
2005], 492 PHIL 222-237)
EN BANC
[G.R. No. 6906. September 27, 1911.]
FLORENTINO RALLOS, ET AL., plaintiffs-
appellees, vs. TEODORO
R. YANGCO, defendant-appellant.
Mariano Escueta, for appellant.
Martin M. Levering, for appellees.
SYLLABUS
1. PRINCIPAL AND AGENT; TERMINATION OF
THE AGENCY; DUTY OF PRINCIPAL TO GIVE DUE
NOTICE. — The defendant having advertised the fact that C was
his agent, having given special notice to the plaintiffs of the
agency, and having also given them a special invitation to deal
with such agent, it became the defendant's duty, upon the
termination of the relationship of principal and agent, to give due
and timely notice thereof to the plaintiffs.
2. D.; ID.; ID.; LIABILITY OF PRINCIPAL. — The
general rule is that, when the relationship of principal and agent
is established, and the principal gives notice of the agency and
holds out the agent as his authorized representative, upon the
termination of the agency it is the duty of the principal to give
due and timely notice thereof, otherwise, he will be held liable to
third parties acting in good faith and properly relying upon such
agency.
DECISION
MORELAND, J p:
This is an appeal from a judgment of the Court of First
Instance of the Province of Cebu, the Hon. Adolph Wislizenus
presiding, in favor of the plaintiffs, in the sum of P1,537.08, with
interest at 6 per cent per annum from the month of July, 1909,
with costs.
The defendant in this case on the 27th day of November,
1907, sent to the plaintiff Florentino Rallos, among others, the
following letter:
"CIRCULAR No. 1.
"MANIL
A, Novem
ber 27,
1907.
"Mr. FLORENTINO RALLOS, Cebu.
"DEAR SIR: I have the honor to inform
you that I have on this date opened in my
steamship office at No. 163 Muelle de la Reina,
Binondo, Manila, P. I., a shipping and commission
department for buying and selling leaf tobacco and
other native products, under the following
conditions:
 "1. When the consignment has been
received, the consignor thereof will be credited
with a sum not to exceed two-thirds of the value of
the goods shipped, which may be made available
by acceptance of a draft or written order of the
consignor on five to ten days' sight, or by his
ordering at his option a bill of goods. In the latter
case he must pay a commission of 2 per cent.
"2. No draft or written order will be
accepted without previous notice forwarding the
consignment of goods to guarantee the same.
"3. Expenses of freight, hauling and
everything necessary for duly executing the
commission will be charged in the commission.
"4. All advances made under sections (1)
and (3) shall bear interest at 10 per cent a year,
counting from a month after the making thereof,
until liquidated by the sale of the goods shipped or
by remittance of the amount thereof.
"5. A commission of 2 per cent will be
collected on the amount realized from the sale of
the goods shipped.
"6. Payment will be made immediately
after collection of the price of the goods shipped.
"7. Orders will be taken for the purchase
of general merchandise, ship-stores, cloths, etc.,
upon remittance of the amount with the
commission of 2 per cent on the total value of the
goods bought. Expenses of freight, hauling, and
everything necessary for properly executing the
commission will be charged to the consignor.
"8. The consignor of the goods may not
fix upon the consignee a longer period than four
months, counting from the date of receipt, for
selling the same; with the understanding that after
such period the consignee is authorized to make
the sale, so as to prevent the advance and cost of
storage from amounting to more than the actual
value of said goods, as has often happened.
"9. The shipment to the consignors of the
goods ordered on account of the amount realized
from the sale of the goods consigned and of the
goods bought on remittance of the value thereof,
under sections (1) and (3), will not be insured
against risk by sea and land except on written
order of the interested parties.
"10. On all consignments of goods not
insured according to the next preceding section,
the consignors will bear the risk.
"11. All the foregoing conditions will take
effect only after this office has acknowledged the
consignor's previous notice.
"12. All other conditions and details will
be furnished at the office of the undersigned.
"If you care to favor me with your
patronage, my office is at No. 163 Muelle de la
Reina, Binondo, Manila, P. I., under the name of
'Teodoro R. Yangco.' In this connection it gives me
great pleasure to introduce to you Mr. Florentino
Collantes, upon whom I have conferred public
power of attorney before the notary, Mr. Perfecto
Salas Rodriguez, dated November 16, 1907, to
perform in my name and on my behalf all acts
necessary for carrying out my plans, in the belief
that through his knowledge and long experience in
the business, along with my commercial
connections with the merchants of this city and of
the provinces, I may hope to secure the most
advantageous prices for my patrons. Mr. Collantes
 will sign by power of attorney, so I beg that you the defendant, can recover of the defendant under the
make due note of his signature hereto affixed. circumstances above set forth. We are of the opinion that the
"Very respectfully, defendant is liable. Having advertised the fact that Collantes was
his agent and having given special notice to the plaintiffs of that
(Sgd.) "T. fact, and having given them a special invitation to deal with such
R. YANG agent, it was the duty of the defendant on the termination of the
CO. relationship of principal and agent to give due and timely notice
(Sgd.) "F. COLLANTES. thereof to the plaintiffs. Failing to do so, he is responsible to
them for whatever goods may have been in good faith and
Accepting this invitation, the plaintiffs proceeded to do a without negligence sent to the agent without knowledge, actual
considerable business with the defendant through the said or constructive, of the termination of such relationship.
Collantes, as his factor, sending to him as agent for the defendant
a good deal of produce to be sold on commission. Later, and in For these reasons the judgment appealed from is
the month of February, 1909, the plaintiffs sent to the said affirmed, without special finding as to costs.
Collantes, as agent for the defendant, 218 bundles of tobacco in Torres, Mapa, Johnson and Carson, JJ., concur.
the leaf to be sold on commission, as had been other produce
previously. The said Collantes received said tobacco and sold it ||| (Rallos v. Yangco, G.R. No. 6906, [September 27, 1911], 20 PHIL
for the sum of P1,744. The charges for such sale were P206.96, 269-273)
leaving in the hands of said Collantes the sum of P1,537.08
belonging to the plaintiffs. This sum was, apparently, converted
to his own use by said agent.
It appears, however, that prior to the sending of said
tobacco the defendant had severed his relations with Collantes
and that the latter was no longer acting as his factor.
This fact was not known to the plaintiffs; and it is
conceded in the case that no notice of any kind was given by the
defendant to the plaintiffs of the termination of the relations
between the defendant and his agent. The defendant refused to
pay the said sum upon demand of the plaintiffs, placing such
refusal upon the ground that at the time the said tobacco was
received and sold by Collantes he was acting personally and not
as agent of the defendant. This action was brought to recover
said sum.
As is seen, the only question for our decision is whether
or not the plaintiffs, acting in good faith and without knowledge,
having sent produce to sell on commission to the former agent of

FIRST DIVISION
[G.R. No. 102784. April 7, 1997.]
ROSA LIM, petitioner, vs. COURT OF
APPEALS AND PEOPLE OF THE
PHILIPPINES, respondents.
Zosa & Quijano Law Offices for petitioner.
The Solicitor General for respondents.
SYLLABUS
1. CRIMINAL LAW; REVISED PENAL CODE; ESTAFA THRU
MISAPPROPRIATION; APPROPRIATION OR CONVERSION,
MEANING OF. — It is well-settled that the essence of estafa thru
misappropriation is the appropriation or conversion of money or
property received to the prejudice of the owner. The words "convert'
and "misappropriate" connote an act of using or disposing of
another's property as if it were one's own or devoting it to a purpose
or use different from that agreed upon. To misappropriate for one's
own use includes, not only conversion to one's personal advantage,
but also every attempt to dispose of the property of another without
right.
2. ID.; ID.; ID.; ID.; DELIVERY TO THIRD PERSON OF THING
HELD IN TRUST, GENERALLY, NOT A DEFENSE IN ESTAFA;
EXCEPTION; CASE AT BENCH. — Generally, the delivery to a
third person of the thing held in trust is not a defense in estafa. . . .
However, this rule has already been modified in subsequent
cases. . . . Rosa Lim's assertion that she had returned the ring in
question to Nadera, in addition to the latter's unswerving testimony
admitting the same, raises reasonable doubt as to Lim's liability
for estafa. Conversion or misappropriation has not been sufficiently
proven. . . . Rosa Lim's sole purpose in delivering the pieces of
jewelry to Aurcha Nadera, was for Nadera to effect their return to
Victoria Suarez. By no stretch of the imagination can the act of
returning said items to its rightful owner, although through the
mediation of a third party, be considered as conversion or
misappropriation. Verily, that said act manifested Rosa Lim's
recognition that the pieces of jewelry do not belong to her. In doing
so, she acknowledged Suarez' right of dominion over them. Thus, it
cannot be regarded as conversion or misappropriation in its true
sense sufficient to convict her for estafa. Lim did not deliver them
bracelet and the ring to Nadera so that the latter may re-sell them as
her sub-agent. Her only purpose was to have them returned to their
rightful owner. Moreover, she delivered the said pieces of jewelry to
one who is not a total stranger, but to a person known to both her
and Suarez and who, from all indications, enjoy their mutual trust
and confidence. To reiterate, this raises reasonable doubt as to the
presence of any criminal intent ascribed to her by the prosecution.
3. REMEDIAL LAW; EVIDENCE; DECLARATION AGAINST
INTEREST; THIRD PERSON'S ADMISSION OF HAVING
RECEIVED THING HELD IN TRUST, A CASE OF; CASE AT
BENCH. — Aurelia Nadera herself admits that she received both the
bracelet and the ring in question from Lim. In her testimony, she
had no qualms in admitting that she sold the ring in question and that
she issued a check in favor of Suarez as payment for said ring. She
also admitted that such check had bounced. She is now facing a
criminal case for violation of Batas Pambansa Blg. 22 instituted by
Suarez herself. It is significant to note that the amount of the
bouncing check issued by Nadera as payment to Suarez corresponds
to the amount of the ring given by Suarez to Lim — P169,000.00.
We cannot conceive of any motive on the part of Nadera in admitting
not only receiving the ring, but also issuing, in payment thereof, a Acting on the motion for reconsideration filed by petitioner Rosa
bouncing check, save the desire to tell the truth, in order that one Lim praying for her acquittal, this Court takes a second hard look at
who is innocent of any crime would not be erroneously convicted. the present case in the light of the various arguments raised by the
For, the same can only be to her detriment, considering that she is movant. LLjur
now facing a criminal charge herself. That she and Lim are very
good friends is of no moment, as it is inconceivable that she would Petitioner Rosa Lim was charged with, and subsequently convicted
admit as fact what did not actually happen, when such admission of, the crime of estafa as defined under Art. 315, par. 1(b) of the
could very well lead to her own incarceration. Nadera's admission is Revised Penal Code before Branch 92 of the Regional Trial Court of
a declaration against her own interest made under oath. It must thus Quezon City. 1 This conviction was affirmed by the Court
be given full weight and credence. Appeals. 2 Aggrieved by the decision of the appellate court, Rosa
Lim filed a petition for review under Rule 45 before the Supreme
4. CRIMINAL LAW; NO ESTAFA THROUGH NEGLIGENCE; Court. This Court subsequently sustained the ruling of the Court of
CIVIL LIABILITY FOR RETURN OF THING HELD IN TRUST Appeals, hence, this Motion for Reconsideration seeking the reversal
TO ONE WHO HAS NO AUTHORITY TO RECEIVE THE SAME; of our decision dated February 28, 1996.
CASE AT BENCH. — The act of Lim in returning the items to
Nadera only shows that she had reason to believe that the latter had Her motion for reconsideration is anchored on the following
the authority to receive the same. This belief was inspired by the fact grounds:
that at the time of the said transaction between Lim and Suarez, it I. THE COURT A QUO FAILED TO CONSIDER
was Nadera herself, in behalf of Suarez, who prepared the receipt to EVIDENCE TO THE EFFECT THAT THE TRUE
be signed by Lim. In addition, Nadera was the one who introduced AGREEMENT BETWEEN THE PARTIES WAS
Suarez and Lim to each other. Hence, Rosa Lim can at most be held A SALE ON CREDIT AND NOT AN AGENCY
negligent in returning the ring to one whose authority to receive the TO SELL AS BROUGHT OUT IN THE CROSS-
same was subsequently refuted. Consequently, for the negligently EXAMINATION MADE BY THE PRIVATE
assuming Nadera's authority to receive the ring, Lim cannot be held PROSECUTOR ON THE PETITIONER AND
be held criminally liable. Settled it is in our jurisprudence that there AURELIA NADERA AS WELL AS ON THE
can be no estafa through negligence. At worst, she should only be CROSS EXAMINATION MADE ON THE
held civilly liable, Accordingly, we hold her liable to pay Vicky COMPLAINANT BY THE COUNSEL FOR THE
Suarez the full amount of the ring as actual damages plus legal PETITIONER; and
interest in the amount of six percent (6%) from the time of
extrajudicial demand. II. ON THE ISSUE OF WHETHER OR NOT
THE PETITIONER RETURNED THE RING
VALUED AT P169,000.00 TO COMPLAINANT
THRU AURELIA NADERA, THE COURT A
RESOLUTION QUO FAILED TO CONSIDER CONCLUSIVE
EVIDENCE THAT SAID RING WAS IN FACT
RETURNED TO COMPLAINANT AS SHOWN
HERMOSISIMA, JR., J p: BY THE FACT THAT SHE FILED A CRIMINAL
 CASE AGAINST AURELIA NADERA FOR
ISSUING A BOUNCING CHECK IN THE
AMOUNT OF P169,000.00 WHICH SHE
ISSUED IN PAYMENT OF THE RING IN THE
REGIONAL TRIAL COURT OF QUEZON CITY.
It will be recalled that the facts of this case are as
follows:
Rosa Lim arrived in Manila from Cebu City sometime in October,
1987 with her friend Aurelia Nadera. On October 8, 1987, they went
to the Williams Apartelle in Timog, Quezon City, where they met
Victoria Suarez, a jewelry dealer. Suarez and Nadera knew each
other since the latter often sold jewelry for the former on commission
basis. Nadera had previously introduced Rosa Lim to Suarez as a
wealthy businesswoman.
Lim was offered two pieces of jewelry by Suarez, to wit: one (1) 3.35
carat diamond ring worth P169,000.00 and one (1) bracelet worth
P170,000.00. The pieces were to be sold by Lim on commission.
Accordingly, Lim signed a receipt, prepared by Nadera for Suarez,
which stated that:
"THIS IS TO CERTIFY, that I received from
Vicky Suarez the following jewelry:
Description Price
1 ring 3.35 solo P169,000.00
1 bracelet 170,000.00
—————
Total P339,000.00
in good condition, to be sold in CASH ONLY
within . . . days from date of signing this receipt:
'if I could not sell, I shall return all the
jewelry, within the period mentioned
above; if I would be able to sell, I shall
immediately deliver and account the
whole proceeds of sale thereof to the
owner of the jewelries [sic] at his/her
residence; my compensation or
commission shall be the over-price on the
value of each jewelry quoted above. I am
prohibited to sell any jewelry on credit or
by installment; deposit, give for
safekeeping; lend, pledge or give as
security or guaranty under any
circumstance or manner, any jewelry to
other person or persons,' LLphil
I sign my name this ___ day of _____
19___ at Manila.
_____________________________
Signature of Persons who received
jewelries [sic]
Address: ________________________" 3
On October 12, 1987, before departing for Cebu, Lim called up Mrs.
Suarez by telephone to inform her that she was no longer interested
in the ring and the bracelet. Suarez replied that she was busy at the
time and instructed her to return the pieces of jewelry to Nadera
instead, who would in turn give them back to Suarez. Lim then
returned the jewelry to Nadera who issued a handwritten receipt
dated October 12, 1987. 4 On March 21, 1988, Suarez, thru her
counsel, sent Lim a demand letter asking for the return of the ring.
Lim, also thru counsel, sent a response letter to Suarez averring that
she had already returned both ring and bracelet to Nadera and as
such, she no longer had any liability to Suarez insofar as the said
items were concerned. Irked, Suarez filed a complaint for estafa
under Article 315, par. 1(b) against Rosa Lim. Trial ensued
thereafter.
During the trial, Lim asserted that she had already returned both the
bracelet and ring to Nadera. This was admitted by Nadera during her
direct examination before the trial court:
"Q: Do you know if Rosa Lim returned the
jewelries [sic]?
A: She gave the jewelries [sic] to me.
Q: Why did Rosa Lim give the jewelries [sic] to
you?
A: Rosa Lim called up Vicky Suarez the following
morning and told Vicky Suarez that she
was going home to Cebu and asked if she
could give the jewelries [sic] to me.
Q: And when did Rosa Lim give you the jewelries
[sic]?
A: Before she left for Cebu." 5
Nadera further testified that she issued a check in favor of Suarez in
payment for the ring which Lim had previously returned to her:
"Q: What happened to the ring?
A: I sold it.
xxx xxx xxx
Q: What happened to the proceeds of the sale of
the ring?
A: The check that was paid to me bounced. So my
check also bounced." 6
After another thorough and painstaking scrutiny of the records of this
case, we have decided to act favorably on the petitioner's motion.
Thus, upon a careful and deliberate consideration of the errors
assigned by the petitioner, as well as of prevailing jurisprudence, we
are convinced that Rosa Lim must be acquitted.
Rosa Lim asserts that she gave both the bracelet and the ring to
Aurelia Nadera for it to be returned to Suarez and that it was Suarez
herself who instructed her to do so. Suarez, on the other hand, refutes
this contention by saying that she could not have entrusted the return
of the pieces of jewelry to Nadera since the latter already owed her a
substantial amount of money and that to entrust the return of the said
ring would be to tantamount to undue risk on her part. However,
Suarez herself admitted that the bracelet was in fact received by her
from Nadera:
ATTY. TORIO: Now, Mrs. Witness, you said that
the bracelet was returned to you, is it not
true that this bracelet was returned by
Aurelia Nadera?
A: I already answered that.
COURT: What was the answer?
WITNESS: It was returned by Aurelia Nadera. 7
It is highly unlikely that Lim, if she truly had any intention of
defrauding Suarez, would still make an effort to return the bracelet,
considering that as between the two items, it is the more expensive
one. Moreover, the Court of Appeals in examining the facts of this
case held that there was indeed such a return:
". . . This claim (that the ring had been returned to
Suarez thru Nadera) is disconcerting. It
contravenes the very terms of Exhibit A. The
instruction by the complaining witness to appellant
to deliver the ring to Aurelia Nadera is vehemently
denied by the complaining witness, who declared
that she did not authorize and/or instruct appellant
to do so. And thus,by delivering the ring to
Aurelia without the express authority and consent
 of the complaining witness, appellant assumed the
right to dispose of the jewelry as if it were hers,
thereby committing conversion, a clear breach of
trust, punishable under Article 315, par. 1(b),
Revised Penal Code."(emphasis ours)
In other words, it has been established that the ring which is the
subject of the prosecution for estafa was indeed returned, albeit to a
person whom Suarez claims has no authority to receive said item.
Generally, the delivery to a third person of the thing held in trust is
not a defense in estafa. As enunciated in the earlier case ofUnited
States vs. Eustaquio: 8
"When merchandise is received for sale on
commission, under the obligation to return the
same, or its value, and is thereafter delivered to a
third person without the knowledge or authority of
the owner, the two elements which constitute the
crime of estafa exist: (a) the deceit by which it was
intended to defraud; and (b) the damage caused the
owner.
However, this rule has already been modified in subsequent cases.
In People vs. Nepomuceno 9 and People vs. Trinidad, 10 it has been
held that:
"In cases of estafa the profit or gain must be
obtained by the accused personally, through his
own acts, and his mere negligence in permitting
another to take advantage or benefit from the
entrusted chattel cannot constitute estafa under
Article 315 paragraph 1-b, of the Revised Penal
Code: unless of course the evidence should
disclose that the agent acted in conspiracy or
connivance with the one who carried out the actual
misappropriation, when the accused would be
answerable for the acts of his co-conspirators. If
there is no such evidence, direct or circumstantial,
and if the proof is clear that the accused herself
was the innocent victim of her sub-agent's
faithlessness, her acquittal is in order." (emphasis
ours)
Aurelia Nadera herself admits that she received both the bracelet and
the ring in question from Lim. In her testimony, she hadno qualms in
admitting that she sold the ring in question and that she issued a
check in favor of Suarez as payment for said ring. She also admitted
that such check had bounced. She is now facing a criminal case for
violation of Batas Pambansa Blg. 22 instituted by Suarez herself. It is
significant to note that the amount of the bouncing check issued by
Nadera as payment to Suarez corresponds to the amount of the ring
given by Suarez to Lim — P169,000.00.
We cannot conceive of any motive on the part of Nadera in admitting
not only receiving the ring, but also issuing, in payment thereof, a
bouncing check, save the desire to tell the truth, in order that one
who is innocent of any crime would not be erroneously convicted.
For, the same can only be to her detriment, considering that she is
now facing a criminal charge herself. That she and Lim are very
good friends is of no moment, as it is inconceivable that she would
admit as fact what did not actually happen, when such admission
could very well lead to her own incarceration. Nadera's admission is
a declaration against her own interest made under oath. It must thus
be given full weight and credence. cdtai
Rosa Lim's assertion that she had returned the ring in question to
Nadera, in addition to the latter's unswerving testimony admitting the
same, raises reasonable doubt as to Lim's liability for estafa.
Conversion or misappropriation has not been sufficiently proven. As
held in the case of People vs. Lopez: 11
"When a demand for the delivery of the thing
promised, or the return of the money delivered in
trust, is made, and such demand is not fulfilled
within a reasonable time, a presumption arises that
the amount has been misappropriated. This
 inference, however, is only deducible when the
explanation given by the accused for his failure to
account for the money is absolutely devoid of
merits. Where the explanation does not completely
destroy the presumption but at least raises
reasonable doubt that accused had
misappropriated the amount in question, acquittal
is in order."
It is well-settled that the essence of estafa thru misappropriation is
the appropriation or conversion of money or property received to the
prejudice of the owner. The words "convert" and "misappropriate"
connote an act of using or disposing of another's property as if it
were one's own or devoting it to a purpose or use different from that
agreed upon. To misappropriate for one's own use includes, not only
conversion to one's personal advantage, but also every attempt to
dispose of the property of another without right. 12
Rosa Lim's sole purpose in delivering the pieces of jewelry to
Aurelia Nadera, was for Nadera to effect their return to Victoria
Suarez. By no stretch of the imagination can the act of returning said
items to its rightful owner, although through the mediation of a third
party, be considered as conversion or misappropriation. Verily, that
said act manifested Rosa Lim's recognition that the pieces of jewelry
do not belong to her. In doing so, she acknowledged Suarez' right of
dominion over them. Thus, it cannot be regarded as conversion or
misappropriation in its true sense sufficient to convict her for estafa.
Lim did not deliver the bracelet and the ring to Nadera so that the
latter may re-sell them as her sub-agent. Her only purpose was to
have them returned to their rightful owner. Moreover, she delivered
the said pieces of jewelry to one who is not a total stranger, but to a
person known to both her and Suarez and who, from all indications,
enjoy their mutual trust and confidence. To reiterate, this raises
reasonable doubt as to the presence of any criminal intent ascribed to
her by the prosecution.
The act of Lim in returning the items to Nadera only shows that she
had reason to believe that the latter had the authority to receive the
same. This belief was inspired by the fact that at the time of the said
transaction between Lim and Suarez, it was Nadera herself, in behalf
of Suarez, who prepared the receipt to be signed by Lim. 13 In
addition, Nadera was the one who introduced Suarez and Lim to each
other. Hence, Rosa Lim can at most be held negligent in returning the
ring to one whose authority to receive the same was subsequently
refuted. Consequently, for negligently assuming Nadera's authority to
receive the ring, Lim cannot be held criminally liable. Settled it is in
our jurisprudence that there can be no estafa through negligence. At
worst, she should only be held civilly liable. Accordingly, we hold
her liable to pay Vicky Suarez the full amount of the ring as actual
damages plus legal interest in the amount of six percent (6%) from
the time of extrajudicial demand.
WHEREFORE, the Motion for Reconsideration is GRANTED. The
decision dated February 28, 1996 is hereby MODIFIED. Petitioner
Rosa Lim is hereby ACQUITTED of any criminal liability, but is
held civilly liable in the amount of P169,000.00 as actual damages,
plus legal interest, without subsidiary imprisonment in case of
insolvency.
No pronouncement as to costs.
SO ORDERED.
Padilla, Bellosillo, Vitug and Kapunan, JJ ., concur.
Footnotes
1.Docketed as Criminal Case No. Q-89-2216.
2.CA-G.R CR No. 10290 entitled "People v. Rosa Lim",
promulgated on August 30, 1991.
3."PINATUTUNAYAN KO na aking tinanggap kay ________ ang
mga alahas na sumusunod:
Mga uri Halaga 5.TSN, November 16, 1989, p. 12.
1 ring 3.35 solo P169,000.00 6.Ibid., p. 16.
1 bracelet 170,000.00 7.TSN, June 26, 1989, p. 17.
————— 8.31 PHIL 188 (1915).
Kabuuan P339,000.00 9.CA 46 O.G. 6128 (1949)
na nasa mabuting kalagayan upang ipagbili ng 10.CA 53 O.G. 731 (1956)
KALIWAAN (ALCONTADO) lamang sa loob ng . . .
araw mula sa ating pagkalagdaan: 11.CA 56 O.G. 5879 (1960)

'kung hindi ko maipagbili ay isasauli ko ang 12.Amorsolo vs. People, 154 SCRA 556
lahat ng alahas sa loob ng taning na panahong nakatala 13.Direct examination of Rosa Lim, TSN, June 29, 1989, p. 3.
sa itaas; kung maipagbili ko naman ay dagli kong isusuli
at ibibigay ang buong pinagbilhan sa may-ari ng mga ||| (Lim v. Court of Appeals, G.R. No. 102784 (Resolution), [April 7,
alahas sa kanyang bahay-tahanan; ang aking gantimpala 1997], 337 PHIL 459-469)
ay ang mapapahigit na halaga sa nakatakdang halaga sa
itaas ng bawat alahas HINDI ko pinahihintulutang ipa-u-
u-tang o ibibigay na hulugan ng alin mang alahas,
ilalagak, ipagkakatiwala; ipahihiram; isasangla o
ipananagot kahit sa anong paraan ang alin mang alahas
sa ibang mga tao o tao.'

NILALAGDAAN ko ang kasunduang ito

ngayong ika ____ ng dito sa Maynila.

_______________________
(Lagda ng Tumanggap ng mga Alahas)

Address: __________________________"
4.Exhibits "2", "2-a"; Records, p. 93.

SECOND DIVISION
[G.R. No. 118375. October 3, 2003.]
CELESTINA T. NAGUIAT, petitioner, vs.
COURT OF APPEALS and AURORA
QUEAÑO, respondents.
DECISION
TINGA, J p:
Before us is a Petition for Review on Certiorari under Rule 45,
assailing the decision of the Sixteenth Division of the respondent
Court of Appeals promulgated on 21 December 1994 1 , which
affirmed in toto the decision handed down by the Regional Trial
Court (RTC) of Pasay City. 2
The case arose when on 11 August 1981, private respondent Aurora
Queaño (Queaño) filed a complaint before the Pasay City RTC for
cancellation of a Real Estate Mortgage she had entered into with
petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision,
declaring the questioned Real Estate Mortgage void, which Naguiat
appealed to the Court of Appeals. After the Court of Appeals upheld
the RTC decision, Naguiat instituted the present petition.
The operative facts follow:
Queaño applied with Naguiat for a loan in the amount of Two
Hundred Thousand Pesos (P200,000.00), which Naguiat granted. On
11 August 1980, Naguiat indorsed to Queaño Associated Bank
Check No. 090990 (dated 11 August 1980) for the amount of Ninety
Five Thousand Pesos (P95,000.00), which was earlier issued to
Naguiat by the Corporate Resource Financing Corporation. She also
issued her own Filmanbank Check No. 065314, to the order of
Queaño, also dated 11 August 1980 and for the amount of Ninety
Five Thousand Pesos (P95,000.00). The proceeds of these checks
were to constitute the loan granted by Naguiat to Queaño. 3
To secure the loan, Queaño executed a Deed of Real Estate
Mortgage dated 11 August 1980 in favor of Naguiat, and surrendered
to the latter the owner's duplicates of the titles covering the
mortgaged properties. 4 On the same day, the mortgage deed was
notarized, and Queaño issued to Naguiat a promissory note for the
amount of TWO HUNDRED THOUSAND PESOS (P200,000.00),
with interest at 12% per annum, payable on 11 September
1980. 5 Queaño also issued a Security Bank and Trust Company
check, postdated 11 September 1980, for the amount of TWO
HUNDRED THOUSAND PESOS (P200,000.00) and payable to the
order of Naguiat.
Upon presentment on its maturity date, the Security Bank check was
dishonored for insufficiency of funds. On the following day, 12
September 1980, Queaño requested Security Bank to stop payment
of her postdated check, but the bank rejected the request pursuant to
its policy not to honor such requests if the check is drawn against
insufficient funds. 6
On 16 October 1980, Queaño received a letter from Naguiat's lawyer,
demanding settlement of the loan. Shortly thereafter, Queaño and one
Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the meeting,
Queaño told Naguiat that she did not receive the proceeds of the
loan, adding that the checks were retained by Ruebenfeldt, who
purportedly was Naguiat's agent.7
Naguiat applied for the extrajudicial foreclosure of the mortgage
with the Sheriff of Rizal Province, who then scheduled the
foreclosure sale on 14 August 1981. Three days before the scheduled
sale, Queaño filed the case before the Pasay City RTC, 8seeking the
annulment of the mortgage deed. The trial court eventually stopped
the auction sale. 9
On 8 March 1991, the RTC rendered judgment, declaring the Deed
of Real Estate Mortgage null and void, and ordering Naguiat to
return to Queaño the owner's duplicates of her titles to the mortgaged
lots. 10 Naguiat appealed the decision before the Court of Appeals,
making no less than eleven assignments of error. The Court of
Appeals promulgated the decision now assailed before us that
affirmed in toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of
Appeals, especially on the issue of whether Queaño had actually
received the loan proceeds which were supposed to be covered by
the two checks Naguiat had issued or indorsed. Naguiat claims that
being a notarial instrument or public document, the mortgage deed
enjoys the presumption that the recitals therein are true. Naguiat also
questions the admissibility of various representations and
pronouncements of Ruebenfeldt, invoking the rule on the non-
binding effect of the admissions of third persons. 11 IDTHcA
The resolution of the issues presented before this Court by Naguiat
involves the determination of facts, a function which this Court does
not exercise in an appeal by certiorari. Under Rule 45 which governs
appeal by certiorari, only questions of law may be raised 12 as the
Supreme Court is not a trier of facts. 13 The resolution of factual
issues is the function of lower courts, whose findings on these
matters are received with respect and are in fact generally binding on
the Supreme Court. 14 A question of law which the Court may pass
upon must not involve an examination of the probative value of the
evidence presented by the litigants. 15 There is a question of law in a
given case when the doubt or difference arises as to what the law is
on a certain state of facts; there is a question of fact when the doubt
or difference arises as to the truth or the falsehood of alleged
facts. 16
Surely, there are established exceptions to the rule on the
conclusiveness of the findings of facts of the lower courts. 17 But
Naguiat's case doe not fall under any of the exceptions. In any event,
both the decisions of the appellate and trial courts are supported by
the evidence on record and the applicable laws.
Against the common finding of the courts below, Naguiat vigorously
insists that Queaño received the loan proceeds. Capitalizing on the
status of the mortgage deed as a public document, she cites the rule
that a public document enjoys the presumption of validity and
truthfulness of its contents. The Court of Appeals, however, is correct
in ruling that the presumption of truthfulness of the recitals in a
public document was defeated by the clear and convincing evidence
in this case that pointed to the absence of consideration. 18 This
Court has held that the presumption of truthfulness engendered by
notarized documents is rebuttable, yielding as it does to clear and
convincing evidence to the contrary, as in this case. 19
On the other hand, absolutely no evidence was submitted by Naguiat
that the checks she issued or endorsed were actually encashed or
deposited. The mere issuance of the checks did not result in the
perfection of the contract of loan. For the Civil Code provides that
the delivery of bills of exchange and mercantile documents such as
checks shall produce the effect of payment only when they have been
cashed. 20 It is only after the checks have produced the effect of
payment that the contract of loan may be deemed perfected. Art.
1934 of the Civil Code provides:
"An accepted promise to deliver something by
way of commodatum or simple loan is binding
upon the parties, but the commodatum or simple
loan itself shall not be perfected until the delivery
of the object of the contract."
A loan contract is a real contract, not consensual, and, as such, is
perfected only upon the delivery of the object of the contract. 21 In
this case, the objects of the contract are the loan proceeds which
Queaño would enjoy only upon the encashment of the checks signed
or indorsed by Naguiat. If indeed the checks were encashed or
deposited, Naguiat would have certainly presented the corresponding
documentary evidence, such as the returned checks and the pertinent
bank records. Since Naguiat presented no such proof, it follows that
the checks were not encashed or credited to Queaño's account.
Naguiat questions the admissibility of the various written
representations made by Ruebenfeldt on the ground that they could
not bind her following the res inter alia acta alteri nocere non
debet rule. The Court of Appeals rejected the argument, holding that
since Ruebenfeldt was an authorized representative or agent of
Naguiat the situation falls under a recognized exception to the
rule. 22 Still, Naguiat insists that Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency relationship
between Naguiat and Ruebenfeldt is supported by ample evidence.
As correctly pointed out by the Court of Appeals, Ruebenfeldt was
not a stranger or an unauthorized person. Naguiat instructed
Ruebenfeldt to withhold from Queaño the checks she issued or
indorsed to Queaño, pending delivery by the latter of additional
collateral. Ruebenfeldt served as agent of Naguiat on the loan
application of Queaño's friend, Marilou Farralese, and it was in
connection with that transaction that Queaño came to know
Naguiat. 23 It was also Ruebenfeldt who accompanied Queaño in her
meeting with Naguiat and on that occasion, on her own and without
Queaño asking for it, Ruebenfeldt actually drew a check for the sum
of P220,000.00 payable to Naguiat, to cover for Queaño's alleged
liability to Naguiat under the loan agreement. 24
The Court of Appeals recognized the existence of an "agency by
estoppel 25 citing Article 1873 of the Civil Code. 26 Apparently, it
considered that at the very least, as a consequence of the interaction
between Naguiat and Ruebenfeldt, Queaño got the impression that
Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to
correct Queaño's impression. In that situation, the rule is clear. One
who clothes another with apparent authority as his agent, and holds
him out to the public as such, cannot be permitted to deny the
authority of such person to act as his agent, to the prejudice of
innocent third parties dealing with such person in good faith, and in
the honest belief that he is what he appears to be. 27 The Court of
Appeals is correct in invoking the said rule on agency by estoppel.
More fundamentally, whatever was the true relationship between
Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the
checks issued or indorsed to Queaño were never encashed or
deposited to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the
courts a quo that the lender did not remit and the borrower did not
receive the proceeds of the loan. That being the case, it follows that
the mortgage which is supposed to secure the loan is null and void.
The consideration of the mortgage contract is the same as that of the
principal contract from which it receives life, and without which it
cannot exist as an independent contract. 28 A mortgage contract
being a mere accessory contract, its validity would depend on the
validity of the loan secured by it. 29
WHEREFORE, the petition is denied and the assailed decision is
affirmed. Costs against petitioner.
SO ORDERED.
Bellosillo, Quisumbing, Austria-Martinez and Callejo, Sr., JJ.,
concur.
Footnotes
1.Justice Corona Ibay-Somera wrote the ponencia, with Justices
Asaali S. Isnani and Celia Lipana-Reyes, concurring.
2.Promulgated on 8 March 1991 by Judge Manuel P. Dumatol.
3.According to Naguiat, she further delivered to Queaño the
amount of Ten Thousand Pesos (P10,000.00), thus
rounding off the amount she allegedly gave to Queaño to
Two Hundred Thousand Pesos (See Petition for Certiorari,
p. 3). Queaño, however, claims that the amount of Ten
 Thousand (P10,000.00) was deducted as the stipulated 5%
interest. Records, p. 342.
4.Transfer Certificates of Title Nos. 28631 and 28632, issued by
the Register of Deeds for District IV (Pasay City) of Metro
Manila, with a total area of Six Hundred Thirty One (631)
Square Meters. Rollo, p. 97.
5.Rollo, p. 98. According to Queaño, the true agreement between
the parties was an interest rate of 5% per month.
6.Id., p. 99. Queaño alleged that she made the "stop payment"
request because she was withdrawing her loan application
as she failed to receive the loan proceeds which were
supposed to be covered by Naguiat's checks that were
turned not to her but to Ruby Ruebenfeldt, who
purportedly was an agent of Naguiat. Queaño claimed
further that Naguiat demanded additional collaterals and
instructed Ruebenfeldt to surrender the checks to Queaño
only upon receipt of the additional security.
7.Id., p. 99. Queaño claimed further that Naguiat demanded
additional collaterals and instructed Ruebenfeldt to
surrender the checks to Queaño only upon receipt of the
additional security.
8.Docketed as Civil Case No. 9330-P.
9.Rollo, p. 5.
10.Id., p. 37.
11.Sec. 28, Rule 130. See Rule 130, Sec. 28. "Section
28. Admission by third party. — The rights of a party
cannot be prejudiced by an act, declaration, or omission of
another, except as hereinafter provided."
12.Sec. 1, Rule 45 states: "A party desiring to appeal by certiorari
from a judgment or final order or resolution of the Court of
Appeals, the Sandiganbayan, the Regional Trial Court or
other courts whenever authorized by law, may file with the
Supreme Court a verified petition for review on certiorari.
The petition shall raise only questions of law which must
be distinctly set forth." See also Metro Transit
Organization Inc. v. CA, G.R. No. 142133, 19 November
2002.
13.W-Red Construction v. CA, G.R. No. 122648, 17 August 2000.
14.Engreso v. De La Cruz, G.R. No. 148727, 9 April 2003.
15.Western Shipyard Services, Inc. v. CA, G.R. No. 110340, 28
May 2001.
16.Bagunu v. Piedad, G.R. No. 140975, 8 December 2000.
17.Exceptional circumstances that would compel the Supreme
Court to review the findings of fact of the lower courts are:
(1) when the conclusion is a finding grounded entirely on
speculations, surmises or conjectures; (2) when the
inference made is manifestly absurd, mistaken or
impossible; (3) when there is grave abuse of discretion in
the appreciation of facts; (4) when the judgment is
premised on a misapprehension of facts; (5) when the
findings of fact are conflicting; (6) when the Court of
Appeals in making its findings, went beyond the issues of
the case and the same is contrary to the admissions of both
appellant and appellee; (7) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed
by the parties and which, if properly considered, would
justify a different conclusion; and (8) when the findings of
fact of the Court of Appeals are contrary to those of the
trial court, or are mere conclusions without citation of
specific evidence, or where the facts set forth by the
petitioner are not disputed by the respondent, or where the
findings of fact of the Court of Appeals are premised on
absence of evidence but are contradicted by the evidence
of record. See Sacay v. Sandiganbayan, 226 Phil. 496, 510
(1986).
18.Rollo, p. 43. 1980, the same was dishonored for being drawn against a
closed account. On account of the dishonor of
19.See Gerales v. Court of Appeals, G.R. No. 85909, 218 SCRA Ruebenfeldt's check, Naguiat filed a criminal complaint for
638, 648, 9 February 1993, and Agdeppa vs. Ibe, G.R. No. violation of B.P. Blg. 22 with the City Prosecutor's Office
96770, 220 SCRA 584, 594, 30 March 1993. of Caloocan. However, the City Prosecutor dismissed the
20.Art. 1249, New Civil Code. ". . . The delivery of promissory said action on the ground that Ruebenfeldt's liability was
notes payable to order, or bills of exchange or other civil and not criminal. See Rollo, p. 5 to 6.
mercantile documents shall produce the effect of payment 25.Rollo, p. 50.
only when they have been cashed, or when through the
fault of the creditor they have been impaired." 26.Art. 1873. "If a person specifically informs another or states by
public advertisement that he has given a power of attorney
21.BPI Investment Corporation v. Court of Appeals, G.R. No. to a third person, the latter thereby becomes a duly
133632, 377 SCRA 117, 124, 15 February 2002. The Court authorized agent, in the former case with respect to the
therein clarified the previous ruling in Bonnevie v. Court person who received the special information, and in the
of Appeals, 210 Phil. 104, 108 (1983) which apparently latter case with regard to any person."
suggested that a contract of loan was a consensual
contract, by noting that the contract in Bonnevie fell under 27.Cuison v. Court of Appeals, G.R. No. 88531, 26 October 1993.
the first clause of Art. 1934 of the Civil Code, it being an
accepted promise to deliver something by way of simple 28.China Banking Corporation v. Lichauco, 46 Phil. 460 (1926).
loan. 29.Filipinas Marble Corp. v. Intermediate Appellate Court, 226
22.See Sec. 29, Rule 130. "Section 29. Admission by co-partner or Phil. 109, 119 (1986).
agent. — The act or declaration of a partner or agent of the ||| (Naguiat v. Court of Appeals, G.R. No. 118375, [October 3, 2003],
party within the scope of his authority and during the 459 PHIL 237-246)
existence of the partnership or agency, may be given in
evidence against such party after the partnership or agency
is shown by evidence other than such act or declaration.
The same rule applies to the act or declaration of a joint
owner, joint debtor or other person jointly interested with
the party."
23.Rollo, p. 49.
24.Security Bank & Trust Company Check No. 017399, drawn by
Ruebenfeldt payable to Naguiat, and postdated to
November 15, 1980. Naguiat accepted the check, allegedly
because she wanted to be assured of repayment. However,
when Naguiat deposited this new check on 15 November

SECOND DIVISION
[G.R. No. 163553. December 11, 2009.]
YUN KWAN BYUNG, petitioner, vs.
PHILIPPINE AMUSEMENT AND GAMING
CORPORATION, respondent.
DECISION
CARPIO, J p:
The Case
Yun Kwan Byung (petitioner) filed this Petition for
Review 1 assailing the Court of Appeals' Decision 2 dated 27
May 2003 in CA-G.R. CV No. 65699 as well as the
Resolution 3 dated 7 May 2004 denying the Motion for
Reconsideration. In the assailed decision, the Court of Appeals
(CA) affirmed the Regional Trial Court's Decision 4 dated 6 May
1999. The Regional Trial Court of Manila, Branch 13 (trial
court), dismissed petitioner's demand against respondent
Philippine Amusement and Gaming Corporation (PAGCOR) for
the redemption of gambling chips.
The Facts
PAGCOR is a government-owned and controlled
corporation tasked to establish and operate gambling clubs and
casinos as a means to promote tourism and generate sources of
revenue for the government. To achieve these objectives,
PAGCOR is vested with the power to enter into contracts of
every kind and for any lawful purpose that pertains to its
business. Pursuant to this authority, PAGCOR launched its
Foreign Highroller Marketing Program (Program). The Program
aims to invite patrons from foreign countries to play at the dollar
pit of designated PAGCOR-operated casinos under specified
terms and conditions and in accordance with industry practice. 5
The Korean-based ABS Corporation was one of the
international groups that availed of the Program. In a letter-
agreement dated 25 April 1996 (Junket Agreement), ABS
Corporation agreed to bring in foreign players to play at the five
designated gaming tables of the Casino Filipino Silahis at the
Grand Boulevard Hotel in Manila (Casino Filipino). The relevant
stipulations of the Junket Agreement state:
1. PAGCOR will provide ABS Corporation with
separate junket chips. The junket chips
will be distinguished from the chips being
used by other players in the gaming tables.
2. ABS Corporation will distribute these junket
chips to its players and at the end of the
playing period, ABS Corporation will
collect the junket chips from its players
and make an accounting to the casino
treasury. CTEDSI
3. ABS Corporation will assume sole
responsibility to pay the winnings of its
foreign players and settle the collectibles
from losing players.
4. ABS Corporation shall hold PAGCOR
absolutely free and harmless from any
damage, claim or liability which may arise
from any cause in connection with the
Junket Agreement.
 5. In providing the gaming facilities and services
to these foreign players, PAGCOR is
entitled to receive from ABS Corporation
a 12.5% share in the gross winnings of
ABS Corporation or 1.5 million US
dollars, whichever is higher, over a
playing period of 6 months. PAGCOR has
the option to extend the period. 6
Petitioner, a Korean national, alleges that from
November 1996 to March 1997, he came to the Philippines four
times to play for high stakes at the Casino Filipino. 7 Petitioner
claims that in the course of the games, he was able to accumulate
gambling chips worth US$2.1 million. Petitioner presented as
evidence during the trial gambling chips with a face value of
US$1.1 million. Petitioner contends that when he presented the
gambling chips for encashment with PAGCOR's employees or
agents, PAGCOR refused to redeem them. 8
Petitioner brought an action against PAGCOR seeking
the redemption of gambling chips valued at US$2.1 million.
Petitioner claims that he won the gambling chips at the Casino
Filipino, playing continuously day and night. Petitioner alleges
that every time he would come to Manila, PAGCOR would
extend to him amenities deserving of a high roller. A PAGCOR
official who meets him at the airport would bring him to Casino
Filipino, a casino managed and operated by PAGCOR. The card
dealers were all PAGCOR employees, the gambling chips,
equipment and furnitures belonged to PAGCOR, and PAGCOR
enforced all the regulations dealing with the operation of foreign
exchange gambling pits. Petitioner states that he was able to
redeem his gambling chips with the cashier during his first few
winning trips. But later on, the casino cashier refused to encash
his gambling chips so he had no recourse but to deposit his
gambling chips at the Grand Boulevard Hotel's deposit box,
every time he departed from Manila. 9
PAGCOR claims that petitioner, who was brought into
the Philippines by ABS Corporation, is a junket player who
played in the dollar pit exclusively leased by ABS Corporation
for its junket players. PAGCOR alleges that it provided ABS
Corporation with distinct junket chips. ABS Corporation
distributed these chips to its junket players. At the end of each
playing period, the junket players would surrender the chips to
ABS Corporation. Only ABS Corporation would make an
accounting of these chips to PAGCOR's casino treasury. 10
As additional information for the junket players playing
in the gaming room leased to ABS Corporation, PAGCOR posted
a notice written in English and Korean languages which reads:
NOTICE
This GAMING ROOM is exclusively operated by
ABS under arrangement with PAGCOR, the
former is solely accountable for all PLAYING
CHIPS wagered on the tables. Any financial
ARRANGEMENT/TRANSACTION between
PLAYERS and ABS shall only be binding upon
said PLAYERS and ABS. 11
PAGCOR claims that this notice is a standard
precautionary measure 12 to avoid confusion between junket
players of ABS Corporation and PAGCOR's players.
PAGCOR argues that petitioner is not a PAGCOR player
because under PAGCOR's gaming rules, gambling chips cannot
be brought outside the casino. The gambling chips must be
converted to cash at the end of every gaming period as they are
inventoried every shift. Under PAGCOR's rules, it is impossible
for PAGCOR players to accumulate two million dollars worth of
gambling chips and to bring the chips out of the casino
premises. 13
Since PAGCOR disclaimed liability for the winnings of
players recruited by ABS Corporation and refused to encash the
gambling chips, petitioner filed a complaint for a sum of money
before the trial court. 14 PAGCOR filed a counterclaim against
petitioner. Then, trial ensued. aTDcAH
On 6 May 1999, the trial court dismissed the complaint
and counterclaim. Petitioner appealed the trial court's decision to
the CA. On 27 May 2003, the CA affirmed the appealed
decision. On 27 June 2003, petitioner moved for reconsideration
which was denied on 7 May 2004.
Aggrieved by the CA's decision and resolution,
petitioner elevated the case before this Court.
The Ruling of the Trial Court
The trial court ruled that based on PAGCOR's
charter, 15 PAGCOR has no authority to lease any portion of the
gambling tables to a private party like ABS Corporation. Section
13 of Presidential Decree No. 1869 or the PAGCOR's charter
states:
Sec. 13. Exemptions. —
xxx xxx xxx
(4) Utilization of Foreign Currencies — The
Corporation shall have the right and authority,
solely and exclusively in connection with the
operations of the casino(s), to purchase, receive,
exchange and disburse foreign exchange, subject
to the following terms and conditions:
(a) A specific area in the casino(s) or gaming pit
shall be put up solely and exclusively for players
and patrons utilizing foreign currencies;
(b) The Corporation shall appoint and designate a
duly accredited commercial bank agent of the
Central Bank, to handle, administer and manage
the use of foreign currencies in the casino(s);
(c) The Corporation shall provide an office at
casino(s) exclusively for the employees of the
designated bank, agent of the Central Bank, where
the Corporation shall maintain a dollar account
which will be utilized exclusively for the above
purpose and the casino dollar treasury employees;
(d) Only persons with foreign passports or
certificates of identity (for Hong Kong patron
only) duly issued by the government or country of
their residence will be allowed to play in the
foreign exchange gaming pit;
(e) Only foreign exchange prescribed to form part
of the Philippine International Reserve and the
following foreign exchange currencies: Australian
Dollar, Singapore Dollar, Hong Kong Dollar, shall
be used in this gaming pit;
(f) The disbursement, administration, management
and recording of foreign exchange currencies used
in the casino(s) shall be carried out in accordance
with existing foreign exchange regulations, and
periodical reports of the transactions in such
foreign exchange currencies by the Corporation
shall be duly recorded and reported to the Central
Bank thru the designated Agent Bank;
and cSEaTH
(g) The Corporation shall issue the necessary rules
and regulations for the guidance and information
of players qualified to participate in the foreign
exchange gaming pit, in order to make certain that
the terms and conditions as above set forth are
strictly complied with.
The trial court held that only PAGCOR could use foreign
currency in its gaming tables. When PAGCOR accepted only a
fixed portion of the dollar earnings of ABS Corporation in the
concept of a lease of facilities, PAGCOR shared its franchise
with ABS Corporation in violation of the PAGCOR's charter.
Hence, the Junket Agreement is void. Since the Junket
Agreement is not permitted by PAGCOR's charter, the mutual
rights and obligations of the parties to this case would be
resolved based on agency and estoppel. 16
The trial court found that the petitioner wanted to
redeem gambling chips that were specifically used by ABS
Corporation at its gaming tables. The gambling chips come in
distinctive orange or yellow colors with stickers bearing
denominations of 10,000 or 1,000. The 1,000 gambling chips are
smaller in size and the words "no cash value" marked on them.
The 10,000 gambling chips do not reflect the "no cash value"
sign. The senior treasury head of PAGCOR testified that these
were the gambling chips used by the previous junket operators
and PAGCOR merely continued using them. However, the
gambling chips used in the regular casino games were of a
different quality. 17
The trial court pointed out that PAGCOR had taken steps
to warn players brought in by all junket operators, including ABS
Corporation, that they were playing under special rules. Apart
from the different kinds of gambling chips used, the junket
players were confined to certain gaming rooms. In these rooms,
notices were posted that gambling chips could only be encashed
there and nowhere else. A photograph of one such notice, printed
in Korean and English, stated that the gaming room was
exclusively operated by ABS Corporation and that ABS
Corporation was solely accountable for all the chips wagered on
the gaming tables. Although petitioner denied seeing this notice,
this disclaimer has the effect of a negative evidence that can
hardly prevail against the positive assertions of PAGCOR
officials whose credibility is also not open to doubt. The trial
court concluded that petitioner had been alerted to the existence
of these special gambling rules, and the mere fact that he
continued to play under the same restrictions over a period of
several months confirms his acquiescence to them. Otherwise,
petitioner could have simply chosen to stop gambling. 18
In dismissing petitioner's complaint, the trial court
concluded that petitioner's demand against PAGCOR for the
redemption of the gambling chips could not stand. The trial court
stated that petitioner, a stranger to the agreement between
PAGCOR and ABS Corporation, could not under principles of
equity be charged with notice other than of the apparent authority
with which PAGCOR had clothed its employees and agents in
dealing with petitioner. Since petitioner was made aware of the
special rules by which he was playing at the Casino Filipino,
petitioner could not now claim that he was not bound by them.
The trial court explained that in an unlawful transaction, the
courts will extend equitable relief only to a party who was
unaware of all its dimensions and whose ignorance of them
exposed him to the risk of being exploited by the other. Where
the parties enter into such a relationship with the opportunity to
know all of its ramifications, as in this case, there is no room for
equitable considerations to come to the rescue of any party. The
trial court ruled that it would leave the parties where they are. 19
The Ruling of the Court of Appeals
In dismissing the appeal, the appellate court addressed
the four errors assigned by petitioner.
First, petitioner maintains that he was never a junket
player of ABS Corporation. Petitioner also denies seeing a notice
that certain gaming rooms were exclusively operated by entities
under special agreement. 20 TaISEH
The CA ruled that the records do not support petitioner's
theory. Petitioner's own testimony reveals that he enjoyed special
accommodations at the Grand Boulevard Hotel. This similar
accommodation was extended to players brought in by ABS
Corporation and other junket operators. Petitioner cannot
disassociate himself from ABS Corporation for it is unlikely that
an unknown high roller would be accorded choice The CA concluded that no such legal fiction existed
accommodations by the hotel unless the accommodation was between PAGCOR and ABS Corporation. PAGCOR entered into
facilitated by a junket operator who enjoyed such privilege. 21 a Junket Agreement to lease to ABS Corporation certain gaming
areas. It was never PAGCOR's intention to deal with the junket
The CA added that the testimonies of PAGCOR's
players. Neither did PAGCOR intend ABS Corporation to
employees affirming that notices were posted in English and
represent PAGCOR in dealing with the junket players.
Korean in the gaming areas are credible in the absence of any
Representation is the basis of agency but unfortunately for
convincing proof of ill motive. Further, the specified gaming
petitioner none is found in this case. 28
areas used only special chips that could be bought and
exchanged at certain cashier booths in that area. 22 The CA added that the special gaming chips, while
belonging to PAGCOR, are mere accessories in the void Junket
Second, petitioner attacks the validity of the contents of
Agreement with ABS Corporation. In Article 1883, the phrase
the notice. Since the Junket Agreement is void, the notice, which
"things belonging to the principal" refers only to those things or
was issued pursuant to the Junket Agreement, is also void and
properties subject of a particular transaction authorized by the
cannot affect petitioner. 23
principal to be entered into by its purported agent. Necessarily,
The CA reasoned that the trial court never declared the the gambling chips being mere incidents to the void lease
notice valid and neither did it enforce the contents thereof. The agreement cannot fall under this category. 29 TcCDIS
CA emphasized that it was the act of cautioning and alerting the
The CA ruled that Article 2152 30 of the Civil Code is
players that was upheld. The trial court ruled that signs and
also not applicable. The circumstances relating to negotiorum
warnings were in place to inform the public, petitioner included,
gestio are non-existent to warrant an officious manager to take
that special rules applied to certain gaming areas even if the very
over the management and administration of PAGCOR. 31
agreement giving rise to these rules is void. 24
Fourth, petitioner asks for equitable relief. 32
Third, petitioner takes the position that an implied
agency existed between PAGCOR and ABS Corporation. 25 The CA explained that although petitioner was never a
party to the void Junket Agreement, petitioner cannot deny or
The CA disagreed with petitioner's view. A void contract
feign blindness to the signs and warnings all around him. The
has no force and effect from the very beginning. It
notices, the special gambling chips, and the separate gaming
producesno effect either against or in favor of anyone. Neither
areas were more than enough to alert him that he was playing
can it create, modify or extinguish the juridical relation to which
under different terms. Petitioner persisted and continued to play
it refers. Necessarily, the Junket Agreement, being void from the
in the casino. Petitioner also enjoyed the perks extended to
beginning, cannot give rise to an implied agency. The CA
junket players of ABS Corporation. For failing to heed these
explained that it cannot see how the principle of implied agency
signs and warnings, petitioner can no longer be permitted to
can be applied to this case. Article 1883 26 of the Civil Code
claim equitable relief. When parties do not come to court with
applies only to a situation where the agent is authorized by the
clean hands, they cannot be allowed to profit from their own
principal to enter into a particular transaction, but instead of
wrong doing. 33
contracting on behalf of the principal, the agent acts in his own
name. 27 The Issues
 Petitioners raise three issues in this petition:
1. Whether the CA erred in holding that PAGCOR
is not liable to petitioner, disregarding the
doctrine of implied agency, or agency by
estoppel;
2. Whether the CA erred in using intent of the
contracting parties as the test for creation
of agency, when such is not relevant since
the instant case involves liability of the
presumed principal in implied agency to a
third party; and
3. Whether the CA erred in failing to consider that
PAGCOR ratified, or at least adopted, the
acts of the agent, ABS Corporation. 34
The Ruling of the Court
The petition lacks merit.
Courts will not enforce debts arising from illegal gambling
Gambling is prohibited by the laws of the Philippines as
specifically provided in Articles 195 to 199 of the Revised Penal
Code, as amended. Gambling is an act beyond the pale of good
morals, 35 and is thus prohibited and punished to repress an evil
that undermines the social, moral, and economic growth of the
nation. 36 Presidential Decree No. 1602 (PD 1602), 37 which
modified Articles 195-199 of the Revised Penal Code and
repealed inconsistent provisions, 38 prescribed stiffer penalties
on illegal gambling. 39
As a rule, all forms of gambling are illegal. The only
form of gambling allowed by law is that stipulated
underPresidential Decree No. 1869, which gave PAGCOR its
franchise to maintain and operate gambling casinos. The issue
then turns on whether PAGCOR can validly share its franchise
with junket operators to operate gambling casinos in the country.
Section 3 (h) of PAGCOR's charter states:
Section 3. Corporate Powers. — The Corporation
shall have the following powers and functions,
among others:
xxx xxx xxx
h) to enter into, make, perform, and carry out
contracts of every kind and for any lawful purpose
pertaining to the business of the Corporation, or in
any manner incident thereto, as principal, agent or
otherwise, with any person, firm, association, or
corporation.
xxx xxx xxx
The Junket Agreement would be valid if under Section 3
(h) of PAGCOR's charter, PAGCOR could share its gambling
franchise with another entity. In Senator Jaworski v. Phil.
Amusement and Gaming Corp., 40 the Court discussed the extent
of the grant of the legislative franchise to PAGCOR on its
authority to operate gambling casinos:
A legislative franchise is a special privilege
granted by the state to corporations. It is a
privilege of public concern which cannot be
exercised at will and pleasure, but should be
reserved for public control and administration,
either by the government directly, or by public
agents, under such conditions and regulations as
the government may impose on them in the
interest of the public. It is Congress that prescribes
the conditions on which the grant of the franchise
may be made. Thus the manner of granting the
franchise, to whom it may be granted, the mode of
conducting the business, the charter and the
quality of the service to be rendered and the duty
of the grantee to the public in exercising the
franchise are almost always defined in clear and
unequivocal language. HaIESC
After a circumspect consideration of the foregoing
discussion and the contending positions of the
parties, we hold that PAGCOR has acted
beyond the limits of its authority when it passed
on or shared its franchise to SAGE.
In the Del Mar case where a similar issue was
raised when PAGCOR entered into a joint venture
agreement with two other entities in the operation
and management of jai alai games, the Court, in
an En Banc Resolution dated 24 August 2001,
partially granted the motions for clarification filed
by respondents therein insofar as it prayed that
PAGCOR has a valid franchise, but only by itself
(i.e., not in association with any other person or
entity), to operate, maintain and/or manage the
game of jai-alai.
In the case at bar, PAGCOR executed an
agreement with SAGE whereby the former grants
the latter the authority to operate and maintain
sports betting stations and Internet gaming
operations. In essence, the grant of authority gives
SAGE the privilege to actively participate, partake
and share PAGCOR's franchise to operate a
gambling activity. The grant of franchise is a
special privilege that constitutes a right and a duty
to be performed by the grantee. The grantee must
not perform its activities arbitrarily and
whimsically but must abide by the limits set by its
franchise and strictly adhere to its terms and
conditionalities. A corporation as a creature of the
State is presumed to exist for the common good.
Hence, the special privileges and franchises it
receives are subject to the laws of the State and the
limitations of its charter. There is therefore a
reserved right of the State to inquire how these
privileges had been employed, and whether they
have been abused. (Emphasis supplied)
THUS, PAGCOR HAS THE SOLE AND EXCLUSIVE
AUTHORITY TO OPERATE A GAMBLING ACTIVITY.
WHILE PAGCOR IS ALLOWED UNDER ITS CHARTER TO
ENTER INTO OPERATOR'S OR MANAGEMENT
CONTRACTS, PAGCOR IS NOT ALLOWED UNDER THE
SAME CHARTER TO RELINQUISH OR SHARE ITS
FRANCHISE. PAGCOR CANNOT DELEGATE ITS POWER
IN VIEW OF THE LEGAL PRINCIPLE OF DELEGATA
POTESTAS DELEGARE NON POTEST, INASMUCH AS
THERE IS NOTHING IN THE CHARTER TO SHOW THAT IT
HAS BEEN EXPRESSLY AUTHORIZED TO DO SO. 41
Similarly, in this case, PAGCOR, by taking only a
percentage of the earnings of ABS Corporation from its foreign
currency collection, allowed ABS Corporation to operate gaming
tables in the dollar pit. The Junket Agreement is in direct
violation of PAGCOR's charter and is therefore void.
Since the Junket Agreement violates PAGCOR's charter,
gambling between the junket player and the junket operator
under such agreement is illegal and may not be enforced by the
courts. Article 2014 42 of the Civil Code, which refers to illegal
gambling, states that no action can be maintained by the winner
for the collection of what he has won in a game of chance.
Although not raised as an issue by petitioner, we deem it
necessary to discuss the applicability of Republic Act No.
9487 43 (RA 9487) to the present case. HITEaS
RA 9487 amended the PAGCOR charter, granting
PAGCOR the power to enter into special agreement with third
parties to share the privileges under its franchise for the
operation of gambling casinos:
Section 1. The Philippine Amusement and Gaming
Corporation (PAGCOR) franchise granted
under Presidential DecreeNo. 1869 otherwise
known as the PAGCOR Charter, is hereby further
amended to read as follows:
xxx xxx xxx
(2) SECTION 3(H) IS HEREBY
AMENDED TO READ AS FOLLOWS:
"SEC. 3. CORPORATE POWERS. —
"xxx xxx xxx
"(h) to enter into, make, conclude,
perform, and carry out contracts of every
kind and nature and for any lawful
purpose which are necessary, appropriate,
proper or incidental to any business or
purpose of the PAGCOR, including but
not limited to investment
agreements, joint venture agreements,
management agreements, agency
agreements, whether as principal or as an
agent, manpower supply agreements, or
any other similar agreements or
arrangements with any person, firm,
association or corporation." (Boldfacing
supplied)
PAGCOR sought the amendment of its charter precisely to
address and remedy the legal impediment raised in Senator
Jaworski v. Phil. Amusement and Gaming Corp.
Unfortunately for petitioner, RA 9487 cannot be applied
to the present case. The Junket Agreement was entered into
between PAGCOR and ABS Corporation on 25 April 1996 when
the PAGCOR charter then prevailing (PD 1869) prohibited
PAGCOR from entering into any arrangement with a third party
that would allow such party to actively participate in the casino
operations.
It is a basic principle that laws should only be applied
prospectively unless the legislative intent to give them
retroactive effect is expressly declared or is necessarily implied
from the language used. 44 RA 9487 does not provide for any
retroactivity of its provisions. All laws operate prospectively
absent a clear contrary language in the text, 45 and that in every
case of doubt, the doubt will be resolved against the retroactive
operation of laws. 46
Thus, petitioner cannot avail of the provisions of RA
9487 as this was not the law when the acts giving rise to the
claimed liabilities took place. This makes the gambling activity
participated in by petitioner illegal. Petitioner cannot sue
PAGCOR to redeem the cash value of the gambling chips or
recover damages arising from an illegal activity for two reasons.
First, petitioner engaged in gambling with ABS Corporation and
not with PAGCOR. Second, the court cannot assist petitioner in
enforcing an illegal act. Moreover, for a court to grant
petitioner's prayer would mean enforcing the Junket Agreement,
which is void. cTESIa
Now, to address the issues raised by petitioner in his
petition, petitioner claims that he is a third party proceeding
against the liability of a presumed principal and claims relief,
alternatively, on the basis of implied agency or agency by
estoppel.
Article 1869 of the Civil Code states that implied agency
is derived from the acts of the principal, from his silence or lack
of action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority. Implied
agency, being an actual agency, is a fact to be proved by
deductions or inferences from other facts. 47
 On the other hand, apparent authority is based on
estoppel and can arise from two instances. First, the principal
may knowingly permit the agent to hold himself out as having
such authority, and the principal becomes estopped to claim that
the agent does not have such authority. Second, the principal
may clothe the agent with the indicia of authority as to lead a
reasonably prudent person to believe that the agent actually has
such authority. 48 In an agency by estoppel, there is noagency at
all, but the one assuming to act as agent has apparent or
ostensible, although not real, authority to represent another. 49
The law makes no presumption of agency and proving
its existence, nature and extent is incumbent upon the person
alleging it. 50 Whether or not an agency has been created is a
question to be determined by the fact that one represents and is
acting for another. 51
Acts and conduct of PAGCOR negates the existence of an
implied agency or an agency by estoppel
Petitioner alleges that there is an implied agency.
Alternatively, petitioner claims that even assuming that no actual
agency existed between PAGCOR and ABS Corporation, there is
still an agency by estoppel based on the acts and conduct of
PAGCOR showing apparent authority in favor of ABS
Corporation. Petitioner states that one factor which distinguishes
agency from other legal precepts is control and the following
undisputed facts show a relationship of implied agency:
1. Three floors of the Grand Boulevard
Hotel 52 were leased to PAGCOR for
conducting gambling operations;53
2. Of the three floors, PAGCOR allowed ABS
Corporation to use one whole floor for
foreign exchange gambling, conducted by
PAGCOR dealers using PAGCOR
facilities, operated by PAGCOR
employees and using PAGCOR chips
bearing the PAGCOR logo; 54
3. PAGCOR controlled the release, withdrawal and
return of all the gambling chips given to
ABS Corporation in that part of the casino
and at the end of the day, PAGCOR
conducted an inventory of the gambling
chips;55 DSacAE
4. ABS Corporation accounted for all gambling
chips with the Commission on Audit
(COA), the official auditor of
PAGCOR; 56
5. PAGCOR enforced, through its own manager,
all the rules and regulations on the
operation of the gambling pit used by ABS
Corporation. 57
Petitioner's argument is clearly misplaced. The basis for
agency is representation, 58 that is, the agent acts for and on
behalf of the principal on matters within the scope of his
authority and said acts have the same legal effect as if they were
personally executed by the principal. 59 On the part of the
principal, there must be an actual intention to appoint or an
intention naturally inferable from his words or actions, while on
the part of the agent, there must be an intention to accept the
appointment and act on it. 60 Absent such mutual intent, there is
generally no agency. 61
There is no implied agency in this case because
PAGCOR did not hold out to the public as the principal of ABS
Corporation. PAGCOR's actions did not mislead the public into
believing that an agency can be implied from the arrangement
with the junket operators, nor did it hold out ABS Corporation
with any apparent authority to represent it in any capacity. The
Junket Agreement was merely a contract of lease of facilities and
services.
 The players brought in by ABS Corporation were
covered by a different set of rules in acquiring and encashing
chips. The players used a different kind of chip than what was
used in the regular gaming areas of PAGCOR, and that such
junket players played specifically only in the third floor area and
did not mingle with the regular patrons of PAGCOR.
Furthermore, PAGCOR, in posting notices stating that the
players are playing under special rules, exercised the necessary
precaution to warn the gaming public that no agency relationship
exists.
For the second assigned error, petitioner claims that the
intention of the parties cannot apply to him as he is not a party to
the contract.
We disagree. The Court of Appeals correctly used the
intent of the contracting parties in determining whether an
agency by estoppel existed in this case. An agency by estoppel,
which is similar to the doctrine of apparent authority requires
proof of reliance upon the representations, and that, in turn,
needs proof that the representations predated the action taken in
reliance. 62
There can be no apparent authority of an agent without
acts or conduct on the part of the principal and such acts or
conduct of the principal must have been known and relied upon
in good faith and as a result of the exercise of reasonable
prudence by a third person as claimant, and such must have
produced a change of position to its detriment. 63 Such proof is
lacking in this case.
In the entire duration that petitioner played in Casino
Filipino, he was dealing only with ABS Corporation, and
availing of the privileges extended only to players brought in by
ABS Corporation. The facts that he enjoyed special treatment
upon his arrival in Manila and special accommodations in Grand
Boulevard Hotel, and that he was playing in special gaming
rooms are all indications that petitioner cannot claim good faith
that he believed he was dealing with PAGCOR. Petitioner cannot
be considered as an innocent third party and he cannot claim
entitlement to equitable relief as well.
For his third and final assigned error, petitioner asserts
that PAGCOR ratified the acts of ABS Corporation. caIDSH
The trial court has declared, and we affirm, that the
Junket Agreement is void. A void or inexistent contract is one
which has no force and effect from the very beginning. Hence, it
is as if it has never been entered into and cannot be validated
either by the passage of time or by ratification. 64 Article 1409
of the Civil Code provides that contracts expressly prohibited or
declared void by law, such as gambling contracts, "cannot be
ratified." 65
WHEREFORE, we DENY the petition.
We AFFIRM the Court of Appeals' Decision dated 27 May 2003
as well as the Resolution dated 7 May 2004 as modified by this
Decision.
SO ORDERED.
Carpio Morales, * Leonardo-de
Castro, ** Castillo and Abad, JJ., concur.
Footnotes
*Designated additional member per Special Order No. 807.
**Designated additional member per Special Order No. 776.
1.Under Rule 45 of the Rules of Court.
2.Rollo, pp. 30-38. Penned by Associate Justice Rosmari D.
Carandang, with Associate Justices Conrado M. Vasquez,
Jr. and Mercedes Gozo-Dadole, concurring.
3.Id. at 57. Penned by Associate Justice Rosmari D. Carandang 22.Id. at 34.
with Associate Justices Conrado M. Vasquez, Jr. and
Mercedes Gozo-Dadole, concurring. 23.Id.

4.Id. at 58-62. Penned by RTC Judge Mario Guariña III. 24.Id. at 34-35.

5.Id. at 5-6. 25.Id.

6.Records, pp. 23-24. 26.Art. 1883. If an agent acts in his own name, the principal
has no right of action against the persons with whom the
7.Rollo, p. 8. agent has contracted, neither have such persons against the
principal.
8.Id. at 6-7.
In such case, the agent is the one directly bound in favor of the
9.Id. at 8-9. person with whom he has contracted, as if the transaction
10.Id. at 69. were his own, except when the contract involves things
belonging to the principal.
11.Id. at 70.
The provisions of this article shall be understood to be without
12.Id. Petitioner showed a similar notice posted with regard to prejudice to the actions between the principal and agent.
another junket operator GIT.
27.Rollo, p. 35.
13.Id.
28.Id.
14.Id. at 121.
29.Id. at 36.
15.Presidential Decree No. 1869, Consolidating and Amending
Presidential Decree Nos. 1067-A, 1067-B, 1067-C, 1399 30.Art. 2152. The officious manager is personally liable for
and 1632 Relative to the Franchise and Powers of the contracts which he has entered into with third persons,
Philippine Amusement and Gaming Corporation even though he acted in the name of the owner, and there
(PAGCOR). Took effect on 11 July 1983. shall be no right of action between the owner and third
persons. These provisions shall not apply:
16.Rollo, pp. 60-61.
(1) If the owner has expressly or tacitly ratified the management,
17.Id. or
18.Id. (2) When the contract refers to things pertaining to the owner of
19.Id. at 61-62. the business.

20.Id. at 33. 31.Rollo, p. 36.

21.Id. 32.Id.
33.Id. at 36, 38.
34.Id. at 12.
35.United States v. Salaveria, 39 Phil. 102, 112 (1918).
36.People v. Punto, 68 Phil. 481, 482 (1939).
37.Prescribing Stiffer Penalties on Illegal Gambling. Took effect
on 11 June 1978.
38.Gambling and Illegal Lottery are crimes covered by Chapter
One, Title VI (Crimes against Public Morals) of the
Revised Penal Code.
39.Section 1. Penalties. — The following penalties are hereby
imposed:
(a) The penalty of prision correccional in its medium period or a
fine ranging from one thousand to six thousand pesos, and
in case of recidivism, the penalty of prision mayor in its
medium period or a fine ranging from five thousand to ten
thousand pesos shall be imposed upon:
1. Any person other than those referred to in the succeeding sub-
sections who in any manner, shall directly or indirectly
take part in any illegal or unauthorized activities or games
of cockfighting, jueteng, jai alai or horse racing to include
bookie operations and game fixing, numbers, bingo and
other forms of lotteries; cara y cruz, pompiang and the
like; 7-11 and any game using dice; black jack, lucky nine,
poker and its derivatives, monte, baccarat, cuajo,
pangguingue and other card games; piak que, high and
low, mahjong, domino and other games using plastic tiles
and the likes; slot machines, roulette, pinball and other
mechanical contraptions and devices; dog racing, boat
racing, car racing and other forms of races, basketball,
boxing, volleyball, bowling, pingpong and other forms of
individual or team contests to include game fixing, point
shaving and other machinations; banking or percentage
game, or any other game scheme, whether upon chance or
skill, wherein wagers consisting of money, articles of value
or representative of value are at stake or made;
40.464 Phil. 375, 385-386 (2004).
41.Id.
42.Art. 2014. No action can be maintained by the winner for the
collection of what he has won in a game of chance. But
any loser in a game of chance may recover his loss from
the winner, with legal interest from the time he paid the
amount lost, and subsidiarily from the operator or manager
of the gambling house.
43.An Act Further Amending Presidential Decree No. 1869,
Otherwise Known as PAGCOR Charter. Took effect on 20
June 2007.
Prior to the amendment, Section 3(h) of the PAGCOR
Charter (PD 1869) reads as follows:
SEC. 3. CORPORATE POWERS. — THE CORPORATION
SHALL HAVE THE FOLLOWING POWERS AND
FUNCTIONS, AMONG OTHERS:
xxx xxx xxx
H) TO ENTER INTO, MAKE, PERFORM, AND CARRY OUT
CONTRACTS OF EVERY KIND AND FOR ANY
LAWFUL PURPOSE PERTAINING TO THE BUSINESS
OF THE CORPORATION, OR IN ANY MANNER
INCIDENT THERETO, AS PRINCIPAL, AGENT OR
OTHERWISE, WITH ANY PERSON, FIRM,
ASSOCIATION OR CORPORATION.
44.Erectors, Inc. v. National Labor Relations Commission, 326
Phil. 640, 646 (1996).
45.Agpalo, Ruben, STATUTORY CONSTRUCTION (5th ed.,
2003), p. 355.
46.Cebu Portland Cement Co. v. Collector of Internal
Revenue, 134 Phil. 735, 740 (1968).
47.De Leon, Hector S., COMMENTS AND CASES ON
PARTNERSHIP, AGENCY AND TRUSTS, 5th edition,
1999, p. 411.
63.Supra note 48 at 914.
64.Francisco v. Herrera, 440 Phil. 841, 849 (2002).
65.Art. 1409. The following contracts are inexistent and void from
the beginning:

48.Woodchild Holdings, Inc. v. Roxas Electric and Construction xxx xxx xxx
Company, Inc., 479 Phil. 896, 914 (2004). (7) Those expressly prohibited or declared void by law.
49.Supra note 47 at 410. These contracts cannot be ratified. Neither can the right to set up
50.Tuazon v. Heirs of Bartolome Ramos, G.R. No. 156262, 14 July the defense of illegality be waived.
2005, 463 SCRA 408, 415. ||| (Yun Kwan Bung v. Philippine Amusement and Gaming Corp.,
51.Angeles v. Philippine National Railways, G.R. No. 150128, 31 G.R. No. 163553, [December 11, 2009], 623 PHIL 23-48)
August 2006, 500 SCRA 444, 452.
52.Formerly known as Silahis Hotel.
53.Rollo, p. 124.
54.Id.
55.Id. at 125.
56.Id.
57.Id.
58.Bordador v. Luz, 347 Phil. 654, 662 (1997).
59.Eurotech Industrial Technologies, Inc. v. Cuizon, G.R. No.
167552, 23 April 2007, 521 SCRA 584, 593.
60.Victorias Milling Co., Inc. v. Court of Appeals, 389 Phil. 184,
196 (2000).
61.Supra note 50 at 415.
62.Litonjua, Jr. v. Eternit Corporation, G.R. No. 144805, 8 June
2006, 490 SCRA 204, 225.
 THIRD DIVISION
[G.R. No. 160346. August 25, 2009.]
PURITA PAHUD, SOLEDAD PAHUD, and
IAN LEE CASTILLA (represented by Mother
and Attorney-in-Fact VIRGINIA
CASTILLA), petitioners, vs. COURT OF
APPEALS, SPOUSES ISAGANI
BELARMINO and LETICIA OCAMPO,
EUFEMIA SAN AGUSTIN-MAGSINO,
ZENAIDA SAN AGUSTIN-McCRAE,
MILAGROS SAN AGUSTIN-FORTMAN,
MINERVA SAN AGUSTIN-ATKINSON,
FERDINAND SAN AGUSTIN, RAUL SAN
AGUSTIN, ISABELITA SAN AGUSTIN-
LUSTENBERGER and VIRGILIO SAN
AGUSTIN, respondents.
DECISION
NACHURA, J p:
For our resolution is a petition for review
on certiorari assailing the April 23, 2003 Decision 1 and October
8, 2003 Resolution 2 of the Court of Appeals (CA) in CA-
G.R. CV No. 59426. The appellate court, in the said decision and
resolution, reversed and set aside the January 14, 1998
Decision 3 of the Regional Trial Court (RTC), which ruled in
favor of petitioners.
The dispute stemmed from the following facts.
During their lifetime, spouses Pedro San Agustin and
Agatona Genil were able to acquire a 246-square meter parcel of
land situated in Barangay Anos, Los Baños, Laguna and covered
by Original Certificate of Title (OCT) No. O-(1655) 0-
15. 4Agatona Genil died on September 13, 1990 while Pedro San
Agustin died on September 14, 1991. Both died intestate,
survived by their eight (8) children: respondents Eufemia, Raul,
Ferdinand, Zenaida, Milagros, Minerva, Isabelita and Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul
executed a Deed of Absolute Sale of Undivided
Shares 5 conveying in favor of petitioners (the Pahuds, for
brevity) their respective shares from the lot they inherited from
their deceased parents for P525,000.00. 6 Eufemia also signed
the deed on behalf of her four (4) other co-heirs, namely:
Isabelita on the basis of a special power of attorney executed on
September 28, 1991, 7 and also for Milagros, Minerva, and
Zenaida but without their apparent written authority. 8 The deed
of sale was also not notarized. 9
On July 21, 1992, the Pahuds paid P35,792.31 to the Los
Baños Rural Bank where the subject property was
mortgaged. 10 The bank issued a release of mortgage and turned
over the owner's copy of the OCT to the Pahuds. 11 Over the
following months, the Pahuds made more payments to Eufemia
and her siblings totaling to P350,000.00. 12 They agreed to use
the remaining P87,500.00 13 to defray the payment for taxes and
the expenses in transferring the title of the property. 14 When
Eufemia and her co-heirs drafted an extra-judicial settlement of
estate to facilitate the transfer of the title to the Pahuds, Virgilio
refused to sign it. 15 STEacI
On July 8, 1993, Virgilio's co-heirs filed a
complaint 16 for judicial partition of the subject property before
the RTC of Calamba, Laguna. On November 28, 1994, in the
course of the proceedings for judicial partition, a Compromise
Agreement17 was signed with seven (7) of the co-heirs agreeing
to sell their undivided shares to Virgilio for P700,000.00. The
compromise agreement was, however, not approved by the trial
court because Atty. Dimetrio Hilbero, lawyer for Eufemia and
her six (6) co-heirs, refused to sign the agreement because he
knew of the previous sale made to the Pahuds. 18
On December 1, 1994, Eufemia acknowledged having
received P700,000.00 from Virgilio. 19 Virgilio then sold the
entire property to spouses Isagani Belarmino and Leticia
Ocampo (Belarminos) sometime in 1994. The Belarminos
immediately constructed a building on the subject property.
Alarmed and bewildered by the ongoing construction on
the lot they purchased, the Pahuds immediately confronted
Eufemia who confirmed to them that Virgilio had sold the
property to the Belarminos. 20 Aggrieved, the Pahuds filed a
complaint in intervention 21 in the pending case for judicial
partition.
After trial, the RTC upheld the validity of the sale to
petitioners. The dispositive portion of the decision reads:
WHEREFORE, the foregoing considered, the
Court orders:
1. the sale of the 7/8 portion of the property
covered by OCT No. O (1655) O-15 by the
plaintiffs as heirs of deceased Sps. Pedro San
Agustin and Agatona Genil in favor of the
Intervenors-Third Party plaintiffs as valid and
enforceable, but obligating the Intervenors-Third
Party plaintiffs to complete the payment of the
purchase price of P437,500.00 by paying the
balance of P87,500.00 to defendant Fe (sic) San
Agustin Magsino. Upon receipt of the balance, the
plaintiff shall formalize the sale of the 7/8 portion
in favor of the Intervenor[s]-Third Party plaintiffs;
2. declaring the document entitled "Salaysay sa
Pagsang-ayon sa Bilihan" (Exh. "2-a") signed by
plaintiff Eufemia San Agustin attached to the
unapproved Compromise Agreement (Exh. "2") as
not a valid sale in favor of defendant Virgilio San
Agustin;
3. declaring the sale (Exh. "4") made by defendant
Virgilio San Agustin of the property covered by
OCT No. O (1655)-O-15 registered in the names
of Spouses Pedro San Agustin and Agatona Genil
in favor of Third-party defendant Spouses Isagani
and Leticia Belarmino as not a valid sale and as
inexistent; ETDaIC
4. declaring the defendant Virgilio San Agustin
and the Third-Party defendants spouses Isagani
and Leticia Belarmino as in bad faith in buying the
portion of the property already sold by the
plaintiffs in favor of the Intervenors-Third Party
Plaintiffs and the Third-Party Defendant Sps.
Isagani and Leticia Belarmino in constructing the
two-[storey] building in (sic)the property subject
of this case; and
5. declaring the parties as not entitled to any
damages, with the parties shouldering their
respective responsibilities regarding the payment
of attorney[']s fees to their respective lawyers.
No pronouncement as to costs.
SO ORDERED. 22
Not satisfied, respondents appealed the decision to the
CA arguing, in the main, that the sale made by Eufemia for and
on behalf of her other co-heirs to the Pahuds should have been
declared void and inexistent for want of a written authority from
her co-heirs. The CA yielded and set aside the findings of the
trial court. In disposing the issue, the CA ruled:
 WHEREFORE, in view of the foregoing, the
Decision dated January 14, 1998, rendered by the
Regional Trial Court of Calamba, Laguna, Branch
92 in Civil Case No. 2011-93-C for Judicial
Partition is hereby REVERSED and SET ASIDE,
and a new one entered, as follows:
(1) The case for partition among the plaintiffs-
appellees and appellant Virgilio is now
considered closed and terminated;
(2) Ordering plaintiffs-appellees to return to
intervenors-appellees the total amount
they received from the latter, plus an
interest of 12% per annum from the time
the complaint [in] intervention was filed
on April 12, 1995 until actual payment of
the same;
(3) Declaring the sale of appellant Virgilio San
Agustin to appellants spouses, Isagani and
Leticia Belarmino[,] as valid and binding;
(4) Declaring appellants-spouses as buyers in good
faith and for value and are the owners of
the subject property.
No pronouncement as to costs.
SO ORDERED. 23
Petitioners now come to this Court raising the following
arguments:
I. The Court of Appeals committed grave and
reversible error when it did not apply the
second paragraph of Article 1317 of the
New Civil Code insofar as ratification is
concerned to the sale of the 4/8 portion of
the subject property executed by
respondents San Agustin in favor of
petitioners; aAHDIc
II. The Court of Appeals committed grave and
reversible error in holding that
respondents spouses Belarminos are in
good faith when they bought the subject
property from respondent Virgilio San
Agustin despite the findings of fact by the
court a quo that they were in bad faith
which clearly contravenes the presence of
long line of case laws upholding the task
of giving utmost weight and value to the
factual findings of the trial court during
appeals; [and]
III. The Court of Appeals committed grave and
reversible error in holding that
respondents spouses Belarminos have
superior rights over the property in
question than petitioners despite the fact
that the latter were prior in possession
thereby misapplying the provisions of
Article 1544 of the New Civil Code. 24
The focal issue to be resolved is the status of the sale of
the subject property by Eufemia and her co-heirs to the Pahuds.
We find the transaction to be valid and enforceable.
Article 1874 of the Civil Code plainly provides:
Art. 1874. When a sale of a piece of land or any
interest therein is through an agent, the authority
of the latter shall be in writing; otherwise, the sale
shall be void.
Also, under Article 1878, 25 a special power of attorney
is necessary for an agent to enter into a contract by which the
ownership of an immovable property is transmitted or acquired,
either gratuitously or for a valuable consideration. Such stringent
statutory requirement has been explained in Cosmic Lumber
Corporation v. Court of Appeals: 26
[T]he authority of an agent to execute a contract
[of] sale of real estate must be conferred in writing
and must give himspecific authority, either to
conduct the general business of the principal or to
execute a binding contract containing terms and
conditions which are in the contract he did
execute. A special power of attorney is necessary
to enter into any contract by which the ownership
of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration. The
express mandate required by law to enable an
appointee of an agency (couched) in general terms
to sell must be one that expressly mentions a
sale or that includes a sale as a necessary
ingredient of the act mentioned. For the
principal to confer the right upon an agent to sell
real estate, a power of attorney must so express the
powers of the agent in clear and unmistakable
language. When there is any reasonable doubt that
the language so used conveys such power, no such
construction shall be given the
document. 27 ADcHES
In several cases, we have repeatedly held that the
absence of a written authority to sell a piece of land is, ipso
jure,void, 28 precisely to protect the interest of an unsuspecting
owner from being prejudiced by the unwarranted act of another.
Based on the foregoing, it is not difficult to conclude, in
principle, that the sale made by Eufemia, Isabelita and her two
brothers to the Pahuds sometime in 1992 should be valid only
with respect to the 4/8 portion of the subject property. The sale
with respect to the 3/8 portion, representing the shares of
Zenaida, Milagros, and Minerva, is void because Eufemia could
not dispose of the interest of her co-heirs in the said lot absent
any written authority from the latter, as explicitly required by
law. This was, in fact, the ruling of the CA.
Still, in their petition, the Pahuds argue that the sale with
respect to the 3/8 portion of the land should have been deemed
ratified when the three co-heirs, namely: Milagros, Minerva, and
Zenaida, executed their respective special power of
attorneys 29 authorizing Eufemia to represent them in the sale of
their shares in the subject property. 30
While the sale with respect to the 3/8 portion is void by
express provision of law and not susceptible to ratification, 31we
nevertheless uphold its validity on the basis of the common law
principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission or
representation is rendered conclusive upon the
person making it, and cannot be denied or
disproved as against the person relying thereon.
True, at the time of the sale to the Pahuds, Eufemia was
not armed with the requisite special power of attorney to dispose
of the 3/8 portion of the property. Initially, in their answer to the
complaint in intervention, 32 Eufemia and her other co-heirs
denied having sold their shares to the Pahuds. During the pre-
trial conference, however, they admitted that they had indeed
sold 7/8 of the property to the Pahuds sometime in
1992. 33 Thus, the previous denial was superseded, if not
accordingly amended, by their subsequent
admission. 34 Moreover, in their Comment, 35 the said co-heirs
again admitted the sale made to petitioners. 36
Interestingly, in no instance did the three (3) heirs
concerned assail the validity of the transaction made by Eufemia
to the Pahuds on the basis of want of written authority to sell.
They could have easily filed a case for annulment of the sale of
their respective shares against Eufemia and the Pahuds. Instead,
they opted to remain silent and left the task of raising the validity
of the sale as an issue to their co-heir, Virgilio, who is not privy
to the said transaction. They cannot be allowed to rely on
Eufemia, their attorney-in-fact, to impugn the validity of the first
transaction because to allow them to do so would be tantamount
to giving premium to their sister's dishonest and fraudulent deed.
Undeniably, therefore, the silence and passivity of the three co-
heirs on the issue bar them from making a contrary
claim. aDIHCT
It is a basic rule in the law of agency that a principal is
subject to liability for loss caused to another by the latter's
reliance upon a deceitful representation by an agent in the course
of his employment (1) if the representation is authorized; (2) if it
is within the implied authority of the agent to make for the
principal; or (3) if it is apparently authorized, regardless of
whether the agent was authorized by him or not to make the
representation. 37
By their continued silence, Zenaida, Milagros and
Minerva have caused the Pahuds to believe that they have indeed
clothed Eufemia with the authority to transact on their behalf.
Clearly, the three co-heirs are now estopped from impugning the
validity of the sale from assailing the authority of Eufemia to
enter into such transaction.
Accordingly, the subsequent sale made by the seven co-
heirs to Virgilio was void because they no longer had any interest
over the subject property which they could alienate at the time of
the second transaction. 38 Nemo dat quod non habet. Virgilio,
however, could still alienate his 1/8 undivided share to the
Belarminos.
The Belarminos, for their part, cannot argue that they
purchased the property from Virgilio in good faith. As a general
rule, a purchaser of a real property is not required to make any
further inquiry beyond what the certificate of title indicates on its
face. 39 But the rule excludes those who purchase with
knowledge of the defect in the title of the vendor or of facts
sufficient to induce a reasonable and prudent person to inquire
into the status of the property. 40 Such purchaser cannot close
his eyes to facts which should put a reasonable man on guard,
and later claim that he acted in good faith on the belief that there
was no defect in the title of the vendor. His mere refusal to
believe that such defect exists, or his obvious neglect by closing
his eyes to the possibility of the existence of a defect in the
vendor's title, will not make him an innocent purchaser for value,
if afterwards it turns out that the title was, in fact, defective. In
such a case, he is deemed to have bought the property at his own
risk, and any injury or prejudice occasioned by such transaction
must be borne by him. 41
In the case at bar, the Belarminos were fully aware that
the property was registered not in the name of the immediate
transferor, Virgilio, but remained in the name of Pedro San
Agustin and Agatona Genil. 42 This fact alone is sufficient
impetus to make further inquiry and, thus, negate their claim that
they are purchasers for value in good faith. 43They knew that the
property was still subject of partition proceedings before the trial
court, and that the compromise agreement signed by the heirs
was not approved by the RTC following the opposition of the
counsel for Eufemia and her six other co-heirs. 44 The
Belarminos, being transferees pendente lite, are deemed buyers
in mala fide, and they stand exactly in the shoes of the transferor
and are bound by any judgment or decree which may be rendered
for or against the transferor. 45 Furthermore, had they verified
the status of the property by asking the neighboring residents,
they would have been able to talk to the Pahuds who occupy an
adjoining business establishment 46 and would have known that
a portion of the property had already been sold. All these existing
and readily verifiable facts are sufficient to suggest that the
Belarminos knew that they were buying the property at their own
risk.
WHEREFORE, premises considered, the April 23,
2003 Decision of the Court of Appeals as well as its October 8,
2003 Resolution in CA-G.R. CV No. 59426,
 are REVERSED and SET ASIDE. Accordingly, the January 14,
1998 Decision of Branch 92 of the Regional Trial Court of
Calamba, Laguna is REINSTATED with
the MODIFICATION that the sale made by respondent Virgilio
San Agustin to respondent spouses Isagani Belarmino and
Leticia Ocampo is valid only with respect to the 1/8 portion of
the subject property. The trial court is ordered to proceed with
the partition of the property with dispatch. DcTaEH
SO ORDERED.
Chico-Nazario, ** Velasco, Jr. and Peralta, JJ., concur.
Carpio Morales, J., * please see concurring and dissenting opinion.
Separate Opinions
CARPIO MORALES, J., concurring and dissenting:
The ponencia reinstates the trial court's Decision of
January 14, 1998 with the modification that "the sale made by
respondent Virgilio San Agustin to respondent spouses Isagani
Belarmino and Leticia Ocampo is valid only with respect to the
1/8 portion of the subject property". 1
I submit that the validity of the sale to spouses
Belarmino extends to 4/8 or one-half of the property, inclusive of
the combined 3/8 share of respondents-sisters Zenaida, Milagros
and Minerva, all bearing the maiden surname of San Agustin,
thus leaving only one-half of the property to petitioners Purita
Pahud, et al. who earlier purchased from Eufemia San Agustin
(Eufemia) the property including the 3/8 portion over
which no written authority from the three sisters was secured.
The ponente, Justice Nachura, in fact, agrees to this proposition
"in principle". 2
The ponencia even rejects petitioners' contention that the
special power of attorney subsequently executed by Zenaida,
Milagros and Minerva in favor of Eufemia effectively ratified
their earlier purchase of the property insofar as the 3/8 portion is
concerned, for the established reason that void contracts or the
illegal terms thereof 3 are not susceptible to ratification. The
subsequent execution by the three sisters of the respective special
powers of attorney only means that they considered the previous
sale null and recognized the salability of their 3/8 portion, thus
paving the way for its transfer to Virgilio San Agustin and its
eventual sale to the spouses Belarmino.
Indeed, as the ponencia elucidates, Articles 1874 and
1878 of the Civil Code clearly provide that a special power of
attorney is necessary for an agent to "enter into any contract by
which the ownership of an immovable is transmitted or acquired
either gratuitously or for a valuable consideration" and that
specifically in cases of sale of a piece of land or any interest
therein through an agent, "the authority of the latter shall be in
writing; otherwise the sale shall be void". CacHES
The ponencia takes one step further, however, in
upholding the validity of the sale of the 3/8 portion belonging to
the 3 sisters to petitioner notwithstanding the want of a written
authority to sell, by applying the principle of estoppel. It
ratiocinates:
While the sale with respect to the 3/8 portion is
void by express provision of law and not
susceptible to ratification, we nevertheless uphold
its validity on the basis of the common law
principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission
or representation is rendered conclusive
upon the person making it, and cannot be
denied or disproved as against the person
relying thereon.
True, at the time of the sale to the Pahuds, Eufemia
was not armed with the requisite special power of
attorney to dispose of the 3/8 portion of the
property. Initially, in their answer to the complaint
in intervention, Eufemia and her other co-heirs
denied having sold their shares to the
Pahuds. During the pre-trial conference, however,
they admitted that they had indeed sold 7/8 of the
property to the Pahuds sometime in 1992. Thus,
the previous denial was superseded, if not
accordingly amended, by their subsequent
admission. Moreover, in their Comment, the said
co-heirs again admitted the sale made to
petitioners.
Interestingly, in no instance did the three (3) heirs
concerned assail the validity of the transaction
made by Eufemia to the Pahuds on the basis of
want of written authority to sell. They could have
easily filed a case for annulment of the sale of
their respective shares against Eufemia and the
Pahuds. Instead, they opted to remain silent and
left the task of raising the validity of the sale as an
issue to their co-heir, Virgilio, who is not privy to
the said transaction. They cannot be allowed to
rely on Eufemia, their attorney-in-fact, to impugn
the validity of the first transaction because to
allow them to do so would be tantamount to giving
premium to their sister's dishonest and fraudulent
deed. Undeniably, therefore, the silence and
passivity of the three co-heirs on the issue bar
them from making a contrary claim.
It is a basic rule in the law of agency that a
principal is subject to liability for loss caused to
another by the latter's reliance upon a deceitful
representation by an agent in the course of his
employment (1) if the representation is
authorized; (2) if it is within the implied authority
of the agent to make for the principal; or (3) if it is
apparently authorized, regardless of whether the
agent was authorized by him or not to make the
representation.
By their continued silence, Zenaida, Milagros and
Minerva have caused the Pahuds to believe that
they have indeed clothed Eufemia with the
authority to transact on their behalf. Clearly, the
three co-heirs are now estopped from impugning
the validity of the sale from assailing the authority
of Eufemia to enter such transaction. 4 (Emphasis
and underscoring supplied) AEDcIH
It is from this aspect of the ponencia that I respectfully
dissent.
Equity cannot supplant or contravene the law. 5
Article 1432 of the Civil Code expressly states that the
principles of estoppel are adopted "insofar as they are not in
conflict with the provisions of this Code", among other laws.
Indeed, estoppel, being a principle in equity, cannot be
applied in the presence of a law clearly applicable to the case.
The Court is first and foremost a court of law. While equity
might tilt on the side of one party, the same cannot be enforced
so as to overrule positive provisions of law in favor of the
other. 6
Moreover, the evident purpose of the legal requirement
of such written authority is not only to safeguard the interest of
an unsuspecting owner from being prejudiced by the
unauthorized act of another, but also to caution the buyer to
assure himself of the specific authorization of the putative agent.
In other words, the drafters of the law already saw the risky
predicament of selling lands through agents which, in the
absence of a specific law, would otherwise ultimately depend on
equity to resolve disputes such as the present case. The law
undoubtedly seeks to prevent the following confusion:
Case law tells us that the elements of estoppel are:
"first, the actor who usually must have knowledge,
notice or suspicion of the true facts, communicates
something to another in a misleading way, either
by words, conduct or silence; second, the other in
fact relies, and relies reasonably or justifiably,
upon that communication; third, the other would
be harmed materially if the actor is later permitted
to assert any claim inconsistent with his earlier
conduct; and fourth, the actor knows, expects or
foresees that the other would act upon the
information given or that a reasonable person in
the actor's position would expect or foresee such
action". 7
The depicted scenario is precisely the misunderstanding
between parties to such type of sale which the lawmakers sought
to avoid in prescribing the conditions for the validity of such sale
of land. The present case is a classic example of a tedious
litigation which had ensued as a result of such misunderstanding.
This is what the law endeavors to avert. 8 It is not for the Court
to suspend the application of the law and revert to equitable
grounds in resolving the present dispute.
Assuming arguendo that estoppel can contradict positive
law, I submit that Article 1431 of the Civil Code does not apply
since it speaks of one's prior admission or
representation, without which the other person could not have
relied on it before acting accordingly. AaSTIH
The ponencia cites acts or omissions on the part of the
three sisters which came after the fact such as their "admission"
and "continued silence" which, however, could not retroact to the
time of the previous sale as to consider petitioners to have
accordingly relied on such admission or representation before
buying the property from Eufemia. The application of the
principle of estoppel is proper and timely in heading off shrewd
efforts at renouncing one's previous acts to the prejudice of
another who had dealt honestly and in good faith. 9 It is thus
erroneous to conclude that Zenaida, Milagros and Minerva have
caused petitioners to believe that they have clothed Eufemia with
the authority to transact on their behalf.
Could the three sisters ratify the previous sale through
their subsequent acts or omissions? I opine they cannot.
Theponencia concedes that "the sale with respect to the 3/8
portion is void by express provision of law and not susceptible to
ratification".
The previous sale being violative of an express mandate
of law, such cannot be ratified by estoppel. Estoppel cannot give
validity to an act that is prohibited by law or one that is against
public policy. Neither can the defense of illegality be
waived. 10 An action or defense for the declaration of the
inexistence of a contract does not prescribe. 11 Amid the
confusion from the double dealing made by their sibling
Eufemia, the three sisters expectedly kept mum about it.
Succinctly, their "continued silence" cannot be taken against
them. Bargaining away a provision of law should not be
countenanced.
Neither can their "admission" to a question of law bind
them. The ponencia highlights the admission made by Eufemia
and her co-heirs during the pre-trial conference before the trial
court and in their Comment on the present petition that they had
earlier sold 7/8 of the property to petitioners. These statements
could not mean, however, as an admission in petitioners' favor
that Zenaida, Milagros and Minerva validly sold their respective
shares to petitioners. They could only admit to the statement of
fact 12 that the sale took place, but not to the conclusion of law
that the sale was valid, precisely because the validity of the sales
transaction is at issue as it was contested by the parties.
 Further, the textbook citation of the rule involving a 7.Id. at 61.
principal's responsibility for an agent's misrepresentation within
the scope of an agent's authority as annotated by the cited author 8.Id. at 37.
under Article 1900 of the Civil Code is inapplicable. The 9.Id. at 50, 140.
qualifying phrase "in the course of his employment" presupposes
that an agency relationship is existing. The quoted rule clearly 10.Id. at 13.
recites that a principal is held liable if the "deceitful 11.Id. at 38.
representation" (not the agency relationship) is authorized either
expressly, impliedly, or apparently. In this case, there 12.Id. at 89-96.
was no agency relationship to speak of.
13.Id. at 97.
I, therefore, vote to reinstate the trial court's January 14,
1998 Decision with modification that the sale made by 14.Id. at 13, 140.
respondent Virgilio San Agustin to respondent spouses Isagani 15.Id. at 38.
Belarmino and Leticia Ocampo is valid with respect to the4/8
portion of the subject property. AEIcTD 16.Id. at 51-54. The complaint was docketed as Civil Case No.
2011-93-C.
17.Id. at 69-71.
Footnotes
18.Id. at 136, 139.

**In lieu of Associate Justice Consuelo Ynares-Santiago per 19.Id. at 106.

Special Order No. 678 dated August 3, 2009. 20.Id. at 135-136.
*Additional member in lieu of Associate Justice Consuelo Ynares- 21.Id. at 72-84.
Santiago per Special Order No. 679 dated August 3, 2009.
22.Id. at 145-146.
1.Penned by Associate Justice Juan Q. Enriquez, Jr., with Associate
Justices Mercedes Gozo-Dadole and Hakim S. 23.Id. at 44-45.
Abdulwahid, concurring; rollo, pp. 35-45. 24.Id. at 19.
2.Id. at 47-48. 25.Article 1878 (5) provides:
3.Rollo, pp. 121-146. Art. 1878. Special powers of attorney are necessary in the
4.Id. at 85-86. following cases:

5.Id. at 49-50. xxx xxx xxx

6.Id. at 37-38.
(5) To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or
for a valuable consideration.
26.332 Phil. 948 (1996).
27.Id. at 957-958. (Emphasis supplied, citations omitted.)
28.Estate of Lino Olaguer, etc. v. Hon. CA and Emiliano M.
Ongjoco, G.R. No. 173312, August 26, 2008; Dizon v.
Court of Appeals,G.R. Nos. 122544 and 124741, January
28, 2003, 396 SCRA 151, 155; AF Realty & Development,
Inc. v. Dieselman Freight Services, Co., 424 Phil. 446, 455
(2002); San Juan Structural and Steel Fabricators, Inc. v.
Court of Appeals, G.R. No. 129459, September 29,
1998, 296 SCRA 631, 648.
29.Special Power of Attorney of Isabelita San Agustin-
Lustenberger was executed on September 28,
1991, rollo, p. 61 (Annex "E"); Special Power of Attorney
of Milagros San Agustin-Fortman was executed in
December 1992, id. at 62 (Annex "F"); Special Power of
Attorney of Minerva San Agustin-Atkinson was executed,
undated, but was witnessed by G.R. Stephenson,
Commissioner for Oaths, on February 12, 1993, id. at 63
(Annex "G"); and Special Power of Attorney of Zenaida
San Agustin-McCrae was executed on May 10, 1993, id. at
64 (Annex "H").
30.Rollo, p. 20.
31.CIVIL CODE, Art. 1409 provides in part:
Art. 1409. The following contracts are inexistent and void from
the beginning:
xxx xxx xxx
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up
the defense of illegality be waived.
32.I Records, p. 26; Exh. "I-A", entitled Answer to Counterclaim
dated December 14, 1993.
33.II Records, pp. 262-264.
34.RULES OF COURT, Rule 10, Sec. 5 provides in full:
SEC. 5. Amendment to conform to or authorize presentation of
evidence. — When issues not raised by the pleadings are
tried with the express or implied consent of the parties,
they shall be treated in all respects as if they had been
raised in the pleadings. Such amendment of the pleadings
as may be necessary to cause them to conform to the
evidence and to raise these issues may be made upon
motion of any party at any time, even after judgment; but
failure to amend does not affect the result of the trial of
these issues. If evidence is objected to at the trial on the
ground that it is not within the issues made by the
pleadings, the court may allow the pleadings to be
amended and shall do so with liberality if the presentation
of the merits of the action and the ends of substantial
justice will be subserved thereby. The court may grant a
continuance to enable the amendment to be made.
35.Rollo, pp. 200-204.
36.Id. at 200.
37.See De Leon, Comments and Cases on Partnership, Agency and
Trusts, 2005 edition, p. 538, citing Mechem, Cases on the
Law of Agency, p. 230.
38.CIVIL CODE, Art. 1409 provides in part:
Art. 1409. The following contracts are inexistent and void from
the beginning:
xxx xxx xxx
(3) Those whose cause or object did not exist at the time of the 6.Vide id. A waiver will be inoperative and void if it infringes on
transaction; the rights of others (Ouano v. Court of Appeals, infra at
704).
xxx xxx xxx
7.Phil. Bank of Communications v. CA, 352 Phil. 1, 9 (1998).
These contracts cannot be ratified. Neither can the right to set up
the defense of illegality be waived. 8.Cf. Powton Conglomerate, Inc. v. Agcolicol, 448 Phil. 643, 653
(2003) for analogy respecting the vital preconditions to the
39.Lu v. Intermediate Appellate Court, G.R. No. 70149, January validity of a contract for additional works under Article
30, 1989, 169 SCRA 595, 604; Lopez v. Court of 1724 of the Civil Code.
Appeals, G.R. No. 49739, January 20, 1989, 169 SCRA
271, 275-276. 9.Vide Pureza v. CA, 352 Phil. 717, 722 (1998).
40.Abad v. Guimba, G.R. No. 157002, July 29, 2005, 465 SCRA 10.Vide Ouano v. Court of Appeals, 446 Phil. 690, 708 (2003).
356, 367.
11.CIVIL CODE, Art. 1410.
41.Bailon-Casilao v. Court of Appeals, G.R. No. L-78178, April
15, 1988, 160 SCRA 738, 750. 12.RULES OF COURT, Rule 18, Sec. 2 (d). Pre-trial allows the
parties to obtain stipulations or admissions of fact and of
42.I Records, pp. 5-6. documents.
43.Guaranteed Homes, Inc. v. Heirs of Maria P. Valdez, et ||| (Pahud v. Court of Appeals, G.R. No. 160346, [August 25, 2009],
al., G.R. No. 171531, January 30, 2009. 613 PHIL 367-390)
44.I Records, pp. at 60-61.
45.Voluntad v. Dizon, G.R. No. 132294, August 26, 1999, 313
SCRA 209.
46.Rollo, p. 16.
CARPIO MORALES, J., concurring and dissenting:
1.Ponencia, p. 12 (underscoring supplied).
2.Ponencia, p. 7.
3.CIVIL CODE, Art. 1420 in relation to Art. 493.
4.Ponencia, pp. 8-10.
5.Valdevieso v. Damalerio, 492 Phil. 51, 59 (2005).
 SECOND DIVISION
[G.R. No. 102737. August 21, 1996.]
FRANCISCO A. VELOSO, petitioner, vs.
COURT OF APPEALS, AGLALOMA B.
ESCARIO, assisted by her husband
GREGORIO L. ESCARIO, the REGISTER OF
DEEDS FOR THE CITY OF
MANILA, respondents.
Bernas Law Offices for petitioner.
Edgardo A. Arandia for private respondent.
SYLLABUS
1. CIVIL LAW; AGENCY; A SPECIAL POWER OF ATTORNEY
CAN BE INCLUDED IN THE GENERAL POWER WHEN IT IS
SPECIFIED THEREIN THE ACT OR TRANSACTION FOR
WHICH THE SPECIAL POWER IS REQUIRED. — There
was no need to execute a separate and special power of attorney
since the general power of attorney had expressly authorized the
agent or attorney in fact the power to sell the subject property. The
special power of attorney can be included in the general power when
it is specified therein the act or transaction for which the special
power is required.
2. ID.; SALE; PURCHASER IN GOOD FAITH; DEFINED; HIS
REMEDY IN CASE OF FRAUD. — It has been consistently held
that a purchaser in good faith is one who buys property of another,
without notice that some other person has a right to, or interest in
such property and pays a full and fair price for the same, at the time
of such purchase, or before he has notice of the claim or interest of
some other person in the property. "The right of an innocent
purchaser for value must be respected and protected, even if the
seller obtained his title through fraud. The remedy of the person
prejudiced is to bring an action for damages against those who
caused or employed the fraud, and if the latter are insolvent, an
action against the Treasurer of the Philippines may be filed for
recovery of damages against the Assurance Fund."
3. REMEDIAL LAW; EVIDENCE; FORGERY CANNOT BE
PRESUMED. — Mere variance of the signatures cannot be
considered as conclusive proof that the same were forged. Forgery
cannot be presumed. Forgery should be proved by clear and
convincing evidence and whoever alleges it has the burden of
proving the same.
4. ID.; ID.; NOTARIZED DOCUMENTS ARE PRESUMED TO BE
VALID AND DULY EXECUTED. — Documents acknowledged
before a notary public have the evidentiary weight with respect to
their due execution. The questioned power of attorney and deed of
sale, were notarized and therefore, presumed to be valid and duly
executed.
5. CIVIL LAW; PRINCIPLE OF EQUITABLE ESTOPPEL,
DEFINED. — The principle of equitable estoppel states that where
one or two innocent persons must suffer a loss, he who by his
conduct made the loss possible must bear it.
DECISION
TORRES, JR., J p:
This petition for review assails the decision of the Court of Appeals,
dated July 29, 1991, the dispositive portion of which reads:
 "WHEREFORE, the decision appealed from is
hereby AFFIRMED IN TOTO. Costs against
appellant." 1
The following are the antecedent facts:
Petitioner Francisco Veloso was the owner of a parcel of land
situated in the district of Tondo, Manila, with an area of one hundred
seventy seven (177) square meters and covered by Transfer
Certificate of title No. 49138 issued by the Registry of Deeds of
Manila. 2 The title was registered in the name of Francisco A.
Veloso, single, 3 on October 4, 1957. 4 The said title was
subsequently cancelled and a new one, Transfer Certificate of
Title No. 180685, was issued in the name of Aglaloma B. Escario,
married to Gregorio L. Escario, on May 24, 1988. 5
On August 24, 1988, petitioner Veloso filed an action for annulment
of documents, reconveyance of property with damages and
preliminary injunction and/or restraining order. The complaint,
docketed as Civil Case no. 88-45926, was raffled to the Regional
Trial Court, Branch 45, Manila. Petitioner alleged therein that he was
the absolute owner of the subject property and he never authorized
anybody, not even his wife, to sell it. He alleged that he was in
possession of the title but when his wife, Irma, left for abroad, he
found out that his copy was missing. He then verified with the
Registry of Deeds of Manila and there he discovered that his title
was already canceled in favor of defendant Aglaloma Escario. The
transfer of property was supported by a General Power of
Attorney 6 dated November 29, 1985 and Deed of Absolute Sale,
dated November 2, 1987, executed by Irma Veloso, wife of the
petitioner and appearing as his attorney-in-fact, and defendant
Aglaloma Escario. 7Petitioner Veloso, however, denied having
executed the power of attorney and alleged that his signature was
falsified. He also denied having seen or even known Rosemarie
Reyes and Imelda Santos, the supposed witnesses in the execution of
the power of attorney. He vehemently denied having met or
transacted with the defendant. Thus, he contended that the sale of the
property, and the subsequent transfer thereof, were null and void.
Petitioner Veloso, therefore, prayed that a temporary restraining
order be issued to prevent the transfer of the subject property; that
the General Power of Attorney, the Deed of Absolute Sale and the
Transfer Certificate of Title No. 180685 be annulled; and the subject
property be reconveyed to him.
Defendant Aglaloma Escario in her answer alleged that she was a
buyer in good faith and denied any knowledge of the alleged
irregularity. She allegedly relied on the general power of attorney of
Irma Veloso which was sufficient in form and substance and was
duly notarized. She contended that plaintiff (herein petitioner),
had no cause of action against her. In seeking for the declaration of
nullity of the documents, the real party in interest was Irma Veloso,
the wife of the plaintiff. She should have been impleaded in the case.
In fact, Plaintiff's cause of action should have been against his wife,
Irma. Consequently, defendant Escario prayed for the dismissal of
the complaint and the payment to her of damages. 8
Pre-trial was conducted. The sole issue to be resolved by the trial
court was whether or not there was a valid sale of the subject
property. 9
During the trial, plaintiff (herein petitioner) Francisco Veloso
testified that he acquired the subject property from the Philippine
Building Corporation, as evidenced by a Deed of Sale dated October
1, 1957. 10 He married Irma Lazatin on January 20, 1962.11 Hence,
the property did not belong to their conjugal partnership. Plaintiff
further asserted that he did not sign the power of attorney and as
proof that his signature was falsified, he presented Allied Bank
Checks Nos. 16634640, 16634641 and 16634643, which allegedly
bore his genuine signature.
Witness for the plaintiff Atty. Julian G. Tubig denied any
participation in the execution of the general power of attorney. He
attested that he did not sign thereon, and the same was never entered
in his Notarial Register on November 29, 1985.
In the decision of the trial court dated March 9, 1990, 12 defendant
Aglaloma Escario was adjudged the lawful owner of the property as
she was deemed an innocent purchaser for value. The assailed
general power of attorney was held to be valid and sufficient for the
purpose. The trial court ruled that there was no need for a special
power of attorney when the special power was already mentioned in
the general one. It also declared that plaintiff failed to substantiate
his allegation of fraud. The court also stressed that plaintiff was not
entirely blameless for although he admitted to be the only person
who had access to the title and other important documents, his wife
was still able to posses the copy. Citing Section 55 of Act 496, the
court held that Irma's possession and production of the certificate of
title was deemed a conclusive authority from the plaintiff to the
Register of Deeds to enter a new certificate. Then applying the
principle of equitable estoppel, plaintiff was held to bear the loss of it
was he who made the wrong possible. Thus:
"WHEREFORE, the Court finds for the
defendants and against plaintiff —
a. declaring that there was a valid sale of the
subject property in favor of the defendant;
b. denying all other claims of the parties for want
of legal and factual basis.
Without pronouncement as to costs.
SO ORDERED."
Not satisfied with the decision, petitioner Veloso filed his appeal with
the Court of Appeals. The respondent court affirmed in toto the
findings of the trial court.
Hence, this petition for review before Us.
This petition for review was initially dismissed for failure to submit
an affidavit of service of a copy of the petition on the counsel for
private respondent. 13 A motion for reconsideration of the resolution
was filed but it was denied in a resolution dated March 30,
1992. 14 A second motion for reconsideration was filed and in a
resolution dated Aug. 3, 1992, the motion was granted and the
petition for review was reinstated. 15
A supplemental petition was filed on October 9, 1992 with the
following assignment of errors:
I
The Court of Appeals committed a grave error in
not finding that the forgery of the power of
attorney (Exh. "C") had been adequately proven,
despite the preponderant evidence, and in doing
so, it has so far departed from the applicable
provisions of law and the decisions of this
Honorable Court, as to warrant the grant of this
petition for review on certiorari.
II
There are principles of justice and equity that
warrant a review of the decision.
III
The Court of Appeals erred in affirming the
decision of the trial court which misapplied the
principle of equitable estoppel since the petitioner
did not fail in his duty of observing due diligence
in the safekeeping of the title to the property.
We find petitioner's contentions not meritorious.
An examination of the records showed that the assailed power of
attorney was valid and regular on its face. It was notarized and as
such, it carries the evidentiary weight conferred upon it with respect
to its due execution. While it is true that it was denominated as a
general power of attorney, a perusal thereof revealed that it stated an
authority to sell, to wit:
 "2. To buy or sell, hire or lease, mortgage or
otherwise hypothecate lands, tenements and
hereditaments or other forms of real property,
more specifically TCT No. 49138, upon such
terms and conditions and under such covenants as
my said attorney shall deem fit and proper." 16
Thus, there was no need to execute a separate and special power of
attorney since the general power of attorney had expressly authorized
the agent or attorney in fact the power to sell the subject property.
The special power of attorney can be included in the general power
when it is specified therein the act or transaction for which the
special power is required.
The general power of attorney was accepted by the Register of Deeds
when the title to the subject property was cancelled and transferred in
the name of private respondent. In LRC Consulta No. 123, Register
of Deeds of Albay, Nov. 10, 1956, it stated that:
"Whether the instrument be denominated as
"general power of attorney" or "special power of
attorney," what matters is the extent of the power
or powers contemplated upon the agent or attorney
in fact. If the power is couched in general terms,
then such power cannot go beyond acts of
administration. However, where the power to sell
is specific, it not being merely implied, much less
couched in general terms, there can not be any
doubt that the attorney in fact may execute a valid
sale. An instrument may be captioned as "special
power of attorney" but if the powers granted are
couched in general terms without mentioning any
specific power to sell or mortgage or to do other
specific acts of strict dominion, then in that case
only acts of administration may be deemed
conferred."
Petitioner contends that his signature on the power of attorney was
falsified. He also alleges that the same was not duly notarized for as
testified by Atty. Tubig himself, he did not sign thereon nor was it
ever recorded in his notarial register. To bolster his argument,
petitioner had presented checks, marriage certificate and his
residence certificate to prove his alleged genuine signature which
when compared to the signature in the power of attorney, showed
some difference.
We found, however, that the basis presented by the petitioner was
inadequate to sustain his allegation of forgery. Mere variance of the
signatures cannot be considered as conclusive proof that the same
were forged. Forgery cannot be presumed.17 Petitioner, however,
failed to prove his allegation and simply relied on the apparent
difference of the signatures. His denial had not established that the
signature on the power of attorney was not his.
We agree with the conclusion of the lower court that private
respondent was an innocent purchaser for value. Respondent
Aglaloma relied on the power of attorney presented by petitioner's
wife, Irma. Being the wife of the owner and having with her the title
of the property, there was no reason for the private respondent not to
believe, in her authority. Moreover, the power of attorney was
notarized and as such, carried with it the presumption of its due
execution. Thus, having had no inkling on any irregularity and
having no participation thereof, private respondent was a buyer in
good faith. It has been consistently held that a purchaser in good
faith is one who buys property of another, without notice that some
other person has a right to, or interest in such property and pays a full
and fair price for the same, at the time of such purchase, or before he
has notice of the claim or interest of some other person in the
property. 18
Documents acknowledged before a notary public have the
evidentiary weight with respect to their due execution. The
questioned power of attorney and deed of sale, were notarized and
therefore, presumed to be valid and duly executed. Atty. Tubig
denied having notarized the said documents and alleged that his
signature had also been falsified. He presented samples of his
signature to prove his contention. Forgery should be proved by clear
and convincing evidence and whoever alleges it has the burden of
proving the same. Just like the petitioner, witness Atty. Tubig merely
pointed out that his signature was different from that in the power of
attorney and deed of sale. There had never been an accurate
examination of the signature, even that of the petitioner. To
determine forgery, it was held in Cesar vs.
Sandiganbayan 19 (quoting Osborn, The Problem of Proof) that:
"The process of identification, therefore, must
include the determination of the extent, kind, and
significance of this resemblance as well as of the
variation. It then becomes necessary to determine
whether the variation is due to the operation of a
different personality, or is only the expected and
inevitable variation found in the genuine writing of
the same writer. It is also necessary to decide
whether the resemblance is the result of a more or
less skillful imitation, or is the habitual and
characteristic resemblance which naturally appears
in a genuine writing. When these two questions are
correctly answered the whole problem of
identification is solved."
Even granting for the sake of argument, that the petitioner's signature
was falsified and consequently, the power of attorney and the deed of
sale were null and void, such fact would not revoke the title
subsequently issued in favor of private respondent Aglaloma. In
Tenio-Obsequio vs. Court of Appeals, 20 it was held, viz:
"The right of an innocent purchaser for value must
be respected and protected, even if the seller
obtained his title through fraud. The remedy of the
person prejudiced is to bring an action for
damages against those who caused or employed
the fraud, and if the latter are insolvent, an action
against the Treasurer of the Philippines may be
filed for recovery of damages against the
Assurance Fund."
Finally, the trial court did not err in applying equitable estoppel in
this case. The principle of equitable estoppel states that where one or
two innocent persons must suffer a loss, he who by his conduct made
the loss possible must bear it. From the evidence adduced, it should
be the petitioner who should bear the loss. As the court a quo found:
"Besides, the records of this case disclosed that the
plaintiff is not entirely free from blame. He
admitted that he is the sole person who has access
to TCT No. 49138 and other documents
appertaining thereto (TSN, May 23, 1989, pp. 7-
12). However, the fact remains that the Certificate
of Title, as well as other documents necessary for
the transfer of title were in the possession of
plaintiff's wife, Irma L. Veloso, consequently
leaving no doubt or any suspicion on the part of
the defendant as to her authority. Under Section 55
of Act 496, as amended, Irma's possession and
production of the Certificate of Title to defendant
operated as "conclusive authority from the plaintiff
to the Register of Deeds to enter a new
certificate." 21
Considering the foregoing premises, we found no error in the
appreciation of facts and application of law by the lower court which
will warrant the reversal or modification of the appealed decision.
ACCORDINGLY, the petition for review is hereby DENIED for lack
of merit.
SO ORDERED.
Regalado, Romero, Puno and Mendoza, JJ ., concur.
Footnotes
1.Decision, Rollo, p. 59, penned by J.N. Lapeña, Jr. and concurred ||| (Veloso v. Court of Appeals, G.R. No. 102737, [August 21, 1996],
in by J.R. Pronove and J.C. Santiago. 329 PHIL 398-409)
2.Exh. "A", Annex "A", Records, p. 12 and 155.
3.Exh. "A-1", Ibid.
4.Exh. "A-2", Ibid.
5.Exh. "B", Annex B, Exh. "3", Records, p. 15 and 157.
6.Records, pp. 96-97.
7.Records, pp. 94-95.
8.Answer, Records, pp. 43-47.
9.Order, Records, pp. 74-76.
10.Exh. "F", Records, pp. 163-164.
11.Exh. "H", Records, p. 166.
12.Decision, Records, pp. 283-292.
13.Resolution, February 3, 1992, Rollo, p. 65.
14.Rollo, p. 72.
15.Rollo, p. 93.
16.Records, pp. 96-97.
17.Tenio-Obsequio vs. Court of Appeals, G. R. 107967, March 1,
1994.
18.Bautista, et. al. vs. Court of Appeals, G.R. 106042, Feb. 28,
1994.
19.G.R. Nos. 54719-50, 17 January 1985.
20.G.R. 109767, March 1, 1994.
21.Decision, Records, p. 291.
 EN BANC
[G.R. No. 25593. November 15, 1967.]
HOME INSURANCE COMPANY, plaintiff-
appellant, vs. UNITED STATES LINES CO.,
ET AL., defendants-appellees.
Quasha, Asperilla, Blanco, Zafra & Tayag for plaintiff-appellant.
Ross, Selph, Salcedo, Del Rosario, Bito & Mesa for defendants-
appellees.
SYLLABUS
discretion to dismiss the case, should plaintiff not appear at the pre-
trial.
3. ID.; COMPROMISE; REQUISITE THEREOF. — The Rules of
Court require, for attorneys to compromise the litigation of their
clients, a "special authority" (Sec. 23, Rule 138). And while the same
does not state that the special authority be in writing, the court has
every reason to expect that, if not in writing, the same be duly
established by evidence other than the self-serving assertion of
counsel himself that such authority was verbally given him.
4. ID.; ID.; AUTHORITY TO COMPROMISE NOT PRESUMED.
— Authority to compromise a litigation cannot be lightly presumed.
If, with good reason, the judge is not satisfied that said authority
exists, as in this case, dismissal of the suit for non-appearance of
plaintiff in pre-trial is sanctioned by the Rules of Court.

1. ARRASTRE SERVICE; IMMUNITY OF GOVERNMENT DECISION

FROM SUIT. — On grounds of public policy, the Republic of the
Philippines or its agencies may not be sued for the performance of
arrastre operations as a function necessarily incidental to the
governmental function of taxation. BENGZON, J.P., J p:

2. REMEDIAL LAW; PRE-TRIAL UNDER THE NEW RULES

DISTINGUISHED FROM THAT OF THE OLD. — Section 1 of
Rule 20 of the Revised Rules of Court, making pre-trial mandatory
partly provides that "in any action, after the last pleading has been
filed, the court shall direct the parties and their attorneys to appear
before it for a conference." This is different from Section 1 of Rule
25 of the old Rules of Court which provided that "the court may in its
discretion direct the attorneys for the parties to appear before it for a
conference." Section 2, Rule 20 of the new Rules of Court says that
"a party who fails to appear at a pre-trial conference may be non-
suited or considered as in default." This shows the purpose of the
Rules to compel the parties to appear personally before the Court to
reach, if possible, a compromise. Accordingly, the court is given the
Sometime in 1964, SS "Pioneer Moon" arrived in Manila and
discharged unto the custody of the Bureau of Customs, as arrastre
operator, two hundred (200) cartons of carbonized adding machine
rolls consigned to Burroughs, Limited. When the cargo was delivered
to the consignee, however, several cartons were damaged. The
consignee claimed the P2,605.64 worth of damage from the Bureau
of Customs, the United States Lines Company, owner of the vessel,
and the Home InsuranceCompany which had insured the cargo. The
latter paid the claim and demanded reimbursement from either
arrastre operator or the carrier. When both rejected the claim,
the Home Insurance Company, as subrogee, filed on June 11, 1965
an action against the Republic of the Philippines, the Bureau of
Customs and the United States Lines, in the alternative, for the
recovery of P2,605.64, with interest plus costs. cdasia
Both defendants answered. The United States Lines disclaimed
liability on the ground that the damage was incurred while the cargo
was in the possession of its co-defendants. The Republic of the
Philippines and the Bureau of Customs, after denial of their motion
to dismiss, answered and alleged among others, non-suability and
noncompliance with Act 3083, as amended byCommonwealth Act
327 which requires money claims to be filed with the Auditor
General.
On December 7, 1965, the date set for pre-trial, only the counsel for
the plaintiff appeared, who upon being asked for written authority to
compromise, assured the court that though he had no written
authority, he had such authority verbally given by the plaintiff. On
the same day, the court dismissed the case for failure of the plaintiff
to appear at the pre-trial conference.
Its motion for reconsideration having been denied, plaintiff appealed
to Us, claiming that the lower court erred in dismissing the case for
failure of the plaintiff to appear.
As against the Republic of the Philippines and the Bureau of
Customs, the dismissal must be sustained in the light of our decision
in Mobil Philippines Exploration v. Customs Arrastre Service and
Bureau of Customs, L-23139, December 17, 1966 and subsequent
rulings, 1 where We held that on grounds of public policy, the
Republic of the Philippines or its agencies, may not be sued for the
performance of arrastre operations as a function necessarily
incidental to the governmental function of taxation.
As regards the other defendant, Section 1 of Rule 20 of the Revised
Rules of Court, making pre-trial mandatory partly provides: ". . . in
any action, after the last pleading has been filed, the court shall
direct the parties and their attorneys to appear before it for a
conference" (emphasis supplied). This is different from Section 1 of
Rule 25 of the old Rules of Court which provided that "the court may
in its discretion direct the attorneys for the parties to appear before it
for a conference. . . " (emphasis supplied). Section 2, Rule 20 of the
new Rules of Court says that "a party who fails to appear at a pre-
trial conference may be non-suited or considered as in default." This
shows the purpose of the Rules to compel the parties to appear
personally before the court to reach, if possible, a compromise.
Accordingly, the court is given the discretion to dismiss the case
should plaintiff not appear at the pre-trial.
Taking into consideration said purpose and spirit of the new Rules as
well as the facts in the present case, We find no reversible error
committed by the court a quo in dismissing the action for the reason
that only plaintiff's counsel appeared at the pre-trial (and not
plaintiff's official representative also). True, said counsel asserted
that he had verbal authority to compromise the case. The Rules,
however, require, for attorneys to compromise the litigation of their
clients, a "special authority" (Section 23, Rule 138, Rules of Court).
And while the same does not state that the special authority be in
writing, the court has every reason to expect that, if not in writing,
the same be duly established by evidence other than the self-serving
assertion of counsel himself that such authority was verbally given
him. The court below, therefore, did not act erroneously in
proceeding to dismiss the case in spite of such manifestation of
plaintiff's counsel. For, authority to compromise cannot lightly be
presumed. And if, with good reason, the judge is not satisfied that
said authority exists, as in this case, dismissal of the suit for non-
appearance of plaintiff in pre-trial is sanctioned by the Rules. The
dismissal should therefore be sustained in toto, with respect to all the
defendants. liblex
WHEREFORE, the appealed order of dismissal is affirmed, without
costs. So ordered.
Concepcion, C.J ., Reyes, J.B.L., Dizon, Makalintal, Zaldivar,
Sanchez, Castro, Angeles and Fernando, JJ ., concur.
Footnotes
1.North British & Mercantile Insurance Co., Ltd. v. Isthmian Lines,
Inc., L-26237, July 10, 1967; Insurance Company of North
Americav. Republic, L-26532, July 10,
1967; Insurance Company of North America v. Republic,
L-24520, July 11, 1967; Insurance Companyof North
America v. Republic, L-25662, July 21, 1967; Manila
Electric Company v. Customs Arrastre Service, L-25515,
July 24, 1967; Shell Refining Co. (Phil.) Inc. v. Manila
Port Service, L-24930, July 31, 1967; The
American Insurance Company v. Macondray & Co., Inc.,
L- 24031, August 19, 1967.
||| (Home Insurance Co. v. United States Lines Co., G.R. No. 25593,
[November 15, 1967], 129 PHIL 106-109)
 and upheld the validity of the sales of properties to respondent
Emiliano M. Ongjoco.
The relevant factual antecedents of the case, as found by
the trial court and adapted by the Court of Appeals, are as
follows: CHDAEc
The plaintiffs Sor Mary Edith Olaguer,
Aurora O. de Guzman, Clarissa O. Trinidad,
Lina Olaguer and Ma. Linda O. Montayre are
the legitimate children of the spouses Lino
Olaguer and defendant Olivia P. Olaguer.
Lino Olaguer died on October 3, 1957
so Special Proceedings No. 528 for probate of
will was filed in the then Court of First Instance
THIRD DIVISION of Albay. Defendant Olivia P. Olaguer was
appointed as administrator pursuant to the will.
[G.R. No. 173312. August 26, 2008.] Later, defendant Eduardo Olaguer was appointed
as co-administrator. . . .
ESTATE OF LINO OLAGUER, Represented On October 15, 1959 defendant Olivia P.
by Linda O. Olaguer, and LINDA O. Olaguer got married to defendant Jose A.
MONTAYRE, petitioners, vs. EMILIANO M. Olaguer before the then Justice of the Peace of
ONGJOCO, respondent. Sto. Domingo (Libog) Albay. (Exhibit "NNNN")
On January 24, 1965 they were married in
church. (Exhibit "XX") AaCTcI
DECISION In the order of the probate court dated
April 4, 1961, some properties of the estate were
authorized to be sold to pay obligations of the
estate. Pursuant to this authority, administrators
CHICO-NAZARIO, J p: Olivia P. Olaguer and Eduardo Olaguer on
December 12, 1962 sold to Pastor Bacani for
Assailed in this Petition for Review on Certiorari 1 is [P]25,000 Pesos, twelve (12) parcels of land,
the Decision 2 of the Court of Appeals dated 27 February 2006 particularly, Lots 4518, 4526, 4359, 8750, 7514,
in CA-G.R. CV No. 71710. Said decision modified the 6608, 8582, 8157, 7999, 6167, 8266,
Decision 3 and the subsequent Order 4 of the Regional Trial and 76 with a total area of 99 hectares. (Exhibit
Court (RTC) of Legazpi City, Branch 6, in Civil Case No. 6223,
"A" — Deed of Sale notarized by defendant Jose
A. Olaguer)
This sale of twelve (12) parcels of land
to Pastor Bacani was approved by the Probate
Court on December 12, 1962. (Exhibit "15")
The following day, December 13,
1962, Pastor Bacani sold back to Eduardo
Olaguer and Olivia Olaguer for [P]12,000.00
Pesos, one of the twelve (12) lots he bought
the day before, particularly, Lot No. 76 in the
proportion of 7/13 and 6/13 pro-indiviso
respectively. (Exhibit "B" — Deed of Sale
notarized by Felipe A. Cevallos, Sr.) DHaECI
Simultaneously, on the same day
December 13, 1962, Pastor Bacani sold back to
Olivia Olaguer and Eduardo Olaguer the other
eleven (11) parcels he bought from them as
follows:
To Olivia Olaguer — Four (4) parcels for
10,700 Pesos, particularly Lots 4518,
4526, 4359, 8750 with a total area of 84
hectares. (Exhibit "E" — Deed of Sale
notarized by Felipe A. Cevallos, Sr.)
To Eduardo Olaguer — Seven (7) parcels
of land for 2,500 Pesos, particularly Lots
7514, 6608, 8582, 8157, 7999, 6167, and
8266 with a total area of 15 hectares.
(Exhibit "C" — Deed of Sale notarized by
defendant Jose A. Olaguer)
Relying upon the same order of April 4,
1961 but without prior notice or permission from
the Probate Court, defendants Olivia P. Olaguer
and Eduardo Olaguer on November 1, 1965 sold
to Estanislao Olaguer for 7,000 Pesos, ten (10)
parcels of land, particularly, (a) TCT No. T-4011
— Lot No. 578, (b) TCT No. T-1417 — Lot No.
1557, (c) TCT No. T-4031 — Lot No. 1676, (d)
TCT No. T-4034 — Lot No. 4521, (e) TCT No.
T-4035 — Lot No. 4522, (f) TCT No. 4013 —
Lot No. 8635, (g) TCT No. T-4014 — Lot 8638,
(h) TCT No. T-4603 — Lot No. 7589, (i)
TCT No. 4604 — Lot No. 7593, and (j)
TCT No. T-4605 — Lot No. 7396. (Exhibit "D"
— Deed of Sale notarized by Rodrigo R.
Reantaso) DISTcH
This sale to Estanislao Olaguer was
approved by the Probate Court on November 12,
1965.
After the foregoing sale to Estanislao
Olaguer, the following transactions took place:
1) On July 7, 1966, defendant Olivia
P. Olaguer executed a Special Power of
Attorney notarized by Rodrigo R. Reantaso
(Exhibit "T") in favor of defendant Jose A.
Olaguer, authorizing the latter to "sell,
mortgage, assign, transfer, endorse and
deliver" the properties covered by TCT No.
14654 for Lot 76 6/13 share only, T-13983, T-
14658, T-14655, T-14656, and T-14657.
2) On July 7, 1966, Estanislao Olaguer
executed a Special Power of Attorney in favor of
Jose A. Olaguer (Exhibit "X") notarized by
Rodrigo R. Reantaso authorizing the latter to
"sell, mortgage, assign, transfer, endorse and
deliver" the properties covered by TCT No. T-
20221, T-20222, T-20225 for Lot No. 8635, T-
20226 for Lot No. 8638, T-20227, T-20228, and
T-20229.
 By virtue of this Special Power of
Attorney, on March 1, 1967, Jose A. Olaguer as
Attorney-in-Fact of Estanislao Olaguer
mortgaged Lots 7589, 7593 and 7396 to
defendant Philippine National Bank (PNB) as
security for a loan of 10,000 Pesos. The
mortgage was foreclosed by the PNB on June
13, 1973 and the properties mortgage were sold
at public auction to PNB. On December 10,
1990, the PNB transferred the properties to the
Republic of the Philippines pursuant to Exec.
Order No. 407 dated June 14, 1990 for agrarian
reform purposes. (records, vol. 1, page
66) SAHIDc
3) On October 29, 1966, Estanislao
Olaguer executed a General Power of Attorney
notarized by Rodrigo R. Reantaso (Exhibit "Y")
in favor of Jose A. Olaguer, authorizing the latter
to exercise general control and supervision over
all of his business and properties, and among
others, to sell or mortgage any of his properties.
4) On December 29, 1966, Estanislao
Olaguer sold to Jose A. Olaguer for 15,000
Pesos, (Exhibit "UU") the ten (10) parcels of
land (Lots 578, 4521, 4522, 1557, 1676, 8635,
8638, 7589, 7593 and 7396) he bought from
Olivia P. Olaguer and Eduardo Olaguer under
Exhibit "D".
5) On March 16, 1968, Estanislao
Olaguer sold to Jose A. Olaguer for 1 Peso and
other valuable consideration Lot No. 4521 —
TCT No. T-20223 and Lot 4522 — TCT No.
20224 with a total area of 2.5 hectares. (records,
vol. 1, page 33)
6) On June 5, 1968, Estanislao Olaguer
sold Lot No. 8635 under TCT No. T-20225, and
Lot No. 8638 under TCTNo. 20226 to Jose A.
Olaguer for 1 Peso and other valuable
consideration. (Exhibit "F") Deed of Sale was
notarized by Rodrigo R. Reantaso. EcTIDA
7) On May 13, 1971, Jose A. Olaguer in
his capacity as Attorney in-Fact of Estanislao
Olaguer sold to his son Virgilio Olaguer for 1
Peso and other valuable consideration Lot No.
1557 — TCT No. 20221 and Lot No. 1676 —
TCT No. 20222. The deed of sale was notarized
by Otilio Sy Bongon.
8) On July 15, 1974, Jose A. Olaguer
sold to his son Virgilio Olaguer Lot No. 4521
and Lot No. 4522 for 1,000 Pesos. Deed of Sale
was notarized by Otilio Sy Bongon. (records,
vol. 1, page 34)
9) On September 16, 1978 Virgilio
Olaguer executed a General Power of Attorney
in favor of Jose A. Olaguer notarized by Otilio
Sy Bongon (Exhibit "V") authorizing the latter
to exercise general control and supervision over
all of his business and properties and among
others, to sell or mortgage the same.
Olivia P. Olaguer and Eduardo Olaguer
were removed as administrators of the estate and
on February 12, 1980, plaintiff Ma. Linda
Olaguer Montayre was appointed administrator
by the Probate Court. CIETDc
Defendant Jose A. Olaguer died on
January 24, 1985. (Exhibit "NN") He was
survived by his children, namely the defendants
Nimfa Olaguer Taguay, Corazon Olaguer Uy,
Jose Olaguer, Jr., Virgilio Olaguer, Jacinto
Olaguer, and Ramon Olaguer.
Defendant Olivia P. Olaguer died on
August 21, 1997 (Exhibit "OO") and was
survived by all the plaintiffs as the only heirs.
The decedent Lino Olaguer have had
three marriages. He was first married to
Margarita Ofemaria who died April 6, 1925. His
second wife was Gloria Buenaventura who died
on July 2, 1937. The third wife was the
defendant Olivia P. Olaguer.
Lot No. 76 with an area of 2,363
square meters is in the heart of the Poblacion
of Guinobatan, Albay. The deceased Lino
Olaguer inherited this property from his
parents. On it was erected their ancestral
home.
As already said above, Lot No. 76 was
among the twelve (12) lots sold for 25,000
Pesos, by administrators Olivia P. Olaguer
and Eduardo Olaguer to Pastor Bacani on
December 12, 1962. The sale was approved by
the probate court on December 12,
1962. AaITCS
But, the following day, December 13,
1962 Pastor Bacani sold back the same 12 lots to
Olivia P. Olaguer and Eduardo Olaguer for
25,200 Pesos, as follows:
a) Lot No. 76 was sold back to Olivia P.
Olaguer and Eduardo Olaguer for
12,000 Pesos, in the proportion of [6/13]
and [7/13] respectively. (Exhibit "B")
annotated
"14"-"14-d") as follows:
b) 4 of the 12 lots namely, Lots 4518,
4526, 4359, and 8750 were sold back to
Olivia Olaguer for 10,700 Pesos. (Exhibit
"E")
c) 7 of the 12 lots namely, Lots 7514,
6608, 8582, 8157, 7999, 6167, and 8266
were sold back to Eduardo Olaguer for
2,500 Pesos. (Exhibit "C") cTaDHS
d) Lot No. 76 was thus issued TCT No.
T-14654 on December 13, 1962 in the
names of Eduardo B. Olaguer married
to Daisy Pantig and Olivia P. Olaguer
married to Jose A. Olaguer to the extent
of 7/13 and 6/13 pro-indiviso,
respectively. (Exhibit "FF" also "14-a")
e) It appears from Plan (LRC) Psd-
180629 (Exhibit "3") that defendant
Jose A. Olaguer caused the subdivision
survey of Lot 76 into eleven (11) lots,
namely, 76-A, 76-B, 76-C, 76-D, 76-E,
76-F, 76-G, 76-H, 76-I, 76-J, and 76-K,
sometime on April 3, 1972. The
subdivision survey was approved on
October 5, 1973. After the approval of
the subdivision survey of Lot 76, a
subdivision agreement was entered into
on November 17, 1973, among Domingo
Candelaria, Olivia P. Olaguer, Domingo
O. de la Torre and Emiliano M.
[Ongjoco].(records, vol. 2, page
109). aDcEIH
This subdivision agreement is
in TCT No. 14654 (Exhibit
Lot No. Area in TCT No. Emiliano M. [Ongjoco] for 10,000 Pesos per
sq. m. the deed of absolute sale notarized by Otilio
Sy Bongon. (Exhibit "H") The alleged general
76-A 300 T-36277 power of attorney however was not presented
76-B 200 T-36278 or marked nor formally offered in
76-C 171 T-36279 evidence. AaIDHS
76-D 171 T-36280
On September 7, 1976, Jose A.
76-E 171 T-36281
Olaguer again claiming to be the attorney-in-
76-F 171 T-36282
fact of Virgilio Olaguer under the same
76-G 202 T-36283
general power of attorney referred to in the
76-H 168 T-36284
deed of absolute sale of Lot 1, sold Lot No.
76-I 168 T-36285
2 to Emiliano M. [Ongjoco] for 10,000
76-J 168 T-36286
Pesos. (Exhibit "I") The deed of absolute sale
76-K 473 T-36287
was notarized by Otilio Sy Bongon.
After Lot 76 was subdivided as
On July 16, 1979, Jose A. Olaguer as
aforesaid, Jose A. Olaguer as attorney-in-fact
attorney-in-fact of Virgilio Olaguer under a
of Olivia P. Olaguer, sold to his son Virgilio
general power of attorney Doc. No. 378,
Olaguer Lots 76-B, 76-C, 76-D, 76-E, 76-F,
Page No. 76, Book No. 14, Series of 1978
and 76-G on January 9, 1974 for 3,000
sold Lot No. 76-D to Emiliano M. [Ongjoco]
Pesos. (Exhibit "G") The deed of absolute sale
for 5,000 Pesos. The deed of absolute sale is
was notarized by Otilio Sy Bongon.
Doc. No. 571, Page No. 20, Book No. 16,
Lots 76-B and 76-C were consolidated Series of 1979 of Notary Public Otilio Sy
and then subdivided anew and designated Bongon. (Exhibit "K")
as Lot No. 1 with an area of 186 square
The same Lot No. 76-D was sold on
meters and Lot No. 2 with an area of 185
October 22, 1979 by Jose A. Olaguer as
square meters of the Consolidation
attorney-in-fact of Virgilio Olaguer under a
Subdivision Plan (LRC) Pcs-20015. (Please
general power of attorney Doc. No. 378,
sketch plan marked as Exhibit "4", records, vol.
Page No. 76, Book No. 14, Series of 1978 of
2, page 68)
Notary Public Otilio Sy Bongon sold Lot No.
On January 15, 1976, Jose A. Olaguer 76-D to Emiliano M. [Ongjoco] for 10,000
claiming to be the attorney-in-fact of his son Pesos. The deed of absolute sale is Doc. No.
Virgilio Olaguer under ageneral power of 478, Page No. 97, Book NO. XXII, Series of
attorney Doc. No. 141, Page No. 100, 1979 of Notary Public Antonio A.
Book No. 7, Series of 1972 of Notary Public Arcangel. (Exhibit "J") SAaTHc
Otilio Sy Bongon, sold Lot No. 1 to defendant
 On July 3, 1979, Jose A. Olaguer as
attorney-in-fact of Virgilio Olaguer sold Lots
76-E and 76-F to Emiliano M. [Ongjoco] for
15,000 Pesos. The deed of absolute sale is
Doc. No. 526, Page No. 11, Book No. 16, Series
of 1979 of Notary Public Otilio Sy
Bongon. (Exhibit "M")
The same Lots 76-E and 76-F were
sold on October 25, 1979, by Jose A. Olaguer
as attorney-in-fact of Virgilio Olaguer under
the same general power of attorney of 1978
referred to above to Emiliano M. [Ongjoco]
for 30,000 Pesos. The deed of absolute sale is
Doc. No. 47, Page No. 11, Book No. XXIII,
Series of 1972 of Notary Public Antonio A.
Arcangel. (Exhibit "L")
On July 2, 1979 Jose A. Olaguer as
attorney-in-fact of Virgilio Olaguer
sold Lot No. 76-G to Emiliano M. [Ongjoco]
for 10,000 Pesos. The deed of sale is Doc. No.
516, Page No. 9, Book No. 16, Series of 1979
of Notary Public Otilio Sy Bongon. (Exhibit
"N")
The same Lot 76-G was sold on
February 29, 1980 by Jose A. Olaguer as
attorney-in-fact of Virgilio Olaguer under the
same general power of attorney of 1978
referred to above to Emiliano M. [Ongjoco]
for 10,000 Pesos. The deed of absolute sale is
Doc. No. l02, Page No. 30, Book No. 17, Series
of 1980 of Notary Public Otilio Sy
Bongon. (Exhibit "O") 5 (Emphases
ours.) IcHTCS
Thus, on 28 January 1980, the Estate of Lino Olaguer
represented by the legitimate children of the spouses Lino
Olaguer and defendant Olivia P. Olaguer, namely, Sor Mary
Edith Olaguer, Aurora O. de Guzman, Clarissa O. Trinidad, Lina
Olaguer and Ma. Linda O. Montayre, as attorney-in-fact and in
her own behalf, filed an action for the Annulment of Sales of
Real Property and/or Cancellation of Titles 6 in the then Court of
First Instance of Albay. 7
Docketed as Civil Case No. 6223, the action named as
defendants the spouses Olivia P. Olaguer and Jose A. Olaguer;
Eduardo Olaguer; Virgilio Olaguer; Cipriano Duran; the Heirs of
Estanislao O. Olaguer, represented by Maria Juan Vda. de
Olaguer; and the Philippine National Bank (PNB).
In the original complaint, the plaintiffs therein alleged
that the sales of the following properties belonging to the Estate
of Lino Olaguer to Estanislao Olaguer were absolutely simulated
or fictitious, particularly: Lots Nos. 578, 1557, 1676, 4521, 4522,
8635, 8638, 7589, 7593, and 7396. In praying that the sale be
declared as null and void, the plaintiffs likewise prayed that the
resulting Transfer Certificates of Title issued to Jose Olaguer,
Virgilio Olaguer, Cipriano Duran and the PNB be annulled.
Defendant PNB claimed in its Answer, 8 inter alia, that
it was a mortgagee in good faith and for value of Lots Nos. 7589,
7593 and 7396, which were mortgaged as security for a loan of
P10,000.00; the mortgage contract and other loan documents
were signed by the spouses Estanislao and Maria Olaguer as
registered owners; the proceeds of the loan were received by the
mortgagors themselves; Linda Olaguer Montayre had no legal
capacity to sue as attorney-in-fact; plaintiffs as well as Maria
Olaguer were in estoppel; and the action was already barred by
prescription. PNB set up a compulsory counterclaim for
damages, costs of litigation and attorney's fees. It also filed a
cross-claim against Maria Olaguer for the payment of the value
of the loan plus the agreed interests in the event that judgment
would be rendered against it. TIHDAa
Defendants Olivia P. Olaguer, Jose A. Olaguer and
Virgilio Olaguer, in their Answer, 9 denied the material
allegations in the complaint. They maintained that the sales of
the properties to Pastor Bacani and Estanislao Olaguer were
judicially approved; the complaint did not state a sufficient cause
of action; it was barred by laches and/or prescription; lis
pendensexisted; that the long possession of the vendees have
ripened into acquisitive prescription in their favor, and the
propertiesno longer formed part of the Estate of Lino Olaguer;
until the liquidation of the conjugal properties of Lino Olaguer
and his former wives, the plaintiffs were not the proper parties in
interest to sue in the action; and in order to afford complete
relief, the other conjugal properties of Lino Olaguer with his
former wives, and his capital property that had been conveyed
without the approval of the testate court should also be included
for recovery in the instant case.
Defendant Maria Juan Vda. de Olaguer, representing the
heirs of Estanislao Olaguer, in her Answer, 10 likewise denied
the material allegations of the complaint and insisted that the
plaintiffs had no valid cause of action against the heirs of the late
Estanislao Olaguer, as the latter did not participate in the alleged
transfer of properties by Olivia P. Olaguer and Eduardo Olaguer
in favor of the late Estanislao Olaguer.
Defendant Cipriano Duran claimed, in his
Answer, 11 that the complaint stated no cause of action; he was
merely instituted by his late sister-in-law Josefina Duran to take
over the management of Lots Nos. 8635 and 8638 in 1971; and
the real party-in-interest in the case was the administrator of the
estate of Josefina Duran. aEHAIS
On 11 January 1995, an Amended Complaint 12 was
filed in order to implead respondent Emiliano M. Ongjoco as the
transferee of Virgilio Olaguer with respect to portions of Lot No.
76, namely Lots Nos. 1, 2, 76-D, 76-E, 76-F, and 76-G.
In his Answer with Counterclaim and Motion to
Dismiss, 13 respondent Ongjoco denied the material allegations
of the amended complaint and interposed, as affirmative
defenses the statute of limitations, that he was a buyer in good
faith, that plaintiffs had no cause of action against him, and that
the sale of property to Pastor Bacani, from whom Ongjoco
derived his title, was judicially approved.
On 23 January 1996, plaintiffs filed a Re-Amended
Complaint, 14 in which the heirs of Estanislao Olaguer were
identified, namely, Maria Juan Vda. de Olaguer, Peter Olaguer,
Yolanda Olaguer and Antonio Bong Olaguer.
In their Answer, 15 the heirs of Estanislao Olaguer
reiterated their claim that Estanislao Olaguer never had any
transactions or dealings with the Estate of Lino Olaguer; nor did
they mortgage any property to the PNB. cCEAHT
On 5 August 1998, the heirs of Estanislao Olaguer and
petitioner Ma. Linda Olaguer Montayre submitted a compromise
agreement, 16 which was approved by the trial court.
On 6 October 1999, Cipriano Duran filed a
Manifestation 17 in which he waived any claim on Lots Nos.
8635 and 8638. Upon motion, Duran was ordered dropped from
the complaint by the trial court in an order 18 dated 20 October
1999.
In a Decision 19 dated 13 July 2001, the RTC ruled in
favor of the plaintiffs. The pertinent portions of the decision
provide:
The entirety of the evidence adduced
clearly show that the sale of the 12 lots to Pastor
Bacani pursuant to Exhibit "A" and the sale of
the 10 lots to Estanislao Olaguer pursuant to
Exhibit "D" were absolutely simulated sales and
thus void ab initio. The two deeds of sales
Exhibits "A" and "D" are even worse than
fictitious, they are completely null and void for
lack of consideration and the parties therein
never intended to be bound by the terms thereof
and the action or defense for the declaration of
their inexistence does not prescribe. (Art. 1410,
Civil Code) Aside from being simulated they
were clearly and unequivocally intended to
deprive the compulsory heirs of their
legitime . . .. acHCSD
The deeds of sale, Exhibits "A" and "D"
being void ab initio, they are deemed as non-
existent and the approval thereof by the probate
court becomes immaterial and
of no consequence, because the approval by the
probate court did not change the character of the
sale from void to valid. . . . .
xxx xxx xxx
Defendant Jose A. Olaguer simulated the
sales and had them approved by the probate
court so that these properties would appear then
to cease being a part of the estate and the vendee
may then be at liberty to dispose of the same in
any manner he may want. They probably
believed that by making it appear that the
properties were bought back from Pastor Bacani
under a simulated sale, they (Olivia Olaguer and
Eduardo Olaguer) would appear then as the
owners of the properties already in their personal
capacities that disposals thereof will no longer
require court intervention. . . . .
xxx xxx xxx
[Jose A. Olaguer] had Olivia P.
Olaguer execute a Special Power of Attorney
(Exhibit "T") authorizing him (Jose A.
Olaguer) to sell or encumber the properties
allegedly bought back from Pastor Bacani
which Jose A. Olaguer did with respect to the
6/13 share of Olivia P. Olaguer on Lot No. 76
by selling it to his son Virgilio for only 3,000
Pesos, then caused Virgilio to execute a power
of attorney authorizing him to sell or
encumber the 6/13 share which he did by
selling the same to defendant Emiliano M.
[Ongjoco]. cHDEaC
Virgilio Olaguer however executed an
affidavit (Exhibit "CC") wherein he denied
having bought any property from the estate of
Lino Olaguer and that if there are documents
showing that fact he does not know how it came
about. . . . .
The 1972 power of attorney referred
to by Jose A. Olaguer as his authority for the
sale of Lots 1 and 2(formerly lots 76-B and
76-C) was not presented nor offered in
evidence.
There are two deeds of sale over Lot
76-D, (Exhibits "K" and "J") in favor of
defendant Emiliano M. [Ongjoco] with
different dates of execution, different amount
of consideration, different Notary Public.
There are two deeds of sale over
Lots 76-E and 76-F (Exhibits "M" and "L")
in favor of defendant Emiliano M. [Ongjoco]
with different dates of execution, different
amount of consideration and different Notary
Public.
There are two deeds of sale over Lot
76-G (Exhibits "N" and "O") in favor of
Emiliano M. [Ongjoco] with different dates of
execution with the same amount of
consideration and the same Notary Public.
 While Lot 76-D was allegedly sold
already to Emiliano M. [Ongjoco] in 1979, yet
it was still Jose A. Olaguer who filed a
petition for the issuance of a second owner's
copy as attorney in fact of Virgilio Olaguer on
August 8, 1980 (Exhibit "SS")
and no mention was made about the
sale. EAHcCT
Under these circumstances, the
documents of defendant Emiliano M.
[Ongjoco] on lots 76 therefore, in so far as the
portions he allegedly bought from Jose A.
Olaguer as attorney in fact of Virgilio
Olaguer suffers seriously from infirmities and
appear dubious.
Defendant Emiliano M. [Ongjoco]
cannot claim good faith because according to
him, when these lots 76-[B] to 76-G were
offered to him his condition was to transfer
the title in his name and then he pays. He did
not bother to verify the title of his
vendor. . . . .
So with respect to the sale of Lots 76-
B to 76-G, Emiliano M. [Ongjoco]
has no protection as innocent purchaser for
good faith affords protection only to
purchasers for value from the registered
owners. . . . Knowing that he was dealing only
with an agent . . ., it behooves upon defendant
Emiliano M. [Ongjoco] to find out the extent
of the authority of Jose A. Olaguer as well as
the title of the owner of the property, because
as early as 1973 pursuant to the subdivision
agreement, (records, vol. 2, page 109 and
Exhibit "14" and "14-d") he already knew
fully well that Lots 76-B to 76-G he was
buying was owned by Olivia P. Olaguer and
not by Virgilio Olaguer. IHAcCS
xxx xxx xxx
With respect to the 10 lots sold to
[Eduardo] Olaguer (Exhibit "D") Jose A.
Olaguer had Estanislao Olaguer execute a power
of attorney (Exhibit "X") authorizing him (Jose
A. Olaguer) to sell or encumber the 10 lots
allegedly bought by Estanislao from the estate.
With this power of attorney, he mortgaged lots
7589, 7593 and 7398 to the PNB. He sold lots
1557 and 1676 to his son Virgilio Olaguer.
While under Exhibit "UU" dated December 29,
1966, he bought the 10 parcels of land, among
which is lots 4521 and 4522 from Estanislao
Olaguer, yet, on March 16, 1968, he again
bought lots 4521 and 4522 (records, vol. 1, page
38) from Estanislao Olaguer. While lots 8635
and 8638 were among those sold to him under
Exhibit "UU", it appears that he again bought
the same on June 5, 1968 under Exhibit "F".
The heirs of Estanislao Olaguer however
denied having bought any parcel of land from
the estate of Lino Olaguer. Estanislao Olaguer's
widow, Maria Juan vda. de Olaguer, executed an
affidavit (Exhibit "BB") that they did not buy
any property from the estate of Lino Olaguer,
they did not sell any property of the estate and
that they did not mortgage any property with the
PNB. She repeated this in her deposition.
(records, vol. 2, page 51) This was corroborated
by no less than former co-administrator Eduardo
Olaguer in his deposition too (Exhibit "RRRR")
that the sale of the 10 parcels of land to
 Estanislao Olaguer was but a simulated sale
without any consideration. . . . .
xxx xxx xxx
A partial decision was already rendered
by this court in its order of August 5, 1998
(records, vol. 2, page 64) approving the
compromise agreement with defendants Heirs of
Estanislao Olaguer. (records, vol. 2 page
57). DECcAS
Defendant Cipriano Duran was dropped
from the complaint per the order of the court
dated October 20, 1999 (records, vol. 2, page
155) because he waived any right or claim over
lots 8635 and 8638. (records, vol. 2, page 150).
(Emphasis ours.)
The dispositive portion of the above decision was,
however, amended by the trial court in an Order 20 dated 23 July
2001 to read as follows:
WHEREFORE, premises considered,
decision is hereby rendered in favor of the
plaintiffs as follows:
1) The deed of sale to Pastor Bacani
(Exhibit "A") and the deed of sale to Estanislao
Olaguer (Exhibit "D") are hereby declared as
null and void and without force and effect and
all the subsequent transfers and certificates
arising therefrom likewise declared null and
void and cancelled as without force and effect,
except as herein provided for.
2) Lot Nos. 4518, 4526, 4359 and 8750
are hereby ordered reverted back to the
estate of Lino Olaguer and for this purpose,
within ten (10) days from the finality of this
decision, the heirs of Olivia P. Olaguer (the
plaintiffs herein) [sic] are hereby ordered to
execute the necessary document of
reconveyance, failure for which, the Clerk of
Court is hereby ordered to execute the said
deed of reconveyance.
3) Lot Nos. 7514, 6608, 8582, 8157,
7999, 6167 and 8266 are hereby ordered
reverted back to the estate of Lino Olaguer
and for this purpose, within ten (10) days
from the finality of this decision, defendant
Eduardo Olaguer is hereby ordered to
execute the necessary document of
reconveyance, failure for which, the Clerk of
Court is hereby ordered to execute the said
deed of reconveyance. TcEaAS
4) Lots 1 and 2, Pcs-20015, and Lots 76-
D, 76-E, 76-F and 76-G, Psd-180629 sold to
Emiliano M. [Ongjoco] are hereby ordered
reverted back to the estate of Lino Olaguer. For
this purpose, within ten (10) days from the
finality of this decision, defendant Emiliano M.
[Ongjoco] is hereby ordered to execute the
necessary deed of reconveyance, otherwise, the
Clerk of Court shall be ordered to execute the
said reconveyance and have the same registered
with the Register of Deeds so that new titles
shall be issued in the name of the estate of Lino
Olaguer and the titles of Emiliano [Ongjoco]
cancelled.
5) The parties have acquiesced to the
sale of the 7/13 portion of Lot 76 to Eduardo
Olaguer as well as to the latter's disposition
thereof and are now in estoppel to question
 the same. The court will leave the parties where
they are with respect to the 7/13 share of Lot 76.
6) Lots 578, 1557, 1676, 4521, 4522,
8635, 8638, are hereby reverted back to the
estate of Lino Olaguer and for this purpose, the
Clerk of [Court] is hereby ordered to execute the
necessary deed of reconveyance within ten days
from the finality of this decision and cause its
registration for the issuance of new titles in the
name of the Estate of Lino Olaguer and the
cancellation of existing ones over the same.
7) While the mortgage with the
defendant PNB is null and void, Lots 7589, 7593
and 7396 shall remain with the Republic of the
Philippines as a transferee in good faith.
Both the petitioners and respondent filed their respective
Notices of Appeal 21 from the above decision. The case was
docketed in the Court of Appeals as CA-G.R. CV No. 71710.
In their Plaintiff-Appellant's Brief 22 filed before the
Court of Appeals, petitioner Estate argued that the trial court
erred in not ordering the restitution and/or compensation to them
of the value of the parcels of land that were mortgaged to PNB,
notwithstanding the fact that the mortgage was declared null and
void. Petitioners maintain that the PNB benefited from a void
transaction and should thus be made liable for the value of the
land, minus the cost of the mortgage and the reasonable expenses
for the foreclosure, consolidation and transfer of the
lots. SDTIHA
Ongjoco, on the other hand, argued in his Defendant-
Appellant's Brief 23 that the trial court erred in: declaring as null
and void the Deeds of Sale in favor of Pastor Bacani and
Eduardo Olaguer and the subsequent transfers and certificates
arising therefrom; ordering the reconveyance of the lots sold to
him (Ongjoco); and failing to resolve the affirmative defenses of
prescription, the authority of Olivia and Eduardo to dispose of
properties formerly belonging to the estate of Lino Olaguer,
recourse in a court of co-equal jurisdiction, and forum shopping.
Petitioner Linda O. Montayre was likewise allowed to
file a Brief 24 on her own behalf, as Plaintiff-Appellee and
Plaintiff-Appellant. 25 She refuted therein the assignment of
errors made by Defendant-Appellant Ongjoco and assigned as
error the ruling of the trial court that the lots mortgaged to the
PNB should remain with the Republic of the Philippines as a
transferee in good faith.
On 27 February 2006, the Court of Appeals rendered the
assailed Decision, the dispositive portion of which reads:
WHEREFORE, premises considered,
the appealed Decision is hereby MODIFIED, in
that Paragraph 4 of the amended decision is
hereby Ordered Deleted, and the questioned
sales to defendant-appellant Emiliano M.
Ongjoco are UPHELD. 26
In denying the appeal interposed by petitioners, the
appellate court reasoned that the claim for the value of the lots
mortgaged with the PNB were not prayed for in the original
Complaint, the Amended Complaint or even in the Re-Amended
Complaint. What was sought therein was merely the declaration
of the nullity of the mortgage contract with PNB. As the relief
prayed for in the appeal was not contained in the complaint, the
same was thus barred. HaAIES
The Court of Appeals also ruled that the evidence of
petitioners failed to rebut the presumption that PNB was a
mortgagee in good faith. Contrarily, what was proven was the
fact that Olivia Olaguer and Jose A. Olaguer were the persons
responsible for the fraudulent transactions involving the
questioned properties. Thus, the claim for restitution of the value
of the mortgaged properties should be made against them.
 As regards the appeal of respondent Ongjoco, the
appellate court found the same to be meritorious. The said court
ruled that when the sale of real property is made through an
agent, the buyer need not investigate the principal's title. What
the law merely requires for the validity of the sale is that the
agent’s authority be in writing.
Furthermore, the evidence adduced by petitioners was
ruled to be inadequate to support the conclusion that Ongjoco
knew of facts indicative of the defect in the title of Olivia
Olaguer or Virgilio Olaguer.
Petitioners moved for a partial reconsideration 27 of the
Court of Appeals' decision in order to question the ruling that
respondent Ongjoco was a buyer in good faith. The motion was,
however, denied in a Resolution 28 dated 29 June 2006.
Aggrieved, petitioners filed the instant Petition for
Review on Certiorari under Rule 45 of the Revised Rules of
Court, raising the following assignment of errors:
I.
THE COURT OF APPEALS
COMMITTED AN ERROR IN LAW WHEN IT
RULED, ON SPECULATION, THAT
RESPONDENT EMILIANO M. ONGJOCO
WAS A BUYER IN GOOD FAITH OF THE
PROPERTIES OF THE ESTATE OF LINO
OLAGUER, DESPITE THE EXISTENCE OF
FACTS AND CIRCUMSTANCES FOUND BY
THE TRIAL COURT THAT OUGHT TO PUT
EMILIANO M. ONGJOCO ON NOTICE THAT
THE PETITIONERS-APPELLANTS HAVE A
RIGHT OR INTEREST OVER THE SAID
PROPERTIES, AND CONTRARY TO
PREVAILING JURISPRUDENCE. SaDICE
II.
THE COURT OF APPEALS
COMMITTED AN ERROR IN LAW WHEN IT
DISREGARDED THE CLEAR FINDINGS OF
FACTS AND CONCLUSIONS MADE BY THE
TRIAL COURT, IN THE ABSENCE OF ANY
STRONG AND COGENT REASONS TO
REVERSE THE SAID FINDINGS,
CONTRARY TO PREVAILING
JURISPRUDENCE. 29
Essentially, the question that has been brought before us
for consideration is whether or not, under the facts and
circumstances of this case, respondent Ongjoco can be
considered an innocent purchaser for value.
Petitioners agree with the pronouncement of the trial
court that respondent Ongjoco could not have been a buyer in
good faith since he did not bother to verify the title and the
capacity of his vendor to convey the properties involved to him.
Knowing that Olivia P. Olaguer owned the properties in 1973
and that he merely dealt with Jose A. Olaguer as an agent in
January 1976, Ongjoco should have ascertained the extent of
Jose’s authority, as well as the title of Virgilio as the principal
and owner of the properties.
Petitioners likewise cite the following incidents that
were considered by the trial court in declaring that respondent
was a buyer in bad faith, namely: (1) that Virgilio Olaguer
executed an affidavit, 30 wherein he denied having bought any
property from the estate of Lino Olaguer, and that if there are
documents showing that fact, he does not know how they came
about; (2) that the power of attorney referred to by Jose A.
Olaguer as his authority for the sale of Lots 1 and 2 (formerly
Lots 76-B and 76-C) was not presented or offered in evidence;
(3) that there are two deeds of sale 31 over Lot 76-D in favor of
Ongjoco; (4) that there are two deeds of sale 32 over Lots 76-E
and 76-F in favor of Ongjoco; (5) that there are two deeds of
sale 33 over Lot 76-G in favor of Ongjoco; and (6) that while Lot
76-D was already sold to Ongjoco in 1979, it was still Jose A.
Olaguer as attorney in fact of Virgilio Olaguer who filed on 8
August 1980 a petition for the issuance of a second owner’s
copy 34 of the title to the property, and no mention was made
about the sale to Ongjoco. DHITCc
Respondent Ongjoco, on the other hand, invokes the
ruling of the Court of Appeals that he was an innocent purchaser
for value. His adamant stance is that, when he acquired the
subject properties, the same were already owned by Virgilio
Olaguer. Respondent insists that Jose A. Olaguer was duly
authorized by a written power of attorney when the properties
were sold to him (Ongjoco). He posits that this fact alone
validated the sales of the properties and foreclosed the need for
any inquiry beyond the title to the principal. All the law requires,
respondent concludes, is that the agent's authority be in writing
in order for the agent's transactions to be considered valid.
Respondent Ongjoco's posture is only partly correct.
According to the provisions of Article 1874 35 of the
Civil Code on Agency, when the sale of a piece of land or any
interest therein is made through an agent, the authority of the
latter shall be in writing. Absent this requirement, the sale shall
be void. Also, under Article 1878, 36 a special power of attorney
is necessary in order for an agent to enter into a contract by
which the ownership of an immovable property is transmitted or
acquired, either gratuitously or for a valuable consideration.
We note that the resolution of this case, therefore, hinges
on the existence of the written power of attorney upon which
respondent Ongjoco bases his good faith. TEHDIA
When Lots Nos. 1 and 2 were sold to respondent
Ongjoco through Jose A. Olaguer, the Transfer Certificates of
Title of said properties were in Virgilio's name. 37 Unfortunately
for respondent, the power of attorney that was purportedly issued
by Virgilio in favor of Jose Olaguer with respect to the sale of
Lots Nos. 1 and 2 was never presented to the trial court. Neither
was respondent able to explain the omission. Other than the self-
serving statement of respondent, no evidence was offered at all
to prove the alleged written power of attorney. This of course
was fatal to his case.
As it stands, there is no written power of attorney to
speak of. The trial court was thus correct in disregarding the
claim of its existence. Accordingly, respondent Ongjoco's claim
of good faith in the sale of Lots Nos. 1 and 2 has no leg to stand
on.
As regards Lots Nos. 76-D, 76-E, 76-F and 76-G,
Ongjoco was able to present a general power of attorney that was
executed by Virgilio Olaguer. While the law requires a special
power of attorney, the general power of attorney was sufficient in
this case, as Jose A. Olaguer was expressly empowered to sell
any of Virgilio's properties; and to sign, execute, acknowledge
and deliver any agreement therefor. 38 Even if a document is
designated as a general power of attorney, the requirement of a
special power of attorney is met if there is a clear mandate from
the principal specifically authorizing the performance of the
act. 39 The special power of attorney can be included in the
general power when the act or transaction for which the special
power is required is specified therein. 40
On its face, the written power of attorney contained the
signature of Virgilio Olaguer and was duly notarized. As such,
the same is considered a public document and it has in its favor
the presumption of authenticity and due execution, which can
only be contradicted by clear and convincing evidence. 41
No evidence was presented to overcome the presumption
in favor of the duly notarized power of attorney. Neither was
there a showing of any circumstance involving the said
document that would arouse the suspicion of respondent and spur
him to inquire beyond its four corners, in the exercise of that
reasonable degree of prudence required of a man in a similar
situation. We therefore rule that respondent Ongjoco had every
right to rely on the power of attorney in entering into the
contracts of sale of Lots Nos. 76-D to 76-G with Jose A.
Olaguer. cIECTH
With respect to the affidavit of Virgilio Olaguer in which
he allegedly disavowed any claim or participation in the
purchase of any of the properties of the deceased Lino Olaguer,
we hold that the same is rather irrelevant. The affidavit was
executed only on 1 August 1986 or six years after the last sale of
the properties was entered into in 1980. In the determination of
whether or not a buyer is in good faith, the point in time to be
considered is the moment when the parties actually entered into
the contract of sale.
Furthermore, the fact that Lots Nos. 76-D to 76-G were
sold to respondent Ongjoco twice does not warrant the
conclusion that he was a buyer in bad faith. While the said
incidents might point to other obscured motives and
arrangements of the parties, the same do not indicate that
respondent knew of any defect in the title of the owner of the
property.
As to the petition filed by Jose A. Olaguer for the
issuance of a second owner’s copy of the title to Lot No. 76-D,
after the property was already sold to respondent Ongjoco, the
same does not inevitably indicate that respondent was in bad
faith. It is more likely that Jose A. Olaguer was merely compiling
the documents necessary for the transfer of the subject property.
Indeed, it is to be expected that if the title to the property is lost
before the same is transferred to the name of the purchaser, it
would be the responsibility of the vendor to cause its
reconstitution.
In sum, we hold that respondent Emiliano M. Ongjoco
was in bad faith when he bought Lots Nos. 1 and 2 from Jose A.
Olaguer, as the latter was not proven to be duly authorized to sell
the said properties.
However, respondent Ongjoco was an innocent
purchaser for value with regard to Lots Nos. 76-D, 76-E, 76-F
and 76-G since it was entirely proper for him to rely on the duly
notarized written power of attorney executed in favor of Jose A.
Olaguer. DaEcTC
WHEREFORE, premises considered, the instant petition
is hereby PARTIALLY GRANTED. The assailed Decision of the
Court of Appeals dated 27 February 2006 in CA-G.R. CV NO.
71710 is MODIFIED in that Paragraph 4 of the Decision dated
13 July 2001 of the Regional Trial Court of Legazpi City, Branch
6, and the Order dated 23 July 2001 shall read as follows:
4) Lots 1 and 2, Pcs-20015 sold to
Emiliano M. Ongjoco are hereby ordered
reverted back to the estate of Lino Olaguer. For
this purpose, within ten (10) days from the
finality of this decision, defendant Emiliano M.
Ongjoco is hereby ordered to execute the
necessary deed of reconveyance, otherwise, the
Clerk of Court shall be ordered to execute the
said reconveyance and have the same registered
with the Register of Deeds so that new titles
shall be issued in the name of the estate of Lino
Olaguer and the titles of Emiliano Ongjoco
cancelled.
No costs.
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Nachura and Reyes,
JJ., concur.
Footnotes
1.Rollo, pp. 9-36
2.Penned by Associate Justice Eliezer R. de los Santos with
Associate Justices Jose C. Reyes, Jr. and Arturo G. Tayag,
concurring; rollo,pp. 37-64.
3.Penned by Judge Vladimir B. Brusola; rollo, pp. 79-95.
4.Rollo, pp. 96-97. TSCIEa On 3 March 1987, the trial court reconsidered and set aside the
order of dismissal dated 9 February 1987 but ordered the
5.Id. at 85-91. four (4) cases archived.
6.Records, Vol. 1, pp. 1-14. On 15 January 1998, the records of these cases were again
7.The other related cases concerning the Estate of Lino Olaguer are consolidated with the instant case.
as follows: 8.Records, Vol. 1, pp. 69-75.
After the death of Lino Olaguer on 3 October 1957, Olivia P. 9.Id. at 76-83.
Olaguer filed a Petition for Probate of Will and Issuance of
Letters of Administration on 21 October 1957. The case 10.Id. at 103-105.
was docketed as SPECIAL PROC. NO. 528.
11.Id. at 109-110.
On 24 September 1979, Olivia P. Olaguer filed an action for
Quieting of Title and Damages with Petition for Injunction 12.Id. at 173-190.
against Linda Olaguer Montayre, assisted by her husband 13.Id. at 220-223.
Nelson Montayre, Lina P. Olaguer, Faustino Adra, Celso
Llagas, Mariano Orfano, Estelita Almorfe Orfano, 14.Id. at 348-363.
Geminiano Llagas, Lorenzo Llagas and Serafin Gustilo. 15.Id. at 439-443. THAICD
The case was docketed as CIVIL CASE No. 6146.
16.Records, Vol. 2, pp. 57-59.
On 20 March 1980, the Estate of Lino Olaguer, represented by the
children of the first marriage of Lino Olaguer, filed an 17.Id. at 150.
action for the Annulment of Donation and Recovery of
18.Id. at 155.
Possession and Ownership with Damages against Olivia P.
Olaguer, then married to Jose A. Olaguer. The case was 19.Rollo, pp. 79-95.
docketed as CIVIL CASE No. 6253. EACIcH
20.Id. at 96-97.
In the order of the Executive Judge of the RTC of Legazpi City,
Branch 6 dated 15 June 1983, SPECIAL PROC. NO. 528, 21.Records, Vol. 2, pp. 383, 386-389.
CIVIL CASENO. 6146 and CIVIL CASE NO. 6253 were 22.CA rollo, pp. 93-113.
consolidated with the instant case (CIVIL CASE NO.
6223). 23.Id. at 38-74.
On 9 February 1987, the trial court dismissed all the cases for 24.Id. at 179-198.
failure to prosecute.
25.Id. at 201. ECTHIA
26.Id. at 229.
27.Rollo, pp. 67-78. in any way connected therewith or with my business or
property. IcEaST
28.Id. at 65-66.
39.Bravo-Guerrero v. Bravo, G.R. No. 152658, 29 July 2005, 465
29.Id. at 21. SCRA 244, 259.
30.Exhibit "CC", Exhibits for the Plaintiffs, p. 52. 40.Veloso v. Court of Appeals, 329 Phil. 398, 405 (1996), cited
31.Exhibits "J" and "K", id. at 33-35. in Bravo-Guerrero v. Bravo, id.

32.Exhibits "L" and "M", id. at 36-39. 41.Domingo v. Robles, G.R. No. 153743, 18 March 2005, 453
SCRA 812, 818-819.
33.Exhibits "N" and "O", id. at 40-41. ECTSDa
||| (Estate of Olaguer v. Ongjoco, G.R. No. 173312, [August 26,
34.Exhibit "SS", id. at 67-69. 2008], 585 PHIL 365-389)
35.Art. 1874. When a sale of a piece of land or any interest therein
is through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void.
36.Art. 1878. Special powers of attorney are necessary in the
following cases:
xxx xxx xxx
(5) To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or
for a valuable consideration;
37.Exhibits "5-a", and "6-a-6-b", Exhibits for the Defendants, pp.
4-5.
38.The specific provisions of the General Power of Attorney
authorizes Jose A. Olaguer, among other powers:
3. To buy or otherwise acquire, to hire or lease, and to pledge,
mortgage or otherwise hypothecate, sell, assign and
dispose of any and all my property, real, personal or
mixed, of any kind whatsoever and wheresoever situated,
or any interest therein, upon such terms and conditions and
under such covenants as my said attorney shall deem fit
and proper, and to execute in or other writings therefore, or

SECOND DIVISION
[G.R. No. 138639. February 10, 2000.]
CITY-LITE REALTY
CORPORATION, petitioner, vs. COURT OF
APPEALS and F.P. HOLDINGS & REALTY
CORP., METRO DRUG INC., MELDIN AL G.
ROY, VIEWMASTER CONSTRUCTION
CORP., and the REGISTER OF DEEDS OF
QUEZON CITY, respondent.
Padilla Villanueva Marasigan and Associates for petitioner.
Antonio R. Bautista for F.P. Holdings.
Romulo, Mabanta, Buenaventura, Sayoc & De los
Angeles for respondents Metro/Roy
Alfonso M. Cruz Law Offices for Viewmaster Construction Corp.
SYNOPSIS
Private respondent F.P. Holdings and Realty Corp. was the registered
owner of a parcel of land situated along E. Rodriguez Avenue,
Quezon City. The property was offered for sale to the general public
through the circulation of a sales brochure stating therein that Meldin
Al G. Roy was the contact person. Because of this advertisement,
petitioner sent a letter to Meldin Roy conveying its interest to
purchase a portion or 1/2 of the front lot of the property. However,
Roy answered that he was informed by respondent F.P. Holdings that
it would take sometime to subdivide the lot and it was not receptive
to the purchase of only one half of the front lot. After a few days,
petitioner through Atty. Mamaril wrote respondent expressing desire
to buy the entire front lot of the subject property. Roy, made a
counter offer, accepted the offer. However, respondent F.P. Holdings
refused to execute the corresponding deed of sale in favor of
petitioner. Due to this inaction, petitioner caused the registration of
an adverse claim to the property. On October 4, 1991, F.P. Holdings
filed a petition for the cancellation of the adverse claim against
petitioner in the Regional Trial Court of Quezon City. With the filing
of the petition, petitioner caused the annotation of the first notice
of lis pendens, which was recorded in the title of the property. On
December 2, 1991, the RTC dismissed F.P. Holding's petition
declaring that petitioner's adverse claim had factual basis and was not
sham and frivolous. Thereafter, petitioner instituted a complaint
against respondent F.P. Holdings for specific performance and
damages. During the pendency of the suit, petitioner moved to
include respondent Viewmaster as necessary party in view of the
conveyance of the property to the latter. In October, 1995, the court a
quo rendered its decision in favor of petitioner and ordered
respondent F.P. Holdings to execute a deed of sale in favor of
petitioner. Viewmaster's motion for reconsideration was denied. On
appeal, the Court of Appeals reversed and set aside the judgment of
the lower court. Aggrieved by the decision, herein petitioner filed a
petition for certiorari questioning the decision of the appellate
court. HTASIa
The Supreme Court found the petition devoid of merit. The Court
ruled that Meldin Roy was only a contact person with noauthority to
conclude a sale of the property. Roy or Metro Drug was a mere
broker and his job was only to bring the parties together for a
possible transaction. Consequently, for lack of written authority to
sell the subject property by Roy or Metro Drug as mandated by
Article 1874 of the Civil Code, the sale was null and void.
Accordingly, the appealed decision of the Court of Appeals was
affirmed.
SYLLABUS
CIVIL LAW; AGENCY; CIVIL CODE REQUIRES THAT AN
AUTHORITY TO SELL A PIECE OF LAND SHALL BE IN
WRITING; CASE AT BAR. — On the issue of whether a contract of
sale was perfected between petitioner CITY-LITE and respondent
F.P. HOLDINGS acting through its agent Meldin Al G. Roy of Metro
Drug, Art. 1874 of the Civil Code provides: "When the sale of a
piece of land or any interest therein is through an agent, the authority
of the latter shall be in writing; otherwise, the sale shall be void."
Petitioner anchors the authority of Metro Drug and Meldin Al G. Roy
on (a) the testimonies of petitioner's three (3) witnesses and the
admissions of Roy and the lawyer of Metro Drug; (b) the sales
brochure specifying Meldin Al G. Roy as a contact person; (c) the
guard posted at the property saying that Metro Drug was 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. HOLDINGS to sell the property. However, and more
importantly, the Civil Code requires that an authority to sell a piece
of land shall be in writing. The absence of authority to sell can be
determined from the written memorandum issued by respondent F.P.
HOLDINGS' President requesting Metro Drug's assistance in finding
buyers for the property. The memorandum in part stated:
"We will appreciate Metro Drug's assistance in referring to
us buyers for the property. Please proceed to hold
preliminary negotiations with interested buyers and
endorse formal offers to us for our final evaluation and
appraisal." This obviously meant that Meldin Al G. Roy
and/or Metro Drug was only to assist F.P. HOLDINGS in
looking for buyers and referring to them possible prospects
whom they were supposed to endorse to F.P. HOLDINGS.
But the final evaluation, appraisal and acceptance of the
transaction could be made only by F.P. HOLDINGS. In
other words, Meldin Al G. Roy and/or Metro Drug was
only a contact person with no authority to conclude a sale
of the property. In fact, a witness for petitioner even
admitted that Roy and/or Metro Drug was a mere broker,
and Roy's only job was to bring the parties together for a
possible transaction. Consequently, we hold that for lack of
a written authority to sell the "Violago Property" on the
part of Meldin Al G. Roy and/or Metro Drug, the sale
should be as it is declared null and void. Therefore the sale
could not produce any legal effect as to transfer the subject
property from its lawful owner, F.P. HOLDINGS, to any
interested party including petitioner CITY-LITE.
DECISION
BELLOSILLO, J p:
This is a petition for review on certiorari filed by CITY-LITE
REALTY CORPORATION (CITY-LITE) seeking to annul the 20
October 1998 Decision of the Court of Appeals 1 which reversed the
Decision of the Regional Trial Court of Quezon City in its Civil
CaseNo. 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
Private respondent F.P. HOLDINGS AND REALTY
CORPORATION (F.P. HOLDINGS), formerly the Sparta Holdings
Inc., was the registered owner 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 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: prLL
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 which will be
donated to the Archdiocese of Manila thus
reducing the total saleable area to 66,754 square
meters. Asking price was P6,250.00/square meter
with terms of payment negotiable. Broker's
commission was 2.0% of selling price, net of
withholding taxes and other charges. As
advertised, contact person was Meldin Al G. Roy,
Metro Drug Inc., with address at 5/F Metro House,
345 Sen. Gil Puyat Avenue, Makati City.
The front portion consisting of 9,192 square meters is the subject of
this litigation. cdphil
On 22 August 1991 respondent Meldin Al G. Roy sent a sales
brochure, together with the location plan and copy of the Transfer
Certificate of Title No. T-19599 of the Register of Deeds of Quezon
City, to Atty. Gelacio Mamaril, a practicing lawyer and a licensed
real estate broker. Atty. Mamaril in turn passed on these documents
to Antonio Teng, Executive Vice-President, and Atty. Victor P.
Villanueva, Legal Counsel, of CITY-LITE.
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 conveyed its interest to purchase a portion or one-
half (1/2) of the front lot of the "Violago Property." Apparently, Roy
subsequently informed CITY-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 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 the
subject property instead of only half thereof provided the asking
price 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
September 1991 as follows:
Dear Atty. Mamaril,
This has reference to your letter dated September
24, 1991 in connection with the interest of your
clients, Mr. Antonio Teng/City-Lite Realty
Corporation and/or any of their subsidiaries to buy
a portion of the Violago Property fronting E.
Rodriguez Sr. Avenue with an area of 9,192 square
meters. Cdpr
We are pleased to inform you that we are prepared
to consider the above offer subject to the following
major terms and conditions: 1. The price shall be
P6,250.00/square meter or a total of
P57,450,000.00; 2. The above purchase price shall
be paid to the owner as follows: (a) P15.0 Million
downpayment; (b) balance payable within six (6)
months from date of downpayment without
interest. Should your client find the above major
terms and conditions acceptable, please advise us
in writing by tomorrow, September 26, 1991, so
that we can start formal discussions on the matter .
..
Very truly
yours,
 MELDIN
AL G. ROY
On 26 September 1991 CITY-LITE's officers and Atty. Mamaril met
with Roy at the Manila Mandarin Hotel in Makati to consummate the
transaction. After some discussions, the parties finally reached an
agreement and Roy agreed to sell the property to CITY-LITE
provided only that the latter submit its acceptance in writing to the
terms and conditions of the sale as contained in his letter of 25
September 1991. Later that afternoon after meeting with Roy at the
Manila Mandarin Hotel, Atty. Mamaril and Antonio Teng of CITY-
LITE conveyed their formal acceptance of the terms and conditions
set forth by Roy in separate letters both dated 26 September 1991.
However, for some reason or another and despite demand,
respondent F.P. HOLDINGS refused to execute the corresponding
deed of sale in favor of CITY-LITE of the front lot of the property.
Upon its claim of protecting its interest as vendee of the property in
suit, CITY-LITE registered an adverse claim to the title of the
property with the Register of Deeds of Quezon City which was
annotated in the Memorandum of Encumbrance of Transfer
Certificate of Title No. T-19599 under Entry No. PE-1001 dated 27
September 1991. cdtai
On 30 September 1991 CITY-LITE's counsel demanded in writing
that Metro Drug (ATTN: MELDIN AL G. ROY) comply with its
commitment to CITY-LITE by executing the proper deed of
conveyance of the property under pain of court action. On 4 October
1991 F.P. HOLDINGS filed a petition for the cancellation of the
adverse claim against CITY-LITE with the Regional Trial Court of
Quezon City, docketed as LRC Case No. 91-10257, which was
raffled to Br. 84.
On 8 October 1991 Edwin Fernandez, President of F.P. HOLDINGS,
in a move to amicably settle with CITY-LITE, met with the latter's
officers during which he offered properties located in Caloocan City
and in Quezon Boulevard, Quezon City, as substitute for the
property, but CITY-LITE refused the offer because "it did not suit its
business needs." With the filing of the petition of F.P. HOLDINGS
for the cancellation of the adverse claim, CITY-LITE caused the
annotation of the first notice of lis pendens which was recorded in
the title of the property under Entry No. 4605.
On 2 December 1991 the RTC-Br. 84 of Quezon City dismissed F.P.
HOLDINGS' petition declaring that CITY-LITE's adverse claim had
factual basis and was not "sham and frivolous." Meanwhile F.P.
HOLDINGS caused the resurvey and segregation of the property and
asked the Register of Deeds of Quezon City to issue separate titles
which the latter did on 17 January 1992 by issuing Transfer
Certificate of Title No. T-51671. cdll
Following the dismissal of F.P. HOLDINGS' petition for the
cancellation of the adverse claim, CITY-LITE instituted a complaint
against F.P. HOLDINGS originally for specific performance and
damages and caused the annotation of the second notice of lis
pendens on the new certificate of title. After the annotation of the
second lis pendens, the property was transferred to defendant
VIEWMASTER CONSTRUCTION CORP. (VIEWMASTER) for
which Transfer Certificate of Title No. T-52398 was issued.
However, the notice of lis pendens was carried over and annotated on
the new certificate of title.
In view of the conveyance during the pendency of the suit, the
original complaint for specific performance and damages was
amended with leave of court to implead VIEWMASTER as a
necessary party and the Register of Deeds of Quezon City as nominal
defendant with the additional prayer for the cancellation of
VIEWMASTER's certificate of title. The case was thereafter raffled
to Br. 85 of the Regional Trial Court of Quezon City. cdtai
On 4 October 1995 the court a quo rendered its decision in favor of
CITY-LITE ordering F.P. HOLDINGS to execute a deed of sale of
the property in favor of CITY-LITE for the total consideration of
P55,056,250.00 payable as follows: P15 Million as downpayment to
be payable immediately upon execution of the deed of sale and the
balance within six (6) months from downpayment, without interest.
The court also directed the Register of Deeds of Quezon City to
cancel Transfer Certificate of Title No. T-52398 or any subsequent
title it had issued affecting the subject property, and to issue a new
one in the name of CITY-LITE upon the presentation of the deed of
sale and other requirements for the transfer. It likewise ordered the
defendants, except VIEWMASTER and the Register of Deeds of
Quezon City, to pay CITY-LITE jointly and severally P800,000.00
by way of nominal damages, P250,000.00 for attorney's fees, and to
pay the costs.
On 30 October 1995 VIEWMASTER filed a motion for
reconsideration of the decision of the lower court questioning its
ruling that a perfected 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, citing in support
thereof Toyota Shaw Inc. v. Court of Appeals. 3 However the motion
for reconsideration was denied.
In the challenged Decision of 20 October 1998 the Court of Appeals
reversed and set aside the judgment of the Regional Trial Court of
Quezon City. On 10 May 1999 the Court of Appeals denied CITY-
LITE's motion to reconsider its decision.
Petitioner CITY-LITE is now before us assailing the Court of
Appeals for declaring that no contract of sale was perfected between
it and respondent F.P. HOLDINGS because of lack of a definite
agreement on the manner of paying the purchase price and that
respondents Metro Drug and Meldin Al G. Roy were not authorized
to sell the property to CITY-LITE, and that the authority of Roy was
only limited to that of a mere liaison or contact person.
We cannot sustain petitioner. On the issue of whether a contract of
sale was perfected between petitioner CITY-LITE and respondent
F.P. HOLDINGS acting through its agent Meldin Al G. Roy of Metro
Drug, Art. 1874 of the Civil Code provides: "When the sale of a
piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing;otherwise, the sale shall be
void." Petitioner anchors the authority of Metro Drug and Meldin Al
G. Roy on (a) the testimonies of petitioner's three (3) witnesses and
the admissions of Roy and the lawyer of Metro Drug; (b) the sales
brochure specifying Meldin Al G. Roy as a contact person; (c) the
guard posted at the property saying that Metro Drug was 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. HOLDINGS to sell the property. However, and more
importantly, the Civil Code requires that an authority to sell a piece
of land shall be in writing. The absence of authority to sell can be
determined from the written memorandum issued by respondent F.P.
HOLDINGS' President requesting Metro Drug's assistance in finding
buyers for the property. The memorandum in part stated: "We will
appreciate Metro Drug's assistance in referring to us buyers for the
property. Please proceed to hold preliminary negotiations with
interested buyers and endorse formal offers to us for our final
evaluation and appraisal." This obviously meant that Meldin Al G.
Roy and/or Metro Drug was only to assist F.P. HOLDINGS in
looking for buyers and referring to them possible prospects whom
they were supposed to endorse to F.P. HOLDINGS. But the final
evaluation, appraisal and acceptance of the transaction could be
made only by F.P. HOLDINGS. In other words, Meldin Al G. Roy
and/or Metro Drug was only a contact person with no authority to
conclude a sale of the property. In 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 for a possible
transaction. 5 Consequently, we hold that for lack of a written
authority to sell the "Violago Property" on the part of Meldin Al G.
Roy and/or Metro Drug, the sale should be as it is declared null and
void. Therefore the sale could not produce any legal effect as to
transfer the subject property from its lawful owner, F.P. HOLDINGS,
to any interested party including petitioner CITY-LITE. llcd
WHEREFORE, the appealed Decision of the Court of Appeals being
in accord with law and the evidence is AFFIRMED. Costs against
petitioner CITY-LITE REALTY CORPORATION.
SO ORDERED.
Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.
Footnotes
1.Decision penned by Justice Eloy R. Bello Jr., concurred in by
Justices Salome A. Montoya and Ruben T. Reyes, 7th Div.,
Court of Appeals; Rollo, pp. 34-52.
2.Decision penned by Judge Pedro M. Areola, RTC-Br. 85, Quezon
City.
3.G.R. No. 116650, 23 May 1995, 244 SCRA 320.
4.TSN, 10 March 1994, pp. 29-31.
5.Paras, Civil Code of the Philippines Annotated, Vol. V, p. 634,
citing Pac. Com. Co v. Yatco, 68 Phil. 398.
||| (City-Lite Realty Corp. v. Court of Appeals, G.R. No. 138639,
[February 10, 2000], 382 PHIL 268-276)

FIRST DIVISION
[G.R. No. 127094. February 6, 2002.]
ALEJANDRIA PINEDA and SPOUSES
ADEODATO DUQUE, JR., and EVANGELINE
MARY JANE DUQUE,petitioners, vs. COURT
OF APPEALS and SPOUSES NELSON
BAÑEZ and MERCEDES BAÑEZ, respondents.
People's Law Office for petitioners.
Sycip Salazar Hernandez & Gatmaitan for private respondents.
SYNOPSIS
After the agreement to exchange real property between the Bañez
spouses and petitioner Pineda to exchange real properties failed to
materialize, petitioner Pineda sold the Bañez property to petitioner
Duque. Both the RTC and the CA declared the Bañez spouses the
absolute owners of the lot in question after finding that the deed of
sale purportedly executed by the Bañez spouses in favor of Pineda
was a forgery.
In affirming the CA decision on appeal, the Supreme Court held: that
the issue raised is factual, which we may not review; that Pineda
could not validly sell subject property because she had no special
power of authority to sell the immovable; and thatno contract was
perfected because the consent of the real owner of the property was
not obtained.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; APPEAL; FINDINGS
OF THE FACT OF THE COURT OF APPEALS MAY NOT
GENERALLY BE REVIEWED ON APPEAL. — The issue raised is
factual. In an appeal via certiorari, we may not review the findings
of fact of the Court of Appeals. DCATHS
2. CIVIL LAW; CIVIL CODE; SPECIAL CONTRACTS; SALES;
SPECIAL POWER OF ATTORNEY IS NECESSARY TO VALIDLY
SELL AN IMMOVABLE PROPERTY; CASE AT BAR. —
Petitioner Pineda's "sale" of the property to petitioners Duque was
not authorized by the real owners of the land, respondent Bañez. The
Civil Code provides that in a sale of a parcel of land of any interest
therein made through an agent, a special power of attorney is
essential. This authority must be in writing, otherwise the sale shall
be void. In his testimony, petitioner Adeodato Duque confirmed that
at the time he "purchased" respondents' property from Pineda, the
latter had no Special Power of Authority to sell the property. A
special power of attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or acquired for
a valuable consideration. Without an authority in writing, petitioner
Pineda could not validly sell the subject property to petitioners
Duque. Hence, any "sale" in favor of petitioners Duque is void.
3. ID.; ID.; ID.; ID.; CONSENT OF REAL OWNER OF
PROPERTY IS A PREREQUISITE FOR VALIDITY OF THE
SALE; CASE AT BAR. — Further, Article 1318 of the Civil Code
lists the requisites of a valid and perfected contract, namely: "(1)
consent of the contracting parties; (2) object certain which is the
subject matter of the contract; (3) cause of the obligation which is
established." Pineda was not authorized to enter into a contract to sell
the property. As the consent of the real owner of the property was not
obtained, no contract was perfected Consequently, petitioner Duque
failed to validly acquire the subject property. HTCIcE
DECISION
PARDO, J p:
The Case
The case is an appeal via certiorari from the decision of the Court of
Appeals, 1 affirming that of the Regional Trial Court, Quezon City,
Branch 76, declaring that the Bañez spouses are the lawful owners of
the property in question and the petitioners could not convey title to
the Duque spouses who were buyers in bad faith.
The Facts
The facts, as found by the Court of Appeals, are as follows:
"Appellees Nelson Bañez and Mercedes Bañez are
the original owners of a parcel of land together
with its improvements located at 32 Sarangaya St.,
White Plains, Quezon City while Ms. Alejandria
Pineda is the owner of a house located at 5224
Buchanan St., Los Angeles, California.
"On January 11, 1983, the appellees and
Alejandria Pineda, together with the latter's spouse
Alfredo Caldona, executed an `Agreement to
Exchange Real Properties' (Exh. "A", p. 16, Folder
of Exhibits). In the agreement, the parties agreed
to: 1) exchange their respective properties; 2)
Pineda to pay an earnest money in the total amount
of $12,000.00 on or before the first week of
February 1983; and 3) to consummate the
exchange of properties not later than June 1983. It
appears that the parties undertook to clear the
mortgages over their respective properties. At the
time of the execution of the exchange agreement,
the White Plains property was mortgaged with the
Government Service Insurance System (GSIS)
while the California property had a total mortgage
obligation of $84,000.00 (Exh. "A-2", p. 18, Ibid).
"In the meantime, the appellees were allowed to
occupy or lease to a tenant Pineda's California
property (Exh. "A-1", p. 17,Ibid) and Pineda was
authorized to occupy appellees' White Plains
property (Complaint; p. 8. Records). Pursuant to
the exchange agreement, Alejandria Pineda paid
the appellees the total amount of $12,000.00
broken down as follows: 1) $5,000.00 on January
1983; 2) $4,000.00 on April 1983; 3) $3,000.00 on
January 1985 (Exh. "C" & "D", pp. 28; 36, Ibid).
"On December 18, 1984, unknown to the
appellees, Alejandria Pineda and the appellants
Adeodato C. Duque, Jr. and Evangeline Mary Jane
Duque executed an 'Agreement to Sell' over the
White Plains property whereby Pineda sold the
property to the appellants for the amount of
P1,600,000.00 (Exh. "1", p. 51, Ibid). The contract
provides that: 1) upon signing of the agreement,
the purchaser shall pay P450,000.00 and the seller
shall cause the release of the property from any
encumbrance and deliver to the purchaser the title
to the property; 2) balance shall be paid 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 absolute
sale duly signed by its registered owner, the
appellees. On the same date, Pineda, out of the
downpayment received from the appellants, paid
the appellees' mortgage obligation with the GSIS
in the sum of P112,690.75 (Exhs. "D-1" to "D-3",
pp. 41-43, Ibid).
"Pineda then requested the appellees for a written
authority for the release of the title from the GSIS
(pp. 18-19, November 9, 1989, TSN). On January
1, 1985, the appellees gave Pineda the
aforementioned authority 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 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, 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). The appellants physically
occupied the premises on June or July 1985 (Pre-
Trial Order, p. 156, Records).
"Upon their return to the Philippines sometime in
March 1985, the appellees discovered that the
appellants were occupying the White Plains
property. They talked with appellant Atty.
Adeodato Duque who showed 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. 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 she gave the title
to the appellants. They did not insist on its return
from the appellants as the latter were interested in
buying the property (pp. 33-35, November 9,
1989, TSN).
"A series of communications ensued between the
representatives of the appellees and Ms. Pineda
with regard to the status of the exchange
agreement which resulted in its rescission for
failure of Pineda to clear her mortgage obligation
of the California property (Exhs. "B", "C" & "D",
pp. 24-29; 35-37, Folder of Exhibits). Negotiations
for the purchase of the property were held between
the appellants and the appellees but the same
failed which resulted in the appellees demanding
for the appellants to vacate the property (Exhs. "F"
to "F-12", pp. 81-93, Ibid).
"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
Plains property was cancelled and a new one was
issued in the name of Alejandria Pineda. They also
discovered a fictitious deed of sale dated
September 5, 1979 in favor of Pineda. Appellees
alleged that the deed of absolute sale is fictitious
and their signatures a forgery (pp. 37-39,
November 9, 1989, TSN). Appellants maintained
that on December 22, 1986, they discovered the
property was registered in the name of Pineda by
virtue of a deed of sale and they informed the
appellees of the existence of the deed of sale in a
meeting in the United States on March 1987 (pp.
3-4, October 22, 1990, TSN).
"During that meeting, an agreement was reached
by the appellants and 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 to pay (pp. 40-41,
November 10, 1989, TSN). They admitted
however to have received the sum of P100,000.00
from Atty. Duque (pp. 51-52, November 10, 1989,
TSN). On the other hand, the appellants alleged
that the purchase price of $89,000.00 was
conditioned that all payments made to Pineda as
well as expenses incurred will be considered as
forming part of the purchase price (pp. 3-4,
October 22, 1990, TSN). The records are silent as
to what happened to this agreement.
"On September 3, 1987, the present complaint was
filed before the court a quo. Since the record of
this case was burned during the fire that razed the
Quezon City Hall Building sometime in June
1988, the record was reconstituted upon petition of
the plaintiffs Nelson S. Bañez and Mercedes
Bañez, without objection from the defendant
Duques. For failure to serve summons by personal
delivery on defendant Alejandria Pineda,
an alias writ of summons was issued by
publication. After the lapse of sixty (60) days from
the last publication of summons, the court, upon
motion, declared Pineda in default in its order
dated March 4, 1988. Thereafter, defendant
spouses Adeodato and Evangeline Mary Jane L.
Duque, appellants herein, filed their Answer." 2
On February 17, 1992, the trial court rendered a decision, the
decretal portion of which reads as follows:
"WHEREFORE, prescinding from the foregoing,
judgment is hereby rendered:
"1. Declaring plaintiffs spouses Nelson S. Bañez
and Mercedes Bañez the absolute owners in fee
simple title of the house and lot in question located
at 32 Sarangaya St., White Plains, Quezon City,
entitled as such to all the rights blossoming forth
from such ownership.
"2. Declaring as null and void ab initio for being a
patent forgery that Deed of Absolute Sale dated
September 5, 1979 (Exh. I) purportedly executed
by plaintiffs in favor of defendant Alejandria
Pineda;
"3. Declaring as null and void that TCT No. T-
338857 (Exh. H) of the land records of Quezon
City, issued January 03, 1986 in the name of
Alejandria (dra) B. Pineda, widow, of legal age,
Filipino and the Register of Deeds of Quezon City,
after the finality of this decision, is hereby ordered
to cancel said Certificate of Title and, in lieu
thereof, to issue a new Certificate of Title in the
name of plaintiffs Nelson S. Bañez, married to
Mercedez Bañez, both of legal age, Filipinos and
residents of No. 32 Sarangaya St., White Plains,
Quezon City, covering the lot in question.
"4. Declaring as null and void ab initio that certain
"Agreement to Sell" dated December 18, 1988
(Exh. 1) executed by and between defendant
Alejandria Pineda and spouses defendants
Adeodato C. Duque, Jr. and Evangeline Mary Jane
Duque, over the house and lot in question;
"5. Declaring alleged vendees, defendants
Adeodato Duque, Jr. and Evangeline Mary Jane
Duque as purchasers in bad faith of the house and
land in suit and as builders in bad faith over
whatever improvements introduced by them in the
house and lot in question;
"6. Ordering herein defendants Adeodato Duque,
Jr. and Evangeline Mary Jane Duque, their heirs,
and assigns, and all persons claiming under them
to vacate and peacefully surrender possession of
the premises in question located at no. 32
Sarangaya St., White Plains, Quezon City.
Afterwhich, said defendants, their heirs and
assigns are likewise ordered to respect and not to
molest the peaceful possession of plaintiffs
spouses Bañezes over the premises in question;
"7. Ordering defendants spouses Duques to pay
plaintiffs the sum of P10,000.00 monthly rentals
since August 1985 until they shall have peacefully
surrendered physical possession of the premises in
question to plaintiffs;
"8. Ordering plaintiffs spouses Bañez to reimburse
defendants spouses the sum of P100,000.00
representing the amount they received when said
defendants Duques offered a proposal to buy the
premises in question (Exh. N, p. 487, dated July
24, 1987), with interest at the legal rate, which
amount however shall be deducted from the
accumulated past rentals due the plaintiffs;
"9. Ordering defendant Pineda to pay plaintiffs the
sum of P200,000.00 by way of moral damages,
plus the sum of P100,000.00 by way of exemplary
damages;
"10. Ordering defendants spouses Duques to pay
plaintiffs Bañezes the sum of P100,000.00 by way
of moral damages, plus the sum of P50,000.00 by
way of exemplary damages;
"11. Ordering herein defendant Pineda and
defendants spouses Duques to pay jointly and
severally the sum of P50,000.00, plus 10% of the
sums awarded to plaintiffs by way of reasonable
attorney's fees; and
"12. Both defendants to pay the costs.
"SO ORDERED." 3
In time, petitioners appealed the decision to the Court of Appeals. 4
On September 18, 1992, respondents Nelson and Mercedes Bañez
filed 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
On May 20, 1996, the Court of Appeals promulgated a decision, the
dispositive portion of which reads:
"WHEREFORE, premises considered, the decision
appealed from is AFFIRMED with the
modification that rental payments should
commence on January 1986 (not August 1985) and
appellants are liable for attorney's fees only in the
sum of P50,000.00." 7
On June 26, 1996, petitioners filed a motion for reconsideration of
the above quoted decision. 8 On November 7, 1996, the Court of
Appeals denied the motion. 9
Hence, this appeal. 10
The Issue
The issue raised is whether petitioners validly acquired the subject
property.
The Court's Ruling
We deny the petition. The issue raised is factual. In an
appeal via certiorari, we may not review the findings of fact of the
Court of Appeals. 11
Nevertheless, it appears that the Bañez spouses were the original
owners of the parcel of land and improvements located at 32
Sarangaya St., White Plains, Quezon City. On January 11, 1983, the
Bañez spouses and petitioner Pineda executed an agreement to
exchange real properties. However, the exchange did not materialize.
Petitioner Pineda's "sale" of the property to petitioners Duque was
not authorized by the real owners of the land, respondent Bañez.
The Civil Code provides that in a sale of a parcel of land or any
interest therein 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 testimony, petitioner Adeodato Duque
confirmed that at the time he "purchased" respondents' property from
Pineda, the latter had no Special Power of Authority to sell the
property. 14
A special power of attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or acquired for
a valuable consideration. 15 Without an authority in writing,
petitioner Pineda could not validly sell the subject property to
petitioners Duque. Hence, any "sale" in favor of petitioners Duque is
void. 16
Further, Article 1318 of the Civil Code lists the requisites of a valid
and perfected contract, namely: "(1) consent of the contracting
parties; (2) object certain which is the subject matter of the contract;
(3) cause of the obligation which is established." 17 Pineda was not
authorized to enter into a contract to sell the property. As the consent
of the real owner of the property was not obtained, no contract was
perfected. 18
Consequently, petitioner Duque failed to validly acquire the subject
property.
The Fallo
WHEREFORE, the Court DENIES the petition and AFFIRMS the
decision of the Court of Appeals, 19 in toto. DaScHC
No costs.
SO ORDERED.
Davide, Jr., C.J., Puno, Kapunan and Ynares-Santiago, JJ., concur.
Footnotes
1.In CA-G.R. CV No. 38022, promulgated on May 20, 1996.
Buena J., ponente, Sandoval Gutierrez and Vasquez,
Jr., JJ., concurring.
2.Petition Annex "A", Rollo, pp. 27-37, at pp. 30-32.
3.CA Rollo, pp. 52-68, at pp. 67-68.
4.Notice of Appeal, RTC Record, p. 342. Docketed as CA-
G.R. CV No. 38022.
5.CA Rollo, pp. 14-21.
6.CA Rollo, p. 74.
7.Petition, Annex "A", Rollo, pp. 27-37, at p. 37.
8.CA Rollo, pp. 131-137.
9.Petition, Annex "B", Rollo, pp. 39-40.
10.Filed on December 27, 1996, Petition, Rollo, pp. 8-25. On
October 1, 1997, we gave due course to the petition (Rollo,
p. 82).
11.Cristobal v. Court of Appeals, 353 Phil. 320, 326
[1998]; Sarmiento v. Court of Appeals, 353 Phil. 834, 845-
846 [1998]; Concepcion v. Court of Appeals, 324 SCRA
85, 91 [2000], citing Congregation of the Virgin Mary v.
Court of Appeals, 353 Phil. 591, 597 [1998] and Sarmiento
v. Court of Appeals, supra; Arriola v. Mahilum, 337 SCRA
464, 469 [2000]; Bolanos v. Court of Appeals, 345 SCRA
125, 130-131 [2000].
12.Article 1878, Civil Code.
 13.Article 1874, Civil Code; Cosmic Lumber Corporation v. Court
of Appeals, 332 Phil. 948, 957 [1996]; Delos Reyes v.
Court of Appeals, 372 Phil. 522, 538 [1999].
14.TSN, 22 October 1990, p. 25.
15.Cosmic Lumber v. Court of Appeals, supra, Note 13, at p. 958.
16.Rio v. Yu Tec & CO., 49 Phil 276 [1927]; Jimenez v. Rabot, 38
Phil. 378 [1918]; Article 1403, Civil Code, Section 21 (e),
Rule 132, Revised Rules of Court.
17.Islamic Doctorate of the Philippines v. Court of Appeals, 338
Phil. 956, 984 [1997].
18.San Juan and Steel Fabricators, Inc. v. Court of Appeals, 357
Phil. 631, 647 [1998].
19.In CA-G.R. CV No. 38022, promulgated on May 20, 1996.
||| (Pineda v. Court of Appeals, G.R. No. 127094, [February 6,
2002], 426 PHIL 611-619)

FIRST DIVISION
[G.R. No. 114311. November 29, 1996.]
COSMIC LUMBER
CORPORATION, petitioner, vs. COURT OF
APPEALS and ISIDRO PEREZ, respondents.
Millora & Maningding Law Offices for petitioner.
Manuel D. Ancheta for private respondent.
SYLLABUS
l. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY;
AUTHORITY OF AGENT TO SELL A PIECE OF LAND OR
INTEREST THEREON MUST BE IN WRITING TO BIND
PRINCIPAL. — When the sale of a piece of land or any interest
thereon is through an agent, the authority of the latter shall be in
writing otherwise, the sale shall be void. Thus the authority of an
agent to execute a contract for the sale of real estate must be
conferred in writing and must give him specific authority, either to
conduct the general business of the principal or to execute a binding
contract containing terms and conditions which are in the contract he
did execute. A special power of attorney is necessary to enter into
any contract by which the ownership of an immovable is transmitted
or acquired either gratuitously or for a valuable consideration. The
express mandate required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary ingredient of
the act mentioned. For the principal to confer the right upon an agent
to sell real estate, a power of attorney must so express the powers of
the agent in clear and unmistakable language. When there is any
reasonable doubt that the language so used conveys such
power, no such construction shall be given the document. cdaisa
2. ID.; ID.; ID.; ID.; ABSENCE OF REQUIRED AUTHORITY
RENDERS SALE AND COMPROMISE JUDGMENT BASED
THEREON VOID AB INITIO; CASE AT BAR. — The authority
granted Villamil-Estrada under the special power of attorney was
explicit and exclusionary; for her to institute any action in court to
eject all persons found on Lots Nos. 9127 and 443 so that petitioner
could take material possession thereof, and for this purpose, to
appear at the pre-trial and enter into any stipulation of facts and/or
compromise agreement but only insofar as this was protective of the
rights and interests of petitioner in the property. Nowhere in this
authorization was Villamil-Estrada granted expressly or impliedly
any power to sell the subject property nor a portion thereof. Neither
can a conferment of the power to sell be validly inferred from the
specific authority "to enter into a compromise agreement" because of
the explicit limitation fixed by the grantor that the compromise
entered into shall be "so far as it shall protect the rights and interest
of the corporation in the aforementioned lots." In the context of the
specific investiture of powers to Villamil-Estrada, alienation by sale
of an immovable certainly cannot be deemed protective of the right
of petitioner to physically possess the same, more so when the land
was being sold for a price of P80.00 per square meter, very much less
than its assessed value of P250.00 per square meter, and considering
further that petitioner never received the proceeds of the sale. It is
therefore clear that by selling to respondent Perez a portion of
petitioner's land through a compromise agreement, Villamil-Estrada
acted without or in obvious authority. The sale ipso jure is
consequently void. So is the compromise agreement. This being the
case, the judgment based thereon is necessarily void. Antipodal to the
opinion expressed by respondent court in resolving petitioner's
motion for reconsideration, the nullity of the settlement between
Villamil-Estrada and Perez impaired the jurisdiction of the trial court
to render its decision based on the compromise agreement. (Alviar v.
Court of First Instance of La Union). ICcaST
3. ID.; ID.; ID.; ID.; ID.; REMEDIES AVAILABLE TO
PRINCIPAL. — This ruling was adopted in Jacinto v. Montesa, by
Mr. Justice J.B.L. Reyes, a much-respected authority on civil law,
where the Court declared that a judgment based on a compromise
entered into by an attorney without specific authority from the client
is void. Such judgment may be impugned and its execution
restrained in any proceeding by the party against whom it is sought
to be enforced. The Court also observed that a defendant against
whom a judgment based on a compromise is sought to be enforced
may file a petition for certiorari to quash the execution. He could not
move to have the compromise set aside and then appeal from the
order of denial since he was not a party to the compromise. Thus it
would appear that the obiter of the appellate court that the alleged
nullity of the compromise agreement should be raised as a defense
against its enforcement is not legally feasible. Petitioner could not be
in a position to question the compromise agreement in the action to
revive the compromise judgment since it was never privy to such
agreement. Villamil-Estrada who signed the compromise agreement
may have been the attorney-in-fact but she could not legally bind
petitioner thereto as she was not entrusted with a special authority to
sell the land, as required in Art. 1878, par. (5), of the Civil Code.
4. REMEDIAL LAW; COURT OF APPEALS; WITH EXCLUSIVE
ORIGINAL JURISDICTION TO ANNUL JUDGMENT OF THE
RTC; REQUISITES. — Under authority of Sec. 9, par. (2), of B.P.
Blg. 129, a party may now petition the Court of Appeals to annul and
set aside judgments of Regional Trial Courts. "Thus, the Intermediate
Appellate Court (now Court of Appeals) shall exercise . . . (2)
Exclusive original jurisdiction over action for annulment of
judgments of the Regional Trial Courts . . ." However, certain
requisites must first be established before a final and executory
judgment can be the subject of an action for annulment. It must
either be void for want of jurisdiction or for lack of due process of
law, or it has been obtained by fraud. Conformably with law and the
above-cited authorities, the petition to annul the decision of the trial
court in Civil Case No. D-7750 before the Court of Appeals was
proper. Emanating as it did from a void compromise agreement, the
trial court had no jurisdiction to render a judgment based thereon.
5. ID.; ACTIONS; ANNULMENT OF ACTION; EXTRINSIC
FRAUD; MANIFEST CONDUCT OF ATTORNEY-IN-FACT
CONCEALING FROM PRINCIPAL THAT LATTER'S PROPERTY
WAS SOLD. — It would also appear, and quite contrary to the
finding of the appellate court, that the highly reprehensible conduct
of attorney-in-fact Villamil-Estrada in Civil Case No. 7750
constituted an extrinsic or collateral fraud by reason of which the
judgment rendered thereon should have been struck down. Not all
the legal semantics in the world can becloud the unassailable fact
that petitioner was deceived and betrayed by its attorney-in-fact.
Villamil-Estrada deliberately concealed from petitioner, her
principal, that a compromise agreement had been forged with the
end-result that a portion of petitioner's property was sold to the
deforciant, literally for a song. Thus completely kept unaware of its
agent's artifice, petitioner was not accorded even a fighting chance to
repudiate the settlement so much so that the judgment based thereon
became final and executory. cAECST
6. ID.; ID.; ID.; ID.; CONSTRUED. — There is extrinsic fraud
within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where it is
one the effect of which prevents a party from hearing a trial, or real
contest, or from presenting all of his case to the court or where it
operates upon matters, not pertaining to the judgment itself, but to
the manner in which it was procured, so that there is not a fair
submission of the controversy. In other words, extrinsic fraud refers
to any fraudulent act of the prevailing party in the litigation which is
committed outside of the trial of the case, whereby the defeated party
has been prevented from exhibiting fully his side of the case by fraud
or deception practiced on him by his opponent. Fraud is extrinsic
where the unsuccessful party has been prevented from exhibiting
fully his case, by fraud or deception practiced on him by his
opponent, as by keeping him away from court, a false promise of a
compromise; or where the defendant never had knowledge of the
suit, being kept in ignorance by the acts of the plaintiff; or where an
attorney fraudulently or without authority connives at his defeat;
these and similar cases which show that there has never been a real
contest in the trial or hearing of the case are reasons for which a new
suit may be sustained to set aside and annul the former judgment and
open the case for a new and fair hearing.
7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY;
PRINCIPAL IS CHARGEABLE WITH THE KNOWLEDGE OR
NOTICE TO HIS AGENT RECEIVED; RULE NOT APPLICABLE
WHERE AGENT IS COMMITTING FRAUD AGAINST THE
PRINCIPAL. — It may be argued that petitioner knew of the
compromise agreement since the principal is chargeable with and
bound by the knowledge of or notice to his agent received while the
agent was acting as such. But the general rule is intended to protect
those who exercise good faith and not as a shield for unfair dealing.
Hence there is a well-established exception to the general rule as
where the conduct and dealings of the agent are such as to raise a
clear presumption that he will not communicate to the principal the
facts in controversy. The logical reason for this exception is that
where the agent is committing a fraud, it would be contrary to
common sense to presume or to expect that he would communicate
the facts to the principal. Verily, when an agent is engaged in the
perpetration of a fraud upon his principal for his own exclusive
benefit, he is not really acting for the principal but is really acting for
himself, entirely outside the scope of his agency. Indeed, the basic
tenets of agency rest on the highest considerations of justice, equity
and fair play, and an agent will not be permitted to pervert his
authority to his own personal advantage, and his act in secret
hostility to the interests of his principal transcends the power
afforded him. DAEaTS
DECISION
BELLOSILLO, J p:
COSMIC LUMBER CORPORATION, through its General Manager
executed on 28 January 1985 a Special Power of Attorney appointing
Paz G. Villamil-Estrada as attorney-in-fact —
. . . to initiate, institute and file any court action for
the ejectment of third persons and/or squatters of
the entire lot 9127 and 443 and covered by
TCT Nos. 37648 and 37649, for the said squatters
to remove their houses and vacate the premises in
order that the corporation may take material
possession of the entire lot, and for this purpose, to
appear at the pre-trial conference and enter into
any stipulation of facts and/or compromise
agreement so far as it shall protect the rights and
interest of the corporation in the aforementioned
lots. 1
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of
attorney, instituted an action for the ejectment of private respondent
Isidro Perez and recover the possession of a portion of Lot No. 443
before the Regional Trial Court of Dagupan, docketed as Civil
Case No. D-7750. 2
On 25 November 1985 Villamil-Estrada entered into a Compromise
Agreement with respondent Perez, the terms of which follow:
 1. That as per relocation sketch plan dated June 5,
1985 prepared by Engineer Rodolfo dela Cruz the
area at present occupied by defendant wherein his
house is located is 333 square meters on the
easternmost part of lot 443 and which portion has
been occupied by defendant for several years now;
2. That to buy peace said defendant pays unto the
plaintiff through herein attorney-in-fact the sum of
P26,640.00 computed at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and
possession of the defendant by virtue of this
compromise agreement over said portion of 333
square m. of lot 443 which portion will be located
on the easternmost part as indicated in the sketch
as annex A;
4. Whatever expenses of subdivision, registration,
and other incidental expenses shall be shouldered
by the defendant. 3
On 27 November 1985 the "Compromise Agreement" was approved
by the trial court and judgment was rendered in accordance
therewith. 4
Although the decision became final and executory it was not
executed within the 5-year period from date of its finality allegedly
due to the failure of petitioner to produce the owner's duplicate copy
of Title No. 37649 needed to segregate from Lot No. 443 the portion
sold by the attorney-in-fact; Paz G. Villamil-Estrada, to private
respondent under the compromise agreement. Thus on 25 January
1993 respondent filed a complaint to revive the judgment, docketed
as Civil Case No. D-10459.5
Petitioner asserts that it was only when the summons in Civil
Case No. D-10459 for the revival of judgment was served upon it
that it came to know of the compromise agreement entered into
between Paz G. Villamil-Estrada and respondent Isidro Perez upon
which the trial court based its decision of 26 July 1993 in Civil
Case No. D-7750. Forthwith, upon learning of the fraudulent
transaction, petitioner sought annulment of the decision of the trial
court before respondent Court of Appeals on the ground that the
compromise agreement was void because: (a) the attorney-in-fact did
not have the authority to dispose of, sell, encumber or divest the
plaintiff of its ownership over its real property or any portion thereof;
(b) the authority of the attorney-in-fact was confined to the
institution and filing of an ejectment case against third
persons/squatters on the property of the plaintiff, and to cause their
eviction therefrom; (c) while the special power of attorney made
mention of an authority to enter into a compromise agreement, such
authority was in connection with, and limited to, the eviction of third
persons/squatters thereat, in order that "the corporation may take
material possession of the entire lot;" (d) the amount of P26,640.00
alluded to as alleged consideration of said agreement was never
received by the plaintiff; (e) the private defendant acted in bad faith
in the execution of said agreement knowing fully well the want of
authority of the attorney-in-fact to sell, encumber or dispose of the
real property of plaintiff; and, (f) the disposal of a corporate property
indispensably requires a Board Resolution of its Directors, a fact
which is wanting in said Civil Case No. D-7750, and the General
Manager is not the proper officer to encumber a corporate property. 6
On 29 October 1993 respondent court dismissed the complaint on the
basis of its finding that not one of the grounds for annulment,
namely, lack of jurisdiction, fraud or illegality was shown to
exist. 7 It also denied the motion for reconsideration filed by
petitioner, discoursing that the alleged nullity of the compromise
judgment on the ground that petitioner's attorney-in-fact Villamil-
Estrada was not authorized to sell the subject property may be raised
as a defense in the execution of the compromise judgment as it does
not bind petitioner, but not as a ground for annulment of judgment
because it does not affect the jurisdiction of the trial court over the
action nor does it amount to extrinsic fraud. 8
Petitioner challenges this verdict. It argues that the decision of the
trial court is void because the compromise agreement upon which it
was based is void. Attorney-in-fact Villamil-Estrada did not possess
the authority to sell or was she armed with a Board Resolution
authorizing the sale of its property. She was merely empowered to
enter into a compromise agreement in the recovery suit she was
authorized to file against persons squatting on Lot No. 443, such
authority being expressly confined to the "ejectment of third persons
or squatters of . . . lot . . . (No.) 443 . . . for the said squatters to
remove their houses and vacate the premises in order that the
corporation may take material possession of the entire lot . . ."
We agree with petitioner. The authority granted Villamil-Estrada
under the special power of attorney was explicit and exclusionary:
for her to institute any action in court to eject all persons found on
Lots Nos. 9127 and 443 so that petitioner could take material
possession thereof, and for this purpose to appear at the pre-trial and
enter into any stipulation of facts and/or compromise agreement but
only insofar as this was protective of the rights and interests of
petitioner in the property. Nowhere in this authorization was
Villamil-Estrada granted expressly or impliedly any power to sell the
subject property nor a portion thereof. Neither can a conferment of
the power to sell be validly inferred from the specific authority "to
enter into a compromise agreement" because of the explicit
limitation fixed by the grantor that the compromise entered into shall
only be "so far as it shall protect the rights and interest of the
corporation in the aforementioned lots." In the context of the specific
investiture of powers to Villamil-Estrada, alienation by sale of an
immovable certainly cannot be deemed protective of the right of
petitioner to physically possess the same, more so when the land was
being sold for a price of P80.00 per square meter, very much less
than its assessed value of P250.00 per square meter, and considering
further that petitioner never received the proceeds of the sale.
When the sale of a piece of land or any interest thereon is through an
agent, the authority of the latter shall be in writing; otherwise, the
sale shall be void. 9 Thus the authority of an agent to execute a
contract for the sale of real estate must be conferred in writing and
must give him specific authority, either to conduct the general
business of the principal or to execute a binding contract containing
terms and conditions which are in the contract he did execute. 10 A
special power of attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or acquired
either gratuitously or for a valuable consideration. 11 The express
mandate required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary ingredient of
the act mentioned. 12 For the principal to confer the right upon an
agent to sell real estate, a power of attorney must so express the
powers of the agent in clear and unmistakable language. When there
is any reasonable doubt that the language so used conveys such
power, no such construction shall be given the document. 13
It is therefore clear that by selling to respondent Perez a portion of
petitioner's land through a compromise agreement, Villamil-Estrada
acted without or in obvious authority. The sale ipso jure is
consequently void. So is the compromise agreement. This being the
case, the judgment based thereon is necessarily void. Antipodal to the
opinion expressed by respondent court in resolving petitioner's
motion for reconsideration, the nullity of the settlement between
Villamil-Estrada and Perez impaired the jurisdiction of the trial court
to render its decision based on the compromise agreement. In Alviar
v. Court of First Instance of La Union, 14 the Court held —
. . . this court does not hesitate to hold that the
judgment in question is null and void ab initio. It
is not binding upon and cannot be executed against
the petitioners. It is evident that the compromise
upon which the judgment was based was not
subscribed by them . . . . Neither could Attorney
Ortega bind them validly in the compromise
because he had nospecial authority . . . .
As the judgment in question is null and void ab
initio, it is evident that the court
 acquired no jurisdiction to render it, much less to
order the execution thereof . . .
. . . A judgment, which is null and void ab initio,
rendered by a court without jurisdiction to do so, is
without legal efficacy and may properly be
impugned in any proceeding by the party against
whom it is sought to be enforced . . .
This ruling was adopted in Jacinto v. Montesa, 15 by Mr. Justice J.
B. L. Reyes, a much-respected authority on civil law, where the
Court declared that a judgment based on a compromise entered into
by an attorney without specific authority from the client is void. Such
judgment may be impugned and its execution restrained in any
proceeding by the party against whom it is sought to be enforced.
The Court also observed that a defendant against whom a judgment
based on a compromise is sought to be enforced may file a petition
for certiorari to quash the execution. He could not move to have the
compromise set aside and then appeal from the order of denial since
he was not a party to the compromise. Thus it would appear that the
obiter of the appellate court that the alleged nullity of the
compromise agreement should be raised as a defense against its
enforcement is not legally feasible. Petitioner could not be in a
position to question the compromise agreement in the action to
revive the compromise judgment since it was never privy to such
agreement. Villamil-Estrada who signed the compromise agreement
may have been the attorney-in-fact but she could not legally bind
petitioner thereto as she was not entrusted with a special authority to
sell the land, as required in Art. 1878, par. (5), of the Civil Code.
Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now
petition the Court of Appeals to annul and set aside judgments of
Regional Trial Courts. 16 "Thus, the Intermediate Appellate Court
(now Court of Appeals) shall exercise . . . (2) Exclusive original
jurisdiction over action for annulment of judgments of the Regional
Trial Courts . . ." However, certain requisites must first be
established before a final and executory judgment can be the subject
of an action for annulment. It must either be void for want of
jurisdiction or for lack of due process of law, or it has been obtained
by fraud. 17
Conformably with law and the above-cited authorities, the petition to
annul the decision of the trial court in Civil Case No. D-7750 before
the Court of Appeals was proper. Emanating as it did from a void
compromise agreement, the trial court had nojurisdiction to render a
judgment based thereon. 18
It would also appear, and quite contrary to the finding of the
appellate court, that the highly reprehensible conduct of attorney-in-
fact Villamil-Estrada in Civil Case No. 7750 constituted an extrinsic
or collateral fraud by reason of which the judgment rendered thereon
should have been struck down. Not all the legal semantics in the
world can becloud the unassailable fact that petitioner was deceived
and betrayed by its attorney-in-fact. Villamil-Estrada deliberately
concealed from petitioner, her principal, that a compromise
agreement had been forged with the end-result that a portion of
petitioner's property was sold to the deforciant, literally for a song.
Thus completely kept unaware of its agent's artifice, petitioner was
not accorded even a fighting chance to repudiate the settlement so
much so that the judgment based thereon became final and
executory.
For sure, the Court of Appeals restricted the concept of fraudulent
acts within too narrow limits. Fraud may assume different shapes and
be committed in as many different ways and here lies the danger of
attempting to define fraud. For man in his ingenuity and fertile
imagination will always contrive new schemes to fool the unwary.
There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P.
Blg. 129, where it is one the effect of which prevents a party from
hearing a trial, or real contest, or from presenting all of his case to
the court, or where it operates upon matters, not pertaining to the
judgment itself, but to the manner in which it was procured so that
there is not a fair submission of the controversy. In other words,
extrinsic fraud refers to any fraudulent act of the prevailing party in
the litigation which is committed outside of the trial of the case,
whereby the defeated party has been prevented from exhibiting fully
his side of the case by fraud or deception practiced on him by his
opponent. 19 Fraud is extrinsic where the unsuccessful party has
been prevented from exhibiting fully his case, by fraud or deception
practiced on him by his opponent, as by keeping him away from
court, a false promise of a compromise; or where the defendant never
had knowledge of the suit, being kept in ignorance by the acts of the
plaintiff; or where an attorney fraudulently or without authority
connives at his defeat; these and similar cases which show that there
has never been a real contest in the trial or hearing of the case are
reasons for which a new suit may be sustained to set aside and annul
the former judgment and open the case for a new and fair hearing. 20
It may be argued that petitioner knew of the compromise agreement
since the principal is chargeable with and bound by the knowledge of
or notice to his agent received while the agent was acting as such.
But the general rule is intended to protect those who exercise good
faith and not as a shield for unfair dealing. Hence there is a well-
established exception to the general rule as where the conduct and
dealings of the agent are such as to raise a clear presumption that he
will not communicate to the principal the facts in
controversy. 21 The logical reason for this exception is that where
the agent is committing a fraud, it would be contrary to common
sense to presume or to except that he would communicate the facts to
the principal. Verily, when an agent is engaged in the perpetration of
a fraud upon his principal for his own exclusive benefit, he is not
really acting for the principal but is really acting for himself, entirely
outside the scope of his agency. 22 Indeed, the basic tenets of agency
rest on the highest considerations of justice, equity and fair play, and
an agent will not be permitted to pervert his authority to his own
personal advantage, and his act in secret hostility to the interests of
his principal transcends the power afforded him.23
WHEREFORE, the petition is GRANTED. The decision and
resolution of respondent Court of Appeals dated 29 October 1993
and 10 March 1994, respectively, as well as the decision of the
Regional Trial Court of Dagupan City in Civil Case No. D-7750
dated 27 November 1985, are NULLIFIED and SET ASIDE.
The"Compromise Agreement" entered into between Attorney-in-fact
Paz G. Villamil-Estrada and respondent Isidro Perez is declared
VOID. This is without prejudice to the right of petitioner to pursue
its complaint against private respondent Isidro Perez in Civil
Case No. D-7750 for the recovery of possession of a portion of
Lot No. 443.
SO ORDERED.
Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.
Footnotes
1.CA Rollo, p. 11.
2.Assigned to Br. 44.
3.CA Rollo, p. 17.
4.Penned by Judge Crispin C. Laron; id., p. 19.
5.Assigned to Br. 42.
6.CA Rollo, pp. 5-6.
7.Penned by Justice Minerva P. Gonzaga-Reyes with the
concurrence of Justices Santiago M. Kapunan and Eduardo
G. Montenegro;Rollo, p. 43.
8.Rollo, p. 49.
9.Art. 1874, Civil Code of the Philippines.
10.Johnson v. Lennox, 55 Colo. 125, 133 P 744.
11.Art. 1878, par. (5), Civil Code of the Philippines.
12.Strong v. Gutierrez Repide, 6 Phil. 680 (1906).
13.Liñan v. Puno, 31 Phil. 259 (1915).
 14.64 Phil. 301, 305-306 (1937).
15.No. L-23098, 28 February 1967, 19 SCRA 513, 518-519. See
also Quiban v. Butalid, G.R. No. 90974, 27 August 1990,
189 SCRA 107.
16.Goldloop Properties, Inc. v. Court of Appeals, G.R. No. 99431,
11 August 1992, 212 SCRA 498; Mercado v. Ubay, No. L-
36830, 24 July 1990, 187 SCRA 719; Gerardo v. De la
Peña, G.R. No. 61527, 26 December 1990, 192 SCRA
691.
17.Islamic Da 'Wah Council of the Philippines v. Court of
Appeals, G.R. No. 80892, 29 September 1989, 178 SCRA
178; Ramirez v. Court of Appeals, G.R. No. 76366, 3 July
1990, 187 SCRA 153; Ruiz v. Court of Appeals, G.R. No.
93454, 13 September 1991, 210 SCRA 577; Santos v.
Court of Appeals, G.R. No. 59771, 21 July 1993, 224
SCRA 673. See also Parcon v. Court of Appeals, G.R. No.
85740, 9 November 1990, 191 SCRA 284.
18.See notes 14 and 15.
19.Macabingkil v. PHHC, No. L-29080, 17 August 1976, 72 SCRA
326, 343-344.
20.Id., p. 344 citing US v. Throckmorton, 25 L. Ed. 93, 95.
21.Mutual Life Ins. Co. v. Hilton Green, 241 US 613, 60 L Ed.
1202.
22.Aetna Casualty and Surety Co. v. Local Bldg. And Loan Assoc.,
19 P2d 612, 616.
23.Strong v. Strong, 36 A2d 410, 415.
||| (Cosmic Lumber Corp. v. Court of Appeals, G.R. No. 114311,
[November 29, 1996], 332 PHIL 948-963)

THIRD DIVISION
[G.R. No. 148775. January 13, 2004.]
SHOPPER'S PARADISE REALTY &
DEVELOPMENT
CORPORATION, petitioner, vs. EFREN
ROQUE, respondent.
DECISION
VITUG, J p:
On 23 December 1993, petitioner Shopper's Paradise Realty &
Development Corporation, represented its president, Veredigno
Atienza, entered into a twenty-five year lease with Dr. Felipe C.
Roque, now deceased, over a parcel of land, with an area of two
thousand and 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 of Deeds of Quezon City in the
name of Dr. Roque. Petitioner issued to Dr. Roque a check for
P250,000.00 by way of "reservation payment." Simultaneously,
petitioner and Dr. Roque likewise entered into a memorandum of
agreement for the construction, development and operation of a
commercial building complex on the property. Conformably with the
agreement, petitioner issued a check for another P250,000.00
"downpayment" to Dr. Roque.
The contract of lease and the memorandum of agreement, both
notarized, were to be annotated on TCT No. 30591 within sixty (60)
days from 23 December 1993 or until 23 February 1994. The
annotations, however, were never made because of the untimely
demise of Dr. Felipe C. Roque. The death of Dr. Roque on 10
February 1994 constrained petitioner to deal with respondent Efren P.
Roque, one of the surviving children of the late Dr. Roque, but the
negotiations broke down due to some disagreements. In a letter,
dated 3 November 1994, respondent advised petitioner "to desist
from any attempt to enforce the aforementioned contract of lease and
memorandum of agreement". On 15 February 1995, respondent filed
a case for annulment of the contract of lease and the memorandum of
agreement, with a prayer for the issuance of a preliminary injunction,
before Branch 222 of the Regional Trial Court of Quezon City. Efren
P. Roque alleged that he had long been the absolute owner of the
subject property by virtue of a deed of donation inter vivos executed
in his favor 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 assailed agreements with petitioner. The donation
was made in a public instrument duly acknowledged by the donor-
spouses before a notary 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, 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 May 1994, under TCT No.
109754 of the Register of Deeds of Quezon City. Respondent, while
he resided in the United States of America, delegated to his father the
mere administration of the property. Respondent came to know of the
assailed contracts with petitioner only after retiring to the Philippines
upon the death of his father. DcTSHa
On 9 August 1996, the trial court dismissed the complaint of
respondent; it explained:
"Ordinarily, a deed of donation need not be
registered in order to be valid between the parties.
Registration, however, is important in binding
third persons. Thus, when Felipe Roque entered
into a lease contract with defendant corporation,
plaintiff Efren Roque (could) no longer assert the
unregistered deed of donation and say that his
father, Felipe, was nolonger the owner of the
subject property at the time the lease on the subject
property was agreed upon.
"The registration of the Deed of Donation after the
execution of the lease contract did not affect the
latter unless he had knowledge thereof at the time
of the registration which plaintiff had not been
able to establish. Plaintiff knew very well of the
existence of the lease. He, in fact, met with the
officers of the defendant corporation at least once
before he caused the registration of the deed of
donation in his favor and although the lease itself
was not registered, it remains valid considering
that no third person is involved. Plaintiff cannot be
the third person because he is the successor-in-
interest of his father, Felipe Roque, the lessor, and
it is a rule that contracts take effect not only
between the parties themselves but also between
their assigns and heirs (Article 1311, Civil Code)
and therefore, the lease contract together with the
memorandum of agreement would be conclusive
on plaintiff Efren Roque. He is bound by the
contract even if he did not participate therein.
Moreover, the agreements have been perfected and
partially executed by the receipt of his father of the
downpayment and deposit totaling to
P500,000.00." 1
The trial court ordered respondent to surrender TCT No. 109754
to the Register of Deeds of Quezon City for the annotation of the
questioned Contract of Lease and Memorandum of Agreement.
On appeal, the Court of Appeals reversed the decision of the trial
court and held to be invalid the Contract of Lease and Memorandum
of Agreement. While it shared the view expressed by the trial court
that a deed of donation would have to be registered in order to bind
third persons, the appellate court, however, concluded that petitioner
was not a lessee in good faith having had prior knowledge of the
donation in favor of respondent, and that such actual knowledge had
the effect of registration insofar as petitioner was concerned. The
appellate court based its findings largely on the testimony of
Veredigno Atienza during cross-examination, viz:
"Q. Aside from these two lots, the first in the name
of Ruben Roque and the second, the
subject of the construction involved in this
case, you said there is another lot which
was part of the development project?
"A. Yes, this was the main concept of Dr. Roque
so that the adjoining properties of his two
sons, Ruben and Cesar, will comprise one
whole. The other whole property belongs
to Cesar.
"Q. You were informed by Dr. Roque that this
property was given to his three (3) sons;
one to Ruben Roque, the other to Efren,
and the other to Cesar Roque?
"A. Yes.
"Q. You did the inquiry from him, how was this
property given to them?
"A. By inheritance.
"Q. Inheritance in the form of donation?
"A. I mean inheritance.
"Q. What I am only asking you is, were you told
by Dr. Felipe C. Roque at the time of your
transaction with him that all these three
properties were given to his children by
way of donation?
"A. What Architect Biglang-awa told us in his
exact words: "Yang mga yan pupunta sa
mga anak. Yong kay Ruben pupunta kay
Ruben. Yong kay Efren palibhasa nasa
America siya, nasa pangalan pa ni Dr.
Felipe C. Roque."
"xxx xxx xxx
"Q. When was the information supplied to you by
Biglang-awa? Before the execution of the
Contract of Lease and Memorandum of
Agreement?
"A. Yes. EHTADa
"Q. That being the case, at the time of the
execution of the agreement or soon before,
did you have such information confirmed
by Dr. Felipe C. Roque himself?
"A. Biglang-awa did it for us.
"Q. But you yourself did not?
"A. No, because I was doing certain things. We
were a team and so Biglang-awa did it for
us.
"Q. So in effect, any information gathered by
Biglang-awa was of the same effect as if
received by you because you were
members of the same team?
"A. Yes." 2
In the instant petition for review, petitioner seeks a reversal of the
decision of the Court of Appeals and the reinstatement of the ruling
of the Regional Trial Court; it argues that the presumption of good
faith it so enjoys as a party dealing in registered land has not been
overturned by the aforequoted testimonial evidence, and that, in any
event, respondent is barred by laches and estoppel from denying the
contracts.
The existence, albeit unregistered, of the donation in favor of
respondent is undisputed. The trial court and the appellate court have
not erred in holding that the non-registration of a deed of donation
does not affect its validity. As being itself a mode of acquiring
ownership, donation results in 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 validity that it should be contained
in a public document, specifying therein the property donated and the
value of the charges which the donee must satisfy. 4 The Civil Code
provides, however, that "titles of ownership, or other rights over
immovable property, which are not duly inscribed or annotated in the
Registry of Property (now Registry of Land Titles and Deeds) shall
not prejudice third persons." 5 It is enough, between the parties to a
donation of an immovable property, that the donation be made in a
public document but, in order to bind third persons, the donation
must be registered in the Registry of Property (Registry of Land
Titles and Deeds). 6 Consistently, Section 50 of Act No. 496 (Land
Registration Act), as so amended by Section 51 of P.D. No. 1529
(Property Registration Decree), states:
"SECTION 51. Conveyance and other dealings by
registered owner. — An owner of registered land
may convey, mortgage, lease, charge or otherwise
 deal with the same in accordance with existing
laws. He may use such forms of deeds, mortgages,
leases or other voluntary instruments as are
sufficient in law. But no deed, mortgage, lease, or
other voluntary instrument, except a will
purporting to convey or affect registered land
shall take effect as a conveyance or bind the land,
but shall operate only as a contract between the
parties and as evidence of authority to the
Register of Deeds to make registration.
"The act of registration shall be the operative act
to convey or affect the land insofar as third
persons are concerned, and in all cases under this
Decree, the registration shall be made in the office
of the Register of Deeds for the province or city
where the land lies."(emphasis supplied)
A person dealing with registered land may thus safely rely on the
correctness of the certificate of title issued therefor, and he is not
required to go beyond the certificate to determine the condition of
the property 7 but, where such party has knowledge of a prior
existing interest which is unregistered at the time he acquired a right
thereto, his knowledge of that prior unregistered interest would have
the effect of registration as regards to him. 8
The appellate court was not without substantial basis when it found
petitioner to have had knowledge of the donation at the time it
entered into the two agreements with Dr. Roque. During their
negotiation, petitioner, through its representatives, was apprised of
the fact that the subject property actually belonged to respondent.
It was not shown that Dr. Felipe C. Roque had been an authorized
agent of respondent.
In a contract of agency, the agent acts in representation or in behalf
of another with the consent of the latter. 9 Article 1878 of the Civil
Code 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 property for more than one year is considered not merely an
act of administration but an act of strict dominion or of ownership. A
special power of attorney is thus necessary for its execution through
an agent.
The Court cannot accept petitioner's argument that respondent is
guilty of laches. Laches, in its real sense, is the failure or neglect, for
an unreasonable and unexplained length of time, to do that which, by
exercising due diligence, could or should have been done earlier; it is
negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has
abandoned or declined to assert it. 10
Respondent learned of the contracts only in February 1994 after the
death of his father, and in the same year, during November, he
assailed the validity of the agreements. Hardly, could respondent
then be said to have neglected to assert his case for an unreasonable
length of time.
Neither is respondent estopped from repudiating the contracts. The
essential elements of estoppel in pais, in relation to the party sought
to be estopped, are: 1) a clear conduct amounting to false
representation or concealment of material facts or, at least, calculated
to convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to
assert; 2) an intent or, at least, an expectation, that this conduct shall
influence, or be acted upon by, the other party; and 3) the knowledge,
actual or constructive, by him of the real facts. 11 With respect to the
party claiming the estoppel, the conditions he must satisfy are: 1)
lack of knowledge or of the means of knowledge of the truth as to the
facts in question; 2) reliance, in good faith, upon the conduct or
statements of the party to be estopped; and 3) action or 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
that respondent intended to conceal the actual facts concerning the
property; more importantly, petitioner has been shown not to be
totally unaware of the real ownership of the subject 11.Kalalo v. Luz, G.R. No. L-27782, 31 July 1970, 34 SCRA 337.
property. aEHADT
12.Id.
Altogether, there is no cogent reason to reverse the Court of Appeals
in its assailed decision.
WHEREFORE, the petition is DENIED, and the decision of the ||| (Shopper's Paradise Realty & Development Corp. v. Roque, G.R.
Court of Appeals declaring the contract of lease and memorandum of No. 148775, [January 13, 2004], 464 PHIL 116-125)
agreement entered into between Dr. Felipe C. Roque and Shopper's
Paradise Realty & Development Corporation not to be binding on
respondent is AFFIRMED. No costs.
SO ORDERED.
Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.
Footnotes
1.Rollo, p. 37.
2.Rollo, pp. 40-41.
3.Article 712, New Civil Code.
4.Article 749, New Civil Code.
5.Article 709, New Civil Code.
6.See Gonzales v. Court of Appeals, G.R. No. 110335, 18 June
2001, 358 SCRA 598.
7.Santos v. Court of Appeals, G.R. No. 90380, 13 September 1990,
189 SCRA 550.
8.Lagandaon v. Court of Appeals, G.R. Nos. 102526-31, 21 May
1998, 290 SCRA 330; Fernandez v. Court of
Appeals, G.R. No. 83141, 21 September 1990, 189 SCRA
780.
9.Article 1868, New Civil Code.
10.Tolentino, Civil Code of the Philippines, vol. IV, 1990-1991, p.
661.