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G.R.

No. 144805 June 8, 2006


EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,
vs.
ETERNIT
CORPORATION
(now
ETERTON
MULTI-RESOURCES
CORPORATION), ETEROUTREMER, S.A. and FAR EAST BANK & TRUST
COMPANY, Respondents.
D E C I S I O N
CALLEJO, SR., J.:
On appeal via a Petition for Review on Certiorari is the Decision1 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 Resolution2 of the CA denying the motion for reconsideration
thereof.

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 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.

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

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 ECs 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.

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 no longer 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

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

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:

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

May 22, 1987

Mr.
L.G.
334
6767
Makati,
Philippines

Makati

L.G.
Marquez,
Stock
Ayala
Metro

Exchange

Marquez
Inc.
Bldg.
Avenue
Manila

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. 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.
x x x
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.12 The 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."15 They 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
of sale, which the corporation was obliged to consummate.
In reply, EC alleged that Marquez had no written authority from the Board of
Directors to bind it; neither were Glanville and Delsaux authorized by its board
of directors to offer the property for sale. Since the sale involved substantially
all of the corporations assets, it would necessarily need the authority from the
stockholders.
On June 16, 2000, the CA rendered judgment affirming the decision of the RTC.
16 The Litonjuas filed a motion for reconsideration, which was also denied by
the appellate court.
The CA ruled that Marquez, who was a real estate broker, was a special agent
within the purview of Article 1874 of the New Civil Code. Under Section 23 of
the Corporation Code, he needed a special authority from ECs board of
directors to bind such corporation to the sale of its properties. Delsaux, who
was merely the representative of ESAC (the majority stockholder of EC) had no
authority to bind the latter. The CA pointed out that Delsaux was not even a
member of the board of directors of EC. Moreover, the Litonjuas failed to prove
that an agency by estoppel had been created between the parties.
In the instant petition for review, petitioners aver that
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PERFECTED CONTRACT OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING
THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT
ETERNIT BEFORE THE SALE CAN BE PERFECTED.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND
DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT
PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY
RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT
AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING
POWER TO SELL THE SAID PROPERTIES.17

Petitioners maintain that, based on the facts of the case, there was a perfected
contract of sale of the parcels of land and the improvements thereon for
"US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to final
liquidation." Petitioners insist that they had accepted the counter-offer of
respondent EC and that before the counter-offer was withdrawn by
respondents, the acceptance was made known to them through real estate
broker Marquez.
Petitioners assert that there was no need for a written authority from the Board
of
Directors
of
EC
for
Marquez
to
validly
act
as
broker/middleman/intermediary. As broker, Marquez was not an ordinary
agent because his authority was of a special and limited character in most
respects. His only job as a 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
make a binding contract to respondent EC; hence, petitioners argue, Article
1874 of the New Civil Code does not apply.
In any event, petitioners aver, what is important and decisive was that Marquez
was able to communicate both the offer and counter-offer and their acceptance
of respondent ECs 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 Eternits 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. Glanvilles 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.
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. DELSAUX19
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.
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:
x x x x
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.
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.
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 agents
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
authority, requires proof of reliance upon the representations, and that, in turn,
needs proof that the representations predated the action taken in reliance.49
Such proof is lacking in this case. In their communications to the petitioners,
Glanville and Delsaux positively and unequivocally declared that they were
acting for and in behalf of respondent ESAC.
Neither may respondent EC be deemed to have ratified the transactions
between the petitioners and respondent ESAC, through Glanville, Delsaux and
Marquez. The transactions and the various communications inter se were never
submitted to the Board of Directors of respondent EC for ratification.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit.
Costs against the petitioners.
SO ORDERED.







G.R. No. 118375 October 3, 2003


CELESTINA
T.
NAGUIAT,
vs.
COURT OF APPEALS and AURORA QUEAO, respondents.

petitioner,

D E C I S I O N
TINGA, J.:
Before us is a Petition for Review on Certiorari under Rule 45, assailing the
decision of the Sixteenth Division of the respondent Court of Appeals
promulgated on 21 December 19941, which affirmed in toto the decision
handed down by the Regional Trial Court (RTC) of Pasay City.2
The case arose when on 11 August 1981, private respondent Aurora Queao
(Queao) filed a complaint before the Pasay City RTC for cancellation of a Real
Estate Mortgage she had entered into with petitioner Celestina Naguiat
(Naguiat). The RTC rendered a decision, declaring the questioned Real Estate
Mortgage void, which Naguiat appealed to the Court of Appeals. After the Court
of Appeals upheld the RTC decision, Naguiat instituted the present
petition.1vvphi1.nt
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two Hundred
Thousand Pesos (P200,000.00), which Naguiat granted. On 11 August 1980,
Naguiat indorsed to Queao Associated Bank Check No. 090990 (dated 11
August 1980) for the amount of Ninety Five Thousand Pesos (P95,000.00),
which was earlier issued to Naguiat by the Corporate Resources Financing
Corporation. She also issued her own Filmanbank Check No. 065314, to the
order of Queao, also dated 11 August 1980 and for the amount of Ninety Five
Thousand Pesos (P95,000.00). The proceeds of these checks were to constitute
the loan granted by Naguiat to Queao.3
To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11
August 1980 in favor of Naguiat, and surrendered to the latter the owners
duplicates of the titles covering the mortgaged properties.4 On the same day, the
mortgage deed was notarized, and Queao issued to Naguiat a promissory note
for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00), with
interest at 12% per annum, payable on 11 September 1980.5 Queao also issued
a Security Bank and Trust Company check, postdated 11 September 1980, for
the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) and payable
to the order of Naguiat.

Upon presentment on its maturity date, the Security Bank check was
dishonored for insufficiency of funds. On the following day, 12 September 1980,
Queao requested Security Bank to stop payment of her postdated check, but
the bank rejected the request pursuant to its policy not to honor such requests if
the check is drawn against insufficient funds.6
On 16 October 1980, Queao received a letter from Naguiats lawyer,
demanding settlement of the loan. Shortly thereafter, Queao and one Ruby
Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the meeting, Queao told
Naguiat that she did not receive the proceeds of the loan, adding that the checks
were retained by Ruebenfeldt, who purportedly was Naguiats agent.7
Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff
of Rizal Province, who then scheduled the foreclosure sale on 14 August 1981.
Three days before the scheduled sale, Queao filed the case before the Pasay
City RTC,8 seeking the annulment of the mortgage deed. The trial court
eventually stopped the auction sale.9
On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate
Mortgage null and void, and ordering Naguiat to return to Queao the owners
duplicates of her titles to the mortgaged lots.10 Naguiat appealed the decision
before the Court of Appeals, making no less than eleven assignments of error.
The Court of Appeals promulgated the decision now assailed before us that
affirmed in toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of Appeals, especially
on the issue of whether Queao had actually received the loan proceeds which
were supposed to be covered by the two checks Naguiat had issued or indorsed.
Naguiat claims that being a notarial instrument or public document, the
mortgage deed enjoys the presumption that the recitals therein are true.
Naguiat also questions the admissibility of various representations and
pronouncements of Ruebenfeldt, invoking the rule on the non-binding effect of
the admissions of third persons.11
The resolution of the issues presented before this Court by Naguiat involves the
determination of facts, a function which this Court does not exercise in an
appeal by certiorari. Under Rule 45 which governs appeal by certiorari, only
questions of law may be raised12 as the Supreme Court is not a trier of facts.13
The resolution of factual issues is the function of lower courts, whose findings
on these matters are received with respect and are in fact generally binding on
the Supreme Court.14 A question of law which the Court may pass upon must not
involve an examination of the probative value of the evidence presented by the
litigants.15 There is a question of law in a given case when the doubt or
difference arises as to what the law is on a certain state of facts; there is a

question of fact when the doubt or difference arises as to the truth or the
falsehood of alleged facts.16
Surely, there are established exceptions to the rule on the conclusiveness of the
findings of facts of the lower courts.17 But Naguiats case does not fall under any
of the exceptions. In any event, both the decisions of the appellate and trial
courts are supported by the evidence on record and the applicable laws.
Against the common finding of the courts below, Naguiat vigorously insists that
Queao received the loan proceeds. Capitalizing on the status of the mortgage
deed as a public document, she cites the rule that a public document enjoys the
presumption of validity and truthfulness of its contents. The Court of Appeals,
however, is correct in ruling that the presumption of truthfulness of the recitals
in a public document was defeated by the clear and convincing evidence in this
case that pointed to the absence of consideration.18 This Court has held that the
presumption of truthfulness engendered by notarized documents is rebuttable,
yielding as it does to clear and convincing evidence to the contrary, as in this
case.19
On the other hand, absolutely no evidence was submitted by Naguiat that the
checks she issued or endorsed were actually encashed or deposited. The mere
issuance of the checks did not result in the perfection of the contract of loan. For
the Civil Code provides that the delivery of bills of exchange and mercantile
documents such as checks shall produce the effect of payment only when they
have been cashed.20 It is only after the checks have produced the effect of
payment that the contract of loan may be deemed perfected. Art. 1934 of the
Civil Code provides:
"An accepted promise to deliver something by way of commodatum or simple
loan is binding upon the parties, but the commodatum or simple loan itself shall
not be perfected until the delivery of the object of the contract."
A loan contract is a real contract, not consensual, and, as such, is perfected only
upon the delivery of the object of the contract.21 In this case, the objects of the
contract are the loan proceeds which Queao would enjoy only upon the
encashment of the checks signed or indorsed by Naguiat. If indeed the checks
were encashed or deposited, Naguiat would have certainly presented the
corresponding documentary evidence, such as the returned checks and the
pertinent bank records. Since Naguiat presented no such proof, it follows that
the checks were not encashed or credited to Queaos account.1awphi1.nt
Naguiat questions the admissibility of the various written representations made
by Ruebenfeldt on the ground that they could not bind her following the res
inter alia acta alteri nocere non debet rule. The Court of Appeals rejected the

argument, holding that since Ruebenfeldt was an authorized representative or


agent of Naguiat the situation falls under a recognized exception to the rule.22
Still, Naguiat insists that Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency relationship between Naguiat
and Ruebenfeldt is supported by ample evidence. As correctly pointed out by
the Court of Appeals, Ruebenfeldt was not a stranger or an unauthorized
person. Naguiat instructed Ruebenfeldt to withhold from Queao the checks she
issued or indorsed to Queao, pending delivery by the latter of additional
collateral. Ruebenfeldt served as agent of Naguiat on the loan application of
Queaos friend, Marilou Farralese, and it was in connection with that
transaction that Queao came to know Naguiat.23 It was also Ruebenfeldt who
accompanied Queao in her meeting with Naguiat and on that occasion, on her
own and without Queao asking for it, Reubenfeldt actually drew a check for the
sum of P220,000.00 payable to Naguiat, to cover for Queaos alleged liability to
Naguiat under the loan agreement.24
The Court of Appeals recognized the existence of an "agency by estoppel25 citing
Article 1873 of the Civil Code.26 Apparently, it considered that at the very least,
as a consequence of the interaction between Naguiat and Ruebenfeldt, Queao
got the impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did
nothing to correct Queaos impression. In that situation, the rule is clear. One
who clothes another with apparent authority as his agent, and holds him out to
the public as such, cannot be permitted to deny the authority of such person to
act as his agent, to the prejudice of innocent third parties dealing with such
person in good faith, and in the honest belief that he is what he appears to be.27
The Court of Appeals is correct in invoking the said rule on agency by
estoppel.1awphi1.nt
More fundamentally, whatever was the true relationship between Naguiat and
Ruebenfeldt is irrelevant in the face of the fact that the checks issued or
indorsed to Queao were never encashed or deposited to her account of
Naguiat.
All told, we find no compelling reason to disturb the finding of the courts a quo
that the lender did not remit and the borrower did not receive the proceeds of
the loan. That being the case, it follows that the mortgage which is supposed to
secure the loan is null and void. The consideration of the mortgage contract is
the same as that of the principal contract from which it receives life, and
without which it cannot exist as an independent contract.28 A mortgage contract
being a mere accessory contract, its validity would depend on the validity of the
loan secured by it.29
WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs
against petitioner. SO ORDERED.

G.R. No. L-67889 October 10, 1985


PRIMITIVO
SIASAT
and
MARCELINO
SIASAT,
petitioners,
vs.
INTERMEDIATE APPELLATE COURT and TERESITA NACIANCENO,
respondents.
Payawal, Jimenez & Associates for petitioners.
Nelson A. Loyola for private respondent.

GUTIERREZ, JR., J.:
This is a petition for review of the decision of the Intermediate Appellate Court
affirming in toto the judgment of the Court of First Instance of Manila, Branch
XXI, which ordered the petitioner to pay respondent the thirty percent (30%)
commission on 15,666 pieces of Philippine flags worth P936,960.00, moral
damages, attorney's fees and the costs of the suit.
Sometime in 1974, respondent Teresita Nacianceno succeeded in convincing
officials of the then Department of Education and Culture, hereinafter called
Department, to purchase without public bidding, one million pesos worth of
national flags for the use of public schools throughout the country. The
respondent was able to expedite the approval of the purchase by hand-carrying
the different indorsements from one office to another, so that by the first week
of September, 1974, all the legal requirements had been complied with, except
the release of the purchase orders. When Nacianceno was informed by the Chief
of the Budget Division of the Department that the purchase orders could not be
released unless a formal offer to deliver the flags in accordance with the
required specifications was first submitted for approval, she contacted the
owners of the United Flag Industry on September 17, 1974. The next day, after
the transaction was discussed, the following document (Exhibit A) was drawn
up:
Mrs. Tessie Nacianceno,
This is to formalize our agreement for you to represent United
Flag Industry to deal with any entity or organization, private or
government in connection with the marketing of our products-
flags and all its accessories.
For your service, you will be entitled to a commission of thirty

(30%) percent.
Signed
Mr.
Primitive
Owner and Gen. Manager

Siasat

On October 16, 1974, the first delivery of 7,933 flags was made by the United
Flag Industry. The next day, on October 17, 1974, the respondent's authority to
represent the United Flag Industry was revoked by petitioner Primitivo Siasat.
According to the findings of the courts below, Siasat, after receiving the
payment of P469,980.00 on October 23, 1974 for the first delivery, tendered the
amount of P23,900.00 or five percent (5%) of the amount received, to the
respondent as payment of her commission. The latter allegedly protested. She
refused to accept the said amount insisting on the 30% commission agreed
upon. The respondent was prevailed upon to accept the same, however, because
of the assurance of the petitioners that they would pay the commission in full
after they delivered the other half of the order. The respondent states that she
later on learned that petitioner Siasat had already received payment for the
second delivery of 7,833 flags. When she confronted the petitioners, they
vehemently denied receipt of the payment, at the same time claiming that the
respondent had no participation whatsoever with regard to the second delivery
of flags and that the agency had already been revoked.
The respondent originally filed a complaint with the Complaints and
Investigation Office in Malacaang but when nothing came of the complaint, she
filed an action in the Court of First Instance of Manila to recover the following
commissions: 25%, as balance on the first delivery and 30%, on the second
delivery.
The trial court decided in favor of the respondent. The dispositive portion of the
decision reads as follows:
WHEREFORE, judgment is hereby rendered sentencing
Primitivo Siasat to pay to the plaintiff the sum of P281,988.00,
minus the sum P23,900.00, with legal interest from the date of
this decision, and ordering the defendants to pay jointly and
solidarily the sum of P25,000.00 as moral damages, and
P25,000.00 as attorney's fees, also with legal interest from the
date of this decision, and the costs.
The decision was affirmed in toto by the Intermediate Appellate Court. After
their motion for reconsideration was denied, the petitioners went to this Court
on a petition for review on August 6, 1984.

In assailing the appellate court's decision, the petition tenders the following
arguments: first, the authorization making the respondent the petitioner's
representative merely states that she could deal with any entity in connection
with the marketing of their products for a commission of 30%. There was no
specific authorization for the sale of 15,666 Philippine flags to the Department;
second, there were two transactions involved evidenced by the separate
purchase orders and separate delivery receipts, Exhibit 6-C for the purchase
and deliver on October 16, 1974, and Exhibits 7 to 7-C, for the purchase and
delivery on November 6, 1974. The revocation of agency effected by the parties
with mutual consent on October 17, 1974, therefore, forecloses the
respondent's claim of 30% commission on the second transaction; and last,
there was no basis for the granting of attorney's fees and moral damages
because there was no showing of bad faith on the part of the petitioner. It was
respondent who showed bad faith in denying having received her commission
on the first delivery. The petitioner's counterclaim, therefore, should have been
granted.
This petition was initially dismissed for lack of merit in a minute resolution.On a
motion for reconsideration, however,this Court give due course to the petition
on November 14, 1984.
After a careful review of the records, we are constrained to sustain with some
modifications the decision of the appellate court.
We find respondent's argument regarding respondent's incapacity to represent
them in the transaction with the Department untenable. There are several kinds
of agents. To quote a commentator on the matter:
An agent may be (1) universal: (2) general, or (3) special. A
universal; agent is one authorized to do all acts for his principal
which can lawfully be delegated to an agent. So far as such a
condition is possible, such an agent may be said to have
universal authority. (Mec. Sec. 58).
A general agent is one authorized to do all acts pertaining to a
business of a certain kind or at a particular place, or all acts
pertaining to a business of a particular class or series. He has
usually authority either expressly conferred in general terms
or in effect made general by the usages, customs or nature of
the business which he is authorized to transact.
An agent, therefore, who is empowered to transact all the
business of his principal of a particular kind or in a particular

place, would, for this reason, be ordinarily deemed a general


agent. (Mec Sec. ,30).
A special agent is one authorized to do some particular act or
to act upon some particular occasion. lie acts usually in
accordance with specific instructions or under limitations
necessarily implied from the nature of the act to be done. (Mec.
Sec. 61) (Padilla, Civil Law The Civil Code Annotated, Vol. VI,
1969 Edition, p. 204).
One does not have to undertake a close scrutiny of the document embodying the
agreement between the petitioners and the respondent to deduce that the
'latter was instituted as a general agent. Indeed, it can easily be seen by the way
general words were employed in the agreement that no restrictions were
intended as to the manner the agency was to be carried out or in the place
where it was to be executed. The power granted to the respondent was so broad
that it practically covers the negotiations leading to, and the execution of, a
contract of sale of petitioners' merchandise with any entity or organization.
There is no merit in petitioners' allegations that the contract of agency between
the parties was entered into under fraudulent representation because
respondent "would not disclose the agency with which she was supposed to
transact and made the petitioner believe that she would be dealing with The
Visayas", and that "the petitioner had known of the transactions and/or project
for the said purchase of the Philippine flags by the Department of Education and
Culture and precisely it was the one being followed up also by the petitioner."
If the circumstances were as claimed by the petitioners, they would have
exerted efforts to protect their interests by limiting the respondent's authority.
There was nothing to prevent the petitioners from stating in the contract of
agency that the respondent could represent them only in the Visayas. Or to state
that the Department of Education and Culture and the Department of National
Defense, which alone would need a million pesos worth of flags, are outside the
scope of the agency. As the trial court opined, it is incredible that they could be
so careless after being in the business for fifteen years.
A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised Rules
of Court states that "when the terms of an agreement have been reduced to
writing, it is to be considered as containing all such terms, and, therefore, there
can be between the parties and their successors-in-interest, no evidence of the
terms of the agreement other than the contents of the writing", except in cases
specifically mentioned in the same rule. Petitioners have failed to show that
their agreement falls under any of these exceptions. The respondent was given
ample authority to transact with the Department in behalf of the petitioners.
Equally without merit is the petitioners' proposition that the transaction

involved two separate contracts because there were two purchase orders and
two deliveries. The petitioners' evidence is overcome by other pieces of
evidence proving that there was only one transaction.
The indorsement of then Assistant Executive Secretary Roberto Reyes to the
Budget Commission on September 3, 1974 (Exhibit "C") attests to the fact that
out of the total budget of the Department for the fiscal year 1975,
"P1,000,000.00 is for the purchase of national flags." This is also reflected in the
Financial and Work Plan Request for Allotment (Exhibit "F") submitted by
Secretary Juan Manuel for fiscal year 1975 which however, divided the
allocation and release of the funds into three, corresponding to the second,
third, and fourth quarters of the said year. Later correspondence between the
Department and the Budget Commission (Exhibits "D" and "E") show that the
first allotment of P500.000.00 was released during the second quarter.
However, due to the necessity of furnishing all of the public schools in the
country with the Philippine flag, Secretary Manuel requested for the immediate
release of the programmed allotments intended for the third and fourth
quarters. These circumstances explain why two purchase orders and two
deliveries had to be made on one transaction.
The petitioners' evidence does not necessarily prove that there were two
separate transactions. Exhibit "6" is a general indorsement made by Secretary
Manuel for the purchase of the national flags for public schools. It contains no
reference to the number of flags to be ordered or the amount of funds to be
released. Exhibit "7" is a letter request for a "similar authority" to purchase flags
from the United Flag Industry. This was, however, written by Dr. Narciso
Albarracin who was appointed Acting Secretary of the Department after
Secretary Manuel's tenure, and who may not have known the real nature of the
transaction.
If the contracts were separate and distinct from one another, the whole or at
least a substantial part of the government's supply procurement process would
have been repeated. In this case, what were issued were mere indorsements for
the release of funds and authorization for the next purchase.
Since only one transaction was involved, we deny the petitioners' contention
that respondent Nacianceno is not entitled to the stipulated commission on the
second delivery because of the revocation of the agency effected after the first
delivery. The revocation of agency could not prevent the respondent from
earning her commission because as the trial court opined, it came too late, the
contract of sale having been already perfected and partly executed.
In Macondray & Co. v. Sellner (33 Phil. 370, 377), a case analogous to this one in
principle, this Court held:

We do not mean to question the general doctrine as to the


power of a principal to revoke the authority of his agent at will,
in the absence of a contract fixing the duration of the agency
(subject, however, to some well defined exceptions). Our ruling
is that at the time fixed by the manager of the plaintiff company
for the termination of the negotiations, the defendant real
estate agent had already earned the commissions agreed upon,
and could not be deprived thereof by the arbitrary action of the
plaintiff company in declining to execute the contract of sale
for some reason personal to itself.
The principal cannot deprive his agent of the commission agreed upon by
cancelling the agency and, thereafter, dealing directly with the buyer. (Infante v.
Cunanan, 93 Phil. 691).
The appellate courts citation of its previous ruling in Heimbrod et al. v. Ledesma
(C.A. 49 O.G. 1507) is correct:
The appellee is entitled to recovery. No citation is necessary to
show that the general law of contracts the equitable principle
of estoppel. and the expense of another, uphold payment of
compensation for services rendered.
There is merit, however, in the petitioners' contention that the agent's
commission on the first delivery was fully paid. The evidence does not sustain
the respondent's claim that the petitioners paid her only 5% and that their right
to collect another 25% commission on the first delivery must be upheld.
When respondent Nacianceno asked the Malacanang Complaints and
Investigation Office to help her collect her commission, her statement under
oath referred exclusively to the 30% commission on the second delivery. The
statement was emphatic that "now" her demand was for the 30% commission
on the (second) release of P469,980.00. The demand letter of the respondent's
lawyer dated November 13, 1984 asked petitioner Siasat only for the 30%
commission due from the second delivery. The fact that the respondent
demanded only the commission on the second delivery without reference to the
alleged unpaid balance which was only slightly less than the amount claimed
can only mean that the commission on the first delivery was already fully paid,
Considering the sizeable sum involved, such an omission is too glaringly remiss
to be regarded as an oversight.
Moreover, the respondent's authorization letter (Exhibit "5") bears her
signature with the handwritten words "Fully Paid", inscribed above it.

The respondent contested her signature as a forgery, Handwriting experts from


two government agencies testified on the matter. The reason given by the trial
court in ruling for the respondent is too flimsy to warrant a finding of forgery.
The court stated that in thirteen documents presented as exhibits, the private
respondent signed her name as "Tessie Nacianceno" while in this particular
instance, she signed as "T. Nacianceno."
The stated basis is inadequate to sustain the respondent's allegation of forgery.
A variance in the manner the respondent signed her name can not be
considered as conclusive proof that the questioned signature is a forgery. The
mere fact that the respondent signed thirteen documents using her full name
does not rule out the possibility of her having signed the notation "Fully Paid",
with her initial for the given came and the surname written in full. What she was
signing was a mere acknowledgment.
This leaves the expert testimony as the sole basis for the verdict of forgery.
In support of their allegation of full payment as evidenced by the signed
authorization letter (Exhibit "5-A"), the petitioners presented as witness Mr.
Francisco Cruz. Jr., a senior document examiner of the Philippine Constabulary
Crime laboratory. In rebuttal, the respondent presented Mr. Arcadio Ramos, a
junior document examiner of the National Bureau of Investigation.
While the experts testified in a civil case, the principles in criminal cases
involving forgery are applicable. Forgery cannot be presumed. It must be
proved.
In Borromeo v. Court of Appeals (131 SCRA 318, 326) we held that:
xxx xxx xxx
... Where the evidence, as here, gives rise to two probabilities,
one consistent with the defendant's innocence and another
indicative of his guilt, that which is favorable to the accused
should be considered. The constitutional presumption of
innocence continues until overthrown by proof of guilt beyond
reasonable doubt, which requires moral certainty which
convinces and satisfies the reason and conscience of those who
are to act upon it. (People v. Clores, et al., 125 SCRA 67; People
v. Bautista, 81 Phil. 78).
We ruled in another case that where the supposed expert's testimony would
constitute the sole ground for conviction and there is equally convincing expert

testimony to the contrary, the constitutional presumption of innocence must


prevail. (Lorenzo Ga. Cesar v. Hon. Sandiganbayan and People of the Philippines,
134 SCRA 105). In the present case, the circumstances earlier mentioned taken
with the testimony of the PC senior document examiner lead us to rule against
forgery.
We also rule against the respondent's allegation that the petitioners acted in
bad faith when they revoked the agency given to the respondent.
Fraud and bad faith are matters not to be presumed but matters to be alleged
with sufficient facts. To support a judgment for damages, facts which justify the
inference of a lack or absence of good faith must be alleged and proven.
(Bacolod-Murcia Milling Co., Inc. vs. First Farmers Milling Co., Inc., Etc., 103
SCRA 436).
There is no evidence on record from which to conclude that the revocation of
the agency was deliberately effected by the petitioners to avoid payment of the
respondent's commission. What appears before us is only the petitioner's use in
court of such a factual allegation as a defense against the respondent's claim.
This alone does not per se make the petitioners guilty of bad faith for that
defense should have been fully litigated.
Moral damages cannot be awarded in the absence of a wrongful act or omission
or of fraud or bad faith. (R & B Surety & Insurance Co., Inc. vs. Intermediate
Appellate Court, 129 SCRA 736).
We therefore, rule that the award of P25,000.00 as moral damages is without
basis.
The additional award of P25,000.00 damages by way of attorney's fees, was
given by the courts below on the basis of Article 2208, Paragraph 2, of the Civil
Code, which provides: "When the defendant's act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to protect his
interests;" attorney's fees may be awarded as damages. (Pirovano et al. v. De la
Rama Steamship Co., 96 Phil. 335).
The underlying circumstances of this case lead us to rule out any award of
attorney's fees. For one thing, the respondent did not come to court with
completely clean hands. For another, the petitioners apparently believed they
could legally revoke the agency in the manner they did and deal directly with
education officials handling the purchase of Philippine flags. They had reason to
sincerely believe they did not have to pay a commission for the second delivery
of flags.

We cannot close this case without commenting adversely on the inexplicably


strange procurement policies of the Department of Education and Culture in its
purchase of Philippine flags. There is no reason why a shocking 30% of the
taxpayers' money should go to an agent or facilitator who had no flags to sell
and whose only work was to secure and handcarry the indorsements of
education and budget officials. There are only a few manufacturers of flags in
our country with the petitioners claiming to have supplied flags for our public
schools on earlier occasions. If public bidding was deemed unnecessary, the
Department should have negotiated directly with flag manufacturers.
Considering the sad plight of underpaid and overworked classroom teachers
whose pitiful salaries and allowances cannot sometimes be paid on time, a
P300,000.00 fee for a P1,000,000.00 purchase of flags is not only clearly
unnecessary but a scandalous waste of public funds as well.

WHEREFORE, the decision of the respondent court is hereby MODIFIED. The


petitioners are ordered to pay the respondent the amount of ONE HUNDRED
FOURTY THOUSAND NINE HUNDRED AND NINETY FOUR PESOS (P140,994.00)
as her commission on the second delivery of flags with legal interest from the
date of the trial court's decision. No pronouncement as to costs.
SO ORDERED.










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.

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 cancelled 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. 7 Petitioner 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 possess
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 for 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 are 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:

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

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.

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:

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.

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.

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,

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.







G.R. No. 155236 July 8, 2005


DR. TERESITO V. ORBETA, ENGRACIA O. HONGCUAY, DEOGRACIAS
HONGCUAY, JESUSA VDA. DE ORBETA, CORAZON VDA. DE PINILI,
SEGUNDINA T. ORBETA, ALFRED S. ORBETA, MARY ANN S. ORBETA,
MARILYN S. ORBETA, MAY LOIRDELIT S. ORBETA, ALAN S. ORBETA,
ALNASAR S. ORBETA, SHERWIN O. SISICAN, MARLON T. ORBETA, EDGARDO
ORBETA, MARIA LUISA LOCSIN, SOFIE M. CASTRO, PAZ C. VABSILLERO,
SALVADOR CABALLERO, NICOLAS M. DE CASTRO, MA. CORAZON
MONSERRAT,
and
MANUEL
MONSERRAT,
Petitioners,
vs.
PAUL B. SENDIONG, herein Represented by his ATTORNEY-IN-FACT MAE A.
SENDIONG, Respondent.
D E C I S I O N
Tinga, J.:
The present petition for review under Rule 45 assails a Decision1 of the Third
Division of the Court of Appeals which granted a petition for the annulment of a
judgment rendered by a Dumaguete City Regional Trial Court (RTC). We find
that the appellate court correctly determined the existence of the requisites for
annulment of judgment, and accordingly deny the petition.
The decision sought to be annulled was rendered on 16 April 1998 in Civil Case
No. 10173 by the Dumaguete City RTC Branch 44.2 The facts antecedent to that
case and those pertinent to this petition are culled from the decision of the
Court of Appeals.3
On 24 March 1925, Simeona Montenegro sold to the spouses Maximo Orbeta
and Basilisa Teves ("spouses Orbeta") a portion, comprising of 4,622 square
meters, of a parcel of land designated as Lot 606 of the Cadastral Survey of the
Municipality of Dumaguete ("subject land"), by virtue of a document
denominated Escritura de Compra Venta. The subject land was exclusive of a
884-square meter site occupied by the house of Simeona Montenegros
grandmother which was not included in the sale.
On 25 January 1934, Maximo Orbeta, in turn, sold to the spouses Juan Sendiong
and Exequila Castellanes the subject land, with all the improvements existing
thereon.
On 30 September 1968, upon the instance of the heirs of the spouses Orbeta,
Simeona Montenegro executed in their favor a Deed of Confirmation of Sale and
Quitclaim, acknowledging and ratifying the sale of the subject land to the

spouses Orbeta. On the same day, the said heirs executed an Extra-judicial
Settlement and Partition pertaining to the estate of their mother, Basilisa Teves-
Orbeta, which deed included the latters alleged conjugal share in the subject
land consisting of 2,311 square meters.
In the meantime or on 29 December 1956, the spouses Juan Sendiong and
Exequila Castellanes donated the subject land in favor of Luis Sendiong who
therafter sold the easternmost one-half (1/2) undivided portion thereof to the
spouses Pretzylou Sendiong4 on 9 June 1973. Apparently, Luis Sendiong kept
the other undivided half for himself.
Thereafter, Simeona Montenegro, having apparently lost possession over the
884-square meter portion that was excluded in the 1925 sale, filed a complaint
on 25 May 1972 against Luis Sendiong for recovery of possession of the said
portion, and damages, which was docketed as Civil Case No. 5442 of the Court of
First Instance of Negros Oriental. The heirs of Basilisa Teves-Orbeta, for their
part, filed a complaint-in-intervention dated 26 December 1973, praying for the
recovery of possession of their portion in the subject land comprising of 2,311
square meters. However, during the pendency of this case, the case records
were destroyed in a fire which razed the sala of the RTC hearing the complaint.
Said records were not reconstituted, and it seems the complaint was never
pursued.
On 18 May 1992, the heirs of Simeona Montenegro, as well as the heirs of the
spouses Orbetaherein petitioners ("petitioners")filed before the RTC of
Negros Oriental a complaint against Mr. & Mrs. Benedicto Pajulas, otherwise
known as the spouses Pretzylou Sendiong, for recovery of possession, quieting
of title and damages, with a prayer for the issuance of a writ of preliminary
injunction, docketed as Civil Case No. 10173, entitled "Ma. Luisa C. Locsin, et al.
vs. Mr. and Mrs. Benedicto Pajulas @ "Mr. and Mrs. Pretzylou Sendiong."
Petitioners asserted that Maximo Orbeta, whom they claim as having sold the
subject property to the spouses Juan Sendiong and Exequila Castellanes without
the consent of his wife, could have conveyed only his conjugal share in the
propertywhich comprised of 2,311 square meters or one-half of 4,622 square
meters of the subject land that Simeona Montenegro had actually sold to
spouses Orbeta. The heirs of Simeona Montenegro also reiterated their claim
over the 884-square meter portion that had been excluded in the 1925 sale.
In their Complaint, petitioners prayed that they be declared "absolute co-
owners" of the subject property except for the "2,311.00 SQUARE METERS
conveyed by Maximo Orbeta to Spouses Juan Sendiong and Exequila
Castellanes."
In their Answer, dated 11 September 1992, defendant spouses claimed that in
the 1925 sale, Simeona Montenegro had actually sold Lot 606 in its entirety,

including the aforementioned 884-square meters. Defendant spouses likewise


claimed that since 25 January 1934, they, together with the estate of Luis
Sendiong, had been in peaceful and open possession, in the concept of an owner
and adverse to the whole world, of the entire Lot 606. Pertinently to the present
petition, they further alleged that Lourdes Sendiong and herein respondent,
Paul Sendiong, being the heirs of Luis Sendiong, should be impleaded as party
defendants. Lourdes and Paul Sendiong were children of Luis Sendiong.
On 17 November 1993, defendant spouses filed a motion to dismiss on the
ground of lack of cause of action, in view of the fact that the heirs of Luis
Sendiong have not been impleaded as indispensable parties. In their vigorous
opposition to said motion, petitioners alleged that the heirs of Luis Sendiong are
not indispensable parties as they are not in possession of the subject land which
was the very issue in said case.
In its Order of 17 December 1993, the trial court denied the motion to dismiss.
The trial court, in its Order dated 31 January 1994, also denied the defendant
spouses motion for reconsideration.
On 22 November 1994, the defendant spouses filed a Motion to Include
Indispensable Parties, dated 21 November 1994, which was opposed again by
petitioners. In its Order, dated 13 March 1995, the trial court denied the
aforesaid motion.
After petitioners had rested their case, defendant spouses again filed a Motion to
Include Indispensable Parties, which was opposed likewise by petitioners. In
support of their motion, defendant-spouses submitted a position paper on 5
June 1997. On 3 December 1997, the trial court denied said motion for lack of
merit and trial ensued.
On 16 April 1998, the trial court rendered the decision that was eventually
annulled by the Court of Appeals. The trial court found that what Simeona
Montenegro had actually sold in 1935 was the subject land, which did not
include the 884-square meter portion claimed by her heirs. Accordingly, it
recognized the absolute ownership of the Montenegro heirs over the said
portion. The trial court also found that the spouses Juan Sendiong and Exequila
Castellanes could have only acquired ownership over the conjugal share of
Maximo Orbeta in the subject land considering that the latter had sold the same
in 1934 without the consent of his spouse, Basilia Teves-Orbeta. The trial court
also declared null and void the sale made by Maximo Orbeta with respect to the
conjugal share of his spouse, and ordered the spouses Pretzylou and Genosa
Sendiong to restore to petitioners the title to and possession of their respective
shares in the subject land.

Pretzylou and Genosa Sendiong5 sought to appeal the decision by filing a Notice
of Appeal, but the same was denied by the RTC on the ground that the certificate
of non forum-shopping was signed by counsel and not by the Sendiongs
themselves. The disallowance of the Notice of Appeal was challenged before the
Court of Appeals in a Petition for Certiorari, docketed as C.A.-G.R. SP No. 48943,
but the petition was denied by the Court of Appeals Fourth Division in a Decision
dated 30 June 2000.6 A motion for the reconsideration of the Decision was
denied in a Resolution dated 8 January 2001.7 The appeal not having been given
due course, the decision in Civil Case No. 10173 lapsed into finality.
On 28 August 2000, respondent, represented by his attorney-in-fact and
daughter Mae A. Sendiong, filed a Petition for Annulment of Decision with a
Prayer for a Temporary Restraining Order and Writ of Preliminary Injunction
with the Court of Appeals, in respect to the decision in Civil Case No. 10173.
Respondent, as petitioner therein, alleged having learned of the decision sought
to be annulled only in 1999, as he was not made a party thereto. Asserting his
right to the property as an heir of Luis Sendiong, respondent noted that the
petitioners did not implead him as a defendant in Civil Case No. 10173, and that
the trial court had refused to implead him as an indispensable party despite
repeated motions to that effect by the defendants in the civil case. Private
respondent argued that the decision in Civil Case No. 10173 encroached on the
hereditary rights of himself and Lourdes Sendiong without having "even given
the elementary courtesy of due process."8 On the premise that he and Lourdes
Sendiong were indispensable parties in Civil Case No. 10173 but not made
parties thereto, respondent invoked Rule 3, Section 7 of the Rules of Civil
Procedure and jurisprudence in positing that the RTC decision was null and
void.9
Before the Court of Appeals, petitioners argued that the petition for annulment
of judgment was fatally infirm as the certification on non-forum shopping was
signed by the attorney-in-fact by virtue of a General Power of Attorney.
Petitioners also alleged that the rule on res judicata should apply considering
that the issue on whether respondent is an indispensable party had already
been passed upon by the Court of Appeals in the decision in C.A.-G.R. SP No.
48943, the petition for certiorari filed by Pretzylou and Genosa Sendiong.
In its Decision dated 20 May 2002, the Court of Appeals granted the petition for
annulment of judgment and nullified the decision in Civil Case No. 10173. It
ruled that respondent and Lourdes Sendiong were indeed indispensable parties
in Civil Case No. 10173, considering that the complaint had prayed that
petitioners be declared as absolute co-owners of the subject property.
Moreover, petitioners had challenged the validity of the donation of the subject
property to Luis Sendiong, predecessor-in-interest of respondent, and
accordingly, any judgment regarding petitioners claims would affect
respondents interests in the subject land. Citing jurisprudence, the appellate

court ruled that the absence of an indispensable party in a case renders


ineffectual all the proceedings subsequent to the filing of the complaint,
including the judgment,10 and that all subsequent actuations of the court are
null and void for want of authority to act, not only as to the absent parties, but
even as to those present.11
The Court of Appeals also ruled that the petition for annulment of judgment was
barred neither by estoppel, laches, res judicata nor forum-shopping, contrary to
the stance of petitioners.12
Before this Court, petitioners impute several errors on the part of the Court of
Appeals in having given cognizance to the petition for annulment of judgment.
They cite the failure of the caption of the petition to state the docket case
number in the lower court in contravention of Supreme Court Administrative
Circular No. 28-91 (A.C. No. 28-91), the "double violations (sic) of the Anti-
Forum (sic) Shopping Rule" premised on the signature of the certification of
non-forum shopping having been affixed by attorney-in-fact Mae Sendiong only,
and at that only on the basis of a mere General Power of Attorney, as well as on
the failure to state in the certification that the matter had already been
ventilated before the Court of Appeals in C.A.- G.R. SP No. 48943. Petitioners
argue that the petition for annulment is barred by res judicata, as the issue on
the "alleged indispensability of Paul Sendiong as party defendant before the
Lower Court in Civil Case No. 10173" and the issue of validity of the decision
having been passed upon by the Court of Appeals in C.A.-G.R. SP No. 48943.
Petitioners also claim that respondents hereditary rights, interests, and
participation in the subject land would remain undisturbed should the RTC
decision be actually implemented.
The issues have been threshed out, correctly in our view, by the Court of
Appeals. There is hardly need to elaborate why we affirm the appellate courts
ruling.
To be certain, annulment of judgment is not a relief to be granted
indiscriminately by the courts. Annulment of judgment is a recourse equitable
in character, allowed only in exceptional cases as where there is no available or
other adequate remedy.13 Under Section 2, Rule 47 of the 1997 Rules of Civil
Procedure, the only grounds for annulment of judgment are extrinsic fraud and
lack of jurisdiction.14 If the action is based on extrinsic fraud, it must be brought
within four (4) years from discovery, and if based on lack of jurisdiction, before
it is barred by laches or estoppel.15
Respondents petition for annulment is grounded on lack of jurisdiction, owing
to the failure to implead the indispensable parties. The cited ground is ample
basis for annulment of judgment. We have long held that the joinder of all
indispensable parties is a condition sine qua non of

the exercise of judicial power.16 The absence of an indispensable party renders


all subsequent actions of the court null and void for want of authority to act, not
only as to the absent parties but even as to those present.17
It takes no great degree of legal sophistication to realize that respondents Paul
Sendiong and Lourdes Sendiong were indispensable parties to Civil Case No.
10173. Paul and Lourdes Sendiong derived their rights to the subject property
from their father Luis Sendiong, who acquired the property by way of donation
from the spouses Juan Sendiong and Exequila Castellanes, who in turn
purchased the property from Maximo Orbeta in 1934. The central thrust of the
complaint in Civil Case No. 10173 was that Orbeta could have sold only his one-
half conjugal share, which of course is undivided, in the subject land as his wife
did not consent to the sale. Accordingly, the prayer in the complaint was that
petitioners be declared as the absolute co-owners of the subject land, minus
2,311 square meters which they claimed was the maximum which Maximo
Orbeta could have conveyed to Juan Sendiong and Exequila Castellanes. If such
thrust and prayer were to be upheld, as it was by the RTC, then all the
subsequent transmissions of the subject land from 1934 would be affected, and
the rights of ownership acquired by the various successors-in-interest
accordingly diminished. This includes the rights of Paul Sendiong and Lourdes
Sendiong, who derived their hereditary shares in the property from Luis
Sendiong.
As held by the Court of Appeals on this point:
This Court takes notice of the fact that, as can be gleaned from their complaint,
private respondents prayed that they be declared as absolute co-owners of Lot
606, except the 2,311 square meters conveyed by Maximo Orbeta to spouses
Juan Sendiong and Exequila Castellanes. Indeed, private respondents admittedly
recognize petitioners interest over the subject land, being one of the heirs of
Luis Sendiong who acquired the subject land by way of donation from spouses
Juan Sendiong and Exequila Castellanes, who in turn acquired the subject land
from Maximo Orbeta, the original vendee. Considering private respondents
claim that said donation is invalid, in effect, they admit that there is an actual
controversy or cloud in the title or ownership over the subject land. This is
telling proof that a complete adjudication or final determination thereof would
require that petitioner, together with Lourdes Sendiong, be impleaded as
indispensable parties. Any judgment respecting private respondents claim
would, as a matter of course, affect petitioners interests over the subject land.
Petitioner, therefore, as an indispensable party, has the right to assert his title
over the subject land, and prove the same on the basis of evidence that he might
present as against the intertwining and conflicting claims interposed by private
respondents and defendant-spouses.

. . . .
Verily, as an heir of Luis Sendiong, the latter having acquired the subject land
from spouses Juan Sendiong and Exequila Castellanes, petitioners right over his
share in the estate of his deceased father would be adversely affected by the
assailed decision declaring private respondents heirs of Simeona Montenegro
and heirs of spouses Orbeta, as co-owners of the portion of the subject land
consisting of 884 square meters and 2,311 square meters, respectively, which
consequently encroached upon his share as heir of Luis Sendiong as it involves a
question of ownership and not merely of possession.
Needless to state, considering that the complaint was for quieting of title of the
subject land, said heirs of Luis Sendiong should have been impleaded as
indispensable parties for the assailed decision to bind and affect their interests.
In like manner, when an action involves reconveyance of property, owners of
property over which reconveyance is asserted are indispensable parties,
without whom no relief is available and without whom the court can render no
valid judgment and it is the duty of the plaintiffs to implead all the necessary or
indispensable parties for the complete determination of the action as a person
not included as a party to a case cannot be bound by the decision made by a
court.18
Indeed, the Court could not see how or why respondent and Lourdes Sendiong
could not have been impleaded in Civil Case No. 10173 before the RTC. In the
answer filed by the defendants in Civil Case No. 10173, the matter of the
indispensable inclusion of Paul and Lourdes Sendiong was already raised.
Petitioners could have easily amended their complaint to that effect, but they
did not. The RTC could have required the inclusion of Paul and Lourdes
Sendiong as party-defendants, as prayed for by the defendants in Civil Case No.
10173, but it refused to do so. The shared intransigence of petitioners and the
RTC in refusing to implead Paul and Lourdes Sendiong has resulted in the
ignominy of a void decision.
The foregoing premises considered, the Court cannot seriously consider
petitioners contention that respondents hereditary rights, interests and
participation over the subject land would not be adversely affected by their
complaint.
Petitioners allege that the question in Civil Case No. 10173 involves only the
recovery of possession from Pretzylou Sendiong of property which they allege is
rightfully theirs. However, such allegation is belied by the very complaint, which
plainly prays that petitioners be adjudged absolute co-owners of half of the
subject land. Besides, as pointed out by the Court of Appeals, the RTC itself ruled
against the validity of the conveyance by Maximo Orbeta to Juan Sendiong and

Exequila Castellanes of the whole property, a declaration that indubitably


affects the rights of all the successors-in-interests, including respondent.
Now, the matter of whether respondent is otherwise barred from seeking the
annulment of judgment by estoppel, laches, or procedural infirmities.
Neither laches nor estoppel serves as a bar. The petition for annulment alleges
that respondent learned of the existence of Civil Case No. 10173 only in 1999, or
one year after the decision therein had been rendered. Since he was not
impleaded in Civil Case No. 10173, there is no basis to presume that respondent
was aware of the civil case during its pendency before the RTC. Moreover, at the
time respondent according to petitioners learned of the civil case, there was no
pending appeal from the RTC decision therein, the Notice of Appeal having been
earlier denied. Under these circumstances, it would be difficult to discern how
in 1999 respondent could have still participated in Civil Case No. 10173. There
was no pending appeal to speak of which he could have involved himself. Nor
could have he participated in the special civil action for certiorari, an original
action, then pending before the Court of Appeals.
Indeed, a petition for annulment of judgment was, at that point, the only viable
remedy for respondent to avail of,19 and it was utilized only one year after
respondent learned of the existence of Civil Case No. 10173. Laches has been
defined as 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 earliernegligence or omission to assert a right within a reasonable time,
warranting presumption that the party entitled to assert it has abandoned it or
declined to assert it.20 Considering that a petition for annulment of judgment
based on extrinsic fraud may be filed within four (4) years from discovery of the
fraud, a similar petition based on lack of jurisdiction is generally not barred by
laches or estoppel if the petition is filed within one year after petitioner learns
of the questioned decision. This moreover holds true, as in this case, since
respondent is a foreign resident restrained by time and distance to undertake
an immediate and proximate response, such as judicial recourse.
Petitioners argue that the petition for annulment of judgment is barred by res
judicata, "as the issues on the alleged indispensability of Paul Sendiong as
party defendant before the [l]ower [c]ourt in Civil Case No. 10173 and the
validity of the [l]ower [c]ourts Decision thereof [has] already been passed upon
by the Honorable Court of Appeals in its Decision in CA-G.R. SP No. 48943, as
aforestated." The argument as stated by the petitioners is barely
comprehensible, but there is no way the petition for annulment of judgment
could be barred by res judicata.
To begin with, it is the height of sophistry to argue that res judicata would bar a
petition for annulment of judgment whose, as in this case, prior judgment

happens to be that which is sought to be annulled. The petition for annulment of


judgment precisely challenges the validity of the "first judgment," and to adopt
petitioners argument would lead to permanent preclusion of annulment of
judgment as a remedy. Significantly, the reverse is true for the rationale
underlying annulment of judgment is incongruent with the concept of res
judicata. Hence, the action for annulment of judgment precludes the defense of
res judicata. The grounds for annulment of judgment are either lack of
jurisdiction or the presence of extrinsic fraud in the rendition of the judgment
sought to be annulled. On the other hand, among the requisites of res judicata
are jurisdiction on the part of the court rendering the first judgment over the
parties and identity of causes of action between the first and the second
actions.21 Ineluctably, said requisites are absent. The first judgment, in Civil Case
No. 10173, pertains to the merits of the action for recovery of possession,
quieting of title, and recovery of damages, whereas the cause of action in the
petition for annulment relates to the lack of jurisdiction that marred the
rendition of the first judgment.
The element of identity of parties is likewise not present. Respondent was not a
party to either Civil Case No. 10173 or CA-G.R. SP No. 48943.
The judgment in CA-G.R. SP No. 48943 is no bar to the petition for annulment as
well. There is neither identity of parties or identity of causes of action as
between the certiorari petition and the petition for annulment of judgment.
Petitioners claim that "the alleged exclusion of indispensable party Paul
Sendiong . . . had already been ventilated before the [Court of Appeals] in CA-
G.R. SP No. 48943, . . . which was TERSELY DISMISSED per Decision
promulgated on June 30, 2000." The eleven-page Decision of the Court of
Appeals in CA-G.R. SP No. 48943 hardly constitutes a "terse dismissal" except
perhaps in the land of the long-winded, but a perusal of the said Decision reveals
no discussion at all about impleading Paul Sendiong in Civil Case No. 10173.
In fact, the only mention made of respondent in the aforesaid Decision was in
the narration of facts. The adjudication of CA-G.R. SP No. 48943, as expressed in
the Decision, was limited to the propriety of the denial of the Notice of Appeal in
Civil Case No. 10173. The appellate court upheld the denial on the ground that
there was no written explanation as to why the Notice of Appeal was served by
registered mail instead of personal service.22 No other matter was discussed by
the Court of Appeals therein, certainly none on the merits of the Civil Case. In
fact, the Decision ends with the caveat: "This Court is confronted only with the
procedural aspect of the case."23
The remainder of petitioners arguments are similarly without merit.
Petitioners assert that respondent submitted a "false certification" on non-
forum shopping, primarily on the ground that the said certification was signed

not by respondent, but by his daughter, Mae Sendiong, by authority of a General


Power of Attorney, which petitioners claim was not specified for the purpose of
filing the
petition. However, a perusal of the General Power of Attorney shows that Mae
Sendiong is empowered, among others, "to execute, sign, authenticate, and enter
into any and all contracts and agreements for me and in my name with any
person or entity," and "to bring suit, defend and enter into compromises in my
name and stead, in connection with actions brought for or against me, of
whatever nature and kind."24
The signing of the verification and certification of non-forum shopping are
covered under the said provisions of the General Power of Attorney. A special
power of attorney simply refers to a clear mandate specifically authorizing the
performance of a specific power and of express acts subsumed therein,25 and
there is a specific authority given to Mae Sendiong to sign her name in behalf of
Paul Sendiong in contracts and agreements and to institute suits in behalf of her
father. Neither would the fact that the document is captioned "General Power of
Attorney" militate against its construction as granting specific powers to the
agent pertaining to the petition for annulment of judgment she instituted in
behalf of her father. As Justice Paras has noted, a general power of attorney may
include a special power if such special power is mentioned or referred to in the
general power.26
The certification of non-forum shopping in the petition for annulment did not
mention any other pending case or claim, notwithstanding the fact that there
was a pending motion for reconsideration lodged before the Court of
Appeals in CA-G.R. SP No. 48943.27 Yet the Court of Appeals also adequately
discussed, in disputing the claim that respondent had committed forum-
shopping, why there was no identity in rights or causes of action in the petition
for annulment of judgment and in the special civil action for certiorari. Its
conclusion is in concurrence with our earlier discussion on this point in relation
to res judicata. Accordingly, owing to the segregate identity in rights and causes
of action and the fact that respondent was not a party to the certiorari petition,
there was no indubitable need for him to mention CA-G.R. SP No. 48943 in the
certification of non-forum shopping. In fact, there really is no cause to
definitively presume that he was aware of the said case considering that he was
not a party to its antecedent civil case.
We have saved the least tenable of the arguments presented for last. Petitioners
argue that the petition for annulment should have been dismissed outright for
failing to cite the docket number of the case in the lower court,

pursuant to A.C. No. 28-91,28 promulgated as it was to prevent forum-shopping


or multiple filing of petitions and complaints.
This claim relies upon the mother of all technicalities, but one which is not even
supported by A.C. No. 28-91, which provides that "any violation of this Circular
shall be cause for the summary dismissal of the multiple petition or
complaint." In short, dismissal of a petition for violation of A.C. No. 28-91
obtains only if the petition can be considered a multiple petition or complaint,
and not simply because the docket number of the lower court case was not
mentioned in the complaint. Besides, as pointed out by respondent, the docket
number of the lower court case is mentioned in the body of the petition.
And even if A.C. No. 28-91 could be construed as authorizing the dismissal of a
petition for failing to state the docket number of the lower court decision, the
relative weight of all things must be considered, particularly the degree of
distress on respondent due to the deprivation of his property without being
afforded the opportunity to defend his claims. When gauged against the denial
of respondents right to due process of law, the purported "violation" by Paul
Sendiong of A.C. No. 28-91 does not amount to a hill of beans.
WHEREFORE, the Petition is DENIED and the assailed judgment of the Court of
Appeals is AFFIRMED. Costs against petitioners. SO ORDERED.

G.R. No. 171460 July 24, 2007


LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN MERCADO, JR.,
represented by their Attorney-In-Fact, ALFREDO M. PEREZ, Petitioners,
vs.
ALLIED BANKING CORPORATION, Respondent.
D E C I S I O N
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court, filed by petitioners Lillian N. Mercado, Cynthia M.
Fekaris and Julian Mercado, Jr., represented by their Attorney-In-Fact, Alfredo
M. Perez, seeking to reverse and set aside the Decision1 of the Court of Appeals
dated 12 October 2005, and its Resolution2 dated 15 February 2006 in CA-G.R.
CV No. 82636. The Court of Appeals, in its assailed Decision and Resolution,
reversed the Decision3 of the Regional Trial Court (RTC) of Quezon City, Branch
220 dated 23 September 2003, declaring the deeds of real estate mortgage
constituted on TCT No. RT-18206 (106338) null and void. The dispositive
portion of the assailed Court of Appeals Decision thus reads:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new
judgment is hereby entered dismissing the [petitioners] complaint.4
Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime,
owned several pieces of real property situated in different provinces of the
Philippines.
Respondent, on the other hand, is a banking institution duly authorized as such
under the Philippine laws.
On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of
her husband, Julian D. Mercado (Julian) over several pieces of real property
registered under her name, authorizing the latter to perform the following acts:
1. To act in my behalf, to sell, alienate, mortgage, lease and deal
otherwise over the different parcels of land described hereinafter, to
wit:
a) Calapan, Oriental Mindoro Properties covered by Transfer
Certificates of Title Nos. T-53618 - 3,522 Square Meters, T-
46810 3,953 Square Meters, T-53140 177 Square Meters, T-

21403 263 square Meters, T- 46807 39 Square Meters of


the Registry of Deeds of Oriental Mindoro;
b) Susana Heights, Muntinlupa covered by Transfer Certificates
of Title Nos. T-108954 600 Square Meters and RT-106338
805 Square Meters of the Registry of Deeds of Pasig (now
Makati);
c) Personal property 1983 Car with Vehicle Registration No.
R-16381; Model 1983; Make Toyota; Engine No. T- 2464
2. To sign for and in my behalf any act of strict dominion or ownership
any sale, disposition, mortgage, lease or any other transactions
including quit-claims, waiver and relinquishment of rights in and over
the parcels of land situated in General Trias, Cavite, covered by
Transfer Certificates of Title Nos. T-112254 and T-112255 of the
Registry of Deeds of Cavite, in conjunction with his co-owner and in the
person ATTY. AUGUSTO F. DEL ROSARIO;
3. To exercise any or all acts of strict dominion or ownership over the
above-mentioned properties, rights and interest therein. (Emphasis
supplied.)
On the strength of the aforesaid SPA, Julian, on 12 December 1996, obtained a
loan from the respondent in the amount of P3,000,000.00, secured by real
estate mortgage constituted on TCT No. RT-18206 (106338) which covers a
parcel of land with an area of 805 square meters, registered with the Registry of
Deeds of Quezon City (subject property).5
Still using the subject property as security, Julian obtained an additional loan
from the respondent in the sum of P5,000,000.00, evidenced by a Promissory
Note6 he executed on 5 February 1997 as another real estate mortgage (REM).
It appears, however, that there was no property identified in the SPA as TCT No.
RT 18206 (106338) and registered with the Registry of Deeds of Quezon City.
What was identified in the SPA instead was the property covered by TCT No.
RT-106338 registered with the Registry of Deeds of Pasig.
Subsequently, Julian defaulted on the payment of his loan obligations. Thus,
respondent initiated extra-judicial foreclosure proceedings over the subject
property which was subsequently sold at public auction wherein the
respondent was declared as the highest bidder as shown in the Sheriffs
Certificate of Sale dated 15 January 1998.7

On 23 March 1999, petitioners initiated with the RTC an action for the
annulment of REM constituted over the subject property on the ground that the
same was not covered by the SPA and that the said SPA, at the time the loan
obligations were contracted, no longer had force and effect since it was
previously revoked by Perla on 10 March 1993, as evidenced by the Revocation
of SPA signed by the latter.8
Petitioners likewise alleged that together with the copy of the Revocation of
SPA, Perla, in a Letter dated 23 January 1996, notified the Registry of Deeds of
Quezon City that any attempt to mortgage or sell the subject property must be
with her full consent documented in the form of an SPA duly authenticated
before the Philippine Consulate General in New York. 9
In the absence of authority to do so, the REM constituted by Julian over the
subject property was null and void; thus, petitioners likewise prayed that the
subsequent extra-judicial foreclosure proceedings and the auction sale of the
subject property be also nullified.
In its Answer with Compulsory Counterclaim,10 respondent averred that,
contrary to petitioners allegations, the SPA in favor of Julian included the
subject property, covered by one of the titles specified in paragraph 1(b)
thereof, TCT No. RT- 106338 registered with the Registry of Deeds of Pasig
(now Makati). The subject property was purportedly registered previously
under TCT No. T-106338, and was only subsequently reconstituted as TCT RT-
18206 (106338). Moreover, TCT No. T-106338 was actually registered with the
Registry of Deeds of Quezon City and not before the Registry of Deeds of Pasig
(now Makati). Respondent explained that the discrepancy in the designation of
the Registry of Deeds in the SPA was merely an error that must not prevail over
the clear intention of Perla to include the subject property in the said SPA. In
sum, the property referred to in the SPA Perla executed in favor of Julian as
covered by TCT No. 106338 of the Registry of Deeds of Pasig (now Makati) and
the subject property in the case at bar, covered by RT 18206 (106338) of the
Registry of Deeds of Quezon City, are one and the same.
On 23 September 2003, the RTC rendered a Decision declaring the REM
constituted over the subject property null and void, for Julian was not
authorized by the terms of the SPA to mortgage the same. The court a quo
likewise ordered that the foreclosure proceedings and the auction sale
conducted pursuant to the void REM, be nullified. The dispositive portion of the
Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
[herein petitioners] and against the [herein respondent] Bank:

1. Declaring the Real Estate Mortgages constituted and registered


under Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 annotated
on TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City
as NULL and VOID;
2. Declaring the Sheriffs Sale and Certificate of Sale under FRE No. 2217
dated January 15, 1998 over the property covered by TCT No. RT-
18206 (106338) of the Registry of Deeds of Quezon City as NULL and
VOID;
3. Ordering the defendant Registry of Deeds of Quezon City to cancel
the annotation of Real Estate Mortgages appearing on Entry Nos. PE-
4543/RT-18206 and 2012/RT-18206 on TCT No. RT-18206 (106338)
of the Registry of Deeds of Quezon City;
4. Ordering the [respondent] Bank to deliver/return to the [petitioners]
represented by their attorney-in-fact Alfredo M. Perez, the original
Owners Duplicate Copy of TCT No. RT-18206 (106338) free from the
encumbrances referred to above; and
5. Ordering the [respondent] Bank to pay the [petitioners] the amount
of P100,000.00 as for attorneys fees plus cost of the suit.
The other claim for damages and counterclaim are hereby DENIED for lack of
merit.11
Aggrieved, respondent appealed the adverse Decision before the Court of
Appeals.
In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC
Decision and upheld the validity of the REM constituted over the subject
property on the strength of the SPA. The appellate court declared that Perla
intended the subject property to be included in the SPA she executed in favor of
Julian, and that her subsequent revocation of the said SPA, not being contained
in a public instrument, cannot bind third persons.
The Motion for Reconsideration interposed by the petitioners was denied by the
Court of Appeals in its Resolution dated 15 February 2006.
Petitioners are now before us assailing the Decision and Resolution rendered by
the Court of Appeals raising several issues, which are summarized as follows:
I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED
OVER SUBJECT PROPERTY.

II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.


III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN-
GOOD FAITH.
For a mortgage to be valid, Article 2085 of the Civil Code enumerates the
following essential requisites:
Art. 2085. The following requisites are essential to the contracts of pledge and
mortgage:
(1) That they be constituted to secure the fulfillment of a principal
obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing
pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be
legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the
latter by pledging or mortgaging their own property.
In the case at bar, it was Julian who obtained the loan obligations from
respondent which he secured with the mortgage of the subject property. The
property mortgaged was owned by his wife, Perla, considered a third party to
the loan obligations between Julian and respondent. It was, thus, a situation
recognized by the last paragraph of Article 2085 of the Civil Code afore-quoted.
However, since it was not Perla who personally mortgaged her own property to
secure Julians loan obligations with respondent, we proceed to determining if
she duly authorized Julian to do so on her behalf.
Under Article 1878 of the Civil Code, a special power of attorney is necessary in
cases where real rights over immovable property are created or conveyed.12 In
the SPA executed by Perla in favor of Julian on 28 May 1992, the latter was
conferred with the authority to "sell, alienate, mortgage, lease and deal
otherwise" the different pieces of real and personal property registered in
Perlas name. The SPA likewise authorized Julian "[t]o exercise any or all acts of
strict dominion or ownership" over the identified properties, and rights and
interest therein. The existence and due execution of this SPA by Perla was not
denied or challenged by petitioners.

There is no question therefore that Julian was vested with the power to
mortgage the pieces of property identified in the SPA. However, as to whether
the subject property was among those identified in the SPA, so as to render
Julians mortgage of the same valid, is a question we still must resolve.
Petitioners insist that the subject property was not included in the SPA,
considering that it contained an exclusive enumeration of the pieces of property
over which Julian had authority, and these include only: (1) TCT No. T-53618,
with an area of 3,522 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (2) TCT No. T-46810,
with an area of 3,953 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (3) TCT No. T-53140,
with an area of 177 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (4) TCT No. T-21403,
with an area of 263 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (5) TCT No. T-
46807, with an area of 39 square meters, located at Calapan, Oriental Mindoro,
and registered with the Registry of Deeds of Oriental Mindoro; (6) TCT No. T-
108954, with an area of 690 square meters and located at Susana Heights,
Muntinlupa; (7) RT-106338 805 Square Meters registered with the Registry of
Deeds of Pasig (now Makati); and (8) Personal Property consisting of a 1983 Car
with Vehicle Registration No. R-16381, Model 1983, Make Toyota, and
Engine No. T- 2464. Nowhere is it stated in the SPA that Julians authority
extends to the subject property covered by TCT No. RT 18206 (106338)
registered with the Registry of Deeds of Quezon City. Consequently, the act of
Julian of constituting a mortgage over the subject property is unenforceable for
having been done without authority.
Respondent, on the other hand, mainly hinges its argument on the declarations
made by the Court of Appeals that there was no property covered by TCT No.
106338 registered with the Registry of Deeds of Pasig (now Makati); but there
exists a property, the subject property herein, covered by TCT No. RT-18206
(106338) registered with the Registry of Deeds of Quezon City. Further
verification would reveal that TCT No. RT-18206 is merely a reconstitution of
TCT No. 106338, and the property covered by both certificates of title is actually
situated in Quezon City and not Pasig. From the foregoing circumstances,
respondent argues that Perla intended to include the subject property in the
SPA, and the failure of the instrument to reflect the recent TCT Number or the
exact designation of the Registry of Deeds, should not defeat Perlas clear
intention.
After an examination of the literal terms of the SPA, we find that the subject
property was not among those enumerated therein. There is no obvious
reference to the subject property covered by TCT No. RT-18206 (106338)
registered with the Registry of Deeds of Quezon City.

There was also nothing in the language of the SPA from which we could deduce
the intention of Perla to include the subject property therein. We cannot
attribute such alleged intention to Perla who executed the SPA when the
language of the instrument is bare of any indication suggestive of such
intention. Contrariwise, to adopt the intent theory advanced by the respondent,
in the absence of clear and convincing evidence to that effect, would run afoul of
the express tenor of the SPA and thus defeat Perlas true intention.
In cases where the terms of the contract are clear as to leave no room for
interpretation, resort to circumstantial evidence to ascertain the true intent of
the parties, is not countenanced. As aptly stated in the case of JMA House,
Incorporated v. Sta. Monica Industrial and Development Corporation,13 thus:
[T]he law is that if the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulation shall
control. When the language of the contract is explicit, leaving no doubt as to the
intention of the drafters, the courts may not read into it [in] any other intention
that would contradict its main import. The clear terms of the contract should
never be the subject matter of interpretation. Neither abstract justice nor the
rule on liberal interpretation justifies the creation of a contract for the parties
which they did not make themselves or the imposition upon one party to a
contract or obligation not assumed simply or merely to avoid seeming
hardships. The true meaning must be enforced, as it is to be presumed that the
contracting parties know their scope and effects.14
Equally relevant is the rule that a power of attorney must be strictly construed
and pursued. The instrument will be held to grant only those powers which are
specified therein, and the agent may neither go beyond nor deviate from the
power of attorney.15 Where powers and duties are specified and defined in an
instrument, all such powers and duties are limited and are confined to those
which are specified and defined, and all other powers and duties are excluded.16
This is but in accord with the disinclination of courts to enlarge the authority
granted beyond the powers expressly given and those which incidentally flow
or derive therefrom as being usual and reasonably necessary and proper for the
performance of such express powers.17
Even the commentaries of renowned Civilist Manresa18 supports a strict and
limited construction of the terms of a power of attorney:
The law, which must look after the interests of all, cannot permit a man to
express himself in a vague and general way with reference to the right he
confers upon another for the purpose of alienation or hypothecation, whereby
he might be despoiled of all he possessed and be brought to ruin, such excessive
authority must be set down in the most formal and explicit terms, and when this

is not done, the law reasonably presumes that the principal did not mean to
confer it.
In this case, we are not convinced that the property covered by TCT No. 106338
registered with the Registry of Deeds of Pasig (now Makati) is the same as the
subject property covered by TCT No. RT-18206 (106338) registered with the
Registry of Deeds of Quezon City. The records of the case are stripped of
supporting proofs to verify the respondents claim that the two titles cover the
same property. It failed to present any certification from the Registries of Deeds
concerned to support its assertion. Neither did respondent take the effort of
submitting and making part of the records of this case copies of TCTs No. RT-
106338 of the Registry of Deeds of Pasig (now Makati) and RT-18206 (106338)
of the Registry of Deeds of Quezon City, and closely comparing the technical
descriptions of the properties covered by the said TCTs. The bare and sweeping
statement of respondent that the properties covered by the two certificates of
title are one and the same contains nothing but empty imputation of a fact that
could hardly be given any evidentiary weight by this Court.
Having arrived at the conclusion that Julian was not conferred by Perla with the
authority to mortgage the subject property under the terms of the SPA, the real
estate mortgages Julian executed over the said property are therefore
unenforceable.
Assuming arguendo that the subject property was indeed included in the SPA
executed by Perla in favor of Julian, the said SPA was revoked by virtue of a
public instrument executed by Perla on 10 March 1993. To address
respondents assertion that the said revocation was unenforceable against it as
a third party to the SPA and as one who relied on the same in good faith, we
quote with approval the following ruling of the RTC on this matter:
Moreover, an agency is extinguished, among others, by its revocation (Article
1999, New Civil Code of the Philippines). The principal may revoke the agency at
will, and compel the agent to return the document evidencing the agency. Such
revocation may be express or implied (Article 1920, supra).
In this case, the revocation of the agency or Special Power of Attorney is
expressed and by a public document executed on March 10, 1993.
The Register of Deeds of Quezon City was even notified that any attempt to
mortgage or sell the property covered by TCT No. [RT-18206] 106338 located at
No. 21 Hillside Drive, Blue Ridge, Quezon City must have the full consent
documented in the form of a special power of attorney duly authenticated at the
Philippine Consulate General, New York City, N.Y., U.S.A.

The non-annotation of the revocation of the Special Power of Attorney on TCT


No. RT-18206 is of no consequence as far as the revocations existence and legal
effect is concerned since actual notice is always superior to constructive notice.
The actual notice of the revocation relayed to defendant Registry of Deeds of
Quezon City is not denied by either the Registry of Deeds of Quezon City or the
defendant Bank. In which case, there appears no reason why Section 52 of the
Property Registration Decree (P.D. No. 1529) should not apply to the situation.
Said Section 52 of P.D. No. 1529 provides:
"Section 52. Constructive notice upon registration. Every conveyance,
mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting
registered land shall, if registered, filed or entered in the Office of the Register of
Deeds for the province or city where the land to which it relates lies, be
constructive notice to all persons from the time of such registering, filing or
entering. (Pres. Decree No. 1529, Section 53) (emphasis ours)
It thus developed that at the time the first loan transaction with defendant Bank
was effected on December 12, 1996, there was on record at the Office of the
Register of Deeds of Quezon City that the special power of attorney granted
Julian, Sr. by Perla had been revoked. That notice, works as constructive notice
to third parties of its being filed, effectively rendering Julian, Sr. without
authority to act for and in behalf of Perla as of the date the revocation letter was
received by the Register of Deeds of Quezon City on February 7, 1996.19
Given that Perla revoked the SPA as early as 10 March 1993, and that she
informed the Registry of Deeds of Quezon City of such revocation in a letter
dated 23 January 1996 and received by the latter on 7 February 1996, then
third parties to the SPA are constructively notified that the same had been
revoked and Julian no longer had any authority to mortgage the subject
property. Although the revocation may not be annotated on TCT No. RT-18206
(106338), as the RTC pointed out, neither the Registry of Deeds of Quezon City
nor respondent denied that Perlas 23 January 1996 letter was received by and
filed with the Registry of Deeds of Quezon City. Respondent would have
undoubtedly come across said letter if it indeed diligently investigated the
subject property and the circumstances surrounding its mortgage.
The final issue to be threshed out by this Court is whether the respondent is a
mortgagee-in-good faith. Respondent fervently asserts that it exercised
reasonable diligence required of a prudent man in dealing with the subject
property.
Elaborating, respondent claims to have carefully verified Julians authority over
the subject property which was validly contained in the SPA. It stresses that the
SPA was annotated at the back of the TCT of the subject property. Finally, after
conducting an investigation, it found that the property covered by TCT No.

106338, registered with the Registry of Deeds of Pasig (now Makati) referred to
in the SPA, and the subject property, covered by TCT No. 18206 (106338)
registered with the Registry of Deeds of Quezon City, are one and the same
property. From the foregoing, respondent concluded that Julian was indeed
authorized to constitute a mortgage over the subject property.
We are unconvinced. The property listed in the real estate mortgages Julian
executed in favor of PNB is the one covered by "TCT#RT-18206(106338)." On
the other hand, the Special Power of Attorney referred to TCT No. "RT-106338
805 Square Meters of the Registry of Deeds of Pasig now Makati." The palpable
difference between the TCT numbers referred to in the real estate mortgages
and Julians SPA, coupled with the fact that the said TCTs are registered in the
Registries of Deeds of different cities, should have put respondent on guard.
Respondents claim of prudence is debunked by the fact that it had conveniently
or otherwise overlooked the inconsistent details appearing on the face of the
documents, which it was relying on for its rights as mortgagee, and which
significantly affected the identification of the property being mortgaged. In
Arrofo v. Quio,20 we have elucidated that:
[Settled is the rule that] a person dealing with registered lands [is not required]
to inquire further than what the Torrens title on its face indicates. This rule,
however, is not absolute but admits of exceptions. Thus, while its is true, x x x
that a person dealing with registered lands need not go beyond the
certificate of title, it is likewise a well-settled rule that a purchaser or
mortgagee cannot close his eyes to facts which should put a reasonable
man on his guard, and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor or mortgagor. His
mere refusal to face up the fact that such defect exists, or his willful closing of
his eyes to the possibility of the existence of a defect in the vendors or
mortgagors title, will not make him an innocent purchaser for value, if it
afterwards develops that the title was in fact defective, and it appears that he
had such notice of the defect as would have led to its discovery had he acted
with the measure of precaution which may be required of a prudent man in a
like situation.
By putting blinders on its eyes, and by refusing to see the patent defect in the
scope of Julians authority, easily discernable from the plain terms of the SPA,
respondent cannot now claim to be an innocent mortgagee.
Further, in the case of Abad v. Guimba,21 we laid down the principle that where
the mortgagee does not directly deal with the registered owner of real property,
the law requires that a higher degree of prudence be exercised by the
mortgagee, thus:

While [the] one who buys from the registered owner does not need to look
behind the certificate of title, one who buys from [the] one who is not [the]
registered owner is expected to examine not only the certificate of title but all
factual circumstances necessary for [one] to determine if there are any flaws in
the title of the transferor, or in [the] capacity to transfer the land. Although the
instant case does not involve a sale but only a mortgage, the same rule applies
inasmuch as the law itself includes a mortgagee in the term "purchaser."22
This principle is applied more strenuously when the mortgagee is a bank or a
banking institution. Thus, in the case of Cruz v. Bancom Finance Corporation,23
we ruled:
Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As
such, unlike private individuals, it is expected to exercise greater care and
prudence in its dealings, including those involving registered lands. A banking
institution is expected to exercise due diligence before entering into a mortgage
contract. The ascertainment of the status or condition of a property offered to it
as security for a loan must be a standard and indispensable part of its
operations.24
Hence, considering that the property being mortgaged by Julian was not his, and
there are additional doubts or suspicions as to the real identity of the same, the
respondent bank should have proceeded with its transactions with Julian only
with utmost caution. As a bank, respondent must subject all its transactions to
the most rigid scrutiny, since its business is impressed with public interest and
its fiduciary character requires high standards of integrity and performance.25
Where respondent acted in undue haste in granting the mortgage loans in favor
of Julian and disregarding the apparent defects in the latters authority as agent,
it failed to discharge the degree of diligence required of it as a banking
corporation.1awphil
Thus, even granting for the sake of argument that the subject property and the
one identified in the SPA are one and the same, it would not elevate
respondents status to that of an innocent mortgagee. As a banking institution,
jurisprudence stringently requires that respondent should take more
precautions than an ordinary prudent man should, to ascertain the status and
condition of the properties offered as collateral and to verify the scope of the
authority of the agents dealing with these. Had respondent acted with the
required degree of diligence, it could have acquired knowledge of the letter
dated 23 January 1996 sent by Perla to the Registry of Deeds of Quezon City
which recorded the same. The failure of the respondent to investigate into the
circumstances surrounding the mortgage of the subject property belies its
contention of good faith.

On a last note, we find that the real estate mortgages constituted over the
subject property are unenforceable and not null and void, as ruled by the RTC. It
is best to reiterate that the said mortgage was entered into by Julian on behalf of
Perla without the latters authority and consequently, unenforceable under
Article 1403(1) of the Civil Code. Unenforceable contracts are those which
cannot be enforced by a proper action in court, unless they are ratified, because
either they are entered into without or in excess of authority or they do not
comply with the statute of frauds or both of the contracting parties do not
possess the required legal capacity.26 An unenforceable contract may be ratified,
expressly or impliedly, by the person in whose behalf it has been executed,
before it is revoked by the other contracting party.27 Without Perlas ratification
of the same, the real estate mortgages constituted by Julian over the subject
property cannot be enforced by any action in court against Perla and/or her
successors in interest.
In sum, we rule that the contracts of real estate mortgage constituted over the
subject property covered by TCT No. RT 18206 (106338) registered with the
Registry of Deeds of Quezon City are unenforceable. Consequently, the
foreclosure proceedings and the auction sale of the subject property conducted
in pursuance of these unenforceable contracts are null and void. This, however,
is without prejudice to the right of the respondent to proceed against Julian, in
his personal capacity, for the amount of the loans.
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED.
The Decision dated 12 October 2005 and its Resolution dated 15 February 2006
rendered by the Court of Appeals in CA-G.R. CV No. 82636, are hereby
REVERSED. The Decision dated 23 September 2003 of the Regional Trial Court
of Quezon City, Branch 220, in Civil Case No. Q-99-37145, is hereby
REINSTATED and AFFIRMED with modification that the real estate mortgages
constituted over TCT No. RT 18206 (106338) are not null and void but
UNENFORCEABLE. No costs.
SO ORDERED.




G.R. No. 150128 August 31, 2006


LAUREANO
T.
ANGELES,
Petitioner,
vs.
PHILIPPINE NATIONAL RAILWAYS (PNR) AND RODOLFO FLORES,
1Respondents.

For this reason, I have given her the original copy of the award, dated May 5,
1980 and O.R. No. 8706855 dated May 20, 1980 which will indicate my waiver
of rights, interests and participation in favor of LIZETTE R. WIJANCO.
Thank you for your cooperation.
Very truly yours,

D E C I S I O N
(Sgd.) Gaudencio Romualdez
GARCIA, J.:
Under consideration is this petition for review under Rule 45 of the Rules of
Court assailing and seeking to set aside the following issuances of the Court of
Appeals (CA) in CA-G.R. CV No. 54062, to wit:
1. Decision 2 dated June 4, 2001, affirming an earlier decision of the Regional
Trial Court (RTC) of Quezon City, Branch 79, which dismissed the complaint for
specific performance and damages thereat commenced by the petitioner against
the herein respondents; and
2. Resolution 3 dated September 17, 2001, denying the petitioner's motion for
reconsideration.
The facts:
On May 5, 1980, the respondent Philippine National Railways (PNR) informed a
certain Gaudencio Romualdez (Romualdez, hereinafter) that it has accepted the
latters offer to buy, on an "AS IS, WHERE IS" basis, the PNRs
scrap/unserviceable rails located in Del Carmen and Lubao, Pampanga at
P1,300.00 and P2,100.00 per metric ton, respectively, for the total amount of
P96,600.00. After paying the stated purchase price, Romualdez addressed a
letter to Atty. Cipriano Dizon, PNRs Acting Purchasing Agent. Bearing date May
26, 1980, the letter reads:
Dear Atty. Dizon:
This is to inform you as President of San Juanico Enterprises, that I have
authorized the bearer, LIZETTE R. WIJANCO of No. 1606 Aragon St., Sta. Cruz,
Manila, to be my lawful representative in the withdrawal of the
scrap/unserviceable rails awarded to me.

The Lizette R. Wijanco mentioned in the letter was Lizette Wijanco- Angeles,
petitioner's now deceased wife. That very same day May 26, 1980 Lizette
requested the PNR to transfer the location of withdrawal for the reason that the
scrap/unserviceable rails located in Del Carmen and Lubao, Pampanga were not
ready for hauling. The PNR granted said request and allowed Lizette to
withdraw scrap/unserviceable rails in Murcia, Capas and San Miguel, Tarlac
instead. However, the PNR subsequently suspended the withdrawal in view of
what it considered as documentary discrepancies coupled by reported
pilferages of over P500,000.00 worth of PNR scrap properties in Tarlac.
Consequently, the spouses Angeles demanded the refund of the amount of
P96,000.00. The PNR, however, refused to pay, alleging that as per delivery
receipt duly signed by Lizette, 54.658 metric tons of unserviceable rails had
already been withdrawn which, at P2,100.00 per metric ton, were worth
P114,781.80, an amount that exceeds the claim for refund.
On August 10, 1988, the spouses Angeles filed suit against the PNR and its
corporate secretary, Rodolfo Flores, among others, for specific performance and
damages before the Regional Trial Court of Quezon City. In it, they prayed that
PNR be directed to deliver 46 metric tons of scrap/unserviceable rails and to
pay them damages and attorney's fees.
Issues having been joined following the filing by PNR, et al., of their answer, trial
ensued. Meanwhile, Lizette W. Angeles passed away and was substituted by her
heirs, among whom is her husband, herein petitioner Laureno T. Angeles.
On April 16, 1996, the trial court, on the postulate that the spouses Angeles are
not the real parties-in-interest, rendered judgment dismissing their complaint
for lack of cause of action. As held by the court, Lizette was merely a
representative of Romualdez in the withdrawal of scrap or unserviceable rails
awarded to him and not an assignee to the latter's rights with respect to the
award.

Aggrieved, the petitioner interposed an appeal with the CA, which, as stated at
the threshold hereof, in its decision of June 4, 2001, dismissed the appeal and
affirmed that of the trial court. The affirmatory decision was reiterated by the
CA in its resolution of September 17, 2001, denying the petitioners motion for
reconsideration.
Hence, the petitioners present recourse on the submission that the CA erred in
affirming the trial court's holding that petitioner and his spouse, as plaintiffs a
quo, had no cause of action as they were not the real parties-in-interest in this
case.

This is to inform you as President of San Juanico Enterprises, that I have


authorized the bearer, LIZETTE R. WIJANCO x x x to be my lawful
representative in the withdrawal of the scrap/unserviceable rails
awarded to me.
For this reason, I have given her the original copy of the award, dated May 5,
1980 and O.R. No. 8706855 dated May 20, 1980 which will indicate my waiver
of rights, interests and participation in favor of LIZETTE R. WIJANCO. (Emphasis
added)

We DENY the petition.

If Lizette was without legal standing to sue and appear in this case, there is
more reason to hold that her petitioner husband, either as her conjugal partner
or her heir, is also without such standing.

At the crux of the issue is the matter of how the aforequoted May 26, 1980 letter
of Romualdez to Atty. Dizon of the PNR should be taken: was it meant to
designate, or has it the effect of designating, Lizette W. Angeles as a mere agent
or as an assignee of his (Romualdez's) interest in the scrap rails awarded to San
Juanico Enterprises? The CAs conclusion, affirmatory of that of the trial court, is
that Lizette was not an assignee, but merely an agent whose authority was
limited to the withdrawal of the scrap rails, hence, without personality to sue.

Petitioner makes much of the fact that the terms "agent" or "attorney-in-fact"
were not used in the Romualdez letter aforestated. It bears to stress, however,
that the words "principal" and "agent," are not the only terms used to designate
the parties in an agency relation. The agent may also be called an attorney,
proxy, delegate or, as here, representative.

Where agency exists, the third party's (in this case, PNR's) liability on a contract
is to the principal and not to the agent and the relationship of the third party to
the principal is the same as that in a contract in which there is no agent.
Normally, the agent has neither rights nor liabilities as against the third party.
He cannot thus sue or be sued on the contract. Since a contract may be violated
only by the parties thereto as against each other, the real party-in-interest,
either as plaintiff or defendant in an action upon that contract must, generally,
be a contracting party.
The legal situation is, however, different where an agent is constituted as an
assignee. In such a case, the agent may, in his own behalf, sue on a contract
made for his principal, as an assignee of such contract. The rule
requiring every action to be prosecuted in the name of the real party-in-interest
recognizes the assignment of rights of action and also recognizes
that when one has a right assigned to him, he is then the real party-in-interest
and may maintain an action upon such claim or right. 4
Upon scrutiny of the subject Romualdez's letter to Atty. Cipriano Dizon dated
May 26, 1980, it is at once apparent that Lizette was to act just as a
"representative" of Romualdez in the "withdrawal of rails," and not an assignee.
For perspective, we reproduce the contents of said letter:

It cannot be over emphasized that Romualdez's use of the active verb


"authorized," instead of "assigned," indicated an intent on his part to keep and
retain his interest in the subject matter. Stated a bit differently, he intended to
limit Lizettes role in the scrap transaction to being the representative of his
interest therein.
Petitioner submits that the second paragraph of the Romualdez letter, stating -
"I have given [Lizette] the original copy of the award x x x which will indicate
my waiver of rights, interests and participation in favor of Lizette R. Wijanco" -
clarifies that Lizette was intended to be an assignee, and not a mere agent.
We are not persuaded. As it were, the petitioner conveniently omitted an
important phrase preceding the paragraph which would have put the whole
matter in context. The phrase is "For this reason," and the antecedent thereof is
his (Romualdez) having appointed Lizette as his representative in the matter of
the withdrawal of the scrap items. In fine, the key phrase clearly conveys the
idea that Lizette was given the original copy of the contract award to enable her
to withdraw the rails as Romualdezs authorized representative.
Article 1374 of the Civil Code provides that the various stipulations of a contract
shall be read and interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly. In fine, the real intention
of the parties is primarily to be determined from the language used and
gathered from the whole instrument. When put into the context of the letter as a

whole, it is abundantly clear that the rights which Romualdez waived or ceded
in favor of Lizette were those in furtherance of the agency relation that he had
established for the withdrawal of the rails.
At any rate, any doubt as to the intent of Romualdez generated by the way his
letter was couched could be clarified by the acts of the main players themselves.
Article 1371 of the Civil Code provides that to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall be
principally considered. In other words, in case of doubt, resort may be made to
the situation, surroundings, and relations of the parties.

Except as may be required by statute, a power of attorney is valid although no


notary public intervened in its execution. 9
A power of attorney must be strictly construed and pursued. The instrument
will be held to grant only those powers which are specified therein, and the
agent may neither go beyond nor deviate from the power of attorney. 10
Contextually, all that Lizette was authorized to do was to withdraw the
unserviceable/scrap railings. Allowing her authority to sue therefor, especially
in her own name, would be to read something not intended, let alone written in
the Romualdez letter.

The fact of agency was, as the trial court aptly observed, 5 confirmed in
subsequent letters from the Angeles spouses in which they themselves refer to
Lizette as "authorized representative" of San Juanico Enterprises. Mention may
also be made that the withdrawal receipt which Lizette had signed indicated
that she was doing so in a representative capacity. One professing to act as
agent for another is estopped to deny his agency both as against his asserted
principal and third persons interested in the transaction which he engaged in.

Finally, the petitioner's claim that Lizette paid the amount of P96,000.00 to the
PNR appears to be a mere afterthought; it ought to be dismissed outright under
the estoppel principle. In earlier proceedings, petitioner himself admitted in his
complaint that it was Romualdez who paid this amount.

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. The appellate court, and
before it, the trial court, had peremptorily determined that Lizette, with respect
to the withdrawal of the scrap in question, was acting for Romualdez. And with
the view we take of this case, there were substantial pieces of evidence adduced
to support this determination. The desired reversal urged by the petitioner
cannot, accordingly, be granted. For, factual findings of the trial court, adopted
and confirmed by the CA, are, as a rule, final and conclusive and may not be
disturbed on appeal. 6 So it must be here.

Costs against the petitioner.

Petitioner maintains that the Romualdez letter in question was not in the form
of a special power of attorney, implying that the latter had not intended to
merely authorize his wife, Lizette, to perform an act for him (Romualdez). The
contention is specious. In the absence of statute, no form or method of execution
is required for a valid power of attorney; it may be in any form clearly showing
on its face the agents authority. 7
A power of attorney is only but an instrument in writing by which a person, as
principal, appoints another as his agent and confers upon him the authority to
perform certain specified acts on behalf of the principal. The written
authorization itself is the power of attorney, and this is clearly indicated by the
fact that it has also been called a "letter of attorney." Its primary purpose is not
to define the authority of the agent as between himself and his principal but to
evidence the authority of the agent to third parties with whom the agent deals. 8
The letter under consideration is sufficient to constitute a power of attorney.

WHEREFORE, the petition is DENIED and the assailed decision of the CA is


AFFIRMED.

SO ORDERED.









G.R. No. 148775 January 13, 2004


SHOPPERS PARADISE REALTY & DEVELOPMENT CORPORATION,
petitioner,
vs.
EFREN P. ROQUE, respondent.
D E C I S I O N
VITUG, J.:
On 23 December 1993, petitioner Shoppers Paradise Realty & Development
Corporation, represented by 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.
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 leased
contract with defendant corporation, plaintiff Efren Roque (could) no
longer assert the unregistered deed of donation and say that his father,
Felipe, was no longer 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. 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?

"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 development project?

"A. Biglang-awa did it for us.

"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.

"A. No, because I was doing certain things. We were a team and so
Biglang-awa did it for us.

"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 word: "Yang mga
yan pupunta sa mga anak. Yong kay Ruben pupunta kay Ruben. Yong kay
Efren palibhasa nasa America sya, nasa pangalan pa ni Dr. Felipe C.
Roque."
"x x x x x x x x x
"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.

"Q. But you yourself did not?

"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 therefore, and he is not required to go beyond the
certificate to determine the condition of the property7 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.1awphil.ne+
The Court cannot accept petitioners 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 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 property.
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 Court of Appeals
declaring the contract of lease and memorandum of agreement entered into
between Dr. Felipe C. Roque and Shoppers Paradise Realty & Development
Corporation not to be binding on respondent is AFFIRMED. No costs.
SO ORDERED.





G.R. No. 200468 March 19, 2014


MACARIA ARGUELLES and the HEIRS OF THE DECEASED PETRONIO
ARGUELLES,
Petitioners,
vs.
MALARAYAT RURAL BANK, INC., Respondent.
D E C I S I O N
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari assailing the Decision1 dated
December 19, 2011 and Resolution2 dated February 6, 2012 of the Court of
Appeals (CA) in CA-G.R . CV No. 92555. The CA had reversed and set aside the
July 29, 2008 Decision3 of the Regional Trial Court (RTC) Branch 86, of Taal,
Batangas, in Civil Case No. 66.
The facts, as culled from the records, follow:
The late Fermina M. Guia was the registered owner of Lot 3, a parcel of
agricultural land in Barrio Pinagkurusan, Alitagtag, Batangas, with an area of
4,560 square meters, as evidenced by Original Certificate of Title (OCT) No. P-
129304 of the Register of Deeds of Batangas. On December 1, 1990, Fermina M.
Guia sold the south portion of the land with an approximate area of 1,350
square meters to the spouses Petronio and Macaria Arguelles.5 Although the
spouses Arguelles immediately acquired possession of the land, the Deed of Sale
was neither registered with the Register of Deeds nor annotated on OCT No. P-
12930. At the same time, Fermina M. Guia ordered her son Eddie Guia and the
latter's wife Teresita Guia to subdivide the land covered by OCT No. P-12930
into three lots and to apply for the issuance of separate titles therefor, to wit:
Lot 3-A, Lot 3-B, and Lot 3-C. Thereafter, she directed the delivery of the
Transfer Certificate of Title (TCT) corresponding to Lot 3-C to the vendees of the
unregistered sale or the spouses Arguelles. However, despite their repeated
demands, the spouses Arguelles claimed that they never received the TCT
corresponding to Lot 3-C from the spouses Guia.
Nevertheless, in accordance with the instructions of Fermina M. Guia, the
spouses Guia succeeded in cancelling OCT No. P-12930 on August 15, 1994 and
in subdividing the lot in the following manner:
Lot No. TCT No.
3-A

Registered Owner

T-83943 Fermina M. Guia

3-B

T-83945 Spouses Datingaling

3-C

T-83944 Fermina M. Guia6

On August 18, 1997, the spouses Guia obtained a loan in the amount of
P240,000 from the respondent Malarayat Rural Banlc and secured the loan with
a Deed of Real Estate Mortgage7 over Lot 3-C. The loan and Real Estate
Mortgage were made pursuant to the Special Power of Attorney8 purportedly
executed by the registered owner of Lot 3-C, Fermina M. Guia, in favor of the
mortgagors, spouses Guia. Moreover, the Real Estate
Mortgage and Special Power of Attorney were duly annotated in the
memorandum of encumbrances of TCT No. T-83944 covering Lot 3-C.
The spouses Arguelles alleged that it was only in 1997 or after seven years from
the date of the unregistered sale that they discovered from the Register of
Deeds of Batangas City the following facts: (1) subdivision of Lot 3 into Lots 3-A,
3-B, and 3-C; (2) issuance of separate TCTs for each lot; and (3) the annotation
of the Real Estate Mortgage and Special Power of Attorney over Lot 3-C covered
by TCT No. T-83944. Two years thereafter, or on June 17, 1999, the spouses
Arguelles registered their adverse claim9 based on the unregistered sale dated
December 1, 1990 over Lot 3-C.
On July 22, 1999, the spouses Arguelles filed a complaint10 for Annulment of
Mortgage and Cancellation of Mortgage Lien with Damages against the
respondent Malarayat Rural Banlc with the RTC, Branch 86, of Taal, Batangas. In
asserting the nullity of the mortgage lien, the spouses Arguelles alleged
ownership over the land that had been mortgaged in favor of the respondent
Malarayat Rural Bank. On August 16, 1999, the respondent Malarayat Rural
Bank filed an Answer with Counterclaim and Cross-claim11 against cross-claim-
defendant spouses Gui a wherein it argued that the failure of the spouses
Arguelles to register the Deed of Sale dated December 1, 1990 was fatal to their
claim of ownership.
On July 29, 2008, the RTC rendered a Decision, the dispositive portion of which
reads as follows:
WHEREFORE, premises considered judgment is hereby rendered:
1) declaring the mortgage made by the defendants spouses Eddie Guia
and Teresita Guia in favor of defendant Malarayat Rural Bank null and
void;

2) setting aside the foreclosure sale had on December 6, 1999 and the
corresponding certificate of sale issued by this Court dated May 12,
2000;
3) ordering the Register of Deeds of the Province of Batangas to cancel
the annotation pertaining to the memorandum of encumbrances
(entries no. 155686 and 155688) appearing in TCT No. T-839[4]4;
4) ordering cross defendants spouses Eddie and Teresita Guia to pay
the amount of Php240,000.00 to cross claimant Malarayat Rural [B]ank
corresponding to the total amount of the loan obligation, with interest
herein modified at 12% per annum computed from default;

SO ORDERED.13
In granting the appeal, the CA held that because of the failure of the spouses
Arguelles to register their deed of sale, the unregistered sale could not affect the
respondent Malarayat Rural Bank. Thus, the respondent Malarayat Rural Bank
has a better right to the land mortgaged as compared to spouses Arguelles who
were the vendees in the unregistered sale. In addition, the CA found that the
respondent Malarayat Rural Bank was a mortgagee in good faith as it
sufficiently demonstrated due diligence in approving the loan application of the
spouses Guia. Aggrieved, the petitioners filed the instant petition raismg the
following issues for resolution:
A

5) ordering defendants spouses Eddie and Teresita Guia to pay


plaintiffs Arguelles the amount of Php100,000.00 as moral damages.
However, the prayer of the plaintiffs to order the registration of the
deed of sale in their favor as well as the subsequent issuance of a new
title in their names as the registered owners is denied considering that
there are other acts that the plaintiffs ought to do which are
administrative in nature, and are dependent upon compliance with
certain requirements pertaining to land acquisition and transfer.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF


SALE EXECUTED BY FERMINA GUIA IN FAVOR OF THE SPOUSES
PETRONIO AND MACARIA ARGUELLES CANNOT BE ENFORCED
AGAINST APPELLANT BANK FOR NOT BEING REGISTERED AND
ANNOTATED IN THE CERTIFICATE OF TITLE, DESPITE THE FACT
THAT THE BANK HAD ACTUAL KNOWLEDGE THEREOF.
B

SO ORDERED.12
The RTC found that the spouses Guia were no longer the absolute owners of the
land described as Lot 3-C and covered by TCT No. T-83944 at the time they
mortgaged the same to the respondent Malarayat Rural Bank in view of the
unregistered sale in favor of the vendee spouses Arguelles. Thus, the RTC
annulled the real estate mortgage, the subsequent foreclosure sale, and the
corresponding issuance of the certificate of title. Moreover, the RTC declared
that the respondent Malarayat Rural Bank was not a mortgagee in good faith as
it failed to exercise the exacting degree of diligence required from banking
institutions.
On September 16, 2008, the respondent filed a notice of appeal with the CA.
On December 19, 2011, the CA reversed and set aside the decision of the court a
quo:
IN LIGHT OF THE FOREGOING, premises considered, the instant appeal is
GRANTED. Accordingly, the Decision of the RTC of Taal, Batangas, Branch 86
promulgated on July 29, 2008 in Civil Case No. 66 is hereby REVERSED AND SET
ASIDE and the complaint below dismissed.

THE COURT OF APPEALS COMMITTED A MISTAKE IN FINDING THAT


APPELLANT BANK IS A MORTGAGEE IN GOOD FAITH
NOTWITHSTANDING CONCLUSIVE EVIDENCE ON RECORD THAT IT
WAS GROSSLY NEGLIGENT IN NOT ASCERTAINING THE REAL
CONDITION OF THE PROPERTY IN THE POSSESSION OF THE SPOUSES
ARGUELLES BEFORE ACCEPTING IT AS COLLATERAL FOR THE LOAN
APPLIED FOR BY A MERE ATTORNEY-IN-FACT.
C
THE COURT OF APPEALS COMMITTED AN ERROR IN DECLARING
APPELLANT BANK HAS BECOME THE ABSOLUTE OWNER OF THE
SUBJECT PROPERTY NOTWITHSTANDING THE NULLITY OF THE REAL
ESTATE MORTGAGE EXTRAJUDICIALL Y FORECLOSED BY IT.
D
THE COURT OF APPEALS ERRED IN HOLDING THAT THE SPOUSES
ARGUELLES DID NOT PUT IN ISSUE THAT APPELLANT BANK HAD
CONSTRUCTIVE NOTICE AND POSSESSION OF THE SUBJECT LOT.14

In fine, the issue in this case is whether the respondent Malarayat Rural Bank is
a mortgagee in good faith who is entitled to protection on its mortgage lien.
Petitioners imputed negligence on the part of respondent Malarayat Rural Bank
when it approved the loan application of the spouses Guia. They pointed out
that the bank failed to conduct a thorough ocular inspection of the land
mortgaged and an extensive investigation of the title of the registered owner.
And since the respondent Malarayat Rural Bank cannot be considered a
mortgagee in good faith, petitioners argued that the unregistered sale in their
favor takes precedence over the duly registered mortgage lien. On the other
hand, respondent Malarayat Rural Bank claimed that it exercised the required
degree of diligence before granting the loan application. In particular, it asserted
the absence of any facts or circumstances that can reasonably arouse suspicion
in a prudent person. Thus, the respondent Malarayat Rural Bank argued that it
is a mortgagee in good faith with a better right to the mortgaged land as
compared to the vendees to the unregistered sale.
The petition is meritorious.
At the outset, we note that the issue of whether a mortgagee is in good faith
generally cannot be entertained in a petition filed under Rule 45 of the 1997
Rules of Civil Procedure, as amended.15 This is because the ascertainment of
good faith or the lack thereof, and the determination of negligence are factual
matters which lay outside the scope of a petition for review on certiorari.16
However, a recognized exception to this rule is when the RTC and the CA have
divergent findings of fact17 as in the case at bar. We find that the respondent
Malarayat Rural Bank is not a mortgagee in good faith. Therefore, the spouses
Arguelles as the vendees to the unregistered sale have a superior right to the
mortgaged land.
In Cavite Development Bank v. Spouses Lim,18 the Court explained the doctrine
of mortgagee in good faith, thus:
There is, however, a situation where, despite the fact that the mortgagor is not
the owner of the mortgaged property, his title being fraudulent, the mortgage
contract and any foreclosure sale arising therefrom are given effect by reason of
public policy. This is the doctrine of "mortgagee in good faith" based on the rule
that all persons dealing with the property covered by a Torrens Certificate of
Title, as buyers or mortgagees, are not required to go beyond what appears on
the face of the title. The public interest in upholding the indefeasibility of a
certificate of title, as evidence of lawful ownership of the land or of any
encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied
upon what appears on the face of the certificate of title.

In Bank of Commerce v. Spouses San Pablo, Jr.,19 we declared that indeed, a


mortgagee has a right to rely in good faith on the certificate of title of the
mortgagor of the property offered as security, and in the absence of any sign
that might arouse suspicion, the mortgagee has no obligation to undertake
further investigation.
However, in Bank of Commerce v. Spouses San Pablo, Jr.,20 we also ruled that
"[i]n cases where the mortgagee does not directly deal with the registered
owner of real property, the law requires that a higher degree of prudence be
exercised by the mortgagee." Specifically, we cited Abad v. Sps. Guimbci21
where we held, "x x x While one who buys from the registered owner does not
need to look behind the certificate of title, one who buys from one who is not
the registered owner is expected to examine not only the certificate of title but
all factual circumstances necessary for [one] to determine if there are any flaws
in the title of the transferor, or in [the] capacity to transfer the land. " Although
the instant case does not involve a sale but only a mortgage, the same rule
applies inasmuch as the law itself includes a mortgagee in the term "purchaser."
Thus, where the mortgagor is not the registered owner of the property but is
merely an attorney-in-fact of the same, it is incumbent upon the mortgagee to
exercise greater care and a higher degree of prudence in dealing with such
mortgagor.22 Recently, in Land Bank of the Philippines v. Poblete,23 we
affirmed Bank of Commerce v. Spouses San Pablo, Jr.:
Based on the evidence, Land Bank processed Maniego's loan application upon
his presentation of OCT No. P-12026, which was still under the name of Poblete.
Land Bank even ignored the fact that Kapantay previously used Poblete's title as
collateral in its loan account with Land Bank. In Bank of Commerce v. San Pablo,
Jr., we held that when "the person applying for the loan is other than the
registered owner of the real property being mortgaged, [such fact] should have
already raised a red flag and which should have induced the Bank xx x to make
inquiries into and confirm x x x [the] authority to mortgage x x x. A person who
deliberately ignores a significant fact that could create suspicion in an otherwise
reasonable person is not an innocent purchaser for value."
Moreover, in a long line of cases, we have consistently enjoined banks to exert a
higher degree of diligence, care, and prudence than individuals in handling real
estate transactions.
In Cruz v. Bancom Finance Corporation,24 we declared:
Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As
such, unlike private individuals, it is expected to exercise greater care and
prudence in its dealings, including those involving registered lands. A banking

institution is expected to exercise due diligence before entering into a mortgage


contract. The ascertainment of the status or condition of a property offered to it
as security for a loan must be a standard and indispensable part of its
operations.
In Ursal v. Court of Appeals,25 we held that where the mortgagee is a bank, it
cannot rely merely on the certificate of title offered by the mortgagor in
ascertaining the status of mortgaged properties. Since its business is impressed
with public interest, the mortgagee-bank is duty-bound to be more cautious
even in dealing with registered lands.26 Indeed, the rule that person dealing
with registered lands can rely solely on the certificate of title does not apply to
banks. Thus, before approving a loan application, it is a standard operating
practice for these institutions to conduct an ocular inspection of the property
offered for mortgage and to verify the genuineness of the title to determine the
real owners thereof. The apparent purpose of an ocular inspection is to protect
the "true owner" of the property as well as innocent third parties with a right,
interest or claim thereon from a usurper who may have acquired a fraudulent
certificate of title thereto.27
In Metropolitan Bank and Trust Co. v. Cabilzo,28 we explained the socio-
economic role of banks and the reason for bestowing public interest on the
banking system:
We never fail to stress the remarkable significance of a banking institution to
commercial transactions, in particular, and to the country's economy in general.
The banking system is an indispensable institution in the modem world and
plays a vital role in the economic life of every civilized nation. Whether as mere
passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an ubiquitous
presence among the people, who have come to regard them with respect and
even gratitude and, most of all, confidence.
In this case, we find that the respondent Malarayat Rural Bank fell short of the
required degree of diligence, prudence, and care in approving the loan
application of the spouses Guia.
Respondent should have diligently conducted an investigation of the land
offered as collateral.1wphi1 Although the Report of Inspection and Credit
Investigation found at the dorsal portion of the Application for Agricultural
Loan29 proved that the respondent Malarayat Rural Bank inspected the land,
the respondent turned a blind eye to the finding therein that the "lot is planted
[with] sugarcane with annual yield (crops) in the amount of P15,000."30

We disagree with respondent's stance that the mere planting and harvesting of
sugarcane cannot reasonably trigger suspicion that there is adverse possession
over the land offered as mortgage. Indeed, such fact should have immediately
prompted the respondent to conduct further inquiries, especially since the
spouses Guia were not the registered owners of the land being mortgaged. They
merely derived the authority to mortgage the lot from the Special Power of
Attorney allegedly executed by the late Fermina M. Guia. Hence, it was
incumbent upon the respondent Malarayat Rural Bank to be more cautious in
dealing with the spouses Guia, and inquire further regarding the identity and
possible adverse claim of those in actual possession of the property.
Pertinently, in Land Bank of the Philippines v. Poblete,31 we ruled that "[w]here
the mortgagee acted with haste in granting the mortgage loan and did not
ascertain the ownership of the land being mortgaged, as well as the authority of
the supposed agent executing the mortgage, it cannot be considered an innocent
mortgagee."
Since the subject land was not mortgaged by the owner thereof and since the
respondent Malarayat Rural Bank is not a mortgagee in good faith, said bank is
not entitled to protection under the law. The unregistered sale in favor of the
spouses Arguelles must prevail over the mortgage lien of respondent Malarayat
Rural Bank.
WHEREFORE, the petition for review on certiorari is GRANTED. The Decision
dated December 19, 2011 and Resolution dated February 6, 2012 of the Court of
Appeals in CA-G.R. CV No. 92555 are REVERSED and SET ASIDE. The Decision
dated July 29, 2008 of the Regional Trial Court, Branch 86, of Taal, Batangas, in
Civil Case No. 66 is REINSTATED and UPHELD.
No pronouncement as to costs.
SO ORDERED.




G.R. No. 196118 July 30, 2014


LEONARDO C. CASTILLO, represented by LENNARD V. CASTILLO, Petitioner,
vs.
SECURITY BANK CORPORATION, JRC POULTRY FARMS or SPOUSES LEON C.
CASTILLO, JR., and TERESITA FLORESCASTILLO, Respondents.
D E C I S I O N
PERALTA, J.:
This is a Petition for Review questioning the Decision1 of the Court of Appeals
(CA) dated November 26, 2010, as well as its Resolution2 dated March 17, 2011
in CA-G.R. CV No. 88914. The CA reversed and set aside the Decision3 of the
Regional Trial Court (RTC) of San Pablo City, Laguna, Branch 32, dated October
16, 2006 in Civil Case No. SP-5882 (02), and consequently, upheld the validity of
the real estate mortgage entered into by respondents spouses Leon C. Castillo,
Jr. and Teresita Flores-Castillo, and Security Bank Corporation (SBC).
The facts, as culled from the records, are as follows:
Petitioner Leonardo C. Castillo and respondent Leon C. Castillo, Jr. are siblings.
Leon and Teresita Flores-Castillo (the Spouses Castillo) were doing business
under the name of JRC Poultry Farms. Sometime in 1994, the Spouses Castillo
obtained a loan from respondent SBC in the amount of P45,000,000.00. To
secure said loan, they executed a real estate mortgage on August 5, 1994 over
eleven (11) parcels of land belonging to different members of the Castillo family
and which are all located in San Pablo City.4 They also procured a second loan5
amounting to P2,500,000.00, which was covered by a mortgage on a land in
Pasay City. Subsequently, the Spouses Castillo failed to settle the loan,
prompting SBC to proceed with the foreclosure of the properties. SBC was then
adjudged as the winning bidder in the foreclosure sale held on July 29, 1999.
Thereafter, they were able to redeem the foreclosed properties, withthe
exception of the lots covered by Torrens Certificate of Title(TCT) Nos. 28302
and 28297.
On January 30, 2002, Leonardo filed a complaint for the partial annulment of the
real estate mortgage. He alleged that he owns the property covered by TCT No.
28297 and that the Spouses Castillo used it as one of the collaterals for a loan
without his consent. He contested his supposed Special Power of Attorney (SPA)
in Leons favor, claiming that it is falsified. According to him, the date of issuance
of his Community Tax Certificate (CTC) as indicated on the notarization of said
SPA is January 11, 1993, when he only secured the same on May 17, 1993. He
also assailed the foreclosure of the lots under TCT Nos.20030 and 10073 which

were still registered in the name of their deceased father. Lastly, Leonardo
attacked SBCs imposition of penalty and interest on the loans as being arbitrary
and unconscionable.
On the other hand, the Spouses Castillo insisted on the validity of Leonardos
SPA. They alleged that they incurred the loan not only for themselves, but also
for the other members of the Castillo family who needed money at that time.
Upon receipt of the proceeds of the loan, they distributed the same to their
family members, as agreed upon. However, when the loan became due, their
relatives failed to pay their respective shares such that Leon was forced to use
his own money until SBC had to finally foreclose the mortgage over the lots.6
In a Decision dated October 16, 2006, the RTC of San Pablo City ruled in
Leonardos favor, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Leonardo C.
Castillo and against the defendants SECURITY BANK CORPORATION, and JRC
POULTRY FARMS or SPS. LEON C. CASTILLO, JR. and TERESITA FLORES-
CASTILLO declaring as null and void the Real Estate Mortgage dated August 5,
1994, the Memorandum of Agreement dated October 28, 1997 and the
Certificate of Sale dated August 27, 1999 insofar as plaintiffs property with
Transfer Certificate of Title No. T-28297 is concerned. The Security Bank
Corporation is likewise ordered to return the ownership of the Transfer
Certificate of Title No. T-28297 to plaintiff Leonardo Castillo. Likewise,
defendants spouses Leon C. Castillo, Jr. and Teresita Flores-Castillo are hereby
ordered to pay plaintiff moral damages in the total amount of P500,000.00 and
exemplary damages of P20,000.00. All other claims for damages and attorneys
fees are DENIED for insufficiency of evidence.
SO ORDERED.7
Both parties elevated the case to the CA. On November 26, 2010, the CA denied
Leonardos appeal and granted that of the Spouses Castillo and SBC. It reversed
and set aside the RTC Decision, essentially ruling that the August 5, 1994 real
estate mortgage isvalid. Leonardo filed a Motion for Reconsideration, but the
same was denied for lack of merit.
Hence, Leonardo brought the case to the Court and filed the instant Petition for
Review.1wphi1 The main issue soughtto be resolved here is whether or not the
real estate mortgage constituted over the property under TCT No. T-28297 is
valid and binding.
The Court finds the petition to be without merit.

As a rule, the jurisdiction of the Court over appealed cases from the CA is limited
to the review and revision of errors of law it allegedly committed, as its findings
of fact are deemed conclusive. Thus, the Court is not duty-bound to evaluate and
weigh the evidence all over again which were already considered in the
proceedings below, except when, as in this case, the findings of fact of the CAare
contrary to the findings and conclusions of the trial court.8
The following are the legal requisites for a mortgage to be valid:
(1) It must be constituted to secure the fulfillment of a principal
obligation;
(2) The mortgagor must be the absolute owner of the thing mortgaged;
(3) The persons constituting the mortgage must have the free disposal
of their property, and in the absence thereof, they should be legally
authorized for the purpose.9
Leonardo asserts that his signature inthe SPA authorizing his brother, Leon, to
mortgage his property covered by TCT No. T-28297 was falsified. He claims that
he was in America at the time of its execution. As proof of the forgery, he focuses
on his alleged CTC used for the notarization10 of the SPA on May 5, 1993 and
points out that it appears to have been issued on January 11, 1993 when, in fact,
he only obtained it on May 17, 1993. But it is a settled rule that allegations of
forgery, like all other allegations, must be proved by clear, positive, and
convincing evidence by the party alleging it. It should not be presumed, but
must beestablished by comparing the alleged forged signature with the genuine
signatures.11 Here, Leonardo simply relied on his self-serving declarations and
refused to present further corroborative evidence, saying that the falsified
document itself is the best evidence.12 He did not even bother comparing the
alleged forged signature on the SPA with samples of his real and actual
signature. What he consistently utilized as lone support for his allegation was
the supposed discrepancy on the date of issuance of his CTC as reflectedon the
subject SPAs notarial acknowledgment. On the contrary, in view of the great
ease with which CTCs are obtained these days,13 there is reasonable ground to
believe that, as the CA correctly observed, the CTC could have been issued with
the space for the date left blank and Leonardo merelyfilled it up to
accommodate his assertions. Also, upon careful examination, the handwriting
appearing on the space for the date of issuance is different from that on the
computation of fees, which in turn was consistent with the rest of the writings
on the document.14 He did not likewise attempt to show any evidence that
would back up his claim that at the time of the execution of the SPA on May 5,
1993, he was actually in America and therefore could not have possibly
appeared and signed the document before the notary.

And even if the Court were to assume, simply for the sake of argument, that
Leonardo indeed secured his CTC only on May 17, 1993, this does not
automatically render the SPA invalid. The appellate court aptly held that
defective notarization will simply strip the document of its public character and
reduce it to a private instrument, but nonetheless, binding, provided its validity
is established by preponderance of evidence.15 Article 1358 of the Civil Code
requires that the form of a contract that transmits or extinguishes real rights
over immovable property should be in a public document, yet the failure to
observethe proper form does not render the transaction invalid.16 The
necessity of a public document for said contracts is only for convenience; it is
not essential for validity or enforceability.17 Even a sale of real property,
though notcontained in a public instrument or formal writing, is nevertheless
valid and binding, for even a verbal contract of sale or real estate produceslegal
effects between the parties.18 Consequently, when there is a defect in the
notarization of a document, the clear and convincing evidentiary standard
originally attached to a dulynotarized document is dispensed with, and the
measure to test the validity of such document is preponderance of evidence.19
Here, the preponderance ofevidence indubitably tilts in favor of the
respondents, still making the SPA binding between the parties even with the
aforementioned assumed irregularity.1wphi1 There are several telling
circumstances that would clearly demonstrate that Leonardo was aware of the
mortgage and he indeed executed the SPA to entrust Leon with the mortgage of
his property. Leon had inhis possession all the titles covering the eleven (11)
properties mortgaged, including that of Leonardo.20 Leonardo and the rest of
their relatives could not have just blindly ceded their respective TCTs to
Leon.21 It is likewise ridiculous how Leonardo seemed to have been totally
oblivious to the status of his property for eight (8) long years, and would only
find outabout the mortgage and foreclosure from a nephew who himself had
consented to the mortgage of his own lot.22 Considering the lapse of time from
the alleged forgery on May 5, 1993 and the mortgage on August 5, 1994, to the
foreclosure on July 29, 1999, and to the supposed discovery in 2001, it appears
that the suit is a mere afterthought or a last-ditch effort on Leonardos part to
extend his hold over his property and to prevent SBC from consolidating
ownership over the same. More importantly, Leonardo himself admitted on
cross-examination that he granted Leon authority to mortgage, only that,
according to him, he thought it was going to be with China Bank, and not SBC.23
But as the CA noted, there is no mention of a certainbank in the subject SPA with
which Leon must specifically deal. Leon, therefore, was simply acting within the
bounds of the SPAs authority when hemortgaged the lot to SBC.
True, banks and other financing institutions, in entering into mortgage
contracts, are expected to exercise due diligence.24 The ascertainment of the
status or condition of a property offered to it as security for a loan must be a
standard and indispensable part of its operations.25 In this case, however, no

evidence was presented to show that SBC was remiss in the exercise of the
standard care and prudence required of it or that it was negligent in accepting
the mortgage.26 SBC could not likewise befaulted for relying on the
presumption of regularity of the notarized SPA when it entered into the subject
mortgage agreement.
Finally, the Court finds that the interest and penalty charges imposed by SBC are
just, and not excessive or unconscionable.
Section 47 of The General Banking Law of 200027 thus provides:
Section 47. Foreclosure of Real Estate Mortgage.- In the event of foreclosure,
whether judicially or extra-judicially, of any mortgage on real estate which is
security for any loan or other credit accommodation granted, the mortgagor or
debtor whose real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real estate, to
redeem the property by paying the amount due under the mortgage deed, with
interest thereon at the rate specified in the mortgage, and all the costs and
expenses incurred by the bank or institutionfrom the sale and custody of said
property less the income derived therefrom. However,the purchaser at the
auction sale concerned whether in a judicial or extra-judicial foreclosure shall
have the right to enter upon and take possession of such property immediately
after the date of the confirmation of the auction sale and administer the same in
accordance with law. Any petition in court to enjoin or restrain the conduct of
foreclosure proceedings instituted pursuant to this provision shall be given due
course only upon the filing by the petitioner of a bond in an amount fixed by the
court conditioned that he will pay all the damages which the bank may suffer by
the enjoining or the restraint of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold
pursuant to an extrajudicial foreclosure, shall have the right to redeem the
property in accordance with this provision until, but not after, the registration
of the certificate of foreclosure sale with the applicable Register of Deeds which
in no case shall be more than three (3) months after foreclosure, whichever is
earlier. Owners of property that has been sold in a foreclosure sale prior to the
effectivity of this Act shall retain their redemption rights until their
expiration.28 Verily, the redemption price comprises not only the total amount
due under the mortgage deed, but also with interest at the rate specified in the
mortgage, and all the foreclosure expenses incurred by the mortgagee bank.
To sustain Leonardo's claim that their payment of P45,000,000.00 had already
extinguished their entire obligation with SBC would mean that no interest ever
accrued from 1994, when the loan was availed, up to the time the payment of
P45,000,000.00 was made in 2000-2001.

SBC's 16% rate of interest is not computed per month, but rather per annum or
only 1.33% per month. In Spouses Bacolor v. Banco Filipino Savings and
Mortgage Bank, Dagupan City Branch,29 the Court held that the interest rate of
24% per annum on a loan of P244,000.00 is not considered as unconscionable
and excessive. As such, the Court ruled that the debtors cannot renege on their
obligation to comply with what is incumbent upon them under the contract of
loan as they are bound by its stipulations. Also, the 24o/o per annum rate or 2%
per month for the penalty charges imposed on account of default, cannot be
considered as skyrocketing. The enforcement of penalty can be demanded by
the creditor in case of non-performance due to the debtor's fault or fraud. The
nonperformance gives rise to the presumption of fault and in order to avoid the
penalty, the debtor has the burden of proving that the failure of the
performance was due to either force majeure or the creditor's own acts.30 In
the instant case, petitioner failed to discharge said burden and thus cannot
avoid the payment of the penalty charge agreed upon.
WHEREFORE, premises considered, the petition is DENIED. The Decision of the
Court of Appeals, dated November 26, 2010, as well as its Resolution dated
March 17, 2011 in CA-G.R. CV No. 88914, are hereby AFFIRMED.
SO ORDERED.










G.R. No. 117356 June 19, 2000


VICTORIAS
MILLING
CO.,
INC.,
petitioner,
vs.
COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION,
respondents.
D E C I S I O N
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the decision of the Court of Appeals dated February 24, 1994, in
CA-G.R. CV No. 31717, as well as the respondent court's resolution of September
30, 1994 modifying said decision. Both decision and resolution amended the
judgment dated February 13, 1991, of the Regional Trial Court of Makati City,
Branch 147, in Civil Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as
follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from
petitioner Victorias Milling Co., Inc., (VMC). In the course of their dealings,
petitioner issued several Shipping List/Delivery Receipts (SLDRs) to STM as
proof of purchases. Among these was SLDR No. 1214M, which gave rise to the
instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of
sugar. Each bag contained 50 kilograms and priced at P638.00 per bag as "per
sales order VMC Marketing No. 042 dated October 16, 1989."1 The transaction it
covered was a "direct sale."2 The SLDR also contains an additional note which
reads: "subject for (sic) availability of a (sic) stock at NAWACO (warehouse)."3
On October 25, 1989, STM sold to private respondent Consolidated Sugar
Corporation (CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC issued
one check dated October 25, 1989 and three checks postdated November 13,
1989 in payment. That same day, CSC wrote petitioner that it had been
authorized by STM to withdraw the sugar covered by SLDR No. 1214M.
Enclosed in the letter were a copy of SLDR No. 1214M and a letter of authority
from STM authorizing CSC "to withdraw for and in our behalf the refined sugar
covered by Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214 dated
October 16, 1989 in the total quantity of 25,000 bags."4
On October 27, 1989, STM issued 16 checks in the total amount of
P31,900,000.00 with petitioner as payee. The latter, in turn, issued Official
Receipt No. 33743 dated October 27, 1989 acknowledging receipt of the said

checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said checks also
covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner's
NAWACO warehouse and was allowed to withdraw sugar. However, after 2,000
bags had been released, petitioner refused to allow further withdrawals of sugar
against SLDR No. 1214M. CSC then sent petitioner a letter dated January 23,
1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but
that it had been refused further withdrawals of sugar from petitioner's
warehouse despite the fact that only 2,000 bags had been withdrawn.5 CSC thus
inquired when it would be allowed to withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any further
withdrawals of sugar against SLDR No. 1214M because STM had already
dwithdrawn all the sugar covered by the cleared checks.6
On March 2, 1990, CSC sent petitioner a letter demanding the release of the
balance of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to the
amount of STM's cleared checks had been fully withdrawn and hence, there
would be no more deliveries of the commodity to STM's account. Petitioner also
noted that CSC had represented itself to be STM's agent as it had withdrawn the
2,000 bags against SLDR No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as
Civil Case No. 90-1118. Defendants were Teresita Ng Sy (doing business under
the name of St. Therese Merchandising) and herein petitioner. Since the former
could not be served with summons, the case proceeded only against the latter.
During the trial, it was discovered that Teresita Ng Go who testified for CSC was
the same Teresita Ng Sy who could not be reached through summons.7 CSC,
however, did not bother to pursue its case against her, but instead used her as
its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered
by SLDR No. 1214M. Therefore, the latter had no justification for refusing
delivery of the sugar. CSC prayed that petitioner be ordered to deliver the
23,000 bags covered by SLDR No. 1214M and sought the award of
P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary damages,
P2,200,000.00 as attorney's fees and litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the
23,000 bags.8 Since STM had already drawn in full all the sugar corresponding
to the amount of its cleared checks, it could no longer authorize further delivery

of sugar to CSC. Petitioner also contended that it had no privity of contract with
CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents of
title, but mere delivery receipts issued pursuant to a series of transactions
entered into between it and STM. The SLDRs prescribed delivery of the sugar to
the party specified therein and did not authorize the transfer of said party's
rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's
co-conspirator to defraud it through a misrepresentation that CSC was an
innocent purchaser for value and in good faith. Petitioner then prayed that CSC
be ordered to pay it the following sums: P10,000,000.00 as moral damages;
P10,000,000.00 as exemplary damages; and P1,500,000.00 as attorney's fees.
Petitioner also prayed that cross-defendant STM be ordered to pay it
P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the case on
the merits.
As earlier stated, the trial court rendered its judgment favoring private
respondent CSC, as follows:
"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in
favor of the plaintiff and against defendant Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to deliver to the
plaintiff 23,000 bags of refined sugar due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of
P920,000.00 as unrealized profits, the amount of P800,000.00 as
exemplary damages and the amount of P1,357,000.00, which is 10% of
the acquisition value of the undelivered bags of refined sugar in the
amount of P13,570,000.00, as attorney's fees, plus the costs.
"SO ORDERED."9

to C-15 inclusive which are post-dated checks dated October 27, 1989 issued by
St. Therese Merchandising in favor of Victorias Milling Company at the time it
purchased the 50,000 bags of sugar covered by SLDR No. 1213 and 1214. Said
checks appear to have been honored and duly credited to the account of
Victorias Milling Company because on October 27, 1989 Victorias Milling
Company issued official receipt no. 34734 in favor of St. Therese Merchandising
for the amount of P31,900,000.00 (Exhibits B and B-1). The testimony of
Teresita Ng Go is further supported by Exhibit F, which is a computer printout
of defendant Victorias Milling Company showing the quantity and value of the
purchases made by St. Therese Merchandising, the SLDR no. issued to cover the
purchase, the official reciept no. and the status of payment. It is clear in Exhibit
'F' that with respect to the sugar covered by SLDR No. 1214 the same has been
fully paid as indicated by the word 'cleared' appearing under the column of
'status of payment.'
"On the other hand, the claim of defendant Victorias Milling Company that the
purchase price of the 25,000 bags of sugar purchased by St. Therese
Merchandising covered by SLDR No. 1214 has not been fully paid is supported
only by the testimony of Arnulfo Caintic, witness for defendant Victorias Milling
Company. The Court notes that the testimony of Arnulfo Caintic is merely a
sweeping barren assertion that the purchase price has not been fully paid and is
not corroborated by any positive evidence. There is an insinuation by Arnulfo
Caintic in his testimony that the postdated checks issued by the buyer in
payment of the purchased price were dishonored. However, said witness failed
to present in Court any dishonored check or any replacement check. Said
witness likewise failed to present any bank record showing that the checks
issued by the buyer, Teresita Ng Go, in payment of the purchase price of the
sugar covered by SLDR No. 1214 were dishonored."10
Petitioner appealed the trial courts decision to the Court of Appeals.
On appeal, petitioner averred that the dealings between it and STM were part of
a series of transactions involving only one account or one general contract of
sale. Pursuant to this contract, STM or any of its authorized agents could
withdraw bags of sugar only against cleared checks of STM. SLDR No. 21214M
was only one of 22 SLDRs issued to STM and since the latter had already
withdrawn its full quota of sugar under the said SLDR, CSC was already
precluded from seeking delivery of the 23,000 bags of sugar.

It made the following observations:


"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the
purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by her
covered by SLDR No. 1214 as well as the purchase price of P15,950,000.00 for
the 25,000 bags of sugar bought by her covered by SLDR No. 1213 on the same
date, October 16, 1989 (date of the two SLDRs) is duly supported by Exhibits C

Private respondent CSC countered that the sugar purchases involving SLDR No.
1214M were separate and independent transactions and that the details of the
series of purchases were contained in a single statement with a consolidated
summary of cleared check payments and sugar stock withdrawals because this a
more convenient system than issuing separate statements for each purchase.

The appellate court considered the following issues: (a) Whether or not the
transaction between petitioner and STM involving SLDR No. 1214M was a
separate, independent, and single transaction; (b) Whether or not CSC had the
capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not CSC as
buyer from STM of the rights to 25,000 bags of sugar covered by SLDR No.
1214M could compel petitioner to deliver 23,000 bags allegedly unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its decision modifying the
trial court's judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders
defendant-appellant to:
"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR
No. 1214M;
"2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of
the undelivered bags of refined sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."11
Both parties then seasonably filed separate motions for reconsideration.
In its resolution dated September 30, 1994, the appellate court modified its
decision to read:
"WHEREFORE, the Court hereby modifies the assailed judgment and orders
defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under
SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."12
The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.

"Exhibit F' We relied upon in fixing the number of bags of sugar which
remained undelivered as 12,586 cannot be made the basis for such a finding.
The rule is explicit that courts should consider the evidence only for the
purpose for which it was offered. (People v. Abalos, et al, 1 CA Rep 783). The
rationale for this is to afford the party against whom the evidence is presented
to object thereto if he deems it necessary. Plaintiff-appellee is, therefore, correct
in its argument that Exhibit F' which was offered to prove that checks in the
total amount of P15,950,000.00 had been cleared. (Formal Offer of Evidence for
Plaintiff, Records p. 58) cannot be used to prove the proposition that 12,586
bags of sugar remained undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33]
and Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by
plaintiff-appellee was to the effect that it had withdrawn only 2,000 bags of
sugar from SLDR after which it was not allowed to withdraw anymore.
Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that
plaintiff-appellee had sent demand letters to defendant-appellant asking the
latter to allow it to withdraw the remaining 23,000 bags of sugar from SLDR
1214M. Defendant-appellant, on the other hand, alleged that sugar delivery to
the STM corresponded only to the value of cleared checks; and that all sugar
corresponded to cleared checks had been withdrawn. Defendant-appellant did
not rebut plaintiff-appellee's assertions. It did not present evidence to show
how many bags of sugar had been withdrawn against SLDR No. 1214M,
precisely because of its theory that all sales in question were a series of one
single transaction and withdrawal of sugar depended on the clearing of checks
paid therefor.
"After a second look at the evidence, We see no reason to overturn the findings
of the trial court on this point."13
Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM's and private
respondent's specially informing petitioner that respondent was
authorized by buyer STM to withdraw sugar against SLDR No. 1214M
"for and in our (STM) behalf," (emphasis in the original) private
respondent's withdrawing 2,000 bags of sugar for STM, and STM's
empowering other persons as its agents to withdraw sugar against the
same SLDR No. 1214M, rendered respondent like the other persons, an
agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81 SCRA
252, and precluded it from subsequently claiming and proving being an
assignee of SLDR No. 1214M and from suing by itself for its
enforcement because it was conclusively presumed to be an agent (Sec.
2, Rule 131, Rules of Court) and estopped from doing so. (Art. 1431,
Civil Code).

"2. The Court of Appeals erred in manifestly and arbitrarily ignoring


and disregarding certain relevant and undisputed facts which, had they
been considered, would have shown that petitioner was not liable,
except for 69 bags of sugar, and which would justify review of its
conclusion of facts by this Honorable Court.
"3. The Court of Appeals misapplied the law on compensation under
Arts. 1279, 1285 and 1626 of the Civil Code when it ruled that
compensation applied only to credits from one SLDR or contract and
not to those from two or more distinct contracts between the same
parties; and erred in denying petitioner's right to setoff all its credits
arising prior to notice of assignment from other sales or SLDRs against
private respondent's claim as assignee under SLDR No. 1214M, so as to
extinguish or reduce its liability to 69 bags, because the law on
compensation applies precisely to two or more distinct contracts
between the same parties (emphasis in the original).
"4. The Court of Appeals erred in concluding that the settlement or
liquidation of accounts in Exh. F between petitioner and STM,
respondent's admission of its balance, and STM's acquiescence thereto
by silence for almost one year did not render Exh. `F' an account stated
and its balance binding.
"5. The Court of Appeals erred in not holding that the conditions of the
assigned SLDR No. 1214, namely, (a) its subject matter being generic,
and (b) the sale of sugar being subject to its availability at the Nawaco
warehouse, made the sale conditional and prevented STM or private
respondent from acquiring title to the sugar; and the non-availability of
sugar freed petitioner from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands"
doctrine precluded respondent from seeking judicial reliefs (sic) from
petitioner, its only remedy being against its assignor."14
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling that CSC
was an agent of STM and hence, estopped to sue upon SLDR No. 1214M
as an assignee.
(2)....Whether or not the Court of Appeals erred in applying the law on
compensation to the transaction under SLDR No. 1214M so as to
preclude petitioner from offsetting its credits on the other SLDRs.

(3)....Whether or not the Court of Appeals erred in not ruling that the
sale of sugar under SLDR No. 1214M was a conditional sale or a
contract to sell and hence freed petitioner from further obligations.
(4)....Whether or not the Court of Appeals committed an error of law in
not applying the "clean hands doctrine" to preclude CSC from seeking
judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this issue
for the first time on appeal.1avvphi1 It is settled that an issue which was not
raised during the trial in the court below could not be raised for the first time on
appeal as to do so would be offensive to the basic rules of fair play, justice, and
due process.15 Nonetheless, the Court of Appeals opted to address this issue,
hence, now a matter for our consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to
withdraw sugar against SLDR No. 1214M to show that the latter was STM's
agent. The pertinent portion of said letter reads:
"This is to authorize Consolidated Sugar Corporation or its representative to
withdraw for and in our behalf (stress supplied) the refined sugar covered by
Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October
16, 1989 in the total quantity of 25, 000 bags."16
The Civil Code defines a contract of agency as follows:
"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."
It is clear from Article 1868 that the basis of agency is representation.17 On the
part of the principal, there must be an actual intention to appoint18 or an
intention naturally inferable from his words or actions;19 and on the part of the
agent, there must be an intention to accept the appointment and act on it,20 and
in the absence of such intent, there is generally no agency.21 One factor which
most clearly distinguishes agency from other legal concepts is control; one
person - the agent - agrees to act under the control or direction of another - the
principal. Indeed, the very word "agency" has come to connote control by the
principal.22 The control factor, more than any other, has caused the courts to put
contracts between principal and agent in a separate category.23 The Court of
Appeals, in finding that CSC, was not an agent of STM, opined:

"This Court has ruled that where the relation of agency is dependent upon the
acts of the parties, the law makes no presumption of agency, and it is always a
fact to be proved, with the burden of proof resting upon the persons alleging the
agency, to show not only the fact of its existence, but also its nature and extent
(Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant failed to
sufficiently establish the existence of an agency relation between plaintiff-
appellee and STM. The fact alone that it (STM) had authorized withdrawal of
sugar by plaintiff-appellee "for and in our (STM's) behalf" should not be eyed as
pointing to the existence of an agency relation ...It should be viewed in the
context of all the circumstances obtaining. Although it would seem STM
represented plaintiff-appellee as being its agent by the use of the phrase "for
and in our (STM's) behalf" the matter was cleared when on 23 January 1990,
plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M had
been "sold and endorsed" to it by STM (Exhibit I, Records, p. 78). Further,
plaintiff-appellee has shown that the 25, 000 bags of sugar covered by the SLDR
No. 1214M were sold and transferred by STM to it ...A conclusion that there was
a valid sale and transfer to plaintiff-appellee may, therefore, be made thus
capacitating plaintiff-appellee to sue in its own name, without need of joining its
imputed principal STM as co-plaintiff."24
In the instant case, it appears plain to us that private respondent CSC was a
buyer of the SLDFR form, and not an agent of STM. Private respondent CSC was
not subject to STM's control. The question of whether a contract is one of sale or
agency depends on the intention of the parties as gathered from the whole
scope and effect of the language employed.25 That the authorization given to CSC
contained the phrase "for and in our (STM's) behalf" did not establish an agency.
Ultimately, what is decisive is the intention of the parties.26 That no agency was
meant to be established by the CSC and STM is clearly shown by CSC's
communication to petitioner that SLDR No. 1214M had been "sold and
endorsed" to it.27 The use of the words "sold and endorsed" means that STM and
CSC intended a contract of sale, and not an agency. Hence, on this score, no error
was committed by the respondent appellate court when it held that CSC was not
STM's agent and could independently sue petitioner.
On the second issue, proceeding from the theory that the transactions entered
into between petitioner and STM are but serial parts of one account, petitioner
insists that its debt has been offset by its claim for STM's unpaid purchases,
pursuant to Article 1279 of the Civil Code.28 However, the trial court found, and
the Court of Appeals concurred, that the purchase of sugar covered by SLDR No.
1214M was a separate and independent transaction; it was not a serial part of a
single transaction or of one account contrary to petitioner's insistence. Evidence
on record shows, without being rebutted, that petitioner had been paid for the
sugar purchased under SLDR No. 1214M. Petitioner clearly had the obligation to
deliver said commodity to STM or its assignee. Since said sugar had been fully
paid for, petitioner and CSC, as assignee of STM, were not mutually creditors

and debtors of each other. No reversible error could thereby be imputed to


respondent appellate court when, it refused to apply Article 1279 of the Civil
Code to the present case.
Regarding the third issue, petitioner contends that the sale of sugar under SLDR
No. 1214M is a conditional sale or a contract to sell, with title to the sugar still
remaining with the vendor. Noteworthy, SLDR No. 1214M contains the
following terms and conditions:
"It is understood and agreed that by payment by buyer/trader of refined sugar
and/or receipt of this document by the buyer/trader personally or through a
representative, title to refined sugar is transferred to buyer/trader and delivery
to him/it is deemed effected and completed (stress supplied) and buyer/trader
assumes full responsibility therefore"29
The aforequoted terms and conditions clearly show that petitioner transferred
title to the sugar to the buyer or his assignee upon payment of the purchase
price. Said terms clearly establish a contract of sale, not a contract to sell.
Petitioner is now estopped from alleging the contrary. The contract is the law
between the contracting parties.30 And where the terms and conditions so
stipulated are not contrary to law, morals, good customs, public policy or public
order, the contract is valid and must be upheld.31 Having transferred title to the
sugar in question, petitioner is now obliged to deliver it to the purchaser or its
assignee.
As to the fourth issue, petitioner submits that STM and private respondent CSC
have entered into a conspiracy to defraud it of its sugar. This conspiracy is
allegedly evidenced by: (a) the fact that STM's selling price to CSC was below its
purchasing price; (b) CSC's refusal to pursue its case against Teresita Ng Go; and
(c) the authority given by the latter to other persons to withdraw sugar against
SLDR No. 1214M after she had sold her rights under said SLDR to CSC.
Petitioner prays that the doctrine of "clean hands" should be applied to preclude
CSC from seeking judicial relief. However, despite careful scrutiny, we find here
the records bare of convincing evidence whatsoever to support the petitioner's
allegations of fraud. We are now constrained to deem this matter purely
speculative, bereft of concrete proof.
WHEREFORE, the instant petition is DENIED for lack of merit. Costs against
petitioner.
SO ORDERED.

G.R. No. 156015. August 11, 2005


REPUBLIC OF THE PHILIPPINES, represented by LT. GEN. JOSE M.
CALIMLIM, in his capacity as former Chief of the Intelligence Service,
Armed Forces of the Philippines (ISAFP), and former Commanding
General, Presidential Security Group (PSG), and MAJ. DAVID B. DICIANO, in
his capacity as an Officer of ISAFP and former member of the PSG,
Petitioners,
vs.
HON. VICTORINO EVANGELISTA, in his capacity as Presiding Judge,
Regional Trial Court, Branch 223, Quezon City, and DANTE LEGASPI,
represented by his attorney-in-fact, Paul Gutierrez, Respondent.
D E C I S I O N
PUNO, J.:
The case at bar stems from a complaint for damages, with prayer for the
issuance of a writ of preliminary injunction, filed by private respondent Dante
Legaspi, through his attorney-in-fact Paul Gutierrez, against petitioners Gen.
Jose M. Calimlim, Ciriaco Reyes and Maj. David Diciano before the Regional Trial
Court (RTC) of Quezon City.1
The Complaint alleged that private respondent Legaspi is the owner of a land
located in Bigte, Norzagaray, Bulacan. In November 1999, petitioner Calimlim,
representing the Republic of the Philippines, and as then head of the
Intelligence Service of the Armed Forces of the Philippines and the Presidential
Security Group, entered into a Memorandum of Agreement (MOA) with one
Ciriaco Reyes. The MOA granted Reyes a permit to hunt for treasure in a land in
Bigte, Norzagaray, Bulacan. Petitioner Diciano signed the MOA as a witness.2 It
was further alleged that thereafter, Reyes, together with petitioners, started,
digging, tunneling and blasting works on the said land of Legaspi. The complaint
also alleged that petitioner Calimlim assigned about 80 military personnel to
guard the area and encamp thereon to intimidate Legaspi and other occupants
of the area from going near the subject land.
On February 15, 2000, Legaspi executed a special power of attorney (SPA)
appointing his nephew, private respondent Gutierrez, as his attorney-in-fact.
Gutierrez was given the power to deal with the treasure hunting activities on
Legaspis land and to file charges against those who may enter it without the
latters authority.3 Legaspi agreed to give Gutierrez 40% of the treasure that
may be found in the land.

On February 29, 2000, Gutierrez filed a case for damages and injunction against
petitioners for illegally entering Legaspis land. He hired the legal services of
Atty. Homobono Adaza. Their contract provided that as legal fees, Atty. Adaza
shall be entitled to 30% of Legaspis share in whatever treasure may be found in
the land. In addition, Gutierrez agreed to pay Atty. Adaza P5,000.00 as
appearance fee per court hearing and defray all expenses for the cost of the
litigation.4 Upon the filing of the complaint, then Executive Judge Perlita J. Tria
Tirona issued a 72-hour temporary restraining order (TRO) against petitioners.
The case5 was subsequently raffled to the RTC of Quezon City, Branch 223, then
presided by public respondent Judge Victorino P. Evangelista. On March 2, 2000,
respondent judge issued another 72-hour TRO and a summary hearing for its
extension was set on March 7, 2000.
On March 14, 2000, petitioners filed a Motion to Dismiss6 contending: first,
there is no real party-in-interest as the SPA of Gutierrez to bring the suit was
already revoked by Legaspi on March 7, 2000, as evidenced by a Deed of
Revocation,7 and, second, Gutierrez failed to establish that the alleged armed
men guarding the area were acting on orders of petitioners. On March 17, 2000,
petitioners also filed a Motion for Inhibition8 of the respondent judge on the
ground of alleged partiality in favor of private respondent.
On March 23, 2000, the trial court granted private respondents application for a
writ of preliminary injunction on the following grounds: (1) the diggings and
blastings appear to have been made on the land of Legaspi, hence, there is an
urgent need to maintain the status quo to prevent serious damage to Legaspis
land; and, (2) the SPA granted to Gutierrez continues to be valid.9 The trial court
ordered thus:
WHEREFORE, in view of all the foregoing, the Court hereby resolves to GRANT
plaintiffs application for a writ of preliminary injunction. Upon plaintiffs filing
of an injunction bond in the amount of ONE HUNDRED THOUSAND PESOS
(P100,000.00), let a Writ of Preliminary Injunction issue enjoining the
defendants as well as their associates, agents or representatives from
continuing to occupy and encamp on the land of the plaintiff LEGASPI as well as
the vicinity thereof; from digging, tunneling and blasting the said land of
plaintiff LEGASPI; from removing whatever treasure may be found on the said
land; from preventing and threatening the plaintiffs and their representatives
from entering the said land and performing acts of ownership; from threatening
the plaintiffs and their representatives as well as plaintiffs lawyer.
On even date, the trial court issued another Order10 denying petitioners motion
to dismiss and requiring petitioners to answer the complaint. On April 4, 2000,
it likewise denied petitioners motion for inhibition.11

On appeal, the Court of Appeals affirmed the decision of the trial court.12
Hence this petition, with the following assigned errors:
I
WHETHER THE CONTRACT OF AGENCY BETWEEN LEGASPI AND PRIVATE
RESPONDENT GUTIERREZ HAS BEEN EFFECTIVELY REVOKED BY LEGASPI.
II
WHETHER THE COMPLAINT AGAINST PETITIONERS SHOULD BE DISMISSED.
III
WHETHER RESPONDENT JUDGE OUGHT TO HAVE INHIBITED HIMSELF FROM
FURTHER PROCEEDING WITH THE CASE.
We find no merit in the petition.
On the first issue, petitioners claim that the special power of attorney of
Gutierrez to represent Legaspi has already been revoked by the latter. Private
respondent Gutierrez, however, contends that the unilateral revocation is
invalid as his agency is coupled with interest.
We agree with private respondent.
Art. 1868 of the Civil Code provides that by the contract of agency, an agent
binds himself to render some service or do something in representation or on
behalf of another, known as the principal, with the consent or authority of the
latter.13
A contract of agency is generally revocable as it is a personal contract of
representation based on trust and confidence reposed by the principal on his
agent. As the power of the agent to act depends on the will and license of the
principal he represents, the power of the agent ceases when the will or
permission is withdrawn by the principal. Thus, generally, the agency may be
revoked by the principal at will.14
However, an exception to the revocability of a contract of agency is when it is
coupled with interest, i.e., if a bilateral contract depends upon the agency.15 The
reason for its irrevocability is because the agency becomes part of another
obligation or agreement. It is not solely the rights of the principal but also that

of the agent and third persons which are affected. Hence, the law provides that
in such cases, the agency cannot be revoked at the sole will of the principal.
In the case at bar, we agree with the finding of the trial and appellate courts that
the agency granted by Legaspi to Gutierrez is coupled with interest as a bilateral
contract depends on it. It is clear from the records that Gutierrez was given by
Legaspi, inter alia, the power to manage the treasure hunting activities in
the subject land; to file any case against anyone who enters the land
without authority from Legaspi; to engage the services of lawyers to carry
out the agency; and, to dig for any treasure within the land and enter into
agreements relative thereto. It was likewise agreed upon that Gutierrez shall
be entitled to 40% of whatever treasure may be found in the land. Pursuant
to this authority and to protect Legaspis land from the alleged illegal entry of
petitioners, agent Gutierrez hired the services of Atty. Adaza to prosecute the
case for damages and injunction against petitioners. As payment for legal
services, Gutierrez agreed to assign to Atty. Adaza 30% of Legaspis share
in whatever treasure may be recovered in the subject land. It is clear that
the treasure that may be found in the land is the subject matter of the agency;
that under the SPA, Gutierrez can enter into contract for the legal services of
Atty. Adaza; and, thus Gutierrez and Atty. Adaza have an interest in the subject
matter of the agency, i.e., in the treasures that may be found in the land. This
bilateral contract depends on the agency and thus renders it as one coupled
with interest, irrevocable at the sole will of the principal Legaspi.16 When an
agency is constituted as a clause in a bilateral contract, that is, when the agency
is inserted in another agreement, the agency ceases to be revocable at the
pleasure of the principal as the agency shall now follow the condition of the
bilateral agreement.17 Consequently, the Deed of Revocation executed by
Legaspi has no effect. The authority of Gutierrez to file and continue with the
prosecution of the case at bar is unaffected.
On the second issue, we hold that the issuance of the writ of preliminary
injunction is justified. A writ of preliminary injunction is an ancilliary or
preventive remedy that is resorted to by a litigant to protect or preserve his
rights or interests and for no other purpose during the pendency of the
principal action.18 It is issued by the court to prevent threatened or continuous
irremediable injury to the applicant before his claim can be thoroughly studied
and adjudicated.19 Its aim is to preserve the status quo ante until the merits of
the case can be heard fully, upon the applicants showing of two important
conditions, viz.: (1) the right to be protected prima facie exists; and, (2) the acts
sought to be enjoined are violative of that right.20
Section 3, Rule 58 of the 1997 Rules of Civil Procedure provides that a writ of
preliminary injunction may be issued when it is established:

(a) that the applicant is entitled to the relief demanded, the whole or part of
such relief consists in restraining the commission or continuance of the act or
acts complained of, or in requiring the performance of an act or acts, either for a
limited period or perpetually;
(b) that the commission, continuance or non-performance of the act or acts
complained of during the litigation would probably work injustice to the
applicant; or
(c) that a party, court, agency or a person is doing, threatening, or is attempting
to do, or is procuring or suffering to be done, some act or acts probably in
violation of the rights of the applicant respecting the subject of the action or
proceeding, and tending to render the judgment ineffectual.
It is crystal clear that at the hearing for the issuance of a writ of preliminary
injunction, mere prima facie evidence is needed to establish the applicants
rights or interests in the subject matter of the main action.21 It is not required
that the applicant should conclusively show that there was a violation of his
rights as this issue will still be fully litigated in the main case.22 Thus, an
applicant for a writ is required only to show that he has an ostensible right
to the final relief prayed for in his complaint. 23
In the case at bar, we find that respondent judge had sufficient basis to issue the
writ of preliminary injunction. It was established, prima facie, that Legaspi has
a right to peaceful possession of his land, pendente lite. Legaspi had title to
the subject land. It was likewise established that the diggings were conducted
by petitioners in the enclosed area of Legaspis land. Whether the land fenced
by Gutierrez and claimed to be included in the land of Legaspi covered an
area beyond that which is included in the title of Legaspi is a factual issue
still subject to litigation and proof by the parties in the main case for
damages. It was necessary for the trial court to issue the writ of preliminary
injunction during the pendency of the main case in order to preserve the rights
and interests of private respondents Legaspi and Gutierrez.
On the third issue, petitioners charge that the respondent judge lacked the
neutrality of an impartial judge. They fault the respondent judge for not giving
credence to the testimony of their surveyor that the diggings were conducted
outside the land of Legaspi. They also claim that respondent judges rulings on
objections raised by the parties were biased against them.
We have carefully examined the records and we find no sufficient basis to hold
that respondent judge should have recused himself from hearing the case. There
is no discernible pattern of bias on the rulings of the respondent judge. Bias and
partiality can never be presumed. Bare allegations of partiality will not suffice in

an absence of a clear showing that will overcome the presumption that the
judge dispensed justice without fear or favor.24 It bears to stress again that a
judges appreciation or misappreciation of the sufficiency of evidence adduced
by the parties, or the correctness of a judges orders or rulings on the objections
of counsels during the hearing, without proof of malice on the part of
respondent judge, is not sufficient to show bias or partiality. As we held in the
case of Webb vs. People,25 the adverse and erroneous rulings of a judge on the
various motions of a party do not sufficiently prove bias and prejudice to
disqualify him. To be disqualifying, it must be shown that the bias and prejudice
stemmed from an extrajudicial source and result in an opinion on the merits on
some basis other than what the judge learned from his participation in the case.
Opinions formed in the course of judicial proceedings, although erroneous, as
long as based on the evidence adduced, do not prove bias or prejudice. We also
emphasized that repeated rulings against a litigant, no matter how erroneously,
vigorously and consistently expressed, do not amount to bias and prejudice
which can be a bases for the disqualification of a judge.
Finally, the inhibition of respondent judge in hearing the case for damages has
become moot and academic in view of the latters death during the pendency of
the case. The main case for damages shall now be heard and tried before
another judge.
IN VIEW WHEREOF, the impugned Orders of the trial court in Civil Case No. Q-
00-40115, dated March 23 and April 4, 2000, are AFFIRMED. The presiding
judge of the Regional Trial Court of Quezon City to whom Civil Case No. Q-00-
40115 was assigned is directed to proceed with dispatch in hearing the main
case for damages. No pronouncement as to costs.
SO ORDERED.






G.R. No. 163720 December 16, 2004


GENEVIEVE
vs.
FLORENCIO SABAN, respondents.

LIM,

petitioner,


D E C I S I O N

TINGA, J.:
Before the Court is a Petition for Review on Certiorari assailing the Decision1
dated October 27, 2003 of the Court of Appeals, Seventh Division, in CA-G.R. V
No. 60392.2
The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter lot in
Cebu City (the "lot"), entered into an Agreement and Authority to Negotiate and
Sell (Agency Agreement) with respondent Florencio Saban (Saban) on February
8, 1994. Under the Agency Agreement, Ybaez authorized Saban to look for a
buyer of the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark
up the selling price to include the amounts needed for payment of taxes,
transfer of title and other expenses incident to the sale, as well as Sabans
commission for the sale.3
Through Sabans efforts, Ybaez and his wife were able to sell the lot to the
petitioner Genevieve Lim (Lim) and the spouses Benjamin and Lourdes Lim (the
Spouses Lim) on March 10, 1994. The price of the lot as indicated in the Deed of
Absolute Sale is Two Hundred Thousand Pesos (P200,000.00).4 It appears,
however, that the vendees agreed to purchase the lot at the price of Six Hundred
Thousand Pesos (P600,000.00), inclusive of taxes and other incidental expenses
of the sale. After the sale, Lim remitted to Saban the amounts of One Hundred
Thirteen Thousand Two Hundred Fifty Seven Pesos (P113,257.00) for payment
of taxes due on the transaction as well as Fifty Thousand Pesos (P50,000.00) as
brokers commission.5 Lim also issued in the name of Saban four postdated
checks in the aggregate amount of Two Hundred Thirty Six Thousand Seven
Hundred Forty Three Pesos (P236,743.00). These checks were Bank of the
Philippine Islands (BPI) Check No. 1112645 dated June 12, 1994 for P25,000.00;
BPI Check No. 1112647 dated June 19, 1994 for P18,743.00; BPI Check No.
1112646 dated June 26, 1994 for P25,000.00; and Equitable PCI Bank Check No.
021491B dated June 20, 1994 for P168,000.00.

Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to Lim. In the
letter Ybaez asked Lim to cancel all the checks issued by her in Sabans favor
and to "extend another partial payment" for the lot in his (Ybaezs) favor.6
After the four checks in his favor were dishonored upon presentment, Saban
filed a Complaint for collection of sum of money and damages against Ybaez
and Lim with the Regional Trial Court (RTC) of Cebu City on August 3, 1994.7
The case was assigned to Branch 20 of the RTC.
In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to
purchase the lot for P600,000.00, i.e., with a mark-up of Four Hundred
Thousand Pesos (P400,000.00) from the price set by Ybaez. Of the total
purchase price of P600,000.00, P200,000.00 went to Ybaez, P50,000.00
allegedly went to Lims agent, and P113,257.00 was given to Saban to cover
taxes and other expenses incidental to the sale. Lim also issued four (4)
postdated checks8 in favor of Saban for the remaining P236,743.00.9
Saban alleged that Ybaez told Lim that he (Saban) was not entitled to any
commission for the sale since he concealed the actual selling price of the lot
from Ybaez and because he was not a licensed real estate broker. Ybaez was
able to convince Lim to cancel all four checks.
Saban further averred that Ybaez and Lim connived to deprive him of his sales
commission by withholding payment of the first three checks. He also claimed
that Lim failed to make good the fourth check which was dishonored because
the account against which it was drawn was closed.
In his Answer, Ybaez claimed that Saban was not entitled to any commission
because he concealed the actual selling price from him and because he was not a
licensed real estate broker.
Lim, for her part, argued that she was not privy to the agreement between
Ybaez and Saban, and that she issued stop payment orders for the three checks
because Ybaez requested her to pay the purchase price directly to him, instead
of coursing it through Saban. She also alleged that she agreed with Ybaez that
the purchase price of the lot was only P200,000.00.
Ybaez died during the pendency of the case before the RTC. Upon motion of his
counsel, the trial court dismissed the case only against him without any
objection from the other parties.10
On May 14, 1997, the RTC rendered its Decision11 dismissing Sabans complaint,
declaring the four (4) checks issued by Lim as stale and non-negotiable, and
absolving Lim from any liability towards Saban.

Saban appealed the trial courts Decision to the Court of Appeals.


On October 27, 2003, the appellate court promulgated its Decision12 reversing
the trial courts ruling. It held that Saban was entitled to his commission
amounting to P236,743.00.13
The Court of Appeals ruled that Ybaezs revocation of his contract of agency
with Saban was invalid because the agency was coupled with an interest and
Ybaez effected the revocation in bad faith in order to deprive Saban of his
commission and to keep the profits for himself.14
The appellate court found that Ybaez and Lim connived to deprive Saban of his
commission. It declared that Lim is liable to pay Saban the amount of the
purchase price of the lot corresponding to his commission because she issued
the four checks knowing that the total amount thereof corresponded to Sabans
commission for the sale, as the agent of Ybaez. The appellate court further
ruled that, in issuing the checks in payment of Sabans commission, Lim acted as
an accommodation party. She signed the checks as drawer, without receiving
value therefor, for the purpose of lending her name to a third person. As such,
she is liable to pay Saban as the holder for value of the checks.15
Lim filed a Motion for Reconsideration of the appellate courts Decision, but her
Motion was denied by the Court of Appeals in a Resolution dated May 6, 2004.16
Not satisfied with the decision of the Court of Appeals, Lim filed the present
petition.
Lim argues that the appellate court ignored the fact that after paying her agent
and remitting to Saban the amounts due for taxes and transfer of title, she paid
the balance of the purchase price directly to Ybaez.17
She further contends that she is not liable for Ybaezs debt to Saban under the
Agency Agreement as she is not privy thereto, and that Saban has no one but
himself to blame for consenting to the dismissal of the case against Ybaez and
not moving for his substitution by his heirs.18
Lim also assails the findings of the appellate court that she issued the checks as
an accommodation party for Ybaez and that she connived with the latter to
deprive Saban of his commission.19
Lim prays that should she be found liable to pay Saban the amount of his
commission, she should only be held liable to the extent of one-third (1/3) of
the amount, since she had two co-vendees (the Spouses Lim) who should share
such liability.20

In his Comment, Saban maintains that Lim agreed to purchase the lot for
P600,000.00, which consisted of the P200,000.00 which would be paid to
Ybaez, the P50,000.00 due to her broker, the P113,257.00 earmarked for taxes
and other expenses incidental to the sale and Sabans commission as broker for
Ybaez. According to Saban, Lim assumed the obligation to pay him his
commission. He insists that Lim and Ybaez connived to unjustly deprive him of
his commission from the negotiation of the sale.21
The issues for the Courts resolution are whether Saban is entitled to receive his
commission from the sale; and, assuming that Saban is entitled thereto, whether
it is Lim who is liable to pay Saban his sales commission.
The Court gives due course to the petition, but agrees with the result reached by
the Court of Appeals.
The Court affirms the appellate courts finding that the agency was not revoked
since Ybaez requested that Lim make stop payment orders for the checks
payable to Saban only after the consummation of the sale on March 10, 1994. At
that time, Saban had already performed his obligation as Ybaezs agent when,
through his (Sabans) efforts, Ybaez executed the Deed of Absolute Sale of the
lot with Lim and the Spouses Lim.
To deprive Saban of his commission subsequent to the sale which was
consummated through his efforts would be a breach of his contract of agency
with Ybaez which expressly states that Saban would be entitled to any excess
in the purchase price after deducting the P200,000.00 due to Ybaez and the
transfer taxes and other incidental expenses of the sale.22
In Macondray & Co. v. Sellner,23 the Court recognized the right of a broker to his
commission for finding a suitable buyer for the sellers property even though
the seller himself consummated the sale with the buyer.24 The Court held that it
would be in the height of injustice to permit the principal to terminate the
contract of agency to the prejudice of the broker when he had already reaped
the benefits of the brokers efforts.
In Infante v. Cunanan, et al.,25 the Court upheld the right of the brokers to their
commissions although the seller revoked their authority to act in his behalf after
they had found a buyer for his properties and negotiated the sale directly with
the buyer whom he met through the brokers efforts. The Court ruled that the
sellers withdrawal in bad faith of the brokers authority cannot unjustly deprive
the brokers of their commissions as the sellers duly constituted agents.
The pronouncements of the Court in the aforecited cases are applicable to the
present case, especially considering that Saban had completely performed his

obligations under his contract of agency with Ybaez by finding a suitable buyer
to preparing the Deed of Absolute Sale between Ybaez and Lim and her co-
vendees. Moreover, the contract of agency very clearly states that Saban is
entitled to the excess of the mark-up of the price of the lot after deducting
Ybaezs share of P200,000.00 and the taxes and other incidental expenses of
the sale.
However, the Court does not agree with the appellate courts pronouncement
that Sabans agency was one coupled with an interest. Under Article 1927 of the
Civil Code, an agency cannot be revoked if a bilateral contract depends upon it,
or if it is the means of fulfilling an obligation already contracted, or if a partner
is appointed manager of a partnership in the contract of partnership and his
removal from the management is unjustifiable. Stated differently, an agency is
deemed as one coupled with an interest where it is established for the mutual
benefit of the principal and of the agent, or for the interest of the principal and
of third persons, and it cannot be revoked by the principal so long as the
interest of the agent or of a third person subsists. In an agency coupled with an
interest, the agents interest must be in the subject matter of the power
conferred and not merely an interest in the exercise of the power because it
entitles him to compensation. When an agents interest is confined to earning
his agreed compensation, the agency is not one coupled with an interest, since
an agents interest in obtaining his compensation as such agent is an ordinary
incident of the agency relationship.26
Sabans entitlement to his commission having been settled, the Court must now
determine whether Lim is the proper party against whom Saban should address
his claim.
Sabans right to receive compensation for negotiating as broker for Ybaez
arises from the Agency Agreement between them. Lim is not a party to the
contract. However, the record reveals that she had knowledge of the fact that
Ybaez set the price of the lot at P200,000.00 and that the P600,000.00the
price agreed upon by her and Sabanwas more than the amount set by Ybaez
because it included the amount for payment of taxes and for Sabans
commission as broker for Ybaez.
According to the trial court, Lim made the following payments for the lot:
P113,257.00 for taxes, P50,000.00 for her broker, and P400.000.00 directly to
Ybaez, or a total of Five Hundred Sixty Three Thousand Two Hundred Fifty
Seven Pesos (P563,257.00).27 Lim, on the other hand, claims that on March 10,
1994, the date of execution of the Deed of Absolute Sale, she paid directly to
Ybaez the amount of One Hundred Thousand Pesos (P100,000.00) only, and
gave to Saban P113,257.00 for payment of taxes and P50,000.00 as his
commission,28 and One Hundred Thirty Thousand Pesos (P130,000.00) on June
28, 1994,29 or a total of Three Hundred Ninety Three Thousand Two Hundred

Fifty Seven Pesos (P393,257.00). Ybaez, for his part, acknowledged that Lim
and her co-vendees paid him P400,000.00 which he said was the full amount for
the sale of the lot.30 It thus appears that he received P100,000.00 on March 10,
1994, acknowledged receipt (through Saban) of the P113,257.00 earmarked for
taxes and P50,000.00 for commission, and received the balance of P130,000.00
on June 28, 1994. Thus, a total of P230,000.00 went directly to Ybaez.
Apparently, although the amount actually paid by Lim was P393,257.00, Ybaez
rounded off the amount to P400,000.00 and waived the difference.
Lims act of issuing the four checks amounting to P236,743.00 in Sabans favor
belies her claim that she and her co-vendees did not agree to purchase the lot at
P600,000.00. If she did not agree thereto, there would be no reason for her to
issue those checks which is the balance of P600,000.00 less the amounts of
P200,000.00 (due to Ybaez), P50,000.00 (commission), and the P113,257.00
(taxes). The only logical conclusion is that Lim changed her mind about agreeing
to purchase the lot at P600,000.00 after talking to Ybaez and ultimately
realizing that Sabans commission is even more than what Ybaez received as
his share of the purchase price as vendor. Obviously, this change of mind
resulted to the prejudice of Saban whose efforts led to the completion of the sale
between the latter, and Lim and her co-vendees. This the Court cannot
countenance.
The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is enlightening
for the facts therein are similar to the circumstances of the present case. In that
case, Consejo Infante asked Jose Cunanan and Juan Mijares to find a buyer for
her two lots and the house built thereon for Thirty Thousand Pesos
(P30,000.00) . She promised to pay them five percent (5%) of the purchase
price plus whatever overprice they may obtain for the property. Cunanan and
Mijares offered the properties to Pio Noche who in turn expressed willingness
to purchase the properties. Cunanan and Mijares thereafter introduced Noche to
Infante. However, the latter told Cunanan and Mijares that she was no longer
interested in selling the property and asked them to sign a document stating
that their written authority to act as her agents for the sale of the properties
was already cancelled. Subsequently, Infante sold the properties directly to
Noche for Thirty One Thousand Pesos (P31,000.00). The Court upheld the right
of Cunanan and Mijares to their commission, explaining that
[Infante] had changed her mind even if respondent had found a buyer
who was willing to close the deal, is a matter that would not give rise to
a legal consequence if [Cunanan and Mijares] agreed to call off the
transaction in deference to the request of [Infante]. But the situation
varies if one of the parties takes advantage of the benevolence of the
other and acts in a manner that would promote his own selfish interest.
This act is unfair as would amount to bad faith. This act cannot be
sanctioned without according the party prejudiced the reward which is

due him. This is the situation in which [Cunanan and Mijares] were
placed by [Infante]. [Infante] took advantage of the services rendered
by [Cunanan and Mijares], but believing that she could evade payment
of their commission, she made use of a ruse by inducing them to sign
the deed of cancellation.This act of subversion cannot be sanctioned
and cannot serve as basis for [Infante] to escape payment of the
commission agreed upon.31

reciprocal contract. Specifically, she drew the checks in payment of the balance
of the purchase price of the lot subject of the transaction. And she had to pay the
agreed purchase price in consideration for the sale of the lot to her and her co-
vendees. In other words, the amounts covered by the checks form part of the
cause or consideration from Ybaezs end, as vendor, while the lot represented
the cause or consideration on the side of Lim, as vendee.35 Ergo, Lim received
value for her signature on the checks.

The appellate court therefore had sufficient basis for concluding that Ybaez
and Lim connived to deprive Saban of his commission by dealing with each
other directly and reducing the purchase price of the lot and leaving nothing to
compensate Saban for his efforts.

Neither is there any indication that Lim issued the checks for the purpose of
enabling Ybaez, or any other person for that matter, to obtain credit or to raise
money, thereby totally debunking the presence of the third requisite of an
accommodation party.

Considering the circumstances surrounding the case, and the undisputed fact
that Lim had not yet paid the balance of P200,000.00 of the purchase price of
P600,000.00, it is just and proper for her to pay Saban the balance of
P200,000.00.

WHEREFORE, in view of the foregoing, the petition is DISMISSED.


SO ORDERED.

Furthermore, since Ybaez received a total of P230,000.00 from Lim, or an


excess of P30,000.00 from his asking price of P200,000.00, Saban may claim
such excess from Ybaezs estate, if that remedy is still available,32 in view of the
trial courts dismissal of Sabans complaint as against Ybaez, with Sabans
express consent, due to the latters demise on November 11, 1994.33

The appellate court however erred in ruling that Lim is liable on the checks
because she issued them as an accommodation party. Section 29 of the
Negotiable Instruments Law defines an accommodation party as a person "who
has signed the negotiable instrument as maker, drawer, acceptor or indorser,
without receiving value therefor, for the purpose of lending his name to some
other person." The accommodation party is liable on the instrument to a holder
for value even though the holder at the time of taking the instrument knew him
or her to be merely an accommodation party. The accommodation party may of
course seek reimbursement from the party accommodated.34

As gleaned from the text of Section 29 of the Negotiable Instruments Law, the
accommodation party is one who meets all these three requisites, viz: (1) he
signed the instrument as maker, drawer, acceptor, or indorser; (2) he did not
receive value for the signature; and (3) he signed for the purpose of lending his
name to some other person. In the case at bar, while Lim signed as drawer of the
checks she did not satisfy the two other remaining requisites.

The absence of the second requisite becomes pellucid when it is noted at the
outset that Lim issued the checks in question on account of her transaction,
along with the other purchasers, with Ybaez which was a sale and, therefore, a

G.R. No. L-24332 January 31, 1978


RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS,
petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS,
respondents.
Seno, Mendoza & Associates for petitioner.
Ramon Duterte for private respondent.

MUOZ PALMA, J.:
This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his
principal, Concepcion Rallos, sold the latter's undivided share in a parcel of land
pursuant to a power of attorney which the principal had executed in favor. The
administrator of the estate of the went to court to have the sale declared
uneanforceable and to recover the disposed share. The trial court granted the
relief prayed for, but upon appeal the Court of Appeals uphold the validity of the
sale and the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both surnamed
Rallos were sisters and registered co-owners of a parcel of land known as Lot
No. 5983 of the Cadastral Survey of Cebu covered by Transfer Certificate of Title
No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters executed a
special power of attorney in favor of their brother, Simeon Rallos, authorizing
him to sell for and in their behalf lot 5983. On March 3, 1955, Concepcion Rallos
died. On September 12, 1955, Simeon Rallos sold the undivided shares of his
sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty
Corporation for the sum of P10,686.90. The deed of sale was registered in the
Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer
certificate of Title No. 12989 was issued in the named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of
Concepcion Rallos filed a complaint docketed as Civil Case No. R-4530 of the
Court of First Instance of Cebu, praying (1) that the sale of the undivided share
of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said
share be reconveyed to her estate; (2) that the Certificate of 'title issued in the
name of Felix Go Chan & Sons Realty Corporation be cancelled and another title

be issued in the names of the corporation and the "Intestate estate of


Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by
way of attorney's fees and payment of costs of suit. Named party defendants
were Felix Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register
of Deeds of Cebu, but subsequently, the latter was dropped from the complaint.
The complaint was amended twice; defendant Corporation's Answer contained
a crossclaim against its co-defendant, Simon Rallos while the latter filed third-
party complaint against his sister, Gerundia Rallos While the case was pending
in the trial court, both Simon and his sister Gerundia died and they were
substituted by the respective administrators of their estates.
After trial the court a quo rendered judgment with the following dispositive
portion:
A. On Plaintiffs Complaint
(1) Declaring the deed of sale, Exh. "C", null
and void insofar as the one-half pro-indiviso
share of Concepcion Rallos in the property in
question, Lot 5983 of the Cadastral Survey
of Cebu is concerned;
(2) Ordering the Register of Deeds of Cebu
City to cancel Transfer Certificate of Title No.
12989 covering Lot 5983 and to issue in lieu
thereof another in the names of FELIX GO
CHAN & SONS REALTY CORPORATION and
the Estate of Concepcion Rallos in the
proportion of one-half (1/2) share each pro-
indiviso;
(3) Ordering Felix Go Chan & Sons Realty
Corporation to deliver the possession of an
undivided one-half (1/2) share of Lot 5983 to
the herein plaintiff;
(4) Sentencing the defendant Juan T.
Borromeo, administrator of the Estate of
Simeon Rallos, to pay to plaintiff in concept of
reasonable attorney's fees the sum of
P1,000.00; and
(5) Ordering both defendants to pay the costs
jointly and severally.

B. On GO CHANTS Cross-Claim:
(1) Sentencing the co-defendant Juan T.
Borromeo, administrator of the Estate of
Simeon Rallos, to pay to defendant Felix Co
Chan & Sons Realty Corporation the sum of
P5,343.45, representing the price of one-half
(1/2) share of lot 5983;
(2) Ordering co-defendant Juan T. Borromeo,
administrator of the Estate of Simeon Rallos,
to pay in concept of reasonable attorney's fees
to Felix Go Chan & Sons Realty Corporation
the sum of P500.00.
C. On Third-Party Complaint of defendant Juan T. Borromeo
administrator of Estate of Simeon Rallos, against Josefina
Rallos special administratrix of the Estate of Gerundia Rallos:
(1) Dismissing the third-party complaint without prejudice to
filing either a complaint against the regular administrator of
the Estate of Gerundia Rallos or a claim in the Intestate-Estate
of Cerundia Rallos, covering the same subject-matter of the
third-party complaint, at bar. (pp. 98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of
Appeals from the foregoing judgment insofar as it set aside the sale of the one-
half (1/2) share of Concepcion Rallos. The appellate tribunal, as adverted to
earlier, resolved the appeal on November 20, 1964 in favor of the appellant
corporation sustaining the sale in question. 1 The appellee administrator,
Ramon Rallos, moved for a reconsider of the decision but the same was denied
in a resolution of March 4, 1965. 2
What is the legal effect of an act performed by an agent after the death of his
principal? Applied more particularly to the instant case, We have the query. is
the sale of the undivided share of Concepcion Rallos in lot 5983 valid although it
was executed by the agent after the death of his principal? What is the law in
this jurisdiction as to the effect of the death of the principal on the authority of
the agent to act for and in behalf of the latter? Is the fact of knowledge of the
death of the principal a material factor in determining the legal effect of an act
performed after such death?
Before proceedings to the issues, We shall briefly restate certain principles of
law relevant to the matter tinder consideration.

1. It is a basic axiom in civil law embodied in our Civil Code that no one may
contract in the name of another without being authorized by the latter, or unless
he has by law a right to represent him. 3 A contract entered into in the name of
another by one who has no authority or the legal representation or who has
acted beyond his powers, shall be unenforceable, unless it is ratified, expressly
or impliedly, by the person on whose behalf it has been executed, before it is
revoked by the other contracting party. 4 Article 1403 (1) of the same Code also
provides:
ART. 1403. The following contracts are unenforceable, unless
they are justified:
(1) Those entered into in the name of another person by one
who hi - been given no authority or legal representation or
who has acted beyond his powers; ...
Out of the above given principles, sprung the creation and acceptance of the
relationship of agency whereby one party, caged 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
agents acts as a representative and not for himself, and (4) the agent acts within
the scope of his authority. 5
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". 6
2. There are various ways of extinguishing agency, 7 but her We are concerned
only with one cause death of the principal Paragraph 3 of Art. 1919 of the
Civil Code which was taken from Art. 1709 of the Spanish Civil Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of the
principal or of the agent; ... (Emphasis supplied)

By reason of the very nature of the relationship between Principal and agent,
agency is extinguished by the death of the principal or the agent. This is the law
in this jurisdiction. 8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the
rationale for the law is found in the juridical basis of agency which is
representation Them being an in. integration of the personality of the principal
integration that of the agent it is not possible for the representation to continue
to exist once the death of either is establish. Pothier agrees with Manresa that by
reason of the nature of agency, death is a necessary cause for its extinction.
Laurent says that the juridical tie between the principal and the agent is severed
ipso jure upon the death of either without necessity for the heirs of the fact to
notify the agent of the fact of death of the former. 9
The same rule prevails at common law the death of the principal effects
instantaneous and absolute revocation of the authority of the agent unless the
Power be coupled with an interest. 10 This is the prevalent rule in American
Jurisprudence where it is well-settled that a power without an interest confer.
red upon an agent is dissolved by the principal's death, and any attempted
execution of the power afterward is not binding on the heirs or representatives
of the deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal
or of the agent extinguishes the agency, subject to any exception, and if so, is the
instant case within that exception? That is the determinative point in issue in
this litigation. It is the contention of respondent corporation which was
sustained by respondent court that notwithstanding the death of the principal
Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in selling the
former's sham in the property is valid and enforceable inasmuch as the
corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general
rule afore-mentioned.
ART. 1930. The agency shall remain in full force and effect even
after the death of the principal, if it has been constituted in the
common interest of the latter and of the agent, or in the
interest of a third person who has accepted the stipulation in
his favor.
ART. 1931. Anything done by the agent, without knowledge of
the death of the principal or of any other cause which
extinguishes the agency, is valid and shall be fully effective

with respect to third persons who may have contracted with


him in good. faith.
Article 1930 is not involved because admittedly the special power of attorney
executed in favor of Simeon Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent
after the death of his principal is valid and effective only under two conditions,
viz: (1) that the agent acted without knowledge of the death of the principal and
(2) that the third person who contracted with the agent himself acted in good
faith. Good faith here means that the third person was not aware of the death of
the principal at the time he contracted with said agent. These two requisites
must concur the absence of one will render the act of the agent invalid and
unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew
of the death of his principal at the time he sold the latter's share in Lot No. 5983
to respondent corporation. The knowledge of the death is clearly to be inferred
from the pleadings filed by Simon Rallos before the trial court. 12 That Simeon
Rallos knew of the death of his sister Concepcion is also a finding of fact of the
court a quo 13 and of respondent appellate court when the latter stated that
Simon Rallos 'must have known of the death of his sister, and yet he proceeded
with the sale of the lot in the name of both his sisters Concepcion and Gerundia
Rallos without informing appellant (the realty corporation) of the death of the
former. 14
On the basis of the established knowledge of Simon Rallos concerning the death
of his principal Concepcion Rallos, Article 1931 of the Civil Code is inapplicable.
The law expressly requires for its application lack of knowledge on the part of
the agent of the death of his principal; it is not enough that the third person
acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court applying
Article 1738 of the old Civil rode now Art. 1931 of the new Civil Code sustained
the validity , of a sale made after the death of the principal because it was not
shown that the agent knew of his principal's demise. 15 To the same effect is the
case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words of Justice
Jesus Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936,
plaintiffs presented no proof and there is no indication in the
record, that the agent Luy Kim Guan was aware of the death of
his principal at the time he sold the property. The death 6f the
principal does not render the act of an agent unenforceable,
where the latter had no knowledge of such extinguishment of
the agency. (1 SCRA 406, 412)

4. In sustaining the validity of the sale to respondent consideration the Court of


Appeals reasoned out that there is no provision in the Code which provides that
whatever is done by an agent having knowledge of the death of his principal is
void even with respect to third persons who may have contracted with him in
good faith and without knowledge of the death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence
of the general rule enunciated in Article 1919 that the death of the principal
extinguishes the agency. That being the general rule it follows a fortiori that any
act of an agent after the death of his principal is void ab initio unless the same
fags under the exception provided for in the aforementioned Articles 1930 and
1931. Article 1931, being an exception to the general rule, is to be strictly
construed, it is not to be given an interpretation or application beyond the clear
import of its terms for otherwise the courts will be involved in a process of
legislation outside of their judicial function.
5. Another argument advanced by respondent court is that the vendee acting in
good faith relied on the power of attorney which was duly registered on the
original certificate of title recorded in the Register of Deeds of the province of
Cebu, that no notice of the death was aver annotated on said certificate of title
by the heirs of the principal and accordingly they must suffer the consequences
of such omission. 17
To support such argument reference is made to a portion in Manresa's
Commentaries which We quote:
If the agency has been granted for the purpose of contracting
with certain persons, the revocation must be made known to
them. But if the agency is general iii nature, without reference
to particular person with whom the agent is to contract, it is
sufficient that the principal exercise due diligence to make the
revocation of the agency publicity known.
In case of a general power which does not specify the persons
to whom represents' on should be made, it is the general
opinion that all acts, executed with third persons who
contracted in good faith, Without knowledge of the revocation,
are valid. In such case, the principal may exercise his right
against the agent, who, knowing of the revocation, continued to
assume a personality which he no longer had. (Manresa Vol.
11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal as a
mode of terminating an agency which is to be distinguished from revocation by

operation of law such as death of the principal which obtains in this case. On
page six of this Opinion We stressed that by reason of the very nature of the
relationship between principal and agent, agency is extinguished ipso jure upon
the death of either principal or agent. Although a revocation of a power of
attorney to be effective must be communicated to the parties concerned, 18 yet a
revocation by operation of law, such as by death of the principal is, as a rule,
instantaneously effective inasmuch as "by legal fiction the agent's exercise of
authority is regarded as an execution of the principal's continuing will. 19 With
death, the principal's will ceases or is the of authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the
death of the principal What the Code provides in Article 1932 is that, if the agent
die his heirs must notify the principal thereof, and in the meantime adopt such
measures as the circumstances may demand in the interest of the latter. Hence,
the fact that no notice of the death of the principal was registered on the
certificate of title of the property in the Office of the Register of Deeds, is not
fatal to the cause of the estate of the principal
6. Holding that the good faith of a third person in said with an agent affords the
former sufficient protection, respondent court drew a "parallel" between the
instant case and that of an innocent purchaser for value of a land, stating that if
a person purchases a registered land from one who acquired it in bad faith
even to the extent of foregoing or falsifying the deed of sale in his favor the
registered owner has no recourse against such innocent purchaser for value but
only against the forger. 20
To support the correctness of this respondent corporation, in its brief, cites the
case of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the
brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61
Phil. 630, one Vallejo was a co-owner of lands with Agustin
Nano. The latter had a power of attorney supposedly executed
by Vallejo Nano in his favor. Vallejo delivered to Nano his land
titles. The power was registered in the Office of the Register of
Deeds. When the lawyer-husband of Angela Blondeau went to
that Office, he found all in order including the power of
attorney. But Vallejo denied having executed the power The
lower court sustained Vallejo and the plaintiff Blondeau
appealed. Reversing the decision of the court a quo, the
Supreme Court, quoting the ruling in the case of Eliason v.
Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the
defenses of the defendant- appellee must be

overruled. Agustin Nano had possession of


Jose Vallejo's title papers. Without those title
papers handed over to Nano with the
acquiescence of Vallejo, a fraud could not have
been perpetuated. When Fernando de la
Canters, a member of the Philippine Bar and
the husband of Angela Blondeau, the principal
plaintiff, searched the registration record, he
found them in due form including the power
of attorney of Vallajo in favor of Nano. If this
had not been so and if thereafter the proper
notation of the encumbrance could not have
been made, Angela Blondeau would not have
sent P12,000.00 to the defendant Vallejo.' An
executed transfer of registered lands placed
by the registered owner thereof in the hands
of another operates as a representation to a
third party that the holder of the transfer is
authorized to deal with the land.
As between two innocent persons, one of
whom must suffer the consequence of a
breach of trust, the one who made it possible
by his act of coincidence bear the loss. (pp. 19-
21)
The Blondeau decision, however, is not on all fours with the case before Us
because here We are confronted with one who admittedly was an agent of his
sister and who sold the property of the latter after her death with full
knowledge of such death. The situation is expressly covered by a provision of
law on agency the terms of which are clear and unmistakable leaving no room
for an interpretation contrary to its tenor, in the same manner that the ruling in
Blondeau and the cases cited therein found a basis in Section 55 of the Land
Registration Law which in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever
any voluntary instrument is presented for registration shall be
conclusive authority from the registered owner to the register
of deeds to enter a new certificate or to make a memorandum
of registration in accordance with such instruments, and the
new certificate or memorandum Shall be binding upon the
registered owner and upon all persons claiming under him in
favor of every purchaser for value and in good faith: Provided

however, That in all cases of registration provided by fraud, the


owner may pursue all his legal and equitable remedies against
the parties to such fraud without prejudice, however, to the
right, of any innocent holder for value of a certificate of title. ...
(Act No. 496 as amended)
7. One last point raised by respondent corporation in support of the appealed
decision is an 1842 ruling of the Supreme Court of Pennsylvania in Cassiday v.
McKenzie wherein payments made to an agent after the death of the principal
were held to be "good", "the parties being ignorant of the death". Let us take
note that the Opinion of Justice Rogers was premised on the statement that the
parties were ignorant of the death of the principal. We quote from that decision
the following:
... Here the precise point is, whether a payment to an agent
when the Parties are ignorant of the death is a good payment.
in addition to the case in Campbell before cited, the same judge
Lord Ellenboruogh, has decided in 5 Esp. 117, the general
question that a payment after the death of principal is not
good. Thus, a payment of sailor's wages to a person having a
power of attorney to receive them, has been held void when
the principal was dead at the time of the payment. If, by this
case, it is meant merely to decide the general proposition that
by operation of law the death of the principal is a revocation of
the powers of the attorney, no objection can be taken to it. But
if it intended to say that his principle applies where there was
110 notice of death, or opportunity of twice I must be
permitted to dissent from it.
... That a payment may be good today, or bad tomorrow, from
the accident circumstance of the death of the principal, which
he did not know, and which by no possibility could he know? It
would be unjust to the agent and unjust to the debtor. In the
civil law, the acts of the agent, done bona fide in ignorance of
the death of his principal are held valid and binding upon the
heirs of the latter. The same rule holds in the Scottish law, and I
cannot believe the common law is so unreasonable... (39 Am.
Dec. 76, 80, 81; emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may
evoke, mention may be made that the above represents the minority view in
American jurisprudence. Thus in Clayton v. Merrett, the Court said.
There are several cases which seem to hold that although, as a
general principle, death revokes an agency and renders null

every act of the agent thereafter performed, yet that where a


payment has been made in ignorance of the death, such
payment will be good. The leading case so holding is that of
Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where,
in an elaborate opinion, this view ii broadly announced. It is
referred to, and seems to have been followed, in the case of
Dick v. Page, 17 Mo. 234, 57 AmD 267; but in this latter case it
appeared that the estate of the deceased principal had received
the benefit of the money paid, and therefore the representative
of the estate might well have been held to be estopped from
suing for it again. . . . These cases, in so far, at least, as they
announce the doctrine under discussion, are exceptional. The
Pennsylvania Case, supra (Cassiday v. McKenzie 4 Watts & S.
282, 39 AmD 76), is believed to stand almost, if not quite, alone
in announcing the principle in its broadest scope. (52, Misc.
353, 357, cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out
that the opinion, except so far as it related to the particular facts, was a mere
dictum, Baldwin J. said:
The opinion, therefore, of the learned Judge may be regarded
more as an extrajudicial indication of his views on the general
subject, than as the adjudication of the Court upon the point in
question. But accordingly all power weight to this opinion, as
the judgment of a of great respectability, it stands alone among
common law authorities and is opposed by an array too
formidable to permit us to following it. (15 Cal. 12,17, cited in 2
C.J. 549)

Amador E. Gomez of the Court of First Instance of Cebu, quoted in pages 2 and 3
of this Opinion, with costs against respondent realty corporation at all instances.
So Ordered.











Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in


American jurisprudence, no such conflict exists in our own for the simple reason
that our statute, the Civil Code, expressly provides for two exceptions to the
general rule that death of the principal revokes ipso jure the agency, to wit: (1)
that the agency is coupled with an interest (Art 1930), and (2) that the act of the
agent was executed without knowledge of the death of the principal and the
third person who contracted with the agent acted also in good faith (Art. 1931).
Exception No. 2 is the doctrine followed in Cassiday, and again We stress the
indispensable requirement that the agent acted without knowledge or notice of
the death of the principal In the case before Us the agent Ramon Rallos executed
the sale notwithstanding notice of the death of his principal Accordingly, the
agent's act is unenforceable against the estate of his principal.

IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent


appellate court, and We affirm en toto the judgment rendered by then Hon.