Republic of the Philippines May 1971.
Philippines May 1971. Teresita enlisted the help of Lee Ella
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-57339 December 29, 1983
AIR FRANCE, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE G.
GANA (Deceased), CLARA A. GANA, RAMON
GANA, MANUEL GANA, MARIA TERESA GANA,
ROBERTO GANA, JAIME JAVIER GANA,
CLOTILDE VDA. DE AREVALO, and EMILY SAN
JUAN, respondents.
Benjamin S. Valte for petitioner.
Napoleon Garcia for private respondents.
MELENCIO-HERRERA, J.:
In this petition for review on certiorari, petitioner AIR
FRANCE assails the Decision of then respondent
Court of Appeals 1 promulgated on 15 December 1980
in CA-G.R. No. 58164-R, entitled "Jose G. Gana, et
al. vs. Sociedad Nacionale Air France", which
reversed the Trial Court's judgment dismissing the
Complaint of private respondents for damages arising
from breach of contract of carriage, and awarding
instead P90,000.00 as moral damages.
Sometime in February, 1970, the late Jose G. Gana
and his family, numbering nine (the GANAS),
purchased from AIR FRANCE through Imperial
Travels, Incorporated, a duly authorized travel agent,
nine (9) "open-dated" air passage tickets for the
Manila/Osaka/Tokyo/Manila route. The GANAS paid a
total of US$2,528.85 for their economy and first class
fares. Said tickets were bought at the then prevailing
exchange rate of P3.90 per US$1.00. The GANAS
also paid travel taxes of P100.00 for each passenger.
On 24 April 1970, AIR FRANCE exchanged or
substituted the aforementioned tickets with other
tickets for the same route. At this time, the GANAS
were booked for the Manila/Osaka segment on AIR
FRANCE Flight 184 for 8 May 1970, and for the
Tokyo/Manila return trip on AIR FRANCE Flight 187
on 22 May 1970. The aforesaid tickets were valid until
8 May 1971, the date written under the printed words
"Non valuable apres de (meaning, "not valid after
the").
The GANAS did not depart on 8 May 1970.
Sometime in January, 1971, Jose Gana sought the
assistance of Teresita Manucdoc, a Secretary of the
Sta. Clara Lumber Company where Jose Gana was
the Director and Treasurer, for the extension of the
validity of their tickets, which were due to expire on 8
On 25 August 1971, the GANAS commenced before
Manager of the Philippine Travel Bureau, who used to
handle travel arrangements for the personnel of the
Sta. Clara Lumber Company. Ella sent the tickets to
Cesar Rillo, Office Manager of AIR FRANCE. The
tickets were returned to Ella who was informed that
extension was not possible unless the fare
differentials resulting from the increase in fares
triggered by an increase of the exchange rate of the
US dollar to the Philippine peso and the increased
travel tax were first paid. Ella then returned the tickets
to Teresita and informed her of the impossibility of
extension.
In the meantime, the GANAS had scheduled their
departure on 7 May 1971 or one day before the expiry
date. In the morning of the very day of their scheduled
departure on the first leg of their trip, Teresita
requested travel agent Ella to arrange the revalidation
of the tickets. Ella gave the same negative answer
and warned her that although the tickets could be
used by the GANAS if they left on 7 May 1971, the
tickets would no longer be valid for the rest of their trip
because the tickets would then have expired on 8
May 1971. Teresita replied that it will be up to the
GANAS to make the arrangements. With that
assurance, Ella on his own, attached to the tickets
validating stickers for the Osaka/Tokyo flight, one a
JAL. sticker and the other an SAS (Scandinavian
Airways System) sticker. The SAS sticker indicates
thereon that it was "Reevaluated by: the Philippine
Travel Bureau, Branch No. 2" (as shown by a circular
rubber stamp) and signed "Ador", and the date is
handwritten in the center of the circle. Then appear
under printed headings the notations: JL. 108 (Flight),
16 May (Date), 1040 (Time), OK (status). Apparently,
Ella made no more attempt to contact AIR FRANCE
as there was no more time.
Notwithstanding the warnings, the GANAS departed
from Manila in the afternoon of 7 May 1971 on board
AIR FRANCE Flight 184 for Osaka, Japan. There is
no question with respect to this leg of the trip.
However, for the Osaka/Tokyo flight on 17 May 1971,
Japan Airlines refused to honor the tickets because of
their expiration, and the GANAS had to purchase new
tickets. They encountered the same difficulty with
respect to their return trip to Manila as AIR FRANCE
also refused to honor their tickets. They were able to
return only after pre-payment in Manila, through their
relatives, of the readjusted rates. They finally flew
back to Manila on separate Air France Frights on 19
May 1971 for Jose Gana and 26 May 1971 for the rest
of the family.
the then Court of First Instance of Manila, Branch III,
Civil Case No. 84111 for damages arising from breach
of contract of carriage.
AIR FRANCE traversed the material allegations of the
Complaint and alleged that the GANAS brought upon
themselves the predicament they found themselves in
and assumed the consequential risks; that travel
agent Ella's affixing of validating stickers on the tickets
without the knowledge and consent of AIR FRANCE,
violated airline tariff rules and regulations and was
beyond the scope of his authority as a travel agent;
and that AIR FRANCE was not guilty of any fraudulent
conduct or bad faith.
On 29 May 1975, the Trial Court dismissed the
Complaint based on Partial and Additional Stipulations
of Fact as wen as on the documentary and testimonial
evidence.
The GANAS appealed to respondent Appellate Court.
During the pendency of the appeal, Jose Gana, the
principal plaintiff, died.
On 15 December 1980, respondent Appellate Court
set aside and reversed the Trial Court's judgment in a
Decision, which decreed:
WHEREFORE, the decision
appealed from is set aside. Air
France is hereby ordered to pay
appellants moral damages in the
total sum of NINETY THOUSAND
PESOS (P90,000.00) plus costs.
SO ORDERED. 2
Reconsideration sought by AIR FRANCE was denied,
hence, petitioner's recourse before this instance, to
which we gave due course.
The crucial issue is whether or not, under the
environmental milieu the GANAS have made out a
case for breach of contract of carriage entitling them
to an award of damages.
We are constrained to reverse respondent Appellate
Court's affirmative ruling thereon.
Pursuant to tariff rules and regulations of the
International Air Transportation Association (IATA),
included in paragraphs 9, 10, and 11 of the
Stipulations of Fact between the parties in the Trial
Court, dated 31 March 1973, an airplane ticket is valid
for one year. "The passenger must undertake the final
portion of his journey by departing from the last point
at which he has made a voluntary stop before the
expiry of this limit (parag. 3.1.2. ) ... That is the time
allowed a passenger to begin and to complete his trip
(parags. 3.2 and 3.3.). ... A ticket can no longer be
used for travel if its validity has expired before the
passenger completes his trip (parag. 3.5.1.) ... To turn after being said that the
complete the trip, the passenger must purchase a told this by Mr. tickets were
new ticket for the remaining portion of the journey" Rillo? about to expire?'
(ibid.) 3 A I told her, because that is Your answer was:
From the foregoing rules, it is clear that AIR FRANCE the reason why 'I am the one who
cannot be faulted for breach of contract when it they accepted asked her. At that
dishonored the tickets of the GANAS after 8 May again the tickets time I told her if
1971 since those tickets expired on said date; nor when we the tickets being
when it required the GANAS to buy new tickets or returned the used ... I was
have their tickets re-issued for the Tokyo/Manila tickets spin, that telling her what
segment of their trip. Neither can it be said that, when they could not be about their
upon sale of the new tickets, it imposed additional extended. They bookings on the
charges representing fare differentials, it was could be return. What
motivated by self-interest or unjust enrichment extended by about their travel
considering that an increase of fares took effect, as paying the on the return?
authorized by the Civil Aeronautics Board (CAB) in additional fare, She told me it is
April, 1971. This procedure is well in accord with the additional tax and up for the Ganas
IATA tariff rules which provide: additional to make the
6. TARIFF RULES exchange during arrangement.'
7. APPLICABLE FARE ON THE that time. May I know from
DATE OF DEPARTURE Q You said so to Mrs. you what did you
3.1 General Rule. Manucdoc? mean by this
All journeys must be charged for at A Yes, sir." ... 5 testimony of
the fare (or charge) in effect on the The ruling relied on by respondent Appellate Court, yours?
date on which transportation therefore, in KLM. vs. Court of Appeals, 65 SCRA 237 A That was on
commences from the point of origin. (1975), holding that it would be unfair to charge the day when
Any ticket sold prior to a change of respondents therein with automatic knowledge or they were asking
fare or charge (increase or notice of conditions in contracts of adhesion, is me on May 7,
decrease) occurring between the inapplicable. To all legal intents and purposes, 1971 when they
date of commencement of the Teresita was the agent of the GANAS and notice to were checking
journey, is subject to the above her of the rejection of the request for extension of the the tickets. I told
general rule and must be adjusted validity of the tickets was notice to the GANAS, her Mrs. Manucdoc
accordingly. A new ticket must be principals. that I was going
issued and the difference is to be The SAS validating sticker for the Osaka/Tokyo flight to get the tickets.
collected or refunded as the case affixed by Era showing reservations for JAL. Flight I asked her what
may be. No adjustment is 108 for 16 May 1971, without clearing the same with about the tickets
necessary if the increase or AIR FRANCE allegedly because of the imminent onward from the
decrease in fare (or charge) occurs departure of the GANAS on the same day so that he return from
when the journey is already could not get in touch with Air France 6 was certainly Tokyo, and her
commenced. 4 in contravention of IATA rules although as he had answer was it is
The GANAS cannot defend by contending lack of explained, he did so upon Teresita's assurance that up for the Ganas
knowledge of those rules since the evidence bears for the onward flight from Osaka and return, the to make the
out that Teresita, who handled travel arrangements for GANAS would make other arrangements. arrangement,
the GANAS, was duly informed by travel agent Ella of Q Referring you because I told
the advice of Reno, the Office Manager of Air France, to page 33 of the her that they
that the tickets in question could not be extended transcript of the could leave on
beyond the period of their validity without paying the last session, I the seventh, but
fare differentials and additional travel taxes brought had this question they could take
about by the increased fare rate and travel taxes. which reads as care of that when
ATTY. VALTE follows: 'But did they arrived in
Q What did you tell Mrs. she say anything Osaka.
Manucdoc, in to you when you
 Q What do you the expiry date of their tickets and that "other petitioner against the
mean? arrangements" were to be made with respect to the herein respondents; and
A The Ganas will remaining segments. Besides, the validating stickers 2. Resolution[3] dated Sep
make the that Ella affixed on his own merely reflect the status of tember 17,
arrangement reservations on the specified flight and could not 2001, denying the petitione
from Osaka, legally serve to extend the validity of a ticket or revive r's motion for
Tokyo and an expired one. reconsideration.
Manila. The conclusion is inevitable that the GANAS brought
Q What upon themselves the predicament they were in for The facts:
arrangement? having insisted on using tickets that were due to
A The expire in an effort, perhaps, to beat the deadline and On May 5, 1980, the respondent Philippine National
arrangement for in the thought that by commencing the trip the day Railways (PNR) informed a certain Gaudencio
the airline before the expiry date, they could complete the trip Romualdez (Romualdez, hereinafter) that it
because the even thereafter. It should be recalled that AIR has accepted the latters offer to buy, on an AS IS,
tickets would FRANCE was even unaware of the validating SAS WHERE IS basis, the PNRs scrap/unserviceable rails
expire on May 7, and JAL. stickers that Ella had affixed spuriously. located in Del Carmen and Lubao, Pampanga
and they insisted Consequently, Japan Air Lines and AIR FRANCE at P1,300.00 and P2,100.00 per metric ton,
on leaving. I merely acted within their contractual rights when they respectively, for the total amount of P96,600.00. After
asked Mrs. dishonored the tickets on the remaining segments of paying the stated purchase
Manucdoc what the trip and when AIR FRANCE demanded payment price, Romualdez addressed a letter to Atty. Cipriano
about the return of the adjusted fare rates and travel taxes for the Dizon, PNRs Acting Purchasing Agent. Bearing
onward portion Tokyo/Manila flight. date May 26, 1980, the letter reads:
because they WHEREFORE, the judgment under review is hereby
would be reversed and set aside, and the Amended Complaint Dear Atty. Dizon:
travelling to filed by private respondents hereby dismissed.
Osaka, and her No costs. This is to inform you as President of
answer was, it is SO ORDERED. San Juanico Enterprises, that I have
up to for the authorized the bearer, LIZETTE R.
Ganas to make SECOND DIVISION WIJANCO of No. 1606 Aragon St.,
the arrangement. Sta. Cruz, Manila, to be my lawful
Q Exactly what representative in the withdrawal of
were the words of Angeles v. PNR the scrap/unserviceable rails
Mrs. Manucdoc awarded to me.
when you told her GARCIA, J.:
that? If you can For this reason, I have given her
remember, what Under consideration is this petition for review under the ORIGINAL COPY of the AWARD,
were her exact Rule 45 of the Rules of Court assailing and seeking to dated May 5, 1980 and O.R. No.
words? set aside the following issuances of the Court of 8706855 dated May 20, 1980 which
A Her words only, Appeals (CA) in CA-G.R. CV No. 54062, to wit: will indicate my waiver of rights,
it is up for the interests and participation in favor of
Ganas to make LIZETTE R. WIJANCO.
the arrangement. 1. Decision[2] dated June
Q This was in 4, 2001, affirming an Thank you for your cooperation.
Tagalog or in earlier decision of the
English? Regional Trial Court Very truly yours,
A I think it was in (RTC) of Quezon (Sgd.) Gaudencio Romualdez
English. ... 7 City, Branch 79, which
The circumstances that AIR FRANCE personnel at dismissed the complaint The Lizette R. Wijanco mentioned in the letter
the ticket counter in the airport allowed the GANAS to for specific performance was Lizette Wijanco- Angeles, petitioner's now
leave is not tantamount to an implied ratification of and damages thereat deceased wife. That very same day May 26,
travel agent Ella's irregular actuations. It should be commenced by the 1980 Lizette requested the PNR to transfer the
recalled that the GANAS left in Manila the day before 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 once apparent that Lizette was to act just as
motion for reconsideration. a representative of Romualdez in the withdrawal of
rails, and not an assignee. For perspective, we
Hence, the petitioners present recourse on the reproduce the contents of said letter:
submission that the CA erred in affirming the trial
court's holding that petitioner and his spouse, as This is to inform you as President of
plaintiffs a quo, had no cause of action as they were San Juanico Enterprises, that I
not the real parties-in-interest in this case. have authorized the bearer,
LIZETTE R. WIJANCO x x x to be
We DENY the petition. my lawful representative in the
withdrawal of the
At the crux of the issue is the matter of how scrap/unserviceable rails
the aforequoted May 26, 1980 letter of Romualdez awarded to me.
to Atty. Dizon of the PNR should be taken: was it
meant to designate, or has it the effect of For this reason, I have given her
designating, Lizette W. Angeles as a mere agent or as the ORIGINAL COPY of
an assignee of his (Romualdez's) interest in the scrap the AWARD, dated May 5,
rails awarded to San Juanico Enterprises? The CAs 1980 and O.R. No. 8706855
conclusion, affirmatory of that of the trial court, is that dated May 20, 1980 which will
Lizette was not an assignee, but merely an agent indicate my waiver of rights,
whose authority was limited to the withdrawal of the interests and participation in favor
scrap rails, hence, without personality to sue. of LIZETTE R.
WIJANCO. (Emphasis added)
Where agency exists, the third party's (in this case,
PNR's) liability on a contract is to the principal and not If Lizette was without legal standing to sue and
to the agent and the relationship of the third party to appear in this case, there is more reason to hold that
the principal is the same as that in a contract in which her petitioner husband, either as her conjugal partner
there is no agent. Normally, the agent has neither or her heir, is also without such standing.
rights nor liabilities as against the third party. He
cannot thus sue or be sued on the contract. Since a Petitioner makes much of the fact that the terms agent
contract may be violated only by the parties thereto as or attorney-in-fact were not used in the Romualdez
against each other, the real party-in-interest, either as letter aforestated. It bears to stress,
plaintiff or defendant in an action upon that contract however, that the words principal and agent, are not
must, generally, be a contracting party. the only terms used to designate the parties in an
agency relation. The agent may also be called an
The legal situation is, however, different where an attorney, proxy, delegate or, as here, representative.
agent is constituted as an assignee. In such a
case, the agent may, in his own behalf, sue on a It cannot be over emphasized that Romualdez's use
contract made for his principal, as an assignee of of the active verb authorized, instead
such contract. The rule 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
requiring every action to be prosecuted in the name of scrap transaction to being the representative of his
the real party-in- interest therein.
interest recognizes the assignment of rights of action
and also recognizes Petitioner submits that the second paragraph of the
that when one has a right assigned to him, he is then Romualdez letter, stating - I have given [Lizette] the
the real party-in-interest and may maintain an action original copy of the award x x x which will indicate my
upon such claim or right.[4] waiver of rights, interests and participation in favor of
Lizette R. Wijanco - clarifies that Lizette was intended
Upon scrutiny of the subject Romualdez's letter to be an assignee, and not a mere agent.
to Atty. Cipriano Dizon dated May 26, 1980, it is at
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
phraseis 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.
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.
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.
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. 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.
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.
WHEREFORE, the petition is DENIED and the
assailed decision of the CA is AFFIRMED.
Costs against the petitioner.
SO ORDERED.
THIRD DIVISION
[G.R. No. 111448. January 16, 2002]
AF REALTY & DEVELOPMENT vs. DIESELMAN
FREIGHT SERVICES,.
DECISION
SANDOVAL-GUTIERREZ, J.:
Petition for review on certiorari assailing the
Decision dated December 10, 1992 and the
Resolution (Amending Decision) dated August 5, 1993
of the Court of Appeals in CA-G.R. CV No. 30133.
Dieselman Freight Service Co. (Dieselman for
brevity) is a domestic corporation and a registered
owner of a parcel of commercial lot consisting of
2,094 square meters, located at 104 E. Rodriguez
Avenue, Barrio Ugong, Pasig City, Metro Manila. The
property is covered by Transfer Certificate of Title No.
39849 issued by the Registry of Deeds of the
Province of Rizal.[1]
On May 10, 1988, Manuel C. Cruz, Jr., a
member of the board of directors of Dieselman,
issued a letter denominated as "Authority To Sell Real
Estate"[2] to Cristeta N. Polintan, a real estate broker
of the CNP Real Estate Brokerage. Cruz, Jr.
authorized Polintan "to look for a buyer/buyers and
negotiate the sale" of the lot at P3,000.00 per square
meter, or a total ofP6,282,000.00. Cruz, Jr. has no
written authority from Dieselman to sell the lot.
In turn, Cristeta Polintan, through a letter[3] dated
May 19, 1988, authorized Felicisima ("Mimi")
Noble[4] to sell the same lot.
Felicisima Noble then offered for sale the
property to AF Realty & Development, Inc. (AF Realty)
at P2,500.00 per square meter.[5] Zenaida Ranullo,
board member and vice-president of AF Realty,
accepted the offer and issued a check in the amount
of P300,000.00 payable to the order of
Dieselman. Polintan received the check and signed
an "Acknowledgement Receipt"[6] indicating that the
amount of P300,000.00 represents the partial
payment of the property but refundable within two
weeks should AF Realty disapprove Ranullo's action
on the matter.
 On June 29, 1988, AF Realty confirmed its
intention to buy the lot. Hence, Ranullo asked Polintan
for the board resolution of Dieselman authorizing the
sale of the property. However, Polintan could only give
Ranullo the original copy of TCT No. 39849, the tax
declaration and tax receipt for the lot, and a
photocopy of the Articles of Incorporation of
Dieselman.[7]
On August 2, 1988, Manuel F. Cruz, Sr.,
president of Dieselman, acknowledged receipt of the
said P300,000.00 as "earnest money" but required AF
Realty to finalize the sale at P4,000.00 per square
meter.[8] AF Realty replied that it has paid an initial
down payment of P300,000.00 and is willing to pay
the balance.[9]
However, on August 13, 1988, Mr. Cruz, Sr.
terminated the offer and demanded from AF Realty
the return of the title of the lot earlier delivered by
Polintan.[10]
Claiming that there was a perfected contract of
sale between them, AF Realty filed with the Regional
Trial Court, Branch 160, Pasig City a complaint for
specific performance (Civil Case No. 56278) against
Dieselman and Cruz, Jr.. The complaint prays that
Dieselman be ordered to execute and deliver a final
deed of sale in favor of AF Realty.[11] In its amended
complaint,[12] AF Realty asked for payment of
P1,500,000.00 as compensatory damages;
P400,000.00 as attorneys fees; and P500,000.00 as
exemplary damages.
In its answer, Dieselman alleged that there was
no meeting of the minds between the parties in the
sale of the property and that it did not authorize any
person to enter into such transaction on its behalf.
Meanwhile, on July 30, 1988, Dieselman and
Midas Development Corporation (Midas) executed a
Deed of Absolute Sale[13] of the same property. The
agreed price was P2,800.00 per square meter. Midas
delivered to Dieselman P500,000.00 as down
payment and deposited the balance of P5,300,000.00
in escrow account with the PCIBank.
Constrained to protect its interest in the property,
Midas filed on April 3, 1989 a Motion for Leave to
Intervene in Civil Case No. 56278. Midas alleged that
it has purchased the property and took possession
thereof, hence Dieselman cannot be compelled to sell
and convey it to AF Realty. The trial court granted
Midas' motion.
After trial, the lower court rendered the
challenged Decision holding that the acts of Cruz, Jr.
bound Dieselman in the sale of the lot to AF Realty.
[14]
Consequently, the perfected contract of sale
between Dieselman and AF Realty bars Midas'
intervention. The trial court also held that Midas acted
in bad faith when it initially paid Dieselman
P500,000.00 even without seeing the latter's title to
the property. Moreover, the notarial report of the sale
was not submitted to the Clerk of Court of the Quezon
City RTC and the balance of P5,300,000.00
purportedly deposited in escrow by Midas with a bank
was not established.
The dispositive portion of the trial courts
Decision reads:
WHEREFORE, foregoing considered, judgment is
hereby rendered ordering defendant to execute and
deliver to plaintiffs the final deed of sale of the
property covered by the Transfer Certificate of Title
No. 39849 of the Registry of Deed of Rizal, Metro
Manila District II, including the improvements thereon,
and ordering defendants to pay plaintiffs attorneys
fees in the amount of P50,000.00 and to pay the
costs.
"The counterclaim of defendants is necessarily
dismissed.
"The counterclaim and/or the complaint in intervention
are likewise dismissed
"SO ORDERED.[15]
Dissatisfied, all the parties appealed to the Court
of Appeals.
AF Realty alleged that the trial court erred in not
holding Dieselman liable for moral, compensatory and
exemplary damages, and in dismissing its
counterclaim against Midas.
Upon the other hand, Dieselman and Midas
claimed that the trial court erred in finding that a
contract of sale between Dieselman and AF Realty
was perfected. Midas further averred that there was
no bad faith on its part when it purchased the lot from
Dieselman.
In its Decision dated December 10, 1992, the
Court of Appeals reversed the judgment of the trial
court holding that since Cruz, Jr. was not authorized in
writing by Dieselman to sell the subject property to AF
Realty, the sale was not perfected; and that the Deed
of Absolute Sale between Dieselman and Midas is
valid, there being no bad faith on the part of the
latter. The Court of Appeals then declared Dieselman
and Cruz, Jr. jointly and severally liable to AF Realty
for P100,000.00 as moral damages; P100,000.00 as
exemplary damages; and P100,000.00 as attorney's
fees.[16]
On August 5, 1993, the Court of Appeals, upon
motions for reconsideration filed by the parties,
promulgated an Amending Decision, the dispositive
portion of which reads:
WHEREFORE, The Decision promulgated on October
10, 1992, is hereby AMENDED in the sense that only
defendant Mr. Manuel Cruz, Jr. should be made liable
to pay the plaintiffs the damages and attorneys fees
awarded therein, plus the amount of P300,000.00
unless, in the case of the said P300,000.00, the same
is still deposited with the Court which should be
restituted to plaintiffs.
"SO ORDERED.[17]
AF Realty now comes to this Court via the
instant petition alleging that the Court of Appeals
committed errors of law.
The focal issue for consideration by this Court is
who between petitioner AF Realty and respondent
Midas has a right over the subject lot.
The Court of Appeals, in reversing the judgment
of the trial court, made the following ratiocination:
From the foregoing scenario, the fact that the board of
directors of Dieselman never authorized, verbally and
in writing, Cruz, Jr. to sell the property in question or
to look for buyers and negotiate the sale of the subject
property is undeniable.
"While Cristeta Polintan was actually authorized by
Cruz, Jr. to look for buyers and negotiate the sale of
the subject property, it should be noted that Cruz, Jr.
could not confer on Polintan any authority which he
himself did not have. Nemo dat quod non habet. In
the same manner, Felicisima Noble could not have
possessed authority broader in scope, being a mere
extension of Polintans purported authority, for it is a
legal truism in our jurisdiction that a spring cannot rise
higher than its source. Succinctly stated, the alleged
sale of the subject property was effected through
persons who were absolutely without any authority
whatsoever from Dieselman.
"The argument that Dieselman ratified the contract by
accepting the P300,000.00 as partial payment of the
purchase price of the subject property is equally
untenable. The sale of land through an agent without
any written authority is void.
xxxxxxxxx
"On the contrary, anent the sale of the subject
property by Dieselman to intervenor Midas, the
records bear out that Midas purchased the same from
Dieselman on 30 July 1988. The notice of lis
pendens was subsequently annotated on the title of
the property by plaintiffs on 15 August 1988. However,
this subsequent annotation of the notice of lis
pendens certainly operated prospectively and did not
retroact to make the previous sale of the property to
Midas a conveyance in bad faith. A subsequently
registered notice of lis pendens surely is not proof of
bad faith. It must therefore be borne in mind that the
30 July 1988 deed of sale between Midas and
Dieselman is a document duly certified by notary
public under his hand and seal. x x x. Such a deed of
sale being public document acknowledged before a
notary public is admissible as to the date and fact of
its execution without further proof of its due execution
and delivery (Bael vs. Intermediate Appellate Court,
169 SCRA617; Joson vs. Baltazar, 194 SCRA 114)
and to prove the defects and lack of consent in the
execution thereof, the evidence must be strong and
not merely preponderant x x x.[18]
We agree with the Court of Appeals.
Section 23 of the Corporation Code expressly
provides that the corporate powers of all corporations
shall be exercised by the board of directors. Just as a
natural person may authorize another to do certain
acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to
individual officers or agents appointed by it.[19] Thus,
contracts or acts of a corporation must be made either
by the board of directors or by a corporate agent duly
authorized by the board.[20] Absent such valid
delegation/authorization, the rule is that the
declarations of an individual director relating to the
affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties
of such director, are held not binding on the
corporation.[21]
In the instant case, it is undisputed that
respondent Cruz, Jr. has no written authority from the
board of directors of respondent Dieselman to sell or
to negotiate the sale of the lot, much less to appoint
other persons for the same purpose. Respondent
Cruz, Jr.s lack of such authority precludes him from
conferring any authority to Polintan involving the
subject realty.Necessarily, neither could Polintan
authorize Felicisima Noble. Clearly, the collective acts
of respondent Cruz, Jr., Polintan and Noble cannot
bind Dieselman in the purported contract of sale.
Petitioner AF Realty maintains that the sale of
land by an unauthorized agent may be ratified where,
as here, there is acceptance of the benefits
involved. In this case the receipt by respondent Cruz,
Jr. from AF Realty of the P300,000.00 as partial
payment of the lot effectively binds respondent
Dieselman.[22]
We are not persuaded.
Involved in this case is a sale of land through
an agent. Thus, the law on agency under the Civil
Code takes precedence. This is well stressed in Yao
Ka Sin Trading vs. Court of Appeals:[23]
Since a corporation, such as the private respondent,
can act only through its officers and agents, all acts
within the powers of said corporation may be
performed by agents of its selection; and, except
so far as limitations or restrictions may be imposed by
special charter, by-law, or statutory
provisions, the same general principles of law
which govern the relation of agency for a natural
person govern the officer or agent of a
corporation, of whatever status or rank, in respect
to his power to act for the corporation; and agents
when once appointed, or members acting in their
stead, are subject to thesame rules, liabilities, and
incapacities as are agents of individuals and
private persons. (Emphasis supplied)
Pertinently, Article 1874 of the same Code
provides:
ART. 1874. When a sale of piece of land or any
interest therein is through an agent, the authority of
the latter shall be in writing; otherwise, the sale
shall be void. (Emphasis supplied)
Considering that respondent Cruz, Jr., Cristeta
Polintan and Felicisima Ranullo were not authorized
by respondent Dieselman to sell its lot, the supposed
contract is void. Being a void contract, it is not
susceptible of ratification by clear mandate of Article
1409 of the Civil Code, thus:
ART. 1409. The following contracts are inexistent
and void from the very beginning:
xxx
(7) Those expressly prohibited or declared void by
law.
These contracts cannot be ratified. Neither can the
right to set up the defense of illegality be
waived. (Emphasis supplied)
Upon the other hand, the validity of the sale of
the subject lot to respondent Midas is
unquestionable. As aptly noted by the Court of
Appeals,[24] the sale was authorized by a board
resolution of respondent Dieselman dated May 27,
1988.
The Court of Appeals awarded attorney's fees
and moral and exemplary damages in favor of
petitioner AF Realty and against respondent Cruz,
Jr.. The award was made by reason of a breach of
contract imputable to respondent Cruz, Jr. for having
acted in bad faith. We are no persuaded. It bears
stressing that petitioner Zenaida Ranullo, board
member and vice-president of petitioner AF Realty
who accepted the offer to sell the property, admitted in
her testimony[25] that a board resolution from
respondent Dieselman authorizing the sale is
necessary to bind the latter in the transaction; and
that respondent Cruz, Jr. has no such written
authority. In fact, despite demand, such written
authority was not presented to her. [26] This
notwithstanding, petitioner Ranullo tendered a partial
payment for the unauthorized transaction. Clearly,
respondent Cruz, Jr. should not be held liable for
damages and attorney's fees.
WHEREFORE, the assailed Decision and
Resolution of the Court of Appeals are hereby
AFFIRMED with MODIFICATION in the sense that the
award of damages and attorney's fees is
deleted. Respondent Dieselman is ordered to return
to petitioner AF Realty its partial payment of
P300,000.00. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug,
Panganiban, and Carpio, JJ., concur.
SECOND DIVISION
[G.R. No. 138639. February 10, 2000]
CITY-LITE REALTY CORPORATION, petitioner, vs.
COURT OF APPEALS and F.P. HOLDINGS &
REALTY CORP., METRO DRUG INC., MELDIN AL
G. ROY, VIEWMASTER CONSTRUCTION CORP.,
and the REGISTER OF DEEDS OF QUEZON
CITY, respondent. marie
DECISION
BELLOSILLO, J.:
This is a petition for review on certiorari filed by CITY-
LITE REALTY CORPORATION (CITY-LITE) seeking
to annul the 20 October 1998 Decision of the Court of
Appeals[1] which reversed the Decision of the
Regional Trial Court of Quezon City in its Civil Case
No. Q-92-11068 declaring that a contract of sale over
the subject property was perfected and that Metro
Drug Inc. and Meldin Al G. Roy had the authority to
sell the property.[2]
Private respondent F. P. HOLDINGS AND REALTY
CORPORATION (F.P. HOLDINGS), formerly the
Sparta Holdings Inc., was the registered owner of a
parcel of land situated along E. Rodriguez Avenue,
Quezon City, also known as the "Violago Property" or
the "San Lorenzo Ruiz Commercial Center," with an
area of 71,754 square meters, more or less, and
covered by Transfer Certificate of Title No. T-19599.
The property was offered for sale to the general public
through the circulation of a sales brochure containing
the following information:
 A parcel of land including buildings
and other improvements thereon
located along E. Rodriguez Avenue,
Quezon City, with a total lot area of
71,754 square meters - 9,192
square meters in front, 23,332
square meters in the middle, and
39,230 square meters at the back.
But the total area for sale excludes
5,000 square meters covering the
existing chapel and adjoining areas
which will be donated to the
Archdiocese of Manila thus
reducing the total saleable area to
66,754 square meters. Asking price
was P6,250.00/square meter with
terms of payment negotiable.
Broker's commission was 2.0% of
selling price, net of withholding
taxes and other charges. As
advertised, contact person was
Meldin Al G. Roy, Metro Drug Inc.,
with address at 5/F Metro House,
345 Sen. Gil Puyat Avenue, Makati
City.
The front portion consisting of 9,192 square meters is
the subject of this litigation.
On 22 August 1991 respondent Meldin Al G. Roy sent
a sales brochure, together with the location plan and
copy of the Transfer Certificate of Title No. T-19599 of
the Register of Deeds of Quezon City, to Atty. Gelacio
Mamaril, a practicing lawyer and a licensed real
estate broker. Atty. Mamaril in turn passed on these
documents to Antonio Teng, Executive Vice-President,
and Atty. Victor P. Villanueva, Legal Counsel, of CITY-
LITE.
In a letter dated 19 September 1991 sent to Metro
Drug (ATTN: MELDIN AL ROY) after an initial meeting
with Meldin Al Roy that day, CITY-LITE conveyed its
interest to purchase a portion or one-half (1/2) of the
front lot of the "Violago Property." Apparently, Roy
subsequently informed CITY-LITE's representative
that it would take time to subdivide the lot and
respondent F. P. HOLDINGS was not receptive to the
purchase of only half of the front lot. After a few days,
Atty. Mamaril wrote Metro Drug (ATTN: MELDIN AL
ROY) expressing CITY-LITE's desire to buy the entire
front lot of the subject property instead of only half
thereof provided the asking price of P6,250.00/square
meter was reduced and that payment be in installment
for a certain period. Roy made a counter offer dated
25 September 1991 as follows:
Dear Atty. Mamaril,
This has reference to your letter
dated September 24, 1991 in
connection with the interest of your
clients, Mr. Antonio Teng/City-Lite
Realty Corporation and/or any of
their subsidiaries to buy a portion of
the Violago Property fronting E.
Rodriguez Sr. Avenue with an area
of 9,192 square meters.
We are pleased to inform you that
we are prepared to consider the
above offer subject to the following
major terms and conditions: 1. The
price shall be P6,250.00/square
meter or a total of P57,450,000.00;
2. The above purchase price shall
be paid to the owner as follows:
(a) P15.0 Million downpayment; (b)
balance payable within six (6)
months from date of downpayment
without interest. Should your client
find the above major terms and
conditions acceptable, please
advise us in writing by tomorrow,
September 26, 1991, so that we
can start formal discussions on the
matter x x x xnovero
Very truly yours,
MELDIN AL G. ROY
On 26 September 1991 CITY-LITE's officers and Atty.
Mamaril met with Roy at the Manila Mandarin Hotel in
Makati to consummate the transaction. After some
discussions, the parties finally reached an agreement
and Roy agreed to sell the property to CITY-LITE
provided only that the latter submit its acceptance in
writing to the terms and conditions of the sale as
contained in his letter of 25 September 1991. Later
that afternoon after meeting with Roy at the Manila
Mandarin Hotel, Atty. Mamaril and Antonio Teng of
CITY-LITE conveyed their formal acceptance of the
terms and conditions set forth by Roy in separate
letters both dated 26 September 1991.
However, for some reason or another and despite
demand, respondent F. P. HOLDINGS refused to
execute the corresponding deed of sale in favor of
CITY-LITE of the front lot of the property. Upon its
claim of protecting its interest as vendee of the
property in suit, CITY-LITE registered an adverse
claim to the title of the property with the Register of
Deeds of Quezon City which was annotated in the
Memorandum of Encumbrance of Transfer Certificate
of Title No. T-19599 under Entry No. PE-1001 dated
27 September 1991.
On 30 September 1991 CITY-LITE's counsel
demanded in writing that Metro Drug (ATTN: MELDIN
AL G. ROY) comply with its commitment to CITY-LITE
by executing the proper deed of conveyance of the
property under pain of court action. On 4 October
1991 F. P. HOLDINGS filed a petition for the
cancellation of the adverse claim against CITY-LITE
with the Regional Trial Court of Quezon City, docketed
as LRC Case No. 91-10257, which was raffled to Br.
84.
On 8 October 1991 Edwin Fernandez, President of F.
P. HOLDINGS, in a move to amicably settle with
CITY-LITE, met with the latter's officers during which
he offered properties located in Caloocan City and in
Quezon Boulevard, Quezon City, as substitute for the
property, but CITY-LITE refused the offer because "it
did not suit its business needs." With the filing of the
petition of F. P. HOLDINGS for the cancellation of the
adverse claim, CITY-LITE caused the annotation of
the first notice of lis pendens which was recorded in
the title of the property under Entry No. 4605.
On 2 December 1991 the RTC-Br. 84 of Quezon City
dismissed F. P. HOLDINGS' petition declaring that
CITY-LITE's adverse claim had factual basis and was
not "sham and frivolous." Meanwhile, F. P. HOLDINGS
caused the resurvey and segregation of the property
and asked the Register of Deeds of Quezon City to
issue separate titles which the latter did on 17
January 1992 by issuing Transfer Certificate of Title
No. T-51671. nigel
Following the dismissal of F. P. HOLDINGS' petition
for the cancellation of the adverse claim, CITY-LITE
instituted a complaint against F. P. HOLDINGS
originally for specific perfomance and damages and
caused the annotation of the second notice of lis
pendens on the new certificate of title. After the
annotation of the second lis pendens, the property
was transfered to defendant VIEWMASTER
CONSTRUCTION CORP. (VIEWMASTER) for which
Transfer Certificate of Title No. T-52398 was issued.
However the notice of lis pendens was carried over
and annotated on the new certificate of title.
In view of the conveyance during the pendency of the
suit, the original complaint for specific performance
and damages was amended with leave of court to
implead VIEWMASTER as a necessary party and the
Register of Deeds of Quezon City as nominal
defendant with the additional prayer for the
cancellation of VIEWMASTER's certificate of title. The
case was thereafter raffled to Br. 85 of the Regional
Trial Court of Quezon City.
On 4 October 1995 the court a quo rendered its
decision in favor of CITY-LITE ordering F. P.
HOLDINGS to execute a deed of sale of the property
in favor of CITY-LITE for the total consideration
of P55,056,250.00 payable as follows: P15 Million as
downpayment to be payable immediately upon
execution of the deed of sale and the balance within
six (6) months from downpayment, without interest.
The court also directed the Register of Deeds of
Quezon City to cancel Transfer Certificate of Title No.
T-52398 or any subsequent title it had issued affecting
the subject property, and to issue a new one in the
name of CITY-LITE upon the presentation of the deed
of sale and other requirements for the transfer. It
likewise ordered the defendants, except
VIEWMASTER and the Register of Deeds of Quezon
City, to pay CITY-LITE jointly and
severally P800,000.00 by way of nominal
damages, P250,000.00 for attorney's fees, and to pay
the costs.
On 30 October 1995 VIEWMASTER filed a motion for
reconsideration of the decision of the lower court
questioning its ruling that a perfected contract of sale
existed between CITY-LITE and F. P. HOLDINGS as
there was no definite agreement over the manner of
payment of the purchase price, citing in support
thereof Toyota Shaw Inc. v. Court of Appeals.
[3]
However the motion for reconsideration was denied.
In the challenged Decision of 20 October 1998 the
Court of Appeals reversed and set aside the judgment
of the Regional Trial Court of Quezon City. On 10 May
1999 the Court of Appeals denied CITY-LITE's motion
to reconsider its decision.
Petitioner CITY-LITE is now before us assailing the
Court of Appeals for declaring that no contract of sale
was perfected between it and respondent F. P.
HOLDINGS because of lack of a definite agreement
on the manner of paying the purchase price and that
respondents Metro Drug and Meldin Al G. Roy were
not authorized to sell the property to CITY-LITE, and
that the authority of Roy was only limited to that of a
mere liaison or contact person. ella
We cannot sustain petitioner. On the issue of whether
a contract of sale was perfected between petitioner
CITY-LITE and respondent F. P. HOLDINGS acting
through its agent Meldin Al G. Roy of Metro Drug, Art.
1874 of the Civil Code provides: "When the sale of a
piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void." Petitioner anchors
the authority of Metro Drug and Meldin Al G. Roy on
(a) the testimonies of petitioner's three (3) witnesses
and the admissions of Roy and the lawyer of Metro
Drug; (b) the sales brochure specifying Meldin Al G.
Roy as a contact person; (c) the guard posted at the
property saying that Metro Drug was the authorized
agent; and, (d) the common knowledge among
brokers that Metro Drug through Meldin Al G. Roy was
the authorized agent of F. P. HOLDINGS to sell the
property. However, and more importantly, the Civil
Code requires that an authority to sell a piece of land
shall be in writing. The absence of authority to sell can
be determined from the written memorandum issued
by respondent F. P. HOLDINGS' President requesting
Metro Drug's assistance in finding buyers for the
property. The memorandum in part stated: "We will
appreciate Metro Drug's assistance in referring to us
buyers for the property. Please proceed to hold
preliminary negotiations with interested buyers and
endorse formal offers to us for our final evaluation and
appraisal." This obviously meant that Meldin Al G. Roy
and/or Metro Drug was only to assist F. P. HOLDINGS
in looking for buyers and referring to them possible
prospects whom they were supposed to endorse to F.
P. HOLDINGS. But the final evaluation, appraisal and
acceptance of the transaction could be made only by
F. P. HOLDINGS. In other words, Meldin Al G. Roy
and/or Metro Drug was only a contact person with no
authority to conclude a sale of the property. In fact, a
witness for petitioner even admitted that Roy and/or
Metro Drug was a mere broker, [4] and Roy's only job
was to bring the parties together for a possible
transaction.[5] Consequently, we hold that for lack of a
written authority to sell the "Violago Property" on the
part of Meldin Al G. Roy and/or Metro Drug, the sale
should be as it is declared null and void. Therefore the
sale could not produce any legal effect as to transfer
the subject property from its lawful owner, F. P.
HOLDINGS, to any interested party including
petitioner CITY-LITE.
WHEREFORE, the appealed Decision of the Court of
Appeals being in accord with law and the evidence is
AFFIRMED. Costs against petitioner CITY-LITE
REALTY CORPORATION.marinella
SO ORDERED.
FIRST DIVISION
[G.R. No. 129459. September 29, 1998]
SAN JUAN STRUCTURAL AND STEEL
FABRICATORS, INC., petitioner,
vs. COURT OF APPEALS, MOTORICH
SALES CORPORATION, NENITA LEE
GRUENBERG, ACL DEVELOPMENT
CORP. and JNM REALTY AND
DEVELOPMENT CORP., respondents.
DECISION
PANGANIBAN, J.
May a corporate treasurer, by herself and
without any authorization from the board of directors,
validly sell a parcel of land owned by the
corporation? May the veil of corporate fiction be
pierced on the mere ground that almost all of the
shares of stock of the corporation are owned by said
treasurer and her husband?
The Case
These questions are answered in the negative
by this Court in resolving the Petition for Review on
Certiorari before us, assailing the March 18, 1997
Decision[1] of the Court of Appeals[2] in CA GR CV No.
46801 which, in turn, modified the July 18, 1994
Decision of the Regional Trial Court of Makati, Metro
Manila, Branch 63[3] in Civil Case No. 89-3511. The
RTC dismissed both the Complaint and the
Counterclaim filed by the parties. On the other hand,
the Court of Appeals ruled:
WHEREFORE, premises considered, the
appealed decision is AFFIRMED WITH
MODIFICATION ordering defendant-
appellee Nenita Lee Gruenberg to
REFUND or return to plaintiff-appellant the
downpayment of P100,000.00 which she
received from plaintiff-appellant. There is
no pronouncement as to costs.[4]
The petition also challenges the June 10, 1997
CA Resolution denying reconsideration.[5]
The Facts
The facts as found by the Court of Appeals are
as follows:
Plaintiff-appellant San Juan Structural and
Steel Fabricators, Inc.s amended
complaint alleged that on 14 February
1989, plaintiff-appellant entered into an
agreement with defendant-appellee
Motorich Sales Corporation for the transfer
to it of a parcel of land identified as Lot 30,
Block 1 of the Acropolis Greens
Subdivision located in the District of
Murphy, Quezon City, Metro Manila,
containing an area of Four Hundred
Fourteen (414) square meters, covered by
TCT No. (362909) 2876; that as stipulated
in the Agreement of 14 February 1989,
plaintiff-appellant paid the down payment
in the sum of One Hundred Thousand
(P100,000.00) Pesos, the balance to be
paid on or before March 2, 1989; that on
March 1, 1989, Mr. Andres T. Co, president
of plaintiff-appellant corporation, wrote a
letter to defendant-appellee Motorich
Sales Corporation requesting for a
computation of the balance to be paid; that
said letter was coursed through defendant-
appellees broker, Linda Aduca, who wrote
the computation of the balance; that on
March 2, 1989, plaintiff-appellant was
ready with the amount corresponding to
the balance, covered by Metrobank
Cashiers Check No. 004223, payable to
defendant-appellee Motorich Sales
Corporation; that plaintiff-appellant and
defendant-appellee Motorich Sales
Corporation were supposed to meet in the
office of plaintiff-appellant but defendant-
appellees treasurer, Nenita Lee
Gruenberg, did not appear; that defendant-
appellee Motorich Sales Corporation
despite repeated demands and in utter
disregard of its commitments had refused
to execute the Transfer of Rights/Deed of
Assignment which is necessary to transfer
the certificate of title; that defendant ACL
Development Corp. is impleaded as a
necessary party since Transfer Certificate
of Title No. (362909) 2876 is still in the
name of said defendant; while defendant
JNM Realty & Development Corp. is
likewise impleaded as a necessary party in
view of the fact that it is the transferor of
right in favor of defendant-appellee
Motorich Sales Corporation; that on April
6, 1989, defendant ACL Development
Corporation and Motorich Sales
Corporation entered into a Deed of
Absolute Sale whereby the former
transferred to the latter the subject
property; that by reason of said transfer,
the Registry of Deeds of Quezon City
issued a new title in the name of Motorich
Sales Corporation, represented by
defendant-appellee Nenita Lee Gruenberg
and Reynaldo L. Gruenberg, under
Transfer Certificate of Title No. 3571; that
as a result of defendants-appellees Nenita
Lee Gruenberg and Motorich Sales
Corporations bad faith in refusing to
execute a formal Transfer of Rights/Deed
of Assignment, plaintiff-appellant suffered
moral and nominal damages which may be
assessed against defendants-appellees in
the sum of Five Hundred Thousand
(500,000.00) Pesos; that as a result of
defendants-appellees Nenita Lee
Gruenberg and Motorich Sales
Corporations unjustified and unwarranted
failure to execute the required Transfer of
Rights/Deed of Assignment or formal deed
of sale in favor of plaintiff-appellant,
defendants-appellees should be assessed
exemplary damages in the sum of One
Hundred Thousand (P100,000.00) Pesos;
that by reason of defendants-appellees
bad faith in refusing to execute a Transfer
of Rights/Deed of Assignment in favor of
plaintiff-appellant, the latter lost the
opportunity to construct a residential
building in the sum of One Hundred
Thousand (P100,000.00) Pesos; and that
as a consequence of defendants-
appellees Nenita Lee Gruenberg and
Motorich Sales Corporations bad faith in
refusing to execute a deed of sale in favor
of plaintiff-appellant, it has been
constrained to obtain the services of
counsel at an agreed fee of One Hundred
Thousand (P100,000.00) Pesos plus
appearance fee for every appearance in
court hearings.
In its answer, defendants-appellees
Motorich Sales Corporation and Nenita
Lee Gruenberg interposed as affirmative
defense that the President and Chairman
of Motorich did not sign the agreement
adverted to in par. 3 of the amended
complaint; that Mrs. Gruenbergs signature
on the agreement (ref: par. 3 of Amended
Complaint) is inadequate to bind
Motorich. The other signature, that of Mr.
Reynaldo Gruenberg, President and
Chairman of Motorich, is required; that
plaintiff knew this from the very beginning
as it was presented a copy of the Transfer
of Rights (Annex B of amended complaint)
at the time the Agreement (Annex B of
amended complaint) was signed; that
plaintiff-appellant itself drafted the
Agreement and insisted that Mrs.
Gruenberg accept the P100,000.00 as
earnest money; that granting, without
admitting, the enforceability of the
agreement, plaintiff-appellant nonetheless
failed to pay in legal tender within the
stipulated period (up to March 2, 1989);
that it was the understanding between
Mrs. Gruenberg and plaintiff-appellant that
the Transfer of Rights/Deed of Assignment
will be signed only upon receipt of cash
payment; thus they agreed that if the
payment be in check, they will meet at a
bank designated by plaintiff-appellant
where they will encash the check and sign
the Transfer of Rights/Deed. However,
plaintiff-appellant informed Mrs. Gruenberg
of the alleged availability of the check, by
phone, only after banking hours.
On the basis of the evidence, the court a
quo rendered the judgment appealed
from[,] dismissing plaintiff-appellants
complaint, ruling that:
'The issue to be resolved is:
whether plaintiff had the right to
compel defendants to execute a
deed of absolute sale in
accordance with the agreement
of February 14, 1989; and if so,
whether plaintiff is entitled to
damages.
As to the first question, there is
no evidence to show that
defendant Nenita Lee Gruenberg
was indeed authorized by
defendant corporation, Motorich
Sales, to dispose of that property
covered by T.C.T. No. (362909)
2876. Since the property is
clearly owned by the corporation,
Motorich Sales, then its
disposition should be governed
by the requirement laid down in
Sec. 40, of the Corporation Code
of the Philippines, to wit:
Sec. 40, Sale or other
disposition of
assets. Subject to the
provisions of existing
laws on illegal
combination and
monopolies, a
corporation may by a
majority vote of its board
of directors xxx sell,
lease, exchange,
 mortgage, pledge or
otherwise dispose of all
or substantially all of its
property and assets,
including its goodwill xxx
when authorized by the
vote of the stockholders
representing at least two
third (2/3) of the
outstanding capital stock
x x x.
No such vote was obtained by
defendant Nenita Lee Gruenberg
for that proposed sale[;] neither
was there evidence to show that
the supposed transaction was
ratified by the corporation.Plaintiff
should have been on the look out
under these circumstances. More
so, plaintiff himself [owns] several
corporations (tsn dated August
16, 1993, p. 3) which makes him
knowledgeable on corporation
matters.
Regarding the question of
damages, the Court likewise,
does not find substantial
evidence to hold defendant
Nenita Lee Gruenberg liable
considering that she did not in
anyway misrepresent herself to
be authorized by the corporation
to sell the property to plaintiff (tsn
dated September 27, 1991, p. 8).
In the light of the foregoing, the
Court hereby renders judgment
DISMISSING the complaint at
instance for lack of merit.
Defendants counterclaim is also
DISMISSED for lack of
basis. (Decision, pp. 7-8; Rollo,
pp. 34-35)
For clarity, the Agreement dated February 14,
1989 is reproduced hereunder:
AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement, made and entered into by and
between:
MOTORICH SALES CORPORATION, a corporation
duly organized and existing under and by virtue of
Philippine Laws, with principal office address at 5510
South Super Hi-way cor. Balderama St., Pio del Pilar,
Makati, Metro Manila, represented herein by its In case of failure by the Transferee to pay the balance
Treasurer, NENITA LEE GRUENBERG, hereinafter on the date specified on 1. (b), the earnest money
referred to as the TRANSFEROR; shall be forfeited in favor of the Transferor.
- and -- That upon full payment of the balance, the
SAN JUAN STRUCTURAL & STEEL FABRICATORS, TRANSFEROR agrees to execute a TRANSFER OF
a corporation duly organized and existing under and RIGHTS/DEED OF ASSIGNMENT in favor of the
by virtue of the laws of the Philippines, with principal TRANSFEREE.
office address at Sumulong Highway, Barrio IN WITNESS WHEREOF, the parties have hereunto
Mambungan, Antipolo, Rizal, represented herein by its set their hands this 14th day of February, 1989 at
President, ANDRES T. CO, hereinafter referred to as Greenhills, San Juan, Metro Manila, Philippines.
the TRANSFEREE. MOTORICH SALES CORPORATION SAN
WITNESSETH, That: STRUCTURAL &
WHEREAS, the TRANSFEROR is the owner of a TRANSFEROR STEEL
parcel of land identified as Lot 30 Block 1 of the FABRICATORS
ACROPOLIS GREENS SUBDIVISION located at the TRANSFEREE
District of Murphy, Quezon City, Metro Manila, [SGD.] [SGD.]
containing an area of FOUR HUNDRED FOURTEEN By: NENITA LEE
(414) SQUARE METERS, covered by a TRANSFER GRUENBERG By: ANDRES T.
OF RIGHTS between JNM Realty & Dev. Corp. as the CO
Transferor and Motorich Sales Corp. as the Treasurer President
Transferee; Signed in the presence of:
NOW, THEREFORE, for and in consideration of the [SGD.] [SGD.]
foregoing premises, the parties have agreed as _________________________ _________________
follows: ____[6]
1. That the purchase price shall be at In its recourse before the Court of Appeals,
FIVE THOUSAND TWO petitioner insisted:
HUNDRED PESOS (P5,200.00) 1. Appellant is entitled to compel the
per square meter; subject to the appellees to execute a Deed of Absolute
following terms: Sale in accordance with the Agreement of
a. Earnest money amounting to February 14, 1989,
ONE HUNDRED 2. Plaintiff is entitled to damages.[7]
THOUSAND PESOS As stated earlier, the Court of Appeals debunked
(P100,000.00), will be paid petitioners arguments and affirmed the Decision of the
upon the execution of this RTC with the modification that Respondent Nenita
agreement and shall form Lee Gruenberg was ordered to refund P100,000 to
part of the total purchase petitioner, the amount remitted as downpayment or
price; earnest money. Hence, this petition before us.[8]
b. Balance shall be payable on or The Issues
before March 2, 1989; Before this Court, petitioner raises the following
2. That the monthly amortization for issues:
the month of February 1989 shall I. Whether or not the doctrine of
be for the account of the piercing the veil of corporate
Transferor; and that the monthly fiction is applicable in the
amortization starting March 21, instant case
1989 shall be for the account of II. Whether or not the appellate court
the Transferee; may consider matters which
The transferor warrants that he [sic] is the lawful the parties failed to raise in
owner of the above-described property and that there the lower court
[are] no existing liens and/or encumbrances of III. Whether or not there is a valid
whatsoever nature; and enforceable contract
between the petitioner and the
respondent corporation
 IV. Whether or not the Court of
Appeals erred in holding that
there is a valid
correction/substitution of
answer in the transcript of
stenographic note[s]
V. Whether or not respondents are
liable for damages and
attorneys fees[9]
The Court synthesized the foregoing and will
thus discuss them seriatim as follows:
1. Was there a valid contract of sale
between petitioner and Motorich?
2. May the doctrine of piercing the
veil of corporate fiction be applied
to Motorich?
3. Is the alleged alteration of
Gruenbergs testimony as
recorded in the transcript of
stenographic notes material to
the disposition of this case?
4. Are respondents liable for
damages and attorneys fees?
The Courts Ruling
The petition is devoid of merit.
First Issue: Validity of Agreement
Petitioner San Juan Structural and Steel
Fabricators, Inc. alleges that on February 14, 1989, it
entered through its president, Andres Co, into the
disputed Agreement with Respondent Motorich Sales
Corporation, which was in turn allegedly represented
by its treasurer, Nenita Lee Gruenberg. Petitioner
insists that [w]hen Gruenberg and Co affixed their
signatures on the contract they both consented to be
bound by the terms thereof. Ergo, petitioner contends
that the contract is binding on the two
corporations. We do not agree.
True, Gruenberg and Co signed on February 14,
1989, the Agreement according to which a lot owned
by Motorich Sales Corporation was purportedly
sold. Such contract, however, cannot bind Motorich,
because it never authorized or ratified such sale.
A corporation is a juridical person separate and
distinct from its stockholders
members. Accordingly, the property of the corporation
is not the property of its stockholders or members and
may not be sold by the stockholders or members
without express authorization from the corporations
board of directors.[10] Section 23 of BP 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.
Indubitably, a corporation may act only through
its board of directors, or, when authorized either by its
bylaws 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, bylaws, or
relevant provisions of law.[11] Thus, this Court has held
that a corporate officer or agent may represent and
bind the corporation in transactions with third persons
to the extent that the authority to do so has been
conferred upon him, and this includes powers which
have been intentionally conferred, and also such
powers as, in the usual course of the particular
business, are incidental to, or may be implied from,
the powers intentionally conferred, powers added by
custom and usage, as usually pertaining to the
particular officer or agent, and such apparent powers
as the corporation has caused persons dealing with
the officer or agent to believe that it has conferred.[12]
Furthermore, the Court has also recognized the
rule that persons dealing with an assumed agent,
whether the assumed agency be a general or special
one, are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency
but also the nature and extent of authority, and in
case either is controverted, the burden of proof is
upon them to establish it (Harry Keeler v. Rodriguez, 4
Phil. 19).[13] Unless duly authorized, a treasurer,
whose powers are limited, cannot bind the corporation
or in a sale of its assets.[14]
In the case at bar, Respondent Motorich
categorically denies that it ever authorized Nenita
Gruenberg, its treasurer, to sell the subject parcel of
land.[15] Consequently, petitioner had the burden of
proving that Nenita Gruenberg was in fact authorized
to represent and bind Motorich in the
transaction. Petitioner failed to discharge this
burden. Its offer of evidence before the trial court
contained no proof of such authority.[16] It has not
shown any provision of said respondents articles of
incorporation, bylaws or board resolution to prove that
Nenita Gruenberg possessed such power.
That Nenita Gruenberg is the treasurer of
Motorich does not free petitioner from the
responsibility of ascertaining the extent of her
authority to represent the corporation. Petitioner
cannot assume that she, by virtue of her position, was
authorized to sell the property of the
corporation. Selling is obviously foreign to a corporate
treasurers function, which generally has been
described as to receive and keep the funds of the
corporation, and to disburse them in accordance with
the authority given him by the board or the properly
authorized officers.[17]
Neither was such real estate sale shown to be a
normal business activity of Motorich. The primary
purpose of Motorich is marketing, distribution, export
and import in relation to a general merchandising
business.[18] Unmistakably, its treasurer is not cloaked
with actual or apparent authority to buy or sell real
property, an activity which falls way beyond the scope
of her general authority.
Articles 1874 and 1878 of the Civil Code of the
Philippines provides:
ART. 1874. When a sale of a piece of land
or any interest therein is through an agent,
the authority of the latter shall be in writing;
otherwise, the sale shall be void.
ART. 1878 Special powers of attorney are
necessary in the following case:
xxxxxxxxx
(5) To enter any contract by which the
ownership of an immovable is transmitted
or acquired either gratuitously or for a
valuable consideration;
x x x x x x x x x.
Petitioner further contends that Respondent
Motorich has ratified said contract of sale because of
its acceptance of benefits, as evidenced by the receipt
issued by Respondent Gruenberg.[19] Petitioner is
clutching at straws.
As a general rule, the acts of corporate officers
within the scope of their authority are binding on the
corporation. But when these officers exceed their
authority, their actions cannot bind the corporation,
unless it has ratified such acts or is estopped from
disclaiming them.[20]
In this case, there is a clear absence of proof
that Motorich ever authorized Nenita Gruenberg, or
made it appear to any third person that she had the
authority, to sell its land or to receive the earnest
money. Neither was there any proof that Motorich
ratified, expressly or impliedly, the contract. Petitioner
rests its argument on the receipt, which, however,
does not prove the fact of ratification. The document
is a hand-written one, not a corporate receipt, and it
bears only Nenita Gruenbergs signature. Certainly,
this document alone does not prove that her acts
were authorized or ratified by Motorich.
Article 1318 of the Civil Code lists the requisites
of a valid and perfected contract: (1) consent of the
contracting parties; (2) object certain which is the
subject matter of the contract; (3) cause of the
obligation which is established. As found by the trial
court[21] and affirmed by the Court of Appeals,[22] there
is no evidence that Gruenberg was authorized to
enter into the contract of sale, or that the said contract
was ratified by Motorich. This factual finding of the two
courts is binding on this Court. [23] As the consent of
the seller was not obtained, no contract to bind the
obligor was perfected. Therefore, there can be no
valid contract of sale between petitioner and Motorich.
Because Motorich had never given a written
authorization to Respondent Gruenberg to sell its
parcel of land, we hold that the February 14, 1989
Agreement entered into by the latter with petitioner is
void under Article 1874 of the Civil Code. Being
inexistent and void from the beginning, said contract
cannot be ratified.[24]
Second Issue:
Piercing the Corporate Veil Not Justified
Petitioner also argues that the veil of corporate
fiction of Motorich should be pierced, because the
latter is a close corporation. Since Spouses Reynaldo
L. Gruenberg and Nenita R. Gruenberg owned all or
almost all or 99.866% to be accurate, of the
subscribed capital stock[25] of Motorich, petitioner
argues that Gruenberg needed no authorization from
the board to enter into the subject contract. [26] It adds
that, being solely owned by the Spouses Gruenberg,
the company can be treated as a close corporation
which can be bound by the acts of its principal
stockholder who needs no specific authority. The
Court is not persuaded.
First, petitioner itself concedes having raised the
issue belatedly,[27] not having done so during the trial,
but only when it filed its sur-rejoinder before the Court
of Appeals.[28] Thus, this Court cannot entertain said
issue at this late stage of the proceedings. It is well-
settled that points of law, theories and arguments not
brought to the attention of the trial court need not be,
and ordinarily will not be, considered by a reviewing
court, as they cannot be raised for the first time on
appeal.[29] Allowing petitioner to change horses in
midstream, as it were, is to run roughshod over the
basic principles of fair play, justice and due process.
Second, even if the above-mentioned argument
were to be addressed at this time, the Court still finds
no reason to uphold it. True, one of the advantages of
a corporate form of business organization is the
limitation of an investors liability to the amount of the
investment.[30] This feature flows from the legal theory
that a corporate entity is separate and distinct from its
stockholders. However, the statutorily granted
privilege of a corporate veil may be used only for
legitimate purposes.[31] On equitable considerations,
the veil can be disregarded when it is utilized as a
shield to commit fraud, illegality or inequity; defeat
public convenience; confuse legitimate issues; or
serve as a mere alter ego or business conduit of a
person or an instrumentality, agency or adjunct of
another corporation.[32]
Thus, the Court has consistently ruled that
[w]hen the fiction is used as a means of perpetrating a
fraud or an illegal act or as a vehicle for the evasion of
an existing obligation, the circumvention of statutes,
the achievement or perfection of a monopoly or
generally the perpetration of knavery or crime, the veil
with which the law covers and isolates the corporation
from the members or stockholders who compose it
will be lifted to allow for its consideration merely as an
aggregation of individuals.[33]
We stress that the corporate fiction should be
set aside when it becomes a shield against liability for
fraud, illegality or inequity committed on third
persons. The question of piercing the veil of corporate
fiction is essentially, then, a matter of proof. In the
present case, however, the Court finds no reason to
pierce the corporate veil of Respondent
Motorich. Petitioner utterly failed to establish that said
corporation was formed, or that it is operated, for the
purpose of shielding any alleged fraudulent or illegal
activities of its officers or stockholders; or that the said
veil was used to conceal fraud, illegality or inequity at
the expense of third persons, like petitioner.
Petitioner claims that Motorich is a close
corporation. We rule that it is not. Section 96 of the
Corporation Code defines a close corporation as
follows:
SEC. 96. Definition and Applicability of
Title. -- A close corporation, within the
meaning of this Code, is one whose
articles of incorporation provide that: (1) All
of the corporations issued stock of all
classes, exclusive of treasury shares, shall
be held of record by not more than a
specified number of persons, not
exceeding twenty (20); (2) All of the issued
stock of all classes shall be subject to one
or more specified restrictions on transfer
permitted by this Title; and (3) The
corporation shall not list in any stock
exchange or make any public offering of
any of its stock of any
class.Notwithstanding the foregoing, a
corporation shall be deemed not a close
corporation when at least two-thirds (2/3)
of its voting stock or voting rights is owned
or controlled by another corporation which
is not a close corporation within the
meaning of this Code. xxx.
The articles of incorporation[34] of Motorich Sales
Corporation does not contain any provision stating
that (1) the number of stockholders shall not exceed
20, or (2) a preemption of shares is restricted in favor
of any stockholder or of the corporation, or (3) listing
its stocks in any stock exchange or making a public
offering of such stocks is prohibited. From its articles,
it is clear that Respondent Motorich is not a close
corporation.[35] Motorich does not become one either,
just because Spouses Reynaldo and Nenita
Gruenberg owned 99.866% of its subscribed capital
stock. The [m]ere ownership by a single stockholder
or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate
personalities.[36] So too, a narrow distribution of
ownership does not, by itself, make a close
corporation.
Petitioner cites Manuel R. Dulay Enterprises,
Inc. v. Court of Appeals[37] wherein the Court ruled that
xxx petitioner corporation is classified as a close
corporation and, consequently, a board resolution
authorizing the sale or mortgage of the subject
property is not necessary to bind the corporation for
the action of its president.[38] But the factual milieu
in Dulay is not on all fours with the present
case. In Dulay, the sale of real property was
contracted by the president of a close corporation with
the knowledge and acquiescence of its board of
directors.[39] In the present case, Motorich is not a
close corporation, as previously discussed, and the
agreement was entered into by the corporate
treasurer without the knowledge of the board of
directors.
 The Court is not unaware that there are
exceptional cases where an action by a director, who
singly is the controlling stockholder, may be
considered as a binding corporate act and a board
action as nothing more than a mere formality.[40] The
present case, however, is not one of them.
As stated by petitioner, Spouses Reynaldo and
Nenita Gruenberg own almost 99.866% of
Respondent Motorich.[41] Since Nenita is not the sole
controlling stockholder of Motorich, the
aforementioned exception does not
apply. Granting arguendo that the corporate veil of
Motorich is to be disregarded, the subject parcel of
land would then be treated as conjugal property of
Spouses Gruenberg, because the same was acquired
during their marriage. There being no indication that
said spouses, who appear to have been married
before the effectivity of the Family Code, have agreed
to a different property regime, their property relations
would be governed by conjugal partnership of gains.
[42]
As a consequence, Nenita Gruenberg could not
have effected a sale of the subject lot because [t]here
is no co-ownership between the spouses in the
properties of the conjugal partnership of gains. Hence,
neither spouse can alienate in favor of another his or
her interest in the partnership or in any property
belonging to it; neither spouse can ask for a partition
of the properties before the partnership has been
legally dissolved.[43]
Assuming further, for the sake of argument,
that the spouses property regime is the absolute
community of property, the sale would still be
invalid. Under this regime, alienation of community
property must have the written consent of the other
spouse or the authority of the court without which the
disposition or encumbrance is void.[44] Both
requirements are manifestly absent in the instant
case.
Third Issue: Challenged Portion of TSN Immaterial
Petitioner calls our attention to the following
excerpt of the transcript of stenographic notes(TSN):
Q Did you ever represent to Mr. Co that you were
authorized by the corporation to sell the
property?
A Yes, sir.[45]
Petitioner claims that the answer Yes was
crossed out, and, in its place was written a No with an
initial scribbled above it.[46] This, however, is
insufficient to prove that Nenita Gruenberg was
authorized to represent Respondent Motorich in the
sale of its immovable property. Said excerpt should be
understood in the context of her whole
testimony. During her cross-examination, Respondent
Gruenberg testified:
Q So, you signed in your capacity as the
treasurer?
[A] Yes, sir.
Q Even then you kn[e]w all along that you [were]
not authorized?
A Yes, sir.
Q You stated on direct examination that you did
not represent that you were authorized to sell
the property?
A Yes, sir.
Q But you also did not say that you were not
authorized to sell the property, you did not
tell that to Mr. Co, is that correct?
A That was not asked of me.
Q Yes, just answer it.
A I just told them that I was the treasurer of the
corporation and it [was] also the president
who [was] also authorized to sign on behalf
of the corporation.
Q You did not say that you were not authorized
nor did you say that you were authorized?
A Mr. Co was very interested to purchase the
property and he offered to put up
a P100,000.00 earnest money at that
time. That was our first meeting.[47]
Clearly then, Nenita Gruenberg did not testify
that Motorich had authorized her to sell its
property. On the other hand, her testimony
demonstrates that the president of Petitioner
Corporation, in his great desire to buy the property,
threw caution to the wind by offering and paying the
earnest money without first verifying Gruenbergs
authority to sell the lot.
Fourth Issue:
Damages and Attorneys Fees
Finally, petitioner prays for damages and
attorneys fees, alleging that [i]n an utter display of
malice and bad faith, [r]espondents attempted and
succeeded in impressing on the trial court and [the]
Court of Appeals that Gruenberg did not represent
herself as authorized by Respondent Motorich despite
the receipt issued by the former specifically indicating
that she was signing on behalf of Motorich Sales
Corporation. Respondent Motorich likewise acted in
bad faith when it claimed it did not authorize
Respondent Gruenberg and that the contract [was]
not binding, [insofar] as it [was] concerned, despite
receipt and enjoyment of the proceeds of Gruenbergs
act.[48] Assuming that Respondent Motorich was not a
party to the alleged fraud, petitioner maintains that
Respondent Gruenberg should be held liable because
she acted fraudulently and in bad faith [in]
representing herself as duly authorized by
[R]espondent [C]orporation.[49]
As already stated, we sustain the findings of
both the trial and the appellate courts that the
foregoing allegations lack factual bases. Hence, an
award of damages or attorneys fees cannot be
justified. The amount paid as earnest money was not
proven to have redounded to the benefit of
Respondent Motorich. Petitioner claims that said
amount was deposited to the account of Respondent
Motorich, because it was deposited with the account
of Aren Commercial c/o Motorich Sales Corporation.
[50]
Respondent Gruenberg, however, disputes the
allegations of petitioner. She testified as follows:
Q You voluntarily accepted the P100,000.00, as a
matter of fact, that was encashed, the check
was encashed.
A Yes, sir, the check was paid in my name and I
deposit[ed] it . . .
Q In your account?
A Yes, sir. [51]
In any event, Gruenberg offered to return the amount
to petitioner xxx since the sale did not push through.[52]
Moreover, we note that Andres Co is not a
neophyte in the world of corporate business. He has
been the president of Petitioner Corporation for more
than ten years and has also served as chief executive
of two other corporate entities.[53] Co cannot feign
ignorance of the scope of the authority of a corporate
treasurer such as Gruenberg. Neither can he be
oblivious to his duty to ascertain the scope of
Gruenbergs authorization to enter into a contract to
sell a parcel of land belonging to Motorich.
Indeed, petitioners claim of fraud and bad faith is
unsubstantiated and fails to persuade the
Court. Indubitably, petitioner appears to be the victim
of its own officers negligence in entering into a
contract with and paying an unauthorized officer of
another corporation.
As correctly ruled by the Court of Appeals,
however, Nenita Gruenberg should be ordered to
return to petitioner the amount she received as
earnest money, as no one shall enrich himself at the
expense of another,[54] a principle embodied in Article
2154 of the Civil Code.[55] Although there was no
binding relation between them, petitioner paid
Gruenberg on the mistaken belief that she had the
authority to sell the property of Motorich. [56] Article
2155 of the Civil Code provides that [p]ayment by
reason of a mistake in the construction or application
of a difficult question of law may come within the
scope of the preceding article.
WHEREFORE, the petition is
hereby DENIED and the assailed Decision
is AFFIRMED.
SO ORDERED.
Davide Jr. (Chairman), Bellosillo,
Vitug, and Quisumbing, JJ., concur.
FIRST DIVISION
[G.R. No. 114311. November 29, 1996]
COSMIC LUMBER CORPORATION, petitioner,
vs. COURT OF APPEALS and ISIDRO
PEREZ, respondents.
DECISION
BELLOSILLO, J.:
COSMIC LUMBER CORPORATION through its
General Manager executed on 28 January 1985 a
Special Power of Attorney appointing Paz G. Villamil-
Estrada as attorney-in-fact -
x x x to initiate, institute and file any court action for
the ejectment of third persons and/or squatters of the
entire lot 9127 and 443 and covered by TCT Nos.
37648 and 37649, for the said squatters to remove
their houses and vacate the premises in order that the
corporation may take material possession of the entire
lot, and for this purpose, to appear at the pre-trial
conference and enter into any stipulation of facts
and/or compromise agreement so far as it shall
protect the rights and interest of the corporation in the
aforementioned lots.[1]
On 11 March 1985 Paz G. Villamil-Estrada, by virtue
of her power of attorney, instituted an action for the
ejectment of private respondent Isidro Perez and
recover the possession of a portion of Lot No. 443
before the Regional Trial Court of Dagupan, docketed
as Civil Case No. D-7750.[2]
On 25 November 1985 Villamil-Estrada entered into a
Compromise Agreement with respondent Perez, the
terms of which follow:
1. That as per relocation sketch plan dated June 5,
1985 prepared by Engineer Rodolfo dela Cruz the
area at present occupied by defendant wherein his
house is located is 333 square meters on the
easternmost part of lot 443 and which portion has
been occupied by defendant for several years now;
2. That to buy peace said defendant pays unto the
plaintiff through herein attorney-in-fact the sum
of P26,640.00 computed at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and
possession of the defendant by virtue of this
compromise agreement over said portion of 333
square m. of lot 443 which portion will be located on
the easternmost part as indicated in the sketch as
annex A;
4. Whatever expenses of subdivision, registration, and
other incidental expenses shall be shouldered by the
defendant.[3]
On 27 November 1985 the Compromise Agreement
was approved by the trial court and judgment was
rendered in accordance therewith.[4]
Although the decision became final and executory it
was not executed within the 5-year period from date
of its finality allegedly due to the failure of petitioner to
produce the owners duplicate copy of Title No. 37649
needed to segregate from Lot No. 443 the portion sold
by the attorney-in-fact, Paz G. Villamil-Estrada, to
private respondent under the compromise
agreement. Thus on 25 January 1993 respondent
filed a complaint to revive the judgment, docketed as
Civil Case No. D-10459.[5]
Petitioner asserts that it was only when the summons
in Civil Case No. D-10459 for the revival of judgment
was served upon it that it came to know of the
compromise agreement entered into between Paz G.
Villamil-Estrada and respondent Isidro Perez upon
which the trial court based its decision of 26 July
1993 in Civil Case No. D-7750. Forthwith, upon
learning of the fraudulent transaction, petitioner
sought annulment of the decision of the trial court
before respondent Court of Appeals on the ground
that the compromise agreement was void
because: (a) the attorney-in-fact did not have the
authority to dispose of, sell, encumber or divest the
plaintiff of its ownership over its real property or any
portion thereof; (b) the authority of the attorney-in-fact
was confined to the institution and filing of an
ejectment case against third persons/squatters on the
property of the plaintiff, and to cause their eviction
therefrom; (c) while the special power of attorney
made mention of an authority to enter into a
compromise agreement, such authority was in
connection with, and limited to, the eviction of third
persons/squatters thereat, in order that the
corporation may take material possession of the
entire lot; (d) the amount of P26,640.00 alluded to as
alleged consideration of said agreement was never
received by the plaintiff; (e) the private defendant
acted in bad faith in the execution of said agreement
knowing fully well the want of authority of the attorney-
in-fact to sell, encumber or dispose of the real
property of plaintiff; and, (f) the disposal of a corporate
property indispensably requires a Board Resolution of
its Directors, a fact which is wanting in said Civil Case
No. D-7750, and the General Manager is not the
proper officer to encumber a corporate property.[6]
On 29 October 1993 respondent court dismissed the
complaint on the basis of its finding that not one of the
grounds for annulment, namely, lack of jurisdiction,
fraud or illegality was shown to exist.[7] It also denied
the motion for reconsideration filed by petitioner,
discoursing that the alleged nullity of the compromise
judgment on the ground that petitioners attorney in
fact Villamit-Estrada was not authorized to sell the
subject property may be raised as a defense in the
execution of the compromise judgment as it does not
bind petitioner, but not as a ground for annulment of
judgment because it does not affect the jurisdiction of
the trial court over the action nor does it amount to
extrinsic fraud.[8]
Petitioner challenges this verdict. It argues that the
decision of the trial court is void because the
compromise agreement upon which it was based is
void. Attorney-in-fact Villamil-Estrada did not possess
the authority to sell or was she armed with a Board
Resolution authorizing the sale of its property. She
was merely empowered to enter into a compromise
agreement in the recovery suit she was authorized to
file against persons squatting on Lot No. 443, such
authority being expressly confined to the ejectment of
third persons or squatters of x x x lot x x x (No.) 443 x
x x for the said squatters to remove their houses and
vacate the premises in order that the corporation may
take material possession of the entire lot x x x x
We agree with petitioner. The authority granted
Villamil-Estrada under the special power of attorney
was explicit and exclusionary: for her to institute any
action in court to eject all persons found on Lots Nos.
9127 and 443 so that petitioner could take material
possession thereof, and for this purpose, to appear at
the pre-trial and enter into any stipulation of facts
and/or compromise agreement but only insofar as this
was protective of the rights and interests of petitioner
in the property. Nowhere in this authorization was
Villamil-Estrada granted expressly or impliedly any
power to sell the subject property nor a portion
thereof. Neither can a conferment of the power to sell
be validly inferred from the specific authority to enter
into a compromise agreement because of the explicit
limitation fixed by the grantor that the compromise
entered into shall only be so far as it shall protect the
rights and interest of the corporation in the
aforementioned lots. In the context of the specific
investiture of powers to Villamil-Estrada, alienation by
sale of an immovable certainly cannot be deemed
protective of the right of petitioner to physically
possess the same, more so when the land was being
sold for a price of P80.00 per square meter, very
much less than its assessed value of P250.00 per
square meter, and considering further that petitioner
never received the proceeds of the sale.
When the sale of a piece of land or any interest
thereon is through an agent, the authority of the latter
shall be in writing; otherwise, the sale shall be void.
[9]
Thus the authority of an agent to execute a contract
for the sale of real estate must be conferred in writing
and must give him specific authority, either to conduct
the general business of the principal or to execute a
binding contract containing terms and conditions
which are in the contract he did execute.[10] A special
power of attorney is necessary to enter into any
contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a
valuable consideration.[11] The express mandate
required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that
expressly mentions a sale or that includes a sale as a
necessary ingredient of the act mentioned. [12] For the
principal to confer the right upon an agent to sell real
estate, a power of attorney must so express the
powers of the agent in clear and unmistakable
language. When there is any reasonable doubt that
the language so used conveys such power, no such
construction shall be given the document.[13]
It is therefore clear that by selling to respondent Perez
a portion of petitioners land through a compromise
agreement, Villamil-Estrada acted without or in
obvious authority. The saleipso jure is consequently
void. So is the compromise agreement. This being the
case, the judgment based thereon is necessarily
void. Antipodal to the opinion expressed by
respondent court in resolving petitioners motion for
reconsideration, the nullity of the settlement between
Villamil-Estrada and Perez impaired the jurisdiction of
the trial court to render its decision based on the
compromise agreement. In Alviar v. Court of First
Instance of La Union,[14] the Court held -
x x x x this court does not hesitate to hold that the
judgment in question is null and void ab initio. It is not
binding upon and cannot be executed against the
petitioners. It is evident that the compromise upon
which the judgment was based was not subscribed by
them x x x x Neither could Attorney Ortega bind them
validly in the compromise because he had no special
authority x x x x
As the judgment in question is null and void ab initio, it
is evident that the court acquired no jurisdiction to
render it, much less to order the execution thereof x x
x of the appellate court that the highly reprehensible
x x x x A judgment, which is null and void ab initio,
rendered by a court without jurisdiction to do so, is
without legal efficacy and may properly be impugned
in any proceeding by the party against whom it is
sought to be enforced x x x x
This ruling was adopted in Jacinto v. Montesa,[15] by
Mr. Justice J.B.L. Reyes, a much-respected authority
on civil law, where the Court declared that a judgment
based on a compromise entered into by an attorney
without specific authority from the client is void. Such
judgment may be impugned and its execution
restrained in any proceeding by the party against
whom it is sought to be enforced. The Court also
observed that a defendant against whom a judgment
based on a compromise is sought to be enforced may
file a petition for certiorari to quash the execution. He
could not move to have the compromise set aside and
then appeal from the order of denial since he was not
a party to the compromise. Thus it would appear that
the obiter of the appellate court that the alleged nullity
of the compromise agreement should be raised as a
defense against its enforcement is not legally
feasible. Petitioner could not be in a position to
question the compromise agreement in the action to
revive the compromise judgment since it was never
privy to such agreement. Villamil-Estrada who signed
the compromise agreement may have been the
attorney-in-fact but she could not legally bind
petitioner thereto as she was not entrusted with a
special authority to sell the land, as required in Art.
1878, par. (5), of the Civil Code.
Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a
party may now petition the Court of Appeals to annul
and set aside judgments of Regional Trial Courts.
[16]
Thus, the Intermediate Appellate Court (now Court
of Appeals) shall exercise x x x x (2) Exclusive original
jurisdiction over action for annulment of judgments of
the Regional Trial Courts x x x x However, certain
requisites must first be established before a final and
executory judgment can be the subject of an action for
annulment. It must either be void for want of
jurisdiction or for lack of due process of law, or it has
been obtained by fraud.[17]
Conformably with law and the above-cited authorities,
the petition to annul the decision of the trial court in
Civil Case No. D-7750 before the Court of Appeals
was proper. Emanating as it did from a void
compromise agreement, the trial court had no
jurisdiction to render a judgment based thereon.[18]
It would also appear, and quite contrary to the finding
conduct of attorney-in-fact Villamil-Estrada in Civil
Case No. 7750 constituted an extrinsic or collateral
fraud by reason of which the judgment rendered
thereon should have been struck down. Not all the
legal semantics in the world can becloud the
unassailable fact that petitioner was deceived and
betrayed by its attorney-in-fact. Villamil-Estrada
deliberately concealed from petitioner, her principal,
that a compromise agreement had been forged with
the end-result that a portion of petitioners property
was sold to the deforciant, literally for a song. Thus
completely kept unaware of its agents artifice,
petitioner was not accorded even a fighting chance to
repudiate the settlement so much so that the
judgment based thereon became final and executory.
For sure, the Court of Appeals restricted the concept
of fraudulent acts within too narrow limits. Fraud may
assume different shapes and be committed in as
many different ways and here lies the danger of
attempting to define fraud. For man in his ingenuity
and fertile imagination will always contrive new
schemes to fool the unwary.
There is extrinsic fraud within the meaning of Sec. 9,
par. (2), of B.P. Blg. 129, where it is one the effect of
which prevents a party from hearing a trial, or real
contest, or from presenting all of his case to the court,
or where it operates upon matters, not pertaining to
the judgment itself, but to the manner in which it was
procured so that there is not a fair submission of the
controversy. In other words, extrinsic fraud refers to
any fraudulent act of the prevailing party in the
litigation which is committed outside of the trial of the
case, whereby the defeated party has been prevented
from exhibiting fully his side of the case by fraud or
deception practiced on him by his opponent. [19] Fraud
is extrinsic where the unsuccessful party has been
prevented from exhibiting fully his case, by fraud or
deception practiced on him by his opponent, as by
keeping him away from court, a false promise of a
compromise; or where the defendant never had
knowledge of the suit, being kept in ignorance by the
acts of the plaintiff; or where an attorney fraudulently
or without authority connives at his defeat; these and
similar cases which show that there has never been a
real contest in the trial or hearing of the case are
reasons for which a new suit may be sustained to set
aside and annul the former judgment and open the
case for a new and fair hearing.[20]
It may be argued that petitioner knew of the
compromise agreement since the principal is
chargeable with and bound by the knowledge of or
notice to his agent received while the agent was
acting as such. But the general rule is intended to
protect those who exercise good faith and not as a
shield for unfair dealing. Hence there is a well-
established exception to the general rule as where the
conduct and dealings of the agent are such as to raise
a clear presumption that he will not communicate to
the principal the facts in controversy.[21] The logical
reason for this exception is that where the agent is
committing a fraud, it would be contrary to common
sense to presume or to expect that he would
communicate the facts to the principal.Verily, when an
agent is engaged in the perpetration of a fraud upon
his principal for his own exclusive benefit, he is not
really acting for the principal but is really acting for
himself, entirely outside the scope of his agency.
[22]
Indeed, the basic tenets of agency rest on the
highest considerations of justice, equity and fair play,
and an agent will not be permitted to pervert his
authority to his own personal advantage, and his act
in secret hostility to the interests of his principal
transcends the power afforded him.[23]
WHEREFORE, the petition is GRANTED. The
decision and resolution of respondent Court of
Appeals dated 29 October 1993 and 10 March 1994,
respectively, as well as the decision of the Regional
Trial Court of Dagupan City in Civil Case No. D-7750
dated 27 November 1985, are NULLIFIED and SET
ASIDE. The Compromise Agreement entered into
between Attorney-in-fact Paz G. Villamil-Estrada and
respondent Isidro Perez is declared VOID. This is
without prejudice to the right of petitioner to pursue its
complaint against private respondent Isidro Perez in
Civil Case No. D-7750 for the recovery of possession
of a portion of Lot No. 443.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 157493 February 5, 2007
RIZALINO, substituted by his heirs, JOSEFINA,
ROLANDO and FERNANDO, ERNESTO,
LEONORA, BIBIANO, JR., LIBRADO and
ENRIQUETA, all surnamed OESMER, Petitioners,
vs.
PARAISO DEVELOPMENT
CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari
under Rule 45 of the 1997 Revised Rules of Civil
Procedure seeking to reverse and set aside the Court
of Appeals Decision1 dated 26 April 2002 in CA-G.R.
CV No. 53130 entitled, Rizalino, Ernesto, Leonora,
Bibiano, Jr., Librado, Enriqueta, Adolfo, and Jesus, all
surnamed Oesmer vs. Paraiso Development
Corporation, as modified by its Resolution 2 dated 4
March 2003, declaring the Contract to Sell valid and
binding with respect to the undivided proportionate
shares of the six signatories of the said document,
herein petitioners, namely: Ernesto, Enriqueta,
Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer); and ordering them to execute the
Deed of Absolute Sale concerning their 6/8 share over
the subject parcels of land in favor of herein
respondent Paraiso Development Corporation, and to
pay the latter the attorneys fees plus costs of the suit.
The assailed Decision, as modified, likewise ordered
the respondent to tender payment to the petitioners in
the amount of 3,216,560.00 representing the
balance of the purchase price of the subject parcels of
land.
The facts of the case are as follows:
Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr.,
Librado, and Enriqueta, all surnamed Oesmer,
together with Adolfo Oesmer (Adolfo) and Jesus
Oesmer (Jesus), are brothers and sisters, and the co-
owners of undivided shares of two parcels of
agricultural and tenanted land situated in Barangay
Ulong Tubig, Carmona, Cavite, identified as Lot 720
with an area of 40,507 square meters (sq. m.) and Lot
834 containing an area of 14,769 sq. m., or a total
land area of 55,276 sq. m. Both lots are unregistered
and originally owned by their parents, Bibiano Oesmer
and Encarnacion Durumpili, who declared the lots for
taxation purposes under Tax Declaration No.
34383(cancelled by I.D. No. 6064-A) for Lot 720 and
Tax Declaration No. 34374 (cancelled by I.D. No.
5629) for Lot 834. When the spouses Oesmer died,
petitioners, together with Adolfo and Jesus, acquired
the lots as heirs of the former by right of succession.
Respondent Paraiso Development Corporation is
known to be engaged in the real estate business.
Sometime in March 1989, Rogelio Paular, a resident
and former Municipal Secretary of Carmona, Cavite,
brought along petitioner Ernesto to meet with a certain
Sotero Lee, President of respondent Paraiso
Development Corporation, at Otani Hotel in Manila.
The said meeting was for the purpose of brokering the
sale of petitioners properties to respondent
corporation.
Pursuant to the said meeting, a Contract to Sell5 was
drafted by the Executive Assistant of Sotero Lee,
Inocencia Almo. On 1 April 1989, petitioners Ernesto
and Enriqueta signed the aforesaid Contract to Sell. A
check in the amount of 100,000.00, payable to
Ernesto, was given as option money. Sometime
thereafter, Rizalino, Leonora, Bibiano, Jr., and Librado
also signed the said Contract to Sell. However, two of
the brothers, Adolfo and Jesus, did not sign the
document.
On 5 April 1989, a duplicate copy of the instrument
was returned to respondent corporation. On 21 April
1989, respondent brought the same to a notary public
for notarization.
In a letter6 dated 1 November 1989, addressed to
respondent corporation, petitioners informed the
former of their intention to rescind the Contract to Sell
and to return the amount of 100,000.00 given by
respondent as option money.
Respondent did not respond to the aforesaid letter.
On 30 May 1991, herein petitioners, together with
Adolfo and Jesus, filed a Complaint7 for Declaration of
Nullity or for Annulment of Option Agreement or
Contract to Sell with Damages before the Regional
Trial Court (RTC) of Bacoor, Cavite. The said case
was docketed as Civil Case No. BCV-91-49.
During trial, petitioner Rizalino died. Upon motion of
petitioners, the trial court issued an Order,8 dated 16
September 1992, to the effect that the deceased
petitioner be substituted by his surviving spouse,
Josefina O. Oesmer, and his children, Rolando O.
Oesmer and Fernando O. Oesmer. However, the
name of Rizalino was retained in the title of the case
both in the RTC and the Court of Appeals.
After trial on the merits, the lower court rendered a
Decision9 dated 27 March 1996 in favor of the
respondent, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of herein [respondent]
Paraiso Development Corporation. The assailed
Contract to Sell is valid and binding only to the
undivided proportionate share of the signatory of this
document and recipient of the check, [herein
petitioner] co-owner Ernesto Durumpili Oesmer. The
latter is hereby ordered to execute the Contract of
Absolute Sale concerning his 1/8 share over the
subject two parcels of land in favor of herein
[respondent] corporation, and to pay the latter the
attorneys fees in the sum of Ten Thousand
(10,000.00) Pesos plus costs of suit.
The counterclaim of [respondent] corporation is
hereby Dismissed for lack of merit.10
Unsatisfied, respondent appealed the said Decision
before the Court of Appeals. On 26 April 2002, the
appellate court rendered a Decision modifying the
Decision of the court a quo by declaring that the
Contract to Sell is valid and binding with respect to the
undivided proportionate shares of the six signatories
of the said document, herein petitioners, namely:
Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and
Leonora (all surnamed Oesmer). The decretal portion
of the said Decision states that:
WHEREFORE, premises considered, the Decision of
the court a quo is hereby MODIFIED. Judgment is
hereby rendered in favor of herein [respondent]
Paraiso Development Corporation. The assailed
Contract to Sell is valid and binding with respect to the
undivided proportionate share of the six (6)
signatories of this document, [herein petitioners],
namely, Ernesto, Enriqueta, Librado, Rizalino,
Bibiano, Jr., and Leonora (all surnamed Oesmer). The
said [petitioners] are hereby ordered to execute the
Deed of Absolute Sale concerning their 6/8 share over
the subject two parcels of land and in favor of herein
[respondent] corporation, and to pay the latter the
attorneys fees in the sum of Ten Thousand Pesos
(10,000.00) plus costs of suit.11
Aggrieved by the above-mentioned Decision,
petitioners filed a Motion for Reconsideration of the
same on 2 July 2002. Acting on petitioners Motion for
Reconsideration, the Court of Appeals issued a
Resolution dated 4 March 2003, maintaining its
Decision dated 26 April 2002, with the modification
that respondent tender payment to petitioners in the
amount of 3,216,560.00, representing the balance of
the purchase price of the subject parcels of land. The
dispositive portion of the said Resolution reads:
WHEREFORE, premises considered, the assailed
Decision is hereby modified.1awphi1.net Judgment is
hereby rendered in favor of herein [respondent]
Paraiso Development Corporation. The assailed
Contract to Sell is valid and binding with respect to the
undivided proportionate shares of the six (6)
signatories of this document, [herein petitioners],
namely, Ernesto, Enriqueta, Librado, Rizalino,
Bibiano, Jr., and Leonora (all surnamed Oesmer). The
said [petitioners] are hereby ordered to execute the
Deed of Absolute Sale concerning their 6/8 share over
the subject two parcels of land in favor of herein
[respondent] corporation, and to pay the latter
attorneys fees in the sum of Ten Thousand Pesos
(10,000.00) plus costs of suit. Respondent is
likewise ordered to tender payment to the above-
named [petitioners] in the amount of Three Million Two
Hundred Sixteen Thousand Five Hundred Sixty Pesos
(3,216,560.00) representing the balance of the
purchase price of the subject two parcels of land. 12
Hence, this Petition for Review on Certiorari.
Petitioners come before this Court arguing that the
Court of Appeals erred:
I. On a question of law in not holding that, the
supposed Contract to Sell (Exhibit D) is not binding
upon petitioner Ernesto Oesmers co-owners (herein
petitioners Enriqueta, Librado, Rizalino, Bibiano, Jr.,
and Leonora).
II. On a question of law in not holding that, the
supposed Contract to Sell (Exhibit D) is void
altogether considering that respondent itself did not
sign it as to indicate its consent to be bound by its
terms. Moreover, Exhibit D is really a unilateral
promise to sell without consideration distinct from the
price, and hence, void.
Petitioners assert that the signatures of five of them
namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and
Leonora, on the margins of the supposed Contract to
Sell did not confer authority on petitioner Ernesto as
agent to sell their respective shares in the questioned
properties, and hence, for lack of written authority
from the above-named petitioners to sell their
respective shares in the subject parcels of land, the
supposed Contract to Sell is void as to them. Neither
do their signatures signify their consent to directly sell
their shares in the questioned properties. Assuming
that the signatures indicate consent, such consent
was merely conditional. The effectivity of the alleged
Contract to Sell was subject to a suspensive
condition, which is the approval of the sale by all the
co-owners.
Petitioners also assert that the supposed Contract to
Sell (Exhibit D), contrary to the findings of the Court of
Appeals, is not couched in simple language.
They further claim that the supposed Contract to Sell
does not bind the respondent because the latter did
not sign the said contract as to indicate its consent to
be bound by its terms. Furthermore, they maintain
that the supposed Contract to Sell is really a unilateral
promise to sell and the option money does not bind
petitioners for lack of cause or consideration distinct
from the purchase price.
The Petition is bereft of merit.
It is true that the signatures of the five petitioners,
namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and
Leonora, on the Contract to Sell did not confer
authority on petitioner Ernesto as agent authorized to
sell their respective shares in the questioned
properties because of Article 1874 of the Civil Code,
which expressly provides that:
Art. 1874. When a sale of a piece of land or any
interest therein is through an agent, the authority of
the latter shall be in writing; otherwise, the sale shall
be void.
The law itself explicitly requires a written authority
before an agent can sell an immovable. The
conferment of such an authority should be in writing,
in as clear and precise terms as possible. It is worth
noting that petitioners signatures are found in the
Contract to Sell. The Contract is absolutely silent on
the establishment of any principal-agent relationship
between the five petitioners and their brother and co-
petitioner Ernesto as to the sale of the subject parcels
of land. Thus, the Contract to Sell, although signed on
the margin by the five petitioners, is not sufficient to
confer authority on petitioner Ernesto to act as their
agent in selling their shares in the properties in
question.
However, despite petitioner Ernestos lack of written
authority from the five petitioners to sell their shares in
the subject parcels of land, the supposed Contract to
Sell remains valid and binding upon the latter.
As can be clearly gleaned from the contract itself, it is
not only petitioner Ernesto who signed the said
Contract to Sell; the other five petitioners also
personally affixed their signatures thereon. Therefore,
a written authority is no longer necessary in order to
sell their shares in the subject parcels of land
because, by affixing their signatures on the Contract
to Sell, they were not selling their shares through an
agent but, rather, they were selling the same directly
and in their own right.
The Court also finds untenable the following
arguments raised by petitioners to the effect that the
Contract to Sell is not binding upon them, except to
Ernesto, because: (1) the signatures of five of the
petitioners do not signify their consent to sell their
shares in the questioned properties since petitioner
Enriqueta merely signed as a witness to the said
Contract to Sell, and that the other petitioners,
namely: Librado, Rizalino, Leonora, and Bibiano, Jr.,
did not understand the importance and consequences
of their action because of their low degree of
education and the contents of the aforesaid contract
were not read nor explained to them; and (2)
assuming that the signatures indicate consent, such
consent was merely conditional, thus, the effectivity of
the alleged Contract to Sell was subject to a
suspensive condition, which is the approval by all the
co-owners of the sale.
It is well-settled that contracts are perfected by mere
consent, upon the acceptance by the offeree of the
offer made by the offeror. From that moment, the
parties are bound not only to the fulfillment of what
has been expressly stipulated but also to all the
consequences which, according to their nature, may
be in keeping with good faith, usage and law. To
produce a contract, the acceptance must not qualify
the terms of the offer. However, the acceptance may
be express or implied. For a contract to arise, the
acceptance must be made known to the offeror.
Accordingly, the acceptance can be withdrawn or
revoked before it is made known to the offeror.13
In the case at bar, the Contract to Sell was perfected
when the petitioners consented to the sale to the
respondent of their shares in the subject parcels of
land by affixing their signatures on the said contract.
Such signatures show their acceptance of what has
been stipulated in the Contract to Sell and such
acceptance was made known to respondent
corporation when the duplicate copy of the Contract to
Sell was returned to the latter bearing petitioners
signatures.
As to petitioner Enriquetas claim that she merely
signed as a witness to the said contract, the contract
itself does not say so. There was no single indication
in the said contract that she signed the same merely
as a witness. The fact that her signature appears on
the right-hand margin of the Contract to Sell is
insignificant. The contract indisputably referred to the
"Heirs of Bibiano and Encarnacion Oesmer," and
since there is no showing that Enriqueta signed the
document in some other capacity, it can be safely
assumed that she did so as one of the parties to the
sale.
Emphasis should also be given to the fact that
petitioners Ernesto and Enriqueta concurrently signed
the Contract to Sell. As the Court of Appeals
mentioned in its Decision,14 the records of the case
speak of the fact that petitioner Ernesto, together with
petitioner Enriqueta, met with the representatives of
the respondent in order to finalize the terms and
conditions of the Contract to Sell. Enriqueta affixed
her signature on the said contract when the same was
drafted. She even admitted that she understood the
undertaking that she and petitioner Ernesto made in
connection with the contract. She likewise disclosed
that pursuant to the terms embodied in the Contract to
Sell, she updated the payment of the real property
taxes and transferred the Tax Declarations of the
questioned properties in her name.15 Hence, it cannot
be gainsaid that she merely signed the Contract to
Sell as a witness because she did not only actively
participate in the negotiation and execution of the
same, but her subsequent actions also reveal an
attempt to comply with the conditions in the said
contract.
With respect to the other petitioners assertion that
they did not understand the importance and
consequences of their action because of their low
degree of education and because the contents of the
aforesaid contract were not read nor explained to
them, the same cannot be sustained.
We only have to quote the pertinent portions of the
Court of Appeals Decision, clear and concise, to
dispose of this issue. Thus,
First, the Contract to Sell is couched in such a simple
language which is undoubtedly easy to read and
understand. The terms of the Contract, specifically the
amount of 100,000.00 representing the option
money paid by [respondent] corporation, the purchase
price of 60.00 per square meter or the total amount
of 3,316,560.00 and a brief description of the subject
properties are well-indicated thereon that any prudent
and mature man would have known the nature and
extent of the transaction encapsulated in the
document that he was signing.
Second, the following circumstances, as testified by
the witnesses and as can be gleaned from the records
of the case clearly indicate the [petitioners] intention
to be bound by the stipulations chronicled in the said
Contract to Sell.
As to [petitioner] Ernesto, there is no dispute as to his
intention to effect the alienation of the subject property
as he in fact was the one who initiated the negotiation
process and culminated the same by affixing his
signature on the Contract to Sell and by taking receipt
of the amount of 100,000.00 which formed part of
the purchase price.
xxxx
As to [petitioner] Librado, the [appellate court] finds it
preposterous that he willingly affixed his signature on
a document written in a language (English) that he
purportedly does not understand. He testified that the
document was just brought to him by an 18 year old
niece named Baby and he was told that the document
was for a check to be paid to him. He readily signed
the Contract to Sell without consulting his other
siblings. Thereafter, he exerted no effort in
communicating with his brothers and sisters regarding
the document which he had signed, did not inquire
what the check was for and did not thereafter ask for
the check which is purportedly due to him as a result
of his signing the said Contract to Sell. (TSN, 28
September 1993, pp. 22-23)
The [appellate court] notes that Librado is a 43 year
old family man (TSN, 28 September 1993, p. 19). As
such, he is expected to act with that ordinary degree
of care and prudence expected of a good father of a
family. His unwitting testimony is just divinely
disbelieving.
The other [petitioners] (Rizalino, Leonora and Bibiano
Jr.) are likewise bound by the said Contract to Sell.
The theory adopted by the [petitioners] that because
of their low degree of education, they did not
understand the contents of the said Contract to Sell is
devoid of merit. The [appellate court] also notes that
Adolfo (one of the co-heirs who did not sign) also
possess the same degree of education as that of the
signing co-heirs (TSN, 15 October 1991, p. 19). He,
however, is employed at the Provincial Treasury
Office at Trece Martirez, Cavite and has even
accompanied Rogelio Paular to the Assessors Office
to locate certain missing documents which were
needed to transfer the titles of the subject properties.
(TSN, 28 January 1994, pp. 26 & 35) Similarly, the
other co-heirs [petitioners], like Adolfo, are far from
ignorant, more so, illiterate that they can be extricated
from their obligations under the Contract to Sell which
they voluntarily and knowingly entered into with the
[respondent] corporation.
The Supreme Court in the case of Cecilia Mata v.
Court of Appeals (207 SCRA 753 [1992]), citing the
case of Tan Sua Sia v. Yu Baio Sontua (56 Phil. 711),
instructively ruled as follows:
"The Court does not accept the petitioners claim that
she did not understand the terms and conditions of
the transactions because she only reached Grade
Three and was already 63 years of age when she
signed the documents. She was literate, to begin with,
and her age did not make her senile or incompetent. x
x x.
At any rate, Metrobank had no obligation to explain
the documents to the petitioner as nowhere has it
been proven that she is unable to read or that the
contracts were written in a language not known to her.
It was her responsibility to inform herself of the
meaning and consequence of the contracts she was
signing and, if she found them difficult to comprehend,
to consult other persons, preferably lawyers, to
explain them to her. After all, the transactions involved
not only a few hundred or thousand pesos but,
indeed, hundreds of thousands of pesos.
As the Court has held:
x x x The rule that one who signs a contract is
presumed to know its contents has been applied even
to contracts of illiterate persons on the ground that if
such persons are unable to read, they are negligent if
they fail to have the contract read to them. If a person
cannot read the instrument, it is as much his duty to
procure some reliable persons to read and explain it
to him, before he signs it, as it would be to read it
before he signed it if he were able to do and his failure
to obtain a reading and explanation of it is such gross
negligence as will estop from avoiding it on the
ground that he was ignorant of its contents."16
That the petitioners really had the intention to dispose
of their shares in the subject parcels of land,
irrespective of whether or not all of the heirs
consented to the said Contract to Sell, was unveiled
by Adolfos testimony as follows:
ATTY. GAMO: This alleged agreement between you
and your other brothers and sisters that unless
everybody will agree, the properties would not be
sold, was that agreement in writing?
WITNESS: No sir.
ATTY. GAMO: What you are saying is that when your
brothers and sisters except Jesus and you did not
sign that agreement which had been marked as
[Exhibit] "D", your brothers and sisters were grossly
violating your agreement.
WITNESS: Yes, sir, they violated what we have
agreed upon.17
We also cannot sustain the allegation of the
petitioners that assuming the signatures indicate
consent, such consent was merely conditional, and
that, the effectivity of the alleged Contract to Sell was
subject to the suspensive condition that the sale be
approved by all the co-owners. The Contract to Sell is
clear enough. It is a cardinal rule in the interpretation
of contracts 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.18 The terms of the Contract to
Sell made no mention of the condition that before it
can become valid and binding, a unanimous consent
of all the heirs is necessary. Thus, when the language
of the contract is explicit, as in the present case,
leaving no doubt as to the intention of the parties
thereto, the literal meaning of its stipulation is
controlling.
In addition, the petitioners, being owners of their
respective undivided shares in the subject properties,
can dispose of their shares even without the consent
of all the co-heirs. Article 493 of the Civil Code
expressly provides:
Article 493. Each co-owner shall have the full
ownership of his part and of the fruits and benefits
pertaining thereto, and he may therefore alienate,
assign or mortgage it, and even substitute another
person in its enjoyment, except when personal rights
are involved. But the effect of the alienation or the
mortgage, with respect to the co-owners, shall
be limited to the portion which may be allotted to him
in the division upon the termination of the co-
ownership. [Emphases supplied.]
Consequently, even without the consent of the two co-
heirs, Adolfo and Jesus, the Contract to Sell is still
valid and binding with respect to the 6/8 proportionate
shares of the petitioners, as properly held by the
appellate court.
Therefore, this Court finds no error in the findings of
the Court of Appeals that all the petitioners who were
signatories in the Contract to Sell are bound thereby.
The final arguments of petitioners state that the
Contract to Sell is void altogether considering that
respondent itself did not sign it as to indicate its
consent to be bound by its terms; and moreover, the
Contract to Sell is really a unilateral promise to sell
without consideration distinct from the price, and
hence, again, void. Said arguments must necessarily
fail.
The Contract to Sell is not void merely because it
does not bear the signature of the respondent
corporation. Respondent corporations consent to be
bound by the terms of the contract is shown in the
uncontroverted facts which established that there was
partial performance by respondent of its obligation in
the said Contract to Sell when it tendered the amount
of 100,000.00 to form part of the purchase price,
which was accepted and acknowledged expressly by
petitioners. Therefore, by force of law, respondent is
required to complete the payment to enforce the
terms of the contract. Accordingly, despite the
absence of respondents signature in the Contract to
Sell, the former cannot evade its obligation to pay the
balance of the purchase price.
As a final point, the Contract to Sell entered into by
the parties is not a unilateral promise to sell merely
because it used the word option money when it
referred to the amount of 100,000.00, which also
form part of the purchase price.
Settled is the rule that in the interpretation of
contracts, the ascertainment of the intention of the
contracting parties is to be discharged by looking to
the words they used to project that intention in their
contract, all the words, not just a particular word or
two, and words in context, not words standing alone.19
In the instant case, the consideration of 100,000.00
paid by respondent to petitioners was referred to as
"option money." However, a careful examination of the
words used in the contract indicates that the money is
not option money but earnest money. "Earnest
money" and "option money" are not the same but
distinguished thus: (a) earnest money is part of the
purchase price, while option money is the money
given as a distinct consideration for an option
contract; (b) earnest money is given only where there
is already a sale, while option money applies to a sale
not yet perfected; and, (c) when earnest money is
given, the buyer is bound to pay the balance, while
when the would-be buyer gives option money, he is
not required to buy, but may even forfeit it depending
on the terms of the option.20
The sum of 100,000.00 was part of the purchase
price. Although the same was denominated as "option
money," it is actually in the nature of earnest money or
down payment when considered with the other terms
of the contract. Doubtless, the agreement is not a
mere unilateral promise to sell, but, indeed, it is a
Contract to Sell as both the trial court and the
appellate court declared in their Decisions.
WHEREFORE, premises considered, the Petition is
DENIED, and the Decision and Resolution of the
Court of Appeals dated 26 April 2002 and 4 March
2003, respectively, are AFFIRMED, thus, (a) the
Contract to Sell is DECLARED valid and binding with
respect to the undivided proportionate shares in the
subject parcels of land of the six signatories of the
said document, herein petitioners Ernesto, Enriqueta,
Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer); (b) respondent is ORDERED to
tender payment to petitioners in the amount of
3,216,560.00 representing the balance of the
purchase price for the latters shares in the subject
parcels of land; and (c) petitioners are
further ORDERED to execute in favor of respondent
the Deed of Absolute Sale covering their shares in the
subject parcels of land after receipt of the balance of
the purchase price, and to pay respondent attorneys
fees plus costs of the suit. Costs against petitioners.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 160346 August 25, 2009
PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE
CASTILLA (represented by Mother and Attorney-
in-Fact VIRGINIA CASTILLA), Petitioners,
vs.
COURT OF APPEALS, SPOUSES ISAGANI
BELARMINO and LETICIA OCAMPO, EUFEMIA
SAN AGUSTIN-MAGSINO, ZENAIDA SAN
AGUSTIN-McCRAE, MILAGROS SAN AGUSTIN-
FORTMAN, MINERVA SAN AGUSTIN-ATKINSON,
FERDINAND SAN AGUSTIN, RAUL SAN AGUSTIN,
ISABELITA SAN AGUSTIN-LUSTENBERGER and
VIRGILIO SAN AGUSTIN, Respondents.
DECISION
NACHURA, J.:
For our resolution is a petition for review on certiorari
assailing the April 23, 2003 Decision1 and October 8,
2003 Resolution2 of the Court of Appeals (CA) in CA-
G.R. CV No. 59426. The appellate court, in the said
decision and resolution, reversed and set aside the
January 14, 1998 Decision3 of the Regional Trial
Court (RTC), which ruled in favor of petitioners.
The dispute stemmed from the following facts.
During their lifetime, spouses Pedro San Agustin and
Agatona Genil were able to acquire a 246-square
meter parcel of land situated in Barangay Anos, Los
Baos, Laguna and covered by Original Certificate of
Title (OCT) No. O-(1655) 0-15. 4 Agatona Genil died
on September 13, 1990 while Pedro San Agustin died
on September 14, 1991. Both died intestate, survived
by their eight (8) children: respondents Eufemia, Raul,
Ferdinand, Zenaida, Milagros, Minerva, Isabelita and
Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul
executed a Deed of Absolute Sale of Undivided
Shares5conveying in favor of petitioners (the Pahuds,
for brevity) their respective shares from the lot they
inherited from their deceased parents for
525,000.00.6 Eufemia also signed the deed on
behalf of her four (4) other co-heirs, namely: Isabelita
on the basis of a special power of attorney executed
on September 28, 1991,7 and also for Milagros,
Minerva, and Zenaida but without their apparent
written authority.8 The deed of sale was also not
notarized.9
On July 21, 1992, the Pahuds paid 35,792.31 to the
Los Baos Rural Bank where the subject property
was mortgaged.10 The bank issued a release of
mortgage and turned over the owners copy of the
OCT to the Pahuds.11 Over the following months, the
Pahuds made more payments to Eufemia and her
siblings totaling to 350,000.00.12 They agreed to use
the remaining 87,500.0013 to defray the payment for
taxes and the expenses in transferring the title of the
property.14 When Eufemia and her co-heirs drafted an
extra-judicial settlement of estate to facilitate the
transfer of the title to the Pahuds, Virgilio refused to
sign it.15
On July 8, 1993, Virgilios co-heirs filed a
complaint16 for judicial partition of the subject property
before the RTC of Calamba, Laguna. On November
28, 1994, in the course of the proceedings for judicial
partition, a Compromise Agreement17 was signed with
seven (7) of the co-heirs agreeing to sell their
undivided shares to Virgilio for 700,000.00. The
compromise agreement was, however, not approved
by the trial court because Atty. Dimetrio Hilbero,
lawyer for Eufemia and her six (6) co-heirs, refused to
sign the agreement because he knew of the previous
sale made to the Pahuds.18lawphil.net
On December 1, 1994, Eufemia acknowledged having
received 700,000.00 from Virgilio.19 Virgilio then sold
the entire property to spouses Isagani Belarmino and
Leticia Ocampo (Belarminos) sometime in 1994. The
Belarminos immediately constructed a building on the
subject property.
Alarmed and bewildered by the ongoing construction
on the lot they purchased, the Pahuds immediately
confronted Eufemia who confirmed to them that
Virgilio had sold the property to the
Belarminos.20 Aggrieved, the Pahuds filed a complaint
in intervention21 in the pending case for judicial
partition.1avvphil
After trial, the RTC upheld the validity of the sale to
petitioners. The dispositive portion of the decision
reads:
WHEREFORE, the foregoing considered, the Court
orders:
1. the sale of the 7/8 portion of the property covered
by OCT No. O (1655) O-15 by the plaintiffs as heirs of
deceased Sps. Pedro San Agustin and Agatona Genil
in favor of the Intervenors-Third Party plaintiffs as
valid and enforceable, but obligating the Intervenors-
Third Party plaintiffs to complete the payment of the
purchase price of 437,500.00 by paying the balance
of 87,500.00 to defendant Fe (sic) San Agustin
Magsino. Upon receipt of the balance, the plaintiff
shall formalize the sale of the 7/8 portion in favor of
the Intervenor[s]-Third Party plaintiffs;
2. declaring the document entitled "Salaysay sa
Pagsang-ayon sa Bilihan" (Exh. "2-a") signed by
plaintiff Eufemia San Agustin attached to the
unapproved Compromise Agreement (Exh. "2") as not
a valid sale in favor of defendant Virgilio San Agustin;
3. declaring the sale (Exh. "4") made by defendant
Virgilio San Agustin of the property covered by OCT
No. O (1655)-O-15 registered in the names of
Spouses Pedro San Agustin and Agatona Genil in
favor of Third-party defendant Spouses Isagani and
Leticia Belarmino as not a valid sale and as inexistent;
4. declaring the defendant Virgilio San Agustin and
the Third-Party defendants spouses Isagani and
Leticia Belarmino as in bad faith in buying the portion
of the property already sold by the plaintiffs in favor of
the Intervenors-Third Party Plaintiffs and the Third-
Party Defendant Sps. Isagani and Leticia Belarmino in
constructing the two-[storey] building in (sic) the
property subject of this case; and
5. declaring the parties as not entitled to any
damages, with the parties shouldering their respective
responsibilities regarding the payment of attorney[]s
fees to their respective lawyers.
No pronouncement as to costs.
SO ORDERED.22
Not satisfied, respondents appealed the decision to
the CA arguing, in the main, that the sale made by
Eufemia for and on behalf of her other co-heirs to the
Pahuds should have been declared void and
inexistent for want of a written authority from her co-
heirs. The CA yielded and set aside the findings of the
trial court. In disposing the issue, the CA ruled:
WHEREFORE, in view of the foregoing, the Decision
dated January 14, 1998, rendered by the Regional
Trial Court of Calamba, Laguna, Branch 92 in Civil
Case No. 2011-93-C for Judicial Partition is hereby
REVERSED and SET ASIDE, and a new one entered,
as follows:
(1) The case for partition among the plaintiffs-
appellees and appellant Virgilio is now considered
closed and terminated;
(2) Ordering plaintiffs-appellees to return to
intervenors-appellees the total amount they received
from the latter, plus an interest of 12% per annum
from the time the complaint [in] intervention was filed
on April 12, 1995 until actual payment of the same;
(3) Declaring the sale of appellant Virgilio San Agustin
to appellants spouses, Isagani and Leticia
Belarmino[,] as valid and binding;
(4) Declaring appellants-spouses as buyers in good
faith and for value and are the owners of the subject
property.
No pronouncement as to costs.
SO ORDERED.23
Petitioners now come to this Court raising the
following arguments:
I. The Court of Appeals committed grave and
reversible error when it did not apply the second
paragraph of Article 1317 of the New Civil Code
insofar as ratification is concerned to the sale of the
4/8 portion of the subject property executed by
respondents San Agustin in favor of petitioners;
II. The Court of Appeals committed grave and
reversible error in holding that respondents spouses
Belarminos are in good faith when they bought the
subject property from respondent Virgilio San Agustin
despite the findings of fact by the court a quo that they
were in bad faith which clearly contravenes the
presence of long line of case laws upholding the task
of giving utmost weight and value to the factual
findings of the trial court during appeals; [and]
III. The Court of Appeals committed grave and
reversible error in holding that respondents spouses
Belarminos have superior rights over the property in
question than petitioners despite the fact that the
latter were prior in possession thereby misapplying
the provisions of Article 1544 of the New Civil Code.24
The focal issue to be resolved is the status of the sale
of the subject property by Eufemia and her co-heirs to
the Pahuds. We find the transaction to be valid and
enforceable.
Article 1874 of the Civil Code plainly provides:
Art. 1874. When a sale of a piece of land or any
interest therein is through an agent, the authority of
the latter shall be in writing; otherwise, the sale shall
be void.
Also, under Article 1878,25 a special power of attorney
is necessary for an agent to enter into a contract by
which the ownership of an immovable property is
transmitted or acquired, either gratuitously or for a
valuable consideration. Such stringent statutory
requirement has been explained in Cosmic Lumber
Corporation v. Court of Appeals:26
[T]he authority of an agent to execute a contract [of]
sale of real estate must be conferred in writing and
must give him specific authority, either to conduct the
general business of the principal or to execute a
binding contract containing terms and conditions
which are in the contract he did execute. A special
power of attorney is necessary to enter into any
contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a
valuable consideration. The express mandate
required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that
expressly mentions a sale or that includes a sale as a
necessary ingredient of the act mentioned. For the
principal to confer the right upon an agent to sell real
estate, a power of attorney must so express the
powers of the agent in clear and unmistakable
language. When there is any reasonable doubt that
the language so used conveys such power, no such
construction shall be given the document.27
In several cases, we have repeatedly held that the
absence of a written authority to sell a piece of land is,
ipso jure, void,28 precisely to protect the interest of an
unsuspecting owner from being prejudiced by the
unwarranted act of another.
Based on the foregoing, it is not difficult to conclude,
in principle, that the sale made by Eufemia, Isabelita
and her two brothers to the Pahuds sometime in 1992
should be valid only with respect to the 4/8 portion of
the subject property. The sale with respect to the 3/8
portion, representing the shares of Zenaida, Milagros,
and Minerva, is void because Eufemia could not
dispose of the interest of her co-heirs in the said lot
absent any written authority from the latter, as
explicitly required by law. This was, in fact, the ruling
of the CA.
Still, in their petition, the Pahuds argue that the sale
with respect to the 3/8 portion of the land should have
been deemed ratified when the three co-heirs,
namely: Milagros, Minerva, and Zenaida, executed
their respective special power of
attorneys29 authorizing Eufemia to represent them in
the sale of their shares in the subject property.30
While the sale with respect to the 3/8 portion is void
by express provision of law and not susceptible to
ratification,31we nevertheless uphold its validity on the
basis of the common law principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission or
representation is rendered conclusive upon the
person making it, and cannot be denied or disproved
as against the person relying thereon.
True, at the time of the sale to the Pahuds, Eufemia
was not armed with the requisite special power of
attorney to dispose of the 3/8 portion of the property.
Initially, in their answer to the complaint in
intervention,32 Eufemia and her other co-heirs denied
having sold their shares to the Pahuds. During the
pre-trial conference, however, they admitted that they
had indeed sold 7/8 of the property to the Pahuds
sometime in 1992.33 Thus, the previous denial was
superseded, if not accordingly amended, by their
subsequent admission.34 Moreover, in their
Comment,35 the said co-heirs again admitted the sale
made to petitioners.36
Interestingly, in no instance did the three (3) heirs
concerned assail the validity of the transaction made
by Eufemia to the Pahuds on the basis of want of
written authority to sell. They could have easily filed a
case for annulment of the sale of their respective
shares against Eufemia and the Pahuds. Instead, they
opted to remain silent and left the task of raising the
validity of the sale as an issue to their co-heir, Virgilio,
who is not privy to the said transaction. They cannot
be allowed to rely on Eufemia, their attorney-in-fact, to
impugn the validity of the first transaction because to
allow them to do so would be tantamount to giving
premium to their sisters dishonest and fraudulent
deed. Undeniably, therefore, the silence and passivity
of the three co-heirs on the issue bar them from
making a contrary claim.
It is a basic rule in the law of agency that a principal is
subject to liability for loss caused to another by the
latters reliance upon a deceitful representation by an
agent in the course of his employment (1) if the
representation is authorized; (2) if it is within the
implied authority of the agent to make for the
principal; or (3) if it is apparently authorized,
regardless of whether the agent was authorized by
him or not to make the representation.37
By their continued silence, Zenaida, Milagros and
Minerva have caused the Pahuds to believe that they
have indeed clothed Eufemia with the authority to
transact on their behalf. Clearly, the three co-heirs are
now estopped from impugning the validity of the sale
from assailing the authority of Eufemia to enter into
such transaction.
Accordingly, the subsequent sale made by the seven
co-heirs to Virgilio was void because they no longer
had any interest over the subject property which they
could alienate at the time of the second
transaction.38 Nemo dat quod non habet. Virgilio,
however, could still alienate his 1/8 undivided share to
the Belarminos.
The Belarminos, for their part, cannot argue that they
purchased the property from Virgilio in good faith. As
a general rule, a purchaser of a real property is not
required to make any further inquiry beyond what the
certificate of title indicates on its face. 39 But the rule
excludes those who purchase with knowledge of the
defect in the title of the vendor or of facts sufficient to
induce a reasonable and prudent person to inquire
into the status of the property.40Such purchaser
cannot close his eyes to facts which should put a
reasonable man on guard, and later claim that he
acted in good faith on the belief that there was no
defect in the title of the vendor. His mere refusal to
believe that such defect exists, or his obvious neglect
by closing his eyes to the possibility of the existence
of a defect in the vendors title, will not make him an
innocent purchaser for value, if afterwards it turns out
that the title was, in fact, defective. In such a case, he
is deemed to have bought the property at his own risk,
and any injury or prejudice occasioned by such
transaction must be borne by him.41
In the case at bar, the Belarminos were fully aware
that the property was registered not in the name of the
immediate transferor, Virgilio, but remained in the
name of Pedro San Agustin and Agatona Genil.42 This
fact alone is sufficient impetus to make further inquiry
and, thus, negate their claim that they are purchasers
for value in good faith. 43 They knew that the property
was still subject of partition proceedings before the
trial court, and that the compromise agreement signed
by the heirs was not approved by the RTC following
the opposition of the counsel for Eufemia and her six
other co-heirs.44 The Belarminos, being transferees
pendente lite, are deemed buyers in mala fide, and
they stand exactly in the shoes of the transferor and
are bound by any judgment or decree which may be
rendered for or against the transferor.45 Furthermore,
had they verified the status of the property by asking
the neighboring residents, they would have been able
to talk to the Pahuds who occupy an adjoining
business establishment46 and would have known that
a portion of the property had already been sold. All
these existing and readily verifiable facts are sufficient
to suggest that the Belarminos knew that they were
buying the property at their own risk.
WHEREFORE, premises considered, the April 23,
2003 Decision of the Court of Appeals as well as its
October 8, 2003 Resolution in CA-G.R. CV No.
59426, are REVERSED and SET ASIDE. Accordingly,
the January 14, 1998 Decision of Branch 92 of the
Regional Trial Court of Calamba, Laguna is
REINSTATED with the MODIFICATION that the sale
made by respondent Virgilio San Agustin to
respondent spouses Isagani Belarmino and Leticia
Ocampo is valid only with respect to the 1/8 portion of
the subject property. The trial court is ordered to
proceed with the partition of the property with
dispatch.
SO ORDERED.
G.R. No. 142625 December 19, 2006
ROGELIO P. NOGALES, for himself and on behalf
of the minors, ROGER ANTHONY, ANGELICA,
NANCY, and MICHAEL CHRISTOPHER, all
surnamed NOGALES, petitioners,
vs.
CAPITOL MEDICAL CENTER, DR. OSCAR
ESTRADA, DR. ELY VILLAFLOR, DR. ROSA UY,
DR. JOEL ENRIQUEZ, DR. PERPETUA LACSON,
DR. NOE ESPINOLA, and NURSE J.
DUMLAO, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review1 assails the 6 February 1998
Decision2 and 21 March 2000 Resolution3 of the Court
of Appeals in CA-G.R. CV No. 45641. The Court of
Appeals affirmed in toto the 22 November 1993
Decision4 of the Regional Trial Court of Manila,
Branch 33, finding Dr. Oscar Estrada solely liable for
damages for the death of his patient, Corazon
Nogales, while absolving the remaining respondents
of any liability. The Court of Appeals denied
petitioners' motion for reconsideration.
The Facts
Pregnant with her fourth child, Corazon Nogales
("Corazon"), who was then 37 years old, was under
the exclusive prenatal care of Dr. Oscar Estrada ("Dr.
Estrada") beginning on her fourth month of pregnancy
or as early as December 1975. While Corazon was on
her last trimester of pregnancy, Dr. Estrada noted an
increase in her blood pressure and development of
leg edema5 indicating preeclampsia,6 which is a
dangerous complication of pregnancy.7
Around midnight of 25 May 1976, Corazon started to
experience mild labor pains prompting Corazon and
Rogelio Nogales ("Spouses Nogales") to see Dr.
Estrada at his home. After examining Corazon, Dr.
Estrada advised her immediate admission to the
Capitol Medical Center ("CMC").
On 26 May 1976, Corazon was admitted at 2:30 a.m.
at the CMC after the staff nurse noted the written
admission request8 of Dr. Estrada. Upon Corazon's
admission at the CMC, Rogelio Nogales ("Rogelio")
executed and signed the "Consent on Admission and
Agreement"9 and "Admission Agreement."10 Corazon
was then brought to the labor room of the CMC.
Dr. Rosa Uy ("Dr. Uy"), who was then a resident
physician of CMC, conducted an internal examination
of Corazon. Dr. Uy then called up Dr. Estrada to notify
him of her findings.
Based on the Doctor's Order Sheet, 11 around 3:00
a.m., Dr. Estrada ordered for 10 mg. of valium to be
administered immediately by intramuscular injection.
Dr. Estrada later ordered the start of intravenous
administration of syntocinon admixed with dextrose,
5%, in lactated Ringers' solution, at the rate of eight to
ten micro-drops per minute.
According to the Nurse's Observation Notes,12 Dr. Joel
Enriquez ("Dr. Enriquez"), an anesthesiologist at
CMC, was notified at 4:15 a.m. of Corazon's
admission. Subsequently, when asked if he needed
the services of an anesthesiologist, Dr. Estrada
refused. Despite Dr. Estrada's refusal, Dr. Enriquez
stayed to observe Corazon's condition.
At 6:00 a.m., Corazon was transferred to Delivery
Room No. 1 of the CMC. At 6:10 a.m., Corazon's bag
of water ruptured spontaneously. At 6:12 a.m.,
Corazon's cervix was fully dilated. At 6:13 a.m.,
Corazon started to experience convulsions.
At 6:15 a.m., Dr. Estrada ordered the injection of ten
grams of magnesium sulfate. However, Dr. Ely
Villaflor ("Dr. Villaflor"), who was assisting Dr. Estrada,
administered only 2.5 grams of magnesium sulfate.
At 6:22 a.m., Dr. Estrada, assisted by Dr. Villaflor,
applied low forceps to extract Corazon's baby. In the
process, a 1.0 x 2.5 cm. piece of cervical tissue was
allegedly torn. The baby came out in an apnic,
cyanotic, weak and injured condition. Consequently,
the baby had to be intubated and resuscitated by Dr.
Enriquez and Dr. Payumo.
At 6:27 a.m., Corazon began to manifest moderate
vaginal bleeding which rapidly became profuse.
Corazon's blood pressure dropped from 130/80 to
60/40 within five minutes. There was continuous
profuse vaginal bleeding. The assisting nurse
administered hemacel through a gauge 19 needle as
a side drip to the ongoing intravenous injection of
dextrose.
At 7:45 a.m., Dr. Estrada ordered blood typing and
cross matching with bottled blood. It took
approximately 30 minutes for the CMC laboratory,
headed by Dr. Perpetua Lacson ("Dr. Lacson"), to
comply with Dr. Estrada's order and deliver the blood.
At 8:00 a.m., Dr. Noe Espinola ("Dr. Espinola"), head
of the Obstetrics-Gynecology Department of the CMC,
was apprised of Corazon's condition by telephone.
Upon being informed that Corazon was bleeding
profusely, Dr. Espinola ordered immediate
hysterectomy. Rogelio was made to sign a "Consent
to Operation."13
Due to the inclement weather then, Dr. Espinola, who
was fetched from his residence by an ambulance,
arrived at the CMC about an hour later or at 9:00 a.m.
He examined the patient and ordered some
resuscitative measures to be administered. Despite
Dr. Espinola's efforts, Corazon died at 9:15 a.m. The
cause of death was "hemorrhage, post partum."14
On 14 May 1980, petitioners filed a complaint for
damages15 with the Regional Trial Court 16 of Manila
against CMC, Dr. Estrada, Dr. Villaflor, Dr. Uy, Dr.
Enriquez, Dr. Lacson, Dr. Espinola, and a certain
Nurse J. Dumlao for the death of Corazon. Petitioners
mainly contended that defendant physicians and CMC
personnel were negligent in the treatment and
management of Corazon's condition. Petitioners
charged CMC with negligence in the selection and
supervision of defendant physicians and hospital staff.
For failing to file their answer to the complaint despite
service of summons, the trial court declared Dr.
Estrada, Dr. Enriquez, and Nurse Dumlao in
default.17 CMC, Dr. Villaflor, Dr. Uy, Dr. Espinola, and
Dr. Lacson filed their respective answers denying and
opposing the allegations in the complaint.
Subsequently, trial ensued.
After more than 11 years of trial, the trial court
rendered judgment on 22 November 1993 finding Dr.
Estrada solely liable for damages. The trial court ruled
as follows:
The victim was under his pre-natal care, apparently,
his fault began from his incorrect and inadequate
management and lack of treatment of the pre-
eclamptic condition of his patient. It is not disputed
that he misapplied the forceps in causing the delivery
because it resulted in a large cervical tear which had
caused the profuse bleeding which he also failed to
control with the application of inadequate injection of
magnesium sulfate by his assistant Dra. Ely Villaflor.
Dr. Estrada even failed to notice the erroneous
administration by nurse Dumlao of hemacel by way of
side drip, instead of direct intravenous injection, and
his failure to consult a senior obstetrician at an early
stage of the problem.
On the part however of Dra. Ely Villaflor, Dra. Rosa
Uy, Dr. Joel Enriquez, Dr. Lacson, Dr. Espinola, nurse
J. Dumlao and CMC, the Court finds no legal
justification to find them civilly liable.
On the part of Dra. Ely Villaflor, she was only taking
orders from Dr. Estrada, the principal physician of
Corazon Nogales. She can only make suggestions in
the manner the patient maybe treated but she cannot
impose her will as to do so would be to substitute her
good judgment to that of Dr. Estrada. If she failed to
correctly diagnose the true cause of the bleeding
which in this case appears to be a cervical laceration,
it cannot be safely concluded by the Court that Dra.
Villaflor had the correct diagnosis and she failed to
inform Dr. Estrada. No evidence was introduced to
show that indeed Dra. Villaflor had discovered that
there was laceration at the cervical area of the
patient's internal organ.
On the part of nurse Dumlao, there is no showing that
when she administered the hemacel as a side drip,
she did it on her own. If the correct procedure was
directly thru the veins, it could only be because this
was what was probably the orders of Dr. Estrada.
While the evidence of the plaintiffs shows that Dr. Noe
Espinola, who was the Chief of the Department of
Obstetrics and Gynecology who attended to the
patient Mrs. Nogales, it was only at 9:00 a.m. That he
was able to reach the hospital because of typhoon
Didang (Exhibit 2). While he was able to give
prescription in the manner Corazon Nogales may be
treated, the prescription was based on the information
given to him by phone and he acted on the basis of
facts as presented to him, believing in good faith that
such is the correct remedy. He was not with Dr.
Estrada when the patient was brought to the hospital
at 2:30 o'clock a.m. So, whatever errors that Dr.
Estrada committed on the patient before 9:00 o'clock
a.m. are certainly the errors of Dr. Estrada and cannot
be the mistake of Dr. Noe Espinola. His failure to
come to the hospital on time was due to fortuitous
event.
On the part of Dr. Joel Enriquez, while he was present
in the delivery room, it is not incumbent upon him to
call the attention of Dr. Estrada, Dra. Villaflor and also
of Nurse Dumlao on the alleged errors committed by
them. Besides, as anesthesiologist, he has no
authority to control the actuations of Dr. Estrada and
Dra. Villaflor. For the Court to assume that there were
errors being committed in the presence of Dr.
Enriquez would be to dwell on conjectures and
speculations.
On the civil liability of Dr. Perpetua Lacson, [s]he is a
hematologist and in-charge of the blood bank of the
CMC. The Court cannot accept the theory of the
plaintiffs that there was delay in delivering the blood
needed by the patient. It was testified, that in order
that this blood will be made available, a laboratory test
has to be conducted to determine the type of blood,
cross matching and other matters consistent with
medical science so, the lapse of 30 minutes maybe
considered a reasonable time to do all of these things,
and not a delay as the plaintiffs would want the Court
to believe.
Admittedly, Dra. Rosa Uy is a resident physician of
the Capitol Medical Center. She was sued because of
her alleged failure to notice the incompetence and
negligence of Dr. Estrada. However, there is no
evidence to support such theory. No evidence was
adduced to show that Dra. Rosa Uy as a resident
physician of Capitol Medical Center, had knowledge of
the mismanagement of the patient Corazon Nogales,
and that notwithstanding such knowledge, she
tolerated the same to happen.
In the pre-trial order, plaintiffs and CMC agreed that
defendant CMC did not have any hand or participation
in the selection or hiring of Dr. Estrada or his assistant
Dra. Ely Villaflor as attending physician[s] of the
deceased. In other words, the two (2) doctors were
not employees of the hospital and therefore the
hospital did not have control over their professional
conduct. When Mrs. Nogales was brought to the
hospital, it was an emergency case and defendant
CMC had no choice but to admit her. Such being the
case, there is therefore no legal ground to apply the
provisions of Article 2176 and 2180 of the New Civil
Code referring to the vicarious liability of an employer
for the negligence of its employees. If ever in this
case there is fault or negligence in the treatment of
the deceased on the part of the attending physicians
who were employed by the family of the deceased,
such civil liability should be borne by the attending
physicians under the principle of "respondeat
superior".
WHEREFORE, premises considered, judgment is
hereby rendered finding defendant Dr. Estrada of
Number 13 Pitimini St. San Francisco del Monte,
Quezon City civilly liable to pay plaintiffs: 1) By way of
actual damages in the amount of P105,000.00; 2) By
way of moral damages in the amount of P700,000.00;
3) Attorney's fees in the amount of P100,000.00 and
to pay the costs of suit.
For failure of the plaintiffs to adduce evidence to
support its [sic] allegations against the other
defendants, the complaint is hereby ordered
dismissed. While the Court looks with disfavor the
filing of the present complaint against the other
defendants by the herein plaintiffs, as in a way it has
caused them personal inconvenience and slight
damage on their name and reputation, the Court
cannot accepts [sic] however, the theory of the
remaining defendants that plaintiffs were motivated in
bad faith in the filing of this complaint. For this reason
defendants' counterclaims are hereby ordered
dismissed.
SO ORDERED.18
Petitioners appealed the trial court's decision.
Petitioners claimed that aside from Dr. Estrada, the
remaining respondents should be held equally liable
for negligence. Petitioners pointed out the extent of
each respondent's alleged liability.
On 6 February 1998, the Court of Appeals affirmed
the decision of the trial court.19 Petitioners filed a
motion for reconsideration which the Court of Appeals
denied in its Resolution of 21 March 2000.20
Hence, this petition.
Meanwhile, petitioners filed a Manifestation dated 12
April 200221 stating that respondents Dr. Estrada, Dr.
Enriquez, Dr. Villaflor, and Nurse Dumlao "need no
longer be notified of the petition because they are
absolutely not involved in the issue raised before the
[Court], regarding the liability of [CMC]."22 Petitioners
stressed that the subject matter of this petition is the
liability of CMC for the negligence of Dr. Estrada.23
The Court issued a Resolution dated 9 September
200224 dispensing with the requirement to submit the
correct and present addresses of respondents Dr.
Estrada, Dr. Enriquez, Dr. Villaflor, and Nurse Dumlao.
The Court stated that with the filing of petitioners'
Manifestation, it should be understood that they are
claiming only against respondents CMC, Dr. Espinola,
Dr. Lacson, and Dr. Uy who have filed their respective
comments. Petitioners are foregoing further claims
against respondents Dr. Estrada, Dr. Enriquez, Dr.
Villaflor, and Nurse Dumlao.
The Court noted that Dr. Estrada did not appeal the
decision of the Court of Appeals affirming the decision
of the Regional Trial Court. Accordingly, the decision
of the Court of Appeals, affirming the trial court's
judgment, is already final as against Dr. Oscar
Estrada.
Petitioners filed a motion for reconsideration25 of the
Court's 9 September 2002 Resolution claiming that
Dr. Enriquez, Dr. Villaflor and Nurse Dumlao were
notified of the petition at their counsels' last known
addresses. Petitioners reiterated their imputation of
negligence on these respondents. The Court denied
petitioners' Motion for Reconsideration in its 18
February 2004 Resolution.26
The Court of Appeals' Ruling
In its Decision of 6 February 1998, the Court of
Appeals upheld the trial court's ruling. The Court of
Appeals rejected petitioners' view that the doctrine
in Darling v. Charleston Community Memorial
Hospital27 applies to this case. According to the Court
of Appeals, the present case differs from
the Darling case since Dr. Estrada is an independent
contractor-physician whereas the Darling case
involved a physician and a nurse who were
employees of the hospital.
Citing other American cases, the Court of Appeals
further held that the mere fact that a hospital
permitted a physician to practice medicine and use its
facilities is not sufficient to render the hospital liable
for the physician's negligence.28 A hospital is not
responsible for the negligence of a physician who is
an independent contractor.29
The Court of Appeals found the cases of Davidson v.
Conole30 and Campbell v. Emma Laing Stevens
Hospital31applicable to this case.
Quoting Campbell, the Court of Appeals stated that
where there is no proof that defendant physician was
an employee of defendant hospital or that defendant
hospital had reason to know that any acts of
malpractice would take place, defendant hospital
could not be held liable for its failure to intervene in
the relationship of physician-patient between
defendant physician and plaintiff.
On the liability of the other respondents, the Court of
Appeals applied the "borrowed servant" doctrine
considering that Dr. Estrada was an independent
contractor who was merely exercising hospital
privileges. This doctrine provides that once the
surgeon enters the operating room and takes charge
of the proceedings, the acts or omissions of operating
room personnel, and any negligence associated with
such acts or omissions, are imputable to the
surgeon.32 While the assisting physicians and nurses
may be employed by the hospital, or engaged by the
patient, they normally become the temporary servants
or agents of the surgeon in charge while the operation
is in progress, and liability may be imposed upon the
surgeon for their negligent acts under the doctrine
of respondeat superior.33
The Court of Appeals concluded that since Rogelio
engaged Dr. Estrada as the attending physician of his
wife, any liability for malpractice must be Dr. Estrada's
sole responsibility.
While it found the amount of damages fair and
reasonable, the Court of Appeals held that no interest
could be imposed on unliquidated claims or damages.
The Issue
Basically, the issue in this case is whether CMC is
vicariously liable for the negligence of Dr. Estrada.
The resolution of this issue rests, on the other hand,
on the ascertainment of the relationship between Dr.
Estrada and CMC. The Court also believes that a
determination of the extent of liability of the other
respondents is inevitable to finally and completely
dispose of the present controversy.
The Ruling of the Court
The petition is partly meritorious.
On the Liability of CMC
Dr. Estrada's negligence in handling the treatment
and management of Corazon's condition which
ultimately resulted in Corazon's death is no longer in
issue. Dr. Estrada did not appeal the decision of the
Court of Appeals which affirmed the ruling of the trial
court finding Dr. Estrada solely liable for damages.
Accordingly, the finding of the trial court on Dr.
Estrada's negligence is already final.
Petitioners maintain that CMC is vicariously liable for
Dr. Estrada's negligence based on Article 2180 in
relation to Article 2176 of the Civil Code. These
provisions pertinently state:
Art. 2180. The obligation imposed by article 2176 is
demandable not only for one's own acts or omissions,
but also for those of persons for whom one is
responsible.
xxxx
Employers shall be liable for the damages caused by
their employees and household helpers acting within
the scope of their assigned tasks, even though the
former are not engaged in any business or industry.
xxxx
The responsibility treated of in this article shall cease
when the persons herein mentioned prove that they
observed all the diligence of a good father of a family
to prevent damage.
Art. 2176. Whoever by act or omission causes
damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict
and is governed by the provisions of this Chapter.
Similarly, in the United States, a hospital which is the
employer, master, or principal of a physician
employee, servant, or agent, may be held liable for
the physician's negligence under the doctrine
of respondeat superior.34
In the present case, petitioners maintain that CMC, in
allowing Dr. Estrada to practice and admit patients at
CMC, should be liable for Dr. Estrada's malpractice.
Rogelio claims that he knew Dr. Estrada as an
accredited physician of CMC, though he discovered
later that Dr. Estrada was not a salaried employee of
the CMC.35 Rogelio further claims that he was dealing
with CMC, whose primary concern was the treatment
and management of his wife's condition. Dr. Estrada
just happened to be the specific person he talked to
representing CMC.36 Moreover, the fact that CMC
made Rogelio sign a Consent on Admission and
Admission Agreement37 and a Consent to Operation
printed on the letterhead of CMC indicates that CMC
considered Dr. Estrada as a member of its medical
staff.
On the other hand, CMC disclaims liability by
asserting that Dr. Estrada was a mere visiting
physician and that it admitted Corazon because her
physical condition then was classified an emergency
obstetrics case.38
CMC alleges that Dr. Estrada is an independent
contractor "for whose actuations CMC would be a
total stranger." CMC maintains that it had no control or
supervision over Dr. Estrada in the exercise of his
medical profession.
The Court had the occasion to determine the
relationship between a hospital and a consultant or
visiting physician and the liability of such hospital for
that physician's negligence in Ramos v. Court of
Appeals,39 to wit:
In the first place, hospitals exercise significant control
in the hiring and firing of consultants and in the
conduct of their work within the hospital premises.
Doctors who apply for "consultant" slots, visiting or
attending, are required to submit proof of completion
of residency, their educational qualifications;
generally, evidence of accreditation by the appropriate
board (diplomate), evidence of fellowship in most
cases, and references. These requirements are
carefully scrutinized by members of the hospital
administration or by a review committee set up by the
hospital who either accept or reject the application.
This is particularly true with respondent hospital.
After a physician is accepted, either as a visiting or
attending consultant, he is normally required to attend
clinico-pathological conferences, conduct bedside
rounds for clerks, interns and residents, moderate
grand rounds and patient audits and perform other
tasks and responsibilities, for the privilege of being
able to maintain a clinic in the hospital, and/or for the
privilege of admitting patients into the hospital. In
addition to these, the physician's performance as a
specialist is generally evaluated by a peer review
committee on the basis of mortality and morbidity
statistics, and feedback from patients, nurses, interns
and residents. A consultant remiss in his duties, or a
consultant who regularly falls short of the minimum
standards acceptable to the hospital or its peer review
committee, is normally politely terminated.
In other words, private hospitals, hire, fire and
exercise real control over their attending and visiting
"consultant" staff. While "consultants" are not,
technically employees, a point which respondent
hospital asserts in denying all responsibility for
the patient's condition, the control exercised, the
hiring, and the right to terminate consultants all
fulfill the important hallmarks of an employer-
employee relationship, with the exception of the
payment of wages. In assessing whether such a
relationship in fact exists, the control test is
determining. Accordingly, on the basis of the
foregoing, we rule that for the purpose of
allocating responsibility in medical negligence
cases, an employer-employee relationship in
effect exists between hospitals and their attending
and visiting physicians.This being the case, the
question now arises as to whether or not respondent
hospital is solidarily liable with respondent doctors for
petitioner's condition.
The basis for holding an employer solidarily
responsible for the negligence of its employee is
found in Article 2180 of the Civil Code which
considers a person accountable not only for his own
acts but also for those of others based on the former's
responsibility under a relationship of patria potestas. x
x x40 (Emphasis supplied)
While the Court in Ramos did not expound on the
control test, such test essentially determines whether
an employment relationship exists between a
physician and a hospital based on the exercise of
control over the physician as to details. Specifically,
the employer (or the hospital) must have the right to
control both the means and the details of the process
by which the employee (or the physician) is to
accomplish his task.41
After a thorough examination of the voluminous
records of this case, the Court finds no single
evidence pointing to CMC's exercise of control over
Dr. Estrada's treatment and management of
Corazon's condition. It is undisputed that throughout
Corazon's pregnancy, she was under the exclusive
prenatal care of Dr. Estrada. At the time of Corazon's
admission at CMC and during her delivery, it was Dr.
Estrada, assisted by Dr. Villaflor, who attended to
Corazon. There was no showing that CMC had a part
in diagnosing Corazon's condition. While Dr. Estrada
enjoyed staff privileges at CMC, such fact alone did
not make him an employee of CMC. 42 CMC merely
allowed Dr. Estrada to use its facilities43 when
Corazon was about to give birth, which CMC
considered an emergency. Considering these
circumstances, Dr. Estrada is not an employee of
CMC, but an independent contractor.
The question now is whether CMC is automatically
exempt from liability considering that Dr. Estrada is an
independent contractor-physician.
In general, a hospital is not liable for the negligence of
an independent contractor-physician. There is,
however, an exception to this principle. The hospital
may be liable if the physician is the "ostensible" agent
of the hospital.44 This exception is also known as the
"doctrine of apparent authority."45 In Gilbert v.
Sycamore Municipal Hospital,46 the Illinois Supreme
Court explained the doctrine of apparent authority in
this wise:
[U]nder the doctrine of apparent authority a hospital
can be held vicariously liable for the negligent acts of
a physician providing care at the hospital, regardless
of whether the physician is an independent contractor,
unless the patient knows, or should have known, that
the physician is an independent contractor. The
elements of the action have been set out as follows:
"For a hospital to be liable under the doctrine of
apparent authority, a plaintiff must show that: (1) the
hospital, or its agent, acted in a manner that would
lead a reasonable person to conclude that the
individual who was alleged to be negligent was an
employee or agent of the hospital; (2) where the acts
of the agent create the appearance of authority, the
plaintiff must also prove that the hospital had
knowledge of and acquiesced in them; and (3) the
plaintiff acted in reliance upon the conduct of the
hospital or its agent, consistent with ordinary care and
prudence."
The element of "holding out" on the part of the
hospital does not require an express representation
by the hospital that the person alleged to be negligent
is an employee. Rather, the element is satisfied if the
hospital holds itself out as a provider of emergency
room care without informing the patient that the care
is provided by independent contractors.
The element of justifiable reliance on the part of the
plaintiff is satisfied if the plaintiff relies upon the
hospital to provide complete emergency room care,
rather than upon a specific physician.
The doctrine of apparent authority essentially involves
two factors to determine the liability of an
independent-contractor physician.
The first factor focuses on the hospital's
manifestations and is sometimes described as an
inquiry whether the hospital acted in a manner which
would lead a reasonable person to conclude that the
individual who was alleged to be negligent was an
employee or agent of the hospital.47 In this regard,
the hospital need not make express
representations to the patient that the treating
physician is an employee of the hospital; rather a
representation may be general and implied.48
The doctrine of apparent authority is a species of the
doctrine of estoppel. Article 1431 of the Civil Code
provides that "[t]hrough estoppel, an admission or
representation is rendered conclusive upon the
person making it, and cannot be denied or disproved
as against the person relying thereon." Estoppel rests
on this rule: "Whenever a party has, by his own
declaration, act, or omission, intentionally and
deliberately led another to believe a particular thing
true, and to act upon such belief, he cannot, in any
litigation arising out of such declaration, act or
omission, be permitted to falsify it."49
In the instant case, CMC impliedly held out Dr.
Estrada as a member of its medical staff. Through
CMC's acts, CMC clothed Dr. Estrada with apparent
authority thereby leading the Spouses Nogales to
believe that Dr. Estrada was an employee or agent of
CMC. CMC cannot now repudiate such authority.
First, CMC granted staff privileges to Dr. Estrada.
CMC extended its medical staff and facilities to Dr.
Estrada. Upon Dr. Estrada's request for Corazon's
admission, CMC, through its personnel, readily
accommodated Corazon and updated Dr. Estrada of
her condition.
Second, CMC made Rogelio sign consent forms
printed on CMC letterhead. Prior to Corazon's
admission and supposed hysterectomy, CMC asked
Rogelio to sign release forms, the contents of which
reinforced Rogelio's belief that Dr. Estrada was a
member of CMC's medical staff.50 The Consent on
Admission and Agreement explicitly provides:
KNOW ALL MEN BY THESE PRESENTS:
I, Rogelio Nogales, of legal age, a resident of 1974 M.
H. Del Pilar St., Malate Mla., being the
father/mother/brother/sister/spouse/relative/
guardian/or person in custody of Ma. Corazon, and
representing his/her family, of my own volition and
free will, do consent and submit said Ma. Corazon to
Dr. Oscar Estrada (hereinafter referred to as
Physician) for cure, treatment, retreatment, or
emergency measures, that the Physician,
personally or by and through the Capitol Medical
Center and/or its staff, may use, adapt, or employ
such means, forms or methods of cure, treatment,
retreatment, or emergency measures as he may
see best and most expedient; that Ma. Corazon
and I will comply with any and all rules,
regulations, directions, and instructions of the
Physician, the Capitol Medical Center and/or its
staff; and, that I will not hold liable or responsible and
hereby waive and forever discharge and hold free the
Physician, the Capitol Medical Center and/or its staff,
from any and all claims of whatever kind of nature,
arising from directly or indirectly, or by reason of said
cure, treatment, or retreatment, or emergency
measures or intervention of said physician, the Capitol
Medical Center and/or its staff.
x x x x51 (Emphasis supplied)
While the Consent to Operation pertinently reads,
thus:
I, ROGELIO NOGALES, x x x, of my own volition and
free will, do consent and submit said CORAZON
NOGALES to Hysterectomy, by the Surgical Staff
and Anesthesiologists of Capitol Medical
Center and/or whatever succeeding operations,
treatment, or emergency measures as may be
necessary and most expedient; and, that I will not
hold liable or responsible and hereby waive and
forever discharge and hold free the Surgeon, his
assistants, anesthesiologists, the Capitol Medical
Center and/or its staff, from any and all claims of
whatever kind of nature, arising from directly or
indirectly, or by reason of said operation or
operations, treatment, or emergency measures, or
intervention of the Surgeon, his assistants,
anesthesiologists, the Capitol Medical Center and/or
its staff.52 (Emphasis supplied)
Without any indication in these consent forms that Dr.
Estrada was an independent contractor-physician, the
Spouses Nogales could not have known that Dr.
Estrada was an independent contractor. Significantly,
no one from CMC informed the Spouses Nogales that
Dr. Estrada was an independent contractor. On the
contrary, Dr. Atencio, who was then a member of
CMC Board of Directors, testified that Dr. Estrada was
part of CMC's surgical staff.53
Third, Dr. Estrada's referral of Corazon's profuse
vaginal bleeding to Dr. Espinola, who was then the
Head of the Obstetrics and Gynecology Department
of CMC, gave the impression that Dr. Estrada as a
member of CMC's medical staff was collaborating with
other CMC-employed specialists in treating Corazon.
The second factor focuses on the patient's reliance. It
is sometimes characterized as an inquiry on whether
the plaintiff acted in reliance upon the conduct of the
hospital or its agent, consistent with ordinary care and
prudence.54
The records show that the Spouses Nogales relied
upon a perceived employment relationship with CMC
in accepting Dr. Estrada's services. Rogelio testified
that he and his wife specifically chose Dr. Estrada to
handle Corazon's delivery not only because of their
friend's recommendation, but more importantly
because of Dr. Estrada's "connection with a reputable
hospital, the [CMC]."55 In other words, Dr. Estrada's
relationship with CMC played a significant role in the
Spouses Nogales' decision in accepting Dr. Estrada's
services as the obstetrician-gynecologist for
Corazon's delivery. Moreover, as earlier stated, there
is no showing that before and during Corazon's
confinement at CMC, the Spouses Nogales knew or
should have known that Dr. Estrada was not an
employee of CMC.
Further, the Spouses Nogales looked to CMC to
provide the best medical care and support services for
Corazon's delivery. The Court notes that prior to
Corazon's fourth pregnancy, she used to give birth
inside a clinic. Considering Corazon's age then, the
Spouses Nogales decided to have their fourth child
delivered at CMC, which Rogelio regarded one of the
best hospitals at the time.56 This is precisely because
the Spouses Nogales feared that Corazon might
experience complications during her delivery which
would be better addressed and treated in a modern
and big hospital such as CMC. Moreover, Rogelio's
consent in Corazon's hysterectomy to be performed
by a different physician, namely Dr. Espinola, is a
clear indication of Rogelio's confidence in CMC's
surgical staff.
CMC's defense that all it did was "to extend to
[Corazon] its facilities" is untenable. The Court cannot
close its eyes to the reality that hospitals, such as
CMC, are in the business of treatment. In this regard,
the Court agrees with the observation made by the
Court of Appeals of North Carolina in Diggs v. Novant
Health, Inc.,57 to wit:
"The conception that the hospital does not undertake
to treat the patient, does not undertake to act through
its doctors and nurses, but undertakes instead simply
to procure them to act upon their own responsibility,
no longer reflects the fact. Present day hospitals, as
their manner of operation plainly demonstrates,
do far more than furnish facilities for treatment.
They regularly employ on a salary basis a large
staff of physicians, nurses and internes [sic], as
well as administrative and manual workers, and
they charge patients for medical care and
treatment, collecting for such services, if
necessary, by legal action. Certainly, the person
who avails himself of 'hospital facilities' expects
that the hospital will attempt to cure him, not that
its nurses or other employees will act on their
own responsibility." x x x (Emphasis supplied)
Likewise unconvincing is CMC's argument that
petitioners are estopped from claiming damages
based on the Consent on Admission and Consent to
Operation. Both release forms consist of two parts.
The first part gave CMC permission to administer to
Corazon any form of recognized medical treatment
which the CMC medical staff deemed advisable. The
second part of the documents, which may properly be
described as the releasing part, releases CMC and its
employees "from any and all claims" arising from or
by reason of the treatment and operation.
The documents do not expressly release CMC from
liability for injury to Corazon due to negligence during
her treatment or operation. Neither do the consent
forms expressly exempt CMC from liability for
Corazon's death due to negligence during such
treatment or operation. Such release forms, being in
the nature of contracts of adhesion, are construed
strictly against hospitals. Besides, a blanket release in
favor of hospitals "from any and all claims," which
includes claims due to bad faith or gross negligence,
would be contrary to public policy and thus void.
Even simple negligence is not subject to blanket
release in favor of establishments like hospitals but
may only mitigate liability depending on the
circumstances.58 When a person needing urgent
medical attention rushes to a hospital, he cannot
bargain on equal footing with the hospital on the terms
of admission and operation. Such a person is literally
at the mercy of the hospital. There can be no clearer
example of a contract of adhesion than one arising
from such a dire situation. Thus, the release forms of
CMC cannot relieve CMC from liability for the
negligent medical treatment of Corazon.
On the Liability of the Other Respondents
Despite this Court's pronouncement in its 9
September 200259 Resolution that the filing of
petitioners' Manifestation confined petitioners' claim
only against CMC, Dr. Espinola, Dr. Lacson, and Dr.
Uy, who have filed their comments, the Court deems it
proper to resolve the individual liability of the
remaining respondents to put an end finally to this
more than two-decade old controversy.
a) Dr. Ely Villaflor
Petitioners blame Dr. Ely Villaflor for failing to
diagnose the cause of Corazon's bleeding and to
suggest the correct remedy to Dr.
Estrada.60 Petitioners assert that it was Dr. Villaflor's
duty to correct the error of Nurse Dumlao in the
administration of hemacel.
The Court is not persuaded. Dr. Villaflor admitted
administering a lower dosage of magnesium sulfate.
However, this was after informing Dr. Estrada that
Corazon was no longer in convulsion and that her
blood pressure went down to a dangerous level.61 At
that moment, Dr. Estrada instructed Dr. Villaflor to
reduce the dosage of magnesium sulfate from 10 to
2.5 grams. Since petitioners did not dispute Dr.
Villaflor's allegation, Dr. Villaflor's defense remains
uncontroverted. Dr. Villaflor's act of administering a
lower dosage of magnesium sulfate was not out of her
own volition or was in contravention of Dr. Estrada's
order.
b) Dr. Rosa Uy
Dr. Rosa Uy's alleged negligence consisted of her
failure (1) to call the attention of Dr. Estrada on the
incorrect dosage of magnesium sulfate administered
by Dr. Villaflor; (2) to take corrective measures; and
(3) to correct Nurse Dumlao's wrong method of
hemacel administration.
The Court believes Dr. Uy's claim that as a second
year resident physician then at CMC, she was merely
authorized to take the clinical history and physical
examination of Corazon.62 However, that routine
internal examination did not ipso facto make Dr. Uy
liable for the errors committed by Dr. Estrada. Further,
petitioners' imputation of negligence rests on their
baseless assumption that Dr. Uy was present at the
delivery room. Nothing shows that Dr. Uy participated
in delivering Corazon's baby. Further, it is unexpected
from Dr. Uy, a mere resident physician at that time, to
call the attention of a more experienced specialist, if
ever she was present at the delivery room.
c) Dr. Joel Enriquez
Petitioners fault Dr. Joel Enriquez also for not calling
the attention of Dr. Estrada, Dr. Villaflor, and Nurse
Dumlao about their errors.63 Petitioners insist that Dr.
Enriquez should have taken, or at least suggested,
corrective measures to rectify such errors.
The Court is not convinced. Dr. Enriquez is an
anesthesiologist whose field of expertise is definitely
not obstetrics and gynecology. As such, Dr. Enriquez
was not expected to correct Dr. Estrada's errors.
Besides, there was no evidence of Dr. Enriquez's
knowledge of any error committed by Dr. Estrada and
his failure to act upon such observation.
d) Dr. Perpetua Lacson
Petitioners fault Dr. Perpetua Lacson for her purported
delay in the delivery of blood Corazon
needed.64 Petitioners claim that Dr. Lacson was
remiss in her duty of supervising the blood bank staff.
As found by the trial court, there was no unreasonable
delay in the delivery of blood from the time of the
request until the transfusion to Corazon. Dr. Lacson
competently explained the procedure before blood
could be given to the patient.65 Taking into account the
bleeding time, clotting time and cross-matching, Dr.
Lacson stated that it would take approximately 45-60
minutes before blood could be ready for
transfusion.66 Further, no evidence exists that Dr.
Lacson neglected her duties as head of the blood
bank.
e) Dr. Noe Espinola
Petitioners argue that Dr. Espinola should not have
ordered immediate hysterectomy without determining
the underlying cause of Corazon's bleeding. Dr.
Espinola should have first considered the possibility of
cervical injury, and advised a thorough examination of
the cervix, instead of believing outright Dr. Estrada's
diagnosis that the cause of bleeding was uterine
atony.
Dr. Espinola's order to do hysterectomy which was
based on the information he received by phone is not
negligence. The Court agrees with the trial court's
observation that Dr. Espinola, upon hearing such
information about Corazon's condition, believed in
good faith that hysterectomy was the correct remedy.
At any rate, the hysterectomy did not push through
because upon Dr. Espinola's arrival, it was already too
late. At the time, Corazon was practically dead.
f) Nurse J. Dumlao
In Moore v. Guthrie Hospital Inc.,67 the US Court of
Appeals, Fourth Circuit, held that to recover, a patient
complaining of injuries allegedly resulting when the
nurse negligently injected medicine to him
intravenously instead of intramuscularly had to show
that (1) an intravenous injection constituted a lack of
reasonable and ordinary care; (2) the nurse injected
medicine intravenously; and (3) such injection was the
proximate cause of his injury.
In the present case, there is no evidence of Nurse
Dumlao's alleged failure to follow Dr. Estrada's
specific instructions. Even assuming Nurse Dumlao
defied Dr. Estrada's order, there is no showing that
side-drip administration of hemacel proximately
caused Corazon's death. No evidence linking
Corazon's death and the alleged wrongful hemacel
administration was introduced. Therefore, there is no
basis to hold Nurse Dumlao liable for negligence.
On the Award of Interest on Damages
The award of interest on damages is proper and
allowed under Article 2211 of the Civil Code, which
states that in crimes and quasi-delicts, interest as a
part of the damages may, in a proper case, be
adjudicated in the discretion of the court.68
WHEREFORE, the Court PARTLY GRANTS the
petition. The Court finds respondent Capitol Medical
Center vicariously liable for the negligence of Dr.
Oscar Estrada. The amounts of P105,000 as actual
damages and P700,000 as moral damages should
each earn legal interest at the rate of six percent (6%)
per annum computed from the date of the judgment of
the trial court. The Court affirms the rest of the
Decision dated 6 February 1998 and Resolution dated
21 March 2000 of the Court of Appeals in CA-G.R. CV PHILIPPINE REALTY G. R. No. 165548 SERENO, J.:
No. 45641. AND HOLDINGS These are consolidated petitions for review under
SO ORDERED. CORPORATION, Rule 45 of the New Rules of Civil Procedure filed by
Petitioner, both parties from a Court of Appeals (CA) Decision in
Republic of the Philippines CA-GR No. 71293 dated 30 September 2004. This
Supreme Court Decision reversed a Decision of the Regional Trial
Manila - versus - Court (RTC), National Capital Judicial Region (NCJR),
THIRD DIVISION Branch 135 in Makati City dated 31 January 2001 in
Civil Case No. 96-160.
LEY CONSTRUCTION The foregoing are the facts culled from the record,
AND DEVELOPMENT and from the findings of the CA and the RTC.
CORPORATION, Ley Construction and Development
Respondent. Corporation (LCDC) was the project contractor for the
x------------------ G. R. No. 167879 construction of several buildings for Philippine Realty
-----x & Holdings Corporation (PRHC), the project owner.
LEY CONSTRUCTION Present: Engineer Dennis Abcede (Abcede) was the project
AND DEVELOPMENT construction manager of PRHC, while Joselito Santos
CORPORATION, CARPIO MORALES, J., (Santos) was its general manager and vice-president
Petitioner, Chairperson, for operations.
BRION, Sometime between April 1988 and October 1989, the
BERSAMIN, two corporations entered into four major construction
- versus - VILLARAMA, JR., and projects, as evidenced by four duly notarized
SERENO, JJ. construction agreements. LCDC committed itself to
the construction of the buildings needed by PRHC,
Promulgated: which in turn committed itself to pay the contract price
PHILIPPINE REALTY agreed upon. These were the four construction
AND HOLDINGS June 13, 2011 projects the parties entered into involving a Project 1,
CORPORATION, Project 2, Project 3 (all of which involve the Alexandra
Respondent. buildings) and a Tektite Building:
1. Construction Agreement dated 25 April 1988
Alexandra-Cluster C involving the construction of two
units of seven-storey buildings with basement at a
contract price of P 68,000,000 (Project 1);
2. Construction Agreement dated 25 July 1988
Alexandra-Cluster B involving the construction of an
eleven-storey twin-tower building with a common
basement at a contract price of P140,500,000 (Project
2);
3. Construction Agreement dated 23 November
1988 Alexandra-Cluster E involving the construction of
an eleven-storey twin-tower building with common
basement at a contract price
of P 140,500,000 (Project 3); and
4. Construction Agreement dated 10 October 1989
Tektite Towers Phase I involving the construction of
Tektite Tower Building I at Tektite Road at a contract
x---------------------- ---------------- price of P 729,138,964 (Tektite Building).
------------x The agreement covering the construction of the
Tektite Building was signed by a Mr. Campos under
DECISION the words Phil. Realty & Holdings Corp. and by
Santos as a witness. Manuel Ley, the president of
LCDC, signed under the words Ley Const. & Dev.
Corp.
The terms embodied in the afore-listed construction
agreements were almost identical. Each agreement
provided for a fixed price to be paid by PRHC for
every project.
All the aforementioned agreements contain the
following provisions:
ARTICLE IV CONTRACT PRICE
.........
The Contract Price shall not be subject to escalation
except due to work addition, (approved by the
OWNER and the ARCHITECT) and to official increase
in minimum wage as covered by the Labor Adjustment
Clause below. All costs and expenses over and above
the Contract Price except as provided in Article V
hereof shall be for the account of the CONTRACTOR.
It is understood that there shall be no escalation on
the price of materials. However, should there be any
increase in minimum daily wage level, the adjustment
on labor cost only shall be considered based on
conditions as stipulated below.
.........
ARTICLE VII TIME OF COMPLETION
.........
Should the work be delayed by any act or omission of
the OWNER or any other person employed by or
contracted by the OWNER in the project, including
days in the delivery or (sic) materials furnished by the
OWNER or others, or by any appreciable additions or
alterations in the work ordered by the OWNER or the
ARCHITECT, under Article V or by force majeure, war,
rebellion, strikes, epidemics, fires, riots, or acts of the
civil or military authorities, the CONTRACTOR shall
be granted time extension.
Sometime after the execution of these agreements,
two more were entered into by the parties:
1. Letter-agreement dated 24 August 1989 Project
3 for the construction of the drivers quarters in Project
3; and
2. Agreement dated 7 January 1993 Tektite Towers
for the concreting works on GL, 5, 9, & A (ground floor
to the 5th floor) of the Tektite Towers.
Santos signed the letter-agreement on the
construction of the drivers quarters in Project 3,
[1]
while both he and Abcede signed the letter-
agreement on the concreting works on GL, 5, 9, and
A, and also of Project 3.[2]
In order to jump-start the construction operations,
LCDC was required to submit a performance bond as
provided for in the construction agreements. As stated
in these agreements, as soon as PRHC received the (Signed)
performance bond, it would deliver its initial payment DENNIS A. ABCEDE
to LCDC. The remaining balance was to be paid in Construction Manager
monthly progress payments based on actual work
completed. In practice, these monthly progress
payments were used by LCDC to purchase the CONFORME:
materials needed to continue the construction of the
remaining parts of the building. (Signed) .
In the course of the construction of the Tektite LEY CONST. & DEV. CORP.
Building, it became evident to both parties that LCDC
would not be able to finish the project within the
agreed period. Thus, through its president, LCDC met APPROVED & ACCEPTED :
with Abcede to discuss the cause of the delay. LCDC
explained that the unanticipated delay in construction .
was due mainly to the sudden, unexpected hike in the PHIL. REALTY & HOLDINGS CORP.
prices of cement and other construction materials. It
claimed that, without a corresponding increase in the Notwithstanding the absence of a signature above
fixed prices found in the agreements, it would be PRHCs name, LCDC proceeded with the construction
impossible for it to finish the construction of the Tektite of the Tektite Building, expending the entire amount
Building. In their analysis of the project plans for the necessary to complete the project. From August to
building and of all the external factors affecting the December 1991, it infused amounts
completion of the project, the parties discovered that totaling P 38,248,463.92. These amounts were not
even if LCDC were able to collect the entire balance deposited into the joint account of LCDC and PRHC,
from the contract, the collected amount would still be but paid directly to the suppliers upon the instruction
insufficient to purchase all the materials needed to of Santos.[7]
complete the construction of the building. LCDC religiously submitted to PRHC monthly
Both parties agreed that their foremost objective reports[8] that contained the amounts of infusion it
should be to ensure that the Tektite Building project made from the period August 1991 to December
would be completed. To achieve this goal, they 1991. These monthly reports all had the following
entered into another agreement. Abcede asked LCDC heading:
to advance the amount necessary to complete
construction. Its president acceded, on the absolute .........
condition that it be allowed to escalate the contract MR. JOSELITO L. SANTOS
price. It wanted PRHC to allow the escalation and to VICE PRESIDENT OPERATION
disregard the prohibition contained in Article VII of the PHIL. REALTY & HOLDINGS CORP.
agreements. Abcede replied that he would take this 4TH Floor Quad Alpha Centrum Bldg.
matter up with the board of directors of PRHC. 125 Pioneer St., Mandaluyong, M.M.
The board of directors turned down the request for an
escalation agreement.[3] Neither PRHC nor Abcede T H R U : D.A. ABCEDE & ASSOCIATES
gave notice to LCDC of the alleged denial of the Construction Managers
proposal. However, on 9 August 1991 Abcede sent a
formal letter to LCDC, asking for its conformity, to the SUBJECT : P 36.0M INFUSION-TEKTITE TOWERS
effect that should it infuse P36 million into the project, PROJECT
a contract price escalation for the same amount would From these monthly reports, it can be gleaned that the
be granted in its favor by PRHC.[4] following were the cash infusions made by LCDC:
This letter was signed by Abcede above the title
Construction Manager, as well as by LCDC. [5] A plain Month Amount Date of monthly
reading of the letter-agreement will reveal that the report
blank above the words PHIL. REALTY & HOLDINGS
CORP. was never signed,[6] viz: August 1991 PhP 6,724,632.26 15 October
Very truly yours, 1991[9]
 September PhP 7,326,230.69 7 October the building was completed, it conveyed its decision in
1991 1991[10] a letter on 7 December 1992. [15] That decision was to Project 1 P 1,703,955.07
October PhP 7,756,846.88 7 November set off, in the form of liquidated damages, its claim to
1991 1991[11] the supposed liability of LCDC, to wit:
......... Project 2 P 13,251,152.61
November PhP 8,553,313.50 7 December In this regard, please be advised that per owners
1991 1991[12] decision; your claim of P 36,000,00.00 adjustment will Project 3 P 5,529,495.76
December PhP 7,887,440.50 9 January be applied to the liquidated damages for concreting
1991 1992[13] works computed in the amount of Thirty Nine Million Total: P 20,484,603.44
PhP Three Hundred Twenty Six Thousand Eight Hundred
38,248,463.92 Seventeen & 15/100 (P39,326,817.15) as shown in
the attached sheet. In addition to the agreed-upon outstanding balance in
PRHC never replied to any of these monthly reports. Further, the net difference P 3,326,817.15 will also be favor of LCDC, the latter claimed another outstanding
On 20 January 1992, LCDC wrote a letter addressed considered waived as additional consideration. balance of P 232,367.96 in its favor for the
to Santos stating that it had already complied with its ......... construction of the drivers quarters in Project 3.
commitment as of 31 December 1991 and was It also further claimed the amount of P 7,112,738.82,
requesting the release of P 2,248,463.92. It attached In a letter dated 18 January 1993, LCDC, through representing the balance for the concreting works
a 16 January 1992 letter written by D.A. Abcede & counsel, demanded payment of the agreed escalation from the ground floor to the fifth floor of the Tektite
Associates, informing PRHC of the total cash infusion price of P 36 million. In its reply on 16 February 1993, Building.
made by LCDC to the project, to wit: PRHC suddenly denied any liability for the escalation Seeking to recover all the above-mentioned amounts,
in compliance with the commitment of Ley price. In the same letter, it claimed that LCDC had LCDC filed a Complaint with Application for the
Construction and Devt Corp. to infuse P36.00M for incurred 111 days of delay in the construction of the Issuance of a Writ of Preliminary Attachment on 2
the above subject project x x x Tektite Building and demanded that the latter February 1996 before the RTC in Makati City
x x x we would like to present the total cash infusion pay P 39,326,817.15 as liquidated damages. This docketed as Civil Case No. 96-160:
by LCDC for the period covering the month of August, claim was set forth in PRHCs earlier 7 December WHEREFORE, it is respectfully prayed that:
1991 to December 1991 broken down as follows: 1992 letter. 1. Immediately upon the filing of this Complaint, an
......... LCDC countered that there were many times when its order of preliminary attachment be issued over
T O T A L: P 38,248,463.92 requests for time extension although due to defendant Philrealtys properties as security for any
reasonable causes sanctioned by the construction judgment which plaintiff may recover against said
PRHC never replied to this letter. agreement such as power failures, water supply defendant; and
In another letter dated 7 September 1992, there was a interruption, and scarcity of construction materials 2. After trial, judgment be rendered as follows:
reconciliation of accounts between the two were unreasonably reduced to shorter periods by 2.1. On the first, second and third alternative
corporations with respect to the balances due for PRHC. In its letter dated 9 December 1992, LCDC causes of action,
Projects 1, 2, and 3. The reconciliation of accounts claimed that in a period of over two years, out of the (a) Ordering defendant Philrealty to pay
resulted in PRHC owing LCDC the sum 618 days of extension it requested, only 256 days or plaintiff actual damages in the amount
of P 20,862,546.41, broken down as follows: not even half the number of days originally requested of P36,000,00.00 with legal interest thereon from the
were considered. It further claimed that its president filing of this Complaint until fully paid;
Project 1 P 1,783,046.72 inquired from Abcede and Santos why its requests for (b) In the alternative, ordering defendants
extension of time were not granted in full. The two, Abcede and Santos to jointly and severally, in the
however, assured him that LCDC would not be event that they acted without necessary authority, to
Project 2 P 13,550,003.93
penalized with damages for even a single day of pay plaintiff actual damages in the amount
delay, because the fact that it was working hard on of P36,000,00.00 with legal interest thereon from the
Project 3 P 5,529,495.76 the Tektite Building project was known to PRHC.[16] filing of this Complaint until fully paid; and
Thereafter, in a letter dated 18 January 1993, LCDC (c) Ordering defendant Philrealty or
P 20,862,546.41 demanded payment of the agreed total balance for defendants Abcede and Santos to pay plaintiff
Projects 1, 2, and 3. Through a reply letter dated 16 exemplary damages in the amount to be determined
February 1993, PRHC denied any liability. During the by the Honorable Court but not less
course of the proceedings, both parties conducted than P5,000,000.00
In a letter dated 8 September 1992,[14] when 96.43% 2.2. On the fourth cause of action, ordering
of Tektite Building had been completed, LCDC another reconciliation of their respective records. The
reconciliation showed the following balances in favor defendant Philrealty to pay plaintiff
requested the release of the P 36 million escalation
price. PRHC did not reply, but after the construction of of LCDC:
(a) Actual damages in the amount
of P7,112,738.82 with legal interest thereon from the
filing of this Complaint until fully paid; and
(b) Exemplary damages in the amount to be
determined by the Honorable Court but not less
than P1,000,000.00
2.3. On the fifth cause of action, ordering
defendant Philrealty to pay plaintiff
(a) Actual damages in the amount
of P20,862,546.41 with legal interest thereon from the
filing of this Complaint until fully paid; and
(b) Exemplary damages in an amount to be
determined by the Honorable Court but not less
than P5,000,000.00.
2.4. On the sixth cause of action, ordering
defendant Philrealty to pay plaintiff
(a) Actual damages in the amount
of P232,367.96 with legal interest thereon from the
filing of this Complaint until fully paid; and
(b) Exemplary damages in the amount to be
determined by the Honorable Court but not less
than P100,000.00
2.5. On the seventh cause of action, ordering
defendant Philrealty and/or defendants Abcede and
Santos to pay plaintiff attorneys fees in the amount
of P750,000.00 and expenses of litigation in the
amount of P50,000.00, plus costs.
Plaintiff prays for such other just and equitable reliefs
as may be warranted by the circumstances.
On 23 July 1999, a joint Stipulation of Facts [17] was
filed by the parties. In the said
stipulation, they reconciled their
respective claims on the payments
made and the balances due for the
construction of the Tektite Building
project, Project 1, and Project 2. The
reconciliation shows that the following
amounts are due and/or overpaid:
Due to LCDC Overpaid to LCDC
Tektite P4,646,947.35
Building
Project 1 P1,703,955.07
Project 2 P3,251,152.61
P14,955,107.68 P4,646,947.35
Both parties agreed that the only remaining issues to
be resolved by the court, with respect to the Tektite
Building project and Projects 1 to 3, were as follows:
a) The validity of Ley Constructions claim that
Philrealty had granted the former a contract price
escalation for Tektite Tower I in the amount
of P36,000,000.00
b) The validity of the claim of Philrealty that the
following amounts should be charged to Ley
Construction:
Payments/Advances without LCDCs conformity and
recommendation of the Construction Manager, D.A.
Abcede & Associates that subject items are LCDCs
account:
a. Esicor, Inc. waterproofing works Cluster
B P1,121,000.00
b. Ideal Marketing, Inc. waterproofing works at Cluster
B, Quadrant 2 P885,000.00 P2,006,000.00
c) The claim of Philrealty for liquidated damages
for delay in completion of the construction as follows:
d) Tektite Tower I - P39,326,817.15
Alexandra Cluster B - 12,785,000.00
Alexandra Cluster C - 1,100,000.00
and
e) The claim of Ley Construction for additional sum
of P2,248,463.92 which it allegedly infused for the
Tektite Tower I project over and above the
original P36,000,000.00 it had allegedly bound itself to
infuse.[18]
On 31 January 2001, the RTC promulgated its
Decision. LCDC filed a Motion for Partial
Reconsideration, which was granted.
It must be noted that in the Stipulation of Facts, the
parties had jointly agreed that the P7,112,738.82
unpaid account in the concreting of Tektite Building
would no longer be included in the list of claims
submitted to the RTC for decision. Nonetheless, this
amount was still included as an award in the trial
courts 7 May 2001 amended Decision, the dispositive
portion of which provides:
WHEREFORE, premises considered, judgment is
hereby rendered:
A. Dismissing the counter-claim of defendant
DENNIS ABCEDE and the cross-claim of defendant
JOSELITO SANTOS; and
B. Ordering defendant PHILIPPINE REALTY AND
HOLDING CORPORATION to pay plaintiff LEY
CONSTRUCTION AND DEVELOPMENT
CORPORATION:
1. P33,601,316.17, for the Tektite Tower I Project
with legal interest thereon from date of the filing of the
complaint until fully paid;
2. P13,251,152.61 for Alexandra Cluster B with
legal interest thereon from date of the filing of the
complaint until fully paid;
3. P1,703,955.07 for Alexandra Cluster C with
legal interest thereon from date of the filing of the
complaint until fully paid;
4. P7,112,738.82 in actual damages for the
concreting works of Tektite Tower I, with legal interest
thereon from the date of the filing of the complaint
until fully paid;
5. P5,529,495.76 in actual damages for the
construction of Alexandra Cluster E, with legal interest
thereon from the date of the filing of the complaint
until fully paid;
6. P232,367.96 in actual damages for the
construction of the drivers quarters of Alexandra
Cluster E, with legal interest thereon from the date of
the filing of the complaint until fully paid;
7. P750,000.00 for attorneys fees and expenses of
litigation; and
8. Costs.
SO ORDERED.[19]
PRHC filed a Notice of Appeal on 14 June 2001. The
Court of Appeals, in CA-G.R. CV No. 71293,
[20]
reversed the lower courts amended Decision on 30
September 2004 and ruled thus:
WHEREFORE, premises considered, the assailed
January 31, 2001 decision and the May 7, 2001
amended decision are hereby REVERSED and SET
ASIDE and a new one is entered:
I. FINDING plaintiff-appellee
LCDC LIABLE to defendant-appellant PRHC in the
amount of Sixty million Four Hundred Sixty Four
(Thousand) Seven Hundred Sixty Four 90/100
(P60,464,764.90) PESOS detailed as follows:
[1] P39,326,817.15 liquidated damages pursuant to
contract for delay incurred by plaintiff-appellee LCDC
in the construction of Tektite Tower Phase I, the length
of delay having been signed and confirmed by LCDC;
[2] P12,785,000.00 liquidated damages pursuant to
contract for delay incurred by plaintiff-appellee LCDC
in the construction of Alexandra Cluster B, the length
of delay having been signed and confirmed by LCDC;
[3] P1,700,000.00 liquidated damages pursuant to
contract for delay incurred by plaintiff appellee LCDC
in the construction of Alexandra Cluster C, the length
of delay having been confirmed by LCDC;
[4] P4,646,947.75 overpayment by defendant-
appellant PRHC to plaintiff-appellee LCDC for the
Tektite Tower Phase I Project;
[5] P1,121,000.00 expenses incurred by defendant-
appellant PRHC for corrective works to redo/repair
allegedly defective Waterproofing construction work or
plaintiff-appellee LCDC in the Alexander Cluster B
Project which was paid by defendant-appellant PRHC
to contractor Escritor, Inc.;
[6] P885,000.00 expenses incurred by defendant-
appellant PRHC for corrective works to redo/repair
allegedly defective Waterproofing construction work of
plaintiff-appellee LCDC at the Alexandra Cluster
B Quadrant in the Alexander Cluster B Project which
was paid by defendant-appellant PRHC to contractor
Ideal Marketing Inc., and
II. FINDING defendant-appellant
PRHC LIABLE to plaintiff-appellee LCDC in the
amount of Fifty Six million Seven Hundred Sixteen
Thousand Nine Hundred Seventy One 40/100
(P56,716,971.40) detailed as follows:
[1] P36,000,000.00 as acknowledged and agreed to
by PHRC as a loan by LCDC, reimbursable when the
Tektite Tower I project was 95% completed, but this
was not classified by this Court as an escalation for
increase in price of materials because an escalation
for price increase of cost of materials is expressly
prohibited by 10 October 1989 original contract;
[2] All expenditures for the projects are at the risk of
the contractor LCDC who is to be paid, according to
the contract, a fixed contract price so that there is no
such thing as overinfusion of expenses by plaintiff-
appellee LCDC guaranteed under the contract that it
would pay all costs of materials irregardless (sic) of
any increase in costs;
[3] P13,251,152.61 balance yet unpaid by defendant-
appellant in the Alexandra Cluster B Project;
[4] P1,703,955.07 balance yet unpaid by defendant-
appellant in the Alexander Cluster C Project;
[5] Defendant-appellant PRHC is hereby held not
liable for P750,000.00 attorneys fees;
[6] Plaintiff-appellee LCDC is not entitled to claim
P7,112,738.82 for concreting works for Tektite Towers
Phase I which cause of action had already been
dismissed by the parties in the 23 July 1999 Joint
Stipulation of Facts that the contract price for the
October 10, 1989 Construction Agreement had been
fully paid;
[7] P5,529,495.76 balance yet unpaid in the Alexandra
Cluster E Project;
[8] P232,367.96 balance yet unpaid for construction of
the drivers quarters at the Alexandra Cluster E.
The respective liabilities of the parties as set forth
above are hereby SET OFF against each other and
plaintiff-appellee LCDC is hereby DIRECTED to pay
defendant-appellant PRHC the net amount due of
Three million Seven Hundred Forty Seven Thousand
Seven Hundred Ninety Three 50/100 (P3,747,793.50)
PESOS with legal interest from date of filing of
complaint.
SO ORDERED.
PRHC came directly to this Court and filed a petition
for review on certiorari docketed as SC-G.R. No.
165548 to assail in part the appellate courts Decision.
LCDC, on the other hand, filed on 25 October 2004 a
Motion for Reconsideration with the Court of Appeals.
In its Resolution dated 12 April 2005, the appellate
court denied the motion. LCDC then filed its own
Petition for Review on certiorari, which was docketed
as SC-G.R. No. 167879.
In a Resolution dated 6 August 2008, this Court
consolidated G.R. Nos. 165548 and 16789.
PRHC, in its Petition for Review [21] in G.R. No.
165548, submits the following issues for resolution:
1. Whether the finding and ruling of the
Court of Appeals that the letter dated 07 December
1992 was a counter-offer on the part of LCDC and a
confirmation to treat the P36,000,000.00 as a loan
deductible from liquidated damages is contrary to the
allegations in the pleadings and the evidence on
record.
2. Whether the finding and ruling of the
Court of Appeals that LCDC is liable to PRHC in the
amount of P5,529,495.76 representing the balance of
the contract price for the construction of Alexandra
Cluster E Project is contrary to the Stipulation of Facts
jointly submitted by the parties to the Trial Court.
3. Whether the finding and ruling of the
Court of Appeals that LCDC is liable to PRHC in the
amount of P232,367.96 representing the cost of the
construction of the drivers quarters at Alexandra
Cluster E Project is contrary to the Stipulation of Facts
jointly submitted by the parties to the trial court. [22]
For its part, LCDC submits the following grounds in
support of its Petition for Review[23] docketed as G.R.
No. 167879:
I. The Court of Appeals seriously erred in
ruling that there is no P36 million escalation
agreement between LCDC and PRHC.
.........
II. The Court of Appeals seriously erred in
ruling that PHRC is not obliged to pay LCDC the sum
of P2,248,463.92 representing the cash infused by
LCDC over and above the P36 million escalation
price.
III. The Court of Appeals seriously erred in
ruling that PRHC is not obliged to pay LCDC the
P7,112,738.82 balance for the concreting works of the
ground floor to the fifth floor of the PSE.
IV. The Court of Appeals seriously erred in
awarding liquidated damages to PHRC under the TTI
Project Agreement and the Alexandra-Clusters B and
C agreements.
V. The Court of Appeals seriously erred in
ruling that LCDC is liable for the corrective works in
Alexandra-Cluster B.
VI. The Court of Appeals seriously erred in
deleting the lower courts award of P750,000.00
attorneys fees and expenses of litigation to LCDC and
holding the latter liable to pay costs.[24]
At the outset, it must be noted that PRHC does not
question the following amounts granted by the Court
of Appeals:
(a) P13,251,152.61 awarded to LCDC as balance
yet unpaid by PRHC for Project 2;
(b) P1,703,955.07 awarded to LCDC as balance
yet unpaid by PRHC for Project 1; and
(c) P4,646,947.75 awarded to PRHC for its
overpayment to LCDC for the Tektite Building.
No appeal having been filed from the immediately
preceding rulings, they attained finality.
We reduce the issues to the following:
I
Whether or not a valid escalation agreement was
entered into by the parties and, if so, to what amount;
II
Whether or not LCDC was delayed in the
performance of its obligation to construct the buildings
for PRHC and, corollary thereto, whether or not the
latter is entitled to liquidated damages for this
supposed delay in the construction of the Tektite
Building and Projects 1 and 2;
III
Whether or not the CA can make an award or should
have made an award for the following causes of
action not alleged in the pleadings or omitted in the
stipulation of facts:
a. The supposed remaining balance
of P5,529,495.76 for Project 3, which was awarded by
the appellate court;
b. The supposed remaining balance
of P232,367.96, which the appellate court also
awarded, representing the cost of the construction of
the drivers quarters in Project 3; and
c. The supposed remaining balance
of P7,112,738.82, the cost of the concreting works
from the ground floor to the fifth floor of the Tektite
Building, which was not awarded by the CA but was
awarded by the lower court;
IV
Whether or not LCDC should be held liable for the
amount of P2,006,000 for the corrective works to redo
or repair the defective waterproofing in Project 2; and
V confirm agreement between your goodselves and
Whether or not LCDC is entitled to the appellate
courts award of P750,000 for attorneys fees and
expenses of litigation and costs.
We shall review the findings of fact of the Court of
Appeals in view of some inconsistencies with those of
the trial court and the evidence on record, and as a
result of our analysis of the threshold legal issues.
A subsequent escalation agreement was validly
entered into by the parties, but only to the extent
of P 36 million.
The construction agreements, including the Tektite
Building agreement, expressly prohibit any increase in
the contracted price. It can be inferred from this
prohibition that the parties agreed to place all
expenses over and above the contracted price for the
account of the contractor.[25] PRHC claims that since
its board of directors never acceded to the proposed
escalation agreement, the provision in the main
agreement prohibiting any increase in the contract
price stands.
LCDC, on the other hand, claims that the fact that any
increase in the contract price is prohibited under the
Tektite Building agreement does not invalidate the
parties subsequent decision to supersede or
disregard this prohibition. It argues that all the
documentary and testimonial evidence it presented
clearly established the existence of a P 36 million
escalation agreement.[26]
LCDC now comes to this Court, asking that the
escalation agreement with PRHC, as represented by
Abcede and Santos, be declared to have effectively
novated the prohibition in the Tektite Building
agreement.
After examining the extensive evidence presented by
both parties, we resolve to rule in favor of LCDC.
LCDC relies in part on PRHCs 19 August 1991 letter-
agreement,[27] which provides as follows:
August 09, 1991
LEY CONSTRUCTION DEV. CORP.
10th Flr., Pacific Star Bldg.
Makati Avenue, Makati
Metro Manila
Attention: Mr. Manuel Ley
Subject: TEKTITE TOWERS
Gentlemen:
Relative to your contract for subject project this will
Philippine Realty & Holdings Corporation as follows:
1.0 Ley Construction & Development Corporation
shall put in funds for Tektite project with a total
amount of THIRTY SIX MILLION PESOS
(P36,000,000.00) ONLY in accordance with the
following schedule:
.........
2.0 If Ley Construction & Dev. Corp. faithfully
complies with above commitment then Philippine
Realty & Holdings Corporation shall grant a contract
price escalation to Ley Const. & Dev. Corp. in the
amount of THIRTY SIX MILLION PESOS
(P36,000,000.00) ONLY in view of the increase in cost
of materials during the construction period which
amount shall be payable to Ley Const. & Dev. Corp.
when the LCDC contract work is at least 95%
complete.
(over)
Very truly yours,
(Signed)
DENNIS A. ABCEDE
Construction Manager
CONFORME:
(Signed) .
LEY CONST. & DEV. CORP.
APPROVED & ACCEPTED :
. construction management?
PHIL. REALTY & HOLDINGS CORP.
It is apparent from its face that the letter was not
signed by PRHC. This fact allegedly proves,
according to PRHC, that it never expressed its
consent to the letter and, hence, cannot and should
not be bound by the contents thereof. It further claims
that its internal rules require the signatures of at least
two of its officers to bind the corporation.
LCDC, for its part, submits that the fact that the letter
is unsigned by PRHC is insignificant, considering that
other pieces of documentary and testimonial evidence
were presented to prove the existence of the
escalation agreement.[28]
The appellate court found for PRHC and ruled that an
unsigned letter does not bind the party left out,[29] viz:
But it is patent on the face of that letter that PRHC
did not sign the document. It is patent on its face that
between the words: APPROVED: and the name
Philippine Realty & Holdings Corporation, there is no
signature. Apparent therefore on its face, there was
no meeting of the minds between the parties LCDC
and PRHC in the P36,000,000.00 escalation for
materials.[30]
The Court of Appeals further held that a simple letter
cannot novate a notarized agreement.[31]
The appellate court is incorrect. The 9 August 1991
letter is not a simple letter, but rather a letter-
agreementa contractwhich because of the existence
of the consent of both parties become valid and
binding. It is true that no representative of PRHC
signed under its typewritten name, where a signature
should traditionally appear, to show the companys
acceptance and approval of the contents of the letter-
agreement. This Court, however, finds that the
signature of Abcede is sufficient to bind PRHC. As its
construction manager, his very act of signing a letter
embodying the P 36 million escalation agreement
produced legal effect, even if there was a blank space
for a higher officer of PHRC to indicate approval
thereof. At the very least, he indicated authority to
make such representation on behalf of PRHC.
On direct examination, Abcede admitted that, as the
construction manager, he represented PRHC in
running its affairs with regard to the execution of the
aforesaid projects. He testified as follows:[32]
Q. What is your profession by the way?
A. Im a Civil Engineer by profession and presently, I
am engaged in the construction management.
Q. And what is your company engaged in the
A. We actually, as construction managers, we
represent the owners, of the construction.[33]
All throughout the existence and execution of the
construction agreements, it was the established
practice of LCDC, each time it had concerns about the
projects or something to discuss with PRHC, to
approach Abcede and Santos as representatives of
the latter corporation. As far as LCDC was concerned,
these two individuals were the fully authorized
representatives of PRHC. Thus, when they entered
into the P 36 million escalation agreement with LCDC,
PRHC effectively agreed thereto.
In fact, correspondences to the construction manager
that were addressed to or that had to be noted by
PRHC were most of the time coursed through and
noted by Santos. Likewise, its correspondences to
LCDC were signed by him alone.[34]
Santos testified that, as the vice president and
general manager of PRHC, he was responsible for the
implementation of the policies of the board,[35] to wit:
Q: Why do you know the defendant Philippine Realty
and Holding Corporation?
A: I used to serve that company as Vice President
and Director, sir.
Q: During what year did you serve as Vice President
and Director of Philippine Realty.
A: I started serving that company as General Manager
in 1987 and I resigned in 1993, sir.
Q: Will you state your duties and functions as General
Manager and Director of the company?
A: I was responsible for the implementation of the
policies approved by the board and the day to day
general management of the company from operation
to administration to finance and marketing, sir.[36]
In addition, LCDC was able to establish that Abcede
and Santos had signed, on behalf of PRHC, other
documents that were almost identical to the
questioned letter-agreement.[37] Santos was actually
the one who signed for PRHC in the letter-agreement
for the construction of the drivers quarters in Project
3.[38] He signed under the words Approved: Phil.
Realty & Holdings Corp.[39] While both he and Abcede
signed the letter-agreement for concreting works on
GL, 5, 9, and A,[40] Santos again signed under the
word Approved.[41] PRHC does not question the
validity of these agreements; it thereby effectively
admits that these two individuals had actual authority
to sign on its behalf with respect to these construction
projects.
We cannot fault LCDC for relying on the
representation of PRHC that the authority to contract
with the former, in matters relating to the construction
agreements, resided in Abcede and Santos.
Furthermore, PRHC does not question the validity of
its 7 December 1992 letter to LCDC wherein it seeks
to apply LCDCs claim for the P 36 million escalation
price to its counterclaim for liquidated damages, which
was signed by Santos under the words Approved:
Phil. Realty & Holdings Corp.:
07 December 1992
LEY CONST. & DEV. CORP.
23rd Floor Pacific Star Bldg.
Sen. Gil Puyat Ave. corner
Makati Avenue, Makati, Metro Manila.
Attention : MR. MANUEL T. LEY
Subject : TEKTITE TOWERS
Gentlemen :
This is in connection with your previous request for
materials cost adjustment in the amount of Thirty Six
Million & 0/100 (P36,000,000.00).
In this regard, please be advised that per owners
decision; your claim of P36,000,00.00 adjustment will
be applied to the liquidated damages for concreting
works computed in the amount of Thirty Nine Million
Three Hundred Twenty Six Thousand Eight Hundred
Seventeen & 15/100 (P39,326,817.15) as shown in
the attached sheet.
Further, the net difference P3,326,817.15 will also be
considered waived as additional consideration.
We trust you will find the above fair and equitable.
Very truly yours,
(Signed)
DENNIS A. ABCEDE
Construction Manager
Approved:
(Signed by Santos)
PHIL. REALTY & HOLDINGS CORP.
This letter was signed by Abcede, again as the
construction manager, while Santos signed above
PHIL. REALTY & HOLDINGS CORP., which was
notably the unsigned part in the 9 August 1991 letter.
PRHC claims that neither one of them had the
authority to sign on behalf of the corporation; yet, it is
not questioning the validity of the above-quoted letter.
We consider this letter as additional evidence that
PRHC had given Abcede and Santos the authority to
act on its behalf in making such a decision or entering
into such agreements with LCDC.
LCDC additionally argues that a subsequent
escalation agreement was validly entered into, even
on the following assumptions: (a) that Abcede and
Santos had no authority to agree to the escalation of
the contract price without the approval of the board of
directors; and (b) that the 7 December 1992 letter
cannot be construed as an acknowledgment by PRHC
that it owed LCDC P36 million. It posits that the
actions of Abcede and Santos, assuming they were
beyond the authority given to them by PRHC which
they were representing, still bound PRHC under the
doctrine of apparent authority. [42] Thus, the lack of
authority on their part should not be used to prejudice
it, considering that the two were clothed with apparent
authority to execute such agreements. In addition,
PRHC is allegedly barred by promissory estoppel
from denying the claims of the other corporation.
We agree with LCDC.
In Yao Ka Sin Trading v. Court of Appeals, et al,.
[43]
this Court discussed the applicable rules on the
doctrine of apparent authority, to wit:
The rule is of course settled that [a]lthough an officer
or agent acts without, or in excess of, his actual
authority if he acts within the scope of an apparent
authority with which the corporation has clothed him
by holding him out or permitting him to appear as
having such authority, the corporation is bound
thereby in favor of a person who deals with him in
good faith in reliance on such apparent authority, as
where an officer is allowed to exercise a particular
authority with respect to the business, or a particular
branch of it, continuously and publicly, for a
considerable time. Also, if a private corporation
intentionally or negligently clothes its officers or
agents with apparent power to perform acts for it, the
corporation will be estopped to deny that such
apparent authority is real, as to innocent third persons
dealing in good faith with such officers or agents. [44]
In Peoples Aircargo and Warehousing Co. Inc. v.
Court of Appeals, et al.,[45] we held that apparent
authority is derived not merely from practice:
Its existence may be ascertained through (1) the
general manner in which the corporation holds out an
officer or agent as having the power to act or, in other
words, the apparent authority to act in general, with
which it clothes him; or (2) the acquiescence in his
acts of a particular nature, with actual or constructive
knowledge thereof, whether within or beyond the
scope of his ordinary powers.
We rule that Santos and Abcede held themselves out
as possessing the authority to act, negotiate and sign
documents on behalf of PRHC; and that PRHC
sanctioned these acts. It would be the height of
incongruity to now allow PRHC to deny the extent of
the authority with which it had clothed both
individuals. We find that Abcedes role as construction
manager, with regard to the construction projects, was
akin to that of a general manager with regard to the
general operations of the corporation he or she is
representing.
Consequently, the escalation agreement entered into
by LCDC and Abcede is a valid agreement that PRHC
is obligated to comply with. This escalation agreement
whether written or verbal has lifted, through novation,
the prohibition contained in the Tektite Building
Agreement.
In order for novation to take place, the concurrence of
the following requisites is indispensable:
1. There must be a previous valid obligation.
2. The parties concerned must agree to a new
contract.
3. The old contract must be extinguished.
4. There must be a valid new contract.[46]
All the aforementioned requisites are present in this
case. The obligation of both parties not to increase
the contract price in the Tektite Building Agreement
was extinguished, and a new obligation increasing the
old contract price by P 36 million was created by the
parties to take its place.
What makes this Court believe that it is incorrect to
allow PRHC to escape liability for the escalation price
is the fact that LCDC was never informed of the board
of directors supposed non-approval of the escalation
agreement until it was too late. Instead, PRHC, for its
own benefit, waited for the former to finish infusing the
entire amount into the construction of the building
before informing it that the said agreement had never
been approved by the board of directors. LCDC
diligently informed PRHC each month of the partial
amounts the former infused into the project. PRHC
must be deemed estopped from denying the
existence of the escalation agreement for having
allowed LCDC to continue infusing additional money
spending for its own project, when it could have
promptly notified LCDC of the alleged disapproval of
the proposed escalation price by its board of directors.
Estoppel is an equitable principle rooted in natural
justice; it is meant to prevent persons from going back
on their own acts and representations, to the
prejudice of others who have relied on them.[47]Article
1431 of the Civil Code provides:
Through estoppel an admission or representation is
rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person
relying thereon.
Article 1431 is reflected in Rule 131, Section 2 (a) of
the Rules of Court, viz.:
Sec. 2. Conclusive presumptions. The following are
instances of conclusive presumptions:
(a) Whenever a party has by his own declaration, act
or omission, intentionally and deliberately led another
to believe a particular thing true, and to act upon such
belief, he cannot, in any litigation arising out of such
declaration, act or omission be permitted to falsify it.
This Court has identified the elements of estoppel as:
[F]irst, the actor who usually must have knowledge,
notice or suspicion of the true facts, communicates
something to another in a misleading way, either by
words, conduct or silence; second, the other in fact
relies, and relies reasonably or justifiably, upon that
communication; third, the other would be harmed
materially if the actor is later permitted to assert any
claim inconsistent with his earlier conduct; and fourth,
the actor knows, expects or foresees that the other
would act upon the information given or that a
reasonable person in the actor's position would
expect or foresee such action.[48]
This liability of PRHC, however, has a ceiling. The
escalation agreement entered into was for P 36
millionthe maximum amount that LCDC contracted
itself to infuse and that PRHC agreed to reimburse.
Thus, the Court of Appeals was correct in ruling that
the P 2,248,463.92 infused by LCDC over and above
the P 36 million should be for its account, since PRHC
never agreed to pay anything beyond the latter
amount. While PRHC benefited from this excess
infusion, this did not result in its unjust enrichment, as
defined by law.
Unjust enrichment exists when a person unjustly
retains a benefit to the loss of another, or when a
person retains money or property of another against
the fundamental principles of justice, equity and good
conscience.[49] Under Art. 22 of the Civil Code, there is
unjust enrichment when (1) a person is unjustly
benefited, and (2) such benefit is derived at the
expense of or with damages to another. [50] The term is
further defined thus:
Unjust enrichment is a term used to depict result or
effect of failure to make remuneration of or for
property or benefits received under circumstances
that give rise to legal or equitable obligation to
account for them; to be entitled to remuneration, one
must confer benefit by mistake, fraud, coercion, or
request.[51]
In order for an unjust enrichment claim to prosper, one
must not only prove that the other party benefited
from ones efforts or the obligations of others; it must
also be shown that the other party was unjustly
enriched in the sense that the term unjustly could
mean illegally or unlawfully.[52] LCDC was aware that
the escalation agreement was limited to P36 million. It
is not entitled to remuneration of the excess, since it
did not confer this benefit by mistake, fraud, coercion,
or request. Rather, it voluntarily infused the excess
amount with full knowledge that PRHC had no
obligation to reimburse it.
Parenthetically, we note that the CA had ruled that the
7 December 1992 letter demonstrates that PRHC
treated the P 36 million as a loan deductible from the
liquidated damages for which LCDC is supposedly
liable.[53] It ruled that when PRHC informed LCDC that
it would apply the P 36 million to the liquidated
damages, PRHC, in effect, acknowledged that it was
in debt to LCDC in the amount ofP 36 million, and that
forms the basis for PRHCs liability to LCDC for the
said amount.
We disagree with this analysis.
In a contract of loan, ownership of the money is
transferred from the lender to the borrower.[54] In this
case, ownership of the P 36 million was never
transferred to PRHC. As previously mentioned, such
amount was paid directly to the suppliers.[55] We find
that arrangement between PRHC and LCDC cannot
be construed as a loan agreement but rather, it was
an agreement to advance the costs of construction.
In Liwanag v. Court of Appeals et al., we state:
Neither can the transaction be considered a loan,
since in a contract of loan once the money is received
by the debtor, ownership over the same is transferred.
Being the owner, the borrower can dispose of it for
whatever purpose he may deem proper. In the instant
petition, however, it is evident that Liwanag could not
dispose of the money as she pleased because it was
only delivered to her for a single purpose, namely, for
the purchase of cigarettes, and if this was not possible
then to return the money to Rosales.
LCDC is not liable for liquidated damages for
delay in the construction of the buildings for
PRHC.
There is no question that LCDC was not able to fully
construct the Tektite Building and Projects 1, 2, and 3
on time. It reasons that it should not be made liable
for liquidated damages, because its rightful and
reasonable requests for time extension were denied
by PRHC.[56]
It is important to note that PRHC does not question
the veracity of the factual representations of LCDC to
justify the latters requests for extension of time. It
insists, however, that in any event LCDC agreed to
the limits of the time extensions it granted.[57]
The practice of the parties is that each time LCDC construction architect
requests for more time, an extension agreement is workers (heavy 564 237
executed and signed by both parties to indicate their winds)
joint approval of the number of days of extension 4 Sep Inclement weather10 3
agreed upon. As previously mentioned, LCDC sent a 9 December
1990 that endangered
The applicable provision in the parties agreements is 1992 letter to PRHC claiming that, in a period of over
the lives of the
as follows: two years, only 256 out of the 618 days of extension
construction
ARTICLE VII TIME OF COMPLETION requested were considered. We disregard these
workers
numbers presented by LCDC because of its failure to
28 Feb Architectural and20 8 present evidence to prove its allegation. The tally that
......... 1991 structural revisions we will acceptas reflected by the evidence submitted
of R.C. beams at to the lower courtis as follows: out of the 564 days
Should the work be delayed by any act or omission of the 8th floor level
the OWNER or any other person employed by or requested, only 237 were considered.
28 Aug For change order271 136 Essentially the same aforementioned reasons or
contracted by the OWNER in the project, including 1991 work and revisions
days in the delivery or (sic) materials furnished by the causes are presented by LCDC as defense against
in the plans liability for both Projects 1 and 2.[58] In this regard, the
OWNER or others, or by any appreciable additions or initiated by the
alterations in the work ordered by the OWNER or the CA ruled:
architect and Plaintiff-appellees allegation that determination by
ARCHITECT, under Article V or by force majeure, war, Abcedes delay in
rebellion, strikes, epidemics, fires, riots, or acts of the PHRC of extensions of time were unreasonable or
giving the revised arbitrary is untenable in the light of express provisions
civil or military authorities, the CONTRACTOR shall plans to contractor
be granted time extension. of the Construction Agreements which prescribed
2 Sep Inclement weather25 17 precise procedures for extensions of time. In fact the
In case the CONTRACTOR encounters any justifiable
1991 and scarcity of procedure is fool-proof because both OWNER and
cause or reason for delay, the CONTRACTOR shall
cement CONTRACTOR sign to indicate approval of the
within ten (10) days, after encountering such cause of
delay submit to the OWNER in writing a written 13 Oct Water supply15 6 number of days of extension. Computation of the
request for time extension indicating therein the 1991 interruption and penalty becomes mechanical after that. Each
requested contract time extension. Failure by the power failures extension as signed by the parties is a contract by
CONTRACTOR to comply with this requirements (sic) preventing the itself and has the force of law between them.
will be adequate reason for the OWNER not to grant mixing of cement In fact, the parties followed that prescribed procedure
the time extension. 5 Dec Typhoon Uring and15 2 strictly the CONTRACTOR first requested the
1991 water supply OWNER to approve the number of days applied for as
The following table shows the dates of LCDCs letter- interruption extension of time to finish the particular project and
requests, the supposed causes justifying them, the (typhoon Uring the OWNER will counter-offer by approving only a
number of days requested, and the number of days alone caused a lower number of days extension of time for
granted by PRHC and supposedly conformed to by delay for more CONTRACTOR to finish the contract as
LCDC: than 10 days due recommended by the CONSTRUCTION MANAGER
to strong and ABCEDE, and in the end, both CONTRACTOR and
continuous rains) OWNER sign jointly the approved number of days
Cause # of days# of days 2 Apr Inadequate supply15 12 agreed upon. That signed extension of time is taken
requested granted 1992 of Portland cement to be the contract between the parties.[59]
1 Mar Due to additional30 11 and frequent The appellate court further ruled that each signed
1990 works and power failures extension is a separate contract that becomes the law
shortage of 5 May Inadequate supply17 12 between the parties:[60]
supplies and 1992 of cement and there is nothing arbitrary or unreasonable about the
cement frequent power number of days extension of time because each
14 Apr Shortage of18 6 failures extension is a meeting of the minds between the
1990 cement supply parties, each under joint signature OWNERand
456 217
10 May Frequent power10 2 CONTRACTOR witnessed by the CONSTRUCTION
1990 failures additions and108 20 MANAGER.[61]
alterations in the Inasmuch as LCDCs claimed exemption from liability
9 Bad weather which10 2
work ordered by are beyond the approved time extensions, LCDC,
Jul 1990 endangered the
the owner and according to the majority of the CA, is liable therefor.
lives of the
Justice Juan Q. Enriquez, in his Dissenting Opinion,
held that the reasons submitted by LCDC fell under
the definition of force majeure.[62] This specific point
was not refuted by the majority.
We agree with Justice Enriquez on this point and
thereby disagree with the majority ruling of the CA.
Article 1174 of the Civil Code provides: Except in
cases expressly specified by the law, or when it is
otherwise declared by stipulation or when the nature
of the obligation requires the assumption of risk, no
person shall be responsible for those events which
could not be foreseen, or which though foreseen,
were inevitable. A perusal of the construction
agreements shows that the parties never agreed to
make LCDC liable even in cases of force majeure.
Neither was the assumption of risk required. Thus, in
the occurrence of events that could not be foreseen,
or though foreseen were inevitable, neither party
should be held responsible.
Under Article 1174 of the Civil Code, to exempt the
obligor from liability for a breach of an obligation due
to an act of God or force majeure, the following must
concur:
(a) the cause of the breach of the obligation must be
independent of the will of the debtor; (b) the event
must be either unforseeable or unavoidable; (c) the
event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and
(d) the debtor must be free from any participation in,
or aggravation of the injury to the creditor.[63]
The shortage in supplies and cement may be
characterized as force majeure.[64] In the present case,
hardware stores did not have enough cement
available in their supplies or stocks at the time of the
construction in the 1990s. Likewise, typhoons, power
failures and interruptions of water supply all clearly fall
under force majeure. Since LCDC could not possibly
continue constructing the building under the
circumstances prevailing, it cannot be held liable for
any delay that resulted from the causes
aforementioned.
Further, PRHC is barred by the doctrine of promissory
estoppel from denying that it agreed, and even
promised, to hold LCDC free and clear of any
liquidated damages. Abcede and Santos also
promised that the latter corporation would not be held
liable for liquidated damages even for a single day of
delay despite the non-approval of the requests for
extension.[65] Mr. Ley testified to this fact as follows:
Q: So, Mr. Witness in all those requests for extension
and whenever the D.A. Abcede & Associates did not
grant you the actual number of days stated in your
requests for extension, what did Ley construction and
Development do, if any?
A: We talked to Dennis Abcede and Mr. Santos,
Maam.
Q: And what did you tell them?
A: I will tell them why did you not grant the extension
for us, Maam.
Q: What was the response of Mr. Abcede and Mr.
Santos?
A: Mr. Abcede and Mr. Santos told me, Mr. Ley dont
worry, you will not be liquidated of any single day for
this because we can see that you worked so hard for
this project, Maam.
Q: And what did you do after you were given that
response of Mr. Abcede and Mr. Santos?
A: They told me you just relax and finish the project,
and we will pay you up to the last centavos, Maam.
Q: What did you do after taking that statement or
assurance?
A: As gentlemans agreement I just continued working
without complaining anymore, Maam.[66]
The above testimony is uncontradicted. Even
assuming that all the reasons LCDC presented do not
qualify as fortuitous events, as contemplated by law,
this Court finds that PRHC is estopped from denying
that it had granted a waiver of the liquidated damages
the latter corporation may collect from the former due
to a delay in the construction of any of the buildings.
Courts may rule on causes of action not included
in the Complaint, as long as these have been
proven during trial without the objection of the
opposing party.
PRHC argues that since the parties had already
limited the issues to those reflected in their joint
stipulation of facts, neither the trial court nor the
appellate court has the authority to rule upon issues
not included therein. Thus it was wrong for the trial
court and the CA to have awarded the amounts
of P 5,529,495.76 representing the remaining balance
for Project 3 as well as for the P 232,367.96
representing the balance for the construction of the
drivers quarters in Project 3. PRHC claims that in the
Stipulation of Facts, all the issues regarding Project 3
were already made part of the computation of the
balances for the other projects. It thus argues that the
computation for the Tektite Building showed that the
overpayment for Project 3 in the amount
of P 9,531,181.80 was credited as payment for the
Tektite Tower Project.[67] It reasons that, considering
that it actually made an overpayment for Project 3, it
should not be made liable for the remaining balances
for Project 3 and the drivers quarters in Project 3.[68] It
is LCDCs position, however, that the Stipulation of
Facts covers the balances due only for the Tektite
Tower Project, Project 1, and Project 2. [69] Since
Project 3 was not included in the reconciliation
contained in the said stipulation, it maintains that the
balance for Project 3 remains at P 5,529,495.76,
[70]
and that the balance for the construction of the
drivers quarters in Project 3 remains at P 232,367.96.
On its part, LCDC disputes the deletion by the CA of
the lower courts grant of the alleged P 7,112,738.82
unpaid balance for the concreting works in the Tektite
Building. The CA had ruled that this cause of action
was withdrawn by the parties when they did not
include it in their Joint Stipulation of Facts. LCDC
argues that to the contrary, the silence of the
Stipulation of Facts on this matter proves that the
claim still stands.[71]
Considering that the unpaid balances for Project 3, its
drivers quarters, and the concreting works in the
Tektite Building were not covered by the Stipulation of
Facts entered into by the parties, we rule that no
judicial admission could have been made by LCDC
regarding any issue involving the unpaid balances for
those pieces of work.
We affirm in this case the doctrine that courts may
rule or decide on matters that, although not submitted
as issues, were proven during trial. The admission of
evidence, presented to support an allegation not
submitted as an issue, should be objected to at the
time of its presentation by the party to be affected
thereby; otherwise, the court may admit the evidence,
and the fact that such evidence seeks to prove a
matter not included or presented as an issue in the
pleadings submitted becomes irrelevant, because of
the failure of the appropriate party to object to the
presentation.
No objection was raised when LCDC presented
evidence to prove the outstanding balances for
Project 3, its drivers quarters, and the concreting
works in the Tektite Building.
In Phil. Export and Foreign Loan Guarantee Corp. v.
Phil. Infrastructures, et al.,[72] this Court held:
It is settled that even if the complaint be defective, but
the parties go to trial thereon, and the plaintiff, without
objection, introduces sufficient evidence to constitute
the particular cause of action which it intended to
allege in the original complaint, and the defendant
voluntarily produces witnesses to meet the cause of
action thus established, an issue is joined as fully and
as effectively as if it had been previously joined by the
most perfect pleadings. Likewise, when issues not
raised by the pleadings are tried by express or implied
consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings.
Considering the absence of timely and appropriate
objections, the trial court did not err in admitting
evidence of the unpaid balances for Project 3, its
drivers quarters, and the concreting works in the
Tektite Building. Furthermore, both the lower and the
appellate courts found that the supporting evidence
presented by LCDC were sufficient to prove that the
claimed amounts were due, but that they remained
unpaid.
LCDC should be held liable for the corrective
works to redo or repair the defective
waterproofing in Project 2.
The waterproofing of Project 2 was not undertaken by
LCDC. Instead, Vulchem Corporation (Vulchem),
which was recommended by Santos and Abcede, was
hired for that task. Vulchems waterproofing turned out
to be defective. In order to correct or repair the
defective waterproofing, PRHC had to contract the
services of another corporation, which charged
it P2,006,000.
Denying liability by alleging that PRHC forced it into
hiring Vulchem Corporation for the waterproofing
works in Project 2, LCDC argues that under Article
1892, an agent is responsible for the acts of the
substitute if he was given the power to appoint a
substitute. Conversely, if it is the principal and not the
agent who appointed the substitute, the agent bears
no responsibility for the acts of the sub-agent.[73]The
provision reads:
Art. 1892. The agent may appoint a substitute if the
principal has not prohibited him from doing so; but he
shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without
designating the person, and the person appointed
was notoriously incompetent or insolvent.
LCDC argues that because PRHC, as the principal,
had designated Vulchem as sub-agent, LCDC, as the
agent, should not be made responsible for the acts of
the substitute, even in the instance where the latter
were notoriously incompetent.[74]
LCDCs reliance on Art. 1892 is misplaced. The
principles of agency are not to be applied to this case,
since the legal relationship between PRHC and LCDC
was not one of agency, but was rather that between
the owner of the project and an independent
contractor under a contract of service. Thus, it is the
agreement between the parties and not the Civil Code
provisions on agency that should be applied to
resolve this issue.
Art. XIV of the Project 2 Agreement clearly states that
if the contractor sublets any part of the agreement to a
third party, who in effect becomes a sub-contractor,
the losses or expenses that result from the
acts/inactions of the sub-contractor should be for the
contractors account, to wit:
ARTICLE XIV ASSIGNMENT
This Agreement, and/or any of the payments to be
due hereunder shall not be assigned in whole or in
part by the CONTRACTOR nor shall any part of the
works be sublet by CONTRACTOR without the prior
written consent of OWNER, and such consent shall
not relieve the CONTRACTOR from full responsibility
and liability for the works hereunder shall not be
granted in any event until CONTRACTOR has
furnished OWNER with satisfactory evidence that the
Sub-Contractor is carrying ample insurance to the
same extent and in the same manner as herein
provided to be furnished by CONTRACTOR. If the
agreement is assigned or any part thereof is sublet,
CONTRACTOR shall exonerate, indemnify and save
harmless the OWNER from and against any and all
losses or expenses caused thereby.[75]
LCDC had every right to reject Vulchem as sub-
contractor for the waterproofing work of Project 2 but
it did not do so and proceeded to hire the latter. It is
not unusual for project owners to recommend sub-
contractors, and such recommendations do not
diminish the liability of contractors in the presence of
an Article XIV-type clause in the construction
agreement. The failure of LCDC to ensure that the
work of its sub-contractor is satisfactory makes it
liable for the expenses PRHC incurred in order to
correct the defective works of the sub-contractor. The
CA did not err in ruling that the contract itself gave
PRHC the authority to recover the expenses for the
re-do works arising from the defective work of
Vulchem.[76]
LCDC is entitled to attorneys fees and the
expenses of litigation and costs.
According to the CA, LCDC was not entitled to
attorneys fees, because it was not the aggrieved
party, but was the one that violated the terms of the
construction agreements and should thus be made to
pay costs.[77] LCDC claims, on the other hand, that the
CA seriously erred in deleting the lower courts award
of P750,000 attorneys fees and the expenses of
litigation in its favor, since this award is justified under
the law.[78] To support its claim, LCDC cites Article
2208(5), which provides:
ART. 2208. In the absence of stipulation, attorneys
fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:
.........
(5) Where the defendant acted in gross and evident
bad faith in refusing to satisfy the plaintiffs plainly
valid, just and demandable claim;
.........
Attorney's fees may be awarded when the act or
omission of the defendant compelled the plaintiff to
incur expenses to protect the latters interest.
[79]
In ABS-CBN Broadcasting Corp. v. CA,[80] we held
thus:
The general rule is that attorney's fees cannot be
recovered as part of damages because of the policy
that no premium should be placed on the right to
litigate. They are not to be awarded every time a party
wins a suit. The power of the court to award attorney's
fees under Article 2208 demands factual, legal, and
equitable justification. Even when a claimant is
compelled to litigate with third persons or to incur
expenses to protect his rights, still attorney's fees may
not be awarded where no sufficient showing of bad
faith could be reflected in a party's persistence in a
case other than an erroneous conviction of the
righteousness of his cause.
LCDC has failed to establish bad faith on the part of
PRHC so as to sustain its position that it is entitled to
attorneys fees. Nevertheless, the CA erred in
reversing the lower courts Decision granting LCDCs
claim for attorneys fees considering that the
construction agreements contain a penal clause that
deals with the award of attorneys fees, as follows:
In the event the OWNER/CONTRACTOR institutes a
judicial proceeding in order to enforce any terms or
conditions of this Agreement, the
CONTRACTOR/OWNER should it be adjudged liable
in whole or in part, shall pay the
OWNER/CONTRACTOR reasonable attorneys fees in
the amount equivalent to Twenty Percent (20%) of the
total amount claimed in addition to all expenses of
litigation and costs of the suit.
Equivalent to at least Twenty Percent (20%) of the
total amount claimed in addition to all expenses of
litigation and costs of the suit.
As long as a stipulation does not contravene the law,
morals, and public order, it is binding upon the obligor.
[81]
Thus, LCDC is entitled to recover attorneys fees.
Nevertheless, this Court deems it proper to equitably
reduce the stipulated amount. Courts have the power
to reduce the amount of attorneys fees when found to
be excessive,[82] viz:
We affirm the equitable reduction in attorneys fees.
These are not an integral part of the cost of
borrowing, but arise only when collecting upon the
Notes becomes necessary. The purpose of these
fees is not to give respondent a larger compensation
for the loan than the law already allows, but to protect
it against any future loss or damage by being
compelled to retain counsel in-house or notto institute
judicial proceedings for the collection of its credit.
Courts have has the power to determine their
reasonableness based on quantum meruit and to
reduce the amount thereof if excessive.[83]
We reverse the appellate courts Decision and
reinstate the lower courts award of attorneys fees, but
reduce the amount from P750,000 to P200,000.
WHEREFORE, we SET ASIDE the Decision of the
Court of Appeals and RULE as follows:
I. We find Philippine Realty and Holdings
Corporation (PRHC) LIABLE to Ley Construction
Development Corporation (LCDC) in the amount
of P 64,029,710.22, detailed as follows:
1. P 13,251,152.61 as balance yet unpaid by PRHC
for Project 2;
2. P 1,703,955.07 as balance yet unpaid by PRHC
for Project 1;
3. P 5,529,495.76 as balance yet unpaid by PRHC
for Project 3;
4. P 232,367.96 as balance yet unpaid by PRHC
for the drivers quarters for Project 3;
5. P 36,000,000.00 as agreed upon in the
escalation agreement entered into by PRHCs
representatives and LCDC for the Tektite Building;
6. P 7,112,738.82 as balance yet unpaid by PRHC
for the concreting works from the ground floor to the
fifth floor of the Tektite Building;
7. P 200,000.00 as LCDCs reduced attorneys fees.
II. Further, we find LCDC LIABLE to PRHC in the
amount of P 6,652,947.75 detailed as follows:
1. P 4,646,947.75 for the overpayment made by
PRHC for the Tektite Building;
2. P 2,006,000.00 for the expenses incurred by
PRHC for corrective works to redo/repair the allegedly
defective waterproofing construction work done by
LCDC in Project 2.
The respective liabilities of the parties as enumerated
above are hereby SET OFF against each other, and
PRHC is hereby DIRECTED to pay LCDC the net
amount due, which is P 57,376,762.47, with legal
interest from the date of the filing of Complaint.