LITONJUA JR. v. ETERNIT CORP. principal. In any event, such ratification cannot be given any retroactive effect.

ation cannot be given any retroactive effect. Plaintiffs could not assume
that defendants had agreed to sell the property without a clear authorization from the corporation
concerned, that is, through resolutions of the Board of Directors and stockholders.
The Eternit Corporation (EC) is a corporation engaged in the manufacture of roofing materials and pipe
products. Its manufacturing operations were conducted on eight parcels of land with a total area of 47,233 The CA rendered judgment affirming the decision of the RTC.
square meters. Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer S.A.
The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of Article
Corporation (ESAC), a corporation organized and registered under the laws of Belgium.3 Jack Glanville, an
1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a special authority from
Australian citizen, was the General Manager and President of EC, while Claude Frederick Delsaux was the
EC’s board of directors to bind such corporation to the sale of its properties. Delsaux, who was merely the
Regional Director for Asia of ESAC. Both had their offices in Belgium.
representative of ESAC (the majority stockholder of EC) had no authority to bind the latter. The CA pointed
In 1986, the management of ESAC grew concerned about the political situation in the Philippines and wanted out that Delsaux was not even a member of the board of directors of EC.
to stop its operations in the country. The Committee for Asia of ESAC instructed Michael Adams, a member
Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville, who
of EC’s Board of Directors, to dispose of the eight parcels of land. Adams engaged the services of
was the President and General Manager of respondent EC, and Delsaux, who was the Managing Director for
realtor/broker Lauro G. Marquez so that the properties could be offered for sale to prospective buyers.
ESAC Asia, had the necessary authority to sell the subject property or, at least, had been allowed by
Glanville later showed to Marquez the lands.
respondent EC to hold themselves out in the public as having the power to sell the subject properties.
Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Litonjua, Jr. of Petitioners identified such evidence, thus:
the Litonjua & Company, Inc. In a Letter, Marquez declared that he was authorized to sell the properties
2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL MONTHS, from
for P27,000,000.00 and that the terms of the sale were subject to negotiation.
1986 to 1987;
Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr., and his
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners;
brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property for P20,000,000.00 cash.
Marquez apprised Glanville of the Litonjua siblings’ offer and relayed the same to Delsaux in Belgium, but 4. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the properties as evidenced by the
the latter did not respond. On October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his Petitioners’ ACCEPTANCE of the counter-offer;
position/ counterproposal to the offer of the Litonjua siblings. It was only on February 12, 1987 that Delsaux
sent a telex to Glanville stating that, based on the "Belgian/Swiss decision," the final offer was 5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank and that an
"US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to final liquidation."5 ESCROW agreement was drafted over the subject properties;

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr. accepted the
counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated February 26, 1987,
confirmed that the Litonjua siblings had accepted the counter-proposal of Delsaux. He also stated that the
Litonjua siblings would confirm full payment within 90 days after execution and preparation of all documents
of sale, together with the necessary governmental clearances.
The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust Company,
Ermita Branch, and drafted an Escrow Agreement to expedite the sale.
Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be
implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he had met with the buyer,
which had given him the impression that "he is prepared to press for a satisfactory conclusion to the
sale."8 He also emphasized to Delsaux that the buyers were concerned because they would incur expenses
in bank commitment fees as a consequence of prolonged period of inaction.9
Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the Philippines, the
political situation in the Philippines had improved. Marquez received a telephone call from Glanville, advising
that the sale would no longer proceed. Glanville followed it up with a Letter dated May 7, 1987, confirming
that he had been instructed by his principal to inform Marquez that "the decision has been taken at a Board
Meeting not to sell the properties on which Eternit Corporation is situated."10
When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding payment for
damages they had suffered on account of the aborted sale. EC, however, rejected their demand.
The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton
Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig City.
In their answer to the complaint, it alleged that the Board and stockholders of EC never approved any
resolution to sell subject properties nor authorized Marquez to sell the same; and the telex dated October
28, 1986 of Jack Glanville was his own personal making which did not bind EC.
RTC dismissed the complaint. The trial court declared that since the authority of the agents/realtors was not
in writing, the sale is void and not merely unenforceable, and as such, could not have been ratified by the
6. Glanville’s telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY AND
SELL";
7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that Petitioners’
offer was allegedly REJECTED by both Glanville and Delsaux.18
Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners’ offer
and thereafter reject such offer unless they were authorized to do so by respondent EC. Petitioners insist
that Delsaux confirmed his authority to sell the properties in his letter to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of the land which
was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and examined the position as
far as the Philippines are (sic) concerned. Considering the new political situation since the departure of MR.
MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our operations
in Manila[.] [I]n fact production started again last week, and (sic) to reorganize the participation in the
Corporation.
We regret that we could not make a deal with you this time, but in case the policy would change at a later
stage we would consult you again.
In the meantime, I remain
Yours sincerely,
C.F. DELSAUX19
Issue:
Was there a valid authority to sell the properties?
Ruling:
NONE.
It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it
had empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to prospective
buyers and to accept any counter-offer. It must be stressed that when specific performance is sought of a
contract made with an agent, the agency must be established by clear, certain and specific proof.
Sec. 23 of BP Bilang 68, otherwise known as the Corporation Code of the Philippines, provides:
SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the corporate powers
of all corporations formed under this Code shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees to be elected from among the holders
of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for
one (1) year and until their successors are elected and qualified.
Indeed, a corporation is a juridical person separate and distinct from its members or stockholders and is not
affected by the personal rights, obligations and transactions of the latter.25 It may act only through its board
of directors or, when authorized either by its by-laws or by its board resolution, through its officers or agents
in the normal course of business. The general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions
of law.
Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties, subject to
the limitations prescribed by law and the Constitution, as follows:
SEC. 36. Corporate powers and capacity. – Every corporation incorporated under this Code has the power
and capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with
such real and personal property, including securities and bonds of other corporations, as the transaction of
a lawful business of the corporation may reasonably and necessarily require, subject to the limitations
prescribed by the law and the Constitution.
The property of a corporation, however, is not the property of the stockholders or members, and as such,
may not be sold without express authority from the board of directors. Physical acts, like the offering of
the properties of the corporation for sale, or the acceptance of a counter-offer of prospective buyers of
such properties and the execution of the deed of sale covering such property, can be performed by the
corporation only by officers or agents duly authorized for the purpose by corporate by-laws or by specific
acts of the board of directors. Absent such valid delegation/authorization, the rule is that the declarations
of an individual director relating to the affairs of the corporation, but not in the course of, or connected
with, the performance of authorized duties of such director, are not binding on the corporation.
While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have
to be with the board of directors through its officers and agents as authorized by a board resolution or by its
by-laws.30 An unauthorized act of an officer of the corporation is not binding on it unless the latter ratifies
the same expressly or impliedly by its board of directors. Any sale of real property of a corporation by a
person purporting to be an agent thereof but without written authority from the corporation is null and
void.
By the contract of agency, a person binds himself to render some service or to do something in
representation on behalf of another, with the consent or authority of the latter. Consent of both principal
and agent is necessary to create an agency. The principal must intend that the agent shall act for him; the
agent must intend to accept the authority and act on it, and the intention of the parties must find
expression either in words or conduct between them.
An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or
his failure to repudiate the agency knowing that another person is acting on his behalf without authority.
Acceptance by the agent may be expressed, or implied from his acts which carry out the agency, or from
his silence or inaction according to the circumstances. Agency may be oral unless the law requires a specific
form. However, to create or convey real rights over immovable property, a special power of attorney is
necessary. Thus, when a sale of a piece of land or any portion thereof is through an agent, the authority
of the latter shall be in writing, otherwise, the sale shall be void.
In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board of
Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone offer
for sale, for and in its behalf, the eight parcels of land owned by respondent EC including the improvements
thereon. The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of
respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners’ claim that he had likewise been
authorized by respondent EC to sell the parcels of land.
Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux,
who, in turn, acted on the authority of respondent ESAC, through its Committee for Asia, 38 the Board of
Directors of respondent ESAC,39 and the Belgian/Swiss component of the management of respondent
ESAC.40 As such, Adams and Glanville engaged the services of Marquez to offer to sell the properties to
prospective buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he was authorized to
offer for sale the property for P27,000,000.00 and the other terms of the sale subject to negotiations. When
petitioners offered to purchase the property for P20,000,000.00, through Marquez, the latter relayed
petitioners’ offer to Glanville; Glanville had to send a telex to Delsaux to inquire the position of respondent
ESAC to petitioners’ offer. However, as admitted by petitioners in their Memorandum, Delsaux was unable
to reply immediately to the telex of Glanville because Delsaux had to wait for confirmation from respondent
ESAC.41 When Delsaux finally responded to Glanville on February 12, 1987, he made it clear that, based on
the "Belgian/Swiss decision" the final offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to
cover all existing obligations prior to final liquidation.42 The offer of Delsaux emanated only from the
"Belgian/Swiss decision," and not the entire management or Board of Directors of respondent ESAC. While
it is true that petitioners accepted the counter-offer of respondent ESAC, respondent EC was not a party to
the transaction between them; hence, EC was not bound by such acceptance.
While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux were
members of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not as duly
authorized agents of respondent EC; a board resolution evincing the grant of such authority is needed to
bind EC to any agreement regarding the sale of the subject properties. Such board resolution is not a mere
formality but is a condition sine qua non to bind respondent EC. Admittedly, respondent ESAC owned 90%
of the shares of stocks of respondent EC; however, the mere fact that a corporation owns a majority of the
shares of stocks of another, or even all of such shares of stocks, taken alone, will not justify their being
treated as one corporation.
It bears stressing that in an agent-principal relationship, the personality of the principal is extended through
the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform
all acts which the latter would have him do. Such a relationship can only be effected with the consent of the
principal, which must not, in any way, be compelled by law or by any court.44
The settled rule is that, persons dealing with an assumed agent are bound at their peril, and if they would
hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority,
and in case either is controverted, the burden of proof is upon them to prove it. In this case, the petitioners
failed to discharge their burden; hence, petitioners are not entitled to damages from respondent EC.
It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. As
gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and in behalf of the
petitioners, that the latter had accepted such offer to sell the land and the improvements thereon. However,
we agree with the ruling of the appellate court that Marquez had no authority to bind respondent EC to sell
the subject properties. A real estate broker is one who negotiates the sale of real properties. His business,
generally speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the owner.
He has no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser
of real property does not include an authority to sell.47
Equally barren of merit is petitioners’ contention that respondent EC is estopped to deny the existence of a
principal-agency relationship between it and Glanville or Delsaux. For an agency by estoppel to exist, the
following must be established: (1) the principal manifested a representation of the agent’s authority or
knowingly allowed the agent to assume such authority; (2) the third person, in good faith, relied upon such
representation; (3) relying upon such representation, such third person has changed his position to his
detriment. An agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of
reliance upon the representations, and that, in turn, needs proof that the representations predated the
action taken in reliance.49 Such proof is lacking in this case. In their communications to the petitioners,
Glanville and Delsaux positively and unequivocally declared that they were acting for and in behalf of
respondent ESAC.
JOCELYN DOLES v. MA. AURA TINA ANGELES
"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share of Teodorico Doles
on the parcel of land described in this certificate of title by virtue of the special power of attorney to
mortgage, executed before the notary public, etc."
The rule under the Civil Code is that contracts without a cause or consideration produce no effect
whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA, which reversed the decision of RTC.
Petitioner argues that since she is merely the agent or representative of the alleged debtors, then she is not
a party to the loan; and that the Deed of Sale executed between her and the respondent in their own names,
which was predicated on that pre-existing debt, is void for lack of consideration.
Issue:

Facts: Are Doles and Angeles agents?

Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific Performance with Damages Ruling:
against Jocelyn B. Doles (petitioner). Respondent alleged that petitioner was indebted to the former in the YES. Thus, Doles cannot be sued by Angeles since she is merely an agent by the borrowers.
concept of a personal loan amounting to P405,430.00 representing the principal amount and interest; that
on October 5, 1996, by virtue of a "Deed of Absolute Sale",3 petitioner, as seller, ceded to respondent, as Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of a price certain
buyer, a parcel of land, as well as the improvements thereon, with an area of 42 square meters, in order to in money16 and that this sum indisputably pertains to the debt in issue. This Court has consistently held that
satisfy her personal loan with respondent; that this property was mortgaged to National Home Mortgage a contract of sale is null and void and produces no effect whatsoever where the same is without cause or
Finance Corporation (NHMFC) to secure petitioner’s loan in the sum of P337,050.00 with that entity; that as consideration.17 The question that has to be resolved for the moment is whether this debt can be considered
a condition for the foregoing sale, respondent shall assume the undue balance of the mortgage and pay the as a valid cause or consideration for the sale.
monthly amortization of P4,748.11 for the remainder of the 25 years which began on September 3, 1994;
To restate, the CA cited four instances in the record to support its holding that petitioner "re-lends" the
that the property was at that time being occupied by a tenant paying a monthly rent of P3,000.00; that upon
amount borrowed from respondent to her friends: first, the friends of petitioner never presented themselves
verification with the NHMFC, respondent learned that petitioner had incurred arrearages amounting
to P26,744.09, inclusive of penalties and interest; that upon informing the petitioner of her arrears, to respondent and that all transactions were made by and between petitioner and respondent; second; the
money passed through the bank accounts of petitioner and respondent; third, petitioner herself admitted
petitioner denied that she incurred them and refused to pay the same; that despite repeated demand,
that she was "re-lending" the money loaned to other individuals for profit; and fourth, the documentary
petitioner refused to cooperate with respondent to execute the necessary documents and other formalities
evidence shows that the actual borrowers, the friends of petitioner, consider her as their creditor and not
required by the NHMFC to effect the transfer of the title over the property; that petitioner collected rent
the respondent.
over the property for the month of January 1997 and refused to remit the proceeds to respondent; and that
respondent suffered damages as a result and was forced to litigate. But as correctly noted by the RTC, respondent, then plaintiff, made the following admission during her cross
examination:23
Petitioner, while admitting some allegations in the Complaint, denied that she borrowed money from
respondent, and averred that from June to September 1995, she referred her friends to respondent whom Atty. Villacorta:
she knew to be engaged in the business of lending money in exchange for personal checks through her q. Who is this Arsenio Pua?
capitalist Arsenio Pua. She alleged that her friends, namely, Zenaida Romulo, Theresa Moratin, Julia witness:
Inocencio, Virginia Jacob, and Elizabeth Tomelden, borrowed money from respondent and issued personal a. Principal financier, sir.
checks in payment of the loan; that the checks bounced for insufficiency of funds; that despite her efforts to
assist respondent to collect from the borrowers, she could no longer locate them; that, because of this, Atty. Villacorta:
respondent became furious and threatened petitioner that if the accounts were not settled, a criminal case q. So the money came from Arsenio Pua?
will be filed against her; that she was forced to issue eight checks amounting to P350,000 to answer for the witness:
bounced checks of the borrowers she referred; that prior to the issuance of the checks she informed a. Yes, because I am only representing him, sir.
respondent that they were not sufficiently funded but the latter nonetheless deposited the checks and for
Other portions of the testimony of respondent must likewise be considered:24
which reason they were subsequently dishonored; that respondent then threatened to initiate a criminal
case against her for violation of Batas Pambansa Blg. 22; that she was forced by respondent to execute an Atty. Villacorta:
"Absolute Deed of Sale" over her property in Bacoor, Cavite, to avoid criminal prosecution; that the said q. So it is not actually your money but the money of Arsenio Pua?
deed had no valid consideration; that she did not appear before a notary public. witness:
RTC dismissed the complaint by respondent. The RTC held that the sale was void for lack of cause or a. Yes, sir.
consideration:5 Court:
q. It is not your money?
Plaintiff Angeles’ admission that the borrowers are the friends of defendant Doles and further admission
that the checks issued by these borrowers in payment of the loan obligation negates [sic] the cause or witness:
consideration of the contract of sale executed by and between plaintiff and defendant. Moreover, the a. Yes, Your Honor.
property is not solely owned by defendant as appearing in Entry No. 9055 of Transfer Certificate of Title No. Atty. Villacorta:
382532 (Annex A, Complaint), thus:
q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate somebody, are you general rule, be established from the declarations of the agents alone, if one professes to act as agent for
aware of that? another, she may be estopped to deny her agency both as against the asserted principal and the third
witness: persons interested in the transaction in which he or she is engaged.
a. I am aware of that. In this case, petitioner knew that the financier of respondent is Pua; and respondent knew that the borrowers
Atty. Villacorta: are friends of petitioner.
q. More or less she [accommodated] several friends of the defendant? The CA is incorrect when it considered the fact that the "supposed friends of [petitioner], the actual
witness: borrowers, did not present themselves to [respondent]" as evidence that negates the agency relationship—
a. Yes, sir, I am aware of that. it is sufficient that petitioner disclosed to respondent that the former was acting in behalf of her principals,
xxxx her friends whom she referred to respondent. For an agency to arise, it is not necessary that the principal
personally encounter the third person with whom the agent interacts. The law in fact contemplates, and
Atty. Villacorta:
to a great degree, impersonal dealings where the principal need not personally know or meet the third
q. And these friends of the defendant borrowed money from you with the assurance of the defendant? person with whom her agent transacts: precisely, the purpose of agency is to extend the personality of the
witness: principal through the facility of the agent.
a. They go direct to Jocelyn because I don’t know them.
In the case at bar, both petitioner and respondent have undeniably disclosed to each other that they are
xxxx representing someone else, and so both of them are estopped to deny the same. It is evident from the record
Atty. Villacorta: that petitioner merely refers actual borrowers and then collects and disburses the amounts of the loan upon
q. And is it not also a fact Madam witness that everytime that the defendant borrowed money from you her which she received a commission; and that respondent transacts on behalf of her "principal financier", a
friends who [are] in need of money issued check[s] to you? There were checks issued to you? certain Arsenio Pua.
witness: With respect to the admission of petitioner that she is "re-lending" the money loaned from respondent to
a. Yes, there were checks issued. other individuals for profit, it must be stressed that the manner in which the parties designate the
Atty. Villacorta: relationship is not controlling. If an act done by one person in behalf of another is in its essential nature one
q. By the friends of the defendant, am I correct? of agency, the former is the agent of the latter notwithstanding he or she is not so called.30 The question is
to be determined by the fact that one represents and is acting for another, and if relations exist which will
witness:
constitute an agency, it will be an agency whether the parties understood the exact nature of the relation or
a. Yes, sir. not.
Atty. Villacorta:
That both parties acted as mere agents is shown by the undisputed fact that the friends of petitioner issued
q. And because of your assistance, the friends of the defendant who are in need of money were able to
checks in payment of the loan in the name of Pua. If it is true that petitioner was "re-lending", then the
obtain loan to [sic] Arsenio Pua through your assistance?
checks should have been drawn in her name and not directly paid to Pua.
witness:
a. Yes, sir. EUROTECH INDUSTRIAL TECHNOLOGIES v. EDWIN and ERWIN CUIZON
Atty. Villacorta:
q. So that occasion lasted for more than a year? Petitioner is engaged in the business of importation and distribution of various European industrial
witness: equipment for customers here in the Philippines. It has as one of its customers Impact Systems Sales ("Impact
a. Yes, sir. Systems") which is a sole proprietorship owned by respondent ERWIN Cuizon (ERWIN). Respondent EDWIN
is the sales manager of Impact Systems.
Atty. Villacorta:
q. And some of the checks that were issued by the friends of the defendant bounced, am I correct? From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to
witness: (₱91,338.00). Subsequently, respondents sought to buy from petitioner one unit of sludge pump valued at
₱250,000.00 with respondents making a down payment of (₱50,000.00).4 When the sludge pump arrived
a. Yes, sir.
from the United Kingdom, petitioner refused to deliver the same to respondents without their having fully
Atty. Villacorta: settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus,
q. And because of that Arsenio Pua got mad with you? general manager of petitioner, executed a Deed of Assignment of receivables in favor of petitioner, the
witness: pertinent part of which states:
a. Yes, sir. 1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the amount of THREE
HUNDRED SIXTY FIVE THOUSAND (₱365,000.00) PESOS as payment for the purchase of one unit of Selwood
Spate 100D Sludge Pump;
Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua, her disclosed
principal. She is also estopped to deny that petitioner acted as agent for the alleged debtors, the friends 2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the ASSIGNEE 6 the said
whom she (petitioner) referred. receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND
(₱365,000.00) PESOS which receivables the ASSIGNOR is the lawful recipient;
This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is
representation. Agency may even be implied from the words and conduct of the parties and the 3.) That the ASSIGNEE does hereby accept this assignment.7
circumstances of the particular case. Though the fact or extent of authority of the agents may not, as a
Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge pump as
shown by Invoice No. 12034 dated 30 June 1995.8
Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment,
proceeded to collect from Toledo Power Company the amount of ₱365,135.29. Because of respondents’
failure to abide by final demand letter, petitioner instituted a complaint for sum of money, damages, with
application for preliminary attachment against herein respondents before the RTC Cebu City.
Respondent EDWIN alleged that he is not a real party in interest in this case. According to him, he was acting
as mere agent of his principal, which was the Impact Systems, in his transaction with petitioner and the latter
was very much aware of this fact. In support of this argument, petitioner points to paragraphs 1.2 and 1.3 of
petitioner’s Complaint stating –
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the proprietor of a
single proprietorship business known as Impact Systems Sales , with office located at 46-A del Rosario Street,
Cebu City, where he may be served summons and other processes of the Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He is the Sales
Manager of Impact Systems and is sued in this action in such capacity.
RTC directs that defendant Edwin B. Cuizon be dropped as party defendant which the CA affimed.
To support its argument, petitioner points to Article 1897 of the New Civil Code which states:
Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he
expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his
powers.
Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWIN’s act of collecting the
receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of Assignment
signed by EDWIN on behalf of Impact Systems. While said collection did not revoke the agency relations of
respondents, petitioner insists that ERWIN’s action repudiated EDWIN’s power to sign the Deed of
Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an agent, petitioner claims
that he should be made personally liable for the obligations of his principal.
Issue:
Did EDWIN exceed his authority as an agent?
Ruling:
NO. In a contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another with the latter’s consent. The underlying principle of the contract of
agency is to accomplish results by using the services of others – to do a great variety of things like selling,
buying, manufacturing, and transporting. Its purpose is to extend the personality of the principal or the party
for whom another acts and from whom he or she derives the authority to act. It is said that the basis of
agency is representation, that is, the agent acts for and on behalf of the principal on matters within the scope
of his authority and said acts have the same legal effect as if they were personally executed by the
principal.32 By this legal fiction, the actual or real absence of the principal is converted into his legal or
juridical presence – qui facit per alium facit per se.
The elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts
as a representative and not for himself; (4) the agent acts within the scope of his authority.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the
party with whom he contracts. The same provision, however, presents two instances when an agent
becomes personally liable to a third person. The first is when he expressly binds himself to the obligation
and the second is when he exceeds his authority. In the last instance, the agent can be held liable if he does
not give the third party sufficient notice of his powers. We hold that respondent EDWIN does not fall within
any of the exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of Impact
Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the grant of broad
powers with which to conduct the business of the principal, thus:
The powers of an agent are particularly broad in the case of one acting as a general agent or manager; such
a position presupposes a degree of confidence reposed and investiture with liberal powers for the exercise
of judgment and discretion in transactions and concerns which are incidental or appurtenant to the business
entrusted to his care and management. In the absence of an agreement to the contrary, a managing agent
may enter into any contracts that he deems reasonably necessary or requisite for the protection of the
interests of his principal entrusted to his management. x x x.35
Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority when
he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge pump unless
it received, in full, the payment for Impact Systems’ indebtedness.36 We may very well assume that Impact
Systems desperately needed the sludge pump for its business since after it paid the amount of fifty thousand
pesos (₱50,000.00) as down payment on 3 March 1995, it still persisted in negotiating with petitioner which
culminated in the execution of the Deed of Assignment of its receivables from Toledo Power Company on 28
June 1995. The significant amount of time spent on the negotiation for the sale of the sludge pump
underscores Impact Systems’ perseverance to get hold of the said equipment. There is, therefore, no doubt
in our mind that respondent EDWIN’s participation in the Deed of Assignment was "reasonably necessary"
or was required in order for him to protect the business of his principal. Had he not acted in the way he did,
the business of his principal would have been adversely affected and he would have violated his fiduciary
relation with his principal.
We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents
ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article 1897 of the New Civil Code
upon which petitioner anchors its claim against respondent EDWIN "does not hold that in case of excess of
authority, both the agent and the principal are liable to the other contracting party." To reiterate, the first
part of Article 1897 declares that the principal is liable in cases when the agent acted within the bounds of
his authority. Under this, the agent is completely absolved of any liability. The second part of the said
provision presents the situations when the agent himself becomes liable to a third party when he expressly
binds himself or he exceeds the limits of his authority without giving notice of his powers to the third person.
However, it must be pointed out that in case of excess of authority by the agent, like what petitioner claims
exists here, the law does not say that a third person can recover from both the principal and the agent.
As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire any right
nor incur any liability arising from the Deed of Assignment, it follows that he is not a real party in interest
who should be impleaded in this case. A real party in interest is one who "stands to be benefited or injured
by the judgment in the suit, or the party entitled to the avails of the suit."41 In this respect, we sustain his
exclusion as a defendant in the suit before the court a quo.
MANILA MEMORIAL PARK v. LINSANGAN
Facts:
Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at the Holy
Cross Memorial Park owned by petitioner (MMPCI). According to Baluyot, a former owner of a memorial lot
was no longer interested in acquiring the lot and had opted to sell his rights subject to reimbursement of the
amounts he already paid. The contract was for P95,000.00. Baluyot reassured Atty. Linsangan that once
reimbursement is made to the former buyer, the contract would be transferred to him. Atty. Linsangan
agreed and gave Baluyot P35,295.00 representing the amount to be reimbursed to the original buyer and to
complete the down payment to MMPCI. Baluyot issued handwritten and typewritten receipts for these
payments.
Sometime in March 1985, Baluyot informed Atty. Linsangan that he would issue a new contract covering the
subject lot in the name of the latter. Atty. Linsangan protested, but Baluyot assured him that he would still
be paying the old price of P95,000.00 with P19,838.00 credited as full down payment leaving a balance of
about P75,000.00.5
Subsequently, Baluyot brought an Offer to Purchase Lot No. A11 (15), Block 83, Garden Estate I denominated
as Contract No. 28660 and the Official Receipt No. 118912 dated 6 April 1985 for the amount of P19,838.00.
Contract No. 28660 has a listed price of P132,250.00. Atty. Linsangan objected to the new contract price, as
the same was not the amount previously agreed upon. To convince Atty. Linsangan, Baluyot executed a
document6 confirming that while the contract price is P132,250.00, Atty. Linsangan would pay only the
original price of P95,000.00.
The document reads in part:
The monthly installment will start April 6, 1985; the amount of P1,800.00 and the difference will be issued
as discounted to conform to the previous price as previously agreed upon. --- P95,000.00
Prepared by:
(Signed)
(MRS.) FLORENCIA C. BALUYOT
Agency Manager
Holy Cross Memorial Park
4/18/85
Dear Atty. Linsangan:
This will confirm our agreement that while the offer to purchase under Contract No. 28660 states that the
total price of P132,250.00 your undertaking is to pay only the total sum of P95,000.00 under the old price.
Further the total sum of P19,838.00 already paid by you under O.R. # 118912 dated April 6, 1985 has been
credited in the total purchase price thereby leaving a balance of P75,162.00 on a monthly installment of
P1,800.00 including interests (sic) charges for a period of five (5) years.
(Signed)
FLORENCIA C. BALUYOT
By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official Receipt No. 118912.
As requested by Baluyot, Atty. Linsangan issued twelve (12) postdated checks of P1,800.00 each in favor of
MMPCI. The next year, or on 29 April 1986, Atty. Linsangan again issued twelve (12) postdated checks in
favor of MMPCI.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled for reasons
the latter could not explain, and presented to him another proposal for the purchase of an equivalent
property. He refused the new proposal and insisted that Baluyot and MMPCI honor their undertaking.
For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a
Complaint7 for Breach of Contract and Damages against the former.
Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660 was cancelled
conformably with the terms of the contract because of non-payment of arrearages. MMPCI stated that
Baluyot was not an agent but an independent contractor, and as such was not authorized to represent
MMPCI or to use its name except as to the extent expressly stated in the Agency Manager Agreement.
Moreover, MMPCI was not aware of the arrangements entered into by Atty. Linsangan and Baluyot, as it in
fact received a down payment and monthly installments as indicated in the contract. Official receipts
showing the application of payment were turned over to Baluyot whom Atty. Linsangan had from the
beginning allowed to receive the same in his behalf. Furthermore, whatever misimpression that Atty.
Linsangan may have had must have been rectified by the Account Updating Arrangement signed by Atty.
Linsangan which states that he "expressly admits that Contract No. 28660 'on account of serious
delinquency…is now due for cancellation under its terms and conditions.'''
The trial court held MMPCI and Baluyot jointly and severally liable.13 It found that Baluyot was an agent of
MMPCI and that the latter was estopped from denying this agency, having received and enchased the checks
issued by Atty. Linsangan and given to it by Baluyot. While MMPCI insisted that Baluyot was authorized to
receive only the down payment, it allowed her to continue to receive postdated checks from Atty. Linsangan,
which it in turn consistently encashed.14
MMPCI appealed the trial court's decision to the Court of Appeals. MMPCI alleged that it cannot be held
jointly and solidarily liable with Baluyot as the latter exceeded the terms of her agency, neither did MMPCI
ratify Baluyot's acts.
The CA affirmed the decision of the trial court. It upheld the trial court's finding that Baluyot was an agent
of MMPCI at the time the disputed contract was entered into, having represented MMPCI's interest and
acting on its behalf in the dealings with clients and customers. Hence, MMPCI is considered estopped when
it allowed Baluyot to act and represent MMPCI even beyond her authority.
Issue:
Can MMPCI be bound by the contract entered into by Baluyot and Atty. Linsangan?
Ruling:
NO. By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter. 33 Thus, the elements of
agency are (i) consent, express or implied, of the parties to establish the relationship; (ii) the object is the
execution of a juridical act in relation to a third person; (iii) the agent acts as a representative and not for
himself; and (iv) the agent acts within the scope of his authority.
In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency Manager
Agreement; an agency manager such as Baluyot is considered an independent contractor and not an
agent.35However, in the same contract, Baluyot as agency manager was authorized to solicit and remit to
MMPCI offers to purchase interment spaces belonging to and sold by the latter.36 Notwithstanding the claim
of MMPCI that Baluyot was an independent contractor, the fact remains that she was authorized to solicit
solely for and in behalf of MMPCI. As properly found both by the trial court and the Court of Appeals, Baluyot
was an agent of MMPCI, having represented the interest of the latter, and having been allowed by MMPCI
to represent it in her dealings with its clients/prospective buyers.
Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by the contract
procured by Atty. Linsangan and solicited by Baluyot.
Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces obtained on forms
provided by MMPCI. The terms of the offer to purchase, therefore, are contained in such forms and, when
signed by the buyer and an authorized officer of MMPCI, becomes binding on both parties.
The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by MMPCI showed a total
list price of P132,250.00. Likewise, it was clearly stated therein that "Purchaser agrees that he has read or
has had read to him this agreement, that he understands its terms and conditions, and that there are no
covenants, conditions, warranties or representations other than those contained herein. "By signing the
Offer to Purchase, Atty. Linsangan signified that he understood its contents. That he and Baluyot had an
agreement different from that contained in the Offer to Purchase is of no moment, and should not affect
MMPCI, as it was obviously made outside Baluyot's authority. To repeat, Baluyot's authority was limited
only to soliciting purchasers. She had no authority to alter the terms of the written contract provided by
MMPCI. The document/letter "confirming" the agreement that Atty. Linsangan would have to pay the old
price was executed by Baluyot alone. Nowhere is there any indication that the same came from MMPCI
or any of its officers.
It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either
is controverted, the burden of proof is upon them to establish it. The basis for agency is representation and
a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the
agent. If he does not make such an inquiry, he is chargeable with knowledge of the agent's authority and his
ignorance of that authority will not be any excuse.
As noted by one author, the ignorance of a person dealing with an agent as to the scope of the latter's
authority is no excuse to such person and the fault cannot be thrown upon the principal. A person dealing
with an agent assumes the risk of lack of authority in the agent. He cannot charge the principal by relying
upon the agent's assumption of authority that proves to be unfounded. The principal, on the other hand,
may act on the presumption that third persons dealing with his agent will not be negligent in failing to
ascertain the extent of his authority as well as the existence of his agency.
In the instant case, even if Baluyot was Atty. Linsangan's friend and known to be an agent of MMPCI, her
declarations and actions alone are not sufficient to establish the fact or extent of her authority. 43 Atty.
Linsangan as a practicing lawyer for a relatively long period of time when he signed the contract should have
been put on guard when their agreement was not reflected in the contract. More importantly, Atty.
Linsangan should have been alerted by the fact that Baluyot failed to effect the transfer of rights earlier
promised, and was unable to make good her written commitment, nor convince MMPCI to assent thereto,
as evidenced by several attempts to induce him to enter into other contracts for a higher consideration. As
properly pointed out by MMPCI, as a lawyer, a greater degree of caution should be expected of Atty.
Linsangan especially in dealings involving legal documents. He did not even bother to ask for official receipts
of his payments, nor inquire from MMPCI directly to ascertain the real status of the contract, blindly relying
on the representations of Baluyot. A lawyer by profession, he knew what he was doing when he signed the
written contract, knew the meaning and value of every word or phrase used in the contract, and more
importantly, knew the legal effects which said document produced. He is bound to accept responsibility for
his negligence.
The trial and appellate courts found MMPCI liable based on ratification and estoppel. For the trial court,
MMPCI's acts of accepting and encashing the checks issued by Atty. Linsangan as well as allowing Baluyot to
receive checks drawn in the name of MMPCI confirm and ratify the contract of agency. On the other hand,
the Court of Appeals faulted MMPCI in failing to adopt measures to prevent misrepresentation, and declared
that in view of MMPCI's acceptance of the benefits of Baluyot's misrepresentation, it can no longer deny
responsibility therefor.
The Court does not agree. Pertinent to this case are the following provisions of the Civil Code:
Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the
principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware
of the limits of the powers granted by the principal. In this case, however, the agent is liable if he undertook
to secure the principal's ratification.
Art. 1910. The principal must comply with all the obligations that the agent may have contracted within the
scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he
ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if
the former allowed the latter to act as though he had full powers.
Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he ratifies them,
expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own unauthorized acts.
Moreover, the principal must have knowledge of the acts he is to ratify.44
Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by
another without authority. The substance of the doctrine is confirmation after conduct, amounting to a
substitute for a prior authority. Ordinarily, the principal must have full knowledge at the time of ratification
of all the material facts and circumstances relating to the unauthorized act of the person who assumed to
act as agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification and this
regardless of the purpose or lack thereof in concealing such facts and regardless of the parties between
whom the question of ratification may arise.45Nevertheless, this principle does not apply if the principal's
ignorance of the material facts and circumstances was willful, or that the principal chooses to act in ignorance
of the facts.46 However, in the absence of circumstances putting a reasonably prudent man on inquiry,
ratification cannot be implied as against the principal who is ignorant of the facts.47
No ratification can be implied in the instant case.
A perusal of Baluyot's Answer48 reveals that the real arrangement between her and Atty. Linsangan was for
the latter to pay a monthly installment of P1,800.00 whereas Baluyot was to shoulder the counterpart
amount of P1,455.00 to meet the P3,255.00 monthly installments as indicated in the contract. Thus, every
time an installment falls due, payment was to be made through a check from Atty. Linsangan for P1,800.00
and a cash component of P1,455.00 from Baluyot.49 However, it appears that while Atty. Linsangan issued
the post-dated checks, Baluyot failed to come up with her part of the bargain. This was supported by
Baluyot's statements in her letter50 to Mr. Clyde Williams, Jr., Sales Manager of MMPCI, two days after she
received the copy of the Complaint. In the letter, she admitted that she was remiss in her duties when she
consented to Atty. Linsangan's proposal that he will pay the old price while the difference will be shouldered
by her. She likewise admitted that the contract suffered arrearages because while Atty. Linsangan issued the
agreed checks, she was unable to give her share of P1,455.00 due to her own financial difficulties. Baluyot
even asked for compassion from MMPCI for the error she committed.
Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as MMPCI is
concerned, the contract price was P132,250.00, as stated in the Offer to Purchase signed by Atty. Linsangan
and MMPCI's authorized officer. The down payment of P19,838.00 given by Atty. Linsangan was in
accordance with the contract as well. Payments of P3,235.00 for at least two installments were likewise in
accord with the contract, albeit made through a check and partly in cash. In view of Baluyot's failure to give
her share in the payment, MMPCI received only P1,800.00 checks, which were clearly insufficient payment.
In fact, Atty. Linsangan would have incurred arrearages that could have caused the earlier cancellation of
the contract, if not for MMPCI's application of some of the checks to his account. However, the checks alone
were not sufficient to cover his obligations.
If MMPCI was aware of the arrangement, it would have refused the latter's check payments for being
insufficient. It would not have applied to his account the P1,800.00 checks. Moreover, the fact that Baluyot
had to practically explain to MMPCI's Sales Manager the details of her "arrangement" with Atty. Linsangan
and admit to having made an error in entering such arrangement confirm that MMCPI had no knowledge of
the said agreement. It was only when Baluyot filed her Answer that she claimed that MMCPI was fully aware
of the agreement.
Neither is there estoppel in the instant case. The essential elements of estoppel are (i) conduct of a party
amounting to false representation or concealment of material facts or at least calculated to convey the
impression that the facts are otherwise than, and inconsistent with, those which the party subsequently
attempts to assert; (ii) intent, or at least expectation, that this conduct shall be acted upon by, or at least
influence, the other party; and (iii) knowledge, actual or constructive, of the real facts.
One who claims the benefit of an estoppel on the ground that he has been misled by the representations of
another must not have been misled through his own want of reasonable care and circumspection.52 Even
assuming that Atty. Linsangan was misled by MMPCI's actuations, he still cannot invoke the principle of
estoppel, as he was clearly negligent in his dealings with Baluyot, and could have easily determined, had he
only been cautious and prudent, whether said agent was clothed with the authority to change the terms of
the principal's written contract. Estoppel must be intentional and unequivocal, for when misapplied, it can
easily become a most convenient and effective means of injustice.
Likewise, this Court does not find favor in the Court of Appeals' findings that "the authority of defendant
Baluyot may not have been expressly conferred upon her; however, the same may have been derived
impliedly by habit or custom which may have been an accepted practice in their company in a long period of
time." A perusal of the records of the case fails to show any indication that there was such a habit or custom
in MMPCI that allows its agents to enter into agreements for lower prices of its interment spaces, nor to
assume a portion of the purchase price of the interment spaces sold at such lower price.
As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660 between
MMPCI and by Atty. Linsangan for the purchase of an interment space in the former's cemetery. The other
is the agreement between Baluyot and Atty. Linsangan for the former to shoulder the amount P1,455.00, or
the difference between P95,000.00, the original price, and P132,250.00, the actual contract price.
To repeat, the acts of the agent beyond the scope of his authority do not bind the principal unless the
latter ratifies the same. It also bears emphasis that when the third person knows that the agent was acting
beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the said third
person was aware of such limits of authority, he is to blame and is not entitled to recover damages from
the agent, unless the latter undertook to secure the principal's ratification.
This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty. Linsangan. By
affixing his signature in the contract, Atty. Linsangan assented to the terms and conditions thereof. When
Atty. Linsangan incurred delinquencies in payment, MMCPI merely enforced its rights under the said contract
by canceling the same.
Being aware of the limits of Baluyot's authority, Atty. Linsangan cannot insist on what he claims to be the
terms of Contract No. 28660. The agreement, insofar as the P95,000.00 contract price is concerned, is void
and cannot be enforced as against MMPCI. Neither can he hold Baluyot liable for damages under the same
contract, since there is no evidence showing that Baluyot undertook to secure MMPCI's ratification. At best,
the "agreement" between Baluyot and Atty. Linsangan bound only the two of them. As far as MMPCI is
concerned, it bound itself to sell its interment space to Atty. Linsangan for P132,250.00 under Contract No.
28660, and had in fact received several payments in accordance with the same contract. If the contract was
cancelled due to arrearages, Atty. Linsangan's recourse should only be against Baluyot who personally
undertook to pay the difference between the true contract price of P132,250.00 and the original proposed
price of P95,000.00. To surmise that Baluyot was acting on behalf of MMPCI when she promised to shoulder
the said difference would be to conclude that MMPCI undertook to pay itself the difference, a conclusion
that is very illogical, if not antithetical to its business interests.
However, this does not preclude Atty. Linsangan from instituting a separate action to recover damages from
Baluyot, not as an agent of MMPCI, but in view of the latter's breach of their separate agreement. To review,
Baluyot obligated herself to pay P1,455.00 in addition to Atty. Linsangan's P1,800.00 to complete the
monthly installment payment under the contract, which, by her own admission, she was unable to do due
to personal financial difficulties. It is undisputed that Atty. Linsangan issued the P1,800.00 as agreed upon,
and were it not for Baluyot's failure to provide the balance, Contract No. 28660 would not have been
cancelled.
AMON TRADING CORP. and JULIANA MARKETING v. CA and TRI-REALTY DEVT
Facts:
Private respondent Tri-Realty is a developer and contractor with projects in Bulacan and Quezon City.
Sometime in February 1992, private respondent had difficulty in purchasing cement needed for its projects.
Lines & Spaces, represented by Eleanor Bahia Sanchez, informed Tri-Relaty that it could obtain cement to its
satisfaction from Amon Trading Corporation and its sister company, Juliana Marketing. On the strength of
such representation, Tri-Realty proceeded to order from Sanchez Six Thousand Fifty (6,050) bags of cement
from petitioner Amon Trading Corporation, and from Juliana Marketing, Six Thousand (6,000) bags at
₱98.00/bag.
Private respondent, through Mrs. Sanchez of Lines & Spaces, paid in advance the amount of ₱592,900.00
through Solidbank Manager’s Check No. 0011565 payable to Amon Trading Corporation, and the amount of
₱588,000.00 payable to Juliana Marketing, through Solidbank Manager’s Check No. 0011566. A certain
"Weng Chua" signed the check vouchers for Lines & Spaces while Mrs. Sanchez issued receipts for the two
manager’s checks. Private respondent likewise paid to Lines & Spaces an advance fee for the 12,050 cement
bags at the rate of ₱7.00/bag, or a total of ₱84,350.00, in consideration of the facilitation of the orders and
certainty of delivery of the same to the private respondent. Solidbank Manager’s Check Nos. 0011565 and
0011566 were paid by Sanchez to petitioners.
There were deliveries to private respondent from Amon Trading Corporation and Juliana Marketing of 3,850
bags and 3,000 bags, respectively, during the period from April to June 1992. However, the balance of 2,200
bags from Amon Trading Corporation and 3,000 bags from Juliana Marketing, or a total of 5,200 bags, was
not delivered. Private respondent, thus, sent petitioners written demands but in reply, petitioners stated
that they have already refunded the amount of undelivered bags of cement to Lines and Spaces per written
instructions of Eleanor Sanchez.
Left high and dry, with news reaching it that Eleanor Sanchez had already fled abroad, private respondent
filed this case for sum of money against petitioners and Lines & Spaces.
Petitioners plead in defense lack of right or cause of action, alleging that private respondent had no privity
of contract with them as it was Lines & Spaces/Tri-Realty, through Mrs. Sanchez, that ordered or purchased
several bags of cement and paid the price thereof without informing them of any special arrangement nor
disclosing to them that Lines & Spaces and respondent corporation are distinct and separate entities. They
added that there were purchases or orders made by Lines & Spaces/Tri-Realty which they were about to
deliver, but were cancelled by Mrs. Sanchez and the consideration of the cancelled purchases or orders was
later reimbursed to Lines & Spaces. The refund was in the form of a check payable to Lines & Spaces.
Lines & Spaces denied in its Answer that it is represented by Eleanor B. Sanchez and pleads in defense lack
of cause of action and in the alternative, it raised the defense that it was only an intermediary between the
private respondent and petitioners.2 Soon after, though, counsel for Lines & Spaces moved to withdraw from
the case for the reason that its client was beyond contact.
On 29 January 1998, the Regional Trial Court of Quezon City, Branch 104, found Lines & Spaces solely liable
to private respondent and absolved petitioners of any liability. The dispositive portion of the trial court’s
Decision reads:
Wherefore, judgment is hereby rendered ordering defendant Lines and Spaces Interiors Center as follows:
to pay plaintiff on the complaint the amount of P47,950.00 as refund of the fee for the undelivered 5,200
bags of cement at the rate of P7.00 per bag; the amount of P509,600.00 for the refund of the price of the
5,200 undelivered bags of cement at P98.00 per bag; the amount of P2,000,000.00 for compensatory
damages; as well as the amount of P639,387.50 as attorney’s fees; and to pay Amon Trading and Juliana
Marketing, Inc. on the crossclaim the sum of P200,000.00 as attorney’s fees.
Private Respondent Tri-Realty partially appealed from the trial court’s decision absolving Amon Trading
Corporation and Juliana Marketing of any liability to Tri-Realty. In the presently assailed Decision, the Court
of Appeals reversed the decision of the trial court and held petitioners Amon Trading Corporation and Juliana
Marketing to be jointly and severally liable with Lines & Spaces for the undelivered bags of cement. The Court
of Appeals disposed-
WHEREFORE, premises considered, the decision of the court a quo is hereby REVERSED AND SET ASIDE, and
another one is entered ordering the following:
Defendant-appellee Amon Trading Corporation is held liable jointly and severally with defendant-appellee
Lines and Spaces Interiors Center in the amount of P215,600.00 for the refund of the price of 2,200
undelivered bags of cement.
Defendant-appellee Juliana Marketing is held liable jointly and severally with defendant-appellee Lines and
Spaces Interiors Center in the amount of P294,000.00 for the refund of the price of 3,000 undelivered bags
of cement.
The defendant-appellee Lines and Spaces Interiors Center is held solely in the amount of P47,950.00 as
refund of the fee for the 5,200 undelivered bags of cement to the plaintiff-appellant Tri-Realty Development
and Construction Corporation.
The awards of compensatory damages and attorney’s fees are DELETED.
The cross claim of defendants-appellees Amon Trading Corporation and Juliana Marketing is DISMISSED for
lack of merit.
No pronouncement as to costs.4
Issue:
Was there contract of agency between Tri-Realty and Lines & Spaces (Sanchez)?
Ruling:
NO. Petitioners, in their brief, zealously make a case that there was no contract of agency between Lines &
Spaces and private respondent.6 Petitioners strongly assert that they did not have a hint that Lines & Spaces
and Tri-Realty are two different and distinct entities inasmuch as Eleanor Sanchez whom they have dealt
with just represented herself to be from Lines & Spaces/Tri-Realty when she placed her order for the delivery
of the bags of cement. Hence, no privity of contract can be said to exist between petitioners and private
respondent.7
Private respondent, on the other hand, goes over the top in arguing that contrary to their claim of innocence,
petitioners had knowledge that Lines & Spaces, as represented by Eleanor Sanchez, was a separate and
distinct entity from tri-realty.8 Then, too, private respondent stirs up support for its contention that contrary
to petitioners' claim, there was privity of contract between private respondent and petitioners.9
Primarily, there was no written contract entered into between petitioners and private respondent for the
delivery of the bags of cement. As gleaned from the records, and as private respondent itself admitted in its
Complaint, private respondent agreed with Eleanor Sanchez of Lines & Spaces for the latter to source the
cement needs of the former in consideration of ₱7.00 per bag of cement. It is worthy to note that the
payment in manager’s checks was made to Eleanor Sanchez of Lines & Spaces and was not directly paid to
petitioners. While the manager’s check issued by respondent company was eventually paid to petitioners
for the delivery of the bags of cement, there is obviously nothing from the face of said manager’s check to
hint that private respondent was the one making the payments. There was likewise no intimation from
Sanchez that the purchase order placed by her was for private respondent’s benefit. The meeting of minds,
therefore, was between private respondent and Eleanor Sanchez of Lines & Spaces. This contract is distinct
and separate from the contract of sale between petitioners and Eleanor Sanchez who represented herself to
be from Lines & Spaces/Tri-Realty, which, per her representation, was a single account or entity.
The records bear out, too, Annex "A" showing a check voucher payable to Amon Trading Corporation for the
6,050 bags of cement received by a certain "Weng Chua" for Mrs. Eleanor Sanchez of Lines & Spaces, and
Annex "B" which is a check voucher bearing the name of Juliana Marketing as payee, but was received again
by said "Weng Chua." Nowhere from the face of the check vouchers is it shown that petitioners or any of
their authorized representatives received the payments from respondent company.
Also on record are the receipts issued by Lines & Spaces, signed by Eleanor Bahia Sanchez, covering the said
manager’s checks. As Engr. Guido Ganhinhin of respondent Tri-Realty testified, it was Lines & Spaces, not
petitioners, which issued to them a receipt for the two (2) manager’s checks. Thus-
Q: And what is your proof that Amon and Juliana were paid of the purchases through manager’s checks?
A: Lines & Spaces who represented Amon Trading and Juliana Marketing issued us receipts for the two (2)
manager’s checks we paid to Amon Trading and Juliana Marketing Corporation.
…
Q: I am showing to you check no. 074 issued by Lines & Spaces Interiors Center, what relation has this check
to that check you mentioned earlier?
A: Official Receipt No. 074 issued by Lines & Spaces Interiors Center was for the P592,900.00 we paid to
Amon Trading Corporation for 6,050 bags of cement.
Q: Now there appears a signature in that receipt above the printed words authorized signature, whose
signature is that?
A: The signature of Mrs. Eleanor Bahia Sanchez, the representative of Lines and Spaces.
Q: Why do you know that that is her signature?
A: She is quite familiar with me and I saw her affix her signature upon issuance of the receipt. 10 (Emphasis
supplied.)
Without doubt, no vinculum could be said to exist between petitioners and private respondent.
There is likewise nothing meaty about the assertion of private respondent that inasmuch as the delivery
receipts as well as the purchase order were for the account of Lines & Spaces/Tri-Realty, then petitioners
should have been placed on guard that it was private respondent which is the principal of Sanchez. In China
Banking Corp. v. Members of the Board of Trustees, Home Development Mutual Fund11 and the later case
of Romulo, Mabanta, Buenaventura, Sayoc and De los Angeles v. Home Development Mutual Fund,12 the
term "and/or" was held to mean that effect shall be given to both the conjunctive "and" and the disjunctive
"or"; or that one word or the other may be taken accordingly as one or the other will best effectuate the
intended purpose. It was accordingly ordinarily held that in using the term "and/or" the word "and" and the
word "or" are to be used interchangeably.
By analogy, the words "Lines & Spaces/Tri-Realty" mean that effect shall be given to both Lines & Spaces and
Tri-Realty or that Lines & Spaces and Tri-Realty may be used interchangeably. Hence, petitioners were not
remiss when they believed Eleanor Sanchez’s representation that "Lines & Spaces/Tri-Realty" refers to just
one entity. There was, therefore, no error attributable to petitioners when they refunded the value of the
undelivered bags of cement to Lines & Spaces only.
There is likewise a dearth of evidence to show that the case at bar is an open-and-shut case of agency
between private respondent and Lines & Spaces. Neither Eleanor Sanchez nor Lines & Spaces was an agent
for private respondent, but rather a supplier for the latter’s cement needs. The Civil Code defines a contract
of agency as follows:
Art. 1868. By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.
In a bevy of cases such as the avuncular case of Victorias Milling Co., Inc. v. Court of Appeals,13 the Court
decreed from Article 1868 that the basis of agency is representation.
. . . On the part of the principal, there must be an actual intention to appoint or an intention naturally
inferable from his words or actions and on the part of the agent, there must be an intention to accept the
appointment and act on it, and in the absence of such intent, there is generally no agency. One factor which
most clearly distinguishes agency from other legal concepts is control; one person - the agent - agrees to act
under the control or direction of another - the principal. Indeed, the very word "agency" has come to connote
control by the principal. The control factor, more than any other, has caused the courts to put contracts
between principal and agent in a separate category.
Here, the intention of private respondent, as the Executive Officer of respondent corporation testified on,
was merely for Lines & Spaces, through Eleanor Sanchez, to supply them with the needed bags of cement.
Q: Do you know the defendant Lines & Spaces in this case?
A: Yes, sir.
Q: How come you know this defendant?
A: Lines & Spaces represented by Eleanor Bahia Sanchez offered to supply us cement when there was scarcity
of cement experienced in our projects.14 (Emphasis supplied)
We cannot go along the Court of Appeals’ disquisition that Amon Trading Corporation and Juliana Marketing
should have required a special power of attorney form when they refunded Eleanor B. Sanchez the cost of
the undelivered bags of cement. All the quibbling about whether Lines & Spaces acted as agent of private
respondent is inane because as illustrated earlier, petitioners took orders from Eleanor Sanchez who, after
all, was the one who paid them the manager’s checks for the purchase of cement. Sanchez represented
herself to be from Lines & Spaces/Tri-Realty, purportedly a single entity. Inasmuch as they have never directly
dealt with private respondent and there is no paper trail on record to guide them that the private
respondent, in fact, is the beneficiary, petitioners had no reason to doubt the request of Eleanor Sanchez
later on to refund the value of the undelivered bags of cement to Lines & Spaces. Moreover, the check refund
was payable to Lines & Spaces, not to Sanchez, so there was indeed no cause to suspect the scheme.
The fact that the deliveries were made at the construction sites of private respondent does not by itself raise
suspicion that petitioners were delivering for private respondent. There was no sufficient showing that
petitioners knew that the delivery sites were that of private respondent and for another thing, the deliveries
were made by petitioners’ men who have no business nosing around their client’s affairs.
Parenthetically, Eleanor Sanchez has absconded to the United States of America and the story of what
happened to the check refund may be forever locked with her. Lines & Spaces, in its Answer to the Complaint,
washed its hands of the apparent ruse perpetuated by Sanchez, but argues that if at all, it was merely an
intermediary between petitioners and private respondent. With no other way out, Lines & Spaces was a no-
show at the trial proceedings so that eventually, its counsel had to withdraw his appearance because of his
client’s vanishing act. Left with an empty bag, so to speak, private respondent now puts the blame on
petitioners. But this Court finds plausible the stance of petitioners that they had no inkling of the deception
that was forthcoming. Indeed, without any contract or any hard evidence to show any privity of contract
between it and petitioners, private respondent’s claim against petitioners lacks legal foothold.
Considering the vagaries of the case, private respondent brought the wrong upon itself. As adeptly surmised
by the trial court, between petitioners and private respondent, it is the latter who had made possible the
wrong that was perpetuated by Eleanor Sanchez against it so it must bear its own loss. It is in this sense that
we must apply the equitable maxim that "as between two innocent parties, the one who made it possible
for the wrong to be done should be the one to bear the resulting loss." First, private respondent was the one
who had reposed too much trust on Eleanor Sanchez for the latter to source its cement needs. Second, it
failed to employ safety nets to steer clear of the rip-off. For such huge sums of money involved in this case,
it is surprising that a corporation such as private respondent would pay its construction materials in
advance instead of in credit thus opening a window of opportunity for Eleanor Sanchez or Lines & Spaces to
pocket the remaining balance of the amount paid corresponding to the undelivered materials. Private
respondent likewise paid in advance the commission of Eleanor Sanchez for the materials that have yet to
be delivered so it really had no means of control over her. Finally, there is no paper trail linking private
respondent to petitioners thereby leaving the latter clueless that private respondent was their true client.
Private respondent should have, at the very least, required petitioners to sign the check vouchers or to issue
receipts for the advance payments so that it could have a hold on petitioners. In this case, it was the
representative of Lines & Spaces who signed the check vouchers. For its failure to establish any of these
deterrent measures, private respondent incurred the risk of not being able to recoup the value of the
materials it had paid good money for.
LITONJUA v. FERNANDEZ
Facts:
On September 1995, Mrs. Lourdes Alimario and Agapito Fisico who worked as brokers, offered to sell to the
petitioners, Antonio K. Litonjua and Aurelio K. Litonjua, Jr., the parcels of land covered by TCT Nos. 36754
and 36766. The petitioners were shown a locator plan and copies of the titles showing that the owners of
the properties were represented by Mary Mediatrix Fernandez and Gregorio T. Eleosida, respectively. The
brokers told the petitioners that they were authorized by respondent Fernandez to offer the property for
sale. The petitioners, thereafter, made two ocular inspections of the property, in the course of which they
saw some people gathering coconuts.
On November 1995, the petitioners met with respondent Fernandez and the two brokers at the petitioners’
office in Mandaluyong City.6 The petitioners and respondent Fernandez agreed that the petitioners would
buy the property consisting of 36,742 square meters, for the price of P150 per square meter, or the total
sum of P5,098,500. They also agreed that the owners would shoulder the capital gains tax, transfer tax and
the expenses for the documentation of the sale. The petitioners and respondent Fernandez also agreed to
meet on December 8, 1995 to finalize the sale. It was also agreed upon that on the said date, respondent
Fernandez would present a special power of attorney executed by the owners of the property, authorizing
her to sell the property for and in their behalf, and to execute a deed of absolute sale thereon. The petitioners
would also remit the purchase price to the owners, through respondent Fernandez. However, only Agapito
Fisico attended the meeting. He informed the petitioners that respondent Fernandez was encountering
some problems with the tenants and was trying to work out a settlement with them.7 After a few weeks of
waiting, the petitioners wrote respondent Fernandez on January 5, 1995, demanding that their transaction
be finalized by January 30, 1996.8
When the petitioners received no response from respondent Fernandez, the petitioners sent her another
Letter9dated February 1, 1996, asking that the Deed of Absolute Sale covering the property be executed in
accordance with their verbal agreement dated November 27, 1995. The petitioners also demanded the
turnover of the subject properties to them within fifteen days from receipt of the said letter; otherwise, they
would have no option but to protect their interest through legal means.
Upon receipt of the above letter, respondent Fernandez wrote the petitioners on February 14, 199610 and
clarified her stand on the matter in this wise:
1) It is not true I agreed to shoulder registration fees and other miscellaneous expenses, etc. I do not recall
we ever discussed about them. Nonetheless, I made an assurance at that time that there was no
liens/encumbrances and tenants on my property (TCT – 36755).
2) It is not true that we agreed to meet on December 8, 1995 in order to sign the Deed of Absolute Sale. The
truth of the matter is that you were the one who emphatically stated that you would prepare a Contract to
Sell and requested us to come back first week of December as you would be leaving the country then. In fact,
what you were demanding from us was to apprise you of the status of the property, whether we would be
able to ascertain that there are really no tenants. Ms. Alimario and I left your office, but we did not assure
you that we would be back on the first week of December.
In view thereof, I regret to formally inform you now that we are no longer selling the property until all
problems are fully settled. We have not demanded and received from you any earnest money, thereby, no
obligations exist. In the meantime, we hope that in the future we will eventually be able to transact business
since we still have other properties in San Pablo City.
On April 12, 1996, the petitioners filed the instant Complaint for specific performance with damages13 against
respondent Fernandez and the registered owners of the property. In their complaint, the petitioners
alleged, inter alia, the following:
4. On 27 November 1995, defendants offered to sell to plaintiffs two (2) parcels of land covered by Transfer
Certificates of Title Nos. 36766 and 36754 measuring a total of 36,742 square meters in Barrio Concepcion,
San Pablo City. … After a brief negotiation, defendants committed and specifically agreed to sell to plaintiffs
33,990 square meters of the two (2) aforementioned parcels of land at P150.00 per square meter.
5. The parties also unequivocally agreed to the following:
(a) The transfer tax and all the other fees and expenses for the titling of the subject property in plaintiffs’
names would be for defendants’ account.
(b) The plaintiffs would pay the entire purchase price of P5,098,500.00 for the aforementioned 33,990 square
meters of land in plaintiffs’ office on 8 December 1995.
6. Defendants repeatedly assured plaintiffs that the two (2) subject parcels of land were free from all liens
and encumbrances and that no squatters or tenants occupied them.
7. Plaintiffs, true to their word, and relying in good faith on the commitment of defendants, pursued the
purchase of the subject parcels of lands. On 5 January 1996, plaintiffs sent a letter of even date to
defendants, … setting the date of sale and payment on 30 January 1996.
7.1 Defendants received the letter on 12 January 1996 but did not reply to it.
8. On 1 February 1996, plaintiffs again sent a letter of even date to defendants demanding execution of the
Deed of Sale.
8.1 Defendants received the same on 6 February 1996. Again, there was no reply. Defendants thus reneged
on their commitment a second time.
9. On 14 February 1996, defendant Fernandez sent a written communication of the same date to plaintiffs
enclosing therein a copy of her 16 January 1996 letter to plaintiffs which plaintiffs never received before.
Defendant Fernandez stated in her 16 January 1996 letter that despite the meeting of minds among the
parties over the 33,990 square meters of land for P150.00 per square meter on 27 November 1995,
defendants suddenly had a change of heart and no longer wished to sell the same. Paragraph 6 thereof
unquestionably shows defendants’ previous agreement as above-mentioned and their unjustified breach of
their obligations under it. …
11. Plaintiffs intended to use the subject property for their subdivision project to support plaintiffs’ quarry
operations, processing of aggregate products and manufacture of construction materials. Consequently, by
reason of defendants’ failure to honor their just obligations, plaintiffs suffered, and continue to suffer, actual
damages, consisting in unrealized profits and cost of money, in the amount of at least P5 Million.
Respondent Fernandez testified that she requested Lourdes Alimario to look for a buyer of the properties in
San Pablo City "on a best offer basis." She was later informed by Alimario that the petitioners were interested
to buy the properties. On November 27, 1995, along with Alimario and another person, she met with the
petitioners in the latter’s office and told them that she was at the conference merely to hear their offer, that
she could not bind the owners of the properties as she had no written authority to sell the same. The
petitioners offered to buy the property at P150 per square meter. After the meeting, respondent Fernandez
requested Joy Marquez to secure a barangay clearance stating that the property was free of any tenants.
She was surprised to learn that the clearance could not be secured. She contacted a cousin of hers, also one
of the owners of the property, and informed him that there was a prospective buyer of the property but that
there were tenants thereon. Her cousin told her that he was not selling his share of the property and that he
was not agreeable to the price of P150 per square meter. She no longer informed the other owners of the
petitioners’ offer. Respondent Fernandez then asked Alimario to apprise the petitioners of the foregoing
developments, through their agent, Agapito Fisico. She was surprised to receive a letter from the petitioners
dated January 5, 1996. Nonetheless, she informed the petitioners that she had changed her mind in pursuing
the negotiations in a Letter dated January 18, 1996. When she received petitioners’ February 1, 1996 Letter,
she sent a Reply-Letter dated February 14, 1996.
After trial on the merits, the trial court rendered judgment in favor of the petitioners. CA reversed the
decision stating that no contract has been perfected.
Issue:
Was Fernandez clothed with an SPA to sell the properties?
Ruling:
NO. The pertinent portions of the said letter of Fernandez are as follows:
… [M]y cousin and I have thereby changed our mind and that the sale will no longer push through. I
specifically instructed her to inform you thru your broker that we will not be attending the meeting to be
held sometime first week of December.
In view thereof, I regret to formally inform you now that we are no longer selling the property until all
problems are fully settled. We have not demanded and received from you any earnest money, thereby, no
obligations exist…
The petitioners’ contention is bereft of merit. In its decision, the appellate court ruled that the Letter of
respondent Fernandez dated January 16, 1996 is hardly the note or memorandum contemplated under
Article 1403(2)(e) of the New Civil Code, which reads:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
…
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or secondary evidence of its contents:
… We note that the petitioners themselves were uncertain as to the specific area of the properties they were
(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an
interest therein.
The appellate court based its ruling on the following disquisitions:
In the case at bar, the letter dated January 16, 1996 of defendant-appellant can hardly be said to constitute
the note or memorandum evidencing the agreement of the parties to enter into a contract of sale as it is
very clear that defendant-appellant as seller did not accept the condition that she will be the one to pay the
registration fees and miscellaneous expenses and therein also categorically denied she had already
committed to execute the deed of sale as claimed by the plaintiffs-appellees. The letter, in fact, stated the
reasons beyond the control of the defendant-appellant, why the sale could no longer push through – because
of the problem with tenants. The tenor of the letter actually reveals a consistent denial that there was any
such commitment on the part of defendant-appellant to sell the subject lands to plaintiffs-appellees. When
defendant-appellant used the words "changed our mind," she was clearly referring to the decision to sell the
property at all (not necessarily to plaintiffs-appellees) and not in selling the property to herein plaintiffs-
appellees as defendant-appellant had not yet made the final decision to sell the property to said plaintiffs-
appellees. This conclusion is buttressed by the last paragraph of the subject letter stating that "we are no
longer selling the property until all problems are fully settled."
In this case, we agree with the findings of the appellate court that there was no perfected contract of sale
between the respondents-owners, as sellers, and the petitioners, as buyers.
There is no documentary evidence that the respondents-owners specifically authorized respondent
Fernandez to sell their properties to another, including the petitioners. Article 1878 of the New Civil Code
provides that 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, 37 or to
create or convey real rights over immovable property,38 or for any other act of strict dominion.39 Any sale
of real property by one purporting to be the agent of the registered owner without any authority therefor
in writing from the said owner is null and void.40 The declarations of the agent alone are generally
insufficient to establish the fact or extent of her authority.41 In this case, the only evidence adduced by the
petitioners to prove that respondent Fernandez was authorized by the respondents-owners is the testimony
of petitioner Antonio Litonjua that respondent Fernandez openly represented herself to be the
representative of the respondents-owners,42 and that she promised to present to the petitioners on
December 8, 1996 a written authority to sell the properties.43 However, the petitioners’ claim was belied by
respondent Fernandez when she testified, thus:
Q Madam Witness, what else did you tell to the plaintiffs?
A I told them that I was there representing myself as one of the owners of the properties, and I was just
there to listen to his proposal because that time, we were just looking for the best offer and I did not have
yet any written authorities from my brother and sisters and relatives. I cannot agree on anything yet since it
is just a preliminary meeting, and so, I have to secure authorities and relate the matters to my relatives,
brother and sisters, sir.
The petitioners cannot feign ignorance of respondent Fernandez’ lack of authority to sell the properties for
the respondents-owners. It must be stressed that the petitioners are noted businessmen who ought to be
very familiar with the intricacies of business transactions, such as the sale of real property.
The settled rule is that persons dealing with an assumed agent are bound at their peril, and if they would
hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority,
and in case either is controverted, the burden of proof is upon them to prove it.
Contrary to the petitioners’ contention, the letter of January 16, 199646 is not a note or memorandum within
the context of Article 1403(2) because it does not contain the following: (a) all the essential terms and
conditions of the sale of the properties; (b) an accurate description of the property subject of the sale; and,
(c) the names of the respondents-owners of the properties. Furthermore, the letter made reference to only
one property, that covered by TCT No. T-36755.
seeking to buy. In their complaint, they alleged to have agreed to buy from the respondents-owners 33,990
square meters of the total acreage of the two lots consisting of 36,742 square meters. In their Letter to
respondent Fernandez dated January 5, 1996, the petitioners stated that they agreed to buy the two lots,
with a total area of 36,742 square meters.47 However, in their Letter dated February 1, 1996, the petitioners
declared that they agreed to buy a portion of the properties consisting of 33,990 square meters.48 When he
testified, petitioner Antonio Litonjua declared that the petitioners agreed to buy from the respondents-
owners 36,742 square meters at P150 per square meter or for the total price of P5,098,500.49
CORNELIA HERNANDEZ v. CECILIO HERNANDEZ

Facts:
The controversy between the parties began when the Republic of the Philippines, through (DPWH), offered
to purchase a portion of a parcel of land with an area of 80,133 square meters, in Tanauan, Batangas, for use
in the expansion of the South Luzon Expressway. The land is pro-indiviso owned by Cornelia M. Hernandez
(Cornelia), petitioner herein, Atty. Jose M. Hernandez, deceased father of respondent Cecilio F. Hernandez
(Cecilio),5 represented by Paciencia Hernandez (Paciencia) and Mena Hernandez (Mena), also deceased and
represented by her heirs.
The initial purchase price that was offered by the government was allegedly at (₱35.00) per square meter
for 14,643 square meters of the aforementioned land.7 The Hernandez family rejected the offer. After a
series of negotiations with the DPWH, the last offer stood at Seventy Pesos (₱70.00) per square meter.8 They
still did not accept the offer and the government was forced to file an expropriation case.
On 9 August 1993, an expropriation case was filed by the Republic of the Philippines, through the DPWH,
before (RTC Branch 83), Tanauan, Batangas.
In Civil Case No. C-023, different parcels of land in Barangay Tripache, Tanauan Batangas, which belongs to
thirty-four (34) families including the Hernandezes are affected by the expansion project of the DPWH. A
similar case, Civil Case No. C-022, was consolidated with the former as it affects the same DPWH endeavor.
Land in San Rafael, Sto. Tomas, Batangas, which belong to twenty-three (23) families, was also the subject
of expropriation.
On 11 November 1993, the owners of the Hernandez property executed a letter indicating: (1) Cecilio as the
representative of the owners of the land; and (2) the compensation he gets in doing such job. The letter
reads:
November 11, 1993
Mr. Cecilio F. Hernandez
Tanauan, Batangas
Dear Cecilio:
This would confirm to give you twenty (20%) percent of any amount in excess of Seventy (P70.00) Pesos per
square meter of our respective shares as success fee for your effort in representing us in Civil Case No. T-859
entitled, "Republic of the Philippines, represented by the Public Works and Highways v. Sto. Tomas Agri-
Farms, Inc. and the Appellate Courts."
Whatever excess beyond Three Hundred (₱300.00) Pesos per square meter of the area shall likewise be given
to you as additional incentive.
We will give you One Thousand Five Hundred (₱1,500.00) (sic) Pesos each for the preparation of the pleading
before the Regional Trial Court and such other reasonable expenses of litigation pro-indiviso.
Very Truly Yours,
(Sgd.) PACENCIA F. HERNANDEZ
(Sgd.) CORNELIA M. HERNANDEZ
Conforme:
(Sgd.) PACITA M. HERNANDEZ
(Sgd.)CECILIO F. HERNANDEZ
HEIRS OF MENA M. HERNANDEZ
By: (Sgd.) MA. ANTONIA H. LLAMZON
AND
(Sgd.) PERSEVERANDO M. HERNANDEZ11
During the course of the expropriation proceedings, an Order dated 13 September 1996 was issued by the
RTC Branch 83, informing the parties of the appointment of commissioners to help determine the just
compensation. Cecilio was appointed as one of the commissioners to represent the defendants in Civil Case
No. C-022.
On 18 October 1996, Cornelia, and her other co-owners who were also signatories of the 11 November 1993
letter, executed an irrevocable Special Power of Attorney (SPA) appointing Cecilio Hernandez as their "true
and lawful attorney" with respect to the expropriation of the subject property.13 The SPA stated that the
authority shall be irrevocable and continue to be binding all throughout the negotiation. It further stated
that the authority shall bind all successors and assigns in regard to any negotiation with the government until
its consummation and binding transfer of a portion to be sold to that entity with Cecilio as the sole signatory
in regard to the rights and interests of the signatories therein. There was no mention of the compensation
scheme for Cecilio, the attorney-in-fact.
The just compensation for the condemned properties was fixed in the Decision14 dated 7 January 1998,
penned by Judge Voltaire Y. Rosales (Judge Rosales) of RTC Branch 83, Tanauan, Batangas. The value of the
land located at Tanauan, Batangas, was pegged at (₱1,500.00) per square meter. The total area that was
condemned for the Hernandez family was (14,643) square meters. Thus, the Hernandez family will get a total
of (₱21,964,500.00) as just compensation.
Included in the decision is the directive of the court to pay the amount of ₱4,000.00 to Cecilio, as
Commissioner’s fees.
On 6 October 1999, petitioner executed a Revocation of the SPA17 withdrawing the authority earlier granted
to Cecilio in the SPA dated 18 October 1996. After the revocation, on 28 December 1999, without the
termination of counsel on record, Cornelia, with a new lawyer, moved for the withdrawal of her one-third
(1/3) share of the just compensation, which is equivalent to Seven Million Three Hundred Twenty-One
Thousand Five Hundred Pesos (₱7,321,500.00) – the amount a pro-indiviso owner is to receive.
In the Order18 dated 24 January 2000, Judge Rosales, even with the irregularity that the motion to withdraw
was not filed by the counsel of record, granted the motion of petitioner, with the condition that the money
shall be released only to the attorney-in-fact, Mr. Cecilio F. Hernandez. The trial court took cognizance of the
irrevocable nature of the SPA dated 18 October 1996.19 Cecilio, therefore, was able to get not just one-third
(1/3) of, but the entire sum of Twenty One Million, Nine Hundred Sixty-Four Thousand Five Hundred Pesos
(₱21,964,500.00).
On 7 February 2000, Cornelia received from Cecilio a Bank of the Philippine Islands Check amounting to One
Million One Hundred Twenty-Three Thousand Pesos (₱1,123,000.00).20 The check was however
accompanied by a Receipt and Quitclaim21 document in favor of Cecilio. In essence it states that: (1) the
amount received will be the share of Cornelia in the just compensation paid by the government in the
expropriated property; (2) in consideration of the payment, it will release and forever discharge Cecilio from
any action, damages, claims or demands; and (3) Cornelia will not institute any action and will not pursue
her complaint or opposition to the release to Cecilio or his heirs or assigns, of the entire amount deposited
in the Land Bank of the Philippines, Tanauan, Batangas, or in any other account with any bank, deposited or
will be deposited therein, in connection with Civil Case No C-023, representing the total just compensation
of expropriated properties under the aforementioned case.
The check was received by Cornelia with a heavy heart. She averred in her ex-parte testimony that she was
forced to receive such amount because she needs the money immediately for medical expenses due to her
frail condition.22
Moreover, Cornelia averred that after a few days from her receipt of the check, she sought the help of her
niece, Daisy Castillo, to get the decision in Civil Case No. C-022.23 It was only then, when her niece got hold
of the decision and explained its contents, that she learned that she was entitled to receive (₱7,321,500.00).
A Complaint for the Annulment of Quitclaim and Recovery of Sum of Money and Damages26 was filed before
the RTC Branch 150 of Makati on 18 September 2000. RTC declared the Quitclaim null and void.
Aggrieved, Cecilio appealed the Decision of the trial court. CA reversed the decision of RTC.
Issue:
= ₱1,246.00 * 14,643
Ruling: = ₱18,245,178.00 total compensatinon

I.
*One Third of the above value shows that Cecilio will get, from Cornelia
A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is
voidable.35 In determining whether consent is vitiated by any of the circumstances mentioned, courts are
given a wide latitude in weighing the facts or circumstances in a given case and in deciding in their favor = ₱6,081,726.00
what they believe to have actually occurred, considering the age, physical infirmity, intelligence, relationship,
and the conduct of the parties at the time of the making of the contract and subsequent thereto, irrespective It must be noted that:
of whether the contract is in public or private writing.36 And, in order that mistake may invalidate consent, it
*The Hernandez’ family gets ₱21,964,500 for 14,643 m2, at ₱1,500.00 per m2
should refer to the substance of the thing which is the object of the contract, or those conditions which have
principally moved one or both parties to enter the contract. *One-third (1/3) of that is ₱7,321,500 representing the share of a co-owner like Cornelia
The compensation scheme of 20% of any amount over ₱70.00 per square meter and everything above *What will be left of Cornelia’s share if she pays Cecilio will be:
₱300.00 per square meter was granted in favor of Cecilio by the Hernandezes on 11 November 1993. At that
time, the Hernandezes had just rejected the government’s offer of ₱35.00 per square meter, which offer last ₱1,239,774 less: 124,953.60 (Nominal Cost of Litigation as averred by Cecilio)
stood at ₱70.00 per square meter. It was the rejection likewise of the last offer that led to the filing of the 1,500.00 (Nominal payment for preparation of pleadings)
expropriation case on 9 August 1993. It was in this case, and for Cecilio’s representation in it of the
Hernandezes, that he was granted the compensation scheme. Clear as day, the conditions that moved the OVERALL TOTAL AMOUNT CORNELIA WILL RECEIVE:
parties to the contract were the base price at ₱70.00 per square meter, the increase of which would be
₱ 1,113,320.4
compensated by 20% of whatever may be added to the base price; and the ceiling price of ₱300.00 per
square meter, which was considerably high reckoned from the base at ₱70.00, which would therefore, allow As opposed to:
Cecilio to get all that which would be in excess of the elevated ceiling. The ceiling was, from the base,
extraordinarily high, justifying the extraordinary grant to Cornelio of all that would exceed the ceiling. OVERALL TOTAL AMOUNT CECILIO WILL RECEIVE: ₱6,081,726.00

It was on these base and ceiling prices, conditions which principally moved both parties to enter into the Cecilio’s position would give him 83.07% of the just compensation due Cornelia as a co-owner of the land.
agreement on the scheme of compensation, that an obvious mistake was made. The trial court, deviating No evidence on record would show that Cornelia agreed, by way of the 11 November 1993 letter, to give
from the principle that just compensation is determined by the value of the land at the time either of the Cecilio 83.07% of the proceeds of the sale of her land.
taking or filing,38 which was in 1993, determined the compensation as the 1998 value of ₱1,500.00 per What is on record is that Cornelia asked for an accounting of the just compensation from Cecilio several
square meter. The trial court ratiocinated that the 1998 value was considered for the reason, among others times, but the request remained unheeded. Right at that point, it can be already said that Cecilio violated
that: the fiduciary relationship of an agent and a principal. The relation of an agent to his principal is fiduciary
3. It is common knowledge that prices of real estate in Batangas, including and/or particularly in Sto.Tomas and it is elementary that in regard to property subject matter of the agency, an agent is estopped from
and Tanauan have skyrocketed in the past two years;39 (Emphasis ours). acquiring or asserting a title adverse to that of the principal. His position is analogous to that of a trustee
and he cannot, consistently with the principles of good faith, be allowed to create in himself an interest in
This 1998 "skyrocketed" price of ₱1,500.00 per square meter was pounced upon by Cecilio as the amount opposition to that of his principal or cestui que trust.41
against which the 1993 ceiling of ₱300.00 per square meter should be compared, thereby giving him the
amount computed40 as follows: The preparation by Cecilio of the receipt and quitclaim document which he asked Cornelia to sign, indicate
that even Cecilio doubted that he could validly claim 83.07% of the price of Cornelia’s land on the basis of
CECILIO’S FEES = (20% of anything over ₱70.00) + (everything in excess of ₱300) the 11 November 1993 agreement. Based on the attending circumstances, the receipt and quitclaim
document is an act of fraud perpetuated by Cecilio. Very clearly, both the service contract of 11 November
1993 letter- agreement, and the later receipt and quitclaim document, the first vitiated by mistake and the
*If the land value is at ₱1,500.00 per square meter, then, second being fraudulent, are void.
II.
= (20% of ₱230.00) + (₱1,500.00 – ₱300.00)
= ₱46.00 + ₱1,200.00 Cecilio’s last source of authority to collect payment from the proceeds of the expropriation is the SPA
= ₱1,246.00 per square meter executed on 18 October 1996 by the Hernandezes in favor of Cecilio as their "true and lawful" attorney with
respect to the expropriation of the Hernandez property. At the outset, it must be underscored that the SPA
did not specify the compensation of Cecilio as attorney-in-fact of the Hernandezes.
= (land value at 1,500 less Cecilio’s fees)
CORNELIA’S SHARE The SPA, however, must be appreciated in the light of the fact that Cecilio was appointed and acted as
= ₱254.00 per square meter
appraisal commissioner in the expropriation case under the provisions of Section 5, Rule 67 of the Rules of
Court, which provides:
*The total expropriated property is at 14,643 m2, thus, Cecilio will get a total of
SEC. 5. Ascertainment of compensation. — Upon the rendition of the order of expropriation, the court shall
appoint not more than three (3) competent and disinterested persons as commissioners to ascertain and
report to the court the just compensation for the property sought to be taken. The order of appointment
shall designate the time and place of the first session of the hearing to be held by the commissioners and
specify the time within which their report shall be submitted to the court. (Emphasis ours).
The commissioner to be appointed is specifically required to be disinterested. As defined, such person must
be free from bias, prejudice or partiality.42 The record of performance by Cecilio of his duties as
commissioner shows: (1) Order dated 13 September 1996 appointing Cecilio and three others as court
commissioners; (2) Agreement on the course of action of the commissioners appointed 13 September 1996
whereby respondent Cecilio signed as a court commissioner; (3) Appraisal Commission Report dated 10
January 1997 signed by respondent and his fellow court commissioners; (4) Dissenting Opinion on the Lone
Minority Report dated 14 February 1997 signed by respondent and two other court commissioners; and (5)
Decision dated 7 February 1997 which sets the fees of the court commissioners.43
When Cecilio accepted the position as commissioner and proceeded to perform the duties of such
commissioner until the completion of his mandate as such, he created a barrier that prevented his
performance of his duties under the SPA. Due to the nature of his duties and functions as commissioner,
Cecilio became an officer of the court. As stated in Section 5, Rule 67 of the Rules of Court, the
commissioner’s duty is to "ascertain and report to the court the just compensation for the property to be
taken." The undertaking of a commissioner is further stated under the rules, to wit:
SEC. 6. Proceedings by commissioners.—Before entering upon the performance of their duties, the
commissioners shall take and subscribe an oath that they will faithfully perform their duties as
commissioners, which oath shall be filed in court with the other proceedings in the case. Evidence may be
introduced by either party before the commissioners who are authorized to administer oaths on hearings
before them, and the commissioners shall, unless the parties consent to the contrary, after due notice to the
parties to attend, view and examine the property sought to be expropriated and its surroundings, and may
measure the same, after which either party may, by himself or counsel, argue the case. The commissioners
shall assess the consequential damages to the property not taken and deduct from such consequential
damages the consequential benefits to be derived by the owner from the public use or purpose of the
property taken, the operation of its franchise by the corporation or the carrying on of the business of the
corporation or person taking the property. But in no case shall the consequential benefits assessed exceed
the consequential damages assessed, or the owner be deprived of the actual value of his property so taken.
Cecilio acted for the expropriation court. He cannot be allowed to consider such action as an act for or in
behalf of the defendant in the same case. Cecilio could not have been a hearing officer and a defendant at
the same time. Indeed, Cecilio foisted fraud on both the Court and the Hernandezes when, after his
appointment as commissioner, he accepted the appointment by the Hernandezes to "represent" and "sue
for" them.
BAUTISTA-SPILLE v. NICORP MANAGEMENT AND DEVELOPMENT CORP.
Facts:
Petitioner Florentina Bautista-Spille is the registered owner of land located in Imus City, Cavite, with an area
of more or less 33,052 square meters (subject property).
On June 20, 1996, petitioner and her spouse, Harold E. Spille, executed a document denominated as General
Power of Attomey4 in favor of her brother, respondent Benjamin Bautista (Benjamin), authorizing the latter
to administer all her businesses and properties in the Philippines. The said document was notarized before
the Consulate General of the Philippines, New York, United States of America.
On August 13, 2004, Benjamin and NICORP Management and Development Corporation (NJCORP) entered
into a contract to sell for the agreed amount of P15,000,000.00. In the said contract, NICORP agreed to give
a down payment equivalent to 20% of the purchase price and pay the remaining balance in eight (8) months.
It was also agreed that upon receipt of the down payment, the TCT of the subject property would be
deposited with the International Exchange Bank (IE Bank) and placed in escrow. It would only be released
upon full payment of the agreed amount. Furthermore, Benjamin was required to submit a special power
of attorney (SPA) covering the sale transaction, otherwise, the payment of the balance would be
suspended and a penalty of P150,000.00 every month would be imposed.
On October 14, 2004, NICORP issued a check in the amount of P2,250,000.00, representing the down
payment of the subject property.7 Thereafter, the TCT was deposited with IE Bank and placed in escrow.
When petitioner discovered the sale, her lawyer immediately sent demand letters8 to NICORP and Benjamin,
and to IE Bank, informing them that she was opposing the sale of the subject property and that Benjamin
was not clothed with authority to enter into a contract to sell and demanding the return of the owner's copy
of the certificate of title to her true and lawful attorney-in-fact, Manuel B. Flores, Jr. (Flores). NICORP,
Benjamin and IE Bank, however, failed and refused to return the title of the subject property.
Consequently, petitioner filed a complaint9 before the RTC against Benjamin, NICORP and IE Bank for
declaration of nullity of the contract to sell, injunction, recovery of possession and damages with prayer for
the issuance of a temporary restraining order and/or preliminary injunction because NICORP was starting
the development of the subject property into a residential subdivision and was planning to sell the lots to
prospective buyers. Petitioner denied receiving the down payment for the subject property.
The RTC granted the writ of preliminary injunction declaring the contract to sell null and void.14 It explained
that the general power of authority only pertained to acts of administration over petitioner's businesses and
properties in the Philippines and did not include authority to sell the subject property. It pointed out that
NICORP was well aware of Benjamin's lack of authority to sell the subject property as gleaned from the
contract to sell which required the latter to procure the SPA from petitioner and even imposed a penalty of
P150,000.00 per month if he would be delayed in securing the SPA.
Aggrieved, NICORP appealed before the CA. The CA reversed the RTC decision, explaining that the general
power of attorney executed by petitioner in favor of Benjamin authorized the latter not only to perform acts
of administration over her properties but also to perform acts of dominion which included, among others,
the power to dispose the subject property.
Issue:
Was Benjamin authorized to sell the subject property?
Ruling:
NO. The well-established rule is when a sale of a parcel 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. Articles 1874 and 1878 of the
Civil Code explicitly provide:
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 cases:
(5)To enter into any contract by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;
Thus, the authority of an agent to execute a contract for the sale of real estate must be conferred in writing
and must give him specific authority, either to conduct the general business of the principal or to execute a
binding contract containing terms and conditions which are in the contract he did execute. A special power
of attorney is necessary to enter into any contract by which the ownership of an immovable is transmitted
or acquired either gratuitously or for a valuable consideration. The express mandate required by law to
enable an appointee of an agency (couched) in general terms to sell must be one that expressly mentions a
sale or that includes a sale as a necessary ingredient of the act mentioned. For the principal to confer the
right upon an agent to sell real estate, a power of attorney must so express the powers of the agent in clear
and unmistakable language.
To reiterate, such authority must be conferred in writing and must express the powers of the agent in clear
and unmistakable language in order for the principal to confer the right upon an agent to sell the real
property.23 It is a general rule that a power of attorney must be strictly construed, and courts will not infer
or presume broad powers from deeds which do not sufficiently include property or subject under which the
agent is to deal. Thus, when the authority is couched in general terms, without mentioning any specific
power to sell or mortgage or to do other specific acts of strict dominion, then only acts of administration are
deemed conferred.
In the case at bench, the only evidence adduced by NICORP to prove Benjamin's authority to sell petitioner's
property was the document denominated as General Power of Attorney, dated June 20, 1996. The pertinent
portions of the said document reads:
KNOW ALL MEN BY THESE PRESENTS:
THAT I/WE FLORENTINA B. SPILLE, of legal age, single/married to HAROLD E. SPILLE and residents of x x x do
hereby appoint, name and constitute BENJAMIN G. BAUTISTA resident(s) of x x x to be my/our true lawful
and attorney(s), to administer and conduct all my/our affairs and for that purpose in my/our name(s) and on
my/our behalf, to do and execute any or all of the following acts, deeds and things to wit:
1.To exercise administration, general control and supervision over my/our business and property in the
Philippines, and to act as my/our general representative(s) and agent(s) with full authority to buy, sell,
negotiate and contract for me/us and my/our behalf;
2. To ask, demand, sue for, recover and receive all sums of money, debts, dues, goods, wares, merchandise,
chattels, effects and thing of whatsoever nature or description, which now or hereafter shall be or become
due, owing, payable or belonging to me/us in or by any right, title, ways or means howsoever, and upon
receipt thereof or any part thereof, to make, sign, execute and deliver such receipts, releases or other
discharges ;
Doubtless, there was no perfected contract to sell between petitioner and NICORP. Nowhere in the General
Power of Attorney was Benjamin granted, expressly or impliedly, any power to sell the subject property or a
portion thereof. The authority expressed in the General Power of Attorney was couched in very broad terms
covering petitioner's businesses and properties. Time and again, this Court has stressed that the power of
administration does not include acts of disposition, which are acts of strict ownership. As such, an authority
to dispose cannot proceed from an authority to administer, and vice versa, for the two powers may only be
exercised by an agent by following the provisions on agency of the Civil Code.
In the same vein, NICORP cannot be considered a purchaser in good faith. The well-settled rule is that a
person dealing with an assumed agent is bound to ascertain not only the fact of agency but also the nature
and extent of the agent's authority.28 The law requires higher a degree of prudence from one who buys from
a person who is not the registered owner. He is expected to examine all factual circumstances necessary for
him to determine if there are any flaws in the title of the transferor, or in his capacity to transfer the land.29 In
ascertaining good faith, or the lack of it, which is a question of intention, courts are necessarily controlled by
the evidence as to the conduct and outward acts by which alone the inward motive may, with safety, be
determined. Good faith, or want of it, is not a visible, tangible fact that can be seen or touched, but rather a
state or condition of mind which can only be judged by actual or fancied token or signs.
Here, the Court agrees with the RTC that NICORP was fully aware that Benjamin was not properly authorized
to enter into any transaction regarding the sale of petitioner's property. In fact, in the contract to sell, NICORP
required Benjamin to secure the SPA from petitioner within ninety (90) days from the execution of the
contract and even imposed a substantial amount of penalty in the amount of P150,000.00 a month in case
of non- compliance plus suspension of payment of the balance of the contract price.
NICORP is a real estate company which is familiar with the intricacies of the realty business. Moreover, there
was no evidence that petitioner ratified Benjamin's act of selling the subject property.
In sum, the Court agrees with the findings and conclusion of the RTC. The consent of petitioner in the contract
to sell was not obtained, hence, not enforceable. Furthermore, because NICORP is considered a builder in
bad faith, it has no right to be refunded the value of whatever improvements it introduced on the subject
property.
YELLOW BUS LINE EMPLOYEES UNION v. YELLOW BUS LINE INC.
Facts:
Gardonia and Querol were hired by YBL as drivers on 17 December 1993 and 14 February 1995,
respectively.
In 2002, Gardonia was driving along the National Highway in Polomolok, South Cotabato when his bus
bumped into a motorcycle while trying to overtake it. The collision resulted in the death of the motorcycle
driver and his passenger. YBL shouldered the hospitalization bills amounting to P290,426.91 and paid
P135,000.00 as settlement of the claim of the heirs of the motorcycle riders.
Three (3) months later, the bus that Querol was driving suffered a mechanical breakdown. A mechanic and
a towing truck arrived to pick up Querol. He was ordered by the mechanic to drive the bus while the
towing truck would trail behind. Querol was apparently driving too fast and he rammed the bus into a
sugar plantation in Barangay Talus, Malungon, South Cotabato.
YBL conducted separate hearings on the two incidents. Thereafter, Gardonia and Querol were found to be
negligent. Termination letters were sent to them on 16 December 2002 and 16 January 2003, respectively.
Yellow Bus Line Employees Union (Union), representing its members Gardonia and Querol, filed a
complaint for illegal dismissal against YBL.
During the initial conference, YBL's representative Norlan Yap allegedly agreed to reinstate Gardonia and
Querol. The management of YBL however refused to abide by the said agreement.
The Panel of Accredited Voluntary Arbitrators2 (Panel) found that Gardonia and Querol were illegally
dismissed and ordered their reinstatement. The Panel also ruled that the parties already arrived at a
compromise agreement during the initial conference with respect to the reinstatement of the drivers.
YBL Inc. appealed before the CA. CA reversed the decision of Panel. It stated that Norlan Yap, the
representative of YBL, had no authority to enter into a compromise.
Issue:
Does Norlan Yap have the authority to enter into compromise?
Ruling:
NO.
The pertinent portion of the Conciliation Report is reproduced below:
“During the conference, both parties appeared where[in] two of the complainants in the names of Mr.
Quero S. Francisco and Jimmy C. Gardonia manifested that they want [to] be returned back to their posts in
the company and Management representative Mr. Norlan A. Yap, the Personnel Manager of the Company,
accepted the appeal of the above complainants.
So, this case is settled into Amicable settlement and the same hereby considered closed.”
We cannot consider this Conciliation Report as the complete settlement between the parties. As reasoned
by the Court of Appeals, and we agree, that:
x x x The Conciliation Report. . . did not write finis the issues between the parties as manifested by a
second round of conference in the NCMB office and the subsequent submission of the dispute to the
Panel. If indeed, a compromise had been reached, there should have been no need for further negotiations
and the case would not have reached the Panel. Clearly, the Panel viewed the grievance machinery and
voluntary arbitration underwent [sic] by the parties in piecemeal instead of looking at it as one process
which culminated in the decision of the Panel now assailed by Yellow Bus.
The facts of the case reveal that private respondents moved for the execution of what was embodied in
the Conciliation Report before the NCMB. This simply cannot be done. The handwritten report of
Conciliator-Mediator Nagarano M. Mascara al Haj could not, by any stretch of imagination, be considered
as a final arbitration award nor a decision of a voluntary arbitrator within the purview of Article 262-A of
the Labor Code which is a proper subject of execution. In fact, the initial conference before the Conciliator-
Mediator is not more than what it implies - that it is the initial stage of negotiation between the parties
prior to the submission of the dispute to the Panel.

[E]ven granting arguendo that a compromise agreement had indeed been reached between private
respondents and Norlan Yap, yet the same could not bind Yellow Bus in the absence of any authorization
or special power of attorney bestowed upon Norlan Yap by Yellow Bus to enter into a compromise
agreement. For sure, Norlan Yap's authority was limited only to represent and appear in behalf of Yellow
Bus during the initial conference in the NCMB. Norlan Yap's statement thereat could not bind Yellow Bus in
the absence of substantial evidence showing that said compromise agreement was entered into with the
knowledge and consent of Yellow Bus. Article 1878 of the Civil Code provides:

ART. 1878. Special powers of attorney arc necessary in the following cases:

(3) To compromise, to submit questions to arbitration, to renounce the right to appeal x x x.

The need of a special power of attorney in order for a representative to bind its principal in a compromise
agreement is also underscored in Section 8, Rule III of the 1999 NLRC Rules, which states:

Section 8. Authority to bind party. - Attorneys and other representatives of parties shall have authority to
bind their clients in all matters of procedure; but they cannot, without a special power of attorney or
express consent, enter into a compromise agreement with the opposing party in full or partial discharge of
a client's claim.

Furthermore, there is no showing that Yellow Bus ratified the act of Norlan Yap. Its CEO, Ricardo R. Yap,
even refused to acknowledge the compromise agreement.

We hasten to add that the parties expressly agreed to submit the case to the voluntary arbitration when
they still failed to reach a settlement. The Union should not have agreed and stood its ground if it
believed that a compromise agreement had already been struck during the conciliation conference. By
acquiescing to the referral to voluntary arbitration, the Union is now estopped from asserting that there
was a settlement at conciliation level.
PURITA PAHUD v. CA
During their lifetime, spouses Pedro San Agustin and Agatona Genil were able to acquire a 246-
square meter parcel of land situated in Barangay Anos, Los Baños, Laguna. Both died intestate,
survived by their eight (8) children: respondents Eufemia, Raul, Ferdinand, Zenaida, Milagros,
Minerva, Isabelita and Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul executed a Deed of Absolute Sale of Undivided
Shares conveying in favor of petitioners (the Pahuds, for brevity) their respective shares from the lot
they inherited from their deceased parents for ₱525,000.00. 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, and also for Milagros, Minerva, and Zenaida but without their apparent
written authority. The deed of sale was also not notarized.
On July 21, 1992, the Pahuds paid ₱35,792.31 to the Los Baños Rural Bank where the subject
property was mortgaged. The bank issued a release of mortgage and turned over the owner’s copy
of the OCT to the Pahuds. Over the following months, the Pahuds made more payments to Eufemia
and her siblings totaling to ₱350,000.00. 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. 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.
On July 8, 1993, Virgilio’s co-heirs filed a complaint 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.
On December 1, 1994, Eufemia acknowledged having received ₱700,000.00 from Virgilio. 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. Aggrieved, the Pahuds filed a complaint in intervention in the pending case for judicial
partition.
After trial, the RTC upheld the validity of the sale to petitioners.
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.
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 reversed the decision of
RTC.
Issue:
Does Eufemia and her co-heirs have the authority to sell the property to the Pahuds?
Ruling:
YES. Based on the principle of agency by estoppel.
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, 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.
In several cases, we have repeatedly held that the absence of a written authority to sell a piece of
land is, ipso jure, void, 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.
Still, in their petition, the Pahuds argue that the sale with respect to the 3/8 portion of the land should
have been deemed ratified when the three co-heirs, namely: Milagros, Minerva, and Zenaida,
executed their respective special power of attorneys authorizing Eufemia to represent them in the
sale of their shares in the subject property.
While the sale with respect to the 3/8 portion is void by express provision of law and not susceptible
to ratification, we nevertheless uphold its validity on the basis of the common law principle of
estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon.
True, at the time of the sale to the Pahuds, Eufemia was not armed with the requisite special power
of attorney to dispose of the 3/8 portion of the property. Initially, in their answer to the complaint in
intervention, Eufemia and her other co-heirs denied having sold their shares to the Pahuds. During
the pre-trial conference, however, they admitted that they had indeed sold 7/8 of the property to the
Pahuds sometime in 1992. Thus, the previous denial was superseded, if not accordingly amended,
by their subsequent admission. Moreover, in their Comment, the said co-heirs again admitted the
sale made to petitioners.
Interestingly, in no instance did the three (3) heirs concerned assail the validity of the transaction
made by Eufemia to the Pahuds on the basis of want of written authority to sell. They could have
easily filed a case for annulment of the sale of their respective shares against Eufemia and the
Pahuds. Instead, they opted to remain silent and left the task of raising the validity of the sale as an
issue to their co-heir, Virgilio, who is not privy to the said transaction. They cannot be allowed to rely
on Eufemia, their attorney-in-fact, to impugn the validity of the first transaction because to allow them
to do so would be tantamount to giving premium to their sister’s dishonest and fraudulent deed.
Undeniably, therefore, the silence and passivity of the three co-heirs on the issue bar them from
making a contrary claim.
It is a basic rule in the law of agency that a principal is subject to liability for loss caused to another
by the latter’s reliance upon a deceitful representation by an agent in the course of his employment
(1) if the representation is authorized; (2) if it is within the implied authority of the agent to make for
the principal; or (3) if it is apparently authorized, regardless of whether the agent was authorized by
him or not to make the representation.

By their continued silence, Zenaida, Milagros and Minerva have caused the Pahuds to believe that
they have indeed clothed Eufemia with the authority to transact on their behalf. Clearly, the three
co-heirs are now estopped from impugning the validity of the sale from assailing the authority of
Eufemia to enter 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. 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. 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.

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. This fact alone is sufficient impetus to make further inquiry and, thus, negate their claim that
they are purchasers for value in good faith. 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. 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. Furthermore, had they verified the status of the property by
asking the neighboring residents, they would have been able to talk to the Pahuds who occupy an
adjoining business establishment 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.
CELESTINA NAGUIAT v. CA and AURORA QEANO
The case arose when on 11 August 1981, private respondent Aurora Queaño (Queaño) filed a
complaint before the Pasay City RTC for cancellation of a Real Estate Mortgage she had entered
into with petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision, declaring the
questioned Real Estate Mortgage void, which Naguiat appealed to the Court of Appeals. After the
Court of Appeals upheld the RTC decision, Naguiat instituted the present petition.
The operative facts follow:
corresponding documentary evidence, such as the returned checks and the pertinent bank records.
Since Naguiat presented no such proof, it follows that the checks were not encashed or credited to
Queaño’s account.
Naguiat questions the admissibility of the various written representations made by Ruebenfeldt on
the ground that they could not bind her following the res inter alia acta alteri nocere non debet rule.
The Court of Appeals rejected the argument, holding that since Ruebenfeldt was an authorized
representative or agent of Naguiat the situation falls under a recognized exception to the rule. Still,
Naguiat insists that Ruebenfeldt was not her agent.

Queaño applied with Naguiat for a loan in the amount of (₱200,000.00), which Naguiat granted. On
11 August 1980, Naguiat indorsed to Queaño a check for the amount of (₱95,000.00), which was
earlier issued to Naguiat by the Corporate Resources Financing Corporation. She also issued her
own Filmanbank Check No. 065314, to the order of Queaño, also dated 11 August 1980 and for the
amount of (₱95,000.00). The proceeds of these checks were to constitute the loan granted by
Naguiat to Queaño.
To secure the loan, Queaño executed a Deed of Real Estate Mortgage dated 11 August 1980 in
favor of Naguiat, and surrendered to the latter the owner’s duplicates of the titles covering the
mortgaged properties. On the same day, the mortgage deed was notarized, and Queaño issued to
Naguiat a promissory note for the amount of (₱200,000.00), with interest at 12% per annum, payable
on 11 September 1980. Queaño also issued a Security Bank and Trust Company check, postdated
11 September 1980, for the amount of (₱200,000.00) and payable to the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency of
funds.On 16 October 1980, Queaño received a letter from Naguiat’s lawyer, demanding settlement
of the loan. Shortly thereafter, Queaño and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat.
At the meeting, Queaño told Naguiat that she did not receive the proceeds of the loan, adding that
the checks were retained by Ruebenfeldt, who purportedly was Naguiat’s agent.
Suffice to say, however, the existence of an agency relationship between Naguiat and Ruebenfeldt
is supported by ample evidence. As correctly pointed out by the Court of Appeals, Ruebenfeldt was
not a stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to withhold from Queaño
the checks she issued or indorsed to Queaño, pending delivery by the latter of additional collateral.
Ruebenfeldt served as agent of Naguiat on the loan application of Queaño’s friend, Marilou
Farralese, and it was in connection with that transaction that Queaño came to know Naguiat. It was
also Ruebenfeldt who accompanied Queaño in her meeting with Naguiat and on that occasion, on
her own and without Queaño asking for it, Reubenfeldt actually drew a check for the sum of
₱220,000.00 payable to Naguiat, to cover for Queaño’s alleged liability to Naguiat under the loan
agreement.
The Court of Appeals recognized the existence of an "agency by estoppel citing Article 1873 of
the Civil Code. Apparently, it considered that at the very least, as a consequence of the
interaction between Naguiat and Ruebenfeldt, Queaño got the impression that Ruebenfeldt
was the agent of Naguiat, but Naguiat did nothing to correct Queaño’s impression. In that
situation, the rule is clear. One who clothes another with apparent authority as his agent, and
holds him out to the public as such, cannot be permitted to deny the authority of such person
to act as his agent, to the prejudice of innocent third parties dealing with such person in
good faith, and in the honest belief that he is what he appears to be.

Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province, More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt is
who then scheduled the foreclosure sale on 14 August 1981. Three days before the scheduled sale, irrelevant in the face of the fact that the checks issued or indorsed to Queaño were never encashed
Queaño filed the case before the Pasay City RTC,8 seeking the annulment of the mortgage deed. or deposited to her account of Naguiat.

The RTC rendered judgment, declaring the Deed of Real Estate Mortgage null and void. Naguiat
appealed the decision before the Court of Appeals, it affirmed the Decision of RTC. Hence, the
present petition.

Naguiat questions the findings of facts made by the Court of Appeals, especially on the issue of
whether Queaño had actually received the loan proceeds which were supposed to be covered by
the two checks Naguiat had issued or indorsed. Naguiat claims that being a notarial instrument or
public document, the mortgage deed enjoys the presumption that the recitals therein are true.
Naguiat also questions the admissibility of various representations and pronouncements of
Ruebenfeldt, invoking the rule on the non-binding effect of the admissions of third persons.

Naguiat vigorously insists that Queaño received the loan proceeds. Capitalizing on the status of the
mortgage deed as a public document, she cites the rule that a public document enjoys the
presumption of validity and truthfulness of its contents. The Court of Appeals, however, is correct in
ruling that the presumption of truthfulness of the recitals in a public document was defeated by the
clear and convincing evidence in this case that pointed to the absence of consideration.

On the other hand, absolutely no evidence was submitted by Naguiat that the checks she issued or
endorsed were actually encashed or deposited. The mere issuance of the checks did not result in
the perfection of the contract of loan. For the Civil Code provides that the delivery of bills of exchange
and mercantile documents such as checks shall produce the effect of payment only when they have
been cashed. It is only after the checks have produced the effect of payment that the contract of
loan may be deemed perfected.

Queaño would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. If
indeed the checks were encashed or deposited, Naguiat would have certainly presented the
SPS. VILLALUZ v. LANDBANK and RD OF DAVAO CITY
In 1996, Paula Agbisit, mother of petitioner May S. Villaluz, requested the latter to provide her with
collateral for a loan. At the time, Agbisit was the chairperson of Milflores Cooperative and she
needed ₱600,000 to ₱650,000 for the expansion of her backyard cut flowers business. 4 May
convinced her husband, Johnny Villaluz (collectively, the Spouses Villaluz), to allow Agbisit to use
their land, located in Calinan, Davao City, as collateral. On March 25, 1996, the Spouses Villaluz
executed a Special Power of Attorney6 in favor of Agbisit authorizing her to, among others,
"negotiate for the sale mortgage, or other forms of disposition a parcel of land covered by Transfer
Certificate of Title No. T-202276" and "sign in our behalf all documents relating to the sale, loan or
mortgage, or other disposition of the aforementioned property. "The one-page power of attorney
neither specified the conditions under which the special powers may be exercised nor stated the
amounts for which the subject land may be sold or mortgaged.
On June 19, 1996, Agbisit executed her own Special Power of Attorney, appointing Milflores
Cooperative as attorney-in-fact in obtaining a loan from and executing a real mortgage in favor of
Land Bank of the Philippines. On June 21, 1996, Milflores Cooperative, in a representative capacity,
executed a Real Estate Mortgage9 in favor of Land Bank in consideration of the ₱3,000,000 loan to
be extended by the latter. On June 24, 1996, Milflores Cooperative also executed a Deed of
Assignment of the Produce/Inventory as additional collateral for the loan. Land Bank partially
released one-third of the total loan amount, or ₱995,500, to Milflores Cooperative on June 25, 1996.
On the same day, Agbisit borrowed the amount of ₱604,750 from Milflores Cooperative. Land Bank
released the remaining loan amount of ₱2,000,500 to Milflores Cooperative on October 4, 1996.
Unfortunately, Milflorcs Cooperative was unable to pay its obligations to Land Bank. Thus, Land
Bank filed a petition for extra-judicial foreclosure sale. In August 2003, the Spouses Villaluz learned
that an auction sale covering their land had been set for October 2, 2003. Land Bank won the auction
sale as the sole bidder.
The Spouses Villaluz filed a complaint with (RTC) of Davao City seeking the annulment of the
foreclosure sale. Citing Article 1892 of the Civil Code, the RTC held that the delegation was valid
since the Special Power of Attorney executed by the Spouses Villaluz had no specific prohibition
against Agbisit appointing a substitute. On appeal, the CA affirmed the RTC Decision. In its Decision,
the CA similarly found Article 1892 to be squarely applicable.
Sps. Villauz argue that the Real Estate Mortgage was void because there was no loan yet when the
mortgage contract was executed and that the Special Power of Attorney was extinguished when
Milflores Cooperative assigned its produce and inventory to Land Bank as additional collateral.
Articles 1892 and 1893 of the Civil Code provide the rules regarding the appointment of a substitute
by an agent:
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.
All acts of the substitute appointed against the prohibition of the principal shall be void.
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal may
furthermore bring an action against the substitute with respect to the obligations which the latter has
contracted under the substitution.
The law creates a presumption that an agent has the power to appoint a substitute. The
consequence of the presumption is that, upon valid appointment of a substitute by the agent,
there ipso jure arises an agency relationship between the principal and the substitute, i.e., the
substitute becomes the agent of the principal. As a result, the principal is bound by the acts of the
substitute as if these acts had been performed by the principal's appointed agent. Concomitantly,
the substitute assumes an agent's obligations to act within the scope of authority. In order to make
the presumption inoperative and relieve himself from its effects, it is incumbent upon the principal to
prohibit the agent from appointing a substitute.
Although the law presumes that the agent is authorized to appoint a substitute, it also imposes an
obligation upon the agent to exercise this power conscientiously. To protect the principal, Article
1892 allocates responsibility to the agent for the acts of the substitute when the agent was not
expressly authorized by the principal to appoint a substitute; and, if so authorized but a specific
person is not designated, the agent appoints a substitute who is notoriously incompetent or
insolvent. In these instances, the principal has a right of action against both the agent and the
substitute if the latter commits acts prejudicial to the principal.
The case of Escueta v. Lim illustrates the prevailing rule. In that case, the father, through a special
power of attorney, appointed his daughter as his attorney-in-fact for the purpose of selling real
properties. The daughter then appointed a substitute or sub-agent to sell the properties. After the
properties were sold, the father sought to nullify the sale effected by the subagent on the ground
that he did not authorize his daughter to appoint a subagent. We refused to nullify the sale because
it is clear from the special power of attorney executed by the father that the daughter is not prohibited
from appointing a substitute. Applying Article 1892, we held that the daughter "merely acted within
the limits of the authority given by her father, but she will have to be 'responsible for the acts of the
sub-agent,' among which is precisely the sale of the subject properties in favor of respondent."
In the present case, the Special Power of Attorney executed by the Spouses Villaluz contains
no restrictive language indicative of an intention to prohibit Agbisit from appointing a
substitute or sub-agent. Thus, we agree with the findings of the CA and the RTC that Agbisit's
appointment of Milflores Cooperative was valid.
IV
The Spouses Villaluz claim that the Special Power of Attorney they issued was mooted by the
execution of the Deed of Assignment by Milflores Cooperative in favor of Land Bank. Their theory is
that the additional security on the same loan extinguished the agency because the Deed of
Assignment "served as payment of the loan of the Cooperative."
The assignment was for the express purpose of "securing the payment of the Line/Loan, interest
and charges thereon." Nowhere in the deed can it be reasonably deduced that the collaterals
assigned by Milflores Cooperative were intended to substitute the payment of sum of money under
the loan. It was an accessory obligation to secure the principal loan obligation.
The assignment, being intended to be a mere security rather than a satisfaction of indebtedness, is
not a elation in payment under Article 1245 and did not extinguish the loan obligation. "Dation in
payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed
upon by the parties or as may be proved, unless the parties by agreement-express or implied, or by
their silence-consider the thing as equivalent to the obligation, in which case the obligation is totally
extinguished." As stated in the second condition of the Deed of Assignment, the "Assignment shall
in no way release the ASSIGNOR from liability to pay the Line/Loan and other obligations, except
only up to the extent of any amount actually collected and paid to ASSIGNEE by virtue of or under
this Assignment." Clearly, the assignment was not intended to substitute the payment of sums of
money. It is the delivery of cash proceeds, not the execution of the Deed of Assignment, that is
considered as payment.
The Spouses Villaluz understandably feel shorthanded because their property was foreclosed by
reason of another person's inability to pay. However, they were not coerced to grant a special power
of attorney in favor of Agbisit. Nor were they prohibited from prescribing conditions on how such
power may be exercised. Absent such express limitations, the law recognizes Land Bank's right to
rely on the terms of the power of attorney as written. "Courts cannot follow one every step of his life
and extricate him from bad bargains, protect him from unwise investments, relieve him from one-
sided contracts, or annul the effects of [unwise] acts." The remedy afforded by the Civil Code to
the Spouses Villaluz is to proceed against the agent and the substitute in accordance with
Articles 1892 and 1893.
SPS. VILORIA v. CONTINENTAL AIRLINES
On July 21, 1997 and while in the United States, Fernando purchased for himself and his wife,
Lourdes, two (2) round trip airline tickets from San Diego, California to Newark, New Jersey on board
Continental Airlines. Fernando purchased the tickets at US$400.00 each from a travel agency
"Holiday Travel" and was attended to by Margaret Mager (Mager). According to Spouses Viloria,
Fernando agreed to buy the said tickets after Mager informed them that there were no available
seats at Amtrak, an intercity passenger train service provider in the United States. Per the tickets,
Spouses Viloria were scheduled to leave for Newark on August 13, 1997 and return to San Diego
on August 21, 1997.
Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or
August 6, 1997. Mager informed him that flights to Newark via Continental Airlines were already fully
booked and offered the alternative of a round trip flight via Frontier Air. Since flying with Frontier Air
called for a higher fare of US$526.00 per passenger, Fernando opted to request for a refund. Mager,
however, denied his request as the subject tickets are non-refundable and the only option that
Continental Airlines can offer is the re-issuance of new tickets within one (1) year from the date the
subject tickets were issued. Fernando decided to reserve two (2) seats with Frontier Air.
As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound
Station where he saw an Amtrak station nearby. Fernando made inquiries and was told that there
are seats available and he can travel on Amtrak anytime and any day he pleased. Fernando then
purchased two (2) tickets for Washington, D.C.
Upon returning to the Philippines, Fernando sent a letter to CAI demanding a refund and alleging
that Mager had deluded them into purchasing the subject tickets. In a letter dated March 24, 1998,
Continental Micronesia denied Fernando’s request for a refund and advised him that he may take
the subject tickets to any Continental ticketing location for the re-issuance of new tickets within two
(2) years from the date they were issued. That the tickets may be used as a form of payment for the
purchase of another ticket.
On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala Avenue, Makati City to
have the subject tickets replaced by a single round trip ticket to Los Angeles, California under his
name. He was also informed that a round trip ticket to Los Angeles was US$1,867.40 so he would
have to pay what will not be covered by the value of his San Diego to Newark round trip ticket.
Fernando demanded for the refund of the subject tickets as he no longer wished to have them
replaced. In addition, Fernando claimed that CAI’s act of charging him with US$1,867.40 for a round
trip ticket to Los Angeles, which other airlines priced at US$856.00, and refusal to allow him to use
Lourdes’ ticket, breached its undertaking under its March 24, 1998 letter. 6
Spouses Viloria filed a complaint against CAI in order to refund the money they used in the purchase
of the subject tickets. CAI interposed, among others, that Mager is not a CAI employee, hence, not
liable for any of her acts.
The RTC rendered a Decision, holding that Spouses Viloria are entitled to a refund in view of Mager’s
misrepresentation in obtaining their consent in the purchase of the subject tickets. There is also
CAI’s implied recognition of Mager’s status as agent in its March 24, 1998 letter.
Art. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack
of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf
without authority. Agency may be oral, unless the law requires a specific form.
On appeal, the CA reversed the RTC Decision. It stated that agency can never be presumed. The
burden rests on he who alleges that agency exists; that there’s no agency but one of sale between
CAI and Holiday Travel.
Issues
a. Does a principal-agent relationship exist between CAI and Holiday Travel?
b. Assuming that an agency relationship exists between CAI and Holiday Travel, is CAI bound by
the acts of Holiday Travel’s agents and employees such as Mager?
This Court’s Ruling
I. A principal-agent relationship exists between CAI and Holiday Travel.
In Rallos v. Felix Go Chan & Sons Realty Corporation, this Court explained the nature of an agency
and spelled out the essential elements thereof:
Out of the above given principles, sprung the creation and acceptance of the relationship of agency
whereby one party, called the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third persons. The essential elements
of agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2)
the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a
representative and not for himself, and (4) the agent acts within the scope of his authority.
Agency is basically personal, representative, and derivative in nature. The authority of the agent to
act emanates from the powers granted to him by his principal; his act is the act of the principal if
done within the scope of the authority. Qui facit per alium facit se. "He who acts through another
acts himself."
The first and second elements are present as CAI does not deny that it concluded an agreement
with Holiday Travel, whereby Holiday Travel would enter into contracts of carriage with third persons
on CAI’s behalf. The third element is also present as it is undisputed that Holiday Travel merely
acted in a representative capacity and it is CAI and not Holiday Travel who is bound by the contracts
of carriage entered into by Holiday Travel on its behalf. The fourth element is also present
considering that CAI has not made any allegation that Holiday Travel exceeded the authority that
was granted to it. In fact, CAI consistently maintains the validity of the contracts of carriage that
Holiday Travel executed with Spouses Viloria and that Mager was not guilty of any fraudulent
misrepresentation. When Fernando informed CAI that it was Holiday Travel who issued to them the
subject tickets, CAI did not deny that Holiday Travel is its authorized agent.
As categorically provided under Article 1869 of the Civil Code, "[a]gency may be express, or implied
from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency,
knowing that another person is acting on his behalf without authority."
The distinctions between a sale and an agency are not difficult to discern and this Court, as early as
1970, had already formulated the guidelines that would aid in differentiating the two (2) contracts.
In Commissioner of Internal Revenue v. Constantino,21 this Court extrapolated that the primordial
differentiating consideration between the two (2) contracts is the transfer of ownership or title over
the property subject of the contract. In an agency, the principal retains ownership and control over
the property and the agent merely acts on the principal’s behalf. On the other hand, the contract is
clearly a sale if the parties intended that the delivery of the property will effect a relinquishment of
title, control and ownership in such a way that the recipient may do with the property as he pleases.
Since the company retained ownership of the goods, even as it delivered possession unto the dealer
for resale to customers, the price and terms of which were subject to the company's control, the
relationship between the company and the dealer is one of agency.
It is undisputed that CAI and not Holiday Travel who is the party to the contracts of carriage executed
by Holiday Travel with third persons who desire to travel via Continental Airlines, and this
conclusively indicates the existence of a principal-agent relationship. That the principal is bound by
all the obligations contracted by the agent within the scope of the authority granted to him is clearly
provided under Article 1910 of the Civil Code and this constitutes the very notion of agency.
II. In actions based on quasi-delict, a principal can only be held liable for the tort committed
by its agent’s employees if it has been established by preponderance of evidence that the
principal was also at fault or negligent or that the principal exercise control and supervision
over them.
Spouses Viloria’s cause of action on the basis of Mager’s alleged fraudulent misrepresentation is CAI was likewise willing to accept the ticket in Lourdes’ name as full or partial payment as the case
clearly one of tort or quasi-delict, there being no pre-existing contractual relationship between them. may be for the purchase of any ticket, albeit under her name and for her exclusive use. In other
Therefore, it was incumbent upon Spouses Viloria to prove that CAI was equally at fault. However, words, CAI’s willingness to comply with its undertaking under its March 24, 1998 cannot be doubted,
the records are devoid of any evidence by which CAI’s alleged liability can be substantiated. albeit tainted with its erroneous insistence that Lourdes’ ticket is non-transferable.

Therefore, without a modicum of evidence that CAI exercised control over Holiday Travel’s The records of this case demonstrate that both parties were equally in default; hence, none of them
employees or that CAI was equally at fault, no liability can be imposed on CAI for Mager’s supposed can seek judicial redress for the cancellation or resolution of the subject contracts and they are
misrepresentation. therefore bound to their respective obligations thereunder.

III. Even on the assumption that CAI may be held liable for the acts of Mager, still, Spouses
Viloria are not entitled to a refund. Mager’s statement cannot be considered a causal fraud
that would justify the annulment of the subject contracts that would oblige CAI to indemnify
Spouses Viloria and return the money they paid for the subject tickets.
Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations
of one of the contracting parties, the other is induced to enter into a contract which, without them,
he would not have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo incidente), inducement to the making of the
contract.30 In Samson v. Court of Appeals,31 causal fraud was defined as "a deception employed by
one party prior to or simultaneous to the contract in order to secure the consent of the other." 32
Also, fraud must be serious and its existence must be established by clear and convincing evidence.
This Court finds that the fraud alleged by Spouses Viloria has not been satisfactorily established as
causal in nature to warrant the annulment of the subject contracts. As CAI correctly pointed out and
as Fernando admitted, it was possible that during the intervening period of three (3) weeks from the
time Fernando purchased the subject tickets to the time he talked to said Amtrak employee, other
passengers may have cancelled their bookings and reservations with Amtrak, making it possible for
Amtrak to accommodate them. Indeed, the existence of fraud cannot be proved by mere
speculations and conjectures. Fraud is never lightly inferred; it is good faith that is.
Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the purchase of
Fernando’s round trip ticket is offset by Spouses Viloria’s liability for their refusal to pay the amount,
which is not covered by the subject tickets. Moreover, the contract between them remains, hence,
CAI is duty bound to issue new tickets for a destination chosen by Spouses Viloria upon their
surrender of the subject tickets and Spouses Viloria are obliged to pay whatever amount is not
covered by the value of the subject tickets.
Another consideration that militates against the propriety of holding CAI liable for moral damages is
the absence of a showing that the latter acted fraudulently and in bad faith. Article 2220 of the Civil
Code requires evidence of bad faith and fraud and moral damages are generally not recoverable
in culpa contractual except when bad faith had been proven.48 The award of exemplary damages is
likewise not warranted. Apart from the requirement that the defendant acted in a wanton, oppressive
and malevolent manner, the claimant must prove his entitlement to moral damages.

IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the
subject contracts.

Even assuming that Mager’s representation is causal fraud, the subject contracts have been
impliedly ratified when Spouses Viloria decided to exercise their right to use the subject tickets for
the purchase of new ones. Under Article 1392 of the Civil Code, "ratification extinguishes the action
to annul a voidable contract."

Simultaneous with their demand for a refund on the ground of Fernando’s vitiated consent, Spouses
Viloria likewise asked for a refund based on CAI’s supposed bad faith in reneging on its undertaking
to replace the subject tickets with a round trip ticket from Manila to Los Angeles.
In doing so, Spouses Viloria are actually asking for a rescission of the subject contracts based on
contractual breach.

However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two
(2) inconsistent remedies. In resolution, all the elements to make the contract valid are present; in
annulment, one of the essential elements to a formation of a contract, which is consent, is absent.
In resolution, the defect is in the consummation stage of the contract when the parties are in the
process of performing their respective obligations; in annulment, the defect is already present at the
time of the negotiation and perfection stages of the contract. Accordingly, by pursuing the remedy
of rescission under Article 1191, the Vilorias had impliedly admitted the validity of the subject
contracts, forfeiting their right to demand their annulment. A party cannot rely on the contract and
claim rights or obligations under it and at the same time impugn its existence or validity. Indeed,
litigants are enjoined from taking inconsistent positions.

V. Contracts cannot be rescinded for a slight or casual breach.

CAI’s refusal to accept Lourdes’ ticket for the purchase of a new ticket for Fernando is only
a casual breach.
COUNTRY BANKERS INSURANCE CO. v. KEPPEL CEBU SHIPYARD, UNIMARINE SHIPPING
LINES, PAUL and PETER RODRIGUEZ, ALBERT HONTANOSAS, BETHOVEN QUINAIN
Unimarine Shipping Lines, Inc. (Unimarine) contracted the services of Keppel Cebu Shipyard,
formerly known as Cebu Shipyard and Engineering Works, Inc. (Cebu Shipyard), for dry docking
and ship repair works on its vessel, the M/V Pacific Fortune.5
On February 14, 1992, Cebu Shipyard issued Bill No. 26035 to Unimarine in consideration for its
services, which amounted to ₱4,486,052.00. Negotiations between Cebu Shipyard and Unimarine
led to the reduction of this amount to ₱3,850,000.00. The terms of this agreement were embodied
in Cebu Shipyard’s February 18, 1992 letter to the President/General Manager of Unimarine, Paul
Rodriguez, who signed his conformity to said letter, quoted in full below:
Attention: Mr. Paul Rodriguez
President/General Manager
This contract shall be binding upon Uni-Marine Shipping Lines, Inc., its heirs, executors,
administrators, successors, and assigns and shall not be discharged until all obligation of this
contract shall have been faithfully and fully performed by the Debtor. ”
Because Unimarine failed to remit the first installment when it became due on May 30, 1992, Cebu
Shipyard was constrained to deposit the peso check corresponding to the initial installment of
₱2,350,000.00. The check, however, was dishonored by the bank due to insufficient funds.12 Cebu
Shipyard faxed a message to Unimarine, informing it of the situation, and reminding it to settle its
account immediately.
Due to Unimarine’s failure to heed Cebu Shipyard’s repeated demands, Cebu Shipyard, through
counsel, wrote the sureties CBIC and Plaridel to inform them of Unimarine’s nonpayment, and to
ask them to fulfill their obligations as sureties, and to respond within seven days from receipt of the
demand.

“This is to confirm our agreement on the ship repair bills charged for the repair of MV Pacific Fortune, However, even the sureties failed to discharge their obligations, and so Cebu Shipyard filed a
our invoice no. 26035. The ship repair bill (Bill No. 26035) is agreed at a negotiated amount of Complaint before the RTC of Cebu City, against Unimarine, CBIC, and Plaridel.
₱3,850,000.00 excluding VAT.
Unimarine Shipping Lines, Inc. ("Unimarine") will pay the above amount of [₱3,850,000.00] in US CBIC, in its Answer, alleged that the surety bond was issued by its agent, Quinain, in excess of his
Dollars to be fixed at the prevailing USDollar to Philippine Peso exchange rate at the time of authority. CBIC added that its liability was extinguished when, without its knowledge and consent,
payment. The payment terms to be extended to Unimarine is as follows: Cebu Shipyard and Unimarine novated their agreement several times. Furthermore, CBIC stated
Installments Amount Due Date that Cebu Shipyard’s claim had already been paid or extinguished when Unimarine executed an
Assignment of Claims23 of the proceeds of the sale of its vessel M/V Headline in favor of Cebu
1st Installment ₱2,350,000.00 30 May 1992 Shipyard.

2nd Installment ₱1,500,000.00 30 Jun 1992 CBIC also implead Bethoven Quinain, as the agent who issued the surety bond and endorsement
in excess of his authority, as third party defendant. CBIC alleged that he exceeded his authority as
Unimarine will deposit post-dated checks equivalent to the above amounts in Philippine Peso and
stated in the Special Power of Attorney, wherein he was authorized to solicit business and issue
an additional check amount of ₱385,000.00, representing 10% VAT on the above bill of
surety bonds not exceeding ₱500,000.00 but only in favor of the Department of Public Works and
₱3,850,000.00. In the event that Unimarine fails to make full payment on the above due dates in US
Highways, National Power Corporation, and other government agencies.
Dollars, the post-dated checks will be deposited by CSEW in payment of the amounts owned by
Unimarine and Unimarine agree that the 10% VAT (₱385,000.00) shall also become payable to
Paul Rodriguez admitted that Unimarine failed to pay Cebu Shipyard for the repairs it did on M/V
CSEW.
Pacific Fortune, despite the extensions granted to Unimarine. He claimed that he signed the
Unimarine in consideration of the credit terms extended by CSEW and the release of the vessel
Indemnity Agreement because he trusted Quinain that it was a mere pre-requisite for the issuance
before full payment of the above debt, agree to present CSEW surety bonds equal to 120% of the
of the surety bond. He added that he did not bother to read the documents and he was not aware of
value of the credit extended. The total bond amount shall be ₱4,620,000.00.”
the consequences of signing an Indemnity Agreement. Paul Rodriguez also alleged to not having
noticed the limitation "Valid only in favor of DPWH" stamped on the surety bond.31 However, Paul
In compliance with the agreement, Unimarine, through Paul Rodriguez, secured from Country
Bankers Insurance Corp. (CBIC), through the latter’s agent, Bethoven Quinain (Quinain), Rodriguez did not contradict the fact that Unimarine failed to pay Cebu Shipyard its obligation. 32
CBIC Surety Bond No. G (16) 294198 (the surety bond) on January 15, 1992 in the amount of
RTC ruled in favor of Cebu Shipyard ordering the defendants Unimarine Shipping Lines,
₱3,000,000.00. The expiration of this surety bond was extended to January 15, 1993, through
Incorporated, Country Bankers Insurance Corporation and Plaridel Surety and Insurance
Endorsement No. 331529 (the endorsement), which was later on attached to and formed part of the
Corporation to pay plaintiff jointly and severally the amount of ₱4,620,000.00 equivalent to the value
surety bond. In addition to this, Unimarine obtained another bond from Plaridel Surety and Insurance
of the surety bonds.
Co. (Plaridel), in the amount of ₱1,620,000.00.
CA affirmed the Decision of RTC.
On February 17, 1992, Unimarine executed a Contract of Undertaking in favor of Cebu Shipyard.
Issue:
The pertinent portions of the contract read as follows:
“Messrs, Uni-Marine Shipping Lines, Inc. ("the Debtor") of Gorordo Avenue, Cebu City hereby
Is CBIC liable on the surety bond Quinain (agent) issued to Unimarine, in favor of Cebu Shipyard?
acknowledges that in consideration of Cebu Shipyard & Engineering Works, Inc. ("Cebu Shipyard")
at our request agreeing to release the vessel specified in part A of the Schedule ("name of vessel")
Ruling:
prior to the receipt of the sum specified in part B of the Schedule ("Moneys Payable") payable in
NO.
respect of certain works performed or to be performed by Cebu Shipyard and/or its subcontractors
and/or material and equipment supplied or to be supplied by Cebu Shipyard and/or its
In a contract of agency, a person, the agent, binds himself to represent another, the principal, with
subcontractors in connection with the vessel for the party specified in part C of the Schedule ("the
the latter’s consent or authority. Thus, agency is based on representation, where the agent acts for
Debtor"), we hereby unconditionally, irrevocably undertake to make punctual payment to Cebu
and in behalf of the principal on matters within the scope of the authority conferred upon him. Such
Shipyard of the Moneys Payable on the terms and conditions as set out in part B of the Schedule.
"acts have the same legal effect as if they were personally done by the principal. By this legal fiction
We likewise hereby expressly waive whatever right of excussion we may have under the law and
of representation, the actual or legal absence of the principal is converted into his legal or juridical
equity.
presence."

Pertinent to this case are the following provisions of the Civil Code:
Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority,
and the principal does not ratify the contract, it shall be void if the party with whom the agent
contracted is aware of the limits of the powers granted by the principal. In this case, however, the
agent is liable if he undertook to secure the principal’s ratification.
Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within
the scope of the agent’s authority, if such act is within the terms of the power of attorney, as written,
even if the agent has in fact exceeded the limits of his authority according to an understanding
between the principal and the agent.
Art. 1902. A third person with whom the agent wishes to contract on behalf of the principal may
require the presentation of the power of attorney, or the instructions as regards the agency. Private
or secret orders and instructions of the principal do not prejudice third persons who have relied upon
the power of attorney or instructions shown to them.
Art. 1910. The principal must comply with all the obligations which the agent may have contracted
within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound except
when he ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the
agent if the former allowed the latter to act as though he had full powers.
Under Article 1878(11) of the Civil Code, a special power of attorney is necessary to obligate
the principal as a guarantor or surety.
The Special Power of Attorney accorded to Quinain clearly states the limits of his authority and
particularly provides that in case of surety bonds, it can only be issued in favor of the Department of
Public Works and Highways, the National Power Corporation, and other government agencies;
furthermore, the amount of the surety bond is limited to ₱500,000.00, to wit:
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That, COUNTRY BANKERS INSURANCE CORPORATION, xxx hereby appoints BETHOVEN B.
QUINAIN with address at x x x to be its General Agent and Attorney-in-Fact, for and in its place,
name and stead, and for its own use and benefit, to do and perform the following acts and things:
1. To conduct, manage, carry on and transact insurance business as usually pertains to a General
Agency of Fire, Personal Accident, Bond, Marine, Motor Car (Except Lancer).
2. To accept, underwrite and subscribe policies of insurance for and in behalf of the Company under
the terms and conditions specified in the General Agency Contract executed and entered into by
and between it and its said Attorney-in-Fact subject to the following Schedule of Limits:
can be no valid ratification and this regardless of the purpose or lack thereof in concealing such facts
and regardless of the parties between whom the question of ratification may arise. Nevertheless,
this principle does not apply if the principal’s ignorance of the material facts and circumstances was
willful, or that the principal chooses to act in ignorance of the facts. However, in the absence of
circumstances putting a reasonably prudent man on inquiry, ratification cannot be implied as against
the principal who is ignorant of the facts.67 (Emphases supplied.)
Neither Unimarine nor Cebu Shipyard was able to repudiate CBIC’s testimony that it was unaware
of the existence of Surety Bond No. G (16) 29419 and Endorsement No. 33152. There were no
allegations either that CBIC should have been put on alert with regard to Quinain’s business
transactions done on its behalf. It is clear, and undisputed therefore, that there can be no ratification
in this case, whether express or implied.
Article 1911, on the other hand, is based on the principle of estoppel, which is necessary for the
protection of third persons. It states that the principal is solidarily liable with the agent even when
the latter has exceeded his authority, if the principal allowed him to act as though he had full powers.
However, for an agency by estoppel to exist, the following must be established:
1. The principal manifested a representation of the agent’s authority or knowingly allowed the agent
to assume such authority;
2. The third person, in good faith, relied upon such representation; and
3. Relying upon such representation, such third person has changed his position to his detriment.68
There is no agency by estoppel because the public was not made to believe that Quinain had the
authority to issue a surety bond in favor of companies other than the Department of Public Works
and Highways, the National Power Corporation, and other government agencies. Neither was it
shown that CBIC knew of the existence of the surety bond before the endorsement extending the
life of the bond, was issued to Unimarine.
It is apparent that Unimarine had been negligent or less than prudent in its dealings with Quinain.
Unimarine undoubtedly failed to establish that it even bothered to inquire if Quinain was authorized
to agree to terms beyond the limits indicated in his special power of attorney. A person dealing with
a known agent is not authorized, under any circumstances, blindly to trust the agents; statements
as to the extent of his powers; such person must not act negligently but must use reasonable
diligence and prudence to ascertain whether the agent acts within the scope of his authority. The
settled rule is that, persons dealing with an assumed agent are bound at their peril, and if they would
hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is upon them to prove it.

xxxx
e. BONDS:
xxxx

Surety Bond (in favor of Dept. of Pub. Works and

Highways, Nat’l. Power Corp. & other…. 500,000.00
Government agencies)

CBIC’s stance is grounded on its contract with Quinain, and the clear, written terms therein. This
Court finds that the terms of the foregoing contract specifically provided for the extent and scope of
Quinain’s authority, and Quinain has indeed exceeded them.

Expounding on the concept and doctrine of ratification in agency, this Court said:
Ratification in agency is the adoption or confirmation by one person of an act performed on his
behalf by another without authority. The substance of the doctrine is confirmation after conduct,
amounting to a substitute for a prior authority. Ordinarily, the principal must have full knowledge at
the time of ratification of all the material facts and circumstances relating to the unauthorized act of
the person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there