GOLD STAR MINING CO., INC., petitioner, vs.

MARTA LIM-JIMENA, CARLOS JIMENA,

GLORIA JIMENA, AURORA JIMENA, JAIME JIMENA, DANTE JIMENA, JORGE JIMENA,
JOYCE JIMENA, as legal heirs of the deceased VICTOR JIMENA, and JOSE HIDALGO,
respondents.

Emiliano S. Samson, R. Balderrama-Samson for petitioner.

Leonardo Sevilla & Ramon C. Aquino for respondents.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; NATURE AND EFFECTS OF;

CREDITOR MAY IMPUGN ACTS WHICH DEBTOR MAY HAVE DONE TO DEFRAUD THE
FORMER. — Creditors, after having pursued the property in possession of the debtor to satisfy
their claims, may exercise all the rights and bring all actions of the latter (debtor) for the same
purpose, save those which are inherent in his person; they may also impugn the acts which the
debtor may have done to defraud them.

2. ID.; AGENCY; PRINCIPAL CAN SUE THE PERSON WITH WHOM HIS AGENT DEALS
WITH. — Where plaintiff's co-owner of mining claims transferred the same to defendant mining
company (without disclosing that plaintiff was his co-owner although the mining company had
knowledge of this fact), said co-owner shall be deemed to have acted as plaintiff's agent with
respect to plaintiff's share of the claims. Hence, plaintiff has an action against the mining
company, pursuant to Article 1883 of the new Civil Code, which provides that the principal may
sue the person with whom the agent dealt with in his agent's name, when the transaction
"involves things belonging to the principal." And where the evidence overwhelmingly established
the fact that despite demand by plaintiff, the mining company refused to recognize plaintiff's
right to the payment of his 1/2 share of the royalties, the plaintiff may implead the company, in
an action filed by the former for accounting of the royalties paid by the company to the co-
defendant (plaintiff's co-owner of the mining claims) and for direct payment to plaintiff of his
share of the royalty, because the relief prayed for cannot be granted without joining the mining
company especially in the face of the attitude it has displayed towards plaintiff.

3. REMEDIAL LAW; ACTION; INJUNCTION; POWER OF COURT TO MAKE EFFECTIVE

ITS AWARD. — Where it appears that in an action by plaintiff against his co-owner for
accounting of royalties paid by mining company to said co-owner and for direct payment to
plaintiff of his share of the royalty (in which action the mining company was impleaded as a
defendant), the defendant company was restrained by a writ of preliminary injunction from
paying royalties during the pendency of the case to its co-defendant and was required to deposit
the same with the trial court; but despite said injunction, defendant company paid the royalties
to its co-defendants, it was held that under these circumstances the trial court correctly
adjudged the defendant company liable to pay the sum to plaintiff "for flagrant violation of the
injunction; and defendant company cannot insist that it may not be penalized for breach of the
injunction, issued by the court of origin, without prior written charge for indirect contempt, and
due hearing (citing Section 3, Rule 64 of the old Rules, now Rule 71 of the Revised Rules),
since the award was not so much a penalty as a decree of restitution in order to make the
violated injunction effective by placing the parties in the same condition as if the injunction had
been fully obeyed. By sentencing defendant company to pay for the account of his co-defendant
the sum aforesaid, the court merely endeavored to prevent its award from being pro tanto
nugatory and ineffective, and thus make it conformable to law and justice. And the fact that the
recovery of this amount was not specifically sought in the complaint is of no moment, since the
complaint prayed in general for "other equitable relief."

DECISION

DECISION

REYES, J.B.L., J p:

From an affirmance in toto by the Court of Appeals 1 of a decision of the Court of First Instance
of Manila, 2 specifically the portion thereof condemning Gold Star Mining Co., Inc., to pay to
Marta Lim Vda. de Jimena, et al., the sum of P30,691.92 solidarily with Ananias Isaac Lincallo
for violation of an injunction, this appeal is taken.

It is of record that in 1937, Ananias Isaac Lincallo bound himself in writing to turn over to Victor
Jimena one-half (1/2) of the proceeds from all mining claims that he would purchase with the
money to be advanced by the latter. This agreement was later on modified (in a 1939 notarial
instrument duly registered with the Register of Deeds of Marinduque in his capacity as mining
recorder) so as to include in the equal sharing arrangement not only the proceeds from several
mining claims, which by that time had already been purchased by Lincallo with various sums
totalling P5,800.00 supplied by Jimena, but also the lands constituting the same, and so as to
bind thereby their "heirs, assigns, or legal representatives." Apparently, the mining rights over
part of the claims were assigned by Lincallo to Gold Star Mining Co., Inc., sometime before
World War II because in 1950 the corporation paid him P5,000.00 in consideration of, and as a
quitclaim for, pre-war royalties.

On several occasions thereafter, the mining claims in question were made subject-matter of
contracts entered into by Lincallo in his own name and for his benefit alone without the slightest
intimation of Jimena's interests over the same. Thus, on 19 September 1951, Lincallo and one
Alejandro Marquez, as separate owners of particular mining claims, entered into an agreement
with Gold Star Mining Co., Inc., the assignee thereof, regarding allotment to Lincallo of 45% of
the royalties due from the corporation. Four months later, Lincallo, Marquez and Congressman
Panfilo Manguerra, again as owners, leased certain mining claims to Jacob Cabarrus, who, in
turn, transferred to Marinduque Iron Mines Agents, Inc., his rights under the lease contract. By
virtue of still another contract executed by these lessors on 29 February 1952, 43% of the
royalties due from Marinduque Iron Mines Agents, Inc., were agreed upon to be paid to Lincallo.

As early as August, 1939 and down to September, 1952, Jimena repeatedly apprised Gold Star
Mining Co., Inc., and Marinduque Iron Mines Agents, Inc., of his interests over the mining claims
so assigned and/or leased by Lincallo and, accordingly, demanded recognition and payment of
his one-half share in all the royalties allocated and paid and, thereafter, to be paid to the latter.
Both corporations, however, ignored Jimena's demands.
Payment of the P5,800 advanced for the purchase of the mining claims, as well as the one-half
share in the royalties paid by the two corporations, were also repeatedly demanded by Jimena
from Lincallo. Acknowledging Jimena's contractual claim, Lincallo off and on promised to settle
his obligations. And on 14 July 1952, Lincallo promised, for the last time, to settle everything on
or before the 30th day of the same month.

Lincallo, however, did not only fail to settle his accounts with Jimena but transferred on 16
August 1952, a month after he promised to pay Jimena, 35 of his 45% share in the royalties due
from Gold Star Mining Co., Inc., to one Gregorio Tolentino, a salaried employee, for an alleged
consideration of P10,000.

On 2 September 1954, Jimena commenced a suit against Lincallo for recovery of his advances
and his one-half share in the royalties. Gold Star Mining Co., Inc., and Marinduque Iron Mines
Agents, Inc., together with Tolentino, were later joined as defendants.

On 17 September 1954, the trial court issued, upon petition of Jimena, a writ of preliminary
injunction restraining Gold Star Mining Co., Inc., and Marinduque Iron Mines Agents, Inc., from
paying royalties during the pendency of the case to Lincallo, his assigns or legal
representatives. Despite the injunction, however, Gold Star Mining Co., Inc., was found out to
have paid P30,691.92 to Lincallo and Tolentino. Said corporation claimed later on (on appeal)
that the injunction had been superseded and/or dissolved on 25 May 1955 by the trial court's
grant of Jimena's petition for a writ of preliminary attachment "to supersede the writ of
preliminary injunction previously issued." But as the grant was conditioned upon filing of a bond
to be approved by the trial court, no writ of attachment was issued because the bond offered by
Jimena was disapproved. 3

Jimena and Tolentino died successively during the pendency of the case in the trial court and
were, accordingly, substituted by their respective widows and children.

After a protracted trial, the lower court rendered a decision, the dispositive portion of which
reads as follows:

"IN VIEW WHEREOF, judgment is rendered:

"1. Declaring the plaintiffs —

(a) as successors in interest of Victor Jimena to be entitled to 1/2 of the 45% share of the
royalties of defendant Lincallo under the latter's contract with Gold Star, Exh. D or Exh. D-1,
dated September 19, 1951;

(b) to a 1/2 of the 43% shares of the rental of defendant Lincallo under his contract with
Jesus (Jacob) Cabarrus assigned to Marinduque Iron Mines, and his contract with Alejandro
Marquez, dated December 5, 1951, and February 29, 1952, Exhs. J and J-1;

(c) and condemning defendants Gold Star and Marinduque Iron Mines to pay direct to
plaintiffs said 1/2 shares of the royalties until said contracts are terminated;
"2. Condemning defendant Lincallo to pay unto plaintiffs, as successors in interest of Victor
Jimena —

(a) the sum of P5,800 with legal interest from the date of the filing of the complaint;

(b) the sum of P40,167.52 which is the 1/2 share of the royalties paid by Gold Star unto
Lincallo as of September 14, 1957;

(c) the sum of P3,235.64 which is the 1/2 share of Jimena on the rentals amounting to
P6,471.27 corresponding to Lincallo's share paid by Marinduque Iron Mines unto Lincallo from
December, 1951 to August 25, 1954, under Exhibit 'N';

(d) P1,000.00 as attorney's fees;

"3. Declaring that the deed of sale, Exh. H, dated August 16, 1952, between defendant
Lincallo and Gregorio Tolentino was effective and transferred only 1/2 of the 45% (43%) share
of Lincallo, and ordering Gold Star Mining Company to make payment hereafter unto plaintiffs,
pursuant to this decision on the royalties due unto Lincallo, notwithstanding the cession unto
Tolentino, so that of the royalties due unto Lincallo 1/2 should always be paid by Gold Star unto
plaintiffs notwithstanding said cession, Exh. H, unto Tolentino by Lincallo;

"4. Judgment is also rendered condemning the estate of Gregorio Tolentino but not the
heirs personally, to pay unto plaintiffs the sum of P24,386.51 with legal interest from the date of
the filing of the complaint against Gregorio Tolentino;

"5. Judgment is rendered condemning defendant Gold Star Mining Company to pay to
plaintiffs solidarily with Lincallo and to be imputed to Lincallo's liability under this judgment unto
Jimena, the sum of P30,691.92;

"6. Judgment is rendered condemning defendant Marinduque Iron Mines to pay unto
plaintiffs the sum of P7,330.36;

"7. The counterclaims of defendants are dismissed;

"8. Costs against defendant Lincallo.

"SO ORDERED." (Emphasis supplied.)

From this judgment, all four defendants, namely, Lincallo, the widow and children of Tolentino,
and the two corporations, appealed to the Court of Appeals. The appeal interposed by
Marinduque Iron Mines Agents, Inc., was, however, withdrawn, while that of Lincallo was
dismissed for his failure to file brief. Pending outcome of the appeal, the royalties due from Gold
Star Mining Co., Inc., were required to be deposited with the trial court, as per order of 17 June
1958 issued by the same court. In compliance therewith, Gold Star Mining Co., Inc., made a
judicial deposit in the amount of P30,691.92.

On 8 October 1965, the Court of Appeals handed down a decision sustaining in its entirety that
of the trial court. Gold Star Mining Co., Inc., moved for reconsideration of said decision insofar
as its adjudged solidary liability with Lincallo to pay to the Jimenas the sum of P30,691.92 "for
flagrant violation of the injunction" was concerned. The motion was denied. Hence, the present
appeal.

Petitioner Gold Star Mining Co., Inc., argues that the Court of Appeals' decision finding that
respondents Jimenas have a cause of action against it, and condemning it to pay the sum of
P30,691.92 for violation of an allegedly non-existent injunction, are reversible errors. Reasons:
As to respondents Jimenas' cause of action, the same does not allegedly appear in the
complaint filed against petitioner corporation. And as to the P30,691.92 penalty for violation of
the injunction, the same can not allegedly be imposed because (1) the sum of P30,691.92 was
not prayed for; (2) the injunction in question had already been superseded and/or dissolved by
the trial court's grant of Jimena's petition for writ of preliminary attachment; and (3) the
corporation was never charged, heard, nor found guilty in accordance with, and pursuant to, the
provisions of Rule 64 of the (Old) Rules of Court.

We are of the same opinion with the Court of Appeals that respondents Jimenas have a cause
of action against petitioner corporation and that the latter's joinder as one of the defendants
before the trial court is fitting and proper. Said the Court of Appeals, and we adopt the same:

"There first assigned error is the Trial Court erred in not dismissing this instant action as 'there is
no privity of contract between Gold Star and Jimena.' This contention is without merit.

"The situation at bar is similar to the status of the first and second mortgagees of a duly
registered real estate mortgage. While there exists no privity of contract between them, yet the
common subject-matter supplies the juridical link.

"Here the evidence overwhelmingly established that Jimena made prewar and postwar
demands upon Gold Star for the payment of his 1/2 share of the royalties but all in vain so he
(Jimena) was constrained to implead Gold Star because it refused to recognize his right.

"Jimena now seeks for accounting of the royalties paid by Gold Star to Lincallo and for direct
payment to himself of his share of the royalties. This relief cannot be granted without joining the
Gold Star specially in the face of the attitude it had displayed towards Jimena.

"Borrowing the Spanish maxim cited by Jimena's counsel, 'el deudor de mi deudor es deudor
mio,' this legal maxim finds sanction in Article 1177, new Civil Code which provides that
'creditors, after having pursued the property in possession of the debtor to satisfy their claims,
may exercise all the rights and bring all the actions of the latter (debtor) for the same purpose,
save those which are inherent in his person; they may also impugn the acts which the debtor
may have done to defraud them (1111)'.

"From another standpoint, equally valid and acceptable, it can be said that Lincallo, in
transferring the mining claims to Gold Star (without disclosing that Jimena was a co-owner
although Gold Star had knowledge of this fact as shown by the proofs heretofore mentioned)
acted as Jimena's agent with respect to Jimena's share of the claims.
"Under such conditions, Jimena has an action against Gold Star, pursuant to Article 1883, New
Civil Code, which provides that the principal may sue the person with whom the agent dealt with
in his (agent's) own, name, when the transaction 'involves things belonging to the principal.'

"As counsel for Jimena has correctly contended, 'the remedy of garnishment suggested by Gold
Star is utterly inadequate for the enforcement of Jimena's right against Lincallo because Jimena
wanted an accounting and wanted to receive directly his share of the royalties from Gold Star.
That recourse is not open to Jimena unless Gold Star is made a party in this action'."

Coming now to the violation of the injunction, we observe that the facts speak for themselves.
Considering that no writ of preliminary attachment was issued by the trial court, the condition for
its issuance not having been met by Jimena, nothing can be said to have superseded the writ of
preliminary injunction in question. The preliminary injunction was, therefore, subsisting and
evidently violated by petitioner corporation when it paid the sum of P30,691.92 to Lincallo and
Tolentino.

Gold Star Mining Co., Inc., insists that it may not be penalized for breach of the injunction,
issued by the court of origin, without prior written charge for indirect contempt, and due hearing,
citing Section 3 of Rule 64 of the old Rules of Court, now Rule 71 of the Revised Rules. We fail
to see any merit in this contention, as it misses the true nature and intent of the award of
P30,691.92 to Jimena, payable solidarily by Gold Star and Lincallo's estate.

Said award is not so much a penalty against petitioner as a decree of restitution, in order to
make the violated injunction effective, as it should be, by placing the parties in the same
condition as if the injunction had been fully obeyed. If Gold Star Mining Co., Inc., had only
heeded the injunction and had not paid to Lincallo the royalties of P30,691.92, such amount
would now be available for the satisfaction of the claims of Jimena and his heirs against
Lincallo. By sentencing Gold Star Mining Co., Inc., to pay, for the account of Lincallo, the sum
aforesaid, the court merely endeavoured to prevent its award from being rendered pro tanto
nugatory and ineffective, and thus make it conformable to law and justice.

That the questioned award was not intended to be a penalty against appellant Gold Star Mining
Co., Inc., is shown by the provision in the judgment that the P30,691.92 to be paid by it to
Jimena is "to be imputed to Lincallo's liability under this judgment." The court thus left the way
open for Gold Star Mining Co., Inc., to recover later the whole amount from Lincallo, whether by
direct action against him or by deducting it from the royalties that may fall due under his 1951
contract with appellant.

That the recovery of this particular amount was not specifically sought in the complaint is of no
moment, since the complaint prayed in general for "other equitable relief."

WHEREFORE, finding no reversible error in the decision appealed from, the same is affirmed,
with costs against petitioner-appellant, Gold Star Mining Co., Inc.

Concepcion, C.J., Dizon, Makalintal, Sanchez, Castro, Angeles, Fernando and Capistrano, JJ.,
concur.
Zaldivar, J., is on leave, did not take part.

[G.R. No. L-10919. February 28, 1958.]

LORETO LORCA, plaintiff-appellant, vs. JOSE S. DINEROS, defendant-appellee.

Pedro B. Puya for appellant.

Manuel F. Zamora for appellee.

SYLLABUS

1. PUBLIC OFFICERS; DEPUTY SHERIFF; LIABILITY FOR DAMAGES RESULTING

FROM PUBLIC AUCTION SALE. — The liability of the deputy sheriff for damages resulting from
sale at public auction of properties attached, arises only where he acts in his own name or is
guilty of active malfeasance or possibly where he exceeds the limits of his agency. Where, as in
the present case, he acted all the time in the name of the sheriff, the latter would be liable to
third persons for the acts of his deputy.

2. PLEADING AND PRACTICE; PARTIES; SUBSCRIPTION OF PARTY DEFENDANT. —

Where there is need for substitution of party defendant, the complaint may be dismissed.

DECISION

BENGZON, J p:

This action for damages against Deputy Sheriff Jose S. Dineros was dismissed by Hon.
Pantaleon Pelayo, Judge of Iloilo, on the ground that it is the Sheriff who is responsible, if at all
— not this deputy.

Such decision resulted from a motion for judgment on the pleadings. The facts are short and
simple:

Pursuant to a writ of execution issued in Civil Case No. 1062 entitled "Rosario Suero v. José
Morata" José S. Dineros as Deputy Sheriff and in the name of the Sheriff sold at public auction
to José Bermejo and Rosario Suero the property attached therein, disregarding the third-party
claim of Loreto Lorca (herein Plaintiff) who asserted ownership over said property. This suit for
damages is the result of said auction sale. Defendant, in his answer, denied liability, pointing out
that he had merely acted for and on behalf of Provincial Sheriff, Cipriano Cabaluna.

The appellant insists here that Dineros was responsible in view of sec. 334 of the Revised
Administrative Code and sec. 15, Rule 39, Rules of Court, which provides as follows:

"SEC. 334 — Right of Bonded Officer to Require Bond from Deputy or assistant. — A sheriff or
other accountable official may require any of his deputies or assistants, not bonded in the fidelity
fund, to give an adequate personal bond as security against loss by reason of any wrongdoing
on the part of such deputy or assistant. The taking of such security shall in no wise impair the
independent civil liability of any of the parties."
". . . and in case the sheriff or attaching officer is sued for damages as a result of the attachment
. . .."

In the light of section 330 of the Administrative Code we think the above provisions apply where
the deputy acts in his own name or is guilty of active malfeasance 1 or possibly where he
exceeds the limits of his agency. In this case it is clear from the certificate of sale attached to
the complaint as Annex C that Dineros acted all the time in the name of the Ex-Officio Provincial
Sheriff of Iloilo; and no allegations of misfeasance are made. The Sheriff is liable to third
persons on the acts of his deputy, 2 in the same manner that the principal is responsible for the
acts of his agent. That is why he is required to post a bond for "the benefit of whom it may
concern," (Section 330, Revised Administrative Code) for instance the owners of property
unlawfully sold by him on execution. 3

The complaint should not have been dismissed, appellant argues, since the court could have
included the Sheriff as party defendant, in line with Rule 3, section 11 of the Rules of Court.
However, what should have been done was not "inclusion" as plaintiff asked, nor "exclusion"
under said section 11. It was "substitution" of the deputy by the Sheriff. Anyway, the word "may"
in said sec. 11 implies discretion of the court; and we are shown no reasons indicating abuse
thereof.

This is not the first time an action is dismissed for the reason that the agent - instead of his
principal — was made the party defendant. (See Macias & Co. vs. Warner Barnes, 43 Phil.,
155; Banque Generale Belge vs. Walter Bull & Co., 84 Phil., 164, 47 Off. Gaz., 138.)

Judgment affirmed, with costs against appellant.

[G.R. No. 130423. November 18, 2002.]

VIRGIE SERONA, petitioner, vs. HON. COURT OF APPEALS and THE PEOPLE OF THE
PHILIPPINES, respondents.

Rico and Associates for petitioner.

The Solicitor General for respondents.

SYNOPSIS

Petitioner Virgie Serona was convicted of estafa by the Regional Trial Court of Las Piñas.
Petitioner appealed to the Court of Appeals, which affirmed the judgment of conviction but only
modified the penalty imposed by the trial court. Upon denial of her motion for reconsideration,
petitioner filed the present petition for review on certiorari. Petitioner argued that the prosecution
failed to establish the elements of estafa as penalized under Article 315, par. 1(b) of the
Revised Penal Code. In particular, she submitted that she neither abused the confidence
reposed upon her by the owner of the jewelry nor converted or misappropriated the subject
jewelry; that her giving the pieces of jewelry to a sub-agent for sale on commission basis did not
violate her undertaking with the owner. Moreover, petitioner delivered the jewelry to his sub-
agent under the same terms upon which it was originally entrusted to her. It was established
that petitioner had not derived any personal benefit from the loss of the jewelry. Consequently, it
cannot be said that she misappropriated or converted the same. DcITaC

The Supreme Court upheld petitioner's contention and acquitted her of the charge of estafa.
Petitioner did not ipso facto commit the crime of estafa through conversion or misappropriation
by delivering the jewelry to a sub-agent for sale on commission basis. The Court rejected the
lower court's conclusion that the fact alone was sufficient ground for holding that petitioner
disposed of the jewelry "as if it were hers, thereby committing conversion and a clear breach of
trust." The Court pointed out that the law on agency in our jurisdiction allows the appointment by
an agent of a substitute or sub-agent in the absence of an express agreement to the contrary
between the agent and the principal. In the case at bar, the appointment of a certain Marichu
Labrador as petitioner's sub-agent was not expressly prohibited by Leonida Quilatan, the owner
of the jewelry, as the acknowledgment receipt does not contain any such limitation. Neither
does it appear that petitioner was verbally forbidden by Quilatan from passing on the jewelry to
another person before the acknowledgment receipt was executed or at any other time. Thus, it
cannot be said that petitioner's act of entrusting the jewelry to Labrador was characterized by
abuse of confidence because such an act was not proscribed and was, in fact, legally
sanctioned.

SYLLABUS

1. CRIMINAL LAW; ESTAFA; ELEMENTS; NOT ESTABLISHED; PETITIONER'S ACT OF

ENTRUSTING THE JEWELRY TO HER SUB-AGENT IS NOT CHARACTERIZED BY ABUSE
OF CONFIDENCE BECAUSE SUCH ACT WAS NOT PROSCRIBED AND IS, IN FACT,
LEGALLY SANCTIONED. — The elements of estafa through misappropriation or conversion as
defined in Article 315, par. 1(b) of the Revised Penal Code are: (1) that the money, good or
other personal property is received by the offender in trust, or on commission, or for
administration, or under any other obligation involving the duty to make delivery of, or to return,
the same; (2) that there be misappropriation or conversion of such money or property by the
offender or denial on his part of such receipt; (3) that such misappropriation or conversion or
denial is to the prejudice of another; and (4) that there is a demand made by the offended party
on the offender. While the first, third and fourth elements are concededly present, we find the
second element of misappropriation or conversion to be lacking in the case at bar. Petitioner did
not ipso facto commit the crime of estafa through conversion or misappropriation by delivering
the jewelry to a sub-agent for sale on commission basis. We are unable to agree with the lower
courts' conclusion that this fact alone is sufficient ground for holding that petitioner disposed of
the jewelry "as if it were hers, thereby committing conversion and a clear breach of trust." It
must be pointed out that the law on agency in our jurisdiction allows the appointment by an
agent of a substitute or sub-agent in the absence of an express agreement to the contrary
between the agent and the principal. In the case at bar, the appointment of Labrador as
petitioner's sub-agent was not expressly prohibited by Quilatan, as the acknowledgment receipt,
Exhibit B, does not contain any such limitation. Neither does it appear that petitioner was
verbally forbidden by Quilatan from passing on the jewelry to another person before the
acknowledgment receipt was executed or at any other time. Thus, it cannot be said that
petitioner's act of entrusting the jewelry to Labrador is characterized by abuse of confidence
because such an act was not proscribed and is, in fact, legally sanctioned. TDCAHE

2. ID.; ID.; ID.; ELEMENT OF CONVERSION IS WANTING SINCE THE PIECES OF

JEWELRY WERE NOT DEVOTED TO A PURPOSE OR USE DIFFERENT FROM THAT
AGREED UPON. — The essence of estafa under Article 313, par. 1(b) is the appropriation or
conversion of money or property received to the prejudice of the owner. The words "convert"
and "misappropriated" connote an act of using or disposing of another's property as if it were
one's own, or of devoting it to a purpose or use different from that agreed upon. To
misappropriate for one's own use includes not only conversion to one's personal advantage, but
also every attempt to dispose of the property of another without right. In the case at bar, it was
established that the inability of petitioner as agent to comply with her duty to return either the
pieces of jewelry or the proceeds of its sale to her principal Quilatan was due, in turn, to the
failure of Labrador to abide by her agreement with petitioner. Notably, Labrador testified that
she obligated herself to sell the jewelry in behalf of petitioner also on commission basis or to
return the same if not sold. In other words, the pieces of jewelry were given by petitioner to
Labrador to achieve the very same end for which they were delivered to her in the first place.
Consequently, there is no conversion since the pieces of jewelry were not devoted to a purpose
or use different from that agreed upon. Similarly, it cannot be said that petitioner
misappropriated the jewelry or delivered them to Labrador "without right." Aside from the fact
that no condition or limitation was imposed on the mode or manner by which petitioner was to
effect the sale, it is also consistent with usual practice for the seller to necessarily part with the
valuables in order to find a buyer and allow inspection of the items for sale.

3. ID.; ID.; ID.; NO ESTAFA WITHIN THE CONTEMPLATION OF THE LAW SINCE
PETITIONER DID NOT DERIVE PERSONAL BENEFIT FROM OR CONSPIRED WITH HER
SUB-AGENT TO DEPRIVE THE OWNER OF THE JEWELRY OR ITS VALUE. — Petitioner
herein must be acquitted. The lower courts' reliance on People v. Flores and U.S. v. Panes to
justify petitioner's conviction is misplaced, considering that the factual background of the cited
cases differ from those which obtain in the case at bar. In Flores, the accused received a ring to
sell under the condition that she would return it the following day if not sold and without authority
to retain the ring or to give it to a sub-agent. The accused in Panes, meanwhile, was obliged to
return the jewelry he received upon demand, but passed on the same to a sub-agent even after
demand for its return had already been made. In the foregoing cases, it was held that there was
conversion or misappropriation. Labrador admitted that she received the jewelry from petitioner
and sold the same to a third person. She further acknowledged that she owed petitioner
P441,035.00, thereby negating any criminal intent on the part of petitioner. There is no showing
that petitioner derived personal benefit from or conspired with Labrador to deprive Quilatan of
the jewelry or its value. Consequently, there is no estafa within contemplation of the law.

4. ID.; CIVIL LIABILITY; PETITIONER HELD CIVILLY LIABLE TO THE OWNER OF THE
JEWELRY. — Petitioner is not entirely free from any liability towards Quilatan. The rule is that
an accused acquitted of estafa may nevertheless be held civilly liable where the facts
established by the evidence so warrant. Then too, an agent who is not prohibited from
appointing a sub-agent but does so without express authority is responsible for the acts of the
sub-agent. Considering that the civil action for the recovery of civil liability arising from the
offense is deemed instituted with the criminal action, petitioner is liable to pay complainant
Quilatan the value of the unpaid pieces of jewelry. CIETDc

DECISION

YNARES-SANTIAGO, J p:

During the period from July 1992 to September 1992, Leonida Quilatan delivered pieces of
jewelry to petitioner Virgie Serona to be sold on commission basis. By oral agreement of the
parties, petitioner shall remit payment or return the pieces of jewelry if not sold to Quilatan, both
within 30 days from receipt of the items.

Upon petitioner's failure to pay on September 24, 1992, Quilatan required her to execute an
acknowledgment receipt (Exhibit B) indicating their agreement and the total amount due, to wit:

Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Piñas, ay kumuha ng mga alahas
kay Gng. Leonida Quilatan na may kabuohang halaga na P567,750.00 para ipagbili para ako
magkakomisyon at ibibigay ang benta kung mabibili o ibabalik sa kanya ang mga nasabing
alahas kung hindi mabibili sa loob ng 30 araw.

Las Piñas, September 24, 1992. 1

The receipt was signed by petitioner and a witness, Rufina G. Navarette.

Unknown to Quilatan, petitioner had earlier entrusted the jewelry to one Marichu Labrador for
the latter to sell on commission basis. Petitioner was not able to collect payment from Labrador,
which caused her to likewise fail to pay her obligation to Quilatan. ATSIED

Subsequently, Quilatan, through counsel, sent a formal letter of demand 2 to petitioner for
failure to settle her obligation. Quilatan executed a complaint affidavit 3 against petitioner before
the Office of the Assistant Provincial Prosecutor. Thereafter, an information for estafa under
Article 315, paragraph 1(b) 4 of the Revised Penal Code was filed against petitioner, which was
raffled to Branch 255 of the Regional Trial Court of Las Piñas. The information alleged:

That on or about and sometime during the period from July 1992 up to September 1992, in the
Municipality of Las Piñas, Metro Manila, Philippines, and within the jurisdiction of this Honorable
Court, the said accused received in trust from the complainant Leonida E. Quilatan various
pieces of jewelry in the total value of P567,750.00 to be sold on commission basis under the
express duty and obligation of remitting the proceeds thereof to the said complainant if sold or
returning the same to the latter if unsold but the said accused once in possession of said
various pieces of jewelry, with unfaithfulness and abuse of confidence and with intent to
defraud, did then and there willfully, unlawfully and feloniously misappropriate and convert the
same for her own personal use and benefit and despite oral and written demands, she failed
and refused to account for said jewelry or the proceeds of sale thereof, to the damage and
prejudice of complainant Leonida C. Quilatan in the aforestated total amount of P567,750.00.

CONTRARY TO LAW. 5
Petitioner pleaded not guilty to the charge upon arraignment. 6 Trial on the merits thereafter
ensued. SDEITC

Quilatan testified that petitioner was able to remit P100,000.00 and returned P43,000.00 worth
of jewelry; 7 that at the start, petitioner was prompt in settling her obligation; however,
subsequently the payments were remitted late; 8 that petitioner still owed her in the amount of
P424,750.00. 9

On the other hand, petitioner admitted that she received several pieces of jewelry from Quilatan
and that she indeed failed to pay for the same. She claimed that she entrusted the pieces of
jewelry to Marichu Labrador who failed to pay for the same, thereby causing her to default in
paying Quilatan. 10 She presented handwritten receipts (Exhibits 1 & 2) 11 evidencing
payments made to Quilatan prior to the filing of the criminal case.

Marichu Labrador confirmed that she received pieces of jewelry from petitioner worth
P441,035.00. She identified an acknowledgment receipt (Exhibit 3) 12 signed by her dated July
5, 1992 and testified that she sold the jewelry to a person who absconded without paying her.
Labrador also explained that in the past, she too had directly transacted with Quilatan for the
sale of jewelry on commission basis; however, due to her outstanding account with the latter,
she got jewelry from petitioner instead. 13

On November 17, 1994, the trial court rendered a decision finding petitioner guilty of estafa, the
dispositive portion of which reads:

WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Serona guilty
beyond reasonable doubt, and as the amount misappropriated is P424,750.00 the penalty
provided under the first paragraph of Article 315 of the Revised Penal Code has to be imposed
which shall be in the maximum period plus one (1) year for every additional P10,000.00.
IESAac

Applying the Indeterminate Sentence Law, the said accused is hereby sentenced to suffer the
penalty of imprisonment ranging from FOUR (4) YEARS and ONE (1) DAY of prision
correccional as minimum to TEN (10) YEARS and ONE (1) DAY of prision mayor as maximum;
to pay the sum of P424,750.00 as cost for the unreturned jewelries; to suffer the accessory
penalties provided by law; and to pay the costs.

SO ORDERED. 14

Petitioner appealed to the Court of Appeals, which affirmed the judgment of conviction but
modified the penalty as follows:

WHEREFORE, the appealed decision finding the accused-appellant guilty beyond reasonable
doubt of the crime of estafa is hereby AFFIRMED with the following MODIFICATION:

Considering that the amount involved is P424,750.00, the penalty should be imposed in its
maximum period adding one (1) year for each additional P10,000.00 albeit the total penalty
should not exceed Twenty (20) Years (Art. 315). Hence, accused-appellant is hereby
SENTENCED to suffer the penalty of imprisonment ranging from Four (4) Years and One (1)
Day of Prision Correccional as minimum to Twenty (20) Years of Reclusion Temporal. TAcCDI

SO ORDERED. 15

Upon denial of her motion for reconsideration, 16 petitioner filed the instant petition under Rule
45, alleging that:

RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE

WAS AN ABUSE OF CONFIDENCE ON THE PART OF PETITIONER IN ENTRUSTING THE
SUBJECT JEWELRIES (sic) TO HER SUB-AGENT FOR SALE ON COMMISSION TO
PROSPECTIVE BUYERS.

II

RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE

WAS MISAPPROPRIATION OR CONVERSION ON THE PART OF PETITIONER WHEN SHE
FAILED TO RETURN THE SUBJECT JEWELRIES (sic) TO PRIVATE COMPLAINANT. 17

Petitioner argues that the prosecution failed to establish the elements of estafa as penalized
under Article 315, par. 1(b) of the Revised Penal Code. In particular, she submits that she
neither abused the confidence reposed upon her by Quilatan nor converted or misappropriated
the subject jewelry; that her giving the pieces of jewelry to a sub-agent for sale on commission
basis did not violate her undertaking with Quilatan. Moreover, petitioner delivered the jewelry to
Labrador under the same terms upon which it was originally entrusted to her. It was established
that petitioner had not derived any personal benefit from the loss of the jewelry. Consequently, it
cannot be said that she misappropriated or converted the same. aDATHC

We find merit in the petition.

The elements of estafa through misappropriation or conversion as defined in Article 315, par.
1(b) of the Revised Penal Code are: (1) that the money, good or other personal property is
received by the offender in trust, or on commission, or for administration, or under any other
obligation involving the duty to make delivery of, or to return, the same; (2) that there be
misappropriation or conversion of such money or property by the offender or denial on his part
of such receipt; (3) that such misappropriation or conversion or denial is to the prejudice of
another; and (4) that there is a demand made by the offended party on the offender. 18 While
the first, third and fourth elements are concededly present, we find the second element of
misappropriation or conversion to be lacking in the case at bar.

Petitioner did not ipso facto commit the crime of estafa through conversion or misappropriation
by delivering the jewelry to a sub-agent for sale on commission basis. We are unable to agree
with the lower courts' conclusion that this fact alone is sufficient ground for holding that
petitioner disposed of the jewelry "as if it were hers, thereby committing conversion and a clear
breach of trust." 19
It must be pointed out that the law on agency in our jurisdiction allows the appointment by an
agent of a substitute or sub-agent in the absence of an express agreement to the contrary
between the agent and the principal. 20 In the case at bar, the appointment of Labrador as
petitioner's sub-agent was not expressly prohibited by Quilatan, as the acknowledgment receipt,
Exhibit B, does not contain any such limitation. Neither does it appear that petitioner was
verbally forbidden by Quilatan from passing on the jewelry to another person before the
acknowledgment receipt was executed or at any other time. Thus, it cannot be said that
petitioner's act of entrusting the jewelry to Labrador is characterized by abuse of confidence
because such an act was not proscribed and is, in fact, legally sanctioned. aScIAC

The essence of estafa under Article 315, par. 1(b) is the appropriation or conversion of money
or property received to the prejudice of the owner. The words "convert" and "misappropriated"
connote an act of using or disposing of another's property as if it were one's own, or of devoting
it to a purpose or use different from that agreed upon. To misappropriate for one's own use
includes not only conversion to one's personal advantage, but also every attempt to dispose of
the property of another without right. 21

In the case at bar, it was established that the inability of petitioner as agent to comply with her
duty to return either the pieces of jewelry or the proceeds of its sale to her principal Quilatan
was due, in turn, to the failure of Labrador to abide by her agreement with petitioner. Notably,
Labrador testified that she obligated herself to sell the jewelry in behalf of petitioner also on
commission basis or to return the same if not sold. In other words, the pieces of jewelry were
given by petitioner to Labrador to achieve the very same end for which they were delivered to
her in the first place. Consequently, there is no conversion since the pieces of jewelry were not
devoted to a purpose or use different from that agreed upon.

Similarly, it cannot be said that petitioner misappropriated the jewelry or delivered them to
Labrador "without right." Aside from the fact that no condition or limitation was imposed on the
mode or manner by which petitioner was to effect the sale, it is also consistent with usual
practice for the seller to necessarily part with the valuables in order to find a buyer and allow
inspection of the items for sale.

In People v. Nepomuceno, 22 the accused-appellant was acquitted of estafa on facts similar to

the instant case. Accused-appellant therein undertook to sell two diamond rings in behalf of the
complainant on commission basis, with the obligation to return the same in a few days if not
sold. However, by reason of the fact that the rings were delivered also for sale on commission to
sub-agents who failed to account for the rings or the proceeds of its sale, accused-appellant
likewise failed to make good his obligation to the complainant thereby giving rise to the charge
of estafa. In absolving the accused-appellant of the crime charged, we held:

Where, as in the present case, the agents to whom personal property was entrusted for sale,
conclusively proves the inability to return the same is solely due to malfeasance of a sub-agent
to whom the first agent had actually entrusted the property in good faith, and for the same
purpose for which it was received; there being no prohibition to do so and the chattel being
delivered to the sub-agent before the owner demands its return or before such return becomes
due, we hold that the first agent can not be held guilty of estafa by either misappropriation or
conversion. The abuse of confidence that is characteristic of this offense is missing under the
circumstances. 23

Accordingly, petitioner herein must be acquitted. The lower courts' reliance on People v. Flores
24 and U.S. v. Panes 25 to justify petitioner's conviction is misplaced, considering that the
factual background of the cited cases differ from those which obtain in the case at bar. In Flores,
the accused received a ring to sell under the condition that she would return it the following day
if not sold and without authority to retain the ring or to give it to a sub-agent. The accused in
Panes, meanwhile, was obliged to return the jewelry he received upon demand, but passed on
the same to a sub-agent even after demand for its return had already been made. In the
foregoing cases, it was held that there was conversion or misappropriation.

Furthermore, in Lim v. Court of Appeals, 26 the Court, citing Nepomuceno and the case of
People v. Trinidad, 27 held that:

In cases of estafa the profit or gain must be obtained by the accused personally, through his
own acts, and his mere negligence in permitting another to take advantage or benefit from the
entrusted chattel cannot constitute estafa under Article 315, paragraph 1-b, of the Revised
Penal Code; unless of course the evidence should disclose that the agent acted in conspiracy or
connivance with the one who carried out the actual misappropriation, then the accused would
be answerable for the acts of his co-conspirators. If there is no such evidence, direct or
circumstantial, and if the proof is clear that the accused herself was the innocent victim of her
sub-agent's faithlessness, her acquittal is in order. 28 (Emphasis supplied) AaECSH

Labrador admitted that she received the jewelry from petitioner and sold the same to a third
person. She further acknowledged that she owed petitioner P441,035.00, thereby negating any
criminal intent on the part of petitioner. There is no showing that petitioner derived personal
benefit from or conspired with Labrador to deprive Quilatan of the jewelry or its value.
Consequently, there is no estafa within contemplation of the law.

Notwithstanding the above, however, petitioner is not entirely free from any liability towards
Quilatan. The rule is that an accused acquitted of estafa may nevertheless be held civilly liable
where the facts established by the evidence so warrant. Then too, an agent who is not
prohibited from appointing a sub-agent but does so without express authority is responsible for
the acts of the sub-agent. 29 Considering that the civil action for the recovery of civil liability
arising from the offense is deemed instituted with the criminal action, 30 petitioner is liable to
pay complainant Quilatan the value of the unpaid pieces of jewelry. cIECTH

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CR
No. 17222 dated April 30, 1997 and its resolution dated August 28, 1997 are REVERSED and
SET ASIDE. Petitioner Virgie Serona is ACQUITTED of the crime charged, but is held civilly
liable in the amount of P424,750.00 as actual damages, plus legal interest, without subsidiary
imprisonment in case of insolvency.

SO ORDERED.
[G.R. No. L-20136. June 23, 1965.]

IN RE: PETITION FOR ISSUANCE OF SEPARATE CERTIFICATE OF TITLE. JOSE A.

SANTOS Y DIAZ, petitioner-appellant, vs. ANATOLIO BUENCONSEJO, ET AL., respondents-
appellees.

Segundo C. Mastrili for petitioner-appellant.

Manuel M. Calleja, Rafael S. Lucilla and Jose T. Rubio for respondents-appellees.

SYLLABUS

1. AGENCY; POWER OF ATTORNEY CANNOT VEST PROPERTY RIGHT IN

ATTORNEY'S OWN NAME. — A special power of attorney authorizing a person to act on behalf
of the children of another cannot vest in the said attorney any property right in his own name.

2. ID.; CHILDREN WITHOUT AUTHORITY TO EXECUTE POWER OF ATTORNEY FOR

PARENT. — The children have no authority to execute a power of attorney for their father who
is still alive.

3. CO-OWNERSHIP; CO OWNER CANNOT ADJUDICATE A PORTION OF PROPERTY

WITHOUT CONFORMITY OF OTHER CO-OWNER OR BY JUDICIAL DECREE. — A co-
owner, pro indiviso cannot, without the conformity of the other co-owner or a judicial decree of
partition, adjudicate to himself in fee simple a determinate portion of the property owned in
common to the exclusion of the other co-owners.

DECISION

CONCEPCION, J p:

Petitioner Jose A. Santos y Diaz seeks the reversal of an order of the Court of First Instance of
Albay, denying his petition, filed in Cadastral Case No. M-2197, LRC Cad. Rec. No. 1035, for
the cancellation of original certificate of title No. RO-3848 (25322), issued in the name of
Anatolio Buenconsejo, Lorenzo Bon and Santiago Bon and covering Lot No. 1917 of the
Cadastral Survey of Tabaco, Albay, and the issuance, in lieu thereof, of a separate transfer
certificate of title in his name, covering part of said Lot No. 1917, namely, Lot No. 1917-A of
Subdivision Plan PSD-63379.

The main facts are not disputed. They are set forth in the order appealed from, from which we
quote:

"It appears that the aforementioned Lot No. 1917 covered by Original Certificate of Title No. RO-
3848 (25322) was originally owned in common by Anatolio Buenconsejo to the extent of 1/2
undivided portion and Lorenzo Bon and Santiago Bon to the extent of the other 1/2 (Exh. B);
that Anatolio Buenconsejo's rights, interests and participation over the portion above-mentioned
were on January 3, 1961 and by a Certificate of Sale executed by the Provincial Sheriff of
Albay, transferred and conveyed to Atty. Tecla San Andres Ziga, awardee in the corresponding
auction sale conducted by said Sheriff in connection with the execution of the decision of the
Juvenile Delinquency and Domestic Relations Court in Civil Case No. 25267, entitled `Yolanda
Buenconsejo, et al, vs. Anatolio Buenconsejo': that on December 26, 1961 and by a certificate
of redemption issued by the Provincial Sheriff of Albay, the rights, interest, claim and/or
participation which Atty. Tecla San Andres Ziga may have acquired over the property in
question by reason of the aforementioned auction sale award, were transferred and conveyed to
the herein petitioner in his capacity as Attorney-in-fact of the children of Anatolio Buenconsejo,
namely, Anastacio Buenconsejo, Elena Buenconsejo and Asucena Buenconsejo (Exh. C)."

It would appear, also, that petitioner Santos had redeemed the aforementioned share of
Anatolio Buenconsejo, upon the authority of a special power of attorney executed in his favor by
the children of Anatolio Buenconsejo; that relying upon this power of attorney and redemption
made by him, Santos now claims to have acquired the share of Anatolio Buenconsejo in the
aforementioned Lot No. 1917; that as the alleged present owner of said share, Santos caused a
subdivision plan of said Lot No. 1917 to be made, in which the portion he claims as his share
thereof has been marked as Lot No. 1917-A; and that he wants said subdivision Lot No. 1917-A
to be segregated from Lot No. 1917 and a certificate of title issued in his name exclusively for
said subdivision Lot No. 1917-A.

As correctly held by the lower court, petitioner's claim is clearly untenable, for: (1) said special
power of attorney authorized him to act on behalf of the children of Anatolio Buenconsejo, and,
hence, it could not have possibly vested him any property right in his own name; (2) the children
of Anatolio Buenconsejo had no authority to execute said power of attorney, because their
father is still alive and, in fact, he and his wife opposed the petition of Santos; (3) in
consequence of said power of attorney (if valid) and redemption, Santos could have acquired no
more than the share pro indiviso of Anatolio Buenconsejo in Lot No. 1917, so that petitioner can
not — without the conformity of the other co-owners (Lorenzo and Santiago Bon), or a judicial
decree of partition issued pursuant to the provisions of Rule 69 of the new Rules of Court (Rule
71 of the old Rules of Court) which have not been followed by Santos — adjudicate to himself in
fee simple a determinate portion of said Lot No. 1917, as his share therein, to the exclusion of
the other co-owners.

Inasmuch as the appeal is patently devoid of merit, the order appealed from is hereby affirmed,
with treble costs against petitioner-appellant Jose A. Santos y Diaz. It is so ordered.

Bengzon, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P. and Zaldivar, JJ.,
concur.

Bautista Angelo, Barrera and Paredes, JJ., took no part.

LAUREANO T. ANGELES, petitioner, vs. PHILIPPINE NATIONAL RAILWAYS (PNR) AND

RODOLFO FLORES, 1 respondents.

DECISION

GARCIA, J p:
Under consideration is this petition for review under Rule 45 of the Rules of Court assailing and
seeking to set aside the following issuances of the Court of Appeals (CA) in CA-G.R. CV No.
54062, to wit:

1. Decision 2 dated June 4, 2001, affirming an earlier decision of the Regional Trial Court
(RTC) of Quezon City, Branch 79, which dismissed the complaint for specific performance and
damages thereat commenced by the petitioner against the herein respondents; and

2. Resolution 3 dated September 17, 2001, denying the petitioner's motion for
reconsideration. ISDCHA

The facts:

On May 5, 1980, the respondent Philippine National Railways (PNR) informed a certain
Gaudencio Romualdez (Romualdez, hereinafter) that it has accepted the latter's offer to buy, on
an "AS IS, WHERE IS" basis, the PNR's scrap/unserviceable rails located in Del Carmen and
Lubao, Pampanga at P1,300.00 and P2,100.00 per metric ton, respectively, for the total amount
of P96,600.00. After paying the stated purchase price, Romualdez addressed a letter to Atty.
Cipriano Dizon, PNR's Acting Purchasing Agent. Bearing date May 26, 1980, the letter reads:

Dear Atty. Dizon:

This is to inform you as President of San Juanico Enterprises, that I have authorized the bearer,
LIZETTE R. WIJANCO of No. 1606 Aragon St., Sta. Cruz, Manila, to be my lawful
representative in the withdrawal of the scrap/unserviceable rails awarded to me.

For this reason, I have given her the ORIGINAL COPY of the AWARD, dated May 5, 1980 and
O.R. No. 8706855 dated May 20, 1980 which will indicate my waiver of rights, interests and
participation in favor of LIZETTE R. WIJANCO.

Thank you for your cooperation.

Very truly yours,

(Sgd.) Gaudencio Romualdez

The Lizette R. Wijanco mentioned in the letter was Lizette Wijanco-Angeles, petitioner's now
deceased wife. That very same day — May 26, 1980 — Lizette requested the PNR to transfer
the location of withdrawal for the reason that the scrap/unserviceable rails located in Del
Carmen and Lubao, Pampanga were not ready for hauling. The PNR granted said request and
allowed Lizette to withdraw scrap/unserviceable rails in Murcia, Capas and San Miguel, Tarlac
instead. However, the PNR subsequently suspended the withdrawal in view of what it
considered as documentary discrepancies coupled by reported pilferages of over P500,000.00
worth of PNR scrap properties in Tarlac.

Consequently, the spouses Angeles demanded the refund of the amount of P96,000.00. The
PNR, however, refused to pay, alleging that as per delivery receipt duly signed by Lizette,
54.658 metric tons of unserviceable rails had already been withdrawn which, at P2,100.00 per
metric ton, were worth P114,781.80, an amount that exceeds the claim for refund.

On August 10, 1988, the spouses Angeles filed suit against the PNR and its corporate
secretary, Rodolfo Flores, among others, for specific performance and damages before the
Regional Trial Court of Quezon City. In it, they prayed that PNR be directed to deliver 46 metric
tons of scrap/unserviceable rails and to pay them damages and attorney's fees.

Issues having been joined following the filing by PNR, et al., of their answer, trial ensued.
Meanwhile, Lizette W. Angeles passed away and was substituted by her heirs, among whom is
her husband, herein petitioner Laureno T. Angeles.

On April 16, 1996, the trial court, on the postulate that the spouses Angeles are not the real
parties-in-interest, rendered judgment dismissing their complaint for lack of cause of action. As
held by the court, Lizette was merely a representative of Romualdez in the withdrawal of scrap
or unserviceable rails awarded to him and not an assignee to the latter's rights with respect to
the award. DASCIc

Aggrieved, the petitioner interposed an appeal with the CA, which, as stated at the threshold
hereof, in its decision of June 4, 2001, dismissed the appeal and affirmed that of the trial court.
The affirmatory decision was reiterated by the CA in its resolution of September 17, 2001,
denying the petitioner's motion for reconsideration.

Hence, the petitioner's present recourse on the submission that the CA erred in affirming the
trial court's holding that petitioner and his spouse, as plaintiffs a quo, had no cause of action as
they were not the real parties-in-interest in this case.

We DENY the petition.

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

Where agency exists, the third party's (in this case, PNR's) liability on a contract is to the
principal and not to the agent and the relationship of the third party to the principal is the same
as that in a contract in which there is no agent. Normally, the agent has neither rights nor
liabilities as against the third party. He cannot thus sue or be sued on the contract. Since a
contract may be violated only by the parties thereto as against each other, the real party-in-
interest, either as plaintiff or defendant in an action upon that contract must, generally, be a
contracting party.

The legal situation is, however, different where an agent is constituted as an assignee. In such a
case, the agent may, in his own behalf, sue on a contract made for his principal, as an assignee
of such contract. The rule requiring every action to be prosecuted in the name of the real party-
in-interest recognizes the assignment of rights of action and also recognizes that when one has
a right assigned to him, he is then the real party-in-interest and may maintain an action upon
such claim or right. 4

Upon scrutiny of the subject Romualdez's letter to Atty. Cipriano Dizon dated May 26, 1980, it is
at once apparent that Lizette was to act just as a "representative" of Romualdez in the
"withdrawal of rails," and not an assignee. For perspective, we reproduce the contents of said
letter:

This is to inform you as President of San Juanico Enterprises, that I have authorized the bearer,
LIZETTE R. WIJANCO . . . to be my lawful representative in the withdrawal of the
scrap/unserviceable rails awarded to me.

For this reason, I have given her the ORIGINAL COPY of the AWARD, dated May 5, 1980 and
O.R. No. 8706855 dated May 20, 1980 which will indicate my waiver of rights, interests and
participation in favor of LIZETTE R. WIJANCO. (Emphasis added)

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

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

It cannot be over emphasized that Romualdez's use of the active verb "authorized," instead of
"assigned," indicated an intent on his part to keep and retain his interest in the subject matter.
Stated a bit differently, he intended to limit Lizette's role in the scrap transaction to being the
representative of his interest therein.

Petitioner submits that the second paragraph of the Romualdez letter, stating — "I have given
[Lizette] the original copy of the award . . . which will indicate my waiver of rights, interests and
participation in favor of Lizette R. Wijanco" — clarifies that Lizette was intended to be an
assignee, and not a mere agent.

We are not persuaded. As it were, the petitioner conveniently omitted an important phrase
preceding the paragraph which would have put the whole matter in context. The phrase is "For
this reason," and the antecedent thereof is his (Romualdez) having appointed Lizette as his
representative in the matter of the withdrawal of the scrap items. In fine, the key phrase clearly
conveys the idea that Lizette was given the original copy of the contract award to enable her to
withdraw the rails as Romualdez's authorized representative.

Article 1374 of the Civil Code provides that the various stipulations of a contract shall be read
and interpreted together, attributing to the doubtful ones that sense which may result from all of
them taken jointly. In fine, the real intention of the parties is primarily to be determined from the
language used and gathered from the whole instrument. When put into the context of the letter
as a whole, it is abundantly clear that the rights which Romualdez waived or ceded in favor of
Lizette were those in furtherance of the agency relation that he had established for the
withdrawal of the rails.

At any rate, any doubt as to the intent of Romualdez generated by the way his letter was
couched could be clarified by the acts of the main players themselves. Article 1371 of the Civil
Code provides that to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered. In other words, in case of doubt, resort may be
made to the situation, surroundings, and relations of the parties.

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

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

Petitioner maintains that the Romualdez letter in question was not in the form of a special power
of attorney, implying that the latter had not intended to merely authorize his wife, Lizette, to
perform an act for him (Romualdez). The contention is specious. In the absence of statute, no
form or method of execution is required for a valid power of attorney; it may be in any form
clearly showing on its face the agent's authority. 7

A power of attorney is only but an instrument in writing by which a person, as principal, appoints
another as his agent and confers upon him the authority to perform certain specified acts on
behalf of the principal. The written authorization itself is the power of attorney, and this is clearly
indicated by the fact that it has also been called a "letter of attorney." Its primary purpose is not
to define the authority of the agent as between himself and his principal but to evidence the
authority of the agent to third parties with whom the agent deals. 8 The letter under
consideration is sufficient to constitute a power of attorney. Except as may be required by
statute, a power of attorney is valid although no notary public intervened in its execution. 9

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

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

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

Costs against the petitioner.

SO ORDERED.

Puno, Sandoval-Gutierrez and Azcuna, JJ., concur.

Corona, J., is on leave.

[G.R. No. 12579. July 27, 1918.]

GREGORIO JIMENEZ, plaintiff-appellee, vs. PEDRO RABOT, NICOLASA JIMENEZ and her
husband, EMILIO RODRIGUEZ, defendants. PEDRO RABOT, appellant.

Antonio Bengson, for appellant.

Jose Rivera, for appellee.

SYLLABUS

1. SALE OF LAND; POWER OF ATTORNEY; SPECIFIC DESCRIPTION OF PROPERTY

UNNECESSARY. — Where the owner of real property desires to confer upon an attorney in fact
authority to sell the same, it is necessary that the authority should be expressed in writing; but it
is not necessary that the property to be sold should be precisely described. It is sufficient if the
authority is so expressed as to determine without doubt the limits of the agent's authority.

2. ID.; ID.; ID.; CASE AT BAR. — The plaintiff, being the owner of three parcels of land, left
the same in the care of his sister as his agent and went to live in another province. While so
absent, he wrote her to sell one of his parcels and to send him the money. The sister found a
purchaser and sold one of the parcels but failed to forward the proceeds to her brother.
Afterwards the plaintiff returned and instituted an action to recover the parcel which had been
sold. Held: That the authority to sell was sufficient and that the plaintiff could not recover.

DECISION

STREET, J p:

This action was instituted by the plaintiff, Gregorio Jimenez, to recover from the defendant,
Pedro Rabot, a parcel of land situated in the municipality of Alaminos, in the Province of
Pangasinan, and described in the complaint as follows:

"Approximate area of three hectares; bounded on the north and west with land of Pedro
Reynoso; on the south with land of Nicolasa Jimenez; and on the east with land of Calixta
Apostol before, at present with that of Juan Montemayor and Simon del Barrio. It is situated in
Dinmayat Tancaran, barrio of Alos of this same municipality of Alaminos, Pangasinan."

From a judgment rendered in favor of the plaintiff, Pedro Rabot has appealed; but his
codefendants, Nicolasa Jimenez and her husband, who were cited by the defendant for the
purpose of holding her liable upon her warranty in case of his eviction, have not appealed.

It is admitted that the parcel of land in question, together with two other parcels in the same
locality originally belonged to the plaintiff, having been assigned to him as one of the heirs in the
division of the estate of his father. It further appears that while Gregorio was staying at Vigan, in
the Province of Ilocos Sur, during the year 1911, his property in Alaminos was confided by him
to the care of his elder sister Nicolasa Jimenez. On February 7 of that year he wrote this sister a
letter from Vigan in which he informed her that he was pressed for money and requested her to
sell one of his parcels of land and send him the money in order that he might pay his debts. This
letter contains no description of the land to be sold other than is indicated in the words "one of
my parcels of land" ("uno de mis terrenos").

Acting upon this letter Nicolasa approached the defendant Pedro Rabot, and the latter agreed to
buy the parcel in question for the sum of P500. Two hundred and fifty pesos were paid at once,
with the understanding that a deed of conveyance would be executed when the balance should
be paid. Nicolasa admits having received this payment of P250 at the time stated; but there is
no evidence that she sent any of it to her brother.

About one year later Gregorio came down to Alaminos and demanded that his sister should
surrender this piece of land to him, it being then in her possession. She refused upon some
pretext or other to do so; and as a result Gregorio, in conjunction with others of his brothers and
sisters, whose properties were also in the hands of Nicolasa, instituted an action in the Court of
First Instance for the purpose of recovering their land from her control. This action was decided
favorably to the plaintiffs upon August 12, 1913; and no appeal was taken from the judgment.

Meanwhile, upon May 31, 1912, Nicolasa Jimenez executed and delivered to Pedro Rabot a
deed purporting to convey to him the parcel of land which is the subject of this controversy. The
deed recites that the sale was made in consideration of the sum of P500, the payment of which
is acknowledged. Pedro Rabot went into possession, and the property was found in his hands at
the time when final judgment was entered in favor of the plaintiffs in the action above
mentioned. It will thus be seen that Pedro Rabot acquired possession under the deed from
Nicolasa during the pendency of the litigation in which she was defendant; but it does not
positively appear that he was at the time cognizant of that circumstance.

In considering the questions presented by this appeal one or two preliminary observations may
be made. The first is that, as a matter of formality, a power of attorney to convey real property
ought to appear in a public document, just as any other instrument intended to transmit or
convey an interest in such property ought to appear in a public document. (Art. 1280, Civil
Code.) But inasmuch as it is an established doctrine that a private document is competent to
create, transmit, modify, or extinguish a right in real property (Thunga Chui vs. Que Bentec, 2
Phil. Rep., 561; Couto Soriano vs. Cortes, 8 Phil. Rep., 459), it follows that a power of attorney
to convey such property, even though in the form of a private document, will operate with effect.
Again, supposing that the letter contained adequate authority for Nicolasa to sell the property in
question, her action in conveying the property in her own name, without showing the capacity in
which she acted, was doubtless irregular. Nevertheless, such deed would in any event operate
to bind her brother, the plaintiff, in its character as a contract (Lyon vs. Pollock, 99 U. S., 668; 25
L. ed.,-265), and supposing that the authority was sufficient, he could be compelled by a proper
judicial proceeding to execute a document to carry such contract into effect. (Art. 1279, Civil
Code.)

The principal question for consideration therefore in the end resolves itself into this, whether the
authority conferred on Nicolasa by the letter of February 7, 1911, was sufficient to enable her to
bind her brother. The only provisions of law bearing on this point are contained in article 1713 of
the Civil Code and in section 335 of the Code of Civil Procedure. Article 1713 of the Civil Code
requires that the authority to alienate land shall be contained in an express mandate; while
subsection 5 of section 335 of the Code of Civil Procedure says that the authority of the agent
must be in writing and subscribed by the party to be charged. We are of the opinion that the
authority expressed in the letter is a sufficient compliance with both requirements.

It has been urged here that in order for the authority to be sufficient under section 335 of the
Code of Civil Procedure the authorization must contain a particular description of the property
which the agent is to be permitted to sell. There is no such requirement in subsection 5 of
section 335; and we do not believe that it would be legitimate to read such a requirement into it.
The purpose in giving a power of attorney is to substitute the mind and hand of the agent for the
mind and hand of the principal; and if the character and extent of the power is so far defined as
to leave no doubt as to the limits within which the agent is authorized to act, and he acts within
those limits, the principal cannot question the validity of his act. It is not necessary that the
particular act to be accomplished should be predestinated by the language of the power. The
question to be answered always, after the power has been exercised, is rather this: Was the act
which the agent performed within the scope of his authority? In the case before us, if the
question is asked whether the act performed by Nicolasa Jimenez was within the scope of the
authority which had been conferred upon her, the answer must be obviously in the affirmative.

It should not escape observation that the problem with which we are here concerned relates to
the sufficiency of the power of attorney under subsection 5 of section 335 of the Code of Civil
Procedure and not to the sufficiency of the note or memorandum of the contract, or agreement
of sale, required by the same subsection, in connection with the first paragraph of the same
section. It is well settled in the jurisprudence of England and the United States that when the
owner, or his agent, comes to make a contract to sell, or a conveyance to effect a transfer, there
must be a description of the property which is the subject of the sale or conveyance. This is
necessary of course to define the object of the contract. (Brockway vs. Frost, 40 Minn., 155;
Carr vs. Passaic Land etc. Co., 19 N. J. Eq., 424; Lippincott vs. Bridgewater, 55 N. J. Eq., 208;
Craig vs. Zelian, 137 Cal., 105; 20 Cyc., 271.)

The general rule here applicable is that the description must be sufficiently definite to identify
the land either from the recitals of the contract or deed or from external facts referred to in the
document, thereby enabling one to determine the identity of the land and if the description is
uncertain on its face or is shown to be applicable with equal plausibility to more than one tract, it
is insufficient. The principle embodied in these decisions is not, in our opinion, applicable to the
present case, which relates to the sufficiency of the authorization, not to the sufficiency of the
contract or conveyance. It is unquestionable that the deed which Nicolasa executed contains a
proper description of the property which she purported to convey.

There is ample authority to the effect that a person may by a general power of attorney
authorize an agent to sell "all" the land possessed by the principal, or all that he possesses in a
particular city, county, or state. (Roper vs. McFadden, 48 Cal., 346; Rownd vs. Davidson, 113
La., 1047; Carson vs. Ray, 52 N. C., 609; 78 Am. Dec., 267; 31 Cyc., 1229.) It is also held that
where a person authorizes an agent to sell a farm ("my farm") in a certain county, this is
sufficient, if it be shown that such party has only one farm in that county. (Marriner vs.
Dennison, 78 Cal., 202.) In Linton vs. Moorhead (209 Pa. St., 646), the power authorized the
agent to sell or convey "any or all tracts, lots, or parcels" of land belonging to the plaintiff. It was
held that this was adequate. In Lyon vs. Pollock (99 U. S., 668), the owner in effect authorized
an agent to sell everything he had in San Antonio, Texas. The authority was held sufficient. In
Linan vs. Puno (31 Phil. Rep., 259), the authority granted was to the effect that the agent might
administer "the interests" possessed by the principal in the municipality of Tarlac and to that end
he was authorized to purchase, sell, collect, and pay, etc. It was held that this was a sufficient
power.

In the present case the agent was given the power to sell either of the parcels of land belonging
to the plaintiff. We can see no reason why the performance of an act within the scope of this
authority should not bind the plaintiff to the same extent as if he had given the agent authority to
sell "any or all" and she had conveyed only one.

From what has been said it is evident that the lower court should have absolved the defendant
Pedro Rabot from the complaint. Judgment will accordingly be reversed, without any express
adjudication of costs of this instance. So ordered.

Torres, Johnson, Malcolm, Avanceña and Fisher, JJ., concur.

[G.R. No. 138639. February 10, 2000.]

CITY-LITE REALTY CORPORATION, petitioner, vs. COURT OF APPEALS and F.P.

HOLDINGS & REALTY CORP., METRO DRUG INC., MELDIN AL G. ROY, VIEWMASTER
CONSTRUCTION CORP., and the REGISTER OF DEEDS OF QUEZON CITY, respondent.

Padilla Villanueva Marasigan and Associates for petitioner.

Antonio R. Bautista for F.P. Holdings.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for respondents Metro/Roy

Alfonso M. Cruz Law Offices for Viewmaster Construction Corp.

SYNOPSIS

Private respondent F.P. Holdings and Realty Corp. was the registered owner of a parcel of land
situated along E. Rodriguez Avenue, Quezon City. The property was offered for sale to the
general public through the circulation of a sales brochure stating therein that Meldin Al G. Roy
was the contact person. Because of this advertisement, petitioner sent a letter to Meldin Roy
conveying its interest to purchase a portion or 1/2 of the front lot of the property. However, Roy
answered that he was informed by respondent F.P. Holdings that it would take sometime to
subdivide the lot and it was not receptive to the purchase of only one half of the front lot. After a
few days, petitioner through Atty. Mamaril wrote respondent expressing desire to buy the entire
front lot of the subject property. Roy, made a counter offer, accepted the offer. However,
respondent F.P. Holdings refused to execute the corresponding deed of sale in favor of
petitioner. Due to this inaction, petitioner caused the registration of an adverse claim to the
property. On October 4, 1991, F.P. Holdings filed a petition for the cancellation of the adverse
claim against petitioner in the Regional Trial Court of Quezon City. With the filing of the petition,
petitioner caused the annotation of the first notice of lis pendens, which was recorded in the title
of the property. On December 2, 1991, the RTC dismissed F.P. Holding's petition declaring that
petitioner's adverse claim had factual basis and was not sham and frivolous. Thereafter,
petitioner instituted a complaint against respondent F.P. Holdings for specific performance and
damages. During the pendency of the suit, petitioner moved to include respondent Viewmaster
as necessary party in view of the conveyance of the property to the latter. In October, 1995, the
court a quo rendered its decision in favor of petitioner and ordered respondent F.P. Holdings to
execute a deed of sale in favor of petitioner. Viewmaster's motion for reconsideration was
denied. On appeal, the Court of Appeals reversed and set aside the judgment of the lower court.
Aggrieved by the decision, herein petitioner filed a petition for certiorari questioning the decision
of the appellate court. HTASIa

The Supreme Court found the petition devoid of merit. The Court ruled that Meldin Roy was only
a contact person with no authority to conclude a sale of the property. Roy or Metro Drug was a
mere broker and his job was only to bring the parties together for a possible transaction.
Consequently, for lack of written authority to sell the subject property by Roy or Metro Drug as
mandated by Article 1874 of the Civil Code, the sale was null and void. Accordingly, the
appealed decision of the Court of Appeals was affirmed.

SYLLABUS

CIVIL LAW; AGENCY; CIVIL CODE REQUIRES THAT AN AUTHORITY TO SELL A PIECE OF
LAND SHALL BE IN WRITING; CASE AT BAR. — On the issue of whether a contract of sale
was perfected between petitioner CITY-LITE and respondent F.P. HOLDINGS acting through its
agent Meldin Al G. Roy of Metro Drug, Art. 1874 of the Civil Code provides: "When the sale of a
piece of land or any interest therein is through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void." Petitioner anchors the authority of Metro Drug and
Meldin Al G. Roy on (a) the testimonies of petitioner's three (3) witnesses and the admissions of
Roy and the lawyer of Metro Drug; (b) the sales brochure specifying Meldin Al G. Roy as a
contact person; (c) the guard posted at the property saying that Metro Drug was the authorized
agent; and, (d) the common knowledge among brokers that Metro Drug through Meldin Al G.
Roy was the authorized agent of F.P. HOLDINGS to sell the property. However, and more
importantly, the Civil Code requires that an authority to sell a piece of land shall be in writing.
The absence of authority to sell can be determined from the written memorandum issued by
respondent F.P. HOLDINGS' President requesting Metro Drug's assistance in finding buyers for
the property. The memorandum in part stated:
"We will appreciate Metro Drug's assistance in referring to us buyers for the property. Please
proceed to hold preliminary negotiations with interested buyers and endorse formal offers to us
for our final evaluation and appraisal." This obviously meant that Meldin Al G. Roy and/or Metro
Drug was only to assist F.P. HOLDINGS in looking for buyers and referring to them possible
prospects whom they were supposed to endorse to F.P. HOLDINGS. But the final evaluation,
appraisal and acceptance of the transaction could be made only by F.P. HOLDINGS. In other
words, Meldin Al G. Roy and/or Metro Drug was only a contact person with no authority to
conclude a sale of the property. In fact, a witness for petitioner even admitted that Roy and/or
Metro Drug was a mere broker, and Roy's only job was to bring the parties together for a
possible transaction. Consequently, we hold that for lack of a written authority to sell the
"Violago Property" on the part of Meldin Al G. Roy and/or Metro Drug, the sale should be as it is
declared null and void. Therefore the sale could not produce any legal effect as to transfer the
subject property from its lawful owner, F.P. HOLDINGS, to any interested party including
petitioner CITY-LITE. DCIEac

G.R. No. 114311. November 29, 1996.]

COSMIC LUMBER CORPORATION, petitioner, vs. COURT OF APPEALS and ISIDRO

PEREZ, respondents.

Millora & Maningding Law Offices for petitioner.

Manuel D. Ancheta for private respondent.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; AUTHORITY OF AGENT

TO SELL A PIECE OF LAND OR INTEREST THEREON MUST BE IN WRITING TO BIND
PRINCIPAL. — When the sale of a piece of land or any interest thereon is through an agent, the
authority of the latter shall be in writing otherwise, the sale shall be void. Thus the authority of
an agent to execute a contract for the sale of real estate must be conferred in writing and must
give him specific authority, either to conduct the general business of the principal or to execute
a binding contract containing terms and conditions which are in the contract he did execute. A
special power of attorney is necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable consideration. The
express mandate required by law to enable an appointee of an agency (couched) in general
terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary
ingredient of the act mentioned. For the principal to confer the right upon an agent to sell real
estate, a power of attorney must so express the powers of the agent in clear and unmistakable
language. When there is any reasonable doubt that the language so used conveys such power,
no such construction shall be given the document. cdaisa

2. ID.; ID.; ID.; ID.; ABSENCE OF REQUIRED AUTHORITY RENDERS SALE AND
COMPROMISE JUDGMENT BASED THEREON VOID AB INITIO; CASE AT BAR. — The
authority granted Villamil-Estrada under the special power of attorney was explicit and
exclusionary; for her to institute any action in court to eject all persons found on Lots Nos. 9127
and 443 so that petitioner could take material possession thereof, and for this purpose, to
appear at the pre-trial and enter into any stipulation of facts and/or compromise agreement but
only insofar as this was protective of the rights and interests of petitioner in the property.
Nowhere in this authorization was Villamil-Estrada granted expressly or impliedly any power to
sell the subject property nor a portion thereof. Neither can a conferment of the power to sell be
validly inferred from the specific authority "to enter into a compromise agreement" because of
the explicit limitation fixed by the grantor that the compromise entered into shall be "so far as it
shall protect the rights and interest of the corporation in the aforementioned lots." In the context
of the specific investiture of powers to Villamil-Estrada, alienation by sale of an immovable
certainly cannot be deemed protective of the right of petitioner to physically possess the same,
more so when the land was being sold for a price of P80.00 per square meter, very much less
than its assessed value of P250.00 per square meter, and considering further that petitioner
never received the proceeds of the sale. It is therefore clear that by selling to respondent Perez
a portion of petitioner's land through a compromise agreement, Villamil-Estrada acted without or
in obvious authority. The sale ipso jure is consequently void. So is the compromise agreement.
This being the case, the judgment based thereon is necessarily void. Antipodal to the opinion
expressed by respondent court in resolving petitioner's motion for reconsideration, the nullity of
the settlement between Villamil-Estrada and Perez impaired the jurisdiction of the trial court to
render its decision based on the compromise agreement. (Alviar v. Court of First Instance of La
Union). ICcaST

3. ID.; ID.; ID.; ID.; ID.; REMEDIES AVAILABLE TO PRINCIPAL. — This ruling was
adopted in Jacinto v. Montesa, by Mr. Justice J.B.L. Reyes, a much-respected authority on civil
law, where the Court declared that a judgment based on a compromise entered into by an
attorney without specific authority from the client is void. Such judgment may be impugned and
its execution restrained in any proceeding by the party against whom it is sought to be enforced.
The Court also observed that a defendant against whom a judgment based on a compromise is
sought to be enforced may file a petition for certiorari to quash the execution. He could not
move to have the compromise set aside and then appeal from the order of denial since he was
not a party to the compromise. Thus it would appear that the obiter of the appellate court that
the alleged nullity of the compromise agreement should be raised as a defense against its
enforcement is not legally feasible. Petitioner could not be in a position to question the
compromise agreement in the action to revive the compromise judgment since it was never
privy to such agreement. Villamil-Estrada who signed the compromise agreement may have
been the attorney-in-fact but she could not legally bind petitioner thereto as she was not
entrusted with a special authority to sell the land, as required in Art. 1878, par. (5), of the Civil
Code.

4. REMEDIAL LAW; COURT OF APPEALS; WITH EXCLUSIVE ORIGINAL

JURISDICTION TO ANNUL JUDGMENT OF THE RTC; REQUISITES. — Under authority of
Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the Court of Appeals to annul and set
aside judgments of Regional Trial Courts. "Thus, the Intermediate Appellate Court (now Court of
Appeals) shall exercise . . . (2) Exclusive original jurisdiction over action for annulment of
judgments of the Regional Trial Courts . . ." However, certain requisites must first be established
before a final and executory judgment can be the subject of an action for annulment. It must
either be void for want of jurisdiction or for lack of due process of law, or it has been obtained by
fraud. Conformably with law and the above-cited authorities, the petition to annul the decision of
the trial court in Civil Case No. D-7750 before the Court of Appeals was proper. Emanating as it
did from a void compromise agreement, the trial court had no jurisdiction to render a judgment
based thereon.

5. ID.; ACTIONS; ANNULMENT OF ACTION; EXTRINSIC FRAUD; MANIFEST

CONDUCT OF ATTORNEY-IN-FACT CONCEALING FROM PRINCIPAL THAT LATTER'S
PROPERTY WAS SOLD. — It would also appear, and quite contrary to the finding of the
appellate court, that the highly reprehensible conduct of attorney-in-fact Villamil-Estrada in Civil
Case No. 7750 constituted an extrinsic or collateral fraud by reason of which the judgment
rendered thereon should have been struck down. Not all the legal semantics in the world can
becloud the unassailable fact that petitioner was deceived and betrayed by its attorney-in-fact.
Villamil-Estrada deliberately concealed from petitioner, her principal, that a compromise
agreement had been forged with the end-result that a portion of petitioner's property was sold to
the deforciant, literally for a song. Thus completely kept unaware of its agent's artifice, petitioner
was not accorded even a fighting chance to repudiate the settlement so much so that the
judgment based thereon became final and executory. cAECST

6. ID.; ID.; ID.; ID.; CONSTRUED. — There is extrinsic fraud within the meaning of Sec. 9,
par. (2), of B.P. Blg. 129, where it is one the effect of which prevents a party from hearing a trial,
or real contest, or from presenting all of his case to the court or where it operates upon matters,
not pertaining to the judgment itself, but to the manner in which it was procured, so that there is
not a fair submission of the controversy. In other words, extrinsic fraud refers to any fraudulent
act of the prevailing party in the litigation which is committed outside of the trial of the case,
whereby the defeated party has been prevented from exhibiting fully his side of the case by
fraud or deception practiced on him by his opponent. Fraud is extrinsic where the unsuccessful
party has been prevented from exhibiting fully his case, by fraud or deception practiced on him
by his opponent, as by keeping him away from court, a false promise of a compromise; or where
the defendant never had knowledge of the suit, being kept in ignorance by the acts of the
plaintiff; or where an attorney fraudulently or without authority connives at his defeat; these and
similar cases which show that there has never been a real contest in the trial or hearing of the
case are reasons for which a new suit may be sustained to set aside and annul the former
judgment and open the case for a new and fair hearing.

7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; PRINCIPAL IS

CHARGEABLE WITH THE KNOWLEDGE OR NOTICE TO HIS AGENT RECEIVED; RULE
NOT APPLICABLE WHERE AGENT IS COMMITTING FRAUD AGAINST THE PRINCIPAL. —
It may be argued that petitioner knew of the compromise agreement since the principal is
chargeable with and bound by the knowledge of or notice to his agent received while the agent
was acting as such. But the general rule is intended to protect those who exercise good faith
and not as a shield for unfair dealing. Hence there is a well-established exception to the general
rule as where the conduct and dealings of the agent are such as to raise a clear presumption
that he will not communicate to the principal the facts in controversy. The logical reason for this
exception is that where the agent is committing a fraud, it would be contrary to common sense
to presume or to expect that he would communicate the facts to the principal. Verily, when an
agent is engaged in the perpetration of a fraud upon his principal for his own exclusive benefit,
he is not really acting for the principal but is really acting for himself, entirely outside the scope
of his agency. Indeed, the basic tenets of agency rest on the highest considerations of justice,
equity and fair play, and an agent will not be permitted to pervert his authority to his own
personal advantage, and his act in secret hostility to the interests of his principal transcends the
power afforded him. DAEaTS

DECISION

BELLOSILLO, J p:

COSMIC LUMBER CORPORATION, through its General Manager executed on 28 January

1985 a Special Power of Attorney appointing Paz G. Villamil-Estrada as attorney-in-fact —

. . . to initiate, institute and file any court action for the ejectment of third persons and/or
squatters of the entire lot 9127 and 443 and covered by TCT Nos. 37648 and 37649, for the
said squatters to remove their houses and vacate the premises in order that the corporation
may take material possession of the entire lot, and for this purpose, to appear at the pre-trial
conference and enter into any stipulation of facts and/or compromise agreement so far as it
shall protect the rights and interest of the corporation in the aforementioned lots. 1

On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of attorney, instituted an

action for the ejectment of private respondent Isidro Perez and recover the possession of a
portion of Lot No. 443 before the Regional Trial Court of Dagupan, docketed as Civil Case No.
D-7750. 2

On 25 November 1985 Villamil-Estrada entered into a Compromise Agreement with respondent

Perez, the terms of which follow:

1. That as per relocation sketch plan dated June 5, 1985 prepared by Engineer Rodolfo
dela Cruz the area at present occupied by defendant wherein his house is located is 333 square
meters on the easternmost part of lot 443 and which portion has been occupied by defendant
for several years now;

2. That to buy peace said defendant pays unto the plaintiff through herein attorney-in-fact
the sum of P26,640.00 computed at P80.00/square meter;

3. That plaintiff hereby recognizes ownership and possession of the defendant by virtue of
this compromise agreement over said portion of 333 square m. of lot 443 which portion will be
located on the easternmost part as indicated in the sketch as annex A;

4. Whatever expenses of subdivision, registration, and other incidental expenses shall be

shouldered by the defendant. 3
On 27 November 1985 the "Compromise Agreement" was approved by the trial court and
judgment was rendered in accordance therewith. 4

Although the decision became final and executory it was not executed within the 5-year period
from date of its finality allegedly due to the failure of petitioner to produce the owner's duplicate
copy of Title No. 37649 needed to segregate from Lot No. 443 the portion sold by the attorney-
in-fact; Paz G. Villamil-Estrada, to private respondent under the compromise agreement. Thus
on 25 January 1993 respondent filed a complaint to revive the judgment, docketed as Civil Case
No. D-10459. 5

Petitioner asserts that it was only when the summons in Civil Case No. D-10459 for the revival
of judgment was served upon it that it came to know of the compromise agreement entered into
between Paz G. Villamil-Estrada and respondent Isidro Perez upon which the trial court based
its decision of 26 July 1993 in Civil Case No. D-7750. Forthwith, upon learning of the fraudulent
transaction, petitioner sought annulment of the decision of the trial court before respondent
Court of Appeals on the ground that the compromise agreement was void because: (a) the
attorney-in-fact did not have the authority to dispose of, sell, encumber or divest the plaintiff of
its ownership over its real property or any portion thereof; (b) the authority of the attorney-in-fact
was confined to the institution and filing of an ejectment case against third persons/squatters on
the property of the plaintiff, and to cause their eviction therefrom; (c) while the special power of
attorney made mention of an authority to enter into a compromise agreement, such authority
was in connection with, and limited to, the eviction of third persons/squatters thereat, in order
that "the corporation may take material possession of the entire lot;" (d) the amount of
P26,640.00 alluded to as alleged consideration of said agreement was never received by the
plaintiff; (e) the private defendant acted in bad faith in the execution of said agreement knowing
fully well the want of authority of the attorney-in-fact to sell, encumber or dispose of the real
property of plaintiff; and, (f) the disposal of a corporate property indispensably requires a Board
Resolution of its Directors, a fact which is wanting in said Civil Case No. D-7750, and the
General Manager is not the proper officer to encumber a corporate property. 6

On 29 October 1993 respondent court dismissed the complaint on the basis of its finding that
not one of the grounds for annulment, namely, lack of jurisdiction, fraud or illegality was shown
to exist. 7 It also denied the motion for reconsideration filed by petitioner, discoursing that the
alleged nullity of the compromise judgment on the ground that petitioner's attorney-in-fact
Villamil-Estrada was not authorized to sell the subject property may be raised as a defense in
the execution of the compromise judgment as it does not bind petitioner, but not as a ground for
annulment of judgment because it does not affect the jurisdiction of the trial court over the action
nor does it amount to extrinsic fraud. 8

Petitioner challenges this verdict. It argues that the decision of the trial court is void because the
compromise agreement upon which it was based is void. Attorney-in-fact Villamil-Estrada did
not possess the authority to sell or was she armed with a Board Resolution authorizing the sale
of its property. She was merely empowered to enter into a compromise agreement in the
recovery suit she was authorized to file against persons squatting on Lot No. 443, such authority
being expressly confined to the "ejectment of third persons or squatters of . . . lot . . . (No.) 443 .
. . for the said squatters to remove their houses and vacate the premises in order that the
corporation may take material possession of the entire lot . . ."

We agree with petitioner. The authority granted Villamil-Estrada under the special power of
attorney was explicit and exclusionary: for her to institute any action in court to eject all persons
found on Lots Nos. 9127 and 443 so that petitioner could take material possession thereof, and
for this purpose to appear at the pre-trial and enter into any stipulation of facts and/or
compromise agreement but only insofar as this was protective of the rights and interests of
petitioner in the property. Nowhere in this authorization was Villamil-Estrada granted expressly
or impliedly any power to sell the subject property nor a portion thereof. Neither can a
conferment of the power to sell be validly inferred from the specific authority "to enter into a
compromise agreement" because of the explicit limitation fixed by the grantor that the
compromise entered into shall only be "so far as it shall protect the rights and interest of the
corporation in the aforementioned lots." In the context of the specific investiture of powers to
Villamil-Estrada, alienation by sale of an immovable certainly cannot be deemed protective of
the right of petitioner to physically possess the same, more so when the land was being sold for
a price of P80.00 per square meter, very much less than its assessed value of P250.00 per
square meter, and considering further that petitioner never received the proceeds of the sale.

When the sale of a piece of land or any interest thereon is through an agent, the authority of the
latter shall be in writing; otherwise, the sale shall be void. 9 Thus the authority of an agent to
execute a contract for the sale of real estate must be conferred in writing and must give him
specific authority, either to conduct the general business of the principal or to execute a binding
contract containing terms and conditions which are in the contract he did execute. 10 A special
power of attorney is necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable consideration. 11 The
express mandate required by law to enable an appointee of an agency (couched) in general
terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary
ingredient of the act mentioned. 12 For the principal to confer the right upon an agent to sell real
estate, a power of attorney must so express the powers of the agent in clear and unmistakable
language. When there is any reasonable doubt that the language so used conveys such power,
no such construction shall be given the document. 13

It is therefore clear that by selling to respondent Perez a portion of petitioner's land through a
compromise agreement, Villamil-Estrada acted without or in obvious authority. The sale ipso
jure is consequently void. So is the compromise agreement. This being the case, the judgment
based thereon is necessarily void. Antipodal to the opinion expressed by respondent court in
resolving petitioner's motion for reconsideration, the nullity of the settlement between Villamil-
Estrada and Perez impaired the jurisdiction of the trial court to render its decision based on the
compromise agreement. In Alviar v. Court of First Instance of La Union, 14 the Court held —

. . . this court does not hesitate to hold that the judgment in question is null and void ab initio. It
is not binding upon and cannot be executed against the petitioners. It is evident that the
compromise upon which the judgment was based was not subscribed by them . . . . Neither
could Attorney Ortega bind them validly in the compromise because he had no special authority
....

As the judgment in question is null and void ab initio, it is evident that the court acquired no
jurisdiction to render it, much less to order the execution thereof . . .

. . . A judgment, which is null and void ab initio, rendered by a court without jurisdiction to do so,
is without legal efficacy and may properly be impugned in any proceeding by the party against
whom it is sought to be enforced . . .

This ruling was adopted in Jacinto v. Montesa, 15 by Mr. Justice J. B. L. Reyes, a much-
respected authority on civil law, where the Court declared that a judgment based on a
compromise entered into by an attorney without specific authority from the client is void. Such
judgment may be impugned and its execution restrained in any proceeding by the party against
whom it is sought to be enforced. The Court also observed that a defendant against whom a
judgment based on a compromise is sought to be enforced may file a petition for certiorari to
quash the execution. He could not move to have the compromise set aside and then appeal
from the order of denial since he was not a party to the compromise. Thus it would appear that
the obiter of the appellate court that the alleged nullity of the compromise agreement should be
raised as a defense against its enforcement is not legally feasible. Petitioner could not be in a
position to question the compromise agreement in the action to revive the compromise
judgment since it was never privy to such agreement. Villamil-Estrada who signed the
compromise agreement may have been the attorney-in-fact but she could not legally bind
petitioner thereto as she was not entrusted with a special authority to sell the land, as required
in Art. 1878, par. (5), of the Civil Code.

Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the Court of
Appeals to annul and set aside judgments of Regional Trial Courts. 16 "Thus, the Intermediate
Appellate Court (now Court of Appeals) shall exercise . . . (2) Exclusive original jurisdiction over
action for annulment of judgments of the Regional Trial Courts . . ." However, certain requisites
must first be established before a final and executory judgment can be the subject of an action
for annulment. It must either be void for want of jurisdiction or for lack of due process of law, or it
has been obtained by fraud. 17

Conformably with law and the above-cited authorities, the petition to annul the decision of the
trial court in Civil Case No. D-7750 before the Court of Appeals was proper. Emanating as it did
from a void compromise agreement, the trial court had no jurisdiction to render a judgment
based thereon. 18

It would also appear, and quite contrary to the finding of the appellate court, that the highly
reprehensible conduct of attorney-in-fact Villamil-Estrada in Civil Case No. 7750 constituted an
extrinsic or collateral fraud by reason of which the judgment rendered thereon should have been
struck down. Not all the legal semantics in the world can becloud the unassailable fact that
petitioner was deceived and betrayed by its attorney-in-fact. Villamil-Estrada deliberately
concealed from petitioner, her principal, that a compromise agreement had been forged with the
end-result that a portion of petitioner's property was sold to the deforciant, literally for a song.
Thus completely kept unaware of its agent's artifice, petitioner was not accorded even a fighting
chance to repudiate the settlement so much so that the judgment based thereon became final
and executory.

For sure, the Court of Appeals restricted the concept of fraudulent acts within too narrow limits.
Fraud may assume different shapes and be committed in as many different ways and here lies
the danger of attempting to define fraud. For man in his ingenuity and fertile imagination will
always contrive new schemes to fool the unwary.

There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where it is one
the effect of which prevents a party from hearing a trial, or real contest, or from presenting all of
his case to the court, or where it operates upon matters, not pertaining to the judgment itself, but
to the manner in which it was procured so that there is not a fair submission of the controversy.
In other words, extrinsic fraud refers to any fraudulent act of the prevailing party in the litigation
which is committed outside of the trial of the case, whereby the defeated party has been
prevented from exhibiting fully his side of the case by fraud or deception practiced on him by his
opponent. 19 Fraud is extrinsic where the unsuccessful party has been prevented from
exhibiting fully his case, by fraud or deception practiced on him by his opponent, as by keeping
him away from court, a false promise of a compromise; or where the defendant never had
knowledge of the suit, being kept in ignorance by the acts of the plaintiff; or where an attorney
fraudulently or without authority connives at his defeat; these and similar cases which show that
there has never been a real contest in the trial or hearing of the case are reasons for which a
new suit may be sustained to set aside and annul the former judgment and open the case for a
new and fair hearing. 20

It may be argued that petitioner knew of the compromise agreement since the principal is
chargeable with and bound by the knowledge of or notice to his agent received while the agent
was acting as such. But the general rule is intended to protect those who exercise good faith
and not as a shield for unfair dealing. Hence there is a well-established exception to the general
rule as where the conduct and dealings of the agent are such as to raise a clear presumption
that he will not communicate to the principal the facts in controversy. 21 The logical reason for
this exception is that where the agent is committing a fraud, it would be contrary to common
sense to presume or to except that he would communicate the facts to the principal. Verily,
when an agent is engaged in the perpetration of a fraud upon his principal for his own exclusive
benefit, he is not really acting for the principal but is really acting for himself, entirely outside the
scope of his agency. 22 Indeed, the basic tenets of agency rest on the highest considerations of
justice, equity and fair play, and an agent will not be permitted to pervert his authority to his own
personal advantage, and his act in secret hostility to the interests of his principal transcends the
power afforded him. 23

WHEREFORE, the petition is GRANTED. The decision and resolution of respondent Court of
Appeals dated 29 October 1993 and 10 March 1994, respectively, as well as the decision of the
Regional Trial Court of Dagupan City in Civil Case No. D-7750 dated 27 November 1985, are
NULLIFIED and SET ASIDE. The"Compromise Agreement" entered into between Attorney-in-
fact Paz G. Villamil-Estrada and respondent Isidro Perez is declared VOID. This is without
prejudice to the right of petitioner to pursue its complaint against private respondent Isidro Perez
in Civil Case No. D-7750 for the recovery of possession of a portion of Lot No. 443.

SO ORDERED.

[G.R. No. 129459. September 29, 1998.]

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner, vs. COURT OF
APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL
DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP., respondents.

SYLLABUS

1. CIVIL LAW; CONTRACTS; SALE; TRANSFER OR SALE OF CORPORATE

PROPERTY BY THE CORPORATION'S TREASURER WITHOUT ANY AUTHORITY FROM
THE BOARD OF DIRECTORS IS NULL AND VOID. — Indubitably, a corporation may act only
through its board of directors or, when authorized either by its bylaws or by its board resolution,
through its officers or agents in the normal course of business. The general principles of agency
govern the relation between the corporation and its officers or agents, subject to the articles of
incorporation, bylaws, or relevant provisions of law. Thus, this Court has held that " 'a corporate
officer or agent may represent and bind the corporation in transactions with third persons to the
extent that the authority to do so has been conferred upon him, and this includes powers which
have been intentionally conferred, and also such powers as, in the usual course of the particular
business, are incidental to, or may be implied from, the powers intentionally conferred, powers
added by custom and usage, as usually pertaining to the particular officer or agent, and such
apparent powers as the corporation has caused persons dealing with the officer or agent to
believe that it has conferred.' " Furthermore, the Court has also recognized the rule that
"persons dealing with an assumed agent, whether the assumed agency be a general or special
one, are bound at their peril, if they would hold the principal liable, to ascertain not only the fact
of agency but also the nature and extent of authority, and in case either is controvert, the
burden of proof is upon them to establish it (Harry Keeler vs. Rodriguez, 4 Phil. 19)." Unless
duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in a sale of
its assets. In the case at bar, Respondent Motorich categorically denies that it ever authorized
Nenita Gruenberg, its treasurer, to sell the subject parcel of land. Consequently, petitioner had
the burden of proving that Nenita Gruenberg was in fact authorized to represent and bind
Motorich in the transaction. Petitioner failed to discharge this burden. Its offer of evidence before
the trial court contained no proof of such authority. It has not shown any provision of said
respondent's articles of incorporation, bylaws or board resolution to prove that Nenita
Gruenberg possessed such power. That Nenita Gruenberg is the treasurer of Motorich does not
free petitioner from the responsibility of ascertaining the extent of her authority to represent the
corporation. Petitioner cannot assume that she, by virtue of her position, was authorized to sell
the property of the corporation. Selling is obviously foreign to a corporate treasurer's function,
which generally has been described as "to receive and keep the funds of the corporation and to
disburse them in accordance with the authority given him by the board or the properly
authorized officers." Neither was such real estate sale shown to be a normal business activity of
Motorich. The primary purpose of Motorich is marketing, distribution, export and import in
relation to a general merchandising business. Unmistakably, its treasurer is not cloaked with
actual or apparent authority to buy or sell real property, an activity which falls way beyond the
scope of her general authority. ScHADI

2. ID.; ID.; A CONTRACT THAT IS CONSIDERED INEXISTENT AND VOID FROM THE
BEGINNING IS NOT SUSCEPTIBLE TO RATIFICATION.— As a general rule, the acts of
corporate officers within the scope of their authority are binding on the corporation. But when
these officers exceed their authority, their actions "cannot bind the corporation, unless it has
ratified such acts or is estopped from disclaiming them." In this case, there is a clear absence of
proof that Motorich ever authorized Nenita Gruenberg, or made it appear to any third person
that she had the authority, to sell its land or to receive the earnest money. Neither was there any
proof that Motorich ratified, expressly or impliedly, the contract. Petitioner rests its argument on
the receipt which, however, does not prove the fact of ratification. The document is a
handwritten one, not a corporate receipt, and it bears only Nenita Gruenberg's signature.
Certainly, this document alone does not prove that her acts were authorized or ratified by
Motorich. Article 1318 of the Civil Code lists the requisites of a valid and perfected contract: "(1)
consent of the contracting parties; (2) object certain which is the subject matter of the contract;
(3) cause of the obligation which is established." As found by the trial court and affirmed by the
Court of Appeals, there is no evidence that Gruenberg was authorized to enter into the contract
of sale, or that the said contract was ratified by Motorich. This factual finding of the two courts is
binding on this Court. As the consent of the seller was not obtained, no contract to bind the
obligor was perfected. Therefore, there can be no valid contract of sale between petitioner and
Motorich. Because Motorich had never given a written authorization to Respondent Gruenberg
to sell its parcel of land, we hold that the February 14, 1989 Agreement entered into by the latter
with petitioner is void under Article 1874 of the Civil Code. Being inexistent and void from the
beginning, said contract cannot be ratified.

3. COMMERCIAL LAW; CORPORATION CODE; PIERCING THE CORPORATE VEIL IS

NOT JUSTIFIED IN CASE AT BAR. — We stress that the corporate fiction should be set aside
when it becomes a shield against liability for fraud, illegality or inequity committed on third
persons. The question of piercing the veil of corporate fiction is essentially, then, matter of proof.
In the present case, however, the Courts finds no reason to pierce the corporate veil of
Respondent Motorich. Petitioner utterly failed to establish that said corporation was formed, or
that it is operated, for the purpose of shielding any alleged fraudulent or illegal activities of its
officers or stockholders; or that the said veil was used to conceal fraud, illegality or inequity at
the expense of third persons like petitioner.
4. ID.; ID.; PRIVATE RESPONDENT CORPORATION IS NOT A CLOSE CORPORATION
AS DEFINED UNDER SECTION 96 OF THE CORPORATION CODE. — The articles of
incorporation of Motorich Sales Corporation does not contain any provision stating that (1) the
number of stockholders shall not exceed 20, or (2) a preemption of shares is restricted in favor
of any stockholder or of the corporation, or (3) listing its stocks in any stock exchange or making
a public offering of such stocks is prohibited. From its articles, it is clear that Respondent
Motorich is not a close corporation. Motorich does not become one either, just because
Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The
"[m]ere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for disregarding the separate
corporate personalities." So, too, a narrow distribution of ownership does not, by itself, make a
close corporation.

5. CIVIL LAW, DAMAGES; AWARD OF ATTORNEY'S FEES IS NOT JUSTIFIED IN CASE

AT BAR; PETITIONER WAS A VICTIM OF ITS OWN OFFICERS NEGLIGENCE IN ENTERING
INTO A CONTRACT WITH AN UNAUTHORIZED OFFICER OF ANOTHER CORPORATION.
— We sustain the findings of both the trial and the appellate courts that the foregoing
allegations lack factual bases. Hence, an award of damages or attorney's fees cannot be
justified. The amount paid as "earnest money" was not proven to have redounded to the benefit
of Respondent Motorich. Petitioner claims that said amount was deposited to the account of
Respondent Motorich, because "it was deposited with the account of Aren Commercial c/o
Motorich Sales Corporation." Respondent Gruenberg, however, disputes the allegations of
petitioner. In any event, Gruenberg offered to return the amount to petitioner ". . . since the sale
did not push through." Moreover, we note that Andres Co is not a neophyte in the world of
corporate business. He has been the president of Petitioner Corporation for more than ten years
and has also served as chief executive of two other corporate entities. Co cannot feign
ignorance of the scope of the authority of a corporate treasurer such as Gruenberg. Neither can
he be oblivious to his duty to ascertain the scope of Gruenberg's authorization to enter into a
contract to sell a parcel of land belonging to Motorich. Indeed, petitioner's claim of fraud and
bad faith is unsubstantiated and fails to persuade the Court. Indubitably, petitioner appears to
be the victim of its own officer's negligence in entering into a contract with and paying an
unauthorized officer of another corporation. SDIaCT

DECISION

PANGANIBAN, J p:

May a corporate treasurer, by herself and without any authorization from the board of directors,
validly sell a parcel of land owned by the corporation? May the veil of corporate fiction be
pierced on the mere ground that almost all of the shares of stock of the corporation are owned
by said treasurer and her husband? LibLex

The Case

These questions are answered in the negative by this Court in resolving the Petition for Review
on Certiorari before us, assailing the March 18, 1997 Decision 1 of the Court of Appeals 2 in CA
GR CV No. 46801 which, in turn, modified the July 18, 1994 Decision of the Regional Trial Court
of Makati, Metro Manila, Branch 63 3 in Civil Case No. 89-3511. The RTC dismissed both the
Complaint and the Counterclaim filed by the parties. On the other hand, the Court of Appeals
ruled:

"WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH

MODIFICATION ordering defendant-appellee Nenita Lee Gruenberg to REFUND or return to
plaintiff-appellant the downpayment of P100,000.00 which she received from plaintiff-appellant.
There is no pronouncement as to costs." 4

The petition also challenges the June 10, 1997 CA Resolution denying reconsideration. 5

The Facts

The facts as found by the Court of Appeals are as follows:

"Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.'s amended complaint alleged
that on 14 February 1989, plaintiff-appellant entered into an agreement with defendant-appellee
Motorich Sales Corporation for the transfer to it of a parcel of land identified as Lot 30, Block 1
of the Acropolis Greens Subdivision located in the District of Murphy, Quezon City, Metro
Manila, containing an area of Four Hundred Fourteen (414) square meters, covered by TCT No.
(362909) 2876: that as stipulated in the Agreement of 14 February 1989, plaintiff-appellant paid
the downpayment in the sum of One Hundred Thousand (P100,000.00) Pesos, the balance to
be paid on or before March 2, 1989; that on March 1, 1989, Mr. Andres T. Co, president of
plaintiff-appellant corporation, wrote a letter to defendant-appellee Motorich Sales Corporation
requesting for a computation of the balance to be paid, that said letter was coursed through
defendant-appellee's broker, Linda Aduca, who wrote the computation of the balance: that on
March 2, 1989, plaintiff-appellant was ready with the amount corresponding to the balance,
covered by Metrobank Cashier's Check No. 004223, payable to defendant-appellee Motorich
Sales Corporation; that plaintiff-appellant and defendant-appellee Motorich Sales Corporation
were supposed to meet in the office of plaintiff-appellant but defendant-appellee's treasurer,
Nenita Lee Gruenberg, did not appear; that defendant-appellee Motorich Sales Corporation
despite repeated demands and in utter disregard of its commitments had refused to execute the
Transfer of Rights/Deed of Assignment which is necessary to transfer the certificate of title; that
defendant ACL Development Corp. is impleaded as a necessary party since Transfer Certificate
of Title No. (362909) 2876 is still in the name of said defendant; while defendant JNM Realty &
Development Corp. is likewise impleaded as a necessary party in view of the fact that it is the
transferor of right in favor of defendant-appellee Motorich Sales Corporation; that on April 6,
1989, defendant ACL Development Corporation and Motorich Sales Corporation entered into a
Deed of Absolute Sale whereby the former transferred to the latter the subject property; that by
reason of said transfer, the Registry of Deeds of Quezon City issued a new title in the name of
Motorich Sales Corporation, represented by defendant-appellee Nenita Lee Gruenberg and
Reynaldo L Gruenberg, under Transfer Certificate of Title No. 3571; that as a result of
defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporation's bad faith in
refusing to execute a formal Transfer of Rights/Deed of Assignment, plaintiff-appellant suffered
moral and nominal damages which may be assessed against defendants-appellees in the sum
of Five Hundred Thousand (500,000.00) Pesos; that as a result of defendants-appellees Nenita
Lee Gruenberg and Motorich Sales Corporation's unjustified and unwarranted failure to execute
the required Transfer of Rights/Deed of Assignment or formal deed of sale in favor of plaintiff-
appellant, defendants-appellees should be assessed exemplary damages in the sum of One
Hundred Thousand (P100,000.00) Pesos: that by reason of defendants-appellees' bad faith in
refusing to execute a Transfer of Rights/Deed of Assignment in favor of plaintiff-appellant, the
latter lost the opportunity to construct a residential building in the sum of One Hundred
Thousand (P100,000.00) Pesos; and that as a consequence of defendants-appellees Nenita
Lee Gruenberg and Motorich Sales Corporation's bad faith in refusing to execute a deed of sale
in favor of plaintiff-appellant, it has been constrained to obtain the services of counsel at an
agreed fee of One Hundred Thousand (P100,000.00) Pesos plus appearance fee for every
appearance in court hearings.

"In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee Gruenberg
interposed as affirmative defense that the President and Chairman of Motorich did not sign the
agreement adverted to in par. 3 of the amended complaint; that Mrs. Gruenberg's signature on
the agreement (ref: par. 3 of Amended Complaint) is inadequate to bind Motorich. The other
signature, that of Mr. Reynaldo Gruenberg, President and Chairman of Motorich, is required:
that plaintiff knew this from the very beginning as it was presented a copy of the Transfer of
Rights (Annex B of amended complaint) at the time the Agreement (Annex B of amended
complaint) was signed; that plaintiff-appellant itself drafted the Agreement and insisted that Mrs.
Gruenberg accept the P100,000.00 as earnest money; that granting, without admitting, the
enforceability of the agreement, plaintiff-appellant nonetheless failed to pay in legal tender
within the stipulated period (up to March 2, 1989); that it was the understanding between Mrs.
Gruenberg and plaintiff-appellant that the Transfer of Rights/Deed of Assignment will be signed
only upon receipt of cash payment; thus they agreed that if the payment be in check, they will
meet at a bank designated by plaintiff-appellant where they will encash the check and sign the
Transfer of Rights/Deed. However, plaintiff-appellant informed Mrs. Gruenberg of the alleged
availability of the check, by phone, only after banking hours.

"On the basis of the evidence, the court a quo rendered the judgment appealed from[,]
dismissing plaintiff-appellant's complaint, ruling that:

'The issue to be resolved is: whether plaintiff had the right to compel defendants to execute a
deed of absolute sale in accordance with the agreement of February 14, 1989: and if so,
whether plaintiff is entitled to damages.

'As to the first question, there is no evidence to show that defendant Nenita Lee Gruenberg was
indeed authorized by defendant corporation. Motorich Sales to dispose of that property covered
by T.C.T. No. (362909) 2876. Since the property is clearly owned by the corporation, Motorich
Sales, then its disposition should be governed by the requirement laid down in Sec. 40, of the
Corporation Code of the Philippines, to wit:

Sec. 40. Sale or other disposition of assets. Subject to the provisions of existing laws on
illegal combination and monopolies, a corporation may by a majority vote of its board of
directors . . . sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially
all of its property and assets including its goodwill . . . when authorized by the vote of the
stockholders representing at least two third (2/3) of the outstanding capital stock . . .

'No such vote was obtained by defendant Nenita Lee Gruenberg for that proposed sale[;]
neither was there evidence to show that the supposed transaction was ratified by the
corporation. Plaintiff should have been on the look out under these circumstances. More so,
plaintiff himself [owns] several corporations (tsn dated August 16, 1993, p. 3) which makes him
knowledgeable on corporation matters.

'Regarding the question of damages, the Court likewise, does not find substantial evidence to
hold defendant Nenita Lee Gruenberg liable considering that she did not in anyway
misrepresent herself to be authorized by the corporation to sell the property to plaintiff (tsn
dated September 27, 1991, p. 8).

'In the light of the foregoing, the Court hereby renders judgment DISMISSING the complaint at
instance for lack of merit.

'Defendants' counterclaim is also DISMISSED for lack of basis.' (Decision, pp. 7-8; Rollo, pp.
34-35)"

For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:

"AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Agreement, made and entered into by and between:

MOTORICH SALES CORPORATION, a corporation duly organized and existing under and by
virtue of Philippine Laws, with principal office address at 5510 South Super Hi-way cor.
Balderama St., Pio del Pilar, Makati, Metro Manila, represented herein by its Treasurer, NENITA
LEE GRUENBERG, hereinafter referred to as the TRANSFEROR;

— and —

SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly organized and existing
under and by virtue of the laws of the Philippines, with principal office address at Sumulong
Highway, Barrio Mambungan, Antipolo, Rizal, represented herein by its President, ANDRES T.
CO, hereinafter referred to as the TRANSFEREE.

WITNESSETH, That:

WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30 Block 1 of
the ACROPOLIS GREENS SUBDIVISION located at the District of Murphy, Quezon City, Metro
Manila, containing an area of FOUR HUNDRED FOURTEEN (414) SQUARE METERS,
covered by a TRANSFER OF RIGHTS between JNM Realty & Dev. Corp. as the Transferor and
Motorich Sales Corp. as the Transferee;
NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have
agreed as follows:

1. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED PESOS
(P5,200.00) per square meter; subject to the following terms:

a. Earnest money amounting to ONE HUNDRED THOUSAND PESOS (P100,000.00), will

be paid upon the execution of this agreement and shall form part of the total purchase price;
LLphil

b. Balance shall be payable on or before March 2, 1989;

2. That the monthly amortization for the month of February 1989 shall be for the account of
the Transferor; and that the monthly amortization starting March 21, 1989 shall be for the
account of the Transferee;

The transferor warrants that he [sic] is the lawful owner of the above-described property and
that there [are] no existing liens and/or encumbrances of whatsoever nature;

In case of failure by the Transferee to pay the balance on the date specified on 1. (b), the
earnest money shall be forfeited in favor of the Transferor.

That upon full payment of the balance, the TRANSFEROR agrees to execute a TRANSFER OF
RIGHTS/DEED OF ASSIGNMENT in favor of the TRANSFEREE.

IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of February,
1989 at Greenhills, San Juan, Metro Manila, Philippines.

MOTORICH SALES SAN JUAN STRUCTURAL &

CORPORATION STEEL FABRICATORS

TRANSFEROR TRANSFEREE

[SGD] [SGD]

By: NENITA LEE GRUENBERG By: ANDRES T. CO

Treasurer President

Signed in the presence of:

[SGD] [SGD]

________________________ ________________________" 6

In its recourse before the Court of Appeals, petitioner insisted:

"1. Appellant is entitled to compel the appellees to execute a Deed of Absolute Sale in
accordance with the Agreement of February 14, 1989,
2. Plaintiff is entitled to damages." 7

As stated earlier, the Court of Appeals debunked petitioner's arguments and affirmed the
Decision of the RTC with the modification that Respondent Nenita Lee Gruenberg was ordered
to refund P100,000 to petitioner, the amount remitted as "downpayment" or "earnest money."
Hence, this petition before us. 8

The Issues

Before this Court, petitioner raises the following issues:

"I. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in the
instant case

"II. Whether or not the appellate court may consider matters which the parties failed to raise
in the lower court

"III. Whether or not there is a valid and enforceable contract between the petitioner and the
respondent corporation

"IV. Whether or not the Court of Appeals erred in holding that there is a valid
correction/substitution of answer in the transcript of stenographic note[s]

V. Whether or not respondents are liable for damages and attorney's fees." 9

The Court synthesized the foregoing and will thus discuss them seriatim as follows:

1. Was there a valid contract of sale between petitioner and Motorich?

2. May the doctrine of piercing the veil of corporate fiction be applied to Motorich?

3. Is the alleged alteration of Gruenberg's testimony as recorded in the transcript of

stenographic notes material to the disposition of this case?

4. Are respondents liable for damages and attorney's fees?

The Court's Ruling

The petition is devoid of merit.

First Issue: Validity of Agreement

Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989, it
entered through its president, Andres Co, into the disputed Agreement with Respondent
Motorich Sales Corporation, which was in turn allegedly represented by its treasurer, Nenita Lee
Gruenberg. Petitioner insists that "[w]hen Gruenberg and Co affixed their signatures on the
contract they both consented to be bound by the terms thereof." Ergo, petitioner contends that
the contract is binding on the two corporations. We do not agree.
True, Gruenberg and Co signed on February 14, 1989, the Agreement, according to which a lot
owned by Motorich Sales Corporation was purportedly sold. Such contract, however, cannot
bind Motorich, because it never authorized or ratified such sale.

A corporation is a juridical person separate and distinct from its stockholders or members.
Accordingly, the property of the corporation is not the property of its stockholders or members
and may not be sold by the stockholders or members without express authorization from the
corporation's board of directors. 10 Section 23 of BP 68, otherwise known as the Corporation
Code of the Philippines, provides:

"SEC. 23. The Board of Directors or Trustees. — Unless otherwise provided in this Code,
the corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or where there is no stock, from among
the members of the corporation, who shall hold office for one (1) year and until their successors
are elected and qualified."

Indubitably, a corporation may act only through its board of directors or, when authorized either
by its bylaws or by its board resolution, through its officers or agents in the normal course of
business. The general principles of agency govern the relation between the corporation and its
officers or agents, subject to the articles of incorporation, bylaws, or relevant provisions of law.
11 Thus, this Court has held that "'a corporate officer or agent may represent and bind the
corporation in transactions with third persons to the extent that the authority to do so has been
conferred upon him, and this includes powers which have been intentionally conferred, and also
such powers as, in the usual course of the particular business, are incidental to, or may be
implied from, the powers intentionally conferred, powers added by custom and usage, as
usually pertaining to the particular officer or agent, and such apparent powers as the corporation
has caused persons dealing with the officer or agent to believe that it has conferred.' " 12

Furthermore, the Court has also recognized the rule that "persons dealing with an assumed
agent, whether the assumed agency be a general or special one, are bound at their peril, if they
would hold the principal liable, to ascertain not only the fact of agency but also the nature and
extent of authority, and in case either is controverted, the burden of proof is upon them to
establish it (Harry Keeler v. Rodriguez, 4 Phil. 19)." 13 Unless duly authorized, a treasurer,
whose powers are limited, cannot bind the corporation in a sale of its assets. 14

In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita
Gruenberg, its treasurer, to sell the subject parcel of land. 15 Consequently, petitioner had the
burden of proving that Nenita Gruenberg was in fact authorized to represent and bind Motorich
in the transaction. Petitioner failed to discharge this burden. Its offer of evidence before the trial
court contained no proof of such authority. 16 It has not shown any provision of said
respondent's articles of incorporation, bylaws or board resolution to prove that Nenita
Gruenberg possessed such power.

That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the
responsibility of ascertaining the extent of her authority to represent the corporation. Petitioner
cannot assume that she, by virtue of her position, was authorized to sell the property of the
corporation. Selling is obviously foreign to a corporate treasurer's function, which generally has
been described as "to receive and keep the funds of the corporation and to disburse them in
accordance with the authority given him by the board or the properly authorized officers." 17

Neither was such real estate sale shown to be a normal business activity of Motorich. The
primary purpose of Motorich is marketing, distribution, export and import in relation to a general
merchandising business. 18 Unmistakably, its treasurer is not cloaked with actual or apparent
authority to buy or sell real property, an activity which falls way beyond the scope of her general
authority.

Articles 1874 and 1878 of the Civil Code of the Philippines provides:

"ART. 1874. When a sale of a piece of land or any interest therein is through an agent the
authority of the latter shall be in writing; otherwise, the sale shall be void."

"ART. 1878. Special powers of attorney are necessary in the following case:

xxx xxx xxx

(5) To enter any contract by which the ownership of an immovable is transmitted or acquired
either gratuitously or for a valuable consideration;

xxx xxx xxx

Petitioner further contends that Respondent Motorich has ratified said contract of sale because
of its "acceptance of benefits," as evidenced by the receipt issued by Respondent Gruenberg.
19 Petitioner is clutching at straws.

As a general rule, the acts of corporate officers within the scope of their authority are binding on
the corporation. But when these officers exceed their authority, their actions "cannot bind the
corporation, unless it has ratified such acts or is estopped from disclaiming them." 20

In this case, there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg,
or made it appear to any third person that she had the authority, to sell its land or to receive the
earnest money. Neither was there any proof that Motorich ratified, expressly or impliedly, the
contract. Petitioner rests its argument on the receipt which, however, does not prove the fact of
ratification. The document is a hand-written one, not a corporate receipt, and it bears only
Nenita Gruenberg's signature. Certainly, this document alone does not prove that her acts were
authorized or ratified by Motorich.

Article 1318 of the Civil Code lists the requisites of a valid and perfected contract: "(1) consent
of the contracting parties; (2) object certain which is the subject matter of the contract; (3) cause
of the obligation which is established." As found by the trial court 21 and affirmed by the Court
of Appeals, 22 there is no evidence that Gruenberg was authorized to enter into the contract of
sale, or that the said contract was ratified by Motorich. This factual finding of the two courts is
binding on this Court. 23 As the consent of the seller was not obtained, no contract to bind the
obligor was perfected. Therefore, there can be no valid contract of sale between petitioner and
Motorich.

Because Motorich had never given a written authorization to Respondent Gruenberg to sell its
parcel of land, we hold that the February 14, 1989 Agreement entered into by the latter with
petitioner is void under Article 1874 of the Civil Code. Being inexistent and void from the
beginning, said contract cannot be ratified. 24

Second Issue:

Piercing the Corporate Veil Not Justified

Petitioner also argues that the veil of corporate fiction of Motorich should be pierced, because
the latter is a close corporation. Since "Spouses Reynaldo L. Gruenberg and Nenita R.
Gruenberg owned all or almost all or 99.866% to be accurate, of the subscribed capital stock"
25 of Motorich, petitioner argues that Gruenberg needed no authorization from the board to
enter into the subject contract. 26 It adds that, being solely owned by the Spouses Gruenberg
the company can be treated as a close corporation which can be bound by the acts of its
principal stockholder who needs no specific authority. The Court is not persuaded.

First, petitioner itself concedes having raised the issue belatedly, 27 not having done so during
the trial, but only when it filed its sur-rejoinder before the Court of Appeals. 28 Thus, this Court
cannot entertain said issue at this late stage of the proceedings. It is well-settled that points of
law, theories and arguments not brought to the attention of the trial court need not be, and
ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time
on appeal. 29 Allowing petitioner to change horses in midstream, as it were, is to run roughshod
over the basic principles of fair play, justice and due process.

Second, even if the above-mentioned argument were to be addressed at this time, the Court still
finds no reason to uphold it. True, one of the advantages of a corporate form of business
organization is the limitation of an investor's liability to the amount of the investment. 30 This
feature flows from the legal theory that a corporate entity is separate and distinct from its
stockholders. However, the statutorily granted privilege of a corporate veil may be used only for
legitimate purposes. 31 On equitable considerations, the veil can be disregarded when it is
utilized as a shield to commit fraud, illegality or inequity; defeat public convenience; confuse
legitimate issues; or serve as a mere alter ego or business conduit of a person or an
instrumentality, agency or adjunct of another corporation. 32

Thus, the Court has consistently ruled that "[w]hen the fiction is used as a means of perpetrating
a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, the achievement or perfection of a monopoly or generally the
perpetration of knavery or crime, the veil with which the law covers and isolates the corporation
from the members, or stockholders who compose it will be lifted to allow for its consideration
merely as an aggregation of individuals." 33

We stress that the corporate fiction should be set aside when it becomes a shield against
liability for fraud, illegality or inequity committed on third persons. The question of piercing the
veil of corporate fiction is essentially, then, a matter of proof. In the present case, however, the
Court finds no reason to pierce the corporate veil of Respondent Motorich. Petitioner utterly
failed to establish that said corporation was formed, or that it is operated, for the purpose of
shielding any alleged fraudulent or illegal activities of its officers or stockholders; or that the said
veil was used to conceal fraud, illegality or inequity at the expense of third persons like
petitioner. cdtai

Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the
Corporation Code defines a close corporation as follows:

"SEC. 96. Definition and Applicability of Title. — A close corporation, within the meaning of
this Code, is one whose articles of incorporation provide that: (1) All of the corporation's issued
stock of all classes, exclusive of treasury shares, shall be held of record by not more than a
specified number of persons, not exceeding twenty (20); (2) All of the issued stock of all classes
shall be subject to one or more specified restrictions on transfer permitted by this Title; and (3)
The corporation shall not list in any stock exchange or make any public offering of any of its
stock of any class. Notwithstanding the foregoing, a corporation shall be deemed not a close
corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or
controlled by another corporation which is not a close corporation within the meaning of this
Code . . ."

The articles of incorporation 34 of Motorich Sales Corporation does not contain any provision
stating that (1) the number of stockholders shall not exceed 20, or (2) a preemption of shares is
restricted in favor of any stockholder or of the corporation, or (3) listing its stocks in any stock
exchange or making a public offering of such stocks is prohibited. From its articles, it is clear
that Respondent Motorich is not a close corporation. 35 Motorich does not become one either,
just because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed
capital stock. The [m]ere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the
separate corporate personalities." 36 So, too, a narrow distribution of ownership does not, by
itself, make a close corporation.

Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals 37 wherein the Court
ruled that ". . . petitioner corporation is classified as a close corporation and, consequently, a
board resolution authorizing the sale or mortgage of the subject property is not necessary to
bind the corporation for the action of its president." 38 But the factual milieu in Dulay is not on all
fours with the present case. In Dulay, the sale of real property was contracted by the president
of a close corporation with the knowledge and acquiescence of its board of directors. 39 In the
present case, Motorich is not a close corporation, as previously discussed, and the agreement
was entered into by the corporate treasurer without the knowledge of the board of directors.

The Court is not unaware that there are exceptional cases where "an action by a director, who
singly is the controlling stockholder, may be considered as a binding corporate act and a board
action as nothing more than a mere formality." 40 The present case, however, is not one of
them. LexLib
As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own "almost 99.866%" of
Respondent Motorich. 41 Since Nenita is not the sole controlling stockholder of Motorich, the
aforementioned exception does not apply. Granting arguendo that the corporate veil of Motorich
is to be disregarded, the subject parcel of land would then be treated as conjugal property of
Spouses Gruenberg, because the same was acquired during their marriage. There being no
indication that said spouses, who appear to have been married before the effectivity of the
Family Code, have agreed to a different property regime, their property relations would be
governed by conjugal partnership of gains. 42 As a consequence, Nenita Gruenberg could not
have effected a sale of the subject lot because "[t]here is no co-ownership between the spouses
in the properties of the conjugal partnership of gains. Hence, neither spouse can alienate in
favor of another his or her interest in the partnership or in any property belonging to it; neither
spouse can ask for a partition of the properties before the partnership has been legally
dissolved." 43

Assuming further, for the sake of argument, that the spouses' property regime is the absolute
community of property, the sale would still be invalid. Under this regime, "alienation of
community property must have the written consent of the other spouse or the authority of the
court without which the disposition or encumbrance is void." 44 Both requirements are
manifestly absent in the instant case.

Third Issue: Challenged Portion of TSN Immaterial

Petitioner calls our attention to the following excerpt of the transcript of stenographic
notes(TSN):

"Q. Did you ever represent to Mr. Co that you were authorized by the corporation to sell the
property?

A Yes sir." 45

Petitioner claims that the answer "Yes" was crossed out, and, in its place was written a "No"
with an initial scribbled above it. 46 This, however, is insufficient to prove that Nenita Gruenberg
was authorized to represent Respondent Motorich in the sale of its immovable property, Said
excerpt should be understood in the context of her whole testimony. During her cross-
examination, Respondent Gruenberg testified:

Q So, you signed in your capacity as the treasurer?

[A] Yes, sir.

Q Even then you kn[e]w all along that you [were] not authorized?

A Yes, sir.

Q You stated on direct examination that you did not represent that you were authorized to
sell the property?

A Yes, sir.
Q But you also did not say that you were not authorized to sell the property, you did not tell
that to Mr. Co, is that correct?

A That was not asked of me.

Q Yes, just answer it.

A I just told them that I was the treasurer of the corporation and it [was] also the president
who [was] also authorized to sign on behalf of the corporation.

Q You did not say that you were not authorized nor did you say that you were authorized?

A Mr. Co was very interested to purchase the property and he offered to put up a
P100,000.00 earnest money at that time. That was our first meeting." 47

Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its
property. On the other hand, her testimony demonstrates that the president of Petitioner
Corporation, in his great desire to buy the property, threw caution to the wind by offering and
paying the earnest money without first verifying Gruenberg's authority to sell the lot.

Fourth Issue:

Damages and Attorney's Fees

Finally, petitioner prays for damages and attorney's fees, alleging that "[i]n an utter display of
malice and bad faith, [r]espondents attempted and succeeded in impressing on the trial court
and [the] Court of Appeals that Gruenberg did not represent herself as authorized by
Respondent Motorich despite the receipt issued by the former specifically indicating that she
was signing on behalf of Motorich Sales Corporation. Respondent Motorich likewise acted in
bad faith when it claimed it did not authorize Respondent Gruenberg and that the contract [was]
not binding, [insofar] as it [was] concerned, despite receipt and enjoyment of the proceeds of
Gruenberg's act." 48 Assuming that Respondent Motorich was not a party to the alleged fraud,
petitioner maintains that Respondent Gruenberg should be held liable because she "acted
fraudulently and in bad faith [in] representing herself as duly authorized by [R]espondent
[C]orporation." 49

As already stated, we sustain the findings of both the trial and the appellate courts that the
foregoing allegations lack factual bases. Hence, an award of damages or attorney's fees cannot
be justified. The amount paid as "earnest money" was not proven to have redounded to the
benefit of Respondent Motorich. Petitioner claims that said amount was deposited to the
account of Respondent Motorich, because "it was deposited with the account of Aren
Commercial c/o Motorich Sales Corporation." 50 Respondent Gruenberg, however, disputes the
allegations of petitioner. She testified as follows:

"Q. You voluntarily accepted the P100,000.00, as a matter of fact, that was encashed, the
check was encashed.

A Yes, sir, the check was paid in my name and I deposit[ed] it . . .

Q In your account?

A Yes, sir'." 51

In any event, Gruenberg offered to return the amount to petitioner ". . . since the sale did not
push through." 52

Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He has
been the president of Petitioner Corporation for more than ten years and has also served as
chief executive of two other corporate entities. 53 Co cannot feign ignorance of the scope of the
authority of a corporate treasurer such as Gruenberg. Neither can he be oblivious to his duty to
ascertain the scope of Gruenberg's authorization to enter into a contract to sell a parcel of land
belonging to Motorich.

Indeed, petitioner's claim of fraud and bad faith is unsubstantiated and fails to persuade the
Court. Indubitably, petitioner appears to be the victim of its own officer's negligence in entering
into a contract with and paying an unauthorized officer of another corporation.

As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be ordered to
return to petitioner the amount she received as earnest money, as "no one shall enrich himself
at the expense of another," 54 a principle embodied in Article 2154 of the Civil Code. 55
Although there was no binding relation between them, petitioner paid Gruenberg on the
mistaken belief that she had the authority to sell the property of Motorich. 56 Article 2155 of the
Civil Code provides that "[p]ayment by reason of a mistake in the construction or application of a
difficult question of law may come within the scope of the preceding article."

WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED. cdll

SO ORDERED.

Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ ., concur.

CLAUDIO DELOS REYES and LYDIA DELOS REYES, petitioners, vs. THE HON. COURT OF
APPEALS and DALUYONG GABRIEL, substituted by his heirs, namely: MARIA LUISA G.
ESTEBAN, MARIA RITA G. BARTOLOME & RENATO GABRIEL, respondents.

Rolando C. Rama for petitioners.

Melchor V. Quitain for private respondents.

SYNOPSIS

Private respondent Daluyong Gabriel was the registered owner of a 5,010 square meter parcel
of land situated in Barrio Magugpo, Tagum, Davao del Norte. Sometime in 1985, upon
instruction of Daluyong Gabriel, his son Renato Gabriel took over the administration of the said
parcel of land. Renato Gabriel then entered into a six-year Contract of Lease with petitioner
spouses. Sometime in November 1987, during the effectivity of the lease contract, an oral
contract of sale was entered into by Renato Gabriel with petitioners involving three hundred
square meter portion of the property for a total amount of P90,000.00. Thereafter, petitioners
started the construction of a two-storey commercial building on the said lot. On August 30,
1989, Daluyong Gabriel demanded of petitioner's to cease and desist from continuing their
construction and to immediately vacate the premises, asserting that the construction was
unauthorized and that their occupancy of the subject portion was not covered by any lease
agreement. On September 20, 1989, petitioners explained that they entered into the lease
agreement and subsequent sale of subject portion of land in good faith and upon assurance that
Renato Gabriel is the new administrator authorized to enter into such agreements. Dissatisfied
with the explanation, Daluyong commenced an action against the petitioners for the recovery of
the subject portion of land before the Regional Trial Court of Tagum, Davao del Norte. In his
complaint, Daluyong Gabriel maintained that his son Renato Gabriel was never given the
authority to lease nor to sell any portion of his land as his instruction to him was merely to
collect rentals. Petitioners, on the other hand, filed before the same court a complaint for
specific performance against Daluyong and his children. The two cases were heard jointly.
Thereafter, the trial court rendered a decision in favor of petitioners. On appeal, the Court of
Appeals reversed and set aside the decision of the Regional Trial Court. Hence, this petition.
CAaSED

The Supreme Court agreed with the conclusion of the Court of Appeals that Renato Gabriel was
neither the owner of the subject property nor a duly designated agent of the registered owner
authorized to sell subject property in his behalf, and there was no sufficient evidence adduced to
show that Daluyong Gabriel subsequently ratified Renato's act. The Court pointed out that
pursuant to Article 1874 of the Civil Code, when the sale of a piece of land or any interest
therein is through an agent, the authority of the latter shall be in writing, otherwise the sale shall
be void. For want of capacity on the part of Renato Gabriel, the oral contract of sale lacks one of
the essential requisites for its validity prescribed under Article 1318 of the Civil Code, and is,
therefore, null and void ab initio. Moreover, records show that on October 1, 1990, Daluyong
Gabriel donated the entire lot covered to his daughter Maria Rita G. Bartolome. This means that
when Daluyong Gabriel died on September 14, 1995, he was no longer the owner of the subject
property. Accordingly, Renato Gabriel never acquired ownership over any portion of said
property as one of the heirs of Daluyong Gabriel. The Court, however, ruled that for the sake of
justice and equity, and in consonance with the salutary principle of non-enrichment at another
expense, private respondent Renato Gabriel should refund to petitioners the amount which they
have paid.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; ESSENTIAL REQUISITES; LEGAL

CAPACITY; INDISPENSABLE CONDITION FOR EXISTENCE OF CONSENT. — By law a
contract of sale is perfected at the moment there is a meeting of minds upon the thing which is
the object of the contract and upon the price. It is a consensual contract which is perfected by
mere consent. Once perfected, the contract is generally binding in whatever form (i.e. written or
oral) it may have been entered into provided the three (3) essential requisites for its validity
prescribed under Article 1318 supra, are present. Foremost of these requisites is the consent
and the capacity to give consent of the parties to the contract. The legal capacity of the parties
is an essential element for the existence of the contract because it is an indispensable condition
for the existence of consent. There is no effective consent in law without the capacity to give
such consent. In other words, legal consent presupposes capacity. Thus, there is said to be no
consent, and consequently, no contract when the agreement is entered into by one in behalf of
another who has never given him authorization therefor unless he has by law a right to
represent the latter. It has also been held that if the vendor is not the owner of the property at
the time of the sale, the sale is null and void, because a person can sell only what he owns or is
authorized to sell. One exception is when a contract entered into in behalf of another who has
not authorized it, subsequently confirmed or ratified the same in which case, the transaction
becomes valid and binding against him and he is estopped to question its legality.

2. ID.; ID.; ID.; ID.; LEGAL CAPACITY TO GIVE CONSENT, ABSENCE THEREOF IN
CASE AT BAR. — We agree with the conclusion of the Court of Appeals that Renato Gabriel
was neither the owner of the subject property nor a duly designated agent of the registered
owner (Daluyong Gabriel) authorized to sell subject property in his behalf, and there was also
no sufficient evidence adduced to show that Daluyong Gabriel subsequently ratified Renato's
act. In this connection it must be pointed out that pursuant to Article 1874 of the Civil Code,
when the sale of a piece of land or any interest therein is through an agent, the authority of the
latter shall be in writing; otherwise the sale shall be void. In other words, for want of capacity (to
give consent) on the part of Renato Gabriel, the oral contract of sale lacks one of the essential
requisites for its validity prescribed under Article 1318, supra and is therefore null and void ab
initio. DaTICc

3. ID.; ID.; ID.; CONTRACT OF SALE; REFUND OF AMOUNT GIVEN IN PAYMENT FOR
SUBJECT PROPERTY, WARRANTED IN CASE AT BAR. — Respondent Court of Appeals
failed to consider the undisputed fact pointed out by the trial court that petitioners had already
performed their obligation under subject oral contract of sale, i.e. completing their payment of
P90,000.00 representing the purchase price of the 300 square meter portion of land. As was
held in "Nool vs. Court of Appeals" if a void contract has been performed, the restoration of what
has been given is in order. The relationship between parties in any contract even if
subsequently voided must always be characterized and punctuated by good faith and fair
dealing. Hence, for the sake of justice and equity, and in consonance with the salutary principle
of non-enrichment at another's expense, private respondent Renato Gabriel, should be ordered
to refund to petitioners the amount of P90,000.00 which they have paid to and receipt of which
was duly acknowledged by him. It is the policy of the Court to strive to settle the entire
controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation
especially where the Court is in a position to resolve the dispute based on the records before it
and where the ends of justice would not likely be subserved by the remand thereof, to the lower
Court. The Supreme Court is clothed with ample authority to review matters, even those not
raised on appeal if it finds that their consideration is necessary in arriving at a just disposition of
the case.
4. ID.; ID.; ID.; ID.; REFUND OF VALUE AND COST OF IMPROVEMENT MADE ON
PROPERTY, UNWARRANTED IN CASE AT BAR. — Petitioners' claim for the refund to them of
P1,000,000.00 representing the alleged value and cost of the two-storey commercial building
they constructed on subject portion of land cannot be favorably considered as no sufficient
evidence was adduced to prove and establish the same. HDTSIE

DECISION

GONZAGA-REYES, J p:

In this petition for review on certiorari, petitioners seek to set aside the Decision 1 of the Court of
Appeals 2 in CA-G.R. CV No. 36955 reversing the consolidated Decision 3 of the Regional Trial
Court, Branch I, Tagum, Davao del Norte in Civil Case Nos. 2326 and 2327. LibLex

This petition was originally filed with the Court on June 16, 1997. In a Resolution (of the Third
Division) dated October 13, 1997, 4 the petition was denied for failure to show that the
respondent Court of Appeals committed any reversible error. However, the motion for
reconsideration filed by petitioners on November 14, 1997 was granted by the Court in its
Resolution dated December 03, 1997 5 and the petition was reinstated.

The antecedents are:

1. Private respondent Daluyong Gabriel, (who died on September 14, 1995 and was
substituted herein by his children RENATO GABRIEL, MARIA LUISA B. ESTEBAN and MARIA
RITA G. BARTOLOME) was the registered owner under Transfer Certificate of Title No. T-
17932 of the Registry of Deeds of Tagum, Davao del Norte of a 5,010 square meter parcel of
land situated in Barrio Magugpo, Tagum, Davao del Norte, 6 having acquired the same by
hereditary succession sometime in 1974 as one of the children and heirs of the late Maximo
Gabriel.

2. Because Daluyong Gabriel together with his family was then residing in Mandaluyong,
Metro Manila, his sister Maria Rita Gabriel de Rey acted as administratrix of the said parcel of
land and took charge of collecting the rentals for those portions which have been leased to
certain tenants/lessees. One of these lessees is LYDIA DE LOS REYES who by virtue of a
Contract of Lease executed on June 21, 1985 by and between Maria Rita G. de Rey as lessor
and Lydia de los Reyes as lessee, leased a portion of One Hundred Seventy Six (176) square
meters for a term of one year beginning June 15, 1985 renewable upon agreement of the
parties at the rental rate of Two Hundred (P200.00) pesos, per month. 7

3. Sometime in 1985 Daluyong Gabriel sent his son Renato Gabriel to Tagum reportedly
with instructions to take over from Maria Rita G. de Rey as administrator of the said parcel of
land. Upon agreement of the parties, the June 21, 1985 Contract of Lease covering the one
hundred seventy-six square meter portion of land was novated and replaced by a Contract of
Lease executed on September 26, 1985 by and between RENATO GABRIEL as Lessor and
Lydia de los Reyes as Lessee. 8 The term of the lease was changed to six (6) years from and
after June 15, 1985 or up to June 15, 1991; receipt of the payment in advance of the total rental
amount of Fourteen Thousand Four Hundred (P14,400.00) Pesos was acknowledged by Lessor
Renato Gabriel.

4. Sometime in November 1987, during the effectivity of the lease contract, Lydia de los
Reyes verbally agreed to buy two hundred fifty (250) square meters (including the 176 square
meters leased by her), and thereafter an additional fifty (50) square meters or a total of three
hundred (300) square meters of Daluyong Gabriel's registered property, at three hundred pesos
(P300.00) per square meter or for a total amount of P90,000.00. Receipt of the payment of the
purchase price made in several installments by Lydia de los Reyes was acknowledged by
Renato Gabriel as evidenced by official receipts issued and signed by him dated November 25,
1987, November 26, 1987, January 8, 1988, February 10, 1988, February 15, 1988 and
February 29, 1988 all bearing the letter head "Gabriel Building." No deed of sale was executed
covering the transaction. Purchaser Lydia de los Reyes however proceeded with the
construction of a two-storey commercial building on the said 300 square meter lot after
obtaining a building permit from the Engineer's Office in Tagum.

5. Acting on the information given by his daughter Maria Luisa Gabriel Esteban upon the
latter's return from a trip to Tagum that spouses Claudio and Lydia de los Reyes were
constructing a two-storey building on a portion of his land, Daluyong Gabriel, through his lawyer,
sent a letter on August 30, 1989 to the De los Reyes couple demanding that they cease and
desist from continuing with their construction and to immediately vacate the premises, asserting
that the construction was unauthorized and that their occupancy of the subject portion was not
covered by any lease agreement.

6. On September 20, 1989, spouses Claudio and Lydia de los Reyes through counsel sent
their letter reply explaining that the De los Reyeses are the innocent party who entered into the
lease agreement and subsequent sale of subject portion of land in good faith and upon the
assurance made by the former administratrix, Maria Rita G. Rey, her nephew Tony Rey, Mrs.
Fe S. Gabriel and Mr. Daluyong Gabriel himself that Renato Gabriel is the new administrator
authorized to enter into such agreements involving the subject property.

7. Dissatisfied with the explanation, Daluyong Gabriel commenced an action on November

14, 1989 against spouses Claudio and Lydia de los Reyes for the recovery of the subject portion
of land before the Regional Trial Court, Branch 1, Tagum, Davao del Norte docketed as Civil
Case No. 2326. In his complaint Daluyong maintained that his son Renato was never given the
authority to lease nor to sell any portion of his land as his instruction to him (Renato) was merely
to collect rentals.

8. Spouses Claudio and Lydia delos Reyes countered that the sale to them of the subject
portion of land by Renato Gabriel was with the consent and knowledge of Daluyong, his wife Fe
and their other children, and filed before the same trial court a complaint for specific
performance, docketed as Civil Case No. 2329 against Daluyong and his children, namely
Renato Gabriel, Maria Luisa Gabriel Esteban and Maria Rita Gabriel Bartolome praying that the
defendants therein be ordered to execute the necessary deed of conveyance and other
pertinent documents for the transfer of the 300 square meter portion they previously bought
from Renato.
9. Civil Case Nos. 2326 and 2327 were heard jointly and on September 10, 1991 the trial
court rendered a consolidated decision, the dispositive portion 9 of which reads: cda

"WHEREFORE" premises considered, Daluyong Gabriel, Renato Gabriel, Maria Luisa Esteban
and Maria Rita G. Bartolome are hereby ordered to execute a Deed of Conveyance and other
necessary documents in favor of Claudio delos Reyes and Lydia delos Reyes over an area of
300 square meters from TCT No. T-17932 comprising of 5,010 square meters located at
Tagum, Davao which portion is presently occupied by Delos Reyes couple.

SO ORDERED."

10. On appeal by the Gabriels, the Court of Appeals reversed and set aside the decision of
the Regional Trial Court and rendered a new one "ORDERING appellee spouses Claudio and
Lydia delos Reyes to immediately vacate the 300 square meter portion of that land covered by
TCT No. T-17932 which they presently occupy and to turn over possession thereof to the
appellants. . . ." 10

Not satisfied with the decision of the Court of Appeals, petitioners came to this Court by way of
petition for review, alleging that:

"a. The Court of Appeals gravely abused its discretion in overlooking facts extant in the
record;

b. The Court of Appeals erred in not finding the document of sale and receipts (exhibits for
the herein Petitioners), as valid and enforceable;

c. The Court of Appeals erred in its apprehension and appreciation of the undisputed facts
for the Petitioners; LLpr

d. The Court of Appeals erred in making speculative conclusions on the facts of the case;

e. The Court of Appeals erred in reversing the Decision of the Regional Trial Court based
on credible, relevant and material evidence adduced by the Petitioners in the lower court." 11

Petitioners aver that respondent Court of Appeals gravely abused its discretion when it totally
disregarded the oral and documentary evidence adduced by appellees, and in giving credence
to the oral testimonies of appellants, which are replete with inconsistencies and contradictions.
Petitioners cite specifically Exhibits "1" to "19" consisting of a contract of lease involving the
subject property and certain official receipts with the letterhead "Gabriel Building" showing
payments received (by Renato Gabriel) for the lease and/or sale of portions of subject real
property of Daluyong Gabriel e.g. sale by installment of portion (700 square meters) of land to
spouses Ruben Carriedo and Abdula Sanducan (Exhs. 13, 14, 15 & 16) and lease (Exhs. 3-3-
BBBB, 5, 6 & 7) and sale (Exhs. 8, 9, 10, 11 & 12) of land made by Renato Gabriel to
petitioners-spouses. In other words, respondent Court of Appeals "gravely abused its discretion"
in the misapprehension and misappreciation of the facts of the case and in going beyond the
issues involved contrary to the admissions of both the appellants and appellees. And since the
appellate court's findings of facts contradict that of the trial court a thorough review thereof by
the Supreme Court is necessary.

In their Comment, private respondents restated their arguments to support the appellate court's
conclusion that the alleged sale made by Renato Gabriel to the petitioners in 1987 without
authority from Daluyong Gabriel is not valid and therefore unenforceable.

Petitioners submitted their Reply to the Comment contending that the assailed decision of the
Court of Appeals is "patently fallacious" in that while petitioners' payment to Renato Gabriel of
the amount of P90,000.00 as purchase price of the three hundred (300) square meter portion of
subject land was neither denied nor controverted, the appellate court's decision failed to order
private respondent Renato Gabriel to refund or reimburse petitioners the said amount together
with the value of the improvements and the two-storey commercial building which petitioners
constructed thereon in violation of Articles 2142, 2143 and 2154 of the Civil Code and the time-
honored principle of substantial justice and equity.

Petitioners allege further that even if Renato Gabriel was not (yet) the owner of the subject
portion of land when he sold the same to petitioners, after the death of his parents Daluyong
and Fe Gabriel, he, as heir, inherited and succeeded to the ownership of said portion of land by
operation of law thereby rendering valid and effective the sale he executed in favor of
petitioners. Petitioners also maintain that on the basis of the facts proven and admitted during
the trial, Daluyong Gabriel appears to have not only authorized his son Renato Gabriel to sell
the subject portion of land but also ratified the transaction by his contemporaneous conduct and
actuations shown during his lifetime.

In their respective memorandum submitted by petitioners and private respondents, substantially

the same arguments/contentions were raised. Petitioners maintain that the sale is valid or
validated pursuant to Articles 1433 and 1434 of the Civil Code and identified the legal issues
involved as follows:

"1. Whether or not the sale by respondent Renato Gabriel of the land registered in the name
of his deceased father Daluyong Gabriel, during the lifetime of the latter, in favor of the herein
petitioners, by operation of law, automatically vests title on the latter under the principle of
estoppel as provided for in Arts. 1433 and 1434 of the New Civil Code;

2. Whether or not the sale by Renato Gabriel of the land registered in the name of his
deceased father during the lifetime of the latter, to the herein petitioners is null and void." 12

On the other hand, private respondents contend that the petition has no legal or factual basis. It
is argued that petitioners changed their theory of the case in that while in the regional trial court,
petitioners claim that the subject property was sold to them by the late Daluyong Gabriel
through his son Renato Gabriel, in the instant petition, they claim that it was Renato Gabriel who
sold the property to them and that although at that time, Renato was not yet the owner of the
property, he is nonetheless obligated to honor the sale and to convey the property to the
petitioners because after the death of Daluyong Gabriel, Renato became the owner of the
subject property by way of hereditary succession. According to private respondents, litigants are
barred from changing their theory, more especially so in the appeal, and that the only issue to
be resolved in the instant petition is whether or not Renato Gabriel can be compelled to convey
the subject property to petitioners. Private respondents maintain that Renato Gabriel cannot be
compelled to convey subject property (to petitioners) because the land never passed on to
Renato either before or after the death of Daluyong Gabriel and that the whole property is now
owned by Ma. Rita G. Bartolome per Transfer Certificate of Title No. T-68674 entered in the
Registry of Deeds of Davao del Norte on January 10, 1991. 13 In short, Renato Gabriel cannot
convey that which does not belong to him. 14

Essentially, the issue here is whether or not the verbal agreement which petitioners entered into
with private respondent Renato Gabriel in 1987 involving the sale of the three hundred (300)
square meter portion of land registered in the name of Renato's late father Daluyong Gabriel is
a valid and enforceable contract of sale of real property.

By law 15 a contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price. It is a consensual contract which is
perfected by mere consent. 16 Once perfected, the contract is generally binding in whatever
form (i.e. written or oral) it may have been entered into 17 provided the three (3) essential
requisites for its validity prescribed under Article 1318 supra, are present. Foremost of these
requisites is the consent and the capacity to give consent of the parties to the contract. The
legal capacity of the parties is an essential element for the existence of the contract because it
is an indispensable condition for the existence of consent. 18 There is no effective consent in
law without the capacity to give such consent. In other words, legal consent presupposes
capacity. 19 Thus, there is said to be no consent, and consequently, no contract when the
agreement is entered into by one in behalf of another who has never given him authorization
therefor 20 unless he has by law a right to represent the latter. 21 It has also been held that if
the vendor is not the owner of the property at the time of the sale, the sale is null and void, 22
because a person can sell only what he owns or is authorized to sell. 23 One exception is when
a contract entered into in behalf of another who has not authorized it, subsequently confirmed or
ratified the same in which case, the transaction becomes valid and binding against him and he
is estopped to question its legality. 24

The trial court held that the oral contract of sale was valid and enforceable stating that while it is
true that at the time of the sale, Renato Gabriel was not the owner and that it was Daluyong
Gabriel who was the registered owner of the subject property, Daluyong Gabriel knew about the
transaction and tacitly authorized his son Renato Gabriel (whom he earlier designated as
administrator of his 5,010 square meter registered property) to enter into it. The receipt by
Renato Gabriel of the P90,000.00 paid by petitioner spouses as purchase price of subject
portion of land 25 and also of the amount of P14,400.00 paid by petitioners as advance rental
fee for the lease of one hundred seventy six (176) square meters thereof, in accordance with
the then still existing Contract of Lease (Exh. 10) entered into by Renato Gabriel as Lessor and
Lydia delos Reyes as lessee on September 26, 1985 which was to expire only on June 15, 1991
was also known not only to Daluyong Gabriel but also to his late wife Fe Salazar Gabriel and his
two other children, Maria Luisa Gabriel Esteban and Maria Rita Gabriel Bartolome. And even
assuming that Daluyong Gabriel did not expressly authorize Renato Gabriel to enter into such
contract of sale with petitioners in 1988, he (Daluyong Gabriel) confirmed/ratified the same by
his contemporaneous conduct and actuations shown during his lifetime. More importantly, the
trial court noted that Daluyong never presented Renato during the entire proceedings, despite
evidence 26 which tends to show that Renato Gabriel was not missing nor were his
whereabouts unknown as Daluyong wanted to impress the trial court, but had all the while been
staying at the Daluyong Gabriel residence at 185 I. Lopez St., Mandaluyong City but was
deliberately prevented (by Daluyong) from testifying or shedding light on the transactions
involved in the two cases then at bar. Hence, the decision of the trial court ordered Daluyong
Gabriel, Renato Gabriel, Maria Luisa G. Esteban and Maria Rita G. Bartolome to execute a
Deed of Conveyance and other necessary documents in favor of petitioners covering subject
area of 300 square meters to be taken from the 5,010 square meters covered by TCT No. T-
17932 under the name of Daluyong Gabriel which portion is actually occupied by petitioners
Delos Reyes couple. LibLex

The Court of Appeals, on the other hand, ruled that the contract of sale cannot be upheld,
mainly because Renato Gabriel, as vendor, did not have the legal capacity to enter and to give
consent to the agreement, he, being neither the authorized agent (of Daluyong Gabriel) nor the
owner of the property subject of the sale. It was pointed out that three theories were advanced
by appellees to prove that the transaction they had with Renato concerning the sale of the
portion in question was regular, valid and enforceable. First theory is that Renato acted as the
duly authorized representative or agent of Daluyong. Second, that the portion in dispute was
already given to Renato as his share, hence, he validly sold the same to appellees. And third,
that the portion being litigated was part of Renato's inheritance from the estate of her deceased
mother which he validly disposed of to appellees. These reasons, according to the appellate
court, cannot go together, or even complement each other, to establish the regularity, validity or
enforceability of the sale made by Renato. It could not be possible for Renato to have acted in
three different capacities — as agent, owner, and heir — when he dealt with appellees, as the
legal consequences for each situation would be different. Thus, it was incumbent upon
appellees to explain what actually convinced them to buy the land from Renato, and because
they failed to do so, no proper basis can be found to uphold the alleged sale made by Renato as
it cannot be determined with certainty in what capacity Renato acted. And even assuming that
he (Renato) already succeeded to whatever hereditary right or participation he may have over
the estate of his father, he is still considered a co-owner with his two sisters of the subject
property and that prior to its partition, Renato cannot validly sell or alienate a specific or
determinate part of the property owned in common. Besides, the entire lot covered by TCT No.
T-17932 was subsequently donated by Daluyong Gabriel to his daughter Marie Rita G.
Bartolome on October 1, 1990 and is now covered by TCT No. T-68674 in her name. 27 Hence,
the appellate court's decision ordered appellees (petitioners) spouses Claudio and Lydia delos
Reyes to immediately vacate the 300 square meter portion of that land covered by TCT No. T-
17932 which they are occupying and to turn-over possession thereof to the appellants, private
respondents herein.

As a general rule, the findings of fact of the Court of Appeals are binding upon this Court. 28
When such findings of fact are the same and confirmatory of those of the trial court, they are
final and conclusive and may not be reviewed on appeal, 29 In such cases, the authority of the
Supreme Court is confined to correcting errors of law, if any, that might have been committed
below. 30 In the instant case, it is noted that the trial court and the Court of Appeals are not at
variance in their factual findings that sometime in 1988, an oral contract of sale was entered into
by Renato Gabriel, (as vendor) with petitioners De los Reyes couple (as vendees) involving a
300 square meter portion of a 5,010 square meter parcel of land located in Barrio Magugpo,
Tagum, Davao del Norte owned and registered under Transfer Certificate of Title No. T-17932
in the name of Daluyong Gabriel, father of Renato. Thus, this Court is tasked to review and
determine whether or not respondent Court of Appeals committed an error of law 31 in its legal
conclusion that at the time the parties entered into said oral agreement of sale, Renato Gabriel
as the purported vendor, did not have the legal capacity to enter and/or to give consent to the
sale.

We agree with the conclusion of the Court of Appeals that Renato Gabriel was neither the
owner of the subject property nor a duly designated agent of the registered owner (Daluyong
Gabriel) authorized to sell subject property in his behalf, and there was also no sufficient
evidence adduced to show that Daluyong Gabriel subsequently ratified Renato's act. In this
connection it must be pointed out that pursuant to Article 1874 of the Civil Code, when the sale
of a piece of land or any interest therein is through an agent, the authority of the latter shall be in
writing; otherwise the sale shall be void. In other words, for want of capacity (to give consent) on
the part of Renato Gabriel, the oral contract of sale lacks one of the essential requisites for its
validity prescribed under Article 1318, supra and is therefore null and void ab initio. LibLex

Petitioners' contention that although at the time of the alleged sale, Renato Gabriel was not yet
the owner of the subject portion of land, after the death of Daluyong Gabriel, he (Renato)
became the owner and acquired title thereto by way of hereditary succession which title passed
by operation of law to petitioners pursuant to Article 1434 of the Civil Code 32 is not tenable.
Records show that on October 1, 1990 Daluyong Gabriel donated the entire lot covered by TCT
No. T-17932 to his daughter Maria Rita G. Bartolome and the property is now covered by TCT
No. T-68674 in her name. This means that when Daluyong Gabriel died on September 14,
1995, he was no longer the owner of the subject property. Accordingly, Renato Gabriel never
acquired ownership or title over any portion of said property as one of the heirs of Daluyong
Gabriel.

However, respondent Court of Appeals failed to consider the undisputed fact pointed out by the
trial court that petitioners had already performed their obligation under subject oral contract of
sale, i.e. completing their payment of P90,000.00 representing the purchase price of the 300
square meter portion of land. As was held in "Nool vs. Court of Appeals" 33 if a void contract
has been performed, the restoration of what has been given is in order. The relationship
between parties in any contract even if subsequently voided must always be characterized and
punctuated by good faith and fair dealing. 34 Hence, for the sake of justice and equity, and in
consonance with the salutary principle of non-enrichment at another's expense, 35 private
respondent Renato Gabriel, should be ordered to refund to petitioners the amount of
P90,000.00 which they have paid to and receipt of which was duly acknowledged by him. It is
the policy of the Court to strive to settle the entire controversy in a single proceeding leaving no
root or branch to bear the seeds of future litigation especially where the Court is in a position to
resolve the dispute based on the records before it and where the ends of justice would not likely
be subserved by the remand thereof, to the lower Court. The Supreme Court is clothed with
ample authority to review matters, even those not raised on appeal if it finds that their
consideration is necessary in arriving at a just disposition of the case. 36

However, petitioners' claim for the refund to them of P1,000,000.00 representing the alleged
value and cost of the two-storey commercial building they constructed on subject portion of land
cannot be favorably considered as no sufficient evidence was adduced to prove and establish
the same.

WHEREFORE, the decision of the Court of Appeals dated April 30, 1997 in CA-G.R. CV No.
36955 is hereby AFFIRMED in so far as it declared the oral contract of sale entered into by
Renato Gabriel of portion of the 5,010 square meter parcel of land registered in the name of
Daluyong Gabriel in favor of petitioners, null and void. Renato Gabriel is hereby ordered to
refund to petitioners the amount of P90,000.00 which was given in payment for subject land. No
pronouncement as to costs.

SO ORDERED.

Melo, Panganiban and Purisima, JJ., concur.

Vitug, J., please see concurring opinion.

[G.R. No. 111448. January 16, 2002.]

AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO, petitioners, vs.

DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS DEVELOPMENT
CORPORATION, respondents.

Benito Fabie for petitioners.

Abello Concepcion Regala & Cruz for private respondent Midas Development Corp.

Tagoc & Tagoc Law Office for private respondents Dieselman Freight Services, Co., and M.C.
Cruz, Jr.

SYNOPSIS

Dieselman Freight Services Co. is the registered owner of a commercial lot and Manuel C.
Cruz, Jr. is a member of its board of directors. Although Cruz has no written authority from
Dieselman to sell the lot, he issued a letter authorizing Cristeta N. Politan to look for a buyer at
P3,000.00 per square meter or P6,282,000.00. Politan, in turn, authorized Felicisima Noble to
sell the same lot. Noble then offered the lot to AF Realty & Development, Inc. at P2,500.00 per
square meter. Zenaida Ranullo, a board member and vice-president of AF Realty, accepted the
offer and issued a check in the amount of P330,000.00 payable to Dieselman. Cruz, as
president of Dieselman, acknowledged receipt of the check only as earnest money and required
AF Realty to finalize the sale at P4,000.00 per square meter. Later on, Cruz terminated the offer
and demanded the return of the title of the lot earlier delivered. AF Realty, claiming that the
contract was already perfected, filed a complaint for specific performance against Dieselman
and Cruz. Meanwhile, Dieselman and Midas Development Corporation executed a deed of
absolute sale of the same property at an agreed price of P2,800.00 per square meter and
thereafter filed a motion for leave to intervene in the case. After trial, the lower court held that
the acts of Cruz bound Dieselman in the sale of the lot to AF Realty. Consequently, the
perfected contract of sale between Dieselman and AF Realty barred Midas's intervention.
Dissatisfied, all parties appealed to the Court of Appeals. The Court of Appeals reversed the
decision of the trial court. It held that since Cruz was not authorized in writing to sell the subject
property to AF Realty, the sale was not perfected. It also held that the Deed of Absolute Sale
between Dieselman and Midas is valid. Hence, petitioner filed the instant petition. The focal
issue for consideration by the Supreme Court is who between petitioner AF Realty and
respondent Midas has a right over the subject lot. TDCAHE

The decision of the Court of Appeals was affirmed by the Supreme Court. According to the
Court, considering that respondent Cruz, Polintan and Noble were not authorized by respondent
Dieselman to sell its lot, the supposed contract is void. Being a void contract, it is not
susceptible of ratification by clear mandate of the Civil Code. On the other hand, the validity of
the sale of the subject lot to respondent Midas was unquestionable. The sale was authorized by
the board resolution of respondent Dieselman.

SYLLABUS

1. COMMERCIAL LAW; CORPORATION CODE; CORPORATE POWERS OF ALL

CORPORATIONS SHALL BE EXERCISED BY THE BOARD OF DIRECTORS; RATIONALE.
— Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may
authorize another to do certain acts in his behalf, so may the board of directors of a corporation
validly delegate some of its functions to individual officers or agents appointed by it. Thus,
contracts or acts of a corporation must be made either by the board of directors or by a
corporate agent duly authorized by the board. Absent such valid delegation/authorization, the
rule is that the declarations of an individual director relating to the affairs of the corporation, but
not in the course of, or connected with, the performance of authorized duties of such director,
are held not binding on the corporation.

2. CIVIL LAW; AGENCY; SALE OF LAND THROUGH AN AGENT REQUIRES

AUTHORITY TO BE IN WRITING; EFFECT OF ABSENCE THEREOF; CASE AT BAR. —
Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil
Code takes precedence. This is well stressed in Yao Ka Sin Trading vs. Court of Appeals:
"Since a corporation, such as the private respondent, can act only through its officers and
agents, all acts within the powers of said corporation may be performed by agents of its
selection; and, except so far as limitations or restrictions may be imposed by special charter, by-
law, or statutory provisions, the same general principles of law which govern the relation of
agency for a natural person govern the officer or agent of a corporation, of whatever status or
rank, in respect to his power to act for the corporation; and agents when once appointed, of
members acting in their stead, are subject to the same rules, liabilities, and incapacities as are
agents of individuals and private persons." Pertinently, Article 1874 of the same Code provides:
"ART. 1874. When a sale of piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void." Considering that
respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not authorized by
respondent Dieselman to sell its lot, the supposed contract is void. Being a void contract, it is
not susceptible of ratification by clear mandate of Article 1409 of the Civil Code, thus: "ART.
1409. The following contracts are inexistent and void from the very beginning: . . . (7) Those
expressly prohibited or declared void by law. "These contracts cannot be ratified. Neither can
the right to set up the defense of illegality be waived." Upon the other hand, the validity of the
sale of the subject lot to respondent Midas is unquestionable. As aptly noted by the Court of
Appeals, the sale was authorized by a board resolution of respondent Dieselman dated May 27,
1988. EHTISC

DECISION

SANDOVAL-GUTIERREZ, Jp:

Petition for review on certiorari assailing the Decision dated December 10, 1992 and the
Resolution (Amending Decision) dated August 5, 1993 of the Court of Appeals in CA-G.R. CV
No. 30133.

Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation and a
registered owner of a parcel of commercial lot consisting of 2,094 square meters, located at 104
E. Rodriguez Avenue, Barrio Ugong, Pasig City, Metro Manila. The property is covered by
Transfer Certificate of Title No. 39849 issued by the Registry of Deeds of the Province of Rizal.
1

On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman, issued
a letter denominated as "Authority To Sell Real Estate" 2 to Cristeta N. Polintan, a real estate
broker of the CNP Real Estate Brokerage. Cruz, Jr. authorized Polintan "to look for a
buyer/buyers and negotiate the sale" of the lot at P3,000.00 per square meter, or a total of
P6,282,000.00. Cruz, Jr. has no written authority from Dieselman to sell the lot.

In turn, Cristeta Polintan, through a letter 3 dated May 19, 1988, authorized Felicisima ("Mimi")
Noble 4 to sell the same lot.

Felicisima Noble then offered for sale the property to AF Realty & Development, Inc. (AF Realty)
at P2,500.00 per square meter. 5 Zenaida Ranullo, board member and vice-president of AF
Realty, accepted the offer and issued a check in the amount of P300,000.00 payable to the
order of Dieselman. Polintan received the check and signed an "Acknowledgment Receipt" 6
indicating that the amount of P300,000.00 represents the partial payment of the property but
refundable within two weeks should AF Realty disapprove Ranullo's action on the matter.

On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo asked
Polintan for the board resolution of Dieselman authorizing the sale of the property. However,
Polintan could only give Ranullo the original copy of TCT No. 39849, the tax declaration and tax
receipt for the lot, and a photocopy of the Articles of Incorporation of Dieselman. 7

On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the
said P300,000.00 as "earnest money" but required AF Realty to finalize the sale at P4,000.00
per square meter. 8 AF Realty replied that it has paid an initial down payment of P300,000.00
and is willing to pay the balance. 9

However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF Realty
the return of the title of the lot earlier delivered by Polintan. 10

Claiming that there was a perfected contract of sale between them, AF Realty filed with the
Regional Trial Court, Branch 160, Pasig City a complaint for specific performance (Civil Case
No. 56278) against Dieselman and Cruz, Jr. The complaint prays that Dieselman be ordered to
execute and deliver a final deed of sale in favor of AF Realty. 11 In its amended complaint, 12
AF Realty asked for payment of P1,500,000.00 as compensatory damages; P400,000.00 as
attorney's fees; and P500,000.00 as exemplary damages.

In its answer, Dieselman alleged that there was no meeting of the minds between the parties in
the sale of the property and that it did not authorize any person to enter into such transaction on
its behalf.

Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation (Midas) executed
a Deed of Absolute Sale 13 of the same property. The agreed price was P2,800.00 per square
meter. Midas delivered to Dieselman P500,000.00 as down payment and deposited the balance
of P5,300,000.00 in escrow account with the PCIBank.

Constrained to protect its interest in the property, Midas filed on April 3, 1989 a Motion for Leave
to Intervene in Civil Case No. 56278. Midas alleged that it has purchased the property and took
possession thereof, hence Dieselman cannot be compelled to sell and convey it to AF Realty.
The trial court granted Midas' motion.

After trial, the lower court rendered the challenged Decision holding that the acts of Cruz, Jr.
bound Dieselman in the sale of the lot to AF Realty. 14 Consequently, the perfected contract of
sale between Dieselman and AF Realty bars Midas' intervention. The trial court also held that
Midas acted in bad faith when it initially paid Dieselman P500,000.00 even without seeing the
latter's title to the property. Moreover, the notarial report of the sale was not submitted to the
Clerk of Court of the Quezon City RTC and the balance of P5,300,000.00 purportedly deposited
in escrow by Midas with a bank was not established.

The dispositive portion of the trial court's Decision reads:

"WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendant to
execute and deliver to plaintiffs the final deed of sale of the property covered by the Transfer
Certificate of Title No. 39849 of the Registry of Deed of Rizal, Metro Manila District II, including
the improvements thereon, and ordering defendants to pay plaintiffs attorney's fees in the
amount of P50,000.00 and to pay the costs.

"The counterclaim of defendants is necessarily dismissed.

"The counterclaim and/or the complaint in intervention are likewise dismissed

"SO ORDERED." 15

Dissatisfied, all the parties appealed to the Court of Appeals.

AF Realty alleged that the trial court erred in not holding Dieselman liable for moral,
compensatory and exemplary damages, and in dismissing its counterclaim against Midas.

Upon the other hand, Dieselman and Midas claimed that the trial court erred in finding that a
contract of sale between Dieselman and AF Realty was perfected. Midas further averred that
there was no bad faith on its part when it purchased the lot from Dieselman.

In its Decision dated December 10, 1992, the Court of Appeals reversed the judgment of the
trial court holding that since Cruz, Jr. was not authorized in writing by Dieselman to sell the
subject property to AF Realty, the sale was not perfected; and that the Deed of Absolute Sale
between Dieselman and Midas is valid, there being no bad faith on the part of the latter. The
Court of Appeals then declared Dieselman and Cruz, Jr. jointly and severally liable to AF Realty
for P100,000.00 as moral damages; P100,000.00 as exemplary damages; and P100,000.00 as
attorney's fees. 16

On August 5, 1993, the Court of Appeals, upon motions for reconsideration filed by the parties,
promulgated an Amending Decision, the dispositive portion of which reads:

"WHEREFORE, The Decision promulgated on October 10, 1992, is hereby AMENDED in the
sense that only defendant Mr. Manuel Cruz, Jr. should be made liable to pay the plaintiffs the
damages and attorney's fees awarded therein, plus the amount of P300,000.00 unless, in the
case of the said P300,000.00, the same is still deposited with the Court which should be
restituted to plaintiffs.

"SO ORDERED." 17

AF Realty now comes to this Court via the instant petition alleging that the Court of Appeals
committed errors of law.

The focal issue for consideration by this Court is who between petitioner AF Realty and
respondent Midas has a right over the subject lot.

The Court of Appeals, in reversing the judgment of the trial court, made the following
ratiocination:
"From the foregoing scenario, the fact that the board of directors of Dieselman never authorized,
verbally and in writing, Cruz, Jr. to sell the property in question or to look for buyers and
negotiate the sale of the subject property is undeniable.

"While Cristeta Polintan was actually authorized by Cruz, Jr. to look for buyers and negotiate the
sale of the subject property, it should be noted that Cruz, Jr. could not confer on Polintan any
authority which he himself did not have. Nemo dat quod non habet. In the same manner,
Felicisima Noble could not have possessed authority broader in scope, being a mere extension
of Polintan's purported authority, for it is a legal truism in our jurisdiction that a spring cannot rise
higher than its source. Succinctly stated, the alleged sale of the subject property was effected
through persons who were absolutely without any authority whatsoever from Dieselman.

"The argument that Dieselman ratified the contract by accepting the P300,000.00 as partial
payment of the purchase price of the subject property is equally untenable. The sale of land
through an agent without any written authority is void.

xxx xxx xxx

"On the contrary, anent the sale of the subject property by Dieselman to intervenor Midas, the
records bear out that Midas purchased the same from Dieselman on 30 July 1988. The notice of
lis pendens was subsequently annotated on the title of the property by plaintiffs on 15 August
1988. However, this subsequent annotation of the notice of lis pendens certainly operated
prospectively and did not retroact to make the previous sale of the property to Midas a
conveyance in bad faith. A subsequently registered notice of lis pendens surely is not proof of
bad faith. It must therefore be borne in mind that the 30 July 1988 deed of sale between Midas
and Dieselman is a document duly certified by notary public under his hand and seal. . . .. Such
a deed of sale being public document acknowledged before a notary public is admissible as to
the date and fact of its execution without further proof of its due execution and delivery (Bael vs.
Intermediate Appellate Court, 169 SCRA 617; Joson vs. Baltazar, 194 SCRA 114) and to prove
the defects and lack of consent in the execution thereof, the evidence must be strong and not
merely preponderant . . .. " 18

We agree with the Court of Appeals.

Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may
authorize another to do certain acts in his behalf, so may the board of directors of a corporation
validly delegate some of its functions to individual officers or agents appointed by it. 19 Thus,
contracts or acts of a corporation must be made either by the board of directors or by a
corporate agent duly authorized by the board. 20 Absent such valid delegation/authorization, the
rule is that the declarations of an individual director relating to the affairs of the corporation, but
not in the course of, or connected with, the performance of authorized duties of such director,
are held not binding on the corporation. 21

In the instant case, it is undisputed that respondent Cruz, Jr. has no written authority from the
board of directors of respondent Dieselman to sell or to negotiate the sale of the lot, much less
to appoint other persons for the same purpose. Respondent Cruz, Jr.'s lack of such authority
precludes him from conferring any authority to Polintan involving the subject realty. Necessarily,
neither could Polintan authorize Felicisima Noble. Clearly, the collective acts of respondent
Cruz, Jr., Polintan and Noble cannot bind Dieselman in the purported contract of sale. AHcCDI

Petitioner AF Realty maintains that the sale of land by an unauthorized agent may be ratified
where, as here, there is acceptance of the benefits involved. In this case the receipt by
respondent Cruz, Jr. from AF Realty of the P300,000.00 as partial payment of the lot effectively
binds respondent Dieselman. 22

We are not persuaded.

Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil
Code takes precedence. This is well stressed in Yao Ka Sin Trading vs. Court of Appeals: 23

"Since a corporation, such as the private respondent, can act only through its officers and
agents, all acts within the powers of said corporation may be performed by agents of its
selection; and, except so far as limitations or restrictions may be imposed by special charter, by-
law, or statutory provisions, the same general principles of law which govern the relation of
agency for a natural person govern the officer or agent of a corporation, of whatever status or
rank, in respect to his power to act for the corporation; and agents when once appointed, or
members acting in their stead, are subject to the same rules, liabilities, and incapacities as are
agents of individuals and private persons." (Italics supplied)

Pertinently, Article 1874 of the same Code provides:

"ART. 1874. When a sale of piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void." (Italics supplied)

Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not
authorized by respondent Dieselman to sell its lot, the supposed contract is void. Being a void
contract, it is not susceptible of ratification by clear mandate of Article 1409 of the Civil Code,
thus:

"ART. 1409. The following contracts are inexistent and void from the very beginning:

xxx xxx xxx

(7) Those expressly prohibited or declared void by law.

"These contracts cannot be ratified. Neither can the right to set up the defense of illegality be
waived." (Italics supplied)

Upon the other hand, the validity of the sale of the subject lot to respondent Midas is
unquestionable. As aptly noted by the Court of Appeals, 24 the sale was authorized by a board
resolution of respondent Dieselman dated May 27, 1988.
The Court of Appeals awarded attorney's fees and moral and exemplary damages in favor of
petitioner AF Realty and against respondent Cruz, Jr. The award was made by reason of a
breach of contract imputable to respondent Cruz, Jr. for having acted in bad faith. We are not
persuaded. It bears stressing that petitioner Zenaida Ranullo, board member and vice-president
of petitioner AF Realty who accepted the offer to sell the property, admitted in her testimony, 25
that a board resolution from respondent Dieselman authorizing the sale is necessary to bind the
latter in the transaction; and that respondent Cruz, Jr. has no such written authority. In fact,
despite demand, such written authority was not presented to her. 26 This notwithstanding,
petitioner Ranullo tendered a partial payment for the unauthorized transaction. Clearly,
respondent Cruz, Jr. should not be held liable for damages and attorney's fees.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby
AFFIRMED with MODIFICATION in the sense that the award of damages and attorney's fees is
deleted. Respondent Dieselman is ordered to return to petitioner AF Realty its partial payment
of P300,000.00. Costs against petitioners.

SO ORDERED.

Melo, Vitug, Panganiban and Carpio, JJ., concur. [G.R. No. 111448. January 16, 2002.]

AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO, petitioners, vs.

DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS DEVELOPMENT
CORPORATION, respondents.

Benito Fabie for petitioners.

Abello Concepcion Regala & Cruz for private respondent Midas Development Corp.

Tagoc & Tagoc Law Office for private respondents Dieselman Freight Services, Co., and M.C.
Cruz, Jr.

SYNOPSIS

Dieselman Freight Services Co. is the registered owner of a commercial lot and Manuel C.
Cruz, Jr. is a member of its board of directors. Although Cruz has no written authority from
Dieselman to sell the lot, he issued a letter authorizing Cristeta N. Politan to look for a buyer at
P3,000.00 per square meter or P6,282,000.00. Politan, in turn, authorized Felicisima Noble to
sell the same lot. Noble then offered the lot to AF Realty & Development, Inc. at P2,500.00 per
square meter. Zenaida Ranullo, a board member and vice-president of AF Realty, accepted the
offer and issued a check in the amount of P330,000.00 payable to Dieselman. Cruz, as
president of Dieselman, acknowledged receipt of the check only as earnest money and required
AF Realty to finalize the sale at P4,000.00 per square meter. Later on, Cruz terminated the offer
and demanded the return of the title of the lot earlier delivered. AF Realty, claiming that the
contract was already perfected, filed a complaint for specific performance against Dieselman
and Cruz. Meanwhile, Dieselman and Midas Development Corporation executed a deed of
absolute sale of the same property at an agreed price of P2,800.00 per square meter and
thereafter filed a motion for leave to intervene in the case. After trial, the lower court held that
the acts of Cruz bound Dieselman in the sale of the lot to AF Realty. Consequently, the
perfected contract of sale between Dieselman and AF Realty barred Midas's intervention.
Dissatisfied, all parties appealed to the Court of Appeals. The Court of Appeals reversed the
decision of the trial court. It held that since Cruz was not authorized in writing to sell the subject
property to AF Realty, the sale was not perfected. It also held that the Deed of Absolute Sale
between Dieselman and Midas is valid. Hence, petitioner filed the instant petition. The focal
issue for consideration by the Supreme Court is who between petitioner AF Realty and
respondent Midas has a right over the subject lot. TDCAHE

The decision of the Court of Appeals was affirmed by the Supreme Court. According to the
Court, considering that respondent Cruz, Polintan and Noble were not authorized by respondent
Dieselman to sell its lot, the supposed contract is void. Being a void contract, it is not
susceptible of ratification by clear mandate of the Civil Code. On the other hand, the validity of
the sale of the subject lot to respondent Midas was unquestionable. The sale was authorized by
the board resolution of respondent Dieselman.

SYLLABUS

1. COMMERCIAL LAW; CORPORATION CODE; CORPORATE POWERS OF ALL

CORPORATIONS SHALL BE EXERCISED BY THE BOARD OF DIRECTORS; RATIONALE.
— Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may
authorize another to do certain acts in his behalf, so may the board of directors of a corporation
validly delegate some of its functions to individual officers or agents appointed by it. Thus,
contracts or acts of a corporation must be made either by the board of directors or by a
corporate agent duly authorized by the board. Absent such valid delegation/authorization, the
rule is that the declarations of an individual director relating to the affairs of the corporation, but
not in the course of, or connected with, the performance of authorized duties of such director,
are held not binding on the corporation.

2. CIVIL LAW; AGENCY; SALE OF LAND THROUGH AN AGENT REQUIRES

AUTHORITY TO BE IN WRITING; EFFECT OF ABSENCE THEREOF; CASE AT BAR. —
Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil
Code takes precedence. This is well stressed in Yao Ka Sin Trading vs. Court of Appeals:
"Since a corporation, such as the private respondent, can act only through its officers and
agents, all acts within the powers of said corporation may be performed by agents of its
selection; and, except so far as limitations or restrictions may be imposed by special charter, by-
law, or statutory provisions, the same general principles of law which govern the relation of
agency for a natural person govern the officer or agent of a corporation, of whatever status or
rank, in respect to his power to act for the corporation; and agents when once appointed, of
members acting in their stead, are subject to the same rules, liabilities, and incapacities as are
agents of individuals and private persons." Pertinently, Article 1874 of the same Code provides:
"ART. 1874. When a sale of piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void." Considering that
respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not authorized by
respondent Dieselman to sell its lot, the supposed contract is void. Being a void contract, it is
not susceptible of ratification by clear mandate of Article 1409 of the Civil Code, thus: "ART.
1409. The following contracts are inexistent and void from the very beginning: . . . (7) Those
expressly prohibited or declared void by law. "These contracts cannot be ratified. Neither can
the right to set up the defense of illegality be waived." Upon the other hand, the validity of the
sale of the subject lot to respondent Midas is unquestionable. As aptly noted by the Court of
Appeals, the sale was authorized by a board resolution of respondent Dieselman dated May 27,
1988. EHTISC

DECISION

SANDOVAL-GUTIERREZ, Jp:

Petition for review on certiorari assailing the Decision dated December 10, 1992 and the
Resolution (Amending Decision) dated August 5, 1993 of the Court of Appeals in CA-G.R. CV
No. 30133.

Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation and a
registered owner of a parcel of commercial lot consisting of 2,094 square meters, located at 104
E. Rodriguez Avenue, Barrio Ugong, Pasig City, Metro Manila. The property is covered by
Transfer Certificate of Title No. 39849 issued by the Registry of Deeds of the Province of Rizal.
1

On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman, issued
a letter denominated as "Authority To Sell Real Estate" 2 to Cristeta N. Polintan, a real estate
broker of the CNP Real Estate Brokerage. Cruz, Jr. authorized Polintan "to look for a
buyer/buyers and negotiate the sale" of the lot at P3,000.00 per square meter, or a total of
P6,282,000.00. Cruz, Jr. has no written authority from Dieselman to sell the lot.

In turn, Cristeta Polintan, through a letter 3 dated May 19, 1988, authorized Felicisima ("Mimi")
Noble 4 to sell the same lot.

Felicisima Noble then offered for sale the property to AF Realty & Development, Inc. (AF Realty)
at P2,500.00 per square meter. 5 Zenaida Ranullo, board member and vice-president of AF
Realty, accepted the offer and issued a check in the amount of P300,000.00 payable to the
order of Dieselman. Polintan received the check and signed an "Acknowledgment Receipt" 6
indicating that the amount of P300,000.00 represents the partial payment of the property but
refundable within two weeks should AF Realty disapprove Ranullo's action on the matter.

On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo asked
Polintan for the board resolution of Dieselman authorizing the sale of the property. However,
Polintan could only give Ranullo the original copy of TCT No. 39849, the tax declaration and tax
receipt for the lot, and a photocopy of the Articles of Incorporation of Dieselman. 7

On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the
said P300,000.00 as "earnest money" but required AF Realty to finalize the sale at P4,000.00
per square meter. 8 AF Realty replied that it has paid an initial down payment of P300,000.00
and is willing to pay the balance. 9

However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF Realty
the return of the title of the lot earlier delivered by Polintan. 10

Claiming that there was a perfected contract of sale between them, AF Realty filed with the
Regional Trial Court, Branch 160, Pasig City a complaint for specific performance (Civil Case
No. 56278) against Dieselman and Cruz, Jr. The complaint prays that Dieselman be ordered to
execute and deliver a final deed of sale in favor of AF Realty. 11 In its amended complaint, 12
AF Realty asked for payment of P1,500,000.00 as compensatory damages; P400,000.00 as
attorney's fees; and P500,000.00 as exemplary damages.

In its answer, Dieselman alleged that there was no meeting of the minds between the parties in
the sale of the property and that it did not authorize any person to enter into such transaction on
its behalf.

Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation (Midas) executed
a Deed of Absolute Sale 13 of the same property. The agreed price was P2,800.00 per square
meter. Midas delivered to Dieselman P500,000.00 as down payment and deposited the balance
of P5,300,000.00 in escrow account with the PCIBank.

Constrained to protect its interest in the property, Midas filed on April 3, 1989 a Motion for Leave
to Intervene in Civil Case No. 56278. Midas alleged that it has purchased the property and took
possession thereof, hence Dieselman cannot be compelled to sell and convey it to AF Realty.
The trial court granted Midas' motion.

After trial, the lower court rendered the challenged Decision holding that the acts of Cruz, Jr.
bound Dieselman in the sale of the lot to AF Realty. 14 Consequently, the perfected contract of
sale between Dieselman and AF Realty bars Midas' intervention. The trial court also held that
Midas acted in bad faith when it initially paid Dieselman P500,000.00 even without seeing the
latter's title to the property. Moreover, the notarial report of the sale was not submitted to the
Clerk of Court of the Quezon City RTC and the balance of P5,300,000.00 purportedly deposited
in escrow by Midas with a bank was not established.

The dispositive portion of the trial court's Decision reads:

"WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendant to

execute and deliver to plaintiffs the final deed of sale of the property covered by the Transfer
Certificate of Title No. 39849 of the Registry of Deed of Rizal, Metro Manila District II, including
the improvements thereon, and ordering defendants to pay plaintiffs attorney's fees in the
amount of P50,000.00 and to pay the costs.

"The counterclaim of defendants is necessarily dismissed.

"The counterclaim and/or the complaint in intervention are likewise dismissed

"SO ORDERED." 15
Dissatisfied, all the parties appealed to the Court of Appeals.

AF Realty alleged that the trial court erred in not holding Dieselman liable for moral,
compensatory and exemplary damages, and in dismissing its counterclaim against Midas.

Upon the other hand, Dieselman and Midas claimed that the trial court erred in finding that a
contract of sale between Dieselman and AF Realty was perfected. Midas further averred that
there was no bad faith on its part when it purchased the lot from Dieselman.

In its Decision dated December 10, 1992, the Court of Appeals reversed the judgment of the
trial court holding that since Cruz, Jr. was not authorized in writing by Dieselman to sell the
subject property to AF Realty, the sale was not perfected; and that the Deed of Absolute Sale
between Dieselman and Midas is valid, there being no bad faith on the part of the latter. The
Court of Appeals then declared Dieselman and Cruz, Jr. jointly and severally liable to AF Realty
for P100,000.00 as moral damages; P100,000.00 as exemplary damages; and P100,000.00 as
attorney's fees. 16

On August 5, 1993, the Court of Appeals, upon motions for reconsideration filed by the parties,
promulgated an Amending Decision, the dispositive portion of which reads:

"WHEREFORE, The Decision promulgated on October 10, 1992, is hereby AMENDED in the
sense that only defendant Mr. Manuel Cruz, Jr. should be made liable to pay the plaintiffs the
damages and attorney's fees awarded therein, plus the amount of P300,000.00 unless, in the
case of the said P300,000.00, the same is still deposited with the Court which should be
restituted to plaintiffs.

"SO ORDERED." 17

AF Realty now comes to this Court via the instant petition alleging that the Court of Appeals
committed errors of law.

The focal issue for consideration by this Court is who between petitioner AF Realty and
respondent Midas has a right over the subject lot.

The Court of Appeals, in reversing the judgment of the trial court, made the following
ratiocination:

"From the foregoing scenario, the fact that the board of directors of Dieselman never authorized,
verbally and in writing, Cruz, Jr. to sell the property in question or to look for buyers and
negotiate the sale of the subject property is undeniable.

"While Cristeta Polintan was actually authorized by Cruz, Jr. to look for buyers and negotiate the
sale of the subject property, it should be noted that Cruz, Jr. could not confer on Polintan any
authority which he himself did not have. Nemo dat quod non habet. In the same manner,
Felicisima Noble could not have possessed authority broader in scope, being a mere extension
of Polintan's purported authority, for it is a legal truism in our jurisdiction that a spring cannot rise
higher than its source. Succinctly stated, the alleged sale of the subject property was effected
through persons who were absolutely without any authority whatsoever from Dieselman.
"The argument that Dieselman ratified the contract by accepting the P300,000.00 as partial
payment of the purchase price of the subject property is equally untenable. The sale of land
through an agent without any written authority is void.

xxx xxx xxx

"On the contrary, anent the sale of the subject property by Dieselman to intervenor Midas, the
records bear out that Midas purchased the same from Dieselman on 30 July 1988. The notice of
lis pendens was subsequently annotated on the title of the property by plaintiffs on 15 August
1988. However, this subsequent annotation of the notice of lis pendens certainly operated
prospectively and did not retroact to make the previous sale of the property to Midas a
conveyance in bad faith. A subsequently registered notice of lis pendens surely is not proof of
bad faith. It must therefore be borne in mind that the 30 July 1988 deed of sale between Midas
and Dieselman is a document duly certified by notary public under his hand and seal. . . .. Such
a deed of sale being public document acknowledged before a notary public is admissible as to
the date and fact of its execution without further proof of its due execution and delivery (Bael vs.
Intermediate Appellate Court, 169 SCRA 617; Joson vs. Baltazar, 194 SCRA 114) and to prove
the defects and lack of consent in the execution thereof, the evidence must be strong and not
merely preponderant . . .. " 18

We agree with the Court of Appeals.

Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may
authorize another to do certain acts in his behalf, so may the board of directors of a corporation
validly delegate some of its functions to individual officers or agents appointed by it. 19 Thus,
contracts or acts of a corporation must be made either by the board of directors or by a
corporate agent duly authorized by the board. 20 Absent such valid delegation/authorization, the
rule is that the declarations of an individual director relating to the affairs of the corporation, but
not in the course of, or connected with, the performance of authorized duties of such director,
are held not binding on the corporation. 21

In the instant case, it is undisputed that respondent Cruz, Jr. has no written authority from the
board of directors of respondent Dieselman to sell or to negotiate the sale of the lot, much less
to appoint other persons for the same purpose. Respondent Cruz, Jr.'s lack of such authority
precludes him from conferring any authority to Polintan involving the subject realty. Necessarily,
neither could Polintan authorize Felicisima Noble. Clearly, the collective acts of respondent
Cruz, Jr., Polintan and Noble cannot bind Dieselman in the purported contract of sale. AHcCDI

Petitioner AF Realty maintains that the sale of land by an unauthorized agent may be ratified
where, as here, there is acceptance of the benefits involved. In this case the receipt by
respondent Cruz, Jr. from AF Realty of the P300,000.00 as partial payment of the lot effectively
binds respondent Dieselman. 22

We are not persuaded.

Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil
Code takes precedence. This is well stressed in Yao Ka Sin Trading vs. Court of Appeals: 23

"Since a corporation, such as the private respondent, can act only through its officers and
agents, all acts within the powers of said corporation may be performed by agents of its
selection; and, except so far as limitations or restrictions may be imposed by special charter, by-
law, or statutory provisions, the same general principles of law which govern the relation of
agency for a natural person govern the officer or agent of a corporation, of whatever status or
rank, in respect to his power to act for the corporation; and agents when once appointed, or
members acting in their stead, are subject to the same rules, liabilities, and incapacities as are
agents of individuals and private persons." (Italics supplied)

Pertinently, Article 1874 of the same Code provides:

"ART. 1874. When a sale of piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void." (Italics supplied)

Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not
authorized by respondent Dieselman to sell its lot, the supposed contract is void. Being a void
contract, it is not susceptible of ratification by clear mandate of Article 1409 of the Civil Code,
thus:

"ART. 1409. The following contracts are inexistent and void from the very beginning:

xxx xxx xxx

(7) Those expressly prohibited or declared void by law.

"These contracts cannot be ratified. Neither can the right to set up the defense of illegality be
waived." (Italics supplied)

Upon the other hand, the validity of the sale of the subject lot to respondent Midas is
unquestionable. As aptly noted by the Court of Appeals, 24 the sale was authorized by a board
resolution of respondent Dieselman dated May 27, 1988.

The Court of Appeals awarded attorney's fees and moral and exemplary damages in favor of
petitioner AF Realty and against respondent Cruz, Jr. The award was made by reason of a
breach of contract imputable to respondent Cruz, Jr. for having acted in bad faith. We are not
persuaded. It bears stressing that petitioner Zenaida Ranullo, board member and vice-president
of petitioner AF Realty who accepted the offer to sell the property, admitted in her testimony, 25
that a board resolution from respondent Dieselman authorizing the sale is necessary to bind the
latter in the transaction; and that respondent Cruz, Jr. has no such written authority. In fact,
despite demand, such written authority was not presented to her. 26 This notwithstanding,
petitioner Ranullo tendered a partial payment for the unauthorized transaction. Clearly,
respondent Cruz, Jr. should not be held liable for damages and attorney's fees.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby
AFFIRMED with MODIFICATION in the sense that the award of damages and attorney's fees is
deleted. Respondent Dieselman is ordered to return to petitioner AF Realty its partial payment
of P300,000.00. Costs against petitioners.

SO ORDERED.

Melo, Vitug, Panganiban and Carpio, JJ., concur.

[G.R. No. 163553. December 11, 2009.]

YUN KWAN BYUNG, petitioner, vs. PHILIPPINE AMUSEMENT AND GAMING

CORPORATION, respondent.

DECISION

CARPIO, J p:

The Case

Yun Kwan Byung (petitioner) filed this Petition for Review 1 assailing the Court of Appeals'
Decision 2 dated 27 May 2003 in CA-G.R. CV No. 65699 as well as the Resolution 3 dated 7
May 2004 denying the Motion for Reconsideration. In the assailed decision, the Court of
Appeals (CA) affirmed the Regional Trial Court's Decision 4 dated 6 May 1999. The Regional
Trial Court of Manila, Branch 13 (trial court), dismissed petitioner's demand against respondent
Philippine Amusement and Gaming Corporation (PAGCOR) for the redemption of gambling
chips. ITSCED

The Facts

PAGCOR is a government-owned and controlled corporation tasked to establish and operate

gambling clubs and casinos as a means to promote tourism and generate sources of revenue
for the government. To achieve these objectives, PAGCOR is vested with the power to enter
into contracts of every kind and for any lawful purpose that pertains to its business. Pursuant to
this authority, PAGCOR launched its Foreign Highroller Marketing Program (Program). The
Program aims to invite patrons from foreign countries to play at the dollar pit of designated
PAGCOR-operated casinos under specified terms and conditions and in accordance with
industry practice. 5
The Korean-based ABS Corporation was one of the international groups that availed of the
Program. In a letter-agreement dated 25 April 1996 (Junket Agreement), ABS Corporation
agreed to bring in foreign players to play at the five designated gaming tables of the Casino
Filipino Silahis at the Grand Boulevard Hotel in Manila (Casino Filipino). The relevant
stipulations of the Junket Agreement state:

1. PAGCOR will provide ABS Corporation with separate junket chips. The junket chips will
be distinguished from the chips being used by other players in the gaming tables.

2. ABS Corporation will distribute these junket chips to its players and at the end of the
playing period, ABS Corporation will collect the junket chips from its players and make an
accounting to the casino treasury. CTEDSI

3. ABS Corporation will assume sole responsibility to pay the winnings of its foreign players
and settle the collectibles from losing players.

4. ABS Corporation shall hold PAGCOR absolutely free and harmless from any damage,
claim or liability which may arise from any cause in connection with the Junket Agreement.

5. In providing the gaming facilities and services to these foreign players, PAGCOR is
entitled to receive from ABS Corporation a 12.5% share in the gross winnings of ABS
Corporation or 1.5 million US dollars, whichever is higher, over a playing period of 6 months.
PAGCOR has the option to extend the period. 6

Petitioner, a Korean national, alleges that from November 1996 to March 1997, he came to the
Philippines four times to play for high stakes at the Casino Filipino. 7 Petitioner claims that in the
course of the games, he was able to accumulate gambling chips worth US$2.1 million.
Petitioner presented as evidence during the trial gambling chips with a face value of US$1.1
million. Petitioner contends that when he presented the gambling chips for encashment with
PAGCOR's employees or agents, PAGCOR refused to redeem them. 8 HDITCS

Petitioner brought an action against PAGCOR seeking the redemption of gambling chips valued
at US$2.1 million. Petitioner claims that he won the gambling chips at the Casino Filipino,
playing continuously day and night. Petitioner alleges that every time he would come to Manila,
PAGCOR would extend to him amenities deserving of a high roller. A PAGCOR official who
meets him at the airport would bring him to Casino Filipino, a casino managed and operated by
PAGCOR. The card dealers were all PAGCOR employees, the gambling chips, equipment and
furnitures belonged to PAGCOR, and PAGCOR enforced all the regulations dealing with the
operation of foreign exchange gambling pits. Petitioner states that he was able to redeem his
gambling chips with the cashier during his first few winning trips. But later on, the casino cashier
refused to encash his gambling chips so he had no recourse but to deposit his gambling chips
at the Grand Boulevard Hotel's deposit box, every time he departed from Manila. 9

PAGCOR claims that petitioner, who was brought into the Philippines by ABS Corporation, is a
junket player who played in the dollar pit exclusively leased by ABS Corporation for its junket
players. PAGCOR alleges that it provided ABS Corporation with distinct junket chips. ABS
Corporation distributed these chips to its junket players. At the end of each playing period, the
junket players would surrender the chips to ABS Corporation. Only ABS Corporation would
make an accounting of these chips to PAGCOR's casino treasury. 10 TIaCHA

As additional information for the junket players playing in the gaming room leased to ABS
Corporation, PAGCOR posted a notice written in English and Korean languages which reads:

NOTICE

This GAMING ROOM is exclusively operated by ABS under arrangement with PAGCOR, the
former is solely accountable for all PLAYING CHIPS wagered on the tables. Any financial
ARRANGEMENT/TRANSACTION between PLAYERS and ABS shall only be binding upon said
PLAYERS and ABS. 11

PAGCOR claims that this notice is a standard precautionary measure 12 to avoid confusion
between junket players of ABS Corporation and PAGCOR's players.

PAGCOR argues that petitioner is not a PAGCOR player because under PAGCOR's gaming
rules, gambling chips cannot be brought outside the casino. The gambling chips must be
converted to cash at the end of every gaming period as they are inventoried every shift. Under
PAGCOR's rules, it is impossible for PAGCOR players to accumulate two million dollars worth
of gambling chips and to bring the chips out of the casino premises. 13

Since PAGCOR disclaimed liability for the winnings of players recruited by ABS Corporation and
refused to encash the gambling chips, petitioner filed a complaint for a sum of money before the
trial court. 14 PAGCOR filed a counterclaim against petitioner. Then, trial ensued. aTDcAH

On 6 May 1999, the trial court dismissed the complaint and counterclaim. Petitioner appealed
the trial court's decision to the CA. On 27 May 2003, the CA affirmed the appealed decision. On
27 June 2003, petitioner moved for reconsideration which was denied on 7 May 2004.

Aggrieved by the CA's decision and resolution, petitioner elevated the case before this Court.

The Ruling of the Trial Court

The trial court ruled that based on PAGCOR's charter, 15 PAGCOR has no authority to lease
any portion of the gambling tables to a private party like ABS Corporation. Section 13 of
Presidential Decree No. 1869 or the PAGCOR's charter states:

Sec. 13. Exemptions. —

xxx xxx xxx

(4) Utilization of Foreign Currencies — The Corporation shall have the right and authority,
solely and exclusively in connection with the operations of the casino(s), to purchase, receive,
exchange and disburse foreign exchange, subject to the following terms and conditions:

(a) A specific area in the casino(s) or gaming pit shall be put up solely and exclusively for
players and patrons utilizing foreign currencies; ADTCaI
(b) The Corporation shall appoint and designate a duly accredited commercial bank agent of
the Central Bank, to handle, administer and manage the use of foreign currencies in the
casino(s);

(c) The Corporation shall provide an office at casino(s) exclusively for the employees of the
designated bank, agent of the Central Bank, where the Corporation shall maintain a dollar
account which will be utilized exclusively for the above purpose and the casino dollar treasury
employees;

(d) Only persons with foreign passports or certificates of identity (for Hong Kong patron
only) duly issued by the government or country of their residence will be allowed to play in the
foreign exchange gaming pit;

(e) Only foreign exchange prescribed to form part of the Philippine International Reserve
and the following foreign exchange currencies: Australian Dollar, Singapore Dollar, Hong Kong
Dollar, shall be used in this gaming pit;

(f) The disbursement, administration, management and recording of foreign exchange

currencies used in the casino(s) shall be carried out in accordance with existing foreign
exchange regulations, and periodical reports of the transactions in such foreign exchange
currencies by the Corporation shall be duly recorded and reported to the Central Bank thru the
designated Agent Bank; and cSEaTH

(g) The Corporation shall issue the necessary rules and regulations for the guidance and
information of players qualified to participate in the foreign exchange gaming pit, in order to
make certain that the terms and conditions as above set forth are strictly complied with.

The trial court held that only PAGCOR could use foreign currency in its gaming tables. When
PAGCOR accepted only a fixed portion of the dollar earnings of ABS Corporation in the concept
of a lease of facilities, PAGCOR shared its franchise with ABS Corporation in violation of the
PAGCOR's charter. Hence, the Junket Agreement is void. Since the Junket Agreement is not
permitted by PAGCOR's charter, the mutual rights and obligations of the parties to this case
would be resolved based on agency and estoppel. 16

The trial court found that the petitioner wanted to redeem gambling chips that were specifically
used by ABS Corporation at its gaming tables. The gambling chips come in distinctive orange or
yellow colors with stickers bearing denominations of 10,000 or 1,000. The 1,000 gambling chips
are smaller in size and the words "no cash value" marked on them. The 10,000 gambling chips
do not reflect the "no cash value" sign. The senior treasury head of PAGCOR testified that these
were the gambling chips used by the previous junket operators and PAGCOR merely continued
using them. However, the gambling chips used in the regular casino games were of a different
quality. 17

The trial court pointed out that PAGCOR had taken steps to warn players brought in by all
junket operators, including ABS Corporation, that they were playing under special rules. Apart
from the different kinds of gambling chips used, the junket players were confined to certain
gaming rooms. In these rooms, notices were posted that gambling chips could only be
encashed there and nowhere else. A photograph of one such notice, printed in Korean and
English, stated that the gaming room was exclusively operated by ABS Corporation and that
ABS Corporation was solely accountable for all the chips wagered on the gaming tables.
Although petitioner denied seeing this notice, this disclaimer has the effect of a negative
evidence that can hardly prevail against the positive assertions of PAGCOR officials whose
credibility is also not open to doubt. The trial court concluded that petitioner had been alerted to
the existence of these special gambling rules, and the mere fact that he continued to play under
the same restrictions over a period of several months confirms his acquiescence to them.
Otherwise, petitioner could have simply chose * to stop gambling. 18 ICHDca

In dismissing petitioner's complaint, the trial court concluded that petitioner's demand against
PAGCOR for the redemption of the gambling chips could not stand. The trial court stated that
petitioner, a stranger to the agreement between PAGCOR and ABS Corporation, could not
under principles of equity be charged with notice other than of the apparent authority with which
PAGCOR had clothed its employees and agents in dealing with petitioner. Since petitioner was
made aware of the special rules by which he was playing at the Casino Filipino, petitioner could
not now claim that he was not bound by them. The trial court explained that in an unlawful
transaction, the courts will extend equitable relief only to a party who was unaware of all its
dimensions and whose ignorance of them exposed him to the risk of being exploited by the
other. Where the parties enter into such a relationship with the opportunity to know all of its
ramifications, as in this case, there is no room for equitable considerations to come to the
rescue of any party. The trial court ruled that it would leave the parties where they are. 19

The Ruling of the Court of Appeals

In dismissing the appeal, the appellate court addressed the four errors assigned by petitioner.

First, petitioner maintains that he was never a junket player of ABS Corporation. Petitioner also
denies seeing a notice that certain gaming rooms were exclusively operated by entities under
special agreement. 20 TaISEH

The CA ruled that the records do not support petitioner's theory. Petitioner's own testimony
reveals that he enjoyed special accommodations at the Grand Boulevard Hotel. This similar
accommodation was extended to players brought in by ABS Corporation and other junket
operators. Petitioner cannot disassociate himself from ABS Corporation for it is unlikely that an
unknown high roller would be accorded choice accommodations by the hotel unless the
accommodation was facilitated by a junket operator who enjoyed such privilege. 21

The CA added that the testimonies of PAGCOR's employees affirming that notices were posted
in English and Korean in the gaming areas are credible in the absence of any convincing proof
of ill motive. Further, the specified gaming areas used only special chips that could be bought
and exchanged at certain cashier booths in that area. 22

Second, petitioner attacks the validity of the contents of the notice. Since the Junket Agreement
is void, the notice, which was issued pursuant to the Junket Agreement, is also void and cannot
affect petitioner. 23
The CA reasoned that the trial court never declared the notice valid and neither did it enforce
the contents thereof. The CA emphasized that it was the act of cautioning and alerting the
players that was upheld. The trial court ruled that signs and warnings were in place to inform the
public, petitioner included, that special rules applied to certain gaming areas even if the very
agreement giving rise to these rules is void. 24 IcHAaS

Third, petitioner takes the position that an implied agency existed between PAGCOR and ABS
Corporation. 25

The CA disagreed with petitioner's view. A void contract has no force and effect from the very
beginning. It produces no effect either against or in favor of anyone. Neither can it create,
modify or extinguish the juridical relation to which it refers. Necessarily, the Junket Agreement,
being void from the beginning, cannot give rise to an implied agency. The CA explained that it
cannot see how the principle of implied agency can be applied to this case. Article 1883 26 of
the Civil Code applies only to a situation where the agent is authorized by the principal to enter
into a particular transaction, but instead of contracting on behalf of the principal, the agent acts
in his own name. 27

The CA concluded that no such legal fiction existed between PAGCOR and ABS Corporation.
PAGCOR entered into a Junket Agreement to lease to ABS Corporation certain gaming areas. It
was never PAGCOR's intention to deal with the junket players. Neither did PAGCOR intend
ABS Corporation to represent PAGCOR in dealing with the junket players. Representation is the
basis of agency but unfortunately for petitioner none is found in this case. 28

The CA added that the special gaming chips, while belonging to PAGCOR, are mere
accessories in the void Junket Agreement with ABS Corporation. In Article 1883, the phrase
"things belonging to the principal" refers only to those things or properties subject of a particular
transaction authorized by the principal to be entered into by its purported agent. Necessarily, the
gambling chips being mere incidents to the void lease agreement cannot fall under this
category. 29 TcCDIS

The CA ruled that Article 2152 30 of the Civil Code is also not applicable. The circumstances
relating to negotiorum gestio are non-existent to warrant an officious manager to take over the
management and administration of PAGCOR. 31

Fourth, petitioner asks for equitable relief. 32

The CA explained that although petitioner was never a party to the void Junket Agreement,
petitioner cannot deny or feign blindness to the signs and warnings all around him. The notices,
the special gambling chips, and the separate gaming areas were more than enough to alert him
that he was playing under different terms. Petitioner persisted and continued to play in the
casino. Petitioner also enjoyed the perks extended to junket players of ABS Corporation. For
failing to heed these signs and warnings, petitioner can no longer be permitted to claim
equitable relief. When parties do not come to court with clean hands, they cannot be allowed to
profit from their own wrong doing. 33

The Issues
Petitioners raise three issues in this petition:

1. Whether the CA erred in holding that PAGCOR is not liable to petitioner, disregarding
the doctrine of implied agency, or agency by estoppel; HcDSaT

2. Whether the CA erred in using intent of the contracting parties as the test for creation of
agency, when such is not relevant since the instant case involves liability of the presumed
principal in implied agency to a third party; and

3. Whether the CA erred in failing to consider that PAGCOR ratified, or at least adopted,
the acts of the agent, ABS Corporation. 34

The Ruling of the Court

The petition lacks merit.

Courts will not enforce debts arising from illegal gambling

Gambling is prohibited by the laws of the Philippines as specifically provided in Articles 195 to
199 of the Revised Penal Code, as amended. Gambling is an act beyond the pale of good
morals, 35 and is thus prohibited and punished to repress an evil that undermines the social,
moral, and economic growth of the nation. 36 Presidential Decree No. 1602 (PD 1602), 37
which modified Articles 195-199 of the Revised Penal Code and repealed inconsistent
provisions, 38 prescribed stiffer penalties on illegal gambling. 39

As a rule, all forms of gambling are illegal. The only form of gambling allowed by law is that
stipulated under Presidential Decree No. 1869, which gave PAGCOR its franchise to maintain
and operate gambling casinos. The issue then turns on whether PAGCOR can validly share its
franchise with junket operators to operate gambling casinos in the country. Section 3 (h) of
PAGCOR's charter states: DTEAHI

Section 3. Corporate Powers. — The Corporation shall have the following powers and
functions, among others:

xxx xxx xxx

h) to enter into, make, perform, and carry out contracts of every kind and for any lawful
purpose pertaining to the business of the Corporation, or in any manner incident thereto, as
principal, agent or otherwise, with any person, firm, association, or corporation.

xxx xxx xxx

The Junket Agreement would be valid if under Section 3 (h) of PAGCOR's charter, PAGCOR
could share its gambling franchise with another entity. In Senator Jaworski v. Phil. Amusement
and Gaming Corp., 40 the Court discussed the extent of the grant of the legislative franchise to
PAGCOR on its authority to operate gambling casinos:

A legislative franchise is a special privilege granted by the state to corporations. It is a privilege

of public concern which cannot be exercised at will and pleasure, but should be reserved for
public control and administration, either by the government directly, or by public agents, under
such conditions and regulations as the government may impose on them in the interest of the
public. It is Congress that prescribes the conditions on which the grant of the franchise may be
made. Thus the manner of granting the franchise, to whom it may be granted, the mode of
conducting the business, the charter and the quality of the service to be rendered and the duty
of the grantee to the public in exercising the franchise are almost always defined in clear and
unequivocal language. HaIESC

After a circumspect consideration of the foregoing discussion and the contending positions of
the parties, we hold that PAGCOR has acted beyond the limits of its authority when it passed on
or shared its franchise to SAGE.

In the Del Mar case where a similar issue was raised when PAGCOR entered into a joint
venture agreement with two other entities in the operation and management of jai alai games,
the Court, in an En Banc Resolution dated 24 August 2001, partially granted the motions for
clarification filed by respondents therein insofar as it prayed that PAGCOR has a valid franchise,
but only by itself (i.e., not in association with any other person or entity), to operate, maintain
and/or manage the game of jai-alai.

In the case at bar, PAGCOR executed an agreement with SAGE whereby the former grants the
latter the authority to operate and maintain sports betting stations and Internet gaming
operations. In essence, the grant of authority gives SAGE the privilege to actively participate,
partake and share PAGCOR's franchise to operate a gambling activity. The grant of franchise is
a special privilege that constitutes a right and a duty to be performed by the grantee. The
grantee must not perform its activities arbitrarily and whimsically but must abide by the limits set
by its franchise and strictly adhere to its terms and conditionalities. A corporation as a creature
of the State is presumed to exist for the common good. Hence, the special privileges and
franchises it receives are subject to the laws of the State and the limitations of its charter. There
is therefore a reserved right of the State to inquire how these privileges had been employed,
and whether they have been abused. (Emphasis supplied) DcIHSa

THUS, PAGCOR HAS THE SOLE AND EXCLUSIVE AUTHORITY TO OPERATE A

GAMBLING ACTIVITY. WHILE PAGCOR IS ALLOWED UNDER ITS CHARTER TO ENTER
INTO OPERATOR'S OR MANAGEMENT CONTRACTS, PAGCOR IS NOT ALLOWED UNDER
THE SAME CHARTER TO RELINQUISH OR SHARE ITS FRANCHISE. PAGCOR CANNOT
DELEGATE ITS POWER IN VIEW OF THE LEGAL PRINCIPLE OF DELEGATA POTESTAS
DELEGARE NON POTEST, INASMUCH AS THERE IS NOTHING IN THE CHARTER TO
SHOW THAT IT HAS BEEN EXPRESSLY AUTHORIZED TO DO SO. 41

Similarly, in this case, PAGCOR, by taking only a percentage of the earnings of ABS
Corporation from its foreign currency collection, allowed ABS Corporation to operate gaming
tables in the dollar pit. The Junket Agreement is in direct violation of PAGCOR's charter and is
therefore void.

Since the Junket Agreement violates PAGCOR's charter, gambling between the junket player
and the junket operator under such agreement is illegal and may not be enforced by the courts.
Article 2014 42 of the Civil Code, which refers to illegal gambling, states that no action can be
maintained by the winner for the collection of what he has won in a game of chance.

Although not raised as an issue by petitioner, we deem it necessary to discuss the applicability
of Republic Act No. 9487 43 (RA 9487) to the present case. HITEaS

RA 9487 amended the PAGCOR charter, granting PAGCOR the power to enter into special
agreement with third parties to share the privileges under its franchise for the operation of
gambling casinos:

Section 1. The Philippine Amusement and Gaming Corporation (PAGCOR) franchise

granted under Presidential Decree No. 1869 otherwise known as the PAGCOR Charter, is
hereby further amended to read as follows:

xxx xxx xxx

(2) SECTION 3(H) IS HEREBY AMENDED TO READ AS FOLLOWS:

"SEC. 3. CORPORATE POWERS. —

"xxx xxx xxx

"(h) to enter into, make, conclude, perform, and carry out contracts of every kind and nature
and for any lawful purpose which are necessary, appropriate, proper or incidental to any
business or purpose of the PAGCOR, including but not limited to investment agreements, joint
venture agreements, management agreements, agency agreements, whether as principal or as
an agent, manpower supply agreements, or any other similar agreements or arrangements with
any person, firm, association or corporation." (Boldfacing supplied) ETDHaC

PAGCOR sought the amendment of its charter precisely to address and remedy the legal
impediment raised in Senator Jaworski v. Phil. Amusement and Gaming Corp.

Unfortunately for petitioner, RA 9487 cannot be applied to the present case. The Junket
Agreement was entered into between PAGCOR and ABS Corporation on 25 April 1996 when
the PAGCOR charter then prevailing (PD 1869) prohibited PAGCOR from entering into any
arrangement with a third party that would allow such party to actively participate in the casino
operations.

It is a basic principle that laws should only be applied prospectively unless the legislative intent
to give them retroactive effect is expressly declared or is necessarily implied from the language
used. 44 RA 9487 does not provide for any retroactivity of its provisions. All laws operate
prospectively absent a clear contrary language in the text, 45 and that in every case of doubt,
the doubt will be resolved against the retroactive operation of laws. 46

Thus, petitioner cannot avail of the provisions of RA 9487 as this was not the law when the acts
giving rise to the claimed liabilities took place. This makes the gambling activity participated in
by petitioner illegal. Petitioner cannot sue PAGCOR to redeem the cash value of the gambling
chips or recover damages arising from an illegal activity for two reasons. First, petitioner
engaged in gambling with ABS Corporation and not with PAGCOR. Second, the court cannot
assist petitioner in enforcing an illegal act. Moreover, for a court to grant petitioner's prayer
would mean enforcing the Junket Agreement, which is void. cTESIa

Now, to address the issues raised by petitioner in his petition, petitioner claims that he is a third
party proceeding against the liability of a presumed principal and claims relief, alternatively, on
the basis of implied agency or agency by estoppel.

Article 1869 of the Civil Code states that implied agency is derived from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the agency, knowing that another
person is acting on his behalf without authority. Implied agency, being an actual agency, is a
fact to be proved by deductions or inferences from other facts. 47

On the other hand, apparent authority is based on estoppel and can arise from two instances.
First, the principal may knowingly permit the agent to hold himself out as having such authority,
and the principal becomes estopped to claim that the agent does not have such authority.
Second, the principal may clothe the agent with the indicia of authority as to lead a reasonably
prudent person to believe that the agent actually has such authority. 48 In an agency by
estoppel, there is no agency at all, but the one assuming to act as agent has apparent or
ostensible, although not real, authority to represent another. 49

The law makes no presumption of agency and proving its existence, nature and extent is
incumbent upon the person alleging it. 50 Whether or not an agency has been created is a
question to be determined by the fact that one represents and is acting for another. 51 AcSHCD

Acts and conduct of PAGCOR negates the existence of an implied agency or an agency by
estoppel

Petitioner alleges that there is an implied agency. Alternatively, petitioner claims that even
assuming that no actual agency existed between PAGCOR and ABS Corporation, there is still
an agency by estoppel based on the acts and conduct of PAGCOR showing apparent authority
in favor of ABS Corporation. Petitioner states that one factor which distinguishes agency from
other legal precepts is control and the following undisputed facts show a relationship of implied
agency:

1. Three floors of the Grand Boulevard Hotel 52 were leased to PAGCOR for conducting
gambling operations; 53

2. Of the three floors, PAGCOR allowed ABS Corporation to use one whole floor for foreign
exchange gambling, conducted by PAGCOR dealers using PAGCOR facilities, operated by
PAGCOR employees and using PAGCOR chips bearing the PAGCOR logo; 54

3. PAGCOR controlled the release, withdrawal and return of all the gambling chips given to
ABS Corporation in that part of the casino and at the end of the day, PAGCOR conducted an
inventory of the gambling chips; 55 DSacAE
4. ABS Corporation accounted for all gambling chips with the Commission on Audit (COA),
the official auditor of PAGCOR; 56

5. PAGCOR enforced, through its own manager, all the rules and regulations on the
operation of the gambling pit used by ABS Corporation. 57

Petitioner's argument is clearly misplaced. The basis for agency is representation, 58 that is, the
agent acts for and on behalf of the principal on matters within the scope of his authority and said
acts have the same legal effect as if they were personally executed by the principal. 59 On the
part of the principal, there must be an actual intention to appoint or an intention naturally
inferable from his words or actions, while on the part of the agent, there must be an intention to
accept the appointment and act on it. 60 Absent such mutual intent, there is generally no
agency. 61

There is no implied agency in this case because PAGCOR did not hold out to the public as the
principal of ABS Corporation. PAGCOR's actions did not mislead the public into believing that
an agency can be implied from the arrangement with the junket operators, nor did it hold out
ABS Corporation with any apparent authority to represent it in any capacity. The Junket
Agreement was merely a contract of lease of facilities and services.

The players brought in by ABS Corporation were covered by a different set of rules in acquiring
and encashing chips. The players used a different kind of chip than what was used in the
regular gaming areas of PAGCOR, and that such junket players played specifically only in the
third floor area and did not mingle with the regular patrons of PAGCOR. Furthermore,
PAGCOR, in posting notices stating that the players are playing under special rules, exercised
the necessary precaution to warn the gaming public that no agency relationship exists.
HCIaDT

For the second assigned error, petitioner claims that the intention of the parties cannot apply to
him as he is not a party to the contract.

We disagree. The Court of Appeals correctly used the intent of the contracting parties in
determining whether an agency by estoppel existed in this case. An agency by estoppel, which
is similar to the doctrine of apparent authority requires proof of reliance upon the
representations, and that, in turn, needs proof that the representations predated the action
taken in reliance. 62

There can be no apparent authority of an agent without acts or conduct on the part of the
principal and such acts or conduct of the principal must have been known and relied upon in
good faith and as a result of the exercise of reasonable prudence by a third person as claimant,
and such must have produced a change of position to its detriment. 63 Such proof is lacking in
this case.

In the entire duration that petitioner played in Casino Filipino, he was dealing only with ABS
Corporation, and availing of the privileges extended only to players brought in by ABS
Corporation. The facts that he enjoyed special treatment upon his arrival in Manila and special
accommodations in Grand Boulevard Hotel, and that he was playing in special gaming rooms
are all indications that petitioner cannot claim good faith that he believed he was dealing with
PAGCOR. Petitioner cannot be considered as an innocent third party and he cannot claim
entitlement to equitable relief as well.

For his third and final assigned error, petitioner asserts that PAGCOR ratified the acts of ABS
Corporation. caIDSH

The trial court has declared, and we affirm, that the Junket Agreement is void. A void or
inexistent contract is one which has no force and effect from the very beginning. Hence, it is as
if it has never been entered into and cannot be validated either by the passage of time or by
ratification. 64 Article 1409 of the Civil Code provides that contracts expressly prohibited or
declared void by law, such as gambling contracts, "cannot be ratified." 65

WHEREFORE, we DENY the petition. We AFFIRM the Court of Appeals' Decision dated 27
May 2003 as well as the Resolution dated 7 May 2004 as modified by this Decision.

SO ORDERED.

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

PRIMITIVO SIASAT and MARCELINO SIASAT, petitioners, vs. INTERMEDIATE APPELLATE

COURT and TERESITA NACIANCENO, respondents.

Payawal, Jimenez & Associates for petitioners.

Nelson A. Loyola for private respondent.

DECISION

GUTIERREZ, JR., J p:

This is a petition for review of the decision of the Intermediate Appellate Court affirming in toto
the judgment of the Court of First Instance of Manila, Branch XXI, which ordered the petitioner
to pay respondent the thirty percent (30%) commission on 15,666 pieces of Philippine flags
worth P936,960.00, moral damages, attorney's fees and the costs of the suit.

Sometime in 1974, respondent Teresita Nacianceno succeeded in convincing officials of the

then Department of Education and Culture, hereinafter called Department, to purchase without
public bidding, one million pesos worth of national flags for the use of public schools throughout
the country. The respondent was able to expedite the approval of the purchase by handcarrying
the different indorsements from one office to another, so that by the first week of September,
1974, all the legal requirements had been complied with, except the release of the purchase
orders. When Nacianceno was informed by the Chief of the Budget Division of the Department
that the purchase orders could not be released unless a formal offer to deliver the flags in
accordance with the required specifications was first submitted for approval, she contacted the
owners of the United Flag Industry on September 17, 1974. The next day, after the transaction
was discussed, the following document (Exhibit A) was drawn up: LibLex

"Mrs. Tessie Nacianceno,

"This is to formalize our agreement for you to represent United Flag Industry to deal with any
entity or organization, private or government in connection with the marketing of our products -
flags and all its accessories.

"For your service, you will be entitled to a commission of thirty (30%) percent.

Signed

Mr. Primitivo Siasat

Owner and Gen. Manager"

On October 16, 1974, the first delivery of 7,933 flags was made by the United Flag Industry. The
next day, on October 17, 1974, the respondent's authority to represent the United Flag Industry
was revoked by petitioner Primitivo Siasat.

According to the findings of the courts below, Siasat, after receiving the payment of
P469,980.00 on October 23, 1974 for the first delivery, tendered the amount of P23,900.00 or
five percent (5%) of the amount received, to the respondent as payment of her commission. The
latter allegedly protested. She refused to accept the said amount insisting on the 30%
commission agreed upon. The respondent was prevailed upon to accept the same, however,
because of the assurance of the petitioners that they would pay the commission in full after they
delivered the other half of the order. The respondent states that she later on learned that
petitioner Siasat had already received payment for the second delivery of 7,833 flags. When she
confronted the petitioners, they vehemently denied receipt of the payment, at the same time
claiming that the respondent had no participation whatsoever with regard to the second delivery
of flags and that the agency had already been revoked.

The respondent originally filed a complaint with the Complaints and Investigation Office in
Malacañang but when nothing came of the complaint, she filed an action in the Court of First
Instance of Manila to recover the following commissions: 25% as balance on the first delivery
and 30% on the second delivery. LLpr

The trial court decided in favor of the respondent. The dispositive portion of the decision reads
as follows:

"WHEREFORE, judgment is hereby rendered sentencing Primitivo Siasat to pay to the plaintiff
the sum of P281,988.00, minus the sum P23,900.00, with legal interest from the date of this
decision, and ordering the defendants to pay jointly and solidarily the sum of P25,000.00 as
moral damages, and P25,000.00 as attorney's fees, also with legal interest from the date of this
decision, and the costs."
The decision was affirmed in toto by the Intermediate Appellate Court. After their motion for
reconsideration was denied, the petitioners went to this Court on a petition for review on August
6, 1984.

In assailing the appellate court's decision, the petition tenders the following arguments: first, the
authorization making the respondent the petitioner's representative merely states that she could
deal with any entity in connection with the marketing of their products for a commission of 30%.
There was no specific authorization for the sale of 15,666 Philippine flags to the Department;
second, there were two transactions involved evidenced by the separate purchase orders and
separate delivery receipts, Exhibit 6-C for the purchase and delivery on October 16, 1974, and
Exhibits 7 to 7-C, for the purchase and delivery on November 6, 1974. The revocation of agency
effected by the parties with mutual consent on October 17, 1974, therefore, forecloses the
respondent's claim of 30% commission on the second transaction; and last, there was no basis
for the granting of attorney's fees and moral damages because there was no showing of bad
faith on the part of the petitioner. It was respondent who showed bad faith in denying having
received her commission on the first delivery. The petitioner's counterclaim, therefore, should
have been granted.

This petition was initially dismissed for lack of merit in a minute resolution. On a motion for
reconsideration, however, this Court gave due course to the petition on November 14, 1984.
prLL

After a careful review of the records, we are constrained to sustain with some modifications the
decision of the appellate court.

We find petitioners' argument regarding respondent's incapacity to represent them in the

transaction with the Department untenable. There are several kinds of agents. To quote a
commentator on the matter:

"An agent may be (1) universal; (2) general, or (3) special. A universal agent is one authorized
to do all acts for his principal which can lawfully be delegated to an agent. So far as such a
condition is possible, such an agent may be said to have universal authority. (Mec. Sec. 58).

"A general agent is one authorized to do all acts pertaining to a business of a certain kind or at a
particular place, or all acts pertaining to a business of a particular class or series. He has
usually authority either expressly conferred in general terms or in effect made general by the
usages, customs or nature of the business which he is authorized to transact.

"An agent, therefore, who is empowered to transact all the business of his principal of a
particular kind or in a particular place, would, for this reason, be ordinarily deemed a general
agent. (Mec. Sec. 60).

"A special agent is one authorized to do some particular act or to act upon some particular
occasion. He acts usually in accordance with specific instructions or under limitations
necessarily implied from the nature of the act to be done." (Mec. Sec. 61) (Padilla, Civil Law,
The Civil Code Annotated, Vol. VI, 1969 Edition, p. 204).
One does not have to undertake a close scrutiny of the document embodying the agreement
between the petitioners and the respondent to deduce that the latter was instituted as a general
agent. Indeed, it can easily be seen by the way general words were employed in the agreement
that no restrictions were intended as to the manner the agency was to be carried out or in the
place where it was to be executed. The power granted to the respondent was so broad that it
practically covers the negotiations leading to, and the execution of, a contract of sale of
petitioners' merchandise with any entity or organization.

There is no merit in petitioners' allegations that the contract of agency between the parties was
entered into under fraudulent representation because respondent "would not disclose the
agency with which she was supposed to transact and made the petitioner believe that she
would be dealing with the Visayas", and that "the petitioner had known of the transactions
and/or project for the said purchase of the Philippine flags by the Department of Education and
Culture and precisely it was the one being followed up also by petitioner."

If the circumstances were as claimed by the petitioners, they would have exerted efforts to
protect their interests by limiting the respondent's authority. There was nothing to prevent the
petitioners from stating in the contract of agency that the respondent could represent them only
in the Visayas. Or to state that the Department of Education and Culture and the Department of
National Defense, which alone would need a million pesos worth of flags, are outside the scope
of the agency. As the trial court opined, it is incredible that they could be so careless after being
in the business for fifteen years. LLphil

A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised Rules of Court
states that "when the terms of an agreement have been reduced to writing, it is to be considered
as containing all such terms, and, therefore, there can be between the parties and their
successors-in-interest, no evidence of the terms of the agreement other than the contents of the
writing", except in cases specifically mentioned in the same rule. Petitioners have failed to show
that their agreement falls under any of these exceptions. The respondent was given ample
authority to transact with the Department in behalf of the petitioners. Equally without merit is the
petitioners' proposition that the transaction involved two separate contracts because there were
two purchase orders and two deliveries. The petitioners' evidence is overcome by other pieces
of evidence proving that there was only one transaction.

The indorsement of then Assistant Executive Secretary Roberto Reyes to the Budget
Commission on September 3, 1974 (Exhibit "C") attests to the fact that out of the total budget of
the Department for the fiscal year 1975, "P1,000,000.00 is for the purchase of national flags."
This is also reflected in the Financial and Work Plan Request for Allotment (Exhibit "F")
submitted by Secretary Juan Manuel for fiscal year 1975 which however, divided the allocation
and release of the funds into three, corresponding to the second, third, and fourth quarters of
the said year. Later correspondence between the Department and the Budget Commission
(Exhibits "D" and "E") show that the first allotment of P500,000.00 was released during the
second quarter. However, due to the necessity of furnishing all of the public schools in the
country with the Philippine flag, Secretary Manuel requested for the immediate release of the
programmed allotments intended for the third and fourth quarters. These circumstances explain
why two purchase orders and two deliveries had to be made on one transaction.

The petitioners' evidence does not necessarily prove that there were two separate transactions.
Exhibit "6" is a general indorsement made by Secretary Manuel for the purchase of the national
flags for public schools. It contains no reference to the number of flags to be ordered or the
amount of funds to be released. Exhibit "7" is a letter request for a "similar authority" to
purchase flags from the United Flag Industry. This was, however, written by Dr. Narciso
Albarracin who was appointed Acting Secretary of the Department after Secretary Manuel's
tenure, and who may not have known the real nature of the transaction.

If the contracts were separate and distinct from one another, the whole or at least a substantial
part of the government's supply procurement process would have been repeated. In this case,
what were issued were mere indorsements for the release of funds and authorization for the
next purchase.

Since only one transaction was involved, we deny the petitioners' contention that respondent
Nacianceno is not entitled to the stipulated commission on the second delivery because of the
revocation of the agency effected after the first delivery. The revocation of agency could not
prevent the respondent from earning her commission because as the trial court opined, it came
too late, the contract of sale having been already perfected and partly executed. LLphil

In Macondray & Co. v. Sellner (33 Phil. 370, 377), a case analogous to this one in principle, this
Court held:

"We do not mean to question the general doctrine as to the power of a principal to revoke the
authority of his agent at will, in the absence of a contract fixing the duration of the agency
(subject, however, to some well defined exceptions). Our ruling is that at the time fixed by the
manager of the plaintiff company for the termination of the negotiations, the defendant real
estate agent had already earned the commissions agreed upon, and could not be deprived
thereof by the arbitrary action of the plaintiff company in declining to execute the contract of sale
for some reason personal to itself.".

The principal cannot deprive his agent of the commission agreed upon by cancelling the agency
and, thereafter, dealing directly with the buyer. (Infante v. Cunanan, 93 Phil. 691).

The appellate court's citation of its previous ruling in Heimbrod et al. v. Ledesma (C.A. 49 O.G.
1507) is correct:

"The appellee is entitled to recovery. No citation is necessary to show that the general law of
contracts the equitable principle of estoppel, and the expense of another, uphold payment of
compensation for services rendered."

There is merit, however, in the petitioners' contention that the agent's commission on the first
delivery was fully paid. The evidence does not sustain the respondent's claim that the
petitioners paid her only 5% and that their right to collect another 25% commission on the first
delivery must be upheld.
When respondent Nacianceno asked the Malacañang Complaints and Investigation Office to
help her collect her commission, her statement under oath referred exclusively to the 30%
commission on the second delivery. The statement was emphatic that "now" her demand was
for the 30% commission on the second release of P469,980.00. The demand letter of the
respondent's lawyer dated November 13, 1984 asked petitioner Siasat only for the 30%
commission due from the second delivery. The fact that the respondent demanded only the
commission on the second delivery without reference to the alleged unpaid balance — which
was only slightly less than the amount claimed — can only mean that the commission on the
first delivery was already fully paid. Considering the sizeable sum involved, such an omission is
too glaringly remiss to be regarded as an oversight.

Moreover, the respondent's authorization letter (Exhibit "5") bears her signature with the
handwritten words "Fully Paid", inscribed above it.

The respondent contested her signature as a forgery. Handwriting experts from two government
agencies testified on the matter. The reason given by the trial court in ruling for the respondent
is too flimsy to warrant a finding of forgery. LLpr

The court stated that in thirteen documents presented as exhibits, the private respondent signed
her name as "Tessie Nacianceno" while in this particular instance, she signed as "T.
Nacianceno."

The stated basis is inadequate to sustain the respondent's allegation of forgery. A variance in
the manner the respondent signed her name can not be considered as conclusive proof that the
questioned signature is a forgery. The mere fact that the respondent signed thirteen documents
using her full name does not rule out the possibility of her having signed the notation. "Fully
Paid", with her initial for the given name and the surname written in full. What she was signing
was a mere acknowledgment.

This leaves the expert testimony as the sole basis for the verdict of forgery.

In support of their allegation of full payment as evidenced by the signed authorization letter
(Exhibit "5-A"), the petitioners presented as witness Mr. Francisco Cruz, Jr. a senior document
examiner of the Philippine Constabulary Crime Laboratory. In rebuttal, the respondent
presented Mr. Arcadio Ramos, a junior document examiner of the National Bureau of
Investigation.

While the experts testified in a civil case, the principles developed in criminal cases involving
forgery are applicable. Forgery cannot be presumed. It must be proved.

In Borromeo v. Court of Appeals (131 SCRA 318, 326) we held that:

xxx xxx xxx

". . . Where the evidence, as here, gives rise to two probabilities, one consistent with the
defendant's innocence and another indicative of his guilt, that which is favorable to the accused
should be considered. The constitutional presumption of innocence continues until overthrown
by proof of guilt beyond reasonable doubt, which requires moral certainty which convinces and
satisfies the reason and conscience of those who are to act upon it. (People v. Clores, et al.,
125 SCRA 67; People v. Bautista, 81 Phil. 78).

We ruled in another case that where the supposed expert's testimony would constitute the sole
ground for conviction and there is equally convincing expert testimony to the contrary, the
constitutional presumption of innocence must prevail. (Lorenzo Ga. Cesar v. Hon.
Sandiganbayan and People of the Philippines, 134 SCRA 105) In the present case, the
circumstances earlier mentioned taken with the testimony of the PC senior document examiner
lead us to rule against forgery.

We also rule against the respondent's allegation that the petitioners acted in bad faith when they
revoked the agency given to the respondent.

Fraud and bad faith are matters not to be presumed but matters to be alleged with sufficient
facts. To support a judgment for damages, facts which justify the inference of a lack or absence
of good faith must be alleged and proven. (Bacolod-Murcia Milling Co., Inc. vs. First Farmers
Milling Co., Inc., Etc., 103 SCRA 436). llcd

There is no evidence on record from which to conclude that the revocation of the agency was
deliberately effected by the petitioners to avoid payment of the respondent's commission. What
appears before us is only the petitioner's use in court of such a factual allegation as a defense
against the respondent's claim. This alone does not per se make the petitioners guilty of bad
faith for that defense should have been fully litigated.

Moral damages cannot be awarded in the absence of a wrongful act or omission or of fraud or
bad faith. (R & B Surety & Insurance Co., Inc. vs. Intermediate Appellate Court, 129 SCRA 736).

We therefore, rule that the award of P25,000.00 as moral damages is without basis.

The additional award of P25,000.00 damages by way of attorney's fees, was given by the courts
below on the basis of Article 2208, Paragraph 2, of the Civil Code, which provides: "When the
defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interests;" attorney's fees may be awarded as damages. (Pirovano, et
al. v. De la Rama Steamship Co., 96 Phil. 335).

The underlying circumstances of this case lead us to rule out any award of attorney's fees. For
one thing, the respondent did not come to court with completely clean hands. For another, the
petitioners apparently believed they could legally revoke the agency in the manner they did and
deal directly with education officials handling the purchase of Philippine flags. They had reason
to sincerely believe they did not have to pay a commission for the second delivery of flags.

We cannot close this case without commenting adversely on the inexplicably strange
procurement policies of the Department of Education and Culture in its purchase of Philippine
flags. There is no reason why a shocking 30% of the taxpayers' money should go to an agent or
facilitator who had no flags to sell and whose only work was to secure and handcarry the
indorsements of education and budget officials. There are only a few manufacturers of flags in
our country with the petitioners claiming to have supplied flags for our public schools on earlier
occasions. If public bidding was deemed unnecessary, the Department should have negotiated
directly with flag manufacturers. Considering the sad plight of underpaid and overworked
classroom teachers whose pitiful salaries and allowances cannot sometimes be paid on time, a
P300,000.00 fee for a P1,000,000.00 purchase of flags is not only clearly unnecessary but a
scandalous waste of public funds as well. cdphil

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

[G.R. No. 129919. February 6, 2002.]

DOMINION INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, RODOLFO

S. GUEVARRA, and FERNANDO AUSTRIA, respondents.

SYNOPSIS

Acting as agent for petitioner Dominion, Guevarra paid P156,473.90 in settling the claims of
several insured clients of petitioner out of his personal money. Guevarra thereafter filed a civil
case for sum of money to recover said amount. The RTC and the CA rendered judgment in
favor of Guevarra.

On appeal, Dominion claimed Guevarra is not entitled to reimbursement because he did not act
within his authority as agent for Dominion. SECHIA

The Supreme Court denied the petition with modification, and held: that Art. 1918 of the Civil
Code makes Dominion not liable for expenses incurred by Guevarra who acted in contravention
of his principal's (Dominion's) instructions. Based on their agreement, Guevarra was instructed
to pay for the claims of the insured from the revolving fund, not from Guevarra's personal
money. However, while the law on agency prohibits Guevarra from obtaining reimbursement,
his right to recover may still be justified under Art. 1236, par. 2 of the Civil Code. In this case,
when the risk insured against occurred, Dominion's liability as insurer arose. This obligation was
extinguished when Guevarra paid the claims of the insured. Thus, to the extent the payment has
been beneficial to Dominion, Guevarra may demand reimbursement from the latter. To rule
otherwise would result in unjust enrichment of Dominion.

SYLLABUS

1. CIVIL LAW; CIVIL CODE; AGENCY; WHEN PRINCIPAL IS NOT LIABLE FOR
EXPENSES INCURRED BY AGENT; CASE AT BAR. — Respondent Guevarra's authority to
settle claims is embodied in the Memorandum of Management Agreement dated February 18,
1987 which enumerates the scope of respondent Guevarra's duties and responsibilities as
agency manager for San Fernando, Pampanga. . . . In settling the claims mentioned above,
respondent Guevarra's authority is further limited by the written standard authority to pay, which
states that the payment shall come from respondent Guevarra's revolving fund or collection. . . .
The instruction of petitioner as the principal could not be any clearer. Respondent Guevarra was
authorized to pay the claim of the insured, but the payment shall come from the revolving fund
or collection in his possession. Having deviated from the instructions of the principal, the
expenses that respondent Guevarra incurred in the settlement of the claims of the insured may
not be reimbursed from petitioner Dominion. This conclusion is in accord with Article 1918, Civil
Code. DEAaIS

2. ID.; ID.; OBLIGATIONS AND CONTRACTS; EFFECT OF PAYMENT MADE BY A

THIRD PERSON FOR DEBTOR WITHOUT THE LATTER'S KNOWLEDGE OR CONSENT;
CASE AT BAR. — However, while the law on agency prohibits respondent Guevarra from
obtaining reimbursement, his right to recover may still be justified under the general law on
obligations and contracts (Article 1236, second paragraph, Civil Code.) In this case, when the
risk insured against occurred, petitioner's liability as insurer arose. This obligation was
extinguished when respondent Guevarra paid the claims and obtained Release of Claim Loss
and Subrogation Receipts from the insured who were paid. Thus, to the extent that the
obligation of the petitioner has been extinguished, respondent Guevarra may demand for
reimbursement from his principal. To rule otherwise would result in unjust enrichment of
petitioner.

DECISION

PARDO, J p:

The Case

This is an appeal via certiorari 1 from the decision of the Court of Appeals 2 affirming the
decision 3 of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered
petitioner Dominion Insurance Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra)
the sum of P156,473.90 representing the total amount advanced by Guevarra in the payment of
the claims of Dominion's clients. ACTEHI

The Facts

The facts, as found by the Court of Appeals, are as follows:

"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of
money against defendant Dominion Insurance Corporation. Plaintiff sought to recover
thereunder the sum of P156,473.90 which he claimed to have advanced in his capacity as
manager of defendant to satisfy certain claims filed by defendant's clients.

"In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for
P249,672.53, representing premiums that plaintiff allegedly failed to remit.
"On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who, at
the time relevant to the case, was its Regional Manager for Central Luzon area.

"In due time, third-party defendant Austria filed his answer.

"Thereafter the pre-trial conference was set on the following dates: October 18, 1991,
November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29, 1992,
February 28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-trial
conference was held. The record shows that except for the settings on October 18, 1991,
January 17, 1992 and March 17, 1992 which were cancelled at the instance of defendant, third-
party defendant and plaintiff, respectively, the rest were postponed upon joint request of the
parties.

"On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and counsel
were present. Despite due notice, defendant and counsel did not appear, although a
messenger, Roy Gamboa, submitted to the trial court a handwritten note sent to him by
defendant's counsel which instructed him to request for postponement. Plaintiff's counsel
objected to the desired postponement and moved to have defendant declared as in default. This
was granted by the trial court in the following order:

"ORDER

"When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty. Romeo
Maglalang appeared. When shown a note dated May 21, 1992 addressed to a certain Roy who
was requested to ask for postponement, Atty. Maglalang vigorously objected to any
postponement on the ground that the note is but a mere scrap of paper and moved that the
defendant corporation be declared as in default for its failure to appear in court despite due
notice.

"Finding the verbal motion of plaintiff's counsel to be meritorious and considering that the pre-
trial conference has been repeatedly postponed on motion of the defendant Corporation, the
defendant Dominion Insurance Corporation is hereby declared (as) in default and plaintiff is
allowed to present his evidence on June 16, 1992 at 9:00 o'clock in the morning.

"The plaintiff and his counsel are notified of this order in open court.

"SO ORDERED.

"Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of
documentary exhibits on July 8 and a supplemental offer of additional exhibits on July 13, 1992.
The exhibits were admitted in evidence in an order dated July 17, 1992.

"On August 7, 1992 defendant corporation filed a ‘MOTION TO LIFT ORDER OF DEFAULT.’ It
alleged therein that the failure of counsel to attend the pre-trial conference was ‘due to an
unavoidable circumstance’ and that counsel had sent his representative on that date to inform
the trial court of his inability to appear. The Motion was vehemently opposed by plaintiff.
"On August 25, 1992 the trial court denied defendant's motion for reasons, among others, that it
was neither verified nor supported by an affidavit of merit and that it further failed to allege or
specify the facts constituting his meritorious defense.

"On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the
first time counsel revealed to the trial court that the reason for his nonappearance at the pre-trial
conference was his illness. An Affidavit of Merit executed by its Executive Vice-President
purporting to explain its meritorious defense was attached to the said Motion. Just the same, in
an Order dated November 13, 1992, the trial court denied said Motion.

"On November 18, 1992, the court a quo rendered judgment as follows:

"WHEREFORE, premises considered, judgment is hereby rendered ordering:

"1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90
representing the total amount advanced by plaintiff in the payment of the claims of defendant's
clients;

"2. The defendant to pay plaintiff P10,000.00 as and by way of attorney's fees;

"3. The dismissal of the counter-claim of the defendant and the third-party complaint;

"4. The defendant to pay the costs of suit." 4

On December 14, 1992, Dominion appealed the decision to the Court of Appeals. 5

On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial court. 6
On September 3, 1996, Dominion filed with the Court of Appeals a motion for reconsideration. 7
On July 16, 1997, the Court of Appeals denied the motion. 8

Hence, this appeal. 9

The Issues

The issues raised are: (1) whether respondent Guevarra acted within his authority as agent for
petitioner, and (2) whether respondent Guevarra is entitled to reimbursement of amounts he
paid out of his personal money in settling the claims of several insured.

The Court's Ruling

The petition is without merit.

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. 10 The basis
for agency is representation. 11 On the part of the principal, there must be an actual intention to
appoint 12 or an intention naturally inferrable from his words or actions; 13 and on the part of
the agent, there must be an intention to accept the appointment and act on it, 14 and in the
absence of such intent, there is generally no agency. 15
A perusal of the Special Power of Attorney 16 would show that petitioner (represented by third-
party defendant Austria) and respondent Guevarra intended to enter into a principal-agent
relationship. Despite the word "special" in the title of the document, the contents reveal that
what was constituted was actually a general agency. The terms of the agreement read:

"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC., 17 a corporation duly

organized and existing under and by virtue of the laws of the Republic of the Philippines, . . .
represented by the undersigned as Regional Manager, . . . do hereby appoint RSG Guevarra
Insurance Services represented by Mr. Rodolfo Guevarra . . . to be our Agency Manager in San
Fdo., for our place and instead, to do and perform the following acts and things:

"1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business
as usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL
ACCIDENT, and BONDING with the right, upon our prior written consent, to appoint agents and
sub-agents.

"2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and
Bonds for and on our behalf.

"3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and
receive and give effectual receipts and discharge for all money to which the FIRST
CONTINENTAL ASSURANCE COMPANY, INC., 18 may hereafter become due, owing payable
or transferable to said Corporation by reason of or in connection with the above-mentioned
appointment.

"4. To receive notices, summons, and legal processes for and in behalf of the FIRST
CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and all legal
proceedings against the said Corporation." 19 [Italics supplied]

The agency comprises all the business of the principal, 20 but, couched in general terms, it is
limited only to acts of administration. 21

A general power permits the agent to do all acts for which the law does not require a special
power. 22 Thus, the acts enumerated in or similar to those enumerated in the Special Power of
Attorney do not require a special power of attorney.

Article 1878, Civil Code, enumerates the instances when a special power of attorney is required.
The pertinent portion that applies to this case provides that:

"Article 1878. Special powers of attorney are necessary in the following cases:

"(1) To make such payments as are not usually considered as acts of administration;

xxx xxx xxx

"(15) Any other act of strict dominion."

The payment of claims is not an act of administration. The settlement of claims is not included
among the acts enumerated in the Special Power of Attorney, neither is it of a character similar
to the acts enumerated therein. A special power of attorney is required before respondent
Guevarra could settle the insurance claims of the insured.

Respondent Guevarra's authority to settle claims is embodied in the Memorandum of

Management Agreement 23 dated February 18, 1987 which enumerates the scope of
respondent Guevarra's duties and responsibilities as agency manager for San Fernando,
Pampanga, as follows:

"xxx xxx xxx

"1. You are hereby given authority to settle and dispose of all motor car claims in the
amount of P5,000.00 with prior approval of the Regional Office.

"2. Full authority is given you on TPPI claims settlement.

"xxx xxx xxx" 24

In settling the claims mentioned above, respondent Guevarra's authority is further limited by the
written standard authority to pay, 25 which states that the payment shall come from respondent
Guevarra's revolving fund or collection. The authority to pay is worded as follows:

"This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS
__________________(P _______) representing the payment on the _______________ claim of
assured ________________ under Policy No. ________ in that accident of __________ at
__________________________.

"It is further expected, release papers will be signed and authorized by the concerned and
attached to the corresponding claim folder after effecting payment of the claim.

"(sgd.) FERNANDO C. AUSTRIA

Regional Manager" 26

[Italics supplied]

The instruction of petitioner as the principal could not be any clearer. Respondent Guevarra was
authorized to pay the claim of the insured, but the payment shall come from the revolving fund
or collection in his possession.

Having deviated from the instructions of the principal, the expenses that respondent Guevarra
incurred in the settlement of the claims of the insured may not be reimbursed from petitioner
Dominion. This conclusion is in accord with Article 1918, Civil Code, which states that:

"The principal is not liable for the expenses incurred by the agent in the following cases:

"(1) If the agent acted in contravention of the principal's instructions, unless the latter should
wish to avail himself of the benefits derived from the contract;
"xxx xxx xxx"

However, while the law on agency prohibits respondent Guevarra from obtaining
reimbursement, his right to recover may still be justified under the general law on obligations
and contracts.

Article 1236, second paragraph, Civil Code, provides:

"Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor."

In this case, when the risk insured against occurred, petitioner's liability as insurer arose. This
obligation was extinguished when respondent Guevarra paid the claims and obtained Release
of Claim Loss and Subrogation Receipts from the insured who were paid.

Thus, to the extent that the obligation of the petitioner has been extinguished, respondent
Guevarra may demand for reimbursement from his principal. To rule otherwise would result in
unjust enrichment of petitioner.

The extent to which petitioner was benefited by the settlement of the insurance claims could
best be proven by the Release of Claim Loss and Subrogation Receipts 27 which were attached
to the original complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-1, in the total
amount of P116,276.95.

However, the amount of the revolving fund/collection that was then in the possession of
respondent Guevarra as reflected in the statement of account dated July 11, 1990 would be
deducted from the above amount.

The outstanding balance and the production/remittance for the period corresponding to the
claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the
amount that may be reimbursed to respondent Guevarra.

The Fallo

IN VIEW WHEREOF, we DENY the petition. However, we MODIFY the decision

of the Court of Appeals 28 and that of the Regional Trial Court, Branch 44, San Fernando,
Pampanga, 29 in that petitioner is ordered to pay respondent Guevarra the amount of
P112,672.11 representing the total amount advanced by the latter in the payment of the claims
of petitioner's clients. EATcHD

No costs in this instance.

SO ORDERED.

Davide, Jr., C.J., Puno, Kapunan and Ynares-Santiago, JJ., concur.

[G.R. No. L-24765. August 29, 1969.]

PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. MAXIMO STA. MARIA, ET AL.,

defendants, VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO, and LEONILA, all
surnamed STA. MARIA, defendants-appellants.

Tomas Besa and Jose B. Galang for plaintiff-appellee.

G. P. Nuguid Jr. for defendants-appellants.

SYLLABUS

1. CIVIL LAW; AGENCY; SPECIAL POWER OF ATTORNEY TO MORTGAGE REAL

PROPERTY IS LIMITED TO SUCH AUTHORITY. — A special power of attorney to mortgage
real estate is limited to such authority to mortgage and does not bind the grantor personally to
other obligations contracted by the grantee, in the absence of any ratification or other similar act
that would estop the grantor from questioning or disowning such other obligations contracted by
the grantee.

2. ID.; ID.; ID.; INSTANT CASE. — The authority granted by defendants-appellants (except
Valeriana) unto their brother, Maximo, was merely to mortgage the property jointly owned by
them. They did not grant Maximo any authority to contract for any loans in their names and
behalf. Maximo alone, with Valeriana who authorized him to borrow money, must answer for
said loans and the other defendants-appellants' only liability is that the real estate authorized by
them to be mortgaged would be subject to foreclosure and sale to respond for the obligations
contracted by Maximo. But they cannot be held personally liable for the payment of such
obligations, as erroneously held by the trial court.

3. ID.; ID.; ID.; LOANS INCURRED IN CONNECTION WITH SAID MORTGAGE CANNOT
BE CHARGED AGAINST OWNERS OF THE PROPERTY MORTGAGED. — The fact that
Maximo presented to the plaintiff bank Valeriana's additional special power of attorney
expressly authorizing him to borrow money, Exh. E-1, aside from the authority to mortgage
executed by Valeriana together with the other defendants-appellants also in Maximo's favor,
lends support to our view that the bank was not satisfied with the authority to mortgage alone.
For otherwise, such authority to borrow would have been deemed unnecessary and a
surplusage.

4. ID.; ID.; ID.; ID.; CO-OWNERS NOT IN ESTOPPEL IN INSTANT CASE. — Where there
was no express ratification by defendants-appellants of the loans incurred by Maximo from
plaintiff bank, secured by the real property owned by them and for which his only special power
of attorney was to mortgage, nor had they benefited from said loans, no estoppel can be
claimed by plaintiff bank as against defendants.

5. ID.; ID.; ID.; LIABILITY OF CO-OWNER WHO AUTHORIZED GRANTEE TO INCUR

LOANS. — Where as in this case, Valeriana, one of the co-owners of the property involved,
granted Maximino not only the authority to mortgage said property but also the special power of
attorney to borrow money in connection therewith, her liability is not only on the mortgage of her
share in the property, but also for the said loans which Maximo had obtained from plaintiff bank,
and is joint pursuant to the provisions of Article 1204 of the Civil Code. It should be noted that in
the additional power of attorney, Exh. E-1, executed by Valeriana, she did not grant Maximo the
authority to bind her solidarity with him on any loans he might secure thereunder.

6. ID.; ATTORNEY'S FEES; BASIS OF AWARD IN INSTANT CASE. — As to the 10%

award of attorney's fees, this Court believes that considering the resources of plaintiff bank and
the fact that the principal debtor, Maximo Sta. Maria, had not contested the suit, an award of five
(5%) per cent of the balance due on the principal, exclusive of interests, i.e. a balance of
P6,100.00 on the first cause of action and a balance of P9,346.44 on the second cause of
action, per the bank's statements of August 20, 1963 should be sufficient.

DECISION

TEEHANKEE, J p:

In this appeal certified to this Court by the Court of Appeals as involving purely legal issues, we
hold that a special power of attorney to mortgage real estate is limited to such authority to
mortgage and does not bind the grantor personally to other obligations contracted by the
grantee, in the absence of any ratification or other similar act that would estop the grantor from
questioning or disowning such other obligations contracted by the grantee.

Plaintiff bank filed this action on February 10, 1961 against defendant Maximo Sta. Maria and
his six brothers and sisters, defendants-appellants, Valeriana, Emeteria, Teofilo, Quintin,
Rosario and Leonila, all surnamed Sta. Maria, and the Associated Insurance & Surety Co., Inc.
as surety, for the collection of certain amounts representing unpaid balances on two agricultural
sugar crop loans due allegedly from defendants. 1

The said sugar crop loans were obtained by defendant Maximo Sta. Maria from plaintiff bank
under a special power of attorney, executed in his favor by his six brothers and sisters,
defendants- appellants herein, to mortgage a 16-odd hectare parcel of land, jointly owned by all
of them, the pertinent portion of which reads as follows:

"That we, VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO and LEONILA all
surnamed STA. MARIA, sole heirs of our deceased parents CANDIDO STA. MARIA and
FRANCISCA DE LOS REYES, all of legal age, Filipinos, and residents of Dinalupihan, Bataan,
do hereby name, constitute and appoint Dr. MAXIMO STA. MARIA, of legal age, married, and
residing at Dinalupihan, Bataan to be our true and lawful attorney of and in our place, name and
stead to mortgage, or convey as security to any bank, company or to any natural or juridical
person, our undivided shares over a certain parcel of land together with the improvements
thereon which parcel of land is more particularly described as follows to wit:

"Situated in the barrio of Pinulot, municipality of Dinalupihan, Bataan, containing an area of

16,7249 hectares and bounded as follows to wit: North by property of Alejandro Benito; on the
Northeast, by public land and property of Tomas Tulop on the southeast, by property of
Ramindo Agustin; on the southwest, by properties of Jose V. Reyes and Emilio Reyes; and on
the northwest, by excluded portion claimed by Emilio Reyes.
of which parcel of land aforementioned we are together with our said attorney who is our
brother, the owners in equal undivided shares as evidenced by Transfer Certificate of Title No.
T-2785 of the Registry of Deeds of Bataan dated Feb. 26th 1951." (Exh. E) 2

In addition, Valeriana Sta. Maria alone also executed in favor of her brother, Maximo, a special
power of attorney to borrow money and mortgage any real estate owned by her, granting him
the following authority:

"For me and in my name to borrow money and make, execute, sign and deliver mortgages of
real estate now owned by me standing in my name and to make, execute, sign and deliver any
and all promissory notes necessary in the premises."(EXH. E-1) 3

By virtue of the two above powers, Maximo Sta. Maria applied for two separate crop loans, for
the 1952-1953 and 1953-1954 crop years, with plaintiff bank, one in the amount of P15,000.00,
of which only the sum of P13,216.11 was actually extended by plaintiff, and the other in the
amount of P23,000.00, of which only the sum of P12,427.57 was actually extended by plaintiff.
As security for the two loans, Maximo Sta. Maria executed in his own name in favor of plaintiff
bank two chattel mortgages on the standing crops, guaranteed by surety bonds for the full
authorized amounts of the loans executed by the Associated Insurance & Surety Co., Inc. as
surety with Maximo Sta. Maria as principal. The records of the crop loan application further
disclose that among the securities given by Maximo for the loans were a "2nd mortgage on
25,3023 Has. of sugarland, including sugar quota rights therein" including the parcel of land
jointly owned by Maximo and his six brothers and sisters herein for the 1952-1953 crop loan,
with the notation that the bank already held a first mortgage on the same properties for the
1951-1952 crop loan of Maximo 4 and a 3rd mortgage on the same properties for the 1953-
1954 crop loan. 5

The trial court rendered judgment in favor of plaintiff and against defendants thus:

"WHEREFORE, premises considered, judgment is hereby rendered condemning the defendant

Maximo R. Sta. Maria and his co- defendants Valeriana, Quintin, Rosario, Emeteria, Teofilo,
and Leonila all surnamed Sta. Maria and the Associated Insurance and Surety Company, Inc.,
jointly and severally, to pay the plaintiff, the Philippine National Bank, Del Carmen Branch, as
follows:

"1. On the first cause of action, the sum of P8,500.72 with a daily interest of P0.83 on
P6,100.00 at 6% per annum beginning August 21, 1963, until fully paid;

"2. On the second cause of action, the sum of P14,299.79 with a daily interest of P1.53 on
P9,346.44 at 6% per annum, until fully paid; and

"3. On both causes of action the further sum equivalent to 10% of the total amount due as
attorney's fee as of the date of execution of this decision, and the costs." 6

Defendant Maximo Sta. Maria and his surety, defendant Associate Insurance & Surety Co., Inc.
who did not resist the action, did not appeal the judgment. This appeal has been taken by his six
brothers and sisters, defendants-appellants who reiterate in their brief their main contention in
their Answer to the complaint that under the special power of attorney, Exh. E, they had not
given their brother, Maximo, the authority to borrow money but only to mortgage the real estate
jointly owned by them; and that if they are liable at all, their liability should not go beyond the
value of the property which they had authorized to be given as security for the loans obtained by
Maximo. In their answer, defendants-appellants had further contended that they did not benefit
whatsoever from the loans, and that the plaintiff bank's only recourse against them is to
foreclose on the property which they had authorized Maximo to mortgage

We find the appeal of defendants-appellants, except for defendant Valeriana Sta. Maria who
had executed another special power of attorney, Exh. E-1, expressly authorizing Maximo to
borrow money on her behalf, to be well taken.

1. Plaintiff bank has not made out a cause of action against defendants-appellants (except
Valeriana), so as to hold them liable for the unpaid balances of the loans obtained by Maximo
under the chattel mortgages executed by him in his own name alone. In the early case of Bank
of P. I. vs. de Coster, this Court, in holding that the broad power of attorney given by the wife to
the husband to look after and protect the wife's interests and to transact her business did not
authorize him to make her liable as a surety for the payment of the pre-existing debt of a third
person, cited the fundamental construction rule that "where in an instrument powers and duties
are specified and defined, that all of such powers and duties are limited and confined to those
which are specified and defined, and that all other powers and duties are excluded." 7 This is
but in accord with the disinclination of courts to enlarge an authority granted beyond the powers
expressly given and those which incidentally flow or derive therefrom as being usual or
reasonably necessary and proper for the performance of such express powers. Even before the
filing of the present action this Court in the similar case of De Villa vs. Fabricantes 8 had already
ruled that where the power of attorney given to the husband by the wife was limited to a grant of
authority to mortgage a parcel of land titled in the wife's name, the wife may not be held liable
for the payment of the mortgage debt contracted by the husband, as the authority to mortgage
does not carry with it the authority to contract obligation. This Court thus held in the said case:

"Appellant claims that the trial court erred in holding that only Cesario A. Fabricante is liable to
pay the mortgage debt and not his wife who is exempt from liability. The trial court said: 'Only
the defendant. Cesario A. Fabricante is liable for the payment of this amount because it does
not appear that the other defendant Maria G. de Fabricante had authorized Cesario A.
Fabricante to contract the debt also in her name. The power of attorney was not presented and
it is to be presumed that the power (of attorney) was limited to a grant of authority to Cesario A.
Fabricante to mortgage the parcel of land covered by Transfer Certificate of Title in the name of
Maria G. de Fabricante.'

"We went over the contents of the deed of mortgage executed by Cesario Fabricante in favor of
Appellant on April 18, 1944, and there is really nothing therein from which we may infer that
Cesario was authorized by his wife to contract the obligation in her name. The deed shows that
the authority was limited to the execution of the mortgage insofar as the property of the wife is
concerned. There is a difference between authority to mortgage and authority to contract
obligation. Since the power of attorney was not presented as evidence, the trial court was
correct in presuming that power was merely limited to a grant of authority to mortgage unless
the contrary is shown. "9

2. The authority granted by defendants-appellants (except Valeriana) unto their brother,

Maximo, was merely to mortgage the property jointly owned by them. They did not grant
Maximo any authority to contract for any loans in their names and behalf. Maximo alone, with
Valeriana who authorized him-to borrow money, must answer for said loans and the other
defendants- appellants' only liability is that the real estate authorized by them to be mortgaged
would be subject to foreclosure and sale to respond for the obligations contracted by Maximo.
But they cannot be held personally liable for the payment of such obligations, as erroneously
held by the trial court.

3. The fact that Maximo presented to the plaintiff bank Valeriana's additional special power
of attorney expressly authorizing him to borrow money, Exh. E-1, aside from the authority to
mortgage executed by Valeriana together with the other defendants-appellants also in Maximo's
favor, lends support to our view that the bank was not satisfied with the authority to mortgage
alone. For otherwise, such authority to borrow would have been deemed unnecessary and a
surplusage. And having failed to require that Maximo submit a similar authority to borrow, from
the other defendants-appellants, plaintiff, which apparently was satisfied with the surety bond for
repayment put up by Maximo, cannot now seek to hold said defendants- appellants similarly
liable for the unpaid loans. Plaintiff's argument that "a mortgage is simply an accessory contract,
and that to effect the mortgage, a loan has to be secured" 10 falls far short of the mark. Maximo
had indeed secured the loan on his own account, and the defendants-appellants had authorized
him to mortgage their respective undivided shares of the real property jointly owned by them as
security for the loan. But that was the extent of their authority and consequent liability, to have
the real property answer for the loan in case of non-payment. It is not unusual in family and
business circles that one would allow his property or an undivided share in real estate to be
mortgaged by another as security, either as an accommodation or for valuable consideration,
but the grant of such authority does not extend to assuming personal liability, much less solidary
liability, for any loan secured by the grantee in the absence of express authority so given by the
grantor.

4. The outcome might be different if there had been an express ratification of the loans by
defendants-appellants or if it had been shown that they had been benefited by the crop loans so
as to put them in estoppel. but the burden of establishing such ratification or estoppel falls
squarely upon plaintiff bank. It has not only failed to discharge this burden, but the record stands
undisputed that defendant-appellant Quintin Sta. Maria testified that he and his co-defendants
executed the authority to mortgage 'Sto accommodate (my) brother Dr. Maximo Sta. Maria . . .
and because he is my brother, I signed it to accommodate him as security for whatever he may
apply as loan. Only for that land, we gave hire as security" and that "we brothers did not receive
any centavo as benefit." 11 The record further shows plaintiff bank itself admitted during the trial
that defendants-appellants "did not profit from the loan" and that they "did not receive any
money (the loan proceeds) from (Maximo)" 12 No estoppel therefore can be claimed by plaintiff
as against defendants — appellants.
5. Now, as to the extent of defendant Valeriana Sta. Maria's liability to plaintiff. As already
state above, Valeriana stands liable not merely on the mortgage of her share in the property, but
also for the loans which Maximo had obtained from plaintiff bank, since she had expressly
granted Maximo the authority to incur such loans. (Exh. E-1). Although The question has not
been raised in appellants' brief, we hold that Valeriana's liability for the loans secured by
Maximo is not joint and several or solidary as adjudged by the trial court, but only joint, pursuant
to the provisions of Article 1207 of the Civil Code that "(T)he concurrence . . . of two or more
debtors in one and the same obligation does not imply that . . . each one of the (debtors) is
bound to render entire compliance with the prestation. There is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the obligation requires
solidarity." It should be noted that in the additional special power of attorney, Exh. E-1, executed
by Valeriana, she did not grant Maximo the authority to bind her solidarity with him on any loans
he might secure thereunder.

6. Finally, as to the 10% award of attorney's fees, this Court believes that considering the
resources of plaintiff bank and the fact that the principal debtor, Maximo Sta. Maria, had not
contested the suit, an award of five (5%) per cent of the balance due on the principal, exclusive
of interests, i.e. a balance of P6,100.00 on the first cause of action and a balance of P9,346.44
on the second cause of action, per the bank's statements of August 20, 1963, (Exhs. Q-1 and
BB-I, respectively) should be sufficient.

WHEREFORE, the judgment of the trial court-against defendants-appellants EMETERIA,

TEOFILQ, QUINTIN, ROSARIO and LEONILA, all surnamed STA. MARIA is hereby reversed
and set aside, with costs in both instances against plaintiff. The judgment against defendant-
appellant VALERIANA STA. MARIA is modified in that her liability is held to be joint and not
solidary, and the award of attorney's fees is reduced as set forth in the preceding paragraph,
without costs in this instance.

Concepcion, C. J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano and
Barredo, JJ., concur.

Reyes, J.B.L., J., is on official leave.

SECOND DIVISION

[G.R. No. 23181. March 16, 1925.]

THE BANK OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs. GABRIELA ANDREA DE

COSTER Y ROXAS ET AL., defendants. LA ORDEN DE DOMINICOS or PP. PREDICADORES
DE LA PROVINCIA DEL SANTISIMO ROSARIO, defendants-appellees; GABRIELA ANDREA
DE COSTER Y ROXAS, defendant-appellant.

Antonio M. Opisso for appellant.

Araneta & Zaragoza for the bank as appellee.

Perfecto Gabriel for the Dominican Corporation as appellee.

SYLLABUS

1. WHEN SERVICE SHOULD BE SET ASIDE. — Where it appears that the defendant wife
"has been absent from the Philippine Islands and residing in the City of Paris, France, from
1908 to April 30, 1924, service of complaint and summons was made on her in the Philippine
Islands by the sheriff of the City of Manila by delivering a copy of the summons and complaint to
her husband at his usual place of residence in the City of Manila, the service is voidable and
should be set aside and acted upon the application the wife when a proper showing is made.

2. A MOTION TO QUASH SERVICE SHOULD BE MADE BY SPECIAL APPEARANCE

ONLY. — In such a case where it is designed by the wife to question the jurisdiction of the
court, she should file a motion to quash the service in a special appearance only to question the
jurisdiction of the court which should be for that purpose only, to which should be attached the
necessary proof.

3. A MOTION UNDER THE PROVISIONS OF SECTION 113 (CODE OF CIVIL

PROCEDURE) CONSTITUTES A GENERAL APPEARANCE. — Where a wife, under the terms
and provisions of section 113 of the Code of Civil Procedure, applies to the court to have a
judgment against her set aside and vacated and for leave to file an answer and defend on the
merits, it constitutes a general appearance as distinguished from a special appearance by
reason of which she submits herself to the jurisdiction of the court.

4. WHEN THE PRINCIPAL IS NOT ESTOPPED. — Where a person gave a power of

attorney to an agent to appear for and represent her in all court proceedings, and where the
agent fails and neglects to appear and make a defense, the principal in ka proper showing is not
estopped from obtaining relief under section 113 of the Code of Civil Procedure.

5. WHEN A MERITORIOUS DEFENSE IS A CONDITION PRECEDENT TO THE

GRANTING OF RELIEF. — It is elementary that to entitle a party to relief from a judgment
"taken against him through his mistake, inadvertence, surprise, or excusable neglect," that as a
condition precedent to the granting of relief, he must show to the court that he has a meritorious
defense.

6. WHEN PARTY HAS RIGHT TO DEFEND. — Where it appears that a judgment was
rendered against a person through her mistake, inadvertence, surprise, or excusable neglect,
and it further appears upon the face of the record that she has a meritorious defense, the
judgment should be set aside with leave to answer and defend on the merits.

7. WHEN WIFE IS NOT LIABLE UNDER HER POWER OF ATTORNEY FOR THE
PREEXISTING DEBT OF HER HUSBAND. — Where it appears that a wife gave her husband a
power of attorney "to loan and borrow money" and to mortgage her property, that the fact does
not carry with it or imply that he has a legal right to sign her name to a promissory note which
would make her liable for the payment of a preexisting debt of the husband or that of his firm, for
which she was not previously liable, or to mortgage her property to secure the debt.
8. LIMITATION ON AUTHORITY OF AGENT. — Where it appears that an agent under a
written authority signed his wife's name to a promissory note and executed a mortgage on her
real property to secure its payment, the powers and duties of the agent are confined and limited
to those which are specified and defined in his power of attorney, which limitation is a notice to,
and is binding upon, the person dealing with such agent.

9. WHAT BILL OF INTERVENTION SHOULD ALLEGE AND UPON WHOM IT SHOULD

BE SERVED. — Where a third person, holding a prior mortgage, desires to intervene in an
original suit and obtain a decree or closing its mortgage, its bill of intervention should state all of
the material facts with the same formality as an original complaint, and a copy of the plea should
be served both upon the plaintiff and, in particular, upon the defendants against whom it is
sought to obtain the foreclosure decree.

10. WHEN COURT DOES NOT HAVE JURISDICTION. — Where such material facts are
not alleged in the bill of intervention in which there is no prayer for a decree, and where a copy f
the bill was not served upon the parties against whom the foreclosure was sought, the court
does not have any jurisdiction to render a foreclosure decree on the bill of intervention, and for
such reason any decree on the bill of intervention is null and void.

11. WHEN A DECREE SHOULD BE REVOKED WITHOUT PREJUDICE. — In such a case,

the decree rendered in the bill of intervention should be set aside and revoked without prejudice
to the right of the intervenor to file an original suit to foreclose its mortgage or to file a new bill of
intervention in the original suit, alleging all material facts, and serving copies of it on all adverse
parties.

12. WHEN WIFE IS BOUND. — Where a wife gave her husband a power of attorney "to
loan and borrow money," and for such purpose to mortgage her property, and where the
husband signed his wife's name to a note and gave a mortgage on her property to secure the
note and the amount of the loan was actually paid to her husband in money at the time the note
and mortgage were executed, the transaction is binding upon the wife under her power of
attorney, regardless of what the husband may have done with the money which he obtained in
the loan.

DECISION

STATEMENT

March 10, 1924, the plaintiff filed a complaint in which it was alleged that it was a domestic
banking corporation with its principal office and place of business in the City of Manila; that the
defendant Gabriela Andrea de Coster y Roxas was the wife of the defendant Jean M. Poizat,
both of whom were residents of the City of Manila; that the defendant J.M. Poizat & Co. was a
duly registered partnership with its principal and place of business in the City of Manila; that the
defendant La Orden de Dominicos or PP. Redicadores del al Provincia del Santisimo Rosario
was a religious corporation duly organized and existing under the laws of the Philippine Islands
with its principal office and place of business in the City Of Manila; that on December 29, 1921,
for value, the defendant Gabriela Andrea de Coster y Roxas, having the consent and
permission of her husband, and he acting as her agent, said defendants made to the plaintiff a
certain promissory note of P292,000, payable one year after date, with interest of 9 per cent per
annum, payable monthly, in which, among other things, it is provided that in the event of a suit
or action, the defendants should pay the further sum of P10,000, as attorney's fees; that the
note in question was a joint and several note; that to secure the payment thereof, the
defendants Jean M. Poizat and J.M. Poizat & Co. executed a chattel mortgage to the plaintiff on
the steamers Roger Poizat and Gabrielle Poizat, with the machinery and materials belonging to
the Poizat Vegetable Oil Mills and certain merchandise; that at the same time and for the same
purpose, the defendant Gabriela Andrea de Coster y Roxas, having the consent and permission
of her husband, and he acting as her agent, they acknowledged and delivered to this plaintiff a
mortgage in certain real property lying and being situated in the City of Manila, which is
specifically described in the mortgage; that the real property was subject to a prior mortgage in
favor of La Orden de Dominicos or PP. Predicadores de la Provincia del Santisimo Rosario,
hence it is made a party defendant; that the note in question is long past due and owing. The
plaintiff having brought action against the defendants on the note in the Court of First Instance
of the City of Manila, civil case No. 25218; that in such case the court rendered judgment
against the defendants Gabriela Andrea de Coster y Roxas, Jean M. Poizat and J.M. Poizat &
Co. jointly and severally for P292,000, with interest at the rate of 9 per cent per annum from the
31st of August, 1923, P10,000 as attorney's fees, and P2,500 for and on account of insurance
upon the steamer Gabrielle Poizat, with interest on that amount from February 9, 1924, at the
rate of 9 per annum, and costs; that the said defendants have not paid the judgment or any part
thereof, and that the full amount of the debt secured by the mortgage on the property described
in the complaint is now due and owing. Whereof, plaintiff prays for an order of the court to direct
the sheriff of the City of Manila to take immediate possession of the property described in the
chattel mortgage and sell the same according to the Chattel Mortgage Law; that the property
described in the real mortgage or so much thereof as may be required to pay the amount due
the plaintiff be sold according to law; that out of such sales plaintiff shall be paid the amount due
and owing it; and that such defendants be adjudged to pay any remaining deficiency.

Copies of the chattel and real mortgage are attached to, and made a part of, the complaint and
marked, respectively, Exhibits A and B.

On April 24, 1924, the La Orden de Dominicos or PP. Predicadores de la Provincia del
Santisimo Rosario appeared in the suit and filed the following plea:

"The defendant corporation, La Orden de Dominicos or PP. Predicadores de la Provincia del

Santisimo Rosario, for answer to the complaint, shows:

"I. That the encumbrance above-mentioned, but not determined in paragraph V of the
complaint, consisting of a first mortgage in favor of the aforesaid religious corporation on the
property described in paragraph IV of the same complaint is P125,000, with interest of 10 per
cent per annum;

"II. That the mortgagors Jean M. Poizat and Gabriela Andrea de Coster y Roxas, have not
paid the principal or the interest stipulated and agreed upon from the 16th of December, 1921,
up to the present date;
"III. The interest due up to the 30th of April of the present year 1924 amounts to a total sum
of P27,925.34.

"Wherefore, it is prayed that the credit above-mentioned be taken into account when the second
mortgage is foreclosed."

May 3, 1924, in motion of the plaintiff, for failure to appear or answer, the defendants Gabriela
Andrea de Coster y Roxas and Jean M. Poizat and J.M. Poizat & Co. were declared in default.

Without giving any notice to the defendants Jean M. Poizat, J.M. Poizat & Co. and Gabriela
Andrea de Coster y Roxas, and after the introduction of evidence on the part of the plaintiff and
the defendant Dominican Fathers, on June 24, 1924, the court rendered an opinion in
substance and to the effect that the plaintiff should have judgment as prayed for in its complaint,
and that the Dominican Fathers should have judgment for the amount of their claim, and that the
property should be sold and the proceeds applied to satisfy the respective judgments.

About August 26, through her attorney, the defendant Gabriela Andrea de Coster y Roxas filed
a motion in which she recites that she is the legitimate wife of the defendant Jean M. Poizat;
that she had been absent from the Philippine Islands and residing in the City of Paris from the
year 1908 to April 30, 1924, when she returned to Manila; that the time of filing of the complaint
and the issuance of the summons, she was absent from the Philippine Islands; that the
summons was delivered by the sheriff of the City of Manila to her husband, and that through his
malicious negligence, default was taken and judgment entered for the respective amounts; that
she never had any knowledge of the actual facts until the latter part of July, 1924, when, through
the local newspapers, she learned that a default judgment had been rendered against her on
July 28, 1924; that when she first knew of that fact, she was unable to obtain the rendition of
accounts because her husband had rendition of accounts because her husband had left the
Philippine Islands two days previous and gone to Hongkong; that she then went to Hongkong
and learned that her husband had left there under a false name and had gone to the port of
Singapore from whence he went to other places unknown to third defendant; that she then
returned to Manila, and that in August, 1924, she came into possession of documents showing
the illegality of the notes and mortgage in question; that she has a good and legal defense to
the action, which involves the validity of the order of the Dominican Fathers in this, that their
mortgage does not guarantee any loan made to this defendant; that it is a security only given for
a credit of a third person; that the mortgage was executed without the marital consent of the
wife; and that he did not have any authority to make her liable as surety on the debt of a third
person; that as regards the notes to the plaintiff: First, it does not represent any money paid to
the defendant by the bank; second, that it is exclusively the personal debt of the defendants
Jean M. Poizat and J.M. Poizat & Co.; third, that it was executed by her husband, because the
bank desired more security for the payment of her husband's debt to the bank; fourth, that it was
executed by her husband in excess of the powers given to him under his power of attorney fifth
that it was executed as the result of collusion between the bank and the defendant Jean M.
Poizat, for the purpose of making this defendant liable for the obligation of a third person. That
as to the mortgage: First, it was executed to secure a void obligation; second, it does not
guarantee any loan made to this defendant; third, it was executed without the express marital
consent which the law requires; fourth, it was executed through collusion. That if the judgment is
not set aside, the defendant will suffer irreparable injury; that through surprise and negligence
for which she was not responsible, this defendant was prevented from defending herself in this
action; that this is a case which comes under section 113 of the Code of Civil Procedure. She
prays that the judgment be annulled and set aside and the case be reopened, and that she be
permitted to file an answer, and that the case be tried on its merit, and that a final judgment be
rendered, absolving her from all liability.

The motion was based upon, and supported by, the affidavit of the defendant wife, to which was
attached a large number of exhibits all of which tended to support the motion.

After counter showings by the bank and the Dominican Fathers and the arguments of respective
counsel, the motion to set aside and vacate the judgment was denied. A motion for a
reconsideration was the made, and the motion of the defendants file an answer and make a
defense was again denied. The defendant Gabriela Andrea de Coster y Roxas appeals,
assigning the following errors:

PART I

"AS TO THE JURISDICTION

"I. The lower court erred in holding that it had acquired jurisdiction on the defendant
Gabriela Andrea de Coster y Roxas,

"(1) There having been no personal service of the summons on her in the manner required
by section 396 of the Code of the Civil Procedure, she being absent from the Philippine Islands
at the time of the filing of the complaint and of the issuance of the summons in this case, and a
resident of Paris, France, where she had lived permanently and continuously for fifteen years
prior thereto, and

"(2) There having been no service by publication in the manner required by section 398 of
the Code of the Civil Procedure.

"II. The lower court erred in considering that in a case where the wife is the only necessary
party, service of the summons on the husband, at a place which is not 'the usual place of
residence' of the wife and where the wife has never lived or resided, is sufficient to give the
court jurisdiction on the person and property of the wife and to render judgment by default
against her.

"III. The court erred in admitting and considering evidence, outside of the sheriff's return, of
the fact that the husband of the defendant Gabriela Andrea de Coster y Roxas was her attorney
in fact with power to appear for the defendant in court.

"IV. The court erred in holding that the non-appearance of an agent of the defendant when
service of the summons has been made on him not as the agent of the defendant but in other
capacity, will entitle the plaintiff who misstated the material jurisdictional facts of the complaint to
a judgment by default against the principal.
"V. The lower erred in refusing to vacate a judgment by default against the defendant
against the defendant Gabriela Andrea de Coster y Roxas rendered on a defective summons,
served in a manner not provided for by the law, and in a case where the complaint shows that
plaintiff has no right of action.

"PART II

"AS TO THE MERITS OF THE DEFENSE

"I. The lower court erred, with abuse of discretion, in holding that the negligence, if any, of
J.M. Poizat in not appearing on behalf of the defendant Gabriela Andrea de Coster y Roxas, can
be imputed to this defendant, without redress, and to the advantage of the plaintiff bank who in
collusion with said J.M. Poizat caused the latter to contract beyond the scope of his powers as
agent of this defendant the obligation which is the subject matter of this case.

"II. The lower court erred in holding that the belief on the part of J.M. Poizat that other was
no defense against the claim of the plaintiff on an obligation contracted by said J.M. Poizat
apparently as agent of the defendant Gabriela Andrea de Coster y Roxas, by in truth beyond the
scope of his authority, and with knowledge in the part if the plaintiff bank that he was so acting
beyond his powers, was such an error as can be imputed to this defendant, and against which
she can obtain no redress.

"III. The lower court erred in not holding that a principal is not liable for an obligation
contracted by his agent beyond his power even when both the creditor and the agent believed
that the latter was acting within the scope of his powers.

"IV. The court erred in holding that because the agent of the defendant Gabriela Andrea de
Coster y Roxas had power to appear for her in court, his non-appearance could render third
defendant liable to a judgment by default, when the record shows that there was no service of
the summons in accordance with any of the forms of service provided by law.

"V. The lower court erred in holding that J.M. Poizat was summoned as agent of his wife,
the defendant Gabriela Andrea de Coster y Roxas, and was, in that capacity, notified of all the
decisions rendered in this case, there being nothing in the record to support the truth of such
finding.

"VI. The lower court erred in holding that in contracting the obligations in favor of the plaintiff
Bank of the Philippine Islands and of the defendant Orden de PP. Predicadores de la Provincia
del Santisimo Rosario, the agent of the defendant Gabriela Andrea de Coster y Roxas acted
within the scope of his powers.

"VII. The lower court erred in not holding that the plaintiff Bank of the Philippine Islands and
the defendant Orden de PP. Predicadores de la Provincia del Santisimo Rosario had knowledge
of the fact that J.M. Poizat in contracting the respective obligations in their favor, pretending to
act as agent of the defendant Gabriela Andrea de Coster y Roxas, was acting beyond the scope
of his powers as such agent.
"VIII. The lower court erred in making the following statement:

"'It is however alleged, by the petitioner, that these loans were obtained to pay debts, of
strangers. Even so, this would not render the loan obtained by the attorney in fact null and void.
The circumstance that the agent used the money, borrowed by him within the scope of his
powers, to purposes for which he was not authorized by his principal, may entitle the latter to
demand from him the corresponding liability for the damages suffered, but it cannot prejudice
the creditor and cause the nullity of the loan. But, even admitting that the money borrowed was
used by Poizat to pay debts which did not belong to his principal, even then, he would have
acted within his powers since his principal, together with the power to borrow money, and the
payment of the debts of a stranger would amount to a loan made by the agent on behalf of his
principal to the person or entity whose debt was paid with the money obtained from the
creditors.'

"IX. The lower court erred in applying to this case the principle involved in the case of
Palanca vs. Smith, Bell & co., 9 Phil., 131.

"X. The court erred in supplying from its own imagination facts which did not take place, of
which there is no evidence in the record, and which the parties never claimed to have existed,
and then draw the conclusion that if under those hypothetical facts the transaction between J.M.
Poizat and the Bank of the Philippine Islands might have been legal, then the transaction as it
actually took place was also legal.

"XI. The lower court erred in holding that defendant has not alleged any of the grounds
enumerated in section 113 of the Code of Civil Procedure.

"XII. The lower court erred in holding that this defendant-appellant has no meritorious
defense against the Dominican Order and the Bank of the Philippine Islands.

"XIII. the lower court erred in taking into consideration Exhibit A appearing at pages 156-165
of the bill of exceptions.

"XIV. The lower court erred in denying the motion filed by this defendant-appellant.

"XV. The lower court has acted throughout these proceedings with a clear abuse of
discretion."

JOHNS, J p:

We will decide the case of the bank first.

The petition of the appellant states under oath:

"II. That this defendant has been absent from the Philippine Islands and residing in the City
of Paris, France, since the year 1908 (1909), up to April 30, 1924, on which date she arrived in
this City of Manila, Philippine Islands.
"III. That at the time when the complaint in this case was filed and the summons issued, she
was still absent from the Philippine Islands and had no knowledge either of the filing of third
action or of the facts which led to it."

Under oath the plaintiff, through its acting president, says:

"I-II. That it admits the allegations contained in paragraphs I and II of the aforesaid motion.

"III. That it admits the first part of this paragraph, to wit: That at the time that the complaint in
the above entitled case was filed, the defendant Gabriela Andrea de Coster y Roxas was absent
from the Philippine Islands."

Paragraph 6 of section 396 of the Code of Civil Procedure provides:

"In all other cases, to the defendant personally, or by leaving a copy at his usual place of
residence, in the hands of some person resident therein, of sufficient discretion to receive the
same. But service upon a corporation, as provided in subsections one and two, my be made by
leaving the copy at the office of the proper officer thereof if such officer cannot be found."

The return of the sheriff as to the service is as follows:

"On this date I have served a copy of the within summons, and of the complaint attached, upon
Jean M. Poizat, personally, and the copies corresponding to J.M. Poizat & Co., a company duly
organized under the laws of the Philippine Islands, by delivering said copies to its President Mr.
Jean M. Poizat, personally, and the copies corresponding to Gabriela Andrea de Coster y
Roxas, by leaving the same in the place of her usual residence in the City of Manila and in the
hands of her husband, Mr. J.M. Poizat, a person residing therein and of sufficient discretion to
receive it, personally.

"Done at Manila, P.I., this 13th day of March, 1924.

RICARDO SUMMERS

"Sheriff of Manila

"BY GREGORIO GARCIA"

"I hereby certify that on this date I have delivered a copy of this summons and of the complaint
corresponding to the 'La Orden de Dominicos or PP. Predicadores de la Provincia del Santisimo
Rosario,' through Father Pedro Pratt, Procurador General of said Orden de Domonicos or PP.
Predicadores de la Provincia del Santisimo Rosario, personally.

"Manila, P.I., April 1, 1924.

"RICARDO SUMMERS

Sheriff of Manila

"BY SIMEON D. SERDEÑA"

It will be noted that the service of summons and complaint was made in this defendant on the
13th day of March, 1924, and that it is a stipulated fact that since the year 1908 and up to April
30, 1924, she was "residing in the City of Paris, France." Even so, it is contended that the
service was valid by reason of the fact that it was made at the usual place of residence and
abode of there defendant husband, and that legally the residence of the wife is that of the
husband. That contention is in direct conflict with the admission of the plaintiff that since the
year 1908 and up to April 30, 1924, the wife was residing in the City of Paris. The residence of
the wife in the City of Paris covered a period of sixteen years.

It may be that where in the ordinary course of business the wife is absent from the residence of
the husband on a pleasure trip ir for business reasons or to visit friends or relatives that, in the
nature of such things, the residence of the wife would continue and remain to be that of the
husband. That is not this case. For sixteen years the residence of the husband was in the City
of Manila, and the residence of the wife was in the City of Paris.

Upon the admitted facts, we are clearly of the opinion that the residence of the husband was not
the usual place of residence of the wife. Giving full force and effect to the legal presumption that
the usual place of residence of the wife is that if her husband, that presumption is overcome by
the admitted fact that the wife was "residing in the City of Paris, France, since the year 1908 up
to April 30, 1924."

Without placing a limitation upon the length of time sufficient to overcome the legal presumption,
suffice it to say that sixteen years is amply sufficient.

It follows that the substituted service attempted to be made under the provisions of section 396
of the Code of Civil Procedure is null and void, and that by such service the court never
acquired jurisdiction of the person of the defendant wife. In that event the plaintiff contends that
under his power of attorney, the husband was the general agent of the wife with authority to
accept service of process for her and in her name, and that by reason of the fact that the
husband was duly served and that he failed or neglected to appear or answer, his actions and
conduct were binding in the defendant wife. Be that as it may, there is nothing in the record
tending to show that the husband accepted service of any process for or on account of his wife
or as her agent, or that he was action for or representing her in his failure and neglect to appear
or answer.

The first appearance in court if the defendant wife was made when she filed the motion of
August 26, 1924, in which she prays in legal effect that the judgment against her be annulled
and set aside and the case reopened, and that she be permitted to file an answer and to have
the case tried on its merits. That was a general appearance as distinguished from a special
appearance. When she filed that motion asking to be relieved from the legal force and effect of
the judgment, she submitted herself to the jurisdiction of the court. If, in the first instance, she
had made a special appearance to question only the jurisdiction of the court, and had not
appeared for any other or different purpose, another and a different question would have been
presented. Having made a general appearance for one purpose, she is now in court for all
purposes.
It is an elementary rule of the law that as a condition precedent, to entitle a party to relief from a
judgment "taken against him through his mistake, inadvertence, surprise or excusable neglect,"
that, among other things, he must show to the court that he has a meritorious defense. Based
upon that legal principal the bank contends that no such a showing has been made by the
defendant wife. That involves the legal construction of the power of attorney which, it is
admitted, the wife gave to her husband on August 25, 1903, which, among other things material
to this opinion, recites that she gave to him:

"Such full and ample power as required or necessary, to the end that he may perform on my
behalf and in may name and availing himself of all my rights and actions, the following acts:

"5. Loan or borrow any sums of money or fungible things at the rate of interest and for the
time and under the conditions which he might deem convenient, collecting or paying the capital
or the interest on their respective due dates; executing and signing the corresponding public or
private documents related thereto, and making all these transactions with or without mortgages,
pledges or personal guaranty.

"6. Enter into any kind of contracts whether civil or mercantile, gibing due form thereof either
by private documents or public deeds with all clauses and requisites provided by law for their
validity and effect, having due regard to the nature of each contract.

"7. Draw, endorse, accept, issue and negotiate any drafts, bill of exchange, letters of credit,
letters of payment, bills, vales, promissory notes and all kinds of documents representative of
value; paying or collecting the value thereof on their respective due dates, or protesting them for
non-acceptance or non-payment, utilizing in this case the rights granted by the Code of
Commerce now in force, in order to collect the value thereof, interests, expenses and damages
against whomsoever should be liable therefor.

"8. Institute before the competent courts the corresponding action injustification the
possession which I have or might have over any real estate, filing the necessary pleadings,
evidencing them by means of documentary or oral testimony admissible by law; accepting
notices and summons, and instituting all necessary proceedings for the termination thereof and
the consequent inscription of said action in the corresponding office of the Register of Deeds, in
the same manner in which I might do if personally present and acting.

"9. Represent me in all cases before the municipal courts, justice of the peace courts, courts
of first instance, supreme court and all other courts of regular or any other special jurisdiction,
appearing before them in any civil or criminal proceedings, instituting and filing criminal and
ordinary civil actions, claims in intestate and testamentary proceedings, insolvencies and other
actions provided by law; filing complaints, answers, counterclaims, cross complaints, criminal
complaints and such other pleadings as might be necessary; filing demurrers, taking and
offering judicial admission, documentary, expert, oral evidence, and others provided by law,
objecting to and opposing whatever contrary actions are taken, offered and presented;
accepting notices, citations and summons and acknowledging their receipt to the proper judicial
officials.
10. For to the end stated above and the incidents related thereto, I confer on him ample and
complete power, binding myself in the most solemn manner as required by law to recognized as
existing and valid all that he might do by virtue hereof."

It is admitted that on December 29, 1921, the defendant husband signed the name of the
defendant wife to the promissory note in question, and that to secure the payment of the note,
upon the same date and as attorney in fact for his wife, the husband signed the real mortgage in
question in favor of the bank, and that the mortgage was duly executed.

Based upon such admissions, the bank vigorously contends that the defendant wife has not
shown a meritorious defense. In fact that it appears from her own showing that she does not
have a legal defense. It must be admitted that upon the face of the instruments, that fact
appears to be true. To meet that contention, the defendant wife points out, first, that the note in
question is a joint and several note, and second, that it appears from the evidence, which she
submitted, that she is nothing more than an accommodation maker of the note. She also
submits evidence which tends to show:

"First. That prior to July 25, 1921, Jean m. Poizat was personally indebted to the Bank of the
Philippine Islands in the sum of P290,050.02 (Exhibit H, page 66, bill of exceptions);

"Second. That on July 25, 1921, the personal indebtedness of Jean M. Poizat was
converted into six promissory notes aggregating the sum of P308,458.58 of which P16,180 were
paid, leaving an outstanding balance of P292,278.58 (Exhibit D, E, F, G, H and I, pages 75-80,
bill of exceptions);

"Third. That on December 29, 1921, the above promissory notes were cancelled and substituted
by a joint and several note signed by Jean M. Poizat in his personal capacity and as agent of
Gabriela Andrea de Coster y Roxas and as member of the firm J. M. Poizat & Co."

In other words, that under the power of attorney, the husband had no authority for and on behalf
of the wife to execute a joint and several note or to make her liable as an accommodation
maker. That the debt in question was a preexisting debt of her husband and of the firm of J. M.
Poizat & Co., to which she was not a party, and for which she was under no legal obligation to
pay. That she never borrowed any money from the bank, and that previous to the signing of the
note, she never had any dealings with the bank and was not indebted to the bank in any
amount. That the old, original debts of her husband and J. M. Poizat & Co. to the bank, to which
she was no a party, were all taken up and merged in the new note of December 29, 1921, in
question, and that at the time the note was signed, she did not borrow any money, and that no
money was loaned by the bank to the makers of the note.

Assuming such facts to be true, it would be a valid defense by the defendant wife to the
payment of the note. There is no claim r pretense that the bank was misled or deceived. If it had
made an actual loan P292,000 at the time the note was executed, another and a different
question would be presented. In the ordinary course of its business, the bank knew that not a
dollar was loaned or borrowed on the strength of the note. It was given at the urgent and
pressing demand of the bank to obtain security for the six different notes which it held against J.
M. Poizat & Co. and Jean M. Poizat of date July 25, 1921, aggregating about P292,000, and at
the time it was given, those note were taken up and merged in the note of December 29, 1921,
now in question. Upon the record before us, there is no evidence that the defendant wife was a
party to the notes of July 25, 1921, or that she was under any legal liability t pay them.

The note and mortgage in question show upon their face that at the time they were executed,
the husband was attorney in fact for the defendant wife, and the bank knew or should have
known the nature and extent of his authority and the limitations upon his power.

You will search the terms and provisions of the power of attorney in vain to find any authority for
the husband to make his wife liable as a surety for the payment of the preexisting debt of a third
person.

Paragraph 5 of the power of attorney above quoted authorizes the husband for and in the name
of his wife to "loan or borrow any sums of money or fungible things, etc." This should construed
to mean that the husband had power only to loan his wife's money and to borrow money for or
on account of his wife as her agent and attorney in fact. That does not carry with it or imply that
he had the legal right to make his wife liable as a surety for the preexisting debt of a third
person.

Paragraph 6 authorizes him to "enter into any kind of contracts whether civil or mercantile,
giving due form thereof either by private documents or public deeds, etc."

Paragraph 7 authorizes him to "draw, endorse, accept, issue and negotiate any drafts, bill of
exchange, letters of credit, letters of payment, bills, vales, promissory notes, etc."

The foregoing are the clauses in the power of attorney upon which the bank relies for the
authority of the husband to execute promissory notes for and on behalf of his wife and as her
agent.

It will be noted that there is no provision in either of them which authorizes or empowers him to
sign anything or to do anything which would make his wife liable as a surety for a preexisting
debt.

It is fundamental rule of construction that where in an instrument powers and duties are
specified and defined, that all of such powers and duties are limited and confined those which
are specified and defined, and that all other powers and duties are excluded.

Paragraph 8 of the power of attorney authorizes the husband to institute, prosecute and defend
all actions or proceedings in a court of justice, including "accepting notices and summons."

There is nothing in the record tending to show that the husband accepted the service of any
notice or summons in the action on behalf of the bank, and even so, if he had, it would not be a
defense to open up and vacate a judgment under section 113 of the Code of Civil Procedure.
The same thing is true as to paragraph 9 of the power of attorney.

The fact that an agent failed and neglected to perform his duties and to represent the interests
of his principal is not a bar to the principal obtaining legal relief for the negligence of her agent,
provided that the application for such a relief is duly and properly made under the provisions of
section 113.

It is very apparent from the face of the instrument that the whole purpose and intent of the
power of attorney was t empower and authorize the husband to look after in her name to
transact any and all of her business. But nowhere does it provide or authorize him to make her
liable as a surety for the payment of the preexisting debt of a third person.

Hence, it follows that the husband was not authorized or empowered to sign the note in
question for and on behalf of the wife as her act and deed, and that as to her the note is void for
wasn't of power of her husband to execute it.

The same thing is true as to the real mortgage to the bank. It was given to secure the note in
question and was not given for any other purpose. The real property described in the mortgage
to the bank was and is the property of the wife. The note being void as to her, it follows that as
to her the real mortgage to the bank is also void for want of power to execute it.

It appears that before the motion in question was filed, there were certain negotiations between
the bank and the attorney for the wife with a view of compromise or settlement of the bank's
claim against her, and that during such negotiations, there was some evidence or admissions
on the part of her attorney that she was liable for the bank's claim. It contends that as a result of
such negotiations and admissions, the wife is estopped to deny her liability. But it also appears
that during such negotiations, both the wife and her attorney did not have any knowledge of the
actual facts, and that she was then ignorant of the defense upon which she now relies. Be that
as it may, such negotiations were more or less in the nature of a compromise which was
rejected by the bank, and it appears that in any event both the wife and her attorney did not
have any knowledge of the facts upon which they now rely as a defense.

There is no claim or pretense that the debt in question was contracted for or on account of the
"usual daily expenses of the family, incurred by the wife or by her order with the tacit consent of
the husband," as provided for in article 1362 of the Civil Code. Neither is there any evidence
tending to show that the wife was legally liable for any portion of the original debt evidenced by
the note in question.

This decision as to the bank on this motion is based on the assumption that the facts are true as
set forth and alleged n the petition to set aside and vacate the judgment as to the wife, but we
are not making any finding as to the actual truth of such facts. That remains for the defendant
wife to prove such allege facts when the case is tried on its merits.

It follows that the opinion of the lower court in refusing to set aside and vacate the judgment of
the plaintiff bank against the defendant wife is reversed, and that judgment is vacated and set
aside, and as to the bank the case is remanded to the lower court, with leave for the wife to file
an answer to plaintiff's cause of action, and to have the case tried on its merits and for any
further proceedings not inconsistent with this opinion.

As to the judgment in favor of the Dominicans Fathers, it appears that their plea above quoted in
the statement of facts was filed on April 24, 1924. In that plea they say that they have a first
mortgage on the property described in paragraph IV of the complaint for P125,000 with interest
at 10 per cent per annum. That the mortgagors Jean M. Poizat and Gabriela Andrea de Coster y
Roxas have not paid the principal or the stipulated interest from December 16, 1921, to date,
which up to the 30th day of April, 1924, amounts to P27,925.34. Wherefore, it is prayed that the
second mortgage is foreclosed.

No other plea of any kind, nature or description was filed by it. The record shows that a copy of
this alleged plea was served upon the attorneys for the plaintiff bank. There is nothing in the
record which shows or tends to show that a copy of it was ever served on either one of the
defendants. Neither is there any evidence that either if the defendant ever appeared in the
original action. In fact, judgment was rendered against them by default.

Under such s state of facts, the judgment in favor of the Dominican Fathers cannot be
sustained. In the first place, the plea above quoted filed on April 24, 1924, would not be
sufficient to sustain a judgment. It does not even ask for a judgment or the foreclosure of its
mortgage. In the second place, no copy of the plea was ever served upon either of the
defendants, who were the rest parties in interest, and against whom a judgment was rendered
for the full amount of the note and the foreclosure of the mortgage. Such a proceeding cannot
be sustained on any legal principle.

Unless waived, a defendant has a legal right to service of process, to his day in court and to be
heard in his defense.

From what has been said, it follows that, if the transaction between the Dominican Fathers and
Jean M. Poizat as attorney in fact for his wife was an original one and the P125,000 was
actually loaned at the time the note and mortgage were executed and the money was in good
faith delivered to the husband as the agent and attorney in fact of the wife, it would then be a
valid exercise of the power given to the husband, regardless of the question as to what he may
have done with the money.

Paragraph 5 of the power of attorney specifically authorizes him to borrow money for and on
account of his wife and in her name, "and making all these transactions with or without
mortgages, pledges or personal guaranty."

It follows that the judgment of the lower court in favor of La Orden de Dominicos or PP.
Predicadores de la Provincia del Santisimo Rosario is reversed, without prejudice to its right to
either file an original suit to foreclose its mortgage or to file a good and sufficient plea s
intervenor in the instant suit, setting forth the facts upon which it relies for a judgment on its note
and the foreclosure of its mortgage, copies of which should be served upon which it relies for a
judgment on its note and the foreclosure of its mortgage, copies should be served upon the
defendants.

Neither party to recover costs. So ordered.

Ostrand and Romualdez, JJ., concur.

Johnson and Malcolm, JJ., concur in the result.

. No. L-42958. October 21, 1936.]

C.N. HODGES, plaintiff-appellant, vs. CARLOTA SALAS and PAZ SALAS, defendants-
appellees.

Jose P. Orozco and Gibbs, McDonough & Ozaeta for appellant.

Vicente Varela and Conrado V. Sanchez for appellees.

SYLLABUS

1. EVIDENCE; PROBATORY VALUE OF SECONDARY EVIDENCE ADMITTED

WITHOUT OBJECTION. — It is universally accepted that when secondary or incompetent
evidence is presented and accepted without any objection on the part of the other party, the
latter is bound thereby and the court is obliged to grant it the probatory value it deserves. (City
of Manila vs. Cabangis, 10 Phil., 151; Bersabal vs. Bernal, 13 Phil., 463; Kuenzle & Streiff vs.
Jiongco, 22 Phil., 110; U.S. vs. Choa Tong, 22 Phil., 562; U.S. vs. Ong Shiu, 28 Phil., 242; De
Leon vs. Director of Prisons, 31 Phil., 60; U.S. vs. Hernandez, 31 Phil., 342; 23 C.J., 39, section
1783, and the cases therein cited; 10 R.C.L., 1008, paragraph 197, and the cases therein cited.)

2. MORTGAGES; LOANS; CHARGING COMPOUND INTEREST; APPLICATION OF THE

SAME. — The fact of charging illegal interest, although it exceeds the maximum limit of interest
that may be charged, does not make the loan or the mortgage usurious because the
transactions took place subsequent to the execution of said contracts and the latter do not
appear to be void ab initio (66 C.J., pages 243, 244, section 194). Said interest should be
applied first to the payment of the stipulated and unpaid interest and, later, to that of the capital.
(Aguilar vs. Rubiato and Gonzalez Vila, 40 Phil., 570; Go Chioco vs. Martinez, 45 Phil., 256; Gui
Jong & Co. vs. Rivera and Avellar, 45 Phil., 778; Lopez and Javelona vs. El Hogar Filipino, 47
Phil., 249; Sajo vs. Gustilo, 48 Phil., 451.)

3. ID.; ID.; CHARGING INTEREST IN ADVANCE. — Section 5 of Act No. 2655, as

amended by section 3 of Act No. 3291, expressly permits a creditor to charge in advance
interest corresponding to not more than one year, whatever the duration of the loan. What is
prohibited is the charging in advance of interest for more than one year. Section 6 reiterates
said rule in exempting a creditor found guilty of usury from the obligation to return the interest
and commissions collected by him in advance, provided said interest and commissions are not
for a period of more than one year and the rate of interest does not exceed the maximum limit
fixed by law.

4. USURY, ACTION FOR; PRESCRIPTION; REQUISITES FOR PRESCRIPTION TO

CONSTITUTE VALID DEFENSE. — In order that prescription may constitute a valid defense
and it may be considered on appeal, it must be specifically pleaded in the answer and proven
with the same degree of certainty with which an essential allegation in a civil action is
established. Otherwise it will not be taken into consideration, much less if it is alleged for the
first time on appeal. (Aldeguer vs. Hoskyn, 2 Phil., 500; Domingo vs. Osorio, 7 Phil., 405;
Marzon vs. Udtujan, 20 Phil., 232; Pelaez vs. Abreu, 26 Phil., 415; Corporacion de PP.
Agustinos Recoletos vs. Crisostomo, 32 Phil., 427; Karagdag vs. Barado, 33 Phil., 529.)
5. AGENCY; POWERS OF THE AGENT; LIMITATIONS. — The pertinent clauses of the
power of attorney from which may be determined the intention of the principals in authorizing
their agent to obtain a loan, securing it with their real property, were quoted at the beginning of
the decision. The terms thereof are limited; the agent was thereby authorized only to borrow any
amount of money which he deemed necessary. There is nothing, however, to indicate that the
defendants had likewise authorized him to convert the money obtained by him to his personal
use. With respect to a power of attorney of special character, it cannot be interpreted as also
authorizing the agent to use the money as he pleased, particularly when it does not appear that
such was the intention of the principals, and in applying part of the funds to pay his personal
obligations, he exceeded his authority (art. 1714, Civil Code; Bank of the Philippine Islands vs.
De Coster, 47 Phil., 594 and 49 Phil., 574). In cases like the present one, it should be
understood that the agent was obliged to turn over the money to the principals or, at least, place
it at their disposal.

DECISION

IMPERIAL, J p:

The action was brought by the plaintiff to foreclose a certain real estate mortgage constituted by
the defendants to secure a loan. The plaintiff appealed from the judgment of the Court of First
Instance of Occidental Negros absolving the defendants from the complaint and stating: That of
the capital of P28,000 referred to in Exhibit A, the defendants were liable only for the sum of
P14,451.71; that the transactions and negotiations specified in Exhibit A as well as the interest
charged are usurious; that the sum of P14,778.77 paid by the defendants to the plaintiff should
be applied to the payment of the capital of P14,451.71; that the plaintiff must refund the sum of
P3,327.06 to the defendants and, lastly, he must pay the costs.

On September 2, 1923, the defendants executed a power of attorney in favor of their brother-in-
law Felix S. Yulo to enable him to obtain a loan and secure it with a mortgage on the real
property described in transfer certificate of title No. 3335. The power of attorney was registered
in the registry of deeds of the Province of Occidental Negros and the pertinent clauses thereof
read as follows:.

"That we confer upon our brother-in-law Mr. Felix S. Yulo, married, of age and resident of the
municipality of Bago, Province of Occidental Negros, P.I., as required by law, a special power of
attorney to obtain, in our respective names and representation, a loan in any amount which our
said brother-in-law may deem necessary, being empowered, by virtue of the authority conferred
in this power of attorney, to constitute a mortgage on a parcel of land absolutely belonging to us,
the technical description of which is as follows:

"'TRANSFER CERTIFICATE OF TITLE NO. 3335

"'A parcel of land (lot No. 2464 of the Cadastral Survey of Bago) with the improvements thereon,
situated in the municipality of Bago. Bounded on the NE. and NW. by the Lonoy Sapa and lot
No. 2465; on the SE. by the Ilabo Sapa; and on the SW by the Ilabo Sapa, lot No. 2508 and the
Sapa Talaptapan. Containing an area of one million nine hundred ninety-four thousand eight
hundred and thirty-four square meters (1,994,834), more or less.'

"That we confer and grant to our said brother-in-law Mr. Felix S. Yulo power and authority to
perform and execute each and every act necessary to the performance of his trust, which acts
shall be for all purposes as if we had performed or executed them personally, hereby ratifying
and confirming everything that our said brother-in-law Mr. Felix S. Yulo may execute or cause to
be executed."

Acting under said power of attorney, Felix S. Yulo, on March 27, 1926, obtained a loan of
P28,000 from the plaintiff, binding his principals jointly and severally to pay it within ten (10)
years, together with interest thereon at 12 per cent per annum payable annually in advance, to
which effect he signed a promissory note for said amount and executed a deed of mortgage of
the real property described in transfer certificate of title No. 3335 and the improvements thereon
consisting in concrete buildings. It was stated in the deed that in case the defendants failed to
pay the stipulated interest and the taxes on the real property mortgaged and if the plaintiff were
compelled to bring an action to recover his credit, said defendants would be obliged to pay 10
per cent more on the unpaid capital, as fees for the plaintiff's attorneys. The mortgage so
constituted was registered in the registry of deeds of the Province of Occidental Negros and
noted on the back of the transfer certificate of title.

The sum of P28,000 was not delivered to Felix S. Yulo, but by agreement between him and the
plaintiff, it was employed as follows:

Interest for one year from March 27, 1926,

to March 26, 1927, collected in

advance by the plaintiff P3,360.00

Paid for the mortgage constituted by

Felix S. Yulo, cancelled on the date of the loan 8,188.29

Paid by Felix S. Yulo on account of the purchase

price of the real property bought by him

on Ortiz Street 2,000.00

Check No. 4590 delivered to Felix S. Yulo 3,391.71

Check No. 4597 in the name of Rafael Santos,

paid to him to cancel the mortgage constituted

by the defendants 9,200.00

Check No. 4598 delivered to Felix S. Yulo 1,860.00

 _________

Total 28,000.00

=========

The defendants failed to pay at maturity the interest stipulated, which would have been paid one
year in advance. All the sums paid by them on account of accrued interest up to March 27,
1934, on which the complaint was filed, together with the corresponding exhibits, are as follows:

Date Amount.

Exhibit 1 April 5, 1927 P1,500.00

Exhibit 2 May 2, 1927 500.00

Exhibit 4 August 30, 1927 336.00

Exhibit 7 June 4, 1928 3,360.00

Exhibit 8 May 15, 1929 67.20

Exhibit 9 June 19, 1929 67.20

Exhibit 10 July 25, 1929 33.60

Exhibit 11 August 26, 1929 33.60

Exhibit 12 October 7, 1929 392.55

Exhibit 13 October 7, 1929 30.00

Exhibit 14 November 9, 1929 29.67

Exhibit 15 November 9, 1929 938.95

Exhibit 16 February 8, 1930 61.04

Exhibit 17 February 8, 1930 936.46

Exhibit 18 No date 498.75

Exhibit 19 February 10, 1931 498.75

Exhibit 20 August 20, 1931 498.75

Exhibit 21 July 7, 1932 498.75

Exhibit 22 July 29, 1932 500.00

Exhibit 23 September 23, 1932 500.00

Exhibit 24 December 17, 1932 997.50

Exhibit 25 No date 1,000.00

Exhibit 26 January 23, 1934 500.00

________

Total 14,778.77

========

To the foregoing amount must be added the sum of P3,360 deducted by the plaintiff upon
granting the loan, as interest for one year, thereby making the total amount of interest paid by
the defendants and received by the plaintiff P18,138.77.

The foregoing are facts inferred from the evidence and are not controverted by the parties, with
the exception of the existence of the promissory note, the registration of the mortgage deed and
the notation thereof on the back of the certificate of title.

I. The action brought by the plaintiff was for the foreclosure of a mortgage in accordance
with the provision of sections 254 to 261 of the Code of Civil Procedure. It was not expressly
alleged in the complaint that the mortgage deed had been registered in accordance with Act No.
496, which was the law applicable in the case of the real property registered under the Torrens
system. A copy of the mortgage deed was attached to the complaint and made a part thereof,
but said copy did not show that the original had been duly registered. In paragraph 3 of the
complaint, however, it was alleged that the mortgage deed had been noted on the back of
transfer certificate of title No. 3335 by the register of deeds of the Province of Occidental
Negros, in accordance with the provisions of the Mortgage Law. This specific allegation is
equivalent to a statement that the mortgage deed had been duly registered.

At the trial of the case, the attorney for the plaintiff did not present the mortgage deed showing
the registration thereof in the registry, or the owner's transfer certificate of title. In their stead the
plaintiff testified that the mortgage had been duly registered in the registry of deeds of
Occidental Negros and had been noted on the back of the transfer certificate of title. The oral
evidence was admitted without any objection on the part of the attorney for the defendants. In
the appealed decision the court held that the plaintiff had failed to substantiate his foreclosure
suit and, not having presented competent evidence, the action arising from his evidence was
merely a personal action for the recovery of a certain sum of money. The plaintiff excepted to
this conclusion and assigns it in his brief as the first error of law committed by the court.

Section 284 of the Code of Civil Procedure requires the contents of a writing to be proven by the
writing itself, except in cases therein specified. Section 313, No. 6, provides that official or public
documents must be proven by presenting the original or a copy certified by the legal keeper
thereof. According to this, the plaintiff was obliged to present the original or a certified copy of
the mortgage deed showing the registration thereof, as well as the owner's transfer certificate of
title. Both would have been the best evidence to prove the registration of the mortgage and the
notation thereof on the back of the title. Had the defendants objected to the oral evidence
offered, there is no doubt that it would have been rejected as incompetent. But it is universally
accepted that when secondary or incompetent evidence is presented and accepted without any
objection on the part of the other party, the latter is bound thereby and the court is obliged to
grant it the probatory value it deserves. (City of Manila vs. Cabangis, 10 Phil., 151; Bersabal vs.
Bernal, 13 Phil., 463; Kuenzle & Streiff vs. Jiongco, 22 Phil., 110; U.S. vs. Choa Tong, 22 Phil.,
562; U.S. vs. Ong Shiu, 28 Phil., 242; De Leon vs. Director of Prisons, 31 Phil., 60; U.S. vs.
Hernandez, 31 Phil., 342; 23 C.J., 39, section 1783, and the cases therein cited; 10 R.C.L.,
1008, paragraph 197, and the cases therein cited.).

Inasmuch as the registration of the mortgage and the notation thereof on the back of the
transfer certificate of title have been established by the oral evidence abovestated, the court
was without authority to conclude that the action was personal in character and, consequently,
the first assignment of error is well founded.

II. The court held that the loan and the mortgage were usurious and illegal for two reasons:
First, because the plaintiff charged compound interest notwithstanding the fact that it had not
been stipulated, and second, because the plaintiff charged interest yearly in advance in
accordance with the agreement. These conclusions are the subject matter of the plaintiff's
second assignment of error.

The plaintiff categorically denied having charged compound interest, stating in his brief that all
the interest charged by him should be applied to the interest unpaid by the defendants. We have
examined Exhibits 8 to 17 of the defendants, which are the evidence offered to establish the fact
that compound interest had been charged, and we have, without any difficulty, arrived at the
conclusion that the plaintiff has really charged said unauthorized and unstipulated interest. If
there is any doubt on this fact, it is dispelled by Exhibit 10, in the handwriting of the plaintiff
himself, wherein it appears that the sum of P33.60 was charged by him on account of interest
on unpaid interest. But the fact of charging illegal interest, although it exceeds the maximum
limit of interest that may be charged, does not make the loan or the mortgage usurious because
the transactions took place subsequent to the execution of said contracts and the latter do not
appear to be void ab initio (66 C.J., pages 243, 244, section 194). Said interest should be
applied first to the payment of the stipulated and unpaid interest and, later, to that of the capital.
(Aguilar vs. Rubiato and Gonzalez Vila, 40 Phil., 570; Go Chioco vs. Martinez, 45 Phil., 256; Gui
Jong & Co. vs. Rivera and Avellar, 45 Phil., 778; Lopez and Javelona vs. El Hogar Filipino, 47
Phil., 249; Sajo vs. Gustilo, 48 Phil., 451.)

The plaintiff admits having charged in advance the interest corresponding to the first year. The
mortgage deed contains the stipulation that the defendants should pay in advance the stipulated
interest corresponding to each year. The court declared the contract usurious for this reason,
basing its opinion upon some American authorities holding the same point of view. This court
cannot adopt said doctrine in this jurisdiction. Section 5 of Act No. 2655, as amended by section
3 of Act No. 3291, expressly permits a creditor to charge in advance interest corresponding to
not more than one year, whatever the duration of the loan. What is prohibited is the charging in
advance of interest for more than one year. Section 6 reiterates said rule in exempting a creditor
found guilty of usury from the obligation to return the interest and commissions collected by him
in advance, provided said interest and commissions are not for a period of more than one year
and the rate of interest does not exceed the maximum limit fixed by law.

This court concludes, therefore, that the second assignment of error is well founded in the
sense that both the loan and the mortgage are not usurious or illegal.

III. In his third assignment of error, the plaintiff contends that the court should have declared
the action for usury interposed by the defendants in their cross-complaint barred by the statute
of limitations, in accordance with the provision of section 6 of Act No. 2655, as amended by
section 4 of Act No. 3291. It is true that according to the evidence more than two years have
already elapsed from the time the defendants paid and the plaintiff received the usurious
interest to the registration of the cross-complaint, but the plaintiff cannot successfully invoke the
defense of prescription because he failed to allege it in his reply to the cross-complaint. In order
that prescription may constitute a valid defense and it may be considered on appeal, it must be
specifically pleaded in the answer and proven with the same degree of certainty with which an
essential allegation in a civil action is established. Otherwise it will not be taken into
consideration, much less if it is alleged for the first time on appeal. (Aldeguer vs. Hoskyn, 2
Phil., 500; Domingo vs. Osorio, 7 Phil., 405; Marzon vs. Udtujan, 20 Phil., 232; Pelaez. Abreu,
26 Phil., 415; Corporacion de PP. Agustinos Recoletos vs. Crisostomo, 32 Phil., 427; Karagdag
vs. Barado, 33 Phil., 529.).

IV. The defendants proved that their attorney's fees were contracted at P3,000. The
evidence has not been contradicted. The amount so fixed is not unreasonable or
unconscionable. In the fourth assignment or error, the plaintiff questions that part of the
judgment ordering him to pay said fees. He contends that he is not responsible for the payment
thereof because neither the loan nor the mortgage is usurious. However, this court has already
stated that the plaintiff violated the Usury Law in charging compound interest notwithstanding
the fact that it has not been so stipulated and that adding these sums to the stipulated interest
the average thereof exceeds the maximum rate of interest that may be charged for the loan
which has been the subject matter of the transaction. This violation falls under the precept of
section 6 of the Usury Law and the plaintiff is obliged to pay the fees of the attorney for the
defendants. This court holds that the fourth assignment or error is unfounded.

V. In the fifth assignment of error, the plaintiff alleges that the judgment is erroneous for not
having declared that the defendants ratified all the obligations contracted by their attorney in
fact. In the sixth assignment or error he contends that an error was likewise committed in not
declaring that by virtue of the authority conferred by the defendants, agent Yulo was authorized
to borrow money and invest it as he wished, without being obliged to apply it necessarily for the
benefit of his principals. In the seventh assignment of error the plaintiff alleges that the court
erred in fixing the capital, which the defendants are obliged to pay him by virtue of the power of
attorney executed by them, at only P14,451.71. In the eighth and last assignment of error, he
insists that the court should have ordered the defendants to pay the entire capital owed, with
interest thereon in accordance with the mortgage deed, together with 10 per cent thereof as
attorney's fees, the action having been instituted due to nonfeasance on the part of the
defendants.

These four assignments of error refer to the interpretation and scope of the power of attorney
and to the computation of the capital and the interest to be paid by the defendants and, finally,
to whether or not be paid by the defendants and, finally, to whether or not the latter are obliged
to pay the fees of the attorney for the plaintiff. For this reason, this court passes upon them
jointly.

The pertinent clauses of the power of attorney from which may be determined the intention of
the principals in authorizing their agent to obtain a loan, securing it with their real property, were
quoted at the beginning. The terms thereof are limited; the agent was thereby authorized only to
borrow any amount of money which he deemed necessary. There is nothing, however, to
indicate that the defendants had likewise authorized him to convert the money obtained by him
to him personal use. With respect to a power of attorney of special character, it cannot be
interpreted as also authorizing the agent to dispose of the money as he pleased, particularly
when it does not appear that such was the intention of the principals, and in applying part of the
funds to pay his personal obligations, he exceeded his authority (art. 1714, Civil Code; Bank of
the Philippine Islands vs. De Coster, 47 Phil., 594 and 49 Phil., 574). In cases like the present
one, it should be understood that the agent was obliged to turn over the money to the principals
or, at least, place it at their disposal. In the case of Manila Trading & Supply Co. vs. Uy Tiepo
(G.R. No. 30339, March 2, 1929, not reported), referring to a power of attorney to borrow any
amount of money in cash and to guarantee the payment thereof by the mortgage of certain
property belonging to the principals, this court held that the agent exceeded his authority in
guaranteeing his personal account for automobile parts by the mortgage, not having been
specially authorized to do so. This court then said:

"Inasmuch as Jose S. Uy Tiepo, as agent of Daniel Ramos and Emilio Villarosa, was only
authorized to 'borrow any amount of cash', and to guaranty the payment of the sums of money
so borrowed by the mortgage of the property stated in the power of attorney, he exceeded the
authority conferred upon him in mortgaging him principal's property to secure the payment of his
personal debt for automobile parts, and the guaranties so made are null and void, the principals
in question not being responsible for said obligations."

The plaintiff contends that the agent's act of employing part of the loan to pay his personal debts
was ratified by the defendants in their letter to him dated August 21, 1927 (Exhibit E). This court
has carefully read the contents of said document and has found nothing implying ratification or
approval of the agent's act. In it the defendants confined themselves to stating that they would
notify their agent of the maturity of the obligation contracted by him. They said nothing about
whether or not their agent was authorized to use the funds obtained by him in the payment of
his personal obligations.

In view of the foregoing, this court concludes that the fifth and sixth assignments of error are
unfounded.
In the seventh assignment of error, the plaintiff insists that the defendants should answer for the
entire loan plus the stipulated interest thereon. This court has already stated the manner in
which the agent employed the loan, according to the plaintiff. Of the loan of P28,000, the agent
applied the sum of P10,188.29 to the payment of his personal debt to the plaintiff. The balance
of P17,811.71 constitutes the capital which the defendants are obliged to pay by virtue of the
power conferred upon their agent and the mortgage deed.

In connection with the stipulated interest, it appears that the capital of P17,811.71 bore interest
at 12 per cent per annum from March 277, 1926, to September 30, 1936, equivalent to
P22,460.56. All the interest paid by the defendants to the plaintiff, including that which is
considered indebted in said concept in the sum of P4,321.79. Adding this sum to the capital of
P17,811.71, makes a total of P22,133.50, from which the sum of P3,000 constituting the fees of
the attorney for the defendants must be deducted, defendants must pay to the plaintiff up to said
date.

The foregoing disposes of the seventh assignment of error.

In the mortgage deed the defendants bound themselves to pay the fees of the attorney for the
plaintiff in case they failed to comply with the terms thereof or pay the land tax, or the plaintiff
were to resort to the courts to foreclose the mortgage. Said fees were fixed at 10 per cent of the
capital which the defendants might owe. This penalty, according to what has been stated
heretofore, amounts to P1,781,17 which would have to be added to the total amount to be paid
to the plaintiff by the defendants. The court, having declared the contracts usurious, did not
order the defendants to pay the penalty and for this reason the plaintiff assigns the omission as
the eighth and last assignment of alleged error. Inasmuch as the fees agreed upon are neither
excessive nor unreasonable, this court finds no good reason to disapprove it, particularly
because the defendants were also granted a larger amount in the same concept.

In view of the conclusions arrived at, the motion for a new trial filed by the attorneys for the
plaintiff on March 12, 1935, is denied, and the amendments to the complaint proposed by them
in their pleading of March 20 of said year are admitted.

For all the foregoing reasons, the appealed judgment is modified and the defendants are
ordered to pay jointly and severally to the plaintiff the sums of P19,133.50 and P1,781.17.
Within three months they shall make payment of said two sums of money or deposit them with
the clerk or court, at the disposal of the plaintiff, upon failure to do which the real property
mortgaged with the improvements thereon shall be sold at public auction and the proceeds
thereon applied to the payment of the two sums of money above-stated; without special
pronouncement as to the costs of this instance. So ordered.

Avanceña, C.J., Villa-Real, Abad Santos, Diaz and Laurel, JJ., concur.

RESOLUTION UPON MOTION FOR RECONSIDERATION

December 29, 1936

IMPERIAL, J.:
The motion for reconsideration presented by the appellees is based upon three grounds: (1)
That the capital for which they must answer to the appellant should be only P16,422.39, not
P17,811.71 as stated in the decision; (2) that the computation of the payments made is
incorrect, and (3) that the oral evidence relative to the registration of the mortgage is insufficient.

I. It is claimed that as the true capital for which the appellees were held responsible
amounts only to P16,422.39, excluding the sum of P3,360 paid in advance as interest
corresponding to the first year, this latter sum should not be paid in its entirety by the appellees
but only that part thereof in proportion to the capital owed. The contention is without any
foundation because, as was already stated in the decision, the agent was expressly authorized
to borrow and receive the total amount of P28,000. On the other hand, as it was stipulated that
the interest should be paid annually in advance, it is evident and just that the entire sum of
P3,360 representing said interest be paid by the appellees who contracted the debt through an
agent. The fact that after the contract had been consummated and the interest for the first year
paid, the agent, exceeding his authority, unduly used part of the funds intrusted to him, does not
relieve the appellees of their obligation to answer for the entire interest for the first year. For this
reason, this court declares that the first ground is unfounded.

II. In the computation of the interest paid by the appellees and of that which they should
pay to the appellant by virtue of the terms of the contract, this court proceeded to determine the
time that elapsed from the date the contract became effective and debited to the appellees the
interest at the rate agreed upon, deducting therefrom what they had paid in said concept,
including the interest paid by them for the first year because the computation commenced from
the date fixed in the contract, which is March 27, 1926. The difference represents the interest
unpaid by the appellees up to September 30, 1936, considered by this court as the date on
which the appellees' account with the appellant was finally liquidated and closed, and added to
the capital they represent the amount appearing in the decision. This court sees no error of
accounting in this computation.

III. The appellees insist that the oral evidence upon which this court based its opinion in
declaring that the mortgage deed is registered, is insufficient. What has been said in the
decision on this point is so clear and understandable that this court believes itself relieved from
the obligation of reproducing it. There is no merit in the last ground of the motion.

In answering the appellees' motion for reconsideration, the appellant likewise seeks
reconsideration of the decision, alleging that he is entitled to a larger amount. Without going into
details, because this court deems it unnecessary, it is held that the appellant is not entitled to
ask for reconsideration of the decision of the ground that his petition to that effect has been filed
too late, after the decision in question became final with respect to him.

The appellees' motion for reconsideration is denied.

Avanceña, C.J., Villa-Real, Abad Santos, Diaz and Laurel, JJ., concur.

C o p y r i g h t 1 9 9 4 - 1 9 9 9 C D T e c h n o l o g i e s A s i a, I n c.
[G.R. No. 29917. December 29, 1928.]

JOSE M. KATIGBAK, plaintiff-appellee, vs. TAI HING CO., defendant. PO SUN SUY and PO
CHING, appellants.

Kapunan & Kapunan, for intervenor-appellants.

Vicente Sotto, for appellee.

SYLLABUS

1. LESSOR AND LESSEE; ACTION FOR RECOVERY OF RENT; JURISDICTION. — An

action for the recovery of rent is a personal action, and as such is transitory and may be
instituted in the province where the defendant or the plaintiff resides, at the election of the
plaintiff (sec. 377, Act No. 190; Boga Tan Chiao Boc vs. Sajo Vecina, 11 Phil., 409). With
respect to the collection of rents in the case at bar, the Court of First Instance of Manila had
jurisdiction to try the action instituted to that end.

2. ID.; ID.; ID. — The intervenors having submitted to the jurisdiction of the court by filing a
third-party claim, in which they raised the question of ownership of the premises, the rent of
which it is sought to recover, they cannot consistently object to the exercise of said jurisdiction.

3. PRINCIPAL AND AGENT; GENERAL POWER OF ATTORNEY. — The power of

attorney given by the principal authorized the agent to sell any kind of realty that "might belong"
.to the principal. The use of the subjunctive "pertenezcan" (might belong) and not the indicative
"pertenecen" (belong) means that the authority given by the principal referred not only to the
property he had at the time the power was conferred, but also to such as he might afterwards
have during the time it was in force. (2 Corpus Juris, 614.)

4. ID.; ID.; POWER OF ATTORNEY NOT RECORDED IN REGISTRY OF DEEDS. —

While it is true that a power of attorney not recorded in the registry of deeds is ineffective in
order that an agent or attorney-in-fact may validly perform acts in the name of his principal, and
that any act performed by the agent by virtue of said power with respect to the land is ineffective
against a third person who, in good faith, may have acquired a right thereto, it does, however,
bind the principal to acknowledge the acts performed by his attorney-in-fact regarding said
property. (Sec. 50, Act No. 496.)

DECISION

VILLA-REAL, J p:

Po Sun Suy and Po Ching appeal to this court from the judgment of the Court of First Instance
of Manila, the dispositive part of which is as follows:

"1. Ordering the defendants Po Sun Suy and Po Ching, as lessees of the realty, to pay the
plaintiff the sum of P28,500, with legal interest from the filing of the complaint.
"2. Ordering the estate of the deceased Po Tecsi to pay the defendants Po Sun Suy and Po
Ching, that they may, in turn, pay the plaintiff upon this judgment the sum which represents the
rents of the property unduly collected from the occupants of said property by Po Tecsi while
alive and by his administrator Po Sun Suy after his death, and not paid to the plaintiff either by
Po Tecsi, father of the defendant Po Sun Suy, or by the latter, or by defendant Po Ching. Said
sum thus collected, according to the testimony of the defendant Po Sun Suy (p. 147, t. s. n.) is
P745, per month, which, for nineteen months, amounts to P14,155. The balance of the rents,
that is, the difference between the sum of P1,500 for which the property was leased by the
plaintiff to the defendants, and P745 which is the sum collected from the occupants of the
property each month by Po Tecsi and by the administrator of his estate must be for the account
of the defendants; and

"3. Ordering the defendants and the intervenor each to pay one-third of the costs of the
action."

In support of their appeal the appellants assign seventeen errors which we shall take up in the
course of this decision.

The following facts have been proven by a preponderance of the evidence:

Gabino Barreto Po Ejap was the owner, with a Torrens title, of the land in litigation, with the
improvements thereon. This realty was subject to a mortgage lien in favor of the Philippine
National Bank, executed on May 5, 1919, to secure the payment of the sum of P60,000 with 7
per centum interest per annum. (Exhibit 9.)

On November 29,1921, Po Tecsi executed a general power of attorney in favor of his brother
Gabino Barreto Po Ejap, empowering and authorizing him to perform on his behalf and as his
lawful agent, among other acts, the following: "To buy, sell, or barter, assign or admit in
acquittance, or in any other manner to acquire or convey all sorts of property, real and personal,
businesses and industries, credits, rights, and actions belonging to me, for whatever prices and
under the conditions which he may stipulate, paying and receiving payment in cash or in
installments, and to execute the proper instruments with the formalities provided by the law."
(Exhibit A.)

On December 15, 1921, Po Tecsi executed an instrument acknowledging an indebtedness to

his brother Gabino Barreto Po Ejap in the sum of P68,000, the price of the properties which the
latter had sold to him. (Exhibit U-1.)

On March 31, 1923, Gabino Barreto Po Ejap executed a second mortgage on the aforesaid land
with its improvements, in favor of Antonio M. H. Limjenco for the sum of P140,000 and interest
at 10 per centum per annum. ( Exhibit 9.)

On April 17, 1923, Gabino Barreto Po Ejap, sold the said land with its improvements to his
brother Po Tecsi for the sum of P10,000, subject to the same encumbrances. (Exhibit 9.)

On November 22,1923, Gabino Barreto Po Ejap, making use of the power conferred on him by
his brother Po Tecsi, sold absolutely and forever to the herein plaintiff-appellee Jose M.
Katigbak, the aforesaid land with its improvements for the sum of P10,000, mentioning in the
instrument executed to that end only the mortgage lien of P60,000 in favor of the Philippine
National Bank, and without recording either his power of attorney or the sale in the proper
certificate of title. Notwithstanding said sale Po Tecsi remained in possession of said property.

On October 22, 1924, Po Tecsi leased a part of said land to Uy Chia for a period of five years
from October 1, 1923. The contract drawn up to that end was recorded in the proper certificate
of title. (Exhibits 2 and 9.) On August 124, 1924, Po Tecsi wrote to his brother Gabino Barreto
Po Ejap complaining that he had been after him so much for the forwarding of the rents of the
property and explaining his precarious financial condition, telling him that he did not collect the
rents for himself, and promising to remit the balance after having paid all expenses of repairs
and cleaning up, together with the vouchers, so he could not blame him for anything. (Exhibits
M and M-1.)

In November, 1925, Po Tecsi, answering his brother Gabino Barreto Po Ejap, wrote to the latter
telling him that in the month of October, 1925, he had sent him a draft for the sum of P2,000,
and was therefore surprised that he claimed said rent. In said reply Po Tecsi also told his
brother Gabino Barreto Po Ejap that if he wanted to lease the property in question to Smith Bell
& Co., he should not do so without first consulting him, because if someone ordered him a
higher rent he wanted to exercise his right to lease it. (Exhibits N and N-1.)

On February 27,1925, the mortgage on the land in question in favor of Antonio M. H. Limjenco
for P140,000 was cancelled, the cancellation being recorded on the proper certificate of title on
June 11, 1927. (Exhibits X and 9.)

Po Tecsi died on November 26, 1926.

In December, 1926, Po Sun Suy, Po Tecsi's son, submitted to Gabino Barreto Po Ejap a
liquidation of accounts showing the rents collected on the property up to that month. ( Exhibit P.)

On February 11, 1927, Po Sun Suy was appointed administrator of the estate of his deceased
father, submitting an inventory in which he included the land in discussion as one of the
properties left by his deceased father, and obtaining the transfer of the certificate of title in his
name as said administrator.

On February 14, 1927, Po Sun Yao alias Po Sun Suy, answering a letter from his uncle Gabino
Barreto Po Ejap, told the latter that times were bad, because the price of hemp had slumped,
and the plantations had suffered damages, and begged him to let him pay the rent later.
(Exhibits C and C-1.)

On February 11,1927, Gabino Barreto Po Ejap executed an instrument in favor of his son Po
Sun Boo, assigning to him all his rights and actions in the credit of P68,000 against Po Tecsi.
(Exhibit U.)

On May 22, 1927, Jose M. Katigbak sold the property in question to Po Sun Boo for the sum of
P10,000. (Exhibit J.)
On May 27, 1927, Po Sun Boo notified Po Sun Suy and Po Ching that he had purchased the
land they occupied and that from that date they were to deal with him concerning the payment
of the rents thereof. (Exhibit I.)

Ever since the property in discussion had been sold by Gabino Barreto Po Ejap to Jose M.
Katigbak, the former had administered it, entering into an oral contract of lease with Po Tecsi,
who occupied it at a monthly rental of P1,500, payable in advance on the first day of each
month. Later on, when Po Tecsi died, Po Sun Suy, as administrator of the estate of his father
Po Tecsi, continued renting said land on which stood Po Ching's store.

As Po Tecsi had not paid a part of the rent due up to the time of his death, and Po Sun Suy, his
son, the rent due from his father's death until Jose M. Katigbak transferred the ownership
thereof to Po Sun Boo on May 23, 1927, the present action was brought in the Court of First
Instance of Manila for the recovery of said rent which amounts to P45,280, first against the
commercial firm Tai Hing Co., and later against the members of said firm, Po Sun Suy and Po
Ching, by an amendment to the original complaint.

Po Sun Suy, as the judicial administrator of the estate of his deceased father Po Tecsi, filed an
intervention praying that judgment be rendered against Jose M. Katigbak, the plaintiff, declaring
him not to be the owner of the property described in the second paragraph of the complaint and,
therefore, not entitled to the rents of the property in question.

The first question to be determined in the present appeal is one of procedure, and that is
whether or not the trial court had jurisdiction to try the case on its merits.

The appellants contend that they as intervenors, having raised the question of ownership, the
solution of which is necessary for the determination of the question of rent, the Court of First
Instance of Manila had no jurisdiction to try the case, the properties in question being situated in
the municipality of Tacloban, Province of Leyte.

An action for the recovery of rent is a personal action, and as such is transitory and may be
instituted in the province where the defendant or the plaintiff resides, at the election of the
plaintiff (sec. 377, Act No. 190; Boga Tan Chiao Boc vs. Sajo Vecina, 11 Phil., 409). With
respect' to the collection of rents, then, the Court of First Instance of Manila and Jurisdiction to
try the action Institutes to that end.

The question of ownership was raised by the intervenors who thereby submitted to the
jurisdiction of the Court of First Instance of Manila and, according to the doctrine laid down in
the case of Manila Railroad Company vs. Attorney-General (20 Phil., 523), a Court of First
Instance having full and unlimited jurisdiction over realty situated in the Philippine Islands, a
Court of First Instance of a province may try a case concerning realty situated in another
province so long as no objection is entered to said court's exercise of its jurisdiction. The
intervenors having submitted to the jurisdiction of the court by filing a third-party claim, in which
they raised the question of ownership of the premises, the rent of which it is sought to recover,
they cannot consistently object to the exercise of said jurisdiction.
Having decided the question 4f the court's jurisdiction with respect to the venue, we shall pass
on to the question of the ownership of the land involved herein.

In the first place, it is contended by the appellants that Gabino Barreto Po Ejap was not
authorized under the power executed by Po Tecsi in his favor to sell said land, for the reason
that said power had been executed before Gabino Barreto Po Ejap sold said land to his brother
Po Tecsi.

We do not think that on this point the pertinent part of the power of attorney we have quoted
above could give rise to any doubt. The power is general and authorizes Gabino Po Ejap to sell
any kind of realty "belonging" (pertenezcan) to the principal. The use of the subjunctive
"pertenezcan" (might belong) and not the indicative "pertenecen" (belong), means that Po Tecsi
meant not only the property he had at the time of the execution of the power, but also such as
he might afterwards have during the time it was in force. (2 Corpus Juris, p. 614.)

The appellants also contend that said power of attorney not having been registered, in the
registry of deeds, the authority granted therein to sell realty registered in accordance with the
Torrens system is ineffective, and the sale of the property in question made by Gabino Barreto
Po Ejap in favor of Jose M. Katigbak by virtue of said power has no more effect than that of a
contract to transfer or sell.

Inasmuch as in accordance with section 39 of said Act No. 496, "Every applicant receiving a
certificate of title in pursuance of a decree of registration, and every subsequent purchaser of
registered land who takes a certificate of title for value in good faith, shall hold the same free of
all incumbrance except those noted on said certificate," every document which in any manner
affects the registered land is ineffective unless it is recorded in the registry of deeds. But such
inefficacy only refers to third persons who, in good faith, may have acquired some right to the
registered land.

While it is true that a power of attorney not recorded in the registry of deeds is ineffective ;n
order that an agent or attorney-in-fact may validly perform acts in the name of his principal, and
that any act performed by the agent by virtue of said' power with respect to the land is
ineffective against a third person who, in good faith, may have acquired a right thereto, it does,
however, bind the principal to acknowledge the acts performed by his attorney-in-fact regarding
said property (sec. 50, Act No. 496).

In the present case, while it is true that the non-registration of the power of attorney executed by
Po Tecsi in favor of his brother Gabino Barreto Po Ejap prevents the sale made by the latter of
the litigated land in favor of Jose M. Katigbak from being recorded in the registry of deeds, it is
not ineffective to compel Tecsi to acknowledge said sale.

From the fact that said power and sale were not recorded in the registry of deeds, and from the
omission of any mention in the deed of sale of the mortgage lien in favor of Antonio M. H.
Limjenco, and the lease of a part of said land in favor of Uy Chia, the appellants deduce that
said sale is fraudulent.
The record contains many indications that Po Tecsi was not unaware of said sale. His several
letters complaining of the pressing demands of his brother Gabino Barreto Po Ejap to send him
the rents of the land, his promises to send them to him, and the remittance of the same were a
tacit acknowledgment that he occupied the land in question no longer as an owner but only as
lessee.

The appellants have tried to explain the remittance of said rents to Gabino Barreto Po Ejap by
Po Tecsi, saying that they were in payment of a debt which the latter owed the former for certain
property which said Gabino Barreto Po Ejap had sold to Po Tecsi. But there is nothing in any of
said letters to indicate that said rents were sent on account of said debt.

The appellants deny that there has been any contract of lease between Po Tecsi and Gabino
Barreto Po Ejap of the lands in question, for the reason that there exists no document to
evidence it. The evidence is clear that the rents were payable in advance on the first day of
each month. If this is so, then there is no need of a contract to prove the existence of the lease.

Upon the death of Po Tecsi on November 26, 1926, his son Po Sun Suy succeeded him in the
possession of the land and was appointed administrator of his father's estate on February 11,
1927. On February 14, 1927, he wrote to his uncle, Gabino Barreto Po Ejap, in answer to the
latter's letter to send him what he collected of the rents of the house, saying that the price of
hemp had suddenly dropped, his motor boat had been grounded, and his abaca plantations had
suffered damages, promising to send the rents later on.

Po Tecsi occupied the land as lessee from November 22, 1923, until his death on November 26,
1926, having paid up the rents accrued until October 22, 1926, and leaving unpaid the rents due
and accrued from that date until his death, at the rate of P1,500 per month. From the latter date
his son Po Sun Suy was appointed administrator of the estate of his father Po Tecsi, and
continued to collect the rents of said land from the lessees, amounting to P745.

It does not clearly appear from what date the land was leased to the defendants Po Sun Suy
and Po Ching for the sum of P1,500 a month. If Po Tecsi had rented it until his death, then the
defendants Po Sun Suy and Po Ching could not have rented it until after the death of Po Tecsi.

The rights of the sub-lessee Uy Chia, whose lease for five years from October 1, 1923, was duly
recorded in the registry of deeds, are valid, for it does not appear that he had any knowledge of
the sale of the subleased property in favor of Jose M. Katigbak, which sale, as we have said,
has not been recorded in the registry of deeds and cannot, therefore, affect the rights of third
persons acquired in good faith and duly registered.

To summarize, then: the sale made on November 22, ]923, by Gabino Barreto Po Ejap, as
attorney-in-fact of Po Tecsi, in favor of Jose M. Katigbak of the land in question is valid; after
said sale, Po Tecsi leased the property sold, from Gabino Barreto Po Ejap, who administered it
in the name of Jose M. Katigbak, at a rental of P1,500 per month, payable in advance, leaving
unpaid the rents accrued from that date until his death which occurred on November 26, 1926,
having paid the accrued rents up to October 22, 1925; from November 26, 1926, the defendants
Po Sun Suy and Po Ching leased said land for the sum of P1,500 per month; on February 11,
1927, Po Sun Suy was appointed administrator of the estate of his father Po Tecsi, and filed
with the court an inventory of said estate including the land in question; and on May 23,1927,
Jose M. Katigbak sold the same property to Po Sun Boo.

The claim for rents due and unpaid by Po Tecsi, deceased, and proceedings for the settlement
of whose estate have been instituted, should be presented to the committee on claims and
appraisal appointed in said intestate proceeding in accordance with the provisions of section
703 of the Code of Civil Procedure and cannot be collected by an ordinary action.

As to the rents accrued and unpaid since the death of Po Tecsi, his son Po Sun Suy, as
administrator of his property, having included said property in the inventory of the latter, the
same is in custodia legis, and hence, the rents collected by said administrator of said property
are also in custodia legis. The claim then of Jose M. Katigbak for the rents accrued and unpaid
up to the date when said property was sold to Po Sun Boo, as well as the accrued and unpaid
rents from the time the latter acquired it up to the present date, must be presented in the court
taking cognizance of the intestate proceeding for the settlement of Po Tecsi's estate.

For the foregoing, we are of opinion and so hold: (1) That Jose M. Katigbak was the absolute
owner of the property in controversy, subject to the encumbrances on the same appearing in the
registry of deeds; (2) that his claim for the rents of the property in litigation accrued and unpaid
by Po Tecs; before his death must be presented to the committee on claims and appraisal
appointed in the intestate proceedings for the settlement of the estate of said Po Tecsi; (3) that
the claim of Jose M. Katigbak for the rents of the said property collected by Po Sun Suy, as
administrator of the property of the intestate estate of his father Po Tecsi, must be presented to
the court having cognizance of said intestate proceeding. By virtue whereof, and with the
modifications above indicated, the judgment appealed from is affirmed, without special
pronouncement as to costs. So ordered.

Avanceña, C.J., Johnson, Villamor, Ostrand, Johns and Romualdez, JJ., concur.

[G.R. No. 70909. January 5, 1994.]

CONCHITA T. VDA. DE CHUA, THELMA CHUA, assisted by her husband, CHARLIE DY,
CHARLITO CHUA, REYNALDO CHUA, SUSAN CHUA, ALEX CHUA, EDDIE CHUA, SIMON
CHUA, and ERNESTO CHUA, petitioners, vs. THE INTERMEDIATE APPELLATE COURT,
VICENTE GO, VICTORIA T. GO, and HERMINIGILDA HERRERA, respondents.

SYLLABUS

1. CIVIL LAW; AGENCY; SPECIAL POWER OF ATTORNEY; REQUIRED FOR LEASE

OF REAL PROPERTY TO ANOTHER PERSON FOR A PERIOD OF MORE THAN ONE YEAR.
— The lease contract, the linchpin of petitioners' cause of action, involves the lease of real
property for a period of more than one year. The contract was entered into by the agent of the
lessor and not the lessor herself. In such a case, the law requires that the agent be armed with
a special power of attorney to lease the premises.

2. ID.; LEASE; EFFECT WHEN LESSOR ALLOWS LESSEE TO CONTINUE

OCCUPYING THE LEASED PREMISES AFTER THE EXPIRATION OF THE LEASE
CONTRACT; RULE. — It is true that respondent Herrera allowed petitioners to occupy the
leased premises after the expiration of the lease contract and under Article 1670 of the Civil
Code of the Philippines, a tacit renewal of the lease (tacita reconduccion) is deemed to have
taken place. However as held in Bernardo M. Dizon v. Ambrosio Magsaysay, 57 SCRA 250
(1974), a tacit renewal is limited only to the terms of the contract which are germane to the
lessee's right of continued enjoyment of the property and does not extend to alien matters, like
the option to buy the leased premises. We held: "This is a reasonable construction of the
provision, which is based on the presumption that when the lessor allows the lessee to continue
enjoying possession of the property for fifteen days after the expiration of the contract he is
willing that such enjoyment shall be for the entire period corresponding to the rent which is
customarily paid — in this case up to the end of the month because the rent was paid monthly.
Necessarily, if the presumed will of the parties refers to the enjoyment of possession, the
presumption covers the other terms of the contract related to such possession, such as the
amount of rental, the date when it must be paid, the care of the property, the responsibility for
repairs, etc. But no such presumption may be indulged in with respect to special agreements
which by nature are foreign to the right of occupancy or enjoyment inherent in a contract of
lease."

3. REMEDIAL LAW; COURT OF FIRST INSTANCE (NOW REGIONAL TRIAL COURT);

HAS JURISDICTION OVER ACTIONS FOR POSSESSION OF REAL PROPERTY OR ANY
INTEREST THEREIN; REASON THEREOF; CASE AT BAR. — Petitioners question the
jurisdiction of the trial court in Civil Case No. R-16589 in ordering their ejectment from the
leased premises and the removal of the improvements introduced thereon by them. They claim
that the action in Civil Case No. R-16589 was for the annulment of the sale of the property by
defendant Herrera to defendants-spouses Go, and not an appropriate case for an ejectment.
The right of possession of petitioners of the leased premises was squarely put in issue by
defendants-spouses Go in their counterclaim to petitioner's complaint, where they asked that ". .
. the plaintiffs should vacate their premises as soon as feasible or as the Honorable Court may
direct." The said counterclaim in effect was an accion publiciana for the recovery of the
possession of the leased premises. Clearly the Court of First Instance had jurisdiction over
actions which involve the possession of real property or any interest therein, except forcible
entry and detainer actions (Section 44[b], Judiciary Act of 1948). A counterclaim is considered a
complaint, only this time, it is the original defendant who becomes the plaintiff. It stands on the
same footing and is to be tested by the same rules as if it were an independent action. Hence,
the same rules on jurisdiction in an independent action apply to a counterclaim.

DECISION

QUIASON, J p:
This is an appeal by certiorari under Rule 45 of the Revised Rules of Court from the decision of
the Court of Appeals in AC-G.R. CV No. 67692 entitled "Conchita Vda. de Chua, et al. v.
Hermenigilda Herrera, et al.," affirming with modification the decision of the Court of First
Instance of Cebu in Civil Case No. R-16589. Cdpr

The facts as found by the Court of Appeals, are summarized as follows:

"Sometime in 1950, defendant Herminigilda Herrera executed a Contract of Lease (Exh. "A") in
favor of Tian On (sic) (or Sy Tian On) whereby the former leased to the latter Lots Nos. 620 and
7549 containing an area of 151 square meters, located at Manalili Street (now V. Gullas Street)
Cebu City, for a term of ten (10) years, renewable for another five (5) years. The contract of
lease (Exh. "A") contains a stipulation giving the lessee an option to buy the leased property
(Exh. A-2) and that the lessor guarantees to leave the possession of said property to the lessee
for a period of ten (10) years or as long as the lessee faithfully fulfills the terms and conditions of
their contract (Exh. A-5). Cdpr

In accordance with the said contract of lease, the lessee, Tian On, erected a residential house
on the leased premises.

On February 2, 1954, or within four (4) years from the execution of the said contract of lease
(Exh. "A"), the lessee, Sy Tian On, executed a Deed of Absolute Sale of Building (Exh. "B") in
favor of Chua Bok, the predecessor-in-interest of the plaintiffs herein, whereby the former sold
to the latter the aforesaid residential house for and in consideration of the sum of P8,000.00.
Pertinent provisions of this deed of sale (Exh. "B") read as follows:

'. . . . That with the sale of the said house and as a legal consequence, I hereby assign all my
rights and privileges as a lessee of the lot on which the said building is constructed together with
its corresponding obligations as contained and expressly stipulated in the Contract of Lease
executed in 1950 between myself and the lot owner, Herminigilda Herrera, to the said vendee,
Chua Bok who hereby accepts the said assignment of the said lease and hereby promises and
bind himself to abide by all the terms and conditions thereof, a copy of the Lease Contract is
hereby attached as Appendix "A" and made a part hereof. LLpr

'That the present sale is made with the knowledge and express consent of the lot-owner and
lessor, Herminigilda Herrera who is represented herein by her attorney-in-fact, Vicenta R. de
Reynes who hereby also honors the annulment of the lease made by Sy Tian On in favor of
Chua Bok, and hereby promises and binds herself to respect and abide by all the terms and
conditions of the lease contract which is now assigned to the said Chua Bok.

IN WITNESS WHEREOF, the parties have hereunto affixed their signatures on this 2nd day of
February 1954, in the City of Cebu, Philippines.

(Sgd.) CHUA BOK

Vendee-Lessee-Assignee

(Sgd.) SY TIAN ON
Vendor-Lessor-Assignor

HERMINIGILDA HERRERA

By:

(Sgd.) VICENTA R. DE REYNES

Attorney-in-fact

Lot-owner-Lessor

SIGNED IN THE PRESENCE OF:

(Sgd.) ILLEGIBLE

AND

(Sgd.) ILLEGIBLE

After the said sale transaction, Chua Bok and his family (plaintiffs herein) resided in the said
residential building and they faithfully and religiously paid the rentals thereof.

When the Original Contract of Lease expired in 1960, Chua Bok and defendant Herminigilda
Herrera, through her alleged attorney-in-fact executed the following —

'CONTRACT OF LEASE

THIS CONTRACT OF LEASE made and entered into this ___ day of August, 1960, in the City
of Cebu, Philippines, by and between:

HERMINIGILDA HERRERA, of legal age, single, Filipino and a resident of Cebu City,
Philippines, hereinafter known as Party of the First Part;

and

CHUA BOK of legal age, married and resident of Cebu City, Philippines, hereinafter known as
the Party of the Second Part.

WITNESSETH:

That the Party of the First Part who is the owner of a parcel of land located at Manalili Street,
Cebu City containing of an area of about 151 (One Hundred Fifty-One) square meters, more or
less, known as Lot. No. ____ of the Cadastral Survey of Cebu, hereby lets and leases unto the
Party of the Second Part who hereby accepts in lease the above mentioned lot under the
following terms and conditions:

1. That the term of this contract shall be for a period of FIVE (5) years from August 1, 1960
to August 1, 1965, at a monthly rental of SIXTY PESOS (P60.00) Philippine Currency;
2. That the rental of P60.00 will be paid within the first 10 days of every month, to the Party
of the First Part without express demand and in advance;

xxx xxx xxx

4. That the Party of the Second Part is given an option to buy the said leased premises if
he is qualified and when the Party of the First Part decides to sell the same and that the Party of
the Second Part is also given the option to renew the Contract of Lease upon terms and
conditions to be agreed by both parties;

xxx xxx xxx

6. That it is hereby expressly reserved that should the property leased be sold by the Party
of the First Part to any other party, the terms and conditions of this Contract shall be valid and
will continue for the duration of this contract. The Third Party shall be expressed (sic) bound to
respect the terms of this Contract of Lease;

xxx xxx xxx

That the parties herein, do hereby mutually and reciprocally stipulate that they will comply with
the terms and conditions herein before set forth. That the Party of the First Part hereby (sic)
these presents guarantees that she will leave the property in the possession of the Party of the
Second Part for five (5) years or as long as the Party of the second Part faithfully fulfills with the
terms and conditions herein set forth.

IN WITNESS WHEREOF, we have hereunto affixed our signatures on this 9th day of
September, 1960, in the City of Cebu, Philippines. prcd

(Sgd.) CHUA BOK

Party of the Second Part

HERMINIGILDA HERRERA

By: Party of the First Part

(Sgd.) VICENTA R. DE REYNES

Attorney-in-Fact

SIGNED IN THE PRESENCE OF:

(Sgd.) ILLEGIBLE

(Sgd.) B.E. SUN'

After the expiration of the contract of lease in question (Exh. "C") the plaintiffs herein, who are
the successors-in-interest of Chua Bok (who had meanwhile died) continued possession of the
premises up to April 1978, with adjusted rental rate of P1,000.00 (Exh. "D"); later readjusted to
P2,000.00.

On July 26, 1977, defendant Herrera through her attorney-in-fact, Mrs. Luz M. Tormis, who was
authorized with a special power of attorney, sold the lots in question to defendants-spouses,
Vicente and Victoria Go. The defendants-spouses were able to have aforesaid sale registered
with the Register of Deeds of the City of Cebu and the titles to the two parcels of land were
transferred in their names (Exhs. "5-Herrera", or "5-Go" and "6-Herrera" or "6-Go").

Thereafter, or on November 18, 1977, plaintiffs filed the instant case seeking the annulment of
the said sale between Herminigilda Herrera and spouses Vicente and Victoria Go, alleging that
the conveyance was in violation of the plaintiffs' right of option to buy the leased premises as
provided in the Contract of Lease (Exh. "C") and that the defendants-spouses acted in bad faith
in purchasing the said lots knowing fully well that the said plaintiffs have the option to buy those
lots.

After due trial, the lower court rendered judgment, the dispositive portion of which reads as
follows:

"WHEREFORE, in view of the foregoing, this Court ORDERS:

1) The DISMISSAL of plaintiffs' complaint, as against defendant spouses GO;

2) The plaintiffs to VACATE Lot No. 620 and Lot No. 7549, ownership over which by
defendants Vicente and Victoria T. Go being found valid and legitimate, and to peacefully turn
over the same to said spouses, and to REMOVE the building thereon at plaintiffs' own expense,
or such removal may be done by the declared land-owners, likewise at plaintiffs' expense.

3) Defendant Herrera to pay the spouses Go, the sum of P15,000.00 as reimbursement to
them for what they already paid to their lawyer;

4) Defendant Herrera to pay plaintiffs the sum of P50,000.00 (later reduced to P20,000.00,
on motion of defendant Herrera, which the court a quo granted) in concept of moral damages
suffered by the latter; and

5) Defendant Herrera to pay the costs of the proceedings (Record on Appeal, pp. 229-230)"
(Rollo, pp. 63-68).

Plaintiffs and defendant Herrera appealed from the decision of the trial court to the Court of
Appeals.

In said court, plaintiffs-appellants claimed that the trial court erred: (a) in dismissing their
complaint as against defendants-spouses Go, (b) in ordering them to vacate the lots in question
and to remove the improvements they had introduced in the premises, and (c) in ordering the
execution of the judgment pending appeal. Defendant-appellant Herrera, on her part, claimed
that the trial court erred in ordering her to pay P15,000.00 as attorney's fees to defendants-
spouses Go and P50,000.00 as moral damages to plaintiffs-appellants. prcd
The Court of Appeals affirmed with modification the decision of the trial court, thus:

"WHEREFORE, premises considered the appealed decision is hereby MODIFIED by eliminating

the award of P20,000.00 moral damages in favor of the plaintiffs-appellants, the award of
P15,000.00 attorney's fees in favor of defendants-appellees (Go spouses) and the costs of the
proceedings. In all other respects the appealed decision is hereby AFFIRMED" (Rollo, p. 78).
prcd

In their petition filed with us, petitioners (plaintiffs-appellants in AC-G.R. CV No. 67692) gave up
their demand for the nullification of the sale of the lots in question to respondent-spouses Go
and limited their appeal to questioning the affirmance by the Court of Appeals of the decision of
the trial court, ordering their ejectment from the premises in question and the demolition of the
improvements introduced thereon.

In support of their right to possess the premises in question, petitioners rely on the contract of
lease (Exh. "C") entered into by and between Chua Bok and Vicenta R. de Reynes, as attorney-
in-fact of respondent Herrera, as well as on the tacit renewal thereof by respondent Herrera
(Rollo, pp. 35-48).

In declaring the contract of lease (Exh. "C") void, the Court of Appeals noted that Vicenta R. de
Reynes was not armed with a special power of attorney to enter into a lease contract for a
period of more than one year.

We agree with the Court of Appeals.

The lease contract (Exh. "C"), the linchpin of petitioners' cause of action, involves the lease of
real property for a period of more than one year. The contract was entered into by the agent of
the lessor and not the lessor herself. In such a case, the law requires that the agent be armed
with a special power of attorney to lease the premises.

Article 1878 of the New Civil Code, in pertinent part, provides:

"Special Powers of Attorney are necessary in the following cases:

xxx xxx xxx

(8) To lease any real property to another person for more than one year."

It is true that respondent Herrera allowed petitioners to occupy the leased premises after the
expiration of the lease contract (Exh. "C") and under Article 1670 of the Civil Code of the
Philippines, a tacit renewal of the lease (tacita reconduccion) is deemed to have taken place.
However, as held in Bernardo M. Dizon v. Ambrosio Magsaysay, 57 SCRA 250 (1974), a tacit
renewal is limited only to the terms of the contract which are germane to the lessee's right of
continued enjoyment of the property and does not extend to alien matters, like the option to buy
the leased premises.

In said case, Magsaysay leased to Dizon a parcel of land for a term of two years, expiring on
April 1, 1951. Under the lease contract, Dizon was given the preferential right to purchase the
land under the same conditions as those offered to other buyers. After the lease contract
expired, Dizon continued to occupy the leased premises and to pay the monthly rentals, which
Magsaysay accepted. On March 24, 1953, Dizon learned that Magsaysay had sold the property
to a third party without giving him the opportunity to exercise the preferential right to purchase
given him under the lease contract. Dizon then filed an action against Magsaysay and the buyer
to annul the sale of the property or in the alternative, to recover damages from Magsaysay. The
trial court dismissed the action and the Court of Appeals affirmed the dismissal. In the Supreme
Court, Dizon claimed that a new lease contract was impliedly created when Magsaysay had
allowed him to continue to occupy the premises after the expiration of the original lease contract
and that the other terms of the said contract, including the lessee's preferential right to
purchase, were deemed revived. Dizon invoked Article 1670 of the Civil Code of the Philippines,
which provides:

"Art. 1670. If at the end of the contract the lessee should continue enjoying the thing leased
for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either
party has previously been given, it is understood that there is an implied new lease, not for the
period of the original contract, but for the time established in Articles 1682 and 1687. The other
terms of the original contract shall be revived (Emphasis supplied)." prLL

We dismissed Dizon's appeal and sustained the interpretation of the Court of Appeals that "the
other terms of the original contract" mentioned in Article 1670, are only those terms which are
germane to the lessee's right of continued enjoyment of the property leased. We held:

"This is a reasonable construction of the provision, which is based on the presumption that
when the lessor allows the lessee to continue enjoying possession of the property for fifteen
days after the expiration of the contract he is willing that such enjoyment shall be for the entire
period corresponding to the rent which is customarily paid — in this case up to the end of the
month because the rent was paid monthly. Necessarily, if the presumed will of the parties refers
to the enjoyment of possession, the presumption covers the other terms of the contract related
to such possession, such as the amount of rental, the date when it must be paid, the care of the
property, the responsibility for repairs, etc. But no such presumption may be indulged in with
respect to special agreements which by nature are foreign to the right of occupancy or
enjoyment inherent in a contract of lease."

Petitioners also question the jurisdiction of the trial court in Civil Case No. R-16589 in ordering
their ejectment from the leased premises and the removal of the improvements introduced
thereon by them. They claim that the action in Civil Case No. R-16589 was for the annulment of
the sale of the property by defendant Herrera to defendants-spouses Go, and not an
appropriate case for an ejectment. The right of possession of petitioners of the leased premises
was squarely put in issue by defendants-spouses Go in their counterclaim to petitioner's
complaint, where they asked that ". . . the plaintiffs should vacate their premises as soon as
feasible or as the Honorable Court may direct" (Record on Appeal, CA-G.R. No. 67692-R; p.
45).

The said counterclaim in effect was an accion publiciana for the recovery of the possession of
the leased premises. prLL
Clearly the Court of First Instance had jurisdiction over actions which involve the possession of
real property or any interest therein, except forcible entry and detainer actions (Section 44[b],
Judiciary Act of 1948; Concepcion v. Presiding Judge, Br. V, CFI Bulacan, 119 SCRA 222
[1982]).

A counterclaim is considered a complaint, only this time, it is the original defendant who
becomes the plaintiff (Valisno v. Plan, 143 SCRA 502 [1986]). It stands on the same footing and
is to be tested by the same rules as if it were an independent action. Hence, the same rules on
jurisdiction in an independent action apply to a counterclaim (Vivar v. Vivar, 8 SCRA 847 [1963];
Calo v. Ajax International, Inc., 22 SCRA 996 [1968]; Javier v. Intermediate Appellate Court, 171
SCRA 605 [1989]; Quiason, Philippine Courts and Their Jurisdictions, 1993 ed., p. 203). prcd

Finally, petitioners claim that the Court of Appeals erred in eliminating the award of moral
damages in the amount of P20,000.00 given to them by the trial court (Rollo, pp. 48-52). The
elimination of said award is a logical consequence of the finding that petitioners had no right of
option to purchase the leased premises that can be enforced against respondent Herrera.

WHEREFORE, the petition is DENIED.

SO ORDERED.

Cruz, Davide, Jr. and Bellosillo, JJ., concur.

[G.R. No. L-18377. December 29, 1962.]

ANASTACIO G. DUÑGO, petitioner, vs. ADRIANO LOPENA, ROSA RAMOS and HON.
ANDRES REYES, Judge of the Court of First Instance of Rizal, respondents.

Gatchalian, Padilla & Sison for petitioner.

Santiago F. Alidio for respondent.

SYLLABUS

1. CONTRACTS; COMPROMISE; SPECIAL POWER OF ATTORNEY. — It is true that a

compromise is, in itself, a contract. It is as such that the Civil Code speaks of it in Article 2028.
Moreover, under Article 1878 of the Civil Code, a third person cannot bind another to a
compromise agreement unless he, the third person, has obtained a special power of attorney for
that purpose from the party intended to be bound.

2. ID.; ID.; ID.; ABSENCE OF DOES NOT RENDER AGREEMENT VOID BUT MERELY
UNENFORCEABLE. — However, although the Civil Code expressly requires a special power of
attorney in order that one may compromise an interest of another, it is neither accurate nor
correct to conclude that its absence renders the compromise agreement void. In such a case,
the compromise is merely unenforceable. This results from its nature as a contract.
3. ID.; COMPROMISE; RATIFICATION BY CLIENT OF COMPROMISE MADE BY HIS
ATTORNEY. — When it appears that the client, on becoming aware of the compromise and the
judgment thereon, fails to repudiate promptly the action of his attorney, he will not afterwards be
heard to contest its validity (Rivero vs. Rivero, 59 Phil. 15).

4. ID.; NOVATION BY PRESUMPTION NOT FAVORED. — Novation by presumption has

never been favored. To be sustained, it need be established that the old and new contracts are
incompatible in all points, or that the will to novate appears by express agreement of the parties
or in acts of similar import.

5. ID.; ID.; LACK OF AGREEMENT THAT FIRST DEBTOR SHALL BE RELEASED FROM
RESPONSIBILITY REDUCES SECOND AGREEMENT TO A MERE GUARANTY. — It is a
very common thing in business affairs for a stranger to a contract to assume its obligations; and,
while this may have the effect of adding to the number of person liable, it does not necessarily
imply the extinguishment of the liability of the first debtor (Rios vs. Jacinto, etc., 49 Phil. 7;
Garcia vs. Khu Yek Chiong, 65 Phil. 466). The mere fact that the creditor receives a guaranty or
accepts payments from a third person who has agreed to assume the obligation, when there is
no agreement that the first debtor shall be released from responsibility, does not constitute a
novation, and the creditor can still enforce the obligation against the original (Straight vs.
Haskell, 49 Phil. 614; Pacific Commercial Co. vs. Sotto, 34 Phil. 237; Estate of Mota vs. Serra
47 Phil. 464).

DECISION

REGALA, J p:

On September 10, 1959, herein petitioner Anastacio G. Duñgo and one Rodrigo S. Gonzales
purchased 3 parcels of land from the respondents Adriano Lopena and Rosa Ramos for the
total price of P269,804.00. Of this amount, P28,000.00 was given as down payment with the
agreement that the balance of P241,804.00 would be paid in 6 monthly installments.

To secure the payment of the balance Anastacio G. Duñgo and Rodrigo S. Gonzales, the
vendees, on September 11, 1958, executed over the same 3 parcels of land a Deed of Real
Estate Mortgage in favor of the respondents Adriano Lopena and Rosa Ramos. This deed was
duly registered with the Office of the Register of Deeds of Rizal, with the condition that failure of
the vendees to pay any of the installments on their maturity dates shall automatically cause the
entire unpaid balance to become due and demandable.

The vendees defaulted on the first installment. It resulted then that on November 7, 1959, the
vendors, herein respondents Adriano Lopena and Rosa Ramos, filed a complaint for the
foreclosure of the aforementioned real estate mortgage with the Court of First Instance of Rizal,
the Hon. Judge Andres Reyes, presiding. This complaint was answered by the herein petitioner
and the other vendee, Rodrigo S. Gonzales, on December 7, 1959.

Meanwhile, there were 2 other civil cases filed in the same lower court against the same
defendants Anastacio Duñgo and Rodrigo S. Gonzales. The plaintiff in one was a certain
Dionisio Lopena, and in the other case, the complainants were Bernardo Lopena and Maria de
la Cruz. Both complaints involved the same cause of action as that of the herein respondents
Adriano Lopena and Rosa Ramos. As a matter of fact, all three cases arose out of one
transaction. In view of the identical nature of the above three cases, they were consolidated by
the lower court into just one proceeding.

It must be made clear, however, that this present decision refers solely to the interests and
claim of Adriano Lopena against Anastacio Duñgo alone.

Before the cases could be tried, a compromise agreement dated January 15, 1960 was
submitted to the lower court for approval. It was signed by the herein respondents Adriano
Lopena and Rosa Ramos on one hand, and, Rodrigo S. Gonzales, on the other. It was not
signed by the herein petitioner. However, Rodrigo S. Gonzales represented that his signature
was for both himself and the herein petitioner. Moreover, Anastacio Duñgo's counsel of record,
Atty. Manuel O. Chan, the same lawyer who signed and submitted for him the answer to the
complaint, was present at the preparation of the compromise agreement and this counsel
affixed his signature thereto.

The text of this agreement is hereunder quoted:

"COMPROMISE AGREEMENT

COME NOW the parties in the above entitled cases and unto this Hon. Court respectfully set
forth:

That, the plaintiffs, have agreed to give the defendants up to June 30, 1960 to pay the mortgage
indebtedness in each of the said cases.

That, should the defendants fail to pay the said mortgage indebtedness, judgments of
foreclosure shall thereafter be entered against the said defendants;

That, the defendants hereby waive the period of redemption provided by law after entry of
judgments;

That, in the event of sale of the properties involved in these three cases, the defendants agree
that the said properties shall be sold at one time at public auction, that is, one piece of property
cannot be sold without the others."

This compromise agreement was approved by the lower court on the same day it was
submitted, January 15, 1960.

Subsequently, on May 3, 1960, a so called Tri-Party Agreement was drawn. The signatories to it
were Anastacio Duñgo (herein petitioner) and Rodrigo S. Gonzales as debtors, Adriano Lopena
and Rosa Ramos (herein respondents) as creditors, and, one Emma R. Santos as payor. The
stipulations of the Tri-Party Agreement were as follows:

"A TRI-PARTY AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This contract entered into by and between —

(1) EMMA R. SANTOS, Filipino, of legal age, single, with residence and postal address at . .
. ., Rizal Avenue, Manila, hereinafter referred to as the PAYOR.

(2) ANASTACIO C. DUÑGO, Filipino, of legal age, single, with residence and postal
address at 137 N. Domingo, Quezon City, and RODRIGO S. GONZALES, Filipino, of legal age,
married to Magdalena Balatbat, with residence and postal address at 73 Maryland, Quezon
City, hereinafter referred to as the DEBTOR,

and

(3) DIONISIO LOPENA, married to Teofila Nofuente, Librada Lopena married to Arellano
Cawagas. BERNARDO LOPENA, married to Maria de la Cruz, and ADRIANO LOPENA,
married to Rosa Ramos, all of whom are Filipinos, legal ages, with residence and postal
address at Sucat, Muntinlupa, Rizal, hereinafter represented by their attorney of record,
ANTONIO LOPENA, hereinafter referred to as the CREDITOR,

W I T N E S S E T H:

WHEREAS, the DEBTOR is indebted to the CREDITOR as of this date in the aggregate amount
of P503,000.00 for the collection of which, the latter as party plaintiffs have instituted foreclosure
proceedings against the former as party defendants in Civil Cases Nos. 5872, 5873 and 5874
now pending in the Court of First Instance, Pasig, Rizal;

WHEREAS, the PAYOR, hereby submits and binds herself to the force and effect of the Order
dated January 15, 1960, of the Court of First Instance of Pasig, Rizal, Branch VI, which order is
hereby made an integral part of this agreement as Annex "A";

WHEREAS, the PAYOR, with due knowledge and consent of the DEBTOR, hereby proposes to
pay the aforesaid indebtedness in the sum of P503,000.00 to the CREDITOR for and in behalf
of the DEBTOR under the following terms and conditions:

(a) To pay the said P503,000.00 in installments in the following schedule of amounts and
time:

P50,000.00 on or before May 31, 1960

70,000.00 on or before June 30, 1960

70,000.00 on or before July 31, 1960

313,000.00 on or before Aug. 31, 1960.

(b) That the DEBTOR and the PAYOR hereby waive any right to object and oblige
themselves not to oppose the motion that the CREDITOR may file during the first week of July
1960, or subsequently thereafter, informing the Court of the exact money obligation of the
DEBTOR which shall be P503,000.00 minus whatever payments, if any, made before June 30,
1960 by the PAYOR, and praying for the issuance of an order to sell the property covered by
the mortgage.

(c) That the CREDITOR, once he has the order referred to, should not execute the same by
giving it to the sheriff if the PAYOR is regular and punctual in the payment of all the installments
stated above. PROVIDED, however, if the PAYOR defaults or fails to pay anyone of the
installments in the manner stated above, the PAYOR and the DEBTOR hereby permit the
CREDITOR to execute the order of sale referred to above, and they (PAYOR and DEBTOR)
hereby waive any and all objections or oppositions to the propriety of the public auction sale and
to the confirmation of the sale to be made by the court.

(d) That the CREDITOR, at his option. may execute the August installment stated in letter
(a) of this paragraph if the PAYOR has paid regularly the May, June, and July installments, and
provided further that one-half (1/2) of the August installment in the amount of P156,500.00 is
paid on the said date of August 31, 1960.

NOW, THEREFORE, for and in consideration of the foregoing stipulations, the DEBTOR and
CREDITOR hereby accept, approve and ratify the above-mentioned propositions of the PAYOR,
and all the parties herein bind and oblige themselves to comply to the covenants and
stipulations aforestated;

That by mutual agreements of all the parties herein, this Tri-Party Agreement may be submitted
to Court to form integral parts of the records of the Civil Cases mentioned above;

IN WITNESS WHEREOF, the parties hereunto affix their signatures on this 3rd day of May,
1960 in the City of Manila, Philippines.

When Anastacio Duñgo (herein petitioner) and Rodrigo S. Gonzales failed to pay the balance of
their indebtedness on June 30, 1960, herein respondents Lopena and Ramos filed on July 5,
1960, a Motion for the Sale of Mortgaged Property. Although this last motion was filed ex parte,
Anastacio Duñgo and Rodrigo S. Gonzales were notified of it by the lower court. Neither of
them, however, despite the notice, filed any opposition thereto. As a result, the lower court
granted the above motion on July 19, 1960, and ordered the sale of the mortgaged property.

On August 25, 1960, the 3 parcels of land above-mentioned were sold by the Sheriff at a public
auction whereat herein petitioners, together with the plaintiffs of the other two cases, won as the
highest bidders. The said sheriff's sale was later confirmed by the lower court on August 30,
1960. In this connection, it should also be made of record that before confirming the sale, the
lower court gave due notice of the motion for the confirmation to the herein petitioner who filed
no opposition therefor.

On August 31, 1960, Anastacio Duñgo filed a motion to set aside all the proceedings on the
ground that the compromise agreement dated January 15, 1960 was void ab initio with respect
to him because he did not sign the same. Consequently, he argued, all subsequent proceedings
under and by virtue of the compromise agreement, including foreclosure sale of August 25,
1960, were void and null as regards him. This motion to set aside, however, was denied by the
lower court in its order of December 14, 1960.
Upon denial of the said motion to set aside, Anastacio Duñgo filed a Notice of Appeal from the
order of August 31, 1960 approving the foreclosure sale of August 25, 1960, as well as the
order of December 14, 1960, denying his motion to set aside. The approval of the record on
appeal, however, was opposed by the herein respondent spouses, who claimed that the
judgment was not appealable having been rendered by virtue of the compromise agreement.
The opposition was contained in a motion to dismiss the appeal. Anastacio Duñgo filed a reply
to the above motion. Soon thereafter, the lower court dismissed the appeal.

Two issues were raised to this Court for review, to wit:

(1) Was the compromise agreement of January 15, 1960, the Order of the same date
approving the same, and, all the proceedings subsequent thereto, valid or void insofar as the
petitioner herein is concerned?

(2) Did the lower court abuse its discretion when it dismissed the appeal of the herein
petitioner?

Petitioner Anastacio Duñgo insists that the Compromise Agreement was void ab initio and could
have no effect whatsoever against him because he did not sign the same. Furthermore, as it
was void, all the proceedings subsequent to its execution, including the Order approving it, were
similarly void and could not result to anything adverse to his interest.

The argument was not well taken. It is true that a compromise is, in itself, a contract. It is as
such that the Civil Code speaks of it.

"ART. 2028. A compromise is a contract whereby the parties by making reciprocal

concessions, avoid a litigation or put an end to one already commenced.

Moreover, under Art. 1878 of the Civil Code, a third person cannot bind another to a
compromise agreement unless he, the third persons, has obtained a special power of attorney
for that purpose from the party intended to be bound.

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

xxx xxx xxx

(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a
judgment, to waive objections to the venue of an action or to abandon a prescription already
acquired;"

However, although the Civil Code expressly requires a special power of attorney in order that
one may compromise an interest of another, it is neither accurate nor correct to conclude that its
absence renders the compromise agreement void. In such a case, the compromise is contract.
It must be governed by the rules and the law merely unenforceable. This results from its nature
as a on contracts.

"ART. 1403. The following contracts are unenforceable unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers."

Logically, then, the next inquiry in this case should be whether the herein petitioner, Anastacio
Duñgo, had or had not ratified the compromise agreement. If he had, then the compromise
agreement was legally enforced against him; otherwise, he should be sustained in his
contention that it never bound him, nor ever could it be made to bind him.

The ratification of the compromise agreement was conclusively established by the tri-party
agreement of May 3, 1960. It is to be noted that the compromise agreement was submitted to
and approved by the lower court on January 10, 1960. Now, the Tri-Party Agreement referred
itself to that order when it stipulated thus:

"WHEREAS, the PAYOR, hereby submits and binds herself to the force and effect of the Order
dated January 15, 1960, of the Court of First Instance, of Pasig, Rizal, Branch IV, which order is
hereby made an integral part of this agreement as Annex "A."

Having so consented to making that court order approving the compromise agreement an
integral part of the Tri-Party Agreement, how can the petitioner herein now repudiate the
compromise agreement and claim he has not authorized it?

When it appears that the client, on becoming aware of the compromise and the judgment
thereon, fails to repudiate promptly the action of his attorney, he will not afterwards be heard to
contest its validity (Rivero vs. Rivero, 59 Phil. 15).

Besides, this Court has not overlooked the fact that while indeed Anastacio Duñgo was not a
signatory to the compromise agreement, the principal provision of the said instrument was for
his benefit. Originally, Anastacio Duñgo's obligation matured and became demandable on
October 10, 1959. However, the compromise agreement extended the date of maturity to June
30, 1960. More than anything, therefore, the compromise agreement operated to benefit the
herein petitioner because it afforded him more time and opportunity to fulfill his monetary
obligations under the contract. If only for this reason, this Court believes that the herein
petitioner should not be heard to repudiate the said agreement.

Lastly, the compromise agreement stated "that, should the defendants fail to pay the said
mortgage indebtedness, judgment of foreclosure shall thereafter be entered against the said
defendants;" Beyond doubt, this was ratified by the Tri-Party Agreement when it covenanted
that —

"If the PAYOR defaults or fails to pay anyone of the installments in the manner stated above,
the PAYOR and the DEBTOR hereby permit the CREDITOR to execute the order of sale
referred to above (the Judgment of Foreclosure), and they (PAYOR and DEBTOR) hereby
waive any and all objections or oppositions to the propriety of the public auction sale and to the
confirmation of the sale to be made by the Court."

Petitioner Duñgo finally argued that even assuming that the compromise agreement was valid, it
nevertheless could not be enforced against him because it has been novated by the Tri-Party
Agreement which brought in a third party, namely, Emma R. Santos, who assumed the
mortgaged obligation of the herein petitioner.

This Court cannot accept the argument. Novation by presumption has never been favored. To
be sustained, it need be established that the old and new contracts are incompatible in all
points, or that the will to novate appears by express agreement of the parties or in acts of similar
import. (Martinez vs. Cavives, 25 Phil. 581; Tiu Sinco vs. Havana, 45 Phil. 707; Asia Banking
Corporation vs. Lacson Co., 48 Phil., 482; Pascual vs. Lacsamana, 100 Phil., 381; 53 O.G.
2467, April 1957).

An obligation to pay a sum of money is not novated ill a new instrument wherein the old is
ratified, by changing only the term of payment and adding other obligations not incompatible
with the old one (Inchausti vs. Yulo, 34 Phil. 978; Pablo vs. Sapungan 71 Phil. 145) or wherein
the old contract is merely supplemented by the new one (Ramos vs. Gibbon, 67 Phil., 371).

Herein petitioner claims that when a third party, Emma R. Santos, came in and assumed the
mortgaged obligation novation resulted thereby inasmuch as a new debtor was substituted in
place of the original one. In this kind of novation, however, it is not enough that the juridical
relation of the parties to the original contract is extended to a third person; it is necessary that
the old debtor be released from the obligation, and the third person or new debtor takes his
place in the new relation. Without such release, there is no novation; the third person who has
assumed the obligation of the debtor merely becomes a co-debtor or surety. If there is no
agreement as to solidarity, the first and the new debtors are considered obligated jointly. (IV
Tolentino, Civil Code, p. 360, citing Manresa). There was no such release of the original debtor
in the Tri-Party Agreement.

It is a very common thing in business affairs for a stranger to a contract to assume its
obligations; and, while this may have the effect of adding to the number of persons liable, it
does not necessarily imply the extinguishment of the liability of the first debtor (Rios vs. Jacinto,
etc. 49 Phil. 7; Garcia vs. Khu Yek Chiong, 65 Phil. 466). The mere fact that the creditor
receives a guaranty or accepts payments from a third person who has agreed to assume the
obligation, when there is no agreement that the first debtor shall be released from responsibility,
does not constitute a novation, and the creditor can still enforce the obligation against the
original debtor (Straight vs. Haskell, 49 Phil. 614; Pacific Commercial Co. vs. Sotto, 34 Phil.
237; Estate of Mota vs. Serra, 47 Phil. 464).

In view of the foregoing, We hold that the Tri-Party Agreement was an instrument intended to
render effective the compromise agreement. It merely complimented and ratified the same. That
a third person was involved in it is inconsequential. Nowhere in the new agreement may the
release of the herein petitioner be even inferred.

Having held that the compromise agreement was valid and enforceable against the herein
petitioner, it follows that the lower court committed no abuse of discretion when it dismissed the
appeal of the herein petitioner.
WHEREFORE, the petition for certiorari and mandamus filed by the herein petitioner is hereby
dismissed. The order of the lower court dismissing the appeal is hereby affirmed, with costs.

Labrador, Concepcion, Reyes, J.B.L., Barrera and Makalintal, JJ., concur.