1

SECOND DIVISION
[G.R. No. 102737. August 21, 1996.]
FRANCISCO A. VELOSO, petitioner, vs. COURT OF APPEALS,
AGLALOMA B. ESCARIO, assisted by her husband GREGORIO
L. ESCARIO, the REGISTER OF DEEDS FOR THE CITY OF
MANILA, respondents.
SYLLABUS
1. CIVIL LAW; AGENCY; A SPECIAL POWER OF ATTORNEY CAN BE
INCLUDED IN THE GENERAL POWER WHEN IT IS SPECIFIED THEREIN
THE ACT OR TRANSACTION FOR WHICH THE SPECIAL POWER IS
REQUIRED. There was no need to execute a separate and special
power of attorney since the general power of attorney had
expressly authorized the agent or attorney in fact the power to sell
the subject property. The special power of attorney can be included
in the general power when it is specified therein the act or
transaction for which the special power is required.
2. ID.; SALE; PURCHASER IN GOOD FAITH; DEFINED; HIS REMEDY IN
CASE OF FRAUD. It has been consistently held that a purchaser
in good faith is one who buys property of another, without notice
that some other person has a right to, or interest in such property
and pays a full and fair price for the same, at the time of such
purchase, or before he has notice of the claim or interest of some
other person in the property. "The right of an innocent purchaser for
value must be respected and protected, even if the seller obtained
his title through fraud. The remedy of the person prejudiced is to
bring an action for damages against those who caused or employed
the fraud, and if the latter are insolvent, an action against the
Treasurer of the Philippines may be filed for recovery of damages
against the Assurance Fund."
3. REMEDIAL LAW; EVIDENCE; FORGERY CANNOT BE PRESUMED.
Mere variance of the signatures cannot be considered as conclusive
proof that the same were forged. Forgery cannot be presumed.
Forgery should be proved by clear and convincing evidence and
whoever alleges it has the burden of proving the same.
4. ID.; ID.; NOTARIZED DOCUMENTS ARE PRESUMED TO BE VALID
AND DULY EXECUTED. Documents acknowledged before a notary
public have the evidentiary weight with respect to their due
execution. The questioned power of attorney and deed of sale,
were notarized and therefore, presumed to be valid and duly
executed.
5. CIVIL LAW; PRINCIPLE OF EQUITABLE ESTOPPEL, DEFINED. The
principle of equitable estoppel states that where one or two
innocent persons must suffer a loss, he who by his conduct made
the loss possible must bear it.

DECISION
TORRES, JR., J p:
This petition for review assails the decision of the Court of Appeals,
dated July 29, 1991, the dispositive portion of which reads:
"WHEREFORE, the decision appealed from is hereby AFFIRMED IN
TOTO. Costs against appellant." 1
The following are the antecedent facts:
Petitioner Francisco Veloso was the owner of a parcel of land
situated in the district of Tondo, Manila, with an area of one
hundred seventy seven (177) square meters and covered by
Transfer Certificate of title No. 49138 issued by the Registry of
Deeds of Manila. 2 The title was registered in the name of Francisco
A. Veloso, single, 3 on October 4, 1957. 4 The said title was
subsequently cancelled and a new one, Transfer Certificate of Title
No. 180685, was issued in the name of Aglaloma B. Escario,
married to Gregorio L. Escario, on May 24, 1988. 5
On August 24, 1988, petitioner Veloso filed an action for annulment
of documents, reconveyance of property with damages and
preliminary injunction and/or restraining order. The complaint,
docketed as Civil Case no. 88-45926, was raffled to the Regional
Trial Court, Branch 45, Manila. Petitioner alleged therein that he
was the absolute owner of the subject property and he never
authorized anybody, not even his wife, to sell it. He alleged that he
was in possession of the title but when his wife, Irma, left for
abroad, he found out that his copy was missing. He then verified
with the Registry of Deeds of Manila and there he discovered that
his title was already canceled in favor of defendant Aglaloma
Escario. The transfer of property was supported by a General Power
of Attorney 6 dated November 29, 1985 and Deed of Absolute Sale,
dated November 2, 1987, executed by Irma Veloso, wife of the
petitioner and appearing as his attorney-in-fact, and defendant
Aglaloma Escario. 7 Petitioner Veloso, however, denied having
executed the power of attorney and alleged that his signature was
falsified. He also denied having seen or even known Rosemarie
Reyes and Imelda Santos, the supposed witnesses in the execution
of the power of attorney. He vehemently denied having met or
transacted with the defendant. Thus, he contended that the sale of
the property, and the subsequent transfer thereof, were null and
void. Petitioner Veloso, therefore, prayed that a temporary
restraining order be issued to prevent the transfer of the subject
property; that the General Power of Attorney, the Deed of Absolute
Sale and the Transfer Certificate of Title No. 180685 be annulled;
and the subject property be reconveyed to him.
Defendant Aglaloma Escario in her answer alleged that she was a
buyer in good faith and denied any knowledge of the alleged

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irregularity. She allegedly relied on the general power of attorney of
Irma Veloso which was sufficient in form and substance and was
duly notarized. She contended that plaintiff (herein petitioner), had
no cause of action against her. In seeking for the declaration of
nullity of the documents, the real party in interest was Irma Veloso,
the wife of the plaintiff. She should have been impleaded in the
case. In fact, Plaintiff's cause of action should have been against his
wife, Irma. Consequently, defendant Escario prayed for the
dismissal of the complaint and the payment to her of damages. 8
Pre-trial was conducted. The sole issue to be resolved by the trial
court was whether or not there was a valid sale of the subject
property. 9
During the trial, plaintiff (herein petitioner) Francisco Veloso
testified that he acquired the subject property from the Philippine
Building Corporation, as evidenced by a Deed of Sale dated
October 1, 1957. 10 He married Irma Lazatin on January 20, 1962.
11 Hence, the property did not belong to their conjugal partnership.
Plaintiff further asserted that he did not sign the power of attorney
and as proof that his signature was falsified, he presented Allied
Bank Checks Nos. 16634640, 16634641 and 16634643, which
allegedly bore his genuine signature.
Witness for the plaintiff Atty. Julian G. Tubig denied any participation
in the execution of the general power of attorney. He attested that
he did not sign thereon, and the same was never entered in his
Notarial Register on November 29, 1985.
In the decision of the trial court dated March 9, 1990, 12 defendant
Aglaloma Escario was adjudged the lawful owner of the property as
she was deemed an innocent purchaser for value. The assailed
general power of attorney was held to be valid and sufficient for the
purpose. The trial court ruled that there was no need for a special
power of attorney when the special power was already mentioned
in the general one. It also declared that plaintiff failed to
substantiate his allegation of fraud. The court also stressed that
plaintiff was not entirely blameless for although he admitted to be
the only person who had access to the title and other important
documents, his wife was still able to posses the copy. Citing Section
55 of Act 496, the court held that Irma's possession and production
of the certificate of title was deemed a conclusive authority from
the plaintiff to the Register of Deeds to enter a new certificate.
Then applying the principle of equitable estoppel, plaintiff was held
to bear the loss of it was he who made the wrong possible. Thus:
"WHEREFORE, the Court finds for the defendants and against
plaintiff
a. declaring that there was a valid sale of the subject property in
favor of the defendant;

b. denying all other claims of the parties for want of legal and
factual basis.
Without pronouncement as to costs.
SO ORDERED."
Not satisfied with the decision, petitioner Veloso filed his appeal
with the Court of Appeals. The respondent court affirmed in toto the
findings of the trial court.
Hence, this petition for review before Us.
This petition for review was initially dismissed for failure to submit
an affidavit of service of a copy of the petition on the counsel for
private respondent. 13 A motion for reconsideration of the
resolution was filed but it was denied in a resolution dated March
30, 1992. 14 A second motion for reconsideration was filed and in a
resolution dated Aug. 3, 1992, the motion was granted and the
petition for review was reinstated. 15
A supplemental petition was filed on October 9, 1992 with the
following assignment of errors:
I
The Court of Appeals committed a grave error in not finding that
the forgery of the power of attorney (Exh. "C") had been
adequately proven, despite the preponderant evidence, and in
doing so, it has so far departed from the applicable provisions of
law and the decisions of this Honorable Court, as to warrant the
grant of this petition for review on certiorari.
II
There are principles of justice and equity that warrant a review of
the decision.
III
The Court of Appeals erred in affirming the decision of the trial
court which misapplied the principle of equitable estoppel since the
petitioner did not fail in his duty of observing due diligence in the
safekeeping of the title to the property.
We find petitioner's contentions not meritorious.
An examination of the records showed that the assailed power of
attorney was valid and regular on its face. It was notarized and as
such, it carries the evidentiary weight conferred upon it with
respect to its due execution. While it is true that it was
denominated as a general power of attorney, a perusal thereof
revealed that it stated an authority to sell, to wit:
"2. To buy or sell, hire or lease, mortgage or otherwise hypothecate
lands, tenements and hereditaments or other forms of real
property, more specifically TCT No. 49138, upon such terms and
conditions and under such covenants as my said attorney shall
deem fit and proper." 16

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Thus, there was no need to execute a separate and special power
of attorney since the general power of attorney had expressly
authorized the agent or attorney in fact the power to sell the
subject property. The special power of attorney can be included in
the general power when it is specified therein the act or transaction
for which the special power is required.
The general power of attorney was accepted by the Register of
Deeds when the title to the subject property was cancelled and
transferred in the name of private respondent. In LRC Consulta No.
123, Register of Deeds of Albay, Nov. 10, 1956, it stated that:
"Whether the instrument be denominated as "general power of
attorney" or "special power of attorney," what matters is the extent
of the power or powers contemplated upon the agent or attorney in
fact. If the power is couched in general terms, then such power
cannot go beyond acts of administration. However, where the
power to sell is specific, it not being merely implied, much less
couched in general terms, there can not be any doubt that the
attorney in fact may execute a valid sale. An instrument may be
captioned as "special power of attorney" but if the powers granted
are couched in general terms without mentioning any specific
power to sell or mortgage or to do other specific acts of strict
dominion, then in that case only acts of administration may be
deemed conferred."
Petitioner contends that his signature on the power of attorney was
falsified. He also alleges that the same was not duly notarized for
as testified by Atty. Tubig himself, he did not sign thereon nor was it
ever recorded in his notarial register. To bolster his argument,
petitioner had presented checks, marriage certificate and his
residence certificate to prove his alleged genuine signature which
when compared to the signature in the power of attorney, showed
some difference.
We found, however, that the basis presented by the petitioner was
inadequate to sustain his allegation of forgery. Mere variance of the
signatures cannot be considered as conclusive proof that the same
were forged. Forgery cannot be presumed. 17 Petitioner, however,
failed to prove his allegation and simply relied on the apparent
difference of the signatures. His denial had not established that the
signature on the power of attorney was not his.
We agree with the conclusion of the lower court that private
respondent was an innocent purchaser for value. Respondent
Aglaloma relied on the power of attorney presented by petitioner's
wife, Irma. Being the wife of the owner and having with her the title
of the property, there was no reason for the private respondent not
to believe, in her authority. Moreover, the power of attorney was
notarized and as such, carried with it the presumption of its due

execution. Thus, having had no inkling on any irregularity and

having no participation thereof, private respondent was a buyer in
good faith. It has been consistently held that a purchaser in good
faith is one who buys property of another, without notice that some
other person has a right to, or interest in such property and pays a
full and fair price for the same, at the time of such purchase, or
before he has notice of the claim or interest of some other person
in the property. 18
Documents acknowledged before a notary public have the
evidentiary weight with respect to their due execution. The
questioned power of attorney and deed of sale, were notarized and
therefore, presumed to be valid and duly executed. Atty. Tubig
denied having notarized the said documents and alleged that his
signature had also been falsified. He presented samples of his
signature to prove his contention. Forgery should be proved by
clear and convincing evidence and whoever alleges it has the
burden of proving the same. Just like the petitioner, witness Atty.
Tubig merely pointed out that his signature was different from that
in the power of attorney and deed of sale. There had never been an
accurate examination of the signature, even that of the petitioner.
To determine forgery, it was held in Cesar vs. Sandiganbayan 19
(quoting Osborn, The Problem of Proof) that:
"The process of identification, therefore, must include the
determination of the extent, kind, and significance of this
resemblance as well as of the variation. It then becomes necessary
to determine whether the variation is due to the operation of a
different personality, or is only the expected and inevitable
variation found in the genuine writing of the same writer. It is also
necessary to decide whether the resemblance is the result of a
more or less skillful imitation, or is the habitual and characteristic
resemblance which naturally appears in a genuine writing. When
these two questions are correctly answered the whole problem of
identification is solved."
Even granting for the sake of argument, that the petitioner's
signature was falsified and consequently, the power of attorney and
the deed of sale were null and void, such fact would not revoke the
title subsequently issued in favor of private respondent Aglaloma.
In Tenio-Obsequio vs. Court of Appeals, 20 it was held, viz:
"The right of an innocent purchaser for value must be respected
and protected, even if the seller obtained his title through fraud.
The remedy of the person prejudiced is to bring an action for
damages against those who caused or employed the fraud, and if
the latter are insolvent, an action against the Treasurer of the
Philippines may be filed for recovery of damages against the
Assurance Fund."

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Finally, the trial court did not err in applying equitable estoppel in
this case. The principle of equitable estoppel states that where one
or two innocent persons must suffer a loss, he who by his conduct
made the loss possible must bear it. From the evidence adduced, it
should be the petitioner who should bear the loss. As the court a
quo found:
"Besides, the records of this case disclosed that the plaintiff is not
entirely free from blame. He admitted that he is the sole person
who has access to TCT No. 49138 and other documents
appertaining thereto (TSN, May 23, 1989, pp. 7-12). However, the
fact remains that the Certificate of Title, as well as other documents
necessary for the transfer of title were in the possession of
plaintiff's wife, Irma L. Veloso, consequently leaving no doubt or
any suspicion on the part of the defendant as to her authority.
Under Section 55 of Act 496, as amended, Irma's possession and
production of the Certificate of Title to defendant operated as
"conclusive authority from the plaintiff to the Register of Deeds to
enter a new certificate." 21
Considering the foregoing premises, we found no error in the
appreciation of facts and application of law by the lower court
which will warrant the reversal or modification of the appealed
decision.
ACCORDINGLY, the petition for review is hereby DENIED for lack of
merit.
SO ORDERED.
THIRD DIVISION
[G.R. No. 173312. August 26, 2008.]
ESTATE OF LINO OLAGUER, Represented by Linda O.
Olaguer, and LINDA O. MONTAYRE, petitioners, vs. EMILIANO
M. ONGJOCO, respondent.
DECISION
CHICO-NAZARIO, J p:
Assailed in this Petition for Review on Certiorari 1 is the Decision 2
of the Court of Appeals dated 27 February 2006 in CA-G.R. CV No.
71710. Said decision modified the Decision 3 and the subsequent
Order 4 of the Regional Trial Court (RTC) of Legazpi City, Branch 6,
in Civil Case No. 6223, and upheld the validity of the sales of
properties to respondent Emiliano M. Ongjoco.
The relevant factual antecedents of the case, as found by the trial
court and adapted by the Court of Appeals, are as follows: CHDAEc
The plaintiffs Sor Mary Edith Olaguer, Aurora O. de Guzman,
Clarissa O. Trinidad, Lina Olaguer and Ma. Linda O. Montayre are
the legitimate children of the spouses Lino Olaguer and defendant
Olivia P. Olaguer.

Lino Olaguer died on October 3, 1957 so Special Proceedings No.

528 for probate of will was filed in the then Court of First Instance of
Albay. Defendant Olivia P. Olaguer was appointed as administrator
pursuant to the will. Later, defendant Eduardo Olaguer was
appointed as co-administrator. . . .
On October 15, 1959 defendant Olivia P. Olaguer got married to
defendant Jose A. Olaguer before the then Justice of the Peace of
Sto. Domingo (Libog) Albay. (Exhibit "NNNN") On January 24, 1965
they were married in church. (Exhibit "XX") AaCTcI
In the order of the probate court dated April 4, 1961, some
properties of the estate were authorized to be sold to pay
obligations of the estate. Pursuant to this authority, administrators
Olivia P. Olaguer and Eduardo Olaguer on December 12, 1962 sold
to Pastor Bacani for [P]25,000 Pesos, twelve (12) parcels of land,
particularly, Lots 4518, 4526, 4359, 8750, 7514, 6608, 8582, 8157,
7999, 6167, 8266, and 76 with a total area of 99 hectares. (Exhibit
"A" Deed of Sale notarized by defendant Jose A. Olaguer)
This sale of twelve (12) parcels of land to Pastor Bacani was
approved by the Probate Court on December 12, 1962. (Exhibit
"15")
The following day, December 13, 1962, Pastor Bacani sold back to
Eduardo Olaguer and Olivia Olaguer for [P]12,000.00 Pesos, one of
the twelve (12) lots he bought the day before, particularly, Lot No.
76 in the proportion of 7/13 and 6/13 pro-indiviso respectively.
(Exhibit "B" Deed of Sale notarized by Felipe A. Cevallos, Sr.)
DHaECI
Simultaneously, on the same day December 13, 1962, Pastor
Bacani sold back to Olivia Olaguer and Eduardo Olaguer the other
eleven (11) parcels he bought from them as follows:
To Olivia Olaguer Four (4) parcels for 10,700 Pesos, particularly
Lots 4518, 4526, 4359, 8750 with a total area of 84 hectares.
(Exhibit "E" Deed of Sale notarized by Felipe A. Cevallos, Sr.)
To Eduardo Olaguer Seven (7) parcels of land for 2,500 Pesos,
particularly Lots 7514, 6608, 8582, 8157, 7999, 6167, and 8266
with a total area of 15 hectares. (Exhibit "C" Deed of Sale
notarized by defendant Jose A. Olaguer)
Relying upon the same order of April 4, 1961 but without prior
notice or permission from the Probate Court, defendants Olivia P.
Olaguer and Eduardo Olaguer on November 1, 1965 sold to
Estanislao Olaguer for 7,000 Pesos, ten (10) parcels of land,
particularly, (a) TCT No. T-4011 Lot No. 578, (b) TCT No. T-1417
Lot No. 1557, (c) TCT No. T-4031 Lot No. 1676, (d) TCT No. T4034 Lot No. 4521, (e) TCT No. T-4035 Lot No. 4522, (f) TCT
No. 4013 Lot No. 8635, (g) TCT No. T-4014 Lot 8638, (h) TCT
No. T-4603 Lot No. 7589, (i) TCT No. 4604 Lot No. 7593, and (j)

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TCT No. T-4605 Lot No. 7396. (Exhibit "D" Deed of Sale
notarized by Rodrigo R. Reantaso) DISTcH
This sale to Estanislao Olaguer was approved by the Probate Court
on November 12, 1965.
After the foregoing sale to Estanislao Olaguer, the following
transactions took place:
1) On July 7, 1966, defendant Olivia P. Olaguer executed a Special
Power of Attorney notarized by Rodrigo R. Reantaso (Exhibit "T") in
favor of defendant Jose A. Olaguer, authorizing the latter to "sell,
mortgage, assign, transfer, endorse and deliver" the properties
covered by TCT No. 14654 for Lot 76 6/13 share only, T-13983, T14658, T-14655, T-14656, and T-14657.
2) On July 7, 1966, Estanislao Olaguer executed a Special Power of
Attorney in favor of Jose A. Olaguer (Exhibit "X") notarized by
Rodrigo R. Reantaso authorizing the latter to "sell, mortgage,
assign, transfer, endorse and deliver" the properties covered by
TCT No. T-20221, T-20222, T-20225 for Lot No. 8635, T-20226 for
Lot No. 8638, T-20227, T-20228, and T-20229.
By virtue of this Special Power of Attorney, on March 1, 1967, Jose
A. Olaguer as Attorney-in-Fact of Estanislao Olaguer mortgaged Lots
7589, 7593 and 7396 to defendant Philippine National Bank (PNB)
as security for a loan of 10,000 Pesos. The mortgage was
foreclosed by the PNB on June 13, 1973 and the properties
mortgage were sold at public auction to PNB. On December 10,
1990, the PNB transferred the properties to the Republic of the
Philippines pursuant to Exec. Order No. 407 dated June 14, 1990 for
agrarian reform purposes. (records, vol. 1, page 66) SAHIDc
3) On October 29, 1966, Estanislao Olaguer executed a General
Power of Attorney notarized by Rodrigo R. Reantaso (Exhibit "Y") in
favor of Jose A. Olaguer, authorizing the latter to exercise general
control and supervision over all of his business and properties, and
among others, to sell or mortgage any of his properties.
4) On December 29, 1966, Estanislao Olaguer sold to Jose A.
Olaguer for 15,000 Pesos, (Exhibit "UU") the ten (10) parcels of land
(Lots 578, 4521, 4522, 1557, 1676, 8635, 8638, 7589, 7593 and
7396) he bought from Olivia P. Olaguer and Eduardo Olaguer under
Exhibit "D".
5) On March 16, 1968, Estanislao Olaguer sold to Jose A. Olaguer
for 1 Peso and other valuable consideration Lot No. 4521 TCT No.
T-20223 and Lot 4522 TCT No. 20224 with a total area of 2.5
hectares. (records, vol. 1, page 33)
6) On June 5, 1968, Estanislao Olaguer sold Lot No. 8635 under TCT
No. T-20225, and Lot No. 8638 under TCT No. 20226 to Jose A.
Olaguer for 1 Peso and other valuable consideration. (Exhibit "F")
Deed of Sale was notarized by Rodrigo R. Reantaso. EcTIDA

7) On May 13, 1971, Jose A. Olaguer in his capacity as Attorney inFact of Estanislao Olaguer sold to his son Virgilio Olaguer for 1 Peso
and other valuable consideration Lot No. 1557 TCT No. 20221
and Lot No. 1676 TCT No. 20222. The deed of sale was notarized
by Otilio Sy Bongon.
8) On July 15, 1974, Jose A. Olaguer sold to his son Virgilio Olaguer
Lot No. 4521 and Lot No. 4522 for 1,000 Pesos. Deed of Sale was
notarized by Otilio Sy Bongon. (records, vol. 1, page 34)
9) On September 16, 1978 Virgilio Olaguer executed a General
Power of Attorney in favor of Jose A. Olaguer notarized by Otilio Sy
Bongon (Exhibit "V") authorizing the latter to exercise general
control and supervision over all of his business and properties and
among others, to sell or mortgage the same.
Olivia P. Olaguer and Eduardo Olaguer were removed as
administrators of the estate and on February 12, 1980, plaintiff Ma.
Linda Olaguer Montayre was appointed administrator by the
Probate Court. CIETDc
Defendant Jose A. Olaguer died on January 24, 1985. (Exhibit "NN")
He was survived by his children, namely the defendants Nimfa
Olaguer Taguay, Corazon Olaguer Uy, Jose Olaguer, Jr., Virgilio
Olaguer, Jacinto Olaguer, and Ramon Olaguer.
Defendant Olivia P. Olaguer died on August 21, 1997 (Exhibit "OO")
and was survived by all the plaintiffs as the only heirs.
The decedent Lino Olaguer have had three marriages. He was first
married to Margarita Ofemaria who died April 6, 1925. His second
wife was Gloria Buenaventura who died on July 2, 1937. The third
wife was the defendant Olivia P. Olaguer.
Lot No. 76 with an area of 2,363 square meters is in the heart of
the Poblacion of Guinobatan, Albay. The deceased Lino Olaguer
inherited this property from his parents. On it was erected their
ancestral home.
As already said above, Lot No. 76 was among the twelve (12) lots
sold for 25,000 Pesos, by administrators Olivia P. Olaguer and
Eduardo Olaguer to Pastor Bacani on December 12, 1962. The sale
was approved by the probate court on December 12, 1962. AaITCS
But, the following day, December 13, 1962 Pastor Bacani sold back
the same 12 lots to Olivia P. Olaguer and Eduardo Olaguer for
25,200 Pesos, as follows:
a) Lot No. 76 was sold back to Olivia P. Olaguer and Eduardo
Olaguer for 12,000 Pesos, in the proportion of [6/13] and [7/13]
respectively. (Exhibit "B")
b) 4 of the 12 lots namely, Lots 4518, 4526, 4359, and 8750 were
sold back to Olivia Olaguer for 10,700 Pesos. (Exhibit "E")

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c) 7 of the 12 lots namely, Lots 7514, 6608, 8582, 8157, 7999,
6167, and 8266 were sold back to Eduardo Olaguer for 2,500 Pesos.
(Exhibit "C") cTaDHS
d) Lot No. 76 was thus issued TCT No. T-14654 on December 13,
1962 in the names of Eduardo B. Olaguer married to Daisy Pantig
and Olivia P. Olaguer married to Jose A. Olaguer to the extent of
7/13 and 6/13 pro-indiviso, respectively. (Exhibit "FF" also "14-a")
e) It appears from Plan (LRC) Psd-180629 (Exhibit "3") that
defendant Jose A. Olaguer caused the subdivision survey of Lot 76
into eleven (11) lots, namely, 76-A, 76-B, 76-C, 76-D, 76-E, 76-F,
76-G, 76-H, 76-I, 76-J, and 76-K, sometime on April 3, 1972. The
subdivision survey was approved on October 5, 1973. After the
approval of the subdivision survey of Lot 76, a subdivision
agreement was entered into on November 17, 1973, among
Domingo Candelaria, Olivia P. Olaguer, Domingo O. de la Torre and
Emiliano M. [Ongjoco]. (records, vol. 2, page 109). aDcEIH
This subdivision agreement is annotated in TCT No. 14654 (Exhibit
"14"-"14-d") as follows:
Owner Lot No. Area in TCT No. Vol. Page
sq. m.
Domingo Candelaria 76-A 300 T-36277 206 97
Olivia P. Olaguer 76-B 200 T-36278 206 98
Olivia P. Olaguer 76-C 171 T-36279 206 99
Olivia P. Olaguer 76-D 171 T-36280 206 100
Olivia P. Olaguer 76-E 171 T-36281 206 101
Olivia P. Olaguer 76-F 171 T-36282 206 102
Olivia P. Olaguer 76-G 202 T-36283 206 103
Domingo O. de la Torre 76-H 168 T-36284 206 104
Domingo O. de la Torre 76-I 168 T-36285 206 105
Domingo O. de la Torre 76-J 168 T-36286 206 106
Emiliano M. [Ongjoco] 76-K 473 T-36287 206 107
After Lot 76 was subdivided as aforesaid, Jose A. Olaguer as
attorney-in-fact of Olivia P. Olaguer, sold to his son Virgilio Olaguer
Lots 76-B, 76-C, 76-D, 76-E, 76-F, and 76-G on January 9, 1974 for
3,000 Pesos. (Exhibit "G") The deed of absolute sale was notarized
by Otilio Sy Bongon.
Lots 76-B and 76-C were consolidated and then subdivided anew
and designated as Lot No. 1 with an area of 186 square meters and
Lot No. 2 with an area of 185 square meters of the Consolidation
Subdivision Plan (LRC) Pcs-20015. (Please sketch plan marked as
Exhibit "4", records, vol. 2, page 68)
On January 15, 1976, Jose A. Olaguer claiming to be the attorney-infact of his son Virgilio Olaguer under a general power of attorney
Doc. No. 141, Page No. 100, Book No. 7, Series of 1972 of Notary

Public Otilio Sy Bongon, sold Lot No. 1 to defendant Emiliano M.

[Ongjoco] for 10,000 Pesos per the deed of absolute sale notarized
by Otilio Sy Bongon. (Exhibit "H") The alleged general power of
attorney however was not presented or marked nor formally offered
in evidence. AaIDHS
On September 7, 1976, Jose A. Olaguer again claiming to be the
attorney-in-fact of Virgilio Olaguer under the same general power of
attorney referred to in the deed of absolute sale of Lot 1, sold Lot
No. 2 to Emiliano M. [Ongjoco] for 10,000 Pesos. (Exhibit "I") The
deed of absolute sale was notarized by Otilio Sy Bongon.
On July 16, 1979, Jose A. Olaguer as attorney-in-fact of Virgilio
Olaguer under a general power of attorney Doc. No. 378, Page No.
76, Book No. 14, Series of 1978 sold Lot No. 76-D to Emiliano M.
[Ongjoco] for 5,000 Pesos. The deed of absolute sale is Doc. No.
571, Page No. 20, Book No. 16, Series of 1979 of Notary Public
Otilio Sy Bongon. (Exhibit "K")
The same Lot No. 76-D was sold on October 22, 1979 by Jose A.
Olaguer as attorney-in-fact of Virgilio Olaguer under a general
power of attorney Doc. No. 378, Page No. 76, Book No. 14, Series of
1978 of Notary Public Otilio Sy Bongon sold Lot No. 76-D to
Emiliano M. [Ongjoco] for 10,000 Pesos. The deed of absolute sale
is Doc. No. 478, Page No. 97, Book NO. XXII, Series of 1979 of
Notary Public Antonio A. Arcangel. (Exhibit "J") SAaTHc
On July 3, 1979, Jose A. Olaguer as attorney-in-fact of Virgilio
Olaguer sold Lots 76-E and 76-F to Emiliano M. [Ongjoco] for 15,000
Pesos. The deed of absolute sale is Doc. No. 526, Page No. 11, Book
No. 16, Series of 1979 of Notary Public Otilio Sy Bongon. (Exhibit
"M")
The same Lots 76-E and 76-F were sold on October 25, 1979, by
Jose A. Olaguer as attorney-in-fact of Virgilio Olaguer under the
same general power of attorney of 1978 referred to above to
Emiliano M. [Ongjoco] for 30,000 Pesos. The deed of absolute sale
is Doc. No. 47, Page No. 11, Book No. XXIII, Series of 1972 of Notary
Public Antonio A. Arcangel. (Exhibit "L")
On July 2, 1979 Jose A. Olaguer as attorney-in-fact of Virgilio
Olaguer sold Lot No. 76-G to Emiliano M. [Ongjoco] for 10,000
Pesos. The deed of sale is Doc. No. 516, Page No. 9, Book No. 16,
Series of 1979 of Notary Public Otilio Sy Bongon. (Exhibit "N")
The same Lot 76-G was sold on February 29, 1980 by Jose A.
Olaguer as attorney-in-fact of Virgilio Olaguer under the same
general power of attorney of 1978 referred to above to Emiliano M.
[Ongjoco] for 10,000 Pesos. The deed of absolute sale is Doc. No.
l02, Page No. 30, Book No. 17, Series of 1980 of Notary Public Otilio
Sy Bongon. (Exhibit "O") 5 (Emphases ours.) IcHTCS

7
Thus, on 28 January 1980, the Estate of Lino Olaguer represented
by the legitimate children of the spouses Lino Olaguer and
defendant Olivia P. Olaguer, namely, Sor Mary Edith Olaguer,
Aurora O. de Guzman, Clarissa O. Trinidad, Lina Olaguer and Ma.
Linda O. Montayre, as attorney-in-fact and in her own behalf, filed
an action for the Annulment of Sales of Real Property and/or
Cancellation of Titles 6 in the then Court of First Instance of Albay. 7
Docketed as Civil Case No. 6223, the action named as defendants
the spouses Olivia P. Olaguer and Jose A. Olaguer; Eduardo Olaguer;
Virgilio Olaguer; Cipriano Duran; the Heirs of Estanislao O. Olaguer,
represented by Maria Juan Vda. de Olaguer; and the Philippine
National Bank (PNB).
In the original complaint, the plaintiffs therein alleged that the sales
of the following properties belonging to the Estate of Lino Olaguer
to Estanislao Olaguer were absolutely simulated or fictitious,
particularly: Lots Nos. 578, 1557, 1676, 4521, 4522, 8635, 8638,
7589, 7593, and 7396. In praying that the sale be declared as null
and void, the plaintiffs likewise prayed that the resulting Transfer
Certificates of Title issued to Jose Olaguer, Virgilio Olaguer, Cipriano
Duran and the PNB be annulled.
Defendant PNB claimed in its Answer, 8 inter alia, that it was a
mortgagee in good faith and for value of Lots Nos. 7589, 7593 and
7396, which were mortgaged as security for a loan of P10,000.00;
the mortgage contract and other loan documents were signed by
the spouses Estanislao and Maria Olaguer as registered owners; the
proceeds of the loan were received by the mortgagors themselves;
Linda Olaguer Montayre had no legal capacity to sue as attorney-infact; plaintiffs as well as Maria Olaguer were in estoppel; and the
action was already barred by prescription. PNB set up a compulsory
counterclaim for damages, costs of litigation and attorney's fees. It
also filed a cross-claim against Maria Olaguer for the payment of
the value of the loan plus the agreed interests in the event that
judgment would be rendered against it. TIHDAa
Defendants Olivia P. Olaguer, Jose A. Olaguer and Virgilio Olaguer,
in their Answer, 9 denied the material allegations in the complaint.
They maintained that the sales of the properties to Pastor Bacani
and Estanislao Olaguer were judicially approved; the complaint did
not state a sufficient cause of action; it was barred by laches and/or
prescription; lis pendens existed; that the long possession of the
vendees have ripened into acquisitive prescription in their favor,
and the properties no longer formed part of the Estate of Lino
Olaguer; until the liquidation of the conjugal properties of Lino
Olaguer and his former wives, the plaintiffs were not the proper
parties in interest to sue in the action; and in order to afford
complete relief, the other conjugal properties of Lino Olaguer with

his former wives, and his capital property that had been conveyed
without the approval of the testate court should also be included
for recovery in the instant case.
Defendant Maria Juan Vda. de Olaguer, representing the heirs of
Estanislao Olaguer, in her Answer, 10 likewise denied the material
allegations of the complaint and insisted that the plaintiffs had no
valid cause of action against the heirs of the late Estanislao
Olaguer, as the latter did not participate in the alleged transfer of
properties by Olivia P. Olaguer and Eduardo Olaguer in favor of the
late Estanislao Olaguer.
Defendant Cipriano Duran claimed, in his Answer, 11 that the
complaint stated no cause of action; he was merely instituted by
his late sister-in-law Josefina Duran to take over the management
of Lots Nos. 8635 and 8638 in 1971; and the real party-in-interest
in the case was the administrator of the estate of Josefina Duran.
aEHAIS
On 11 January 1995, an Amended Complaint 12 was filed in order
to implead respondent Emiliano M. Ongjoco as the transferee of
Virgilio Olaguer with respect to portions of Lot No. 76, namely Lots
Nos. 1, 2, 76-D, 76-E, 76-F, and 76-G.
In his Answer with Counterclaim and Motion to Dismiss, 13
respondent Ongjoco denied the material allegations of the
amended complaint and interposed, as affirmative defenses the
statute of limitations, that he was a buyer in good faith, that
plaintiffs had no cause of action against him, and that the sale of
property to Pastor Bacani, from whom Ongjoco derived his title, was
judicially approved.
On 23 January 1996, plaintiffs filed a Re-Amended Complaint, 14 in
which the heirs of Estanislao Olaguer were identified, namely, Maria
Juan Vda. de Olaguer, Peter Olaguer, Yolanda Olaguer and Antonio
Bong Olaguer.
In their Answer, 15 the heirs of Estanislao Olaguer reiterated their
claim that Estanislao Olaguer never had any transactions or
dealings with the Estate of Lino Olaguer; nor did they mortgage any
property to the PNB. cCEAHT
On 5 August 1998, the heirs of Estanislao Olaguer and petitioner
Ma. Linda Olaguer Montayre submitted a compromise agreement,
16 which was approved by the trial court.
On 6 October 1999, Cipriano Duran filed a Manifestation 17 in
which he waived any claim on Lots Nos. 8635 and 8638. Upon
motion, Duran was ordered dropped from the complaint by the trial
court in an order 18 dated 20 October 1999.
In a Decision 19 dated 13 July 2001, the RTC ruled in favor of the
plaintiffs. The pertinent portions of the decision provide:

8
The entirety of the evidence adduced clearly show that the sale of
the 12 lots to Pastor Bacani pursuant to Exhibit "A" and the sale of
the 10 lots to Estanislao Olaguer pursuant to Exhibit "D" were
absolutely simulated sales and thus void ab initio. The two deeds of
sales Exhibits "A" and "D" are even worse than fictitious, they are
completely null and void for lack of consideration and the parties
therein never intended to be bound by the terms thereof and the
action or defense for the declaration of their inexistence does not
prescribe. (Art. 1410, Civil Code) Aside from being simulated they
were clearly and unequivocally intended to deprive the compulsory
heirs of their legitime . . .. acHCSD
The deeds of sale, Exhibits "A" and "D" being void ab initio, they
are deemed as non-existent and the approval thereof by the
probate court becomes immaterial and of no consequence, because
the approval by the probate court did not change the character of
the sale from void to valid. . . . .
xxx xxx xxx
Defendant Jose A. Olaguer simulated the sales and had them
approved by the probate court so that these properties would
appear then to cease being a part of the estate and the vendee
may then be at liberty to dispose of the same in any manner he
may want. They probably believed that by making it appear that
the properties were bought back from Pastor Bacani under a
simulated sale, they (Olivia Olaguer and Eduardo Olaguer) would
appear then as the owners of the properties already in their
personal capacities that disposals thereof will no longer require
court intervention. . . . .
xxx xxx xxx
[Jose A. Olaguer] had Olivia P. Olaguer execute a Special Power of
Attorney (Exhibit "T") authorizing him (Jose A. Olaguer) to sell or
encumber the properties allegedly bought back from Pastor Bacani
which Jose A. Olaguer did with respect to the 6/13 share of Olivia P.
Olaguer on Lot No. 76 by selling it to his son Virgilio for only 3,000
Pesos, then caused Virgilio to execute a power of attorney
authorizing him to sell or encumber the 6/13 share which he did by
selling the same to defendant Emiliano M. [Ongjoco]. cHDEaC
Virgilio Olaguer however executed an affidavit (Exhibit "CC")
wherein he denied having bought any property from the estate of
Lino Olaguer and that if there are documents showing that fact he
does not know how it came about. . . . .
The 1972 power of attorney referred to by Jose A. Olaguer as his
authority for the sale of Lots 1 and 2 (formerly lots 76-B and 76-C)
was not presented nor offered in evidence.

There are two deeds of sale over Lot 76-D, (Exhibits "K" and "J") in
favor of defendant Emiliano M. [Ongjoco] with different dates of
execution, different amount of consideration, different Notary
Public.
There are two deeds of sale over Lots 76-E and 76-F (Exhibits "M"
and "L") in favor of defendant Emiliano M. [Ongjoco] with different
dates of execution, different amount of consideration and different
Notary Public.
There are two deeds of sale over Lot 76-G (Exhibits "N" and "O") in
favor of Emiliano M. [Ongjoco] with different dates of execution with
the same amount of consideration and the same Notary Public.
While Lot 76-D was allegedly sold already to Emiliano M. [Ongjoco]
in 1979, yet it was still Jose A. Olaguer who filed a petition for the
issuance of a second owner's copy as attorney in fact of Virgilio
Olaguer on August 8, 1980 (Exhibit "SS") and no mention was made
about the sale. EAHcCT
Under these circumstances, the documents of defendant Emiliano
M. [Ongjoco] on lots 76 therefore, in so far as the portions he
allegedly bought from Jose A. Olaguer as attorney in fact of Virgilio
Olaguer suffers seriously from infirmities and appear dubious.
Defendant Emiliano M. [Ongjoco] cannot claim good faith because
according to him, when these lots 76-[B] to 76-G were offered to
him his condition was to transfer the title in his name and then he
pays. He did not bother to verify the title of his vendor. . . . .
So with respect to the sale of Lots 76-B to 76-G, Emiliano M.
[Ongjoco] has no protection as innocent purchaser for good faith
affords protection only to purchasers for value from the registered
owners. . . . Knowing that he was dealing only with an agent . . ., it
behooves upon defendant Emiliano M. [Ongjoco] to find out the
extent of the authority of Jose A. Olaguer as well as the title of the
owner of the property, because as early as 1973 pursuant to the
subdivision agreement, (records, vol. 2, page 109 and Exhibit "14"
and "14-d") he already knew fully well that Lots 76-B to 76-G he
was buying was owned by Olivia P. Olaguer and not by Virgilio
Olaguer. IHAcCS
xxx xxx xxx
With respect to the 10 lots sold to [Eduardo] Olaguer (Exhibit "D")
Jose A. Olaguer had Estanislao Olaguer execute a power of attorney
(Exhibit "X") authorizing him (Jose A. Olaguer) to sell or encumber
the 10 lots allegedly bought by Estanislao from the estate. With this
power of attorney, he mortgaged lots 7589, 7593 and 7398 to the
PNB. He sold lots 1557 and 1676 to his son Virgilio Olaguer. While
under Exhibit "UU" dated December 29, 1966, he bought the 10
parcels of land, among which is lots 4521 and 4522 from Estanislao
Olaguer, yet, on March 16, 1968, he again bought lots 4521 and

9
4522 (records, vol. 1, page 38) from Estanislao Olaguer. While lots
8635 and 8638 were among those sold to him under Exhibit "UU", it
appears that he again bought the same on June 5, 1968 under
Exhibit "F".
The heirs of Estanislao Olaguer however denied having bought any
parcel of land from the estate of Lino Olaguer. Estanislao Olaguer's
widow, Maria Juan vda. de Olaguer, executed an affidavit (Exhibit
"BB") that they did not buy any property from the estate of Lino
Olaguer, they did not sell any property of the estate and that they
did not mortgage any property with the PNB. She repeated this in
her deposition. (records, vol. 2, page 51) This was corroborated by
no less than former co-administrator Eduardo Olaguer in his
deposition too (Exhibit "RRRR") that the sale of the 10 parcels of
land to Estanislao Olaguer was but a simulated sale without any
consideration. . . . .
xxx xxx xxx
A partial decision was already rendered by this court in its order of
August 5, 1998 (records, vol. 2, page 64) approving the
compromise agreement with defendants Heirs of Estanislao
Olaguer. (records, vol. 2 page 57). DECcAS
Defendant Cipriano Duran was dropped from the complaint per the
order of the court dated October 20, 1999 (records, vol. 2, page
155) because he waived any right or claim over lots 8635 and
8638. (records, vol. 2, page 150). (Emphasis ours.)
The dispositive portion of the above decision was, however,
amended by the trial court in an Order 20 dated 23 July 2001 to
read as follows:
WHEREFORE, premises considered, decision is hereby rendered in
favor of the plaintiffs as follows:
1) The deed of sale to Pastor Bacani (Exhibit "A") and the deed of
sale to Estanislao Olaguer (Exhibit "D") are hereby declared as null
and void and without force and effect and all the subsequent
transfers and certificates arising therefrom likewise declared null
and void and cancelled as without force and effect, except as
herein provided for.
2) Lot Nos. 4518, 4526, 4359 and 8750 are hereby ordered
reverted back to the estate of Lino Olaguer and for this purpose,
within ten (10) days from the finality of this decision, the heirs of
Olivia P. Olaguer (the plaintiffs herein) [sic] are hereby ordered to
execute the necessary document of reconveyance, failure for
which, the Clerk of Court is hereby ordered to execute the said
deed of reconveyance.
3) Lot Nos. 7514, 6608, 8582, 8157, 7999, 6167 and 8266 are
hereby ordered reverted back to the estate of Lino Olaguer and for
this purpose, within ten (10) days from the finality of this decision,

defendant Eduardo Olaguer is hereby ordered to execute the

necessary document of reconveyance, failure for which, the Clerk
of Court is hereby ordered to execute the said deed of
reconveyance. TcEaAS
4) Lots 1 and 2, Pcs-20015, and Lots 76-D, 76-E, 76-F and 76-G,
Psd-180629 sold to Emiliano M. [Ongjoco] are hereby ordered
reverted back to the estate of Lino Olaguer. For this purpose, within
ten (10) days from the finality of this decision, defendant Emiliano
M. [Ongjoco] is hereby ordered to execute the necessary deed of
reconveyance, otherwise, the Clerk of Court shall be ordered to
execute the said reconveyance and have the same registered with
the Register of Deeds so that new titles shall be issued in the name
of the estate of Lino Olaguer and the titles of Emiliano [Ongjoco]
cancelled.
5) The parties have acquiesced to the sale of the 7/13 portion of Lot
76 to Eduardo Olaguer as well as to the latter's disposition thereof
and are now in estoppel to question the same. The court will leave
the parties where they are with respect to the 7/13 share of Lot 76.
6) Lots 578, 1557, 1676, 4521, 4522, 8635, 8638, are hereby
reverted back to the estate of Lino Olaguer and for this purpose,
the Clerk of [Court] is hereby ordered to execute the necessary
deed of reconveyance within ten days from the finality of this
decision and cause its registration for the issuance of new titles in
the name of the Estate of Lino Olaguer and the cancellation of
existing ones over the same.
7) While the mortgage with the defendant PNB is null and void, Lots
7589, 7593 and 7396 shall remain with the Republic of the
Philippines as a transferee in good faith.
Both the petitioners and respondent filed their respective Notices of
Appeal 21 from the above decision. The case was docketed in the
Court of Appeals as CA-G.R. CV No. 71710.
In their Plaintiff-Appellant's Brief 22 filed before the Court of
Appeals, petitioner Estate argued that the trial court erred in not
ordering the restitution and/or compensation to them of the value
of the parcels of land that were mortgaged to PNB, notwithstanding
the fact that the mortgage was declared null and void. Petitioners
maintain that the PNB benefited from a void transaction and should
thus be made liable for the value of the land, minus the cost of the
mortgage and the reasonable expenses for the foreclosure,
consolidation and transfer of the lots. SDTIHA
Ongjoco, on the other hand, argued in his Defendant-Appellant's
Brief 23 that the trial court erred in: declaring as null and void the
Deeds of Sale in favor of Pastor Bacani and Eduardo Olaguer and
the subsequent transfers and certificates arising therefrom;
ordering the reconveyance of the lots sold to him (Ongjoco); and

10
failing to resolve the affirmative defenses of prescription, the
authority of Olivia and Eduardo to dispose of properties formerly
belonging to the estate of Lino Olaguer, recourse in a court of coequal jurisdiction, and forum shopping.
Petitioner Linda O. Montayre was likewise allowed to file a Brief 24
on her own behalf, as Plaintiff-Appellee and Plaintiff-Appellant. 25
She refuted therein the assignment of errors made by DefendantAppellant Ongjoco and assigned as error the ruling of the trial court
that the lots mortgaged to the PNB should remain with the Republic
of the Philippines as a transferee in good faith.
On 27 February 2006, the Court of Appeals rendered the assailed
Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, the appealed Decision is hereby
MODIFIED, in that Paragraph 4 of the amended decision is hereby
Ordered Deleted, and the questioned sales to defendant-appellant
Emiliano M. Ongjoco are UPHELD. 26
In denying the appeal interposed by petitioners, the appellate court
reasoned that the claim for the value of the lots mortgaged with
the PNB were not prayed for in the original Complaint, the
Amended Complaint or even in the Re-Amended Complaint. What
was sought therein was merely the declaration of the nullity of the
mortgage contract with PNB. As the relief prayed for in the appeal
was not contained in the complaint, the same was thus barred.
HaAIES
The Court of Appeals also ruled that the evidence of petitioners
failed to rebut the presumption that PNB was a mortgagee in good
faith. Contrarily, what was proven was the fact that Olivia Olaguer
and Jose A. Olaguer were the persons responsible for the fraudulent
transactions involving the questioned properties. Thus, the claim
for restitution of the value of the mortgaged properties should be
made against them.
As regards the appeal of respondent Ongjoco, the appellate court
found the same to be meritorious. The said court ruled that when
the sale of real property is made through an agent, the buyer need
not investigate the principal's title. What the law merely requires
for the validity of the sale is that the agents authority be in writing.
Furthermore, the evidence adduced by petitioners was ruled to be
inadequate to support the conclusion that Ongjoco knew of facts
indicative of the defect in the title of Olivia Olaguer or Virgilio
Olaguer.
Petitioners moved for a partial reconsideration 27 of the Court of
Appeals' decision in order to question the ruling that respondent
Ongjoco was a buyer in good faith. The motion was, however,
denied in a Resolution 28 dated 29 June 2006.

Aggrieved, petitioners filed the instant Petition for Review on

Certiorari under Rule 45 of the Revised Rules of Court, raising the
following assignment of errors:
I.
THE COURT OF APPEALS COMMITTED AN ERROR IN LAW WHEN IT
RULED, ON SPECULATION, THAT RESPONDENT EMILIANO M.
ONGJOCO WAS A BUYER IN GOOD FAITH OF THE PROPERTIES OF
THE ESTATE OF LINO OLAGUER, DESPITE THE EXISTENCE OF FACTS
AND CIRCUMSTANCES FOUND BY THE TRIAL COURT THAT OUGHT
TO PUT EMILIANO M. ONGJOCO ON NOTICE THAT THE PETITIONERSAPPELLANTS HAVE A RIGHT OR INTEREST OVER THE SAID
PROPERTIES, AND CONTRARY TO PREVAILING JURISPRUDENCE.
SaDICE
II.
THE COURT OF APPEALS COMMITTED AN ERROR IN LAW WHEN IT
DISREGARDED THE CLEAR FINDINGS OF FACTS AND CONCLUSIONS
MADE BY THE TRIAL COURT, IN THE ABSENCE OF ANY STRONG AND
COGENT REASONS TO REVERSE THE SAID FINDINGS, CONTRARY TO
PREVAILING JURISPRUDENCE. 29
Essentially, the question that has been brought before us for
consideration is whether or not, under the facts and circumstances
of this case, respondent Ongjoco can be considered an innocent
purchaser for value.
Petitioners agree with the pronouncement of the trial court that
respondent Ongjoco could not have been a buyer in good faith
since he did not bother to verify the title and the capacity of his
vendor to convey the properties involved to him. Knowing that
Olivia P. Olaguer owned the properties in 1973 and that he merely
dealt with Jose A. Olaguer as an agent in January 1976, Ongjoco
should have ascertained the extent of Joses authority, as well as
the title of Virgilio as the principal and owner of the properties.
Petitioners likewise cite the following incidents that were
considered by the trial court in declaring that respondent was a
buyer in bad faith, namely: (1) that Virgilio Olaguer executed an
affidavit, 30 wherein he denied having bought any property from
the estate of Lino Olaguer, and that if there are documents showing
that fact, he does not know how they came about; (2) that the
power of attorney referred to by Jose A. Olaguer as his authority for
the sale of Lots 1 and 2 (formerly Lots 76-B and 76-C) was not
presented or offered in evidence; (3) that there are two deeds of
sale 31 over Lot 76-D in favor of Ongjoco; (4) that there are two
deeds of sale 32 over Lots 76-E and 76-F in favor of Ongjoco; (5)
that there are two deeds of sale 33 over Lot 76-G in favor of
Ongjoco; and (6) that while Lot 76-D was already sold to Ongjoco in
1979, it was still Jose A. Olaguer as attorney in fact of Virgilio

11
Olaguer who filed on 8 August 1980 a petition for the issuance of a
second owners copy 34 of the title to the property, and no mention
was made about the sale to Ongjoco. DHITCc
Respondent Ongjoco, on the other hand, invokes the ruling of the
Court of Appeals that he was an innocent purchaser for value. His
adamant stance is that, when he acquired the subject properties,
the same were already owned by Virgilio Olaguer. Respondent
insists that Jose A. Olaguer was duly authorized by a written power
of attorney when the properties were sold to him (Ongjoco). He
posits that this fact alone validated the sales of the properties and
foreclosed the need for any inquiry beyond the title to the principal.
All the law requires, respondent concludes, is that the agent's
authority be in writing in order for the agent's transactions to be
considered valid.
Respondent Ongjoco's posture is only partly correct.
According to the provisions of Article 1874 35 of the Civil Code on
Agency, when the sale of a piece of land or any interest therein is
made through an agent, the authority of the latter shall be in
writing. Absent this requirement, the sale shall be void. Also, under
Article 1878, 36 a special power of attorney is necessary in order
for an agent to enter into a contract by which the ownership of an
immovable property is transmitted or acquired, either gratuitously
or for a valuable consideration.
We note that the resolution of this case, therefore, hinges on the
existence of the written power of attorney upon which respondent
Ongjoco bases his good faith. TEHDIA
When Lots Nos. 1 and 2 were sold to respondent Ongjoco through
Jose A. Olaguer, the Transfer Certificates of Title of said properties
were in Virgilio's name. 37 Unfortunately for respondent, the power
of attorney that was purportedly issued by Virgilio in favor of Jose
Olaguer with respect to the sale of Lots Nos. 1 and 2 was never
presented to the trial court. Neither was respondent able to explain
the omission. Other than the self-serving statement of respondent,
no evidence was offered at all to prove the alleged written power of
attorney. This of course was fatal to his case.
As it stands, there is no written power of attorney to speak of. The
trial court was thus correct in disregarding the claim of its
existence. Accordingly, respondent Ongjoco's claim of good faith in
the sale of Lots Nos. 1 and 2 has no leg to stand on.
As regards Lots Nos. 76-D, 76-E, 76-F and 76-G, Ongjoco was able
to present a general power of attorney that was executed by
Virgilio Olaguer. While the law requires a special power of attorney,
the general power of attorney was sufficient in this case, as Jose A.
Olaguer was expressly empowered to sell any of Virgilio's
properties; and to sign, execute, acknowledge and deliver any

agreement therefor. 38 Even if a document is designated as a

general power of attorney, the requirement of a special power of
attorney is met if there is a clear mandate from the principal
specifically authorizing the performance of the act. 39 The special
power of attorney can be included in the general power when the
act or transaction for which the special power is required is
specified therein. 40
On its face, the written power of attorney contained the signature
of Virgilio Olaguer and was duly notarized. As such, the same is
considered a public document and it has in its favor the
presumption of authenticity and due execution, which can only be
contradicted by clear and convincing evidence. 41
No evidence was presented to overcome the presumption in favor
of the duly notarized power of attorney. Neither was there a
showing of any circumstance involving the said document that
would arouse the suspicion of respondent and spur him to inquire
beyond its four corners, in the exercise of that reasonable degree of
prudence required of a man in a similar situation. We therefore rule
that respondent Ongjoco had every right to rely on the power of
attorney in entering into the contracts of sale of Lots Nos. 76-D to
76-G with Jose A. Olaguer. cIECTH
With respect to the affidavit of Virgilio Olaguer in which he allegedly
disavowed any claim or participation in the purchase of any of the
properties of the deceased Lino Olaguer, we hold that the same is
rather irrelevant. The affidavit was executed only on 1 August 1986
or six years after the last sale of the properties was entered into in
1980. In the determination of whether or not a buyer is in good
faith, the point in time to be considered is the moment when the
parties actually entered into the contract of sale.
Furthermore, the fact that Lots Nos. 76-D to 76-G were sold to
respondent Ongjoco twice does not warrant the conclusion that he
was a buyer in bad faith. While the said incidents might point to
other obscured motives and arrangements of the parties, the same
do not indicate that respondent knew of any defect in the title of
the owner of the property.
As to the petition filed by Jose A. Olaguer for the issuance of a
second owners copy of the title to Lot No. 76-D, after the property
was already sold to respondent Ongjoco, the same does not
inevitably indicate that respondent was in bad faith. It is more likely
that Jose A. Olaguer was merely compiling the documents
necessary for the transfer of the subject property. Indeed, it is to be
expected that if the title to the property is lost before the same is
transferred to the name of the purchaser, it would be the
responsibility of the vendor to cause its reconstitution.

12
In sum, we hold that respondent Emiliano M. Ongjoco was in bad
faith when he bought Lots Nos. 1 and 2 from Jose A. Olaguer, as the
latter was not proven to be duly authorized to sell the said
properties.
However, respondent Ongjoco was an innocent purchaser for value
with regard to Lots Nos. 76-D, 76-E, 76-F and 76-G since it was
entirely proper for him to rely on the duly notarized written power
of attorney executed in favor of Jose A. Olaguer. DaEcTC
WHEREFORE, premises considered, the instant petition is hereby
PARTIALLY GRANTED. The assailed Decision of the Court of Appeals
dated 27 February 2006 in CA-G.R. CV NO. 71710 is MODIFIED in
that Paragraph 4 of the Decision dated 13 July 2001 of the Regional
Trial Court of Legazpi City, Branch 6, and the Order dated 23 July
2001 shall read as follows:
4) Lots 1 and 2, Pcs-20015 sold to Emiliano M. Ongjoco are hereby
ordered reverted back to the estate of Lino Olaguer. For this
purpose, within ten (10) days from the finality of this decision,
defendant Emiliano M. Ongjoco is hereby ordered to execute the
necessary deed of reconveyance, otherwise, the Clerk of Court shall
be ordered to execute the said reconveyance and have the same
registered with the Register of Deeds so that new titles shall be
issued in the name of the estate of Lino Olaguer and the titles of
Emiliano Ongjoco cancelled.
EN BANC
[G.R. No. L-30573. October 29, 1971.]
VICENTE M. DOMINGO, represented by his heirs, ANTONIA
RAYMUNDO VDA. DE DOMINGO, RICARDO, CESAR, AMELIA,
VICENTE JR., SALVADOR, IRENE and JOSELITO, all surnamed
DOMINGO, petitioners-appellants, vs. GREGORIO M.
DOMINGO, intervenor-respondent.
Teofilo Leonin for petitioners-appellants.
Osorio, Osorio & Osorio for respondent-appellee.
Teofilo P. Purisima in his own behalf as intervenorrespondent.
SYLLABUS
1. CIVIL LAW; AGENCY; ARTICLES 1891 AND 1909 OF THE NEW
CIVIL CODE; DUTY OF AGENT TO PRINCIPAL. The duties and
liabilities of a broker to his employer are essentially those which an
agent owes to his principal. Consequently, the decisive legal
provisions are found in Articles 1891 and 1909 of the New Civil
Code. The aforecited provisions demand the utmost good faith,
fidelity, honesty, candor and fairness on the part of the agent, the

real estate broker in this case, to his principal, the vendor. The
law imposes upon the agent the absolute obligation to make a full
disclosure or complete account to his principal of all his
transactions and other material facts relevant to the agency, so
much so that the law as amended does not countenance any
stipulation exempting the agent from such an obligation and
considers such an exemption as void. The duly of an agent is
likened to that of a trustee. This is not a technical or arbitrary rule
but a rule founded on the highest and truest principle of morality as
well as of the strictest justice.
2. ID.; ID.; ID.; ID.; EFFECT OF BREACH OF LOYALTY. An agent who
takes a secret profit in the nature of a bonus, gratuity or personal
benefit from the vendee, without revealing the same to his
principal, the vendor, is guilty of a breach of his loyalty to the
principal and forfeits his right to collect the commission from his
principal, even if the principal does not suffer any injury by reason
of such breach of fidelity, or that he obtained better results or that
the agency is a gratuitous one, or that usage or custom allows it,
because the rule is to prevent the possibility of any wrong, not to
remedy or repair an actual damage.
3. ID.; ID.; ID.; ID.; ID.; TAKING OF SECRET PROFIT, TANTAMOUNT
TO BREACH. By taking such profit or bonus or gift or propina
from the vendee, the agent thereby assumes a position wholly
inconsistent with that of being an agent for his principal, who has a
right to treat him, insofar as his commission is concerned, as if no
agency had existed. The fact that the principal may have been
benefited by the valuable services of the said agent does not
exculpate the agent who has only himself to blame for such a result
by reason of his treachery or perfidy.
4. ID.; ID.; ID.; ID.; ID.; LIABILITY FOR ESTAFA. Because of his
responsibility under the aforecited Article 1720, an agent is likewise
liable for estafa for failure to deliver to his principal the total
amount collected by him in behalf of his principal and cannot retain
the commission pertaining to him by subtracting the same from his
collections.
5. ID.; ID.; ID.; ID.; ID.; ID.; PRINCIPAL ENTITLED TO RECOVERY OF
COMMISSIONS PAID. Where a principal has paid an agent or
broker a commission while ignorant of the fact that the latter has
been unfaithful, the principal may recover back the commission
paid, since an agent or broker who has been unfaithful is not
entitled to any compensation. If the agent does not conduct himself
with entire fidelity towards his principal, but is guilty of taking a
secret profit or commission in regard the matter in which he is
employed, he loses his right to compensation on the ground that he
has taken a position wholly inconsistent with that of agent for his

13
employer, and which gives his employer, upon discovering it, the
right to treat him so far as compensation, at least, is concerned as
if no agency had existed. This may operate to give to the principal
the benefit of valuable services rendered by the agent, but the
agent has only himself to blame for that result.
6. ID.; ID.; ID.; ID.; ID.; ACCOUNTABILITY OF AGENT FOR ALL
PROFITS RECEIVED. As a general rule, it is a breach of good faith
and loyalty to his principal for an agent, while the agency exists, so
to deal with the subject matter thereof, or with information
acquired during the course of the agency, as to make a profit out of
it for himself in excess of his lawful compensation; and if he does so
he may be held as a trustee and may be compelled to account to
his principal for all profits, advantages, rights, or privileges
acquired by him in such dealings, whether in performance or in
violation of his duties, and be required to transfer them to his
principal upon being reimbursed for his expenditures for the same,
unless the principal has consented to or ratified the transaction
knowing that benefit or profit would accrue, or had accrued, to the
agent, or unless with such knowledge he has allowed the agent so
as to change his condition that he cannot be put in status quo. The
application of this rule is not affected by the fact that the principal
did not suffer any injury by reason of the agent's dealings, or that
he in fact obtained better results; nor is it affected by the fact that
there is a usage or custom to the contrary, or that the agency is a
gratuitous one.
7. ID.; ID.; ID.; ID.; WHEN INAPPLICABLE. The duty embodied in
Article 1891 of the New Civil Code will not apply if the agent or
broker acted only as a middleman with the task of merely bringing
together the vendor and vendee, who themselves thereafter will
negotiate on the terms and conditions of the transaction. Neither
would the rule apply if the agent or broker had informed the
principal of the gift or bonus or profit he received from the
purchaser and his principal did not object thereto. Herein
defendant-appellee Gregorio Domingo was not merely a middleman
of the petitioner-appellant Vicente Domingo and the buyer Oscar de
Leon. He was the broker and agent of said petitioner-appellant only.
And herein petitioner-appellant was not aware of the gift of One
Thousand Pesos (P1,000.00) received by Gregorio Domingo form
the prospective buyer; much less did he consent to his agent's
accepting such a gift.
DECISION
MAKASIAR, J p:
Petitioner-appellant Vicente M. Domingo, now deceased and
represented by his heirs, Antonina Raymundo vda. de Domingo,
Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all

surnamed Domingo, sought the reversal of the majority decision

dated March 12, 1969 of the Special Division of Five of the Court of
Appeals affirming the judgment of the trial court, which sentenced
the said Vicente M. Domingo to pay Gregorio M. Domingo
P2,307.50 and the intervenor Teofilo P. Purisima P2,607.50 with
legal interest on both amounts from the date of the filing of the
complaint, to pay Gregorio Domingo P1,000.00 as moral and
exemplary damages and P500.00 as attorney's fees plus costs.
The following facts were found to be established by the majority of
the Special Division of Five of the Court of Appeals:
In a document Exhibit "A" executed on June 2, 1956, Vicente M.
Domingo granted Gregorio Domingo, a real estate broker, the
exclusive agency to sell his lot No. 883 of Piedad Estate with an
area of about 88,477 square meters at the rate of P2.00 per square
meter (or for P176,954.00) with a commission of 5% on the total
price, if the property is sold by Vicente or by anyone else during the
30-day duration of the agency or if the property is sold by Vicente
within three months from the termination of the agency to a
purchaser to whom it was submitted by Gregorio during the
continuance of the agency with notice to Vicente. The said agency
contract was in triplicate, one copy was given to Vicente, while the
original and another copy were retained by Gregorio.
On June 3, 1956, Gregorio authorized the intervenor Teofilo P.
Purisima to look for a buyer, promising him one-half of the 5%
commission.
Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio
as a prospective buyer.
Oscar de Leon submitted a written offer which was very much lower
than the price of P2.00 per square meter (Exhibit "B"). Vicente
directed Gregorio to tell Oscar de Leon to raise his offer. After
several conferences between Gregorio and Oscar de Leon, the
latter raised his offer to P109,000.00 on June 20, 1956 as
evidenced by Exhibit "C", to which Vicente agreed by signing
Exhibit "C". Upon demand of Vicente, Oscar de Leon issued to him a
check in the amount of P1,000.00 as earnest money, after which
Vicente advanced to Gregorio the sum of P300.00. Oscar de Leon
confirmed his former offer to pay for the property at P1.20 per
square meter in another letter, Exhibit "D". Subsequently, Vicente
asked for an additional amount of P1,000.00 as earnest money,
which Oscar de Leon promised to deliver to him. Thereafter, Exhibit
"C" was amended to the effect that Oscar de Leon will vacate on or
about September 15, 1956 his house and lot at Denver Street,
Quezon City which is part of the purchase price. It was again
amended to the effect that Oscar will vacate his house and lot on
December 1, 1956, because his wife was on the family way and

14
Vicente could stay in lot No. 883 of Piedad Estate until June 1, 1957,
in a document dated June 30, 1956 (the year 1957 therein is a
mere typographical error) and marked Exhibit "D". Pursuant to his
promise to Gregorio, Oscar gave him as a gift or propina the sum of
One Thousand Pesos (P1,000.00) for succeeding in persuading
Vicente to sell his lot at P1.20 per square meter or a total in round
figure of One Hundred Nine Thousand Pesos (P109,000.00). This gift
of One Thousand Pesos (P1,000.00) was not disclosed by Gregorio
to Vicente. Neither did Oscar pay Vicente the additional amount of
One Thousand Pesos (P1,000.00) by way of earnest money. When
the deed of sale was not executed on August 1, 1956 as stipulated
in Exhibit "C" nor on August 16, 1956 as extended by Vicente,
Oscar told Gregorio that he did not receive his money from his
brother in the United States, for which reason he was giving up the
negotiation including the amount of One Thousand Pesos
(P1,000.00) given as earnest money to Vicente and the One
Thousand Pesos (P1,000.00) given to Gregorio as propina or gift.
When Oscar did not see him after several weeks, Gregorio sensed
something fishy. So, he went to Vicente and read a portion of
Exhibit "A" marked Exhibit "A-1" to the effect that Vicente was still
committed to pay him 5% commission, if the sale is consummated
within three months after the expiration of the 30-day period of the
exclusive agency in his favor from the execution of the agency
contract on June 2, 1956 to a purchaser brought by Gregorio to
Vicente during the said 30-day period. Vicente grabbed the original
of Exhibit "A" and tore it to pieces. Gregorio held his peace, not
wanting to antagonize Vicente further, because he had still the
duplicate of Exhibit "A". From his meeting with Vicente, Gregorio
proceeded to the office of the Register of Deeds of Quezon City,
where he discovered Exhibit "G", a deed of sale executed on
September 17, 1956 by Amparo Diaz, wife of Oscar de Leon, over
their house and lot at No. 40 Denver Street, Cubao, Quezon City, in
favor of Vicente as down payment by Oscar de Leon on the
purchase price of Vicente's lot No. 883 of Piedad Estate. Upon thus
learning that Vicente sold his property to the same buyer, Oscar de
Leon and his wife, he demanded in writing payment of his
commission on the sale price of One Hundred Nine Thousand Pesos
(P109,000.00), Exhibit "H". He also conferred with Oscar de Leon,
who told him that Vicente went to him and asked him to eliminate
Gregorio in the transaction and that he would sell his property to
him for One Hundred Four Thousand Pesos (P104,000.00). In
Vicente's reply to Gregorio's letter, Exhibit "H", Vicente stated that
Gregorio is not entitled to the 5 % commission because he sold the
property not to Gregorio's buyer, Oscar de Leon, but to another
buyer, Amparo Diaz, wife of Oscar de Leon.

The Court of Appeals found from the evidence that Exhibit "A", the
exclusive agency contract, is genuine; that Amparo Diaz, the
vendee, being the wife of Oscar de Leon, the sale by Vicente of his
property is practically a sale to Oscar de Leon since husband and
wife have common or identical interests; that Gregorio and
intervenor Teofilo Purisima were the efficient cause in the
consummation of the sale in favor of the spouses Oscar de Leon
and Amparo Diaz; that Oscar de Leon paid Gregorio the sum of One
Thousand Pesos (P1,000.00) as "propina" or gift and not as
additional earnest money to be given to the plaintiff, because
Exhibit "66", Vicente's letter addressed to Oscar de Leon with
respect to the additional earnest money, does not appear to have
been answered by Oscar de Leon and therefore there is no writing
or document supporting Oscar de Leon's testimony that he paid an
additional earnest money of One Thousand Pesos (P1,000.00) to
Gregorio for delivery to Vicente, unlike the first amount of One
Thousand Pesos (P1,000.00) paid by Oscar de Leon to Vicente as
earnest money, evidenced by the letter Exhibit "4"; and that
Vicente did not even mention such additional earnest money in his
two replies Exhibits "I" and "J" to Gregorio's letter of demand of the
5% commission.
The three issues in this appeal are (1) whether the failure on the
part of Gregorio to disclose to Vicente the payment to him by Oscar
de Leon of the amount of One Thousand Pesos (P1,000.00) as gift
or "propina" for having persuaded Vicente to reduce the purchase
price from P2.00 to P1.20 per square meter, so constitutes fraud as
to cause a forfeiture of his 5% commission on the sale price; (2)
whether Vicente or Gregorio should be liable directly to the
intervenor Teofilo Purisima for the latter's share in the expected
commission of Gregorio by reason of the sale; and (3) whether the
award of legal interest, moral and exemplary damages, attorney's
fees and costs, was proper.
Unfortunately, the majority opinion penned by Justice Edilberto
Soriano and concurred in by Justice Juan Enriquez did not touch on
these issues which were extensively discussed by Justice Magno
Gatmaitan in his dissenting opinion. However, Justice Esguerra, in
his concurring opinion, affirmed that it does not constitute breach
of trust or fraud on the part of the broker and regarded the same as
merely part of the whole process of bringing about the meeting of
the minds of the seller and the purchaser and that the commitment
from the prospective buyer that he would give a reward to Gregorio
if he could effect better terms for him from the seller, independent
of his legitimate commission, is not fraudulent, because the
principal can reject the terms offered by the prospective buyer if he

15
believes that such terms are onerous or disadvantageous to him.
On the other hand, Justice Gatmaitan, with whom Justice Antonio
Caizares concurred, held the view that such an act on the part of
Gregorio was fraudulent and constituted a breach of trust, which
should deprive him of his right to the commission.
The duties and liabilities of a broker to his employer are essentially
those which an agent owes to his principal. 1
Consequently, the decisive legal provisions are found in Articles
1891 and 1909 of the New Civil Code.
"Art. 1891. Every agent is bound to render an account of his
transactions and to deliver to the principal whatever he may have
received by virtue of the agency, even though it may not be owing
to the principal.
"Every stipulation exempting the agent from the obligation to
render an account shall be void."
xxx xxx xxx
"Art. 1909. The agent is responsible not only for fraud, but also for
negligence, which shall be judged with more or less rigor by the
courts, according to whether the agency was or was not for a
compensation."
Article 1891 of the New Civil Code amends Article 1720 of the old
Spanish Civil Code which provides that:
"Art. 1720. Every agent is bound to give an account of his
transaction and to pay to the principal whatever he may have
received by virtue of the agency, even though what he has
received is not due to the principal."
The modification contained in the first paragraph of Article 1891
consists in changing the phrase "to pay" to "to deliver", which latter
term is more comprehensive than the former.
Paragraph 2 of Article 1891 is a new addition designed to stress the
highest loyalty that is required to an agent condemning as void
any stipulation exempting the agent from the duty and liability
imposed on him in paragraph one thereof.
Article 1909 of the New Civil Code is essentially a reinstatement of
Article 1726 of the old Spanish Civil Code which reads thus:
"Art. 1726. The agent is liable not only for fraud, but also for
negligence, which shall be judged with more or less severity by the
courts, according to whether the agency was gratuitous or for a
price or reward."
The aforecited provisions demand the utmost good faith, fidelity,
honesty, candor and fairness on the part of the agent, the real
estate broker in this case, to his principal, the vendor. The law
imposes upon the agent the absolute obligation to make a full
disclosure or complete account to his principal of all his
transactions and other material facts relevant to the agency, so

much so that the law as amended does not countenance any

stipulation exempting the agent from such an obligation and
considers such an exemption as void. The duty of an agent is
likened to that of a trustee. This is not a technical or arbitrary rule
but a rule founded on the highest and truest principle of morality as
well as of the strictest justice. 2
Hence, an agent who takes a secret profit in the nature of a bonus,
gratuity or personal benefit from the vendee, without revealing the
same to his principal, the vendor, is guilty of a breach of his loyalty
to the principal and forfeits his right to collect the commission from
his principal, even if the principal does not suffer any injury by
reason of such breach of fidelity, or that he obtained better results
or that the agency is a gratuitous one, or that usage or custom
allows it; because the rule is to prevent the possibility of any
wrong, not to remedy or repair an actual damage. 3 By taking such
profit or bonus or gift or propina from the vendee, the agent
thereby assumes a position wholly inconsistent with that of being
an agent for his principal, who has a right to treat him, insofar as
his Commission is concerned, as if no agency had existed. The fact
that the principal may have been benefited by the valuable
services of the said agent does not exculpate the agent who has
only himself to blame for such a result by reason of his treachery or
perfidy.
This Court has been consistent in the rigorous application of Article
1720 of the old Spanish Civil Code. Thus, for failure to deliver sums
of money paid to him as an insurance agent for the account of his
employer as required by said Article 1720, said insurance agent
was convicted of estafa. 4 An administrator of an estate was
likewise liable under the same Article 1720 for failure to render an
account of his administration to the heirs unless the heirs
consented thereto or are estopped by having accepted the
correctness of his account previously rendered. 5
Because of his responsibility under the aforecited Article 1720, an
agent is likewise liable for estafa for failure to deliver to his
principal the total amount collected by him in behalf of his principal
and cannot retain the commission pertaining to him by subtracting
the same from his collections. 6
A lawyer is equally liable under said Article 1720 if he fails to
deliver to his client all the money and property received by him for
his client despite his attorney's lien. 7 The duty of a commission
agent to render a full account of his operations to his principal was
reiterated in Duhart, etc. vs. Macias. 8
The American jurisprudence on this score is well-nigh unanimous.
"Where a principal has paid an agent or broker a commission while
ignorant of the fact that the latter has been unfaithful, the principal

16
may recover back the commission paid, since an agent or broker
who has been unfaithful is not entitled to any compensation.
xxx xxx xxx
"In discussing the right of the principal to recover commissions
retained by an unfaithful agent, the court in Little vs. Phipps (1911)
208 Mass. 331, 94 NE 260, 34 LRA (NS) 1046, said: 'It is well settled
that the agent is bound to exercise the utmost good faith in his
dealings with his principal. As Lord Cairns said, this rule "is not a
technical or arbitrary rule. It is a rule founded on the highest and
truest principles of morality." Parker vs. McKenna (1874) LR 10 Ch
(Eng) 96, 118.. If the agent does not conduct himself with entire
fidelity towards his principal, but is guilty of taking a secret profit or
commission in regard the matter in which he is employed, he loses
his right to compensation on the ground that he has taken a
position wholly inconsistent with that of agent for his employer, and
which gives his employer, upon discovering it, the right to treat him
so far as compensation, at least, is concerned as if no agency had
existed. This may operate to give to the principal the benefit of
valuable services rendered by the agent, but the agent has only
himself to blame for that result.'
xxx xxx xxx
"The intent with which the agent took a secret profit has been held
immaterial where the agent has in fact entered into a relationship
inconsistent with his agency, since the law condemns the
corrupting tendency of the inconsistent relationship. Little vs.
Phipps (1911) 94 NE 260." 9
"As a general rule, it is a breach of good faith and loyalty to his
principal for an agent, while the agency exists, so to deal with the
subject matter thereof, or with information acquired during the
course of the agency, as to make a profit out of it for himself in
excess of his lawful compensation: and if he does so he may be
held as a trustee and may be compelled to account to his principal
for all profits, advantages, rights, or privileges acquired, by him in
such dealings, whether in performance or in violation of his duties,
and be required to transfer them to his principal upon being
reimbursed for his expenditures for the same, unless the principal
has consented to or ratified the transaction knowing that benefit or
profit would accrue, or had accrued, to the agent, or unless with
such knowledge he has allowed the agent so as to change his
condition that he cannot be put in status quo. The application of
this rule is not affected by the fact that the principal did not suffer
any injury by reason of the agent's dealings, or that he in fact
obtained better results; nor is it affected by the fact that there is a
usage or custom to the contrary, or that the agency is a gratuitous
one." (Emphasis supplied.) 10

In the case at bar, defendant-appellee Gregorio Domingo as the

broker, received a gift or propina in the amount of One Thousand
Pesos (P1,000.00) from the prospective buyer Oscar de Leon,
without the knowledge and consent of his principal, herein
petitioner-appellant Vicente Domingo. His acceptance of said
substantial monetary gift corrupted his duty to serve the interests
only of his principal and undermined his loyalty to his principal, who
gave him a partial advance of Three Hundred Pesos (P300.00) on
his commission. As a consequence, instead of exerting his best to
persuade his prospective buyer to purchase the property on the
most advantageous terms desired by his principal, the broker,
herein defendant-appellee Gregorio Domingo, succeeded in
persuading his principal to accept the counter-offer of the
prospective buyer to purchase the property at P1.20 per square
meter or One Hundred Nine Thousand Pesos (P109,000.00) in round
figure for the lot of 88,477 square meters, which is very much lower
than the price of P2.00 per square meter or One Hundred SeventySix Thousand Nine Hundred Fifty-Four Pesos (P176,954.00) for said
lot originally offered by his principal.
The duty embodied in Article 1891 of the New Civil Code will not
apply if the agent or broker acted only as a middleman with the
task of merely bringing together the vendor and vendee, who
themselves thereafter will negotiate on the terms and conditions of
the transaction. Neither would the rule apply if the agent or broker
had informed the principal of the gift or bonus or profit he received
from the purchaser and his principal did not object thereto 11
Herein defendant appellee Gregorio Domingo was not merely a
middleman of the petitioner-appellant Vicente Domingo and the
buyer Oscar de Leon. He was the broker and agent of said
petitioner-appellant only. And therein petitioner-appellant was not
aware of the gift of One Thousand Pesos (P1,000.00) received by
Gregorio Domingo from the prospective buyer; much less did he
consent to his agent's accepting such a gift.
The fact that the buyer appearing in the deed of sale is Amparo
Diaz, the wife of Oscar de Leon, does not materially alter the
situation; because the transaction, to be valid, must necessarily be
with the consent of the husband Oscar de Leon, who is the
administrator of their conjugal assets including their house and lot
at No. 40 Denver Street, Cubao, Quezon City, which were given as
part of and constituted the down payment on, the purchase price of
herein petitioner-appellant's lot No. 883 of Piedad Estate. Hence,
both in law and in fact, it was still Oscar de Leon who was the
buyer.

17
As a necessary consequence of such breach of trust, defendantappellee Gregorio Domingo must forfeit his right to the commission
and must return the part of the commission he received from his
principal.
Teofilo Purisima, the sub-agent of Gregorio Domingo, can only
recover from Gregorio Domingo his one-half share of whatever
amounts Gregorio Domingo received by virtue of the transaction as
his sub-agency contract was with Gregorio Domingo alone and not
with Vicente Domingo, who was not even aware of such subagency. Since Gregorio Domingo received from Vicente Domingo
and Oscar de Leon respectively the amounts of Three Hundred
Pesos (P300.00) and One Thousand Pesos (P1,000.00) or a total of
One Thousand Three Hundred Pesos (P1,300.00), one-half of the
same, which is Six Hundred Fifty Pesos (P650.00), should be paid by
Gregorio Domingo to Teofilo Purisima.
Because Gregorio Domingo's clearly unfounded complaint caused
Vicente Domingo mental anguish and serious anxiety as well as
wounded feelings, petitioner-appellant Vicente Domingo should be
awarded moral damages in the reasonable amount of One
Thousand Pesos (P1,000.00) and attorney's fees in the reasonable
amount of One Thousand Pesos (P1,000.00), considering that this
case has been pending for the last fifteen (15) years from its filing
on October 3, 1956.
WHEREFORE, the judgment is hereby rendered, reversing the
decision of the Court of Appeals and directing the defendantappellee Gregorio Domingo: (1) to pay to the heirs of Vicente
Domingo the sum of One Thousand Pesos (P1,000.00) as moral
damages and One Thousand Pesos (P1,000.00) as attorney's fees;
(2) to pay Teofilo Purisima the sum of Six Hundred Fifty Pesos
(P650.00); and (3) to pay the costs.
SECOND DIVISION
[G.R. Nos. L-33819 and L-33897. October 23, 1982.]
NATIONAL POWER CORPORATION, plaintiff-appellant, vs.
NATIONAL MERCHANDISING CORPORATION and DOMESTIC
INSURANCE COMPANY OF THE PHILIPPINES, defendantsappellants.
The Solicitor General for plaintiff-appellant.
Sycip, Salazar, Luna Manalo & Feliciano for defendantsappellants.
SYNOPSIS
Plaintiff-appellant National Power Corporation (NPC) and defendantappellant National Merchandising Corporation (NAMERCO), the
Philippine representative of New York-based International
Commodities Corporation, executed a contract of sale of sulfur with

a stipulation for liquidated damages in case of breach.

Defendant-appellant Domestic Insurance Company executed a
performance bond in favor of NPC to guarantee the seller's
obligation. In entering into the contract, Namerco, however, did not
disclose to NPC that Namerco's principal, in a cabled instruction,
stated that the sale was subject to availability of a steamer, and
contrary to its principal's instruction, Namerco agreed that nonavailability of a steamer was not a justification for non-payment of
liquidated damages. The New York supplier was not able to deliver
the sulfur due to its inability to secure shipping space.
Consequently, the Government Corporate Counsel rescinded the
contract of sale due to the supplier's non-performance of its
obligations, and demanded payment of liquidated damages from
both Namerco and the surety. Thereafter, NPC sued for recovery of
the stipulated liquidated damages. After trial, the Court of First
Instance rendered judgment ordering defendants-appellants to pay
solidarity to the NPC reduced liquidated damages with interest.
The Supreme Court held that Namerco is liable fur damages
because under Article 1897 of the Civil Code the agent who
exceeds the limits of his authority without giving the party with
whom he contracts sufficient notice of his powers is personally
liable to such party. The Court, however, further reduced the
solidary liability of defendants-appellants for liquidated damages.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; AN AGENT
WHO EXCEEDS THE LIMITS OF HIS AUTHORITY IS PERSONALLY
LIABLE. Under Article 1897 of the Civil Code the agent who
exceeds the limits of his authority without giving the party with
whom he contracts sufficient notice of his powers is personally
liable to such party.
2. ID.; ID.; ID.; ID.; CASE AT BAR. In the present case, Namerco,
the agent of a New York-based principal, entered into a contract of
sale with the National Power Corporation without disclosing to the
NPC the limits of its powers and, contrary to its principal's prior
cabled instructions that the sale should be subject to availability of
a steamer, it agreed that non-availability of a steamer was not a
justification for nonpayment of the liquidated damages. Namerco.
therefore, is liable for damages.
3. ID.; ID.; ID.; THE RULE THAT EVERY PERSON DEALING WITH AN
AGENT IS PUT UPON AN INQUIRY AND MUST DISCOVER UPON HIS
PERIL THE AUTHORITY OF THE AGENT IS NOT APPLICABLE WHERE
THE AGENT, NOT THE PRINCIPAL, IS SOUGHT TO BE HELD LIABLE
ON THE CONTRACT. The rule that every person dealing with an
agent is put upon inquiry and must discover upon his peril the
authority of the agent would apply only in cases where the principal

18
is sought to be held liable on the contract entered into by the
agent. The said rule is not applicable in the instant case since it is
the agent, not the principal, that is sought to be held liable on the
contract of sale which was expressly repudiated by the principal
because the agent took chances, it exceeded its authority and, in
effect. it acted in its own name.
4. ID.; ID.; ID.; THE CONTRACT ENTERED INTO BY AN AGENT WHO
ACTED BEYOND HIS POWERS IS UNENFORCEABLE ONLY AS AGAINST
THE PRINCIPAL BUT NOT AGAINST THE AGENT AND ITS SURETY.
Article 1403 of the Civil Code which provides that a contract
entered into in the name of another person by one who has acted
beyond his powers is unenforceable, refers to the unenforceability
of the contract against the principal. In the instant case, the
contract containing the stipulation for liquidated damages is not
being enforced against its principal but against the agent and its
surety. It being enforced against the agent because Article 1897
implies that the agent who acts in excess of his authority is
personally liable to the party with whom he contracted. And that
rule is complimented by Article 1898 of the Civil Code which
provides that "if the agent contracts, in the name of the principal,
exceeding the scope of his authority, and the principal does not
ratify the contract, it shall be void if the party with whom the agent
contracted is aware of the limits of the powers granted by the
principal." Namerco never disclosed to the NPC the cabled or
written instructions of its principal. For that reason and because
Namerco exceeded the limits of its authority, it virtually acted in its
own name and not as agent and it is, therefore, bound by the
contract of sale which, however, it not enforceable against its
principal. If, as contemplated in Articles 1897 and 1898, Namerco is
bound under the contract of sale, then it follows that it is bound by
the stipulation for liquidated damages in that contract.
5. ID.; ID.; ID.; THE LIABILITY OF AN AGENT WHO EXCEEDS THE
LIMITS OF HIS AUTHORITY IS BASED ON CONTRACT AND NOT ON
TORT OR QUASI-DELICT; CASE AT BAR. Defendant's contention
that Namerco's liability should be based on tort or quasi-delict, as
held in some American cases, like Mendelson vs. Holton, 149 N.E.
38,42 ACR 1307, is not well-taken. As correctly argued by the NPC,
it would be unjust and inequitable for Namerco to escape liability of
the contract after it had deceived the NPC by not disclosing the
limits of its powers and entering into the contract with stipulations
contrary to its principal's instructions.
6. ID.; ID.; ID.; LIABILITY OF THE SURETY ON THE OBLIGATION
CONTRACTED BY AN AGENT WHO EXCEEDED HIS AUTHORITY IS
NOT AFFECTED THEREBY. The contention of the defendants that
the Domestic Insurance Company is not liable to the NPC because

its bond was posted, not to Namerco, the agent, but for the New
York firm which is not liable on the contract of sale, cannot be
sustained because it was Namerco that actually solicited the bond
from the Domestic Insurance Company and, Namerco is being held
liable under the contract of sale because it virtually acted in its own
name. In the last analysis, the Domestic Insurance Company acted
as surety for Namerco. The rule is that "want of authority of the
person who executes an obligation as the agent or representative
of the principal will not, as a general rule, affect the surety thereon,
especially in the absence of fraud, even though the obligation is not
binding on the principal." (72 C.J.S. 525).
7. CIVIL LAW; DAMAGES; IMPOSITION OF INTEREST THEREON NOT
WARRANTED WHERE THE DISPOSITION OF THE CASE HAS BEEN
DELAYED DUE TO NO FAULT OF DEFENDANTS. With respect to the
imposition of the legal rate of interest on the damages from the
filing of the complaint in 1957, or a quarter of a century ago,
defendant's contention that interest should not be collected on the
amount of damages is meritorious. It should be manifestly
iniquitous to collect interest on the damages especially considering
that the disposition of this case has been considerably delayed due
to no fault of the defendants
8. ID.; ID.; LIQUIDATED DAMAGES; NO PROOF OF PECUNIARY LOSS
IS REQUIRED FOR RECOVERY THEREOF. No proof of pecuniary
lost is required for the recovery of liquited damages. The stipulatian
for liquidated damages is intended to obviate controversy on the
amount of damages. There can be no question that the NPC
suffered damages because its production of fertilizer was disrupted
or diminished by reason of the non-delivery of the sulfur. The
parties foresaw that it might be difficult to ascertain the exact
amount of damages for non-delivey of the sulfur. So, they fixed the
liquidated damages to be paid as indemnity to the NPC.
9. ID.; ID.; NOMINAL DAMAGES; NOT A CASE OF. Nominal
damages are damages in name only or are in fact the same as no
damages (25 C.J.S. 466). It would not be correct to hold in this case
that the NPC suffered damages in name only or that the breach of
contract "as merely technical in character since the NPC suffered
damages because its production of fertilizer "as disrupted or
diminished by reason of the non-delivery of the sulfur.
DECISION
AQUINO, J p:
This case is about the recovery of liquidated damages from a
seller's agent that allegedly exceeded its authority in negotiating
the sale.
Plaintiff National Power Corporation appealed on questions of law
from the decision of the Court of First Instance of Manila dated

19
October 10, 1966, ordering defendants National Merchandising
Corporation and Domestic Insurance Company of the Philippines to
pay solidarily to the National Power Corporation reduced liquidated
damages in the sum of P72,114.66 plus legal, rate of interest from
the filing of the complaint and the costs (Civil Case No. 33114).
The two defendants appealed from the same decision allegedly
because it is contrary to law and the evidence. As the amount
originally involved is P360,572.80 and defendants' appeal is tied up
with plaintiff's appeal on questions of law, defendants' appeal can
be entertained under Republic Act No. 2613 which amended section
17 of the Judiciary Law.
On October 17, 1956, the National Power Corporation and National
Merchandising Corporation (Namerco) of 3111 Nagtahan Street,
Manila, as the representative of the International Commodities
Corporation of 11 Mercer Street, New York City (Exh. C), executed in
Manila a contract for the purchase by the NPC from the New York
firm of four thousand long tons of crude sulfur for its Maria Cristina
Fertilizer Plant in Iligan City at a total price of (450,716 (Exh. E).
On that same date, a performance bond in the sum of P90,143.20
was executed by the Domestic Insurance Company in favor of the
NPC to guarantee the seller's obligations (Exh. F).
It was stipulated in the contract of sale that the seller would deliver
the sulfur at Iligan City within sixty days from notice of the
establishment in its favor of a letter of credit for $212,120 and that
failure to effect delivery would subject the seller and its surety to
the payment of liquidated damages at the rate of two-fifth of one
percent of the full contract price for the first thirty days of default
and four-fifth of one percent for every day thereafter until complete
delivery is made (Art. 8, p. 111, Defendants' Record on Appeal).
In a letter dated November 12, 1956, the NPC advised John Z.
Sycip, the president of Namerco, of the opening on November 8 of
a letter of credit for $212,120 in favor of International Commodities
Corporation which would expire on January 31, 1957 (Exh. I). Notice
of that letter of credit was, received by cable by the New York firm
on November 15, 1956 (Exh. 80-Wallick). Thus, the deadline for the
delivery of the sulfur was January 15, 1957.
The New York supplier was not able to deliver the sulfur due to its
inability to secure shipping space. During the period from January
20 to 26, 1957 there was a shutdown of the NPC's fertilizer plant
because there was no sulfur. No fertilizer was produced (Exh. K).
In a letter dated February 27, 1957, the general manager of the
NPC advised Namerco and the Domestic Insurance Company that
under Article 9 of the contract of sale "non-availability of bottom or
vessel" was not a fortuitous event that would excuse non-

performance and that the NPC would resort to legal remedies to

enforce its rights (Exh. L and M).
The Government Corporate Counsel in his letter to Sycip dated May
8, 1957 rescinded the contract of sale due to the New York
supplier's non-performance of its obligations (Exh. G). The same
counsel in his letter of June 8, 1957 demanded from Namerco the
payment of P360,572.80 as liquidated damages. He explained that
time was of the essence of the contract. A similar demand was
made upon the surety (Exh. H and H-1).
The liquidated damages were computed on the basis of the 115day period between January 15, 1957, the deadline for the delivery
of the sulfur at Iligan City, and May 9, 1957 when Namerco was
notified of the rescission of the contract, or P54,085.92 for the first
thirty days and P306,486.88 for the remaining eighty-five days.
Total: P360,572.80.
On November 5, 1957, the NPC sued the New York firm, Namerco
and the Domestic Insurance Company for the recovery of the
stipulated liquidated damages (Civil Case No. 33114).
The trial court in its order of January 17, 1958 dismissed the case
as to the New York firm for lack of jurisdiction because it was not
doing business in the Philippines (p. 60, Defendants Record on
Appeal).
On the other hand, Melvin Wallick, as the assignee of the New York
corporation and after the latter was dropped as a defendant in Civil
Case No. 33114, sued Namerco for damages in connection with the
same sulfur transaction (Civil Case No. 37019). The two cases, both
filed in the Court of First Instance of Manila, were consolidated. A
joint trial was held. The lower court rendered separate decisions in
the two cases on the same date.
In Civil Case No. 37019, the trial court dismissed Wallick's action for
damages against Namerco because the assignment in favor of
Wallick was champertous in character. Wallick appealed to this
Court. The appeal was dismissed because the record on appeal did
not disclose that the appeal was perfected on time (Res. of July 11,
1972 in L-33893).In this Civil Case No. 33114, although the records
on appeal were approved in 1967, inexplicably, they were elevated
to this Court in 1971. That anomaly initially contributed to the delay
in the adjudication of this case.
Defendants' appeal L-33819. They contend that the delivery of
the sulfur was conditioned on the availability of a vessel to carry
the shipment and that Namerco acted within the scope of its
authority as agent in signing the contract of sale.
The documentary evidence belies these contentions. The invitation
to bid issued by the NPC provides that non-availability of a steamer

20
to transport the sulfur is not a ground for non-payment of the
liquidated damages in case of non-performance by the seller.
"4. Responsibility for availability of vessel. The availability of
vessel to transport the quantity of sulfur within the time specified in
item 14 of this specification shall be the responsibility of the bidder.
In case of award of contract, failure to ship on time allegedly due to
non-availability of vessels shall not exempt the Contractor from
payment of liquidated damages provided in item 15 of this
specification."
"15. Liquidated damages. . . .
"Availability of vessel being a responsibility of the Contractor as
specified in item 4 of this specification, the terms 'unforeseeable
causes beyond the control and without the fault or negligence of
the Contractor' and 'force majeure' as used herein shall not be
deemed to embrace or include lack or nonavailability of bottom or
vessel. It is agreed that prior to making his bid, a bidder shall have
made previous arrangements regarding shipments within the
required time. It is clearly understood that in no event shall the
Contractor be exempt from the payment of liquidated damages
herein specified for reason of lack of bottom or vessel. Lack of
bottom or nonavailability of vessel shall, in no case, be considered
as a ground for extension of time. . . . . "
Namerco's bid or offer is even more explicit. It provides that it was
"responsible for the availability of bottom or vessel" and that it
"guarantees the availability of bottom or vessel to ship the quantity
of sulfur within the time specified in this bid" (Exh. B, p. 22,
Defendants' Record on Appeal).
In the contract of sale itself item 15 of the invitation to bid is
reproduced in Article 9 which provides that "it is clearly understood
that in no event shall the seller be entitled to an extension of time
or be exempt from the payment of liquidated damages herein
specified for reason of lack of bottom or vessel" (Exh. E, p. 36,
Record on Appeal).
It is true that the New York corporation in its cable to Namerco
dated August 9, 1956 stated that the sale was subject to
availability of a steamer (Exh. N). However, Namerco did not
disclose that cable to the NPC and, contrary to its principal's
instruction, it agreed that nonavailability of a steamer was not a
justification for nonpayment of the liquidated damages.
The trial court rightly concluded that Namerco acted beyond the
bounds of its authority because it violated its principal's cabled
instructions (1) that the delivery of the sulfur should be "C & F
Manila", not "C & F Iligan City"; (2) that the sale be subject to the
availability of a steamer and (3) that the seller should be allowed to

withdraw right away the full amount of the letter of credit and
not merely eighty percent thereof (pp- 123-124, Record on Appeal).
The defendants argue that it was incumbent upon the NPC to
inquire into the extent of the agent's authority and, for its failure to
do so, it could not claim any liquidated damages which, according
to the defendants, were provided for merely to make the seller
more diligent in looking for a steamer to transport the sulfur.
The NPC counter-argues that Namerco should' have advised the
NPC of the limitations on its authority to negotiate the sale.
We agree with the trial court that Namerco is liable for damages
because under article 1897 of the Civil Code the agent who
exceeds the limits of his authority without giving the party with
whom he contracts sufficient notice of his powers is personally
liable to such party.
The truth is that even before the contract of sale was signed
Namerco was already aware that its principal was having difficulties
in booking shipping space. In a cable dated October 16, 1956, or
one day before the contract of sale was signed, the New York
supplier advised Namerco that the latter should not sign the
contract unless it (Namerco) wished to assume sole responsibility
for the shipment (Exh. T).
Sycip, Namerco's president, replied in his letter to the seller dated
also October 16, 1956, that he had no choice but to finalize the
contract of sale because the NPC would forfeit Namerco's bidder's
bond in the sum of P45,100 posted by the Domestic Insurance
Company if the contract was not formalized (Exh. 14, 14-A and Exh.
V).
Three days later, or on October 19, the New York firm cabled
Namerco that the firm did not consider itself bound by the contract
of sale and that Namerco signed the contract on its own
responsibility (Exh. W).
In its letters dated November 8 and 19, 1956, the New York
corporation informed Namerco that since the latter acted contrary
to the former's cabled instructions, the former disclaimed
responsibility for the contract and that the responsibility for the
sale rested on Namerco (Exh. Y and Y-1).
The letters of the New York firm dated November 26 and December
11, 1956 were even more revealing. It bluntly told Namerco that
the latter was never authorized to enter into the contract and that
it acted contrary to the repeated instructions of the former (Exh. U
and Z). Said the vice-president of the New York firm to Namerco:
cdphil
"As we have pointed out to you before, you have acted strictly
contrary to our repeated instructions and, however regretfully, you
have no one but yourselves to blame."

21
The rule relied upon by the defendants-appellants that every
person dealing with an agent is put upon inquiry and must discover
upon his peril the authority of the agent would apply in this case if
the principal is sought to be held liable on the contract entered into
by the agent.
That is not so in this case. Here, it is the agent that it sought to be
held liable on a contract of sale which was expressly repudiated by
the principal because the agent took chances, it exceeded its
authority, and, in effect, it acted in its own name.
As observed by Castan Tobeas, an agent "que haya traspasado los
limites dew mandato, lo que equivale a obrar sin mandato" (4
Derecho Civil Espaol, 8th Ed., 1956, p. 520).
As opined by Olivieri, "si el mandante contesta o impugna el
negocio juridico concluido por el mandatario con el tercero,
aduciendo el exceso de los limites impuestos, es justo que el
mandatario, que ha tratado con engao al tercero, sea responsable
personalmente respecto de el des las consecuencias de tal falta de
aceptacion por parte del mandate. Tal responsabilidad del
mandatario se informa en el principio de la falta de garantia de la
existencia del mandato y de la cualidad de mandatario, garantia
impuesta coactivamente por la ley, que quire que aquel que
contrata como mandatario este obligado a garantizar al tercero la
efectiva existencia de los poderes que afirma se halla investido,
siempre que el tercero mismo sea de buena fe. Efecto de tal
garantia es el resarcimiento de los daos causados al tercero como
consecuencia de la negativa del mandante a reconocer lo actuado
por el mandatario." (26, part II, Scaveola, Codigo Civil, 1951, pp.
358-9).
Manresa says that the agent who exceeds the limits of his authority
is personally liable "porque realmente obra sin poderes" and the
third person who contracts with the agent in such a case would be
defrauded if he would not be allowed to sue the agent (11 Codigo
Civil, 6th Ed., 1972, p. 725).
The defendants also contend that the trial court erred in holding as
enforceable the stipulation for liquidated damages despite its
finding that the contract was executed by the agent in excess of its
authority and is, therefore, allegedly unenforceable.
In support of that contention, the defendants cite article 1403 of
the Civil Code which provides that a contract entered into in the
name of another person by one who has acted beyond his powers
is unenforceable.
We hold that defendants' contention is untenable because article
1403 refers to the unenforceability of the contract against the
principal. In the instant case, the contract containing the stipulation

for liquidated damages is not being enforced against it principal

but against the agent and its surety.
It is being enforced against the agent because article 1807 implies
that the agent who acts in excess of his authority is personally
liable to the party with whom he contracted.
And that rule is complemented by article 1898 of the Civil Code
which provides that "if the agent contracts in the name of the
principal, exceeding the scope of his authority, and the principal
does not ratify the contract, it shall be void if the party with whom
the agent contracted is aware of the limits of the powers granted
by the principal".
It is being enforced against the agent because article 1897 implies
that the agent who acts in excess of his authority is personally
liable to the party with whom he contracted.
And the rule is complemented by article 1898 of the Civil Code
which provides that "if the agent contracts in the name of the
principal, exceeding the scope of his authority, and the principal
does not ratify the contract, it shall be void if the party with whom
the agent contracted is aware of the limits of the powers granted
by the principal".
As priorly discussed, namerco, as agent, exceeded the limits of its
authority in contracting with the NPC in the name of its principal.
The NPC was unaware of the limitations on the powers granted by
the New York firm to Namerco. LLjur
The New York corporation in its letter of April 26, 1956 said:
"We hereby certify that National Merchandising Corporation . . . are
our exclusive representatives in the Philippines for the sale of our
products.
"Furthermore, we certify that they are empowered to present our
offers in our behalf in accordance with our cabled or written
instructions." (Exh. C).
Namerco never disclosed to the NPC the cabled or written
instructions of its principal. For that reason and because Namerco
exceeded the limits of its authority, it virtually acted in its own
name and not as agent and it is, therefore, bound by the contract
of sale which, however, is not enforceable against its principal.
If, as contemplated in articles 1897 and 1898, Namerco is bound
under the contract of sale, then it follows that it is bound by the
stipulation for liquidated damages in that contract.
Defendants' contention that Namerco's liability should be based on
tort or quasi-delict, as held in some American cases, like
Mendelsohn vs. Holton, 149 N.E. 38, 42 ALR 1307, is not well-taken.
As correctly argued by the NPC, it would be unjust and inequitable
for Namerco to escape liability after it had deceived the NPC.

22
Another contention of the defendants is that the Domestic
Insurance Company is not liable to the NPC because its bond was
posted, not for Namerco, the agent, but for the New York firm which
is not liable on the contract of sale.
That contention cannot be sustained because it was Namerco that
actually solicited the bond from the Domestic Insurance Company
and, as explained already, Namerco is being held liable under the
contract of sale because it virtually acted in its own name. It
became the principal in the performance bond. In the last analysis,
the Domestic Insurance Company acted as surety for Namerco.
The rule is that "want of authority of the person who executes an
obligation as the agent or representative of the principal will not, as
a general rule, affect the surety's liability thereon, especially in the
absence of fraud, even though the obligation is not binding on the
principal" (72 C.J.S. 525).
Defendants' other contentions are that they should be held liable
only for nominal damages, that interest should not be collected on
the amount of damages and that the damages should be computed
on the basis of a forty-five day period and not for a period of one
hundred fifteen days.
With respect to the imposition of the legal rate of interest on the
damages from the filing of the complaint in 1957, or a quarter of a
century ago, defendants' contention is meritorious. It would be
manifestly inequitable to collect interest on the damages especially
considering that the disposition of this case has been considerably
delayed due to no fault of the defendants.
The contention that only nominal damages should be adjudged is
contrary to the intention of the parties (NPC, Namerco and its
surety) because it is clearly provided that liquidated damages are
recoverable for delay in the delivery of the sulfur and, with more
reason, for nondelivery.
No proof of pecuniary loss is required for the recovery of liquidated
damages. the stipulation for liquidated damages is intended to
obviate controversy on the amount of damages. There can be no
question that the NPC suffered damages because its production of
fertilizer was disrupted or diminished by reason of the nondelivery
of the sulfur. prLL
The parties foresaw that it might be difficult to ascertain the exact
amount of damages for nondelivery of the sulfur. So, they fixed the
liquidated damages to be paid as indemnity to the NPC.
On the other hand, nominal damages are damages in name only or
are in fact the same as no damages (25 C.J.S. 466). It would not be
correct to hold in this case that the NPC suffered damages in name
only or that the breach of contract was merely technical in
character.

As to the contention that the damages should be computed on

the basis of forty-five days, the period required by a vessel leaving
Galveston, Texas to reach Iligan City, that point need not be
resolved in view of our conclusion that the liquidated damages
should be equivalent to the amount of the bidder's bond posted by
Namerco.
NPC's appeal, L-33897. The trial court reduced the liquidated
damages to twenty percent of the stipulated amount. the NPC
contends the it is entitled to the full amount of liquidated damages
in the sum of P360,572.80.
In reducing the liquidated damages, the trial court relied on article
2227 of the Civil Code which provides that "liquidated damages,
whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable".
Apparently, the trial court regarded as an equitable consideration
the persistent efforts of Namerco and its principal to charter a
steamer and that the failure of the New York firm to secure shipping
space was not attributable to its fault or negligence.
The trial court also took into account the fact that the selling price
of the sulfur was P450,716 and that to award as liquidated
damages more than eighty percent of the price would not be
altogether reasonable.
The NPC contends that Namerco was an obligor in bad faith and,
therefore, it should be responsible for all damages which could be
reasonably attributed to its nonperformance of the obligation as
provided in article 2201 of the Civil Code.
On the other hand, the defendants argue that Namerco having
acted as a mere agent, was not liable for the liquidated damages
stipulated in the alleged unenforceable contract of sale; that, as
already noted, Namerco's liability should be based on tort or quasidelict and not on the contract of sale; that if Namerco is not liable,
then the insurance company, its surety, is likewise not liable; that
the NPC is entitled only to nominal damages because it was able to
secure the sulfur from another source (58-59 tsn November 10,
1960) and that the reduced award of stipulated damages is highly
iniquitous, considering that Namerco acted in good faith and that
the NPC did not suffer any actual damages. LLpr
These contentions have already been resolved in the preceding
discussion. We find no sanction or justification for NPC's claim that
it is entitled to the full payment of the liquidated damages
computed by its official.
Ruling on the amount of damages. A painstaking evaluation of
the equities of the case in the light of the arguments of the parties
as expounded in their five briefs leads to the conclusion that the
damages due from the defendants should be further reduced to

23
P45,100 which is equivalent to their bidder's bond or to about ten
percent of the selling price of the sulfur.
WHEREFORE, the lower court's judgment is modified and
defendants National Merchandising Corporation and Domestic
Insurance Company of the Philippines are ordered to pay solidarily
to the National Power Corporation the sum of P45,100.00 as
liquidated damages. No costs.
SO ORDERED.
THIRD DIVISION
[G.R. No. 167552. April 23, 2007.]
EUROTECH INDUSTRIAL TECHNOLOGIES, INC., petitioner, vs.
EDWIN CUIZON and ERWIN CUIZON, respondents.
DECISION
CHICO-NAZARIO, J p:
Before Us is a petition for review by certiorari assailing the Decision
1 of the Court of Appeals dated 10 August 2004 and its Resolution
2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, "Eurotech
Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The
assailed Decision and Resolution affirmed the Order 3 dated 29
January 2002 rendered by Judge Antonio T. Echavez ordering the
dropping of respondent EDWIN Cuizon (EDWIN) as a party
defendant in Civil Case No. CEB-19672. aSTAIH
The generative facts of the case are as follows:
Petitioner is engaged in the business of importation and distribution
of various European industrial equipment for customers here in the
Philippines. It has as one of its customers Impact Systems Sales
("Impact Systems") which is a sole proprietorship owned by
respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales
manager of Impact Systems and was impleaded in the court a quo
in said capacity.
From January to April 1995, petitioner sold to Impact Systems
various products allegedly amounting to ninety-one thousand three
hundred
thirty-eight
(P91,338.00)
pesos.
Subsequently,
respondents sought to buy from petitioner one unit of sludge pump
valued at P250,000.00 with respondents making a down payment
of fifty thousand pesos (P50,000.00). 4 When the sludge pump
arrived from the United Kingdom, petitioner refused to deliver the
same to respondents without their having fully settled their
indebtedness to petitioner. Thus, on 28 June 1995, respondent
EDWIN and Alberto de Jesus, general manager of petitioner,
executed a Deed of Assignment of receivables in favor of petitioner,
the pertinent part of which states:

1.) That ASSIGNOR 5 has an outstanding receivables from Toledo

Power Corporation in the amount of THREE HUNDRED SIXTY FIVE
THOUSAND (P365,000.00) PESOS as payment for the purchase of
one unit of Selwood Spate 100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and
CONVEY unto the ASSIGNEE 6 the said receivables from Toledo
Power Corporation in the amount of THREE HUNDRED SIXTY FIVE
THOUSAND (P365,000.00) PESOS which receivables the ASSIGNOR
is the lawful recipient; IDCcEa
3.) That the ASSIGNEE does hereby accept this assignment. 7
Following the execution of the Deed of Assignment, petitioner
delivered to respondents the sludge pump as shown by Invoice No.
12034 dated 30 June 1995. 8
Allegedly unbeknownst to petitioner, respondents, despite the
existence of the Deed of Assignment, proceeded to collect from
Toledo Power Company the amount of P365,135.29 as evidenced by
Check Voucher No. 0933 9 prepared by said power company and an
official receipt dated 15 August 1995 issued by Impact Systems. 10
Alarmed by this development, petitioner made several demands
upon respondents to pay their obligations. As a result, respondents
were able to make partial payments to petitioner. On 7 October
1996, petitioner's counsel sent respondents a final demand letter
wherein it was stated that as of 11 June 1996, respondents' total
obligations stood at P295,000.00 excluding interests and attorney's
fees. 11 Because of respondents' failure to abide by said final
demand letter, petitioner instituted a complaint for sum of money,
damages, with application for preliminary attachment against
herein respondents before the Regional Trial Court of Cebu City. 12
On 8 January 1997, the trial court granted petitioner's prayer for
the issuance of writ of preliminary attachment. 13
On 25 June 1997, respondent EDWIN filed his Answer 14 wherein he
admitted petitioner's allegations with respect to the sale
transactions entered into by Impact Systems and petitioner
between January and April 1995. 15 He, however, disputed the total
amount of Impact Systems' indebtedness to petitioner which,
according to him, amounted to only P220,000.00. 16
By way of special and affirmative defenses, respondent EDWIN
alleged that he is not a real party in interest in this case. According
to him, he was acting as mere agent of his principal, which was the
Impact Systems, in his transaction with petitioner and the latter
was very much aware of this fact. In support of this argument,
petitioner points to paragraphs 1.2 and 1.3 of petitioner's
Complaint stating
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident
of Cebu City. He is the proprietor of a single proprietorship business

24
known as Impact Systems Sales ("Impact Systems" for brevity),
with office located at 46-A del Rosario Street, Cebu City, where he
may be served summons and other processes of the Honorable
Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a
resident of Cebu City. He is the Sales Manager of Impact Systems
and is sued in this action in such capacity. 17
On 26 June 1998, petitioner filed a Motion to Declare Defendant
ERWIN in Default with Motion for Summary Judgment. The trial
court granted petitioner's motion to declare respondent ERWIN in
default "for his failure to answer within the prescribed period
despite the opportunity granted" 18 but it denied petitioner's
motion for summary judgment in its Order of 31 August 2001 and
scheduled the pre-trial of the case on 16 October 2001. 19
However, the conduct of the pre-trial conference was deferred
pending the resolution by the trial court of the special and
affirmative defenses raised by respondent EDWIN. 20
After the filing of respondent EDWIN's Memorandum 21 in support
of his special and affirmative defenses and petitioner's opposition
22 thereto, the trial court rendered its assailed Order dated 29
January 2002 dropping respondent EDWIN as a party defendant in
this case. According to the trial court
A study of Annex "G" to the complaint shows that in the Deed of
Assignment, defendant Edwin B. Cuizon acted in behalf of or
represented [Impact] Systems Sales; that [Impact] Systems Sale is
a single proprietorship entity and the complaint shows that
defendant Erwin H. Cuizon is the proprietor; that plaintiff
corporation is represented by its general manager Alberto de Jesus
in the contract which is dated June 28, 1995. A study of Annex "H"
to the complaint reveals that [Impact] Systems Sales which is
owned solely by defendant Erwin H. Cuizon, made a down payment
of P50,000.00 that Annex "H" is dated June 30, 1995 or two days
after the execution of Annex "G", thereby showing that [Impact]
Systems Sales ratified the act of Edwin B. Cuizon; the records
further show that plaintiff knew that [Impact] Systems Sales, the
principal, ratified the act of Edwin B. Cuizon, the agent, when it
accepted the down payment of P50,000.00. Plaintiff, therefore,
cannot say that it was deceived by defendant Edwin B. Cuizon,
since in the instant case the principal has ratified the act of its
agent and plaintiff knew about said ratification. Plaintiff could not
say that the subject contract was entered into by Edwin B. Cuizon
in excess of his powers since [Impact] Systems Sales made a down
payment of P50,000.00 two days later.
In view of the Foregoing, the Court directs that defendant Edwin B.
Cuizon be dropped as party defendant. 23

Aggrieved by the adverse ruling of the trial court, petitioner

brought the matter to the Court of Appeals which, however,
affirmed the 29 January 2002 Order of the court a quo. The
dispositive portion of the now assailed Decision of the Court of
Appeals states:
WHEREFORE, finding no viable legal ground to reverse or modify
the conclusions reached by the public respondent in his Order
dated January 29, 2002, it is hereby AFFIRMED. 24
Petitioner's motion for reconsideration was denied by the appellate
court in its Resolution promulgated on 17 March 2005. Hence, the
present petition raising, as sole ground for its allowance, the
following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN
IT RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT
SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE,
BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS
AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A
FRAUD. 25
To support its argument, petitioner points to Article 1897 of the
New Civil Code which states:
Art. 1897. The agent who acts as such is not personally liable to the
party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party
sufficient notice of his powers.
Petitioner contends that the Court of Appeals failed to appreciate
the effect of ERWIN's act of collecting the receivables from the
Toledo Power Corporation notwithstanding the existence of the
Deed of Assignment signed by EDWIN on behalf of Impact Systems.
While said collection did not revoke the agency relations of
respondents, petitioner insists that ERWIN's action repudiated
EDWIN's power to sign the Deed of Assignment. As EDWIN did not
sufficiently notify it of the extent of his powers as an agent,
petitioner claims that he should be made personally liable for the
obligations of his principal. 26
Petitioner also contends that it fell victim to the fraudulent scheme
of respondents who induced it into selling the one unit of sludge
pump to Impact Systems and signing the Deed of Assignment.
Petitioner directs the attention of this Court to the fact that
respondents are bound not only by their principal and agent
relationship but are in fact full-blooded brothers whose successive
contravening acts bore the obvious signs of conspiracy to defraud
petitioner. 27
In his Comment, 28 respondent EDWIN again posits the argument
that he is not a real party in interest in this case and it was proper
for the trial court to have him dropped as a defendant. He insists

25
that he was a mere agent of Impact Systems which is owned by
ERWIN and that his status as such is known even to petitioner as it
is alleged in the Complaint that he is being sued in his capacity as
the sales manager of the said business venture. Likewise,
respondent EDWIN points to the Deed of Assignment which clearly
states that he was acting as a representative of Impact Systems in
said transaction.
We do not find merit in the petition. ATSIED
In a contract of agency, a person binds himself to render some
service or to do something in representation or on behalf of another
with the latter's consent. 29 The underlying principle of the
contract of agency is to accomplish results by using the services of
others to do a great variety of things like selling, buying,
manufacturing, and transporting. 30 Its purpose is to extend the
personality of the principal or the party for whom another acts and
from whom he or she derives the authority to act. 31 It is said that
the basis of agency is representation, that is, the agent acts for and
on behalf of the principal on matters within the scope of his
authority and said acts have the same legal effect as if they were
personally executed by the principal. 32 By this legal fiction, the
actual or real absence of the principal is converted into his legal or
juridical presence qui facit per alium facit per se. 33
The elements of the contract of agency are: (1) consent, express or
implied, of the parties to establish the relationship; (2) the object is
the execution of a juridical act in relation to a third person; (3) the
agent acts as a representative and not for himself; (4) the agent
acts within the scope of his authority. 34
In this case, the parties do not dispute the existence of the agency
relationship between respondents ERWIN as principal and EDWIN as
agent. The only cause of the present dispute is whether respondent
EDWIN exceeded his authority when he signed the Deed of
Assignment thereby binding himself personally to pay the
obligations to petitioner. Petitioner firmly believes that respondent
EDWIN acted beyond the authority granted by his principal and he
should therefore bear the effect of his deed pursuant to Article
1897 of the New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts
as such, is not personally liable to the party with whom he
contracts. The same provision, however, presents two instances
when an agent becomes personally liable to a third person. The
first is when he expressly binds himself to the obligation and the
second is when he exceeds his authority. In the last instance, the
agent can be held liable if he does not give the third party sufficient

notice of his powers. We hold that respondent EDWIN does not

fall within any of the exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN
signed thereon as the sales manager of Impact Systems. As
discussed elsewhere, the position of manager is unique in that it
presupposes the grant of broad powers with which to conduct the
business of the principal, thus:
The powers of an agent are particularly broad in the case of one
acting as a general agent or manager; such a position presupposes
a degree of confidence reposed and investiture with liberal powers
for the exercise of judgment and discretion in transactions and
concerns which are incidental or appurtenant to the business
entrusted to his care and management. In the absence of an
agreement to the contrary, a managing agent may enter into any
contracts that he deems reasonably necessary or requisite for the
protection of the interests of his principal entrusted to his
management. . . . 35
Applying the foregoing to the present case, we hold that Edwin
Cuizon acted well-within his authority when he signed the Deed of
Assignment. To recall, petitioner refused to deliver the one unit of
sludge pump unless it received, in full, the payment for Impact
Systems' indebtedness. 36 We may very well assume that Impact
Systems desperately needed the sludge pump for its business since
after it paid the amount of fifty thousand pesos (P50,000.00) as
down payment on 3 March 1995, 37 it still persisted in negotiating
with petitioner which culminated in the execution of the Deed of
Assignment of its receivables from Toledo Power Company on 28
June 1995. 38 The significant amount of time spent on the
negotiation for the sale of the sludge pump underscores Impact
Systems' perseverance to get hold of the said equipment. There is,
therefore, no doubt in our mind that respondent EDWIN's
participation in the Deed of Assignment was "reasonably
necessary" or was required in order for him to protect the business
of his principal. Had he not acted in the way he did, the business of
his principal would have been adversely affected and he would
have violated his fiduciary relation with his principal. ICHcTD
We likewise take note of the fact that in this case, petitioner is
seeking to recover both from respondents ERWIN, the principal, and
EDWIN, the agent. It is well to state here that Article 1897 of the
New Civil Code upon which petitioner anchors its claim against
respondent EDWIN "does not hold that in case of excess of
authority, both the agent and the principal are liable to the other
contracting party." 39 To reiterate, the first part of Article 1897
declares that the principal is liable in cases when the agent acted
within the bounds of his authority. Under this, the agent is

26
completely absolved of any liability. The second part of the said
provision presents the situations when the agent himself becomes
liable to a third party when he expressly binds himself or he
exceeds the limits of his authority without giving notice of his
powers to the third person. However, it must be pointed out that in
case of excess of authority by the agent, like what petitioner claims
exists here, the law does not say that a third person can recover
from both the principal and the agent. 40
As we declare that respondent EDWIN acted within his authority as
an agent, who did not acquire any right nor incur any liability
arising from the Deed of Assignment, it follows that he is not a real
party in interest who should be impleaded in this case. A real party
in interest is one who "stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit."
41 In this respect, we sustain his exclusion as a defendant in the
suit before the court a quo.
WHEREFORE, premises considered, the present petition is DENIED
and the Decision dated 10 August 2004 and Resolution dated 17
March 2005 of the Court of Appeals in CA-G.R. SP No. 71397,
affirming the Order dated 29 January 2002 of the Regional Trial
Court, Branch 8, Cebu City, is AFFIRMED.
Let the records of this case be remanded to the Regional Trial
Court, Branch 8, Cebu City, for the continuation of the proceedings
against respondent Erwin Cuizon.
SO ORDERED.
THIRD DIVISION
[G.R. No. 167552. April 23, 2007.]
EUROTECH INDUSTRIAL TECHNOLOGIES, INC., petitioner, vs.
EDWIN CUIZON and ERWIN CUIZON, respondents.
DECISION
CHICO-NAZARIO, J p:
Before Us is a petition for review by certiorari assailing the Decision
1 of the Court of Appeals dated 10 August 2004 and its Resolution
2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, "Eurotech
Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The
assailed Decision and Resolution affirmed the Order 3 dated 29
January 2002 rendered by Judge Antonio T. Echavez ordering the
dropping of respondent EDWIN Cuizon (EDWIN) as a party
defendant in Civil Case No. CEB-19672. aSTAIH
The generative facts of the case are as follows:
Petitioner is engaged in the business of importation and distribution
of various European industrial equipment for customers here in the
Philippines. It has as one of its customers Impact Systems Sales
("Impact Systems") which is a sole proprietorship owned by

respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the

sales manager of Impact Systems and was impleaded in the court a
quo in said capacity.
From January to April 1995, petitioner sold to Impact Systems
various products allegedly amounting to ninety-one thousand three
hundred
thirty-eight
(P91,338.00)
pesos.
Subsequently,
respondents sought to buy from petitioner one unit of sludge pump
valued at P250,000.00 with respondents making a down payment
of fifty thousand pesos (P50,000.00). 4 When the sludge pump
arrived from the United Kingdom, petitioner refused to deliver the
same to respondents without their having fully settled their
indebtedness to petitioner. Thus, on 28 June 1995, respondent
EDWIN and Alberto de Jesus, general manager of petitioner,
executed a Deed of Assignment of receivables in favor of petitioner,
the pertinent part of which states:
1.) That ASSIGNOR 5 has an outstanding receivables from Toledo
Power Corporation in the amount of THREE HUNDRED SIXTY FIVE
THOUSAND (P365,000.00) PESOS as payment for the purchase of
one unit of Selwood Spate 100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and
CONVEY unto the ASSIGNEE 6 the said receivables from Toledo
Power Corporation in the amount of THREE HUNDRED SIXTY FIVE
THOUSAND (P365,000.00) PESOS which receivables the ASSIGNOR
is the lawful recipient; IDCcEa
3.) That the ASSIGNEE does hereby accept this assignment. 7
Following the execution of the Deed of Assignment, petitioner
delivered to respondents the sludge pump as shown by Invoice No.
12034 dated 30 June 1995. 8
Allegedly unbeknownst to petitioner, respondents, despite the
existence of the Deed of Assignment, proceeded to collect from
Toledo Power Company the amount of P365,135.29 as evidenced by
Check Voucher No. 0933 9 prepared by said power company and an
official receipt dated 15 August 1995 issued by Impact Systems. 10
Alarmed by this development, petitioner made several demands
upon respondents to pay their obligations. As a result, respondents
were able to make partial payments to petitioner. On 7 October
1996, petitioner's counsel sent respondents a final demand letter
wherein it was stated that as of 11 June 1996, respondents' total
obligations stood at P295,000.00 excluding interests and attorney's
fees. 11 Because of respondents' failure to abide by said final
demand letter, petitioner instituted a complaint for sum of money,
damages, with application for preliminary attachment against
herein respondents before the Regional Trial Court of Cebu City. 12
On 8 January 1997, the trial court granted petitioner's prayer for
the issuance of writ of preliminary attachment. 13

27
On 25 June 1997, respondent EDWIN filed his Answer 14 wherein he
admitted petitioner's allegations with respect to the sale
transactions entered into by Impact Systems and petitioner
between January and April 1995. 15 He, however, disputed the total
amount of Impact Systems' indebtedness to petitioner which,
according to him, amounted to only P220,000.00. 16
By way of special and affirmative defenses, respondent EDWIN
alleged that he is not a real party in interest in this case. According
to him, he was acting as mere agent of his principal, which was the
Impact Systems, in his transaction with petitioner and the latter
was very much aware of this fact. In support of this argument,
petitioner points to paragraphs 1.2 and 1.3 of petitioner's
Complaint stating
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident
of Cebu City. He is the proprietor of a single proprietorship business
known as Impact Systems Sales ("Impact Systems" for brevity),
with office located at 46-A del Rosario Street, Cebu City, where he
may be served summons and other processes of the Honorable
Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a
resident of Cebu City. He is the Sales Manager of Impact Systems
and is sued in this action in such capacity. 17
On 26 June 1998, petitioner filed a Motion to Declare Defendant
ERWIN in Default with Motion for Summary Judgment. The trial
court granted petitioner's motion to declare respondent ERWIN in
default "for his failure to answer within the prescribed period
despite the opportunity granted" 18 but it denied petitioner's
motion for summary judgment in its Order of 31 August 2001 and
scheduled the pre-trial of the case on 16 October 2001. 19
However, the conduct of the pre-trial conference was deferred
pending the resolution by the trial court of the special and
affirmative defenses raised by respondent EDWIN. 20
After the filing of respondent EDWIN's Memorandum 21 in support
of his special and affirmative defenses and petitioner's opposition
22 thereto, the trial court rendered its assailed Order dated 29
January 2002 dropping respondent EDWIN as a party defendant in
this case. According to the trial court
A study of Annex "G" to the complaint shows that in the Deed of
Assignment, defendant Edwin B. Cuizon acted in behalf of or
represented [Impact] Systems Sales; that [Impact] Systems Sale is
a single proprietorship entity and the complaint shows that
defendant Erwin H. Cuizon is the proprietor; that plaintiff
corporation is represented by its general manager Alberto de Jesus
in the contract which is dated June 28, 1995. A study of Annex "H"
to the complaint reveals that [Impact] Systems Sales which is

owned solely by defendant Erwin H. Cuizon, made a down

payment of P50,000.00 that Annex "H" is dated June 30, 1995 or
two days after the execution of Annex "G", thereby showing that
[Impact] Systems Sales ratified the act of Edwin B. Cuizon; the
records further show that plaintiff knew that [Impact] Systems
Sales, the principal, ratified the act of Edwin B. Cuizon, the agent,
when it accepted the down payment of P50,000.00. Plaintiff,
therefore, cannot say that it was deceived by defendant Edwin B.
Cuizon, since in the instant case the principal has ratified the act of
its agent and plaintiff knew about said ratification. Plaintiff could
not say that the subject contract was entered into by Edwin B.
Cuizon in excess of his powers since [Impact] Systems Sales made
a down payment of P50,000.00 two days later.
In view of the Foregoing, the Court directs that defendant Edwin B.
Cuizon be dropped as party defendant. 23
Aggrieved by the adverse ruling of the trial court, petitioner
brought the matter to the Court of Appeals which, however,
affirmed the 29 January 2002 Order of the court a quo. The
dispositive portion of the now assailed Decision of the Court of
Appeals states:
WHEREFORE, finding no viable legal ground to reverse or modify
the conclusions reached by the public respondent in his Order
dated January 29, 2002, it is hereby AFFIRMED. 24
Petitioner's motion for reconsideration was denied by the appellate
court in its Resolution promulgated on 17 March 2005. Hence, the
present petition raising, as sole ground for its allowance, the
following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN
IT RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT
SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE,
BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS
AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A
FRAUD. 25
To support its argument, petitioner points to Article 1897 of the
New Civil Code which states:
Art. 1897. The agent who acts as such is not personally liable to the
party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party
sufficient notice of his powers.
Petitioner contends that the Court of Appeals failed to appreciate
the effect of ERWIN's act of collecting the receivables from the
Toledo Power Corporation notwithstanding the existence of the
Deed of Assignment signed by EDWIN on behalf of Impact Systems.
While said collection did not revoke the agency relations of
respondents, petitioner insists that ERWIN's action repudiated

28
EDWIN's power to sign the Deed of Assignment. As EDWIN did not
sufficiently notify it of the extent of his powers as an agent,
petitioner claims that he should be made personally liable for the
obligations of his principal. 26
Petitioner also contends that it fell victim to the fraudulent scheme
of respondents who induced it into selling the one unit of sludge
pump to Impact Systems and signing the Deed of Assignment.
Petitioner directs the attention of this Court to the fact that
respondents are bound not only by their principal and agent
relationship but are in fact full-blooded brothers whose successive
contravening acts bore the obvious signs of conspiracy to defraud
petitioner. 27
In his Comment, 28 respondent EDWIN again posits the argument
that he is not a real party in interest in this case and it was proper
for the trial court to have him dropped as a defendant. He insists
that he was a mere agent of Impact Systems which is owned by
ERWIN and that his status as such is known even to petitioner as it
is alleged in the Complaint that he is being sued in his capacity as
the sales manager of the said business venture. Likewise,
respondent EDWIN points to the Deed of Assignment which clearly
states that he was acting as a representative of Impact Systems in
said transaction.
We do not find merit in the petition. ATSIED
In a contract of agency, a person binds himself to render some
service or to do something in representation or on behalf of another
with the latter's consent. 29 The underlying principle of the
contract of agency is to accomplish results by using the services of
others to do a great variety of things like selling, buying,
manufacturing, and transporting. 30 Its purpose is to extend the
personality of the principal or the party for whom another acts and
from whom he or she derives the authority to act. 31 It is said that
the basis of agency is representation, that is, the agent acts for and
on behalf of the principal on matters within the scope of his
authority and said acts have the same legal effect as if they were
personally executed by the principal. 32 By this legal fiction, the
actual or real absence of the principal is converted into his legal or
juridical presence qui facit per alium facit per se. 33
The elements of the contract of agency are: (1) consent, express or
implied, of the parties to establish the relationship; (2) the object is
the execution of a juridical act in relation to a third person; (3) the
agent acts as a representative and not for himself; (4) the agent
acts within the scope of his authority. 34
In this case, the parties do not dispute the existence of the agency
relationship between respondents ERWIN as principal and EDWIN as

agent. The only cause of the present dispute is whether

respondent EDWIN exceeded his authority when he signed the
Deed of Assignment thereby binding himself personally to pay the
obligations to petitioner. Petitioner firmly believes that respondent
EDWIN acted beyond the authority granted by his principal and he
should therefore bear the effect of his deed pursuant to Article
1897 of the New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts
as such, is not personally liable to the party with whom he
contracts. The same provision, however, presents two instances
when an agent becomes personally liable to a third person. The
first is when he expressly binds himself to the obligation and the
second is when he exceeds his authority. In the last instance, the
agent can be held liable if he does not give the third party sufficient
notice of his powers. We hold that respondent EDWIN does not fall
within any of the exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN
signed thereon as the sales manager of Impact Systems. As
discussed elsewhere, the position of manager is unique in that it
presupposes the grant of broad powers with which to conduct the
business of the principal, thus:
The powers of an agent are particularly broad in the case of one
acting as a general agent or manager; such a position presupposes
a degree of confidence reposed and investiture with liberal powers
for the exercise of judgment and discretion in transactions and
concerns which are incidental or appurtenant to the business
entrusted to his care and management. In the absence of an
agreement to the contrary, a managing agent may enter into any
contracts that he deems reasonably necessary or requisite for the
protection of the interests of his principal entrusted to his
management. . . . 35
Applying the foregoing to the present case, we hold that Edwin
Cuizon acted well-within his authority when he signed the Deed of
Assignment. To recall, petitioner refused to deliver the one unit of
sludge pump unless it received, in full, the payment for Impact
Systems' indebtedness. 36 We may very well assume that Impact
Systems desperately needed the sludge pump for its business since
after it paid the amount of fifty thousand pesos (P50,000.00) as
down payment on 3 March 1995, 37 it still persisted in negotiating
with petitioner which culminated in the execution of the Deed of
Assignment of its receivables from Toledo Power Company on 28
June 1995. 38 The significant amount of time spent on the
negotiation for the sale of the sludge pump underscores Impact
Systems' perseverance to get hold of the said equipment. There is,

29
therefore, no doubt in our mind that respondent EDWIN's
participation in the Deed of Assignment was "reasonably
necessary" or was required in order for him to protect the business
of his principal. Had he not acted in the way he did, the business of
his principal would have been adversely affected and he would
have violated his fiduciary relation with his principal. ICHcTD
We likewise take note of the fact that in this case, petitioner is
seeking to recover both from respondents ERWIN, the principal, and
EDWIN, the agent. It is well to state here that Article 1897 of the
New Civil Code upon which petitioner anchors its claim against
respondent EDWIN "does not hold that in case of excess of
authority, both the agent and the principal are liable to the other
contracting party." 39 To reiterate, the first part of Article 1897
declares that the principal is liable in cases when the agent acted
within the bounds of his authority. Under this, the agent is
completely absolved of any liability. The second part of the said
provision presents the situations when the agent himself becomes
liable to a third party when he expressly binds himself or he
exceeds the limits of his authority without giving notice of his
powers to the third person. However, it must be pointed out that in
case of excess of authority by the agent, like what petitioner claims
exists here, the law does not say that a third person can recover
from both the principal and the agent. 40
As we declare that respondent EDWIN acted within his authority as
an agent, who did not acquire any right nor incur any liability
arising from the Deed of Assignment, it follows that he is not a real
party in interest who should be impleaded in this case. A real party
in interest is one who "stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit."
41 In this respect, we sustain his exclusion as a defendant in the
suit before the court a quo.
WHEREFORE, premises considered, the present petition is DENIED
and the Decision dated 10 August 2004 and Resolution dated 17
March 2005 of the Court of Appeals in CA-G.R. SP No. 71397,
affirming the Order dated 29 January 2002 of the Regional Trial
Court, Branch 8, Cebu City, is AFFIRMED.
Let the records of this case be remanded to the Regional Trial
Court, Branch 8, Cebu City, for the continuation of the proceedings
against respondent Erwin Cuizon.
SO ORDERED.
FIRST DIVISION
[G.R. No. 109937. March 21, 1994.]
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.
COURT OF APPEALS and the ESTATE OF THE LATE JUAN B.

DANS, represented by CANDIDA G. DANS, and the DBP

MORTGAGE REDEMPTION INSURANCE POOL, respondents.
DECISION
QUIASON, J p:
This is a petition for review on certiorari under Rule 45 of the
Revised Rules of Court to reverse and set aside the decision of the
Court of Appeals in CA-G.R CV No. 26434 and its resolution denying
reconsideration thereof.
We affirm the decision of the Court of Appeals with modification.
I
In May 1987, Juan B. Dans, together with his wife Candida, his son
and daughter-in-law, applied for a loan of P500,000.00 with the
Development Bank of the Philippines (DBP), Basilan Branch. As the
principal mortgagor, Dans, then 76 years of age, was advised by
DBP to obtain a mortgage redemption insurance (MRI) with the DBP
Mortgage Redemption Insurance Pool (DBP MRI Pool).
A loan, in the reduced amount of P300,000.00, was approved by
DBP on August 4, 1987 and released on August 11, 1987. From the
proceeds of the loan, DBP deducted the amount of P1,476.00 as
payment for the MRI premium. On August 15, 1987, Dans
accomplished and submitted the "MRI Application for Insurance"
and the "Health Statement for DBP MRI Pool."
On August 20, 1987, the MRI premium of Dans, less the DBP
service fee of 10 percent, was credited by DBP to the savings
account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was
advised of the credit. Cdpr
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon
notice, relayed this information to the DBP MRI Pool. On September
23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible
for MRI coverage, being over the acceptance age limit of 60 years
at the time of application. LibLex
On October 21, 1987, DBP apprised Candida Dans of the
disapproval of her late husband's MRI application. The DBP offered
to refund the premium of P1,476.00 which the deceased had paid,
but Candida Dans refused to accept the same, demanding payment
of the face value of the MRI or an amount equivalent to the loan.
She, likewise, refused to accept anex gratia settlement of
P30,000.00, which the DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans as
administratrix, filed a complaint with the Regional Trial Court,
Branch I, Basilan, against DBP and the insurance pool for
"Collection of Sum of Money with Damages." Respondent Estate
alleged that Dans became insured by the DBP MRI Pool when DBP,
with full knowledge of Dans' age at the time of application, required
him to apply for MRI, and later collected the insurance premium

30
thereon. Respondent Estate therefore prayed: (1) that the sum of
P139,500.00, which it paid under protest for the loan, be
reimbursed; (2) that the mortgage debt of the deceased be
declared fully paid; and (3) that damages be awarded. LexLib
The DBP and the DBP MRI Pool separately filed their answers, with
the former asserting a cross-claim against the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the
documents and exhibits submitted by respondent Estate. As a
result of these admissions, the trial court narrowed down the issues
and, without opposition from the parties, found the case ripe for
summary judgment. Consequently, the trial court ordered the
parties to submit their respective position papers and documentary
evidence, which may serve as basis for the judgment. cdrep
On March 10, 1990, the trial court rendered a decision in favor of
respondent Estate and against DBP. The DBP MRI Pool, however,
was absolved from liability, after the trial court found no privity of
contract between it and the deceased. The trial court declared DBP
in estoppel for having led Dans into applying for MRI and actually
collecting the premium and the service fee, despite knowledge of
his age ineligibility. The dispositive portion of the decision read as
follows:
"WHEREFORE, in view of the foregoing consideration and in the
furtherance of justice and equity, the Court finds judgment for the
plaintiff and against Defendant DBP, ordering the latter:
1. To return and reimburse plaintiff the amount of P139,500.00 plus
legal rate of interest as amortization payment paid under protest;
2. To consider the mortgage loan of P300,000.00 including all
interest accumulated or otherwise to have been settled, satisfied or
set-off by virtue of the insurance coverage of the late Juan B.
Dans; .
3. To pay plaintiff the amount of P10,000.00 as attorney's fees;
4. To pay plaintiff the amount of P10,000.00 as costs of litigation
and other expenses, and other relief just and equitable.
The Counterclaims of Defendants DBP and DBP-MRI POOL are
hereby dismissed. The Cross-claim of defendant DBP is likewise
dismissed" (Rollo, p. 79)
The DBP appealed to the Court of Appeals. In a decision dated
September 7, 1992, the appellate court affirmed in toto the
decision of the trial court. The DBP's motion for reconsideration was
denied in a resolution dated April 20, 1993.
Hence, this recourse.
II
When Dans applied for MRI, he filled up and personally signed a
"Health Statement for DBP Pool" (Exh. "5-Bank") with the following
declaration:

"I hereby declare and agree that all the statements and answers
contained herein are true, complete and correct to the best of my
knowledge and belief and form part of my application for insurance.
It is understood and agreed that no insurance coverage shall be
effected unless and until this application is approved and the full
premium is paid during my continued good health" (Records, p. 40).
Under the aforementioned provisions, the MRI coverage shall take
effect: (1) when the application shall be approved by the insurance
pool; and (2) when the full premium is paid during the continued
good health of the applicant. These two conditions, being joined
conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged with
the DBP MRI Pool. The pool, however, did not approve the
application of Dans. There is also no showing that it accepted the
sum of P1,476.00, which DBP credited to its account with full
knowledge that it was payment for Dan's premium. There was, as a
result, no perfected contract of insurance; hence, the DBP MRI Pool
cannot be held liable on a contract that does not exist.
The liability of DBP is another matter. prcd
It was DBP, as a matter of policy and practice, that required Dans,
the borrower, to secure MRI coverage. Instead of allowing Dans to
look for his own insurance carrier or some other form of insurance
policy, DBP compelled him to apply with the DBP MRI Pool for MRI
coverage. When Dan's loan was released on August 11, 1987, DBP
already deducted from the proceeds thereof the MRI premium. Four
days latter, DBP made Dans fill up and sign his application for MRI,
as well as his health statement. The DBP later submitted both the
application form and health statement to the DBP MRI Pool at the
DBP Main Building, Makati Metro Manila. As service fee, DBP
deducted 10 percent of the premium collected by it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a
lender, and the second as an insurance agent.
As an insurance agent, DBP made Dans go through the motion of
applying for said insurance, thereby leading him and his family to
believe that they had already fulfilled all the requirements for the
MRI and that the issuance of their policy was forthcoming.
Apparently, DBP had full knowledge that Dan's application was
never going to be approved. The maximum age for MRI acceptance
is 60 years as clearly and specifically provided in Article 1 of the
Group Mortgage Redemption Insurance Policy signed in 1984 by all
the insurance companies concerned (Exh. "1-Pool").
Under Article 1987 of the Civil Code of the Philippines, "the agent
who acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of

31
his authority without giving such party sufficient notice of his
powers."
The DBP is not authorized to accept applications for MRI when its
clients are more than 60 years of age (Exh. "1-Pool"). Knowing all
the while that Dans was ineligible for MRI coverage because of his
advanced age, DBP exceeded the scope of its authority when it
accepted Dan's application for MRI by collecting the insurance
premium, and deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority
depends upon whether the third person is aware of the limits of the
agent's powers. There is no showing that Dans knew of the
limitation on DBP's authority to solicit applications for MRI. LLphil
If the third person dealing with an agent is unaware of the limits of
the authority conferred by the principal on the agent and he (third
person) has been deceived by the non-disclosure thereof by the
agent, then the latter is liable for damages to him (V Tolentino,
Commentaries and Jurisprudence on the Civil Code of the
Philippines, p. 422 [1992], citing Sentencia [Cuba] of September
25, 1907). The rule that the agent is liable when he acts without
authority is founded upon the supposition that there has been
some wrong or omission on his part either in misrepresenting, or in
affirming, or concealing the authority under which he assumes to
act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46
N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the
agency carries with it the implication that a deception was
perpetrated on the unsuspecting client, the provisions of Articles
19, 20 and 21 of the Civil Code of the Philippines come into play.
Article 19 provides:
"Every person must, in the exercise of his rights and in the
performance of his duties, act with justice give everyone his due
and observe honesty and good faith." LexLib
Article 20 provides:
"Every person who, contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same."
Article 21 provides:
"Any person, who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage."
The DBP's liability, however, cannot be for the entire value of the
insurance policy. To assume that were it not for DBP's concealment
of the limits of its authority, Dans would have secured an MRI from
another insurance company, and therefore would have been fully
insured by the time he died, is highly speculative. Considering his
advanced age, there is no absolute certainty that Dans could obtain

an insurance coverage from another company. It must also be

noted that Dans died almost immediately, i.e., on the nineteenth
day after applying for the MRI, and on the twenty-third day from the
date of release of his loan. LLphil
One is entitles to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved (Civil Code of
the Philippines, Art. 2199). Damages, to be recoverable, must not
only be capable of proof, but must be actually proved with a
reasonable degree of certainty (Refractories Corporation v.
Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee
v. Philippine Publishing Co., 34 Phil. 447 [1916]). Speculative
damages are too remote to be included in an accurate estimate of
damages (Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844
[1918]).
While Dans is not entitled to compensatory damages, he is entitled
to moral damages. No proof of pecuniary loss is required in the
assessment of said kind of damages (Civil Code of Philippines, Art.
2216). The same may be recovered in acts referred to in Article
2219 of the Civil Code.
The assessment of moral damages is left to the discretion of the
court according to the circumstances of each case (Civil Code of
the Philippines, Art. 2216). Considering that DBP had offered to pay
P30,000.00 to respondent Estate in ex gratia settlement of its claim
and that DBP's non-disclosure of the limits of its authority
amounted to a deception to its client, an award of moral damages
in the amount of P50,000.00 would be reasonable.
The award of attorney's fees is also just and equitable under the
circumstances (Civil Code of the Philippines, Article 2208 [11]).
LLphil
WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV No.
26434 is MODIFIED and petitioner DBP is ORDERED: (1) to
REIMBURSE respondent Estate of Juan B. Dans the amount of
P1,476.00 with legal interest from the date of the filing of the
complaint until fully paid; and (2) to PAY said Estate the amount of
Fifty Thousand Pesos (P50,000.00) as moral damages and the
amount of Ten Thousand Pesos (P10,000.00) as attorney's fees.
With costs against petitioner.
SO ORDERED.
FIRST DIVISION
[G.R. No. 126751. March 28, 2001.]
SAFIC ALCAN & CIE, petitioner, vs. IMPERIAL VEGETABLE OIL
CO., INC., respondent.
DECISION
YNARES-SANTIAGO, J p:

32
Petitioner Safic Alcan & Cie (hereinafter, "Safic") is a French
corporation engaged in the international purchase, sale and trading
of coconut oil. It filed with the Regional Trial Court of Manila, Branch
XXV, a complaint dated February 26, 1987 against private
respondent Imperial Vegetable Oil Co., Inc. (hereinafter, "IVO"),
docketed as Civil Case No. 87-39597. Petitioner Safic alleged that
on July 1, 1986 and September 25, 1986, it placed purchase orders
with IVO for 2,000 long tons of crude coconut oil, valued at
US$222.50 per ton, covered by Purchase Contract Nos. A601446
and A601655, respectively, to be delivered within the month of
January 1987. Private respondent, however, failed to deliver the
said coconut oil and, instead, offered a "wash out" settlement,
whereby the coconut oil subject of the purchase contracts were to
be "sold back" to IVO at the prevailing price in the international
market at the time of wash out. Thus, IVO bound itself to pay to
Safic the difference between the said prevailing price and the
contract price of the 2,000 long tons of crude coconut oil, which
amounted to US$293,500.00. IVO failed to pay this amount despite
repeated oral and written demands.
Under its second cause of action, Safic alleged that on eight
occasions between April 24, 1986 and October 31, 1986, it placed
purchase orders with IVO for a total of 4,750 tons of crude coconut
oil, covered by Purchase Contract Nos. A601297A/B, A601384,
A601385,
A601391,
A601415,
A601681,
A601683
and
A601770A/B/C/. When IVO failed to honor its obligation under the
wash out settlement narrated above, Safic demanded that IVO
make marginal deposits within forty-eight hours on the eight
purchase contracts in amounts equivalent to the difference
between the contract price and the market price of the coconut oil,
to compensate it for the damages it suffered when it was forced to
acquire coconut oil at a higher price. IVO failed to make the
prescribed marginal deposits on the eight contacts, in the
aggregate amount of US$391,593.62, despite written demand
therefor.
The demand for marginal deposits was based on the customs of the
trade, as governed by the provisions of the standard N.I.O.P.
Contract and the FOSFA Contract, to wit:
N.I.O.P. Contract, Rule 54 If the financial condition of either party
to a contract subject to these rules becomes so impaired as to
create a reasonable doubt as to the ability of such party to perform
its obligations under the contract, the other party may from time to
time demand marginal deposits to be made within forty-eight (48)
hours after receipt of such demand, such deposits not to exceed
the difference between the contract price and the market price of
the goods covered by the contract on the day upon which such

demand is made, such deposit to bear interest at the prime rate

plus one percent (1%) per annum. Failure to make such deposit
within the time specified shall constitute a breach of contract by
the party upon whom demand for deposit is made, and all losses
and expenses resulting from such breach shall be for the account of
the party upon whom such demand is made. (Emphasis ours.) 1
FOSFA Contract, Rule 54 BANKRUPTCY/INSOLVENCY: If before the
fulfillment of this contract either party shall suspend payment,
commit an act of bankruptcy, notify any of his creditors that he is
unable to meet his debts or that he has suspended payment or that
he is about to suspend payment of his debts, convene, call or hold
a meeting either of his creditors or to pass a resolution to go into
liquidation (except for a voluntary winding up of a solvent company
for the purpose of reconstruction or amalgamation) or shall apply
for an official moratorium, have a petition presented for winding up
or shall have a Receiver appointed, the contract shall forthwith be
closed, either at the market price then current for similar goods or,
at the option of the other party at a price to be ascertained by
repurchase or resale and the difference between the contract price
and such closing-out price shall be the amount which the other
party shall be entitled to claim shall be liable to account for under
this contract (sic). Should either party be dissatisfied with the price,
the matter shall be referred to arbitration. Where no such resale or
repurchase takes place, the closing-out price shall be fixed by a
Price Settlement Committee appointed by the Federation.
(Emphasis ours.) 2
Hence, Safic prayed that IVO be ordered to pay the sums of
US$293,500.00 and US$391,593.62, plus attorney's fees and
litigation expenses. The complaint also included an application for a
writ of preliminary attachment against the properties of IVO.
Upon Safic's posting of the requisite bond, the trial court issued a
writ of preliminary attachment. Subsequently, the trial court
ordered that the assets of IVO be placed under receivership, in
order to ensure the preservation of the same.
In its answer, IVO raised the following special affirmative defenses:
Safic had no legal capacity to sue because it was doing business in
the Philippines without the requisite license or authority; the
subject contracts were speculative contracts entered into by IVO's
then President, Dominador Monteverde, in contravention of the
prohibition by the Board of Directors against engaging in
speculative paper trading, and despite IVO's lack of the necessary
license from Central Bank to engage in such kind of trading activity;
and that under Article 2018 of the Civil Code, if a contract which
purports to be for the delivery of goods, securities or shares of
stock is entered into with the intention that the difference between

33
the price stipulated and the exchange or market price at the time
of the pretended delivery shall be paid by the loser to the winner,
the transaction is null and void.
IVO set up counterclaims anchored on harassment, paralyzation of
business, financial losses, rumor-mongering and oppressive action.
Later, IVO filed a supplemental counterclaim alleging that it was
unable to operate its business normally because of the arrest of
most of its physical assets; that its suppliers were driven away; and
that its major creditors have inundated it with claims for immediate
payment of its debts, and China Banking Corporation had
foreclosed its chattel and real estate mortgages. aETDIc
During the trial, the lower court found that in 1985, prior to the
date of the contracts sued upon, the parties had entered into and
consummated a number of contracts for the sale of crude coconut
oil. In those transactions, Safic placed several orders and IVO
faithfully filled up those orders by shipping out the required crude
coconut oil to Safic, totalling 3,500 metric tons. Anent the 1986
contracts being sued upon, the trial court refused to declare the
same as gambling transactions, as defined in Article 2018 of the
Civil Code, although they involved some degree of speculation.
After all, the court noted, every business enterprise carries with it a
certain measure of speculation or risk. However, the contracts
performed in 1985, on one hand, and the 1986 contracts subject of
this case, on the other hand, differed in that under the 1985
contracts, deliveries were to be made within two months. This, as
alleged by Safic, was the time needed for milling and building up oil
inventory. Meanwhile, the 1986 contracts stipulated that the
coconut oil were to be delivered within period ranging from eight
months to eleven to twelve months after the placing of orders. The
coconuts that were supposed to be milled were in all likelihood not
yet growing when Dominador Monteverde sold the crude coconut
oil. As such, the 1986 contracts constituted trading in futures or in
mere expectations.
The lower court further held that the subject contracts were ultra
vires and were entered into by Dominador Monteverde without
authority from the Board of Directors. It distinguished between the
1985 contracts, where Safic likewise dealt with Dominador
Monteverde, who was presumably authorized to bind IVO, and the
1986 contracts, which were highly speculative in character.
Moreover, the 1985 contracts were covered by letters of credit,
while the 1986 contracts were payable by telegraphic transfers,
which were nothing more than mere promises to pay once the
shipments became ready. For these reasons, the lower court held
that Safic cannot invoke the 1985 contracts as an implied corporate

sanction for the high-risk 1986 contracts, which were evidently

entered into by Monteverde for his personal benefit.
The trial court ruled that Safic failed to substantiate its claim for
actual damages. Likewise, it rejected IVO's counterclaim and
supplemental counterclaim.
Thus, on August 28, 1992, the trial court rendered judgment as
follows:
WHEREFORE, judgment is hereby rendered dismissing the
complaint of plaintiff Safic Alcan & Cie, without prejudice to any
action it might subsequently institute against Dominador
Monteverde, the former President of Imperial Vegetable Oil Co.,
Inc., arising from the subject matter of this case. The counterclaim
and supplemental counterclaim of the latter defendant are likewise
hereby dismissed for lack of merit. No pronouncement as to costs.
The writ of preliminary attachment issued in this case as well as the
order placing Imperial Vegetable Oil Co., Inc. under receivership are
hereby dissolved and set aside. 3
Both IVO and Safic appealed to the Court of Appeals, jointly
docketed as CA-G.R. CV No. 40820.
IVO raised only one assignment of error, viz:
THE TRIAL COURT ERRED IN HOLDING THAT THE ISSUANCE OF THE
WRIT OF PRELIMINARY ATTACHMENT WAS NOT THE MAIN CAUSE OF
THE DAMAGES SUFFERED BY DEFENDANT AND IN NOT AWARDING
DEFENDANT-APPELLANT SUCH DAMAGES.
For its part, Safic argued that:
THE TRIAL COURT ERRED IN HOLDING THAT IVO'S PRESIDENT,
DOMINADOR MONTEVERDE, ENTERED INTO CONTRACTS WHICH
WERE ULTRA VIRES AND WHICH DID NOT BIND OR MAKE IVO
LIABLE.
THE TRIAL COURT ERRED IN HOLDING THAT SAFIC WAS UNABLE TO
PROVE THE DAMAGES SUFFERED BY IT AND IN NOT AWARDING
SUCH DAMAGES.
THE TRIAL COURT ERRED IN NOT HOLDING THAT IVO IS LIABLE
UNDER THE WASH OUT CONTRACTS.
On September 12, 1996, the Court of Appeals rendered the assailed
Decision dismissing the appeals and affirming the judgment
appealed from in toto. 4
Hence, Safic filed the instant petition for review with this Court,
substantially reiterating the errors it raised before the Court of
Appeals and maintaining that the Court of Appeals grievously erred
when:
a. it declared that the 1986 forward contracts (i.e., Contracts Nos.
A601446 and A60155 (sic) involving 2,000 long tons of crude
coconut oil, and Contracts Nos. A601297A/B, A601385, A601391,

34
A601415, A601681. A601683 and A601770A/B/C involving 4,500
tons of crude coconut oil) were unauthorized acts of Dominador
Monteverde which do not bind IVO in whose name they were
entered into. In this connection, the Court of Appeals erred when (i)
it ignored its own finding that (a) Dominador Monteverde, as IVO's
President, had "an implied authority to make any contract
necessary or appropriate to the contract of the ordinary business of
the company"; and (b) Dominador Monteverde had validly entered
into similar forward contracts for and on behalf of IVO in 1985; (ii) it
distinguished between the 1986 forward contracts despite the fact
that the Manila RTC has struck down IVO's objection to the 1986
forward contracts (i.e. that they were highly speculative paper
trading which the IVO Board of Directors had prohibited Dominador
Monteverde from engaging in because it is a form of gambling
where the parties do not intend actual delivery of the coconut oil
sold) and instead found that the 1986 forward contracts were not
gambling; (iii) it relied on the testimony of Mr. Rodrigo Monteverde
in concluding that the IVO Board of Directors did not authorize its
President, Dominador Monteverde, to enter into the 1986 forward
contracts; and (iv) it did not find IVO, in any case, estopped from
denying responsibility for, and liability under, the 1986 forward
contracts because IVO had recognized itself bound to similar
forward contracts which Dominador Monteverde entered into (for
and on behalf of IVO) with Safic in 1985 notwithstanding that
Dominador Monteverde was (like in the 1986 forward contracts) not
expressly authorized by the IVO Board of Directors to enter into
such forward contracts;
b. it declared that Safic was not able to prove damages suffered by
it, despite the fact that Safic had presented not only testimonial,
but also documentary, evidence which proved the higher amount it
had to pay for crude coconut oil (vis--vis the contract price it was
to pay to IVO) when IVO refused to deliver the crude coconut oil
bought by Safic under the 1986 forward contracts; and
c. it failed to resolve the issue of whether or not IVO is liable to
Safic under the wash out contracts involving Contracts Nos.
A601446 and A60155 (sic), despite the fact that Safic had properly
raised the issue on its appeal, and the evidence and the law
support Safic's position that IVO is so liable to Safic.
In fine, Safic insists that the appellate court grievously erred when
it did not declare that IVO's President, Dominador Monteverde,
validly entered into the 1986 contracts for and on behalf of IVO.
We disagree.
Article III, Section 3 [g] of the By-Laws 5 of IVO provides, among
others, that

SECTION 3. Powers and Duties of the President. The President

shall be elected by the Board of Directors from their own number.
He shall have the following duties:
xxx xxx xxx
[g] Have direct and active management of the business and
operation of the corporation, conducting the same according to the
orders, resolutions and instruction of the Board of Directors and
according to his own discretion whenever and wherever the same is
not expressly limited by such orders, resolutions and instructions.
It can be clearly seen from the foregoing provision of IVO's By-laws
that Monteverde had no blanket authority to bind IVO to any
contract. He must act according to the instructions of the Board of
Directors. Even in instances when he was authorized to act
according to his discretion, that discretion must not conflict with
prior Board orders, resolutions and instructions. The evidence
shows that the IVO Board knew nothing of the 1986 contracts 6 and
that it did not authorize Monteverde to enter into speculative
contracts. 7 In fact, Monteverde had earlier proposed that the
company engage in such transactions but the IVO Board rejected
his proposal. 8 Since the 1986 contracts marked a sharp departure
from past IVO transactions, Safic should have obtained from
Monteverde the prior authorization of the IVO Board. Safic can not
rely on the doctrine of implied agency because before the
controversial 1986 contracts, IVO did not enter into identical
contracts with Safic. The basis for agency is representation and a
person dealing with an agent is put upon inquiry and must discover
upon his peril the authority of the agent. 9 In the case of Bacaltos
Coal Mines v. Court of Appeals, 10 we elucidated the rule on
dealing with an agent thus: EHSAaD
Every person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent. If he does not
make such inquiry, he is chargeable with knowledge of the agent's
authority, and his ignorance of that authority will not be any
excuse. 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, to ascertain not only the fact
of the agency but also the nature and extent of the authority, and
in case either is controverted, the burden of proof is upon them to
establish it. 11
The most prudent thing petitioner should have done was to
ascertain the extent of the authority of Dominador Monteverde.
Being remiss in this regard, petitioner can not seek relief on the
basis of a supposed agency.
Under Article 1898 12 of the Civil Code, the acts of an agent
beyond the scope of his authority do not bind the principal unless

35
the latter ratifies the same expressly or impliedly. It also bears
emphasizing that when the third person knows that the agent was
acting beyond his power or authority, the principal can not be held
liable for the acts of the agent. If the said third person is aware of
such limits of authority, he is to blame, and is not entitled to
recover damages from the agent, unless the latter undertook to
secure the principal's ratification. 13
There was no such ratification in this case. When Monteverde
entered into the speculative contracts with Safic, he did not secure
the Board's approval. 14 He also did not submit the contracts to the
Board after their consummation so there was, in fact, no occasion
at all for ratification. The contracts were not reported in IVO's
export sales book and turn-out book. 15 Neither were they reflected
in other books and records of the corporation. 16 It must be pointed
out that the Board of Directors, not Monteverde, exercises
corporate power. 17 Clearly, Monteverde's speculative contracts
with Safic never bound IVO and Safic can not therefore enforce
those contracts against IVO.
To bolster its cause, Safic raises the novel point that the IVO Board
of Directors did not set limitations on the extent of Monteverde's
authority to sell coconut oil. It must be borne in mind in this regard
that a question that was never raised in the courts below can not
be allowed to be raised for the first time on appeal without
offending basic rules of fair play, justice and due process. 18 Such
an issue was not brought to the fore either in the trial court or the
appellate court, and would have been disregarded by the latter
tribunal for the reasons previously stated. With more reason, the
same does not deserve consideration by this Court.
Be that as it may, Safic's belated contention that the IVO Board of
Directors did not set limitations on Monteverde's authority to sell
coconut oil is belied by what appears on the record. Rodrigo
Monteverde, who succeeded Dominador Monteverde as IVO
President, testified that the IVO Board had set down the policy of
engaging in purely physical trading thus:
Q. Now you said that IVO is engaged in trading. With whom does it
usually trade its oil?
A. I am not too familiar with trading because as of March 1987, I
was not yet an officer of the corporation, although I was at the time
already a stockholder, I think IVO is engaged in trading oil.
Q. As far as you know, what kind of trading was IVO engaged with?
A. It was purely on physical trading.
Q. How did you know this?
A. As a stockholder, rather as member of [the] Board of Directors, I
frequently visited the plant and from my observation, as I have to
supervise and monitor purchases of copras and also the sale of the

same, I observed that the policy of the corporation is for the

company to engaged (sic) or to purely engaged (sic) in physical
trading.
Q. What do you mean by physical trading?
A. Physical Trading means we buy and sell copras that are only
available to us. We only have to sell the available stocks in our
inventory.
Q. And what is the other form of trading?
Atty. Fernando
No basis, your Honor.
Atty. Abad
Well, the witness said they are engaged in physical trading and
what I am saying [is] if there are any other kind or form of trading.
Court
Witness may answer if he knows.
Witness
A. Trading future[s] contracts wherein the trader commits a price
and to deliver coconut oil in the future in which he is yet to acquire
the stocks in the future.
Atty. Abad
Q. Who established the so-called physical trading in IVO?
A. The Board of Directors, sir.
Atty. Abad
Q. How did you know that?
A. There was a meeting held in the office at the factory and it was
brought out and suggested by our former president, Dominador
Monteverde, that the company should engaged (sic) in future[s]
contract[s] but it was rejected by the Board of Directors. It was only
Ador Monteverde who then wanted to engaged (sic) in this future[s]
contract[s].
Q. Do you know where this meeting took place?
A. As far as I know it was sometime in 1985.
Q. Do you know why the Board of Directors rejected the proposal of
Dominador Monteverde that the company should engaged (sic) in
future[s] contracts?
Atty. Fernando
Objection, your Honor, no basis.
Court
Why don't you lay the basis?
Atty. Abad
Q. Were you a member of the board at the time?
A. In 1975, I am already a stockholder and a member.
Q. Then would [you] now answer my question?
Atty. Fernando

36
No basis, your Honor. What we are talking is about 1985.
Atty. Abad
Q. When you mentioned about the meeting in 1985 wherein the
Board of Directors rejected the future[s] contract[s], were you
already a member of the Board of Directors at that time?
A. Yes, sir.
Q. Do you know the reason why the said proposal of Mr. Dominador
Monteverde to engage in future[s] contract[s] was rejected by the
Board of Directors?
A. Because this future[s] contract is too risky and it partakes of
gambling.
Q. Do you keep records of the Board meetings of the company?
A. Yes, sir.
Q. Do you have a copy of the minutes of your meeting in 1985?
A. Incidentally our Secretary of the Board of Directors, Mr. Elfren
Sarte, died in 1987 or 1988, and despite [the] request of our office
for us to be furnished a copy he was not able to furnish us a copy.
19
xxx xxx xxx
Atty. Abad
Q. You said the Board of Directors were against the company
engaging in future[s] contracts. As far as you know, has this policy
of the Board of Directors been observed or followed?
Witness
A. Yes, sir.
Q. How far has this Dominador Monteverde been using the name of
I.V.O. in selling future contracts without the proper authority and
consent of the company's Board of Directors? CcTIDH
A. Dominador Monteverde never records those transactions he
entered into in connection with these future[s] contracts in the
company's books of accounts.
Atty. Abad
Q. What do you mean by that the future[s] contracts were not
entered into the books of accounts of the company?
Witness
A. Those were not recorded at all in the books of accounts of the
company, sir. 20
xxx xxx xxx
Q. What did you do when you discovered these transactions?
A. There was again a meeting by the Board of Directors of the
corporation and that we agreed to remove the president and then I
was made to replace him as president.
Q. What else?
A. And a resolution was passed disowning the illegal activities of
the former president. 21

Petitioner next argues that there was actually no difference

between the 1985 physical contacts and the 1986 futures
contracts.
The contention is unpersuasive for, as aptly pointed out by the trial
court and sustained by the appellate court
Rejecting IVO's position, SAFIC claims that there is no distinction
between the 1985 and 1986 contracts, both of which groups of
contracts were signed or authorized by IVO's President, Dominador
Monteverde. The 1986 contracts, SAFIC would bewail, were
similarly with their 1985 predecessors, forward sales contracts in
which IVO had undertaken to deliver the crude coconut oil months
after such contracts were entered into. The lead time between the
closing of the deal and the delivery of the oil supposedly allowed
the seller to accumulate enough copra to mill and to build up its
inventory and so meet its delivery commitment to its foreign
buyers. SAFIC concludes that the 1986 contracts were equally
binding, as the 1985 contracts were, on IVO.
Subjecting the evidence on both sides to close scrutiny, the Court
has found some remarkable distinctions between the 1985 and
1986 contracts. . . .
1. The 1985 contracts were performed within an average of two
months from the date of the sale. On the other hand, the 1986
contracts were to be performed within an average of eight and a
half months from the dates of the sale. All the supposed
performances fell in 1987. Indeed, the contract covered by Exhibit J
was to be performed 11 to 12 months from the execution of the
contract. These pattern (sic) belies plaintiff's contention that the
lead time merely allowed for milling and building up of oil inventory.
It is evident that the 1986 contracts constituted trading in futures
or in mere expectations. In all likelihood, the coconuts that were
supposed to be milled for oil were not yet on their trees when
Dominador Monteverde sold the crude oil to SAFIC.
2. The mode of payment agreed on by the parties in their 1985
contracts was uniformly thru the opening of a letter of credit LC by
SAFIC in favor of IVO. Since the buyer's letter of credit guarantees
payment to the seller as soon as the latter is able to present the
shipping documents covering the cargo, its opening usually mark[s]
the fact that the transaction would be consummated. On the other
hand, seven out of the ten 1986 contracts were to be paid by
telegraphic transfer upon presentation of the shipping documents.
Unlike the letter of credit, a mere promise to pay by telegraphic
transfer gives no assurance of [the] buyer's compliance with its
contracts. This fact lends an uncertain element in the 1986
contracts.

37
3. Apart from the above, it is not disputed that with respect to the
1985 contracts, IVO faithfully complied with Central Bank Circular
No. 151 dated April 1, 1963, requiring a coconut oil exporter to
submit a Report of Foreign Sales within twenty-four (24) hours
"after the closing of the relative sales contract" with a foreign buyer
of coconut oil. But with respect to the disputed 1986 contracts, the
parties stipulated during the hearing that none of these contracts
were ever reported to the Central Bank, in violation of its above
requirement. (See Stipulation of Facts dated June 13, 1990). The
1986 sales were, therefore suspect.
4. It is not disputed that, unlike the 1985 contacts, the 1986
contracts were never recorded either in the 1986 accounting books
of IVO or in its annual financial statement for 1986, a document
that was prepared prior to the controversy. (Exhibits 6 to 6-0 and 7
to 7-I). Emelita Ortega, formerly an assistant of Dominador
Monteverde, testified that they were strange goings-on about the
1986 contract. They were neither recorded in the books nor
reported to the Central Bank. What is more, in those unreported
cases where profits were made, such profits were ordered remitted
to unknown accounts in California, U.S.A., by Dominador
Monteverde.
xxx xxx xxx
Evidently, Dominador Monteverde made business for himself, using
the name of IVO but concealing from it his speculative transactions.
Petitioner further contends that both the trial and appellate courts
erred in concluding that Safic was not able to prove its claim for
damages. Petitioner first points out that its wash out agreements
with Monteverde where IVO allegedly agreed to pay US$293,500.00
for some of the failed contracts was proof enough and, second, that
it presented purchases of coconut oil it made from others during
the period of IVO's default.
We remain unconvinced. The so-called "wash out" agreements are
clearly ultra vires and not binding on IVO. Furthermore, such
agreements did not prove Safic's actual losses in the transactions
in question. The fact is that Safic did not pay for the coconut oil
that it supposedly ordered from IVO through Monteverde. Safic only
claims that, since it was ready to pay when IVO was not ready to
deliver, Safic suffered damages to the extent that they had to buy
the same commodity from others at higher prices.
The foregoing claim of petitioner is not, however, substantiated by
the evidence and only raises several questions, to wit: 1.] Did Safic
commit to deliver the quantity of oil covered by the 1986 contracts
to its own buyers? Who were these buyers? What were the terms of
those contracts with respect to quantity, price and date of delivery?
2.] Did Safic pay damages to its buyers? Where were the receipts?

Did Safic have to procure the equivalent oil from other sources?
If so, who were these sources? Where were their contracts and
what were the terms of these contracts as to quantity, price and
date of delivery?
The records disclose that during the course of the proceedings in
the trial court, IVO filed an amended motion 22 for production and
inspection of the following documents: a.] contracts of resale of
coconut oil that Safic bought from IVO; b.] the records of the
pooling and sales contracts covering the oil from such pooling, if
the coconut oil has been pooled and sold as general oil; c.] the
contracts of the purchase of oil that, according to Safic, it had to
resort to in order to fill up alleged undelivered commitments of IVO;
d.] all other contracts, confirmations, invoices, wash out
agreements and other documents of sale related to (a), (b) and (c).
This amended motion was opposed by Safic. 23 The trial court,
however, in its September 16, 1988 Order, 24 ruled that:
From the analysis of the parties' respective positions, conclusion
can easily be drawn therefrom that there is materiality in the
defendant's move: firstly, plaintiff seeks to recover damages from
the defendant and these are intimately related to plaintiff's alleged
losses which it attributes to the default of the defendant in its
contractual commitments; secondly, the documents are specified in
the amended motion. As such, plaintiff would entertain no
confusion as to what, which documents to locate and produce
considering plaintiff to be (without doubt) a reputable going
concern in the management of the affairs which is serviced by
competent, industrious, hardworking and diligent personnel; thirdly,
the desired production and inspection of the documents was
precipitated by the testimony of plaintiff's witness (Donald
O'Meara) who admitted, in open court, that they are available. If
the said witness represented that the documents, as generally
described, are available, reason there would be none for the same
witness to say later that they could not be produced, even after
they have been clearly described.
Besides, if the Court may additionally dwell on the issue of
damages, the production and inspection of the desired documents
would be of tremendous help in the ultimate resolution thereof.
Plaintiff claims for the award of liquidated or actual damages to the
tune of US$391,593.62 which, certainly, is a huge amount in terms
of pesos, and which defendant disputes. As the defendant cannot
be precluded in taking exceptions to the correctness and validity of
such claim which plaintiff's witness (Donald O'Meara) testified to,
and as, by this nature of the plaintiff's claim for damages, proof
thereof is a must which can be better served, if not amply

38
ascertained by examining the records of the related sales admitted
to be in plaintiff's possession, the amended motion for production
and inspection of the defendant is in order.
The interest of justice will be served best, if there would be a full
disclosure by the parties on both sides of all documents related to
the transactions in litigation.
Notwithstanding the foregoing ruling of the trial court, Safic did not
produce the required documents, prompting the court a quo to
assume that if produced, the documents would have been adverse
to Safic's cause. In its efforts to bolster its claim for damages it
purportedly sustained, Safic suggests a substitute mode of
computing its damages by getting the average price it paid for
certain quantities of coconut oil that it allegedly bought in 1987
and deducting this from the average price of the 1986 contracts.
But this mode of computation if flawed because: 1.] it is conjectural
since it rests on average prices not on actual prices multiplied by
the actual volume of coconut oil per contract; and 2.] it is based on
the unproven assumption that the 1987 contracts of purchase
provided the coconut oil needed to make up for the failed 1986
contracts. There is also no evidence that Safic had contracted to
supply third parties with coconut oil from the 1986 contracts and
that Safic had to buy such oil from others to meet the requirement.
cDIaAS
Along the same vein, it is worthy to note that the quantities of oil
covered by its 1987 contracts with third parties do not match the
quantities of oil provided under the 1986 contracts. Had Safic
produced the documents that the trial court required, a
substantially correct determination of its actual damages would
have been possible. This, unfortunately, was not the case. Suffice it
to state in this regard that "[T]he power of the courts to grant
damages and attorney's fees demands factual, legal and equitable
justification; its basis cannot be left to speculation and conjecture."
25
WHEREFORE, in view of all the foregoing, the petition is DENIED for
lack of merit.
SO ORDERED.
SECOND DIVISION
[G.R. No. 159489. February 4, 2008.]
FILIPINAS LIFE ASSURANCE COMPANY (now AYALA LIFE
ASSURANCE, INC.), petitioner, vs. CLEMENTE N. PEDROSO,
TERESITA O. PEDROSO and JENNIFER N. PALACIO thru her
Attorney-in-Fact PONCIANO C. MARQUEZ, respondents.
DECISION
QUISUMBING, J p:

This petition for review on certiorari seeks the reversal of the

Decision 1 and Resolution, 2 dated November 29, 2002 and August
5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No.
33568. The appellate court had affirmed the Decision 3 dated
October 10, 1989 of the Regional Trial Court (RTC) of Manila, Branch
3, finding petitioner as defendant and the co-defendants below
jointly and severally liable to the plaintiffs, now herein respondents.
The antecedent facts are as follows:
Respondent Teresita O. Pedroso is a policyholder of a 20-year
endowment life insurance issued by petitioner Filipinas Life
Assurance Company (Filipinas Life). Pedroso claims Renato Valle
was her insurance agent since 1972 and Valle collected her
monthly premiums. In the first week of January 1977, Valle told her
that the Filipinas Life Escolta Office was holding a promotional
investment program for policyholders. It was offering 8% prepaid
interest a month for certain amounts deposited on a monthly basis.
Enticed, she initially invested and issued a post-dated check dated
January 7, 1977 for P10,000. 4 In return, Valle issued Pedroso his
personal check for P800 for the 8% 5 prepaid interest and a
Filipinas Life "Agent's Receipt" No. 807838. 6
Subsequently, she called the Escolta office and talked to Francisco
Alcantara, the administrative assistant, who referred her to the
branch manager, Angel Apetrior. Pedroso inquired about the
promotional investment and Apetrior confirmed that there was such
a promotion. She was even told she could "push through with the
check" she issued. From the records, the check, with the
endorsement of Alcantara at the back, was deposited in the
account of Filipinas Life with the Commercial Bank and Trust
Company (CBTC), Escolta Branch.
Relying on the representations made by the petitioner's duly
authorized representatives Apetrior and Alcantara, as well as
having known agent Valle for quite some time, Pedroso waited for
the maturity of her initial investment. A month after, her
investment of P10,000 was returned to her after she made a
written request for its refund. The formal written request, dated
February 3, 1977, was written on an inter-office memorandum form
of Filipinas Life prepared by Alcantara. 7 To collect the amount,
Pedroso personally went to the Escolta branch where Alcantara
gave her the P10,000 in cash. After a second investment, she made
7 to 8 more investments in varying amounts, totaling P37,000 but
at a lower rate of 5% 8 prepaid interest a month. Upon maturity of
Pedroso's subsequent investments, Valle would take back from
Pedroso the corresponding yellow-colored agent's receipt he issued
to the latter.

39
Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life
insurance policyholder, about the investment plan. Palacio made a
total investment of P49,550 9 but at only 5% prepaid interest.
However, when Pedroso tried to withdraw her investment, Valle did
not want to return some P17,000 worth of it. Palacio also tried to
withdraw hers, but Filipinas Life, despite demands, refused to
return her money. With the assistance of their lawyer, they went to
Filipinas Life Escolta Office to collect their respective investments,
and to inquire why they had not seen Valle for quite some time. But
their attempts were futile. Hence, respondents filed an action for
the recovery of a sum of money.
After trial, the RTC, Branch 3, Manila, held Filipinas Life and its codefendants Valle, Apetrior and Alcantara jointly and solidarily liable
to the respondents.
On appeal, the Court of Appeals affirmed the trial court's ruling and
subsequently denied the motion for reconsideration.
Petitioner now comes before us raising a single issue:
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION IN
AFFIRMING THE DECISION OF THE LOWER COURT HOLDING FLAC
[FILIPINAS LIFE] TO BE JOINTLY AND SEVERALLY LIABLE WITH ITS
CO-DEFENDANTS ON THE CLAIM OF RESPONDENTS INSTEAD OF
HOLDING ITS AGENT, RENATO VALLE, SOLELY LIABLE TO THE
RESPONDENTS. 10
Simply put, did the Court of Appeals err in holding petitioner and its
co-defendants jointly and severally liable to the herein
respondents?
Filipinas Life does not dispute that Valle was its agent, but claims
that it was only a life insurance company and was not engaged in
the business of collecting investment money. It contends that the
investment scheme offered to respondents by Valle, Apetrior and
Alcantara was outside the scope of their authority as agents of
Filipinas Life such that, it cannot be held liable to the respondents.
11
On the other hand, respondents contend that Filipinas Life
authorized Valle to solicit investments from them. In fact, Filipinas
Life's official documents and facilities were used in consummating
the transactions. These transactions, according to respondents,
were confirmed by its officers Apetrior and Alcantara. Respondents
assert they exercised all the diligence required of them in
ascertaining the authority of petitioner's agents; and it is Filipinas
Life that failed in its duty to ensure that its agents act within the
scope of their authority.
Considering the issue raised in the light of the submissions of the
parties, we find that the petition lacks merit. The Court of Appeals

committed no reversible error nor abused gravely its discretion

in rendering the assailed decision and resolution.
It appears indisputable that respondents Pedroso and Palacio had
invested P47,000 and P49,550, respectively. These were received
by Valle and remitted to Filipinas Life, using Filipinas Life's official
receipts, whose authenticity were not disputed. Valle's authority to
solicit and receive investments was also established by the parties.
When respondents sought confirmation, Alcantara, holding a
supervisory position, and Apetrior, the branch manager, confirmed
that Valle had authority. While it is true that a person dealing with
an agent is put upon inquiry and must discover at his own peril the
agent's authority, in this case, respondents did exercise due
diligence in removing all doubts and in confirming the validity of
the representations made by Valle.
Filipinas Life, as the principal, is liable for obligations contracted by
its agent Valle. 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. 12 The
general rule is that the principal is responsible for the acts of its
agent done within the scope of its authority, and should bear the
damage caused to third persons. 13 When the agent exceeds his
authority, the agent becomes personally liable for the damage. 14
But even when the agent exceeds his authority, the principal is still
solidarily liable together with the agent if the principal allowed the
agent to act as though the agent had full powers. 15 In other
words, the acts of an agent beyond the scope of his authority do
not bind the principal, unless the principal ratifies them, expressly
or impliedly. 16 Ratification in agency is the adoption or
confirmation by one person of an act performed on his behalf by
another without authority. 17
Filipinas Life cannot profess ignorance of Valle's acts. Even if Valle's
representations were beyond his authority as a debit/insurance
agent, Filipinas Life thru Alcantara and Apetrior expressly and
knowingly ratified Valle's acts. It cannot even be denied that
Filipinas Life benefited from the investments deposited by Valle in
the account of Filipinas Life. In our considered view, Filipinas Life
had clothed Valle with apparent authority; hence, it is now
estopped to deny said authority. Innocent third persons should not
be prejudiced if the principal failed to adopt the needed measures
to prevent misrepresentation, much more so if the principal ratified
his agent's acts beyond the latter's authority. The act of the agent
is considered that of the principal itself. Qui per alium facit per
seipsum facere videtur. "He who does a thing by an agent is
considered as doing it himself." 18

40
WHEREFORE, the petition is DENIED for lack of merit. The Decision
and Resolution, dated November 29, 2002 and August 5, 2003,
respectively, of the Court of Appeals in CA-G.R. CV No. 33568 are
AFFIRMED.
Costs against the petitioner.
SO ORDERED.
THIRD DIVISION
[G.R. No. 153743. March 18, 2005.]
NORMA B. DOMINGO, petitioner, vs. YOLANDA ROBLES; and
MICHAEL MALABANAN ROBLES, MARICON MALABANAN
ROBLES, MICHELLE MALABANAN ROBLES, All Minors
Represented by Their Mother, YOLANDA ROBLES,
respondents.
DECISION
PANGANIBAN, J p:
Forgery must be proven by the party alleging it; it cannot be
presumed. To prevent a forged transfer from being registered, the
Torrens Act requires, as a prerequisite to registration, the
production of the owner's certificate of title and the instrument of
conveyance. A registered owner who places in the hands of another
an executed document of transfer of registered land effectively
represents to a third party that the holder of such document is
authorized to deal with the property. 1
The Case
Before us is a Petition for Review 2 under Rule 45 of the Rules of
Court, challenging the May 27, 2002 Decision 3 of the Court of
Appeals (CA) in CA-GR CV No. 53842. The decretal portion of the
assailed Decision reads:
"IN VIEW OF ALL THE FOREGOING, [there being] no reversible error
in the challenged decision, the same is hereby AFFIRMED, in toto,
and the instant appeal ordered DISMISSED. Costs against the
[petitioner]." 4
On the other hand, the affirmed Decision 5 of the Regional Trial
Court (RTC), Branch 272 of Marikina, disposed as follows:
"WHEREFORE, premises considered, the complaint subject of this
decision is hereby DISMISSED." 6
The Facts
The facts are narrated by the CA as follows:
"The historical backdrop shows that [petitioner] and her husband,
Valentino Domingo, were the registered owners of Lot 19, Block 1,
subdivision plan (LRC) Psd-15706 located at Cristina Subdivision,
Concepcion, Marikina and covered by Transfer Certificate of Title
No. 53412. On this lot, [Petitioner] Norma B. Domingo discontinued
the construction of her house allegedly for failure of her husband to

send the necessary financial support. So, she decided to dispose

of the property.
"A friend, Flor Bacani, volunteered to act as [petitioner's] agent in
selling the lot. Trusting Bacani, [petitioner] delivered their owner's
copy of Transfer Certificate of Title No. 53412 to him (Bacani).
Later, the title was said to have been lost. In the petition for its
reconstitution, [petitioner] gave Bacani all her receipts of payment
for real estate taxes. At the same time, Bacani asked [petitioner] to
sign what she recalled was a record of exhibits. Thereafter,
[petitioner] waited patiently but Bacani did not show up any more.
"On November 1, 1994, [Petitioner] Norma Domingo visited the lot
and was surprised to see the [respondents] (Robles, for short)
starting to build a house on the subject lot. A verification with the
Register of Deeds revealed that the reconstituted Transfer
Certificate of Title No. 53412 had already been cancelled with the
registration of a Deed of Absolute Sale dated May 9, 1991 signed
by Norma B. Domingo and her husband Valentino Domingo, as
sellers, and [Respondent] Yolanda Robles, for herself and
representing the other minor [respondents], as buyers. As a
consequence, Transfer Certificate of Title No. 201730 was issued
on June 10, 1991 in the name of [Respondent] Robles.
"Claiming not to have met any of the [respondents] nor having
signed any sale over the property in favor of anybody (her husband
being abroad at the time), [petitioner] assumed that the Deed of
Absolute Sale dated May 9, 1991 is a forgery and, therefore, could
not validly transfer ownership of the lot to the [respondents].
Hence, the case for the nullity thereof and its reconveyance.
"[Respondents] Robles responded alleging to be buyers in good
faith and for value. They narrate that the subject lot was offered to
them by Flor Bacani, as the agent of the owners; that after some
time when they were already prepared to buy the lot, Bacani
introduced to them the supposed owners and agreed on the sale;
then, on May 9, 1991, Bacani and the introduced seller presented a
Deed of Absolute Sale already signed by Valentino and Norma
Domingo needing only her (Robles') signature. Presented likewise
at that meeting, where she paid full purchase price, was the
original of the owner's duplicate of Transfer Certificate of Title No.
53412. STADIH
"Then sometime later, [Respondents] Robles contracted to sell the
lot in issue in favor of spouses Danilo and Herminigilda Deza for
P250,000.00. [Respondent] Yolanda Robles even had to secure a
guardianship authority over the persons and properties of her
minor children from the Regional Trial Court of Pasig in JDRC No.
2614. When only P20,000.00 remained unpaid of the total purchase
price under the contract to sell, payment was stopped because of

41
the letter received by Yolanda Robles that [petitioner] intends to
sue her.
"After due proceedings, the [Regional Trial Court] rendered its
Decision dated May 13, 1996, dismissing the complaint." 7
Ruling of the Court of Appeals
The CA held that respondents were purchasers in good faith and for
value. According to its findings, (a) the sale was admittedly made
through petitioner's agent; (b) as Domingo's agent, Bacani brought
with him the original of the owner's duplicate Certificate of Title of
the property and some receipts; (c) the reconstituted title
presented to the buyers was free from any liens, encumbrances or
adverse interests of other persons; and (d) the land was
unoccupied. Petitioner was not able to present, against these
established facts, any evidence to prove that respondents had prior
knowledge of any other person's right to or interest over the
property in question.
Hence, this Petition. 8
Issue
Petitioner submits this sole issue for our consideration:
"To determine whether or not the petitioner is entitled to her
claims, the issue worthy of consideration by the Honorable Court in
the instant case is WHO IS A PURCHASER IN GOOD FAITH?" 9
The Court's Ruling
The Petition has no merit.
Sole Issue:Acquisition of Valid Title
It is a well-established principle that factual findings of the trial
court, when affirmed by the Court of Appeals, are binding on this
Court. 10 Petitioner has given this Court no cogent reason to
deviate from this rule; on the contrary, the findings of the courts a
quo are amply supported by the evidence on record.
Petitioner claims that her signature and that of her husband were
forged in the Deed of Absolute Sale transferring the property from
the Domingo spouses to respondent. Relying on the general rule
that a forged deed is void and conveys no title, 11 she assails the
validity of the sale. AEITDH
It is a well-settled rule, however, that a notarized instrument enjoys
a prima facie presumption of authenticity and due execution. 12
Clear and convincing evidence must be presented to overcome
such legal presumption. Forgery cannot be presumed; hence, it was
incumbent upon petitioner to prove it. 13 This, she failed to do. On
this point, the CA observed:
". . . What surprises the Court is that a comparison of the signature
of appellant Norma Domingo in the Deed of Absolute Sale in favor
of the appellees and the signature in the verification of the
complaint manifest a striking similarity to the point that without

any contrary proof, it would be safe to conclude that said

signatures were written by one and the same person. Sadly,
appellant left that matter that way without introducing
counteracting evidence. . . " 14
Petitioner also failed to convince the trial court that the person with
whom Respondent Yolanda Robles transacted was in fact not
Valentino Domingo. Except for her insistence that her husband was
out of the country, petitioner failed to present any other clear and
convincing evidence that Valentino was not present at the time of
the sale. Bare allegations, unsubstantiated by evidence, are not
equivalent to proof. 15
Petitioner now stresses the issue of good faith on the part of
respondents. In the absence of a finding of fraud and a consequent
finding of authenticity and due execution of the Deed of Absolute
Sale, a discussion of whether respondents were purchasers in good
faith is wholly unnecessary. Without a clear and persuasive
substantiation of bad faith, a presumption of good faith in their
favor stands. 16
The sale was admittedly made with the aid of Bacani, petitioner's
agent, who had with him the original of the owner's duplicate
Certificate of Title to the property, free from any liens or
encumbrances. The signatures of Spouses Domingo, the registered
owners, appear on the Deed of Absolute Sale. Petitioner's husband
met with Respondent Yolanda Robles and received payment for the
property. The Torrens Act requires, as a prerequisite to registration,
the production of the owner's certificate of title and the instrument
of conveyance. The registered owner who places in the hands of
another an executed document of transfer of registered land
effectively represents to a third party that the holder of such
document is authorized to deal with the property. 17
WHEREFORE, the Petition is DENIED and the assailed Decision
AFFIRMED. Costs against petitioner.
SO ORDERED.
THIRD DIVISION
[G.R. No. 137686. February 8, 2000.]
RURAL BANK OF MILAOR (CAMARINES SUR), petitioner, vs.
FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE O. NIO,
FELICISIMO OCFEMIA, RENATO OCFEMIA JR., and WINSTON
OCFEMIA, respondents.
David C. Naval for petitioner.
Eustaquio S. Beltran for respondent.
SYNOPSIS
The action is for mandamus with damages where petitioner bank
was declared in default for failure to file an answer within the

42
reglementary period. And when the case was set for hearing,
petitioner did not file any opposition thereto. Allegedly, there are
five parcels of land located in Camarines Sur which were sold by
the bank to the parents of respondent Marife but the same had not
been transferred to the latter because it was required that the
document of sale be registered with the Register of Deeds. The
Register of Deeds, however, required a board resolution from the
bank confirming the Deed of Sale. The bank refused the request for
board resolution after many alibis and, thus, the action for
mandamus which the trial court granted and the Court of Appeals
affirmed. TcDaSI
Petitioner questioned the jurisdiction of the RTC because the value
of the real property is less than P20,000. The Court ruled that the
RTC had jurisdiction over the action because respondents did not
raise any question involving the title to the property. The issue was
the respondent's right to compel the bank to issue the required
board resolution. And whether the board of directors may be
compelled to make a resolution when the alleged sale was
executed by the bank manager without prior authority, the Court
noted that respondents based their action on the Deed of Sale
executed with one Fe S. Tena as the representative of the bank.
Petitioner failed to specifically deny under oath the allegations in
that contract. Thus, it is an admission of the due execution of the
contract of sale and acknowledgment of Tena's authority to sign the
Deed of Sale on behalf of the bank. A bank is liable to innocent
third persons where representation is made in the course of its
normal business by an agent like manager Tena, even though such
agent was abusing her authority. The bank has a clear legal duty to
issue the board resolution sought by respondents.
SYLLABUS
1. REMEDIAL
LAW;
JURISDICTION;
DETERMINED
BY
THE
ALLEGATIONS OF THE COMPLAINT; CASE AT BAR. The well-settled
rule is that jurisdiction is determined by the allegations of the
complaint. In the present case, the Petition for Mandamus filed by
respondents before the trial court prayed that petitioner-bank be
compelled to issue a board resolution confirming the Deed of Sale
covering five parcels of unregistered land, which the bank manager
had executed in their favor. The RTC has jurisdiction over such
action pursuant to Section 21 of BP 129, which provides: "SEC 21.
Original jurisdiction in other cases. Regional Trial Courts shall
exercise original jurisdiction: (1) in the issuance of writs of
certiorari, prohibition, mandamus, quo warranto, habeas corpus
and injunction which may be enforced in any part of their
respective regions; and (2) In actions affecting ambassadors and
other public ministers and consuls." Respondents did not raise any

question involving the title to the property; hence, the issue

therein was not the title to the property. It was respondents' right to
compel the bank to issue a board resolution confirming the Deed of
Sale.
2. ID.; CIVIL PROCEDURE; ALLEGATIONS IN PLEADINGS; ACTION
BASED ON DOCUMENT; FAILURE TO CONTEST GENUINENESS
THEREOF. Respondents based their action before the trial court
on the Deed of Sale, the substance of which was alleged in and a
copy thereof was attached to the Petition for Mandamus. The Deed
named Fe S. Tena as the representative of the bank. Petitioner,
however, failed to specifically deny under oath the allegations in
that contract. In fact, it filed no answer at all, for which reason it
was declared in default. Pertinent provisions of the Rules of Court
read: "SEC. 7. Action or defense based on document. Whenever
an action or defense is based upon a written instrument or
document, the substance of such instrument or document shall be
set forth in the pleading, and the original or a copy thereof shall be
attached to the pleading as an exhibit, which shall be deemed to be
a part of the pleading, or said copy may with like effect be set forth
in the pleading. "SEC. 8. How to contest genuineness of such
documents. When an action or defense is founded upon a written
instrument, copied in or attached to the corresponding pleading as
provided in the preceding section, the genuineness and due
execution of the instrument shall be deemed admitted unless the
adverse party, under oath, specifically denies them, and sets forth
what he claims to be the facts; but this provision does not apply
when the adverse party does not appear to be a party to the
instrument or when compliance with an order for an inspection of
the original instrument is refused." In failing to file its answer
specifically denying under oath the Deed of Sale, the bank
admitted the due execution of the said contract. Such admission
means that it acknowledged that Tena was authorized to sign the
Deed of Sale on its behalf. Thus, defenses that are inconsistent with
the due execution and the genuineness of the written instrument
are cut off by an admission implied from a failure to make a verified
specific denial. aEDCAH
3. CIVIL LAW; DAMAGES; A BANK IS LIABLE TO INNOCENT THIRD
PERSONS WHERE REPRESENTATION IS MADE IN COURSE OF ITS
NORMAL BUSINESS BY ITS AGENT. A bank is liable to innocent
third persons where representation is made in the course of its
normal business by an agent like Manager Tena, even though such
agent is abusing her authority. Clearly, persons dealing with her
could not be blamed for believing that she was authorized to
transact business for and on behalf of the bank. Notwithstanding
the putative authority of the manager to bind the bank in the Deed

43
of Sale, petitioner has failed to file an answer to the Petition below
within the reglementary period, let alone present evidence
controverting such authority. Indeed, when one of herein
respondents went to the bank to ask for the board resolution, she
was merely told to bring the receipts. The bank failed to
categorically declare that Tena had no authority. The bank is
estopped from questioning the authority of the bank manager to
enter into the contract of sale. If a corporation knowingly permits
one of its officers or any other agent to act within the scope of an
apparent authority, it holds the agent out to the public as
possessing the power to do those acts; thus, the corporation will, as
against anyone who has in good faith dealt with it through such
agent, be estopped from denying the agent's authority.
VITUG, J., concurring opinion:
1. CIVIL LAW; CIVIL CODE SUPPLETORY TO SPECIAL LAWS. The
Civil Code, being a law of general application, can be suppletory to
special laws and certainly not preclusive of those that govern
commercial transactions. Indeed, in its generic sense, civil law can
rightly be said to encompass commercial law. Jus civile, in ancient
Rome, was merely used to distinguish it from jus gentium or the
law common to all the nations within the empire and, at some time
later, only in contrast to international law. In more recent times,
civil law is so referred to as private law in distinction from public
law and criminal law. Today, it may not be totally inaccurate to
consider commercial law, among some other special laws, as being
a branch of civil law. SCHcaT
2. COMMERCIAL LAW; CORPORATION LAW; ULTRA VIRES ACTS OF
CORPORATIONS; ELUCIDATED. Section 45 of the Corporation
Code provides: "Sec. 45. Ultra vires acts of corporations. No
corporation under this Code shall possess or exercise any corporate
powers except those conferred by this Code or by its articles of
incorporation and except such as are necessary or incidental to the
exercise of the powers so conferred." The language of the Code
appears to confine the term ultra vires to an act outside or beyond
express, implied and incidental corporate powers. Nevertheless, the
concept can also include those acts that may ostensibly be within
such powers but are, by general or special laws, either proscribed
or declared illegal. In general, although perhaps loosely, ultra vires
has also been used to designate those acts of the board of directors
or of corporate officers when acting beyond their respective
spheres of authority. In the context that the law has used the term
in Article 45 of the Corporation Code, an ultra vires act would be
void and not susceptible to ratification. In determining whether or
not a corporation may perform an act, one considers the logical and
necessary relation between the act assailed and the corporate

purpose expressed by the law or in the charter. For if the act

were one which is lawful in itself or not otherwise prohibited and
done for the purpose of serving corporate ends or reasonably
contributes to the promotion of those ends in a substantial and not
merely in a remote and fanciful sense, it may be fairly considered
within corporate powers.
3. ID.; ID.; BOARD OF DIRECTORS; WHEN ACT OF THE BOARD DONE
WITHOUT THE REQUIRED CONCURRENCE OF THE SHAREHOLDERS;
ELUCIDATED. Section 23 of the Corporation Code states that the
corporate powers are to be exercised, all business conducted, and
all property of corporations controlled and held, by the Board of
Directors. When the act of the board is within corporate powers but
it is done without the concurrence of the shareholders as and when
such approval is required by law or when the act is beyond its
competence to do, the act has been described as void or, as
unenforceable, or as ineffective and not legally binding. These
holdings notwithstanding, the act cannot accurately be likened to
an ultra vires act of the corporation itself defined in Section 45 of
the Code. Where the act is within corporate powers but the board
has acted without being competent to independently do so, the
action is not necessarily and totally devoid of effects, and it may
generally be ratified expressly or impliedly. Thus, an acceptance of
benefits derived by the shareholders from an outside investment
made by the board without the required concurrence of the
stockholders may, nonetheless, be so considered as an effective
investment. It may be said, however, that when the board
resolution is yet executory, the act should aptly be deemed
inoperative and specific performance cannot be validly demanded
but, if for any reason, the contemplated action is carried out, such
principles as ratification or prescription when applicable, normally
unknown in void contracts, can serve to negate a claim for the total
nullity thereof.
4. ID.; ID.; CORPORATE OFFICERS; ACTS THAT BIND THE COMPANY.
Corporate officers, in their case, may act on such matters as
may be authorized either expressly by the By-laws or Board
Resolutions or impliedly such as by general practice or policy or as
are implied by express powers. When officers are allowed to act in
certain particular cases, their acts conformably therewith can bind
the company. Hence, a corporate officer entrusted with general
management and control of the business has the implied authority
to act or contract for the corporation which may be necessary or
appropriate to conduct the ordinary business. If the act of corporate
officers comes within corporate powers but it is done without any
express or implied authority therefor from the by-laws, board

44
resolutions or corporate practices, such an act does not bind the
corporation. The Board, however, acting within its competence,
may ratify the unauthorized act of the corporate officer. So, too, a
corporation may be held in estoppel from denying as against
innocent third persons the authority of its officers or agents who
have been clothed by it with ostensible or apparent authority.
5. ID.; ID.; ON ILLEGAL ACT OF CORPORATION; APPLICABLE RULES.
The Corporation Code itself has not been that explicit with
respect to the consequences of ultra vires acts; hence, the varied
ascriptions to its effects heretofore expressed. It may well be to
consider futile any further attempt to have these situations bear
any exact equivalence to the civil law precepts of defective
contracts. Nevertheless, general statements could be made. Here
reiterated, while an act of the corporation which is either illegal or
outside of express, implied or incidental powers as so provided by
law or the charter would be void under Article 5 of the Civil Code,
and the act is not susceptible to ratification, an unauthorized act (if
within corporate powers) of the board or a corporate officer,
however, would only be unenforceable conformably with Article
1403 of the Civil Code but, if the party with whom the agent has
contracted is aware of the latter's limits of powers, the
unauthorized act is declared void by Article 1898 of the same Code,
although still susceptible thereunder to ratification by the principal.
Any person dealing with corporate boards and officers may be said
to be charged with the knowledge that the latter can only act within
their respective limits of power, and he is put to notice accordingly.
Thus, it would generally behoove such a person to look into the
extent of the authority of corporate agents since the onus would
ordinarily be with him.
DECISION
PANGANIBAN, J p:
When a bank, by its acts and failure to act, has clearly clothed its
manager with apparent authority to sell an acquired asset in the
normal course of business, it is legally obliged to confirm the
transaction by issuing a board resolution to enable the buyers to
register the property in their names. It has a duty to perform
necessary and lawful acts to enable the other parties to enjoy all
benefits of the contract which it had authorized. LibLex
The Case
Before this Court is a Petition for Review on Certiorari challenging
the December 18, 1998 Decision of the Court of Appeals 1 (CA) in
CA-GR SP No. 46246, which affirmed the May 20, 1997 Decision 2
of the Regional Trial Court (RTC) of Naga City (Branch 28). The CA
disposed as follows:

"Wherefore, premises considered, the Judgment appealed from

is hereby AFFIRMED. Costs against the respondent-appellant." 3
The dispositive portion of the judgment affirmed by the CA ruled in
this wise:
"WHEREFORE, in view of all the foregoing findings, decision is
hereby rendered whereby the [petitioner] Rural Bank of Milaor
(Camarines Sur), Inc. through its Board of Directors is hereby
ordered to immediately issue a Board Resolution confirming the
Deed of Sale it executed in favor of Renato Ocfemia marked
Exhibits C, C-1 and C-2); to pay [respondents] the sum of FIVE
HUNDRED (P500.00) PESOS as actual damages; TEN THOUSAND
(P10,000.00) PESOS as attorney's fees; THIRTY THOUSAND
(P30,000.00) PESOS as moral damages; THIRTY THOUSAND
(P30,000.00) PESOS as exemplary damages; and to pay the costs."
4
Also assailed is the February 26, 1999 CA Resolution 5 which
denied petitioner's Motion for Reconsideration.
The Facts
The trial court's summary of the undisputed facts was reproduced
in the CA Decision as follows:
"This is an action for mandamus with damages. On April 10, 1996,
[herein petitioner] was declared in default on motion of the
[respondents] for failure to file an answer within the reglementary
period after it was duly served with summons. On April 26, 1996,
[herein petitioner] filed a motion to set aside the order of default
with objection thereto filed by [herein respondents].
"On June 17, 1996, an order was issued denying [petitioner's]
motion to set aside the order of default. On July 10, 1996, the
defendant filed a motion for reconsideration of the order of June 17,
1996 with objection thereto by [respondents]. On July 12, 1996, an
order was issued denying [petitioner's] motion for reconsideration.
On July 31, 1996, [respondents] filed a motion to set case for
hearing. A copy thereof was duly furnished the [petitioner] but the
latter did not file any opposition and so [respondents] were allowed
to present their evidence ex-parte. A certiorari case was filed by
the [petitioner] with the Court of Appeals docketed as CA GR No.
41497-SP but the petition was denied in a decision rendered on
March 31, 1997 and the same is now final.
"The evidence presented by the [respondents] through the
testimony of Marife O. Nio, one of the [respondents] in this case,
show[s] that she is the daughter of Francisca Ocfemia, a co[respondent] in this case, and the late Renato Ocfemia who died on
July 23, 1994. The parents of her father, Renato Ocfemia, were
Juanita Arellano Ocfemia and Felicisimo Ocfemia. Her other co-

45
[respondents] Rowena O. Barrogo, Felicisimo Ocfemia, Renato
Ocfemia, Jr. and Winston Ocfemia are her brothers and sisters.
"Marife O. Nio knows the five (5) parcels of land described in
paragraph 6 of the petition which are located in Bombon,
Camarines Sur and that they are the ones possessing them which
[were] originally owned by her grandparents, Juanita Arellano
Ocfemia and Felicisimo Ocfemia. During the lifetime of her
grandparents, [respondents] mortgaged the said five (5) parcels of
land and two (2) others to the [petitioner] Rural Bank of Milaor as
shown by the Deed of Real Estate Mortgage (Exhs. A and A-1) and
the Promissory Note (Exh. B).
"The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were
not able to redeem the mortgaged properties consisting of seven
(7) parcels of land and so the mortgage was foreclosed and
thereafter ownership thereof was transferred to the [petitioner]
bank. Out of the seven (7) parcels that were foreclosed, five (5) of
them are in the possession of the [respondents] because these five
(5) parcels of land described in paragraph 6 of the petition were
sold by the [petitioner] bank to the parents of Marife O. Nio as
evidenced by a Deed of Sale executed in January 1988 (Exhs. C, C-1
and C-2).
"The aforementioned five (5) parcels of land subject of the deed of
sale (Exh. C), have not been, however transferred in the name of
the parents of Merife O. Nio after they were sold to her parents by
the [petitioner] bank because according to the Assessor's Office the
five (5) parcels of land, subject of the sale, cannot be transferred in
the name of the buyers as there is a need to have the document of
sale registered with the Register of Deeds of Camarines Sur.
"In view of the foregoing, Marife O. Nio went to the Register of
Deeds of Camarines Sur with the Deed of Sale (Exh. C) in order to
have the same registered. The Register of Deeds, however,
informed her that the document of sale cannot be registered
without a board resolution of the [petitioner] Bank. Marife Nio then
went to the bank, showed to it the Deed of Sale (Exh. C), the tax
declaration and receipt of tax payments and requested the
[petitioner] for a board resolution so that the property can be
transferred to the name of Renato Ocfemia the husband of
petitioner Francisca Ocfemia and the father of the other
[respondents] having died already.
"The [petitioner] bank refused her request for a board resolution
and made many alibi[s]. She was told that the [petitioner] bank
ha[d] a new manager and it had no record of the sale. She was
asked and she complied with the request of the [petitioner] for a
copy of the deed of sale and receipt of payment. The president of
the [petitioner] bank told her to get an authority from her parents

and other [respondents] and receipts evidencing payment of the

consideration appearing in the deed of sale. She complied with said
requirements and after she gave all these documents, Marife O.
Nio was again told to wait for two (2) weeks because the
[petitioner] bank would still study the matter. cda
"After two (2) weeks, Marife O. Nio returned to the [petitioner]
bank and she was told that the resolution of the board would not be
released because the [petitioner] bank ha[d] no records from the
old manager. Because of this, Marife O. Nio brought the matter to
her lawyer and the latter wrote a letter on December 22, 1995 to
the [petitioner] bank inquiring why no action was taken by the
board of the request for the issuance of the resolution considering
that the bank was already fully paid [for] the consideration of the
sale since January 1988 as shown by the deed of sale itself (Exh. D
and D-1).
"On January 15, 1996 the [petitioner] bank answered [respondents']
lawyer's letter (Exh. D and D-1) informing the latter that the
request for board resolution ha[d] already been referred to the
board of directors of the [petitioner] bank with another request that
the latter should be furnished with a certified machine copy of the
receipt of payment covering the sale between the [respondents]
and the [petitioner] (Exh. E). This request of the [petitioner] bank
was already complied [with] by Marife O. Nio even before she
brought the matter to her lawyer.
"On January 23, 1996 [respondents'] lawyer wrote back the branch
manager of the [petitioner] bank informing the latter that they
were already furnished the receipts the bank was asking [for] and
that the [respondents] want[ed] already to know the stand of the
bank whether the board [would] issue the required board resolution
as the deed of sale itself already show[ed] that the [respondents
were] clearly entitled to the land subject of the sale (Exh. F). The
manager of the [petitioner] bank received the letter which was
served personally to him and the latter told Marife O. Nio that
since he was the one himself who received the letter he would not
sign anymore a copy showing him as having already received said
letter (Exh. F).
"After several days from receipt of the letter (Exh. F) when Marife
O. Nio went to the [petitioner] again and reiterated her request,
the manager of the [petitioner] bank told her that they could not
issue the required board resolution as the [petitioner] bank ha[d]
no records of the sale. Because of this Merife O. Nio already went
to their lawyer and ha[d] this petition filed.
"The [respondents] are interested in having the property described
in paragraph 6 of the petition transferred to their names because

46
their mother and co-petitioner, Francisca Ocfemia, is very sickly
and they want to mortgage the property for the medical expenses
of Francisca Ocfemia. The illness of Francisca Ocfemia beg[a]n after
her husband died and her suffering from arthritis and pulmonary
disease already became serious before December 1995.
"Marife O. Nio declared that her mother is now in serious condition
and they could not have her hospitalized for treatment as they do
not have any money and this is causing the family sleepless nights
and mental anguish, thinking that their mother may die because
they could not submit her for medication as they do not have
money." 6
The trial court granted the Petition. As noted earlier, the CA
affirmed the RTC Decision.
Hence, this recourse. 7 In a Resolution dated June 23, 1999, this
Court issued a Temporary Restraining Order directing the trial court
"to refrain and desist from executing [pending appeal] the decision
dated May 20, 1997 in Civil Case No. RTC-96-3513, effective
immediately until further orders from this Court." 8
Ruling of the Court of Appeals
The CA held that herein respondents were "able to prove their
present cause of action" against petitioner. It ruled that the RTC had
jurisdiction over the case, because (1) the Petition involved a
matter incapable of pecuniary estimation; (2) mandamus fell within
the jurisdiction of RTC; and (3) assuming that the action was for
specific performance as argued by the petitioner, it was still
cognizable by the said court.
Issues
In its Memorandum, 9 the bank posed the following questions:
"1. Question of Jurisdiction of the Regional Trial Court. Has a
Regional Trial Court original jurisdiction over an action involving
title to real property with a total assessed value of less than
P20,000.00?
"2. Question of Law. May the board of directors of a rural banking
corporation be compelled to confirm a deed of absolute sale of real
property owned by the corporation which deed of sale was
executed by the bank manager without prior authority of the board
of directors of the rural banking corporation?" 10
This Court's Ruling
The present Petition has no merit. cda
First Issue:
Jurisdiction of the Regional Trial Court
Petitioner submits that the RTC had no jurisdiction over the case.
Disputing the ruling of the appellate court that the present action
was incapable of pecuniary estimation, petitioner argues that the
matter in fact involved title to real property worth less than

P20,000. Thus, under RA 7691, the case should have been filed
before a metropolitan trial court, a municipal trial court or a
municipal circuit trial court.
We disagree. The well-settled rule is that jurisdiction is determined
by the allegations of the complaint. 11 In the present case, the
Petition for Mandamus filed by respondents before the trial court
prayed that petitioner-bank be compelled to issue a board
resolution confirming the Deed of Sale covering five parcels of
unregistered land, which the bank manager had executed in their
favor. The RTC has jurisdiction over such action pursuant to Section
21 of BP 129, which provides:
"SEC. 21. Original jurisdiction in other cases. Regional Trial
Courts shall exercise original jurisdiction:
(1) in the issuance of writs of certiorari, prohibition, mandamus,
quo warranto, habeas corpus and injunction which may be enforced
in any part of their respective regions; and
(2) in actions affecting ambassadors and other public ministers and
consuls."
A perusal of the Petition shows that the respondents did not raise
any question involving the title to the property, but merely asked
that petitioner's board of directors be directed to issue the subject
resolution. Moreover, the bank did not controvert the allegations in
the said Petition. To repeat, the issue therein was not the title to the
property; it was respondents' right to compel the bank to issue a
board resolution confirming the Deed of Sale.
Second Issue:
Authority of the Bank Manager
Respondents initiated the present proceedings, so that they could
transfer to their names the subject five parcels of land; and
subsequently, to mortgage said lots and to use the loan proceeds
for the medical expenses of their ailing mother. For the property to
be transferred in their names, however, the register of deeds
required the submission of a board resolution from the bank
confirming both the Deed of Sale and the authority of the bank
manager, Fe S. Tena, to enter into such transaction. Petitioner
refused. After being given the runaround by the bank, respondents
sued in exasperation.
Allegations in the Petition for
Mandamus Deemed Admitted
Respondents based their action before the trial court on the Deed
of Sale, the substance of which was alleged in and a copy thereof
was attached to the Petition for Mandamus. The Deed named Fe S.
Tena as the representative of the bank. Petitioner, however, failed
to specifically deny under oath the allegations in that contract. In

47
fact, it filed no answer at all, for which reason it was declared in
default. Pertinent provisions of the Rules of Court read:
"SEC. 7. Action or defense based on document. Whenever an
action or defense is based upon a written instrument or document,
the substance of such instrument or document shall be set forth in
the pleading, and the original or a copy thereof shall be attached to
the pleading as an exhibit, which shall be deemed to be a part of
the pleading, or said copy may with like effect be set forth in the
pleading.
"SEC. 8. How to contest genuineness of such documents. When
an action or defense is founded upon a written instrument, copied
in or attached to the corresponding pleading as provided in the
preceding section, the genuineness and due execution of the
instrument shall be deemed admitted unless the adverse party,
under oath, specifically denies them, and sets forth what he claims
to be the facts; but this provision does not apply when the adverse
party does not appear to be a party to the instrument or when
compliance with an order for an inspection of the original
instrument is refused." 12
In failing to file its answer specifically denying under oath the Deed
of Sale, the bank admitted the due execution of the said contract.
Such admission means that it acknowledged that Tena was
authorized to sign the Deed of Sale on its behalf. 13 Thus, defenses
that are inconsistent with the due execution and the genuineness
of the written instrument are cut off by an admission implied from a
failure to make a verified specific denial.
Other Acts of the Bank
In any event, the bank acknowledged, by its own acts or failure to
act, the authority of Fe S. Tena to enter into binding contracts. After
the execution of the Deed of Sale, respondents occupied the
properties in dispute and paid the real estate taxes due thereon. If
the bank management believed that it had title to the property, it
should have taken some measures to prevent the infringement or
invasion of its title thereto and possession thereof.
Likewise, Tena had previously transacted business on behalf of the
bank, and the latter had acknowledged her authority. A bank is
liable to innocent third persons where representation is made in the
course of its normal business by an agent like Manager Tena, even
though such agent is abusing her authority. 14 Clearly, persons
dealing with her could not be blamed for believing that she was
authorized to transact business for and on behalf of the bank. Thus,
this Court has ruled in Board of Liquidators v. Kalaw: 15
"Settled jurisprudence has it that where similar acts have been
approved by the directors as a matter of general practice, custom,
and policy, the general manager may bind the company without

formal authorization of the board of directors. In varying

language, existence of such authority is established, by proof of the
course of business, the usages and practices of the company and
by the knowledge which the board of directors has, or must be
presumed to have, of acts and doings of its subordinates in and
about the affairs of the corporation. So also,
"'. . . authority to act for and bind a corporation may be presumed
from acts of recognition in other instances where the power was in
fact exercised.'
"'. . . Thus, when, in the usual course of business of a corporation,
an officer has been allowed in his official capacity to manage its
affairs, his authority to represent the corporation may be implied
from the manner in which he has been permitted by the directors
to manage its business."'
Notwithstanding the putative authority of the manager to bind the
bank in the Deed of Sale, petitioner has failed to file an answer to
the Petition below within the reglementary period, let alone present
evidence controverting such authority. Indeed, when one of herein
respondents, Marife S. Nino, went to the bank to ask for the board
resolution, she was merely told to bring the receipts. The bank
failed to categorically declare that Tena had no authority. This Court
stresses the following:
". . . Corporate transactions would speedily come to a standstill
were every person dealing with a corporation held duty-bound to
disbelieve every act of its responsible officers, no matter how
regular they should appear on their face. This Court has observed
in Ramirez vs. Orientalist Co., 38 Phil. 634, 654-655, that
'In passing upon the liability of a corporation in cases of this kind it
is always well to keep in mind the situation as it presents itself to
the third party with whom the contract is made. Naturally he can
have little or no information as to what occurs in corporate
meetings; and he must necessarily rely upon the external
manifestation of corporate consent. The integrity of commercial
transactions can only be maintained by holding the corporation
strictly to the liability fixed upon it by its agents in accordance with
law; and we would be sorry to announce a doctrine which would
permit the property of man in the city of Paris to be whisked out of
his hands and carried into a remote quarter of the earth without
recourse against the corporation whose name and authority had
been used in the manner disclosed in this case. As already
observed, it is familiar doctrine that if a corporation knowingly
permits one of its officers, or any other agent, to do acts within the
scope of an apparent authority, and thus holds him out to the
public as possessing power to do those acts, the corporation will, as

48
against any one who has in good faith dealt with the corporation
through such agent, be estopped from denying his authority; and
where it is said 'if the corporation permits this means the same as
'if the thing is permitted by the directing power of the corporation.'"
16
In this light, the bank is estopped from questioning the authority of
the bank manager to enter into the contract of sale. If a corporation
knowingly permits one of its officers or any other agent to act
within the scope of an apparent authority, it holds the agent out to
the public as possessing the power to do those acts; thus, the
corporation will, as against anyone who has in good faith dealt with
it through such agent, be estopped from denying the agent's
authority. 17
Unquestionably, petitioner has authorized Tena to enter into the
Deed of Sale. Accordingly, it has a clear legal duty to issue the
board resolution sought by respondents. Having authorized her to
sell the property, it behooves the bank to confirm the Deed of Sale
so that the buyers may enjoy its full use.
The board resolution is, in fact, mere paper work. Nonetheless, it is
paper work necessary in the orderly operations of the register of
deeds and the full enjoyment of respondents' rights. Petitioner-bank
persistently and unjustifiably refused to perform its legal duty.
Worse, it was less than candid in dealing with respondents
regarding this matter. In this light, the Court finds it proper to
assess the bank treble costs, in addition to the award of damages.
WHEREFORE, the Petition is hereby DENIED and the assailed
Decision and Resolution AFFIRMED. The Temporary Restraining
Order issued by this Court is hereby LIFTED. Treble costs against
petitioner.
SO ORDERED. cdtai
Melo, Purisima and Gonzaga-Reyes, JJ.,concur.
Vitug, J., see concurring ipinion.
Separate Opinions
VITUG, J., concurring opinion:
I share the views expressed in the ponencia written for the Court by
our esteemed colleague Mr. Justice Artemio V. Panganiban. There is
just a brief clarificatory statement that I thought could be made.
The Civil Code, being a law of general application, can be
suppletory to special laws and certainly not preclusive of those that
govern commercial transactions. Indeed, in its generic sense, civil
law can rightly be said to encompass commercial law. Jus civile, in
ancient Rome, was merely used to distinguish it from jus gentium
or the law common to all the nations within the empire and, at
some time later, only in contrast to international law. In more
recent times, civil law is so referred to as private law in distinction

from public law and criminal law. Today, it may not be totally
inaccurate to consider commercial law, among some other special
laws, as being a branch of civil law.
Section 45 of the Corporation Code provides: cda
"Sec. 45. Ultra vires acts of corporations. No corporation under
this Code shall possess or exercise any corporate powers except
those conferred by this Code or by its articles of incorporation and
except such as are necessary or incidental to the exercise of the
powers so conferred."
The language of the Code appears to confine the term ultra vires to
an act outside or beyond express, implied and incidental corporate
powers. Nevertheless, the concept can also include those acts that
may ostensibly be within such powers but are, by general or special
laws, either proscribed or declared illegal. In general, although
perhaps loosely, ultra vires has also been used to designate those
acts of the board of directors or of corporate officers when acting
beyond their respective spheres of authority. In the context that the
law has used the term in Article 45 of the Corporation Code, an
ultra vires act would be void and not susceptible to ratification. 1 In
determining whether or not a corporation may perform an act, one
considers the logical and necessary relation between the act
assailed and the corporate purpose expressed by the law or in the
charter. For if the act were one which is lawful in itself or not
otherwise prohibited and done for the purpose of serving corporate
ends or reasonably contributes to the promotion of those ends in a
substantial and not merely in a remote and fanciful sense, it may
be fairly considered within corporate powers. 2
Section 23 of the Corporation Code states that the corporate
powers are to be exercised, all business conducted, and all property
of corporations controlled and held, by the Board of Directors.
When the act of the board is within corporate powers but it is done
without the concurrence of the shareholders as and when such
approval is required by law 3 or when the act is beyond its
competence to do, 4 the act has been described as void 5 or, as
unenforceable, 6 or as ineffective and not legally binding. 7 These
holdings notwithstanding, the act cannot accurately be likened to
an ultra vires act of the corporation itself defined in Section 45 of
the Code. Where the act is within corporate powers but the board
has acted without being competent to independently do so, the
action is not necessarily and totally devoid of effects, and it may
generally be ratified expressly or impliedly. Thus, an acceptance of
benefits derived by the shareholders from an outside investment
made by the board without the required concurrence of the
stockholders may, nonetheless, be so considered as an effective
investment. 8 It may be said, however, that when the board

49
resolution is yet executory, the act should aptly be deemed
inoperative and specific performance cannot be validly demanded
but, if for any reason, the contemplated action is carried out, such
principles as ratification or prescription when applicable, normally
unknown in void contracts, can serve to negate a claim for the total
nullity thereof.
Corporate officers, in their case, may act on such matters as may
be authorized either expressly by the By-laws or Board Resolutions
or impliedly such as by general practice or policy or as are implied
by express powers. When officers are allowed to act in certain
particular cases, their acts conformably therewith can bind the
company. Hence, a corporate officer entrusted with general
management and control of the business has the implied authority
to act or contract for the corporation which may be necessary or
appropriate to conduct the ordinary business. 9 If the act of
corporate officers comes within corporate powers but it is done
without any express or implied authority therefor from the by-laws,
board resolutions or corporate practices, such an act does not bind
the corporation. The Board, however, acting within its competence,
may ratify the unauthorized act of the corporate officer. So, too, a
corporation may be held in estoppel from denying as against
innocent third persons the authority of its officers or agents who
have been clothed by it with ostensible or apparent authority. 10
The Corporation Code itself has not been that explicit with respect
to the consequences of ultra vires acts; hence, the varied
ascriptions to its effects heretofore expressed. It may well be to
consider futile any further attempt to have these situations bear
any exact equivalence to the civil law precepts of defective
contracts. Nevertheless, general statements could be made. Here
reiterated, while an act of the corporation which is either illegal or
outside of express, implied or incidental powers as so provided by
law or the charter would be void under Article 5 11 of the Civil
Code, and the act is not susceptible to ratification, an unauthorized
act (if within corporate powers) of the board or a corporate officer,
however, would only be unenforceable conformably with Article
1403 12 of the Civil Code but, if the party with whom the agent has
contracted is aware of the latter's limits of powers, the
unauthorized act is declared void by Article 1898 13 of the same
Code, although still susceptible thereunder to ratification by the
principal. Any person dealing with corporate boards and officers
may be said to be charged with the knowledge that the latter can
only act within their respective limits of power, and he is put to
notice accordingly. Thus, it would generally behoove such a person
to look into the extent of the authority of corporate agents since
the onus would ordinarily be with him. cdll

FIRST DIVISION
[G.R. No. 66715. September 18, 1990.]
PHILIPPINE NATIONAL BANK, petitioner, vs. THE
HONORABLE INTERMEDIATE APPELLATE COURT (First Civil
Cases Division) and ROMEO ALCEDO, respondents.
Juan D. Diaz, Benjamin C. Del Rosario and Pedro R. Lazo for
petitioner.
Carlos S. Ayeng, Augustus C. Rallos and Orlando S. Ayeng
for private respondent.
DECISION
GRIO-AQUINO, J p:
This is a petition for certiorari which seeks to set aside: (a) the
decision dated November 29, 1983 of the Intermediate Appellate
Court (now Court of Appeals) in CA-G.R. CV No. 68021 which
affirmed the decision of the Court of First Instance of Negros
Occidental (now Regional Trial Court), Branch IV, Bacolod City, in
Civil Case No. 11393; and (b) respondent court's resolution dated
February 29,1984 denying petitioner Philippine National Bank's
(PNB for short) motion for reconsideration.
The facts of the case are the following:
On March 20, 1968, Leticia de la Vina-Sepe executed a real estate
mortgage in favor of PNB, San Carlos Branch, over a lot registered
in her name under TCT No. T-31913 to secure the payment of a
sugar crop loan of P3,400. Later, Leticia Sepe, acting as attorney-infact for her brother-in-law, private respondent Romeo Alcedo,
executed an amended real estate mortgage to include his
(Alcedo's) Lot No. 1626 (being a portion of Lot No. 1402, covered by
TCT 52705 of the Isabela Cadastre) as additional collateral for
Sepe's increased loan of P16,500 (pp. 5-6, PNB's Brief, p. 74, Rollo).
Leticia Sepe and private respondent Alcedo verbally agreed to split
fifty-fifty (50-50) the proceeds of the loan (p. 94, Rollo) but failing to
receive his one-half share from her, Alcedo wrote a letter on May
12,1970 to the PNB, San Carlos Branch, revoking the Special Power
of Attorney which he had given to Leticia Sepe to mortgage his Lot
No. 1626 (p. 95, Rollo).
Replying on May 22, 1970, the PNB Branch Manager, Jose T.
Gellegani, advised Alcedo that his land had already been included
as collateral for Sepe's 1970-71 sugar crop loan, which the latter
had already availed of, nevertheless, he assured Alcedo that the
bank would exclude his lot as collateral for Sepe's forthcoming
(1971-72) sugar crop loan (p. 95, Rollo). The letter reads:
"May 22, 1970.
"Mr. Romeo AlcedoMamballo, M. PadillaNegros Occidental
"Dear Mr. Alcedo:

50
"This is to acknowledge receipt of your letter dated May 12, 1970,
requesting us to revoke the 'Special Power of Attorney' you have
executed in favor of Mrs. Leticia de la Vina-Sepe, on February 18,
1969, on Lot No. 1402, Isabela Cadastre, covered by Transfer
Certificate of Title No. 52705, with an area of 20.9200 hectares.
"In this connection, we wish to advise you that the aforementioned
parcel of land had been included as collateral to secure the 197071 sugar crop loan of Mrs. Leticia de la Vina-Sepe, which she had
already availed of In view of your late request, please be advised
and assured that we shall exclude the aforementioned lot as a
collateral of Leticia de la Vina-Sepe in our recommendation for her
1971-72 sugar crop loan.
"For your information, we enclose a copy of our letter to Mrs. Sepe,
which is self-explanatory.
"Thank you.
"Very truly yours, "(Sgd.) JOSE T. GELLEGANI "Manager"
(pp. 6-7, Record on Appeal, p. 75, Rollo.)
On the same day, May 22, 1970, PNB advised Sepe in writing to
replace Lot No. 1402 with another collateral of equal or higher
value.
"May 22, 1970
"Mrs. Leticia de la Vina-SepeCanla-on City
"Dear Mrs. Sepe:
"We wish to advice you that Mr. Romeo Alcedo, in a letter written to
us, has plans to revoke the 'Special Power of Attorney' he executed
in 1969 in your favor, affecting Lot No. 1402, Isabela Cadastre,
covered by Transfer Certificate of Title No. 52705 with an area of
20.9200 Hectares. Our record shows that this parcel of land is
mortgaged to us to secure the agricultural sugar crop loans we
have granted you.
"Mr. Alcedo made us understand that this said property shall serve
as security for your 1969/70 sugar crop loan only. As it already
secures your 1970-71 crop loan, which you have already availed,
the same may be excluded as security for future crop loans. In the
meantime, it is requested that you replace Lot No. 1402, abovementioned, with the same or more appraised value. Cdpr
"Kindly call on us regarding this matter at your earliest
convenience.
"Thank you.
"Very truly yours, "(Sgd.) JOSE T. GELLEGANI "Manager"
(pp. 7-8, Record on Appeal, p. 75, Rollo.)
Despite the above advice from PNB, Sepe was still able to obtain an
additional loan from PNB increasing her debt of P16,500 to
P56,638.69 on the security of Alcedo's property as collateral. On
January 15,1974, Alcedo received two (2) letters from PNB: (1)

informing him of Sepe's failure to pay her loan in the total

amount of P56,638.69; and (2) giving him six (6) days to settle
Sepe's
outstanding
obligation,
as
otherwise,
foreclosure
proceedings would be commenced against his property (p. 33,
Rollo). Alcedo requested Sepe to pay her accounts to forestall
foreclosure proceedings against his property, but to no avail (p. 15,
Rollo).
On April 17, 1974, Alcedo sued Sepe and PNB in the Court of First
Instance of Negros Occidental for collection and injunction with
damages (p. 33, Rollo).
During the pendency of the case, PNB filed in the Office of the
Sheriff at Pasig, Metro Manila, a petition for extrajudicial foreclosure
of its real estate mortgage on Alcedo's land. On November 19,
1974, the property was sold to PNB as the highest bidder in the
sale. The corresponding Sheriff's Certificate of Sale was issued to
the Bank (p. 33, Rollo).
On October 18, 1975, Alcedo filed an amended complaint against
Leticia and her husband Elias Sepe, and the Provincial Sheriff of
Negros Occidental praying additionally for annulment of the
extrajudicial foreclosure sale and reconveyance of the land to him
free from liens and encumbrances, with damages.
With leave of court, Alcedo filed a second amended complaint
withdrawing his action to collect his one-half share (amounting to
P28,319.34) out of the proceeds of the sugar crop loans obtained
by Sepe (p. 34, Rollo).
In its answer, PNB alleged that it had no knowledge of the
agreement between Mrs. Sepe and Alcedo to split the crop loan
proceeds between them. It required Sepe to put up other collaterals
when it granted her an additional loan because Alcedo informed the
Bank that he was revoking the Special Power of Attorney he gave
Sepe; that the revocation was not formalized in accordance with
law; and that in any event, the revocation of the Special Power of
Attorney on May 12, 1970 by Alcedo did not impair the real estate
mortgage earlier executed on April 28, 1969 by Sepe in favor of the
Bank (p. 36, Rollo).
On March 14, 1980, the trial court rendered judgment in favor of
Alcedo
"1. Declaring the public auction sale and the certificate of sale
executed by the Provincial Sheriff of Negros Occidental relative to
Lot No. 1626, Isabela Cadastre (TCT No. T-52705), as null and void;
"2. Ordering the defendant Philippine National Bank to reconvey to
plaintiff the title to aforesaid Lot No. 1626 free from all liens and
encumbrances relative to the loans obtained by defendant Leticia
de la Vina-Sepe;

51
"3. Ordering defendant spouses Leticia de la Vina-Sepe and Elias
Sepe and the Philippine National Bank, in solidum, to pay to the
plaintiff moral damages in the sum of P10,000.00, and another sum
of P5,000.00 as attorney's fees and expenses of litigation;
"4. On the cross-claim of defendant PNB against Leticia de la VinaSepe, considering that no evidence has been adduced regarding
the updated actual accountability of the latter with the former, it is
hereby directed that PNB proceed to collect against the crossdefendant whatever outstanding obligation the latter owes the
former arising from transactions in connection with the instant
case.
"No pronouncement as to costs." (pp. 10-11, Rollo.).
The bank appealed but to no avail for on November 29, 1983, the
Intermediate Appellate Court affirmed in toto the judgment of the
trial court (p. 54, Rollo.) The appellate court reasoned out that the
Bank was estopped from foreclosing the mortgage on Alcedo's lot
to pay Sepe's 1971-72 sugar crop loan, after having assured Alcedo
on May 22, 1970 "that we shall exclude the aforementioned lot as a
collateral of Leticia de la Vina-Sepe in our recommendation for her
1971-72 sugar crop loan" (p. 37, Rollo). The Court of Appeals held:
". . . Plaintiff-appellee's letter was unequivocal and clear to the
effect that defendant Leticia de la Vina Sepe was no longer
empowered to bind, encumber or mortgage his property. Although
We may not hold this revocation to retroact to April 28, 1969 which
was the date of the original mortgage, We can neither interpret it in
any other way than that from the moment of notice to the PNB, it
was the absolute intention of the owner to withdraw all authority
from said defendant to further bind or encumber his property. This
was clearly understood by the defendant-appellant PNB. There was
no question on its part that Leticia de la Vina Sepe was no longer
authorized to offer plaintiff-appellee's property as collateral for her
contract of mortgage with the PNB. Defendant-appellant, therefore,
acknowledged this revocation of the agency and in no uncertain
terms assured the plaintiff-appellee that indeed, the latter's
property will no longer be accepted by it as collateral for the sugar
crop loan of the aforementioned defendant for the year 1971 to
1972. This meeting of the minds between the plaintiff-appellee and
defendant-appellant took place not through verbal communications
only, but in writing, as shown by their letters dated May 12, 1970
and May 22, 1970, respectively. . . .
"xxx xxx xxx
". . . To Our minds, the aforementioned act and declaration of
defendant-appellant PNB as embodied in said letter binds said bank
under the principle of estoppel by deed and defined as follows:

"'A doctrine in American jurisprudence whereby a party creating

an appearance of fact which is not true is held bound by that
appearance as against another person who has acted on the faith
of it. (Strong v. Gutierrez Repide, 6 Phil. 685).
which is provided for in Articles 1431 and 1433 of the New Civil
Code in conjunction with Section 3, paragraph (a), Rule 131 of the
Rules of Court, all of which provide: LLjur
"'Art. 1431. Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon.'
"'Art. 1433. Estoppel may be in pais or by deed.'
"'Sec. 3. Conclusive presumptions. The following are instances of
conclusive presumptions:
" '(a) Whenever a party has, by his own declaration, act, or
omission, intentionally and deliberately led another to believe a
particular thing true, and to act upon such belief, he cannot, in any
litigation arising out of such declaration, act, or omission, be
permitted to falsify it.'
and which was enunciated in the following decisions of the
Supreme Court:
" 'Whenever a party has, by his own declaration, act or omission
intentionally and deliberately led another to believe a particular
thing true and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act, or omission, be permitted to
falsify it.
" 'Estoppel arises when one, by his acts, representations, or
admissions, or by his silence when he ought to speak out,
intentionally or through culpable negligence induces another to
believe certain facts to exist and such other rightfully relies and
acts on such belief, so that he will be prejudiced if the former is
permitted to deny the existence of such facts (Huyatid v. Huyatid,
47265-R, Jan. 4, 1928).
" 'The doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith and justice, and its purpose is to
forbid one to speak against his own act, representations, or
commitments to the injury of one to whom they were directed and
who reasonably relied thereon. Said doctrine springs from equitable
principles and the equities of the case. It is designed to aid the law
in the administration of justice where without its aid injustice might
result.' (Philippine National Bank v. Court of Appeals, L-30831,
November 21, 1979, 94 SCRA 368).
"By its letter dated May 22,1970, defendant-appellant PNB led
plaintiff-appellee to believe that his property covered by TCT T52705 would no longer be included as collateral in the sugar crop
loan of defendant Leticia de la Vina Sepe for the year 1971-72. It

52
led said plaintiff-appellee to believe that his property as of said
year will no longer be encumbered and will be free from any lien or
mortgage. Plaintiff-appellee had the right to rely on said belief,
because of the aforementioned act and declaration of defendantappellant bank. Under the laws and jurisprudence aforequoted,
defendant-appellant bank can no longer be allowed to deny or
falsify its act or declaration, or to renege from it. This is one of the
conclusive presumptions provided for by the Rules of Court." (pp.
37, 38-39, Rollo.).
PNB seeks a review of that decision on the grounds that:
1. the doctrine of promissory estoppel does not apply to this case;
2. PNB was a mortgagee in good faith and for value; and
3. PNB adduced substantial evidence in support of its cross-claim
against defendant Leticia Sepe (p. 15, Rollo).
These issues boil down to whether or not PNB validly foreclosed the
real estate mortgage on Alcedo's property despite notice of
Alcedo's revocation of the Special Power of Attorney authorizing
Leticia Sepe to mortgage his property as security for her sugar crop
loans and despite the Bank's written assurance to Alcedo that it
would exclude his property as collateral for Sepe's future loan
obligations. cdll
After careful deliberation, the Court is not persuaded to disturb the
decisions of the trial court and the Court of Appeals in this case.
We agree with the opinion of the appellate court that under the
doctrine of promissory estoppel enunciated in the case of Republic
Flour Mills, Inc. vs. Central Bank, L-23542, August 11, 1979, the act
and assurance given by the PNB to Alcedo "that we shall exclude
the aforementioned lot [Lot No. 1402] as a collateral of Leticia de la
Vina-Sepe in our recommendation for her 1971-72 sugar crop loan"
(p. 37, Rollo) is binding on the bank. Having given that assurance,
the bank may not turn around and do the exact opposite of what it
said it would not do. One may not take inconsistent positions
(Republic vs. Court of Appeals, 133 SCRA 505). A party may not go
back on his own acts and representations to the prejudice of the
other party who relied upon them (Lazo vs. Republic Surety &
Insurance Co., Inc., 31 SCRA 329.).
In the case of Philippine National Bank vs. Court of Appeals (94
SCRA 357), where the bank manager assured the heirs of the
debtor-mortgagor that they would be allowed to pay the remaining
obligation of their deceased parents, the Supreme Court held that
the bank must abide by its representations.
"On equitable principles, particularly on the ground of estoppel, we
must rule against petitioner Bank. The doctrine of estoppel is based
upon the grounds of public policy, fair dealing, good faith and
justice, and its purpose is to forbid one to speak against its own

act, representations, or commitments to the injury of one to

whom they were directed and who reasonably relied thereon. The
doctrine of estoppel springs from equitable principles and the
equities in the case. It is designed to aid the law in the
administration of justice where without its aid injustice might result.
It has been applied by this Court wherever and whenever the
special circumstances of a case so demands."
In the case at bar, since PNB had promised to exclude Alcedo's
property as collateral for Sepe's 1971-72 sugar crop loan, it should
have released the property to Alcedo. The mortgage which Sepe
gave to the bank on Alcedo's lot as collateral for her 1971-72 sugar
crop loan was null and void for having been already disauthorized
by Alcedo. Since Alcedo's property secured only P13,100.00 of
Sepe's 1970-71 sugar crop loan of P16,500.00 (because P3,400 was
secured by Sepe's own property), Alcedo's property may be held to
answer for only the unpaid balance, if any, of Sepe's 1970-71 loan,
but not the 1971-72 crop loan.
While Article 1358 of the New Civil Code requires that the
revocation of Alcedo's Special Power of Attorney to mortgage his
property should appear in a public instrument:
"Art. 1358. The following must appear in a public document:
(1) Acts or contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest therein
are governed by Articles 1403, No. 2 and 1405."
nevertheless, a revocation embodied in a private writing is valid
and binding between the parties (Doliendo v. Depino, 12 Phil. 758;
Hawaiian-Philippines Co. vs. Hernaez, 45 Phil. 746) for
"The legalization by a public writing and the recording of the same
in the registry are not essential requisites of a contract entered
into, as between the parties, but mere conditions of form or
solemnities which the law imposes in order that such contract may
be valid as against third persons, and to insure that a publicly
executed and recorded agreement shall be respected by the latter."
(Alano, et al. vs. Babasa, 10 Phil. 511.)
The PNB acted with bad faith in proceeding against Alcedo's
property to satisfy Sepe's unpaid 1971-72 sugar crop loan. The
extrajudicial foreclosure being null and void ab initio, the certificate
of sale which the Sheriff delivered to PNB as the highest bidder at
the sale is also null and void.
WHEREFORE, finding no reversible error in the decision of the Court
of Appeals, the petition for review is denied for lack of merit.
SO ORDERED.
THIRD DIVISION

53
G.R. No. 148187
April 16, 2008
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000
Decision1 of the Court of Appeals in CA-G.R. SP No. 49385, which
affirmed the Decision2 of the Court of Tax Appeals in C.T.A. Case No.
5200. Also assailed is the April 3, 2001 Resolution 3 denying the
motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex
Mining), entered into an agreement4 with Baguio Gold Mining
Company ("Baguio Gold") for the former to manage and operate
the latters mining claim, known as the Sto. Nino mine, located in
Atok and Tublay, Benguet Province. The parties agreement was
denominated as "Power of Attorney" and provided for the following
terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio
Gold) shall make available to the MANAGERS (Philex Mining) up to
ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as from
time to time may be required by the MANAGERS within the said 3year period, for use in the MANAGEMENT of the STO. NINO MINE.
The said ELEVEN MILLION PESOS (P11,000,000.00) shall be
deemed, for internal audit purposes, as the owners account in the
Sto. Nino PROJECT. Any part of any income of the PRINCIPAL from
the STO. NINO MINE, which is left with the Sto. Nino PROJECT, shall
be added to such owners account.
5. Whenever the MANAGERS shall deem it necessary and
convenient in connection with the MANAGEMENT of the STO. NINO
MINE, they may transfer their own funds or property to the Sto.
Nino PROJECT, in accordance with the following arrangements:
(a) The properties shall be appraised and, together with the cash,
shall be carried by the Sto. Nino PROJECT as a special fund to be
known as the MANAGERS account.
(b) The total of the MANAGERS account shall not exceed
P11,000,000.00, except with prior approval of the PRINCIPAL;
provided, however, that if the compensation of the MANAGERS as
herein provided cannot be paid in cash from the Sto. Nino PROJECT,
the amount not so paid in cash shall be added to the MANAGERS
account.
(c) The cash and property shall not thereafter be withdrawn from
the Sto. Nino PROJECT until termination of this Agency.

(d) The MANAGERS account shall not accrue interest. Since it is

the desire of the PRINCIPAL to extend to the MANAGERS the benefit
of subsequent appreciation of property, upon a projected
termination of this Agency, the ratio which the MANAGERS account
has to the owners account will be determined, and the
corresponding proportion of the entire assets of the STO. NINO
MINE, excluding the claims, shall be transferred to the MANAGERS,
except that such transferred assets shall not include mine
development, roads, buildings, and similar property which will be
valueless, or of slight value, to the MANAGERS. The MANAGERS
can, on the other hand, require at their option that property
originally transferred by them to the Sto. Nino PROJECT be retransferred to them. Until such assets are transferred to the
MANAGERS, this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%)
of the net profit of the Sto. Nino PROJECT before income tax. It is
understood that the MANAGERS shall pay income tax on their
compensation, while the PRINCIPAL shall pay income tax on the net
profit of the Sto. Nino PROJECT after deduction therefrom of the
MANAGERS compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the
MANAGERS and, in the future, may incur other obligations in favor
of the MANAGERS. This Power of Attorney has been executed as
security for the payment and satisfaction of all such obligations of
the PRINCIPAL in favor of the MANAGERS and as a means to fulfill
the same. Therefore, this Agency shall be irrevocable while any
obligation of the PRINCIPAL in favor of the MANAGERS is
outstanding, inclusive of the MANAGERS account. After all
obligations of the PRINCIPAL in favor of the MANAGERS have been
paid and satisfied in full, this Agency shall be revocable by the
PRINCIPAL upon 36-month notice to the MANAGERS.
17. Notwithstanding any agreement or understanding between the
PRINCIPAL and the MANAGERS to the contrary, the MANAGERS may
withdraw from this Agency by giving 6-month notice to the
PRINCIPAL. The MANAGERS shall not in any manner be held liable to
the PRINCIPAL by reason alone of such withdrawal. Paragraph 5(d)
hereof shall be operative in case of the MANAGERS withdrawal.
x x x x5
In the course of managing and operating the project, Philex Mining
made advances of cash and property in accordance with paragraph
5 of the agreement. However, the mine suffered continuing losses
over the years which resulted to petitioners withdrawal as

54
manager of the mine on January 28, 1982 and in the eventual
cessation of mine operations on February 20, 1982.6
Thereafter, on September 27, 1982, the parties executed a
"Compromise with Dation in Payment" 7 wherein Baguio Gold
admitted an indebtedness to petitioner in the amount of
P179,394,000.00 and agreed to pay the same in three segments by
first assigning Baguio Golds tangible assets to petitioner,
transferring to the latter Baguio Golds equitable title in its Philodrill
assets and finally settling the remaining liability through properties
that Baguio Gold may acquire in the future.
On December 31, 1982, the parties executed an "Amendment to
Compromise with Dation in Payment"8 where the parties
determined that Baguio Golds indebtedness to petitioner actually
amounted to P259,137,245.00, which sum included liabilities of
Baguio Gold to other creditors that petitioner had assumed as
guarantor. These liabilities pertained to long-term loans amounting
to US$11,000,000.00 contracted by Baguio Gold from the Bank of
America NT & SA and Citibank N.A. This time, Baguio Gold
undertook to pay petitioner in two segments by first assigning its
tangible assets for P127,838,051.00 and then transferring its
equitable title in its Philodrill assets for P16,302,426.00. The parties
then ascertained that Baguio Gold had a remaining outstanding
indebtedness to petitioner in the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the
remaining outstanding indebtedness of Baguio Gold by charging
P112,136,000.00 to allowances and reserves that were set up in
1981 and P2,860,768.00 to the 1982 operations.
In its 1982 annual income tax return, petitioner deducted from its
gross income the amount of P112,136,000.00 as "loss on
settlement of receivables from Baguio Gold against reserves and
allowances."9 However, the Bureau of Internal Revenue (BIR)
disallowed the amount as deduction for bad debt and assessed
petitioner a deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must
be allowed since all requisites for a bad debt deduction were
satisfied, to wit: (a) there was a valid and existing debt; (b) the
debt was ascertained to be worthless; and (c) it was charged off
within the taxable year when it was determined to be worthless.
Petitioner emphasized that the debt arose out of a valid
management contract it entered into with Baguio Gold. The bad
debt deduction represented advances made by petitioner which,
pursuant to the management contract, formed part of Baguio
Golds "pecuniary obligations" to petitioner. It also included
payments made by petitioner as guarantor of Baguio Golds long-

term loans which legally entitled petitioner to be subrogated to

the rights of the original creditor.
Petitioner also asserted that due to Baguio Golds irreversible
losses, it became evident that it would not be able to recover the
advances and payments it had made in behalf of Baguio Gold. For a
debt to be considered worthless, petitioner claimed that it was
neither required to institute a judicial action for collection against
the debtor nor to sell or dispose of collateral assets in satisfaction
of the debt. It is enough that a taxpayer exerted diligent efforts to
enforce collection and exhausted all reasonable means to collect.
On October 28, 1994, the BIR denied petitioners protest for lack of
legal and factual basis. It held that the alleged debt was not
ascertained to be worthless since Baguio Gold remained existing
and had not filed a petition for bankruptcy; and that the deduction
did not consist of a valid and subsisting debt considering that,
under the management contract, petitioner was to be paid fifty
percent (50%) of the projects net profit.10
Petitioner appealed before the Court of Tax Appeals (CTA) which
rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for
Review is hereby DENIED for lack of merit. The assessment in
question, viz: FAS-1-82-88-003067 for deficiency income tax in the
amount of P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby
ORDERED to PAY respondent Commissioner of Internal Revenue the
amount of P62,811,161.39, plus, 20% delinquency interest due
computed from February 10, 1995, which is the date after the 20day grace period given by the respondent within which petitioner
has to pay the deficiency amount x x x up to actual date of
payment.
SO ORDERED.11
The CTA rejected petitioners assertion that the advances it made
for the Sto. Nino mine were in the nature of a loan. It instead
characterized the advances as petitioners investment in a
partnership with Baguio Gold for the development and exploitation
of the Sto. Nino mine. The CTA held that the "Power of Attorney"
executed by petitioner and Baguio Gold was actually a partnership
agreement. Since the advanced amount partook of the nature of an
investment, it could not be deducted as a bad debt from
petitioners gross income.
The CTA likewise held that the amount paid by petitioner for the
long-term loan obligations of Baguio Gold could not be allowed as a
bad debt deduction. At the time the payments were made, Baguio
Gold was not in default since its loans were not yet due and
demandable. What petitioner did was to pre-pay the loans as

55
evidenced by the notice sent by Bank of America showing that it
was merely demanding payment of the installment and interests
due. Moreover, Citibank imposed and collected a "pre-termination
penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the CTA. 12 Hence,
upon denial of its motion for reconsideration, 13 petitioner took this
recourse under Rule 45 of the Rules of Court, alleging that:
I.
The Court of Appeals erred in construing that the advances made
by Philex in the management of the Sto. Nino Mine pursuant to the
Power of Attorney partook of the nature of an investment rather
than a loan.
II.
The Court of Appeals erred in ruling that the 50%-50% sharing in
the net profits of the Sto. Nino Mine indicates that Philex is a
partner of Baguio Gold in the development of the Sto. Nino Mine
notwithstanding the clear absence of any intent on the part of
Philex and Baguio Gold to form a partnership.
III.
The Court of Appeals erred in relying only on the Power of Attorney
and in completely disregarding the Compromise Agreement and the
Amended Compromise Agreement when it construed the nature of
the advances made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of
the propriety of the bad debts write-off.14
Petitioner insists that in determining the nature of its business
relationship with Baguio Gold, we should not only rely on the
"Power of Attorney", but also on the subsequent "Compromise with
Dation in Payment" and "Amended Compromise with Dation in
Payment" that the parties executed in 1982. These documents,
allegedly evinced the parties intent to treat the advances and
payments as a loan and establish a creditor-debtor relationship
between them.
The petition lacks merit.
The lower courts correctly held that the "Power of Attorney" is the
instrument that is material in determining the true nature of the
business relationship between petitioner and Baguio Gold. Before
resort may be had to the two compromise agreements, the parties
contractual intent must first be discovered from the expressed
language of the primary contract under which the parties business
relations were founded. It should be noted that the compromise
agreements were mere collateral documents executed by the
parties pursuant to the termination of their business relationship
created under the "Power of Attorney". On the other hand, it is the

latter which established the juridical relation of the parties and

defined the parameters of their dealings with one another.
The execution of the two compromise agreements can hardly be
considered as a subsequent or contemporaneous act that is
reflective of the parties true intent. The compromise agreements
were executed eleven years after the "Power of Attorney" and
merely laid out a plan or procedure by which petitioner could
recover the advances and payments it made under the "Power of
Attorney". The parties entered into the compromise agreements as
a consequence of the dissolution of their business relationship. It
did not define that relationship or indicate its real character.
An examination of the "Power of Attorney" reveals that a
partnership or joint venture was indeed intended by the parties.
Under a contract of partnership, two or more persons bind
themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among
themselves.15 While a corporation, like petitioner, cannot generally
enter into a contract of partnership unless authorized by law or its
charter, it has been held that it may enter into a joint venture
which is akin to a particular partnership:
The legal concept of a joint venture is of common law origin. It has
no precise legal definition, but it has been generally understood to
mean an organization formed for some temporary purpose. x x x It
is in fact hardly distinguishable from the partnership, since their
elements are similar community of interest in the business,
sharing of profits and losses, and a mutual right of control. x x x
The main distinction cited by most opinions in common law
jurisdictions is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is
formed for the execution of a single transaction, and is thus of a
temporary nature. x x x This observation is not entirely accurate in
this jurisdiction, since under the Civil Code, a partnership may be
particular or universal, and a particular partnership may have for its
object a specific undertaking. x x x It would seem therefore that
under Philippine law, a joint venture is a form of partnership and
should be governed by the law of partnerships. The Supreme Court
has however recognized a distinction between these two business
forms, and has held that although a corporation cannot enter into a
partnership contract, it may however engage in a joint venture with
others. x x x (Citations omitted) 16
Perusal of the agreement denominated as the "Power of Attorney"
indicates that the parties had intended to create a partnership and
establish a common fund for the purpose. They also had a joint
interest in the profits of the business as shown by a 50-50 sharing
in the income of the mine.

56
Under the "Power of Attorney", petitioner and Baguio Gold
undertook to contribute money, property and industry to the
common fund known as the Sto. Nio mine. 17 In this regard, we
note that there is a substantive equivalence in the respective
contributions of the parties to the development and operation of
the mine. Pursuant to paragraphs 4 and 5 of the agreement,
petitioner and Baguio Gold were to contribute equally to the joint
venture assets under their respective accounts. Baguio Gold would
contribute P11M under its owners account plus any of its income
that is left in the project, in addition to its actual mining claim.
Meanwhile, petitioners contribution would consist of its expertise
in the management and operation of mines, as well as the
managers account which is comprised of P11M in funds and
property and petitioners "compensation" as manager that cannot
be paid in cash.
However, petitioner asserts that it could not have entered into a
partnership agreement with Baguio Gold because it did not "bind"
itself to contribute money or property to the project; that under
paragraph 5 of the agreement, it was only optional for petitioner to
transfer funds or property to the Sto. Nio project "(w)henever the
MANAGERS shall deem it necessary and convenient in connection
with the MANAGEMENT of the STO. NIO MINE."18
The wording of the parties agreement as to petitioners
contribution to the common fund does not detract from the fact
that petitioner transferred its funds and property to the project as
specified in paragraph 5, thus rendering effective the other
stipulations of the contract, particularly paragraph 5(c) which
prohibits petitioner from withdrawing the advances until
termination of the parties business relations. As can be seen,
petitioner became bound by its contributions once the transfers
were made. The contributions acquired an obligatory nature as
soon as petitioner had chosen to exercise its option under
paragraph 5.
There is no merit to petitioners claim that the prohibition in
paragraph 5(c) against withdrawal of advances should not be taken
as an indication that it had entered into a partnership with Baguio
Gold; that the stipulation only showed that what the parties entered
into was actually a contract of agency coupled with an interest
which is not revocable at will and not a partnership.
In an agency coupled with interest, it is the agency that cannot be
revoked or withdrawn by the principal due to an interest of a third
party that depends upon it, or the mutual interest of both principal
and agent.19 In this case, the non-revocation or non-withdrawal
under paragraph 5(c) applies to the advances made by petitioner
who is supposedly the agent and not the principal under the

contract. Thus, it cannot be inferred from the stipulation that the

parties relation under the agreement is one of agency coupled with
an interest and not a partnership.
Neither can paragraph 16 of the agreement be taken as an
indication that the relationship of the parties was one of agency
and not a partnership. Although the said provision states that "this
Agency shall be irrevocable while any obligation of the PRINCIPAL in
favor of the MANAGERS is outstanding, inclusive of the MANAGERS
account," it does not necessarily follow that the parties entered into
an agency contract coupled with an interest that cannot be
withdrawn by Baguio Gold.
It should be stressed that the main object of the "Power of
Attorney" was not to confer a power in favor of petitioner to
contract with third persons on behalf of Baguio Gold but to create a
business relationship between petitioner and Baguio Gold, in which
the former was to manage and operate the latters mine through
the parties mutual contribution of material resources and industry.
The essence of an agency, even one that is coupled with interest, is
the agents ability to represent his principal and bring about
business relations between the latter and third persons. 20 Where
representation for and in behalf of the principal is merely incidental
or necessary for the proper discharge of ones paramount
undertaking under a contract, the latter may not necessarily be a
contract of agency, but some other agreement depending on the
ultimate undertaking of the parties.21
In this case, the totality of the circumstances and the stipulations in
the parties agreement indubitably lead to the conclusion that a
partnership was formed between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally
obligated to return the advances made by petitioner under the
agreement. Paragraph 5 (d) thereof provides that upon termination
of the parties business relations, "the ratio which the MANAGERS
account has to the owners account will be determined, and the
corresponding proportion of the entire assets of the STO. NINO
MINE, excluding the claims" shall be transferred to petitioner. 22 As
pointed out by the Court of Tax Appeals, petitioner was merely
entitled to a proportionate return of the mines assets upon
dissolution of the parties business relations. There was nothing in
the agreement that would require Baguio Gold to make payments
of the advances to petitioner as would be recognized as an item of
obligation or "accounts payable" for Baguio Gold.
Thus, the tax court correctly concluded that the agreement
provided for a distribution of assets of the Sto. Nio mine upon
termination, a provision that is more consistent with a partnership
than a creditor-debtor relationship. It should be pointed out that in

57
a contract of loan, a person who receives a loan or money or any
fungible thing acquires ownership thereof and is bound to pay the
creditor an equal amount of the same kind and quality. 23 In this
case, however, there was no stipulation for Baguio Gold to actually
repay petitioner the cash and property that it had advanced, but
only the return of an amount pegged at a ratio which the
managers account had to the owners account.
In this connection, we find no contractual basis for the execution of
the two compromise agreements in which Baguio Gold recognized a
debt in favor of petitioner, which supposedly arose from the
termination of their business relations over the Sto. Nino mine. The
"Power of Attorney" clearly provides that petitioner would only be
entitled to the return of a proportionate share of the mine assets to
be computed at a ratio that the managers account had to the
owners account. Except to provide a basis for claiming the
advances as a bad debt deduction, there is no reason for Baguio
Gold to hold itself liable to petitioner under the compromise
agreements, for any amount over and above the proportion agreed
upon in the "Power of Attorney".
Next, the tax court correctly observed that it was unlikely for a
business corporation to lend hundreds of millions of pesos to
another corporation with neither security, or collateral, nor a
specific deed evidencing the terms and conditions of such loans.
The parties also did not provide a specific maturity date for the
advances to become due and demandable, and the manner of
payment was unclear. All these point to the inevitable conclusion
that the advances were not loans but capital contributions to a
partnership.
The strongest indication that petitioner was a partner in the Sto
Nio mine is the fact that it would receive 50% of the net profits as
"compensation" under paragraph 12 of the agreement. The entirety
of the parties contractual stipulations simply leads to no other
conclusion than that petitioners "compensation" is actually its
share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the
"receipt by a person of a share in the profits of a business is prima
facie evidence that he is a partner in the business." Petitioner
asserts, however, that no such inference can be drawn against it
since its share in the profits of the Sto Nio project was in the
nature of compensation or "wages of an employee", under the
exception provided in Article 1769 (4) (b).24
On this score, the tax court correctly noted that petitioner was not
an employee of Baguio Gold who will be paid "wages" pursuant to
an employer-employee relationship. To begin with, petitioner was
the manager of the project and had put substantial sums into the

venture in order to ensure its viability and profitability. By

pegging its compensation to profits, petitioner also stood not to be
remunerated in case the mine had no income. It is hard to believe
that petitioner would take the risk of not being paid at all for its
services, if it were truly just an ordinary employee.
Consequently, we find that petitioners "compensation" under
paragraph 12 of the agreement actually constitutes its share in the
net profits of the partnership. Indeed, petitioner would not be
entitled to an equal share in the income of the mine if it were just
an employee of Baguio Gold. 25 It is not surprising that petitioner
was to receive a 50% share in the net profits, considering that the
"Power of Attorney" also provided for an almost equal contribution
of the parties to the St. Nino mine. The "compensation" agreed
upon only serves to reinforce the notion that the parties relations
were indeed of partners and not employer-employee.
All told, the lower courts did not err in treating petitioners
advances as investments in a partnership known as the Sto. Nino
mine. The advances were not "debts" of Baguio Gold to petitioner
inasmuch as the latter was under no unconditional obligation to
return the same to the former under the "Power of Attorney". As for
the amounts that petitioner paid as guarantor to Baguio Golds
creditors, we find no reason to depart from the tax courts factual
finding that Baguio Golds debts were not yet due and demandable
at the time that petitioner paid the same. Verily, petitioner pre-paid
Baguio Golds outstanding loans to its bank creditors and this
conclusion is supported by the evidence on record.26
In sum, petitioner cannot claim the advances as a bad debt
deduction from its gross income. Deductions for income tax
purposes partake of the nature of tax exemptions and are strictly
construed against the taxpayer, who must prove by convincing
evidence that he is entitled to the deduction claimed. 27 In this case,
petitioner failed to substantiate its assertion that the advances
were subsisting debts of Baguio Gold that could be deducted from
its gross income. Consequently, it could not claim the advances as
a valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of
Appeals in CA-G.R. SP No. 49385 dated June 30, 2000, which
affirmed the decision of the Court of Tax Appeals in C.T.A. Case No.
5200 is AFFIRMED. Petitioner Philex Mining Corporation is
ORDERED to PAY the deficiency tax on its 1982 income in the
amount of P62,811,161.31, with 20% delinquency interest
computed from February 10, 1995, which is the due date given for
the payment of the deficiency income tax, up to the actual date of
payment.
SO ORDERED.

58
THE ESTATE OF HILARIO M. RUIZ, EDMOND RUIZ, Executor, petitioner,
vs.
THE COURT OF APPEALS (Former Special Sixth Division), MARIA
PILAR RUIZ-MONTES, MARIA CATHRYN RUIZ, CANDICE ALBERTINE
RUIZ, MARIA ANGELINE RUIZ and THE PRESIDING JUDGE OF THE
REGIONAL TRIAL COURT OF PASIG, respondents.
G.R. No. 118671

January 29, 1996

PUNO, J.:

This petition for review on certiorari seeks to annul and set aside the decision
dated November 10, 1994 and the resolution dated January 5, 1995 of the
Court of Appeals in CA-G.R. SP No. 33045.
The facts show that on June 27, 1987, Hilario M. Ruiz1 executed a
holographic will naming as his heirs his only son, Edmond Ruiz, his adopted
daughter, private respondent Maria Pilar Ruiz Montes, and his three
granddaughters, private respondents Maria Cathryn, Candice Albertine and
Maria Angeline, all children of Edmond Ruiz. The testator bequeathed to his
heirs substantial cash, personal and real properties and named Edmond Ruiz
executor of his estate.2
On April 12, 1988, Hilario Ruiz died. Immediately thereafter, the cash
component of his estate was distributed among Edmond Ruiz and private
respondents in accordance with the decedent's will. For unbeknown reasons,
Edmond, the named executor, did not take any action for the probate of his
father's holographic will.
On June 29, 1992, four years after the testator's death, it was private
respondent Maria Pilar Ruiz Montes who filed before the Regional Trial
Court, Branch 156, Pasig, a petition for the probate and approval of Hilario
Ruiz's will and for the issuance of letters testamentary to Edmond
Ruiz,3 Surprisingly, Edmond opposed the petition on the ground that the will
was executed under undue influence.

representing the balance of the rent after deducting P191,416.14 for

repair and maintenance expenses on the estate.5
In March 1993, Edmond moved for the release of P50,000.00 to pay the real
estate taxes on the real properties of the estate. The probate court approved
the release of P7,722.00.6
On May 14, 1993, Edmond withdrew his opposition to the probate of the will.
Consequently, the probate court, on May 18, 1993, admitted the will to
probate and ordered the issuance of letters testamentary to Edmond
conditioned upon the filing of a bond in the amount of P50,000.00. The letters
testamentary were issued on June 23, 1993.
On July 28, 1993, petitioner Testate Estate of Hilario Ruiz, with Edmond Ruiz
as executor, filed an "Ex-Parte Motion for Release of Funds." It prayed for the
release of the rent payments deposited with the Branch Clerk of Court.
Respondent Montes opposed the motion and concurrently filed a "Motion for
Release of Funds to Certain Heirs" and "Motion for Issuance of Certificate of
Allowance of Probate Will." Montes prayed for the release of the said rent
payments to Maria Cathryn, Candice Albertine and Maria Angeline and for
the distribution of the testator's properties, specifically the Valle Verde
property and the Blue Ridge apartments, in accordance with the provisions of
the holographic will.
On August 26, 1993, the probate court denied petitioner's motion for release
of funds but granted respondent Montes' motion in view of petitioner's lack of
opposition. It thus ordered the release of the rent payments to the decedent's
three granddaughters. It further ordered the delivery of the titles to and
possession of the properties bequeathed to the three granddaughters and
respondent Montes upon the filing of a bond of P50,000.00.
Petitioner moved for reconsideration alleging that he actually filed his
opposition to respondent Montes's motion for release of rent payments which
opposition the court failed to consider. Petitioner likewise reiterated his
previous motion for release of funds.

On November 2, 1992, one of the properties of the estate the house and
lot at No. 2 Oliva Street, Valle Verde IV, Pasig which the testator bequeathed
to Maria Cathryn, Candice Albertine and Maria Angeline 4 was leased out
by Edmond Ruiz to third persons.

On November 23, 1993, petitioner, through counsel, manifested that he was

withdrawing his motion for release of funds in view of the fact that the lease
contract over the Valle Verde property had been renewed for another year.7

On January 19, 1993, the probate court ordered Edmond to deposit with the
Branch Clerk of Court the rental deposit and payments totalling P540,000.00
representing the one-year lease of the Valle Verde property. In compliance,
on January 25, 1993, Edmond turned over the amount of P348,583.56,

Despite petitioner's manifestation, the probate court, on December 22, 1993,

ordered the release of the funds to Edmond but only "such amount as may
be necessary to cover the expenses of administration and allowances for
support" of the testator's three granddaughters subject to collation and

59
deductible from their share in the inheritance. The court, however, held in
abeyance the release of the titles to respondent Montes and the three
granddaughters until the lapse of six months from the date of first publication
of the notice to creditors.8 The court stated thus:
xxx

xxx

xxx

After consideration of the arguments set forth thereon by the parties

the court resolves to allow Administrator Edmond M. Ruiz to take
possession of the rental payments deposited with the Clerk of Court,
Pasig Regional Trial Court, but only such amount as may
be necessary to cover the expenses of administration and
allowances for support of Maria Cathryn Veronique, Candice
Albertine and Maria Angeli, which are subject to collation and
deductible from the share in the inheritance of said heirs and insofar
as they exceed the fruits or rents pertaining to them.
As to the release of the titles bequeathed to petitioner Maria Pilar
Ruiz-Montes and the above-named heirs, the same is hereby
reconsidered and held in abeyance until the lapse of six (6) months
from the date of first publication of Notice to Creditors.
WHEREFORE, Administrator Edmond M. Ruiz is hereby ordered to
submit an accounting of the expenses necessary for administration
including provisions for the support Of Maria Cathryn Veronique
Ruiz, Candice Albertine Ruiz and Maria Angeli Ruiz before the
amount required can be withdrawn and cause the publication of
the notice to creditors with reasonable dispatch.9
Petitioner assailed this order before the Court of Appeals. Finding no grave
abuse of discretion on the part of respondent judge, the appellate court
dismissed the petition and sustained the probate court's order in a decision
dated November 10, 199410 and a resolution dated January 5, 1995.11
Hence, this petition.
Petitioner claims that:
THE PUBLIC RESPONDENT COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN AFFIRMING AND CONFIRMING
THE ORDER OF RESPONDENT REGIONAL TRIAL COURT OF
PASIG, BRANCH 156, DATED DECEMBER 22, 1993, WHICH
WHEN GIVEN DUE COURSE AND IS EFFECTED WOULD: (1)

DISALLOW THE EXECUTOR/ADMINISTRATOR OF THE

ESTATE OF THE LATE HILARIO M. RUIZ TO TAKE POSSESSION
OF ALL THE REAL AND PERSONAL PROPERTIES OF THE
ESTATE; (2) GRANT SUPPORT, DURING THE PENDENCY OF
THE SETTLEMENT OF AN ESTATE, TO CERTAIN PERSONS NOT
ENTITLED THERETO; AND (3) PREMATURELY PARTITION AND
DISTRIBUTE THE ESTATE PURSUANT TO THE PROVISIONS OF
THE HOLOGRAPHIC WILL EVEN BEFORE ITS INTRINSIC
VALIDITY HAS BEEN DETERMINED, AND DESPITE THE
EXISTENCE OF UNPAID DEBTS AND OBLIGATIONS OF THE
ESTATE.12
The issue for resolution is whether the probate court, after admitting the will
to probate but before payment of the estate's debts and obligations, has the
authority: (1) to grant an allowance from the funds of the estate for the
support of the testator's grandchildren; (2) to order the release of the titles to
certain heirs; and (3) to grant possession of all properties of the estate to the
executor of the will.
On the matter of allowance, Section 3 of Rule 83 of the Revised Rules of
Court provides:
Sec. 3. Allowance to widow and family. The widow and minor or
incapacitated children of a deceased person, during the settlement of
the estate, shall receive therefrom under the direction of the court,
such allowance as are provided by law.
Petitioner alleges that this provision only gives the widow and the minor or
incapacitated children of the deceased the right to receive allowances for
support during the settlement of estate proceedings. He contends that the
testator's three granddaughters do not qualify for an allowance because they
are not incapacitated and are no longer minors but of legal age, married and
gainfully employed. In addition, the provision expressly states "children" of
the deceased which excludes the latter's grandchildren.
It is settled that allowances for support under Section 3 of Rule 83 should not
be limited to the "minor or incapacitated" children of the deceased. Article
18813 of the Civil Code of the Philippines, the substantive law in force at the
time of the testator's death, provides that during the liquidation of the
conjugal partnership, the deceased's legitimate spouse and children,
regardless of their age, civil status or gainful employment, are entitled to
provisional support from the funds of the estate. 14 The law is rooted on the
fact that the right and duty to support, especially the right to education,
subsist even beyond the age of majority.15

60
Be that as it may, grandchildren are not entitled to provisional support from
the funds of the decedent's estate. The law clearly limits the allowance to
"widow and children" and does not extend it to the deceased's grandchildren,
regardless of their minority or incapacity.16 It was error, therefore, for the
appellate court to sustain the probate court's order granting an allowance to
the grandchildren of the testator pending settlement of his estate.
Respondent courts also erred when they ordered the release of the titles of
the bequeathed properties to private respondents six months after the date of
first publication of notice to creditors. An order releasing titles to properties of
the estate amounts to an advance distribution of the estate which is allowed
only under the following conditions:
Sec. 2. Advance distribution in special proceedings.
Nothwithstanding a pending controversy or appeal in proceedings to
settle the estate of a decedent, the court may, in its discretion and
upon such terms as it may deem proper and just, permit that such
part of the estate as may not be affected by the controversy or
appeal be distributed among the heirs or legatees, upon compliance
with the conditions set forth in Rule 90 of these Rules. 17
And Rule 90 provides that:
Sec. 1. When order for distribution of residue made. When the
debts, funeral charges, and expenses of administration the
allowance to the widow, and inheritance tax if any, chargeable to the
estate in accordance with law, have been paid, the court, on the
application of the executor or administrator, or of a person interested
in the estate, and after hearing upon notice shall assign the residue
of the estate to the persons entitled to the same, naming them and
the proportions or parts, to which each is entitled, and such persons
may demand and recover their respective shares from the executor
or administrator, or any other person having the same in his
possession. If there is a controversy before the court as to who are
the lawful heirs of the deceased person or as to the distributive
shares to which each person is entitled under the law, the
controversy shall be heard and decided as in ordinary cases.
No distribution shall be allowed until the payment of the obligations
above-mentioned has been made or provided for, unless the
distributees, or any of them, give a bond, in a sum to be fixed by the
court, conditioned for the payment of said obligations within such
time as the court directs.18

In settlement of estate proceedings, the distribution of the estate

properties can only be made: (1) after all the debts, funeral charges,
expenses of administration, allowance to the widow, and estate tax have
been paid; or (2) before payment of said obligations only if the distributees or
any of them gives a bond in a sum fixed by the court conditioned upon the
payment of said obligations within such time as the court directs, or when
provision is made to meet those obligations.19
In the case at bar, the probate court ordered the release of the titles to the
Valle Verde property and the Blue Ridge apartments to the private
respondents after the lapse of six months from the date of first publication of
the notice to creditors. The questioned order speaks of "notice" to creditors,
not payment of debts and obligations. Hilario Ruiz allegedly left no debts
when he died but the taxes on his estate had not hitherto been paid, much
less ascertained. The estate tax is one of those obligations that must be paid
before distribution of the estate. If not yet paid, the rule requires that the
distributees post a bond or make such provisions as to meet the said tax
obligation in proportion to their respective shares in the
inheritance.20 Notably, at the time the order was issued the properties of the
estate had not yet been inventoried and appraised.
It was also too early in the day for the probate court to order the release of
the titles six months after admitting the will to probate. The probate of a will is
conclusive as to its due execution and extrinsic validity21 and settles only the
question of whether the testator, being of sound mind, freely executed it in
accordance with the formalities prescribed by law.22 Questions as to the
intrinsic validity and efficacy of the provisions of the will, the legality of any
devise or legacy may be raised even after the will has been authenticated. 23
The intrinsic validity of Hilario's holographic will was controverted by
petitioner before the probate court in his Reply to Montes' Opposition to his
motion for release of funds24 and his motion for reconsideration of the August
26, 1993 order of the said court.25 Therein, petitioner assailed the distributive
shares of the devisees and legatees inasmuch as his father's will included
the estate of his mother and allegedly impaired his legitime as an intestate
heir of his mother. The Rules provide that if there is a controversy as to who
are the lawful heirs of the decedent and their distributive shares in his estate,
the probate court shall proceed to hear and decide the same as in ordinary
cases.26
Still and all, petitioner cannot correctly claim that the assailed order deprived
him of his right to take possession of all the real and personal properties of
the estate. The right of an executor or administrator to the possession and
management of the real and personal properties of the deceased is not

61
absolute and can only be exercised "so long as it is necessary for the
payment of the debts and expenses of administration," 27 Section 3 of Rule 84
of the Revised Rules of Court explicitly provides:

Respondent judge is ordered to proceed with dispatch in the proceedings

below.
SO ORDERED.

Sec. 3. Executor or administrator to retain whole estate to pay debts,

and to administer estate not willed. An executor or administrator
shall have the right to the possession and management of the real as
well as the personal estate of the deceased so long as it is
necessary for the payment of the debts and expenses for
administration.28
When petitioner moved for further release of the funds deposited with the
clerk of court, he had been previously granted by the probate court certain
amounts for repair and maintenance expenses on the properties of the
estate, and payment of the real estate taxes thereon. But petitioner moved
again for the release of additional funds for the same reasons he previously
cited. It was correct for the probate court to require him to submit an
accounting of the necessary expenses for administration before releasing
any further money in his favor.
It was relevantly noted by the probate court that petitioner had deposited with
it only a portion of the one-year rental income from the Valle Verde property.
Petitioner did not deposit its succeeding rents after renewal of the
lease.29 Neither did he render an accounting of such funds.
Petitioner must be reminded that his right of ownership over the properties of
his father is merely inchoate as long as the estate has not been fully settled
and partitioned.30 As executor, he is a mere trustee of his father's estate. The
funds of the estate in his hands are trust funds and he is held to the duties
and responsibilities of a trustee of the highest order.31 He cannot unilaterally
assign to himself and possess all his parents' properties and the fruits thereof
without first submitting an inventory and appraisal of all real and personal
properties of the deceased, rendering a true account of his administration,
the expenses of administration, the amount of the obligations and estate tax,
all of which are subject to a determination by the court as to their veracity,
propriety and justness.32
IN VIEW WHEREOF, the decision and resolution of the Court of Appeals in
CA-G.R. SP No. 33045 affirming the order dated December 22, 1993 of the
Regional Trial Court, Branch 156, Pasig in SP Proc. No. 10259 are affirmed
with the modification that those portions of the order granting an allowance to
the testator's grandchildren and ordering the release of the titles to the
private respondents upon notice to creditors are annulled and set aside.

ANITA UNGAB-VALEROSO, joined in by her husband, RUSELO

VALEROSO, Petitioners,
vs.
AMANCIA UNGAB-GRADO, FELIX UNGAB, represented by his
son ROSENDO UNGAB, ESPENILA UNGAB-JAICTIN and
RUSTICINA UNGAB-TAMALA, Respondents.
G.R. No. 163081
June 15, 2007
QUISUMBING, J.:
This petition for review assails both the Decision 1 dated September
19, 2003 of the Court of Appeals in CA-G.R. CV No. 68895 and its
Resolution2 dated March 2, 2004, which denied petitioners motion
for reconsideration. The Court of Appeals had affirmed with
modification the Decision3 dated December 20, 1999 of the
Regional Trial Court (RTC) of Iligan City, Branch 3, in Civil Case No.
4048.
The antecedent facts, borne by the records, are as follows:
Subject of this case is a 14.3375-hectare land in Binuni,
Kolambugan, Lanao (now Binuni, Bacolod, Lanao del Norte)
registered in the name of Timoteo Ungab under Original Certificate
of Title (OCT) No. (P-41)-1,550. 4Petitioner Anita Ungab is the only
child of Timoteo, now deceased. Respondent Felix Ungab is the
brother of Timoteo while the other respondents are the heirs of
Timoteos other brothers and sisters, namely Simeona, Eugenia,
Lorenzo, Lazaro, and Margarito.
In 1972, the heirs of Ciriaco Ungab filed a complaint docketed as
Civil Case No. II-74 in the Court of First Instance (CFI) of Iligan City,
Lanao del Norte against the brothers, sisters and heirs of Timoteo
for the partition, accounting and reconveyance of the subject land.
When the case was called for trial, the parties submitted a written
compromise agreement.
On February 15, 1973, the CFI rendered judgment adopting in
toto the compromise agreement. The decretal portion reads:
WHEREFORE, judgment is hereby rendered as follows: (1) that the
plaintiffs will be given an area of 4,779 square meters of the
coconut land which is a portion of the titled land in the name of
Heirs of Timoteo Ungab, under Original Certificate of Title No. T-41
(should be P-41), Homestead Patent No. V-4777, located at Binoni,
Bacolod, Lanao del Norte (formerly Kolambugan, Lanao); (2) that
defendants are entitled to an area of 138,596 square meters

62
(13.8596 Has.) from said titled land abovementioned; (3) that the
expenses for segregation survey of the 4,779 square meters will be
shouldered equally among the nine (9) heirs 3 heirs representing
the plaintiffs and the 6 heirs representing the defendants; (4) that
the squatters of the above-described titled parcels of land to wit:
(a) Dioscoro Buco, (b) Porferio Sugabo, (c) heirs of Severo Buco, (d)
Jesus Buco, (e) and others inside the said titled land will be ejected
with damages thru Court action, all expenses will be borne equally
among the heirs aforementioned, for each recovery; and whatever
damages that will be awarded by the court in said ejectment action
will be equally divided among the nine sets of heirs, as well as the
produce of the income of the squatted area; (5) that meantime that
the squatters on the land will not be as yet finally ejected, the
4,779 square meters of the plaintiffs will not as yet be segregated
and plaintiffs cannot as yet enjoy the produce, and income thereof,
until the squatters will be ejected; and all expenses of the
ejectment suits against the squatters will be borne by Margarito
Ungab and his wife, subject to the reimbursement with receipts
upon the final ejectment of the squatters by all nine sets of heirs
aforementioned; (6) the portion pertaining to Simona Ungab is
acknowledged to have been sold under Pacto de Retro for the sum
of P3,000.00 more or less (the Pacto de Retro Sale consideration
controls) unto Margarito Ungab and wife which should be paid
likewise by the nine sets of heirs both plaintiffs and defendants; (8)
all other prayers and remedies invoked in the complaint and
counter-complaint are hereby denied, and (9) no costs is adjudged
in this proceeding.
SO ORDERED.5
The parties did not have the land partitioned but divided the
proceeds of the land in accordance with the decision. However, in
December 1996, Anita refused to give respondents their respective
shares. Respondents then filed against petitioners Anita and her
husband Ruselo Valeroso, a complaint for recovery of possession,
partition, enforcement of compromise agreement and damages
docketed as Civil Case No. 4048 with the RTC of Iligan City.
During the pre-trial, respondents presented in court the affidavit
dated March 13, 1939 of Timoteo acknowledging that he co-owned
with his brothers and sisters, Simeona, Eugenia, Lorenzo, Lazaro,
Felix and Margarito, a parcel of land with an area of 18.8993
hectares in Binuni, Kolambugan, Lanao under Homestead
Application No. 218565.6 Respondents also presented the Affidavit
of Acknowledgment dated August 4, 1960 of Anita Ungab and her
mother Aurelia Ungab acknowledging the rights of Simeona,
Eugenia, Lorenzo, Lazaro, Felix and Margarito as co-owners of the
land.7

In their defense, the Spouses Anita and Ruselo claimed that

Anita exclusively owns the land as sole heir of Timoteo. They
maintained that the decision in Civil Case No. II-74 had become
dormant and could no longer be executed. Besides, they aver, Anita
was not privy to the compromise agreement, which led to the
decision in Civil Case No. II-74.
On December 1999, the RTC held that the compromise agreement
bound all the parties thereto including their heirs and assigns, and
Timoteos affidavit whose presumption of regularity petitioners
failed to overcome, and the compromise agreement created an
express trust which has not yet prescribed. The RTC ruled as
follows:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiffs (herein respondents) and against the
defendant, Anita Ungab-Valeroso ordering the latter:
1) To have the property, OCT No. (P-41)-1,550, partitioned for her to
retain only one-seventh (1/7) share; another one-seventh (1/7) to
Felix Ungab and the remaining 5/7 to the heirs of Simeona,
Eugenia, Lorenzo, Lazaro, and Margarito, all surnamed Ungab;
2) To reimburse Amancia Ungab-Grado and Espenila Ungab Jaictin
the sum of P24,000.00 for their shares for three (3) years at a rate
of P2,000.00 per harvest in every three (3) months; the sum
of P24,000.00 for plaintiff Felix Ungab and another P24,000.00 for
Rusticina Ungab-Tamala;
3) To pay plaintiffs attorneys fees and appearance fees
of P30,000.00.
SO ORDERED.8
Petitioners elevated the case to the Court of Appeals, which
affirmed the trial courts decision but deleted the award of
attorneys fees. It held there is evidence showing that the land
under OCT No. (P-41)-1,550 was owned in common by the parties,
and that Anita is estopped by her own act of signing the Affidavit of
Acknowledgment dated August 4, 1960 from denying the coownership.
The dispositive portion of the decision dated September 19, 2003
of the Court of Appeals states:
WHEREFORE, premises considered, the decision dated December
20, 1999, of the Regional Trial Court of Iligan City, Twelfth Judicial
Region,
Branch
3,
in
Civil
Case
No.
4048
is
hereby AFFIRMED with MODIFICATION as to attorneys fees, the
award thereof is deleted. Costs against the appellants.
SO ORDERED.9
Petitioners moved for reconsideration but it was denied in the
Resolution dated March 2, 2004. Petitioners now come before us
raising the following issues:

63
I.
WHETHER OR NOT RESPONDENTS ARE CO-OWNERS OF THE
PARCEL OF LAND COVERED BY OCT No. (P-41)-1,550;
II.
WHETHER OR NOT RESPONDENTS SUIT FOR PARTITION IN THE
COURT BELOW IS LEGALLY PROPER.10
The main issue before us is: Did the Court of Appeals commit a
reversible error of law which merits review by this Court under Rule
45 of the Rules of Court?
We rule in the negative.
Petitioners point that the property was registered in the name of
Timoteo. They assert that by the law of intestate succession, Anita,
being the sole heir of Timoteo, is the sole owner of the land.
Petitioners maintain that respondents could not base their claim on
Timoteos affidavit dated March 13, 1939 because this referred to a
different parcel of land. Considering that the description of the
property in the OCT and in Timoteos affidavit differed, petitioners
maintain that respondents bear the burden of proving that these
lots in the affidavit are the same as those under OCT No. (P-41)1,550. However, according to petitioners, respondents failed to
discharge this burden.
Respondents counter that the case is not about succession. They
are not claiming as heirs of Timoteo, but as his co-owners. They
assert that where one does not have any rightful claim over real
property, the Torrens system of registration can confirm or record
nothing. They claim that the land was already governed by a state
of co-ownership even before the title was issued. According to
respondents, this fact is shown by the Affidavit of Acknowledgment
signed by Anita herself.
At the outset, we agree that the instant case does not involve
successional rights as correctly pointed out by respondents, who
are claiming an alleged right of co-ownership existing prior to the
issuance of the land title in the name of Timoteo. The threshold
issue is whether respondents are truly co-owners of the land.
The records lack evidence sufficiently showing that the land
covered by Homestead Application No. 218565 referred to in the
Affidavit of Timoteo is the same land covered by OCT No. (P-41)1,550 which originated from Homestead Patent No. V-4777. The
records do not show whether Homestead Application No. 218565
was the one granted in Homestead Patent No. V-4777. The court
cannot just fill in the deficiency in the evidence submitted by the
concerned parties.
We note, however, that even without the Affidavit of Timoteo, there
is still evidence on record proving that the respondents and

Timoteo indeed own the land in common. For one, there is the
Affidavit of Acknowledgment dated August 4, 1960.
Petitioners contend that respondents cannot use the Affidavit of
Acknowledgment signed by Anita and her mother as Anita was
misled in signing it. A question involving the due execution of the
Affidavit of Acknowledgment would require an inquiry into the
appreciation of evidence by the trial court, a matter which this
Court cannot do in a petition for review on certiorari under Rule
45.11 The truth or falsehood of the Affidavit of Acknowledgment is a
question
of
fact,
of
which
this
Court
cannot
take
cognizance.12 Moreover, the Affidavit of Acknowledgment, being a
notarized
document,
enjoys
the
presumption
of
regularity.13 Petitioners mere allegation that Anita was misled by
her mother into signing the affidavit could not overcome this
presumption.
Petitioners claim that by respondents failure to execute the
judgment within the ten-year prescription period, the judgment had
prescribed. It could not be used to convey any right. This claim, in
our view, is unmeritorious. When the parties started sharing the
proceeds of the land, they had in effect partially executed the
compromise agreement and the judgment in Civil Case No. II-74.
Such partial execution weighs heavily as evidence that they agreed
on the co-ownership arrangement. Note also that the judgment did
not explicitly order the partition of the land itself, but merely
identified the rights to and respective shares of the parties in said
land.
Petitioners argue that the co-ownership was already extinguished
because the Civil Code provides that an agreement to keep a thing
undivided shall not exceed ten years. Indeed, the law limits the
term of a co-ownership to ten years, but this term limit may
nevertheless be extended.14 The action to reconvey does not
prescribe so long as the property stands in the name of the trustee.
To allow prescription would be tantamount to allowing a trustee to
acquire title against his principal and true owner.15
Moreover, as properly held by the trial and appellate courts, the
execution of the Affidavit of Acknowledgment and the compromise
agreement established an express trust wherein the respondents,
as trustors, reposed their confidence on petitioner Anita and her
mother, as trustees, that they will hold the land subject of the coownership. There are no particular words required in the creation of
an express trust, it being sufficient that a trust is clearly
intended.16 This express trust is shown in the two documents.
Express trusts do not prescribe except when the trustee repudiates
the trust.17

64
Petitioners contend that an affidavit of acknowledgment is not one
of the modes of acquiring ownership recognized under the Civil
Code. They cite Acap v. Court of Appeals,18 where we held that a
stranger to succession cannot conclusively claim ownership over a
lot on the sole basis of a waiver document which does not cite the
elements of any of the derivative modes of acquiring ownership.
But we find that the ruling in Acap is not applicable to this case.
In Acap, the claim of a right over the property was based on a
"declaration of heirship and waiver of rights," and a notice of
adverse claim. Therein we held that the "declaration of heirship and
waiver of rights" relates to an abdication of a right in favor of other
persons who are co-heirs in the succession. A stranger to a
succession cannot conclusively claim ownership over the property
on the sole basis thereof. We also held that a notice of adverse
claim is nothing but a notice of claim adverse to the registered
owner, the validity of which is yet to be established in court. Hence,
the "declaration of heirship and waiver of rights" and a notice of
adverse claim did not sufficiently show how a stranger to the
succession acquired ownership of the property. In the present case,
the Affidavit of Acknowledgment and the compromise agreement
were presented not to show how respondents acquired their rights
over the property but as proof that their rights therein exist.
WHEREFORE, the petition is DENIED for lack of merit. The Decision
dated September 19, 2003 and the Resolution dated March 2, 2004
of the Court of Appeals in CA-G.R. CV No. 68895 are AFFIRMED.
Costs against petitioners.
SO ORDERED.
FELOMINA ABELLANA, petitioner, vs.
SPOUSES ROMEO PONCE and LUCILA PONCE and the
REGISTER OF DEEDS of BUTUAN CITY,respondents.
G.R. No. 160488
September 3, 2004
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari assailing the June 16, 2003
decision2 of the Court of Appeals in CA-G.R. CV No. 69213, which
reversed and set aside the August 28, 2000 decision3 of the
Regional Trial Court of Butuan City, Branch 2, in Civil Case No.
4270.
The facts as testified to by petitioner Felomina Abellana are as
follows:
On July 15, 1981, Felomina, a spinster, pharmacist and aunt of
private respondent Lucila Ponce, purchased from the late Estela
Caldoza-Pacres a 44,2974 square meter agricultural lot5 with the
intention of giving said lot to her niece, Lucila. Thus, in the deed of
sale,6 the latter was designated as the buyer of Lot 3, Pcs-10-

000198, covered by Original Certificate of Title No. P-27,

Homestead Patent No. V-1551 and located at Los Angeles, Butuan
City.7The total consideration of the sale was P16,500.00, but only
P4,500.00 was stated in the deed upon the request of the seller. 8
Subsequently, Felomina applied for the issuance of title in the
name of her niece. On April 28, 1992, Transfer Certificate of Title
(TCT) No. 28749 over the subject lot was issued in the name of
Lucila.10 Said title, however, remained in the possession of Felomina
who developed the lot through Juanario Torreon 11 and paid real
property taxes thereon.12
The relationship between Felomina and respondent spouses Romeo
and Lucila Ponce, however, turned sour. The latter allegedly
became disrespectful and ungrateful to the point of hurling her
insults and even attempting to hurt her physically. Hence, Felomina
filed the instant case for revocation of implied trust to recover legal
title over the property.13
Private respondent spouses Lucila, also a pharmacist, and Romeo, a
marine engineer, on the other hand, claimed that the purchase
price of the lot was only P4,500.00 and that it was them who paid
the same. The payment and signing of the deed of sale allegedly
took place in the office of Atty. Teodoro Emboy in the presence of
the seller and her siblings namely, Aquilino Caldoza and the late
Lilia Caldoza.14
A year later, Juanario approached Lucila and volunteered to till the
lot, to which she agreed.15 In 1987, the spouses consented to
Felominas proposal to develop and lease the lot. They, however,
shouldered the real property taxes on the lot, which was paid
through Felomina. In 1990, the spouses demanded rental from
Felomina but she refused to pay because her agricultural endeavor
was allegedly not profitable.16
When Lucila learned that a certificate of title in her name had
already been issued, she confronted Felomina who claimed that she
already gave her the title. Thinking that she might have misplaced
the title, Lucila executed an affidavit of loss which led to the
issuance of another certificate of title in her name.17
On August 28, 2000, the trial court rendered a decision holding that
an implied trust existed between Felomina and Lucila, such that the
latter is merely holding the lot for the benefit of the former. It thus
ordered the conveyance of the subject lot in favor of Felomina. The
dispositive portion thereof, reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered
declaring, directing and ordering that:
a) An implied trust was created with plaintiff as trustor and private
defendant Lucila A. Ponce married to private defendant Engr.

65

Romeo D. Ponce as trustee pursuant to Article 1448 of the New Civil

Code;
b) The implied trust, having been created without the consent of
the trustee and without any condition, is revoked;
c) The private defendants, who are spouses, execute the necessary
deed of conveyance in favor of the plaintiff of the land, covered by
and embraced in TCT NO. T-2874, in controversy and in the event
private defendants refuse to execute the deed of conveyance, the
public defendant City Register of Deeds of Butuan to cancel TCT No.
T-2874 and issue a new one in lieu thereof in the name of the
plaintiff;
d) The private defendants spouses to pay jointly and severally
plaintiff the sum of PhP25,000.00 as attorneys fees and
PhP4,000.00 as expenses of litigation;
e) The dismissal of the counterclaim of private defendants
spouses[;] and
f) The private defendants to pay the costs. SO ORDERED.18
Private respondent spouses appealed to the Court of Appeals which
set aside the decision of the trial court ruling that Felomina failed to
prove the existence of an implied trust and upheld respondent
spouses ownership over the litigated lot. The appellate court
further held that even assuming that Felomina paid the purchase
price of the lot, the situation falls within the exception stated in
Article 1448 of the Civil Code which raises a disputable
presumption that the property was purchased by Felomina as a gift
to Lucila whom she considered as her own daughter. The decretal
portion thereof, states
WHEREFORE, premises considered, the appealed decision of the
Regional Trial Court, Branch 2, Butuan City, in Civil Case No. 4270,
is hereby REVERSED AND SET ASIDE. A new one is heretofore
rendered dismissing the complaint below of plaintiff-appellee,
F[e]lomina Abellana. SO ORDERED.19
Felomina filed a motion for reconsideration but the same was
denied.20 Hence, the instant petition.
The issue before us is: Who, as between Felomina and respondent
spouses, is the lawful owner of the controverted lot? To resolve this
issue, it is necessary to determine who paid the purchase price of
the lot.
After a thorough examination of the records and transcript of
stenographic notes, we find that it was Felomina and not Lucila who
truly purchased the questioned lot from Estela. The positive and
consistent testimony of Felomina alone, that she was the real
vendee of the lot, is credible to debunk the contrary claim of
respondent spouses. Indeed, the lone testimony of a witness, if
credible, is sufficient as in the present case. 21 Moreover, Aquilino

Caldoza, brother of the vendor and one of the witnesses22 to the

deed of sale, categorically declared that Felomina was the buyer
and the one who paid the purchase price to her sister, Estela. 23
Then too, Juanario, who was allegedly hired by Lucila to develop the
lot, vehemently denied that he approached and convinced Lucila to
let him till the land. According to Juanario, he had never spoken to
Lucila about the lot and it was Felomina who recruited him to be
the caretaker of the litigated property. 24
The fact that it was Felomina who bought the lot was further
bolstered by her possession of the following documents from the
time of their issuance up to the present, to wit: (1) the transfer
certificate of title25 and tax declaration in the name of Lucila; 26 (2)
the receipts of real property taxes in the name of Felomina Abellana
for the years 1982-1984, 1992-1994 and 1995; 27 and (3) the survey
plan of the lot.28
Having determined that it was Felomina who paid the purchase
price of the subject lot, the next question to resolve is the nature of
the transaction between her and Lucila.
It appears that Felomina, being of advanced age 29 with no family of
her own, used to purchase properties and afterwards give them to
her nieces. In fact, aside from the lot she bought for Lucila (marked
as Exhibit "R-2"), she also purchased 2 lots, one from Aquilino
Caldoza (marked as Exhibit "R-1") and the other from Domiciano
Caldoza (marked as Exhibit "R-3"), which she gave to Zaida
Bascones (sister of Lucila), thus:
Q I am showing to you again Exhibit R, according to you[,] you
bought Exhibits R-1, R-2 and R-3, do you remember that?
A Yes sir.
xxx
xxx
xxx
Q Aquilin[o] Caldoza conveyed this land in Exhibit R-1 to you?
A Yes, sir.
Q Is this now titled in your name?
A No. I was planning to give this land to my nieces. One of which
[was] already given to Mrs. [Lucila] Ponce.
Q I am talking only about this lot in Exhibit R-1[.]
A Not in my name.
Q In whose name was this lot in Exhibit R-1 now?
A In the name of Zaida Bascones.
Q Who prepared the deed of sale?
A At the start it was in the name of Rudy [Torreon]. 30 Because Rudy
[Torreon] knew that there is some trouble already about that lot he
made a deed of sale to the name of Zaida Bascones, which I
planned to give that land to her (sic).
Q As regards Exhibit R-1, you bought it actually?
A Yes, sir.

66
Q But the original deed of sale was in the name of Rudolfo
[Torreon]?
A Yes, sir.
Q And later on Rudolfo [Torreon] again transferred it to Zaida
Bascones?
A Yes, sir.31
Likewise, in the case of Lucila, though it was Felomina who paid for
the lot, she had Lucila designated in the deed as the vendee
thereof and had the title of the lot issued in Lucilas name. It is
clear therefore that Felomina donated the land to Lucila. This is
evident from her declarations, viz:
Witness
A In 1981 there was a riceland offered so I told her that I will buy
that land and I will give to her later (sic), because since 1981 up to
1992 Mrs. Lucila Ponce has no job.
Q Where is the land located?
A In Los Angeles, Butuan City.
Q Who was the owner of this land?
A The owner of that land is Mrs. Estela Caldoza-Pacr[e]s.
The husband is Pacr[e]s.
xxx
xxx
xxx
Q What did you do with this land belonging to Mrs. Estela-CaldozaPacr[e]s?
A I paid the lot, then worked the lot, since at the start of my buying
the lot until now (sic).
Q You said that you told Lucila Ponce that you would give the land
to her later on, what did you do in connection with this intention of
yours to give the land to her?
A So I put the name of the title in her name in good faith (sic).
Q You mean to tell the court that when you purchased this land
located at Los Angeles, Butuan City, the instrument of sale or the
deed of sale was in the name of Lucila Ponce?
A Yes, sir.32
xxx
xxx
xxx
Q Did you not ask your adviser Rudolfo [Torreon] whether it was
wise for you to place the property in the name of Lucila Ponce when
you are the one who is the owner?
A Because we have really the intention to give it to her.33
Generally, contracts are obligatory in whatever form they may have
been entered into, provided all the essential requisites for their
validity are present. When, however, the law requires that a
contract be in some form in order that it may be valid, that
requirement is absolute and indispensable. Its non-observance
renders the contract void and of no effect.34 Thus, under Article 749
of the Civil Code

Article 749. In order that the donation of an immovable property

may be valid, it must be made in a public document, specifying
therein the property donated and the value of the charges which
the donee must satisfy.
The acceptance may be made in the same deed of donation or in a
separate public document, but it shall not take effect unless it is
done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall
be notified thereof in an authentic form, and this step shall be
noted in both instruments.
In the instant case, what transpired between Felomina and Lucila
was a donation of an immovable property which was not embodied
in a public instrument as required by the foregoing article. Being an
oral donation, the transaction was void.35 Moreover, even if
Felomina enjoyed the fruits of the land with the intention of giving
effect to the donation after her demise, the conveyance is still a
void donation mortis causa, for non-compliance with the formalities
of a will.36 No valid title passed regardless of the intention of
Felomina to donate the property to Lucila, because the naked intent
to convey without the required solemnities does not suffice for
gratuitous alienations, even as between the parties inter se.37 At
any rate, Felomina now seeks to recover title over the property
because of the alleged ingratitude of the respondent spouses.
Unlike ordinary contracts (which are perfected by the concurrence
of the requisites of consent, object and cause pursuant to Article
131838 of the Civil Code), solemn contracts like donations are
perfected only upon compliance with the legal formalities under
Articles 74839 and 749.40 Otherwise stated, absent the solemnity
requirements for validity, the mere intention of the parties does not
give rise to a contract. The oral donation in the case at bar is
therefore legally inexistent and an action for the declaration of the
inexistence of a contract does not prescribe. 41Hence, Felomina can
still recover title from Lucila.
Article 144842 of the Civil Code on implied trust finds no application
in the instant case. The concept of implied trusts is that from the
facts and circumstances of a given case, the existence of a trust
relationship is inferred in order to effect the presumed intention of
the parties.43 Thus, one of the recognized exceptions to the
establishment of an implied trust is where a contrary intention is
proved,44 as in the present case. From the testimony of Felomina
herself, she wanted to give the lot to Lucila as a gift. To her mind,
the execution of a deed with Lucila as the buyer and the
subsequent issuance of title in the latters name were the acts that
would effectuate her generosity. In so carrying out what she
conceived, Felomina evidently displayed her unequivocal intention

67
to transfer ownership of the lot to Lucila and not merely to
constitute her as a trustee thereof. It was only when their
relationship soured that she sought to revoke the donation on the
theory of implied trust, though as previously discussed, there is
nothing to revoke because the donation was never perfected.
In declaring Lucila as the owner of the disputed lot, the Court of
Appeals applied, among others, the second sentence of Article
1448 which states
"x x x However, if the person to whom the title is conveyed is a
child, legitimate or illegitimate, of the one paying the price of the
sale, no trust is implied by law, it being disputably presumed that
there is a gift in favor of the child."
Said presumption also arises where the property is given to a
person to whom the person paying the price stands in loco
parentis or as a substitute parent.45
The abovecited provision, however, is also not applicable here
because, first, it was not established that Felomina stood as a
substitute parent of Lucila; and second, even assuming that she
did, the donation is still void because the transfer and acceptance
was not embodied in a public instrument. We note that said
provision merely raised a presumption that the conveyance was a
gift but nothing therein exempts the parties from complying with
the formalities of a donation. Dispensation of such solemnities
would give rise to anomalous situations where the formalities of a
donation and a will in donations inter vivos, and donations mortis
causa, respectively, would be done away with when the transfer of
the property is made in favor of a child or one to whom the donor
stands inloco parentis. Such a scenario is clearly repugnant to the
mandatory nature of the law on donation.
While Felomina sought to recover the litigated lot on the ground of
implied trust and not on the invalidity of donation, the Court is
clothed with ample authority to address the latter issue in order to
arrive at a just decision that completely disposes of the
controversy.46 Since rules of procedure are mere tools designed to
facilitate the attainment of justice, they must be applied in a way
that equitably and completely resolve the rights and obligations of
the parties.47
As to the trial courts award of attorneys fees and litigation
expenses, the same should be deleted for lack of basis. Aside from
the allegations in the complaint, no evidence was presented in
support of said claims. The trial court made these awards in the
dispositive portion of its decision without stating any justification
therefor in theratio decidendi. Their deletion is therefore proper.48
Finally, in deciding in favor of Felomina, the trial court ordered
respondent spouses to execute a deed of sale over the subject lot

in favor of Felomina in order to effect the transfer of title to the

latter. The proper remedy, however, is provided under Section 10
(a), Rule 39 of the Revised Rules of Civil Procedure which provides
that "x x x [i]f real or personal property is situated within the
Philippines, the court in lieu of directing a conveyance thereof may
by an order divest the title of any party and vest it in others, which
shall have the force and effect of a conveyance executed in due
form of law."
WHEREFORE, in view of all the foregoing, the petition
is GRANTED and the June 16, 2003 decision of the Court of Appeals
in CA-G.R. CV No. 69213 is REVERSED and SET ASIDE. The August
28, 2000 decision of the Regional Trial Court of Butuan City, Branch
2,
in
Civil
Case
No.
4270,
is REINSTATED with
the
followingMODIFICATIONS:
(1) Declaring petitioner Felomina Abellana as the absolute owner of
Lot 3, Pcs-10-000198;
(2) Ordering the Register of Deeds of Butuan City to cancel TCT No.
T-2874 in the name of respondent Lucila Ponce and to issue a new
one in the name of petitioner Felomina Abellana; and
(3) Deleting the awards of attorneys fees and litigation expenses
for lack of basis.
No pronouncement as to costs.
SO ORDERED.
FIRST DIVISION
[G.R. No. 160488. September 3, 2004.]
FELOMINA 1 ABELLANA, petitioner, vs. SPOUSES ROMEO
PONCE and LUCILA PONCE and the REGISTER OF DEEDS of
BUTUAN CITY, respondents.
DECISION
YNARES-SANTIAGO, J p:
This is a petition for review on certiorari assailing the June 16, 2003
decision 2 of the Court of Appeals in CA-G.R. CV No. 69213, which
reversed and set aside the August 28, 2000 decision 3 of the
Regional Trial Court of Butuan City, Branch 2, in Civil Case No.
4270.
The facts as testified to by petitioner Felomina Abellana are as
follows:
On July 15, 1981, Felomina, a spinster, pharmacist and aunt of
private respondent Lucila Ponce, purchased from the late Estela
Caldoza-Pacres a 44,297 4 square meter agricultural lot 5 with the
intention of giving said lot to her niece, Lucila. Thus, in the deed of
sale, 6 the latter was designated as the buyer of Lot 3, Pcs-10000198, covered by Original Certificate of Title No. P-27,
Homestead Patent No. V-1551 and located at Los Angeles, Butuan

68
City. 7 The total consideration of the sale was P16,500.00, but only
P4,500.00 was stated in the deed upon the request of the seller. 8
DIcSHE
Subsequently, Felomina applied for the issuance of title in the
name of her niece. On April 28, 1992, Transfer Certificate of Title
(TCT) No. 2874 9 over the subject lot was issued in the name of
Lucila. 10 Said title, however, remained in the possession of
Felomina who developed the lot through Juanario Torreon 11 and
paid real property taxes thereon. 12
The relationship between Felomina and respondent spouses Romeo
and Lucila Ponce, however, turned sour. The latter allegedly
became disrespectful and ungrateful to the point of hurling her
insults and even attempting to hurt her physically. Hence, Felomina
filed the instant case for revocation of implied trust to recover legal
title over the property. 13
Private respondent spouses Lucila, also a pharmacist, and Romeo, a
marine engineer, on the other hand, claimed that the purchase
price of the lot was only P4,500.00 and that it was them who paid
the same. The payment and signing of the deed of sale allegedly
took place in the office of Atty. Teodoro Emboy in the presence of
the seller and her siblings namely, Aquilino Caldoza and the late
Lilia Caldoza. 14
A year later, Juanario approached Lucila and volunteered to till the
lot, to which she agreed. 15 In 1987, the spouses consented to
Felominas proposal to develop and lease the lot. They, however,
shouldered the real property taxes on the lot, which was paid
through Felomina. In 1990, the spouses demanded rental from
Felomina but she refused to pay because her agricultural endeavor
was allegedly not profitable. 16 SAHaTc
When Lucila learned that a certificate of title in her name had
already been issued, she confronted Felomina who claimed that she
already gave her the title. Thinking that she might have misplaced
the title, Lucila executed an affidavit of loss which led to the
issuance of another certificate of title in her name. 17
On August 28, 2000, the trial court rendered a decision holding that
an implied trust existed between Felomina and Lucila, such that the
latter is merely holding the lot for the benefit of the former. It thus
ordered the conveyance of the subject lot in favor of Felomina. The
dispositive portion thereof, reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered
declaring, directing and ordering that:
a) An implied trust was created with plaintiff as trustor and private
defendant Lucila A. Ponce married to private defendant Engr.
Romeo D. Ponce as trustee pursuant to Article 1448 of the New Civil
Code;

b) The implied trust, having been created without the consent of

the trustee and without any condition, is revoked;
c) The private defendants, who are spouses, execute the necessary
deed of conveyance in favor of the plaintiff of the land, covered by
and embraced in TCT NO. T-2874, in controversy and in the event
private defendants refuse to execute the deed of conveyance, the
public defendant City Register of Deeds of Butuan to cancel TCT No.
T-2874 and issue a new one in lieu thereof in the name of the
plaintiff;
d) The private defendants spouses to pay jointly and severally
plaintiff the sum of PhP25,000.00 as attorneys fees and
PhP4,000.00 as expenses of litigation;
e) The dismissal of the counterclaim of private defendants
spouses[;] and
f) The private defendants to pay the costs.
SO ORDERED. 18
Private respondent spouses appealed to the Court of Appeals which
set aside the decision of the trial court ruling that Felomina failed to
prove the existence of an implied trust and upheld respondent
spouses ownership over the litigated lot. The appellate court
further held that even assuming that Felomina paid the purchase
price of the lot, the situation falls within the exception stated in
Article 1448 of the Civil Code which raises a disputable
presumption that the property was purchased by Felomina as a gift
to Lucila whom she considered as her own daughter. The decretal
portion thereof, states
WHEREFORE, premises considered, the appealed decision of the
Regional Trial Court, Branch 2, Butuan City, in Civil Case No. 4270,
is hereby REVERSED AND SET ASIDE. A new one is heretofore
rendered dismissing the complaint below of plaintiff-appellee,
F[e]lomina Abellana.
SO ORDERED. 19
Felomina filed a motion for reconsideration but the same was
denied. 20 Hence, the instant petition. EISCaD
The issue before us is: Who, as between Felomina and respondent
spouses, is the lawful owner of the controverted lot? To resolve this
issue, it is necessary to determine who paid the purchase price of
the lot.
After a thorough examination of the records and transcript of
stenographic notes, we find that it was Felomina and not Lucila who
truly purchased the questioned lot from Estela. The positive and
consistent testimony of Felomina alone, that she was the real
vendee of the lot, is credible to debunk the contrary claim of
respondent spouses. Indeed, the lone testimony of a witness, if
credible, is sufficient as in the present case. 21 Moreover, Aquilino

69
Caldoza, brother of the vendor and one of the witnesses 22 to the
deed of sale, categorically declared that Felomina was the buyer
and the one who paid the purchase price to her sister, Estela. 23
Then too, Juanario, who was allegedly hired by Lucila to develop the
lot, vehemently denied that he approached and convinced Lucila to
let him till the land. According to Juanario, he had never spoken to
Lucila about the lot and it was Felomina who recruited him to be
the caretaker of the litigated property. 24
The fact that it was Felomina who bought the lot was further
bolstered by her possession of the following documents from the
time of their issuance up to the present, to wit: (1) the transfer
certificate of title 25 and tax declaration in the name of Lucila; 26
(2) the receipts of real property taxes in the name of Felomina
Abellana for the years 1982-1984, 1992-1994 and 1995; 27 and (3)
the survey plan of the lot. 28 ScaEIT
Having determined that it was Felomina who paid the purchase
price of the subject lot, the next question to resolve is the nature of
the transaction between her and Lucila.
It appears that Felomina, being of advanced age 29 with no family
of her own, used to purchase properties and afterwards give them
to her nieces. In fact, aside from the lot she bought for Lucila
(marked as Exhibit R-2), she also purchased 2 lots, one from
Aquilino Caldoza (marked as Exhibit R-1) and the other from
Domiciano Caldoza (marked as Exhibit R-3), which she gave to
Zaida Bascones (sister of Lucila), thus:
Q I am showing to you again Exhibit R, according to you[,] you
bought Exhibits R-1, R-2 and R-3, do you remember that?
A Yes sir.
xxx xxx xxx
Q Aquilin[o] Caldoza conveyed this land in Exhibit R-1 to you?
A Yes, sir.
Q Is this now titled in your name?
A No. I was planning to give this land to my nieces. One of which
[was] already given to Mrs. [Lucila] Ponce.
Q I am talking only about this lot in Exhibit R-1[.]
A Not in my name.
Q In whose name was this lot in Exhibit R-1 now?
A In the name of Zaida Bascones.
Q Who prepared the deed of sale?
A At the start it was in the name of Rudy [Torreon]. 30 Because
Rudy [Torreon] knew that there is some trouble already about that
lot he made a deed of sale to the name of Zaida Bascones, which I
planned to give that land to her (sic).
Q As regards Exhibit R-1, you bought it actually?
A Yes, sir.

Q But the . . . original deed of sale was in the name of Rudolfo

[Torreon]?
A Yes, sir.
Q And later on Rudolfo [Torreon] again transferred it to Zaida
Bascones?
A Yes, sir. 31
Likewise, in the case of Lucila, though it was Felomina who paid for
the lot, she had Lucila designated in the deed as the vendee
thereof and had the title of the lot issued in Lucilas name. It is
clear therefore that Felomina donated the land to Lucila. This is
evident from her declarations, viz: IEDHAT
Witness
A In 1981 there was a riceland offered so I told her that I will buy
that land and I will give to her later (sic), because since 1981 up to
1992 Mrs. Lucila Ponce has no job.
Q Where is the land located?
A In Los Angeles, Butuan City.
Q Who was the owner of this land?
A The owner of that land is Mrs. Estela Caldoza-Pacr[e]s.
The husband is Pacr[e]s.
xxx xxx xxx
Q What did you do with this land belonging to Mrs. Estela-CaldozaPacr[e]s?
A I paid the lot, then worked the lot, since at the start of my buying
the lot until now (sic).
Q You said that you told Lucila Ponce that you would give the land
to her later on, what did you do in connection with this intention of
yours to give the land to her?
A So I put the name of the title in her name in good faith (sic).
Q You mean to tell the court that when you purchased this land
located at Los Angeles, Butuan City, the instrument of sale or the
deed of sale was in the name of Lucila Ponce?
A Yes, sir. 32
xxx xxx xxx
Q Did you not ask your adviser Rudolfo [Torreon] whether it was
wise for you to place the property in the name of Lucila Ponce when
you are the one who is the owner?
A Because we have really the intention to give it to her. 33
Generally, contracts are obligatory in whatever form they may have
been entered into, provided all the essential requisites for their
validity are present. When, however, the law requires that a
contract be in some form in order that it may be valid, that
requirement is absolute and indispensable. Its non-observance

70
renders the contract void and of no effect. 34 Thus, under Article
749 of the Civil Code
Article 749. In order that the donation of an immovable property
may be valid, it must be made in a public document, specifying
therein the property donated and the value of the charges which
the donee must satisfy.
The acceptance may be made in the same deed of donation or in a
separate public document, but it shall not take effect unless it is
done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall
be notified thereof in an authentic form, and this step shall be
noted in both instruments.
In the instant case, what transpired between Felomina and Lucila
was a donation of an immovable property which was not embodied
in a public instrument as required by the foregoing article. Being an
oral donation, the transaction was void. 35 Moreover, even if
Felomina enjoyed the fruits of the land with the intention of giving
effect to the donation after her demise, the conveyance is still a
void donation mortis causa, for non-compliance with the formalities
of a will. 36 No valid title passed regardless of the intention of
Felomina to donate the property to Lucila, because the naked intent
to convey without the required solemnities does not suffice for
gratuitous alienations, even as between the parties inter se. 37 At
any rate, Felomina now seeks to recover title over the property
because of the alleged ingratitude of the respondent spouses.
Unlike ordinary contracts (which are perfected by the concurrence
of the requisites of consent, object and cause pursuant to Article
1318 38 of the Civil Code), solemn contracts like donations are
perfected only upon compliance with the legal formalities under
Articles 748 39 and 749. 40 Otherwise stated, absent the solemnity
requirements for validity, the mere intention of the parties does not
give rise to a contract. The oral donation in the case at bar is
therefore legally inexistent and an action for the declaration of the
inexistence of a contract does not prescribe. 41 Hence, Felomina
can still recover title from Lucila.
Article 1448 42 of the Civil Code on implied trust finds no
application in the instant case. The concept of implied trusts is that
from the facts and circumstances of a given case, the existence of
a trust relationship is inferred in order to effect the presumed
intention of the parties. 43 Thus, one of the recognized exceptions
to the establishment of an implied trust is where a contrary
intention is proved, 44 as in the present case. From the testimony
of Felomina herself, she wanted to give the lot to Lucila as a gift. To
her mind, the execution of a deed with Lucila as the buyer and the
subsequent issuance of title in the latters name were the acts that

would effectuate her generosity. In so carrying out what she

conceived, Felomina evidently displayed her unequivocal intention
to transfer ownership of the lot to Lucila and not merely to
constitute her as a trustee thereof. It was only when their
relationship soured that she sought to revoke the donation on the
theory of implied trust, though as previously discussed, there is
nothing to revoke because the donation was never perfected.
In declaring Lucila as the owner of the disputed lot, the Court of
Appeals applied, among others, the second sentence of Article
1448 which states
. . . However, if the person to whom the title is conveyed is a child,
legitimate or illegitimate, of the one paying the price of the sale, no
trust is implied by law, it being disputably presumed that there is a
gift in favor of the child.
Said presumption also arises where the property is given to a
person to whom the person paying the price stands in loco parentis
or as a substitute parent. 45 aEHADT
The abovecited provision, however, is also not applicable here
because, first, it was not established that Felomina stood as a
substitute parent of Lucila; and second, even assuming that she
did, the donation is still void because the transfer and acceptance
was not embodied in a public instrument. We note that said
provision merely raised a presumption that the conveyance was a
gift but nothing therein exempts the parties from complying with
the formalities of a donation. Dispensation of such solemnities
would give rise to anomalous situations where the formalities of a
donation and a will in donations inter vivos, and donations mortis
causa, respectively, would be done away with when the transfer of
the property is made in favor of a child or one to whom the donor
stands in loco parentis. Such a scenario is clearly repugnant to the
mandatory nature of the law on donation.
While Felomina sought to recover the litigated lot on the ground of
implied trust and not on the invalidity of donation, the Court is
clothed with ample authority to address the latter issue in order to
arrive at a just decision that completely disposes of the
controversy. 46 Since rules of procedure are mere tools designed to
facilitate the attainment of justice, they must be applied in a way
that equitably and completely resolve the rights and obligations of
the parties. 47
As to the trial courts award of attorneys fees and litigation
expenses, the same should be deleted for lack of basis. Aside from
the allegations in the complaint, no evidence was presented in
support of said claims. The trial court made these awards in the
dispositive portion of its decision without stating any justification
therefor in the ratio decidendi. Their deletion is therefore proper. 48

71
Finally, in deciding in favor of Felomina, the trial court ordered
respondent spouses to execute a deed of sale over the subject lot
in favor of Felomina in order to effect the transfer of title to the
latter. The proper remedy, however, is provided under Section
10(a), Rule 39 of the Revised Rules of Civil Procedure which
provides that . . . [i]f real or personal property is situated within
the Philippines, the court in lieu of directing a conveyance thereof
may by an order divest the title of any party and vest it in others,
which shall have the force and effect of a conveyance executed in
due form of law. AcSIDE
WHEREFORE, in view of all the foregoing, the petition is GRANTED
and the June 16, 2003 decision of the Court of Appeals in CA-G.R.
CV No. 69213 is REVERSED and SET ASIDE. The August 28, 2000
decision of the Regional Trial Court of Butuan City, Branch 2, in Civil

Case
No. 4270,
is REINSTATED with the
following
MODIFICATIONS:
(1) Declaring petitioner Felomina Abellana as the absolute owner of
Lot 3, Pcs-10-000198;
(2) Ordering the Register of Deeds of Butuan City to cancel TCT No.
T-2874 in the name of respondent Lucila Ponce and to issue a new
one in the name of petitioner Felomina Abellana; and
(3) Deleting the awards of attorneys fees and litigation expenses
for lack of basis.
No pronouncement as to costs.
SO ORDERED.