Dominion Insurance vs CA, GR no 129919

Veloso vs CA, GR no 102737

Mercado vs Allied Banking, GR no 171460
Bravo-guerrero vs bravo, gr no 152658
Siasat vs iac, gr no l-67889
Air France vs CA, gr no l-57339
Cosmic lumber vs ca, gr no 114311
Af realty vs dieselman, gr no 111448
Uniland resources vs dbp, gr no 95909
Litonjua vs eternit, gr no 144805
Yun kwan byung vs pagcor, gr no 163553
Professional service vs agana, gr no 126297

G.R. No. 129919

February 6, 2002

DOMINION INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO
AUSTRIA, respondents.

The principal (corporation) is not liable for the expenses incurred by the agent if
the agent acted in contravention of the principal s instruction (Art. 1918, Civil
Code).

PARDO, J.:
Rodolfo S. Guevara filed a complaint to recover a sum of money from Dominion
Insurance Corp. Guevara was a manager of said corporation and he alleged that he
used his personal money to settle some of the corporations case, therefore he is
entitled to reimbursement. Evidences are thus presented and thereafter, the trial
court ruled in favor of Rodolfo and fully awarded the claims sought.
ISSUE:
W/N Rodolfo, being a manager, is not entitled for reimbursement of his personal
money used to settle the corporations cases against third persons.
HELD:
Rodolfo should not have been entitled for the full reimbursement of the amount he
claims. Among the evidences presented in this case are the Special Power of
Attorney executed between the parties, the Memorandum of Management
Agreement, and an Authority to Pay document. The terms of SPA vests the
following authorities: 1. To conduct, sign, manager (sic), carry on and transact Bonding and
Insurance business xxx xx xxx with the right, upon our prior written consent, to appoint agents and subagents.; 2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds
for and on our behalf; 3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer
for and receive and give effectual receipts and discharge; and, 4. To receive notices, summons, and
legal processes

The terms of the SPA are actually general and are limited only to acts of
administration. If we base the claim of Rodolfo regarding his performance of
settling the corporations claims, he actually did not have such power since Art.

1878 requires that to make payments not usually considered acts of

administration, an SPA is necessary. Settlement clearly entail payment not
usually considered as acts of administration.
However, Rodolfos authority to settle was embodied in the MMA, enumerating
his scope and duty as agency manager which are as follows: authority to settle and
dispose of all motor car claims in the amount of P5,000.00 with prior approval of the Regional Office;
Full authority on TPPI claims settlement.

His authority to settle the claims is further limited by a written standard authority
to pay stating that the payment must come from his revolving fund or collection.
The authority to pay is worded as follows: "This is to authorize you to withdraw from your
revolving fund/collection the amount of PESOS __________________ (P ) representing the payment on
the _________________ claim of assured _______________ under Policy No. ______ in that accident
of ___________ at ____________.
"It is further expected, release papers will be signed and authorized by the concerned and attached to
the corresponding claim folder after effecting payment of the claim.
"(sgd.) FERNANDO C. AUSTRIA
Regional Manager"26
[Emphasis supplied]

Reading the document, the payment must come from the revolving fund or
collection in his possession. There was no saying that it should come from his
own pockets. Having deviated from the instructions of the principal, the expenses
of Rodolfo may not be reimbursed. The principal (corporation) is not liable for the
expenses incurred by the agent if the agent acted in contravention of the
principal s instruction (Art. 1918, Civil Code). Here, Rodolfo contravene his
principals instructions when he opted to settle out of his pocket.
However, while the law on agency does not give Rodolfo a right for
reimbursement, his right for recovery may still be justified under the general law
on OBLICON since he paid for another (the corporation) so he may demand from
the debtor (the corporation) what he has paid but then again, he can recover only
insofar as the payment has been beneficial to the debtor (the corporation) [Art.
1236, Civil Code].
Thus, to the extent that the obligation of Dominion Insurance has been
extinguished, respondent Rodolfo may demand for reimbursement. To rule
otherwise, in totality, would result in unjust enrichment.

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.

whether an instrument is denominated as GPA or SPA, 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 cannot be any doubt that the
attorney in fact may execute a valid sale.

TORRES, JR., J.:

Francisco Veloso owns a parcel of land by virtue of his title he claims registered
under his name. However he found out that his title was cancelled and a new one
was issued not in his name but in favor of Aglaloma Escario. Therefore, he filed an
action to annul the subsequent title and to reconvey his properties. Okay, so he
alleges that he was the absolute owner bla bla bla; that he did not authorized
anyone to sell it, and that his copy of the title has just gone missing. What a drag..
So when he went to the RD, he found out that his title was cancelled due to a sale
the subject property purportedly made by him under a General Power of Attorney
and a Deed of Absolute Sale (OMG!!) executed by his wife!!! (of all people dba!) It
appears that his wife purported to be his attorney-in-fact.
Ofcourse Veloso denied having executed a power of attorney alleging that his
signature was falsified as well as having known the witnesses of such execution.
So, in short, he seeks to invalidate the sale.
Escario on the other hand maintained that she was a buyer-in-good-faith denying
the knowledge of the alleged irregularities and relying on the notarized GPA shown
by the wife.
The trial court adjudged Escario as the lawful owner being an innocent purchaser
for value having no knowledge of any defects. The general power of attorney was
held valid and enough and that there was no need for an SPA because it was
already mentioned expressly in the GPA. The court said that the wifes

possession and production of certificate of title is deemed a conclusive authority

from Veloso so that the former can enter a new certificate at the RD. Applying the
rule of equitable estoppel, Veloso was held to bear the loss.
ISSUE:
W/N the sale of the land was valid on the ground that the GPA is enough authority
for the wife to transact business over it coupled with the possession and
production of its certificate of title
HELD:
The sale of the land was valid because the GPA was valid and regular on its face. It
was notarized thus carrying evidentiary weight with respect to its due execution.
Even though it is only a GPA, it stated an authority to sell: 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.

This only means that there was no need to execute a separate SPA since the GPA
expressly authorized the agent (wife) when the SPA is specified therein: the act or
transaction for which it was required.
As jurisprudence tells us, whether an instrument is denominated as GPA or SPA,
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 cannot be
any doubt that the attorney in fact may execute a valid sale.
On the other hand, 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.
In any case, even if there are indeed irregularities on the capacity of Velosos
wife to transact in his behalf, the right of an innocent purchaser for value must be
respected and protected, even if the seller obtained his title through fraud.
The remedy of the person prejudiced is to bring an action for damages against
those who caused or employed the fraud, and if the latter are insolvent, an action
against the Treasurer of the Philippines may be filed for recovery of damages
against the Assurance Fund.

Finally; the trial court did not err in applying equitable estoppel in this case. The
principle of equitable estoppel states that where one or two innocent persons must
suffer a loss, he who by his conduct made the loss possible must bear it. From the
evidence adduced, it should be the petitioner who should bear the loss. As the
court a quo found:
Besides, the records of this case disclosed that the plaintiff is not entirely free
from blame. He admitted that he is the sole person who has access to TCT No.
49138 and other documents appertaining thereto (TSN, May 23, 1989, pp. 7-12)
However, the fact remains that the Certificate of Title, as well as other documents
necessary for the transfer of title were in the possession of plaintiff's wife, Irma L.
Veloso, consequently leaving no doubt or any suspicion on the part of the
defendant as to her authority. Under Section 55 of Act 496, as amended, Irma's
possession and production of the Certificate of Title to defendant operated as
"conclusive authority

G.R. No. 171460

July 24, 2007

LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN MERCADO, JR.,

represented by their Attorney-In-Fact, ALFREDO M. PEREZ, Petitioners,
vs.
ALLIED BANKING CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
During her lifetime, Perla Mercado owned several real properties. Back then, she
executed an SPA for her husband authorizing him: 1. To act in my behalf, to sell, alienate,
mortgage, lease and deal otherwise over the different parcels of land described in said SPA; 2. To
sign for and in my behalf any act of strict dominion or ownership any sale, disposition, mortgage, lease
or any other transactions including quit-claims, waiver and relinquishment of rights in and over the
parcels of land situated in another province; and, 3. To exercise any or all acts of strict dominion
or ownership over the above-mentioned properties, rights and interest therein.

Using the SPA, Julian (husband) obtained a loan from Allied Banking Corp.
secured by a real estate mortgage constituted on the TCT registered in QC over
one of the lands specified in the SPA. A subsequent loan was obtained
encumbering the same TCT but this time, it appeared that there was no property
identified and registered under QC. What was identified instead was a property
registered in Pasig City.
Julian then defaulted on the payment of his loan. So, Allied Bank initiated an extrajudicial foreclosure proceeding over the subject property at a public auction.
So, like any other case of loan and mortgage, petitioners would want to annul the
REM. Now, the heirs of Perla would to do so on the ground that the property
purported to be in QC was not covered by the SPA. They further allege that at the
time the loan were contracted; the SPA was previously revoked by the late Perla as
evidenced by a Revocation of SPA signed by the latter. The late Perla allegedly
notified the RD of QC that regarding any attempts to encumber her property, it
must be done with her full consent documented in the form of an SPA duly
authenticated before the Phil. Consulate General in New York
Therefore, the heirs contend that in the absence of such authority, the REM should
be declared null and void and the e.j.f. and the public auction be nullified as well.

Allied Bank maintained that the SPA in favor of Julian included the subject
property albeit it was registered before in QC. The Bank explained that the
designation of the RD in the SPA was merely an error that must not prevail over the
clear intention of Perla to include the subject property in the said SPA. In short,
property in Pasig and property in QC are one and the same.
Nonetheless, fucking RTC rule in favor of the heirs, declaring everything null and
void; reason is that Julian was not authorized by the terms of the SPA to
MORTGAGE!!

Poor bank appealed to the CA. Lo and behold, CA reversed and held the REM valid
on the strength of the SPA, declaring that Perla intended the subject property to be
included in the SPA she executed. Likewise, her subsequent revocation cannot
bind third persons involved because IT WAS NOT CONTAINED IN A PUBLIC
INSTRUMENT!!

ISSUE:
W/N the mortgage is valid on the ground that the husband was not duly authorized
by the SPA. Stating in other words, REM not valid because subject property is not
included in the SPA, thereby giving no authority to husband.
HELD:
The mortgage is invalid, not because of the SPA or what but because it failed to
pass the essential requirements of having a valid mortgage. To have a valid pledge
and mortgage: (1) they must be constituted to secure the fulfillment of a principal obligation; (2) the
pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged; (3) That the persons
constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof,
that they be legally authorized for the purpose; Third persons who are not parties to the principal
obligation may secure the latter by pledging or mortgaging their own property. Art. 2085

In the case at bar, it was Julian who obtained the loan obligations from respondent which
he secured with the mortgage of the subject property. The property mortgaged was
owned by his wife, Perla, considered a third party to the loan obligations between Julian
and respondent. It was, thus, a situation recognized by the last paragraph of Article 2085
of the Civil Code afore-quoted. However, since it was not Perla who personally
mortgaged her own property to secure Julians loan obligations with respondent, we
proceed to determining if she duly authorized Julian to do so on her behalf.

Under Article 1878 of the Civil Code, a special power of attorney is necessary in cases
where real rights over immovable property are created or conveyed. 12 In the SPA
executed by Perla in favor of Julian on 28 May 1992, the latter was conferred with the
authority to "sell, alienate, mortgage, lease and deal otherwise" the different pieces of
real and personal property registered in Perlas name. The SPA likewise authorized
Julian "[t]o exercise any or all acts of strict dominion or ownership" over the identified
properties, and rights and interest therein. The existence and due execution of this SPA
by Perla was not denied or challenged by petitioners.
There is no question therefore that Julian was vested with the power to mortgage the
pieces of property identified in the SPA. However, as to whether the subject property was
among those identified in the SPA, so as to render Julians mortgage of the same valid,
is a question we still must resolve

After an examination of the literal terms of the SPA, we find that the subject property was
not among those enumerated therein. There is no obvious reference to the subject
property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds
of Quezon City.
There was also nothing in the language of the SPA from which we could deduce the
intention of Perla to include the subject property therein. We cannot attribute such
alleged intention to Perla who executed the SPA when the language of the instrument is
bare of any indication suggestive of such intention. Contrariwise, to adopt the intent
theory advanced by the respondent, in the absence of clear and convincing evidence to
that effect, would run afoul of the express tenor of the SPA and thus defeat Perla s true
intention.
In cases where the terms of the contract are clear as to leave no room for interpretation,
resort to circumstantial evidence to ascertain the true intent of the parties, is not
countenanced. As aptly stated in the case of JMA House, Incorporated v. Sta. Monica
Industrial and Development Corporation,13 thus:
[T]he law is that if the terms of a contract are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of its stipulation shall control. When the
language of the contract is explicit, leaving no doubt as to the intention of the drafters, the
courts may not read into it [in] any other intention that would contradict its main import.
The clear terms of the contract should never be the subject matter of interpretation.
Neither abstract justice nor the rule on liberal interpretation justifies the creation of a
contract for the parties which they did not make themselves or the imposition upon one
party to a contract or obligation not assumed simply or merely to avoid seeming
hardships. The true meaning must be enforced, as it is to be presumed that the
contracting parties know their scope and effects.14

Equally relevant is the rule that a power of attorney must be strictly construed and
pursued. The instrument will be held to grant only those powers which are specified
therein, and the agent may neither go beyond nor deviate from the power of
attorney.15 Where powers and duties are specified and defined in an instrument, all such
powers and duties are limited and are confined to those which are specified and defined,
and all other powers and duties are excluded. 16 This is but in accord with the
disinclination of courts to enlarge the authority granted beyond the powers expressly
given and those which incidentally flow or derive therefrom as being usual and
reasonably necessary and proper for the performance of such express powers. 17
In this case, we are not convinced that the property covered by TCT No. 106338
registered with the Registry of Deeds of Pasig (now Makati) is the same as the subject
property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds
of Quezon City. The records of the case are stripped of supporting proofs to verify the
respondents claim that the two titles cover the same property. It failed to present any
certification from the Registries of Deeds concerned to support its assertion. Neither did
respondent take the effort of submitting and making part of the records of this case
copies of TCTs No. RT-106338 of the Registry of Deeds of Pasig (now Makati) and RT18206 (106338) of the Registry of Deeds of Quezon City, and closely comparing the
technical descriptions of the properties covered by the said TCTs. The bare and
sweeping statement of respondent that the properties covered by the two certificates of
title are one and the same contains nothing but empty imputation of a fact that could
hardly be given any evidentiary weight by this Court.
Having arrived at the conclusion that Julian was not conferred by Perla with the authority
to mortgage the subject property under the terms of the SPA, the real estate mortgages
Julian executed over the said property are therefore unenforceable.
Assuming arguendo that the subject property was indeed included in the SPA executed
by Perla in favor of Julian, the said SPA was revoked by virtue of a public instrument
executed by Perla on 10 March 1993. To address respondents assertion that the said
revocation was unenforceable against it as a third party to the SPA and as one who relied
on the same in good faith, we quote with approval the following ruling of the RTC on this
matter:
Moreover, an agency is extinguished, among others, by its revocation (Article 1999, New
Civil Code of the Philippines). The principal may revoke the agency at will, and compel
the agent to return the document evidencing the agency. Such revocation may be
express or implied (Article 1920, supra).
In this case, the revocation of the agency or Special Power of Attorney is expressed and
by a public document executed on March 10, 1993.

The Register of Deeds of Quezon City was even notified that any attempt to mortgage or
sell the property covered by TCT No. [RT-18206] 106338 located at No. 21 Hillside Drive,
Blue Ridge, Quezon City must have the full consent documented in the form of a special
power of attorney duly authenticated at the Philippine Consulate General, New York City,
N.Y., U.S.A.
The non-annotation of the revocation of the Special Power of Attorney on TCT No. RT18206 is of no consequence as far as the revocations existence and legal effect is
concerned since actual notice is always superior to constructive notice. The actual notice
of the revocation relayed to defendant Registry of Deeds of Quezon City is not denied by
either the Registry of Deeds of Quezon City or the defendant Bank. In which case, there
appears no reason why Section 52 of the Property Registration Decree (P.D. No. 1529)
should not apply to the situation. Said Section 52 of P.D. No. 1529 provides:
"Section 52. Constructive notice upon registration. Every conveyance, mortgage,
lease, lien, attachment, order, judgment, instrument or entry affecting registered land
shall, if registered, filed or entered in the Office of the Register of Deeds for the province
or city where the land to which it relates lies, be constructive notice to all persons from
the time of such registering, filing or entering. (Pres. Decree No. 1529, Section 53)
(emphasis ours)
It thus developed that at the time the first loan transaction with defendant Bank was
effected on December 12, 1996, there was on record at the Office of the Register of
Deeds of Quezon City that the special power of attorney granted Julian, Sr. by Perla had
been revoked. That notice, works as constructive notice to third parties of its being filed,
effectively rendering Julian, Sr. without authority to act for and in behalf of Perla as of the
date the revocation letter was received by the Register of Deeds of Quezon City on
February 7, 1996.19
Given that Perla revoked the SPA as early as 10 March 1993, and that she informed the
Registry of Deeds of Quezon City of such revocation in a letter dated 23 January 1996
and received by the latter on 7 February 1996, then third parties to the SPA are
constructively notified that the same had been revoked and Julian no longer had any
authority to mortgage the subject property. Although the revocation may not be annotated
on TCT No. RT-18206 (106338), as the RTC pointed out, neither the Registry of Deeds of
Quezon City nor respondent denied that Perlas 23 January 1996 letter was received by
and filed with the Registry of Deeds of Quezon City. Respondent would have
undoubtedly come across said letter if it indeed diligently investigated the subject
property and the circumstances surrounding its mortgage.
The final issue to be threshed out by this Court is whether the respondent is a
mortgagee-in-good faith. Respondent fervently asserts that it exercised reasonable
diligence required of a prudent man in dealing with the subject property.

Elaborating, respondent claims to have carefully verified Julians authority over the
subject property which was validly contained in the SPA. It stresses that the SPA was
annotated at the back of the TCT of the subject property. Finally, after conducting an
investigation, it found that the property covered by TCT No. 106338, registered with the
Registry of Deeds of Pasig (now Makati) referred to in the SPA, and the subject property,
covered by TCT No. 18206 (106338) registered with the Registry of Deeds of Quezon
City, are one and the same property. From the foregoing, respondent concluded that
Julian was indeed authorized to constitute a mortgage over the subject property.
We are unconvinced. The property listed in the real estate mortgages Julian executed in
favor of PNB is the one covered by "TCT#RT-18206(106338)." On the other hand, the
Special Power of Attorney referred to TCT No. "RT-106338 805 Square Meters of the
Registry of Deeds of Pasig now Makati." The palpable difference between the TCT
numbers referred to in the real estate mortgages and Julians SPA, coupled with the
fact that the said TCTs are registered in the Registries of Deeds of different cities, should
have put respondent on guard. Respondents claim of prudence is debunked by the fact
that it had conveniently or otherwise overlooked the inconsistent details appearing on the
face of the documents, which it was relying on for its rights as mortgagee, and which
significantly affected the identification of the property being mortgaged. In Arrofo v.
Quio,20 we have elucidated that:
[Settled is the rule that] a person dealing with registered lands [is not required] to inquire
further than what the Torrens title on its face indicates. This rule, however, is not absolute
but admits of exceptions. Thus, while its is true, x x x that a person dealing with
registered lands need not go beyond the certificate of title, it is likewise a wellsettled rule that a purchaser or mortgagee cannot close his eyes to facts which
should put a reasonable man on his guard, and then claim that he acted in good
faith under the belief that there was no defect in the title of the vendor or
mortgagor. His mere refusal to face up the fact that such defect exists, or his willful
closing of his eyes to the possibility of the existence of a defect in the vendor s or
mortgagors title, will not make him an innocent purchaser for value, if it afterwards
develops that the title was in fact defective, and it appears that he had such notice of the
defect as would have led to its discovery had he acted with the measure of precaution
which may be required of a prudent man in a like situation.

G.R. No. 152658. July 29, 2005

LILY ELIZABETH BRAVO-GUERRERO, BEN MAURICIO P. BRAVO, 1 ROLAND P.
BRAVO, JR., OFELIA BRAVO-QUIESTAS, HEIRS OF CORPUSINIA BRAVO-NIOR
namely: GERSON U. NIOR, MARK GERRY B. NIOR, CLIFF RICHARD B. NIOR,
BRYAN B. NIOR, WIDMARK B. NIOR, SHERRY ANNE B. NIOR, represented by LILY
ELIZABETH BRAVO-GUERRERO as their attorney-in-fact, and HONORABLE
FLORENTINO A. TUASON, JR., Presiding Judge, Regional Trial Court, Branch 139,
Makati City, Petitioners,
vs.
EDWARD P. BRAVO, represented by his attorney-in-fact FATIMA C.
BRAVO, respondent, and DAVID B. DIAZ, JR., intervenor-respondent.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review 2 assailing the Decision3 of 21 December 2001 of
the Court of Appeals in CA-G.R. CV No. 67794. The Court of Appeals reversed the
Decision4 of 11 May 2000 of the Regional Trial Court of Makati, Branch No. 139, in Civil
Case No. 97-1379 denying respondents prayer to partition the subject properties.
Antecedent Facts
Spouses Mauricio Bravo ("Mauricio") and Simona 5 Andaya Bravo ("Simona") owned two
parcels of land ("Properties") measuring 287 and 291 square meters and located along
Evangelista Street, Makati City, Metro Manila. The Properties are registered under TCT
Nos. 58999 and 59000 issued by the Register of Deeds of Rizal on 23 May 1958. The
Properties contain a large residential dwelling, a smaller house and other improvements.
Mauricio and Simona had three children - Roland, Cesar and Lily, all surnamed Bravo.
Cesar died without issue. Lily Bravo married David Diaz, and had a son, David B. Diaz,
Jr. ("David Jr."). Roland had six children, namely, Lily Elizabeth Bravo-Guerrero
("Elizabeth"), Edward Bravo ("Edward"), Roland Bravo, Jr. ("Roland Jr."), Senia Bravo,
Benjamin Mauricio Bravo, and their half-sister, Ofelia Bravo ("Ofelia").
Simona executed a General Power of Attorney ("GPA") on 17 June 1966 appointing
Mauricio as her attorney-in-fact. In the GPA, Simona authorized Mauricio to "mortgage or
otherwise hypothecate, sell, assign and dispose of any and all of my property, real,
personal or mixed, of any kind whatsoever and wheresoever situated, or any interest
therein xxx."6 Mauricio subsequently mortgaged the Properties to the Philippine National

Bank (PNB) and Development Bank of the Philippines (DBP) for P10,000 and P5,000,
respectively.7
On 25 October 1970, Mauricio executed a Deed of Sale with Assumption of Real Estate
Mortgage ("Deed of Sale") conveying the Properties to "Roland A. Bravo, Ofelia A. Bravo
and Elizabeth Bravo"8 ("vendees"). The sale was conditioned on the payment of P1,000
and on the assumption by the vendees of the PNB and DBP mortgages over the
Properties.
As certified by the Clerk of Court of the Regional Trial Court of Manila, the Deed of Sale
was notarized by Atty. Victorio Q. Guzman on 28 October 1970 and entered in his
Notarial Register.9 However, the Deed of Sale was not annotated on TCT Nos. 58999 and
59000. Neither was it presented to PNB and DBP. The mortage loans and the receipts for
loan payments issued by PNB and DBP continued to be in Mauricios name even after
his death on 20 November 1973. Simona died in 1977.
On 23 June 1997, Edward, represented by his wife, Fatima Bravo, filed an action for the
judicial partition of the Properties. Edward claimed that he and the other grandchildren of
Mauricio and Simona are co-owners of the Properties by succession. Despite this,
petitioners refused to share with him the possession and rental income of the Properties.
Edward later amended his complaint to include a prayer to annul the Deed of Sale, which
he claimed was merely simulated to prejudice the other heirs.
In 1999, David Jr., whose parents died in 1944 and who was subsequently raised by
Simona, moved to intervene in the case. David Jr. filed a complaint-in-intervention
impugning the validity of the Deed of Sale and praying for the partition of the Properties
among the surviving heirs of Mauricio and Simona. The trial court allowed the
intervention in its Order dated 5 May 1999.10
The Ruling of the Trial Court
The trial court upheld Mauricios sale of the Properties to the vendees. The trial court
ruled that the sale did not prejudice the compulsory heirs, as the Properties were
conveyed for valuable consideration. The trial court also noted that the Deed of Sale was
duly notarized and was in existence for many years without question about its validity.
The dispositive portion of the trial courts Decision of 11 May 2000 reads:
WHEREFORE, premises considered, the Court hereby DENIES the JUDICIAL
PARTITION of the properties covered by TCT Nos. 58999 and 59000 registered with the
Office of the Register of Deeds of Rizal.
SO ORDERED.11

Dissatisfied, Edward and David Jr. ("respondents") filed a joint appeal to the Court of
Appeals.
The Ruling of the Court of Appeals
Citing Article 166 of the Civil Code ("Article 166"), the Court of Appeals declared the
Deed of Sale void for lack of Simonas consent. The appellate court held that the GPA
executed by Simona in 1966 was not sufficient to authorize Mauricio to sell the Properties
because Article 1878 of the Civil Code ("Article 1878") requires a special power of
attorney for such transactions. The appellate court reasoned that the GPA was executed
merely to enable Mauricio to mortgage the Properties, not to sell them.
The Court of Appeals also found that there was insufficient proof that the vendees made
the mortgage payments on the Properties, since the PNB and DBP receipts were issued
in Mauricios name. The appellate court opined that the rental income of the Properties,
which the vendees never shared with respondents, was sufficient to cover the mortgage
payments to PNB and DBP.
The Court of Appeals declared the Deed of Sale void and ordered the partition of the
Properties in its Decision of 21 December 2001 ("CA Decision"), as follows:
WHEREFORE, the decision of the Regional Trial Court of Makati City, Metro-Manila,
Branch 13[9] dated 11 May 2000[,] review of which is sought in these proceedings[,] is
REVERSED.
1. The Deed of Sale with Assumption of Real Estate Mortgage (Exh. 4) dated 28 October
1970 is hereby declared null and void;
2. Judicial Partition on the questioned properties is hereby GRANTED in the following
manner:
A. In representation of his deceased mother, LILY BRAVO-DIAZ, intervenor DAVID DIAZ,
JR., is entitled to one-half (1/2) interest of the subject properties;
B. Plaintiff-appellant EDWARD BRAVO and the rest of the five siblings, namely: LILY
ELIZABETH, EDWARD, ROLAND, JR., SENIA, BENJAMIN and OFELIA are entitled to
one-sixth (1/6) representing the other half portion of the subject properties;
C. Plaintiff-appellant Edward Bravo, intervenor DAVID DIAZ, JR., SENIA and BENJAMIN
shall reimburse the defendant-appellees LILY ELIZABETH, OFELIA and ROLAND the
sum of One Thousand (P1,000.00) PESOS representing the consideration paid on the
questioned deed of sale with assumption of mortgage with interest of six (6) percent per
annum effective 28 October 1970 until fully paid.
SO ORDERED.12

The Issues
Petitioners seek a reversal of the Decision of the Court of Appeals, raising these issues:
1. WHETHER THE COURT OF APPEALS ERRED IN NOT UPHOLDING THE VALIDITY
AND ENFORCEMENT OF THE DEED OF SALE WITH ASSUMPTION OF MORTGAGE.
2. WHETHER THE COURT OF APPEALS ERRED IN ORDERING THE PARTITION OF
THE PROPERTY IN QUESTION.13
At the least, petitioners argue that the subject sale is valid as to Mauricio s share in the
Properties.
On the other hand, respondents maintain that they are co-owners of the Properties by
succession. Respondents argue that the sale of the conjugal Properties is void because:
(1) Mauricio executed the Deed of Sale without Simonas consent; and (2) the sale was
merely simulated, as shown by the grossly inadequate consideration Mauricio received
for the Properties.
While this case was pending, Leonida Andaya Lolong ("Leonida"), David Jr.s aunt, and
Atty. Cendaa, respondents counsel, informed the Court that David Jr. died on 14
September 2004. Afterwards, Leonida and Elizabeth wrote separate letters asking for the
resolution of this case. Atty. Cendaa later filed an urgent motion to annotate attorneys
lien on TCT Nos. 58999 and 59000. In its Resolution dated 10 November 2004, 14 the
Court noted the notice of David Jr.s death, the letters written by Leonida and Elizabeth,
and granted the motion to annotate attorneys lien on TCT Nos. 58999 and 59000.
The Ruling of the Court
The petition is partly meritorious.
The questions of whether Simona consented to the Deed of Sale and whether the subject
sale was simulated are factual in nature. The rule is factual findings of the Court of
Appeals are binding on this Court. However, there are exceptions, such as when the
factual findings of the Court of Appeals and the trial court are contradictory, or when the
evidence on record does not support the factual findings. 15 Because these exceptions
obtain in the present case, the Court will consider these issues.
On the Requirement of the Wifes Consent
We hold that the Court of Appeals erred when it declared the Deed of Sale void based on
Article 166, which states:
Art. 166. Unless the wife has been declared a non compos mentis or a spendthrift, or is
under civil interdiction or is confined in a leprosarium, the husband cannot alienate or

encumber any real property of the conjugal partnership without the wifes consent. If
she refuses unreasonably to give her consent, the court may compel her to grant the
same.
This article shall not apply to property acquired by the conjugal partnerships before the
effective date of this Code.
Article 166 expressly applies only to properties acquired by the conjugal partnership after
the effectivity of the Civil Code of the Philippines ("Civil Code"). The Civil Code came into
force on 30 August 1950. 16 Although there is no dispute that the Properties were conjugal
properties of Mauricio and Simona, the records do not show, and the parties did not
stipulate, when the Properties were acquired. 17 Under Article 1413 of the old Spanish Civil
Code, the husband could alienate conjugal partnership property for valuable
consideration without the wifes consent.18
Even under the present Civil Code, however, the Deed of Sale is not void. It is wellsettled that contracts alienating conjugal real property without the wifes consent are
merely voidable under the Civil Code that is, binding on the parties unless annulled by
a competent court and not void ab initio.19
Article 166 must be read in conjunction with Article 173 of the Civil Code ("Article 173").
The latter prescribes certain conditions before a sale of conjugal property can be
annulled for lack of the wifes consent, as follows:
Art. 173. The wife may, during the marriage and within ten years from the
transaction questioned, ask the courts for the annulment of any contract of the husband
entered into without her consent, when such consent is required, or any act or contract of
the husband which tends to defraud her or impair her interest in the conjugal partnership
property. Should the wife fail to exercise this right, she or her heirs after the
dissolution of the marriage, may demand the value of property fraudulently
alienated by the husband. (Emphasis supplied)
Under the Civil Code, only the wife can ask to annul a contract that disposes of conjugal
real property without her consent. The wife must file the action for annulment during the
marriage and within ten years from the questioned transaction. Article 173 is explicit on
the remedies available if the wife fails to exercise this right within the specified period. In
such case, the wife or her heirs can only demand the value of the property provided they
prove that the husband fraudulently alienated the property. Fraud is never presumed, but
must be established by clear and convincing evidence. 20
Respondents action to annul the Deed of Sale based on Article 166 must fail for having
been filed out of time. The marriage of Mauricio and Simona was dissolved when
Mauricio died in 1973. More than ten years have passed since the execution of the Deed
of Sale.

Further, respondents, who are Simonas heirs, are not the parties who can invoke
Article 166. Article 173 reserves that remedy to the wife alone. Only Simona had the right
to have the sale of the Properties annulled on the ground that Mauricio sold the
Properties without her consent.
Simona, however, did not assail the Deed of Sale during her marriage or even after
Mauricios death. The records are bereft of any indication that Simona questioned the
sale of the Properties at any time. Simona did not even attempt to take possession of or
reside on the Properties after Mauricios death. David Jr., who was raised by Simona,
testified that he and Simona continued to live in Pasay City after Mauricios death, while
her children and other grandchildren resided on the Properties. 21
We also agree with the trial court that Simona authorized Mauricio to dispose of the
Properties when she executed the GPA. True, Article 1878 requires a special power of
attorney for an agent to execute a contract that transfers the ownership of an immovable.
However, the Court has clarified that Article 1878 refers to the nature of the authorization,
not to its form. 22 Even if a document is titled 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.23
In Veloso v. Court of Appeals,24 the Court explained that a general power of attorney
could contain a special power to sell that satisfies the requirement of Article 1878, thus:
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."
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. (Emphasis supplied)
In this case, Simona expressly authorized Mauricio in the GPA to "sell, assign and
dispose of any and all of my property, real, personal or mixed, of any kind whatsoever
and wheresoever situated, or any interest therein xxx" as well as to "act as my general
representative and agent, with full authority to buy, sell, negotiate and contract for me

and in my behalf."25 Taken together, these provisions constitute a clear and specific
mandate to Mauricio to sell the Properties. Even if it is called a "general power of
attorney," the specific provisions in the GPA are sufficient for the purposes of Article 1878.
These provisions in the GPA likewise indicate that Simona consented to the sale of the
Properties.
Whether the Sale of the Properties was Simulated
or is Void for Gross Inadequacy of Price
We point out that the law on legitime does not bar the disposition of property for valuable
consideration to descendants or compulsory heirs. In a sale, cash of equivalent value
replaces the property taken from the estate. 26 There is no diminution of the estate but
merely a substitution in values. Donations and other dispositions by gratuitous title, on
the other hand, must be included in the computation of legitimes. 27
Respondents, however, contend that the sale of the Properties was merely simulated. As
proof, respondents point to the consideration of P1,000 in the Deed of Sale, which
respondents claim is grossly inadequate compared to the actual value of the Properties.
Simulation of contract and gross inadequacy of price are distinct legal concepts, with
different effects. When the parties to an alleged contract do not really intend to be bound
by it, the contract is simulated and void. 28 A simulated or fictitious contract has no legal
effect whatsoever29 because there is no real agreement between the parties.
In contrast, a contract with inadequate consideration may nevertheless embody a true
agreement between the parties. A contract of sale is a consensual contract, which
becomes valid and binding upon the meeting of minds of the parties on the price and the
object of the sale.30 The concept of a simulated sale is thus incompatible with inadequacy
of price. When the parties agree on a price as the actual consideration, the sale is not
simulated despite the inadequacy of the price.31
Gross inadequacy of price by itself will not result in a void contract. Gross inadequacy of
price does not even affect the validity of a contract of sale, unless it signifies a defect in
the consent or that the parties actually intended a donation or some other
contract.32 Inadequacy of cause will not invalidate a contract unless there has been fraud,
mistake or undue influence. 33 In this case, respondents have not proved any of the
instances that would invalidate the Deed of Sale.
Respondents even failed to establish that the consideration paid by the vendees for the
Properties was grossly inadequate. As the trial court pointed out, the Deed of Sale
stipulates that, in addition to the payment of P1,000, the vendees should assume the
mortgage loans from PNB and DBP. The consideration for the sale of the Properties was
thus P1,000 in cash and the assumption of the P15,000 mortgage.

Respondents argue that P16,000 is still far below the actual value of the Properties. To
bolster their claim, respondents presented the following: (1) Tax Declarations No. A-0010090534 and A-001-0090635 for the year 1979, which placed the assessed value of the
Properties at P70,020 and their approximate market value atP244,290; and (2) a certified
copy of the Department of Finances Department Order No. 62-9736 dated 6 June 1997
and attached guidelines37 which established the zonal value of the properties along
Evangelista Street atP15,000 per square meter.
The subject Deed of Sale, however, was executed in 1970. The valuation of the
Properties in 1979 or 1997 is of little relevance to the issue of whether P16,000 was a
grossly inadequate price to pay for the Properties in 1970. Certainly, there is nothing
surprising in the sharp increase in the value of the Properties nine or twenty-seven years
after the sale, particularly when we consider that the Properties are located in the City of
Makati.
More pertinent are Tax Declarations No. 15812 38 and No. 15813,39 both issued in 1967,
presented by petitioners. These tax declarations placed the assessed value of both
Properties at P16,160. Compared to this, the price of P16,000 cannot be considered
grossly inadequate, much less so shocking to the conscience 40 as to justify the setting
aside of the Deed of Sale.
Respondents next contend that the vendees did not make the mortgage payments on the
Properties. Respondents allege that the rents paid by the tenants leasing portions of the
Properties were sufficient to cover the mortgage payments to DBP and PNB.
Again, this argument does not help respondents cause. Assuming that the vendees
failed to pay the full price stated in the Deed of Sale, such partial failure would not render
the sale void. In Buenaventura v. Court of Appeals,41 the Court held:
xxx If there is a meeting of the minds of the parties as to the price, the contract of sale
is valid, despite the manner of payment, or even the breach of that manner of
payment. xxx
It is not the act of payment of price that determines the validity of a contract of sale.
Payment of the price has nothing to do with the perfection of the contract. Payment of the
price goes into the performance of the contract. Failure to pay the consideration is
different from lack of consideration. The former results in a right to demand the fulfillment
or cancellation of the obligation under an existing valid contract while the latter prevents
the existence of a valid contract. (Emphasis supplied.)
Neither was it shown that the rentals from tenants were sufficient to cover the mortgage
payments. The parties to this case stipulated to only one tenant, a certain Federico M.
Puno, who supposedly leased a room on the Properties for P300 per month from 1992 to
1994.42 This is hardly significant, when we consider that the mortgage was fully paid by

1974. Indeed, the fact that the Properties were mortgaged to DBP and PNB indicates that
the conjugal partnership, or at least Mauricio, was short of funds.
Petitioners point out that they were duly employed and had the financial capacity to buy
the Properties in 1970. Respondents did not refute this. Petitioners presented 72
receipts43 showing the mortgage payments made to PNB and DBP, and the Release of
the Real Estate Mortgage44 ("Mortgage Release") dated 5 April 1974. True, these
documents all bear Mauricios name. However, this tends to support, rather than detract
from, petitioner-vendees explanation that they initially gave the mortgage payments
directly to Mauricio, and then later directly to the banks, without formally advising the
bank of the sale. The last 3 mortgage receipts and the Mortgage Release were all issued
in Mauricios name even after his death in 1970. Obviously, Mauricio could not have
secured the Mortgage Release and made these last payments.
Presumption of Regularity and Burden of Proof
The Deed of Sale was notarized and, as certified by the Regional Trial Court of Manila,
entered in the notarial books submitted to that court. As a document acknowledged
before a notary public, the Deed of Sale enjoys the presumption of regularity 45 and due
execution.46 Absent evidence that is clear, convincing and more than merely
preponderant, the presumption must be upheld.47
Respondents evidence in this case is not even preponderant. Respondents
allegations, testimony and bare denials cannot prevail over the documentary evidence
presented by petitioners. These documents the Deed of Sale and the GPA which are
both notarized, the receipts, the Mortgage Release and the 1967 tax declarations over
the Properties support petitioners account of the sale.
As the parties challenging the regularity of the Deed of Sale and alleging its simulation,
respondents had the burden of proving these charges. 48 Respondents failed to discharge
this burden. Consequentially, the Deed of Sale stands.
On the Partition of the Property
Nevertheless, this Court finds it proper to grant the partition of the Properties, subject to
modification.
Petitioners have consistently claimed that their father is one of the vendees who bought
the Properties. Vendees Elizabeth and Ofelia both testified that the "Roland A. Bravo" in
the Deed of Sale is their father,49 although their brother, Roland Bravo, Jr., made some of
the mortgage payments. Petitioners counsel, Atty. Paggao, made the same clarification
before the trial court.50

As Roland Bravo, Sr. is also the father of respondent Edward Bravo, Edward is thus a
compulsory heir of Roland Bravo, and entitled to a share, along with his brothers and
sisters, in his fathers portion of the Properties. In short, Edward and petitioners are coowners of the Properties.
As such, Edward can rightfully ask for the partition of the Properties. Any co-owner may
demand at any time the partition of the common property unless a co-owner has
repudiated the co-ownership. 51 This action for partition does not prescribe and is not
subject to laches.52
WHEREFORE, we REVERSE the Decision of 21 December 2001 of the Court of Appeals
in CA-G.R. CV No. 67794. We REINSTATE the Decision of 11 May 2000 of the Regional
Trial Court of Makati, Branch No. 139, in Civil Case No. 97-137, declaring VALID the
Deed of Sale with Assumption of Mortgage dated 28 October 1970, with the following
MODIFICATIONS:
1. We GRANT judicial partition of the subject Properties in the following manner:
a. Petitioner LILY ELIZABETH BRAVO-GUERRERO is entitled to one-third (1/3) of the
Properties;
b. Petitioner OFELIA BRAVO-QUIESTAS is entitled to one-third (1/3) of the Properties;
and
c. The remaining one-third (1/3) portion of the Properties should be divided equally
between the children of ROLAND BRAVO.
2. The other heirs of ROLAND BRAVO must reimburse ROLAND BRAVO, JR. for
whatever expenses the latter incurred in paying for and securing the release of the
mortgage on the Properties.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.

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

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

GUTIERREZ, JR., J.:

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

Signed
Mr. Primitive Siasat
Owner and Gen. Manager
On October 16, 1974, the first delivery of 7,933 flags was made by the United Flag
Industry. The next day, on October 17, 1974, the respondent's authority to represent the
United Flag Industry was revoked by petitioner Primitivo Siasat.
According to the findings of the courts below, Siasat, after receiving the payment of
P469,980.00 on October 23, 1974 for the first delivery, tendered the amount of
P23,900.00 or five percent (5%) of the amount received, to the respondent as payment of
her commission. The latter allegedly protested. She refused to accept the said amount
insisting on the 30% commission agreed upon. The respondent was prevailed upon to
accept the same, however, because of the assurance of the petitioners that they would
pay the commission in full after they delivered the other half of the order. The respondent
states that she later on learned that petitioner Siasat had already received payment for
the second delivery of 7,833 flags. When she confronted the petitioners, they vehemently
denied receipt of the payment, at the same time claiming that the respondent had no
participation whatsoever with regard to the second delivery of flags and that the agency
had already been revoked.
The respondent originally filed a complaint with the Complaints and Investigation Office in
Malacaang but when nothing came of the complaint, she filed an action in the Court of
First Instance of Manila to recover the following commissions: 25%, as balance on the
first delivery and 30%, on the second delivery.
The trial court decided in favor of the respondent. The dispositive portion of the decision
reads as follows:
WHEREFORE, judgment is hereby rendered sentencing Primitivo Siasat to pay to the
plaintiff the sum of P281,988.00, minus the sum P23,900.00, with legal interest from the
date of this decision, and ordering the defendants to pay jointly and solidarily the sum of
P25,000.00 as moral damages, and P25,000.00 as attorney's fees, also with legal
interest from the date of this decision, and the costs.
The decision was affirmed in toto by the Intermediate Appellate Court. After their motion
for reconsideration was denied, the petitioners went to this Court on a petition for review
on August 6, 1984.
In assailing the appellate court's decision, the petition tenders the following arguments:
first, the authorization making the respondent the petitioner's representative merely
states that she could deal with any entity in connection with the marketing of their
products for a commission of 30%. There was no specific authorization for the sale of
15,666 Philippine flags to the Department; second, there were two transactions involved

evidenced by the separate purchase orders and separate delivery receipts, Exhibit 6-C
for the purchase and deliver on October 16, 1974, and Exhibits 7 to 7-C, for the purchase
and delivery on November 6, 1974. The revocation of agency effected by the parties with
mutual consent on October 17, 1974, therefore, forecloses the respondent's claim of 30%
commission on the second transaction; and last, there was no basis for the granting of
attorney's fees and moral damages because there was no showing of bad faith on the
part of the petitioner. It was respondent who showed bad faith in denying having received
her commission on the first delivery. The petitioner's counterclaim, therefore, should have
been granted.
This petition was initially dismissed for lack of merit in a minute resolution.On a motion for
reconsideration, however,this Court give due course to the petition on November 14,
1984.
After a careful review of the records, we are constrained to sustain with some
modifications the decision of the appellate court.
We find respondent's argument regarding respondent's incapacity to represent them in
the transaction with the Department untenable. There are several kinds of agents. To
quote a commentator on the matter:
An agent may be (1) universal: (2) general, or (3) special. A universal; agent is one
authorized to do all acts for his principal which can lawfully be delegated to an agent. So
far as such a condition is possible, such an agent may be said to have universal
authority. (Mec. Sec. 58).
A general agent is one authorized to do all acts pertaining to a business of a certain kind
or at a particular place, or all acts pertaining to a business of a particular class or series.
He has usually authority either expressly conferred in general terms or in effect made
general by the usages, customs or nature of the business which he is authorized to
transact.
An agent, therefore, who is empowered to transact all the business of his principal of a
particular kind or in a particular place, would, for this reason, be ordinarily deemed a
general agent. (Mec Sec. ,30).
A special agent is one authorized to do some particular act or to act upon some particular
occasion. lie acts usually in accordance with specific instructions or under limitations
necessarily implied from the nature of the act to be done. (Mec. Sec. 61) (Padilla, Civil
Law The Civil Code Annotated, Vol. VI, 1969 Edition, p. 204).
One does not have to undertake a close scrutiny of the document embodying the
agreement between the petitioners and the respondent to deduce that the 'latter was
instituted as a general agent. Indeed, it can easily be seen by the way general words

were employed in the agreement that no restrictions were intended as to the manner the
agency was to be carried out or in the place where it was to be executed. The power
granted to the respondent was so broad that it practically covers the negotiations leading
to, and the execution of, a contract of sale of petitioners' merchandise with any entity or
organization.
There is no merit in petitioners' allegations that the contract of agency between the
parties was entered into under fraudulent representation because respondent "would not
disclose the agency with which she was supposed to transact and made the petitioner
believe that she would be dealing with The Visayas", and that "the petitioner had known
of the transactions and/or project for the said purchase of the Philippine flags by the
Department of Education and Culture and precisely it was the one being followed up also
by the petitioner."
If the circumstances were as claimed by the petitioners, they would have exerted efforts
to protect their interests by limiting the respondent's authority. There was nothing to
prevent the petitioners from stating in the contract of agency that the respondent could
represent them only in the Visayas. Or to state that the Department of Education and
Culture and the Department of National Defense, which alone would need a million pesos
worth of flags, are outside the scope of the agency. As the trial court opined, it is
incredible that they could be so careless after being in the business for fifteen years.
A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised Rules of
Court states that "when the terms of an agreement have been reduced to writing, it is to
be considered as containing all such terms, and, therefore, there can be between the
parties and their successors-in-interest, no evidence of the terms of the agreement other
than the contents of the writing", except in cases specifically mentioned in the same rule.
Petitioners have failed to show that their agreement falls under any of these exceptions.
The respondent was given ample authority to transact with the Department in behalf of
the petitioners. Equally without merit is the petitioners' proposition that the transaction
involved two separate contracts because there were two purchase orders and two
deliveries. The petitioners' evidence is overcome by other pieces of evidence proving that
there was only one transaction.
The indorsement of then Assistant Executive Secretary Roberto Reyes to the Budget
Commission on September 3, 1974 (Exhibit "C") attests to the fact that out of the total
budget of the Department for the fiscal year 1975, "P1,000,000.00 is for the purchase of
national flags." This is also reflected in the Financial and Work Plan Request for
Allotment (Exhibit "F") submitted by Secretary Juan Manuel for fiscal year 1975 which
however, divided the allocation and release of the funds into three, corresponding to the
second, third, and fourth quarters of the said year. Later correspondence between the
Department and the Budget Commission (Exhibits "D" and "E") show that the first
allotment of P500.000.00 was released during the second quarter. However, due to the
necessity of furnishing all of the public schools in the country with the Philippine flag,

Secretary Manuel requested for the immediate release of the programmed allotments
intended for the third and fourth quarters. These circumstances explain why two
purchase orders and two deliveries had to be made on one transaction.
The petitioners' evidence does not necessarily prove that there were two separate
transactions. Exhibit "6" is a general indorsement made by Secretary Manuel for the
purchase of the national flags for public schools. It contains no reference to the number
of flags to be ordered or the amount of funds to be released. Exhibit "7" is a letter request
for a "similar authority" to purchase flags from the United Flag Industry. This was,
however, written by Dr. Narciso Albarracin who was appointed Acting Secretary of the
Department after Secretary Manuel's tenure, and who may not have known the real
nature of the transaction.
If the contracts were separate and distinct from one another, the whole or at least a
substantial part of the government's supply procurement process would have been
repeated. In this case, what were issued were mere indorsements for the release of
funds and authorization for the next purchase.
Since only one transaction was involved, we deny the petitioners' contention that
respondent Nacianceno is not entitled to the stipulated commission on the second
delivery because of the revocation of the agency effected after the first delivery. The
revocation of agency could not prevent the respondent from earning her commission
because as the trial court opined, it came too late, the contract of sale having been
already perfected and partly executed.
In Macondray & Co. v. Sellner (33 Phil. 370, 377), a case analogous to this one in
principle, this Court held:
We do not mean to question the general doctrine as to the power of a principal to revoke
the authority of his agent at will, in the absence of a contract fixing the duration of the
agency (subject, however, to some well defined exceptions). Our ruling is that at the time
fixed by the manager of the plaintiff company for the termination of the negotiations, the
defendant real estate agent had already earned the commissions agreed upon, and
could not be deprived thereof by the arbitrary action of the plaintiff company in declining
to execute the contract of sale for some reason personal to itself.
The principal cannot deprive his agent of the commission agreed upon by cancelling the
agency and, thereafter, dealing directly with the buyer. (Infante v. Cunanan, 93 Phil. 691).
The appellate courts citation of its previous ruling in Heimbrod et al. v. Ledesma (C.A. 49
O.G. 1507) is correct:

The appellee is entitled to recovery. No citation is necessary to show that the general law
of contracts the equitable principle of estoppel. and the expense of another, uphold
payment of compensation for services rendered.
There is merit, however, in the petitioners' contention that the agent's commission on the
first delivery was fully paid. The evidence does not sustain the respondent's claim that
the petitioners paid her only 5% and that their right to collect another 25% commission on
the first delivery must be upheld.
When respondent Nacianceno asked the Malacanang Complaints and Investigation
Office to help her collect her commission, her statement under oath referred exclusively
to the 30% commission on the second delivery. The statement was emphatic that "now"
her demand was for the 30% commission on the (second) release of P469,980.00. The
demand letter of the respondent's lawyer dated November 13, 1984 asked petitioner
Siasat only for the 30% commission due from the second delivery. The fact that the
respondent demanded only the commission on the second delivery without reference to
the alleged unpaid balance which was only slightly less than the amount claimed can
only mean that the commission on the first delivery was already fully paid, Considering
the sizeable sum involved, such an omission is too glaringly remiss to be regarded as an
oversight.
Moreover, the respondent's authorization letter (Exhibit "5") bears her signature with the
handwritten words "Fully Paid", inscribed above it.
The respondent contested her signature as a forgery, Handwriting experts from two
government agencies testified on the matter. The reason given by the trial court in ruling
for the respondent is too flimsy to warrant a finding of forgery.
The court stated that in thirteen documents presented as exhibits, the private respondent
signed her name as "Tessie Nacianceno" while in this particular instance, she signed as
"T. Nacianceno."
The stated basis is inadequate to sustain the respondent's allegation of forgery. A
variance in the manner the respondent signed her name can not be considered as
conclusive proof that the questioned signature is a forgery. The mere fact that the
respondent signed thirteen documents using her full name does not rule out the
possibility of her having signed the notation "Fully Paid", with her initial for the given
came and the surname written in full. What she was signing was a mere
acknowledgment.
This leaves the expert testimony as the sole basis for the verdict of forgery.
In support of their allegation of full payment as evidenced by the signed authorization
letter (Exhibit "5-A"), the petitioners presented as witness Mr. Francisco Cruz. Jr., a

senior document examiner of the Philippine Constabulary Crime laboratory. In rebuttal,

the respondent presented Mr. Arcadio Ramos, a junior document examiner of the
National Bureau of Investigation.
While the experts testified in a civil case, the principles in criminal cases involving forgery
are applicable. Forgery cannot be presumed. It must be proved.
In Borromeo v. Court of Appeals (131 SCRA 318, 326) we held that:
xxx xxx xxx
... Where the evidence, as here, gives rise to two probabilities, one consistent with the
defendant's innocence and another indicative of his guilt, that which is favorable to the
accused should be considered. The constitutional presumption of innocence continues
until overthrown by proof of guilt beyond reasonable doubt, which requires moral
certainty which convinces and satisfies the reason and conscience of those who are to
act upon it. (People v. Clores, et al., 125 SCRA 67; People v. Bautista, 81 Phil. 78).
We ruled in another case that where the supposed expert's testimony would constitute
the sole ground for conviction and there is equally convincing expert testimony to the
contrary, the constitutional presumption of innocence must prevail. (Lorenzo Ga. Cesar v.
Hon. Sandiganbayan and People of the Philippines, 134 SCRA 105). In the present case,
the circumstances earlier mentioned taken with the testimony of the PC senior document
examiner lead us to rule against forgery.
We also rule against the respondent's allegation that the petitioners acted in bad faith
when they revoked the agency given to the respondent.
Fraud and bad faith are matters not to be presumed but matters to be alleged with
sufficient facts. To support a judgment for damages, facts which justify the inference of a
lack or absence of good faith must be alleged and proven. (Bacolod-Murcia Milling Co.,
Inc. vs. First Farmers Milling Co., Inc., Etc., 103 SCRA 436).
There is no evidence on record from which to conclude that the revocation of the agency
was deliberately effected by the petitioners to avoid payment of the respondent's
commission. What appears before us is only the petitioner's use in court of such a factual
allegation as a defense against the respondent's claim. This alone does not per se make
the petitioners guilty of bad faith for that defense should have been fully litigated.
Moral damages cannot be awarded in the absence of a wrongful act or omission or of
fraud or bad faith. (R & B Surety & Insurance Co., Inc. vs. Intermediate Appellate Court,
129 SCRA 736).
We therefore, rule that the award of P25,000.00 as moral damages is without basis.

The additional award of P25,000.00 damages by way of attorney's fees, was given by the
courts below on the basis of Article 2208, Paragraph 2, of the Civil Code, which provides:
"When the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interests;" attorney's fees may be awarded as
damages. (Pirovano et al. v. De la Rama Steamship Co., 96 Phil. 335).
The underlying circumstances of this case lead us to rule out any award of attorney's
fees. For one thing, the respondent did not come to court with completely clean hands.
For another, the petitioners apparently believed they could legally revoke the agency in
the manner they did and deal directly with education officials handling the purchase of
Philippine flags. They had reason to sincerely believe they did not have to pay a
commission for the second delivery of flags.
We cannot close this case without commenting adversely on the inexplicably strange
procurement policies of the Department of Education and Culture in its purchase of
Philippine flags. There is no reason why a shocking 30% of the taxpayers' money should
go to an agent or facilitator who had no flags to sell and whose only work was to secure
and handcarry the indorsements of education and budget officials. There are only a few
manufacturers of flags in our country with the petitioners claiming to have supplied flags
for our public schools on earlier occasions. If public bidding was deemed unnecessary,
the Department should have negotiated directly with flag manufacturers. Considering the
sad plight of underpaid and overworked classroom teachers whose pitiful salaries and
allowances cannot sometimes be paid on time, a P300,000.00 fee for a P1,000,000.00
purchase of flags is not only clearly unnecessary but a scandalous waste of public funds
as well.
WHEREFORE, the decision of the respondent court is hereby MODIFIED. The
petitioners are ordered to pay the respondent the amount of ONE HUNDRED FOURTY
THOUSAND NINE HUNDRED AND NINETY FOUR PESOS (P140,994.00) as her
commission on the second delivery of flags with legal interest from the date of the trial
court's decision. No pronouncement as to costs.
SO ORDERED.

G.R. No. L-57339 December 29, 1983

AIR FRANCE, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA A. GANA,
RAMON GANA, MANUEL GANA, MARIA TERESA GANA, ROBERTO GANA, JAIME
JAVIER GANA, CLOTILDE VDA. DE AREVALO, and EMILY SAN JUAN, respondents.
Benjamin S. Valte for petitioner.
Napoleon Garcia for private respondents.

MELENCIO-HERRERA, J.:
In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision of
then respondent Court of Appeals 1 promulgated on 15 December 1980 in CA-G.R. No.
58164-R, entitled "Jose G. Gana, et al. vs. Sociedad Nacionale Air France", which reversed
the Trial Court's judgment dismissing the Complaint of private respondents for damages
arising from breach of contract of carriage, and awarding instead P90,000.00 as moral
damages.
Sometime in February, 1970, the late Jose G. Gana and his family, numbering nine (the
GANAS), purchased from AIR FRANCE through Imperial Travels, Incorporated, a duly
authorized travel agent, nine (9) "open-dated" air passage tickets for the
Manila/Osaka/Tokyo/Manila route. The GANAS paid a total of US$2,528.85 for their
economy and first class fares. Said tickets were bought at the then prevailing exchange
rate of P3.90 per US$1.00. The GANAS also paid travel taxes of P100.00 for each
passenger.
On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned tickets with
other tickets for the same route. At this time, the GANAS were booked for the
Manila/Osaka segment on AIR FRANCE Flight 184 for 8 May 1970, and for the
Tokyo/Manila return trip on AIR FRANCE Flight 187 on 22 May 1970. The aforesaid
tickets were valid until 8 May 1971, the date written under the printed words "Non
valuable apres de (meaning, "not valid after the").
The GANAS did not depart on 8 May 1970.
Sometime in January, 1971, Jose Gana sought the assistance of Teresita Manucdoc, a
Secretary of the Sta. Clara Lumber Company where Jose Gana was the Director and
Treasurer, for the extension of the validity of their tickets, which were due to expire on 8

May 1971. Teresita enlisted the help of Lee Ella Manager of the Philippine Travel Bureau,
who used to handle travel arrangements for the personnel of the Sta. Clara Lumber
Company. Ella sent the tickets to Cesar Rillo, Office Manager of AIR FRANCE. The
tickets were returned to Ella who was informed that extension was not possible unless
the fare differentials resulting from the increase in fares triggered by an increase of the
exchange rate of the US dollar to the Philippine peso and the increased travel tax were
first paid. Ella then returned the tickets to Teresita and informed her of the impossibility of
extension.
In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one day
before the expiry date. In the morning of the very day of their scheduled departure on the
first leg of their trip, Teresita requested travel agent Ella to arrange the revalidation of the
tickets. Ella gave the same negative answer and warned her that although the tickets
could be used by the GANAS if they left on 7 May 1971, the tickets would no longer be
valid for the rest of their trip because the tickets would then have expired on 8 May 1971.
Teresita replied that it will be up to the GANAS to make the arrangements. With that
assurance, Ella on his own, attached to the tickets validating stickers for the Osaka/Tokyo
flight, one a JAL. sticker and the other an SAS (Scandinavian Airways System) sticker.
The SAS sticker indicates thereon that it was "Reevaluated by: the Philippine Travel
Bureau, Branch No. 2" (as shown by a circular rubber stamp) and signed "Ador", and the
date is handwritten in the center of the circle. Then appear under printed headings the
notations: JL. 108 (Flight), 16 May (Date), 1040 (Time), OK (status). Apparently, Ella
made no more attempt to contact AIR FRANCE as there was no more time.
Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7
May 1971 on board AIR FRANCE Flight 184 for Osaka, Japan. There is no question with
respect to this leg of the trip.
However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to honor the
tickets because of their expiration, and the GANAS had to purchase new tickets. They
encountered the same difficulty with respect to their return trip to Manila as AIR FRANCE
also refused to honor their tickets. They were able to return only after pre-payment in
Manila, through their relatives, of the readjusted rates. They finally flew back to Manila on
separate Air France Frights on 19 May 1971 for Jose Gana and 26 May 1971 for the rest
of the family.
On 25 August 1971, the GANAS commenced before the then Court of First Instance of
Manila, Branch III, Civil Case No. 84111 for damages arising from breach of contract of
carriage.
AIR FRANCE traversed the material allegations of the Complaint and alleged that the
GANAS brought upon themselves the predicament they found themselves in and
assumed the consequential risks; that travel agent Ella's affixing of validating stickers on
the tickets without the knowledge and consent of AIR FRANCE, violated airline tariff rules

and regulations and was beyond the scope of his authority as a travel agent; and that AIR
FRANCE was not guilty of any fraudulent conduct or bad faith.
On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and Additional
Stipulations of Fact as wen as on the documentary and testimonial evidence.
The GANAS appealed to respondent Appellate Court. During the pendency of the appeal,
Jose Gana, the principal plaintiff, died.
On 15 December 1980, respondent Appellate Court set aside and reversed the Trial
Court's judgment in a Decision, which decreed:
WHEREFORE, the decision appealed from is set aside. Air France is hereby ordered to
pay appellants moral damages in the total sum of NINETY THOUSAND PESOS
(P90,000.00) plus costs.
SO ORDERED. 2
Reconsideration sought by AIR FRANCE was denied, hence, petitioner's recourse before
this instance, to which we gave due course.
The crucial issue is whether or not, under the environmental milieu the GANAS have
made out a case for breach of contract of carriage entitling them to an award of
damages.
We are constrained to reverse respondent Appellate Court's affirmative ruling thereon.
Pursuant to tariff rules and regulations of the International Air Transportation Association
(IATA), included in paragraphs 9, 10, and 11 of the Stipulations of Fact between the
parties in the Trial Court, dated 31 March 1973, an airplane ticket is valid for one year.
"The passenger must undertake the final portion of his journey by departing from the last
point at which he has made a voluntary stop before the expiry of this limit (parag.
3.1.2. ) ... That is the time allowed a passenger to begin and to complete his trip (parags.
3.2 and 3.3.). ... A ticket can no longer be used for travel if its validity has expired before
the passenger completes his trip (parag. 3.5.1.) ... To complete the trip, the passenger
must purchase a new ticket for the remaining portion of the journey" (ibid.) 3
From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for breach of
contract when it dishonored the tickets of the GANAS after 8 May 1971 since those
tickets expired on said date; nor when it required the GANAS to buy new tickets or have
their tickets re-issued for the Tokyo/Manila segment of their trip. Neither can it be said
that, when upon sale of the new tickets, it imposed additional charges representing fare
differentials, it was motivated by self-interest or unjust enrichment considering that an
increase of fares took effect, as authorized by the Civil Aeronautics Board (CAB) in April,
1971. This procedure is well in accord with the IATA tariff rules which provide:

6. TARIFF RULES
7. APPLICABLE FARE ON THE DATE OF DEPARTURE
3.1 General Rule.
All journeys must be charged for at the fare (or charge) in effect on the date on which
transportation commences from the point of origin. Any ticket sold prior to a change of
fare or charge (increase or decrease) occurring between the date of commencement of
the journey, is subject to the above general rule and must be adjusted accordingly. A new
ticket must be issued and the difference is to be collected or refunded as the case may
be. No adjustment is necessary if the increase or decrease in fare (or charge) occurs
when the journey is already commenced. 4
The GANAS cannot defend by contending lack of knowledge of those rules since the
evidence bears out that Teresita, who handled travel arrangements for the GANAS, was
duly informed by travel agent Ella of the advice of Reno, the Office Manager of Air
France, that the tickets in question could not be extended beyond the period of their
validity without paying the fare differentials and additional travel taxes brought about by
the increased fare rate and travel taxes.
ATTY. VALTE
Q What did you tell Mrs. Manucdoc, in turn after being told this by Mr. Rillo?
A I told her, because that is the reason why they accepted again the tickets when we
returned the tickets spin, that they could not be extended. They could be extended by
paying the additional fare, additional tax and additional exchange during that time.
Q You said so to Mrs. Manucdoc?
A Yes, sir." ... 5
The ruling relied on by respondent Appellate Court, therefore, in KLM. vs. Court of
Appeals, 65 SCRA 237 (1975), holding that it would be unfair to charge respondents
therein with automatic knowledge or notice of conditions in contracts of adhesion, is
inapplicable. To all legal intents and purposes, Teresita was the agent of the GANAS and
notice to her of the rejection of the request for extension of the validity of the tickets was
notice to the GANAS, her principals.
The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing reservations
for JAL. Flight 108 for 16 May 1971, without clearing the same with AIR FRANCE
allegedly because of the imminent departure of the GANAS on the same day so that he
could not get in touch with Air France 6 was certainly in contravention of IATA rules although

as he had explained, he did so upon Teresita's assurance that for the onward flight from
Osaka and return, the GANAS would make other arrangements.

Q Referring you to page 33 of the transcript of the last session, I had this question which
reads as follows: 'But did she say anything to you when you said that the tickets were
about to expire?' Your answer was: 'I am the one who asked her. At that time I told her if
the tickets being used ... I was telling her what about their bookings on the return. What
about their travel on the return? She told me it is up for the Ganas to make the
arrangement.' May I know from you what did you mean by this testimony of yours?
A That was on the day when they were asking me on May 7, 1971 when they were
checking the tickets. I told Mrs. Manucdoc that I was going to get the tickets. I asked her
what about the tickets onward from the return from Tokyo, and her answer was it is up for
the Ganas to make the arrangement, because I told her that they could leave on the
seventh, but they could take care of that when they arrived in Osaka.
Q What do you mean?
A The Ganas will make the arrangement from Osaka, Tokyo and Manila.
Q What arrangement?
A The arrangement for the airline because the tickets would expire on May 7, and they
insisted on leaving. I asked Mrs. Manucdoc what about the return onward portion
because they would be travelling to Osaka, and her answer was, it is up to for the Ganas
to make the arrangement.
Q Exactly what were the words of Mrs. Manucdoc when you told her that? If you can
remember, what were her exact words?
A Her words only, it is up for the Ganas to make the arrangement.
Q This was in Tagalog or in English?
A I think it was in English. ... 7
The circumstances that AIR FRANCE personnel at the ticket counter in the airport
allowed the GANAS to leave is not tantamount to an implied ratification of travel agent
Ella's irregular actuations. It should be recalled that the GANAS left in Manila the day
before the expiry date of their tickets and that "other arrangements" were to be made with
respect to the remaining segments. Besides, the validating stickers that Ella affixed on
his own merely reflect the status of reservations on the specified flight and could not
legally serve to extend the validity of a ticket or revive an expired one.

The conclusion is inevitable that the GANAS brought upon themselves the predicament
they were in for having insisted on using tickets that were due to expire in an effort,
perhaps, to beat the deadline and in the thought that by commencing the trip the day
before the expiry date, they could complete the trip even thereafter. It should be recalled
that AIR FRANCE was even unaware of the validating SAS and JAL. stickers that Ella
had affixed spuriously. Consequently, Japan Air Lines and AIR FRANCE merely acted
within their contractual rights when they dishonored the tickets on the remaining
segments of the trip and when AIR FRANCE demanded payment of the adjusted fare
rates and travel taxes for the Tokyo/Manila flight.
WHEREFORE, the judgment under review is hereby reversed and set aside, and the
Amended Complaint filed by private respondents hereby dismissed.
No costs.
SO ORDERED.
Teehankee (Chairman), Plana, Relova and Gutierrez, Jr., JJ., concur.

G.R. No. 114311 November 29, 1996

COSMIC LUMBER CORPORATION, petitioner,
vs.
COURT OF APPEAL and ISIDRO PEREZ, respondents.

BELLOSILLO, J.:
COSMIC LUMBER CORPORATION through its General Manager executed on 28
January 1985 a Special Power of Attorney appointing Paz G. Villamil-Estrada as
attorney-in-fact
. . . to initiate, institute and file any court action for the ejectment of third persons and/or
squatters of the entire lot 9127 and 443 and covered by TCT Nos. 37648 and 37649, for
the said squatters to remove their houses and vacate the premises in order that the
corporation may take material possession of the entire lot, and for this purpose, to appear
at the pre-trial conference and enter into any stipulation of facts and/or compromise
agreement so far as it shall protect the rights and interest of the corporation in the
aforementioned lots. 1
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of attorney, instituted
an action for the ejectment of private respondent Isidro Perez and recover the
possession of a portion of Lot No. 443 before the Regional Trial Court of Dagupan,
docketed as Civil Case No. D-7750. 2
On 25 November 1985 Villamil-Estrada entered into a Compromise Agreement with
respondent Perez, the terms of which follow:
1. That as per relocation sketch plan dated June 5, 1985 prepared by Engineer Rodolfo
dela Cruz the area at present occupied by defendant wherein his house is located is 333
square meters on the easternmost part of lot 443 and which portion has been occupied
by defendant for several years now;
2. That to buy peace said defendant pays unto the plaintiff through herein attorney-in-fact
the sum of P26,640.00 computed at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and possession of the defendant by virtue
of this compromise agreement over said portion of 333 square m. of lot 443 which portion
will be located on the easternmost part as indicated in the sketch as annex A;

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

shouldered by the defendant. 3
On 27 November 1985 the "Compromise Agreement" was approved by the trial court and
judgment was rendered in accordance therewith. 4
Although the decision became final and executory it was not executed within the 5-year
period from date of its finality allegedly due to the failure of petitioner to produce the
owner's duplicate copy of Title No. 37649 needed to segregate from Lot No. 443 the
portion sold by the attorney-in-fact, Paz G. Villamil-Estrada, to private respondent under
the compromise agreement. Thus on 25 January 1993 respondent filed a complaint to
revive the judgment, docketed as Civil Case No. D-10459. 5
Petitioner asserts that it was only when the summons in Civil Case No. D-10459 for the
revival of judgment was served upon it that it came to know of the compromise
agreement entered into between Paz G. Villamil-Estrada and respondent Isidro Perez
upon which the trial court based its decision of 26 July 1993 in Civil Case No. D-7750.
Forthwith, upon learning of the fraudulent transaction, petitioner sought annulment of the
decision of the trial court before respondent Court of Appeals on the ground that the
compromise agreement was void because: (a) the attorney-in-fact did not have the
authority to dispose of, sell, encumber or divest the plaintiff of its ownership over its real
property or any portion thereof; (b) the authority of the attorney-in-fact was confined to
the institution and filing of an ejectment case against third persons/squatters on the
property of the plaintiff, and to cause their eviction therefrom; (c) while the special power
of attorney made mention of an authority to enter into a compromise agreement, such
authority was in connection with, and limited to, the eviction of third persons/squatters
thereat, in order that "the corporation may take material possession of the entire lot;" (d)
the amount of P26,640.00 alluded to as alleged consideration of said agreement was
never received by the plaintiff; (e) the private defendant acted in bad faith in. the
execution of said agreement knowing fully well the want of authority of the attorney-infact to sell, encumber or dispose of the real property of plaintiff; and, (f) the disposal of a
corporate property indispensably requires a Board Resolution of its Directors, a fact
which is wanting in said Civil Case No. D-7750, and the General Manager is not the
proper officer to encumber a corporate property. 6
On 29 October 1993 respondent court dismissed the complaint on the basis of its finding
that not one of the grounds for annulment, namely, lack of jurisdiction, fraud or illegality
was shown to exist. 7 It also denied the motion for reconsideration filed by petitioner,
discoursing that the alleged nullity of the compromise judgment on the ground that petitioner's
attorney-in-fact Villamil-Estrada was not authorized to sell the subject propety may be raised
as a defense in the execution of the compromise judgment as it does not bind petitioner, but
not as a ground for annulment of judgment because it does not affect the jurisdiction of the
trial court over the action nor does it amount to extrinsic fraud. 8

Petitioner challenges this verdict. It argues that the decision of the trial court is void
because the compromise agreement upon which it was based is void. Attorney-in-fact
Villamil-Estrada did not possess the authority to sell or was she armed with a Board
Resolution authorizing the sale of its property. She was merely empowered to enter into a
compromise agreement in the recovery suit she was authorized to file against persons
squatting on Lot No. 443, such authority being expressly confined to the "ejectment of
third persons or squatters of . . . lot . . . (No.) 443 . . . for the said squatters to remove
their houses and vacate the premises in order that the corporation may take material
possession of the entire lot . . ."
We agree with petitioner. The authority granted Villamil-Estrada under the special power
of attorney was explicit and exclusionary: for her to institute any action in court to eject all
persons found on Lots Nos. 9127 and 443 so that petitioner could take material
possession thereof, and for this purpose, to appear at the pre-trial and enter into any
stipulation of facts and/or compromise agreement but only insofar as this was protective
of the rights and interests of petitioner in the property. Nowhere in this authorization was
Villamil-Estrada granted expressly or impliedly any power to sell the subject property nor
a portion thereof. Neither can a conferment of the power to sell be validly inferred from
the specific authority "to enter into a compromise agreement" because of the explicit
limitation fixed by the grantor that the compromise entered into shall only be "so far as it
shall protect the rights and interest of the corporation in the aforementioned lots." In the
context of the specific investiture of powers to Villamil-Estrada, alienation by sale of an
immovable certainly cannot be deemed protective of the right of petitioner to physically
possess the same, more so when the land was being sold for a price of P80.00 per
square meter, very much less than its assessed value of P250.00 per square meter, and
considering further that petitioner never received the proceeds of the sale.
When the sale of a piece of land or any interest thereon is through an agent, the authority
of the latter shall be in writing; otherwise, the sale shall be void. 9 Thus the authority of an
agent to execute a contract for the sale of real estate must be conferred in writing and must
give him specific authority, either to conduct the general business of the principal or to
execute a binding contract containing terms and conditions which are in the contract he did
execute. 10 A special power of attorney is necessary to enter into any contract by which the
ownership of an immovable is transmitted or acquired either gratuitously or for a valuable
consideration. 11 The express mandate required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that expressly mentions a sale or that includes
a sale as a necessary ingredient of the act mentioned. 12 For the principal to confer the right
upon an agent to sell real estate, a power of attorney must so express the powers of the
agent in clear and unmistakable language. When there is any reasonable doubt that the
language so used conveys such power, no such construction shall be given the document. 13
It is therefore clear that by selling to respondent Perez a portion of petitioner's land
through a compromise agreement, Villamil-Estrada acted without or in obvious authority.
The sale ipso jure is consequently void. So is the compromise agreement. This being the

case, the judgment based thereon is necessarily void. Antipodal to the opinion expressed
by respondent court in resolving petitioner's motion for reconsideration, the nullity of the
settlement between Villamil-Estrada and Perez impaired the jurisdiction of the trial court
to render its decision based on the compromise agreement. In Alviar v. Court of First
Instance of La Union, 14the Court held
. . . this court does not hesitate to hold that the judgment in question is null and void ab
initio. It is not binding upon and cannot be executed against the petitioners. It is evident
that the compromise upon which the judgment was based was not subscribed by them . .
. Neither could Attorney Ortega bind them validly in the compromise because he had no
special authority . . .
As the judgment in question is null and void ab initio, it is evident that the court acquired
no jurisdiction to render it, much less to order the execution thereof . . .
. . . A judgment, which is null and void ab initio, rendered by a court without jurisdiction to
do so, is without legal efficacy and may properly be impugned in any proceeding by the
party against whom it is sought to be enforced . . .
This ruling was adopted in Jacinto v. Montesa, 15 by Mr. Justice J. B.L. Reyes, a muchrespected authority on civil law, where the Court declared that a judgment based on a
compromise entered into by an attorney without specific authority from the client is void. Such
judgment may be impugned and its execution restrained in any proceeding by the party
against whom it is sought to be enforced. The Court also observed that a defendant against
whom a judgment based on a compromise is sought to be enforced may file a petition
for certiorari to quash the execution. He could not move to have the compromise set aside
and then appeal from the order of denial since he was not a party to the compromise. Thus it
would appear that the obiter of the appellate court that the alleged nullity of the compromise
agreement should be raised as a defense against its enforcement is not legally feasible.
Petitioner could not be in a position to question the compromise agreement in the action to
revive the compromise judgment since it was never privy to such agreement. Villamil-Estrada
who signed the compromise agreement may have been the attorney-in-fact but she could not
legally bind petitioner thereto as she was not entrusted with a special authority to sell the
land, as required in Art. 1878, par. (5), of the Civil Code.
Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the Court of
Appeals to annul and set aside judgments of Regional Trial Courts. 16 "Thus, the
Intermediate Appellant Court (now Court of Appeals) shall exercise . . . (2) Exclusive original
jurisdiction over action for annulment of judgments of the Regional Trial Courts . . ." However,
certain requisites must first be established before a final and executory judgment can be the
subject of an action for annulment. It must either be void for want of jurisdiction or for lack of
due process of law, or it has been obtained by fraud. 17

Conformably with law and the above-cited authorities, the petition to annul the decision of
the trial court in Civil Case No. D-7750 before the Court of Appeals was proper.
Emanating as it did from a void compromise agreement, the trial court had no jurisdiction
to render a judgment based thereon. 18
It would also appear, and quite contrary to the finding of the appellate court, that the
highly reprehensible conduct of attorney-in-fact Villamil-Estrada in Civil Case No. 7750
constituted an extrinsic or collateral fraud by reason of which the judgment rendered
thereon should have been struck down. Not all the legal semantics in the world can
becloud the unassailable fact that petitioner was deceived and betrayed by its attorneyin-fact, Villamil-Estrada deliberately concealed from petitioner, her principal, that a
compromise agreement had been forged with the end-result that a portion of petitioner's
property was sold to the deforciant, literally for a song. Thus completely kept unaware of
its agent's artifice, petitioner was not accorded even a fighting chance to repudiate the
settlement so much so that the judgment based thereon became final and executory.
For sure, the Court of Appeals restricted the concept of fraudulent acts within too narrow
limits. Fraud may assume different shapes and be committed in as many different ways
and here lies the danger of attempting to define fraud. For man in his ingenuity and fertile
imagination will always contrive new schemes to fool the unwary.
There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where it is
one the effect of which prevents a party from hearing a trial, or real contest, or from
presenting all of his case to the court, or where it operates upon matters, not pertaining to
the judgment itself, but to the manner in which it was procured so that there is not a fair
submission of the controversy. In other words, extrinsic fraud refers to any fraudulent act
of the prevailing party in the litigation which is committed outside of the trial of the case,
whereby the defeated party has been prevented from exhibiting fully his side of the case
by fraud or deception practiced on him by his opponent. 19 Fraud is extrinsic where the
unsuccessful party has been prevented from exhibiting fully his case, by fraud or deception
practiced on him by his opponent, as by keeping him away from court, a false promise of a
compromise; or where the defendant never had knowledge of the suit, being kept in
ignorance by the acts of the plaintiff; or where an attorney fraudulently or without authority
connives at his defeat; these and similar cases which show that there has never been a real
contest in the trial or hearing of the case are reasons for which a new suit may be sustained
to set aside and annul the former judgment and open the case for a new and fair hearing. 20
It may be argued that petitioner knew of the compromise agreement since the principal is
chargeable with and bound by the knowledge of or notice to his agent received while the
agent was acting as such. But the general rule is intended to protect those who exercise
good faith and not as a shield for unfair dealing. Hence there is a well-established
exception to the general rule as where the conduct and dealings of the agent are such as
to raise a clear presumption that he will not communicate to the principal the facts in
controversy. 21 The logical reason for this exception is that where the agent is committing a

fraud, it would be contrary to common sense to presume or to expect that he would

communicate the facts to the principal. Verily, when an agent is engaged in the perpetration of
a fraud upon his principal for his own exclusive benefit, he is not really acting for the principal
but is really acting for himself, entirely outside the scope of his agency.

22

Indeed, the basic

tenets of agency rest on the highest considerations of justice, equity and fair play, and an
agent will not be permitted to pervert his authority to his own personal advantage, and his act
in secret hostility to the interests of his principal transcends the power afforded him.

23

WHEREFORE, the petition is GRANTED. The decision and resolution of respondent

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

G.R. No. 111448

January 16, 2002

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

vs.
DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS
DEVELOPMENT CORPORATION,respondents.
SANDOVAL-GUTIERREZ, J.:
Petition for review on certiorari assailing the Decision dated December 10, 1992 and the
Resolution (Amending Decision) dated August 5, 1993 of the Court of Appeals in CAG.R. CV No. 30133.
Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation and a
registered owner of a parcel of commercial lot consisting of 2,094 square meters, located
at 104 E. Rodriguez Avenue, Barrio Ugong, Pasig City, Metro Manila. The property is
covered by Transfer Certificate of Title No. 39849 issued by the Registry of Deeds of the
Province of Rizal.1
On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman,
issued a letter denominated as "Authority To Sell Real Estate" 2 to Cristeta N. Polintan, a
real estate broker of the CNP Real Estate Brokerage. Cruz, Jr. authorized Polintan "to
look for a buyer/buyers and negotiate the sale" of the lot at P3,000.00 per square meter,
or a total of P6,282,000.00. Cruz, Jr. has no written authority from Dieselman to sell the
lot.
In turn, Cristeta Polintan, through a letter 3 dated May 19, 1988, authorized Felicisima
("Mimi") Noble4 to sell the same lot.
Felicisima Noble then offered for sale the property to AF Realty & Development, Inc. (AF
Realty) at P2,500.00 per square meter.5 Zenaida Ranullo, board member and vicepresident of AF Realty, accepted the offer and issued a check in the amount of
P300,000.00 payable to the order of Dieselman. Polintan received the check and signed
an "Acknowledgement Receipt"6 indicating that the amount of P300,000.00 represents
the partial payment of the property but refundable within two weeks should AF Realty
disapprove Ranullo's action on the matter.
On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo asked
Polintan for the board resolution of Dieselman authorizing the sale of the property.
However, Polintan could only give Ranullo the original copy of TCT No. 39849, the tax
declaration and tax receipt for the lot, and a photocopy of the Articles of Incorporation of
Dieselman.7

On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of

the said P300,000.00 as "earnest money" but required AF Realty to finalize the sale
at P4,000.00 per square meter.8 AF Realty replied that it has paid an initial down payment
of P300,000.00 and is willing to pay the balance. 9
However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF
Realty the return of the title of the lot earlier delivered by Polintan. 10
Claiming that there was a perfected contract of sale between them, AF Realty filed with
the Regional Trial Court, Branch 160, Pasig City a complaint for specific performance
(Civil Case No. 56278) against Dieselman and Cruz, Jr.. The complaint prays that
Dieselman be ordered to execute and deliver a final deed of sale in favor of AF
Realty.11 In its amended complaint,12 AF Realty asked for payment of P1,500,000.00 as
compensatory damages; P400,000.00 as attorney's fees; and P500,000.00 as exemplary
damages.
In its answer, Dieselman alleged that there was no meeting of the minds between the
parties in the sale of the property and that it did not authorize any person to enter into
such transaction on its behalf.
Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation (Midas)
executed a Deed of Absolute Sale13 of the same property. The agreed price was
P2,800.00 per square meter. Midas delivered to Dieselman P500,000.00 as down
payment and deposited the balance of P5,300,000.00 in escrow account with the
PCIBank.
Constrained to protect its interest in the property, Midas filed on April 3, 1989 a Motion for
Leave to Intervene in Civil Case No. 56278. Midas alleged that it has purchased the
property and took possession thereof, hence Dieselman cannot be compelled to sell and
convey it to AF Realty. The trial court granted Midas' motion.
After trial, the lower court rendered the challenged Decision holding that the acts of Cruz,
Jr. bound Dieselman in the sale of the lot to AF Realty.14 Consequently, the perfected
contract of sale between Dieselman and AF Realty bars Midas' intervention. The trial
court also held that Midas acted in bad faith when it initially paid Dieselman P500,000.00
even without seeing the latter's title to the property. Moreover, the notarial report of the
sale was not submitted to the Clerk of Court of the Quezon City RTC and the balance of
P5,300,000.00 purportedly deposited in escrow by Midas with a bank was not
established.
1wphi1.nt

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

"WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendant
to execute and deliver to plaintiffs the final deed of sale of the property covered by the

Transfer Certificate of Title No. 39849 of the Registry of Deed of Rizal, Metro Manila
District II, including the improvements thereon, and ordering defendants to pay plaintiffs
attorney's fees in the amount of P50,000.00 and to pay the costs.
"The counterclaim of defendants is necessarily dismissed.
"The counterclaim and/or the complaint in intervention are likewise dismissed
"SO ORDERED."15
Dissatisfied, all the parties appealed to the Court of Appeals.
AF Realty alleged that the trial court erred in not holding Dieselman liable for moral,
compensatory and exemplary damages, and in dismissing its counterclaim against
Midas.
Upon the other hand, Dieselman and Midas claimed that the trial court erred in finding
that a contract of sale between Dieselman and AF Realty was perfected. Midas further
averred that there was no bad faith on its part when it purchased the lot from Dieselman.
In its Decision dated December 10, 1992, the Court of Appeals reversed the judgment of
the trial court holding that since Cruz, Jr. was not authorized in writing by Dieselman to
sell the subject property to AF Realty, the sale was not perfected; and that the Deed of
Absolute Sale between Dieselman and Midas is valid, there being no bad faith on the
part of the latter. The Court of Appeals then declared Dieselman and Cruz, Jr. jointly and
severally liable to AF Realty for P100,000.00 as moral damages; P100,000.00 as
exemplary damages; and P100,000.00 as attorney's fees. 16
On August 5, 1993, the Court of Appeals, upon motions for reconsideration filed by the
parties, promulgated an Amending Decision, the dispositive portion of which reads:
"WHEREFORE, The Decision promulgated on October 10, 1992, is hereby AMENDED in
the sense that only defendant Mr. Manuel Cruz, Jr. should be made liable to pay the
plaintiffs the damages and attorney's fees awarded therein, plus the amount of
P300,000.00 unless, in the case of the said P300,000.00, the same is still deposited with
the Court which should be restituted to plaintiffs.
"SO ORDERED."17
AF Realty now comes to this Court via the instant petition alleging that the Court of
Appeals committed errors of law.
The focal issue for consideration by this Court is who between petitioner AF Realty and
respondent Midas has a right over the subject lot.

The Court of Appeals, in reversing the judgment of the trial court, made the following
ratiocination:
"From the foregoing scenario, the fact that the board of directors of Dieselman never
authorized, verbally and in writing, Cruz, Jr. to sell the property in question or to look for
buyers and negotiate the sale of the subject property is undeniable.
"While Cristeta Polintan was actually authorized by Cruz, Jr. to look for buyers and
negotiate the sale of the subject property, it should be noted that Cruz, Jr. could not
confer on Polintan any authority which he himself did not have. Nemo dat quod non
habet. In the same manner, Felicisima Noble could not have possessed authority broader
in scope, being a mere extension of Polintan's purported authority, for it is a legal truism
in our jurisdiction that a spring cannot rise higher than its source. Succinctly stated, the
alleged sale of the subject property was effected through persons who were absolutely
without any authority whatsoever from Dieselman.
"The argument that Dieselman ratified the contract by accepting the P300,000.00 as
partial payment of the purchase price of the subject property is equally untenable. The
sale of land through an agent without any written authority is void.
xxx

xxx

xxx

"On the contrary, anent the sale of the subject property by Dieselman to intervenor
Midas, the records bear out that Midas purchased the same from Dieselman on 30 July
1988. The notice of lis pendens was subsequently annotated on the title of the property
by plaintiffs on 15 August 1988. However, this subsequent annotation of the notice of lis
pendens certainly operated prospectively and did not retroact to make the previous sale
of the property to Midas a conveyance in bad faith. A subsequently registered notice of lis
pendens surely is not proof of bad faith. It must therefore be borne in mind that the 30
July 1988 deed of sale between Midas and Dieselman is a document duly certified by
notary public under his hand and seal. x x x. Such a deed of sale being public document
acknowledged before a notary public is admissible as to the date and fact of its execution
without further proof of its due execution and delivery (Bael vs. Intermediate Appellate
Court, 169 SCRA617; Joson vs. Baltazar, 194 SCRA 114) and to prove the defects and
lack of consent in the execution thereof, the evidence must be strong and not merely
preponderant x x x."18
We agree with the Court of Appeals.
Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may
authorize another to do certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual officers or agents
appointed by it.19 Thus, contracts or acts of a corporation must be made either by the

board of directors or by a corporate agent duly authorized by the board. 20 Absent such
valid delegation/authorization, the rule is that the declarations of an individual director
relating to the affairs of the corporation, but not in the course of, or connected with, the
performance of authorized duties of such director, are held not binding on the
corporation.21
In the instant case, it is undisputed that respondent Cruz, Jr. has no written authority from
the board of directors of respondent Dieselman to sell or to negotiate the sale of the lot,
much less to appoint other persons for the same purpose. Respondent Cruz, Jr.'s lack of
such authority precludes him from conferring any authority to Polintan involving the
subject realty. Necessarily, neither could Polintan authorize Felicisima Noble. Clearly, the
collective acts of respondent Cruz, Jr., Polintan and Noble cannot bind Dieselman in the
purported contract of sale.
Petitioner AF Realty maintains that the sale of land by an unauthorized agent may be
ratified where, as here, there is acceptance of the benefits involved. In this case the
receipt by respondent Cruz, Jr. from AF Realty of the P300,000.00 as partial payment of
the lot effectively binds respondent Dieselman.22
We are not persuaded.
Involved in this case is a sale of land through an agent. Thus, the law on agency under
the Civil Code takes precedence. This is well stressed in Yao Ka Sin Trading vs. Court
of Appeals:23
"Since a corporation, such as the private respondent, can act only through its officers and
agents, all acts within the powers of said corporation may be performed by agents of
its selection; and, except so far as limitations or restrictions may be imposed by special
charter, by-law, or statutory provisions, the same general principles of law which
govern the relation of agency for a natural person govern the officer or agent of a
corporation, of whatever status or rank, in respect to his power to act for the
corporation; and agents when once appointed, or members acting in their
stead, are subject to thesame rules, liabilities, and incapacities as are agents of
individuals and private persons." (Emphasis supplied)
Pertinently, Article 1874 of the same Code provides:
"ART. 1874. When a sale of piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void."
(Emphasis supplied)
Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not
authorized by respondent Dieselman to sell its lot, the supposed contract is void. Being a

void contract, it is not susceptible of ratification by clear mandate of Article 1409 of the
Civil Code, thus:
"ART. 1409. The following contracts are inexistent and void from the very beginning:
xxx
(7) Those expressly prohibited or declared void by law.
"These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived." (Emphasis supplied)
Upon the other hand, the validity of the sale of the subject lot to respondent Midas is
unquestionable. As aptly noted by the Court of Appeals, 24 the sale was authorized by a
board resolution of respondent Dieselman dated May 27, 1988.
1wphi1.nt

The Court of Appeals awarded attorney's fees and moral and exemplary damages in
favor of petitioner AF Realty and against respondent Cruz, Jr.. The award was made by
reason of a breach of contract imputable to respondent Cruz, Jr. for having acted in bad
faith. We are no persuaded. It bears stressing that petitioner Zenaida Ranullo, board
member and vice-president of petitioner AF Realty who accepted the offer to sell the
property, admitted in her testimony 25that a board resolution from respondent Dieselman
authorizing the sale is necessary to bind the latter in the transaction; and that respondent
Cruz, Jr. has no such written authority. In fact, despite demand, such written authority
was not presented to her.26 This notwithstanding, petitioner Ranullo tendered a partial
payment for the unauthorized transaction. Clearly, respondent Cruz, Jr. should not be
held liable for damages and attorney's fees.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
hereby AFFIRMED withMODIFICATION in the sense that the award of damages and
attorney's fees is deleted. Respondent Dieselman is ordered to return to petitioner AF
Realty its partial payment of P300,000.00. Costs against petitioners.
SO ORDERED.
Melo, Vitug, Panganiban, and Carpio, JJ., concur.

G.R. No. 95909 August 16, 1991

UNILAND RESOURCES, petitioner,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES,* respondent.
Romeo G. Roxas for petitioner.

GANCAYCO, J.:p
In the law on agency, it is elementary that when the main transaction between the
principal parties does not materialize, the claim for commission of the duly authorized
broker is disallowed. 1 How about the instance when the sale was eventually consummated
between parties introduced by a middleman who, in the first place, had no authority, express
or implied, from the seller to broker the transaction? Should the interloper be allowed a
commission? On these simplified terms rests the nature of the controversy on which this case
turns.
As stated by the respondent Court of Appeals, 2 the ambient circumstances of this case are
as follows:
(1) [Petitioner] Uniland Resources is a private corporation engaged in real estate
brokerage and licensed as such (p. 2, Rec.), while [respondent] DBP, as we all know
[sic], is a government corporation engaged in finance and banking in a proprietary
capacity.
(2) Long before this case arose, Marinduque Mining Corporation obtained a loan from the
DBP and as security therefor, mortgaged certain real properties to the latter, among them
two lots located in Makati, M.M., described as follows:
(a) Corner lot, covered by TCT No. 114138, located at Pasong Tamo, Makati with an area
of 3,330 sq. mts. on which is constructed a [four]-story concrete building, etc., which, for
brevity, shall be called the office building lot; and
(b) Lot covered by TCT No. 16279 with 12,355 sq. mts located at Pasong Tamo, Makati,
on which is constructed a concrete/steel warehouse, etc., which, for brevity, shall be
called the warehouse lot.
The aforesaid lots had, however, been previously mortgaged by Marinduque Mining
Corp., to Caltex, and the mortgage in favor of DBP was entered on their titles as a
second mortgage (Pre-Trial Order, p. 37, Rec.).

The account of the Marinduque Mining Corp., with the DBP was later transferred to the
Assets Privatization Trust (APT) pursuant to Proclamation No. 50.
(3) For failure of the Marinduque Mining Corp. to pay its obligations to Caltex, the latter
foreclosed its mortgage on the aforesaid two lots (pp. 37-38, Rec.). APT on the other
hand, to recover its investment on the Marinduque Account, offered for sale to the public
through DBP its right of redemption on said two lots by public bidding (Exhs. "1" and "2").
(4) Considering, however, that Caltex had required that both lots be redeemed, the
bidding guidelines set by DBP provided that any bid to purchase either of the two lots
would be considered only should there be two bids or a bid for the two items which, when
combined, would fully cover the sale of the two lots in question (Exh. "1").
(5) The aforesaid bidding was held on May 5, 1987 with only one bidder, the Counsel
Realty Corp. [an affiliate of Glaxo, Philippines, the client of petitioner], which offered a bid
only for the warehouse lot in the amount of P23,900,000.00. Said bid was thus rejected
by DBP.
(6) Seeing, however, that it would make a profit if it redeemed the two lots and then offer
them for sale, and as its right to redeem said lots from Caltex would expire on May 8,
1987, DBP retrieved the account from APT and, on the last day for the exercise of its
right of redemption, May 8, 1987, redeemed said lots from Caltex for P33,096,321.62
(Exh. "5"), thus acquiring them as its physical assets.
(7) In preparation for the sale of the two lots in question, DBP called a pre-bidding
conference wherein a new set of bidding guidelines were formulated (Exh. "3"). Then, on
July 30,1987, the public bidding for the sale of the two lots was held and again, there was
only one bidder, the Charges Realty Corp. [another affiliate of Glaxo, Philippines], for only
the warehouse lot and for the amount of P24,070,000.00, which is slightly higher than the
amount previously offered by Counsel Realty Corp., therefor at the May 5, 1987 bidding
(see Exh. "5," p. 1 00, Rec.). No bid was submitted for the office building lot (id.).
(8) Notwithstanding that there was no bidder for the office building lot, the DBP approved
the sale of the warehouse lot to Charges Realty Corp., and on November 23, 1987, the
proper documentation of the sale was made (Exh. "D"). As for the office building lot, it
was later sold by DBP in a negotiated sale to the Bank of P.I. as trustee for the "Perpetual
Care Fund of the Manila Memorial Park" for P17,460,000.00, and proper documentation
of the sale was made on November 17, 1987 (Exh. "E" and submarkings). The DBP
admittedly paid the (five percent) broker's fee on this sale to the DBP Management
Corporation, which acted as broker for said negotiated sale (p. 15, Appellant DBP's brief).
(9) After the aforesaid sale, [petitioner], through its President, wrote two letters to
[respondent DBP], the first through its Senior Vice President (Exh. "C"), and, the second
through its Vice Chairman (Exh. "4" [sic], asking for the payment of its broker's fee in

instrumenting the sale of its (DBP's) warehouse lot to Charges Realty Corp. The claim
was referred to the Bidding Committee chaired by Amanda S. Guiam which met on
November 9, 1987, and which, on November 18, 1987, issued a decision denying
[petitioner's] claim (Exh. "5"). Hence, the instant case filed by [petitioner] to recover from
[respondent] DBP the aforesaid broker's fee.
After trial, the lower court, on October 25, 1988, rendered judgment
ORDERING [respondent DBP] to pay [petitioner] the sum of P1,203,500,00 which is the
equivalent of [five percent] broker's fee plus legal interest thereto (sic) from the filing of
the complaint on February 18, 1988 until fully paid and the sum of P50,000.00 as and for
attorney's fees. Costs against [respondent DBP]. (p. 122, Rec.). 3
On appeal, the Court of Appeals reversed the judgment of the lower court 4 and dismissed
the complaint. The motion for reconsideration filed by petitioner was also subsequently
denied. 5
Petitioner is now before this Court alleging that the petition "RAISES A QUESTION OF
LAW IN THE SENSE THAT THE RESPONDENT COURT OF APPEALS BASED ITS
DECISION ONLY ON THE CONTROVERSIAL FACTS FAVORABLE TO THE PRIVATE
RESPONDENT DBP, 6 primarily making capital of the disparity between the factual
conclusions of the trial court and of the appellate court. Petitioner asserts that the respondent
Court of Appeals disregarded evidence in its favor consisting of its letters to respondent
DBP's higher officers sent prior to the bidding and sale, wherein petitioner requested
accreditation as a broker and, in the process of informing that it had offered the DBP
properties for sale, also volunteered the name of its client, Glaxo, Philippines, as an
interested prospective buyer. 7
The rule is that in petitions for certiorari as a mode of appeal, only questions of law
distinctly set forth may be raised. 8 Such questions have been defined as those that do not
call for any examination of the probative value of the evidence presented by the
parties. 9 Petitioner's singular assignment of error would, however, have this Court go over the
facts of this case because it necessarily involves the examination of the evidence and its
subsequent reevaluation. Under the present proceeding, the same, therefore, cannot be
done.
It bears emphasizing that mere disagreement between the Court of Appeals and the trial
court as to the facts of a case does not of itself warrant this Court's review of the same. It
has been held that the doctrine that the findings of fact made by the Court of Appeals,
being conclusive in nature, are binding on this Court, applies even if the Court of Appeals
was in disagreement with the lower court as to the weight of evidence with a consequent
reversal of its findings of fact, so long as the findings of the Court of Appeals are borne
out by the record or based on substantial evidence. 10 while the foregoing doctrine is not

absolute, petitioner has not sufficiently proved that his case falls under the known
exceptions. 11

Be that as it may, the Court has perused the assailed decision of the Court of Appeals
and still finds the primary assertion of petitioner to be unfounded. The Court of Appeals
has addressed all the factual contentions of petitioner and chose not to give credence to
petitioner's version. Moreover, the findings of the Court of Appeals are consistent with,
and sufficiently supported by, the records of this case.
It is obvious that petitioner was never able to secure the required accreditation from
respondent DBP to transact business on behalf of the latter. The letters sent by petitioner
to the higher officers of the DBP and the APT are merely indicative of petitioner's desire
to secure such accreditation. At best these missives are self-serving; the most that they
prove is that they were sent by petitioner and received by respondent DBP, which clearly
never agreed to be bound thereto. As declared by the trial court even when it found in
favor of petitioner, there was no express reply from the DBP or the APT as to the
accreditation sought by petitioner. 12 From the very beginning, therefore, petitioner was
aware that it had no express authority from DBP to find buyers of its properties.
In its reply submitted pursuant to the resolution requiring the same 13 petitioner also
invokes Article 1869 of the new Civil Code 14 in contending that an implied agency existed.
Petitioner argues that it "should have been stopped, disauthorized and outrightly prevented
from dealing the 12,355 sq. m (with warehouse) [sic] by the DBP from the inception." 15 On the
contrary, these steps were never necessary. In the course of petitioner's dealings with the
DBP, it was always made clear to petitioner that only accredited brokers may look for buyers
on behalf of respondent DBP. This is not a situation wherein a third party was prejudiced by
the refusal of respondent DBP to recognize petitioner as its broker. The controversy is only
between the DBP and petitioner, to whom it was emphasized in no uncertain terms that the
arrangement sought did not exist. Article 1869, therefore, has no room for operation in this
case.
Petitioner would also disparage the formality of accreditation as merely a mechanical act,
which requires not much discretion, as long as a person or entity looks for a buyer [and]
initiate or promote [sic] the interests of the seller. 16 Being engaged in business, petitioner
should do better to adopt the opposite attitude and appreciate that formalities, such as the
need for accreditation, result from the evolution of sound business practices for the protection
and benefit of all parties concerned. They are designed and adopted specifically to prevent
the occurrence of situations similar to that obtaining in this case.
More importantly, petitioner's stance goes against the basic axiom in Civil Law that no
one may contract in the name of another without being authorized by the latter, unless
the former has by law a right to represent him. 17From this principle, among others, springs
the relationship of agency which, as with other contracts, is one founded on mutual consent:

the principal agrees to be bound by the acts of the agent and the latter in turn consents to
render service on behalf or in representation of the principal.

18

Petitioner, however, also invokes equity considerations, and in equity, the Court
recognizes the efforts of petitioner in bringing together respondent DBP and an interested
and financially-able buyer. While not actively involved in the actual bidding and transfer of
ownership of the warehouse property, petitioner may be said to have initiated, albeit
without proper authority, the transaction that eventually took place. The Court is also
aware that respondent DBP was able to realize a substantial profit from the sale of its two
properties. While purely circumstantial, there is sufficient reason to believe that the DBP
became more confident to venture and redeem the properties from the APT due to the
presence of a ready and willing buyer, as communicated and assured by petitioner.
In Prats v. Court of Appeals, 19 there was a finding that the petitioner therein as the agent
was no longer the efficient procuring cause in bringing about the sale proceeding from the fact
of expiration of his exclusive authority. There was therefore no basis in law to grant the relief
sought. Nevertheless, this Court in equity granted the sum of P100,000.00, out of the
P1,380,000.00 claimed as commission, by way of compensation for the efforts and assistance
rendered by the agent in the transaction prior to the expiration of his authority. These consist
in offering the lot for sale to the eventual buyer, sending follow-up letters, inviting the buyer to
dinner and luncheon meetings, etc.
Parallel circumstances obtain in the case at bar. It was petitioner who advised Glaxo,
Philippines of the availability of the warehouse property and aroused its interest over the
same. Through petitioner, respondent DBP was directly informed of the existence of an
interested buyer. Petitioner's persistence in communicating with respondent DBP
reinforced the seriousness of the offer. This piece of information no doubt had a bearing
on the subsequent decisions made by respondent DBP as regards the disposition of its
properties.
Petitioner claims the amount of P1,203,500.00 awarded by the trial court as commission
computed at five percent of the sale price of the warehouse property. Under the foregoing
disquisition and following the precedent, as well as roughly the proportion, set in Prats,
the Court in equity grants petitioner the sum of One Hundred Thousand Pesos
(Pl00,000.00) for the role it played in the transaction between respondent DBP and buyer
Glaxo, Philippines. It is emphasized, however, that the circumstances that came into play
in this case do not meet the minimum legal standards required for the existence of an
agency relationship and that the award is based purely on equity considerations.
Accordingly, petitioner's other arguments need not now be discussed.
WHEREFORE, the decision appealed from is hereby AFFIRMED, with the
MODIFICATION that in equity respondent DBP is ordered to pay petitioner the amount of
One Hundred Thousand Pesos (P100,000.00). No pronouncement as to costs.

SO ORDERED.
Narvasa (Chairman), Cruz, Grio-Aquino and Medialdea, JJ., concur.

G.R. No. 144805 June 8, 2006

EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,
vs.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION),
ETEROUTREMER, S.A. and FAR EAST BANK & TRUST COMPANY, Respondents.
DECISION
CALLEJO, SR., J.:
On appeal via a Petition for Review on Certiorari is the Decision 1 of the Court of Appeals
(CA) in CA-G.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court
(RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the Resolution 2 of the
CA denying the motion for reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly organized and registered under
Philippine laws. Since 1950, it had been engaged in the manufacture of roofing materials
and pipe products. Its manufacturing operations were conducted on eight parcels of land
with a total area of 47,233 square meters. The properties, located in Mandaluyong City,
Metro Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118,
451119, 451120, 451121, 451122, 451124 and 451125 under the name of Far East Bank
& Trust Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were
owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered
under the laws of Belgium. 3 Jack Glanville, an Australian citizen, was the General
Manager and President of EC, while Claude Frederick Delsaux was the Regional Director
for Asia of ESAC. Both had their offices in Belgium.
In 1986, the management of ESAC grew concerned about the political situation in the
Philippines and wanted to stop its operations in the country. The Committee for Asia of
ESAC instructed Michael Adams, a member of ECs Board of Directors, to dispose of
the eight parcels of land. Adams engaged the services of realtor/broker Lauro G.
Marquez so that the properties could be offered for sale to prospective buyers. Glanville
later showed the properties to Marquez.
Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo
B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986,
Marquez declared that he was authorized to sell the properties for P27,000,000.00 and
that the terms of the sale were subject to negotiation. 4
Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo
Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the

property for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings
offer and relayed the same to Delsaux in Belgium, but the latter did not respond. On
October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his position/
counterproposal to the offer of the Litonjua siblings. It was only on February 12, 1987 that
Delsaux sent a telex to Glanville stating that, based on the "Belgian/Swiss decision," the
final offer was "US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior
to final liquidation."5
Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux.
Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred with Glanville,
and in a Letter dated February 26, 1987, confirmed that the Litonjua siblings had
accepted the counter-proposal of Delsaux. He also stated that the Litonjua siblings would
confirm full payment within 90 days after execution and preparation of all documents of
sale, together with the necessary governmental clearances. 6
The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank
& Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the
sale.7
Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale
would be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that
he had met with the buyer, which had given him the impression that "he is prepared to
press for a satisfactory conclusion to the sale." 8 He also emphasized to Delsaux that the
buyers were concerned because they would incur expenses in bank commitment fees as
a consequence of prolonged period of inaction.9
Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the
Philippines, the political situation in the Philippines had improved. Marquez received a
telephone call from Glanville, advising that the sale would no longer proceed. Glanville
followed it up with a Letter dated May 7, 1987, confirming that he had been instructed by
his principal to inform Marquez that "the decision has been taken at a Board Meeting not
to sell the properties on which Eternit Corporation is situated." 10
Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC
Regional Office had decided not to proceed with the sale of the subject land, to wit:
May 22, 1987
Mr. L.G. Marquez
L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines

Dear Sir:
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed
with the sale of the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six
months) and examined the position as far as the Philippines are (sic)
concerned. Considering [the] new political situation since the departure of
MR. MARCOS and a certain stabilization in the Philippines, the
Committee has decided not to stop our operations in Manila. In fact,
production has started again last week, and (sic) to recognize the
participation in the Corporation.
We regret that we could not make a deal with you this time, but in case
the policy would change at a later state, we would consult you again.
xxx
Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.)11
When apprised of this development, the Litonjuas, through counsel, wrote EC,
demanding payment for damages they had suffered on account of the aborted sale. EC,
however, rejected their demand.
The Litonjuas then filed a complaint for specific performance and damages against EC
(now the Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company,
and ESAC in the RTC of Pasig City. An amended complaint was filed, in which defendant
EC was substituted by Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V.
Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as additional
defendants on account of their purchase of ESAC shares of stocks and were the
controlling stockholders of EC.
In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not
doing business in the Philippines, it cannot be subject to the jurisdiction of Philippine
courts; the Board and stockholders of EC never approved any resolution to sell subject
properties nor authorized Marquez to sell the same; and the telex dated October 28,
1986 of Jack Glanville was his own personal making which did not bind EC.

On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed
the amended complaint.12 The fallo of the decision reads:
WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources
Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and
binding sale between the plaintiffs and said defendants.
The complaint as against Far East Bank and Trust Company is likewise dismissed for
lack of cause of action.
The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and
Eteroutremer, S.A. is also dismissed for lack of merit.13
The trial court declared that since the authority of the agents/realtors was not in writing,
the sale is void and not merely unenforceable, and as such, could not have been ratified
by the principal. In any event, such ratification cannot be given any retroactive effect.
Plaintiffs could not assume that defendants had agreed to sell the property without a
clear authorization from the corporation concerned, that is, through resolutions of the
Board of Directors and stockholders. The trial court also pointed out that the supposed
sale involves substantially all the assets of defendant EC which would result in the
eventual total cessation of its operation.14
The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in
concluding that the real estate broker in the instant case needed a written authority from
appellee corporation and/or that said broker had no such written authority; and (2) the
lower court committed grave error of law in holding that appellee corporation is not legally
bound for specific performance and/or damages in the absence of an enabling resolution
of the board of directors."15 They averred that Marquez acted merely as a broker or gobetween and not as agent of the corporation; hence, it was not necessary for him to be
empowered as such by any written authority. They further claimed that an agency by
estoppel was created when the corporation clothed Marquez with apparent authority to
negotiate for the sale of the properties. However, since it was a bilateral contract to buy
and sell, it was equivalent to a perfected contract of sale, which the corporation was
obliged to consummate.
In reply, EC alleged that Marquez had no written authority from the Board of Directors to
bind it; neither were Glanville and Delsaux authorized by its board of directors to offer the
property for sale. Since the sale involved substantially all of the corporations assets, it
would necessarily need the authority from the stockholders.
On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16 The
Litonjuas filed a motion for reconsideration, which was also denied by the appellate court.

The CA ruled that Marquez, who was a real estate broker, was a special agent within the
purview of Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code,
he needed a special authority from ECs board of directors to bind such corporation to
the sale of its properties. Delsaux, who was merely the representative of ESAC (the
majority stockholder of EC) had no authority to bind the latter. The CA pointed out that
Delsaux was not even a member of the board of directors of EC. Moreover, the Litonjuas
failed to prove that an agency by estoppel had been created between the parties.
In the instant petition for review, petitioners aver that
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
NO PERFECTED CONTRACT OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN
HOLDING THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM
RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
GLANVILLE AND DELSAUX HAVE THE NECESSARY AUTHORITY TO
SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE
KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS
WITHIN THE SCOPE OF AN APPARENT AUTHORITY, AND THUS
HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO SELL
THE SAID PROPERTIES.17
Petitioners maintain that, based on the facts of the case, there was a perfected contract
of sale of the parcels of land and the improvements thereon for "US$1,000,000.00
plus P2,500,000.00 to cover obligations prior to final liquidation." Petitioners insist that
they had accepted the counter-offer of respondent EC and that before the counter-offer
was withdrawn by respondents, the acceptance was made known to them through real
estate broker Marquez.
Petitioners assert that there was no need for a written authority from the Board of
Directors of EC for Marquez to validly act as broker/middleman/intermediary. As broker,
Marquez was not an ordinary agent because his authority was of a special and limited
character in most respects. His only job as a broker was to look for a buyer and to bring
together the parties to the transaction. He was not authorized to sell the properties or to

make a binding contract to respondent EC; hence, petitioners argue, Article 1874 of the
New Civil Code does not apply.
In any event, petitioners aver, what is important and decisive was that Marquez was able
to communicate both the offer and counter-offer and their acceptance of respondent
ECs counter-offer, resulting in a perfected contract of sale.
Petitioners posit that the testimonial and documentary evidence on record amply shows
that Glanville, who was the President and General Manager of respondent EC, and
Delsaux, who was the Managing Director for ESAC Asia, had the necessary authority to
sell the subject property or, at least, had been allowed by respondent EC to hold
themselves out in the public as having the power to sell the subject properties.
Petitioners identified such evidence, thus:
1. The testimony of Marquez that he was chosen by Glanville as the then President and
General Manager of Eternit, to sell the properties of said corporation to any interested
party, which authority, as hereinabove discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties
spanned SEVERAL MONTHS, from 1986 to 1987;
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to
the Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the properties as
evidenced by the Petitioners ACCEPTANCE of the counter-offer;
5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security
Bank and that an ESCROW agreement was drafted over the subject properties;
6. Glanvilles telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT
ACTION TO BUY AND SELL";
7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact
that Petitioners offer was allegedly REJECTED by both Glanville and Delsaux.18
Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer
to petitioners offer and thereafter reject such offer unless they were authorized to do so
by respondent EC. Petitioners insist that Delsaux confirmed his authority to sell the
properties in his letter to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed
with the sale of the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six
months) and examined the position as far as the Philippines are (sic)
concerned. Considering the new political situation since the departure of
MR. MARCOS and a certain stabilization in the Philippines, the
Committee has decided not to stop our operations in Manila[.] [I]n fact
production started again last week, and (sic) to reorganize the
participation in the Corporation.
We regret that we could not make a deal with you this time, but in case
the policy would change at a later stage we would consult you again.
In the meantime, I remain
Yours sincerely,
C.F. DELSAUX19
Petitioners further emphasize that they acted in good faith when Glanville and Delsaux
were knowingly permitted by respondent EC to sell the properties within the scope of an
apparent authority. Petitioners insist that respondents held themselves to the public as
possessing power to sell the subject properties.
By way of comment, respondents aver that the issues raised by the petitioners are
factual, hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the
petition, respondents EC (now EMC) and ESAC reiterate their submissions in the CA.
They maintain that Glanville, Delsaux and Marquez had no authority from the
stockholders of respondent EC and its Board of Directors to offer the properties for sale
to the petitioners, or to any other person or entity for that matter. They assert that the
decision and resolution of the CA are in accord with law and the evidence on record, and
should be affirmed in toto.
Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and
Delsaux, conformed to the written authority of Marquez to sell the properties. The
authority of Glanville and Delsaux to bind respondent EC is evidenced by the fact that
Glanville and Delsaux negotiated for the sale of 90% of stocks of respondent EC to
Ruperto Tan on June 1, 1997. Given the significance of their positions and their duties in
respondent EC at the time of the transaction, and the fact that respondent ESAC owns
90% of the shares of stock of respondent EC, a formal resolution of the Board of
Directors would be a mere ceremonial formality. What is important, petitioners maintain,
is that Marquez was able to communicate the offer of respondent EC and the
petitioners acceptance thereof. There was no time that they acted without the

knowledge of respondents. In fact, respondent EC never repudiated the acts of Glanville,

Marquez and Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of respondents that the issues raised
by petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux
were authorized by respondent EC to act as its agents relative to the sale of the
properties of respondent EC, and if so, the boundaries of their authority as agents, is a
question of fact. In the absence of express written terms creating the relationship of an
agency, the existence of an agency is a fact question. 20 Whether an agency by estoppel
was created or whether a person acted within the bounds of his apparent authority, and
whether the principal is estopped to deny the apparent authority of its agent are, likewise,
questions of fact to be resolved on the basis of the evidence on record. 21 The findings of
the trial court on such issues, as affirmed by the CA, are conclusive on the Court, absent
evidence that the trial and appellate courts ignored, misconstrued, or misapplied facts
and circumstances of substance which, if considered, would warrant a modification or
reversal of the outcome of the case.22
It must be stressed that issues of facts may not be raised in the Court under Rule 45 of
the Rules of Court because the Court is not a trier of facts. It is not to re-examine and
assess the evidence on record, whether testimonial and documentary. There are,
however, recognized exceptions where the Court may delve into and resolve factual
issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible;
(3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court
of Appeals, in making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (7) when the findings of the
Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are
conclusions without citation of specific evidence on which they are based; (9) when the
Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion; and (10) when the
findings of fact of the Court of Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.23
We have reviewed the records thoroughly and find that the petitioners failed to establish
that the instant case falls under any of the foregoing exceptions. Indeed, the assailed
decision of the Court of Appeals is supported by the evidence on record and the law.
It was the duty of the petitioners to prove that respondent EC had decided to sell its
properties and that it had empowered Adams, Glanville and Delsaux or Marquez to offer

the properties for sale to prospective buyers and to accept any counter-offer. Petitioners
likewise failed to prove that their counter-offer had been accepted by respondent EC,
through Glanville and Delsaux. It must be stressed that when specific performance is
sought of a contract made with an agent, the agency must be established by clear,
certain and specific proof.24
Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of
the Philippines, provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code,
the corporate powers of all corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the holders of stocks, or where
there is no stock, from among the members of the corporation, who shall hold office for
one (1) year and until their successors are elected and qualified.
Indeed, a corporation is a juridical person separate and distinct from its members or
stockholders and is not affected by the personal rights,
obligations and transactions of the latter.25 It may act only through its board of directors
or, when authorized either by its by-laws or by its board resolution, through its officers or
agents in the normal course of business. The general principles of agency govern the
relation between the corporation and its officers or agents, subject to the articles of
incorporation, by-laws, or relevant provisions of law.26
Under Section 36 of the Corporation Code, a corporation may sell or convey its real
properties, subject to the limitations prescribed by law and the Constitution, as follows:
SEC. 36. Corporate powers and capacity. Every corporation incorporated under this
Code has the power and capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of
other corporations, as the transaction of a lawful business of the corporation may
reasonably and necessarily require, subject to the limitations prescribed by the law and
the Constitution.
The property of a corporation, however, is not the property of the stockholders or
members, and as such, may not be sold without express authority from the board of
directors.27 Physical acts, like the offering of the properties of the corporation for sale, or
the acceptance of a counter-offer of prospective buyers of such properties and the
execution of the deed of sale covering such property, can be performed by the

corporation only by officers or agents duly authorized for the purpose by corporate bylaws or by specific acts of the board of directors. 28 Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating
to the affairs of the corporation, but not in the course of, or connected with, the
performance of authorized duties of such director, are not binding on the corporation. 29
While a corporation may appoint agents to negotiate for the sale of its real properties, the
final say will have to be with the board of directors through its officers and agents as
authorized by a board resolution or by its by-laws. 30An unauthorized act of an officer of
the corporation is not binding on it unless the latter ratifies the same expressly or
impliedly by its board of directors. Any sale of real property of a corporation by a person
purporting to be an agent thereof but without written authority from the corporation is null
and void. The declarations of the agent alone are generally insufficient to establish the
fact or extent of his/her authority.31
By the contract of agency, a person binds himself to render some service or to do
something in representation on behalf of another, with the consent or authority of the
latter.32 Consent of both principal and agent is necessary to create an agency. The
principal must intend that the agent shall act for him; the agent must intend to accept the
authority and act on it, and the intention of the parties must find expression either in
words or conduct between them. 33
An agency may be expressed or implied from the act of the principal, from his silence or
lack of action, or his failure to repudiate the agency knowing that another person is acting
on his behalf without authority. Acceptance by the agent may be expressed, or implied
from his acts which carry out the agency, or from his silence or inaction according to the
circumstances.34 Agency may be oral unless the law requires a specific form. 35However,
to create or convey real rights over immovable property, a special power of attorney is
necessary.36Thus, when a sale of a piece of land or any portion thereof is through an
agent, the authority of the latter shall be in writing, otherwise, the sale shall be void. 37
In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution
of the Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux
as its agents, to sell, let alone offer for sale, for and in its behalf, the eight parcels of land
owned by respondent EC including the improvements thereon. The bare fact that
Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of
respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners claim that
he had likewise been authorized by respondent EC to sell the parcels of land.
Moreover, the evidence of petitioners shows that Adams and Glanville acted on the
authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through its
Committee for Asia,38 the Board of Directors of respondent ESAC,39 and the
Belgian/Swiss component of the management of respondent ESAC. 40 As such, Adams
and Glanville engaged the services of Marquez to offer to sell the properties to

prospective buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he
was authorized to offer for sale the property forP27,000,000.00 and the other terms of the
sale subject to negotiations. When petitioners offered to purchase the property
for P20,000,000.00, through Marquez, the latter relayed petitioners offer to Glanville;
Glanville had to send a telex to Delsaux to inquire the position of respondent ESAC to
petitioners offer. However, as admitted by petitioners in their Memorandum, Delsaux
was unable to reply immediately to the telex of Glanville because Delsaux had to wait for
confirmation from respondent ESAC.41 When Delsaux finally responded to Glanville on
February 12, 1987, he made it clear that, based on the "Belgian/Swiss decision" the final
offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing
obligations prior to final liquidation. 42 The offer of Delsaux emanated only from the
"Belgian/Swiss decision," and not the entire management or Board of Directors of
respondent ESAC. While it is true that petitioners accepted the counter-offer of
respondent ESAC, respondent EC was not a party to the transaction between them;
hence, EC was not bound by such acceptance.
While Glanville was the President and General Manager of respondent EC, and Adams
and Delsaux were members of its Board of Directors, the three acted for and in behalf of
respondent ESAC, and not as duly authorized agents of respondent EC; a board
resolution evincing the grant of such authority is needed to bind EC to any agreement
regarding the sale of the subject properties. Such board resolution is not a mere formality
but is a condition sine qua non to bind respondent EC. Admittedly, respondent ESAC
owned 90% of the shares of stocks of respondent EC; however, the mere fact that a
corporation owns a majority of the shares of stocks of another, or even all of such shares
of stocks, taken alone, will not justify their being treated as one corporation. 43
It bears stressing that in an agent-principal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the agent, by legal fiction,
becomes the principal, authorized to perform all acts which the latter would have him do.
Such a relationship can only be effected with the consent of the principal, which must not,
in any way, be compelled by law or by any court.44
The petitioners cannot feign ignorance of the absence of any regular and valid authority
of respondent EC empowering Adams, Glanville or Delsaux to offer the properties for
sale and to sell the said properties to the petitioners. A person dealing with a known
agent is not authorized, under any circumstances, blindly to trust the agents; statements
as to the extent of his powers; such person must not act negligently but must use
reasonable diligence and prudence to ascertain whether the agent acts within the scope
of his authority.45 The settled rule is that, persons dealing with an assumed agent are
bound at their peril, and if they would hold the principal liable, to ascertain not only the
fact of agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to prove it. 46 In this case, the petitioners
failed to discharge their burden; hence, petitioners are not entitled to damages from
respondent EC.

It appears that Marquez acted not only as real estate broker for the petitioners but also
as their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987,
he confirmed, for and in behalf of the petitioners, that the latter had accepted such offer
to sell the land and the improvements thereon. However, we agree with the ruling of the
appellate court that Marquez had no authority to bind respondent EC to sell the subject
properties. A real estate broker is one who negotiates the sale of real properties. His
business, generally speaking, is only to find a purchaser who is willing to buy the land
upon terms fixed by the owner. He has no authority to bind the principal by signing a
contract of sale. Indeed, an authority to find a purchaser of real property does not include
an authority to sell.47
Equally barren of merit is petitioners contention that respondent EC is estopped to
deny the existence of a principal-agency relationship between it and Glanville or Delsaux.
For an agency by estoppel to exist, the following must be established: (1) the principal
manifested a representation of the agents authority or knowlingly allowed the agent to
assume such authority; (2) the third person, in good faith, relied upon such
representation; (3) relying upon such representation, such third person has changed his
position to his detriment.48 An agency by estoppel, which is similar to the doctrine of
apparent authority, requires proof of reliance upon the representations, and that, in turn,
needs proof that the representations predated the action taken in reliance. 49Such proof is
lacking in this case. In their communications to the petitioners, Glanville and Delsaux
positively and unequivocally declared that they were acting for and in behalf of
respondent ESAC.
Neither may respondent EC be deemed to have ratified the transactions between the
petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The
transactions and the various communications inter se were never submitted to the Board
of Directors of respondent EC for ratification.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs
against the petitioners.
SO ORDERED.
ROMEO J. CALLEJO, SR.
Associate Justice
WE CONCUR:

G.R. No. 163553

December 11, 2009

YUN KWAN BYUNG, Petitioner,

vs.
PHILIPPINE AMUSEMENT AND GAMING CORPORATION, Respondent.
DECISION
CARPIO, J.:
The Case
Yun Kwan Byung (petitioner) filed this Petition for Review 1 assailing the Court of
Appeals Decision2 dated 27 May 2003 in CA-G.R. CV No. 65699 as well as the
Resolution3 dated 7 May 2004 denying the Motion for Reconsideration. In the assailed
decision, the Court of Appeals (CA) affirmed the Regional Trial Courts Decision4dated 6
May 1999. The Regional Trial Court of Manila, Branch 13 (trial court), dismissed
petitioners demand against respondent Philippine Amusement and Gaming
Corporation (PAGCOR) for the redemption of gambling chips.
The Facts
PAGCOR is a government-owned and controlled corporation tasked to establish and
operate gambling clubs and casinos as a means to promote tourism and generate
sources of revenue for the government. To achieve these objectives, PAGCOR is vested
with the power to enter into contracts of every kind and for any lawful purpose that
pertains to its business. Pursuant to this authority, PAGCOR launched its Foreign
Highroller Marketing Program (Program). The Program aims to invite patrons from
foreign countries to play at the dollar pit of designated PAGCOR-operated casinos under
specified terms and conditions and in accordance with industry practice. 5
The Korean-based ABS Corporation was one of the international groups that availed of
the Program. In a letter-agreement dated 25 April 1996 (Junket Agreement), ABS
Corporation agreed to bring in foreign players to play at the five designated gaming
tables of the Casino Filipino Silahis at the Grand Boulevard Hotel in Manila (Casino
Filipino). The relevant stipulations of the Junket Agreement state:
1. PAGCOR will provide ABS Corporation with separate junket chips. The junket chips
will be distinguished from the chips being used by other players in the gaming tables.
ABS Corporation will distribute these junket chips to its players and at the end of the
playing period, ABS Corporation will collect the junket chips from its players and make an
accounting to the casino treasury.

2. ABS Corporation will assume sole responsibility to pay the winnings of its foreign
players and settle the collectibles from losing players.
3. ABS Corporation shall hold PAGCOR absolutely free and harmless from any damage,
claim or liability which may arise from any cause in connection with the Junket
Agreement.
5. In providing the gaming facilities and services to these foreign players, PAGCOR is
entitled to receive from ABS Corporation a 12.5% share in the gross winnings of ABS
Corporation or 1.5 million US dollars, whichever is higher, over a playing period of 6
months. PAGCOR has the option to extend the period. 6
Petitioner, a Korean national, alleges that from November 1996 to March 1997, he came
to the Philippines four times to play for high stakes at the Casino Filipino. 7 Petitioner
claims that in the course of the games, he was able to accumulate gambling chips worth
US$2.1 million. Petitioner presented as evidence during the trial gambling chips with a
face value of US$1.1 million. Petitioner contends that when he presented the gambling
chips for encashment with PAGCORs employees or agents, PAGCOR refused to
redeem them.8
Petitioner brought an action against PAGCOR seeking the redemption of gambling chips
valued at US$2.1 million. Petitioner claims that he won the gambling chips at the Casino
Filipino, playing continuously day and night. Petitioner alleges that every time he would
come to Manila, PAGCOR would extend to him amenities deserving of a high roller. A
PAGCOR official who meets him at the airport would bring him to Casino Filipino, a
casino managed and operated by PAGCOR. The card dealers were all PAGCOR
employees, the gambling chips, equipment and furnitures belonged to PAGCOR, and
PAGCOR enforced all the regulations dealing with the operation of foreign exchange
gambling pits. Petitioner states that he was able to redeem his gambling chips with the
cashier during his first few winning trips. But later on, the casino cashier refused to
encash his gambling chips so he had no recourse but to deposit his gambling chips at the
Grand Boulevard Hotels deposit box, every time he departed from Manila.9
PAGCOR claims that petitioner, who was brought into the Philippines by ABS
Corporation, is a junket player who played in the dollar pit exclusively leased by ABS
Corporation for its junket players. PAGCOR alleges that it provided ABS Corporation with
distinct junket chips. ABS Corporation distributed these chips to its junket players. At the
end of each playing period, the junket players would surrender the chips to ABS
Corporation. Only ABS Corporation would make an accounting of these chips to
PAGCORs casino treasury.10
As additional information for the junket players playing in the gaming room leased to ABS
Corporation, PAGCOR posted a notice written in English and Korean languages which
reads:

NOTICE
This GAMING ROOM is exclusively operated by ABS under arrangement with PAGCOR,
the former is solely accountable for all PLAYING CHIPS wagered on the tables. Any
financial ARRANGEMENT/TRANSACTION between PLAYERS and ABS shall only be
binding upon said PLAYERS and ABS.11
PAGCOR claims that this notice is a standard precautionary measure 12 to avoid confusion
between junket players of ABS Corporation and PAGCORs players.
PAGCOR argues that petitioner is not a PAGCOR player because under PAGCORs
gaming rules, gambling chips cannot be brought outside the casino. The gambling chips
must be converted to cash at the end of every gaming period as they are inventoried
every shift. Under PAGCORs rules, it is impossible for PAGCOR players to accumulate
two million dollars worth of gambling chips and to bring the chips out of the casino
premises.13
Since PAGCOR disclaimed liability for the winnings of players recruited by ABS
Corporation and refused to encash the gambling chips, petitioner filed a complaint for a
sum of money before the trial court. 14 PAGCOR filed a counterclaim against petitioner.
Then, trial ensued.
On 6 May 1999, the trial court dismissed the complaint and counterclaim. Petitioner
appealed the trial courts decision to the CA. On 27 May 2003, the CA affirmed the
appealed decision. On 27 June 2003, petitioner moved for reconsideration which was
denied on 7 May 2004.
Aggrieved by the CAs decision and resolution, petitioner elevated the case before this
Court.
The Ruling of the Trial Court
The trial court ruled that based on PAGCORs charter,15 PAGCOR has no authority to
lease any portion of the gambling tables to a private party like ABS Corporation. Section
13 of Presidential Decree No. 1869 or the PAGCORs charter states:
Sec. 13. Exemptions xxx
(4) Utilization of Foreign Currencies The Corporation shall have the right and authority,
solely and exclusively in connection with the operations of the casino(s), to purchase,
receive, exchange and disburse foreign exchange, subject to the following terms and
conditions:

(a) A specific area in the casino(s) or gaming pit shall be put up solely and exclusively for
players and patrons utilizing foreign currencies;
(b) The Corporation shall appoint and designate a duly accredited commercial bank
agent of the Central Bank, to handle, administer and manage the use of foreign
currencies in the casino(s);
(c) The Corporation shall provide an office at casino(s) exclusively for the employees of
the designated bank, agent of the Central Bank, where the Corporation shall maintain a
dollar account which will be utilized exclusively for the above purpose and the casino
dollar treasury employees;
(d) Only persons with foreign passports or certificates of identity (for Hong Kong patron
only) duly issued by the government or country of their residence will be allowed to play
in the foreign exchange gaming pit;
(e) Only foreign exchange prescribed to form part of the Philippine International Reserve
and the following foreign exchange currencies: Australian Dollar, Singapore Dollar, Hong
Kong Dollar, shall be used in this gaming pit;
(f) The disbursement, administration, management and recording of foreign exchange
currencies used in the casino(s) shall be carried out in accordance with existing foreign
exchange regulations, and periodical reports of the transactions in such foreign exchange
currencies by the Corporation shall be duly recorded and reported to the Central Bank
thru the designated Agent Bank; and
(g) The Corporation shall issue the necessary rules and regulations for the guidance and
information of players qualified to participate in the foreign exchange gaming pit, in order
to make certain that the terms and conditions as above set forth are strictly complied
with.
The trial court held that only PAGCOR could use foreign currency in its gaming tables.
When PAGCOR accepted only a fixed portion of the dollar earnings of ABS Corporation
in the concept of a lease of facilities, PAGCOR shared its franchise with ABS Corporation
in violation of the PAGCORs charter. Hence, the Junket Agreement is void. Since the
Junket Agreement is not permitted by PAGCORs charter, the mutual rights and
obligations of the parties to this case would be resolved based on agency and estoppel. 16
The trial court found that the petitioner wanted to redeem gambling chips that were
specifically used by ABS Corporation at its gaming tables. The gambling chips come in
distinctive orange or yellow colors with stickers bearing denominations of 10,000 or
1,000. The 1,000 gambling chips are smaller in size and the words "no cash value"
marked on them. The 10,000 gambling chips do not reflect the "no cash value" sign. The
senior treasury head of PAGCOR testified that these were the gambling chips used by

the previous junket operators and PAGCOR merely continued using them. However, the
gambling chips used in the regular casino games were of a different quality.17
The trial court pointed out that PAGCOR had taken steps to warn players brought in by
all junket operators, including ABS Corporation, that they were playing under special
rules. Apart from the different kinds of gambling chips used, the junket players were
confined to certain gaming rooms. In these rooms, notices were posted that gambling
chips could only be encashed there and nowhere else. A photograph of one such notice,
printed in Korean and English, stated that the gaming room was exclusively operated by
ABS Corporation and that ABS Corporation was solely accountable for all the chips
wagered on the gaming tables. Although petitioner denied seeing this notice, this
disclaimer has the effect of a negative evidence that can hardly prevail against the
positive assertions of PAGCOR officials whose credibility is also not open to doubt. The
trial court concluded that petitioner had been alerted to the existence of these special
gambling rules, and the mere fact that he continued to play under the same restrictions
over a period of several months confirms his acquiescence to them. Otherwise, petitioner
could have simply chose to stop gambling. 18
In dismissing petitioners complaint, the trial court concluded that petitioners demand
against PAGCOR for the redemption of the gambling chips could not stand. The trial
court stated that petitioner, a stranger to the agreement between PAGCOR and ABS
Corporation, could not under principles of equity be charged with notice other than of the
apparent authority with which PAGCOR had clothed its employees and agents in dealing
with petitioner. Since petitioner was made aware of the special rules by which he was
playing at the Casino Filipino, petitioner could not now claim that he was not bound by
them. The trial court explained that in an unlawful transaction, the courts will extend
equitable relief only to a party who was unaware of all its dimensions and whose
ignorance of them exposed him to the risk of being exploited by the other. Where the
parties enter into such a relationship with the opportunity to know all of its ramifications,
as in this case, there is no room for equitable considerations to come to the rescue of any
party. The trial court ruled that it would leave the parties where they are. 19
The Ruling of the Court of Appeals
In dismissing the appeal, the appellate court addressed the four errors assigned by
petitioner.
First, petitioner maintains that he was never a junket player of ABS Corporation.
Petitioner also denies seeing a notice that certain gaming rooms were exclusively
operated by entities under special agreement. 20
The CA ruled that the records do not support petitioners theory. Petitioners own
testimony reveals that he enjoyed special accommodations at the Grand Boulevard
Hotel. This similar accommodation was extended to players brought in by ABS

Corporation and other junket operators. Petitioner cannot disassociate himself from ABS
Corporation for it is unlikely that an unknown high roller would be accorded choice
accommodations by the hotel unless the accommodation was facilitated by a junket
operator who enjoyed such privilege.21
The CA added that the testimonies of PAGCORs employees affirming that notices were
posted in English and Korean in the gaming areas are credible in the absence of any
convincing proof of ill motive. Further, the specified gaming areas used only special chips
that could be bought and exchanged at certain cashier booths in that area. 22
Second, petitioner attacks the validity of the contents of the notice. Since the Junket
Agreement is void, the notice, which was issued pursuant to the Junket Agreement, is
also void and cannot affect petitioner.23
The CA reasoned that the trial court never declared the notice valid and neither did it
enforce the contents thereof. The CA emphasized that it was the act of cautioning and
alerting the players that was upheld. The trial court ruled that signs and warnings were in
place to inform the public, petitioner included, that special rules applied to certain gaming
areas even if the very agreement giving rise to these rules is void. 24
Third, petitioner takes the position that an implied agency existed between PAGCOR and
ABS Corporation.25
The CA disagreed with petitioners view. A void contract has no force and effect from
the very beginning. It produces no effect either against or in favor of anyone. Neither can
it create, modify or extinguish the juridical relation to which it refers. Necessarily, the
Junket Agreement, being void from the beginning, cannot give rise to an implied agency.
The CA explained that it cannot see how the principle of implied agency can be applied to
this case. Article 188326 of the Civil Code applies only to a situation where the agent is
authorized by the principal to enter into a particular transaction, but instead of contracting
on behalf of the principal, the agent acts in his own name. 27
The CA concluded that no such legal fiction existed between PAGCOR and ABS
Corporation. PAGCOR entered into a Junket Agreement to lease to ABS Corporation
certain gaming areas. It was never PAGCORs intention to deal with the junket players.
Neither did PAGCOR intend ABS Corporation to represent PAGCOR in dealing with the
junket players. Representation is the basis of agency but unfortunately for petitioner none
is found in this case.28
The CA added that the special gaming chips, while belonging to PAGCOR, are mere
accessories in the void Junket Agreement with ABS Corporation. In Article 1883, the
phrase "things belonging to the principal" refers only to those things or properties subject
of a particular transaction authorized by the principal to be entered into by its purported

agent. Necessarily, the gambling chips being mere incidents to the void lease agreement
cannot fall under this category.29
The CA ruled that Article 2152 30 of the Civil Code is also not applicable. The
circumstances relating to negotiorum gestio are non-existent to warrant an officious
manager to take over the management and administration of PAGCOR.31
Fourth, petitioner asks for equitable relief. 32
The CA explained that although petitioner was never a party to the void Junket
Agreement, petitioner cannot deny or feign blindness to the signs and warnings all
around him. The notices, the special gambling chips, and the separate gaming areas
were more than enough to alert him that he was playing under different terms. Petitioner
persisted and continued to play in the casino. Petitioner also enjoyed the perks extended
to junket players of ABS Corporation. For failing to heed these signs and warnings,
petitioner can no longer be permitted to claim equitable relief. When parties do not come
to court with clean hands, they cannot be allowed to profit from their own wrong doing. 33
The Issues
Petitioners raise three issues in this petition:
1. Whether the CA erred in holding that PAGCOR is not liable to petitioner, disregarding
the doctrine of implied agency, or agency by estoppel;
2. Whether the CA erred in using intent of the contracting parties as the test for creation
of agency, when such is not relevant since the instant case involves liability of the
presumed principal in implied agency to a third party; and
3. Whether the CA erred in failing to consider that PAGCOR ratified, or at least adopted,
the acts of the agent, ABS Corporation. 34
The Ruling of the Court
The petition lacks merit.
Courts will not enforce debts arising from illegal gambling
Gambling is prohibited by the laws of the Philippines as specifically provided in Articles
195 to 199 of the Revised Penal Code, as amended. Gambling is an act beyond the pale
of good morals,35 and is thus prohibited and punished to repress an evil that undermines
the social, moral, and economic growth of the nation. 36 Presidential Decree No. 1602 (PD
1602),37 which modified Articles 195-199 of the Revised Penal Code and repealed
inconsistent provisions,38 prescribed stiffer penalties on illegal gambling. 39

As a rule, all forms of gambling are illegal. The only form of gambling allowed by law is
that stipulated under Presidential Decree No. 1869, which gave PAGCOR its franchise to
maintain and operate gambling casinos. The issue then turns on whether PAGCOR can
validly share its franchise with junket operators to operate gambling casinos in the
country. Section 3(h) of PAGCORs charter states:
Section 3. Corporate Powers. - The Corporation shall have the following powers and
functions, among others:
xxx
h) to enter into, make, perform, and carry out contracts of every kind and for any lawful
purpose pertaining to the business of the Corporation, or in any manner incident thereto,
as principal, agent or otherwise, with any person, firm, association, or corporation.
xxx
The Junket Agreement would be valid if under Section 3(h) of PAGCORs charter,
PAGCOR could share its gambling franchise with another entity. In Senator Jaworski v.
Phil. Amusement and Gaming Corp.,40 the Court discussed the extent of the grant of the
legislative franchise to PAGCOR on its authority to operate gambling casinos:
A legislative franchise is a special privilege granted by the state to corporations. It is a
privilege of public concern which cannot be exercised at will and pleasure, but should be
reserved for public control and administration, either by the government directly, or by
public agents, under such conditions and regulations as the government may impose on
them in the interest of the public. It is Congress that prescribes the conditions on which
the grant of the franchise may be made. Thus the manner of granting the franchise, to
whom it may be granted, the mode of conducting the business, the charter and the
quality of the service to be rendered and the duty of the grantee to the public in
exercising the franchise are almost always defined in clear and unequivocal language.
After a circumspect consideration of the foregoing discussion and the contending
positions of the parties, we hold that PAGCOR has acted beyond the limits of its authority
when it passed on or shared its franchise to SAGE.
In the Del Mar case where a similar issue was raised when PAGCOR entered into a joint
venture agreement with two other entities in the operation and management of jai alai
games, the Court, in an En Banc Resolution dated 24 August 2001, partially granted the
motions for clarification filed by respondents therein insofar as it prayed that PAGCOR
has a valid franchise, but only by itself (i.e. not in association with any other person or
entity), to operate, maintain and/or manage the game of jai-alai.

In the case at bar, PAGCOR executed an agreement with SAGE whereby the former
grants the latter the authority to operate and maintain sports betting stations and Internet
gaming operations. In essence, the grant of authority gives SAGE the privilege to actively
participate, partake and share PAGCORs franchise to operate a gambling activity. The
grant of franchise is a special privilege that constitutes a right and a duty to be performed
by the grantee. The grantee must not perform its activities arbitrarily and whimsically but
must abide by the limits set by its franchise and strictly adhere to its terms and
conditionalities. A corporation as a creature of the State is presumed to exist for the
common good. Hence, the special privileges and franchises it receives are subject to the
laws of the State and the limitations of its charter. There is therefore a reserved right of
the State to inquire how these privileges had been employed, and whether they have
been abused. (Emphasis supplied)
Thus, PAGCOR has the sole and exclusive authority to operate a gambling activity. While
PAGCOR is allowed under its charter to enter into operators or management contracts,
PAGCOR is not allowed under the same charter to relinquish or share its franchise.
PAGCOR cannot delegate its power in view of the legal principle of delegata potestas
delegare non potest, inasmuch as there is nothing in the charter to show that it has been
expressly authorized to do so.41
Similarly, in this case, PAGCOR, by taking only a percentage of the earnings of ABS
Corporation from its foreign currency collection, allowed ABS Corporation to operate
gaming tables in the dollar pit. The Junket Agreement is in direct violation of PAGCORs
charter and is therefore void.
Since the Junket Agreement violates PAGCORs charter, gambling between the junket
player and the junket operator under such agreement is illegal and may not be enforced
by the courts. Article 2014 42 of the Civil Code, which refers to illegal gambling, states that
no action can be maintained by the winner for the collection of what he has won in a
game of chance.
Although not raised as an issue by petitioner, we deem it necessary to discuss the
applicability of Republic Act No. 948743 (RA 9487) to the present case.
RA 9487 amended the PAGCOR charter, granting PAGCOR the power to enter into
special agreement with third parties to share the privileges under its franchise for the
operation of gambling casinos:
Section 1. The Philippine Amusement and Gaming Corporation (PAGCOR) franchise
granted under Presidential Decree No. 1869 otherwise known as the PAGCOR Charter,
is hereby further amended to read as follows:
xxx

(2) Section 3(h) is hereby amended to read as follows:

"SEC. 3. Corporate Powers. "x x x
"(h) to enter into, make, conclude, perform, and carry out contracts of every kind and
nature and for any lawful purpose which are necessary, appropriate, proper or incidental
to any business or purpose of the PAGCOR, including but not limited to investment
agreements, joint venture agreements, management agreements, agency agreements,
whether as principal or as an agent, manpower supply agreements, or any other similar
agreements or arrangements with any person, firm, association or corporation."
(Boldfacing supplied)
PAGCOR sought the amendment of its charter precisely to address and remedy the legal
impediment raised in Senator Jaworski v. Phil. Amusement and Gaming Corp.
Unfortunately for petitioner, RA 9487 cannot be applied to the present case. The Junket
Agreement was entered into between PAGCOR and ABS Corporation on 25 April 1996
when the PAGCOR charter then prevailing (PD 1869) prohibited PAGCOR from entering
into any arrangement with a third party that would allow such party to actively participate
in the casino operations.
It is a basic principle that laws should only be applied prospectively unless the legislative
intent to give them retroactive effect is expressly declared or is necessarily implied from
the language used.44 RA 9487 does not provide for any retroactivity of its provisions. All
laws operate prospectively absent a clear contrary language in the text, 45 and that in
every case of doubt, the doubt will be resolved against the retroactive operation of laws. 46
Thus, petitioner cannot avail of the provisions of RA 9487 as this was not the law when
the acts giving rise to the claimed liabilities took place. This makes the gambling activity
participated in by petitioner illegal. Petitioner cannot sue PAGCOR to redeem the cash
value of the gambling chips or recover damages arising from an illegal activity for two
reasons. First, petitioner engaged in gambling with ABS Corporation and not with
PAGCOR. Second, the court cannot assist petitioner in enforcing an illegal act. Moreover,
for a court to grant petitioners prayer would mean enforcing the Junket Agreement,
which is void.
Now, to address the issues raised by petitioner in his petition, petitioner claims that he is
a third party proceeding against the liability of a presumed principal and claims relief,
alternatively, on the basis of implied agency or agency by estoppel.
Article 1869 of the Civil Code states that implied agency is derived from the acts of the
principal, from his silence or lack of action, or his failure to repudiate the agency, knowing

that another person is acting on his behalf without authority. Implied agency, being an
actual agency, is a fact to be proved by deductions or inferences from other facts. 47
On the other hand, apparent authority is based on estoppel and can arise from two
instances. First, the principal may knowingly permit the agent to hold himself out as
having such authority, and the principal becomes estopped to claim that the agent does
not have such authority. Second, the principal may clothe the agent with the indicia of
authority as to lead a reasonably prudent person to believe that the agent actually has
such authority.48 In an agency by estoppel, there is no agency at all, but the one
assuming to act as agent has apparent or ostensible, although not real, authority to
represent another.49
The law makes no presumption of agency and proving its existence, nature and extent is
incumbent upon the person alleging it.50 Whether or not an agency has been created is a
question to be determined by the fact that one represents and is acting for another. 51
Acts and conduct of PAGCOR negates the existence of an implied agency or an agency
by estoppel
Petitioner alleges that there is an implied agency. Alternatively, petitioner claims that even
assuming that no actual agency existed between PAGCOR and ABS Corporation, there
is still an agency by estoppel based on the acts and conduct of PAGCOR showing
apparent authority in favor of ABS Corporation. Petitioner states that one factor which
distinguishes agency from other legal precepts is control and the following undisputed
facts show a relationship of implied agency:
1. Three floors of the Grand Boulevard Hotel 52 were leased to PAGCOR for conducting
gambling operations;53
2. Of the three floors, PAGCOR allowed ABS Corporation to use one whole floor for
foreign exchange gambling, conducted by PAGCOR dealers using PAGCOR facilities,
operated by PAGCOR employees and using PAGCOR chips bearing the PAGCOR logo; 54
3. PAGCOR controlled the release, withdrawal and return of all the gambling chips given
to ABS Corporation in that part of the casino and at the end of the day, PAGCOR
conducted an inventory of the gambling chips;55
4. ABS Corporation accounted for all gambling chips with the Commission on Audit
(COA), the official auditor of PAGCOR;56
5. PAGCOR enforced, through its own manager, all the rules and regulations on the
operation of the gambling pit used by ABS Corporation. 57
Petitioners argument is clearly misplaced. The basis for agency is representation, 58 that
is, the agent acts for and on behalf of the principal on matters within the scope of his

authority and said acts have the same legal effect as if they were personally executed by
the principal.59 On the part of the principal, there must be an actual intention to appoint or
an intention naturally inferable from his words or actions, while on the part of the agent,
there must be an intention to accept the appointment and act on it. 60 Absent such mutual
intent, there is generally no agency.61
There is no implied agency in this case because PAGCOR did not hold out to the public
as the principal of ABS Corporation. PAGCORs actions did not mislead the public into
believing that an agency can be implied from the arrangement with the junket operators,
nor did it hold out ABS Corporation with any apparent authority to represent it in any
capacity. The Junket Agreement was merely a contract of lease of facilities and services.
The players brought in by ABS Corporation were covered by a different set of rules in
acquiring and encashing chips. The players used a different kind of chip than what was
used in the regular gaming areas of PAGCOR, and that such junket players played
specifically only in the third floor area and did not mingle with the regular patrons of
PAGCOR. Furthermore, PAGCOR, in posting notices stating that the players are playing
under special rules, exercised the necessary precaution to warn the gaming public that
no agency relationship exists.
1avvphi1

For the second assigned error, petitioner claims that the intention of the parties cannot
apply to him as he is not a party to the contract.
We disagree. The Court of Appeals correctly used the intent of the contracting parties in
determining whether an agency by estoppel existed in this case. An agency by estoppel,
which is similar to the doctrine of apparent authority requires proof of reliance upon the
representations, and that, in turn, needs proof that the representations predated the
action taken in reliance.62
There can be no apparent authority of an agent without acts or conduct on the part of the
principal and such acts or conduct of the principal must have been known and relied
upon in good faith and as a result of the exercise of reasonable prudence by a third
person as claimant, and such must have produced a change of position to its
detriment.63 Such proof is lacking in this case.
In the entire duration that petitioner played in Casino Filipino, he was dealing only with
ABS Corporation, and availing of the privileges extended only to players brought in by
ABS Corporation. The facts that he enjoyed special treatment upon his arrival in Manila
and special accommodations in Grand Boulevard Hotel, and that he was playing in
special gaming rooms are all indications that petitioner cannot claim good faith that he
believed he was dealing with PAGCOR. Petitioner cannot be considered as an innocent
third party and he cannot claim entitlement to equitable relief as well.

For his third and final assigned error, petitioner asserts that PAGCOR ratified the acts of
ABS Corporation.
The trial court has declared, and we affirm, that the Junket Agreement is void. A void or
inexistent contract is one which has no force and effect from the very beginning. Hence, it
is as if it has never been entered into and cannot be validated either by the passage of
time or by ratification.64 Article 1409 of the Civil Code provides that contracts expressly
prohibited or declared void by law, such as gambling contracts, "cannot be ratified." 65
WHEREFORE, we DENY the petition. We AFFIRM the Court of Appeals Decision
dated 27 May 2003 as well as the Resolution dated 7 May 2004 as modified by this
Decision.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:

G.R. No. 126297

January 31, 2007

PROFESSIONAL SERVICES, INC., Petitioner,

vs.
NATIVIDAD and ENRIQUE AGANA, Respondents.
x-----------------------x
G.R. No. 126467

January 31, 2007

NATIVIDAD (Substituted by her children MARCELINO AGANA III, ENRIQUE AGANA,

JR., EMMA AGANA ANDAYA, JESUS AGANA, and RAYMUND AGANA) and
ENRIQUE AGANA, Petitioners,
vs.
JUAN FUENTES, Respondent.
x- - - - - - - - - - - - - - - - - - - -- - - - x
G.R. No. 127590

January 31, 2007

MIGUEL AMPIL, Petitioner,

vs.
NATIVIDAD AGANA and ENRIQUE AGANA, Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Hospitals, having undertaken one of mankinds most important and delicate endeavors,
must assume the grave responsibility of pursuing it with appropriate care. The care and
service dispensed through this high trust, however technical, complex and esoteric its
character may be, must meet standards of responsibility commensurate with the
undertaking to preserve and protect the health, and indeed, the very lives of those placed
in the hospitals keeping.1
Assailed in these three consolidated petitions for review on certiorari is the Court of
Appeals Decision2 dated September 6, 1996 in CA-G.R. CV No. 42062 and CA-G.R.
SP No. 32198 affirming with modification the Decision 3 dated March 17, 1993 of the
Regional Trial Court (RTC), Branch 96, Quezon City in Civil Case No. Q-43322 and
nullifying its Order dated September 21, 1993.
The facts, as culled from the records, are:

On April 4, 1984, Natividad Agana was rushed to the Medical City General Hospital
(Medical City Hospital) because of difficulty of bowel movement and bloody anal
discharge. After a series of medical examinations, Dr. Miguel Ampil, petitioner in G.R. No.
127590, diagnosed her to be suffering from "cancer of the sigmoid."
On April 11, 1984, Dr. Ampil, assisted by the medical staff 4 of the Medical City Hospital,
performed an anterior resection surgery on Natividad. He found that the malignancy in
her sigmoid area had spread on her left ovary, necessitating the removal of certain
portions of it. Thus, Dr. Ampil obtained the consent of Natividads husband, Enrique
Agana, to permit Dr. Juan Fuentes, respondent in G.R. No. 126467, to perform
hysterectomy on her.
After Dr. Fuentes had completed the hysterectomy, Dr. Ampil took over, completed the
operation and closed the incision.
However, the operation appeared to be flawed. In the corresponding Record of Operation
dated April 11, 1984, the attending nurses entered these remarks:
"sponge count lacking 2
"announced to surgeon searched (sic) done but to no avail continue for closure."
On April 24, 1984, Natividad was released from the hospital. Her hospital and medical
bills, including the doctors fees, amounted to P60,000.00.
After a couple of days, Natividad complained of excruciating pain in her anal region. She
consulted both Dr. Ampil and Dr. Fuentes about it. They told her that the pain was the
natural consequence of the surgery. Dr. Ampil then recommended that she consult an
oncologist to examine the cancerous nodes which were not removed during the
operation.
On May 9, 1984, Natividad, accompanied by her husband, went to the United States to
seek further treatment. After four months of consultations and laboratory examinations,
Natividad was told she was free of cancer. Hence, she was advised to return to the
Philippines.
On August 31, 1984, Natividad flew back to the Philippines, still suffering from pains. Two
weeks thereafter, her daughter found a piece of gauze protruding from her vagina. Upon
being informed about it, Dr. Ampil proceeded to her house where he managed to extract
by hand a piece of gauze measuring 1.5 inches in width. He then assured her that the
pains would soon vanish.
Dr. Ampils assurance did not come true. Instead, the pains intensified, prompting
Natividad to seek treatment at the Polymedic General Hospital. While confined there, Dr.
Ramon Gutierrez detected the presence of another foreign object in her vagina -- a foul-

smelling gauze measuring 1.5 inches in width which badly infected her vaginal vault. A
recto-vaginal fistula had formed in her reproductive organs which forced stool to excrete
through the vagina. Another surgical operation was needed to remedy the damage. Thus,
in October 1984, Natividad underwent another surgery.
On November 12, 1984, Natividad and her husband filed with the RTC, Branch 96,
Quezon City a complaint for damages against the Professional Services, Inc. (PSI),
owner of the Medical City Hospital, Dr. Ampil, and Dr. Fuentes, docketed as Civil Case
No. Q-43322. They alleged that the latter are liable for negligence for leaving two pieces
of gauze inside Natividads body and malpractice for concealing their acts of
negligence.
Meanwhile, Enrique Agana also filed with the Professional Regulation Commission (PRC)
an administrative complaint for gross negligence and malpractice against Dr. Ampil and
Dr. Fuentes, docketed as Administrative Case No. 1690. The PRC Board of Medicine
heard the case only with respect to Dr. Fuentes because it failed to acquire jurisdiction
over Dr. Ampil who was then in the United States.
On February 16, 1986, pending the outcome of the above cases, Natividad died and was
duly substituted by her above-named children (the Aganas).
On March 17, 1993, the RTC rendered its Decision in favor of the Aganas, finding PSI,
Dr. Ampil and Dr. Fuentes liable for negligence and malpractice, the decretal part of
which reads:
WHEREFORE, judgment is hereby rendered for the plaintiffs ordering the defendants
PROFESSIONAL SERVICES, INC., DR. MIGUEL AMPIL and DR. JUAN FUENTES to
pay to the plaintiffs, jointly and severally, except in respect of the award for exemplary
damages and the interest thereon which are the liabilities of defendants Dr. Ampil and Dr.
Fuentes only, as follows:
1. As actual damages, the following amounts:
a. The equivalent in Philippine Currency of the total of US$19,900.00 at the rate of
P21.60-US$1.00, as reimbursement of actual expenses incurred in the United States of
America;
b. The sum of P4,800.00 as travel taxes of plaintiffs and their physician daughter;
c. The total sum of P45,802.50, representing the cost of hospitalization at Polymedic
Hospital, medical fees, and cost of the saline solution;
2. As moral damages, the sum of P2,000,000.00;
3. As exemplary damages, the sum of P300,000.00;

4. As attorneys fees, the sum of P250,000.00;

5. Legal interest on items 1 (a), (b), and (c); 2; and 3 hereinabove, from date of filing of
the complaint until full payment; and
6. Costs of suit.
SO ORDERED.
Aggrieved, PSI, Dr. Fuentes and Dr. Ampil interposed an appeal to the Court of Appeals,
docketed as CA-G.R. CV No. 42062.
Incidentally, on April 3, 1993, the Aganas filed with the RTC a motion for a partial
execution of its Decision, which was granted in an Order dated May 11, 1993. Thereafter,
the sheriff levied upon certain properties of Dr. Ampil and sold them for P451,275.00 and
delivered the amount to the Aganas.
Following their receipt of the money, the Aganas entered into an agreement with PSI and
Dr. Fuentes to indefinitely suspend any further execution of the RTC Decision. However,
not long thereafter, the Aganas again filed a motion for an alias writ of execution against
the properties of PSI and Dr. Fuentes. On September 21, 1993, the RTC granted the
motion and issued the corresponding writ, prompting Dr. Fuentes to file with the Court of
Appeals a petition for certiorari and prohibition, with prayer for preliminary injunction,
docketed as CA-G.R. SP No. 32198. During its pendency, the Court of Appeals issued a
Resolution5 dated October 29, 1993 granting Dr. Fuentes prayer for injunctive relief.
On January 24, 1994, CA-G.R. SP No. 32198 was consolidated with CA-G.R. CV No.
42062.
Meanwhile, on January 23, 1995, the PRC Board of Medicine rendered its Decision 6 in
Administrative Case No. 1690 dismissing the case against Dr. Fuentes. The Board held
that the prosecution failed to show that Dr. Fuentes was the one who left the two pieces
of gauze inside Natividads body; and that he concealed such fact from Natividad.
On September 6, 1996, the Court of Appeals rendered its Decision jointly disposing of
CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198, thus:
WHEREFORE, except for the modification that the case against defendant-appellant Dr.
Juan Fuentes is hereby DISMISSED, and with the pronouncement that defendantappellant Dr. Miguel Ampil is liable to reimburse defendant-appellant Professional
Services, Inc., whatever amount the latter will pay or had paid to the plaintiffs-appellees,
the decision appealed from is hereby AFFIRMED and the instant appeal DISMISSED.
Concomitant with the above, the petition for certiorari and prohibition filed by herein
defendant-appellant Dr. Juan Fuentes in CA-G.R. SP No. 32198 is hereby GRANTED

and the challenged order of the respondent judge dated September 21, 1993, as well as
the alias writ of execution issued pursuant thereto are hereby NULLIFIED and SET
ASIDE. The bond posted by the petitioner in connection with the writ of preliminary
injunction issued by this Court on November 29, 1993 is hereby cancelled.
Costs against defendants-appellants Dr. Miguel Ampil and Professional Services, Inc.
SO ORDERED.
Only Dr. Ampil filed a motion for reconsideration, but it was denied in a Resolution 7 dated
December 19, 1996.
Hence, the instant consolidated petitions.
In G.R. No. 126297, PSI alleged in its petition that the Court of Appeals erred in holding
that: (1) it is estopped from raising the defense that Dr. Ampil is not its employee; (2) it is
solidarily liable with Dr. Ampil; and (3) it is not entitled to its counterclaim against the
Aganas. PSI contends that Dr. Ampil is not its employee, but a mere consultant or
independent contractor. As such, he alone should answer for his negligence.
In G.R. No. 126467, the Aganas maintain that the Court of Appeals erred in finding that
Dr. Fuentes is not guilty of negligence or medical malpractice, invoking the doctrine of res
ipsa loquitur. They contend that the pieces of gauze are prima facie proofs that the
operating surgeons have been negligent.
Finally, in G.R. No. 127590, Dr. Ampil asserts that the Court of Appeals erred in finding
him liable for negligence and malpractice sans evidence that he left the two pieces of
gauze in Natividads vagina. He pointed to other probable causes, such as: (1) it was
Dr. Fuentes who used gauzes in performing the hysterectomy; (2) the attending nurses
failure to properly count the gauzes used during surgery; and (3) the medical intervention
of the American doctors who examined Natividad in the United States of America.
For our resolution are these three vital issues: first, whether the Court of Appeals erred in
holding Dr. Ampil liable for negligence and malpractice; second, whether the Court of
Appeals erred in absolving Dr. Fuentes of any liability; and third, whether PSI may be
held solidarily liable for the negligence of Dr. Ampil.
I - G.R. No. 127590
Whether the Court of Appeals Erred in Holding Dr. Ampil
Liable for Negligence and Malpractice.
Dr. Ampil, in an attempt to absolve himself, gears the Courts attention to other possible
causes of Natividads detriment. He argues that the Court should not discount either of

the following possibilities: first, Dr. Fuentes left the gauzes in Natividads body after
performing hysterectomy; second, the attending nurses erred in counting the gauzes; and
third, the American doctors were the ones who placed the gauzes in Natividads body.
Dr. Ampils arguments are purely conjectural and without basis. Records show that he
did not present any evidence to prove that the American doctors were the ones who put
or left the gauzes in Natividads body. Neither did he submit evidence to rebut the
correctness of the record of operation, particularly the number of gauzes used. As to the
alleged negligence of Dr. Fuentes, we are mindful that Dr. Ampil examined his (Dr.
Fuentes) work and found it in order.
The glaring truth is that all the major circumstances, taken together, as specified by the
Court of Appeals, directly point to Dr. Ampil as the negligent party, thus:
First, it is not disputed that the surgeons used gauzes as sponges to control the bleeding
of the patient during the surgical operation.
Second, immediately after the operation, the nurses who assisted in the surgery noted in
their report that the sponge count (was) lacking 2; that such anomaly was
announced to surgeon and that a search was done but to no avail prompting Dr.
Ampil to continue for closure x x x.
Third, after the operation, two (2) gauzes were extracted from the same spot of the body
of Mrs. Agana where the surgery was performed.
An operation requiring the placing of sponges in the incision is not complete until the
sponges are properly removed, and it is settled that the leaving of sponges or other
foreign substances in the wound after the incision has been closed is at least prima facie
negligence by the operating surgeon. 8 To put it simply, such act is considered so
inconsistent with due care as to raise an inference of negligence. There are even legions
of authorities to the effect that such act is negligence per se. 9
Of course, the Court is not blind to the reality that there are times when danger to a
patients life precludes a surgeon from further searching missing sponges or foreign
objects left in the body. But this does not leave him free from any obligation. Even if it has
been shown that a surgeon was required by the urgent necessities of the case to leave a
sponge in his patients abdomen, because of the dangers attendant upon delay, still, it
is his legal duty to so inform his patient within a reasonable time thereafter by advising
her of what he had been compelled to do. This is in order that she might seek relief from
the effects of the foreign object left in her body as her condition might permit. The ruling
in Smith v. Zeagler10 is explicit, thus:
The removal of all sponges used is part of a surgical operation, and when a physician or
surgeon fails to remove a sponge he has placed in his patients body that should be

removed as part of the operation, he thereby leaves his operation uncompleted and
creates a new condition which imposes upon him the legal duty of calling the new
condition to his patients attention, and endeavoring with the means he has at hand to
minimize and avoid untoward results likely to ensue therefrom.
Here, Dr. Ampil did not inform Natividad about the missing two pieces of gauze. Worse,
he even misled her that the pain she was experiencing was the ordinary consequence of
her operation. Had he been more candid, Natividad could have taken the immediate and
appropriate medical remedy to remove the gauzes from her body. To our mind, what was
initially an act of negligence by Dr. Ampil has ripened into a deliberate wrongful act of
deceiving his patient.
This is a clear case of medical malpractice or more appropriately, medical negligence. To
successfully pursue this kind of case, a patient must only prove that a health care
provider either failed to do something which a reasonably prudent health care provider
would have done, or that he did something that a reasonably prudent provider would not
have done; and that failure or action caused injury to the patient. 11 Simply put, the
elements are duty, breach, injury and proximate causation. Dr, Ampil, as the lead
surgeon, had the duty to remove all foreign objects, such as gauzes, from Natividads
body before closure of the incision. When he failed to do so, it was his duty to inform
Natividad about it. Dr. Ampil breached both duties. Such breach caused injury to
Natividad, necessitating her further examination by American doctors and another
surgery. That Dr. Ampils negligence is the proximate cause12 of Natividads injury
could be traced from his act of closing the incision despite the information given by the
attending nurses that two pieces of gauze were still missing. That they were later on
extracted from Natividads vagina established the causal link between Dr. Ampils
negligence and the injury. And what further aggravated such injury was his deliberate
concealment of the missing gauzes from the knowledge of Natividad and her family.
II - G.R. No. 126467
Whether the Court of Appeals Erred in Absolving
Dr. Fuentes of any Liability
The Aganas assailed the dismissal by the trial court of the case against Dr. Fuentes on
the ground that it is contrary to the doctrine of res ipsa loquitur. According to them, the
fact that the two pieces of gauze were left inside Natividads body is a prima facie
evidence of Dr. Fuentes negligence.
We are not convinced.
Literally, res ipsa loquitur means "the thing speaks for itself." It is the rule that the fact of
the occurrence of an injury, taken with the surrounding circumstances, may permit an

inference or raise a presumption of negligence, or make out a plaintiffs prima facie

case, and present a question of fact for defendant to meet with an explanation. 13 Stated
differently, where the thing which caused the injury, without the fault of the injured, is
under the exclusive control of the defendant and the injury is such that it should not have
occurred if he, having such control used proper care, it affords reasonable evidence, in
the absence of explanation that the injury arose from the defendants want of care, and
the burden of proof is shifted to him to establish that he has observed due care and
diligence.14
From the foregoing statements of the rule, the requisites for the applicability of the
doctrine of res ipsa loquitur are: (1) the occurrence of an injury; (2) the thing which
caused the injury was under the control and management of the defendant; (3) the
occurrence was such that in the ordinary course of things, would not have happened if
those who had control or management used proper care; and (4) the absence of
explanation by the defendant. Of the foregoing requisites, the most instrumental is the
"control and management of the thing which caused the injury." 15
We find the element of "control and management of the thing which caused the injury" to
be wanting. Hence, the doctrine of res ipsa loquitur will not lie.
It was duly established that Dr. Ampil was the lead surgeon during the operation of
Natividad. He requested the assistance of Dr. Fuentes only to perform hysterectomy
when he (Dr. Ampil) found that the malignancy in her sigmoid area had spread to her left
ovary. Dr. Fuentes performed the surgery and thereafter reported and showed his work to
Dr. Ampil. The latter examined it and finding everything to be in order, allowed Dr.
Fuentes to leave the operating room. Dr. Ampil then resumed operating on Natividad. He
was about to finish the procedure when the attending nurses informed him that two
pieces of gauze were missing. A "diligent search" was conducted, but the misplaced
gauzes were not found. Dr. Ampil then directed that the incision be closed. During this
entire period, Dr. Fuentes was no longer in the operating room and had, in fact, left the
hospital.
Under the "Captain of the Ship" rule, the operating surgeon is the person in complete
charge of the surgery room and all personnel connected with the operation. Their duty is
to obey his orders.16 As stated before, Dr. Ampil was the lead surgeon. In other words, he
was the "Captain of the Ship." That he discharged such role is evident from his following
conduct: (1) calling Dr. Fuentes to perform a hysterectomy; (2) examining the work of Dr.
Fuentes and finding it in order; (3) granting Dr. Fuentes permission to leave; and (4)
ordering the closure of the incision. To our mind, it was this act of ordering the closure of
the incision notwithstanding that two pieces of gauze remained unaccounted for, that
caused injury to Natividads body. Clearly, the control and management of the thing
which caused the injury was in the hands of Dr. Ampil, not Dr. Fuentes.

In this jurisdiction, res ipsa loquitur is not a rule of substantive law, hence, does not per
se create or constitute an independent or separate ground of liability, being a mere
evidentiary rule.17 In other words, mere invocation and application of the doctrine does
not dispense with the requirement of proof of negligence. Here, the negligence was
proven to have been committed by Dr. Ampil and not by Dr. Fuentes.
III - G.R. No. 126297
Whether PSI Is Liable for the Negligence of Dr. Ampil
The third issue necessitates a glimpse at the historical development of hospitals and the
resulting theories concerning their liability for the negligence of physicians.
Until the mid-nineteenth century, hospitals were generally charitable institutions,
providing medical services to the lowest classes of society, without regard for a
patients ability to pay.18 Those who could afford medical treatment were usually treated
at home by their doctors.19 However, the days of house calls and philanthropic health
care are over. The modern health care industry continues to distance itself from its
charitable past and has experienced a significant conversion from a not-for-profit health
care to for-profit hospital businesses. Consequently, significant changes in health law
have accompanied the business-related changes in the hospital industry. One important
legal change is an increase in hospital liability for medical malpractice. Many courts now
allow claims for hospital vicarious liability under the theories of respondeat superior,
apparent authority, ostensible authority, or agency by estoppel. 20
In this jurisdiction, the statute governing liability for negligent acts is Article 2176 of the
Civil Code, which reads:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.
A derivative of this provision is Article 2180, the rule governing vicarious liability under the
doctrine of respondeat superior, thus:
ART. 2180. The obligation imposed by Article 2176 is demandable not only for one s
own acts or omissions, but also for those of persons for whom one is responsible.
x x x

x x x

The owners and managers of an establishment or enterprise are likewise responsible for
damages caused by their employees in the service of the branches in which the latter are
employed or on the occasion of their functions.

Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks even though the former are not
engaged in any business or industry.
x x x

The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to
prevent damage.
A prominent civilist commented that professionals engaged by an employer, such as
physicians, dentists, and pharmacists, are not "employees" under this article because the
manner in which they perform their work is not within the control of the latter (employer).
In other words, professionals are considered personally liable for the fault or negligence
they commit in the discharge of their duties, and their employer cannot be held liable for
such fault or negligence. In the context of the present case, "a hospital cannot be held
liable for the fault or negligence of a physician or surgeon in the treatment or operation of
patients."21
The foregoing view is grounded on the traditional notion that the professional status and
the very nature of the physicians calling preclude him from being classed as an agent or
employee of a hospital, whenever he acts in a professional capacity.22 It has been said
that medical practice strictly involves highly developed and specialized knowledge, 23 such
that physicians are generally free to exercise their own skill and judgment in rendering
medical services sans interference. 24 Hence, when a doctor practices medicine in a
hospital setting, the hospital and its employees are deemed to subserve him in his
ministrations to the patient and his actions are of his own responsibility.25
The case of Schloendorff v. Society of New York Hospital 26 was then considered an
authority for this view. The "Schloendorff doctrine" regards a physician, even if employed
by a hospital, as an independent contractor because of the skill he exercises and the lack
of control exerted over his work. Under this doctrine, hospitals are exempt from the
application of the respondeat superior principle for fault or negligence committed by
physicians in the discharge of their profession.
However, the efficacy of the foregoing doctrine has weakened with the significant
developments in medical care. Courts came to realize that modern hospitals are
increasingly taking active role in supplying and regulating medical care to patients. No
longer were a hospitals functions limited to furnishing room, food, facilities for treatment
and operation, and attendants for its patients. Thus, in Bing v. Thunig, 27 the New York
Court of Appeals deviated from the Schloendorff doctrine, noting that modern hospitals
actually do far more than provide facilities for treatment. Rather, they regularly employ, on
a salaried basis, a large staff of physicians, interns, nurses, administrative and manual
workers. They charge patients for medical care and treatment, even collecting for such

services through legal action, if necessary. The court then concluded that there is no
reason to exempt hospitals from the universal rule of respondeat superior.
In our shores, the nature of the relationship between the hospital and the physicians is
rendered inconsequential in view of our categorical pronouncement in Ramos v. Court of
Appeals28 that for purposes of apportioning responsibility in medical negligence cases, an
employer-employee relationship in effect exists between hospitals and their attending
and visiting physicians. This Court held:
"We now discuss the responsibility of the hospital in this particular incident. The unique
practice (among private hospitals) of filling up specialist staff with attending and visiting
"consultants," who are allegedly not hospital employees, presents problems in
apportioning responsibility for negligence in medical malpractice cases. However, the
difficulty is more apparent than real.
In the first place, hospitals exercise significant control in the hiring and firing of
consultants and in the conduct of their work within the hospital premises. Doctors who
apply for consultant slots, visiting or attending, are required to submit proof of
completion of residency, their educational qualifications, generally, evidence of
accreditation by the appropriate board (diplomate), evidence of fellowship in most cases,
and references. These requirements are carefully scrutinized by members of the hospital
administration or by a review committee set up by the hospital who either accept or reject
the application. x x x.
After a physician is accepted, either as a visiting or attending consultant, he is normally
required to attend clinico-pathological conferences, conduct bedside rounds for clerks,
interns and residents, moderate grand rounds and patient audits and perform other tasks
and responsibilities, for the privilege of being able to maintain a clinic in the hospital,
and/or for the privilege of admitting patients into the hospital. In addition to these, the
physicians performance as a specialist is generally evaluated by a peer review
committee on the basis of mortality and morbidity statistics, and feedback from patients,
nurses, interns and residents. A consultant remiss in his duties, or a consultant who
regularly falls short of the minimum standards acceptable to the hospital or its peer
review committee, is normally politely terminated.
In other words, private hospitals, hire, fire and exercise real control over their attending
and visiting consultant staff. While consultants are not, technically employees, x x x, the
control exercised, the hiring, and the right to terminate consultants all fulfill the important
hallmarks of an employer-employee relationship, with the exception of the payment of
wages. In assessing whether such a relationship in fact exists, the control test is
determining. Accordingly, on the basis of the foregoing, we rule that for the purpose of
allocating responsibility in medical negligence cases, an employer-employee relationship
in effect exists between hospitals and their attending and visiting physicians. "

But the Ramos pronouncement is not our only basis in sustaining PSIs liability. Its liability
is also anchored upon the agency principle of apparent authority or agency by estoppel
and the doctrine of corporate negligence which have gained acceptance in the
determination of a hospitals liability for negligent acts of health professionals. The
present case serves as a perfect platform to test the applicability of these doctrines, thus,
enriching our jurisprudence.
Apparent authority, or what is sometimes referred to as the "holding
out" theory, or doctrine of ostensible agency or agency by estoppel, 29 has its origin from
the law of agency. It imposes liability, not as the result of the reality of a contractual
relationship, but rather because of the actions of a principal or an employer in somehow
misleading the public into believing that the relationship or the authority exists. 30 The
concept is essentially one of estoppel and has been explained in this manner:
"The principal is bound by the acts of his agent with the apparent authority which he
knowingly permits the agent to assume, or which he holds the agent out to the public as
possessing. The question in every case is whether the principal has by his voluntary act
placed the agent in such a situation that a person of ordinary prudence, conversant with
business usages and the nature of the particular business, is justified in presuming that
such agent has authority to perform the particular act in question. 31
The applicability of apparent authority in the field of hospital liability was upheld long time
ago in Irving v. Doctor Hospital of Lake Worth, Inc. 32 There, it was explicitly stated that
"there does not appear to be any rational basis for excluding the concept of apparent
authority from the field of hospital liability." Thus, in cases where it can be shown that a
hospital, by its actions, has held out a particular physician as its agent and/or employee
and that a patient has accepted treatment from that physician in the reasonable belief
that it is being rendered in behalf of the hospital, then the hospital will be liable for the
physicians negligence.
Our jurisdiction recognizes the concept of an agency by implication or estoppel. Article
1869 of the Civil Code reads:
ART. 1869. Agency may be express, or implied from the acts of the principal, from his
silence or lack of action, or his failure to repudiate the agency, knowing that another
person is acting on his behalf without authority.
In this case, PSI publicly displays in the lobby of the Medical City Hospital the names and
specializations of the physicians associated or accredited by it, including those of Dr.
Ampil and Dr. Fuentes. We concur with the Court of Appeals conclusion that it "is now
estopped from passing all the blame to the physicians whose names it proudly paraded
in the public directory leading the public to believe that it vouched for their skill and
competence." Indeed, PSIs act is tantamount to holding out to the public that Medical

City Hospital, through its accredited physicians, offers quality health care services. By
accrediting Dr. Ampil and Dr. Fuentes and publicly advertising their qualifications, the
hospital created the impression that they were its agents, authorized to perform medical
or surgical services for its patients. As expected, these patients, Natividad being one of
them, accepted the services on the reasonable belief that such were being rendered by
the hospital or its employees, agents, or servants. The trial court correctly pointed out:
x x x regardless of the education and status in life of the patient, he ought not be
burdened with the defense of absence of employer-employee relationship between the
hospital and the independent physician whose name and competence are certainly
certified to the general public by the hospitals act of listing him and his specialty in its
lobby directory, as in the case herein. The high costs of todays medical and health care
should at least exact on the hospital greater, if not broader, legal responsibility for the
conduct of treatment and surgery within its facility by its accredited physician or surgeon,
regardless of whether he is independent or employed." 33
The wisdom of the foregoing ratiocination is easy to discern. Corporate entities, like PSI,
are capable of acting only through other individuals, such as physicians. If these
accredited physicians do their job well, the hospital succeeds in its mission of offering
quality medical services and thus profits financially. Logically, where negligence mars the
quality of its services, the hospital should not be allowed to escape liability for the acts of
its ostensible agents.
We now proceed to the doctrine of corporate negligence or corporate responsibility.
One allegation in the complaint in Civil Case No. Q-43332 for negligence and malpractice
is that PSI as owner, operator and manager of Medical City Hospital, "did not perform the
necessary supervision nor exercise diligent efforts in the supervision of Drs. Ampil and
Fuentes and its nursing staff, resident doctors, and medical interns who assisted Drs.
Ampil and Fuentes in the performance of their duties as surgeons." 34 Premised on the
doctrine of corporate negligence, the trial court held that PSI is directly liable for such
breach of duty.
We agree with the trial court.
Recent years have seen the doctrine of corporate negligence as the judicial answer to
the problem of allocating hospitals liability for the negligent acts of health practitioners,
absent facts to support the application of respondeat superior or apparent authority. Its
formulation proceeds from the judiciarys acknowledgment that in these modern times,
the duty of providing quality medical service is no longer the sole prerogative and
responsibility of the physician. The modern hospitals have changed structure. Hospitals
now tend to organize a highly professional medical staff whose competence and
performance need to be monitored by the hospitals commensurate with their inherent
responsibility to provide quality medical care.35

The doctrine has its genesis in Darling v. Charleston Community Hospital. 36 There, the
Supreme Court of Illinois held that "the jury could have found a hospital negligent, inter
alia, in failing to have a sufficient number of trained nurses attending the patient; failing to
require a consultation with or examination by members of the hospital staff; and failing to
review the treatment rendered to the patient." On the basis of Darling, other jurisdictions
held that a hospitals corporate negligence extends to permitting a physician known to be
incompetent to practice at the hospital. 37 With the passage of time, more duties were
expected from hospitals, among them: (1) the use of reasonable care in the maintenance
of safe and adequate facilities and equipment; (2) the selection and retention of
competent physicians; (3) the overseeing or supervision of all persons who practice
medicine within its walls; and (4) the formulation, adoption and enforcement of adequate
rules and policies that ensure quality care for its patients. 38 Thus, in Tucson Medical
Center, Inc. v. Misevich,39 it was held that a hospital, following the doctrine of corporate
responsibility, has the duty to see that it meets the standards of responsibilities for the
care of patients. Such duty includes the proper supervision of the members of its medical
staff. And in Bost v. Riley,40 the court concluded that a patient who enters a hospital does
so with the reasonable expectation that it will attempt to cure him. The hospital
accordingly has the duty to make a reasonable effort to monitor and oversee the
treatment prescribed and administered by the physicians practicing in its premises.
In the present case, it was duly established that PSI operates the Medical City Hospital
for the purpose and under the concept of providing comprehensive medical services to
the public. Accordingly, it has the duty to exercise reasonable care to protect from harm
all patients admitted into its facility for medical treatment. Unfortunately, PSI failed to
perform such duty. The findings of the trial court are convincing, thus:
x x x PSIs liability is traceable to its failure to conduct an investigation of the matter
reported in the nota bene of the count nurse. Such failure established PSIs part in the
dark conspiracy of silence and concealment about the gauzes. Ethical considerations, if
not also legal, dictated the holding of an immediate inquiry into the events, if not for the
benefit of the patient to whom the duty is primarily owed, then in the interest of arriving at
the truth. The Court cannot accept that the medical and the healing professions, through
their members like defendant surgeons, and their institutions like PSIs hospital facility,
can callously turn their backs on and disregard even a mere probability of mistake or
negligence by refusing or failing to investigate a report of such seriousness as the one in
Natividads case.
It is worthy to note that Dr. Ampil and Dr. Fuentes operated on Natividad with the
assistance of the Medical City Hospitals staff, composed of resident doctors, nurses, and
interns. As such, it is reasonable to conclude that PSI, as the operator of the hospital, has
actual or constructive knowledge of the procedures carried out, particularly the report of
the attending nurses that the two pieces of gauze were missing. In Fridena v. Evans, 41 it
was held that a corporation is bound by the knowledge acquired by or notice given to its
agents or officers within the scope of their authority and in reference to a matter to which

their authority extends. This means that the knowledge of any of the staff of Medical City
Hospital constitutes knowledge of PSI. Now, the failure of PSI, despite the attending
nurses report, to investigate and inform Natividad regarding the missing gauzes amounts
to callous negligence. Not only did PSI breach its duties to oversee or supervise all
persons who practice medicine within its walls, it also failed to take an active step in
fixing the negligence committed. This renders PSI, not only vicariously liable for the
negligence of Dr. Ampil under Article 2180 of the Civil Code, but also directly liable for its
own negligence under Article 2176. In Fridena, the Supreme Court of Arizona held:
x x x In recent years, however, the duty of care owed to the patient by the hospital has
expanded. The emerging trend is to hold the hospital responsible where the hospital has
failed to monitor and review medical services being provided within its walls. See Kahn
Hospital Malpractice Prevention, 27 De Paul . Rev. 23 (1977).
Among the cases indicative of the emerging trend is Purcell v. Zimbelman, 18 Ariz. App.
75,500 P. 2d 335 (1972). In Purcell, the hospital argued that it could not be held liable for
the malpractice of a medical practitioner because he was an independent contractor
within the hospital. The Court of Appeals pointed out that the hospital had created a
professional staff whose competence and performance was to be monitored and
reviewed by the governing body of the hospital, and the court held that a hospital would
be negligent where it had knowledge or reason to believe that a doctor using the facilities
was employing a method of treatment or care which fell below the recognized standard of
care.
Subsequent to the Purcell decision, the Arizona Court of Appeals held that a hospital has
certain inherent responsibilities regarding the quality of medical care furnished to patients
within its walls and it must meet the standards of responsibility commensurate with this
undertaking. Beeck v. Tucson General Hospital, 18 Ariz. App. 165, 500 P. 2d 1153 (1972).
This court has confirmed the rulings of the Court of Appeals that a hospital has the duty
of supervising the competence of the doctors on its staff. x x x.
x

In the amended complaint, the plaintiffs did plead that the operation was performed at the
hospital with its knowledge, aid, and assistance, and that the negligence of the
defendants was the proximate cause of the patients injuries. We find that such general
allegations of negligence, along with the evidence produced at the trial of this case, are
sufficient to support the hospitals liability based on the theory of negligent supervision."
Anent the corollary issue of whether PSI is solidarily liable with Dr. Ampil for damages, let
it be emphasized that PSI, apart from a general denial of its responsibility, failed to
adduce evidence showing that it exercised the diligence of a good father of a family in the
accreditation and supervision of the latter. In neglecting to offer such proof, PSI failed to
discharge its burden under the last paragraph of Article 2180 cited earlier, and, therefore,

must be adjudged solidarily liable with Dr. Ampil. Moreover, as we have discussed, PSI is
also directly liable to the Aganas.
One final word. Once a physician undertakes the treatment and care of a patient, the law
imposes on him certain obligations. In order to escape liability, he must possess that
reasonable degree of learning, skill and experience required by his profession. At the
same time, he must apply reasonable care and diligence in the exercise of his skill and
the application of his knowledge, and exert his best judgment.
WHEREFORE, we DENY all the petitions and AFFIRM the challenged Decision of the
Court of Appeals in CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198.
Costs against petitioners PSI and Dr. Miguel Ampil.
SO ORDERED.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
WE CONCUR: