FIRST DIVISION The pertinent details as summarized by the RTC and adopted by the CA
[ G.R. No. 159271, July 13, 2015 ] are the following:
SPOUSES BENITO BAYSA AND VICTORIA BAYSA, PETITIONERS,
VS. SPOUSES FIDEL PLANTILLA AND SUSAN PLANTILLA,
REGISTER OF DEEDS OF QUEZON CITY, AND THE SHERIFF OF
QUEZON CITY, RESPONDENTS.
DECISION
BERSAMIN, J.:
The petitioners seek the reversal and setting aside of the decision
promulgated on December 20, 2002,[1] whereby the Court of Appeals
(CA) declared the extrajudicial foreclosure of their mortgaged property
valid.[2]
Antecedents
The case involves a real estate mortgage (REM) entered into by the
petitioners involving their parcel of land in Cubao, Quezon City covered
by their Transfer Certificate of Title No. 260376 of the Register of Deeds
of Quezon City to secure the payment of their obligation amounting to
P2.3 Million in favor of the respondent spouses. Based on the terms of
the REM, the petitioners agreed to pay interest on the principal amount
at the rate of 2.5%/month, or P57,500.00/month. Upon the default of the
petitioners, the respondent spouses commenced the extrajudicial
foreclosure of the REM to recover from the petitioners the total liability
of P3,579,100.00 (inclusive of the principal and the unpaid interest).
The petitioners sued the respondent spouses in the Regional Trial Court
(RTC) in Quezon City to annul the extrajudicial foreclosure of the REM
and the public auction conducted pursuant to the extrajudicial
foreclosure. They alleged that all the proceedings relevant to the
extrajudicial foreclosure were null and void, pointing out that there had
been no power or authority to sell inserted in the REM or attached
thereto as required by Section 1 Act No. 3135; and that the interest rate
of 8% was unconscionable and violative of the Anti-Usury Law.
On August 4, 1992, plaintiffs-spouses (Benito and Victoria Baysa)
executed a real estate mortgage in favor of the defendants-spouses
Fidel R. Plantilla and Susan Plantilla whereby plaintiffs-spouses
mortgaged their parcel of land in Cubao, Quezon City x x x to secure the
payment of their indebtedness in the principal sum of P2,300,000.00 and
accruing interest at the legal rate thereon and payable according to the
terms of the Mortgage Note xxx. The Mortgage Note signed by both
parties containing the terms of payment and interest rate was also
executed on August 4, 1992 xxx. It was expressly agreed upon by both
parties in the mortgage note that the interest on the loan of
P2,300,000.00 was 2.5% per month (P57,500.00) or a monthly rate
equal to 7 percentage points above the prime rate of the Standard
Chartered Bank of Makati on the fifth working day before the interest is
due. The improvements existing on the land in question are a house,
shop and warehouse. This parcel of land including the improvements is
worth PI5 million. The interest at the rate of P57,500.00 from September
1992 up to May 1993 were regularly paid. They suffered business
reverses and difficulty in collection so they became irregular in the
monthly payment of the agreed interest and for late payment they were
charged 8% interest per month, the same is reflected in the statement
of account dated March 31, 1994 for P3,053,772.00 x x x in the
statement of account as of May 6, 1994 xxx and in the statement of
overdue account dated April 21, 1994 xxx. When 8% interest sur-charge
was imposed, they stopped paying the monthly interest because of
some difficulty in their business and high interest rate which
overburdened them. Then the defendants filed an extrajudicial
foreclosure. A certain Mrs. de la Cruz approaching them as
representative of the defendants collecting the unpaid balance of
P3,123,830.00 as reflected in the statement of account as of May 6,
1994 xxx and they told her that they were willing to pay what ever be the
balance but the interest has to be recomputed not on the basis of 8%
interest per month. They received a notice of sheriffs sale that the
property will be foreclosed xxx, the amount of mortgage indebtedness
was P3,579,100.00. Their principal loan was P2,300,000.00 and they
have paid P1,032,599.88 for interest of the loan x x x. When he received
the notice of sheriffs sale he was surprised because they have an
agreement with the representative that they were asking for a period of
six (6) months to pay after knowing the correct amount of their balance
xxx.
The defendants' evidence x x x shows that x x x no payment was made
by the plaintiffs on the principal loan of P2,300,000.00. Only the monthly
interest of 2.5% of the principal or P57,500.00 were paid by the plaintiffs
regularly from August 1992 until June 1993. The interest paid for the
months of July, August, September and October, 1993 were paid late
and after that no payments were made on the monthly interest from
November 1993 until the property was foreclosed. When plaintiffs
defaulted in the payment of the monthly interest, Emilia de la Cruz,
certified public accountant, was consulted by the mother of the
defendants who advised the latter to hire the services of counsel to file
a petition for foreclosure of the mortgage, x x x (they) sent a letter of
demand x x x addressed to plaintiffs-spouses Baysa to pay the principal
loan and interest due xxx. Despite the receipt of the said letter of
demand, plaintiffs did not pay their indebtedness to the defendants,
hence, x x x a petition for foreclosure was filed with the Office of the
Sheriff of the Quezon City Regional Trial Court which prayed that in view
of the non-payment of the indebtedness of the plaintiffs in the amount of
P3,579,100.00 (principal and unpaid interest) that the mortgaged
property x x x be foreclosed at a public auction x x x.[3]
Decision of the RTC
After trial, the RTC rendered its decision dated December 27, 1996,[4]
disposing thusly:
WHEREFORE, a decision is hereby rendered in this case dismissing
the instant complaint for lack of cause of action.
Ordering the plaintiffs to pay the defendants on the counterclaim the
amount of P50,000.00 for moral damages, P50,000.00 for exemplary
damages and P50,000.00 for attorney's fees, and to pay the costs of the
suit.
SO ORDERED.[5]
In support of the dismissal of the petitioners' complaint, and in upholding
the validity of the extrajudicial foreclosure, the RTC explained:
x x x x The deed of real estate mortgage (Exh. A) in paragraph 13 thereof
expressly states the consent of the mortgagors to the extra-judicial
foreclosure of the mortgaged property in the event of non-payment, to
wit:
Paragraph 13. x x x; - In the event of non-payment of the entire principal
and accrued interest due under the conditions described in this
paragraph, the mortgagors expressly and specifically agree to the extra-
judicial foreclosure of the mortgaged property.[6]
Furthermore, the RTC allowed the additional interest of 8%, observing
that:
x x x x The defendants did not increase the agreed interest of 2.5% per
month. The 8% additional interest on accrued interest is allowed
because accrued interest earns legal rate of interest which is now 12%
per annum as per under Central Bank Circular No. 416 which applies to
loans and forebearance of money.[7] x x x x
Judgment of the CA
Aggrieved, the petitioners appealed, submitting the following issues for
the resolution of the CA, namely:
Whether or not the extrajudicial foreclosure is valid despite the lack of
provision in the mortgage deed granting special power to sell to the
mortgagee;
If valid, whether the procedure taken thereon complies with the
provisions of Act No. 3135, as amended; and
Whether or not the 8% compounded monthly interest is legal.[8]
On December 20, 2002, the CA promulgated the assailed judgment,[9]
affirming the validity of the foreclosure proceedings but invalidating the
imposition of the 8% additional interest for lack of legal basis considering
that the REM did not contain a stipulation to that effect. Its pertinent
ratiocination and disposition stated:
We agree with the lower court that the extrajudicial foreclosure was not
visited with vice for failure of the mortgagor in the mortgage deed to
grant special power to sell the property in favor of the mortgagee. It
suffices that the mortgagee document empowers the mortgagee to
extrajudicially foreclose the property. Such authority to extrajudicially
foreclose by necessary implication carries with it the grant of power to
sell the property at a public auction. It is only when the deed is silent as
to the grant of authority to extrajudicially foreclose on the mortgage that
a mortgagee is prevented from availing of such remedy.
In Centeno vs. Court of Appeals, the Supreme Court, when confronted
with the same issue, chose to uphold the validity of the extrajudicial
foreclosure.
xxxx
But all is not lost with the appellants. We agree that the 8% monthly
interest on the unpaid interest is not warranted by the mortgage deed,
for there is nothing in it that provides for the imposition of such exorbitant
interest on the unpaid interest. Article 1958 of the New Civil Code is
clear on the matter: "(I)nterest due and unpaid shall not earn interest."
And while the parties may stipulate to capitalize the interest due and
unpaid, the same shall not be valid unless it be in writing, pursuant to
Article 1956 of the Civil Code.
xxxx
WHEREFORE, the Decision of the lower court is hereby SET ASIDE.
The extrajudicial foreclosure is hereby declared to be VALID, but a re-
computation of the amount of mortgage indebtedness is ordered by
removing the 8% interest imposed by the mortgagee on the unpaid
interest. The award of moral and exemplary damages and attorney's
fees are hereby DELETED.
SO ORDERED.[10]
Upon denial of the petitioners' motion for reconsideration, as well as of
the respondent spouses' partial motion for reconsideration through the
resolution promulgated on July 24, 2003,[11] the petitioner has come to
the Court for a further review.
Issues
The issues raised by the petitioners can be narrowed down to:
1.) Whether or not the Court of Appeals erred when it declared that the
extrajudicial foreclosure was valid despite the lack of provision in the
mortgage deed granting special power to sell to the mortgagee;
2.) Whether or not the Court of Appeals erred when it concluded that
consenting to the extrajudicial foreclosure of the property, by necessary
implication, carries with it the grant of power to sell the property at public
action;
3.) Whether or not the Court of Appeals erred in not declaring the 2.5%
monthly interest illegal and usurious, considering that the 8% interest
was already declared as invalid and unwarranted; and
4.) Whether or not the Court of Appeals erred in ruling that petitioners
have lost their right to redeem the property.[12]
Ruling of the Court
The appeal is meritorious.
I
On the first and second issues, we hold the CA in error for affirming the
RTC's declaration of the extrajudicial foreclosure as valid.
In the extrajudicial foreclosure of property subject of a real estate
mortgage, Act No. 3135 (An Act to Regulate the Sale of Property Under
Special Powers Inserted in or Annexed to Real Estate Mortgages) is
quite explicit and definite about the special power to sell the property
being required to be either inserted in or attached to the deed of
mortgage. Section 1 of Act No. 3135 provides:
Section 1. When a sale is made under a special power inserted in or
attached to any real estate mortgage hereafter made as security for the
payment of money or the fulfillment of any other obligation, the
provisions of the following section shall govern as to the manner in which
the sale and redemption shall be effected, whether or not provision for
the same is made in the power.
Accordingly, to enable the extrajudicial foreclosure of the REM of the
petitioners, the special power to sell should have been either inserted in
the REM itself or embodied in a separate instrument attached to the
REM. But it is not disputed that no special power to sell was either
inserted in the REM or attached to the REM. Hence, the respondent
spouses as the foreclosing mortgagees could not initiate the
extrajudicial foreclosure, but must resort to judicial foreclosure pursuant
to the procedure set forth in Rule 68 of the Rules of Court. The omission
of the special power to sell the property subject of the mortgage was
fatal to the validity and efficacy of the extrajudicial foreclosure, and
warranted the invalidation of the entire proceedings conducted by the
sheriff.
The CA opined that the extrajudicial foreclosure was nonetheless valid
despite the omission of the special power to sell. It upheld the ruling of
the RTC by citing paragraph 13 of the REM, which stated:
In the event of non-payment of the entire principal and accrued interest
due under the conditions described in this paragraph, the mortgagors
expressly and specifically agree to the extra-judicial foreclosure of the
mortgaged property.[13]
It held to be enough that the REM thereby empowered the respondent
spouses as the mortgagees to extrajudicially foreclose the property
inasmuch as such agreement by the petitioners (as the mortgagors)
carried with it by necessary implication the grant of the power to sell the
property at the public auction. It relied on the ruling in Centeno v. Court
ofAppeals.[14]
We cannot subscribe to the opinion of the CA.
Based on the text of paragraph 13, supra, the petitioners evidently
agreed only to the holding of the extrajudicial foreclosure should they
default in their obligations. Their agreement was a mere expression of
their amenability to extrajudicial foreclosure as the means of foreclosing
the mortgage, and did not constitute the special power or authority to
sell the mortgaged property to enable the mortgagees to recover the
unpaid obligations. What was necessary was the special power or
authority to sell -whether inserted in the REM itself, or annexed thereto
- that authorized the respondent spouses to sell in the public auction
their mortgaged property.
The requirement for the special power or authority to sell finds support
in the civil law. To begin with, because the sale of the property by virtue
of the extrajudicial foreclosure would be made through the sheriff by the
respondent spouses as the mortgagees acting as the agents of the
petitioners as the mortgagors-owners, there must be a written authority
from the latter in favor of the former as their agents; otherwise, the sale
would be void.[15] And, secondly, considering that, pursuant to Article
1878, (5), of the Civil Code, a special power of attorney was necessary
for entering "into any contract by which the ownership of an immovable
is transmitted or acquired either gratuitously or for a valuable
consideration," the written authority must be a special power of attorney
to sell.[16] Contrary to the CA's opinion, therefore, the power or authority
to sell by virtue of the extrajudicial foreclosure of the REM could not be
necessarily implied from the text of paragraph 13, supra, expressing the
petitioners' agreement to the extrajudicial foreclosure.
The reliance on the ruling in Centeno v. Court of Appeals was
inadequate, if not also misplaced. Although the Centeno Court was
confronted with several issues, including whether or not the extrajudicial
foreclosure of the mortgage was a total nullity because the deed of
mortgage did not contain a special power of attorney to sell in favor of
the mortgagees, a meticulous reading of Centeno reveals that the Court
did not expressly deal with and resolve such issue, because the Court
limited itself to the effects of the failure of the petitioners thereat to
annotate on the Torrens title the sale in their favor of the property. In
other words, the Court was silent on the issue of validity of the
foreclosure sale despite the lack of the special power of attorney to sell
being inserted in or annexed to the deed of mortgage. Under the
circumstances, Centeno has no precedential value in this case.
II
Anent the third issue, the petitioners contend that after declaring the 8%
compounded interest invalid and unwarranted, the CA should have
further declared the interest of 2.5%/month illegal and usurious; that with
nullity of the stipulation of interest, the result should be as if the loan
agreement contained no stipulation on interest; and that, consequently,
the P1,032,599.88 paid as interest should be deducted from the
principal loan of P2.3 Million for being illegal and usurious.
The contention of the petitioners is bereft of merit.
To start with, the petitioners are now estopped from assailing the validity
of the monthly interest payments made. They expressly consented to be
liable to pay 2.5%/month on the principal loan of P2.3 Million, and
actually made several payments of interest at that rate. Secondly, they
did not assail the rate of 2.5%/month as interest in the lower courts,
doing so only in this appeal. Hence, they cannot be permitted to bring
the issue for the first time in this Court, for that would be unfair not only
to the adverse parties but also to the lower courts by depriving the latter
of the opportunity to pass upon the issue. And, thirdly, the invalidation
by the CA of the 8% compounded interest does not justify deleting the
stipulation on the 2.5%/month interest that was really separate and
distinct from the former.
III
Having found and declared the extrajudicial foreclosure of the REM and
the foreclosure sale of the mortgaged property of the petitioner void for
want of the special power to sell, we deem it unnecessary to consider
and determine the final issue on whether or not the petitioners had lost
their right to redeem. In other words, there is no right of redemption to
speak of if the foreclosure was void.
WHEREFORE, the Court GRANTS the petition for review on certiorari;
REVERSES and SETS ASIDE the judgment of the Court of Appeals
promulgated on December 20, 2002; DECLARES the extrajudicial
foreclosure and the certificate of sale NULL and VOID; CANCELS
Transfer Certificate of Title No. N-141864 registered in the names of
respondents SPOUSES FIDEL R. PLANTILLA and SUSAN
PLANTILLA; DIRECTS the Register of Deeds of Quezon City to
RESTORE and REINSTATE Transfer Certificate of Title No.260376 in
the names of petitioners SPOUSES BENITO A. BAYSA and VICTORIA
C. BAYSA; REMANDS this case to the court of origin for the
recomputation and accounting of the mortgage indebtedness without
the 8% interest imposed by the respondents on the unpaid interest; and
ORDERS respondents SPOUSES FIDEL R. PLANTILLA and SUSAN
PLANTILLA to pay the costs of suit.
SO ORDERED.
 SECOND DIVISION
[G.R. No. 117356. June 19, 2000]
VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF
APPEALS and CONSOLIDATED SUGAR CORPORATION,
respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules
of Court assailing the decision of the Court of Appeals dated February
24, 1994, in CA-G.R. CV No. 31717, as well as the respondent court's
resolution of September 30, 1994 modifying said decision. Both decision
and resolution amended the judgment dated February 13, 1991, of the
Regional Trial Court of Makati City, Branch 147, in Civil Case No. 90-
118.
The facts of this case as found by both the trial and appellate courts are
as follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from
petitioner Victorias Milling Co., Inc., (VMC). In the course of their
dealings, petitioner issued several Shipping List/Delivery Receipts
(SLDRs) to STM as proof of purchases. Among these was SLDR No.
1214M, which gave rise to the instant case. Dated October 16, 1989,
SLDR No. 1214M covers 25,000 bags of sugar. Each bag contained 50
kilograms and priced at P638.00 per bag as "per sales order VMC
Marketing No. 042 dated October 16, 1989."[1] The transaction it
covered was a "direct sale."[2] The SLDR also contains an additional
note which reads: "subject for (sic) availability of a (sic) stock at
NAWACO (warehouse)."[3]
On October 25, 1989, STM sold to private respondent Consolidated
Sugar Corporation (CSC) its rights in SLDR No. 1214M for P
14,750,000.00. CSC issued one check dated October 25, 1989 and
three checks postdated November 13, 1989 in payment. That same day,
CSC wrote petitioner that it had been authorized by STM to withdraw
the sugar covered by SLDR No. 1214M. Enclosed in the letter were a
copy of SLDR No. 1214M and a letter of authority from STM authorizing
CSC "to withdraw for and in our behalf the refined sugar covered by
Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214 dated
October 16, 1989 in the total quantity of 25,000 bags."[4]
On October 27, 1989, STM issued 16 checks in the total amount of
P31,900,000.00 with petitioner as payee. The latter, in turn, issued
Official Receipt No. 33743 dated October 27, 1989 acknowledging
receipt of the said checks in payment of 50,000 bags. Aside from SLDR
No. 1214M, said checks also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the
petitioner's NAWACO warehouse and was allowed to withdraw sugar.
However, after 2,000 bags had been released, petitioner refused to
allow further withdrawals of sugar against SLDR No. 1214M. CSC then
sent petitioner a letter dated January 23, 1990 informing it that SLDR
No. 1214M had been "sold and endorsed" to it but that it had been
refused further withdrawals of sugar from petitioner's warehouse despite
the fact that only 2,000 bags had been withdrawn.[5] CSC thus inquired
when it would be allowed to withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any further
withdrawals of sugar against SLDR No. 1214M because STM had
already withdrawn all the sugar covered by the cleared checks.[6]
On March 2, 1990, CSC sent petitioner a letter demanding the release
of the balance of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding
to the amount of STM's cleared checks had been fully withdrawn and
hence, there would be no more deliveries of the commodity to STM's
account. Petitioner also noted that CSC had represented itself to be
STM's agent as it had withdrawn the 2,000 bags against SLDR No.
1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance,
docketed as Civil Case No. 90-1118. Defendants were Teresita Ng Sy
(doing business under the name of St. Therese Merchandising) and
herein petitioner. Since the former could not be served with summons,
the case proceeded only against the latter. During the trial, it was
discovered that Teresita Ng Go who testified for CSC was the same
Teresita Ng Sy who could not be reached through summons.[7] CSC,
however, did not bother to pursue its case against her, but instead used
her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar
covered by SLDR No. 1214M. Therefore, the latter had no justification
for refusing delivery of the sugar. CSC prayed that petitioner be ordered
to deliver the 23,000 bags covered by SLDR No. 1214M and sought the
award of P1,104,000.00 in unrealized profits, P3,000,000.00 as
exemplary damages, P2,200,000.00 as attorney's fees and litigation
expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for
the 23,000 bags.[8] Since STM had already drawn in full all the sugar
corresponding to the amount of its cleared checks, it could no longer
authorize further delivery of sugar to CSC. Petitioner also contended
that it had no privity of contract with CSC.
Petitioner explained that the SLDRs, which it had issued, were not
documents of title, but mere delivery receipts issued pursuant to a series
of transactions entered into between it and STM. The SLDRs prescribed
delivery of the sugar to the party specified therein and did not authorize
the transfer of said party's rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was
actually STM's co-conspirator to defraud it through a misrepresentation
that CSC was an innocent purchaser for value and in good faith.
Petitioner then prayed that CSC be ordered to pay it the following sums:
P10,000,000.00 as moral damages; P10,000,000.00 as exemplary
damages; and P1,500,000.00 as attorney's fees. Petitioner also prayed
that cross-defendant STM be ordered to pay it P10,000,000.00 in
exemplary damages, and P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the
case on the merits.
As earlier stated, the trial court rendered its judgment favoring private
respondent CSC, as follows:
"WHEREFORE, in view of the foregoing, the Court hereby renders
judgment in favor of the plaintiff and against defendant Victorias Milling
Company:
"1) Ordering defendant Victorias Milling Company to deliver to the
plaintiff 23,000 bags of refined sugar due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of
P920,000.00 as unrealized profits, the amount of P800,000.00 as
exemplary damages and the amount of P1,357,000.00, which is 10% of
the acquisition value of the undelivered bags of refined sugar in the
amount of P13,570,000.00, as attorney's fees, plus the costs.
"SO ORDERED."[9]
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully
paid the purchase price of P15,950,000.00 of the 25,000 bags of sugar
bought by her covered by SLDR No. 1214 as well as the purchase price
of P15,950,000.00 for the 25,000 bags of sugar bought by her covered
by SLDR No. 1213 on the same date, October 16, 1989 (date of the two
SLDRs) is duly supported by Exhibits C to C-15 inclusive which are post-
dated checks dated October 27, 1989 issued by St. Therese
Merchandising in favor of Victorias Milling Company at the time it
purchased the 50,000 bags of sugar covered by SLDR No. 1213 and
1214. Said checks appear to have been honored and duly credited to
the account of Victorias Milling Company because on October 27, 1989
Victorias Milling Company issued official receipt no. 34734 in favor of St.
Therese Merchandising for the amount of P31,900,000.00 (Exhibits B
and B-1). The testimony of Teresita Ng Go is further supported by
Exhibit F, which is a computer printout of defendant Victorias Milling
Company showing the quantity and value of the purchases made by St.
Therese Merchandising, the SLDR no. issued to cover the purchase, the
official reciept no. and the status of payment. It is clear in Exhibit 'F' that
with respect to the sugar covered by SLDR No. 1214 the same has been
fully paid as indicated by the word 'cleared' appearing under the column
of 'status of payment.'
"On the other hand, the claim of defendant Victorias Milling Company
that the purchase price of the 25,000 bags of sugar purchased by St.
Therese Merchandising covered by SLDR No. 1214 has not been fully
paid is supported only by the testimony of Arnulfo Caintic, witness for
defendant Victorias Milling Company. The Court notes that the
testimony of Arnulfo Caintic is merely a sweeping barren assertion that
the purchase price has not been fully paid and is not corroborated by
any positive evidence. There is an insinuation by Arnulfo Caintic in his
testimony that the postdated checks issued by the buyer in payment of
the purchased price were dishonored. However, said witness failed to
present in Court any dishonored check or any replacement check. Said
witness likewise failed to present any bank record showing that the
checks issued by the buyer, Teresita Ng Go, in payment of the purchase
price of the sugar covered by SLDR No. 1214 were dishonored."[10]
Petitioner appealed the trial courts decision to the Court of Appeals.
On appeal, petitioner averred that the dealings between it and STM were
part of a series of transactions involving only one account or one general
contract of sale. Pursuant to this contract, STM or any of its authorized
agents could withdraw bags of sugar only against cleared checks of
STM. SLDR No. 21214M was only one of 22 SLDRs issued to STM and
since the latter had already withdrawn its full quota of sugar under the
said SLDR, CSC was already precluded from seeking delivery of the
23,000 bags of sugar.
Private respondent CSC countered that the sugar purchases involving
SLDR No. 1214M were separate and independent transactions and that
the details of the series of purchases were contained in a single
statement with a consolidated summary of cleared check payments and
sugar stock withdrawals because this a more convenient system than
issuing separate statements for each purchase.
The appellate court considered the following issues: (a) Whether or not
the transaction between petitioner and STM involving SLDR No. 1214M
was a separate, independent, and single transaction; (b) Whether or not
CSC had the capacity to sue on its own on SLDR No. 1214M; and (c)
Whether or not CSC as buyer from STM of the rights to 25,000 bags of
sugar covered by SLDR No. 1214M could compel petitioner to deliver
23,000 bags allegedly unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its decision
modifying the trial court's judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and
orders defendant-appellant to:
"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR
No. 1214M;
" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of
the undelivered bags of refined sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."[11]
Both parties then seasonably filed separate motions for reconsideration.
In its resolution dated September 30, 1994, the appellate court modified
its decision to read:
"WHEREFORE, the Court hereby modifies the assailed judgment and
orders defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under
SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."[12]
The appellate court explained the rationale for the modification as
follows:
"There is merit in plaintiff-appellee's position.
"Exhibit F' We relied upon in fixing the number of bags of sugar which
remained undelivered as 12,586 cannot be made the basis for such a
finding. The rule is explicit that courts should consider the evidence only
for the purpose for which it was offered. (People v. Abalos, et al, 1 CA
Rep 783). The rationale for this is to afford the party against whom the
evidence is presented to object thereto if he deems it necessary.
Plaintiff-appellee is, therefore, correct in its argument that Exhibit F'
which was offered to prove that checks in the total amount of
P15,950,000.00 had been cleared. (Formal Offer of Evidence for
Plaintiff, Records p. 58) cannot be used to prove the proposition that
12,586 bags of sugar remained undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October
1990, p. 33] and Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18,
and 36]) presented by plaintiff-appellee was to the effect that it had
withdrawn only 2,000 bags of sugar from SLDR after which it was not
allowed to withdraw anymore. Documentary evidence (Exhibit I, Id., p.
78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand
letters to defendant-appellant asking the latter to allow it to withdraw the
remaining 23,000 bags of sugar from SLDR 1214M. Defendant-
appellant, on the other hand, alleged that sugar delivery to the STM
corresponded only to the value of cleared checks; and that all sugar
corresponded to cleared checks had been withdrawn. Defendant-
appellant did not rebut plaintiff-appellee's assertions. It did not present
evidence to show how many bags of sugar had been withdrawn against
SLDR No. 1214M, precisely because of its theory that all sales in
question were a series of one single transaction and withdrawal of sugar
depended on the clearing of checks paid therefor.
"After a second look at the evidence, We see no reason to overturn the
findings of the trial court on this point."[13]
Hence, the instant petition, positing the following errors as grounds for
review:
"1. The Court of Appeals erred in not holding that STM's and private
respondent's specially informing petitioner that respondent was
authorized by buyer STM to withdraw sugar against SLDR No. 1214M
"for and in our (STM) behalf," (emphasis in the original) private
respondent's withdrawing 2,000 bags of sugar for STM, and STM's
empowering other persons as its agents to withdraw sugar against the
same SLDR No. 1214M, rendered respondent like the other persons, an
agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81
SCRA 252, and precluded it from subsequently claiming and proving
being an assignee of SLDR No. 1214M and from suing by itself for its
enforcement because it was conclusively presumed to be an agent (Sec.
2, Rule 131, Rules of Court) and estopped from doing so. (Art. 1431,
Civil Code).
" 2. The Court of Appeals erred in manifestly and arbitrarily ignoring and
disregarding certain relevant and undisputed facts which, had they been
considered, would have shown that petitioner was not liable, except for
69 bags of sugar, and which would justify review of its conclusion of facts
by this Honorable Court.
" 3. The Court of Appeals misapplied the law on compensation under
Arts. 1279, 1285 and 1626 of the Civil Code when it ruled that
compensation applied only to credits from one SLDR or contract and not
to those from two or more distinct contracts between the same parties;
and erred in denying petitioner's right to setoff all its credits arising prior
to notice of assignment from other sales or SLDRs against private
respondent's claim as assignee under SLDR No. 1214M, so as to
extinguish or reduce its liability to 69 bags, because the law on
compensation applies precisely to two or more distinct contracts
between the same parties (emphasis in the original).
"4. The Court of Appeals erred in concluding that the settlement or
liquidation of accounts in Exh. F between petitioner and STM,
respondent's admission of its balance, and STM's acquiescence thereto
by silence for almost one year did not render Exh. `F' an account stated
and its balance binding.
"5. The Court of Appeals erred in not holding that the conditions of the
assigned SLDR No. 1214, namely, (a) its subject matter being generic,
and (b) the sale of sugar being subject to its availability at the Nawaco
warehouse, made the sale conditional and prevented STM or private
respondent from acquiring title to the sugar; and the non-availability of
sugar freed petitioner from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands"
doctrine precluded respondent from seeking judicial reliefs (sic) from
petitioner, its only remedy being against its assignor."[14]
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling that CSC
was an agent of STM and hence, estopped to sue upon SLDR No.
1214M as an assignee.
(2)....Whether or not the Court of Appeals erred in applying the law on
compensation to the transaction under SLDR No. 1214M so as to
preclude petitioner from offsetting its credits on the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that the sale
of sugar under SLDR No. 1214M was a conditional sale or a contract to
sell and hence freed petitioner from further obligations.
(4)....Whether or not the Court of Appeals committed an error of law in
not applying the "clean hands doctrine" to preclude CSC from seeking
judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this
issue for the first time on appeal. It is settled that an issue which was not
raised during the trial in the court below could not be raised for the first
time on appeal as to do so would be offensive to the basic rules of fair
play, justice, and due process.[15] Nonetheless, the Court of Appeals
opted to address this issue, hence, now a matter for our consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to
withdraw sugar against SLDR No. 1214M to show that the latter was
STM's agent. The pertinent portion of said letter reads:
"This is to authorize Consolidated Sugar Corporation or its
representative to withdraw for and in our behalf (stress supplied) the
refined sugar covered by Shipping List/Delivery Receipt = Refined
Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of
25, 000 bags."[16]
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency a person binds himself to render
some service or to do something in representation or on behalf of
another, with the consent or authority of the latter."
It is clear from Article 1868 that the basis of agency is
representation.[17] On the part of the principal, there must be an actual
intention to appoint[18] or an intention naturally inferable from his words
or actions;[19] and on the part of the agent, there must be an intention
to accept the appointment and act on it,[20] and in the absence of such
intent, there is generally no agency.[21] One factor which most clearly
distinguishes agency from other legal concepts is control; one person -
the agent - agrees to act under the control or direction of another - the
principal. Indeed, the very word "agency" has come to connote control
by the principal.[22] The control factor, more than any other, has caused
the courts to put contracts between principal and agent in a separate
category.[23] The Court of Appeals, in finding that CSC, was not an
agent of STM, opined:
"This Court has ruled that where the relation of agency is dependent
upon the acts of the parties, the law makes no presumption of agency,
and it is always a fact to be proved, with the burden of proof resting upon
the persons alleging the agency, to show not only the fact of its
existence, but also its nature and extent (Antonio vs. Enriquez [CA], 51
O.G. 3536]. Here, defendant-appellant failed to sufficiently establish the
existence of an agency relation between plaintiff-appellee and STM. The
fact alone that it (STM) had authorized withdrawal of sugar by plaintiff-
appellee "for and in our (STM's) behalf" should not be eyed as pointing
to the existence of an agency relation ...It should be viewed in the
context of all the circumstances obtaining. Although it would seem STM
represented plaintiff-appellee as being its agent by the use of the phrase
"for and in our (STM's) behalf" the matter was cleared when on 23
January 1990, plaintiff-appellee informed defendant-appellant that
SLDFR No. 1214M had been "sold and endorsed" to it by STM (Exhibit
I, Records, p. 78). Further, plaintiff-appellee has shown that the 25, 000
bags of sugar covered by the SLDR No. 1214M were sold and
transferred by STM to it ...A conclusion that there was a valid sale and
transfer to plaintiff-appellee may, therefore, be made thus capacitating
plaintiff-appellee to sue in its own name, without need of joining its
imputed principal STM as co-plaintiff."[24]
In the instant case, it appears plain to us that private respondent CSC
was a buyer of the SLDFR form, and not an agent of STM. Private
respondent CSC was not subject to STM's control. The question of
whether a contract is one of sale or agency depends on the intention of
the parties as gathered from the whole scope and effect of the language
employed.[25] That the authorization given to CSC contained the phrase
"for and in our (STM's) behalf" did not establish an agency. Ultimately,
what is decisive is the intention of the parties.[26] That no agency was
meant to be established by the CSC and STM is clearly shown by CSC's
communication to petitioner that SLDR No. 1214M had been "sold and
endorsed" to it.[27] The use of the words "sold and endorsed" means
that STM and CSC intended a contract of sale, and not an agency.
Hence, on this score, no error was committed by the respondent
appellate court when it held that CSC was not STM's agent and could
independently sue petitioner.
On the second issue, proceeding from the theory that the transactions
entered into between petitioner and STM are but serial parts of one
account, petitioner insists that its debt has been offset by its claim for
STM's unpaid purchases, pursuant to Article 1279 of the Civil Code.[28]
However, the trial court found, and the Court of Appeals concurred, that
the purchase of sugar covered by SLDR No. 1214M was a separate and
independent transaction; it was not a serial part of a single transaction
or of one account contrary to petitioner's insistence. Evidence on record
shows, without being rebutted, that petitioner had been paid for the
sugar purchased under SLDR No. 1214M. Petitioner clearly had the
obligation to deliver said commodity to STM or its assignee. Since said
sugar had been fully paid for, petitioner and CSC, as assignee of STM,
were not mutually creditors and debtors of each other. No reversible
error could thereby be imputed to respondent appellate court when, it
refused to apply Article 1279 of the Civil Code to the present case.
Regarding the third issue, petitioner contends that the sale of sugar
under SLDR No. 1214M is a conditional sale or a contract to sell, with
title to the sugar still remaining with the vendor. Noteworthy, SLDR No.
1214M contains the following terms and conditions:
"It is understood and agreed that by payment by buyer/trader of refined
sugar and/or receipt of this document by the buyer/trader personally or
through a representative, title to refined sugar is transferred to
buyer/trader and delivery to him/it is deemed effected and completed
(stress supplied) and buyer/trader assumes full responsibility
therefore"[29]
The aforequoted terms and conditions clearly show that petitioner
transferred title to the sugar to the buyer or his assignee upon payment
of the purchase price. Said terms clearly establish a contract of sale, not
a contract to sell. Petitioner is now estopped from alleging the contrary.
The contract is the law between the contracting parties.[30] And where
the terms and conditions so stipulated are not contrary to law, morals,
good customs, public policy or public order, the contract is valid and
must be upheld.[31] Having transferred title to the sugar in question,
petitioner is now obliged to deliver it to the purchaser or its assignee.
As to the fourth issue, petitioner submits that STM and private
respondent CSC have entered into a conspiracy to defraud it of its
sugar. This conspiracy is allegedly evidenced by: (a) the fact that STM's
selling price to CSC was below its purchasing price; (b) CSC's refusal
to pursue its case against Teresita Ng Go; and (c) the authority given by
the latter to other persons to withdraw sugar against SLDR No. 1214M
after she had sold her rights under said SLDR to CSC. Petitioner prays
that the doctrine of "clean hands" should be applied to preclude CSC
from seeking judicial relief. However, despite careful scrutiny, we find
here the records bare of convincing evidence whatsoever to support the
petitioner's allegations of fraud. We are now constrained to deem this
matter purely speculative, bereft of concrete proof.

WHEREFORE, the instant petition is DENIED for lack of merit. Costs

against petitioner.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 160346 August 25, 2009
PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE CASTILLA
(represented by Mother and Attorney-in-Fact VIRGINIA
CASTILLA), Petitioners,
vs.
COURT OF APPEALS, SPOUSES ISAGANI BELARMINO and
LETICIA OCAMPO, EUFEMIA SAN AGUSTIN-MAGSINO, ZENAIDA
SAN AGUSTIN-McCRAE, MILAGROS SAN AGUSTIN-FORTMAN,
MINERVA SAN AGUSTIN-ATKINSON, FERDINAND SAN AGUSTIN,
RAUL SAN AGUSTIN, ISABELITA SAN AGUSTIN-
LUSTENBERGER and VIRGILIO SAN AGUSTIN, Respondents.
DECISION
NACHURA, J.:
For our resolution is a petition for review on certiorari assailing the April
23, 2003 Decision1 and October 8, 2003 Resolution2 of the Court of
Appeals (CA) in CA-G.R. CV No. 59426. The appellate court, in the said
decision and resolution, reversed and set aside the January 14, 1998
Decision3 of the Regional Trial Court (RTC), which ruled in favor of
petitioners.
The dispute stemmed from the following facts.
During their lifetime, spouses Pedro San Agustin and Agatona Genil
were able to acquire a 246-square meter parcel of land situated in
Barangay Anos, Los Baños, Laguna and covered by Original Certificate
of Title (OCT) No. O-(1655) 0-15.4 Agatona Genil died on September
13, 1990 while Pedro San Agustin died on September 14, 1991. Both
died intestate, survived by their eight (8) children: respondents Eufemia,
Raul, Ferdinand, Zenaida, Milagros, Minerva, Isabelita and Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul executed a Deed of
Absolute Sale of Undivided Shares5 conveying in favor of petitioners
(the Pahuds, for brevity) their respective shares from the lot they
inherited from their deceased parents for ₱525,000.00.6 Eufemia also
signed the deed on behalf of her four (4) other co-heirs, namely:
Isabelita on the basis of a special power of attorney executed on
September 28, 1991,7 and also for Milagros, Minerva, and Zenaida but
without their apparent written authority.8 The deed of sale was also not
notarized.9
On July 21, 1992, the Pahuds paid ₱35,792.31 to the Los Baños Rural
Bank where the subject property was mortgaged.10 The bank issued a
release of mortgage and turned over the owner’s copy of the OCT to the
Pahuds.11 Over the following months, the Pahuds made more
payments to Eufemia and her siblings totaling to ₱350,000.00.12 They
agreed to use the remaining ₱87,500.0013 to defray the payment for
taxes and the expenses in transferring the title of the property.14 When
Eufemia and her co-heirs drafted an extra-judicial settlement of estate
to facilitate the transfer of the title to the Pahuds, Virgilio refused to sign
it.15
On July 8, 1993, Virgilio’s co-heirs filed a complaint16 for judicial
partition of the subject property before the RTC of Calamba, Laguna. On
November 28, 1994, in the course of the proceedings for judicial
partition, a Compromise Agreement17 was signed with seven (7) of the
co-heirs agreeing to sell their undivided shares to Virgilio for
₱700,000.00. The compromise agreement was, however, not approved
by the trial court because Atty. Dimetrio Hilbero, lawyer for Eufemia and
her six (6) co-heirs, refused to sign the agreement because he knew of
the previous sale made to the Pahuds.18lawphil.net
On December 1, 1994, Eufemia acknowledged having received
₱700,000.00 from Virgilio.19 Virgilio then sold the entire property to
spouses Isagani Belarmino and Leticia Ocampo (Belarminos) sometime
in 1994. The Belarminos immediately constructed a building on the
subject property.
Alarmed and bewildered by the ongoing construction on the lot they
purchased, the Pahuds immediately confronted Eufemia who confirmed
to them that Virgilio had sold the property to the Belarminos.20
Aggrieved, the Pahuds filed a complaint in intervention21 in the pending
case for judicial partition.1avvphil
After trial, the RTC upheld the validity of the sale to petitioners. The
dispositive portion of the decision reads:
WHEREFORE, the foregoing considered, the Court orders:
1. the sale of the 7/8 portion of the property covered by OCT No. O
(1655) O-15 by the plaintiffs as heirs of deceased Sps. Pedro San
Agustin and Agatona Genil in favor of the Intervenors-Third Party
plaintiffs as valid and enforceable, but obligating the Intervenors-Third
Party plaintiffs to complete the payment of the purchase price of
₱437,500.00 by paying the balance of ₱87,500.00 to defendant Fe (sic)
San Agustin Magsino. Upon receipt of the balance, the plaintiff shall
formalize the sale of the 7/8 portion in favor of the Intervenor[s]-Third
Party plaintiffs;
2. declaring the document entitled "Salaysay sa Pagsang-ayon sa
Bilihan" (Exh. "2-a") signed by plaintiff Eufemia San Agustin attached to
the unapproved Compromise Agreement (Exh. "2") as not a valid sale
in favor of defendant Virgilio San Agustin;
3. declaring the sale (Exh. "4") made by defendant Virgilio San Agustin
of the property covered by OCT No. O (1655)-O-15 registered in the
names of Spouses Pedro San Agustin and Agatona Genil in favor of
Third-party defendant Spouses Isagani and Leticia Belarmino as not a
valid sale and as inexistent;
4. declaring the defendant Virgilio San Agustin and the Third-Party
defendants spouses Isagani and Leticia Belarmino as in bad faith in
buying the portion of the property already sold by the plaintiffs in favor
of the Intervenors-Third Party Plaintiffs and the Third-Party Defendant
Sps. Isagani and Leticia Belarmino in constructing the two-[storey]
building in (sic) the property subject of this case; and
5. declaring the parties as not entitled to any damages, with the parties
shouldering their respective responsibilities regarding the payment of
attorney[’]s fees to their respective lawyers.
No pronouncement as to costs.
SO ORDERED.22
Not satisfied, respondents appealed the decision to the CA arguing, in
the main, that the sale made by Eufemia for and on behalf of her other
co-heirs to the Pahuds should have been declared void and inexistent
for want of a written authority from her co-heirs. The CA yielded and set
aside the findings of the trial court. In disposing the issue, the CA ruled:
WHEREFORE, in view of the foregoing, the Decision dated January 14,
1998, rendered by the Regional Trial Court of Calamba, Laguna, Branch
92 in Civil Case No. 2011-93-C for Judicial Partition is hereby
REVERSED and SET ASIDE, and a new one entered, as follows:
(1) The case for partition among the plaintiffs-appellees and appellant
Virgilio is now considered closed and terminated;
(2) Ordering plaintiffs-appellees to return to intervenors-appellees the
total amount they received from the latter, plus an interest of 12% per
annum from the time the complaint [in] intervention was filed on April 12,
1995 until actual payment of the same;
(3) Declaring the sale of appellant Virgilio San Agustin to appellants
spouses, Isagani and Leticia Belarmino[,] as valid and binding;
(4) Declaring appellants-spouses as buyers in good faith and for value
and are the owners of the subject property.
No pronouncement as to costs.

SO ORDERED.23
Petitioners now come to this Court raising the following arguments:
I. The Court of Appeals committed grave and reversible error when it did
not apply the second paragraph of Article 1317 of the New Civil Code
insofar as ratification is concerned to the sale of the 4/8 portion of the
subject property executed by respondents San Agustin in favor of
petitioners;
II. The Court of Appeals committed grave and reversible error in holding
that respondents spouses Belarminos are in good faith when they
bought the subject property from respondent Virgilio San Agustin
despite the findings of fact by the court a quo that they were in bad faith
which clearly contravenes the presence of long line of case laws
upholding the task of giving utmost weight and value to the factual
findings of the trial court during appeals; [and]
III. The Court of Appeals committed grave and reversible error in holding
that respondents spouses Belarminos have superior rights over the
property in question than petitioners despite the fact that the latter were
prior in possession thereby misapplying the provisions of Article 1544 of
the New Civil Code.24
The focal issue to be resolved is the status of the sale of the subject
property by Eufemia and her co-heirs to the Pahuds. We find the
transaction to be valid and enforceable.
Article 1874 of the Civil Code plainly provides:
Art. 1874. When a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing; otherwise,
the sale shall be void.
Also, under Article 1878,25 a special power of attorney is necessary for
an agent to enter into a contract by which the ownership of an
immovable property is transmitted or acquired, either gratuitously or for
a valuable consideration. Such stringent statutory requirement has been
explained in Cosmic Lumber Corporation v. Court of Appeals:26
[T]he authority of an agent to execute a contract [of] sale of real estate
must be conferred in writing and must give him specific authority, either
to conduct the general business of the principal or to execute a binding
contract containing terms and conditions which are in the contract he did
execute. A special power of attorney is necessary to enter into any
contract by which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration. The express
mandate required by law to enable an appointee of an agency (couched)
in general terms to sell must be one that expressly mentions a sale or
that includes a sale as a necessary ingredient of the act mentioned. For
the principal to confer the right upon an agent to sell real estate, a power
of attorney must so express the powers of the agent in clear and
unmistakable language. When there is any reasonable doubt that the
language so used conveys such power, no such construction shall be
given the document.27
In several cases, we have repeatedly held that the absence of a written
authority to sell a piece of land is, ipso jure, void,28 precisely to protect
the interest of an unsuspecting owner from being prejudiced by the
unwarranted act of another.
Based on the foregoing, it is not difficult to conclude, in principle, that
the sale made by Eufemia, Isabelita and her two brothers to the Pahuds
sometime in 1992 should be valid only with respect to the 4/8 portion of
the subject property. The sale with respect to the 3/8 portion,
representing the shares of Zenaida, Milagros, and Minerva, is void
because Eufemia could not dispose of the interest of her co-heirs in the
said lot absent any written authority from the latter, as explicitly required
by law. This was, in fact, the ruling of the CA.
Still, in their petition, the Pahuds argue that the sale with respect to the
3/8 portion of the land should have been deemed ratified when the three
co-heirs, namely: Milagros, Minerva, and Zenaida, executed their
respective special power of attorneys29 authorizing Eufemia to
represent them in the sale of their shares in the subject property.30

While the sale with respect to the 3/8 portion is void by express provision
of law and not susceptible to ratification,31 we nevertheless uphold its
validity on the basis of the common law principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon.
True, at the time of the sale to the Pahuds, Eufemia was not armed with
the requisite special power of attorney to dispose of the 3/8 portion of
the property. Initially, in their answer to the complaint in intervention,32
Eufemia and her other co-heirs denied having sold their shares to the
Pahuds. During the pre-trial conference, however, they admitted that
they had indeed sold 7/8 of the property to the Pahuds sometime in
1992.33 Thus, the previous denial was superseded, if not accordingly
amended, by their subsequent admission.34 Moreover, in their
Comment,35 the said co-heirs again admitted the sale made to
petitioners.36
Interestingly, in no instance did the three (3) heirs concerned assail the
validity of the transaction made by Eufemia to the Pahuds on the basis
of want of written authority to sell. They could have easily filed a case
for annulment of the sale of their respective shares against Eufemia and
the Pahuds. Instead, they opted to remain silent and left the task of
raising the validity of the sale as an issue to their co-heir, Virgilio, who is
not privy to the said transaction. They cannot be allowed to rely on
Eufemia, their attorney-in-fact, to impugn the validity of the first
transaction because to allow them to do so would be tantamount to
giving premium to their sister’s dishonest and fraudulent deed.
Undeniably, therefore, the silence and passivity of the three co-heirs on
the issue bar them from making a contrary claim.
It is a basic rule in the law of agency that a principal is subject to liability
for loss caused to another by the latter’s reliance upon a deceitful
representation by an agent in the course of his employment (1) if the
representation is authorized; (2) if it is within the implied authority of the
agent to make for the principal; or (3) if it is apparently authorized,
regardless of whether the agent was authorized by him or not to make
the representation.37
By their continued silence, Zenaida, Milagros and Minerva have caused
the Pahuds to believe that they have indeed clothed Eufemia with the
authority to transact on their behalf. Clearly, the three co-heirs are now
estopped from impugning the validity of the sale from assailing the
authority of Eufemia to enter into such transaction.
Accordingly, the subsequent sale made by the seven co-heirs to Virgilio
was void because they no longer had any interest over the subject
property which they could alienate at the time of the second
transaction.38 Nemo dat quod non habet. Virgilio, however, could still
alienate his 1/8 undivided share to the Belarminos.
The Belarminos, for their part, cannot argue that they purchased the
property from Virgilio in good faith. As a general rule, a purchaser of a
real property is not required to make any further inquiry beyond what the
certificate of title indicates on its face.39 But the rule excludes those who
purchase with knowledge of the defect in the title of the vendor or of
facts sufficient to induce a reasonable and prudent person to inquire into
the status of the property.40 Such purchaser cannot close his eyes to
facts which should put a reasonable man on guard, and later claim that
he acted in good faith on the belief that there was no defect in the title
of the vendor. His mere refusal to believe that such defect exists, or his
obvious neglect by closing his eyes to the possibility of the existence of
a defect in the vendor’s title, will not make him an innocent purchaser
for value, if afterwards it turns out that the title was, in fact, defective. In
such a case, he is deemed to have bought the property at his own risk,
and any injury or prejudice occasioned by such transaction must be
borne by him.41
In the case at bar, the Belarminos were fully aware that the property was
registered not in the name of the immediate transferor, Virgilio, but
remained in the name of Pedro San Agustin and Agatona Genil.42 This
fact alone is sufficient impetus to make further inquiry and, thus, negate
their claim that they are purchasers for value in good faith.43 They knew
that the property was still subject of partition proceedings before the trial
court, and that the compromise agreement signed by the heirs was not
approved by the RTC following the opposition of the counsel for Eufemia
and her six other co-heirs.44 The Belarminos, being transferees
pendente lite, are deemed buyers in mala fide, and they stand exactly
in the shoes of the transferor and are bound by any judgment or decree
which may be rendered for or against the transferor.45 Furthermore, had
they verified the status of the property by asking the neighboring
residents, they would have been able to talk to the Pahuds who occupy
an adjoining business establishment46 and would have known that a
portion of the property had already been sold. All these existing and
readily verifiable facts are sufficient to suggest that the Belarminos knew
that they were buying the property at their own risk.

WHEREFORE, premises considered, the April 23, 2003 Decision of the

Court of Appeals as well as its October 8, 2003 Resolution in CA-G.R.
CV No. 59426, are REVERSED and SET ASIDE. Accordingly, the
January 14, 1998 Decision of Branch 92 of the Regional Trial Court of
Calamba, Laguna is REINSTATED with the MODIFICATION that the
sale made by respondent Virgilio San Agustin to respondent spouses
Isagani Belarmino and Leticia Ocampo is valid only with respect to the
1/8 portion of the subject property. The trial court is ordered to proceed
with the partition of the property with dispatch.

SO ORDERED.
 SECOND DIVISION
[G.R. No. 102737. August 21, 1996]
FRANCISCO A. VELOSO, petitioner, vs. COURT OF APPEALS,
AGLALOMA B. ESCARIO, assisted by her husband GREGORIO L.
ESCARIO, the REGISTER OF DEEDS FOR THE CITY OF MANILA,
respondents.
DECISION
TORRES, JR., J.:
This petition for review assails the decision of the Court of Appeals,
dated July 29, 1991, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED IN
TOTO. Costs against appellant.[1]
The following are the antecedent facts:
Petitioner Francisco Veloso was the owner of a parcel of land situated
in the district of Tondo, Manila, with an area of one hundred seventy
seven (177) square meters and covered by Transfer Certificate of Title
No. 49138 issued by the Registry of Deeds of Manila.[2] The title was
registered in the name of Francisco A. Veloso, single,[3] on October 4,
1957.[4] The said title was subsequently canceled and a new one,
Transfer Certificate of Title No. 180685, was issued in the name of
Aglaloma B. Escario, married to Gregorio L. Escario, on May 24,
1988.[5]
On August 24, 1988, petitioner Veloso filed an action for annulment of
documents, reconveyance of property with damages and preliminary
injunction and/or restraining order. The complaint, docketed as Civil
Case No. 88-45926, was raffled to the Regional Trial Court, Branch 45,
Manila. Petitioner alleged therein that he was the absolute owner of the
subject property and he never authorized anybody, not even his wife, to
sell it. He alleged that he was in possession of the title but when his wife,
Irma, left for abroad, he found out that his copy was missing. He then
verified with the Registry of Deeds of Manila and there he discovered
that his title was already canceled in favor of defendant Aglaloma
Escario. The transfer of property was supported by a General Power of
Attorney[6] dated November 29, 1985 and Deed of Absolute Sale, dated
November 2, 1987, executed by Irma Veloso, wife of the petitioner and
appearing as his attorney-in-fact, and defendant Aglaloma Escario.[7]
Petitioner Veloso, however, denied having executed the power of
attorney and alleged that his signature was falsified. He also denied
having seen or even known Rosemarie Reyes and Imelda Santos, the
supposed witnesses in the execution of the power of attorney. He
vehemently denied having met or transacted with the defendant. Thus,
he contended that the sale of the property, and the subsequent transfer
thereof, were null and void. Petitioner Veloso, therefore, prayed that a
temporary restraining order be issued to prevent the transfer of the
subject property; that the General Power of Attorney, the Deed of
Absolute Sale and the Transfer Certificate of Title No. 180685 be
annulled; and the subject property be reconveyed to him.
Defendant Aglaloma Escario in her answer alleged that she was a buyer
in good faith and denied any knowledge of the alleged irregularity. She
allegedly relied on the general power of attorney of Irma Veloso which
was sufficient in form and substance and was duly notarized. She
contended that plaintiff (herein petitioner), had no cause of action
against her. In seeking for the declaration of nullity of the documents,
the real party in interest was Irma Veloso, the wife of the plaintiff. She
should have been impleaded in the case. In fact, Plaintiffs cause of
action should have been against his wife, Irma. Consequently,
defendant Escario prayed for the dismissal of the complaint and the
payment to her of damages.[8]
Pre-trial was conducted. The sole issue to be resolved by the trial court
was whether or not there was a valid sale of the subject property.[9]
During the trial, plaintiff (herein petitioner) Francisco Veloso testified that
he acquired the subject property from the Philippine Building
Corporation, as evidenced by a Deed of Sale dated October 1, 1957.[10]
He married Irma Lazatin on January 20, 1962.[11] Hence, the property
did not belong to their conjugal partnership. Plaintiff further asserted that
he did not sign the power of attorney and as proof that his signature was
falsified, he presented Allied Bank Checks Nos. 16634640, 16634641
and 16634643, which allegedly bore his genuine signature.
Witness for the plaintiff Atty. Julian G. Tubig denied any participation in
the execution of the general power of attorney. He attested that he did
not sign thereon, and the same was never entered in his Notarial
Register on November 29, 1985.
In the decision of the trial court dated March 9, 1990,[12] defendant
Aglaloma Escaro was adjudged the lawful owner of the property as she
was deemed an innocent purchaser for value. The assailed general
power of attorney was held to be valid and sufficient for the purpose.
The trial court ruled that there was no need for a special power of
attorney when the special power was already mentioned in the general
one. It also declared that plaintiff failed to substantiate his allegation of
fraud. The court also stressed that plaintiff was not entirely blameless
for although he admitted to be the only person who had access to the
title and other important documents, his wife was still able to possess
the copy. Citing Section 55 of Act 496, the court held that Irmas
possession and production of the certificate of title was deemed a
conclusive authority from the plaintiff to the Register of Deeds to enter a
new certificate. Then applying the principle of equitable estoppel,
plaintiff was held to bear the loss for it was he who made the wrong
possible. Thus:
WHEREFORE, the Court finds for the defendants and against plaintiff-
a. declaring that there was a valid sale of the subject property in favor
of the defendant;
b. denying all other claims of the parties for want of legal and factual
basis.
Without pronouncement as to costs.
SO ORDERED.
Not satisfied with the decision, petitioner Veloso filed his appeal with the
Court of Appeals. The respondent court affirmed in toto the findings of
the trial court.
Hence, this petition for review before us.
This petition for review was initially dismissed for failure to submit an
affidavit of service of a copy of the petition on the counsel for private
respondent.[13] A motion for reconsideration of the resolution was filed
but it was denied in a resolution dated March 30, 1992.[14] A second
motion for reconsideration was filed and in a resolution dated Aug. 3,
1992, the motion was granted and the petition for review was
reinstated.[15]
A supplemental petition was filed on October 9, 1992 with the following
assignment of errors:
I
The Court of Appeals committed a grave error in not finding that the
forgery of the power of attorney (Exh. C) had been adequately proven,
despite the preponderant evidence, and in doing so, it has so far
departed from the applicable provisions of law and the decisions of this
Honorable Court, as to warrant the grant of this petition for review on
certiorari.
II
There are principles of justice and equity that warrant a review of the
decision.
III
The Court of Appeals erred in affirming the decision of the trial court
which misapplied the principle of equitable estoppel since the petitioner
did not fail in his duty of observing due diligence in the safekeeping of
the title to the property.

We find petitioners contentions not meritorious.
An examination of the records showed that the assailed power of
attorney was valid and regular on its face. It was notarized and as such,
it carries the evidentiary weight conferred upon it with respect to its due
execution. While it is true that it was denominated as a general power
of attorney, a perusal thereof revealed that it stated an authority to sell,
to wit:
2. To buy or sell, hire or lease, mortgage or otherwise hypothecate
lands, tenements and hereditaments or other forms of real property,
more specifically TCT No. 49138, upon such terms and conditions and
under such covenants as my said attorney shall deem fit and proper.[16]
Thus, there was no need to execute a separate and special power of
attorney since the general power of attorney had expressly authorized
the agent or attorney in fact the power to sell the subject property. The
special power of attorney can be included in the general power when it
is specified therein the act or transaction for which the special power is
required.
The general power of attorney was accepted by the Register of Deeds
when the title to the subject property was canceled and transferred in
the name of private respondent. In LRC Consulta No. 123, Register of
Deeds of Albay, Nov. 10, 1956, it stated that:
Whether the instrument be denominated as general power of attorney
or special power of attorney, what matters is the extent of the power or
powers contemplated upon the agent or attorney in fact. If the power is
couched in general terms, then such power cannot go beyond acts of
administration. However, where the power to sell is specific, it not being
merely implied, much less couched in general terms, there can not be
any doubt that the attorney in fact may execute a valid sale. An
instrument may be captioned as special power of attorney but if the
powers granted are couched in general terms without mentioning any
specific power to sell or mortgage or to do other specific acts of strict
dominion, then in that case only acts of administration may be deemed
conferred.
Petitioner contends that his signature on the power of attorney was
falsified. He also alleges that the same was not duly notarized for as
testified by Atty. Tubig himself, he did not sign thereon nor was it ever
recorded in his notarial register. To bolster his argument, petitioner had
presented checks, marriage certificate and his residence certificate to
prove his alleged genuine signature which when compared to the
signature in the power of attorney, showed some difference.
We found, however, that the basis presented by the petitioner was
inadequate to sustain his allegation of forgery. Mere variance of the
signatures cannot be considered as conclusive proof that the same were
forged. Forgery cannot be presumed.[17] Petitioner, however, failed to
prove his allegation and simply relied on the apparent difference of the
signatures. His denial had not established that the signature on the
power of attorney was not his.
We agree with the conclusion of the lower court that private respondent
was an innocent purchaser for value. Respondent Aglaloma relied on
the power of attorney presented by petitioners wife, Irma. Being the wife
of the owner and having with her the title of the property, there was no
reason for the private respondent not to believe in her authority.
Moreover, the power of attorney was notarized and as such, carried with
it the presumption of its due execution. Thus, having had no inkling on
any irregularity and having no participation thereof, private respondent
was a buyer in good faith. It has been consistently held that a purchaser
in good faith is one who buys property of another, without notice that
some other person has a right to, or interest in such property and pays
a full and fair price for the same, at the time of such purchase, or before
he has notice of the claim or interest of some other person in the
property.[18]
Documents acknowledged before a notary public have the evidentiary
weight with respect to their due execution. The questioned power of
attorney and deed of sale, were notarized and therefore, presumed to
be valid and duly executed. Atty. Tubig denied having notarized the said
documents and alleged that his signature had also been falsified. He
presented samples of his signature to prove his contention. Forgery
should be proved by clear and convincing evidence and whoever alleges
it has the burden of proving the same. Just like the petitioner, witness
Atty. Tubig merely pointed out that his signature was different from that
in the power of attorney and deed of sale. There had never been an
accurate examination of the signature, even that of the petitioner. To
determine forgery, it was held in Cesar vs. Sandiganbayan[19] (quoting
Osborn, The Problem of Proof) that:
The process of identification, therefore, must include the determination
of the extent, kind, and significance of this resemblance as well as of the
variation. It then becomes necessary to determine whether the variation
is due to the operation of a different personality, or is only the expected
and inevitable variation found in the genuine writing of the same writer.
It is also necessary to decide whether the resemblance is the result of a
more or less skillful imitation, or is the habitual and characteristic
resemblance which naturally appears in a genuine writing. When these
two questions are correctly answered the whole problem of identification
is solved.
Even granting for the sake of argument, that the petitioners signature
was falsified and consequently, the power of attorney and the deed of
sale were null and void, such fact would not revoke the title subsequently
issued in favor of private respondent Aglaloma. In the case of Tenio-
Obsequio vs. Court of Appeals,[20] it was held, viz.:
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 plaintiffs 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, Irmas possession
and production of the Certificate of Title to defendant operated as
conclusive authority from the plaintiff to the Register of Deeds to enter a
new certificate.[21]
Considering the foregoing premises, We found no error in the
appreciation of facts and application of law by the lower court that will
warrant the reversal or modification of the appealed decision.
ACCORDINGLY, the petition for review is hereby DENIED for lack of
merit.
SO ORDERED.

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
 FIRST DIVISION
[G. R. No. 129919. February 6, 2002]
DOMINION INSURANCE CORPORATION, petitioner, vs. COURT
OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO
AUSTRIA, respondents.
DECISION
PARDO, J.:
The Case
This is an appeal via certiorari[1] from the decision of the Court of
Appeals[2] affirming the decision[3] of the Regional Trial Court, Branch
44, San Fernando, Pampanga, which ordered petitioner Dominion
Insurance Corporation (Dominion) to pay Rodolfo S. Guevarra
(Guevarra) the sum of P156,473.90 representing the total amount
advanced by Guevarra in the payment of the claims of Dominions
clients.
The Facts
The facts, as found by the Court of Appeals, are as follows:
On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case
No. 8855 for sum of money against defendant Dominion Insurance
Corporation. Plaintiff sought to recover thereunder the sum of
P156,473.90 which he claimed to have advanced in his capacity as
manager of defendant to satisfy certain claims filed by defendants
clients.
In its traverse, defendant denied any liability to plaintiff and asserted a
counterclaim for P249,672.53, representing premiums that plaintiff
allegedly failed to remit.
On August 8, 1991, defendant filed a third-party complaint against
Fernando Austria, who, at the time relevant to the case, was its Regional
Manager for Central Luzon area.
In due time, third-party defendant Austria filed his answer.
Thereafter the pre-trial conference was set on the following dates:
October 18, 1991, November 12, 1991, March 29, 1991, December 12,
1991, January 17, 1992, January 29, 1992, February 28, 1992, March
17, 1992 and April 6, 1992, in all of which dates no pre-trial conference
was held. The record shows that except for the settings on October 18,
1991, January 17, 1992 and March 17, 1992 which were cancelled at
the instance of defendant, third-party defendant and plaintiff,
respectively, the rest were postponed upon joint request of the parties.
On May 22, 1992 the case was again called for pre-trial conference.
Only plaintiff and counsel were present. Despite due notice, defendant
and counsel did not appear, although a messenger, Roy Gamboa,
submitted to the trial court a handwritten note sent to him by defendants
counsel which instructed him to request for postponement. Plaintiffs
counsel objected to the desired postponement and moved to have
defendant declared as in default. This was granted by the trial court in
the following order:
ORDER
When this case was called for pre-trial this afternoon only plaintiff and
his counsel Atty. Romeo Maglalang appeared. When shown a note
dated May 21, 1992 addressed to a certain Roy who was requested to
ask for postponement, Atty. Maglalang vigorously objected to any
postponement on the ground that the note is but a mere scrap of paper
and moved that the defendant corporation be declared as in default for
its failure to appear in court despite due notice.
Finding the verbal motion of plaintiffs counsel to be meritorious and
considering that the pre-trial conference has been repeatedly postponed
on motion of the defendant Corporation, the defendant Dominion
Insurance Corporation is hereby declared (as) in default and plaintiff is
allowed to present his evidence on June 16, 1992 at 9:00 oclock in the
morning.
The plaintiff and his counsel are notified of this order in open court.
SO ORDERED.
Plaintiff presented his evidence on June 16, 1992. This was followed by
a written offer of documentary exhibits on July 8 and a supplemental
offer of additional exhibits on July 13, 1992. The exhibits were admitted
in evidence in an order dated July 17, 1992.
On August 7, 1992 defendant corporation filed a MOTION TO LIFT
ORDER OF DEFAULT. It alleged therein that the failure of counsel to
attend the pre-trial conference was due to an unavoidable circumstance
and that counsel had sent his representative on that date to inform the
trial court of his inability to appear. The Motion was vehemently opposed
by plaintiff.
On August 25, 1992 the trial court denied defendants motion for
reasons, among others, that it was neither verified nor supported by an
affidavit of merit and that it further failed to allege or specify the facts
constituting his meritorious defense.
On September 28, 1992 defendant moved for reconsideration of the
aforesaid order. For the first time counsel revealed to the trial court that
the reason for his nonappearance at the pre-trial conference was his
illness. An Affidavit of Merit executed by its Executive Vice-President
purporting to explain its meritorious defense was attached to the said
Motion. Just the same, in an Order dated November 13, 1992, the trial
court denied said Motion.
On November 18, 1992, the court a quo rendered judgment as follows:
WHEREFORE, premises considered, judgment is hereby rendered
ordering:
1. The defendant Dominion Insurance Corporation to pay plaintiff the
sum of P156,473.90 representing the total amount advanced by plaintiff
in the payment of the claims of defendants clients;
2. The defendant to pay plaintiff P10,000.00 as and by way of attorneys
fees;
3. The dismissal of the counter-claim of the defendant and the third-party
complaint;
4. The defendant to pay the costs of suit.[4]
On December 14, 1992, Dominion appealed the decision to the Court of
Appeals.[5]
On July 19, 1996, the Court of Appeals promulgated a decision affirming
that of the trial court.[6] On September 3, 1996, Dominion filed with the
Court of Appeals a motion for reconsideration.[7] On July 16, 1997, the
Court of Appeals denied the motion.[8]
Hence, this appeal.[9]
The Issues
The issues raised are: (1) whether respondent Guevarra acted within
his authority as agent for petitioner, and (2) whether respondent
Guevarra is entitled to reimbursement of amounts he paid out of his
personal money in settling the claims of several insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render some
service or to do something in representation or on behalf of another, with
the consent or authority of the latter.[10] The basis for agency is
representation.[11] On the part of the principal, there must be an actual
intention to appoint[12] or an intention naturally inferrable from his words
or actions;[13] and on the part of the agent, there must be an intention
to accept the appointment and act on it,[14] and in the absence of such
intent, there is generally no agency.[15]
A perusal of the Special Power of Attorney[16] would show that
petitioner (represented by third-party defendant Austria) and respondent
Guevarra intended to enter into a principal-agent relationship. Despite
the word special in the title of the document, the contents reveal that
what was constituted was actually a general agency. The terms of the
agreement read:
That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,[17] a
corporation duly organized and existing under and by virtue of the laws
of the Republic of the Philippines, xxx represented by the undersigned
as Regional Manager, xxx do hereby appoint RSG Guevarra Insurance
Services represented by Mr. Rodolfo Guevarra xxx to be our Agency
Manager in San Fdo., for our place and stead, to do and perform the
following acts and things:
1. To conduct, sign, manager (sic), carry on and transact Bonding and
Insurance business as usually pertain to a Agency Office, or FIRE,
MARINE, MOTOR CAR, PERSONAL ACCIDENT, and BONDING with
the right, upon our prior written consent, to appoint agents and sub-
agents.
2. To accept, underwrite and subscribed (sic) cover notes or Policies of
Insurance and Bonds for and on our behalf.
3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver
and transfer for and receive and give effectual receipts and discharge
for all money to which the FIRST CONTINENTAL ASSURANCE
COMPANY, INC.,[18] may hereafter become due, owing payable or
transferable to said Corporation by reason of or in connection with the
above-mentioned appointment.
4. To receive notices, summons, and legal processes for and in behalf
of the FIRST CONTINENTAL ASSURANCE COMPANY, INC., in
connection with actions and all legal proceedings against the said
Corporation.[19] [Emphasis supplied]
The agency comprises all the business of the principal,[20] but, couched
in general terms, it is limited only to acts of administration.[21]
A general power permits the agent to do all acts for which the law does
not require a special power.[22] Thus, the acts enumerated in or similar
to those enumerated in the Special Power of Attorney do not require a
special power of attorney.
Article 1878, Civil Code, enumerates the instances when a special
power of attorney is required. The pertinent portion that applies to this
case provides that:
Article 1878. Special powers of attorney are necessary in the following
cases:
(1) To make such payments as are not usually considered as acts of
administration;
xxx xxx xxx
(15) Any other act of strict dominion.
The payment of claims is not an act of administration. The settlement of
claims is not included among the acts enumerated in the Special Power
of Attorney, neither is it of a character similar to the acts enumerated
therein. A special power of attorney is required before respondent
Guevarra could settle the insurance claims of the insured.
Respondent Guevarras authority to settle claims is embodied in the
Memorandum of Management Agreement[23] dated February 18, 1987
which enumerates the scope of respondent Guevarras duties and
responsibilities as agency manager for San Fernando, Pampanga, as
follows:
xxx xxx xxx

1. You are hereby given authority to settle and dispose of all motor car
claims in the amount of P5,000.00 with prior approval of the Regional
Office.
2. Full authority is given you on TPPI claims settlement.
xxx xxx xxx[24]
In settling the claims mentioned above, respondent Guevarras authority
is further limited by the written standard authority to pay,[25] which
states that the payment shall come from respondent Guevarras
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]
The instruction of petitioner as the principal could not be any clearer.
Respondent Guevarra was authorized to pay the claim of the insured,
but the payment shall come from the revolving fund or collection in his
possession.
Having deviated from the instructions of the principal, the expenses that
respondent Guevarra incurred in the settlement of the claims of the
insured may not be reimbursed from petitioner Dominion. This
conclusion is in accord with Article 1918, Civil Code, which states that:
The principal is not liable for the expenses incurred by the agent in the
following cases:
(1) If the agent acted in contravention of the principals instructions,
unless the latter should wish to avail himself of the benefits derived from
the contract;
xxx xxx xxx
However, while the law on agency prohibits respondent Guevarra from
obtaining reimbursement, his right to recover may still be justified under
the general law on obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
Whoever pays for another may demand from the debtor what he has
paid, except that if he paid without the knowledge or against the will of
the debtor, he can recover only insofar as the payment has been
beneficial to the debtor.
In this case, when the risk insured against occurred, petitioners liability
as insurer arose. This obligation was extinguished when respondent
Guevarra paid the claims and obtained Release of Claim Loss and
Subrogation Receipts from the insured who were paid.
Thus, to the extent that the obligation of the petitioner has been
extinguished, respondent Guevarra may demand for reimbursement
from his principal. To rule otherwise would result in unjust enrichment of
petitioner.
The extent to which petitioner was benefited by the settlement of the
insurance claims could best be proven by the Release of Claim Loss
and Subrogation Receipts[27] which were attached to the original
complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the
total amount of P116,276.95.
However, the amount of the revolving fund/collection that was then in
the possession of respondent Guevarra as reflected in the statement of
account dated July 11, 1990 would be deducted from the above amount.

The outstanding balance and the production/remittance for the period

corresponding to the claims was P3,604.84. Deducting this from
P116,276.95, we get P112,672.11. This is the amount that may be
reimbursed to respondent Guevarra.

The Fallo

IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the

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

No costs in this instance.

SO ORDERED.