1gozun v. Mercado Merged

11/11/21, 3:18 PM SUPREME COURT REPORTS ANNOTATED VOLUME 511
*
G.R. No. 167812. December 19, 2006.
JESUS M. GOZUN, petitioner, vs. JOSE TEOFILO T.

MERCADO a.k.a. ‘DON PEPITO MERCADO,’ respondent.
Contracts; Agency; Special Powers of Attorney; Contracts

entered into in the name of another person by one who has been
given no authority or legal representation or who has acted beyond
his powers are classified as unauthorized contracts and are
unenforceable, unless they are ratified; A special power of attorney
is necessary for an agent to borrow money, unless it be urgent and
indispensable for the preservation of the things which are under
administration.—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.
Contracts entered into in the name of another person by one who
has been given no authority or legal representation or who has
acted beyond his powers are classified as unauthorized contracts
and are declared unenforceable, unless they are ratified.
Generally, the agency may be oral, unless the law requires a
specific form. However, a special power of attorney is necessary
for an agent to, as in this case, borrow money, unless it be urgent
and indispensable for the preservation of the things which are
under administration. Since nothing in this case involves the
preservation of things under administration, a determination of
whether Soriano had the special authority to borrow money on
behalf of respondent is in order.
_______________
* THIRD DIVISION.
306
306 SUPREME COURT REPORTS ANNOTATED
Gozun vs. Mercado
Same; Same; Same; The requirement of a special power of

attorney refers to the nature of the authorization and not to its
https://www.central.com.ph/sfsreader/session/0000017d0de2e2f99770602d000d00d40059004a/t/?o=False 1/13
form—if the special authority is not written, then it must be duly

established by evidence.—Lim Pin v. Liao Tian, et al., 115 SCRA
290 (1982), held that the requirement of a special power of
attorney refers to the nature of the authorization and not to its
form. . . . The requirements are met if there is a clear mandate
from the principal specifically authorizing the performance of the
act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6
Phil. 680) stated that such a mandate may be either oral or
written. The one thing vital being that it shall be express. And
more recently, We stated that, if the special authority is not
written, then it must be duly established by evidence: “… the
Rules require, for attorneys to compromise the litigation of their
clients, a special authority. And while the same does not state
that the special authority be in writing the Court has every
reason to expect that, if not in writing, the same be duly
established by evidence other than the self-serving assertion of
counsel himself that such authority was verbally given him.”
Same; Same; Same; Real Estate Mortgages; It is a general

rule in the law of agency that, in order to bind the principal by a
mortgage on real property executed by an agent, it must upon its
face purport to be made, signed and sealed in the name of the
principal, otherwise, it will bind the agent only.—It bears noting
that Lilian signed in the receipt in her name alone, without
indicating therein that she was acting for and in behalf of
respondent. She thus bound herself in her personal capacity and
not as an agent of respondent or anyone for that matter. It is a
general rule in the law of agency that, in order to bind the
principal by a mortgage on real property executed by an agent, it
must upon its face purport to be made, signed and sealed in the
name of the principal, otherwise, it will bind the agent only. It is
not enough merely that the agent was in fact authorized to make
the mortgage, if he has not acted in the name of the principal. x x
x
Same; Same; Same; Actions; Parties; One who is not a party to

a contract, and for whose benefit it was not expressly made, cannot
maintain an action on it.—In Oco v. Limbaring, 481 SCRA 348
(2006), this Court ruled: The parties to a contract are the real
parties in interest in an action upon it, as consistently held by the
Court. Only the contracting parties are bound by the stipulations
in the contract; they are the ones who would benefit from and
could violate
307
VOL. 511, DECEMBER 19, 2006 307

Gozun vs. Mercado
it. Thus, one who is not a party to a contract, and for whose benefit
it was not expressly made, cannot maintain an action on it. One
cannot do so, even if the contract performed by the contracting
parties would incidentally inure to one’s benefit.
PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.

Bermudo, Reyes, Bermudo & Associates for petitioner.
Roberto L. Mendoza for respondent.
CARPIO-MORALES, J.:
On challenge via petition for review on certiorari is the

Court of Appeals’ Decision of December 8, 2004 and1
Resolution of April 14, 2005 in CA-G.R.
2
CV No. 76309
reversing the trial court’s decision against Jose Teofilo T.
Mercado a.k.a. Don Pepito Mercado (respondent) and
accordingly dismissing the complaint of Jesus M. Gozun
(petitioner).
In the local elections of 1995, respondent vied for the
gubernatorial post in Pampanga. Upon respondent’s
request, petitioner, owner of JMG Publishing House, a
printing shop located in San Fernando, Pampanga,
submitted to respondent draft samples and price quotation
of campaign materials.
By petitioner’s claim, respondent’s wife had told him
that respondent already approved his price quotation and
that he could start printing the campaign materials, hence,
he did print campaign 3 materials like posters bearing
respondent’s photograph,
4
leaflets containing the slate of
party candidates,
_______________
1 Penned by Associate Justice Andres B. Reyes, Jr., with the

concurrence of Associate Justices Lucas P. Bersamin and Celia C. Librea-
Leagogo. Rollo, pp. 25-37, 39.
2 Penned by Judge Omar T. Viola. Rollo, pp. 64-68.
3 Folder of Exhibits, p. 13.
4 Id., at p. 14.
308
Gozun vs. Mercado
5 6
sample ballots, poll watcher identification cards, and
stickers.
Given the urgency and limited time to do the job order,
petitioner availed of the services and facilities of Metro
Angeles Printing and of St. Joseph Printing Press, owned
by his daughter Jennifer Gozun 7
and mother Epifania
Macalino Gozun, respectively.
Petitioner delivered the campaign materials to
respondent’s headquarters 8along Gapan-Olongapo Road in
San Fer-nando, Pampanga.
Meanwhile, on March 31, 1995, respondent’s sister-in-
law, Lilian Soriano (Lilian) obtained from petitioner “cash
advance” of P253,000 allegedly for the allowances of poll
watchers who were attending a seminar and for other
related
9
expenses. Lilian acknowledged
10
on petitioner’s 1995
diary receipt of the amount.
Petitioner
11
later sent respondent a Statement of
Account in the total amount of P2,177,906 itemized as
follows: P640,310 for JMG Publishing House; P837,696 for
Metro Angeles Printing; P446,900 for St. Joseph Printing
Press; and P253,000, the “cash advance” obtained by Lilian.
On August 11, 1995, respondent’s wife 12partially paid
P1,000,000 to petitioner who issued a receipt therefor.
_______________
5 Id., at p. 15.
6 Id., at p. 16.
7 Transcript of Stenographic Notes (TSN), November 22, 2000, pp. 4-6.
8 TSN, November 24, 1999, pp. 8-9, 16-18.
10 TSN, November 24, 1999, pp. 11-13; November 22, 2000, pp. 6-7.
12 Id., at p. 11.
309
VOL. 511, DECEMBER 19, 2006 309

Gozun vs. Mercado
Despite repeated demands and respondent’s promise to

pay, respondent failed to settle the balance of his account
to petitioner.
Petitioner and respondent being compadres, they having
been principal sponsors at the weddings of their respective
daughters, waited for more than three (3) years for
respondent to honor his promise but to no avail, compelling

petitioner to endorse the matter
13
to his counsel who sent
respondent a demand 14
letter. Respondent, however, failed
to heed the demand.
Petitioner thus filed with the Regional Trial 15Court of
Ange-les City on November 25, 1998 a complaint against
respondent to collect the remaining amount of P1,177,906
plus “inflationary adjustment” and attorney’s fees. 16
In his Answer with Compulsory Counterclaim,
respondent denied having transacted with petitioner or
entering into any contract for the printing of campaign
materials. He alleged that the various campaign materials
delivered to him were represented as donations from his
family, friends and political supporters. He added that all
contracts involving his personal expenses were coursed
through and signed by him to ensure compliance with
pertinent election laws.
On petitioner’s claim that Lilian, on his (respondent’s)
behalf, had obtained from him a cash advance of P253,000,
respondent denied having given her authority to do so and
having received the same.
At the witness stand, respondent, reiterating his
allegations in his Answer, claimed that petitioner was his
over-all coordinator in charge of the conduct of seminars for
volunteers and the monitoring of other matters bearing on
his candidacy; and that while his campaign manager,
Juanito
_______________
13 Id., at p. 17.
14 TSN, November, 24, 1999, pp. 9-11, 14, 19-23.
15 Records, pp. 2-16.
16 Id., at pp. 40-45.
310

Gozun vs. Mercado
“Johnny” Cabalu (Cabalu), who was authorized to approve

details with regard to printing materials, presented17
him
some campaign materials, those were partly donated.
When confronted with the official receipt issued to his
wife acknowledging her payment to JMG Publishing House
of the amount of P1,000,000, respondent claimed that it
was his first time to see the receipt, albeit he belatedly
came to know from his wife and Cabalu that the
P1,000,000 represented “compensation [to petitioner]18 who

helped a lot in the campaign as a gesture of goodwill.”
Acknowledging that petitioner is engaged in the printing
business, respondent explained that he sometimes
discussed with petitioner strategies relating to his
candidacy, he (petitioner) having actively volunteered to
help in his campaign; that his wife was not authorized to
enter into a contract with petitioner regarding campaign
materials as she knew her limitations; that he no longer
questioned the P1,000,000 his wife gave petitioner as he
thought that it was just proper to compensate him for a job
well done; and that he came to know about petitioner’s
claim against him only after receiving a copy of the
complaint, which surprised him because he knew 19
fully well
that the campaign materials were donations.
Upon questioning by the trial court, respondent could
not, however, confirm if it was his understanding that the
campaign materials 20
delivered by petitioner were donations
from third parties.
Finally, respondent, disclaiming knowledge of the
Comelec rule that if a campaign material is donated, it
must be so stated on its face, acknowledged that nothing of
that sort 21was written on all the materials made by
petitioner.
_______________
17 TSN, March 21, 2001, pp. 5-7.

18 Id., at pp. 8-10.
19 TSN, July 2, 2001, pp. 3-15.
20 Id., at pp. 15-16.
21 Id.
311
VOL. 511, DECEMBER 19, 2006 311

Gozun vs. Mercado
As adverted to earlier, the trial court rendered judgment in

favor of petitioner, the dispositive portion of which reads:
“WHEREFORE, the plaintiff having proven its (sic) cause of

action by preponderance of evidence, the Court hereby renders a
decision in favor of the plaintiff ordering the defendant as follows:
1. To pay the plaintiff the sum of P1,177,906.00 plus 12%

interest per annum from the filing of this complaint until
fully paid;
To pay the sum of P50,000.00 as attorney’s fees and the

2.
costs of suit.
22
SO ORDERED.”
Also as earlier adverted to, the Court of Appeals reversed

the trial court’s decision and dismissed the complaint for
lack of cause of action.
In reversing the trial court’s decision, the Court of
Appeals held that other than petitioner’s testimony, there
was no evidence to support his claim that Lilian was
authorized by respondent to borrow money 23
on his behalf. It
noted that the acknowledgment receipt signed by Lilian
did not specify in what capacity
24
she received the money.
Thus, applying Article 1317 of the Civil Code, it held that
petitioner’s claim for P253,000 is unenforceable.
On the accounts claimed to be due JMG Publishing
House—P640,310, Metro Angeles Printing—P837,696, and
St. Joseph Printing Press—P446,900, the appellate court,
noting
_______________
22 Rollo, p. 68.
23 Vide: Folder of Exhibits, Exhibit “B,” p. 9.
24 No one may contract in the name of another without being authorized
by the latter, or unless he has by law a right to represent him.
A contact entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his powers,
shall be unenforceable, unless it is ratified, expressly or impliedly, by the
person on whose behalf it has been executed, before it is revoked by the
other contracting party. (Italics supplied)
312

Gozun vs. Mercado
that since the owners of the last two printing presses were
not impleaded as parties to the case and it was not shown
that petitioner was authorized to prosecute the same in
their behalf, held that petitioner could not collect the
amounts due them.
Finally, the appellate court, noting that respondent’s
wife had paid P1,000,000 to petitioner, the latter’s claim of
P640,310 (after excluding the P253,000) had already been
settled.
Hence, the present petition, faulting the appellate court

to have erred:
“1. . . . when it dismissed the complaint on the ground that there

is no evidence, other than petitioner’s own testimony, to prove
that Lilian R. Soriano was authorized by the respondent to
receive the cash advance from the petitioner in the amount of
P253,000.00.
xxxx
2. . . . when it dismissed the complaint, with respect to the
amounts due to the Metro Angeles Press and St. Joseph Printing
Press on the ground that the complaint was not brought by the
real party 25in interest.
x x x x”
By the contract of agency a person binds himself to render

some service or to do something in representation or on
behalf26 of another, with the consent or authority of the
latter. Contracts entered into in the name of another
person by one who has been given no authority or legal
representation or who has acted beyond his powers are
classified as unauthorized contracts27 and are declared
unenforceable, unless they are ratified.
_______________
25 Rollo, pp. 14-15.

26 Civil Code, art. 1868.
27 Id., art. 1403.
313
VOL. 511, DECEMBER 19, 2006 313

Gozun vs. Mercado
Generally, the agency

28
may be oral, unless the law requires
a specific form. However, a special power of attorney is
necessary for an agent to, as in this case, borrow money,
unless it be urgent and indispensable for the preservation
29
of the things which are under administration. Since
nothing in this case involves the preservation of things
under administration, a determination of whether Soriano
had the special authority to borrow money on behalf of
respondent is in order. 30
Lim Pin v. Liao Tian, et al. held that the requirement
of a special power of attorney refers to the nature of the
authorization and not to its form.
. . . The requirements are met if there is a clear mandate from the

principal specifically authorizing the performance of the act. As
early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil.
680) stated that such a mandate may be either oral or written.
The one thing vital being that it shall be express. And more
recently, We stated that, if the special authority is not written,
then it must be duly established by evidence:
“. . . the Rules require, for attorneys to compromise the litigation of their

clients, a special authority. And while the same does not state that the
special authority be in writing the Court has every reason to expect that,
if not in writing, the same be duly established by evidence other than the
selfserving assertion of counsel himself that such authority was verbally
31
given him.” (Emphasis and italics supplied)
Petitioner submits that his following testimony suffices to

establish that respondent had authorized Lilian to obtain a
loan from him, viz.:
_______________
28 Id., art. 1869. In Art. 874, the law requires a specific form in cases
“[w]hen 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.”
29 Id., art. 1878, par. 7.
30 200 Phil. 685; 115 SCRA 290 (1982).
31 Id., at p. 693; pp. 296-297.
314

Gozun vs. Mercado
Q: Another caption appearing on Exhibit “A” is cash

advance, it states given on 3-31-95 received by Mrs.
Lilian Soriano in behalf of Mrs. Annie Mercado,
amount P253,000.00, will you kindly tell the Court and
explain what does that caption means?
A: It is the amount representing the money borrowed
from me by the defendant when one morning
they came very early and talked to me and told me
that they were not able to go to the bank to get money
for the allowances of Poll Watchers who were having a
seminar at the headquarters plus other election related
expenses during that day, sir.
Q: Considering that this is a substantial amount which
according to you was taken by Lilian Soriano, did you
happen to make her acknowledge the amount at that

time?
32
A: Yes, sir. (Emphasis supplied)
Petitioner’s testimony failed to categorically state, however,

whether the loan was made on behalf of respondent or of
his wife. While petitioner claims that Lilian was authorized
by respondent, the statement of account marked as Exhibit
“A” states that the amount was received by Lilian “in
behalf of Mrs. Annie Mercado.”
33
Invoking Article 1873 of the Civil Code, petitioner
submits that respondent informed him that he had
authorized Lilian34 to obtain the loan, hence, following
Macke v. Camps which holds that one who clothes
another with apparent au-
_______________
32 TSN, November 24, 1999, pp. 11-12.

33 If a person specially informs another or states by public
advertisement that he has given a power of attorney to a third person, the
latter thereby becomes a duly authorized agent, in the former case with
respect to the person who received the special information, and in the latter
case with regard to any person.
The power shall continue to be in full force until the notice is rescinded
in the same manner in which it was given. (Italics supplied)
34 7 Phil. 553 (1907).
315
VOL. 511, DECEMBER 19, 2006 315

Gozun vs. Mercado
thority as his agent, and holds him out to the public

as such, respondent cannot be permitted to deny the
authority.
Petitioner’s submission does not persuade. As the
appellate court observed:
. . . Exhibit “B” [the receipt issued by petitioner] presented by

plaintiff-appellee to support his claim unfortunately only
indicates the Two Hundred Fifty Three Thousand Pesos
(P253,0000.00) was received by one Lilian R. Soriano on 31 March
1995, but without specifying for what reason the said amount was
delivered and in what capacity did Lilian R. Soriano received [sic]
the money. The note reads:
“3-31-95
261,120 ADVANCE MONEY FOR TRAINEE—
RECEIVED BY
RECEIVED FROM JMG THE AMOUNT OF 253,000

TWO HUNDRED FIFTY THREE THOUSAND PESOS
(SIGNED)

LILIAN R. SORIANO
3-31-95”
Nowhere in the note can it be inferred that defendant-appellant

was connected with the said transaction. Under Article 1317 of the
New Civil Code, a person cannot be bound 35
by contracts he did not
authorize to be entered into his behalf.” (Italics supplied)
It bears noting that Lilian signed in the receipt in her name

alone, without indicating therein that she was acting for
and in behalf of respondent. She thus bound herself in her
personal capacity and not as an agent of respondent or
anyone for that matter.
_______________
35 Rollo, pp. 32-33.
316

Gozun vs. Mercado
“It is a general rule in the law of agency that, in order to bind

the principal by a mortgage on real property executed by an
agent, it must upon its face purport to be made, signed and sealed
in the name of the principal, otherwise, it will bind the agent only.
It is not enough merely that the agent was in fact authorized to
make the mortgage,
36
if he has not acted in the name of the
principal. x x x” (Emphasis and italics supplied)
On the amount due him and the other two printing presses,
petitioner explains that he was the one who personally and
directly contracted with respondent and he merely
subcontracted the two printing establishments in order to
deliver on time the campaign materials ordered by
respondent.
Respondent counters that the claim of sub-contracting is
a change in petitioner’s theory of the case which is not
allowed on appeal. 37
In Oco v. Limbaring, this Court ruled:
“The parties to a contract are the real parties in interest in an

action upon it, as consistently held by the Court. Only the
contracting parties are bound by the stipulations in the contract;
they are the ones who would benefit from and could violate it.
Thus, one who is not a party to a contract, and for whose benefit it
was not expressly made, cannot maintain an action on it. One
cannot do so, even if the contract performed by the contracting
38
parties would incidentally inure to one's benefit.” (Italics
supplied)
In light thereof, petitioner is the real party in interest in

this case. The trial court’s findings on the matter were af-
_______________
36 Rural Bank of Bombon v. Court of Appeals, G.R. No. 95703, August 3,

1992, 212 SCRA 25, 30 citing Philippine Sugar Estates Development Co. v.
Poizat, 48 Phil. 536, 538 (1925); Aguenza v. Metropolitan Bank and Trust
Co., 337 Phil. 448, 457; 271 SCRA 1, 10 (1997).
37 G.R. No. 161298, January 31, 2006, 481 SCRA 348.
38 Id., at pp. 358-359.
317
VOL. 511, DECEMBER 19, 2006 317

Gozun vs. Mercado
39
firmed by the appellate court. It erred, however, in not
declaring petitioner as a real party in interest insofar as
recovery of the cost of campaign materials made by
petitioner’s mother and sister are concerned, upon the
wrong notion that they should have been, but were not,
impleaded as plaintiffs. In sum, respondent has the
obligation to pay the total cost of printing his campaign
materials delivered by petitioner in the total of P1,924,906,
less the partial payment of P1,000,000, or P924,906.
WHEREFORE, the petition is GRANTED. The Decision
dated December 8, 2004 and the Resolution dated April 14,
2005 of the Court of Appeals are hereby REVERSED and
SET ASIDE.
The April 10, 2002 Decision of the Regional Trial Court
of Angeles City, Branch 57, is REINSTATED mutatis
mutandis, in light of the foregoing discussions. The trial
court’s decision is modified in that the amount payable by
respondent to petitioner is reduced to P924,906.
SO ORDERED.
Quisumbing (Chairperson), Carpio, Tinga and

Velasco, Jr., JJ., concur.
Petition granted, judgment and resolution reversed and

set aside.
Notes.—No voluntary appearance by a foreign

corporation can be inferred from the acts of a lawyer who
filed an answer
_______________
39 With these evidence and proofs given by the plaintiff, the Court is
convinced that plaintiff was able to show that it [sic] has a legitimate
claim against Mr. Mercado. There is evidence that he printed defendant’s
political materials and the latter received it. There is proof that Mercado
partially paid the account but did not settle the entire amount. Plaintiff
showed also that a demand letter was sent to defendant and the same was
received but in spite receipt, Mr. Mercado did not heed the demand. Rollo,
p. 36.
318

First United Constructors Corporation vs. Court of Appeals
for such corporation where the latter does not claim to have
directly conferred with the former, there is no evidence to
show that he notified it of his appearance in its behalf, or
that he furnished it with copies of pleadings or the answer
he filed. (Litton Mills, Inc. vs. Court of Appeals, 256 SCRA
696 [1996])
A Special Power of Attorney which lacks the consent of
the principal is void ab initio. (Insurance Services and
Commercial Traders, Inc. vs. Court of Appeals, 341 SCRA
572 [2000])
——o0o——
© Copyright 2021 Central Book Supply, Inc. All rights reserved.
VOL. 376, FEBRUARY 6, 2002 239

Dominion Insurance Corporation vs. Court of Appeals
*
G.R. No. 129919. February 6, 2002.
DOMINION INSURANCE CORPORATION, petitioner, vs.

COURT OF APPEALS, RODOLFO S. GUEVARRA, and
FERNANDO AUSTRIA, respondents.
Civil Law; Contracts; Agency; The basis for agency is

representation; There must be an actual intention by the principal
to appoint and on the part of the agent an intention to accept the
appointment and act on it, otherwise there is generally no agency.
—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. The basis for
agency is representation. On the part of the principal, there must
be an actual intention to appoint or an intention naturally
inferrable from his words or actions; and on the part of the agent,
there must be an intention to accept the appointment and act on
it, and in the absence of such intent, there is generally no agency.
PETITION for review on certiorari of a decision of the

Court of Appeals.

Romeo G. Maglalang for private respondent R.S.
Guevarra.
PARDO, J.:
The Case
1
This is an appeal2 via certiorari from the
3
decision of the
Court of Appeals affirming the decision of the Regional
Trial Court, Branch 44, San Fernando, Pampanga, which
ordered petitioner Dominion Insurance Corporation
(Dominion) to pay Rodolfo S.
_______________
https://www.central.com.ph/sfsreader/session/0000017d0de4a7e476b3282e000d00d40059004a/t/?o=False 1/10
* FIRST DIVISION.
1 Under Rule 45, Revised Rules of Court.
2 In CA-G.R. CV No. 40803, promulgated on July 19, 1996, Petition,
Annex “B”, pp. 12-18. Godardo A. Jacinto, J., ponente, Salome A. Montoya
and Maximiano C. Asuncion, JJ., concurring.
3 Decision, Original Record, Civil Case 8855, pp. 358-361.
240

Guevarra (Guevarra) the sum of P156,473.90 representing

the total amount advanced by Guevarra in the payment of
the claims of Dominion’s clients.
The Facts
The facts, as found by the Court of Appeals, are as follows:
“On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted

Civil Case No. 8855 for sum of money against defendant
Dominion Insurance Corporation. Plaintiff sought to recover
thereunder the sum of P156,473.90 which he claimed to have
advanced in his capacity as manager of defendant to satisfy
certain claims filed by defendant’s clients.
“In its traverse, defendant denied any liability to plaintiff and
asserted a counterclaim for P249,672.53, representing premiums
that plaintiff allegedly failed to remit.
“On August 8, 1991, defendant filed a third-party complaint
against Fernando Austria, who, at the time relevant to the case,
was its Regional Manager for Central Luzon area.
“In due time, third-party defendant Austria filed his answer.
“Thereafter the pre-trial conference was set on the following
dates: October 18, 1991, November 12, 1991, March 29, 1991,
December 12, 1991, January 17, 1992, January 29, 1992,
February 28, 1992, March 17, 1992 and April 6, 1992, in all of
which dates no pre-trial conference was held. The record shows
that except for the settings on October 18, 1991, January 17, 1992
and March 17, 1992 which were cancelled at the instance of
defendant, third-party defendant and plaintiff, respectively, the
rest were postponed upon joint request of the parties.
“On May 22, 1992 the case was again called for pre-trial
conference. Only plaintiff and counsel were present. Despite due
notice, defendant and counsel did not appear, although a
messenger, Roy Gamboa, submitted to the trial court a
handwritten note sent to him by defendant’s counsel which
instructed him to request for postponement. 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
241
VOL. 376, FEBRUARY 6, 2002 241

objected to any postponement on the ground that the note is but a mere
scrap of paper and moved that the defendant corporation be declared as
in default for its failure to appear in court despite due notice.
“Finding the verbal motion of plaintiff ’s counsel to be meritorious and
considering that the pre-trial conference has been repeatedly postponed
on motion of the defendant Corporation, the defendant Dominion
Insurance Corporation is hereby declared (as) in default and plaintiff is
allowed to present his evidence on June 16, 1992 at 9:00 o’clock in the
morning.
“The plaintiff and his counsel are notified of this order in open court.
“SO ORDERED.
“Plaintiff presented his evidence on June 16, 1992. This was

followed by a written offer of documentary exhibits on July 8 and
a supplemental offer of additional exhibits on July 13, 1992. The
exhibits were admitted in evidence in an order dated July 17,
1992.
“On August 7, 1992 defendant corporation filed a ‘MOTION TO
LIFT ORDER OF DEFAULT.’ It alleged therein that the failure of
counsel to attend the pre-trial conference was ‘due to an
unavoidable circumstance’ and that counsel had sent his
representative on that date to inform the trial court of his
inability to appear. The Motion was vehemently opposed by
plaintiff.
“On August 25, 1992 the trial court denied defendant’s motion
for reasons, among others, that it was neither verified nor
supported by an affidavit of merit and that it further failed to
allege or specify the facts constituting his meritorious defense.
“On September 28, 1992 defendant moved for reconsideration
of the aforesaid order. For the first time counsel revealed to the
trial court that the reason for his nonappearance at the pre-trial
conference was his illness. An Affidavit of Merit executed by its
Executive Vice-President purporting to explain its meritorious
defense was attached to the said Motion. Just the same, in an

Order dated November 13, 1992, the trial court denied said
Motion.
“On November 18, 1992, the court a quo rendered judgment as
follows:
“WHEREFORE, premises considered, judgment is hereby rendered

ordering:
“1. The defendant Dominion Insurance Corporation to pay plaintiff

the sum of P156,473.90 representing the total amount ad-
242

vanced by plaintiff in the payment of the claims of defendant’s

clients;
“2. The defendant to pay plaintiff P10,000.00 as and by way of
attorney’s fees;
“3. The dismissal of the counter-claim of the defendant and the third-
party complaint;
4
“4. The defendant to pay the costs of suit.”
On December 14, 1992, 5

Dominion appealed the decision to
the Court of Appeals.
On July 19, 1996, the Court of Appeals 6
promulgated a
decision affirming that of the trial court. On September 3,
1996, Dominion filed 7
with the Court of Appeals a motion
for reconsideration.8 On July 16, 1997, the Court of Appeals
denied the motion. 9
Hence, this appeal.
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 an-
_______________
4 Petition, Annex “B”, Rollo, pp. 12-18, at pp. 12-15.

5 Notice of Appeal, Original Record, Civil Case No. 8855, p. 362.
6 Petition, Annex “B”, Rollo, pp. 12-18.
7 CA Rollo, pp. 99-112.
8 Petition, Annex “A”, Rollo, p. 10.
9 Filed on September 8, 1997, Rollo, pp. 20-50. On January 31, 2000, we
resolved to give due course to the petition (Rollo, pp. 79-80).
243
VOL. 376, FEBRUARY 6, 2002 243

10
other, with the consent or authority 11
of the latter. The
basis for agency is representation. On the part of 12the
principal, there must be an actual intention to appoint or
an intention
13
naturally inferrable from his words or
actions; and on the part of the agent, there must 14
be an
intention to accept the appointment and act on it, and 15
in
the absence of such intent, there is generally no
16
agency.
A perusal of the Special Power of Attorney 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:
“That17 we, FIRST CONTINENTAL ASSURANCE COMPANY,

INC., a corporation duly organized and existing under and by
virtue of the laws of the Republic of the Philippines, x x x
represented by the undersigned as Regional Manager, x x x do
hereby appoint RSG Guevarra Insurance Services represented by
Mr. Rodolfo Guevarra x x x 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.
_______________
10 Article 1869, Civil Code.

11 Bordador v. Luz, 347 Phil. 654, 662; 283 SCRA 374 (1997).
12 Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663, 675
(2000), citing Connell v. McLoughlin, 28 Or. 230; 42 P. 218.
(2000), citing Halladay v. Underwood, 90 Ill. App. 130.
(2000), citing Internal Trust Co. v. Bridges, 57 F. 753.
(2000), citing Security Co. v. Graybeal, 85 Iowa 543, 52 N.W. 497.
16 Original Record, Civil Case No. 8855, p. 235.
17 Now Dominion Insurance Corporation.
244

“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 18CONTINENTAL ASSURANCE
COMPANY, INC., 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 all19
legal proceedings against the said
Corporation.” [Emphasis supplied]
20
The agency comprises all the business of the principal,
but, couched in21general terms, it is limited only to acts of
administration.
A general power permits the agent to do all 22
acts for
which the law does not require a special power. 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;
“x x x x x x x x x
“(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
_______________
18 Now Dominion Insurance Corporation.

22 Tolentino, Arturo M., Commentaries and Jurisprudence on the Civil
Code of the Philippines, Vol. V (1997), p. 405, citing 6 Llerena 137.
245
VOL. 376, FEBRUARY 6, 2002 245

acts enumerated therein. A special power of attorney is

required before respondent Guevarra could settle the
insurance claims of the insured.
Respondent Guevarra’s authority to settle claims is 23
embodied in the Memorandum of Management Agreement
dated February 18, 1987 which enumerates the scope of
respondent Guevarra’s duties and responsibilities as
agency manager for San Fernando, Pampanga, as follows:
“x x x x x x x x x
“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.
“x x x x x x x x x”
24

In settling the claims mentioned above, respondent

Guevarra’s authority is further
25
limited by the written
standard authority to pay, which states that the payment
shall come from respondent Guevarra’s revolving fund or
collection. The authority to pay is worded as follows:
“This is to authorize you to withdraw from your revolving

fund/collection the amount of PESOS _____________ (P________)
representing the payment on the __________ claim of assured

__________ under Policy No. ______ in that accident of
_______________ at ________________.
“It is further expected, release papers will be signed and
authorized by the concerned and attached to the corresponding
claim folder after effecting payment of the claim.
“(sgd.) FERNANDO C. AUSTRIA26
Regional Manager”
[Emphasis supplied]
_______________
23 Original Record, Civil Case No. 8855, pp. 236-237.

24 Original Record, Civil Case No. 8855, pp. 236-237, at p. 236.
246

The instruction of petitioner as the principal could not be

any clearer. Respondent Guevarra was authorized to pay
the claim of the insured, but the payment shall come from
the revolving fund or collection in his possession.
Having deviated from the instructions of the principal,
the expenses that respondent Guevarra incurred in the
settlement of the claims of the insured may not be
reimbursed from petitioner Dominion. This conclusion is in
accord with Article 1918, Civil Code, which states that:
“The principal is not liable for the expenses incurred by the agent
in the following cases:
“(1) If the agent acted in contravention of the principal’s
instructions, unless the latter should wish to avail himself of the
benefits derived from the contract;
“x x x x x x x x x”
However, while the law on agency prohibits respondent

Guevarra from obtaining reimbursement, his right to
recover may still be justified under the general law on
obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
“Whoever pays for another may demand from the debtor what he
has paid, except that if he paid without the knowledge or against
the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor.”
In this case, when the risk insured against occurred,

petitioner’s liability as insurer arose. This obligation was
extinguished when respondent Guevarra paid the claims
and obtained Release of Claim Loss and Subrogation
Receipts from the insured who were paid.
Thus, to the extent that the obligation of the petitioner
has been extinguished, respondent Guevarra may demand
for reimbursement from his principal. To rule otherwise
would result in unjust enrichment of petitioner.
The extent to which petitioner was benefited by the
settlement of the insurance claims could best be proven by
the Release of
247
VOL. 376, FEBRUARY 6, 2002 247

27
Claim Loss and Subrogation Receipts which were
attached to the original complaint as Annexes C-2, D-1, E-
1, F-1, G-1, H-1, I-1 and J-1, in the total amount of
P116,276.95.
However, the amount of the revolving fund/collection
that was then in the possession of respondent Guevarra as
reflected in the statement of account dated July 11, 1990
would be deducted from the above amount.
The outstanding balance and the production/remittance
for the period corresponding to the claims was P3,604.84.
Deducting this from P116,276.95, we get P112,672.11. This
is the amount that may be reimbursed to respondent
Guevarra.
The Fallo
IN VIEW WHEREOF, we DENY the petition. 28However, we

MODIFY the decision of the Court of Appeals and that of
the Regional29
Trial Court, Branch 44, San Fernando,
Pampanga, in that petitioner is ordered to pay respondent
Guevarra the amount of P112,672.11 representing the total
amount advanced by the latter in the payment of the
claims of petitioner’s clients.
No costs in this instance.
SO ORDERED.
Davide, Jr. (C.J., Chairman), Puno, Kapunan and

Ynares-Santiago, JJ., concur.
Petition denied, judgment modified.

Note.—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. (San Juan Structural and Steel
Fabricators, Inc. vs. Court of Appeals, 296 SCRA 631
[1998])
——o0o——
_______________
27 Original Record, Civil Case No. 8855, pp. 11, 13, 15, 17, 19, 21, 23,
25.
28 In CA-G.R. CV No. 40803.
29 In Civil Case No. 8855.
248
G.R. No. 159271. July 13, 2015.*

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.
Remedial Law; Special Civil Actions; Foreclosure of Mortgage;

Extrajudicial Foreclosure of Mortgage; Special Power to Sell; In
the extrajudicial foreclosure of property subject of a real estate
mortgage (REM), 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.—In the extrajudicial foreclosure
of property subject of a real estate mortgage, Act No. 3135 (An Act
to Regulate the Sale of Prop-
_______________
* FIRST DIVISION.
434

Baysa vs. Plantilla
erty 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
https://www.central.com.ph/sfsreader/session/0000017d0de5912816068578000d00d40059004a/t/?o=False 1/13
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.
Same; Same; Same; Same; Same; Considering that, pursuant
to Article 1878(5), of the Civil Code, a special power of attorney
(SPA) 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 an SPA to sell.—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. 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. Contrary to the CA’s opinion,
therefore, the power or authority to sell by virtue of the
435
VOL. 762, JULY 13, 2015 435

Baysa vs. Plantilla
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.
Same; Same; Same; Redemption; There is no right of
redemption to speak of if the foreclosure was void.—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.
PETITION for review on certiorari of a decision of the

Court of Appeals.
Cecilio V. Suarez, Jr. and Martinez, Caparroso &
Villasis Law Office for petitioners.
The Law Firm of Nidea, Bantog, Soliman for
respondents.
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,
_______________
1 Rollo, pp. 37-44; penned by Associate Justice Romeo A. Brawner

(later Presiding Justice), with Associate Justices Bienvenido L. Reyes
(now a member of this Court) and Danilo B. Pine (retired), concurring.
2 Id., at p. 43.
436

Baysa vs. Plantilla
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.
The pertinent details as summarized by the RTC and
adopted by the CA are the following:
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
x x x. The Mortgage Note signed by both parties containing the
terms of payment and interest rate was also executed on August
4, 1992 x x x. 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
437
VOL. 762, JULY 13, 2015 437

Baysa vs. Plantilla
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 P15 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 x x x and in the statement
of overdue account dated April 21, 1994 x x x. When 8% interest
surcharge 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 x x x 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 sheriff’s sale that the property will be
foreclosed x x x, 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 sheriff’s 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 x x x.
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
438

Baysa vs. Plantilla
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 x x x. 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 nonpayment 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:
_______________
3 Id., at pp. 38-39.

4 Id., at pp. 85-91.
5 Id., at p. 91.
439
VOL. 762, JULY 13, 2015 439

Baysa vs. Plantilla
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
extrajudicial foreclosure of the mortgaged property in the event of
nonpayment, to wit:
Paragraph 13. x x x;—In the event of nonpayment of the entire
principal and accrued interest due under the conditions described
in this paragraph, the mortgagors expressly and specifically agree
to the extrajudicial 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 forbearance 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:
1. 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;
2. If valid, whether the procedure taken thereon complies with

the provisions of Act No. 3135, as amended; and
3. Whether or not the 8% compounded monthly interest is
legal.8
_______________
6 Id., at p. 89.
7 Id., at p. 90.
8 Id., at p. 41.
440

Baysa vs. Plantilla
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 v. Court of Appeals, the Supreme Court, when
confronted with the same issue, chose to uphold the validity of the
extrajudicial foreclosure.
x x x x
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.
x x x x
WHEREFORE, the Decision of the lower court is hereby SET

ASIDE. The extrajudicial foreclosure is hereby declared to be
VALID, but a recomputation of the
_______________
9 Id.
441
VOL. 762, JULY 13, 2015 441

Baysa vs. Plantilla
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
_______________
10 Id., at pp. 41-43.

11 Id., at pp. 46-48.
12 Id., at p. 14.
442

Baysa vs. Plantilla
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.
443
VOL. 762, JULY 13, 2015 443

Baysa vs. Plantilla
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 nonpayment of the entire principal and accrued

interest due under the conditions described in this paragraph, the
mortgagors expressly and specifically agree to the extrajudicial
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 of Appeals.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
_______________
13 Id., at p. 89.
14 No. L-40105, November 11, 1985, 139 SCRA 545.
444

Baysa vs. Plantilla
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.
_______________
15 Article 1874 of the Civil Code provides:

Article 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. (n)
16 Article 1879 of the Civil Code states:
Article 1879. A special power to sell excludes the power to mortgage;
and a special power to mortgage does not include the power to sell. (n)
445
VOL. 762, JULY 13, 2015 445

Baysa vs. Plantilla
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.
446

Baysa vs. Plantilla
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.
Sereno (CJ., Chairperson), Leonardo-De Castro, Perez

and Perlas-Bernabe, JJ., concur.
Petition granted, judgment reversed and set aside.
Notes.—The foreclosure of a mortgage is but the

necessary consequence of the nonpayment of an obligation
secured by the mortgage. (Sebastian vs. BPI Family Bank,
Inc., 739 SCRA 9 [2014])
The equity of redemption is the right of the defendant
mortgagor to extinguish the mortgage and retain
ownership of the property by paying the secured debt
within the ninety (90)-day period after the judgment
becomes final, or even after the foreclosure sale but prior to
the confirmation of the sale. (Robles vs. Yapcinco, 739
SCRA 75 [2014])

——o0o——
G.R. No. 179625. February 24, 2014.*

NICANORA G. BUCTON (deceased), substituted by
REQUILDA B. YRAY, petitioner, vs. RURAL BANK OF EL
SALVADOR, INC., MISAMIS ORIENTAL, and
REYNALDO CUYONG, respondents, vs. ERLINDA
CONCEPCION AND HER HUSBAND AND AGNES
BUCTON LUGOD, third party defendants.
Civil Law; Agency; In order to bind the principal by a deed

executed by an agent, the deed must upon its face purport to be
made, signed and sealed in the name of the principal.—As early as
the case of Philippine Sugar Estates Development Co. v. Poizat, 48
Phil. 536 (1925), we already ruled that “in order to bind the
principal by a deed executed by an agent, the deed must upon its
face purport to be made, signed and sealed in the name of the
principal.” In other words, the mere fact that the agent was
authorized to mortgage the property is not sufficient to bind the
principal, unless the deed was executed and signed by the agent
for and on behalf of his principal. This ruling was adhered to and
reiterated with consistency in the cases of Rural Bank of Bombon
(Camarines Sur), Inc. v. Court of Appeals, 212 SCRA 25 (1992),
Gozun v. Mercado, 511 SCRA 305 (2006), and Far East Bank and
Trust Company (Now Bank of the Philippine Island) v. Cayetano,
611 SCRA 96 (2010).
Same; Same; We need not belabor that the words “as attorney-
in-fact of,” “as agent of,” or “for and on behalf of,” are vital in order
for the principal to be bound by the acts of his agent.—At this
point, we find it significant to mention that respondent bank has
no one to blame but itself. Not only did it act with undue haste
when it granted and released the loan in less than three days, it
also acted negligently in preparing the Real Estate Mortgage as it
failed to indicate that Concepcion was signing it for and on behalf
of petitioner. We need not belabor that the words “as attorney-in-
fact of,” “as agent of,” or “for and on behalf of,” are vital in order
for the principal to be bound by the acts of his agent. Without
these words, any mortgage, although signed by the agent, cannot
bind the principal as
_______________
* SECOND DIVISION.
https://www.central.com.ph/sfsreader/session/0000017d0de65c5cecb49122000d00d40059004a/t/?o=False 1/15
279
it is considered to have been signed by the agent in his personal

capacity.
Same; Same; Attorney’s Fees; Considering that petitioner was

compelled to litigate or to incur expenses to protect her interest, the
Regional Trial Court (RTC) was right when it ruled that
respondent bank is liable to pay petitioner attorney’s fees in the
amount of P20,000.00.—Considering that petitioner was
compelled to litigate or to incur expenses to protect her interest,
the RTC was right when it ruled that respondent bank is liable to
pay petitioner attorney’s fees in the amount of P20,000.00.
However, we are not convinced that petitioner is entitled to an
award of moral damages as it was not satisfactorily shown that
respondent bank acted in bad faith or with malice. Neither was it
proven that respondent bank’s acts were the proximate cause of
petitioner’s wounded feelings. On the contrary, we note that
petitioner is not entirely free of blame considering her negligence
in entrusting her title to Concepcion. In any case, the RTC did not
fully explain why petitioner is entitled to such award.

Erlington E. Pimentel for petitioner.
Isidro Q. Lico for respondent.

DEL CASTILLO, J.:
A mortgage executed by an authorized agent who signed

in his own name without indicating that he acted for and
on behalf of his principal binds only the agent and not the
principal.
This Petition for Review on Certiorari[1] under Rule 45
of the Rules of Court assails the August 17, 2005
Decision[2] and the
_______________
[1] Rollo, pp. 9-28.
[2] CA Rollo, pp. 116-133; penned by Associate Justice Normandie B.
Pizarro and concurred in by Associate Justices Arturo G. Tayag and
Rodrigo F. Lim, Jr.
280
June 7, 2007 Resolution[3] of the Court of Appeals (CA) in

CA-G.R. CV No. 60841.

Factual Antecedents
On April 29, 1988, petitioner Nicanora G. Bucton filed
with the Regional Trial Court (RTC) of Cagayan de Oro a
case[4] for Annulment of Mortgage, Foreclosure, and
Special Power of Attorney (SPA) against Erlinda
Concepcion (Concepcion) and respondents Rural Bank of El
Salvador, Misamis Oriental, and Sheriff Reynaldo Cuyong.
[5]
Petitioner alleged that she is the owner of a parcel of
land, covered by Transfer Certificate of Title (TCT) No. T-
3838, located in Cagayan de Oro City;[6] that on June 6,
1982, Concepcion borrowed the title on the pretext that she
was going to show it to an interested buyer;[7] that
Concepcion obtained a loan in the amount of P30,000.00
from respondent bank;[8] that as security for the loan,
Concepcion mortgaged petitioner’s house and lot to
respondent bank using a SPA[9] allegedly executed by
petitioner in favor of Concepcion;[10] that Concepcion failed
to pay the loan;[11] that petitioner’s house and lot were
foreclosed by respondent sheriff without a Notice of Extra-
Judicial Foreclosure or Notice of Auction Sale;[12] and that
_______________
[3] Id., at pp. 186-187; penned by Associate Justice Rodrigo F. Lim, Jr.
and concurred in by Associate Justices Teresita Dy-Liacco Flores and Jane
Aurora C. Lantion.
[4] The complaint, docketed as Civil Case No. 88-113 and raffled to
Branch 19, was amended twice by petitioner.
[5] Records, Vol. I, pp. 1-5, 7-12 (Amended Complaint), and 87-91
(Second Amended Complaint).
[6] Id., at pp. 87-88.
[7] Id., at p. 88.
[8] Id.
[9] Rollo, p. 90.
[10] Records, Vol. I, p. 88.
[11] Id.
[12] Id., at pp. 88-89.
281
petitioner’s house and lot were sold in an auction sale in

favor of respondent bank.[13]
Respondent bank filed an Answer[14] interposing lack of
cause of action as a defense.[15] It denied the allegation of
petitioner that the SPA was forged[16] and averred that on

June 22, 1987, petitioner went to the bank and promised to
settle the loan of Concepcion before September 30, 1987.[17]
As to the alleged irregularities in the foreclosure
proceedings, respondent bank asserted that it complied
with the requirements of the law in foreclosing the house
and lot.[18] By way of cross-claim, respondent bank prayed
that in the event of an adverse judgment against it,
Concepcion, its co-defendant, be ordered to indemnify it for
all damages.[19]
However, since summons could not be served upon
Concepcion, petitioner moved to drop her as a defendant,
[20] which the RTC granted in its Order dated October 19,
1990.[21]
This prompted respondent bank to file a Third-Party
Complaint[22] against spouses Concepcion and Agnes
Bucton Lugod (Lugod), the daughter of petitioner.
Respondent bank claimed that it would not have granted
the loan and accepted the mortgage were it not for the
assurance of Concepcion and Lugod that the SPA was
valid.[23] Thus, respondent bank
_______________
[13] Id., at p. 88.
[14] Id., at pp. 23-25 and pp. 99-103 (Answer to Second Amended
Complaint).
[15] Id., at p. 100.
[16] Id.
[17] Id.
[18] Id., at pp. 99-100.
[19] Id., at p. 101.
[20] Id., at pp. 157-158.
[21] Id., at p. 171.
[22] Id., at pp. 184-189.
[23] Id., at p. 185.
282
prayed that in case it be adjudged liable, it should be

reimbursed by third-party defendants.[24]
On January 30, 1992, spouses Concepcion were declared
in default for failing to file a responsive pleading.[25]
During the trial, petitioner testified that a
representative of respondent bank went to her house to
inform her that the loan secured by her house and lot was
long overdue.[26] Since she did not mortgage any of her
properties nor did she obtain a loan from respondent bank,
she decided to go to respondent bank on June 22, 1987 to

inquire about the matter.[27] It was only then that she
discovered that her house and lot was mortgaged by virtue
of a forged SPA.[28] She insisted that her signature and her
husband’s signature on the SPA were forged[29] and that
ever since she got married, she no longer used her maiden
name, Nicanora Gabar, in signing documents.[30] Petitioner
also denied appearing before the notary public, who
notarized the SPA.[31] She also testified that the property
referred to in the SPA, TCT No. 3838, is a vacant lot and
that the house, which was mortgaged and foreclosed, is
covered by a different title, TCT No. 3839.[32]
To support her claim of forgery, petitioner presented
Emma Nagac who testified that when she was at
Concepcion’s boutique, she was asked by the latter to sign
as a witness to the SPA;[33] that when she signed the SPA,
the signatures of peti-
_______________
[24] Id., at pp. 187-188.
[25] Id., at p. 262.
[26] Id., Vol. 2, p. 576.
[27] Id.
[28] Id.
[29] Id., at pp. 576-577.
[30] Id., at p. 577.
[31] Id.
[32] Id., at p. 578.
[33] Id., at p. 577.
283
tioner and her husband had already been affixed;[34] and

that Lugod instructed her not to tell petitioner about the
SPA.[35]
Respondent bank, on the other hand, presented the
testimonies of its employees[36] and respondent sheriff.
Based on their testimonies, it appears that on June 8, 1982,
Concepcion applied for a loan for her coconut production
business[37] in the amount of P40,000.00 but only the
amount of P30,000.00 was approved;[38] that she offered as
collateral petitioner’s house and lot using the SPA;[39] and
that the proceeds of the loan were released to Concepcion
and Lugod on June 11, 1982.[40]
Edwin Igloria, the bank appraiser, further testified that
Concepcion executed a Real Estate Mortgage[41] over two
properties, one registered in the name of petitioner and the
other under the name of a certain Milagros Flores.[42] He

said that he inspected petitioner’s property;[43] that there
were several houses in the compound;[44] and although he
was certain that the house offered as collateral was located
on the property covered by TCT No. 3838, he could not
explain why the house that was foreclosed is located on a
lot covered by another title, not included in the Real Estate
Mortgage.[45]
_______________
[34] Id.
[35] Id., at pp. 577-578.
[36] Edwin Igloria (Bank Appraiser), Marina Salvan (Bank President),
and Fautino U. Batutay (Bank Manager).
[37] Rollo, p. 92.
[38] Records, Vol. 2, p. 578.
[39] Id.
[40] Id., at p. 579.
[41] Rollo, p. 96.
[42] TSN, January 30, 1992, p. 37.
[43] Records, Vol. II, p. 578.
[44] Id.
[45] TSN, January 30, 1992, pp. 26-28.
284
Ruling of the Regional Trial Court

On February 23, 1998, the RTC issued a Decision[46]
sustaining the claim of petitioner that the SPA was forged
as the signatures appearing on the SPA are different from
the genuine signatures presented by petitioner.[47] The
RTC opined that the respondent bank should have
conducted a thorough inquiry on the authenticity of the
SPA considering that petitioner’s residence certificate was
not indicated in the acknowledgement of the SPA.[48] Thus,
the RTC decreed:
WHEREFORE, the court hereby declares null and void or

annuls the following:
1. The special power of attorney which was purportedly
executed by [petitioner] x x x;
2. The real estate mortgage x x x
3. The sheriff’s sale of Lot No. 2078-B-1-E, and the certificate
of title issued in favor of the Rural Bank of El Salavador
[by] virtue thereof, as well as the sheriff’s sale of the
two[-]story house described in the real estate mortgage.
4. The certificate of title in the name of the Rural Bank of El

Salvador if any, issued [by] virtue of the sheriff’s sale.
The court hereby also orders [respondent] bank to pay
[petitioner] attorney’s fees of P20,000 and moral damages of
P20,000 as well as the costs of the case.
SO ORDERED.[49]
_______________
[46] Records, Vol. 2, pp. 573-583; penned by Judge Anthony E. Santos.
[47] Id., at pp. 579-581.
[48] Id., at p. 582.
[49] Id., at pp. 582-583.
285
On reconsideration,[50] the RTC in its May 8, 1998

Resolution[51] rendered judgment on the Third-Party
Complaint filed by respondent bank, the dispositive portion
of which reads:
WHEREFORE, judgment is hereby rendered under the third-

party complaint and against third-party defendants Erlinda
Concepcion and her husband:
To indemnify or reimburse [respondent bank] all sums of
money plus interests thereon or damages that [respondent bank]
has in this case been forced to pay, disburse or deliver to
[petitioner] including the costs.
SO ORDERED.[52]

Ruling of the Court of Appeals
Dissatisfied, respondent bank elevated the case to the
CA arguing that the SPA was not forged[53] and that being
a notarized document, it enjoys the presumption of
regularity.[54] Petitioner, on the other hand, maintained
that the signatures were forged[55] and that she cannot be
made liable as both the Promissory Note[56] and the Real
Estate Mortgage, which were dated June 11, 1982, were
signed by Concepcion in her own personal capacity.[57]
On August 17, 2005, the CA reversed the findings of the
RTC. The CA found no cogent reason to invalidate the SPA,
the Real Estate Mortgage, and Foreclosure Sale as it was
not convinced that the SPA was forged. The CA declared
that although the Promissory Note and the Real Estate
Mortgage
_______________
[50] Id., at pp. 584-596.
[51] Id., at pp. 681-682.

[52] Id., at p. 682.
[53] CA Rollo, pp. 59-65.
[54] Id.
[55] Id., at pp. 104-108.
[56] Rollo, p. 98.
[57] CA Rollo, pp. 108-111.
286
did not indicate that Concepcion was signing for and on

behalf of her principal, petitioner is estopped from denying
liability since it was her negligence in handing over her
title to Concepcion that caused the loss.[58] The CA
emphasized that under the Principle of Equitable Estoppel,
where one or two innocent persons must suffer a loss, he
who by his conduct made the loss possible must bear it.[59]
Thus:
WHEREFORE, the above premises considered, the Decision

and the Resolution of the Regional Trial Court (RTC), 10th
Judicial Region, Br. 19 of Cagayan de Oro City in Civil Case No.
88-113 is hereby REVERSED and SET ASIDE. The Second
Amended Complaint of Nicanora Bucton is DISMISSED.
Accordingly, the following are declared VALID:
1. The Special Power of Attorney of Nicanora Gabar in favor of
Erlinda Concepcion, dated June 7, 1982;
2. The Real Estate Mortgage, the foreclosure of the same, and
the foreclosure sale to the Rural Bank of El Salvador,
Misamis Oriental; and
3. The certificate of title issued to the Rural Bank of El
Salavador, Misamis Oriental as a consequence of the
foreclosure sale.
Costs against [petitioner].
SO ORDERED.[60]

Petitioner moved for reconsideration[61] but the same
was denied by the CA in its June 7, 2007 Resolution.[62]
_______________
[58] Id., at pp. 128-130.
[59] Id., at p. 130.
[60] Id., at pp. 131-132.
[61] Id., at pp. 137-154.
[62] Id., at pp. 186-187.
287
Issues
Hence, this recourse by petitioner raising the following
issues:
FIRST
X X X WHETHER X X X THE [CA] WAS RIGHT IN
DECLARING THE PETITIONER LIABLE ON THE LITIGATED
LOAN/MORTGAGE WHEN
(i) SHE DID NOT EXECUTE EITHER IN PERSON OR BY
ATTORNEY-IN-FACT SUBJECT MORTGAGE; (ii) IT WAS
EXECUTED BY CONCEPCION IN HER PERSONAL CAPACITY
AS MORTGAGOR, AND (iii) THE LOAN SECURED BY THE
MORTGAGE WAS CONCEPCION’S EXCLUSIVE LOAN FOR
HER OWN COCONUT PRODUCTION
SECOND
X X X WHETHER X X X UNDER ARTICLE 1878 (NEW CIVIL
CODE) THE [CA] WAS RIGHT IN MAKING PETITIONER A
SURETY PRIMARILY ANSWERABLE FOR CONCEPCION’S
PERSONAL LOAN, IN THE ABSENCE OF THE REQUIRED
[SPA]
THIRD
WHETHER X X X THE [CA] WAS RIGHT WHEN IT RULED
THAT PETITIONER’S DECLARATIONS ARE SELF-SERVING
TO JUSTIFY ITS REVERSAL OF THE TRIAL COURT’S
JUDGMENT, IN THE FACE OF THE RESPONDENTS’
DOCUMENTARY EVIDENCES X X X, WHICH
INCONTROVERTIBLY PROVED THAT PETITIONER HAS
ABSOLUTELY NO PARTICIPATION OR LIABILITY ON THE
LITIGATED LOAN/MORTGAGE
FOURTH
WHETHER X X X THE [CA] WAS RIGHT WHEN IT FOUND
THAT IT WAS PETITIONER’S NEGLIGENCE WHICH MADE
THE LOSS POSSIBLE, DESPITE [THE FACT] THAT SHE HAS
NO PART IN [THE] SUBJECT LOAN/MORTGAGE, THE
BANK’S [FAILURE] TO CONDUCT CAREFUL EXAMINATION
OF APPLICANT’S TI-
288
TLE AS WELL AS PHYSICAL INVESTIGATION OF THE LAND

OFFERED AS SECURITY, AND TO INQUIRE AND DISCOVER
UPON ITS OWN PERIL THE AGENT’S AUTHORITY, ALSO ITS
INORDINATE HASTE IN THE PROCESSING, EVALUATION
AND APPROVAL OF THE LOAN.
FIFTH
WHETHER X X X THE [CA] WAS RIGHT WHEN IT
DISREGARDED THE FALSE TESTIMONY OF THE
[RESPONDENT] BANK’S EMPLOYEE, [WHEN HE
DECLARED] THAT HE CONDUCTED ACTUAL INSPECTION
OF THE MORTGAGED PROPERTY AND INVESTIGATION

WHERE HE ALLEGEDLY VERIFIED THE QUESTIONED SPA.
SIXTH
WHETHER THE [CA] WAS RIGHT WHEN IT DISREGARDED
ESTABLISHED FACTS AND CIRCUMSTANCES PROVING
THAT THE [SPA] IS A FORGED DOCUMENT AND/OR
INFECTED BY INFIRMITIES DIVESTING IT OF THE
PRESUMPTION OF REGULARITY CONFERRED BY LAW ON
NOTARIZED DEEDS, AND EVEN IF VALID, THE POWER
WAS NOT EXERCISED BY CONCEPCION.[63]

Petitioner’s Arguments
Petitioner maintains that the signatures in the SPA
were forged[64] and that she could not be held liable for the
loan as it was obtained by Concepcion in her own personal
capacity, not as an attorney-in-fact of petitioner.[65] She
likewise denies that she was negligent and that her
negligence caused the damage.[66] Instead, she puts the
blame on respondent bank as it failed to carefully examine
the title and thoroughly inspect
_______________
[63] Rollo, pp. 190-191.
[64] Id., at pp. 203-207.
[65] Id., at pp. 192-198.
[66] Id., at p. 197.
289
the property.[67] Had it done so, it would have discovered

that the house and lot mortgaged by Concepcion are
covered by two separate titles.[68] Petitioner further claims
that respondent sheriff failed to show that he complied
with the requirements of notice and publication in
foreclosing her house and lot.[69]

Respondent bank’s Arguments
Respondent bank, on the other hand, relies on the
presumption of regularity of the notarized SPA.[70] It
insists that it was not negligent as it inspected the property
before it approved the loan,[71] unlike petitioner who was
negligent in entrusting her title to Concepcion.[72] As to the
foreclosure proceedings, respondent bank contends that
under the Rural Bank Act, all loans whose principal is
below P100,000.00 are exempt from publication.[73] Hence,
the posting of the Notice of Foreclosure in the places
defined by the rules was sufficient.[74] Besides, respondent
sheriff is presumed to have regularly performed his work.

[75]

Our Ruling
The Petition is meritorious.
_______________
[67] Id., at pp. 198-203.
[68] Id.
[69] Id., at p. 207.
[70] Id., at pp. 216-222.
[71] Id., at pp. 218-219.
[72] Id., at p. 223.
[73] Id., at p. 223.
[74] Id.
[75] Id.
290

The Real Estate Mortgage was
entered into by Concepcion in
her own personal capacity.
As early as the case of Philippine Sugar Estates

Development Co. v. Poizat,[76] we already ruled that “in
order to bind the principal by a deed executed by an agent,
the deed must upon its face purport to be made, signed and
sealed in the name of the principal.”[77] In other words, the
mere fact that the agent was authorized to mortgage the
property is not sufficient to bind the principal, unless the
deed was executed and signed by the agent for and on
behalf of his principal. This ruling was adhered to and
reiterated with consistency in the cases of Rural Bank of
Bombon (Camarines Sur), Inc. v. Court of Appeals,[78]
Gozun v. Mercado,[79] and Far East Bank and Trust
Company (Now Bank of the Philippine Island) v. Cayetano.
[80]
In Philippine Sugar Estates Development Co., the wife
authorized her husband to obtain a loan and to secure it
with mortgage on her property. Unfortunately, although
the real estate mortgage stated that it was executed by the
husband in his capacity as attorney-in-fact of his wife, the
husband signed the contract in his own name without
indicating that he also signed it as the attorney-in-fact of
his wife.
In Rural Bank of Bombon, the agent contracted a loan
from the bank and executed a real estate mortgage.
However, he did not indicate that he was acting on behalf

of his principal.
In Gozun, the agent obtained a cash advance but signed
the receipt in her name alone, without any indication that
she was acting for and on behalf of her principal.
_______________
[76] 48 Phil. 536 (1925).
[77] Id., at p. 549.
[78] G.R. No. 95703, August 3, 1992, 212 SCRA 25.
[79] 540 Phil. 323; 511 SCRA 305 (2006).
[80] G.R. No. 179909, January 25, 2010, 611 SCRA 96.
291
In Far East Bank and Trust Company, the mother

executed an SPA authorizing her daughter to contract a
loan from the bank and to mortgage her properties. The
mortgage, however, was signed by the daughter and her
husband as mortgagors in their individual capacities,
without stating that the daughter was executing the
mortgage for and on behalf of her mother.
Similarly, in this case, the authorized agent failed to
indicate in the mortgage that she was acting for and on
behalf of her principal. The Real Estate Mortgage,
explicitly shows on its face, that it was signed by
Concepcion in her own name and in her own personal
capacity. In fact, there is nothing in the document to show
that she was acting or signing as an agent of petitioner.
Thus, consistent with the law on agency and established
jurisprudence, petitioner cannot be bound by the acts of
Concepcion.
In light of the foregoing, there is no need to delve on the
issues of forgery of the SPA and the nullity of the
foreclosure sale. For even if the SPA was valid, the Real
Estate Mortgage would still not bind petitioner as it was
signed by Concepcion in her personal capacity and not as
an agent of petitioner. Simply put, the Real Estate
Mortgage is void and unenforceable against petitioner.

Respondent bank was negligent.
At this point, we find it significant to mention that
respondent bank has no one to blame but itself. Not only
did it act with undue haste when it granted and released
the loan in less than three days, it also acted negligently in
preparing the Real Estate Mortgage as it failed to indicate
that Concepcion was signing it for and on behalf of
petitioner. We need not belabor that the words “as
attorney-in-fact of,” “as agent of,” or “for and on behalf of,”

are vital in order for the principal to be bound by the acts of
his agent. Without these words, any mortgage, although
signed by the agent, cannot bind the prin-
292
cipal as it is considered to have been signed by the agent in

his personal capacity.

Respondent bank is liable
to pay petitioner attorney’s
fees,
and the costs of the suit.
Considering that petitioner was compelled to litigate or

to incur expenses to protect her interest,[81] the RTC was
right when it ruled that respondent bank is liable to pay
petitioner attorney’s fees in the amount of P20,000.00.
However, we are not convinced that petitioner is entitled to
an award of moral damages as it was not satisfactorily
shown that respondent bank acted in bad faith or with
malice. Neither was it proven that respondent bank’s acts
were the proximate cause of petitioner’s wounded feelings.
On the contrary, we note that petitioner is not entirely free
of blame considering her negligence in entrusting her title
to Concepcion. In any case, the RTC did not fully explain
why petitioner is entitled to such award.

Concepcion is liable to pay
respondent bank her unpaid
obligation and reimburse it
for all damages, attorney’s
fees and costs of suit.
Concepcion, on the other hand, is liable to pay

respondent bank her unpaid obligation under the
Promissory Note dated
_______________
[81] Civil Code, Art. 2208 provides:
In the absence of stipulation, attorney’s fees and expenses of
litigation, other than judicial costs, cannot be recovered, except:
x x x x
(2) When the defendant’s act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to protect
his interest;
293
June 11, 1982, with interest. As we have said, Concepcion

signed the Promissory Note in her own personal capacity;
thus, she cannot escape liability. She is also liable to
reimburse respondent bank for all damages, attorneys’
fees, and costs the latter is adjudged to pay petitioner in
this case.
WHEREFORE, the Petition is hereby GRANTED. The
assailed August 17, 2005 Decision and the June 7, 2007
Resolution of the Court of Appeals in CA-G.R. CV No.
60841 are hereby REVERSED and SET ASIDE.
The February 23, 1998 Decision of the Regional Trial
Court of Cagayan de Oro, Branch 19, in Civil Case No. 88-
113 is hereby REINSTATED, insofar as it (a) annuls the
Real Estate Mortgage dated June 11, 1982, the Sheriff’s
Sale of petitioner Nicanora Bucton’s house and lot and the
Transfer Certificate of Title issued in the name of
respondent Rural Bank of El Salvador, Misamis Oriental;
and (b) orders respondent bank to pay petitioner attorney’s
fees in the amount of P20,000.00 and costs of suit with
MODIFICATION that the award of moral damages in the
amount of P20,000.00 is deleted for lack of basis.
Likewise, the May 8, 1998 Resolution of the Regional
Trial Court of Cagayan de Oro, Branch 19, in Civil Case
No. 88-113 ordering the Third-Party Defendants, Erlinda
Concepcion and her husband, to indemnify or reimburse
respondent bank damages, attorneys’ fees, and costs the
latter is adjudged to pay petitioner, is hereby
REINSTATED.
Finally, Third-Party Defendants, Erlinda Concepcion
and her husband, are hereby ordered to pay respondent
bank the unpaid obligation under the Promissory Note
dated June 11, 1982 with interest.
SO ORDERED.
Carpio (Chairperson), Brion, Perez and Perlas-Bernabe,

JJ., concur.
294
Petition granted, judgment and resolution reversed and

set aside.
Notes.—An agent is not personally liable to the party

with whom he contracts, unless he expressly binds himself
or exceeds the limits of his authority without giving such
party sufficient notice of his powers. (Ace Navigation Co.,
Inc. vs. FGU Insurance Corporation, 674 SCRA 348 [2012])
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. (Umipig vs. People, 677 SCRA 53
[2012])
——o0o——
G.R. No. 187769. G.R. No. 187769.*

ALVIN PATRIMONIO, petitioner, vs. NAPOLEON
GUTIERREZ and OCTAVIO MARASIGAN III,
respondents.
Remedial Law; Civil Procedure; Appeals; Petition for Review

on Certiorari; The rule that questions of fact are not the proper
subject of an appeal by certiorari, as a petition for review under
Rule 45 is limited only to questions of law, is not an absolute rule
that admits of no exceptions.—The rule that questions of fact are
not the proper subject of an appeal by certiorari, as a petition for
review under Rule 45 is limited only to questions of law, is not an
absolute rule that admits of no exceptions. One notable exception
is when the findings of fact of both the trial court and the CA are
conflicting, making their review necessary. In the present case,
the tribunals below arrived at two conflicting factual findings,
albeit with the same conclusion, i.e., dismissal of the complaint for
nullity of the loan. Accordingly, we will examine the parties’
evidence presented.
Civil Law; Contracts; Agency; As a general rule, a contract of

agency may be oral. However, it must be written when the law
requires a specific form, for example, in a sale of a piece of land or
any interest therein through an agent.—Article 1868 of the Civil
Code defines a contract of agency as a contract whereby 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.” 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. As a general rule, a
contract of agency may be oral. However, it must be written when
the law requires a specific form, for example, in a sale of a piece of
land or any interest therein through an agent.
Same; Same; Same; Loans; Special Power of Attorney; Article

1878, paragraph 7 of the Civil Code expressly requires a special
power of authority before an agent can loan or borrow money in
behalf of the principal.—Article 1878, paragraph 7 of the Civil
Code
https://www.central.com.ph/sfsreader/session/0000017d0de74d5380a0f0ec000d00d40059004a/t/?o=False 1/23
_______________
* SECOND DIVISION.
637
VOL. 724, JUNE 4, 2014 637
Patrimonio vs. Gutierrez
expressly requires a special power of authority before an agent

can loan or borrow money in behalf of the principal, to wit: Art.
1878. Special powers of attorney are necessary in the
following cases: x x x x (7) To loan or borrow money, unless
the latter act be urgent and indispensable for the preservation of
the things which are under administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing. As
long as the mandate is express, such authority may be either oral
or written. We unequivocably declared in Lim Pin v. Liao Tian, et
al., 115 SCRA 290 (1982), that the requirement under Article
1878 of the Civil Code refers to the nature of the authorization
and not to its form. Be that as it may, the authority must be duly
established by competent and convincing evidence other than the
self-serving assertion of the party claiming that such authority
was verbally given.
Same; Same; Same; Same; A contract of loan, like any other

contract, is subject to the rules governing the requisites and
validity of contracts in general.—Another significant point that
the lower courts failed to consider is that a contract of loan, like
any other contract, is subject to the rules governing the requisites
and validity of contracts in general. Article 1318 of the Civil Code
enumerates the essential requisites for a valid contract, namely:
1. consent of the contracting parties; 2. object certain which is
the subject matter of the contract; and 3. cause of the obligation
which is established. In this case, the petitioner denied liability
on the ground that the contract lacked the essential element of
consent. We agree with the petitioner. As we explained above,
Gutierrez did not have the petitioner’s written/verbal authority to
enter into a contract of loan. While there may be a meeting of the
minds between Gutierrez and Marasigan, such agreement cannot
bind the petitioner whose consent was not obtained and who was
not privy to the loan agreement. Hence, only Gutierrez is bound
by the contract of loan.
Mercantile Law; Negotiable Instruments Law; Incomplete But

Delivered Instruments; In order that one who is not a holder in
due course can enforce the instrument against a party prior to the
instrument’s completion, two requisites must exist: (1) that the
blank must be filled strictly in accordance with the authority
given; and (2) it must be filled up within a reasonable time.—This
provision applies to an incomplete but delivered instrument.
Under this rule, if the maker or drawer delivers a pre-signed
blank paper to another person
638
for the purpose of converting it into a negotiable instrument, that

person is deemed to have prima facie authority to fill it up. It
merely requires that the instrument be in the possession of a
person other than the drawer or maker and from such possession,
together with the fact that the instrument is wanting in a
material particular, the law presumes agency to fill up the blanks.
In order however that one who is not a holder in due course can
enforce the instrument against a party prior to the instrument’s
completion, two requisites must exist: (1) that the blank must be
filled strictly in accordance with the authority given; and (2) it
must be filled up within a reasonable time. If it was proven that
the instrument had not been filled up strictly in accordance with
the authority given and within a reasonable time, the maker can
set this up as a personal defense and avoid liability. However, if
the holder is a holder in due course, there is a conclusive
presumption that authority to fill it up had been given and that
the same was not in excess of authority.
Same; Same; Holder in Due Course; Section 52(c) of the

Negotiable Instruments Law (NIL) states that a holder in due
course is one who takes the instrument “in good faith and for
value.”—Section 52(c) of the NIL states that a holder in due
course is one who takes the instrument “in good faith and for
value.” It also provides in Section 52(d) that in order that one may
be a holder in due course, it is necessary that at the time it was
negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
Acquisition in good faith means taking without knowledge or
notice of equities of any sort which could be set up against a prior
holder of the instrument. It means that he does not have any
knowledge of fact which would render it dishonest for him to take
a negotiable paper. The absence of the defense, when the
instrument was taken, is the essential element of good faith.
Same; Same; Same; The Negotiable Instruments Law (NIL)

does not provide that a holder who is not a holder in due course
may not in any case recover on the instrument. The only
disadvantage of a holder who is not in due course is that the
negotiable instrument is subject to defenses as if it were non-
negotiable.—Since he knew that the underlying obligation was not
actually for the petitioner, the rule that a possessor of the
instrument is prima facie a holder in due course is inapplicable.
As correctly noted by the CA, his inaction and failure to verify,
despite knowledge of that the petitioner was not a
639
VOL. 724, JUNE 4, 2014 639
party to the loan, may be construed as gross negligence

amounting to bad faith. Yet, it does not follow that simply because
he is not a holder in due course, Marasigan is already totally
barred from recovery. The NIL does not provide that a holder who
is not a holder in due course may not in any case recover on the
instrument. The only disadvantage of a holder who is not in due
course is that the negotiable instrument is subject to defenses as
if it were non-negotiable. Among such defenses is the filling up
blank not within the authority.
Same; Same; Same; While under the law, Gutierrez had a

prima facie authority to complete the check, such prima facie
authority does not extend to its use (i.e., subsequent transfer or
negotiation) once the check is completed.—While under the law,
Gutierrez had a prima facie authority to complete the check,
such prima facie authority does not extend to its use (i.e.,
subsequent transfer or negotiation) once the check is completed.
In other words, only the authority to complete the check is
presumed. Further, the law used the term “prima facie” to
underscore the fact that the authority which the law accords to a
holder is a presumption juris tantum only; hence, subject to
subject to contrary proof. Thus, evidence that there was no
authority or that the authority granted has been exceeded may be
presented by the maker in order to avoid liability under the
instrument.

Reyno, Tiu, Domingo & Santos for petitioner.
Benjamin S. Benito for respondent Marasigan III.
BRION, J.:
Assailed in this petition for review on certiorari[1] under

Rule 45 of the Revised Rules of Court is the decision[2]
dated
_______________
[1] Under Rule 45 of the Rules of Court, Rollo, pp. 9-31.
[2] Id., at pp. 30-47; penned by Associate Justice Monina Arevalo-
Zenarosa, and concurred in by Associate Justices Regalado E. Maambong
and Sixto C. Marella, Jr.
640

September 24, 2008 and the resolution[3] dated April 30,

2009 of the Court of Appeals (CA) in C.A.-G.R. CV No.
82301. The appellate court affirmed the decision of the
Regional Trial Court (RTC) of Quezon City, Branch 77,
dismissing the complaint for declaration of nullity of loan
filed by petitioner Alvin Patrimonio and ordering him to
pay respondent Octavio Marasigan III (Marasigan) the
sum of P200,000.00.
The Factual Background
The facts of the case, as shown by the records, are briefly
summarized below.
The petitioner and the respondent Napoleon Gutierrez
(Gutierrez) entered into a business venture under the name
of Slam Dunk Corporation (Slam Dunk), a production outfit
that produced mini-concerts and shows related to
basketball. Petitioner was already then a decorated
professional basketball player while Gutierrez was a well-
known sports columnist.
In the course of their business, the petitioner pre-signed
several checks to answer for the expenses of Slam Dunk.
Although signed, these checks had no payee’s name, date or
amount. The blank checks were entrusted to Gutierrez
with the specific instruction not to fill them out without
previous notification to and approval by the petitioner.
According to petitioner, the arrangement was made so that
he could verify the validity of the payment and make the
proper arrangements to fund the account.
In the middle of 1993, without the petitioner’s
knowledge and consent, Gutierrez went to Marasigan (the
petitioner’s former teammate), to secure a loan in the

amount of P200,000.00 on the excuse that the petitioner
needed the money for the construction of his house. In
addition to the payment of the principal, Gutierrez assured
Marasigan that
_______________
[3] Id., at pp. 48-50.
641
VOL. 724, JUNE 4, 2014 641

he would be paid an interest of 5% per month from March

to May 1994.
After much contemplation and taking into account his
relationship with the petitioner and Gutierrez, Marasigan
acceded to Gutierrez’ request and gave him P200,000.00
sometime in February 1994. Gutierrez simultaneously
delivered to Marasigan one of the blank checks the
petitioner pre-signed with Pilipinas Bank, Greenhills
Branch, Check No. 21001764 with the blank portions filled
out with the words “Cash” “Two Hundred Thousand Pesos
Only,” and the amount of “P200,000.00.” The upper right
portion of the check corresponding to the date was also
filled out with the words “May 23, 1994” but the petitioner
contended that the same was not written by Gutierrez.
On May 24, 1994, Marasigan deposited the check but it
was dishonored for the reason “ACCOUNT CLOSED.” It
was later revealed that petitioner’s account with the bank
had been closed since May 28, 1993.
Marasigan sought recovery from Gutierrez, to no avail.
He thereafter sent several demand letters to the petitioner
asking for the payment of P200,000.00, but his demands
likewise went unheeded. Consequently, he filed a criminal
case for violation of B.P. 22 against the petitioner, docketed
as Criminal Case No. 42816.
On September 10, 1997, the petitioner filed before the
Regional Trial Court (RTC) a Complaint for Declaration of
Nullity of Loan and Recovery of Damages against Gutierrez
and co-respondent Marasigan. He completely denied
authorizing the loan or the check’s negotiation, and
asserted that he was not privy to the parties’ loan
agreement.
Only Marasigan filed his answer to the complaint. In the
RTC’s order dated December 22, 1997, Gutierrez was
declared in default.
642

The Ruling of the RTC

The RTC ruled on February 3, 2003 in favor of
Marasigan.[4] It found that the petitioner, in issuing the
pre-signed blank checks, had the intention of issuing a
negotiable instrument, albeit with specific instructions to
Gutierrez not to negotiate or issue the check without his
approval. While under Section 14 of the Negotiable
Instruments Law Gutierrez had the prima facie authority
to complete the checks by filling up the blanks therein, the
RTC ruled that he deliberately violated petitioner’s specific
instructions and took advantage of the trust reposed in him
by the latter.
Nonetheless, the RTC declared Marasigan as a holder in
due course and accordingly dismissed the petitioner’s
complaint for declaration of nullity of the loan. It ordered
the petitioner to pay Marasigan the face value of the check
with a right to claim reimbursement from Gutierrez.
The petitioner elevated the case to the Court of Appeals
(CA), insisting that Marasigan is not a holder in due
course. He contended that when Marasigan received the
check, he knew that the same was without a date, and
hence, incomplete. He also alleged that the loan was
actually between Marasigan and Gutierrez with his check
being used only as a security.
The Ruling of the CA
On September 24, 2008, the CA affirmed the RTC
ruling, although premised on different factual findings.
After careful analysis, the CA agreed with the petitioner
that Marasigan is not a holder in due course as he did not
receive the check in good faith.
The CA also concluded that the check had been strictly
filled out by Gutierrez in accordance with the petitioner’s
_______________
[4] Rollo, pp. 67-72.
643
VOL. 724, JUNE 4, 2014 643

authority. It held that the loan may not be nullified since it

is grounded on an obligation arising from law and ruled
that the petitioner is still liable to pay Marasigan the sum
of P200,000.00.
After the CA denied the subsequent motion for
reconsideration that followed, the petitioner filed the
present petition for review on certiorari under Rule 45 of
the Revised Rules of Court.
The Petition
The petitioner argues that: (1) there was no loan
between him and Marasigan since he never authorized the
borrowing of money nor the check’s negotiation to the
latter; (2) under Article 1878 of the Civil Code, a special
power of attorney is necessary for an individual to make a
loan or borrow money in behalf of another; (3) the loan
transaction was between Gutierrez and Marasigan, with
his check being used only as a security; (4) the check had
not been completely and strictly filled out in accordance
with his authority since the condition that the subject
check can only be used provided there is prior approval
from him, was not complied with; (5) even if the check was
strictly filled up as instructed by the petitioner, Marasigan
is still not entitled to claim the check’s value as he was not
a holder in due course; and (6) by reason of the bad faith in
the dealings between the respondents, he is entitled to
claim for damages.
The Issues
Reduced to its basics, the case presents to us the
following issues:
1. Whether the contract of loan in the amount of
P200,000.00 granted by respondent Marasigan to
petitioner, through respondent Gutierrez, may be
nullified for being void;
644

2. Whether there is basis to hold the petitioner liable

for the payment of the P200,000.00 loan;
3. Whether respondent Gutierrez has completely filled
out the subject check strictly under the authority given
by the petitioner; and
4. Whether Marasigan is a holder in due course.
The Court’s Ruling
The petition is impressed with merit.
We note at the outset that the issues raised in this

petition are essentially factual in nature. The main point of
inquiry of whether the contract of loan may be nullified,
hinges on the very existence of the contract of loan — a
question that, as presented, is essentially, one of fact.
Whether the petitioner authorized the borrowing; whether
Gutierrez completely filled out the subject check strictly
under the petitioner’s authority; and whether Marasigan is
a holder in due course are also questions of fact, that, as a
general rule, are beyond the scope of a Rule 45 petition.
The rule that questions of fact are not the proper subject
of an appeal by certiorari, as a petition for review under
Rule 45 is limited only to questions of law, is not an
absolute rule that admits of no exceptions. One notable
exception is when the findings of fact of both the trial court
and the CA are conflicting, making their review necessary.
[5] In the present case, the tribunals below arrived at two
conflicting factual findings, albeit with the same
conclusion, i.e., dismissal of the complaint for nullity of the
loan. Accordingly, we will examine the parties’ evidence
presented.
_______________
[5] Republic v. Bellate, G.R. No. 175685, August 7, 2013, 703 SCRA 210,
218.
645
VOL. 724, JUNE 4, 2014 645

I. Liability Under the Contract of Loan

The petitioner seeks to nullify the contract of loan on the
ground that he never authorized the borrowing of money.
He points to Article 1878, paragraph 7 of the Civil Code,
which explicitly requires a written authority when the loan
is contracted through an agent. The petitioner contends
that absent such authority in writing, he should not be held
liable for the face value of the check because he was not a
party or privy to the agreement.
Contracts of Agency May be Oral Unless
The Law Requires a Specific Form
Article 1868 of the Civil Code defines a contract of

agency as a contract whereby 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.” 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.
As a general rule, a contract of agency may be oral.[6]
However, it must be written when the law requires a
specific form, for example, in a sale of a piece of land or any
interest therein through an agent.
Article 1878, paragraph 7 of the Civil Code expressly
requires a special power of authority before an agent can
loan or borrow money in behalf of the principal, to wit:
Art. 1878. Special powers of attorney are necessary in

the following cases:
xxxx
_______________
[6] Article 1869, Civil Code of the Philippines.
646

(7) To loan or borrow money, unless the latter act be

urgent and indispensable for the preservation of the things which
are under administration. (emphasis supplied)
Article 1878 does not state that the authority be in

writing. As long as the mandate is express, such authority
may be either oral or written. We unequivocably declared
in Lim Pin v. Liao Tian, et al.,[7] that the requirement
under Article 1878 of the Civil Code refers to the nature of
the authorization and not to its form. Be that as it may, the
authority must be duly established by competent and
convincing evidence other than the self-serving assertion of
the party claiming that such authority was verbally given,
thus:
The requirements of a special power of attorney in

Article 1878 of the Civil Code and of a special authority in
Rule 138 of the Rules of Court refer to the nature of the
authorization and not its form. The requirements are met if
there is a clear mandate from the principal specifically
authorizing the performance of the act. As early as 1906, this
Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that such
a mandate may be either oral or written, the one vital
thing being that it shall be express. And more recently, We
stated that, if the special authority is not written, then it must be
duly established by evidence:
x x x the Rules require, for attorneys to compromise the

litigation of their clients, a special authority. And while the same
does not state that the special authority be in writing the Court has
every reason to expect that, if not in writing, the same be duly
established by evidence other than the self-serving
assertion of counsel himself that such authority was
verbally given him. (Home Insurance Company vs. United States
Lines Company, et al., 21 SCRA 863, 866 [1967]; Vicente vs.
Geraldez, 52 SCRA 210, 225 [1973]). (emphasis supplied)
______________
[7]200 Phil. 685; 115 SCRA 290 (1982).
647
VOL. 724, JUNE 4, 2014 647


The Contract of Loan Entered Into
by Gutierrez in Behalf of the Peti-
tioner Should be Nullified for Being
Void; Petitioner is Not Bound by the
Contract of Loan
A review of the records reveals that Gutierrez did not

have any authority to borrow money in behalf of the
petitioner. Records do not show that the petitioner
executed any special power of attorney (SPA) in favor of
Gutierrez. In fact, the petitioner’s testimony confirmed that
he never authorized Gutierrez (or anyone for that matter),
whether verbally or in writing, to borrow money in his
behalf, nor was he aware of any such transaction:

ALVIN PATRIMONIO (witness)

ATTY. DE VERA: Did you give Nap Gutierrez any Special
Power of Attorney in writing authorizing
him to borrow using your money?
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov.
11, 1999, p. 105)[8]
xxxx

Marasigan however submits that the petitioner’s acts of
pre-signing the blank checks and releasing them to
Gutierrez suffice to establish that the petitioner had
authorized Gutierrez to fill them out and contract the loan
in his behalf.
Marasigan’s submission fails to persuade us.

In the absence of any authorization, Gutierrez could not
enter into a contract of loan in behalf of the petitioner. As
held in Yasuma v. Heirs of De Villa,[9] involving a loan con-
_______________
[8] Rollo, p. 82.
[9] G.R. No. 150350, August 22, 2006, 499 SCRA 466, 472.
648

tracted by de Villa secured by real estate mortgages in the

name of East Cordillera Mining Corporation, in the
absence of an SPA conferring authority on de Villa, there is
no basis to hold the corporation liable, to wit:

The power to borrow money is one of those cases where

corporate officers as agents of the corporation need a special
power of attorney. In the case at bar, no special power of
attorney conferring authority on de Villa was ever
presented. x x x There was no showing that respondent
corporation ever authorized de Villa to obtain the loans on its
behalf.
xxxx
Therefore, on the first issue, the loan was personal to de
Villa. There was no basis to hold the corporation liable
since there was no authority, express, implied or apparent,
given to de Villa to borrow money from petitioner. Neither
was there any subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of
de Villa (or of his estate after his death). (citations omitted;
emphasis supplied)
This principle was also reiterated in the case of Gozun v.

Mercado,[10] where this court held:

Petitioner submits that his following testimony suffices to

establish that respondent had authorized Lilian to obtain a loan
from him.
xxxx
Petitioner’s testimony failed to categorically state, however,
whether the loan was made on behalf of respondent or of his wife.
While petitioner claims that Lilian was authorized by respondent,

the statement of ac-
_______________
[10] G.R. No. 167812, December 19, 2006, 511 SCRA 305, 313-314.
649
VOL. 724, JUNE 4, 2014 649

count marked as Exhibit “A” states that the amount was received
by Lilian “in behalf of Mrs. Annie Mercado.”
It bears noting that Lilian signed in the receipt in her name
alone, without indicating therein that she was acting for and in
behalf of respondent. She thus bound herself in her personal
capacity and not as an agent of respondent or anyone for
that matter.
It is a general rule in the law of agency that, in order to
bind the principal by a mortgage on real property
executed by an agent, it must upon its face purport to be
made, signed and sealed in the name of the principal,
otherwise, it will bind the agent only. It is not enough
merely that the agent was in fact authorized to make the
mortgage, if he has not acted in the name of the principal.
x x x (emphasis supplied)

In the absence of any showing of any agency relations or
special authority to act for and in behalf of the petitioner,
the loan agreement Gutierrez entered into with Marasigan
is null and void. Thus, the petitioner is not bound by the
parties’ loan agreement.
Furthermore, that the petitioner entrusted the blank
pre-signed checks to Gutierrez is not legally sufficient
because the authority to enter into a loan can never be
presumed. The contract of agency and the special fiduciary
relationship inherent in this contract must exist as a
matter of fact. The person alleging it has the burden of
proof to show, not only the fact of agency, but also its
nature and extent.[11] As we held in People v. Yabut:[12]
Modesto Yambao’s receipt of the bad checks from Cecilia Que

Yabut or Geminiano Yabut, Jr., in Caloocan City cannot, contrary
to the holding of the respondent
_______________

[11] People v. Yabut, Nos. L-42847 and L-42902, April 29, 1977, 167 Phil. 336,
343.
[12] Id.
650

Judges, be licitly taken as delivery of the checks to the

complainant Alicia P. Andan at Caloocan City to fix the venue
there. He did not take delivery of the checks as holder, i.e., as
“payee” or “indorsee.” And there appears to be no contract of
agency between Yambao and Andan so as to bind the latter for
the acts of the former. Alicia P. Andan declared in that sworn
testimony before the investigating fiscal that Yambao is but her
“messenger” or “part-time employee.” There was no special
fiduciary relationship that permeated their dealings. For a
contract of agency to exist, the consent of both parties is
essential, the principal consents that the other party, the
agent, shall act on his behalf, and the agent consents so to
act. It must exist as a fact. The law makes no presumption
thereof. The person alleging it has the burden of proof to
show, not only the fact of its existence, but also its nature
and extent. This is more imperative when it is considered
that the transaction dealt with involves checks, which are
not legal tender, and the creditor may validly refuse the
same as payment of obligation. (at p. 630). (emphasis
supplied)
The records show that Marasigan merely relied on the

words of Gutierrez without securing a copy of the SPA in
favor of the latter and without verifying from the petitioner
whether he had authorized the borrowing of money or
release of the check. He was thus bound by the risk
accompanying his trust on the mere assurances of
Gutierrez.
No Contract of Loan Was Perfected
Between Marasigan And Petitioner,
as The Latter’s Consent Was Not
Obtained
Another significant point that the lower courts failed to

consider is that a contract of loan, like any other contract,
is subject to the rules governing the requisites and validity
of
651
VOL. 724, JUNE 4, 2014 651
contracts in general.[13] Article 1318 of the Civil Code[14]

enumerates the essential requisites for a valid contract,
namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the
contract; and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground
that the contract lacked the essential element of consent.
We agree with the petitioner. As we explained above,
Gutierrez did not have the petitioner’s written/verbal
authority to enter into a contract of loan. While there may
be a meeting of the minds between Gutierrez and
Marasigan, such agreement cannot bind the petitioner
whose consent was not obtained and who was not privy to
the loan agreement. Hence, only Gutierrez is bound by the
contract of loan.
True, the petitioner had issued several pre-signed
checks to Gutierrez, one of which fell into the hands of
Marasigan. This act, however, does not constitute sufficient
authority to borrow money in his behalf and neither should
it be construed as petitioner’s grant of consent to the
parties’ loan agreement. Without any evidence to prove
Gutierrez’ authority, the petitioner’s signature in the check
cannot be taken, even remotely, as sufficient authorization,
much less, consent to the contract of loan. Without the
consent given by one party in a purported contract, such
contract could not have been perfected; there simply was no
contract to speak of.[15]
_______________
[13] Pentacapital Investment Corporation v. Mahinay, G.R. No. 171736,

July 5, 2010, 623 SCRA 284, 302.
[14] Art. 1318. There is no contract unless the following requisites
concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261).
[15] Deheza-Inamarga v. Alano, G.R. No. 171321, December 18, 2008,
574 SCRA 651, 660.
652
With the loan issue out of the way, we now proceed to

determine whether the petitioner can be made liable under
the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory
provision found in Section 14 of the Negotiable
Instruments Law (NIL) which states:
Sec. 14. Blanks; when may be filled.—Where the instrument

is wanting in any material particular, the person in possession
thereof has a prima facie authority to complete it by filling up the
blanks therein. And a signature on a blank paper delivered by the
person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie
authority to fill it up as such for any amount. In order, however,
that any such instrument when completed may be enforced
against any person who became a party thereto prior to its
completion, it must be filled up strictly in accordance with
the authority given and within a reasonable time. But if any
such instrument, after completion, is negotiated to a holder in
due course, it is valid and effectual for all purposes in his hands,
and he may enforce it as if it had been filled up strictly in
accordance with the authority given and within a reasonable
time.
This provision applies to an incomplete but delivered

instrument. Under this rule, if the maker or drawer
delivers a pre-signed blank paper to another person for the
purpose of converting it into a negotiable instrument, that
person is deemed to have prima facie authority to fill it up.
It merely requires that the instrument be in the possession
of a person other than the drawer or maker and from such
possession, together with the fact that the instrument is
wanting in a
653
VOL. 724, JUNE 4, 2014 653

material particular, the law presumes agency to fill up the

blanks.[16]
In order however that one who is not a holder in due
course can enforce the instrument against a party prior to
the instrument’s completion, two requisites must exist: (1)
that the blank must be filled strictly in accordance with the
authority given; and (2) it must be filled up within a

reasonable time. If it was proven that the instrument had
not been filled up strictly in accordance with the authority
given and within a reasonable time, the maker can set this
up as a personal defense and avoid liability. However, if the
holder is a holder in due course, there is a conclusive
presumption that authority to fill it up had been given and
that the same was not in excess of authority.[17]
In the present case, the petitioner contends that there is
no legal basis to hold him liable both under the contract
and loan and under the check because: first, the subject
check was not completely filled out strictly under the
authority he has given and second, Marasigan was not a
holder in due course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder
in due course, thus:

Sec. 52.—A holder in due course is a holder who has taken the
instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue,
and without notice that it had been previously dishonored, if
such was the fact;
_______________
[16] Dy v. People, G.R. No. 158312, November 14, 2008, 571 SCRA 59, 71-72.
[17] T.B. Aquino, Notes and Cases on Banks, Negotiable Instruments and Other
Commercial Documents, p. 234, 2006 ed.
654

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him he had
no notice of any infirmity in the instrument or defect
in the title of the person negotiating it. (emphasis
supplied)
Section 52(c) of the NIL states that a holder in due

course is one who takes the instrument “in good faith and
for value.” It also provides in Section 52(d) that in order
that one may be a holder in due course, it is necessary that
at the time it was negotiated to him he had no notice of any
infirmity in the instrument or defect in the title of the
person negotiating it.
Acquisition in good faith means taking without

knowledge or notice of equities of any sort which could be
set up against a prior holder of the instrument.[18] It
means that he does not have any knowledge of fact which
would render it dishonest for him to take a negotiable
paper. The absence of the defense, when the instrument
was taken, is the essential element of good faith.[19]
As held in De Ocampo v. Gatchalian:[20]

In order to show that the defendant had “knowledge of such

facts that his action in taking the instrument amounted to bad
faith,” it is not necessary to prove that the defendant knew
the exact fraud that was practiced upon the plaintiff by
the defendant’s assignor, it being sufficient to show that
the defendant had notice that there was something wrong
about his assignor’s acquisition of title, although he did
not have notice of the particular wrong that was
committed.
_______________
[18] A.F. Agbayani, Commentaries and Jurisprudence on the Commercial Laws
of the Philippines, p. 281, 1992 ed.
[19] Id.
[20] No. L-15126, November 30, 1961, 3 SCRA 596, 598.
655
VOL. 724, JUNE 4, 2014 655

It is sufficient that the buyer of a note had notice or knowledge

that the note was in some way tainted with fraud. It is not
necessary that he should know the particulars or even the
nature of the fraud, since all that is required is knowledge of
such facts that his action in taking the note amounted bad faith.
The term ‘bad faith’ does not necessarily involve furtive
motives, but means bad faith in a commercial sense. The manner
in which the defendants conducted their Liberty Loan department
provided an easy way for thieves to dispose of their plunder. It
was a case of “no questions asked.” Although gross negligence
does not of itself constitute bad faith, it is evidence from which
bad faith may be inferred. The circumstances thrust the duty
upon the defendants to make further inquiries and they had no
right to shut their eyes deliberately to obvious facts. (emphasis
supplied)
In the present case, Marasigan’s knowledge that the

petitioner is not a party or a privy to the contract of loan,
and correspondingly had no obligation or liability to him,

renders him dishonest, hence, in bad faith. The following
exchange is significant on this point:

WITNESS: AMBET NABUS

Q: Now, I refer to the second call… after your
birthday. Tell us what you talked about?
A: Since I celebrated my birthday in that place
where Nap and I live together with the other
crew, there were several visitors that included
Danny Espiritu. So a week after my birthday,
Bong Marasigan called me up again and he was
fuming mad. Nagmumura na siya. Hinahanap
niya si… hinahanap niya si Nap, dahil
pinagtataguan na siya at sinabi na niya na
kailangan i-settle na niya yung utang ni Nap,
dahil…
xxxx
656

WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin

na bago pa mauwi sa kung saan ang tsekeng
tumalbog… (He told me that we have to fix it up
before it…) mauwi pa kung saan…
xxxx
Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi
mo? (Whose check is it that you are referring to or talking about?)
Q: What was his answer?
A: It was Alvin’s check.
Q: What was your reply, if any?
A: I told him do you know that it is not really Alvin
who borrowed money from you or what you want to
appear…
xxxx
Q: What was his reply?
A: Yes, it was Nap, pero tseke pa rin ni Alvin ang
hawak ko at si Alvin ang maiipit dito. (T.S.N., Ambet Nabus,
July 27, 2000; pp. 65-71; emphasis supplied)[21]
Since he knew that the underlying obligation was not

actually for the petitioner, the rule that a possessor of the
instrument is prima facie a holder in due course is
inapplicable. As correctly noted by the CA, his inaction and
failure to verify, despite knowledge of that the petitioner

was not a party to the loan, may be construed as gross
negligence amounting to bad faith.
Yet, it does not follow that simply because he is not a
holder in due course, Marasigan is already totally barred
from recovery. The NIL does not provide that a holder who
is not a holder in due course may not in any case recover on
the in-
_______________
[21] Rollo, pp. 141-142.
657
VOL. 724, JUNE 4, 2014 657

strument.[22] The only disadvantage of a holder who is not

in due course is that the negotiable instrument is subject to
defenses as if it were non-negotiable.[23] Among such
defenses is the filling up blank not within the authority.
On this point, the petitioner argues that the subject
check was not filled up strictly on the basis of the authority
he gave. He points to his instruction not to use the check
without his prior approval and argues that the check was
filled up in violation of said instruction.
Check Was Not Completed Strictly Under
The Authority Given by The Petitioner
Our own examination of the records tells us that

Gutierrez has exceeded the authority to fill up the blanks
and use the check. To repeat, petitioner gave Gutierrez pre-
signed checks to be used in their business provided that he
could only use them upon his approval. His instruction
could not be any clearer as Gutierrez’ authority was limited
to the use of the checks for the operation of their business,
and on the condition that the petitioner’s prior approval
be first secured.
While under the law, Gutierrez had a prima facie
authority to complete the check, such prima facie
authority does not extend to its use (i.e., subsequent
transfer or negotiation) once the check is completed. In
other words, only the authority to complete the check is
presumed. Further, the law used the term “prima facie” to
underscore the fact that the authority which the law
accords to a holder is a presumption juris tantum only;
hence, subject to subject to contrary proof. Thus, evidence
that there was no authority or that the authority granted
has been exceeded may be presented by the maker in order

to avoid liability under the instrument.
_______________
[22] Dino v. Loot, G.R. No. 170912, April 19, 2010, 618 SCRA 393, 404.
[23] Id.
658

In the present case, no evidence is on record that

Gutierrez ever secured prior approval from the petitioner to
fill up the blank or to use the check. In his testimony,
petitioner asserted that he never authorized nor approved
the filling up of the blank checks, thus:

ATTY. DE VERA: Did you authorize anyone including

Nap Gutierrez to write the date, May 23,
1994?
WITNESS: No, sir.
Q: Did you authorize anyone
including Nap Gutierrez to put the word
cash? In the check?
A: No, sir.
Q: Did you authorize anyone
including Nap Gutierrez to write the
figure P200,000 in this check?
A: No, sir.
Q: And lastly, did you authorize
anyone including Nap Gutierrez to write
the words P200,000 only xx in this check?
A: No, sir. (T.S.N., Alvin Patrimonio,
November 11, 1999).[24]
Notably, Gutierrez was only authorized to use the check

for business expenses; thus, he exceeded the authority when
he used the check to pay the loan he supposedly contracted
for the construction of petitioner’s house. This is a clear
violation of the petitioner’s instruction to use the checks for
the expenses of Slam Dunk. It cannot therefore be validly
concluded that the check was completed strictly in
accordance with the authority given by the petitioner.
Considering that Marasigan is not a holder in due
course, the petitioner can validly set up the personal
defense that the
_______________
[24] Rollo, p. 117.
659
VOL. 724, JUNE 4, 2014 659

blanks were not filled up in accordance with the authority

he gave. Consequently, Marasigan has no right to enforce
payment against the petitioner and the latter cannot be
obliged to pay the face value of the check.
WHEREFORE, in view of the foregoing, judgment is
hereby rendered GRANTING the petitioner Alvin
Patrimonio’s petition for review on certiorari. The appealed
Decision dated September 24, 2008 and the Resolution
dated April 30, 2009 of the Court of Appeals are
consequently ANNULLED AND SET ASIDE. Costs
against the respondents.
SO ORDERED.
Carpio (Chairperson), Del Castillo, Perez and Perlas-

Bernabe, JJ., concur.
Petition granted, judgment and resolution annulled and

set aside.
Notes.—Owing to the consumable nature of the thing

loaned, the resulting duty of the borrower in a contract of
loan is to pay, not to return, to the creditor or lender the
very thing loaned, and this explains why the ownership of
the thing loaned is transferred to the debtor upon
perfection of the contract; Evidently, the resulting
relationship between a creditor and debtor in a contract of
loan cannot be characterized as fiduciary; Absent any
special facts and circumstances proving a higher degree of
responsibility, any dealings between a lender and borrower
are not fiduciary in nature. (Republic vs. Sandiganbayan
[First Division], 648 SCRA 47 [2011])
A crossed check is one where two parallel lines are drawn
across its face or across its corner; The crossing of a check
has the following effects: (a) the check may not be encashed
but only deposited in the bank; (b) the check may be
negotiated only once — to the one who has an account with
the bank; and (c) the act of crossing the check serves as a
warning to the
660

holder that the check has been issued for a definite purpose
and he must inquire if he received the check pursuant to
this purpose; otherwise, he is not a holder in due course.
(Philippine Commercial International Bank vs. Balmaceda,
658 SCRA 33 [2011])
——o0o——

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11/11/21, 3:18 PM SUPREME COURT REPORTS ANNOTATED VOLUME 511

JESUS M. GOZUN, petitioner, vs. JOSE TEOFILO T.

Contracts; Agency; Special Powers of Attorney; Contracts

306 SUPREME COURT REPORTS ANNOTATED

Gozun vs. Mercado

Same; Same; Same; The requirement of a special power of

form—if the special authority is not written, then it must be duly

Same; Same; Same; Real Estate Mortgages; It is a general

Same; Same; Same; Actions; Parties; One who is not a party to

VOL. 511, DECEMBER 19, 2006 307

Gozun vs. Mercado

PETITION for review on certiorari of the decision and

The facts are stated in the opinion of the Court.

On challenge via petition for review on certiorari is the

1 Penned by Associate Justice Andres B. Reyes, Jr., with the

308 SUPREME COURT REPORTS ANNOTATED

Gozun vs. Mercado

VOL. 511, DECEMBER 19, 2006 309

Despite repeated demands and respondent’s promise to

respondent to honor his promise but to no avail, compelling

310 SUPREME COURT REPORTS ANNOTATED

“Johnny” Cabalu (Cabalu), who was authorized to approve

P1,000,000 represented “compensation [to petitioner]18 who

17 TSN, March 21, 2001, pp. 5-7.

VOL. 511, DECEMBER 19, 2006 311

As adverted to earlier, the trial court rendered judgment in

“WHEREFORE, the plaintiff having proven its (sic) cause of

1. To pay the plaintiff the sum of P1,177,906.00 plus 12%

To pay the sum of P50,000.00 as attorney’s fees and the

Also as earlier adverted to, the Court of Appeals reversed

312 SUPREME COURT REPORTS ANNOTATED

Hence, the present petition, faulting the appellate court

“1. . . . when it dismissed the complaint on the ground that there

By the contract of agency a person binds himself to render

25 Rollo, pp. 14-15.

VOL. 511, DECEMBER 19, 2006 313

Generally, the agency

. . . The requirements are met if there is a clear mandate from the

“. . . the Rules require, for attorneys to compromise the litigation of their

given him.” (Emphasis and italics supplied)

Petitioner submits that his following testimony suffices to

314 SUPREME COURT REPORTS ANNOTATED

Q: Another caption appearing on Exhibit “A” is cash

happen to make her acknowledge the amount at that

Petitioner’s testimony failed to categorically state, however,

32 TSN, November 24, 1999, pp. 11-12.

VOL. 511, DECEMBER 19, 2006 315

thority as his agent, and holds him out to the public

. . . Exhibit “B” [the receipt issued by petitioner] presented by

261,120 ADVANCE MONEY FOR TRAINEE—

RECEIVED FROM JMG THE AMOUNT OF 253,000

Nowhere in the note can it be inferred that defendant-appellant

It bears noting that Lilian signed in the receipt in her name

35 Rollo, pp. 32-33.

316 SUPREME COURT REPORTS ANNOTATED

“It is a general rule in the law of agency that, in order to bind

“The parties to a contract are the real parties in interest in an

In light thereof, petitioner is the real party in interest in

36 Rural Bank of Bombon v. Court of Appeals, G.R. No. 95703, August 3,

VOL. 511, DECEMBER 19, 2006 317

Quisumbing (Chairperson), Carpio, Tinga and

Petition granted, judgment and resolution reversed and

Notes.—No voluntary appearance by a foreign