G.R. No.

214057, October 19, 2015

FLORENTINA BAUTISTA-SPILLE REPRESENTED BY HER ATTORNEY-IN-FACT,

MANUEL B. FLORES, JR., Petitioner, v. NICORP MANAGEMENT AND
DEVELOPMENT CORPORATION, BENJAMIN G. BAUTISTA AND
INTERNATIONAL EXCHAN BANK, Respondents.

DECISION

MENDOZA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the March 19, 2014 Decision 1 and the August 18, 2014 Resolution 2 of
the Court of Appeals ( CA) in CA-G.R. CV No. 97682, which reversed and set Regional
Trial Court, Branch aside the May 24, 2010 Decision 3 of the Regional Trial Court,
Branch 90, Dasmari�as, Cavite (RTC), in Civil Case No. 0321-04, declaring a contract
to sell null and void.

The Facts:

Petitioner Florentina Bautista-Spille (petitioner) is the registered owner of a parcel of

land covered by Transfer Certificate of Title ( TCT) No. T-197, located in Imus City,
Cavite, with an area of more or less 33,052 square meters (subject property).

On June 20, 1996, petitioner and her spouse, Harold E. Spille, executed a document
denominated as General Power of Attorney4 in favor of her brother, respondent
Benjamin Bautista (Benjamin), authorizing the latter to administer all her businesses
and properties in the Philippines. The said document was notarized before the
Consulate General of the Philippines, New York, United States of America.

On August 13, 2004, Benjamin and NICORP Management and Development

Corporation (NICORP) entered into a contract to sell 5 which pertained to the parcel of
land covered by TCT No. T-197 for the agreed amount of P15,000,000.00. In the said
contract, NICORP agreed to give a down payment equivalent to 20% of the purchase
price and pay the remaining balance in eight ( 8) months. It was also agreed that upon
receipt of the down payment, the TCT of the subject property would be deposited
with the International Exchange Bank ( IE Bank) and placed in escrow. It would only be
released upon full payment of the agreed amount. Furthermore, Benjamin was
required to submit a special power of attorney ( SPA) covering the sale transaction,
otherwise, the payment of the balance would be suspended and a penalty of
P150,000.00 every month would be imposed.

Pursuant thereto, an Escrow Agreement,6 dated October 13, 2004, was executed
designating IE Bank as the Escrow Agent, obliging the latter to hold and take custody
of TCT No. T-197, and to release the said title to NICORP upon full payment of the
subject property.

On October 14, 2004, NICORP issued a check in the amount of P2,250,000.00,

representing the down payment of the subject property.7 Thereafter, the TCT was
deposited with IE Bank and placed in escrow.

When petitioner discovered the sale, her lawyer immediately sent demand letters 8 to
NICORP and Benjamin, both dated October 27, 2004, and to IE pank, dated October
28, 2004, informing them that she was opposing the sale of the subject property and
that Benjamin was not clothed with authority to enter into a contract to sell and
demanding the return of the owner's copy of the certificate of title to her true and
lawful attorney-in-fact, Manujel B. Flores, Jr. (Flores). NICORP, Benjamin and IE Bank,
however, failed and refused to return the title of the subject property.

Consequently, petitioner filed a complaint9 before the RTC against Benjamin, NICORP
and IE Bank for declaration of nullity of the contract to sell, junction, recovery of
possession and damages with prayer for the issuance of a temporary restraining order
and/or preliminary injunction because NICORP was starting the development of the
subject property into a residential subdivision and was planning to sell the lots to
prospective buyers. Petitioner denied receiving the down payment for the subject
property.

The RTC granted the writ of preliminary injunction in its Order,10 dated January 24,
2005, enjoining NICORP and all persons acting on its behalf from making or
introducing improvements, subdividing and selling any subdivided lot of the subject
property.

In its Answer,11 NICORP asked for the dismissal of the case for lack of a cause of
action and averred that Benjamin was empowered to enter into a contract to sell by
virtue of the general power of attorney; that the said authority was valid and
subsisting as there was no specific instrument that specifically revoked his authority;
that assuming Bautista exceeded his authority when he executed the contract to sell,
the agreement was still valid and enforceable as the agency was already "coupled with
interest" because of the partial payment in the amount of P3,000,000.00; and that the
contract could not just be revoked without NICORP being reimbursed of its down
payment and the costs for the initial development it had incurred in developing the
subject property into a residential subdivision.

For its part, IE Bank denied any liability and alleged that petitioner had no cause of
action against it. IE Bank asserted that, at the time of its constitution as an escrow
agent, Benjamin possessed the necessary authority from petitioner; that because the
contract to sell remained valid, it was duty-bound to observe its duties and obligations
under the Escrow Agreement; and that in the absence of any order from the court, it
was proper for the bank not to comply with petitioner's demand for the surrender of
the certificate of title.12
 Benjamin, on the other hand, did not file any responsive pleading. Hence, he was
declared in default in the RTC Order, 13 dated August 25, 2005.

On May 24, 2010, the RTC rendered its judgment, declaring the contract to sell null
and void.14 It explained that the general power of authority only pertained to acts of
administration over petitioner's businesses and properties in the Philippines and did
not include authority to sell the subject property. It pointed out that NICORP was well
aware of Benjamin's lack of authority to sell the subject property as gleaned from the
contract to sell which required the latter to procure the SPA from petitioner and even
imposed a penalty of P150,000.00 per month if he would be delayed in securing the
SPA. The dispositive portion of the RTC decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the

plaintiff and against the defendants, declaring the Contract to Sell, dated October 13,
2004 between the defendant Bautista and NICORP to be null and void, and the writ of
preliminary injunction is now made permanent, and further ordering the defendants
NICORP and International Exchange Bank as follows -

(a) To return to the plaintiff the peaceful possession of the subject property covered
by Transfer Certificate of Title No. T-197 of the Register of Deeds of the Province
of Cavite;

(b) To return to the plaintiff the Original Owner's Duplicate of Title No. T-197 of the
Register of Deeds of the Province of Cavite;

(c) To pay to the plaintiff the amount of Php250,000.00 by way of attorney's fees; and

(d) The Costs of suit.

SO ORDERED.15

Aggrieved, NICORP appealed before the CA.

In the assailed decision, the CA reversed the RTC decision, explaining that the general
power of attorney executed by petitioner in favor of Benjamin authorized the latter
not only to perform acts of administration over her properties but also to perform acts
of dominion which included, among others, the power to dispose the subject
property.

Petitioner filed a motion for reconsideration, but it was denied in the assailed CA
Resolution, dated August 18, 2014.
Hence, this petition anchored on the following.

GROUNDS

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR IN HOLDING

THAT THE GENERAL POWER OF ATTORNEY EXECUTED BY PETITIONER
AUTHORIZED BENJAMIN BAUTISTA TO ENTER INTO THE CONTRACT TO SELL
WITH RESPONDENT IN CONTRAVENTION OF THE ESTABLISHED
PRONOUNCEMENT OF THE SUPREME COURT IN THE CASE OF LILLIAN N.
MERCADO ET AL. VS. ALLIED BANKING CORPORATION (G.R. NO. 171460, 24 JULY
2007.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR IN APPLYING

THE CASE OF ESTATE OF LINO OLAGUER VS. ONGJOCO (G.R. NO. 173312, 26
AUGUST 2008) TO THE INSTANT CASE CONSIDERING THAT THE ESTABLISHED
FACTS HEREIN ARE NOT IN ALL FOURS WITH THE FACTS SURROUNDING THE
DECISION IN THE OLAGUER VS. ONGJOCO CASE.

THE HONORABLE COURT OF APPEALS ERRED IN DISREGARDING (I)

RESPONDENT'S JUDICIAL ADMISSION AS TO BENJAMIN BAUTISTA'S LACK OF
AUTHORITY TO ENTER INTO A CONTRACT TO SELL THE SUBJECT PROPERTY, AND
(II) RESPONDENT'S KNOWLEDGE OF THE INSUFFICIENCY OF THE GENERAL
POWER OF ATTORNEY, INDICATING BAD FAITH OF THE RESPONDENT.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL

16
COURT ERRED IN DECLARING THE CONTRACT TO SELL NULL AND VOID.

Petitioner argues that the general power of attorney did not clothe Benjamin with the
authority to enter into a contract to sell the subject property. She contends that the
general power of attorney pertained to the power to buy, sell, negotiate and contract
over the business and personal property but did not specifically authorize the sale of
the subject property.

Petitioner asserts that the CA erred when it disregarded the stipulation made by
NICORP during the pre-trial proceedings as stated in the pre-trial order that Benjamin
"acted beyond the scope of his authority when he failed to inform plaintiff personally
as to his dealing or negotiation with NICORP and when he signed the Contract to Sell
xxx."17 According to petitioner, such an admission was an indication that NICORP did
not consider the general power of authority as an SPA which would have authorized
Benjamin to enter into the contract to sell.

NICORP counters that the general power of attorney sufficiently conferred authority
on Benjamin to enter into the contract to sell. It asserts that the written authority,
while denominated as a general power of attorney, expressly authorized him to sell
the subject property. NICORP insists that it was a buyer in good faith and was never
negligent in ascertaining the extent of his authority to sell the property. It explains
that though the general power of attorney sufficiently clothed Bautista with authority
to sell the subject property, it nonetheless required him to submit the SPA in order to
comply with the requirements of the Register of Deeds and the Bureau of Internal
Revenue.

The issue for resolution is whether or not Benjamin was authorized to sell the subject
property.

The Court's Ruling

The Court finds the petition meritorious.

In petitions for review on certiorari under Rule 45 of the Rules of Civil Procedure, only
questions of law may be raised by the parties and passed upon by this Court. It is not
a function of this Court to analyze and weigh the evidence presented by the parties all
over again.18 This rule, however, has several well-recognized exceptions, such as when
the factual findings of the CA and the trial court are conflicting or contradictory. 19

The well-established rule is when a sale of a parcel 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. Articles 1874 and 1878 of the Civil Code explicitly provide:

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

Art. 1878. Special powers of attorney are necessary in the following

cases:chanRoblesvirtualLawlibrary

(1) x xx

(5) To enter into any contract by which the ownership of an immovable is

transmitted or acquired either gratuitously or for a valuable consideration;

xxx. [Emphasis Supplied]

From the foregoing, it is clear that an SPA in the conveyance of real rights over
immovable property is necessary.20 In Cosmic Lumber Corporation v. Court of
Appeals,21 the Court enunciated,

When the sale of a piece of land or any interest thereon is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void. Thus, the
authority of an agent to execute a contract for the sale of real estate must be
conferred in writing and must give him specific authority, either to conduct the
general business of the principal or to execute a binding contract containing terms
and conditions which are in the contract he did execute. A special power of attorney
is necessary to enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration. The
express mandate required by law to enable an appointee of an agency (couched) in
general terms to sell must be one that expressly mentions a sale or that includes a sale
as a necessary ingredient of the act mentioned. For the principal to confer the right
upon an agent to sell real estate, a power of attorney must so express the powers of
the agent in clear and unmistakable language. When there is any reasonable doubt
that the language so used conveys such power, no such construction shall be
given the document.22

[Emphases Supplied]

To reiterate, such authority must be conferred in writing and must express the powers
of the agent in clear and unmistakable language in order for the principal to confer
the right upon an agent to sell the real property.23 It is a general rule that a power of
attorney must be strictly construed, and courts will not infer or presume broad powers
from deeds which do not sufficiently include property or subject under which the
agent is to deal.24 Thus, when the authority is couched in general terms, without
mentioning any specific power to sell or mortgage or to do other specific acts of strict
dominion, then only acts of administration are deemed conferred. 25cralawred

In the case at bench, the only evidence adduced by NICORP to prove Benjamin's
authority to sell petitioner's property was the document denominated as General
Power of Attorney, dated June 20, 1996. The pertinent portions of the said document
reads:

KNOW ALL MEN BY THESE PRESENTS:chanRoblesvirtualLawlibrary

THAT I/WE FLORENTINA B. SPILLE, of legal age, single/married to HAROLD E. SPILLE

and residents of x x x do hereby appoint, name and constitute BENJAMIN G.
BAUTISTA resident(s) of x x x to be my/our true and lawful attorney(s), to administer
and conduct all my/our affairs and for that purpose in my/our name(s) and on my/our
behalf, to do and execute any or all of the following acts, deeds and things to wit:

1. To exercise administration, general control and supervision over

my/our business and property in the Philippines, and to act as my/our
general representative(s) and agent(s) with full authority to buy, sell,
negotiate and contract for me/us and my/our
behalf;ChanRoblesVirtualawlibrary

2. To ask, demand, sue for, recover and receive all sums of money,
debts, dues, goods, wares, merchandise, chattels, effects and thing of
whatsoever nature or description, which now or hereafter shall be or
become due, owing, payable or belonging to me/us in or by any right,
title, ways or means howsoever, and upon receipt thereof or any part
thereof, to make, sign, execute and deliver such receipts, releases or
 other discharges;ChanRoblesVirtualawlibrary

xxx26

Doubtless, there was no perfected contract to sell between petitioner and NICORP.
Nowhere in the General Power of Attorney was Benjamin granted, expressly or
impliedly, any power to sell the subject property or a portion thereof. The authority
expressed in the General Power of Attorney was couched in very broad terms covering
petitioner's businesses and properties. Time and again, this Court has stressed that the
power of administration does not include acts of disposition, which are acts of strict
ownership. As such, an authority to dispose cannot proceed from an authority to
administer, and vice versa, for the two powers may only be exercised by an agent by
following the provisions on agency of the Civil Code. 27

In the same vein, NICORP cannot be considered a purchaser in good faith. The well-
settled rule is that a person dealing with an assumed agent is bound to ascertain not
only the fact of agency but also the nature and extent of the agent's authority.28 The
law requires a higher degree of prudence from one who buys from a person who is
not the registered owner. He is expected to examine all factual circumstances
necessary for him to determine if there are any flaws in the title of the transferor, or in
his capacity to transfer the land. 29 In ascertaining good faith, or the lack of it, which is
a question of intention, courts are necessarily controlled by the evidence as to the
conduct and outward acts by which alone the inward motive may, with safety, be
determined. Good faith, or want of it, is not a visible, tangible fact that can be seen or
touched, but rather a state or condition of mind which can only be judged by actual or
fancied token or signs.30

Here, the Court agrees with the RTC that NICORP was fully aware that Benjamin was
not properly authorized to enter into any transaction regarding the sale of petitioner's
property. In fact, in the contract to sell, NICORP required Benjamin to secure the SPA
from petitioner within ninety (90) days from the execution of the contract and even
imposed a substantial amount of penalty in the amount of P150,000.00 a month in
case of non-compliance plus suspension of payment of the balance of the contract
price.

Petitioner's explanation that it obliged Benjamin to secure the SPA in order to comply
with the requirements of the Register of Deeds and the Bureau of Internal Revenue is
bereft of merit. NICORP is a real estate company which is familiar with the intricacies
of the realty business. Moreover, there was no evidence that petitioner ratified
Benjamin's act of selling the subject property. On the contrary, immediately after the
execution of the contract to sell, petitioner wrote NICORP, IE Bank and Benjamin to
inform them of her opposition to the sale of the subject property and of his lack of
authority to sell it and demand the return of the certificate of title. Clearly, NICORP
was negligent in its dealings with Bautista.

In sum, the Court agrees with the findings and conclusion of the RTC. The consent of
petitioner in the contract to sell was not obtained, hence, not enforceable.
Furthermore, because NICORP is considered a builder in bad faith, it has no right to be
refunded the value of whatever improvements it introduced on the subject
property.31chanroblesvirtuallawlibrary

WHEREFORE, the petition is GRANTED. The March 19, 2014 Decision and the August
18, 2014 Resolution of the Court of Appeals in CA-G.R. CV No. 97682 are REVERSED
and SET ASIDE. The May 24, 2010 Decision of the Regional Trial Court, Branch 90,
Dasmari�as, Cavite, is REINSTATED.

SO ORDERED.

G.R. No. 187769 June 4, 2014

ALVIN PATRIMONIO, Petitioner,

vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.

DECISION

BRION, J.:

1
Assailed in this petition for review on certiorari under Rule 45 of the Revised
2 3
Rules of Court is the decision dated September 24, 2008 and the resolution
dated April 30, 2009 of the Court of Appeals (CA) in CA-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 ₱200,000.00.
 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 (Slum 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 ₱200,000.00 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 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
₱200,000.00 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
"₱200,000.00". 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 ₱200,000.00, 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.
 The Ruling of the RTC

4
The RTC ruled on February 3,2003 in favor of Marasigan. 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 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 ₱200,000.00.

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 ₱200,000.00 granted by

respondent Marasigan to petitioner, through respondent Gutierrez, may be nullified
for being void;

2. Whether there is basis to hold the petitioner liable for the payment of the
₱200,000.00 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 off act of both the trial court and the CA are conflicting, making their
5
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.

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.

6
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 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

(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
7
declared in Lim Pin v. Liao Tian, et al., 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: Vicente vs. Geraldez, 52
SCRA 210; 225). (emphasis supplied).

The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner 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
1âwphi1

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?

8
WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)

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
9
loan in behalf of the petitioner. As held in Yasuma v. Heirs of De Villa, involving a
loan contracted 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).

10
This principle was also reiterated in the case of Gozun v. Mercado, 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 account 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
11 12
extent. As we held in People v. Yabut:

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
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 beno
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
13 14
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.

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
15
contract to speak of.

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 material
16
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
17
same was not in excess of authority.

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;

(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

18
any sort which could beset 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
19
was taken, is the essential element of good faith.

20
As held in De Ocampo v. Gatchalian:

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.

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

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
21
dito.(T.S.N., Ambet Nabus, July 27, 2000; pp.65-71; emphasis supplied)

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
22
instrument. The only disadvantage of a holder who is not in due course is that
23
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.

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
1âwphi1

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 tantumonly; 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.

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 ₱200,000 in
this check?

A: No, sir.

Q: And lastly, did you authorize anyone including Nap Gutierrez to write the words
₱200,000 only xx in this check?

24
A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).

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 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.

G.R. No. 199990 February 4, 2015

SPOUSES ROLANDO and HERMINIA SALVADOR, Petitioners,

vs.
SPOUSES ROGELIO AND ELIZABETH RABAJA and ROSARIO GONZALES,
Respondents.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari seeking to reverse and set aside the
1 2
August 22, 2011 Decision and the January 5, 2012 Resolution of the Court of
Appeals (CA) in CA-G.R. CV No. 90296 which affirmed with modification the March
29, 2007 Decision of the Regional Trial Court Branch 214 (RTC-Branch 214),
Mandaluyong City in Civil Case No. MC-03-2175, for rescission of a contract
(rescission case).

The Facts

This case stemmed from a dispute involving the sellers, petitioner spouses
Rolando and Herminia Salvador (Spouses Salvador); the sellers' agent, Rosario
Gonzales (Gonzales),· and the buyers, respondent Spouses Rogelio and Elizabeth
Rabaja (Spouses Rabaja), over a parcel of land situated at No. 25, Merryland
Village, 375 Jose Rizal Street, Mandaluyong City (subject property),covered by
Transfer Certificate of Title (TCT) No. 13426 and registered in the names of
Spouses Salvador. From 1994 until 2002, Spouses Rabaja were leasing an
apartment in the subject lot.

Sometime in July 1998, Spouses Rabaja learned that Spouses Salvador were
looking for a buyer of the subject property. Petitioner Herminia Salvador
(Herminia)personally introduced Gonzales to them as the administrator of the said
property. Spouses Salvador even handed to Gonzales the owner’s duplicate
certificate of title over the subject property. On July, 3, 1998, Spouses Rabaja made
an initial payment of ₱48,000.00 to Gonzales in the presence of Herminia. Gonzales
3
then presented the Special Power of Attorney (SPA),executed by Rolando
Salvador (Rolando) and dated July 24, 1998. On the same day, the parties executed
4
the Contract to Sell which stipulated that for a consideration of ₱5,000,000.00,
Spouses Salvador sold, transferred and conveyed in favor of Spouses Rabaja the
subject property. Spouses Rabaja made several payments totalling ₱950,000.00,
which were received by Gonzales pursuant to the SPA provided earlier as
evidenced by the check vouchers signed by Gonzales and the improvised
receiptssigned by Herminia.

Sometime in June 1999, however, Spouses Salvador complained to Spouses

Rabaja that they did not receive any payment from Gonzales. This prompted
Spouses Rabaja to suspend further payment of the purchase price; and as a
consequence, they received a notice to vacate the subject property from Spouses
Salvador for non-payment of rentals.

Thereafter, Spouses Salvador instituted an action for ejectment against Spouses

Rabaja. In turn, Spouses Rabaja filed an action for rescission of contract against
Spouses Salvador and Gonzales, the subject matter of the present petition.

In the action for ejectment, the complaint was filed before the Metropolitan Trial
Court of Mandaluyong City, Branch 60 (MeTC),where it was docketed as Civil Case
5
No. 17344. In its August 14, 2002 Decision, the MeTC ruled in favor of Spouses
Salvador finding that valid grounds existed for the eviction of Spouses Rabaja
from the subject property and ordering them to pay back rentals. Spouses
6
Salvador were able to garnish the amount of ₱593,400.00 from Spouses Rabaja’s
7
time deposit account pursuant to a writ of execution issued by the MeTC.
Spouses Rabaja appealed to the Regional Trial Court, Branch 212, Mandaluyong
8
City (RTC-Br. 212)which reversed the MeTC ruling in its March 1, 2005 decision.
The RTC-Br. 212 found that no lease agreement existed between the parties.
Thereafter, Spouses Salvador filed an appeal with the CA which was docketed as
CAG.R. SP No. 89259. On March 31, 2006, the CA ruled in favor of Spouses
9
Salvador and reinstated the MeTC ruling ejecting Spouses Rabaja. Not having
been appealed, the CA decision in CA-G.R. SP No. 89259 became final and
10
executory on May 12, 2006.

Meanwhile, the rescission case filed by Spouses Rabaja against Spouses Salvador
and Gonzales and docketed as Civil Case No. MC No. 03-2175 was also raffled to
11
RTC-Br. 212. In their complaint, dated July 7, 2003, Spouses Rabaja demanded
the rescission of the contract to sell praying that the amount of ₱950,000.00 they
previously paid to Spouses Salvador be returned to them. They likewise prayed
that damages be awarded due to the contractual breach committed by Spouses
Salvador.

12
Spouses Salvador filed their answer with counterclaim and cross-claim
contending that there was no meeting of the minds between the parties and that
the SPA in favor of Gonzales was falsified. In fact, they filed a case for falsification
against Gonzales, but it was dismissed because the original of the alleged falsified
SPAcould not be produced. They further averred that they did not receive any
payment from Spouses Rabaja through Gonzales. In her defense, Gonzales filed
13
her answer stating that the SPA was not falsified and that the payments of
Spouses Rabaja amounting to ₱950,000.00 were all handed over to Spouses
Salvador.

The pre-trial conference began but attempts to amicably settle the case were
unsuccessful. It was formally reset to February 4, 2005, but Spouses Salvador and
14
their counsel failed to attend. Consequently, the RTC issued the pre-trial order
declaring Spouses Salvador in default and allowing Spouses Rabaja to present
their evidence ex parte against Spouses Salvador and Gonzales to present
evidence in her favor.

15
A motion for reconsideration, dated March 28, 2005, was filed by Spouses
Salvador on the said pre-trial order beseeching the liberality of the court. The
rescission case was then re-raffled to RTC-Br. 214 after the Presiding Judge of
16
RTC-Br. 212 inhibited herself. In the Order, dated October 24, 2005, the RTC-Br.
214 denied the motion for reconsideration because Spouses Salvador provided a
flimsy excuse for their non-appearance in the pre-trial conference. Thereafter, trial
proceeded and Spouses Rabaja and Gonzales presented their respective
testimonial and documentary evidence.

RTC Ruling

17
On March 29, 2007, the RTC-Br. 214 rendered a decision in favor of Spouses
Rabaja. It held that the signature of Spouses Salvador affixed in the contract to sell
appeared to be authentic. It also held that the contract, although denominated as
"contract to sell," was actually a contract of sale because Spouses Salvador, as
vendors, did not reserve their title to the property until the vendees had fully paid
the purchase price. Since the contract entered into was a reciprocal contract, it
could be validly rescinded by Spouses Rabaja, and in the process, they could
recover the amount of ₱950,000.00 jointly and severally from Spouses Salvador
and Gonzales. The RTC stated that Gonzales was undoubtedly the attorney-in-fact
of Spouses Salvador absent any taint of irregularity. Spouses Rabaja could not be
faulted in dealing with Gonzales who was duly equipped with the SPA from
Spouses Salvador.

The RTC-Br. 214 then ruled that the amount of ₱593,400.00 garnished from the time
deposit account of Spouses Rabaja, representing the award of rental arrearages in
18
the separate ejectment suit, should be returned by Spouses Salvador. The court
viewed that such amount was part of the purchase price of the subject property
which must be returned. It also awarded moral and exemplary damages in favor of
Spouses Rabaja and attorney’s fees in favor of Gonzales. The dispositive portion
of the said decision reads:

WHEREFORE, this court renders judgment as follows:

a. Ordering the "Contract to Sell" entered into by the plaintiff and defendant
spouses Rolando and Herminia Salvador on July 24, 1998 as RESCINDED;

b. Ordering defendant spouses Rolando and Herminia Salvador and defendant

Rosario S. Gonzales jointly and severally liable to pay plaintiffs:

1. the amount of NINE HUNDRED FIFTY THOUSAND PESOS (₱950,000.00),

representing the payments made by the latter for the purchase of subject property;

2. the amount of TWENTY THOUSAND PESOS (₱20,000.00), as moral damages;

3. the amount of TWENTY THOUSAND PESOS (₱20,000.00), as exemplary

damages;
4. the amount of ONE HUNDRED THOUSAND PESOS (₱100,000.00), as attorney’s
fees;

5. the cost of suit.

c. Ordering defendant Spouses Rolando and Herminia Salvador to pay plaintiffs

the amount of FIVE HUNDRED NINETY THREE THOUSAND PESOS (₱593,000.00)
(sic), representing the amount garnished from the Metrobank deposit of plaintiffs
as payment for their alleged back rentals;

d. Ordering the defendant Spouses Rolando and Herminia Salvador to pay

defendant Rosario Gonzales on her cross-claim in the amount of ONE HUNDRED
THOUSAND PESOS (₱100,000.00);

e. Dismissing the counterclaims of the defendants against the plaintiff.

19
SO ORDERED.

Gonzales filed a motion for partial reconsideration, but it was denied by the RTC-
20
Br. 114 in its Order, dated September 12, 2007. Undaunted, Spouses Salvador
and Gonzales filed an appeal before the CA.

CA Ruling

On March 29, 2007, the CA affirmed the decision of the RTC-Br. 114 with
modifications. It ruled that the "contract to sell" was indeed a contract of sale and
that Gonzales was armed with an SPA and was, in fact, introduced to Spouses
Rabaja by Spouses Salvador as the administrator of the property. Spouses Rabaja
could not be blamed if they had transacted with Gonzales. The CA then held that
Spouses Salvador should return the amount of ₱593,400.00 pursuant to a separate
ejectment case, reasoning that Spouses Salvador misled the court because an
examination of CA-G.R. SP No. 89260 showed that Spouses Rabaja were not
involved in that case. CA-G.R. SP No. 59260 was an action between Spouses
Salvador and Gonzales only and involved a completely different residential
apartment located at 302-C Jupiter Street, Dreamland Subdivision, Mandaluyong
City.

The CA, however, ruled that Gonzales was not solidarily liable with Spouses
Salvador. The agent must expressly bind himself or exceed the limit of his
authority in order to be solidarily liable. It was not shown that Gonzales as agent of
Spouses Salvador exceeded her authority or expressly bound herself to be
solidarily liable. The decretal portion of the CA decision reads: WHEREFORE, the
appeal is PARTLY GRANTED. The assailed Decision dated March 29, 2007 and the
Order dated September 12, 2007, of the Regional Trial Court, Branch 214,
Mandaluyong City, in Civil Case No. MC-03-2175, are AFFIRMED with
MODIFICATION in that Rosario Gonzalez is not jointly and severally liable to pay
Spouses Rabaja the amounts enumerated in paragraph (b) of the Decision dated
March 29, 2007.

21
SO ORDERED.

Spouses Salvador filed a motion for reconsideration but it was denied by the CA in
its January 5, 2012 Resolution.

Hence, this petition.

 ASSIGNMENT OF ERRORS

THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE LOWER COURT
GRAVELY ABUSED ITS DISCRETION IN DECLARING PETITIONERS IN DEFAULT
AND IN DEPRIVING THEM OF THE OPPORTUNITY TO CROSS-EXAMINE
RESPONDENTS SPS. RABAJA AS WELL AS TO PRESENT EVIDENCE FOR AND IN
THEIR BEHALF, GIVEN THE MERITORIOUS DEFENSES RAISED IN THEIR ANSWER
THAT CATEGORICALLY AND DIRECTLY DISPUTE RESPONDENTS SPS. RABAJA’S
CAUSE OF ACTION.

II

THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE TRIAL COURT
GRAVELY ERRED IN GIVING CREDENCE TO THE TESTIMONY OF RESPONDENT
GONZALES THAT PAYMENTS WERE INDEED REMITTED TO AND RECEIVED BY
PETITIONER HERMINIA SALVADOR EVEN AS THE IMPROVISED RECEIPTS
WEREEVIDENTLY MADE UP AND FALSIFIED BY RESPONDENT GONZALES.

III

THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE TRIAL COURT
GRAVELY ERRED IN RESCINDING THE CONTRACT TO SELL WHENTHERE IS
NOTHING TO RESCIND AS NO VALID CONTRACT TO SELL WAS ENTERED INTO,
AND IN DIRECTING THE REFUND OF THE AMOUNT OF ₱950,000.00 WHEN THE
EVIDENCECLEARLY SHOWS THAT SAID AMOUNT WAS PAIDTO AND RECEIVED
BY RESPONDENT GONZALES ALONE WHO MISAPPROPRIATED THE SAME.

IV

THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT’S DECISION

FOR PETITIONERS TO RETURN THE AMOUNT OF ₱543,400.00 REPRESENTING
RENTALS IN ARREARS GARNISHED OR WITHDRAWN BY VIRTUE OF A WRIT OF
EXECUTION ISSUED IN AN EJECTMENT CASE WHICH WAS TRIED AND DECIDED
BY ANOTHER COURT.

THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE LOWER COURT
GRAVELY ERRED IN AWARDING DAMAGES TO RESPONDENTS SPS. RABAJA,
THERE BEING NO FACTUAL AND LEGAL BASES FOR SUCH AWARD. VI THE
COURT OF APPEALS ERRED IN NOT HOLDING THAT THE TRIAL COURT
GRAVELY ERRED IN AWARDING ₱100,000.00 TO RESPONDENT GONZALES AS
ATTORNEY’S FEES WHEN RESPONDENT GONZALES, IN FACT, COMMITTED
FORGERY AND FALSIFICATION IN DEALING WITH THE PROPERTY OF
PETITIONERS AND MISAPPROPRIATED THE MONIES PAID TO HER BY
RESPONDENTS SPS. RABAJA, THUS GIVING PREMIUM TO HER FRAUDULENT
22
ACTS.

The foregoing can be synthesized into three main issues. First, Spouses Salvador
contend that the order of default must be lifted because reasonable grounds exist
to justify their failure to attend the pre-trial conference on February 4, 2005.
Second, Spouses Salvador raise in issue the veracity of the receipts given by
Gonzales, the SPA and the validity of the contract to sell. They claim that the
improvised receipts should not be given credence because these were crude and
suspicious, measuring only by 2 x 2 inches which showed that Gonzales
misappropriated the payments of Spouses Rabaja for herself and did not remit the
amount of ₱950,000.00 to them. As there was no consideration, then no valid
contract to sell existed. Third, Spouses Salvador argue that the ejectment case,
from which the amount of ₱593,400.00 was garnished, already became final and
executory and could not anymore be disturbed. Lastly, the award of damages in
favor of Spouses Rabaja and Gonzales was improper absent any legal and factual
bases.

23
On January 21, 2013, Spouses Salvador filed their supplemental petition
informing the Court that RTC-Br. 213 had rendered a decision in Civil Case No.
MC00-1082, an action for rescission of the SPA. The said decision held that
Spouses Salvador properly revoked the SPA in favor of Gonzales due to loss of
trust and confidence. On September 11, 2013, Gonzales filed her comment to the
24
supplemental petition, contending that the RTC-Branch 213 decision had no
bearing because it had not yet attained finality. On even date, Spouses Rabaja filed
25
their Comment, asserting that the present petition is a mere rehash of the
previous arguments of Spouses Salvador before the CA. On November 15, 2013,
Spouses Salvador replied that they merely wanted to show that the findings by the
26
RTC-Br. 213 should be given weight as a full-blown trial was conducted therein.

The Court’s Ruling

As a general rule, the Court’s jurisdiction in a Rule 45 petition is limited to the

review of pure questions of law. A question of law arises when the doubt or
difference exists as to what the law is on a certain state of facts. Negatively put,
Rule 45 does not allow the review of questions of fact. A question of fact exists
27
when the doubt or difference arises as to the truth or falsity of the allegations.

The present petition presents questions of fact because it requires the Court to
examine the veracity of the evidence presented during the trial, such as the
improvised receipts, the SPA given to Gonzales and the contract to sell. Even the
petitioner spouses themselves concede and ask the Court to consider questions
28
of fact, but the Court finds no reason to disturb the findings of fact of the lower
courts absent any compelling reason to the contrary.

The failure of Spouses Salvador

to attend pre-trial conference
warrants the presentation of
evidence ex parte by Spouses
Rabaja

On the procedural aspect, the Court reiterates the rule that the failure to attend the
pre-trial conference does not result in the default of an absent party. Under the
1997 Rules of Civil Procedure, a defendant is only declared in default if he fails to
29
file his Answer within the reglementary period. On the other hand, if a defendant
fails to attend the pre-trial conference, the plaintiff can present his evidence ex
parte. Sections 4 and 5, Rule 18 of the Rules of Court provide:

Sec. 4. Appearance of parties.

It shall be the duty of the parties and their counsel to appear at the pre-trial. The
non-appearance of a party may be excused only if a valid cause is shown therefor
or if a representative shall appear in his behalf fully authorized in writing to enter
into an amicable settlement, to submit to alternative modes of dispute resolution,
and to enter into stipulations or admissions of facts and of documents.

Sec. 5. Effect of failure to appear.

The failure of the plaintiff to appear when so required pursuant to the next
preceding section shall be cause for dismissal of the action. The dismissal shall be
with prejudice, unless otherwise ordered by the court. A similar failure on the part
of the defendant shall be cause to allow the plaintiff to present his evidence ex
parteand the court to render judgment on the basis thereof.

[Emphasis supplied]

The case of Philippine American Life & General Insurance Company v. Joseph
30
Enario discussed the difference between the non-appearance of a defendant in a
pre-trial conference and the declaration of a defendant in default in the present
Rules of Civil Procedure. The decision instructs:

Prior to the 1997 Revised Rules of Civil Procedure, the phrase "as in default" was
initially included in Rule 20 of the old rules, and which read as follows:

Sec. 2. A party who fails to appear at a pre-trial conference may be non-suited or

considered as in default.

It was, however, amended in the 1997 Revised Rules of Civil Procedure. Justice
Regalado, in his book, REMEDIAL LAW COMPENDIUM, explained the rationale for
the deletion of the phrase "as in default" in the amended provision, to wit:

1. This is a substantial reproduction of Section 2 of the former Rule 20 with the

change that, instead of defendant being declared "as in default" by reason of his
non-appearance, this section now spells out that the procedure will be to allow the
ex parte presentation of plaintiff’s evidence and the rendition of judgment on the
basis thereof. While actually the procedure remains the same, the purpose is one
of semantical propriety or terminological accuracy as there were criticisms on the
use of the word "default" in the former provision since that term is identified with
the failure to file a required answer, not appearance in court.

Still, in the same book, Justice Regalado clarified that while the order of default no
longer obtained, its effects were retained, thus:

Failure to file a responsive pleading within the reglementary period, and not failure
to appear at the hearing, is the sole ground for an order of default, except the
failure to appear at a pre-trial conference wherein the effects of a default on the
part of the defendant are followed, that is, the plaintiff shall be allowed to present
evidence ex parte and a judgment based thereon may be rendered against
defendant.

From the foregoing, the failure of a party to appear at the pre-trial has indeed
adverse consequences. If the absent party is the plaintiff, then his case shall be
dismissed. If it is the defendant who fails to appear, then the plaintiff is allowed to
present his evidence ex parte and the court shall render judgment based on the
evidence presented. Thus, the plaintiff is given the privilege to present his
evidence without objection from the defendant, the likelihood being that the court
will decide in favor of the plaintiff, the defendant having forfeited the opportunity
31
to rebut or present its own evidence. The stringent application of the rules on
pre-trial is necessitated from the significant role of the pre-trial stage in the
litigation process. Pretrial is an answer to the clarion call for the speedy
disposition of cases. Although it was discretionary under the 1940 Rules of Court,
it was made mandatory under the 1964 Rules and the subsequent amendments in
32 33
1997. "The importance of pre-trial in civil actions cannot be overemphasized."

There is no dispute that Spouses Salvador and their counsel failed to attend the
pre-trial conference set on February 4, 2005 despite proper notice. Spouses
Salvador aver that their non-attendance was due to the fault of their counsel as he
34
forgot to update his calendar. This excuse smacks of carelessness, and
indifference to the pre-trial stage. It simply cannot be considered as a justifiable
excuse by the Court. As a result of their inattentiveness, Spouses Salvador could
no longer present any evidence in their favor. Spouses Rabaja, as plaintiffs, were
properly allowed by the RTC to present evidence ex parte against Spouses
Salvador as defendants. Considering that Gonzales as co-defendant was able to
attend the pre-trial conference, she was allowed to present her evidence. The RTC
could only render judgment based on the evidence presented during the trial.

Gonzales, as agent of Spouses

Salvador, could validly receive
the payments of Spouses
Rabaja

Even on the substantial aspect, the petition does not warrant consideration. The
Court agrees with the courts below in finding that the contract entered into by the
parties was essentially a contract of sale which could be validly rescinded.
Spouses Salvador insist that they did not receive the payments made by Spouses
Rabaja from Gonzales which totalled ₱950,000.00 and that Gonzales was not their
duly authorized agent. These contentions, however, must fail in light of the
applicable provisions of the New Civil Code which state:

Art. 1900. So far as third persons are concerned, an act is deemed to have been
performed within the scope of the agent's authority, if such act is within the terms
of the power of attorney, as written, even if the agent has in fact exceeded the
limits of his authority according to an understanding between the principal and the
agent.

xxxx

Art. 1902. A third person with whom the agent wishes to contract on behalf of the
principal may require the presentation of the power of attorney, or the instructions
as regards the agency. Private or secret orders and instructions of the principal do
not prejudice third persons who have relied upon the power of attorney or
instructions shown them.

xxxx

Art. 1910. The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority.

Persons dealing with an agent must ascertain not only the fact of agency, but also
the nature and extent of the agent’s authority. A third person with whom the agent
wishes to contract on behalf of the principal may require the presentation of the
power of attorney, or the instructions as regards the agency. The basis for agency
is representation and a person dealing with an agent is put upon inquiry and must
 35
discover on his own peril the authority of the agent.

According to Article 1990 of the New Civil Code, insofar as third persons are
concerned, an act is deemed to have been performed within the scope of the
agent's authority, if such act is within the terms of the power of attorney, as
written. In this case, Spouses Rabaja did not recklessly enter into a contract to sell
with Gonzales. They required her presentation of the power of attorney before they
transacted with her principal. And when Gonzales presented the SPA to Spouses
Rabaja, the latter had no reason not to rely on it.

The law mandates an agent to act within the scope of his authority which what
36
appears in the written terms of the power of attorney granted upon him. The
Court holds that, indeed, Gonzales acted within the scope of her authority. The
SPA precisely stated that she could administer the property, negotiate the sale and
37
collect any document and all payments related to the subject property. As the
agent acted within the scope of his authority, the principal must comply with all the
38
obligations. As correctly held by the CA, considering that it was not shown that
Gonzales exceeded her authority or that she expressly bound herself to be liable,
then she could not be considered personally and solidarily liable with the
39
principal, Spouses Salvador.

Perhaps the most significant point which defeats the petition would be the fact that
it was Herminia herself who personally introduced Gonzalez to Spouses Rabaja as
the administrator of the subject property. By their own ostensible acts, Spouses
Salvador made third persons believe that Gonzales was duly authorized to
administer, negotiate and sell the subject property. This fact was even affirmed by
Spouses Salvador themselves in their petition where they stated that they had
40
authorized Gonzales to look for a buyer of their property. It is already too late in
the day for Spouses Salvador to retract the representation to unjustifiably escape
their principal obligation.

As correctly held by the CA and the RTC, considering that there was a valid SPA,
then Spouses Rabaja properly made payments to Gonzales, as agent of Spouses
Salvador; and it was as if they paid to Spouses Salvador. It is of no moment,
insofar as Spouses Rabaja are concerned, whether or not the payments were
actually remitted to Spouses Salvador. Any internal matter, arrangement, grievance
or strife between the principal and the agent is theirs alone and should not affect
third persons. If Spouses Salvador did not receive the payments or they wish to
specifically revoke the SPA, then their recourse is to institute a separate action
against Gonzales. Such action, however, is not any more covered by the present
proceeding.

The amount of ₱593,400.00

should not be returned by
Spouses Salvador

Nevertheless, the assailed decision of the CA must be modified with respect to the
amount of ₱593,400.00 garnished by Spouses Salvador and ordered returned to
Spouses Rabaja. The RTC ordered the return of the amount garnished holding that
it constituted a part of the purchase price. The CA ruled that Spouses Salvador
misled the Court when they improperly cited CA-G.R. SP No. 89260 to prove their
entitlement to the said amount. Both courts erred in their ruling. First, the
garnishment of the amount of ₱593,400.00 against Spouses Rabaja was pursuant
to the CA decision in CA-G.R. SP No. 89259, an entirely different case involving an
action for ejectment, and it does not concern the rescission case which is on
appeal before this Court. Moreover, the decision on the ejectment case is final and
41
executory and an entry of judgment has already been made. Nothing is more
settled in law than that when a final judgment is executory, it thereby becomes
immutable and unalterable. The judgment may no longer be modified in any
respect, even if the modification is meant to correct what is perceived to be an
erroneous conclusion of fact or law, and regardless of whether the modification is
attempted to be made by the court which rendered it or by the highest Court of the
land. The doctrine is founded on consideration of public policy and sound practice
that, at the risk of occasional errors, judgments must become final at some definite
42
point in time.

43
The March 31, 2006 CA decision in CA-G.R. SP No. 89259has long been final and
executory and cannot any more be disturbed by the Court. Public policy dictates
that once a judgment becomes final, executory and unappealable, the prevailing
party should not be denied the fruits of his victory by some subterfuge devised by
the losing party. Unjustified delay in the enforcement of a judgment sets at naught
the role and purpose of the courts to resolve justiciable controversies with
44
finality.

Meanwhile, in ruling that the garnishment was improper and thus ordering the
return of the garnished amount, the CA referred to its decision in CA-G.R. SP No.
45
89260. Spouses Salvador, however, clarified in its motion for reconsideration
46
before the CA and in the present petition that the garnishment was pursuant to
CA-G.R. SP No. 89259, and not CA-G.R. SP No. 89260, another ejectment case
involving another property. A perusal of the records reveals that indeed the
garnishment was pursuant to the ejectment case in the MeTC, docketed as Civil
47
Case No. 17344, where Spouses Rabaja were the defendants. The MeTC
decision was then reinstated by the CA in CA-G.R. SP No. 89259, not CA-G.R. SP
48 49
No. 89260. There, a writ of execution and notice of pay were issued against
Spouses Rabaja in the amount of ₱591,900.00.

Second, Spouses Rabaja’s appeal with the RTC never sought relief in returning the
50
garnished amount. Such issue simply emerged in the RTC decision. This is
highly improper because the court’s grant of relief is limited only to what has been
prayed for in the complaint or related thereto, supported by evidence, and covered
51
by the party’s cause of action.

If Spouses Rabaja would have any objection on the manner and propriety of the
execution, then they must institute their opposition to the execution proceeding a
separate case. Spouses Rabaja can invoke the Civil Code provisions on legal
52
compensation or set-off under Articles 1278, 1279 and 1270. The two obligations
appear to have respectively offset each other, compensation having taken effectby
operation of law pursuant to the said provisions of the Civil Code, since all the
requisites provided in Art. 1279 of the said Code for automatic compensation are
duly present.
No award of actual, moral and
exemplary damages

The award of damages to Spouses Rabaja cannot be sustained by this Court. The
filing alone of a civil action should not be a ground for an award of moral damages
in the same way that a clearly unfounded civil action is not among the grounds for
53
moral damages. Article 2220 of the New Civil Code provides that to award moral
damages in a breach of contract, the defendant must act fraudulently or in bad
faith. In this case, Spouses Rabaja failed to sufficiently show that Spouses
Salvador acted in a fraudulent manner or with bad faith when it breached the
contract of sale. Thus, the award of moral damages cannot be warranted.

As to the award of exemplary damages, Article 2229 of the New Civil Code
provides that exemplary damages may be imposed by way of example or
correction for the public good, in addition to the moral, temperate, liquidated or
54
compensatory damages. The claimant must first establish his right to moral,
temperate, liquidated or compensatory damages. In this case, considering that
Spouses Rabaja failed to prove moral or compensatory damages, then there could
be no award of exemplary damages.

With regard to attorney’s fees, neither Spouses Rabaja nor Gonzales is entitled to
the award. The settled rule is that no premium should be placed on the right to
1âwphi1

litigate and that not every winning party is entitled to an automatic grant of
55
attorney’s fees. The RTC reasoned that Gonzales was forced to litigate due to
the acts of Spouses Salvador. The Court does not agree. Gonzales, as agent of
Spouses Salvador, should have expected that she would be called to litigation in
connection with her fiduciary duties to the principal.

In view of all the foregoing, the CA decision should be affirmed with the following
modifications:

1. The order requiring defendant Spouses Rolando and Herminia Salvador to pay
plaintiffs the amount of Five Hundred Ninety Three Thousand (₱593,000.00) Pesos,
representing the amount garnished from the Metrobank deposit of plaintiffs as for
their back rentals should be deleted;

2. The award of moral damages in the amount of Twenty Thousand (₱20,000.00)

Pesos; exemplary damages in the amount of Twenty Thousand (₱20,000.00) Pesos,
and attorney’s fees in the amount of One Hundred Thousand (₱100,000.00) Pesos
in favor of Spouses Rabaja should be deleted; and

3. The award of attorney’s fees in amount of One Hundred Thousand (₱100,000.00)

Pesos in favor of Gonzales should be deleted.

The other amounts awarded are subject to interest at the legal rate of 6% per
annum, to be reckoned from the date of finality of this judgment until fully paid.

WHEREFORE, the petition is PARTLY GRANTED. The March 29, 2007 Decision of
the Regional Trial Court, Branch 214, Mandaluyong City, in Civil Case No. MC-03-
2175, is MODIFIED to read as follows:

"WHEREFORE, this Court renders judgment as follows:

a. Ordering the "Contract to Sell" entered into by Spouses Rogelio and Elizabeth
Rabaja and Spouses Rolando and Herminia Salvador on July 24, 1998 as
RESCINDED;

b. Ordering Spouses Rolando and Herminia Salvador to pay Spouses Rogelio and
Elizabeth Rabaja:

1. The amount of Nine Hundred Fifty Thousand (₱950,000.00) Pesos, representing

the payments made by the latter for the purchase of the subject property; and

2. The cost of suit;

c. Dismissing the counterclaims of Spouses Rolando and Herminia Salvador and

Rosario Gonzales against Spouses Rogelio and Elizabeth Rabaja.

The amounts awarded are subject to interest at the legal rate of 6% per annum to
be reckoned from the date of finality of this judgment until fully paid."

As aforestated, this is without prejudice to the invocation by either party of the

Civil Code provisions on legal compensation or set-off under Articles 1278, 1279
and 1270.

SO ORDERED.