SECOND DIVISION

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.

G.R. No. 187769, June 04, 2014

ALVIN PATRIMONIO, Petitioner, v. NAPOLEON GUTIERREZ AND OCTAVIO MARASIGAN
III,Respondents.
DECISION
BRION, J.:
Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of Court is
the decision2 dated September 24, 2008 and the resolution3 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
1arasigan III (Marasigan) the sum of P200,000.00.

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 checks 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 checks 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:ChanRoblesVirtualawlibrary

The Factual Background

The facts of the case, as shown by the records, are briefly summarized below.

1.

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.

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;

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.

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 payees 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 petitioners knowledge and consent, Gutierrez went to
Marasigan (the petitioners 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 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, 1994but 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 petitioners 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 corespondent Marasigan. He completely denied authorizing the loan or the checks negotiation,
and asserted that he was not privy to the parties loan agreement.
Only Marasigan filed his answer to the complaint. In the RTCs order dated December 22,
1997, Gutierrez was declared in default.
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 petitioners 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 petitioners 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 Courts 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 petitioners 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.
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:ChanRoblesVirtualawlibrary
Art. 1878. Special powers of attorney are necessary in the following cases:
xxxx

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 petitioners authority. It held that the loan may not be nullified since it is grounded on

(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.,7that 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:ChanRoblesVirtualawlibrary
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 executed any special power of
attorney (SPA) in favor of Gutierrez. In fact, the petitioners 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:ChanRoblesVirtualawlibrary
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 petitioners 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.
Marasigans 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 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:ChanRoblesVirtualawlibrary
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.

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 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 Latters
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 contracts in
general.13Article 1318 of the Civil Code14 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 petitioners 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 petitioners grant of consent to the
parties loan agreement. Without any evidence to prove Gutierrez authority, the petitioners
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.15cralawred
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:ChanRoblesVirtualawlibrary

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:ChanRoblesVirtualawlibrary
Petitioner submits that his following testimony suffices to establish that respondent had
authorized Lilian to obtain a loan from him.
xxxx
Petitioners 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 extent.11 As we held in People v. Yabut:12cralawred

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 particular, the law presumes agency to fill up the blanks. 16cralawred
In order however that one who is not a holder in due course can enforce the instrument against
a party prior to the instruments 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.17cralawred
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:ChanRoblesVirtualawlibrary
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;

exceeded may be presented by the maker in order to avoid liability under the instrument.
(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.19cralawred
As held in De Ocampo v. Gatchalian:20cralawred
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, Marasigans 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:ChanRoblesVirtualawlibrary
WITNESS: AMBET NABUS
Q:
A:

Now, I refer to the second call after your birthday. Tell us what you talked about?
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 Alvins 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 instrument.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 petitioners prior approval be first
secured.
While under the law, Gutierrez had a prima facie authority to complete the check, such prima
facieauthority 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

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:ChanRoblesVirtualawlibrary
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 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. 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.
DECISION
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 Certiorari1 under Rule 45 of the Rules of Court assails the August
17, 2005 Decision2and the June 7, 2007 Resolution3 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 case4 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 petitioners house and lot to respondent bank
using a SPA9 allegedly executed by petitioner in favor of Concepcion;10 that Concepcion failed
to pay the loan;11 that petitioners house and lot were foreclosed by respondent sheriff without a
Notice of Extra-Judicial Foreclosure or Notice of Auction Sale; 12 and that petitioners house and
lot were sold in an auction sale in favor of respondent bank.13
Respondent bank filed an Answer14 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,20which the RTC granted in its Order dated October 19, 1990. 21
This prompted respondent bank to file a Third-Party Complaint22 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 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 husbands signature on the SPA were forged29 and that ever since she
got married, she no longer used her maiden name, Nicanora Gabar, in signing
documents.30Petitioner 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

Dissatisfied, respondent bank elevated the case to the CA arguing that the SPA was not
forged53 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 Note56 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 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:

To support her claim of forgery, petitioner presented Emma Nagac who testified that when she
was at Concepcions 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 petitioner and her husband had
already been affixed;34 and that Lugod instructed her not to tell petitioner about the SPA. 35

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

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 petitioners 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

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].

Edwin Igloria, the bank appraiser, further testified that Concepcion executed a Real Estate
Mortgage41 over two properties, one registered in the name of petitioner and the other under
the name of a certain Milagros Flores.42He said that he inspected petitioners 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

SO ORDERED.60
Petitioner moved for reconsideration61 but the same was denied by the CA in its June 7, 2007
Resolution.62
Issues

Ruling of the Regional Trial Court

On February 23, 1998, the RTC issued a Decision46 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 petitioners
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;

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 CONCEPCIONS EXCLUSIVE LOAN FOR HER OWN
COCONUT PRODUCTION
SECOND

2. The real estate mortgage x x x

3. The sheriffs 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 sheriffs
sale of the two[-]story house described in the real estate mortgage.

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 CONCEPCIONS
PERSONAL LOAN, IN THE ABSENCE OF THE REQUIRED [SPA]
THIRD

4. The certificate of title in the name of the Rural Bank of El Salvador if any,
issued [by] virtue of the sheriffs sale.
The court hereby also orders [respondent] bank to pay [petitioner] attorneys fees of P20,000
and moral damages of P20,000 as well as the costs of the case.
SO ORDERED.49

WHETHER X X X THE [CA] WAS RIGHT WHEN IT RULED THAT PETITIONERS

DECLARATIONS ARE SELF-SERVING TO JUSTIFY ITS REVERSAL OF THE TRIAL
COURTS 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

50

51

On reconsideration, the RTC in its May 8, 1998 Resolution rendered judgment on the ThirdParty Complaint filed by respondent bank, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered under the third-party complaint and against thirdparty 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

WHETHER X X X THE [CA] WAS RIGHT WHEN IT FOUND THAT IT WAS PETITIONERS
NEGLIGENCE WHICH MADE THE LOSS POSSIBLE, DESPITE [THE FACT] THAT SHE HAS
NO PART IN [THE] SUBJECT LOAN/MORTGAGE, THE BANKS [FAILURE] TO CONDUCT
CAREFUL EXAMINATION OF APPLICANTS TITLE AS WELL AS PHYSICAL
INVESTIGATION OF THE LAND OFFERED AS SECURITY, AND TO INQUIRE AND
DISCOVER UPON ITS OWN PERIL THE AGENTS 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] BANKS EMPLOYEE, [WHEN HE DECLARED] THAT
HE CONDUCTED ACTUAL INSPECTION OF THE MORTGAGED PROPERTY AND
INVESTIGATION WHERE HE ALLEGEDLY VERIFIED THE QUESTIONED SPA.

SIXTH

although signed by the agent, cannot bind the principal as it is considered to have been signed
by the agent in his personal capacity.

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
Petitioners 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 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.68Petitioner 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 banks 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.
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.

Respondent bank is liable to pay

petitioner attorneys 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
attorneys 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 banks acts were the
proximate cause of petitioners 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, attorneys
fees and costs of suit.
Concepcion, on the other hand, is liable to pay respondent bank her unpaid obligation under
the Promissory Note dated 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 Sheriffs 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 husbahd, are hereby ordered to
pay respondent bank the unpaid obligation under the Promissory Note dated June 11, 1982
with interest.
SO ORDERED.
G.R. No. 174564

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.

February 12, 2014

ATTY. EMMANUEL D. AGUSTIN, JOSEPHINE SOLANO, ADELAIDA FERNANDEZ,

ALEJANDRO YUAN, JOCELYN LAV ARES, MARY JANE OLASO, MELANIE BRIONES,
ROWENA PATRON, MA. LUISA CRUZ, SUSAN TAPALES, RUSTY BAUTISTA, and JANET
YUAN, Petitioners,
vs.
ALEJANDRO CRUZ-HERRERA, Respondent.

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.

DECISION
REYES, J.:

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.1wphi1 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,

This is a petition for review on certiorari1 assailing the Resolution2 dated September 30, 2005
of the Court of Appeals (CA) in CA-G.R. SP No. 85556 which approved the joint compromise
agreement executed by respondent Alejandro Cruz-Herrera (Herrera) and the former
employees of Podden International Philippines, Inc. (Podden), namely: Josephine Solano,
Adelaida Fernandez, Alejandro Yuan, Jocelyn Lavares, Mary Jane Olaso, Melanie Briones,
Rowena Patron, Ma. Luisa Cruz, Susan Tapales, Rusty Bautista, and Janet Yuan
(complainants).
The Antecedents
Respondent Herrera was the President of Podden while complainants were assemblers and/or
line leader assigned at the production department.3 In 1993, the complainants were terminated
from employment due to financial reverses. Upon verification, however, with the Department of
Labor and Employment, no such report of financial reverses or even retrenchment was filed.
This prompted the complainants to file a complaint for illegal dismissal, monetary claims and
damages against Podden and Herrera. 4 They engaged the services of Atty. Emmanuel D.
Agustin (Atty. Agustin) to handle the case5 upon the verbal agreement that he will be paid on a
contingency basis at the rate of ten percent (10%) of the final monetary award or such amount
of attorneys fees that will be finally determined.
Proceedings before the Labor Arbiter

The complainants, thru Atty. Agustin, obtained a favorable ruling before the Labor Arbiter (LA)
who disposed as follows in its Decision6 dated September 27, 1998, to wit:

the relative importance of the matters raised and substantial awards to the complainants)[,]
complainants have failed to show up in any of them.13

WHEREFORE, premises considered, [Podden and Herrera] are hereby directed/ordered to

immediately reinstate the complainants to their former positions without loss of seniority rights
and other privileges with full backwages from date of dismissal up to actual date of
reinstatement which as of this month is more or less in the amount as follows:

Accordingly, the quitclaims were held to have superseded the matter of issuing a writ of
execution. Anent Atty. Agustins fees, the LA held that he is entitled to ten percent (10%) of the
total monetary award obtained by the complainants from the compromise agreement. The
order disposed thus:

COMPLAINANT

AMOUNT
[P]238,680.00=([P]135.00/day x 26 days
= [P]3,510/mo. x 68 mos.)

EPHINE SOLANO

[P]238,680.00

LAIDA FERNANDEZ

[P]238,680.00

ANDRO YUAN

[P]238,680.00

ELYN LAVARES

[P]238,680.00

Y JANE OLASO

[P]238,680.00

ANIE BRIONES

[P]238,680.00

ENA PATRON

[P]238,680.00

LUISA CRUZ

[P]238,680.00

AN TAPALES

[P]238,680.00

STY BAUTISTA

[P]238,680.00

ET YUAN

[P]238,680.00

TOTAL

[P]2,625,480.00

[Podden and Herrera] are further ordered to pay complainants their money claims representing
their underpayment of wages, 13th month pay, premium pay for holidays and rest days and
service incentive leave pay to be computed by the Fiscal Examiner of the Research,
Information and Computation Unit of the Commission in due time.

WHEREFORE, premises considered, the motion for writ of execution is denied on [the] ground
that complainants have already settled their cases with [Podden and Herrera].
On account of the settlement, however, [Podden and Herrera] are hereby ordered to pay
complainants counsel ten (10%) percent of the amount received by complainants as attorneys
fees.
SO ORDERED.14
Ruling of the NLRC
On appeal, the NLRC reversed the LA Order dated May 15, 2000 for the reason that it
unlawfully amended, altered and modified the final and executory LA Decision dated
September 27, 1998. The quitclaims were also held invalid based on the unconscionably low
amount received by each of the complainants thereunder which ranged between P10,000.000
and P20,000.00 as against the judgment award of P238,680.00 for each individual
complainant. This factor was found by the NLRC to be a clear proof that the quitclaims were
indeed wangled from the unsuspecting complainants. The NLRC Resolution 15 dated May 7,
2003 thus held:
WHEREFORE, the appeal is GRANTED. The Order a quo of May 15, 2000 is hereby reversed
and set aside and a new one entered ordering the Labor Arbiter a quo to immediately issue the
corresponding writ of execution for the enforcement of the decision rendered in this case.
The quitclaims executed by the complainants are hereby nullified. However, any amount
received by the complainants under the quitclaims shall be deducted from the award due each
of them.
SO ORDERED.16

[Podden and Herrera] are furthermore ordered to pay each complainant the amount of
[P]40,000.00 as moral and exemplary damages, as well as ten (10%) of the total awards as
attorneys fee.
SO ORDERED.7

The NLRC reiterated the foregoing judgment in the Order 17 dated May 31, 2004 which denied
Podden and Herreras motion for reconsideration. On August 13, 2004, the NLRC issued an
Entry of Judgment declaring that its Order dated May 31, 2004 has become final and executory
on June 20, 2004.18
Ruling of the CA

No appeal was taken from the foregoing judgment hence, on February 2, 1999, a motion for
execution was filed. The motion was set for a hearing on February 10, 1999 but was reset
twice upon the parties request for the purpose of exploring the possibility of settlement. 8
On March 20, 1999, Herrera filed a Manifestation and Motion to deny issuance of the writ
stating, among others, that Podden ceased operations on December 1, 1994 or almost four
years before judgment was rendered by the LA on the illegal dismissal complaint and that nine
of the eleven employees have executed Waivers and Quitclaims rendering any execution of
the judgment inequitable.9
On July 20, 1999, the Computation and Examination Unit of the National Labor Relations
Commission (NLRC) released the computation of the total monetary award granted by the LA
amounting to P3,358,441.84.10
Atty. Agustin opposed Herreras motion and argued that the issuance of a writ of execution is
ministerial because the LA decision has long been final and executory there being no appeal
taken therefrom. He further claimed that the alleged Waivers and Quitclaims were part of a
scheme adopted by Podden to evade its liability and defraud the complainants. 11
Resolving the conflict, the LA issued its Order12 dated May 15, 2000 denying the motion for the
issuance of a writ of execution. The LA sustained as valid the Waivers and Quitclaims signed
by all and not just nine of the complainants, based on the following findings:
A cursory examination of the records reveal[s] that complainants, all eleven (11) of them, had
indeed executed their respective waiver and quitclaim thru an instrument entitled "Pagtalikod
sa Karapatang Maghabol" absolving [Podden and Herrera] from any and all liabilities that may
arise against the latter to these cases. The instruments were signed by the complainants and
sworn to before Notary Public Amparo G. Ocampo. Considering the fact that the complainants,
through their common counsel, received a copy of the Decision in these cases on December
28, 1998, it could only be supposed that as of that date they signed the instrument of waiver
and quitclaim on March 2, 1999, April 8, 1999 and March 31, 2000, they were already properly
apprised about the decision having been issued in their favor, more particularly the contents
thereof, by their esteemed counsel. The fact that complainants would execute such waiver and
quitclaim, notwithstanding, only shows the spontaneity and voluntariness of their deed.
Moreover, and as the instrument of waiver and quitclaim would show, the letter was written in
the vernacular of Filipino language. Complainants who are all presumed to be knowledgeable
about the national language could not have been misled with respect to the real meaning and
plain import of the words used in the instrument. That complainants meant and understood
what they signed in the instrument is best shown by the fact that in the subsequent hearings
scheduled to take up the motion for writ of execution and the opposition thereto (considering

On August 6, 2004, Herrera filed a petition for certiorari before the CA assailing the issuances
of the NLRC. During the pendency of the petition or on August 30, 2005, a joint compromise
agreement was submitted to the CA narrating as follows:
WHEREAS, the parties have discussed their differences; claims, counterclaims and other
issues in the above-entitled cases and have decided to amicably and mutually settle the same;
WHEREAS, the parties have agreed that [Herrera] shall pay each of the [complainants]
immediately upon the signing of the Joint Compromise Agreement the amount of Php
35,000.00 to each;
WHEREAS, the parties have agreed that [Herrera] shall pay the costs of the suit and attorneys
fees of [the complainants] equivalent to 10% (ten percent) of the total settlement agreement;
WHEREAS, the parties, their heirs, and assigns, agree to have the present case dismissed
WITH PREJUDICE, immediately; x x x.19
In its assailed Resolution20 dated September 30, 2005, the CA found the joint compromise
agreement consistent with law, public order and public policy, and consequently stamped its
approval thereon and entered judgment in accordance therewith, viz:
Finding the above terms and conditions not contrary to law, public order and public policy, the
parties prayer that the foregoing joint compromise agreement be approved and the extant
case be dismissed with prejudice is GRANTED and the agreement ADMITTED. Judgment is
hereby entered in accordance thereto.
Parties are enjoined to strictly comply with this judgment on compromise.
SO ORDERED.21
Atty. Agustin moved for the reconsideration of the foregoing resolution but his motion was
denied in the CA Resolution22 dated September 8, 2006.
Displeased, Atty. Agustin, with the complainants named as his co-petitioners, interposed the
present recourse contending that the resolutions of the CA violated the principle of res judicata
because they amended and altered the final and executory LA Decision dated

September 27, 1998 and NLRC Resolution dated May 7, 2003 on the basis of an
unconscionable compromise agreement that was executed without his knowledge and
consent. Atty. Agustin prays that the joint compromise agreement be set aside, the LA Decision
dated September 27, 1998 executed and Herrera ordered to pay himP335,844.18 as attorneys
fees pursuant to the final and executory monetary award originally obtained by the
complainants before the LA.
Our Ruling

Further, Atty. Agustins claim for his unpaid attorneys fees cannot nullify the subject joint
compromise agreement.33
A compromise agreement is binding only between its privies and could not affect the rights of
third persons who were not parties to the agreement. One such third party is the lawyer who
should not be totally deprived of his compensation because of the compromise subscribed by
the client. Otherwise, the terms of the compromise agreement will be set aside, and the client
shall be bound to pay the fees agreed upon with his lawyer. If the adverse party settled the suit
in bad faith, he will be made solidarily liable with the client for the payment of such fees. The
following discussions in Gubat v. National Power Corporation34 elaborate on this matter, viz:

We deny the petition.

The petition is dismissible outright for being accompanied by a defective certification of nonforum shopping having been signed by Atty. Agustin instead of the complainants as the
principal parties.
It has been repeatedly emphasized that in the case of natural persons, the certification against
forum shopping must be signed by the principal parties themselves and not by the
attorney.23 The purpose of the rule rests mainly on practical sensibility. As explained in
Clavecilla v. Quitain:24
x x x [T]he certification (against forum shopping) must be signed by the plaintiff or any of the
principal parties and not by the attorney. For such certification is a peculiar personal
representation on the part of the principal party, an assurance given to the court or other
tribunal that there are no other pending cases involving basically the same parties, issues and
causes of action.
x x x Obviously it is the petitioner, and not always the counsel whose professional services
have been retained for a particular case, who is in the best position to know whether he or it
actually filed or caused the filing of a petition in that case. Hence, a certification against forum
shopping by counsel is a defective certification.25
The Court has espoused leniency and overlooked such procedural misstep in cases bearing
substantial merit complemented by the written authority or general power of attorney granted
by the parties to the actual signatory.26 However, no analogous justifiable reasons exist in the
case at bar neither do the claims of Atty. Agustin merit substantial consideration to justify a
relaxation of the rule.
It is apparent that the complainants did not seek the instant review because they have already
settled their dispute with Herrera before the CA. It is Atty. Agustins personal resolve to pursue
this recourse premised on his unwavering stance that the joint compromise agreement signed
by the complainants was inequitable and devious as they were denied the bigger monetary
award adjudged by a final and executory judgment.
Atty. Agustin ought to be reminded that his professional relation with his clients is one of
agency under the rules thereof "[t]he acts of an agent are deemed the acts of the principal only
if the agent acts within the scope of his authority." 27 It is clear that under the circumstances of
this case, Atty. Agustin is acting beyond the scope of his authority in questioning the
compromise agreement between the complainants, Podden and Herrera.
It is settled that parties may enter into a compromise agreement without the intervention of
their lawyer.28 This precedes from the equally settled rule that a client has an undoubted right
to settle a suit without the intervention of his lawyer for he is generally conceded to have the
exclusive control over the subject-matter of the litigation and may, at any time before judgment,
if acting in good faith, compromise, settle, and adjust his cause of action out of court without
his attorneys intervention, knowledge, or consent, even though he has agreed with his
attorney not to do so. Hence, the absence of a counsels knowledge or consent does not
invalidate a compromise agreement.29
Neither can a final judgment preclude a client from entering into a compromise. Rights may be
waived through a compromise agreement, notwithstanding a final judgment that has already
settled the rights of the contracting parties provided the compromise is shown to have been
voluntarily, freely and intelligently executed by the parties, who had full knowledge of the
judgment. Additionally, it must not be contrary to law, morals, good customs and public policy.30
In the present case, the allegations of vitiated consent proffered by Atty. Agustin are all
presumptions and suppositions that have no bearing as evidence. There is no proof that the
complainants were forced, intimidated or defrauded into executing the quitclaims. On the
contrary, the LA correctly observed that, based on the following facts, the complainants
voluntarily entered into and fully understood the contents and effect of the quitclaims, to wit: (1)
they have already received a copy and hence aware of the LA Decision dated September 27,
1998 when they signed the quitclaims on March 2, 1999, April 8, 1999 and March 31, 2000; (2)
the quitclaims were written in Filipino language which is known to and understood by the
complainants; (3) none of the complainants attended the hearings on the motion for execution
of the LA Decision dated September 27, 1998; (4) they were consistent in their manifestations
before the NLRC and the CA that they have already settled their claims against Podden and
Herrera hence, their request for the termination of the appeals filed by Atty. Agustin before the
said tribunals.
Furthermore, it is the complainants themselves who can impugn the consideration of the
compromise as being unconscionable31 but no such repudiation was manifested before the
Court or the courts a quo.
The ruling in Unicane Workers Union-CLUP v. NLRC32 cited by Atty. Agustin is not applicable to
the facts at hand. The circumstances which led the Court to annul the quitclaim in Unicane are
not attendant in the present case. In Unicane, the attorney-in-fact who signed the quitclaim in
behalf of the employees exceeded the scope of his authority thus prejudicing the latter.
Consequently, it was ruled that the quitclaim did not bind the employees. No akin situation
exists in the case at bar.

As the validity of a compromise agreement cannot be prejudiced, so should not be the

payment of a lawyers adequate and reasonable compensation for his services should the suit
end by reason of the settlement. The terms of the compromise subscribed to by the client
should not be such that will amount to an entire deprivation of his lawyers fees, especially
when the contract is on a contingent fee basis. In this sense, the compromise settlement
cannot bind the lawyer as a third party. A lawyer is as much entitled to judicial protection
against injustice or imposition of fraud on the part of his client as the client is against abuse on
the part of his counsel. The duty of the court is not only to ensure that a lawyer acts in a proper
and lawful manner, but also to see to it that a lawyer is paid his just fees.
Even if the compensation of a counsel is dependent only upon winning a case he himself
secured for his client, the subsequent withdrawal of the case on the clients own volition should
never completely deprive counsel of any legitimate compensation for his professional services.
In all cases, a client is bound to pay his lawyer for his services. The determination of bad faith
only becomes significant and relevant if the adverse party will likewise be held liable in
shouldering the attorneys fees.35 (Citations omitted)
There is truth to Atty. Agustins argument that the compromise agreement did not include or
affect his attorneys fees granted in the final and executory LA Decision dated September 27,
1998. Attorneys fees become vested right when the order awarding those fees becomes final
and executory and any compromise agreement removing that right must include the lawyers
participation if it is to be valid against him. 36
However, equity dictates that an exception to such rule be made in this case with the end in
view that the fair share of litigants to the benefits of a suit be not displaced by a contract for
legal services.
It must be noted that the complainants were laborers who desired to contest their dismissal for
being illegal.1wphi1 With no clear means to pay for costly legal services, they hired Atty.
Agustin whose remuneration was subject to the success of the illegal dismissal suit. Before a
judgment was rendered in their favor, however, the company closed down and settlement of
the suit for an amount lesser than their monetary claims, instead of execution of the favorable
judgment, guaranteed the atonement for their illegal termination. To make the complainants
liable for the P335,844.18 attorneys fees adjudged in the LA Decision of September 27, 1998
would be allowing Atty. Agustin to get a lions share of the P385,000.0037 received by the
former from the compromise agreement that terminated the suit; to allow that to happen will
contravene the raison d'tre for contingent fee arrangements.
Contingent fee arrangements "are permitted because they redound to the benefit of the poor
client and the lawyer especially in cases where the client has meritorious cause of action, but
no means with which to pay for legal services unless he can, with the sanction of law, make a
contract for a contingent fee to be paid out of the proceeds of the litigation. Oftentimes, the
contingent fee arrangement is the only means by which the poor and helpless can seek
redress for injuries sustained and have their rights vindicated." 38
Further, a lawyer is not merely the defender of his clients cause. He is also, first and foremost,
an officer of the court and participates in the fundamental function of administering justice in
society. It follows that a lawyers compensation for professional services rendered is subject to
the supervision of the court in order to maintain the dignity and integrity of the legal profession
to which he belongs.39 "[L]awyering is not a moneymaking venture and lawyers are not
merchants. Law advocacy, it has been stressed, is not capital that yields profits. The returns it
births are simple rewards for a job done or service rendered."40
More importantly, Atty. Agustin was not totally deprived of his fees. Under the joint settlement
agreement, he is entitled to receive ten percent (10%) of the total settlement. We find the said
amount reasonable considering that the nature of the case did not involve complicated legal
issues requiring much time, skill and effort.
It cannot be said that Herrera negotiated for the compromise agreement in bad faith. It remains
undisputed that Podden has ceased operations on December 1, 1994 or almost four years
before the LA Decision dated September 27, 1998 was rendered.41 In view thereof, the
implementation of the award became unfeasible and a compromise settlement was more
beneficial to the complainants as it assured them of reparation, albeit at a reduced amount.
This was the same situation prevailing at the time when Herrera manifested and reiterated
before the CA that a concession has been reached by the parties. Thus, the motivating force
behind the settlement was not to deprive or prejudice Atty. Agustin of his fees, but rather the
inability of a dissolved corporation to fully abide by its adjudged liabilities and the certainty of
payment on the part of the complainants.
Also, collusion between complainants and Herrera cannot be inferred from the fact that Atty.
Agustin obtained lesser attorneys fees under the compromise agreement as against that
which he could have gained if the LA Decision dated September 27, 1998 was executed.
Unless there is a showing that the complainants actually received an amount higher than that
stated in the settlement agreement, it cannot be said that Atty. Agustin was unlawfully
prejudiced. There is no proof submitted supporting such inference.
Under the above circumstances, Herrera cannot be made solidarily liable for Atty. Agustins
fees which, as a rule, are the personal obligation of his clients, the complainants. However,
pursuant to his undertaking in the joint compromise agreement, Herrera is solely bound to
compensate Atty. Agustin at the rate of ten percent (10%) of the total settlement agreement. 42

Since the entire provisions of the joint compromise agreement are not available in the records
and only the relevant portions thereof were quoted in the CA Resolution dated September 30,
2005, the Court deems it reasonable to impose a period of ten (10) days within which Herrera
should fulfill his obligation to Atty. Agustin.
WHEREFORE, premises considered, the petition is hereby DENIED. The Resolution dated
September 30, 2005 of the Court of Appeals in CA-G.R. SP No. 85556 is AFFIRMED.
Pursuant to his undertaking in the joint compromise agreement, respondent Alejandro CruzHerrera is ORDERED to pay, give, deliver to Atty. Emmanuel D. Agustin ten percent (10%) of
the total settlement agreement within a period of ten (10) days from notice hereof. Both of
them are hereby REQUIRED to report compliance with the foregoing order within a period of
five days thereafter.
SO ORDERED.
G.R. No.176897

December 11, 2013

ADVANCE PAPER CORPORATION and GEORGE HAW, in his capacity as President of

Advance Paper Corporation, Petitioners,
vs.
ARMA TRADERS CORPORATION, MANUEL TING, CHENG GUI and BENJAMIN
NG, Respondents.
x-------------------------------------------------x

The petitioners claimed that the respondents fraudulently issued the postdated checks as
payment for the purchases and loan transactions knowing that they did not have sufficient
funds with the drawee banks.18
To prove the purchases on credit, the petitioners presented the summary of the transactions
and their corresponding sales invoices as their documentary evidence.19
During the trial, Haw also testified that within one or two weeks upon delivery of the paper
products, Arma Traders paid the purchases in the form of postdated checks. Thus, he
personally collected these checks on Saturdays and upon receiving the checks, he
surrendered to Arma Traders the original of the sales invoices while he retained the duplicate
of the invoices.20
To prove the loan transactions, the petitioners presented the copies of the checks21 which
Advance Paper issued in favor of Arma Traders. The petitioners also filed a
manifestation22 dated June 14, 1995, submitting a bank statement from Metrobank EDSA
Kalookan Branch. This was to show that Advance Papers credit line with Metrobank has been
transferred to the account of Arma Traders as payee from October 1994 to December 1994.
Moreover, Haw testified to prove the loan transactions. When asked why he considered
extending the loans without any collateral and loan agreement or promissory note, and only on
the basis of the issuance of the postdated checks, he answered that it was because he trusted
Arma Traders since it had been their customer for a long time and that none of the previous
checks ever bounced.23
Claims of the respondents

ANTONIO TAN and UY SENG KEE WILLY, Respondents.

DECISION
BRION, J.:
Before us is a Petition for Review1 seeking to set aside the Decision of the Court of
Appeals (CA) in CA-G.R. CV No. 71499 dated March 31, 2006 and the Resolution dated
March 7, 2007.2 The Decision reversed and set aside the ruling of the Regional Trial
Court (RTC) of Manila, Branch 18 in Civil Case No. 94-72526 which ordered Arma Traders
Corporation (Arma Traders) to pay Advance Paper Corporation (Advance Paper) the sum
ofP15,321,798.25 with interest, and P1,500,000.00 for attorneys fees, plus the cost of the
suit.3

The respondents argued that the purchases on credit were spurious, simulated and
fraudulent since there was no delivery of the P7,000,000.00 worth of notebooks and other
paper products.24
During the trial, Ng testified that Arma Traders did not purchase notebooks and other paper
products from September to December 1994. He claimed that during this period, Arma Traders
concentrated on Christmas items, not school and office supplies. He also narrated that upon
learning about the complaint filed by the petitioners, he immediately looked for Arma Traders
records and found no receipts involving the purchases of notebooks and other paper products
from Advance Paper.25
As to the loan transactions, the respondents countered that these were the personal
obligations of Tan and Uy to Advance Paper. These loans were never intended to benefit the
respondents.

Factual Antecedents
Petitioner Advance Paper is a domestic corporation engaged in the business of producing,
printing, manufacturing, distributing and selling of various paper products. 4 Petitioner George
Haw (Haw) is the President while his wife, Connie Haw, is the General Manager.5
Respondent Arma Traders is also a domestic corporation engaged in the wholesale and
distribution of school and office supplies, and novelty products.6 Respondent Antonio Tan (Tan)
was formerly the President while respondent Uy Seng Kee Willy (Uy) is the Treasurer of Arma
Traders.7 They represented Arma Traders when dealing with its supplier, Advance Paper, for
about 14 years.8
On the other hand, respondents Manuel Ting, Cheng Gui and Benjamin Ng worked for Arma
Traders as Vice-President, General Manager and Corporate Secretary, respectively.9
On various dates from September to December 1994, Arma Traders purchased on credit
notebooks and other paper products amounting to P7,533,001.49 from Advance Paper. 10
Upon the representation of Tan and Uy, Arma Traders also obtained three loans from Advance
Paper in November 1994 in the amounts of P3,380,171.82, P1,000,000.00, and P3,408,623.94
or a total ofP7,788,796.76.11 Arma Traders needed the loan to settle its obligations to other
suppliers because its own collectibles did not arrive on time.12 Because of its good business
relations with Arma Traders, Advance Paper extended the loans.13
As payment for the purchases on credit and the loan transactions, Arma Traders issued 82
postdated checks14payable to cash or to Advance Paper. Tan and Uy were Arma Traders
authorized bank signatories who signed and issued these checks which had the aggregate
amount of P15,130,636.87.15
Advance Paper presented the checks to the drawee bank but these were dishonored either for
"insufficiency of funds" or "account closed." Despite repeated demands, however, Arma
Traders failed to settle its account with Advance Paper.16
On December 29, 1994, the petitioners filed a complaint 17 for collection of sum of money with
application for preliminary attachment against Arma Traders, Tan, Uy, Ting, Gui, and Ng.
Claims of the petitioners

The respondents also claimed that the loan transactions were ultra vires because the board of
directors of Arma Traders did not issue a board resolution authorizing Tan and Uy to obtain the
loans from Advance Paper. They claimed that the borrowing of money must be done only with
the prior approval of the board of directors because without the approval, the corporate officers
are acting in excess of their authority or ultra vires. When the acts of the corporate officers
are ultra vires, the corporation is not liable for whatever acts that these officers committed in
excess of their authority. Further, the respondents claimed that Advance Paper failed to verify
Tan and Uys authority to transact business with them. Hence, Advance Paper should suffer
the consequences.26
The respondents accused Tan and Uy for conspiring with the petitioners to defraud Arma
Traders through a series of transactions known as rediscounting of postdated checks. In
rediscounting, the respondents explained that Tan and Uy would issue Arma Traders
postdated checks to the petitioners in exchange for cash, discounted by as much as 7% to
10% depending on how long were the terms of repayment. The rediscounted percentage
represented the interest or profit earned by the petitioners in these transactions. 27
Tan did not file his Answer and was eventually declared in default.
On the other hand, Uy filed his Answer 28 dated January 20, 1995 but was subsequently
declared in default upon his failure to appear during the pre-trial. In his Answer, he admitted
that Arma Traders together with its corporate officers have been transacting business with
Advance Paper.29 He claimed that he and Tan have been authorized by the board of directors
for the past 13 years to issue checks in behalf of Arma Traders to pay its obligations with
Advance Paper.30 Furthermore, he admitted that Arma Traders checks were issued to pay
its contractual obligations with Advance Paper.31 However, according to him, Advance
Paper was informed beforehand that Arma Traders checks were funded out of
the P20,000,000.00 worth of collectibles coming from the provinces. Unfortunately, the
expected collectibles did not materialize for unknown reasons.32
Ng filed his Answer33 and claimed that the management of Arma Traders was left entirely to
Tan and Uy. Thus, he never participated in the companys daily transactions. 34
Atty. Ernest S. Ang, Jr. (Atty. Ang), Arma Traders Vice-President for Legal Affairs and Credit
and Collection, testified that he investigated the transactions involving Tan and Uy and
discovered that they were financing their own business using Arma Traders resources. He also
accused Haw for conniving with Tan and Uy in fraudulently making Arma Traders liable for their
personal debts. He based this conclusion from the following: First, basic human experience
and common sense tell us that a lender will not agree to extend additional loan to another
person who already owes a substantial sum from the lender in this case, petitioner Advance
Paper. Second,there was no other document proving the existence of the loan other than the
postdated checks. Third, the total of the purchase and loan transactions vis--vis the total
amount of the postdated checks did not tally. Fourth, he found out that the certified true copy of

Advance Papers report with the Securities and Exchange Commission (SEC report) did not
reflect the P15,000,000.00 collectibles it had with Arma Traders.35
Atty. Ang also testified that he already filed several cases of estafa and qualified theft 36 against
Tan and Uy and that several warrants of arrest had been issued against them.
In their pre-trial brief,37 the respondents named Sharow Ong, the secretary of Tan and Uy, to
testify on how Tan and Uy conspired with the petitioners to defraud Arma Traders. However,
the respondents did not present her on the witness stand.
The RTC Ruling
On June 18, 2001, the RTC ruled that the purchases on credit and loans were sufficiently
proven by the petitioners. Hence, the RTC ordered Arma Traders to pay Advance Paper the
sum of P15,321,798.25 with interest, and P1,500,000.00 for attorneys fees, plus the cost of
the suit.
The RTC held that the respondents failed to present hard, admissible and credible evidence to
prove that the sale invoices were forged or fictitious, and that the loan transactions were
personal obligations of Tan and Uy. Nonetheless, the RTC dismissed the complaint against
Tan, Uy, Ting, Gui and Ng due to the lack of evidence showing that they bound themselves,
either jointly or solidarily, with Arma Traders for the payment of its account. 38

Second, the petitioners argue that Haws testimony is not hearsay. They emphasize that Haw
has personal knowledge of the assailed purchases and loan transactions because he dealt
with the customers, and supervised and directed the preparation of the sales invoices and the
deliveries of the goods.54 Moreover, the petitioners stress that the respondents never objected
to the admissibility of the sales invoices on the ground that they were hearsay.55
Third, the petitioners dispute the CAs findings on the existence of the badges of fraud. The
petitioners countered:
(1) The discrepancies between the figures in the 15 out of the 96 photocopies
and duplicate originals of the sales invoices amounting to P4,624.80 an
insignificant amount compared to the total purchases ofP7,533,001.49
may have been caused by the failure to put the carbon paper.56 Besides, the
remaining 81 sales invoices are uncontroverted. The petitioners also raise the
point that this discrepancy is a nonissue because the duplicate originals were
surrendered in the RTC.57
(2) The respondents misled Haw during the cross-examination and took his
answer out of context.58 The petitioners argue that this maneuver is insufficient to
discredit Haws entire testimony.59
(3) Arma Traders should be faulted for indicating Top Line as the payee in Exhibit
E-26 or PBC check no. 091014. Moreover, Exhibit E-26 does not refer to PBC
check no. 091014 but to PBC check no. 091032 payable to the order of cash. 60

Arma Traders appealed the RTC decision to the CA.

The CA Ruling
The CA held that the petitioners failed to prove by preponderance of evidence the existence of
the purchases on credit and loans based on the following grounds:
First, Arma Traders was not liable for the loan in the absence of a board resolution authorizing
Tan and Uy to obtain the loan from Advance Paper.39 The CA acknowledged that Tan and Uy
were Arma Traders authorized bank signatories. However, the CA explained that this is not
sufficient because the authority to sign the checks is different from the required authority to
contract a loan.40
Second, the CA also held that the petitioners presented incompetent and inadmissible
evidence to prove the purchases on credit since the sales invoices were hearsay.41 The CA
pointed out that Haws testimony as to the identification of the sales invoices was not an
exception to the hearsay rule because there was no showing that the secretaries who
prepared the sales invoices are already dead or unable to testify as required by the Rules of
Court.42 Further, the CA noted that the secretaries were not identified or presented in court. 43
Third, the CA ruling heavily relied on Ngs Appellants Brief 44 which made the detailed
description of the "badges of fraud." The CA averred that the petitioners failed to satisfactorily
rebut the badges of fraud45 which include the inconsistencies in:
(1) "Exhibit E-26," a postdated check, which was allegedly issued in favor of
Advance Paper but turned out to be a check payable to Top Line, Advance
Papers sister company;46
(2) "Sale Invoice No. 8946," an evidence to prove the existence of the purchases
on credit, whose photocopy failed to reflect the amount stated in the duplicate
copy,47 and;
(3) The SEC report of Advance Paper for the year ended 1994 reflected its
account receivables amounting to P219,705.19 only an amount far from the
claimed P15,321,798.25 receivables from Arma Traders.48
Hence, the CA set aside the RTCs order for Arma Traders to pay Advance Paper the sum
of P15,321,798.25,P1,500,000.00 for attorneys fees, plus cost of suit.49 It affirmed the RTC
decision dismissing the complaint against respondents Tan, Uy, Ting, Gui and Ng.50 The CA
also directed the petitioners to solidarily pay each of the respondents their counterclaims
of P250,000.00 as moral damages, P250,000.00 as exemplary damages, and P250,000.00 as
attorneys fees.51

(4) The discrepancy in the total amount of the checks which is P15,130,363.87 as
against the total obligation of P15,321,798.25 does not necessarily prove that the
transactions are spurious.61
(5) The difference in Advance Papers accounts receivables in the SEC report
and in Arma Traders obligation with Advance Paper was based on non-existent
evidence because Exhibit 294-NG does not pertain to any balance
sheet.62 Moreover, the term "accounts receivable" is not synonymous with "cause
of action." The respondents cannot escape their liability by simply pointing the
SEC report because the petitioners have established their cause of action that
the purchases on credit and loan transactions took place, the respondents issued
the dishonored checks to cover their debts, and they refused to settle their
obligation with Advance Paper.63
The Case for the Respondents
The respondents argue that the Petition for Review should be dismissed summarily because of
the following procedural grounds: first, for failure to comply with A.M. No. 02-8-13SC;64 and second, the CA decision is already final and executory since the petitioners filed their
Motion for Reconsideration out of time. They explain that under the rules of the CA, if the last
day for filing of any pleading falls on a Saturday not a holiday, the same must be filed on said
Saturday, as the Docket and Receiving Section of the CA is open on a Saturday.65
The respondents argue that while as a general rule, a corporation is estopped from denying
the authority of its agents which it allowed to deal with the general public; this is only true if the
person dealing with the agent dealt in good faith.66 In the present case, the respondents claim
that the petitioners are in bad faith because the petitioners connived with Tan and Uy to make
Arma Traders liable for the non-existent deliveries of notebooks and other paper
products.67 They also insist that the sales invoices are manufactured evidence. 68
As to the loans, the respondents aver that these were Tan and Uys personal obligations with
Advance Paper.69Moreover, while the three cashiers checks were deposited in the account of
Arma Traders, it is likewise true that Tan and Uy issued Arma Traders checks in favor of
Advance Paper. All these checks are evidence of Tan, Uy and Haws systematic conspiracy to
siphon Arma Traders corporate funds. 70
The respondents also seek to discredit Haws testimony on the basis of the following. First, his
testimony as regards the sales invoices is hearsay because he did not personally prepare
these documentary evidence. 71Second, Haw suspiciously never had any written authority from
his own Board of Directors to lend money. Third,the respondents also questioned why Advance
Paper granted the P7,000,000.00 loan without requiring Arma Traders to present any collateral
or guarantees.72
The Issues

The Petition
The main procedural and substantive issues are:
The petitioners raise the following arguments.
First, Arma Traders led the petitioners to believe that Tan and Uy had the authority to obtain
loans since the respondents left the active and sole management of the company to Tan and
Uy since 1984. In fact, Ng testified that Arma Traders stockholders and board of directors
never conducted a meeting from 1984 to 1995. Therefore, if the respondents position will be
sustained, they will have the absurd power to question all the business transactions of Arma
Traders.52 Citing Lipat v. Pacific Banking Corporation,53 the petitioners said that if a corporation
knowingly permits one of its officers or any other agent to act within the scope of an apparent
authority, it holds him out to the public as possessing the power to do those acts; thus, the
corporation will, as against anyone who has in good faith dealt with it through such agent, be
estopped from denying the agents authority.

I. Whether the petition for review should be dismissed for failure to comply with
A.M. No. 02-8-13-SC.
II. Whether the petition for review should be dismissed on the ground of failure to
file the motion for reconsideration with the CA on time.
III. Whether Arma Traders is liable to pay the loans applying the doctrine of
apparent authority.

IV. Whether the petitioners proved Arma Traders liability on the purchases on
credit by preponderance of evidence.
The Court's Ruling
We grant the petition.
The procedural issues.
First, the respondents correctly cited A.M. No. 02-8-13-SC dated February 19, 2008 which
refer to the amendment of the 2004 Rules on Notarial Practice. It deleted the Community Tax
Certificate among the accepted proof of identity of the affiant because of its inherent
unreliability. The petitioners violated this when they used Community Tax Certificate No.
05730869 in their Petition for Review.73 Nevertheless, the defective jurat in the
Verification/Certification of Non-Forum Shopping is not a fatal defect because it is only a
formal, not a jurisdictional, requirement that the Court may waive.74 Furthermore, we cannot
simply ignore the millions of pesos at stake in this case. To do so might cause grave injustice
to a party, a situation that this Court intends to avoid.
Second, no less than the CA itself waived the rules on the period to file the motion for
reconsideration. A review of the CA Resolution75 dated March 7, 2007, reveals that the
petitioners Motion for Reconsideration was denied because the allegations were a mere
rehash of what the petitioners earlier argued not because the motion for reconsideration was
filed out of time.
The substantive issues.
Arma Traders is liable to pay the
loans on the basis of the doctrine of
apparent authority.
The doctrine of apparent authority provides that a corporation will be estopped from denying
the agents authority if it knowingly permits one of its officers or any other agent to act within
the scope of an apparent authority, and it holds him out to the public as possessing the power
to do those acts.76 The doctrine of apparent authority does not apply if the principal did not
commit any acts or conduct which a third party knew and relied upon in good faith as a result
of the exercise of reasonable prudence. Moreover, the agents acts or conduct must have
produced a change of position to the third partys detriment.77
In Inter-Asia Investment Industries v. Court of Appeals, 78 we explained:
Under this provision [referring to Sec. 23 of the Corporation Code], the power and
responsibility to decide whether the corporation should enter into a contract that will bind the
corporation is lodged in the board, subject to the articles of incorporation, bylaws, or relevant
provisions of law. However, just as a natural person who may authorize another to do
certain acts for and on his behalf, the board of directors may validly delegate some of
its functions and powers to officers, committees or agents. The authority of such
individuals to bind the corporation is generally derived from law, corporate bylaws or
authorization from the board, either expressly or impliedly by habit, custom or
acquiescence in the general course of business, viz.:
A corporate officer or agent may represent and bind the corporation in transactions with third
persons to the extent that [the] authority to do so has been conferred upon him, and this
includes powers as, in the usual course of the particular business, are incidental to, or may be
implied from, the powers intentionally conferred, powers added by custom and usage, as
usually pertaining to the particular officer or agent, and such apparent powers as the
corporation has caused person dealing with the officer or agent to believe that it has conferred.
[A]pparent authority is derived not merely from practice. Its existence may be
ascertained through (1) the general manner in which the corporation holds out an officer or
agent as having the power to act or, in other words the apparent authority to act in general,
with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with
actual or constructive knowledge thereof, within or beyond the scope of his ordinary
powers. It requires presentation of evidence of similar act(s) executed either in its favor
or in favor of other parties. It is not the quantity of similar acts which establishes
apparent authority, but the vesting of a corporate officer with the power to bind the
corporation. [emphases and underscores ours]
In Peoples Aircargo and Warehousing Co., Inc. v. Court of Appeals,79 we ruled that the
doctrine of apparent authority is applied when the petitioner, through its president Antonio
Punsalan Jr., entered into the First Contract without first securing board approval. Despite such
lack of board approval, petitioner did not object to or repudiate said contract, thus "clothing" its
president with the power to bind the corporation.
"Inasmuch as a corporate president is often given general supervision and control over
corporate operations, the strict rule that said officer has no inherent power to act for the
corporation is slowly giving way to the realization that such officer has certain limited powers in
the transaction of the usual and ordinary business of the corporation." 80 "In the absence of a
charter or bylaw provision to the contrary, the president is presumed to have the
authority to act within the domain of the general objectives of its business and within
the scope of his or her usual duties."81
In the present petition, we do not agree with the CAs findings that Arma Traders is not liable to
pay the loans due to the lack of board resolution authorizing Tan and Uy to obtain the loans. To

begin with, Arma Traders Articles of Incorporation82 provides that the corporation may borrow
or raise money to meet the financial requirements of its business by the issuance of
bonds, promissory notes and other evidence of indebtedness. Likewise, it states that Tan
and Uy are not just ordinary corporate officers and authorized bank signatories because they
are also Arma Traders incorporators along with respondents Ng and Ting, and Pedro Chao.
Furthermore, the respondents, through Ng who is Arma Traders corporate secretary,
incorporator, stockholder and director, testified that the sole management of Arma Traders
was left to Tan and Uy and that he and the other officers never dealt with the business
and management of Arma Traders for 14 years. He also confirmed that since 1984 up to
the filing of the complaint against Arma Traders, its stockholders and board of directors
never had its meeting.83
Thus, Arma Traders bestowed upon Tan and Uy broad powers by allowing them to transact
with third persons without the necessary written authority from its non-performing board of
directors. Arma Traders failed to take precautions to prevent its own corporate officers from
abusing their powers. Because of its own laxity in its business dealings, Arma Traders is now
estopped from denying Tan and Uys authority to obtain loan from Advance Paper.
We also reject the respondents claim that Advance Paper, through Haw, connived with Tan
and Uy. The records do not contain any evidence to prove that the loan transactions were
personal to Tan and Uy. A different conclusion might have been inferred had the cashiers
checks been issued in favor of Tan and Uy, and had the postdated checks in favor of Advance
Paper been either Tan and/or Uys, or had the respondents presented convincing evidence to
show how Tan and Uy conspired with the petitioners to defraud Arma Traders. 84 We note that
the respondents initially intended to present Sharow Ong, the secretary of Tan and Uy, to
testify on how Advance Paper connived with Tan and Uy. As mentioned, the respondents failed
to present her on the witness stand.
The respondents failed to object to
the admissibility of the sales invoices
on the ground that they are hearsay
The rule is that failure to object to the offered evidence renders it admissible, and the court
cannot, on its own, disregard such evidence.85 When a party desires the court to reject the
evidence offered, it must so state in the form of a timely objection and it cannot raise the
objection to the evidence for the first time on appeal. Because of a partys failure to timely
object, the evidence becomes part of the evidence in the case. Thereafter, all the parties are
considered bound by any outcome arising from the offer of evidence properly presented. 86
In Heirs of Policronio M. Ureta, Sr. v. Heirs of Liberato M. Ureta, 87 however, we held:
[H]earsay evidence whether objected to or not cannot be given credence for having no
probative value.1wphi1 This principle, however, has been relaxed in cases where, in addition
to the failure to object to the admissibility of the subject evidence, there were other pieces of
evidence presented or there were other circumstances prevailing to support the fact in
issue. (emphasis and underscore ours; citation omitted)
We agree with the respondents that with respect to the identification of the sales invoices,
Haws testimony was hearsay because he was not present during its preparation88 and the
secretaries who prepared them were not presented to identify them in court. Further, these
sales invoices do not fall within the exceptions to the hearsay rule even under the "entries in
the course of business" because the petitioners failed to show that the entrant was deceased
or was unable to testify.89
But even though the sales invoices are hearsay, nonetheless, they form part of the records of
the case for the respondents failure to object as to the admissibility of the sales invoices on
the ground that they are hearsay.90Based on the records, the respondents through Ng objected
to the offer "for the purpose [to] which they are being offered" only not on the ground that
they were hearsay.91
The petitioners have proven their
claims for the unpaid purchases on
credit by preponderance of evidence.
We are not convinced by the respondents argument that the purchases are spurious because
no less than Uyadmitted that all the checks issued were in payments of the contractual
obligations of the Arma Traders with Advance Paper.92 Moreover, there are other pieces of
evidence to prove the existence of the purchases other than the sales invoices themselves.
For one, Arma Traders postdated checks evince the existence of the purchases on credit.
Moreover, Haw testified that within one or two weeks, Arma Traders paid the purchases in the
form of postdated checks. He personally collected these checks on Saturdays and upon
receiving the checks, he surrendered to Arma Traders the original of the sales invoices while
he retained the duplicate of the invoices. 93
The respondents attempted to impugn the credibility of Haw by pointing to the inconsistencies
they can find from the transcript of stenographic notes. However, we are not persuaded that
these inconsistencies are sufficiently pervasive to affect the totality of evidence showing the
general relationship between Advance Paper and Arma Traders.
Additionally, the issue of credibility of witnesses is to be resolved primarily by the trial court
because it is in the better position to assess the credibility of witnesses as it heard the
testimonies and observed the deportment and manner of testifying of the witnesses.
Accordingly, its findings are entitled to great respect and will not be disturbed on appeal in the
absence of any showing that the trial court overlooked, misunderstood, or misapplied some
facts or circumstances of weight and substance which would have affected the result of the
case.94

In the present case, the RTC judge took into consideration the substance and the manner by
which Haw answered each propounded questions to him in the witness stand. Hence, the
minor inconsistencies in Haws testimony notwithstanding, the RTC held that the respondents
claim that the purchase and loan transactions were spurious is "not worthy of serious
consideration." Besides, the respondents failed to convince us that the RTC judge overlooked,
misunderstood, or misapplied some facts or circumstances of weight and substance which
would have affected the result of the case.
On the other hand, we agree with the petitioners that the discrepancies in the photocopy of the
sales invoices and its duplicate copy have been sufficiently explained. Besides, this is already
a non-issue since the duplicate copies were surrendered in the RTC.95 Furthermore, the fact
that the value of Arma Traders' checks does not tally with the total amount of their obligation
with Advance Paper is not inconsistent with the existence of the purchases and loan
transactions.
As against the case and the evidence Advance Paper presented, the respondents relied on the
core theory of an alleged conspiracy between Tan, Uy and Haw to defraud Arma Traders.
However, the records are bereft of supporting evidence to prove the alleged conspiracy.
Instead, the respondents simply dwelled on the minor inconsistencies from the petitioners'
evidence that the respondents appear to have magnified. From these perspectives, the
preponderance of evidence thus lies heavily in the petitioners' favor as the RTC found. For this
reason, we find the petition meritorious.

Abelardo. Moreover, Connie Dayot, the corporate secretary, issued a certification dated
February 20, 199814 authorizing the spouses Johnson to act on Joy Trainings behalf.
Furthermore, they highlighted that the Wrangler jeep and other personal properties were
registered in the name of the spouses Johnson. 15 Lastly, they assailed the RTCs jurisdiction
over the case. They posited that the case is an intra-corporate dispute cognizable by the
Securities and Exchange Commission (SEC).16
After the presentation of their testimonial evidence, the spouses Yoshizaki formally offered in
evidence photocopies of the resolution and certification, among others. 17 Joy Training objected
to the formal offer of the photocopied resolution and certification on the ground that they were
not the best evidence of their contents.18 In an Order19 dated May 18, 2004, the RTC denied
the admission of the offered copies.
The RTC Ruling
The RTC ruled in favor of the spouses Yoshizaki. It found that Joy Training owned the real
properties. However, it held that the sale was valid because Joy Training authorized the
spouses Johnson to sell the real properties. It recognized that there were only five actual
members of the board of trustees; consequently, a majority of the board of trustees validly
authorized the sale. It also ruled that the sale of personal properties was valid because they
were registered in the spouses Johnsons name. 20

WHEREFORE, premises considered, we GRANT the petition. The decision dated March 31,
2006 and the resolution dated March 7, 2007 of the Court of Appeals in CA-G.R. CV No. 71499
are REVERSED and SET ASIDE. The Regional Trial Court decision in Civil Case No. 9472526 dated June 18, 2001 is REINSTATED. No costs.

Joy Training appealed the RTC decision to the CA.

SO ORDERED.

The CA upheld the RTCs jurisdiction over the case but reversed its ruling with respect to the
sale of real properties. It maintained that the present action is cognizable by the RTC because
it involves recovery of ownership from third parties.

G.R. No. 174978

The CA Ruling

July 31, 2013

SALLY YOSHIZAKI, Petitioner,

vs.
JOY TRAINING CENTER OF AURORA, INC., Respondent.

It also ruled that the resolution is void because it was not approved by a majority of the board
of trustees. It stated that under Section 25 of the Corporation Code, the basis for determining
the composition of the board of trustees is the list fixed in the articles of incorporation.
Furthermore, Section 23 of the Corporation Code provides that the board of trustees shall hold
office for one year and until their successors are elected and qualified. Seven trustees
constitute the board since Joy Training did not hold an election after its incorporation.

DECISION
BRION, J.:
We resolve the petition for review on certiorari1 filed by petitioner Sally Yoshizaki to challenge
the February 14, 2006 Decision2 and the October 3, 2006 Resolution3 of the Court of Appeals
(CA) in CA-G.R. CV No. 83773.

The CA did not also give any probative value to the certification. It stated that the certification
failed to indicate the date and the names of the trustees present in the meeting. Moreover, the
spouses Yoshizaki did not present the minutes that would prove that the certification had been
issued pursuant to a board resolution. 21 The CA also denied22 the spouses Yoshizakis motion
for reconsideration, prompting Sally23 to file the present petition.
The Petition

The Factual Antecedents

Respondent Joy Training Center of Aurora, Inc. (Joy Training) is a non-stock, non-profit
religious educational institution. It was the registered owner of a parcel of land and the building
thereon (real properties) located in San Luis Extension Purok No. 1, Barangay Buhangin,
Baler, Aurora. The parcel of land was designated as Lot No. 125-L and was covered by
Transfer Certificate of Title (TCT) No. T-25334.4
On November 10, 1998, the spouses Richard and Linda Johnson sold the real properties, a
Wrangler jeep, and other personal properties in favor of the spouses Sally and Yoshio
Yoshizaki. On the same date, a Deed of Absolute Sale5 and a Deed of Sale of Motor
Vehicle6 were executed in favor of the spouses Yoshizaki. The spouses Johnson were
members of Joy Trainings board of trustees at the time of sale. On December 7, 1998, TCT
No. T-25334 was cancelled and TCT No. T-260527 was issued in the name of the spouses
Yoshizaki.
On December 8, 1998, Joy Training, represented by its Acting Chairperson Reuben V. Rubio,
filed an action for the Cancellation of Sales and Damages with prayer for the issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction against the spouses
Yoshizaki and the spouses Johnson before the Regional Trial Court of Baler, Aurora
(RTC).8 On January 4, 1999, Joy Training filed a Motion to Amend Complaint with the attached
Amended Complaint. The amended complaint impleaded Cecilia A. Abordo, officer-in-charge of
the Register of Deeds of Baler, Aurora, as additional defendant. The RTC granted the motion
on the same date.9
In the complaint, Joy Training alleged that the spouses Johnson sold its properties without the
requisite authority from the board of directors.10 It assailed the validity of a board resolution
dated September 1, 199811 which purportedly granted the spouses Johnson the authority to
sell its real properties. It averred that only a minority of the board, composed of the spouses
Johnson and Alexander Abadayan, authorized the sale through the resolution. It highlighted
that the Articles of Incorporation provides that the board of trustees consists of seven
members, namely: the spouses Johnson, Reuben, Carmencita Isip, Dominador Isip, Miraflor
Bolante, and Abelardo Aquino.12
Cecilia and the spouses Johnson were declared in default for their failure to file an Answer
within the reglementary period.13 On the other hand, the spouses Yoshizaki filed their Answer
with Compulsory Counterclaims on June 23, 1999. They claimed that Joy Training authorized
the spouses Johnson to sell the parcel of land. They asserted that a majority of the board of
trustees approved the resolution. They maintained that the actual members of the board of
trustees consist of five members, namely: the spouses Johnson, Reuben, Alexander, and

Sally avers that the RTC has no jurisdiction over the case. She points out that the complaint
was principally for the nullification of a corporate act. The transfer of the SECs original and
exclusive jurisdiction to the RTC24 does not have any retroactive application because
jurisdiction is a substantive matter.
She argues that the spouses Johnson were authorized to sell the parcel of land and that she
was a buyer in good faith because she merely relied on TCT No. T-25334. The title states that
the spouses Johnson are Joy Trainings representatives.
She also argues that it is a basic principle that a party dealing with a registered land need not
go beyond the certificate of title to determine the condition of the property. In fact, the
resolution and the certification are mere reiterations of the spouses Johnsons authority in the
title to sell the real properties. She further claims that the resolution and the certification are not
even necessary to clothe the spouses Johnson with the authority to sell the disputed
properties. Furthermore, the contract of agency was subsisting at the time of sale because
Section 108 of Presidential Decree No. (PD) 1529 requires that the revocation of authority
must be approved by a court of competent jurisdiction and no revocation was reflected in the
certificate of title.25
The Case for the Respondent
In its Comment26 and Memorandum,27 Joy Training takes the opposite view that the RTC has
jurisdiction over the case. It posits that the action is essentially for recovery of property and is
therefore a case cognizable by the RTC. Furthermore, Sally is estopped from questioning the
RTCs jurisdiction because she seeks to reinstate the RTC ruling in the present case.
Joy Training maintains that it did not authorize the spouses Johnson to sell its real properties.
TCT No. T-25334 does not specifically grant the authority to sell the parcel of land to the
spouses Johnson. It further asserts that the resolution and the certification should not be given
any probative value because they were not admitted in evidence by the RTC. It argues that the
resolution is void for failure to comply with the voting requirements under Section 40 of the
Corporation Code. It also posits that the certification is void because it lacks material
particulars.
The Issues
The case comes to us with the following issues:

1) Whether or not the RTC has jurisdiction over the present case; and

On the other hand, the fifth paragraph of the certification provides:

2) Whether or not there was a contract of agency to sell the real properties
between Joy Training and the spouses Johnson.

Further, Richard A. and Linda J. Johnson were given FULL AUTHORITY for ALL SIGNATORY
purposes for the corporation on ANY and all matters and decisions regarding the property and
ministry here. They will follow guidelines set forth according to their appointment and
ministerial and missionary training and in that, they will formulate and come up with by-laws
which will address and serve as governing papers over the center and corporation. They are to
issue monthly and quarterly statements to all members of the corporation. 37 (emphasis ours)

3) As a consequence of the second issue, whether or not there was a valid

contract of sale of the real properties between Joy Training and the spouses
Yoshizaki.

The resolution states:

Our Ruling
We find the petition unmeritorious.
The RTC has jurisdiction over disputes concerning the application of the Civil Code
Jurisdiction over the subject matter is the power to hear and determine cases of the general
class to which the proceedings before a court belong.28 It is conferred by law. The allegations
in the complaint and the status or relationship of the parties determine which court has
jurisdiction over the nature of an action.29 The same test applies in ascertaining whether a case
involves an intra-corporate controversy.30
The CA correctly ruled that the RTC has jurisdiction over the present case. Joy Training seeks
to nullify the sale of the real properties on the ground that there was no contract of agency
between Joy Training and the spouses Johnson. This was beyond the ambit of the SECs
original and exclusive jurisdiction prior to the enactment of Republic Act No. 8799 which only
took effect on August 3, 2000. The determination of the existence of a contract of agency and
the validity of a contract of sale requires the application of the relevant provisions of the Civil
Code. It is a well-settled rule that "disputes concerning the application of the Civil Code are
properly cognizable by courts of general jurisdiction." 31 Indeed, no special skill requiring the
SECs technical expertise is necessary for the disposition of this issue and of this case.
The Supreme Court may review questions of fact in a petition for review on certiorari when the
findings of fact by the lower courts are conflicting
We are aware that the issues at hand require us to review the pieces of evidence presented by
the parties before the lower courts. As a general rule, a petition for review on certiorari
precludes this Court from entertaining factual issues; we are not duty-bound to analyze again
and weigh the evidence introduced in and considered by the lower courts. However, the
present case falls under the recognized exception that a review of the facts is warranted when
the findings of the lower courts are conflicting.32 Accordingly, we will examine the relevant
pieces of evidence presented to the lower court.
There is no contract of agency between Joy Training and the spouses Johnson to sell the
parcel of land with its improvements
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." It 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.33 Specifically, Article 1874 of the Civil Code provides that the contract
of agency must be written for the validity of the sale of a piece of land or any interest therein.
Otherwise, the sale shall be void. A related provision, Article 1878 of the Civil Code, states that
special powers of attorney are necessary to convey real rights over immovable properties.
The special power of attorney mandated by law must be one that expressly mentions a sale or
that includes a sale as a necessary ingredient of the authorized act. We unequivocably
declared in Cosmic Lumber Corporation v. Court of Appeals34 that a special power of
attorneymust express the powers of the agent in clear and unmistakable language for the
principal to confer the right upon an agent to sell real estate. When there is any reasonable
doubt that the language so used conveys such power, no such construction shall be given the
document. The purpose of the law in requiring a special power of attorney in the disposition of
immovable property is to protect the interest of an unsuspecting owner from being prejudiced
by the unwarranted act of another and to caution the buyer to assure himself of the specific
authorization of the putative agent.35
In the present case, Sally presents three pieces of evidence which allegedly prove that Joy
Training specially authorized the spouses Johnson to sell the real properties: (1) TCT No. T25334, (2) the resolution, (3) and the certification. We quote the pertinent portions of these
documents for a thorough examination of Sallys claim. TCT No. T-25334, entered in the
Registry of Deeds on March 5, 1998, states:
A parcel of land x x x is registered in accordance with the provisions of the Property
Registration Decree in the name of JOY TRAINING CENTER OF AURORA, INC., Rep. by
Sps. RICHARD A. JOHNSON and LINDA S. JOHNSON, both of legal age, U.S. Citizen, and
residents of P.O. Box 3246, Shawnee, Ks 66203, U.S.A. 36(emphasis ours)

We, the undersigned Board of Trustees (in majority) have authorized the sale of land and
building owned by spouses Richard A. and Linda J. Johnson (as described in the title SN No.
5102156 filed with the Province of Aurora last 5th day of March, 1998. These proceeds are
going to pay outstanding loans against the project and the dissolution of the corporation shall
follow the sale. This is a religious, non-profit corporation and no profits or stocks are
issued.38 (emphasis ours)
The above documents do not convince us of the existence of the contract of agency to sell the
real properties. TCT No. T-25334 merely states that Joy Training is represented by the
spouses Johnson. The title does not explicitly confer to the spouses Johnson the authority to
sell the parcel of land and the building thereon. Moreover, the phrase "Rep. by Sps. RICHARD
A. JOHNSON and LINDA S. JOHNSON"39 only means that the spouses Johnson represented
Joy Training in land registration.
The lower courts should not have relied on the resolution and the certification in resolving the
case.1wphi1 The spouses Yoshizaki did not produce the original documents during trial. They
also failed to show that the production of pieces of secondary evidence falls under the
exceptions enumerated in Section 3, Rule 130 of the Rules of Court. 40 Thus, the general rule
that no evidence shall be admissible other than the original document itself when the subject of
inquiry is the contents of a document applies.41
Nonetheless, if only to erase doubts on the issues surrounding this case, we declare that even
if we consider the photocopied resolution and certification, this Court will still arrive at the same
conclusion.
The resolution which purportedly grants the spouses Johnson a special power of attorney is
negated by the phrase "land and building owned by spouses Richard A. and Linda J.
Johnson."42 Even if we disregard such phrase, the resolution must be given scant
consideration. We adhere to the CAs position that the basis for determining the board of
trustees composition is the trustees as fixed in the articles of incorporation and not the actual
members of the board. The second paragraph of Section 2543 of the Corporation Code
expressly provides that a majority of the number of trustees as fixed in the articles of
incorporation shall constitute a quorum for the transaction of corporate business.
Moreover, the certification is a mere general power of attorney which comprises all of Joy
Trainings business.44Article 1877 of the Civil Code clearly states that "an agency couched in
general terms comprises only acts of administration, even if the principal should state that he
withholds no power or that the agent may execute such acts as he may consider appropriate,
or even though the agency should authorize a general and unlimited management." 45
The contract of sale is unenforceable
Necessarily, the absence of a contract of agency renders the contract of sale
unenforceable;46 Joy Training effectively did not enter into a valid contract of sale with the
spouses Yoshizaki. Sally cannot also claim that she was a buyer in good faith. She
misapprehended the rule that persons dealing with a registered land have the legal right to rely
on the face of the title and to dispense with the need to inquire further, except when the party
concerned has actual knowledge of facts and circumstances that would impel a reasonably
cautious man to make such inquiry.47 This rule applies when the ownership of a parcel of land
is disputed and not when the fact of agency is contested.
At this point, we reiterate the established principle that persons dealing with an agent must
ascertain not only the fact of agency, but also the nature and extent of the agents authority.48 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.49 The basis for
agency is representation and a person dealing with an agent is put upon inquiry and must
discover on his own peril the authority of the agent.50 Thus, Sally bought the real properties at
her own risk; she bears the risk of injury occasioned by her transaction with the spouses
Johnson.
WHEREFORE, premises considered, the assailed Decision dated February 14, 2006 and
Resolution dated October 3, 2006 of the Court of Appeals are hereby AFFIRMED and the
petition is hereby DENIED for lack of merit.
SO ORDERED.