G.R. No.

158144 July 31, 2008

ST. MARY'S FARM, INC., Petitioner,

vs.
PRIMA REAL PROPERTIES, INC., RODOLFO A. AGANA, JR., and THE REGISTER
OF DEEDS OF LAS PIÑAS, METRO MANILA, Respondents.

NACHURA, J.:

This is a petition for review of the decision1 of the Court of Appeals (CA) affirming in toto the
decision2 of the Regional Trial Court (RTC), Branch 254, Las Piñas City, which dismissed for lack
of merit the complaint for annulment of sale.

The factual antecedents of the case, as narrated by the RTC, are as follows:

[I]t appears that herein plaintiff was the registered owner of an originally twenty-five thousand
five hundred ninety-eight (25,598) square meters of land situated at Bo. Pugad Lawin, Las Piñas
City under Transfer Certificate of Title No. S-1648 (11521-A) of the Registry of Deeds of Las
Piñas City.

In compliance with a final court decision in Civil Case No. 87-42915 of the Regional Trial Court,
Branch XL of Manila, plaintiff passed and approved on 27 June 1988 a board resolution
authorizing defendant Rodolfo A. Agana to cede to T.S. Cruz Subdivision four thousand (4,000)
square meters of the land covered by the aforecited Transfer Certificate of Title No. S-1648
(11521-A). Allegedly, after the consummation of this transaction, defendant Rodolfo A. Agana
did not return to plaintiff the borrowed aforementioned title and[,] instead, allegedly forged a board
resolution of the plaintiff corporation supposedly to the effect that plaintiff had authorized him to
sell the remaining twenty-one thousand five hundred ninety-eight (21,598) square meters of the
subject property. A series of transactions thereafter took place between defendant Rodolfo A.
Agana and defendant Prima Real Properties, Inc. (Prima) which transactions culminated to the
signing on 5 September 1988 of an absolute deed of sale transferring the ownership of the subject
land from herein plaintiff to herein defendant Prima. After the consummation of the sale, defendant
Prima effected the cancellation of Transfer Certificate of Title No. S-1648 (11521-A) in the name
of plaintiff and in lieu thereof another Transfer Certificate of Title No. T-6175 in the name of
defendant Prima was issued by defendant Alejandro R. Villanueva in his capacity as Register of
Deeds of Las Piñas City.

Subsequent developments had it that on 6 October 1988, defendant Prima duly purchased from
T.S. Cruz Subdivision the aforementioned four thousand (4,000) square meters portion of the
subject property which development thereafter led to the cancellation of the aforementioned
Transfer Certificate of Title No. T-6175 and the issuance by the Registry of Deeds of Las Piñas
City of two separate titles both in the name of defendant Prima, Transfer Certificate of Title No.
7863 covering the aforementioned four thousand square meters and Transfer Certificate of Title
No. T-7864 covering the herein twenty-one thousand five hundred ninety-eighty (21,598) square
meter subject property.
In its complaint which was amended twice, the second amendment even needed the intervention
of the Court of Appeals in a petition for certiorari and mandamus after the same was denied
admission by Hon. N.C. Perello, Presiding Judge of the then Assisting Court of Makati,
[Muntinlupa], Metro Manila, herein plaintiff alleged inter alia that the authorization certified to by
Antonio V. Agcaoili, Corporate Secretary of the plaintiff and used by defendant Rodolfo A. Agana
in selling the subject property to defendant Prima was a forgery as the board of directors of the
plaintiff never enacted a resolution authorizing herein defendant Rodolfo A. Agana to sell herein
subject property to defendant Prima or to anyone else for that matter. Plaintiff further claimed that
defendant Prima in collusion with defendant Rodolfo A. Agana acted maliciously and in bad faith
in relying on the forged authority without taking any step to verify the same with the plaintiff as
owner of the subject property. According to plaintiff, the deed of absolute sale entered into between
defendants Prima and Rodolfo A. Agana being the result of fraudulent transaction was void thereby,
among others, causing damage to the plaintiff. For canceling Transfer Certificate of Title No. S-
1648 (11521-A) knowing fully well that the authorization to sell [to] defendant Rodolfo A. Agana
was a forgery, defendant Alejandro R. Villanueva was likewise made liable for damages.

On the other hand, defendant Prima separately with defendant Rodolfo A. Agana in their respective
answers, sought and insisted constantly on the dismissal of the complaint based solidly on the
ground that Venice B. Agana and Ma. Natividad A. Villacorta who filed in behalf of the plaintiff
the original complaint and the amended and the second amended complaints as well, respectively,
lacked legal capacity to sue because they were not authorized therefor by the board of directors of
the plaintiff. Furthermore, defendant Prima argued that it acted in good faith when it relied solely
on the face of the purported authorization of defendant Rodolfo A. Agana and entered into the
deed of absolute sale and paid in full the purchase price of PhP2,567,760.00 of the subject property.
This fact, according to defendant Prima, made it a buyer in good faith and for value. To cap its
argument, defendant Prima in adopting the defense of defendant Rodolfo A. Agana asserted that
even assuming that the authorization of defendant Rodolfo A. Agana was forged when plaintiff,
through its President, Marcelino A. Agana, Jr. (brother of Rodolfo) accepted/received part of the
aforestated purchase price knowing fully well the same to be the proceeds of the sale of the subject
property, plaintiff has been precluded as it is now estopped from asking for rescission of the deed
of absolute sale and reconveyance of the subject property.3

After due hearing, the trial court rendered judgment on April 7, 2000, dismissing the complaint for
annulment of sale with damages filed by the petitioner.4

The trial court found that the respondent was a buyer in good faith and for value, relying on the
authority of Rodolfo A. Agana to sell the property in behalf of the petitioner company, as
evidenced by a notarized board resolution. As such, the trial court ruled that the petitioner was
bound by the acts of its agent and must necessarily bear whatever damage may have been caused
by this alleged breach of trust.

On appeal, the CA affirmed in toto.

Thus, petitioner filed the instant petition raising the following errors:

I
The Court of Appeals gravely erred in ruling that Respondent Agana was duly authorized by
Petitioner under the Certification dated June 30, 1988 (Exhibits "D" and "3") to enter into the
sale of the subject property with Respondent Prima Real.

(A) There is no proof of the Certification’s authenticity and due execution;

(B) There is clear and convincing evidence that the Certification was forged.

(C) Even assuming that the Certification was authentic and duly executed, it was not
sufficient in form and by its terms to authorize Respondent Agana to sell the subject
property or receive payment on behalf of Petitioner.

II

The Court of Appeals gravely erred in not holding that Respondent Prima Real was the author of
its own damage by not making reasonable and prudent inquiries into the fact, nature and extent
of Respondent Agana’s authority, and by causing the issuance of checks in the name of
Respondent Agana.

The petition must fail.

A cursory reading of the issues reveals that these are factual matters which are not within the
province of the Court to look into, save only in exceptional circumstances which are not present
in the case at bar. Well settled is the rule that in petitions for review on certiorari under Rule 45,
only questions of law must be raised.5 As a matter of procedure, the Court defers and accords
finality to the factual findings of trial courts, especially when, as in the case at bar, such findings
are affirmed by the appellate court. This factual determination, as a matter of long and sound
appellate practice, deserves great weight and shall not be disturbed on appeal. It is not the function
of the Court to analyze and weigh all over again the evidence or premises supportive of the factual
holding of the lower courts.6

Petitioner insists that "the sale of the realty entered into between respondent Agana, purportedly
on behalf of the petitioner, and respondent Prima is null and void for lack of authority on the part
of respondent Agana to sell the property."7 The board resolution allegedly granting Rodolfo Agana
the authority to sell in behalf of the company, as certified by Corporate Secretary Atty. Antonio V.
Agcaoili, is alleged to be a forgery. Ma. Natividad A. Villacorta, who served as assistant to
Marcelino A. Agana, Jr., the President of St. Mary’s Farm, Inc., in 1988 testified that the board of
directors did not hold any meeting on June 27, 1988; that, in fact, the signature of Atty. Antonio
Agcaoili was not genuine; and that said document was merely presented to the notary public for
notarization without Atty. Agcaoili appearing before him.

Despite this insistence, we find no cogent reason to deviate from the findings and conclusions of
the respondent court affirming those of the trial court on this matter. Anent the forged signature of
Atty. Agcaoili, the CA did not err in not giving evidentiary weight to the findings of the Document
Examiner of the National Bureau of Investigation (NBI) on the ground that the findings were not
really conclusive. In the first place, the procedure for the investigation of questionable handwriting
was not properly followed. There is nothing on record that will conclusively show that the alleged
standard sample signatures of Atty. Antonio Agcaoili, which were submitted to the NBI and made
the basis of comparison, were the genuine signatures of the same Atty. Antonio Agcaoili.
Moreover, the examiner testified that it was possible to have variations in the standard signatures
of Atty. Agcaoili, caused by certain factors such as passage of time, pressure and physical
condition of the writer which may have decisive influences on his handwriting’s
characteristics.8 Thus, in the instant case, it cannot readily be concluded that a particular signature
appearing in those documents is not genuine for lack of proper identification and a more accurate
comparison of signatures. Mere allegation of forgery is not evidence and the burden of proof lies
in the party making the allegation.9 Unfortunately, in the case at bar, the petitioner failed to
discharge this burden.

Further challenging the due execution of the board resolution bearing the Secretary’s Certification,
petitioner wants us to consider the same as inadmissible on the ground that Atty. Agcaoili did not
appear before a notary public for notarization. We do not agree, because in the past, we have
already held that the non-appearance of the party before the notary public who notarized the deed
does not necessarily nullify or render the parties’ transaction void ab initio.10 However, the non-
appearance of the party exposes the notary public to administrative liability which warrants
sanction by the Court. This fact notwithstanding, we agree with the respondent court that it is not
enough to overcome the presumption of the truthfulness of the statements contained in the board
resolution. To overcome the presumption, there must be sufficient, clear and convincing evidence
as to exclude all reasonable controversy as to the falsity of the certificate.11 In the absence of such
proof, the document must be upheld. Notarization converts a private document into a public
document, making it admissible in court without further proof of its authenticity.121avvphi1

On the basis of this notarized board resolution, respondent had every reason to rely on Rodolfo
Agana’s authority to sell the subject property. Undeniably then, the respondent is an innocent
purchaser for value in good faith. Our pronouncement in Bautista v. Silva13 is instructive:

A buyer for value in good faith is one who buys property of another, without notice that some other
person has a right to, or interest in such property and pays full and fair price for the same, at the
time of such purchase, or before he has notice of the claim or interest of some other persons in the
property. He buys the property with the well-founded belief that the person from whom he receives
the thing had title to the property and capacity to convey it.

To prove good faith, a buyer of registered and titled land need only show that he relied on the face
of the title to the property. He need not prove that he made further inquiry for he is not obliged to
explore beyond the four corners of the title. Such degree of proof of good faith, however, is
sufficient only when the following conditions concur: first, the seller is the registered owner of the
land; second, the latter is in possession thereof; and third, at the time of the sale, the buyer was not
aware of any claim or interest of some other person in the property, or of any defect or restriction
in the title of the seller or in his capacity to convey title to the property.14

All the conditions enumerated in the aforementioned case are present in the case at bar, enough
for us to consider Prima as a buyer in good faith. Prima Real Properties, Inc. is a company engaged
in the buying and selling of real properties. As borne out by the records, respondent exerted efforts
to verify the true background of the subject property. Rodolfo Agana presented to respondent the
(1) notarized board resolution which stated that at a special meeting held on June 27, 1988, the
board of directors authorized Mr. Rodolfo A. Agana, Treasurer, to sell the subject property covered
by Transfer Certificate of Title (TCT) No. S-1648;15 (2) a separate Certification by the petitioner’s
president, Marcelino A. Agana, Jr., authorizing its Treasurer, Rodolfo Agana, to sell said
property;16 and, (3) TCT No. T-1648 of the subject property. Convinced that Rodolfo Agana had
the authority to sell on behalf of the company after being presented all these documents, the sale
between the parties was thereby consummated. A deed of sale was executed on September 5,
198817 and the full consideration of ₱2,567,760.00 for the subject property was paid.18

It is of no moment that the checks were made payable to Rodolfo Agana and not to the company
which, according to the petitioner, should have alerted the respondent to inquire further into the
extent of Agana’s authority to transfer the subject property. This was no longer necessary
considering that respondent had every reason to rely on Rodolfo Agana’s authority to sell,
evidenced by the notarized Certification. As explained in the Bautista case:

When the document under scrutiny is a special power of attorney that is duly notarized, we know
it to be a public document where the notarial acknowledgment is prima facie evidence of the fact
of its due execution. A buyer presented with such a document would have no choice between
knowing and finding out whether a forger lurks beneath the signature on it. The notarial
acknowledgment has removed that choice from him and replaced it with a presumption sanctioned
by law that the affiant appeared before the notary public and acknowledged that he executed the
document, understood its import and signed it. In reality, he is deprived of such choice not because
he is incapable of knowing and finding out but because, under our notarial system, he has been
given the luxury of merely relying on the presumption of regularity of a duly notarized SPA. And
he cannot be faulted for that because it is precisely that fiction of regularity which holds together
commercial transactions across borders and time.

In sum, all things being equal, a person dealing with a seller who has [in his] possession title to
the property but whose capacity to sell is restricted, qualifies as a buyer in good faith if he proves
that he inquired into the title of the seller as well as into the latter’s capacity to sell; and that in his
inquiry, he relied on the notarial acknowledgment found in the seller’s duly notarized special
power of attorney. He need not prove anything more for it is already the function of the notarial
acknowledgment to establish the appearance of the parties to the document, its due execution and
authenticity.19

Aside from the pertinent documents presented, respondent also relied on the confirmation and
certification of the Register of Deeds of Las Piñas City and Mr. Timoteo S. Cruz, owner of the
land likewise sold by Rodolfo Agana for the petitioner, with similar authorization by the petitioner
and signed by the corporate secretary Atty. Agcaoili. Agana acted as petitioner’s authorized agent
and had full authority to bind the company in that transaction with Cruz.

Contrary to the allegations of the petitioner that respondent Agana’s authority was only limited to
negotiate and not to sell the subject property, suffice it to state that the board resolution further
averred that he was "authorized and empowered to sign any and all documents, instruments, papers
or writings which may be required and necessary for this purpose to bind the Corporation in this
undertaking."20 The certification of the President, Marcelino Agana, Jr. also attests to this fact.
With this notarized board resolution, respondent Agana, undeniably, had the authority to cede the
subject property, carrying with it all the concomitant powers necessary to implement said
transaction. On the strength of the deed of absolute sale executed pursuant to such authority, title
over the land in petitioner’s name was cancelled and a new certificate of title – TCT No. T-617521 –
was already issued in the name of Prima Real Properties, Inc.

Thus, it is too late in the day to have the sale voided, notwithstanding the retraction made by
Rodolfo Agana in his Comment22 on the Petition filed with this Court. Therein, he admits that he
acted solely and without proper authority of the corporation. Agana states that he wishes to end
once and for all the rift that had occurred in the corporation; and in order to buy peace for all the
parties and for himself, he is willing to return the money paid by Prima so that ownership of the
property can be returned to the petitioner. In light of this admission that Agana had no authority,
petitioner posits that there is justifiable reason for the Court to re-visit or evaluate the facts of the
case anew.

Unfortunately, the Court cannot give weight to this magnanimous gesture of Agana; neither will
the Court lend credence to Agana’s assertion that he acted solely and without proper authority
from the corporation, inasmuch as it was raised for the very first time in this Court and only after
8 years from the inception of the case. In all the pleadings filed by respondent Agana in court, he
was steadfast in his position that he had authority to sell the subject property. A judicial admission
conclusively binds the party making it. He cannot thereafter take a position contradictory to, or
inconsistent with his pleadings. Acts or facts admitted do not require proof and cannot be
contradicted unless it is shown that the admission was made through palpable mistake or that no
such admission was made.23 In the instant case, there is no proof of these exceptional
circumstances. Clearly, the retraction was merely an afterthought on the part of respondent Agana
with the intention to end the rift in the family corporation.

Considering all the foregoing, it cannot be gainsaid that respondent Prima is an innocent purchaser
in good faith and for value.

WHEREFORE, the petition is DENIED. The decision of the Court of Appeals is AFFIRMED.
G.R. No. L-24765 August 29, 1969

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
MAXIMO STA. MARIA, ET AL., defendant,
VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO and LEONILA, all
surnamed STA. MARIA, defendants-appellants.

TEEHANKEE, J.:

In this appeal certified to this Court by the Court of Appeals as involving purely legal issues, we
hold that a special power of attorney to mortgage real estate is limited to such authority to mortgage
and does not bind the grantor personally to other obligations contracted by the grantee, in the
absence of any ratification or other similar act that would estop the grantor from questioning or
disowning such other obligations contracted by the grantee.

Plaintiff bank filed this action on February 10, 1961 against defendant Maximo Sta. Maria and his
six brothers and sisters, defendants-appellants, Valeriana, Emeteria, Teofilo, Quintin, Rosario and
Leonila, all surnamed Sta. Maria, and the Associated Insurance & Surety Co., Inc. as surety, for
the collection of certain amounts representing unpaid balances on two agricultural sugar crop loans
due allegedly from defendants. 1

The said sugar crop loans were obtained by defendant Maximo Sta. Maria from plaintiff bank
under a special power of attorney, executed in his favor by his six brothers and sisters, defendants-
appellants herein, to mortgage a 16-odd hectare parcel of land, jointly owned by all of them, the
pertinent portion of which reads as follows:

That we, VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO and LEONILA

all surnamed STA. MARIA, sole heirs of our deceased parents CANDIDO STA. MARIA
and FRANCISCA DE LOS REYES, all of legal age, Filipinos, and residents of
Dinalupihan, Bataan, do hereby name, constitute and appoint Dr. MAXIMO STA. MARIA,
of legal age, married, and residing at Dinalupihan, Bataan to be our true and lawful attorney
of and in our place, name and stead to mortgage, or convey as security to any bank,
company or to any natural or juridical person, our undivided shares over a certain parcel
of land together the improvements thereon which parcel of land is more particularly
described as follows, to wit:

"Situated in the Barrio of Pinulot, Municipality of Dinalupihan, Bataan, containing

an area of 16.7249 hectares and bounded as follows to wit: North by property of
Alejandro Benito; on the Northeast, by public land and property of Tomas Tulop;
on the southeast, by property of Ramindo Agustin; on the southwest, by properties
of Jose V. Reyes and Emilio Reyes; and on the northwest, by excluded portion
claimed by Emilio Reyes."
 of which parcel of land aforementioned we are together with our said attorney who is our
brother, the owners in equal undivided shares as evidenced by Transfer Certificate of Title
No. T-2785 of the Registry of Deeds of Bataan dated Feb. 26th 1951. (Exh. E)2

In addition, Valeriana Sta. Maria alone also executed in favor of her brother, Maximo, a special
power of attorney to borrow money and mortgage any real estate owned by her, granting him the
following authority:

For me and in my name to borrow money and make, execute, sign and deliver mortgages
of real estate now owned by me standing in my name and to make, execute, sign and deliver
any and all promissory notes necessary in the premises. (Exh. E-I)3

By virtue of the two above powers, Maximo Sta. Maria applied for two separate crop loans, for
the 1952-1953 and 1953-1954 crop years, with plaintiff bank, one in the amount of P15,000.00, of
which only the sum of P13,216.11 was actually extended by plaintiff, and the other in the amount
of P23,000.00, of which only the sum of P12,427.57 was actually extended by plaintiff. As security
for the two loans, Maximo Sta. Maria executed in his own name in favor of plaintiff bank two
chattel mortgages on the standing crops, guaranteed by surety bonds for the full authorized
amounts of the loans executed by the Associated Insurance & Surety Co., Inc. as surety with
Maximo Sta. Maria as principal. The records of the crop loan application further disclose that
among the securities given by Maximo for the loans were a "2nd mortgage on 25.3023 Has. of
sugarland, including sugar quota rights therein" including, the parcel of land jointly owned by
Maximo and his six brothers and sisters herein for the 1952-1953 crop loan, with the notation that
the bank already held a first mortgage on the same properties for the 1951-1952 crop loan of
Maximo, 4 and a 3rd mortgage on the same properties for the 1953-1954 crop loan. 5

The trial court rendered judgment in favor of plaintiff and against defendants thus:1äwphï1.ñët

WHEREFORE premises considered, judgment is hereby rendered condemning the

defendant Maximo R. Sta. Maria and his co-defendants Valeriana, Quintin, Rosario,
Emeteria, Teofilo, and Leonila all surnamed Sta. Maria and the Associated Insurance and
Surety Company, Inc., jointly and severally, to pay the plaintiff, the Philippine National
Bank, Del Carmen Branch, as follows:

1. On the first cause of action, the sum of P8,500.72 with a daily interest of P0.83 on
P6,100.00 at 6% per annum beginning August 21, 1963 until fully paid;

2. On the second cause of action, the sum of P14,299.79 with a daily interest of P1.53 on
P9,346.44 at 6% per annum until fully paid; and

3. On both causes of action the further sum equivalent to 10% of the total amount due as
attorney's fee as of the date of the execution of this decision, and the costs.6

Defendant Maximo Sta. Maria and his surety, defendant Associated Insurance & Surety Co., Inc.
who did not resist the action, did not appeal the judgment. This appeals been taken by his six
brothers and sisters, defendants-appellants who reiterate in their brief their main contention in their
answer to the complaint that under this special power of attorney, Exh. E, they had not given their
brother, Maximo, the authority to borrow money but only to mortgage the real estate jointly owned
by them; and that if they are liable at all, their liability should not go beyond the value of the
property which they had authorized to be given as security for the loans obtained by Maximo. In
their answer, defendants-appellants had further contended that they did not benefit whatsoever
from the loans, and that the plaintiff bank's only recourse against them is to foreclose on the
property which they had authorized Maximo to mortgage.

We find the appeal of defendants-appellants, except for defendant Valeriana Sta. Maria who had
executed another special power of attorney, Exh. E-1, expressly authorizing Maximo to borrow
money on her behalf, to be well taken.

1. Plaintiff bank has not made out a cause of action against defendants-appellants (except
Valeriana), so as to hold them liable for the unpaid balances of the loans obtained by
Maximo under the chattel mortgages executed by him in his own name alone. In the early
case of Bank of P.I. vs. De Coster, this Court, in holding that the broad power of attorney
given by the wife to the husband to look after and protect the wife's interests and to transact
her business did not authorize him to make her liable as a surety for the payment of the
pre-existing debt of a third person, cited the fundamental construction rule that "where in
an instrument powers and duties are specified and defined, that all of such powers and
duties are limited and confined to those which are specified and defined, and all other
powers and duties are excluded." 7 This is but in accord with the disinclination of courts to
enlarge an authority granted beyond the powers expressly given and those which
incidentally flow or derive therefrom as being usual or reasonably necessary and proper
for the performance of such express powers. Even before the filing of the present action,
this Court in the similar case of De Villa vs. Fabricante 8 had already ruled that where the
power of attorney given to the husband by the wife was limited to a grant of authority to
mortgage a parcel of land titled in the wife's name, the wife may not be held liable for the
payment of the mortgage debt contracted by the husband, as the authority to mortgage does
not carry with it the authority to contract obligation. This Court thus held in the said case:

Appellant claims that the trial court erred in holding that only Cesario A. Fabricante
is liable to pay the mortgage debt and not his wife who is exempt from liability.
The trial court said: "Only the defendant Cesario A. Fabricante is liable for the
payment of this amount because it does not appear that the other defendant Maria
G. de Fabricante had authorized Cesario A. Fabricante to contract the debt also in
her name. The power of attorney was not presented and it is to be presumed that
the power (of attorney) was limited to a grant of authority to Cesario A. Fabricante
to mortgage the parcel of land covered by Transfer Certificate of Title in the name
of Maria G. de Fabricante.

We went over the contents of the deed of mortgage executed by Cesario Fabricante
in favor of Appellant on April 18, 1944, and there is really nothing therein from
which we may infer that Cesario was authorized by his wife to construct the
obligation in her name. The deed shows that the authority was limited to the
execution of the mortgage insofar as the property of the wife is concerned. There is
 a difference between authority to mortgage and authority to contract obligation.
Since the power of attorney was not presented as evidence, the trial court was
correct in presuming that the power was merely limited to a grant of authority to
mortgage unless the contrary is shown.9

2. The authority granted by defendants-appellants (except Valeriana) unto their brother,

Maximo, was merely to mortgage the property jointly owned by them. They did not grant
Maximo any authority to contract for any loans in their names and behalf. Maximo alone,
with Valeriana who authorized him to borrow money, must answer for said loans and the
other defendants-appellants' only liability is that the real estate authorized by them to be
mortgaged would be subject to foreclosure and sale to respond for the obligations
contracted by Maximo. But they cannot be held personally liable for the payment of such
obligations, as erroneously held by the trial court.

3. The fact that Maximo presented to the plaintiff bank Valeriana's additional special power
of attorney expressly authorizing him to borrow money, Exh. E-1, aside from the authority
to mortgage executed by Valeriana together with the other defendants-appellants also in
Maximo's favor, lends support to our view that the bank was not satisfied with the authority
to mortgage alone. For otherwise, such authority to borrow would have been deemed
unnecessary and a surplusage. And having failed to require that Maximo submit a similar
authority to borrow, from the other defendants-appellants, plaintiff, which apparently was
satisfied with the surety bond for repayment put up by Maximo, cannot now seek to hold
said defendants-appellants similarly liable for the unpaid loans. Plaintiff's argument that "a
mortgage is simply an accessory contract, and that to effect the mortgage, a loan has to be
secured" 10 falls, far short of the mark. Maximo had indeed, secured the loan on his own
account and the defendants-appellants had authorized him to mortgage their respective
undivided shares of the real property jointly owned by them as security for the loan. But
that was the extent of their authority land consequent liability, to have the real property
answer for the loan in case of non-payment. It is not unusual in family and business circles
that one would allow his property or an undivided share in real estate to be mortgaged by
another as security, either as an accommodation or for valuable consideration, but the grant
of such authority does not extend to assuming personal liability, much less solidary liability,
for any loan secured by the grantee in the absence of express authority so given by the
grantor.

4. The outcome might be different if there had been an express ratification of the loans by
defendants-appellants or if it had been shown that they had been benefited by the crop loans
so as to put them in estoppel. But the burden of establishing such ratification or estoppel
falls squarely upon plaintiff bank. It has not only failed to discharge this burden, but the
record stands undisputed that defendant-appellant Quintin Sta. Maria testified that he and
his co-defendants executed the authority to mortgage "to accommodate (my) brother Dr.
Maximo Sta. Maria ... and because he is my brother, I signed it to accommodate him as
security for whatever he may apply as loan. Only for that land, we gave him as, security"
and that "we brothers did not receive any centavo as benefit." 11 The record further shows
plaintiff bank itself admitted during the trial that defendants-appellants "did not profit from
the loan" and that they "did not receive any money (the loan proceeds) from
 (Maximo)." 12 No estoppel, therefore, can be claimed by plaintiff as against defendants-
appellants.

5. Now, as to the extent of defendant Valeriana Sta. Maria's liability to plaintiff. As already
stated above, Valeriana stands liable not merely on the mortgage of her share in the
property, but also for the loans which Maximo had obtained from plaintiff bank, since she
had expressly granted Maximo the authority to incur such loans. (Exh. E-1.) Although the
question has not been raised in appellants' brief, we hold that Valeriana's liability for the
loans secured by Maximo is not joint and several or solidary as adjudged by the trial court,
but only joint, pursuant to the provisions of Article 1207 of the Civil Code that "the
concurrence ... of two or more debtors in one and the same obligation does not imply that ...
each one of the (debtors) is bound to render entire compliance with the prestation. There is
a solidary liability only when the obligation expressly so states, or when the law or the
nature of the obligation requires solidarity." It should be noted that in the additional special
power of attorney, Exh. E-1, executed by Valeriana, she did not grant Maximo the authority
to bind her solidarity with him on any loans he might secure thereunder.

6. Finally, as to the 10% award of attorney's fees, this Court believes that considering the
resources of plaintiff bank and the fact that the principal debtor, Maximo Sta. Maria, had
not contested the suit, an award of five (5%) per cent of the balance due on the principal,
exclusive of interests, i.e., a balance of P6,100.00 on the first cause of action and a balance
of P9,346.44 on the second cause of action, per the bank's statements of August 20, 1963,
(Exhs. Q-1 and BB-1, respectively) should be sufficient.

WHEREFORE, the judgment of the trial court against defendants-appellants Emeteria, Teofilo,
Quintin, Rosario and Leonila, all surnamed Sta. Maria is hereby reversed and set aside, with costs
in both instances against plaintiff. The judgment against defendant-appellant Valeriana Sta. Maria
is modified in that her liability is held to be joint and not solidary, and the award of attorney's fees
is reduced as set forth in the preceding paragraph, without costs in this instance.
G.R. No. 94566 July 3, 1992

BA FINANCE CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and TRADERS ROYAL BANK, respondents.

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the respondent appellate court which
reversed the ruling of the trial court dismissing the case against petitioner.

The antecedent facts are as follows:

On December 17, 1980, Renato Gaytano, doing business under the name Gebbs International,
applied for and was granted a loan with respondent Traders Royal Bank in the amount of
P60,000.00. As security for the payment of said loan, the Gaytano spouses executed a deed of
suretyship whereby they agreed to pay jointly and severally to respondent bank the amount of the
loan including interests, penalty and other bank charges.

In a letter dated December 5, 1980 addressed to respondent bank, Philip Wong as credit
administrator of BA Finance Corporation for and in behalf of the latter, undertook to guarantee the
loan of the Gaytano spouses. The letter reads:

This is in reference to the application of Gebbs International for a twenty-five (25)

month term loan of 60,000.00 with your Bank.

In this connection, please be advised that we unconditionally guarantee full

payment in peso value the said accommodation (sic) upon non-payment by subject
up to a maximum amount of P60,000.00.

Hoping this would meet your requirement and expedite the early processing of their
application.

Thank you.

Very truly yours,

BA FINANCE CORPORATION

(signed)

PHILIP H. WONG
Credit Administrator

(p. 12, Rollo)

Partial payments were made on the loan leaving an unpaid balance in the amount of P85,807.25.
Since the Gaytano spouses refused to pay their obligation, respondent bank filed with the trial
court complaint for sum of money against the Gaytano spouses and petitioner corporation as
alternative defendant.

The Gaytano spouses did not present evidence for their defense. Petitioner corporation, on the
other hand, raised the defense of lack of authority of its credit administrator to bind the corporation.

On December 12, 1988, the trial court rendered a decision the dispositive portion of which states:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of plaintiff

and against defendants/Gaytano spouses, ordering the latter to jointly and severally
pay the plaintiff the following:

1) EIGHTY FIVE THOUSAND EIGHT HUNDRED SEVEN AND 25/100

(P85,807.25), representing the total unpaid balance with accumulated interests,
penalties and bank charges as of September 22, 1987, plus interests, penalties and
bank charges thereafter until the whole obligation shall have been fully paid.

2) Attorney's fees at the stipulated rate of ten (10%) percent computed from the
total obligation; and

3) The costs of suit.

The dismissal of the case against defendant BA Finance Corporation is hereby

ordered without pronouncement as to cost.

SO ORDERED. (p. 31, Rollo)

Not satisfied with the decision, respondent bank appealed with the Court of Appeals. On March
13, 1990, respondent appellate court rendered judgment modifying the decision of the trial court
as follows:

In view of the foregoing, the judgment is hereby rendered ordering the defendants
Gaytano spouses and alternative defendant BA Finance Corporation, jointly and
severally, to pay the plaintiff the amount of P85,807.25 as of September 8, 1987,
including interests, penalties and other back (sic) charges thereon, until the full
obligation shall have been fully paid. No pronouncement as to costs.

SO ORDERED. (p. 27 Rollo)

Hence this petition was filed with the petitioner assigning the following errors committed by
respondent appellate court:

1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING

THAT PETITIONER IS JOINTLY AND SEVERALLY LIABLE WITH
 GAYTANO SPOUSES DESPITE ITS FINDINGS THAT THE LETTER
GUARANTY (EXH. "C") IS "INVALID AT ITS INCEPTION";

2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING

THAT THE PETITIONER WAS GUILTY OF ESTOPPEL DESPITE THE FACT
THAT IT NEVER KNEW OF SUCH ALLEGED LETTER-GUARANTY;

3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT

RULING THAT SUCH LETTER GUARANTY (EXHIBIT "C") BEING
PATENTLY ULTRA VIRES, IS UNENFORCEABLE;

4. THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING

RELIEF ON PETITIONER'S COUNTERCLAIM
(p. 10, Rollo).

Since the issues are interrelated, it would be well to discuss them jointly.

Petitioner contends that the letter guaranty is ultra vires, and therefore unenforceable; that said
letter-guaranty was issued by an employee of petitioner corporation beyond the scope of his
authority since the petitioner itself is not even empowered by its articles of incorporation and by-
laws to issue guaranties. Petitioner also submits that it is not guilty of estoppel to make it liable
under the letter-guaranty because petitioner had no knowledge or notice of such letter-guaranty;
that the allegation of Philip Wong, credit administrator, that there was an audit was not supported
by evidence of any audit report or record of such transaction in the office files.

We find the petitioner's contentions meritorious. It is a settled rule that persons dealing with an
assumed agent, whether the assumed agency be a general or special one are bound at their peril, if
they would hold the principal liable, to ascertain not only the fact of agency but also the nature and
extent of authority, and in case either is controverted, the burden of proof is upon them to establish
it (Harry Keeler v. Rodriguez, 4 Phil. 19). Hence, the burden is on respondent bank to satisfactorily
prove that the credit administrator with whom they transacted acted within the authority given to
him by his principal, petitioner corporation. The only evidence presented by respondent bank was
the testimony of Philip Wong, credit administrator, who testified that he had authority to issue
guarantees as can be deduced from the wording of the memorandum given to him by petitioner
corporation on his lending authority. The said memorandum which allegedly authorized Wong not
only to approve and grant loans but also to enter into contracts of guaranty in behalf of the
corporation, partly reads:

To: Philip H. Wong, SAM

Credit Administrator

From: Hospicio B. Bayona, Jr., VP and

Head of Credit Administration

Re: Lending Authority

 I am pleased to delegate to you in your capacity as Credit Administrator the
following lending limits:

a) P650,000.00 — Secured Loans

b) P550,000.00 — Supported Loans
c) P350,000.00 — Truck Loans/Contracts/Leases
d) P350,000.00 — Auto Loan Contracts/Leases
e) P350,000.00 — Appliance Loan Contracts
f) P350,000.00 — Unsecured Loans

Total loans and/or credits [combination of (a) thru (f) extended to any one borrower
including parents, affiliates and/or subsidiaries, should not exceed P750,000.00. In
exercising the limits aforementioned, both direct and contingent commitments to
the borrower(s) should be considered.

All loans must be within the Company's established lending guideline and policies.

xxx xxx xxx

LEVELS OF APPROVAL

All transactions in excess of any branch's limit must be recommended to you

through the Official Credit Report for approval. If the transaction exceeds your limit,
you must concur in application before submitting it to the Vice President, Credit
Administration for approval or concurrence.

. . . (pp. 62-63, Rollo) (Emphasis ours)

Although Wong was clearly authorized to approve loans even up to P350,000.00 without any
security requirement, which is far above the amount subject of the guaranty in the amount of
P60,000.00, nothing in the said memorandum expressly vests on the credit administrator power to
issue guarantees. We cannot agree with respondent's contention that the phrase "contingent
commitment" set forth in the memorandum means guarantees. It has been held that a power of
attorney or authority of an agent should not be inferred from the use of vague or general words.
Guaranty is not presumed, it must be expressed and cannot be extended beyond its specified limits
(Director v. Sing Juco, 53 Phil. 205). In one case, where it appears that a wife gave her husband
power of attorney to loan money, this Court ruled that such fact did not authorize him to make her
liable as a surety for the payment of the debt of a third person (Bank of Philippine Islands v. Coster,
47 Phil. 594).

The sole allegation of the credit administrator in the absence of any other proof that he is authorized
to bind petitioner in a contract of guaranty with third persons should not be given weight. The
representation of one who acts as agent cannot by itself serve as proof of his authority to act as
agent or of the extent of his authority as agent (Velasco v. La Urbana, 58 Phil. 681). Wong's
testimony that he had entered into similar transactions of guaranty in the past for and in behalf of
the petitioner, lacks credence due to his failure to show documents or records of the alleged past
transactions. The actuation of Wong in claiming and testifying that he has the authority is
understandable. He would naturally take steps to save himself from personal liability for damages
to respondent bank considering that he had exceeded his authority. The rule is clear that an agent
who exceeds his authority is personally liable for damages (National Power Corporation v.
National Merchandising Corporation, Nos. L-33819 and
L-33897, October 23, 1982, 117 SCRA 789).

Anent the conclusion of respondent appellate court that petitioner is estopped from alleging lack
of authority due to its failure to cancel or disallow the guaranty, We find that the said conclusion
has no basis in fact. Respondent bank had not shown any evidence aside from the testimony of the
credit administrator that the disputed transaction of guaranty was in fact entered into the official
records or files of petitioner corporation, which will show notice or knowledge on the latter's part
and its consequent ratification of the said transaction. In the absence of clear proof, it would be
unfair to hold petitioner corporation guilty of estoppel in allowing its credit administrator to act as
though the latter had power to guarantee.

ACCORDINGLY, the petition is GRANTED and the assailed decision of the respondent appellate
court dated March 13, 1990 is hereby REVERSED and SET ASIDE and another one is rendered
dismissing the complaint for sum of money against BA Finance Corporation.
G.R. No. L-30181 July 12, 1929

THE DIRECTOR OF PUBLIC WORKS, plaintiff-appellee,

vs.
SING JUCO, ET AL., defendants.
SING JUCO, SING BENGCO and PHILIPPINE NATIONAL BANK, appellants.

STREET, J.:

From Torrens certificate of title No. 1359 relating to land in the municipality of Iloilo, it appears
that on September 28, 1920, the title of the property described therein was owned, in undivided
shares, by Mariano de la Rama, Gonzalo Mariano Tanboontien, Sing Juco and Sing Bengco. The
interest vested by said certificate in Mariano de la Rama was subsequently transferred to sale to
Enrique Enchaus. It further appears that on November 23, 1020, the owners of the property covered
by the said certificate conveyed it by way of a mortgage to the Philippine National Bank for the
purpose of securing a credit in current account in a mount not in excess of P170,000, with interest
at a rate of 12 percent per annum. The indebtedness covered by this mortgage has not been satisfied,
and upon the date of the decision of the court below it amounted to the sum of P170,000, plus
interest at 12 percent per annum from November 24, 1920.

The land above referred to contains an area of nearly 16 hectares, or to be exact, 158,589.44 square
meters according to the certificate. It is located on "Point Llorente" at the mouth of Iloilo river,
near the City of Iloilo, and it is of so low a level that, prior to the improvement to which reference
is to be made, it was subject to frequent flooding. In 1921, the Government of the Philippine Islands
was planning extensive harbor improvements in this vicinity, requiring extensive dredging by the
Bureau of Public Works in the mouth of said river. The conduct of these dredging operations made
it necessary for the Director of Public Works to find a place of deposit for the dirt and mud taken
from the place, or places, dredged. As the land already referred to was low and easily accessible
to the spot where dredging was to be conducted, it was obviously for the interest of the Government
and the said owners of the land that the material taken out by the dredges should be deposited on
the said property. Accordingly, after preliminary negotiations to this effect have been conducted,
a contract was made between the Director of Public Works, representing the Government of the
Philippine Islands, and the four owners, M. de la Rama, Sing Juco, G. M. Tanboontien, and Seng
Bengco, of which, as modified by some respects by subsequent agreement, the following features
are noteworthy.

(1) The Bureau of Public Works agreed to deposit the material to be dredged by it from the Iloilo
River, in connection with the contempted improvement, upon the lot of the land, already described
as covered by certificate No. 1359, at a price to be determined at the actual cost of the filling, with
certain surcharges to be determined by the Director of Public Works. It was contemplated in the
original draft of the contract that the Bureau would be able to furnish some 250,000 cubic meters
of dredged material for filling in the land, was limited to the material which should be dredged
from the river as a result of the proposed improvement. To this stipulation the four owners of the
property assented on March 14, 1921.
(2) With respect to the compensation it was agreed that the amount due should be determined by
the Director of Public Works, under certain conditions mentioned in the contract, of an amount of
not less that 20 nor more than 75 centavos per cubic meter. It was further agreed that, when the
work should be finished, the cost thereof should be paid by the owners in 5 annual installments
and that for failure to pay such installment the whole of the amount thereafter to accrue should
become at once due. This contract was noted in the Torrens certificate of title on January 8, 1924.

In connection with the making of the contract abovementioned, the, Director of Public Works
required a bond to be supplied by the owners in the penal amount of P150,000, approximately
twice the estimated cost of the filling, conditioned for the payment of the amount due from the
owners. This bond was executed contemporaneously with the main contract; and in connection
therewith it should be noted that one of the names appearing upon said contract was that of "Casa
Viuda de Tan Toco," purporting to be signed by M. de la Rama.

The dredging operation were conducted by the Bureau of Public Works in substantial accomplice,
we find, with the terms of said agreement; and after the account with the owners were liquidated
and the amount due from them determined, demand was made upon them for the payment of the
first installment. No such payment was, however, made as a consequence this action was instituted
by the Director of Public Works on October 14, 1926, for the purpose of recovering the amount
due to the Government under the contract from the original owners of the property from the sureties
whose names were signed to the contract of suretyship, and to enforce the obligation as a real lien
upon the property. In said action the Philippine National Bank was made a party defendant, as
having an interest under its prior mortgage upon the property, while Enrique Enchaus was made
defendant as successor in interest of M. de la Rama, and Tan Ong Sze widow of Tan Toco, was
also made defendant by reason of her supposed liability derived from the act of De la Rama in
signing the firm "Casa Viuda de Tan Toco" as a surety on bond. It was noteworthy that in the
complaint it was asked that, in the enforcement of the government's lien, the property should be
sold "subject to the first mortgage in favor of the Philippine National Bank."

To this complaint different defenses were set up, as follows: On behalf of the owners of the
property, it was contended that the government has not complied with that contract, in that dredged
material deposited on the land had not been sufficient in quantity to raise the level of the land
above high water, and that, as a consequence, the land had not been much benefited. It is therefore
asserted that the owners of the property are not obligated to pay the filling operation. These
defendants sought to recover further damages by way of cross-complaint for the same supposed
breach of contract on the part of the Government. On the part of Viuda de Tan Toco the defense
was interposed that the name "Casa Viuda de Tan Toco" signed to the contract of suretyship by
Mariano de la Rama was signed without authority; while on the part of the Philippine National
Bank was asserted that the mortgage credit pertaining to the bank is superior to the Governments
lien for improvement, and by way of counterclaim the bank asked that its mortgage be foreclosed
for the amount of its mortgage credit, and that the four mortgagors, Sing Juco, Sing Bengco, M.
de la Rama and G.M. Tanboontien, be required to pay the amount due to the bank, and that in case
of their failure to do so the mortgaged property should be sold and the proceeds paid preferentially
to the bank upon its mortgage.
Upon hearing the cause the trial court, ignoring that part of the original complaint wherein the
Government seeks to enforce its lien in subordination to its first mortgage, made pronouncements:

(1) Declaring Sing Juco, Sing Bengco, M. de la Rama and G. M. Tanboontien indebted to
the Government in the amount of P70, 938, with interest from the date of the filing of the
complaint, and requiring them to pay the said sum to the plaintiff;

(2) Declaring, in effect, that the lien of the Government for the filing improvement was
superior to the mortgage of the Philippine National Bank; and finally

(3) Declaring the defendant Tan Ong Sze, Viuda de Tan Toco, personally liable upon the
contract of suretyship, in case the four principal obligors should not satisfy their
indebtedness to the Government, or if the land should not sell enough to satisfy the same.

From this judgment various parties defendant appealed as follows: All of the defendants, except
the Philippine National Bank, appealed from so much of the decision as held that the defendant
owners and signatories to the contract of suretyship has not been released by non-performance of
the contract on the part of the Bureau of Public Works, and from the refusal of the court to give to
the defendant owners damages for breach of contract on the part of the Government. On the part
of Tan Ong Sze, Viuda de Tan Toco, error is assigned to the action of the court in holding said
defendant liable upon the contract of suretyship. Finally, the Philippine National Bank appealed
from so much of the decision as gave the lien of the Government for improvement priority over
the mortgagee executed in favor of the bank.

Dealing with these contentions in the order indicated, we find the contention of the appellants
(except the Philippine National Bank), to the effect that the Director of Public Works has failed to
comply with the obligations imposed upon the government by the contract, is wholly untenable.
By said contract, the Government was not obligated to raise the land on which the dredged material
was deposited to any specified level. The Government only obligated itself upon said land the
material should be dredged from the mouth of the Iloilo River in the course of the improvement
undertaken by the Government in and near that place. Under the original contract as originally
drafted, the Government agreed to furnish 250,000 cubic meters, more or less, of dredged material;
but on Mar. 14, 1921, the owners of the property indicated their acceptance of a modification of
the contract effected by the Director of Public Works and the Secretary of Commerce and
Communications, in which it was made clear that the material to be supplied would be such only
as should be dredged from the river as a result of the proposed improvement. In the endorsement
of the Director of Public Works, thus accepted by the owners, it was made clear that the Bureau
of Public Works did not undertake to furnish material to complete the filling of the land to any
specified level. Proof submitted on the part of the owners tends to show that parts of the filled land
are still subject to inundation in rainy weather; and it is contended, that the owners have, for this
reason, been able to sell in lots the property to individual occupants. the sum of P15,000, which is
claimed upon this account, as damages by the owners, is the amount of interest alleged to have
been accrued upon their investment, owing to their inability to place the land advantageously upon
the market. The claim is, as already suggested, untenable. There has been no breach on the part of
the Government in fulfilling the contract. In fact it appears that the Government deposited in the
period covered by the contract 236,460 cubic meters, and after the amount thus deposited had been
reduced by 21,840 cubic meters, owing to the natural process of drying, the Bureau of Public
Works further deposited 53,000 cubic meters on the same land. In this connection, the district
engineer testified that the filling which has been charged to the owners at P70,938 actually cost
the Government the amount of P88,297.85. The charge made for the work was evidently computed
on a very moderate basis; and the owners of the property have no just ground of complaint
whatever.

The contention of Tan Ong Sze, widow of Tan Toco, to the effect that she was not, and is not,
bound by the contract of suretyship, is our pinion, well-founded. It will be remembered that said
contract purports to have been signed by Mariano de la Rama, acting for this defendant under the
power of attorney. But the Government has exhibited no power of attorney which would authorize
the creation, by the attorney-in-fact, of an obligation in the nature of suretyship binding upon this
principal.

It is true that the Government introduced in evidence 2 documents exhibiting powers of attorney,
conferred by these documents (Exhibit K, identical with Exhibit 5) Mariano de la Rama was given
the power which reads as follows:

. . . and also for me and in my name to sign, seal and execute, and as my act and deed
deliver, any lease or any other deed for the conveying any real or personal property or the
other matter or thing wherein I am or may be personally interested or concerned. And I do
hereby further authorize and empower my said attorney to substitute and point any other
attorney or attorneys under him for the purposes aforesaid, and the same again and pleasure
to revoke; and generally for me and in my name to do, perform, and execute all and any
other lawful and reasonable acts and things whatsoever as fully and effectually as I, the
said Tan Ong Sze might or could do if personally present.

In another document, (Exhibits L and M), executed in favor of the same Mariano de la Rama by
his uncle Tan Lien Co, attorney-in-fact of Tan Ong Sze, with power of substitution, there appears
the following:

. . . and also for her and for her name to sign, seal and execute, and as her act and deed
deliver, any lease, release, bargain, sale, assignment, conveyance or assurance, any other
deed for the conveying any real or personal property or other matter or thing wherein she
or may be personally interested or concerned.

Neither of these powers officially confers upon Mariano de la Rama the power to bind a principal
by a contract of suretyship. The clauses noted relate more specifically to the execution of contracts
relating to property; and the more general words at the close of the quoted clauses should be
interpreted, under the general rule ejusdem generis, as referring to the contracts of like character.
Power to execute a contract so exceptional a nature as a contract of suretyship or guaranty cannot
be inferred from the general words contained in these powers.

In article 1827 of the Civil Code it is declared that guaranty shall not be presumed; it must be
expressed and cannot be extended beyond its specified limits. By analogy a power of attorney to
execute a contract of guaranty should not be inferred from vague or general words, especially when
such words have their origin and explanation in particular powers of a wholly different nature. It
results that the trial court was in error in giving personal judgment against Tan Ong Sze upon the
bond upon which she was sued in this case.

We now proceed to consider the last important disputed question involved in this case, which is,
whether the indebtedness owing to the Government under the contract for filling the parcel of land
already mentioned is entitled to preference over the mortgage credit due to the Philippine National
Bank, as the trial judge held, or whether on the contrary, the latter claim is entitled to priority over
the claim of the Government Upon entering into the discussion of the feature of the case it is well
to recall the fact that the bank's mortgage was registered in the office of the Register of Deeds of
the province of Iloilo on November 26, 1920, while the filing contract was registered on January
8, 1924, that is to say, there is a priority of more than three years, in point of time, in the inscription
of the mortgage credit under the filling contract was made an express lien upon the property which
was the subject of improvement.

In the brief submitted in behalf of the bank it appears to be assumed that the Government credit
under the filling contract is a true refectionary credit (credito refacionario) under subsection 2 of
Article 1923 of the Civil Code. It may be observed, however, that in a precise and technical sense,
this credit is not exactly of the nature of the refectionary credit as known to the civil law. In the
civil law the refectionary credit is primarily an indebtedness incurred in the repair or reconstruction
of something previously made, such repair or reconstruction being made necessary by the
deterioration or destruction as it formerly existed. The conception does not ordinarily include an
entirely new work, though Spanish jurisprudence appears to have sanctioned this broader
conception in certain cases as may be gathered from the decision in the Enciclopedia Juridica
Espanola (vol. 26, pp. 888-890) s. v. Refaccionario. The question whether the credit we are
considering falls precisely under the conception of the refectionary credit in the civil law is in this
case academic rather than practical, for the reason that by the express terms of the filling contract
the credit was constituted a lien upon the improved property. But assuming, as might be tenable in
the state of jurisprudence, that said credit is a refectionary credit enjoying preference under
subsection 3 or article 1923 of the Civil code , then the mortgage credit must be given priority
under subsection 2 of the article 1927 of the same code, for the reason that the mortgage was
registered first.

Possibly the simpler view of the situation is to consider the Government's right under the
stipulation expressly making the credit a lien upon the property, for it was certainly lawful for the
parties to the filling contract to declare the credit a lien upon the property to be improved — to the
extent hereinafter define — whether the credit precisely fulfills the conception of refectionary
credit or not. In this aspect we have before us a competition between the real lien created by the
filling contract of the later registration. The true solution to the problem is, in our opinion, not
open to doubt; and again the result is that priority must be conceded to the mortgage. The mortgage
was created by the lawful owners at a time when no other competing interest existed in the property.
The lien of the mortgage therefore attached to the fee, or unlimited interest of the owners in the
property. On the other hand, the lien created by the filling contract was created after the mortgage
had been made and registered, and therefore, after the owners of the property had parted with the
interest created by the mortgage. The Government's lien owes its origin to the contract, and derives
its efficacy from the volition of the contracting parties. But no party can by contract create a right
in another intrinsically greater than that which he himself possess. The owners, at the time this
contract was made, were owners of the equity of redemption only and not of the entire interest in
the property, and the lien created by the contract could only operate upon the equity of redemption.

In this connection, we observed that, as the new material was deposited from the Government
dredges upon the property in question, it became an integral part of the soil and an irremovable
fixture; and the deposit having been made under contract between the Government and the owners
of the equity of redemption, without the concurrence of the mortgage creditor in said contract the
latter could not be prejudiced thereby. The trial court, in declaring that the Government's lien
should have preference over the mortgage, seems to have proceeded upon the idea that, at the time
the mortgage was created, the new soil had yet been deposited under the filling contract and that
as a consequence the mortgage lien should not been considered as attaching to the value added by
deposit of the additional material. This proposition, however, overlooks the fact that the deposited
material became an irremovable fixture, by the act and intention of the parties to the filling contract,
and the lien of the mortgage undoubtedly attached to the increment thus spread over and affixed
to the mortgaged land. If the idea which prevailed in the trial court should be accepted as law upon
this point, the result would be that a mortgage creditor could, by the act of strangers, be entirely
proved out of his property by making of improvements to which he has not assented. This cannot
be accepted as good law.

We may add that the case cannot, on this point, be resolved favorably to the contention of the
Director of Public Works, upon the authority of Unson vs. Urquijo, Zuluoaga and Escubi (50 Phil.,
160), for the reason that upon the deposit of the dredged material on the land such material lost its
identity. In the case cited the machinery in respect to which the vendor's preference was upheld by
this court retained its separate existence and remained perfectly capable of identification at all
times.

From what it has been said it results that the appealed judgment must be affirmed, and the same is
hereby affirmed, in dismissing, in effect, the cross-complaint filed by some of the defendants
against the plaintiff, the Director of Public Works. Such judgment is further affirmed in its findings,
which are not dispute, with respect to the amount of the Government's claim under the filling
contract and the amount of mortgage credit of the bank, as it is also affirmed in respect to the joint
and several judgment entered in favor of the plaintiff against Sing Juco, Sing Bengco, Tanboontien
and Mariano de la Rama Tanbunco (alias Mariano de la Rama) for the amount due to the
Government

Said judgment, however, must be reversed and the same is being reversed in so far as it holds that
Tan Ong Sze, Viuda de Tan Toco, is liable upon the contract of suretyship, and she is hereby
absolved from the complaint. The judgment must also be reversed in so far as it declares that the
Government's lien under the filling contract is entitled to priority over the bank's mortgage. On the
contrary it is hereby declared that the bank's credit is entitled to priority out of the proceeds of the
foreclosure sale, the residue, if any, to be applied to the Government's lien created by the filling
contract and otherwise in accordance with law. For further proceedings in conformity with this
opinion, the cause is hereby remanded to the cause of origin, without pronouncements as to costs.
So ordered.
G.R. No. 85302 March 31, 1989

BICOL SAVINGS AND LOAN ASSOCIATION, petitioner,

vs.
HON. COURT OF APPEALS, CORAZON DE JESUS, LYDIA DE JESUS, NELIA DE
JESUS, JOSE DE JESUS, AND PABLO DE JESUS, respondents.

MELENCIO-HERRERA, J.:

This Petition for Review on certiorari was filed by Bicol Savings and Loan Association, seeking
the reversal of the Decision ** of the respondent Court of Appeals in CA-G.R. CV No. 02213,
dated 11 August 1 988, which ruled adversely against it. The pleadings disclose the following
factual milieu:

Juan de Jesus was the owner of a parcel of land, containing an area of 6,870 sq. ms., more or less,
situated in Naga City. On 31 March 1976, he executed a Special Power of Attorney in favor of his
son, Jose de Jesus, "To negotiate, mortgage my real property in any bank either private or public
entity preferably in the Bicol Savings Bank, Naga City, in any amount that may be agreed upon
between the bank and my attorney-in-fact." (CA Decision, p. 44, Rollo)

By virtue thereof, Jose de Jesus obtained a loan of twenty thousand pesos (P20,000.00) from
petitioner bank on 13 April 1976. To secure payment, Jose de Jesus executed a deed of mortgage
on the real property referred to in the Special Power of Attorney, which mortgage contract
carried, inter alia, the following stipulation:

b) If at any time the Mortgagor shall refuse to pay the obligations

herein secured, or any of the amortizations of such indebtedness
when due, or to comply with any of the conditions and stipulations
herein agreed .... then all the obligations of the Mortgagor secured
by this Mortgage, all the amortizations thereof shall immediately
become due, payable and defaulted and the Mortgagee may
immediately foreclose this mortgage in accordance with the Rules
of Court, or extrajudicially in accordance with Act No. 3135, as
amended, or Act No. 1508. For the purpose of extrajudicial
foreclosure, the Mortgagor hereby appoints the Mortgagee his
attorney-in-fact to sell the property mortgaged. . . . (CA Decision,
pp. 47-48, Rollo)

Juan de Jesus died in the meantime on a date that does not appear of record.

By reason of his failure to pay the loan obligation even during his lifetime, petitioner bank caused
the mortgage to be extrajudicially foreclosed on 16 November 1978. In the subsequent public
auction, the mortgaged property was sold to the bank as the highest bidder to whom a Provisional
Certificate of Sale was issued.
Private respondents herein, including Jose de Jesus, who are all the heirs of the late Juan de Jesus,
failed to redeem the property within one year from the date of the registration of the Provisional
Certificate of Sale on 21 November 1980. Hence, a Definite Certificate of Sale was issued in favor
of the bank on 7 September 1982.

Notwithstanding, private respondents still negotiated with the bank for the repurchase of the
property. Offers and counter-offers were made, but no agreement was reached, as a consequence
of which, the bank sold the property instead to other parties in installments. Conditional deeds of
sale were executed between the bank and these parties. A Writ of Possession prayed for by the
bank was granted by the Regional Trial Court.

On 31 January 1983 private respondents herein filed a Complaint with the then Court of First
Instance of Naga City for the annulment of the foreclosure sale or for the repurchase by them of
the property. That Court, noting that the action was principally for the annulment of the Definite
Deed of Sale issued to petitioner bank, dismissed the case, ruling that the title of the bank over the
mortgaged property had become absolute upon the issuance and registration of the said deed in its
favor in September 1982. The Trial Court also held that herein private respondents were guilty of
laches by failing to act until 31 January 1983 when they filed the instant Complaint.

On appeal, the Trial Court was reversed by respondent Court of Appeals. In so ruling, the Appellate
Court applied Article 1879 of the Civil Code and stated that since the special power to mortgage
granted to Jose de Jesus did not include the power to sell, it was error for the lower Court not to
have declared the foreclosure proceedings -and auction sale held in 1978 null and void because the
Special Power of Attorney given by Juan de Jesus to Jose de Jesus was merely to mortgage his
property, and not to extrajudicially foreclose the mortgage and sell the mortgaged property in the
said extrajudicial foreclosure. The Appellate Court was also of the opinion that petitioner bank
should have resorted to judicial foreclosure. A Decision was thus handed down annulling the
extrajudicial foreclosure sale, the Provisional and Definite Deeds of Sale, the registration thereof,
and the Writ of Possession issued to petitioner bank.

From this ruling, the bank filed this petition to which the Court gave due course.

The pivotal issue is the validity of the extrajudicial foreclosure sale of the mortgaged property
instituted by petitioner bank which, in turn hinges on whether or not the agent-son exceeded the
scope of his authority in agreeing to a stipulation in the mortgage deed that petitioner bank could
extrajudicially foreclose the mortgaged property.

Article 1879 of the Civil Code, relied on by the Appellate Court in ruling against the validity of
the extrajudicial foreclosure sale, reads:

Art. 1879. A special power to sell excludes the power to mortgage; and a special
power to mortgage does not include the power to sell.

We find the foregoing provision inapplicable herein.

The sale proscribed by a special power to mortgage under Article 1879 is a voluntary and
independent contract, and not an auction sale resulting from extrajudicial foreclosure, which is
precipitated by the default of a mortgagor. Absent that default, no foreclosure results. The
stipulation granting an authority to extrajudicially foreclose a mortgage is an ancillary stipulation
supported by the same cause or consideration for the mortgage and forms an essential or
inseparable part of that bilateral agreement (Perez v. Philippine National Bank, No. L-21813, July
30, 1966, 17 SCRA 833, 839).

The power to foreclose is not an ordinary agency that contemplates exclusively the representation
of the principal by the agent but is primarily an authority conferred upon the mortgagee for the
latter's own protection. That power survives the death of the mortgagor (Perez vs. PNB, supra). In
fact, the right of the mortgagee bank to extrajudicially foreclose the mortgage after the death of
the mortgagor Juan de Jesus, acting through his attorney-in-fact, Jose de Jesus, did not depend on
the authorization in the deed of mortgage executed by the latter. That right existed independently
of said stipulation and is clearly recognized in Section 7, Rule 86 of the Rules of Court, which
grants to a mortgagee three remedies that can be alternatively pursued in case the mortgagor dies,
to wit: (1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an
ordinary claim; (2) to foreclose the mortgage judicially and prove any deficiency as an ordinary
claim; and (3) to rely on the mortgage exclusively, foreclosing the same at any time before it is
barred by prescription, without right to file a claim for any deficiency. It is this right of extrajudicial
foreclosure that petitioner bank had availed of, a right that was expressly upheld in the same case
of Perez v. Philippine National Bank (supra), which explicitly reversed the decision in Pasno v.
Ravina(54 Phil. 382) requiring a judicial foreclosure in the same factual situation. The Court in
the aforesaid PNB case pointed out that the ruling in the Pasno case virtually wiped out the third
alternative, which precisely includes extrajudicial foreclosure, a result not warranted by the text of
the Rule.

It matters not that the authority to extrajudicially foreclose was granted by an attorney-in-fact and
not by the mortgagor personally. The stipulation in that regard, although ancillary, forms an
essential part of the mortgage contract and is inseparable therefrom. No creditor will agree to enter
into a mortgage contract without that stipulation intended for its protection.

Petitioner bank, therefore, in effecting the extrajudicial foreclosure of the mortgaged property,
merely availed of a right conferred by law. The auction sale that followed in the wake of that
foreclosure was but a consequence thereof.

WHEREFORE, the Decision of respondent Court of Appeals in CA-G.R. CV No. 02213 is SET
ASIDE, and the extrajudicial foreclosure of the subject mortgaged property, as well as the Deeds
of Sale, the registration thereof, and the Writ of Possession in petitioner bank's favor, are hereby
declared VALID and EFFECTIVE.
G.R. No. L-29917 December 29, 1928

JOSE M. KATIGBAK, plaintiff-appellee,

vs.
TAI HING CO., defendant.
PO SUN and PO CHING intervenors-appellants.

VILLA-REAL, J.:

Po Sun Suy and Po Ching appeal to this court from the judgment of the Court of First Instance of
Manila, the dispositive part of which is as follows:

1. Ordering the defendants Po Sun Suy and Po Ching, as lessees of the realty, to pay the
plaintiff the sum of P28,500, with legal interest from the filing of the complaint.

2. Ordering the estate of the deceased Po Tecsi to pay the defendants Po Sun Suy and Po
Ching, that they may, in turn, pay the plaintiff upon this judgment the sum which represents
the rents of te property unduly collected from the occupants of said property by Po Tecsi
while alive and by his administrator Po Sun Suy after his death, and not paid to the plaintiff
either by Po Tecsi, father of the defendant Po Sun Suy, or by the latter, or by defendant Po
Ching. Said sum thus collected, according to the testimony of the defendant Po Sun Suy
(p. 147, t. s. n.) is P745, per month, which, for nineteen months, amounts to P14,155. The
balance of the rents, that is, the difference between the sum of P1,500 for which the
property was leased by the plaintiff to the defendants, and P745 which is the sum collected
from the occupants of the property each month by Po Tecsi and by the administrator of his
estate must be for the account of the defendants; and

3. Ordering the defendants and the intervenor each to pay one-third of the costs of the
action.

In support of their appeal the appellants assign seventeen errors which we shall take up in the
course of this decision.

The following facts have been proven by a preponderance of the evidence:

Gabino Barreto Po Ejap was the owner, with a Torrens title, of the land in litigation, with the
improvements thereon. This realty was subject to a mortgage lien in favor of the Philippine
National Bank, executed on May 5, 1919, to secure the payment of the sum of P60,000 with 7 per
centum interest per annum. (Exhibit 9.)

On November 29, 1921, Po Tecsi executed a general power of attorney in favor of his brother
Gabino Barreto Po Ejap, empowering and authorizing him to perform on his behalf and as lawful
agent, among other acts, the following: "To buy, sell or barter, assign or admit in acquittance, or
in any other manner to acquire or convey all sorts of property, real and personal, businesses and
industries, credits, rights and action belonging to me, for whatever prices and under the conditions
which he may stipulate, paying and receiving payment in cash or in installments, and to execute
the proper instruments with the formalities provided by the law." (Exhibit A.)

On December 15, 1921, Po Tecsi executed an instrument acknowledge an indebtedness to his

brother Gabino Barreto Po Ejap in the sum of P68,000, the price of the properties which the latter
had sold to him. (Exhibit U-1.) On March 31, 1923, Gabino Barreto Po Ejap executed second
mortgage on the aforesaid land with its improvements, in favor of Antonio M. H. Limjenco for the
sum of P140,000 and interest at 10 per centum per annum. (Exhibit 9.)

On April 17, 1923, Gabino Barreto Po Ejap, sold the said land with its improvements to his brother
Po Tecsi for the sum of P10,000, subject to the same encumbrances. (Exhibit 9.)

On November 22, 1923, Gabino Barreto Po Ejap, making use of the power conferred on him by
his brother Po Tecsi, sold absolutely and forever to the herein plaintiff-appellee Jose M. Katigbak,
the aforesaid land with its improvements for the sum of P10,000, mentioning in the instrument
executed to that end only the mortgage lien of P60,000 in favor of the Philippine National Bank,
and without recording either his power of attorney or the sale in the proper certificate of title.
Notwithstanding said sale Po Tecsi remained in possession of said property.

On October 22, 1924, Po Tecsi leased a part of said land to Uy Chia for a periods of five years
from October 1, 1923. The contract drawn up to thatg end was recorded in the proper certificate
of title. (Exhibit 2 and 9.)

On August 24, 1924, Po Tecsi wrote to his brother Gabino Barreto Po Ejap complaining that he
had been after him so much for the forwarding of the rents of the property and explaining his
precarious financial condition, telling him that he did not collect the rents for himself, and
promising to remit the balance after having paid all expenses of repairs and cleaning up, together
with the vouchers, so he could not blame him for anything. (Exhibits M and M-1.)

In November, 1925, Po Tecsi, answering his brother Gabino Barreto Po Ejap, wrote to the latter
telling him that in the month of October, 1925, he had sent him a draft for the sum of P2,000, and
was therefore surprised that he claimed said rent. In said reply Po Tecsi also told his brother Gabino
Barreto Po Ejap that if he wanted to lease the property in question to Smith Bell & Co., he should
not do so without first consulting him, because if someone offered him a higher rent he wanted to
exercise his right to lease it. (Exhibits N and N-1.)

On February 27, 1925, the mortgage on the land in question in favor of Antonio M. H. Limjenco
for P140,000 was cancelled, the cancellation being recorded on the proper certificate of title on
June 11, 1927. (Exhibit X and 9.) Po Tecsi died on November 26, 1926.

In December, 1926, Po Sun Suy, Po Tecsi's son, submitted to Gavino Barreto Po Ejap a liquidation
of accounts showing the rents collected on the property up to that month. (Exhibit P.)

On February 11, 1927, Po Sun Suy was appointed administrator of the estate of his deceased father,
submitting an inventory in which he included the land in discussion as one of the properties left
by his deceased father, and obtaining the transfer of the certificate of title in his name as said
administrator.

On February 14, 1927, Po Sun Yao alias Po Sun Suy, answering a letter from his uncle Gabino
Barreto Po Ejap, told the latter that times were bad, because the price of hemp had slumped, and
the plantations had suffered damages, and begged him to let him pay the rent later. (Exhibits C and
C-1.)

On February 11, 1927, Gabino Barreto Po Ejap executed an instrument in favor of his son Po Sun
Boo, assigning to him all his rights and actions in the credit of P68,000 against Po Tecsi. (Exhibit
U.)

On May 22, 1927, Jose M. Katigbak sold the property in question to Po Sun Boo for sum of
P10,000. (Exhibit J.)

On May 27, 1927, Po Sun Boo notified Po Sun Suy and Po Ching that he had purchased the land
they occupied and that from that date they were to deal with him concerning the payment of the
rents thereof. (Exhibit I.)

Ever since the property in discussion had been sold by Gabino Barreto Po Ejap to Jose M. Katigbak,
the former had administrated it, entering into an oral contract of lease with Po Tecsi, who occupied
it at a monthly rental of P1,500, payable in advance on the first day of each month. Later on, when
Po Tecsi died, Po Sun Suy, as administrator of the estate of his father Po Tecsi, continued renting
said land on which stood Po Ching's store.

As Po Tecsi had not paid a part of the rent due up to the time of his death, and Po Sun Suy, his son,
the rent due from his father's death until Jose M. Katigbak transferred the ownership thereof to Po
Sun Boo on May 23, 1927, the present action was brought in the Court of First Instance of Manila
for the recovery of said rent which amounts to P45,280, first against the commercial firm Tai Hing
Co., and later against the members of said firm, Po Sun Suy and Po Ching, by an amendment to
the original complaint.

Po Sun Suy, as the judicial administrator of the estate of his deceased father Po Tecsi, filed an
intervention praying that judgment be rendered against Jose M. Katigbak, the plaintiff, declaring
him not to be the owner of the property described in the second paragraph of the complaint and,
therefore, not entitled to the rents of the property in question.

The first question to be determined in the present appeal is one of procedure, and that it whether
or not the trial court had jurisdiction to try the case, on its merits.

The appellants contend that they as intervenors, having raised the question of ownership, the
solution of which is necessary for the determination of the question of rent, the Court of First
Instance of Manila had no jurisdiction to try the case, the properties in question being situated in
the municipality of Tacloban, Province of Leyte.
An action for the recovery of rent is a personal action, and as such is transitory and may be
instituted in the province where the defendant or the plaintiff resides, at the election of the plaintiff
(sec. 377, Act No. 190; Boga Tan Chiao Boc vs. Sajo Vecina, 11 Phil., 409). With respect to the
collection of rents, then, the Court of First Instance of Manila had jurisdiction to try the action
instituted to that end.

The question of ownership was raised by the intervenors who thereby submitted to the jurisdiction
of the Court of First Instance of Manila and, according to the doctrine laid down in the case of
Manila Railroad Company vs. Attorney-General (20 Phil., 523), a Court of First Instance having
full and unlimited jurisdiction over realty situated in the Philippine Islands, a Court of First
Instance of a province may try a case concerning realty situated in another province so long as no
objection is entered to said court's exercise of its jurisdiction. The intervenors having submitted to
the jurisdiction of the court by filing a third-party claim, in which they raised the question of
ownership of the premises, the rent of which it is sought to recover, they cannot consistently object
to the exercise of said jurisdiction.

Having decided the question of the court's jurisdiction with respect to the venue, we shall pass on
to the question of the ownership of the land involved herein.

In first place, it is contended by the appellants that Gabino Barreto Po Ejap was not authorized
under the power executed by Po Tecsi in his favor to sell said land, for the reason that said power
had been executed before Gabino Barreto Po Ejap sold said land to his brother Po Tecsi.

We do not think that on this point the pertinent part of the power of attorney we have quoted above
could give rise to any doubt. The power is general and authorizes Gabino Po Ejap to sell any kind
of realty "belonging" (pertenezcan) to the principal. The use of the subjunctive "pertenezcan"
(might belong) and not the indicative "pertenecen" (belong), means that Po Tecsi meant not only
the property he had at the time of the execution of the power, but also such as the might afterwards
have during the time it was in force. (2 Corpus Juris, p. 614.)

The appellants also contend that said power of attorney not having been registered in the registry
of deeds, the authority granted therein to sell realty registered in accordance with the Torrens
system is ineffective, and the sale of the property in question made by Gabino Barreto Po Ejap in
favor of Jose M. Katigbak by virtue of said power has no more effect than that of a contract to
transfer or sell.

Inasmuch as in accordance with section 39 of said Act No. 496, "Every applicant receiving a
certificate of title in pursuance of a decree of registration, and every subsequent purchaser of
registered land who takes a certificate of title for value in good faith, shall hold the same free of
all incumbrance except noted on said certificate," every document which in any manner affects the
registered land is ineffective unless it is recorded in the registry of deeds. But such inefficacy only
refers to third persons who, in good faith, may have acquired some right to the registered
land.1awphi1.net

While it is true that a power of attorney not recorded in the registry of deeds is ineffective in order
than an agent or attorney-in-fact may validly perform acts in the name of his principal, and that
any act performed by the agent by virtue of said with respect to the land is ineffective against a
third person who, in good faith, may have acquired a right thereto, it does, however, bind the
principal to acknowledge the acts performed by his attorney-in-fact regarding said property (sec.
50, Act No. 496).

In the present case, while it is true that the non-registration of the power of attorney executed by
Po Tecsi in favor of his brother Gabino Barreto Po Ejap prevents the sale made by the latter of the
litigated land in favor of Jose M. Katigbak from being recorded in the registry of deeds, it is not
ineffective to compel Tecsi to acknowledge said sale.

From the fact that said power and sale were not recorded in the registry of deeds, and from the
omission of any mention in the deed of sale of the mortgage lien in favor of Antonio M. H.
Limjenco, and the lease of a part of said land in favor of Uy Chia, the appellants deduce that said
sale is fraudulent.

The record contains many indication that Po Tecsi was not unaware of said sale. His several letters
complaining of the pressing demands of his brother Gabino Barreto Po Ejap to send him the rents
of the land, his promises to send them to him, and the remittance of the same were a tacit
acknowledgment that he occupied the land in question no longer as an owner but only as lessee.

The appellants have tried to explain the remittance of said rents to Gabino Barreto Po Ejap by Po
Tecsi, saying that they were in payment of a debt which the latter owed the former for certain
property which said Gabino Barreto Po Ejap had sold to Po Tecsi. But there is nothing in any of
said letters to indicate that said rents were sent on account of said debt.

The appellant deny that there has been any contract of lease between Po Tecsi and Gabino Barreto
Po Ejap of the lands in question, for the reason that there exists no document to evidence it. The
evidence is clear that the rents were payable in advance on the first day of each month. If this is
so, then there is no need of a contract to prove the existence of the lease.

Upon the death of Po Tecsi on November 26, 1926, his son Po Sun Suy succeeded him it the
possession of the land and was appointed administrator of his father's estate on February 11, 1927.
On February 14, 1927, he wrote to his uncle, Gabino Barreto Po Ejap, in answer to the latter's letter
to send him what he collected of the rents of the house, saying that the price of hemp had suddenly
dropped, his motor boat had been grounded, and his abaca plantations had suffered damages,
promising to send the rents later on.

Po Tecsi occupied the land as lesse from November 22, 1923, until his death on November 26,
1926, having paid up the rents accrued until October 22, 1925, and leaving unpaid the rents due
and accrued from that date until his death, a the rate of P1,500 per month. From the latter date
estate of his father Po Tecsi, and continued to collect the rents of said land from the lessees,
amounting to P745.

It does not clearly appear from what date the land was leased to the defendants Po Sun Suy and Po
Ching for the sum of P1,500 a month. If Po Tecsi had rented it until his death, then the defendants
Po Sun Suy and Po Ching could not have rented it until after the death of Po Tecsi.
The rights of the sub-lessee Uy Chia, whose lease for five years from October 1, 1923, was duly
recorded in the registry of deeds, are valid, for it does not appear that he had only knowledge of
the sale of the subleased property in favor of Jose M. Katigbak, which sale, as we have said, has
not been recorded in the registry of deeds and cannot, therefore, affect the rights of third persons
acquired in good faith and duly registered.

To summarize, then: the sale made on November 22, 1923, by Gabino Barreto Po Ejap, as attorney-
in-fact of Po Tecsi, in favor of Jose M. Katigbak of the land in question is valid; after said sale, Po
Tecsi leased the property sold, from Gabino Barreto Po Ejap, who administered it in the name of
Jose M. Katigbak, at a rental of P1,500 per month, payable in advance, leaving unpaid the rents
accrued from that date until his death which occurred on November 26, 1926, having paid the
accrued rents up to October 22, 1925; from November 26, 1926, the defendants Po Sun Suy and
Po Ching leased said land for the sum of P1,500 per month; on February 11, 1927, Po Sun Suy
was appointed administrator of the estate of his father Po Tecsi, and filed with the court an
inventory of said estate including the land in question; and on May 23, 1927, Jose M. Katigbak
sold the same property to Po Sun Boo.

The claim for rents due and unpaid by Po Tecsi, deceased, and proceedings for the settlement of
whose estate have been instituted, should be presented to the committee on claims and appraisal
appointed in said intestate proceeding in accordance with the provisions of section 703 of the Code
of Civil Procedure and cannot be collected by an ordinary action.

As to the rents accrued and unpaid since the death of Po Tecsi, his son Po Sun Suy, as administrator
of his property, having included said property in the inventory of the latter, the same is in custodia
legis, and hence, the rents collected by said administrator of said property are also in custodia legis.
The claim then of Jose M. Katigbak for the rents accrued and unpaid up to the date when said
property was sold to Po Sun Boo, as well as the accrued and unpaid rents from the time the latter
acquired it up to the present date, must be presented in the court taking cognizance of the intestate
proceeding for the settlement of Po Tecsi's estate.

For the foregoing, we are of opinion and so hold: (1) That Jose M. Katigbak was the absolute
owner of the property in controversy, subject to the encumbrances on the same appearing in the
registry of deeds; (2) that his claim for the rents of the property in litigation accrued and unpaid by
Po Tecsi before his death must be presented to the committee on claims and appraisal appointed
in the intestate proceedings for the settlement of the estate of said Po Tecsi; (3) that the claim of
Jose M. Katigbak for the rents of the said property collected by Po Sun Suy, as administrator of
the porperty of the intestate estate of his father Po Tecsi, must be presented to the court having
cognizance of said intestate proceedings.

By virtue whereof, and with the modifications above indicated, the judgment appealed from is
affirmed, without special pronouncement as to costs. So ordered.