1
G.R. No. 160346, August 25, 2009
PURITA PAHUD, SOLEDAD PAHUD, AND IAN LEE
CASTILLA (REPRESENTED BY MOTHER AND
ATTORNEY-IN-FACT VIRGINIA CASTILLA),
PETITIONERS, VS. COURT OF APPEALS, SPOUSES
ISAGANI BELARMINO AND LETICIA OCAMPO,
EUFEMIA SAN AGUSTIN-MAGSINO, ZENAIDA
SAN AGUSTIN-MCCRAE, MILAGROS SAN
AGUSTIN-FORTMAN, MINERVA SAN AGUSTIN-
ATKINSON, FERDINAND SAN AGUSTIN, RAUL
SAN AGUSTIN, ISABELITA SAN AGUSTIN-
LUSTENBERGER AND VIRGILIO SAN AGUSTIN,
RESPONDENTS.
DECISION
NACHURA, J.:
For our resolution is a petition for review
on certiorari assailing the April 23, 2003 Decision[1] and
October 8, 2003 Resolution[2] of the Court of Appeals (CA)
in CA-G.R. CV No. 59426. The appellate court, in the said
decision and resolution, reversed and set aside the January
14, 1998 Decision[3] of the Regional Trial Court (RTC),
which ruled in favor of petitioners.
The dispute stemmed from the following facts.
During their lifetime, spouses Pedro San Agustin and
Agatona Genil were able to acquire a 246-square meter
parcel of land situated in Barangay Anos, Los Baños,
Laguna and covered by Original Certificate of Title (OCT)
No. O-(1655) 0-15.[4] Agatona Genil died on September 13,
1990 while Pedro San Agustin died on September 14,
1991. Both died intestate, survived by their eight (8)
children: respondents Eufemia, Raul, Ferdinand, Zenaida,
Milagros, Minerva, Isabelita and Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul executed a
Deed of Absolute Sale of Undivided Shares[5] conveying in
favor of petitioners (the Pahuds, for brevity) their respective
shares from the lot they inherited from their deceased parents
for P525,000.00.[6] Eufemia also signed the deed on behalf
of her four (4) other co-heirs, namely: Isabelita on the basis
of a special power of attorney executed on September 28,
1991,[7] and also for Milagros, Minerva, and Zenaida but
without their apparent written authority.[8] The deed of sale
was also not notarized.[9]
On July 21, 1992, the Pahuds paid P35,792.31 to the Los
Baños Rural Bank where the subject property was
mortgaged.[10] The bank issued a release of mortgage and
turned over the owner's copy of the OCT to the
Pahuds.[11] Over the following months, the Pahuds made
more payments to Eufemia and her siblings totaling to
P350,000.00.[12] They agreed to use the remaining
P87,500.00[13] to defray the payment for taxes and the
expenses in transferring the title of the property.[14] When
Eufemia and her co-heirs drafted an extra-judicial settlement
of estate to facilitate the transfer of the title to the Pahuds,
Virgilio refused to sign it.[15]
On July 8, 1993, Virgilio's co-heirs filed a complaint[16] for
judicial partition of the subject property before the RTC of
Calamba, Laguna. On November 28, 1994, in the course of
the proceedings for judicial partition, a Compromise
Agreement[17] was signed with seven (7) of the co-heirs
agreeing to sell their undivided shares to Virgilio for
P700,000.00. The compromise agreement was, however, not
approved by the trial court because Atty. Dimetrio Hilbero,
lawyer for Eufemia and her six (6) co-heirs, refused to sign
the agreement because he knew of the previous sale made to
the Pahuds.[18]
On December 1, 1994, Eufemia acknowledged having
received P700,000.00 from Virgilio.[19] Virgilio then sold
the entire property to spouses Isagani Belarmino and Leticia
Ocampo (Belarminos) sometime in 1994. The Belarminos
immediately constructed a building on the subject property.
Alarmed and bewildered by the ongoing construction on the
lot they purchased, the Pahuds immediately confronted
Eufemia who confirmed to them that Virgilio had sold the
property to the Belarminos.[20] Aggrieved, the Pahuds filed
a complaint in intervention[21] in the pending case for judicial
partition.
After trial, the RTC upheld the validity of the sale to
petitioners. The dispositive portion of the decision reads:
WHEREFORE, the foregoing considered, the Court orders:
1. the sale of the 7/8 portion of the property
covered by OCT No. O (1655) O-15 by
the plaintiffs as heirs of deceased Sps.
Pedro San Agustin and Agatona Genil in
favor of the Intervenors-Third Party
plaintiffs as valid and enforceable, but
obligating the Intervenors-Third Party
plaintiffs to complete the payment of the
purchase price of P437,500.00 by
paying the balance of P87,500.00 to
defendant Fe (sic) San Agustin
Magsino. Upon receipt of the balance,
the plaintiff shall formalize the sale of
the 7/8 portion in favor of the
Intervenor[s]-Third Party plaintiffs;
2. declaring the document entitled
"Salaysay sa Pagsang-ayon sa Bilihan"
(Exh. "2-a") signed by plaintiff Eufemia
San Agustin attached to the unapproved
Compromise Agreement (Exh. "2") as
not a valid sale in favor of defendant
Virgilio San Agustin;
3. declaring the sale (Exh. "4") made by
defendant Virgilio San Agustin of the
property covered by OCT No. O (1655)-
O-15 registered in the names of Spouses
Pedro San Agustin and Agatona Genil in
favor of Third-party defendant Spouses

Isagani and Leticia Belarmino as not a
valid sale and as inexistent;
4. declaring the defendant Virgilio San
Agustin and the Third-Party defendants
spouses Isagani and Leticia Belarmino
as in bad faith in buying the portion of
the property already sold by the
plaintiffs in favor of the Intervenors-
Third Party Plaintiffs and the Third-
Party Defendant Sps. Isagani and Leticia
Belarmino in constructing the two-
[storey] building in (sic)the property
subject of this case; and
5. declaring the parties as not entitled to
any damages, with the parties
shouldering their respective
responsibilities regarding the payment
of attorney[']s fees to their respective
lawyers.
No pronouncement as to costs.
SO ORDERED.[22]
Not satisfied, respondents appealed the decision to the CA
arguing, in the main, that the sale made by Eufemia for and
on behalf of her other co-heirs to the Pahuds should have
been declared void and inexistent for want of a written
authority from her co-heirs. The CA yielded and set aside
the findings of the trial court. In disposing the issue, the CA
ruled:
WHEREFORE, in view of the foregoing, the Decision dated
January 14, 1998, rendered by the Regional Trial Court of
Calamba, Laguna, Branch 92 in Civil Case No. 2011-93-C
for Judicial Partition is hereby REVERSED and SET
ASIDE, and a new one entered, as follows:
(1)The case for partition among the plaintiffs-appellees and
appellant Virgilio is now considered closed and
terminated;
(2)Ordering plaintiffs-appellees to return to intervenors-
appellees the total amount they received from the latter,
plus an interest of 12% per annum from the time the
complaint [in] intervention was filed on April 12, 1995
until actual payment of the same;
(3)Declaring the sale of appellant Virgilio San Agustin to
appellants spouses, Isagani and Leticia Belarmino[,] as
valid and binding;
(4)Declaring appellants-spouses as buyers in good faith and
for value and are the owners of the subject property.
No pronouncement as to costs.
SO ORDERED.[23]
Petitioners now come to this Court raising the following
arguments:
2
I. The Court of Appeals committed grave
and reversible error when it did not
apply the second paragraph of Article
1317 of the New Civil Code insofar as
ratification is concerned to the sale of
the 4/8 portion of the subject property
executed by respondents San Agustin in
favor of petitioners;
II. The Court of Appeals committed grave
and reversible error in holding that
respondents spouses Belarminos are in
good faith when they bought the subject
property from respondent Virgilio San
Agustin despite the findings of fact by
the court a quo that they were in bad
faith which clearly contravenes the
presence of long line of case laws
upholding the task of giving utmost
weight and value to the factual findings
of the trial court during appeals; [and]
III. The Court of Appeals committed grave
and reversible error in holding that
respondents spouses Belarminos have
superior rights over the property in
question than petitioners despite the fact
that the latter were prior in possession
thereby misapplying the provisions of
Article 1544 of the New Civil Code.[24]
The focal issue to be resolved is the status of the sale of the
subject property by Eufemia and her co-heirs to the Pahuds.
We find the transaction to be valid and enforceable.
Article 1874 of the Civil Code plainly provides:
Art. 1874. When a sale of a piece of land or any interest
therein is through an agent, the authority of the latter shall be
in writing; otherwise, the sale shall be void.
Also, under Article 1878,[25] a special power of attorney is
necessary for an agent to enter into a contract by which the
ownership of an immovable property is transmitted or
acquired, either gratuitously or for a valuable consideration.
Such stringent statutory requirement has been explained
in Cosmic Lumber Corporation v. Court of Appeals:[26]
[T]he authority of an agent to execute a contract [of] sale of
real estate must be conferred in writing and must give
him specific authority, either to conduct the general
business of the principal or to execute a binding contract
containing terms and conditions which are in the contract he
did execute. A special power of attorney is necessary to enter
into any contract by which the ownership of an immovable
is transmitted or acquired either gratuitously or for a valuable
consideration. The express mandate required by law to
enable an appointee of an agency (couched) in general terms
to sell must be one that expressly mentions a sale or that
includes a sale as a necessary ingredient of the act
mentioned. For the principal to confer the right upon an
agent to sell real estate, a power of attorney must so express
the powers of the agent in clear and unmistakable language.
When there is any reasonable doubt that the language so used

conveys such power, no such construction shall be given the
document.[27]
In several cases, we have repeatedly held that the absence of
a written authority to sell a piece of land is, ipso jure,
void,[28] precisely to protect the interest of an unsuspecting
owner from being prejudiced by the unwarranted act of
another.
Based on the foregoing, it is not difficult to conclude, in
principle, that the sale made by Eufemia, Isabelita and her
two brothers to the Pahuds sometime in 1992 should be valid
only with respect to the 4/8 portion of the subject
property. The sale with respect to the 3/8 portion,
representing the shares of Zenaida, Milagros, and Minerva,
is void because Eufemia could not dispose of the interest of
her co-heirs in the said lot absent any written authority from
the latter, as explicitly required by law. This was, in fact, the
ruling of the CA.
Still, in their petition, the Pahuds argue that the sale with
respect to the 3/8 portion of the land should have been
deemed ratified when the three co-heirs, namely: Milagros,
Minerva, and Zenaida, executed their respective special
power of attorneys[29] authorizing Eufemia to represent them
in the sale of their shares in the subject property.[30]
While the sale with respect to the 3/8 portion is void by
express provision of law and not susceptible to
ratification,[31] we nevertheless uphold its validity on the
basis of the common law principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission or representation
is rendered conclusive upon the person making it, and cannot
be denied or disproved as against the person relying thereon.
True, at the time of the sale to the Pahuds, Eufemia was not
armed with the requisite special power of attorney to dispose
of the 3/8 portion of the property. Initially, in their answer
to the complaint in intervention,[32] Eufemia and her other
co-heirs denied having sold their shares to the
Pahuds. During the pre-trial conference, however, they
admitted that they had indeed sold 7/8 of the property to the
Pahuds sometime in 1992.[33] Thus, the previous denial was
superseded, if not accordingly amended, by their subsequent
admission.[34] Moreover, in their Comment,[35] the said co-
heirs again admitted the sale made to petitioners.[36]
Interestingly, in no instance did the three (3) heirs concerned
assail the validity of the transaction made by Eufemia to the
Pahuds on the basis of want of written authority to sell. They
could have easily filed a case for annulment of the sale of
their respective shares against Eufemia and the
Pahuds. Instead, they opted to remain silent and left the task
of raising the validity of the sale as an issue to their co-heir,
Virgilio, who is not privy to the said transaction. They
cannot be allowed to rely on Eufemia, their attorney-in-fact,
to impugn the validity of the first transaction because to
allow them to do so would be tantamount to giving premium
to their sister's dishonest and fraudulent deed. Undeniably,
therefore, the silence and passivity of the three co-heirs on
the issue bar them from making a contrary claim.
3
It is a basic rule in the law of agency that a principal is
subject to liability for loss caused to another by the latter's
reliance upon a deceitful representation by an agent in the
course of his employment (1) if the representation is
authorized; (2) if it is within the implied authority of the
agent to make for the principal; or (3) if it is apparently
authorized, regardless of whether the agent was authorized
by him or not to make the representation.[37]
By their continued silence, Zenaida, Milagros and Minerva
have caused the Pahuds to believe that they have indeed
clothed Eufemia with the authority to transact on their
behalf. Clearly, the three co-heirs are now estopped from
impugning the validity of the sale from assailing the
authority of Eufemia to enter into such transaction.
Accordingly, the subsequent sale made by the seven co-heirs
to Virgilio was void because they no longer had any interest
over the subject property which they could alienate at the
time of the second transaction.[38] Nemo dat quod non
habet. Virgilio, however, could still alienate his 1/8
undivided share to the Belarminos.
The Belarminos, for their part, cannot argue that they
purchased the property from Virgilio in good faith. As a
general rule, a purchaser of a real property is not required to
make any further inquiry beyond what the certificate of title
indicates on its face.[39] But the rule excludes those who
purchase with knowledge of the defect in the title of the
vendor or of facts sufficient to induce a reasonable and
prudent person to inquire into the status of the
property.[40] Such purchaser cannot close his eyes to facts
which should put a reasonable man on guard, and later claim
that he acted in good faith on the belief that there was no
defect in the title of the vendor. His mere refusal to believe
that such defect exists, or his obvious neglect by closing his
eyes to the possibility of the existence of a defect in the
vendor's title, will not make him an innocent purchaser for
value, if afterwards it turns out that the title was, in fact,
defective. In such a case, he is deemed to have bought the
property at his own risk, and any injury or prejudice
occasioned by such transaction must be borne by him. [41]
In the case at bar, the Belarminos were fully aware that the
property was registered not in the name of the immediate
transferor, Virgilio, but remained in the name of Pedro San
Agustin and Agatona Genil.[42] This fact alone is sufficient
impetus to make further inquiry and, thus, negate their claim
that they are purchasers for value in good faith.[43] They
knew that the property was still subject of partition
proceedings before the trial court, and that the compromise
agreement signed by the heirs was not approved by the RTC
following the opposition of the counsel for Eufemia and her
six other co-heirs.[44] The Belarminos, being
transferees pendente lite, are deemed buyers in mala
fide, and they stand exactly in the shoes of the transferor and
are bound by any judgment or decree which may be rendered
for or against the transferor.[45] Furthermore, had they
verified the status of the property by asking the neighboring
residents, they would have been able to talk to the Pahuds
who occupy an adjoining business establishment[46] and
would have known that a portion of the property had already

been sold. All these existing and readily verifiable facts are
sufficient to suggest that the Belarminos knew that they were
buying the property at their own risk.
WHEREFORE, premises considered, the April 23, 2003
Decision of the Court of Appeals as well as its October 8,
2003 Resolution in CA-G.R. CV No. 59426,
are REVERSED and SET ASIDE. Accordingly, the
January 14, 1998 Decision of Branch 92 of the Regional
Trial Court of Calamba, Laguna is REINSTATED with
the MODIFICATION that the sale made by respondent
Virgilio San Agustin to respondent spouses Isagani
Belarmino and Leticia Ocampo is valid only with respect to
the 1/8 portion of the subject property. The trial court is
ordered to proceed with the partition of the property with
dispatch.
SO ORDERED.
G.R. NO. 144805, June 08, 2006
EDUARDO V. LINTONJUA, JR. AND ANTONIO K.
LITONJUA, PETITIONERS, VS. ETERNIT
CORPORATION (NOW ETERTON MULTI-
RESOURCES CORPORATION), ETEROUTREMER,
S.A. AND FAR EAST BANK & TRUST COMPANY,
RESPONDENTS.
DECISION
CALLEJO, SR., J.:
On appeal via a Petition for Review on Certiorari is the
Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No.
51022, which affirmed the Decision of the Regional Trial
Court (RTC), Pasig City, Branch 165, in Civil Case No.
54887, as well as the Resolution[2] of the CA denying the
motion for reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly organized
and registered under Philippine laws. Since 1950, it had been
engaged in the manufacture of roofing materials and pipe
products. Its manufacturing operations were conducted on
eight parcels of land with a total area of 47,233 square
meters. The properties, located in Mandaluyong City, Metro
Manila, were covered by Transfer Certificates of Title Nos.
451117, 451118, 451119, 451120, 451121, 451122, 451124
and 451125 under the name of Far East Bank & Trust
Company, as trustee. Ninety (90%) percent of the shares of
stocks of EC were owned by Eteroutremer S.A. Corporation
(ESAC), a corporation organized and registered under the
laws of Belgium.[3] Jack Glanville, an Australian citizen,
was the General Manager and President of EC, while Claude
Frederick Delsaux was the Regional Director for Asia of
ESAC. Both had their offices in Belgium.
In 1986, the management of ESAC grew concerned about
4
the political situation in the Philippines and wanted to stop
its operations in the country. The Committee for Asia of
ESAC instructed Michael Adams, a member of EC's Board
of Directors, to dispose of the eight parcels of land. Adams
engaged the services of realtor/broker Lauro G. Marquez so
that the properties could be offered for sale to prospective
buyers. Glanville later showed the properties to Marquez.
Marquez thereafter offered the parcels of land and the
improvements thereon to Eduardo B. Litonjua, Jr. of the
Litonjua & Company, Inc. In a Letter dated September 12,
1986, Marquez declared that he was authorized to sell the
properties for P27,000,000.00 and that the terms of the sale
were subject to negotiation.[4]
Eduardo Litonjua, Jr. responded to the offer. Marquez
showed the property to Eduardo Litonjua, Jr., and his brother
Antonio K. Litonjua. The Litonjua siblings offered to buy
the property for P20,000,000.00 cash. Marquez apprised
Glanville of the Litonjua siblings' offer and relayed the same
to Delsaux in Belgium, but the latter did not respond. On
October 28, 1986, Glanville telexed Delsaux in Belgium,
inquiring on his position/ counterproposal to the offer of the
Litonjua siblings. It was only on February 12, 1987 that
Delsaux sent a telex to Glanville stating that, based on the
"Belgian/Swiss decision," the final offer was
"US$1,000,000.00 and P2,500,000.00 to cover all existing
obligations prior to final liquidation."[5]
Marquez furnished Eduardo Litonjua, Jr. with a copy of the
telex sent by Delsaux. Litonjua, Jr. accepted the
counterproposal of Delsaux. Marquez conferred with
Glanville, and in a Letter dated February 26, 1987,
confirmed that the Litonjua siblings had accepted the
counter-proposal of Delsaux. He also stated that the Litonjua
siblings would confirm full payment within 90 days after
execution and preparation of all documents of sale, together
with the necessary governmental clearances.[6]
The Litonjua brothers deposited the amount of
US$1,000,000.00 with the Security Bank & Trust Company,
Ermita Branch, and drafted an Escrow Agreement to
expedite the sale.[7]
Sometime later, Marquez and the Litonjua brothers inquired
from Glanville when the sale would be implemented. In a
telex dated April 22, 1987, Glanville informed Delsaux that
he had met with the buyer, which had given him the
impression that "he is prepared to press for a satisfactory
conclusion to the sale."[8] He also emphasized to Delsaux
that the buyers were concerned because they would incur
expenses in bank commitment fees as a consequence of
prolonged period of inaction.[9]
Meanwhile, with the assumption of Corazon C. Aquino as
President of the Republic of the Philippines, the political
situation in the Philippines had improved. Marquez received
a telephone call from Glanville, advising that the sale would
no longer proceed. Glanville followed it up with a Letter
dated May 7, 1987, confirming that he had been instructed
by his principal to inform Marquez that "the decision has
been taken at a Board Meeting not to sell the properties on
 5

which Eternit Corporation is situated."[10] Philippine courts; the Board and stockholders of EC never
approved any resolution to sell subject properties nor
Delsaux himself later sent a letter dated May 22, 1987, authorized Marquez to sell the same; and the telex dated
confirming that the ESAC Regional Office had decided not October 28, 1986 of Jack Glanville was his own personal
to proceed with the sale of the subject land, to wit: making which did not bind EC.
May 22, 1987
Mr. L.G. Marquez On July 3, 1995, the trial court rendered judgment in favor
L.G. Marquez, Inc. of defendants and dismissed the amended
complaint.[12] The fallo of the decision reads:
334 Makati Stock Exchange Bldg. WHEREFORE, the complaint against Eternit Corporation
6767 Ayala Avenue now Eterton Multi-Resources Corporation and
Makati, Metro Manila Eteroutremer, S.A. is dismissed on the ground that there is
Philippines no valid and binding sale between the plaintiffs and said
defendants.
Dear Sir:
The complaint as against Far East Bank and Trust Company
Re: Land of Eternit Corporation is likewise dismissed for lack of cause of action.

I would like to confirm officially that our Group has decided
not to proceed with the sale of the land which was proposed
to you.
The Committee for Asia of our Group met recently (meeting
every six months) and examined the position as far as the
Philippines are (sic) concerned. Considering [the] new
political situation since the departure of MR. MARCOS
and a certain stabilization in the Philippines, the
Committee has decided not to stop our operations in
Manila. In fact, production has started again last
week, and (sic) to recognize the participation in the
Corporation.
We regret that we could not make a deal with you this time,
but in case the policy would change at a later state, we would
consult you again.
xxx
Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.)[11]
When apprised of this development, the Litonjuas, through
counsel, wrote EC, demanding payment for damages they
had suffered on account of the aborted sale. EC, however,
rejected their demand.
The Litonjuas then filed a complaint for specific
performance and damages against EC (now the Eterton
Multi-Resources Corporation) and the Far East Bank &
Trust Company, and ESAC in the RTC of Pasig City. An
amended complaint was filed, in which defendant EC was
substituted by Eterton Multi-Resources Corporation; Benito
C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G.
Eufemio were impleaded as additional defendants on
account of their purchase of ESAC shares of stocks and were
the controlling stockholders of EC.
In their answer to the complaint, EC and ESAC alleged that
since Eteroutremer was not doing business in the
Philippines, it cannot be subject to the jurisdiction of
The counterclaim of Eternit Corporation now Eterton Multi-
Resources Corporation and Eteroutremer, S.A. is also
dismissed for lack of merit.[13]
The trial court declared that since the authority of the
agents/realtors was not in writing, the sale is void and not
merely unenforceable, and as such, could not have been
ratified by the principal. In any event, such ratification
cannot be given any retroactive effect. Plaintiffs could not
assume that defendants had agreed to sell the property
without a clear authorization from the corporation
concerned, that is, through resolutions of the Board of
Directors and stockholders. The trial court also pointed out
that the supposed sale involves substantially all the assets of
defendant EC which would result in the eventual total
cessation of its operation.[14]
The Litonjuas appealed the decision to the CA, alleging that
"(1) the lower court erred in concluding that the real estate
broker in the instant case needed a written authority from
appellee corporation and/or that said broker had no such
written authority; and (2) the lower court committed grave
error of law in holding that appellee corporation is not
legally bound for specific performance and/or damages in
the absence of an enabling resolution of the board of
directors."[15] They averred that Marquez acted merely as a
broker or go-between and not as agent of the corporation;
hence, it was not necessary for him to be empowered as such
by any written authority. They further claimed that an
agency by estoppel was created when the corporation
clothed Marquez with apparent authority to negotiate for the
sale of the properties. However, since it was a bilateral
contract to buy and sell, it was equivalent to a perfected
contract of sale, which the corporation was obliged to
consummate.
In reply, EC alleged that Marquez had no written authority
from the Board of Directors to bind it; neither were Glanville
and Delsaux authorized by its board of directors to offer the
property for sale. Since the sale involved substantially all of
the corporation's assets, it would necessarily need the
authority from the stockholders.
On June 16, 2000, the CA rendered judgment affirming the
decision of the RTC. [16] The Litonjuas filed a motion for
 6

reconsideration, which was also denied by the appellate and counter-offer and their acceptance of respondent EC's
court. counter-offer, resulting in a perfected contract of sale.

The CA ruled that Marquez, who was a real estate broker,
was a special agent within the purview of Article 1874 of the
New Civil Code. Under Section 23 of the Corporation Code,
he needed a special authority from EC's board of directors to
bind such corporation to the sale of its properties. Delsaux,
who was merely the representative of ESAC (the majority
stockholder of EC) had no authority to bind the latter. The
CA pointed out that Delsaux was not even a member of the
board of directors of EC. Moreover, the Litonjuas failed to
prove that an agency by estoppel had been created between
the parties.
In the instant petition for review, petitioners aver that
I corporation to any interested party,
THE COURT OF APPEALS ERRED IN HOLDING THAT
THERE WAS NO PERFECTED CONTRACT OF SALE.
Petitioners posit that the testimonial and documentary
evidence on record amply shows that Glanville, who was the
President and General Manager of respondent EC, and
Delsaux, who was the Managing Director for ESAC Asia,
had the necessary authority to sell the subject property or, at
least, had been allowed by respondent EC to hold themselves
out in the public as having the power to sell the subject
properties. Petitioners identified such evidence, thus:
1. The testimony of Marquez that he was
chosen by Glanville as the then
President and General Manager of
Eternit, to sell the properties of said
which authority, as hereinabove
discussed, need not be in writing.

II 2. The fact that the NEGOTIATIONS for

the sale of the subject properties
THE APPELLATE COURT COMMITTED GRAVE spanned SEVERAL MONTHS, from
ERROR OF LAW IN HOLDING THAT MARQUEZ 1986 to 1987;
NEEDED A WRITTEN AUTHORITY FROM
RESPONDENT ETERNIT BEFORE THE SALE CAN BE
PERFECTED. 3. The COUNTER-OFFER made by
Eternit through GLANVILLE to sell its
properties to the Petitioners;
III

THE COURT OF APPEALS ERRED IN NOT HOLDING 4. The GOOD FAITH of Petitioners in
THAT GLANVILLE AND DELSAUX HAVE THE believing Eternit's offer to sell the
NECESSARY AUTHORITY TO SELL THE SUBJECT properties as evidenced by the
PROPERTIES, OR AT THE VERY LEAST, WERE Petitioners' ACCEPTANCE of the
KNOWINGLY PERMITTED BY RESPONDENT counter-offer;
ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN
APPARENT AUTHORITY, AND THUS HELD THEM 5. The fact that
OUT TO THE PUBLIC AS POSSESSING POWER TO Petitioners DEPOSITED the price of
SELL THE SAID PROPERTIES.[17] [US] $1,000,000.00 with the Security
Petitioners maintain that, based on the facts of the case, there Bank and that an ESCROW agreement
was a perfected contract of sale of the parcels of land and the was drafted over the subject properties;
improvements thereon for "US$1,000,000.00 plus
P2,500,000.00 to cover obligations prior to final
liquidation." Petitioners insist that they had accepted the 6. Glanville's telex to Delsaux inquiring
counter-offer of respondent EC and that before the counter- "WHEN WE (Respondents) WILL
offer was withdrawn by respondents, the acceptance was IMPLEMENT ACTION TO BUY AND
made known to them through real estate broker Marquez. SELL";

Petitioners assert that there was no need for a written 7. More importantly, Exhibits "G" and
authority from the Board of Directors of EC for Marquez to "H" of the Respondents, which
validly act as broker/middleman/intermediary. As broker, evidenced the fact that Petitioners' offer
Marquez was not an ordinary agent because his authority was allegedly REJECTED by both
was of a special and limited character in most respects. His Glanville and Delsaux.[18]
only job as a broker was to look for a buyer and to bring
together the parties to the transaction. He was not authorized
Petitioners insist that it is incongruous for Glanville and
to sell the properties or to make a binding contract to
Delsaux to make a counter-offer to petitioners' offer and
respondent EC; hence, petitioners argue, Article 1874 of the
thereafter reject such offer unless they were authorized to do
New Civil Code does not apply.
so by respondent EC. Petitioners insist that Delsaux
confirmed his authority to sell the properties in his letter to
In any event, petitioners aver, what is important and decisive
Marquez, to wit:
was that Marquez was able to communicate both the offer
 7

Dear Sir,
The petition has no merit.
Re: Land of Eternit Corporation
Anent the first issue, we agree with the contention of
I would like to confirm officially that our Group has decided respondents that the issues raised by petitioner in this case
not to proceed with the sale of the land which was proposed are factual. Whether or not Marquez, Glanville, and Delsaux
to you. were authorized by respondent EC to act as its agents relative
to the sale of the properties of respondent EC, and if so, the
The Committee for Asia of our Group met recently (meeting boundaries of their authority as agents, is a question of
every six months) and examined the position as far as the fact. In the absence of express written terms creating the
Philippines are (sic) concerned. Considering the new relationship of an agency, the existence of an agency is a fact
political situation since the departure of MR. MARCOS and question.[20] Whether an agency by estoppel was created or
a certain stabilization in the Philippines, the Committee has whether a person acted within the bounds of his apparent
decided not to stop our operations in Manila[.] [I]n fact authority, and whether the principal is estopped to deny the
production started again last week, and (sic) to reorganize apparent authority of its agent are, likewise, questions of fact
the participation in the Corporation. to be resolved on the basis of the evidence on record.[21] The
findings of the trial court on such issues, as affirmed by the
We regret that we could not make a deal with you this CA, are conclusive on the Court, absent evidence that the
time, but in case the policy would change at a later stage trial and appellate courts ignored, misconstrued, or
we would consult you again. misapplied facts and circumstances of substance which, if
considered, would warrant a modification or reversal of the
In the meantime, I remain outcome of the case.[22]

Yours sincerely, It must be stressed that issues of facts may not be raised in
the Court under Rule 45 of the Rules of Court because the
Court is not a trier of facts. It is not to re-examine and assess
C.F. DELSAUX[19]
the evidence on record, whether testimonial and
Petitioners further emphasize that they acted in good faith
documentary. There are, however, recognized exceptions
when Glanville and Delsaux were knowingly permitted by
where the Court may delve into and resolve factual issues,
respondent EC to sell the properties within the scope of an
namely:
apparent authority. Petitioners insist that respondents held
(1) When the conclusion is a finding grounded entirely on
themselves to the public as possessing power to sell the
speculations, surmises, or conjectures; (2) when the
subject properties.
inference made is manifestly mistaken, absurd, or
impossible; (3) when there is grave abuse of discretion; (4)
By way of comment, respondents aver that the issues raised
when the judgment is based on a misapprehension of facts;
by the petitioners are factual, hence, are proscribed by Rule
(5) when the findings of fact are conflicting; (6) when the
45 of the Rules of Court. On the merits of the petition,
Court of Appeals, in making its findings, went beyond the
respondents EC (now EMC) and ESAC reiterate their
issues of the case and the same is contrary to the admissions
submissions in the CA. They maintain that Glanville,
of both appellant and appellee; (7) when the findings of the
Delsaux and Marquez had no authority from the
Court of Appeals are contrary to those of the trial court; (8)
stockholders of respondent EC and its Board of Directors to
when the findings of fact are conclusions without citation of
offer the properties for sale to the petitioners, or to any other
specific evidence on which they are based; (9) when the
person or entity for that matter. They assert that the decision
Court of Appeals manifestly overlooked certain relevant
and resolution of the CA are in accord with law and the
facts not disputed by the parties, which, if properly
evidence on record, and should be affirmed in toto.
considered, would justify a different conclusion; and (10)
when the findings of fact of the Court of Appeals are
Petitioners aver in their subsequent pleadings that
premised on the absence of evidence and are contradicted by
respondent EC, through Glanville and Delsaux, conformed
the evidence on record.[23]
to the written authority of Marquez to sell the properties. The
We have reviewed the records thoroughly and find that the
authority of Glanville and Delsaux to bind respondent EC is
petitioners failed to establish that the instant case falls under
evidenced by the fact that Glanville and Delsaux negotiated
any of the foregoing exceptions. Indeed, the assailed
for the sale of 90% of stocks of respondent EC to Ruperto
decision of the Court of Appeals is supported by the
Tan on June 1, 1997. Given the significance of their
evidence on record and the law.
positions and their duties in respondent EC at the time of the
transaction, and the fact that respondent ESAC owns 90% of
It was the duty of the petitioners to prove that respondent EC
the shares of stock of respondent EC, a formalresolution of
had decided to sell its properties and that it had empowered
the Board of Directors would be a mere ceremonial
Adams, Glanville and Delsaux or Marquez to offer the
formality. What is important, petitioners maintain, is that
properties for sale to prospective buyers and to accept any
Marquez was able to communicate the offer of respondent
counter-offer. Petitioners likewise failed to prove that their
EC and the petitioners' acceptance thereof. There was no
counter-offer had been accepted by respondent EC, through
time that they acted without the knowledge of
Glanville and Delsaux. It must be stressed that when specific
respondents. In fact, respondent EC never repudiated the
performance is sought of a contract made with an agent, the
acts of Glanville, Marquez and Delsaux.

agency must be established by clear, certain and specific
proof.[24]
Section 23 of Batas Pambansa Bilang 68, otherwise known
as the Corporation Code of the Philippines, provides:
SEC. 23. The Board of Directors or Trustees. - Unless
otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be
elected from among the holders of stocks, or where there is
no stock, from among the members of the corporation, who
shall hold office for one (1) year and until their successors
are elected and qualified.
Indeed, a corporation is a juridical person separate and
distinct from its members or stockholders and is not affected
by the personal rights,obligations and transactions of the
latter.[25] It may act only through its board of directors or,
when authorized either by its by-laws or by its board
resolution, through its officers or agents in the normal course
of business. The general principles of agency govern the
relation between the corporation and its officers or agents,
subject to the articles of incorporation, by-laws, or relevant
provisions of law.[26]
Under Section 36 of the Corporation Code, a corporation
may sell or convey its real properties, subject to the
limitations prescribed by law and the Constitution, as
follows:
SEC. 36. Corporate powers and capacity. - Every
corporation incorporated under this Code has the power and
capacity:
xxxx
7. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage
and otherwise deal with such real and
personal property, including securities
and bonds of other corporations, as the
transaction of a lawful business of the
corporation may reasonably and
necessarily require, subject to the
limitations prescribed by the law and the
Constitution.
The property of a corporation, however, is not the property
of the stockholders or members, and as such, may not be sold
without express authority from the board of
directors.[27] Physical acts, like the offering of the properties
of the corporation for sale, or the acceptance of a counter-
offer of prospective buyers of such properties and the
execution of the deed of sale covering such property, can be
performed by the corporation only by officers or agents duly
authorized for the purpose by corporate by-laws or by
specific acts of the board of directors.[28] Absent such valid
delegation/authorization, the rule is that the declarations of
an individual director relating to the affairs of the
corporation, but not in the course of, or connected with, the
performance of authorized duties of such director, are not
binding on the corporation.[29]
8
While a corporation may appoint agents to negotiate for the
sale of its real properties, the final say will have to be with
the board of directors through its officers and agents as
authorized by a board resolution or by its by-laws.[30] An
unauthorized act of an officer of the corporation is not
binding on it unless the latter ratifies the same expressly or
impliedly by its board of directors. Any sale of real property
of a corporation by a person purporting to be an agent thereof
but without written authority from the corporation is null and
void. The declarations of the agent alone are generally
insufficient to establish the fact or extent of his/her
authority.[31]
By the contract of agency, a person binds himself to render
some service or to do something in representation on behalf
of another, with the consent or authority of the
latter.[32] Consent of both principal and agent is necessary to
create an agency. The principal must intend that the agent
shall act for him; the agent must intend to accept the
authority and act on it, and the intention of the parties must
find expression either in words or conduct between them.[33]
An agency may be expressed or implied from the act of the
principal, from his silence or lack of action, or his failure to
repudiate the agency knowing that another person is acting
on his behalf without authority. Acceptance by the agent
may be expressed, or implied from his acts which carry out
the agency, or from his silence or inaction according to the
circumstances.[34] Agency may be oral unless the law
requires a specific form.[35] However, to create or convey
real rights over immovable property, a special power of
attorney is necessary.[36] Thus, when a sale of a piece of land
or any portion thereof is through an agent, the authority of
the latter shall be in writing, otherwise, the sale shall be
void.[37]
In this case, the petitioners as plaintiffs below, failed to
adduce in evidence any resolution of the Board of Directors
of respondent EC empowering Marquez, Glanville or
Delsaux as its agents, to sell, let alone offer for sale, for and
in its behalf, the eight parcels of land owned by respondent
EC including the improvements thereon. The bare fact that
Delsaux may have been authorized to sell to Ruperto Tan the
shares of stock of respondent ESAC, on June 1, 1997, cannot
be used as basis for petitioners' claim that he had likewise
been authorized by respondent EC to sell the parcels of land.
Moreover, the evidence of petitioners shows that Adams and
Glanville acted on the authority of Delsaux, who, in turn,
acted on the authority of respondent ESAC, through its
Committee for Asia,[38] the Board of Directors of respondent
ESAC,[39] and the Belgian/Swiss component of the
management of respondent ESAC.[40] As such, Adams and
Glanville engaged the services of Marquez to offer to sell the
properties to prospective buyers. Thus, on September 12,
1986, Marquez wrote the petitioner that he was authorized to
offer for sale the property for P27,000,000.00 and the other
terms of the sale subject to negotiations. When petitioners
offered to purchase the property for P20,000,000.00, through
Marquez, the latter relayed petitioners' offer to Glanville;
Glanville had to send a telex to Delsaux to inquire the

position of respondent ESAC to petitioners' offer. However,
as admitted by petitioners in their Memorandum, Delsaux
was unable to reply immediately to the telex of Glanville
because Delsaux had to wait for confirmation from
respondent ESAC.[41] When Delsaux finally responded to
Glanville on February 12, 1987, he made it clear that, based
on the "Belgian/Swiss decision" the final offer of respondent
ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all
existing obligations prior to final liquidation.[42] The offer of
Delsaux emanated only from the "Belgian/Swiss decision,"
and not the entire management or Board of Directors of
respondent ESAC. While it is true that petitioners accepted
the counter-offer of respondent ESAC, respondent EC was
not a party to the transaction between them; hence, EC was
not bound by such acceptance.
While Glanville was the President and General Manager of
respondent EC, and Adams and Delsaux were members of
its Board of Directors, the three acted for and in behalf of
respondent ESAC, and not as duly authorized agents of
respondent EC; a board resolution evincing the grant of such
authority is needed to bind EC to any agreement regarding
the sale of the subject properties. Such board resolution is
not a mere formality but is a condition sine qua non to bind
respondent EC. Admittedly, respondent ESAC owned 90%
of the shares of stocks of respondent EC; however, the mere
fact that a corporation owns a majority of the shares of stocks
of another, or even all of such shares of stocks, taken alone,
will not justify their being treated as one corporation.[43]
It bears stressing that in an agent-principal relationship, the
personality of the principal is extended through the facility
of the agent. In so doing, the agent, by legal fiction, becomes
the principal, authorized to perform all acts which the latter
would have him do. Such a relationship can only be effected
with the consent of the principal, which must not, in any
way, be compelled by law or by any court.[44]
The petitioners cannot feign ignorance of the absence of any
regular and valid authority of respondent EC empowering
Adams, Glanville or Delsaux to offer the properties for sale
and to sell the said properties to the petitioners. A person
dealing with a known agent is not authorized, under any
circumstances, blindly to trust the agents; statements as to
the extent of his powers; such person must not act
negligently but must use reasonable diligence and prudence
to ascertain whether the agent acts within the scope of his
authority.[45] The settled rule is that, persons dealing with an
assumed agent are bound at their peril, and if they would
hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to
prove it.[46] In this case, the petitioners failed to discharge
their burden; hence, petitioners are not entitled to damages
from respondent EC.
It appears that Marquez acted not only as real estate broker
for the petitioners but also as their agent. As gleaned from
the letter of Marquez to Glanville, on February 26, 1987, he
confirmed, for and in behalf of the petitioners, that the latter
had accepted such offer to sell the land and the
improvements thereon. However, we agree with the ruling
9
of the appellate court that Marquez had no authority to bind
respondent EC to sell the subject properties. A real estate
broker is one who negotiates the sale of real properties. His
business, generally speaking, is only to find a purchaser who
is willing to buy the land upon terms fixed by the owner. He
has no authority to bind the principal by signing a contract
of sale. Indeed, an authority to find a purchaser of real
property does not include an authority to sell.[47]
Equally barren of merit is petitioners' contention that
respondent EC is estopped to deny the existence of a
principal-agency relationship between it and Glanville or
Delsaux. For an agency by estoppel to exist, the following
must be established: (1) the principal manifested a
representation of the agent's authority or knowlingly allowed
the agent to assume suchauthority; (2) the third person, in
good faith, relied upon such representation; (3) relying upon
such representation, such third person has changed his
position to his detriment.[48] An agency by estoppel, which
is similar to the doctrine of apparent authority, requires proof
of reliance upon the representations, and that, in turn, needs
proof that the representations predated the action taken in
reliance.[49] Such proof is lacking in this case. In their
communications to the petitioners, Glanville and Delsaux
positively and unequivocally declared that they were acting
for and in behalf of respondent ESAC.
Neither may respondent EC be deemed to have ratified the
transactions between the petitioners and respondent ESAC,
through Glanville, Delsaux and Marquez. The transactions
and the various communications inter se were never
submitted to the Board of Directors of respondent EC for
ratification.
IN LIGHT OF ALL THE FOREGOING, the petition
is DENIED for lack of merit. Costs against the petitioners.
SO ORDERED.
G.R. NO. 142625, December 19, 2006
ROGELIO P. NOGALES, FOR HIMSELF AND ON
BEHALF OF THE MINORS, ROGER ANTHONY,
ANGELICA, NANCY, AND MICHAEL
CHRISTOPHER, ALL SURNAMED NOGALES,
PETITIONERS, VS. CAPITOL MEDICAL CENTER,
DR. OSCAR ESTRADA,DR. ELY VILLAFLOR,DR.
ROSA UY,DR. JOEL ENRIQUEZ,DR. PERPETUA
LACSON, DR. NOE ESPINOLA, AND NURSE J.
DUMLAO, RESPONDENTS
DECISION
CARPIO, J.:
The Case
 10

This petition for review[1] assails the 6 February 1998 of magnesium sulfate. However, Dr. Ely Villaflor ("Dr.
Decision[2] and 21 March 2000 Resolution[3] of the Court of Villaflor"), who was assisting Dr. Estrada, administered only
Appeals in CA-G.R. CV No. 45641. The Court of Appeals 2.5 grams of magnesium sulfate.
affirmed in toto the 22 November 1993 Decision[4] of the
Regional Trial Court of Manila, Branch 33, finding Dr. At 6:22 a.m., Dr. Estrada, assisted by Dr. Villaflor, applied
Oscar Estrada solely liable for damages for the death of his low forceps to extract Corazon's baby. In the process, a 1.0
patient, Corazon Nogales, while absolving the remaining x 2.5 cm. piece of cervical tissue was allegedly torn. The
respondents of any liability. The Court of Appeals denied baby came out in an apnic, cyanotic, weak and injured
petitioners' motion for reconsideration. condition. Consequently, the baby had to be intubated and
resuscitated by Dr. Enriquez and Dr. Payumo.
The Facts
At 6:27 a.m., Corazon began to manifest moderate vaginal
bleeding which rapidly became profuse. Corazon's blood
Pregnant with her fourth child, Corazon Nogales
pressure dropped from 130/80 to 60/40 within five minutes.
("Corazon"), who was then 37 years old, was under the
There was continuous profuse vaginal bleeding. The
exclusive prenatal care of Dr. Oscar Estrada ("Dr. Estrada")
assisting nurse administered hemacel through a gauge 19
beginning on her fourth month of pregnancy or as early as
needle as a side drip to the ongoing intravenous injection of
December 1975. While Corazon was on her last trimester of
dextrose.
pregnancy, Dr. Estrada noted an increase in her blood
pressure and development of leg edema[5] indicating
At 7:45 a.m., Dr. Estrada ordered blood typing and cross
preeclampsia,[6] which is a dangerous complication of
matching with bottled blood. It took approximately 30
pregnancy.[7]
minutes for the CMC laboratory, headed by Dr. Perpetua
Lacson ("Dr. Lacson"), to comply with Dr. Estrada's order
Around midnight of 25 May 1976, Corazon started to
and deliver the blood.
experience mild labor pains prompting Corazon and Rogelio
Nogales ("Spouses Nogales") to see Dr. Estrada at his home.
At 8:00 a.m., Dr. Noe Espinola ("Dr. Espinola"), head of the
After examining Corazon, Dr. Estrada advised her
Obstetrics-Gynecology Department of the CMC, was
immediate admission to the Capitol Medical Center
apprised of Corazon's condition by telephone. Upon being
("CMC").
informed that Corazon was bleeding profusely, Dr. Espinola
ordered immediate hysterectomy. Rogelio was made to sign
On 26 May 1976, Corazon was admitted at 2:30 a.m. at the
a "Consent to Operation."[13]
CMC after the staff nurse noted the written admission
request[8] of Dr. Estrada. Upon Corazon's admission at the
Due to the inclement weather then, Dr. Espinola, who was
CMC, Rogelio Nogales ("Rogelio") executed and signed the
fetched from his residence by an ambulance, arrived at the
"Consent on Admission and Agreement"[9] and "Admission
CMC about an hour later or at 9:00 a.m. He examined the
Agreement."[10] Corazon was then brought to the labor room
patient and ordered some resuscitative measures to be
of the CMC.
administered. Despite Dr. Espinola's efforts, Corazon died at
9:15 a.m. The cause of death was "hemorrhage, post
Dr. Rosa Uy ("Dr. Uy"), who was then a resident physician
partum."[14]
of CMC, conducted an internal examination of Corazon. Dr.
Uy then called up Dr. Estrada to notify him of her findings.
On 14 May 1980, petitioners filed a complaint for
damages[15] with the Regional Trial Court[16] of Manila
Based on the Doctor's Order Sheet,[11]around 3:00 a.m., Dr.
against CMC, Dr. Estrada, Dr. Villaflor, Dr. Uy, Dr.
Estrada ordered for 10 mg. of valium to be administered
Enriquez, Dr. Lacson, Dr. Espinola, and a certain Nurse J.
immediately by intramuscular injection. Dr. Estrada later
Dumlao for the death of Corazon. Petitioners mainly
ordered the start of intravenous administration of syntocinon
contended that defendant physicians and CMC personnel
admixed with dextrose, 5%, in lactated Ringers' solution, at
were negligent in the treatment and management of
the rate of eight to ten micro-drops per minute.
Corazon's condition. Petitioners charged CMC with
negligence in the selection and supervision of defendant
According to the Nurse's Observation Notes,[12] Dr. Joel
physicians and hospital staff.
Enriquez ("Dr. Enriquez"), an anesthesiologist at CMC, was
notified at 4:15 a.m. of Corazon's admission. Subsequently,
For failing to file their answer to the complaint despite
when asked if he needed the services of an anesthesiologist,
service of summons, the trial court declared Dr. Estrada, Dr.
Dr. Estrada refused. Despite Dr. Estrada's refusal, Dr.
Enriquez, and Nurse Dumlao in default.[17]CMC, Dr.
Enriquez stayed to observe Corazon's condition.
Villaflor, Dr. Uy, Dr. Espinola, and Dr. Lacson filed their
respective answers denying and opposing the allegations in
At 6:00 a.m., Corazon was transferred to Delivery Room No.
the complaint. Subsequently, trial ensued.
1 of the CMC. At 6:10 a.m., Corazon's bag of water ruptured
spontaneously. At 6:12 a.m., Corazon's cervix was fully
After more than 11 years of trial, the trial court rendered
dilated. At 6:13 a.m., Corazon started to experience
judgment on 22 November 1993 finding Dr. Estrada solely
convulsions.
liable for damages. The trial court ruled as follows:
At 6:15 a.m., Dr. Estrada ordered the injection of ten grams

The victim was under his pre-natal care, apparently, his fault
began from his incorrect and inadequate management and
lack of treatment of the pre-eclamptic condition of his
patient. It is not disputed that he misapplied the forceps in
causing the delivery because it resulted in a large cervical
tear which had caused the profuse bleeding which he also
failed to control with the application of inadequate injection
of magnesium sulfate by his assistant Dra. Ely Villaflor. Dr.
Estrada even failed to notice the erroneous administration by
nurse Dumlao of hemacel by way of side drip, instead of
direct intravenous injection, and his failure to consult a
senior obstetrician at an early stage of the problem.
On the part however of Dra. Ely Villaflor, Dra. Rosa Uy, Dr.
Joel Enriquez, Dr. Lacson, Dr. Espinola, nurse J. Dumlao
and CMC, the Court finds no legal justification to find them
civilly liable.
On the part of Dra. Ely Villaflor, she was only taking orders
from Dr. Estrada, the principal physician of Corazon
Nogales. She can only make suggestions in the manner the
patient maybe treated but she cannot impose her will as to do
so would be to substitute her good judgment to that of Dr.
Estrada. If she failed to correctly diagnose the true cause of
the bleeding which in this case appears to be a cervical
laceration, it cannot be safely concluded by the Court that
Dra. Villaflor had the correct diagnosis and she failed to
inform Dr. Estrada. No evidence was introduced to show that
indeed Dra. Villaflor had discovered that there was
laceration at the cervical area of the patient's internal organ.
On the part of nurse Dumlao, there is no showing that when
she administered the hemacel as a side drip, she did it on her
own. If the correct procedure was directly thru the veins, it
could only be because this was what was probably the orders
of Dr. Estrada.
While the evidence of the plaintiffs shows that Dr. Noe
Espinola, who was the Chief of the Department of Obstetrics
and Gynecology who attended to the patient Mrs. Nogales,
it was only at 9:00 a.m. That he was able to reach the hospital
because of typhoon Didang (Exhibit 2). While he was able
to give prescription in the manner Corazon Nogales may be
treated, the prescription was based on the information given
to him by phone and he acted on the basis of facts as
presented to him, believing in good faith that such is the
correct remedy. He was not with Dr. Estrada when the
patient was brought to the hospital at 2:30 o'clock a.m. So,
whatever errors that Dr. Estrada committed on the patient
before 9:00 o'clock a.m. are certainly the errors of Dr.
Estrada and cannot be the mistake of Dr. Noe Espinola. His
failure to come to the hospital on time was due to fortuitous
event.
On the part of Dr. Joel Enriquez, while he was present in the
delivery room, it is not incumbent upon him to call the
attention of Dr. Estrada, Dra. Villaflor and also of Nurse
Dumlao on the alleged errors committed by them. Besides,
as anesthesiologist, he has no authority to control the
actuations of Dr. Estrada and Dra. Villaflor. For the Court to
assume that there were errors being committed in the
presence of Dr. Enriquez would be to dwell on conjectures
11
and speculations.
On the civil liability of Dr. Perpetua Lacson, [s]he is a
hematologist and in-charge of the blood bank of the CMC.
The Court cannot accept the theory of the plaintiffs that there
was delay in delivering the blood needed by the patient. It
was testified, that in order that this blood will be made
available, a laboratory test has to be conducted to determine
the type of blood, cross matching and other matters
consistent with medical science so, the lapse of 30 minutes
maybe considered a reasonable time to do all of these things,
and not a delay as the plaintiffs would want the Court to
believe.
Admittedly, Dra. Rosa Uy is a resident physician of the
Capitol Medical Center. She was sued because of her alleged
failure to notice the incompetence and negligence of Dr.
Estrada. However, there is no evidence to support such
theory. No evidence was adduced to show that Dra. Rosa Uy
as a resident physician of Capitol Medical Center, had
knowledge of the mismanagement of the patient Corazon
Nogales, and that notwithstanding such knowledge, she
tolerated the same to happen.
In the pre-trial order, plaintiffs and CMC agreed that
defendant CMC did not have any hand or participation in the
selection or hiring of Dr. Estrada or his assistant Dra. Ely
Villaflor as attending physician[s] of the deceased. In other
words, the two (2) doctors were not employees of the
hospital and therefore the hospital did not have control over
their professional conduct. When Mrs. Nogales was brought
to the hospital, it was an emergency case and defendant
CMC had no choice but to admit her. Such being the case,
there is therefore no legal ground to apply the provisions of
Article 2176 and 2180 of the New Civil Code referring to the
vicarious liability of an employer for the negligence of its
employees. If ever in this case there is fault or negligence in
the treatment of the deceased on the part of the attending
physicians who were employed by the family of the
deceased, such civil liability should be borne by the
attending physicians under the principle of "respondeat
superior".
WHEREFORE, premises considered, judgment is hereby
rendered finding defendant Dr. Estrada of Number 13
Pitimini St. San Francisco del Monte, Quezon City civilly
liable to pay plaintiffs: 1) By way of actual damages in the
amount of P105,000.00; 2) By way of moral damages in the
amount of P700,000.00; 3) Attorney's fees in the amount of
P100,000.00 and to pay the costs of suit.
For failure of the plaintiffs to adduce evidence to support its
[sic] allegations against the other defendants, the complaint
is hereby ordered dismissed. While the Court looks with
disfavor the filing of the present complaint against the other
defendants by the herein plaintiffs, as in a way it has caused
them personal inconvenience and slight damage on their
name and reputation, the Court cannot accepts [sic] however,
the theory of the remaining defendants that plaintiffs were
motivated in bad faith in the filing of this complaint. For this
reason defendants' counterclaims are hereby ordered
dismissed.

SO ORDERED.[18]
Petitioners appealed the trial court's decision. Petitioners
claimed that aside from Dr. Estrada, the remaining
respondents should be held equally liable for negligence.
Petitioners pointed out the extent of each respondent's
alleged liability.
On 6 February 1998, the Court of Appeals affirmed the
decision of the trial court.[19] Petitioners filed a motion for
reconsideration which the Court of Appeals denied in its
Resolution of 21 March 2000.[20]
Hence, this petition.
Meanwhile, petitioners filed a Manifestation dated 12 April
2002[21] stating that respondents Dr. Estrada, Dr. Enriquez,
Dr. Villaflor, and Nurse Dumlao "need no longer be notified
of the petition because they are absolutely not involved in
the issue raised before the [Court], regarding the liability of
[CMC]."[22] Petitioners stressed that the subject matter of
this petition is the liability of CMC for the negligence of Dr.
Estrada.[23]
The Court issued a Resolution dated 9 September
2002[24] dispensing with the requirement to submit the
correct and present addresses of respondents Dr. Estrada, Dr.
Enriquez, Dr. Villaflor, and Nurse Dumlao. The Court stated
that with the filing of petitioners' Manifestation, it should be
understood that they are claiming only against respondents
CMC, Dr. Espinola, Dr. Lacson, and Dr. Uy who have filed
their respective comments. Petitioners are foregoing further
claims against respondents Dr. Estrada, Dr. Enriquez, Dr.
Villaflor, and Nurse Dumlao.
The Court noted that Dr. Estrada did not appeal the decision
of the Court of Appeals affirming the decision of the
Regional Trial Court. Accordingly, the decision of the Court
of Appeals, affirming the trial court's judgment, is already
final as against Dr. Oscar Estrada.
Petitioners filed a motion for reconsideration[25] of the
Court's 9 September 2002 Resolution claiming that Dr.
Enriquez, Dr. Villaflor and Nurse Dumlao were notified of
the petition at their counsels' last known addresses.
Petitioners reiterated their imputation of negligence on these
respondents. The Court denied petitioners' Motion for
Reconsideration in its 18 February 2004 Resolution.[26]
The Court of Appeals' Ruling
In its Decision of 6 February 1998, the Court of Appeals
upheld the trial court's ruling. The Court of Appeals rejected
petitioners' view that the doctrine in Darling v. Charleston
Community Memorial Hospital[27] applies to this case.
According to the Court of Appeals, the present case differs
from the Darling case since Dr. Estrada is an independent
contractor-physician whereas the Darling case involved a
physician and a nurse who were employees of the hospital.
Citing other American cases, the Court of Appeals further
held that the mere fact that a hospital permitted a physician
to practice medicine and use its facilities is not sufficient to
12
render the hospital liable for the physician's negligence.[28] A
hospital is not responsible for the negligence of a physician
who is an independent contractor.[29]
The Court of Appeals found the cases of Davidson v.
Conole[30] and Campbell v. Emma Laing Stevens
Hospital[31] applicable to this case. Quoting Campbell, the
Court of Appeals stated that where there is no proof that
defendant physician was an employee of defendant hospital
or that defendant hospital had reason to know that any acts
of malpractice would take place, defendant hospital could
not be held liable for its failure to intervene in the
relationship of physician-patient between defendant
physician and plaintiff.
On the liability of the other respondents, the Court of
Appeals applied the "borrowed servant" doctrine
considering that Dr. Estrada was an independent contractor
who was merely exercising hospital privileges. This doctrine
provides that once the surgeon enters the operating room and
takes charge of the proceedings, the acts or omissions of
operating room personnel, and any negligence associated
with such acts or omissions, are imputable to the
surgeon.[32] While the assisting physicians and nurses may be
employed by the hospital, or engaged by the patient, they
normally become the temporary servants or agents of the
surgeon in charge while the operation is in progress, and
liability may be imposed upon the surgeon for their negligent
acts under the doctrine of respondeat superior.[33]
The Court of Appeals concluded that since Rogelio engaged
Dr. Estrada as the attending physician of his wife, any
liability for malpractice must be Dr. Estrada's sole
responsibility.
While it found the amount of damages fair and reasonable,
the Court of Appeals held that no interest could be imposed
on unliquidated claims or damages.
The Issue
Basically, the issue in this case is whether CMC is
vicariously liable for the negligence of Dr. Estrada. The
resolution of this issue rests, on the other hand, on the
ascertainment of the relationship between Dr. Estrada and
CMC. The Court also believes that a determination of the
extent of liability of the other respondents is inevitable to
finally and completely dispose of the present controversy.
The Ruling of the Court
The petition is partly meritorious.
On the Liability of CMC
Dr. Estrada's negligence in handling the treatment and
management of Corazon's condition which ultimately
resulted in Corazon's death is no longer in issue. Dr. Estrada
did not appeal the decision of the Court of Appeals which
affirmed the ruling of the trial court finding Dr. Estrada
solely liable for damages. Accordingly, the finding of the

trial court on Dr. Estrada's negligence is already final.
Petitioners maintain that CMC is vicariously liable for Dr.
Estrada's negligence based on Article 2180 in relation to
Article 2176 of the Civil Code. These provisions pertinently
state:
Art. 2180. The obligation imposed by article 2176 is
demandable not only for one's own acts or omissions, but
also for those of persons for whom one is responsible.
x x x x
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged
in any business or industry.
x x x x
The responsibility treated of in this article shall cease when
the persons herein mentioned prove that they observed all
the diligence of a good father of a family to prevent damage.
Art. 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for
the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a
quasi-delict and is governed by the provisions of this
Chapter.
Similarly, in the United States, a hospital which is the
employer, master, or principal of a physician employee,
servant, or agent, may be held liable for the physician's
negligence under the doctrine of respondeat superior.[34]
In the present case, petitioners maintain that CMC, in
allowing Dr. Estrada to practice and admit patients at CMC,
should be liable for Dr. Estrada's malpractice. Rogelio
claims that he knew Dr. Estrada as an accredited physician
of CMC, though he discovered later that Dr. Estrada was not
a salaried employee of the CMC.[35] Rogelio further claims
that he was dealing with CMC, whose primary concern was
the treatment and management of his wife's condition. Dr.
Estrada just happened to be the specific person he talked to
representing CMC.[36] Moreover, the fact that CMC made
Rogelio sign a Consent on Admission and Admission
Agreement[37] and a Consent to Operation printed on the
letterhead of CMC indicates that CMC considered Dr.
Estrada as a member of its medical staff.
On the other hand, CMC disclaims liability by asserting that
Dr. Estrada was a mere visiting physician and that it admitted
Corazon because her physical condition then was classified
an emergency obstetrics case.[38]
CMC alleges that Dr. Estrada is an independent contractor
"for whose actuations CMC would be a total stranger." CMC
maintains that it had no control or supervision over Dr.
Estrada in the exercise of his medical profession.
The Court had the occasion to determine the relationship
between a hospital and a consultant or visiting physician and
13
the liability of such hospital for that physician's negligence
in Ramos v. Court of Appeals,[39] to wit:
In the first place, hospitals exercise significant control in the
hiring and firing of consultants and in the conduct of their
work within the hospital premises. Doctors who apply for
"consultant" slots, visiting or attending, are required to
submit proof of completion of residency, their educational
qualifications; generally, evidence of accreditation by the
appropriate board (diplomate), evidence of fellowship in
most cases, and references. These requirements are carefully
scrutinized by members of the hospital administration or by
a review committee set up by the hospital who either accept
or reject the application. This is particularly true with
respondent hospital.
After a physician is accepted, either as a visiting or attending
consultant, he is normally required to attend clinico-
pathological conferences, conduct bedside rounds for clerks,
interns and residents, moderate grand rounds and patient
audits and perform other tasks and responsibilities, for the
privilege of being able to maintain a clinic in the hospital,
and/or for the privilege of admitting patients into the
hospital. In addition to these, the physician's performance as
a specialist is generally evaluated by a peer review
committee on the basis of mortality and morbidity statistics,
and feedback from patients, nurses, interns and residents. A
consultant remiss in his duties, or a consultant who regularly
falls short of the minimum standards acceptable to the
hospital or its peer review committee, is normally politely
terminated.
In other words, private hospitals, hire, fire and exercise real
control over their attending and visiting "consultant"
staff. While "consultants" are not, technically employees,
a point which respondent hospital asserts in denying all
responsibility for the patient's condition, the control
exercised, the hiring, and the right to terminate
consultants all fulfill the important hallmarks of an
employer-employee relationship, with the exception of
the payment of wages. In assessing whether such a
relationship in fact exists, the control test is determining.
Accordingly, on the basis of the foregoing, we rule that
for the purpose of allocating responsibility in medical
negligence cases, an employer-employee relationship in
effect exists between hospitals and their attending and
visiting physicians. This being the case, the question now
arises as to whether or not respondent hospital is
solidarily liable with respondent doctors for petitioner's
condition.
The basis for holding an employer solidarily responsible for
the negligence of its employee is found in Article 2180 of
the Civil Code which considers a person accountable not
only for his own acts but also for those of others based on
the former's responsibility under a relationship of patria
potestas. x x x[40] (Emphasis supplied)
While the Court in Ramos did not expound on the control
test, such test essentially determines whether an employment
relationship exists between a physician and a hospital based
on the exercise of control over the physician as to details.
Specifically, the employer (or the hospital) must have the
right to control both the means and the details of the process

by which the employee (or the physician) is to accomplish
his task.[41]
After a thorough examination of the voluminous records of
this case, the Court finds no single evidence pointing to
CMC's exercise of control over Dr. Estrada's treatment and
management of Corazon's condition. It is undisputed that
throughout Corazon's pregnancy, she was under the
exclusive prenatal care of Dr. Estrada. At the time of
Corazon's admission at CMC and during her delivery, it was
Dr. Estrada, assisted by Dr. Villaflor, who attended to
Corazon. There was no showing that CMC had a part in
diagnosing Corazon's condition. While Dr. Estrada enjoyed
staff privileges at CMC, such fact alone did not make him an
employee of CMC.[42] CMC merely allowed Dr. Estrada to
use its facilities[43] when Corazon was about to give birth,
which CMC considered an emergency. Considering these
circumstances, Dr. Estrada is not an employee of CMC, but
an independent contractor.
The question now is whether CMC is automatically exempt
from liability considering that Dr. Estrada is an independent
contractor-physician.
In general, a hospital is not liable for the negligence of an
independent contractor-physician. There is, however, an
exception to this principle. The hospital may be liable if the
physician is the "ostensible" agent of the hospital.[44] This
exception is also known as the "doctrine of apparent
authority."[45] In Gilbert v. Sycamore Municipal
Hospital,[46] the Illinois Supreme Court explained the
doctrine of apparent authority in this wise:
[U]nder the doctrine of apparent authority a hospital can be
held vicariously liable for the negligent acts of a physician
providing care at the hospital, regardless of whether the
physician is an independent contractor, unless the patient
knows, or should have known, that the physician is an
independent contractor. The elements of the action have
been set out as follows:
"For a hospital to be liable under the doctrine of apparent
authority, a plaintiff must show that: (1) the hospital, or its
agent, acted in a manner that would lead a reasonable person
to conclude that the individual who was alleged to be
negligent was an employee or agent of the hospital; (2)
where the acts of the agent create the appearance of
authority, the plaintiff must also prove that the hospital had
knowledge of and acquiesced in them; and (3) the plaintiff
acted in reliance upon the conduct of the hospital or its agent,
consistent with ordinary care and prudence."
The element of "holding out" on the part of the hospital does
not require an express representation by the hospital that the
person alleged to be negligent is an employee. Rather, the
element is satisfied if the hospital holds itself out as a
provider of emergency room care without informing the
patient that the care is provided by independent contractors.
The element of justifiable reliance on the part of the plaintiff
is satisfied if the plaintiff relies upon the hospital to provide
complete emergency room care, rather than upon a specific
physician.
14
The doctrine of apparent authority essentially involves two
factors to determine the liability of an independent-
contractor physician.
The first factor focuses on the hospital's manifestations and
is sometimes described as an inquiry whether the hospital
acted in a manner which would lead a reasonable person to
conclude that the individual who was alleged to be negligent
was an employee or agent of the hospital.[47] In this regard,
the hospital need not make express representations to the
patient that the treating physician is an employee of the
hospital; rather a representation may be general and
implied.[48]
The doctrine of apparent authority is a species of the doctrine
of estoppel. Article 1431 of the Civil Code provides that
"[t]hrough estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot
be denied or disproved as against the person relying
thereon." Estoppel rests on this rule: "Whenever a party has,
by his own declaration, act, or omission, intentionally and
deliberately led another to believe a particular thing true, and
to act upon such belief, he cannot, in any litigation arising
out of such declaration, act or omission, be permitted to
falsify it."[49]
In the instant case, CMC impliedly held out Dr. Estrada as a
member of its medical staff. Through CMC's acts, CMC
clothed Dr. Estrada with apparent authority thereby leading
the Spouses Nogales to believe that Dr. Estrada was an
employee or agent of CMC. CMC cannot now repudiate
such authority.
First, CMC granted staff privileges to Dr. Estrada. CMC
extended its medical staff and facilities to Dr. Estrada. Upon
Dr. Estrada's request for Corazon's admission, CMC,
through its personnel, readily accommodated Corazon and
updated Dr. Estrada of her condition.
Second, CMC made Rogelio sign consent forms printed on
CMC letterhead. Prior to Corazon's admission and supposed
hysterectomy, CMC asked Rogelio to sign release forms, the
contents of which reinforced Rogelio's belief that Dr.
Estrada was a member of CMC's medical staff.[50] The
Consent on Admission and Agreement explicitly provides:
KNOW ALL MEN BY THESE PRESENTS:
I, Rogelio Nogales, of legal age, a resident of 1974 M. H.
Del Pilar St., Malate Mla., being the
father/mother/brother/sister/spouse/relative/ guardian/or
person in custody of Ma. Corazon, and representing his/her
family, of my own volition and free will, do consent and
submit said Ma. Corazon to Dr. Oscar Estrada (hereinafter
referred to as Physician) for cure, treatment, retreatment, or
emergency measures, that the Physician, personally or by
and through the Capitol Medical Center and/or its staff,
may use, adapt, or employ such means, forms or methods
of cure, treatment, retreatment, or emergency measures
as he may see best and most expedient; that Ma. Corazon
and I will comply with any and all rules, regulations,
directions, and instructions of the Physician, the Capitol
Medical Center and/or its staff; and, that I will not hold

liable or responsible and hereby waive and forever discharge
and hold free the Physician, the Capitol Medical Center
and/or its staff, from any and all claims of whatever kind of
nature, arising from directly or indirectly, or by reason of
said cure, treatment, or retreatment, or emergency measures
or intervention of said physician, the Capitol Medical Center
and/or its staff.
x x x x[51] (Emphasis supplied)
While the Consent to Operation pertinently reads, thus:
I, ROGELIO NOGALES, x x x, of my own volition and free
will, do consent and submit said CORAZON NOGALES to
Hysterectomy, by the Surgical Staff and Anesthesiologists
of Capitol Medical Center and/or whatever succeeding
operations, treatment, or emergency measures as may be
necessary and most expedient; and, that I will not hold liable
or responsible and hereby waive and forever discharge and
hold free the Surgeon, his assistants, anesthesiologists, the
Capitol Medical Center and/or its staff, from any and all
claims of whatever kind of nature, arising from directly or
indirectly, or by reason of said operation or operations,
treatment, or emergency measures, or intervention of the
Surgeon, his assistants, anesthesiologists, the Capitol
Medical Center and/or its staff.[52] (Emphasis supplied)
Without any indication in these consent forms that Dr.
Estrada was an independent contractor-physician, the
Spouses Nogales could not have known that Dr. Estrada was
an independent contractor. Significantly, no one from CMC
informed the Spouses Nogales that Dr. Estrada was an
independent contractor. On the contrary, Dr. Atencio, who
was then a member of CMC Board of Directors, testified that
Dr. Estrada was part of CMC's surgical staff.[53]
Third, Dr. Estrada's referral of Corazon's profuse vaginal
bleeding to Dr. Espinola, who was then the Head of the
Obstetrics and Gynecology Department of CMC, gave the
impression that Dr. Estrada as a member of CMC's medical
staff was collaborating with other CMC-employed
specialists in treating Corazon.
The second factor focuses on the patient's reliance. It is
sometimes characterized as an inquiry on whether the
plaintiff acted in reliance upon the conduct of the hospital or
its agent, consistent with ordinary care and prudence.[54]
The records show that the Spouses Nogales relied upon a
perceived employment relationship with CMC in accepting
Dr. Estrada's services. Rogelio testified that he and his wife
specifically chose Dr. Estrada to handle Corazon's delivery
not only because of their friend's recommendation, but more
importantly because of Dr. Estrada's "connection with a
reputable hospital, the [CMC]."[55] In other words, Dr.
Estrada's relationship with CMC played a significant role in
the Spouses Nogales' decision in accepting Dr. Estrada's
services as the obstetrician-gynecologist for Corazon's
delivery. Moreover, as earlier stated, there is no showing that
before and during Corazon's confinement at CMC, the
Spouses Nogales knew or should have known that Dr.
Estrada was not an employee of CMC.
Further, the Spouses Nogales looked to CMC to provide the
best medical care and support services for Corazon's
15
delivery. The Court notes that prior to Corazon's fourth
pregnancy, she used to give birth inside a clinic. Considering
Corazon's age then, the Spouses Nogales decided to have
their fourth child delivered at CMC, which Rogelio regarded
one of the best hospitals at the time.[56] This is precisely
because the Spouses Nogales feared that Corazon might
experience complications during her delivery which would
be better addressed and treated in a modern and big hospital
such as CMC. Moreover, Rogelio's consent in Corazon's
hysterectomy to be performed by a different physician,
namely Dr. Espinola, is a clear indication of Rogelio's
confidence in CMC's surgical staff.
CMC's defense that all it did was "to extend to [Corazon] its
facilities" is untenable. The Court cannot close its eyes to the
reality that hospitals, such as CMC, are in the business of
treatment. In this regard, the Court agrees with the
observation made by the Court of Appeals of North Carolina
in Diggs v. Novant Health, Inc.,[57] to wit:
"The conception that the hospital does not undertake to treat
the patient, does not undertake to act through its doctors and
nurses, but undertakes instead simply to procure them to act
upon their own responsibility, no longer reflects the
fact. Present day hospitals, as their manner of operation
plainly demonstrates, do far more than furnish facilities
for treatment. They regularly employ on a salary basis a
large staff of physicians, nurses and internes [sic], as well
as administrative and manual workers, and they charge
patients for medical care and treatment, collecting for
such services, if necessary, by legal action. Certainly, the
person who avails himself of 'hospital facilities' expects
that the hospital will attempt to cure him, not that its
nurses or other employees will act on their own
responsibility." x x x (Emphasis supplied)
Likewise unconvincing is CMC's argument that petitioners
are estopped from claiming damages based on the Consent
on Admission and Consent to Operation. Both release forms
consist of two parts. The first part gave CMC permission to
administer to Corazon any form of recognized medical
treatment which the CMC medical staff deemed advisable.
The second part of the documents, which may properly be
described as the releasing part, releases CMC and its
employees "from any and all claims" arising from or by
reason of the treatment and operation.
The documents do not expressly release CMC from liability
for injury to Corazon due to negligence during her treatment
or operation. Neither do the consent forms expressly exempt
CMC from liability for Corazon's death due to
negligence during such treatment or operation. Such release
forms, being in the nature of contracts of adhesion, are
construed strictly against hospitals. Besides, a blanket
release in favor of hospitals "from any and all claims," which
includes claims due to bad faith or gross negligence, would
be contrary to public policy and thus void.
Even simple negligence is not subject to blanket release in
favor of establishments like hospitals but may only mitigate
liability depending on the circumstances.[58]When a person
needing urgent medical attention rushes to a hospital, he
cannot bargain on equal footing with the hospital on the
terms of admission and operation. Such a person is literally
 16

at the mercy of the hospital. There can be no clearer example should have taken, or at least suggested, corrective measures
of a contract of adhesion than one arising from such a dire to rectify such errors.
situation. Thus, the release forms of CMC cannot relieve
CMC from liability for the negligent medical treatment of The Court is not convinced. Dr. Enriquez is an
Corazon. anesthesiologist whose field of expertise is definitely not
obstetrics and gynecology. As such, Dr. Enriquez was not
expected to correct Dr. Estrada's errors. Besides, there was
On the Liability of the Other Respondents
no evidence of Dr. Enriquez's knowledge of any error
committed by Dr. Estrada and his failure to act upon such
Despite this Court's pronouncement in its 9 September
observation.
2002[59] Resolution that the filing of petitioners'
Manifestation confined petitioners' claim only against CMC,
Dr. Espinola, Dr. Lacson, and Dr. Uy, who have filed their d) Dr. Perpetua Lacson
comments, the Court deems it proper to resolve the
Petitioners fault Dr. Perpetua Lacson for her purported delay
individual liability of the remaining respondents to put an
in the delivery of blood Corazon needed.[64] Petitioners claim
end finally to this more than two-decade old controversy.
that Dr. Lacson was remiss in her duty of supervising the
blood bank staff.
a) Dr. Ely Villaflor
As found by the trial court, there was no unreasonable delay
Petitioners blame Dr. Ely Villaflor for failing to diagnose the
in the delivery of blood from the time of the request until the
cause of Corazon's bleeding and to suggest the correct
transfusion to Corazon. Dr. Lacson competently explained
remedy to Dr. Estrada.[60] Petitioners assert that it was Dr.
the procedure before blood could be given to the
Villaflor's duty to correct the error of Nurse Dumlao in the
patient.[65] Taking into account the bleeding time, clotting
administration of hemacel.
time and cross-matching, Dr. Lacson stated that it would take
approximately 45-60 minutes before blood could be ready
The Court is not persuaded. Dr. Villaflor admitted
for transfusion.[66] Further, no evidence exists that Dr.
administering a lower dosage of magnesium sulfate.
Lacson neglected her duties as head of the blood bank.
However, this was after informing Dr. Estrada that Corazon
was no longer in convulsion and that her blood pressure went
down to a dangerous level.[61] At that moment, Dr. Estrada e) Dr. Noe Espinola
instructed Dr. Villaflor to reduce the dosage of magnesium
Petitioners argue that Dr. Espinola should not have ordered
sulfate from 10 to 2.5 grams. Since petitioners did not
immediate hysterectomy without determining the underlying
dispute Dr. Villaflor's allegation, Dr. Villaflor's defense
cause of Corazon's bleeding. Dr. Espinola should have first
remains uncontroverted. Dr. Villaflor's act of administering
considered the possibility of cervical injury, and advised a
a lower dosage of magnesium sulfate was not out of her own
thorough examination of the cervix, instead of believing
volition or was in contravention of Dr. Estrada's order.
outright Dr. Estrada's diagnosis that the cause of bleeding
was uterine atony.
b) Dr. Rosa Uy
Dr. Espinola's order to do hysterectomy which was based on
Dr. Rosa Uy's alleged negligence consisted of her failure (1)
the information he received by phone is not negligence. The
to call the attention of Dr. Estrada on the incorrect dosage of
Court agrees with the trial court's observation that Dr.
magnesium sulfate administered by Dr. Villaflor; (2) to take
Espinola, upon hearing such information about Corazon's
corrective measures; and (3) to correct Nurse Dumlao's
condition, believed in good faith that hysterectomy was the
wrong method of hemacel administration.
correct remedy. At any rate, the hysterectomy did not push
through because upon Dr. Espinola's arrival, it was already
The Court believes Dr. Uy's claim that as a second year
too late. At the time, Corazon was practically dead.
resident physician then at CMC, she was merely authorized
to take the clinical history and physical examination of
f) Nurse J. Dumlao
Corazon.[62] However, that routine internal examination did
not ipso facto make Dr. Uy liable for the errors committed
In Moore v. Guthrie Hospital Inc.,[67] the US Court of
by Dr. Estrada. Further, petitioners' imputation of negligence
Appeals, Fourth Circuit, held that to recover, a patient
rests on their baseless assumption that Dr. Uy was present at
complaining of injuries allegedly resulting when the nurse
the delivery room. Nothing shows that Dr. Uy participated
negligently injected medicine to him intravenously instead
in delivering Corazon's baby. Further, it is unexpected from
of intramuscularly had to show that (1) an intravenous
Dr. Uy, a mere resident physician at that time, to call the
injection constituted a lack of reasonable and ordinary care;
attention of a more experienced specialist, if ever she was
(2) the nurse injected medicine intravenously; and (3) such
present at the delivery room.
injection was the proximate cause of his injury.
c) Dr. Joel Enriquez
In the present case, there is no evidence of Nurse Dumlao's
alleged failure to follow Dr. Estrada's specific instructions.
Petitioners fault Dr. Joel Enriquez also for not calling the
Even assuming Nurse Dumlao defied Dr. Estrada's order,
attention of Dr. Estrada, Dr. Villaflor, and Nurse Dumlao
there is no showing that side-drip administration of hemacel
about their errors.[63] Petitioners insist that Dr. Enriquez
 17

proximately caused Corazon's death. No evidence linking Village East Executive Homes, a subdivision project,
Corazon's death and the alleged wrongful hemacel designated as Lot 5, Block 64, Phase II, covering an area of
administration was introduced. Therefore, there is no basis approximately 204 square meters, and situated in Tayuman,
to hold Nurse Dumlao liable for negligence. Pantok, Binangonan, Rizal; that on April 20, 1994,
Sanvictores paid the required down payment of ₱81,949.04;
that on June 9, 1994, a Contract to Sell5 was executed by and
On the Award of Interest on Damages
between PEPI and AFPRSBS, as the seller, and Sanvictores,
as the buyer; that on February 27, 1999, Sanvictores paid in
The award of interest on damages is proper and allowed
full the purchase price of the subject property in the amount
under Article 2211 of the Civil Code, which states that in
of ₱534,378.79; that despite the full payment, PEPI and
crimes and quasi-delicts, interest as a part of the damages
AFPRSBS failed to execute the corresponding deed of
may, in a proper case, be adjudicated in the discretion of the
absolute sale on the subject property and deliver the
court.[68]
corresponding title thereto; that on September 6, 2000,
Sanvictores demanded from PEPI the execution of the deed
WHEREFORE, the Court PARTLY GRANTS the
of sale and the delivery of the transfer certificate of title; that
petition. The Court finds respondent Capitol Medical Center
PEPI claimed that the title of the subject property was still
vicariously liable for the negligence of Dr. Oscar Estrada.
with the Philippine National Bank (PNB) and could not be
The amounts of P105,000 as actual damages and P700,000
released due to the economic crisis; that despite several
as moral damages should each earn legal interest at the rate
follow-ups with PEPI, the latter did not communicate with
of six percent (6%) per annum computed from the date of the
Sanvictores for a period of four (4) years; and that,
judgment of the trial court. The Court affirms the rest of the
thereafter, Sanvictores filed a complaint for rescission of the
Decision dated 6 February 1998 and Resolution dated 21
contract to sell, refund of payment, damages, and attorney's
March 2000 of the Court of Appeals in CA-G.R. CV No.
fees against PEPI and AFPRSBS before the HLRUB.
45641.

SO ORDERED. In its defense, PEPI argued, among others, that the complaint
should be dismissed for lack of cause of action; that it could
not be faulted for the delay in the delivery of the title due
to force majeure; that it substantially complied with its
obligations in good faith; and that it was always transparent
in dealing with the public.
G.R. No. 207586
For its part, AFPRSBS countered that it was not the owner
and developer of Village East Executive Homes but PEPI;
AFP RETIREMENT AND SEPARATION BENEFITS
that PEPI alone was the seller; and that Norma Espina
SYSTEM (AFPRSBS), Petitioner
(Espina) was neither the treasurer nor the authorized
vs.
representative of AFPRSBS, but the Treasurer of PEPI.
EDUARDO SANVICTORES, Respondent

The Decision of the HLURB Arbiter

DECISION

On March 27, 2006, the HLURB Arbiter rendered a

MENDOZA, J.:
decision6 in favor of Sanvictores, the dispositive portion of
which reads:
Assailed in this Petition for Review on Certiorari is the
November 28, 2012 Decision1 and the June 6, 2013
WHEREFORE, premises considered, judgment is hereby
Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No.
rendered as follows:
118427, which affirmed the June 22, 2010 Decision3 of the
Office of the President (OP), upholding the August 31, 2007
Decision4 of the Housing and Land Use Regulatory Board- 1. Declaring the Contract to Sell executed by and between
Board of Commissioners (HLURB Board). The decision of the complainant and the respondents covering the subject
the HLURB Board dismissed the appeal filed by petitioner property as RESCINDED, and
AFP Retirement and Separation Benefits System
(AFPRSBS) together with Prime East Properties, Inc. 2. Ordering the respondents to pay jointly and severally the
(PEPI), questioning the order of rescission of the contract of complainant the following sums:
sale of the subject parcel of land.
a) The amount of FIVE HUNDRED THIRTY
The Antecedents FOUR THOUSAND THREE HUNDRED
SEVENTI EIGHT PESOS & 79/100
The records show that sometime in 1994, PEPI, formerly (₱534,378.79) plus twelve percent (12%)
Antipolo Properties, Inc., offered to Eduardo Sanvictores interest per annum to be computed from the date
(Sanvictores) for sale on installment basis a parcel of land in

of the filing of the complaint on September 20,
2001 until fully paid,
b) The amount of TEN THOUSAND PESOS
(₱10,000.00) as moral damages,
c) The amount of TEN THOUSAND PESOS
(₱10,000.00) as exemplary damages,
d) The amount of TEN THOUSAND PESOS
(₱10,000.00) as attorney's fees,
e) The costs of litigation, and
f) An administrative fine of TEN THOUSAND
PESOS (₱10,000.00) payable to this Office fifteen
(15) days upon receipt of this decision, for
violation of Section 20 in relation to Section 38 of
PD 957.
SO ORDERED.7
The HLRUB Arbiter ruled that Sanvictores was entitled to
the reliefs he prayed for in the complaint and that the
rescission of the contract to sell was just and proper because
of the unjustified refusal of the seller to execute the deed of
absolute sale and to deliver the title of the subject property
despite the full payment of the purchase price. The seller's
unjustified refusal constituted a substantive breach of its
legal and contractual obligation.
Decision of the HLURB Board
On August 31, 2007, acting on the appeal of PEPI and
AFPRSBS, the HLURB Board affirmed the decision of the
HLURB Arbiter as it found no reversible error in the
findings of fact and conclusions of the HLURB Arbiter.
The respective motions for reconsideration of PEPI and
AFPRSBS were denied by the HLURB Board.1âwphi1
The Decision of the Office of the President
PEPI and AFPRSBS filed separate appeals before the OP
with AFPRSBS insisting that it should not be held jointly
and severally liable with PEPI for the refund, administrative
fine and the payment of the interest. On June 22, 2010, the
OP upheld the decision of the HLURB Board. It stated that
in the contract to sell "PEPI and AFPRSBS were referred to
singly as the 'seller,' and there were no delineations
whatsoever as to their rights and obligations."8Hence, the OP
concluded that their obligation to Sanvictores was joint and
several.
Motions for reconsideration were separately filed by PEPI
and AFPRSBS, but both were denied by the OP in its
February 8, 2011 Resolution. 9
18
AFPRSBS alone filed a petition for review before the CA.
The CA Decision
On November 28, 2012, the CA affirmed the decision of the
OP. The CA echoed the view of the OP that PEPI and
AFPRSBS were indicated as the "Seller" in the subject
contract, without any delineation whatsoever as to the rights
and obligations of the respective parties. It wrote that PEPI
and AFPRSBS came to the contracting table with the
intention to be bound jointly and severally. Hence, the CA
concluded that the nature of the obligation of PEPI and
AFPRSBS under the subject contract was solidary pursuant
to Article 1207 of the Civil Code. 10 It sustained the award
of moral and exemplary damages but lowered the interest
rate on the award of actual damages to 6% per annum. Thus,
it disposed as follows:
WHEREFORE, in view of the foregoing, the Petition is
hereby DENIED and the Decision dated June 22, 2010 is
AFFIRMED with modification that the interest rate on the
actual damages in the amount of FIVE HUNDRED THIRTY
FOUR THOUSAND THREE HUNDRED SEVENTY
EIGHT PESOS & 79/100 (₱534,378.79), is REDUCED to
six percent (6%) per annum.
SO ORDERED. 11
The CA denied the motion for reconsideration filed by
AFPRSBS in its June 6, 2013 Resolution.
Hence, this petition with the following
ASSIGNMENT OF ERRORS
The Honorable Court of Appeals committed grave abuse
of discretion and misconstrued the facts and misapplied
the law when:
I It held Petitioner AFPRSBS jointly and severally liable
with PEPI to the Respondent
II It held herein Petitioner AFPRSBS liable for moral
and exemplary damages, costs of litigation and attorney's
fees.
III It held Petitioner AFPRSBS to pay administrative
fine of ten thousand pesos (Pl0,000.00) payable to
HLURB for violation of Section 20 in relation to Section
38 of P.D. 957.
Position of AFPRSBS In advocacy of its position,
AFPRSBS argues that it was not the owner/developer of the
Village East Executive Homes subdivision, but PEPI; that all
the certificates of title of the lots in the said subdivision
project were in the name and possession of PEPI; that it was
not the seller of the subject property, but PEPI; that although
it appeared in the contract to sell that AFPRSBS was a co-

seller of the subject lot, it was not signed by any of its
authorized representative; that the contract to sell was signed
by Espina, the Treasurer and the authorized representative of
PEPI; that because it was not a party in the said contract, it
could not be affected, favored or prejudiced thereby; that
under Article 1311 of the Civil Code, contracts take effect
only between the parties, their assigns and heirs; that it never
dealt with Sanvictores with respect to the sale of the subject
subdivision lot; that its officers and employees never made
any representation to him relative to the subject lot; that the
transaction and the communications were exclusively held
between Sanvictores and PEPI as evidenced by his passbook
and the letter of PEPI addressed to him, dated September 26,
2000; that the failure to deliver the title to Sanvictores was
due to the mortgage of the subject lot by PEPI to PNB; that
it was not a party or privy to the said mortgage; that the
mortgage was executed solely by PEPI to secure the loan it
obtained from PNB as shown by the Loan Agreement and
the Real Estate Mortgage; that assuming that it would be
adjudged liable to Sanvictores on the basis of the said
contract to sell, its liability would only be joint and not in
solidum with PEPI; that solidary liability could not be
presumed; and that it could not be liable for damages and
administrative fine because it was not the owner or developer
of the subject parcel of land.
Counter-Position of Sanvictores
Sanvictores countered that both PEPI and AFPRSBS were
referred to as the "seller" in the contract to sell; that the
signatures of their respective representatives, Espina and
Menandro Mena (Mena), appeared in the said contract; that
AFPRSBS could not disclaim liability by the mere expedient
of denying that it was not a party to the transaction and that
the person who signed the contract was not authorized; that
AFPRSBS should be estopped in denying the authority of
their representative because it gave the latter the apparent
authority to represent it in the subject transaction; that there
was nothing on the face of the notarized contract to sell that
would arouse any suspicion that Espina and Mena were not
authorized by PEPI and AFPRSBS, respectively; that PEPI
and AFPRSBS were referred to in the entire contract as
"Seller" and not "Sellers," denoting that they were only one;
that they came to the contracting table with the intention to
be bound jointly and severally; that there was no delineation
whatsoever as to their rights and obligations; that PEPI and
AFPRSBS represented themselves as the "Seller" in the
contract to sell and they appeared to be partners; and that
AFPRSBS should be liable for moral and exemplary
damages, costs of litigation and attorney's fees.
The Court's Ruling
The petition lacks merit.
In a wealth of cases, the Court has consistently ruled that
factual findings and conclusions of an adjudicative body,
especially when affirmed on appeal and supported by
enough evidence, are entitled to great weight, full respect
and even finality by this Court, because administrative
19
agencies or quasi-judicial bodies are clothed with special
knowledge and expertise on specific matters within their
jurisdiction. In the absence of any proof showing grave
abuse of discretion, the appellate courts will not disturb their
factual findings and conclusions.
In the case at bench, the HLURB, the OP and the CA were
one in ruling that AFPRSBS was jointly and severally liable
with PEPI to Sanvictores. The Court reviewed the records
and found their factual findings and conclusions to be in
accordance with the evidentiary records.
In Spouses Berot v. Siapno, 12 the Court defined solidary
obligation as one in which each of the debtors is liable for
the entire obligation, and each of the creditors is entitled to
demand the satisfaction of the whole obligation from any or
all of the debtors. On the other hand, a joint obligation is one
in which each debtor is liable only for a proportionate part of
the debt, and the creditor is entitled to demand only a
proportionate part of the credit from each debtor. The well-
entrenched rule is that solidary obligations cannot be
inferred lightly. They must be positively and clearly
expressed. A liability is solidary "only when the obligation
expressly so states, when the law so provides or when the
nature of the obligation so requires." In this regard, Article
1207 of the Civil Code provides:
Art. 1207. The concurrence of two or more creditors or of
two or more debtors in one and the same obligation does not
imply that each one of the former has a right to demand, or
that each one of the latter 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.
As can be gleaned therefrom, Article 1207 does not presume
solidary liability unless: 1] the obligation expressly so states;
or 2] the law or nature requires solidarity. 13
Here, there is no doubt that the nature of the obligation of
PEPI and AFPRSBS under the subject contract to sell was
solidary. In the said contract, PEPI and AFPRSBS were
expressly referred to as the "SELLER" while Sanvictores
was referred to as the "BUYER." Indeed, the contract to sell
did not state "SELLERS" but "SELLER." This could only
mean that PEPI and AFPRSBS were considered as one seller
in the contract. As correctly pointed out by the
administrative tribunals below and the CA, there was no
delineation as to their rights and obligations.
Also in the said contract, the signatories were Espina,
representing PEPI; Mena, representing AFPRSBS; and
Sanvictores. Espina signed under PEPI as seller while Mena
signed under AFPRSBS also as seller. Furthermore, the
signatures of Espina and Mena were affixed again in the last
portion of the Deed of Restrictions 14 under the word
"OWNER" with Espina signing for PEPI and Mena for
AFPRSBS.

AFPRSBS repeatedly argues that the contract was not signed
by any of its authorized representative. It was resolute in its
claim that Espina was not its treasurer or authorized
representative. Conveniently, however, it remained silent as
to Mena. It never denied that Mena was its representative.
Indeed, there could be no other conclusion except that PEPI
and AFPRSBS came to the contracting table with the
intention to be bound jointly and severally. AFPRSBS is
estopped from denying Mena's authority to represent it. It is
quite obvious that AFPRSBS clothed Mena with apparent
authority to act on its behalf in the execution of the contract
to sell. There is estoppel when the principal has clothed the
agent with indicia of authority as to lead a reasonably
prudent person to believe that the agent actually has such
authority. 15 "In an agency by estoppel or apparent authority,
"the principal is bound by the acts of his agent with the
apparent authority which he knowingly permits the agent to
assume, or which he holds the agent out to the public as
possessing." 16 "A corporation may be held in estoppel from
denying as against innocent third persons the authority of its
officers or agents who have been clothed by it with
ostensible or apparent authority." 17
WHEREFORE the petition is DENIED.
SO ORDERED.
G.R. No. 118375, October 03, 2003
CELESTINA T. NAGUIAT, PETITIONER, VS.
COURT OF APPEALS AND AURORA QUEAÑO,
RESPONDENTS.
DECISION
TINGA, J.:
Before us is a Petition for Review on Certiorari under Rule
45, assailing the decision of the Sixteenth Division of the
respondent Court of Appeals promulgated on 21 December
1994[1], which affirmed in toto the decision handed down by
the Regional Trial Court (RTC) of Pasay City.[2]
The case arose when on 11 August 1981, private respondent
Aurora Queaño (Queaño) filed a complaint before the Pasay
City RTC for cancellation of a Real Estate Mortgage she had
entered into with petitioner Celestina Naguiat (Naguiat). The
RTC rendered a decision, declaring the questioned Real
Estate Mortgage void, which Naguiat appealed to the Court
20
of Appeals. After the Court of Appeals upheld the RTC
decision, Naguiat instituted the present petition.
The operative facts follow:
Queaño applied with Naguiat for a loan in the amount of
Two Hundred Thousand Pesos (P200,000.00), which
Naguiat granted. On 11 August 1980, Naguiat indorsed to
Queaño Associated Bank Check No. 090990 (dated 11
August 1980) for the amount of Ninety Five Thousand Pesos
(P95,000.00), which was earlier issued to Naguiat by the
Corporate Resources Financing Corporation. She also issued
her own Filmanbank Check No. 065314, to the order of
Queaño, also dated 11 August 1980 and for the amount of
Ninety Five Thousand Pesos (P95,000.00). The proceeds of
these checks were to constitute the loan granted by Naguiat
to Queaño.[3]
To secure the loan, Queaño executed a Deed of Real Estate
Mortgage dated 11 August 1980 in favor of Naguiat, and
surrendered to the latter the owner's duplicates of the titles
covering the mortgaged properties.[4] On the same day, the
mortgage deed was notarized, and Queaño issued to Naguiat
a promissory note for the amount of TWO HUNDRED
THOUSAND PESOS (P200,000.00), with interest at 12%
per annum, payable on 11 September 1980.[5] Queaño also
issued a Security Bank and Trust Company check, postdated
11 September 1980, for the amount of TWO HUNDRED
THOUSAND PESOS (P200,000.00) and payable to the
order of Naguiat.
Upon presentment on its maturity date, the Security Bank
check was dishonored for insufficiency of funds. On the
following day, 12 September 1980, Queaño requested
Security Bank to stop payment of her postdated check, but
the bank rejected the request pursuant to its policy not to
honor such requests if the check is drawn against insufficient
funds.[6]
On 16 October 1980, Queaño received a letter from
Naguiat's lawyer, demanding settlement of the loan. Shortly
thereafter, Queaño and one Ruby Ruebenfeldt (Ruebenfeldt)
met with Naguiat. At the meeting, Queaño told Naguiat that
she did not receive the proceeds of the loan, adding that the
checks were retained by Ruebenfeldt, who purportedly was
Naguiat's agent.[7]
Naguiat applied for the extrajudicial foreclosure of the
mortgage with the Sheriff of Rizal Province, who then
scheduled the foreclosure sale on 14 August 1981. Three
days before the scheduled sale, Queaño filed the case before
the Pasay City RTC,[8] seeking the annulment of the
mortgage deed. The trial court eventually stopped the
auction sale.[9]
On 8 March 1991, the RTC rendered judgment, declaring
the Deed of Real Estate Mortgage null and void, and
ordering Naguiat to return to Queaño the owner's duplicates
of her titles to the mortgaged lots.[10] Naguiat appealed the
decision before the Court of Appeals, making no less than
eleven assignments of error. The Court of Appeals
promulgated the decision now assailed before us that

affirmed in toto the RTC decision. Hence, the present
petition.
Naguiat questions the findings of facts made by the Court of
Appeals, especially on the issue of whether Queaño had
actually received the loan proceeds which were supposed to
be covered by the two checks Naguiat had issued or
indorsed. Naguiat claims that being a notarial instrument or
public document, the mortgage deed enjoys the presumption
that the recitals therein are true. Naguiat also questions the
admissibility of various representations and pronouncements
of Ruebenfeldt, invoking the rule on the non-binding effect
of the admissions of third persons.[11]
The resolution of the issues presented before this Court by
Naguiat involves the determination of facts, a function which
this Court does not exercise in an appeal by certiorari. Under
Rule 45 which governs appeal by certiorari, only questions
of law may be raised[12] as the Supreme Court is not a trier
of facts.[13] The resolution of factual issues is the function of
lower courts, whose findings on these matters are received
with respect and are in fact generally binding on the Supreme
Court.[14] A question of law which the Court may pass upon
must not involve an examination of the probative value of
the evidence presented by the litigants.[15] There is a question
of law in a given case when the doubt or difference arises as
to what the law is on a certain state of facts; there is a
question of fact when the doubt or difference arises as to the
truth or the falsehood of alleged facts.[16]
Surely, there are established exceptions to the rule on the
conclusiveness of the findings of facts of the lower
courts.[17] But Naguiat's case does not fall under any of the
exceptions. In any event, both the decisions of the appellate
and trial courts are supported by the evidence on record and
the applicable laws.
Against the common finding of the courts below, Naguiat
vigorously insists that Queaño received the loan proceeds.
Capitalizing on the status of the mortgage deed as a public
document, she cites the rule that a public document enjoys
the presumption of validity and truthfulness of its contents.
The Court of Appeals, however, is correct in ruling that the
presumption of truthfulness of the recitals in a public
document was defeated by the clear and convincing evidence
in this case that pointed to the absence of
consideration.[18] This Court has held that the presumption of
truthfulness engendered by notarized documents is
rebuttable, yielding as it does to clear and convincing
evidence to the contrary, as in this case.[19]
On the other hand, absolutely no evidence was submitted by
Naguiat that the checks she issued or endorsed were actually
encashed or deposited. The mere issuance of the checks did
not result in the perfection of the contract of loan. For the
Civil Code provides that the delivery of bills of exchange
and mercantile documents such as checks shall produce the
effect of payment only when they have been cashed.[20] It is
only after the checks have produced the effect of payment
that the contract of loan may be deemed perfected. Art. 1934
of the Civil Code provides:
21
"An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the parties, but
the commodatum or simple loan itself shall not be perfected
until the delivery of the object of the contract."
A loan contract is a real contract, not consensual, and, as
such, is perfected only upon the delivery of the object of the
contract.[21] In this case, the objects of the contract are the
loan proceeds which Queaño would enjoy only upon the
encashment of the checks signed or indorsed by Naguiat. If
indeed the checks were encashed or deposited, Naguiat
would have certainly presented the corresponding
documentary evidence, such as the returned checks and the
pertinent bank records. Since Naguiat presented no such
proof, it follows that the checks were not encashed or
credited to Queaño's account.
Naguiat questions the admissibility of the various written
representations made by Ruebenfeldt on the ground that they
could not bind her following the res inter alia acta alteri
nocere non debet rule. The Court of Appeals rejected the
argument, holding that since Ruebenfeldt was an authorized
representative or agent of Naguiat the situation falls under a
recognized exception to the rule.[22] Still, Naguiat insists that
Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency
relationship between Naguiat and Ruebenfeldt is supported
by ample evidence. As correctly pointed out by the Court of
Appeals, Ruebenfeldt was not a stranger or an unauthorized
person. Naguiat instructed Ruebenfeldt to withhold from
Queaño the checks she issued or indorsed to Queaño,
pending delivery by the latter of additional collateral.
Ruebenfeldt served as agent of Naguiat on the loan
application of Queaño's friend, Marilou Farralese, and it was
in connection with that transaction that Queaño came to
know Naguiat.[23] It was also Ruebenfeldt who accompanied
Queaño in her meeting with Naguiat and on that occasion,
on her own and without Queaño asking for it, Reubenfeldt
actually drew a check for the sum of P220,000.00 payable to
Naguiat, to cover for Queaño's alleged liability to Naguiat
under the loan agreement.[24]
The Court of Appeals recognized the existence of an "agency
by estoppel[25] citing Article 1873 of the Civil
Code.[26] Apparently, it considered that at the very least, as a
consequence of the interaction between Naguiat and
Ruebenfeldt, Queaño got the impression that Ruebenfeldt
was the agent of Naguiat, but Naguiat did nothing to correct
Queaño's impression. In that situation, the rule is clear. One
who clothes another with apparent authority as his agent, and
holds him out to the public as such, cannot be permitted to
deny the authority of such person to act as his agent, to the
prejudice of innocent third parties dealing with such person
in good faith, and in the honest belief that he is what he
appears to be.[27] The Court of Appeals is correct in invoking
the said rule on agency by estoppel.
More fundamentally, whatever was the true relationship
between Naguiat and Ruebenfeldt is irrelevant in the face of
the fact that the checks issued or indorsed to Queaño were
never encashed or deposited to her account of Naguiat.

All told, we find no compelling reason to disturb the finding
of the courts a quo that the lender did not remit and the
borrower did not receive the proceeds of the loan. That being
the case, it follows that the mortgage which is supposed to
secure the loan is null and void. The consideration of the
mortgage contract is the same as that of the principal contract
from which it receives life, and without which it cannot exist
as an independent contract.[28] A mortgage contract being a
mere accessory contract, its validity would depend on the
validity of the loan secured by it.[29]
WHEREFORE, the petition is denied and the assailed
decision is affirmed. Costs against petitioner.
SO ORDERED.
G.R. No. 140667, August 12, 2004
WOODCHILD HOLDINGS, INC., PETITIONER, VS.
ROXAS ELECTRIC AND CONSTRUCTION
COMPANY, INC., RESPONDENT.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision[1] of
the Court of Appeals in CA-G.R. CV No. 56125 reversing
the Decision[2] of the Regional Trial Court of Makati, Branch
57, which ruled in favor of the petitioner.
The Antecedents
The respondent Roxas Electric and Construction Company,
Inc. (RECCI), formerly the Roxas Electric and Construction
Company, was the owner of two parcels of land, identified
as Lot No. 491-A-3-B-1 covered by Transfer Certificate of
Title (TCT) No. 78085 and Lot No. 491-A-3-B-2 covered by
TCT No. 78086. A portion of Lot No. 491-A-3-B-1 which
abutted Lot No. 491-A-3-B-2 was a dirt road accessing to the
Sumulong Highway, Antipolo, Rizal.
At a special meeting on May 17, 1991, the respondent’s
Board of Directors approved a resolution authorizing the
corporation, through its president, Roberto B. Roxas, to sell
Lot No. 491-A-3-B-2 covered by TCT No. 78086, with an
area of 7,213 square meters, at a price and under such terms
and conditions which he deemed most reasonable and
advantageous to the corporation; and to execute, sign and
deliver the pertinent sales documents and receive the
proceeds of the sale for and on behalf of the company.[3]
Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy
Lot No. 491-A-3-B-2 covered by TCT No. 78086 on which
it planned to construct its warehouse building, and a portion
of the adjoining lot, Lot No. 491-A-3-B-1, so that its 45-foot
22
container van would be able to readily enter or leave the
property. In a Letter to Roxas dated June 21, 1991, WHI
President Jonathan Y. Dy offered to buy Lot No. 491-A-3-
B-2 under stated terms and conditions for P1,000 per square
meter or at the price of P7,213,000.[4] One of the terms
incorporated in Dy’s offer was the following provision:
5. This Offer to Purchase is made on the
representation and warranty of the
OWNER/SELLER, that he holds a good and
registrable title to the property, which shall be
conveyed CLEAR and FREE of all liens and
encumbrances, and that the area of 7,213 square
meters of the subject property already includes the
area on which the right of way traverses from the
main lot (area) towards the exit to the Sumulong
Highway as shown in the location plan furnished
by the Owner/Seller to the buyer. Furthermore, in
the event that the right of way is insufficient for
the buyer’s purposes (example: entry of a 45-foot
container), the seller agrees to sell additional
square meter from his current adjacent property to
allow the buyer to full access and full use of the
property.[5]
Roxas indicated his acceptance of the offer on page 2 of the
deed. Less than a month later or on July 1, 1991, Roxas, as
President of RECCI, as vendor, and Dy, as President of
WHI, as vendee, executed a contract to sell in which RECCI
bound and obliged itself to sell to Dy Lot No. 491-A-3-B-2
covered by TCT No. 78086 for P7,213,000.[6] On September
5, 1991, a Deed of Absolute Sale[7] in favor of WHI was
issued, under which Lot No. 491-A-3-B-2 covered by TCT
No. 78086 was sold for P5,000,000, receipt of which was
acknowledged by Roxas under the following terms and
conditions:
The Vendor agree (sic), as it hereby agrees and binds itself
to give Vendee the beneficial use of and a right of way from
Sumulong Highway to the property herein conveyed consists
of 25 square meters wide to be used as the latter’s egress
from and ingress to and an additional 25 square meters in the
corner of Lot No. 491-A-3-B-1, as turning and/or
maneuvering area for Vendee’s vehicles.
The Vendor agrees that in the event that the right of way is
insufficient for the Vendee’s use (ex entry of a 45-foot
container) the Vendor agrees to sell additional square meters
from its current adjacent property to allow the Vendee full
access and full use of the property.
…
The Vendor hereby undertakes and agrees, at its account, to
defend the title of the Vendee to the parcel of land and
improvements herein conveyed, against all claims of any and
all persons or entities, and that the Vendor hereby warrants
the right of the Vendee to possess and own the said parcel of
land and improvements thereon and will defend the Vendee
against all present and future claims and/or action in relation
thereto, judicial and/or administrative. In particular, the
Vendor shall eject all existing squatters and occupants of the
premises within two (2) weeks from the signing hereof. In

case of failure on the part of the Vendor to eject all occupants
and squatters within the two-week period or breach of any of
the stipulations, covenants and terms and conditions herein
provided and that of contract to sell dated 1 July 1991, the
Vendee shall have the right to cancel the sale and demand
reimbursement for all payments made to the Vendor with
interest thereon at 36% per annum.[8]
On September 10, 1991, the Wimbeco Builder’s, Inc. (WBI)
submitted its quotation for P8,649,000 to WHI for the
construction of the warehouse building on a portion of the
property with an area of 5,088 square meters.[9] WBI
proposed to start the project on October 1, 1991 and to turn
over the building to WHI on February 29, 1992.[10]
In a Letter dated September 16, 1991, Ponderosa Leather
Goods Company, Inc. confirmed its lease agreement with
WHI of a 5,000-square-meter portion of the warehouse yet
to be constructed at the rental rate of P65 per square meter.
Ponderosa emphasized the need for the warehouse to be
ready for occupancy before April 1, 1992.[11] WHI accepted
the offer. However, WBI failed to commence the
construction of the warehouse in October 1, 1991 as planned
because of the presence of squatters in the property and
suggested a renegotiation of the contract after the squatters
shall have been evicted.[12] Subsequently, the squatters were
evicted from the property.
On March 31, 1992, WHI and WBI executed a Letter-
Contract for the construction of the warehouse building for
P11,804,160.[13] The contractor started construction in April
1992 even before the building officials of Antipolo City
issued a building permit on May 28, 1992. After the
warehouse was finished, WHI issued on March 21, 1993 a
certificate of occupancy by the building official. Earlier, or
on March 18, 1993, WHI, as lessor, and Ponderosa, as lessee,
executed a contract of lease over a portion of the property for
a monthly rental of P300,000 for a period of three years from
March 1, 1993 up to February 28, 1996.[14]
In the meantime, WHI complained to Roberto Roxas that the
vehicles of RECCI were parked on a portion of the property
over which WHI had been granted a right of way. Roxas
promised to look into the matter. Dy and Roxas discussed
the need of the WHI to buy a 500-square-meter portion of
Lot No. 491-A-3-B-1 covered by TCT No. 78085 as
provided for in the deed of absolute sale. However, Roxas
died soon thereafter. On April 15, 1992, the WHI wrote the
RECCI, reiterating its verbal requests to purchase a portion
of the said lot as provided for in the deed of absolute sale,
and complained about the latter’s failure to eject the
squatters within the three-month period agreed upon in the
said deed.
The WHI demanded that the RECCI sell a portion of Lot No.
491-A-3-B-1 covered by TCT No. 78085 for its beneficial
use within 72 hours from notice thereof, otherwise the
appropriate action would be filed against it. RECCI rejected
the demand of WHI. WHI reiterated its demand in a Letter
dated May 29, 1992. There was no response from RECCI.
On June 17, 1992, the WHI filed a complaint against the
RECCI with the Regional Trial Court of Makati, for specific
23
performance and damages, and alleged, inter alia, the
following in its complaint:
5. The “current adjacent property” referred
to in the aforequoted paragraph of the
Deed of Absolute Sale pertains to the
property covered by Transfer Certificate
of Title No. N-78085 of the Registry of
Deeds of Antipolo, Rizal, registered in
the name of herein defendant Roxas
Electric.
6. Defendant Roxas Electric in patent
violation of the express and valid terms
of the Deed of Absolute Sale
unjustifiably refused to deliver to
Woodchild Holdings the stipulated
beneficial use and right of way
consisting of 25 square meters and 55
square meters to the prejudice of the
plaintiff.
7. Similarly, in as much as the 25 square
meters and 55 square meters alloted to
Woodchild Holdings for its beneficial
use is inadequate as turning and/or
maneuvering area of its 45-foot
container van, Woodchild Holdings
manifested its intention pursuant to para.
5 of the Deed of Sale to purchase
additional square meters from Roxas
Electric to allow it full access and use of
the purchased property, however, Roxas
Electric refused and failed to merit
Woodchild Holdings’ request contrary
to defendant Roxas Electric’s obligation
under the Deed of Absolute Sale (Annex
“A”).
8. Moreover, defendant, likewise, failed to
eject all existing squatters and occupants
of the premises within the stipulated
time frame and as a consequence
thereof, plaintiff’s planned construction
has been considerably delayed for seven
(7) months due to the squatters who
continue to trespass and obstruct the
subject property, thereby Woodchild
Holdings incurred substantial losses
amounting to P3,560,000.00 occasioned
by the increased cost of construction
materials and labor.
9. Owing further to Roxas Electric’s
deliberate refusal to comply with its
obligation under Annex “A,”
Woodchild Holdings suffered
unrealized income of P300,000.00 a
month or P2,100,000.00 supposed

income from rentals of the subject
property for seven (7) months.
10. On April 15, 1992, Woodchild Holdings
made a final demand to Roxas Electric
to comply with its obligations and
warranties under the Deed of Absolute
Sale but notwithstanding such demand,
defendant Roxas Electric refused and
failed and continue to refuse and fail to
heed plaintiff’s demand for compliance.
Copy of the demand letter dated April
15, 1992 is hereto attached as Annex
“B” and made an integral part hereof.
11. Finally, on 29 May 1991, Woodchild
Holdings made a letter request
addressed to Roxas Electric to
particularly annotate on Transfer
Certificate of Title No. N-78085 the
agreement under Annex “A” with
respect to the beneficial use and right of
way, however, Roxas Electric
unjustifiably ignored and disregarded
the same.
Copy of the letter request dated 29 May
1992 is hereto attached as Annex “C”
and made an integral part hereof.
12. By reason of Roxas Electric’s
continuous refusal and failure to comply
with Woodchild Holdings’ valid
demand for compliance under Annex
“A,” the latter was constrained to
litigate, thereby incurring damages as
and by way of attorney’s fees in the
amount of P100,000.00 plus costs of suit
and expenses of litigation.[15]
The WHI prayed that, after due proceedings, judgment be
rendered in its favor, thus:
WHEREFORE, it is respectfully prayed that judgment be
rendered in favor of Woodchild Holdings and ordering
Roxas Electric the following:
a) to deliver to Woodchild Holdings the beneficial use of the
stipulated 25 square meters and 55 square meters;
b) to sell to Woodchild Holdings additional 25 and 100
square meters to allow it full access and use of the purchased
property pursuant to para. 5 of the Deed of Absolute Sale;
c) to cause annotation on Transfer Certificate of Title No. N-
78085 the beneficial use and right of way granted to
Woodchild Holdings under the Deed of Absolute Sale;
d) to pay Woodchild Holdings the amount of P5,660,000.00,
representing actual damages and unrealized income;
24
e) to pay attorney’s fees in the amount of P100,000.00; and
f) to pay the costs of suit.
Other reliefs just and equitable are prayed for.[16]
In its answer to the complaint, the RECCI alleged that it
never authorized its former president, Roberto Roxas, to
grant the beneficial use of any portion of Lot No. 491-A-3-
B-1, nor agreed to sell any portion thereof or create a lien or
burden thereon. It alleged that, under the Resolution
approved on May 17, 1991, it merely authorized Roxas to
sell Lot No. 491-A-3-B-2 covered by TCT No. 78086. As
such, the grant of a right of way and the agreement to sell a
portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085
in the said deed are ultra vires. The RECCI further alleged
that the provision therein that it would sell a portion of Lot
No. 491-A-3-B-1 to the WHI lacked the essential elements
of a binding contract.[17]
In its amended answer to the complaint, the RECCI alleged
that the delay in the construction of its warehouse building
was due to the failure of the WHI’s contractor to secure a
building permit thereon.[18]
During the trial, Dy testified that he told Roxas that the
petitioner was buying a portion of Lot No. 491-A-3-B-1
consisting of an area of 500 square meters, for the price of
P1,000 per square meter.
On November 11, 1996, the trial court rendered judgment in
favor of the WHI, the decretal portion of which reads:
WHEREFORE, judgment is hereby rendered directing
defendant:
(1) To allow plaintiff the beneficial use of the existing right
of way plus the stipulated 25 sq. m. and 55 sq. m.;
(2) To sell to plaintiff an additional area of 500 sq. m. priced
at P1,000 per sq. m. to allow said plaintiff full access and use
of the purchased property pursuant to Par. 5 of their Deed of
Absolute Sale;
(3) To cause annotation on TCT No. N-78085 the beneficial
use and right of way granted by their Deed of Absolute Sale;
(4) To pay plaintiff the amount of P5,568,000 representing
actual damages and plaintiff’s unrealized income;
(5) To pay plaintiff P100,000 representing attorney’s fees;
and
To pay the costs of suit.
SO ORDERED.[19]
The trial court ruled that the RECCI was estopped from
disowning the apparent authority of Roxas under the May
17, 1991 Resolution of its Board of Directors. The court
reasoned that to do so would prejudice the WHI which
transacted with Roxas in good faith, believing that he had the
authority to bind the WHI relating to the easement of right
of way, as well as the right to purchase a portion of Lot No.
491-A-3-B-1 covered by TCT No. 78085.
The RECCI appealed the decision to the CA, which rendered
a decision on November 9, 1999 reversing that of the trial

court, and ordering the dismissal of the complaint. The CA
ruled that, under the resolution of the Board of Directors of
the RECCI, Roxas was merely authorized to sell Lot No.
491-A-3-B-2 covered by TCT No. 78086, but not to grant
right of way in favor of the WHI over a portion of Lot No.
491-A-3-B-1, or to grant an option to the petitioner to buy a
portion thereof. The appellate court also ruled that the grant
of a right of way and an option to the respondent were so
lopsided in favor of the respondent because the latter was
authorized to fix the location as well as the price of the
portion of its property to be sold to the respondent. Hence,
such provisions contained in the deed of absolute sale were
not binding on the RECCI. The appellate court ruled that the
delay in the construction of WHI’s warehouse was due to its
fault.
The Present Petition
The petitioner now comes to this Court asserting that:
I.
THE COURT OF APPEALS ERRED IN HOLDING THAT
THE DEED OF ABSOLUTE SALE (EXH. “C”) IS ULTRA
VIRES.
II.
THE COURT OF APPEALS GRAVELY ERRED IN
REVERSING THE RULING OF THE COURT A
QUO ALLOWING THE PLAINTIFF-APPELLEE THE
BENEFICIAL USE OF THE EXISTING RIGHT OF WAY
PLUS THE STIPULATED 25 SQUARE METERS AND 55
SQUARE METERS BECAUSE THESE ARE VALID
STIPULATIONS AGREED BY BOTH PARTIES TO THE
DEED OF ABSOLUTE SALE (EXH. “C”).
III.
THERE IS NO FACTUAL PROOF OR EVIDENCE FOR
THE COURT OF APPEALS TO RULE THAT THE
STIPULATIONS OF THE DEED OF ABSOLUTE SALE
(EXH. “C”) WERE DISADVANTAGEOUS TO THE
APPELLEE, NOR WAS APPELLEE DEPRIVED OF ITS
PROPERTY WITHOUT DUE PROCESS.
IV.
IN FACT, IT WAS WOODCHILD WHO WAS
DEPRIVED OF PROPERTY WITHOUT DUE PROCESS
BY THE ASSAILED DECISION.
V.
THE DELAY IN THE CONSTRUCTION WAS DUE TO
THE FAILURE OF THE APPELLANT TO EVICT THE
SQUATTERS ON THE LAND AS AGREED IN THE
DEED OF ABSOLUTE SALE (EXH. “C”).
VI.
25
THE COURT OF APPEALS GRAVELY ERRED IN
REVERSING THE RULING OF THE COURT A
QUO DIRECTING THE DEFENDANT TO PAY THE
PLAINTIFF THE AMOUNT OF P5,568,000.00
REPRESENTING ACTUAL DAMAGES AND
PLAINTIFF’S UNREALIZED INCOME AS WELL AS
ATTORNEY’S FEES.[20]
The threshold issues for resolution are the following: (a)
whether the respondent is bound by the provisions in the
deed of absolute sale granting to the petitioner beneficial use
and a right of way over a portion of Lot No. 491-A-3-B-1
accessing to the Sumulong Highway and granting the option
to the petitioner to buy a portion thereof, and, if so, whether
such agreement is enforceable against the respondent; (b)
whether the respondent failed to eject the squatters on its
property within two weeks from the execution of the deed of
absolute sale; and, (c) whether the respondent is liable to the
petitioner for damages.
On the first issue, the petitioner avers that, under its
Resolution of May 17, 1991, the respondent authorized
Roxas, then its president, to grant a right of way over a
portion of Lot No. 491-A-3-B-1 in favor of the petitioner,
and an option for the respondent to buy a portion of the said
property. The petitioner contends that when the respondent
sold Lot No. 491-A-3-B-2 covered by TCT No. 78086, it
(respondent) was well aware of its obligation to provide the
petitioner with a means of ingress to or egress from the
property to the Sumulong Highway, since the latter had no
adequate outlet to the public highway. The petitioner asserts
that it agreed to buy the property covered by TCT No. 78085
because of the grant by the respondent of a right of way and
an option in its favor to buy a portion of the property covered
by TCT No. 78085. It contends that the respondent never
objected to Roxas’ acceptance of its offer to purchase the
property and the terms and conditions therein; the
respondent even allowed Roxas to execute the deed of
absolute sale in its behalf. The petitioner asserts that the
respondent even received the purchase price of the property
without any objection to the terms and conditions of the said
deed of sale. The petitioner claims that it acted in good faith,
and contends that after having been benefited by the said
sale, the respondent is estopped from assailing its terms and
conditions. The petitioner notes that the respondent’s Board
of Directors never approved any resolution rejecting the
deed of absolute sale executed by Roxas for and in its behalf.
As such, the respondent is obliged to sell a portion of Lot
No. 491-A-3-B-1 covered by TCT No. 78085 with an area
of 500 square meters at the price of P1,000 per square meter,
based on its evidence and Articles 649 and 651 of the New
Civil Code.
For its part, the respondent posits that Roxas was not so
authorized under the May 17, 1991 Resolution of its Board
of Directors to impose a burden or to grant a right of way in
favor of the petitioner on Lot No. 491-A-3-B-1, much less
convey a portion thereof to the petitioner. Hence, the
respondent was not bound by such provisions contained in
the deed of absolute sale. Besides, the respondent contends,
the petitioner cannot enforce its right to buy a portion of the
said property since there was no agreement in the deed of

absolute sale on the price thereof as well as the specific
portion and area to be purchased by the petitioner.
We agree with the respondent.
In San Juan Structural and Steel Fabricators, Inc. v. Court
of Appeals,[21] we held that:
A corporation is a juridical person separate and distinct from
its stockholders or members. Accordingly, the property of
the corporation is not the property of its stockholders or
members and may not be sold by the stockholders or
members without express authorization from the
corporation’s board of directors. Section 23 of BP 68,
otherwise known as the Corporation Code of the Philippines,
provides:
“SEC. 23. The Board of Directors or Trustees. – Unless
otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be
elected from among the holders of stocks, or where there is
no stock, from among the members of the corporation, who
shall hold office for one (1) year and until their successors
are elected and qualified.”
Indubitably, a corporation may act only through its board of
directors or, when authorized either by its by-laws or by its
board resolution, through its officers or agents in the normal
course of business. The general principles of agency govern
the relation between the corporation and its officers or
agents, subject to the articles of incorporation, by-laws, or
relevant provisions of law. …[22]
Generally, the acts of the corporate officers within the scope
of their authority are binding on the corporation. However,
under Article 1910 of the New Civil Code, acts done by such
officers beyond the scope of their authority cannot bind the
corporation unless it has ratified such acts expressly or
tacitly, or is estopped from denying them:
Art. 1910. The principal must comply with all the obligations
which the agent may have contracted within the scope of his
authority.
As for any obligation wherein the agent has exceeded his
power, the principal is not bound except when he ratifies it
expressly or tacitly.
Thus, contracts entered into by corporate officers beyond the
scope of authority are unenforceable against the corporation
unless ratified by the corporation.[23]
In BA Finance Corporation v. Court of Appeals,[24] we also
ruled that persons dealing with an assumed agency, 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.
In this case, the respondent denied authorizing its then
president Roberto B. Roxas to sell a portion of Lot No. 491-
A-3-B-1 covered by TCT No. 78085, and to create a lien or
burden thereon. The petitioner was thus burdened to prove
that the respondent so authorized Roxas to sell the same and
to create a lien thereon.
26
Central to the issue at hand is the May 17, 1991 Resolution
of the Board of Directors of the respondent, which is worded
as follows:
RESOLVED, as it is hereby resolved, that the corporation,
thru the President, sell to any interested buyer, its 7,213-sq.-
meter property at the Sumulong Highway, Antipolo, Rizal,
covered by Transfer Certificate of Title No. N-78086, at a
price and on terms and conditions which he deems most
reasonable and advantageous to the corporation;
FURTHER RESOLVED, that Mr. ROBERTO B. ROXAS,
President of the corporation, be, as he is hereby authorized
to execute, sign and deliver the pertinent sales documents
and receive the proceeds of sale for and on behalf of the
company.[25]
Evidently, Roxas was not specifically authorized under the
said resolution to grant a right of way in favor of the
petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to
sell to the petitioner a portion thereof. The authority of
Roxas, under the resolution, to sell Lot No. 491-A-3-B-2
covered by TCT No. 78086 did not include the authority to
sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or to
create or convey real rights thereon. Neither may such
authority be implied from the authority granted to Roxas to
sell Lot No. 491-A-3-B-2 to the petitioner “on such terms
and conditions which he deems most reasonable and
advantageous.” Under paragraph 12, Article 1878 of the
New Civil Code, a special power of attorney is required to
convey real rights over immovable property.[26]Article 1358
of the New Civil Code requires that contracts which have for
their object the creation of real rights over immovable
property must appear in a public document.[27] The petitioner
cannot feign ignorance of the need for Roxas to have been
specifically authorized in writing by the Board of Directors
to be able to validly grant a right of way and agree to sell a
portion of Lot No. 491-A-3-B-1. The rule is that if the act of
the agent is one which requires authority in writing, those
dealing with him are charged with notice of that fact.[28]
Powers of attorney are generally construed strictly and
courts will not infer or presume broad powers from deeds
which do not sufficiently include property or subject under
which the agent is to deal.[29] The general rule is that the
power of attorney must be pursued within legal strictures,
and the agent can neither go beyond it; nor beside it. The act
done must be legally identical with that authorized to be
done.[30] In sum, then, the consent of the respondent to the
assailed provisions in the deed of absolute sale was not
obtained; hence, the assailed provisions are not binding on
it.
We reject the petitioner’s submission that, in allowing Roxas
to execute the contract to sell and the deed of absolute sale
and failing to reject or disapprove the same, the respondent
thereby gave him apparent authority to grant a right of way
over Lot No. 491-A-3-B-1 and to grant an option for the
respondent to sell a portion thereof to the petitioner. Absent
estoppel or ratification, apparent authority cannot remedy
the lack of the written power required under the statement of
frauds.[31] In addition, the petitioner’s fallacy is its wrong
assumption of the unproved premise that the respondent had

full knowledge of all the terms and conditions contained in
the deed of absolute sale when Roxas executed it.
It bears stressing that apparent authority is based on estoppel
and can arise from two instances: first, the principal may
knowingly permit the agent to so hold himself out as having
such authority, and in this way, the principal becomes
estopped to claim that the agent does not have such
authority; second, the principal may so clothe the agent with
the indicia of authority as to lead a reasonably prudent
person to believe that he actually has such
authority.[32] There can be no apparent authority of an agent
without acts or conduct on the part of the principal and such
acts or conduct of the principal must have been known and
relied upon in good faith and as a result of the exercise of
reasonable prudence by a third person as claimant and such
must have produced a change of position to its detriment.
The apparent power of an agent is to be determined by the
acts of the principal and not by the acts of the agent.[33]
For the principle of apparent authority to apply, the
petitioner was burdened to prove the following: (a) the acts
of the respondent justifying belief in the agency by the
petitioner; (b) knowledge thereof by the respondent which is
sought to be held; and, (c) reliance thereon by the petitioner
consistent with ordinary care and prudence.[34] In this case,
there is no evidence on record of specific acts made by the
respondent[35] showing or indicating that it had full
knowledge of any representations made by Roxas to the
petitioner that the respondent had authorized him to grant to
the respondent an option to buy a portion of Lot No. 491-A-
3-B-1 covered by TCT No. 78085, or to create a burden or
lien thereon, or that the respondent allowed him to do so.
The petitioner’s contention that by receiving and retaining
the P5,000,000 purchase price of Lot No. 491-A-3-B-2, the
respondent effectively and impliedly ratified the grant of a
right of way on the adjacent lot, Lot No. 491-A-3-B-1, and
to grant to the petitioner an option to sell a portion thereof,
is barren of merit. It bears stressing that the respondent sold
Lot No. 491-A-3-B-2 to the petitioner, and the latter had
taken possession of the property. As such, the respondent
had the right to retain the P5,000,000, the purchase price of
the property it had sold to the petitioner. For an act of the
principal to be considered as an implied ratification of an
unauthorized act of an agent, such act must be inconsistent
with any other hypothesis than that he approved and intended
to adopt what had been done in his name.[36] Ratification is
based on waiver – the intentional relinquishment of a known
right. Ratification cannot be inferred from acts that a
principal has a right to do independently of the unauthorized
act of the agent. Moreover, if a writing is required to grant
an authority to do a particular act, ratification of that act must
also be in writing.[37] Since the respondent had not ratified
the unauthorized acts of Roxas, the same are
unenforceable.[38] Hence, by the respondent’s retention of
the amount, it cannot thereby be implied that it had ratified
the unauthorized acts of its agent, Roberto Roxas.
On the last issue, the petitioner contends that the CA erred in
dismissing its complaint for damages against the respondent
on its finding that the delay in the construction of its
27
warehouse was due to its (petitioner’s) fault. The petitioner
asserts that the CA should have affirmed the ruling of the
trial court that the respondent failed to cause the eviction of
the squatters from the property on or before September 29,
1991; hence, was liable for P5,660,000. The respondent, for
its part, asserts that the delay in the construction of the
petitioner’s warehouse was due to its late filing of an
application for a building permit, only on May 28, 1992.
The petitioner’s contention is meritorious. The respondent
does not deny that it failed to cause the eviction of the
squatters on or before September 29, 1991. Indeed, the
respondent does not deny the fact that when the petitioner
wrote the respondent demanding that the latter cause the
eviction of the squatters on April 15, 1992, the latter were
still in the premises. It was only after receiving the said letter
in April 1992 that the respondent caused the eviction of the
squatters, which thus cleared the way for the petitioner’s
contractor to commence the construction of its warehouse
and secure the appropriate building permit therefor.
The petitioner could not be expected to file its application
for a building permit before April 1992 because the squatters
were still occupying the property. Because of the
respondent’s failure to cause their eviction as agreed upon,
the petitioner’s contractor failed to commence the
construction of the warehouse in October 1991 for the agreed
price of P8,649,000. In the meantime, costs of construction
materials spiraled. Under the construction contract entered
into between the petitioner and the contractor, the petitioner
was obliged to pay P11,804,160,[39] including the additional
work costing P1,441,500, or a net increase of
P1,712,980.[40] The respondent is liable for the difference
between the original cost of construction and the increase
thereon, conformably to Article 1170 of the New Civil Code,
which reads:
Art. 1170. Those who in the performance of their obligations
are guilty of fraud, negligence, or delay and those who in any
manner contravene the tenor thereof, are liable for damages.
The petitioner, likewise, lost the amount of P3,900,000 by
way of unearned income from the lease of the property to the
Ponderosa Leather Goods Company. The respondent is,
thus, liable to the petitioner for the said amount, under
Articles 2200 and 2201 of the New Civil Code:
Art. 2200. Indemnification for damages shall comprehend
not only the value of the loss suffered, but also that of the
profits which the obligee failed to obtain.
Art. 2201. In contracts and quasi-contracts, the damages for
which the obligor who acted in good faith is liable shall be
those that are the natural and probable consequences of the
breach of the obligation, and which the parties have foreseen
or could have reasonably foreseen at the time the obligation
was constituted.
In case of fraud, bad faith, malice or wanton attitude, the
obligor shall be responsible for all damages which may be
reasonably attributed to the non-performance of the
obligation.
In sum, we affirm the trial court’s award of damages and
 28

attorney’s fees to the petitioner. at the Grand Boulevard Hotel in Manila (Casino Filipino).
The relevant stipulations of the Junket Agreement state:
IN LIGHT OF ALL THE FOREGOING, judgment is
hereby rendered AFFIRMING the assailed Decision of the
1. PAGCOR will provide ABS
Court of Appeals WITH MODIFICATION. The
Corporation with separate junket chips.
respondent is ordered to pay to the petitioner the amount of
The junket chips will be distinguished
P5,612,980 by way of actual damages and P100,000 by way
from the chips being used by other
of attorney’s fees. No costs.
players in the gaming tables.
2. ABS Corporation will distribute these
SO ORDERED. junket chips to its players and at the end
of the playing period, ABS Corporation
will collect the junket chips from its
players and make an accounting to the
casino treasury.
3. ABS Corporation will assume sole
G.R. No. 163553, December 11, 2009 responsibility to pay the winnings of its
foreign players and settle the
YUN KWAN BYUNG, PETITIONER, VS. collectibles from losing players.
PHILIPPINE AMUSEMENT AND GAMING 4. ABS Corporation shall hold PAGCOR
CORPORATION, RESPONDENT. absolutely free and harmless from any
damage, claim or liability which may
DECISION arise from any cause in connection with
the Junket Agreement.
5. In providing the gaming facilities and
CARPIO, J.: services to these foreign players,
PAGCOR is entitled to receive from
The Case ABS Corporation a 12.5% share in the
gross winnings of ABS Corporation or
Yun Kwan Byung (petitioner) filed this Petition for 1.5 million US dollars, whichever is
Review[1] assailing the Court of Appeals' Decision[2] dated higher, over a playing period of 6
27 May 2003 in CA-G.R. CV No. 65699 as well as the months. PAGCOR has the option to
Resolution[3] dated 7 May 2004 denying the Motion for extend the period.[6]
Reconsideration. In the assailed decision, the Court of
Appeals (CA) affirmed the Regional Trial Court's
Decision[4] dated 6 May 1999. The Regional Trial Court of Petitioner, a Korean national, alleges that from November
Manila, Branch 13 (trial court), dismissed petitioner's 1996 to March 1997, he came to the Philippines four times
demand against respondent Philippine Amusement and to play for high stakes at the Casino Filipino.[7] Petitioner
Gaming Corporation (PAGCOR) for the redemption of claims that in the course of the games, he was able to
gambling chips. accumulate gambling chips worth US$2.1 million. Petitioner
presented as evidence during the trial gambling chips with a
The Facts face value of US$1.1 million. Petitioner contends that when
he presented the gambling chips for encashment with
PAGCOR is a government-owned and controlled PAGCOR's employees or agents, PAGCOR refused to
corporation tasked to establish and operate gambling clubs redeem them.[8]
and casinos as a means to promote tourism and generate
sources of revenue for the government. To achieve these Petitioner brought an action against PAGCOR seeking the
objectives, PAGCOR is vested with the power to enter into redemption of gambling chips valued at US$2.1 million.
contracts of every kind and for any lawful purpose that Petitioner claims that he won the gambling chips at the
pertains to its business. Pursuant to this authority, PAGCOR Casino Filipino, playing continuously day and night.
launched its Foreign Highroller Marketing Program Petitioner alleges that every time he would come to Manila,
(Program). The Program aims to invite patrons from foreign PAGCOR would extend to him amenities deserving of a high
countries to play at the dollar pit of designated PAGCOR- roller. A PAGCOR official who meets him at the airport
operated casinos under specified terms and conditions and in would bring him to Casino Filipino, a casino managed and
accordance with industry practice.[5] operated by PAGCOR. The card dealers were all PAGCOR
employees, the gambling chips, equipment and furnitures
The Korean-based ABS Corporation was one of the belonged to PAGCOR, and PAGCOR enforced all the
international groups that availed of the Program. In a letter- regulations dealing with the operation of foreign exchange
agreement dated 25 April 1996 (Junket Agreement), ABS gambling pits. Petitioner states that he was able to redeem
Corporation agreed to bring in foreign players to play at the his gambling chips with the cashier during his first few
five designated gaming tables of the Casino Filipino Silahis winning trips. But later on, the casino cashier refused to
encash his gambling chips so he had no recourse but to
 29

deposit his gambling chips at the Grand Boulevard Hotel's Section 13 of Presidential Decree No. 1869 or the
deposit box, every time he departed from Manila.[9] PAGCOR's charter states:

PAGCOR claims that petitioner, who was brought into the

Sec. 13. Exemptions -
Philippines by ABS Corporation, is a junket player who
played in the dollar pit exclusively leased by ABS
x x x
Corporation for its junket players. PAGCOR alleges that it
provided ABS Corporation with distinct junket chips. ABS
(4) Utilization of Foreign Currencies - The Corporation shall
Corporation distributed these chips to its junket players. At
have the right and authority, solely and exclusively in
the end of each playing period, the junket players would
connection with the operations of the casino(s), to purchase,
surrender the chips to ABS Corporation. Only ABS
receive, exchange and disburse foreign exchange, subject to
Corporation would make an accounting of these chips to
the following terms and conditions:
PAGCOR's casino treasury.[10]

As additional information for the junket players playing in (a) A specific area in the casino(s) or gaming pit shall be put
the gaming room leased to ABS Corporation, PAGCOR up solely and exclusively for players and patrons utilizing
posted a notice written in English and Korean languages foreign currencies;
which reads:
(b) The Corporation shall appoint and designate a duly
accredited commercial bank agent of the Central Bank, to
NOTICE
handle, administer and manage the use of foreign currencies
in the casino(s);
This GAMING ROOM is exclusively operated by ABS
under arrangement with PAGCOR, the former is solely
(c) The Corporation shall provide an office at casino(s)
accountable for all PLAYING CHIPS wagered on the tables.
exclusively for the employees of the designated bank, agent
Any financial ARRANGEMENT/TRANSACTION
of the Central Bank, where the Corporation shall maintain a
between PLAYERS and ABS shall only be binding upon
dollar account which will be utilized exclusively for the
said PLAYERS and ABS.[11]
above purpose and the casino dollar treasury employees;
PAGCOR claims that this notice is a standard precautionary
(d) Only persons with foreign passports or certificates of
measure[12] to avoid confusion between junket players of
identity (for Hong Kong patron only) duly issued by the
ABS Corporation and PAGCOR's players.
government or country of their residence will be allowed to
play in the foreign exchange gaming pit;
PAGCOR argues that petitioner is not a PAGCOR player
because under PAGCOR's gaming rules, gambling chips
(e) Only foreign exchange prescribed to form part of the
cannot be brought outside the casino. The gambling chips
Philippine International Reserve and the following foreign
must be converted to cash at the end of every gaming period
exchange currencies: Australian Dollar, Singapore Dollar,
as they are inventoried every shift. Under PAGCOR's rules,
Hong Kong Dollar, shall be used in this gaming pit;
it is impossible for PAGCOR players to accumulate two
million dollars worth of gambling chips and to bring the
(f) The disbursement, administration, management and
chips out of the casino premises.[13]
recording of foreign exchange currencies used in the
casino(s) shall be carried out in accordance with existing
Since PAGCOR disclaimed liability for the winnings of
foreign exchange regulations, and periodical reports of the
players recruited by ABS Corporation and refused to encash
transactions in such foreign exchange currencies by the
the gambling chips, petitioner filed a complaint for a sum of
Corporation shall be duly recorded and reported to the
money before the trial court.[14] PAGCOR filed a
Central Bank thru the designated Agent Bank; and
counterclaim against petitioner. Then, trial ensued.
(g) The Corporation shall issue the necessary rules and
On 6 May 1999, the trial court dismissed the complaint and
regulations for the guidance and information of players
counterclaim. Petitioner appealed the trial court's decision to
qualified to participate in the foreign exchange gaming pit,
the CA. On 27 May 2003, the CA affirmed the appealed
in order to make certain that the terms and conditions as
decision. On 27 June 2003, petitioner moved for
above set forth are strictly complied with.
reconsideration which was denied on 7 May 2004.
The trial court held that only PAGCOR could use foreign
Aggrieved by the CA's decision and resolution, petitioner
currency in its gaming tables. When PAGCOR accepted only
elevated the case before this Court.
a fixed portion of the dollar earnings of ABS Corporation in
the concept of a lease of facilities, PAGCOR shared its
The Ruling of the Trial Court franchise with ABS Corporation in violation of the
PAGCOR's charter. Hence, the Junket Agreement is void.
The trial court ruled that based on PAGCOR's Since the Junket Agreement is not permitted by PAGCOR's
charter,[15] PAGCOR has no authority to lease any portion of charter, the mutual rights and obligations of the parties to this
the gambling tables to a private party like ABS Corporation. case would be resolved based on agency and estoppel.[16]

The trial court found that the petitioner wanted to redeem
gambling chips that were specifically used by ABS
Corporation at its gaming tables. The gambling chips come
in distinctive orange or yellow colors with stickers bearing
denominations of 10,000 or 1,000. The 1,000 gambling chips
are smaller in size and the words "no cash value" marked on
them. The 10,000 gambling chips do not reflect the "no cash
value" sign. The senior treasury head of PAGCOR testified
that these were the gambling chips used by the previous
junket operators and PAGCOR merely continued using
them. However, the gambling chips used in the regular
casino games were of a different quality.[17]
The trial court pointed out that PAGCOR had taken steps to
warn players brought in by all junket operators, including
ABS Corporation, that they were playing under special rules.
Apart from the different kinds of gambling chips used, the
junket players were confined to certain gaming rooms. In
these rooms, notices were posted that gambling chips could
only be encashed there and nowhere else. A photograph of
one such notice, printed in Korean and English, stated that
the gaming room was exclusively operated by ABS
Corporation and that ABS Corporation was solely
accountable for all the chips wagered on the gaming tables.
Although petitioner denied seeing this notice, this disclaimer
has the effect of a negative evidence that can hardly prevail
against the positive assertions of PAGCOR officials whose
credibility is also not open to doubt. The trial court
concluded that petitioner had been alerted to the existence of
these special gambling rules, and the mere fact that he
continued to play under the same restrictions over a period
of several months confirms his acquiescence to them.
Otherwise, petitioner could have simply chose to stop
gambling.[18]
In dismissing petitioner's complaint, the trial court
concluded that petitioner's demand against PAGCOR for the
redemption of the gambling chips could not stand. The trial
court stated that petitioner, a stranger to the agreement
between PAGCOR and ABS Corporation, could not under
principles of equity be charged with notice other than of the
apparent authority with which PAGCOR had clothed its
employees and agents in dealing with petitioner. Since
petitioner was made aware of the special rules by which he
was playing at the Casino Filipino, petitioner could not now
claim that he was not bound by them. The trial court
explained that in an unlawful transaction, the courts will
extend equitable relief only to a party who was unaware of
all its dimensions and whose ignorance of them exposed him
to the risk of being exploited by the other. Where the parties
enter into such a relationship with the opportunity to know
all of its ramifications, as in this case, there is no room for
equitable considerations to come to the rescue of any party.
The trial court ruled that it would leave the parties where
they are.[19]
The Ruling of the Court of Appeals
In dismissing the appeal, the appellate court addressed the
four errors assigned by petitioner.
30
First, petitioner maintains that he was never a junket player
of ABS Corporation. Petitioner also denies seeing a notice
that certain gaming rooms were exclusively operated by
entities under special agreement.[20]
The CA ruled that the records do not support petitioner's
theory. Petitioner's own testimony reveals that he enjoyed
special accommodations at the Grand Boulevard Hotel. This
similar accommodation was extended to players brought in
by ABS Corporation and other junket operators. Petitioner
cannot disassociate himself from ABS Corporation for it is
unlikely that an unknown high roller would be accorded
choice accommodations by the hotel unless the
accommodation was facilitated by a junket operator who
enjoyed such privilege.[21]
The CA added that the testimonies of PAGCOR's employees
affirming that notices were posted in English and Korean in
the gaming areas are credible in the absence of any
convincing proof of ill motive. Further, the specified gaming
areas used only special chips that could be bought and
exchanged at certain cashier booths in that area.[22]
Second, petitioner attacks the validity of the contents of the
notice. Since the Junket Agreement is void, the notice, which
was issued pursuant to the Junket Agreement, is also void
and cannot affect petitioner.[23]
The CA reasoned that the trial court never declared the
notice valid and neither did it enforce the contents thereof.
The CA emphasized that it was the act of cautioning and
alerting the players that was upheld. The trial court ruled that
signs and warnings were in place to inform the public,
petitioner included, that special rules applied to certain
gaming areas even if the very agreement giving rise to these
rules is void.[24]
Third, petitioner takes the position that an implied agency
existed between PAGCOR and ABS Corporation.[25]
The CA disagreed with petitioner's view. A void contract has
no force and effect from the very beginning. It produces no
effect either against or in favor of anyone. Neither can it
create, modify or extinguish the juridical relation to which it
refers. Necessarily, the Junket Agreement, being void from
the beginning, cannot give rise to an implied agency. The CA
explained that it cannot see how the principle of implied
agency can be applied to this case. Article 1883[26] of the
Civil Code applies only to a situation where the agent is
authorized by the principal to enter into a particular
transaction, but instead of contracting on behalf of the
principal, the agent acts in his own name.[27]
The CA concluded that no such legal fiction existed between
PAGCOR and ABS Corporation. PAGCOR entered into a
Junket Agreement to lease to ABS Corporation certain
gaming areas. It was never PAGCOR's intention to deal with
the junket players. Neither did PAGCOR intend ABS
Corporation to represent PAGCOR in dealing with the
junket players. Representation is the basis of agency but
unfortunately for petitioner none is found in this case.[28]

The CA added that the special gaming chips, while
belonging to PAGCOR, are mere accessories in the void
Junket Agreement with ABS Corporation. In Article 1883,
the phrase "things belonging to the principal" refers only to
those things or properties subject of a particular transaction
authorized by the principal to be entered into by its purported
agent. Necessarily, the gambling chips being mere incidents
to the void lease agreement cannot fall under this
category.[29]
The CA ruled that Article 2152[30] of the Civil Code is also
not applicable. The circumstances relating to negotiorum
gestio are non-existent to warrant an officious manager to
take over the management and administration of
PAGCOR.[31]
Fourth, petitioner asks for equitable relief.[32]
The CA explained that although petitioner was never a party
to the void Junket Agreement, petitioner cannot deny or
feign blindness to the signs and warnings all around him. The
notices, the special gambling chips, and the separate gaming
areas were more than enough to alert him that he was playing
under different terms. Petitioner persisted and continued to
play in the casino. Petitioner also enjoyed the perks extended
to junket players of ABS Corporation. For failing to heed
these signs and warnings, petitioner can no longer be
permitted to claim equitable relief. When parties do not
come to court with clean hands, they cannot be allowed to
profit from their own wrong doing.[33]
The Issues
Petitioners raise three issues in this petition:
1. Whether the CA erred in holding that PAGCOR is
not liable to petitioner, disregarding the doctrine
of implied agency, or agency by estoppel;
2. Whether the CA erred in using intent of the
contracting parties as the test for creation of
agency, when such is not relevant since the instant
case involves liability of the presumed principal in
implied agency to a third party; and
3. Whether the CA erred in failing to consider that
PAGCOR ratified, or at least adopted, the acts of
the agent, ABS Corporation.[34]
The Ruling of the Court
The petition lacks merit.
Courts will not enforce debts arising from illegal gambling
Gambling is prohibited by the laws of the Philippines as
specifically provided in Articles 195 to 199 of the Revised
31
Penal Code, as amended. Gambling is an act beyond the pale
of good morals,[35] and is thus prohibited and punished to
repress an evil that undermines the social, moral, and
economic growth of the nation.[36] Presidential Decree No.
1602 (PD 1602),[37] which modified Articles 195-199 of the
Revised Penal Code and repealed inconsistent
provisions,[38] prescribed stiffer penalties on illegal
gambling.[39]
As a rule, all forms of gambling are illegal. The only form of
gambling allowed by law is that stipulated under Presidential
Decree No. 1869, which gave PAGCOR its franchise to
maintain and operate gambling casinos. The issue then turns
on whether PAGCOR can validly share its franchise with
junket operators to operate gambling casinos in the country.
Section 3(h) of PAGCOR's charter states:
Section 3. Corporate Powers. - The Corporation shall have
the following powers and functions, among others:
x x x
h) to enter into, make, perform, and carry out contracts of
every kind and for any lawful purpose pertaining to the
business of the Corporation, or in any manner incident
thereto, as principal, agent or otherwise, with any person,
firm, association, or corporation.
xxx
The Junket Agreement would be valid if under Section 3(h)
of PAGCOR's charter, PAGCOR could share its gambling
franchise with another entity. In Senator Jaworski v. Phil.
Amusement and Gaming Corp.,[40] the Court discussed the
extent of the grant of the legislative franchise to PAGCOR
on its authority to operate gambling casinos:
A legislative franchise is a special privilege granted by the
state to corporations. It is a privilege of public concern which
cannot be exercised at will and pleasure, but should be
reserved for public control and administration, either by the
government directly, or by public agents, under such
conditions and regulations as the government may impose
on them in the interest of the public. It is Congress that
prescribes the conditions on which the grant of the franchise
may be made. Thus the manner of granting the franchise, to
whom it may be granted, the mode of conducting the
business, the charter and the quality of the service to be
rendered and the duty of the grantee to the public in
exercising the franchise are almost always defined in clear
and unequivocal language.
After a circumspect consideration of the foregoing
discussion and the contending positions of the parties, we
hold that PAGCOR has acted beyond the limits of its
authority when it passed on or shared its franchise to
SAGE.
In the Del Mar case where a similar issue was raised when
PAGCOR entered into a joint venture agreement with two
other entities in the operation and management of jai alai
 32

games, the Court, in an En Banc Resolution dated 24 August PAGCOR Charter, is hereby further amended to read as
2001, partially granted the motions for clarification filed by follows:
respondents therein insofar as it prayed that PAGCOR has a
valid franchise, but only by itself (i.e. not in association with xxx
any other person or entity), to operate, maintain and/or
manage the game of jai-alai.
(2) Section 3(h) is hereby amended to read as follows:
In the case at bar, PAGCOR executed an agreement with
"SEC. 3. Corporate Powers. -
SAGE whereby the former grants the latter the authority to
operate and maintain sports betting stations and Internet
"x x x
gaming operations. In essence, the grant of authority gives
SAGE the privilege to actively participate, partake and share
"(h) to enter into, make, conclude, perform, and carry out
PAGCOR's franchise to operate a gambling activity. The
contracts of every kind and nature and for any lawful
grant of franchise is a special privilege that constitutes a right
purpose which are necessary, appropriate, proper or
and a duty to be performed by the grantee. The grantee must
incidental to any business or purpose of the PAGCOR,
not perform its activities arbitrarily and whimsically but
including but not limited to investment agreements, joint
must abide by the limits set by its franchise and strictly
venture agreements, management agreements, agency
adhere to its terms and conditionalities. A corporation as a
agreements, whether as principal or as an agent, manpower
creature of the State is presumed to exist for the common
supply agreements, or any other similar agreements or
good. Hence, the special privileges and franchises it receives
arrangements with any person, firm, association or
are subject to the laws of the State and the limitations of its
corporation." (Boldfacing supplied)
charter. There is therefore a reserved right of the State to
inquire how these privileges had been employed, and
PAGCOR sought the amendment of its charter precisely to
whether they have been abused. (Emphasis supplied)
address and remedy the legal impediment raised in Senator
Jaworski v. Phil. Amusement and Gaming Corp.
Thus, PAGCOR has the sole and exclusive authority to
operate a gambling activity. While PAGCOR is allowed
Unfortunately for petitioner, RA 9487 cannot be applied to
under its charter to enter into operator's or management
the present case. The Junket Agreement was entered into
contracts, PAGCOR is not allowed under the same charter to
between PAGCOR and ABS Corporation on 25 April 1996
relinquish or share its franchise. PAGCOR cannot delegate
when the PAGCOR charter then prevailing (PD 1869)
its power in view of the legal principle of delegata potestas
prohibited PAGCOR from entering into any arrangement
delegare non potest, inasmuch as there is nothing in the
with a third party that would allow such party to actively
charter to show that it has been expressly authorized to do
participate in the casino operations.
so.[41]
It is a basic principle that laws should only be applied
Similarly, in this case, PAGCOR, by taking only a
prospectively unless the legislative intent to give them
percentage of the earnings of ABS Corporation from its
retroactive effect is expressly declared or is necessarily
foreign currency collection, allowed ABS Corporation to
implied from the language used.[44] RA 9487 does not
operate gaming tables in the dollar pit. The Junket
provide for any retroactivity of its provisions. All laws
Agreement is in direct violation of PAGCOR's charter and is
operate prospectively absent a clear contrary language in the
therefore void.
text,[45] and that in every case of doubt, the doubt will be
resolved against the retroactive operation of laws.[46]
Since the Junket Agreement violates PAGCOR's charter,
gambling between the junket player and the junket operator
Thus, petitioner cannot avail of the provisions of RA 9487
under such agreement is illegal and may not be enforced by
as this was not the law when the acts giving rise to the
the courts. Article 2014[42] of the Civil Code, which refers to
claimed liabilities took place. This makes the gambling
illegal gambling, states that no action can be maintained by
activity participated in by petitioner illegal. Petitioner cannot
the winner for the collection of what he has won in a game
sue PAGCOR to redeem the cash value of the gambling
of chance.
chips or recover damages arising from an illegal activity for
two reasons. First, petitioner engaged in gambling with ABS
Although not raised as an issue by petitioner, we deem it
Corporation and not with PAGCOR. Second, the court
necessary to discuss the applicability of Republic Act No.
cannot assist petitioner in enforcing an illegal act. Moreover,
9487[43] (RA 9487) to the present case.
for a court to grant petitioner's prayer would mean enforcing
the Junket Agreement, which is void.
RA 9487 amended the PAGCOR charter, granting PAGCOR
the power to enter into special agreement with third parties
Now, to address the issues raised by petitioner in his petition,
to share the privileges under its franchise for the operation
petitioner claims that he is a third party proceeding against
of gambling casinos:
the liability of a presumed principal and claims relief,
alternatively, on the basis of implied agency or agency by
Section 1. The Philippine Amusement and Gaming estoppel.
Corporation (PAGCOR) franchise granted under
Presidential Decree No. 1869 otherwise known as the Article 1869 of the Civil Code states that implied agency is

derived from the acts of the principal, from his silence or
lack of action, or his failure to repudiate the agency, knowing
that another person is acting on his behalf without authority.
Implied agency, being an actual agency, is a fact to be proved
by deductions or inferences from other facts.[47]
On the other hand, apparent authority is based on estoppel
and can arise from two instances. First, the principal may
knowingly permit the agent to hold himself out as having
such authority, and the principal becomes estopped to claim
that the agent does not have such authority. Second, the
principal may clothe the agent with the indicia of authority
as to lead a reasonably prudent person to believe that the
agent actually has such authority.[48] In an agency by
estoppel, there is no agency at all, but the one assuming to
act as agent has apparent or ostensible, although not real,
authority to represent another.[49]
The law makes no presumption of agency and proving its
existence, nature and extent is incumbent upon the person
alleging it.[50] Whether or not an agency has been created is
a question to be determined by the fact that one represents
and is acting for another. [51]
Acts and conduct of PAGCOR negates the existence of an
implied agency or an agency by estoppel
Petitioner alleges that there is an implied agency.
Alternatively, petitioner claims that even assuming that no
actual agency existed between PAGCOR and ABS
Corporation, there is still an agency by estoppel based on the
acts and conduct of PAGCOR showing apparent authority in
favor of ABS Corporation. Petitioner states that one factor
which distinguishes agency from other legal precepts is
control and the following undisputed facts show a
relationship of implied agency:
1. Three floors of the Grand Boulevard
Hotel[52] were leased to PAGCOR for conducting
gambling operations;[53]
2. Of the three floors, PAGCOR allowed ABS
Corporation to use one whole floor for foreign
exchange gambling, conducted by PAGCOR
dealers using PAGCOR facilities, operated by
PAGCOR employees and using PAGCOR chips
bearing the PAGCOR logo;[54]
3. PAGCOR controlled the release, withdrawal and
return of all the gambling chips given to ABS
Corporation in that part of the casino and at the end
of the day, PAGCOR conducted an inventory of
the gambling chips;[55]
4. ABS Corporation accounted for all gambling chips
with the Commission on Audit (COA), the official
auditor of PAGCOR;[56]
33
5. PAGCOR enforced, through its own manager, all
the rules and regulations on the operation of the
gambling pit used by ABS Corporation.[57]
Petitioner's argument is clearly misplaced. The basis for
agency is representation,[58] that is, the agent acts for and on
behalf of the principal on matters within the scope of his
authority and said acts have the same legal effect as if they
were personally executed by the principal.[59] On the part of
the principal, there must be an actual intention to appoint or
an intention naturally inferable from his words or actions,
while on the part of the agent, there must be an intention to
accept the appointment and act on it.[60] Absent such mutual
intent, there is generally no agency.[61]
There is no implied agency in this case because PAGCOR
did not hold out to the public as the principal of ABS
Corporation. PAGCOR's actions did not mislead the public
into believing that an agency can be implied from the
arrangement with the junket operators, nor did it hold out
ABS Corporation with any apparent authority to represent it
in any capacity. The Junket Agreement was merely a
contract of lease of facilities and services.
The players brought in by ABS Corporation were covered by
a different set of rules in acquiring and encashing chips. The
players used a different kind of chip than what was used in
the regular gaming areas of PAGCOR, and that such junket
players played specifically only in the third floor area and
did not mingle with the regular patrons of PAGCOR.
Furthermore, PAGCOR, in posting notices stating that the
players are playing under special rules, exercised the
necessary precaution to warn the gaming public that no
agency relationship exists.
For the second assigned error, petitioner claims that the
intention of the parties cannot apply to him as he is not a
party to the contract.
We disagree. The Court of Appeals correctly used the intent
of the contracting parties in determining whether an agency
by estoppel existed in this case. An agency by estoppel,
which is similar to the doctrine of apparent authority requires
proof of reliance upon the representations, and that, in turn,
needs proof that the representations predated the action taken
in reliance.[62]
There can be no apparent authority of an agent without acts
or conduct on the part of the principal and such acts or
conduct of the principal must have been known and relied
upon in good faith and as a result of the exercise of
reasonable prudence by a third person as claimant, and such
must have produced a change of position to its
detriment.[63] Such proof is lacking in this case.
In the entire duration that petitioner played in Casino
Filipino, he was dealing only with ABS Corporation, and
availing of the privileges extended only to players brought
in by ABS Corporation. The facts that he enjoyed special
treatment upon his arrival in Manila and special
accommodations in Grand Boulevard Hotel, and that he was

playing in special gaming rooms are all indications that
petitioner cannot claim good faith that he believed he was
dealing with PAGCOR. Petitioner cannot be considered as
an innocent third party and he cannot claim entitlement to
equitable relief as well.
For his third and final assigned error, petitioner asserts that
PAGCOR ratified the acts of ABS Corporation.
The trial court has declared, and we affirm, that the Junket
Agreement is void. A void or inexistent contract is one which
has no force and effect from the very beginning. Hence, it is
as if it has never been entered into and cannot be validated
either by the passage of time or by ratification.[64] Article
1409 of the Civil Code provides that contracts expressly
prohibited or declared void by law, such as gambling
contracts, "cannot be ratified."[65]
WHEREFORE, we DENY the petition. We AFFIRM the
Court of Appeals' Decision dated 27 May 2003 as well as the
Resolution dated 7 May 2004 as modified by this Decision.
SO ORDERED.
G.R. NO. 126297, January 31, 2007
PROFESSIONAL SERVICES, INC., PETITIONER,
VS. NATIVIDAD AND ENRIQUE AGANA,
RESPONDENTS.
[G.R. NO. 126467]
NATIVIDAD (SUBSTITUTED BY HER CHILDREN
MARCELINO AGANA III, ENRIQUE AGANA, JR.,
EMMA AGANA ANDAYA, JESUS AGANA, AND
RAYMUND AGANA) AND ENRIQUE AGANA,
PETITIONERS, VS. JUAN FUENTES,
RESPONDENT.
[G.R. NO. 127590]
MIGUEL AMPIL, PETITIONER, VS. NATIVIDAD
AGANA AND ENRIQUE AGANA, RESPONDENTS.
DECISION
SANDOVAL-GUTIERREZ, J.:
Hospitals, having undertaken one of mankind’s most
important and delicate endeavors, must assume the grave
responsibility of pursuing it with appropriate care. The care
and service dispensed through this high trust, however
technical, complex and esoteric its character may be, must
meet standards of responsibility commensurate with the
undertaking to preserve and protect the health, and indeed,
the very lives of those placed in the hospital’s keeping.[1]
34
Assailed in these three consolidated petitions for review on
certiorari is the Court of Appeals’ Decision[2] dated
September 6, 1996 in CA-G.R. CV No. 42062 and CA-G.R.
SP No. 32198 affirming with modification the
Decision[3] dated March 17, 1993 of the Regional Trial Court
(RTC), Branch 96, Quezon City in Civil Case No. Q-43322
and nullifying its Order dated September 21, 1993.
The facts, as culled from the records, are:
On April 4, 1984, Natividad Agana was rushed to the
Medical City General Hospital (Medical City Hospital)
because of difficulty of bowel movement and bloody anal
discharge. After a series of medical examinations, Dr.
Miguel Ampil, petitioner in G.R. No. 127590, diagnosed her
to be suffering from “cancer of the sigmoid.”
On April 11, 1984, Dr. Ampil, assisted by the medical
staff[4] of the Medical City Hospital, performed an anterior
resection surgery on Natividad. He found that the
malignancy in her sigmoid area had spread on her left ovary,
necessitating the removal of certain portions of it. Thus, Dr.
Ampil obtained the consent of Natividad’s husband, Enrique
Agana, to permit Dr. Juan Fuentes, respondent in G.R. No.
126467, to perform hysterectomy on her.
After Dr. Fuentes had completed the hysterectomy, Dr.
Ampil took over, completed the operation and closed the
incision.
However, the operation appeared to be flawed. In the
corresponding Record of Operation dated April 11, 1984, the
attending nurses entered these remarks:
“sponge count lacking 2
“announced to surgeon searched (sic) done but to no
avail continue for closure.”
On April 24, 1984, Natividad was released from the hospital.
Her hospital and medical bills, including the doctors’ fees,
amounted to P60,000.00.
After a couple of days, Natividad complained of excruciating
pain in her anal region. She consulted both Dr. Ampil and
Dr. Fuentes about it. They told her that the pain was the
natural consequence of the surgery. Dr. Ampil then
recommended that she consult an oncologist to examine the
cancerous nodes which were not removed during the
operation.
On May 9, 1984, Natividad, accompanied by her husband,
went to the United States to seek further treatment. After four
months of consultations and laboratory examinations,
Natividad was told she was free of cancer. Hence, she was
advised to return to the Philippines.
On August 31, 1984, Natividad flew back to the Philippines,
still suffering from pains. Two weeks thereafter, her
daughter found a piece of gauze protruding from her
vagina. Upon being informed about it, Dr. Ampil proceeded
to her house where he managed to extract by hand a piece of
gauze measuring 1.5 inches in width. He then assured her
that the pains would soon vanish.
 35

Dr. Ampil’s assurance did not come true. Instead, the pains c. The total sum of P45,802.50,
intensified, prompting Natividad to seek treatment at the representing the cost of
Polymedic General Hospital. While confined there, Dr. hospitalization at Polymedic
Ramon Gutierrez detected the presence of another foreign Hospital, medical fees, and
object in her vagina -- a foul-smelling gauze measuring 1.5 cost of the saline solution;
inches in width which badly infected her vaginal vault. A
recto-vaginal fistula had formed in her reproductive organs
which forced stool to excrete through the vagina. Another
surgical operation was needed to remedy the damage. Thus,
in October 1984, Natividad underwent another surgery. 2. 2. As moral damages, the sum of
P2,000,000.00;
On November 12, 1984, Natividad and her husband filed
with the RTC, Branch 96, Quezon City a complaint for 3. As exemplary damages, the sum of
damages against the Professional Services, Inc. (PSI), owner P300,000.00;
of the Medical City Hospital, Dr. Ampil, and Dr. Fuentes,
docketed as Civil Case No. Q-43322. They alleged that the
latter are liable for negligencefor leaving two pieces of 4. As attorney’s fees, the sum of
gauze inside Natividad’s body and malpractice for P250,000.00;
concealing their acts of negligence.
5. Legal interest on items 1 (a), (b), and (c);
Meanwhile, Enrique Agana also filed with the Professional 2; and 3 hereinabove, from date of
Regulation Commission (PRC) an administrative complaint filing of the complaint until full
for gross negligence and malpractice against Dr. Ampil and payment; and
Dr. Fuentes, docketed as Administrative Case No. 1690. The
PRC Board of Medicine heard the case only with respect to
6. Costs of suit.
Dr. Fuentes because it failed to acquire jurisdiction over Dr.
Ampil who was then in the United States.
SO ORDERED.
On February 16, 1986, pending the outcome of the above Aggrieved, PSI, Dr. Fuentes and Dr. Ampil interposed an
cases, Natividad died and was duly substituted by her appeal to the Court of Appeals, docketed as CA-G.R. CV
above-named children (the Aganas). No. 42062.
Incidentally, on April 3, 1993, the Aganas filed with the RTC
On March 17, 1993, the RTC rendered its Decision in favor a motion for a partial execution of its Decision, which was
of the Aganas, finding PSI, Dr. Ampil and Dr. Fuentes liable granted in an Order dated May 11, 1993. Thereafter, the
for negligence and malpractice, the decretal part of which sheriff levied upon certain properties of Dr. Ampil and sold
reads: them for P451,275.00 and delivered the amount to the
WHEREFORE, judgment is hereby rendered for the Aganas.
plaintiffs ordering the defendants PROFESSIONAL
SERVICES, INC., DR. MIGUEL AMPIL and DR. Following their receipt of the money, the Aganas entered
JUAN FUENTES to pay to the plaintiffs, jointly and into an agreement with PSI and Dr. Fuentes to indefinitely
severally, except in respect of the award for exemplary suspend any further execution of the RTC
damages and the interest thereon which are the liabilities of Decision. However, not long thereafter, the Aganas again
defendants Dr. Ampil and Dr. Fuentes only, as follows: filed a motion for an alias writ of execution against the
properties of PSI and Dr. Fuentes. On September 21, 1993,
the RTC granted the motion and issued the corresponding
1. As actual damages, the following
writ, prompting Dr. Fuentes to file with the Court of Appeals
amounts:
a petition for certiorari and prohibition, with prayer for
preliminary injunction, docketed as CA-G.R. SP No.
32198. During its pendency, the Court of Appeals issued a
Resolution[5] dated October 29, 1993 granting Dr. Fuentes’
a. The equivalent in Philippine prayer for injunctive relief.
Currency of the total of
US$19,900.00 at the rate of On January 24, 1994, CA-G.R. SP No. 32198 was
P21.60-US$1.00, as consolidated with CA-G.R. CV No. 42062.
reimbursement of actual
expenses incurred in the Meanwhile, on January 23, 1995, the PRC Board of
United States of America; Medicine rendered its Decision[6] in Administrative Case
No. 1690 dismissing the case against Dr. Fuentes. The
Board held that the prosecution failed to show that Dr.
b. The sum of P4,800.00 as Fuentes was the one who left the two pieces of gauze inside
travel taxes of plaintiffs and Natividad’s body; and that he concealed such fact from
their physician daughter; Natividad.
 36

Appeals erred in absolving Dr. Fuentes of any liability;

On September 6, 1996, the Court of Appeals rendered its and third, whether PSI may be held solidarily liable for the
Decision jointly disposing of CA-G.R. CV No. 42062 and negligence of Dr. Ampil.
CA-G.R. SP No. 32198, thus:
WHEREFORE, except for the modification that the case
I - G.R. No. 127590
against defendant-appellant Dr. Juan Fuentes is
Whether the Court of Appeals Erred in Holding Dr. Ampil
hereby DISMISSED, and with the pronouncement that
Liable for Negligence and Malpractice.
defendant-appellant Dr. Miguel Ampil is liable to reimburse
defendant-appellant Professional Services, Inc., whatever
Dr. Ampil, in an attempt to absolve himself, gears the
amount the latter will pay or had paid to the plaintiffs-
Court’s attention to other possible causes of Natividad’s
appellees, the decision appealed from is
detriment. He argues that the Court should not discount
hereby AFFIRMED and the instant appeal DISMISSED.
either of the following possibilities: first, Dr. Fuentes left the
gauzes in Natividad’s body after performing
Concomitant with the above, the petition for certiorari and
hysterectomy; second, the attending nurses erred in counting
prohibition filed by herein defendant-appellant Dr. Juan
the gauzes; and third, the American doctors were the ones
Fuentes in CA-G.R. SP No. 32198 is
who placed the gauzes in Natividad’s body.
hereby GRANTED and the challenged order of the
respondent judge dated September 21, 1993, as well as the
Dr. Ampil’s arguments are purely conjectural and without
alias writ of execution issued pursuant thereto are
basis. Records show that he did not present any evidence to
hereby NULLIFIED and SET ASIDE. The bond posted by
prove that the American doctors were the ones who put or
the petitioner in connection with the writ of preliminary
left the gauzes in Natividad’s body. Neither did he submit
injunction issued by this Court on November 29, 1993 is
evidence to rebut the correctness of the record of operation,
hereby cancelled.
particularly the number of gauzes used. As to the alleged
negligence of Dr. Fuentes, we are mindful that Dr. Ampil
Costs against defendants-appellants Dr. Miguel
examined his (Dr. Fuentes’) work and found it in order.
Ampil and Professional Services, Inc.
The glaring truth is that all the major circumstances, taken
SO ORDERED. together, as specified by the Court of Appeals, directly point
Only Dr. Ampil filed a motion for reconsideration, but it was
to Dr. Ampil as the negligent party, thus:
denied in a Resolution[7] dated December 19, 1996.
First, it is not disputed that the surgeons used gauzes as
sponges to control the bleeding of the patient during the
Hence, the instant consolidated petitions.
surgical operation.
In G.R. No. 126297, PSI alleged in its petition that the Court
Second, immediately after the operation, the nurses who
of Appeals erred in holding that: (1) it is estopped from
assisted in the surgery noted in their report that the ‘sponge
raising the defense that Dr. Ampil is not its employee; (2) it
count (was) lacking 2’; that such anomaly was ‘announced
is solidarily liable with Dr. Ampil; and (3) it is not entitled
to surgeon’ and that a ‘search was done but to no avail’
to its counterclaim against the Aganas. PSI contends that Dr.
prompting Dr. Ampil to ‘continue for closure’ x x x.
Ampil is not its employee, but a mere consultant or
independent contractor. As such, he alone should answer for
Third, after the operation, two (2) gauzes were extracted
his negligence.
from the same spot of the body of Mrs. Agana where the
surgery was performed.
In G.R. No. 126467, the Aganas maintain that the Court of
An operation requiring the placing of sponges in the incision
Appeals erred in finding that Dr. Fuentes is not guilty of
is not complete until the sponges are properly removed, and
negligence or medical malpractice, invoking the doctrine of
it is settled that the leaving of sponges or other foreign
res ipsa loquitur. They contend that the pieces of gauze are
substances in the wound after the incision has been closed is
prima facie proofs that the operating surgeons have been
at least prima facie negligence by the operating
negligent.
surgeon.[8] To put it simply, such act is considered so
inconsistent with due care as to raise an inference of
Finally, in G.R. No. 127590, Dr. Ampil asserts that the Court
negligence. There are even legions of authorities to the
of Appeals erred in finding him liable for negligence and
effect that such act is negligence per se.[9]
malpractice sans evidence that he left the two pieces of gauze
in Natividad’s vagina. He pointed to other probable causes,
Of course, the Court is not blind to the reality that there are
such as: (1) it was Dr. Fuentes who used gauzes in
times when danger to a patient’s life precludes a surgeon
performing the hysterectomy; (2) the attending nurses’
from further searching missing sponges or foreign objects
failure to properly count the gauzes used during surgery;
left in the body. But this does not leave him free from any
and (3) the medical intervention of the American doctors
obligation. Even if it has been shown that a surgeon was
who examined Natividad in the United States of America.
required by the urgent necessities of the case to leave a
sponge in his patient’s abdomen, because of the dangers
For our resolution are these three vital issues: first, whether
attendant upon delay, still, it is his legal duty to so inform
the Court of Appeals erred in holding Dr. Ampil liable for
his patient within a reasonable time thereafter by
negligence and malpractice; second, whether the Court of
advising her of what he had been compelled to do. This

is in order that she might seek relief from the effects of the
foreign object left in her body as her condition might
permit. The ruling in Smith v. Zeagler[10] is explicit, thus:
The removal of all sponges used is part of a surgical
operation, and when a physician or surgeon fails to remove
a sponge he has placed in his patient’s body that should be
removed as part of the operation, he thereby leaves his
operation uncompleted and creates a new condition which
imposes upon him the legal duty of calling the new
condition to his patient’s attention, and endeavoring with
the means he has at hand to minimize and avoid
untoward results likely to ensue therefrom.
Here, Dr. Ampil did not inform Natividad about the missing
two pieces of gauze. Worse, he even misled her that the
pain she was experiencing was the ordinary consequence
of her operation. Had he been more candid, Natividad
could have taken the immediate and appropriate medical
remedy to remove the gauzes from her body. To our mind,
what was initially an act of negligence by Dr. Ampil has
ripened into a deliberate wrongful act of deceiving his
patient.
This is a clear case of medical malpractice or more
appropriately, medical negligence. To successfully pursue
this kind of case, a patient must only prove that a health care
provider either failed to do something which a reasonably
prudent health care provider would have done, or that he did
something that a reasonably prudent provider would not
have done; and that failure or action caused injury to the
patient.[11] Simply put, the elements are duty, breach,
injury and proximate causation. Dr, Ampil, as the lead
surgeon, had the duty to remove all foreign objects, such as
gauzes, from Natividad’s body before closure of the
incision. When he failed to do so, it was his duty to inform
Natividad about it. Dr. Ampil breached both duties. Such
breach caused injury to Natividad, necessitating her further
examination by American doctors and another surgery. That
Dr. Ampil’s negligence is the proximate cause[12] of
Natividad’s injury could be traced from his act of closing
the incision despite the information given by the
attending nurses that two pieces of gauze were still
missing. That they were later on extracted from Natividad’s
vagina established the causal link between Dr. Ampil’s
negligence and the injury. And what further aggravated such
injury was his deliberate concealment of the missing gauzes
from the knowledge of Natividad and her family.
II - G.R. No. 126467
Whether the Court of Appeals Erred in Absolving
Dr. Fuentes of any Liability
The Aganas assailed the dismissal by the trial court of the
case against Dr. Fuentes on the ground that it is contrary to
the doctrine of res ipsa loquitur. According to them, the fact
that the two pieces of gauze were left inside Natividad’s
body is a prima facie evidence of Dr. Fuentes’ negligence.
We are not convinced.
Literally, res ipsa loquitur means “the thing speaks for
itself.” It is the rule that the fact of the occurrence of an
injury, taken with the surrounding circumstances, may
37
permit an inference or raise a presumption of negligence, or
make out a plaintiff’s prima facie case, and present a
question of fact for defendant to meet with an
explanation.[13] Stated differently, where the thing which
caused the injury, without the fault of the injured, is under
the exclusive control of the defendant and the injury is such
that it should not have occurred if he, having such control
used proper care, it affords reasonable evidence, in the
absence of explanation that the injury arose from the
defendant’s want of care, and the burden of proof is shifted
to him to establish that he has observed due care and
diligence.[14]
From the foregoing statements of the rule, the requisites for
the applicability of the doctrine of res ipsa
loquitur are: (1) the occurrence of an injury; (2) the thing
which caused the injury was under the control and
management of the defendant; (3) the occurrence was such
that in the ordinary course of things, would not have
happened if those who had control or management used
proper care; and (4) the absence of explanation by the
defendant. Of the foregoing requisites, the most instrumental
is the “control and management of the thing which
caused the injury.”[15]
We find the element of “control and management of the
thing which caused the injury” to be wanting. Hence, the
doctrine of res ipsa loquitur will not lie.
It was duly established that Dr. Ampil was the lead
surgeon during the operation of Natividad. He requested
the assistance of Dr. Fuentes only to perform hysterectomy
when he (Dr. Ampil) found that the malignancy in her
sigmoid area had spread to her left ovary. Dr. Fuentes
performed the surgery and thereafter reported and showed
his work to Dr. Ampil. The latter examined it and finding
everything to be in order, allowed Dr. Fuentes to leave
the operating room. Dr. Ampil then resumed operating on
Natividad. He was about to finish the procedure when the
attending nurses informed him that two pieces of gauze
were missing. A “diligent search” was conducted, but the
misplaced gauzes were not found. Dr. Ampil then directed
that the incision be closed. During this entire period, Dr.
Fuentes was no longer in the operating room and had, in fact,
left the hospital.
Under the “Captain of the Ship” rule, the operating
surgeon is the person in complete charge of the surgery room
and all personnel connected with the operation. Their duty
is to obey his orders.[16] As stated before, Dr. Ampil was
the lead surgeon. In other words, he was the “Captain of
the Ship.” That he discharged such role is evident from his
following conduct: (1) calling Dr. Fuentes to perform a
hysterectomy; (2) examining the work of Dr. Fuentes and
finding it in order; (3) granting Dr. Fuentes’ permission to
leave; and (4) ordering the closure of the incision. To our
mind, it was this act of ordering the closure of the incision
notwithstanding that two pieces of gauze remained
unaccounted for, that caused injury to Natividad’s
body. Clearly, the control and management of the thing
which caused the injury was in the hands of Dr. Ampil, not
Dr. Fuentes.
 38

x x x x x x
In this jurisdiction, res ipsa loquitur is not a rule of
substantive law, hence, does not per se create or constitute The responsibility treated of in this article shall cease when
an independent or separate ground of liability, being a mere the persons herein mentioned prove that they observed all
evidentiary rule.[17] In other words, mere invocation and the diligence of a good father of a family to prevent damage.
application of the doctrine does not dispense with the A prominent civilist commented that professionals engaged
requirement of proof of negligence. Here, the negligence by an employer, such as physicians, dentists, and
was proven to have been committed by Dr. Ampil and not pharmacists, are not “employees” under this article because
by Dr. Fuentes. the manner in which they perform their work is not within
the control of the latter (employer). In other words,
professionals are considered personally liable for the
III - G.R. No. 126297
fault or negligence they commit in the discharge of their
Whether PSI Is Liable for the Negligence of Dr. Ampil
duties, and their employer cannot be held liable for such
fault or negligence. In the context of the present case, “a
The third issue necessitates a glimpse at the historical
hospital cannot be held liable for the fault or negligence of a
development of hospitals and the resulting theories
physician or surgeon in the treatment or operation of
concerning their liability for the negligence of physicians.
patients.”[21]
Until the mid-nineteenth century, hospitals were generally
The foregoing view is grounded on the traditional notion
charitable institutions, providing medical services to the
that the professional status and the very nature of the
lowest classes of society, without regard for a patient’s
physician’s calling preclude him from being classed as an
ability to pay.[18] Those who could afford medical treatment
agent or employee of a hospital, whenever he acts in a
were usually treated at home by their doctors.[19] However,
professional capacity.[22] It has been said that medical
the days of house calls and philanthropic health care are
practice strictly involves highly developed and specialized
over. The modern health care industry continues to distance
knowledge,[23] such that physicians are generally free to
itself from its charitable past and has experienced a
exercise their own skill and judgment in rendering medical
significant conversion from a not-for-profit health care to
services sansinterference.[24] Hence, when a doctor
for-profit hospital businesses. Consequently, significant
practices medicine in a hospital setting, the hospital and its
changes in health law have accompanied the business-related
employees are deemed to subserve him in his ministrations
changes in the hospital industry. One important legal change
to the patient and his actions are of his own responsibility.[25]
is an increase in hospital liability for medical
malpractice. Many courts now allow claims for hospital
The case of Schloendorff v. Society of New York
vicarious liability under the theories of respondeat
Hospital[26] was then considered an authority for this view.
superior, apparent authority, ostensible authority, or agency
The “Schloendorff doctrine” regards a physician, even if
by estoppel. [20]
employed by a hospital, as an independent
contractor because of the skill he exercises and the lack of
In this jurisdiction, the statute governing liability for
control exerted over his work. Under this doctrine, hospitals
negligent acts is Article 2176 of the Civil Code, which reads:
are exempt from the application of the respondeat
Art. 2176. Whoever by act or omission causes damage to
superior principle for fault or negligence committed by
another, there being fault or negligence, is obliged to pay for
physicians in the discharge of their profession.
the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a
However, the efficacy of the foregoing doctrine has
quasi-delict and is governed by the provisions of this
weakened with the significant developments in medical
Chapter.
care. Courts came to realize that modern hospitals are
A derivative of this provision is Article 2180, the rule
increasingly taking active role in supplying and regulating
governing vicarious liability under the doctrine
medical care to patients. No longer were a hospital’s
of respondeat superior, thus:
functions limited to furnishing room, food, facilities for
ART. 2180. The obligation imposed by Article 2176 is
treatment and operation, and attendants for its
demandable not only for one’s own acts or omissions, but
patients. Thus, in Bing v. Thunig,[27] the New York Court
also for those of persons for whom one is responsible.
of Appeals deviated from the Schloendorff doctrine, noting
that modern hospitals actually do far more than provide
x x x x x x
facilities for treatment. Rather, they regularly employ, on a
salaried basis, a large staff of physicians, interns, nurses,
The owners and managers of an establishment or enterprise
administrative and manual workers. They charge patients for
are likewise responsible for damages caused by their
medical care and treatment, even collecting for such services
employees in the service of the branches in which the latter
through legal action, if necessary. The court then concluded
are employed or on the occasion of their functions.
that there is no reason to exempt hospitals from the universal
rule of respondeat superior.
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of
In our shores, the nature of the relationship between the
their assigned tasks even though the former are not engaged
hospital and the physicians is rendered inconsequential in
in any business or industry.
view of our categorical pronouncement in Ramos v. Court of

Appeals[28] that for purposes of apportioning responsibility
in medical negligence cases, an employer-employee
relationship in effect exists between hospitals and their
attending and visiting physicians. This Court held:
“We now discuss the responsibility of the hospital in this
particular incident. The unique practice (among private
hospitals) of filling up specialist staff with attending and
visiting “consultants,” who are allegedly not hospital
employees, presents problems in apportioning responsibility
for negligence in medical malpractice cases. However, the
difficulty is more apparent than real.
In the first place, hospitals exercise significant control in
the hiring and firing of consultants and in the conduct of
their work within the hospital premises. Doctors who
apply for ‘consultant’ slots, visiting or attending, are
required to submit proof of completion of residency,
their educational qualifications, generally, evidence of
accreditation by the appropriate board (diplomate),
evidence of fellowship in most cases, and references.
These requirements are carefully scrutinized by
members of the hospital administration or by a review
committee set up by the hospital who either accept or
reject the application. x x x.
After a physician is accepted, either as a visiting or
attending consultant, he is normally required to attend
clinico-pathological conferences, conduct bedside rounds
for clerks, interns and residents, moderate grand rounds
and patient audits and perform other tasks and
responsibilities, for the privilege of being able to
maintain a clinic in the hospital, and/or for the privilege
of admitting patients into the hospital. In addition to these,
the physician’s performance as a specialist is generally
evaluated by a peer review committee on the basis of
mortality and morbidity statistics, and feedback from
patients, nurses, interns and residents. A consultant remiss
in his duties, or a consultant who regularly falls short of
the minimum standards acceptable to the hospital or its
peer review committee, is normally politely terminated.
In other words, private hospitals, hire, fire and exercise
real control over their attending and visiting ‘consultant’
staff. While ‘consultants’ are not, technically
employees, x x x, the control exercised, the hiring, and
the right to terminate consultants all fulfill the important
hallmarks of an employer-employee relationship, with
the exception of the payment of wages. In assessing
whether such a relationship in fact exists, the control test is
determining. Accordingly, on the basis of the foregoing, we
rule that for the purpose of allocating responsibility in
medical negligence cases, an employer-employee
relationship in effect exists between hospitals and their
attending and visiting physicians. ”
But the Ramos pronouncement is not our only basis in
sustaining PSI’s liability. Its liability is also anchored upon
the agency principle of apparent authority or agency by
estoppel and the doctrine of corporate negligence which
have gained acceptance in the determination of a hospital’s
liability for negligent acts of health professionals. The
present case serves as a perfect platform to test the
applicability of these doctrines, thus, enriching our
39
jurisprudence.
Apparent authority, or what is sometimes referred to as
the “holding out” theory, or doctrine of ostensible agency
or agency by estoppel,[29] has its origin from the law of
agency. It imposes liability, not as the result of the reality of
a contractual relationship, but rather because of the actions
of a principal or an employer in somehow misleading the
public into believing that the relationship or the authority
exists.[30] The concept is essentially one of estoppel and has
been explained in this manner:
“The principal is bound by the acts of his agent with the
apparent authority which he knowingly permits the agent to
assume, or which he holds the agent out to the public as
possessing. The question in every case is whether the
principal has by his voluntary act placed the agent in such a
situation that a person of ordinary prudence, conversant with
business usages and the nature of the particular business, is
justified in presuming that such agent has authority to
perform the particular act in question.[31]
The applicability of apparent authority in the field of hospital
liability was upheld long time ago in Irving v. Doctor
Hospital of Lake Worth, Inc.[32] There, it was
explicitly stated that “there does not appear to be any
rational basis for excluding the concept of apparent
authority from the field of hospital liability.” Thus, in
cases where it can be shown that a hospital, by its actions,
has held out a particular physician as its agent and/or
employee and that a patient has accepted treatment from that
physician in the reasonable belief that it is being rendered in
behalf of the hospital, then the hospital will be liable for the
physician’s negligence.
Our jurisdiction recognizes the concept of an agency by
implication or estoppel. Article 1869 of the Civil Code
reads:
ART. 1869. Agency may be express, or implied from the
acts of the principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another person
is acting on his behalf without authority.
In this case, PSI publicly displays in the lobby of the Medical
City Hospital the names and specializations of the physicians
associated or accredited by it, including those of Dr. Ampil
and Dr. Fuentes. We concur with the Court of Appeals’
conclusion that it “is now estopped from passing all the
blame to the physicians whose names it proudly paraded
in the public directory leading the public to believe that
it vouched for their skill and competence.” Indeed, PSI’s
act is tantamount to holding out to the public that Medical
City Hospital, through its accredited physicians, offers
quality health care services. By accrediting Dr. Ampil and
Dr. Fuentes and publicly advertising their qualifications, the
hospital created the impression that they were its agents,
authorized to perform medical or surgical services for its
patients. As expected, these patients, Natividad being one of
them, accepted the services on the reasonable belief that such
were being rendered by the hospital or its employees, agents,
or servants. The trial court correctly pointed out:
x x x regardless of the education and status in life of the
patient, he ought not be burdened with the defense of
absence of employer-employee relationship between the

hospital and the independent physician whose name and
competence are certainly certified to the general public
by the hospital’s act of listing him and his specialty in its
lobby directory, as in the case herein. The high costs of
today’s medical and health care should at least exact on
the hospital greater, if not broader, legal responsibility
for the conduct of treatment and surgery within its
facility by its accredited physician or surgeon, regardless
of whether he is independent or employed.”[33]
The wisdom of the foregoing ratiocination is easy to discern.
Corporate entities, like PSI, are capable of acting only
through other individuals, such as physicians. If these
accredited physicians do their job well, the hospital succeeds
in its mission of offering quality medical services and
thus profits financially. Logically, where negligence mars
the quality of its services, the hospital should not be allowed
to escape liability for the acts of its ostensible agents.
We now proceed to the doctrine of corporate
negligence or corporate responsibility.
One allegation in the complaint in Civil Case No. Q-43332
for negligence and malpractice is that PSI as owner, operator
and manager of Medical City Hospital, “did not perform
the necessary supervision nor exercise diligent efforts in
the supervision of Drs. Ampil and Fuentes and its
nursing staff, resident doctors, and medical interns who
assisted Drs. Ampil and Fuentes in the performance of
their duties as surgeons.”[34] Premised on the doctrine of
corporate negligence, the trial court held that PSI is directly
liable for such breach of duty.
We agree with the trial court.
Recent years have seen the doctrine of corporate negligence
as the judicial answer to the problem of allocating hospital’s
liability for the negligent acts of health practitioners, absent
facts to support the application of respondeat superior or
apparent authority. Its formulation proceeds from the
judiciary’s acknowledgment that in these modern times, the
duty of providing quality medical service is no longer the
sole prerogative and responsibility of the physician. The
modern hospitals have changed structure. Hospitals now
tend to organize a highly professional medical staff whose
competence and performance need to be monitored by the
hospitals commensurate with their inherent responsibility to
provide quality medical care.[35]
The doctrine has its genesis in Darling v. Charleston
Community Hospital.[36] There, the Supreme Court of
Illinois held that “the jury could have found a hospital
negligent, inter alia, in failing to have a sufficient number
of trained nurses attending the patient; failing to require
a consultation with or examination by members of the
hospital staff; and failing to review the treatment
rendered to the patient.” On the basis of Darling, other
jurisdictions held that a hospital’s corporate negligence
extends to permitting a physician known to be
incompetent to practice at the hospital.[37] With the
passage of time, more duties were expected from hospitals,
among them: (1) the use of reasonable care in the
maintenance of safe and adequate facilities and
40
equipment; (2) the selection and retention of competent
physicians; (3) the overseeing or supervision of all
persons who practice medicine within its
walls; and (4) the formulation, adoption and enforcement of
adequate rules and policies that ensure quality care for its
patients.[38] Thus, in Tucson Medical Center, Inc. v.
Misevich,[39] it was held that a hospital, following the
doctrine of corporate responsibility, has the duty to see that
it meets the standards of responsibilities for the care of
patients. Such duty includes the proper supervision of the
members of its medical staff. And in Bost v. Riley,[40] the
court concluded that a patient who enters a hospital does so
with the reasonable expectation that it will attempt to cure
him. The hospital accordingly has the duty to make a
reasonable effort to monitor and oversee the treatment
prescribed and administered by the physicians
practicing in its premises.
In the present case, it was duly established that PSI operates
the Medical City Hospital for the purpose and under the
concept of providing comprehensive medical services to the
public. Accordingly, it has the duty to exercise reasonable
care to protect from harm all patients admitted into its
facility for medical treatment. Unfortunately, PSI failed
to perform such duty. The findings of the trial court are
convincing, thus:
x x x PSI’s liability is traceable to its failure to conduct an
investigation of the matter reported in the nota bene of the
count nurse. Such failure established PSI’s part in the dark
conspiracy of silence and concealment about the gauzes.
Ethical considerations, if not also legal, dictated the holding
of an immediate inquiry into the events, if not for the benefit
of the patient to whom the duty is primarily owed, then in
the interest of arriving at the truth. The Court cannot accept
that the medical and the healing professions, through their
members like defendant surgeons, and their institutions like
PSI’s hospital facility, can callously turn their backs on and
disregard even a mere probability of mistake or negligence
by refusing or failing to investigate a report of such
seriousness as the one in Natividad’s case.
It is worthy to note that Dr. Ampil and Dr. Fuentes operated
on Natividad with the assistance of the Medical City
Hospital’s staff, composed of resident doctors, nurses, and
interns. As such, it is reasonable to conclude that PSI, as
the operator of the hospital,
has actual or constructive knowledge of the procedures
carried out, particularly the report of the attending
nurses that the two pieces of gauze were
missing. In Fridena v. Evans,[41] it was held that a
corporation is bound by the knowledge acquired by or
notice given to its agents or officers within the scope of their
authority and in reference to a matter to which their authority
extends. This means that the knowledge of any of the staff
of Medical City Hospital constitutes knowledge of PSI.
Now, the failure of PSI, despite the attending nurses’ report,
to investigate and inform Natividad regarding the missing
gauzes amounts to callous negligence. Not only did PSI
breach its duties to oversee or supervise all persons who
practice medicine within its walls, it also failed to take
an active step in fixing the negligence committed. This
renders PSI, not only vicariously liable for the negligence of
Dr. Ampil under Article 2180 of the Civil Code, but
 41

also directly liable for its own negligence under Article judgment.
2176. In Fridena, the Supreme Court of Arizona held:
x x x In recent years, however, the duty of care owed to the WHEREFORE, we DENY all the petitions
patient by the hospital has expanded. ?The emerging trend and AFFIRM the challenged Decision of the Court of
is to hold the hospital responsible where the hospital has Appeals in CA-G.R. CV No. 42062 and CA-G.R. SP No.
failed to monitor and review medical services being 32198.
provided within its walls. See Kahn Hospital Malpractice
Prevention, 27 De Paul . Rev. 23 (1977). Costs against petitioners PSI and Dr. Miguel Ampil.

Among the cases indicative of the ‘emerging trend’ SO ORDERED.

is Purcell v. Zimbelman, 18 Ariz. App. 75,500 P. 2d 335
(1972). In Purcell, the hospital argued that it could not be
held liable for the malpractice of a medical practitioner
because he was an independent contractor within the
hospital. The Court of Appeals pointed out that the
hospital had created a professional staff whose
competence and performance was to be monitored and
reviewed by the governing body of the hospital, and the
court held that a hospital would be negligent where it had
knowledge or reason to believe that a doctor using the
facilities was employing a method of treatment or care
which fell below the recognized standard of care.

Subsequent to the Purcell decision, the Arizona Court of

Appeals held that a hospital has certain inherent
responsibilities regarding the quality of medical care
furnished to patients within its walls and it must meet the
standards of responsibility commensurate with this
undertaking. Beeck v. Tucson General Hospital, 18 Ariz.
App. 165, 500 P. 2d 1153 (1972). This court has confirmed
the rulings of the Court of Appeals that a hospital has the
duty of supervising the competence of the doctors on its
staff. x x x.

x x x xxx

In the amended complaint, the plaintiffs did plead that the

operation was performed at the hospital with its knowledge,
aid, and assistance, and that the negligence of the defendants
was the proximate cause of the patient’s injuries. We find
that such general allegations of negligence, along with the
evidence produced at the trial of this case, are sufficient
to support the hospital’s liability based on the theory of
negligent supervision.”
Anent the corollary issue of whether PSI is solidarily liable
with Dr. Ampil for damages, let it be emphasized that PSI,
apart from a general denial of its responsibility, failed to
adduce evidence showing that it exercised the diligence of a
good father of a family in the accreditation and supervision
of the latter. In neglecting to offer such proof, PSI failed to
discharge its burden under the last paragraph of Article 2180
cited earlier, and, therefore, must be adjudged solidarily
liable with Dr. Ampil. Moreover, as we have discussed, PSI
is also directly liable to the Aganas.

One final word. Once a physician undertakes the treatment

and care of a patient, the law imposes on him certain
obligations. In order to escape liability, he must possess that
reasonable degree of learning, skill and experience required
by his profession. At the same time, he must apply
reasonable care and diligence in the exercise of his skill and
the application of his knowledge, and exert his best