G.R. No.

120465 September 9, 1999

WILLIAM UY and RODEL ROXAS, petitioners,

vs.
COURT OF APPEALS, HON. ROBERT BALAO and NATIONAL HOUSING AUTHORITY,
respondents.

KAPUNAN, J.:

Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of land by the
owners thereof. By virtue of such authority, petitioners offered to sell the lands, located in Tuba,
Tadiangan, Benguet to respondent National Housing Authority (NHA) to be utilized and
developed as a housing project.

On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the acquisition of
said lands, with an area of 31.8231 hectares, at the cost of P23.867 million, pursuant to which
the parties executed a series of Deeds of Absolute Sale covering the subject lands. Of the eight
parcels of land, however, only five were paid for by the NHA because of the report 1 it received
from the Land Geosciences Bureau of the Department of Environment and Natural Resources
(DENR) that the remaining area is located at an active landslide area and therefore, not suitable
for development into a housing project.

On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the sale over the three
parcels of land. The NHA, through Resolution No. 2394, subsecguently offered the amount of
P1.225 million to the landowners as daos perjuicios.

On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) of Quezon City a
Complaint for Damages against NHA and its General Manager Robert Balao.

After trial, the RTC rendered a decision declaring the cancellation of the contract to be justified.
The trial court nevertheless awarded damages to plaintiffs in the sum of P1.255 million, the same
amount initially offered by NHA to petitioners as damages.1wphi1.nt

Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial court and
entered a new one dismissing the complaint. It held that since there was "sufficient justifiable
basis" in cancelling the sale, "it saw no reason" for the award of damages. The Court of Appeals
also noted that petitioners were mere attorneys-in-fact and, therefore, not the real parties-in-
interest in the action before the trial court.

. . . In paragraph 4 of the complaint, plaintiffs alleged themselves to be

"sellers' agents" for the several owners of the 8 lots subject matter of
the case. Obsviously, William Uy and Rodel Roxas in filing this case acted
as attorneys-in-fact of the lot owners who are the real parties in interest
but who were omitted to be pleaded as party-plaintiffs in the case. This
omission is fatal. Where the action is brought by an attorney-in-fact of a
land owner in his name, (as in our present action) and not in the name
of his principal, the action was properly dismissed (Ferrer vs. Villamor,
60 SCRA 406 [1974]; Marcelo vs. de Leon, 105 Phil. 1175) because the
rule is that every action must be prosecuted in the name of the real
parties-in-interest (Section 2, Rule 3, Rules of Court).
 When plaintiffs UY and Roxas sought payment of damages in their favor
in view of the partial rescission of Resolution No. 1632 and the Deed of
Absolute Sale covering TCT Nos. 10998, 10999 and 11292 (Prayer
complaint, page 5, RTC records), it becomes obviously indispensable that
the lot owners be included, mentioned and named as party-plaintiffs,
being the real party-in-interest. UY and Roxas, as attorneys-in-fact or
apoderados, cannot by themselves lawfully commence this action, more
so, when the supposed special power of attorney, in their favor, was
never presented as an evidence in this case. Besides, even if herein
plaintiffs Uy and Roxas were authorized by the lot owners to commence
this action, the same must still be filed in the name of the principal,
(Filipino Industrial Corporation vs. San Diego, 23 SCRA 706 [1968]). As
such indispensable party, their joinder in the action is mandatory and the
complaint may be dismissed if not so impleaded (NDC vs. CA, 211 SCRA
422 [1992]). 2

Their motion for reconsideration having been denied, petitioners seek relief from this Court
contending that:

I. THE RESPONDENT CA ERRED IN DECLARING THAT RESPONDENT

NHA HAD ANY LEGAL BASIS FOR RESCINDING THE SALE INVOLVING
THE LAST THREE (3) PARCELS COVERED BY NHA RESOLUTION NO.
1632.

II. GRANTING ARGUENDO THAT THE RESPONDENT NHA HAD LEGAL

BASIS TO RESCIND THE SUBJECT SALE, THE RESPONDENT CA
NONETHELESS ERRED IN DENYING HEREIN PETITIONERS' CLAIM TO
DAMAGES, CONTRARY TO THE PROVISIONS OF ART. 1191 OF THE
CIVIL CODE.

III. THE RESPONDENT CA ERRED IN DISMISSING THE SUBJECT

COMPLAINT FINDING THAT THE PETITIONERS FAILED TO JOIN AS
INDISPENSABLE PARTY PLAINTIFF THE SELLING LOT-OWNERS. 3

We first resolve the issue raised in the the third assignment of error.

Petitioners claim that they lodged the complaint not in behalf of their principals but in their own
name as agents directly damaged by the termination of the contract. The damages prayed for
were intended not for the benefit of their principals but to indemnify petitioners for the losses
they themselves allegedly incurred as a result of such termination. These damages consist mainly
of "unearned income" and advances. 4 Petitioners, thus, attempt to distinguish the case at bar
from those involving agents or apoderedos instituting actions in their own name but in behalf of
their principals. 5 Petitioners in this case purportedly brought the action for damages in their own
name and in their own behalf.

We find this contention unmeritorious.

Sec. 2, Rule 3 of the Rules of Court requires that every action must be prosecuted and defended
in the name of the real party-in-interest. The real party-in-interest is the party who stands to be
benefited or injured by the judgment or the party entitled to the avails of the suit. "Interest,
within the meaning of the rule, means material interest, an interest in the issue and to be
affected by the decree, as distinguished from mere interest in the question involved, or a mere
incidental interest. 6 Cases construing the real party-in-interest provision can be more easily
understood if it is borne in mind that the true meaning of real party-in-interest may be
summarized as follows: An action shall be prosecuted in the name of the party who, by the
substantive law, has the right sought to be enforced. 7

Do petitioners, under substantive law, possess the right they seek to enforce? We rule in the
negative.

The applicable substantive law in this case is Article 1311 of the Civil Code, which states:

Contracts take effect only between the parties, their assigns, and heirs ,
except in case where the rights and obligations arising from the contract
are not transmissible by their nature, or by stipulation, or by provision of
law. . . .

If a contract should contain some stipulation in favor of a third person,

he may demand its fulfillment provided he communicated his acceptance
to the obligor before its revocation. A mere incidental benefit or interest
of a person is not sufficient. The contracting parties must have clearly
and deliberately conferred a favor upon a third person. (Emphasis
supplied.)

Petitioners are not parties to the contract of sale between their principals and NHA. They are
mere agents of the owners of the land subject of the sale. As agents, they only render some
service or do something in representation or on behalf of their principals. 8 The rendering of such
service did not make them parties to the contracts of sale executed in behalf of the latter. Since a
contract may be violated only by the parties thereto as against each other, the real parties-in-
interest, either as plaintiff or defendant, in an action upon that contract must, generally, either
be parties to said contract. 9

Neither has there been any allegation, much less proof, that petitioners are the heirs of their
principals.

Are petitioners assignees to the rights under the contract of sale? In McMicking vs. Banco
Espaol-Filipino, 10 we held that the rule requiring every action to be prosecuted in the name of
the real party-in-interest.

. . . recognizes the assignments of rights of action and also recognizes

that when one has a right of action assigned to him he is then the real
party in interest and may maintain an action upon such claim or right.
The purpose of [this rule] is to require the plaintiff to be the real party in
interest, or, in other words, he must be the person to whom the
proceeds of the action shall belong, and to prevent actions by persons
who have no interest in the result of the same. . . .

Thus, an agent, in his own behalf, may bring an action founded on a contract made for his
principal, as an assignee of such contract. We find the following declaration in Section 372 (1) of
the Restatement of the Law on Agency (Second): 11

Sec. 372. Agent as Owner of Contract Right

 (1) Unless otherwise agreed, an agent who has or who acquires an
interest in a contract which he makes on behalf of his principal can,
although not a promisee, maintain such action thereon maintain such
action thereon as might a transferee having a similar interest.

The Comment on subsection (1) states:

a. Agent a transferee. One who has made a contract on behalf of

another may become an assignee of the contract and bring suit against
the other party to it, as any other transferee. The customs of business or
the course of conduct between the principal and the agent may indicate
that an agent who ordinarily has merely a security interest is a
transferee of the principals rights under the contract and as such is
permitted to bring suit. If the agent has settled with his principal with
the understanding that he is to collect the claim against the obligor by
way of reimbursing himself for his advances and commissions, the agent
is in the position of an assignee who is the beneficial owner of the chose
in action. He has an irrevocable power to sue in his principal's name. . . .
And, under the statutes which permit the real party in interest to sue, he
can maintain an action in his own name. This power to sue is not
affected by a settlement between the principal and the obligor if the
latter has notice of the agent's interest. . . . Even though the agent has
not settled with his principal, he may, by agreement with the principal,
have a right to receive payment and out of the proceeds to reimburse
himself for advances and commissions before turning the balance over to
the principal. In such a case, although there is no formal assignment, the
agent is in the position of a transferee of the whole claim for security; he
has an irrevocable power to sue in his principal's name and, under
statutes which permit the real party in interest to sue, he can maintain
an action in his own name.

Petitioners, however, have not shown that they are assignees of their principals to the subject
contracts. While they alleged that they made advances and that they suffered loss of
commissions, they have not established any agreement granting them "the right to receive
payment and out of the proceeds to reimburse [themselves] for advances and commissions
before turning the balance over to the principal[s]."

Finally, it does not appear that petitioners are beneficiaries of a stipulation pour autrui under the
second paragraph of Article 1311 of the Civil Code. Indeed, there is no stipulation in any of the
Deeds of Absolute Sale "clearly and deliberately" conferring a favor to any third person.

That petitioners did not obtain their commissions or recoup their advances because of the non-
performance of the contract did not entitle them to file the action below against respondent NHA.
Section 372 (2) of the Restatement of the Law on Agency (Second) states:

(2) An agent does not have such an interest in a contract as to entitle him to
maintain an action at law upon it in his own name merely because he is entitled
to a portion of the proceeds as compensation for making it or because he is
liable for its breach.

The following Comment on the above subsection is illuminating:

 The fact that an agent who makes a contract for his principal will gain or suffer
loss by the performance or nonperformance of the contract by the principal or by
the other party thereto does not entitle him to maintain an action on his own
behalf against the other party for its breach. An agent entitled to receive a
commission from his principal upon the performance of a contract which he has
made on his principal's account does not, from this fact alone, have any claim
against the other party for breach of the contract, either in an action on the
contract or otherwise. An agent who is not a promisee cannot maintain an action
at law against a purchaser merely because he is entitled to have his
compensation or advances paid out of the purchase price before payment to the
principal. . . .

Thus, in Hopkins vs. Ives, 12 the Supreme Court of Arkansas, citing Section 372 (2) above,
denied the claim of a real estate broker to recover his alleged commission against the purchaser
in an agreement to purchase property.

In Goduco vs. Court of appeals, 13

this Court held that:

. . . granting that appellant had the authority to sell the property, the
same did not make the buyer liable for the commission she claimed. At
most, the owner of the property and the one who promised to give her a
commission should be the one liable to pay the same and to whom the
claim should have been directed. . . .

As petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation pour autrui under
the contracts of sale, they do not, under substantive law, possess the right they seek to enforce.
Therefore, they are not the real parties-in-interest in this case.

Petitioners not being the real parties-in-interest, any decision rendered herein would be pointless
since the same would not bind the real parties-in-
interest. 14

Nevertheless, to forestall further litigation on the substantive aspects of this case, we shall
proceed to rule on me merits. 15

Petitioners submit that respondent NHA had no legal basis to "rescind" the sale of the subject
three parcels of land. The existence of such legal basis, notwithstanding, petitioners argue that
they are still entitled to an award of damages.

Petitioners confuse the cancellation of the contract by the NHA as a rescission of the contract
under Article 1191 of the Civil Code. The right of rescission or, more accurately, resolution, of a
party to an obligation under Article 1191 is predicated on a breach of faith by the other party that
violates the reciprocity between them. 16 The power to rescind, therefore, is given to the injured
party. 17 Article 1191 states:

The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
In this case, the NHA did not rescind the contract. Indeed, it did not have the right to do so for
the other parties to the contract, the vendors, did not commit any breach, much less a
substantial breach, 18 of their obligation. Their obligation was merely to deliver the parcels of
land to the NHA, an obligation that they fulfilled. The NHA did not suffer any injury by the
performance thereof.

The cancellation, therefore, was not a rescission under Article 1191. Rather, the cancellation was
based on the negation of the cause arising from the realization that the lands, which were the
object of the sale, were not suitable for housing. 1wphi1.nt

Cause is the essential reason which moves the contracting parties to enter into it. 19 In other
words, the cause is the immediate, direct and proximate reason which justifies the creation of an
obligation through the will of the contracting parties. 20 Cause, which is the essential reason for
the contract, should be distinguished from motive, which is the particular reason of a contracting
party which does not affect the other party. 21

For example, in a contract of sale of a piece of land, such as in this case, the cause of the vendor
(petitioners' principals) in entering into the contract is to obtain the price. For the vendee, NHA, it
is the acquisition of the land. 22 The motive of the NHA, on the other hand, is to use said lands
for housing. This is apparent from the portion of the Deeds of Absolute Sale 23 stating:

WHEREAS, under the Executive Order No. 90 dated December 17, 1986, the
VENDEE is mandated to focus and concentrate its efforts and resources in
providing housing assistance to the lowest thirty percent (30%) of urban income
earners, thru slum upgrading and development of sites and services projects;

WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended by Letter of
Instruction No. 630, prescribed slum improvement and upgrading, as well as the
development of sites and services as the principal housing strategy for dealing
with slum, squatter and other blighted communities;

WHEREAS, the VENDEE, in pursuit of and in compliance with the above-stated

purposes offers to buy and the VENDORS, in a gesture of their willing to
cooperate with the above policy and commitments, agree to sell the aforesaid
property together with all the existing improvements there or belonging to the
VENDORS;

NOW, THEREFORE, for and in consideration of the foregoing premises and the
terms and conditions hereinbelow stipulated, the VENDORS hereby, sell, transfer,
cede and convey unto the VENDEE, its assigns, or successors-in-interest, a parcel
of land located at Bo. Tadiangan, Tuba, Benguet containing a total area of FIFTY
SIX THOUSAND EIGHT HUNDRED NINETEEN (56,819) SQUARE METERS, more
or less . . . .

Ordinarily, a party's motives for entering into the contract do not affect the contract. However,
when the motive predetermines the cause, the motive may be regarded as the cause. In Liguez
vs. Court of Appeals, 24 this Court, speaking through Justice J.B.L. REYES, HELD:

. . . it is well to note, however, that Manresa himself (Vol. 8, pp. 641-

642), while maintaining the distinction and upholding the inoperativeness
of the motives of the parties to determine the validity of the contract,
 expressly excepts from the rule those contracts that are conditioned
upon the attainment of the motives of either party.

The same view is held by the Supreme Court of Spain, in its decisions of
February 4, 1941, and December 4, 1946, holding that the motive may
be regarded as causa when it predetermines the purpose of the contract.

In this case, it is clear, and petitioners do not dispute, that NHA would not have entered into the
contract were the lands not suitable for housing. In other words, the quality of the land was an
implied condition for the NHA to enter into the contract. On the part of the NHA, therefore, the
motive was the cause for its being a party to the sale.

Were the lands indeed unsuitable for housing as NHA claimed?

We deem the findings contained in the report of the Land Geosciences Bureau dated 15 July
1991 sufficient basis for the cancellation of the sale, thus:

In Tadiangan, Tuba, the housing site is situated in an area of moderate

topography. There [are] more areas of less sloping ground apparently
habitable. The site is underlain by . . . thick slide deposits (4-45m)
consisting of huge conglomerate boulders (see Photo No. 2) mix[ed]
with silty clay materials. These clay particles when saturated have some
swelling characteristics which is dangerous for any civil structures
especially mass housing development. 25

Petitioners contend that the report was merely "preliminary," and not conclusive, as indicated in
its title:

MEMORANDUM

TO: EDWIN G. DOMINGO

Chief, Lands Geology Division

FROM: ARISTOTLE A. RILLON

Geologist II

SUBJECT: Preliminary Assessment of

Tadiangan Housing Project in Tuba, Benguet 26

Thus, page 2 of the report states in part:

Actually there is a need to conduct further geottechnical [sic] studies in

the NHA property. Standard Penetration Test (SPT) must be carried out
to give an estimate of the degree of compaction (the relative density) of
the slide deposit and also the bearing capacity of the soil materials.
Another thing to consider is the vulnerability of the area to landslides
and other mass movements due to thick soil cover. Preventive physical
 mitigation methods such as surface and subsurface drainage and
regrading of the slope must be done in the area. 27

We read the quoted portion, however, to mean only that further tests are required to determine
the "degree of compaction," "the bearing capacity of the soil materials," and the "vulnerability of
the area to landslides," since the tests already conducted were inadequate to ascertain such
geological attributes. It is only in this sense that the assessment was "preliminary."

Accordingly, we hold that the NHA was justified in canceling the contract. The realization of the
mistake as regards the quality of the land resulted in the negation of the motive/cause thus
rendering the contract inexistent. 28 Article 1318 of the Civil Code states that:

Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established. (Emphasis supplied.)

Therefore, assuming that petitioners are parties, assignees or beneficiaries to the contract of
sale, they would not be entitled to any award of damages.

WHEREFORE, the instant petition is hereby DENIED.

G.R. No. 193517 January 15, 2014

THE HEIRS OF VICTORINO SARILI, NAMELY: ISABEL A. SARILI,* MELENCIA** S.

MAXIMO, ALBERTO A. SARILI, IMELDA S. HIDALGO, all herein represented by CELSO A.
SARILI, Petitioners,
vs.
PEDRO F. LAGROSA, represented in this act by his Attorney-in-Fact LOURDES LABIOS
MOJICA, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on Certiorari1 are the Decision2 dated May 20, 2010 and Resolution3
dated August 26, 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 76258 which: (a) set aside the
Decision4 dated May 27, 2002 of the Regional Trial Court of Caloocan City, Branch 131 (RTC) in Civil
Case No. C-19152; (b) cancelled Transfer Certificate of Title (TCT) No. 2622185 in the name of Victorino
Sarili (Victorino) married to Isabel Amparo (Sps. Sarili); (c) reinstated TCT No. 559796 in the name of
respondent Pedro F. Lagrosa (respondent); and (d) awarded respondent moral damages, attorneys fees and
litigation expenses.

The Facts

On February 17, 2000, respondent, represented by his attorney-in-fact Lourdes Labios Mojica (Lourdes)
via a special power of attorney dated November 25, 19997 (November 25, 1999 SPA), filed a complaint8
against Sps. Sarili and the Register of Deeds of Caloocan City (RD) before the RTC, alleging, among
others, that he is the owner of a certain parcel of land situated in Caloocan City covered by TCT No. 55979
(subject property) and has been religiously paying the real estate taxes therefor since its acquisition on
November 29, 1974. Respondent claimed that he is a resident of California, USA, and that during his
vacation in the Philippines, he discovered that a new certificate of title to the subject property was issued by
the RD in the name of Victorino married to Isabel Amparo (Isabel), i.e., TCT No. 262218, by virtue of a
falsified Deed of Absolute Sale9 dated February 16, 1978 (February 16, 1978 deed of sale) purportedly
executed by him and his wife, Amelia U. Lagrosa (Amelia). He averred that the falsification of the said
deed of sale was a result of the fraudulent, illegal, and malicious acts committed by Sps. Sarili and the RD
in order to acquire the subject property and, as such, prayed for the annulment of TCT No. 262218, and that
Sps. Sarili deliver to him the possession of the subject property, or, in the alternative, that Sps. Sarili and
the RD jointly and severally pay him the amount of P1,000,000.00, including moral damages as well as
attorneys fees.10

In their answer,11 Sps. Sarili maintained that they are innocent purchasers for value, having purchased the
subject property from Ramon B. Rodriguez (Ramon), who possessed and presented a Special Power of
Attorney12 (subject SPA) to sell/dispose of the same, and, in such capacity, executed a Deed of Absolute
Sale13 dated November 20, 1992 (November 20, 1992 deed of sale) conveying the said property in their
favor. In this relation, they denied any participation in the preparation of the February 16, 1978 deed of
sale, which may have been merely devised by the "fixer" they hired to facilitate the issuance of the title in
their names.14 Further, they interposed a counterclaim for moral and exemplary damages, as well as
attorneys fees, for the filing of the baseless suit.15

During the pendency of the proceedings, Victorino passed away16 and was substituted by his heirs, herein
petitioners.17

The RTC Ruling

On May 27, 2002, the RTC rendered a Decision18 finding respondents signature on the subject SPA as
"the same and exact replica"19 of his signature in the November 25, 1999 SPA in favor of Lourdes.20
Thus, with Ramons authority having been established, it declared the November 20, 1992 deed of sale21
executed by the latter as "valid, genuine, lawful and binding"22 and, as such, had validly conveyed the
subject property in favor of Sps. Sarili. It further found that respondent "acted with evident bad faith and
malice" and was, therefore, held liable for moral and exemplary damages.23 Aggrieved, respondent
appealed to the CA.

The CA Ruling

In a Decision24 dated May 20, 2010, the CA granted respondents appeal and held that the RTC erred in its
ruling since the November 20, 1992 deed of sale, which the RTC found "as valid and genuine," was not the
source document for the transfer of the subject property and the issuance of TCT No. 262218 in the name
of Sps. Sarili25 but rather the February 16, 1978 deed of sale, the fact of which may be gleaned from the
Affidavit of Late Registration26 executed by Isabel (affidavit of Isabel). Further, it found that respondent w
as "not only able to preponderate his claim over the subject property, but [has] likewise proved that his and
his wifes signatures in the [February 16, 1978 deed of sale] x x x were forged."27 "[A] comparison by the
naked eye of the genuine signature of [respondent] found in his [November 25, 1999 SPA] in favor of
[Lourdes], and those of his falsified signatures in [the February 16, 1978 deed of sale] and [the subject
SPA] shows that they are not similar."28 It also observed that "[t]he testimony of [respondent] denying the
authenticity of his purported signature with respect to the [February 16, 1978 deed of sale] was not rebutted
x x x."29 In fine, the CA declared the deeds of sale dated February 16, 1978 and November 20, 1992, as
well as the subject SPA as void, and consequently ordered the RD to cancel TCT No. 262218 in the name
of Victorino married to Isabel, and consequently reinstate TCT No. 55979 in respondents name.
Respondents claims for moral damages and attorneys fees/litigation expenses were also granted by the
CA.30

Dissatisfied, petitioners moved for reconsideration which was, however, denied in a Resolution31 dated
August 26, 2010, hence, the instant petition.

The Issues Before the Court

The main issue in this case is whether or not there was a valid conveyance of the subject property to Sps.
Sarili. The resolution of said issue would then determine, among others, whether or not: (a) TCT No.
262218 in the name of Victorino married to Isabel should be annulled; and (b) TCT No. 55979 in
respondents name should be reinstated.

The Courts Ruling

The petition lacks merit.

Petitioners essentially argue that regardless of the fictitious February 16, 1978 deed of sale, there was still a
valid conveyance of the subject property to Sps. Sarili who relied on the authority of Ramos (as per the
subject SPA) to sell the same. They posit that the due execution of the subject SPA between respondent and
Ramon and, subsequently, the November 20, 1992 deed of sale between Victorino and Ramon were duly
established facts and that from the authenticity and genuineness of these documents, a valid conveyance of
the subject land from respondent to Victorino had leaned upon.32

The Court is not persuaded.

It is well-settled that even if the procurement of a certificate of title was tainted with fraud and
misrepresentation, such defective title may be the source of a completely legal and valid title in the hands
of an innocent purchaser for value. Where innocent third persons, relying on the correctness of the
certificate of title thus issued, acquire rights over the property, the court cannot disregard such rights and
order the total cancellation of the certificate. The effect of such an outright cancellation would be to impair
public confidence in the certificate of title, for everyone dealing with property registered under the Torrens
system would have to inquire in every instance whether the title has been regularly or irregularly issued.
This is contrary to the evident purpose of the law.33

The general rule is that every person dealing with registered land may safely rely on the correctness of the
certificate of title issued therefor and the law will in no way oblige him to go beyond the certificate to
determine the condition of the property. Where there is nothing in the certificate of title to indicate any
cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not required to
explore further than what the Torrens Title upon its face indicates in quest for any hidden defects or
inchoate right that may subsequently defeat his right thereto.34,

However, a higher degree of prudence is required from one who buys from a person who is not the
registered owner, although the land object of the transaction is registered. In such a case, the buyer is
expected to examine not only the certificate of title but all factual circumstances necessary for him to
determine if there are any flaws in the title of the transferor.35 The buyer also has the duty to ascertain the
identity of the person with whom he is dealing with and the latters legal authority to convey the
property.36

The strength of the buyers inquiry on the sellers capacity or legal authority to sell depends on the proof of
capacity of the seller. If the proof of capacity consists of a special power of attorney duly notarized, mere
inspection of the face of such public document already constitutes sufficient inquiry. If no such special
power of attorney is provided or there is one but there appears to be flaws in its notarial acknowledgment,
mere inspection of the document will not do; the buyer must show that his investigation went beyond the
document and into the circumstances of its execution.37

In the present case, it is undisputed that Sps. Sarili purchased the subject property from Ramos on the
strength of the latters ostensible authority to sell under the subject SPA. The said document, however,
readily indicates flaws in its notarial acknowledgment since the respondents community tax certificate
(CTC) number was not indicated thereon. Under the governing rule on notarial acknowledgments at that
time,38 i.e., Section 163(a) of Republic Act No. 7160, otherwise known as the "Local Government Code of
1991," when an individual subject to the community tax acknowledges any document before a notary
public, it shall be the duty of the administering officer to require such individual to exhibit the community
tax certificate.39 Despite this irregularity, however, Sps. Sarili failed to show that they conducted an
investigation beyond the subject SPA and into the circumstances of its execution as required by prevailing
jurisprudence. Hence, Sps. Sarili cannot be considered as innocent purchasers for value.

The defective notarization of the subject SPA also means that the said document should be treated as a
private document and thus examined under the parameters of Section 20, Rule 132 of the Rules of Court
which provides that "before any private document offered as authentic is received in evidence, its due
execution and authenticity must be proved either: (a) by anyone who saw the document executed or
written; or (b) by evidence of the genuineness of the signature or handwriting of the maker x x x." Settled is
the rule that a defective notarization will strip the document of its public character and reduce it to a private
instrument, and the evidentiary standard of its validity shall be based on preponderance of evidence.40

The due execution and authenticity of the subject SPA are of great significance in determining the validity
of the sale entered into by Victorino and Ramon since the latter only claims to be the agent of the purported
seller (i.e., respondent). Article 1874 of the Civil Code provides that "[w]hen a sale of a piece of land or
any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale
shall be void." In other words, if the subject SPA was not proven to be duly executed and authentic, then it
cannot be said that the foregoing requirement had been complied with; hence, the sale would be void.
After a judicious review of the case, taking into consideration the divergent findings of the RTC and the
CA on the matter,41 the Court holds that the due execution and authenticity of the subject SPA were not
sufficiently established under Section 20, Rule 132 of the Rules of Court as above-cited.

While Ramon identified the signature of respondent on the subject SPA based on his alleged familiarity
with the latters signature,42 he, however, stated no basis for his identification of the signatures of
respondents wife Amelia and the witness, Evangeline F. Murral,43 and even failed to identify the other
witness,44 who were also signatories to the said document. In other words, no evidence was presented to
authenticate the signatures of the other signatories of the subject SPA outside from respondent.45

Besides, as the CA correctly observed, respondents signature appearing on the subject SPA is not
similar46 to his genuine signature appearing in the November 25, 1999 SPA in favor of Lourdes,47
especially the signature appearing on the left margin of the first page.48

Unrebutted too is the testimony of respondent who, during trial, attested to the fact that he and his wife,
Amelia, had immigrated to the USA since 1968 and therefore could not have signed the subject SPA due to
their absence.49

Further, records show that the notary public, Atty. Ramon S. Untalan, failed to justify why he did not
require the presentation of respondents CTC or any other competent proof of the identity of the person
who appeared before him to acknowledge the subject SPA as respondents free and voluntary act and deed
despite the fact that he did not personally know the latter and that he met him for the first time during the
notarization.50 He merely relied on the representations of the person before him51 and the bank officer
who accompanied the latter to his office,52 and further explained that the reason for the omission of the
CTC was "because in [a] prior document, [respondent] has probably given us already his residence
certificate."53 This "prior document," was not, however, presented during the proceedings below, nor the
CTC number ever identified.

Thus, in light of the totality of evidence at hand, the Court agrees with the CAs conclusion that respondent
was able to preponderate his claims of forgery against the subject SPA.54 In view of its invalidity, the
November 20, 1992 sale relied on by Sps. Sarili to prove their title to the subject property is therefore
void.1wphi1

At this juncture, it is well to note that it was, in fact, the February 16, 1978 deed of sale which as the CA
found was actually the source of the issuance of TCT No. 262218. Nonetheless, this document was
admitted to be also a forgery.55 Since Sps. Sarilis claim over the subject property is based on forged
documents, no valid title had been transferred to them (and, in turn, to petitioners). Verily, when the
instrument presented is forged, even if accompanied by the owners duplicate certificate of title, the
registered owner does not thereby lose his title, and neither does the assignee in the forged deed acquire any
right or title to the property.56 Accordingly, TCT No. 262218 in the name of Victorino married to Isabel
should be annulled, while TCT No. 55979 in the name of respondent should be reinstated.

Anent the award of moral damages, suffice it to say that the dispute over the subject property had caused
respondent serious anxiety, mental anguish and sleepless nights, thereby justifying the aforesaid award.57
Likewise, since respondent was constrained to engage the services of counsel to file this suit and defend his
interests, the awards of attorneys fees and litigation expenses are also sustained.58

The Court, however, finds a need to remand the case to the court a quo in order to determine the rights and
obligations of the parties with respect to the house Sps. Sarili had built59 on the subject property in bad
faith in accordance with Article 449 in relation to Articles 450, 451, 452, and the first paragraph of Article
546 of the Civil Code which respectively read as follows:

ART. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or
sown without right to indemnity.
ART. 450. The owner of the land on which anything has been built, planted or sown in bad faith may
demand the demolition of the work, or that the planting or sowing be removed, in order to replace things in
their former condition at the expense of the person who built, planted or sowed; or he may compel the
builder or planter to pay the price of the land, and the sower the proper rent.

ART. 451. In the cases of the two preceding articles, the landowner is entitled to damages from the builder,
planter or sower.

ART. 452. The builder, planter or sower in bad faith is entitled to reimbursement for the necessary
expenses of preservation of the land.

ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith
may retain the thing until he has been reimbursed therefor. (Emphases and underscoring supplied)

To be deemed a builder in good faith, it is essential that a person asserts title to the land on which he builds,
i.e. , that he be a possessor in concept of owner, and that he be unaware that there exists in his title or mode
of acquisition any flaw which invalidates it.60 Good faith is an intangible and abstract quality with no
technical meaning or statutory definition, and it encompasses, among other things, an honest belief, the
absence of malice and the absence of design to defraud or to seek an unconscionable advantage. It implies
honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon
inquiry.61 As for Sps. Sarili, they knew or at the very least, should have known from the very
beginning that they were dealing with a person who possibly had no authority to sell the subject property
considering the palpable irregularity in the subject SPAs acknowledgment. Yet, relying solely on said
document and without any further investigation on Ramoss capacity to sell Sps. Sarili still chose to
proceed with its purchase and even built a house thereon. Based on the foregoing it cannot be seriously
doubted that Sps. Sarili were actually aware of a flaw or defect in their title or mode of acquisition and have
consequently built the house on the subject property in bad faith under legal contemplation. The case is
therefore remanded to the court a quo for the proper application of the above-cited Civil Code provisions.

WHEREFORE, the petition is DENIED. The Decision dated May 20, 2010 and Resolution dated August
26, 2010 of the Court of Appeals in CA-G.R. CV No. 76258 are AFFIRMED. However the case is
REMANDED to the court a quo for the proper application of Article 449 in relation to Articles 450 451
452 and the first paragraph of Article 546 of the Civil Code with respect to the house Spouses Victorino
Sarili and Isabel Amparo had built on the subject property as herein discussed.

G.R. No. 179625 February 24, 2014

NICANORA G. BUCTON (deceased), substituted by REQUILDA B. YRAY, Petitioner,
vs.
RURAL BANK OF EL SALVADOR, INC., MISAMIS ORIENTAL, and REYNALDO CUYONG,
Respondents,
vs.
ERLINDA CONCEPCION AND HER HUSBAND AND AGNES BUCTON LUGOD, Third Party
Defendants.

DECISION
DEL CASTILLO, J.:

A mortgage executed by an authorized agent who signed in his own name without indicating that
he acted for and on behalf of his principal binds only the agent and not the principal.

This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the August 17,
2005 Decision2 and the June 7, 2007 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No.
60841.

Factual Antecedents

On April 29, 1988, petitioner Nicanora G. Bucton filed with the Regional Trial Court (RTC) of
Cagayan de Oro a case4 for Annulment of Mortgage, Foreclosure, and Special Power of Attorney
(SPA) against Erlinda Concepcion (Concepcion) and respondents Rural Bank of El Salvador,
Misamis Oriental, and Sheriff Reynaldo Cuyong.5

Petitioner alleged that she is the owner of a parcel of land, covered by Transfer Certificate of
Title (TCT) No. T-3838, located in Cagayan de Oro City;6 that on June 6, 1982, Concepcion
borrowed the title on the pretext that she was going to show it to an interested buyer;7 that
Concepcion obtained a loan in the amount of P30,000.00 from respondent bank;8 that as security
for the loan, Concepcion mortgaged petitioners house and lot to respondent bank using a SPA9
allegedly executed by petitioner in favor of Concepcion;10 that Concepcion failed to pay the
loan;11 that petitioners house and lot were foreclosed by respondent sheriff without a Notice of
Extra-Judicial Foreclosure or Notice of Auction Sale;12 and that petitioners house and lot were
sold in an auction sale in favor of respondent bank.13

Respondent bank filed an Answer14 interposing lack of cause of action as a defense.15 It denied
the allegation of petitioner that the SPA was forged16 and averred that on June 22, 1987,
petitioner went to the bank and promised to settle the loan of Concepcion before September 30,
1987.17 As to the alleged irregularities in the foreclosure proceedings, respondent bank asserted
that it complied with the requirements of the law in foreclosing the house and lot.18 By way of
cross-claim, respondent bank prayed that in the event of an adverse judgment against it,
Concepcion, its co-defendant, be ordered to indemnify it for all damages.19

However, since summons could not be served upon Concepcion, petitioner moved to drop her as
a defendant,20 which the RTC granted in its Order dated October 19, 1990.21

This prompted respondent bank to file a Third-Party Complaint22 against spouses Concepcion
and Agnes Bucton Lugod (Lugod), the daughter of petitioner. Respondent bank claimed that it
would not have granted the loan and accepted the mortgage were it not for the assurance of
Concepcion and Lugod that the SPA was valid.23 Thus, respondent bank prayed that in case it be
adjudged liable, it should be reimbursed by third-party defendants.24
On January 30, 1992, spouses Concepcion were declared in default for failing to file a responsive
pleading.25

During the trial, petitioner testified that a representative of respondent bank went to her house
to inform her that the loan secured by her house and lot was long overdue.26 Since she did not
mortgage any of her properties nor did she obtain a loan from respondent bank, she decided to
go to respondent bank on June 22, 1987 to inquire about the matter.27 It was only then that she
discovered that her house and lot was mortgaged by virtue of a forged SPA.28 She insisted that
her signature and her husbands signature on the SPA were forged29 and that ever since she got
married, she no longer used her maiden name, Nicanora Gabar, in signing documents.30
Petitioner also denied appearing before the notary public, who notarized the SPA.31 She also
testified that the property referred to in the SPA, TCT No. 3838, is a vacant lot and that the
house, which was mortgaged and foreclosed, is covered by a different title, TCT No. 3839.32
To support her claim of forgery, petitioner presented Emma Nagac who testified that when she
was at Concepcions boutique, she was asked by the latter to sign as a witness to the SPA;33
that when she signed the SPA, the signatures of petitioner and her husband had already been
affixed;34 and that Lugod instructed her not to tell petitioner about the SPA.35

Respondent bank, on the other hand, presented the testimonies of its employees36 and
respondent sheriff. Based on their testimonies, it appears that on June 8, 1982, Concepcion
applied for a loan for her coconut production business37 in the amount of P40,000.00 but only
the amount of P30,000.00 was approved;38 that she offered as collateral petitioners house and
lot using the SPA;39 and that the proceeds of the loan were released to Concepcion and Lugod
on June 11, 1982.40

Edwin Igloria, the bank appraiser, further testified that Concepcion executed a Real Estate
Mortgage41 over two properties, one registered in the name of petitioner and the other under
the name of a certain Milagros Flores.42 He said that he inspected petitioners property;43 that
there were several houses in the compound;44 and although he was certain that the house
offered as collateral was located on the property covered by TCT No. 3838, he could not explain
why the house that was foreclosed is located on a lot covered by another title, not included in
the Real Estate Mortgage.45

Ruling of the Regional Trial Court

On February 23, 1998, the RTC issued a Decision46 sustaining the claim of petitioner that the
SPA was forged as the signatures appearing on the SPA are different from the genuine signatures
presented by petitioner.47 The RTC opined that the respondent bank should have conducted a
thorough inquiry on the authenticity of the SPA considering that petitioners residence certificate
was not indicated in the acknowledgement of the SPA.48 Thus, the RTC decreed:

WHEREFORE, the court hereby declares null and void or annuls the following:

1. The special power of attorney which was purportedly executed by [petitioner] x x x;

2. The real estate mortgage x x x

3. The sheriffs sale of Lot No. 2078-B-1-E, and the certificate of title issued in favor of the Rural
Bank of El Salavador [by] virtue thereof, as well as the sheriffs sale of the two[-]story house
described in the real estate mortgage.

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

On reconsideration,50 the RTC in its May 8, 1998 Resolution51 rendered judgment on the Third-
Party Complaint filed by respondent bank, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered under the third-party complaint and against third-
party defendants Erlinda Concepcion and her husband:
To indemnify or reimburse [respondent bank] all sums of money plus interests thereon or
damages that [respondent bank] has in this case been forced to pay, disburse or deliver to
[petitioner] including the costs.
SO ORDERED.52

Ruling of the Court of Appeals

Dissatisfied, respondent bank elevated the case to the CA arguing that the SPA was not forged53
and that being a notarized document, it enjoys the presumption of regularity.54 Petitioner, on
the other hand, maintained that the signatures were forged55 and that she cannot be made
liable as both the Promissory Note56 and the Real Estate Mortgage, which were dated June 11,
1982, were signed by Concepcion in her own personal capacity.57

On August 17, 2005, the CA reversed the findings of the RTC. The CA found no cogent reason to
invalidate the SPA, the Real Estate Mortgage, and Foreclosure Sale as it was not convinced that
the SPA was forged. The CA declared that although the Promissory Note and the Real Estate
Mortgage did not indicate that Concepcion was signing for and on behalf of her principal,
petitioner is estopped from denying liability since it was her negligence in handing over her title
to Concepcion that caused the loss.58 The CA emphasized that under the Principle of Equitable
Estoppel, where one or two innocent persons must suffer a loss, he who by his conduct made the
loss possible must bear it.59

Thus:

WHEREFORE, the above premises considered, the Decision and the Resolution of the Regional
Trial Court (RTC), 10th Judicial Region, Br. 19 of Cagayan de Oro City in Civil Case No. 88-113 is
hereby REVERSED and SET ASIDE. The Second Amended Complaint of Nicanora Bucton is
DISMISSED. Accordingly, the following are declared VALID:

1. The Special Power of Attorney of Nicanora Gabar in favor of Erlinda Concepcion, dated
June 7, 1982;

2. The Real Estate Mortgage, the foreclosure of the same, and the foreclosure sale to the
Rural Bank of El Salvador, Misamis Oriental; and

3. The certificate of title issued to the Rural Bank of El Salavador, Misamis Oriental as a
consequence of the foreclosure sale.

Costs against [petitioner].

SO ORDERED.60
Petitioner moved for reconsideration61 but the same was denied by the CA in its June 7, 2007
Resolution.62
Issues
Hence, this recourse by petitioner raising the following issues:

FIRST

X X X WHETHER X X X THE [CA] WAS RIGHT IN DECLARING THE PETITIONER LIABLE ON THE
LITIGATED LOAN/MORTGAGE WHEN (i) SHE DID NOT EXECUTE EITHER IN PERSON OR BY
ATTORNEY-IN-FACT SUBJECT MORTGAGE; (ii) IT WAS EXECUTED BY CONCEPCION IN HER
PERSONAL CAPACITY AS MORTGAGOR, AND (iii) THE LOAN SECURED BY THE MORTGAGE WAS
CONCEPCIONS EXCLUSIVE LOAN FOR HER OWN COCONUT PRODUCTION

SECOND

X X X WHETHER X X X UNDER ARTICLE 1878 (NEW CIVIL CODE) THE [CA] WAS RIGHT IN
MAKING PETITIONER A SURETY PRIMARILY ANSWERABLE FOR CONCEPCIONS PERSONAL
LOAN, IN THE ABSENCE OF THE REQUIRED [SPA]

THIRD

WHETHER X X X THE [CA] WAS RIGHT WHEN IT RULED THAT PETITIONERS DECLARATIONS
ARE SELF-SERVING TO JUSTIFY ITS REVERSAL OF THE TRIAL COURTS JUDGMENT, IN THE
FACE OF THE RESPONDENTS DOCUMENTARY EVIDENCES X X X, WHICH INCONTROVERTIBLY
PROVED THAT PETITIONER HAS ABSOLUTELY NO PARTICIPATION OR LIABILITY ON THE
LITIGATED LOAN/MORTGAGE

FOURTH

WHETHER X X X THE [CA] WAS RIGHT WHEN IT FOUND THAT IT WAS PETITIONERS
NEGLIGENCE WHICH MADE THE LOSS POSSIBLE, DESPITE [THE FACT] THAT SHE HAS NO PART
IN [THE] SUBJECT LOAN/MORTGAGE, THE BANKS [FAILURE] TO CONDUCT CAREFUL
EXAMINATION OF APPLICANTS TITLE AS WELL AS PHYSICAL INVESTIGATION OF THE LAND
OFFERED AS SECURITY, AND TO INQUIRE AND DISCOVER UPON ITS OWN PERIL THE AGENTS
AUTHORITY, ALSO ITS INORDINATE HASTE IN THE PROCESSING, EVALUATION AND APPROVAL
OF THE LOAN.

FIFTH

WHETHER X X X THE [CA] WAS RIGHT WHEN IT DISREGARDED THE FALSE TESTIMONY OF THE
[RESPONDENT] BANKS EMPLOYEE, [WHEN HE DECLARED] THAT HE CONDUCTED ACTUAL
INSPECTION OF THE MORTGAGED PROPERTY AND INVESTIGATION WHERE HE ALLEGEDLY
VERIFIED THE QUESTIONED SPA.

SIXTH

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

Petitioners Arguments

Petitioner maintains that the signatures in the SPA were forged64 and that she could not be held
liable for the loan as it was obtained by Concepcion in her own personal capacity, not as an
attorney-in-fact of petitioner.65 She likewise denies that she was negligent and that her
negligence caused the damage.66 Instead, she puts the blame on respondent bank as it failed to
carefully examine the title and thoroughly inspect the property.67 Had it done so, it would have
discovered that the house and lot mortgaged by Concepcion are covered by two separate
titles.68 Petitioner further claims that respondent sheriff failed to show that he complied with the
requirements of notice and publication in foreclosing her house and lot.69

Respondent banks Arguments

Respondent bank, on the other hand, relies on the presumption of regularity of the notarized
SPA.70 It insists that it was not negligent as it inspected the property before it approved the
loan,71 unlike petitioner who was negligent in entrusting her title to Concepcion.72 As to the
foreclosure proceedings, respondent bank contends that under the Rural Bank Act, all loans
whose principal is below P100,000.00 are exempt from publication.73 Hence, the posting of the
Notice of Foreclosure in the places defined by the rules was sufficient.74 Besides, respondent
sheriff is presumed to have regularly performed his work.75

Our Ruling

The Petition is meritorious.

The Real Estate Mortgage was entered
into by Concepcion in her own personal
capacity.

As early as the case of Philippine Sugar Estates Development Co. v. Poizat,76 we already ruled
that "in order to bind the principal by a deed executed by an agent, the deed must upon its face
purport to be made, signed and sealed in the name of the principal."77 In other words, the mere
fact that the agent was authorized to mortgage the property is not sufficient to bind the principal,
unless the deed was executed and signed by the agent for and on behalf of his principal. This
ruling was adhered to and reiterated with consistency in the cases of Rural Bank of Bombon
(Camarines Sur), Inc. v. Court of Appeals,78 Gozun v. Mercado,79 and Far East Bank and Trust
Company (Now Bank of the Philippine Island) v. Cayetano.80

In Philippine Sugar Estates Development Co., the wife authorized her husband to obtain a loan
and to secure it with mortgage on her property. Unfortunately, although the real estate mortgage
stated that it was executed by the husband in his capacity as attorney-in-fact of his wife, the
husband signed the contract in his own name without indicating that he also signed it as the
attorney-in-fact of his wife.

In Rural Bank of Bombon, the agent contracted a loan from the bank and executed a real estate
mortgage. However, he did not indicate that he was acting on behalf of his principal.

In Gozun, the agent obtained a cash advance but signed the receipt in her name alone, without
any indication that she was acting for and on behalf of her principal.

In Far East Bank and Trust Company, the mother executed an SPA authorizing her daughter to
contract a loan from the bank and to mortgage her properties. The mortgage, however, was
signed by the daughter and her husband as mortgagors in their individual capacities, without
stating that the daughter was executing the mortgage for and on behalf of her mother.

Similarly, in this case, the authorized agent failed to indicate in the mortgage that she was acting
for and on behalf of her principal. The Real Estate Mortgage, explicitly shows on its face, that it
was signed by Concepcion in her own name and in her own personal capacity. In fact, there is
nothing in the document to show that she was acting or signing as an agent of petitioner. Thus,
consistent with the law on agency and established jurisprudence, petitioner cannot be bound by
the acts of Concepcion.

In light of the foregoing, there is no need to delve on the issues of forgery of the SPA and the
nullity of the foreclosure sale. For even if the SPA was valid, the Real Estate Mortgage would still
not bind petitioner as it was signed by Concepcion in her personal capacity and not as an agent
of petitioner. Simply put, the Real Estate Mortgage is void and unenforceable against petitioner.

Respondent bank was negligent.

At this point, we find it significant to mention that respondent bank has no one to blame but
itself.1wphi1 Not only did it act with undue haste when it granted and released the loan in less
than three days, it also acted negligently in preparing the Real Estate Mortgage as it failed to
indicate that Concepcion was signing it for and on behalf of petitioner. We need not belabor that
the words "as attorney-in-fact of," "as agent of," or "for and on behalf of," are vital in order for
the principal to be bound by the acts of his agent. Without these words, any mortgage, although
signed by the agent, cannot bind the principal as it is considered to have been signed by the
agent in his personal capacity.

Respondent bank is liable to pay

petitioner attorneys fees, and the costs
of the suit.

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

Concepcion is liable to pay respondent

bank her unpaid obligation and
reimburse it for all damages, attorneys
fees and costs of suit.

Concepcion, on the other hand, is liable to pay respondent bank her unpaid obligation under the
Promissory Note dated June 11, 1982, with interest. As we have said, Concepcion signed the
Promissory Note in her own personal capacity; thus, she cannot escape liability. She is also liable
to reimburse respondent bank for all damages, attorneys' fees, and costs the latter is adjudged
to pay petitioner in this case.
G.R. No. 161757 January 25, 2006

SUNACE INTERNATIONAL MANAGEMENT SERVICES, INC.Petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, Second Division; HON. ERNESTO S.
DINOPOL, in his capacity as Labor Arbiter, NLRC; NCR, Arbitration Branch, Quezon City and
DIVINA A. MONTEHERMOZO, Respondents.

DECISION

CARPIO MORALES, J.:

Petitioner, Sunace International Management Services (Sunace), a corporation duly organized and existing
under the laws of the Philippines, deployed to Taiwan Divina A. Montehermozo (Divina) as a domestic
helper under a 12-month contract effective February 1, 1997.1 The deployment was with the assistance of a
Taiwanese broker, Edmund Wang, President of Jet Crown International Co., Ltd.

After her 12-month contract expired on February 1, 1998, Divina continued working for her Taiwanese
employer, Hang Rui Xiong, for two more years, after which she returned to the Philippines on February 4,
2000.

Shortly after her return or on February 14, 2000, Divina filed a complaint2 before the National Labor
Relations Commission (NLRC) against Sunace, one Adelaide Perez, the Taiwanese broker, and the
employer-foreign principal alleging that she was jailed for three months and that she was underpaid.

The following day or on February 15, 2000, Labor Arbitration Associate Regina T. Gavin issued
Summons3 to the Manager of Sunace, furnishing it with a copy of Divinas complaint and directing it to
appear for mandatory conference on February 28, 2000.

The scheduled mandatory conference was reset. It appears to have been concluded, however.

On April 6, 2000, Divina filed her Position Paper 4 claiming that under her original one-year contract and
the 2-year extended contract which was with the knowledge and consent of Sunace, the following amounts
representing income tax and savings were deducted:

Year Deduction for Income Tax Deduction for Savings

1997 NT10,450.00 NT23,100.00
1998 NT9,500.00 NT36,000.00
1999 NT13,300.00 NT36,000.00;5

and while the amounts deducted in 1997 were refunded to her, those deducted in 1998 and 1999 were not.
On even date, Sunace, by its Proprietor/General Manager Maria Luisa Olarte, filed its Verified Answer and
Position Paper,6 claiming as follows, quoted verbatim:

COMPLAINANT IS NOT ENTITLED FOR THE REFUND OF HER 24 MONTHS SAVINGS

3. Complainant could not anymore claim nor entitled for the refund of her 24 months savings as she already
took back her saving already last year and the employer did not deduct any money from her salary, in
accordance with a Fascimile Message from the respondent SUNACEs employer, Jet Crown International
Co. Ltd., a xerographic copy of which is herewith attached as ANNEX "2" hereof;
COMPLAINANT IS NOT ENTITLED TO REFUND OF HER 14 MONTHS TAX AND PAYMENT
OF ATTORNEYS FEES

4. There is no basis for the grant of tax refund to the complainant as the she finished her one year contract
and hence, was not illegally dismissed by her employer. She could only lay claim over the tax refund or
much more be awarded of damages such as attorneys fees as said reliefs are available only when the
dismissal of a migrant worker is without just valid or lawful cause as defined by law or contract.

The rationales behind the award of tax refund and payment of attorneys fees is not to enrich the
complainant but to compensate him for actual injury suffered. Complainant did not suffer injury, hence,
does not deserve to be compensated for whatever kind of damages.

Hence, the complainant has NO cause of action against respondent SUNACE for monetary claims,
considering that she has been totally paid of all the monetary benefits due her under her Employment
Contract to her full satisfaction.

6. Furthermore, the tax deducted from her salary is in compliance with the Taiwanese law, which
respondent SUNACE has no control and complainant has to obey and this Honorable Office has no
authority/jurisdiction to intervene because the power to tax is a sovereign power which the Taiwanese
Government is supreme in its own territory. The sovereign power of taxation of a state is recognized under
international law and among sovereign states.

7. That respondent SUNACE respectfully reserves the right to file supplemental Verified Answer and/or
Position Paper to substantiate its prayer for the dismissal of the above case against the herein respondent.
AND BY WAY OF -

x x x x (Emphasis and underscoring supplied)

Reacting to Divinas Position Paper, Sunace filed on April 25, 2000 an ". . . answer to complainants
position paper"7 alleging that Divinas 2-year extension of her contract was without its knowledge and
consent, hence, it had no liability attaching to any claim arising therefrom, and Divina in fact executed a
Waiver/Quitclaim and Release of Responsibility and an Affidavit of Desistance, copy of each document
was annexed to said ". . . answer to complainants position paper."

To Sunaces ". . . answer to complainants position paper," Divina filed a 2-page reply,8 without, however,
refuting Sunaces disclaimer of knowledge of the extension of her contract and without saying anything
about the Release, Waiver and Quitclaim and Affidavit of Desistance.

The Labor Arbiter, rejected Sunaces claim that the extension of Divinas contract for two more years was
without its knowledge and consent in this wise:

We reject Sunaces submission that it should not be held responsible for the amount withheld because her
contract was extended for 2 more years without its knowledge and consent because as Annex "B"9 shows,
Sunace and Edmund Wang have not stopped communicating with each other and yet the matter of the
contracts extension and Sunaces alleged non-consent thereto has not been categorically established.

What Sunace should have done was to write to POEA about the extension and its objection thereto, copy
furnished the complainant herself, her foreign employer, Hang Rui Xiong and the Taiwanese broker,
Edmund Wang.

And because it did not, it is presumed to have consented to the extension and should be liable for anything
that resulted thereform (sic).10 (Underscoring supplied)
The Labor Arbiter rejected too Sunaces argument that it is not liable on account of Divinas execution of a
Waiver and Quitclaim and an Affidavit of Desistance. Observed the Labor Arbiter:

Should the parties arrive at any agreement as to the whole or any part of the dispute, the same shall be
reduced to writing and signed by the parties and their respective counsel (sic), if any, before the Labor
Arbiter.

The settlement shall be approved by the Labor Arbiter after being satisfied that it was voluntarily entered
into by the parties and after having explained to them the terms and consequences thereof.

A compromise agreement entered into by the parties not in the presence of the Labor Arbiter before whom
the case is pending shall be approved by him, if after confronting the parties, particularly the complainants,
he is satisfied that they understand the terms and conditions of the settlement and that it was entered into
freely voluntarily (sic) by them and the agreement is not contrary to law, morals, and public policy.

And because no consideration is indicated in the documents, we strike them down as contrary to law,
morals, and public policy.11

He accordingly decided in favor of Divina, by decision of October 9, 2000, 12 the dispositive portion of
which reads:

Wherefore, judgment is hereby rendered ordering respondents SUNACE INTERNATIONAL SERVICES

and its owner ADELAIDA PERGE, both in their personal capacities and as agent of Hang Rui
Xiong/Edmund Wang to jointly and severally pay complainant DIVINA A. MONTEHERMOZO the sum
of NT91,950.00 in its peso equivalent at the date of payment, as refund for the amounts which she is hereby
adjudged entitled to as earlier discussed plus 10% thereof as attorneys fees since compelled to litigate,
complainant had to engage the services of counsel.

SO ORDERED.13 (Underescoring supplied)

On appeal of Sunace, the NLRC, by Resolution of April 30, 2002, 14 affirmed the Labor Arbiters decision.

Via petition for certiorari,15 Sunace elevated the case to the Court of Appeals which dismissed it outright by
Resolution of November 12, 2002,16 the full text of which reads:

The petition for certiorari faces outright dismissal.

The petition failed to allege facts constitutive of grave abuse of discretion on the part of the public
respondent amounting to lack of jurisdiction when the NLRC affirmed the Labor Arbiters finding that
petitioner Sunace International Management Services impliedly consented to the extension of the contract
of private respondent Divina A. Montehermozo. It is undisputed that petitioner was continually
communicating with private respondents foreign employer (sic). As agent of the foreign principal,
"petitioner cannot profess ignorance of such extension as obviously, the act of the principal extending
complainant (sic) employment contract necessarily bound it." Grave abuse of discretion is not present
in the case at bar.

ACCORDINGLY, the petition is hereby DENIED DUE COURSE and DISMISSED.17

SO ORDERED.

(Emphasis on words in capital letters in the original; emphasis on words in small letters and underscoring
supplied)
Its Motion for Reconsideration having been denied by the appellate court by Resolution of January 14,
2004,18 Sunace filed the present petition for review on certiorari.

The Court of Appeals affirmed the Labor Arbiter and NLRCs finding that Sunace knew of and impliedly
consented to the extension of Divinas 2-year contract. It went on to state that "It is undisputed that
[Sunace] was continually communicating with [Divinas] foreign employer." It thus concluded that "[a]s
agent of the foreign principal, petitioner cannot profess ignorance of such extension as obviously, the act
of the principal extending complainant (sic) employment contract necessarily bound it."

Contrary to the Court of Appeals finding, the alleged continuous communication was with the Taiwanese
broker Wang, not with the foreign employer Xiong.

The February 21, 2000 telefax message from the Taiwanese broker to Sunace, the only basis of a finding of
continuous communication, reads verbatim:

Regarding to Divina, she did not say anything about her saving in police station. As we contact
with her employer, she took back her saving already last years. And they did not deduct any
money from her salary. Or she will call back her employer to check it again. If her employer said
yes! we will get it back for her.

Thank you and best regards.

(Sgd.)
EdmundWang
President19

The finding of the Court of Appeals solely on the basis of the above-quoted telefax message, that Sunace
continually communicated with the foreign "principal" (sic) and therefore was aware of and had consented
to the execution of the extension of the contract is misplaced. The message does not provide evidence that
Sunace was privy to the new contract executed after the expiration on February 1, 1998 of the original
contract. That Sunace and the Taiwanese broker communicated regarding Divinas allegedly withheld
savings does not necessarily mean that Sunace ratified the extension of the contract. As Sunace points out
in its Reply20 filed before the Court of Appeals,

As can be seen from that letter communication, it was just an information given to the petitioner that the
private respondent had t[aken] already her savings from her foreign employer and that no deduction was
made on her salary. It contains nothing about the extension or the petitioners consent thereto.21

Parenthetically, since the telefax message is dated February 21, 2000, it is safe to assume that it was sent to
enlighten Sunace who had been directed, by Summons issued on February 15, 2000, to appear on February
28, 2000 for a mandatory conference following Divinas filing of the complaint on February 14, 2000.

Respecting the Court of Appeals following dictum:

As agent of its foreign principal, [Sunace] cannot profess ignorance of such an extension as obviously, the
act of its principal extending [Divinas] employment contract necessarily bound it,22

it too is a misapplication, a misapplication of the theory of imputed knowledge.

The theory of imputed knowledge ascribes the knowledge of the agent, Sunace, to the principal, employer
Xiong, not the other way around.23 The knowledge of the principal-foreign employer cannot, therefore,
be imputed to its agent Sunace.
There being no substantial proof that Sunace knew of and consented to be bound under the 2-year
employment contract extension, it cannot be said to be privy thereto. As such, it and its "owner" cannot be
held solidarily liable for any of Divinas claims arising from the 2-year employment extension. As the New
Civil Code provides,

Contracts take effect only between the parties, their assigns, and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision
of law.24

Furthermore, as Sunace correctly points out, there was an implied revocation of its agency relationship with
its foreign principal when, after the termination of the original employment contract, the foreign principal
directly negotiated with Divina and entered into a new and separate employment contract in Taiwan.
Article 1924 of the New Civil Code reading

The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly
with third persons.

thus applies.

In light of the foregoing discussions, consideration of the validity of the Waiver and Affidavit of Desistance
which Divina executed in favor of Sunace is rendered unnecessary.