G.R. No.

L-57339 December 29, 1983 Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7 May 1971 on board AIR
FRANCE Flight 184 for Osaka, Japan. There is no question with respect to this leg of the trip.
AIR FRANCE, petitioner,
vs. However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to honor the tickets because of
HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA A. GANA, RAMON GANA, their expiration, and the GANAS had to purchase new tickets. They encountered the same difficulty with respect
MANUEL GANA, MARIA TERESA GANA, ROBERTO GANA, JAIME JAVIER GANA, CLOTILDE VDA. DE to their return trip to Manila as AIR FRANCE also refused to honor their tickets. They were able to return only
AREVALO, and EMILY SAN JUAN, respondents. after pre-payment in Manila, through their relatives, of the readjusted rates. They finally flew back to Manila on
separate Air France Frights on 19 May 1971 for Jose Gana and 26 May 1971 for the rest of the family.
MELENCIO-HERRERA, J.:
On 25 August 1971, the GANAS commenced before the then Court of First Instance of Manila, Branch III, Civil
In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision of then respondent Court of Case No. 84111 for damages arising from breach of contract of carriage.
Appeals 1 promulgated on 15 December 1980 in CA-G.R. No. 58164-R, entitled "Jose G. Gana, et al. vs. Sociedad
Nacionale Air France", which reversed the Trial Court's judgment dismissing the Complaint of private respondents AIR FRANCE traversed the material allegations of the Complaint and alleged that the GANAS brought upon
for damages arising from breach of contract of carriage, and awarding instead P90,000.00 as moral damages. themselves the predicament they found themselves in and assumed the consequential risks; that travel agent
Ella's affixing of validating stickers on the tickets without the knowledge and consent of AIR FRANCE, violated
Sometime in February, 1970, the late Jose G. Gana and his family, numbering nine (the GANAS), purchased airline tariff rules and regulations and was beyond the scope of his authority as a travel agent; and that AIR
from AIR FRANCE through Imperial Travels, Incorporated, a duly authorized travel agent, nine (9) "open-dated" FRANCE was not guilty of any fraudulent conduct or bad faith.
air passage tickets for the Manila/Osaka/Tokyo/Manila route. The GANAS paid a total of US$2,528.85 for their
economy and first class fares. Said tickets were bought at the then prevailing exchange rate of P3.90 per On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and Additional Stipulations of Fact as
US$1.00. The GANAS also paid travel taxes of P100.00 for each passenger. wen as on the documentary and testimonial evidence.

On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned tickets with other tickets for the
same route. At this time, the GANAS were booked for the Manila/Osaka segment on AIR FRANCE Flight 184 for
8 May 1970, and for the Tokyo/Manila return trip on AIR FRANCE Flight 187 on 22 May 1970. The aforesaid
tickets were valid until 8 May 1971, the date written under the printed words "Non valuable apres de (meaning,
"not valid after the").
The GANAS appealed to respondent Appellate Court. During the pendency of the appeal, Jose Gana, the principal
plaintiff, died.
On 15 December 1980, respondent Appellate Court set aside and reversed the Trial Court's judgment in a
Decision, which decreed:

The GANAS did not depart on 8 May 1970.
Sometime in January, 1971, Jose Gana sought the assistance of Teresita Manucdoc, a Secretary of the Sta. Clara
Lumber Company where Jose Gana was the Director and Treasurer, for the extension of the validity of their
tickets, which were due to expire on 8 May 1971. Teresita enlisted the help of Lee Ella Manager of the Philippine
Travel Bureau, who used to handle travel arrangements for the personnel of the Sta. Clara Lumber Company.
Ella sent the tickets to Cesar Rillo, Office Manager of AIR FRANCE. The tickets were returned to Ella who was
informed that extension was not possible unless the fare differentials resulting from the increase in fares
triggered by an increase of the exchange rate of the US dollar to the Philippine peso and the increased travel
tax were first paid. Ella then returned the tickets to Teresita and informed her of the impossibility of extension.
WHEREFORE, the decision appealed from is set aside. Air France is hereby ordered to pay appellants moral
damages in the total sum of NINETY THOUSAND PESOS (P90,000.00) plus costs.
SO ORDERED. 2
Reconsideration sought by AIR FRANCE was denied, hence, petitioner's recourse before this instance, to which
we gave due course.
The crucial issue is whether or not, under the environmental milieu the GANAS have made out a case for breach
of contract of carriage entitling them to an award of damages.

In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one day before the expiry date. We are constrained to reverse respondent Appellate Court's affirmative ruling thereon.
In the morning of the very day of their scheduled departure on the first leg of their trip, Teresita requested
travel agent Ella to arrange the revalidation of the tickets. Ella gave the same negative answer and warned her
Pursuant to tariff rules and regulations of the International Air Transportation Association (IATA), included in
that although the tickets could be used by the GANAS if they left on 7 May 1971, the tickets would no longer be
paragraphs 9, 10, and 11 of the Stipulations of Fact between the parties in the Trial Court, dated 31 March 1973,
valid for the rest of their trip because the tickets would then have expired on 8 May 1971. Teresita replied that
an airplane ticket is valid for one year. "The passenger must undertake the final portion of his journey by
it will be up to the GANAS to make the arrangements. With that assurance, Ella on his own, attached to the
departing from the last point at which he has made a voluntary stop before the expiry of this limit (parag. 3.1.2.
tickets validating stickers for the Osaka/Tokyo flight, one a JAL. sticker and the other an SAS (Scandinavian
) ... That is the time allowed a passenger to begin and to complete his trip (parags. 3.2 and 3.3.). ... A ticket
Airways System) sticker. The SAS sticker indicates thereon that it was "Reevaluated by: the Philippine Travel
can no longer be used for travel if its validity has expired before the passenger completes his trip (parag. 3.5.1.)
Bureau, Branch No. 2" (as shown by a circular rubber stamp) and signed "Ador", and the date is handwritten in
... To complete the trip, the passenger must purchase a new ticket for the remaining portion of the journey"
the center of the circle. Then appear under printed headings the notations: JL. 108 (Flight), 16 May (Date), 1040
(ibid.) 3
(Time), OK (status). Apparently, Ella made no more attempt to contact AIR FRANCE as there was no more time.
From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for breach of contract when it dishonored
the tickets of the GANAS after 8 May 1971 since those tickets expired on said date; nor when it required the
GANAS to buy new tickets or have their tickets re-issued for the Tokyo/Manila segment of their trip. Neither can
it be said that, when upon sale of the new tickets, it imposed additional charges representing fare differentials,
it was motivated by self-interest or unjust enrichment considering that an increase of fares took effect, as
authorized by the Civil Aeronautics Board (CAB) in April, 1971. This procedure is well in accord with the IATA
tariff rules which provide:
6. TARIFF RULES
7. APPLICABLE FARE ON THE DATE OF DEPARTURE
3.1 General Rule.
Q Referring you to page 33 of the transcript of the last session, I had this question which reads as follows:
'But did she say anything to you when you said that the tickets were about to expire?' Your answer was: 'I
am the one who asked her. At that time I told her if the tickets being used ... I was telling her what about
their bookings on the return. What about their travel on the return? She told me it is up for the Ganas to make
the arrangement.' May I know from you what did you mean by this testimony of yours?
A That was on the day when they were asking me on May 7, 1971 when they were checking the tickets. I told
Mrs. Manucdoc that I was going to get the tickets. I asked her what about the tickets onward from the return
from Tokyo, and her answer was it is up for the Ganas to make the arrangement, because I told her that they
could leave on the seventh, but they could take care of that when they arrived in Osaka.
Q What do you mean?
A The Ganas will make the arrangement from Osaka, Tokyo and Manila.
Q What arrangement?

All journeys must be charged for at the fare (or charge) in effect on the date on which transportation A The arrangement for the airline because the tickets would expire on May 7, and they insisted on leaving. I
commences from the point of origin. Any ticket sold prior to a change of fare or charge (increase or decrease) asked Mrs. Manucdoc what about the return onward portion because they would be travelling to Osaka, and
occurring between the date of commencement of the journey, is subject to the above general rule and must her answer was, it is up to for the Ganas to make the arrangement.
be adjusted accordingly. A new ticket must be issued and the difference is to be collected or refunded as the Q Exactly what were the words of Mrs. Manucdoc when you told her that? If you can remember, what were
case may be. No adjustment is necessary if the increase or decrease in fare (or charge) occurs when the her exact words?
journey is already commenced. 4
A Her words only, it is up for the Ganas to make the arrangement.
The GANAS cannot defend by contending lack of knowledge of those rules since the evidence bears out that Q This was in Tagalog or in English?
Teresita, who handled travel arrangements for the GANAS, was duly informed by travel agent Ella of the advice
A I think it was in English. ... 7
of Reno, the Office Manager of Air France, that the tickets in question could not be extended beyond the period
of their validity without paying the fare differentials and additional travel taxes brought about by the increased The circumstances that AIR FRANCE personnel at the ticket counter in the airport allowed the GANAS to leave
fare rate and travel taxes. is not tantamount to an implied ratification of travel agent Ella's irregular actuations. It should be recalled that
the GANAS left in Manila the day before the expiry date of their tickets and that "other arrangements" were to
ATTY. VALTE be made with respect to the remaining segments. Besides, the validating stickers that Ella affixed on his own
merely reflect the status of reservations on the specified flight and could not legally serve to extend the validity
Q What did you tell Mrs. Manucdoc, in turn after being told this by Mr. Rillo? of a ticket or revive an expired one.
A I told her, because that is the reason why they accepted again the tickets when we returned the tickets The conclusion is inevitable that the GANAS brought upon themselves the predicament they were in for having
spin, that they could not be extended. They could be extended by paying the additional fare, additional tax insisted on using tickets that were due to expire in an effort, perhaps, to beat the deadline and in the thought
and additional exchange during that time. that by commencing the trip the day before the expiry date, they could complete the trip even thereafter. It
Q You said so to Mrs. Manucdoc? should be recalled that AIR FRANCE was even unaware of the validating SAS and JAL. stickers that Ella had
affixed spuriously. Consequently, Japan Air Lines and AIR FRANCE merely acted within their contractual rights
A Yes, sir." ... 5 when they dishonored the tickets on the remaining segments of the trip and when AIR FRANCE demanded
payment of the adjusted fare rates and travel taxes for the Tokyo/Manila flight.
The ruling relied on by respondent Appellate Court, therefore, in KLM. vs. Court of Appeals, 65 SCRA 237 (1975), WHEREFORE, the judgment under review is hereby reversed and set aside, and the Amended Complaint filed
holding that it would be unfair to charge respondents therein with automatic knowledge or notice of conditions by private respondents hereby dismissed.
in contracts of adhesion, is inapplicable. To all legal intents and purposes, Teresita was the agent of the GANAS
and notice to her of the rejection of the request for extension of the validity of the tickets was notice to the No costs.
GANAS, her principals.
SO ORDERED.
The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing reservations for JAL. Flight 108 for
16 May 1971, without clearing the same with AIR FRANCE allegedly because of the imminent departure of the
GANAS on the same day so that he could not get in touch with Air France 6 was certainly in contravention of
IATA rules although as he had explained, he did so upon Teresita's assurance that for the onward flight from
Osaka and return, the GANAS would make other arrangements.
G.R. No. 157493 February 5, 2007 On 5 April 1989, a duplicate copy of the instrument was returned to respondent corporation. On 21 April 1989,
respondent brought the same to a notary public for notarization.
RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and FERNANDO, ERNESTO, LEONORA,
BIBIANO, JR., LIBRADO and ENRIQUETA, all surnamed OESMER, Petitioners, In a letter6 dated 1 November 1989, addressed to respondent corporation, petitioners informed the former of
vs. their intention to rescind the Contract to Sell and to return the amount of 100,000.00 given by respondent as
PARAISO DEVELOPMENT CORPORATION, Respondent. option money.

DECISION Respondent did not respond to the aforesaid letter. On 30 May 1991, herein petitioners, together with Adolfo
and Jesus, filed a Complaint7 for Declaration of Nullity or for Annulment of Option Agreement or Contract to Sell
CHICO-NAZARIO, J.: with Damages before the Regional Trial Court (RTC) of Bacoor, Cavite. The said case was docketed as Civil Case
No. BCV-91-49.
Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure
seeking to reverse and set aside the Court of Appeals Decision 1 dated 26 April 2002 in CA-G.R. CV No. 53130 During trial, petitioner Rizalino died. Upon motion of petitioners, the trial court issued an Order, 8 dated 16
entitled, Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, Enriqueta, Adolfo, and Jesus, all surnamed Oesmer vs. September 1992, to the effect that the deceased petitioner be substituted by his surviving spouse, Josefina O.
Paraiso Development Corporation, as modified by its Resolution2 dated 4 March 2003, declaring the Contract to Oesmer, and his children, Rolando O. Oesmer and Fernando O. Oesmer. However, the name of Rizalino was
Sell valid and binding with respect to the undivided proportionate shares of the six signatories of the said retained in the title of the case both in the RTC and the Court of Appeals.
document, herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
surnamed Oesmer); and ordering them to execute the Deed of Absolute Sale concerning their 6/8 share over After trial on the merits, the lower court rendered a Decision9 dated 27 March 1996 in favor of the respondent,
the subject parcels of land in favor of herein respondent Paraiso Development Corporation, and to pay the latter the dispositive portion of which reads:
the attorneys fees plus costs of the suit. The assailed Decision, as modified, likewise ordered the respondent to
tender payment to the petitioners in the amount of 3,216,560.00 representing the balance of the purchase WHEREFORE, premises considered, judgment is hereby rendered in favor of herein [respondent] Paraiso
price of the subject parcels of land. Development Corporation. The assailed Contract to Sell is valid and binding only to the undivided proportionate
share of the signatory of this document and recipient of the check, [herein petitioner] co-owner Ernesto
The facts of the case are as follows: Durumpili Oesmer. The latter is hereby ordered to execute the Contract of Absolute Sale concerning his 1/8
share over the subject two parcels of land in favor of herein [respondent] corporation, and to pay the latter the
Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and Enriqueta, all surnamed Oesmer, together with attorneys fees in the sum of Ten Thousand (10,000.00) Pesos plus costs of suit.
Adolfo Oesmer (Adolfo) and Jesus Oesmer (Jesus), are brothers and sisters, and the co-owners of undivided
shares of two parcels of agricultural and tenanted land situated in Barangay Ulong Tubig, Carmona, Cavite, The counterclaim of [respondent] corporation is hereby Dismissed for lack of merit.10
identified as Lot 720 with an area of 40,507 square meters (sq. m.) and Lot 834 containing an area of 14,769
sq. m., or a total land area of 55,276 sq. m. Both lots are unregistered and originally owned by their parents, Unsatisfied, respondent appealed the said Decision before the Court of Appeals. On 26 April 2002, the appellate
Bibiano Oesmer and Encarnacion Durumpili, who declared the lots for taxation purposes under Tax Declaration court rendered a Decision modifying the Decision of the court a quo by declaring that the Contract to Sell is valid
No. 34383(cancelled by I.D. No. 6064-A) for Lot 720 and Tax Declaration No. 34374 (cancelled by I.D. No. 5629) and binding with respect to the undivided proportionate shares of the six signatories of the said document,
for Lot 834. When the spouses Oesmer died, petitioners, together with Adolfo and Jesus, acquired the lots as herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed
heirs of the former by right of succession. Oesmer). The decretal portion of the said Decision states that:

Respondent Paraiso Development Corporation is known to be engaged in the real estate business.
Sometime in March 1989, Rogelio Paular, a resident and former Municipal Secretary of Carmona, Cavite, brought
along petitioner Ernesto to meet with a certain Sotero Lee, President of respondent Paraiso Development
Corporation, at Otani Hotel in Manila. The said meeting was for the purpose of brokering the sale of petitioners
properties to respondent corporation.
Pursuant to the said meeting, a Contract to Sell5 was drafted by the Executive Assistant of Sotero Lee, Inocencia
Almo. On 1 April 1989, petitioners Ernesto and Enriqueta signed the aforesaid Contract to Sell. A check in the
amount of 100,000.00, payable to Ernesto, was given as option money. Sometime thereafter, Rizalino, Leonora,
Bibiano, Jr., and Librado also signed the said Contract to Sell. However, two of the brothers, Adolfo and Jesus,
did not sign the document.
WHEREFORE, premises considered, the Decision of the court a quo is hereby MODIFIED. Judgment is hereby
rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid
and binding with respect to the undivided proportionate share of the six (6) signatories of this document, [herein
petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer).
The said [petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning their 6/8 share over
the subject two parcels of land and in favor of herein [respondent] corporation, and to pay the latter the
attorneys fees in the sum of Ten Thousand Pesos (10,000.00) plus costs of suit.11
Aggrieved by the above-mentioned Decision, petitioners filed a Motion for Reconsideration of the same on 2 July
2002. Acting on petitioners Motion for Reconsideration, the Court of Appeals issued a Resolution dated 4 March
2003, maintaining its Decision dated 26 April 2002, with the modification that respondent tender payment to
petitioners in the amount of 3,216,560.00, representing the balance of the purchase price of the subject parcels
of land. The dispositive portion of the said Resolution reads:
WHEREFORE, premises considered, the assailed Decision is hereby modified.1awphi1.net Judgment is hereby
rendered in favor of herein [respondent] Paraiso Development Corporation. The assailed Contract to Sell is valid
and binding with respect to the undivided proportionate shares of the six (6) signatories of this document,
[herein petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed
Oesmer). The said [petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning their 6/8
share over the subject two parcels of land in favor of herein [respondent] corporation, and to pay the latter
attorneys fees in the sum of Ten Thousand Pesos (10,000.00) plus costs of suit. Respondent is likewise ordered
to tender payment to the above-named [petitioners] in the amount of Three Million Two Hundred Sixteen
Thousand Five Hundred Sixty Pesos (3,216,560.00) representing the balance of the purchase price of the
subject two parcels of land. 12
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.
The law itself explicitly requires a written authority before an agent can sell an immovable. The conferment of
such an authority should be in writing, in as clear and precise terms as possible. It is worth noting that petitioners
signatures are found in the Contract to Sell. The Contract is absolutely silent on the establishment of any
principal-agent relationship between the five petitioners and their brother and co-petitioner Ernesto as to the
sale of the subject parcels of land. Thus, the Contract to Sell, although signed on the margin by the five
petitioners, is not sufficient to confer authority on petitioner Ernesto to act as their agent in selling their shares
in the properties in question.

Hence, this Petition for Review on Certiorari. However, despite petitioner Ernestos lack of written authority from the five petitioners to sell their shares in the
subject parcels of land, the supposed Contract to Sell remains valid and binding upon the latter.
Petitioners come before this Court arguing that the Court of Appeals erred:
As can be clearly gleaned from the contract itself, it is not only petitioner Ernesto who signed the said Contract
I. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is not binding to Sell; the other five petitioners also personally affixed their signatures thereon. Therefore, a written authority
upon petitioner Ernesto Oesmers co-owners (herein petitioners Enriqueta, Librado, Rizalino, Bibiano, is no longer necessary in order to sell their shares in the subject parcels of land because, by affixing their
Jr., and Leonora). signatures on the Contract to Sell, they were not selling their shares through an agent but, rather, they were
selling the same directly and in their own right.
II. On a question of law in not holding that, the supposed Contract to Sell (Exhibit D) is void altogether
considering that respondent itself did not sign it as to indicate its consent to be bound by its terms. The Court also finds untenable the following arguments raised by petitioners to the effect that the Contract to
Moreover, Exhibit D is really a unilateral promise to sell without consideration distinct from the price, Sell is not binding upon them, except to Ernesto, because: (1) the signatures of five of the petitioners do not
and hence, void. signify their consent to sell their shares in the questioned properties since petitioner Enriqueta merely signed as
a witness to the said Contract to Sell, and that the other petitioners, namely: Librado, Rizalino, Leonora, and
Petitioners assert that the signatures of five of them namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and Bibiano, Jr., did not understand the importance and consequences of their action because of their low degree of
Leonora, on the margins of the supposed Contract to Sell did not confer authority on petitioner Ernesto as agent education and the contents of the aforesaid contract were not read nor explained to them; and (2) assuming
to sell their respective shares in the questioned properties, and hence, for lack of written authority from the that the signatures indicate consent, such consent was merely conditional, thus, the effectivity of the alleged
above-named petitioners to sell their respective shares in the subject parcels of land, the supposed Contract to Contract to Sell was subject to a suspensive condition, which is the approval by all the co-owners of the sale.
Sell is void as to them. Neither do their signatures signify their consent to directly sell their shares in the
questioned properties. Assuming that the signatures indicate consent, such consent was merely conditional. The It is well-settled that contracts are perfected by mere consent, upon the acceptance by the offeree of the offer
effectivity of the alleged Contract to Sell was subject to a suspensive condition, which is the approval of the sale made by the offeror. From that moment, the parties are bound not only to the fulfillment of what has been
by all the co-owners. expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with
good faith, usage and law. To produce a contract, the acceptance must not qualify the terms of the offer.
Petitioners also assert that the supposed Contract to Sell (Exhibit D), contrary to the findings of the Court of However, the acceptance may be express or implied. For a contract to arise, the acceptance must be made
Appeals, is not couched in simple language. known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to the
offeror.13
They further claim that the supposed Contract to Sell does not bind the respondent because the latter did not
sign the said contract as to indicate its consent to be bound by its terms. Furthermore, they maintain that the In the case at bar, the Contract to Sell was perfected when the petitioners consented to the sale to the
supposed Contract to Sell is really a unilateral promise to sell and the option money does not bind petitioners respondent of their shares in the subject parcels of land by affixing their signatures on the said contract. Such
for lack of cause or consideration distinct from the purchase price. signatures show their acceptance of what has been stipulated in the Contract to Sell and such acceptance was
made known to respondent corporation when the duplicate copy of the Contract to Sell was returned to the
latter bearing petitioners signatures.
The Petition is bereft of merit.

As to petitioner Enriquetas claim that she merely signed as a witness to the said contract, the contract itself
It is true that the signatures of the five petitioners, namely: Enriqueta, Librado, Rizalino, Bibiano, Jr., and
does not say so. There was no single indication in the said contract that she signed the same merely as a witness.
Leonora, on the Contract to Sell did not confer authority on petitioner Ernesto as agent authorized to sell their
The fact that her signature appears on the right-hand margin of the Contract to Sell is insignificant. The contract
respective shares in the questioned properties because of Article 1874 of the Civil Code, which expressly provides
indisputably referred to the "Heirs of Bibiano and Encarnacion Oesmer," and since there is no showing that
that:
Enriqueta signed the document in some other capacity, it can be safely assumed that she did so as one of the
parties to the sale.
Emphasis should also be given to the fact that petitioners Ernesto and Enriqueta concurrently signed the Contract
to Sell. As the Court of Appeals mentioned in its Decision,14 the records of the case speak of the fact that
petitioner Ernesto, together with petitioner Enriqueta, met with the representatives of the respondent in order
to finalize the terms and conditions of the Contract to Sell. Enriqueta affixed her signature on the said contract
when the same was drafted. She even admitted that she understood the undertaking that she and petitioner
Ernesto made in connection with the contract. She likewise disclosed that pursuant to the terms embodied in
the Contract to Sell, she updated the payment of the real property taxes and transferred the Tax Declarations
of the questioned properties in her name.15 Hence, it cannot be gainsaid that she merely signed the Contract to
Sell as a witness because she did not only actively participate in the negotiation and execution of the same, but
her subsequent actions also reveal an attempt to comply with the conditions in the said contract.
The other [petitioners] (Rizalino, Leonora and Bibiano Jr.) are likewise bound by the said Contract to Sell. The
theory adopted by the [petitioners] that because of their low degree of education, they did not understand the
contents of the said Contract to Sell is devoid of merit. The [appellate court] also notes that Adolfo (one of the
co-heirs who did not sign) also possess the same degree of education as that of the signing co-heirs (TSN, 15
October 1991, p. 19). He, however, is employed at the Provincial Treasury Office at Trece Martirez, Cavite and
has even accompanied Rogelio Paular to the Assessors Office to locate certain missing documents which were
needed to transfer the titles of the subject properties. (TSN, 28 January 1994, pp. 26 & 35) Similarly, the other
co-heirs [petitioners], like Adolfo, are far from ignorant, more so, illiterate that they can be extricated from their
obligations under the Contract to Sell which they voluntarily and knowingly entered into with the [respondent]
corporation.

With respect to the other petitioners assertion that they did not understand the importance and consequences
of their action because of their low degree of education and because the contents of the aforesaid contract were
not read nor explained to them, the same cannot be sustained.
We only have to quote the pertinent portions of the Court of Appeals Decision, clear and concise, to dispose of
this issue. Thus,
The Supreme Court in the case of Cecilia Mata v. Court of Appeals (207 SCRA 753 [1992]), citing the case of
Tan Sua Sia v. Yu Baio Sontua (56 Phil. 711), instructively ruled as follows:
"The Court does not accept the petitioners claim that she did not understand the terms and conditions of the
transactions because she only reached Grade Three and was already 63 years of age when she signed the
documents. She was literate, to begin with, and her age did not make her senile or incompetent. x x x.

First, the Contract to Sell is couched in such a simple language which is undoubtedly easy to read and
understand. The terms of the Contract, specifically the amount of 100,000.00 representing the option money
paid by [respondent] corporation, the purchase price of 60.00 per square meter or the total amount of
3,316,560.00 and a brief description of the subject properties are well-indicated thereon that any prudent and
mature man would have known the nature and extent of the transaction encapsulated in the document that he
was signing.
At any rate, Metrobank had no obligation to explain the documents to the petitioner as nowhere has it been
proven that she is unable to read or that the contracts were written in a language not known to her. It was her
responsibility to inform herself of the meaning and consequence of the contracts she was signing and, if she
found them difficult to comprehend, to consult other persons, preferably lawyers, to explain them to her. After
all, the transactions involved not only a few hundred or thousand pesos but, indeed, hundreds of thousands of
pesos.

Second, the following circumstances, as testified by the witnesses and as can be gleaned from the records of As the Court has held:
the case clearly indicate the [petitioners] intention to be bound by the stipulations chronicled in the said Contract
to Sell. x x x The rule that one who signs a contract is presumed to know its contents has been applied even to contracts
of illiterate persons on the ground that if such persons are unable to read, they are negligent if they fail to have
As to [petitioner] Ernesto, there is no dispute as to his intention to effect the alienation of the subject property the contract read to them. If a person cannot read the instrument, it is as much his duty to procure some reliable
as he in fact was the one who initiated the negotiation process and culminated the same by affixing his signature persons to read and explain it to him, before he signs it, as it would be to read it before he signed it if he were
on the Contract to Sell and by taking receipt of the amount of 100,000.00 which formed part of the purchase able to do and his failure to obtain a reading and explanation of it is such gross negligence as will estop from
price. avoiding it on the ground that he was ignorant of its contents."16

xxxx That the petitioners really had the intention to dispose of their shares in the subject parcels of land, irrespective
of whether or not all of the heirs consented to the said Contract to Sell, was unveiled by Adolfos testimony as
As to [petitioner] Librado, the [appellate court] finds it preposterous that he willingly affixed his signature on a follows:
document written in a language (English) that he purportedly does not understand. He testified that the
document was just brought to him by an 18 year old niece named Baby and he was told that the document was ATTY. GAMO: This alleged agreement between you and your other brothers and sisters that unless everybody
for a check to be paid to him. He readily signed the Contract to Sell without consulting his other siblings. will agree, the properties would not be sold, was that agreement in writing?
Thereafter, he exerted no effort in communicating with his brothers and sisters regarding the document which
he had signed, did not inquire what the check was for and did not thereafter ask for the check which is WITNESS: No sir.
purportedly due to him as a result of his signing the said Contract to Sell. (TSN, 28 September 1993, pp. 22-23)
ATTY. GAMO: What you are saying is that when your brothers and sisters except Jesus and you did not sign
The [appellate court] notes that Librado is a 43 year old family man (TSN, 28 September 1993, p. 19). As such, that agreement which had been marked as [Exhibit] "D", your brothers and sisters were grossly violating your
he is expected to act with that ordinary degree of care and prudence expected of a good father of a family. His agreement.
unwitting testimony is just divinely disbelieving.
WITNESS: Yes, sir, they violated what we have agreed upon.17
We also cannot sustain the allegation of the petitioners that assuming the signatures indicate consent, such money but earnest money. "Earnest money" and "option money" are not the same but distinguished thus: (a)
consent was merely conditional, and that, the effectivity of the alleged Contract to Sell was subject to the earnest money is part of the purchase price, while option money is the money given as a distinct consideration
suspensive condition that the sale be approved by all the co-owners. The Contract to Sell is clear enough. It is for an option contract; (b) earnest money is given only where there is already a sale, while option money applies
a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon to a sale not yet perfected; and, (c) when earnest money is given, the buyer is bound to pay the balance, while
the intention of the contracting parties, the literal meaning of its stipulation shall control.18 The terms of the when the would-be buyer gives option money, he is not required to buy, but may even forfeit it depending on
Contract to Sell made no mention of the condition that before it can become valid and binding, a unanimous the terms of the option.20
consent of all the heirs is necessary. Thus, when the language of the contract is explicit, as in the present case,
leaving no doubt as to the intention of the parties thereto, the literal meaning of its stipulation is controlling.
The sum of 100,000.00 was part of the purchase price. Although the same was denominated as "option money,"
it is actually in the nature of earnest money or down payment when considered with the other terms of the
In addition, the petitioners, being owners of their respective undivided shares in the subject properties, can contract. Doubtless, the agreement is not a mere unilateral promise to sell, but, indeed, it is a Contract to Sell
dispose of their shares even without the consent of all the co-heirs. Article 493 of the Civil Code expressly as both the trial court and the appellate court declared in their Decisions.
provides:
WHEREFORE, premises considered, the Petition is DENIED, and the Decision and Resolution of the Court of
Article 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining Appeals dated 26 April 2002 and 4 March 2003, respectively, are AFFIRMED, thus, (a) the Contract to Sell
thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its is DECLARED valid and binding with respect to the undivided proportionate shares in the subject parcels of
enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with land of the six signatories of the said document, herein petitioners Ernesto, Enriqueta, Librado, Rizalino, Bibiano,
respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the Jr., and Leonora (all surnamed Oesmer); (b) respondent is ORDERED to tender payment to petitioners in the
termination of the co-ownership. [Emphases supplied.] amount of 3,216,560.00 representing the balance of the purchase price for the latters shares in the subject
parcels of land; and (c) petitioners are further ORDERED to execute in favor of respondent the Deed of Absolute
Consequently, even without the consent of the two co-heirs, Adolfo and Jesus, the Contract to Sell is still valid Sale covering their shares in the subject parcels of land after receipt of the balance of the purchase price, and
and binding with respect to the 6/8 proportionate shares of the petitioners, as properly held by the appellate to pay respondent attorneys fees plus costs of the suit. Costs against petitioners.
court.
SO ORDERED.
Therefore, this Court finds no error in the findings of the Court of Appeals that all the petitioners who were
signatories in the Contract to Sell are bound thereby.

The final arguments of petitioners state that the Contract to Sell is void altogether considering that respondent
itself did not sign it as to indicate its consent to be bound by its terms; and moreover, the Contract to Sell is
really a unilateral promise to sell without consideration distinct from the price, and hence, again, void. Said
arguments must necessarily fail.

The Contract to Sell is not void merely because it does not bear the signature of the respondent corporation.
Respondent corporations consent to be bound by the terms of the contract is shown in the uncontroverted facts
which established that there was partial performance by respondent of its obligation in the said Contract to Sell
when it tendered the amount of 100,000.00 to form part of the purchase price, which was accepted and
acknowledged expressly by petitioners. Therefore, by force of law, respondent is required to complete the
payment to enforce the terms of the contract. Accordingly, despite the absence of respondents signature in the
Contract to Sell, the former cannot evade its obligation to pay the balance of the purchase price.

As a final point, the Contract to Sell entered into by the parties is not a unilateral promise to sell merely because
it used the word option money when it referred to the amount of 100,000.00, which also form part of the
purchase price.

Settled is the rule that in the interpretation of contracts, the ascertainment of the intention of the contracting
parties is to be discharged by looking to the words they used to project that intention in their contract, all the
words, not just a particular word or two, and words in context, not words standing alone.19

In the instant case, the consideration of 100,000.00 paid by respondent to petitioners was referred to as "option
money." However, a careful examination of the words used in the contract indicates that the money is not option
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 Decision1 and October 8, 2003
Resolution2 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 Decision3 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 Baos, 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
Shares5conveying in favor of petitioners (the Pahuds, for brevity) their respective shares from the lot they
inherited from their deceased parents for 525,000.00.6 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 35,792.31 to the Los Baos Rural Bank where the subject property was
mortgaged.10 The bank issued a release of mortgage and turned over the owners copy of the OCT to the No pronouncement as to costs.
Pahuds.11 Over the following months, the Pahuds made more payments to Eufemia and her siblings totaling to
350,000.00.12 They agreed to use the remaining 87,500.0013 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, Virgilios co-heirs filed a complaint for judicial partition of the subject property before the RTC
16
of Calamba, Laguna. On November 28, 1994, in the course of the proceedings for judicial partition, a Compromise
Agreement was signed with seven (7) of the co-heirs agreeing to sell their undivided shares to Virgilio for
17
700,000.00. 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 WHEREFORE, in view of the foregoing, the Decision dated January 14, 1998, rendered by the Regional Trial
previous sale made to the Pahuds.18lawphil.net
On December 1, 1994, Eufemia acknowledged having received 700,000.00 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 intervention21 in the pending case for judicial partition.1avvphil
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 437,500.00 by paying the balance of 87,500.00 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.
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:
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 [T]he authority of an agent to execute a contract [of] sale of real estate must be conferred in writing and must
and terminated; 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
(2) Ordering plaintiffs-appellees to return to intervenors-appellees the total amount they received from to enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously
the latter, plus an interest of 12% per annum from the time the complaint [in] intervention was filed or for a valuable consideration. The express mandate required by law to enable an appointee of an agency
on April 12, 1995 until actual payment of the same; (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
(3) Declaring the sale of appellant Virgilio San Agustin to appellants spouses, Isagani and Leticia
is any reasonable doubt that the language so used conveys such power, no such construction shall be given the
Belarmino[,] as valid and binding;
document.27

(4) Declaring appellants-spouses as buyers in good faith and for value and are the owners of the subject
In several cases, we have repeatedly held that the absence of a written authority to sell a piece of land is, ipso
property.
jure, void,28 precisely to protect the interest of an unsuspecting owner from being prejudiced by the unwarranted
act of another.
No pronouncement as to costs.
Based on the foregoing, it is not difficult to conclude, in principle, that the sale made by Eufemia, Isabelita and
SO ORDERED.23 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
Petitioners now come to this Court raising the following arguments: 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.
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 Still, in their petition, the Pahuds argue that the sale with respect to the 3/8 portion of the land should have
4/8 portion of the subject property executed by respondents San Agustin in favor of petitioners; been deemed ratified when the three co-heirs, namely: Milagros, Minerva, and Zenaida, executed their respective
special power of attorneys29 authorizing Eufemia to represent them in the sale of their shares in the subject
property.30
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 While the sale with respect to the 3/8 portion is void by express provision of law and not susceptible to
contravenes the presence of long line of case laws upholding the task of giving utmost weight and ratification, we nevertheless uphold its validity on the basis of the common law principle of estoppel.
31

value to the factual findings of the trial court during appeals; [and]
Article 1431 of the Civil Code provides:
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 Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it,
latter were prior in possession thereby misapplying the provisions of Article 1544 of the New Civil and cannot be denied or disproved as against the person relying thereon.
Code.24
True, at the time of the sale to the Pahuds, Eufemia was not armed with the requisite special power of attorney
The focal issue to be resolved is the status of the sale of the subject property by Eufemia and her co-heirs to to dispose of the 3/8 portion of the property. Initially, in their answer to the complaint in intervention,32 Eufemia
the Pahuds. We find the transaction to be valid and enforceable. 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
Article 1874 of the Civil Code plainly provides: 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
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. 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
Also, under Article 1878,25 a special power of attorney is necessary for an agent to enter into a contract by which
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 ownership of an immovable property is transmitted or acquired, either gratuitously or for a valuable
the said transaction. They cannot be allowed to rely on Eufemia, their attorney-in-fact, to impugn the validity of
consideration. Such stringent statutory requirement has been explained in Cosmic Lumber Corporation v. Court
the first transaction because to allow them to do so would be tantamount to giving premium to their sisters
of Appeals: 26
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.
It is a basic rule in the law of agency that a principal is subject to liability for loss caused to another by the
latters 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.40Such 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 vendors 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 establishment46 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. 111448 January 16, 2002 Realty.11 In its amended complaint,12 AF Realty asked for payment of P1,500,000.00 as compensatory damages;
P400,000.00 as attorney's fees; and P500,000.00 as exemplary damages.
AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO, petitioners,
vs. In its answer, Dieselman alleged that there was no meeting of the minds between the parties in the sale of the
DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS DEVELOPMENT property and that it did not authorize any person to enter into such transaction on its behalf.
CORPORATION, respondents.
Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation (Midas) executed a Deed of
SANDOVAL-GUTIERREZ, J.: Absolute Sale13 of the same property. The agreed price was P2,800.00 per square meter. Midas delivered to
Dieselman P500,000.00 as down payment and deposited the balance of P5,300,000.00 in escrow account with
Petition for review on certiorari assailing the Decision dated December 10, 1992 and the Resolution (Amending the PCIBank.
Decision) dated August 5, 1993 of the Court of Appeals in CA-G.R. CV No. 30133.
Constrained to protect its interest in the property, Midas filed on April 3, 1989 a Motion for Leave to Intervene
Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation and a registered owner of a in Civil Case No. 56278. Midas alleged that it has purchased the property and took possession thereof, hence
parcel of commercial lot consisting of 2,094 square meters, located at 104 E. Rodriguez Avenue, Barrio Ugong, Dieselman cannot be compelled to sell and convey it to AF Realty. The trial court granted Midas' motion.
Pasig City, Metro Manila. The property is covered by Transfer Certificate of Title No. 39849 issued by the Registry
of Deeds of the Province of Rizal.1 After trial, the lower court rendered the challenged Decision holding that the acts of Cruz, Jr. bound Dieselman
in the sale of the lot to AF Realty.14 Consequently, the perfected contract of sale between Dieselman and AF
On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman, issued a letter Realty bars Midas' intervention. The trial court also held that Midas acted in bad faith when it initially paid
denominated as "Authority To Sell Real Estate" 2 to Cristeta N. Polintan, a real estate broker of the CNP Real Dieselman P500,000.00 even without seeing the latter's title to the property. Moreover, the notarial report of
Estate Brokerage. Cruz, Jr. authorized Polintan "to look for a buyer/buyers and negotiate the sale" of the lot at the sale was not submitted to the Clerk of Court of the Quezon City RTC and the balance of P5,300,000.00
P3,000.00 per square meter, or a total of P6,282,000.00. Cruz, Jr. has no written authority from Dieselman to purportedly deposited in escrow by Midas with a bank was not established.1wphi1.nt
sell the lot.
The dispositive portion of the trial court's Decision reads:
In turn, Cristeta Polintan, through a letter3 dated May 19, 1988, authorized Felicisima ("Mimi") Noble4 to sell the
same lot. "WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendant to execute and
deliver to plaintiffs the final deed of sale of the property covered by the Transfer Certificate of Title No.
Felicisima Noble then offered for sale the property to AF Realty & Development, Inc. (AF Realty) at P2,500.00 39849 of the Registry of Deed of Rizal, Metro Manila District II, including the improvements thereon,
per square meter.5 Zenaida Ranullo, board member and vice-president of AF Realty, accepted the offer and and ordering defendants to pay plaintiffs attorney's fees in the amount of P50,000.00 and to pay the
issued a check in the amount of P300,000.00 payable to the order of Dieselman. Polintan received the check costs.
and signed an "Acknowledgement Receipt"6 indicating that the amount of P300,000.00 represents the partial
payment of the property but refundable within two weeks should AF Realty disapprove Ranullo's action on the "The counterclaim of defendants is necessarily dismissed.
matter.
"The counterclaim and/or the complaint in intervention are likewise dismissed
On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo asked Polintan for the board
resolution of Dieselman authorizing the sale of the property. However, Polintan could only give Ranullo the "SO ORDERED."15
original copy of TCT No. 39849, the tax declaration and tax receipt for the lot, and a photocopy of the Articles
of Incorporation of Dieselman.7
Dissatisfied, all the parties appealed to the Court of Appeals.

On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the said P300,000.00
AF Realty alleged that the trial court erred in not holding Dieselman liable for moral, compensatory and exemplary
as "earnest money" but required AF Realty to finalize the sale at P4,000.00 per square meter.8 AF Realty replied
damages, and in dismissing its counterclaim against Midas.
that it has paid an initial down payment of P300,000.00 and is willing to pay the balance. 9

Upon the other hand, Dieselman and Midas claimed that the trial court erred in finding that a contract of sale
However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF Realty the return of
between Dieselman and AF Realty was perfected. Midas further averred that there was no bad faith on its part
the title of the lot earlier delivered by Polintan. 10
when it purchased the lot from Dieselman.

Claiming that there was a perfected contract of sale between them, AF Realty filed with the Regional Trial Court,
In its Decision dated December 10, 1992, the Court of Appeals reversed the judgment of the trial court holding
Branch 160, Pasig City a complaint for specific performance (Civil Case No. 56278) against Dieselman and Cruz,
that since Cruz, Jr. was not authorized in writing by Dieselman to sell the subject property to AF Realty, the sale
Jr.. The complaint prays that Dieselman be ordered to execute and deliver a final deed of sale in favor of AF
was not perfected; and that the Deed of Absolute Sale between Dieselman and Midas is valid, there being no
bad faith on the part of the latter. The Court of Appeals then declared Dieselman and Cruz, Jr. jointly and execution and delivery (Bael vs. Intermediate Appellate Court, 169 SCRA617; Joson vs. Baltazar, 194
severally liable to AF Realty for P100,000.00 as moral damages; P100,000.00 as exemplary damages; and SCRA 114) and to prove the defects and lack of consent in the execution thereof, the evidence must
P100,000.00 as attorney's fees.16 be strong and not merely preponderant x x x."18

On August 5, 1993, the Court of Appeals, upon motions for reconsideration filed by the parties, promulgated an We agree with the Court of Appeals.
Amending Decision, the dispositive portion of which reads:
Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be
"WHEREFORE, The Decision promulgated on October 10, 1992, is hereby AMENDED in the sense that exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his
only defendant Mr. Manuel Cruz, Jr. should be made liable to pay the plaintiffs the damages and behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers
attorney's fees awarded therein, plus the amount of P300,000.00 unless, in the case of the said or agents appointed by it.19 Thus, contracts or acts of a corporation must be made either by the board of directors
P300,000.00, the same is still deposited with the Court which should be restituted to plaintiffs. or by a corporate agent duly authorized by the board.20 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,
"SO ORDERED."17 or connected with, the performance of authorized duties of such director, are held not binding on the
corporation.21
AF Realty now comes to this Court via the instant petition alleging that the Court of Appeals committed errors
of law. In the instant case, it is undisputed that respondent Cruz, Jr. has no written authority from the board of directors
of respondent Dieselman to sell or to negotiate the sale of the lot, much less to appoint other persons for the
same purpose. Respondent Cruz, Jr.'s lack of such authority precludes him from conferring any authority to
The focal issue for consideration by this Court is who between petitioner AF Realty and respondent Midas has a
Polintan involving the subject realty. Necessarily, neither could Polintan authorize Felicisima Noble. Clearly, the
right over the subject lot.
collective acts of respondent Cruz, Jr., Polintan and Noble cannot bind Dieselman in the purported contract of
sale.
The Court of Appeals, in reversing the judgment of the trial court, made the following ratiocination:
Petitioner AF Realty maintains that the sale of land by an unauthorized agent may be ratified where, as here,
"From the foregoing scenario, the fact that the board of directors of Dieselman never authorized, there is acceptance of the benefits involved. In this case the receipt by respondent Cruz, Jr. from AF Realty of
verbally and in writing, Cruz, Jr. to sell the property in question or to look for buyers and negotiate the the P300,000.00 as partial payment of the lot effectively binds respondent Dieselman.22
sale of the subject property is undeniable.
We are not persuaded.
"While Cristeta Polintan was actually authorized by Cruz, Jr. to look for buyers and negotiate the sale
of the subject property, it should be noted that Cruz, Jr. could not confer on Polintan any authority
Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil Code takes
which he himself did not have. Nemo dat quod non habet. In the same manner, Felicisima Noble could
precedence. This is well stressed in Yao Ka Sin Trading vs. Court of Appeals:23
not have possessed authority broader in scope, being a mere extension of Polintan's purported
authority, for it is a legal truism in our jurisdiction that a spring cannot rise higher than its source.
Succinctly stated, the alleged sale of the subject property was effected through persons who were "Since a corporation, such as the private respondent, can act only through its officers and agents, all
absolutely without any authority whatsoever from Dieselman. acts within the powers of said corporation may be performed by agents of its selection; and,
except so far as limitations or restrictions may be imposed by special charter, by-law, or statutory
provisions, the same general principles of law which govern the relation of agency for a
"The argument that Dieselman ratified the contract by accepting the P300,000.00 as partial payment
natural person govern the officer or agent of a corporation, of whatever status or rank, in
of the purchase price of the subject property is equally untenable. The sale of land through an agent
respect to his power to act for the corporation; and agents when once
without any written authority is void.
appointed, or members acting in their stead, are subject to thesame rules, liabilities, and
incapacities as are agents of individuals and private persons." (Emphasis supplied)
xxx xxx xxx
Pertinently, Article 1874 of the same Code provides:
"On the contrary, anent the sale of the subject property by Dieselman to intervenor Midas, the records
bear out that Midas purchased the same from Dieselman on 30 July 1988. The notice of lis pendens was
"ART. 1874. When a sale of piece of land or any interest therein is through an agent,
subsequently annotated on the title of the property by plaintiffs on 15 August 1988. However, this
the authority of the latter shall be in writing; otherwise, the sale shall be void." (Emphasis
subsequent annotation of the notice of lis pendens certainly operated prospectively and did not retroact
supplied)
to make the previous sale of the property to Midas a conveyance in bad faith. A subsequently registered
notice of lis pendens surely is not proof of bad faith. It must therefore be borne in mind that the 30
July 1988 deed of sale between Midas and Dieselman is a document duly certified by notary public Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not authorized by respondent
under his hand and seal. x x x. Such a deed of sale being public document acknowledged before a Dieselman to sell its lot, the supposed contract is void. Being a void contract, it is not susceptible of ratification
notary public is admissible as to the date and fact of its execution without further proof of its due by clear mandate of Article 1409 of the Civil Code, thus:
 "ART. 1409. The following contracts are inexistent and void from the very beginning:

xxx

(7) Those expressly prohibited or declared void by law.

"These contracts cannot be ratified. Neither can the right to set up the defense of illegality be
waived." (Emphasis supplied)

Upon the other hand, the validity of the sale of the subject lot to respondent Midas is unquestionable. As aptly
noted by the Court of Appeals,24 the sale was authorized by a board resolution of respondent Dieselman dated
May 27, 1988.1wphi1.nt

The Court of Appeals awarded attorney's fees and moral and exemplary damages in favor of petitioner AF Realty
and against respondent Cruz, Jr.. The award was made by reason of a breach of contract imputable to
respondent Cruz, Jr. for having acted in bad faith. We are no persuaded. It bears stressing that petitioner Zenaida
Ranullo, board member and vice-president of petitioner AF Realty who accepted the offer to sell the property,
admitted in her testimony25 that a board resolution from respondent Dieselman authorizing the sale is necessary
to bind the latter in the transaction; and that respondent Cruz, Jr. has no such written authority. In fact, despite
demand, such written authority was not presented to her.26 This notwithstanding, petitioner Ranullo tendered a
partial payment for the unauthorized transaction. Clearly, respondent Cruz, Jr. should not be held liable for
damages and attorney's fees.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
hereby AFFIRMED withMODIFICATION in the sense that the award of damages and attorney's fees is
deleted. Respondent Dieselman is ordered to return to petitioner AF Realty its partial payment of P300,000.00.
Costs against petitioners.

SO ORDERED.
G.R. No. 144805 June 8, 2006 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
EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,
vs. Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be implemented.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION), ETEROUTREMER, In a telex dated April 22, 1987, Glanville informed Delsaux that he had met with the buyer, which had given him
S.A. and FAR EAST BANK & TRUST COMPANY, Respondents. 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
DECISION consequence of prolonged period of inaction.9

CALLEJO, SR., J.: 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
On appeal via a Petition for Review on Certiorari is the Decision of the Court of Appeals (CA) in CA-G.R. CV No.
1
been instructed by his principal to inform Marquez that "the decision has been taken at a Board Meeting not to
51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig City, Branch 165, in Civil Case No.
sell the properties on which Eternit Corporation is situated."10
54887, as well as the Resolution2 of the CA denying the motion for reconsideration thereof.

Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office had decided
The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since 1950, it
not to proceed with the sale of the subject land, to wit:
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, May 22, 1987
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 Mr. L.G. Marquez
corporation organized and registered under the laws of Belgium. 3 Jack Glanville, an Australian citizen, was theL.G. Marquez, Inc.
General Manager and President of EC, while Claude Frederick Delsaux was the Regional Director for Asia of 334 Makati Stock Exchange Bldg.
ESAC. Both had their offices in Belgium. 6767 Ayala Avenue
Makati, Metro Manila
In 1986, the management of ESAC grew concerned about the political situation in the Philippines and wanted to Philippines
stop its operations in the country. The Committee for Asia of ESAC instructed Michael Adams, a member of ECs
Board of Directors, to dispose of the eight parcels of land. Adams engaged the services of realtor/broker Lauro Dear Sir:
G. Marquez so that the properties could be offered for sale to prospective buyers. Glanville later showed the
properties to Marquez. Re: Land of Eternit Corporation

Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Litonjua, Jr. of the I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was
Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez declared that he was authorized to proposed to you.
sell the properties for P27,000,000.00 and that the terms of the sale were subject to negotiation.4
The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far
Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr., and his as the Philippines are (sic) concerned. Considering [the] new political situation since the departure of MR.
brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property for P20,000,000.00 cash. Marquez MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our operations in
apprised Glanville of the Litonjua siblings offer and relayed the same to Delsaux in Belgium, but the latter did Manila. In fact, production has started again last week, and (sic) to recognize the participation in the Corporation.
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
We regret that we could not make a deal with you this time, but in case the policy would change at a later state,
to Glanville stating that, based on the "Belgian/Swiss decision," the final offer was "US$1,000,000.00
we would consult you again.
and P2,500,000.00 to cover all existing obligations prior to final liquidation."5

xxx
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 Yours sincerely,
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 (Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.)11 On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16 The Litonjuas filed a motion
for reconsideration, which was also denied by the appellate court.
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 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 ECs board
The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton Multi- of directors to bind such corporation to the sale of its properties. Delsaux, who was merely the representative
Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig City. An amended of ESAC (the majority stockholder of EC) had no authority to bind the latter. The CA pointed out that Delsaux
complaint was filed, in which defendant EC was substituted by Eterton Multi-Resources Corporation; Benito C. was not even a member of the board of directors of EC. Moreover, the Litonjuas failed to prove that an agency
Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as additional defendants on by estoppel had been created between the parties.
account of their purchase of ESAC shares of stocks and were the controlling stockholders of EC.
In the instant petition for review, petitioners aver that
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 Philippine courts; the Board and stockholders of EC never I
approved any resolution to sell subject properties nor authorized Marquez to sell the same; and the telex dated
October 28, 1986 of Jack Glanville was his own personal making which did not bind EC. THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE.

On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the amended II
complaint.12The fallo of the decision reads:
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED A
WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.
Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding sale between the plaintiffs and
said defendants.
III

The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of action.
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE NECESSARY
AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY
The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is also RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD
dismissed for lack of merit.13 THEM OUT TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID PROPERTIES.17

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.
Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the parcels
of land and the 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 counter-offer of respondent EC and that before
the counter-offer was withdrawn by respondents, the acceptance was made known to them through real estate
broker Marquez.
Petitioners assert that there was no need for a written authority from the Board of Directors of EC for Marquez
to validly act as broker/middleman/intermediary. As broker, Marquez was not an ordinary agent because his
authority was of a special and limited character in most respects. His only job as a broker was to look for a buyer
and to bring together the parties to the transaction. He was not authorized to sell the properties or to make a
binding contract to respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code does not apply.
In any event, petitioners aver, what is important and decisive was that Marquez was able to communicate both
the offer and counter-offer and their acceptance of respondent ECs counter-offer, resulting in a perfected
contract of sale.

Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville, who was
In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it; neither were
the President and General Manager of respondent EC, and Delsaux, who was the Managing Director for ESAC
Glanville and Delsaux authorized by its board of directors to offer the property for sale. Since the sale involved
Asia, had the necessary authority to sell the subject property or, at least, had been allowed by respondent EC
substantially all of the corporations assets, it would necessarily need the authority from the stockholders.
to hold themselves out in the public as having the power to sell the subject properties. Petitioners identified such C.F. DELSAUX19
evidence, thus:
Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly permitted
1. The testimony of Marquez that he was chosen by Glanville as the then President and General by respondent EC to sell the properties within the scope of an apparent authority. Petitioners insist that
Manager of Eternit, to sell the properties of said corporation to any interested party, which authority, respondents held themselves to the public as possessing power to sell the subject properties.
as hereinabove discussed, need not be in writing.
By way of comment, respondents aver that the issues raised by the petitioners are factual, hence, are proscribed
2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL MONTHS, by Rule 45 of the Rules of Court. On the merits of the petition, respondents EC (now EMC) and ESAC reiterate
from 1986 to 1987; their submissions in the CA. They maintain that Glanville, Delsaux and Marquez had no authority from the
stockholders of respondent EC and its Board of Directors to offer the properties for sale to the petitioners, or to
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners; any other person or entity for that matter. They assert that the decision and resolution of the CA are in accord
with law and the evidence on record, and should be affirmed in toto.
4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the properties as evidenced by the
Petitioners ACCEPTANCE of the counter-offer; Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux, conformed to
the written authority of Marquez to sell the properties. The authority of Glanville and Delsaux to bind respondent
EC is evidenced by the fact that Glanville and Delsaux negotiated for the sale of 90% of stocks of respondent
5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank and that
EC to Ruperto Tan on June 1, 1997. Given the significance of their positions and their duties in respondent EC
an ESCROW agreement was drafted over the subject properties;
at the time of the transaction, and the fact that respondent ESAC owns 90% of the shares of stock of respondent
EC, a formal resolution of the Board of Directors would be a mere ceremonial formality. What is important,
6. Glanvilles telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY petitioners maintain, is that Marquez was able to communicate the offer of respondent EC and the petitioners
AND SELL"; acceptance thereof. There was no time that they acted without the knowledge of respondents. In fact,
respondent EC never repudiated the acts of Glanville, Marquez and Delsaux.
7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that Petitioners
offer was allegedly REJECTED by both Glanville and Delsaux.18 The petition has no merit.

Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners offer and Anent the first issue, we agree with the contention of respondents that the issues raised by petitioner in this
thereafter reject such offer unless they were authorized to do so by respondent EC. Petitioners insist that Delsaux case are factual. Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC to act as
confirmed his authority to sell the properties in his letter to Marquez, to wit: its agents relative to the sale of the properties of respondent EC, and if so, the boundaries of their authority as
agents, is a question of fact. In the absence of express written terms creating the relationship of an agency, the
Dear Sir, existence of an agency is a fact question.20 Whether an agency by estoppel was created or whether a person
acted within the bounds of his apparent authority, and whether the principal is estopped to deny the apparent
authority of its agent are, likewise, questions of fact to be resolved on the basis of the evidence on record.21 The
Re: Land of Eternit Corporation
findings of the trial court on such issues, as affirmed by the CA, are conclusive on the Court, absent evidence
that the trial and appellate courts ignored, misconstrued, or misapplied facts and circumstances of substance
I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was which, if considered, would warrant a modification or reversal of the outcome of the case. 22
proposed to you.
It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of Court
The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far because the Court is not a trier of facts. It is not to re-examine and assess the evidence on record, whether
as the Philippines are (sic) concerned. Considering the new political situation since the departure of MR. MARCOS testimonial and documentary. There are, however, recognized exceptions where the Court may delve into and
and a certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila[.] resolve factual issues, namely:
[I]n fact production started again last week, and (sic) to reorganize the participation in the Corporation.
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2) when the
We regret that we could not make a deal with you this time, but in case the policy would change at a later stage inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4)
we would consult you again. when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6)
when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary
In the meantime, I remain to the admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are contrary to
those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on
Yours sincerely, which they are based; (9) when the Court of Appeals manifestly overlooked certain relevant facts not disputed
by the parties, which, if properly considered, would justify a different conclusion; and (10) when the findings of
fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on relating to the affairs of the corporation, but not in the course of, or connected with, the performance of
record.23 authorized duties of such director, are not binding on the corporation.29

We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant case While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to
falls under any of the foregoing exceptions. Indeed, the assailed decision of the Court of Appeals is supported be with the board of directors through its officers and agents as authorized by a board resolution or by its by-
by the evidence on record and the law. 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
It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it had to be an agent thereof but without written authority from the corporation is null and void. The declarations of
empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to prospective buyers and the agent alone are generally insufficient to establish the fact or extent of his/her authority.
31

to accept any counter-offer. Petitioners likewise failed to prove that their counter-offer had been accepted by
respondent EC, through Glanville and Delsaux. It must be stressed that when specific performance is sought of By the contract of agency, a person binds himself to render some service or to do something in representation
a contract made with an agent, the agency must be established by clear, certain and specific proof.24 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
Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines, provides: 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
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 An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or his
corporations controlled and held by the board of directors or trustees to be elected from among the holders offailure to repudiate the agency knowing that another person is acting on his behalf without authority. Acceptance
stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one by the agent may be expressed, or implied from his acts which carry out the agency, or from his silence or
(1) year and until their successors are elected and qualified. 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
Indeed, a corporation is a juridical person separate and distinct from its members or stockholders and is not
the latter shall be in writing, otherwise, the sale shall be void. 37
affected by the personal rights,

In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board of
obligations and transactions of the latter.25 It may act only through its board of directors or, when authorized
Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for
either by its by-laws or by its board resolution, through its officers or agents in the normal course of business.
sale, for and in its behalf, the eight parcels of land owned by respondent EC including the improvements thereon.
The general principles of agency govern the relation between the corporation and its officers or agents, subject
The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of respondent
to the articles of incorporation, by-laws, or relevant provisions of law. 26
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.
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:
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
SEC. 36. Corporate powers and capacity. Every corporation incorporated under this Code has the power and respondent ESAC,39 and the Belgian/Swiss component of the management of respondent ESAC. 40 As such,
capacity: 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
xxxx 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
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such
by petitioners in their Memorandum, Delsaux was unable to reply immediately to the telex of Glanville because
real and personal property, including securities and bonds of other corporations, as the transaction of a lawful
Delsaux had to wait for confirmation from respondent ESAC.41 When Delsaux finally responded to Glanville on
business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by the
February 12, 1987, he made it clear that, based on the "Belgian/Swiss decision" the final offer of respondent
law and the Constitution.
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
The property of a corporation, however, is not the property of the stockholders or members, and as such, may Directors of respondent ESAC. While it is true that petitioners accepted the counter-offer of respondent ESAC,
not be sold without express authority from the board of directors.27 Physical acts, like the offering of the respondent EC was not a party to the transaction between them; hence, EC was not bound by such acceptance.
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
While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux were
only by officers or agents duly authorized for the purpose by corporate by-laws or by specific acts of the board
members of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not as duly
of directors.28 Absent such valid delegation/authorization, the rule is that the declarations of an individual director
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 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 agents authority or knowlingly
allowed the agent to assume such authority; (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. 95909 August 16, 1991
UNILAND RESOURCES, petitioner,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES,* respondent.
GANCAYCO, J.:
In the law on agency, it is elementary that when the main transaction between the principal parties does not
materialize, the claim for commission of the duly authorized broker is disallowed.1 How about the instance when
the sale was eventually consummated between parties introduced by a middleman who, in the first place, had
no authority, express or implied, from the seller to broker the transaction? Should the interloper be allowed a
commission? On these simplified terms rests the nature of the controversy on which this case turns.
As stated by the respondent Court of Appeals,2 the ambient circumstances of this case are as follows:
(1) [Petitioner] Uniland Resources is a private corporation engaged in real estate brokerage and licensed
as such (p. 2, Rec.), while [respondent] DBP, as we all know [ sic], is a government corporation engaged
in finance and banking in a proprietary capacity.
(2) Long before this case arose, Marinduque Mining Corporation obtained a loan from the DBP and as
security therefor, mortgaged certain real properties to the latter, among them two lots located in Makati,
M.M., described as follows:
(a) Corner lot, covered by TCT No. 114138, located at Pasong Tamo, Makati with an area of
3,330 sq. mts. on which is constructed a [four]-story concrete building, etc., which, for brevity,
shall be called the office building lot; and
(b) Lot covered by TCT No. 16279 with 12,355 sq. mts located at Pasong Tamo, Makati, on
which is constructed a concrete/steel warehouse, etc., which, for brevity, shall be called the
warehouse lot.
The aforesaid lots had, however, been previously mortgaged by Marinduque Mining Corp., to Caltex,
and the mortgage in favor of DBP was entered on their titles as a second mortgage (Pre-Trial Order, p.
37, Rec.).
The account of the Marinduque Mining Corp., with the DBP was later transferred to the Assets
Privatization Trust (APT) pursuant to Proclamation No. 50.
(3) For failure of the Marinduque Mining Corp. to pay its obligations to Caltex, the latter foreclosed its On appeal, the Court of Appeals reversed the judgment of the lower court and dismissed the complaint. The
mortgage on the aforesaid two lots (pp. 37-38, Rec.). APT on the other hand, to recover its investment motion for reconsideration filed by petitioner was also subsequently denied.
on the Marinduque Account, offered for sale to the public through DBP its right of redemption on said
two lots by public bidding (Exhs. "1" and "2").
(4) Considering, however, that Caltex had required that both lots be redeemed, the bidding guidelines FAVORABLE TO THE PRIVATE RESPONDENT DBP, primarily making capital of the disparity between the factual
set by DBP provided that any bid to purchase either of the two lots would be considered only should
there be two bids or a bid for the two items which, when combined, would fully cover the sale of the
two lots in question (Exh. "1").
(5) The aforesaid bidding was held on May 5, 1987 with only one bidder, the Counsel Realty Corp. [an
affiliate of Glaxo, Philippines, the client of petitioner], which offered a bid only for the warehouse lot in
the amount of P23,900,000.00. Said bid was thus rejected by DBP.
(6) Seeing, however, that it would make a profit if it redeemed the two lots and then offer them for
sale, and as its right to redeem said lots from Caltex would expire on May 8, 1987, DBP retrieved the
account from APT and, on the last day for the exercise of its right of redemption, May 8, 1987, redeemed
said lots from Caltex for P33,096,321.62 (Exh. "5"), thus acquiring them as its physical assets.
(7) In preparation for the sale of the two lots in question, DBP called a pre-bidding conference wherein
a new set of bidding guidelines were formulated (Exh. "3"). Then, on July 30,1987, the public bidding
for the sale of the two lots was held and again, there was only one bidder, the Charges Realty Corp.
[another affiliate of Glaxo, Philippines], for only the warehouse lot and for the amount of
P24,070,000.00, which is slightly higher than the amount previously offered by Counsel Realty Corp.,
therefor at the May 5, 1987 bidding (see Exh. "5," p. 1 00, Rec.). No bid was submitted for the office
building lot (id.).
(8) Notwithstanding that there was no bidder for the office building lot, the DBP approved the sale of
the warehouse lot to Charges Realty Corp., and on November 23, 1987, the proper documentation of
the sale was made (Exh. "D"). As for the office building lot, it was later sold by DBP in a negotiated
sale to the Bank of P.I. as trustee for the "Perpetual Care Fund of the Manila Memorial Park" for
P17,460,000.00, and proper documentation of the sale was made on November 17, 1987 (Exh. "E" and
submarkings). The DBP admittedly paid the (five percent) broker's fee on this sale to the DBP
Management Corporation, which acted as broker for said negotiated sale (p. 15, Appellant DBP's brief).
(9) After the aforesaid sale, [petitioner], through its President, wrote two letters to [respondent DBP],
the first through its Senior Vice President (Exh. "C"), and, the second through its Vice Chairman (Exh.
"4" [sic], asking for the payment of its broker's fee in instrumenting the sale of its (DBP's) warehouse
lot to Charges Realty Corp. The claim was referred to the Bidding Committee chaired by Amanda S.
Guiam which met on November 9, 1987, and which, on November 18, 1987, issued a decision denying
[petitioner's] claim (Exh. "5"). Hence, the instant case filed by [petitioner] to recover from [respondent]
DBP the aforesaid broker's fee.
After trial, the lower court, on October 25, 1988, rendered judgment
ORDERING [respondent DBP] to pay [petitioner] the sum of P1,203,500,00 which is the
equivalent of [five percent] broker's fee plus legal interest thereto (sic) from the filing of the
complaint on February 18, 1988 until fully paid and the sum of P50,000.00 as and for attorney's
fees. Costs against [respondent DBP]. (p. 122, Rec.).3
4
5
Petitioner is now before this Court alleging that the petition "RAISES A QUESTION OF LAW IN THE SENSE THAT
THE RESPONDENT COURT OF APPEALS BASED ITS DECISION ONLY ON THE CONTROVERSIAL FACTS
6
conclusions of the trial court and of the appellate court. Petitioner asserts that the respondent Court of Appeals
disregarded evidence in its favor consisting of its letters to respondent DBP's higher officers sent prior to the
bidding and sale, wherein petitioner requested accreditation as a broker and, in the process of informing that it
had offered the DBP properties for sale, also volunteered the name of its client, Glaxo, Philippines, as an one founded on mutual consent: the principal agrees to be bound by the acts of the agent and the latter in turn
interested prospective buyer.7 consents to render service on behalf or in representation of the principal.18

The rule is that in petitions for certiorari as a mode of appeal, only questions of law distinctly set forth may be Petitioner, however, also invokes equity considerations, and in equity, the Court recognizes the efforts of
raised.8 Such questions have been defined as those that do not call for any examination of the probative value petitioner in bringing together respondent DBP and an interested and financially-able buyer. While not actively
of the evidence presented by the parties.9 Petitioner's singular assignment of error would, however, have this involved in the actual bidding and transfer of ownership of the warehouse property, petitioner may be said to
Court go over the facts of this case because it necessarily involves the examination of the evidence and its have initiated, albeit without proper authority, the transaction that eventually took place. The Court is also aware
subsequent reevaluation. Under the present proceeding, the same, therefore, cannot be done. that respondent DBP was able to realize a substantial profit from the sale of its two properties. While purely
circumstantial, there is sufficient reason to believe that the DBP became more confident to venture and redeem
It bears emphasizing that mere disagreement between the Court of Appeals and the trial court as to the facts the properties from the APT due to the presence of a ready and willing buyer, as communicated and assured by
of a case does not of itself warrant this Court's review of the same. It has been held that the doctrine that the petitioner.
findings of fact made by the Court of Appeals, being conclusive in nature, are binding on this Court, applies even
if the Court of Appeals was in disagreement with the lower court as to the weight of evidence with a consequent In Prats v. Court of Appeals,19 there was a finding that the petitioner therein as the agent was no longer the
reversal of its findings of fact, so long as the findings of the Court of Appeals are borne out by the record or efficient procuring cause in bringing about the sale proceeding from the fact of expiration of his exclusive
based on substantial evidence.10 while the foregoing doctrine is not absolute, petitioner has not sufficiently authority. There was therefore no basis in law to grant the relief sought. Nevertheless, this Court in equity
proved that his case falls under the known exceptions.11 granted the sum of P100,000.00, out of the P1,380,000.00 claimed as commission, by way of compensation for
the efforts and assistance rendered by the agent in the transaction prior to the expiration of his authority. These
Be that as it may, the Court has perused the assailed decision of the Court of Appeals and still finds the primary consist in offering the lot for sale to the eventual buyer, sending follow-up letters, inviting the buyer to dinner
assertion of petitioner to be unfounded. The Court of Appeals has addressed all the factual contentions of and luncheon meetings, etc.
petitioner and chose not to give credence to petitioner's version. Moreover, the findings of the Court of Appeals
are consistent with, and sufficiently supported by, the records of this case. Parallel circumstances obtain in the case at bar. It was petitioner who advised Glaxo, Philippines of the availability
of the warehouse property and aroused its interest over the same. Through petitioner, respondent DBP was
It is obvious that petitioner was never able to secure the required accreditation from respondent DBP to transact directly informed of the existence of an interested buyer. Petitioner's persistence in communicating with
business on behalf of the latter. The letters sent by petitioner to the higher officers of the DBP and the APT are respondent DBP reinforced the seriousness of the offer. This piece of information no doubt had a bearing on the
merely indicative of petitioner's desire to secure such accreditation. At best these missives are self-serving; the subsequent decisions made by respondent DBP as regards the disposition of its properties.
most that they prove is that they were sent by petitioner and received by respondent DBP, which clearly never
agreed to be bound thereto. As declared by the trial court even when it found in favor of petitioner, there was Petitioner claims the amount of P1,203,500.00 awarded by the trial court as commission computed at five percent
no express reply from the DBP or the APT as to the accreditation sought by petitioner. 12 From the very beginning, of the sale price of the warehouse property. Under the foregoing disquisition and following the precedent, as
therefore, petitioner was aware that it had no express authority from DBP to find buyers of its properties. well as roughly the proportion, set in Prats, the Court in equity grants petitioner the sum of One Hundred
Thousand Pesos (Pl00,000.00) for the role it played in the transaction between respondent DBP and buyer Glaxo,
In its reply submitted pursuant to the resolution requiring the same petitioner also invokes Article 1869 of the Philippines. It is emphasized, however, that the circumstances that came into play in this case do not meet the
13

new Civil Code14 in contending that an implied agency existed. Petitioner argues that it "should have been minimum legal standards required for the existence of an agency relationship and that the award is based purely
stopped, disauthorized and outrightly prevented from dealing the 12,355 sq. m (with warehouse) [ sic] by the on equity considerations. Accordingly, petitioner's other arguments need not now be discussed.
DBP from the inception."15 On the contrary, these steps were never necessary. In the course of petitioner's
dealings with the DBP, it was always made clear to petitioner that only accredited brokers may look for buyers WHEREFORE, the decision appealed from is hereby AFFIRMED, with the MODIFICATION that in equity
on behalf of respondent DBP. This is not a situation wherein a third party was prejudiced by the refusal of respondent DBP is ordered to pay petitioner the amount of One Hundred Thousand Pesos (P100,000.00). No
respondent DBP to recognize petitioner as its broker. The controversy is only between the DBP and petitioner, pronouncement as to costs.
to whom it was emphasized in no uncertain terms that the arrangement sought did not exist. Article 1869,
therefore, has no room for operation in this case. SO ORDERED.

Petitioner would also disparage the formality of accreditation as merely a mechanical act, which requires not
much discretion, as long as a person or entity looks for a buyer [and] initiate or promote [ sic] the interests of
the seller.16Being engaged in business, petitioner should do better to adopt the opposite attitude and appreciate
that formalities, such as the need for accreditation, result from the evolution of sound business practices for the
protection and benefit of all parties concerned. They are designed and adopted specifically to prevent the
occurrence of situations similar to that obtaining in this case.

More importantly, petitioner's stance goes against the basic axiom in Civil Law that no one may contract in the
name of another without being authorized by the latter, unless the former has by law a right to represent
him.17 From this principle, among others, springs the relationship of agency which, as with other contracts, is
G.R. No. 142625 December 19, 2006 anesthesiologist, Dr. Estrada refused. Despite Dr. Estrada's refusal, Dr. Enriquez stayed to observe Corazon's
condition.
ROGELIO P. NOGALES, for himself and on behalf of the minors, ROGER ANTHONY, ANGELICA,
NANCY, and MICHAEL CHRISTOPHER, all surnamed NOGALES, petitioners, At 6:00 a.m., Corazon was transferred to Delivery Room No. 1 of the CMC. At 6:10 a.m., Corazon's bag of water
vs. ruptured spontaneously. At 6:12 a.m., Corazon's cervix was fully dilated. At 6:13 a.m., Corazon started to
CAPITOL MEDICAL CENTER, DR. OSCAR ESTRADA, DR. ELY VILLAFLOR, DR. ROSA UY, DR. JOEL experience convulsions.
ENRIQUEZ, DR. PERPETUA LACSON, DR. NOE ESPINOLA, and NURSE J. DUMLAO, respondents.
At 6:15 a.m., Dr. Estrada ordered the injection of ten grams of magnesium sulfate. However, Dr. Ely Villaflor
DECISION ("Dr. Villaflor"), who was assisting Dr. Estrada, administered only 2.5 grams of magnesium sulfate.

CARPIO, J.: At 6:22 a.m., Dr. Estrada, assisted by Dr. Villaflor, applied low forceps to extract Corazon's baby. In the process,
a 1.0 x 2.5 cm. piece of cervical tissue was allegedly torn. The baby came out in an apnic, cyanotic, weak and
The Case injured condition. Consequently, the baby had to be intubated and resuscitated by Dr. Enriquez and Dr. Payumo.

This petition for review1 assails the 6 February 1998 Decision2 and 21 March 2000 Resolution3 of the Court of At 6:27 a.m., Corazon began to manifest moderate vaginal bleeding which rapidly became profuse. Corazon's
Appeals in CA-G.R. CV No. 45641. The Court of Appeals affirmed in toto the 22 November 1993 Decision4 of the blood pressure dropped from 130/80 to 60/40 within five minutes. There was continuous profuse vaginal
Regional Trial Court of Manila, Branch 33, finding Dr. Oscar Estrada solely liable for damages for the death of bleeding. The assisting nurse administered hemacel through a gauge 19 needle as a side drip to the ongoing
his patient, Corazon Nogales, while absolving the remaining respondents of any liability. The Court of Appeals intravenous injection of dextrose.
denied petitioners' motion for reconsideration.
At 7:45 a.m., Dr. Estrada ordered blood typing and cross matching with bottled blood. It took approximately 30
The Facts minutes for the CMC laboratory, headed by Dr. Perpetua Lacson ("Dr. Lacson"), to comply with Dr. Estrada's
order and deliver the blood.
Pregnant with her fourth child, Corazon Nogales ("Corazon"), who was then 37 years old, was under the exclusive
prenatal care of Dr. Oscar Estrada ("Dr. Estrada") beginning on her fourth month of pregnancy or as early as At 8:00 a.m., Dr. Noe Espinola ("Dr. Espinola"), head of the Obstetrics-Gynecology Department of the CMC, was
December 1975. While Corazon was on her last trimester of pregnancy, Dr. Estrada noted an increase in her apprised of Corazon's condition by telephone. Upon being informed that Corazon was bleeding profusely, Dr.
blood pressure and development of leg edema5 indicating preeclampsia,6 which is a dangerous complication of Espinola ordered immediate hysterectomy. Rogelio was made to sign a "Consent to Operation."
13

pregnancy.7
Due to the inclement weather then, Dr. Espinola, who was fetched from his residence by an ambulance, arrived
Around midnight of 25 May 1976, Corazon started to experience mild labor pains prompting Corazon and Rogelio at the CMC about an hour later or at 9:00 a.m. He examined the patient and ordered some resuscitative measures
Nogales ("Spouses Nogales") to see Dr. Estrada at his home. After examining Corazon, Dr. Estrada advised her to be administered. Despite Dr. Espinola's efforts, Corazon died at 9:15 a.m. The cause of death was
immediate admission to the Capitol Medical Center ("CMC"). "hemorrhage, post partum."14

On 26 May 1976, Corazon was admitted at 2:30 a.m. at the CMC after the staff nurse noted the written admission
request8 of Dr. Estrada. Upon Corazon's admission at the CMC, Rogelio Nogales ("Rogelio") executed and signed
the "Consent on Admission and Agreement"9 and "Admission Agreement."10 Corazon was then brought to the
labor room of the CMC.
Dr. Rosa Uy ("Dr. Uy"), who was then a resident physician of CMC, conducted an internal examination of Corazon.
Dr. Uy then called up Dr. Estrada to notify him of her findings.
Based on the Doctor's Order Sheet,11 around 3:00 a.m., Dr. Estrada ordered for 10 mg. of valium to be
administered immediately by intramuscular injection. Dr. Estrada later ordered the start of intravenous
administration of syntocinon admixed with dextrose, 5%, in lactated Ringers' solution, at the rate of eight to ten After more than 11 years of trial, the trial court rendered judgment on 22 November 1993 finding Dr. Estrada
micro-drops per minute.
On 14 May 1980, petitioners filed a complaint for damages15 with the Regional Trial Court16 of Manila against
CMC, Dr. Estrada, Dr. Villaflor, Dr. Uy, Dr. Enriquez, Dr. Lacson, Dr. Espinola, and a certain Nurse J. Dumlao for
the death of Corazon. Petitioners mainly contended that defendant physicians and CMC personnel were negligent
in the treatment and management of Corazon's condition. Petitioners charged CMC with negligence in the
selection and supervision of defendant physicians and hospital staff.
For failing to file their answer to the complaint despite service of summons, the trial court declared Dr. Estrada,
Dr. Enriquez, and Nurse Dumlao in default.17 CMC, Dr. Villaflor, Dr. Uy, Dr. Espinola, and Dr. Lacson filed their
respective answers denying and opposing the allegations in the complaint. Subsequently, trial ensued.
solely liable for damages. The trial court ruled as follows:

According to the Nurse's Observation Notes,12 Dr. Joel Enriquez ("Dr. Enriquez"), an anesthesiologist at CMC, The victim was under his pre-natal care, apparently, his fault began from his incorrect and inadequate
was notified at 4:15 a.m. of Corazon's admission. Subsequently, when asked if he needed the services of an 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 In other words, the two (2) doctors were not employees of the hospital and therefore the hospital did not
nurse Dumlao of hemacel by way of side drip, instead of direct intravenous injection, and his failure to consult have control over their professional conduct. When Mrs. Nogales was brought to the hospital, it was an
a senior obstetrician at an early stage of the problem. 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
On the part however of Dra. Ely Villaflor, Dra. Rosa Uy, Dr. Joel Enriquez, Dr. Lacson, Dr. Espinola, nurse J. liability of an employer for the negligence of its employees. If ever in this case there is fault or negligence in
Dumlao and CMC, the Court finds no legal justification to find them civilly liable. 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".
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 WHEREFORE, premises considered, judgment is hereby rendered finding defendant Dr. Estrada of Number 13
diagnose the true cause of the bleeding which in this case appears to be a cervical laceration, it cannot be Pitimini St. San Francisco del Monte, Quezon City civilly liable to pay plaintiffs: 1) By way of actual damages
safely concluded by the Court that Dra. Villaflor had the correct diagnosis and she failed to inform Dr. Estrada. in the amount of P105,000.00; 2) By way of moral damages in the amount of P700,000.00; 3) Attorney's fees
No evidence was introduced to show that indeed Dra. Villaflor had discovered that there was laceration at the in the amount of P100,000.00 and to pay the costs of suit.
cervical area of the patient's internal organ.
For failure of the plaintiffs to adduce evidence to support its [sic] allegations against the other defendants,
On the part of nurse Dumlao, there is no showing that when she administered the hemacel as a side drip, she the complaint is hereby ordered dismissed. While the Court looks with disfavor the filing of the present
did it on her own. If the correct procedure was directly thru the veins, it could only be because this was what complaint against the other defendants by the herein plaintiffs, as in a way it has caused them personal
was probably the orders of Dr. Estrada. 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.
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 SO ORDERED.18
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 Petitioners appealed the trial court's decision. Petitioners claimed that aside from Dr. Estrada, the remaining
remedy. He was not with Dr. Estrada when the patient was brought to the hospital at 2:30 o'clock a.m. So, respondents should be held equally liable for negligence. Petitioners pointed out the extent of each respondent's
whatever errors that Dr. Estrada committed on the patient before 9:00 o'clock a.m. are certainly the errors of alleged liability.
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 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
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 Hence, this petition.
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
Meanwhile, petitioners filed a Manifestation dated 12 April 200221 stating that respondents Dr. Estrada, Dr.
would be to dwell on conjectures and speculations.
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
On the civil liability of Dr. Perpetua Lacson, [s]he is a hematologist and in-charge of the blood bank of the the subject matter of this petition is the liability of CMC for the negligence of Dr. Estrada.23
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
The Court issued a Resolution dated 9 September 200224 dispensing with the requirement to submit the correct
conducted to determine the type of blood, cross matching and other matters consistent with medical science
and present addresses of respondents Dr. Estrada, Dr. Enriquez, Dr. Villaflor, and Nurse Dumlao. The Court
so, the lapse of 30 minutes maybe considered a reasonable time to do all of these things, and not a delay as
stated that with the filing of petitioners' Manifestation, it should be understood that they are claiming only against
the plaintiffs would want the Court to believe.
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.
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
The Court noted that Dr. Estrada did not appeal the decision of the Court of Appeals affirming the decision of
support such theory. No evidence was adduced to show that Dra. Rosa Uy as a resident physician of Capitol
the Regional Trial Court. Accordingly, the decision of the Court of Appeals, affirming the trial court's judgment,
Medical Center, had knowledge of the mismanagement of the patient Corazon Nogales, and that
is already final as against Dr. Oscar Estrada.
notwithstanding such knowledge, she tolerated the same to happen.

Petitioners filed a motion for reconsideration25 of the Court's 9 September 2002 Resolution claiming that Dr.
In the pre-trial order, plaintiffs and CMC agreed that defendant CMC did not have any hand or participation in
Enriquez, Dr. Villaflor and Nurse Dumlao were notified of the petition at their counsels' last known addresses.
the selection or hiring of Dr. Estrada or his assistant Dra. Ely Villaflor as attending physician[s] of the deceased.
Petitioners reiterated their imputation of negligence on these respondents. The Court denied petitioners' Motion Dr. Estrada's negligence in handling the treatment and management of Corazon's condition which ultimately
for Reconsideration in its 18 February 2004 Resolution.26 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
The Court of Appeals' Ruling of the trial court on Dr. Estrada's negligence is already final.

In its Decision of 6 February 1998, the Court of Appeals upheld the trial court's ruling. The Court of Appeals Petitioners maintain that CMC is vicariously liable for Dr. Estrada's negligence based on Article 2180 in relation
rejected petitioners' view that the doctrine in Darling v. Charleston Community Memorial Hospital27 applies to to Article 2176 of the Civil Code. These provisions pertinently state:
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 Art. 2180. The obligation imposed by article 2176 is demandable not only for one's own acts or omissions, but
employees of the hospital. also for those of persons for whom one is responsible.

Citing other American cases, the Court of Appeals further held that the mere fact that a hospital permitted a xxxx
physician to practice medicine and use its facilities is not sufficient to 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 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.
The Court of Appeals found the cases of Davidson v. Conole30 and Campbell v. Emma Laing Stevens
Hospital31applicable to this case. Quoting Campbell, the Court of Appeals stated that where there is no proof xxxx
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
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they
intervene in the relationship of physician-patient between defendant physician and plaintiff.
observed all the diligence of a good father of a family to prevent damage.

On the liability of the other respondents, the Court of Appeals applied the "borrowed servant" doctrine
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged
considering that Dr. Estrada was an independent contractor who was merely exercising hospital privileges. This
to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between
doctrine provides that once the surgeon enters the operating room and takes charge of the proceedings, the
the parties, is called a quasi-delict and is governed by the provisions of this Chapter.
acts or omissions of operating room personnel, and any negligence associated with such acts or omissions, are
imputable to the surgeon. While the assisting physicians and nurses may be employed by the hospital, or
32

engaged by the patient, they normally become the temporary servants or agents of the surgeon in charge while Similarly, in the United States, a hospital which is the employer, master, or principal of a physician employee,
the operation is in progress, and liability may be imposed upon the surgeon for their negligent acts under the servant, or agent, may be held liable for the physician's negligence under the doctrine of respondeat superior.34
doctrine of respondeat superior.33
In the present case, petitioners maintain that CMC, in allowing Dr. Estrada to practice and admit patients at
The Court of Appeals concluded that since Rogelio engaged Dr. Estrada as the attending physician of his wife, CMC, should be liable for Dr. Estrada's malpractice. Rogelio claims that he knew Dr. Estrada as an accredited
any liability for malpractice must be Dr. Estrada's sole responsibility. 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,
While it found the amount of damages fair and reasonable, the Court of Appeals held that no interest could be
the fact that CMC made Rogelio sign a Consent on Admission and Admission Agreement 37 and a Consent to
imposed on unliquidated claims or damages.
Operation printed on the letterhead of CMC indicates that CMC considered Dr. Estrada as a member of its medical
staff.
The Issue
On the other hand, CMC disclaims liability by asserting that Dr. Estrada was a mere visiting physician and that it
Basically, the issue in this case is whether CMC is vicariously liable for the negligence of Dr. Estrada. The admitted Corazon because her physical condition then was classified an emergency obstetrics case.38
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
CMC alleges that Dr. Estrada is an independent contractor "for whose actuations CMC would be a total stranger."
inevitable to finally and completely dispose of the present controversy.
CMC maintains that it had no control or supervision over Dr. Estrada in the exercise of his medical profession.

The Ruling of the Court

The Court had the occasion to determine the relationship between a hospital and a consultant or visiting
physician and the liability of such hospital for that physician's negligence in Ramos v. Court of Appeals,39 to wit:
The petition is partly meritorious.
In the first place, hospitals exercise significant control in the hiring and firing of consultants and in the conduct
On the Liability of CMC 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 hospital.44 This exception is also known as the "doctrine of apparent authority."45 In Gilbert v. Sycamore
accreditation by the appropriate board (diplomate), evidence of fellowship in most cases, and references. Municipal Hospital,46 the Illinois Supreme Court explained the doctrine of apparent authority in this wise:
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 [U]nder the doctrine of apparent authority a hospital can be held vicariously liable for the negligent acts of a
respondent hospital. 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
After a physician is accepted, either as a visiting or attending consultant, he is normally required to attend of the action have been set out as follows:
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 "For a hospital to be liable under the doctrine of apparent authority, a plaintiff must show that: (1) the hospital,
maintain a clinic in the hospital, and/or for the privilege of admitting patients into the hospital. In addition to or its agent, acted in a manner that would lead a reasonable person to conclude that the individual who was
these, the physician's performance as a specialist is generally evaluated by a peer review committee on the alleged to be negligent was an employee or agent of the hospital; (2) where the acts of the agent create the
basis of mortality and morbidity statistics, and feedback from patients, nurses, interns and residents. A appearance of authority, the plaintiff must also prove that the hospital had knowledge of and acquiesced in
consultant remiss in his duties, or a consultant who regularly falls short of the minimum standards acceptable them; and (3) the plaintiff acted in reliance upon the conduct of the hospital or its agent, consistent with
to the hospital or its peer review committee, is normally politely terminated. ordinary care and prudence."

In other words, private hospitals, hire, fire and exercise real control over their attending and visiting The element of "holding out" on the part of the hospital does not require an express representation by the
"consultant" staff. While "consultants" are not, technically employees, a point which respondent hospital that the person alleged to be negligent is an employee. Rather, the element is satisfied if the hospital
hospital asserts in denying all responsibility for the patient's condition, the control exercised, the holds itself out as a provider of emergency room care without informing the patient that the care is provided
hiring, and the right to terminate consultants all fulfill the important hallmarks of an employer- by independent contractors.
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
The element of justifiable reliance on the part of the plaintiff is satisfied if the plaintiff relies upon the hospital
foregoing, we rule that for the purpose of allocating responsibility in medical negligence cases,
to provide complete emergency room care, rather than upon a specific physician.
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 doctrine of apparent authority essentially involves two factors to determine the liability of an independent-
contractor physician.
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 The first factor focuses on the hospital's manifestations and is sometimes described as an inquiry whether the
others based on the former's responsibility under a relationship of patria potestas. x x x40 (Emphasis supplied) 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;
While the Court in Ramos did not expound on the control test, such test essentially determines whether an
rather a representation may be general and implied.48
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 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
After a thorough examination of the voluminous records of this case, the Court finds no single evidence pointing
party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a
to CMC's exercise of control over Dr. Estrada's treatment and management of Corazon's condition. It is
particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act
undisputed that throughout Corazon's pregnancy, she was under the exclusive prenatal care of Dr. Estrada. At
or omission, be permitted to falsify it."49
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 In the instant case, CMC impliedly held out Dr. Estrada as a member of its medical staff. Through CMC's acts,
allowed Dr. Estrada to use its facilities43 when Corazon was about to give birth, which CMC considered an CMC clothed Dr. Estrada with apparent authority thereby leading the Spouses Nogales to believe that Dr. Estrada
emergency. Considering these circumstances, Dr. Estrada is not an employee of CMC, but an independent was an employee or agent of CMC. CMC cannot now repudiate such authority.
contractor.
First, CMC granted staff privileges to Dr. Estrada. CMC extended its medical staff and facilities to Dr. Estrada.
The question now is whether CMC is automatically exempt from liability considering that Dr. Estrada is an Upon Dr. Estrada's request for Corazon's admission, CMC, through its personnel, readily accommodated Corazon
independent contractor-physician. and updated Dr. Estrada of her condition.

In general, a hospital is not liable for the negligence of an independent contractor-physician. There is, however, Second, CMC made Rogelio sign consent forms printed on CMC letterhead. Prior to Corazon's admission and
an exception to this principle. The hospital may be liable if the physician is the "ostensible" agent of the 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 CMC played a significant role in the Spouses Nogales' decision in accepting Dr. Estrada's services as the
explicitly provides: 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
KNOW ALL MEN BY THESE PRESENTS: not an employee of CMC.

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.
Further, the Spouses Nogales looked to CMC to provide the best medical care and support services for Corazon's
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:

x x x x51 (Emphasis supplied) "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
While the Consent to Operation pertinently reads, thus: 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
I, ROGELIO NOGALES, x x x, of my own volition and free will, do consent and submit said CORAZON NOGALES
they charge patients for medical care and treatment, collecting for such services, if necessary,
to Hysterectomy, by the Surgical Staff and Anesthesiologists of Capitol Medical Center and/or
by legal action. Certainly, the person who avails himself of 'hospital facilities' expects that the
whatever succeeding operations, treatment, or emergency measures as may be necessary and most
hospital will attempt to cure him, not that its nurses or other employees will act on their own
expedient; and, that I will not hold liable or responsible and hereby waive and forever discharge and hold free
responsibility." x x x (Emphasis supplied)
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, Likewise unconvincing is CMC's argument that petitioners are estopped from claiming damages based on the
anesthesiologists, the Capitol Medical Center and/or its staff. 52 (Emphasis supplied) 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,
Without any indication in these consent forms that Dr. Estrada was an independent contractor-physician, the
releases CMC and its employees "from any and all claims" arising from or by reason of the treatment and
Spouses Nogales could not have known that Dr. Estrada was an independent contractor. Significantly, no one
operation.
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 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
Third, Dr. Estrada's referral of Corazon's profuse vaginal bleeding to Dr. Espinola, who was then the Head of the
adhesion, are construed strictly against hospitals. Besides, a blanket release in favor of hospitals "from any and
Obstetrics and Gynecology Department of CMC, gave the impression that Dr. Estrada as a member of CMC's
all claims," which includes claims due to bad faith or gross negligence, would be contrary to public policy and
medical staff was collaborating with other CMC-employed specialists in treating Corazon.
thus void.

The second factor focuses on the patient's reliance. It is sometimes characterized as an inquiry on whether the
Even simple negligence is not subject to blanket release in favor of establishments like hospitals but may only
plaintiff acted in reliance upon the conduct of the hospital or its agent, consistent with ordinary care and
mitigate liability depending on the circumstances.58 When a person needing urgent medical attention rushes to
prudence. 54
a hospital, he cannot bargain on equal footing with the hospital on the terms of admission and operation. Such
a person is literally at the mercy of the hospital. There can be no clearer example of a contract of adhesion than
The records show that the Spouses Nogales relied upon a perceived employment relationship with CMC in one arising from such a dire situation. Thus, the release forms of CMC cannot relieve CMC from liability for the
accepting Dr. Estrada's services. Rogelio testified that he and his wife specifically chose Dr. Estrada to handle negligent medical treatment of Corazon.
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
On the Liability of the Other Respondents
Despite this Court's pronouncement in its 9 September 200259 Resolution that the filing of petitioners' As found by the trial court, there was no unreasonable delay in the delivery of blood from the time of the request
Manifestation confined petitioners' claim only against CMC, Dr. Espinola, Dr. Lacson, and Dr. Uy, who have filed until the transfusion to Corazon. Dr. Lacson competently explained the procedure before blood could be given
their comments, the Court deems it proper to resolve the individual liability of the remaining respondents to put to the patient.65 Taking into account the bleeding time, clotting time and cross-matching, Dr. Lacson stated that
an end finally to this more than two-decade old controversy. it would take approximately 45-60 minutes before blood could be ready for transfusion.66 Further, no evidence
exists that Dr. Lacson neglected her duties as head of the blood bank.
a) Dr. Ely Villaflor
e) Dr. Noe Espinola
Petitioners blame Dr. Ely Villaflor for failing to diagnose the cause of Corazon's bleeding and to suggest the
correct remedy to Dr. Estrada.60 Petitioners assert that it was Dr. Villaflor's duty to correct the error of Nurse Petitioners argue that Dr. Espinola should not have ordered immediate hysterectomy without determining the
Dumlao in the administration of hemacel. underlying cause of Corazon's bleeding. Dr. Espinola should have first considered the possibility of cervical injury,
and advised a thorough examination of the cervix, instead of believing outright Dr. Estrada's diagnosis that the
The Court is not persuaded. Dr. Villaflor admitted administering a lower dosage of magnesium sulfate. However, cause of bleeding was uterine atony.
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 instructed Dr. Villaflor to reduce the dosage of Dr. Espinola's order to do hysterectomy which was based on the information he received by phone is not
magnesium sulfate from 10 to 2.5 grams. Since petitioners did not dispute Dr. Villaflor's allegation, Dr. Villaflor's negligence. The Court agrees with the trial court's observation that Dr. Espinola, upon hearing such information
defense remains uncontroverted. Dr. Villaflor's act of administering a lower dosage of magnesium sulfate was about Corazon's condition, believed in good faith that hysterectomy was the correct remedy. At any rate, the
not out of her own volition or was in contravention of Dr. Estrada's order. hysterectomy did not push through because upon Dr. Espinola's arrival, it was already too late. At the time,
Corazon was practically dead.
b) Dr. Rosa Uy
f) Nurse J. Dumlao
Dr. Rosa Uy's alleged negligence consisted of her failure (1) to call the attention of Dr. Estrada on the incorrect
dosage of magnesium sulfate administered by Dr. Villaflor; (2) to take corrective measures; and (3) to correct In Moore v. Guthrie Hospital Inc.,67 the US Court of Appeals, Fourth Circuit, held that to recover, a patient
Nurse Dumlao's wrong method of hemacel administration. complaining of injuries allegedly resulting when the nurse negligently injected medicine to him intravenously
instead of intramuscularly had to show that (1) an intravenous injection constituted a lack of reasonable and
The Court believes Dr. Uy's claim that as a second year resident physician then at CMC, she was merely ordinary care; (2) the nurse injected medicine intravenously; and (3) such injection was the proximate cause of
authorized to take the clinical history and physical examination of Corazon. 62 However, that routine internal his injury.
examination did not ipso facto make Dr. Uy liable for the errors committed by Dr. Estrada. Further, petitioners'
imputation of negligence rests on their baseless assumption that Dr. Uy was present at the delivery room. In the present case, there is no evidence of Nurse Dumlao's alleged failure to follow Dr. Estrada's specific
Nothing shows that Dr. Uy participated in delivering Corazon's baby. Further, it is unexpected from Dr. Uy, a instructions. Even assuming Nurse Dumlao defied Dr. Estrada's order, there is no showing that side-drip
mere resident physician at that time, to call the attention of a more experienced specialist, if ever she was administration of hemacel proximately caused Corazon's death. No evidence linking Corazon's death and the
present at the delivery room. alleged wrongful hemacel administration was introduced. Therefore, there is no basis to hold Nurse Dumlao
liable for negligence.
c) Dr. Joel Enriquez
On the Award of Interest on Damages
Petitioners fault Dr. Joel Enriquez also for not calling the attention of Dr. Estrada, Dr. Villaflor, and Nurse Dumlao
about their errors.63 Petitioners insist that Dr. Enriquez should have taken, or at least suggested, corrective The award of interest on damages is proper and allowed under Article 2211 of the Civil Code, which states that
measures to rectify such errors. in crimes and quasi-delicts, interest as a part of the damages may, in a proper case, be adjudicated in the
discretion of the court.68
The Court is not convinced. Dr. Enriquez is an 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 no WHEREFORE, the Court PARTLY GRANTS the petition. The Court finds respondent Capitol Medical Center
evidence of Dr. Enriquez's knowledge of any error committed by Dr. Estrada and his failure to act upon such vicariously liable for the negligence of Dr. Oscar Estrada. The amounts of P105,000 as actual damages
observation. and P700,000 as moral damages should each earn legal interest at the rate of six percent (6%) per annum
computed from the date of the judgment of the trial court. The Court affirms the rest of the Decision dated 6
d) Dr. Perpetua Lacson February 1998 and Resolution dated 21 March 2000 of the Court of Appeals in CA-G.R. CV No. 45641.

Petitioners fault Dr. Perpetua Lacson for her purported delay in the delivery of blood Corazon SO ORDERED.
needed.64 Petitioners claim that Dr. Lacson was remiss in her duty of supervising the blood bank staff.
G.R. No. 118375 October 3, 2003 before the Pasay City RTC,8 seeking the annulment of the mortgage deed. The trial court eventually stopped the
auction sale.9
CELESTINA T. NAGUIAT, petitioner,
vs. On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate Mortgage null and void, and
COURT OF APPEALS and AURORA QUEAO, respondents. ordering Naguiat to return to Queao the owners 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
DECISION of Appeals promulgated the decision now assailed before us that affirmed in toto the RTC decision. Hence, the
present petition.
TINGA, J.:
Naguiat questions the findings of facts made by the Court of Appeals, especially on the issue of whether Queao
had actually received the loan proceeds which were supposed to be covered by the two checks Naguiat had
Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of the Sixteenth Division of
issued or indorsed. Naguiat claims that being a notarial instrument or public document, the mortgage deed
the respondent Court of Appeals promulgated on 21 December 1994 , which affirmed in toto the decision handed
1
enjoys the presumption that the recitals therein are true. Naguiat also questions the admissibility of various
down by the Regional Trial Court (RTC) of Pasay City. 2
representations and pronouncements of Ruebenfeldt, invoking the rule on the non-binding effect of the
admissions of third persons.11
The case arose when on 11 August 1981, private respondent Aurora Queao (Queao) filed a complaint before
the Pasay City RTC for cancellation of a Real Estate Mortgage she had entered into with petitioner Celestina
The resolution of the issues presented before this Court by Naguiat involves the determination of facts, a function
Naguiat (Naguiat). The RTC rendered a decision, declaring the questioned Real Estate Mortgage void, which
which this Court does not exercise in an appeal by certiorari. Under Rule 45 which governs appeal by certiorari,
Naguiat appealed to the Court of Appeals. After the Court of Appeals upheld the RTC decision, Naguiat instituted
only questions of law may be raised12 as the Supreme Court is not a trier of facts.13 The resolution of factual
the present petition.1vvphi1.nt
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
The operative facts follow: 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
Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos (200,000.00), which question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts.
16

Naguiat granted. On 11 August 1980, Naguiat indorsed to Queao Associated Bank Check No. 090990 (dated
11 August 1980) for the amount of Ninety Five Thousand Pesos (95,000.00), which was earlier issued to Naguiat Surely, there are established exceptions to the rule on the conclusiveness of the findings of facts of the lower
by the Corporate Resources Financing Corporation. She also issued her own Filmanbank Check No. 065314, to courts.17 But Naguiats case does not fall under any of the exceptions. In any event, both the decisions of the
the order of Queao, also dated 11 August 1980 and for the amount of Ninety Five Thousand Pesos (95,000.00). appellate and trial courts are supported by the evidence on record and the applicable laws.
The proceeds of these checks were to constitute the loan granted by Naguiat to Queao.3
Against the common finding of the courts below, Naguiat vigorously insists that Queao received the loan
To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 August 1980 in favor of Naguiat, proceeds. Capitalizing on the status of the mortgage deed as a public document, she cites the rule that a public
and surrendered to the latter the owners duplicates of the titles covering the mortgaged properties. 4 On the document enjoys the presumption of validity and truthfulness of its contents. The Court of Appeals, however, is
same day, the mortgage deed was notarized, and Queao issued to Naguiat a promissory note for the amount correct in ruling that the presumption of truthfulness of the recitals in a public document was defeated by the
of TWO HUNDRED THOUSAND PESOS (200,000.00), with interest at 12% per annum, payable on 11 September clear and convincing evidence in this case that pointed to the absence of consideration. 18 This Court has held
1980.5Queao also issued a Security Bank and Trust Company check, postdated 11 September 1980, for the that the presumption of truthfulness engendered by notarized documents is rebuttable, yielding as it does to
amount of TWO HUNDRED THOUSAND PESOS (200,000.00) and payable to the order of Naguiat. clear and convincing evidence to the contrary, as in this case.19

Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency of funds. On On the other hand, absolutely no evidence was submitted by Naguiat that the checks she issued or endorsed
the following day, 12 September 1980, Queao requested Security Bank to stop payment of her postdated check, were actually encashed or deposited. The mere issuance of the checks did not result in the perfection of the
but the bank rejected the request pursuant to its policy not to honor such requests if the check is drawn against
contract of loan. For the Civil Code provides that the delivery of bills of exchange and mercantile documents
insufficient funds.6 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
On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding settlement of the loan. Shortly the Civil Code provides:
thereafter, Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the meeting, Queao told
Naguiat that she did not receive the proceeds of the loan, adding that the checks were retained by Ruebenfeldt, "An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties,
who purportedly was Naguiats agent.7 but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract."

Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province, who then A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery of the object
scheduled the foreclosure sale on 14 August 1981. Three days before the scheduled sale, Queao filed the case of the contract.21 In this case, the objects of the contract are the loan proceeds which Queao 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 Queaos account.1awphi1.nt

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 Queao the checks she issued or indorsed
to Queao, pending delivery by the latter of additional collateral. Ruebenfeldt served as agent of Naguiat on the
loan application of Queaos friend, Marilou Farralese, and it was in connection with that transaction that Queao
came to know Naguiat.23 It was also Ruebenfeldt who accompanied Queao in her meeting with Naguiat and on
that occasion, on her own and without Queao asking for it, Reubenfeldt actually drew a check for the sum of
220,000.00 payable to Naguiat, to cover for Queaos alleged liability to Naguiat under the loan agreement.24

The Court of Appeals recognized the existence of an "agency by estoppel25 citing Article 1873 of the Civil
Code.26Apparently, it considered that at the very least, as a consequence of the interaction between Naguiat
and Ruebenfeldt, Queao got the impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing
to correct Queaos 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.1awphi1.nt

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 Queao 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 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:
WOODCHILD HOLDINGS, INC., petitioner,
vs. The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee the beneficial use of and a
ROXAS ELECTRIC AND CONSTRUCTION COMPANY, INC., respondent. 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
DECISION corner of Lot No. 491-A-3-B-1, as turning and/or maneuvering area for Vendee's vehicles.

CALLEJO, SR., J.: 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.
This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 56125
reversing the Decision2 of the Regional Trial Court of Makati, Branch 57, which ruled in favor of the petitioner.

The Antecedents
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,
The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the Roxas Electric and
and that the Vendor hereby warrants the right of the Vendee to possess and own the said parcel of
Construction Company, was the
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
owner of two parcels of land, identified as Lot No. 491-A-3-B-1 covered by Transfer Certificate of Title (TCT) No. squatters and occupants of the premises within two (2) weeks from the signing hereof. In case of
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 failure on the part of the Vendor to eject all occupants and squatters within the two-week period or
No. 491-A-3-B-2 was a dirt road accessing to the Sumulong Highway, Antipolo, Rizal. 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
At a special meeting on May 17, 1991, the respondent's Board of Directors approved a resolution authorizing reimbursement for all payments made to the Vendor with interest thereon at 36% per annum.8
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 On September 10, 1991, the Wimbeco Builder's, Inc. (WBI) submitted its quotation for P8,649,000 to WHI for
reasonable and advantageous to the corporation; and to execute, sign and deliver the pertinent sales documents the construction of the warehouse building on a portion of the property with an area of 5,088 square
and receive the proceeds of the sale for and on behalf of the company.3 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
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 In a Letter dated September 16, 1991, Ponderosa Leather Goods Company, Inc. confirmed its lease agreement
that its 45-foot container van would be able to readily enter or leave the property. In a Letter to Roxas dated with WHI of a 5,000-square-meter portion of the warehouse yet to be constructed at the rental rate of P65 per
June 21, 1991, WHI President Jonathan Y. Dy offered to buy Lot No. 491-A-3-B-2 under stated terms and square meter. Ponderosa emphasized the need for the warehouse to be ready for occupancy before April 1,
conditions for P1,000 per square meter or at the price of P7,213,000. 4 One of the terms incorporated in Dy's 1992.11 WHI accepted the offer. However, WBI failed to commence the construction of the warehouse in October
offer was the following provision: 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
5. This Offer to Purchase is made on the representation and warranty of the OWNER/SELLER, that he property.
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 On March 31, 1992, WHI and WBI executed a Letter-Contract for the construction of the warehouse building for
the area on which the right of way traverses from the main lot (area) towards the exit to the Sumulong P11,804,160.13 The contractor started construction in April 1992 even before the building officials of Antipolo
Highway as shown in the location plan furnished by the Owner/Seller to the buyer. Furthermore, in the City issued a building permit on May 28, 1992. After the warehouse was finished, WHI issued on March 21, 1993
event that the right of way is insufficient for the buyer's purposes (example: entry of a 45-foot a certificate of occupancy by the building official. Earlier, or on March 18, 1993, WHI, as lessor, and Ponderosa,
container), the seller agrees to sell additional square meter from his current adjacent property to allow as lessee, executed a contract of lease over a portion of the property for a monthly rental of P300,000 for a
the buyer to full access and full use of the property.5 period of three years from March 1, 1993 up to February 28, 1996.14

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
P7,213,000.6On September 5, 1991, a Deed of Absolute Sale 7 in favor of WHI was issued, under which Lot No.
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 Copy of the letter request dated 29 May 1992 is hereto attached as Annex "C" and made an integral
period agreed upon in the said deed. part hereof.

The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085 for its 12. By reason of Roxas Electric's continuous refusal and failure to comply with Woodchild Holdings'
beneficial use within 72 hours from notice thereof, otherwise the appropriate action would be filed against it. valid demand for compliance under Annex "A," the latter was constrained to litigate, thereby incurring
RECCI rejected the demand of WHI. WHI reiterated its demand in a Letter dated May 29, 1992. There was no damages as and by way of attorney's fees in the amount of P100,000.00 plus costs of suit and expenses
response from RECCI. of litigation.15

On June 17, 1992, the WHI filed a complaint against the RECCI with the Regional Trial Court of Makati, for
specific 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.
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;

7. Similarly, in as much as the 25 square meters and 55 square meters alloted to Woodchild Holdings c) to cause annotation on Transfer Certificate of Title No. N-78085 the beneficial use and right of way
for its beneficial use is inadequate as turning and/or maneuvering area of its 45-foot container van, granted to Woodchild Holdings under the Deed of Absolute Sale;
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,
d) to pay Woodchild Holdings the amount of P5,660,000.00, representing actual damages and
however, Roxas Electric refused and failed to merit Woodchild Holdings' request contrary to defendant
unrealized income;
Roxas Electric's obligation under the Deed of Absolute Sale (Annex "A").

e) to pay attorney's fees in the amount of P100,000.00; and

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 f) to pay the costs of suit.
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. Other reliefs just and equitable are prayed for.16

9. Owing further to Roxas Electric's deliberate refusal to comply with its obligation under Annex "A," In its answer to the complaint, the RECCI alleged that it never authorized its former president, Roberto Roxas,
Woodchild Holdings suffered unrealized income of P300,000.00 a month or P2,100,000.00 supposed 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
income from rentals of the subject property for seven (7) months. 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
10. On April 15, 1992, Woodchild Holdings made a final demand to Roxas Electric to comply with its 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.
obligations and warranties under the Deed of Absolute Sale but notwithstanding such demand, The RECCI further alleged that the provision therein that it would sell a portion of Lot No. 491-A-3-B-1 to the
defendant Roxas Electric refused and failed and continue to refuse and fail to heed plaintiff's demand WHI lacked the essential elements of a binding contract.17
for compliance.
In its amended answer to the complaint, the RECCI alleged that the delay in the construction of its warehouse
Copy of the demand letter dated April 15, 1992 is hereto attached as Annex "B" and made an integral building was due to the failure of the WHI's contractor to secure a building permit thereon.18
part hereof.
During the trial, Dy testified that he told Roxas that the petitioner was buying a portion of Lot No. 491-A-3-B-1
11. Finally, on 29 May 1991, Woodchild Holdings made a letter request addressed to Roxas Electric to consisting of an area of 500 square meters, for the price of P1,000 per square meter.
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 On November 11, 1996, the trial court rendered judgment in favor of the WHI, the decretal portion of which
disregarded the same. reads:
 WHEREFORE, judgment is hereby rendered directing defendant: 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
(1) To allow plaintiff the beneficial use of the existing right of way plus the stipulated 25 sq. m. and 55 THE STIPULATED 25 SQUARE METERS AND 55 SQUARE METERS BECAUSE THESE ARE VALID
sq. m.; STIPULATIONS AGREED BY BOTH PARTIES TO THE DEED OF ABSOLUTE SALE (EXH. "C").

(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;
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.

(4) To pay plaintiff the amount of P5,568,000 representing actual damages and plaintiff's unrealized IV.
income;
IN FACT, IT WAS WOODCHILD WHO WAS DEPRIVED OF PROPERTY WITHOUT DUE PROCESS BY THE
(5) To pay plaintiff P100,000 representing attorney's fees; and ASSAILED DECISION.

To pay the costs of suit. V.

SO ORDERED.19 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").
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 VI.
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. THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE COURT A QUO
78085. 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 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 The threshold issues for resolution are the following: (a) whether the respondent is bound by the provisions in
of Directors of the RECCI, Roxas was merely authorized to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, the deed of absolute sale granting to the petitioner beneficial use and a right of way over a portion of Lot
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 No. 491-A-3-B-1 accessing to the Sumulong Highway and granting the option to the petitioner to buy a portion
option to the respondent were so lopsided in favor of the respondent because the latter was authorized to fix thereof, and, if so, whether such agreement is enforceable against the respondent; (b) whether the respondent
the location as well as the price of the portion of its property to be sold to the respondent. Hence, such provisions failed to eject the squatters on its property within two weeks from the execution of the deed of absolute sale;
contained in the deed of absolute sale were not binding on the RECCI. The appellate court ruled that the delay and, (c) whether the respondent is liable to the petitioner for damages.
in the construction of WHI's warehouse was due to its fault.
On the first issue, the petitioner avers that, under its Resolution of May 17, 1991, the respondent authorized
The Present Petition 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
The petitioner now comes to this Court asserting that: 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
I. 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
THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ABSOLUTE SALE (EXH. "C") IS
Roxas' acceptance of its offer to purchase the property and the terms and conditions therein; the respondent
ULTRA VIRES.
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
II. 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 liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is
by TCT No. 78085 with an area of 500 square meters at the price of P1,000 per square meter, based on its controverted, the burden of proof is upon them to establish it.
evidence and Articles 649 and 651 of the New Civil Code.
In this case, the respondent denied authorizing its then president Roberto B. Roxas to sell a portion of Lot No.
For its part, the respondent posits that Roxas was not so authorized under the May 17, 1991 Resolution of its 491-A-3-B-1 covered by TCT No. 78085, and to create a lien or burden thereon. The petitioner was thus burdened
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- to prove that the respondent so authorized Roxas to sell the same and to create a lien thereon.
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 Central to the issue at hand is the May 17, 1991 Resolution of the Board of Directors of the respondent, which
enforce its right to buy a portion of the said property since there was no agreement in the deed of absolute sale is worded as follows:
on the price thereof as well as the specific portion and area to be purchased by the petitioner.
RESOLVED, as it is hereby resolved, that the corporation, thru the President, sell to any interested
We agree with the respondent. 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
In San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,21 we held that: and advantageous to the corporation;

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 Powers of attorney are generally construed strictly and courts will not infer or presume broad powers from deeds
cannot bind the corporation unless it has ratified such acts expressly or tacitly, or is estopped from denying which do not sufficiently include property or subject under which the agent is to deal. The general rule is that
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
29

them: 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
Art. 1910. The principal must comply with all the obligations which the agent may have contracted
provisions are not binding on it.
within the scope of his authority.

We reject the petitioner's submission that, in allowing Roxas to execute the contract to sell and the deed of
As for any obligation wherein the agent has exceeded his power, the principal is not bound except
absolute sale and failing to reject or disapprove the same, the respondent thereby gave him apparent authority
when he ratifies it expressly or tacitly.
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
Thus, contracts entered into by corporate officers beyond the scope of authority are unenforceable power required under the statement of frauds.31 In addition, the petitioner's fallacy is its wrong assumption of
against the corporation unless ratified by the corporation.23 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.
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 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 respondent is liable for the difference between the original cost of construction and the increase thereon,
clothe the agent with the indicia of authority as to lead a reasonably prudent person to believe that he actually conformably to Article 1170 of the New Civil Code, which reads:
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 Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay
a result of the exercise of reasonable prudence by a third person as claimant and such must have produced a and those who in any manner contravene the tenor thereof, are liable for damages.
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
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,
For the principle of apparent authority to apply, the petitioner was burdened to prove the following: (a) the acts under Articles 2200 and 2201 of the New Civil Code:
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
Art. 2200. Indemnification for damages shall comprehend not only the value of the loss suffered, but
prudence.34 In this case, there is no evidence on record of specific acts made by the respondent 35 showing or
also that of the profits which the obligee failed to obtain.
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. 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
The petitioner's contention that by receiving and retaining the P5,000,000 purchase price of Lot No. 491-A-3-B-
constituted.
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 In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages
property. As such, the respondent had the right to retain the P5,000,000, the purchase price of the property it which may be reasonably attributed to the non-performance of the obligation.
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 In sum, we affirm the trial court's award of damages and attorney's fees to the petitioner.
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
IN LIGHT OF ALL THE FOREGOING, judgment is hereby rendered AFFIRMING the assailed Decision of the
unauthorized act of the agent. Moreover, if a writing is required to grant an authority to do a particular act,
Court of Appeals WITH MODIFICATION. The respondent is ordered to pay to the petitioner the amount of
ratification of that act must also be in writing.37 Since the respondent had not ratified the unauthorized acts of
P5,612,980 by way of actual damages and P100,000 by way of attorney's fees. No costs.
Roxas, the same are unenforceable. Hence, by the respondent's retention of the amount, it cannot thereby be
38

implied that it had ratified the unauthorized acts of its agent, Roberto Roxas.
SO ORDERED.
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 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
P11,804,160,39including the additional work costing P1,441,500, or a net increase of P1,712,980. 40 The
G.R. No. 163553 December 11, 2009
YUN KWAN BYUNG, Petitioner,
vs.
PHILIPPINE AMUSEMENT AND GAMING CORPORATION, Respondent.
DECISION
CARPIO, J.:
The Case
Yun Kwan Byung (petitioner) filed this Petition for Review1 assailing the Court of Appeals Decision2 dated 27
May 2003 in CA-G.R. CV No. 65699 as well as the Resolution 3 dated 7 May 2004 denying the Motion for
Reconsideration. In the assailed decision, the Court of Appeals (CA) affirmed the Regional Trial Courts
Decision4dated 6 May 1999. The Regional Trial Court of Manila, Branch 13 (trial court), dismissed petitioners
demand against respondent Philippine Amusement and Gaming Corporation (PAGCOR) for the redemption of
gambling chips.
The Facts
PAGCOR is a government-owned and controlled corporation tasked to establish and operate gambling clubs and
casinos as a means to promote tourism and generate sources of revenue for the government. To achieve these
objectives, PAGCOR is vested with the power to enter into contracts of every kind and for any lawful purpose
that pertains to its business. Pursuant to this authority, PAGCOR launched its Foreign Highroller Marketing
Program (Program). The Program aims to invite patrons from foreign countries to play at the dollar pit of
designated PAGCOR-operated casinos under specified terms and conditions and in accordance with industry
practice.5
The Korean-based ABS Corporation was one of the international groups that availed of the Program. In a letter-
agreement dated 25 April 1996 (Junket Agreement), ABS Corporation agreed to bring in foreign players to play
at the five designated gaming tables of the Casino Filipino Silahis at the Grand Boulevard Hotel in Manila (Casino
Filipino). The relevant stipulations of the Junket Agreement state:
1. PAGCOR will provide ABS Corporation with separate junket chips. The junket chips will be
distinguished from the chips being used by other players in the gaming tables.
ABS Corporation will distribute these 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.
2. ABS Corporation will assume sole responsibility to pay the winnings of its foreign players and settle accumulate two million dollars worth of gambling chips and to bring the chips out of the casino premises.13
the collectibles from losing players.
3. ABS Corporation shall hold PAGCOR absolutely free and harmless from any damage, claim or liability the gambling chips, petitioner filed a complaint for a sum of money before the trial court. 14 PAGCOR filed a
which may arise from any cause in connection with the Junket Agreement.
5. In providing the gaming facilities and services to these foreign players, PAGCOR is entitled to receive
from ABS Corporation a 12.5% share in the gross winnings of ABS Corporation or 1.5 million US dollars,
whichever is higher, over a playing period of 6 months. PAGCOR has the option to extend the period. 6
Petitioner, a Korean national, alleges that from November 1996 to March 1997, he came to the Philippines four
times to play for high stakes at the Casino Filipino.7 Petitioner claims that in the course of the games, he was
able to accumulate gambling chips worth US$2.1 million. Petitioner presented as evidence during the trial
gambling chips with a face value of US$1.1 million. Petitioner contends that when he presented the gambling
chips for encashment with PAGCORs employees or agents, PAGCOR refused to redeem them.8
Petitioner brought an action against PAGCOR seeking the redemption of gambling chips valued at US$2.1 million.
Petitioner claims that he won the gambling chips at the Casino Filipino, playing continuously day and night.
Petitioner alleges that every time he would come to Manila, PAGCOR would extend to him amenities deserving
of a high roller. A PAGCOR official who meets him at the airport would bring him to Casino Filipino, a casino
managed and operated by PAGCOR. The card dealers were all PAGCOR employees, the gambling chips,
equipment and furnitures belonged to PAGCOR, and PAGCOR enforced all the regulations dealing with the
operation of foreign exchange gambling pits. Petitioner states that he was able to redeem his gambling chips
with the cashier during his first few winning trips. But later on, the casino cashier refused to encash his gambling
chips so he had no recourse but to deposit his gambling chips at the Grand Boulevard Hotels deposit box, every
time he departed from Manila.9
PAGCOR claims that petitioner, who was brought into the Philippines by ABS Corporation, is a junket player who
played in the dollar pit exclusively leased by ABS Corporation for its junket players. PAGCOR alleges that it
provided ABS Corporation with distinct junket chips. ABS Corporation distributed these chips to its junket players.
At the end of each playing period, the junket players would surrender the chips to ABS Corporation. Only ABS
Corporation would make an accounting of these chips to PAGCORs casino treasury.10
As additional information for the junket players playing in the gaming room leased to ABS Corporation, PAGCOR
posted a notice written in English and Korean languages which reads:
NOTICE
This GAMING ROOM is exclusively operated by ABS under arrangement with PAGCOR, the former is solely
accountable for all PLAYING CHIPS wagered on the tables. Any financial ARRANGEMENT/TRANSACTION between
PLAYERS and ABS shall only be binding upon said PLAYERS and ABS.11
PAGCOR claims that this notice is a standard precautionary measure12 to avoid confusion between junket players
of ABS Corporation and PAGCORs players.
PAGCOR argues that petitioner is not a PAGCOR player because under PAGCORs gaming rules, gambling chips
cannot be brought outside the casino. The gambling chips must be converted to cash at the end of every gaming
period as they are inventoried every shift. Under PAGCORs rules, it is impossible for PAGCOR players to
Since PAGCOR disclaimed liability for the winnings of players recruited by ABS Corporation and refused to encash
counterclaim against petitioner. Then, trial ensued.
On 6 May 1999, the trial court dismissed the complaint and counterclaim. Petitioner appealed the trial courts The trial court held that only PAGCOR could use foreign currency in its gaming tables. When PAGCOR accepted
decision to the CA. On 27 May 2003, the CA affirmed the appealed decision. On 27 June 2003, petitioner moved only a fixed portion of the dollar earnings of ABS Corporation in the concept of a lease of facilities, PAGCOR
for reconsideration which was denied on 7 May 2004. shared its franchise with ABS Corporation in violation of the PAGCORs charter. Hence, the Junket Agreement is
void. Since the Junket Agreement is not permitted by PAGCORs charter, the mutual rights and obligations of
Aggrieved by the CAs decision and resolution, petitioner elevated the case before this Court. the parties to this case would be resolved based on agency and estoppel.16

The Ruling of the Trial Court 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
The trial court ruled that based on PAGCORs charter, PAGCOR has no authority to lease any portion of the
15
value" marked on them. The 10,000 gambling chips do not reflect the "no cash value" sign. The senior treasury
gambling tables to a private party like ABS Corporation. Section 13 of Presidential Decree No. 1869 or the
head of PAGCOR testified that these were the gambling chips used by the previous junket operators and PAGCOR
PAGCORs charter states:
merely continued using them. However, the gambling chips used in the regular casino games were of a different
quality.17
Sec. 13. Exemptions -
The trial court pointed out that PAGCOR had taken steps to warn players brought in by all junket operators,
xxx 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
(4) Utilization of Foreign Currencies The Corporation shall have the right and authority, solely and exclusively gambling chips could only be encashed there and nowhere else. A photograph of one such notice, printed in
in connection with the operations of the casino(s), to purchase, receive, exchange and disburse foreign Korean and English, stated that the gaming room was exclusively operated by ABS Corporation and that ABS
exchange, subject to the following terms and conditions: 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
(a) A specific area in the casino(s) or gaming pit shall be put up solely and exclusively for players and
had been alerted to the existence of these special gambling rules, and the mere fact that he continued to play
patrons utilizing foreign currencies;
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
(b) The Corporation shall appoint and designate a duly accredited commercial bank agent of the Central
Bank, to handle, administer and manage the use of foreign currencies in the casino(s);
In dismissing petitioners complaint, the trial court concluded that petitioners demand against PAGCOR for the
redemption of the gambling chips could not stand. The trial court stated that petitioner, a stranger to the
(c) The Corporation shall provide an office at casino(s) exclusively for the employees of the designated agreement between PAGCOR and ABS Corporation, could not under principles of equity be charged with notice
bank, agent of the Central Bank, where the Corporation shall maintain a dollar account which will be other than of the apparent authority with which PAGCOR had clothed its employees and agents in dealing with
utilized exclusively for the above purpose and the casino dollar treasury employees; 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
(d) Only persons with foreign passports or certificates of identity (for Hong Kong patron only) duly transaction, the courts will extend equitable relief only to a party who was unaware of all its dimensions and
issued by the government or country of their residence will be allowed to play in the foreign exchange whose ignorance of them exposed him to the risk of being exploited by the other. Where the parties enter into
gaming pit; 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
(e) Only foreign exchange prescribed to form part of the Philippine International Reserve and the where they are.
19

following foreign exchange currencies: Australian Dollar, Singapore Dollar, Hong Kong Dollar, shall be
used in this gaming pit; The Ruling of the Court of Appeals

(f) The disbursement, administration, management and recording of foreign exchange currencies used In dismissing the appeal, the appellate court addressed the four errors assigned by petitioner.
in the casino(s) shall be carried out in accordance with existing foreign exchange regulations, and
periodical reports of the transactions in such foreign exchange currencies by the Corporation shall be First, petitioner maintains that he was never a junket player of ABS Corporation. Petitioner also denies seeing a
duly recorded and reported to the Central Bank thru the designated Agent Bank; and notice that certain gaming rooms were exclusively operated by entities under special agreement. 20

(g) The Corporation shall issue the necessary rules and regulations for the guidance and information of The CA ruled that the records do not support petitioners theory. Petitioners own testimony reveals that he
players qualified to participate in the foreign exchange gaming pit, in order to make certain that the enjoyed special accommodations at the Grand Boulevard Hotel. This similar accommodation was extended to
terms and conditions as above set forth are strictly complied with. 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 PAGCORs employees affirming that notices were posted in English and The Issues
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 Petitioners raise three issues in this petition:
area.22
1. Whether the CA erred in holding that PAGCOR is not liable to petitioner, disregarding the doctrine of
Second, petitioner attacks the validity of the contents of the notice. Since the Junket Agreement is void, the implied agency, or agency by estoppel;
notice, which was issued pursuant to the Junket Agreement, is also void and cannot affect petitioner. 23
2. Whether the CA erred in using intent of the contracting parties as the test for creation of agency,
The CA reasoned that the trial court never declared the notice valid and neither did it enforce the contents when such is not relevant since the instant case involves liability of the presumed principal in implied
thereof. The CA emphasized that it was the act of cautioning and alerting the players that was upheld. The trial agency to a third party; and
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
3. Whether the CA erred in failing to consider that PAGCOR ratified, or at least adopted, the acts of the
agent, ABS Corporation.34
Third, petitioner takes the position that an implied agency existed between PAGCOR and ABS Corporation. 25
The Ruling of the Court
The CA disagreed with petitioners 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
The petition lacks merit.
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 188326of the Civil Code applies only to a situation where the agent is authorized by the principal Courts will not enforce debts arising from illegal gambling
to enter into a particular transaction, but instead of contracting on behalf of the principal, the agent acts in his
own name.27 Gambling is prohibited by the laws of the Philippines as specifically provided in Articles 195 to 199 of the Revised
Penal Code, as amended. Gambling is an act beyond the pale of good morals, 35 and is thus prohibited and
The CA concluded that no such legal fiction existed between PAGCOR and ABS Corporation. PAGCOR entered punished to repress an evil that undermines the social, moral, and economic growth of the nation. 36 Presidential
into a Junket Agreement to lease to ABS Corporation certain gaming areas. It was never PAGCORs intention to Decree No. 1602 (PD 1602),37 which modified Articles 195-199 of the Revised Penal Code and repealed
deal with the junket players. Neither did PAGCOR intend ABS Corporation to represent PAGCOR in dealing with inconsistent provisions,38 prescribed stiffer penalties on illegal gambling.39
the junket players. Representation is the basis of agency but unfortunately for petitioner none is found in this
case.28 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
The CA added that the special gaming chips, while belonging to PAGCOR, are mere accessories in the void Junket issue then turns on whether PAGCOR can validly share its franchise with junket operators to operate gambling
Agreement with ABS Corporation. In Article 1883, the phrase "things belonging to the principal" refers only to casinos in the country. Section 3(h) of PAGCORs charter states:
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 Section 3. Corporate Powers. - The Corporation shall have the following powers and functions, among others:
under this category.29
xxx
The CA ruled that Article 215230 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
h) to enter into, make, perform, and carry out contracts of every kind and for any lawful purpose pertaining to
PAGCOR.31
the business of the Corporation, or in any manner incident thereto, as principal, agent or otherwise, with any
person, firm, association, or corporation.
Fourth, petitioner asks for equitable relief.32
xxx
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 Junket Agreement would be valid if under Section 3(h) of PAGCORs charter, PAGCOR could share its
the separate gaming areas were more than enough to alert him that he was playing under different terms.
gambling franchise with another entity. In Senator Jaworski v. Phil. Amusement and Gaming Corp., 40 the Court
Petitioner persisted and continued to play in the casino. Petitioner also enjoyed the perks extended to junket
discussed the extent of the grant of the legislative franchise to PAGCOR on its authority to operate gambling
players of ABS Corporation. For failing to heed these signs and warnings, petitioner can no longer be permitted
casinos:
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
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 xxx
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, (2) Section 3(h) is hereby amended to read as follows:
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.
"SEC. 3. Corporate Powers. -

After a circumspect consideration of the foregoing discussion and the contending positions of the parties, we
"x x x
hold that PAGCOR has acted beyond the limits of its authority when it passed on or shared its franchise to SAGE.

"(h) to enter into, make, conclude, perform, and carry out contracts of every kind and nature and for any lawful
In the Del Mar case where a similar issue was raised when PAGCOR entered into a joint venture agreement with
purpose which are necessary, appropriate, proper or incidental to any business or purpose of the PAGCOR,
two other entities in the operation and management of jai alai games, the Court, in an En Banc Resolution dated
including but not limited to investment agreements, joint venture agreements, management agreements, agency
24 August 2001, partially granted the motions for clarification filed by respondents therein insofar as it prayed
agreements, whether as principal or as an agent, manpower supply agreements, or any other similar agreements
that PAGCOR has a valid franchise, but only by itself (i.e. not in association with any other person or entity), to
or arrangements with any person, firm, association or corporation." (Boldfacing supplied)
operate, maintain and/or manage the game of jai-alai.

PAGCOR sought the amendment of its charter precisely to address and remedy the legal impediment raised in
In the case at bar, PAGCOR executed an agreement with SAGE whereby the former grants the latter the authority
Senator Jaworski v. Phil. Amusement and Gaming Corp.
to operate and maintain sports betting stations and Internet gaming operations. In essence, the grant of
authority gives SAGE the privilege to actively participate, partake and share PAGCORs franchise to operate a
gambling activity. The grant of franchise is a special privilege that constitutes a right and a duty to be performed Unfortunately for petitioner, RA 9487 cannot be applied to the present case. The Junket Agreement was entered
by the grantee. The grantee must not perform its activities arbitrarily and whimsically but must abide by the into between PAGCOR and ABS Corporation on 25 April 1996 when the PAGCOR charter then prevailing (PD
limits set by its franchise and strictly adhere to its terms and conditionalities. A corporation as a creature of the 1869) prohibited PAGCOR from entering into any arrangement with a third party that would allow such party to
State is presumed to exist for the common good. Hence, the special privileges and franchises it receives are actively participate in the casino operations.
subject to the laws of the State and the limitations of its charter. There is therefore a reserved right of the State
to inquire how these privileges had been employed, and whether they have been abused. (Emphasis supplied) It is a basic principle that laws should only be applied prospectively unless the legislative intent to give them
retroactive effect is expressly declared or is necessarily implied from the language used.44 RA 9487 does not
Thus, PAGCOR has the sole and exclusive authority to operate a gambling activity. While PAGCOR is allowed provide for any retroactivity of its provisions. All laws operate prospectively absent a clear contrary language in
under its charter to enter into operators or management contracts, PAGCOR is not allowed under the same the text,45 and that in every case of doubt, the doubt will be resolved against the retroactive operation of laws. 46
charter to relinquish or share its franchise. PAGCOR cannot delegate its power in view of the legal principle of
delegata potestas delegare non potest, inasmuch as there is nothing in the charter to show that it has been Thus, petitioner cannot avail of the provisions of RA 9487 as this was not the law when the acts giving rise to
expressly authorized to do so.41 the claimed liabilities took place. This makes the gambling activity participated in by petitioner illegal. Petitioner
cannot sue PAGCOR to redeem the cash value of the gambling chips or recover damages arising from an illegal
Similarly, in this case, PAGCOR, by taking only a percentage of the earnings of ABS Corporation from its foreign activity for two reasons. First, petitioner engaged in gambling with ABS Corporation and not with PAGCOR.
currency collection, allowed ABS Corporation to operate gaming tables in the dollar pit. The Junket Agreement Second, the court cannot assist petitioner in enforcing an illegal act. Moreover, for a court to grant petitioners
is in direct violation of PAGCORs charter and is therefore void. prayer would mean enforcing the Junket Agreement, which is void.

Since the Junket Agreement violates PAGCORs charter, gambling between the junket player and the junket Now, to address the issues raised by petitioner in his petition, petitioner claims that he is a third party proceeding
operator under such agreement is illegal and may not be enforced by the courts. Article 201442 of the Civil Code, against the liability of a presumed principal and claims relief, alternatively, on the basis of implied agency or
which refers to illegal gambling, states that no action can be maintained by the winner for the collection of what agency by estoppel.
he has won in a game of chance.
Article 1869 of the Civil Code states that implied agency is derived from the acts of the principal, from his silence
Although not raised as an issue by petitioner, we deem it necessary to discuss the applicability of Republic Act or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf
No. 948743 (RA 9487) to the present case. without authority. Implied agency, being an actual agency, is a fact to be proved by deductions or inferences
from other facts.47
RA 9487 amended the PAGCOR charter, granting PAGCOR the power to enter into special agreement with third
parties to share the privileges under its franchise for the operation of gambling casinos: 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
Section 1. The Philippine Amusement and Gaming Corporation (PAGCOR) franchise granted under Presidential
the indicia of authority as to lead a reasonably prudent person to believe that the agent actually has such
Decree No. 1869 otherwise known as the PAGCOR Charter, is hereby further amended to read as follows:
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 We disagree. The Court of Appeals correctly used the intent of the contracting parties in determining whether
person alleging it.50 Whether or not an agency has been created is a question to be determined by the fact that an agency by estoppel existed in this case. An agency by estoppel, which is similar to the doctrine of apparent
one represents and is acting for another. 51 authority requires proof of reliance upon the representations, and that, in turn, needs proof that the
representations predated the action taken in reliance.62
Acts and conduct of PAGCOR negates the existence of an implied agency or an agency by estoppel
There can be no apparent authority of an agent without acts or conduct on the part of the principal and such
Petitioner alleges that there is an implied agency. Alternatively, petitioner claims that even assuming that no acts or conduct of the principal must have been known and relied upon in good faith and as a result of the
actual agency existed between PAGCOR and ABS Corporation, there is still an agency by estoppel based on the exercise of reasonable prudence by a third person as claimant, and such must have produced a change of
acts and conduct of PAGCOR showing apparent authority in favor of ABS Corporation. Petitioner states that one position to its detriment.63 Such proof is lacking in this case.
factor which distinguishes agency from other legal precepts is control and the following undisputed facts show
a relationship of implied agency: 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
1. Three floors of the Grand Boulevard Hotel52 were leased to PAGCOR for conducting gambling special treatment upon his arrival in Manila and special accommodations in Grand Boulevard Hotel, and that he
operations;53 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.
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 For his third and final assigned error, petitioner asserts that PAGCOR ratified the acts of ABS Corporation.

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
5. PAGCOR enforced, through its own manager, all the rules and regulations on the operation of the
gambling pit used by ABS Corporation.57
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.

Petitioners 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. PAGCORs 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. 1avvphi1

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.
G.R. No. 126297 January 31, 2007 "announced to surgeon searched (sic) done but to no avail continue for closure."
PROFESSIONAL SERVICES, INC., Petitioner,
vs. On April 24, 1984, Natividad was released from the hospital. Her hospital and medical bills, including the doctors
NATIVIDAD and ENRIQUE AGANA, Respondents. fees, amounted to P60,000.00.
x-----------------------x
G.R. No. 126467 January 31, 2007
After a couple of days, Natividad complained of excruciating pain in her anal region. She consulted both Dr.
NATIVIDAD (Substituted by her children MARCELINO AGANA III, ENRIQUE AGANA, JR., EMMA
Ampil and Dr. Fuentes about it. They told her that the pain was the natural consequence of the surgery. Dr.
AGANA ANDAYA, JESUS AGANA, and RAYMUND AGANA) and ENRIQUE AGANA, Petitioners,
Ampil then recommended that she consult an oncologist to examine the cancerous nodes which were not
vs.
removed during the operation.
JUAN FUENTES, Respondent.
x- - - - - - - - - - - - - - - - - - - -- - - - x
G.R. No. 127590 January 31, 2007 On May 9, 1984, Natividad, accompanied by her husband, went to the United States to seek further treatment.
MIGUEL AMPIL, Petitioner, After four months of consultations and laboratory examinations, Natividad was told she was free of cancer.
vs. Hence, she was advised to return to the Philippines.
NATIVIDAD AGANA and ENRIQUE AGANA, Respondents.
On August 31, 1984, Natividad flew back to the Philippines, still suffering from pains. Two weeks thereafter, her
DECISION 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.
SANDOVAL-GUTIERREZ, J.:

Dr. Ampils assurance did not come true. Instead, the pains intensified, prompting Natividad to seek treatment
Hospitals, having undertaken one of mankinds most important and delicate endeavors, must assume the grave
at the Polymedic General Hospital. While confined there, Dr. Ramon Gutierrez detected the presence of another
responsibility of pursuing it with appropriate care. The care and service dispensed through this high trust,
foreign object in her vagina -- a foul-smelling gauze measuring 1.5 inches in width which badly infected her
however technical, complex and esoteric its character may be, must meet standards of responsibility
vaginal vault. A recto-vaginal fistula had formed in her reproductive organs which forced stool to excrete through
commensurate with the undertaking to preserve and protect the health, and indeed, the very lives of those
the vagina. Another surgical operation was needed to remedy the damage. Thus, in October 1984, Natividad
placed in the hospitals keeping.1
underwent another surgery.

Assailed in these three consolidated petitions for review on certiorari is the Court of Appeals Decision2 dated
On November 12, 1984, Natividad and her husband filed with the RTC, Branch 96, Quezon City a complaint for
September 6, 1996 in CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198 affirming with modification the
damages against the Professional Services, Inc. (PSI), owner of the Medical City Hospital, Dr. Ampil, and Dr.
Decision3dated March 17, 1993 of the Regional Trial Court (RTC), Branch 96, Quezon City in Civil Case No. Q-
Fuentes, docketed as Civil Case No. Q-43322. They alleged that the latter are liable for negligence for leaving
43322 and nullifying its Order dated September 21, 1993.
two pieces of gauze inside Natividads body and malpractice for concealing their acts of negligence.

The facts, as culled from the records, are:

Meanwhile, Enrique Agana also filed with the Professional Regulation Commission (PRC) an administrative
complaint for gross negligence and malpractice against Dr. Ampil and Dr. Fuentes, docketed as Administrative
On April 4, 1984, Natividad Agana was rushed to the Medical City General Hospital (Medical City Hospital) Case No. 1690. The PRC Board of Medicine heard the case only with respect to Dr. Fuentes because it failed to
because of difficulty of bowel movement and bloody anal discharge. After a series of medical examinations, Dr. acquire jurisdiction over Dr. Ampil who was then in the United States.
Miguel Ampil, petitioner in G.R. No. 127590, diagnosed her to be suffering from "cancer of the sigmoid."
On February 16, 1986, pending the outcome of the above cases, Natividad died and was duly substituted by her
On April 11, 1984, Dr. Ampil, assisted by the medical staff4 of the Medical City Hospital, performed an anterior above-named children (the Aganas).
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 Natividads husband,
On March 17, 1993, the RTC rendered its Decision in favor of the Aganas, finding PSI, Dr. Ampil and Dr. Fuentes
Enrique Agana, to permit Dr. Juan Fuentes, respondent in G.R. No. 126467, to perform hysterectomy on her.
liable for negligence and malpractice, the decretal part of which reads:

After Dr. Fuentes had completed the hysterectomy, Dr. Ampil took over, completed the operation and closed the
WHEREFORE, judgment is hereby rendered for the plaintiffs ordering the defendants PROFESSIONAL SERVICES,
incision.
INC., DR. MIGUEL AMPIL and DR. JUAN FUENTES to pay to the plaintiffs, jointly and severally, except in respect
of the award for exemplary damages and the interest thereon which are the liabilities of defendants Dr. Ampil
However, the operation appeared to be flawed. In the corresponding Record of Operation dated April 11, 1984, and Dr. Fuentes only, as follows:
the attending nurses entered these remarks:
1. As actual damages, the following amounts:
"sponge count lacking 2
 a. The equivalent in Philippine Currency of the total of US$19,900.00 at the rate of P21.60- defendant-appellant Professional Services, Inc., whatever amount the latter will pay or had paid to the plaintiffs-
US$1.00, as reimbursement of actual expenses incurred in the United States of America; appellees, the decision appealed from is hereby AFFIRMED and the instant appeal DISMISSED.

b. The sum of P4,800.00 as travel taxes of plaintiffs and their physician daughter; Concomitant with the above, the petition for certiorari and prohibition filed by herein defendant-appellant Dr.
Juan Fuentes in CA-G.R. SP No. 32198 is hereby GRANTED and the challenged order of the respondent judge
c. The total sum of P45,802.50, representing the cost of hospitalization at Polymedic Hospital, dated September 21, 1993, as well as the alias writ of execution issued pursuant thereto are hereby NULLIFIED
medical fees, and cost of the saline solution; and SET ASIDE. The bond posted by the petitioner in connection with the writ of preliminary injunction issued
by this Court on November 29, 1993 is hereby cancelled.
2. As moral damages, the sum of P2,000,000.00;
Costs against defendants-appellants Dr. Miguel Ampil and Professional Services, Inc.
3. As exemplary damages, the sum of P300,000.00;
SO ORDERED.
4. As attorneys fees, the sum of P250,000.00;
Only Dr. Ampil filed a motion for reconsideration, but it was denied in a Resolution7 dated December 19, 1996.
5. Legal interest on items 1 (a), (b), and (c); 2; and 3 hereinabove, from date of filing of the complaint
until full payment; and Hence, the instant consolidated petitions.

6. Costs of suit. In G.R. No. 126297, PSI alleged in its petition that the Court of Appeals erred in holding that: (1) it is estopped
from raising the defense that Dr. Ampil is not its employee; (2) it is solidarily liable with Dr. Ampil; and (3) it is
not entitled to its counterclaim against the Aganas. PSI contends that Dr. Ampil is not its employee, but a mere
SO ORDERED.
consultant or independent contractor. As such, he alone should answer for his negligence.

Aggrieved, PSI, Dr. Fuentes and Dr. Ampil interposed an appeal to the Court of Appeals, docketed as CA-G.R.
In G.R. No. 126467, the Aganas maintain that the Court of Appeals erred in finding that Dr. Fuentes is not guilty
CV No. 42062.
of negligence or medical malpractice, invoking the doctrine of res ipsa loquitur. They contend that the pieces of
gauze are prima facie proofs that the operating surgeons have been negligent.
Incidentally, on April 3, 1993, the Aganas filed with the RTC a motion for a partial execution of its Decision,
which was granted in an Order dated May 11, 1993. Thereafter, the sheriff levied upon certain properties of Dr.
Finally, in G.R. No. 127590, Dr. Ampil asserts that the Court of Appeals erred in finding him liable for negligence
Ampil and sold them for P451,275.00 and delivered the amount to the Aganas.
and malpractice sans evidence that he left the two pieces of gauze in Natividads vagina. He pointed to other
probable causes, such as: (1) it was Dr. Fuentes who used gauzes in performing the hysterectomy; (2) the
Following their receipt of the money, the Aganas entered into an agreement with PSI and Dr. Fuentes to attending nurses failure to properly count the gauzes used during surgery; and (3) the medical intervention of
indefinitely suspend any further execution of the RTC Decision. However, not long thereafter, the Aganas again the American doctors who examined Natividad in the United States of America.
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 writ, prompting Dr. Fuentes to file with the
For our resolution are these three vital issues: first, whether the Court of Appeals erred in holding Dr. Ampil
Court of Appeals a petition for certiorari and prohibition, with prayer for preliminary injunction, docketed as CA-
liable for negligence and malpractice; second, whether the Court of Appeals erred in absolving Dr. Fuentes of
G.R. SP No. 32198. During its pendency, the Court of Appeals issued a Resolution 5 dated October 29, 1993
any liability; and third, whether PSI may be held solidarily liable for the negligence of Dr. Ampil.
granting Dr. Fuentes prayer for injunctive relief.

I - G.R. No. 127590

On January 24, 1994, CA-G.R. SP No. 32198 was consolidated with CA-G.R. CV No. 42062.

Whether the Court of Appeals Erred in Holding Dr. Ampil

Meanwhile, on January 23, 1995, the PRC Board of 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.
Fuentes was the one who left the two pieces of gauze inside Natividads body; and that he concealed such fact Liable for Negligence and Malpractice.
from Natividad.
Dr. Ampil, in an attempt to absolve himself, gears the Courts attention to other possible causes of Natividads
On September 6, 1996, the Court of Appeals rendered its Decision jointly disposing of CA-G.R. CV No. 42062 detriment. He argues that the Court should not discount either of the following possibilities: first, Dr. Fuentes
and CA-G.R. SP No. 32198, thus: left the gauzes in Natividads body after performing hysterectomy; second, the attending nurses erred in counting
the gauzes; and third, the American doctors were the ones who placed the gauzes in Natividads body.
WHEREFORE, except for the modification that the case against defendant-appellant Dr. Juan Fuentes is hereby
DISMISSED, and with the pronouncement that defendant-appellant Dr. Miguel Ampil is liable to reimburse
Dr. Ampils arguments are purely conjectural and without basis. Records show that he did not present any
evidence to prove that the American doctors were the ones who put or left the gauzes in Natividads body.
Neither did he submit evidence to rebut the correctness of the record of operation, particularly the number of
gauzes used. As to the alleged negligence of Dr. Fuentes, we are mindful that Dr. Ampil examined his (Dr.
Fuentes) work and found it in order.
The glaring truth is that all the major circumstances, taken together, as specified by the Court of Appeals, directly
point to Dr. Ampil as the negligent party, thus:
First, it is not disputed that the surgeons used gauzes as sponges to control the bleeding of the patient
during the surgical operation.
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 Natividads 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. Ampils negligence is
the proximate cause12 of Natividads 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 Natividads vagina established the causal link between Dr. Ampils 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

Second, immediately after the operation, the nurses who assisted in the surgery noted in their report Whether the Court of Appeals Erred in Absolving
that the sponge count (was) lacking 2; that such anomaly was announced to surgeon and that a
search was done but to no avail prompting Dr. Ampil to continue for closure x x x. Dr. Fuentes of any Liability

Third, after the operation, two (2) gauzes were extracted from the same spot of the body of Mrs. Agana The Aganas assailed the dismissal by the trial court of the case against Dr. Fuentes on the ground that it is
where the surgery was performed. contrary to the doctrine of res ipsa loquitur. According to them, the fact that the two pieces of gauze were left
inside Natividads body is a prima facie evidence of Dr. Fuentes negligence.
An operation requiring the placing of sponges in the incision is not complete until the sponges are properly
removed, and it is settled that the leaving of sponges or other foreign substances in the wound after the incision We are not convinced.
has been closed is at least prima facie negligence by the operating surgeon.8 To put it simply, such act is
considered so inconsistent with due care as to raise an inference of negligence. There are even legions of Literally, res ipsa loquitur means "the thing speaks for itself." It is the rule that the fact of the occurrence of an
authorities to the effect that such act is negligence per se.9 injury, taken with the surrounding circumstances, may permit an inference or raise a presumption of negligence,
or make out a plaintiffs prima facie case, and present a question of fact for defendant to meet with an
Of course, the Court is not blind to the reality that there are times when danger to a patients life precludes a explanation.13 Stated differently, where the thing which caused the injury, without the fault of the injured, is
surgeon from further searching missing sponges or foreign objects left in the body. But this does not leave him under the exclusive control of the defendant and the injury is such that it should not have occurred if he, having
free from any obligation. Even if it has been shown that a surgeon was required by the urgent necessities of the such control used proper care, it affords reasonable evidence, in the absence of explanation that the injury arose
case to leave a sponge in his patients abdomen, because of the dangers attendant upon delay, still, it is his from the defendants want of care, and the burden of proof is shifted to him to establish that he has observed
legal duty to so inform his patient within a reasonable time thereafter by advising her of what he had been due care and diligence.14
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. Zeagler10 is explicit, thus: 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
The removal of all sponges used is part of a surgical operation, and when a physician or surgeon fails to remove management of the defendant; (3) the occurrence was such that in the ordinary course of things, would not
a sponge he has placed in his patients body that should be removed as part of the operation, he thereby leaves have happened if those who had control or management used proper care; and (4) the absence of explanation
his operation uncompleted and creates a new condition which imposes upon him the legal duty of calling the by the defendant. Of the foregoing requisites, the most instrumental is the "control and management of the
new condition to his patients attention, and endeavoring with the means he has at hand to minimize and avoid thing which caused the injury."15
untoward results likely to ensue therefrom.
We find the element of "control and management of the thing which caused the injury" to be wanting. Hence,
Here, Dr. Ampil did not inform Natividad about the missing two pieces of gauze. Worse, he even misled her that the doctrine of res ipsa loquitur will not lie.
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. It was duly established that Dr. Ampil was the lead surgeon during the operation of Natividad. He requested the
To our mind, what was initially an act of negligence by Dr. Ampil has ripened into a deliberate wrongful act of assistance of Dr. Fuentes only to perform hysterectomy when he (Dr. Ampil) found that the malignancy in her
deceiving his patient. 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
This is a clear case of medical malpractice or more appropriately, medical negligence. To successfully pursue to leave the operating room. Dr. Ampil then resumed operating on Natividad. He was about to finish the
this kind of case, a patient must only prove that a health care provider either failed to do something which a procedure when the attending nurses informed him that two pieces of gauze were missing. A "diligent search"
reasonably prudent health care provider would have done, or that he did something that a reasonably prudent was conducted, but the misplaced gauzes were not found. Dr. Ampil then directed that the incision be closed.
provider would not have done; and that failure or action caused injury to the patient.11 Simply put, the elements 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 Employers shall be liable for the damages caused by their employees and household helpers acting within the
room and all personnel connected with the operation. Their duty is to obey his orders.16 As stated before, Dr. scope of their assigned tasks even though the former are not engaged in any business or industry.
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 x x x x x x
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
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they
of gauze remained unaccounted for, that caused injury to Natividads body. Clearly, the control and management
observed all the diligence of a good father of a family to prevent damage.
of the thing which caused the injury was in the hands of Dr. Ampil, not Dr. Fuentes.

A prominent civilist commented that professionals engaged by an employer, such as physicians, dentists, and
In this jurisdiction, res ipsa loquitur is not a rule of substantive law, hence, does not per se create or constitute
pharmacists, are not "employees" under this article because the manner in which they perform their work is not
an independent or separate ground of liability, being a mere evidentiary rule. In other words, mere invocation
17
within the control of the latter (employer). In other words, professionals are considered personally liable for the
and application of the doctrine does not dispense with the requirement of proof of negligence. Here, the
fault or negligence they commit in the discharge of their duties, and their employer cannot be held liable for
negligence was proven to have been committed by Dr. Ampil and not by Dr. Fuentes.
such fault or negligence. In the context of the present case, "a hospital cannot be held liable for the fault or
negligence of a physician or surgeon in the treatment or operation of patients."21
III - G.R. No. 126297
The foregoing view is grounded on the traditional notion that the professional status and the very nature of the
Whether PSI Is Liable for the Negligence of Dr. Ampil physicians calling preclude him from being classed as an agent or employee of a hospital, whenever he acts in
a professional capacity.22 It has been said that medical practice strictly involves highly developed and specialized
The third issue necessitates a glimpse at the historical development of hospitals and the resulting theories knowledge,23 such that physicians are generally free to exercise their own skill and judgment in rendering
concerning their liability for the negligence of physicians. medical services sans interference.24 Hence, when a doctor practices medicine in a hospital setting, the hospital
and its employees are deemed to subserve him in his ministrations to the patient and his actions are of his own
Until the mid-nineteenth century, hospitals were generally charitable institutions, providing medical services to responsibility.
25

the lowest classes of society, without regard for a patients ability to pay. Those who could afford medical
18

treatment were usually treated at home by their doctors.19 However, the days of house calls and philanthropic The case of Schloendorff v. Society of New York Hospital26 was then considered an authority for this view. The
health care are over. The modern health care industry continues to distance itself from its charitable past and "Schloendorff doctrine" regards a physician, even if employed by a hospital, as an independent contractor
has experienced a significant conversion from a not-for-profit health care to for-profit hospital businesses. because of the skill he exercises and the lack of control exerted over his work. Under this doctrine, hospitals are
Consequently, significant changes in health law have accompanied the business-related changes in the hospital exempt from the application of the respondeat superior principle for fault or negligence committed by physicians
industry. One important legal change is an increase in hospital liability for medical malpractice. Many courts now in the discharge of their profession.
allow claims for hospital vicarious liability under the theories of respondeat superior, apparent authority,
ostensible authority, or agency by estoppel. 20 However, the efficacy of the foregoing doctrine has weakened with the significant developments in medical care.
Courts came to realize that modern hospitals are increasingly taking active role in supplying and regulating
In this jurisdiction, the statute governing liability for negligent acts is Article 2176 of the Civil Code, which reads: medical care to patients. No longer were a hospitals functions limited to furnishing room, food, facilities for
treatment and operation, and attendants for its patients. Thus, in Bing v. Thunig,27 the New York Court of
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to Appeals deviated from the Schloendorff doctrine, noting that modern hospitals actually do far more than provide
pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the facilities for treatment. Rather, they regularly employ, on a salaried basis, a large staff of physicians, interns,
parties, is called a quasi-delict and is governed by the provisions of this Chapter. nurses, administrative and manual workers. They charge patients for medical care and treatment, even collecting
for such services through legal action, if necessary. The court then concluded that there is no reason to exempt
hospitals from the universal rule of respondeat superior.
A derivative of this provision is Article 2180, the rule governing vicarious liability under the doctrine of respondeat
superior, thus:
In our shores, the nature of the relationship between the hospital and the physicians is rendered inconsequential
in view of our categorical pronouncement in Ramos v. Court of Appeals28 that for purposes of apportioning
ART. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but
responsibility in medical negligence cases, an employer-employee relationship in effect exists between hospitals
also for those of persons for whom one is responsible.
and their attending and visiting physicians. This Court held:

x x x x x x
"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
The owners and managers of an establishment or enterprise are likewise responsible for damages caused by employees, presents problems in apportioning responsibility for negligence in medical malpractice cases.
their employees in the service of the branches in which the latter are employed or on the occasion of their However, the difficulty is more apparent than real.
functions.
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 physicians
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. "
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, PSIs 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 hospitals act of listing him and his specialty
in its lobby directory, as in the case herein. The high costs of todays 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

But the Ramos pronouncement is not our only basis in sustaining PSIs 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 hospitals 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
jurisprudence.
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.

Apparent authority, or what is sometimes referred to as the "holding We now proceed to the doctrine of corporate negligence or corporate responsibility.

out" theory, or doctrine of ostensible agency or agency by estoppel,29 has its origin from the law of agency. It One allegation in the complaint in Civil Case No. Q-43332 for negligence and malpractice is that PSI as owner,
imposes liability, not as the result of the reality of a contractual relationship, but rather because of the actions operator and manager of Medical City Hospital, "did not perform the necessary supervision nor exercise diligent
of a principal or an employer in somehow misleading the public into believing that the relationship or the authority efforts in the supervision of Drs. Ampil and Fuentes and its nursing staff, resident doctors, and medical interns
exists.30 The concept is essentially one of estoppel and has been explained in this manner: 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.
"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 We agree with the trial court.
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
Recent years have seen the doctrine of corporate negligence as the judicial answer to the problem of allocating
that such agent has authority to perform the particular act in question.31
hospitals 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 judiciarys acknowledgment that
The applicability of apparent authority in the field of hospital liability was upheld long time ago in Irving v. Doctor in these modern times, the duty of providing quality medical service is no longer the sole prerogative and
Hospital of Lake Worth, Inc. There, it was explicitly stated that "there does not appear to be any rational basis responsibility of the physician. The modern hospitals have changed structure. Hospitals now tend to organize a
32

for excluding the concept of apparent authority from the field of hospital liability." Thus, in cases where it can highly professional medical staff whose competence and performance need to be monitored by the hospitals
be shown that a hospital, by its actions, has held out a particular physician as its agent and/or employee and commensurate with their inherent responsibility to provide quality medical care.35
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 physicians negligence.
The doctrine has its genesis in Darling v. Charleston Community Hospital.36 There, the Supreme Court of Illinois because he was an independent contractor within the hospital. The Court of Appeals pointed out that the hospital
held that "the jury could have found a hospital negligent, inter alia, in failing to have a sufficient number of had created a professional staff whose competence and performance was to be monitored and reviewed by the
trained nurses attending the patient; failing to require a consultation with or examination by members of the governing body of the hospital, and the court held that a hospital would be negligent where it had knowledge
hospital staff; and failing to review the treatment rendered to the patient." On the basis of Darling, other or reason to believe that a doctor using the facilities was employing a method of treatment or care which fell
jurisdictions held that a hospitals corporate negligence extends to permitting a physician known to be below the recognized standard of care.
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 equipment; Subsequent to the Purcell decision, the Arizona Court of Appeals held that a hospital has certain inherent
(2) the selection and retention of competent physicians; (3) the overseeing or supervision of all persons who responsibilities regarding the quality of medical care furnished to patients within its walls and it must meet the
practice medicine within its walls; and (4) the formulation, adoption and enforcement of adequate rules and standards of responsibility commensurate with this undertaking. Beeck v. Tucson General Hospital, 18 Ariz. App.
policies that ensure quality care for its patients.38 Thus, in Tucson Medical Center, Inc. v. Misevich,39 it was held 165, 500 P. 2d 1153 (1972). This court has confirmed the rulings of the Court of Appeals that a hospital has the
that a hospital, following the doctrine of corporate responsibility, has the duty to see that it meets the standards duty of supervising the competence of the doctors on its staff. x x x.
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
x x x x x x
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 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
patients injuries. We find that such general allegations of negligence, along with the evidence produced at the
In the present case, it was duly established that PSI operates the Medical City Hospital for the purpose and
trial of this case, are sufficient to support the hospitals liability based on the theory of negligent supervision."
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: 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
x x x PSIs liability is traceable to its failure to conduct an investigation of the matter reported in the nota bene
such proof, PSI failed to discharge its burden under the last paragraph of Article 2180 cited earlier, and,
of the count nurse. Such failure established PSIs part in the dark conspiracy of silence and concealment about
therefore, must be adjudged solidarily liable with Dr. Ampil. Moreover, as we have discussed, PSI is also directly
the gauzes. Ethical considerations, if not also legal, dictated the holding of an immediate inquiry into the events,
liable to the Aganas.
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 PSIs hospital facility, can callously turn their backs on and One final word. Once a physician undertakes the treatment and care of a patient, the law imposes on him certain
disregard even a mere probability of mistake or negligence by refusing or failing to investigate a report of such obligations. In order to escape liability, he must possess that reasonable degree of learning, skill and experience
seriousness as the one in Natividads case. 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 judgment.
It is worthy to note that Dr. Ampil and Dr. Fuentes operated on Natividad with the assistance of the Medical City
Hospitals staff, composed of resident doctors, nurses, and interns. As such, it is reasonable to conclude that WHEREFORE, we DENY all the petitions and AFFIRM the challenged Decision of the Court of Appeals in CA-G.R.
PSI, as the operator of the hospital, has actual or constructive knowledge of the procedures carried out, CV No. 42062 and CA-G.R. SP No. 32198.
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 Costs against petitioners PSI and Dr. Miguel Ampil.
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,
SO ORDERED.
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 also directly liable for
its own negligence under Article 2176. In Fridena, the Supreme Court of Arizona held:

x x x In recent years, however, the duty of care owed to the patient by the hospital has expanded. The emerging
trend is to hold the hospital responsible where the hospital has failed to monitor and review medical services
being provided within its walls. See Kahn Hospital Malpractice Prevention, 27 De Paul . Rev. 23 (1977).

Among the cases indicative of the emerging trend 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