[G.R. No. 118375.

October 3, 2003]

CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and

AURORA QUEAO, respondents.

DECISION
TINGA, J.:

Before us is a Petition for Review on Certiorari under Rule 45, assailing the
decision of the Sixteenth Division of the respondent Court of Appeals
promulgated on 21 December 1994 , which affirmed in toto the decision
[1]

handed down by the Regional Trial Court (RTC) of Pasay City. [2]

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 Naguiat
(Naguiat). The RTC rendered a decision, declaring the questioned Real Estate
Mortgage void, which Naguiat appealed to the Court of Appeals. After the Court
of Appeals upheld the RTC decision, Naguiat instituted the present petition.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two Hundred
Thousand Pesos (P200,000.00), which Naguiat granted. On 11 August 1980,
Naguiat indorsed to Queao Associated Bank Check No. 090990 (dated 11
August 1980) for the amount of Ninety Five Thousand Pesos (P95,000.00),
which was earlier issued to Naguiat by the Corporate Resources Financing
Corporation. She also issued her own Filmanbank Check No. 065314, to the
order of Queao, also dated 11 August 1980 and for the amount of Ninety Five
Thousand Pesos (P95,000.00). The proceeds of these checks were to
constitute the loan granted by Naguiat to Queao. [3]

To secure the loan, Queao executed a Deed of Real Estate Mortgage dated
11 August 1980 in favor of Naguiat, and surrendered to the latter the owners
duplicates of the titles covering the mortgaged properties. On the same day,
[4]

the mortgage deed was notarized, and Queao issued to Naguiat a promissory
note for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00),
with interest at 12% per annum, payable on 11 September 1980. Queao also
[5]

issued a Security Bank and Trust Company check, postdated 11 September

1980, for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00)
and payable to the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check was
dishonored for insufficiency of funds. On the following day, 12 September 1980,
Queao requested Security Bank to stop payment of her postdated check, but
the bank rejected the request pursuant to its policy not to honor such requests
if the check is drawn against insufficient funds. [6]

On 16 October 1980, Queao received a letter from Naguiats lawyer,

demanding settlement of the loan. Shortly 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, who purportedly was Naguiats agent. [7]

Naguiat applied for the extrajudicial foreclosure of the mortgage with the
Sheriff of Rizal Province, who then scheduled the foreclosure sale on 14 August
1981. Three days before the scheduled sale, Queao filed the case before the
Pasay City RTC, seeking the annulment of the mortgage deed. The trial court
[8]

eventually stopped the auction sale. [9]

On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real
Estate Mortgage null and void, and ordering Naguiat to return to Queao the
owners duplicates of her titles to the mortgaged lots. Naguiat appealed the
[10]

decision before the Court of Appeals, making no less than eleven assignments
of error. The Court of Appeals promulgated the decision now assailed before
us that affirmed in toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of Appeals,
especially on the issue of whether Queao had actually received the loan
proceeds which were supposed to be covered by the two checks Naguiat had
issued or indorsed. Naguiat claims that being a notarial instrument or public
document, the mortgage deed enjoys the presumption that the recitals therein
are true. Naguiat also questions the admissibility of various representations and
pronouncements of Ruebenfeldt, invoking the rule on the non-binding effect of
the admissions of third persons. [11]

The resolution of the issues presented before this Court by Naguiat involves
the determination of facts, a function which this Court does not exercise in an
appeal by certiorari. Under Rule 45 which governs appeal by certiorari, only
questions of law may be raised as the Supreme Court is not a trier of
[12]

facts. The resolution of factual issues is the function of lower courts, whose
[13]

findings on these matters are received with respect and are in fact generally
binding on the Supreme Court. A question of law which the Court may pass
[14]
upon must not involve an examination of the probative value of the evidence
presented by the litigants. There is a question of law in a given case when the
[15]

doubt or difference arises as to what the law is on a certain state of facts; there
is a question of fact when the doubt or difference arises as to the truth or the
falsehood of alleged facts. [16]

Surely, there are established exceptions to the rule on the conclusiveness

of the findings of facts of the lower courts. But Naguiats case does not fall
[17]

under any of the exceptions. In any event, both the decisions of the appellate
and trial courts are supported by the evidence on record and the applicable
laws.
Against the common finding of the courts below, Naguiat vigorously insists
that Queao received the loan proceeds. Capitalizing on the status of the
mortgage deed as a public document, she cites the rule that a public document
enjoys the presumption of validity and truthfulness of its contents. The Court of
Appeals, however, is correct in ruling that the presumption of truthfulness of the
recitals in a public document was defeated by the clear and convincing
evidence in this case that pointed to the absence of consideration. This Court
[18]

has held that the presumption of truthfulness engendered by notarized

documents is rebuttable, yielding as it does to clear and convincing evidence to
the contrary, as in this case. [19]

On the other hand, absolutely no evidence was submitted by Naguiat that

the checks she issued or endorsed were actually encashed or deposited. The
mere issuance of the checks did not result in the perfection of the contract of
loan. For the Civil Code provides that the delivery of bills of exchange and
mercantile documents such as checks shall produce the effect of payment only
when they have been cashed. It is only after the checks have produced the
[20]

effect of payment that the contract of loan may be deemed perfected. Art. 1934
of the Civil Code provides:

An accepted promise to deliver something by way of commodatum or simple

loan is binding upon the parties, but the commodatum or simple loan itself shall
not be perfected until the delivery of the object of the contract.

A loan contract is a real contract, not consensual, and, as such, is perfected

only upon the delivery of the object of the contract. In this case, the objects of
[21]

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.
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. Still, Naguiat insists that Ruebenfeldt was not her agent.
[22]

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. It was also Ruebenfeldt who accompanied
[23]

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 P220,000.00 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

estoppel citing Article 1873 of the Civil Code. Apparently, it considered that
[25] [26]

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. The Court of Appeals is correct in invoking the said
[27]

rule on agency by estoppel.

More fundamentally, whatever was the true relationship between Naguiat
and Ruebenfeldt is irrelevant in the face of the fact that the checks issued or
indorsed to 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. A mortgage contract
[28]

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. Nos. 74226-27 July 27, 1989

PEOPLE OF THE PHILIPPINES, petitioner,

vs.
MIZPAH R. REYES, respondent.

Pacianito B. Cabaron for respondent.

Celso C. Dimayuga co-counsel for respondent.

CORTES, J.:

The crime of falsification of a public document carries with it an imposable penalty of prision
correccional in its medium and maximum periods and a fine of not more than P5,000.00 [Art. 172,
Revised Penal Code (RPC)]. Being punishable by a correctional penalty, this crime prescribes in ten
(10) years [Art. 90, par. 3 (RPC)]. The ten (10) year prescriptive period commences to run "from the
day on which the crime is discovered by the offended party, the authorities, or their agents . . ." [Art.
91, (RCP)]. In the instant case, the public document allegedly falsified was a notarized deed of sale
registered on May 26, 1961 with the Register of Deeds in the name of the accused, private
respondent herein, Mizpah R. Reyes. The two informations for falsification of a public document
subject matter of the controversy were, however, filed only on October 18, 1984. The complainants
claim that they discovered the falsified notarized deed of sale in June 1983. The Court is tasked with
determining whether the crime has prescribed which hinges on whether or not its discovery may be
deemed to have taken place from the time the document was registered with the Register of Deeds,
consistent with the rule on constructive notice.

The antecedent facts are as follows:

The spouses Julio Rizare and Patricia Pampo owned a parcel of land located in Lipa City registered
in their names under TCT No. T-7471. Both are now deceased, the husband having died on
September 6, 1970 and his wife on August 7, 1977. They were survived by the following children:
the accused Mizpah R. Reyes and the complainants Cristina R. Masikat, Julieta R. Vergara and
Aurora Rizare Vda. de Ebueza.
In June 1983, the complainants allegedly discovered from the records of the Register of Deeds of
Lipa City that the abovementioned property had already been transferred in the name of Mizpah
Reyes, single, of legal age, Filipino and resident of the City of Lipa, Philippines" under TCT No. T-
9885. They further allegedly discovered that the conveyance was effected through a notarized deed
of sale executed and signed on May 19, 1961 by their parents Julio Rizare and Patricia Pampo. The
deed of sale was registered with the Register of Deeds of Lipa City on May 26, 1961. Upon
examination of the document, they found that the signature of their parents were allegedly falsified
and that accused also made an untruthful statement that she was single although she was married
to one Benjamin Reyes on May 2, 1950. The document was referred by the complainants to the
National Bureau of Investigation (N.B.I.) for examination of the signatures of their parents and a
report was returned with the finding that the signature of Julio Rizare was genuine but that of Patricia
Pampo was forged. Upon complaint by the sisters of the accused and after conducting an
investigation, the fiscal filed with the Regional Trial Court of Batangas, Branch XIII, Lipa City on
October 18, 1984 two (2) informations both for falsification of public document, the first in Criminal
Case No. V-1163, for allegedly making it appear in the notarized deed of sale that Patricia Pampo,
the mother of the accused, participated in the sale of a parcel of land by falsifying Pampo's
signature, and the second in Criminal Case No. V-1164, for allegedly making an untruthful statement
of fact in the deed of sale, more specifically, by stating that accused was single.

Before arraignment, accused filed a motion to quash both informations on grounds that: (1) "The
criminal action or liability has been extinguished by prescription of the crime in the light of Cabral v.
Puno, 70 SCRA 606;" and (2) "The trial court had no jurisdiction over the offense charged and the
person of accused because of non-compliance with the pre-conciliation requirement of P.D. No.
1508." [Rollo, p. 33].

The trial court granted the motion and quashed the informations in the two (2) cases stating that:

xxx

...The title, once registered, is a notice to the world. All Persons must take notice. No
one can plead ignorance of registration.

The essence, therefore, of registration is to serve notice to the whole world of the
legal status and the dealing therewith.

If registration is a notice to the whole world, then registration is in itself a notice and
therefore, the prescriptive period of registered document must start to run from the
date the same was annotated in the Register of Deeds.

In these two cases in question, prescriptive period of ten (10) years should have
started from May 26, 1960 (sic).

Considering the lapse of more than twenty (20) years before the two informations
were filed, the crimes for which the accused, Mizpah Reyes, are charged have
already prescribed.

WHEREFORE, and as prayed for, Criminal Cases Nos. V-1163 and V-1164 are
quashed. [Rollo, pp. 33-34].

From the trial court's order quashing the two (2) informations, the People, petitioner herein, filed an
appeal with the Court of Appeals (then designated as the Intermediate Appellate Court). In a
decision ** promulgated on April 3, 1986, the Court of Appeals affirmed the trial court's order. The Court of Appeals rejected the theory of
petitioner that the prescriptive period should commence on June 1983, when the complainants actually discovered the fraudulent deed of
sale. The appellate court sustained the trial court's ruling that the prescriptive period started on May 26, 1961, when the deed of sale was
registered with the Register of Deeds of Lipa City. Hence, this petition for review on certiorari of the decision of the Court of Appeals, filed by
the People, through the Solicitor-General.

Among the authorities relied upon by the Court of Appeals in dismissing petitioner's appeal is the
case of Cabral v. Puno, G.R. No. L-41692, April 30, 1976, 70 SCRA 606, where the Supreme Court
made a statement to the effect that in the crime of falsification of a public document, the prescriptive
period commences from the time the offended party had constructive notice of the alleged forgery
after the document was registered with the Register of Deeds. However, petitioner contends that this
particular statement is not doctrine but merely an obiter dictum.

The Cabral case stemmed from the filing on September 24, 1974 of an information accusing
Eugenio Cabral of the crime of falsification of public document for allegedly falsifying on August 14,
1948 the signature of the complainant Silvino San Andres in a deed of sale of a parcel of land.
Before arraignment, petitioner moved to quash the information on the ground of prescription of the
crime, as the notarized deed of sale was registered with the Register of Deeds on August 26, 1948.
After hearing the motion, the judge issued a resolution granting the motion to quash and dismissing
the information on the ground of prescription. Private prosecutor filed a motion for the
reconsideration of the resolution. Acting on said motion, the trial court ordered the fiscal to make
known his position. The fiscal filed a comment stating that the crime has not prescribed as the
complainant San Diego claimed that he only discovered the crime in October 1970. Thereafter, the
trial court set aside its resolution granting the accused's motion to quash and reinstated the
information. The accused brought the case to the Supreme Court questioning the trial court's
authority to set aside its resolution granting his motion to quash. The Supreme Court ruled in favor of
the accused by holding that the aforementioned resolution has already become final and executory
for failure of the fiscal to file a motion for reconsideration within the reglementary period. The motion
for reconsideration filed by the private prosecutor was disregarded because of the latter's lack of
legal standing. Another reason given by the Court for its decision is the following:

. . .The Rules of Court is explicit that an order sustaining a motion to quash based on
prescription is a bar to another prosecution for the same offense [Secs. 2(f) and 8,
Rule 117, Revised Rules of Court]. Article 89 of the Revised Penal Code also
provides that "prescription of the crime is one of the grounds for "total extinction of
criminal liability." Petitioner was charged with the crime of falsification under Article
172, sub-paragraphs (1) and (2) of the Revised Penal Code, which carries an
imposable penalty of prision correccional in its medium and maximum periods and a
fine of not more than P5,000.00. This crime prescribes in ten (10) years [Article 90,
Revised Penal Code]. Here, San Diego had actual if not constructive notice of the
alleged forgery after the document was registered in the Register of Deeds on
August 26, 1948.

xxx

[Cabral v. Puno, supra at p. 609].

Although the prescription of the crime was not squarely in issue in Cabral, it is apparent that the
statement of the Court on prescription and constructive notice was not totally irrelevant to the
disposition of the case. Moreover, it is not without any legal basis.

The rule is well-established that registration in a public registry is a notice to the whole world. The
record is constructive notice of its contents as well as all interests, legal and equitable, included
therein. All persons are charged with knowledge of what it contains [Legarda and Prieto v. Saleeby,
31 Phil. 590 (1915); Garcia v. Court of Appeals, G.R. Nos. L-48971 and 49011, January 22, 1980,
95 SCRA 380; Hongkong and Shanghai Banking Corporation v. Pauli, et al., G.R. No. L-38303, May
30, 1988,161 SCRA 634; See also Sec. 52, Pres. Decree No. 1529 (1978)].

Pursuant to this rule, it has been held that a purchaser of registered land is presumed to be charged
with notice of every fact shown by the record. The Court, in explaining the nature of the rule on
constructive notice and the presumption arising therefrom stated in Gatioan v. Gaffud, G.R. No. L-
21953, March 28 1969, 27 SCRA 706, 712-713, that:

xxx

When a conveyance has been properly recorded such record is constructive notice
of its contents and all interests, legal and equitable, included therein ...

Under the rule of notice, it is presumed that the purchaser has examined every
instrument of record affecting the title. Such presumption is irrebutable. He is
charged with notice of every fact shown by the record and is presumed to know
every fact which an examination of the record would have disclosed. This
presumption cannot be overcome by proof of innocence or good faith. Otherwise the
very purpose and object of the law requiring a record would be destroyed. Such
presumption cannot be defeated by proof of want of knowledge of what the record
contains any more than one may be permitted to show that he was ignorant of the
provisions of the law. The rule that all persons must take notice of the facts which the
public record contains is a rule of law. The rule must be absolute. Any variation
would lead to endless confusion and useless litigation.

xxx

It has also been ruled that when an extrajudicial partition of the property of the deceased was
executed by some of his heirs, the registration of the instrument of partition with the Register of
Deeds is constructive notice that said heirs have repudiated the fiduciary relationship between them
and the other heirs vis-a-vis the property in question. The heirs who were not included in the deed of
partition are deemed to have notice of its existence from the time it was registered with the Register
of Deeds [De la Cerna v. De la Cerna, G.R. No. L-28838, August 31, 1976, 72 SCRA 514]. Likewise,
the rule on constructive notice has been applied in the interpretation of a provision in the Civil Code
on the prescription of actions for annulment of contracts which is parallel to Art. 91 of the Revised
Penal Code. The Civil Code provision states:

Art. 391. The action for annulment shall be brought within four years.

This period shall begin:

xxx

In case of mistake or fraud, from the time of the discovery of the same [Emphasis
supplied].

In Armentia v. Patriarca, G.R. No. L-18210, December 29, 1966,18 SCRA 1253, where a notarial
document recorded with the Registry of Deeds was sought to be annulled, the Court, interpreting the
phrase "from the time of the discovery" found in the aforequoted provision of the Civil Code, ruled
that "in legal contemplation, discovery must be reckoned to have taken place from the time the
document was registered in the Register of Deeds, for the familiar rule is that registration is a notice
to the whole world . . ." [See also Avecilla v. Yatco, 103 Phil. 666 (1958); Gerona v. De Guzman,
G.R. No. L-19060, May 29, 1964, 11 SCRA 153; Carantes v. Court of Appeals, G.R. No. L-33360,
April 25, 1977, 76 SCRA 514; Cultura v. Tupacar, G.R. No. L-48430, December 3, 1985,140 SCRA
311; Cimafranco v. IAC, G.R. No. L-68687, January 31, 1987, 147 SCRA 611; Hongkong and
Shanghai Banking Corporation v. Pauli, et al., supra.] However, petitioner contends that Art. 91 of
the Revised Penal Code which states that "the period of prescription shall commence to run from the
day the crime is discovered by the offended party,the authorities, or their agents. . cannot be
construed in the same manner because the rule on constructive notice is limited in application to
land registration cases. It is argued that haste should be avoided in applying civil law presumptions
to criminal suits.

Although caution should be observed in applying the rules of construction in civil cases in the
interpretation of criminal statutes, the Court will not hesitate to do so if the factual and legal
circumstances so warrant. Hence, in Mercado v. Santos, 66 Phil. 215 (1938), the Court applied the
presumption arising from the allowance of a will to bar a criminal action. In theft particular case, the
petitioner filed a petition for the probate of the will of his deceased wife. The will was duly probated.
Sixteen (16) months thereafter, a criminal complaint was filed against petitioner for falsification or
forgery of the will. Petitioner filed a motion to dismiss the case claiming that the order probating the
will is conclusive as to its authenticity and due execution. The motion having been denied, the
petitioner filed a petition for certiorari with the Court of Appeals (CA) which ruled that "the judgment
admitting the will to probate is binding upon the whole world as to the due execution and
genuineness of the will insofar as civil rights and liabilities are concerned, but not for the purpose of
punishment of a crime." But the Supreme Court reversed the CA decision by ruling that, in
accordance with See. 625 of the then Code of Civil Procedure which provides that "the allowance by
the court of a will of real and personal estate shall be conclusive as to its due execution," *** a criminal
action will not lie in this jurisdiction against the forger of a will which had been duly admitted to probate by a court of competent jurisdiction.

It is, however, insisted in this case that the rule on constructive notice applies only in civil cases. It is
argued that the law on prescription of crimes is founded on a principle different from that of the law
on prescription in civil actions. The difference, it is claimed, precludes the application of the rule on
constructive notice in criminal actions.

The statute of limitations of civil actions was explained in Penales v. Intermediate Appellate Court,
G.R. No. 73611, October 27, 1986, 115 SCRA 223, 228 in the following manner:

Prescription is rightly regarded as a statute of repose whose object is to suppress

fraudulent and stale claims from springing up at great distances of time and
surprising the parties or their representatives when the facts have become obscure
from the lapse of time or death or removal of witnesses . . .

On the other hand, the Court in People v. Moran, 44 Phil. 389, 405-406 (1923), discussed the nature
of the statute of limitations in criminal cases as follows:

xxx

. . . The statute is not a statute of process, to be scantily and grudgingly applied, but
an amnesty, declaring that after a certain time oblivion shall be cast over the offense;
that the offender shall be at liberty to return to his country; and resume his
immunities as a citizen; and that from henceforth he may cease to preserve the
proofs of his innocence, for the proofs of his guilt are blotted out. Hence it is that
statutes of limitation are to be liberally construed in favor of the defendant, not only
 because such liberality of construction belongs to all acts of amnesty and grace, but
because the very existence of the statute is a recognition and notification by the
legislature of the fact that time, while it gradually wears out proofs of innocence, has
assigned to it fixed and positive periods in which it destroys proofs of guilt.
Independently of these views, it must be remembered that delay in instituting
prosecutions is not only productive of expense to the State, but of peril to public
justice in the attenuation and distortion, even by mere natural lapse of memory, of
testimony. It is the policy of the law that prosecutions should be prompt, and that
statutes enforcing such promptitude should be vigorously maintained. They are not
merely acts of grace, but checks imposed by the State upon itself, to exact vigilant
activity from its subalterns, and to secure for criminal trials the best evidence that can
be obtained.

xxx

It is evident that there is merit in petitioner's claim that the law on prescription of civil suits is founded
on different policy considerations from that of the law on prescription of criminal actions. However,
the Court does not subscribe to the conclusion that the presumptions and rules of interpretation used
in the law on prescription of civil suits, including the rule on constructive notice, can not be applied in
criminal actions.

The considerations in providing for prescription of civil suits are based mainly on practical and
equitable grounds. The lapse of a considerably long period of time obscures the surrounding
circumstances of a particular claim or right and erodes the integrity of whatever evidence may be
presented in support of an action to enforce or contest such claim or right. Moreover, where a
particular right has accrued in favor of a party, the enjoyment of such right cannot forever be left on a
precarious balance, always susceptible to possible challenge by an adverse party. After a certain
period of time fixed by law, the right enjoyed by a party must be accorded respect by prohibiting
adverse claims the factual basis of which can no longer be verified with certainty. Hence, the law on
prescription of civil suits is properly called a statute of repose.

The practical factor of securing for civil suits the best evidence that can be obtained is also a major
consideration in criminal trials. However, the law on prescription of crimes rests on a more
fundamental principle. Being more than a statute of repose, it is an act of grace whereby the state,
after the lapse of a certain period of time, surrenders its sovereign power to prosecute the criminal
act. While the law on prescription of civil suits is interposed by the legislature as an impartial arbiter
between two contending parties, the law on prescription of crimes is an act of amnesty and liberality
on the part of the state in favor of the offender [People v. Moran, supra, at p. 405]. Hence, in the
interpretation of the law on prescription of crimes, that which is most favorable to the accused is to
be adopted [People v. Moran, supra; People v. Parel, 44 Phil. 437 (1923); People v. Yu Hai, 99 Phil.
725 (1956)]. The application of the rule on constructive notice in the construction of Art. 91 of the
Revised Penal Code would most certainly be favorable to the accused since the prescriptive period
of the crime shall have to be reckoned with earlier, i.e., from the time the notarized deed of sale was
recorded in the Registry of Deeds. In the instant case, the notarized deed of sale was registered on
May 26, 1961. The criminal informations for falsification of a public document having been filed only
on October 18, 1984, or more than ten (10) years from May 26, 1961, the crime for which the
accused was charged has prescribed. The Court of Appeals, therefore, committed no reversible
error in affirming the trial court's order quashing the two informations on the ground of prescription.

WHEREFORE, in view of the foregoing, the petition is hereby DENIED and the decision of the Court
of Appeals is AFFIRMED.
SO ORDERED.

G.R. No. 95703 August 3, 1992

RURAL BANK OF BOMBON (CAMARINES SUR), INC., petitioner,

vs.
HON. COURT OF APPEALS, EDERLINDA M. GALLARDO, DANIEL MANZO and RUFINO S.
AQUINO, respondents.

L.M. Maggay & Associates for petitioner.

GRIÑO-AQUINO, J.:

This petition for review seeks reversal of the decision dated September 18, 1990 of the Court of
Appeals, reversing the decision of the Regional Trial Court of Makati, Branch 150, which dismissed
the private respondents' complaint and awarded damages to the petitioner, Rural Bank of Bombon.

On January 12, 1981, Ederlinda M. Gallardo, married to Daniel Manzo, executed a special power of
attorney in favor of Rufina S. Aquino authorizing him:

1. To secure a loan from any bank or lending institution for any amount or otherwise
mortgage the property covered by Transfer Certificate of Title No. S-79238 situated
at Las Piñas, Rizal, the same being my paraphernal property, and in that connection,
to sign, or execute any deed of mortgage and sign other document requisite and
necessary in securing said loan and to receive the proceeds thereof in cash or in
check and to sign the receipt therefor and thereafter endorse the check representing
the proceeds of loan. (p. 10, Rollo.)

Thereupon, Gallardo delivered to Aquino both the special power of attorney and her owner's copy of
Transfer Certificate of Title No. S-79238 (19963-A).

On August 26, 1981, a Deed of Real Estate Mortgage was executed by Rufino S. Aquino in favor of
the Rural Bank of Bombon (Camarines Sur), Inc. (hereafter, defendant Rural Bank) over the three
parcels of land covered by TCT No. S-79238. The deed stated that the property was being given as
security for the payment of "certain loans, advances, or other accommodations obtained by the
mortgagor from the mortgagee in the total sum of Three Hundred Fifty Thousand Pesos only
(P350,000.00), plus interest at the rate of fourteen (14%) per annum . . ." (p. 11, Rollo).

On January 6, 1984, the spouses Ederlinda Gallardo and Daniel Manzo filed an action against
Rufino Aquino and the Bank because Aquino allegedly left his residence at San Pascual, Hagonoy,
Bulacan, and transferred to an unknown place in Bicol. She discovered that Aquino first resided at
Sta. Isabel, Calabanga, Camarines Sur, and then later, at San Vicente, Calabanga, Camarines Sur,
and that they (plaintiffs) were allegedly surprised to discover that the property was mortgaged to pay
personal loans obtained by Aquino from the Bank solely for personal use and benefit of Aquino; that
the mortgagor in the deed was defendant Aquino instead of plaintiff Gallardo whose address up to
now is Manuyo, Las Piñas, M.M., per the title (TCT No. S-79238) and in the deed vesting power of
attorney to Aquino; that correspondence relative to the mortgage was sent to Aquino's address at
"Sta. Isabel, Calabanga, Camarines Sur" instead of Gallardo's postal address at Las Piñas, Metro
Manila; and that defendant Aquino, in the real estate mortgage, appointed defendant Rural Bank as
attorney in fact, and in case of judicial foreclosure as receiver with corresponding power to sell and
that although without any express authority from Gallardo, defendant Aquino waived Gallardo's
rights under Section 12, Rule 39, of the Rules of Court and the proper venue of the foreclosure suit.

On January 23, 1984, the trial court, thru the Honorable Fernando P. Agdamag, temporarily
restrained the Rural Bank "from enforcing the real estate mortgage and from foreclosing it either
judicially or extrajudicially until further orders from the court" (p.36, Rollo).

Rufino S. Aquino in his answer said that the plaintiff authorized him to mortgage her property to a
bank so that he could use the proceeds to liquidate her obligation of P350,000 to him. The obligation
to pay the Rural Bank devolved on Gallardo. Of late, however, she asked him to pay the Bank but
defendant Aquino set terms and conditions which plaintiff did not agree to. Aquino asked for
payment to him of moral damages in the sum of P50,000 and lawyer's fees of P35,000.

The Bank moved to dismiss the complaint and filed counter-claims for litigation expenses, exemplary
damages, and attorney's fees. It also filed a crossclaim against Aquino for P350,000 with interest,
other bank charges and damages if the mortgage be declared unauthorized.

Meanwhile, on August 30, 1984, the Bank filed a complaint against Ederlinda Gallardo and Rufino
Aquino for "Foreclosure of Mortgage" docketed as Civil Case No. 8330 in Branch 141, RTC Makati.
On motion of the plaintiff, the foreclosure case and the annulment case (Civil Case No. 6062) were
consolidated.

On January 16, 1986, the trial court rendered a summary judgment in Civil Case No. 6062,
dismissing the complaint for annulment of mortgage and declaring the Rural Bank entitled to
damages the amount of which will be determined in appropriate proceedings. The court lifted the writ
of preliminary injunction it previously issued.

On April 23, 1986, the trial court, in Civil Case No. 8330, issued an order suspending the foreclosure
proceedings until after the decision in the annulment case (Civil Case No. 6062) shall have become
final and executory.

The plaintiff in Civil Case No. 6062 appealed to the Court of Appeals, which on September 18, 1990,
reversed the trial court. The dispositive portion of the decision reads:

UPON ALL THESE, the summary judgment entered by the lower court is hereby
REVERSED and in lieu thereof, judgment is hereby RENDERED, declaring the deed
of real estate mortgage dated August 26, 1981, executed between Rufino S. Aquino
with the marital consent of his wife Bibiana Aquino with the appellee Rural Bank of
Bombon, Camarines Sur, unauthorized, void and unenforceable against plaintiff
Ederlinda Gallardo; ordering the reinstatement of the preliminary injunction issued at
the onset of the case and at the same time, ordering said injunction made
permanent.

Appellee Rural Bank to pay the costs. (p. 46, Rollo.)

Hence, this petition for review by the Rural Bank of Bombon, Camarines Sur, alleging that the Court
of Appeals erred:
 1. in declaring that the Deed of Real Estate Mortgage was unauthorized, void, and
unenforceable against the private respondent Ederlinda Gallardo; and

2. in not upholding the validity of the Real Estate Mortgage executed by Rufino S.
Aquino as attorney-in-fact for Gallardo, in favor of the Rural Bank of Bombon, (Cam.
Sur), Inc.

Both assignments of error boil down to the lone issue of the validity of the Deed of Real Estate
Mortgage dated August 26, 1981, executed by Rufino S. Aquino, as attorney-in-fact of Ederlinda
Gallardo, in favor of the Rural Bank of Bombon (Cam. Sur), Inc.

The Rural Bank contends that the real estate mortgage executed by respondent Aquino is valid
because he was expressly authorized by Gallardo to mortgage her property under the special power
of attorney she made in his favor which was duly registered and annotated on Gallardo's title. Since
the Special Power of Attorney did not specify or indicate that the loan would be for Gallardo's benefit,
then it could be for the use and benefit of the attorney-in-fact, Aquino.

However, the Court of Appeals ruled otherwise. It held:

The Special Power of Attorney above quoted shows the extent of authority given by
the plaintiff to defendant Aquino. But defendant Aquino in executing the deed of Real
Estate Mortgage in favor of the rural bank over the three parcels of land covered by
Gallardo's title named himself as the mortgagor without stating that his signature on
the deed was for and in behalf of Ederlinda Gallardo in his capacity as her attorney-
in-fact.

At the beginning of the deed mention was made of "attorney-in-fact of Ederlinda H.

Gallardo," thus: " (T)his MORTGAGE executed by Rufino S. Aquino attorney in fact
of Ederlinda H. Gallardo, of legal age, Filipino, married to Bibiana Panganiban with
postal address at Sta. Isabel . . .," but which of itself, was merely descriptive of the
person of defendant Aquino. Defendant Aquino even signed it plainly as mortgagor
with the marital consent yet of his wife Bibiana P. Aquino who signed the deed as
"wife of mortgagor."

xxx xxx xxx

The three (3) promissory notes respectively dated August 31, 1981, September 23,
1981 and October 26, 1981, were each signed by Rufino Aquino on top of a line
beneath which is written "signature of mortgagor" and by Bibiana P. Aquino on top of
a line under which is written "signature of spouse," without any mention that
execution thereof was for and in behalf of the plaintiff as mortgagor. It results, borne
out from what were written on the deed, that the amounts were the personal loans of
defendant Aquino. As pointed out by the appellant, Aquino's wife has not been
appointed co-agent of defendant Aquino and her signature on the deed and on the
promissory notes can only mean that the obligation was personally incurred by them
and for their own personal account.

The deed of mortgage stipulated that the amount obtained from the loans shall be
used or applied only for "fishpond (bangus and sugpo production)." As pointed out by
the plaintiff, the defendant Rural Bank in its Answer had not categorically denied the
allegation in the complaint that defendant Aquino in the deed of mortgage was the
intended user and beneficiary of the loans and not the plaintiff. And the special power
 of attorney could not be stretched to include the authority to obtain a loan in said
defendant Aquino's own benefit. (pp. 40-41, Rollo.)

The decision of the Court of Appeals is correct. This case is governed by the general rule in the law
of agency which this Court, applied in "Philippine Sugar Estates Development Co. vs. Poizat," 48
Phil. 536, 538:

It is a general rule in the law of agency that, in order to bind the principal by a
mortgage on real property executed by an agent, it must upon its face purport to be
made, signed and sealed in the name of the principal, otherwise, it will bind the agent
only. It is not enough merely that the agent was in fact authorized to make the
mortgage, if he has not acted in the name of the principal. Neither is it ordinarily
sufficient that in the mortgage the agent describes himself as acting by virtue of a
power of attorney, if in fact the agent has acted in his own name and has set his own
hand and seal to the mortgage. This is especially true where the agent himself is a
party to the instrument. However clearly the body of the mortgage may show and
intend that it shall be the act of the principal, yet, unless in fact it is executed by the
agent for and on behalf of his principal and as the act and deed of the principal, it is
not valid as to the principal.

In view of this rule, Aquino's act of signing the Deed of Real Estate Mortgage in his name alone as
mortgagor, without any indication that he was signing for and in behalf of the property owner,
Ederlinda Gallardo, bound himself alone in his personal capacity as a debtor of the petitioner Bank
and not as the agent or attorney-in-fact of Gallardo. The Court of Appeals further observed:

It will also be observed that the deed of mortgage was executed on August 26, 1981
therein clearly stipulating that it was being executed "as security for the payment of
certain loans, advances or other accommodation obtained by the Mortgagor from the
Mortgagee in the total sum of Three Hundred Fifty Thousand Pesos only
(P350,000.00)" although at the time no such loan or advance had been obtained.
The promissory notes were dated August 31, September 23 and October 26, 1981
which were subsequent to the execution of the deed of mortgage. The appellant is
correct in claiming that the defendant Rural Bank should not have agreed to extend
or constitute the mortgage on the properties of Gallardo who had no existing
indebtedness with it at the time.

Under the facts the defendant Rural Bank appeared to have ignored the
representative capacity of Aquino and dealt with him and his wife in their personal
capacities. Said appellee Rural Bank also did not conduct an inquiry on whether the
subject loans were to benefit the interest of the principal (plaintiff Gallardo) rather
than that of the agent although the deed of mortgage was explicit that the loan was
for purpose of the bangus and sugpo production of defendant Aquino.

In effect, with the execution of the mortgage under the circumstances and assuming
it to be valid but because the loan taken was to be used exclusively for Aquino's
business in the "bangus" and "sugpo" production, Gallardo in effect becomes a
surety who is made primarily answerable for loans taken by Aquino in his personal
capacity in the event Aquino defaults in such payment. Under Art. 1878 of the Civil
Code, to obligate the principal as a guarantor or surety, a special power of attorney is
required. No such special power of attorney for Gallardo to be a surety of Aquino had
been executed. (pp. 42-43, Rollo.)
Petitioner claims that the Deed of Real Estate Mortgage is enforceable against Gallardo since it was
executed in accordance with Article 1883 which provides:

Art. 1883. If an agent acts in his own name, the principal has no right of action
against the persons with whom the agent has contracted; neither have such persons
against the principal.

In such case the agent is the one directly bound in favor of the person with whom he
has contracted, as if the transaction were his own, except when the contract involves
things belonging to the principal.

The above provision of the Civil Code relied upon by the petitioner Bank, is not applicable to the
case at bar. Herein respondent Aquino acted purportedly as an agent of Gallardo, but actually acted
in his personal capacity. Involved herein are properties titled in the name of respondent Gallardo
against which the Bank proposes to foreclose the mortgage constituted by an agent (Aquino) acting
in his personal capacity. Under these circumstances, we hold, as we did in Philippine Sugar Estates
Development Co. vs. Poizat, supra, that Gallardo's property is not liable on the real estate mortgage:

There is no principle of law by which a person can become liable on a real mortgage
which she never executed either in person or by attorney in fact. It should be noted
that this is a mortgage upon real property, the title to which cannot be divested
except by sale on execution or the formalities of a will or deed. For such reasons, the
law requires that a power of attorney to mortgage or sell real property should be
executed with all of the formalities required in a deed. For the same reason that the
personal signature of Poizat, standing alone, would not convey the title of his wife in
her own real property, such a signature would not bind her as a mortgagor in real
property, the title to which was in her name. (p. 548.)

WHEREFORE, finding no reversible error in the decision of the Court of Appeals, we AFFIRM it in
toto. Costs against the petitioner.

SO ORDERED.

.R. No. L-24679 October 30, 1975

ALFREDO N. FRIAS and BELEN LUSTRE, petitioners,

vs.
ANASTACIA ESQUIVEL, FELISA ESQUIVEL, ROSA ESQUIVEL, SANTIAGO ESQUIVEL,
ROSALIA ESQUIVEL, CEFERINA ESQUIVEL, PERPETUA P. ZARAGOZA, RICARDO
ESQUIVEL, VICENTE ESQUIVEL, ORLANDO ESQUIVEL, REYNALDO ESQUIVEL, and ALVARO
ESQUIVEL, JR. respondents.

Ignacio Nabong for petitioners.

No appearance for respondents.

MUÑOZ PALMA, J.:

This is a petition for review of the decision of the Court of Appeals in CA-G.R. No. 28717-R dated
September 26, 1964 and its resolution in the same case dated May 29, 1965 ordering the
segregation, from the parcel of land registered in the name of herein petitioners, the spouses Alfredo
Frias and Belen Lustre, of 116.31 square meters in favor of three (3) of herein private respondents
(defendants-appellants below), namely, Ricardo, Reynaldo and Alvaro, Jr., all surnamed Esquivel,
on the ground that the contract conveying their interest on the said parcel of land in favor of
petitioners is null and void as to Ricardo who was then insane, and unenforceable as to Alvaro, Jr.
and Reynaldo who were then minors because the said contract of conveyance was signed in their
behalf by their mother, herein respondent Perpetua P. Zaragoza, who at the time of the execution of
said contract had already lost parental authority over them for having contracted a second marriage.

The case at bar is not actually the first time in which petitioners and private respondents had
elevated to this Court what appears to be a multi-faceted controversy over the parcel of land
involved in the instant petition — a residential lot situated in Jaen, Nueva Ecija, with an area of 1,357
square meters, originally forming part of the hereditary estate of respondents' predecessors-in-
interest, the spouses Victoriano Esquivel and Catalina Villamanca who, after their demise left as
heirs of their various properties, including the said lot, their six (6)surviving children, namely, herein
respondents Anastacia, Ceferina, Feliza, Rosalia, Rosa and Santiago, and their five (5)grandchildren
from a deceased child (Alvaro Esquivel, Sr.),namely, Alvaro, Jr., Orlando, Reynaldo, Ricardo and
Vicente and the latter's mother, herein respondent Perpetua P. Zaragoza.

In G.R. No. L-8825, promulgated on April 20, 1956,1 aforementioned respondents, with the exception
of Anastacia Esquivel, tried to impugn the validity of deed of sale of the said lot dated July 16, 1951
executed by Anastacia in favor of petitioners on the ground that the lot did not belong exclusively to
her but in common with the other respondents herein. The attempt was, however, only partly
successful. It was found out that Ceferina, Feliza, Rosa and Rosalia already parted with whatever
right, interest or participation they may have had in the said lot in favor of Anastacia way back in
1946 as shown by their affidavits which, this Court held, substantially complied with the requisites of
a valid extra-judicial partition. Their brother, Santiago, on the other hand, was held estopped from
denying the said partition on account of his silence while the trial of the annulment case in the
court a quo was in progress which was deemed to be tantamount to his acquiescence thereto.

We, however, held, as to the other complainants therein, that —

A different consideration should be made with regard to the heirs of Alvaro Esquivel.
There is no dispute that at the time of the partition made in 1946 they were minors
and were merely represented by their mother who was neither their legal guardian
nor the administrator of their property ... [under] section 553 of the Code of Civil
Procedure ... [in which] the father or mother is only deemed to be the natural
guardian of his or her minor children and not of his estate unless ordered by the
Court... This requirement of the law not having been followed, it is evident that the
partition in so far as said minors are concerned is of no validity and should not be
allowed to stand to their prejudice. In this sense, the land in question should still be
deemed as community property as to which the rights of the minors should be
respected.

In view of the foregoing findings and conclusions, this Court declared in the dispositive portion of its
judgment —
 Wherefore, the decision appealed from is modified in the sense that the deed of sale
in question is valid only in so far as plaintiffs Santiago, Feliza, Rosalia, Rosa,
Ceferina and Anastacia are concerned, but is invalid with regard to the minor heirs of
the late Alvaro Esquivel, subject to any adjustment that the heirs may deem proper to
make which would safeguard the rights of the minors. The Court reserves to spouses
Frias whatever action they may deem proper to take to protect their interest. No
pronouncement as to costs.

Apparently in pursuance of what this Court said in the foregoing decision, the surviving spouse of the
late Alvaro Esquivel, Sr. (who, in the meantime, had contracted a second marriage) and their
children executed, on February 15, 1957, in favor of the Frias spouses, petitioners herein, a deed of
sale of their one-seventh (1/7) interest and participation over the parcel of land in question. It will be
noted, however, that when this deed was signed, only three (3) of the five children were of age,
Alvaro, Jr. and Reynaldo being then only 19 and 17 years old, respectively. Their mother Perpetua,
nevertheless, signed the said contract in their behalf and in her capacity as their natural guardian.

The execution of the foregoing deed of sale of the lot in question failed, however, to produce
complete accord between the contending parties.

It appears that way back in March, 1952, petitioners had commenced proceedings for the
registration of the said lot in their name under the Land Registration Act. Their application was
opposed by respondents. Due to the aforementioned action for annulment of the deed of sale
executed by Anastacia, the registration proceedings were held in abeyance pending final
determination of the said civil case.

Thereafter, on October 2, 1957, after Our decision in the annulment case (L-8825) and after the
execution of the aforesaid deed of conveyance by Perpetua Zaragoza and her children, the Land
Registration Court rendered judgment adjudicating the lot in question to herein petitioners and
ordering its registration in their name. The decree of registration was subsequently issued by the
Land Registration Office on December 11, 1957 in favor of petitioners.

On December 8, 1958, a petition to re-one the said decree of registration was filed by a certain
Rosario Esquivel-Gonzales in her capacity as guardian ad litem of the minors Alvaro, Jr. and
Reynaldo Esquivel and of Ricardo Esquivel who was considered by the appointing court as a non
compos mentis. This petition, which was denied by the Land Registration Court, was brought to this
Court on appeal in G.R. No. L-17366. We affirmed the appealed order in a decision dated July 31,
1962 on the ground that the facts relied upon in the petition "do not constitute the extrinsic fraud
required as justification for the granting of the relief sought by them."

While having the lot in question registered in their name, petitioners also filed in the Court of First
Instance of Nueva Ecija the instant civil suit praying that they be declared the owners of the
aforementioned lot; that the defendants therein be compelled to remove an uninhabited house
contructed by the latter thereon; and that they pay accumulated rentals arising from the house's
occupancy of the lot until its removal therefrom, plus costs.

On August 25, 1960, the trial court rendered its decision on the case, the dispositive portion of which
reads as follows:

WHEREFORE, the Court renders decision in favor of the plaintiffs and against the
defendants declaring that the plaintiffs are the lawful owners of the land bought by
them from Anastacia Esquivel and Perpetua P. Zaragoza, except a portion of the
same with an area of 77.54 square meters, which shall be segregated from the oft-
 repeated land [for the minors Alvaro, Jr. and Reynaldo] on the eastern side from
north to south of the same land; to remove the uninhabited house from the land
where it is now erected; to pay monthly rental of P20.00 a month from February 28,
1957, the date of the filing of the complaint, up to the time it is completely removed
from the same place; to pay the sum of P200.00 as fee of the plaintiffs' counsel, and
to pay the costs.

The above decision was appealed by respondents to the Court of Appeals which, on September 26,
1964, rendered judgment affirming the same. *

On May 29, 1965, acting on a motion for reconsideration filed by Ricardo Esquivel through his guardian, and, finding that he was insane at
the time the lot in question was sold to the petitioners on February 15, 1957, the Court of Appeals modified its previous judgment by ordering
the segregation from the land in dispute of an area of 38.77 square meters "in favor of Ricardo Esquivel in addition to the 77.54 square
meters already ordered segregated in favor of Reynaldo and Alvaro, Jr., both surnamed Esquivels."

On June 28, 1965, petitioners, not being satisfied with The Court of Appeals' decision, filed before
this Court the instant petition for certiorari.

It is contended by petitioners that the Court of Appeal erred in ordering the segregation of 38.77
square meters each for Reynaldo, Alvaro, Jr. and Ricardo Esquivel from the lot in question for the
following reasons: (a) The torrens title issued to them "is absolute, conclusive and indefeasible, and
immune from collateral attack, and is subject only to the exception in Section 38, Act 496, for a
petition for review and for damages."; and (b) "The petitioners, for having paid P500 for the 'equity' of
the minor heirs of Alvaro Esquivel, must stand as the absolute owners of the land in question without
a defeasance."

A person who succeeds in having a piece of real estate registered to his name is, no doubt,
insulated by law from a number of claims and liens. There are, however, a number of instances or
causes by which such insulation may be cut loose. The registered owner for instance, is not
rendered immune by the law from the claim that he is not the real owner of the land he had
registered in his name. This Court had thus in a number of case prescribe reconveyance of the
registered land to the rightful but as yet unregistered owner.2 Indeed, Section 102 of Act 496, after a
description of the procedure to be pursued to enable a person wrongfully deprived of his land or any
interest therein as a result of the application and operation of the Land Registration Act, to recover
from the Assurance Fund the losses or damages he had sustained, states:

... That nothing in this Act shall be construed to deprive the plaintiff of any action
which he may have against any person for such loss or damage or deprivation of
land or any estate or interest therein without joining the Treasurer of the Philippine
Archipelago as a defendant therein.

The above-quoted proviso to Section 102 of Act 496 constitutes sufficient statutory authority, aside
from the dictates of equity, under which the remedy of reconveyance may be invoked. It must be
conceded, nevertheless, that this remedy cannot always be availed of by an aggrieved claimant, as
when the rights of innocent purchasers for value will be
affected.3

Contrary then to the argument of petitioners, the rule of indefeasibility of a torrens title is not "subject
only to the exceptions in Section 38, Act 496, for a petition for review and damages."

In the case at bar, petitioners' complaint that they be declared the owners of the lot in question was
diametrically disputed by respondents who alleged that they are the only owners in common of the
said lot by virtue of Our decision in L-8825. The nature of respondents' opposition amounts to an
action for reconveyance which sufficiently vested and clothed the court below with authority to
adjudicate and settle the question of ownership of the lot in dispute.

In this connection, We do not find any error in the conclusion reached by the court below and the
Court of Appeals that the said lot should be considered as owned in common only by petitioners
Alfredo Frias and Belen Lustre-Frias and Alvaro, Jr., Reynaldo and Ricardo Esquivel who are some
of the private respondents in the case at bar.

In L-8825, it was categorically declared that herein respondents Santiago, Feliza, Rosa, Rosalia and
Ceferina, all surnamed Esquivel, and Perpetua P. Zaragoza no longer possess any right, interest or
participation in the disputed lot (which is the same lot involved herein). The same is obviously true of
Anastacia Esquivel who was the one who sold the said lot to the petitioners.

In the case of the children of legal age of the late Alvaro Esquivel, Sr., namely, Vicente and Orlando,
who executed the deed of conveyance of their interest and participation in the said lot dated
February 15, 1957 in favor of petitioners, the obvious conclusion is that their interest and
participation in the said lot already belongs to petitioners..

On the other hand, the matter of Ricardo Esquivel and his then minor brothers, Alvaro, Jr. and
Reynaldo, deserves a different consideration.

It is not denied that the late Alvaro Esquivel, Sr. died intestate, and that at the time the
aforementioned deed of conveyance dated February 15, 1957 was executed by Perpetua P.
Zaragoza in behalf of the said minors she had already married for the second time. In view of this,
she already lost at that time her parental authority over the said unemancipated children. Section
328 of the New Civil Code provides that —4

The mother who contracts a subsequent marriage loses the parental authority over
her children, unless the deceased husband, father of the latter, has expressly
provided in his will that his widow might marry again, and has ordered that in such
case she should keep and exercise parental authority over their children...

Inasmuch as Perpetua P. Zaragoza does not appear to have been appointed a judicial guardian of
her minor children with the power to sell their property, the aforesaid deed of conveyance insofar as
Alvaro, Jr. and Reynaldo are concerned is, therefore, unenforceable. Articles 1403 (1) and 1317 of
the New Civil Code both specify that unlaw ratified by the person on whose behalf it has been
executed, a contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, is unenforceable. In the case at bar, there are
no real and definite traces of ratification made by the said minors of the disposition of their interest in
the disputed lot which their mother made in their behalf. Indeed, both the trial court and the Court of
Appeals found no such evidence, thereby rendering untenable petitioners' claim that they already
paid for the said minors' "equity" in the lot in question.

With regard to Ricardo Esquivel, the Court of Appeals found him to be insane at the time of the
execution of the deed of conveyance on February 15, 1957. This finding which is not disputed,
shows that the said deed is void as to him for as correctly held by the Appellate Court there was lack
of authority on the part of his mother Perpetua P. Zaragoza to sell his portion, she not having been
appointed judicial guardian of said Ricardo Esquivel.

But while We agree with the conclusion of the Court of Appeals on the ownership of the lot in
controversy, We do not subscribe to its approval of the manner in which the trial court physically
partitioned and assigned specific portions of the lotto Alvaro, Jr. and Reynaldo Esquivel. It does not
appear that the trial court made use of, or followed, the rules prescribed for the judicial partition of
properties owned in common. The procedure concerning partition prescribed in the Rules of Court,
designed to provide a just and equitable settlement of the relative rights of co-owners by securing to
them the benefits of a trial during which the details of partition will be taken up, should have been
followed. .

An independent action for partition is not necessary, however, in the instant situation. All the parties
involved in the case at bar appear to be the only ones claiming an interest in the said lot. Hence, to
afford them complete and adequate relief and to avoid a protracted and unnecessarily burdensome
litigation, a partition of the lot in question in this very action is the most logical and equitable path to
pursue. Note that both contending parties in their respective pleadings in the court a quo pray that
they be granted such further and other relief as may be just and equitable under the premises, and
the partition of the lot is well within the general relief prayed for.

ACCORDINGLY, the decision of the Court of Appeals dated September 26, 1964 as modified in its
resolution of May 29, 1964 as modified in its resolution of May 29, 1965 is hereby AFFIRMED, with
the following modification: (1) the trial court shall proceed with the partition of the lot in question, in
accordance with pertinent provisions of Rule 69 of the Rules of Court, among petitioners herein and
Alvaro, Jr., Reynaldo and Ricardo Esquivel; and (2) the aforementioned private respondents who are
co-owners of the property of petitioners shall not be made to pay any share in the rentals and the
amounts awarded by the trial court in favor of the latter. The case at bar is, therefore, remanded to
the court a quo in order that it may proceed as indicated. Without pronouncement as to costs.

SO ORDERED.

[ G.R. Nos. L-33819 and L-33897, October 23, 1982 ]

NATIONAL POWER CORPORATION, PLAINTIFF-APPELLANT, VS.

NATIONAL MERCHANDISING CORPORATION AND DOMESTIC
INSURANCE COMPANY OF THE PHILIPPINES, DEFENDANTS-
APPELLANTS.

DECISION

AQUINO, J.:
This case is about the recovery of liquidated damages from a seller's agent
that allegedly exceeded its authority in negotiating the sale.
Plaintiff National Power Corporation appealed on questions of law from the
decision of the Court of First Instance of Manila dated October 10, 1966,
ordering defendants National Merchandising Corporation and Domestic
Insurance Company of the Philippines to paysolidarily to the National
Power Corporation reduced liquidated damages in the sum of
P72,114.56 plus legal rate of interest from the filing of the complaint and
the costs (Civil Case No. 33114).
The two defendants appealed from the same decision allegedly because it is
contrary to law and the evidence. As the amount originally involved is
P360,572.80 and defendants' appeal is tied up with plaintiff's appeal on
questions of law, defendants' appeal can be entertained under Republic Act
No. 2613 which amended section 17 of the Judiciary Law.
On October 17, 1956, the National Power Corporation and National
Merchandising Corporation (Namerco) of 3111 Nagtahan Street, Manila, as
the representative of the International Commodities Corporation of 11
Mercer Street, New York City (Exh. C), executed in Manila a contract for
the purchase by the NPC from the New York firm of four thousand long
tons of crude sulfur for its Maria Cristina Fertilizer Plant in Iligan City at a
total price of P450,716 (Exh. E).
On that same date, a performance bond in the sum of P90,143.20 was
executed by the Domestic Insurance Company in favor of the NPC to
guarantee the seller's obligations (Exh. F).
It was stipulated in the contract of sale that the seller would deliver the
sulfur at Iligan City within sixty days from notice of the establishment in its
favor of a letter of credit for $212,120 and that failure to effect delivery
would subject the seller and its surety to the payment of liquidated damages
at the rate of two-fifth of one percent of the full contract price for the first
thirty days of default and four-fifth of one percent for every day thereafter
until complete delivery is made (Art. 8, p. 111, Defendants' Record on
Appeal).
In a letter dated November 12, 1956, the NPC advised John Z. Sycip, the
president of Namerco, of the opening on November 8 of a letter of credit for
$212,120 in favor of International Commodities Corporation which would
expire on January 31, 1957 (Exh. I). Notice of that letter of credit was
received by cable by the New York firm on November 15, 1956 (Exh. 80-
Wallick). Thus, the deadline for the delivery of the sulfur was January 15,
1957.
The New York supplier was not able to deliver the sulfur due to its inability
to secure shipping space. During the period from January 20 to 26, 1957
there was a shutdown of the NPC's fertilizer plant because there was no
sulfur. No fertilizer was produced (Exh. K).
In a letter dated February 27, 1957, the general manager of the NPC
advised Namerco and the Domestic Insurance Company that under Article
9 of the contract of sale "nonavailability of bottom or vessel" was not a
fortuitous event that would excuse nonperformance and that the NPC
would resort to legal remedies to enforce its rights (Exh. L and M).
The Government Corporate Counsel in his letter to Sycip dated May 8,
1957 rescinded the contract of sale due to the New York supplier's
nonperformance of its obligations (Exh. G). The same counsel in his letter
of June 8, 1957 demanded from Namerco the payment of P360,572.80 as
liquidated damages. He explained that time was of the essence of the
contract. A similar demand was made upon the surety (Exh. H and H-1).
The liquidated damages were computed on the basis of the 115-day period
between January 15, 1957, the deadline for the delivery of the sulfur
at Iligan City, and May 9, 1957 when Namerco was notified of the rescission
of the contract, or P54,085.92 for the first thirty days and P306,486.88 for
the remaining eighty-five days. Total: P360,572.80.
On November 5, 1957, the NPC sued the New York firm, Namerco and the
Domestic Insurance Company for the recovery of the stipulated liquidated
damages (Civil Case No. 33114).
The trial court in its order of January 17, 1958 dismissed the case as to the
New York firm for lack of jurisdiction because it was not doing business in
the Philippines (p. 60, Defendants' Record on Appeal).
On the other hand, Melvin Wallick, as the assignee of the New
York corporation and after the latter was dropped as a defendant in Civil
Case No. 33114, sued Namerco for damages in connection with the same
sulfur transaction (Civil Case No. 37019). The two cases, both filed in the
Court of First Instance of Manila, were consolidated. A joint trial was
held. The lower court rendered separate decisions in the two cases on the
same date.
In Civil Case No. 37019, the trial court dismissed Wallick's action for
damages against Namerco because the assignment in favor
of Wallickwas champertous in character. Wallick appealed to this
Court. The appeal was dismissed because the record on appeal did not
disclose that the appeal was perfected on time (Res. of July 11, 1972 in L-
33893).
In this Civil Case No. 33114, although the records on appeal were approved
in 1967, inexplicably, they were elevated to this Court in 1971. That anomaly
initially contributed to the delay in the adjudication of this case.
Defendants' appeal, L-33819. - They contend that the delivery of the sulfur
was conditioned on the availability of a vessel to carry the shipment and
that Namerco acted within the scope of its authority as agent in signing the
contract of sale.
The documentary evidence belies these contentions. The invitation to bid
issued by the NPC provides that non-availability of a steamer to transport
the sulfur is not a ground for nonpayment of the liquidated damages in case
of nonperformance by the seller:
"4. Responsibility for availability of vessel. - The availability of vessel to
transport the quantity of sulfur within the time specified in item 14 of this
specification shall be the responsibility of the bidder. In case of award of
contract, failure to ship on time allegedly due to non-availability of vessels
shall not exempt the Contractor from payment of liquidated damages
provided in item 15 of this specification."
"15. Liquidated damages. - x x x xxx xxx
"Availability of vessel being a responsibility of the Contractor as specified
in item 4 of this specification, the terms 'unforeseeable causes beyond the
control and without the fault or negligence of the Contractor' and
'force majeure' as used herein shall not be deemed to embrace or include
lack or non-availability of bottom or vessel. It is agreed that prior to
making his bid, a bidder shall have made previous arrangements regarding
shipments within the required time. It is clearly understood that in no
event shall the Contractor be exempt from the payment of liquidated
damages herein specified for reason of lack of bottom or vessel. Lack of
bottom or non-availability of vessel shall, in no case, be considered as a
ground for extension of time. x x x." (Exh. A, pp. 13, 18-19, Defendants'
Record on Appeal).
Namerco's bid or offer is even more explicit. It provides that it was
"responsible for the availability of bottom or vessel" and that it "guarantees
the availability of bottom or vessel to ship the quantity of sulfur within the
time specified in this bid" (Exh. B, p. 22, Defendants' Record on Appeal).
In the contract of sale itself item 15 of the invitation to bid is reproduced
in Article 9 which provides that "it is clearly understood that in no event
shall the seller be entitled to an extension of time or be exempt from the
payment of liquidated damages herein specified for reason of lack of
bottom or vessel" (Exh. E, p. 36, Record on Appeal).
It is true that the New York corporation in its cable to Namerco dated
August 9, 1956 stated that the sale was subject to availability of a steamer
(Exh. N). However, Namerco did not disclose that cable to the NPC and,
contrary to its principal's instruction, it agreed that non-availability of a
steamer was not a justification for nonpayment of the liquidated damages.
The trial court rightly concluded that Namerco acted beyond the bounds of
its authority because it violated its principal's cabled instructions (1) that
the delivery of the sulfur should be "C & F Manila", not "C & F Iligan City";
(2) that the sale be subject to the availability of a steamer and (3) that the
seller should be allowed to withdraw right away the full amount of the letter
of credit and not merely eighty percent thereof (pp. 123-124, Record on
Appeal).
The defendants argue that it was incumbent upon the NPC to inquire into
the extent of the agent's authority and, for its failure to do so, it could not
claim any liquidated damages which, according to the defendants, were
provided for merely to make the seller more diligent in looking for a
steamer to transport the sulfur.
The NPC counter-argues that Namerco should have advised the NPC of the
limitations on its authority to negotiate the sale.
We agree with the trial court that Namerco is liable for damages because
under article 1897 of the Civil Code the agent who exceeds the limits of his
authority without giving the party with whom he contracts sufficient notice
of his powers is personally liable to such party.
The truth is that even before the contract of sale was signed Namerco was
already aware that its principal was having difficulties in booking shipping
space. In a cable dated October 16, 1956, or one day before the contract of
sale was signed, the New York supplier advised Namerco that the
latter should not sign the contract unless it (Namerco) wished to assume
sole responsibility for the shipment(Exh. T).
Sycip, Namerco's president, replied in his letter to the seller dated also
October 16, 1956, that he had no choice but to finalize the contract of sale
because the NPC would forfeit Namerco's bidder's bond in the sum of
P45,100 posted by the Domestic Insurance Company if the contract was not
formalized (Exh. 14, 14-A and Exh. V).
Three days later, or on October 19, the New York firm cabled Namerco that
the firm did not consider itself bound by the contract of sale and
that Namerco signed the contract on its own responsibility (Exh. W).
In its letters dated November 8 and 19, 1956, the New
York corporation informed Namerco that since the latter acted contrary to
the former's cabled instructions, the former disclaimed responsibility for
the contract and that the responsibility for the sale rested
on Namerco (Exh. Y and Y-1).
The letters of the New York firm dated November 26 and December 11,
1956 were even more revealing. It bluntly told Namerco that the latter was
never authorized to enter into the contract and that it acted contrary to the
repeated instructions of the former (Exh. U and Z). Said the vice-president
of the New York firm to Namerco:
"As we have pointed out to you before, you have acted strictly contrary to
our repeated instructions and, however regretfully, you have no one but
yourselves to blame."
The rule relied upon by the defendants-appellants that every person dealing
with an agent is put upon inquiry and must discover upon his peril the
authority of the agent would apply in this case if the principal is sought to
be held liable on the contract entered into by the agent.
That is not so in this case. Here, it is the agent that is sought to be held
liable on a contract of sale which was expressly repudiated by the principal
because the agent took chances, it exceeded its authority and, in effect, it
acted in its own name.
As observed by Castan Tobeñas, an agent
"que haya traspasado los limites del mandato,
lo que equivale a obrar sin mandato" (4 DerechoCivil Español, 8th Ed.,
1956, p. 520).
As opined by Olivieri,
"si el mandante contesta o impugna el negocio juridico concluido por el ma
ndatario con
el tercero, aduciendo el exceso de los limites impuestos, es justo que el man
datario, que ha tratado con engaño al tercero,
sea responsable personalmente respectode él de las consecuencias de tal fal
ta de aceptación por parte del mandante. Tal responsabilidad del mandatar
io se informa en el principiode la falta de garantia de
la existencia del mandato y de
la cualidad de mandatario, garantia impuesta coactivamente por la ley, que
quiereque aquel que contrata como mandatario esté obligado a garantizar a
l tercero la efectiva existencia de los poderes que afirma se hallainvestido, si
empre que el tercero mismo sea
de buena fe. Efecto de tal garantía es el resarcimiento de los daños causado
s al tercero comoconsecuencia de
la negativa del mandante a reconocer lo actuado por el mandatario." (26,
part II, Scaevola, Codigo Civil, 1951, pp. 358-9).
Manresa says that the agent who exceeds the limits of his authority is
personally liable "porque realmente obra sin poderes" and the third person
who contracts with the agent in such a case would be defrauded if he would
not be allowed to sue the agent (11 Codigo Civil, 6th Ed., 1972, p. 725).
The defendants also contend that the trial court erred in holding as
enforceable the stipulation for liquidated damages despite its finding that
the contract was executed by the agent in excess of its authority and is,
therefore, allegedly unenforceable.
In support of that contention, the defendants cite article 1403 of the Civil
Code which provides that a contract entered into in the name of another
person by one who has acted beyond his powers is unenforceable.
We hold that defendants' contention is untenable because article 1403
refers to the unenforceability of the contract against the principal. In the
instant case, the contract containing the stipulation for liquidated damages
is not being enforced against its principal but against the agent and its
surety.
It is being enforced against the agent because article 1897 implies that the
agent who acts in excess of his authority is personally liable to the party
with whom he contracted.
And that rule is complemented by article 1898 of the Civil Code which
provides that "if the agent contracts in the name of the principal, exceeding
the scope of his authority, and the principal does not ratify the contract, it
shall be void if the party with whom the agent contracted is aware of the
limits of the powers granted by the principal".
As priorly discussed, Namerco, as agent, exceeded the limits of its authority
in contracting with the NPC in the name of its principal. The NPC was
unaware of the limitations on the powers granted by the New York firm
to Namerco.
The New York corporation in its letter of April 26, 1956 said:
"We hereby certify that National Merchandising Corporation x x x are our
exclusive representatives in the Philippinesfor the sale of our products.
"Furthermore, we certify that they are empowered to present our offers in
our behalf in accordance with our cabled or written instructions." (Exh. C).
Namerco never disclosed to the NPC the cabled or written instructions of
its principal. For that reason and because Namerco exceeded the limits of
its authority, it virtually acted in its own name and not as agent and it is,
therefore, bound by the contract of sale which, however, is not enforceable
against its principal.
If, as contemplated in articles 1897 and 1898, Namerco is bound under the
contract of sale, then it follows that it is bound by the stipulation for
liquidated damages in that contract.
Defendants' contention that Namerco's liability should be based on tort or
quasi-delict, as held in some American cases, like Mendelsohnvs. Holton,
149 N.E. 38, 42 ALR 1307, is not well-taken. As correctly argued by the
NPC, it would be unjust and inequitable for Namercoto escape liability after
it had deceived the NPC.
Another contention of the defendants is that the Domestic Insurance
Company is not liable to the NPC because its bond was posted, not
for Namerco, the agent, but for the New York firm which is not liable on the
contract of sale.
That contention cannot be sustained because it was Namerco that actually
solicited the bond from the Domestic Insurance Company and, as explained
already, Namerco is being held liable under the contract of sale because it
virtually acted in its own name. It became the principal in the performance
bond. In the last analysis, the Domestic Insurance Company acted as
surety for Namerco.
The rule is that "want of authority of the person who executes an obligation
as the agent or representative of the principal will not, as a general rule,
affect the surety's liability thereon, especially in the absence of fraud, even
though the obligation is not binding on the principal" (72 C.J.S. 525).
Defendants' other contentions are that they should be held liable only for
nominal damages, that interest should not be collected on the amount of
damages and that the damages should be computed on the basis of a forty-
five-day period and not for a period of one hundred fifteen days.
With respect to the imposition of the legal rate of interest on the damages
from the filing of the complaint in 1957, or a quarter of a century ago,
defendants' contention is meritorious. It would be manifestly inequitable
to collect interest on the damages especially considering that the
disposition of this case has been considerably delayed due to no fault of the
defendants.
The contention that only nominal damages should be adjudged is contrary
to the intention of the parties (NPC, Namerco and its surety) because it is
clearly provided that liquidated damages are recoverable for delay in the
delivery of the sulfur and, with more reason, for non-delivery.
No proof of pecuniary loss is required for the recovery of liquidated
damages. The stipulation for liquidated damages is intended to obviate
controversy on the amount of damages. There can be no question that the
NPC suffered damages because its production of fertilizer was disrupted or
diminished by reason of the non-delivery of the sulfur.
The parties foresaw that it might be difficult to ascertain the exact amount
of damages for non-delivery of the sulfur. So, they fixed the liquidated
damages to be paid as indemnity to the NPC.
On the other hand, nominal damages are damages in name only or are in
fact the same as no damages (25 C.J.S. 466). It would not be correct to hold
in this case that the NPC suffered damages in name only or that the breach
of contract was merely technical in character.
As to the contention that the damages should be computed on the basis of
forty-five days, the period required by a vessel leaving Galveston, Texas to
reach Iligan City, that point need not be resolved in view of our conclusion
that the liquidated damages should be equivalent to the amount of the
bidder's bond posted by Namerco.
NPC's appeal, L-33897. - The trial court reduced the liquidated damages to
twenty percent of the stipulated amount. The NPC contends that it is
entitled to the full amount of liquidated damages in the sum of
P360,572.80.
In reducing the liquidated damages, the trial court relied on article 2227 of
the Civil Code which provides that "liquidated damages, whether intended
as an indemnity or a penalty, shall be equitably reduced if they are
iniquitous or unconscionable".
Apparently, the trial court regarded as an equitable consideration the
persistent efforts of Namerco and its principal to charter a steamer and that
the failure of the New York firm to secure shipping space was not
attributable to its fault or negligence.
The trial court also took into account the fact that the selling price of the
sulfur was P450,716 and that to award as liquidated damages more than
eighty percent of the price would not be altogether reasonable.
The NPC contends that Namerco was an obligor in bad faith and, therefore,
it should be responsible for all damages which could be reasonably
attributed to its nonperformance of the obligation as provided in article
2201 of the Civil Code.
On the other hand, the defendants argue that Namerco having acted as a
mere agent, was not liable for the liquidated damages stipulated in the
alleged unenforceable contract of sale; that, as already
noted, Namerco's liability should be based on tort or quasi-delict and not
on the contract of sale; that if Namerco is not liable, then the insurance
company, its surety, is likewise not liable; that the NPC is entitled only to
nominal damages because it was able to secure the sulfur from another
source (58-59 tsn November 10, 1960) and that the reduced award of
stipulated damages is highly iniquitous, considering that Namerco acted in
good faith and that the NPC did not suffer any actual damages.
These contentions have already been resolved in the preceding
discussion. We find no sanction or justification for NPC's claim that it is
entitled to the full payment of the liquidated damages computed by its
official.
Ruling on the amount of damages. - A painstaking evaluation of the
equities of the case in the light of the arguments of the parties as
expounded in their five briefs leads to the conclusion that the damages due
from the defendants should be further reduced to P45,100which is
equivalent to their bidder's bond or to about ten percent of the selling price
of the sulfur.
WHEREFORE, the lower court's judgment is modified and defendants
National Merchandising Corporation and Domestic Insurance Company of
the Philippines are ordered to pay solidarily to the National Power
Corporation the sum of P45,100.00 as liquidated damages. No costs.
SO ORDERED.
G.R. No. 154390

METROPOLITAN FABRICS, INC. and ENRIQUE ANG, Petitioners,

vs.
PROSPERITY CREDIT RESOURCES INC., DOMINGO ANG and CALEB ANG, Respondents.

DECISION

BERSAMIN, J.:

The genuineness and due execution of a deed of real estate mortgage that has been acknowledged
before a notary public are presumed. Any allegation of fraud and forgery against the deed must be
established by clear and competent evidence.

The Case

In this appeal, the mortgagors, who were the plaintiffs in the trial court, seek to reverse and undo the
judgment promulgated on July 23, 2002,1 whereby the Court of Appeals (CA) reversed and set aside
the decision rendered in their favor on July 6, 1999 by the Regional Trial Court (RTC), Branch 107,
in Quezon City (declaring the real estate mortgage and the foreclosure by respondents null and void;
and ordering the reconveyance of the foreclosed properties to petitioners),2 and dismissed their
complaint as well as the counterclaim of respondents.

Antecedents

The CAsummarized the antecedents as follows:

Metropolitan Fabrics, Incorporated, a family corporation, owned a 5.8 hectare industrial compound at
No. 685 Tandang Sora Avenue, Novaliches, Quezon City which was covered by TCT No. 241597.
Pursuant to a P2 million, 10-year 14% per annum loan agreement with Manphil Investment
Corporation (Manphil) dated April 6, 1983, the said lot was subdivided into 11 lots, with Manphil
retaining four lots as mortgage security. The other seven lots, now covered by TCT Nos. 317699 and
317702 to 317707, were released to MFI.

In July 1984, MFI sought from PCRI a loan in the amount of P3,443,330.52, the balance of the cost
of its boiler machine, to prevent its repossession by the seller. PCRI, also a family-owned
corporation licensed since 1980 to engage in money lending, was represented by Domingo Ang
("Domingo") its president, and his son Caleb, vice- president. The parties knew each other because
they belonged to the same family association, the Lioc Kui Tong Fraternity.

The decision noted that on the basis only of his interview with Enrique, feedback from the
stockholders and the Chinese community, as well as information given by his own father Domingo,
and without further checking on the background of Enrique and his business and requiring him to
submit a company profile and a feasibility study of MFI, Caleb recommended the approval of the
P3.44 million with an interest ranging from 24% to 26% per annum and a term of between five and
ten years (Decision, p. 5). According to the court, it sufficed for Caleb that Enrique was a well-
respected Chinese businessman, that he was the president of their Chinese family association, and
that he had other personal businesses aside from MFI, such as theAfrica Trading.

The court gave credence to the uncorroborated lone testimony of Enrique’s daughter Vicky that on
August 3, 1984, even before the signing of the mortgage and loan documents, PCRI released the
P3.5 million loan to MFI. It found that the blank loan forms, consisting of the real estate mortgage
contract, promissory note, comprehensive surety agreement and disclosure statement, which
Domingo himself handed to Enrique, "had no entries specifying the rate of interest and schedules of
amortization." On the same day, to reciprocate the gesture of PCRI, Enrique, together with his wife
Natividad Africa, vice-president, and son Edmundo signed the blank forms "at their office at 685
Tandang Sora Avenue, Novaliches, Quezon City." The signing was allegedly witnessed by Vicky,
Ellen and Alice, all surnamed Ang, without any PCRI representative present. Immediately thereafter,
Enrique and Vicky proceeded to the PCRI office at 1020 Soler St., Binondo.

The court a quo also accepted Vicky’s account that it was in order to return the trust of Domingo and
Caleb and their gesture of the early release of the loan that Enrique and Vicky entrusted to them
their seven

(7) titles, with an aggregate area of 3.3665 hectares, to wit: TCT Nos. 317699, 317702, 317703,
317704, 317705, 317706 and 1317707. She testified that they left it to defendants to choose from
among the 7 titles those which would be sufficient to secure the P3.5 million. She also admitted,
however, that they had an appraisal report dated June, 1984 of the said properties made by the
Integrated Appraisal Corporation which put the value of four (4) of the said properties at P6.8 million,
now the subject of the action for reconveyance, while the aggregate value of all seven lots was P11
million.

Vicky further stated that it was agreed that once PCRI had chosen the lots to be covered by the
mortgage, the defendants would return the remaining titles to the plaintiffs. Plaintiffs also secured an
additional loan of about P199,000.00 to pay for real estate taxes and other expenses. Significantly,
Vicky testified that the plaintiffs delivered to PCRI twenty- four (24) checks, bearing no dates and
amounts, to cover the amortization payments, all signed in blank by Enrique and Natividad.

In September 1984, the first amortization check bounced for insufficient fund due to MFI’s continuing
business losses. It was then that the appellees allegedly learned that PCRI had filled up the 24 blank
checks with dates and amounts that reflected a 35% interest rate per annum, instead of just 24%,
and a two-year repayment period, instead of 10 years. Vicky avers that her strong protest caused
PCRI to desist from depositing the other 23 checks (TSN, April 21, 1998, p. 15), and that it was
about this time that PCRI finally furnished MFI with its copy of the promissory note and the
disclosure statement.

Vicky asserted that plaintiffs-appellees found the terms reflected in the loan documents to be
prohibitive, burdensome and unconscionable, and that had they known them when they took out the
loan on August 3, 1984, they could either have (1) negotiated/bargained or (2) rejected the terms of
the loan and withdrawn the loan application. Plaintiffs thereafter repeatedly asked the defendants to
return the rest of the titles in excess of the required collateral to which defendants allegedly routinely
responded that their committee was still studying the matter. Vicky even added that Caleb assured
Vicky that PCRI would also lower the rate of interest to conform to prevailing commercial rate.
Meanwhile, due to losses plaintiffs’business operations stopped.

Vicky also testified that talks were held in earnest in 1985 between Domingo and Enrique as well as
between Vicky and Caleb concerning the possible offsetting of the loan by ceding some of their
properties to PCRI. On February 28, 1986, Vicky wrote to defendants, referring to a meeting held on
February 11, 1986 and reiterating her request for the offsetting. The letter stated that since August,
1985, she had been asking for the offsetting of their properties against the loan. Caleb had sought a
report on the fair market value of the seven lots. Also, he sought the assignment to PCRI of the
rentals payable of plaintiffs’ tenant, Bethlehem Knitting Company up to 1987. Vicky admitted that
plaintiffs furnished Caleb on March 11, 1986 a copy of the 1984 Appraisal Report prepared by the
IntegratedAppraisal Corporation for the offsetting agreement.

PCRI’s account statement dated February 12, 1986 showed that MFI’s total loan obligation
amounted to P4,167,472.71 (Exh. "G"). The March 25, 1986 statement from PCRI, however, showed
that all seven (7) titles were placed as collateral for their P3.5 million loan. MFI maintained that per
their appraisal report, four of the properties were already worth P6.5 million while the three other lots
were valued around P4.6 million.

Vicky also claimed that Domingo and Caleb tried to appease the plaintiffs by assuring them that they
would return the rest of the titles anytime they would need them, and that they could use them to
secure another loan from them or from another financing company. They would also reconsider the
35% interest rate, but when the discussion shifted to the offsetting of the properties to pay the loan,
the defendants’ standard answer was that they were still awaiting the feedback of their committee.

On September 4, 1986, Enrique received a Notice of Sheriff’s Sale dated August 29, 1986,
announcing the auction of the seven lots on September 24, 1986 due to unpaid indebtedness of
P10.5 million. After Vicky explained to her father Enrique in Chinese that the defendants were
auctioning all their seven lots, he became frantic, was unable to take his lunch, and remained silent
the whole afternoon. Later that night he fell ill and became delirious. His blood pressure shot up to
200/100 and he was rushed to the Metropolitan Hospital where he fell into a coma and stayed in the
intensive care unit for four (4) days. Vicky claimed that during moments of consciousness, her father
would mutter the names of Domingo and Caleb and that they were unprofessional and dishonest
people. He was discharged after 6 days.

Vicky insisted that prior to the auction notice, they never received any statement or demand letter
from the defendants to pay P10.5 million, nor did the defendants inform them of the intended
foreclosure. The last statement they received was dated February 12, 1986, and showed amount
due of only P4,167,472.71. Vicky recalled that from June 1, 1986 to July 1986, they held several
meetings to discuss the options available to them to repay their loan, such as the offsetting of their
rent collectibles and properties to cover the amortizations and the loan balance.

MFI protested the foreclosure, and the auction was reset to October 6, 1986, then to October 16,
1986, and finally October 27, 1986 after they assured PCRI that they had found a serious buyer for
three of the lots. In the meeting held on October 15, 1986 at defendants’ office, the buyer, Winston
Wang of Asia Cotton and his lawyer, Atty. Ismael Andres were present. It was agreed to release the
mortgage over TCT Nos. 317705, 317706, and 317707 upon payment of P3.5 million. Winston
Wang would pay to MFI P500,000.00 as down-payment, which MFI would in turn pay to PCRI as
partial settlement of the P3.5 million loan. Winston Wang was given 15 days from October 16, 1986
to pay the P500,000.00. Vicky claims that these agreements were made verbally, although she kept
notes and scribbles of them.

On January 19, 1987, Winston Wang confronted Vicky about their sale agreement and PCRI’s
refusal to accept their P3 million payment, because according to Caleb, the three lots had been
foreclosed. Vicky was shocked, because the agreed 60-day period to pay the P3 million was to lapse
on January 13, 1987 yet. Caleb himself put the particulars of the P500,000.00 payment in the cash
voucher as partial settlement of the loan.

At the auction sale on October 27, 1986, PCRI was the sole bidder for P6.5 million. Vicky however
also admitted that discussions continued on the agreement to release three lots for P3.5 million. The
reduction of interest rate and charges and the condonation of the attorney’s fees of P300,000.00 for
the foreclosure proceedings were also sought. Present in these conferences were Enrique and
Vicky, Domingo and Caleb, Winston Wang and his lawyer,Atty. IsmaelAndres.

Upon defendants’ continued failure to honor their agreement, Atty. Ismael Andres threatened to sue
PCRI in a letter dated February 17, 1987 if they would not accept the P3 million payment of his
client. Atty.Andres also sent them similar letters dated May 15, August 5 and 7, 1987, and after
several more discussions, the defendants finally agreed to accept the P3 million from Winston
Wang, but under these conditions: a) MFI must pay the P300,000.00 attorney’s fees paid for the
foreclosure proceedings and the P190,000.00 for real estate taxes; b) PCRI shall issue the
certificate of redemption over the three lots; c) plaintiffs shall execute a Memorandum of Undertaking
concerning their right of way over the other properties, the lots being redeemed being situated along
Tandang Sora Street.

Vicky also testified that although Wang would pay directly to Caleb, the plaintiffs pursued the
transaction because of PCRI’s promised to release the four (4) other remaining properties after the
payment of P3.5 million loan principal as well as the interest in arrears computed at P3 million, or a
total of P6.5 (TSN, January 10, 1996, p. 11).

MFI paid to PCRI P490,000.00 as agreed, and likewise complied with the required documentation.
Winston Wang also paid the balance of P3 million for the three lots he was buying. The discussion
then turned to how the plaintiffs’ P3 million interest arrearages would be settled, which they agreed
to be payable over a period of one year, from October 26, 1987 to October 26, 1988.

In October, 1988, however, plaintiffs were able to raise only P2 million. After a meeting at
defendants’ office, the period to pay was extended to October 26, 1989, but subject to 18% interest
per annum, which Caleb however allegedly refused to put in writing. Plaintiffs were later able to raise
P3 million plus P540,000.00 representing the 18% interest per annum. On October 26, 1989, Vicky
and Enrique tendered the same to Caleb at his office. Caleb however became furious, and now
insisted that the interest due since 1984 was already P7 million computed at 35% per annum.

On January 16, 1990 and again on March 5, 1990, PCRI sent the plaintiffs a letter demanding that
they vacate the four remaining lots. Caleb was also now asking for P10.5 million. On March 19,
1990, Caleb executed an affidavit of non-redemption of TCT Nos. 317699, 317702, 317703 and
317704. On June 7, 1990, S.G. del Rosario, PCRI’s vice- president, wrote Vicky reiterating their
demand to vacate the premises and remove pieces of machinery, equipment and persons therein,
which MFI eventually heeded.

Vicky also testified that the news of plaintiffs’ predicament spread around the Chinese community
and brought the family great humiliation. Enrique’s health deteriorated rapidly and he was
hospitalized. On October 9, 1991, they filed the case below. Meanwhile, Enrique died on November
15, 1993 after one year and one month at the Metropolitan Hospital. The family spent P300,000 -
P400,000 for his funeral and burial expenses.

Plaintiffs now insist that P1 million in moral damages was not enough for the humiliation they
suffered before the Chinese community, considering that Enrique was then the president of the Lioc
Kui Tong Fraternity while Domingo and Caleb were members thereof. Plaintiffs were also deprived
of the rental income of P10,000.00 per month and the 10% rental increases from 1987 to present of
their said properties.

In arguing that the 35% interest rate imposed by PCRI was exorbitant and without their consent, the
plaintiffs cited the promissory note and amortization schedule in their loan agreement with Manphil
dated April 6, 1983 and with IBAA on April 21, 1983 which both showed a rate of interest of only
14% and a ten-year term with two years grace period.3

Ruling of the RTC

In the order of May 23, 1994, the trial judge listed the following issues for resolution, namely:

1.Whether or not the mortgage contract and its foreclosure should be declared null and void;

2.Whether or not either or both parties is/are entitled to damages from the other, and, if so,
how much.

3.Whether or not plaintiffs’cause of action has prescribed;

4.Whether or not the estoppel had attached against the plaintiff.4

As stated, the RTC rendered its decision in favor of petitioners,5 disposing:

WHEREFORE, IN VIEW OF THE FOREGOING, judgment is hereby rendered, to wit:

1. Declaring the real estate mortgage and the subsequent foreclosure made by the
defendants on the plaintiffs’ properties covered by Transfer Certificate of Title Nos. 317699,
317702, 317703, 317704 of the Register of Deeds of Quezon City null and void and the titles
issued in favor of the defendants canceled and ordered reconveyed to the plaintiffs;

2. The defendants are hereby ordered solidarily liable to pay plaintiff, Metropolitan Fabrics,
Inc. and the family of Enrique Ang the following:

a.The amount of ONE MILLION PESOS (P1,000,000.00) for moral damages;

b.The amount of P10,000.00 per month with an interest of 10% per annum from
January 1987 up to the time that the plaintiffs take repossession of the said parcels
of land as actual damages;

c.ONE HUNDRED THOUSAND PESOS (P100,000.00) for attorney's fees; and

d.Costs of suit.

3. The defendants’ counterclaim for deficiency judgment, in the amount of P107,876,171.82

as actual damages; P1,000,000.00 for moral damages and P500,000.00 for attorney's fees
is hereby DISMISSED.

Let a copy of this DECISION be furnished the Register of Deeds, Quezon City relative to the
aforementioned parcels of land. Anticipating an appeal in this case, to protect the rights of the
plaintiffs, the Register of Deeds of Quezon City is hereby ordered to annotate this DECISION in the
aforementioned Certificates of Title.

SO ORDERED.6

Judgment of the CA
Respondents appealed, assigning the following errors, to wit:

1.THE TRIAL COURT GRAVELY ERRED WHEN IT RULED THAT THE ACTION TO
ANNUL THE MORTGAGE CONTRACT DID NOT PRESCRIBE.

2.THE TRIAL COURT GRAVELY ERRED WHEN IT ANNULLED THE MORTGAGE

CONTRACT, AND THE FORECLOSURE SALE ON THE GROUND OF FRAUD,
NOTWITHSTANDING THE TWELVE (12) DOCUMEN-TARY EVIDENCE RATIFYING THE
MORTGAGE AND FORECLOSURE SALE, AND THE FAILURE OF THE SIGNATORIES TO
IMPUGN THE VALIDITY OF THE SAME FROM THE TIME THEY SIGNED UP TO THE
PRESENT OR FORAPERIOD OF 14 YEARS.

3.THE TRIAL COURT GRAVELY ERRED WHEN IT RULED THERE WAS FRAUD IN THE
EXECUTION OF THE MORTGAGE CONTRACT BASED ON THE LONE TESTIMONY OF
VICKY ANG GAPIDO, WHO WAS NOT A SIGNATORY TO THE MORTGAGE CONTRACT
AND WHOSE TESTIMONY WAS NOT EVEN CORROBORATED BYTHE SIGNATORIES
TO THE SAME.

4.THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT THE PLAINTIFFS-

APPELLEES DID NOT AGREE TO THE LOAN AND/OR THE MORTGAGE DESPITE THE
NUMEROUS ACTS OF THE PLAINTIFFS-APPELLEES RECOGNIZING THE VALIDITY OF
THE MORTGAGE AND ITS FORECLOSURE AND ULTIMATELY VOLUNTARILY
SURRENDERING THE FOUR (4) UNREDEEMED LOTS TO THE DEFENDANTS-
APPELLANTS, RESULTING IN ESTOPPEL.

5.THE TRIAL COURT GRAVELY ERRED IN FINDING THE DEFENDANTS-APPELLANTS

GUILTY OF PREDATORY LENDING PRACTICESAND INIQUITOUS CONDUCT.

6.THE TRIAL COURT GRAVELY ERRED WHEN ITAWARDED DAMAGES AND

ATTORNEY’S FEES TO PLAINTIFFS-APPELLEES NOTWITHSTANDING ITS ADMITTED
FAILURE TO PAY ITS LOAN OBLIGATIONS TO DEFENDANTS-APPELLANTS, AND
FILING OF THIS BASELESSAND MALICIOUS SUIT.

7.THE TRIAL COURT GRAVELY ERRED IN FAILING TO AWARD DAMAGES AND

ATTORNEY’S FEES TO DEFENDANTS- APPELLANTS.7

On July 23, 2002, the CA promulgated its assailed judgment,8 reversing and setting aside the
decision of the RTC, and dismissing the complaint and the counterclaim upon the following
ratiocination:

We find the appeal to be partially meritorious.

The action for annulment of title and reconveyance was based on the allegation of fraud which
attended the mortgage contract between the parties. Article 1391 of the Civil Code provides that
actions to annul a contract based on fraud should be brought within four years from discovery of the
fraud (Asuncion vs. CA, 150 SCRA 353). If the transaction involves registered land, the four-year
period is computed from the registration of the conveyance/transaction on account of constructive
notice and not on actual knowledge. In the instant case, the mortgage over the seven lots was
annotated on the back of their respective titles on September 05, 1984, so that the action to annul
the mortgage should have been commenced before September 05, 1988. The case below was filed
only in 1991.
Even if the prescription period is counted from actual notice, the plaintiffs had until October 25, 1989,
or four years after the foreclosure sale, to file the action to annul. Indeed, pursuant to the cases of
Armentia vs. Patriarca, 18 SCRA 1253 and Gatiaon vs. Gaffud, 27 SCRA706, if the annulment of the
mortgage contract is merely a condition precedent for the annulment or reconveyance of the title, the
prescriptive period is only four years.

Moreover, assuming the defendants were guilty of continuing fraud, the plaintiffs’inaction for seven
years is contrary to human experience and thus estoppel may have already set in. Nor is it at all
clear just how the continuing fraud was committed by PCRI. Instead, what is more readily apparent
from the findings of fact of the trial court is that upon the incessant importuning of the plaintiffs, the
defendants gave them every reasonable chance to pay their loan and recover their properties. While
it is settled that the findings of fact of the trial court which heard the case are not to be disturbed on
appeal, if, however, the conclusions are not borne out by the facts or if substantial facts bearing
upon the result of the case are overlooked, the same may be overturned. We find no clear and
convincing evidence, nor even preponderant evidence, to defeat the presumption of regularity of the
mortgage contract and promissory note. The plaintiffs relied mainly on the lone testimony of Vicky
Ang Gapido, certainly a biased witness, who was not even a signatory to the questioned documents.
There was no proof that she was an officer of MFI back in 1984. She appeared on the scene only in
1986.

The appealed decision appears to have brushed aside several documents which clearly tended to
prove the voluntary and free consent of the appellees to the mortgage. The promissory note and
mortgage contract are public documents that enjoy the presumption of regularity which can be
overcome only by clear and convincing evidence. Against these, the trial court accepted the sole
testimony of VickyAng.

Absent proof that Vicky Ang was a responsible officer of MFI at the time of the execution of the
mortgage documents and was in fact present when the loan was negotiated and the documents
were executed, Vicky Ang cannot be considered a competent witness. Exh. "22", the list of officers of
MFI, did not include Vicky. Her elaborate testimony was not corroborated by another testimony or
supported by any document. Vicky claimed that other family members named Ellen and Alice were
present at the signing, together with Enrique, Natividad, and Edmund, but it is highly unusual and
rather curious that none of them was presented. It was the duty of the appellees to establish the fact
of the alleged fraud, yet none of the signatories to the mortgage documents, who alone could have
testified on said claim, were presented. Neither the father, Enrique Ang, who was allegedly shocked
and deeply hurt, nor the mother Natividad Africa-Ang and brother EdmundAng testified.

Even Vicky’s letters to PCRI were clearly conciliatory and recognized their loan obligation. One could
not divine a tone of protest against the so-called continuing fraud committed against her family.
Viewed from the common experience of mankind, it was simply incredible that appellants and
appellees would enter into a mortgage contract for P3.5 million where the material terms were
indefinite and left to the sole discretion of the lender, all protestations of trust and the so-called
Chinese way of doing business notwithstanding. It was incredible that the appellees, long-time
businessmen, would sign a promissory note and a real estate mortgage contract in blank. It was
incredible that MFI would issue 24 blank checks for the monthly amortizations, and this without even
knowing that the interest rate applied was 35% per annum. One needs only note that the signing of
the loan documents and the release of the loan were done on the same day, which then strongly
connotes simultaneous consensual and reciprocal acts where both parties were present. We note
that the MOA for the accessory loan for P199,072.255 made on December 06, 1984 to pay the real
estate taxes and registration fees clearly carried an interest rate of 35%, not 24% as claimed by
appellees. The delay in the execution of the mortgage contract was because the real estate taxes
had yet to be paid.
It was incredible too that MFI would have entrusted all seven titles to PCRI and yet also borrowed
P199,072.255 for registration fee of the deed of mortgage for all seven titles if they did not know that
these seven titles were covered by the mortgage. That this was part of the "Chinese way of doing
business" was also not established as a custom in the manner provided by Article 12 of the Civil
Code. This claimed custom is easily negated by the execution of the now-contested mortgage
documents as well as the comprehensive surety agreement.

MFI should have known that the interest rate was 35% when its checks started bouncing. If indeed
the agreed interest rate was 24%, it was incredible that they waited so long before asking for a
recomputation of the interest rate. Also, MFI claimed it had an appraisal report in 1984 showing that
the value of its lots was more than P11million, yet it submitted the same only in 1986. What clearly
appears from the testimony of Vicky Ang is that MFI had difficulty finding buyers for their lots at their
asking price, and that Caleb Ang repeatedly gave the appellees time to pay their loan, met them to
accommodate their proposals for possible settlement, agreed to postpone the foreclosure sale
several times to allow MFI to raise the money to pay, even agreed to a partial redemption and further
gave MFI more time to fully redeem the rest of the lots.

Vicky Ang’s lone and uncorroborated testimony contradicts the written documents, which should be
deemed to possess superior evidentiary weight unless overcome by more weighty and convincing
evidence. Even her letters tend to show that MFI was merely seeking to be allowed more time to
settle its loan.

There is no dispute that the officers of plaintiff-appellee corporation signed the following documents:
promissory note (Exh. "1); Real Estate Mortgage (Exh. "2"); MFI’s P199,000 loan to pay real estate
mortgage fees of seven titles (Exh. "7"); twenty-four (24) post-dated checks (Exhs. "8" to "8-V"; MFI’s
request not to deposit post-dated checks (Exh. "10"); MFI’s letter informing PCRI of a buyer in order
to stay foreclosure (Exh. "11); MFI’s letters seeking to postpone foreclosure (Exh. "O", "P", "Q"); MFI
Board resolution dated August 10, 1987 authorizing partial redemption for P3.5million of three lots
(Exh. "12"); Secretary’s Certificate (Exh. "13"); Certificate of Redemption (Exh. "16"); Memorandum
of Undertaking on the right of way dated September 18, 1987 (Exh. "18"); June 21, 1990 letter (Exh.
"20").

The tenor of Vicky Ang’s letter dated February 28, 1986 (Exh. "10") is cordial and makes no mention
or reference whatsoever to the error in the interest rate imposed and the filling of the 24 blank
checks with erroneous figures, which would have been estafa. This silence negates Vicky’s
testimony to the contrary. Instead, the letter contains a litany of financial distress, blaming the
country’s lingering economic slump for causing the shut-down of their company and its failure to
keep up with the loan amortizations. The letter sought the sympathy of PCRI. It asked that the post-
dated checks be not deposited. It pleaded for an offsetting of some of their lots against their loan
obligation, but obviously based on their 3-year old appraisal of the worth of the lots. Yet it had taken
them considerable time to find a buyer like Mr. Wang. She even mentions that Caleb suggested to
her that they sell the properties so they could pay their debt but that they have not been able to find
buyers.

The appealed decision admits that the foreclosure sale was postponed several times upon the
request of the appellees. Moreover, instead of filing an action to annul the foreclosure mortgage, MFI
even authorized the partial redemption of three lots per Board Resolution dated August 10, 1987.
The certificate of redemption (Exh. "16") acknowledged that the agreed interest rate was 35% and
the total loan payable to date was P6.5million. Then, when they were asked to leave the premises
whose titles had been eventually consolidated in PCRI, MFI after a requested brief extension during
which it expressly agreed to stay as lessee, peacefully vacated the same (Exh. "20").
The claim of events undeniably prove that the appellees are estopped from denying the validity of
the mortgage contract. The trial court’s findings concerning the defects of the mortgage documents
are not sufficient to overcome the presumption of its validity.

That the "List of Mortgaged Properties" was visibly typewritten in small characters to fit into whatever
available space remained below the notarial acknowledgment, or that the first line of the "List of
Mortgaged Properties" occupied the same line as the last line of the notarial acknowledgment,
cannot per se be taken as proof of fraudulent incorporation of the seven titles therein. This
conclusion is speculative, because this same situation can result when one uses a form documents
and the list happens to be long.

There is also no requirement that where the signatories from the plaintiffs have signed elsewhere in
the mortgage document, the said signatories should also conform to the "List of Mortgaged
Properties" as fully indicative of the parties’ consent to the inclusion of the property as mortgage
security. To hold otherwise would render invalid the practice of incorporating annexes into the main
mortgage documents.

The trial court observed that the body of the real estate mortgage did not contain any indication as to
what properties were covered, and that the rubber stamp made by the Registry of Deeds of Quezon
City on page 3 thereof is only for one property, TCT No. 317702. Is the court therefore saying that
only the mortgage covering TCT No. 317702 was valid? The rubber-stamping per se is not the
operative act to establish the mortgage encumbrance, but rather the fact that the mortgage was
annotated on all seven titles.

The trial court also believed that since the Notarial Acknowledgment did not indicate the number of
lots covered by the mortgage, this violated the Notarial Act and thus destroyed any presumption of
regularity in the execution of the document. Let it suffice to say that this is the sole act of the notary
public, not the signatories, for which he should be taken to account personally.

The trial court also found that "evidence indubitably disclose that the real estate mortgage was not
signed before the Notary Public (TSN, July 5, 1994, pp. 28-29)," it being mandatory that the party
acknowledging the instrument must personally appear before the Notary Public. Yet how did the
court come to its conclusion without any of the signatories being presented to prove this fact? Even
the Certificate of Redemption (Exh. "16") for the three lots sold to Mr. Wang, signed by Vicky,
admitted that the real estate mortgage was acknowledged before Notary Public Noemi E. Ferrer, per
her Notarial Register No. 139, Book No. VI, Page No. 29, Series of 1994.

The same certification even expressly mentioned that the agreed loan interest was 35% per cent,
citing the terms of Promissory Note No. 840804 datedAugust 03, 1984. That certain entries therein
were left blank, such as the position of the signatories and their tax account numbers, cannot lead to
the conclusion that it was signed in blank and thus operate to invalidate the note, at least as
concerns MFI itself which signed it. If these facts can be established separately, then the factual
requirements are satisfied. That there were no witnesses to attest to the due execution of the
promissory note also will not operate to render it void, such being not a prerequisite to its validity.
Nor is there a requirement that the Schedule of Amortization which appears at the back thereof
should also be signed by MFI to show its conformity.

The trial court noted that "the Disclosure Statement (Exh. "B-1") mentioned only the amount of the
loan. It did not mention other details." It did not bother to say what these other details are. It also
erred in saying that there was no signature of Edmundo Ang on the comprehensive surety
agreement (Exh. "28"). It further commented that "It is also surprising why the Comprehensive
Agreement which appears to have been allegedly required of the plaintiffs to secure the payment of
the loan was not even availed of by the defendants." That the defendants did not utilize it was their
sole option and privilege.

The above discussion notwithstanding, the trial court’s conclusion that the "defendants were patently
guilty of predatory lending practices and iniquitous conduct," may not be far off the truth at all,
considering the excessive penalties and charges imposed for missed amortizations. It is of common
knowledge that the country was in the grip of tumultuous political uncertainties when the mortgage
contract was executed in August 1984, owing to the unsolved assassination of Senator Benigno S.
Aquino, Jr. But while interest rates shot up to unfamiliar heights, it is also known that after the 1986
EDSA revolution, things settled down, and interest rates receded to levels obtaining before August
21, 1983. Defendants would therefore be hard put to justify continuing to charge 35% interest after
February 1986.

On the question of the improper publication of the Notice of Sheriff’s Sale, Vicky testified that had the
notice been made in a newspaper of general circulation other than the "Listening Post," they could
have obtained a very good price for their lots. This is self-serving, as shown by their subsequent less
than successful efforts to find buyers for their lots. They even admitted to publishing notices in the
papers for this purpose. As to the alleged lack of notice to plaintiffs of the foreclosure sale, it suffices
to say that ACT 3135 does not require such notice to the mortgagor.

The trial court stated that "Plaintiffs believe that Caleb showed deep interest in their properties.
Although they wanted to settle the loan as early as 1985, defendants gave them false hopes,
encouraging plaintiffs to continue to confer with them, which resulted in the inflated indebtedness
until they foreclosed the mortgage. Plaintiffs believe that they did it intentionally so they would not be
able to get them back." Subsequent events belie this conclusion, as shown in the sale of three lots to
Winston Wang for P3.5 million.

As to the defendants-appellants’ claim for loan deficiency of P107,876,171.82, in addition to

P1,000,000 in moral damages and P500,000 in attorney’s fees, their Exhibits "30" and "31" show
that in addition to the 35% simple interest per annum, a compounded penalty of 1% per month as
well as compounded liquidated damages of 3% per month were also imposed, for a total of 95%
percent in charges per annum. This is clearly exorbitant, iniquitous and unconscionable.
Furthermore, while the Central Bank’s interest rates for 1984, averaged 34% (Exh. "33"), there is no
showing that this situation continued to prevail for ten years thereafter and after the massive street
demonstrations had ceased. Thus, even the 35% annual simple interest rate could not be
countenanced, at least not beyond February 1986. Even defendants’ Exh. "31" showed that they
realized that the 3% monthly liquidated damages were unjustified and they were thus willing to waive
the same.

We conclude that due to estoppel and prescription of the action to annul the mortgage contract, the
complaint for annulment of title and reconveyance should be dismissed. On the other hand, we find
no basis to award to defendants-appellants P1,000,000 in moral damages and P500,000 in
attorney’s fees, even as we must dismiss their counterclaim for deficiency judgment of
P107,876,171.82 for being unconscionably excessive, unreasonable and iniquitous.

WHEREFORE, premises considered, the appealed judgment is REVERSED and SET ASIDE and a
new one is entered DISMISSING the complaint below as well as the defendants-appellants’
counterclaim for deficiency judgment of P107,876,171.82, moral damages of P1,000,000 and
P500,000 in attorney’s fees. No costs.

SO ORDERED.9
 Issues

The petitioners now submit for consideration by the Court:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTEDAREVERSIBLE

ERROR IN:

A.DISREGARDING THR FACTUAL FINDINGS OF THE TRIAL COURT;

B.NOT HOLDING THAT THE ABSENCE OF CONSENT MAKESA CONTRACT VOID, NOT
MERELYVOIDABLE;

C.NOT HOLDING THAT AN ACTION TO DECLARE A CONTRACT VOID DOES NOT

PRESCRIBE; and

D.NOT HOLDING THAT PETITIONERS ARE NOT GUILTY OF ESTOPPELAND LACHES.10

Ruling

The appeal has no merit.

1.

The CA did not disregard the factual findings of the RTC

It is settled that the appellate court will not disturb the factual findings of the lower court unless there
is a showing that the trial court overlooked, misunderstood or misapplied some fact or circumstance
of weight and substance that would have affected the result of the case.11 Indeed, the trial court’s
findings are always presumed correct. Nonetheless, the CA is not precluded from making its own
determination and appreciation of facts if it considers the conclusions arrived at by the trial court not
borne out by the evidence, or if substantial facts bearing upon the result of the case were
overlooked, misunderstood or misapplied.12 As an appellate court, the CA is not necessarily bound
by the conclusions of the trial court, but holds the exclusive authority to review the assessment of the
credibility of witnesses and the weighing of conflicting evidence.13

In view of the conflicting findings and appreciation of facts by the RTC and the CA, we have to revisit
the evidence of the parties.

Petitioners insist that respondents committed fraud when the officers of Metropolitan were made to
sign the deed of real estate mortgage in blank.

According to Article 1338 of the Civil Code, there is fraud when one of the contracting parties,
through insidious words or machinations, induces the other to enter into the contract that, without the
inducement, he would not have agreed to. Yet, fraud, to vitiate consent, must be the causal (dolo
causante), not merely the incidental (dolo incidente), inducement to the

making of the contract.14 In Samson v. Court of Appeals,15 causal fraud is defined as "a deception
employed by one party prior to or simultaneous to the contract in order to secure the consent of the
other."16
Fraud cannot be presumed but must be proved by clear and convincing evidence.17 Whoever alleges
fraud affecting a transaction must substantiate his allegation, because a person is always presumed
to take ordinary care of his concerns, and private transactions are similarly presumed to have been
fair and regular.18 To be remembered is that mere allegation is definitely not evidence; hence, it must
be proved by sufficient evidence.19

Did petitioners clearly and convincingly establish their allegation of fraud in the execution of the deed
of real estate mortgage?

The contested deed of real estate mortgage was a public document by virtue of its being
acknowledged before notary public Atty. Noemi Ferrer.20 As a notarized document, the deed carried
the evidentiary weight conferred upon it with respect to its due execution,21 and had in its favor the
presumption of regularity.22 Hence, it was admissible in evidence without further proof of its
authenticity, and was entitled to full faith and credit upon its face.23 To rebut its authenticity and
genuineness, the contrary evidence must be clear, convincing and more than merely preponderant;
otherwise, the deed should be upheld.24

Petitioners undeniably failed to adduce clear and convincing evidence against the genuineness and
authenticity of the deed. Instead, their actuations even demonstrated that their transaction with
1âwphi1

respondents had been regular and at arms-length, thereby belying the intervention of fraud.

To start with, the evidence adduced by VickyAng, the lone witness for petitioners, tried to cast doubt
on the contents and due execution of the deed of real estate mortgage by pointing to certain
irregularities. But she could not be effective for the purpose because she had not been among the
signatories of the deed. The signatories were her late father Enrique Ang, her mother Natividad
Africa, and her brother Edmundo Ang, none of whom came forward to testify against the deed, or
otherwise to assail the genuineness and due execution of the deed by any other means. They would
have been in the better position than Vicky Ang to substantiate the allegation of fraud if that was the
case. Their silence reflected the inanity of the allegation of fraud by Vicky Ang.It does seem that the
three signatories did not join Vicky Ang in impugning the authenticity and genuineness of the deed of
real estate mortgage. As Vicky Ang admitted during her cross-examination, she had no evidence to
show that the signatories ever assailed the deed, to wit:

Q The signatory to this document, one of the signatory to this document is Enrique Ang, will you be
able to show us a letter personally prepared and signed by Enrique Ang during his lifetime from 1984
assailing the validity of this document?

A From 1984?

Q Up to the present.

A I cannot recall actually, but if you will permit me I will try to look at the files.

Q But now, you do not have in your possession a letter personally prepared and signed by Enrique
Ang and duly received by Prosperity, you will still look for it, is that correct, if it still exists?

A As I said I still have to go over the files because it has been eleven (11) years ago.

Q Can you state definitely that there is such a document as to this point in time?
A Because there were documents, there were letters, there were correspondences also signed by
Enrique Ang, prepared and signed by EnriqueAng, its just that I still have to look for it.

Q Another signatory here in this Promissory Note and Real Estate Mortgage is Edmundo Ang will
you be able to show us a letter signed by him and received by Prosperity in which he assailed the
validity of this document?

A I cannot recall.

Q How about Natividad Africa, who is also a signatory to this document, will you be able to produce
a letter signed by her assailing the validity of this document duly received by Prosperity?

A I cannot recall.25

Secondly, petitioners freely and voluntarily surrendered to respondents the seven transfer
certificates of title (TCTs) of their lots. Such surrender of the TCTs evinced their intention to offer the
lots as collateral for the performance of their obligations contracted with respondents. They thereby
confirmed the genuineness and due execution of the deed of real estate mortgage. Surely, they
would not have surrendered the TCTs had their intention been otherwise.

Thirdly, another circumstance belying the commission of fraud by respondents was petitioners’
pleading with respondents for the resetting of foreclosure sale of the properties after receiving the
notice of the impending sale. As a result, the sale was reset thrice. Had the mortgage and its
foreclosure been unreasonable or fraudulent, petitioners should have instead resolutely contested
respondents’move to foreclose.

Fourthly, even after their properties were eventually sold as the consequence of the foreclosure,
petitioners negotiated with respondents on the partial redemption of three of the seven lots. They
also took the trouble of finding a buyer (Mr. Winston Wang of Asia Cotton) of some of the lots. Had
the mortgage been fraudulent, they could have instead instituted a complaint to nullify the real estate
mortgage and the foreclosure sale.

And, lastly, Vicky Ang’s own letters to respondents had an apologetic tenor, and was seeking
leniency from them. Such tenor and tone of her communications were antithetical to her allegation of
having been the victim of their fraudulent acts.

These circumstances tended to indicate that fraud was not attendant during the transactions
between the parties. Verily, as between the duly executed real estate mortgage and the
unsubstantiated allegations of fraud, the Court affords greater weight to the former.

2.

Action to assail the mortgage already prescribed

The next issue to address is whether the action to assail the real estate mortgage already
prescribed.

To resolve the issue of prescription, it is decisive to determine if the mortgage was void or merely
voidable.
It appears that the original stance of petitioners was that the deed of real estate mortgage was
voidable. In their complaint, they averred that the deed, albeit in printed form, was incomplete in
essential details, and that Metropolitan, through Enrique Ang as its president, signed it in good faith
and in absolute confidence.26 They confirmed their original stance in their pre-trial brief,27 wherein
they raised the following issues, to wit:

1.Whether or not the mortgage and foreclosure of the subject four (4) parcels of land should
be declared null and void; and

2.Whether or not defendants should be held liable to pay damages and attorney’s fees to
plaintiffs, and for how much?28

Yet, petitioners now claim that the CA committed a reversible error in not holding that the absence of
consent made the deed of real estate mortgage void, not merely voidable. In effect, they are now
advancing that their consent was not merely vitiated by means of fraud, but that there was complete
absence of consent. Although they should be estopped from raising this issue for the first time on
appeal, the Court nonetheless opts to consider it because its resolution is necessary to arrive at a
just and complete resolution of the case.

As the records show, petitioners really agreed to mortgage their properties as security for their loan,
and signed the deed of mortgage for the purpose. Thereafter, they delivered the TCTs of the
properties subject of the mortgage to respondents.

Consequently, petitioners' contention of absence of consent had no firm moorings. It remained

1âwphi1

unproved. To begin with, they neither alleged nor established that they had been forced or coerced
to enter into the mortgage. Also, they had freely and voluntarily applied for the loan, executed the
mortgage contract and turned over the TCTs of their properties. And, lastly, contrary to their modified
defense of absence of consent, Vicky Ang's testimony tended at best to prove the vitiation of their
consent through insidious words, machinations or misrepresentations amounting to fraud, which
showed that the contract was voidable. Where the consent was given through fraud, the contract
was voidable, not void ab initio.29 This is because a voidable or annullable contract is existent, valid
and binding, although it can be annulled due to want of capacity or because of the vitiated consent of
one of the parties.30

With the contract being voidable, petitioners' action to annul the real estate mortgage already
prescribed. Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of
the contracting parties was obtained through fraud, the contract is considered voidable and may be
annulled within four years from the time of the discovery of the fraud.31 The discovery of fraud is
reckoned from the time the document was registered in the Register of Deeds in view of the rule that
registration was notice to the whole world.32 Thus, because the mortgage involving the seven lots
was registered on September 5, 1984, they had until September 5, 1988 within which to assail the
validity of the mortgage. But their complaint was instituted in the RTC only on October 10,
1991.33 Hence, the action, being by then already prescribed, should be dismissed.

WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the decision
promulgated by the Court of Appeals on July 23, 2002; and ORDERS petitioners to pay the costs of
suit.

SO ORDERED.
Far East Bank and Trust Company vs. Sps Cayetano Gr No. 179909

This is a petition for review[1] under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, of the December 8, 2006 Decision[2] of the Court of Appeals in CA-G.R.
CV No. 76382 which affirmed the May 24, 2002 Decision[3] of the Regional Trial
Court (RTC) of Naga City, Branch 61 and dismissed petitioner Far East Bank and
Trust Companys appeal. The appellate court likewise denied its motion for
reconsideration in a Resolution[4] dated September 6, 2007.

The undisputed facts of the case are summarized as follows:

Respondent Leonor C. Cayetano (Cayetano) executed a special power of

attorney in favor of her daughter Teresita C. Tabing (Tabing) authorizing her to
contract a loan from petitioner in an amount not more than three hundred thousand
pesos (P300,000.00) and to mortgage her two (2) lots located in Barangay Carolina,
Naga City with Transfer Certificate of Title Nos. 12304 and 11621.[5] For the
approval of the loan, Cayetano also executed an affidavit of non-
tenancy.[6] Petitioner loaned Tabing one hundred thousand pesos (P100,000.00)
secured by two (2) promissory notes and a real estate mortgage over Cayetanos two
(2) properties.[7] The mortgage document was signed by Tabing and her husband as
mortgagors in their individual capacities, without stating that Tabing was executing
the mortgage contract for and in behalf of the owner (Cayetano).[8]

Petitioner foreclosed the mortgage for failure of the respondents and the
spouses Tabing to pay the loan. A notice of public auction sale, to be conducted
on September 18, 1991,[9] was sent to respondents. The latters lawyer responded
with a letter[10] to petitioner requesting that the public auction be postponed.
Respondents letter went unheeded and the public auction was held as scheduled
wherein the subject properties were sold to petitioner for one hundred sixty thousand
pesos (P160,000.00).[11] Subsequently, petitioner consolidated its title and obtained
new titles in its name after the redemption period lapsed without respondents taking
any action.
 More than five (5) years later, Tabing, on behalf of Cayetano, sent a letter
dated September 10, 1996 to petitioner expressing the intent to repurchase the
properties for two hundred fifty thousand pesos (P250,000.00) with proposed terms
of payment.[12] Petitioner refused the offer stating that the minimum asking price for
the properties was five hundred thousand pesos (P500,000.00) and it was not
amenable to the proposed terms of payment. Petitioner nevertheless gave
respondents the chance to buy back the properties by joining a bidding to be set in
some future date.[13] However, respondents filed on December 18, 1996 a complaint
for annulment of mortgage and extrajudicial foreclosure of the properties with
damages in the RTC of Naga City. Respondents sought nullification of the real estate
mortgage and extrajudicial foreclosure sale, as well as the cancellation of petitioners
title over the properties.[14]

After trial, the RTC rendered judgment in favor of the respondents, holding
that the principal (Cayetano) cannot be bound by the real estate mortgage executed
by the agent (Tabing) unless it is shown that the same was made and signed in the
name of the principal; hence, the mortgage will bind the agent only. The trial court
also found that there was no compliance with the requirement of publication of the
foreclosure sale in a newspaper of general circulation as provided in Act No.
3135, as amended. Such requisite must be strictly complied with as any slight
deviation therefrom will render the sale voidable.[15]

The Court of Appeals affirmed the RTCs ruling. It held that it must be shown
that the real estate mortgage was executed by the agent on-behalf of the principal,
otherwise the agent may be deemed to have acted on his own and the mortgage is
void. However, the appellate court further declared that the principal loan agreement
was not affected, which had become an unsecured credit. The Court of Appeals
denied petitioners motion for reconsideration.[16]

Hence, the present petition.

The only issue before us is whether or not the principal is bound by the real estate
mortgage executed by the authorized agent in her own name without indicating the
principal.
The issue is not novel. The RTC and the Court of Appeals are both correct in holding
that our decision in The Philippine Sugar Estates Development Co., Ltd., Inc. v.
Poizat, et al.[17] (Poizat Case), as reiterated in the case of Rural Bank of Bombon
(Camarines Sur), Inc. v. Court of Appeals[18] (Bombon Case), finds application in
the instant case. The factual circumstances of said cases are similar to the case at
bar, where an authorized agent executed a real estate mortgage on the principals
property in her own name without indicating that she was acting on behalf of the
principal.

In the Poizat Case, Gabriela Andrea de Coster (Coster) executed a general power of
attorney authorizing her husband, Juan Poizat (Poizat), to obtain a loan and to secure
the same with mortgage, pledge or personal securities. Poizat obtained a credit of
ten thousand (10,000) Pounds Sterling from petitioner therein, and executed a
mortgage upon the real property of his wife. Although the provisions of the real
estate mortgage mentioned that it was entered also in Poizats capacity as attorney-
in-fact of Coster, Poizat signed the contract in his own name without any indication
that he also signed it as the attorney-in-fact of his wife. For failure to pay the loan,
the petitioner foreclosed on the mortgage but this was opposed by Coster. The Court
ruled on the legal force and effect of the real estate mortgage in question, by whom
and for whom it was executed, and whether or not it was void as to Coster, in this
wise:

It is a general rule in the law of agency that, in order to bind the

principal by a mortgage on real property executed by an agent, it must
upon its face purport to be made, signed and sealed in the name of the
principal, otherwise, it will bind the agent only. It is not enough merely
that the agent was in fact authorized to make the mortgage, if he has
not acted in the name of the principal. Neither is it ordinarily sufficient
that in the mortgage the agent describes himself as acting by virtue of a
power of attorney, if in fact the agent has acted in his own name and has
set his own hand and seal to the mortgage. This is especially true where
the agent himself is a party to the instrument. However clearly the body
of the mortgage may show and intend that it shall be the act of the
principal, yet, unless in fact it is executed by the agent for and on
behalf of his principal and as the act and deed of the principal, it is
not valid as to the principal. [EMPHASIS SUPPLIED]
 Thus, while Poizat may have had the authority to borrow money and mortgage
the real property of his wife, the law specifies how and in what manner it must be
done, and the stubborn fact remains that, as to the transaction in question, that power
was never exercised. The mortgage in question was executed by him and him only,
and for such reason, it is not binding upon the wife, and as to her, it is null and void.

In Bombon, respondent Ederlinda M. Gallardo (Gallardo) authorized Rufino S.

Aquino (Aquino) to contract a loan from any bank and secure it with mortgage on
her property. Gallardo also delivered her owners copy of Transfer Certificate of Title
to Aquino. Aquino obtained a loan from petitioner bank and executed a deed of real
estate mortgage without indicating that he was acting in behalf of Gallardo. At the
beginning of the mortgage deed, it was mentioned that the mortgage was executed
by Aquino, attorney-in-fact of Gallardo, together with a description of his legal
capacity to contract. Gallardo and her husband filed a complaint for annulment of
mortgage against the petitioner and Aquino and one (1) of the grounds raised was
that the mortgagor in the deed was Aquino instead of Gallardo. The trial court
ordered the suspension of the foreclosure of the real estate mortgage until after the
decision in the annulment case shall have become final and executory. The dismissal
of the complaint for annulment of mortgage was appealed to the Court of Appeals
which reversed the trial court and declared the mortgage contract void and
unenforceable against Gallardo. Upon elevation to this Court, we held that Aquinos
act of signing the Deed of Real Estate Mortgage in his name alone as mortgagor,
without any indication that he was signing for and in behalf of the property owner,
Ederlinda M. Gallardo, bound himself alone in his personal capacity as a debtor of
the petitioner Bank and not as the agent or attorney-in-fact of Gallardo.[19]

In the fairly recent case of Gozun v. Mercado,[20] respondent Mercado denied having
authorized his sister-in-law (Lilian) to borrow money from petitioner who gave her
cash advance of P253,000.00 allegedly for allowances of poll watchers. Petitioner
sued respondent to collect on various sums due from the latter including the cash
advance obtained by Lilian. The trial court found for the petitioner and ordered the
respondent to pay all amounts being claimed by the petitioner. The Court of Appeals
reversed the trial courts decision and dismissed the complaint for lack of cause of
action. When the case reached this Court, petitioner argued that respondent had
informed him that he had authorized Lilian to obtain the loan and hence,
following Macke v. Camps which held that one who clothes another with apparent
authority as his agent, and holds him out to the public as such, respondent cannot be
permitted to deny the authority. We sustained the Court of Appeals ruling on the
matter and held that respondent was not liable for the cash advance given by
petitioner to Lilian who signed the receipt in her name alone, without indicating
therein that she was acting for and in behalf of respondent. She thus bound herself
in her personal capacity and not as an agent of respondent or anyone for that
matter.[21]

Notwithstanding the nullity of the real estate mortgage executed by Tabing and her
husband, we find that the equity principle of laches is applicable in the instant case.
Laches is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has abandoned it
or declined to assert it.[22] Its essential elements are: (1) conduct on the part of the
defendant, or of one under whom he claims, giving rise to the situation complained
of; (2) delay in asserting complainants right after he had knowledge of the defendants
conduct and after he has an opportunity to sue; (3) lack of knowledge or notice on
the part of the defendant that the complainant would assert the right on which he
bases his suit; and (4) injury or prejudice to the defendant in the event relief is
accorded to the complainant.[23]

There is no absolute rule on what constitutes laches. It is a creation of equity

and applied not really to penalize neglect or sleeping upon ones rights but rather to
avoid recognizing a right when to do so would result in a clearly inequitable
situation. The question of laches, we said, is addressed to the sound discretion of the
court and each case must be decided according to its particular
circumstances.[24] Verily, in a number of cases, it had been held that laches, the
essence of which is the neglect to assert a right over a long period of time, may
prevent recovery of a titled property.[25]

In the present case, records clearly show that respondents could have filed an
action to annul the mortgage on their properties, but for unexplained reasons, they
failed to do so. They only questioned the loan and mortgage transactions in
December 1996, or after the lapse of more than five (5) years from the date of the
foreclosure sale. It bears noting that the real estate mortgage was registered and
annotated on the titles of respondents, and the latter were even informed of the
extrajudicial foreclosure and the scheduled auction. Instead of impugning the real
estate mortgage and opposing the scheduled public auction, respondents lawyer
wrote a letter to petitioner and merely asked that the scheduled auction be postponed
to a later date. Even after five (5) years, respondents still failed to oppose the
foreclosure and the subsequent transfer of titles to petitioner when their agent,
Tabing, acting in behalf of Cayetano, sent a letter proposing to buy back the
properties. It was only when the negotiations failed that respondents filed the instant
case. Clearly, respondents slept on their rights.[26]

WHEREFORE, the petition is GRANTED. The Decision dated December

8, 2006 and the Resolution dated September 6, 2007 of the Court of Appeals in CA-
G.R. CV No. 76382, as well as the Decision dated May 24, 2002 in Civil Case No.
96-3684 of the Regional Trial Court, Branch 61, Naga City, are hereby SET
ASIDE.

The complaint for annulment of mortgage and extrajudicial foreclosure with

damages and cancellation of titles filed by respondents is hereby DISMISSED.

No costs.

SO ORDERED.

GR No. 23352, Dec 31, 1925 ]

PHILIPPINE SUGAR ESTATES DEVELOPMENT CO. v. JUAN M. POIZAT ET AL. +

DECISION

48 Phil. 536

STATEMENT

August 25, 1905, the appellant, with his consent, executed to and in favor of her husband, Juan M.
Poizat, a general power of attorney, which, among other things, authorized him to do "in her name,
place and stead, and making use of her rights and actions," the following things:
"To loan or borrow any amount in cash or fungible things at the rate of interest, for the time, and under
the conditions he may deem convenient, collecting or paying the principal or the interest, when they
respectively should become due; executing and signing the corresponding public or private documents,
and making these transactions with or without mortgage, pledge or personal securities."

November 2, 1912, Juan M. Poizat applied for and obtained from the plaintiff a credit for the sum of
10,000 Pounds Sterling to be drawn on the "Banco Español del Rio de la Plata" in London not later than
January, 1913. Later, to secure the payment of the loan, he executed a mortgage upon the real property
of his wife, the material portions of which are as follows:

"This indenture entered into in the City of Manila, P. I., by and between Juan M. Poizat, merchant, of
legal age, married and residing in the City of Manila, in his own behalf and in his capacity also as
attorney in fact of his wife Doña Gabriela Andrea de Coster by virtue of the authority vested in him by
the power of attorney duly executed and acknowledged in this City of Manila, etc.

"First. That in the name of Doña Gabriela Andrea de Coster, wife of Don Juan M. Poizat, there is
registered on page 89 (back) of Book 3, temporary Binondo Section, property No. 685, inscription No. 3,
Urban Property consisting of a house and six adjacent warehouses, all of strong material and
constructed upon her own land, said property being Nos. 5, 3, and 1 of Calle Urbiztondo, and No. 13 of
Calle Barraca in the District of Binondo in the City of Manila, etc.

"Second. That the marriage of Don Juan M. Poizat and Doña Gabriela Andrea de Coster being subsisting
and undissolved, and with the object of constructing a new building over the land hereinabove
described, the aforesaid house with the; six warehouses thereon constructed were demolished and in
their stead a building was erected, by permission of the Department of Engineering and Public Works of
this City issued November 10, 1902, said building being of strong material which, together with the land,
now forms only one piece of real estate, etc.; which property must be the subject of a new description
[registration] in which it must appear that the land belongs in fee simple and in full ownership as
paraphernal property to the said Doña Gabriela Andrea de Coster and the new building thereon
constructed to the conjugal partnership of Don Juan M. Poizat and the said Doña Gabriela Andrea de
Coster, etc.

"Third. That the Philippine Sugar Estates Development Company, Ltd., having granted to Don Juan M.
Poizat a credit of Ten Thousand Pounds Sterling with a mortgage upon the real property above
described, etc.

"(a) That the Philippine Sugar Estates Development Company, Ltd., hereby grants Don Juan M. Poizat a
credit in the amount of Ten Thousand Pounds Sterling which the said Mr. Poizat may use within the
entire month of January of the coming year, 1913, upon the bank established in the City of London,
England, known as 'Banco Español del Rio de la Plata,' which shall be duly advised, so as to place upon
the credit of Mr. Poizat the said amount of Ten Thousand Pounds Sterling, after executing the necessary
receipt therefor.

"(c) That Don Juan M. Poizat personally binds himself and also binds his principal Doña Gabriela Andrea
de Coster to pay the Philippine Sugar Estates Development Company, Ltd., for the said amount of Ten
Thousand Pounds Sterling at the yearly interest of 9 per cent which shall be paid at the end of each
quarter, etc.

"(d) Don Juan M. Poizat also binds himself personally and his principal Doña Gabriela Andrea de Coster
to return to the Philippine Sugar Estates Development Company, Ltd., the amount of Ten Thousand
Pounds Sterling within four years from the date that the said Mr. Poizat shall receive the aforesaid sum
as evidenced by the receipt that he shall issue to the 'Banco Español del Rio de la Plata.'

"(e) As security for the payment of the said credit, in the case Mr. Poizat should receive the money,
together with its interest the said Mr. Poizat in the dual capacity that he represents hereby constitutes a
voluntary especial mortgage upon the Philippine Sugar Estates Development Company, Ltd., of the
urban property above described, etc.

"(f) Don Juan M. Poizat in the capacity above mentioned binds himself, should he receive the amount of
the credit, and while he may not return the said amount of Ten Thousand Pounds Sterling to the
Philippine Sugar Estates Development Company, Ltd., to insure against fire the mortgaged property in
an amount not less than One Hundred Thousand Pesos, etc.

"Fourth. Don Buenaventura Campa in the capacity that he holds hereby accepts this indenture in the
form, manner, and condition executed by Don Juan M. Poizat by himself personally and in
representation of his wife Doña Gabriela Andrea de Coster, in favor of the Philippine Sugar Estates
Development Company, Ltd.

"In witness whereof, we have signed these presents in Manila, this November 2, 1912.

(Sgd.)

"JUAN M. POIZAT

"THE PHILIPPINE SUGAR ESTATES

DEVELOPMENT COMPANY, LTD.

 "The President

"BUENAVENTURA CAMPA

"Signed in the presence of:

(Sgd.)

"MANUEL SAPSANO

"JOSE SANTOS

"UNITED STATES OF AMERICA

"PHILIPPINE ISLANDS

"CITY OF MANILA

"In the City of Manila P. I., this November 2, 1912, before me Enrique Barrera y Caldes, a Notary Public
for said city, personally appeared before me Don Juan M. Poizat and Don Buenaventura Campa, whom I
know to be the persons who executed the foregoing document and acknowledged same before me as
an act of their free will and deed; the first exhibited to me his certificate of registry No. 14237, issued in
Manila, February 6, 1912, the second did not exhibit any cedula, being over sixty years old; this
document bears No. 495, entered on page 80 of my Notarial registry.

"Before me:

(Sgd.) "Dr. ENRIQUE BARRERA Y CALDES

" [NOTARIAL SEAL]

"Notary Public

"Up to the 31st of December, 1912"

For failure to pay the loan, on November 12, 1923, the plaintiff brought an action against the
defendants, to fore- close the mortgage. In this action, the summons was served upon the defendant
Juan M. Poizat only, who employed the services of Antonio A. Sanz to represent the defendants. The
attorneys filed a general appearance for all of them, and later an answer in the nature of a general
denial.
February 18, 1924, when the case was called for trial, Jose Galan y Blanco in open court admitted all of
the allegations made in the complaint, and consented that judgment should be rendered as prayed for.
Later, Juan M. Poizat personally, for himself and his codefendants, filed an exception to the judgment,
and moved for a new trial, which was denied March 31, 1924.

August 22, 1924, execution was issued directing the sale of the mortgaged property to satisfy the
judgment.

September 18, 1924, the property, which had an assessed value of P342,685, was sold to the plaintiff for
the sum of P100,000.

September 23, 1924, and for the first time, the appellant personally appeared by her present attorney,
and objected to the confirmation of the sale, among other things, upon the following grounds: That the
mortgage in question was illegally executed, and is null and void, because the agent of this defendant
was not authorized to execute it. That there was no consideration. That the plaintiff, with full knowledge
that J. M. Poizat was acting beyond the scope of his authority, filed this action to subject the property of
this defendant to the payment of the debt which, as to appellant, was not a valid contract. That the
judgment was rendered by confession when the plaintiff and J. M. Poizat knew that Poizat was not
authorized to confess judgment, and that the proceeding was a constructive fraud. That at the time the
action was filed and the judgment rendered, this defendant was absent from the Philippine Islands, and
had no knowledge of the execution of the mortgage. That after the judgment of foreclosure became
final and the order of the sale of the property was made, that this defendant for the first time learned
that the mortgage contract was tainted with fraud, and that she first knew and learned of such things on
the 11th of September, 1924. That J. M. Poizat was not authorized to bind her property to secure the
payment of his personal debts. That the plaintiff knew that the agent of the defendant was not
authorized to bind her or her property. That the mortgage was executed to secure a loan of 10,000
Pounds, which was not made to this defendant or for her benefit, but was made to him personally and
for the personal use and benefit of J. M. Poizat.

Among other things, the mortgage in question, marked Exhibit B, was introduced in evidence, and made
a part of the record.

All of such objections to the confirmation of the sale were overruled, from which Gabriela Andrea de
Coster appealed and assigns the following errors:

"I. The lower court erred in finding that Juan M. Poizat was, under the power of attorney which he had
from Gabriela Andrea de Coster, authorized to mortgage her paraphernal property as security for a loan
made to him personally by the Philippine Sugar Estates Development Co., Ltd.;
"II. The lower court erred in not finding that under the power of attorney, Juan M. Poizat had no
authority to make Gabriela Andrea de Coster jointly liable with him for a loan of 10,000 Pounds made by
the Philippine Sugar Estates Development Co., Ltd., to him;

"III. The lower court erred in not finding that the Philippine Sugar Estates Development Co., Ltd., had
knowledge and notice of the lack of authority of Juan M. Poizat to execute the mortgage deed Exhibit A
of the plaintiff;

"IV. The lower court erred in holding that Gabriela Andrea de Coster was duly summoned in this case;
and in holding that Attorney Jose Galan y Blanco could lawfully represent her or could, without proof of
express authority, confess judgment against Gabriela Andrea de Coster;

''V. The court erred in holding that the judgment in this case has become final and res judicata;

"VI. The court erred in approving the judicial sale made by the sheriff at an inadequate price;

"VII. The lower court erred in not declaring these proceedings, the judgment and the sale null and void.

JOHNS, J.:

For the reasons stated in the decision of this court in the Bank of the Philippine Islands vs. De Coster (47
Phil., 594), the alleged service of the summons in the foreclosure suit upon the appellant was null and
void. In fact, it was made on J. M. Poizat only, and there is no claim or pretense that any service of
summons was ever made upon her. After service was made upon him, the attorneys in question entered
their appearance for all of the defendants in the action, including the appellant upon whom no service
was ever made, and filed an answer for them. Later, in open court, it was agreed that judgment should
be entered for the plaintiff as prayed for in its complaint.

The appellant contends that the appearance made by the attorneys for her was collusive and fraudulent,
and that it was made without her authority, and there may be some truth in that contention. It is very
apparent that the attorneys made no effort to protect or defend her legal rights, but under our view of
the case, that question is not material to this decision.
The storm center of this case is the legal force and effect of the real mortgage in question, by whom and
for whom it was executed, and upon whom is it binding, and whether or not it is null and void as to the
appellant.

It is admitted that the appellant gave her husband, J. M. Poizat, the power of attorney in question, and
that it is in writing and speaks for itself. If the mortgage was legally executed by her attorney in fact for
her and in her name as her act and deed, it would be legal and binding upon her and her property. If not
so executed, it is null and void.

It appears upon the face of the instrument that J. M. Poizat, as the husband of the wife, was personally a
party to the mortgage, and that he was the only person who signed the mortgage. It does not appear
from his signature that he signed it for his wife or as her agent or attorney in fact, and there is nothing in
his signature that would indicate that in the signing of it by him, he intended that his signature should
bind his wife. It also appears from the acknowledgment of the instrument that he executed it as his
personal act and deed only, and there is nothing to show that he acknowledged it as the agent or
attorney in fact of his wife, or as her act and deed.

The mortgage recites that it was entered into by and between Juan M. Poizat in his own behalf and as
attorney in fact of his wife. That the record title of the mortgaged property is registered in the name of
his wife, Doña Gabriela Andrea de Coster. That they were legally married, and that the marriage
between them has never been dissolved. That with the object of constructing a new building on the
land, the six warehouses thereon were demolished, and that a new building was erected. That the
property is the subject of a new registration in which it must be made to appear that the land belongs in
fee simple and in full ownership as the paraphernal property of the wife, and that the new building
thereon is the property of the conjugal partnership. "That the Philippine Sugar Estates Development
Company, Ltd., having granted to Don Juan M. Poizat a credit of 10,000 Pounds Sterling with the
mortgage upon the real property above described," that the Development Company "hereby grants Don
Juan M. Poizat a Credit in the amount of 10,000 Pounds Sterling which the said Mr. Poizat may use, etc."
That should he personally or on behalf of his wife use the credit he acknowledges, that he and his
principal are indebted to the Development Company in the sum of 10,000 Pounds Sterling which "they
deem to have received as a loan from the said commercial entity." That he binds himself and his wife to
pay that amount with a yearly interest of 9 per cent, payable quarterly. That as security for the payment
of said credit in the case Mr. Poizat should receive the money at any time, with its interest, "the said Mr.
Poizat in the dual capacity that he represents hereby constitutes a voluntary especial mortgage." That
Don Juan M. Poizat "in the capacity above mentioned binds himself, should he receive the amount of
the credit."

It thus appears that at the time the power of attorney and the mortgage were executed, Don Juan M.
Poizat and Gabriela Andrea de Coster were husband and wife, and that the real property upon which the
mortgage was executed was her sole property before her marriage, and that it was her paraphernal
property at the time the mortgage was executed, and that the new building constructed on the land was
the property of the conjugal partnership.

The instrument further recites that the Development Company "hereby grants Don Juan M. Poizat a
credit in the amount of 10,000 Pounds Sterling which the said Mr. Poizat may use within the entire
month of January of the coming year, 1913." In other words, it appears upon the face of the mortgage
that the loan was made to the husband with authority to use the money for his sole use and benefit.
With or without a power of attorney, the signature of the husband would be necessary to make the
instrument a valid mortgage upon the property of the wife, even though she personally signed the
mortgage.

It is contended that the instrument upon its face shows that its. purpose and intent was to bind the
wife. But it also shows upon its face that the credit was granted to Don Juan M. Poizat which he might
use within the "entire month of January."

Any authority which he had to bind his wife should be confined and limited to his power of attorney.

Giving to it the very broadest construction, he would not have any authority to mortgage her property,
unless the mortgage was executed for her "and in her name, place or stead," and as her act and deed.
The mortgage in question was not so executed. It was signed by Don Juan M. Poizat in his own name, his
own proper person, and by him only, and it was acknowledged by him in his personal capacity, and
there is nothing in either the signature or acknowledgment which shows or tends to show that it was
executed for or on behalf of his wife or "in her name, place or stead."

It is contended that the instrument shows upon its face that it was intended to make the wife liable for
his debt, and to mortgage her property to secure its payment, and that his personal signature should
legally be construed as the joint or dual signature of both the husband and that of the wife as her agent.
That is to say, construing the recitals in the mortgage and the instrument as a whole, his lone personal
signature should be construed in a double capacity and binding equally and alike both upon the husband
and the wife. No authority has been cited, and none will ever be found to sustain such a construction.

As the husband of the wife, his signature was necessary to make the mortgage valid. In other words, to
make it valid, it should have been signed by the husband in his own proper person and by him as
attorney in fact for his wife, and it should have been executed by both husband and wife, and should
have been so acknowledged.
There is no principle of law by which a person can become liable on a real mortgage which she never
executed either in person or by attorney in fact. It should be noted that this is a mortgage upon real
property, the title to which cannot be divested except by sale on execution or the formalities of a will or
deed. For such reasons, the law requires that a power of attorney to mortgage or sell real property
should be executed with all of the formalities required in a deed. For the same reason that the personal
signature of Poizat, standing alone, would not convey the title of his wife in her own real property, such
a signature would not bind her as a mortgagor in real property, the title to which was in her name.

We make this broad assertion that upon the facts shown in the record, no authority will ever be found
to hold the wife liable on a mortgage of her real property which was executed in the form and manner
in which the mortgage in question was executed.

The real question involved is fully discussed in Mechem on Agency, volume 1, page 784, in which the
author says:

"It is to be observed that the question here is not how authority to execute sealed instruments is to be
conferred, but how such an authority is to be executed. It is assumed that the agent was authorized to
bind his principal, but the question is, has he done so."

That is the question here,

Upon that point, there is a full discussion in the following sections, and numerous authorities are cited:

"SEC. 1093. Deed by agent must purport to be made and sealed in the name of the principal. It is a
general rule in the law of agency that in order to bind the principal by a deed executed by an agent, the
deed must upon its face purport to be made, signed and sealed in the name of the principal. If, on the
contrary, though the agent describes himself as 'agent,' or though he add the word 'agent' to his name,
the words of grant, covenant and the like, purport upon the face of the instrument to be his, and the
seal purports to be his seal, the deed will bind the agent if any one and not the principal.

"SEC. 1101. Whose deed is a given deed How question determined. In determining whether a given
deed is the deed of the principal, regard may be had, First, to the party named as grantor. Is the deed
stated to be made by the principal or by some other person? Secondly, to the granting clause. Is the
principal or the agent the person who purports to make the grant? Thirdly, to the covenants, if any. Are
these the covenants of the principal? Fourthly, to the testimonium clause. Who is it who is to set his
name and seal in testimony of the grant? Is it the principal or the agent? And Fifthly, to the signature
and seal. Whose signature and seal are these? Are they those of the principal or of the agent?
"If upon such an analysis the deed does not upon its face purport to be the deed of the principal, made,
signed, sealed and delivered in his name and as his deed, it cannot take effect as such.

"Sec. 1102. Not enough to make deed the principal's that the agent is described as such. It is not enough
merely that the agent was in fact authorized to make the deed, if he has not acted in the name of the
principal. Nor is it ordinarily sufficient that he describes himself in the deed as acting by virtue of a
power of attorney or otherwise, or for or in behalf, or as attorney, of the principal, or as a committee, or
as trustee of a corporation, etc.; for these expressions are usually but descriptio personae, and if, in fact,
he has acted in his own name and set his own hand and seal, the causes of action thereon accrue to and
against him personally and not to or against the principal, despite these recitals.

"Sec. 1103. Not principal's deed, where agent appears as grantor and signer. Neither can the deed
ordinarily be deemed to be the deed of the principal where the agent is the one who is named as the
grantor or maker, and he is also the one who signs and seals it. * * *

"Sec. 1108. * * * But however clearly the body of the deed may show an intent that it shall be the act of
the principal, yet unless it is executed by his attorney for him, it is not his deed, but the deed of the
attorney or of no one. The most usual and approved form of executing a deed by attorney is by his
writing the name of the principal and adding 'by A B his attorney' or 'by his attorney A B.' * * *"

That is good law. Applying it to the facts, under his power of attorney, Don Juan M. Poizat may have had
authority to borrow money and mortgage the real property of his wife, but the law specifies how and in
what manner it must be done, and the stubborn fact remains that, as to the transaction in question, that
power was never exercised. The mortgage in question was executed by him and him only, and for such
reason, it is not binding upon the wife, and as to her, it is null and void.

It follows that the whole decree against her and her paraphernal property and the sale of that property
to satisfy the mortgage are null and void, and that any title she may have had in or to her paraphernal
property remains and is now vested in the wife as fully and as absolutely as if the mortgage had never
been executed, the decree rendered or the property sold. As to Don Juan M. Poizat, the decree is valid
and binding, and remains in full force and effect.

It is an undisputed fact, which appears in the mortgage itself, that the land in question was the
paraphernal property of the wife, but after the marriage, the old buildings on the property were torn
down and a new building constructed and, in the absence of evidence to the contrary, it must be
presumed that the new building is conjugal property of the husband and wife (Civil Code, art. 1404). As
such, it is subject to the debts of the conjugal partnership for the payment or security of which the
husband has the power to mortgage or otherwise encumber the property (Civil Code, art. 1413).
It is very probable that this particular question was not fully presented to or considered by the lower
court.

The mortgage as to the paraphernal property of the wife is declared null and void ab initio, and as to her
personally, the decree is declared null and void, and as to her paraphernal property, the sale is set aside
and vacated, and held for naught, leaving it free and clear from the mortgage, decree and sale, and in
the same condition as if the mortgage had never been executed, with costs in favor of the appellant. So
ordered.

Johnson, Malcolm, Ostrand, and Romualdez, JJ., concur.

DISSENTING

STREET, J., with whom concur Avanceña, C. J., Villamor, and Villa-Real, JJ.:

In the year 1913 the plaintiff, the Philippine Sugar Estates Development Co., Ltd., Inc., let J. M. Poizat
have nearly P100,000 of money on the supposed security of a mortgage on property belonging to his
wife, Gabriela Andrea de Coster, executed by Poizat under a power of attorney from her. The plaintiff
has now to learn that the security on which it relied is worthless and that it did not even so much as
have Gabriela Andrea de Coster in court in the foreclosure proceeding. In the decision so holding the
undersigned are unable to concur.

To dispose first of the point as to the jurisdiction of the court over the person and property of Gabriela
Andrea de Coster, it is only necessary to refer to the third paragraph from the end of the power of
attorney (Exhibit A to the opposition of Gabriela Andrea de Coster) under which Poizat acted. To
express, in a few words the substance of this paragraph in the part relevant to the present discussion,
Poizat is given full authority to represent his wife in all judicial proceedings in Philippine courts,
including, among other things, the making of appearances, submission of answers, receiving of service
of process, and to take in her behalf any procedural steps and measures required by the law of
procedure in order to make effective and bring to termination the matters in which he, as attorney in
fact, may be concerned. If this power is not sufficient to authorize Poizat to accept service and employ a
lawyer to appear in court for the principal, as was done in this case, it would seem to be useless for
lawyers to exercise their ingenuity in the attempt to draft such authority.
But the disastrous feature of the decision is found in the pronouncement that the mortgage on which
the plaintiff's money was obtained is a nullity; and upon this point the court holds that Gabriela Andrea
de Coster was not bound because the contract is signed "Juan M. Poizat," instead of "Gabriela Andrea
de Coster, by Juan M. Poizat." But the document expressly recites in its preamble that it is executed by
Juan M. Poizat, acting both in representation of himself and in the character of attorney in fact of his
wife, Gabriela Andrea de Coster, in virtue of the authority conferred upon him in the power of attorney
already mentioned. Furthermore, throughout the body of the document the idea is repeatedly
expressed that J. M. Poizat obligates both himself and his wife. We submit that under the doctrine
informing the Civil Code which should control in this jurisdiction the mortgage instrument was lawfully
executed and in a form sufficient to bind the principal as well as the agent. Certainly it would never
occur to a civilian lawyer that the document in question is informally executed; and the circumstance
that a learned Spanish notary (Don Enrique Barrera y Caldes) intervened in the execution of this
instrument would alone suffice to show that it is done in conformity with approved Spanish models a
fact otherwise apparent.

Even in the United States and Great Britain, where strict doctrines might be expected to prevail in such
matters, owing to the technical rules involving the law of real property in those countries, ample
authority is found to the effect that the principal will be bound by a contract signed by the agent only,
when it appears from the face of the instrument that he is acting in the character of agent. (2 C. J., 672.)

From the portentous way in which the opinion of the court refers to the question of the sufficiency of
the signature to the mortgage as the "storm centre of the case," one would suppose that this question
had been at least raised by the litigants and had been the subject of discussion in the lower court as well
as in the briefs of the attorneys here. Nothing of the sort is true, for this capital point, on which the case
is made principally to turn, has been jumped up exclusively in this court; and the voluminous briefs will
be searched in vain for the slightest reference to the subject. In fact both parties appear to have
assumed that the mortgage was executed with all proper formality. Apart from the fact that the
question was not raised in the lower court, no assignment of error in this court calls in question the
sufficiency of the mode of execution of the instrument. Under these circumstances this court should
have confined itself to the matters put in issue by the' litigants; and it should not have gone out of its
way to take, up a point not discussed by the parties, and upon which in fact the losing party has never
been heard. It is a good rule of practice sometimes respected by us that an appellate court will not
permit an appellant to raise a point upon appeal which was not put in issue in the court below and upon
which no assignment of error has been made. In our opinion the order appealed from should be
affirmed.
DECISION UPON PETITION FOR REHEARING

February 15, 1926

JOHNS, J.:

The plaintiff has filed a very able, vigorous and exhaustive petition for a rehearing, which we have given
the careful consideration which the importance of the questions deserve.

The first proposition advanced is that the mortgage in question is valid not only as to the buildings, but
also as to the land on which they are constructed. The previous decision of this court is to the effect
that, the buildings being conjugal property, the mortgage is valid as to the buildings, but that it is not
valid as to the land, which is the paraphernal property of the wife.

Plaintiff contends that the land is conjugal property under the provisions of article 1404 of the Civil
Code. That article does not apply to the instant case. It does not appear that the buildings are of the
nature therein specified. The commentator Manresa, cited in the motion for reconsideration, rightly
distinguishes those buildings which, by reason of their importance, convert the land on which they are
built into an accessory, from those which, on account of their small relative value, continue to remain as
accessories to the land on which they are constructed, and for such reason partake of the land.

"The word building is a generic term for all architectural work with roof built for the purpose of being
used as man's dwelling, or for offices, clubs, theaters, etc. When the structure does not constitute a
building, then the rule must be followed. The article cannot but be interpreted strictly. An inclosure for
cattle or a 'tinada,' a stone barn, etc., follow the soil as accessories thereto." (9 Manresa, 626, 1919 ed.)

It appears from the mortgage that the buildings in question to be constructed are warehouses, and as
the circumstances and details do not appear in the record, such warehouses could not be construed as
the class of buildings mentioned in article 1404. Hence, the facts are not sufficient to justify the court in
holding that the exceptional provision applies to this case in the sense of considering the soil as an
accessory to the building, contrary to the general rule contained in the Civil Code (arts. 358-364 and
1368). But conceding that article 1404 does apply, yet, under the provisions of that article, the owner of
the land is entitled to an indemnity for its value. Since, according to the spirit of the law contained in
article 349 of the Civil Code, no one can be deprived of his property without previous indemnity, and it
not appearing in the instant case that such indemnity was ever paid, the land in question cannot now be
considered as conjugal property. But it further appears that the mortgage upon which plaintiff relies
contains the following recitals:
"* * * which property must be the subject of a new registration wherein it must be stated thatthe lot
forming a part thereof pertains to said Doña Gabriela Andrea de Coster in full ownership and fee simple
as paraphernal property, and the building newly erected thereon to the conjugal partnership between
Don Juan M. Poizat and his wife, the aforesaid Doña Gabriela Andrea de Coster * * *" (Italics ours.)

The plaintiff, having taken and accepted the mortgage, is bound by those recitals. It further appears that
this property is registered under the Torrens System, and that the title to the land is vested in the wife,
and is not conjugal property, and that the wife is at least the owner of the land.

In a supplemental plea filed January 21, 1926, petitioner cites and relies on the case of the National
Bank vs. Quintos and Ansaldo (46 Phil., 370), in which article 1408 of the Civil Code was construed and
applied. It must be conceded that this article applies only to those cases wherein there is a presumption
that the debt contracted by the husband is for the common benefit of both spouses, but this
presumption may be overcome by evidence to the contrary.

"All debts and obligations contracted during the marriage by the husband, the legal representative of
the partnership in the normal condition thereof, are deemed contracted by the partnership. The law
presumes that they are contracted for the common benefit of both. However, this presumption may be
overthrown by evidence to the contrary, as we shall see when we take up article 1413." (9 Manresa,
648.)

For this reason, where, as in the instant case, it appears that the loan obtained by the husband was not
only not obtained for the common benefit of the conjugal partnership, but was obtained to the damage
of the wife, there is no such presumption, and that article does not apply. It is further contended that
the mortgage was executed with all of the legal necessary formalities, and in accord with the established
practice and custom in the Philippine Islands, citing blank forms given in section 127 of Act No. 496,
from which plaintiff's counsel contends that it is not required that the attorney in fact, who executes a
document in his own name and that of his principal, must show in his signature his double capacity by
writing first his own signature and then the name of his principal, and say "by" and thereafter his own
signature as attorney in fact.

The Act should be construed with reference to section 81 of Act No. 136, which says:

"After the enactment of a new system of registration of land titles, the notarial law of the Philippine
Islands of February fifth, eighteen hundred and eighty-nine, its regulations of April eleventh, eighteen
hundred and ninety, and the general instructions for drafting instruments subject to record in the
Philippine Islands, of October third, eighteen hundred and eighty-nine, and the modifications thereof, by
General Order Number Forty, issued from the office of the United States Military Governor, on
September twenty-third, eighteen hundred and ninety-nine, and by General Order Number Twenty,
issued from the office of the Military Governor on February third, nineteen hundred, shall be repealed
and shall be of no effect after the date of such enactment, and thereafter appointments of notaries
public and the performance of official duties by them shall be regulated by the subsequent provisions of
this Act."

The old Spanish notarial law and system of conveyances was repealed in the Philippines, and another
and a different notarial law and system became the law of the land with the enactment of Act No. 496.
One of the fundamental differences between the two systems consists in this. Under the Spanish
system, the documents were executed in the form of minutes, wherein the notary was the one who
spoke, and under Act No. 496, the notary is not the one who speaks, and there is no record kept of the
minutes, and the intervention of a notary is limited to the acknowledgment only of the document.
Under the Spanish system, to determine the capacity in which a person executed a document, it was
sufficient to look at the text of the document, because its whole text was attended with the solemnity of
the notary authorizing its execution. Under the present system, it is necessary to resort to the form in
which the parties sign an instrument, because it is the signature rather than the text which bears the
stamp of authenticity.

Neither does section 127 of Act No. 496 bear the construction for which the plaintiff contends. It
provides in legal effect that where one or more persons executed a conveyance, the instrument must be
executed by all of the parties to the conveyance, and that if there are two or more persons, the
instrument must not only be signed by all of the parties to the conveyance, but it must be acknowledged
by all of them. That clearly appears from the certificate of acknowledgment in which it is recited:

"* * * personally appeared........................................,

known to me to be the same person (or persons) who executed the foregoing instrument, and
acknowledged that the same is his (or their) free act and deed."

The construction for which plaintiff contends would nullify the words "or persons" and the words "or
their." The fact that those words are used in the manner in which they are used in section 127, must
mean that where two or more persons give a deed or mortgage on real property, that all of them should
not only sign the mortgage, but that all of them should acknowledge it as "their free act and deed."

Again, in the instant case, the power of attorney was given by the wife to the husband, and the husband
himself was a party to the mortgage, and the money was paid to him for and on his personal account,
and his signature was necessary to bind any interest which he had in the land as the husband of the
wife, and the signature of the wife in some form was necessary to bind her interest in the land. Here,
you have the signature of the husband standing alone, and there is nothing upon the face of it which
shows that in the signing of it, the husband ever intended to bind his wife. If Poizat had not been the
husband of his wife, and if he himself was not a party to the instrument and did not have any interest in
the land mortgaged, another and a very different question would be presented, and his lone signature
might then bind the property of the wife.

With all due respect to the learned counsel, no law, either Spanish or American, has been cited or will
ever be found which, upon the facts shown in the record, will construe the lone unqualified signature of
the husband as the joint and dual signature of both the husband and the wife, so as to make it binding
upon the paraphernal property of the wife.

Although not cited in the petition during the discussion of this case in conference, attention was called
to article 1717 of the Civil Code which provides as follows:

"When an agent acts in his own name, the principal shall, have no right of action against the persons
with whom the agent has contracted, or such persons against the principal.

"In such case, the agent is directly liable to the person with whom he has contracted, as if the
transaction were his own. Cases involving things belonging to the principal are excepted.

"The provisions of this article shall be understood to be without prejudice to actions between principal
and agent."

In the instant case, this section should be construed with article 1713, which among other things
provides that:

"In order to compromise, alienate, mortgage, or to execute any other act of strict ownership, an express
power is required."

The mortgage in question was upon real property, and it was not a "simple contract," and where an
agency is created by an express power, it must be executed with the formalities of an express power.

Again, although the wife was a party to the body of the mortgage, Poizat himself had an interest in the
real property, and was a party to the instrument, and his personal signature was necessary to the
mortgage to bind his own personal interest, and the interest of the conjugal partnership. The power of
attorney from the wife gave her husband the express power defined in article 1713, and that power
should have been exercised, and the mortgage should have been executed "in the name, place, and
stead of the wife." That was not done.
The authorities cited in the petition for a rehearing and in the minority opinion are based upon, and
refer to, the execution by the agent of a "simple contract," and for such reason are not in point. There is
a very marked legal distinction between the authority of an agent to make a "simple contract," and his
authority to convey or mortgage real property and the manner in which the power should be executed.

It may be true that the decision of this court is based upon questions that are not as fully discussed in
the appellant's brief, as they should have been, but the fact remains that they were pointed out, and
attention was called to them in the argument in the brief, and that they are expressly covered by the
assignments of error.

Although ably presented, we are clearly of the opinion that the petition for a rehearing must be denied.
So ordered.

G.R. No. 95703 August 3, 1992

RURAL BANK OF BOMBON (CAMARINES SUR), INC., petitioner,

vs.
HON. COURT OF APPEALS, EDERLINDA M. GALLARDO, DANIEL MANZO and RUFINO S.
AQUINO, respondents.

L.M. Maggay & Associates for petitioner.

GRIÑO-AQUINO, J.:

This petition for review seeks reversal of the decision dated September 18, 1990 of the Court of
Appeals, reversing the decision of the Regional Trial Court of Makati, Branch 150, which dismissed
the private respondents' complaint and awarded damages to the petitioner, Rural Bank of Bombon.

On January 12, 1981, Ederlinda M. Gallardo, married to Daniel Manzo, executed a special power of
attorney in favor of Rufina S. Aquino authorizing him:

1. To secure a loan from any bank or lending institution for any amount or otherwise
mortgage the property covered by Transfer Certificate of Title No. S-79238 situated
at Las Piñas, Rizal, the same being my paraphernal property, and in that connection,
to sign, or execute any deed of mortgage and sign other document requisite and
necessary in securing said loan and to receive the proceeds thereof in cash or in
check and to sign the receipt therefor and thereafter endorse the check representing
the proceeds of loan. (p. 10, Rollo.)
Thereupon, Gallardo delivered to Aquino both the special power of attorney and her owner's copy of
Transfer Certificate of Title No. S-79238 (19963-A).

On August 26, 1981, a Deed of Real Estate Mortgage was executed by Rufino S. Aquino in favor of
the Rural Bank of Bombon (Camarines Sur), Inc. (hereafter, defendant Rural Bank) over the three
parcels of land covered by TCT No. S-79238. The deed stated that the property was being given as
security for the payment of "certain loans, advances, or other accommodations obtained by the
mortgagor from the mortgagee in the total sum of Three Hundred Fifty Thousand Pesos only
(P350,000.00), plus interest at the rate of fourteen (14%) per annum . . ." (p. 11, Rollo).

On January 6, 1984, the spouses Ederlinda Gallardo and Daniel Manzo filed an action against
Rufino Aquino and the Bank because Aquino allegedly left his residence at San Pascual, Hagonoy,
Bulacan, and transferred to an unknown place in Bicol. She discovered that Aquino first resided at
Sta. Isabel, Calabanga, Camarines Sur, and then later, at San Vicente, Calabanga, Camarines Sur,
and that they (plaintiffs) were allegedly surprised to discover that the property was mortgaged to pay
personal loans obtained by Aquino from the Bank solely for personal use and benefit of Aquino; that
the mortgagor in the deed was defendant Aquino instead of plaintiff Gallardo whose address up to
now is Manuyo, Las Piñas, M.M., per the title (TCT No. S-79238) and in the deed vesting power of
attorney to Aquino; that correspondence relative to the mortgage was sent to Aquino's address at
"Sta. Isabel, Calabanga, Camarines Sur" instead of Gallardo's postal address at Las Piñas, Metro
Manila; and that defendant Aquino, in the real estate mortgage, appointed defendant Rural Bank as
attorney in fact, and in case of judicial foreclosure as receiver with corresponding power to sell and
that although without any express authority from Gallardo, defendant Aquino waived Gallardo's
rights under Section 12, Rule 39, of the Rules of Court and the proper venue of the foreclosure suit.

On January 23, 1984, the trial court, thru the Honorable Fernando P. Agdamag, temporarily
restrained the Rural Bank "from enforcing the real estate mortgage and from foreclosing it either
judicially or extrajudicially until further orders from the court" (p.36, Rollo).

Rufino S. Aquino in his answer said that the plaintiff authorized him to mortgage her property to a
bank so that he could use the proceeds to liquidate her obligation of P350,000 to him. The obligation
to pay the Rural Bank devolved on Gallardo. Of late, however, she asked him to pay the Bank but
defendant Aquino set terms and conditions which plaintiff did not agree to. Aquino asked for
payment to him of moral damages in the sum of P50,000 and lawyer's fees of P35,000.

The Bank moved to dismiss the complaint and filed counter-claims for litigation expenses, exemplary
damages, and attorney's fees. It also filed a crossclaim against Aquino for P350,000 with interest,
other bank charges and damages if the mortgage be declared unauthorized.

Meanwhile, on August 30, 1984, the Bank filed a complaint against Ederlinda Gallardo and Rufino
Aquino for "Foreclosure of Mortgage" docketed as Civil Case No. 8330 in Branch 141, RTC Makati.
On motion of the plaintiff, the foreclosure case and the annulment case (Civil Case No. 6062) were
consolidated.

On January 16, 1986, the trial court rendered a summary judgment in Civil Case No. 6062,
dismissing the complaint for annulment of mortgage and declaring the Rural Bank entitled to
damages the amount of which will be determined in appropriate proceedings. The court lifted the writ
of preliminary injunction it previously issued.

On April 23, 1986, the trial court, in Civil Case No. 8330, issued an order suspending the foreclosure
proceedings until after the decision in the annulment case (Civil Case No. 6062) shall have become
final and executory.
The plaintiff in Civil Case No. 6062 appealed to the Court of Appeals, which on September 18, 1990,
reversed the trial court. The dispositive portion of the decision reads:

UPON ALL THESE, the summary judgment entered by the lower court is hereby
REVERSED and in lieu thereof, judgment is hereby RENDERED, declaring the deed
of real estate mortgage dated August 26, 1981, executed between Rufino S. Aquino
with the marital consent of his wife Bibiana Aquino with the appellee Rural Bank of
Bombon, Camarines Sur, unauthorized, void and unenforceable against plaintiff
Ederlinda Gallardo; ordering the reinstatement of the preliminary injunction issued at
the onset of the case and at the same time, ordering said injunction made
permanent.

Appellee Rural Bank to pay the costs. (p. 46, Rollo.)

Hence, this petition for review by the Rural Bank of Bombon, Camarines Sur, alleging that the Court
of Appeals erred:

1. in declaring that the Deed of Real Estate Mortgage was unauthorized, void, and
unenforceable against the private respondent Ederlinda Gallardo; and

2. in not upholding the validity of the Real Estate Mortgage executed by Rufino S.
Aquino as attorney-in-fact for Gallardo, in favor of the Rural Bank of Bombon, (Cam.
Sur), Inc.

Both assignments of error boil down to the lone issue of the validity of the Deed of Real Estate
Mortgage dated August 26, 1981, executed by Rufino S. Aquino, as attorney-in-fact of Ederlinda
Gallardo, in favor of the Rural Bank of Bombon (Cam. Sur), Inc.

The Rural Bank contends that the real estate mortgage executed by respondent Aquino is valid
because he was expressly authorized by Gallardo to mortgage her property under the special power
of attorney she made in his favor which was duly registered and annotated on Gallardo's title. Since
the Special Power of Attorney did not specify or indicate that the loan would be for Gallardo's benefit,
then it could be for the use and benefit of the attorney-in-fact, Aquino.

However, the Court of Appeals ruled otherwise. It held:

The Special Power of Attorney above quoted shows the extent of authority given by
the plaintiff to defendant Aquino. But defendant Aquino in executing the deed of Real
Estate Mortgage in favor of the rural bank over the three parcels of land covered by
Gallardo's title named himself as the mortgagor without stating that his signature on
the deed was for and in behalf of Ederlinda Gallardo in his capacity as her attorney-
in-fact.

At the beginning of the deed mention was made of "attorney-in-fact of Ederlinda H.

Gallardo," thus: " (T)his MORTGAGE executed by Rufino S. Aquino attorney in fact
of Ederlinda H. Gallardo, of legal age, Filipino, married to Bibiana Panganiban with
postal address at Sta. Isabel . . .," but which of itself, was merely descriptive of the
person of defendant Aquino. Defendant Aquino even signed it plainly as mortgagor
with the marital consent yet of his wife Bibiana P. Aquino who signed the deed as
"wife of mortgagor."
 xxx xxx xxx

The three (3) promissory notes respectively dated August 31, 1981, September 23,
1981 and October 26, 1981, were each signed by Rufino Aquino on top of a line
beneath which is written "signature of mortgagor" and by Bibiana P. Aquino on top of
a line under which is written "signature of spouse," without any mention that
execution thereof was for and in behalf of the plaintiff as mortgagor. It results, borne
out from what were written on the deed, that the amounts were the personal loans of
defendant Aquino. As pointed out by the appellant, Aquino's wife has not been
appointed co-agent of defendant Aquino and her signature on the deed and on the
promissory notes can only mean that the obligation was personally incurred by them
and for their own personal account.

The deed of mortgage stipulated that the amount obtained from the loans shall be
used or applied only for "fishpond (bangus and sugpo production)." As pointed out by
the plaintiff, the defendant Rural Bank in its Answer had not categorically denied the
allegation in the complaint that defendant Aquino in the deed of mortgage was the
intended user and beneficiary of the loans and not the plaintiff. And the special power
of attorney could not be stretched to include the authority to obtain a loan in said
defendant Aquino's own benefit. (pp. 40-41, Rollo.)

The decision of the Court of Appeals is correct. This case is governed by the general rule in the law
of agency which this Court, applied in "Philippine Sugar Estates Development Co. vs. Poizat," 48
Phil. 536, 538:

It is a general rule in the law of agency that, in order to bind the principal by a
mortgage on real property executed by an agent, it must upon its face purport to be
made, signed and sealed in the name of the principal, otherwise, it will bind the agent
only. It is not enough merely that the agent was in fact authorized to make the
mortgage, if he has not acted in the name of the principal. Neither is it ordinarily
sufficient that in the mortgage the agent describes himself as acting by virtue of a
power of attorney, if in fact the agent has acted in his own name and has set his own
hand and seal to the mortgage. This is especially true where the agent himself is a
party to the instrument. However clearly the body of the mortgage may show and
intend that it shall be the act of the principal, yet, unless in fact it is executed by the
agent for and on behalf of his principal and as the act and deed of the principal, it is
not valid as to the principal.

In view of this rule, Aquino's act of signing the Deed of Real Estate Mortgage in his name alone as
mortgagor, without any indication that he was signing for and in behalf of the property owner,
Ederlinda Gallardo, bound himself alone in his personal capacity as a debtor of the petitioner Bank
and not as the agent or attorney-in-fact of Gallardo. The Court of Appeals further observed:

It will also be observed that the deed of mortgage was executed on August 26, 1981
therein clearly stipulating that it was being executed "as security for the payment of
certain loans, advances or other accommodation obtained by the Mortgagor from the
Mortgagee in the total sum of Three Hundred Fifty Thousand Pesos only
(P350,000.00)" although at the time no such loan or advance had been obtained.
The promissory notes were dated August 31, September 23 and October 26, 1981
which were subsequent to the execution of the deed of mortgage. The appellant is
correct in claiming that the defendant Rural Bank should not have agreed to extend
 or constitute the mortgage on the properties of Gallardo who had no existing
indebtedness with it at the time.

Under the facts the defendant Rural Bank appeared to have ignored the
representative capacity of Aquino and dealt with him and his wife in their personal
capacities. Said appellee Rural Bank also did not conduct an inquiry on whether the
subject loans were to benefit the interest of the principal (plaintiff Gallardo) rather
than that of the agent although the deed of mortgage was explicit that the loan was
for purpose of the bangus and sugpo production of defendant Aquino.

In effect, with the execution of the mortgage under the circumstances and assuming
it to be valid but because the loan taken was to be used exclusively for Aquino's
business in the "bangus" and "sugpo" production, Gallardo in effect becomes a
surety who is made primarily answerable for loans taken by Aquino in his personal
capacity in the event Aquino defaults in such payment. Under Art. 1878 of the Civil
Code, to obligate the principal as a guarantor or surety, a special power of attorney is
required. No such special power of attorney for Gallardo to be a surety of Aquino had
been executed. (pp. 42-43, Rollo.)

Petitioner claims that the Deed of Real Estate Mortgage is enforceable against Gallardo since it was
executed in accordance with Article 1883 which provides:

Art. 1883. If an agent acts in his own name, the principal has no right of action
against the persons with whom the agent has contracted; neither have such persons
against the principal.

In such case the agent is the one directly bound in favor of the person with whom he
has contracted, as if the transaction were his own, except when the contract involves
things belonging to the principal.

The above provision of the Civil Code relied upon by the petitioner Bank, is not applicable to the
case at bar. Herein respondent Aquino acted purportedly as an agent of Gallardo, but actually acted
in his personal capacity. Involved herein are properties titled in the name of respondent Gallardo
against which the Bank proposes to foreclose the mortgage constituted by an agent (Aquino) acting
in his personal capacity. Under these circumstances, we hold, as we did in Philippine Sugar Estates
Development Co. vs. Poizat, supra, that Gallardo's property is not liable on the real estate mortgage:

There is no principle of law by which a person can become liable on a real mortgage
which she never executed either in person or by attorney in fact. It should be noted
that this is a mortgage upon real property, the title to which cannot be divested
except by sale on execution or the formalities of a will or deed. For such reasons, the
law requires that a power of attorney to mortgage or sell real property should be
executed with all of the formalities required in a deed. For the same reason that the
personal signature of Poizat, standing alone, would not convey the title of his wife in
her own real property, such a signature would not bind her as a mortgagor in real
property, the title to which was in her name. (p. 548.)

WHEREFORE, finding no reversible error in the decision of the Court of Appeals, we AFFIRM it in
toto. Costs against the petitioner.

SO ORDERED.
Gozun vs. Mercado.pdf - G.R No 167812

On challenge via petition for review on certiorari is the Court of Appeals Decision
of December 8, 2004 and Resolution of April 14, 2005 in CA-G.R. CV No.
76309[1] reversing the trial courts decision[2] against Jose Teofilo T. Mercado a.k.a.
Don Pepito Mercado (respondent) and accordingly dismissing the complaint of
Jesus M. Gozun (petitioner).

In the local elections of 1995, respondent vied for the gubernatorial post
in Pampanga. Upon respondents request, petitioner, owner of JMG Publishing
House, a printing shop located in San Fernando, Pampanga, submitted to respondent
draft samples and price quotation of campaign materials.
By petitioners claim, respondents wife had told him that respondent already
approved his price quotation and that he could start printing the campaign materials,
hence, he did print campaign materials like posters bearing respondents
photograph,[3] leaflets containing the slate of party candidates,[4] sample
ballots,[5] poll watcher identification cards,[6] and stickers.

Given the urgency and limited time to do the job order, petitioner availed of
the services and facilities of Metro Angeles Printing and of St. Joseph Printing Press,
owned by his daughter Jennifer Gozun and mother Epifania Macalino Gozun,
respectively.[7]

Petitioner delivered the campaign materials to respondents headquarters

along Gapan-Olongapo Road in San Fernando, Pampanga.[8]

Meanwhile, on March 31, 1995, respondents sister-in-

law, Lilian Soriano (Lilian) obtained from petitioner cash advance of P253,000
allegedly for the allowances of poll watchers who were attending a seminar and for
other related expenses. Lilian acknowledged on petitioners 1995 diary[9] receipt of
the amount.[10]
 Petitioner later sent respondent a Statement of Account [11] in the total amount
of P2,177,906 itemized as follows: P640,310 for JMG Publishing House; P837,696
for Metro Angeles Printing; P446,900 for St. Joseph Printing Press; and P253,000,
the cash advance obtained by Lilian.

On August 11, 1995, respondents wife partially paid P1,000,000 to petitioner

who issued a receipt[12] therefor.

Despite repeated demands and respondents promise to pay, respondent failed

to settle the balance of his account to petitioner.

Petitioner and respondent being compadres, they having been principal

sponsors at the weddings of their respective daughters, waited for more than three
(3) years for respondent to honor his promise but to no avail, compelling petitioner
to endorse the matter to his counsel who sent respondent a demand
letter.[13] Respondent, however, failed to heed the demand.[14]

Petitioner thus filed with the Regional Trial Court of Angeles City on
November 25, 1998 a complaint[15] against respondent to collect the remaining
amount of P1,177,906 plus inflationary adjustment and attorneys fees.

In his Answer with Compulsory Counterclaim,[16] respondent denied having

transacted with petitioner or entering into any contract for the printing of campaign
materials. He alleged that the various campaign materials delivered to him were
represented as donations from his family, friends and political supporters. He added
that all contracts involving his personal expenses were coursed through and signed
by him to ensure compliance with pertinent election laws.

On petitioners claim that Lilian, on his (respondents) behalf, had obtained

from him a cash advance of P253,000, respondent denied having given her authority
to do so and having received the same.
At the witness stand, respondent, reiterating his allegations in his Answer, claimed
that petitioner was his over-all coordinator in charge of the conduct of seminars for
volunteers and the monitoring of other matters bearing on his candidacy; and that
while his campaign manager, Juanito Johnny Cabalu (Cabalu), who was authorized
to approve details with regard to printing materials, presented him some campaign
materials, those were partly donated.[17]

When confronted with the official receipt issued to his wife acknowledging her
payment to JMG Publishing House of the amount of P1,000,000, respondent claimed
that it was his first time to see the receipt, albeit he belatedly came to know from his
wife and Cabalu that the P1,000,000 represented compensation [to petitioner] who
helped a lot in the campaign as a gesture of goodwill.[18]

Acknowledging that petitioner is engaged in the printing business, respondent

explained that he sometimes discussed with petitioner strategies relating to his
candidacy, he (petitioner) having actively volunteered to help in his campaign; that
his wife was not authorized to enter into a contract with petitioner regarding
campaign materials as she knew her limitations; that he no longer questioned
the P1,000,000 his wife gave petitioner as he thought that it was just proper to
compensate him for a job well done; and that he came to know about petitioners
claim against him only after receiving a copy of the complaint, which surprised him
because he knew fully well that the campaign materials were donations.[19]

Upon questioning by the trial court, respondent could not, however, confirm
if it was his understanding that the campaign materials delivered by petitioner were
donations from third parties.[20]
Finally, respondent, disclaiming knowledge of the Comelec rule that if a
campaign material is donated, it must be so stated on its face, acknowledged that
nothing of that sort was written on all the materials made by petitioner.[21]

As adverted to earlier, the trial court rendered judgment in favor of petitioner,

the dispositive portion of which reads:

WHEREFORE, the plaintiff having proven its (sic) cause of action by

preponderance of evidence, the Court hereby renders a decision in favor
of the plaintiff ordering the defendant as follows:

1. To pay the plaintiff the sum of P1,177,906.00 plus 12% interest

per annum from the filing of this complaint until fully paid;
 2. To pay the sum of P50,000.00 as attorneys fees and the costs of
suit.

SO ORDERED.[22]

Also as earlier adverted to, the Court of Appeals reversed the trial courts
decision and dismissed the complaint for lack of cause of action.

In reversing the trial courts decision, the Court of Appeals held that other than
petitioners testimony, there was no evidence to support his claim that Lilian was
authorized by respondent to borrow money on his behalf. It noted that the
acknowledgment receipt[23] signed by Lilian did not specify in what capacity she
received the money. Thus, applying Article 1317[24] of the Civil Code, it held that
petitioners claim for P253,000 is unenforceable.

On the accounts claimed to be due JMG Publishing House P640,310, Metro Angeles
Printing P837,696, and St. Joseph Printing Press P446,900, the appellate court,
noting thatsince the owners of the last two printing presses were not impleaded as
parties to the case and it was not shown that petitioner was authorized to prosecute
the same in their behalf, held that petitioner could not collect the amounts due them.

Finally, the appellate court, noting that respondents wife had paid P1,000,000 to
petitioner, the latters claim of P640,310 (after excluding the P253,000) had already
been settled.

Hence, the present petition, faulting the appellate court to have erred:

1. . . . when it dismissed the complaint on the ground that there is no

evidence, other than petitioners own testimony, to prove
that Lilian R. Soriano was authorized by the respondent to receive the
cash advance from the petitioner in the amount of P253,000.00.

xxxx

2. . . . when it dismissed the complaint, with respect to the amounts due

to the Metro Angeles Press and St. Joseph Printing Press on the ground
that the complaint was not brought by the real party in interest.
 x x x x[25]

By the contract of agency a person binds himself to render some service or to

do something in representation or on behalf of another, with the consent or authority
of the latter.[26] Contracts entered into in the name of another person by one who has
been given no authority or legal representation or who has acted beyond his powers
are classified as unauthorized contracts and are declared unenforceable, unless they
are ratified.[27]

Generally, the agency may be oral, unless the law requires a specific
[28]
form. However, a special power of attorney is necessary for an agent to, as in this
case, borrow money, unless it be urgent and indispensable for the preservation of the
things which are under administration.[29] Since nothing in this case involves the
preservation of things under administration, a determination of whether Soriano had
the special authority to borrow money on behalf of respondent is in order.

Lim Pin v. Liao Tian, et al.[30] held that the requirement of a special power of
attorney refers to the nature of the authorization and not to its form.

. . . The requirements are met if there is a clear mandate from the principal
specifically authorizing the performance of the act. As early as 1906, this
Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that such a
mandate may be either oral or written. The one thing vital being that it
shall be express. And more recently, We stated that, if the special
authority is not written, then it must be duly established by evidence:

the Rules require, for attorneys to compromise the litigation of their clients, a
special authority. And while the same does not state that the special authority be
in writing the Court has every reason to expect that, if not in writing, the same be
duly established by evidence other than the self-serving assertion of counsel
himself that such authority was verbally given him.[31] (Emphasis and
underscoring supplied)

Petitioner submits that his following testimony suffices to establish that respondent
had authorized Lilian to obtain a loan from him, viz:
 Q : Another caption appearing on Exhibit A is cash advance, it states
given on 3-31-95 received by Mrs. Lilian Soriano in behalf of
Mrs. Annie Mercado, amount P253,000.00, will you kindly tell
the Court and explain what does that caption means?
A : It is the amount representing the money borrowed from me by the
defendant when one morning they came very early and talked
to me and told me that they were not able to go to the bank to get
money for the allowances of Poll Watchers who were having a
seminar at the headquarters plus other election related expenses
during that day, sir.
Q : Considering that this is a substantial amount which according to you
was taken by Lilian Soriano, did you happen to make her
acknowledge the amount at that time?
A : Yes, sir.[32] (Emphasis supplied)

Petitioners testimony failed to categorically state, however, whether the loan was
made on behalf of respondent or of his wife. While petitioner claims that Lilian was
authorized by respondent, the statement of account marked as Exhibit A states that
the amount was received by Lilian in behalf of Mrs. Annie Mercado.

Invoking Article 1873[33] of the Civil Code, petitioner submits that respondent
informed him that he had authorized Lilian to obtain the loan, hence,
following Macke v. Camps[34] which holds that one who clothes another with
apparent authority as his agent, and holds him out to the public as such,
respondent cannot be permitted to deny the authority.

Petitioners submission does not persuade. As the appellate court observed:

. . . Exhibit B [the receipt issued by petitioner] presented by plaintiff-

appellee to support his claim unfortunately only indicates the Two
Hundred Fifty Three Thousand Pesos (P253,0000.00) was received by
one Lilian R. Soriano on 31 March 1995, but without specifying for what
reason the said amount was delivered and in what capacity
did Lilian R. Soriano received [sic] the money. The note reads:

3-31-95
 261,120 ADVANCE MONEY FOR TRAINEE

RECEIVED BY

RECEIVED FROM JMG THE AMOUNT OF 253,000

TWO HUNDRED FIFTY THREE THOUSAND PESOS

(SIGNED)
LILIAN R. SORIANO
3-31-95

Nowhere in the note can it be inferred that defendant-appellant was

connected with the said transaction. Under Article 1317 of the New Civil
Code, a person cannot be bound by contracts he did not authorize to be
entered into his behalf.[35] (Underscoring supplied)

It bears noting that Lilian signed in the receipt in her name alone, without indicating
therein that she was acting for and in behalf of respondent. She thus bound herself
in her personal capacity and not as an agent of respondent or anyone for that matter.

It is a general rule in the law of agency that, in order to bind the principal
by a mortgage on real property executed by an agent, it must upon its face
purport to be made, signed and sealed in the name of the principal,
otherwise, it will bind the agent only. It is not enough merely that the agent
was in fact authorized to make the mortgage, if he has not acted in the
name of the principal. x x x[36] (Emphasis and underscoring supplied)

On the amount due him and the other two printing presses, petitioner explains that
he was the one who personally and directly contracted with respondent and he
merely sub-contracted the two printing establishments in order to deliver on time the
campaign materials ordered by respondent.

Respondent counters that the claim of sub-contracting is a change in petitioners

theory of the case which is not allowed on appeal.

In Oco v. Limbaring,[37] this Court ruled:

 The parties to a contract are the real parties in interest in an action upon
it, as consistently held by the Court. Only the contracting parties are bound
by the stipulations in the contract; they are the ones who would benefit
from and could violate it. Thus, one who is not a party to a contract, and
for whose benefit it was not expressly made, cannot maintain an action on
it. One cannot do so, even if the contract performed by the contracting
parties would incidentally inure to one's benefit.[38] (Underscoring
supplied)

In light thereof, petitioner is the real party in interest in this case. The trial courts
findings on the matter were affirmed by the appellate court.[39] It erred, however, in
not declaring petitioner as a real party in interest insofar as recovery of the cost of
campaign materials made by petitioners mother and sister are concerned, upon the
wrong notion that they should have been, but were not, impleaded as plaintiffs.

In sum, respondent has the obligation to pay the total cost of printing his campaign
materials delivered by petitioner in the total of P1,924,906, less the partial payment
of P1,000,000, or P924,906.

WHEREFORE, the petition is GRANTED. The Decision dated December

8, 2004 and the Resolution dated April 14, 2005 of the Court of Appeals are
hereby REVERSED and SET ASIDE.

The April 10, 2002 Decision of the Regional Trial Court of Angeles City,
Branch 57, is REINSTATED mutatis mutandis, in light of the foregoing
discussions. The trial courts decision is MODIFIED in that the amount payable by
respondent to petitioner is reduced to P924,906.

SO ORDERED.

[G.R. No. 109946. February 9, 1996]

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF
APPEALS, MYLO O. QUINTO and JESUSA CHRISTINE S.
CHUPUICO, respondents.

DECISION
BELLOSILLO, J.:

DEVELOPMENT BANK OF THE PHILIPPINES filed this petition for review

on certiorari assailing the decision of the Court of Appeals holding that the
mortgages in favor of the bank were void and ineffectual because when
constituted the mortgagors, who were merely applicants for free patent of the
property mortgaged, were not the owners thereof in fee simple and therefore
could not validly encumber the same.[1]
On 20 April 1978 petitioner granted a loan of P94,000.00 to the spouses
Santiago Olidiana and Oliva Olidiana. To secure the loan the Olidiana spouses
executed a real estate mortgage on several properties among which was Lot
2029 (Pls-6 1) with Tax Declaration No. 2335/1, situated ib Bo. Bago Capalaran,
Molave, Zamboanga del Sur, with an area of 84,108 square meters, more or
less. At the time of the mortgage the property was still the subject of a Free
Patent application filed by the Olidianas with the Bureau of Lands but registered
under their name in the Office of the Municipal Assessor of Molave for taxation
purposes.[2]
On 2 November 1978 the Olidiana spouses filed with the Bureau of Lands
a Request for Amendment of their Free Patent applications over several
parcels of land including Lot No. 2029 (PIs-61). In this request they renounced,
relinquished and waived all their rights and interests over Lot No. 2029 (Pls-61)
in favor of Jesusa Christine Chupuico and Mylo O. Quinto, respondents herein.
On 10 January 1979 Free Patent Nos. IX-5-2223 (covering one-half of Lot No.
2029 [Pls-61] and IX-5-2224 (covering the other half of the same Lot No. 2029
[Pls-61]) were accordingly granted respectively to respondents Jesusa
Christine Chupuico and Mylo 0. Quinto by the Bureau
of Lands District Land Office No. IX-5, Pagadian City. Jesusa Christine
Chupuico later obtained Original Certificate of Title No. P-27,361 covering
aforementioned property while Mylo O. Quinto was also issued Original
Certificate of Title No. P-27,362 in view of the previous free patent.[3]
On 20 April 1979 an additional loan of P62,000 00 was extended by
petitioner to the Olidiana spouses. Thus on 23 April 1979 the Olidianas
executed an additional mortgage on the same parcels of land already covered
by the first mortgage of 4 April 1978. This second mortgage also
included Lot No. 2029 (Pls-61) as security for the Olidiana spouses financial
obligation with petitioner.[4]
Thereafter, for failure of Santiago and Oliva Olidiana to comply with the
terms and conditions of their promissory notes and mortgage contracts,
petitioner extrajudicially foreclosed all their mortgaged properties.
Consequently, on 14 April 1983 these properties, including Lot No. 2029 (Pls-
61) were sold at public auction for P88,650.00 and awarded to petitioner as the
highest bidder. A Certificate of Sale was thereafter executed in favor of
petitioner and an Affidavit of Consolidation of Ownership registered in its name.
However, when petitioner tried to register the sale and the affidavit of
consolidation and to have the tax declaration transferred in its name it was
discovered that Lot No. 2029 (Pls-61) had already been divided into two (2)
parcels, one-half (1/2) now known as Lot 2029-A and covered by OCT No. P-
27,361 in the name of Jesusa Christine Chupuico, while the other half known
as Lot 2029-B was covered by the same OCT No. P-27,361 in the name of Mylo
0. Quinto.[5]
In view of the discovery, petitioner filed an action for Quieting of Title and
Cancellation or Annulment of Certificate of Title against respondents. After trial
the Regional Trial Court of Molave, Zamboanga del Sur, Branch 23, rendered
judgment against petitioner.[6] The court ruled that the contracts of mortgage
entered into by petitioner and the subsequent foreclosure of subject property
could not have vested valid title to petitioner bank because the mortgagors were
not the owners in fee simple of the property mortgaged. The court also found
the mortgages over Lot No. 2029 (Pls-61) of no legal consequence because
they were executed in violation of Art. 2085, par. 2, of the New Civil Code which
requires that the mortgagor be the absolute owner of the thing mortgaged.
According to the court a quo there was no evidence to prove that the
mortgagors of the land in dispute were its absolute owners at the time of the
mortgage to petitioner.
The factual findings of the lower court disclose that when the Olidiana
spouses mortgaged Lot No. 2029 (Pls-61) to petitioner it was still the subject of
a miscellaneous sales application by the spouses with the Bureau of Lands.
Since there was no showing that the sales application was approved before the
property was mortgaged, the trial court concluded that the Olidiana spouses
were not yet its owners in fee simple when they mortgaged the property. The
lower court also said that with the subsequent issuance of the Free Patent by
the Bureau of Lands in the name of respondents Chupuico and Quinto, it could
be gleaned that the property was indeed public land when mortgaged to
petitioner. Therefore petitioner could not have acquired a valid title over the
subject property by virtue of the foreclosure and subsequent sale at public
auction.[7]
Resultantly, the trial court declared the following as null and void insofar as
they related to Lot No. 2029 (Pls-61) being a public land: the real estate
mortgage dated 4 April 1978, the second mortgage dated 23 April 1979, the
foreclosure sale on 14 April 1983, the certificate of sale registered with the
Register of Deeds of Zamboanga del Sur on 1 September 1983, and the
affidavit of consolidation of ownership registered with the Register of Deeds on
2 August 1985.
Petitioner then appealed to the Court of Appeals which likewise ruled in
favor of respondents, hence the instant petition.[8]
Petitioner now seeks to overturn the decision of respondent Court of
Appeals holding that Lot No. 2029 (Pls-61) could not have been the subject of
a valid mortgage and foreclosure proceeding because it was public land at the
time of the mortgage, and that the act of Jesusa Christine S. Chupuico and Mylo
0. Quinto in securing the patents was not tainted with fraud. The crux of this
appeal thus lies in the basic issue of whether the land in dispute could have
been validly mortgaged while still the subject of a Free Patent Application with
the government.[9]
We agree with the court a quo. We hold that petitioner bank did not acquire
valid title over the land in dispute because it was public land when mortgaged
to the bank. We cannot accept petitioners contention that the lot in dispute was
no longer public land when mortgaged to it since the Olidrana spouses had
been in open, continuous, adverse and public possession thereof for more than
thirty (30) years.[10] In Visayan Realty, Inc. v. Meer[11] we ruled that the approval
of a sales application merely authorized the applicant to take possession of the
land so that he could comply with the requirements prescribed by law before a
final patent could be issued in his favor. Meanwhile the government still
remained the owner thereof, as in fact the application could still be canceled
and the land awarded to another applicant should it be shown that the legal
requirements had not been complied with. What divests the government of title
to the land is the issuance of the sales patent and its subsequent registration
with the Register of Deeds. It is the registration and issuance of the certificate
of title that segregate public lands from the mass of public domain and convert
it into private property.[12] Since the disputed lot in the case before us was still
the subject of a Free Patent Application when mortgaged to petitioner and no
patent was granted to the Olidiana spouses, Lot No. 2029 (Pis-61) remained
part of the public domain.
 With regard to the validity of the mortgage contracts entered into by the
parties, Art. 2085, par. 2, of the New Civil Code specifically requires that the
pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged.
Thus, since the disputed property was not owned by the Olidiana spouses when
they mortgaged it to petitioner the contracts of mortgage and all their
subsequent legal consequences as regards Lot No. 2029 (Pls-61) are null and
void. In a much earlier case[13] we held that it was an essential requisite for the
validity of a mortgage that the mortgagor be the absolute owner of the property
mortgaged, and it appearing that the mortgage was constituted before the
issuance of the patent to the mortgagor, the mortgage in question must of
necessity be void and ineffective. For, the law explicitly requires as imperative
for the validity of a mortgage that the mortgagor be the absolute owner of what
is mortgaged.
Finally, anent the contention of petitioner that respondents fraudulently
obtained the property in litigation, we also find for the latter. As correctly found
by the lower courts, no evidence existed to show that respondents had prior
knowledge of the real estate mortgages executed by the Olidiana spouses in
favor of petitioner. The act of respondents in securing the patents cannot
therefore be categorized as having been tainted with fraud.
WHEREFORE, the petition is DENIED and the questioned decision of the
Court of Appeals is AFFIRMED.
SO ORDERED.

SPOUSES WILLIAM GENATO G.R. No. 169706

and REBECCA GENATO,
Petitioners, Present:

CARPIO, J., Chairperson,

BRION,
- versus - DEL CASTILLO
ABAD, and
PEREZ, JJ.

RITA VIOLA, Promulgated:

Respondent. February 5, 2010
x-----------------------------------------------------------------
--x
 DECISION

DEL CASTILLO, J.:

When there is a conflict between the title of the case and the allegations in the complaint,
the latter prevail in determining the parties to the action. Jurisprudence directs us to look
beyond the form and into the substance so as to render substantial justice to the parties and
determine speedily and inexpensively the actual merits of the controversy with least regard
to technicalities.

In the present Petition for Review, petitioners assail the September 9, 2005 Decision[1] of
the Court of Appeals (CA) in CA-G.R. SP No. 89466 which affirmed the Decision of the
Office of the President. The Office of the President affirmed the Decision of the Housing
and Land Use Regulatory Board (HLURB), First Division which granted the motion to
quash the writ of execution issued in HLURB Case No. REM-102491-4959 (REM-A-
950426-0059).

Factual Antecedents

In October 1991, a complaint titled "VILLA REBECCA HOMEOWNERS

ASSOCIATION, INC. versus MR. WILLIAM GENATO and spouse REBECCA
GENATO" was filed with the HLURB. The said complaint was verified by 34 individuals,
including the respondent herein, who referred to themselves as the "Complainants" who
"caused the preparation of the foregoing Complaint".[2] The complaint stated that on
various dates, complainants executed Contracts to Sell and/or Lease Purchase Agreements
with the Sps. Genato pertaining to housing units in Villa Rebecca Homes
Subdivision. Sometime thereafter the HLURB issued a cease and desist order (CDO)
enjoining the collection of amortization payments. This CDO was subsequently
lifted.Thereafter, complainants went to the Sps. Genato with the intention of resuming their
amortization payments. The latter however refused to accept their payments and instead
demanded for a lump sum payment of all the accrued amortizations which fell due during
the effectivity of the CDO.
From the disorganized, bordering on incomprehensible, complaint, it can be gleaned that
the following reliefs are prayed for: 1) That Sps. Genato accept the complainants' monthly
amortization payments corresponding to the period of effectivity of the (subsequently
lifted) CDO, without any penalty; 2) That the computation of interest on delinquent
payments be at 3% per month and not compounded; 3) That Sps. Genato be responsible
for correcting the deficiencies in the construction and replacement of sub-standard
materials to conform with the plans and specifications; 4) That Sps. Genato be held
answerable/liable to make good their undertaking to provide individual deep wells for the
homeowners; 5) That Sps. Genato be responsible for maintaining the street lights and
payment of the corresponding electric bills; 6) That Sps. Genato maintain the contract price
of the units for sale and not increase the prices; and 7) That Sps. Genato be made
accountable for the unregistered dwelling units.

On March 8, 1995, the Housing Arbiter rendered a Decision, the dispositive portion of
which states:

WHEREFORE, all the foregoing premises being considered, judgment is

hereby rendered ordering complainants to resume payment of their monthly
amortization from date hereof pursuant to the agreement.Likewise, it is hereby
ordered that respondents correct the deficiencies in the construction of the
complaining occupants' units so as to conform to that which is specified in the
plans and specification of the buildings, as well as observe proper drainage
requirements pursuant to law. Likewise, respondents are hereby directed to
immediately put up commercial wells and/or water pumps or facilities in the
Villa Rebecca Subdivision and to reimburse complainants and unit occupants
of their total expenditures incurred for their water supply.[3]

On appeal to the HLURB Board of Commissioners, the Decision was modified, inter alia,
by the additional directive for the complainants to pay 3% interest per month for the unpaid
amortizations due from June 29, 1991. The dispositive portion of the Decision of the
HLURB Board of Commissioners states:

WHEREFORE, premises considered, the decision of the Arbiter is hereby

MODIFIED to read as follows:

1. Ordering complainants to pay respondent the remaining balance of the

purchase price. Complainant must pay 3% interest per month for unpaid
amortizations due from June 29, 1991. Thereafter complainant must pay its
 amortization in accordance with the original term of the contract. These must be
complied with upon finality of this decision.

2. Ordering the respondent to:

a. Accept the amortization payment;
b. Provide drainage outfall;
c. Provide the project with water facilities; and
d. Reimburse complainant the following:
d.1 Electric Bills in the amount of P3,146.66
d.2 Cost of construction of water supply to be determined by an appraiser
mutually acceptable to the parties.

Number 2.d to 2.e [sic] must be complied with within thirty (30) days from
finality of this decision.

SO ORDERED.[4]

This Decision, after being revised and then reinstated, subsequently became final and
executory.

On May 26, 2000, Arbiter Marino Bernardo M. Torres issued the Writ of Execution. In
connection therewith, the sheriff seized Rita Viola's two delivery trucks and 315 sacks of
rice.Respondent Viola then filed an Urgent Motion to Quash Execution, with Prayers for
Issuance of Temporary Restraining Order, Clarification and Computation of Correct
Amount of Money Judgment and Allowance of Appeal.

After various incidents and pleadings by the opposing parties, the two trucks were ordered
released. The 315 sacks of rice, however, were sold at public auction to the highest
bidder,[5]petitioner Rebecca Genato in the amount of P189,000.00.[6]

On December 15, 2000, Arbiter Torres issued an Order denying respondent Viola's motion
to quash the writ of execution and directed her to pay the Sps. Genato the amount
of P739,133.31.The dispositive portion of the Order reads:

WHEREFORE, premises considered, the motion to quash writ of execution is

hereby DENIED.
 Movant Rita Viola is hereby directed to pay to the respondents the amount
of P739,133.31 in payment of their amortizations up to August 2000.

The bond posted by the movant in compliance with the directive of this Office
is likewise ordered cancelled.

SO ORDERED.[7]

Viola appealed the said Order and on January 10, 2003, the HLURB, First Division
rendered a Decision, the dispositive portion of which reads:

WHEREFORE, premises considered, the movants' respective Motions to

Quash the Writ of Execution are hereby GRANTED. Accordingly, the Orders
dated December 15, [2000] are hereby SET ASIDE. The respondents are
directed to credit as payment the value of the 315 sacks of rice in the amount
of P318,500.00, which were seized and auctioned to the account of movant
Viola.

SO ORDERED.[8]
The Sps. Genato appealed the said Decision to the Office of the President. On November
8, 2004, the Office of the President affirmed in toto the Decision of the HLURB, First
Division. The motion for reconsideration filed by the Sps. Genato was denied. They thus
elevated the case to the CA. As previously mentioned, the CA affirmed the Decision of the
Office of the President and disposed as follows:

WHEREFORE, premises considered, the petition is DENIED and the assailed

decision dated November 4, 2004 and resolution dated March 31, 2005 of the
Office of the President in O.P. Case No. 03-B-057 are hereby AFFIRMED.

SO ORDERED.[9]

The Sps. Genato no longer filed a motion for reconsideration, they instead filed the present
petition for review.

Issues

Petitioners raise the following issues:

 1. WHETHER THE HONORABLE COURT OF APPEALS ERRED IN
RULING THAT THE HLURB HAS NOT ACQUIRED JURISDICTION
OVER THE PERSON OF RESPONDENT RITA VIOLA.

2. WHETHER AFTER THE DECISION HAS BECOME FINAL AND

EXECUTORY THE HLURB COULD STILL RULE ON THE LACK OF
JURISDICTION OVER THE PERSON OF RITA VIOLA.

3. WHETHER RESPONDENT VIOLA CAN CLAIM AN AMOUNT

HIGHER THAN WHAT APPEARS ON SHERIFF'S CERTIFICATE OF
SALE.

4. WHETHER THE RULE THAT FINDINGS OF FACTS AND

CONCLUSIONS OF ANY ADJUDICATIVE BODY SHOULD BE
CONSIDERED AS BINDING AND CONCLUSIVE ON THE
APPELLATE COURT, IS APPLICABLE IN THE CASE AT BAR.[10]

Petitioners' Arguments

Petitioners contend that the CA erred in applying the case of Duero v. Court of
Appeals,[11] which held that the lack of jurisdiction of the court over an action cannot be
waived. They submit that "jurisdiction of the court over an action" is different from
"jurisdiction over the person". They say that the latter was what the HLURB was referring
to because it stated that Rita Viola was never impleaded. They contend that jurisdiction
over the person can be conferred by consent expressly or impliedly given, as in the case of
Rita Viola.

Petitioners also assert that the HLURB Decision subject of the writ of execution has long
been final and executory, hence, said Decision can no longer be modified. They further
assert that the execution of the said Decision is a ministerial duty of the HLURB.

Petitioners further argue that the best evidence of the value of the 315 sacks of rice seized
and auctioned off is the Sheriff's Certificate of Sale; hence the Board's ruling crediting to
the account of Viola an amount other than that stated in the Certificate of Sale has no sound
basis.
Finally, the petitioners contend that the findings and conclusions of an adjudicative body
resulting from an erroneous application of law are not binding on the appellate courts.
Respondent's Arguments

On the other hand, respondent contends that the HLURB did not acquire jurisdiction over
her person since she was not a party to the case; hence, the HLURB decision is a nullity as
against her and therefore never acquired finality. With a void judgment, the resultant
execution was likewise void.

She also argues that, since the levy and auction were illegal, the correct valuation of the
315 sacks of rice is not the price paid at the auction but its actual value of P318,500.00.

Our Ruling

The petition has merit.

At the outset, it is worth mentioning that except for respondent Rita Viola, all the other
individual members/buyers/owners of the respective housing units have already paid and
settled their obligations with Sps. Genato.[12] Hence, in the present case we only focus on
the matters involving Rita Viola.

For a more orderly presentation, we address the fourth issue raised by petitioners first.

Non-applicability of the doctrine on the

binding effect of findings of facts and
conclusions of an adjudicative body

Indeed findings of fact and conclusions of an adjudicative body like the HLURB, which
can be considered as a trier of facts on specific matters within its field of expertise, should
be considered as binding and conclusive upon the appellate courts. This is in addition to
the fact that it was in a better position to assess and evaluate the credibility of the contending
parties and the validity of their respective evidence. However, these doctrines hold true
only when such findings and conclusions are supported by substantial evidence.[13]
In the present case, we find it difficult to find sufficient evidential support for the HLURB's
conclusion that it did not acquire jurisdiction over the person of Viola. We are thus
persuaded that there is ample justification to disturb the findings of the HLURB.

The HLURB acquired jurisdiction over

Viola

It is not the caption of the pleading but the allegations therein that are controlling.[14] The
inclusion of the names of all the parties in the title of a complaint is a formal requirement
under Section 3, Rule 7 of the Rules of Court. However, the rules of pleadings require
courts to pierce the form and go into the substance.[15] The non-inclusion of one or some of
the names of all the complainants in the title of a complaint, is not fatal to the case, provided
there is a statement in the body of the complaint indicating that such complainant/s
was/were made party to such action. This is specially true before the HLURB where the
proceedings are summary in nature without regard to legal technicalities obtaining in the
courts of law[16] and where the pertinent concern is to promote public interest and to assist
the parties in obtaining just, speedy and inexpensive determination of every action,
application or other proceedings.[17]

Respondent Viola, although her name did not appear in the title as a party, was one of the
persons who caused the preparation of the complaint and who verified the same. The
allegations in the body of the complaint indicate that she is one of the complainants. She
categorically considered, and held out, herself as one of the complainants from the time of
the filing of the complaint and up to the time the decision in the HLURB case became final
and executory. To repeat, the averments in the body of the complaint, not the title, are
controlling.[18] Hence, having been set forth in the body of the complaint as a complainant,
Viola was a party to the case.

For clarity, the complaint should have been amended to reflect in the title the individual
complainants. There being a "defect in the designation of the parties", its correction could
be summarily made at any stage of the action provided no prejudice is caused thereby to
the adverse party.[19] In the present case, the specification of the individual complainants in
the title of the case would not constitute a change in the identity of the parties. Only their
names were omitted in the title but they were already parties to the case, most importantly,
they were heard through their counsel whom they themselves chose to prepare the
complaint and represent them in the case before the HLURB. No unfairness or surprise to
the complainants, including Viola, or to the Sps. Genato would result by allowing the
amendment, the purpose of which is merely to conform to procedural rules or to correct a
technical error.[20]

It is now too late to dismiss this petition, and, in effect, nullify all proceedings had before
the HLURB on the ground that Viola does not appear to have been impleaded as a
party. The error or defect is merely formal and not substantial and an amendment to cure
such defect is expressly authorized by Sec. 4, Rule 10 of the Rules of Court.[21]

Moreover, it was only when the final and executory judgment of the HLURB was already
being executed against Viola that she, for the first time, reversed her position; and claimed
that she was not a party to the case and that the HLURB did not acquire jurisdiction over
her. Viola is estopped[22] from taking such inconsistent positions. Where a party, by his or
her deed or conduct, has induced another to act in a particular manner, estoppel effectively
bars the former from adopting an inconsistent position, attitude or course of conduct that
causes loss or injury to the latter. The doctrine of estoppel is based upon the grounds of
public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak
against his own act, representations, or commitments to the injury of one to whom they
were directed and who reasonably relied thereon. After petitioners had reasonably relied
on the representations of Viola that she was a complainant and entered into the proceedings
before the HLURB, she cannot now be permitted to impugn her representations to the
injury of the petitioners.

At this point, it may be beneficial to elaborate on the matter of jurisdiction. Jurisdiction is

defined as the power and authority of a court to hear, try and decide a case.[23] In order for
the court or an adjudicative body to have authority to dispose of the case on the merits, it
must acquire jurisdiction over the subject matter and the parties.[24] Elementary is the
distinction between jurisdiction over the subject matter and jurisdiction over the
person. Jurisdiction over the subject matter is conferred by the Constitution or by law. In
contrast, jurisdiction over the person is acquired by the court by virtue of the party's
voluntary submission to the authority of the court or through the exercise of its coercive
processes. Jurisdiction over the person is waivable unlike jurisdiction over the subject
matter which is neither subject to agreement nor conferred by consent of the parties.[25] In
civil case, courts acquire jurisdiction over the plaintiffs upon the filing of the complaint,
while jurisdiction over the defendants is acquired either through the service of summons
upon them in the manner required by law or through their voluntary appearance in court
and their submission to its authority.[26]

The act of filing the complaint with the HLURB is unequivocally a voluntary submission
by the complainants, including Viola, to the authority of the HLURB. Clearly, the HLURB
acquired jurisdiction over Viola, who was one of the complainants, upon the filing of their
complaint.

Final and executory judgment may no

longer be modified

The April 27, 1999 HLURB Resolution,[27] reinstating the December 18, 1996
Decision,[28] has long been final and executory. Nothing is more settled in the law than that
a decision that has acquired finality becomes immutable and unalterable and may no longer
be modified in any respect even if the modification is meant to correct erroneous
conclusions of fact or law and whether it was made by the court that rendered it or by the
highest court of the land.[29] The only recognized exceptions to the general rule are the
correction of clerical errors, the so-called nunc pro tunc entries which cause no prejudice
to any party, void judgments, and whenever circumstances transpire after the finality of the
decision rendering its execution unjust and inequitable.[30] None of the exceptions is present
in this case. The HLURB decision cannot be considered a void judgment, as it was
rendered by a tribunal with jurisdiction over the subject matter of the complaint and, as
discussed above, with jurisdiction over the parties. Hence, the same can no longer be
modified.
Amount to be credited on account
of the sale of property levied upon

After a judgment has gained finality, it becomes the ministerial duty of the court or quasi-
judicial tribunal to order its execution.[31] In the present case, the final and executory
HLURB decision was partially executed by the sale of the 315 sacks of rice belonging to
Viola.

In determining the amount to be credited to the account of Viola, we look at the Sheriff's
Partial Report and the Sheriff's Certificate of Sale. Both documents state that in the auction
sale of the 315 sacks of rice, Mrs. Rebecca Genato submitted the highest bid in the amount
of P189,000.00. Drawing from Section 19, Rule 39 of the Rules of Court which states that
"all sales of property under execution must be made at public auction, to the highest
bidder," it naturally follows that the highest bid submitted is the amount that should be
credited to the account of the judgment debtor.

WHEREFORE, the petition is GRANTED. The assailed September 9, 2005 Decision of

the Court of Appeals is REVERSED and SET ASIDE and the December 15, 2000 Order
of Arbiter Marino Bernardo M. Torres is REINSTATED and AFFIRMED.

SO ORDERED.