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AMERICAN AIRLINES, INCORPORATED, petitioner, vs. COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, INCORPORATED, respondents. MAY 29, 1991 PADILLA FACTS: On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier offering passenger and air cargo transportation in the Philippines, and Orient Air Services and Hotel Representatives (hereinafter referred to as Orient Air), entered into a General Sales Agency Agreement (hereinafter referred to as the Agreement), whereby the former authorized the latter to act as its exclusive general sales agent within the Philippines for the sale of air passenger transportation. Pertinent provisions of the agreement are reproduced:
Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the Philippines, including any United States military installation therein which are not serviced by an Air Carrier Representation Office (ACRO), for the sale of air passenger transportation. The services to be performed by Orient Air Services shall include: (a) soliciting and promoting passenger traffic for the services of American and, if necessary, employing staff competent and sufficient to do so;; providing and maintaining a suitable area in its place of business to be used exclusively for the transaction of the business of American; arranging for distribution of American's timetables, tariffs and promotional material to sales agents and the general public in the assigned territory;; servicing and supervising of sales agents (including such subagents as may be appointed by Orient Air Services with the prior written consent of American) in the assigned territory including if required by American the control of remittances and commissions retained; and holding out a passenger reservation facility to sales agents and the general public in the assigned territory. In connection with scheduled or non-scheduled air passenger transportation within the United States, neither Orient Air Services nor its sub-agents will perform services for any other air carrier similar to those to be performed hereunder for American without the prior written consent of American. Subject to periodic instructions and continued consent from American, Orient Air Services may sell air passenger transportation to be performed within the United States by other

scheduled air carriers provided American does not provide substantially equivalent schedules between the points involved. Remittances Orient Air Services shall remit in United States dollars to American the ticket stock or exchange orders, less commissions to which Orient Air Services is entitled hereunder, not less frequently than semi-monthly, on the 15th and last days of each month for sales made during the preceding half month. All monies collected by Orient Air Services for transportation sold hereunder on American's ticket stock or on exchange orders, less applicable commissions to which Orient Air Services is entitled hereunder, are the property of American and shall be held in trust by Orient Air Services until satisfactorily accounted for to American. Commissions American will pay Orient Air Services commission on transportation sold hereunder by Orient Air Services or its subagents as follows: (a) Sales agency commission American will pay Orient Air Services a sales agency commission for all sales of transportation by Orient Air Services or its sub-agents over American's services and any connecting through air transportation, when made on American's ticket stock, equal to the following percentages of the tariff fares and charges: 1. For transportation solely between points within the United States and between such points and Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic Conference of America. For transportation included in a through ticket covering transportation between points other than those described above: 8% or such other rate(s) as may be prescribed by the International Air Transport Association. (b) Overriding commission In addition to the above commission American will pay Orient Air Services an overriding commission of 3% of the tariff fares and charges for all sales of transportation over American's service by Orient Air Service or its sub-agents. Default If Orient Air Services shall at any time default in observing or performing any of the provisions of this Agreement or shall become bankrupt or make any assignment for the benefit of or enter into any agreement or promise with its creditors or go into liquidation, or suffer any of its goods to be taken in execution, or if it ceases to be in business, this Agreement may, at the option of American, be terminated forthwith and American may, without prejudice to any of its rights under this Agreement, take possession of any ticket forms, exchange orders, traffic material or other property or funds take possession of any ticket forms, exchange orders, traffic material or other property or funds belonging to American. IATA and ATC Rules The provisions of this Agreement are subject to any applicable rules or resolutions of the International Air Transport Association and the Air Traffic Conference of America, and such rules or resolutions shall control in the event of any conflict with the provisions hereof. Termination






American may terminate the Agreement on two days' notice in the event Orient Air Services is unable to transfer to the United States the funds payable by Orient Air Services to American under this Agreement. Either party may terminate the Agreement without cause by giving the other 30 days' notice by letter, telegram or cable.

CONTENTION OF AMERICAN AIR: American Air that such commission is based only on sales of its services actually negotiated or transacted by Orient Air, otherwise referred to as "ticketed sales. Orient Air can claim entitlement to the disputed overriding commission based only on ticketed sales. Thus, to be entitled to the 3% overriding commission, the sale must be made by Orient Air and the sale must be done with the use of American Air's ticket stocks.

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing to promptly remit the net proceeds of sales for the months of January to March 1981 in the amount of US $254,400.40, American Air by itself undertook the collection of the proceeds of tickets sold originally by Orient Air and terminated forthwith the Agreement in accordance with Paragraph 13 thereof (Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit against Orient Air with the Court of First Instance of Manila, Branch 24, for Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction Answer: defendant Orient Air denied the material allegations Contending that after application thereof to the commissions due it under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid overriding commissions. Further, the defendant contended that the actions taken by American Air in the course of terminating the Agreement as well as the termination itself were untenable, Orient Air claiming that American Air's precipitous conduct had occasioned prejudice to its business interests.

CONTENTION OF ORIENT AIR: Contractual stipulation of a 3% overriding commission covers the total revenue of American Air and not merely that derived from ticketed sales undertaken by Orient Air. Invokes its designation as the exclusive General Sales Agent of American Air, with the corresponding obligations arising from such agency, such as, the promotion and solicitation for the services of its principal. In effect, by virtue of such exclusivity, "all sales of transportation over American Air's services are necessarily by Orient Air."

ISSUE: Extent of Orient Air's right to the 3% overriding commission HELD: Interpretation of contract: The entirety thereof must be taken into consideration to ascertain the meaning of its provisions. After a careful examination of the records, the Court finds merit in the contention of Orient Air that the Agreement, when interpreted in accordance with the foregoing principles, entitles it to the 3% overriding commission based on total revenue, or as referred to by the parties, "total flown revenue."

RTC: Ruled in favor of ORIENT CA affirmed court a quo

Reconsideration: The decision was modified. The decision of January 27, 1986 is modified in paragraphs (1) and (2) of the dispositive part so that the payment of the sums mentioned therein shall be at their Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on the date of actual payment.


As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the promotion and marketing of American Air's services for air passenger

transportation, and the solicitation of sales therefor. In and marketing of American Air's services for air passenger transportation, and the solicitation of sales therefor. In return for such efforts and services, Orient Air was to be paid commissions of two (2) kinds: 1. first, a sales agency commission, ranging from 7-8% of tariff fares and charges from sales by Orient Air when made on American Air ticket stock; and 2. second, an overriding commission of 3% of tariff fares and charges for all sales of passenger transportation over American Air services. It is immediately observed that the precondition attached to the first type of commission does not obtain for the second type of commissions. The latter type of commissions would accrue for sales of American Air services made not on its ticket stock but on the ticket stock of other air carriers sold by such carriers or other authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of such overriding commissions to sales from American Air ticket stock would erase any distinction between the two (2) types of commissions and would lead to the absurd conclusion that the parties had entered into a contract with meaningless provisions. Such an interpretation must at all times be avoided with every effort exerted to harmonize the entire Agreement. CONTRACT OF ADHESION: It is clear from the records that American Air was the party responsible for the preparation of the Agreement. Consequently, any ambiguity in this "contract of adhesion" is to be taken "contra proferentem", i.e., construed against the party who caused the ambiguity and could have avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code provides that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. Propriety of American Air's termination of the Agreement: CAs decision: It is not denied that Orient withheld

remittances but such action finds justification from paragraph 4 of the Agreement, Exh. F, which provides for remittances to American less commissions to which Orient is entitled, and from paragraph 5(d) which specifically allows Orient to retain the full amount of its commissions. Since, as stated ante, Orient is entitled to the 3% override. American's premise, therefore, for the cancellation of the Agreement did not exist SC: We agree with CA. Orient Air was entitled to an overriding commission based on total flown revenue. American Air's perception that Orient Air was remiss or in default of its obligations under the Agreement was, in fact, a situation where the latter acted in accordance with the Agreementthat of retaining from the sales proceeds its accrued commissions before remitting the balance to American Air. Since the latter was still obligated to Orient Air by way of such commissions. Orient Air was clearly justified in retaining and refusing to remit the sums claimed by American Air. The latter's termination of the Agreement was, therefore, without cause and basis, for which it should be held liable to Orient Air.

DAMAGES: No error: appellate court modified by reduction the trial court's award of exemplary damages and attorney's fees.

REINSTATEMENT OF ORIENT AS GSA: Appellate court erred in affirming the rest of the decision of the trial court. We refer particularly to the lower court's decision ordering American Air to "reinstate defendant as its general sales agent for passenger transportation in the Philippines in accordance with said GSA Agreement." In effect, compels American Air to extend its personality to Orient Air. Such would be violative of the principles and essence of agency, defined by law as a contract whereby "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 In an agent- principal relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a relationship can only be effected with the consent of the principal, which must not, in any way, be compelled by law or by any court. The Agreement itself between the parties states that "either party may terminate the Agreement without cause by giving the other 30 days' notice by letter, telegram or cable." We, therefore, set aside the portion of the ruling of the respondent appellate court reinstating Orient Air as general sales agent of American Air.

the issuance of the export permit. The payment therefor depended on the importation of the collateral goods, which is after its arrival. The first half of the collateral goods was successfully imported. Due to the inferior quality of the corn, it had to be replaced with more acceptable stock. This caused such delay that the letters of credit expired without the NARIC being able to draw the full amount therefrom. Checks and PN were issued by DAMERCO for the purpose of securing the unpaid part of the price of the corn and as guaranty that DAMERCO will purchase the corresponding collateral goods. But because of the change of administration in the government, barter transactions were suspended. Hence, DAMERCO was not able to import the remaining collateral goods. NARIC instituted in the CFI of Manila against DAMERCO and Fieldmens Insurance Co. Inc. an action for recovery of a sum of money representing the balance of the value of corn and rice exported by DAMERCO. DAMERCO alleged that its juridical relationship with the NARIC is governed by a contract, wherein it was agreed that DAMERCO would "act as agent" of NARIC "in exporting the quantity and kind of corn and rice", "as well as in importing the collateral goods that will be imported thru barter on a back to back letter of credit or nodollar remittance basis"; that DAMERCO had agreed "to buy the aforementioned collateral goods", not the corn grains that were exported; that, therefore, it had no obligation to NARIC until after such collateral goods had been imported. It also alleged that it should not be made to pay NARIC, since the collateral goods worth more than US$480,000.00 had not been imported as a consequence of the suspension of barter transactions and non-renewal of barter permits by the new administration; and that the promissory notes sued upon by NARIC do not reflect the true intent and relationship of the parties and is wanting of consideration. The trial court rendered in favor of NARIC ordering DAMERCO and Fieldmens Insurance Co. Inc., to pay, jointly and severally. CA reversed the trial courts decision and rendered a new judgement dismissing the complaint as premature and for lack of cause of action. Hence this petition for certiorari.


G.R. No. L-32320 July 16, 1979 NATIONAL RICE & CORN CORPORATION (NOW RICE & CORN ADMINISTRATION), petitioner, vs. THE HONORABLE COURT OF APPEALS, DAVAO MERCHANDISING CORPORATION, FIELDMEN'S INSURANCE COMPANY INC., CESAR B. CEBALLOS, JESUS C. MARQUEZ and BARTOLOME CABANGBANG,respondents. FACTS: The National Rice and Corn Corporation (Naric) had on stock 8000 metric tons of corn which it could not dispose of due to its poor quality. Naric called for bids for the purchase of the corn and rice. But precisely because of the poor quality of the corn, a direct purchase of said corn even with the privilege of importing commodities did not attract good offers. Davao Merchandising Corporation (Damerco) came in with its offer to act as agent in the exportation of the corn, with the agent answering for the price thereof and shouldering all expenses incidental thereto, provided it can import commodities, paying the NARIC therefor from the price it offered for the corn. Damerco was to open a domestic letter of credit, which shall be available to the NARIC drawing therefrom through sight draft without recourse. The availability of said letter or letters of credit to the NARIC was dependent upon

ISSUE: Whether or not DAMERCO acted as agent of NARIC? HELD: YES. Clearly from the contract between NARIC and DAMERCO: bids were previously called for by the NARIC for the purchase of corn and rice to be exported as well as of the imported commodities that will be brought in, but said biddings did not succeed in attracting good offers. Subsequently, Damerco made an offer. Now, to be sure, the contract designates the Naric as the seller and the Damerco as the buyer. These designations, however, are merely nominal, since the contract thereafter sets forth the role of the buyer (Damerco) as agent of the seller in exporting the quantity and kind of corn and rice as well as in importing the collateral goods thru barter and to pay the aforementioned collateral goods. The contract between NARIC and DAMERCO is bilateral and gives rise to a reciprocal obligation. The said contract consists of two parts: (1) the exportation by the DAMERCO as agent for the NARIC of the rice and corn; and (2) the importation of collateral goods by barter on a back to back letter of credit or no-dollar remittance basis. It is evident that the DAMERCO would not have entered into the agreement were it not for the stipulation as to the importation of the collateral goods which it could purchase. It appears that we were also misled to believe that the Damerco was buying the corn. A closer look at the pertinent provisions of the contract, however, reveals that the price as stated in the contract was given tentatively for the purpose of fixing the price in barter. It should likewise be stressed that the aforesaid exportation and importation was on a no-dollar remittance basis. In other words, the agent, Damerco, was not to be paid by its foreign buyer in dollars but in commodities. Damerco could not get paid unless the commodities were imported, and Damerco was not exporting and importing on its own but as agent of the plaintiff, because it is the latter alone which could export and import on barter basis according to its charter. Thus, unless Damerco was made an agent of the plaintiff, the former could not export the corn and rice nor import at the same time the collateral goods. This was precisely the intention of the parties. He is not to be considered a buyer, who should be liable for the sum sought by NARIC because the contract itself clearly provides the Damerco was to export the rice and corn, AND TO

BUY THE collateral goods. There is nothing in the contract providing unconditionally that Damerco was buying the rice and corn. To be more specific, if the agreement was just a sale of corn to Damerco, the contract need not specify that Damerco was to buy the collateral goods.

BIENVENIDO R. MEDRANO and IBAAN RURAL BANK, petitioners, vs. COURT OF APPEALS, PACITA G. BORBON, JOSEFINA E. ANTONIO and ESTELA A. FLOR, respondents FACTS: - Bienvenido Medrano was the ViceChairman of Ibaan Rural Bank owned by Medrano family - 1986, Medrana asked his cousin-in law, Estela Flor, to look for a buyer of a foreclosed asset of the bank - Property was a 17 hectare mango plantation priced at 2,200,000.00 - Pacita Borbon was a licensed real estate broker; Estela Flor and Josefina Antonio are her associates; - Borbon informed Estela Flor that she has a ready buyer for a mango orchard - Borbon told Flor to confer with Medrano and to give them a written authority to negotiate the sale of the plantation - Medrano then issued a letter of authority for Borbon and Flor - Borbon and Flor were given a commission of 5% of the total price to be agreed upon - Dominador Lee, a businessman from Makati was the ready buyer of the plantation - Lee met Borbon when the former responded thru an ad in a newspaper put up by Borbon for an 8 hectare property in Batangas, planted with atis trees - Borbon and Flor arranged for an ocular inspection of the property together with Lee - However, the same never materialized; the first was due to inclement weather; the next time, no car was available for the tripping to Batangas - Lee called up Borbon that he would take a look at the property Borbon was offering since he was on his way to Batangas

Since Borbon cannot accompany him, Lee was instructed to get in touch with Medranos daughter, Teresa Ganzon 2 days after the visit, Lee was asked by respondent Josefina Antonio about the result of his ocular inspection Lee said that the mango trees looked sick so he would bring an agriculturist to the property 3 weeks after, Antonio called Lee again to make a follow-up of the latters visit to the mango plantation Lee said that he already purchased the property and made a down payment of 1 million; the balance will be paid upon the approval of the incorporation papers of the corporation he was organizing by the SEC (KGB Farms, Inc.) -However, Antonio had not received their commission yet -When the sale was consummated between the Ibaan Rural Bank and Lee, Borbon, Antonio and Flor asked for their 5% commissions -Medrano refused to pay and offered a measly sum of 5,000 each -Borbon, Antonio and Flor then filed an action against Medrano and Ibaan Rural Bank before the RTC of Makati -Arguments of Medrano and Ibaan Rural Bank: 1. They refused to give commission since the respondent did not perform any act to consummate the sale 2. the letter of authority signed by Medrano was not binding against the bank because Medrano had a personality separate from the bank Medrano died; no substitution of party was made

Ibaan Rural Bank filed its notice of appeal The heirs of Medrano also filed their notice of appeal

Court of Appeals: affirmed the findings of the RTC o It applied the principle of agency and ruled that Medrano constituted the respondents as his agents in the sale of the plantation ISSUES: 1. Whether the letter of authority is binding and enforceable against the Bank; 2. Whether the respondents are entitled to any commission for the sale of the property. HELD: 1. The letter of authority is valid and enforceable against the Bank 2. The respondents are the procuring cause of the sale; hence they should be rewarded their commission pursuant to the letter of authority Procuring cause: a cause originating a series of events which, without break in their continuity, result in accomplishment of prime objective of the employment of the broker- producing a purchaser ready, willing and able to buy real estate on the owners terms Rationale: 1. The letter of authority serves as a contract between the parties. o As such, Medrano cannot renege on the promise to pay the commission because he is not the registered owner of the property o Under the contract, the role of respondents is to procure a purchaser 2. A broker will be regarded as the procuring cause of a sale, so as to be entitled to commission, if his efforts are the foundation on which the negotiations resulting in a sale are begun o The record shows that the respondents, as brokers, were instrumental in the consummation of the sale o Evidence: a. it was Lee who personally called Borbon and asked for directions to the property

RTC : Ordered the petitioners to pay the 5% commission of respondents o the letter of authority was valid and binding; Medrano signed the letter of authority for and in behalf of the bank, and as owner of o the property with a promise to pay the respondents a 5% commission o the sale of the property could not have been possible without the intervention of the respondents

prove that it was only through the respondents that Lee learned about the property for sale; b. No other persons other than the respondents who inquired about the sale of the property to Lee; thus it can be inferred that the respondents were the only ones who knew that the property was for sale and were responsible in leading a buyer to it - The business of a real estate broker or agent is only to find a purchaser. - It is not a prerequisite to the right to compensation that the broker conduct the negotiations between the parties after they have been brought into contract with each other through his efforts BICOL SAVINGS AND LOAN ASSOCIATION, petitioner, vs. HON. COURT OF APPEALS, CORAZON DE JESUS, LYDIA DE JESUS, NELIA DE JESUS, JOSE DE JESUS, AND PABLO DE JESUS, respondents. FACTS: Juan de Jesus was the owner of a parcel of land, containing an area of 6,870 sq. ms., more or less, situated in Naga City. On 31 March 1976, he executed a Special Power of Attorney in favor of his son, Jose de Jesus, "To negotiate, mortgage my real property in any bank either private or public entity preferably in the Bicol Savings Bank, Naga City, in any amount that may be agreed upon between the bank and my attorneyin-fact." By virtue thereof, Jose de Jesus obtained a loan of twenty thousand pesos (P20,000.00) from petitioner bank on 13 April 1976. To secure payment, Jose de Jesus executed a deed of mortgage on the real property referred to in the Special Power of Attorney. By reason of his failure to pay the loan obligation even during his lifetime, petitioner bank caused the mortgage to be extrajudicially foreclosed on 16 November 1978. In the subsequent public auction, the mortgaged property was sold to the bank as the highest bidder to whom a Provisional Certificate of Sale was issued and a Definite Certificate of Sale was subsequently issued.

Private respondents herein filed a Complaint with the then Court of First Instance of Naga City for the annulment of the foreclosure sale or for the repurchase by them of the property. CFI ruled in favor of petitioner but was reversed by CA upon appeal. In so ruling, the Appellate Court applied Article 1879 of the Civil Code and stated that since the special power to mortgage granted to Jose de Jesus did not include the power to sell, it was error for the lower Court not to have declared the foreclosure proceedings and auction sale held in 1978 null and void because the Special Power of Attorney given by Juan de Jesus to Jose de Jesus was merely to mortgage his property, and not to extrajudicially foreclose the mortgage and sell the mortgaged property in the said extrajudicial foreclosure. ISSUE: Whether the agent-son exceeded the scope of his authority in agreeing to a stipulation in the mortgage deed that petitioner bank could extrajudicially foreclose the mortgaged property HELD: No. Art, 1879 is inapplicable. The sale proscribed by a special power to mortgage under Article 1879 is a voluntary and independent contract, and not an auction sale resulting from extrajudicial foreclosure, which is precipitated by the default of a mortgagor. Absent that default, no foreclosure results. The stipulation granting an authority to extrajudicially foreclose a mortgage is an ancillary stipulation supported by the same cause or consideration for the mortgage and forms an essential or inseparable part of that bilateral agreement. The power to foreclose is not an ordinary agency that contemplates exclusively the representation of the principal by the agent but is primarily an authority conferred upon the mortgagee for the latter's own protection. In fact, the right of the mortgagee bank to extrajudicially foreclose the mortgage after the death of the mortgagor Juan de Jesus, acting through his attorney-in-fact, Jose de Jesus, did not depend on the authorization in the deed of mortgage executed by the latter. That right existed independently of said stipulation and is clearly recognized in Section 7, Rule 86 of the Rules of Court, which grants to a mortgagee three remedies that can be alternatively pursued in case the mortgagor dies, to wit: (1) to waive

the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim; (2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and (3) to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription, without right to file a claim for any deficiency. Petitioner bank, therefore, in effecting the extrajudicial foreclosure of the mortgaged property, merely availed of a right conferred by law. The auction sale that followed in the wake of that foreclosure was but a consequence thereof.
G.R. No. 160346 August 25, 2009

Over the following months, the Pahuds made more payments to Eufemia and her siblings totaling toP350,000.00. They agreed to use the remaining P87,500.00 to defray the payment for taxes and the expenses in transferring the title of the property. When Eufemia and her co-heirs drafted an extra-judicial settlement of estate to facilitate the transfer of the title to the Pahuds, Virgilio refused to sign it. Virgilios co-heirs filed a complaint for judicial partition of the subject property before the RTC of Calamba, Laguna. In the course of the proceedings for judicial partition, a Compromise Agreement was signed with seven (7) of the co-heirs agreeing to sell their undivided shares to Virgilio forP700,000.00. The compromise agreement was, however, not approved by the trial court because Atty. Dimetrio Hilbero, lawyer for Eufemia and her six (6) co-heirs, refused to sign the agreement because he knew of the previous sale made to the Pahuds. Eufemia acknowledged having received P700,000.00 from Virgilio. Virgilio then sold the entire property to spouses Isagani Belarmino and Leticia Ocampo (Belarminos) sometime in 1994. The Belarminos immediately constructed a building on the subject property. Alarmed and bewildered by the ongoing construction on the lot they purchased, the Pahuds immediately confronted Eufemia who confirmed to them that Virgilio had sold the property to the Belarminos. Aggrieved, the Pahuds filed a complaint in intervention in the pending case for judicial partition. After trial, the RTC upheld the validity of the sale to petitioners. Not satisfied, respondents appealed the decision to the CA arguing, in the main, that the sale made by Eufemia for and on behalf of her other co-heirs to the Pahuds should have been declared void and inexistent for want of a written authority from her coheirs. The CA yielded and set aside the findings of the trial court. ISSUE: Whether the sale of the subject property by Eufemia and her co-heirs to the Pahuds is valid and enforceable HELD: Yes, with respect to 7/8 portions of the land subject property. Pertinent provisions: Article 1874, Article 1878, and Article 1431. Sale of Eufemia, Ferdinand, Raul, and Isabelitas share to the Pahuds - VALID The authority of an agent to execute a contract of sale of real estate must be conferred in writing and must give him specific authority, either to conduct the general business of the principal or to execute a binding

PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE CASTILLA (represented by Mother and Attorney-inFact VIRGINIA CASTILLA), Petitioners, vs. COURT OF APPEALS, SPOUSES ISAGANI BELARMINO and LETICIA OCAMPO, EUFEMIA SAN AGUSTINMAGSINO, ZENAIDA SAN AGUSTIN-McCRAE, MILAGROS SAN AGUSTIN-FORTMAN, MINERVA SAN AGUSTIN-ATKINSON, FERDINAND SAN AGUSTIN, RAUL SAN AGUSTIN, ISABELITA SAN AGUSTINLUSTENBERGER and VIRGILIO SAN AGUSTIN, Respondents. FACTS: During their lifetime, spouses Pedro San Agustin and Agatona Genil were able to acquire a 246square meter parcel of land situated in Barangay Anos, Los Baos, Laguna. Both died intestate, survived by their eight (8) children: respondents Eufemia, Raul, Ferdinand, Zenaida, Milagros, Minerva, Isabelita and Virgilio. Sometime in 1992, Eufemia, Ferdinand and Raul executed a Deed of Absolute Sale of Undivided Shares conveying in favor of petitioners (the Pahuds, for brevity) their respective shares from the lot they inherited from their deceased parents for P525,000.00. Eufemia also signed the deed on behalf of her four (4) other co-heirs, namely: Isabelita on the basis of a special power of attorney, and also for Milagros, Minerva, and Zenaida but without their apparent written authority. The deed of sale was also not notarized. On July 21, 1992, the Pahuds paid P35,792.31 to the Los Baos Rural Bank where the subject property was mortgaged. The bank issued a release of mortgage and turned over the owners copy of the OCT to the Pahuds.

contract containing terms and conditions which are in the contract he did execute. A special power of attorney is necessary to enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration. The express mandate required by law to enable an appointee of an agency (couched) in general terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. For the principal to confer the right upon an agent to sell real estate, a power of attorney must so express the powers of the agent in clear and unmistakable language. When there is any reasonable doubt that the language so used conveys such power, no such construction shall be given the document. In several cases, we have repeatedly held that the absence of a written authority to sell a piece of land is, ipso jure, void, precisely to protect the interest of an unsuspecting owner from being prejudiced by the unwarranted act of another. Based on the foregoing, it is not difficult to conclude, in principle, that the sale made by Eufemia, Isabelita and her two brothers to the Pahuds sometime in 1992 should be valid with respect to the 4/8 portion of the subject property. Sale of Milagros, Minerva, and Zenaidas share to the Pahuds - VALID While the sale with respect to the 3/8 portion (Milagros, Minerva, and Zenaida) is void by express provision of law and not susceptible to ratification, we nevertheless uphold its validity on the basis of the common law principle of estoppel. True, at the time of the sale to the Pahuds, Eufemia was not armed with the requisite special power of attorney to dispose of the 3/8 portion of the property. Initially, in their answer to the complaint in intervention, Eufemia and her other co-heirs denied having sold their shares to the Pahuds. During the pre-trial conference, however, they admitted that they had indeed sold 7/8 of the property to the Pahuds sometime in 1992. Thus, the previous denial was superseded, if not accordingly amended, by their subsequent admission. Moreover, in their Comment, the said co-heirs again admitted the sale made to petitioners. Interestingly, in no instance did the three (3) heirs concerned assail the validity of the transaction made by Eufemia to the Pahuds on the basis of want of written authority to sell. They could have easily filed a case for annulment of the sale of their respective shares against Eufemia and the Pahuds. Instead, they opted to remain silent and left the task of raising the validity of the sale

as an issue to their co-heir, Virgilio, who is not privy to the said transaction. They cannot be allowed to rely on Eufemia, their attorney-in-fact, to impugn the validity of the first transaction because to allow them to do so would be tantamount to giving premium to their sisters dishonest and fraudulent deed. Undeniably, therefore, the silence and passivity of the three co-heirs on the issue bar them from making a contrary claim. It is a basic rule in the law of agency that a principal is subject to liability for loss caused to another by the latters reliance upon a deceitful representation by an agent in the course of his employment (1) if the representation is authorized; (2) if it is within the implied authority of the agent to make for the principal; or (3) if it is apparently authorized, regardless of whether the agent was authorized by him or not to make the representation. By their continued silence, Zenaida, Milagros and Minerva have caused the Pahuds to believe that they have indeed clothed Eufemia with the authority to transact on their behalf. Clearly, the three co-heirs are now estopped from impugning the validity of the sale from assailing the authority of Eufemia to enter into such transaction. Sale to Virgilio VOID (with respect to the 7/8 portion) The subsequent sale made by the seven co-heirs to Virgilio was void because they no longer had any interest over the subject property which they could alienate at the time of the second transaction. Nemo dat quod non habet. Virgilio, however, could still alienate his 1/8 undivided share to the Belarminos. Belarminos IN BAD FAITH The Belarminos, for their part, cannot argue that they purchased the property from Virgilio in good faith. As a general rule, a purchaser of a real property is not required to make any further inquiry beyond what the certificate of title indicates on its face. But the rule excludes those who purchase with knowledge of the defect in the title of the vendor or of facts sufficient to induce a reasonable and prudent person to inquire into the status of the property. Such purchaser cannot close his eyes to facts which should put a reasonable man on guard, and later claim that he acted in good faith on the belief that there was no defect in the title of the vendor. His mere refusal to believe that such defect exists, or his obvious neglect by closing his eyes to the possibility of the existence of a defect in the vendors title, will not make him an innocent purchaser for value, if afterwards it turns out that the title was, in fact, defective. In such a case, he is deemed to have bought the property at his

own risk, and any injury or prejudice occasioned by such transaction must be borne by him. In the case at bar, the Belarminos were fully aware that the property was registered not in the name of the immediate transferor, Virgilio, but remained in the name of Pedro San Agustin and Agatona Genil. This fact alone is sufficient impetus to make further inquiry and, thus, negate their claim that they are purchasers for value in good faith. They knew that the property was still subject of partition proceedings before the trial court, and that the compromise agreement signed by the heirs was not approved by the RTC following the opposition of the counsel for Eufemia and her six other co-heirs. The Belarminos, being transferees pendente lite, are deemed buyers in mala fide, and they stand exactly in the shoes of the transferor and are bound by any judgment or decree which may be rendered for or against the transferor. Furthermore, had they verified the status of the property by asking the neighboring residents, they would have been able to talk to the Pahuds who occupy an adjoining business establishment and would have known that a portion of the property had already been sold. All these existing and readily verifiable facts are sufficient to suggest that the Belarminos knew that they were buying the property at their own risk.