Pahud vs. Court of Appeals

A sale of land executed by an agent without the written authority required by Article 1874 of the Civil Code is void and cannot be ratified, but the principals who remained silent and never challenged the transaction are estopped from later impugning its validity. Furthermore, a purchaser who buys property still registered in the name of persons other than the vendor, and who knows the property is subject to pending partition proceedings, is a buyer in bad faith and a transferee pendente lite.

Spouses Pedro San Agustin and Agatona Genil owned a 246-square-meter parcel of land in Barangay Anos, Los Baños, Laguna, covered by Original Certificate of Title No. O-(1655) 0-15. Both died intestate—Agatona on September 13, 1990 and Pedro on September 14, 1991—survived by eight children: Eufemia, Raul, Ferdinand, Zenaida, Milagros, Minerva, Isabelita, and Virgilio, all surnamed San Agustin. The property remained undivided and registered in the names of the deceased parents, and the heirs had not yet executed an extrajudicial settlement of estate when the disputed transactions occurred.

Spouses Pedro San Agustin and Agatona Genil acquired a 246-square-meter parcel of land in Barangay Anos, Los Baños, Laguna, covered by Original Certificate of Title No. O-(1655) 0-15. Both died intestate—Agatona on September 13, 1990 and Pedro on September 14, 1991—survived by eight children: Eufemia, Raul, Ferdinand, Zenaida, Milagros, Minerva, Isabelita, and Virgilio. The property remained registered in the names of the deceased parents and had not been partitioned among the heirs.

Sometime in 1992, Eufemia, Ferdinand, and Raul executed a Deed of Absolute Sale of Undivided Shares conveying their respective inherited shares to the Pahuds for ₱525,000.00. Eufemia also signed the deed on behalf of four other co-heirs: Isabelita, on the basis of a special power of attorney executed on September 28, 1991, and Milagros, Minerva, and Zenaida, without any apparent written authority. The deed of sale was not notarized. On July 21, 1992, the Pahuds paid ₱35,792.31 to the Los Baños Rural Bank, where the property was mortgaged, and the bank released the mortgage and turned over the owner's copy of the OCT to the Pahuds. Over the following months, the Pahuds made additional payments to Eufemia and her siblings totaling ₱350,000.00, with the remaining ₱87,500.00 agreed to defray taxes and title transfer expenses.

When Eufemia and her co-heirs drafted an extrajudicial settlement of estate to facilitate the transfer of title to the Pahuds, Virgilio refused to sign it. On July 8, 1993, Virgilio's co-heirs filed a complaint for judicial partition before the RTC of Calamba, Laguna, docketed as Civil Case No. 2011-93-C. During the partition proceedings, on November 28, 1994, a Compromise Agreement was signed whereby seven co-heirs agreed to sell their undivided shares to Virgilio for ₱700,000.00. The trial court did not approve the compromise agreement because Atty. Dimetrio Hilbero, counsel for Eufemia and her six co-heirs, refused to sign it, knowing of the prior sale to the Pahuds. On December 1, 1994, Eufemia acknowledged receiving ₱700,000.00 from Virgilio.

Virgilio then sold the entire property to spouses Isagani Belarmino and Leticia Ocampo sometime in 1994, and the Belarminos immediately constructed a building on the property. Upon discovering the ongoing construction, the Pahuds confronted Eufemia, who confirmed that Virgilio had sold the property to the Belarminos. The Pahuds then filed a complaint in intervention in the pending partition case. The RTC upheld the validity of the sale to the Pahuds, declared the sale to Virgilio and the Belarminos inexistent, and declared Virgilio and the Belarminos in bad faith. The CA reversed, declaring the sale to the Pahuds void for want of written authority and declaring the Belarminos buyers in good faith. The Pahuds elevated the case to the Supreme Court via petition for review on certiorari.

• Ratification by Subsequent SPA: Petitioners argued that the CA erred in not applying the second paragraph of Article 1317 of the Civil Code, contending that the subsequent execution of special powers of attorney by Zenaida, Milagros, and Minerva authorizing Eufemia to represent them in the sale of their shares effectively ratified the earlier sale of the 3/8 portion.
• Good Faith of the Belarminos: Petitioners argued that the CA erred in holding the Belarminos to be buyers in good faith, given that the trial court had already found them to be in bad faith—a factual finding that appellate courts should generally uphold.
• Priority of Rights Under Article 1544: Petitioners argued that the CA misapplied Article 1544 of the Civil Code, since the Pahuds were prior in possession and thus had superior rights over the Belarminos.

• Void Sale for Want of Written Authority: Respondents argued that the sale made by Eufemia for and on behalf of her co-heirs to the Pahuds should be declared void and inexistent for want of a written authority from the co-heirs, as required by Articles 1874 and 1878 of the Civil Code.
• Good Faith of the Belarminos: Respondents maintained that the Belarminos were buyers in good faith and for value, and were the owners of the subject property by virtue of their purchase from Virgilio.

• Validity of Sale Without Written Authority: Whether the sale of the 3/8 portion of the subject property, executed by Eufemia without written authority from co-heirs Zenaida, Milagros, and Minerva, is valid and enforceable.
• Ratification of Void Sale: Whether the subsequent execution of special powers of attorney by the three co-heirs ratified the earlier void sale.
• Estoppel: Whether the three co-heirs who did not provide written authority are estopped from impugning the validity of the sale due to their silence and passivity.
• Good Faith of the Belarminos: Whether the Belarminos were buyers in good faith when they purchased the property from Virgilio, given that the property remained registered in the names of the deceased parents and was subject to pending partition proceedings.
• Validity of the Sale to Virgilio and the Belarminos: Whether the subsequent sale by the seven co-heirs to Virgilio, and Virgilio's sale to the Belarminos, were valid.

• Validity of Sale Without Written Authority: Yes, but only on the ground of estoppel. The sale of the 3/8 portion was void under Article 1874 for lack of written authority, yet its validity was upheld because the three co-heirs were estopped from impugning it.
• Ratification of Void Sale: No. A void contract is not susceptible to ratification under Article 1409(7) of the Civil Code; the subsequent special powers of attorney could not ratify the earlier void sale.
• Estoppel: Yes. By their continued silence and failure to challenge the transaction, the three co-heirs caused the Pahuds to believe Eufemia had authority to transact on their behalf, and are estopped under Article 1431 from later denying that authority.
• Good Faith of the Belarminos: No. The Belarminos were buyers in bad faith because the property was still registered in the names of the deceased parents, not in Virgilio's name, and they knew the property was subject to pending partition proceedings—facts sufficient to induce inquiry.
• Validity of the Sale to Virgilio and the Belarminos: The sale by the seven co-heirs to Virgilio was void as to the 7/8 portion because they no longer had any interest to alienate (nemo dat quod non habet), but valid as to Virgilio's own 1/8 share. Virgilio's sale to the Belarminos was valid only as to the 1/8 portion.

• Validity of Sale Without Written Authority: Articles 1874 and 1878 of the Civil Code require that when a sale of land is made through an agent, the agent's authority must be in writing; otherwise, the sale is void. A special power of attorney is necessary to enter into any contract transmitting or acquiring ownership of an immovable. The sale of the 4/8 portion—comprising the shares of Eufemia, Ferdinand, Raul, and Isabelita (the last covered by a written SPA)—was valid. The sale of the 3/8 portion representing the shares of Zenaida, Milagros, and Minerva was void because Eufemia had no written authority from them at the time of the sale. This was consistent with the CA's own ruling on this point.

• Ratification of Void Sale: The Pahuds argued that the subsequent execution of special powers of attorney by the three co-heirs ratified the earlier sale. This argument was rejected. Under Article 1409(7) of the Civil Code, contracts expressly prohibited or declared void by law are inexistent and void from the beginning and cannot be ratified. Since the sale of the 3/8 portion was void by express provision of Article 1874, it was not susceptible to ratification by the subsequent SPAs. The subsequent SPAs merely indicated that the three co-heirs recognized the salability of their shares going forward.

• Estoppel: Although the sale of the 3/8 portion was void and not susceptible to ratification, its validity was upheld on the basis of estoppel under Article 1431 of the Civil Code. Initially, Eufemia and her co-heirs denied having sold their shares to the Pahuds in their answer to the complaint in intervention, but during the pre-trial conference they admitted having sold 7/8 of the property to the Pahuds in 1992. They again admitted the sale in their Comment before the Supreme Court. At no instance did Zenaida, Milagros, or Minerva assail the validity of the transaction on the basis of want of written authority. They could have filed an action for annulment of the sale of their shares but instead remained silent, leaving it to their co-heir Virgilio—who was not privy to the transaction—to raise the issue. Allowing them to rely on Eufemia to impugn the validity of the first transaction would reward her dishonest and fraudulent conduct. By their continued silence, the three co-heirs caused the Pahuds to believe Eufemia had authority to transact on their behalf. Under the law of agency, a principal is subject to liability for loss caused by another's reliance upon a deceitful representation by an agent in the course of employment if the representation is authorized, within the agent's implied authority, or apparently authorized. The three co-heirs were thus estopped from impugning the validity of the sale and from assailing Eufemia's authority.

• Good Faith of the Belarminos: As a general rule, a purchaser of real property is not required to inquire beyond what the certificate of title indicates on its face. However, this rule does not apply to purchasers with knowledge of a defect in the vendor's title or of facts sufficient to induce a reasonable person to inquire. The Belarminos knew that the property was registered not in Virgilio's name but in the names of the deceased Pedro San Agustin and Agatona Genil. This fact alone was sufficient to prompt further inquiry and negate their claim of good faith. They also knew the property was subject to partition proceedings and that the compromise agreement among the heirs had not been approved by the RTC due to the opposition of counsel for Eufemia and her co-heirs. As transferees pendente lite, the Belarminos were deemed buyers in mala fide, standing in the shoes of their transferor and bound by any judgment rendered against him. Had they inquired with neighboring residents, they would have learned from the Pahuds—who occupied an adjoining business establishment—that a portion of the property had already been sold.

• Validity of the Sale to Virgilio and the Belarminos: Because the sale to the Pahuds was upheld as valid with respect to the 7/8 portion, the seven co-heirs no longer had any interest over the subject property that they could alienate at the time of the second transaction with Virgilio. Under Article 1409(3), contracts whose cause or object did not exist at the time of the transaction are inexistent and void from the beginning. The principle of nemo dat quod non habet applied: one cannot give what one does not have. The sale to Virgilio was therefore void as to the 7/8 portion. However, Virgilio could still alienate his own 1/8 undivided share to the Belarminos, and that sale was valid only as to that portion.

• Written Authority to Sell Land (Articles 1874 and 1878, Civil Code) — When a sale of a piece of land or any interest therein is made through an agent, the authority of the agent must be in writing; otherwise, the sale is void. A special power of attorney is necessary to enter into any contract by which ownership of an immovable is transmitted or acquired, either gratuitously or for valuable consideration. The authority must expressly mention a sale or include a sale as a necessary ingredient of the act mentioned, and must be expressed in clear and unmistakable language. Any reasonable doubt that the language conveys such power precludes such construction. The absence of written authority renders the sale void ipso jure, to protect the interest of an unsuspecting owner from being prejudiced by the unwarranted act of another. In this case, the sale of the 3/8 portion was void for lack of written authority from Zenaida, Milagros, and Minerva.

• Inexistence and Non-Ratifiability of Void Contracts (Article 1409, Civil Code) — Contracts expressly prohibited or declared void by law are inexistent and void from the beginning and cannot be ratified. Neither can the right to set up the defense of illegality be waived. The sale of the 3/8 portion, being void under Article 1874, fell under Article 1409(7) and could not be ratified by the subsequent execution of special powers of attorney.

• Estoppel (Article 1431, Civil Code) — Through estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon. The three co-heirs who did not provide written authority were estopped from impugning the sale because they remained silent, admitted the sale during pre-trial and in their Comment, and never challenged the transaction on the basis of want of authority. Their silence caused the Pahuds to believe Eufemia had authority to transact on their behalf.

• Nemo Dat Quod Non Habet — One cannot transfer what one does not have. Because the seven co-heirs had already validly sold their 7/8 shares to the Pahuds, they no longer had any interest to alienate when they purported to sell the same shares to Virgilio. The second sale was therefore void as to the 7/8 portion.

• Buyer in Good Faith vs. Buyer in Bad Faith — A purchaser is not required to inquire beyond the certificate of title on its face, but this rule excludes those who purchase with knowledge of a defect in the vendor's title or of facts sufficient to induce a reasonable person to inquire. A purchaser cannot close his eyes to facts that should put a reasonable person on guard and later claim good faith. A transferee pendente lite is deemed a buyer in mala fide and stands in the shoes of the transferor, bound by any judgment rendered for or against the transferor. The Belarminos were held to be buyers in bad faith because the property was still registered in the names of the deceased parents, not in Virgilio's name, and they knew of the pending partition proceedings.

• "While the sale with respect to the 3/8 portion 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." — This passage articulates the majority's novel application of estoppel to uphold a sale that is otherwise void under positive law, marking the central ratio decidendi of the case.

• "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." — This passage defines the factual basis for the estoppel ruling: the silence and passivity of the principals operated as an apparent authorization that the buyers reasonably relied upon.

• "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." — This passage establishes the Belarminos' status as transferees pendente lite and explains why their purchase from Virgilio could not prevail over the prior sale to the Pahuds.

• "Nemo dat quod non habet." — The Latin maxim is invoked to explain why the seven co-heirs' subsequent sale to Virgilio was void as to the 7/8 portion: having already conveyed their shares to the Pahuds, they had nothing left to transfer.

• Cosmic Lumber Corporation vs. Court of Appeals, 332 Phil. 948 (1996) — Cited as controlling authority for the requirement that an agent's authority to sell real estate must be conferred in writing and must give specific authority, either to conduct the general business of the principal or to execute a binding contract. The Court relied on this case to establish that the absence of written authority renders the sale void.

• Estate of Lino Olaguer vs. Hon. CA and Emiliano M. Ongjoco, G.R. No. 173312, August 26, 2008 — Cited among a line of cases holding that the absence of a written authority to sell a piece of land renders the sale void ipso jure.

• Dizon vs. Court of Appeals, G.R. Nos. 122544 and 124741, January 28, 2003 — Followed for the proposition that a sale of land through an agent without written authority is void.

• Voluntad vs. Dizon, G.R. No. 132294, August 26, 1999, 313 SCRA 209 — Cited for the doctrine that a transferee pendente lite is deemed a buyer in mala fide and stands in the shoes of the transferor, bound by any judgment rendered for or against the transferor.

• Guaranteed Homes, Inc. vs. Heirs of Maria P. Valdez, G.R. No. 171531, January 30, 2009 — Cited for the principle that a purchaser aware that property is registered in the name of someone other than the vendor is put on inquiry notice and cannot claim good faith.

• Article 1874, Civil Code — Provides that when a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. Applied to hold that the sale of the 3/8 portion was void for lack of written authority from Zenaida, Milagros, and Minerva.

• Article 1878(5), Civil Code — Provides that 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. Applied to reinforce the requirement of written authority for the sale of inherited land through an agent.

• Article 1409(7) and (3), Civil Code — Provides that contracts expressly prohibited or declared void by law, and those whose cause or object did not exist at the time of the transaction, are inexistent and void from the beginning and cannot be ratified. Applied to establish that the void sale of the 3/8 portion could not be ratified by subsequent SPAs, and that the seven co-heirs' sale to Virgilio was void as to the 7/8 portion because they no longer had any interest to convey.

• Article 1431, Civil Code — Provides that through estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon. Applied to uphold the validity of the sale of the 3/8 portion despite the absence of written authority, because the three co-heirs were estopped by their silence and passivity.

• Article 1544, Civil Code — Governs double sales of immovable property. Petitioners invoked it to argue priority of rights based on prior possession, though the Court resolved the dispute primarily on the grounds of estoppel and bad faith rather than a strict application of Article 1544.

• Rule 10, Section 5, Rules of Court — Provides that when issues not raised by the pleadings are tried with the express or implied consent of the parties, they shall be treated as if raised in the pleadings. Applied to support the conclusion that the co-heirs' pre-trial admission of the sale to the Pahuds superseded their earlier denial.

• Justice Conchita Carpio Morales — Concurred in part and dissented in part (see Notable Dissenting Opinions below).
• Justice Minita V. Chico-Nazario
• Justice Presbitero J. Velasco, Jr.
• Justice Diosdado M. Peralta

• Justice Conchita Carpio Morales — Justice Carpio Morales dissented from the majority's application of estoppel to uphold the sale of the 3/8 portion. She argued that equity cannot supplant or contravene positive law, and that Article 1432 of the Civil Code expressly provides that the principles of estoppel are adopted only insofar as they are not in conflict with the provisions of the Code. Since the sale of the 3/8 portion was void under Article 1874, estoppel could not give validity to an act prohibited by law. She further contended that Article 1431 requires a prior admission or representation upon which the other party relied before acting, whereas the admissions and silence cited by the majority occurred after the sale and could not retroact to the time of the transaction. She also argued that the three co-heirs' "admission" during pre-trial was an admission of the fact that a sale took place, not an admission that the sale was valid—a conclusion of law that was the very issue in dispute. Finally, she noted that an action for declaration of inexistence of a contract does not prescribe under Article 1410, and that the three co-heirs' silence amid their sibling's double-dealing could not be taken against them. Justice Carpio Morales voted to reinstate the RTC decision with the modification that the sale from Virgilio to the Belarminos was valid as to the 4/8 portion (Virgilio's 1/8 share plus the 3/8 shares of Zenaida, Milagros, and Minerva), leaving only one-half of the property to the Pahuds.