Salvador vs. Rabaja

A principal is bound by the acts of an agent performed within the scope of the agent's written authority as it appears in the power of attorney, and third persons who deal with the agent in good faith are protected regardless of any private or secret limitations on that authority; internal disputes between principal and agent do not affect the rights of innocent third parties.

Spouses Salvador owned a parcel of land at No. 25, Merryland Village, 375 Jose Rizal Street, Mandaluyong City, covered by TCT No. 13426. Spouses Rabaja had been leasing an apartment on the subject lot from 1994 until 2002. Gonzales served as the property administrator, holding a Special Power of Attorney executed by Rolando Salvador authorizing her to administer the property, negotiate its sale, and collect documents and payments related to it. Herminia Salvador personally introduced Gonzales to Spouses Rabaja as the administrator of the subject property and handed to Gonzales the owner's duplicate certificate of title.

Sometime in July 1998, Spouses Rabaja learned that Spouses Salvador were looking for a buyer of the subject property. Herminia Salvador personally introduced Gonzales to them as the administrator of the said property, and Spouses Salvador handed to Gonzales the owner's duplicate certificate of title over the subject property. On July 3, 1998, Spouses Rabaja made an initial payment of ₱48,000 to Gonzales in the presence of Herminia. Gonzales then presented a Special Power of Attorney executed by Rolando Salvador and dated July 24, 1998. On the same day, the parties executed a Contract to Sell stipulating that for a consideration of ₱5,000,000, Spouses Salvador sold, transferred, and conveyed the subject property in favor of Spouses Rabaja. Spouses Rabaja made several payments totalling ₱950,000, which were received by Gonzales pursuant to the SPA, as evidenced by check vouchers signed by Gonzales and improvised receipts signed by Herminia.

Sometime in June 1999, Spouses Salvador complained to Spouses Rabaja that they did not receive any payment from Gonzales. This prompted Spouses Rabaja to suspend further payment of the purchase price, and as a consequence, they received a notice to vacate the subject property from Spouses Salvador for non-payment of rentals. Thereafter, Spouses Salvador instituted an action for ejectment against Spouses Rabaja before the MeTC, which ruled in favor of Spouses Salvador on August 14, 2002. Spouses Salvador were able to garnish ₱593,400 from Spouses Rabaja's time deposit account pursuant to a writ of execution. Spouses Rabaja appealed to RTC-Br. 212, which reversed the MeTC ruling on March 1, 2005, finding that no lease agreement existed. Spouses Salvador then appealed to the CA, which reinstated the MeTC ruling on March 31, 2006; that decision became final and executory on May 12, 2006.

In turn, Spouses Rabaja filed an action for rescission of contract against Spouses Salvador and Gonzales, docketed as Civil Case No. MC-03-2175 and raffled to RTC-Br. 212 (and later re-raffled to RTC-Br. 214 after the Presiding Judge of RTC-Br. 212 inhibited herself). In their complaint dated July 7, 2003, Spouses Rabaja demanded rescission of the contract to sell and prayed that the ₱950,000 they had previously paid be returned, together with damages for the contractual breach. Spouses Salvador filed their answer with counterclaim and cross-claim, contending that there was no meeting of the minds, that the SPA in favor of Gonzales was falsified, and that they did not receive any payment from Spouses Rabaja through Gonzales. They filed a case for falsification against Gonzales, but it was dismissed because the original of the alleged falsified SPA could not be produced. Gonzales, for her part, maintained that the SPA was not falsified and that the ₱950,000 in payments were all handed over to Spouses Salvador.

The pre-trial conference was formally reset to February 4, 2005, but Spouses Salvador and their counsel failed to attend, citing counsel's failure to update his calendar. The RTC issued a pre-trial order declaring Spouses Salvador in default and allowing Spouses Rabaja to present their evidence ex parte, while Gonzales, who attended, was allowed to present evidence in her favor. Spouses Salvador's motion for reconsideration was denied by RTC-Br. 214 on October 24, 2005, the court finding their excuse flimsy. Trial then proceeded with Spouses Rabaja and Gonzales presenting their respective testimonial and documentary evidence. The RTC found the signatures of Spouses Salvador on the contract to sell authentic, characterized the contract as a contract of sale rather than a contract to sell because title was not reserved, and held that Gonzales was undoubtedly the attorney-in-fact of Spouses Salvador.

• Pre-Trial Default: Petitioners contended that the order of default should be lifted because reasonable grounds existed to justify their failure to attend the pre-trial conference on February 4, 2005, specifically that their counsel forgot to update his calendar.
• Validity of SPA and Receipts: Petitioners argued that the improvised receipts should not be given credence because these were crude and suspicious, measuring only 2 x 2 inches, showing that Gonzales misappropriated the payments for herself and did not remit the ₱950,000 to them. They claimed the SPA was falsified and that no valid contract to sell existed for lack of consideration.
• Finality of Ejectment Judgment: Petitioners maintained that the ejectment case, from which the amount of ₱593,400 was garnished, had already become final and executory and could no longer be disturbed.
• Damages and Attorney's Fees: Petitioners argued that the award of damages to Spouses Rabaja was improper absent any factual and legal bases, and that the award of ₱100,000 as attorney's fees to Gonzales was unwarranted given that Gonzales committed forgery and falsification and misappropriated the payments.

• Mere Rehash: Spouses Rabaja asserted that the petition was a mere rehash of the arguments previously raised before the CA.
• RTC-Br. 213 Decision Not Final: Gonzales contended that the RTC-Br. 213 decision in Civil Case No. MC00-1082 (an action for rescission of the SPA) had no bearing because it had not yet attained finality.

• Pre-Trial Non-Appearance: Whether the trial court properly allowed Spouses Rabaja to present evidence ex parte as a consequence of Spouses Salvador's failure to attend the pre-trial conference.
• Validity of Agency and Contract: Whether Gonzales acted within the scope of her authority under a valid SPA such that the contract to sell was validly executed and the payments to her bound Spouses Salvador.
• Return of Garnished Amount: Whether the amount of ₱593,400 garnished from Spouses Rabaja's deposit pursuant to the ejectment judgment should be returned by Spouses Salvador.
• Award of Damages and Attorney's Fees: Whether the awards of moral damages, exemplary damages, and attorney's fees in favor of Spouses Rabaja and Gonzales were proper.

• Pre-Trial Non-Appearance: Yes. The trial court properly allowed Spouses Rabaja to present evidence ex parte; under the 1997 Rules of Civil Procedure, failure to attend pre-trial does not result in default but authorizes ex parte presentation of evidence by the plaintiff.
• Validity of Agency and Contract: Yes. Gonzales acted within the scope of her written authority under the SPA, and Herminia personally introduced Gonzales as administrator; the contract was a valid contract of sale and was properly rescinded, with Spouses Salvador bound to refund ₱950,000.
• Return of Garnished Amount: No. The garnishment was pursuant to a final and executory ejectment judgment that could no longer be disturbed; the order to return the ₱593,400 was deleted.
• Award of Damages and Attorney's Fees: No. The awards of moral damages, exemplary damages, and attorney's fees were deleted for lack of factual and legal basis.

• Pre-Trial Non-Appearance: Under Sections 4 and 5 of Rule 18 of the Rules of Court, the non-appearance of a defendant at pre-trial is cause to allow the plaintiff to present evidence ex parte, and the court to render judgment on the basis thereof. The 1997 Rules deleted the phrase "as in default" from the old provision, making clear that default pertains solely to failure to file an answer, not failure to appear at pre-trial; however, the effects of default—ex parte presentation by the plaintiff—were retained. Spouses Salvador's excuse that counsel forgot to update his calendar smacked of carelessness and indifference to the pre-trial stage and could not be considered justifiable. The stringent application of pre-trial rules is necessitated by the significant role of pre-trial in the speedy disposition of cases. Accordingly, the RTC properly allowed Spouses Rabaja to present evidence ex parte.

• Validity of Agency and Contract: Articles 1900, 1902, and 1910 of the New Civil Code provide that, so far as third persons are concerned, an act is deemed performed within the scope of the agent's authority if it is within the terms of the power of attorney as written, even if the agent exceeded internal limits agreed upon with the principal. Private or secret instructions do not prejudice third persons who relied on the power of attorney. Spouses Rabaja did not recklessly enter into the contract; they required presentation of the SPA before transacting. The SPA precisely authorized Gonzales to administer the property, negotiate the sale, and collect all payments related to the subject property. Most significantly, Herminia herself personally introduced Gonzales to Spouses Rabaja as the property administrator. By their own ostensible acts, Spouses Salvador made third persons believe Gonzales was duly authorized. It was too late for Spouses Salvador to retract that representation. Whether the payments were actually remitted to Spouses Salvador was immaterial insofar as Spouses Rabaja were concerned; any internal dispute between principal and agent should not affect third persons. Gonzales, however, was not solidarily liable because it was not shown that she exceeded her authority or expressly bound herself to be liable. The contract, though denominated "contract to sell," was actually a contract of sale because Spouses Salvador did not reserve title until full payment; as a reciprocal obligation, it was validly rescinded.

• Return of Garnished Amount: The garnishment of ₱593,400 was pursuant to the CA decision in CA-G.R. SP No. 89259, an entirely different ejectment case, and not part of the rescission case on appeal. That ejectment judgment had long been final and executory, with an entry of judgment already made. The doctrine of immutability of final judgments bars any modification, even if meant to correct perceived errors of fact or law. The RTC's order to return the garnished amount was improper because Spouses Rabaja never sought such relief in their complaint; a court's grant of relief is limited to what has been prayed for or is related to the cause of action. Spouses Rabaja's recourse, if any, was to invoke legal compensation or set-off under Articles 1278, 1279, and 1290 of the Civil Code in a separate proceeding, since all requisites for automatic compensation appeared present.

• Award of Damages and Attorney's Fees: Article 2220 of the New Civil Code requires that, to award moral damages for breach of contract, the defendant must act fraudulently or in bad faith. Spouses Rabaja failed to sufficiently show that Spouses Salvador acted fraudulently or in bad faith. Without moral damages, exemplary damages under Article 2229 could not be awarded, as the claimant must first establish the right to moral, temperate, liquidated, or compensatory damages. As to attorney's fees, the settled rule is that no premium should be placed on the right to litigate and not every winning party is automatically entitled to attorney's fees. Gonzales, as agent, should have expected to be called to litigation in connection with her fiduciary duties, so the award in her favor was likewise unwarranted.

• Scope of Agent's Authority as to Third Persons — Under Articles 1900 and 1902 of the New Civil Code, so far as third persons are concerned, an act is deemed performed within the scope of the agent's authority if it is within the terms of the power of attorney as written, even if the agent in fact exceeded internal limits agreed upon with the principal. Private or secret orders and instructions of the principal do not prejudice third persons who relied on the power of attorney. The Court applied this doctrine to hold that Spouses Rabaja properly dealt with Gonzales, who presented a valid SPA, and that Spouses Salvador were bound by Gonzales's receipt of payments regardless of whether the amounts were actually remitted to them.

• Ostensible Agency — A principal who, by personal acts or representations, causes third persons to believe that an agent is duly authorized cannot later retract that representation to escape liability. Herminia Salvador personally introduced Gonzales as the property administrator and handed her the owner's duplicate title; it was too late for Spouses Salvador to deny the agency.

• Immutability of Final Judgments — When a final judgment becomes executory, it is immutable and unalterable and may no longer be modified in any respect, even to correct perceived errors of fact or law, whether by the rendering court or the highest court. The Court applied this doctrine to delete the order requiring return of the ₱593,400 garnished pursuant to the final and executory ejectment judgment.

• Pre-Trial Non-Appearance vs. Default — Under the 1997 Rules of Civil Procedure, failure to attend pre-trial does not result in a declaration of default; default arises solely from failure to file an answer within the reglementary period. However, the effects of default—ex parte presentation of plaintiff's evidence and rendition of judgment thereon—follow from a defendant's non-appearance at pre-trial.

• Damages in Breach of Contract — Under Article 2220, moral damages may be awarded in breach of contract only if the defendant acted fraudulently or in bad faith. Exemplary damages under Article 2229 require that the claimant first establish entitlement to moral, temperate, liquidated, or compensatory damages. Attorney's fees are not automatically granted to every winning party; no premium should be placed on the right to litigate.

• Contract of Sale vs. Contract to Sell — A contract denominated as a "contract to sell" is actually a contract of sale if the vendors did not reserve title to the property until full payment of the purchase price. As a reciprocal obligation, a contract of sale may be validly rescinded.

• "It is of no moment, insofar as Spouses Rabaja are concerned, whether or not the payments were actually remitted to Spouses Salvador. Any internal matter, arrangement, grievance or strife between the principal and the agent is theirs alone and should not affect third persons." — This passage articulates the ratio decidendi on agency: the principal's internal dispute with the agent cannot prejudice innocent third parties who dealt with the agent in good faith within the scope of written authority.

• "Nothing is more settled in law than that when a final judgment is executory, it thereby becomes immutable and unalterable. The judgment may no longer be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is attempted to be made by the court which rendered it or by the highest Court of the land." — This is the canonical formulation of the immutability doctrine applied to delete the order returning the garnished amount.

• "By their own ostensible acts, Spouses Salvador made third persons believe that Gonzales was duly authorized to administer, negotiate and sell the subject property." — This defines the ostensible agency principle as applied to the facts: the principal's own representations to third parties created the appearance of authority that cannot later be retracted.

• Philippine American Life & General Insurance Company vs. Enario, 645 Phil. 166 (2010) — Followed. Discussed the distinction between non-appearance at pre-trial and declaration of default under the 1997 Rules of Civil Procedure, explaining that the phrase "as in default" was deleted but the effects of default were retained.
• Tolentino vs. Laurel, G.R. No. 181368, Feb. 22, 2012, 666 SCRA 561 — Followed. Cited for the proposition that failure to appear at pre-trial has adverse consequences, allowing ex parte presentation of plaintiff's evidence.
• Mauleon vs. Porter, G.R. No. 203288, July 18, 2014 — Followed. Cited for the doctrine of immutability of final and executory judgments.
• Diona vs. Balangue, G.R. No. 173559, Jan. 7, 2013, 688 SCRA 22 — Followed. Cited for the rule that a court's grant of relief is limited to what has been prayed for in the complaint or related thereto, supported by evidence, and covered by the party's cause of action.
• First Lepanto-Taisho Insurance Corporation vs. Chevron Philippines, Inc., G.R. No. 177839, Jan. 18, 2012, 663 SCRA 309 — Followed. Cited for the rule that no premium should be placed on the right to litigate and that not every winning party is entitled to attorney's fees.

• Article 1900, New Civil Code — Provides that, so far as third persons are concerned, an act is deemed performed within the scope of the agent's authority if it is within the terms of the power of attorney as written, even if the agent exceeded internal limits. Applied to hold that Gonzales's receipt of payments was within the scope of her written SPA.
• Article 1902, New Civil Code — Provides that a third person may require presentation of the power of attorney and that private or secret instructions do not prejudice third persons. Applied to protect Spouses Rabaja, who required and relied on the SPA.
• Article 1910, New Civil Code — Provides that the principal must comply with all obligations the agent contracted within the scope of authority. Applied to bind Spouses Salvador to the contract executed by Gonzales.
• Article 2220, New Civil Code — Provides that moral damages may be awarded in breach of contract if the defendant acted fraudulently or in bad faith. Applied to delete the moral damages award for failure to prove fraud or bad faith.
• Article 2229, New Civil Code — Provides that exemplary damages may be imposed by way of example or correction, in addition to moral, temperate, liquidated, or compensatory damages. Applied to delete exemplary damages because no moral or compensatory damages were established.
• Articles 1278, 1279, and 1290, New Civil Code — Govern legal compensation or set-off, which takes effect by operation of law when all requisites are present. The Court suggested these provisions could be invoked by either party in a separate proceeding regarding the garnished amount.
• Sections 4 and 5, Rule 18, Rules of Court — Govern appearance of parties and effect of failure to appear at pre-trial. Applied to uphold the ex parte presentation of Spouses Rabaja's evidence due to Spouses Salvador's non-appearance.
• Section 3, Rule 9, Rules of Court — Governs declaration of default for failure to file an answer. Cited to distinguish default from pre-trial non-appearance.

Justice Antonio T. Carpio (Chairperson), Justice Presbitero J. Velasco, Jr. (designated Acting Member in lieu of Associate Justice Arturo D. Brion per Special Order No. 1910, dated January 12, 2015), Justice Mariano C. del Castillo, and Justice Marvic M.V.F. Leonen concurred.