TL;DR

The Supreme Court ruled that a Deed of Assignment and Conveyance (DAC) validly novated a Memorandum of Agreement (MOA) because the attorney-in-fact had the authority to modify the original terms. The attorney-in-fact’s special power of attorney, which granted the power to sell property, was broad enough to encompass the exchange of property for shares of stock, effectively extinguishing the original obligation for option money. This decision clarifies the scope of an attorney-in-fact’s powers and emphasizes the importance of clear, convincing evidence when alleging forgery in notarized documents. Practically, this means parties should carefully review the powers granted in a special power of attorney and understand the potential for contractual obligations to be modified by authorized representatives.

Land Swap or Legal Trap? When a Power of Attorney Leads to a Property Dispute

This case revolves around a property dispute stemming from a Memorandum of Agreement (MOA) and a subsequent Deed of Assignment and Conveyance (DAC). The petitioners, Carolina Hernandez-Nievera, Demetrio P. Hernandez, Jr., and Margarita H. Malvar, sought to rescind the MOA and nullify the DAC, claiming forgery and lack of authority on the part of Demetrio, who acted as their attorney-in-fact. The central legal question is whether Demetrio’s special power of attorney granted him the authority to modify the original agreement, specifically to exchange property for shares of stock instead of receiving option money, and whether the DAC was validly executed.

At the heart of the controversy lies the execution of a Deed of Assignment and Conveyance (DAC), where petitioners’ land (Area II) was transferred to an Asset Pool in exchange for shares of stock, allegedly without proper authorization. The petitioners argued that Demetrio’s signature on the DAC was a forgery and that even if genuine, his special power of attorney only authorized him to sell or mortgage the properties, not to convey them to an Asset Pool in exchange for shares. This claim of forgery was not sufficiently proven, as the trial court failed to present results of the signature examination in evidence. The Court of Appeals reversed the lower court’s ruling, upholding the DAC’s validity based on the presumption of regularity for notarized documents.

The Supreme Court affirmed the appellate court’s decision, emphasizing that forgery must be proven by clear, positive, and convincing evidence. The burden of proof rests on the party alleging forgery, and mere allegations are insufficient. Moreover, the DAC was a notarized deed, which carries a presumption of regularity. The petitioners failed to overcome this presumption, as they did not provide sufficient evidence to support their claim of forgery. This aspect underscores the importance of presenting credible evidence to challenge the validity of notarized documents.

Building on this principle, the Court addressed the scope of Demetrio’s authority under the special power of attorney. The petitioners argued that Demetrio’s power was limited to selling or mortgaging the properties, excluding the authority to convey them to the Asset Pool. However, the Supreme Court interpreted the phrase “to sell… for such price or amount and under such terms and conditions as our aforesaid attorney-in-fact may deem just and proper” as broad enough to include the exchange of property for shares of stock. This interpretation highlights the importance of carefully analyzing the specific wording of a power of attorney to determine the extent of the authorized agent’s powers.

The Court further explained that the DAC effectively novated the MOA. Novation occurs when a new obligation replaces an existing one, either explicitly or when the old and new obligations are incompatible. In this case, the DAC modified the MOA by dispensing with the requirement for option money and substituting it with an exchange of property for shares of stock. Since the two obligations could not coexist, the DAC effectively novated the MOA, extinguishing the original obligation. The Court cited California Bus Lines, Inc. v. State Investment House, Inc., emphasizing that the incompatibility must involve essential elements of the obligation, such as the object, cause, or principal conditions.

The Supreme Court also addressed the petitioners’ argument that the Asset Pool lacked legal personality, rendering the DAC invalid. The Court clarified that the conveyance was made to the Asset Pool with Land Bank of the Philippines (LBP), an entity with juridical personality, acting as trustee. Therefore, the transfer was valid. Despite the arguments of non-participation of OGCC in litigations pursued by LBP, if neither adverse parties nor courts of jurisdiction choose to contest this point, there would be no impediment to the litigation to maintain.

FAQs

In conclusion, the Supreme Court’s decision emphasizes the importance of carefully drafting and reviewing powers of attorney, as well as the need for solid evidence when alleging forgery. The ruling clarifies the scope of an attorney-in-fact’s authority and underscores the principle that contractual obligations can be modified by authorized representatives, provided that the modifications comply with legal requirements.

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Carolina Hernandez-Nievera, et al. vs. Wilfredo Hernandez, et al., G.R. No. 171165, February 14, 2011