BUSORG 1 CASES

PARTNERSHIP
1. OA vs.THE COMMISSIONER OF INTERNAL REVENUE
G.R. No. L-19342; May 25, 1972
FACTS: Lorenzo Oa was appointed administrator of the estate
of his late wife Julia Bunales. He submitted the project of
partition, which was approved by the Court. Although the
project of partition was approved by the Court, no attempt was
made to divide the properties among the 5 children. Instead,
the properties remained under the management of Lorenzo T.
Oa who used said properties in business by leasing or selling
them and investing the income derived therefrom and the
proceeds from the sales thereof in real properties and
securities.
In the years 1944 to 1954, the respondent Commissioner of
Internal Revenue did treat petitioners as co-owners, not liable to
corporate tax, and it was only from 1955 that he considered
them as having formed an unregistered partnership
ISSUE: Whether or not unregistered partnership was formed
HELD: YES. It is admitted that all the profits from these
ventures were divided among petitioners proportionately in
accordance with their respective shares in the inheritance. From
the moment petitioners allowed not only the incomes from their
respective shares of the inheritance but even the inherited
properties themselves to be used by Lorenzo T. Oa as a
common fund in undertaking several transactions or in
business, with the intention of deriving profit to be shared by
them proportionally, such act was tantamonut to actually
contributing such incomes to a common fund and, in effect,
they thereby formed an unregistered partnership.

2. Gatchalian vs. Collector of Internal Revenue

67 Phil. 666, April 29, 1939
FACTS:
Petitioners purchased, in the ordinary course of business, from
one of the duly authorized agents of the National Charity
Sweepstakes Office one ticket for the sum of two pesos (P2),
said ticket was registered in the name of Jose Gatchalian and
Company. The ticket won one of the third-prizes in the amount
of P50,000. Gatchalian was required to file the corresponding
income tax return covering the prize won. Respondent made an
assessment against the petitioners requesting the payment to
the deputy provincial treasurer of Pulilan, Bulacan. However, a
petitioner, through their counsel, made a request for exemption
but was denied. Petitioner failed to pay the amount due, hence
a warrant of distraint and levy was issued. They paid under
protest a part of the tax and penalties to avoid the effects of the
warrant.
ISSUE: Whether or not the petitioners formed a partnership for
them to be liable for income tax.
HELD: Yes. There is no doubt that if the petitioners merely
formed a community of property the latter is exempt from the
payment of income tax under the law. But according to the
stipulated facts the petitioners organized a partnership of a civil
nature because each of them put up money to buy a
sweepstakes ticket for the sole purpose of dividing equally the
prize which they may win, as they did in fact in the amount of
P50,000 . The partnership was not only formed, but upon the
organization thereof and the winning of the prize, Jose
Gatchalian personally appeared in the office of the Philippine
Charity Sweepstakes, in his capacity as co-partner, as such
collected the prize, the office issued the check for P50,000 in
favor of Jose Gatchalian and company, and the said partner. in
the same capacity, collected the said check. All these

circumstances repel the idea that the plaintiffs organized and

formed a community of property only.

3. Afisco Insurance Corporation v. Court of Appeals

302 SCRA 1
FACTS: The petitioners are 41 non-life insurance corporations.
Upon issuance of All Risk insurance policies, the petitioners
entered into a Quota Share Reinsurance treaty and a Surplus
Reinsurance Treaty with the Munchener RuckversicherungsGesselschaft (Munich), a non-resident foreign corporation. The
reinsurance treaties required petitioners to form a pool. The
pool of machinery insurers submitted a financial statement and
filed an Information Return of Organization Exempt from
Income Tax for the year ending in 1975, on the basis of which it
was assessed by the Commissioner of Internal Revenue
deficiency corporate taxes in the amount of P1,843,237.60 and
withholding taxes in the amount of P1,768,799.39 and
P89,438.68 on dividends paid to Munich and to the petitioners.
These assessments were protested by the petitioners through
its auditors Sycip, Gorres, Velayo and Co. However, the
Commissioner of Internal Revenue denied the protest and
ordered the petitioners, assessed as Pool of Machinery
Insurers, to pay deficiency income tax, interest, and
withholding tax.
ISSUE: Whether or not the Clearing House, acting as a mere
agent and performing strictly administrative functions was a
partnership.
HELD: Yes. Article 1767 of the Civil Code recognizes of a
contract of partnership when two or more persons bind
themselves to contribute money, property, or industry to a

common fund with the intention of dividing the profits among

themselves. Its requisites are thus follows:
1. Mutual contribution to a common stock;
2. A joint interest in the profits.
In other words, a partnership id formed when persons contract
to devote to a common purpose either money, property, or
labor with the intention of dividing the profits between
themselves. In the case before us, the ceding companies
entered into a Pool Agreement or an association that would
handle all the insurance business covered under their quotashare reinsurance treaty and surplus reinsurance treaty with
Munich. The pool has a common fund, consisting of money and
valuables that are deposited in the name and credit of the pool.
This common fund pays for the administration and operation
expenses of the pool. This is unmistakably indicates a
partnership.
4. TORRES vs. CA
320 SCRA 428
FACTS: Sisters Antonia Torres and Emeteria Baring, herein
petitioners, entered into a "joint venture agreement" with
Respondent Manuel Torres for the development of a parcel of
land into a subdivision. Pursuant to the contract, they executed
a Deed of Sale covering the said parcel of land in favor of
respondent, who then had it registered in his name.
By
mortgaging the property, respondent obtained from Equitable
Bank a loan of P40, 000 which, under the Joint Venture
Agreement, was to be used for the development of the
subdivision. All three of them also agreed to share the proceeds
from the sale of the subdivided lots.
The project did not push through, and the land was
subsequently foreclosed by the bank.
Petitioners alleged that the project failed because of
respondents lack of funds or means and skills. They add that
respondent used the loan in furtherance of his own company,
Universal Umbrella Company.

Respondent alleged otherwise, claiming that the subdivision

project failed because petitioners and their relatives had
separately caused the annotations of adverse claims on the title
to the land, which eventually scared away prospective buyers.
ISSUE: WON a partnership exists
HELD: Under their Agreement, petitioners would contribute
property to the partnership in the form of land which was to be
developed into a subdivision; while respondent would give, in
addition to his industry, the amount needed for general
expenses and other costs. Furthermore, the income from the
said project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention of
the parties to form a partnership.
It should be stressed that the parties implemented the contract.
Thus, petitioners transferred the title to the land to facilitate its
use in the name of the respondent. On the other hand,
respondent caused the subject land to be mortgaged, the
proceeds of which were used for the survey and the subdivision
of the land. As noted, he developed the roads, the curbs and
the gutters of the subdivision and entered into a contract to
construct low-cost housing units on the property.
Respondents actions clearly belie petitioners contention that
he made no contribution to the partnership. Under Article 1767
of the Civil Code, a partner may contribute not only money or
property, but also industry.

OBLIGATIONS OF PARTNERS AMONG THEMSELVES

5. Lozana vs Depakakibo
GR No. L-13680
RE: Property contributed
FACTS: Lozana entered into a contract with Depakakibo to
operate, maintain, and distribute electric light and power in
Dumangas, Iloilo under a franchise issued to Buenaflor. They

established a partnership, capitalized at P30,000, with

contributions at 60% for Lozana and 40% for Depakakibo.
However, the franchise in favor of Buenaflor was cancelled and
revoked by the Public Service Commission. A temporary
certificate of Public Service Commission was issued in the name
of Decolongon instead. Because of this, Lozana sold a Buda
generator to the grantee. Depakakibo on the other hand, sold
one Crossly Engine to Sps. Harder. Lozana brought an action
against defendant alleging that he is the owner of the Buda
generator and 70 wooden posts with connecting wires to the
generator and the different houses supplied by electric current
in Dumangas and he suffered damages as consequence of
being wrongfully detained of them. Defendant answered by
saying that generator and equipment was contributed to the
partnership entered by them. In addition, Lozana sold his
partnership contribution in violation of the terms of agreement.
CFI declared Lozano owner of the equipment. Depakakibo
appealed to the Supreme Court.
ISSUE: WON the partnership is void and if the disposal of the
contribution of the parties is allowed
HELD: Validity of the Partnership.
Partnership is valid. The fact of furnishing the current to the
holder of the franchise alone, without the previous approval of
the Public Service Commission, does not per se make the
contract of partnership null and void from the beginning and
render the partnership entered into by the parties for the
purpose also void and non-existent
Disposal of Contributed Property to the Partnership.
Facts show that parties entered into the contract of partnership,
Lozana contributing the amount of P18, 000, and there has not
been liquidation prior to the sale of the contributed properties:
Buda Diesel Engine and 70 posts. It necessarily follows that the
Buda diesel engine contributed by the plaintiff had become the
property of the partnership. As properties of the partnership,
the same could not be disposed of by the party contributing the
same without the consent or approval of the partnership or of
the other partner.

6. RAMNANI VS COURT OF APPEALS

RE: Distribution of profits
FACTS: Ishwar Jethmal Ramnani and his wife Sonya had their
main business based in New York. Ishwar received
US$150,000.00 from his father-in-law in Switzerland. In 1965,
Ishwar Jethmal Ramnani sent the amount of US $150,000.00
to Choithram
in
two
bank
drafts of
US$65,000.00
andUS$85,000.00 for the purpose of investing the same in real
estate in the Philippines.
Subsequently, spouses Ishwar executed a general power of
attorney appointing Ishwars full blood brothers Choithram and
Navalrai as attorneys-in-fact, empowering them to manage and
conduct their business concerns in the Philippines. Choithram,
as attorney-in-fact, entered into two agreements for the
purchase of two parcels of land located in Pasig Rizal from
Ortigas & Company, Ltd. Partnership (Ortigas Ltd.) with a total
area of approximately 10,048 square meters. Three buildings
were constructed thereon and were leased out by Choithram as
attorney-in-fact of spouses Ishwar. Two of these buildings were
later burned.
In 1970 Ishwar asked Choithram to account for the income and
expenses relative to these properties during the period 1967
to1970.
Choithram
failed
and
refused
to
render
such accounting, which prompted Ishwar to revoke the general
power of attorney.
Choithram and Ortigas Ltd. were duly notified by notice in
writing of such revocation. It was also registered with the
Securities and Exchange Commission and published in The
Manila Times. Nevertheless, Choithram as such attorney-in-fact
of Ishwar, transferred all rights and interests of Ishwar spouses
in favor of Nirmla Ramnani, the wife of Choitrams son, Moti.
Ortigas also executed the corresponding deeds of sale in favor

of Nirmla and the TCT issued in her favor. Thus, spouses Ishwar
filed a complaint in the Court of First Instance of Rizal against
Choithram and spouses Nirmla and Moti(Choithram et al.) and
Ortigas Ltd. for reconveyance of said properties or payment of
its value and damages.
The trial court dismissed the complaint ruling that the lone
testimony of Ishwar regarding the cash remittance is unworthy
of faith and credit because the cash remittance was made
before the execution of the general power of attorney. Ishwar
also failed to corroborate this lone testimony and did not exhibit
any commercial document as regard to the alleged remittances.
It believed the claim of Choitram that he and Ishwar entered
into a temporary arrangement in order to enable Choithram,
then a British citizen, to purchase the properties in the name of
Ishwar who was an American citizen and who was then qualified
to purchase property in the Philippines under the then Parity
Amendment.
Upon appeal, the CA reversed the decision and gave credence
to Ishwar. It upheld the validity of Ishwars testimony and gave
cognizance to a letter written by Choihtram imploring Ishwar to
renew the power of attorney after it was revoked. It states
therein that Choithram reassures his brother that he is not after
his money and that the revocation is hurting the reputation of
Ishwar. Choithram also made no mention of his claimed
temporary arrangement in the letter. The CA ruled that
Choithram is also estopped in pais or by deed from claiming an
interest over the properties. Because of Choitrams admissions
from (1) power of attorney, (2) the Agreements and (3) the
Contract of Lease. It furthermore HELD that Choithram's
temporary arrangement, by which he claimed purchasing the
two (2) parcels in questioning 1966 and placing them in the
name of Ishwar who is an American citizen circumvents the
disqualification provision of aliens acquiring real properties in
the
Philippines.
Upholding
the
supposed
"temporary
arrangement" with Ishwar would be sanctioning the

perpetration of an illegal act and culpable violation of the

Constitution.
During the pendency of the case, Choithram made several
attempts to dispose of his properties by way of donation and
also mortgaged the properties under litigation for 3 million USD
to a shell partnership with a mere capital of 100 USD.
ISSUE: Whether or not there was a partnership between the
brothers Ishwar and Choithram.
HELD: Yes. Even without a written agreement, the scenario is
clear. Spouses Ishwar supplied the capital of $150,000 for the
business. They entrusted the money to Choithram to invest in a
profitable business venture in the Philippines. For this purpose,
they appointed Choithram as their attorney-in-fact.
Choithram in turn decided to invest in the real estate business.
He bought the two (2) parcels of land in question from Ortigas
as attorney-in-fact of Ishwar- Instead of paying for the lots in
cash, he paid in installments and used the balance of the capital
entrusted to him, plus a loan, to build two buildings. Although
the buildings were burned later, Choithram was able to build
two other buildings on the property. He rented them out and
collected the rentals. Through the industry and genius of
Choithram, Ishwar's property was developed and improved into
what it is nowa valuable asset worth millions of pesos. As of
the last estimate in 1985, while the case was pending before
the trial court, the market value of the properties is no less than
P22,304,000.00. 39 It should be worth much more today.
We have a situation where two brothers engaged in a business
venture. One furnished the capital; the other contributed his
industry and talent. Justice and equity dictate that the two
share equally the fruit of their joint investment and efforts.
Perhaps this Solomonic solution may pave the way towards their
reconciliation. Both would stand to gain. No one would end up
the loser. After all, blood is thicker than water.

7. EMNACE vs CA
G.R. No. 126334; November 23, 2001
Re: Prescriptive Period

FACTS: Emilio Emnace, Jacinto Divinagracia and Vicente

Tabanao formed a partnership engaged in the fishing industry.
In 1986, Jacinto decided to leave the partnership hence they
agreed to dissolve the partnership. At that time, the partnership
has an estimated asset amounting to P30,000,000.00.
HOWEVER, until the death of Vicente Tabanao in 1994, Emnace
never rendered an accounting either to Vicente or his heirs.
Emnace reneged on his promise to turn over Tabanaos share
which is 1/3 of the P30M. The heirs of Tabanao then sued
Emnace. Emnace argued, among others, that the heirs are
barred by prescription hence they can no longer demand an
accounting. He contends that the partnership was dissolved in
1986 and that was the time when Tabanaos (and his heirs)
right to inquire into the business affairs accrued; that said right
has expired in 1990 or 4 years after. So beyond 1990, they can
no longer inquire.

ISSUE: Whether or not the heirs of Vicente Tabanao are barred

by prescription to demand an accounting.
HELD: No. Prescription has not run in this case, it has never
begun. The three finalstages of partnership are: a) dissolution,
b) winding up, and c) termination. In this case, Emnace and his

partners dissolved their partnership but such did not perfect the
dissolution because no accounting took place. The partnership,
although dissolved, continues to exist and its legal personality is
retained, at which time it completes the winding up of its affairs,
including the partitioning and distribution of the net partnership
assets to the partners. For as long as the partnership exists, any
of the partners (or legal representative in this case the heirs of
Tabanao) may demand an accounting of the partnerships
business. Prescription of the said right starts to run only upon
the dissolution of the partnership when the final accounting is
done.
When a final accounting is made, it is only then that
prescription begins to run. In the case at bar, no final
accounting has been made, and that is precisely what the heirs
are seeking in their action before the trial court, since Emnace
has failed or refused to render an accounting of the
partnerships business and assets. Hence, the said action is not
barred by prescription

OBLIGATIONS
PERSONS

OF

PARTNERS

WITH

REGARD

TO

3RD

8. PETITION FOR AUTHORITY TO CONTINUE USE OF THE

FIRM NAME SYCIP, SALAZAR, FELICIANO, HERNANDEZ &
CASTILLO.
July 30, 1979
RE: Rule here has been abandoned in view of Rule 3.02
of Code of Professional Responsibilty

FACTS: Petitions were filed by the surviving partners of Atty.

Alexander Sycip, who died on May 5, 1975 and by the surviving
partners of Atty. Herminio Ozaeta, who died on February 14,
1976, praying that they be allowed to continue using, in the
names of their firms, the names of partners who had passed
away.
Petitioners contend that the continued use of the name of a
deceased or former partner when permissible by local custom,
is not unethical but care should be taken that no imposition or
deception is practiced through this use. They also contend that
no local custom prohibits the continued use of a deceased
partners name in a professional firms name; there is no
custom or usage in the Philippines, or at least in the Greater
Manila Area, which recognizes that the name of a law firm
necessarily identifies the individual members of the firm.
ISSUE: WON the surviving partners may be allowed by the
court to retain the name of the partners who already passed
away in the name of the firm? NO
HELD: In the case of Register of Deeds of Manila vs. China
Banking Corporation, the SC said:
The Court believes that, in view of the personal and confidential
nature of the relations between attorney and client, and the
high standards demanded in the canons of professional ethics,
no practice should be allowed which even in a remote degree
could give rise to the possibility of deception. Said attorneys are
accordingly advised to drop the names of the deceased partners
from their firm name.
The public relations value of the use of an old firm name can
tend to create undue advantages and disadvantages in the
practice of the profession. An able lawyer without connections
will have to make a name for himself starting from scratch.
Another able lawyer, who can join an old firm, can initially ride
on that old firms reputation established by deceased partners.
The court also made the difference from the law firms and
business corporations:
A partnership for the practice of law is not a legal entity. It is a
mere relationship or association for a particular purpose. It is

not a partnership formed for the purpose of carrying on trade or

business or of holding property. 11 Thus, it has been stated
that the use of a nom de plume, assumed or trade name in law
practice is improper.
We find such proof of the existence of a local custom, and of the
elements requisite to constitute the same, wanting herein.
Merely because something is done as a matter of practice does
not mean that Courts can rely on the same for purposes of
adjudication as a juridical custom.
Petition suffers legal and ethical impediment.

9. PNB vs. Lo
RE: Subsidiary or secondary liability of partners
FACTS: In September 1916, Severo Eugenio Lo and Ling,
together with Ping, Hun, Lam and Peng formed a commercial
partnership under the name of Tai Sing and Co., with a capital
of P40,000 contributed by said partners. The firm name was
registered in the mercantile registrar in the Province of Iloilo.
Ping, in the articles of partnership, was assigned as the general
manager. However, in 1917, he executed a special power of
attorney in favor of Lam to act in his behalf as the manager of
the firm. Subsequently, Lam obtained a loan from PNB the
loan was under the firms name. In the same year, Ping died in
China. From 1918 to 1920, the firm, via GM Lam, incurred other
loans from PNB. The loans were not objected by any of the
partners. Later, PNB sued the firm for non-payment. Lo, in his
defense, argued that he cannot be liable as a partner because
the partnership, according to him, is void; that it is void because
the firms name did not comply with the requirement of the
Code of Commerce that a firm name should contain the names
of all of the partners, of several of them, or only one of them.
Lo also argued that the acts of Lam after the death of Ping is not

binding upon the other partners because the special power of

attorney shall have already ceased.
ISSUE: Whether or not Lo is correct in both arguments.
HELD: No. The anomalous adoption of the firm name above
noted does not affect the liability of the general partners to
third parties under Article 127 of the Code of Commerce. The
object of the Code of Commerce in requiring a general
partnership to transact business under the name of all its
members, of several of them, or of one only, is to protect the
public from imposition and fraud; it is for the protection of the
creditors rather than of the partners themselves. It is
unenforceable as between the partners and at the instance of
the violating party, but not in the sense of depriving innocent
parties of their rights who may have dealt with the offenders in
ignorance of the latter having violated the law; and that
contracts entered into by a partnership firm defectively
organized are valid when voluntarily executed by the parties,
and the only question is whether or not they complied with the
agreement. Therefore, Lo cannot invoke in his defense the
anomaly in the firm name which they themselves adopted. Lo
was not able to prove his second argument. But even assuming
arguendo, his second contention does not deserve merit
because (a) Lam, in acting as a GM, is also a partner and his
actions were never objected to by the partners, and (b) it also
appeared from the evidence that Lo, Lam and the other
partners authorized some of the loans.
NOTE: Under the New Civil Code, a firm name may or may not
include the name of one or more of the partners (Article 1815).

10. MUNASQUE V. CA
G.R. No. L-39780 November 11, 1985
Re: Presumption that acting partner has the authority to
bind the partnership

DOCTRINES: There is a general presumption that each

individual partner is an authorized agent for the firm and that
he has authority to bind the firm in carrying on the partnership
transactions. (Mills vs. Riggle,112 Pan, 617) Cited decision:
George Litton v. Hill and Ceron, et al, (67 Phil. 513, 514)
The presumption is sufficient to permit third persons to hold the
firm liable on transactions entered into by one of members of
the firm acting apparently in its behalf and within the scope of
his authority. (Le Roy vs. Johnson, 7 U.S. (Law. ed.), 391.)
-------------------------------ARTICLE 1824 "All partners are liable solidarily with the
partnership for everything chargeable to the partnership under
Articles 1822 and 1823."
While the liability of the partners are merely joint in
transactions entered into by the partnership, a third
person who transacted with said partnership can hold
the partners solidarily liable for the whole obligation if
the case of the third person falls under Articles 1822 or
1823.
FACTS: Petitioner Elmo Muasque was a partner in the
construction business partnership "Galan and Muasque
located in Cebu City. Munasque, as Contractor, entered into a
contract with respondent Tropical through its Cebu Branch
Manager Ramon Pons for remodeling a portion of Tropicals
building. Celestino Galan (Galan) was named as a casual
partner in the said contract.
A total amount of P25,000.00 was to be paid under the contract
for the entire services of the Contractor. The balance of the
total amount was to be paid in installments to Munasque.
Munasque indorsed the first check in favor of respondent Galan
to enable the latter to deposit it in the bank and pay for the
materials and labor used in the project. He later alleged that
Galan misused the funds. When the second check came and

Galan asked the petitioner to indorse it again, the petitioner

refused.
Galan then informed the Cebu branch of Tropical that there was
a "misunderstanding" between him and petitioner which led to
respondent Tropical changing the name of the payee in the
second check from Muasque to "Galan and Associates" ( the
duly registered name of the partnership between Galan and
petitioner) This enabled Galan to encash the second check.
Thus, Petitioner filed a complaint for payment of sum of money
and damages against the private respondents Galan and
Tropical.
Trial Court: Held Munasque and Galan, jointly and severally
liable to the intervenor-partnership creditors Cebu Southern
Hardware Company and Blue Diamond Glass Palace.
Court of Appeals: CA affirmed TC with modification: liability
imposed on the credit of Cebu Southern Hardware and Blue
Diamond Glass Palace was changed from "jointly and severally"
to "jointly."
ISSUE: WON a partnership existed between petitioner and
respondent Galan
HELD: YES, a partnership exists between petitioner Munasque
and respondent Galan.
The liability of partners under the law to third persons for
contracts executed in connection with partnership business is
only pro rata under Art. 1816, of the Civil Code.
ARTICLE 1816. All partners, including industrial ones,
shall be liable pro rata with all their property and after all
the partnership assets have been exhausted, for the
contracts which may be entered into in the name and for
the account of the partnership, under its signature and
by a person authorized to act for the partnership.
However, any partner may enter into a separate
obligation to perform a partnership contract.

This provision should be construed together with Article 1824

which provides that:
ARTICLE 1824 "All partners are liable solidarily with the
partnership for everything chargeable to the partnership
under Articles 1822 and 1823."
In short, while the liability of the partners are merely joint in
transactions entered into by the partnership, a third person who
transacted with said partnership can hold the partners solidarily
liable for the whole obligation if the case of the third person
falls under Articles 1822 or 1823.
The obligation is solidary, because the law protects him, who in
good faith relied upon the authority of a partner, whether such
authority is real or apparent. That is why under Article 1824 of
the Civil Code all partners, whether innocent or guilty, as well as
the legal entity which is the partnership, are solidarily liable.
In the case at bar the respondent Tropical had every reason to
believe that a partnership existed between the petitioner and
Galan and no fault or error can be imputed against it for making
payments to "Galan and Associates" and delivering the same to
Galan because as far as it was concerned, Galan was a true
partner with real authority to transact on behalf of the
partnership with which it was dealing.
Galan, however acted in bad faith. Muasque should then be
reimbursed by Galan for the payments made by the former
representing the liability of their partnership to herein
intervenors.
It is but fair that the consequences of any wrongful act
committed by any of the partners therein should be answered
solidarily by all the partners and the partnership as a whole.
Decision appealed from is hereby AFFIRMED with the
MODIFICATION that the liability of petitioner and respondent

Galan to intervenors Blue Diamond Glass and Cebu Southern

Hardware is declared to be joint and solidary.
11. SYJUCO v CASTRO
RE: Conveyance
FACTS: Back in November 1964, the Lims, borrowed from
petitioner Santiago Syjuco, Inc., the sum of P800,000.00. The
loan was given on the security of a first mortgage on property
registered in the names of said borrowers as owners in common
under Transfer Certificates of Title Numbered 75413 and 75415
of the Registry of Deeds of Manila. Thereafter additional loans
on the same security were obtained by the Lims from Syjuco, so
that as of May 8, 1967, the aggregate of the loans stood at
P2,460,000.00, exclusive of interest, and the security had been
augmented by bringing into the mortgage other property, also
registered as owned pro indiviso by the Lims under two titles:
TCT Nos. 75416 and 75418 of the Manila Registry.
On November 8, 1967, the Lims failed to pay it despite
demands therefore; that Syjuco consequently caused extrajudicial proceedings for the foreclosure of the mortgage to be
commenced by the Sheriff of Manila; and that the latter
scheduled the auction sale of the mortgaged property on
December 27, 1968.
The attempt to foreclose triggered off a legal battle that has
dragged on for more than twenty years now, fought through five
(5) cases in the trial courts, two (2) in the Court of Appeals,
and three (3) more in the Supreme Court.
One of the complaints filed by the Lims was filed not in their
individual names, but in the name of a partnership of which
they themselves were the only partners: "Heirs of Hugo Lim."
The complaint advocated the theory that the mortgage which
they, together with their mother, had individually constituted
(and thereafter amended during the period from 1964 to 1967)

over lands standing in their names in the Property Registry as

owners pro indiviso, in fact no longer belonged to them at that
time, having been earlier deeded over by them to the
partnership, "Heirs of Hugo Lim," more precisely, on March 30,
1959, hence, said mortgage was void because executed by
them without authority from the partnership.
ISSUE: Whether the mortgage executed by the Lims be
attributable to their partnership
HELD: Yes, the mortgage executed by the Lims is attributable
to their partnership. The Supreme Court held that the legal
fiction of a separate juridical personality and existence will not
shield it from the conclusion of having such knowledge which
naturally and irresistibly flows from the undenied facts. It would
violate all precepts of reason, ordinary experience and common
sense to propose that a partnership, as such, cannot be held
accountable with knowledge of matters commonly known to all
the partners or of acts in which all of the latter, without
exception, have taken part, where such matters or acts affect
property claimed as its own by said partnership.
The silence and failure of the partnership to impugn said
mortgage within a reasonable time, let alone a space of more
than seventeen years, brought into play the doctrine of estoppel
to preclude any attempt to avoid the mortgage as allegedly
unauthorized.
There is no reason to distinguish between the Lims, as
individuals, and the partnership itself, since the former
constituted the entire membership of the latter. In other words,
despite the concealment of the existence of the partnership, for
all intents and purposes and consistently with the Lims' own
theory, it was that partnership which was the real party in
interest in all the actions; it was actually represented in said
actions by all the individual members thereof, and
consequently, those members' acts, declarations and omissions
cannot be deemed to be simply the individual acts of said
members, but in fact and in law, those of the partnership.

12. LIWANAG vs. WORKMEN'S COMPENSATION

COMMISSION
RE: Solidary liability of partners for tort
FACTS: Appellants Benito Liwanag and Maria Liwanag Reyes
are co-owners (business partners) of Liwanag Auto Supply. The
guard of the said Auto Supply shop has been killed while in line
of duty. The deceased guards widow Ciriaca Vda. de Balderama
and minor children Genara, Carlos and Leogardo, all surnamed
Balderama, in due time, filed a claim for compensation with the
Workmen's Compensation Commission. The claim was granted
and appellants Benito Liwanag and Maria Liwanag Reyes were
ordered to pay jointly and severally the amount of P3,494.40
Pesos to the claimants in lump sum. The respondents appealed
to the Supreme Court contending that the commission erred in
ordering appellants to pay jointly and severally the amount
awarded. They argue that there is nothing in the compensation
Act which provides that the obligation of an employer arising
from compensable injury or death of an employee should be
solidary obligation, the same should have been specifically
provided, and that, in absence of such clear provision, the
responsibility of appellants should not be solidary but merely
joint.
ISSUE: Whether or not the obligation of business partners
arising from compensable injury or death of an employee should
be solidary.
HELD: The Supreme Court ruled that the law governing the
liability of partners is not applicable to the case at bar wherein a
claim for compensation by dependents of an employee who
died in line of duty is involved. And although the Workmen's
Compensation Act does not contain any provision expressly
declaring solidary obligation of business partners, there are
other provisions of law from which it could be gathered that
their liability must be solidary. Articles 1711 and 1712 of the
new Civil Code provide:

10

DISSOLUTION OF PARTNERSHIP
ART. 1711. Owners of enterprises and other employers are
obliged to pay compensation for the death of or injuries to their
laborers, workmen, mechanics or other employees, even
though the event may have been purely accidental or entirely
due to a fortuitous cause, if the death or personal injury arose
out of and in the course of the employment. . . . .
ART. 1712. If the death or injury is due to the negligence of a
fellow-worker, the latter and the employer shall be solidarily
liable for compensation. . . . .
And section 2 of the Workmen's Compensation Act provides that
the right to compensation as provided in this Act shall not be
defeated or impaired on the ground that the death, injury or
disease was due to the negligence of a fellow servant or
employee, without prejudice to the right of the employer to
proceed against the negligence party.
The provisions of the new Civil Code above quoted taken
together with those of Section 2 of the Workmen's
Compensation Act, reasonably indicate that in compensation
cases, the liability of business partners, like appellants, should
be solidary; otherwise, the right of the employee may be
defeated. If the responsibility of appellants were to be merely
joint and solidary, and one of them happens to be insolvent, the
amount awarded to the appellees would only be partially
satisfied, which is evidently contrary to the intent and purposes
of the Workmen Compensation Act.

13. TOCAO V. COURT OF APPEALS

342 SCRA 20 (2000)
RE: Unjustified dissolution
FACTS: Petitioner William T. Bello introduced private respondent
Nenita Anay to petitioner Tocao, who conveyed her desire to
enter into a joint venture with her for the importation and local
distribution of kitchen cookwares. Belo acted the capitalist,
Tocao as president and general manager, and Anay as head of
the marketing department (considering her experience and
established relationship with West Bend Company,c a
manufacturer of kitchen wares in Wisconsin, U.S.A) and later,
vice-president for sales. The parties agreed further that Anay
would be entitled to:
(1) ten percent (10%) of the annual net profits of the
business;
(2) overriding commission of six percent (6%) of the
overall weekly production;
(3) thirty percent (30%) of the sales she would make;
and
(4) two percent (2%) for her demonstration services.
The same was not reduced to writing on the strength of Belos
assurances.
Later, Anay was able to secure the distributorship of cookware
products from the West Bend Company. They operated under
the name of Geminesse Enterprise, a sole proprietorship
registered in Marjorie Tocaos name. Anay attended
distributor/dealer meetings with West Bend Company with the
consent of Tocao.
Due to Anays excellent job performance she was given a
plaque of appreciation. Also, in a memo signed by Belo, Anay
was given 37% commission for her personal sales "up Dec

11

31/87, apart from the 10% share in profits.

partnership existed and ordered the defendants to pay.

On October 9, 1987, Anay learned that Marjorie Tocao

terminated her as vice-president of Geminesse Enterprise. Anay
attempted to contact Belo. She wrote him twice to demand her
overriding commission for the period of January 8, 1988 to
February 5, 1988 and the audit of the company to determine
her share in the net profits. Belo did not answer.

ISSUE: Whether or not a partnership existed YES

Anay still received her five percent (5%) overriding commission

up to December 1987. The following year, 1988, she did not
receive the same commission although the company netted a
gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed a complaint for sum of
money with damages against Tocao and Belo before the RTC of
Makati. She prayed that she be paid (1) P32,00.00 as unpaid
overriding commission from January 8, 1988 to February 5,
1988; (2) P100,000.00 as moral damages, and (3) P100,000.00
as exemplary damages. The plaintiff also prayed for an audit of
the finances of Geminesse Enterprise from the inception of its
business operation until she was illegally dismissed to
determine her ten percent (10%) share in the net profits. She
further prayed that she be paid the five percent (5%)
overriding commission on the remaining 150 West Bend
cookware sets before her dismissal.
However, Tocao and Belo asserted that the alleged agreement
was not reduced to writing nor ratified, hence, unenforceable,
void, or nonexistent. Also, they denied the existence of a
partnership because, as Anay herself admitted, Geminesse
Enterprise was the sole proprietorship of Marjorie Tocao. Belo
also contended that he merely acted as a guarantor of Tocao
and denied contributing capital. Tocao, on the other hand,
denied that they agreed on a ten percent (10%) commission on
the net profits.
Both trial court and court of appeals ruled that a business

HELD: To be considered a juridical personality, a partnership

must fulfill these requisites: (1) two or more persons bind
themselves to contribute money, property or industry to a
common fund; and (2) intention on the part of the partners to
divide the profits among themselves. It may be constituted in
any form; a public instrument is necessary only where
immovable property or real rights are contributed thereto. This
implies that since a contract of partnership is consensual, an
oral contract of partnership is as good as a written one.
Private respondent Anay contributed her expertise in the
business of distributorship of cookware to the partnership and
hence, under the law, she was the industrial or managing
partner.
Petitioner Belo had an proprietary interest. He presided over
meetings regarding matters affecting the operation of the
business. Moreover, his having authorized in writing giving Anay
37% of the proceeds of her personal sales, could not be
interpreted otherwise than that he had a proprietary interest in
the business. This is inconsistent with his claim that he merely
acted as a guarantor. If indeed he was, he should have
presented documentary evidence. Also, Art. 2055 requires that
a guaranty must be express and the Statute of Frauds requires
that it must be in writing. Petitioner Tocao was also a capitalist
in the partnership. She claimed that she herself financed the
business.
The business venture operated under Geminesse Enterprise did
not result in an employer-employee relationship between
petitioners and private respondent. First, Anay had a voice in
the management of the affairs of the cookware distributorship
and second, Tocao admitted that Anay, like her, received only
commissions and transportation and representation allowances

12

and not a fixed salary. If Anay was an employee, it is difficult to

believe that they recieve the same income.
Also, the fact that they operated under the name of Geminesse
Enterprise, a sole proprietorship, is of no moment. Said business
name was used only for practical reasons - it was utilized as the
common name for petitioner Tocaos various business activities,
which included the distributorship of cookware.
The partnership exists until dissolved under the law. Since the
partnership created by petitioners and private respondent has
no fixed term and is therefore a partnership at will predicated
on their mutual desire and consent, it may be dissolved by the
will of a partner.
Petitioners Tocaos unilateral exclusion of private respondent
from the partnership is shown by her memo to the Cubao office
plainly stating that private respondent was, as of October 9,
1987, no longer the vice-president for sales of Geminesse
Enterprise. By that memo, petitioner Tocao effected her own
withdrawal from the partnership and considered herself as
having ceased to be associated with the partnership in the
carrying on of the business. Nevertheless, the partnership was
not terminated thereby; it continues until the winding up of the
business.
The partnership among petitioners and private respondent is
ordered dissolved, and the parties are ordered to effect the
winding up and liquidation of the partnership pursuant to the
pertinent provisions of the Civil Code. Petitioners are ordered to
pay Anays 10% share in the profits, after accounting, 5%
overriding commission for the 150 cookware sets available for
disposition since the time private respondent was wrongfully
excluded from the partnership by petitioner, overriding
commission on the total production, as well as moral and
exemplary damages, and attorneys fees.

14. LOTA vs. TOLENTINO

G.R. No. L-3518
RE: Duty to liquidate
FACTS: A partnership was entered into by the plaintiff and
defendant whereby they agreed to engage in a general
business, divide the profits and share the losses, and that
defendant would be the manager of the said partnership.
Plaintiff filed a complaint alleging that from 1918 until 1928
defendant had rendered an annual accounting, but has refused
to do so from 1929 to 1937. Defendant, in his answer, alleged
that he was an industrial partner, and that he rendered a yearly
accounting and liquidation from 1918 to 1932, and that in the
latter year, the partnership was dissolved and defendant
delivered all its properties and assets to the plaintiff.
The plaintiff died in 1983 and was substituted by the
administrator of his estate. The following year, the defendant
also died during the pendency of the case for accounting and
liquidation. Defendants counsel made a suggestion upon the
record that defendant had already died. The Court gave plaintiff
30 days to amend the complaint by substituting for the
deceased defendant the administrator of his estate or his legal
representative, but the plaintiff failed to do so.
ISSUE: Whether or not, after the death of the defendant,
plaintiffs action for accounting and liquidation of the
partnership may be continued against the heirs of the
defendant.
HELD: No, the action may not be continued against the heirs of
the defendant. The Court held that it is well settled that when a
member of a mercantile partnership dies, the duty of liquidating
its affairs devolves upon the surviving member, or members, of
the firm, not upon the legal representatives of the deceased
partner. And the same rule must be equally applicable to a civil
partnership clothed with the form of a commercial association.

13

As held in the case of Lim Ka Yam, upon his death, it therefore

became the duty of his surviving associates to take the proper
steps to settle the affairs of the firm, and any claim against him,
or his state, for a sum of money due to the partnership by
reason of any misappropriation of its funds by him, or for
damages resulting from his wrongful acts as a manager, should
be prosecuted against his estate in administration in the
manner provided by the Rules of Court. Moreover, when it
appears that the properties are in the possession of the partner,
the proper step for the surviving associates to take would be to
make an application to the court having charge of the
administration to require the administrator to surrender such
property.

15. YU vs. NLRC

RE: Rights of creditors

AGENCY
16. ORIENT AIR vs.COURT OF APPEALS and AMERICAN
AIR-LINES INCORPORATED, respondents.
G.R. No. 76931 May 29, 1991
RE: Legal fiction
FACTS: On 15 January 1977, American Airlines, Inc., an air
carrier offering passenger and air cargo transportation in the
Philippines, and Orient Air Services and Hotel Representatives,

entered into a General Sales Agency Agreement whereby

American Airlines authorized Orient Air Services to act as its
exclusive general sales agent within the Philippines for the sale
of air passenger transportation.
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 and Restraining Order
averring the aforesaid basis for the termination of the
Agreement as well as therein defendant's previous record of
failures "to promptly settle past outstanding refunds of which
there were available funds in the possession of the
defendant, . . . to the damage and prejudice of plaintiff."
In its Answer with counterclaim, defendant Orient Air denied the
material allegations of the complaint with respect to plaintiff's
entitlement to alleged unremitted amounts, 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.
Finding that the record and the evidence substantiated the
allegations of the defendant, the trial court ruled in its favor and
against plaintiff dismissing the complaint and holding the
termination made by the latter as affecting the GSA agreement

14

illegal and improper and ordered the plaintiff to reinstate

defendant as its general sales agent for passenger tranportation
in the Philippines in accordance with said GSA agreement.
Plaintiff is ordered to pay defendant the balance of the
overriding commission on total flown revenue covering the
period from March 16, 1977 to December 31, 1980 in the
amount of US$84,821.31 plus the additional amount of
US$8,000.00 by way of proper 3% overriding commission per
month commencing from January 1, 1981 until such
reinstatement. Further, plaintiff is directed to pay defendant
exemplary damages and attorney's fees.
On appeal, the Court of Appeals affirmed the findings of the
court a quo on their material points but with some modifications
with respect to the monetary awards granted.
The principal issue for resolution by the Court is the extent of
Orient Air's right to the 3% overriding commission. It is the
stand of 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."
On the other hand, Orient Air contends that the 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. The latter, in
justification of its submission, 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."
ISSUES:
(1) WON Orient Air is entitled to an overriding commission
based on total flown revenue.
(2) WON CA erred in ordering reinstatement of Orient Air as
an agent.

HELD:
(1) Yes. 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.
(2) Yes. The respondent appellate court erred in affirming the
rest of the decision of the trial court, 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."
By affirming this ruling of the trial court, respondent appellate
court, 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.

15

17. Air France v Court of Appeals

126 SCRA 448
RE: Notice to the agent
FACTS: The Ganas purchased from Air France through Imperial
Travels, a duly authorized agent, 9 open dated tickets for a
Manila/Osaka/Tokyo/Manila. The expiry date was May 8, 1970.
Jose Gana sought the assistance of Teresita Manucdoc, a
secretary of the company where Jose Gana worked, to procure
the extension of the validity of their tickets. Manucdoc talked
with Lee Ella, Manager of the Philippine Travel Bureau. She was
told that they would have to pay fare differentials and that the
extension is impossible. The GANAS scheduled their departure
for May 7 and on May 6, Teresita again asked for Lee Ellas help
in the revalidation. She was told that it would only be valid until
May 8 and no longer valid for the rest of the trip after that.
However, Ella attached revalidation stickers on the 2 tickets
(revalidated by the Philippine Travel Bureau), without informing
Air France. The Ganas departed and but the airlines refused to
honor their tickets at the start of the Osaka/Tokyo leg. The
GANAS had to purchase new tickets at re-adjusted rates and
arrived at Manila on different dates. TC-Air France. CA- Ganas.
SC-Air France
ISSUES:
1. WON Ella acted beyond his powers as travel agent? YES
2. WON notice to Manucdoc is notice to the Ganas? YES
HELD: The GANAS cannot defend by contending lack of
knowledge of those rules since the evidence bears out that
Teresita, who handled travel arrangements for the GANAS, was
duly informed by travel agent Ella of the advice of Reno, the
Office Manager of Air France, that the tickets in question could
not be extended beyond the period of their validity without
paying the fare differentials and additional travel taxes brought
about by the increased fare rate and travel taxes. To all legal
intents and purposes, Teresita was the agent of the Ganas and
notice to her of the rejection of the request for extension of the
validity of the tickets was notice to Gana as her principal. The

circumstances that AIR FRANCE personnel at the ticket counter

in the airport allowed the GANAS to leave is not tantamount to
an implied ratification of travel agent Ella's irregular actuations.
The validating stickers that Ella affixed on his own merely reflect
the status of reservations on the specified flight and could not
legally serve to extend the validity of a ticket or revive an
expired one. The conclusion is inevitable that the GANAS
brought upon themselves the predicament they were in for
having insisted on using tickets that were due to expire in an
effort, perhaps, to beat the deadline and in the thought that by
commencing the trip the day before the expiry date, they could
complete the trip even thereafter. It should be recalled that AIR
FRANCE was even unaware of the validating SAS and JAL.
Stickers that Ella had affixed spuriously. Consequently, Japan Air
Lines and AIR FRANCE merely acted within their contractual
rights when they dishonored the tickets on the remaining
segments of the trip and when AIR FRANCE demanded payment
of the adjusted fare rates and travel taxes for the Tokyo/Manila
flight.

18. Laureano T. Angeles vs. Philippine National Railways

(PNR) and Rodolfo Flores
August 31, 2006 G.R. No. 150128
RE: Agent as assignee
FACTS: Respondent Philippine National Railways (PNR)
informed a certain Gaudencio Romualdez (Romualdez,
hereinafter) that it has accepted the latters offer to buy the
PNRs scrap/unserviceable rails located in Del Carmen and
Lubao, Pampanga at P1,300.00 andP2,100.00 per metric ton,
respectively, for the total amount of P96,600.00. Romualdez
paid the purchase price and addressed a letter to Atty. Cipriano
Dizon, PNRs Acting Purchasing Agent. The letter authorized
LIZETTE R. WIJANCO to be his (Romualdez) lawful representative

16

in the withdrawal of the scrap/unserviceable rails awarded to

him. Furthermore, the original copy of the award which indicates
the waiver of rights, interest and participation in favor of
Lizetter R. Wijanco was also given. The Lizette R. Wijanco was
petitioner's now deceased wife. That very same day, Lizette
requested the PNR to transfer the location of withdrawal for the
reason that the scrap/unserviceable rails located in Del Carmen
and Lubao, Pampanga were not ready for hauling. The PNR
granted said request and allowed Lizette to withdraw
scrap/unserviceable railsin Murcia, Capas and San Miguel, Tarlac
instead. However, PNR subsequently suspended the withdrawal
in view of what it considered as documentary discrepancies
coupled by reported pilferages of over P500,000.00 worth of
PNR scrap properties in Tarlac. Consequently, the spouses
Angeles demanded the refund of the amount of P96,000.00. The
PNR, however, refused to pay, alleging that as per delivery
receipt duly signed by Lizette, 54.658 metric tons of
unserviceable rails had already been withdrawn. The spouses
Angeles filed suit against the PNR for specific performance and
damages before the Regional Trial Court. Lizette W. Angeles
passed away and was substituted by her heirs, among whom is
her husband, herein petitioner Laureno T. Angeles. The trial
court, on the postulate that the spouses Angeles are not the
real parties-in-interest, rendered judgment dismissing their
complaint for lack of cause of action. As held by the court,
Lizette was merely a representative of Romualdez in the
withdrawal of scrap or unserviceable rails awarded to him and
not an assignee to the latter's rights with respect to the award.
Petitioner appealed with the Court of Appeals which dismissed
the appeal and affirmed that of the trial court.
ISSUE: Whether or not the CA erred in affirming the trial court's
holding that petitioner and his spouse, as plaintiffs a quo, had
no cause of action as they were not the real parties-in-interest
in this case.
HELD: No. The CAs conclusion, affirmatory of that of the trial
court, is that Lizette was not an assignee, but merely an agent
whose authority was limited to the withdrawal of the scrap rails,

hence, without personality to sue. Where agency exists, the

third party's (in this case, PNR's) liability on a contract is to the
principal and not to the agent and the relationship of the third
party to the principal is the same as that in a contract in which
there is no agent. Normally, the agent has neither rights nor
liabilities as against the third party. He cannot thus sue or be
sued on the contract. Since a contract may be violated only by
the parties thereto as against each other, the real party-ininterest, either as plaintiff or defendant in an action upon that
contract must, generally, be a contracting party. The legal
situation is, however, different where an agent is constituted as
an assignee. In such a case, the agent may, in his own behalf,
sue on a contract made for his principal, as an assignee of such
contract. The rule requiring every action to be prosecuted in the
name of the real party-in-interest recognizes the assignment of
rights of action and also recognizes that when one has a right
assigned to him, he is then the real party-in-interest and may
maintain an action upon such claim or right.
WHEREFORE, the petition is DENIED and the assailed decision of
the CA is AFFIRMED. Costs against the petitioner.
19. CORAZON NEVADA vs. ATTY. RODOLFO D. CASUGA
A.C. NO. 7591 (668 SCRA 441)
20 March 2012
RE: Presumption of agency
FACTS: Corazon T. Nevada (petitioner), a principal stockholder
of C.T. Nevada & Sons, Inc. which operates the Mt. Crest Hotel in
Baguio City, allowed the use of one of the Hotels function
rooms for the church services of One in Jesus Christ Church.
Because both Nevada and Casuga (respondent) are members of
the aforementioned religious group, the latter was able to gain
the trust and confidence of the former.
Nevada alleges that unbeknownst to her, Casuga started to
represent himself as the administrator of the hotel sometime in
2006. In fact, he entered into a contract of lease with a certain

17

Jung Jong Chul covering an office space in the hotel. He signed

the contract of lease, notarized the document himself and
received the amount of Php 90,000 as rental deposit. Petitioner
claims that the money was never turned over to her.
Furthermore, several pieces of jewelry with the aggregate
amount of Php 300,000 as well as a gold Rolex watch worth USD
12,000 belonging to Nevada were acquired by Casuga who was
under the obligation to sell the same and remit the proceeds to
the former but no jewelry nor money was returned.

adduce an iota of evidence to prove that he was indeed so

authorized. One who alleges the existence of an agency
relationship must prove such fact. The Court ruled in Yun
Kwan Byung v. Philippine Amusement and Gaming Corporation,
"The law makes no presumption of agency and proving
its existence, nature and extent is incumbent upon the
person alleging it."

Respondent Casuga, in an affidavit, claims that Nevada

informally instituted him as the administrator of the hotel in a
limited capacity and with regard to the jewelry, he stated that
Nevada pawned the same in a pawnshop and later instructed
respondents wife to redeem them using their own money.
Thereafter, Nevada asked respondents wife to sell the
valuables and reimburse herself from the proceeds.
Respondent, however, was not able to produce any evidence to
support his claims.

Plainly enough, Casuga is guilty of misrepresentation, when he

made it appear that he was authorized to enter into a contract
of lease in behalf of Nevada when, in fact, he was not.
Furthermore, the records reveal that Casuga received the
rentals by virtue of the contract of lease, benefitting from his
misrepresentation.

ISSUE: Whether or not respondent is guilty of Gross

Misconduct.
HELD: Yes, Atty. Rodulfo D. Casuga is liable for Gross
Misconduct for violation of Canon 16 of the Code of Professional
Responsibility and the Notarial Rules.
The court has defined Gross Misconduct as the transgression of
some established or definite rule of action, more particularly,
unlawful behavior or gross negligence, or the corrupt or
persistent violation of the law or disregard of well-known legal
rules.

Casuga represented himself as a duly-authorized representative

of Nevada when in fact he was not. Casuga admitted signing
the subject contract of lease, but claimed that he was duly
authorized to do so by Nevada. However, Casuga failed to

Art. 1869. Agency may be express, or implied

from the acts of the principal, from his silence or
lack of action, or his failure to repudiate the
agency, knowing that another person is acting on
his behalf without authority.
Agency may be oral, unless the law requires a
specific form.

General Rule: Agency is generally not presumed. The relation

between principal and agent must exist as a fact. Thus, it is held
that where relation of agency is dependent upon the acts of the
parties, the law makes no presumption of agency, and it is
always a fact to be proved, with burden of proof resting upon
the person alleging the agency to show, not only the fact of its
existence, but also its nature and extent.

18

Exception: The only exceptions to this rule are when agency

arises by operation of law or to prevent unjust enrichment.

20. Litonjua, Jr. vs Eternit Corporation

490 SCRA 204 (2006)
RE: Intention to create agency
FACTS: The Eternit Corporation, a corporation duly organized
and registered under Philippine laws is engaged in the
manufacture of roofing materials and pipe products. Its
manufacturing operations were conducted on eight parcels of
land located in Mandaluyong city with a total area of 47,233
square meters. Eteroutremer S.A. Corporation (ESAC) owned
Ninety percent of the shares of stocks of EC, a corporation
organized and registered under the laws of Belgium. Jack
Glanville, an Australian citizen, was the General Manager and
President of EC, while Claude Frederick Delsaux was the
Regional Director for Asia of ESAC.
In 1986, the management of ESAC grew concerned about the
political situation in the Philippines and wanted to stop its
operations in the country. The Committee for Asia of ESAC
instructed a member of ECs Board of Directors, Michael Adams,
to dispose of the eight parcels of land. Adams then engaged the
services of realtor/broker Lauro G. Marquez so that the
properties could be offered for sale to prospective buyers.
Marquez then offered the parcels of land to Eduardo B. Litonjua,
Jr. and his brother Anton. The Litonjuas offered to buy the
property for P20,000,000 in cash. Marquez apprised Jack
Glanville and Claude Delsaux of the said offer but no response
came from Delsaux. Glanville telexed Delsaux inquiring on his
position on the offer. Delsaux answered stating that, based on
the
"Belgian/Swiss
decision,"
the
final
offer
was

US$1,000,000.00 and P2,500,000.00 to cover all existing

obligations prior to final liquidation. Litonjua accepted the offer
and Marquez thereafter stated that the siblings would confirm
full payment within 90 days after all the dosuments of sale, with
the government clearances have been executed. The Litonjuas
deposited US$1,000,000 with the Security Bank and Trust and
drafted an Escrow Agreement. Corazon Aquino assumed
presidency of the Philippines resulting in the improvement of
the political situation. Glanville called Marquez and informed
him that the sale would no longer push through. The decision to
not sell the properties was made during a board meeting. The
Litonjuas thereafter demanded payment for damages they
suffered due to the aborted sale. However, Eternit Corporation
rejected their demand.
ISSUES: Whether or not Glanville, Delsaux and Marquez were
authorized by Eternit Corporation to act as its agents in the sale
of their property?
HELD: No. The Court held that, 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 relationship can only
be effected with the consent of the principal, which must not in
any way, be compelled by law or any court.
A corporation is a juridical person separate and distinct from its
members or stockholders. Personal rights, obligations and
transactions of its members or stockholders do not affect it. It
may act only through the board of directors or through its
agents or officers. Furthermore, the property of a corporation
may not be sold without authority from the board of directors.
Absent such authorization, the rule is that the declarations of an
individual director, but not in the course or connected with the
performance of the authorized duties of the director, are not
binding upon the corporation.

19

An agency may be impled or expressed from the principals

acts, from hi silence or lack of action or his failure to repudiate
the agency. To create or convey real rights over immovable
property, a special power of attorney is needed.
In the case at bar, the Litonjuas failed to produce evidence
empowering Marquez, Glanville and Delsaux as agents of
Eternit Corporation to sell the property in its behalf. They acted
in behalf of ESAC and not as agents of Eternit Corporation. An
agency by estoppel requires proof of reliance upon the
representations., proof which is absent in this case. As such the
sale was not valid and binding.

21. Victorias Milling Co. vs. CA & Consoliated Sugar Corp

RE: Control
FACTS: St. Therese Merchandising (STM) regularly bought
sugar from petitioner Victorias Milling Co., Inc., (VMC). In the
course of their dealings, VMC issued several Shipping
List/Delivery Receipts (SLDRs) to STM as proof of purchases.
Among these was SLDR No. 1214M, which gave rise to the
instant case. This SLDR No. 1214M covers 25,000 bags of sugar,
each bag containing 50 kg priced at P638.00 per bag as "per
sales order VMC Marketing No. 042." The transaction it covered
was a "direct sale."
Later on, STM sold to private respondent Consolidated Sugar
Corporation (CSC) its rights in SLDR No. 1214M. CSC wrote VMC
that it had been authorized by STM to withdraw the sugar
covered by SLDR No. 1214M. Enclosed in the letter were a copy
of SLDR No. 1214M and a letter of authority from STM
authorizing CSC "to withdraw for and in our behalf the refined
sugar covered by SLDR No. 1214M.
CSC surrendered SLDR No. 1214M to VMC's warehouse and was
allowed to withdraw sugar. However, after 2,000 bags had been

released, VMC refused to allow further withdrawals of sugar

against SLDR No. 1214M. CSC then sent VMC a letter informing
it that SLDR No. 1214M had been "sold and endorsed" to it but
that it had been refused further withdrawals of sugar from its
warehouse. Thus CSC sent VMC a letter demanding the release
of the balance of 23,000 bags.
Thereafter, CSC filed a complaint for specific performance.
ISSUE: WON C.S.C. was an agent of S.T.M.
HELD: Petitioner VMC heavily relies upon STM's letter of
authority allowing CSC to withdraw sugar against SLDR No.
1214M to show that the latter was STM's agent. The pertinent
portion of said letter reads:
"This is to authorize CSC to
withdraw for and in our behalf the refined sugar covered by
(SLDR) No. 1214M in the total quantity of 25, 000 bags." VMCs
reliance on such would fail.
The Civil Code defines a contract of agency as follows: "Art.
1868. 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."
It is clear from Article 1868 that the basis of agency is
representation. On the part of the principal, there must be an
actual intention to appoint, or an intention naturally inferable
from his words or actions. On the part of the agent, there must
be an intention to accept the appointment and act on it, and in
the absence of such intent, there is generally no agency.
One factor which most clearly distinguishes agency from other
legal concepts is control. One person - the agent - agrees to act
under the control or direction of another - the principal. Indeed,
the very word "agency" has come to connote control by the
principal. The control factor, more than any other, has caused
the courts to put contracts between principal and agent in a
separate category.

20

The CA, in finding that CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is
dependent upon the acts of the parties, the law makes no
presumption of agency, and it is always a fact to be proved,
with the burden of proof resting upon the persons alleging the
agency, to show not only the fact of its existence, but also its
nature and extent (Antonio vs. Enriquez [CA], 51 O.G. 3536].
Here, VMC failed to sufficiently establish the existence of an
agency relation between CSC and STM. The fact alone that STM
had authorized withdrawal of sugar by CSC "for and in our
(STM's) behalf" should not be eyed as pointing to the existence
of an agency relation ...."
In the instant case, it appears plain to us that private
respondent CSC was a buyer of the SLDFR form, and not an
agent of STM. CSC was not subject to STM's control. The
question of whether a contract is one of sale or agency depends
on the intention of the parties as gathered from the whole scope
and effect of the language employed. That the authorization
given to CSC contained the phrase "for and in our (STM's)
behalf" did not establish an agency.
Ultimately, what is decisive is the intention of the parties. That
no agency was meant to be established by the CSC and STM is
clearly shown by CSC's communication to petitioner that SLDR
No. 1214M had been "sold and endorsed" to it. The use of the
words "sold and endorsed" means that STM and CSC intended a
contract of sale, and not an agency. Hence, no error was
committed by the respondent C.A. when it held that CSC was
not STM's agent and that it could independently sue VMC.

22. CELESTINA T. NAGUIAT, petitioner, vs. COURT OF

APPEALS and AURORA QUEAO, respondents.
RE: Agency by estoppel

FACTS: Queao applied with Naguiat for a loan in the amount

of Two Hundred Thousand Pesos (P200,000.00), which Naguiat
granted.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.Upon presentment on its
maturity date, the Security Bank check was dishonored for
insufficiency of funds.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.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.
ISSUE: Whether or not there was agency by estoppel
HELD: The Supreme Court held in the affirmative.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 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

21

liability to Naguiat under the loan agreement.

The Court of Appeals recognized the existence of an agency by
estoppel citing Article 1873 of the Civil Code.Apparently, it
considered that 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 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.

23. COSMIC LUMBER CORP. vs. CA

RE: Sale of real property without authority of agent in
writing

FACTS: COSMIC LUMBER CORPORATION through its General

Manager executed on 28 January 1985 a Special Power of
Attorney appointing Paz G. Villamil-Estrada as attorney-in-fact x x x to initiate, institute and file any court action for the
ejectment of third persons and/or squatters of the entire lot

9127 and 443 and covered by TCT Nos. 37648 and 37649, for
the said squatters to remove their houses and vacate the
premises in order that the corporation may take material
possession of the entire lot, and for this purpose, to appear at
the pre-trial conference and enter into any stipulation of facts
and/or compromise agreement so far as it shall protect the
rights and interest of the corporation in the aforementioned
lots.
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her
power of attorney, instituted an action for the ejectment of
private respondent Isidro Perez and recover the possession of a
portion of Lot No. 443 before the Regional Trial Court of
Dagupan. On 25 November 1985 Villamil-Estrada entered into a
Compromise Agreement with respondent Perez, wherein
Villamil-Estrada sold to respondent Perez for P26, 640 computed
at P80/sq. meter the 333 sq. meter portion of lot 443. VillamilEstrada received the amount paid by Perez. On 27 November
1985 the Compromise Agreement was approved by the trial
court and I judgment was rendered in accordance therewith.
Although the decision became final and executory it was not
executed within the 5-year period from date of its finality
allegedly due to the failure of petitioner to produce the owners
duplicate copy of Title No. 37649 needed to segregate from Lot
No. 443 the portion sold by the attorney-in-fact, Paz G. VillamilEstrada, to private respondent under the compromise
agreement.
Thus on 25 January 1993 respondent filed a
complaint to revive the judgment.
ISSUE:
1. Whether or not Petitioner the decision of the trial court is
void because the a compromise agreement upon which it
was based is void.
2. Whether or not Villamil-Estrada possess the authority to
sell.
HELD: Attorney-in-fact Villamil-Estrada did not possess the
authority to sell or was she armed with a Board Resolution
authorizing the sale of its property. She was merely empowered

22

to enter into a compromise agreement in the recovery suit she

was authorized to file against persons squatting on Lot No. 443,
such authority being expressly confined to the ejectment of
third persons or squatters of x x x lot x x x (No.) 443 x x x for
the said squatters to remove their houses and vacate the
premises in order that the corporation may take material
possession of the entire lot x x x x
Neither can a conferment of the power to sell be validly inferred
from the specific authority to enter into a compromise
agreement because of the explicit limitation fixed by the
grantor that the compromise entered into shall only be so far
as it shall protect the rights and interest of the corporation in
the aforementioned lots. In the context of the specific to
investiture of powers to Villamil-Estrada, alienation by sale of
an immovable certainly cannot be deemed protective of the
right of petitioner to physically possess the same, more so when
the land was being sold for a price of P80.00 per square meter,
very much less than its assessed value of P250.00 per square
meter, and considering further that petitioner never received
the proceeds of the sale.
When the sale of a piece of land or any interest thereon is
through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.[9] Thus the authority of an
agent to execute a contract for the 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 contract containing terms and conditions which are in
the contract he did execute.[10] 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.[11] 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.[12] 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.[13]
It is therefore clear that by selling to respondent Perez a portion
of petitioners land through a compromise agreement, VillamilEstrada acted without or in obvious authority. The sale ipso jure
is consequently void. So is the compromise agreement. This
being the case, the judgment based thereon is necessarily void.
Antipodal to the opinion expressed by respondent court in
resolving petitioners motion for reconsideration, the nullity of
the settlement between Villamil-Estrada and Perez impaired the
jurisdiction of the trial court to render its decision based on the
compromise agreement
It may be argued that petitioner knew of the compromise
agreement since the principal is chargeable with and bound by
the knowledge of or notice to his agent received while the agent
was acting as such. But the general rule is intended to protect
those who exercise good faith and not as a shield for unfair
dealing. Hence there is a well-established exception to the
general rule as where the conduct and dealings of the agent are
such as to raise a clear presumption that he will not
communicate to the principal the facts in controversy.[21] The
logical reason for this exception is that where the agent is
committing a fraud, it would be contrary to common sense to
presume or to expect that he would communicate the facts to
the principal.
Verily, when an agent is engaged in the
perpetuation of a fraud upon his principal for his own exclusive
benefit, he is not really acting for the principal but is really
acting for himself, entirely outside the scope of his agency.[22]
Indeed, the basic tenets of agency rest on the highest
considerations of justice, equity and fair play, and an agent will
not be permitted to pervert his authority to his own personal
advantage, and his act in secret hostility to the interests of his
principal transcends the power afforded him.

23

180685 be annulled; and the subject property be reconveyed to

him.
24. VELOSO v. COURT OF APPEALS.
A SPECIAL POWER OF ATTORNEY CAN BE INCLUDED IN
THE GENERAL POWER WHEN IT IS SPECIFIED THEREIN
THE ACT OR TRANSACTION FOR WHICH THE SPECIAL
POWER IS REQUIRED
RE: GPA
FACTS: Petitioner Francisco Veloso owns a parcel of land in
Tondo, Manila with an area of 177m2 and covered by a TCT No.
49138 issued by the Registry of Deeds of Manila. The title was
registered in his name before he married Irma Veloso. Hence,
the property did not belong to their conjugal partnership.
The said title was subsequently cancelled and a new TCT No.
180685 was issued in the name of Aglaloma B. Escario.
Petitioner Veloso filed an action for annulment of documents,
reconveyance of property with damages and preliminary
injunction and/or restraining order.
Petitioner alleged that he was the absolute owner of the subject
property and he never authorized anybody to sell it, and that he
was in possession of the title. He found out that his copy was
missing when his wife left for abroad. When he verified with the
Registry of Deeds of Manila, he discovered that his title was
already canceled in favor of defendant Aglaloma Escario. The
transfer of property was supported by a GPA and Deed of
Absolute Sale executed by Irma Veloso and defendant Aglaloma
Escario. Petitioner Veloso denied having executed the power of
attorney and alleged that his signature was falsified. He also
denied having seen or even known the supposed witnesses in
the execution of the power of attorney, and having met or
transacted with the defendant. Thus, he contended that the sale
of the property and the subsequent transfer thereof were null
and void. Petitioner Veloso prayed that a temporary restraining
order be issued to prevent the transfer of the subject property;
that the GPA, the Deed of Absolute Sale and the new TCT No.

Defendant Aglaloma Escario alleged that she was a buyer in

good faith and denied any knowledge of the alleged irregularity.
She allegedly relied on the GPA of Irma Veloso which was
sufficient in form and substance and was duly notarized.
Defendant Escario prayed for the dismissal of the complaint and
the payment to her of damages.
Atty. Julian G. Tubig, witness for the petitioner, denied any
participation in the execution of the GPA and attested that he
did not sign thereon, and the same was never entered in his
Notarial Register.
RTC: Defendant Aglaloma Escario was adjudged the lawful
owner of the property as she was deemed an innocent
purchaser for value. The assailed GPA was held to be valid and
sufficient for the purpose.
Not satisfied with the decision, petitioner Veloso filed his appeal
with the CA. CA affirmed in toto the findings of the trial court.
ISSUE: W/N there is a need to execute a separate special power
of attorney even if the general power of attorney had expressly
authorized the agent the power to sell the subject property
HELD: The court held that there is no need to execute a
separate and special power of attorney since the general
power of attorney had expressly authorized the agent or
attorney-in-fact the power to sell the subject property.
The assailed power of attorney was valid and regular on its face.
Having been notarized, it carries the evidentiary weight
conferred upon it with respect to its due execution. While it is
true that it was denominated as a general power of attorney,
a perusal thereof revealed that it stated an authority to sell,
to wit:
"2. To buy or sell, hire or lease, mortgage or otherwise
hypothecate lands, tenements and hereditaments or other
forms of real property, more specifically TCT No. 49138,

24

upon such terms and conditions and under such covenants as

my said attorney shall deem fit and proper."
Thus, there was no need to execute a separate and special
power of attorney since the general power of attorney had
expressly authorized the agent or attorney in fact the power to
sell the subject property. The special power of attorney can
be included in the general power when it is specified
therein the act or transaction for which the special
power is required.
Whether the instrument be denominated as "general power of
attorney" or "special power of attorney," what matters is the
extent of the power or powers contemplated upon the agent or
attorney in fact. If the power is couched in general terms, then
such power cannot go beyond acts of administration. However,
where the power to sell is specific, there cannot be any doubt
that the attorney in fact may execute a valid sale.
The power of attorney presented by petitioners wife, Irma,
included the power to sell, upon which private respondent
Aglaloma relied on. Being the wife of the owner and having with
her the title of the property, there was no reason for the private
respondent not to believe, in her authority. Moreover, the power
of attorney was notarized and as such, carried with it the
presumption of its due execution. Thus, having had no inkling
on any irregularity and having no participation thereof, private
respondent was a buyer in good faith.
Petition for review is hereby DENIED for lack of merit.

25. OLAGUER v. ONJUCO

G.R. No. 173312; August 26, 2008
RE: SPA included in the GPA

FACTS: Lino Olaguer died on October 3, 1957 so Special

Proceedings No. 528 for probate of will was filed in the then
Court of First Instance of Albay. Defendant Olivia P. Olaguer was
appointed as administrator pursuant to the will. Later,
defendant Eduardo Olaguer was appointed as co-administrator.
In the order of the probate court dated April 4, 1961, some
properties of the estate were authorized to be sold to pay
obligations of the estate.
Relying upon the order, but without prior notice or permission
from the Probate Court, defendants Olivia P. Olaguer and
Eduardo Olaguer on November 1, 1965 sold to Estanislao
Olaguer 10 parcels of land. The sale to was approved by the
Probate Court on November 12, 1965.
On July 7, 1966, defendant Olivia P. Olaguer executed a Special
Power of Attorney in favor of defendant Jose A. Olaguer,
authorizing the latter to "sell, mortgage, assign, transfer,
endorse and deliver" of 6 properties.
On July 7, 1966, Estanislao Olaguer executed a Special Power of
Attorney in favor of Jose A. Olaguer authorizing the latter to
"sell, mortgage, assign, transfer, endorse and deliver" the 9
properties.
By virtue of this Special Power of Attorney, on March 1, 1967,
Jose A. Olaguer as Attorney-in-Fact of Estanislao Olaguer
mortgaged Lots 7589, 7593 and 7396 to defendant PNB as
security for a loan of 10,000 Pesos. The mortgage was
foreclosed by the PNB on June 13, 1973 and the properties
mortgage were sold at public auction to PNB. On December 10,
1990, the PNB transferred the properties to the Republic of the
Philippines pursuant to Exec. Order No. 407 dated June 14, 1990
for agrarian reform purposes.
On October 29, 1966, Estanislao Olaguer executed a General
Power of Attorney in favor of Jose A. Olaguer, authorizing the
latter to exercise general control and supervision over all of his

25

business and properties, and among others, to sell or mortgage

any of his properties.
On December 29, 1966, Estanislao Olaguer sold to Jose A.
Olaguer for 15,000 the 10 parcels of land he bought from Olivia
P. Olaguer and Eduardo Olaguer.
On March 16, 1968, Estanislao Olaguer sold to Jose A. Olaguer
for 1 Peso and other valuable consideration 2 parcels of land
which have a total area of 2.5 hectares.
On June 5, 1968, Estanislao Olaguer sold another 2 lots to Jose
A. Olaguer for 1 Peso and other valuable consideration.
On May 13, 1971, Jose A. Olaguer in his capacity as Attorney inFact of Estanislao Olaguer sold to his son Virgilio Olaguer for 1
Peso and other valuable consideration.
On July 15, 1974, Jose A. Olaguer sold to his son Virgilio Olaguer
Lot No. 4521 and Lot No. 4522 for 1,000 Pesos.
On September 16, 1978 Virgilio Olaguer executed a General
Power of Attorney in favor of Jose A. Olaguer authorizing the
latter to exercise general control and supervision over all of his
business and properties and among others, to sell or mortgage
the same.
Olivia P. Olaguer and Eduardo Olaguer were removed as
administrators of the estate and on February 12, 1980, plaintiff
Ma. Linda Olaguer Montayre was appointed administrator by the
Probate Court.
The decedent Lino Olaguer have had three marriages. He was
first married to Margarita Ofemaria who died April 6, 1925. His
second wife was Gloria Buenaventura who died on July 2, 1937.
The third wife was the defendant Olivia P. Olaguer.
Jose Olaguer acting upon the general power of attorney sold 8
parcels of land to Emilio Ongjoco.
On 28 January 1980, the Estate of Lino Olaguer filed an action
for the Annulment of Sales of Real Property and/or Cancellation
of Titles in the then Court of First Instance of Albay. The
plaintiffs therein alleged that the sales of the following

properties belonging to the Estate of Lino Olaguer to Estanislao

Olaguer were absolutely simulated or fictitious, the plaintiffs
likewise prayed that the resulting Transfer Certificates of Title
issued to Jose Olaguer, Virgilio Olaguer, Cipriano Duran and the
PNB be annulled.
ISSUE: Whether General Power of Attorney was sufficient to
effect the sale of the subject properties
HELD: Yes, the general power of attorney was sufficient
The Supreme Court held that while the law requires a special
power of attorney, the general power of attorney was sufficient
in this case, as Jose A. Olaguer was expressly empowered to sell
any of Virgilio's properties; and to sign, execute, acknowledge
and deliver any agreement therefor. Even if a document is
designated as a general power of attorney, the requirement of a
special power of attorney is met if there is a clear mandate from
the principal specifically authorizing the performance of the act.
The special power of attorney can be included in the general
power when the act or transaction for which the special power
is required is specified therein.
On its face, the written power of attorney contained the
signature of Virgilio Olaguer and was duly notarized. As such,
the same is considered a public document and it has in its favor
the presumption of authenticity and due execution, which can
only be contradicted by clear and convincing evidence.

26. DBP vs CA, et al.

RE: Liability of agent who exceeds the scope of his
authority
FACTS: Juan Dans, 76 years old, husband Candida, applied for a
loan with DBP and was advised by the latter to obtain a
Mortgage Redemption Insurance (MRI) with the DBP MRI Pool. A

26

loan of 300k was released and DBP deducted the premium for
the MRI from the loan. Days later, Juan died (cardiac arrest) and
DBP informed DBP MRI Pool of his death. It later notified DBP
that Juan is not eligible for MRI coverage being over the
acceptance age limit of 60 years.
DBP informed Candida of the disapproved MRI application and
demanded the payment of the face value of the MRI (amount of
the loan) and offered to refund the premium taken. Candida
paid under protest. She then filed a case against DBP and DBP
MRI Pool for the reimbursement of the sum paid contending that
DBP MRI Pool already insured Juan when DBP required him to
apply for MRI with full knowledge of Juan's age. RTC ruled in
favor of Candida and absolved DBP MRI Pool for not having a
privity of contract with Juan Dans. CA affirmed.
ISSUE: WON DBP MRI Pool is liable
HELD: NO, under the provisions regarding the MRI coverage,
the power to approve MRI applications is logged with DBP MRI
Pool, which in this case, it did not approved. There was no
perfected contract of insurance, hence DBP MRI Pool cannot be
held liable. It was DBP that required Juan to secure MRI
coverage, deducted the premium from his loan and made him
fill up his application for MRI. In this case, DBP is considered (1)
a lender and (2) an INSRANCE AGENT.
As an insurance agent, DBP lead Juan to believed that they had
already fulfilled the requirements, even though DBP is totally
aware of the age limit for MRI coverage acceptance. DBP
exceeded the scope of it authority when it accepted Juan's
application for MRI by collecting the insurance premium and
deducting its agent's commission and service fee. The liability
of an agent who exceeds the scope of his authority depends
upon whether the 3rd person is aware of the limits of the agent's
power. There was no showing that Juan knows of the limitation
on DBP's authority to solicit application for MRIs.

27. Nicholas Cervantes v. CA and Philippine Air Lines,

Inc.
G.R. 125138. 2 March 1999.
RE: Ratification
FACTS: On 27 March 1989, PAL issued to Cervantes a round trip
plane ticket for Manila-Honolulu-Los Angeles-Honolulu-Manila,
which expressly provided an expiry date of one year from
issuance.
Said ticket was issued in compliance with a
Compromise Agreement entered into between the contending
parties in two previous suits before the RTC in Surigao City. On
23 March 1990, Cervantes used it. Upon his arrival in Los
Angeles on the same day, he booked his Los Angeles-Manila
return ticket with the PAL office, and it was confirmed for the 2
April 1990 flight. However, upon learning that the same PAL
plane would make a stopover in San Francisco, and considering
that he would be there on 2 April 1990, Cervantes made
arrangements with PAL for him to board the same flight in San
Francisco instead of boarding in Los Angeles.
When the petitioner checked in at the PAL counter in San
Francisco on 2 April 1990, he was not allowed to board by the
PAL personnel due to the expiration of the validity of his ticket.
Cervantes filed a Complaint for Damages for breach of contract
of carriage as he claimed that the act of the PAL agents in
confirming his ticket extended its period of validity. The RTC
dismissed the complaint for lack of merit. On appeal, the Court
of Appeals affirmed the dismissal.
ISSUE: Whether or not the act of the PAL agents in confirming
the subject ticket extended the period of validity of petitioners
ticket.
HELD: No. The PAL agents did not have authority to do so.

27

As ruled by the CA, Cervantes knew from the very start that the
agents did not have the authority to extend the validity or
lifetime of his ticket as he called the Legal Department of PAL in
the Philippines before he left for the United States. He had firsthand knowledge that the ticket would expire on 27 March 1990,
and that to secure an extension, he would have to file a written
request for extension at PALs office in the Philippines.
Since the PAL agents are not privy to the said Agreement and
petitioner knew that a written request to the legal counsel of
PAL was necessary, he cannot use what the PAL agents did to
his advantage. The said agents acted without authority when
they confirmed the flights of the petitioner.
Under Article 1898 of the New Civil Code, the acts of an agent
beyond the scope of his authority do not bind the principal,
unless the latter ratifies the same expressly or impliedly.
Furthermore, when the third person (Cervantes) knows that the
agent was acting beyond his power or authority, the principal
cannot be held liable for the acts of the agent. If the said third
person is aware of such limits of authority, he is to blame, and is
not entitled to recover damages from the agent, unless the
latter undertook to secure the principals ratification.
Petition dismissed.

28. Banate v. PCRB (2010)

RE: Cross collateral stipulation / apparent authority
DOCTRINE: The existence of apparent authority may be
ascertained through:
1. The general manner in which the corporation holds out
an officer or agent as having the power to act.
2. The acquiescence in his acts of a particular nature, with
actual or constructive knowledge thereof, within or

beyond the scope of his ordinary powers.

3.
The principals liability, however, is limited only to third persons
that have been led reasonably to believe by the conduct of the
principal that such actual authority exists, although none was
given. In other words, apparent authority is determined only by
the acts of the principal and not by the acts of the agent. The
present case failed to show the manner by which PCRB, as
supposed principal, has "clothed" or "held out" its branch
manager as having the power to enter into an agreement, as
claimed by petitioners.
FACTS: On July 1997, Spouses Rosendo Maglasang and
Patrocinia Monilar (Spouses Maglasang) obtained from PCRB a
loan (subject loan) worth P1,070,000.00. The loan was
evidenced by a promissory note payable on January 1998 and
secured by a real estate mortgage over the spouses property
(subject properties), including the house constructed thereon
which is also owned by spouses Melgrid and Bonifacio Cortel,
the spouses Maglasangs daughter and son-in-law, respectively.
Aside from the abovementioned loan, the spouses Maglasang
obtained two other loans from PCRB, which were evidenced by
separate promissory notes and secured by mortgages on their
other properties.
Sometime in November 1997, the spouses Maglasang asked
PCRBs permission to sell the subject properties. They likewise
requested that the subject properties be released from
mortgage since the two other loans were adequately secured by
the other mortgages. Mondigo, PCRB branch manager, verbally
agreed to their requested but required first the full payment of
the subject loan. The spouses Maglasang and Cortel thereafter
sold to Banate the subject properties for P1,750,000.00 and
such amount was used to settle the subject loan. Banate was
able to secure a title in her name, however, the title still carried
the mortgage lien in favor of PCRB. Banate, along with spouses
Maglasang and Cortel requested from PCRB a deed of release of
mortgage but PCRB refused to comply. PCRB invoked the cross

28

collateral stipulation in the mortgage deed which states that:

That as security for the payment of the loan or advance in
principal sum of one million seventy thousand pesos only
(P1,070,000.00) and such other loans or advances already
obtained, or still to be obtained by the MORTGAGOR(s) as
MAKER(s),
CO-MAKER(s)
or
GUARANTOR(s)
from
the
MORTGAGEE plus interest at the rate of _____ per annum and
penalty and litigation charges payable on the dates mentioned
in the corresponding promissory notes, the MORTGAGOR(s)
hereby transfer(s) and convey(s) to MORTGAGEE by way of first
mortgage the parcel(s) of land described hereunder, together
with the improvements now existing for which may hereafter be
made thereon, of which MORTGAGOR(s) represent(s) and
warrant(s) that MORTGAGOR(s) is/are the absolute owner(s) and
that the same is/are free from all liens and encumbrances;
PCRB claims that full payment of the 3 loans obtained from the
bank must be fulfilled before the subject properties may be
released from mortgage. The settlement of the subject loan
merely constituted partial payment of the total obligation. On
the other hand, petitioners claim that the contract was novated
by the subsequent agreement with Mondigo that upon full
payment of the subject loan, subject properties may be released
from mortgage.
ISSUE: WON Mondigos verbal agreement to the petitioners
request novated the mortgage contract.
HELD: NO. Section 23 of the Corporation Code states that the
powers of all corporations shall be exercised by the board of
directors. In the absence of authority from the board of
directors, no person, not even its officers, can validly bind a
corporation. However, the board of directors may validly
delegate some of its functions and powers to its officers,
committees or agents. The authority of a corporate officer or
agent in dealing with third persons may be actual or apparent.
Actual authority is either express or implied. The extent of an
agents express authority is to be measured by the power

delegated to him by the corporation, while the extent of his

implied authority is measured by his prior acts which have been
ratified or approved, or their benefits accepted by his principal.
The doctrine of apparent authority on the other hand, with
special reference to banks, had long been recognized in this
jurisdiction. The existence of apparent authority may be
ascertained through:
1. The general manner in which the corporation holds out
an officer or agent as having the power to act.
2. The acquiescence in his acts of a particular nature, with
actual or constructive knowledge thereof, within or
beyond the scope of his ordinary powers.
The petitioners, in failing to prove that Mondigo had actual
authority to novate the mortgage contract, base their claim on
Mondigos apparent authority. The petitioners claim is
misplaced.
Under the doctrine of apparent authority, acts and contracts of
the agent, as are within the apparent scope of the authority
conferred on him, although no actual authority to do such acts
or to make such contracts has been conferred, bind the
principal. The principals liability, however, is limited only to
third persons that have been led reasonably to believe by the
conduct of the principal that such actual authority exists,
although none was given. In other words, apparent authority is
determined only by the acts of the principal and not by the acts
of the agent. The present case failed to show the manner by
which PCRB, as supposed principal, has "clothed" or "held out"
its branch manager as having the power to enter into an
agreement, as claimed by petitioners. Neither was there any
allegation, much less proof, that PCRB ratified Mondigos act or
is estopped to make a contrary claim. Being a mere branch
manager alone is insufficient to support the conclusion that
Mondigo has been clothed with "apparent authority" to verbally
alter terms of written contracts. Also, it is a settled rule that
persons dealing with an agent are bound at their peril, if they

29

would hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of the agents authority,
and in case either is controverted, the burden of proof is upon
them to establish it.
Being that Mondigo did not have the authority to bind PCRB,
then novation cannot take place. The requisites of novation are:
(1) a previous valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of the old
obligation; and (4) the birth of a valid new obligation. The
second requisite is lacking in this case because the consent of
both parties was never obtained.
29. BACALTOS vs. CA and SAN MIGUEL CORPORATION,
respondents.
G.R. No. 114091 June 29, 1995
RE: Duty to ascertain limits of authority
FACTS: A Trip Charter Party was executed between BACALTOS
COAL MINES, represented by its Chief Operating Officer, RENE
ROSEL SAVELLON" and San Miguel Corporation (SMC),
represented by Francisco B. Manzon, Jr., its Director.
Thereunder, Savellon claims that Bacaltos Coal Mines is the
owner of the vessel M/V Premship II and that for P650,000.00 to
be paid within seven days after the execution of the contract, it
"lets, demises" the vessel to charterer SMC "for three round
trips to Davao."
As payment of the aforesaid consideration, SMC issued a check
payable to "RENE SAVELLON IN TRUST FOR BACALTOS COAL
MINES" for which Savellon issued a receipt under the heading of
BACALTOS COAL MINES with the address at No 376-R Osmea
Blvd., Cebu City.
The vessel was able to make only one trip. Its demands to
comply with the contract having been unheeded, SMC filed
against the petitioners and Rene Savellon a complaint for

specific performance and damages. In their Answer, the

petitioners alleged that Savellon was not their Chief Operating
Officer and that the powers granted to him are only those
clearly expressed in the Authorization which do not include the
power to enter into any contract with SMC.
ISSUE: Whether petitioners are solidarily liable with Rene
Savellon to San Miguel Corp?
HELD: No. Every person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the
agent. If he does not make such inquiry, he is chargeable with
knowledge of the agent's authority, and his ignorance of that
authority will not be any excuse. Persons dealing with an
assumed agent, whether the assumed agency be a general or
special one, are bound at their peril, if they would hold the
principal, to ascertain not only the fact of the agency but also
the nature and extent of the authority, and in case either is
controverted, the burden of proof is upon them to establish it.
In the instant case, since the agency of Savellon is based on a
written document, the Authorization provides for the extent and
scope of his powers. The language of the Authorization is clear.
It pertinently states as follows:
I. GERMAN A. BACALTOS, of legal age, Filipino, widower, and
residing at second street, Espina Village, Cebu City, province of
Cebu, Philippines, do hereby authorize RENE R. SAVELLON, of
legal age, Filipino and residing at 376-R Osmea Blvd., Cebu
City, Province of Cebu, Philippines, to use the coal operating
contract of BACALTOS COAL MINES of which I am the proprietor,
for any legitimate purpose that it may serve. Namely, but not
by way of limitation, as follows:
(1) To acquire purchase orders for and in behalf of BACALTOS
COAL MINES;
(2) To engage in trading under the style of BACALTOS COAL
MINES/RENE SAVELLON;
(3) To collect all receivables due or in arrears from people or
companies having dealings under BACALTOS COAL MINES/RENE
SAVELLON;

30

(4) To extend to any person or company by substitution the

same extent of authority that is granted to Rene Savellon;
(5) In connection with the preceeding paragraphs to execute
and sign documents, contracts, and other pertinent papers.
The conclusion then of the Court of Appeals that the
Authorization includes the power to enter into the Trip Chapter
Party because the "five prerogatives" are prefaced by such
clause, is seriously flawed. It fails to note that the broadest
scope of Savellon's authority is limited to the use of the coal
operating contract and the clause cannot contemplate any
other power not included in the enumeration or which are
unrelated either to the power to use the coal operating contract
or to those already enumerated. Furthermore, had SMC
exercised due diligence and prudence, it should have known in
no time that there is absolutely nothing on the face of the
Authorization that confers upon Savellon the authority to enter
into any Trip Charter Party.
SMC's negligence was further compounded by its failure to
verify if Bacaltos Coal Mines owned a vessel. A party desiring to
charter a vessel must satisfy itself that the other party is the
owner of the vessel or is at least entitled to its possession with
power to lease or charter the vessel. In the instant case, SMC
made no such attempt. It merely satisfied itself with the claim
of Savellon that the vessel it was leasing is owned by Bacaltos
Coal Mines and relied on the presentation of the Authorization
as well as its test on the sea worthiness of the vessel. it is clear
therefrom that petitioners are not engaged in shipping but in
coal mining or in coal business, SMC should have required the
presentation of pertinent documentary proof of ownership of the
vessel to be chartered.
Having thus found that SMC was the author of its own damage
and that the petitioners are, therefore, free from any liability,
the Supreme Court ruled that only RENE SAVELLON is liable to
SMC.

30. LIMKETKAI vs.CA, BANK OF THE PHILIPPINE ISLANDS

and NATIONAL BOOK STORE
G.R. No. 118509 December 1, 1995
RE: Principal bound by the authority of the agent

FACTS: May 14, 1976, Philippine Remnants Co., Inc. constituted

BPI as its trustee to manage, administer, and sell its real estate
property a 33,056-square meter lot at Barrio Bagong Ilog, Pasig.
On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker
was given formal authority by BPI to sell the lot for P1,000.00
per square meter. This arrangement was concurred in by the
owners of the Philippine Remnants. Broker Revilla contacted
Alfonso Lim of petitioner company who agreed to buy the land.
On July 9, 1988, Revilla formally informed BPI that he had
procured a buyer, herein petitioner,
On July 11, 1988, petitioner's officials, Alfonso Lim and Albino
Limketkai, went to BPI to confirm the sale. They were
entertained by Vice-President Merlin Albano and Asst. VicePresident Aromin. The Tparties finally agreed that the lot would
be sold at P1,000.00 per square meter to be paid in cash. Since
the authority to sell was on a first come, first served and nonexclusive basis, it may be mentioned at this juncture that there
is no dispute over petitioner's being the first comer and the
buyer to be first served.
Notwithstanding the final agreement to pay P1,000.00 per
square meter on a cash basis, Alfonso Lim asked if it was
possible to pay on terms. He wrote BPI through Merlin Albano
embodying the payment initially of 10% and the remaining 90%
within a period of 90 days.

31

Two or three days later, petitioner learned that its offer to pay
on terms had been frozen. Alfonso Lim went to BPI on July 18,
1988 and tendered the full payment of P33,056,000.00 to
Albano. The payment was refused because Albano stated that
the authority to sell that particular piece of property in Pasig
had been withdrawn from his unit. The same check was
tendered to BPI Vice-President Nelson Bona who also refused to
receive payment.
An action for specific performance with damages was thereupon
filed on August 25, 1988 by petitioner against BPI. In the course
of the trial, BPI informed the trial court that it had sold the
property under litigation to NBS on July 14, 1989.
The Regional Trial Court of the National Capital Judicial Region
stationed in Pasig rendered judgement in favor of rendered
judgment on favor or petitioner -- Declaring the Deed of Sale of
the property covered by T.C.T. No. 493122 in the name of the
Bank of the Philippine Islands, situated in Barrio Bagong Ilog,
Pasig, Metro Manila, in favor of National Book Store, Inc., null
and void.
On Appeal Respondents, however, contend that. Vice-Presidents
Aromin and Albano had no authority to bind BPI on this
particular transaction. The CA reversed the trial court's decision
and dismissed petitioner's complaint for specific performance
and damages
ISSUE: W/N bank officials involved in the transaction authorized
by BPI to enter into the questioned contract.
HELD:
Yes, Vice-Presidents Aromin and Albano had the
authority to bind BPI in this particular transaction.
Rolando Aromin was BPI Assistant Vice-President and Trust
Officer. He directly supervised the BPI Real Property
Management Unit. He had been in the Real Estate Division since
1985 and was the head supervising officer of real estate
matters. Aromin had been with the BPI Trust Department since

1968 and had been involved in the handling of properties of

beneficial owners since 1975
Exhibit 10 of BPI, the February 15, 1989 letter from Senior VicePresident Edmundo Barcelon, while purporting to inform Aromin
of his poor performance, is an admission of BPI that Aromin was
in charge of Torrens titles, lease contracts, problems of tenants,
insurance policies, installment receivables, management fees,
quitclaims, and other matters involving real estate transactions.
His immediate superior, Vice-President Merlin Albano had been
with the Real Estate Division for only one week but he was
present and joined in the discussions with petitioner.
There is nothing to show that Alfonso Lim and Albino Limketkai
knew Aromin before the incident. Revilla brought the brothers
directly to Aromin upon entering the BPI premises. Aromin acted
in a perfectly natural manner on the transaction before him with
not the slightest indication that he was acting ultra vires. This
shows that BPI held Aromin out to the public as the officer
routinely handling real estate transactions and, as Trust Officer,
entering into contracts to sell trust properties.
Respondents state and the record shows that the authority to
buy and sell this particular trust property was later withdrawn
from Trust Officer Aromin and his entire unit. If Aromin did not
have any authority to act as alleged, there was no need to
withdraw authority which he never possessed.
Accordingly a banking corporation is liable to innocent third
persons where the representation is made in the course of its
business by an agent acting within the general scope of his
authority
The position and title of Aromin alone, not to mention the
testimony and documentary evidence about his work, leave no
doubt that he had full authority to act for BPI in the questioned
transaction. There is no allegation of fraud, nor is there the least
indication that Aromin was acting for his own ultimate benefit.
BPI later dismissed Aromin because it appeared that a top
official of the bank was personally interested in the sale of the

32

Pasig property and did not like Aromin's testimony. Aromin was
charged with poor performance but his dismissal was only
sometime after he testified in court. More than two long years
after the disputed transaction, he was still Assistant VicePresident of BPI.
Everything in the record points to the full authority of Aromin to
bind the bank, except for the self-serving memoranda or letters
later produced by BPI that Aromin was an inefficient and
undesirable officer and who, in fact, was dismissed after he
testified in this case. Aromin's alleged inefficiency is not proof
that he was not fully clothed with authority to bind BPI.

31. CHINA AIRLINES VS. DANIEL CHIOK

G.R. No 152122, July 30, 2003
RE: Agents gross and reckless negligence amounting to
bad faith
FACTS: On September 18, 1981, Daniel Chiok Purchased from
China Airlines an airplane ticket covering Manila-TaipeiHongkong-Manila, which was endorsed later on to Philippine
Airlines.
Thereafter, as Chiok was in his return flight back to manila, he
was informed upon his arrival at the Hong Kong International
Airport that all passengers in his flight were booked at the next
date due to some difficulties. To this, he informed the PAL
personnel that as the founding director of the Philippines
Polysterine Paper Corporation, that he had to be back on
schedule due to a business option he had to execute on
November 25, 1985.
Chiok returned to the airport, where Cathay Pacific stewardess
Lok Chan took and received his ticket and luggage, but however
he found that he was not in the list of passengers, and thus

could not be permitted to board the flight. Thereafter finding

that his new luggage was missing and some 14,000 dollars
worth of cosmetics as well, he complained to Carmen, the
terminal supervisor.
ISSUE: Whether the China Airlines is liable to Daniel Chiok by
virtue of the acts committed by the employees of PAL to which
they endorsed the ticket.
HELD: YES. As held in American Airlines v. Court of Appeals,
under a general pool partnership agreement, the ticket issuing
airline is the principal in a contract of carriage, while the
endorsee-airline is the agent.
Thus, with such fact established in the case, it may be
conclusively observed that there is an agency relationship
between China Airlines and Philippine Airlines. As such, China
Airlines as principal is bound by the Acts of its agents even if
such has caused unintended damage, provided that Philippine
Airlines acted within the scope of its authority as it did in the
case.
As Justice Panganiban opined in this case, a common carrier has
a peculiar relationship to its passengers, and that it is in line
with public interest that the ticket-issuing airline acts as
principal, and is thus liable for the acts and omissions of any
errant carrier to which it may have endorsed any part of the
trip.

32. KUE CUISONvs.THE COURT OF APPEALS, VALIANT

INVESTMENT ASSOCIATES,
G.R. No. 88539 October 26, 1993
RE: Liability of principal for mismanagement of business
by his agent

33

FACTS: Kue Cuison is a sole proprietorship engaged in the

purchase and sale of newsprint, bond paper and scrap. Valiant
Investment Associates delivered various kinds of paper products
to a certain Tan. The deliveries were made by Valiant pursuant
to orders allegedly placed by Tiac who was then employed in
the Binondo office of petitioner.
Upon delivery, Tan paid for the merchandise by issuing several
checks payable to cash at the specific request of Tiac. In turn,
Tiac issued nine (9) postdated checks to Valiant as payment for
the paper products. Unfortunately, sad checks were later
dishonored by the drawee bank.
Thereafter, Valiant made several demands upon petitioner to
pay for the merchandise in question, claiming that Tiac was duly
authorized by petitioner as the manager of his Binondo office, to
enter into the questioned transactions with Valiant and Tan.
Petitioner denied any involvement in the transaction entered
into by Tiac and refused to pay Valiant. Left with no recourse,
private respondent filed an action against petitioner for the
collection of sum of money representing the price of the
merchandise. After due hearing, the trial court dismissed the
complaint against petitioner for lack of merit.
On appeal, however, the decision of the trial court was
modified, but was in effect reversed by the CA. CA ordered
petitioner to pay Valiant with the sum plus interest, AF and
costs.
ISSUE: WON Tiac possessed the required authority from
petitioner sufficient to hold the latter liable for the disputed
transaction
HELD: YES. As to the merits of the case, it is a well-established
rule that 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 it matters not whether the
representations are intentional or merely negligent so long as
innocent, third persons relied upon such representations in good
faith and for value.
Article 1911 of the Civil Code provides: Even when the agent
has exceeded his authority, the principal is solidarily liable with
the agent if the former allowed the latter to act as though he
had full powers. The above-quoted article is new. It is intended
to protect the rights of innocent persons. In such a situation,
both the principal and the agent may be considered as joint
tortfeasors whose liability is joint and solidary.
It is evident from the records that by his own acts and
admission, petitioner held out Tiac to the public as the manager
of his store in Binondo. More particularly, petitioner explicitly
introduced to Villanueva, Valiants manager, as his (petitioners)
branch manager as testified to by Villanueva. Secondly, Tan,
who has been doing business with petitioner for quite a while,
also testified that she knew Tiac to be the manager of the
Binondo branch. Even petitioner admitted his close relationship
with Tiu Huy Tiac when he said that they are like brothers
There was thus no reason for anybody especially those
transacting business with petitioner to even doubt the authority
of Tiac as his manager in the Binondo branch.
Tiac, therefore, by petitioners own representations and
manifestations, became an agent of petitioner by 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 (Article 1431, Civil Code of the
Philippines). A party cannot be allowed to go back on his own
acts and representations to the prejudice of the other party
who, in good faith, relied upon them. Taken in this light,.
petitioner is liable for the transaction entered into by Tiac on his
behalf. Thus, even when the agent has exceeded his authority,

34

the principal is solidarily liable with the agent if the former

allowed the latter to fact as though he had full powers (Article
1911 Civil Code), as in the case at bar.
Finally, although it may appear that Tiac defrauded his principal
(petitioner) in not turning over the proceeds of the transaction
to the latter, such fact cannot in any way relieve nor exonerate
petitioner of his liability to private respondent. For it is an
equitable maxim that as between two innocent parties, the one
who made it possible for the wrong to be done should be the
one to bear the resulting loss

trustor or the party manifested an intention to create the kind of

relationship which in law is known as trust.

34. Vda. De Retuerto vs. Barz

RE: Constructive trust

33. Vda De Mapa vs. CA

35. Vda. De Gualberto vs. Go

RE: Express trust

RE: Prescriptive period for action for reconveyance

FACTS: In her will, a testatrix designated her husband as

universal and sole heir with the obligation to deliver the
properties in question to certain persons who were referred to
as "beneficiaries". The word "trust" does not appear in the will.

FACTS: Petitioners are the heirs of the late Generoso Gualberto,

former registered owner of a parcel of land situated at Redor
Street, Barangay Redor, Siniloan, Laguna under Transfer
Certificate of Title (TCT) No. 9203, containing an area of 169.59
square meters, more or less, and declared for taxation purposes
under Tax Declaration No. 4869.

ISSUE: Was there a creation of trust in favor of the parties over

the properties adverted to in the will?
HELD: Yes. The designations, coupled with the other provisions
for co-ownership nd joint administration of the properties and
other conditions imposed by the testatrix, clearly demonstrated
her intent that the legal title to the properties should vest in her
husband and the beneficial or equitable interest thereto should
repose in said persons in the will. Technical or particular forms
of words or phrases are not essential to the manifestation of an
intention to create a trust. What is important is whether the

Sometime in 1965, the subject parcel of land was sold by

Generoso Gualberto and his wife, herein petitioner Consuelo
Natividad Vda. De Gulaberto (Consuelo, for brevity), to
respondents father Go S. Kiang for P9,000.00, as evidenced by
a deed entitled Kasulatan ng Bilihang Tuluyan[ dated January
15, 1965 (Kasulatan, for brevity), which deed appears to have
been duly notarized by then Municipal Judge Pascual L. Serrano
of the Municipal Court of Siniloan, Laguna and recorded.

35

On April 1, 1973, petitioner Consuelo executed an

Affidavit attesting to the fact that the aforementioned parcel of
land had truly been sold by her and her husband Generoso to
the spouses Go S. Kiang and Rosa Javier Go, as borne by the
said Kasulatan. Evidently, the affidavit was executed for
purposes of securing a new tax declaration in the name of the
spouses Go.
In a Forcible Entry case filed by respondents against petitioners
before the Court of Siniloan-Famy, Siniloan, a decision was
rendered in favor of respondents.
In the meantime, on June 14, 1978, Original Certificate of Title
(OCT) No. 1388 was issued in the name of respondent Rosa
Javier Go, wife of Go S. Kiang.
Such was the state of things when, petitioners filed against
respondents their complaint in this case for Conveyance, Accion
Publiciana, and Quieting of Title with Damages. After due
proceedings, the trial court, dismissed petitioners. Petitioners
insist that their action for reconveyance is imprescriptible.
Hence, this petition.
ISSUE: WHETHER OR NOT THE RIGHT OF A REGISTERED
OWNER TO DEMAND THE RETURN OF HIS PROPERTY CAN BE
LOST BY PRESCRIPTION OR LACHES.
HELD: The assailed decision of the Court of Appeals, which
affirmed that of the trial court, faithfully adhered to the abovestated doctrine. We simply find no cogent reason to disturb the
same, much less to review the factual basis of both courts
holding that the 10-year prescriptive period had expired.

An action for reconveyance of real property based on implied or

constructive trust is not barred by the aforementioned 10-year
prescriptive period ONLY if the plaintiff is in actual, continuous
and peaceful possession of the property involved. In DBP vs.
CA, the Court explained:

Generally, an action for reconveyance based on an implied or

constructive trust, such as the instant case, prescribes in 10
years from the date of issuance of decree of registration.
EXCEPT, this rule does not apply when the plaintiff is in actual
possession of the land

Basis: The law thereby creates the obligation of the trustee to

reconvey the property and the title thereto in favor of the true
owner. Correlating Section 53, paragraph 3 of Presidential
Decree No. 1529 and Article 1456 of the Civil Code with Article
1144 (2) of the Civil Code, the prescriptive period for the
reconveyance of fraudulently registered real property is ten
(10) years reckoned from the date of the issuance of the
certificate of title

36