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ALLIED BANKING CORPORATION FACTS Perla Mercado executed a Special Power of Attorney (SPA) in favor of her husband, Julian D. Mercado over several pieces of real property registered under her name. Julian obtained a loan from the Allied Banking Corporation in the amount of P3,000,000.00, secured by real estate mortgage constituted on TCT No. RT18206 (106338) registered with the Registry of Deeds of Quezon City (subject property). Still using the subject property as security, Julian obtained an additional loan from the respondent in the sum of P5,000,000.00. It appears, however, that there was no property identified in the SPA as TCT No. RT 18206 (106338) and registered with the Registry of Deeds of Quezon City. What was identified in the SPA instead was the property covered by TCT No. RT-106338 registered with the Registry of Deeds of Pasig. Julian defaulted on the payment of his loan obligations. The Mercados initiated with the RTC an action for the annulment of REM constituted over the subject property on the ground that the same was not covered by the SPA and that the said SPA, at the time the loan obligations were contracted, no longer had force and effect since it was previously revoked by Perla, as evidenced by the Revocation of SPA signed by the latter. RTC rendered a Decision declaring the REM constituted over the subject property null and void, for Julian was not authorized by the terms of the SPA to mortgage the same. Court of Appeals reversed the RTC Decision and upheld the validity of the REM constituted over the subject property on the strength of the SPA. The appellate court declared that Perla intended the subject property to be included in the SPA she executed in favor of Julian, and that her subsequent revocation of the said SPA, not being contained in a public instrument, cannot bind third persons. ISSUES I. WHETHER OR NOT JULIAN WAS AUTHORIZED BY PERLA TO MORTGAGE HER PROPERTIES. II. WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER SUBJECT PROPERTY.

HELD Under Article 1878 of the Civil Code, a special power of attorney is necessary in cases where real rights over immovable property are created or conveyed. In the SPA executed by Perla in favor of Julian on 28 May 1992, the latter was conferred with the authority to sell, alienate, mortgage, lease and deal otherwise the different pieces of real and personal property registered in Perlas name. The SPA likewise authorized Julian [t]o exercise any or all acts of strict dominion or ownership over the identified properties, and rights and interest therein. The existence and due execution of this SPA by Perla was not denied or challenged by petitioners. There is no question therefore that Julian was vested with the power to mortgage the pieces of property identified in the SPA. Whether the subject property was among those identified in the SPA, so as to render Julians mortgage of the same valid, is a question to be still resolved. The subject property was not among those enumerated therein. There is no obvious reference to the subject property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. Consequently, the act of Julian of constituting a mortgage over the subject property is unenforceable for having been done without authority.

NATIONAL FOOD AUTHORITY VS. INTERMEDIATE APPELLATE COURT FACTS Gil Medalla, as commission agent of the plaintiff Superior Shipping Corporation (SSC), entered into a contract for hire of ship known as MV Sea Runner with defendant National Grains Authority: to transport on the MV Sea Runner 8,550 sacks of rice belonging to defendant National Grains Authority from the port of San Jose, Occidental Mindoro, to Malabon, Metro Manila. Upon completion of the delivery of rice at its destination, SSC wrote a letter requesting defendant NGA that it be allowed to collect the amount stated in its statement of account (Exhibit D). The statement of account included not only a claim for freightage but also claims for demurrage and stevedoring charges amounting to P93,538.70.

Subsequently, SSC wrote again defendant NGA, this time specifically requesting that the payment for freightage and other charges be made to it and not to defendant Medalla because plaintiff was the owner of the vessel MV Sea Runner (Exhibit E). In reply, defendant NGA on informed plaintiff that it could not grant its request because the contract to transport the rice was entered into by defendant NGA and defendant Medalla who did not disclose that he was acting as a mere agent of plaintiff (Exhibit F). Thereupon NGA paid defendant Medalla the sum of P25,974.90, for freight services in connection with the shipment of 8,550 sacks of rice (Exhibit A). SSC defendant Medalla demanding that he turn over to plaintiff the amount of P27,000.00 paid to him by defendant NFA. Defendant Medalla, however, ignored the demand. SSC was therefore constrained to file the instant complaint.

The provision of this article shall be understood to be without prejudice to the actions between the principal and agent. Consequently, when things belonging to the principal (in this case, Superior Shipping Corporation) are dealt with, the agent is bound to the principal although he does not assume the character of such agent and appears acting in his own name. In other words, the agents apparent representation yields to the principals true representation and that, in reality and in effect, the contract must be considered as entered into between the principal and the third person (Sy Juco and Viardo v. Sy Juco, 40 Phil. 634). Corollarily, if the principal can be obliged to perform his duties under the contract, then it can also demand the enforcement of its rights arising from the contract.

EUROTECH INDUSTRIAL TECHNOLOGIES, INC. VS. CUIZON It is contended NFA that it is not liable under the exception to the rule (Art. 1883) since it had no knowledge of the fact of agency between respondent Superior Shipping and Medalla at the time when the contract was entered into between them (NFA and Medalla). ISSUE Whether or not the instant case falls within the exception of the general rule provided for in Art. 1883 of the Civil Code of the Philippines. HELD Petitioner NFAs contention holds no water. It is an undisputed fact that Gil Medalla was a commission agent of respondent Superior Shipping Corporation which owned the vessel MV Sea Runner that transported the sacks of rice belonging to petitioner NFA. The context of the law is clear. Art. 1883, which is the applicable law in the case at bar provides: Art. 1883. If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal. In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal. FACTS Eurotech Industrial Technologies is engaged in the business of importation and distribution of various European industrial equipment for customers here in the Philippines. It has as one of its customers Impact Systems Sales (Impact Systems) which is a sole proprietorship owned by respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales manager of Impact Systems. Respondent EDWIN (with Alberto de Jesus), general manager of petitioner Eurotech Industrial Technologies, executed a Deed of Assignment of receivables in favor of the latter. Allegedly unbeknownst to EIT, respondents, despite the existence of the Deed of Assignment, proceeded to collect from Toledo Power Company the amount of P365,135.29. Alarmed by this development, EIT made several demands upon respondents to pay their obligations. As a result, respondents were able to make partial payments to petitioner. Petitioners counsel sent respondents a final demand letter wherein it was stated that as of 11 June 1996, respondents total obligations stood at P295,000.00 excluding interests and attorneys fees. Because of respondents failure to abide by said final demand letter, petitioner instituted a complaint for sum of money, damages, with application for preliminary attachment against herein respondents.

EDWIN alleged that he is not a real party in interest in this case. According to him, he was acting as mere agent of his principal, which was the Impact Systems, in his transaction with petitioner and the latter was very much aware of this fact. ISSUE Whether EDWIN Cuizon, as agent of impact systems sales/ERWIN Cuizon, is personally liable, because he has neither acted beyond the scope of his agency nor did he participate in the perpetuation of a fraud. HELD Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the party with whom he contracts. The same provision, however, presents two instances when an agent becomes personally liable to a third person. The first is when he expressly binds himself to the obligation and the second is when he exceeds his authority. In the last instance, the agent can be held liable if he does not give the third party sufficient notice of his powers. We hold that respondent EDWIN does not fall within any of the exceptions contained in this provision. Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge pump unless it received, in full, the payment for Impact Systems indebtedness.36 We may very well assume that Impact Systems desperately needed the sludge pump for its business since after it paid the amount of fifty thousand pesos (P50,000.00) as down payment on 3 March 1995,37 it still persisted in negotiating with petitioner which culminated in the execution of the Deed of Assignment of its receivables from Toledo Power Company on 28 June 1995.38 The significant amount of time spent on the negotiation for the sale of the sludge pump underscores Impact Systems perseverance to get hold of the said equipment. There is, therefore, no doubt in our mind that respondent EDWINs participation in the Deed of Assignment was reasonably necessary or was required in order for him to protect the business of his principal. Had he not acted in the way he did, the business of his principal would have been adversely affected and he would have violated his fiduciary relation with his principal.

ANGELES VS. PHILIPPINE NATIONAL RAILWAYS (PNR) FACTS Philippine National Railways (PNR) informed a certain Gaudencio Romualdez (Romualdez, hereinafter) that it has accepted the latters offer to buy, on an AS IS, WHERE IS basis, the PNRs scrap/unserviceable rails located in Del Carmen and Lubao, Pampanga at P1,300.00 and P2,100.00 per metric ton, respectively, for the total amount of P96,600.00. After paying the stated purchase price, Romualdez addressed a letter to Atty. Cipriano Dizon, PNRs Acting Purchasing Agent. Romualdez in a letter designated Lizette R. Wijangco-Angeles as her agent. 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 rails in Murcia, Capas and San Miguel, Tarlac instead. However, the 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 which, at P2,100.00 per metric ton, were worth P114,781.80, an amount that exceeds the claim for refund. The spouses Angeles filed suit against the PNR and its corporate secretary, Rodolfo Flores, among others, for specific performance and damages before the Regional Trial Court of Quezon City. In it, they prayed that PNR be directed to deliver 46 metric tons of scrap/unserviceable rails and to pay them damages and attorneys fees. ISSUE Are the spouses Angeles agents or asignees? HELD The spouses Angeles are not the real parties-in-interest. Lizette was merely a representative of Romualdez in the withdrawal of scrap or unserviceable

rails awarded to him and not an assignee to the latters rights with respect to the award. Where agency exists, the third partys (in this case, PNRs) 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-in-interest, 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. Upon scrutiny of the subject Romualdezs letter to Atty. Cipriano Dizon dated May 26, 1980, it is at once apparent that Lizette was to act just as a representative of Romualdez in the withdrawal of rails, and not an assignee.

days later, Cruz received another Confirmation of Sale and a copy of the Debit Memo. Subsequently, Cruz returned to the bank and sought to withdraw her P200,000.00. After verification of her records, however, she was informed that the investment appeared to have been already withdrawn by her on August 25, 1986. There was no copy on file of the Confirmation of Sale and the Debit Memo allegedly issued to her by Quimbo. Quimbo herself was not available for questioning as she had not been reporting for the past week. Cruzs reaction was to file a complaint for breach of contract against Prudential Bank in the Regional Trial Court of Quezon City. She demanded the return of her money with interest, plus damages and attorneys fees. In its answer, the bank denied liability, insisting that Cruz had withdrawn her investment. The bank also instituted a third-party complaint against Quimbo, who did not file an answer and was declared in default.15 The bank, however, did not present any evidence against her. ISSUE Is Prudential Bank liable? HELD The principal is liable for obligations contracted by the agent. The agents apparent representation yields to the principals true representation and the contract is considered as entered into between the principal and the third person. A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their representative capacity but not for acts outside the scope of their authority. (9 c.q.s. p. 417) A bank holding out its officers and agent as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). 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 even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit. Application of these principles is especially

PRUDENTIAL BANK VS. COURT OF APPEALS FACTS Aurora Cruz renewed her investment with Prudential Bank. Susan Quimbo attended to her, as she did during Cruzs past transactions. Quimbo prepared a Credit Memo crediting the amount of P200,000.00 in Cruzs savings account passbook. She also prepared a Debit Memo for the amount of P196,122.88 to cover the re-investment of P200,000.00 minus the prepaid interest of P3,877.02.5 This time, Cruz was asked to sign a Withdrawal Slip for P196,122.98, representing the amount to be re-invested after deduction of the prepaid interest. Quimbo explained this was a new requirement of the bank. Several

necessary because banks have a fiduciary relationship with the public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and supervision of its employees, resulting in prejudice to their depositors.

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. A perusal of the Special Power of Attorney would show that petitioner (represented by third-party defendant Austria) and respondent Guevarra intended to enter into a principal-agent relationship. Despite the word special in the title of the document, the contents reveal that what was constituted was actually a general agency. The instruction of petitioner as the principal could not be any clearer. Respondent Guevarra was authorized to pay the claim of the insured, but the payment shall come from the revolving fund or collection in his possession. Having deviated from the instructions of the principal, the expenses that respondent Guevarra incurred in the settlement of the claims of the insured may not be reimbursed from petitioner Dominion. This conclusion is in accord with Article 1918, Civil Code, which states that: The principal is not liable for the expenses incurred by the agent in the following cases: (1) If the agent acted in contravention of the principals instructions, unless the latter should wish to avail himself of the benefits derived from the contract; x x x xxx x x x

DOMINION INSURANCE CORPORATION VS. COURT OF APPEALS FACTS Rodolfo S. Guevarra instituted a civl case for sum of money against defendant Dominion Insurance Corporation. Plaintiff sought to recover thereunder the sum of P156,473.90 which he claimed to have advanced in his capacity as manager of DIC to satisfy certain claims filed by defendants clients. In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for P249,672.53, representing premiums that plaintiff allegedly failed to remit, Subsequently, defendant filed a third-party complaint against Fernando Austria, who, at the time relevant to the case, was its Regional Manager for Central Luzon area. The pre-trial conference has been repeatedly postponed on motion of the defendant Corporation, the defendant Dominion Insurance Corporation is hereby declared (as) in default and plaintiff is allowed to present his evidence ISSUE I. Whether respondent Guevarra acted within his authority as agent for petitioner; and II. Whether respondent Guevarra is entitled to reimbursement of amounts he paid out of his personal money in settling the claims of several insured. HELD 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. The basis for agency is representation. On the part of the principal, there must be an actual intention to appoint or an intention naturally inferrable from his words or actions; and on the part of the agent,

However, while the law on agency prohibits respondent Guevarra from obtaining reimbursement, his right to recover may still be justified under the general law on obligations and contracts. Article 1236, second paragraph, Civil Code, provides: Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. In this case, when the risk insured against occurred, petitioners liability as insurer arose. This obligation was extinguished when respondent Guevarra paid the claims and obtained Release of Claim Loss and Subrogation Receipts from the insured who were paid.

Thus, to the extent that the obligation of the petitioner has been extinguished, respondent Guevarra may demand for reimbursement from his principal. To rule otherwise would result in unjust enrichment of petitioner. The extent to which petitioner was benefited by the settlement of the insurance claims could best be proven by the Release of However, the amount of the revolving fund/collection that was then in the possession of respondent Guevarra as reflected in the statement of account dated July 11, 1990 would be deducted from the above amount. The outstanding balance and the production/remittance for the period corresponding to the claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the amount that may be reimbursed to respondent Guevarra.