BA FINANCE CORPORATION

Vs.
COURT OF APPEALS, MANUEL CUAD and LILIA
CUADY
FACTS:
Manuel and Lilia obtained from Super Cars a credit covering the amount of
one vehicle. This credit was evidenced by a promissory note executed by the
borrowers in favor of Supercars.
To secure compliance under the promissory note, spouses constituted a
chattel mortgage.
Supercars assigned the promissory note to BA Finance. Spouses paid to the
Finance Corporation partial amounts of the loan.
The Finance corporation obtained a renewal of the insurance coverage over
the vehicle with an insurance company when Spouses failed to renew the
said insurance.
Under the terms of Insurance, loss under the policy is to be paid to the
finance corporation.
The vehicle then figured an accident. The Spouses then asked the finance
corporation to consider the accident as a total loss, claim the insurance
proceeds from the insurance company, apply the same to the unpaid balance
and return to the Spouses any surplus.
But instead of heeding the request, the finance corporation had the
car repaired. Eventually, the car bogged down.
Again, the spouses asked the finance corporation to pursue their prior
instruction which the latter did not respond to. Spouses stopped paying the
note.
Corporation filed an action to recover unpaid balance which was dismissed
and thereafter affirmed.
ISSUE:
Did the corporation waived its right to collect from the spouses by failing to
enforce and collect the insurance of the vehicle?
SC RULING:

Yes.
The finance corporation subrogated Supercars making the former bound by
the terms and conditions of the chattel mortgage which made the finance
corporation the attorney-in-fact of the Spouses with full power to file,
prosecute, compromise or settle insurance claims and to deliver
corresponding documents to prove the claim and to collect the same.
In granting the same, agency was created making finance corporation bound
to carry out the agency and liable for damages due to its refusal to do the
prior instructions.
It would be unjust, unfair and inequitable to require the spouses to pay the
unpaid balance on account of stubborn refusal and failure of the finance
corporation to avail the insurance money.

BRITISH AIRWAYS
Vs.
COURT OF APPEALS, GOP MAHTANI and
PHILIPPINE AIRLINES
FACTS:
Mahtani decided to visit his relatives in India. He obtained the services of a
certain Mr. Gumar to prepare his travel plans.
Agent then purchased a ticket from British Airways. Since the airline
company has no direct flight from Manila to India, Mahtani had to take a
flight to Hongkong via PAL and upon arrival to Hongkong, Mahtani had to
take a connecting flight to Bombay.
However, when Mahtani arrived in India, he discovered that his
luggage was missing and upon inquiry from BA, he was told that it
might have been diverted to London. He waited for a week for his
luggage.
Back in the Philippines, Mahtani filed for damages against BA and Gumar.
BA then filed a complaint against PAL alleging that the reason for the nontransfer of the luggage was because of PALs late arrival in HongKong.
Trial Court favored Mahtani which was affirmed by the CA.
The complaint against PAL was dismissed.

ISSUE:
Is there a contract of agency between BA and PAL?
SC RULING:
Yes.
The contract of air transportation was exclusively between Mahtani and
BA, the latter merely endorsing the Manila to HongKong flight to PAL, as its
subcontractor or agent. In fact, the conditions in the ticket provides that the
carriage to be performed is regarded as a single operation.
As an agent, PAL should be responsible for any negligence in the
performance of its function and is liable for damages which BA may suffer by
reason of the negligent act.
Both BA and PAL are members of the International Air Transport Association
wherein member airlines are regarded as agent of each other in the issuance
of the tickets and other matters.
However, since there is a breach of contract which is exclusively between BA
and Mahtani, Mahtani can sue BA alone since PAL is not a party to the
contract. But PAL is liable for its negligent acts if it was the proximate cause
of Mahtanis unfortunate experience.
SC reinstated the 3rd pary complaint.

NICHOLAS Y. CERVANTES
Vs.
COURT OF APPEALS AND PHILIPPINE AIRLINES
FACTS:
PAL issued to Cervantes a round trip plane ticket. The ticket provides an
expiry date of one year from issuance in accordance with the Compromise
Agreement entered into by the 2 parties in 2 previous suits.
4 days before expiry date, Cervantes used it. Upon arrival in the desired
destination, Cervantes booked his return ticket (LA to Manila) with PAL which
was confirmed a week and a half after he used the ticket by 2 PAL agents.
Upon learning that PAL would stop over in San Francisco, Cervantes made
arrangements with PAL to board him in the San Francisco flight, instead of
LA.

But when Cervantes checked in at the PAL counter in San Francisco,

he was not allowed to board and his ticket was marked TICKET NOT
ACCEPTED DUE EXPIRATION OF VALIDITY
Cervantes filed for damages for breach of contract of carriage but this was
dismissed for lack of merit.
ISSUE:
Did the PAL agents, in confirming the subject ticket extended its validity?
SC RULING:
No.
The conditions of contract provides that the ticket is good for one year from
date of issue, except as otherwise provided in this ticket etc.
Cervantes was aware of the risk of that his ticket could expire before he
returned to the Philippines.
The PAL agents had no authority to extend the validity of the ticket in
question. Cervantes know this when he called the Legal Department of PAL
before he left for LA. Cervantes also knew that to secure an extension, he
would have to file a written request for extension.
Since PAL agents are not privy to the said Compromise agreement and
Cervantes knew that a written request is necessary, he cannot use what the
PAL agents did to his advantage.
Acts of an agents, beyond the scope of his authority, do not bind the
principal unless that latter ratifies the same expressly or impliedly.
Furthermore, when Cervantes knew that the PAL agents were acting beyond
their authority, PAL cannot be held liable for the acts of the agent.
If the said 3rd person is aware of such limits of authority, he is to blame and
is not entitled to recover damages from the agent except when the latter
undertook to secure the principals ratification.

BASILIO BORJA, SR.

Vs.

SULYAP, INC. and the COURT OF APPEALS

FACTS:
Borja, as lessor and Sulyap, as lessee, entered into a contract of lease
involving an office building owned by Borja.
Pursuant to the lease, lessee paid advance rentals, association dues and
deposit for electrical and telephone expenses.
Upon expiration of the lease, lessee demanded the return of said advance
rentals, dues and deposits which the lessor refused to do so.
A compromise agreement was entered into by both parties which was
approved by the trial court. It was stipulated that any amount due not paid
within the period stated in the agreement shall earn 2% interest per month
plus attorneys fees.
However, the lessor still was not able to pay the amounts in the compromise.
When lessee filed in court for the execution of said amounts, lessor denied
liability contending that his failure to pay was the lessees fault [the person
sent by lessee to collect did not present a SPA authorizing him to receive
payment] and fraud in the execution of compromise agreement [he allegedly
signed the compromise without stipulation as to the monthly interest and
attorneys fees].
Lessee, to refute lessors claim, presented Atty. Cruz who declared that the
lessor gave his consent to the stipulations over other more burdensome
stipulations.
Trial Court favored Atty. Cruzs testimony.
ISSUE:
Is the lessor bound by the penalty clause in the compromise agreement?
SC RULING:
Yes.
Trial Court correctly sustained the claim of private respondent. Lessor failed
to establish the attendance of fraud.
When the lessor received the judgment based on the compromise agreement
approving the same, he never interposed the issue of fraudulent inclusion in
their agreement considering that he is a doctor of medicine.

Furthermore, when he alleged that the collector of lessee has no authority

barring the lessor from paying, he already admitted the validity of the
penalty clause.
Even assuming Atty. Cruz exceeded his authority in inserting the
penalty clause, the status of the said clause is not void but merely
voidable/ratifiable.

JESUS M. GOZUN
Vs.
JOSE TEOFILO T. MERCADO
FACTS:
Jose ran for the gubernatorial post. Upon Joses request, Gozun, owner of a
publishing house, submitted to Jose draft samples and price quotation of
campaign materials.
According to Gozun, Joses wife told him that Jose approved such proposals
and Gozun can start printing the campaign materials.
Due to the urgency and limited time, Gozun availed the service of 2 printing
press owned by Gozuns mother and daughter.
Gozun delivered the materials to Jose.
Meanwhile, Joses sister in law obtain from Gozun cash advance of
P253,000 for the allowance of poll watchers who were attending a seminar
and for other expenses.
Gozun then sent a statement of account to Jose containing the campaign
materials and cash advance.
Joses wife partially paid to Gozun who issued a receipt. However, despite
repeated demands and promise to pay [after 3 years], Jose was not
able to pay the balance.
Gozun filed a suit for the collection of the amount. Jose denied having
transacted with Gozun saying that the materials are donations.
As to the cash advance, Jose denied giving authority to his sister-inlaw to receive the same. He also denied giving his wife the authority
to enter into a contract with Gozun.
ISSUE:

Is the contract entered into by Joses sister-in-law binding to Jose?

SC RULING:
No.
Gozun failed to state whether the loan was made in behalf of Jose or his
wife. In fact, the statement of account states that the amount was received
by the sister-in-law in behalf of Mrs. Annie Mercado
The contention of Gozun that Jose informed the former that the sister-in-law
was authorized to obtain the loan precluding Jose from denying the apparent
authority given to the sister-in-law, does not persuade.
According to the receipt given by Gozun as regard to the loan, the sister-inlaw received the same without specifying the reason for the loan or the
sister-in-laws capacity in receiving the same.
The sister-in-law signed the receipt in her own name alone.
It is a general rule in agency that, in order to bind the principal by a
mortgage on real property executed by an agent, it must upon its
face purport to be made, signed and sealed in the name of the
principal, otherwise, it will bind the agent only.