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The Metropolitan Bank and Trust Co. is a
B. Obligations of the Agent (Arts. 1884 to
1909)
G.R. No. 88866 February 18, 1991
METROPOLITAN BANK & TRUST
COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS &
LOAN ASSOCIATION, INC., LUCIA
CASTILLO, MAGNO CASTILLO and GLORIA
CASTILLO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for
petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson &
Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for
respondent Golden Savings & Loan
Association, Inc.
Civil Law; Obligations and Contracts; Agency;
The agent is responsible not only for fraud, but
also for negligence, which shall be judged with
more or less rigor by the courts, according to
whether the agency was or was not for a
compensation.—The negligence of Metro-bank
has been sufficiently established. To repeat for
emphasis, it was the clearance given by it that
assured Golden Savings it was already safe to
allow Gomez to withdraw the proceeds of the
treasury warrants he had deposited. Metrobank
misled Golden Savings. There may have been
no express clearance, as Metrobank insists
(although this is refuted by Golden Savings) but
in any case that clearance could be implied from
its allowing Golden Savings to withdraw from its
account not only once or even twice but three
times. The total withdrawal was in excess of its
original balance before the treasury warrants
were deposited, which only added to its belief
that the treasury warrants had indeed been
cleared.
CRUZ, J.:
This case, for all its seeming complexity, turns
on a simple question of negligence. The facts,
pruned of all non-essentials, are easily told.
commercial bank with branches throughout the
Philippines and even abroad. Golden Savings
and Loan Association was, at the time these
events happened, operating in Calapan,
Mindoro, with the other private respondents as
its principal officers.
In January 1979, a certain Eduardo Gomez
opened an account with Golden Savings and
deposited over a period of two months 38
treasury warrants with a total value of
P1,755,228.37. They were all drawn by the
Philippine Fish Marketing Authority and
purportedly signed by its General Manager and
countersigned by its Auditor. Six of these were
directly payable to Gomez while the others
appeared to have been indorsed by their
respective payees, followed by Gomez as
second indorser.1
On various dates between June 25 and July 16,
1979, all these warrants were subsequently
indorsed by Gloria Castillo as Cashier of Golden
Savings and deposited to its Savings Account
No. 2498 in the Metrobank branch in Calapan,
Mindoro. They were then sent for clearing by the
branch office to the principal office of
Metrobank, which forwarded them to the Bureau
of Treasury for special clearing.2
More than two weeks after the deposits, Gloria
Castillo went to the Calapan branch several
times to ask whether the warrants had been
cleared. She was told to wait. Accordingly,
Gomez was meanwhile not allowed to withdraw
from his account. Later, however, "exasperated"
over Gloria's repeated inquiries and also as an
accommodation for a "valued client," the
petitioner says it finally decided to allow Golden
Savings to withdraw from the proceeds of the
warrants.3
The first withdrawal was made on July 9, 1979,
in the amount of P508,000.00, the second on
July 13, 1979, in the amount of P310,000.00,
and the third on July 16, 1979, in the amount of
P150,000.00. The total withdrawal was
P968.000.00.4
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In turn, Golden Savings subsequently allowed
Gomez to make withdrawals from his own
account, eventually collecting the total amount
of P1,167,500.00 from the proceeds of the
apparently cleared warrants. The last
withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden
Savings that 32 of the warrants had been
dishonored by the Bureau of Treasury on July
19, 1979, and demanded the refund by Golden
Savings of the amount it had previously
withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then
sued Golden Savings in the Regional Trial Court
of Mindoro.5 After trial, judgment was rendered
in favor of Golden Savings, which, however,
filed a motion for reconsideration even as
Metrobank filed its notice of appeal. On
November 4, 1986, the lower court modified its
decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against
the plaintiff;
2. Dissolving and lifting the writ of attachment of
the properties of defendant Golden Savings and
Loan Association, Inc. and defendant Spouses
Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of
debiting Savings Account No. 2498 of the sum
of P1,754,089.00 and to reinstate and credit to
such account such amount existing before the
debit was made including the amount of
P812,033.37 in favor of defendant Golden
Savings and Loan Association, Inc. and
thereafter, to allow defendant Golden Savings
and Loan Association, Inc. to withdraw the
amount outstanding thereon before the debit;
4. Ordering the plaintiff to pay the defendant
Golden Savings and Loan Association, Inc.
attorney's fees and expenses of litigation in the
amount of P200,000.00.
5. Ordering the plaintiff to pay the defendant
Spouses Magno Castillo and Lucia Castillo
attorney's fees and expenses of litigation in the
amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court,6 the decision
was affirmed, prompting Metrobank to file this
petition for review on the following grounds:
1. Respondent Court of Appeals erred in
disregarding and failing to apply the clear
contractual terms and conditions on the deposit
slips allowing Metrobank to charge back any
amount erroneously credited.
(a) Metrobank's right to charge back is not
limited to instances where the checks or
treasury warrants are forged or unauthorized.
(b) Until such time as Metrobank is actually paid,
its obligation is that of a mere collecting agent
which cannot be held liable for its failure to
collect on the warrants.
2. Under the lower court's decision, affirmed by
respondent Court of Appeals, Metrobank is
made to pay for warrants already dishonored,
thereby perpetuating the fraud committed by
Eduardo Gomez.
3. Respondent Court of Appeals erred in not
finding that as between Metrobank and Golden
Savings, the latter should bear the loss.
4. Respondent Court of Appeals erred in holding
that the treasury warrants involved in this case
are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would
appear to the Court that Metrobank was indeed
negligent in giving Golden Savings the
impression that the treasury warrants had been
cleared and that, consequently, it was safe to
allow Gomez to withdraw the proceeds thereof
from his account with it. Without such
assurance, Golden Savings would not have
allowed the withdrawals; with such assurance,
there was no reason not to allow the withdrawal.
Indeed, Golden Savings might even have
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incurred liability for its refusal to return the
money that to all appearances belonged to the
depositor, who could therefore withdraw it any
time and for any reason he saw fit.
It was, in fact, to secure the clearance of the
treasury warrants that Golden Savings
deposited them to its account with Metrobank.
Golden Savings had no clearing facilities of its
own. It relied on Metrobank to determine the
validity of the warrants through its own services.
The proceeds of the warrants were withheld
from Gomez until Metrobank allowed Golden
Savings itself to withdraw them from its own
deposit.7 It was only when Metrobank gave the
go-signal that Gomez was finally allowed by
Golden Savings to withdraw them from his own
account.
The argument of Metrobank that Golden
Savings should have exercised more care in
checking the personal circumstances of Gomez
before accepting his deposit does not hold
water. It was Gomez who was entrusting the
warrants, not Golden Savings that was
extending him a loan; and moreover, the
treasury warrants were subject to clearing,
pending which the depositor could not withdraw
its proceeds. There was no question of Gomez's
identity or of the genuineness of his signature as
checked by Golden Savings. In fact, the
treasury warrants were dishonored allegedly
because of the forgery of the signatures of the
drawers, not of Gomez as payee or indorser.
Under the circumstances, it is clear that Golden
Savings acted with due care and diligence and
cannot be faulted for the withdrawals it allowed
Gomez to make.
By contrast, Metrobank exhibited extraordinary
carelessness. The amount involved was not
trifling — more than one and a half million pesos
(and this was 1979). There was no reason why
it should not have waited until the treasury
warrants had been cleared; it would not have
lost a single centavo by waiting. Yet, despite the
lack of such clearance — and notwithstanding
that it had not received a single centavo from the
proceeds of the treasury warrants, as it now
repeatedly stresses — it allowed Golden
Savings to withdraw — not once, not twice,
but thrice — from the uncleared treasury
warrants in the total amount of P968,000.00
Its reason? It was "exasperated" over the
persistent inquiries of Gloria Castillo about the
clearance and it also wanted to "accommodate"
a valued client. It "presumed" that the warrants
had been cleared simply because of "the lapse
of one week."8 For a bank with its long
experience, this explanation is unbelievably
naive.
And now, to gloss over its carelessness,
Metrobank would invoke the conditions printed
on the dorsal side of the deposit slips through
which the treasury warrants were deposited by
Golden Savings with its Calapan branch. The
conditions read as follows:
Kindly note that in receiving items on deposit,
the bank obligates itself only as the depositor's
collecting agent, assuming no responsibility
beyond care in selecting correspondents, and
until such time as actual payment shall have
come into possession of this bank, the right is
reserved to charge back to the depositor's
account any amount previously credited,
whether or not such item is returned. This also
applies to checks drawn on local banks and
bankers and their branches as well as on this
bank, which are unpaid due to insufficiency of
funds, forgery, unauthorized overdraft or any
other reason. (Emphasis supplied.)
According to Metrobank, the said conditions
clearly show that it was acting only as a
collecting agent for Golden Savings and give it
the right to "charge back to the depositor's
account any amount previously credited,
whether or not such item is returned. This also
applies to checks ". . . which are unpaid due to
insufficiency of funds, forgery, unauthorized
overdraft of any other reason." It is claimed that
the said conditions are in the nature of
contractual stipulations and became binding on
Golden Savings when Gloria Castillo, as its
Cashier, signed the deposit slips.
Doubt may be expressed about the binding
force of the conditions, considering that they
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have apparently been imposed by the bank
unilaterally, without the consent of the depositor.
Indeed, it could be argued that the depositor, in
signing the deposit slip, does so only to identify
himself and not to agree to the conditions set
forth in the given permit at the back of the
deposit slip. We do not have to rule on this
matter at this time. At any rate, the Court feels
that even if the deposit slip were considered a
contract, the petitioner could still not validly
disclaim responsibility thereunder in the light of
the circumstances of this case.
In stressing that it was acting only as a collecting
agent for Golden Savings, Metrobank seems to
be suggesting that as a mere agent it cannot be
liable to the principal. This is not exactly true. On
the contrary, Article 1909 of the Civil Code
clearly provides that —
Art. 1909. — The agent is responsible not only
for fraud, but also for negligence, which shall be
judged 'with more or less rigor by the courts,
according to whether the agency was or was not
for a compensation.
The negligence of Metrobank has been
sufficiently established. To repeat for emphasis,
it was the clearance given by it that assured
Golden Savings it was already safe to allow
Gomez to withdraw the proceeds of the treasury
warrants he had deposited
Metrobank misled Golden Savings. There may
have been no express clearance, as Metrobank
insists (although this is refuted by Golden
Savings) but in any case that clearance could be
implied from its allowing Golden Savings to
withdraw from its account not only once or even
twice but three times. The total withdrawal was
in excess of its original balance before the
treasury warrants were deposited, which only
added to its belief that the treasury warrants had
indeed been cleared.
Metrobank's argument that it may recover the
disputed amount if the warrants are not paid for
any reason is not acceptable. Any reason does
not mean no reason at all. Otherwise, there
would have been no need at all for Golden
Savings to deposit the treasury warrants with it
for clearance. There would have been no need
for it to wait until the warrants had been cleared
before paying the proceeds thereof to Gomez.
Such a condition, if interpreted in the way the
petitioner suggests, is not binding for being
arbitrary and unconscionable. And it becomes
more so in the case at bar when it is considered
that the supposed dishonor of the warrants was
not communicated to Golden Savings before it
made its own payment to Gomez.
The belated notification aggravated the
petitioner's earlier negligence in giving express
or at least implied clearance to the treasury
warrants and allowing payments therefrom to
Golden Savings. But that is not all. On top of
this, the supposed reason for the dishonor, to
wit, the forgery of the signatures of the general
manager and the auditor of the drawer
corporation, has not been established.9 This
was the finding of the lower courts which we see
no reason to disturb. And as we said in MWSS
v. Court of Appeals:10
Forgery cannot be presumed (Siasat, et al. v.
IAC, et al., 139 SCRA 238). It must be
established by clear, positive and convincing
evidence. This was not done in the present
case.
A no less important consideration is the
circumstance that the treasury warrants in
question are not negotiable instruments. Clearly
stamped on their face is the word "non-
negotiable." Moreover, and this is of equal
significance, it is indicated that they are payable
from a particular fund, to wit, Fund 501.
The following sections of the Negotiable
Instruments Law, especially the underscored
parts, are pertinent:
Sec. 1. — Form of negotiable instruments. — An
instrument to be negotiable must conform to the
following requirements:
(a) It must be in writing and signed by the maker
or drawer;
(b) Must contain an unconditional promise or
order to pay a sum certain in money;
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(c) Must be payable on demand, or at a fixed or
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a
drawee, he must be named or otherwise
indicated therein with reasonable certainty.
xxx xxx xxx
Sec. 3. When promise is unconditional. — An
unqualified order or promise to pay is
unconditional within the meaning of this Act
though coupled with —
(a) An indication of a particular fund out of which
reimbursement is to be made or a particular
account to be debited with the amount; or
(b) A statement of the transaction which gives
rise to the instrument judgment.
But an order or promise to pay out of a particular
fund is not unconditional.
The indication of Fund 501 as the source of the
payment to be made on the treasury warrants
makes the order or promise to pay "not
unconditional" and the warrants themselves
non-negotiable. There should be no question
that the exception on Section 3 of the Negotiable
Instruments Law is applicable in the case at bar.
This conclusion conforms to Abubakar vs.
Auditor General11 where the Court held:
The petitioner argues that he is a holder in good
faith and for value of a negotiable instrument
and is entitled to the rights and privileges of a
holder in due course, free from defenses. But
this treasury warrant is not within the scope of
the negotiable instrument law. For one thing, the
document bearing on its face the words
"payable from the appropriation for food
administration, is actually an Order for payment
out of "a particular fund," and is not
unconditional and does not fulfill one of the
essential requirements of a negotiable
instrument (Sec. 3 last sentence and section
[1(b)] of the Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the
warrants in general, Golden Savings assumed
that they were "genuine and in all respects what
they purport to be," in accordance with Section
66 of the Negotiable Instruments Law. The
simple reason is that this law is not applicable to
the non-negotiable treasury warrants. The
indorsement was made by Gloria Castillo not for
the purpose of guaranteeing the genuineness of
the warrants but merely to deposit them with
Metrobank for clearing. It was in fact Metrobank
that made the guarantee when it stamped on the
back of the warrants: "All prior indorsement
and/or lack of endorsements guaranteed,
Metropolitan Bank & Trust Co., Calapan
Branch."
The petitioner lays heavy stress on Jai Alai
Corporation v. Bank of the Philippine
Islands,12 but we feel this case is inapplicable to
the present controversy.1âwphi1 That case
involved checks whereas this case involves
treasury warrants. Golden Savings never
represented that the warrants were negotiable
but signed them only for the purpose of
depositing them for clearance. Also, the fact of
forgery was proved in that case but not in the
case before us. Finally, the Court found the Jai
Alai Corporation negligent in accepting the
checks without question from one Antonio
Ramirez notwithstanding that the payee was the
Inter-Island Gas Services, Inc. and it did not
appear that he was authorized to indorse it. No
similar negligence can be imputed to Golden
Savings.
We find the challenged decision to be basically
correct. However, we will have to amend it
insofar as it directs the petitioner to credit
Golden Savings with the full amount of the
treasury checks deposited to its account.
The total value of the 32 treasury warrants
dishonored was P1,754,089.00, from which
Gomez was allowed to withdraw P1,167,500.00
before Golden Savings was notified of the
dishonor. The amount he has withdrawn must
be charged not to Golden Savings but to
Metrobank, which must bear the consequences
of its own negligence. But the balance of
6 | AGENCY FULL TEXT CASES

P586,589.00 should be debited to Golden

Savings, as obviously Gomez can no longer be
permitted to withdraw this amount from his
deposit because of the dishonor of the warrants.
Gomez has in fact disappeared. To also credit
the balance to Golden Savings would unduly
enrich it at the expense of Metrobank, let alone
the fact that it has already been informed of the
dishonor of the treasury warrants.

WHEREFORE, the challenged decision is

AFFIRMED, with the modification that
Paragraph 3 of the dispositive portion of the
judgment of the lower court shall be reworded
as follows:

3. Debiting Savings Account No. 2498 in the

sum of P586,589.00 only and thereafter
allowing defendant Golden Savings & Loan
Association, Inc. to withdraw the amount
outstanding thereon, if any, after the debit.

SO ORDERED.
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C. Obligations of the Principal (Art. 1910 to
1918)
G.R. No. 108957 June 14, 1993
PRUDENTIAL BANK, petitioner,
vs.
THE COURT OF APPEALS, AURORA
CRUZ, respondents.
Monique Q. Ignacio for petitioner.
Eduardo C. Tutaan for private respondent.
Commercial Law; Banks or Banking Institutions;
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
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.—Conformably, we have
declared in countless decisions that the
principal is liable for obligations contracted by
the agent. The agent’s apparent representation
yields to the principal’s 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
(McIntosh v. Dakota Trust Co., 52 ND 752, 204
NW 818, 40 ALR 1021.)
Same; Same; Civil Law; Damages; Petitioner is
liable for moral and exemplary damages when it
acted in bad faith in denying Cruz the obligation
she was claiming against it.—We agree with the
lower courts that the petitioner acted in bad faith
in denying Cruz the obligation she was claiming
against it. It was obvious that an irregularity had
been committed by the bank’s personnel, but
instead of repairing the injury to Cruz by
immediately restoring her money to her, it
sought to gloss over the anomaly in its own
operations. Cruz naturally suffered anxious
moments and mental anguish over the loss of
the investment. The amount of P200,000.00 is
not small even by present standards. By unjustly
withholding it from her on the unproved defense
that she had already withdrawn it, the bank
violated the trust she had reposed in it and thus
subjected itself to further liability for moral and
exemplary damages. Prudential Bank vs. Court
of Appeals, 223 SCRA 350, G.R. No. 108957
June 14, 1993
CRUZ, J.:
We deal here with another controversy involving
the integrity of a bank.
The complaint in this case arose when private
respondent Aurora F.
Cruz, * with her sister as co-depositor, invested
P200,000.00 in Central Bank bills with the
Prudential Bank at its branch in Quezon
Avenue, Quezon City, on June 23, 1986. The
placement was for 63 days at 13.75% annual
interest. For this purpose, the amount of
P196,122.88 was withdrawn from the
depositors' Savings Account No. 2546 and
applied to the investment. The difference of
P3,877.07 represented the pre-paid interest.
The transaction was evidenced by a
Confirmation of Sale1 delivered to Cruz two
days later, together with a Debit Memo2 in the
amount withdrawn and applied to the confirmed
sale. These documents were issued by Susan
Quimbo, the employee of the bank to whom
Cruz was referred and who was apparently in
charge of such transactions.3
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Upon maturity of the placement on August 25,
1986, Cruz returned to the bank to "roll-over" or
renew her investment. Quimbo, who again
attended to her, prepared a Credit
Memo4 crediting the amount of P200,000.00 in
Cruz's 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
Slip6 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 days later,
Cruz received another Confirmation of
Sale7 and a copy of the Debit Memo.8
On October 27, 1986, 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.
Shocked by this information, Cruz became
hysterical and burst into tears. The branch
manager, Roman Santos, assured her that he
would look into the matter.9
Every day thereafter, Cruz went to the bank to
inquire about her request to withdraw her
investment. She received no definite answer,
not even to the letter she wrote the bank which
was received by Santos himself. 10 Finally, Cruz
sent the bank a demand letter dated November
12, 1986 for the amount of P200,000.00 plus
interest. 11 In a reply dated November 20, 1986,
the bank's Vice President Lauro J. Jocson said
that there appeared to be an anomaly
and requested Cruz to defer court action as they
hoped to settle the matter
12
amicably. Increasingly worried, Cruz sent
another letter reiterating her demand. 13 This
time the reply of the bank was unequivocal and
negative. She was told that her request had to
be denied because she had already withdrawn
the amount she was claiming. 14
Cruz's 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 attorney's 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.
After trial, Judge Rodolfo A. Ortiz rendered
judgment in favor of the plaintiffs and disposed
as follows:
ACCORDINGLY, judgment is hereby rendered
ordering the defendant/third-party plaintiff to pay
to the plaintiffs the following amounts:
1. P200,000.00, plus interest thereon at the rate
of 13.75% per annum from October 27, 1986,
until fully paid;
2. P30,000.00, as moral damages;
3. P20,000.00, as exemplary damages; and
4. P25,000.00, as reasonable attorney's fees.
The counterclaim and the third-party complaint
of the defendant/third-party plaintiff are
dismissed.
With costs against the defendant/third-party
plaintiff.
The decision was affirmed in toto on appeal to
the respondent court.
The judgment of the Court of Appeals 16 is now
faulted in this petition, mainly on the ground that
the bank should not have been found liable for
a quasi-delict when it was sued for breach of
contract.
The petition shall fail. The petitioner is quibbling.
It appears to be merely temporizing to delay
9 | AGENCY FULL TEXT CASES
enforcement of the liability clearly established
against it.
The basic issues are factual. The private
respondent claims she has not yet collected her
investment of P200,000.00 and has submitted in
proof of their contention the Confirmation of
Sale and the Debit Memo issued to her by
Quimbo on the official forms of the bank. The
petitioner denies her claim and points to the
Withdrawal Slip, which it says Cruz has not
denied having signed. It also contends that the
Confirmation of Sale and the Debit Memo are
fake and should not have been given credence
by the lower courts.
The findings of the trial court on these issues
have been affirmed by the respondent court and
we see no reason to disturb them. The petitioner
has not shown that they have been reached
arbitrarily or in disregard of the evidence of
record. On the contrary, we find substantial
basis for the conclusion that the private
respondents signed the Withdrawal Slip only as
part of the bank's new procedure of re-
investment. She did not actually receive the
amount indicated therein, which she was made
to understand was being re-invested in her
name. The bank itself so assured her in the
Confirmation of Sale and the Debit Memo later
issued to her by Quimbo.
Especially persuasive are the following
observations of the trial court: 17
What is more, it could not be that plaintiff Aurora
F. Cruz withdrew only the amount of
P196,122.98 from their savings account, if her
only intention was to make such a withdrawal.
For, if, indeed, it was the desire of the plaintiffs
to withdraw their money from the
defendant/third-party plaintiff, they could have
withdrawn an amount in round figures.
Certainly, it is unbelievable that their withdrawal
was in the irregular amount of P196,122.98 if
they really received it. On the contrary, this
amount, which is the price of the Central Bank
bills rolled over, indicates that, as claimed by
plaintiff Aurora F. Cruz, she did not receive this
money, but it was left by her with the
defendant/third-party plaintiff in order to buy
Central Bank bills placement for another sixty-
three (63) days, for which she signed a
withdrawal slip at the instance of third-party
defendant Susan Quimbo who told her that it
was a new bank requirement for the roll-over of
a matured placement which she trustingly
believed.
Indeed, the bank has not explained the
remarkable coincidence that the amount
indicated in the withdrawal slip is exactly the
same amount Cruz was re-investing after
deducting therefrom the pre-paid interest.
The bank has also not, succeeded in impugning
the authenticity of the Confirmation of Sale and
the Debit Memo which were made on its official,
forms. These are admittedly not available to the
general public or even its depositors and are
handled only by its personnel. Even assuming
that they were not signed by its authorized
officials, as it claims, there was no obligation on
the part of Cruz to verify their authority because
she had the right to presume it. The documents
had been issued in the office of the bank itself
and by its own employees with whom she had
previously dealt. Such dealings had not been
questioned before, much leas invalidated. There
was absolutely no reason why she should not
have accepted their authority to act on behalf of
their employer.
It is also worthy of note — and wonder — that
although the bank impleaded Quimbo in a third-
party complaint, it did not pursue its suit even
when she failed to answer and was declared in
default. The bank did not introduce evidence
against her although it could have done so
under the rules. No less remarkably, it did not
call on her to testify on its behalf, considering
that under the circumstances claimed by it, she
would have been the best witness to show that
Cruz had actually withdrawn her P200,000.00
placement. Instead, the bank chose to rely on its
other employees whose testimony was less
direct and categorical than the testimony
Quimbo could have given.
10 | AGENCY FULL TEXT CASES
We do not find that the Court of Appeals held
the bank liable on a quasi-delict. The argument
of the petitioner on this issue is pallid, to say the
least, consisting as it does only of the
observation that the article cited by the
respondent court on the agent's liability falls
under the heading in the Civil Code on quasi-
delicts. On the other hand, the respondent court
clearly declared that:
The defendant/third-party plaintiff being liable
for the return of the P200,000.00 placement of
the plaintiffs, the extent of the liability of the
defendant/third-party plaintiff for damages
resultant thereof, which is contractual, is for all
damages which may be reasonably attributed to
the non-performance of the obligation, . . .
xxx xxx xxx
Because of the bad faith of the defendant/third-
party plaintiff in its breach of its contract with the
plaintiffs, the latter are, therefore, entitled to an
award of moral damages . . . (Emphasis
supplied)
There is no question that the petitioner was
made liable for its failure or refusal to deliver to
Cruz the amount she had deposited with it and
which she had a right to withdraw upon its
maturity. That investment was acknowledged by
its own employees, who had the apparent
authority to do so and so could legally bind it by
its acts vis-a-vis Cruz. Whatever might have
happened to the investment — whether it was
lost or stolen by whoever — was not the concern
of the depositor. It was the concern of the bank.
As far as Cruz was concerned, she had the right
to withdraw her P200,000.00 placement when it
matured pursuant to the terms of her investment
as acknowledged and reflected in the
Confirmation of Sale. The failure of the bank to
deliver the amount to her pursuant to the
Confirmation of Sale constituted its breach of
their contract, for which it should be held liable.
The liability of the principal for the acts of the
agent is not even debatable. Law and
jurisprudence are clearly and absolutely against
the petitioner.
Such liability dates back to the Roman Law
maxim, Qui per alium facit per seipsum facere
videtur. "He who does a thing by an agent is
considered as doing it himself." This rule is
affirmed by the Civil Code thus:
Art. 1910. The principal must comply with all the
obligations which the agent may have
contracted within the scope of his authority.
Art. 1911. 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.
Conformably, we have declared in countless
decisions that the principal is liable for
obligations contracted by the agent. The agent's
apparent representation yields to the principal's
true representation and the contract is
considered as entered into between the
principal and the third person. 18
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
(McIntosh v. Dakota Trust Co., 52 ND 752, 204
NW 818, 40 ALR 1021.)
Application of these principles in especially
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
11 | AGENCY FULL TEXT CASES

where banks do not exercise strict care in the
selection and supervision of its employees,
resulting in prejudice to their depositors.
It would appear from the facts established in the
case before us that the petitioner was less than
eager to present Quimbo at the trial or even to
establish her liability although it made the initial
effort — which it did not pursue — to hold her
answerable in the third-party complaint. What
ever happened to her does not appear in the
record. Her absence from the proceedings
feeds the suspicion of her possible misdeed,
which the bank seems to have studiously
ignored by its insistence that the missing money
had been actually withdrawn by Cruz. By such
insistence, the bank is absolving not only itself
but also, in effect and by extension, the
disappeared Quimbo who apparently has much
to explain.
We agree with the lower courts that the
petitioner acted in bad faith in denying Cruz the
obligation she was claiming against it. It was
obvious that an irregularity had been committed
by the bank's personnel, but instead of repairing
the injury to Cruz by immediately restoring her
money to her, it sought to gloss over the
anomaly in its own operations.
suspect its motives. This is an attitude the bank
must justify.
While this is not to say that bank regulations are
meaningless or have no binding effect, they
should, however, not be used for covering up
the fault of bank employees when they blunder
or, worse, intentionally cheat him. The misdeeds
of such employees must be readily
acknowledged and rectified without delay. The
bank must always act in good faith. The ordinary
customer does not feel the need for a lawyer by
his side every time he deals with a bank
because he is certain that it is not a predator or
a potential adversary. The bank should show
that there is really no reason for any
apprehension because it truly deserves his faith
in it.
WHEREFORE, the petition is DENIED and the
appealed decision is AFFIRMED, with costs
against the petitioner. It is so ordered.

Cruz naturally suffered anxious moments and

mental anguish over the loss of the investment.
The amount of P200,000.00 is not small even by
present standards. By unjustly withholding it
from her on the unproved defense that she had
already withdrawn it, the bank violated the trust
she had reposed in it and thus subjected itself to
further liability for moral and exemplary
damages.

If a person dealing with a bank does not read

the fine print in the contract, it is because
he trusts the bank and relies on its integrity. The
ordinary customer applying for a loan or even
making a deposit (and so himself extending the
loan to the bank) does not bother with the red
tape requirements and the finicky conditions in
the documents he signs. His feeling is that he
does not have to be wary of the bank because it
will deal with him fairly and there is no reason to
12 | AGENCY FULL TEXT CASES
G.R. No. 88539 October 26, 1993
KUE CUISON, doing business under the firm
name and style"KUE CUISON PAPER
SUPPLY," petitioner,
vs.
THE COURT OF APPEALS, VALIANT
INVESTMENT ASSOCIATES, respondents.
Leighton R. Siazon for petitioner.
Melanio L. Zoreta for private respondent.
Civil Law; Agency; 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.—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 (Macke, et al. v. Camps, 7 Phil.
553 [1907]; Philippine National Bank v. Court of
Appeals, 94 SCRA 357 [1979]). From the facts
and the evidence on record, there is no doubt
that this rule obtains. The petition must therefore
fail.
Same; Same; 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.—
Taken in this light, petitioner is liable for the
transaction entered into by Tiu Huy Tiac on his
behalf. Thus, 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 (Article
1911 Civil Code), as in the case at bar.
Same; Estoppel; 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.—Tiu Huy Tiac, therefore, by
petitioner’s own representations and
manifestations, became an agent of petitioner
by estoppel. Under the doctrine of 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.
Same; Same; Same; 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.—Finally, although it may appear
that Tiu Huy 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. Cuison vs. Court of Appeals, 227
SCRA 391, G.R. No. 88539 October 26, 1993
BIDIN, J.:
This petition for review assails the decision of
the respondent Court of Appeals ordering
petitioner to pay private respondent, among
others, the sum of P297,482.30 with interest.
Said decision reversed the appealed decision of
the trial court rendered in favor of petitioner.
The case involves an action for a sum of money
filed by respondent against petitioner anchored
on the following antecedent facts:
Petitioner Kue Cuison is a sole proprietorship
engaged in the purchase and sale of newsprint,
bond paper and scrap, with places of business
at Baesa, Quezon City, and Sto. Cristo,
Binondo, Manila. Private respondent Valiant
Investment Associates, on the other hand, is a
partnership duly organized and existing under
the laws of the Philippines with business
address at Kalookan City.
13 | AGENCY FULL TEXT CASES
From December 4, 1979 to February 15, 1980,
private respondent delivered various kinds of
paper products amounting to P297,487.30 to a
certain Lilian Tan of LT Trading. The deliveries
were made by respondent pursuant to orders
allegedly placed by Tiu Huy Tiac who was then
employed in the Binondo office of petitioner. It
was likewise pursuant to Tiac's instructions that
the merchandise was delivered to Lilian Tan.
Upon delivery, Lilian Tan paid for the
merchandise by issuing several checks payable
to cash at the specific request of Tiu Huy Tiac.
In turn, Tiac issued nine (9) postdated checks to
private respondent as payment for the paper
products. Unfortunately, sad checks were later
dishonored by the drawee bank.
Thereafter, private respondent made several
demands upon petitioner to pay for the
merchandise in question, claiming that Tiu Huy
Tiac was duly authorized by petitioner as the
manager of his Binondo office, to enter into the
questioned transactions with private respondent
and Lilian Tan. Petitioner denied any
involvement in the transaction entered into by
Tiu Huy Tiac and refused to pay private
respondent the amount corresponding to the
selling price of the subject merchandise.
Left with no recourse, private respondent filed
an action against petitioner for the collection of
P297,487.30 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 Court of Appeals, the
dispositive portion of which reads:
WHEREFORE, the decision appealed from is
MODIFIED in that defendant-appellant Kue
Cuison is hereby ordered to pay plaintiff-
appellant Valiant Investment Associates the
sum of P297,487.30 with 12% interest from the
filing of the complaint until the amount is fully
paid, plus the sum of 7% of the total amount due
as attorney's fees, and to pay the costs. In all
other respects, the decision appealed from is
affirmed. (Rollo, p. 55)
In this petition, petitioner contends that:
THE HONORABLE COURT ERRED IN
FINDING TIU HUY TIAC AGENT OF
DEFENDANT-APPELLANT CONTRARY TO
THE UNDISPUTED/ESTABLISHED FACTS
AND CIRCUMSTANCES.
THE HONORABLE COURT ERRED IN
FINDING DEFENDANT-APPELLANT LIABLE
FOR AN OBLIGATION UNDISPUTEDLY
BELONGING TO TIU HUY TIAC.
THE HONORABLE COURT ERRED IN
REVERSING THE WELL-FOUNDED
DECISION OF THE TRIAL COURT, (Rollo, p,
19)
The issue here is really quite simple — whether
or not Tiu Huy Tiac possessed the required
authority from petitioner sufficient to hold the
latter liable for the disputed transaction.
This petition ought to have been denied outright,
forin the final analysis, it raises a factual issue.
It is elementary that in petitions for review under
Rule 45, this Court only passes upon questions
of law. An exception thereto occurs where the
findings of fact of the Court of Appeals are at
variance with the trial court, in which case the
Court reviews the evidence in order to arrive at
the correct findings based on the records.
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 (Macke, et al, v. Camps, 7 Phil.
553 (1907]; Philippine National Bank. v Court of
Appeals, 94 SCRA 357 [1979]). From the facts
and the evidence on record, there is no doubt
that this rule obtains. The petition must therefore
fail.
It is evident from the records that by his own acts
and admission, petitioner held out Tiu Huy Tiac
to the public as the manager of his store in Sto.
14 | AGENCY FULL TEXT CASES
Cristo, Binondo, Manila. More particularly,
petitioner explicitly introduced Tiu Huy Tiac to
Bernardino Villanueva, respondent's manager,
as his (petitioner's) branch manager as testified
to by Bernardino Villanueva. Secondly, Lilian
Tan, who has been doing business with
petitioner for quite a while, also testified that she
knew Tiu Huy Tiac to be the manager of
petitioner's Sto. Cristo, Binondo branch. This
general perception of Tiu Huy Tiac as the
manager of petitioner's Sto. Cristo store is even
made manifest by the fact that Tiu Huy Tiac is
known in the community to be the "kinakapatid"
(godbrother) of petitioner. In fact, even petitioner
admitted his close relationship with Tiu Huy Tiac
when he said that they are "like brothers" (Rollo,
p. 54). There was thus no reason for anybody
especially those transacting business with
petitioner to even doubt the authority of Tiu Huy
Tiac as his manager in the Sto. Cristo Binondo
branch.
In a futile attempt to discredit Villanueva,
petitioner alleges that the former's testimony is
clearly self-serving inasmuch as Villanueva
worked for private respondent as its manager.
We disagree, The argument that Villanueva's
testimony is self-serving and therefore
inadmissible on the lame excuse of his
employment with private respondent utterly
misconstrues the nature of "'self-serving
evidence" and the specific ground for its
exclusion. As pointed out by this Court in Co
v. Court of Appeals et, al., (99 SCRA 321
[1980]):
Self-serving evidence is evidence made by a
party out of court at one time; it does not include
a party's testimony as a witness in court. It is
excluded on the same ground as any hearsay
evidence, that is the lack of opportunity for
cross-examination by the adverse party, and on
the consideration that its admission would open
the door to fraud and to fabrication of testimony.
On theother hand, a party's testimony in court is
sworn and affords the other party the
opportunity for cross-examination (emphasis
supplied)
Petitioner cites Villanueva's failure, despite his
commitment to do so on cross-examination, to
produce the very first invoice of the transaction
between petitioner and private respondent as
another ground to discredit Villanueva's
testimony. Such failure, proves that Villanueva
was not only bluffing when he pretended that he
can produce the invoice, but that Villanueva was
likewise prevaricating when he insisted that
such prior transactions actually took place.
Petitioner is mistaken. In fact, it was petitioner's
counsel himself who withdrew the reservation to
have Villanueva produce the document in court.
As aptly observed by the Court of Appeals in its
decision:
. . . However, during the hearing on March 3,
1981, Villanueva failed to present the document
adverted to because defendant-appellant's
counsel withdrew his reservation to have the
former (Villanueva) produce the document or
invoice, thus prompting plaintiff-appellant to rest
its case that same day (t.s.n., pp. 39-40, Sess.
of March 3, 1981). Now, defendant-appellant
assails the credibility of Villanueva for having
allegedly failed to produce even one single
document to show that plaintiff-appellant have
had transactions before, when in fact said failure
of Villanueva to produce said document is a
direct off-shoot of the action of defendant-
appellant's counsel who withdrew his
reservation for the production of the document
or invoice and which led plaintiff-appellant to
rest its case that very day. (Rollo, p.52)
In the same manner, petitioner assails the
credibility of Lilian Tan by alleging that Tan was
part of an intricate plot to defraud him. However,
petitioner failed to substantiate or prove that the
subject transaction was designed to defraud
him. Ironically, it was even the testimony of
petitioner's daughter and assistant manager
Imelda Kue Cuison which confirmed the
credibility of Tan as a witness. On the witness
stand, Imelda testified that she knew for a fact
that prior to the transaction in question, Tan
regularly transacted business with her father
(petitioner herein), thereby corroborating Tan's
testimony to the same effect. As correctly found
by the respondent court, there was no logical
15 | AGENCY FULL TEXT CASES
explanation for Tan to impute liability upon
petitioner. Rather, the testimony of Imelda Kue
Cuison only served to add credence to Tan's
testimony as regards the transaction, the liability
for which petitioner wishes to be absolved.
But of even greater weight than any of these
testimonies, is petitioner's categorical
admission on the witness stand that Tiu Huy
Tiac was the manager of his store in Sto. Cristo,
Binondo, to wit:
Court:
xxx xxx xxx
Q And who was managing the store in Sto.
Cristo?
A At first it was Mr. Ang, then later Mr. Tiu Huy
Tiac but I cannot remember the exact year.
Q So, Mr. Tiu Huy Tiac took over the
management,.
A Not that was because every afternoon, I was
there, sir.
Q But in the morning, who takes charge?
A Tiu Huy Tiac takes charge of
management and if there (sic) orders for
newsprint or bond papers they are always
referred to the compound in Baesa, sir. (t.s.n.,
p. 16, Session of January 20, 1981, CA
decision, Rollo, p. 50, emphasis supplied).
Such admission, spontaneous no doubt, and
standing alone, is sufficient to negate all the
denials made by petitioner regarding the
capacity of Tiu Huy Tiac to enter into the
transaction in question. Furthermore, consistent
with and as an obvious indication of the fact that
Tiu Huy Tiac was the manager of the Sto. Cristo
branch, three (3) months after Tiu Huy Tiac left
petitioner's employ, petitioner even sent,
communications to its customers notifying them
that Tiu Huy Tiac is no longer connected with
petitioner's business. Such undertaking spoke
unmistakenly of Tiu Huy Tiac's valuable position
as petitioner's manager than any uttered
disclaimer. More than anything else, this act
taken together with the declaration of petitioner
in open court amount to admissions under Rule
130 Section 22 of the Rules of Court, to wit :
"The act, declaration or omission of a party as to
a relevant fact may be given in evidence against
him." For well-settled is the rule that "a man's
acts, conduct, and declaration, wherever made,
if voluntary, are admissible against him, for the
reason that it is fair to presume that they
correspond with the truth, and it is his fault if they
do not. If a man's extrajudicial admissions are
admissible against him, there seems to be no
reason why his admissions made in open court,
under oath, should not be accepted against
him." (U.S. vs. Ching Po, 23 Phil. 578, 583
[1912];).
Moreover, petitioner's unexplained delay in
disowning the transactions entered into by Tiu
Huy Tiac despite several attempts made by
respondent to collect the amount from him,
proved all the more that petitioner was aware of
the questioned commission was tantamount to
an admission by silence under Rule 130 Section
23 of the Rules of Court, thus: "Any act or
declaration made in the presence of and within
the observation of a party who does or says
nothing when the act or declaration is such as
naturally to call for action or comment if not true,
may be given in evidence against him."
All of these point to the fact that at the time of
the transaction Tiu Huy Tiac was admittedly the
manager of petitioner's store in Sto. Cristo,
Binondo. Consequently, the transaction in
question as well as the concomitant obligation is
valid and binding upon petitioner.
By his representations, petitioner is now
estopped from disclaiming liability for the
transaction entered by Tiu Huy Tiac on his
behalf. 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 As held in the case of Manila
Remnant Co. Inc. v. Court of Appeals, (191
SCRA 622 [1990]):
16 | AGENCY FULL TEXT CASES

More in point, we find that by the principle of
estoppel, Manila Remnant is deemed to have
allowed its agent to act as though it had plenary
powers. Article 1911 of the Civil Code provides:
"Even when the agent has exceeded his
authority, the principal issolidarily liable with the
agent if the former allowed the latter to act as
though he had full powers." (Emphasis
supplied).
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.
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 (Francisco
vs. Government Service Insurance System, 7
SCRA 577 [1963]).
Inasmuch as the fundamental issue of the
capacity or incapacity of the purported agent Tiu
Huy Tiac, has already been resolved, the Court
deems it unnecessary to resolve the other
peripheral issues raised by petitioner.
WHEREFORE, the instant petition in hereby
DENIED for lack of merit. Costs against
petitioner.

Authority by estoppel has arisen in the instant SO ORDERED.

case because by its negligence, the principal,
Manila Remnant, has permitted its agent, A.U.
Valencia and Co., to exercise powers not
granted to it. That the principal might not have
had actual knowledge of theagent's misdeed is
of no moment.

Tiu Huy Tiac, therefore, by petitioner's 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
(Philippine National Bank v. Intermediate
Appellate Court, et al., 189 SCRA 680 [1990]).

Taken in this light,. petitioner is liable for the

transaction entered into by Tiu Huy Tiac on his
behalf. Thus, even when the agent has
exceeded his authority, 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 Tiu Huy 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
17 | AGENCY FULL TEXT CASES
G.R. No. 6906 September 27, 1911
FLORENTINO RALLOS, ET AL., plaintiff-
appellee,
vs.
TEODORO R. YANGCO, defendant-appellant.
Mariano Escueta, for appellant.
Martin M. Levering, for appellees.
1.PRINCIPAL AND AGENT; TERMINATION
OF THE AGENCY; DUTY OF PRINCIPAL TO
GIVE DUE NOTICE.—The defendant having
advertised the fact that C was his agent, having
given special notice to the plaintiffs of the
agency, and having also given them a special
invitation to deal with such agent, it became the
defendant's duty, upon the termination of the
relationship of principal and agent, to give due
and timely notice thereof to the plaintiffs.
2.ID; ID.; ID.; LIABILITY OF PRINCIPAL.—The
general rule is that, when the relationship of
principal and agent is established, and the
principal gives notice of the agency and holds
out the agent as his authorized representative,
upon the termination of the agency it is the duty
of the principal to give due and timely notice
thereof, otherwise, he will be held liable to third
parties acting in good faith and properly relying
upon such agency.
MORELAND, J.:
This is an appeal from a judgment of the Court
of First Instance of the Province of Cebu, the
Hon. Adolph Wislizenus presiding, in favor of
the plaintiffs, in the sum of P1,537.08, with
interest at 6 per cent per annum from the month
of July, 1909, with costs.
The defendant in this case on the 27th day of
November, 1907, sent to the plaintiff Florentino
Rallos, among others, the following letter:
CIRCULAR NO. 1.
MANILA, November 27, 1907
MR. FLORENTINO RALLOS, Cebu.
DEAR SIR: I have the honor to inform you that I
have on this date opened in my steamship office
at No. 163 Muelle de la Reina, Binondo, Manila,
P. I., a shipping and commission department for
buying and selling leaf tobacco and other native
products, under the following conditions:
1. When the consignment has been received,
the consignor thereof will be credited with a sum
not to exceed two-thirds of the value of the
goods shipped, which may be made available
by acceptance of a draft or written order of the
consignor on five to ten day's sight, or by his
ordering at his option a bill of goods. In the latter
case he must pay a commission of 2 per cent.
2. No draft or written order will be accepted
without previous notice forwarding the
consignment of goods to guarantee the same.
3. Expenses of freight, hauling and everything
necessary for duly executing the commission
will be charged in the commission.
4. All advances made under sections (1) and (3)
shall bear interest at 10 per cent a year,
counting by the sale of the goods shipped or
remittance of the amount thereof.
5. A commission of 2 ½ per cent will be collected
on the amount realized from the sale of the
goods shipped.
6. A Payment will be made immediately after
collection of the price of the goods shipped.
7. Orders will be taken for the purchase of
general merchandise, ship-stores, cloths, etc.,
upon remittance of the amount with the
commission of 2 per cent on the total value of
the goods bought. Expenses of freight, hauling,
and everything necessary for properly executing
the commission will be charged to the
consignor.
8. The consignor of the good may not fix upon
the consignee a longer period than four months,
counting from the date of receipt, for selling the
same; with the understanding that after such
18 | AGENCY FULL TEXT CASES
period the consignee is authorized to make the
sale, so as to prevent the advance and cost of
storage from amounting to more than the actual
value of said goods, as has often happened.
9. The shipment to the consignors of the goods
ordered on account of the amount realized from
the sale of the goods consigned and of the
goods bought on remittance of the value
thereof, under sections (1) and (3), will not be
insured against risk by sea and land except on
written order of the interested parties.
10. On all consignments of goods not insured
according to the next preceding section, the
consignors will bear the risk.
11. All the foregoing conditions will take effect
only after this office has acknowledged the
consignor's previous notice.
12. All other conditions and details will be
furnished at the office of the undersigned.
If you care to favor me with your patronage, my
office is at No. 163 Muelle de la Reinna,
Binondo, Manila, P. I., under the name of
"Teodoro R. Yangco." In this connection it gives
me great pleasure to introduce to you Mr.
Florentino Collantes, upon whom I have
conferred public power of attorney before the
notary, Mr. Perfecto Salas Rodriguez, dated
November 16, 1907, to perform in my name and
on my behalf all acts necessary for carrying out
my plans, in the belief that through his
knowledge and long experience in the business,
along with my commercial connections with the
merchants of this city and of the provinces, I
may hope to secure the most advantageous
prices for my patrons. Mr. Collantes will sign by
power of attorney, so I beg that you make due
note of his signature hereto affixed.
Very respectfully,
(Sgd.) T. R. YANGCO.
(Sgd.) F. COLLANTES.
Accepting this invitation, the plaintiffs proceeded
to do a considerable business with the
defendant through the said Collantes, as his
factor, sending to him as agent for the defendant
a good deal of produce to be sold on
commission. Later, and in the month of
February, 1909, the plaintiffs sent to the said
Collantes, as agent for the defendant, 218
bundles of tobacco in the leaf to be sold on
commission, as had been other produce
previously. The said Collantes received said
tobacco and sold it for the sum of P1,744. The
charges for such sale were P206.96. leaving in
the hands of said Collantes the sum of
P1,537.08 belonging to the plaintiffs. This sum
was, apparently, converted to his own use by
said agent.
It appears, however, that prior to the sending of
said tobacco the defendant had severed his
relations with Collantes and that the latter was
no longer acting as his factor. This fact was not
known to the plaintiffs; and it is conceded in the
case that no notice of any kind was given by the
defendant to the plaintiffs of the termination of
the relations between the defendant and his
agent. The defendant refused to pay the said
sum upon demand of the plaintiffs, placing such
refusal upon the ground that at the time the said
tobacco was received and sold by Collantes he
was acting personally and not as agent of the
defendant. This action was brought to recover
said sum.
As is seen, the only question for our decision is
whether or not the plaintiffs, acting in good faith
and without knowledge, having sent produce to
sell on commission to the former agent of the
defendant, can recover of the defendant under
the circumstances above set forth. We are of the
opinion that the defendant is liable. Having
advertised the fact that Collantes was his agent
and having given them a special invitation to
deal with such agent, it was the duty of the
defendant on the termination of the relationship
of principal and agent to give due and timely
notice thereof to the plaintiffs. Failing to do so,
he is responsible to them for whatever goods
may have been in good faith and without
negligence sent to the agent without knowledge,
actual or constructive, of the termination of such
relationship.
19 | AGENCY FULL TEXT CASES

For these reasons the judgment appealed from

is confirmed, without special finding as to costs.