Agency 2020 - Chapter 1 digests
1. Apex Mining vs. Southeast Mindanao
Gold Mining Corp
FACTS:
The case revolves around a disputed
area, a rich tract of mineral land, inside the
forest reserve covered by Proclamation No.
369 issued by Governor General Dwight F.
Davis, located at Monkayo, Davao del Norte,
and Cateel, Davao Oriental, which
encompasses Mt. Diwata. It became known as
the “Diwalwal Gold Rush Area”, wherein
which numerous mining claimants scrambled
for gold that lies beneath its bosom.
Camilo Banad and his group, who
organized themselves as the Balite Communal
Portal Mining Cooperative (Balite), claimed
to have first discovered traces of gold in
Mount Diwata, filed a Declaration of
Location (DOL) for six mining claims in the
area.
On 12 December 1983, Apex Mining
Corporation (Apex) entered into operating
agreements with Balite.
On 02 February 1984, Marcopper
Mining Corporation (MMC) filed 16 DOLs
for areas adjacent to the area covered by the
DOL of Balite. However, realizing that the
area encompassed by its mining claims is a
forest reserve, they abandoned the same, and
instead applied for a prospecting permit with
the Bureau of Forest Development (BFD).
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The BDF issued a Prospecting Permit
to MMC traversing the municipalities of
Monkayo and Cateel. The permit embraced
the areas claimed by Apex and other
individual mining claimants.
MMC filed an Exploration Permit
Application with the BMG, and was
subsequently issued Exploration Permit No.
133 (EP 133)
Discovering the existence of several
mining claims and the proliferation of small-
scale miners in the area covered by EP 133,
MMC filed before the BMG a Petition for the
Cancellation of the Mining Claims of Apex
and Small Scale Mining Permits, alleging that
the areas covered by EP 133 and the mining
claims of Apex were within an established
forest reservation under Proclamation No 369
and pursuant to P.D. No. 463, acquisition of
mining right within a forest reserve is through
the application of a permit to prospect with
the BFD and not through registration of a
DOL with the BMG.
Apex filed for a Motion to Dismiss,
which was then granted by the BMG,
declaring that the area covered by the Apex
Mining claims and MMC’s permit to explore
was not a forest reserve. It further declared
null and void MMC’s EP 133 and sustained
the validity of Apex mining claims over the
disputed area.
MMC appealed the adverse order of
the BMG to the Department of Environment
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and Natural Resources (DENR). After due
hearing, the DENR reversed the BMG order
and declared MMC’s EP 133 valid and
subsisting.
Apex filed a Motion for
Reconsideration with the DENR, but was
subsequently denied. Apex then appealed to
the Office of the President. The Office of the
President dismiss Apex’s appeal and affirmed
the DENR ruling.
Apex then filed a Petition for
Certiorari before the Supreme Court (SC),
which on 16 July 1991 rendered a decision
against Apex holding that the disputed area is
a forest reserve; hence, the proper procedure
in acquiring mining rights therein is by
initially applying for a permit to prospect with
the BFD and not through a registration of
DOL with the BMG.
On 27 December 1991, the DENR
issued Department Administrative Order No.
66 (DAO 66) declaring 729 hectares of the
areas covered by the Forest Reserve as non-
forest and open to small-scale mining
purposes. With this, several mining entities
filed applications for Mineral Production
Sharing Agreements (MPSA).
One 05 January 1994, Rosendo
Villaflor and his group filed before the BMG
a Petition for Cancellation of EP 133 and for
the admission of their MPSA. The Petition
was docketed as Red Mines Case No. 8-8-94.
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On 16 February 1994, MMC assigned
EP 133 to Southeast Mindanao Gold Mining
Corporation (SEM), a domestic corporation
which is alleged to be a 100% owned
subsidiary of MMC.
SEM filed an MPSA application with
the BMG for the entire area covered by EP
133, which was eventually accepted and
registered, and its Deed of Assignment.
After the publication of SEM’s
application, several mining groups filed
before the BMG their adverse claims or
oppositions.
The DENR constituted a Panel of
Arbitrators (PA) to resolve the adverse claims
and the Petition to Cancel EP 133.
The PA rendered a resolution relying
on the 16 July 1991 decision of the SC and
opined that EP 133 was valid and subsisting.
With respect to the adverse claims, the PA
ruled that the adverse claimant’s petitions
were not filed in accordance with existing
rules and regulations governing adverse
claims because they failed to submit the
sketch plan containing the technical
description of their respective claims, which
is a mandatory requirement. It also added that
the adverse claimants were not claim owners
by mere occupants conducting illegal mining
activities, since only MMC or its assignee
SEM had valid mining claims over the area. It
also maintained that the adverse claimants are
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not qualified as small-scale miners and that
they were large-scale miners.
The adverse claimants then appealed
to the Mines Adjudication Board (MAB),
which declared the PA ruling to be erroneous
for being rendered over a mere technicality of
failure to submit a sketch plan. With regard to
the validity of EP 133, the MAB opined that
the said issue was not crucial and irrelevant in
adjudicating the case because EP 133 has
long expired due to its non-renewal and that
MMC was no longer a claimant of the forest
reserve. After brushing aside the validity of
EP 133 for being irrelevant, the MAB
proceeded to treat SEM’s MPSA application
as an entirely new and distinct application,
and approved of the same. However, it
excluded the 729 hectares within the
Diwalwal area as declared in DAO 66 as non-
forest lands open for small-scale mining.
Dissatisfied, the Villaflor Group and
Balite appealed to the SC. SEM, aggrieved by
the exclusion of the 729 hectares from its
MPSA application likewise appealed.
The cases were remanded by the SC to
the Court of Appeals (CA) for proper
disposition. The CA affirmed in toto the
decision of the PA, granted SEM’s petition
and declared null and void the MAB decision.
The CA, banking on the premise that
SEM is the agent of MMC by virtue of its
assignment of EP 133 and the purported fact
the SEM is a 100% subsidiary of MMC ruled
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that the transfer if EP 133 was valid. It argued
that since SEM is an agent of MMC, the
assignment of EP 133 did not violate the
condition therein prohibiting its transfer
except to MMC’s duly designated agent.
Thus, despite the non-renewal of EP 133, the
CA deemed it relevant to declare EP 133 as
valid since MMC’s mining rights were validly
transferred to SEM prior to its expiration. The
CA further ruled that the MMC’s right to
explore under EP 133 is a property right
which the 1987 Constitution protects and
which cannot be divested without the holder’s
consent. It stressed that MMC’s failure to
proceed with the extraction and utilization of
minerals did not diminish its vested right to
explore because its failure was not
attributable to it. The CA also faulted the
DENR in implementing DAO 66 to other
corporations who were not qualified as small-
scale miners.
Apex, Balite and the MAB elevated
the case to the SC.
ISSUE:
WON the CA erred in upholding the validity
and continuous existence of EP 133 as well as
its transfer to SEM.
RULING:
I N VA L I D . T h e S C r u l e d t h a t
Condition No. 6 of EP 133 categorically
states that the permit shall be for the
exclusive use and benefit of MMC or its duly
authorized agents. While it may be true that
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SEM, the assignee of EP 133, is a 100%
subsidiary corporation of MMC, records are
bereft of any evidence showing that the
former is the duly authorized agent of the
latter. For a contract of agency to exist, it is
essential that the principal consents that the
other party, the agent, shall act on its behalf,
and the agent consents so as to act. The SC
then proceeded to enumerate the elements of
agency, to wit:
1. Consent, express or implied, of the
parties to establish the relationship;
2. The object is the execution of a
juridical act in relation to a third person;
3. The agent acts as a representative and
not for himself;
4. The agents acts within the scope of his
authority.
The elements of agency is a factual matter
that needs to be established or proven by
evidence. It must likewise be emphasized that
the evidence to prove this fact must be clear,
positive and convincing.
In the instant Petitions, it is incumbent upon
MMC or SEM to prove that a contract of
agency actually exists between them so as to
allow SEM to use and benefit from EP 133 as
the agent of MMC. SEM did not claim nor
submit proof that it is the designated agent of
MMC to represent the latter in its business
dealings or undertaking. SEM cannot
therefore be considered an agent of MMC
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which can use EP 133 and benefit from it.
Since SEM is not an agent of MMC, it goes
without saying that the assignment or transfer
of the permit in favor of SEM is null and
void.
Furthermore, the concept of agency is distinct
from assignment. In agency, the agent acts not
on his own behalf but on behalf of his
principal. The assignment of MMC of EP 133
in favor of SEM did not make the latter the
former’s agent. It is a total abdication of
MMC’s rights over the permit, thus making
SEM the permittee.
The SC cannot lend recognition to the CA’s
theory that SEM being a 100% subsidiary of
MMC, is automatically an agent of MMC. A
corporation is an artificial being invested by
law with a personality separate and distinct
from persons composing it as well as from
that of any other legal entity to which it may
be related. Absent any clear proof to the
contrary, SEM is a separate and distinct entity
from MMC.
Furthermore, records indicate that on 06 July
1993, EP 133 was extended for 12 months or
until 06 July 1994. MMC never renewed its
permit prior and after its expiration. Thus, EP
133 expired by non-renewal. With this, MMC
lost any right to the Diwalwal Gold Rush
Area. SEM, on the other hand, has not
acquired any right to the said area because the
transfer if EP 133 in its favor is invalid,
Hence, both MMC and SEM have not
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acquired any vested right over the area
covered by EP 133.
2. Orient Air vs. CA
FACTS:
American Airlines, Inc. (American
Air) entered into a General Sales Agency
Agreement with Orient Air Services and
Hotel Representatives (Orient Air) whereby
the former authorized the latter to act as its
exclusive general sales agent within the
Philippines for the sale of air passenger
transportation.
In 1981, alleging that Orient Air had
reneged on its obligation under the
Agreement by failing to promptly remit the
net proceeds of sales for the months of
January to March 1981 in the amount of US
$254,400.40, American Air undertook the
collection of the proceeds of tickets sold
originally by Orient Air and terminated
forthwith the Agreement.
American Air instituted a suit against
Orient Air with CFI Manila, Branch 24, for
Accounting with Preliminary Attachment or
Garnishment, Mandatory Injunction and
Restraining Order.
In its Answer with counterclaim,
Orient Air denied the allegations with respect
to American Air’s entitlement to alleged
unremitted amounts, contending that after
application thereof to the commissions due it
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under the Agreement, American Air still owed
Orient Air a balance in unpaid overriding
commissions. Orient Air further alleged that
actions taken by American Air in the course
of terminating the Agreement as well as the
termination itself were untenable, claiming
that the latter’s precipitous conduct had
occasioned prejudice to its business interests.
The CFI dismissed the complaint and
ruled in favor of Orient Air, declaring the
termination of the Agreement illegal and
improper, and order American Air to reinstate
Orient Air as its general sales agent. It further
order American Air to pay the balance of
overriding commission, plus payment legal
interest, exemplary damages and attorney’s
fees.
On appeal, the Intermediate Appellate
Court (no Court of Appeals) affirmed the
findings of the CFI on their material points,
but with some modifications with respect to
the monetary awards granted.
American Air then elevated the case to
the SC.
ISSUE:
WON the CA is correct in ordering the
reinstatement of Orient Air as an agent of
American Air.
RULING:
NO. The CA, in effect, compels
American Air to extend its personality to
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Orient Air. Such would be violative of the
principles and essence of agency, defined by
law as a contract whereby “a person binds
himself to render some service or to do
something in representation or on behalf of
another, WITH THE CONSENT OR
AUTHORITY OF THE LATTER. In an
agent-principal relationship, the personality of
the principal is extended through the facility
of the agent. In so doing, the agent, by legal
fiction, becomes the principal, authorized to
perform all acts which the latter would have
him do. Such a relationship can only be
effected with the consent of the principal,
which must not, in any way, be compelled by
law or any court. The Agreement itself
between the parties states that “either party
may terminate the Agreement without cause
by giving the other 30 days’ notice by letter,
telegram, or cable.”
The Supreme Court set aside the
ruling of the CA with respect to the
reinstatement of Orient Air as general sales
agent of American Air.
3. Rallos vs. Felix Go Chan & Sons
Realty Corporation
 without being authorized by latter, or unless
FACTS:
Conception and Gerundia both
surnamed Rallos were sister and registered
co-owners of a parcel of land. The sisters
executed a special power of attorney in favor
of their brother Simeon Rallos for the sale of
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the above-mentioned parcel of land. On 03
March 1955, Concepcion Rallos died. Months
after Concepcion died, Simeon sold the
undivided shares of his sisters to herein
respondent Felix Go Chan & Realty Corp.
Ramon Rallos, administrator of the
late Concepcion’s estate, filed with with the
Court of First Instance praying that the sale of
the undivided share of the deceased be
declared unenforceable and to recover the
disposed share. CFI granted the relief prayed
for, but upon appeal, the Court of Appeals
reversed the decision.
Ramon Rallos then elevated the case
to the Supreme Court by way of Petition for
Review on Certiorari.
ISSUE:
WON the sale if the undivided share
of Concepcion Rallos is valid although it was
executed by the agent after the death of his
principal.
RULING:
The sale is void. The SC held that no
one may contract in the name of another
he has by law a right to represent him. A
contract entered into in the name of another
by one who has no authority or the legal
representation or who has acted beyond his
powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person
on whose behalf it has been executed, before
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it is revoked by the other contracting party.
The Court also cited Article 1403 (1)
The SC then enumerated the essential
elements of agency, which are: (1) there is
consent, express or implied of the parties to
establish the relationship; (2) the object is the
execution of a juridical act in relation to a
third person; (3) the agents acts as a
representative and not for himself, and (4) the
agent acts within the scope of his authority.
Agency is basically personal
representative, and derivative of nature. The
authority of the agent to act emanates from
the powers granted to him by his principal;
his act is the act of the principal if done
within the scope of the authority. Qui facit per
alium facit se. “He who acts through another
acts himself”.
The SC also declared that there are
various ways of extinguishing Agency, but in
this case, it is only concerned with one cause
which is death of the principal and cited
Paragraph 3 of Art. 1919 of the Civil Code
(Agency is extinguished by the death, civil
interdiction, insanity or insolvency of the
principal or of the agent).
The SC further declared that the sale
did not fall under the exceptions to the
general rule that death ipso jure extinguishes
the authority of the agent. Art. 1930 is
inapplicable because the SPA in favor of
Simeon Rallos was not coupled with interest.
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Art. 1931 is also not applicable because
Rallos knew of the principal’s death.
Laws on agency, the terms of which
are clear and unmistakable leaving no room
for interpretation contrary to its tenor, should
apply. The law provides that the death of the
principal ipso jure extinguishes the authority
of the agent to sell rendering the sale to a
third person in good faith unenforceable,
unless that agent had no knowledge of the
principal’s death at that time.
The SC reversed the decision of CA
and affirmed the decision of CFI. Sale was
null and void.
4. Caram v. Laureta
FACTS:
On June 25, 1959, Claro L. Laureta filed in
the Court of First Instance of Davao an action
for nullity, recovery of ownership and/or
reconveyance with damages and attorney's
fees against Marcos Mata, Codidi Mata,
Fermin Z. Caram Jr. and the Register of
Deeds of Davao City.
On June 10, 1945, Marcos Mata conveyed a
large tract of agricultural land covered by
Original Certificate of Title No. 3019 in favor
of Claro Laureta, plaintiff, the respondent
herein. The deed of absolute sale in favor of
the plaintiff was not registered because it was
not acknowledged before a notary public or
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any other authorized officer. At the time the
sale was executed, there was no authorized
officer before whom the sale could be
acknowledged inasmuch as the civil
government in Tagum, Davao was not as yet
organized. However, the defendant Marcos
Mata delivered to Laureta the peaceful and
lawful possession of the premises of the land
together with the pertinent papers thereof
such as the Owner's Duplicate Original
Certificate of Title No. 3019, sketch plan, tax
declaration, tax receipts and other papers
related thereto. Since June 10, 1945, the
plaintiff Laureta had been and is still in
continuous, adverse and notorious occupation
of said land, without being molested,
disturbed or stopped by any of the defendants
or their representatives. In fact, Laureta had
been paying realty taxes due thereon and had
introduced improvements worth not less than
P20,000.00 at the time of the filing of the
complaint.
However, the said property was sold to
Fermin Caram, Jr., the petitioner, by Marcos
Mata on May 5, 1947. And was able to
declare the ODOCT in the possession of
Laureta null and void, after Mata filed for an
issuance of new ODOCT before the RD of
Davao on the ground of loss of the said title.
The Trial Court ruled infavor of Laureta,
stating that Caram, Jr. was not a purchaser in
good faith, and the Court of Appeals thenafter
affirmed the decision of the lower court.
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PETITIONER’S CONTENTION:
The petitioner assails the finding of the trial
court that the second sale of the property was
made through his representatives, Pedro
Irespe and Atty. Abelardo Aportadera. He
argues that Pedro Irespe was acting merely as
broker or intermediary with the specific task
and duty to pay Marcos Mata the sum of
P1,000.00 for the latter's property and to see
to it that the requisite deed of sale covering
the purchase was properly executed by
Marcos Mata; that the identity of the property
to be bought and the price of the purchase had
already been agreed upon by the parties; and
that the other alleged representative, Atty.
Aportadera, merely acted as a notary public in
the execution of the deed of sale.
ISSUE:
Whether petitioner have acted in bad faith
through his agents action.
RULING:
In the case at bar, the court found that the
Attorneys Irespe and Aportadera had
knowledge of the circumstances, and knew
that Mata's certificate of title together with
other papers pertaining to the land was taken
by soldiers under the command of Col. Claro
L. Laureta. Added to this is the fact that at the
time of the second sale Laureta was already in
possession of the land. Irespe and Aportadera
should have investigated the nature of
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Laureta's possession. If they failed to exercise
the ordinary care expected of a buyer of real
estate they must suffer the consequences. The
rule of caveat emptor requires the purchaser
to be aware of the supposed title of the vendor
and one who buys without checking the
vendor's title takes all the risks and losses
consequent to such failure.
The principle that a person dealing with the
owner of the registered land is not bound to
go behind the certificate and inquire into
transactions the existence of which is not
there intimated 18 should not apply in this
case. It was of common knowledge that at the
time the soldiers of Laureta took the
documents from Mata, the civil government
of Tagum was not yet established and that
there were no officials to ratify contracts of
sale and make them registrable. Obviously,
Aportadera and Irespe knew that even if Mata
previously had sold the disputed property
such sale could not have been
registered.cdrep
There is no doubt then that Irespe and
Aportadera, acting as agents of Caram,
purchased the property of Mata in bad faith.
Applying the principle of agency, Caram, as
principal, should also be deemed to have
acted in bad faith.
Article 1544 of the New Civil Code provides
that:
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"Art. 1544. If the same thing should have
been sold to different vendees, the ownership
shall be transferred to the person who may
have first taken possession thereof in good
faith, if it should be movable property.
"Should it be immovable property, the
ownership shall belong to the person
acquiring it who in good faith first recorded it
in the Registry of Property.
"Should there be no inscription, the
ownership shall pertain to the person who in
good faith was first in the possession; and, in
the absence thereof, to the person who
presents the oldest title, provided there is
good faith. (1973)".
Since Caram was a registrant in bad faith, the
situation is as if there was no registration at
all.
5. AIR FRANCE vs. Court of Appeals,
December 29, 1983 G.R. No. L-57339
Nature and Purpose of Agency
FACTS:
In February, 1970, the late Jose G. Gana and
his family, (the GANAS), purchased from
AIRFRANCE through Imperial Travels,
Incorporated, a duly authorized travel agent,
nine "open-dated" air passage tickets for the
Manila/Osaka/Tokyo/Manila route.On April
24, 1970, AIR FRANCE exchanged or
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substituted the aforementioned tickets with
other tickets for the same route. At this time,
the GANAS were booked for the Manila/
Osaka segmenton AIR FRANCE Flight 184
for May 8, 1970, and for the Tokyo/Manila
return trip on AIRFRANCE Flight 187 on
May 22, 1970. The aforesaid tickets were
valid until May 8, 1971.TheGANAS did not
depart on 8 May 1970.Jose Gana sought the
assistance of Teresita Manucdoc, a Secretary
of the Sta. Clara Lumber Company where
Jose Gana was the Director and Treasurer, for
the extension of the validity of their tickets,
which were due to expire on May 8, 1971.
Teresita enlisted the help of Lee EllaManager
of the Philippine Travel Bureau, who used to
handle travel arrangements for the personnel
of the Sta. Clara Lumber Company. Ella sent
the tickets to Cesar Rillo, OfficeManager of
AIR FRANCE.The tickets were returned to
Ella who was informed that extension was not
possible. Ella then returned the tickets to
Teresita and informed her of the impossibility
of extension.In the meantime, the GANAS
had scheduled their departure on May 7, 1971
or one day before the expiry date. In the
morning of the very day of their scheduled
departure on the first leg of their trip, Teresita
requested travel agent Ella to arrange the
revalidation of the tickets. Ella gave the same
negative answer and warned her that although
the tickets could be used by theGANAS if
they left onMay 7, 1971, the tickets would no
longer be valid for the rest of their trip
because the tickets would then have expired
on May 8,1971. Teresita replied that it will be
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up to the GANAS to make the arrangements.
Notwithstanding the warnings, the GANAS
departed from Manila in the afternoon of May
7, 1971 on board AIR FRANCE Flight 184
for Osaka,Japan.However, for the Osaka/
Tokyo flight on May 17, 1971, Japan Airlines
refused to honor the tickets because of their
expiration, and the GANAS had to purchase
new tickets. They Encountered the same
difficulty with respect to their return trip to
Manila as AIR FRANCE also refused to
honor their tickets. They were able to return
only after prepayment in Manila, through
their relatives, of the readjusted rates. They
finally flew back to Manila on separate Air
FranceFrights.
ISSUE:
Whether or not Teresita was the agent of the
GANAS and notice to of the rejection of the
request of the validity of the tickets was
notice to the GANAS, her principals.
RULING:
The GANAS cannot defend by contending
lack of knowledge of those rules since the
evidence bears out that Teresita, who handled
travel arrangements for the GANAS, was
duly informed by travel agent Ella of the
advice of Reno, the Office Manager of Air
France, that the tickets in question could not
be extended beyond the period of their
validity without paying the fare differentials
and additional travel taxes brought about by
the increased fare rate and traveltaxes.To all
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legal intents and purposes, Teresita was the
agent of the GANAS and notice to her of the
rejection of the request for extension of the
validity of the tickets was notice to the
GANAS, her principals.WHEREFORE, the
judgment under review is hereby reversed and
set aside, and the AmendedComplaint filed by
private respondents hereby dismissed.
6. ANGHIAN SIY vs. TOMLIN
G.R. No. 205998 April 24, 2017
(Agency)
FACTS:
On July 2011, Siy filed a Complaint for
Recovery of Possession with Prayer for
Replevin against Ong, Centeno, Chua, and
respondent Tomlin. The petition which
was filed before the Quezon City RTC,
alleged the following:
Petitioner is the owner of a 2007 model
Range Rover with Plate Number ZMG 272
which he purchased from Alberto Lopez on
July 22, 2009.
In 2010, he entrusted the said vehicle to
Ong, a businessman who owned a second-
hand car sales showroom, after the latter
claimed that he had a prospective buyer. Ong
failed to remit the proceeds of the purported
sale or return the vehicle. Siy found out
that the vehicle had been transferred to
Chua, and
later learned that the vehicle was being
transferred to Tomlin.
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On August 17, 2011, Tomlin filed an
Omnibus Motion seeking to quash the Writ of
Replevin, dismiss the Complaint, and turn
over the vehicle to him. Tomlin argued that
that petitioner failed to show that he is the
owner of the vehicle or that he is entitled to
its possession, and that the vehicle is
wrongfully detained by him, and that it has
not been distrained, seized or placed under
custodia legis; and that he is a buyer in good
faith and for value.
ISSUE:
Was the issuance of the Writ of Replevin
proper?
RULING:
No, the issuance of the Writ of Replevin was
not proper. The Supreme Court has held that
in a complaint of replevin, the claimant must
convincingly show that he
is the owner or clearly entitled to the
possession of the object sought to be
recovered, and that the defendant, who is
in actual or legal possession thereof,
wrongfully detained the same ( Superlines
Transportation Company, Inc. v. Philippine
National Construction Company, 2007). Also,
under the Civil Code on agency, Article 1869,
agency may be express, or implied from the
acts of
the principal, from his silence or lack of
action, or his failure to repudiate the
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agency, knowing that another person is
acting on his behalf without authority.
Here, Siy constituted and appointed Ong
as his agent to sell the vehicle,
surrendering to the latter the vehicle, all
documents of title pertaining thereto, and
a deed of sale signed in blank. Acting for
and on petitioner's behalf by virtue of the
implied or oral agency, Ong was thus able to
sell the vehicle to Chua, Siy thus ceased to be
the owner thereof. It was Tomlin who
obtained the vehicle from Chua and
registered the transfer with the Land
Transportation Office,
Who is the rightful owner thereof, and as
such, he is entitled to its possession.
Hence the issuance of the Writ of Replevin
was not proper.
7. BPI vs. Laingo
FACTS:
Rheozel Laingo (Rheozel), the son of
Yolanda Laingo (Laingo), opened a “Platinum
2-in-1 Savings and Insurance” account with
BPI in its Claveria, Davao City Branch. The
said account is a saving account where
depositors are automatically covered by an
insurance policy against disability or death,
issued by FGU Insurance Corporation (FGU
Insurance). Rheozel was given a Personal
12 Cabato | Cruz | Leonardo | Mangurun | Rosette
Accident Insurance Coverage Certificate, and
Laingo was his named beneficiary.
Rheozel died due to a vehicular
accident. Laingo wanted to use the money in
the savings account for Rhoezel’s burial and
instructed the family’s personal secretary
Alice to go to BPI and inquire about the
savings account. Alice then went to BPI
regarding Laingo’s request. BPI acceded to
Laingo’s request and allowed her to withdraw
P995,000 from the account of Rhoezel. Two
years later, the sister of Rheozel, Rhealyn
Laingo-Concepcion found the above-
mentioned Personal Accident Insurance
Coverage Certificate and conveyed the
information to Laingo.
Laingo then sent two letters to BPI
and FGU Insurance requesting them to
process her claim as the beneficiary of
Rheozel. FGU sent a reply letter denying her
claim, stating that Laingo should have filed
the claim within three calendar months from
the death of Rheozel as required by Paragraph
15 of the Personal Accident Certificate of
Insurance.
Laingo then filed a Complaint for
Specific Performance with Damages and
Attorney’s Fees with the RTC of Davao City,
Branch 16, against BPI and FGU Insurance.
The RTC dismissed the Complaint and
ruled in favor of BPI and FGU Insurance.
Laingo filed an appeal with the Court
of Appeals, who reversed the ruling of the
Agency 2020 - Chapter 1 digests
RTC and granted the appeal, stating that
Laingo could not be expected to do an
obligation which she did not know existed.
The CA further added that Laingo was not a
party to the insurance contract. Thus, she
could not be bound by the 90-day stipulation.
BPI and FGU Insurance elevated the
case to the Supreme Court (SC)
ISSUE:
WON Laingo, as named beneficiary
who had no knowledge of the existence of the
insurance contract, is bound by the three
calendar month deadline for filing a written
notice of claim upon the death of the insured.
RULING:
The petition lacks merit.
L a i n g o , a s R h o e z e l ’s n a m e d
beneficiary had no knowledge of the fact that
Rhoezel was covered by an insurance policy
against disability or death issued by FGU
Insurance that was attached to Rhoezel’s
account with BPI. Laingo argued that she
dealth with BPI after her son’s death when
she withdrew funds from his savings account.
However, BPI did not notify her of the
attached insurance policy. She thus attributes
responsibility to BPI and FGU Insurance for
her failure to file the notice of insurance
claim within three months after her son’s
death. The SC agreed with her contention.
13 Cabato | Cruz | Leonardo | Mangurun | Rosette
The SC declared that BPI is the main
proponent of the 2-in-1 deposit account, tied
up with its affiliate, FGU Insurance. Any
customer interested to open a deposit account
under the 2-in-1 product and upon BPI’s
approval, will automatically be given an
insurance coverage. Thus, BPI acted as agent
of FGU Insurance with respect to the
insurance feature of its own marketed
product.
The SC stated that for an agency to
arise, it is not necessary that the principal
personally encounter the third person with
whom the agent interacts. The law in fact
contemplates impersonal dealing where the
principal need not personally know or meet
the third person with whom the agent
transacts: precisely, the purpose of agency is
to extend the personality of the principal
through the facility of the agent.
Furthermore, when an agency
relationship is established, the agent acts for
the principal insofar as the world is
concerned. Consequently, the acts of the
agent on behalf of principal within the scope
of the delegated authority have the same legal
effect and consequence as thought the
principal had been the one so acting in the
given situation.
The SC further averred that BPI, as
agent of FGU Insurance, had the primary
responsibility the 2-in1 account be reasonably
carried out with full disclosure to parties
concerned, particularly beneficiaries. Thus, it
Agency 2020 - Chapter 1 digests
was incumbent upon BPO to give proper
notice of the existence of the insurance
coverage and the stipulation in the insurance
contract for filing a claim to Laingo, as
Rhoezel’s beneficiary.
The SC cited Art. 1884 and 1887
wherein both provision entail, on the part of
BPI, to do all that a good father of a family
would do, as required by the nature of
business.
The SC further stated that there is
rationale in the contract of agency, which
flows from the “doctrine of representation”,
that notice to the agent is notice to the
principal. In the present case, BPI was
informed of Rhoezel’s death by the latter’s
family. Since BPI is the agent of FGU
Insurance, then such notice of death to BPI is
considered notice to FGU Insurance. FGU
cannot justify the denial of a beneficiary’s
insurance claim for being filed out of time
when notice of death had been communicated
to its aagent within a few days after the death
of the depositor-insured. In short, there was
timely notice of Rheozel’s death given to
FGU Insurance within three months from
Rheozel’s death as required by the insurance
company.
BPI had ample opportunity to inform
Laingo, whether verbally or in writing,
regarding the existence of the insurance
policy. However, BPI neglected to carry out
its duty. Since BPI, as an agent of FGU
Insurance, fell short in notifying Laingo of
14 Cabato | Cruz | Leonardo | Mangurun | Rosette
the existence of the insurance policy, Laingo
had no means to ascertain that she was
entitled to the insurance claim. It would be
unfair for Laingo to shoulder the burden of
loss when BPI was remiss in its duty to carry
out its duty.
The SC denied the petition and
affirmed the decision of the Court of Appeals.
8. Manuel Lim v CA
FACTS:
Manuel Lim and Rosita Lim are the officers
of the Rigi Bilt Industries, Inc. (RIGI). RIGI
had been transacting business with Linton
Commercial Company, Inc. The Lims
ordered 100 pieces of mild steel plates from
Linton and were delivered to the Lim’s place
of business which was in Caloocan. To pay
Linton, the Lims issued a postdated check for
P51,800.00. On a different date, the Lims also
ordered another 65 pcs of mild steel plates
and were delivered in the place of business.
They again issued another postdated check.
On that same day, they also ordered purlins
worth P241,800 which were delivered to them
on various dates. The Lims issued 7 checks
for this.
When the 7 checks were presented to the
drawee bank (Solidbank), it was dishonored
because payment for the checks had been
stopped and/or insufficiency of funds. So the
Lims were charged with 7 counts of violation
of Bouncing Checks Law.
Agency 2020 - Chapter 1 digests
The Malabon trial court held that the Lims
were guilty of estafa and violation of BP 22.
They went to CA on appeal.
The CA acquitted the Lims of estafa, on the
ground that the checks were not made in
payment of an obligation contracted at the
time of their issuance. However, the CA
affirmed the finding that they were guilty of
violation for BP 22. Motion for
Reconsideration to SC.
ISSUE:
Whether or not the issue was within the
jurisdiction of the Malabon Trial Court
RULING:
Yes. The venue of jurisdiction lies either in
the RTC Caloocan or Malabon Trial Court.
BP 22 is a continuing crime. A person charged
with a transitory crime may be validly tried in
any municipality or territory where the
offense was partly committed. In determining
the proper venue, the ff. must be considered.
1) 7 checks were issued to Linton in its place
of business in Navotas. 2) The checks were
delivered Linton in the same place. 3) The
checks were dishonored in Caloocan 4) The
Lims had knowledge
of their insufficiency of funds.
Under sec 191 of the Negotiable Instruments
Law:
ISSUE = 1ST delivery of the instrument
complete in form to a person who takes it as a
holder
15 Cabato | Cruz | Leonardo | Mangurun | Rosette
HOLDER = payee or indorsee of a bill/note
who is in possession of it or the bearer
The place where the bills were written, signed
or dated does not necessarily fix or determine
the place where they were executed. It is the
delivery that is important. It is the final act
essential to its consummation of an
obligation. An undelivered bill is unoperative.
The issuance and delivery of the check must
be to a person who takes it as a holder.
Although Linton sent a collector who
received the checks fr. The Lims at their place
of business, the checks were actually issued
and delivered to Linton in Navotas. The
collector is not a holder or an agent, he was
just an employee.
*SC affirms conviction of the Lims for
violation of BP 22 and the decision of CA
9. Amon Trading Corp. and Juliana
M a r k e t i n g v. C A a n d Tr i - R e a l t y
Development and Construction Corporation
FACTS:
Tri-Realty is a developer and contractor with
projects in Bulacan and Quezon City.
Sometime in February 1992, Tri-Realty had
difficulty in purchasing cement needed for its
projects.
Lines & Spaces Interior Center, represented
by Eleanor Bahia Sanchez, informed Tri-
Realty that it could obtain cement to its
Agency 2020 - Chapter 1 digests
satisfaction from Amon Trading Corporation
and its sister company, Juliana Marketing. On
the strength of such representation, Tri-Realty
proceeded to order from Sanchez 6,050 bags
of cement from Amon Trading Corporation,
and from Juliana Marketing, 6,000 bags at
P98.00/bag.
Tri-Realty, through Mrs. Sanchez of Lines &
Spaces, paid in advance the amount of the
cement. Tri- Realty likewise paid to Lines &
Spaces an advance fee for the 12,050 cement
bags at the rate of P7.00/bag, or a total of
P84,350.00, in consideration of the
facilitation of the orders and certainty of
delivery.
The balance of 2,200 bags from Amon
Trading Corporation and 3,000 bags from
Juliana Marketing, or a total of 5,200 bags,
was not delivered. Tri-Realty, thus, sent
Amon Trading and Juliana Marketing written
demands but in reply, they stated that they
have already refunded the amount of
undelivered bags of cement to Lines &
Spaces per written instructions of Sanchez.
ISSUES:
(1) WON there was a contract of agency
between Lines & Spaces and Tri-Realty;
(2) WON Amon Trading and Juliana
Marketing and Tri-Realty has privity of
contract
RULING:
1 & 2. No
16 Cabato | Cruz | Leonardo | Mangurun | Rosette
There was no written contract entered into
between Amon Trading and Juliana
Marketing and Tri- Realty for the delivery of
the bags of cement. Tri-Realty agreed with
Sanchez of Lines & Spaces for the latter to
source the cement needs of the former in
consideration of P7.00 per bag of cement. It is
worthy to note that the payment in manager’s
checks was made to Sanchez and was not
directly paid to Amon Trading and Juliana
Marketing. While the manager’s check issued
by Tri-Realty was eventually paid to Amon
Trading and Juliana Marketing for the
delivery of the bags of cement, there is
obviously nothing from the face of said
manager’s check to hint that Tri-Realty was
the one making the payments. There was
likewise no intimation from Sanchez that the
purchase order placed by her was for Tri-
Realty’s benefit. The meeting of minds,
therefore, was between Tri-Realty and
Sanchez. This contract is distinct and separate
from the contract of sale between Amon
Trading and Juliana Marketing and Sanchez
who represented herself to be from Lines &
S p a c e s / Tr i - R e a l t y, w h i c h , p e r h e r
representation, was a single account or entity.
Neither Sanchez nor Lines & Spaces was an
agent for Tri-Realty, but rather a supplier for
the latter’s cement needs.
Art. 1868. By the contract of agency a person
binds himself to render some service or to do
something in representation or on behalf of
another, with the consent or authority of the
latter.
Agency 2020 - Chapter 1 digests
On the part of the principal, there must be an
actual intention to appoint or an intention
naturally inferable from his words or actions
and on the part of the agent, there must be an
intention to accept the appointment and act on
it, and in the absence of such intent, there is
generally no agency. One factor which most
clearly distinguishes agency from other legal
concepts is control; one person - the agent -
agrees to act under the control or direction of
another - the principal. Indeed, the very word
“agency” has come to connote control by the
principal. The control factor, more than any
other, has caused the courts to put contracts
between principal and agent in a separate
category.
The intention of Tri-Realty was merely for
Lines & Spaces, through Eleanor Sanchez, to
supply them with the needed bags of cement.
Inasmuch as Amon Trading and Juliana
Marketing have never directly dealt with Tri-
Realty and there is no paper trail on record to
guide them that the Tri-Realty, in fact, is the
beneficiary, Amon Trading and Juliana
Marketing had no reason to doubt the request
of Sanchez later on to refund the value of the
undelivered bags of cement to Lines &
Spaces. Moreover, the check refund was
payable to Lines & Spaces, not to Sanchez, so
there was indeed no cause to suspect the
scheme.
Tri-Realty was negligent. It was the one who
had reposed too much trust on Sanchez for
the latter to source its cement needs.
17 Cabato | Cruz | Leonardo | Mangurun | Rosette
Second, it failed to employ safety nets to steer
clear of the rip-off. For such huge sums of
money involved in this case, it is surprising
that a corporation such as Tri-Realty would
pay its construction materials in advance
instead of in credit thus opening a window of
opportunity for Sanchez or Lines & Spaces to
pocket the remaining balance of the amount
paid corresponding to the undelivered
materials. Tri-Realty likewise paid in advance
the commission of Sanchez for the materials
that have yet to be delivered so it really had
no means of control over her. Finally, there is
no paper trail linking Tri-Realty to Amon
Trading and Juliana Marketing thereby
leaving the latter clueless that Tri-Realty was
their true client. Tri-Realty should have, at the
very least, required Amon Trading and Juliana
Marketing to sign the check vouchers or to
issue receipts for the advance payments so
that it could have a hold on Amon Trading
and Juliana Marketing. In this case, it was the
representative of Lines & Spaces who signed
the check vouchers.
10. Jocelyn B. Doles vs. Ma. Aura Tina
Angeles

FACTS:
Petitioner executed a Deed of Absolute Sale
ceding a parcel of land in favor of respondent
to satisfy the alleged indebtedness of the
former in the amount of P405,430.00. Since
the said land was mortgaged to the National
Agency 2020 - Chapter 1 digests
Home Mortgage Finance Corporation, they
further agreed that respondent assumes the
remaining balance of the loan. Learning that
the petitioner still has arrearages, respondent
demanded that the arrearages be paid first.
Petitioner did not heed, thus a case was filed
by the respondent.
In answer, the petitioner alleged that sale was
void for lack of consideration and that she
was not indebted to the respondent as she
only referred her friends to respondent whom
she knew to be engaged in the business of
lending money in exchange for personal
checks through her capitalist Arsenio Pua.
Further petitioner contended that since the
respondent is also an agent, she does not have
the capacity to sue her.
It is an admitted fact by both petitioner and
defendant, based on their testimonies, that
respondent knew that the money will be used
by the friends of the petitioner; that the
respondent was merely representing Arsenio
Pua; and that before the supposed friends of
the petitioner defaulted in payment, each
issued their personal checks in the name of
Arsenio Pua for the payment of their debt.
ISSUE:
Whether or not petitioner and respondent
were acting on their personal capacity or as
mere agents.
RULING:
The question whether an agency has been
created is ordinarily a question which may be
18 Cabato | Cruz | Leonardo | Mangurun | Rosette
established in the same was as any other fact,
either by direct or circumstantial evidence.
Agency may be implied from the words and
conduct of the parties and the circumstances
of the particular case. Though the fact or
extent of authority of the agents may not, as a
general rule, be established from the
declarations of the agents alone, if one
frofessed to act as agent for another, she may
be stopped to deny her agency both as against
the asserted principal and the third persons
interested in the transaction in which he or
she is engaged.
In this case, the petitioner knew that the
financier of the respondent is Pua, and
respondent knew that the borrowers are
friends of the petitioner. It is sufficient that
the petitioner disclosed to respondent that the
former was acting on behalf of her principals,
her friends. For an agency to arise, it is not
necessary that the principal personally
encounter the third person with whom the
agent interacts.
Here, both petitioner and respondent have
undeniably disclosed to each other that they
are representing someone else and so both of
them are estopped to deny the same.
That both parties acted as mere agents is
shown by the undisputed fact that the friends
of the petitioner issued checks in payment of
the loan in the name of Arsenio Pua.
Agency 2020 - Chapter 1 digests
11 . S U N A C E I N T E R N AT I O N A L
MANAGEMENT SERVICES, INC. v.
NLRC
FACTS:
Petitioner, Sunace International Management
Services (Sunace), deployed to Taiwan Divina
A. Montehermozo (Divina) as a domestic
helper under a 12-month contract effective
February 1, 1997. The deployment was with
the assistance of a Taiwanese broker, Edmund
Wang, President of Jet Crown International
Co., Ltd.
After her 12-month contract expired on
February 1, 1998, Divina continued working
for her Taiwanese employer, Hang Rui Xiong,
for two more years, after which she returned
to the Philippines on February 4, 2000.
Shortly after her return or on February 14,
2000, Divina filed a complaint before the
National Labor Relations Commission
(NLRC) against Sunace, one Adelaide Perez,
the Taiwanese broker, and the employer-
foreign principal alleging that she was jailed
for three months and that she was underpaid
Reacting to Divina's Position Paper, Sunace
filed on April 25, 2000 an ". . . ANSWER TO
COMPLAINANT'S POSITION PAPER"
alleging that Divina's 2-year extension of her
contract was without its knowledge and
consent, hence, it had no liability attaching to
any claim arising therefrom, and Divina in
fact executed a Waiver/Quitclaim and Release
of Responsibility and an Affidavit of
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Desistance, copy of each document was
annexed to said
The Labor Arbiter rejected Sunace's claim
that the extension of Divina's contract for two
more years was without its knowledge and
consent.
ISSUE:
Whether or not the act of the foreigner-
principal in renewing the contract of Divina
be attributable to Sunace
RULING:
No, the act of the foreigner-principal in
renewing the contract of Divina is not
attributable to Sunace.
There being no substantial proof that Sunace
knew of and consented to be bound under the
2-year employment contract extension, it
cannot be said to be privy thereto. As such, it
and its "owner" cannot be held solidarily
liable for any of Divina's claims arising from
the 2-year employment extension.
Furthermore, as Sunace correctly points out,
there was an implied revocation of its agency
relationship with its foreign principal when,
after the termination of the original
employment contract, the foreign principal
directly negotiated with Divina and entered
into a new and separate employment contract
in Taiwan.
Agency 2020 - Chapter 1 digests
Note that it is a basic principle in law that
contracts bind only the parties who had
entered into it, it cannot favor or prejudice a
third person. (Visayan Surety & Insurance
Corporation vs. Court of Appeals, 364 SCRA
631 [2001])
12. Nielson & Co. Inc. vs. Lepanto
Consolidated Mining Co.
FACTS:
An operating agreement was executed before
World War II (on 30 January 1937) between
Nielson & Co. Inc. and the Lepanto
Consolidated Mining Co. whereby the former
operated and managed the mining properties
owned by the latter for a management fee of
P2,500.00 a month and a 10% participation in
the net profits resulting from the operation of
the mining properties, for a period of 5 years.
In 1940, a dispute arose regarding the
computation of the 10% share of Nielson in
the profits. The Board of Directors of
Lepanto, realizing that the mechanics of the
contract was unfair to Nielson, authorized its
President to enter into an agreement with
Nielson modifying the pertinent provision of
the contract
effective 1 January 1940 in such a way that
Nielson shall receive (1) 10% of the
dividends declared and paid, when and as
paid, during the period of the contract and at
the end of each year, (2) 10% of any depletion
reserve that may be set up, and (3) 10% of
any amount expended during the year out of
surplus earnings for capital account. In the
20 Cabato | Cruz | Leonardo | Mangurun | Rosette
latter part of 1941, the parties agreed to renew
the contract for another period of 5 years, but
in the meantime, the Pacific War broke out in
December 1941. In January 1942 operation of
the mining properties was disrupted on
account of the war. In February 1942, the
mill, power plant, supplies on hand,
equipment, concentrates on hand and mines,
were destroyed upon orders of the United
States Army, to prevent their utilization by the
invading Japanese Army.
The Japanese forces thereafter occupied the
mining properties, operated the mines during
the continuance of the war, and who were
ousted from the mining properties only in
August 1945. After the mining properties
were liberated from the Japanese forces,
LEPANTO took possession thereof and
embarked in rebuilding and reconstructing the
mines and mill; setting up new organization;
clearing the mill site; repairing the mines;
erecting staff quarters and bodegas and
repairing existing structures; installing new
machinery and equipment; repairing roads
and maintaining the same; salvaging
equipment and storing the same within the
bodegas; doing police work necessary to take
care of the materials and equipment
recovered; repairing and renewing the water
system; and retimbering. The rehabilitation
and reconstruction of the mine and mill was
not completed until 1948. On 26 June 1948
the mines resumed operation under the
exclusive management of LEPANTO. Shortly
after the mines were liberated from the
Japanese invaders in 1945, a disagreement
Agency 2020 - Chapter 1 digests
arose between NIELSON and LEPANTO
over the status of the operating contract which
as renewed expired in 1947. Under the terms
thereof, the management contract shall
remain in suspense in case fortuitous event or
force majeure, such as war or civil
commotion, adversely affects the work of
mining and milling. On 6 February 1958,
NIELSON brought an action against
LEPANTO before the Court of First Instance
of Manila to recover certain sums of money
representing damages allegedly suffered by
the former in view of the refusal of the latter
to comply with the terms of a management
contract entered into between them on 30
January 1937, including attorney's fees and
costs.
LEPANTO in its answer denied the material
allegations of the complaint and set up certain
special defenses, among them, prescription
and laches, as bars against the institution of
the action.
After trial, the court a quo rendered a decision
dismissing the complaint with costs. The
court stated that it did not find sufficient
e v i d e n c e t o e s t a b l i s h L E PA N T O ' s
counterclaim and so it likewise dismissed the
same. NIELSON appealed. The Supreme
Court reversed the decision of the trial court
and enter in lieu thereof another, ordering
Lepanto to pay Nielson (1) 10% share of cash
dividends of December, 1941 in the amount
of P17,500.00, with legal interest thereon
from the date of the filing of the complaint;
(2) management fee for January, 1942 in the
amount of P2,500.00, with legal interest
21 Cabato | Cruz | Leonardo | Mangurun | Rosette
thereon from the date of the filing of the
complaint; (3) management fees for the sixty-
month period of extension of the management
contract, amounting to P150,000.00, with
legal interest from
the date of the filing of the complaint; (4)
10% share in the cash dividends during the
period of extension of the management
contract, amounting to P1,400,000.00, with
legal interest thereon from the date of the
filing of the complaint; (5) 10% of the
depletion reserve set up during the period of
extension, amounting to P53,928.88, with
legal interest thereon from the date of the
filing of the complaint; (6) 10% of the
expenses for capital account during the period
of extension, amounting to P694,364.76, with
legal interest thereon from the date of the
filing of the complaint; (7) to issue and
deliver to Nielson and Co. Inc. shares of stock
of Lepanto Consolidated Mining Co. at par
value equivalent to the total of Nielson's 10%
share in the stock dividends declared on
November 28, 1949 and August 22, 1950,
together with all cash and stock dividends, if
any, as may have been declared and issued
subsequent to November 28, 1949 and August
22, 1950, as fruits that accrued to said shares;
provided that if sufficient shares of stock of
Lepanto's are not available to satisfy this
judgment, Lepanto shall pay Nielson an
amount in cash equivalent to the market value
of said shares at the time of default, that is, all
shares of stock that should have been
delivered to Nielson before the filing of the
Agency 2020 - Chapter 1 digests
complaint must be paid at their market value
as of the date of the filing of the
complaint; and all shares, if any, that should
have been delivered after the filing of the
complaint at the market value of the shares at
the time Lepanto disposed of all its available
shares, for it is only then that Lepanto placed
itself in condition of not being able to
perform its obligation; (8) the sum of
P50,000.00 as attorney's fees; and (9) the
costs.
Lepanto seeks the reconsideration of the
decision rendered on 17 December 1966.
ISSUE:
Whether the management contract is a
contract of agency or a contract of lease of
services.
RULING:
Article 1709 of the Old Civil Code, defining
contract of agency, provides that "By the
contract of agency, one person binds himself
to render some service or do something for
the account or at the request of another."
Article 1544, defining contract of lease of
service, provides that "In a lease of work or
services, one of the parties binds himself to
make or construct something or to render a
service to the other for a price certain." In
both agency and lease of services one of the
parties binds himself to render some service
to the other party. Agency, however, is
distinguished from lease of work or services
in that the basis of agency is representation,
while in the lease of work or services the
22 Cabato | Cruz | Leonardo | Mangurun | Rosette
basis is employment. The lessor of services
does not represent his employer, while the
agent represents his principal. Further, agency
is a preparatory contract, as agency "does not
stop with the agency because the purpose is to
enter into other contracts." The most
characteristic feature of an agency
relationship is the agent's power to bring
about business relations between his principal
and third persons. "The agent is destined to
execute juridical acts (creation, modification
or extinction of relations with third parties).
Lease of services contemplate only material
(non-juridical) acts." Herein, the principal and
paramount undertaking of Nielson under the
management contract was the operation and
development of the mine and the operation of
the mill. All the other undertakings mentioned
in the contract are necessary or incidental to
the principal undertaking — these other
undertakings being dependent upon the work
on the development of the mine and the
operation of the mill. In the performance of
this principal undertaking Nielson was not in
any way executing juridical acts for Lepanto,
destined to create, modify or extinguish
business relations between
Lepanto and third persons. In other words, in
performing its principal undertaking Nielson
was not acting as an agent of Lepanto, in the
sense that the term agent is interpreted under
the law of agency, but as one who was
performing material acts for an employer, for
a compensation. It is true that the
management contract provides that Nielson
would also act as purchasing agent of supplies
Agency 2020 - Chapter 1 digests
and enter into contracts regarding the sale of
mineral, but the contract also provides that
Nielson could not make any purchase, or sell
the minerals, without the prior approval of
Lepanto. It is clear, therefore, that even in
these cases Nielson could not execute
juridical acts which would bind Lepanto
without first securing the approval of
Lepanto. Nielson, then, was to act only as an
intermediary, not as an agent. Further, from
the statements in the annual report for 1936,
and from the provision of paragraph XI of the
Management contract, that the employment
by Lepanto of Nielson to operate and manage
its mines was principally in consideration of
the know-how and
technical services that Nielson offered
Lepanto. The contract thus entered into
pursuant to the offer made by Nielson and
accepted by Lepanto was a "detailed
operating contract". It was not a contract of
agency. Nowhere in the record is it shown
that Lepanto considered Nielson as its agent
and that Lepanto terminated the management
contract because it had lost its trust and
confidence in Nielson.
13. Africa vs. Caltex 16 SCRA 488
FACTS:
It appears that in the afternoon of March 18,
1948 a fire broke out at the Caltex service
station at the corner of Antipolo street and
Rizal Avenue, Manila. It started while
gasoline was being hosed from a tank truck
23 Cabato | Cruz | Leonardo | Mangurun | Rosette
into the underground storage, right at the
opening of the receiving tank where the
nozzle of the hose was inserted. The fire
spread to and burned several neighboring
houses, including the personal properties and
effects inside them. Their owners, among
them petitioners here, sued respondents
Caltex (Phil.), Inc. and Mateo Boquiren, the
first as alleged owner of the station and the
second as its agent in charge of operation.
Negligence on the part of both of them was
attributed as the cause of the fire. The trial
court and the Court of Appeals found that
petitioners failed to prove negligence and that
respondents had exercised due care in the
premises and with respect to the supervision
of their employees.
ISSUES:
1. Whether or not, without proof as to
the cause and origin of the fire, the
doctrine of res ipsa loquitor should
apply so as to presume negligence on
the part of the respondents. 

2. The next issue is whether Caltex
should be held liable for the damages
caused to appellants.
RULING:
1. Where the thing which caused the
injury complained of is shown to be
Agency 2020 - Chapter 1 digests
under the management of defendant
or his servants and the accident is
such as in the ordinary course of
things does not happen if those who
have its management or control use
proper care, it affords
reasonable evidence, in absence of
explanation by defendant, that
the accident arose from want of care.
(45 C.J. #768, p. 1193).
The gasoline station, with all its appliances,
equipment and employees, was under the
control of appellees. A fire occurred therein
and spread to and burned the neighboring
houses. The persons who knew or could have
known how the fire started were appellees
and their employees, but they gave no
explanation thereof whatsoever. It is a fair
and reasonable inference that the incident
happened because of want of care. There is an
admission on the part of Boquiren in his
amended answer to the second amended
complaint that "the fire was caused through
the acts of a stranger who, without authority,
or permission of answering defendant, passed
through the gasoline station and negligently
threw a lighted match in the premises." No
evidence on this point was adduced, but
assuming the allegation to be true — certainly
any unfavorable inference from the admission
may be taken against Boquiren — it does not
extenuate his negligence. A decision of the
Supreme Court of Texas, upon facts
analogous to those of the present case, states
the rule which we find acceptable here. "It is
24 Cabato | Cruz | Leonardo | Mangurun | Rosette
the rule that those who distribute a dangerous
article or agent, owe a degree of protection to
the public proportionate to and commensurate
with a danger involved ... we think it is the
generally accepted rule as applied to torts that
'if the effects of the actor's negligent conduct
actively and continuously operate to bring
about harm to another, the fact that the active
and substantially simultaneous operation of
the effects of a third person's innocent,
tortious or criminal act is also a substantial
factor in bringing about the harm, does not
protect the actor from liability.' (Restatement
of the Law of Torts, vol. 2, p. 1184, #439).
Stated in another way, "The intention of an
unforeseen and unexpected cause, is not
sufficient to relieve a wrongdoer from
consequences of negligence, if such
negligence directly and proximately
cooperates with the independent cause in the
resulting injury." (MacAfee, et al. vs. Traver's
Gas Corporation, 153 S.W. 2nd 442.)
2. The next issue is whether Caltex
should be held liable for the damages
caused to appellants. This
issue depends on whether Boquiren
was an independent contractor, as
held by the Court of Appeals, or an
agent of Caltex. This question,
in the light of the facts not
controverted, is one of law and hence
may be passed upon by this
Court. These facts are: (1) Boquiren
made an admission that he was an
agent of Caltex; (2) at the time of the
Agency 2020 - Chapter 1 digests
fire Caltex owned the gasoline
station and all the equipment therein;
(3) Caltex exercised control over
Boquiren in the management of
the state; (4) the delivery truck used
in delivering gasoline to the station
had the name of CALTEX painted on
it; and (5) the license to store
gasoline at the station was in the
name of Caltex, which paid the
license fees.
Buquiren denied that he directed one of his
drivers to remove gasoline from the truck into
the tank and alleged that the "alleged driver, if
one there was, was not in his employ, the
driver being an employee of the Caltex (Phil.)
Inc. and/or the owners of the gasoline
station." It is true that Boquiren later on
amended his answer, and that among the
changes was one to the effect that he was not
acting as agent of Caltex. But then again, in
his motion to dismiss appellants' second
amended complaint the ground alleged was
that it stated no cause of action since under
the allegations thereof he was merely acting
as agent of Caltex, such that he could not
have incurred personal liability. A motion to
dismiss on this ground is deemed to be an
admission of the facts alleged in the
complaint.
Caltex admits that it owned the gasoline
station as well as the equipment therein, but
claims that the business conducted at the
service station in question was owned and
operated by Boquiren. But Caltex did not
25 Cabato | Cruz | Leonardo | Mangurun | Rosette
present any contract with Boquiren that
would reveal the nature of their relationship at
the time of the fire. There must have been one
in existence at that time. Instead, what was
presented was a license agreement manifestly
tailored for purposes of this case, since it was
entered into shortly before the expiration of
the one-year period it was intended to
operate. This so-called license agreement was
executed on November 29, 1948, but made
effective as of January 1, 1948 so as to cover
the date of the fire, namely, March 18, 1948.
This retroactivity provision is quite
significant, and gives rise to the conclusion
that it was designed precisely to free Caltex
from any responsibility with respect to the
fire, as shown by the clause that Caltex "shall
not be liable for any injury to person or
property while in the property herein licensed,
it being understood and agreed that
LICENSEE (Boquiren) is not an employee,
representative or agent of LICENSOR
(Caltex)."
But even if the license agreement were to
govern, Boquiren can hardly be considered an
independent contractor. Under that agreement
Boquiren would pay Caltex the purely
nominal sum of P1.00 for the use of the
premises and all the equipment therein. He
could sell only Caltex Products. Maintenance
of the station and its equipment was subject to
the approval, in other words control, of
Caltex. Boquiren could not assign or transfer
his rights as licensee without the consent of
Caltex. The license agreement was supposed
Agency 2020 - Chapter 1 digests
to be from January 1, 1948 to December 31,
1948, and thereafter until terminated by
Caltex upon two days prior written notice.
Caltex could at any time cancel and terminate
the agreement in case Boquiren ceased to sell
Caltex products, or did not conduct the
business with due diligence, in the judgment
of Caltex. Termination of the contract was
therefore a right granted only to Caltex but
not to Boquiren. These provisions of the
contract show the extent of the control of
Caltex over Boquiren. The control was such
that the latter was virtually an employee of
the former.
Taking into consideration the fact that
the operator owed his position to t h e
company and the latter could remove him or
terminate his services at will; that the
service station belonged to the company and
bore its tradename and the operator sold only
the products of the company; that the
equipment used by the operator belonged to
the company and were just loaned to the
operator and the company took charge
of their repair and maintenance; that an
employee of the company supervised
the operator and conducted periodic
inspection of the company's gasoline and
service station; that the price of the products
sold by the operator was fixed by the
company and not by the operator; and that
the receipts signed by the operator indicated
that he was a mere agent, the finding of the
Court of Appeals that the operator was an
agent of the company and not an independent
26 Cabato | Cruz | Leonardo | Mangurun | Rosette
contractor should not be disturbed. To
determine the nature of a contract
courts do not have or are not bound to rely
upon the name or title given it by the
contracting parties, should thereby a
controversy as to what they really had
intended to enter into, but the way the
contracting parties do or perform their
respective obligations stipulated or agreed
upon may be shown and inquired into,
and should such performance conflict
with the name or title given the contract by
the parties, the former must prevail
over the latter. (Shell Company of the
Philippines, Ltd. vs. Firemens' Insurance
Company of Newark, New Jersey, 100
Phil. 757). The written contract was
apparently drawn for the purpose of creating
the apparent relationship of employer
and independent contractor, and of avoiding
liability for the negligence of the employees
about the station; but the company was not
satisfied to allow such relationship to
exist. The evidence shows that it immediately
assumed control, and proceeded to
direct the method by which the w o r k
contracted for should be performed. By
reserving the right to terminate the contract
at will, it retained the means of compelling
submission to its orders. Having elected to
assume control and to direct the means and
methods by which the work has to be
performed, it must be held liable for the
negligence of those performing service
under its direction. We think the evidence was
sufficient to sustain the verdict of the jury.
Agency 2020 - Chapter 1 digests
(Gulf Refining Company v. Rogers, 57 S.W.
2d, 183). Caltex further argues that the
gasoline stored in the station belonged to
Boquiren. But no cash invoices were
presented to show that Boquiren had bought
said gasoline from Caltex. Neither was there a
sales contract to prove the same. As found by
the trial court the Africas sustained a loss of
P9,005.80, after deducting the amount of
P2,000.00 collected by them on the insurance
of the house. The deduction is now
challenged as erroneous on the ground that
Article 2207 of the New Civil Code, which
provides for the subrogation of the insurer to
the rights of the insured, was not yet in effect
when the loss took place. However, regardless
of the silence of the law on this point at that
time, the amount that should be recovered be
measured by the damages actually suffered,
otherwise the principle prohibiting unjust
enrichment would be violated. With respect to
the claim of the heirs of Ong P7,500.00 was
adjudged by the lower court on the basis of
the assessed value of the property destroyed,
namely, P1,500.00, disregarding the
testimony of one of the Ong children that said
property was worth P4,000.00. We agree that
the court erred, since it is of common
knowledge that the assessment for taxation
purposes is not an accurate gauge of fair
market value, and in this case should not
prevail over positive evidence of such value.
The heirs of Ong are therefore entitled to
P10,000.00.
27 Cabato | Cruz | Leonardo | Mangurun | Rosette
Wherefore, the decision appealed from is
reversed and respondents-appellees are held
liable solidarily to appellants, and ordered to
pay them the aforesaid sum of P9,005.80 and
P10,000.00, respectively, with interest from
the filing of the complaint, and costs.
14. Reyes v. Rural Bank of San Miguel
FACTS:
Petitioners are officials of the Bangko Sentral
ng Pilipinas (BSP). At the time material to
this case, Alberto V. Reyes was Deputy
Governor and Head of the Supervision and
Examination Sector (SES), Wilfredo B.
Domo-ong was Director of the Department of
Rural Banks (DRB), while Herminio
Principio was an Examiner of the DRB. They
filed this petition for review on certiorari of
the decision of the Court of Appeals which
found them administratively liable for
unprofessionalism under the Code of Conduct
and Ethical Standards on Public Officials and
Employees and imposed upon each of them a
fine equivalent to six months of their salaries.
The case arose from a letter, dated May 19,
1999, which respondent Rural Bank of San
Miguel (Bulacan), Inc. (RBSMI) sent to then
BSP Governor Gabriel Singson. In its letter,
RBSMI charged petitioners with violations of
Republic Act No. 3019 (Anti-Graft and
Corrupt Practices Act) and Republic Act No.
6713 (Code of Conduct and Ethical Standards
for Public Officials and Employees). The
Agency 2020 - Chapter 1 digests
Monetary Board of the BSP created a
committee to investigate the matter.
The ensuing investigation revealed that
RBSMI had had a history of major violations/
exceptions dating back to 1995. The Report
of Examination3 on RBSMI submitted by
BSP cited 10 major exceptions/violations and
deficiencies of RBSMI, for which reason the
latter was directed to immediately desist from
conducting business in an unsound and unsafe
manner. RBSMI undertook to take corrective
measures and/or comply with the instructions/
recommendations of the BSP.In 1996,
RBSMI was again examined. In a "Report of
Examination on RBSMI as of September 15,
1996," noted 20 serious exceptions/violations
and deficiencies of RBSMI. Upon her
request, Rose Ilagan, an RBSMI director, was
given a copy of the list of exceptions/
deficiencies found. Ms. Ilagan, however,
claimed that the copy she was given was
unreadable, "making it impossible for RBSMI
to immediately react to said list of
exceptions."The Monetary Board issued
Resolution requiring RBSMI to explain in
writing within 15 days the findings of the
examiner. It also directed the DRB to verify,
monitor, and report to the Deputy Governor,
petitioner Reyes, the findings/exceptions
noted until the same had been corrected.
RBSMI president Hilario Soriano claims that
he was pressured on March 4, 1997 into
issuing a memorandum to the bank
employees authorizing petitioner Principio
and Ms. Reyes to review the bank’s
28 Cabato | Cruz | Leonardo | Mangurun | Rosette
accounting and internal control system. He
likewise claims that sometime in March 1997,
petitioner Reyes urged him (Soriano) to
consider selling the bank. Soriano says that
on or about May 28, 1997, Soriano, through a
telephone introduction made by petitioner
Reyes the day before, met with Exequiel
Villacorta, President and Chief Executive
Officer of TA Bank. In his sworn affidavit,
Villacorta confirmed that he and Soriano
indeed met to discuss a possible corporate
combination of RBSMI and TA Bank. The
talks between TA Bank and RBSMI never got
past the exploratory stage. Their discussions
were cut short as Soriano wanted a "sell-out,"
while Villacorta was interested in a "buy-in."
Around the same time, petitioner Reyes,
Deputy Governor of the BSP, started urging
Soriano (RBSMI president) to consider
selling the bank, and introduced him to a
certain Villacorta – a possible buyer.
Negotiations fell through immediately, but
Reyes continued to introduce him to other
possible buyers. Meanwhile, on June 13,
1997, the MB approved Resolution No. 724.
RBSMI to correct the major... exceptions
noted within 30 days from receipt of the
advice and to remit to the BSP the amount of
P2,538,483.00 as fines and penalties...
petitioner Domo-ong wrote the bank on June
25, 1997, informing it of the prescriptions of
the resolution. On July 21, 1997, Soriano
submitted RBSMI's answers to the BSP
exceptions/findings mentioned. Soriano said
in the letter that "the... actions taken or to be
taken by the bank (RBSMI) were deliberated
Agency 2020 - Chapter 1 digests
and ratified by the Board of Directors in its
regular meeting held on July 9, 1997." With
regard to the fines and penalties amounting to
P2,538,483.00, RBSMI requested the director
of the DRB to debit its... demand deposit with
the amount. Nearly six months after Domo-
ong seeking clarification of two specific
issues: May the scope/coverage of monitoring
be expanded as to include verifications of
bank transactions, before and beyond the cut-
off date of the general examinations as of
September 15, 1996? If so, to what extent?
Was there no pre-empting of the Monetary
Board directive which was approved under
Resolution No. 96 dated January 29, 1997?
Domo-ong explained that "DRB's monitoring
of the extent of corrective measures must
necessarily cover bank transactions after the
examination cut-off date to be assured that the
same exceptions have not been repeated."
As to the... second issue, he explained that
"there was no pre-empting of the MB
directive as it was approved on January 29,
1997, way ahead of the initial monitoring
which was undertaken from March 4 to 26,
1997 with a cut-off date of February 26,
1997." In conclusion, petitioner Domo-ong...
said that "considering that 'monitoring' in this
regard simply means overseeing, observing or
keeping track of the corrective measures
being made by the bank on the serious
findings/exceptions noted, we do not see any
reason for your apprehensions on the matter.
As soon as said... findings/exceptions have
29 Cabato | Cruz | Leonardo | Mangurun | Rosette
been fully corrected, then the DRB can
immediately recommend the lifting of said
monitoring." Meanwhile, petitioner Principio
allegedly requested RBSMI on October 6,
1997 to authorize him and a new BSP
examiner, Ms. Zeny Cabais, to visit the bank
from time to time to review accounting and
control systems. This was before a letter of
introduction, dated October 10, 1997,... was
issued by DRB introducing the new
examination team of petitioner Principio and
Ms. Cabais. Soriano claims that sometime in
November 1997, he accidentally met
petitioner Reyes who allegedly told him to
sell out or RBSMI would suffer a bank run
and it would be placed under conservatorship.
It likewise warned the officers of the bank
that unless they ceased from conducting
business in such an unsafe and unsound...
manner, drastic actions might be taken against
the bank, including the take-over of
management without prejudice to the
prosecution of parties responsible pursuant to
§ 36 of R.A. No. 7653. In another
development, the Manila Electric Company
(MERALCO) issued a memorandum,... to all
of its collection officers enjoining them not to
accept RBSMI checks from customers and
other payees of bills, service deposit, and
other... payments until further advice from the
Treasury. MERALCO issued another
memorandum... to its collection officers,
informing them that RBSMI's alleged bank
holiday was... not true MERALCO issued a
letter of apology to RBSM. Thereafter, more
than one year after authorizing the BSP to
Agency 2020 - Chapter 1 digests
debit its demand deposit up to the extent of
the fines and penalties imposed by BSP,
RBSMI,... , appealed to the MB to... reverse
the imposition of the P2.5 million penalty on
the ground that "no Board Resolution [had
been] adopted to authorize the debit in the
Demand Deposit maintained by the bank with
the Bangko Sentral ng Pilipinas."
On January 21, 1999, the MB,... authorized
the conditional reversal of sixty percent
(60%) of the penalty debited against RBSMI
pending resolution of the dispute on the
findings on reserve deficiency.
ISSUES:
1. Whether or not petitioners
Reyes and Domo-ong are guilty of
unprofessionalism by reason of
their alleged "careless handling of...
confidential matters involving the
internal problems of RBSMI."...

2. whether or not petitioners guilty
of undue pressure, unprofessionalism,
and arrogance relative to the
latter's act of recommending penalty
c h a rg e s f o r R B S M I ' s r e s e r v e
deficiency... questioned decision
violates the constitutional provision
that a decision should state the facts
and law on which it is based. 

30 Cabato | Cruz | Leonardo | Mangurun | Rosette
RULING: 

(1) First. Petitioners, particularly petitioner
Reyes, are faulted with the careless handling
of confidential and vital information
regarding the financial status of RBSMI. It
is indeed unfortunate that information
regarding the financial
needs of RBSMI came to the knowledge of
the media. We realize that a
bank’s lifeline depends largely on the trust
and confidence
accorded to it by its depositors and the public
in general. However, too
many possibilities exist on how word got to
the press.

It is to be noted that before the Manila Times
article came out in 1999, RBSMI had already
undergone several examinations and was
subject to continuous monitoring for major
exceptions and violations found during the
1996 General Examination. Word could have
gotten around that the bank was being
examined and that interested persons or
entities could have inquired into the purpose
of the examinations and monitoring.
RBSMI’s own employees could have made
remarks to friends and family members -
maybe harmless - without totally realizing the
effect of such statements. Indeed, MERALCO
said that the basis of its memorandum was the
information concerning RBSMI obtained
from the Philippine Clearing House, an entity
distinct and separate from the BSP. In fact, it
was the BSP which dispelled the rumors
Agency 2020 - Chapter 1 digests
which incited the second memorandum of
recantation. The undated fax message alleged
to be a forged memorandum has not been
sufficiently proven as having been produced
by any of the petitioners.
The article might have attributed the source to
be an official or employee of the BSP if only
to appear more credible. In any case, an
inquiry was conducted by an investigating
committee especially formed upon RBSMI’s
request. But the committee was unable to
determine the source of the leak. We have to
presume that the said committee had
performed its tasks with regularity and good
faith, and thus it is entitled to due respect for
its findings.
The issue of the training materials is a
different matter. RBSMI claims that during
one of the BSP training seminars, the bank
was used as a case study albeit not
specifically mentioned in the training
materials. The Court of Appeals found that
"the derision against RBSMI in the seminar
materials is truly an additional pound of salt
to RBSMI’s already wounded reputation."
Petitioners allege that the seminar was for
bank examiners who were bound not to reveal
any confidential information they learned in
the performance of their duties. They further
claim that there is no evidence showing that
petitioners Reyes and Domo-ong were the
ones who distributed and used the materials
or that they harbored any ill will against the
bank to employ such means.
31 Cabato | Cruz | Leonardo | Mangurun | Rosette
We agree with the appellate court. The
facilitators of the seminar who prepared the
materials obviously applied little or no
creativity at all as shown by the words used
therein, i.e., "Mrs. Ona I. Ros" which clearly
is Soriano’s name in reverse, and "Rural Bank
of Barangay Ginebra" referring to the bank’s
name - Rural Bank of San Miguel. While
there was indeed no evidence showing that
either petitioner Reyes or petitioner Domo-
ong distributed or used the materials, the very
fact that the seminar was conducted under
their auspices is enough to make them liable
to a certain extent. Petitioner Reyes, as Head
of the BSP Supervision and Examination
Sector, and petitioner Domo-ong, as Director
of the BSP Department of Rural Banks,
should have exercised their power of control
and supervision so that the incident could
have been prevented or at the very least
remedied.
(2) Second. On the charge that petitioner
Reyes was brokering the sale of RBSMI, the
Court of Appeals ruled: Nor can respondent
Reyes escape administrative liability for the
charge of having displayed undue interest in
brokering the sale of petitioner RBSM. In a
number of occasions, such an interest readily
surfaced. . . . If anything else, Reyes’
actuations smack of unprofessionaliam as
he had concerned himself with transactions
that had nothing to do with his official
function as BSP Deputy Governor. Nor
is it correct to say that respondent Alberto V.
Reyes did no brokering simply because he
Agency 2020 - Chapter 1 digests
was not paid for his efforts. As rightly
argued by petitioner, there is no law which
defines brokering in t e r m s o f p a y m e n t
thereof. To our mind, it suffices that
respondent Reyes introduced and brought
the parties together to try to hammer o u t a
sale of RBSMI. After all, a broker’s duty is
mainly to bring the prospective buyers
and sellers together.
 perceptions of their roles as dispensers or
We agree with the foregoing ruling of the
Court of Appeals. In introducing Soriano to
the presidents of TA Bank and EIB Bank,
petitioner Reyes was clearly not acting in his
official capacity. It is enough that he brought
the parties together to discuss the possibility
of a sale in order for him to be found guilty of
brokering. Petitioner Reyes did not have to be
paid for what he did in order to be considered
to have committed a breach of the
requirement of propriety expected of a BSP
official. The circulars26 presented by
petitioner Reyes indicate that it is indeed
BSP’s policy to promote mergers and
consolidations by providing incentives for
banks who would undergo such corporate
combinations. But nowhere in these circulars
is it stated that BSP officials should take an
active role in bringing parties together for the
possibility of a buy-in or sell-out.
Section 4 (A)(b) of R.A. No. 6713
states:Norms of Conduct of Public Officials
and Employees. - (A) Every public official
and employee shall observe the following as
standards of personal conduct in the
32 Cabato | Cruz | Leonardo | Mangurun | Rosette
discharge and execution of official duties: (b)
Professionalism - Public officials and
employees shall perform and discharge their
duties with the highest degree of excellence,
professionalism, intelligence and skill.
They shall enter public service with utmost
devotion and dedication to duty. They shall
endeavor to discourage w r o n g
peddlers of undue patronage. We do not
think Soriano was subjected to undue
pressure since he was also interested in
selling the bank. However, petitioner Reyes’
active participation in looking for possible
buyers for RBSMI was clearly a violation of
the standards of professionalism. For his part,
petitioner Principio is charged with "undue
haste" in submitting his report to the
Monetary Board. His recommendation for the
imposition of a penalty of P2.5 million on
RBSMI is also complained of as a way of
pressuring the bank. RBSMI points out that
there was an irregularity in the fact that
petitioner Principio headed the three
consecutive examinations conducted on the
bank. We find no undue haste in the
submission of petitioner Principio’s report.
The 1996 examination on RBSMI was
concluded on December 13, 1996. The list of
exceptions prepared by petitioner Principio
was dated December 23, 1996, and a copy
thereof was sent to RBSMI on January 9,
1997. This was 18 days before petitioner
Principio finally submitted the report to the
Monetary Board. Having had sufficient time
to prepare its reply, RBSMI cannot pretend
Agency 2020 - Chapter 1 digests
ignorance of the findings of the examiner. It
should have anticipated the actions it needed
to take considering the urgency of the matter.
Moreover, it is clear from the records that
RBSMI was given not only one but two
opportunities to answer the findings in the
report before the report was submitted to the
MB. It should be noted that the exit
conference for the 1996 General Examination
was originally scheduled on January 13,
1997. However, upon the request of RBSMI’s
corporate counsel, the examination was
postponed to January 21, 1997. RBSMI was
furnished a copy of the findings on January 9,
1997. Although RBSMI claimed that the copy
it received was unreadable, it made this
accusation only after the complaint had been
filed with the Monetary Board.The members
of the Board of Directors only discussed their
reply on the very day of the rescheduled exit
conference. Surely, RBSMI only had itself to
blame. It was given a sporting chance to
react to the findings before it was confirmed
by the MB, but it did not make use of the
opportunity. Again, it was given another
chance after the exit conference when the
MB, upon review of the report of petitioner
Principio, issued Resolution No. 96 requiring
RBSMI to answer the findings within 15 days
from receipt of the advice. On the other hand,
the imposition of the P2.5 million fine was
made on the basis of the finding of legal
reserve deficiencies. Soriano wrote to the
BSP authorizing the latter to debit its demand
deposit in the amount of the penalty a few
days after MB Resolution No. 96 was issued.
33 Cabato | Cruz | Leonardo | Mangurun | Rosette
It took RBSMI more than one year before it
contested the imposition of the penalty. That
the BSP subsequently reversed, albeit
conditionally, the debiting of the amount of
penalty is not an admission that it erred in
imposing the same. It was only an
accommodation on the part of the BSP to ease
the financial difficulties of RBSMI. More
importantly, it was a conditional reversal
pending the resolution of the dispute on the
finding of legal reserve deficiency.
RBSMI likewise complains that petitioner
Principio took part in three consecutive
examinations in violation of BSP’s own
Manual of Examiners which states:
G. ROTATION OF ASSIGNMENTS FOR
EXAMINERS:

A Bank Examiner shall not be in
charge of more than two consecutive
examinations of any financial institutions. No
exception to this rule shall be permitted.

But, as petitioners explain, RBSMI was
subjected only to one examination ¾ the 1996
General Examination ¾ in which major
exceptions and violations were found. The
ensuing examinations were "special
examinations" meant to monitor the progress
of the bank in correcting the exceptions
found. With the finding of serious violations
by the bank, the MB, through its Resolution
No. 96, thought it best to put RBSMI under
continuous monitoring until the exceptions
had been corrected. It is logical for petitioner
Principio to be part of the monitoring team
considering that he was the initial examiner
Agency 2020 - Chapter 1 digests
and was familiar with the matters to be made
in order. By and large, therefore, we find that
while there may have been some irregularities
and badges of unprofessionalism which can
be held against petitioners, these are not so
grave as to merit the imposition of the penalty
of fine equal to six months salary imposed by
the appellate court. The modification of the
Court of Appeals decision is proper.
WHEREFORE, the decision of the Court of
Appeals dated December 14, 2001 is
AFFIRMED with MODIFICATIONS.
Petitioner Alberto V. Reyes is ordered to pay
a fine equivalent to two (2) months salary,
while petitioner Wilfredo B Domo-ong is
fined in an amount equivalent to one (1)
month salary. Petitioner Herminio C.
Principio is found not administratively liable.
SO ORDERED.
15. ABACUS vs. AMIL
FACTS:
In April 1997, respondent opened a cash or
regular account with petitioner for buying and
selling securities as evidenced by the Account
Application Form. The parties’ business
relationship was governed by the terms and
conditions stated therein. Since April 10,
1997, respondent actively traded his account,
and as a result of such trading activities, he
accumulated an outstanding obligation in
favor of petitioner in the sum of
P6,617,036.22 as of April 30, 1997.
34 Cabato | Cruz | Leonardo | Mangurun | Rosette
Respondent failed to pay petitioner his
liabilities. Petitioner sold respondent’s
securities to set off against his unsettled
obligations. After the sale of respondent’s
securities and application of the proceeds
thereof against his account, respondent’s
remaining unsettled obligation to petitioner
was P3,364,313.56. Petitioner demanded that
respondent settle his obligation plus the
agreed penalty charges accruing thereon
equivalent to the average 90-day Treasury
Bill rate plus 2% per annum. Despite said
demand and the lapse of said requested
extension, respondent failed and/or refused to
pay his accountabilities to petitioner.
Respondent claims that he was induced to
trade in a stock security with petitioner
because the latter allowed offset settlements
wherein he is not obliged to pay the purchase
price. Rather, it waits for the customer to sell.
And if there is a loss, petitioner only requires
the payment of the deficiency (i.e., the
difference between the higher buying price
and the lower selling price). In addition, it
charges a commission for brokering the sale.
However, if the customer sells and there is a
profit, petitioner deducts the purchase price
and delivers only the surplus – after charging
its commission. Regional Trial Court of
Makati City held that petitioner and
respondent were in pari delicto and therefore
without recourse against each other. Cout of
Appeals upheld the lower court’s finding that
the parties were in pari delicto. It castigated
petitioner for allowing respondent to keep on
trading despite the latter’s failure to pay his
Agency 2020 - Chapter 1 digests
outstanding obligations. It explained that “the
reason behind petitioner’s act is because
whether respondent’s trading transaction
would result in a surplus or deficit, he would
still be liable to pay petitioner its commission.
Hence, this Petition.
ISSUES: Whether or not the Court of
Appeal's ruling that the petitioner and
respondent are in pari delicto is in accord
with law and applicable jurisprudence
considering the Account Opening Form is a
valid agreement.
RULING:
In the present controversy, the following
pertinent facts are undisputed:
(1) on April 8, 1997, respondent opened a
cash account with petitioner for his
transactions in securities; (2) respondent's
purchases were consistently unpaid fromApril
10 to 30, 1997; (3) respondent failed to pay in
full, or even just his deficiency, for the
transactions on April 10 and 11, 1997; (4)
despite respondent's failure to cover his initial
deficiency,... petitioner subsequently
purchased and sold securities for respondent's
account on April 25 and 29; (5) petitioner did
not cancel or liquidate a substantial amount of
respondent's stock transactions until May 6,
1997.The provisions governing the above
transactions are Sections 23 and 25 of the
RSA[16] and Rule 25-1 of the RSA Rules,
which state as follows:
35 Cabato | Cruz | Leonardo | Mangurun | Rosette
SEC. 23. Margin Requirements.
(b) It shall be unlawful for any member of an
exchange or any broker or dealer, directly or
indirectly, to extend or maintain credit or
arrange for the extension or maintenance of
credit to or for any customer
(1) On any security other than an exempted
security, in contravention of the rules and
regulations which the Commission shall
prescribe under subsection (a) of this Section;
(2) Without collateral or on any collateral
other than securities, except (i) to maintain a
credit initially extended in conformity with
the rules and regulations of the Commission
and (ii) in cases where the extension or
maintenance of credit is not for the purpose
of... purchasing or carrying securities or of
evading or circumventing the provisions of
subparagraph (1) of this subsection.
"SEC. 25. Enforcement of margin
re q u i re m e n t s a n d re s t r i c t i o n s o n
borrowings. To prevent indirect violations of
the margin requirements under Section 23
hereof, the broker or dealer shall require the
customer in nonmargin transactions to pay the
price of the security... purchased for his
account within such period as the
Commission may prescribe, which shall in no
case exceed three trading days; otherwise, the
broker shall sell the security purchased
starting on the next trading day but not
beyond ten trading days following the last day
for the... customer to pay such purchase price,
Agency 2020 - Chapter 1 digests
unless such sale cannot be effected within
said period for justifiable reasons. The sale
shall be without prejudice to the right of the
broker or dealer to recover any deficiency
from the customer. x x x."
"RSA RULE 25-1
Purchases and Sales in Cash Account
"(a) Purchases by a customer in a cash
account shall be paid in full within three (3)
business days after the trade date.
"(b) If full payment is not received within the
required time period, the broker or dealer
shall cancel or otherwise liquidate the
transaction, or the unsettled portion thereof,
starting on the next business day but not
beyond ten (10) business days following the
last day for... the customer to pay, unless such
sale cannot be effected within said period for
justifiable reasons.
"(c) If a transaction is cancelled or otherwise
liquidated as a result of non-payment by the
customer, prior to any subsequent purchase
during the next ninety (90) days, the customer
shall be required to deposit sufficient funds in
the account to cover each purchase
transaction... prior to execution.
"(f) Written application for an extension of
the period of time required for payment under
paragraph (a) be made by the broker or dealer
to the Philippine Stock Exchange, in the case
of a member of the Exchange, or to the
36 Cabato | Cruz | Leonardo | Mangurun | Rosette
Commission, in the case of a non-member of
the Exchange.
Applications for the extension must be based
upon exceptional circumstances and must be
filed and acted upon before the expiration of
the original payment period or the expiration
of any subsequent extension."
Section 23(b) above -- the alleged violation
of petitioner which provides the basis for
respondent's defense -- makes it unlawful
for a broker to extend or maintain credit
on any securities other than in conformity
with the rules and regulations issued by
Securities and Exchange Commission
(SEC). Section 25 lays down the rules to
prevent indirect violations of Section 23 by
brokers or dealers. RSA Rule 25-1 prescribes
in detail the regulations governing cash
accounts.
The United States, from which our country's
security policies are patterned, abound with
authorities explaining the main purpose of the
above statute on margin requirements. This
purpose is to regulate the volume of credit...
flow, by way of speculative transactions, into
the securities market and redirect resources
into more productive uses. Specifically, the
main objective of the law on margins is
explained in this wise:
"The main purpose of these margin provisions
xxx is not to increase the safety of security
loans for lenders. Banks and brokers normally
require sufficient collateral to make
Agency 2020 - Chapter 1 digests
themselves safe without the help of law. Nor
is the main purpose even protection of the...
small speculator by making it impossible for
him to spread himself too thinly although
such a result will be achieved as a byproduct
of the main purpose.
"The main purpose is to give a [g]overnment
credit agency an effective method of reducing
the aggregate amount of the nation's credit
resources which can be directed by
speculation into the stock market and out of
other more desirable uses of commerce and
industry x x... x."
A related purpose of the governmental
regulation of margins is the stabilization of
the economy. Restrictions on margin
percentages are imposed "in order to achieve
the objectives of the government with due
regard for the promotion of the economy
and... prevention of the use of excessive
credit."
Otherwise stated, the margin requirements set
out in the RSA are primarily intended to
achieve a macroeconomic purpose -- the
protection of the overall economy from
excessive speculation in securities. Their
recognized secondary purpose is to protect
small investors.
The law places the burden of compliance with
margin requirements primarily upon the
brokers and dealers. Sections 23 and 25 and
Rule 25-1, otherwise known as the
"mandatory close-out rule," clearly vest upon
37 Cabato | Cruz | Leonardo | Mangurun | Rosette
petitioner the... obligation, not just the right,
to cancel or otherwise liquidate a customer's
order, if payment is not received within three
days from the date of purchase. The word
"shall" as opposed to the word "may," is
imperative and operates to impose a duty,
which may be legally enforced.
For transactions subsequent to an unpaid
order, the broker should require its customer
to deposit funds into the account sufficient to
cover each purchase transaction prior to its
execution. These duties are imposed upon the
broker to ensure faithful compliance with...
the margin requirements of the law, which
forbids a broker from extending undue credit
to a customer.
It will be noted that trading on credit (or
"margin trading") allows investors to buy
more securities than their cash position would
normally allow. Investors pay only a portion
of the purchase price of the securities; their
broker advances for them the... balance of the
purchase price and keeps the securities as
collateral for the advance or loan. Brokers
take these securities/stocks to their bank and
borrow the "balance" on it, since they have to
pay in full for the traded stock. Hence,
increasing... margins[26] i.e., decreasing the
amounts which brokers may lend for the
speculative purchase and carrying of stocks is
the most direct and effective method of
discouraging an abnormal attraction of funds
into the stock market and achieving a... more
balanced use of such resources.
Agency 2020 - Chapter 1 digests
" [T]he primary concern is the efficacy of
security credit controls in preventing
speculative excesses that produce
dangerously large and rapid securities price
rises and accelerated declines in the prices of
given securities issues and in the general...
price level of securities. Losses to a given
investor resulting from price declines in
thinly margined securities are not of serious
significance from a regulatory point of view.
When forced sales occur and put pressures on
securities prices, however, they may cause
other forced... sales and the resultant
snowballing effect may in turn have a general
adverse effect upon the entire market." The
nature of the stock brokerage business
enables brokers, not the clients, to verify, at
any time, the status of the client's account.
Brokers, therefore, are in the superior position
to prevent the unlawful extension of credit.
Because of this awareness, the law imposes
upon them the primary obligation to enforce
the margin requirements. Right is one thing;
obligation is quite another. A right may not be
exercised; it may even be waived. An
obligation, however, must be performed;
those who do not discharge it prudently must
necessarily face the consequence of their
dereliction or omission.
We consider the foregoing formula to be just
and fair under the circumstances. When
petitioner tolerated the subsequent purchases
of respondent without performing its
obligation to liquidate the first failed
transaction, and without requiring respondent
38 Cabato | Cruz | Leonardo | Mangurun | Rosette
to deposit cash before embarking on trading
stocks any further, petitioner, as the broker,
violated the law at its own peril.
WHEREFORE, the assailed Decision and
Resolution of the Court of Appeals are hereby
MODIFIED.
16. Alfred Hahn vs. CA
FACTS:
Petitioner Alfred Hahn is a Filipino citizen
doing business under the name and style
"Hahn-Manila." On the other hand, private
respondent Bayerische Motoren Werke
Aktiengesellschaft (BMW) is a nonresident
foreign corporation existing under the laws of
the former Federal Republic of Germany,
with principal office at Munich, Germany.
Petitioner executed in favor of private
respondent a "Deed of Assignment with
S p e c i a l P o w e r o f A t t o r n e y, " . . . t h e
ASSIGNOR is the present owner and holder
of the BMW trademark and device in the
Philippines which ASSIGNOR uses and has
been using on the products manufactured by
ASSIGNEE, and for which ASSIGNOR is the
authorized exclusive Dealer of the
ASSIGNEE in the Philippines. That the
ASSIGNOR and the ASSIGNEE shall
continue business relations as has been usual
in the past without a formal contract. But on
February 16, 1993, in a meeting with a BMW
representative and the president of Columbia
Motors Corporation (CMC), Jose Alvarez,
petitioner was informed... that BMW was
arranging to grant the exclusive dealership of
Agency 2020 - Chapter 1 digests
BMW cars and products to CMC, which had
expressed interest in acquiring the same.
Nonetheless, BMW expressed willingness to
continue business relations with the petitioner
on the basis of a "standard BMW importer"
contract, otherwise, it said, if this was not
acceptable to petitioner, BMW would have no
alternative but to terminate petitioner's...
exclusive dealership Petitioner protested,
claiming that the termination of his exclusive
dealership would be a breach of the Deed of
Assignment.[3] Hahn insisted that as long as
the assignment of its trademark and device
subsisted, he remained BMW's exclusive
dealer in the Philippines because the
assignment was made in consideration of the
exclusive dealership. BMW withdrew on
March 26, 1993 its offer of a "standard
importer contract" and terminated the
exclusive dealer relationship effective June
30, 1993 BMW moved to dismiss the case,
contending that the trial court did not acquire
jurisdiction over it through the service of
summons on the Department of Trade and
Industry, because it (BMW) was a foreign
corporation and it was not doing business in
the Philippines. Petitioner Alfred Hahn
opposed the motion. He argued that BMW
was doing business in the Philippines through
him as its agent. Court of Appeals enjoined
the trial court from hearing petitioner's
complaint. On December 20, 1993, it
rendered judgment finding the trial court
guilty of grave abuse of discretion in
deferring resolution of the motion to dismiss.
39 Cabato | Cruz | Leonardo | Mangurun | Rosette
ISSUE:
Whether petitioner Alfred Hahn is the agent
or distributor in the Philippines of private
respondent BMW.
RULING:
What acts are considered "doing business in
the Philippines" are enumerated in 3(d) of the
Foreign Investments Act of 1991 (R.A. No.
7042) as follows:
d) the phrase "doing business" shall include
soliciting orders, service contracts, opening
offices, whether called "liaison" offices or
branches; appointing representatives or
distributors domiciled in the Philippines or
who in any calendar year stay in the country
for a period or periods totalling one hundred
eighty (180) days or more; participating in the
management, supervision or control of any
domestic business, firm, entity or corporation
in the Philippines; and any other act or acts
that imply a continuity of commercial
dealings or arrangements, and contemplate to
that extent the performance of acts or works,
or the exercise of some of the functions
normally incident to, and in progressive
prosecution of, commercial gain or of the
purpose and object of the business
organization: Provided, however, That the
phrase "doing business" shall not be deemed
to include mere investment as a shareholder
by a foreign entity in domestic corporations
duly registered to do business, and/or the
exercise of rights as such investor; nor having
Agency 2020 - Chapter 1 digests
a nominee director or officer to represent its
interests in such corporation;nor appointing a
representative or distributor domiciled in the
Philippines which transacts business in its
own name and for its own account.
Thus, the phrase includes "appointing
representatives or distributors in the
Philippines" but not when the representative
or distributor "transacts business in its name
and for its own account." In addition, 1(f)(1)
of the Rules and Regulations implementing
(IRR) the Omnibus Investment Code of 1987
(E.O. No. 226) provided:
(f) "Doing business" shall be any act or
combination of acts, enumerated in Article 44
of the Code. In particular, "doing business"
includes:
(1) . . . A foreign firm which does
business through middlemen
acting in their own names, such
as indentors, commercial brokers
or commission merchants, shall
not be deemed doing business in
the Philippines. But such
indentors, commercial brokers or
commission merchants shall be
the ones deemed to be doing
business in the Philippines
The question is whether petitioner Alfred
Hahn is the agent or distributor in the
Philippines of private respondent BMW. If he
is, BMW may be considered doing business
in the Philippines and the trial court acquired
40 Cabato | Cruz | Leonardo | Mangurun | Rosette
jurisdiction over it (BMW) by virtue of the
service of summons on the Department of
Trade and Industry. Otherwise, if Hahn is not
the agent of BMW but an independent dealer,
albeit of BMW cars and products, BMW, a
foreign corporation, is not considered doing
business in the Philippines within the
meaning of the Foreign Investments Act of
1991 and the IRR, and the trial court did not
acquire jurisdiction over it (BMW).
The Court of Appeals held that petitioner
Alfred Hahn acted in his own name and for
his own account and not as agent or
distributor in the Philippines of BMW on the
ground that "he alone had contacts with
individuals or entities interested in acquiring
BMW vehicles. Independence characterizes
Hahn's undertakings, for which reason he is to
be considered, under governing statutes, as
doing business." (p. 13) In support of this
conclusion, the appellate court cited the
following allegations in Hahn's amended
complaint:
8. From the time the trademark "BMW &
DEVICE" was first used by the Plaintiff in
the Philippines up to the present, Plaintiff,
through its firm name "HAHN MANILA"
and without any monetary contributions from
defendant BMW, established BMW's
goodwill and market presence in the
Philippines. Pursuant thereto, Plaintiff
invested a lot of money and resources in order
to single-handedly compete against other
motorcycle and car companies. . . . Moreover,
Plaintiff has built buildings and other
Agency 2020 - Chapter 1 digests
infrastructures such as service centers and
showrooms to maintain and promote the car
and products of defendant BMW.
As the above quoted allegations of the
amended complaint show, however, there is
nothing to support the appellate court's
finding that Hahn solicited orders alone and
for his own account and without "interference
from, let alone direction of, BMW." (p. 13) To
the contrary, Hahn claimed he took orders for
BMW cars and transmitted them to BMW.
Upon receipt of the orders, BMW fixed the
downpayment and pricing charges, notified
Hahn of the scheduled production month for
the orders, and reconfirmed the orders by
signing and returning to Hahn the acceptance
sheets. Payment was made by the buyer
directly to BMW. Title to cars purchased
passed directly to the buyer and Hahn never
paid for the purchase price of BMW cars sold
in the Philippines. Hahn was credited with a
commission equal to 14% of the purchase
price upon the invoicing of a vehicle order by
BMW. Upon confirmation in writing that the
vehicles had been registered in the
Philippines and serviced by him, Hahn
received an additional 3% of the full purchase
price. Hahn performed after-sale services,
including warranty services, for which he
received reimbursement from BMW. All
orders were on invoices and forms of BMW.
These allegations were substantially admitted
by BMW which, in its petition for certiorari
before the Court of Appeals, stated:
41 Cabato | Cruz | Leonardo | Mangurun | Rosette
9.4. As soon as the vehicles are fully
manufactured and full payment of the
purchase prices are made, the vehicles are
shipped to the Philippines. (The payments
may be made by the purchasers or third-
persons or even by Hahn.) The bills of lading
are made up in the name of the purchasers,
but Hahn-Manila is therein indicated as the
person to be notified.
9.5. It is Hahn who picks up the
vehicles from the Philippine
ports, for purposes of conducting
pre-delivery inspections.
Thereafter, he delivers the
vehicles to the purchasers.
9.6. As soon as BMW invoices
the vehicle ordered, Hahn is
credited with a commission of
fourteen percent (14%) of the full
purchase price thereof, and as
soon as he confirms in writing
that the vehicles have been
registered in the Philippines and
have been serviced by him, he
will receive an additional three
percent (3%) of the full purchase
prices as commission.
Contrary to the appellate court's conclusion,
this arrangement shows an agency. An agent
receives a commission upon the successful
conclusion of a sale. On the other hand, a
broker earns his pay merely by bringing the
buyer and the seller together, even if no sale
is eventually made.
Agency 2020 - Chapter 1 digests
As to the service centers and showrooms
which he said he had put up at his own
expense, Hahn said that he had to follow
BMW specifications as exclusive dealer of
BMW in the Philippines. According to Hahn,
BMW periodically inspected the service
centers to see to it that BMW standards were
maintained. Indeed, it would seem from
BMW's letter to Hahn that it was for Hahn's
alleged failure to maintain BMW standards
that BMW was terminating Hahn's dealership.
The fact that Hahn invested his own money to
put up these service centers and showrooms
does not necessarily prove that he is not an
agent of BMW. For as already noted, there are
facts in the record which suggest that BMW
exercised control over Hahn's activities as a
dealer and made regular inspections of Hahn's
premises to enforce compliance with BMW
standards and specifications. For example, in
its letter to Hahn dated February 23, 1996,
BMW stated:
In the last years we have pointed out to you in
several discussions and letters that we have to
tackle the Philippine market more
professionally and that we are through your
present activities not adequately prepared to
cope with the forthcoming challenges.
In effect, BMW was holding Hahn
accountable to it under the 1967 Agreement.
This case fits into the mould of
Communications Materials, Inc. v. Court of
Appeals, in which the foreign corporation
42 Cabato | Cruz | Leonardo | Mangurun | Rosette
entered into a "Representative Agreement"
and a "Licensing Agreement" with a domestic
corporation, by virtue of which the latter was
appointed "exclusive representative" in the
Philippines for a stipulated commission.
Pursuant to these contracts, the domestic
corporation sold products exported by the
foreign corporation and put up a service
center for the products sold locally. This
Court held that these acts constituted doing
business in the Philippines. The arrangement
showed that the foreign corporation's purpose
was to penetrate the Philippine market and
establish its presence in the Philippines.
In addition, BMW held out private respondent
Hahn as its exclusive distributor in the
Philippines, even as it announced in the Asian
region that Hahn was the "official BMW
agent" in the Philippines.
The Court of Appeals also found that
petitioner Alfred Hahn dealt in other products,
and not exclusively in BMW products, and,
on this basis, ruled that Hahn was not an
agent of BMW. (p. 14) This finding is based
entirely on allegations of BMW in its motion
to dismiss filed in the trial court and in its
petition for certiorari before the Court of
Appeals. 14 But this allegation was denied by
Hahn and therefore the Court of Appeals
should not have cited it as if it were the fact.
Indeed this is not the only factual issue raised,
which should have indicated to the Court of
Appeals the necessity of affirming the trial
court's order deferring resolution of BMW's
Agency 2020 - Chapter 1 digests
motion to dismiss. Petitioner alleged that
whether or not he is considered an agent of
BMW, the fact is that BMW did business in
the Philippines because it sold cars directly to
Philippine buyers. This was denied by BMW,
which claimed that Hahn was not its agent
and that, while it was true that it had sold cars
to Philippine buyers, this was done without
solicitation on its part.
It is not true then that the question whether
BMW is doing business could have been
resolved simply by considering the parties'
pleadings. There are genuine issues of facts
which can only be determined on the basis of
evidence duly presented. BMW cannot short
circuit the process on the plea that to compel
it to go to trial would be to deny its right not
to submit to the jurisdiction of the trial court
which precisely it denies. Rule 16, 3
authorizes courts to defer the resolution of a
motion to dismiss until after the trial if the
ground on which the motion is based does not
appear to be indubitable. Here the record of
the case bristles with factual issues and it is
not at all clear whether some allegations
correspond to the proof.
Anyway, private respondent need not
apprehend that by responding to the summons
it would be waiving its objection to the trial
court's jurisdiction. It is now settled that, for
purposes of having summons served on a
foreign corporation in accordance with Rule
14, 14, it is sufficient that it be alleged in the
complaint that the foreign corporation is
doing business in the Philippines. The court
43 Cabato | Cruz | Leonardo | Mangurun | Rosette
need not go beyond the allegations of the
complaint in order to determine whether it has
Jurisdiction. A determination that the foreign
corporation is doing business is only tentative
and is made only for the purpose of enabling
the local court to acquire jurisdiction over the
foreign corporation through service of
summons pursuant to Rule 14, 14. Such
determination does not foreclose a contrary
finding should evidence later show that it is
not transacting business in the country. As
this Court has explained:
This is not to say, however, that the
petitioner's right to question the jurisdiction
of the court over its person is now to be
deemed a foreclosed matter. If it is true, as
Signetics claims, that its only involvement in
the Philippines was through a passive
investment in Sigfil, which it even later
disposed of, and that TEAM Pacific is not its
agent, then it cannot really be said to be doing
business in the Philippines. It is a defense,
however, that requires the contravention of
the allegations of the complaint, as well as a
full ventilation, in effect, of the main merits
of the case, which should not thus be within
the province of a mere motion to dismiss. So,
also, the issue posed by the petitioner as to
whether a foreign corporation which has done
business in the country, but which has ceased
to do business at the time of the filing of a
complaint, can still be made to answer for a
cause of action which accrued while it was
doing business, is another matter that would
yet have to await the reception and admission
Agency 2020 - Chapter 1 digests
of evidence. Since these points have
seasonably been raised by the petitioner, there
should be no real cause for what may
understandably be its apprehension, i.e., that
by its participation during the trial on the
merits, it may, absent an invocation of
separate or independent reliefs of its own, be
considered to have voluntarily submitted
itself to the court's jurisdiction.
Far from committing an abuse of discretion,
the trial court properly deferred resolution of
the motion to dismiss and thus avoided
prematurely deciding a question which
requires a factual basis, with the same result if
it had denied the motion and conditionally
assumed jurisdiction. It is the Court of
Appeals which, by ruling that BMW is not
doing business on the basis merely of
uncertain allegations in the pleadings,
disposed of the whole case with finality and
thereby deprived petitioner of his right to be
heard on his cause of action. Nor was there
justification for nullifying the writ of
preliminary injunction issued by the trial
court. Although the injunction was issued ex
parte, the fact is that BMW was subsequently
heard on its defense by filing a motion to
dismiss.
WHEREFORE, the decision of the Court
of Appeals is REVERSED and the case is
REMANDED to the trial court for further
proceedings.
SO ORDERED.
44 Cabato | Cruz | Leonardo | Mangurun | Rosette
17. DOMINGA CONDE, petitioner, vs. THE
HONORABLE COURT OF APPEALS,
FACTS:
On April 7, 19311, Margarita Conde,
Bernardo Conde and (petitioner)Dominga
Conde (the vendors-a-retro) sold with right of
repurchase, within ten (10) years from said
date, a parcel of agricultural land located in
Maghubas, Burauen, Leyte, to Casimira
Pasagui, married to Pio Altera (the vendees-a-
retro ). Accordingly, an Original Certificate of
Title No. N-534 was issued to the Alteras,
which stipulated right of redemption of the
vendors-a-retro.
During the repurchase period ,particularly on
Nov. 28, 1943, Paciente Cordero who is the
son-in-law of and representing the vendees-a-
retro signed a Memorandum of Repurchase
declaring therein that he received from
Eusebio Amarille, a representative of the
vendors-a-retro, the full amount of the
repurchase price. To be noted is the fact that
neither of the vendees-a-retro, Pio Altera
(who was seriously sick on that occasion) nor
Casimira Pasagui (who was in Manila at the
time), was a signatory to the deed. Petitioner
Dominga Conde, claiming that she redeemed
t h e p r o p e r t y w i t h h e r o w n m o n e y,
immediately took possession of the land in
1945 and paid the land taxes thereon since
then.
However, on 1965, the vendees-a-retro sold
the land to the (private respondent spouses),
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the Condes. Because of this, petitioner filed
with the Court of First Instance a complaint
for quieting of title and declaration of
ownership against all the private respondents.
The complaint was dismissed and petitioner
was ordered to vacate the disputed property
and to deliver its peaceful possession to the
Conde spouses. The CA affirmed the decision
and held that petitioner failed to validly
exercise her right of repurchase because the
Memorandum of Repurchase was not signed
by the vendees-a-retro but by Paciente
Cordero who was not formally authorized to
sign for said vendees-a-retro.
ISSUE:
Whether or not there was an implied agency
when Cordero signed the Memorandum of
Repurchase.
RULING:
WHEREFORE, the judgment of respondent
Court of Appeals is hereby REVERSED and
SET ASIDE, and petitioner is hereby declared
the owner of the disputed property.
The SC held that even though both parties
were legally wanting in their respective
actuations, petitioner had done nothing to
formalize her repurchase while the vendees-a-
retro had done nothing to clear their title of
the encumbrance therein regarding
petitioner's right to repurchase, the repurchase
by petitioner is supported by the admissions
of the pre-trial that petitioner has been in
45 Cabato | Cruz | Leonardo | Mangurun | Rosette
possession since the year 1945, the date of the
deed of repurchase, and has been paying land
taxes thereon since then.
Also, if, as alleged, petitioner exerted no
effort to procure the signature of Pio Altera
after he had recovered from his illness,
neither did the Alteras repudiate the deed that
their son-in-law had signed. Thus, an implied
agency must be held to have been created
from their silence or lack of action, or their
failure to repudiate the agency. (Art. 1869,
Civil Code.) Also, the equitable principle of
laches brought about by private respondent's
inaction and neglect for 24 years, loom in
petitioner's favor. Judgment of the Court of
Appeals is reversed and set aside, and
petitioner is declared owner of the disputed
property.
18. TIRSO UYTENGSU III, complainant, vs
ATTY. JOSEPH M. BADUEL
FACTS:
On July 1999, Tirso Uytengsu III
(complainant) filed a sworn letter-complaint
against Atty. Joseph M. Baduel (respondent)
for violation of Rule 1.01 3 of the Code of
Professional Responsibility. Complainant is
one of the heirs of Tirso Uytengsu, Jr. He and
his co-heirs had a pending patent application.
Complainant alleged that on 1998 respondent
requested him to sign a special power of
attorney (SPA) authorizing Luis Wee (Wee)
and/or Thomas Jacobo (Jacobo) to claim,
demand, acknowledge and receive on his
Agency 2020 - Chapter 1 digests
behalf the certificates of title and other
documents due to complainant and his co-
heirs by reason of their application for
Homestead Patent.
He refused to sign the SPA as he wanted to
obtain the documents personally. But, before
he could get the title and other documents, he
learned that respondent caused to have the
SPA signed by Connie U. Kokseng
(Kokseng), the former guardian of the heirs of
Tirso Uytengsu, Jr. Complainant argued that
respondent caused Kokseng to execute an
SPA in favor of Wee and/or Jacobo to the
damage and prejudice of him and his co-heirs
even if he knew that Kokseng had no
authority to do so. Respondent argues that the
complaint is hearsay and intended to harass
him.
On 2000, the court referred the case to the
Integrated Bar of the Philippines (IBP. The
Investigating Commissioner recommended
the dismissal of the case and characterized the
evidence against respondent as hearsay. IBP
approved and adopted the report and
recommendation of the investigating
commissioner, and dismissed the complaint
against respondent. Hence, this petition for
review on certiorari.
ISSUE: Whether Atty. Baduel exceeded his
authority as counsel when he asked Uytengsu
to sign an SPA
RULING:
46 Cabato | Cruz | Leonardo | Mangurun | Rosette
WHEREFORE, premises considered, the
instant case against respondent is hereby
DISMISSED for lack of merit.
The Court finds that respondent was in fact
the counsel in the homestead patent
application of the heirs of Tirso Uytengsu, Jr.
This can be deduced from the letters
addressed to respondent by Victoria Villasor-
Inong (Villasor-Inong), Accounts Liquidation
Officer III of the Board of Liquidators of
General Santos City.
In said letters, Villasor-Inong communicated
to respondent the requirements for the grant
of the homestead patent to herein complainant
and his co-heirs. From the tenor of the letters,
it would seem that respondent actively
participated in representing complainant and
his co-heirs in their patent application for the
s u b j e c t l a n d . Wi t h t h a t o s t e n s i b l e
representation and without any evidence to
show that complainant or his co-heirs
withdrew such authority from respondent, the
latter himself can even claim the certificates
of titles and other documents with regard to
the homestead patents.
The relation of attorney and client is in many
respects one of agency and the general rules
of ordinary agency apply to such relation. The
extent of authority of a lawyer, when acting
on behalf of his client outside of court, is
measured by the same test as that which is
applied to an ordinary agent. Such being the
case, even respondent himself can acquire the
certificates of title and other documents
Agency 2020 - Chapter 1 digests
without need of an SPA from complainant and
his co-heirs.
19. J-PHIL MARINE, INC. and/or JESUS
CANDAVA and NORMAN SHIPPING
SERVICES, petitioners, vs . NATIONAL
LABOR RELATIONS COMMISSION and
WARLITO E. DUMALAOG
FACTS:
Warlito E. Dumalaog (respondent) was a cook
for vessels plying overseas. He filed a pro-
forma complaint before the NLRC against
( petitioners )manning agency J-Phil Marine,
Inc. (J-Phil), its then president Jesus Candava,
and its foreign principal Norman Shipping
Services. Labor Arbiter dismissed the
complaint for lack of merit. But on appeal the
NLRC reversed the Labor Arbiter’s decision.
The CA also affirmed the NLRC’s decision.
Thus, petitioners filed the present petition for
Review on Certiorari.
During the pendency of the case before the
SC, respondent Dumalaog, against the advice
of his counsel, entered into a compromise
agreement with petitioners. He thereupon
signed a Quitclaim and Release subscribed
and sworn before the Labor Arbiter.
Petitioners then filed a Manifestation
informing that they had forged an amicable
settlement with respondent. Accordingly, the
case was dismissed.
Because of this, respondent’s counsel filed
before the SC a Comment and Opposition to
the Manifestation. He interposed no objection
47 Cabato | Cruz | Leonardo | Mangurun | Rosette
to the dismissal of the petition but objected to
the absolution of petitioners from paying
respondent US$50,000.00, the amount
awarded by the NLRC
ISSUE: Whether or not the compromise
agreement entered into by the respondent,
without his counsel, is valid.
RULING:
The petition is DISMISSED.
According to Article 2037 of the Civil Code,
“compromise has upon the parties the effect
and authority of res judicata”, applies
suppletorily to labor cases even if the
compromise is not judicially approved. That
respondent was not assisted by his counsel
when he entered into the compromise does
not render it null and void.
Also, in Eurotech Hair Systems, Inc. v. Go,
500 SCRA 611 (2006), “A compromise
agreement is valid as long as the
consideration is reasonable and the employee
signed the waiver voluntarily, with a full
understanding of what he was entering into.
All that is required for the compromise to be
deemed voluntarily entered into is personal
and specific individual consent. Thus,
contrary to respondent’s contention, the
employee’s counsel need not be present at the
time of the signing of the compromise
agreement. “
The relation of attorney and client is in many
respects one of agency, and the general rules
Agency 2020 - Chapter 1 digests
of agency apply to such relation. The acts of
an agent are deemed the acts of the principal
only if the agent acts within the scope of his
authority. The circumstances of this case
indicate that respondent’s counsel is acting
beyond the scope of his authority in
questioning the compromise agreement. That
a client has undoubtedly the right to
compromise a suit without the intervention of
his lawyer cannot be gainsaid, the only
qualification being that if such compromise is
entered into with the intent of defrauding the
lawyer of the fees justly due him, the
compromise must be subject to the said fees.
20. PROFESSIONAL SERVICES, INC.,
PETITIONER, VS. THE COURT OF
A P P E A L S A N D N AT I V I D A D A N D
ENRIQUE AGANA
FACTS:
PSI, together with Dr. Miguel Ampil (Dr.
Ampil) and Dr. Juan Fuentes (Dr. Fuentes),
was impleaded by Enrique Agana and
Natividad Agana (later substituted by her
heirs), in a complaint for damages filed in the
RTC, for the injuries suffered by Natividad
when Dr. Ampil and Dr. Fuentes neglected to
remove from her body two gauzes which were
used in the surgery they performed on her on
April 11, 1984 at the Medical City General
Hospital. PSI was impleaded as owner,
operator and manager of the hospital.
48 Cabato | Cruz | Leonardo | Mangurun | Rosette
The RTC held PSI solidarily liable with Dr.
Ampil and Dr. Fuentes for damages. On
appeal, the CA, absolved Dr. Fuentes but
affirmed the liability of Dr. Ampil and PSI,
subject to the right of PSI to claim
reimbursement from Dr. Ampil. On petition
for review, the SC affirmed the CA decision.
The SC premised the direct liability of PSI to
the Aganas on the following: (1) For the
purposes of allocating responsibility in
medical negligence cases, an employer-
employee relationship exists between
hospitals and their consultants; and (2) PSI
created the public impression that Dr. Ampil
was its agent by accrediting Dr. Ampil and
advertising his qualifications. Thus, under the
doctrine of apparent authority, PSI was liable
for the negligence of Dr. Ampil. (3) PSI
committed a serious breach of its corporate
duty when it failed to conduct an immediate
investigation into the reported missing
gauzes.
ISSUES: Whether or not PSI is vicariously
liable for the negligence of Dr. Ampil
RULING:
WHEREFORE, the second motion for
reconsideration is DENIED and the motions
for intervention are NOTED.
The court ruled that PSI is liable to the
Aganas, not under the principle of respondeat
superior for lack of evidence of an
employment relationship with Dr. Ampil but
under the principle of ostensible agency for
Agency 2020 - Chapter 1 digests
the negligence of Dr. Ampil and, pro hac vice,
under the principle of corporate negligence
for its failure to perform its duties as a
hospital.
This Court still employs the "control test" to
determine the existence of an employer-
employee relationship between hospital and
doctor. Under the "control test", an
employment relationship exists between a
physician and a hospital if the hospital
controls both the means and the details of the
process by which the physician is to
accomplish his task. The findings of the RTC
and CA showed that PSI was not the
employer of Dr. Ampil. Control as a
determinative factor in testing the employer-
employee relationship between doctor and
hospital under which the hospital could be
held vicariously liable to a patient in medical
negligence cases is a requisite fact to be
established by preponderance of evidence.
Here, there was insufficient evidence that PSI
exercised the power of control or wielded
such power over the means and the details of
the specific process by which Dr. Ampil
applied his skills in the treatment of
Natividad.
But, even though no employment relationship
exists, when it is shown that the hospital
holds out to the patient that the doctor is its
agent, the hospital may still be vicariously
liable under Article 2176 in relation to Article
1431[36] and Article 1869[37] of the Civil
Code or the principle of apparent authority.
Moreover, regardless of its relationship with
49 Cabato | Cruz | Leonardo | Mangurun | Rosette
the doctor, the hospital may be held directly
liable to the patient for its own negligence or
failure to follow established standard of
conduct to which it should conform as a
corporation.
With that said, there is ample evidence that
PSI held out to the Natividad that Dr. Ampil
was its agent. Present are the two factors that
determine apparent authority: first, the
hospital's implied manifestation to the patient
which led the latter to conclude that the
doctor was the hospital's agent; and second,
the patient's reliance upon the conduct of the
hospital and the doctor, consistent with
ordinary care and prudence.
Natividad’s husband Enrique testified that he
had known Dr. Ampil to be a specialist on
that part of the body as a surgeon and a staff
member of the Medical City which is a
prominent and known hospital. Clearly, the
decision made by Enrique for Natividad to
consult Dr. Ampil was significantly
influenced by the impression that Dr. Ampil
was not an independent contractor but an
integral staff member related to Medical City.
PSI’s acts only tended to confirm and
reinforce this when PSI required a "consent
for hospital care" to be signed preparatory to
the surgery of Natividad. The form reads:
Permission is hereby given to the medical,
nursing and laboratory staff of the Medical
City General Hospital to perform such
diagnostic procedures and to administer such
Agency 2020 - Chapter 1 digests 50 Cabato | Cruz | Leonardo | Mangurun | Rosette

medications and treatments as may be

deemed necessary or advisable by the
physicians of this hospital for and during the
confinement of xxx. (emphasis supplied)

By such statement, PSI virtually reinforced

the public impression that Dr. Ampil was a
physician of its hospital, rather than one
independently practicing in it; that the
medications and treatments he prescribed
were necessary and desirable; and that the
hospital staff was prepared to carry them out.

Thus, the court must therefore maintain the

ruling that PSI is vicariously liable for the
negligence of Dr. Ampil as its ostensible
agent. The ruling is also unique to this case,
for the liability of PSI arose from an implied
agency with Dr. Ampil and an admitted
corporate duty to Natividad.