2D 2013 CLASS DIGEST
be open to the inspection of any director, member, or stockholder of the
Philpotts vs. Philippine Manufacturing Co. and Berry
W.G. Philpotts (Petitioner) , a stockholder in Philippine Manufacturing
Company sought to compel respondents to permit plaintiff, a person or by
some authorized agent or attorney to inspect and examine the records of the
business transacted by said company since January 1, 1918.
Respondent corporation or any of its officials has refused to allow the
petitioner himself to examine anything relating to the affairs of the company,
and the petitioner prays for an order commanding respondents to place
records of all business transactions of the company, during a specific period, at
the disposal of the plaintiff or his duly authorized agent or attorney. Petitioner
desires to exercise said right through agent or attorney.
Petition is filed originally in the Supreme Court under authority of Section 515
of Code of Civil Procedure, which gives SC concurrent jurisdiction with then
Court of First Instance in cases where any corporation or person unlawfully
excludes the plaintiff from use and enjoyment and some right he is entitled.
ISSUE:
Whether the right which the law concedes to a stockholder to inspect the
records can be exercised by a proper agent or attorney of the stockholder as
well as by stockholder in person
HELD:
Yes. Right of inspection of records can be exercised by proper agent or
attorney of the stockholder as well as by stockholder in person.
The right of inspection / examination into corporate affairs given to a
stockholder in section 51 of the Corporation Law which states: “The records of
all business transactions of the corporation and the minutes of any meeting shall
(AGENCY – ATTY. OBIETA)
corporation at reasonable hour” can be exercised either by himself or by any
duly authorized representative or attorney in fact, and either with or without
the attendance of the stockholder. This is in conformity with the general rule
that what a man may do in person he may do through another.
Quiroga v. Parsons
FACTS: Quiroga and Parsons entered into a contract for the exclusive sale of
Quiroga beds in the Visayan Islands. They agreed on the following terms: a)
Quiroga shall furnish the beds and shall give a 25% discount on the invoiced
prices as commission sales and Parsons shall order by the dozen; b) Payment
shall be made within 60 days from date of shipment; c) Transportation and
shipment expenses shall be borne by Quiroga while freight, insurance, and cost
of unloading by Parsons; d) If before an invoice falls due, Quiroga should
request payment, payment made shall be prompt payment and a deduction of
2% shall be given; same discount if payment is in cash; e) Notice from Quiroga
shall be given at least 15 days before any change in price; f) Parsons binds
himself not to sell any other kind of bed; and g) Contract is for an unlimited
period.
Parsons violated some of the conditions such as not to sell the beds at
higher prices, pay for the advertisement expenses, and to order beds by the
dozen. Quiroga alleged that Parsons was his agent and that the obligations are
implied in a commercial agency contract.
ISSUE: w/n Parsons, by reason of the contract, was a purchaser or an agent of
Quiroga for the sale of the latter’s beds.
HELD: NO, Parsons was not an agent.
In order to classify a contract, due regard must be given to the
essential clauses. In this case, there was an obligation on Quiroga’s part to
supply beds while an obligations on Parson’s part to pay the price. These are
essential features of a contract of purchase and sale. None of the clauses
conveys the idea of an agency where an agent received the thing to sell it and
1
 2D 2013 CLASS DIGEST
does not pay the price but delivers to the principal the price he obtains from
the sale to a third person, and if he does not sell it, he returns it.
The word ‘agency’ used in the contract only expresses that Parsons
was the only one who could sell the petitioner’s beds in the Visayan Islands. A
contract is what the law defines it to be and not what the parties call it.
Shell Co. v. Firemen’s Insurance
Facts:
This is an action for recovery of sum of money, based on alleged negligence of
the defendants
A car was brought to a Shell gasoline station owned by dela Fuente for
washing and greasing. The car was placed on a hydraulic lifter for greasing. As
some parts of the car couldn’t be reached by the greaseman, the lifter was
lowered. Unfortunately, for unknown reasons (probably due to mechanical
failure or human error), while the lifter was being lowered, the car swung and
fell from the platform.
Said car was insured against loss or damage by Firemen's Insurance Company
of Newark, New Jersey, and Commercial Casualty Insurance Company jointly
for the sum of P10,000
The insurance companies after paying the sum of P1,651.38 for the damage and
charging the balance of P100.00 to Salvador Sison in accordance with the
terms of the insurance contract, have filed this action together with said
Salvador Sison for the recovery of the total amount of the damage from the
defendants on the ground of negligence
Issue: WON dela Fuente is merely an agent of Shell Co.
Held: Yes
D:
(AGENCY – ATTY. OBIETA)
De la Fuente was the operator of the station "by grace" of the Defendant
Company which could and did remove him as it pleased; that all the
equipments needed to operate the station was owned by the Defendant
Company which took charge of their proper care and maintenance, despite the
fact that they were loaned to him; that the Defendant company did not leave
the fixing of price for gasoline to De la Fuente;
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
As the act of the agent or his employees acting within the scope of his
authority is the act of the principal, the breach of the undertaking by the agent
is one for which the principal is answerable
The latter was negligent and the company must answer for the negligent act of
its mechanic which was the cause of the fall of the car from the hydraulic lifter.
Dela Cruz v Northern Theatrical Enterprises, Inc., et al
Northern Theatrical Enterprises Inc. operated a movie house in Laoag, Ilocos
Norte. Domingo Dela Cruz was one of their security guards. He carried a
revolver. One day, a Benjamin Martin wanted to enter without a ticket but dela
Cruz refused him entrance. Infuriated, Martin attacked him with a bolo and in
order to save his life, dela Cruz shot and killed Martin. Martin, thereafter, was
charged with homicide which, after re-investigation, was dismissed. A few
years later, dela Cruz again figured in a homicide case related to his work as
security guard for the theater. He was acquitted for the second charge. In both
instances, dela Cruz employed a lawyer. He thereafter demanded
reimbursement for his litigation expenses but was refused by the theater. After
which, he filed an action for reimbursement plus damages.
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 2D 2013 CLASS DIGEST
Northern Theater moved for the dismissal of the complaint. The Court found
for Northern Theater and dismissed the complaint saying that dela Cruz had no
cause of action. Dela Cruz filed present appeal (for the reason that only
questions of law are involved).
Held: Judgment affirmed.
Agency Doctrine
CFI was correct in rejecting the theory of dela Cruz that he was an agent of the
defendants and that as such agent he was entitled to reimbursement for the
expenses incurred by him in connection with the agency. The relationship
between the theater and the plaintiff was not that of principal and agent because
the principle of representation was not involved. He was not employed to
represent defendant corporation in its dealings with third parties. He was merely
an employee hired to guard the cinema.
Issue is primarily one of employer – employee. Whether an employee who in
line with the performance of his duty incur expenses caused not directly by his
employer or fellow employees but by a third party or stranger, may recover
against his employer. In this case, there’s no legal obligation on the part of the
employer, it might yet be regarded as a moral obligation. Since employer not
legally obligated to give legal assistance, plaintiff naturally cannot recover the
amount from defendant.
SC also says that the damage incurred did not flow from the performance of his
duties but only indirectly. Filing of the criminal charges was the efficient,
intervening cause. As such, plaintiff cannot fix civil responsibility to the
defendant.
GUARDEX ENTERPRISES V. NLRC
Facts:
A claim for alleged unpaid commissions of an agent is what is basically involved
in the action at bar.
The two parties in this case are: Marcelina A. Escandor (engaged in the
manufacture and sale of fire-fighting equipment and the building or fabrication
(AGENCY – ATTY. OBIETA)
of fire trucks under Guardex Enterprises) and Jumbee Orbeta (a “freelance”
salesman).
It appears that Orbeta somehow learned that Escandor had offered to
fabricate a fire truck for Rubberworld (Phil) Inc. He wrote to Escandor inquiring
about the amount of commission for the sale of a fire truck. Escandor wrote
back on the same day to advise that it was P15,000 per unit. Four days later,
Orbeta offered to “follow up” Escandor’s pending proposal to sell a fire truck
to Rubberworld, and asked for P250 as representation expenses. Escandor
agreed and gave him the money. When no word was received by Escandor
from Orbeta after 3 days, she herself inquired in writing from Rubberworld
about her offer of sale of a fire truck. After 7 months, Escandor finally
concluded a contract with Rubberworld for the latter’s purchase of a fire truck.
At this point, Orbeta suddenly reappeared and asked for his commission for
the sale of the fire truck to Rubberworld. Escandor refused, saying that he had
nothing to do with the offer, negotiation and consummation of the sale.
Issue:
Whether or not Orbeta (acting as an agent) is entitled to commission as
regards the sale of a fire truck to Rubberworld?
Held:
No. He is not entitled to any commission.
Ratio:
Even finding that under these circumstances, an agency had indeed been
constituted will not save the day for Orbeta, because nothing in the record
tends to prove that he succeeded in carrying out its terms or ever as much as
attempted to do so. The evidence in fact clearly indicates otherwise. The terms
of Escandor’s letter – assuming that it was indeed an “authority to sell,” as
Orbeta insists – are to the effect that entitlement to the P15,000 commission is
contingent on the purchase by a customer of a fire truck, the implicit condition
being that the agent would earn the commission if he was instrumental in
bringing the sale about. Orbeta certainly had nothing to do with the sale of the
fire truck, and is not therefore entitled to any commission at all.
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 2D 2013 CLASS DIGEST
Furthermore, even if Orbeta is considered to have been Escandor’s agent for
the time he was supposed to “follow up” the offer to sell, such agency would
have been deemed revoked upon the resumption of direct negotiations
between Escandor and Rubberworld, Orbeta having in the meantime
abandoned all efforts (if indeed any were exerted) to secure the deal in
Escandor’s behalf.
BORDADOR vs. LUZ


 or authorized Deganos to receive the items of jewelry on her behalf
FACTS:

Petitioners Bordador spouses were engaged in the business of
purchase and sale of jewelry, while respondent Brigida Luz was their regular
customer. Respondent Narciso Deganos, Luz's brother, received several pieces
of jewelry from the Bordadors amounting to P382,816.00, which items were
indicated in 17 receipts covering the same--11 of the receipts stated that they
were received by Deganos for a certain Evelyn Aquino, while the remaining 6
indicated that they were received by Deganos for Luz.

Deganos was
supposed to sell the items at a profit and remit the proceeds and return the
unsold items to the Bordadors. Deganos remitted only P53,207.00. He neither
paid the balance of the sales proceeds, nor did he return any unsold item to the
Bordadors, which led them to file an action for recovery of a sum of money and
damages against Deganos and Luz with the RTC. The Bordadors claimed that
Deganos acted as the agent of Luz when he received the items of jewelry, and
because he failed to pay for the same, Luz, as principal, became solidarily liable
with him.

Deganos asserted that it was he alone who was involved in the
transaction with the Bordadors; that he neither acted as agent for nor was he
authorized to act as an agent by Luz, notwithstanding the fact that 6 of the
receipts indicated that the items were received by him for Luz. He added that
he never delivered any of the items to Luz. Luz corroborated the claims of
Deganos.

The RTC found that only Deganos was liable to the Bordados. It
further found that it was petitioner Lydia Bordador who indicated in the
receipts that the items were received by Deganos for Evelyn Aquino and for
Luz. It said that it was "persuaded that Brigida D. Luz was behind Deganos,"
but because there was no memorandum to this effect, the agreement
(AGENCY – ATTY. OBIETA)
between the parties was unenforceable under the Statute of Frauds. Absent
the required memorandum or any written document connecting Luz with the
subject receipts or authorizing Deganos to act on her behalf, the alleged
agreement between the Bordadors and Luz was unenforceable.

The
Bordadors elevated the case to the CA which affirmed said judgment, hence
the instant petition.


ISSUE:

Whether Luz is liable to the Bordadors for the latter's claim for money
and damages despite the fact that Luz did not sign any of the subject receipts




HELD:

No, Luz is not liable to the Bordadors.



RATIO:

THE BASIS FOR AGENCY IS REPRESENTATION.
The basis for agency is
representation. Here, there is no showing that Luz consented to the acts of
Deganos or authorized him to act on her behalf, much less with respect to the
particular transactions involved. The Bordadors' attempt to foist liability on Luz
through the supposed agency relation with Deganos is groundless and ill-
advised.

A PERSON DEALING WITH AN AGENT IS PUT UPON INQUIRY AND MUST
DISCOVER UPON HIS PERIL THE AUTHORITY OF THE AGENT.
Besides, it was
grossly and inexcusably negligent of the Bordadors to entrust to Deganos, not
once or twice but on at least 6 occasions as evidenced by 6 receipts, several
pieces of jewelry of substantial value without requiring a written authorization
from his alleged principal. A person dealing with an agent is put upon inquiry
and must discover upon his peril the authority of the agent. 

HAHN VS. CA and BAYERISCHE MOTOREN WERKE AKTIENGESELLSCHAFT
(BMW)
266 SCRA 537
Facts
Alfred Hahn is a Filipino citizen doing business under the name and style of
“Hahn-Manila.” BMW is a non resident foreign corporation existing under the
laws of Germany.
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 2D 2013 CLASS DIGEST
In March of 1967 Hahn executed in favor of BMW a Deed of Assignment. In
February of 1993, Hahn was informed that his exclusive dealership was in
danger of being terminated due to deteriorating services and sales. Hahn
claimed that the termination of his exclusive dealership would be a breach of
the deed of assignment. He then filed for a complaint of specific performance
and damages against BMW to compel it to continue with the exclusive
dealership.
BMW on the other hand filed for a motion to dismiss, contending that the
court did not acquire jurisdiction over it because it was a foreign corporation
and was not doing business in the Philippines. It further claimed that the
execution of the Deed of Assignment was an isolated transaction and that
Hahn was not its agent and was merely a middleman transacting business for
his own name and for his own account.
Issue
Whether respondent company was doing business in the Philippines?
Whether Alfred Hahn was an agent of BMW?
Decision
Yes. Alfred Hahn was an agent of BMW and consequently, respondent
company was doing business in the Philippines.
Ratio
The phrase "doing business" includes "appointing representatives or
distributors in the Philippines". (Foreign Investments Act of 1991)
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 jurisdiction over it by
virtue of the service of summons on the Department of Trade and Industry.
(AGENCY – ATTY. OBIETA)
Hahn claimed he took orders for BMW cars and transmitted them to BMW.
Upon receipt of the orders, BMW fixed the down payment 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.
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.
DE LA PENA V. HIDALGO
FACTS:
1887-1893 (1st period) 1893-1902 (2nd period) 1902-1904 (3rd period)
FEDERICO ANTONIO FRANCISCO
Before DE LA PENA went to Spain, he executed a power of attorney in favor of
FEDERICO and 3 other people. Their task is to represent him and administer
various properties he owned in Manila. FEDERICO took charge in Nov. 1887.
After a few years, FEDERICO wrote a letter to DE LA PENA. It contains a
request that DE LA PENA assign a person who might substitute FEDERICO in
the event that he leaves the Philippines because one of the agents died and the
other 2 are unwilling to take charge. DE LA PENA did not answer the letter –
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 2D 2013 CLASS DIGEST
there was neither approval nor objection on the accounts and no appointment
of another person who might substitute FEDERICO. Because of health reasons,
FEDERICO went to Spain. Before he departed, he sent another letter to DE LA
PENA a summary of accounts and informing that he will be leaving the
Philippines and that he turned over the administration to ANTONIO (though
FEDERICO stated that if DE LA PENA is not happy with this, DE LA PENA must
send ANTONIO a new power of attorney).
DE LA PENA files in court for the collection of revenue from his accounts which
was handled by FEDERICO. DE LA PENA alleges that FEDERICO has only
remitted 1.2k and still owes him roughly 72k. Furthermore, DE LA PENA seeks to
hold FEDERICO liable for the administration from the period of 1887 until 1904.
FEDERICO asserts that he cannot be liable for the period after he renounced
his agency. Furthermore FEDERICO argues that his renunciation and
appointment of a substitute was legal for there was no objection on the part of
DE LA PENA.
ISSUE:
Whether there was a valid agency in the case of ANTONIO (2nd period)
HELD:
There was an implied agency in the case of ANTONIO. DE LA PENA created an
implied agency in favor of ANTONIO because of his silence on the matter for a
number of years.
There was a valid renunciation in the case of FEDERICO. His reason for leaving
the country is legitimate. Furthermore, he gave notice to DE LA PENA about his
situation in which the latter failed to give his objection.
Being a valid agency on the part of ANTONIO and a valid renunciation on the
party of FEDERICO, it must follow that the liability of FEDERICO only extends
up to the point before his renunciation of the agency (1st period).
DOCTRINE:
(AGENCY – ATTY. OBIETA)
The implied agency is founded on the lack of contradiction or opposition,
which constitutes simultaneous agreement on the part of the presumed
principal to the execution of the contract.
The agent and administrator who was obliged to leave his charge for a
legitimate cause and who duly informed his principal, is thenceforward
released and freed from the results and consequences of the management of
the person who substituted him with the consent, even tacit though it be, of
his principal.
SIDE NOTE ON POWER OF ATTORNEY:
It was also argued by DE LA PENA that there was no authority on the part of
FEDERICO to appoint a substitute. The COURT ruled that the power of attorney
given by DE LA PENA to FEDERICO did not include a power to appoint a
substitute. Nevertheless, it was pointed out that the appointment made by
FEDERICO was not based on the power of attorney of DE LA PENA. The
appointment was grounded on a new power of attorney FEDERICO himself
executed in favor of ANTONIO. Thus, there was no violation incurred by
FEDERICO. And as stated in the case, DE LA PENA was duly informed of this but
nevertheless kept his silence on the matter.
CONDE v. RIVERA ( December 15, 1982)
FACTS: 7 April 1938, Dominga Conde, together with her siblings, sold a parcel of
land located in Burauen Leyte, to Casimira Pasagui married to Pio Altera
(ALTERAS) with a right of repurchase, within 10 years from said date. The
“Pacto de retro sale” provided that if the end of 10 years the said land is not
repurchased, a new agreement shall be made between the parties and in no case
title and ownership shall be vested in the hand of the ALTERAS. On a later date,
Paciente Cordero, son-in-law, of the ALTERAS signed a document. In
substance, the said document provides that the original document was lost in
spite of diligent efforts to locate the same; that the representative of the
CONDES, Eusebio Amarille, repurchased the subject lot; that Alteras and Pio
Cordero received the payment for the repurchase; and that if Dominga et. al.,
will be disturbed by other persons, Altera and Pio will defend in behalf of
6
 2D 2013 CLASS DIGEST
Dominga el. Al., because the same was already repurchased by them. To be
noted is the fact that the Alteras did not sign the deed and only Pio was the
signatory to the deed. On a relevant date, Pio Altera sold the disputed lo to the
spouses Ramon Conde and Catalina Conde (their relationship to petitioner was
not established). After 24 years, Dominga Conde filed with the CFI of Leyte a
civil case for quieting of title against the ALTERAS and the spouses CONDE.
Dominga contended that Pio signed the Memorandum in representation of the
Pio Aletra, who was very ill on that occasion. Alteras, on the other hand,
contended that Pio was not their agent and Pio signed because he has no
objection to the repurchase.. The CFI dismissed the complaint which was
affirmed by the CA. Hence, this petition.
ISSUE: Whether Pio Cordero, in signing the memorandum, acted in
representation of the ALTERAS.
HELD: YES! There was an impled agency. The Alteras did not repudiate the
deed that Pio Cordero had signed. If, as alleged, Dominga never exerted any
effort to procure the signature of Pio Altera after he had recovered from his
illness, neither did the Alteras repudiate the deed that Pio executed. 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. Alteras must be held bound
by the clear terms of the Memorandum of Repurchase. If the contract is plain
and unequivocal in its terms he is ordinarily bound thereby.
(The court also held that the ALTERAS were guilty of laches. They, for 24 years,
slept on their right to institute an action for quieting of title against petitioner.
Furthermore, the court also ruled that the spouses Conde were not purchasers
in good faith. They bought the disputed property despite the notice of the
condition in the title that the property was subject to repurchase.)
PNB VS. CA
FACTS
The Solomon spouses were the registered owners of a lot located in Davao.
(AGENCY – ATTY. OBIETA)
In 1932, the Solomon spouses mortgaged the land in favor of Philippine
National Bank to secure a loan of P500.00. For failure to pay the loan, the
mortgage was foreclosed, the property was sold at public auction, and a
Certificate of Sale was executed in favor of the Bank.
The next day, after the execution of the Certificate of Sale, the Solomon
spouses and the Bank, represented by its manager, Cortes, created a "Promesa
de Venta" whereby the Bank bound itself to sell to the Solomon spouses for
P802.26 payable in eight equal annual amortizations. Possession of the
property was likewise turned over to said spouses upon the execution of the
contract. Further, it was stipulated that if the Solomon spouses should fail to
pay any of the amortizations, the contract shall be automatically rescinded and
the Bank shall be free to take possession of the land and sell it to a third
person.
Solomon spouses defaulted on the seventh and eighth amortizations.
Eventually, both spouses died. Perez as sole heir of the deceased spouses,
succeeded into the possession of the land in question.
7 years after default, Perez offered to pay the last two amortizations plus
interest, with the request that a Deed of Sale be executed in his favour but was
rejected by the bank manager, Lagdameo, on the ground that the "Promesa de
Venta" was executed by the Bank in favor of the Solomon spouses. Upon
suggestion of Lagdameo, Perez filed an action in Court for a declaration of
heirship. Consequently, Perez was judicially declared heir.
Acting on Perez’ notification of such court order, bank manager, Maceda,
informed Perez that as soon as he pays the account due of P535.45, they shall
cause the release of the mortgage. He also conveyed the comment of the head
office as regards his "offer to purchase" which they found too low compared
to the market value of the property; therefore he was asked to increase the
price. Perez then made several offers to the bank, the last price amounting to
P8000.00. However, all these offers were turned down by the Bank.
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 2D 2013 CLASS DIGEST
De Castro spouses offered to buy the property for P13,500.00. Failing to match
the offer, Perez lost the land to the De Castro spouses and the Bank issued a
new TCT under their name.
Perez filed a complaint, praying among other things, that the Bank be ordered
to accept from Perez payment of the outstanding balance and to deliver the
property to him.
The court dismissed Perez' complaint. Perez appealed to the Court of Appeals
which reversed the trial court's decision. Perez was allowed to redeem or
purchase the said property, upon payment of the last two installments and
with interest. The Bank and De Castro spouses moved for reconsideration but
were denied. Hence, the petitions for review.
ISSUE:
1. Whether the CA erred in holding petitioners in estoppel
HELD:
No. Firstly the clear intention of the Bank was to allow the Solomon spouses to
reacquire ownership of the property. Thus, the "Promesa de Venta" was
primarily created to favor the Solomon spouses giving them 8 years to
reacquire their land. During those years, the spouses were allowed to remain in
possession of the property. Secondly, the Bank did not register the same until
24 years later nor did it disturb Perez's possession of the property. Thirdly,
when Perez offered to pay the balance with the request that a Deed of Sale be
executed in his favor, his offer was rejected by Lagdameo not because the
"Promesa de Venta " had been automatically rescinded and right to redeem
was lost, but on the ground that it was in favor of the Solomon spouses.
Maceda, on the other hand, issued a statement of account on the loan and
informed Perez that "as soon as (he) could cause full payment of the above
account, (they) shall cause the release of the mortgage." Relying on this
commitment, Perez made several offers as to the amount but Maceda still
asked for an increase in the "price." In other words, Perez was led to believe
that he would be allowed to redeem the property.
(AGENCY – ATTY. OBIETA)
The "Promesa de Venta" was not essentially a contract to sell real estate on
installments but was more of a contract of redemption. Perez justifiably and
reasonably relied upon the assurance of the bank managers that he would be
allowed to pay the remaining obligation of his deceased parent. The automatic
rescission clause contained in it should not be controlling because based on the
facts, the bank itself did not strictly adhering to it.
The Bank's argument that it is not bound by the acts of its managers, is not
well taken for well settled is the rule that if a private corporation intentionally
or negligently clothes its officers or agents with apparent power to perform
acts for it, the corporation will be estopped to deny that such apparent
authority is real as to innocent third persons dealing in good faith with such
officers or agents.
Rallos v Yangco
Facts:
Through a letter, Yangco invited Rallos in a consignment
arrangement
for the business of buying and selling of leaf tobacco and
other
native products, terms and conditions of which were also included
in
the letter.
In the same letter, Yangco introduced to Rallos the former's
agent,
Collantes, upon whom Yangco conferred a public power of attorney
to
perform on Yangco's behalf, all acts necessary for carrying out
the
business.
Rallos accepted the invitation and transacted with Yangco
through
Collantes; last transaction being the supply of tobacco, the cost
of
which that belonged to Rallos was misappropriated by
Collantes.
Apparently, prior to the last delivery of tobacco, Yangco had
already
terminated his agency relation with Collantes, unknown to Rallos.


ISSUE:
W/N Rallos, in good faith and without knowledge of the termination
of
the agency agreement, can recover from Yangco the
amount
misappropriated by Collantes.


RULING:
Yes, Yangco was liable. Having given special notice to Rallos
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 2D 2013 CLASS DIGEST
that
Collantes was his (Yangco's) agent and having given him invitation
to
deal with such agent, it was then the duty of Yangco to give due and
timely
notice to Rallos regarding the termination of the agency.
Failing to do so,
Yangco will be held liable to third parties acting
in good faith and properly
relying upon such agency.
Macke v Camps
Facts:
The plaintiffs in this action, B. H. Macke and W. H. Chandler, partners doing
business under the firm name of Macke, Chandler & Company, allege that
during the months of February and March, 1905, they sold to the defendant
and delivered at his place of business, known as the "Washington Cafe,"
various bills of goods amounting to P351.50; that the defendant has only paid
on account of said accounts the sum of P174.
Before instituting this action they made demand for the payment thereof; and
that defendant had failed and refused to pay the said balance.
B. H. Macke, one of the plaintiffs, testified that on the order of one Ricardo
Flores, who represented himself to be agent of the defendant, he shipped the
said goods to the defendants at the Washington Cafe; that Flores later
acknowledged the receipt of said goods and made various payments.
Flores informed him that he did not have the necessary funds on hand, and
that he would have to wait the return of his principal.
Flores, in the absence of the defendant in the provinces, apparently in charge
of the business and claiming to be the business manager of the defendant, said
business being that of a hotel with a bar and restaurant.
A written contract dated May 25, 1904, was introduced in evidence, from which
it appears that one Galmes, the former owner of the business now know as the
"Washington Cafe," subrented the building wherein the business was
conducted, to the defendant for a period of one year, for the purpose of
(AGENCY – ATTY. OBIETA)
carrying on that business, the defendant obligating himself not to sublet or
subrent the building or the business without the consent of the said Galmes.
This contract was signed by the defendant and the name of Ricardo Flores
appears thereon as a witness, and attached thereto is an inventory of the
furniture and fittings which also is signed by the defendant with the word
"sublessee" (subarrendatario) below the name, and at the foot of this
inventory the word "received" (recibo) followed by the name "Ricardo Flores,"
with the words "managing agent"
Issue:
W/n Flores was an agent of Washington Café.
Held:
Flores is an agent of Washington Café
Ratio:
In the absence of proof of the contrary we think that this evidence is sufficient
to sustain a finding that Flores was the agent of the defendant in the
management of the bar of the Washington Cafe with authority to bind the
defendant, his principal, for the payment of the goods mentioned in the
complaint.
The contract introduced in evidence sufficiently establishes the fact that the
defendant was the owner of business and of the bar, and the title of
"managing agent" attached to the signature of Flores which appears on that
contract, together with the fact that, at the time the purchases in question
were made, Flores was apparently in charge of the business, performing the
duties usually entrusted to managing agent, leave little room for doubt that he
was there as authorized agent of the defendant. One who clothes another
apparent authority as his agent, and holds him out to the public as such, can
not be permitted to deny the authority of such person to act as his agent, to
the prejudice of innocent third parties dealing with such person in good faith
and in the following preassumptions or deductions, which the law expressly
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 2D 2013 CLASS DIGEST
directs to be made from particular facts, are deemed conclusive and unless the
contrary appears, the authority of an agent must be presumed to include all
the necessary and usual means of carrying his agency into effect.
Jimenez vs Rabot
Facts: Gregorio was in need of money to pay off his debts. He instructed his
sister, through a letter, to sell one of his two parcels of land so as to come up
with cash. Nicolasa, following her brother's request, sold one of his parcels of
land to Rabot for 500 pesos. There was proof of payment between Rabot and
Nicolasa but there was no proof of the payment ever reaching Gregorio.
When Gregorio asked for the parcel of land, Nicolasa refused. Gregorio now
sues for the land and learns later on that ownership was already with Rabot.
Issue: Whether or not the conveyance between Nicolasa and Pedro Rabot was
a valid.
Held: It was valid. Judgement of CA is reversed.
Ratio:
 The purpose in giving a power of attorney is to substitute the mind and
hand of the agent for the mind and hand of the principal; and if the
character and extent of the power is so far defined as to leave no
doubt as to the limits within which the agent is authorized to act, and
he acts within those limits, the principal cannot question the validity of
his act. It is not necessary that the particular act to be accomplished
should be predestinated by the language of the power. The question to
be answered always, after the power has been exercised, is rather this:
Was the act which the agent performed within the scope of his
authority? In the case before us, if the question is asked whether the
act performed by Nicolasa Jimenez was within the scope of the
authority which had been conferred upon her, the answer must be
obviously in the affirmative.
(AGENCY – ATTY. OBIETA)
 When the owner, or his agent, comes to make a contract to sell, or a
conveyance to effect a transfer, there must be a description of the
property which is the subject of the sale or conveyance. This is
necessary of course to define the object of the contract
 The general rule here applicable is that the description must be
sufficiently definite to identify the land either from the recitals of the
contract or deed or from external facts referred to in the document,
thereby enabling one to determine the identity of the land and if the
description is uncertain on its face or is shown to be applicable with
equal plausibility to more than one tract, it is insufficient. The principle
embodied in these decisions is not, in our opinion, applicable to the
present case, which relates to the sufficiency of the authorization, not
to the sufficiency of the contract or conveyance. It is unquestionable
that the deed which Nicolasa executed contains a proper description of
the property which she purported to convey
 There is ample authority to the effect that a person may by a general
power of attorney an agent to sell "all" the land possessed by the
principal, or all that he possesses in a particular city, county, or state.
 In the present case the agent was given the power to sell either of the
parcels of land belonging to the plaintiff. We can see no reason why
the performance of an act within the scope of this authority should not
bind the plaintiff to the same extent as if he had given the agent
authority to sell "any or all" and she had conveyed only one.

COSMIC LUMBER vs. COURT OF APPEALS (CA)
Petition for review on certiorari of Court of Appeals decision
(CA decision: dismissed the case, against Cosmic Lumber)
FACTS:
- Cosmic Lumber Corporation executed a SPA to Villamil-Estrada as
attorney in fact, to wit: (1) to initiate, institute and file an ejectment
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 2D 2013 CLASS DIGEST
case against squatters/third persons on the Lot 9127 and 443, in order
for the company to take material possession of the entire lot and (2) to
appear at the pre-trial conference and enter into any stipulation of
facts and/or compromise agreement so far as to protect the rights and
interest of the corporation.
- Villamil-Estrada instituted an action for ejectment of private
respondent Perez
- Villamil-Estrada entered into a Compromise Agreement which
contained:
 Perez has been an occupant of a part of the lot for several
years
 Pays Php 26,640 at Php.80/sqm
 Recognizes ownership and possession of Perez over said lot
- Compromise Agreement was approved by trial court which became
final without execution within the 5 yr period due to failure of
petitioner to produce the owner’s duplicate copy. To wit, Perez filed a
complaint to retrieve the judgment
- Cosmic Lumber asserts it did not know about the compromise
agreement until summons for the revival of judgment was served.
- Cosmic Lumber sought annulment of the decision of the trial court to
CA on the grounds of (1) Villamil-Estrada did not have authority, (2)
Villamil-Estrada’s authority was only to file an ejectment case, (3)
Villamil-Estrada’s authority was limited, (4) the consideration was never
received by Cosmic Lumber, (5) Villamil-Estrada acted in bad faith and
(6) disposal of corporate property indispensably requires a Board
Resolution.
HELD:
petition granted; CA decision is nullified; Compromise agreement is void;
without prejudice to the right of Cosmic Lumber to pursue a complaint against
Perez for the recovery of the lot
(AGENCY – ATTY. OBIETA)
RATIO:
- SPA was explicit and exclusionary, compromise agreement was
coupled with an explicit limitation fixed by Cosmic Lumber that it
should only be entered “so far as it shall protect the rights and interest
of the corporation in the aforementioned lots”.
- Price of Php.80/sqm is considerably less than its assessed value of
Php.250/sqm and that Cosmic Lumber never received the proceeds of
the sale.
- Art. 1874 of Civil Code: when a sale of a piece of land or any interest
thereon is through an agent, the authority of the latter should be in
writing; otherwise the sale is void.
- The express mandate of the law requires of an appointed of an agency
couched in general terms, must include an express mention of a sale as
a necessary ingredient. The express powers must be clear and
unmistakable. When there is reasonable doubt, no such construction
shall be given in the document.
- Villamil-Estrada acted without or in obvious disregard of authority.
- Sale is ipso jure void and the judgment based thereon is also void.
- Cosmic Lumber is not in the position to question the compromise
agreement in the action to revive the compromise agreement, since it
was never PRIVY to such agreement.
- Trial court had no jurisdiction to render judgment.
- Villamil-Estrada’s acts constituted extrinsic fraud (any fraudulent act of
the prevailing party in a litigation which is committed outside of the
trial of the case, whereby the defeated party is prevented from
exhibiting fully his side of the case by deception practiced on him by his
opponent)
- Villamil-Estrada deliberately concealed from her principal (Cosmic
Lumber) that a compromise agreement had been forged with the end
result of selling a portion of the property.
- General Rule: principal is chargeable with and bound by the knowledge
or notice to his agent (purpose: to protect those who exercise it in
good faith)
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 2D 2013 CLASS DIGEST
- Exception: conduct and dealings of agent are such as to raise a clear
presumption that he will not communicate the facts in controversy
(reason: when agent is committing fraud, it is contrary to common
sense to expect the agent to communicate the facts to the principal)
- Villamil-Estrada’s acts were not for the principal, rather he was acting
for his own benefit.
- The basic tenets of an agency rest on justice, equity and fair play. Agent
is not permitted to pervert his authority to do such acts contrary to the
interests of the principal.
RAET v. CA
Facts
In 1984 Spouses Raet and Spouses Mitra negotiated with Amparu Gatus
concerning the possibility of buying his rights to certain units at the Las Villas
de Sto. Niño Subdivision, Bulacan, which was developed by Phil-Ville
Development and Housing Corporation (PVDHC) primarily for parties qualified
to obtain loans from the Government Service Insurance System (GSIS). They
paid Gatus P40,000 (Raet) and 35,000 (Mitra), and which Gatus issued receipts
in her own name. In 1985, the spouses applied directly with PVDHC, with the
condition that their application would be processed upon the approval of the
GSIS Loans using policy names of Casidsid (for Raet) and Lim (for Mitra), since
the spouses are not GSIS members. They paid P32,653 (Raet) and P27,000
(Mitra) to PVDHC, which would be credited to purchase units upon the loan’s
approval. In the meantime, PVDHC had allowed them to occupy certain units.
However, the GSIS loans were disapproved, therefore PVDHC told them to
seek other sources of financing, while allowing them to stay in the units.
Elvira Raet filed an estafa case against Gatus, where the RTC acquitted her.
Later in an ejectment case by the PVDHC, the spouses were ordered to
surrender possession of the units. Therefore the spouses filed a complaint for
specific performances and damages against Gatus and PVDHC. The Housing
and Land Use Arbiter ruled in favor of spouses, which the Board of
Commissioners of Housing and Land Use Regulatory Board (HLURB) reversed.
(AGENCY – ATTY. OBIETA)
Yet, the Office of the President sustained the HLU Arbiter, and the CA
dismissed it.
Issue: Whether Gatus was acting as an agent of PVDHC.
Held:
NO!
Ratio
Gatus was not the agent of private respondent PVDHC. Indeed, the criminal
case for estafa against her was dismissed because it was found that she never
represented herself to be an agent of private respondent PVDHC. Moreover,
Art. 1874 of the Civil Code requires for the validity of a sale involving land that
the agent should have an authorization in writing, which Gatus did not possess.
Petitioners knew from the beginning that Gatus was negotiating with them in
her own behalf, and not as an agent of private respondent PVDHC. There is,
therefore, no basis in fact for the finding of the Housing and Land Use Arbiter
that Gatus was the agent of private respondent PVDHC with respect to the
transactions in question.
Aguna v Larena
Facts
This action is brought to recover the sum of P29,600 on two cause against the
administrator. The plaintiff claims the sum of P9,600, the alleged value of the
services rendered by him to said deceased as his agent in charge of the
deceased's houses situated in Manila.
From the evidence it appears undisputed that from February, 1922, to February,
1930, the plaintiff rendered services to the deceased, consisting in the
collection of the rents due from the tenants occupying the deceased's houses
in Manila and attending to the repair of said houses when necessary.
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 2D 2013 CLASS DIGEST
The evidence also shows that during the time the plaintiff rendered his
services, he did not receive any compensation. It is, however, a fact admitted
that during said period the plaintiff occupied a house belonging to the
deceased without paying any rent at all.
Issue
W/n Agency is for compensation.
Held
The service rendered by the agent was deemed to be gratuitous
Ratio
The plaintiff-appellant insists that, the services having been rendered, an
obligation to compensate them must necessarily arise. The trial court held that
the compensation for the services of the plaintiff was the gratuitous use and
occupation of some of the houses of the deceased by the plaintiff and his
family. This conclusion is correct. if it were true that the plaintiff and the
deceased had an understanding to the effect that the plaintiff was to receive
compensation aside from the use and occupation of the houses of the
deceased, it cannot be explained how the plaintiff could have rendered
services as he did for eight years without receiving and claiming any
compensation from the deceased.
Insular Drug Company VS National Bank
Facts:
U.E. Foerster was formerly a salesman of the drug company for the island of
Panay and Negros. He also acted as a collector of the company, mainly taking
checks from the Iloilo branch of the drug company and depositing them to the
company account with Philippine National Bank.
(AGENCY – ATTY. OBIETA)
Upon examination of the checks deposited by Foerster with PNB, there were
several indorsements guaranteed by the PNB manager Angel Padilla for
Carmen E. de Foerster, the wife of U.E. Foerster, which was consequently
withdrawn by the couple and a certain V. Bacaldo (stenographer of Foerster).
When the Manila office of the drug company investigated and discovered the
anomalies, Foerster committed suicide. Although there was no evidence
showing that the bank knew that Foerster was misappropriating the funds of
his principal, the Insular Drug Co. claims that it never received the face value of
the 132 checks in question covering a total of Php 18, 285.92.
The drug company saw fit to stand on the proposition that checks drawn in its
favor were improperly and illegally cashed by the bank for Foerster’s personal
account.
Issue:
Whether the bank is liable for the amount indorsed and withdrawn by Foerster
using company checks even if the latter is an agent of the drug company.
Whether the bank is liable for the negligence of its agents when they allowed
encashing of the checks without prior authority from the company.
Ratio:
Yes on both issues.
The bank is liable for the amount withdrawn by Foerster and will have to stand
the loss occasioned by negligence of its agents.
The right of an agent to indorse commercial paper is a very responsible power
and will not be lightly inferred. A salesman with authority to collect money
belonging to his principal does not have the implied authority to indorse checks
received in payment. Any person taking checks made payable to a corporation,
which can [be acted upon] only by agents does so at his peril, and must abide by
the consequences if the agent who indorses the same is without authority.
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 2D 2013 CLASS DIGEST
The fact that the bank acted in good faith does not relieve it from
responsibility. The bank could tell by the checks themselves that the money
belonged to the Insular Drug Company and not to Foerster, his wife or his
clerk. When the bank permitted the withdrawals without the authority from
the drug company, the bank made itself responsible to the drug company for
the amounts represented by the checks.
The bank could have relieved itself from the responsibility had it proven that
the money withdrawn by Foerster passed to the drug company but it hasn’t
done so.
Municipal Council of Iloilo vs. Evangelista and Tan Toco
FACTS:
This is an appeal taken by Tan Toco of the decision of CFI of Iloilo, declaring valid
and binding
1. the deed of assignment of the credit executed by Tan Toco's widow,
through her attorney-in-fact Tan Buntiong, in favor of late Antero Soriano
2. the assignment executed by the latter during his lifetime in favor of the
defendant Mauricio Cruz & Co., Inc.
The CFI of Iloilo rendered judgment in a case awarding Tan Toco the recovery
of the value of a strip of land taken by the municipality of Iloilo from her. After
the case was remanded to the court of origin, Atty. Evangelista, in his behalf
and as counsel for the administratrix of Jose Ma. Arroyo’s intestate estate,
filed a claim in the same case for professional services rendered by him, which
the court, acting with the consent of the appellant widow, fixed at 15 per cent
of the amount of the judgment.
At the hearing on said claim, the claimants appeared, as did also the Philippine
National Bank, which prayed that the amount of the judgment be turned over
to it because the land taken over had been mortgaged to it. Antero Soriano
(AGENCY – ATTY. OBIETA)
also appeared claiming the amount of the judgment as it had been assigned to
him, and by him, in turn, assigned to Mauricio Cruz & Co., Inc.
After hearing all the adverse claims on the amount of the judgment the court
ordered that the attorney's lien in the amount of 15 per cent of the judgment,
be recorded in favor of Attorney Jose Evangelista, in his own behalf and as
counsel for the administratrix of the deceased Jose Ma .Arroyo, and directed
the municipality of Iloilo to file an action of interpleading against the adverse
claimants, the Philippine National Bank, Antero Soriano, Mauricio Cruz & Co.,
Jose Evangelista and Jose Arroyo, as was done, the case being filed in the
Court of First Instance of Iloilo.
Then municipal treasurer of Iloilo deposited with the clerk of the Court of First
Instance of Iloilo the amount of P6,000 on account of the judgment rendered
in said civil case No. 3514. In pursuance of the resolution of the court below
ordering that the attorney's lien in the amount of 15 per cent of the judgment
be recorded in favor of Attorney Jose Evangelista, in his own behalf and as
counsel for the late Jose Ma. Arroyo, the said clerk of court delivered on the
same date to said Attorney Jose Evangelista the said amount of P6,000. At the
hearing of the instant case, the codefendants of Attorney Jose Evangelista
agreed not to discuss the payment made to the latter by the clerk of the Court
of First Instance of Iloilo of the amount of P6,000 mentioned above in
consideration of said lawyer's waiver of the remainder of the 15 per cent of said
judgment amounting to P444.69. With these two payments of P6,000 each
making a total of P12,000, the judgment for P42,966.44 against the
municipality of Iloilo was reduced to P30,966.40, which was adjudicated by
said court to Mauricio Cruz & Co.
This appeal, then, is confined to the claim of Mauricio Cruz & Co. as alleged
assignee of the rights of the late Attorney Antero Soriano by virtue of the said
judgment in payment of professional services rendered by him to the said
widow and her coheirs.
ISSUE: Whether the deeds of assignment in this case are null and void
HELD: NO.
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 2D 2013 CLASS DIGEST
 Tan Toco contends, in the first place, that said assignments was not
made in consideration of professional services by Attorney Antero
Soriano, for they had already been satisfied before the execution of
said deed of assignment, but in order to facilitate the collection of the
amount of said judgment in favor of the appellant, for the reason that,
being Chinese, she had encountered many difficulties in trying to
collect. In support of her contention on this point, the appellant alleges
that the payments admitted by the court in its judgment, as made by
Tan Toco's widow to Attorney Antero Soriano for professional services
rendered to her and to her coheirs, amounting to P2,900, must be
added to the P700, on the ground that they were considered as
payments made for professional services rendered, not by Antero
Soriano personally, by the firm of Soriano & Arroyo.
 An agent of attorney-in -fact empowered to pay the debts of the
principal, and to employ lawyers to defend the latter's interests, is
impliedly empowered to pay the lawyer's fees for services rendered in
the interests of said principal, and may satisfy them by an assignment
of a judgment rendered in favor of said principal
 When a person appoints two attorneys-in-fact independently, the
consent of the one will not be required to validate the acts of the
other unless that appears positively to have been the principal's
attention
 The assignment of the amount of a judgment made by a person to his
attorney, who has not taken any part in the case wherein said
judgment was rendered, made in payment of professional services in
other cases, does not contravene the prohibition of article 1459, case
5, of the Civil Code.
Municipal Council of Iloilo vs. Evangelista and Tan Toco (widow)
FACTS:
1924:
- CFI awarded to Tan Toco 42K++ for the value of a strip of land taken by
the municipality to widen a public street
(AGENCY – ATTY. OBIETA)
- Atty. Evangelista (Atty. E)(as counsel of Jose Maria’s intestate estate)
filed a claim in the same case for professional services rendered by him
o He acted with Tan Toco’s consent
o And the court fixed at 15% of the amount of judgment as
payment for his professional services
- Other claimants also appeared: PNB and Atty. Antero Soriano (Atty. S)
(pero he died diba?)
- So the court judged in favour of Atty. E and ordered Municipality of
Iloilo to file an action of interpleading against the claimants
- CFI then rendered the following decision:
1. That the deed of assignment executed by Tan Toco’s widow thru
Atty. BoonTiong in favour of Atty. S is valid and binding
2. That the deed of assignment by Atty. S in favour of Mauricio Cruz &
Co. Inc is valid and binding
3. Municipal of Iloilo should pay Mauricio Cruz & Co Inc 30K++
- But Tan Toco appealed and said that #1 and #2 were null and void and
the balance of 30K++ should be given to her instead of Mauricio Cruz
and Co Inc.
1928
- Iloilo paid Atty. S the 6K
- The Court also delivered 6K to Atty. E, but Atty. E waived the remaining
amount that should be given to him
- So from the 42K – 12K, the 30K was awarded to Mauricio Cruz and Co.
Inc.
- So Mauricio claimed the remaining amount since he is the assignee of
the rights of Atty. S
ISSUE:
Whether the assignment made by Tan BoonTiong to Atty. S of all the credits
and rights of belonging to Tan Toco (from the “strip of land case”) is valid as
payment for the professional services rendered by Atty. S to Tan Toco
HELD:
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 2D 2013 CLASS DIGEST
YES. VALID.
 Tan Toco (widow) contended the following:
1. That the said assignment was not in consideration of the
professional services by Atty. S, since:
a. The payment was already satisfied even before the
execution of the deed of assignment
b. The they only “hired” Atty. S to collect the amount of
judgment, since Tan Toco is Chinese, she cannot make
transactions properly (HAHA)
c. She already paid Atty. S for professional services rendered
by the firm of “Soriano & Arroyo”, evidenced by receipts
2. That the deed of assignment was drawn up in contravention of the
prohibition that lawyers cannot acquire even by assignment
(Article 1491 (5))
 BUT THE COURT SAID THAT TAN TOCO’S CONTENTIONS ARE
UNTENABLE:
1. Tan Toco still wired Atty. S money for his services in 1928 after the
deed of assignment was executed
2. Atty. S appeared as counsel for Tan Toco many times and won
several times too for them. The payment he received for his
services is inadequate (10K)
3. INDIRECTLY: the assignment made to Atty. S and determined in the
previous judgment was made in consideration of the professional
services rendered by Atty. S to Tan Toco
4. Atty. S was NOT counsel for Tan Toco in the case regarding the
recovery of value of the strip of land
5. The lawyers who represented her were Arroyo and Evangelista
who filed a claim for professional fees!!
6. When the assignment was made to Atty. S – this was already
decided! Because the rights, credit, etc., in that “strip of land case”
was payment for his professional services rendered in connection
with the other cases (client still Tan Toco)—so the only thing left
to do is to COLLECT!
(AGENCY – ATTY. OBIETA)
7. Atty. BoonTiong is authorized to employ and contract for the
services of lawyers upon such conditions as he may deem
convenient AND take charge of any actions necessary or expedient
for the interests of his principal and defend suits brought against
her  [AGENCY!]
 Implied power: authority to pay for professional services
thus engaged by the principal
 The assignment made by Atty. BoonTiong was VALID as
payment for professional services rendered by Atty. S.
DOCTRINES:
 An agent of attorney-in -fact empowered to pay the debts of the
principal, and to employ lawyers to defend the latter's interests, is
impliedly empowered to pay the lawyer's fees for services rendered in
the interests of said principal, and may satisfy them by an assignment
of a judgment rendered in favor of said principal
 When a person appoints two attorneys-in-fact independently, the
consent of the one will not be required to validate the acts of the other
unless that appears positively to have been the principal's attention
 Apparently, 2 ang attorney-in-fact ni Tan Toco. Atty.
Montano did not consent to the assignment. But they
had different and separate letters of attorney, so it was
not the principal’s intention that they should act jointly
in order to make their acts valid.
 The assignment of the amount of a judgment made by a person to his
attorney, who has not taken any part in the case wherein said
judgment was rendered, made in payment of professional services in
other cases, does not contravene the prohibition of article 1491, case 5,
of the Civil Code.
Rural Bank of Caloocan vs CA
Maxima Castro with Severino Valencia went to the Rural Bank of Caloocan in
order to apply for an industrial loan. Valencia personally took care of all the
requirement in order for Castro to secure said loan. The loan of 3000 was
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 2D 2013 CLASS DIGEST
approved and Castro, accompanied by Valencia spouses, signed a promissory
note. On the same day Valencia spouses also secured a loan of 3000 and was
also signed by castro as co-maker. The two loans were secured by a real estate
mortgage on castro’s house and lot.
Sheriff informed Castro that her property will be sold at a public aution which
shall cover the promissory note plus interest and attorney’s fee. Castro claims
that she has no knowledge of the mortgage contract up until a notice from the
sheriff was given.
Castro filed a case against the bank. Bank argues that they were led to believe
that Valencia was Castro’s agent
Issue: Whether the bank believed Valencia to be Castro’s agent
Whether the promissory note is invalid insofar as they affect Castro and the
Bank ?
Held: SC affirmed the CA decision.
Ratio: the authority of the Valencias was only up to follow up Castro’s loan
application. But they were never authorized to borrow for her. If her acts had
been understood by the bank to be a grant of authority to the Valencia’s it
should have required a special power of attorney. Since the bank did not, it
can be assumed that it did not entertain the notion that the Valencia spouses
were in any manner acting as the agent of Castro
Valencia defrauded Castro by making her sign the promissory note and the
mortgage contract, they also misrepresented to the bank Castro’s
qualifications in order to secure the Bank’s consent and grant the loan. As a
result , both Castro and the bank committed mistake in giving their consents.
Such mistake is deemed substantial thereby rendering such consents, vitiated.
For if Castro has been aware of what she signed and the bank of the true
qualifications of the loan applicants, they would not have given their consents.
They PN in effect may also be invalidated because of substantial mistake
(AGENCY – ATTY. OBIETA)
mutually committed by the Bank and Castro, as a consequence of the fraud and
misrepresentation (respectively) employed by the Valencias. In the case at bar,
the PN is valid only up to the amount of 3000 pesos
VDA. DE CHUA VS. INTERMEDIATE APPELLATE COURT
FACTS
Herrera executed a Contract of Lease in favor of Sy whereby Herrera leased her
lots in Cebu. Sy erected a residential building in the leased premises & w/in 4
years from the execution of the contract, he sold the said building to Chua for
P8,000. The Deed of Absolute Sale contained provisions where Sy assigned all
his rights and privileges on the leased lot with the corresponding obligations.
The sale was made with the knowledge and consent of Herrera who is
represented by her attorney-in-fact, Reynes.
Chua & his family resided in the said building and when the lease contract
expired, Chua and Herrera through her attorney-in-fact executed another
Contract of Lease wherein & will lease the said lots for a period of 5 years for a
monthly rental of P60 w/ Chua having an option to buy the said premises if he
is qualified & when Herrera decides to sell the same. Chua is also given the
option to renew the contract. It also contained a stipulation that should the
property leased be sold to any other party, the terms & conditions of the
contract will continue for the duration of the contract.
After the expiration of the contract of lease, Chua’s successor-in-interest (Chua
having died) continued the possession of the premises with an adjusted rental
rate of P1000. Herrera through her attorney-in-fact, Reynes sold the lot to the
Go spouses. This was registered with the RD and the lots were transferred in
spouses’ names. Chua’s successors-in-interest filed a suit claiming that the sale
violated their right of option to buy the said lots. The RTC dismissed the
complaint and ordered Chua’s heirs to vacate the premises & remove the
building. Herrera was ordered to reimburse them for attorney’s fees and
damages. Both Chua’s heirs and Herrera appealed to the CA. The CA removed
the award of moral damages but affirmed all other respects. The CA in
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 2D 2013 CLASS DIGEST
declaring their contract of lease void noted that Reynes was not armed w/ a
SPA to enter into a lease contract for a period of more than 1 year.
ISSUE
W/N the lease contract entered into by Chua and Reynes is valid.
RULING
NO. In order for a contract of lease executed by an agent to be valid, the law
requires the agent to be armed with a special power of attorney to lease the
premises. According to Art. 1878 of the NCC, “Special Powers of Attorney are
necessary to lease any real property to a person for more than 1 year.”
Therefore, the contract entered into by Reynes and Chua was invalid because
Reynes did not have a Special power of Attorney to enter into the contract.
It is true that respondent Herrera allowed petitioners to occupy the leased
premises after the expiration of the lease contract. This is a tacit renewal of the
lease. A tacit renewal is limited only to the terms of the contract w/c are
germane to the lessee’s right of continued enjoyment of the property and does
not extend to alien matters like the option to buy the lease premises.
Veloso v CA
Applicable Provision: Art. 1878
Facts:
 Petitioner Francisco Veloso was the sole owner of a registered parcel
of land in Tondo, Manila, which he acquired in 1957.
 His wife Irma, armed with a general power of attorney, sold said lot to
the respondent spouses Escario in 1987.
 Petitioner filed an action for annulment of the deed of sale and
reconveyance of property
Issue:
(AGENCY – ATTY. OBIETA)
 Whether a general power of attorney may authorize an agent to sell
real property.
Held/Ratio:
 Yes.
 Although sale of real property requires a special power of attorney, if a
general power of attorney expressly grants the power to sell to the
agent, there is no need to execute a separate special power of
attorney.
 The assailed power of attorney had the following provision: “To buy or
sell land, more specifically TCT No. 49138”
 Thus, said power of attorney sufficiently authorized the wife to sell the
property.
 Therefore, the sale is valid.
RODRIGUEZ vs. PAMINTUAN and DE JESUS


Facts:

March 21, 1903, the defendant de Jesus, the owner of the three parcels of land
and sugar mill, executed power of attorney in favor of her husband Pamintuan,
authorizing him (1) to borrow money in such amount and upon such terms and
conditions as he might deem proper, and (2) to secure payment of the loan by
a mortgage on her property. 
June 1, 1903, the husband executed in favor of
Rodriguez ( deceased, leaving the plaintiffs as his testamentary heirs) an
notarized instrument purporting on its face to be a deed of sale of the lands
stated, for the sum of P5,000 with a reserved right in the vendor to repurchase
any time within ten years from the date of the deed, and to continue occupying
them under as annual rental of 120 pilones of sugar. 
September 2, 1914, this
action was instituted to recover possession of the land and payment of the
annual rental due thereon. The defendant husband admitted the execution of
the document purporting to be a deed of sale, but alleged that the real
purpose and intent of the parties in the execution of the document was to
secure payment of the indebtedness by a mortgage upon the lands mentioned
therein, and that the instrument would not be enforced as a deed of sale. 
The
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plaintiffs filed an amended complaint and alleged that the true intention and
understanding of the parties in the execution of the instrument purporting to
be a deed of sale with the right to repurchase reserved in favor of the vendor
was to provide written evidence of a loan of P5,000 and to furnish security for
its repayment from the properties mentioned therein. The prayer of the
amended complaint is for the amount of the loan, P5,000, and interest thereon
at the rate of P900 per annum, the equivalent of 120 pilones of sugar at the
rate of P7.50 the pilon, less the sum of P300, the total amount paid on account
of interest during the life of the loan; and further that appropriate relief be
granted the plaintiffs providing for the recovery of the loan as a debt secured
by a mortgage on the lands described in the contract.

The trial judge held
that the evidence of record conclusively establishes the execution of the
power of attorney, and of the instrument purporting to be a deed of sale with
the right of repurchase reserved to the vendor, and further that the
defendants have repaid neither the principal (P5,000) received by the husband
at the time of the execution of the instrument, nor any part of the annual
payment of 120 pilones of sugar provided for in the contract, nor its equivalent
in money, except only the sum of P300, payment of which is admitted by the
plaintiffs. the trial court gave judgment in favor of the plaintiffs for the
recovery of the possession of the land in question and for the recovery of 1,440
pilones of sugar which he took to be the total amount due under the contract
for the twelve full years which had expired from the date of the contract to the
date of the judgment, less 50 pilones of sugar which he found to be equivalent
of P300 admittedly paid on account thereof, at the rate of P6 a pilon. Hence,
this appeal.

 of the lands but the judgment should be entered in their favor for the sum of
Issue:
whether the transaction is a sale or a security of a loan?


Decision:

it is a security of loan. The power of attorney from the defendant wife in favor
of the defendant husband authorized merely
By means of a mortgage of my
real property, to borrow and lend sums in cash, at such interest and for such
periods and conditions as he may deem proper, and to collect or to pay the
(AGENCY – ATTY. OBIETA)
principal and interest thereon when due
This, cannot be construed as
sufficient authority to sell the real estate of the wife, and nothing in the record
which tends to disclose that she did in fact authorize her husband to sell her
lands, or ratified his action in executing a deed of sale therefor. It follows that
neither she nor her lands would be bound by the instrument purporting on its
face to be a deed of sale of these lands, if that instrument set forth the true
nature of the transaction. The instrument should be enforced in accordance
with the true intent and purpose of the parties, without prejudice to the rights
of third parties.

The review of the whole record, that, acting under and by
virtue of the powers conferred upon him by his wife, the husband did in fact
borrow P5,000 from Rodriguez, and that he executed a public instrument
purporting to be a deed of sale, with a reserved right of repurchase, by way of
security for the repayment of the loan, with the understanding that although
title to the land had been conveyed to him he would hold the land merely as
security, and would reconvey it upon receipt of payment
The instrument was
not recorded in the mortgage registry, and it cannot therefore be given the
effect of a legal mortgage, but we are of opinion that the contract which is
proved to have been entered into by the husband acting by authority of, and
on behalf of his wife, may be and should be enforced in accordance with the
real intent of the parties so far as innocent third persons are not adversely
affected thereby; that is to say, that it should be deemed to be a valid
instrument, evidencing the loan of the money mentioned therein and binding
the property for the payment of the indebtedness, but without prejudice to
the right of third parties. Plaintiffs are not entitled to a judgment for a recovery
P5,000 together with interest thereon at the rate of P720 a year from the date
of the execution of the document purporting to be a deed of sale, until paid,
less P300, receipt of which is acknowledged by the plaintiffs.
PNB vs. Sta. Maria, et al.
Facts:
Maximo’s six brothers and sisters (Valeriana, Emeteria, Teofilo, Quintin,
Rosario and Leonila) executed a special power of attorney in his favor to
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mortgage a parcel of land, jointly owned by all of them. In addition, Valeriana
Sta. Maria (sister of Maximo) alone also executed in favor of her brother,
Maximo, a special power of attorney to borrow money and mortgage any real
estate owned by her. By virtue of the two aforementioned powers of
attorney, Maximo Sta. Maria applied for two separate crop loans, for the 1952-
1953 and 1953-1954 crop years, with PNB, in the amount of P13,216.11 and
P23,000.00, respectively. Included as security for these two loans are the
parcel of land jointly owned by Maximo and his six brothers and sisters. Also,
the loan was guaranteed by surety bonds executed by Associate Insurance &
Surety Co.
Due to failure to pay said loans, PNB filed a case on collection of money. The
trial court rendered judgment in favor of PNB requiring Maximo and his six
brothers and sisters together with the surety, to be liable jointly and severally.
Maximo and his surety did not appeal the judgment, however, his six brothers
and sisters appeal the decision to the Supreme Court.
Issue:
Whether Maximo and his six brothers and sisters and surety are liable to PNB?
Held:
No. Only Maximo and his sister Valeriana are jointly liable to PNB. The other
five brothers and sisters are not liable.
The authority granted by Maximo’s brothers and sisters (except Valeriana)
unto their brother, Maximo, was merely to mortgage the property jointly
owned by them. They did not grant Maximo any authority to contract for any
loans in their names and behalf. Maximo alone, together with Valeriana who
authorized him to borrow money, must answer for said loans and the other
defendants-appellants' only liability is that the real estate authorized by them
to be mortgaged would be subject to foreclosure and sale to respond for the
obligations contracted by Maximo. But they cannot be held personally liable
for the payment of such obligations. Moreover, the brothers and sisters did
(AGENCY – ATTY. OBIETA)
not receive any centavo from the loan proceeds as benefit, thus no estoppel
can be claimed by PNB to them.
Doctrine/Ratio:
Authority to mortgage does not carry with it the authority to contract
obligation.
A special power of attorney to mortgage real estate is limited to such authority
to mortgage and does not bind the grantor personally to other obligations
contracted by the grantee, in the absence of any ratification or other similar act
that would estop the grantor from questioning or disowning such other
obligations contracted by the grantee.
Sy-Juco v. Sy-Juco
FACTS:
Plaintiff Sy-Juco and Viardo are parents of defendant Sy-Juco. They appointed
defendant Sy-Juco as administrator of their property for a period of time, until
such was revoked. Defendant Sy-Juco bought launchMalabon(a boat) in his
own name from Pacific Commercial Co. during the period of the agency. He
used his parents’ money and registered it with the Custom House in his name.
It was found that such property was bought by defendant Sy-Juco for and in
behalf of his parents. The trial court held that defendant Sy-Juco must return
the launch Malabon to his parents, and execute all the necessary documents
and instruments for such delivery and the registration in the records of the
Custom House of said launch as plaintiffs' property.
ISSUE:
Whether the trial court erred in holding that defendant Sy-Juco must return the
launch Malabon to his parents, and execute all the necessary documents and
instruments for such delivery and the registration in the records of the Custom
House of said launch as plaintiffs' property
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 2D 2013 CLASS DIGEST
HELD:
NO. Since the defendant contracted the obligation to but the launch for
hisparents and in their representation, by virtue of the agency,
notwithstanding the fact that he bought it in his own name, he is obliged to
transfer to his parents the rights he received from the vendor, and they are
entitled to be subrogated in these rights.
Article 1883 of the Civil Code provides that when an agent acts in his own
name, the principal shall have no right of action against the person with whom
the agent has contracted, cases involving things belonging to the principal are
excepted. According to this exception (when things belonging to the principal
are dealt with) the agent is bound to the principal although he does not assume
the character of such agent and appears acting in his own name. This means that
in the case of this exception the agent's apparent representation yields to the
principal's true representation and that, in reality and in effect, the contract
must be considered as entered into between the principal and the third
person; and, consequently, if the obligations belong to the former, to him
alone must also belong the rights arising from the contract. The money with
which the launch was bought having come the parents, the exception
established in article 1883 is applicable to the instant case.
National Food Authority (NFA) v. IAC
Facts:
Medalla, as a commission agent of plaintiff Superior Shipping Corporation,
entered into a contract for hire of ship (MV Sea Runner) with defendant NFA.
The contract obligated Medalla to transport on the MV Sea Runner 8,550 sacks
of rice belonging to NFA from Occidental Mindoro to Malabon, Metro Manila.
Upon completion of the delivery, plaintiff wrote a letter around October 1979,
requesting NFA that it be allowed to collect the amount for freightage and
other charges. Plaintiff wrote again around November 1979, this time
(AGENCY – ATTY. OBIETA)
specifically requesting that payment be made to it and not to Medalla because
plaintiff was the owner of the vessel.
On November 16, 1979, NFA informed plaintiff that it could not grant its
request because the contract to transport the rice was entered into by NFA
and defendant Medalla who did not disclose that he was acting as a mere
agent of plaintiff. Thereupon on November 19, 1979, defendant NGA paid
defendant Medalla the sum of P25,974.90, for freight services.
On December 4, 1979, plaintiff wrote defendant Medalla demanding that he
turn over to plaintiff the amount of P27,000.00 paid to him by defendant NFA.
Defendant Medalla, however, "ignored the demand."
Issue: Whether NFA is jointly and severally liable with defendant Medalla.
Held: Yes, NFA is solidarily liable with defendant Medalla.
Ratio: It is an undisputed fact that Gil Medalla was a commission agent of
respondent Superior Shipping Corporation which owned the vessel "MV Sea
Runner" that transported the sacks of rice belonging to petitioner NFA. The
context of the law is clear. Art. 1883, which is the applicable law in the case at
bar provides:
Art. 1883. If an agent acts in his own name, the principal has no
right of action against the persons with whom the agent has
contracted; neither have such persons against the principal.
In such case the agent is the one directly bound in favor of the
person with whom he has contracted, as if the transaction were
his own, except when the contract involves things belonging
to the principal.
The provision of this article shall be understood to be without
prejudice to the actions between the principal and agent.
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 2D 2013 CLASS DIGEST
Consequently, when things belonging to the principal (in this case, Superior
Shipping Corporation) are dealt with, the agent is bound to the principal
although he does not assume the character of such agent and appears acting in
his own name. In other words, the agent's apparent representation yields to the
principal's true representation and that, in reality and in effect, the contract
must be considered as entered into between the principal and the third person.
Corollarily, if the principal can be obliged to perform his duties under the
contract, then it can also demand the enforcement of its rights arising from
the contract.
PNB V. MANILA SURETY & FIDELITY CO., INC.
An agent is required to act with the care of a good father of a family and
becomes liable for the damages, which the principal may suffer through his
non-performance.
A bank is answerable for negligence in failing to collect the sums due its
debtor from the latter’s own debtor, contrary to said bank’s duty as holder
of an exclusive and irrevocable power of attorney to make such collections.
FACTS:
The Philippine National Bank had opened a letter of credit and advanced
thereon $120,000.00 to Edgington Oil Refinery for 8,000 tons of hot asphalt. Of
this amount, 2,000 tons worth P279,000.00 were released and delivered to
Adams & Taguba Corporation (ATACO) under a trust receipt guaranteed by
Manila Surety & Fidelity Co. up to the amount of P75,000.00. To pay for the
asphalt, ATACO constituted the Bank its assignee and attorney-in-fact to
receive and collect from the Bureau of Public Works the amount aforesaid out
of funds payable to the assignor.
ATACO delivered to BPW asphalt worth P431,466.52. Of this amount, PNB was
able to regularly collect a total of P106,382.01. However, due to unexplained
reasons, PNB
(AGENCY – ATTY. OBIETA)
was not able to collect until the investigators found out that more money were
payable to ATACO from BPW. The latter allowed another creditor to collect
funds due to
ATACO under the same purchase order, to a total of P311,230.41.
Thus, PNB sued both ATACO and Manila Surety to recover the balance of
P158,563.18, plus interests and damages.
CA ruled that PNB was negligent in having stopped collecting from BPW before
ATACO’s debt is fully collected, thereby allowing funds to be taken by other
creditors to the prejudice of the surety.
PNB asserts that the power of attorney executed in it is favor from ATACO was
merely an additional security; that it was the duty of the surety to see to it that
the obligor fulfills his obligation; and that PNB has no obligation to the surety
to collect any sum from ATACO.
ISSUE:
W/N PNB is negligent as an agent-creditor of ATACO in collecting sums due to it
HELD:
YES. The CA did not hold PNB responsible for its negligence in failing to collect
from ATACO for its debt to PNB, but for ITS NEGLECT IN COLLECTING SUMS
DUE TO ATACO FROM BPW. An agent is required to act with the care and
diligence of a good father of a family(Art1887) and becomes liable for the
damages, which the principal may suffer through its non-
performance(Art1884). PNB’s power to collect was expressly made irrevocable
so that BPW could very well refuse to make payments to ATACO itself, and
reject any demands by the surety.
NEPOMUCENO V. HEREDIA
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NEPOMUCENO HEREDIA
-has unsecured debt receivable from Leaňo, - Business adviser of
P500.00 MARCIANA CANON
-Leaňo proposed to give a deed of conditional - Paid P1,500.00 from
sale to a tract of land w/ buildings and Marciana’s account on Sept.
improvements thereon for P2,000 less the 22,ARCIANA
M 1904 CANON
P500; P1,500 balance
- principal of HEREDIA
-proposed to MARCIANA CANON an investment
on the land discussing it with HEREDIA and - made a joint investment on
directed him to make the Deed of Conditional Leaño’s land with
Sale.Deed of Conditional Sale was executed on Sept.
The NEPOMUCENO
24, 1904 with a right to
repurchase at the end of 1yr and obligating himself to make monthly payments
in considerations of the right to retain the land in possession in sufficient
amount to bring 17% interest per annum on Nepomuceno and Canon’s
investments (proponent’s opinion is that this could effectively be called rent).
Canon and Nepomuceno indeed paid the P1,500 price evidenced by a notarized
memorandum. The title was placed in the name of Heredia. Leaño continued to
pay for more than a year to plaintiffs. There was recovery of possession
instituted by 3rd parties prompting herein plaintiffs to seek recovery of the
whole amount of the money invested from Heredia and alleging that the
purchase of the land was not made in accordance with their instructions.
The RTC ruled in favor of Nepomuceno and Canon. On appeal, the plaintiffs
wanted modification of the RTC’s judgment on the grounds that Heredia
invested their money under his name and account and not as their agent.
The Court reverses the lower court’s decision finding that Heredia was acting
as mere agent and plaintiffs had full knowledge of the agent’s actions and
ratified it. Furthermore, nothing in the record which would indicate that the
defendant failed to exercise reasonable care and diligence in the performance
of his duty as an agent, or that he undertook to guarantee the vendors title to
the land purchased by direction of the plaintiffs.
(AGENCY – ATTY. OBIETA)
Severino vs. Severino
Facts:
Melecio Severino owned some 428 hectares of land recorded in his name.
During his lifetime, he appointed defendant Guillermo Severino, his brother, as
his administrator for the said land. This defendant continued to administer and
occupy the land even after the death of Melecio. Subsequently, Guillermo filed
for the registration of the land in his name and consequently, the court
decreed the title in his favor. At that time (when the cadastral proceedings
were instituted), petitioner Fabiola Severino, who is the alleged natural
daughter and sole heir of Melecio, was a minor. However, after the incapacity
ceased, the petitioner filed a complaint for recovery of the litigated land on the
ground of fraud and that the property has been wrongfully registered in the
name of defendant. The defendant merely denied said allegations. The trial
court decided in favor of petitioner as the acknowledged natural child of
Melecio and ordered the defendant to convey said property to petitioner.
Issue:
Whether the lower court erred in its decision
Decision:
No.
Reason:
Although defendant denied the accusation of fraud and even offered evidence
to rebut such accusation, such attempt is immaterial. It is to be noted that the
case is an action in personam against an agent to compel him to return, or
retransfer, to the heirs or the estate of its principal, the property committed to
his custody as such agent, to execute the necessary documents thereof, to pay
damages.
That the defendant came into the possession of the property here in question
as the agent of the deceased Melecio Severino in the administration of the
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 2D 2013 CLASS DIGEST
property, cannot be successfully disputed. His testimony in a previous related
case is, in fact, conclusive in this respect. He there stated under oath that from
the year 1902 up to the time the testimony was given, in the year 1913, he had
been continuously in charge and occupation of the land as the encargado or
administrator of Melecio Severino; that he had always known the land as the
property of Melecio Severino; and that the possession of the latter had been
peaceful, continuous, and exclusive. In his answer filed in the same case, the
same defendant, through his attorney, disclaimed all personal interest in the
land and averred that it was wholly the property of this brother Melecio.
The relations of an agent to his principal are fiduciary and it is an elementary
and very old rule that in regard to property forming the subject-matter of the
agency, he is estopped from acquiring or asserting a title adverse to that of the
principal. His position is analogous to that of a trustee and he cannot
consistently, with the principles of good faith, be allowed to create in himself
an interest in opposition to that of his principal or cestui que trust.
"A receiver, trustee, attorney, agent, or any other person occupying fiduciary
relations respecting property or persons, is utterly disabled from acquiring for
his own benefit the property committed to his custody for management. This
rule is entirely independent of the fact whether any fraud has intervened. No
fraud in fact need be shown, and no excuse will be heard from the trustee. It is
to avoid the necessity of any such inquiry that the rule takes so general a form.
The rule stands on the moral obligation to refrain from placing one's self in
positions which ordinarily excite conflicts between self-interest and integrity. It
seeks to remove the temptation that might arise out of such a relation to serve
one's self-interest at the expense of one's integrity and duty to another, by
making it impossible to profit by yielding to temptation. It applies universally to
all who come within its principle."
C. N. HODGES, Plaintiff-Appellant, vs. CARLOTA SALAS and PAZ SALAS,
Defendants-Appellees.
Facts:
(AGENCY – ATTY. OBIETA)
On September 2, 1923, the defendants executed a power of attorney in favor of
their brother-in-law Felix S. Yulo to enable him to obtain a loan and secure it
with a mortgage on the real property described in transfer certificate of title
No. 3335. The power of attorney was registered in the registry of deeds of the
Province of Occidental Negros.
Acting under said power of attorney, Felix S. Yulo, on March 27, 1926, obtained
a loan of P28,000 from plaintiff, binding his principals jointly and severally, to
pay it within ten (10) years, with interest at 12 per cent per annum payable
annually in advance, to which effect he signed a promissory note for said
amount and executed a deed of mortgage of the real property with its
improvements described in transfer certificate of title No. 3335, plus 10 per
cent more on the unpaid capital as attorney’s fees in the event plaintiff would
be constrained to file a case in court to recover the loan or its balance.
The sum of P28,000 was not delivered to Felix S. Yulo, but by agreement
between him and the plaintiff, it was employed as follows: P3,360 advance
interest from March 27, 1926 to March 26, 1927, P8,188.29 payment for
mortgage constituted on TCT 3335, P2,000 payment for agent’s personal
account re purchase price of real property on Ortiz street, P3,391 personal
check issued to Felix S. Yulo, P9,200 paid to Rafael Santos to cancel mortgage
of Salas, P1,800 amount delivered to agent Felix S. Yulo.
The agent, Felix S. Yulo used a part of the loan for his own benefit. On the next
maturity date,the defendants failed to pay interest stipulated which should
have been paid one year in advance.
An action was brought by the plaintiff to foreclose the real estate mortgage
constituted by the defendants to secure a loan in the Courts of First Instance.
The plaintiff lost in the CFI. Plaintiff appealed from the judgment of the CFI in
absolving the defendants from the complaint.
Issues: Whether or not the agent’s act of employing part of the loan to pay his
personal debts was ratified by the defendants?
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 2D 2013 CLASS DIGEST
Held: No, the agent was not authorized to use the funds obtained by him to
pay his personal obligation.
Ratio: The pertinent clauses of the power of attorney from which may be
determined the intention of the principals in authorizing their agent to obtain a
loan, securing it with their real property, were quoted at the beginning.
The terms thereof are limited; the agent was thereby authorized only to
borrow any amount of money which he deemed necessary. There is nothing,
however, to indicate that the defendants had likewise authorized him to
convert the money obtained by him to his personal use.
With respect to a power of attorney of special character, it cannot be
interpreted as also authorizing the agent to dispose of the money as he
pleased, particularly when it does not appear that such was the intention of
the principals, and in applying part of the funds to pay his personal obligations,
he exceeded his authority
In the case like the present one, it should be understood that the agent was
obliged to turn over the money to the principals or, at least, place it at their
disposal.
The plaintiff contends that the agent's act of employing part of the loan to pay
his personal debts was ratified by the defendants in their letter to him dated
August 21, 1927. This court has carefully read the contents of said document
and has found nothing implying ratification or approval of the agent's act.
In it the defendants confined themselves to stating that they would notify their
agent of the maturity of the obligation contracted by him. They said nothing
about whether or not their agent was authorized to use the funds obtained by
him in the payment of his personal obligations.
Judgment modified.
(AGENCY – ATTY. OBIETA)
(Defendants Salas will not pay the full amount of the loan to plaintiffs Hodges
but will only pay the sums P 19, 133.50 and P1, 781.17 )
US vs Kiene
The defendant was an insurance agent. As such agent there was paid over to
him for the account of his employers, the China Mutual Life Insurance
Company, the sum of 1,539.20 pesos, Philippine currency, which he failed and
refused to turn over to them. For his failure and refusal so to do, he was
convicted of the crime of estafa in the Court of First Instance of the city Manila
in sentenced to be imprisoned for one year and six months in Bilibid, and to pay
the costs of the trial.
Counsel for the defendant contends that the trial court erroneously admitted
in evidence a certain document purporting to be a contract of agency signed
by the defendant. The name of the accused is attached to this document, and
one of the witnesses, the district agent of the China Mutual Life Insurance
Company, stated that it was the contract of agency it purported to be, but
failed to state specifically that the signature attached thereto was the
signature of the defendant, though he declared that he knew his signature and
had seen him write it on various occasions.
An examination of the record seems to indicate that the failure of the witness
to expressly identify the signature of the defendant attached to the document
was due to an oversight, but however this may be, it is contented that the
execution of the document was not formally established, and the trial court
erred in taking into consideration one of its provisions whereby the defendant
appears to have expressly obligated himself to deliver to the China Mutual Life
Insurance Company the funds collected on its account, without deduction for
any purpose whatever.
Issue:
Whether there was a failure of the prosecution to establish the existence of a
duty or obligation imposed on the defendant to turn over his principal the
funds which he is charged with appropriating to his own use.
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 2D 2013 CLASS DIGEST
Held:
We do not deem it necessary to review the action of the court in admitting this
document in evidence, because we are of opinion that the obligation of the
defendant to deliver the funds in question to his employers is determined by
the provision of article 1720 of the Civil Code, which is as follows:
Every agent is bound to give an account of his transactions and to pay
to the principal all that he may have received by virtue of the agency,
even though what has been received is not owed to the principal.
Nothing to the contrary appearing in the record, and the existence of the
agency and the collection of the funds on account of the principal having been
established, the obligation to deliver these funds to the principal must be held
to have been imposed upon the agent by virtue of the contract of agency.
Del Rosario and Costa vs. La Badenia
Facts: "[P]laintiffs Teofila del Rosario de Costa and her husband, Bernardino
Costa, brought this action to recover from the defendant corporation the sum
of 1,795.25 [pesos] a balance alleged to be due Teofila del Rosario de Costa as
the agent of the defendant corporation for services rendered and expenses
incurred in the sale of its products. The defendant denied the claim and set up
counterclaim for 55.43 [pesos]. Judgment having been rendered in favor of the
defendant, the record is now before us on plaintiffs' bill of exceptions."
Defendant La Badenia, with head office in Manila, makes and sells tobacco
products. To introduce its products to the retail trade, defendant started a
selling campaign. One of the locations chosen for the campaign was Albay,
Sorsogon. Celestino Aragon, a general agent of the corporation, went to
(AGENCY – ATTY. OBIETA)
Legaspi, Albay to conduct the selling campaign. Aragon established a central
distributing agency or depot with the plaintiff Teofila del Rosario de Costa,
nominally in charge, though her husband appears to have been the actual
manager of the agency. Throughout the course of the business between
plaintiffs and defendant, no settlement of their accounts were ever made.
Aragon took residence (rent was paid to plaintiffs) in the house of plaintiffs
and used the lower part of the house as a store room for the tobacco products.
Eventually Aragon made a settlement of accounts with the plaintiff. "In this
statement goods received by the Legaspi agency from the factory in Manila are
charged against Teofila del Rosario Costa, while credits are given on various
items, such as, withdrawals of goods from the depository at Legaspi shipped to
other towns, remittances made to the head office in Manila, money paid over
to the general agent, advertising expenses, commissions on sales, salaries of
employees [other people hired by Aragon], and other expenses incident to the
conduct of business. x x x The defendant corporation however, refused to pay
over to the plaintiffs the balance of 1,795.25 [pesos], claiming that plaintiffs
had been improperly allowed a credit of 1,850 [pesos] which represented
unpaid accounts due the business in Legaspi for cigars and cigarettes sold by it.
If these uncollected items are charged to the defendant corporation a balance
is left in favor of plaintiffs amounting to 1,795.25 [pesos]; and if charged to
plaintiffs there remains a balance in favor of the defendant corporation
amounting to 55.43 [pesos]."
Defendant claims that plaintiffs are just merchants who purchased the goods
and were never employed as agents. Plaintiffs claim that they were the agents
of the defendant; "that they received commissions on the sales made by the
agency; and that they were authorized to extend a reasonable credit under the
supervision of the general agent."
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 2D 2013 CLASS DIGEST
Issue: Are the plaintiffs merchants or sub-agents?
Held: Plaintiffs are sub-agents for the defendant corporation. Plaintiffs won.
Ratio: "It is not denied however, that Aragon was acting as the general agent
of the defendant corporation and that as such he was invested with the
authority to inaugurate and carry out a selling campaign with a view of
interesting the sale of the defendant's products in the territory assigned to
him. The record does not show what limitations, if any, were placed upon his
powers to act for the corporation. x x x It appears further that the head office
in Manila was fully informed of plaintiffs' relations with the general agent in
extending the sales of its products. Plaintiffs made direct remittances to the
head office in Manila and these remittances were credited to the account of
the agency at Legaspi, and acknowledgment was made directly to the
plaintiffs. Neither the head office nor Aragon appear to have made any
distinction between the business done by Aragon and that done by the
plaintiffs. x x x The fact that the defendant corporation carried the Legaspi
account in the name of the general agent, Aragon, and carried no account with
the plaintiffs, would seem to negative the contention that plaintiffs were
simply merchants purchasing their good in Manila at wholesale and selling
them locally on their own account."
The pieces of evidence of note were the two letters (sent by defendant to
plaintiff) presented by plaintiffs which the Court deemed "sufficient to show
that the defendant was fully aware of plaintiffs' connection with the agency at
Legaspi, and recognized them as agents of the company, and clearly did not
consider them as independent merchants buying solely on their own account,
but rather as subagents working under the supervision of the general agent,
Aragon."
(AGENCY – ATTY. OBIETA)
The general agent did not consider plaintiffs as independent merchants, but
rather as agents cooperating with him and working under his supervision. "The
defendant carried no account whatever with the plaintiffs, and having
entrusted the entire management of the Legaspi business to Aragon, it can not
now come into court and repudiate the account confirmed by him, unless it can
show that he acted beyond the scope of his authority in making the
arrangement he did with the plaintiffs. x x x [T]he record does not disclose
what were the precise terms of the arrangement made with the plaintiffs. The
record does show however, that in many instances the plaintiffs were allowed
commissions on the sales made by them, but whether or not these were in
addition to other profits allowed them the record does not show."
Lyons v. Rosenstock
Facts:
The parties in this case are Lyons and Rosenstock, as executor of the estate of
Elser.
Lyons filed an action for recovery of 446 and 2/3 shares of the stock of J. K
Pickering & Co. Together with a certain sum of money which accrued on the
Company’s stock with lawful interest. Trial court absolved Rosenstock (Elser) in
this complaint.
Lyons and Elser had been jointly associated in various real estate deals. In April
1919, Lyons, left for US bu before leaning, Elser made a written statement
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 2D 2013 CLASS DIGEST
showing that Lyons was, at that time, half owner with Elser of three particular
pieces of real property. Concurrently with this act, Lyons executed in his favour
of a general power of attorney empowering him to manage and dispose of said
properties at will and to represent Lyons fully and amply, to the mutual
advantage of both.
While Lyons was away, Elser was able to sell two of the three properties they
jointly own thus, leaving a single piece of property known as the Carriedo
property.
Also, while Lyons was away, ELser bought a valuable piece of property known
as San Juan Estate. Elser aimed to promote and develop this San Juan Estate as
a suburban improvement. For this purpose, Elser and three associates
organized a partnership under the name, J. K Pickering & CO. Elser expected
that Lyons would join him in this deal and contribute some capital to purchase
and develop the property and to do so, Elser borrowed money from a Chinese
merchant who required that a personal note be signed by ELser and the surety
company. This surety company insisted upon having a security for the liability
assumed by it. Thus, Elser mortgaged the Carriedo property owned by them
jointly in favour of the surety company. Elser’s act of mortgaging the property
was executed under a sufficient power of attorney. However, Lyons
communicated to Elser though a letter that he declines the invitation to join
the venture.
Because of Lyons’ refusal to join the venture, Elser began to look for other
sources so he may relive the CArreido property from being mortgaged. He was
successful in doing so by substituting another property owned by him.
(AGENCY – ATTY. OBIETA)
When Elser was concluding the transaction for the purchase of the San Juan
Estate, he found out that he was indebted to Lyons for a certain sum of money
from profits and earnings derived from other properties they owned. To satisfy
his indebtedness, Elser indorsed to Lyons 200 shares of stock he owned from J.
K Pickerings & Company.
Lyons, who arrived in Manila in September 1920, he accepted these shares and
sold them for his own benefit thus also gave his consent for the mortgage of
the Carriedo property to remain until it was paid off.
Lyons contention:
When Elser placed a mortgage upon the Carriedo property, Lyons as half
owner of the said property, became, as it were, involuntarily the owner of an
undivided interest in the property acquired partly by that money; and it insisted
that he is entitled to the 445 and 2/3 shares of the earnings of J.K. Pickerind &
Company.
Issue:
Whether Elser, as an agent, is liable for the interest on funds belonging to
Lyons, as principal, which have been applied by Elser to purchase the San Juan
Estate? (Whether Article 1724 of the Old Civil Code (or 1986 of NCC)is applicable?)
Held:
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 2D 2013 CLASS DIGEST
No. Elser is not liable.
Article 1896 of CC:
The agent owes interest on the sums he has applied to his own use from the day
on which he did so, and on those which he still owes after the extinguishment of
the agency (1724a)
Article 1724 of Old CC:
An agent is liable for the interest on funds belonging to his principal which have
been applied by the agent to unauthorized uses.
If Elser had used the money actually belonging to Lyons in the deal, he would
be obligated to pay interest upon the money he applied to his own use under
Article 1724 (1896 of the New Civil Code) of the Civil Code.
No money from the mortgage of the Carreido property was ever applied to the
purchase of the San Juan Estate. What really happened was that Elser merely
subjected the property to a contingent liability, and no actual liability ever
resulted therefrom. The financing of the purchase of the San Juan Estate, apart
from the modest participation of his associates in the San Juan deal, was the
work accomplished entirely upon his own account.
Article1724 (or 1896 of NCC) is not applicable in the case because there was no
use of the principal’s funds by the agent’s personal dealings.
(AGENCY – ATTY. OBIETA)
SMITH BELL vs CA
Facts:
Joseph Bengzon Chua doing business under the name of Tic Hin Chiong
Importer, bought and imported to the Philippines from the firm Chin Gact Co.,
Ltd. of Taipei; Taiwan, 50 metric tons of Dicalcium Phosphate valued at
US$13,000. These were contained in 1,250 bags and shipped from the Taiwan to
Manila. This shipment was insured by First Insurance Co. under a Marine Policy
for US$19,500 "against all risks" at port of departure and with Smith, Bell, and
Co stamped at the lower left side of the policy as "Claim Agent."
The cargo arrived at the Port of Manila on September 1982 and thereafter the
entire cargo was discharged to the local arrastre contractor, Metroport
Services Inc. with a number of the cargo in apparent bad order condition. Chua
secured the services of a cargo surveyor to conduct a survey of the damaged
cargo which were delivered to Chua’s house.
The surveyor's report showed that of the 1,250 bags of the imported material,
600 were damaged. Upon weighing, the contents of the damaged bags were
found to be 18,546.0 kg short. Chua then filed with Smith Bell a formal
statement of claim re the value of losses amounting to $7.3k. Smith Bell
informed Chua that its principal offered only 50% of the claim as redress on the
ground of discrepancy of the items damaged between the record of Metroport
and Chua’s surveyor.
Dissatisfied, Chua wrote a letter to Smith Bell refusing the redress contending
that the discrepancy was a result of the loss from the vessel to arrastre to the
29
 2D 2013 CLASS DIGEST
warehouse—all of these loss were still within the “all risk” insurance cover. No
settlement has been made, thus Chua filed a complaint against Smith Bell.
Smith Bell contends it is not personally liable since it is merely a settling or
claim agent of First Insurance Co.
Issue: Whether a local settling agent is personally and/or solidarily liable upon
a marine insurance policy issued by its disclosed foreign principal
Held: No
Ratio:
A settling agent acting within the scope of its authority cannot be held
personally liable and/or solidarily liable for the obligations of its disclosed
principal. An adjustment and settlement agent is no different from any other
agent from the point of view of his responsibility, for he also acts in a
representative capacity. Whenever he adjusts or settles a claim, he does it in
behalf of his principal, and his action is binding not upon himself but upon his
principal.
The scope and extent of the functions of an adjustment and settlement agent
do not include personal liability. His functions are merely to settle and adjusts
claims in behalf of his principal if those claims are proven and undisputed, and if
the claim is disputed or is disapproved by the principal, the agent does not
assume any personal liability. The recourse of the insured is to press his claim
against the principal.
(AGENCY – ATTY. OBIETA)
The only involvement of Smith Bell in the subject contract of insurance was
having its name stamped at the bottom left portion of the policy as "Claim
Agent." Without anything else to back it up, such stamp cannot even be
deemed by the remotest interpretation to mean that Smith Bell participated in
the preparation of said contract. Under Article 1311 of the Civil Code, contracts
are binding only upon the parties (and their assigns and heirs) who execute
them. The subject cargo insurance was between the First Insurance Company,
Ltd. and the Chin Gact Co., Ltd. There is absolutely nothing in the contract
which mentions the personal liability of Smith Bell.
Development Bank of the Philippines vs. Court of Appeals
G.R. No. 110274
March 21, 1994
Facts
Juan Dans (Dans) and his family applied for a loan of 500,000 Pesos with the
Development Bank of the Philippines (DBP). He was already 76 years old when
they applied for the loan. DBP then advised Dans to apply for a Mortgage
Redemption Insurance (MRI) with the Mortgage Redemption Insurance Pool
(DBP MRI Pool). DBP then proceeded with deducting ten percent from the
approved loan as payment for the MRI Premium.
Dans died of cardiac arrest a few weeks later. DBP MRI Pool later notified Dans’
family that he was never eligible for insurance since he was well above the
ceiling age (60 years old) when they applied for the insurance policy. Candida
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 2D 2013 CLASS DIGEST
Dans (Juan’s wife) refused to accept the ten percent premium that DBP tried
to return as well as 30 thousand Pesos as an ex gratia settlement. The Dans
Estate, with Candida acting as administratix, wanted the sum paid in protest “The agent who acts as such is not personally liable to the party with whom he
for the loan, the extinguishment of Juan’s initial loan of 300 thousand Pesos as contracts, unless he expressly binds himself or exceeds the limits of his authority
well as damages. without giving such party sufficient notice of his powers.”

The lower court ruled in favour of the Dans Estate. Hence this petition. Under the aforequoted provision, it is strikingly obvious that DBP acted beyond
its capacity when it compelled Dans to secure an MRI coverage knowing full
well that Dans was never going to be eligible for the insurance policy. There
was no showing that Dans was aware of such limitations when he applied for
Issue the policy. What DBP led them to believe is that since they already paid for a
premium, the inevitability of approval is apparent.

Whether DBP exceeded its powers as an agent.

The DBP is not authorized to accept applications for MRI when its clients are
more than 60 years of age. Knowing all the while that Dans was ineligible for
Held MRI coverage because of his advanced age, DBP exceeded the scope of its
authority when it accepted Dan’s application and deducted the necessary fees.
This appalling act of deception is therefore a basis for damages for Dans’
aggrieved family.
Yes!

If the third person dealing with an agent is unaware of the limits of the
Ratio authority conferred by the principal on the agent and such third person is
deceived by the non-disclosure of the agent, then the latter is liable for
damages to him.’
Article 1897 of the Civil Code states

It is a settled rule that persons dealing with an assumed agent

are bound at their peril to ascertain not only the fact of agency
but also the nature and extent of the agent’s authority. If either
is controverted, the burden of proof is upon them to establish
it.
(AGENCY – ATTY. OBIETA) 31
Authority given to an officer to approve loans does not include
the power to issue guarantees to 3rd persons in principal’s
name.
 2D 2013 CLASS DIGEST
BA FINANCE CORPORATION v. COURT OF APPEALS
BA Finance Corporation, petitioner
Hon. Court of Appeals and Traders Royal Bank, respondents
FACTS
Traders Royal Bank (TRB), respondent, granted a loan worth P60,000 in favor
of Renato Gaytano (who is doing business under the name Gebbs
International). To secure the loan, the Gaytano spouses executed a deed of
suretyship where they agreed to pay the loan, including interests, penalty and
other bank charges. Philip Wong, credit administrator of petitioner BA Finance
Corporation (BA Finance), undertook to guaranty the loan.
Partial payments were made by Gaytano, but a balance of P85,807.25
remained unpaid, which prompted TRB to file with the trial court a complaint
for sum of money against the spouses and BA Finance. BA Finance raised the
(AGENCY – ATTY. OBIETA)
defense that Wong had no authority to bind the corporation. The RTC ruled
against the spouses but dismissed the case against BA Finance,.
TRB, unsatisfied with the decision, appealed. The Court of Appeals (CA)
modified the judgment, ordering both the spouses and BA Finance to jointly
and severally pay TRB the aforementioned balance. The CA ruled that
petitioner corporation was guilty of estoppel.
BA Finance filed a petition for review. It contended that the letter-
guaranty executed by Wong is ultra vires, therefore unenforceable and that it is
not guilty of estoppels since it had no knowledge or notice of the guaranty.
Wong, on his part, presented as evidence a memorandum given by BA Finance,
which allegedly authorized him to approve and grant loans and issue
guaranties. A sentence in the memorandum stated that “contingent
commitments” must be considered in granting loans. Wong averred that the
quoted phrase referred to guaranties.
ISSUES
(1) Whether Philip Wong had authority to issue guaranties
(2) Whether BA Finance is estopped from questioning the guaranty
HELD
(1) NO. The phrase “contingent commitment” cannot be interpreted as
referring to guaranties. Although Wong was clearly authorized to
approve loans, nothing in the memorandum expressly vested him the
power to issue guaranties. Authority given to an officer to approve
loans does not include power to issue guaranties to third persons in
principal’s name. A power of attorney or authority of an agent should
not be inferred from the use of vague or general words. Furthermore,
guaranty is not presumed; it must be expressed and cannot be
extended beyond its specified limits.
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(2) NO. BA Finance is not estopped from alleging lack of authority. No
evidence was presented proving that the disputed transaction of
guaranty was in fact entered into the official records or files of the
corporation. Hence, BA Finance could not have had notice or
knowledge of the guaranty, and no consequent ratification of the said
transaction could have occurred.
NATIONAL POWER CORP VS. NATIONAL MERCHANDISING CORP.
FACTS:
1. October 17, 1956: National Power Corp (NPC) and National Merchandising
Corp. (NAMERCO), as the representative of the International Commodities
Corporation of New York (New York Company – Principal) executed a contract
for the purchase of 4,000 long tons of crude sulfur worth P450, 716 for NPC’s
Fertilizer plant in Iligan City.
2. A performance bond was executed by the Domestic Insurance Company, in
favor of NPC to guarantee NAMERCO’s obligation.
3. In the sale contract, it was stipulated that NAMERCO would deliver the sulfur
at Iligan City within 60 days from notice of the establishment in its favor of a
letter of credit and failure to deliver would subject NAMERCO and Domestic
Insurance to the payment of damages.
4. LC was opened in Nov 12, 1956. Deadline for delivery was Jan. 15, 1957. NEW
YORK CO. WAS UNABLE TO DELIVER due to its inability to secure shipping
space. NPC had no sulfur so their fertilizer plant had to shutdown.
5. NPC advised NAMERCO that non-availability of a bottom/vessel was not a
fortuitous event that would excuse nonperformance and that NPC would
resort to legal remedies.
(AGENCY – ATTY. OBIETA)
6. Government Corporate counsel rescinded the contract due to New York’s
non performance, liquidated damages ordered was P360, 572.80 because time
was of the essence.
7. NPC sued New York Co., NAMERCO and Domestic Insurance for the recovery
of damages. Trial Court dismissed the case as to New York for lack of
jurisdiction because it wasn’t doing business in the Phils. But TC held that
NAMERCO acted beyond the bonds of its authority because it violated the
Principal’s instructions.
8. According to the TC, NAMERCO’S contention was that the delivery of sulfur
was conditioned on the availability of a vessel to carry the shipment.
But evidence shows the contrary. The Invitation to Bid issued by NPC provided
that non-availability of vessel is not a ground for nonperformance and non
payment of damages. NAMERCO’s Bid was even more explicit when it stated
that it would be responsible for and guarantees the availability of the vessel.
New York Co. however, in its cable to NAMERCO, stated that the sale was
SUBJECT TO THE AVAILABILITY OF THE VESSEL. NAMERCO didn’t disclose this
to NPC and went on ahead with the agreement with NPC that non-availability
of a vessel was not justification for nonpayment of damages, CONTRARY TO
NEW YOTK’S INSTRUCTIONS (not following instructions si NAMERCO)
9. Both NPC and NAMERCO appealed on questions of law and for the amount
of damages.
ISSUE:
W/N NAMERCO acted beyond its limits as New York Company’s representative
YES
RATIO:
NAMERCO’s CONTENTIONS (italics) AND SC’S RATIO:
1. NPC should have inquired into the extent of agent’s authority - NAMERCO is
liable for damages because under art. 1887 the agent who exceeds the limits of
33
 2D 2013 CLASS DIGEST
his authority without giving the party with whom he contracts sufficient notice liquidated damages, whether penalty or indemnity, shall be equitably reduced
of his powers is PERSONALLY LIABLE TO SUCH PARTIES. if iniquitous / unconscionable.

Even before the sale was signed, NAMERCO knew that the principal had SC ORDERED NAMERCO AND DOMESTIC INSURANCE TO PAY SOLIDARILY TO
problems securing shipping space, New York cabled NAMERCO instructing it THE NPC THE SUM OF 45,100.
not to sign the contract unless t wished to assume sole responsibility.
***Case 25 years in the making. 1957 - 1982
2. Every person dealing with an agent is put upon inquiry and must discover upon
his own peril the authority of an agent – this rule’s not applicable in this case
since the principal isn’t the one being sought to be held liable, rather it’s
NAMERCO / the agent. Agent is liable because New York repudiated the sale,
NAMERCO took chances and went beyond its authority therefore, acting in his
own name.
CERVANTES v. CA
3. TC erred in holding enforceable the stipulation for liquidated damages despite
its findings that the contract was executed by an agent who exceeded his
authority. Should be unenforceable – Enforceable because it is enforced against
Facts:
the agent and the surety, not against the principal. Art. 1897 says: “The agent
who acts in excess of his authority is personally liable to the party with whom
he contracted.”

Complimented by Art 1898: “if the agent contracts in the name of the principal,
exceeding the scope of authority, and the principal does not ratify the
contract, it shall be void if the party with whom the agent contracted is aware
of the limits of the powers granted by the principal”
According to New York Company’s letter they certified NAMERCO to be their
exclusive representatives in the Phils. for the sale of their products; that they
are empowered to present offers in New york’s behalf in accordance with
their cabled, written instructions. (So yun lang ang auth. Ng NAMERCO, not to
sign contracts contrary pa to their instructions...)
4. Regarding damages, SC ruled that P45,100 is the amount of liquidated
damages / 10% of the selling price of sulfur. Because NAMERCO’S liability should
be based on tort / quasi delict and not on a contract of sale; NAMERCO was in
good faith, made persistent efforts to charter a vessel, Art. 2227 provides that
On March 27, 1989, Philippine Airlines (PAL) issued to Nicholas Cervantes a
round trip plane ticket for Manila-Honolulu-Los Angeles-Honolulu-Manila,
which ticket expressly provided an expiry of date of one year from issuance,
i.e., until March 27, 1990. The issuance of the said plane ticket was in
compliance with a Compromise Agreement entered into between the
contending parties in two previous suits (Civil Case 3392 and 3451 before the
RTC in Surigao City). On March 23, 1990, 4 days before the expiry date of
subject ticket, Cervantes used it. Upon his arrival in Los Angeles on the same
day, he immediately booked his Los Angeles-Manila return ticket with the PAL
office, and it was confirmed for the April 2, 1990 flight.
Upon learning that the same PAL plane would make a stop-over in San
Francisco, and considering that he would be there on 2 April 1990, Cervantes

(AGENCY – ATTY. OBIETA) 34

 2D 2013 CLASS DIGEST
made arrangements with PAL for him to board the flight in San Francisco
instead of boarding in Los Angeles. On 2 April 1990, when Cervantes checked in
at the PAL counter in San Francisco, he was not allowed to board. The PAL
personnel concerned marked the following notation on his ticket: “TICKET NOT
ACCEPTED DUE EXPIRATION OF VALIDITY.”
Aggrieved, Cervantes filed a Complaint for Damages, for breach of contract of
carriage before the RTC of Surigao del Norte in Surigao City (Branch 32, Civil
Case 3807), but the said complaint was dismissed for lack of merit.
On 20 September 1993, Cervantes interposed an appeal to the Court of
Appeals, which came out with a Decision, on 25 July 1995, upholding the
dismissal of the case. On 22 May 1996, Cervantes came to the Suprame Court
via the Petition for Review.
The Supreme Court denied the petition, and affirmed in toto the decision of
the Court of Appeals dated 25 July 1995; without pronouncement as to costs.
Issue:
Whether the act of the PAL agents in confirming subject ticket extended the
period of validity of petitioner’s ticket.
(AGENCY – ATTY. OBIETA)
Held:
The confirmation by the PAL’s agents in Los Angeles and San Francisco of
Cervantes’ flights did not extend the validity or lifetime of the ticket, as both
had no authority to do so. Cervantes knew this from the very start when he
called up the Legal Department of appellee in the Philippines before he left for
the USA. He had first hand knowledge that the ticket in question would expire
on March 27, 1990 and that to secure an extension, he would have to file a
written request for extension at the PAL’s office in the Philippines. Despite this
knowledge, Cervantes persisted to use the ticket in question. Since the PAL
agents are not privy to the said Agreement and Cervantes knew that a written
request to the legal counsel of PAL was necessary, he cannot use what the PAL
agents did to his advantage. The said agents acted without authority when
they confirmed the flights of Cervantes. Thus, where a passenger is fully aware
of the need to send a letter to a particular office of an airline for the extension of
the period of validity of his ticket, he cannot subsequently use what was done by
airline agents, who acted without authority, in confirming his flights.
Article 1898; Acts of agent beyond scope of authority does not bind principal
Under Article 1898 of the New Civil Code, the acts of an agent beyond the
scope of his authority do not bind the principal, unless the latter ratifies the
same expressly or impliedly. Furthermore, when the third person knows that
the agent was acting beyond his power or authority, the principal cannot be
held liable for the acts of the agent. If the said third person is aware of such
limits of authority, he is to blame, and is not entitled to recover damages from
the agent, unless the latter undertook to secure the principal’s ratification.
Carson v. Rickards and Smith Bell
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 2D 2013 CLASS DIGEST
Doctrine: When money is received as a deposit by an agent, and that money is money and paid all of it out in the business of Smith, Bell & Co.; that after he
by the agent turned over to his principal, with notice that it is the money of the had received it he entered upon the books of Smith, Bell & Co. a credit in favor
depositor, the principal is bound to deliver it to the depositor, even if his agent of the plaintiff of 4,200 pesos, less 5 per cent commission for collection, of
was not authorized to receive such deposit. which commission Smith, Bell & Co. received the benefit. He also testified that
he had seen the books of Smith, Bell & Co contained an entry or entries of the
Facts: receipt by Smith, Bell & Co. of this 4,200 pesos. If this testimony is to be
believed there is no doubt as to the liability of Smith, Bell & Co. to repay to the
The defendant Rickards was the agent of the other defendant, Smith, Bell &
plaintiff the sum of 4,200 pesos, less the commission of 5 per cent.
Co. While he was such agent he received from the plaintiff Carson, as a deposit,
the sum of 2,000 pesos. When he left the employ of the defendant company
The question as to the general authority of Rickards to receive money on
the 2,000 pesos were, by his orders, delivered to another agent of Smith, Bell &
deposit for Smith, Bell & Co. has nothing to do with this cause of action, for
Co and Smith, Bell & Co. received ad used the same. This money was not
Rickards testified that he received express directions in regard to this particular
mingled with other money belonging either to Richards or to Smith, Bell & Co.,
transaction.
and at the time of its delivery by Rickards to the other agent he notified Smith,
Bell & Co. that it was not the money of Smith, Bell & Co., but was the money of
the plaintiff.
EUGINIO VS. COURT OF APPEALS
The lower court held that Smith, Bell & Co was responsible for this amount.
Petitioner EUGENIO is a dealer of the soft drinks of Private respondent (PEPSI).
Issue petitient: W/N Smith Bell & Co is bound to pay Carson she turned over to PEPSI claimed that petitioner EUGNEIO has outstanding debts in the company.
Rickards Petitioner EUGENIO in defense presented four Trade Provisional Receipts
(TPR) issued by and received by them from Route Manager ESTRADA of Malate
Held: Yes. Smith Bell & Co is liable.
Warehouse. They claim that the TPR are to be credited in their favour.
Ratio:
Trial Court: ordered petitioner to pay private respondent (PEPSI- COLA
The question as to whether Rickards was authorized by Smith, Bell & Co. to BOTTLING COMPANY OF THE PHIL.) their overdue accounts.
receive deposits of this character for third persons is a matter of no
Court of Appeals: declared said decision to be a nullity because the
consequence. The identical money which he received from the plaintiff was by
requirements of Section14, Article VIII of the 1987 Constitution (basis of
him turned over to Smith, Bell & Co., with notice that it was the money of the
decision should clearly state facts and law on which they are based) are not
plaintiff, and they now have it in their possession, and are therefore bound to
met.
pay it to her.
Trial Court: Petitioners ordered to pay the amount plus legal interest.
At the trial of this case Rickards testified that a few days after he received the
2,000 pesos from the plaintiff, he received from her an order or warrant upon Court of Appeals/ Motion for Reconsideration: Affirmed the judgement/
the Spanish treasury for the sum of 4,200 pesos; that he wrote Smith, Bell & motion denied
Co., asking if it could be collected. Rickards testified that he received the
(AGENCY – ATTY. OBIETA) 36
 2D 2013 CLASS DIGEST
Supreme Court FACTS:
A review of the facts from the Supreme Court showed that PEPSI through head
of its Legal Department, Atty. Antonio N. Rosario (ATTY. ROSARIO) sent for
Petitioner EUGENIO to review non-payment of company debts. Petitioner was
shown to have a total of P74,849.40 debt in NORA STORE and ABIGAIL
MINIMART (petitioners stores) and Loaned Empties after review. EUGENIO
submitted to ATTY. ROSARIO the four TPRs. ROSARIO Instructed Daniel
AZURIN, assistant personal manager, to conduct investigation of petitioner’s
claim. ESTRADA denied he ever issued or signed the TPRs and AZURIN
presented to the Court ESTRADA’s affidavit alleging the same however
ESTRADA was not present in any of the proceedings. There was also an issue
on the signature of ESTRADA which is not relevant to AGENCY, more on the
Rules of Evidence.
IMPORTANT! RESPONDENT COURT also alleged that the questioned TRP are
merely provisional and were... to be officially confirmed by plaintiff within 15
days by delivering the original copy thereof stamped and paid and signed by
cashier... Petitioners failed to present the original copies of the TPRs in
question showing that they were never confirmed by PEPSI nor did they
demand from PEPSI the confirmed copies thereof.
Issue 1 (not part of Agency):
W/N ESTRADA’s affidavit is valid evidence?
Answer:
No. Under the measure of hearsay evidence AZURIN’s testimony on the validity
of ESTRADA’s denial cannot be constituted as legal proof. Also affidavit cannot
seek sanctuary to the exception to the hearsay evidence rule because of the
following reasons: There was no proper investigation but only an inter-office
interview. Also there was no chance for EUGENIO to object nor was there a
chance to cross-examine ESTRADA. There is no authenticated stenographic
report of the entire testimony of ESTRADA. Absence of ESTRADA also had no
(AGENCY – ATTY. OBIETA)
justifiable cause taking into consideration that PEPSI being ESTRADA’s
employer had the means to find him.
Issue 2 (IMPORTANT):
W/N petitioners failed in confirming the TPRs in question.
Answer:
No. The TPRs presented in evidence by petitioners are disputably presumed as
evidentiary of payments made on the account of petitioners. Private
respondent failed to rebut the presumption in favour of valid payment by
petitioners. They failed to prove that ESTRADA who is its duly authorized agent
with respect to petitioners, did not receive those amounts from the latter.
In so far as the private respondent’s customers are concerned for as long as
they pay their obligations to the sales representative of the private respondent
using the latter’s official receipt, said payment extinguishes their obligations.
Else they would make the burden of supervising its employees from PEPSI to
its customers.
Payment shall be made to the person in whose favour the obligation has been
constituted or his successor in inters or any person deemed to received it.
Simply put, it was the responsibility of the collector to turn over the collection.
TOYOTA SHAW INC V. CA
-no file uploaded yet
Commissioner of Public Highways and the Auditor General V. San Diego
(Presiding Judge, CFI Rizal), Testate Estate of N.T. Hashim, et. al.
FACTS:
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The Government of the Philippines filed a case of expropriation of a parcel of
land belonging to N. T. Hashim, needed to construct a public road, now known
as EDSA. Thereafter, the Government took possession of the property upon
deposit with the City Treasurer of the sum of P23,413.64 as the provisional
value of all the lots needed to construct the road. The records of the
expropriation case were destroyed and lost during the second world war, and
neither party took any step thereafter to reconstitute the proceedings.
In 1958, however, the estate of N.T. Hashim, who at that time had died,
through its Judicial Administrator, Tomas N. Hashim, filed a money claim with
the Quezon City Engineer's Office in the sum of P522,620.00, alleging said
amount to be the fair market value of the property in question, now already
converted and used as a public highway. The respondent estate also filed with
the CFI, a complaint for the recovery of the fair market price of the said
property in the sum of P672,030.00 against the Bureau of Public Highways.
The parties thereafter worked out a compromise agreement, Hashim’s estate
having proposed the total amount of P209,076.00, equivalent to the land's
total assessed value and by then Solicitor General rendered judgment
approving the Compromise Agreement and ordering the Bureau of Public
Highways to pay respondent estate the total sum of P209,076.00 for the
expropriated lot.
On the same date of the approval of the Compromise Agreement, the sheriff
served a Notice of Garnishment issued by the Deputy Clerk of Court, on
respondent Philippine National Bank, notifying said bank that levy was thereby
made upon funds of petitioners Bureau of Public Highways and the Auditor
General on deposit, which had funds deposited with the Bank. The
garnishment was said to cover the judgment of P209,076 in favor of the estate
of Hashim. In reply to the Notice of Garnishment, Benjamin Coruña, Chief of
Documentation Staff of PNB’s Legal Department, allegedly acting in excess of
his authority and without the knowledge and consent of the Board of
Directors, replied to the notice of garnishment that in compliance therewith,
the bank was holding the amount of P209,076 from the account of petitioner
Bureau of Public Highways.
(AGENCY – ATTY. OBIETA)
In compliance to the Notice Of Garnishment, respondent Coruña allegedly
taking advantage of his position, authorized the issuance of a cashier's check
of the bank in the amount of P209,076, taken out of the funds of the Bureau of
Public Highways deposited in current account with the bank and paid the same
to the estate of Hashim, without notice to said petitioner.
Later on, the Bureau of Public Works and Auditor General, through then
Solicitor General Makasiar, wrote the PNB complaining that the bank acted
precipitately in having delivered such a substantial amount to the special
sheriff without affording them a reasonable time to contest the validity of the
garnishment, notwithstanding the bank's being charged with legal knowledge
that government funds are exempt from execution or garnishment, and
demanding that the bank credit the Bureau of Public Highways’ account in the
amount of P209,076 which the bank had allowed to be illegally garnished.
Respondent bank replied that it was not liable for the said garnishment of
government funds, alleging that it was not for the bank to decide the question
of legality of the garnishment order and that much as it wanted to wait until it
heard from the Bureau of Public Highways, it was "helpless to refuse delivery
under the teeth" of the special order of October 18, 1968, directing immediate
delivery of the garnished amount.
ISSUE:
W/N the PNB through Coruna, as the Chief Documentation of the Bank who
authorized the garnishment of the account, is held liable and has acted beyond
the scope as the agent of the Bureau of Public Highways?
HELD:
YES. The Bank (PNB) is the agent of the Bureau of Public Highways as such that
it was entrusted with the latter’s funds, which is of its nature, is public or
government funds.
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The SC thus declared untenable the two arguments raised by PNB and its Chief
Documentation Staff, Coruña as their defenses to justify their wrongful
delivery of the garnished public funds to respondent estate.
First: Their first contention that the said government funds by reason
of their being deposited by petitioner Bureau under a current account, instead
of being deposited as special trust funds, "lost their kind and character as
government funds".
SC: UNTENABLE. As the official depositary of the Philippine
Government, respondent bank and its officials should be the first ones to know
that all government funds deposited with it by any agency or instrumentality of
the government, whether by way of general or special deposit, remain
government funds, since such government agencies or instrumentalities do not
have any non-public or private funds of their own.
Second: Their second contention that said government funds lost their
character as such "the moment they were deposited with the respondent
bank", since the relation between a depositor and a depository bank is that of
creditor and debtor.
SC: UNTENABLE. Said respondents shockingly ignore the fact that said
government funds were deposited with respondent bank as the official
depositary of the Philippine Government. What was garnished was not the
bank's own funds but the credit of the Bureau of Public Works by the
garnishment of the bank of P209,076.00 delivered to respondent estate.
Petitioner bureau's credit against respondent bank thereby never lost its
character as a credit representing government funds thus deposited. The
moment the payment is made by respondent bank on such deposit, what it
pays out represents the public funds thus deposited which are not garnishable
and may be disbursed only for legitimate purposes such as legislative
appropriation.
Neither the PNB nor respondent Coruña are the duly authorized disbursing
officers and auditors of the Government to authorize and cause payment of
(AGENCY – ATTY. OBIETA)
the public funds of petitioner Bureau for the benefit or private persons, as they
wrongfully did in this case.
PNB and Coruña faulted in the wrongful garnishment and delivery of the
deposited funds of the Bureau. Hence, the matter of payment of Hashim’s
estate's judgment credit is not their concern as custodian and depositary of the
public funds deposited with them, whereby they are charged with the
obligation of assuring that the funds are not illegally or wrongfully paid out.
This ruling is consistent with Article 1903 of the Civil Code, which states:
The commission agent shall be responsible for the goods received by
him in the terms and conditions and as described in the consignment,
unless upon receiving them he should make a written statement of
the damage and deterioration suffered by the same. (n)
Green Valley Poultry and Allied Products, Inc. v. Intermediate Appellate Court
FACTS: E.R. Squib entered into an letter agreement with Green Valley which
appointed Green Valley as an non-exclusive distributor for Squib Veterinary
Products.
For goods delivered to Green Valley but unpaid, Squib filed a suit to collect.
Green Valley claimed that the contract with Squib was an agency to sell; that
they never purchased goods; that the products received were on consignment
only with the obligation to turn over proceeds less commission or to return
unsold goods and since it has sold the goods but had not been able to collect
from the purchasers the action was premature.
Squib claimed that the contract was a contract to sell so that Green Valley was
obligated to pay for the goods upon expiration of the 60 day period.
The Trial Court and the Court of Appeals ruled in favor of Squib saying the
agreement was a sales contract and ordering Green Valley to pay Squib.
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ISSUE: Whether or not the agreement was a contract of agency and if so, does
it relieve Green Valley of any liability?
HELD: The Supreme Court ruled that whether the agreement was an sales
contract or an agency to sell, Green Valley was still liable.
The Supreme Court further held that even if the contract was an agency to
sell, Green Valley would still be liable because it sold on credit without
authority from its principal.
G.R. No. L-42465 November 19, 1936
INTERNATIONAL FILMS (CHINA), LTD., plaintiff-appellant,
vs.
THE LYRIC FILM EXCHANGE, INC., defendant-appellee.
Facts:
Bernard Gabelman was the Philippine agent of the plaintiff company
International Films (China), Ltd. by virtue of a power of attorney executed in
his favor on April 5, 1933. On June 2, 1933, the International Films (China), Ltd.,
through its said agent, leased the film entitled "Monte Carlo Madness" to the
defendant company, the Lyric Film Exchange, Inc., to be shown in Cavite for
two consecutive days. One of the conditions of the contract was that the
defendant company would answer for the loss of the film in question whatever
the cause.
On June 23, 1933, following the last showing of the film in question in
the Paz Theater, Vicente Albo, then chief of the film department of the Lyric
Film Exchange, Inc., telephoned said agent of the plaintiff company informing
him that the showing of said film had already finished and asked, at the same
time, where he wished to have the film returned to him. In answer, Bernard
Gabelman informed Albo that he wished to see him personally in the latter's
office. At about 11 o'clock the next morning, Gabelman went to Vicente Albo's
office and asked whether he could deposit the film in question in the vault of
the Lyric Film Exchange, Inc. under Gabelman's own responsibility, as the
International Films (China) Ltd. did not yet have a safety vault. This request was
thereafter granted.
(AGENCY – ATTY. OBIETA)
Bernard Gabelman severed his connection with the plaintiff company,
being succeeded by Lazarus Joseph. Bernard Gabelman, upon turning over the
agency to the new agent, informed the latter of the deposit of the film "Monte
Carlo Madness" in the vault of the defendant company as well as of the verbal
contract entered into between him and the Lyric Film Exchange, Inc., whereby
the latter would act as a subagent of the plaintiff company, International Films
(China) Ltd., with authority to show this film "Monte Carlo Madness" in any
theater where said defendant company, the Lyric Film Exchange, Inc., might
wish to show it after the expiration of the contract.
On August 13 and 19, 1933, the Lyric Film Exchange, Inc., returned the
films entitled "Congress Dances" and "White Devils" to Lazarus Joseph, but not
the film "Monte Carlo Madness" because it was to be shown in Cebu on August
29 and 30, 1933. Inasmuch as the plaintiff would profit by the showing of the
film "Monte Carlo Madness", Lazarus Joseph agreed to said exhibition. It
happened, however, that the bodega of the Lyric Film Exchange, Inc., was
burned on August 19, 1933, together with the film "Monte Carlo Madness"
which was not insured.
Issue:
whether or not the defendant company, the Lyric Film Exchange, Inc.,
is responsible to the plaintiff, International Films (China) Ltd., for the
destruction by fire of the film in question, entitled "Monte Carlo Madness".
Decision:
The verbal contract between Bernard Gabelman, the former agent of
the plaintiff company, and Vicente Albo, chief of the film department of the
defendant company, was a sub-agency or a submandate. Thus, the defendant
company is not civilly liable for the destruction by fire of the film in question
because as a mere submandatary or subagent, it was not obliged to fulfill more
than the contents of the mandate and to answer for the damages caused to
the principal by his failure to do so (art. 1718, Civil Code). The fact that the film
was not insured against fire does not constitute fraud or negligence on the
part of the defendant company, the Lyric Film Exchange, Inc., because as a
subagent, it received no instruction to that effect from its principal and the
40
 2D 2013 CLASS DIGEST
insurance of the film does not form a part of the obligation imposed upon it by
law.
As to the question whether or not the defendant company having
collected the entire proceeds of the fire insurance policy of its films deposited
in its vault, should pay the part corresponding to the film in question which
was deposited therein, the evidence shows that the film "Monte Carlo
Madness" under consideration was not included in the insurance of the
defendant company's films, as this was one of the reasons why O'Malley at
first refused to receive said film for deposit and he consented thereto only
when Bernard Gabelman, the former agent of the plaintiff company, insisted
upon his request, assuming all responsibility. Furthermore, the defendant
company did not collect from the insurance company an amount greater than
that for which its films were insured, notwithstanding the fact that the film in
question was included in the vault, and it would have collected the same
amount even if said film had not been deposited in its safety vault. Inasmuch as
the defendant company, The Lyric Film Exchange, Inc., had not been enriched
by the destruction by fire of the plaintiff company's film, it is not liable to the
latter.

(AGENCY – ATTY. OBIETA) 41