AGENCY, PARTNERSHIP AND TRUST
WEEK 1
DEFINITION
Art. 1868. By the contract of agency a person binds himself to render some
service or to do something in representation or on behalf of another, with the
consent or authority of the latter.
Art. 1869. Agency may be express, or implied from the acts of the principal, from
his silence or lack of action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific form.
Art. 1870. Acceptance by the agent may also be express, or implied from his acts
which carry out the agency, or from his silence or inaction according to the
circumstances.
Art. 1871. Between persons who are present, the acceptance of the agency may
also be implied if the principal delivers his power of attorney to the agent and the
latter receives it without any objection.
Art. 1872. Between persons who are absent, the acceptance of the agency
cannot be implied from the silence of the agent, except:
(1) When the principal transmits his power of attorney to the agent, who receives
it without any objection;
(2) When the principal entrusts to him by letter or telegram a power of attorney
with respect to the business in which he is habitually engaged as an agent, and he
did not reply to the letter or telegram.
Art. 1898. If the agent contracts in the name of the principal, exceeding the
scope of his 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. In this case, however, the agent is liable if he
undertook to secure the principal's ratification.
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Art. 1901. A third person cannot set up the fact that the agent has exceeded his
powers, if the principal has ratified, or has signified his willingness to ratify the
agent's acts.
Art. 1910. The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is
not bound except when he ratifies it expressly or tacitly.
Art. 1317. No one may contract in the name of another without being authorized
by the latter, or unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or
legal representation, or who has acted beyond his powers, shall be unenforceable,
unless it is ratified, expressly or impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other contracting party.
Art. 1403 (1). The following contracts are unenforceable, unless they are
ratified:
(1) Those entered into in the name of another person by one who has
been given no authority or legal representation, or who has acted
beyond his powers;
Rallos v. Felix Go Chan, 81 SCRA 251
Facts: Concepcion and Gerundia Rallos were sisters and registered co-owners of
the parcel of land in issue. They executed a special power of attorney in favor of
their brother, Simeon Rallos, authorizing him to sell such land for and in their
behalf. After Concepcion died, Simeon Rallos sold the undivided shares of his
sisters Concepcion and Gerundia to Felix Go Chan & Sons Realty Corporation for
the sum of P10,686.90. New TCTs were issued to the latter.
Petitioner Ramon Rallos, administrator of the Intestate Estate of Concepcion filed a
complaint praying (1) that the sale of the undivided share of the deceased
Concepcion Rallos in lot 5983 be unenforceable, and said share be reconveyed to
her estate; (2) that the Certificate of 'title issued in the name of Felix Go Chan &
Sons Realty Corporation be cancelled and another title be issued in the names of
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the corporation and the "Intestate estate of Concepcion Rallos" in equal undivided
and (3) that plaintiff be indemnified by way of attorney's fees and payment of
costs of suit.
Issues: Whether or not the sale fell within the exception to the general
rule that death extinguishes the authority of the agent
Held/Ratio: Yes the sale is void. The court held that no one may contract in
the name of another without being authorized by the latter, or unless he has by
law a right to represent him (Art. 1317 of the Civil Code). Simon’s authority as
agent was extinguished upon Concolacion’s death. The sale did not fall under the
exceptions to the general rule that death ipso jure extinguishes the authority of
the agent. Art. 1930 inapplicable since SPA in favor of Simon Rallos was not
coupled with interest and Art. 1931 inapplicable because Rallos knew of principal
Concepcion’s death. For Art 1931 to apply, both requirements must be present.
Laws on agency, the terms of which are clear and unmistakable leaving no room
for an interpretation contrary to its tenor, should apply, the law provides that
death of the principal ipso jure extinguishes the authority of the agent to sell
rendering the sale to a third person in good faith unenforceable unless at the
agent had no knowledge of the principal’s death at that time (exception under Art.
1931)
Dispositive: CA Decision reversed, CFI decision affirmed. Sale was null and void.
(Court discussed relevant principles first)
Relationship of Agency (concept arising from principles under Art 1317 and 1403)-
one party, caged the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third persons.
-derivative in nature, power emanating from principal
-agent’s acts are acts of the principal
 Essential Elements:
(1) there is consent, express or implied of the parties to establish the
relationship;
(2) the object is the execution of a juridical act in relation to a third person;
(3) the agents acts as a representative and not for himself, and
(4) the agent acts within the scope of his authority.
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 Extinguishment
o Generally: among others, By the death, civil interdiction, insanity
or insolvency of the principal or of the agent
- death of the principal effects instantaneous and absolute revocation of the
authority of the agent
o Exceptions:
 (Art. 1930) if it has been constituted in the common
interest of the latter and of the agent, or in the interest
of a third person who has accepted the stipulation in his
favor.
 (Art. 1931) agent acted without knowledge of the
pricipal’s death and that the third person was in good
faith (both these reqs should be present)
Orient Air Services v. CA, 197 SCRA 645
Facts:
American Airlines, Inc. (American Air), an air carrier offering passenger and air
cargo transportation in the Philippines, and Orient Air Services and Hotel
Representatives (Orient Air), entered into a General Sales Agency Agreement
(Agreement), whereby the former authorized the latter to act as its exclusive
general sales agent within the Philippines for the sale of air passenger
transportation. In the agreement, Orient Air shall remit in United States dollars to
American the ticket stock or exchange orders, less commissions to which Orient Air
Services is entitled, not less frequently than semi-monthly. On the other hand,
American will pay Orient Air Services commission on transportation sold by Orient
Air Services or its sub-agents. Thereafter, American alleged that Orient Air had
reneged on its obligations under the Agreement by failing to promptly remit the
net proceeds of sales for the months of January to March 1981 in the amount of
US $254,400.40, American Air by itself undertook the collection of the proceeds of
tickets sold originally by Orient Air and terminated forthwith the Agreement in
accordance with paragraph 13 which authorize the termination of the thereof in
case Orient Air is unable to transfer to the United States the funds payable by
Orient Air Services to American. American Air instituted suit against Orient Air
with the Court of First Instance of Manila “for Accounting with Preliminary
Attachment or Garnishment, Mandatory Injunction and Restraining Order” averring
the aforesaid basis for the termination of the Agreement as well as therein
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defendant's previous record of failures "to promptly settle past outstanding
refunds of which there were available funds in the possession of the defendant, . .
. to the damage and prejudice of plaintiff."
Orient Air denied the material allegations of the complaint with respect to
plaintiff's entitlement to alleged unremitted amounts, contending that after
application thereof to the commissions due it under the Agreement, plaintiff in fact
still owed Orient Air a balance in unpaid overriding commissions. Further, the
defendant contended that the actions taken by American Air in the course of
terminating the Agreement as well as the termination itself were untenable. The
trial court ruled in its favor which decision was affirmed with modification by Court
of Appeals. It held the termination made by the latter as affecting the GSA
agreement illegal and improper and ordered the plaintiff to reinstate defendant as
its general sales agent for passenger transportation in the Philippines in
accordance with said GSA agreement.
Issue:
Whether the Court of Appeals erred in ordering the reinstatement of the
defendant as its general sales agent for passenger transportation in the
Philippines in accordance with said GSA Agreement
Held:
Yes. By affirming this ruling of the trial court, respondent appellate
court, in effect, compels American Air to extend its personality to Orient
Air. Such would be violative of the principles and essence of agency,
defined by law as a contract whereby "a person binds himself to render
some service or to do something in representation or on behalf of
another, WITH THE CONSENT OR AUTHORITY OF THE LATTER . In an
agent-principal relationship, the personality of the principal is extended through
the facility of the agent. In so doing, the agent, by legal fiction, becomes the
principal, authorized to perform all acts which the latter would have him do. Such
a relationship can only be effected with the consent of the principal, which must
not, in any way, be compelled by law or by any court. The Agreement itself
between the parties states that "either party may terminate the
Agreement without cause by giving the other 30 days' notice by letter, telegram or
cable." (emphasis supplied) We, therefore, set aside the portion of the ruling of
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the respondent appellate court reinstating Orient Air as general sales agent of
American Air.
Uy v.CA,314 SCRA 69
Facts: Teodoro Jardeleza, petitioner, filed a petition in the matter of the
guardianship of Dr. Ernesto Jardeleza, Sr., upon learning that one piece of real
property belonging to the latter spouses was about to be sold. The petitioner
averred therein that the present physical and mental incapacity of Dr. Ernesto
Jardeleza Sr. prevent him from competently administering his properties, in order
to prevent the loss and dissipation of the Jardeleza’s real and personal assets,
there was a need for a court-appointed guardian to administer said properties.
Gilda Jardeleza, respondent, filed a petition regarding the declaration of incapacity
of Dr. Ernesto Jardeleza Sr., assumption of sole powers of administration of
conjugal properties and authorization to sell the property. She alleged that her
husband’s medical treatment and hospitalization expenses were piling up and that
she need to sell one piece of real property and its improvements. She prayed for
authorization from the court to sell said property.
RTC of Iloilo City rendered its decision, finding that it was convinced that Dr.
Ernesto Jardeleza Sr. was truly incapacitated to participate in the administration of
the conjugal properties. However, Teodoro filed his opposition to the proceedings
being unaware and not knowing that a decision has already been rendered on the
case. He also questioned the propriety of the sale of the lot and its improvements
thereon supposedly to pay the accumulated financial obligations and
hospitalization.
Issue: Whether or not Gilda Jardeleza may assume sole powers of
administration of the conjugal property.
Ruling: The CA, which the SC affirmed, ruled that in the condition of Dr. Ernesto
Jardeleza Sr., the procedural rules on summary proceedings in relation to Article
124 of the Family Code are not applicable. Because he was unable to take care of
himself and manage the conjugal property due to illness that had rendered him
comatose. In such case, the proper remedy is a judicial guardianship proceeding
under Rule 93 of the 1964 Revised Rules of Court.
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Macke v. Camps, 7 Phil. 553
Facts: Macke and Chandler are business partners under the firm name of Macke,
Chandler & Company. They sold to Ricardo Flores, who represented himself as the
agent of Jose Camps, various goods at the Washington Café. Flores paid a P174
leaving a balance and informed them that he does not have the necessary funds
on hand and that he would have to wait for the return of Jose Camps. However,
Jose Camps failed to pay the said balance denying the authority of Flores.
A written contract was introduced as evidence. The written contract shows
that Galmes had subrented the building where the business was conducted which
Jose Camps signed as “sublessee” and Ricardo Flores signed as “managing agent”
Issue: WON Ricardo Flores is an agent of Jose Camps.
Ruling: YES. The contract introduced in evidence sufficiently establishes the fact
that the defendant was the owner of the 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 intrusted to a managing agent, leave little room for doubt that he was
there as the authorized agent of the defendant. One who clothes another with
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 honest belief that he is what he appears to be, for the following presumptions
or deductions, which the law expressly directs to be made from particular facts,
are deemed conclusive:
(1) "Whenever a party has, by his own declaration, act, or omission, intentionally
and deliberately led another to believe a particular thing true, and to act upon
such belief, he can not, in any litigation arising out of such declaration, act, or
omission, be permitted to falsify it" (subsec. 1, sec. 333, Act No. 190); 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. (15 Conn., 347;
90 N. C., 101; 15 La. Ann., 247; 43 Mich., 364; 93 N. Y., 495; 87 Ind., 187.)
That Flores, as managing agent of the Washington Cafe, had authority to buy such
reasonable quantities of supplies as might from time to time be necessary in
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carrying on the business of a hotel bar may fairly be presumed from the nature of
the business, especially in view of the fact that his principal appears to have left
him in charge during more or less prolonged periods of absence
Prudential Bank v. CA, 223 SCRA 350
FACTS: Private respondent Aurora Cruz invested P 200,000 with petitioner bank at
its Quezon Avenue Branch. The placement was for 63 days at 13.75% annual
interest. The amount of P 196, 122.88 was withdrawn on June 23, 1986 from the
savings account and applied to the investment, the difference of P 3,877.07
representing the prepaid investment.
The transaction was evidence by a Confirmation of Sale and Debit Memo
delivered to Cruz after two days. Bank employee Susan Quimbo issued the
documents.
Upon maturity of the placement on Aug 25, 1986, Cruz returned to the
bank to renew her investment. Quimbo again issued the same documents but now
asked Cruz to sign a Withdrawal Slip for P196,122.98, representing the amount to
be re-invested. Quimbo explained that this was a new requirement of the bank.
On Oct 27, 1986, Cruz returned to the Bank to withdraw P200,000 but was
informed that according to their records, she had already withdrawn the money of
Aug 25, 1986. The bank had no copy of the Confirmation Sale or Debit Memo
issued by Quimbo, Quimbo also stopped reporting to the bank.
Cruz made several demands for the return of the money but was told by
bank officials to defer court action. Subsequently, the Bank denied the request of
Cruz because she allegedly had withdrawn the money already.
Cruz filed an action for breach of contract. The bank denied liability and
instituted a third-party suit against Quimbo. Trial court and CA decided in favor of
Cruz.
Petitioner claims that the documents presented by Cruz were fake and she
did not deny signing the Withdrawal Slip. On the other hand, Cruz states that she
merely signed as part of the new procedure for re-investment but has not received
the amount.
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ISSUES:WoN the bank, as principal, should be held liable for the acts of
Quimbo, its agent.
RULING:
YES. The amount in the Withdrawal Slip relied on by petitioner is an irregular
figure which corresponded to the very same amount Cruz was re-investing after
the deduction of the pre-paid interest. If the intention of Cruz were to withdraw
her money, she would have done so in round figures.
The bank failed to impugn the authenticity of the documents presented by
Cruz. Even if authorized officials did not sign the documents, Cruz had no
obligation to verify the authority of Quimbo who handed the same to her. She had
the right to presume the authenticity of the documents.
Cruz had no reason to not accept Quimbo’s authority to act in behalf of
her employer.
The Court also took note of the fact that although the bank filed a third-
party claim against Quimbo, it did not pursue the case. The bank also did not
present Quimbo to testify.
The bases of the petitioner’s liability are Arts. 1910 and 1911 of the Civil
Code. The agent’s apparent representation yields to the principal’s true
representation and the contract is considered as entered into between the
principal and the third person.
The Court also had previously held that banks are liable to innocent 3rd
persons where the representation is made in the course of its business by an
agent acting within the general scope of his authority, notwithstanding the fact
that the latter may already be abusing his authority in order to commit fraud.
The bank’s relationship with the public is fiduciary. The bank should have
immediately repaired the injury caused to Cruz. The misdeeds of employees must
be readily acknowledged and rectified.
Litonjua, Jr. v. Eternit Corp. 490 SCRA 204
Facts: The Eternit Corporation (EC) manufactures roofing materials and pipe
products. Ninety (90%) percent of the shares of stocks of EC were owned by
Eteroutremer S.A. Corporation (ESAC), a corporation registered under the laws of
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Belgium. Glanville was the General Manager and President of EC, while Delsaux
was the Regional Director for Asia of ESAC. In 1986, because of the political
situation in the Philippines the management of ESAC wanted to stop its operations
and to dispose the land in Mandaluyong City. They engaged the services of
realtor/broker Lauro G. Marquez.
Marquez thereafter offered the land to Eduardo B. Litonjua, Jr. for
P27,000,000.00. Litonjua counter offered P20,000,000.00 cash. Marquez apprised
Glanville & Delsaux of the offer. Delsaux sent a telex stating that, based on the
"Belgian/Swiss decision," the final offer was "US$1,000,000.00 and P2,500,000.00.
The Litonjua brothers deposited US$1,000,000.00 with the Security Bank & Trust
Company, and drafted an Escrow Agreement to expedite the sale.
Meanwhile, with the assumption of Corazon C. Aquino as President, the
political situation improved. Marquez received a letter from Delsaux that the ESAC
Regional Office decided not to proceed with the sale. When informed of this, the
Litonjuas, filed a complaint for specific performance and payment for damages on
account of the aborted sale. Both the trial court and appellate court rendered
judgment in favor of defendants and dismissed the complaint.
The lower court declared that since the authority of the agents/realtors
was not in writing, the sale is void and not merely unenforceable.
Issue: WON the appellate court committed grave error of law in holding
that Marquez needed a written authority from respondent ETERNIT
before the sale can be perfected.
Held: Respondents maintain that Glanville, Delsaux and Marquez had no authority
from the stockholders of EC and its Board of Directors to offer the properties for
sale to the petitioners.
Petitioners assert that there was no need for a written authority from the
Board of Directors of EC for Marquez to validly act as broker. As broker, Marquez
was not an ordinary agent because his only job as a broker was to look for a buyer
and to bring together the parties to the transaction. He was not authorized to sell
the properties; hence, petitioners argue, Article 1874 of the New Civil Code does
not apply.
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A corporation is a juridical person separate and distinct from its
stockholders and is not affected by the personal rights, obligations and
transactions of the latter. It may act only through its board of directors or, when
authorized by its board resolution, through its officers or agents. The general
principles of agency govern the relation between the corporation and its officers or
agents, subject to the articles of incorporation, by-laws, or relevant provisions of
law.
Agency may be oral unless the law requires a specific form. However, to
create or convey real rights over immovable property, a special power of attorney
is necessary. Thus, when a sale of a piece of land or any portion thereof is through
an agent, the authority of the latter shall be in writing, otherwise, the sale shall be
void.
In this case, the petitioners failed to adduce in evidence any resolution of the
Board of Directors of EC empowering Marquez, Glanville or Delsaux as its agents,
to sell, let alone offer for sale, for and in its behalf, the eight parcels of land
owned by it.
Moreover, the evidence of petitioners shows that Adams and Glanville
acted on the authority of Delsaux, who, in turn, acted on the authority of ESAC,
through its Committee for Asia, and the Belgian/Swiss component of the
management of ESAC. The offer of Delsaux emanated only from the
"Belgian/Swiss decision," and not the entire management or Board of Directors of
ESAC. While it is true that petitioners accepted the counter-offer of ESAC, EC was
not a party to the transaction between them; hence, EC was not bound by such
acceptance. Decision of the lower court is affirmed.
WEEK 2
Art. 1869. Agency may be express, or implied from the acts of the principal, from
his silence or lack of action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific form.
Art. 1874. When a sale of a piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing; otherwise, the sale shall be
void.
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Angeles v. Phil. National Railways, 500 SCRA 444 (2006)
Facts: Respondent Philippine National Railways (PNR) informed a certain
GaudencioRomualdez (Romualdez, hereinafter) that it has accepted the latter’s
offer to buythe PNR’s scrap/unserviceable rails located in Del Carmen and Lubao,
Pampanga at P1,300.00 and P2,100.00 per metric ton, respectively, for the total
amount of P96,600.00. Romualdez paid the purchase price and addressed a letter
to Atty. CiprianoDizon, PNR’s Acting Purchasing Agent. The letter authorized
LIZETTE R. WIJANCOto be his (Romualdez) lawful representative in the
withdrawal of the scrap/unserviceable rails awarded to him. Furthermore, the
original copy of the award which indicates the waiver of rights, interest and
participation in favor of Lizetter R. Wijanco was also given.
The Lizette R. Wijanco was petitioner's now deceased wife. That very
same day, Lizette requested the PNR to transfer the location of withdrawal for the
reason that the scrap/unserviceable rails located in Del Carmen and Lubao,
Pampanga were not ready for hauling.The PNR granted said request and allowed
Lizette to withdraw scrap/unserviceable rails in Murcia, Capas and San Miguel,
Tarlac instead. However, PNR subsequently suspended the withdrawal in view of
what it considered as documentary discrepancies coupled by reported pilferages of
over P500,000.00 worth of PNR scrap properties in Tarlac.Consequently, the
spouses Angeles demanded the refund of the amount of P96,000.00. The PNR,
however, refused to pay, alleging that as per delivery receipt duly signed by
Lizette, 54.658 metric tons of unserviceable rails had already been withdrawn. The
spouses Angeles filed suit against the PNR for specific performance and damages
before the Regional Trial Court. Lizette W. Angeles passed away and was
substituted by her heirs, among whom is her husband, herein petitioner Laureno
T. Angeles.
The trial court, on the postulate that the spouses Angeles are not the real
parties-in-interest, rendered judgment dismissing their complaint for lack of cause
of action. As held by the court, Lizette was merely a representative of Romualdez
in the withdrawal of scrap or unserviceable rails awarded to him and not an
assignee to the latter's rights with respect to the award. Petitioner appealed with
the Court of Appeals which dismissed the appeal and affirmed that of the trial
court.
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Issue: WON the CA erred in affirming the trial court's holding that
petitioner and his spouse, as plaintiffs a quo, had no cause of action as
they were not the real parties-in-interest in this case.
Held: No.The CA’s conclusion, affirmatory of that of the trial court, is that Lizette
was not an assignee, but merely an agent whose authority was limited to the
withdrawal of the scrap rails, hence, without personality to sue.Where agency
exists, the third party's (in this case, PNR's) liability on a contract is to the
principal and not to the agent and the relationship of the third party to the
principal is the same as that in a contract in which there is no agent. Normally, the
agent has neither rights nor liabilities as against the third party. He cannot thus
sue or be sued on the contract. Since a contract may be violated only by the
parties thereto as against each other, the real party-in-interest, either as plaintiff
or defendant in an action upon that contract must, generally, be a contracting
party.
The legal situation is, however, different where an agent is constituted as an
assignee. In such a case, the agent may, in his own behalf, sue on a contract
made for his principal, as an assignee of such contract. The rulerequiring every
action to be prosecuted in the name of the real party-in-interest recognizes the
assignment of rights of action and also recognizesthat when one has a right
assigned to him, he is then the real party-in-interest and may maintain an action
upon such claim or right.
WHEREFORE, the petition is DENIED and the assailed decision of the CA is
AFFIRMED.Costs against the petitioner.
Jimenez v. Rabot, 38 Phil. 378
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.
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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.
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 principal 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 ofthe 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.
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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.
City-Lite v. CA, 325 SCRA 385
SHORT VERSION:
Only when the agent has written authority to sell realty can the sale be valid.
FACTS:
• FP Holdings and Realty Corp (respondent) was the registered owner of a
71754 sq m-parcel of land along E Rodriguez Ave, QC known as the “Violago
Property” or the “San Lorenzo Ruiz Commercial Center”.
o It was offered for sale to the general public through a sales brochure:
A parcel of land including buildings and other improvements thereon located
along E. Rodriguez Avenue, Quezon City, with a total lot area of 71,754 square
meters - 9,192 square meters in front, 23,332 square meters in the middle, and
39,230 square meters at the back. But the total area for sale excludes 5,000
square meters covering the existing chapel and adjoining areas which will be
donated to the Archdiocese of Manila thus reducing the total saleable area to
66,754 square meters. Asking price was P6,250.00/square meter with terms of
payment negotiable. Broker's commission was 2.0% of selling price, net of
withholding taxes and other charges. As advertised, contact person was Meldin Al
G. Roy, Metro Drug Inc., with address at 5/F Metro House, 345 Sen. Gil Puyat
Avenue, Makati City.
o The 9192 sq m- front portion was the subject of litigation.
• Meldin Roy (respondent) sent a sales brochure, location plane and copy of
the TCT to Atty Gelacio Mamaril, a lawyer and licensed real estate broker. Mamaril
passed on the documents to City-Lite’s Executive VP Antonio Teng and Legal
Counsel Atty Victor Villanueva.
o City-Lite conveyed its interest to purchase ½ of the front portion in a
letter send to Metro Drug (Attn: Meldin Roy). Roy also informed City-Lite’s
representative that it would take time to subdivide the lot and FP Holdings wasn’t
receptive to a ½ purchase.
o Atty Mamaril sent a letter to Metro Drug expressing City-Lite’s desire to
buy the entire front lot so long as the P6250/sq m asking price was reduced and
3-EXECUTIVE | Ab Initio Group
that payment be made in installments. Roy made a counter offer in another letter:
“1. The price shall beP6,250.00/square meter or a total of P57,450,000.00; 2. The
above purchase price shall be paid to the owner as follows: (a) P15.0 Million
downpayment; (b) balance payable within six (6) months from date of
downpayment without interest. “
• City-Lite and Mamaril met with Roy to consummate the transaction; Roy
agreed to sell the property provided City-Lite submit its acceptance in writing to
the terms and conditions in Roy’s letter. Later that afternoon Mamaril and Teng
conveyed their formal acceptance of the terms.
• However, FP Holdings refused to execute the corresponding deed of sale
and registered an adverse claim to the title of the property with the Register of
Deeds of QC, annotated in the memorandum of encumbrance in the TCT.
• FP Holdings filed a petition for the cancellation of the adverse claim
against City-Lite with the RTC QC; City-Lite caused the annotation of the first
notice of lis pendens which was recorded in the title of the property.
o RTC dismissed FP Holdings’ petition; FP Holdings caused a resurvey and
segregation of the property, asking and was granted separate titles from the RD
QC.
• City-Lite instituted a complaint against FP Holdings for specific
performance and damages and caused the annotation of the second notice of lis
pendens.
o The property was transferred to Viewmaster Construction Co (respondent)
for which a TCT was issued; the lis pendens was carried over to the new title.
o The RTC rendered a decision in favor of City-Lite ordering FP Holdings to
execute a deed of sale of the property and ordering the RD QC to cancel
Viewmaster’s TCT.
o The CA reversed an set aside the RTC judgment.
ISSUE:
WON the contract of sale perfected between City-Lite and FP Holdings
through its agent Meldin Roy of Metro Drug is valid.
REASONING:
• Art. 1874 of the Civil Code provided: "When the sale of a piece of land or
any interest therein is through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void."
o Roy was FP Holdings’ authorized agent to sell the property, but the NCC
required that the authority be in writing.
8
 AGENCY, PARTNERSHIP AND TRUST
• The absence of authority to sell could be determined from the written
memo issued by FP Holdings’ president requesting Metro Drug’s assistance in
finding buyers. The memo stated:
We will appreciate Metro Drug's assistance in referring to us buyers for the
property. Please proceed to hold preliminary negotiations with interested buyers
and endorse formal offers to us for our final evaluation and appraisal.
o This meant that Roy and/or Metro Drug were only to assist FP Holdings,
and FP Holdings were the only ones who could make the final evaluation, appraisal
and acceptance of any transaction.
o Roy and/or Metro Drug were only a contact person with no authority to
conclude a sale of the property. Consequently, the sale should be null and void,
and not produce any legal effect to transfer the property from FP Holdings to any
interested party.
RULING: appealed decision affirmed
Cosmic Lumber v. CA, 265 SCRA 168
FACTS:
Cosmic Lumber Corporation through its General Manager executed on 28 January
1985 a Special Power of Attorney appointing Paz G. Villamil-Estrada as attorney-in-
fact among others to initiate, institute and file any court action for the ejectment
of third persons and/or squatters of the entire lot 9127 and 443 and covered by
TCT Nos. 37648 and 37649, for the said squatters to remove their houses and
vacate the premises in order that the corporation may take material possession of
the entire lot, and for this purpose, to appear at the pre-trial conference and enter
into any stipulation of facts and or compromise agreement so far as it shall protect
the rights and interest of the corporation in the aforementioned lots.
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of attorney,
instituted an action for the ejectment of private respondent Isidro Perez and
recover the possession of a portion of Lot No. 443.
On November 25, 1985 Villamil-Estrada entered into a Compromise Agreement
with respondent Perez and on November 27, 1985 the "Compromise Agreement"
was approved by the trial court and judgment was rendered in accordance the
terms. Although the decision became final and executory, it was not executed
within the 5-year period from date of its finality allegedly due to the failure of
3-EXECUTIVE | Ab Initio Group
petitioner to produce the owner's duplicate copy of Title No. 37649 needed to
segregate from Lot No. 443 which is the portion sold by the attorney-in-fact, Paz
G. Villamil-Estrada, to private respondent under the compromise agreement. Thus,
on January 25, 1993 respondent filed a complaint to revive the judgment,
docketed as Civil Case No. D-10459
Petitioner asserts that it was only when the summons in Civil Case No. D-10459 for
the revival of judgment was served upon it that it came to know of the
compromise agreement entered into between Paz G. Villamil-Estrada and
respondent Isidro Perez upon which the trial court based its decision of 26 July
1993 in Civil Case No. D-7750. Forthwith, upon learning of the fraudulent
transaction, petitioner sought annulment of the decision of the trial court before
respondent Court of Appeals on the ground that the compromise agreement was
void.
ISSUE:
Whether Villamil-Estrada exceeded her authority as specified in the SPA.
HELD:
Yes. The authority granted Villamil-Estrada under the special power of
attorney was explicit and exclusionary. The alienation by sale of an
immovable certainly cannot be deemed protective of the right of
petitioner more so when the land was being sold for a price of P80.00
per square meter, much less than its assessed value of P250.00 per
square meter, which was not even received by the corporation.
When the sale of a piece of land or any interest thereon is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void. Thus
the authority of an agent to execute a contract for the sale of real estate must be
conferred in writing and must give him specific authority. A special power of
attorney is necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable
consideration. The express mandate required by law to enable an appointee of an
agency (couched) in general terms to sell must be one that expressly mentions a
sale or that includes a sale as a necessary ingredient of the act mentioned. For the
principal to confer the right upon an agent to sell real estate, a power of attorney
must so express the powers of the agent in clear and unmistakable language.
When there is any reasonable doubt that the language so used conveys such
power, no such construction shall be given the document. It is therefore clear that
9
 AGENCY, PARTNERSHIP AND TRUST
by selling to respondent Perez a portion of petitioner's land through a compromise
agreement, Villamil-Estrada acted without or in obvious authority. The sale ipso
jure is consequently void. So is the compromise agreement. This being the case,
the judgment based thereon is necessarily void. Antipodal to the opinion
expressed by respondent court in resolving petitioner's motion for reconsideration,
the nullity of the settlement between Villamil-Estrada and Perez impaired the
jurisdiction of the trial court to render its decision based on the compromise
agreement. In Alviar v. Court of First Instance of La Union, the Court held --“As
the judgment in question is null and void ab initio, it is evident that the court
acquired no jurisdiction to render it, much less to order the execution thereof . . .”
Verily, when an agent is engaged in the perpetration of a fraud upon his principal
for his own exclusive benefit, he is not really acting for the principal but is really
acting for himself, entirely outside the scope of his agency. Indeed, the basic
tenets of agency rest on the highest considerations of justice, equity and fair play,
and an agent will not be permitted to pervert his authority to his own personal
advantage, and his act in secret hostility to the interests of his principal transcends
the power afforded him. WHEREFORE, the petition is GRANTED.
San Juan Structural Steel v. CA, 296 SCRA 631
FACTS:
February 14 1989: San Juan Structural and Steel Fabricators, Inc.'s (San Juan)
entered into an agreement with Motorich Sales Corporation (Motorich) for the
transfer to it of a parcel of land containing an area of 414 square meters.
San Juan paid the down payment of P100,000, the balance to be paid on or before
March 2, 1989.
March 1, 1989: Mr. Andres T. Co, president of San Juan, wrote a letter course
through Motorich's broker requesting for a computation of the balance to be paid.
March 2, 1989: San Juan was ready with the amount corresponding to the
balance, covered by Metrobank Cashier's Check, payable to Motorich. They were
supposed to meet in the office of San Juan but Motorich's treasurer, Nenita Lee
Gruenberg, did not appear.
Motorich refused to execute the Transfer of Rights/Deed of Assignment which is
necessary to transfer the certificate of title.
3-EXECUTIVE | Ab Initio Group
ACL Development Corp. (ACL) is impleaded as a necessary party since Transfer
Certificate of Title No. (362909) 2876 is still in its name.
JNM Realty & Development Corp. (JNM) is impleaded as a necessary party in view
of the fact that it is the transferor of right in favor of Motorich.
April 6, 1989: ACL and Motorich entered into a Deed of Absolute Sale. The
Registry of Deeds of Quezon City issued a new title in the name of Motorich Sales
Corporation, represented by Nenita Lee Gruenberg and Reynaldo L. Gruenberg,
under Transfer Certificate of Title No. 3571. As a result of Nenita Lee Gruenberg
and Motorich's bad faith in refusing to execute a formal Transfer of Rights/Deed of
Assignment, San Juan suffered moral and nominal damages of P500,000 and
exemplary damages of P100,000.00 and P100,000 attorneys fees.
San Juan lost the opportunity to construct a residential building in the sum of
P100,000.00.
CA affirmed RTC for dismissing.
San Juan argues that the veil of corporate fiction of Motorich should be pierced
because it is a close corporation.
Since "Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or
almost all or 99.866% to be accurate, of the subscribed capital stock" of Motorich,
San Juan argues that Gruenberg needed no authorization from the board to enter
into the subject contract.
Being solely owned by the Spouses Gruenberg, the company can treated as a
close corporation which can be bound by the acts of its principal stockholder who
needs no specific authority.
ISSUE:
Whether the Motorich is a close corp. which does not need to be bound
by its principal SH
HELD:
NO. Petition is hereby DENIED. Gruenberg, treasurer of Motorich, and
Andres Co signed the contract but that cannot bind Motorich, because it
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 AGENCY, PARTNERSHIP AND TRUST
never authorized or ratified such sale or even the receipt of the earnest
money.
A corporation is a juridical person separate and distinct from its stockholders or
members.
San Juan failed to prove otherwise.
The document is a hand-written one, not a corporate receipt, and it bears only
Nenita Gruenberg's signature.
GR: acts of corporate officers within the scope of their authority are binding on the
corporation. But when these officers exceed their authority, their actions "cannot
bind the corporation, unless it has ratified such acts or is estopped from
disclaiming them.
Statutorily granted privilege of a corporate veil may be used only for legitimate
purposes
Utilized as a shield to commit fraud, illegality or inequity; defeat public
convenience; confuse legitimate issues; or serve as a mere alter ego or business
conduit of a person or an instrumentality, agency or adjunct of another
corporation - none here.
Sec. 96. Definition and Applicability of Title. — A close corporation, within the
meaning of this Code, is one whose articles of incorporation provide that: (1) All of
the corporation's issued stock of all classes, exclusive of treasury shares, shall be
held of record by not more than a specified number of persons, not exceeding
twenty (20); (2) All of the issued stock of all classes shall be subject to one or
more specified restrictions on transfer permitted by this Title; and (3) The
corporation shall not list in any stock exchange or make any public offering of any
of its stock of any class. Notwithstanding the foregoing, a corporation shall be
deemed not a close corporation when at least two-thirds (2/3) of its voting stock
or voting rights is owned or controlled by another corporation which is not a close
corporation within the meaning of this Code. . . . .
The articles of incorporation of Motorich Sales Corporation does not contain any
provision stated in Sec. 96.
Mere ownership by a single stockholder or by another corporation of all or capital
stock of a corporation is not of itself sufficient ground for disregarding the
separate corporate personalities.
A narrow distribution of ownership does not, by itself, make a close corporation.
3-EXECUTIVE | Ab Initio Group
Even if veil is peice it will then be a sale of conjugal property which Nenita alone
could not have effected.
Gruenberg did not represent herself as authorized by Respondent Motorich despite
the receipt issued by the former specifically indicating that she was signing on
behalf of Motorich.
The amount paid as "earnest money" was not proven to have redounded to the
benefit of Motorich.
It was deposited with the account of Aren Commercial c/o Motorich.
Andres Co being a President of San Juan for more than 10 years cannot feign
ignorance of the scope of the authority of a corporate treasurer.
However, Nenita Gruenberg should be ordered to return to petitioner the amount
she received as earnest money, as "no one shall enrich himself at the expense of
another.
Delos Reyes v. CA, 313 SCRA 632
FACTS:
Daluyong Gabriel together with his family was then residing in Mandaluyong,
Metro Manila, his sister Maria Rita Gabriel de Rey acted as administratrix of the
said parcel of land and took charge of collecting the rentals for those portions
which have been leased to certain tenants/lessees. One of these lessees is LYDIA
DE LOS REYES who by virtue of a Contract of Lease executed on June 21, 1985 by
and between Maria Rita G. de Rey as lessor and Lydia de los Reyes as lessee,
leased a portion of One Hundred Seventy Six (176) square meters for a term of
one year beginning June 15, 1985 renewable upon agreement of the parties at the
rental rate of Two Hundred (P200.00) pesos, per month.
Sometime in 1985 Daluyong Gabriel sent his son Renato Gabriel to Tagum
reportedly with instructions to take over from Maria Rita G. de Rey as
administrator of the said parcel of land. Upon agreement of the parties, the June
21, 1985 Contract of Lease covering the one hundred seventy-six square meter
portion of land was novated and replaced by a Contract of Lease executed on
September 26, 1985 by and between RENATO GABRIEL as Lessor and Lydia de los
Reyes as Lessee.
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 AGENCY, PARTNERSHIP AND TRUST
Sometime in November 1987, during the effectivity of the lease contract, Lydia de
los Reyes verbally agreed to buy two hundred fifty (250) square meters (including
the 176 square meters leased by her), and thereafter an additional fifty (50)
square meters or a total of three hundred (300) square meters of Daluyong
Gabriel's registered property, at three hundred pesos (P300.00) per square meter
or for a total amount of P90,000.00. Receipt of the payment of the purchase price
made in several installments by Lydia de los Reyes was acknowledged by Renato
Gabriel as evidenced by official receipts issued and signed by him.
No deed of sale was executed covering the transaction. Purchaser Lydia de los
Reyes however proceeded with the construction of a two-storey commercial
building on the said 300 square meter lot after obtaining a building permit from
the Engineer's Office in Tagum.
Daluyong Gabriel, through his lawyer, sent a letter on August 30, 1989 to the De
los Reyes couple demanding that they cease and desist from continuing with their
construction and to immediately vacate the premises, asserting that the
construction was unauthorized and that their occupancy of the subject portion was
not covered by any lease agreement.
On September 20, 1989, spouses Claudio and Lydia de los Reyes through counsel
sent their letter reply explaining that the De los Reyeses are the innocent party
who entered into the lease agreement and subsequent sale of subject portion of
land in good faith and upon the assurance made by the former administratrix,
Maria Rita G. Rey, her nephew Tony Rey, Mrs. Fe S. Gabriel and Mr. Daluyong
Gabriel himself that Renato Gabriel is the new administrator authorized to enter
into such agreements involving the subject property.
Dissatisfied with the explanation, Daluyong Gabriel commenced an action on
November 14, 1989 against spouses Claudio and Lydia de los Reyes for the
recovery of the subject portion of land before the Regional Trial Court.
ISSUE:
Whether or not the sale between the Spouses Delos Reyes and Reynato
Gabriel in the name of his deceased father is valid.
Held:
No. the contract of sale cannot be upheld, mainly because Renato
Gabriel, as vendor, did not have the legal capacity to enter and to give
consent to the agreement, he, being neither the authorized agent (of
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Daluyong Gabriel) nor the owner of the property subject of the sale. It
was pointed out that three theories were advanced by appellees to prove that the
transaction they had with Renato concerning the sale of the portion in question
was regular, valid and enforceable. First theory is that Renato acted as the duly
authorized representative or agent of Daluyong. Second, that the portion in
dispute was already given to Renato as his share, hence, he validly sold the same
to appellees. And third, that the portion being litigated was part of Renato's
inheritance from the estate of her deceased mother which he validly disposed of to
appellees. These reasons, according to the appellate court, cannot go together, or
even complement each other, to establish the regularity, validity or enforceability
of the sale made by Renato. It could not be possible for Renato to have acted in
three different capacities — as agent, owner, and heir — when he dealt with
appellees, as the legal consequences for each situation would be different.
Thus, it was incumbent upon appellees to explain what actually convinced them to
buy the land from Renato, and because they failed to do so, no proper basis can
be found to uphold the alleged sale made by Renato as it cannot be determined
with certainty in what capacity Renato acted. And even assuming that he (Renato)
already succeeded to whatever hereditary right or participation he may have over
the estate of his father, he is still considered a co-owner with his two sisters of the
subject property and that prior to its partition, Renato cannot validly sell or
alienate a specific or determinate part of the property owned in common.
Renato Gabriel was neither the owner of the subject property nor a duly
designated agent of the registered owner (Daluyong Gabriel) authorized to sell
subject property in his behalf, and there was also no sufficient evidence adduced
to show that Daluyong Gabriel subsequently ratified Renato's act. In this
connection it must be pointed out that pursuant to Article 1874 of the Civil Code,
when the sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise the sale shall be void. In
other words, for want of capacity (to give consent) on the part of Renato
Gabriel, the oral contract of sale lacks one of the essential requisites for
its validity prescribed under Article 1318, supra and is therefore null and
void ab initio.
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 AGENCY, PARTNERSHIP AND TRUST
AF Realty v. Dieselman Freight, 373 SCRA 385
FACTS:
On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of
Dieselman, issued a letter denominated as "Authority To Sell Real Estate" to
Cristeta N. Polintan, a real estate broker of the CNP Real Estate Brokerage. Cruz,
Jr. authorized Polintan "to look for a buyer/buyers and negotiate the sale" of the
lot at P3,000.00 per square meter, or a total of P6,282,000.00. Cruz, Jr. has no
written authority from Dieselman to sell the lot.
In turn, Cristeta Polintan, through a letter dated May 19, 1988, authorized
Felicisima ("Mimi") Noble4 to sell the same lot.
Felicisima Noble then offered for sale the property to AF Realty & Development,
Inc. (AF Realty) at P2,500.00 per square meter. Zenaida Ranullo, board member
and vice-president of AF Realty, accepted the offer and issued a check in the
amount of P300,000.00 payable to the order of Dieselman. Polintan received the
check and signed an "Acknowledgement Receipt" indicating that the amount of
P300,000.00 represents the partial payment of the property but refundable within
two weeks should AF Realty disapprove Ranullo's action on the matter.
On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo
asked Polintan for the board resolution of Dieselman authorizing the sale of the
property. However, Polintan could only give Ranullo the original copy of TCT No.
39849, the tax declaration and tax receipt for the lot, and a photocopy of the
Articles of Incorporation of Dieselman.
On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged
receipt of the said P300,000.00 as "earnest money" but required AF Realty to
finalize the sale at P4,000.00 per square meter.
However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded
from AF Realty the return of the title of the lot earlier delivered by Polintan.
Claiming that there was a perfected contract of sale between them, AF Realty filed
with the Regional Trial Court, Branch 160, Pasig City a complaint for specific
performance (Civil Case No. 56278) against Dieselman and Cruz, Jr.
In its answer, Dieselman alleged that there was no meeting of the minds between
the parties in the sale of the property and that it did not authorize any person to
enter into such transaction on its behalf.
On July 30, 1988, Dieselman and Midas Development Corporation (Midas)
executed a Deed of Absolute Sale of the same property.
Midas filed on April 3, 1989 a Motion for Leave to Intervene in Civil Case No.
56278. Midas alleged that it has purchased the property and took possession
3-EXECUTIVE | Ab Initio Group
thereof, hence Dieselman cannot be compelled to sell and convey it to AF Realty.
The trial court granted Midas' motion.
ISSUE:
Whether there was a perfected contract of sale involving the Dieselman
real property in favor of AF Realty.
HELD:
No. Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the board of
directors. Just as a natural person may authorize another to do certain
acts in his behalf, so may the board of directors of a corporation validly
delegate some of its functions to individual officers or agents appointed
by it. Thus, contracts or acts of a corporation must be made either by the
board of directors or by a corporate agent duly authorized by the board.
Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the
corporation, but not in the course of, or connected with, the
performance of authorized duties of such director, are held not binding
on the corporation.
In the instant case, it is undisputed that respondent Cruz, Jr. has no
written authority from the board of directors of respondent Dieselman to
sell or to negotiate the sale of the lot, much less to appoint other
persons for the same purpose. Respondent Cruz, Jr.'s lack of such authority
precludes him from conferring any authority to Polintan involving the subject
realty. Necessarily, neither could Polintan authorize Felicisima Noble. Clearly, the
collective acts of respondent Cruz, Jr., Polintan and Noble cannot bind Dieselman
in the purported contract of sale.
Upon the other hand, the validity of the sale of the subject lot to
respondent Midas is unquestionable. As aptly noted by the Court of
Appeals,24 the sale was authorized by a board resolution of respondent
Dieselman dated May 27, 1988.
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 AGENCY, PARTNERSHIP AND TRUST
WEEK 3 o He paid Montelibano because the latter was the one who sold,
delivered, and installed the electrical plant, and he presented to
EXISTENCE AND SCOPE OF AGENCY him the account, and assured him that he was duly authorized to
collect the value of the electrical plant
Keeler Electric Co. v. Rodriguez, 44 Phil. 19 o The receipt had the following contents:

Legal Doctrine: Persons dealing with an assumed agent, whether the assumed STATEMENT Folio No. 2494
agency be a general or special one, are bound at their peril, if they would hold the Mr. DOMINGO RODRIGUEZ,
principal, to ascertain not only the fact of the agency but the nature and extent of Iloilo, Iloilo, P.I.
the authority, and in case either is controverted, the burden of proof is upon them In account with
to establish it. HARRY E. KEELER ELECTRIC COMPANY, INC.
221 Calle Echaque, Quiapo, Manila, P.I.
Facts: MANILA, P.I., August 18, 1920.
 Plaintiff is Harry E. Keeler Electric Co., a domestic corporation based The answer alleges and the receipt shows upon its face that the plaintiff
in Manila engaged in the electrical business, and among other things sold the plant to the defendant, and that he bought it from the plaintiff. The
in the sale of what is known as the "Matthews" electric plant. receipt is signed as follows:
 Defendant is Domingo Rodriguez a resident of Talisay, Occidental Received payment
Negros HARRY E. KEELER ELECTRIC CO. Inc.,
 Montelibano, a resident of Iloilo, went to Keeler Electric and made Recibi
arrangement with the latter wherein: (Sgd.) A. C. MONTELIBANO.
o He claimed that he could find purchaser for the "Matthews"
plant  Witness (Juan Cenar):
o Keeler Electric told Montelibano that for any plant that he o Cenar was sent by Keeler Electric to install the plant in Rodriguez’s
could sell or any customer that he could find he would be premises in Iloilo
paid a commission of 10% for his services, if the sale was o He brought with him a statement of account for Rodriguez but the
consummated. latter said that he would pay in Manila.
 Through Montelibano’s efforts, Keeler was able to sell to Rodriguez one of  ***Lower Court: In favor of Rodriguez. It held that:
the "Matthews" plants o Keeler Electric had held out Montelibano to Rodriguez as an agent
 Rodriguez paid Montelibano (the purchase price of P2,513.55), after the authorized to collect
installation of the plant and without the knowledge of Keeler Electric, o Payment to Montelibano would discharge the debt of Rodriguez
 Keeler Electric filed an action against Rodriguez for the payment of the o The bill was given to Montelibano for collection purposes
purchase price.  Keeler Electric appealed. It alleged that:
 Rodriguez: Claimed that he already paid the price of the plant. In o Montelibano had no authority to receive the money.
addition, he alleged that: o His services were confined to the finding of purchasers for the
o Montelibano sold and delivered the plant to him, and "was the one "Matthews" plant
who ordered the installation of that electrical plant" o Montelibano was not an electrician, could not install the plant and
o There were evidences: a statement and receipt which did not know anything about its mechanism.
Montelibano signed to whom he paid the money.

3-EXECUTIVE | Ab Initio Group 14

 AGENCY, PARTNERSHIP AND TRUST
Issues:
1. WON Keeler Electric authorized Montelibano to receive or receipt
for money in its behalf
2. WON Rodriguez had a right to assume by any act or deed of
Keeler Electric that Montelibano was authorized to receive the
money
Held/Ratio:
1. NO, Montelibano was not authorized. The plant was sold by Keeler
Electric to Rodriguez and was consigned to Iloilo where it was installed by
Cenar, acting for, and representing, Keeler Electric, whose expense for the
trip is included in, and made a part of, the bill which was receipted by
Montelibano.
a. Montelibano was not an agent of Keeler Electric
o There is nothing on the face of this receipt to show that
Montelibano was the agent of, or that he was acting for, Keeler
Electric. It is his own personal receipt and his own personal
signature.
o Outside of the fact that Montelibano received the money and
signed this receipt, there is no evidence that he had any authority,
real or apparent, to receive or receipt for the money.
o Neither is there any evidence that Keeler Electric ever delivered
the statement to Montelibano. (It is very apparent that the
statement is the one which was delivered by Keeler Electric to
Cenar, and is the one which Cenar delivered to Rodriguez)
b. It was Juan Cenar, and not Montelibano who sold the plant to
Rodiguez
o The evidence is in direct conflict with Rodriguez’s own pleadings
and the receipt statement which he offered in evidence. This
statement also shows upon its face that P81.60 of the bill is round
trip fare and machine’s transportation costs.
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o This claim must be for the expenses of Cenar in going to Iloilo
from Manila and return, to install the plant, and is strong evidence
that it was Cenar and not Montelibano who installed the plant.
o If Montelibano installed the plant, there would not have been any
necessity for Cenar to make this trip at the expense of Rodriguez.
o After Cenar's return to Manila, Keeler Electric wrote a letter to
Rodriguez requesting the payment of its account, to which
Rodriguez answered that he already paid to Montelibano.
 This is in direct conflict with the receipted
statement, which Rodriguez offered in evidence,
signed by Montelibano.
o It will be noted that the receipt which Montelibano signed is
not dated, and it does not show when the money was paid.
2. NO.
a. Relevant laws:
− Article 1162 CC: Payment must be made to the persons in whose
favor the obligation is constituted, or to another authorized to
receive it in his name.
− Article 1727 CC: The principal shall be liable as to matters with
respect to which the agent has exceeded his authority only when
he ratifies the same expressly or by implication.
− Ormachea Tin-Conco vs. Trillana: The repayment of a debt must
be made to the person in whose favor the obligation is
constituted, or to another expressly authorized to receive the
payment in his name.
b. On whether an assumed authority exist – Certain principles must be
considered: (Mechem on Agency, volume I, section 743)
− (1) that the law indulges in no bare presumptions that an agency
exists: it must be proved or presumed from facts;
− (2) that the agent cannot establish his own authority, either by his
representations or by assuming to exercise it;
− (3) that an authority cannot be established by mere rumor or
general reputation;
− (4)that even a general authority is not an unlimited one; and
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 AGENCY, PARTNERSHIP AND TRUST
− (5) that every authority must find its ultimate source in some act
or omission of the principal.
Applying the above rules:
o Persons dealing with an assumed agent, whether the assumed
agency be a general or special one, are bound at their peril, if
they would hold the principal, to ascertain not only the fact of the
agency but the nature and extent of the authority, and in case
either is controverted, the burden of proof is upon them to
establish it.
o The person dealing with the agent must act with ordinary
prudence and reasonable diligence. Obviously, if he knows or has
good reason to believe that the agent is exceeding his authority,
he cannot claim protection. So if the suggestions of probable
limitations be of such a clear and reasonable quality, or if the
character assumed by the agent is of such a suspicious or
unreasonable nature, or if the authority which he seeks to
exercise is of such an unusual or improbable character, the party
dealing with him may not shut his eyes to the real state of the
case, but should either refuse to deal with the agent at all, or
should ascertain from the principal the true condition of affairs.
Judgment of the lower court is REVERSED. Rodriguez should pay Keeler Electric
the purchase price of the plant.
Yu Eng Cho v. Pan American, 328 SCRA 717
FACTS:
Plaintiff Yu Eng Cho is the owner of Young Hardware Co. and Achilles Marketing.
In connection with [this] business, he travels from time to time to Malaysia, Taipei
and Hongkong. On July 10, 1976, plaintiffs bought plane tickets for P25,000 from
defendant Claudia Tagunicar who represented herself to be an agent of defendant
Tourist World Services, Inc. (TWSI). The destination[s] are Hongkong, Tokyo, San
Francisco, U.S.A. The purpose of their travel to the USA is to buy the two lines of
infra-red heating system.
On said date, only the passage from Manila to Hongkong, then to Tokyo, were
confirmed. [PAA] Flight 002 from Tokyo to San Francisco was on "RQ" status,
meaning "on request". After calling up Canilao of TWSI, defendant Tagunicar told
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plaintiffs that their flight is now confirmed all the way. Thereafter, she attached
the confirmation stickers on the plane tickets.
On July 23, 1978, plaintiffs left for Hongkong and stayed there for five (5) days.
They left Hongkong for Tokyo on July 28, 1978. Upon their arrival in Tokyo, they
called up Pan-Am office for reconfirmation of their flight to San Francisco. Said
office, however, informed them that their names are not in the manifest. Since
plaintiffs were supposed to leave on the 29th of July, 1978, and could not remain
in Japan for more than 72 hours, they were constrained to agree to accept airline
tickets for Taipei instead, per advise of JAL officials. This is the only option left to
them because Northwest Airlines was then on strike, hence, there was no chance
for the plaintiffs to obtain airline seats to the United States within 72 hours.
Plaintiffs paid for these tickets.
Upon reaching Taipei, there were no flight[s] available for plaintiffs, thus, they
were forced to return back to Manila on August 3, 1978, instead of proceeding to
the United States. [Japan] Air Lines (JAL) refunded the plaintiffs the difference of
the price for Tokyo-Taipei [and] Tokyo-San Francisco in the total amount of
P2,602.00.
In view of their failure to reach Fairfield, New Jersey, Radiant Heat Enterprises,
Inc. cancelled Yu Eng Chos option to buy the two lines of infra-red heating system.
The agreement was for him to inspect the equipment and make final
arrangement[s] with the said company not later than August 7, 1978. From this
business transaction, plaintiff Yu Eng Cho expected to realize a profit of
P300,000.00 to P400,000.00."
A complaint for damages was filed by petitioners against private respondents Pan
American World Airways, Inc.(Pan Am), Tourist World Services, Inc. (TWSI),
Julieta Canilao (Canilao), and Claudia Tagunicar (Tagunicar) for expenses allegedly
incurred such as costs of tickets and hotel accommodations when petitioners were
compelled to stay in Hongkong and then in Tokyo by reason of the non-
confirmation of their booking with Pan-Am. In a Decision dated November 14,
1991, the Regional Trial Court of Manila the defendants jointly and severally liable,
except defendant Julieta Canilao.Scslx
Only respondents Pan Am and Tagunicar appealed to the Court of Appeals. On 11
August 1995, the appellate court rendered judgment modifying the amount of
damages awarded, holding private respondent Tagunicar solely liable therefor, and
absolving respondents Pan Am and TWSI from any and all liability.
In so ruling, respondent court found that Tagunicar is an independent travel
solicitor and is not a duly authorized agent or representative of either Pan Am or
TWSI. It held that their business transactions are not sufficient to consider Pan Am
as the principal, and Tagunicar and TWSI as its agent and sub-agent, respectively.
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 AGENCY, PARTNERSHIP AND TRUST
It further held that Tagunicar was not authorized to confirm the bookings of, nor
issue validation stickers to, herein petitioners and hence, Pan Am and TWSI cannot
be held responsible for her actions.
ISSUE: WON there is agency relationship among PanAm, TWSI and
Tagunicar.
RULING: NO.
Petitioners assert that Tagunicar is a sub-agent of TWSI while TWSI is a duly
authorized ticketing agent of Pan Am. Proceeding from this premise, they contend
that TWSI and Pan Am should be held liable as principals for the acts of Tagunicar.
Petitioners stubbornly insist that the existence of the agency relationship has been
established by the judicial admissions allegedly made by respondents herein, to
wit: (1) the admission made by Pan Am in its Answer that TWSI is its authorized
ticket agent; (2) the affidavit executed by Tagunicar where she admitted that she
is a duly authorized agent of TWSI; and (3) the admission made by Canilao that
TWSI received commissions from ticket sales made by Tagunicar. Korte
We do not agree. By the contract of agency, a person binds himself to
render some service or to do something in representation or on behalf of
another, with the consent or authority of the latter. The elements of
agency are: (1) consent, express or implied, of the parties to establish
the relationship; (2) the object is the execution of a juridical act in
relation to a third person; (3) the agent acts as a representative and not
for himself; (4) the agent acts within the scope of his authority. It is a
settled rule that persons dealing with an assumed agent are bound at
their peril, if they would hold the principal liable, to ascertain not only
the fact of agency but also the nature and extent of authority, and in
case either is controverted, the burden of proof is upon them to
establish it.
In the case at bar, petitioners rely on the affidavit of respondent
Tagunicar where she stated that she is an authorized agent of
TWSI. Respondent Tagunicar testified that her affidavit was prepared
and typewritten by the secretary of petitioners lawyer, Atty. Acebedo,
who both came with Adrian Yu, son of petitioners, when the latter went
to see her at her office. The circumstances under which said affidavit was
prepared put in doubt petitioners claim that it was executed voluntarily by
respondent Tagunicar. This purported admission of respondent Tagunicar cannot
be used by petitioners to prove their agency relationship. At any rate, even if such
affidavit is to be given any probative value, the existence of the agency
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relationship cannot be established on its sole basis. The declarations of the agent
alone are generally insufficient to establish the fact or extent of his authority.
We stress that respondent Tagunicar categorically denied in open court that she is
a duly authorized agent of TWSI, and declared that she is an independent travel
agent. We have consistently ruled that in case of conflict between statements in
the affidavit and testimonial declarations, the latter command greater weight.
As further proofs of agency, petitioners call our attention to TWSIs Exhibits "7",
"7-A", and "8" which show that Tagunicar and TWSI received sales commissions
from Pan Am. Exhibit "7"is the Ticket Sales Report submitted by TWSI to Pan Am
reflecting the commissions received by TWSI as an agent of Pan Am. Exhibit "7-
A" is a listing of the routes taken by passengers who were audited to TWSIs sales
report. Exhibit "8" is a receipt issued by TWSI covering the payment made by
Tagunicar for the tickets she bought from TWSI. These documents cannot justify
the deduction that Tagunicar was paid a commission either by TWSI or Pan Am.
On the contrary, Tagunicar testified that when she pays TWSI, she already
deducts in advance her commission and merely gives the net amount to
TWSI. From all sides of the legal prism, the transaction is simply a contract of sale
wherein Tagunicar buys airline tickets from TWSI and then sells it at a premium to
her clients. Sc lex
III. Petitioners included respondent Pan Am in the complaint on the supposition
that since TWSI is its duly authorized agent, and respondent Tagunicar is an agent
of TWSI, then Pan Am should also be held responsible for the acts of respondent
Tagunicar. Our disquisitions above show that this contention lacks factual and
legal bases. Indeed, there is nothing in the records to show that respondent
Tagunicar has been employed by Pan Am as its agent, except the bare allegation
of petitioners. The real motive of petitioners in suing Pan Am appears in its
Amended Complaint that "[d]efendants TWSI, Canilao and Tagunicar may not be
financially capable of paying plaintiffs the amounts herein sought to be recovered,
and in such event, defendant Pan Am, being their ultimate principal, is primarily
and/or subsidiarily liable to pay said amounts to plaintiffs." This lends credence to
respondent Tagunicars testimony that she was persuaded to execute an affidavit
implicating respondents because petitioners knew they would not be able to get
anything of value from her. In the past, we have warned that this Court will not
tolerate an abuse of the judicial process by passengers in order to pry on
international airlines for damage awards, like "trophies in a safari."
A. Master-servant
Art. 1689. Household service shall always be reasonably compensated. Any
stipulation that household service is without compensation shall be void. Such
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 AGENCY, PARTNERSHIP AND TRUST
compensation shall be in addition to the house helper's lodging, food, and medical
attendance.
Art. 1690. The head of the family shall furnish, free of charge, to the house
helper, suitable and sanitary quarters as well as adequate food and medical
attendance.
Art. 1691. If the house helper is under the age of eighteen years, the head of the
family shall give an opportunity to the house helper for at least elementary
education. The cost of such education shall be a part of the house helper's
compensation, unless there is a stipulation to the contrary.
Art. 1692. No contract for household service shall last for more than two years.
However, such contract may be renewed from year to year.
Art. 1693. The house helper's clothes shall be subject to stipulation. However,
any contract for household service shall be void if thereby the house helper cannot
afford to acquire suitable clothing.
Art. 1694. The head of the family shall treat the house helper in a just and
humane manner. In no case shall physical violence be used upon the house
helper.
Art. 1695. House helper shall not be required to work more than ten hours a day.
Every house helper shall be allowed four days' vacation each month, with pay.
Art. 1696. In case of death of the house helper, the head of the family shall bear
the funeral expenses if the house helper has no relatives in the place where the
head of the family lives, with sufficient means therefor.
Art. 1697. If the period for household service is fixed neither the head of the
family nor the house helper may terminate the contract before the expiration of
the term, except for a just cause. If the house helper is unjustly dismissed, he
shall be paid the compensation already earned plus that for fifteen days by way of
indemnity. If the house helper leaves without justifiable reason, he shall forfeit any
salary due him and unpaid, for not exceeding fifteen days.
Art. 1698. If the duration of the household service is not determined either by
stipulation or by the nature of the service, the head of the family or the house
3-EXECUTIVE | Ab Initio Group
helper may give notice to put an end to the service relation, according to the
following rules:
(1) If the compensation is paid by the day, notice may be given
on any day that the service shall end at the close of the following day;
(2) If the compensation is paid by the week, notice may be given,
at the latest on the first business day of the week, that the service shall be
terminated at the end of the seventh day from the beginning of the week;
(3) If the compensation is paid by the month, notice may be given, at the latest,
on the fifth day of the month, that the service shall cease at the end of the month.
Art. 1699. Upon the extinguishment of the service relation, the house helper may
demand from the head of the family a written statement on the nature and
duration of the service and the efficiency and conduct of the house helper.
B. Employer-employee
Art. 1700. The relations between capital and labor are not merely contractual.
They are so impressed with public interest that labor contracts must yield to the
common good. Therefore, such contracts are subject to the special laws on labor
unions, collective bargaining, strikes and lockouts, closed shop, wages, working
conditions, hours of labor and similar subjects.
C. Lease of service
Art. 1644. In the lease of work or service, one of the parties binds himself to
execute a piece of work or to render to the other some service for a price certain,
but the relation of principal and agent does not exist between them.
D. Independent contractor
Art. 1713. By the contract for a piece of work the contractor binds himself to
execute a piece of work for the employer, in consideration of a certain price or
compensation. The contractor may either employ only his labor or skill, or also
furnish the material.
E. Trust
Art. 1440. A person who establishes a trust is called the trustor; one in whom
confidence is reposed as regards property for the benefit of another person is
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 AGENCY, PARTNERSHIP AND TRUST
known as the trustee; and the person for whose benefit the trust has been created
is referred to as the beneficiary.
F. Sale
Art. 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
G. Partnership
Art. 1767. By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession.
H. Negotiorum gestio/quasi-contract
Art. 2144. Whoever voluntarily takes charge of the agency or management of the
business or property of another, without any power from the latter, is obliged to
continue the same until the termination of the affair and its incidents, or to require
the person concerned to substitute him, if the owner is in a position to do so. This
juridical relation does not arise in either of these instances:
(1) When the property or business is not neglected or abandoned;
(2) If in fact the manager has been tacitly authorized by the owner.
In the first case, the provisions of Articles 1317, 1403, No. 1, and 1404 regarding
unauthorized contracts shall govern.
In the second case, the rules on agency in Title X of this Book shall be applicable.
Art. 2145. The officious manager shall perform his duties with all the diligence of
a good father of a family, and pay the damages which through his fault or
negligence may be suffered by the owner of the property or business under
management.
The courts may, however, increase or moderate the indemnity according to the
circumstances of each case.
3-EXECUTIVE | Ab Initio Group
I. Judicial administrator
J. Broker
Sevilla v. CA, 160 SCRA 171
FACTS: On Oct. 19, 1960, the Tourist World Service, Inc. leased an office at
Mabini St., Manila for the former's use as a branch office. When the branch office
was opened, the same was run by the herein appellant Lina O. Sevilla payable to
Tourist World Service Inc. by any airline for any fare brought in on the efforts of
Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the
Tourist World Service, Inc.
On or about November 24, 1961, the Tourist World Service, Inc. appears to have
been informed that Lina Sevilla was connected with a rival firm, the Philippine
Travel Bureau, and, since the branch office was anyhow losing, the Tourist World
Service considered closing down its office.
This was firmed up by two resolutions of the board of directors of Tourist World
Service, Inc. dated Dec. 2, 1961, the first abolishing the office of the manager and
vice-president of the Tourist World Service, Inc., Ermita Branch, and the second,
authorizing the corporate secretary to receive the properties of the Tourist World
Service then located at the said branch office. It further appears that on Jan. 3,
1962, the contract with the appellees for the use of the Branch Office premises
was terminated and while the effectivity thereof was Jan. 31, 1962, the appellees
no longer used it. As a matter of fact appellants used it since Nov. 1961. Because
of this, and to comply with the mandate of the Tourist World Service, the
corporate secretary Gabino Canilao went over to the branch office, and, finding
the premises locked, and, being unable to contact Lina Sevilla, he padlocked the
premises on June 4, 1962 to protect the interests of the Tourist World Service.
When neither the appellant Lina Sevilla nor any of her employees could enter the
locked premises, a complaint was filed by the herein appellants against the
appellees with a prayer for the issuance of mandatory preliminary injunction. Both
appellees answered with counterclaims. For apparent lack of interest of the parties
therein, the trial court ordered the dismissal of the case without prejudice.
ISSUE:
Whether the act of Tourist World Service in abolishing its Ermita branch
proper
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HELD:
No, the act of Tourist World Service in abolishing its Ermita branch is not proper.
The Supreme Court held that when the petitioner, Lina Sevilla, agreed to manage
Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a
contract of agency.
In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of
her principal, Tourist World Service, Inc. As compensation, she received 4% of the
proceeds in the concept of commissions. And as we said, Sevilla herself, based on
her letter of November 28, 1961, presumed her principal's authority as owner of
the business undertaking. We are convinced, considering the circumstances and
from the respondent Court's recital of facts, that the parties had contemplated a
principal-agent relationship, rather than a joint management or a partnership.
But unlike simple grants of a power of attorney, the agency that we hereby
declare to be compatible with the intent of the parties, cannot be revoked at will.
The reason is that it is one coupled with an interest, the agency having been
created for the mutual interest of the agent and the principal. Accordingly, the
revocation complained of should entitle the petitioner, Lina Sevilla, to damages.
Shell v. Firemen's Insurance Co., 100 Phil. 757
FACTS: This case is about an action for recovery of sum of money, based on the
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, filed this action
3-EXECUTIVE | Ab Initio Group
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. 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 trade name 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, 95 Phil. 739
Facts: 1941, The Northern Theatrical Enterprises Inc., a domestic corporation
operated a movie house in Laoag, Ilocos Norte. Domingo De La Cruz was
employed whose duties were to guard the main entrance, to maintain peace and
order and to report the commission of disorders within premises. He carried a
revolver.
Benjamin Martin wanted to crash the gate or entrance of the movie house.
Infuriated by the refusal of De la Cruz to let him in without first providing himself
with a ticket, Martin attacked him with a bolo. De la Cruz defendant himself as
best he could until he was cornered, at which moment to save himself he shot
Martin, resulting in Benjamin Martin’s death.
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 AGENCY, PARTNERSHIP AND TRUST
De la Cruz was charged with homicide. After a re-investigation conducted by the
Provincial Fiscal the latter filed a motion to dismiss the complaint, which was
granted by the court. De la Cruz was again accused of the same crime of
homicide. After trial, he was finally acquitted of the charge.
He then demanded from former employer to repay the expenses but was refused
thus filed present action against the Northern Theatrical Enterprises Inc company
and to three members of its Board of Directors to recover amounts he had paid his
lawyers including moral damages said to have been suffered due to his worry,
neglect of his interests and his family as well in the supervision of the cultivation of
his land, a total of P 15,000.
Court of First Instance of Ilocos Norte rejected the theory of De la Cruz because
he was an agent of Northern Theatrical Enterprises Inc. and that as such agent he
was entitled to compensate the expenses incurred by him in connection with the
agency.
The court found and decided that De La Cruz had no cause of action and
dismissed the complaint without costs.
Issue:
Whether or not an agent who’s in the line of duty performs an act that
resulted in his incurring expenses caused by a stranger. May the latter
recover the said expenses against his former employer.
Held:
No, because the relationship between the Northern Theatrical
Enterprises Inc. and plaintiff was not that of principal and agent because
the principle of representation as a characteristic of agency was in no
way involved. Plaintiff was not employed to represent corporation in its
dealings with third parties. Plaintiff is a mere employee hired to perform
a certain specific duty or task, that of acting as a special guard and
staying at the main entrance of the movie house to stop gate crashers
and to maintain peace and order within the premises.
3-EXECUTIVE | Ab Initio Group
Nielson & co. v. Lepanto Consolidated, 26 SCRA 540
Facts: [GR L-21601, 17 December 1966; Zaldivar (J): 6 concur, 2 took no part] An
operating agreement was executed before World War II (on 30 January 1937)
between Nielson & Co. Inc. and the Lepanto Consolidated Mining Co. whereby the
former operated and managed the mining properties owned by the latter for a
management fee of P2,500.00 a month and a 10% participation in the net profits
resulting from the operation of the mining properties, for a period of 5 years. In
1940, a dispute arose regarding the computation of the 10% share of Nielson in
the profits. The Board of Directors of Lepanto, realizing that the mechanics of the
contract was unfair to Nielson, authorized its President to enter into an agreement
with Nielson modifying the pertinent provision of the contract effective 1 January
1940 in such a way that Nielson shall receive (1) 10% of the dividends declared
and paid, when and as paid, during the period of the contract and at the end of
each year, (2) 10% of any depletion reserve that may be set up, and (3) 10% of
any amount expended during the year out of surplus earnings for capital account.
In the latter part of 1941, the parties agreed to renew the contract for another
period of 5 years, but in the meantime, the Pacific War broke out in December
1941. In January 1942 operation of the mining properties was disrupted on
account of the war. In February 1942, the mill, power plant, supplies on hand,
equipment, concentrates on hand and mines, were destroyed upon orders of the
United States Army, to prevent their utilization by the invading Japanese Army.
The Japanese forces thereafter occupied the mining properties, operated the
mines during the continuance of the war, and who were ousted from the mining
properties only in August 1945. After the mining properties were liberated from
the Japanese forces, LEPANTO took possession thereof and embarked in rebuilding
and reconstructing the mines and mill; setting up new organization; clearing the
mill site; repairing the mines; erecting staff quarters and bodegas and repairing
existing structures; installing new machinery and equipment; repairing roads and
maintaining the same; salvaging equipment and storing the same within the
bodegas; doing police work necessary to take care of the materials and equipment
recovered; repairing and renewing the water system; and retimbering. The
rehabilitation and reconstruction of the mine and mill was not completed until
1948. On 26 June 1948 the mines resumed operation under the exclusive
management of LEPANTO. Shortly after the mines were liberated from the
Japanese invaders in 1945, a disagreement arose between NIELSON and LEPANTO
over the status of the operating contract which as renewed expired in 1947. Under
the terms thereof, the management contract shall remain in suspense in case
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 AGENCY, PARTNERSHIP AND TRUST
fortuitous event or force majeure, such as war or civil commotion, adversely
affects the work of mining and milling. On 6 February 1958, NIELSON brought an
action against LEPANTO before the Court of First Instance of Manila to recover
certain sums of money representing damages allegedly suffered by the former in
view of the refusal of the latter to comply with the terms of a management
contract entered into between them on 30 January 1937, including attorney's fees
and costs. LEPANTO in its answer denied the material allegations of the complaint
and set up certain special defenses, among them, prescription and laches, as bars
against the institution of the action.
After trial, the court a quo rendered a decision dismissing the complaint with costs.
The court stated that it did not find sufficient evidence to establish LEPANTO's
counterclaim and so it likewise dismissed the same. NIELSON appealed. The
Supreme Court reversed the decision of the trial court and enter in lieu thereof
another, ordering Lepanto to pay Nielson (1) 10% share of cash dividends of
December, 1941 in the amount of P17,500.00, with legal interest thereon from the
date of the filing of the complaint; (2) management fee for January, 1942 in the
amount of P2,500.00, with legal interest thereon from the date of the filing of the
complaint; (3) management fees for the sixty-month period of extension of the
management contract, amounting to P150,000.00, with legal interest from the
date of the filing of the complaint; (4) 10% share in the cash dividends during the
period of extension of the management contract, amounting to P1,400,000.00,
with legal interest thereon from the date of the filing of the complaint; (5) 10% of
the depletion reserve set up during the period of extension, amounting to
P53,928.88, with legal interest thereon from the date of the filing of the complaint;
(6) 10% of the expenses for capital account during the period of extension,
amounting to P694,364.76, with legal interest thereon from the date of the filing
of the complaint; (7) to issue and deliver to Nielson and Co. Inc. shares of stock of
Lepanto Consolidated Mining Co. at par value equivalent to the total of Nielson's
10% share in the stock dividends declared on November 28, 1949 and August 22,
1950, together with all cash and stock dividends, if any, as may have been
declared and issued subsequent to November 28, 1949 and August 22, 1950, as
fruits that accrued to said shares; provided that if sufficient shares of stock of
Lepanto's are not available to satisfy this judgment, Lepanto shall pay Nielson an
amount in cash equivalent to the market value of said shares at the time of
default, that is, all shares of stock that should have been delivered to Nielson
before the filing of the complaint must be paid at their market value as of the date
of the filing of the complaint; and all shares, if any, that should have been
delivered after the filing of the complaint at the market value of the shares at the
3-EXECUTIVE | Ab Initio Group
time Lepanto disposed of all its available shares, for it is only then that Lepanto
placed itself in condition of not being able to perform its obligation; (8) the sum of
P50,000.00 as attorney's fees; and (9) the costs.
Lepanto seeks the reconsideration of the decision rendered on 17 December
1966.
Issue: Whether the management contract is a contract of agency or a
contract of lease of services.
Held: Article 1709 of the Old Civil Code, defining contract of agency, provides that
"By the contract of agency, one person binds himself to render some service or do
something for the account or at the request of another." Article 1544, defining
contract of lease of service, provides that "In a lease of work or services, one of
the parties binds himself to make or construct something or to render a service to
the other for a price certain." In both agency and lease of services one of the
parties binds himself to render some service to the other party. Agency, however,
is distinguished from lease of work or services in that the basis of agency is
representation, while in the lease of work or services the basis is employment. The
lessor of services does not represent his employer, while the agent represents his
principal. Further, agency is a preparatory contract, as agency "does not stop with
the agency because the purpose is to enter into other contracts." The most
characteristic feature of an agency relationship is the agent's power to bring about
business relations between his principal and third persons. "The agent is destined
to execute juridical acts (creation, modification or extinction of relations with third
parties). Lease of services contemplate only material (non-juridical) acts." Herein,
the principal and paramount undertaking of Nielson under the management
contract was the operation and development of the mine and the operation of the
mill. All the other undertakings mentioned in the contract are necessary or
incidental to the principal undertaking — these other undertakings being
dependent upon the work on the development of the mine and the operation of
the mill. In the performance of this principal undertaking Nielson was not in any
way executing juridical acts for Lepanto, destined to create, modify or extinguish
business relations between Lepanto and third persons. In other words, in
performing its principal undertaking Nielson was not acting as an agent of
Lepanto, in the sense that the term agent is interpreted under the law of agency,
but as one who was performing material acts for an employer, for a compensation.
It is true that the management contract provides that Nielson would also act as
purchasing agent of supplies and enter into contracts regarding the sale of
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 AGENCY, PARTNERSHIP AND TRUST
mineral, but the contract also provides that Nielson could not make any purchase,
or sell the minerals, without the prior approval of Lepanto. It is clear, therefore,
that even in these cases Nielson could not execute juridical acts which would bind
Lepanto without first securing the approval of Lepanto. Nielson, then, was to act
only as an intermediary, not as an agent. Further, from the statements in the
annual report for 1936, and from the provision of paragraph XI of the
Management contract, that the employment by Lepanto of Nielson to operate and
manage its mines was principally in consideration of the know-how and technical
services that Nielson offered Lepanto. The contract thus entered into pursuant to
the offer made by Nielson and accepted by Lepanto was a "detailed operating
contract". It was not a contract of agency. Nowhere in the record is it shown that
Lepanto considered Nielson as its agent and that Lepanto terminated the
management contract because it had lost its trust and confidence in Nielson.
Quiroga v. Parsons Hardware, 38 Phil. 501
Facts: On Jan 24, 1911, plaintiff and the respondent entered into a contract
making the latter an “agent” of the former. The contract stipulates that Don
Andres Quiroga, here in petitioner, grants exclusive rights to sell his beds in the
Visayan region to J. Parsons. The contract only stipulates that J.Parsons should
pay Quiroga within 6 months upon the delivery of beds.
Quiroga files a case against Parsons for allegedly violating the following
stipulations: not to sell the beds at higher prices than those of the invoices; to
have an open establishment in Iloilo; itself to conduct the agency; to keep the
beds on public exhibition, and to pay for the advertisement expenses for the
same; and to order the beds by the dozen and in no other manner. With the
exception of the obligation on the part of the defendant to order the beds by the
dozen and in no other manner, none of the obligations imputed to the defendant
in the two causes of action are expressly set forth in the contract. But the plaintiff
alleged that the defendant was his agent for the sale of his beds in Iloilo, and that
said obligations are implied in a contract of commercial agency. The whole
question, therefore, reduced itself to a determination as to whether the defendant,
by reason of the contract hereinbefore transcribed, was a purchaser or an agent of
the plaintiff for the sale of his beds.
Issue: Whether the contract is a contract of agency or of sale.
Held: In order to classify a contract, due attention must be given to its essential
clauses. In the contract in question, what was essential, as constituting its cause
and subject matter, is that the plaintiff was to furnish the defendant with the beds
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which the latter might order, at the price stipulated, and that the defendant was to
pay the price in the manner stipulated. Payment was to be made at the end of
sixty days, or before, at the plaintiff’s request, or in cash, if the defendant so
preferred, and in these last two cases an additional discount was to be allowed for
prompt payment. These are precisely the essential features of a contract of
purchase and sale. There was the obligation on the part of the plaintiff to supply
the beds, and, on the part of the defendant, to pay their price. These features
exclude the legal conception of an agency or order to sell whereby the mandatory
or agent received the thing to sell it, and does not pay its price, but delivers to the
principal the price he obtains from the sale of the thing to a third person, and if he
does not succeed in selling it, he returns it. By virtue of the contract between the
plaintiff and the defendant, the latter, on receiving the beds, was necessarily
obliged to pay their price within the term fixed, without any other consideration
and regardless as to whether he had or had not sold the beds.
In respect to the defendant’s obligation to order by the dozen, the only one
expressly imposed by the contract, the effect of its breach would only entitle the
plaintiff to disregard the orders which the defendant might place under other
conditions; but if the plaintiff consents to fill them, he waives his right and cannot
complain for having acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and between the
plaintiff and the defendant was one of purchase and sale, and that the obligations
the breach of which is alleged as a cause of action are not imposed upon the
defendant, either by agreement or by law.
Gonzalo Puyat & Sons v. Arco Amusement Co., 72 Phil. 402
FACTS:
Arco Amusement was engaged in the business of operating cinematographs while
Gonzalo Puyat & Sons (GPS) was the exclusive agent in the Philippines for the
Starr Piano Company (SPC). Desiring to equip its cinematograph with sound
reproducing devices, Arco approached GPS, through its president, Gil Puyat, and
an employee named Santos. After some negotiations, it was agreed between the
parties that GPS would order sound reproducing equipment from SPC and that
Arco would pay GPS, in addition to the price of the equipment, a 10% commission,
plus all expenses such as freight, insurance, etc. When GPS inquired SPC the price
(without discount) of the equipment, the latter quoted such at $1,700.00 FOB
Indiana. Being agreeable to the price, Arco formally authorized the order. The
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 AGENCY, PARTNERSHIP AND TRUST
following year, both parties agreed for another order of sound reproducing
equipment on the same terms as the first at $1,600.00 plus 10% plus all other
expenses. 3 years later, Arco discovered that the prices quoted to them by GPS
with regard to their first 2 orders mentioned, were not the net prices but rather
the latter has obtained a discount from SPC thus, equipment is deemed overpriced
and GPS had to reimburse the excess amount.
ISSUE: WON the contract is a contract of agency
HELD:
No. The contract between the petitioner and the respondent was one of
purchase and sale. The letters, Exhibits 1 and 2, by which the
respondent accepted the prices of $1,700.00 and $1,600.00,
respectively, for the sound reproducing equipment subject of its contract
with petitioner, are clear in their terms and admit no other
interpretation that the respondent in question at the prices indicated
which are fixed and determinate. The respondent admitted in its
complaint with the CFI of Manila that the petitioner agreed to sell to it
the first sound reproducing equipment. To hold the petitioner an agent
of the respondent in the purchase of equipment and machinery from the
SPC of Richmond, Indiana, is incompatible with the admitted fact that
the petitioner is the exclusive agent of the same company in the
Philippines. It is out of the ordinary for one to be the agent of both the
vendor and the purchaser.
Lim v. People, 133 SCRA 333
In 1966, petitioner offered to sell respondent’s tobacco (Maria Ayroso),
and they agreed to the proposition to sell tobacco consisting of 615kg at P1.30/kg.
The petitioner was to receive the overprice for which she could sell the tobacco.
The total value was P799.50 and P240 was paid by petitioner to Ayroso. Demands
for the payment of the balance of the value of the tobacco were made upon the
appellant by Ayroso, and particularly by her sister, Salud Bantug. As no further
amount was paid, the complainant filed a complaint against the appellant for
estafa. The RTC and CA ruled in favor of the respondent, convicting Lim for estafa.
Issue: Whether there exists a contract of agency to sell or a contract of
sale. As defined under contract of agency
Held: There was no transfer of ownership of the goods to the petitioner.
The agreement constituted her as an agent with the obligation to give
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something to Ayroso upon sale of the tobacco or return the tobacco if
the same was not sold. Therefore, the court’s ruling in convicting Lim for
estafa is not to be contested
Pacific Commercial v. Yatco, 68 Phil. 398
The stipulation of facts discloses that in August, 1932, plaintiff Pacific Commercial
Company, a Philippine corporation, purchased for its New York office, 6,000 tons
of centrifugal sugar from the Calamba Sugar Estate Planters at the prices specified
in the letters-contract. It was agreed, inter alia, that the freight charges shall be
paid at destination by New York office and that payment would be made upon
delivery of the shipping documents. On January 28, 1933, the seller loaded 3.000
tons of ,sugar or board the s. s. Chastine Maersk, and on March 30, 1933, another
3,000 tons on board the s. s. Ferndale. The first vessel sailed from Manila at 6 p.
m. of January 28, 1933, and the second, at 12.05 p. m. of March 31, 1933. After
the cargo has been loaded on, and before the vessels left port, one Amado M.
Honorio as agent of the Calamba Sugar Estate Planters indorsed in blank and
delivered to plaintiff the shipping documents. Payments were correspondingly
made by the plaintiff which were later debited to the account of its New York
office. The defendant Collector of Internal Revenue assessed a consignment tax of
P13,479.04, including surcharge, which plaintiff paid under protest and for the
recovery of which an action was brought in the Court of First Instance of Manila.
The complaint having been dismissed, the present appeal was taken.
Plaintiff contends that it is not subject to the consignment tax provided in section
1459 of the Revised Administrative Code, because, upon the facts of the case, it is
a consignee, not a consignor, of the sugar in question. Reliance is placed upon the
stipulation in the contracts to the effect that shipment is to be made by the seller.
A condition in a contract is at best prima facie evidence, and is by no means
conclusive, of what actually transpired after its execution. In the instant case, it
appears that the bills of lading coveting the sugar in question were indorsed in
blank and delivered to the plaintiff by the agent of the seller before the vessels left
port. This indorsement operates to pass title to, and constitutes a constructive but
nonetheless complete delivery of, the merchandise to the plaintiff at the point of
shipment. (4 R. C. L. p., 31.)Under such circumstance, plaintiff alone could
logically ship the cargo to its New York office.
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 AGENCY, PARTNERSHIP AND TRUST
Appellant seems to labor under an erroneous impression that it could not be a
consignor because the vendor was the party "who made out and signed the bills of
lading and placed the sugar on board the ship." Be this as it may, a matter which
is disputed by the appellee, the making out of bills of lading and the placing of the
merchandise aboard the ship supply no decisive criterion for determining who the
actual consignor is, for the application of the tax in question. The tax imposed by
law is on merchandise "consigned aboard" and not from one party to another
within the Philippines. The party, therefore, who ships the merchandise aboard is
the consignor upon whom the consignment tax applies, irrespective of who made
out the bills of lading on placed said merchandise on board the vessel. Judgment
is affirmed, with costs against appellant.
Ker v. Lingad, 38 SCRA 524
Facts:
CIR assessed the sum of P20,272.33 as the commercial broker’s percentage tax,
surcharge, and compromise penalty against Ker & Co. Ker and Co. requested for
the cancellation of the assessment and filed a petition for review with the Court of
Tax Appeals. The CTA ruled that Ker and Co is liable as a commercial broker. Ker
has a contract with US rubber. Ker is the distributor of the said company. Ker was
precluded from disposing the products elsewhere unless there has been a written
consent from the company. The prices, discounts, terms of payment, terms of
delivery and other conditions of sale were subject to change in the discretion of
the Company.
Issue:
Whether the relationship of Ker and Co and US rubber was that of a
vendor- vendee or principal-broker
Ruling:
The relationship of Ker and Co and US rubber was that of a principal-broker/
agency. Ker and Co is only an agent of the US rubber because it can dispose of
the products of the Company only to certain persons or entities and within
stipulated limits, unless excepted by the contract or by the Rubber Company, it
merely receives, accepts and/or holds upon consignment the products, which
remain properties of the latter company, every effort shall be made by petitioner
to promote in every way the sale of the products and that sales made by petitioner
are subject to approval by the company. Since the company retained ownership of
the goods, even as it delivered possession unto the dealer for resale to customers,
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the price and terms of which were subject to the company’s control, the
relationship between the company and the dealer is one of agency.
Hahn v. CA, 266 SCRA 537
Facts: Petitioner is a Filipino citizen doing business under the name of “Hahn-
Manila”. Private respondent BMW is a non-resident corporation incorporated in
Germany. Petitioner executed in favor of private respondent a “Deed of
Assignment with a Special Power of Attorney” which constituted petitioner as the
exclusive dealer of private respondent as long as the assignment of its trademark
and device subsisted. However, no formal contract was drawn between the two
parties. Thereafter, petitioner was informed that BMW was arranging to grant the
exclusive dealership of BMW cars and products to Columbia Motors Corp. (CMC).
BMW expressed dissatisfaction with various aspect of petitioner’s business but
nonetheless also expressed willingness to continue business relations with
petitioner on the basis of a standard BMW contract otherwise, if said offer was
unacceptable to petitioner then BMW would terminate petitioner’s exclusive
dealership. Petitioner refused BMWs offer in which case BMW withdrew its
alternative offer and terminated petitioner’s exclusive dealership. Petitioner
therefore filed an action for specific performance and damages against BMW to
compel it to continue the exclusive dealership. BMW moved to dismiss the case
contending that the trial court did not acquire jurisdiction over it through the
service of summons on DTI because BMW is a foreign corporation and is not doing
business in the Philippines. The trial court deferred the resolution of the motion for
dismissal until after trial on the merits for the reason that the grounds advanced
by BMW did not seem indubitable. BMW appealed said order to the CA. The CA
resolved that BMW was not doing business in the country and therefore
jurisdiction over it could not have been acquired through the service of summons
on DTI and it dismissed the petition.
Issue: W/N BMW is doing business in the Philippines so as to enable the
court to acquire jurisdiction over it through the service of summons on
the DTI.
HeId: RA 7042 enumerates what acts are considered as “doing business”.
Section 3(d) enumerating such acts includes the phrase “appointing
representatives or distributors in the Philippines” but not when the representative
or distributor “transacts” business in his own name for his own account. In the
case at bar, petitioner is private respondent BMW’s agent and not merely a broker.
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The record reveals that private respondent exercised control over petitioner’s
activities as a dealer and made regular inspections of petitioner’s premises to
enforce its standards. Since BMW is considered as doing business in the
Philippines, the trial court validly acquired jurisdiction over it by virtue of the
service of summons on the DTI. Furthermore, it is now settled that, for purposes
of having summons served on a foreign corporation in accordance with the Rules
of Court, it is sufficient that it be alleged in the complaint that the foreign
corporation is doing business in the Philippines. The court need not go beyond the
allegations in the complaint in order to determine whether or not it acquired
jurisdiction. Such determination that the foreign corporation is doing business in
the Philippines is only tentative and only for the purpose of enabling the court to
acquire jurisdiction. A contrary determination may be made based on the court’s
findings or evidence presented.
WEEK 4
SOME CLASSES OF AGENTS
A. ATTORNEYS-AT-LAW
B. AUCTIONEERS
C. BROKERS
D. FACTORS;COMMISSION MERCHANTS
Art. 1903. 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.
Art. 1904. The commission agent who handles goods of the same kind and mark,
which belong to different owners, shall distinguish them by countermarks, and
designate the merchandise respectively belonging to each principal.
Art. 1905. The commission agent cannot, without the express or implied consent
of the principal, sell on credit. Should he do so, the principal may demand from
him payment in cash, but the commission agent shall be entitled to any interest or
benefit, which may result from such sale.
Art. 1906. Should the commission agent, with authority of the principal, sell on
credit, he shall so inform the principal, with a statement of the names of the
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buyers. Should he fail to do so, the sale shall be deemed to have been made for
cash insofar as the principal is concerned.
Art. 1907. Should the commission agent receive on a sale, in addition to the
ordinary commission, another called a guarantee commission, he shall bear the
risk of collection and shall pay the principal the proceeds of the sale on the same
terms agreed upon with the purchaser.
Art. 1908. The commission agent who does not collect the credits of his principal
at the time when they become due and demandable shall be liable for damages,
unless he proves that he exercised due diligence for that purpose.
CLASSIFICATION OF AGENCY CONTRACTS
A. EXPRESS AGENCY; IMPLIED AGENCY
B. AGENCY BY ESTOPPEL; NO CONSENT
Art. 1900. So far as third persons are concerned, an act is deemed to have been
performed within the scope of the agent's authority, if such act is within the terms
of the power of attorney, as written, even if the agent has in fact exceeded the
limits of his authority according to an understanding between the principal and the
agent.
Art. 1911. Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as though he
had full powers.
Art. 1921. If the agency has been entrusted for the purpose of contracting with
specified persons, its revocation shall not prejudice the latter if they were not
given notice thereof.
Art. 1922. If the agent had general powers, revocation of the agency does not
prejudice third persons who acted in good faith and without knowledge of the
revocation. Notice of the revocation in a newspaper of general circulation is a
sufficient warning to third persons.
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C. AGENCY BY OPERATION OF LAW
Art. 1869. Agency may be express, or implied from the acts of the principal, from
his silence or lack of action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific form.
Art. 1884 (2). The agent is bound by his acceptance to carry out the agency, and
is liable for the damages which, through his non-performance, the principal may
suffer.
He must also finish the business already begun on the death of the
principal, should delay entail any danger.
Art. 1930. The agency shall remain in full force and effect even after the death of
the principal, if it has been constituted in the common interest of the latter and of
the agent, or in the interest of a third person who has accepted the stipulation in
his favor.
Art. 1931. Anything done by the agent, without knowledge of the death of the
principal or of any other cause which extinguishes the agency, is valid and shall be
fully effective with respect to third persons who may have contracted with him in
good faith.
D. UNIVERSAL, GENERAL, AND SPECIAL
Art. 1876. An agency is either general or special.
The former comprises all the business of the principal. The latter, one or more
specific transactions.
E. DURABLE AGENCY
Art. 1930. The agency shall remain in full force and effect even after the death of
the principal, if it has been constituted in the common interest of the latter and of
the agent, or in the interest of a third person who has accepted the stipulation in
his favor.
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Siasat v. IAC, 139 SCRA 238
DOCTRINE: The general doctrine holds the power of a principal to revoke the
authority of his agent at will, in the absence of a contract fixing the duration of the
agency however, the principal cannot deprive his agent of the commission agreed
upon by canceling the agency and, thereafter, dealing directly with the buyer.
FACTS: Sometime in 1974, respondent Teresita Nacianceno succeeded in
convincing officials of the then Department of Education and Culture, to purchase
without public bidding, one million pesos worth of national flags for the use of
public schools throughout the country. And for her service, she was entitled to a
commission of thirty (30%) percent.
On October 16, 1974, the first delivery of 7,933 flags was made by the
United Flag Industry. The next day, on October 17, 1974, the respondent's
authority to represent the United Flag Industry was revoked by petitioner Primitivo
Siasat. According to the findings of the courts below, Siasat, after receiving the
payment of P469,980.00 on October 23, 1974 for the first delivery, tendered the
amount of P23,900.00 or five percent (5%) of the amount received, to the
respondent as payment of her commission. The latter allegedly protested. She
refused to accept the said amount insisting on the 30% commission agreed upon.
The respondent was prevailed upon to accept the same because of the assurance
of the petitioners that they would pay the commission in full after they delivered
the other half of the order. The respondent states that she later on learned that
petitioner Siasat had already received payment for the second delivery of 7,833
flags. When she confronted the petitioners, they vehemently denied receipt of the
payment, at the same time claiming that the respondent had no participation
whatsoever with regard to the second delivery of flags and that the agency had
already been revoked. She then filed a case in court.
The trial court decided in favor of the respondent.
In assailing the appellate court's decision, the petition tenders the following
arguments: first, the authorization making the respondent the petitioner's
representative merely states that she could deal with any entity in connection with
the marketing of their products for a commission of 30%. There was no specific
authorization for the sale of 15,666 Philippine flags to the Department; second,
there were two transactions involved evidenced by the separate purchase orders
and separate delivery receipts, The revocation of agency effected by the parties
with mutual consent on October 17, 1974, therefore, forecloses the respondent's
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 AGENCY, PARTNERSHIP AND TRUST
claim of 30% commission on the second transaction; and last, regarding damages
and attorneys fees.
ISSUE: Whether or not respondent is an agent of petitioners.
HELD: YES, Respondent is indeed their agent. There are several kinds of
agents. First, a universal agent – one who is authorized to do all acts for
his principal which can lawfully be delegated to an agent. Second, a
general agent – one authorized to do all acts pertaining to a business of
a certain kind or at a particular place, or all acts pertaining to a business
of a particular class or series. And third, a special agent – one authorized
to do some particular act or act upon some particular occasion. He acts
usually in accordance with specific instructions the respondent is upon
close scrutiny be classified as a general agent.
Indeed, it can easily be seen by the way general words were employed in
the agreement that no restrictions were intended as to the manner the agency
was to be carried out or in the place where it was to be executed. The power
granted to the respondent was so broad that it practically covers the negotiations
leading to, and the execution of, a contract of sale of petitioners' merchandise with
any entity or organization.
A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised
Rules of Court states that "when the terms of an agreement have been reduced to
writing, it is to be considered as containing all such terms, and, therefore, there
can be between the parties and their successors-in-interest, no evidence of the
terms of the agreement other than the contents of the writing", except in cases
specifically mentioned in the same rule. Petitioners have failed to show that their
agreement falls under any of these exceptions. The petitioners' evidence is
overcome by other pieces of evidence proving that there was only one transaction.
Since only one transaction was involved, we deny the petitioners'
contention that respondent Nacianceno is not entitled to the stipulated commission
on the second delivery because of the revocation of the agency effected after the
first delivery. The revocation of agency could not prevent the respondent from
earning her commission because as the trial court opined, it came too late, the
contract of sale having been already perfected and partly executed.
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We do not mean to question the general doctrine as to the power of a
principal to revoke the authority of his agent at will, in the absence of a contract
fixing the duration of the agency however, The principal cannot deprive his agent
of the commission agreed upon by canceling the agency and, thereafter, dealing
directly with the buyer.
The petitioners are ordered to pay the respondent the amount of ONE
HUNDRED FOURTY THOUSAND NINE HUNDRED AND NINETY FOUR PESOS
(P140,994.00) as her commission on the second delivery of flags with legal
interest from the date of the trial court's decision. No pronouncement as to costs.
SO ORDERED.
Dominion Insurance v. CA, GR. No. 129919,6 February 2002
FACTS:
Rodolfo Guevarra (Guevarra) filed a civil case for sum of money against Dominion
Insurance Corp. (Dominion) for the amount advanced by Guevarra in his capacity
as manager of defendant to satisfy certain claims filed by defendant’s client.
The pre-trial was always postponed, and during one of the pre-trial
conference dominion failed to arrive therefore the court declared them to be in
default. Dominion filed several Motions to Lift Order of Default but was always
denied by the court. The RTC rendered its decision making Dominion liable to
repay Guevarra for the sum advanced and other damages and fees. Dominion
appealed but CA affirmed the decision of RTC and denied the appeal of Dominion.
ISSUE:
(a) W/N Guevarra acted within his authority as agent of petitioner.
(b) W/N Guevarra must be reimbursed for the amount advanced.
HELD:
(a) NO. Even though the contact entered into by Guevarra and Dominion was
with the word “special” the contents of the document was actually a general
agency. A general power permits the agent to do all acts for which the law does
not require a special power and the contents in the document did not require a
special power of attorney.
Art 1878 of the civil code provides instances when a special power of
attorney is required.:
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1) To make such payment as are not usually considered as acts of
administration. (5) To enter into any contract by which the ownership of an immovable is
15) any other act of dominion transmitted or acquired either gratuitously or for a valuable consideration;

The payment of claims is not an act of administration which requires a
special power of attorney before Guevarra could settle the insurance claims of
the insured.
Also Guevarra was instructed that the payment for the insured must come
from the revolving fund or collection in his possession, Gueverra should not have
paid the insured through his own capacity. Under 1918 of civil code an agent who
acted in contravention of the principal’s instruction the principal will not be liable
for the expenses incurred by the agent.
(6) To make gifts, except customary ones for charity or those made to employees
in the business managed by the agent;
(7) To loan or borrow money, unless the latter act be urgent and indispensable for
the preservation of the things which are under administration;
(8) To lease any real property to another person for more than one year;
(9) To bind the principal to render some service without compensation;

(b) YES. Even if the law on agency prohibits Gueverra from obtaining (10) To bind the principal in a contract of partnership;
reimbursement his right to recover may be justified under the article 1236 of the
civil code.[1] Thus Guevarra must be reimbursed but only to the extent that (11) To obligate the principal as a guarantor or surety;
Dominion has benefited without interest or demand for damages.
(12) To create or convey real rights over immovable property;
F. COUCHED IN GENERAL TERMS; COUCHED IN SPECIFIC TERMS
(13) To accept or repudiate an inheritance;
Art. 1877. An agency couched in general terms comprises only acts of
administration, even if the principal should state that he withholds no power or (14) To ratify or recognize obligations contracted before the agency;
that the agent may execute such acts as he may consider appropriate, or even
though the agency should authorize a general and unlimited management. (15) Any other act of strict dominion.

Art. 1878. Special powers of attorney are necessary in the following cases: Art. 1879. A special power to sell excludes the power to mortgage; and a special
power to mortgage does not include the power to sell.
(1) To make such payments as are not usually considered as acts of
administration; Art. 1880. A special power to compromise does not authorize submission to
arbitration.
(2) To effect novations which put an end to obligations already in existence at the
time the agency was constituted;

(3) To compromise, to submit questions to arbitration, to renounce the right to

appeal from a judgment, to waive objections to the venue of an action or to
abandon a prescription already acquired;

(4) To waive any obligation gratuitously;

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 AGENCY, PARTNERSHIP AND TRUST
MORTGAGE
Art. 1878 (12)
PNB v. Sta. Maria, 29 SCRA 303
Concept:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in
one and the same obligation does not imply that each one of the former has a
right to demand, or that each one of the latter is bound to render, entire
compliance with the prestation. There is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the obligation
requires solidarity
Facts:
· Special power of the attorney to mortgage real estate is limited to such
authority and does not bind the grantor personally to other obligations contracted
by the grantee
· The sugar crop loans were obtained by Maximo from the plaintiff bank
under the power of the attorney, executed in his favor by his brothers and sisters
to mortgage a 16-odd hectare parcel of land, jointly owned by all of them
· Valeriana the 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.
· Maximo applied for two separate crop loans with the PNB, one in the
amount of P15,000 but only P13,216.11 was extended by the PNB and the other
for P23,000 but only P12,427.57 was extended by the PNB
· As security for the two loans, Maximo executed it in his own name in favor
of PNB two chattel mortgages, guaranteed by the surety bonds for the full
authorized amounts of loans executed by the Associated Insurance & Surety Co.,
Inc.
3-EXECUTIVE | Ab Initio Group
· Plaintiff Bank filed the case on February 10,1961 against Defendant
Maximo Sta. Maria and his six brothers and sisters and the Associated Insurancs &
Suret Co., Inc. for the collection of unpaid balances of two sugar crop loans
· The Trial Court rendered judgement in favor of the PNB
· Maximo did not appeal but his siblings appealed and contended that they
had given their brother Maximo the authority to borrow money but only to
mortgage the real estate jointly owned by them and that if they are liable, the
liability should not go beyond the value of the property which they had authorized
to be given as security of the loans obtained by Maximo. They further contended
that they did not benefit whatsoever from the loans.
Issue: W/N the siblings are only liable for the value of the land?
Held: Yes, except for Valeriana who issued a separate Special Power of Attorney
authorizing Maximo to borrow money.
· In Bank of P. I. v. De Coster, "where in an instrumentpowers and duties
are specified and defined, that all of such powers and duties are limited
andconfined to thosewhich are specified and defined, and all other powers
andduties are excluded.”
· In De Villa vs. Fabricante, where the power of attorneygiven to the
husband by the wife was limited to a grant of authority to mortgage a parcel of
land titled in the wife'sname, the wife may not be held liable for the payment of
the mortgage debt contracted by the husband, as theauthority to mortgage does
not carry with it the authorityto contract obligation.
· Maximo and Valeriana are the only ones liable for the loans and that the
other siblings’ liability only correspond to real estate mortgage and the foreclosure
and sale of mortgage.
· Maximo’s argument that "a mortgage is simply anaccessory contract, and
that to effect the mortgage, aloan has to be secured" falls, far short of the
mark.Maximo had indeed, secured the loan on his own accountand the
defendants-appellants had authorized him tomortgage their respective undivided
shares of the realproperty jointly owned by them as security for the loan.But that
was the extent of their authority land consequentliability, to have the real property
answer for the loan incase of non-payment.
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· The outcome might be different if there had been anexpress ratification of
the loans by defendants-appellantsor if it had been shown that they had been
benefited bythe crop loans so as to put them in estoppel.
· Under the Art. 1207, Valeriana is only jointly liable with Maximo
BPI v. De Coster 47 Phil 594
SUBJECT MATTER: Classifications of agency contracts > Mortgage
CASE SUMMARY: While the wife (Gabriela de Coster) is residing in Paris, France,
her husband (Jean Poizat) executed a promissory note for a loan and a real
mortgage on her behalf, making her liable jointly and severally along with her
husband and his firm, by virtue of a power of attorney that she left with her
husband. This note and mortgage are in favor of BPI and the lower court ruled
that the defendants are liable to BPI. Wife returned to the Philippines to question
the validity of the service of the summons (since she has been residing in Paris for
16 years now), the validity of the promissory note, and the validity of the real
mortgage. The lower court denied the wife’s motion to reopen the case.
The note which binds the wife and upon which the mortgage was executed was
found to be for a preexisting debt of the husband and of his firm. The wife was
not a party to this original debt and the power of attorney does not authorize the
husband to make the wife liable as a surety to the debt of a third person. The note
was found by the Court to be void as to the wife. The mortgage that was given for
the sole purpose of securing that note follows the note, and was found to be void
as well, as to the wife. The case was REMANDED to the lower court for further
proceedings.
DOCTRINES:
o It is a fundamental rule of construction that where in an instrument, powers and
duties are specified and defined, that all of such powers and duties are limited and
confined to those which are specified and defined, and that all other powers and
duties are excluded. (In relation to the power of attorney of executed by Gabriela)
o The fact that an agent failed and neglected to perform his duties and to
represent the interests of his principal is not a bar to the principal obtaining legal
relief for the negligence of her agent, provided that the application for such a relief
is duly and properly made under the provisions of section 113 (Code of Civil
Procedure).
3-EXECUTIVE | Ab Initio Group
o (Ako lang nag-infer nito) When the note which a real mortgage is supposed
to secure is found to be VOID as to the principal (meaning the agent had no
power to execute the note on the principal’s behalf), then it follows that the
mortgage is also VOID as to the principal.
FACTS:
 Jean M. Poizat and wife Gabriela (with Jean acting as her agent) borrowed
P292,000 from BPI, payable one year after date of borrowing (Dec 29, 1921) with
9 percent interest per annum.
 A promissory note1 was made for this loan, indicating that the defendants are
liable jointly and severally and that in the event of a suit or action, defendants
shall pay an additional P10,000 as attorney’s fees.
 To secure payment thereof:
1. A chattel mortgage was executed by defendants Jean M. Poizat & J.M. Poizat &
Co. (a partnership) on the steamers Roger Poizat and Gabrielle Poizat (these
belong to Poizat Vegetable Oil Mills)
2. Gabriela (w/ consent & permission of husband and her husband acting as her
agent – IMPT!) delivered to BPI a mortgage on certain real property in the City of
Manila (same property was subject to a prior mortgage in favor of La Orden de
Dominicos hence it is made a party defendant)
 CFI: The note being long past due and owing, plaintiff brought an action against
defendants and CFI ruled against Gabriela, her husband Jean Poizat, and J.M.
Poizat & Co., who are jointly and severally liable to BPI for P292,000 w/ interest,
P10,000 attorney’s fees, and P2,500 for insurance of steamer Gabrielle Poizat w/
interest on that amount from Feb 9, 1924.
o Defendants have not paid the judgment or any part thereof.
o BPI prayed for the sheriff to possess and sell the steamers and asked the court
for the real property to be sold according to law; the proceeds of both be applied
to the sum owed to BPI. o The religious corporation La Orden de Dominicos then
appeared in the suit and filed a plea for the credit (P125,000 principal +
P27,954.34 interest) to them against the spouses De Coster & Poizat be taken into
account when the second mortgage is closed.
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 May 3, 1924 - Upon plaintiff’s motion, Gabriela, Jean Poizat, and J.M. Poizat &
Co. were declared in default for failure to appear or answer.
 June 4, 1924 – W/o giving notice to defendants, the lower court ruled in favor of
BPI and La Orden de Dominicos and ordered the sale of the properties.
(1 The promissory note was said to be made by Gabriela with the consent of her
husband (and said husband acting as Gabriela’s agent). No mention of the
partnership J.M. Poizat & Co. at this part of the case yet.)
 August 26, 1924 – Gabriela filed a motion stating that she has been residing in
Paris from 1908 to April 30, 1924; that she was absent from the Philippines when
the summons was served to her husband and through her husband’s malicious
negligence, default was taken against her. She had no idea about the facts until
the judgment against her was published in the local newspapers in July 1924. She
was unable to obtain rendition of the facts because her husband had gone to
Hongkong and had left Hongkong for Singapore under a false name and she is
now clueless about her husband’s whereabouts.
o She came into possession of documents showing the illegality of the notes and
the mortgage.
o Mortgage with Dominican Fathers – Mortgage for debt of third person made
without the marital consent of the wife; husband did not have the authority to
make her liable for a surety on the debt of a third person.
o Notes to BPI:
1. It does not represent any money paid to the defendant by the bank.
2. It is exclusively the personal debt of Jean Poizat and J.M. Poizat & Co.
3. It was executed by her husband because the bank asked for more security on
the debt.
4. It was executed by her husband in excess of the powers given to him under his
power of attorney.
5. It was the result of a collusion between BPI and Jean Poizat for the purpose of
making her liable for the obligation of a third person.
o Mortgage with BPI:
1. It was executed to secure a void obligation.
2. Does not guarantee any loan made to Gabriela.
3-EXECUTIVE | Ab Initio Group
3. Executed without the express marital consent which the law requires.
4. Executed through collusion.
 Gabriela prayed for the annulment of the judgment and for the case to be
reopened so she can file her answer. She prayed for the case to be tried on its
merit and that a final judgment absolving her from all liability be rendered.
 Motion by Gabriela was DENIED. MR was DENIED as well. Hence, this petition.
ISSUES (HOLDING):
1. WON the summons for Gabriela served to her husband was valid?
(NO)
2. WON the husband was authorized (by virtue of his POA) and
empowered to sign the bank note for and on behalf of
his wife? (NO – because wife was not a party to the preexisting debt of
husband to BPI)
3. WON the husband was authorized to sign the mortgage with BPI for
and on behalf of his wife? (NO – because the
note upon which the mortgage was supposed to secure is VOID as to the
wife; making the mortgage void as well.)
RATIO DECIDENDI:
1. Paragraph 6 of Section 396 of the Code of Civil Procedure provides:
“In all other cases, to the defendant personally, or by leaving a copy at his usual
place of residence, in the hands of some person resident therein of sufficient
discretion to receive the same. xxx”
The sheriff admitted that the summons for Gabriela was given to her husband, Mr.
J. M. Poizat, at her usual place of residence in the City of Manila on March 13,
1924. If this were the case of the wife being in Paris on a pleasure or a business
trip, then her residence would have continued to be that of her husband. This is
not the case here.
Upon the admitted facts, the Court is clearly of the opinion that the residence of
the husband was not the usual place of residence of the wife. Giving full force and
effect to the legal presumption that the usual place of residence of the wife is that
of her husband, that presumption is overcome by the admitted fact that the wife
was "residing in the City of Paris, France, since the year 1908 up to April 30,
1924." Without placing a limitation upon the length of time sufficient to overcome
the legal presumption, suffice it to say that sixteen years is amply sufficient.
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It follows that the substituted service (of summons) attempted to be made is NULL
and VOID and by such service, the court never acquired jurisdiction of the person
of the defendant wife.
(AGENCY-RELATED) The plaintiff contends that under his power of attorney, the
husband was the general agent of the wife with authority to accept service of
process for her and in her name, and that by reason of the fact that the husband
was duly served and he neglected to appear or reply, his actions and conduct were
binding on the defendant wife. But there is nothing in the record tending to show
that the husband accepted service of any process for or on account of his wife or
as her agent, or that he was acting on her behalf in his failure and neglect to
appear or answer.
2. On August 25, 1903, Gabriela gave her husband a power of attorney, which
gives him the following powers:
“5. Loan or borrow any sums of money or fungible things xxxx and making all
these transactions with or without mortgages, pledges or personal guaranty.
Jean Poizat did sign a promissory note on behalf of his wife in Dec 1921 and a real
mortgage afterward, also as his wife’s attorney in fact. But facts show that Jean
owed BPI P290,050.02 prior to July 1921 and thereafter his debt to BPI was
converted into 6 promissory notes aggregating to P308,458.58 of which P16,180
were paid; thus the balance of P292,278.58. What happened in Dec 1921 is that
these 6 promissory notes were cancelled and substituted by a joint and several
note signed by Jean in his personal capacity, as an agent of his wife, and as a
member of the firm J.M. Poizat & Co.
Under the power of attorney, the husband had no authority for and on behalf of
the wife to execute a joint and severalnote or to make her liable as an
accommodation maker. The debt in question was a preexisting debt of her
husband and of the firm of which she was not a party and she was not obliged to
pay. No new or additional money was lent when the note (of which wife is already
a party) was signed in Dec 1921. There is nothing in the power of attorney which
gives the husband the authority to make his wife liable as a surety for the
payment of the preexisting debt of a third person.
3. The real mortgage to the bank was given to secure the note in question and
was not given for any other purpose. The note being void as to the wife, it follows
3-EXECUTIVE | Ab Initio Group
that as to her the real mortgage to the bank is also void for want of power to
execute it.
Before the motion was filed, there were certain negotiations done between the
wife’s camp (and her lawyer) and BPI. BPI now claims that the wife is estopped to
deny her liability due to some evidence and admissions on the part of her attorney
during such negotiations. It was found by the court that the wife and her lawyer
did not have the complete information at the time of the negotiations and such
negotiations were in the nature of a compromise which was rejected by the bank
already. It was also found by the Court that there is no claim that the debt in
question was on account of the “usual daily expenses of the family” as provided
for Art. 1362 of the CC. Neither is there any evidence to show that the wife was
legally liable to pay for the original debt evidenced by the note in question.
This decision as to the bank on this motion is based on the assumption that the
facts are true as set forth and alleged in the petition to set aside and vacate the
judgment as to the wife, but the Court is not making any finding as to the actual
truth of such facts. That remains for the defendant wife to prove such alleged
facts when the case is tried on its merits.
DISPOSITIVE:
1. Lower court’s opinion in refusing to set aside and vacate the judgment for BPI
against Gabriela is REVERSED; such judgment is set aside and REMANDED to the
lower court for further proceedings.
2. Judgment of lower court in favor of La Orden de Dominicos is REVERSED,
without prejudice to its right to file an original suit to foreclose its mortgage or to
file a good and sufficient plea as intervenor in the instant suit.
Villamor, J., concurring and dissenting: - He agrees that the lower court’s
judgment should be set aside so that Gabriela would be given the opportunity to
appear and to defend herself.
- But he does not agree with the attempts of the majority to decide on certain
features of the case raised by defendant- appellant (Gabriela), without waiting for
the outcome of the new trial wherein the other parties will have the opportunity to
present their defenses against the facts alleged by appellant.
- The merits of the question should not now be discussed without giving the trial
court an opportunity to pass upon the allegations and evidence of the parties.
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LOAN/BORROW – ART. 1878 (7)
Hodges v. Salas, 63 Phil. 567
Facts: 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 the plaintiff, binding his
principals jointly and severally, to pay it within ten (10) years, together with
interest thereon 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. It was stated in the deed that in case the
defendants failed to pay the stipulated interest and the taxes on the real property
mortgaged and if the plaintiff were compelled to bring an action to recover his
credit, said defendants would be obliged to pay 10 per cent more on the unpaid
capital, as fees for the plaintiff's attorneys. The mortgage so constituted was
registered in the registry of deeds of the Province of Occidental Negros and noted
on the back of the transfer certificate of title.The defendants failed to pay at
maturity the interest stipulated which should have been paid one year in
advance. Plaintiff therefore brought an action for foreclosure of the mortgage. The
trial court ordered in favor of the defendants and held that the loan and the
mortgage were illegal.
Issue: Whether or not the loan obtained and the mortgage executed by
Yulo was valid and therefore defendants are bound to pay?
Ruling: Yes. The loan obtained and the mortgage executed by Yulo was valid and
therefore defendants are bound to pay for it. By virtue of the authority conferred
by the defendants by executing a power of attorney, agent Yulo was authorized to
borrow money and invest it as he wished, without being obliged to apply it
necessarily for the benefit of his principals.
3-EXECUTIVE | Ab Initio Group
SELL – ART. 1878 (5)
Strong v. Gutierrez Rupide, 6 Phil. 680 (main opinion only)
FACTS: Among the lands comprising the friar lands are the Dominican
lands, the only valuable asset owned by the corporation Philippine Sugar Estates
Development Company Limited (Philippine Sugar Estates). Francisco Gutierrez
Repide (Repide), defendant, was the majority stockholder and one of the five
directors of Philippine Sugar Estates. He was likewise elected by the board as the
agent and administrator general of such company. The factual backdrop being
during US occupation, the US Government wanted to secure title over the friar
lands. To accomplish this objective, Governor for the Philippines entered into
negotiations for the purchase of the Dominican lands, during which Repide
represented Philippine Sugar Estates. The first offer of the Governor was to
purchase the subject lands in the amount of $6, 043,219.47. As the majority
stockholder of Philippine Sugar Estates and without prior consultation with the
other stockholders, Repide rejected the offer. For the second offer, the purchase
price was increased to $7,535,000.
While negotiations for the second offer were ongoing and while still holding out for
a higher price of the Dominican lands, Repide took steps to purchase the 800
shares of stock of Philippine Sugar Estates. These shares were owned by Mrs.
Eleanor Strong (Strong) which were then in the possession of her agent, F. Stuart
Jones (Jones). Repide, instead of seeing Jones, employed Kauffman who later on
employed Sloan, a broker, to purchase the shares of Strong. Jones sold the 800
shares of Strong for 16,000 Mexican currency. For this sale transaction a check of
one Rueda Ramos was issued. Later on, the negotiations for the purchase of the
Dominican lands were concluded and a contract of sale was subsequently
executed. This sale transaction increased the value of the shares of stocks
originally owned by Strong from 16,000 Mexican currency to 76,256 US currency.
During the negotiations regarding the purchase of the shares of stock of Strong,
not one word of the facts affecting the value of this stock was made known to her
nor her agent, Jones. After the sale of Dominican lands and after the purchase of
the 800 shares of Strong, Repide became the owner of 30,400 out of the 42,030
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shares of Philippine Sugar Estates. Strong filed a complaint for the recovery of her
800 shares. She argued that her agent Jones had no authority to sell her shares
and that Repide fraudulently concealed the facts affecting their value.
ISSUE:
Was there fraud in effecting the purchase of Strong’s shares?
RULING: Yes. With the factual circumstances of this case, it became the
duty of Repide, acting in good faith, to state the facts before making the purchase
of Strong’s shares. That Repide was one of the directors of Philippine Sugar
Estates was but one of the facts upon which liability is asserted. He was not only a
director, but he owned three-fourths of the shares of its stock, and was, at the
time of the purchase of the stock, administrator general of the company with large
powers and engaged in the negotiations which finally led to the sale of the
company’s lands at a price which greatly enhanced the value of the stock. He was
the negotiator for the sale of the Dominican lands and was acting substantially as
the agent of the shareholders of Philippine Sugar Estates by reason of his
ownership of the shares in the company. Because of such ownership and agency,
no one knew as well as he does about the exact condition of the negotiations. He
was the only one who knew of the probability of the sale of the Dominican lands
to the government and of the probable purchase price. Under these
circumstances, Repide employed an agent to purchase the stock of Strong,
concealed his own identity and his knowledge of the state of negotiations and their
probable result. The concealment of his identity while procuring the purchase of
the stock, by his agent, was in itself strong evidence of fraud on the part of
Repide. By such means, the more easily was he able to avoid questions relative to
the negotiations for the sale of Dominican lands and actual misrepresentations
regarding that subject. He kept up the concealment as long as he could by giving
the check of a third person Rueda Ramos, for the purchase money. This move of
Repide was a studied and intentional omission to be characterized as part of the
deceitful machinations to obtain the purchase without giving any information
whatever as to the state and probable result of the negotiations and to obtain a
lower price for the shares of Strong. After the purchase of stock, he continued
negotiations for the sale of the Dominican lands as the administrator general and
eventually entered into a contract of sale. The whole transaction gives conclusive
evidence of the overwhelming influence Repide had in the negotiations and it is
clear that the final consummation was in his hands at all times.
3-EXECUTIVE | Ab Initio Group
OBITER DICTUM:
The directors are declared to be mandatories of the society and that they are
prohibited from acquiring by purchase, even at public or judicial auction, the
property the administration or sale of which, may have been entrusted to them,
and that this is the extent of the prohibition.
Katigbak v. Tai Hing Co., 52 Phil. 622
Po Sun Suy and Po Ching are owners of the commercial firm Tai Hing Co.)
FACTS: Po Ejap was the owner of a titled land w/c was mortgaged to PNB in
1919-1921, Po Tecsi executed a general power of attorney in favor of his brother
Po Ejap to perform on his behalf the ff: "to buy, sell, or barter, assign, admit in
acquittance or in any other manner to acquire or convey all sorts of property, real
and personal, businesses and industries, credits, rights, and actions belonging to
me, for whatever prices and under the conditions which he may stipulate, paying
and receiving payment in cash or in installments, and to execute the proper
instruments with the formalities provided by the law."
Po Ejap then sold the said land with its improvements to his brother Po Tecsi for
the sum of P10,000. In 1923, making use of the power conferred by his brother,
Po Ejap sold absolutely said land to Katigbak. After said sale, Po Tecsi leased the
property sold, from Gabino Barreto Po Ejap, who administered it in the name of
Jose M. Katigbak, at a rental of P1,500 per month, payable in advance, leaving
unpaid the rents accrued from that date until his death which occurred on
November 26, 1926, having paid the accrued rents up to October 22, 1925; from
November 26, 1926, the defendants Po Sun Suy and Po Ching leased said land for
the sum of P1,500 per month; on February 11, 1927, Po Sun Suy was appointed
administrator of the estate of his father Po Tecsi, and filed with the court an
inventory of said estate including the land inquestion; and on May 23, 1927, Jose
M. Katigbak sold the same property to Po Sun Boo, Katigbak filed this action for
the recovery of the rent. Po Sun Suy contends that Katigbak is not the owner of
the property (so not entitled to rents) because Po Ejap was not authorized under
the power executed by Po Tecsi to sell said land, because said power had been
executed before Po Ejap sold said land to Tecsi.
ISSUES: WON Po Ejap cannot have sold the property (on behalf of Tecsi)
because the power was executed by Tecsi before Tecsi owned the
property.
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RULING: The power is general and authorizes Gabino Po Ejap to sell any kind of
realty "belonging" (pertenezcan) to the principal. The use of the subjunctive
"pertenezcan" (might belong) and not the indicative "pertenecen" (belong), means
that Po Tecsi meant not only the property he had at the time of the execution of
the power, but also such as he might afterwards have during the time it was in
force. Under Act 496, every document which in any manner affects the registered
land is ineffective unless it is recorded in the registry of deeds. But such inefficacy
only refers to third persons who, in good faith, may have acquired some right to
the registered land. While it is true that a power of attorney not recorded in the
registry of deeds is ineffective in order that an agent or attorney-in-fact may
validly perform acts in the name of his principal, and that any act performed by
the agent by virtue of said' power with respect to the land is ineffective against a
third person who, in good faith, may have acquired a right thereto, it does,
however, bind the principal to acknowledge the acts performed by his attorney-in-
fact regarding said property.
In the present case, while it is true that the non-registration of the power of
attorney executed by Po Tecsi in favor of his brother Gabino Barreto Po Ejap
prevents the sale made by the latter of the litigated land in favor of Jose M.
Katigbak from being recorded in the registry of deeds, it is not ineffective to
compel Tecsi to acknowledge said sale.
LEASE – ART. 1878 (8)
Chua v. IAC, 229 SCRA 99
FACTS: Sometime in 1950, defendant Herminigilda Herrera executed a Contract of
Lease in favor of Tian On whereby the former leased to the latter Lots. Nos. 620
and 7549 containing an area of 151 square meters, located at Manalili Street (now
V. Gullas Street) Cebu City, for a term of ten (10) years, renewable for another
five (5) years. The contract of lease contains a stipulation giving the lessee an
option to buy the leased property nd that the lessor guarantees to leave the
possession of said property to the lessee for a period of ten (10) years or as long
as the lessee faithfully fulfills the terms and conditions of their contract.
In accordance with the said contract of lease, the lessee, Tian On, erected
a residential house on the leased premises.
3-EXECUTIVE | Ab Initio Group
On February 2, 1954, or within four (4) years from the execution of the
said contract of lease, the lessee, Sy Tian On, executed a Deed of Absolute Sale of
Building in favor of Chua Bok, the predecessor-in-interest of the plaintiffs herein,
whereby the former sold to the latter the aforesaid residential house for and in
consideration of the sum of P8,000.00. Pertinent provisions of this deed of sale.
After the expiration of the contract of lease in question he plaintiffs herein,
who are the successors-in-interest of Chua Bok (who had meanwhile died)
continued possession of the premises up to April 1978, with adjusted rental rate of
P1,000.00 later readjusted to P2,000.00.
On July 26, 1977, defendant Herrera through her attorney-in-fact, Mrs.
Luz Tormis, who was authorized with a special power of attorney, sold the lots in
question to defendants-spouses, Vicente and Victoria Go. The defendants-spouses
were able to have aforesaid sale registered with the Register of Deeds of the City
of Cebu and the titles of the two parcels of land were transferred in their names.
Thereafter, or on November 18, 1977, plaintiffs filed the instant case
seeking the annulment of the said sale between Herminigilda Herrera and spouses
Vicente and Victoria Go, alleging that the conveyance was in violation of the
plaintiffs' right of option to buy the leased premises as provided in the Contract of
Lease and that the defendants-spouses acted in bad faith in purchasing the said
lots knowing fully well that the said plaintiffs have the option to buy those lots.
ISSUE(S):
1. W/N the defendants was in bad faith in the purchase of the lots
knowing that plaintiffs had the option to buy said lots
HELD:
No.
RATIO: The lease contract, petitioners’ cause of action, involves the lease of real property
for a period of more than one year. The contract was entered into by the agent of the lessor
and not the lessor herself. In such a case, the law requires that the agent be armed with a
special power of attorney to lease the premises.
Article 1878 of the New Civil Code, in pertinent part, provides: "Special Powers of
Attorney are necessary in the following cases
(8) To lease any real property to another person for more than one year."
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It is true that respondent Herrera allowed petitioners to occupy the leased premises after the
expiration of the lease contract and under Article 1670 of the Civil Code of the Philippines,
a tacit renewal of the lease is deemed to have taken place. However, a tacit renewal is
limited only to the terms of the contract which 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 leased premises.
We dismissed Dizon’s appeal and sustained the interpretation of the Court of Appeals that
"the other terms of the original contract" mentioned in Article 1670, are only those terms
which are germane to the lessee’s right of continued enjoyment of the property leased. We
held:
This is a reasonable construction of the provision, which is based on the presumption that
when the lessor allows the lessee to continue enjoying possession of the property for fifteen
days after the expiration of the contract he is willing that such enjoyment shall be for the
entire period corresponding to the rent which is customarily paid — in this case up to the
end of the month because the rent was paid monthly. Necessarily, if the presumed will of
the parties refers to the enjoyment of possession, the presumption covers the other terms of
the contract related to such possession, such as the amount of rental, the date when it must
be paid, the care of the property, the responsibility for repairs, etc. But no such
presumption may be indulged in with respect to special agreements which by nature are
foreign to the right of occupancy or enjoyment inherent in a contract of leas.
CASE LAW/ DOCTRINE: A tacit renewal is limited only to the terms of the contract
which 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 leased premises.
COMPROMISE –ART. 1878(3)
Dungo v. Lopena, 6 SCRA 1007
DOCTRINE: A compromise is a contract in itself. Under Art 1878, a
third person cannot bind another to a compromise agreement unless he,
the third person, has obtained a special power of attorney for that
3-EXECUTIVE | Ab Initio Group
purpose from the party intended to be bound. When it appears that the
client, on becoming aware of the compromise and the judgment thereon,
fails to repudiate promptly the action of his attorney, he will not
afterwards be heard to contest its validity.
FACTS: (Sept 10, 1959) Petitioner Dungo and one Rodrigo Gonzales
purchased 3 parcels of land from respondents. Out of the total price,
downpayment was made with the agreement that the balance would be
paid in 6 monthly installments. To secure the payment of the balance,
Dungo and Gonzales executed over the same 3 parcels of land Deed of
Real Estate Mortgage in favor of Lopena and Ramos.
→ Duly registered with the Office of the Register of Deeds with the
condition that failure of the vendees to pay any of the installments on
their maturity dates shall automatically cause the entire unpaid balance
to become due and demandable. Vendees defaulted on the first
installment which prompted respondents to file a complaint for the
foreclosure of the mortgage. Before trial, a compromise agreement was
submitted to the lower court for approval.
→ Signed by respondent Lopena and Rosa Ramos and Gonzales.
→ It was not signed by herein petitioner but Gonzales represented that
his signature was both for himself and for Dungo.
→ Dungo’s counsel of record was present at the preparation of the
compromise agreement and affixed his own signature. Compromise
agreement states should the defendants fail to pay the mortgage
indebtedness on the specified date, judgments of foreclosure shall be
entered. Period of redemption is waived. Subsequently, a Tri-Party
Agreement was drawn. Signatories were Dungo and Gonzales as
debtors, Lopena and Ramos as creditors and one Emma Santos as payor.
When Dungo and Gonzales failed to pay the balance of their
indebtedness, Lopena and Ramos filed a Motion for the Sale of
Mortgaged Property. Lower court granted the motion and ordered the
sale. The 3 parcels of land were sold at a public auction. The sheriff’s
sale was later confirmed by the lower court (Aug 30, 1960). Petitioner
did not file any opposition.
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(Aug 31) Dungo filed a motion to set aside all the proceedings on the
ground that the compromise agreement was void since he did not sign it.
TC denied. Dungo filed a notice of appeal from the approval of the
foreclosure sale. Respondents opposed, saying that the judgment was
not appealable because It was rendered by virtue of the compromise
agreement.
ISSUE: W/N the compromise agreement and all the proceedings
subsequent thereto void insofar as the petitioner is concerned – NO
RATIO: A compromise in itself is a contract.1 Under Art 1878, a third
person cannot bind another to a compromise agreement unless the third
person has obtained a special power of attorney for that purpose from
the party intended to be bound. However, although the Civil Code
expressly requires a special power of attorney so that one may
compromise an interest of another, it is incorrect to conclude that its
absence renders the compromise agreement void. It is merely
unenforceable. Resulting from its nature as a contract.
Dungo had already ratified the compromise agreement as
established by the Tri-Party Agreement where it was stipulated that the
PAYOR submits and binds himself to the force and effect of the order of
CFI. When it appears that the client, on becoming aware of the
compromise and judgment thereon, fails to repudiate promptly the
action of his attorney, he will not be heard to contest its validity.
Although Dungo was not a signatory, the compromise agreement
benefited him in that the agreement extended the date of maturity.
Petitioner argues that the compromise agreement could not be enforced
because it had been novated by the Tri-Party Agreement. Petitioner was
mistaken. Novation by presumption has never been favored. It needs to
be established that the old and new contracts are incompatible in all
points or that the will to novate is expressly stated. The Tri-Party
Agreement was an instrument intended to render effective the
compromise agreement. It merely complemented and ratified the same.
Compromise agreement was valid and enforceable.
Petition for certiorari and mandamus filed by petitioner is dismissed
3-EXECUTIVE | Ab Initio Group
Vicente v. Geraldez, 52 SCRA 210
Facts
• Private respondent Hi Cement Corporation filed with CFI Bulacan a complaint for
injunction and damages against petitioners.
o In said complaint the plaintiff alleged that: Under a deed of sale and transfer, it
had acquired the Placer Lease Contract No. V-90, from Banahaw Shale Mining
Association. The deed was duly registered and duly approved by DENR.
o The said Placer Lease Contract was 25 years from August 1, 1960 and covered
two mining claims (Red Star 8 and 9) with a combined area of about fifty-one
hectares
• However, within the boundaries of the Red Star 8 are 3 parcels of land which are
being claimed by Juan Bernabe (about two hectares), Ignacio Vicente (about two
hectares) and Moises Angeles (about one-fourth hectare)
• The plaintiff requested defendants to allow its workers to enter the area in
question for exploration and development purposes as well as for the extraction of
minerals, promising to pay the defendants reasonable amounts as damages, but
the defendants refused to allow entry of the plaintiff's representatives
o The defendants were threatening the plaintiff's workers with bodily harm if they
entered the premises, for which reason the plaintiff had suffered irreparable
damages due to its failure to work on and develop its claims and to extract
minerals therefrom, resulting in its inability to comply with its contractual
commitments
• Defendants’ claims:
o They are rightful owners of certain portions of the land covered by the supposed
mining claims of the plaintiff
o It was the plaintiff and its workers who had committed acts of force and violence
when they
• The court then suggested the relocation of the boundaries of the plaintiff's
claims in relation to the properties of the defendants
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o Had a surveyor survey the location and relocate borders
o The report found that Angeles’ and Vicente’s properties were totally covered by
Corporation’s claim while Bernabe’s property was only partially covered – report
was approved "with the conformity of all the parties in this case.”
• The counsels of the parties executed and submitted to the court a Compromise
Agreement – approved
• On October 21, 1969, Atty. Francisco Ventura (for Hi Cement ), filed with the
trial court a manifestation stating that on September 1,1969 he sent a copy of the
Compromise Agreement to Mr. Antonio Diokno, President of the corporation,
requesting the latter to intercede with the Board of Directors for the confirmation
or approval of the commitment made by the plaintiff's lawyers to abide by the
decision of the Court based on the reports of the Commissioners
o However, the corporation’s president answered through a letter stating that they
do not agree with the valuation set by the court. o RTC rendered judgment that
plaintiff is ordered to pay defendants per square meter for the subject properties
• Plaintiff filed a motion for new trial on the ground that the decision of above
decision is null and void because it was based on the Compromise Agreement
which was itself null and void for want of a special authority by the plaintiff's
lawyers to enter into the said agreement.
Issue
Is the compromise agreement entered into by the corporation’s lawyer
valid? NO.
Ratio
• SPAs are necessary, among other cases, in a compromise and to renounce the
right to appeal from a judgment.
o Attorneys have authority to bind their clients in any case by any agreement in
relation thereto made in writing, and in taking appeals, and in all matters of
ordinary judicial procedure, but they cannot, without special authority,
compromise their clients' litigation, or receive anything in discharge of their clients'
claims but the full amount in cash.
3-EXECUTIVE | Ab Initio Group
The Compromise Agreement was signed only by the lawyers of the parties.
O It is not disputed that the lawyers of respondent had not submitted to the Court
any written authority from their client to enter into a compromise.
• This Court has said that the Rules "require, for attorneys to compromise the
litigation of their clients, a special authority. And while the same does not state
that the special authority be in writing the court has every reason to expect that, if
not in writing, the same be duly established by evidence other than the self-
serving assertion of counsel himself that such authority was verbally given him."
o The law specifically requires that "juridical persons may compromise only in the
form and with the requisites which may be necessary to alienate their property.”
• Under corporation law, the power to compromise or settle claims in favor of or
against the corporation is ordinarily and primarily committed to the Board of
Directors.
o This power may however be delegated either expressly or impliedly to other
corporate officials or agents.
o Thus it has been stated, that as a general rule an officer or agent of the
corporation has no power to compromise or settle a claim by or against the
corporation, except to the extent that such power is given to him either expressly
or by reasonable implication from the circumstances.
• A corporation officer's power as an agent of the corporation must therefore be
sought from the statute, the charter, the by-laws, or in a delegation of authority to
such officer, from the acts of board of directors, formally expressed or implied
from a habit or custom of doing business – none in the case at bar.
Equally misplaced is petitioners' invocation of the principle of estoppel.
O In the case at bar, except those made by plaintiff’s counsel, petitioners have not
demonstrated any act or declaration of the corporation amounting to false
representation or concealment of material facts calculated to mislead said
petitioners.
o The acts or conduct for which the corporation may be liable under the doctrine
of estoppel must be those of the corporation, its governing body or authorized
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officers, and not those of the purported agent who is himself responsible for the
misrepresentation.
OTHER ACTS OF STRICT DOMINION – ART. 1878(12)
Insular Drug Co. v. National Bank, 58 Phil. 684
Facts: 132 checks made out in the name of the Insular Drug Co., Inc., were
brought to the branch office ofthe Philippine National Bank in Iloilo by Foerster, a
salesman of the drug company, Foerster's wife, and Foerster's clerk. And said bank
credited those checks to the personal account of Foerster and permittedhim amd
his wife to make withdrawals. Eventually the Manila office of the drug company
investigated the transactions of Foerster. Upon the discovery of anomalies,
Foerster committed suicide. But there is no evidence showing that the bank
knewthat Foerster was misappropriating the funds of his principal. The Insular
Drug Company claims that itnever received the face value of 132 checks.
Issue: WON PNB shall be held liable for permitting Foerster to indorse
and withdraw the checks of hisprincipa, Insular Druga Co. Inc.
Held:Yes. The bank could tell by the checks themselves that the money belonged
to the Insular Drug Co., Inc., and not to Foerster or his wife or his clerk. Moreover,
the bank did not only permit Foerster to indorse checks and then place them to his
personal account, but it went farther and permitted Foerster's wife and clerk to
indorse the checks. The right of an agent to indorse commercial paper is a very
responsible power and will not be lightly inferred. A sales man with authority to
collect money belonging to his principal does not have the implied authority to
indorse checks received in payment. And it suffices to state in conclusion that bank
will have to stand the loss occasioned by the negligence of its agents.
WEEK 5
OBLIGATIONS AND LIABILITIES OF AGENTS TO THEIR PRINCIPALS
ACT WITHIN SCOPE OF AUTHORITY
Art. 1879. A special power to sell excludes the power to mortgage; and a special
power to mortgage does not include the power to sell.
3-EXECUTIVE | Ab Initio Group
Art. 1880. A special power to compromise does not authorize submission to
arbitration.
Art. 1881. The agent must act within the scope of his authority. He may do such
acts as may be conducive to the accomplishment of the purpose of the agency.
Art. 1882. The limits of the agent's authority shall not be considered exceeded
should it have been performed in a manner more advantageous to the principal
than that specified by him.
Art. 1887. In the execution of the agency, the agent shall act in accordance with
the instructions of the principal.
In default thereof, he shall do all that a good father of a family would do,
as required by the nature of the business
CARRY OUT THE AGENCY
Art. 1884. The agent is bound by his acceptance to carry out the agency, and is
liable for the damages which, through his non-performance, the principal may
suffer.
He must also finish the business already begun on the death of the
principal, should delay entail any danger.
Art. 1928. The agent may withdraw from the agency by giving due notice to the
principal. If the latter should suffer any damage by reason of the withdrawal, the
agent must indemnify him therefor, unless the agent should base his withdrawal
upon the impossibility of continuing the performance of the agency without grave
detriment to himself.
Art. 1929. The agent, even if he should withdraw from the agency for a valid
reason, must continue to act until the principal has had reasonable opportunity to
take the necessary steps to meet the situation.
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NOT TO CARRY OUT THE AGENCY
Art. 1888. An agent shall not carry out an agency if its execution would
manifestly result in loss or damage to the principal.
LOYALTY
Art. 1889. The agent shall be liable for damages if, there being a conflict
between his interests and those of the principal, he should prefer his own.
Art. 1890. If the agent has been empowered to borrow money, he may himself
be the lender at the current rate of interest. If he has been authorized to lend
money at interest, he cannot borrow it without the consent of the principal.
Art. 1891. Every agent is bound to render an account of his transactions and to
deliver to the principal whatever he may have received by virtue of the agency,
even though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an
account shall be void.
DILIGENCE
Art. 1885. In case a person declines an agency, he is bound to observe the
diligence of a good father of a family in the custody and preservation of the goods
forwarded to him by the owner until the latter should appoint an agent or take
charge of the goods.
Art. 1887. In the execution of the agency, the agent shall act in accordance with
the instructions of the principal.
In default thereof, he shall do all that a good father of a family would do,
as required by the nature of the business.
Art. 1909. The agent is responsible not only for fraud, but also for negligence,
which shall be judged with more or less rigor by the courts, according to whether
the agency was or was not for a compensation.
ACCOUNT/DELIVER
3-EXECUTIVE | Ab Initio Group
Art. 1891. Every agent is bound to render an account of his transactions and to
deliver to the principal whatever he may have received by virtue of the agency,
even though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an
account shall be void.
SOLIDARY LIABILITY
Art. 1894. The responsibility of two or more agents, even though they have been
appointed simultaneously, is not solidary, if solidarity has not been expressly
stipulated.
Art. 1895. If solidarity has been agreed upon, each of the agents is responsible
for the non-fulfillment of agency, and for the fault or negligence of his fellows
agents, except in the latter case when the fellow agents acted beyond the scope
of their authority.
PAY INTEREST
Art. 1896. 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.
FRAUD; NEGLIGENCE
Art. 1909. The agent is responsible not only for fraud, but also for negligence,
which shall be judged with more or less rigor by the courts, according to whether
the agency was or was not for a compensation.
SPECIFIC OBLIGATIONS OF COMMISSION AGENTS
Art. 1903. 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.
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Art. 1904. The commission agent who handles goods of the same kind and mark,
which belong to different owners, shall distinguish them by countermarks, and
designate the merchandise respectively belonging to each principal.
Art. 1905. The commission agent cannot, without the express or implied consent
of the principal, sell on credit. Should he do so, the principal may demand from
him payment in cash, but the commission agent shall be entitled to any interest or
benefit, which may result from such sale.
Art. 1906. Should the commission agent, with authority of the principal, sell on
credit, he shall so inform the principal, with a statement of the names of the
buyers. Should he fail to do so, the sale shall be deemed to have been made for
cash insofar as the principal is concerned.
Art. 1907. Should the commission agent receive on a sale, in addition to the
ordinary commission, another called a guarantee commission, he shall bear the
risk of collection and shall pay the principal the proceeds of the sale on the same
terms agreed upon with the purchaser.
Art. 1908. The commission agent who does not collect the credits of his principal
at the time when they become due and demandable shall be liable for damages,
unless he proves that he exercised due diligence for that purpose.
Art. 1909. The agent is responsible not only for fraud, but also for negligence,
which shall be judged with more or less rigor by the courts, according to whether
the agency was or was not for a compensation.
Austria v. CA, 39 SCRA 527
Facts:
Maria G. Abad received from Guillermo Austria one (1) pendant with diamonds to
be sold on commission basis or to be returned on demand. Maria Abad while
walking home, two men snatched her purse containing jewelry and cash, and ran
away. Thus, Abad failed to return the jewelry or pay its value notwithstanding
demands. Austria filed an action against Abad and Abad’s husband for recovery of
the pendant or of its value, and damages. Abad raised the defense that the
alleged robbery had extinguished their obligation.
Issue/s:
3-EXECUTIVE | Ab Initio Group
1. Whether or not in a contract of agency (consignment of good for
sole) it is necessary that there be prior conviction for robbery
before the loss of the article shall exempt the consignee from
liability for such loss.
2. Whether or not Abad was negligent.
Ruling:
1. No. To avail of the exemption granted in the law, it is not necessary that
the persons responsible for the occurrence should be found or punished, it
would only be sufficient to establish that the enforceable event, the
robbery in this case did take place without any concurrence fault on the
debtor’s part, and this can be done by preponderance of evidence.
A court finding that a robbery has happened would not necessary mean that those
accused in the criminal action should be found guilty of the crime; nor would a
ruling that those actually accused did not commit the robbery be inconsistent with
a finding that a robbery did take place.
No. In 1961, when the robbery in question did take place, for at that time
criminality had not by far reached the levels attained in the present day. The
diligence that Abad portrayed when she went home before she was robbed was
not a sign of negligence on her part.
PNB v. Manila Surety, 14 SCRA 776
FACTS:
The PNB opened a letter of credit and advanced $120,000.00 to Edington Oil
Refinery for 8,000 tons of hot asphalt, of which 2,000 tons worth P279,000.00
were delivered to Adams & Taguba Corp. (ATACO) under a trust receipt
guaranteed by Manila Surety & Fidelity Co. To pay for the asphalt ATACO
constituted PNB its assignee and attorney-in-fact to receive and collect payments
from the Bureau of Public Works. ATACO delivered asphalt worth P431,466.52 to
the Bureau of Public Works, PNB regularly collected the payments amounting to
P106,382.01, until they ceased to collect payments. Then in 1962 PNB found that
there were more payables to ATACO from the Bureau of Public Works. PNB sued
ATACO and the Surety, to recover the balance of P158,563.18 when their
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demands for payment were refused. The trial court ordered ATACO and the Surety
to pay PNB the sum of P174,462.34, and the total amount payable by the Surety
shall not exceed P75,000.00. PNB recoursed to the Court of Appeals, which
rendered an adverse decision and modified the judgement of the court of origin
as to the Surety’s liability. Motions for reconsideration were also denied.
ISSUE: Whether or not it is the duty of the surety and not that of the
creditor thru its agent, to see to it that the obligor fulfils his obligation,
and that the creditor owed the surety no duty of active diligence to
collect any sum from the principal debtor.
RULING:
No. The Court of Appeals did not hold the Philippine National Bank answerable for
negligence in failing to collect from the principal debtor but for its negligence in
collecting the sum due to the debtor from the Bureau of Public Works, contrary to
its duty as holder of an exclusive and irrevocable power of attorney to make such
collections, since an agent is required to act with care of a good father of a family
(Civil Code, Art. 1886) and becomes liable for the damages which the principal
may suffer through his non performance. Even if the assignment with power of
attorney from the principal debtor were considered as more additional security, by
allowing the assigned funds to be exhausted without notifying the surety, the PNB
deprived the former of any possibility of recoursing against that security. The PNB
exonerated the surety, pursuant to Art. 2080 of the Civil Code.
Domingo v. Domingo, 42 SCRA 131
FACTS:
On June 2, 1956, Vicente M. Domingo granted Gregorio Domingo, a real estate
broker, the exclusive agency to sell his lot No. 883 of Piedad Estate with an area of
about 88,477 square meters at the rate of P2.00 per square meter (or for
P176,954.00) with a commission of 5% on the total price, if the property is sold by
Vicente or by anyone else during the 30-day duration of the agency or if the
property is sold by Vicente within three months from the termination of the agency
to apurchaser to whom it was submitted by Gregorio during the continuance of the
agency with notice to Vicente.
On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for
a buyer, promising him one-half of the 5% commission.
3-EXECUTIVE | Ab Initio Group
Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective
buyer.
Oscar de Leon submitted a written offer which was very much lower than the price
of P2.00 per square meter. After several conferences between Gregorio and Oscar
de Leon, the latter raised his offer to P109,000.00 on June 20, 1956. Upon
demand of Vicente, Oscar de Leon issued to him a check in the amount of
P1,000.00 as earnest money, after which Vicente advanced to Gregorio the sum of
P300.00. Oscar de Leon confirmed his former offer to pay for the property at
P1.20 per square meter. Subsequently, Vicente asked for an additional amount of
P1,000.00 as earnest money, which Oscar de Leon promised to deliver to him.
Thereafter, Oscar de Leon will vacate on or about September 15, 1956 his house
and lot at Denver Street, Quezon City which is part of the purchase price. Pursuant
to his promise to Gregorio, Oscar gave him as a gift or propina the sum of One
Thousand Pesos (P1,000.00) for succeeding in persuading Vicente to sell his lot at
P1.20 per square meter or a total in round figure of One Hundred Nine Thousand
Pesos (P109,000.00). This gift of One Thousand Pesos (P1,000.00) was not
disclosed by Gregorio to Vicente. Neither did Oscar pay Vicente the additional
amount of One Thousand Pesos (P1,000.00) by way of earnest money. In the
deed of sale was not executed on August 1, 1956 as stipulated in Exhibit "C" nor
on August 15, 1956 as extended by Vicente, Oscar told Gregorio that he did not
receive his money from his brother in the United States, for which reason he was
giving up the negotiation including the amount of One Thousand Pesos
(P1,000.00) given as earnest money to Vicente and the One Thousand Pesos
(P1,000.00) given to Gregorio as propina or gift. When Oscar did not see him after
several weeks, Gregorio sensed something fishy. So, he went to Vicente and read
a portion of their contract to the effect that Vicente was still committed to pay him
5% commission, if the sale is consummated within three months after the
expiration of the 30-day period of the exclusive agency in his favor from the
execution of the agency contract on June 2, 1956 to a purchaser brought by
Gregorio to Vicente during the said 30-day period. Vicente grabbed the original of
contract and tore it to pieces. Gregorio held his peace, not wanting to antagonize
Vicente further, because he had still duplicate of the contract. From his meeting
with Vicente, Gregorio proceeded to the office of the Register of Deeds of Quezon
City, where he discovered a deed of sale executed on September 17, 1956 by
Amparo Diaz, wife of Oscar de Leon, over their house and lot No. 40 Denver
Street, Cubao, Quezon City, in favor Vicente as down payment by Oscar de Leon
on the purchase price of Vicente's lot No. 883 of Piedad Estate. Upon thus learning
that Vicente sold his property to the same buyer, Oscar de Leon and his wife, he
demanded in writting payment of his commission on the sale price of One Hundred
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Nine Thousand Pesos (P109,000.00), Exhibit "H". He also conferred with Oscar de
Leon, who told him that Vicente went to him and asked him to eliminate Gregorio
in the transaction and that he would sell his property to him for One Hundred Four
Thousand Pesos (P104,000.0 In Vicente's reply to Gregorio's letter, Vicente stated
that Gregorio is not entitled to the 5% commission because he sold the property
not to Gregorio's buyer, Oscar de Leon, but to another buyer, Amparo Diaz, wife
of Oscar de Leon.
ISSUE:
Whether or not Gregorio Domingo, agent of Vicente Domingo, is liable
for a breach of contract of agency for not disclosing to his principal that
he received a gift from Oscar de Leon, the buyer, amounting to P1,000,
that constitutes as fraud as to cause a forfeiture of his commission on
the sale price.
RULING:
Yes. Under the law, Art. 1891 of NCC, every agent is bound to render an account
of his transactions and to deliver to the principal whatever he may have received
by virtue of the agency, even though it may not be owing to the principal. Every
stipulation exempting the agent from the obligation to render an account shall be
void. And Art. 1909 of NCC, the agent is responsible not only for fraud but also for
negligence, which shall be judged with more less rigor by the courts, according to
whether the agency was or was not for a compensation.
In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a
gift or propina in the amount of One Thousand Pesos (P1,000.00) from the
prospective buyer Oscar de Leon, without the knowledge and consent of his
principal, herein petitioner-appellant Vicente Domingo. His acceptance of said
substantial monetary gift corrupted his duty to serve the interests only of his
principal and undermined his loyalty to his principal, who gave him partial advance
of Three Hundred Pesos (P300.00) on his commission. As a consequence, instead
of exerting his best to persuade his prospective buyer to purchase the property on
the most advantageous terms desired by his principal, the broker, herein
defendant-appellee Gregorio Domingo, succeeded in persuading his principal to
accept the counter-offer of the prospective buyer to purchase the property at
P1.20 per square meter or One Hundred Nine Thousand Pesos (P109,000.00) in
round figure for the lot of 88,477 square meters, which is very much lower the the
price of P2.00 per square meter or One Hundred Seventy-Six Thousand Nine
Hundred Fifty-Four Pesos (P176,954.00) for said lot originally offered by his
principal.
3-EXECUTIVE | Ab Initio Group
Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or
personal benefit from the vendee, without revealing the same to his principal, the
vendor, is guilty of a breach of his loyalty to the principal and forfeits his right to
collect the commission from his principal, even if the principal does not suffer any
injury by reason of such breach of fidelity, or that he obtained better results or
that the agency is a gratuitous one, or that usage or custom allows it; because the
rule is to prevent the possibility of any wrong, not to remedy or repair an actual
damage. By taking such profit or bonus or gift or propina from the vendee, the
agent thereby assumes a position wholly inconsistent with that of being an agent
for hisprincipal, who has a right to treat him, insofar as his commission is
concerned, as if no agency had existed. The fact that the principal may have been
benefited by the valuable services of the said agent does not exculpate the agent
who has only himself to blame for such a result by reason of his treachery or
perfidy.
Severino v. Severino, 44 Phil. 343
FACTS: Defendant Guillermo Severino, after the death of his brother, Melecio
Severino, was the latter’s administrator and as such, continued to occupy the land
owned by Melecio. Eventually, cadastral proceedings were instituted for the
registration of the land and since no opposition was presented, the court decreed
the title in his favor.
Melecio’s daughter and sole heir, plaintiff Fabiola Severino, compelled Guillermo to
convey to her the land. It bears noting that Fabiola was a minor during the time of
the cadastral proceedings.
ISSUE: Whether or not an agent can acquire the land entrusted to him
by his principal after the latter’s death.
RULING: NO. According to the Supreme Court, 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 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-
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interest and integrity. In this case, an agent, who has entered and surveyed a
portion of that land for himself and obtained a patent for it in his own name,
becomes a trustee for his principal. He cannot hold the land for himself otherwise
than as trustee for his principal.
Green Valley Poultry v. IAC, 133 SCRA 697
Facts:
Squibb and Green Valley entered into a letter agreement where it is stipulated
that: o GV is the non-exclusive distributor of the products of Squibb Veterinary
Products. o GV, as distributor, is entitled to 10% discount on Squibb’s whole sale
price and catalogue price. o GV is limited to selling Squibb’s products to central
and northern Luzon. o Payment for purchases from Squibb will be due 60 days
from the date of invoice. - For goods delivered to GV but unpaid, Squibb filed suit
to collect. - RTC & CA: in favor of Squibb. - Squibb argues that their relationship
with GV is a mere contract of sale evidenced by the stipulation that GV was
obligated to pay for the goods after the 60-day period. - GV counters that their
relationship is that of an agency to sell, thus there’s no obligation to turn over the
proceeds or goods if not sold, and since it had sold the goods but not been able to
collect from the purchases, the action was premature.
Issue:
WON the agreement was an agency to sell and if so, relieves GV of
liability
Held:
Petition dismissed. Ruling: - GV is liable for the unpaid products regardless of the
type of contract. [But RTC and CA decided it was a contract of sale] - If it is a
contract of sale, then GV is liable by just merely enforcing the clear words of the
contract. - Adopting GV’s theory that it is an agency to sell, GV is liable because it
sold on credit without authority from its principal. o Art. 1905: - the commission
agent cannot without the express or implied consent of the principal, sell on credit.
Should he do so, the principal may demand from him payment in cash, but the
commission agent shall be entitled to any interest or benefit, which may result
from such sale.
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Municipal Council of Iloilo v. Evangelista, 55 Phil. 290
FACTS: In March 1924, Tan Ong Vda. De Tantoco (Tantoco) won in
Civil Case 3154 that she filed against the Municipality of Iloilo wherein she
sought to recover from the latter the value of strip of land that she owned
which was taken by the Municipality of Iloilo to widen a public street. The
judgment entitled Tantoco to recover P42,966.40 from the Municipality of
Iloilo . The CA affirmed the trial court’s decision and the case was
remanded to the trial court which rendered judgment as final and
executory.  Adverse claimants then appeared: PNB, Antero Soriano,
Mauricio Cruz & Co, Jose Evangelista and Jose Arroyo. They all stated their
claim over the judgment money recovered by Tantoco. (WHERE PROBLEM
STARTED)  The court directed the Municipality of Iloilo to file an action of
interpleading against the adverse claimants PNB, Antero Soriano, Mauricio
Cruz & Co, Jose Evangelista and Jose Arroyo.  The trial court rendered
judgment declaring valid and binding the deed of assignment of the credit
executed by Tantoco, through her attorney-in-fact Tan Boon Tiong, in
favour of Antero Soriano. Also, that the assignment of Soriano during his
lifetime in favour of defendant Mauricio Cruz & Co was declared valid and
binding. Tantoco was ordered to pay Mauricio Cruz & Co, the balance of
P30,966.40.
ISSUES:
1. Whether Tan Boon Tiong, as attorney-in-fact of the
appellant; was empowered by his principal to make
an assignment of credits, rights, and interests, in
payment of debts for professional services rendered
by lawyers.
2. Whether the failure of Tan Montano, the other
attorney-in-fact of Tantoco, to consent to the deed of
assignment done by Tan Boon Tiong would invalidate
the said assignment.
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RULINGS:
1. Yes. In paragraph VI of the power of attorney, Tan Boon Tiong is
authorized to employ and contract for the services of lawyers upon such
conditions as he may deem convenient, to take charge of any actions
necessary or expedient for the interests of his principal, and to defend suits
brought against her. This power necessarily implies the authority to pay for
the professional services thus engaged. In the present case, Tantoco had
to pay Atty. Soriano for services rendered in other cases, for her interests
and her other co-heirs. Since the judgment money that was recovered in
Civil case 3154 belongs to Tantoco, such credit can be used to pay Atty.
Soriano by way of assignment. Being authorized to take charge of any
action necessary for the interest of Tantoco, Tan Boon Tiong has the
power to assign Tantoco’s credits to Atty. Soriano.
2. No. 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 intention. In the
present case, Tantoco gave each of her attorneys-in-fact separate letters
of attorney, which shows that it was not the principal's intention that the
two representatives should act jointly in order to make their acts valid.
Thus, the act of Tan Boon Tiong in assigning credits to Soriano without
Tan Montano’s consent remains valid. Doctrine: When a person appoints
two agents independently, the consent of one will not be required to
validate the acts of the other, unless that appears positively to have been
the principal's intention.
RESPONSIBILITY FOR ACTS OF SUBSTITUTES
Art. 1892. The agent may appoint a substitute if the principal has not prohibited
him from doing so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the person, and the
person appointed was notoriously incompetent or insolvent.
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All acts of the substitute appointed against the prohibition of the principal shall be
void.
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the
principal may furthermore bring an action against the substitute with respect to
the obligations which the latter has contracted under the substitution.
Del Rosario v. La Badenia, 33 Phil. 316
Nature: Action to recover sum of P1,795.25 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.
Facts:
The plaintiffs are residents of Legaspi, Albay, and the defendant corporation is engaged in
the manufacture and sale of tobacco products with its head office in the city of Manila.
1911: the defendant corporation, a new concern, inaugurated an extensive selling
campaign for the purpose of introducing its products to the retail trade.
Celestino Aragon, a general agent of the defendant corporation, was in charge of this
campaign in Albay, Sorsogon, and other provinces in the southern end of Luzon.
He established a central distributing agency or depot at Legaspi with the plaintiff, Teofila
del Rosario de Costa, nominally in charge, though her husband, Bernardino de Costa
appears to have been the actual manager of the agency.
The business relations between the plaintiffs and the defendant extended from February
1, 1911, to March 24, 1912, and during this time no settlement of their accounts was ever
had.
When Aragon, the general agent, came to Legaspi in 1911 he established his
headquarters there and took up his residence with the plaintiffs, using the lower part of
their house as a store room or depository for large quantities of cigarettes and cigars. He
employed a number of persons as solicitors and paid their salaries; he paid the internal
revenue fees incident to the conduct of the business in Legaspi, and also the rent of the
building in which he lived with the plaintiffs and which he made use of as the general
headquarters for the agency.
The record shows that business amounting to more than P24,000 (wholesale) was done
by the Legaspi agency from February 1, 1911, to March 24, 1912. All goods sent to Legaspi
were charged by the head office at Manila against the general agent, Aragon, while on the
books kept by Aragon these goods were charged against the plaintiffs, and as goods were
withdrawn by himself, he credited the amount of the withdrawals to the account of the
plaintiffs.
The business at Legaspi appears to have been that of a distributing agency actively in
charge of the plaintiffs but over which the general agent maintained a close supervision.
Goods were withdrawn from the depository at Legaspi from time to time by the general
agent for shipment to other points; goods were likewise withdrawn by plaintiffs and shipped
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to neighboring towns without any intervention on the part of the general agent. All
accounts incident to the business were carried on the books of Aragon. The plaintiffs do not
appear to have kept a separate set of books.
The account as carried on the books of Aragon, the general agent, was between Teofila
del Rosario de Costa and La Badenia, the defendant corporation.
On March 24, 1912, the general agent had a settlement with the plaintiffs and
acknowledged over his signature that these books showed a balance in favor of the
plaintiffs amounting to P1,795.25.
When it was time to pay, however, the defendant corporation refused to pay over to
plaintiffs the balance of P1,795.25, claiming that plaintiffs had been improperly allowed a
credit of P1,850.68 which represented unpaid accounts due the business in Legaspi for
cigars and cigarettes sold by it.
DEFENDANT CORPORATION’S ARGUMENT: Plaintiffs were simply merchants who
purchased the goods at fixed wholesale prices and sold them on their own account, and
that they were never employed as their agents.
PLAINTIFF’S CONTENTION: That they were the agents of the defendant corporation;
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.
LOWER COURT’s DECISION: the specific goods sold to the delinquent debtors, whose
unpaid accounts form the basis of this litigation, had already been paid for by the plaintiffs
and that this was conclusive evidence that the plaintiffs were not acting as the agents of
the defendant corporation, and that in effect, the purpose of this suit was to recover back
money already paid for the goods purchased and sold by the plaintiffs.
Issue: Whether the plaintiffs are agents of the company or merely merchants.
Held/Ratio: THEY ARE AGENTS.
The head office at Manila was fully informed of plaintiffs' relations with the general agent
in extending the sales of its products.
o 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.
o Neither the head office nor Aragon appear to have made any distinction between the
business done by Aragon and that done by the plaintiffs. The purchases, sales and
remittances made by the plaintiffs do not seem to have been considered as those of an
independent business concern, but rather as a part of the work of the Legaspi agency under
the control and supervision of Aragon.
o 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 goods in Manila at
wholesale and selling them locally on their own account.
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The active management and participation of the plaintiffs in the conduct of the business at
Legaspi are fully recognized in the following letters written by the assistant manager of the
defendant corporation to one of the plaintiffs.
Aragon did not consider the plaintiffs as independent merchants operating on their own
account, but rather as agents cooperating with him and working under his supervision.
o This fact is clearly borne out by the nature of the entries made in his books of account. A
reference to that statement taken from the books of account shows that the plaintiffs were
given credit on various items, such as advertising expenses, the free distribution of cigars
and cigarettes for advertising purposes, freight and carriage charges on shipments to
neighboring towns, and the like, and it does not seem at all likely that plaintiffs would have
been allowed credit on such items if they had been conducting the business solely on their
own account.
o Aragon extended credit to certain purchasers of cigars and cigarettes and the entries
made by him on his books of account show that he knew that the plaintiffs were also
extending credit to some of the purchasers of the goods shipped from Legaspi. He
approved the very items now questioned when as general agent of the defendant
corporation he signed the statement of account showing a balance of P1,795.25 in favor of
the plaintiffs.
It is contended that it is unreasonable that plaintiffs would have so large a balance in their
favor, and that they are now merely seeking to saddle upon the defendant corporation a lot
of unpaid accounts. In view of the fact that plaintiffs are only seeking to enforce the
payment of a balance admitted by the general agent of the defendant corporation to be
rightly due them, we fail to see how it can be reasonably urged that plaintiffs are
attempting to saddle these unpaid claims on the defendant.
The general agent who was in control of the Legaspi business, and who was fully
conversant with all of its details, clearly recognized the right of the plaintiffs to have credit
on their account for the amount of these unpaid claims.
The defendant carried no account whatever with the plaintiffs, and having intrusted the
entire management of the Legaspi business to Aragon, it cannot 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.
Aragon's powers as a selling agent appear to have been very broad, and there is no
evidence in the record to indicate that he acted beyond his powers in conducting the
business at Legaspi as he did; and there can be no doubt that plaintiffs had been
authorized by him to extend credit on behalf of the agency. There is no other reasonable
explanation of the entries made by Aragon in
his books of account, and his approval of the balance in favor of the plaintiffs.
It is further contended that the goods were charged to plaintiffs at wholesale prices, and
that they were to have as profits any amounts received over and above the wholesale cost
price on the goods sold by them, and it is urged that such an arrangement indicates that
they were independent merchants doing business on their own account.
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Even granting that such was the arrangement made with the plaintiffs by Aragon, it does
not necessarily follow that they were conducting an independent business on their own
account.
As already stated, the record does not disclose what were the precise terms of
arrangement made with the plaintiffs. The record does show however, that in many
instances the plaintiffs were allowed commissions on sales made by them, but whether or
not these were in addition to other profits allowed them the record does not show. Upon a
careful examination of the whole record we are satisfied that plaintiffs were not conducting
an independent business but were the agents of the defendant corporation operating under
the supervision of the general agent, Aragon.
International Films v. Lyric Film, 63 Phil. 778
Facts:
Bernard Gabelman was the Philippine agent of International Films. International
Films, through Gabelman, leased the film “Monte Carlo Madness” to The Lyric Film
Exchange to be shown in different places. One of the conditions of the contract
was that The Lyric Film Exchange would answer for the loss of the film in question
whatever the cause.
After the last showing of the said film, Vicente Albo, the Chief of the film
department of The Lyric Film Exchange, called Gabelman and inquired where he
wished to have the film returned to him and Gabelman replied that he wished to
see him personally in Albo’s office. When they were in the said office, Gabelman
asked whether he could deposit the said film in the vault of The Lyric Film
Exchange, because International Films did not yet have a safety vault as required
by the regulations of the fire department. The chief of International Films,
O’Malley, after the case was referred to him, answered that the deposit could not
be made because the film would not be covered by the insurance of Lyric Film
Exchange. Gabelman then requested Albo to permit him to deposit said film in the
vault of Lyric Film Exchange, under Gabelman’s own responsibility. As there was a
verbal contract between Gabelman and Lyric Film Exchange, whereby the film
would be shown elsewhere, O’Malley agreed and the film was deposited in Lyric
Film Exchange’s vault under Gabelman’s responsibility.
Gabelman was then succeeded by Lazarus Joseph as agent of International Films.
Joseph was informed of the said deposit and and about the verbal contract
entered into between Gabelman and Lyric Film Exchange, whereby Lyric Film
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Exchange would act as a subagent of International Films with authority to show
the said film in any theater where Lyric Film Exchange might wish to show it.
Joseph asked for the return of the three films, including Monte Carlo Madness, but
the said film could not be returned because it was to be shown in Cebu.
Thereafter, the bodega of Lyric Film Exchange was burned, including the film,
which was not insured.
Issue:
W/N Lyric Film Exchange is liable to International Films for the the
destruction of the film by fire.
Held:
NO. Lyric Film Exchange, as subagent of the International Films in the exhibition of
the film "Monte Carlo Madness", was not obliged to insure it against fire, not
having received any express mandate to that effect, and it is not liable for the
accidental destruction thereof by fire.
The preponderance of evidence shows that the verbal agreement had between
Bernard Gabelman, the former agent of the International Films, and Vicente Albo,
chief of the film department of the Lyric Film Exchange, was that said film "Monte
Carlo Madness" would remain deposited in the safety vault of the defendant
company under the responsibility of said former agent and that the defendant
company, as his subagent, could show it in its theaters.
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, 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.
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 insurance of the film does not form a part of the obligation imposed upon
it by law.
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WEEK 6
OBLIGATIONS AND LIABILITIES OF AGENTS TO THIRD PARTIES
AGENT ACTING WITHIN SCOPE OF AUTHORITY
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 provisions of this article shall be understood to be without prejudice
to the actions between the principal and agent.
Art. 1897. The agent who acts as such is not personally liable to the party with
whom he contracts, unless he expressly binds himself or exceeds the limits of his
authority without giving such party sufficient notice of his powers.
Art. 1899. If a duly authorized agent acts in accordance with the orders of the
principal, the latter cannot set up the ignorance of the agent as to circumstances
whereof he himself was, or ought to have been, aware.
AGENT ACTING OUTSIDE OF AUTHORITY
Art. 1897. The agent who acts as such is not personally liable to the party with
whom he contracts, unless he expressly binds himself or exceeds the limits of his
authority without giving such party sufficient notice of his powers.
Art. 1898. If the agent contracts in the name of the principal, exceeding the
scope of his 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. In this case, however, the agent is liable if he
undertook to secure the principal's ratification.
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Art. 1911. Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as though he
had full powers.
With notice to third parties
Art. 1901. A third person cannot set up the fact that the agent has exceeded his
powers, if the principal has ratified, or has signified his willingness to ratify the
agent's acts.
Without notice to third parties
PNB v. Agudelo, 58 Phil. 655
Fact: Defendant-appellant Paz Agudelo y Gonzaga and Amparo A. Garrucho
executed in favor of Mauro A. Garrucho, a document conferring upon him a special
power of attorney, respectively, sufficiently broad in scope to enable him to sell,
alienate and mortgage in the manner and form he might deem convenient, all her
real estate situated in the municipalities of Occidental Negros together with the
improvements thereon.
Nothing in the aforesaid powers of attorney expressly authorized Mauro A.
Garrucho to contract any loan nor to constitute a mortgage on the properties
belonging to the respective principals, to secure his obligations.
Mauro A. Garrucho executed in favor of the plaintiff entity, the Philippine National
Bank, the documents whereby he constituted a mortgage on lots together with the
buildings and improvements thereon issued in the name of Amparo A. Garrucho
and Paz Agudelo y Gonzaga, to secure the payment of credits, loans and
commercial overdrafts which the said bank might furnish him and executing the
corresponding promissory note to that effect.
The mortgage deeds as well as the corresponding promissory notes were executed
in Mauro A. Garrucho's own name and signed by him in his personal capacity,
authorizing the mortgage creditor, the Philippine National Bank, to take possession
of the mortgaged properties, by means of force if necessary, in case he failed to
comply with any of the conditions stipulated therein.
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Mauro A. Garrucho, executed in favor of the plaintiff entity the deed whereby he
constituted a mortgage on lots together with the improvements thereon issued in
the name of Paz Agudelo y Gonzaga, and Amparo A. Garrucho, respectively.
Issue: Whether or not Garrucho acted within the authority given to him
in obtaining the mortgages.
Ruling: Garrucho did not act within the authority given to him in obtaining the
mortgages. His special power of attorney does not authorize him to constitute a
mortgage to secure his personal obligations.
1717 of the Civil Code provides the following:
"ART. 1717. When an agent acts in his own name, the principal shall have no right
of action against the persons with whom the agent has contracted, or such
persons against the principal.
"In such case, the agent is directly liable to the person with whom he has
contracted, as if the transaction were his own. Cases involving things belonging to
the principal are excepted.
"The provisions of this article shall be understood to be without prejudice to
actions between principal and agent."
Garrucho executed the promissory notes evidencing the aforesaid loans, under his
own signature, without authority from his principals and, therefore, were not
binding upon the latter. Neither is there anything to show that he executed the
promissory notes in question for the account, and at the request, of his respective
principals.
Mauro A. Garrucho and not Paz Agudelo y Gonzaga is personally liable for the
amount of the promissory note.
Philippine Products v. Primateria, 15 SCRA 301
Facts: Defendant Primateria Societe Anonyme Pour Le Commerce Exterieur
(hereinafter referred to as Primateria Zurich), is a foreign juridical entity and, at
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the time of the transactions involved herein, had its main office at Zurich,
Switzerland.
Primateria Zurich, through Alexander Baylin, entered into an agreement with
Philippine Products Company whereby the latter undertook to buy Copra in the
Philippines for the account of Primateria Zurich. Philippine Products Company
shipped copra to foreign countries pursuant to the instructions of Primateria
Zurich, through Primateria Phils, with Baylin and Jose Crame as officers. Philippine
Products Company filed a complaint against Primateria Zurich, Primateria Phils,
Baylin and Crame to recover the amount due.
The trial court rendered a judgment holding Zurich liable but absolved Baylin and
Crame. Philippine Products Company appealed the decision as regards the
dismissal of the three defendants. Philippine Products Company alleges that Zurich
is a foreign corporation under Sec. 68 of the Corporation Law; its agents here are
personally liable under Art. 1897 for contracts made in behalf.
ISSUE: Whether or not Primateria Phils, Baylin and Crame may be held
personally liable.
HELD: No, Primateria Phils, Baylin and Crame may not be held personally liable.
Under Art. 1897 of the New Civil Code, “The agent who acts as such is not
personally liable to the party with whom he contracts, unless he expressly binds
himself or exceeds the limits of his authority without giving such party sufficient
notice of his power."
There is no proof that as agents they exceeded the limits of their authority. The
principal, who should be the one to raise the point, never raised it, denied its
liability on the ground of excess of authority. Art. 1897 does not hold that in cases
of excess of authority, both the agent and the principal are liable to the other
contracting party.
NPC v. National Merchandising, 117 SCRA 789
Facts: NPC and National Merchandising Corporation, as the representative of
International Commodities Corporation of New York City, executed in Manila a
contract for the purchase by the NPC from the New York Firm sulfur for its Maria
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Cristina Fertilizer plant in Iligan City. A performance bond was likewise executed
by the Domestic Insurance Co., in favor of NPC to guarantee sellers obligations.
After a series of correspondence between National Merchandising Corporation and
International Commodities Corporation, the former decided to push through with
the transaction. The New York supplier was not able to deliver the sulfur due to its
inability to secure shipping space. As a result, there was a shut-down of the NPCs
fertilizer plant due to the absence of sulfur and no fertilizer was produced. The
Government Corporate Counsel in his letter to National Merchandising Corporation
rescinded the contract of sale due to the New York supplier’s non-performance of
its obligations.
The NPC sued the New York firm, National Merchandising Corporation and the
Domestic Insurance Company for the recovery of damages. The trial court in its
order of January 17, 1958 dismissed the case as to the New York firm for lack of
jurisdiction because it was not doing business in the Philippines.
ISSUE: Whether or not National Merchandising Corporation acted within
the scope of its authority as agent in signing the contract of sale.
RULING: It was held that National Merchandising Corporation, as agent to the
principal, International Commodities Corporation, acted beyond its authority for
still contracting with NPC despite principal’s prohibition. From the series of cable
correspondence between International Commodities Corporation and National
Merchandising Corporation, International Commodities Corporation stated that the
sale was subject to the availability of a steamer which would transport the sulfur
cargo. However, National Merchandising Corporation did not disclose that cable to
the NPC and, contrary to its principal’s instruction, it agreed that non-availability of
a steamer was not a justification for non-payment of damages.
Under article 1897 of the Civil Code, the agent who exceeds the limits of his
authority without giving the party with whom he contracts sufficient notice of his
powers is personally liable to such party.
The truth is that even before the contract of sale was signed National
Merchandising Corporation was already aware that its principal was having
difficulties in booking shipping space. One day before the contract of sale was
signed, the New York supplier advised National Merchandising Corporation that the
latter should not sign the contract unless it wished to assume sole responsibility
for the shipment. Agent who exceeds authority without giving 3rd party notice of
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his powers is personally liable. Similarly, the unenforceability of the contract is
against the principal only.
National Bank & Welch Fairchild, 44 Phil. 780
FACTS: La Compañía Naviera, a shipping company, was instituted in Manila in
1918. Among its shareholders was respondent Welch, Fairchild & Co. La Compañia
Naviera applied to the Philippine National Bank for a loan of $125,000.00 with
which to purchase a boat called Benito Juarez. It was the president of Welch which
helped in the transfer of the Benito Juarez to Philippine registry.
However, the vessel needed repairs before it could be dispatched; and it became
impracticable to deliver the bill of sale and insurance policy that were required by
PNB in San Francisco at the time the money was needed to effect the transfer. So,
Welch in Manila, addressed a letter on August 8, 1918, to the PNB, requesting it to
cable its correspondent in San Francisco to release the money and make payment
for the vessel without requiring the delivery of the bill of sale or policy of
insurance, and that La Compañia would just deliver the bill of sale and insurance
policy later. The Bank acceded. After the repair of the Benito Juarez, it was insured
by Welch & Co. for $150,000 and was dispatched to the Philippines.
A few months after, the vessel encountered a storm off Hawaii and became a total
loss. The proceeds of the insurance came to the hands of Welch, Fairchild & Co. in
Manila and has been applied by Welch, Fairchild & Co. in part satisfaction of
indebtedness incurred by La Compañía to it (instead of paying the bank). This
disposition of the insurance money was made with the tacit approval of La
Compañía.
ISSUE: Whether or not PNB has a cause of action against respondent.
RULING: Yes, PNB has a cause of action against respondent.
While it is true that an agent who acts for a revealed principal in the making of a
contract does not become personally bound to the other party in the sense that an
action can ordinarily be maintained upon such contract directly against the agent,
yet that rule clearly does not control in this case; for even conceding that the
obligation created by the letter of August 8, 1918, was directly binding only on the
principal, and that in law the agent may stand apart there from, yet one who has
intervened in the making of a contract in the character of agent cannot be
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permitted to intercept and appropriate the thing which the principal is bound to
deliver, and thereby make performance by the principal impossible.
The agent in any event must be precluded from doing any positive act that could
prevent performance on the part of his principal. This much, ordinary good faith
towards the other contracting party requires. The situation before us in effect is
one where, notwithstanding the promise held out jointly by principal and agent in
the letter of August 8, the two have conspired to make an application of the
proceeds of the insurance entirely contrary to the tenor of said letters.
Tuazon v. Orosco, 5 Phil 596
FACTS: Juan de Vargas y Amaya, the husband of Dolores Orozco, executed a
Power of Attorney to Enrique Grupe, giving him the authority to dispose of a house
and lot in Malate. Grupe was further authorized to mortgage the same in order to
satisfy any amount advanced to Dolores Orozco, his wife.
Grupe and Orozco obtained a loan from Tuason secured by a mortgage on the said
property. The loan was for 3,500 pesos, with 2,200 pesos to be forwarded to
Orozco and 1,300 for Grupe. 1,300 pesos was covered by 13 shares in a certain
company as security while the house and lot covered the other 3,500 pesos. The
mortgage was registered and signed by Grupe and Orozco.
However, it was only upon institution of this case that Orozco denies receiving the
sum of 2,200 pesos and further assails that the debt was incurred by Grupe in his
personal capacity, thus, it cannot bind the principal.
ISSUE: Whether or not Orozco is liable to pay the debt to Tuason
HELD: Yes, up to the extent of 2,200 pesos plus interest.
A debt thus incurred by the agent is binding directly upon the principal, provided
the former acted, as in the present case, within the scope of his authority.
Grupe was authorized by Vargas to mortgage the said property to satisfy any
amount advanced to his wife, Orozco. He was therefore, acting within the scope of
his authority when he obtained the debt. Furthermore, it has been accepted that
Orozco received the amount of 2,200 pesos when she signed the instrument of
debt and mortgage which was subsequently registered.
3-EXECUTIVE | Ab Initio Group
The fact that the agent has also bound himself to pay the debt does not relieve
from liability the principal for whose benefit the debt was incurred. The individual
liability of the agent constitutes in the present case a further security in favor of
the creditor and does not affect or preclude the liability of the principal. In the
present case the latter’s liability was further guaranteed by a mortgage upon his
property. The law does not provide that the agent cannot bind himself personally
to the fulfillment of an obligation incurred by him in the name and on behalf of his
principal. On the contrary, it provides that such act on the part of an agent would
be valid.
Cervantes v. CA, 304 SCRA 25
FACTS: On March 27, 1989, the private respondent, Philippine Airlines, Inc (PAL),
issued to the herein petitioner, Nichola Cervantes (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.
On March 23, 1990, four days before the expiry date of subject ticket, the
petitioner 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, on April 2, 1990 when petitioner tried to
board the plane, he was denied by PAL for the reason that the said ticket had
expired. As a result, petitioner filed a complaint against PAL.
The trial court dismissed the complaint and upon appeal to the CA, the dismissal
was affirmed and hence this appeal.
ISSUE: Whether or not the act of the PAL agents in confirming subject
ticket extended the period of validity of petitioner’s ticket
HELD: The court ruled in favor of PAL. The court held that the ticket issued by
PAL constituted the contract between the parties. It was clear and undisputed as
to the expiration date of the ticket. The main issue is whether the validity became
extended by the act of the PAL agents. The court ruled in the negative.
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 later ratifies the same
expressly or impliedly. Furthermore, when the third person (herein petitioner)
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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.
From appellant’s own testimony, it was clear that he knew from the start that said
agents had no authority to extend the validity of the tickets. He himself testified
that he was informed by the Legal Department of PAL before he left the
Philippines that to secure an extension, he would have to file a written request at
the PAL’s office. Despite this knowledge, he still persisted to use the ticket in
question.
Since the PAL agents are not privy to the said Agreement and petitioner 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, according to the Court of
Appeals acted without authority when they confirmed the flight of the petitioner.
AGENT ACTING IN HIS OWN NAME
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 provisions of this article shall be understood to be without prejudice to the
actions between the principal and agent.
Barreto v. Sta. Marina, 26 Phil. 440
FACTS: The plaintiff, Antonio M.A. Barreto, was an agent and manager of Jose
Sta. Maria, the defendant, a resident of Spain and the owner and proprietor of the
business known as the La Insular Cigar and Cigarette Factory. The petitioner
alleged that the defendant, without reason, justification or pretext and in violation
of the contract of agency, summarily and arbitrarily dispensed with the plaintiff’s
services and removed him from the management of the business.
3-EXECUTIVE | Ab Initio Group
The evidence showed that the plaintiff Barretto’s renunciation or resignation of the
position he held as an agent and manager of the said factory was freely and
voluntarily made by him on the occasion of the insolvency and disappearance of a
Chinese man who had bought from the factory products and without paying this
large debt, disappeared and has not been seen since. Barretto sent a letter of
resignation to Santa Marina and Santa Marina did not immediately reply and tell
him of his decision on the matter. After several months, Barretto was informed
that the power conferred upon him by the defendant has been revoked and the
latter had already appointed J. McGavin to substitute him.
ISSUE: Whether the contract of agency was validly revoked
HELD: Yes, the contract of agency between the plaintiff and the defendant is
validly revoked. Barretto was not really dismissed or removed by Santa Marina.
Rather, Barretto resigned as the defendants’s agent and manager as evidenced by
the letter he sent to the defendant.
Accordingly, the principal may, at his will, revoke the power and compel the agent
to return the instrument containing the same in which the authority was given.
(Art 1733 Civil Code)
Art 279 of the Code of Commerce provides: the principal may revoke the
commission entrusted to an agent at any stage of the transaction, advising him
thereof, but always being liable for the result of the transactions which took place
before the latter was informed of the revocation.
The contract of agency can subsist only so long as the principal has confidence in
his agent, because from the moment such confidence disappears and although
there be a fixed period for the exercise of the office of agency, the principal has a
perfect right to revoke the power he had given to the agent.
Diolosa v. CA, 130 SCRA 350
FACTS: Baterna is a licensed real estate broker. The spouses Diolosa owned the
Villa Alegre Subdivision. On June 20, 1968, they entered into an agreement that
Baterna would be their exclusive sales agent to sell the lots of the subdivision
“until all the property is fully disposed.” On September 27, 1968 the spouses
terminated the services of Baterna because the remaining unsold lots were
reserved for their 6 grandkids. (27 lots remained unsold). Baterna is claiming that
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under the terms of their contract, he had irrevocable authority to sell the lots until
all were disposed. The recession of the contract contravenes their agreement. He
also claims to be entitled to a commission on the lots unsold because of the
rescission. The spouses argue that they are within their legal right to terminate the
agency because they needed the undisposed lots for the use of their family. They
also say that Baterna has no legal right to a commission to unsold lots. CFI
dismissed, CA says that notwithstanding NCC 1920, that the principal may revoke
the agency at will, spouses could not terminate the agency agreement without
paying damages on the ground that the agency agreement expressly stipulated
“until all the property was fully disposed”, the testimony of a certain Roberto
Malundo that Baterna agreed to the intention of Mrs. Diolosa to reserve some lots
cannot prevail over the clear terms of the agreement and wanting to reserve the
lots for the grand kids is not a legal reason to rescind the agency agreement. Even
if each kid would be given one lot each, there would still be 21 lots available and
the spouses have other lands that can be reserved for the kids.
ISSUE: Whether or not the spouse can terminate the agency without
paying damages
HELD: No, under the contract, the spouses allowed the real estate broker to sell,
cede, etc. until all lots are fully disposed. The authority to sell is not extinguished
until all lots are disposed. When they revoked the contract, they became liable to
the real estate broker for damages for breach of contract. Since the agency
agreement is a valid contract, it may only be rescinded on the grounds specified
under Art 1381 and Art 1882 of the new Civil Code.
Art 1381 the following contracts are rescissible:
1) Those which are entered into by guardians whenever the wards whom
they represent suffer lesion by more than one-fourth of the value of the
things which are the object thereof;
2) Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
3) Those undertaken in fraud of creditors when the latter cannot in any other
name collect the claims due them,
4) Those which refer to things under litigation if they have been entered into
by the defendant without the knowledge and approval of the litigants or of
competent judicial authority;
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Art 1382 Payments made in a state of insolvency for obligations to whose
fulfillment the debtor could not be compelled at the time they were affected, are
also rescissible.
In this case, not one of the grounds are present. Petition denied
New Manila v. Republic, 107 Phil. 824
1. PUBLIC WORKS; RECOVERY OF PAYMENT BY SUPPLIER OF MATERIAL AND
LABOR. — The legal remedy of any person, company, or corporation who has
furnished materials used in the construction of any public building or public works,
the payment for which has not been made, is not to bring suit against the
Government, there being no privity of contract between them, but to intervene in
the action instituted by the Government on the bond of the contractor. If no suit
should be brought by the Government within six months from the completion and
final settlement of contract, or if the Government expressly waives its right to
institute action on the penal bond, the person or persons supplying the contractor
with materials, may file an action in the name of the Government against said
contractor or his bond.
2. PRINCIPAL AND AGENT; REVOCATION OF AGENCY; WHAT CONSTITUTE. —
Where a contractor, after executing powers of attorney in favor of another to
collect whatever amounts may be due him from the Government, demands and
collects from the latter the money the collection of which he entrusted to his
attorney-in-fact, the agency is thereby revoked. (Articles 1920 and 1924, new Civil
Code.)
3. ID.; POWERS OF ATTORNEY OBLIGATORY ONLY ON PRINCIPAL; THIRD
PERSON NOT AFFECTED. — Powers of attorney executed by one in favor of
another are obligatory only on the principal who executed the agency, and though
irrevocable and coupled with interest, cannot affect a person who is not a party
thereto.
4. CONTRACTS; CONSTRUCTION OF PUBLIC SCHOOL BUILDINGS; LIMITED
AUTHORITY OF DIRECTOR OF PUBLIC SCHOOLS. — While the Director of Public
Schools may have authority to enter into contract with a contractor for the
construction of school buildings, payment of the price is not within his exclusive
control but subject to approval under existing laws not only by the Department
Head (Sec. 568, Rev. Adm. Code), but also by the Auditor General.
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5. ID.; ID.; CLAIMS FOR MONEY AGAINST GOVERNMENT TO BE LODGED WITH
AUDITOR GENERAL; IMMUNITY OF STATE FROM SUIT. — A claim for a sum of
money arising from an alleged implied contract between the claimant and the
Republic of the Philippines should be lodged with the Auditor General. The State
cannot be sued without its consent.
DECISION
GUTIERREZ DAVID, J.:
Appeal from an order of dismissal of the Court of First Instance of
Manila.
On May 8, 1958, the plaintiff lumber company filed in the court below a
complaint against the defendant Republic of the Philippines for the
recovery of a sum of money. The complaint alleges, among other things,
that defendant, thru the Director of Schools, entered into a contract with
one Alfonso Mendoza to build two school houses; that plaintiff furnished
the lumber materials in the construction of the said buildings; that prior
to the payment by defendant of any amount due the contractor, the
latter executed powers of attorney in favor of the plaintiff "constituting
it as his sole, true and lawful attorney- in-fact with specific and
exclusive authority to collect and receive from the defendant any and all
amounts due or may be due to said contractor from the defendant in
connection with the construction of the aforesaid school buildings, as
may be necessary to pay materials supplied by the plaintiff" ; and that
originals of the powers of attorney were received by defendant (thru the
Director of Public Schools) who promised to pay plaintiff, but that it,
nevertheless, paid the contractor several amounts on different occasions
without first making payment to plaintiff. The complaint, therefore,
prays that defendant be ordered to pay plaintiff the sum of P18,327.15,
the unpaid balance of the cost of lumber supplied and used in the
construction of the school buildings, with interest at the legal rate from
the date same was due, plus attorney’s fees and costs.
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Served with a copy of the complaint, the defendant Republic of the Philippines,
through the Solicitor General, moved to dismiss the same on the grounds (1) that
it does not allege a sufficient cause of action, (2) that plaintiff has no right to
institute the action under Act No. 3688, and (3) that the court is without
jurisdiction to entertain the same against the defendant.
The motion was opposed by plaintiff, but after hearing, the court below — holding
that "there is no juridical tie between plaintiff- supplier and defendant-owner —
sustained the motion to dismiss on the first ground, and on June 23, 1958 issued
an order dismissing plaintiff’s complaint. Its motion for reconsideration having
been denied, plaintiff took the present appeal.
The appeal is without merit.
Briefly stated, plaintiff’s complaint seeks to enforce against the Republic of the
Philippines a money claim for the payment of materials it furnished for the
construction of two public school buildings undertaken by contractor Alfonso
Mendoza, on the basis of powers of attorney executed by the latter authorizing
said plaintiff to collect and receive from defendant Republic any amount due or
may be due to said contractor as contract price for the payment of the materials
so supplied.
Section one of Public Act No. 3688, entitled "An Act for the protection of persons
furnishing material and labor for the construction of public works", reads in part as
follows:jgc:chanrobles.com.ph
"SECTION 1. Any person, partnership or corporation entering into a formal
contract with the Government of the Philippine Islands for the construction of any
public building, or the prosecution and completion of any public work, or for
repairs upon any public building or public work, shall be required, before
commencing such work, to execute the usual penal bond, with good and sufficient
sureties, with the additional obligation that such contractor or his or its sub-
contractors shall promptly make payments to all persons supplying him or them
with labor and materials in the prosecution of the work provided for in such
contract; and any person, company or corporation who has furnished labor or
materials used in the construction or repair of any public building or public work,
and payment for which has not been made, shall have the right to intervene and
be made a party to any action instituted by the Government of the Philippine
Islands on the bond of the contractor, and to have their rights and claims
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adjudicated in such action and judgment rendered thereon, subject, however, to payment of the contract price was not within his exclusive control but subject to
the priority of the claim and judgment of the Government of the Philippine Islands. approval under existing laws not only by the Department Head (Sec. 568, Rev.
If the full amount of the liability of the surety on said bond is insufficient to pay Adm. Code), but also by the Auditor General.
the full amount of said claims and demands, then, after paying the full amount
due the Government, the remainder shall be distributed pro rata among said At any rate, under the facts alleged in the complaint, the powers of attorney in
intervenors. If no suit should be brought by the Government of the Philippine question made plaintiff the contractor’s agent in the collection of whatever
Islands within six months from the completion and final settlement of said amounts may be due the contractor from the defendant. And since it is also
contract, or if the Government expressly waives its right to institute action on the alleged that, after the execution of the powers of attorney, the contractor
penal bond, then the person or persons supplying the contractor with labor and (principal) demanded and collected from defendant the money the collection of
materials shall, upon application therefor, and furnishing affidavit to the which he entrusted to plaintiff, the agency apparently has already been revoked.
department under the direction of which said work has been prosecuted, that (Articles 1920 and 1924, new Civil Code.)
labor or materials for the prosecution of such work have been supplied by him or
them, and payment for which has not been made, be furnished with a certified The point is made by plaintiff that the powers of attorney executed by the
copy of said contract and bond, upon which he or they shall have a right of action, contractor in its favor are irrevocable and are coupled with interest. But even
and shall be, and are hereby, authorized to bring suit in the name of the supposing that they are, still their alleged irrevocability cannot affect defendant
Government of the Philippine Islands in the Court of First Instance in the district in who is not a party thereto. They are obligatory only on the principal who executed
which said contract was to be performed and executed, and not elsewhere, for his the agency.
or their use and benefit, against said contractor and his sureties, and to prosecute
the same to final judgment and execution, . . . ."cralaw virtua1aw library Plaintiff also cites Article 1729 of the new Civil Code, which provides that —

In the case at bar, it is not disputed that defendant Republic has already instituted
a suit against the contractor for the forfeiture of the latter’s bond posted to secure
the faithful performance of stipulations in the construction contract with regards to
one of the two school buildings (Civil Case No. 26815, Court of First Instance of
Manila). The contractor has a similar bond with respect to the other school
building. Pursuant to Act 3688, plaintiff’s legal remedy is, not to bring suit against
the Government, there being no privity of contract between them, but to intervene
in the civil case above-mentioned as an unpaid supplier or materials to the
contractor, or file an action in the name of the Republic against said contractor on
the latter’s other bond.
Plaintiff argues than an implied contract between it and the defendant Republic
arose, when the latter, thru the Director of Public Schools, on being furnished
copies of the powers of attorney executed by the contractor, promised to make
payment to plaintiff for the materials supplied for the construction of the school
buildings. It will be observed, however, that defendant was not a party to the
execution of the powers of attorney. Besides, the Director of Public Schools had no
authority to bind defendant on the payment. While he was the official who entered
into contract with the contractor for the construction of the school buildings,
"Those who put their labor upon or furnish materials for a piece of work
undertaken by the contractor have an action against the owner up to the amount
owing from the latter to the contractor at the time the claim is made. . . . ."cralaw
virtua1aw library
This article, however, as expressly provided in its last paragraph, "is subject to the
provisions of special law." The special law governing in the present case, as
already seen, is Act No. 3688.
There is another reason for upholding the order of dismissal complained of.
Plaintiff’s action being a claim for a sum of money arising from an alleged implied
contract between it and the Republic of the Philippines, the same should have
been lodged with the Auditor General. The State cannot be sued without its
consent.
In view of the foregoing, the order of dismissal appealed from is affirmed, with
costs against plaintiff-appellant.

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 AGENCY, PARTNERSHIP AND TRUST
Dy Buncio v. Ong Guan, 60 Phil. 606
FACTS:
- Ong Guan Can, owner of Ong Guan Can & Sons, owned a rice mill and camarin3. Thus, The title of Ong Guan Can not having been divested by the so-called deed of
in Dao, Capiz.
- Ong’s judgment creditor, Dy Buncio & Co., levied upon the said rice mill and
camarin for satisfaction of the judgment debt. However, Juan Tong and Pua Giok
Eng claim that the said properties cannot be subject of attachment and execution
because they are the owners of said property by virtue of a deed (of sale).
- Juan Tong and Pua Giok Eng allege that the said deed was executed in their
favor by Ong Guan Can, Jr. as agent of Ong Guan Can on July 31, 1931. Details of
the deed:
- Ong Guan Can, Jr., as agent of Ong Guan Can, the proprietor of the commercial
firm of Ong Guan Can & Sons, sells the rice-mill and camarin for P13,000
- Ong Guan Can Jr gives as his authority the power of attorney dated the 23d of
May, 1928. Copy of this public instrument is attached to the deed and recorded
with the deed in the office of the Register of Deeds of Capiz
- Receipt of the money acknowledged in the deed was to the agent
- The deed was signed by the agent in his own name and without any
words indicating that he was signing it for the principal
- CFI of Capiz: Deed invalid, thus property subject to execution.
- Juan and Pua appeal to SC. They claim that the defect in the power of attorney
(that it is merely a limited one which does not give express power to alienate the
properties) is ‘cured’ because Ong Guan Can had previously given Ong Jr a general
power of attorney in 1920.
ISSUE/HELD: WON the deed/sale was valid? NO, Ong Jr’s power of
attorney not sufficient to effect sale
RATIO:
1. Leaving aside the irregularities of the deed and coming to the power of attorney
referred to in the deed and registered therewith, it is at once seen that it is not a
general power of attorney but a limited one and does not give the express power to
alienate the properties in question.
2. Appellants claim that this defect is cured by Exhibit 1, which purports to be a general
power of attorney given to the same agent in 1920 (prior to the limited power of
attorney used in the deed). Article 1732 of the Civil Code is silent over the partial
termination of an agency. The making and accepting of a new power of attorney,
whether it enlarges or decreases the power of the agent under a prior power of
attorney, must be held to supplant and revoke the latter when the two are
3-EXECUTIVE | Ab Initio Group
inconsistent. If the new appointment with limited powers does not revoke the general
power of attorney, the execution of the second power of attorney would be a mere
futile gesture.
July 31, 1931, his properties are subject to attachment and execution.
Rallos v. Yangco, 20 Phil. 269
FACTS:
Yangco sent Rallos a letter inviting the latter to be the consignor in buying and
selling leaf tobacco and other native products. Terms and conditions were also
contained in the letter.
Accepting the invitation, Rallos proceeded to do a considerable business with
Yangco through the said Collantes, as his factor, sending to him as agent for
Yangco a good deal of produce to be sold on commission.
Rallos sent to the said Collantes, as agent for Yangco, 218 bundles of tobacco in
the leaf to be sold on commission, as had been other produce previously.
The said Collantes received said tobacco and sold it for the sum of P1,744. The
charges for such sale were P206.96, leaving in the hands of said Collantes the sum
of 1,537.08 belonging to Rallos. This sum was, apparently, converted to his own
use by said agent.
It appears, however, that prior to the sending of said tobacco Yangco had severed
his relations with Collantes and that the latter was no longer acting as his factor.
This fact was not known to Rallos; and it is conceded in the case that no notice of
any kind was given by Yangco of the termination of the relations between Yangco
and his agent, Collantes.
Yangco thus refused to pay the said sum upon demand of Rallos, placing such
refusal upon the ground that at the time the said tobacco was received and sold
by Collantes, he was acting personally and not as agent of Yangco.
ISSUE:
Whether or not Yangco as principal is liable brought by the sale of the
produce
RULING:
Yes. Yangco, as principal is liable. Having advertised the fact that Collantes was
his agent and having given special notice to Rallos of that fact, and having given
them a special invitation to deal with such agent, it was the duty of Yangco on the
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termination of the relationship of the principal and agent to give due and timely
notice thereof to Rallos. Failing to do so, he is responsible to them for whatever
goods may have been in good faith and without negligence sent to the agent
without knowledge, actual or constructive, of the termination of such relationship.
Compania General de Tobaccos v. Diabu, 20 Phil 321
Facts:
The defendant, in his special answer, admitted that he had purchased from the
agent of the plaintiff (Gutierrez) goods, wares, and merchandise amounting to the
sum of P692, and that he had sold to the agent of the plaintiff (Gutierrez) abaca
and other effects amounting to P1,308.80, leaving a balance due him (the
defendant) of P616.80.
The Court of First Instance found that the plaintiff was indebted to the defendant
in the sum of P616.80, and rendered a judgment against the plaintiff for said sum.
The agent of the plaintiff (Gutierrez) had been selling goods, wares, and
merchandise to the defendant, and buying abaca and other agricultural products
of the defendant for a period covering more than eight years; that the particular
transactions to which the present action related took place, the plaintiff attempted
to show that it had suspended its agent (Gutierrez), as its agent, and that he
(Gutierrez) had no further authority to represent it (the plaintiff).
Issue: Whether or not, the acts of Gutierrez as Agent will bind the
Defendant as Principal.
Held: Yes. There is no convincing proof in the record that the orders given by the
plaintiff to its agent (Gutierrez) had ever been communicated to the defendant.
The defendant had a perfect right to believe, until otherwise informed, that the
agent of the plaintiff, in his purchase of abaca and other effects was still
representing the plaintiff in said transactions.
Del Rosario v. Abad, 104 Phil. 648
FACTS:
1) On December 1936, the Secretary of Agriculture and Commerce issued under
the provisions of the Public Land Act a homestead patent situated in Nueva Ecija
to Tiburcio del Rosario.
2) On February 1937, the Registrar of Deeds issued to him an original certificate of
title.
3-EXECUTIVE | Ab Initio Group
3) On February 24, 1937, del Rosario obtained a loan from Primitivo Abad in the
sum of P2000 with interest payable on December 3, 1941. Del Rosario executed
an “irrevocable special power of attorney coupled with interest” in favor of the
mortgagee, authorizing him to sell and convey the parcel of land.
4) Del Rosario died in December 1945 leaving the debt unpaid/
5) Primitivo Abad, acting as attorney-in-fact of Del rosario sold the parcel of land
to his son Teodorico Abad in consideration of the token sum of P1.00 and the
payment of the mortgage debt of the late del Rosario.
6) Teodorico too possession of the land, cancelled the original certificate of title
and reigistered the land under his name in a transfer certificate of title.
7) The heirs of Del Rosario filed this case to recover the possession and ownership
of the parcel of land, damages, etc.
8) The lower court ruled for del Rosario.
ISSUES:
1) WON the mortgage executed was valid. YES.
2) WON the power of attorney executed by Del Rosario was coupled
with interest that will not terminate the agency upon the death of the
principal. NO.
RATIO:
1) The mortgage on the improvements of the parcel of land executed by
del Rosario is valid as provided for in the Public Land Act. What is
prohibited is the encumbrance or alienation of lands acquired by free
patent or homestead.
2) The power of attorney executed by del Rosario in favor of Primitivo
Abad providing, among others, that “it is coupled with an interest in the
subject matter thereof and are therefore irrevocable, and … conferring
upon my said attorney full and ample power and authority to do and
perform all things reasonably necessary and proper for the due carrying
out of the said powers according to the true tenor and purport of the
same” does not create an agency coupled with an interest nor does it
clothe the agency with an irrevocable character.
A mere statement like such is not enough. In what does such interest
consist must be stated in the power of attorney. The fact that Tiburcio
del Rosario, the principal had mortgaged the improvements of the parcel
of land to Abad, the agent is not such an interest as could render
irrevocable the power of attorney executed by the principal in favor of
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the agent. As the agency was not coupled with interest, it was
terminated upon the death of del Reosario, the principal, sometime in
December 1945, and Primitivo Abad, the agent could no longer validly
convey the parcel of land to Teodorico Abad on June 9, 1947. The sale,
therefore was null and void.
Coleongco v. Claparols, 10 SCRA 577
FACTS: Claparols, who was operating a factory for the manufacture of nails, was
looking for someone to finance his imports of nail wires. At first Kho To (not a
party to this case) who owned the company handling the marketing of the nails
agreed to do it but later on introduced his compadre Coleongco and recommended
him (Coleongco) to be the financier in his stead. Claparols agreed and entered into
a contract with Coleongco wherein the latter undertook to finance the imports of
the nail wires which Claparols bound himself to convert into nails. The following
stipulations were agreed upon in the financing agreement
- that Caleongco would have the exclusive distribution, marketing and promotion
of the product all over the Phils except in Davao,
-that Caleongco would share the control of all the cash,
-that he (Caleongco) would have a representative in the management,
-that contracts should be jointly approved by the parties,
-that proper books would be kept and annual accounts rendered, and
-that profits and losses would be shared on a 50-50 basis.
(in short, they became partners) Claparols also executed a special power of
attorney in favor of Caleongco where the former authorized the latter
- to open and negotiate letters of credit,
- to sign contracts, bills of lading, invoices and papers covering transactions,
- to represent Claparols and the nail factory, and
- to accept payments and cash advances from dealers and distributors.
Caleongco also became the assistant manager of the company. (This is where it all
begins) Sometime after, Claparols received an alias writ of execution to enforce a
judgment obtained against him by PNB, despite fact that he had submitted an
amortization plan to settle the account. He went to Manila to confer with the bank
authorities, and this is where he starts to discover all the acts of Caleongco.
Caleongco’s acts of betrayal:
1. He wrote a letter to PNB saying that he had acquired the wholw interest of
Claparols in the plant and in the factory.
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2. He wrote another letter telling the bank wherein he charged Claparols of taking
the machines mortgaged to the bank.
3. He proposed to Agsam, the machinery superintendent of the company, that the
latter pour acid on the machinery to paralyze the factory.
4. He wrote a letter to Kho To where he proposed that Kho To cut his monthly
advances to Claparols. He also mentioned their (Caleongco and Kho To) plan to
acquire ownership of the factory.
5. He surreptitiously disposed the Yates band resaw machine in favor of his
cousin’s lumber yard.
Claparols managed to settle matters with the bank. He also decided to revoke the
power of attorney and informed Caleongco of such by registered mail. He also
dismissed Caleongco as assistant manager of the plant. Caleongco filed suit
against Claparols for breach of contract and damages. He argued that Caleongco
had no legal power to revovoke the power of attorney because it was coupled with
an interest. ISSUE: WON Caleongco was correct in his contention that the power
of attorney was made to protect his interest and that Claparols did not have legal
power to revoke the power of attorney because it was coupled with an interest.
HELD: NOPE!! RATIO: The financing agreement already contained clauses to
protect Caleongco and did not call for the execution of any power of attorney in
favor of Caleongco. Granting appellant’s view, a power of attorney can be made
irrevocable only in the sense that the principal may not recall it at his pleasure. It
can be revoked for a just cause regardless of whether it was coupled with an
interest or not. Irrevocability may not be used to shield the perpetration of acts in
bad faith, breach of confidence, or betrayal of trust (like in this case) by the agent
for this would amount to a waiver of future fraud, which is prohibited by the Civil
Code. It has been proven that Coleongco acted in bad faith. (Acts have been
enumerated in the facts.) As to his justification that he wrote the letter to PNB
because of Claparols’ mal-administration, the court said that it was to be expected
that he would have first protested to Claparols but he didn’t. As to the plan to pour
of acid on the machinery which he denied, the court said that the testimonies of
Agsam and Claparols were more believable. (basta everything was done by him,
and he did everything) EXTRA: Coleongco’s claim for damages and lost profits
because of the discontinuance of the financing agreement may not proper because
he breached the his part of the contract. Instead of putting up the money needed
to finance the imports, he merely advanced 25% in cash and had the balance
covered by surety agreements executed by Claparols and others as solidary
guarantors. In some instances, Coleongco paid the cost of the imports with the
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dealers; advances without Claparols’ knowledge. Also, the examination of the
books showed that Coleongco did not give Claparols his half of the profits.
WEEK 7
OBLIGATIONS AND LIABILITIES OF PRINCIPALS TO AGENTS
ADVANCE/REIMBURSE
Art. 1912. The principal must advance to the agent, should the latter so request,
the sums necessary for the execution of the agency.
Should the agent have advanced them, the principal must reimburse him
therefor, even if the business or undertaking was not successful, provided the
agent is free from all fault.
The reimbursement shall include interest on the sums advanced, from the
day on which the advance was made.
Art. 1914. The agent may retain in pledge the things which are the object of the
agency until the principal effects the reimbursement and pays the indemnity set
forth in the two preceding articles.
Art. 1918. The principal is not liable for the expenses incurred by the agent in the
following cases:
(1) If the agent acted in contravention of the principal's instructions, unless the
latter should wish to avail himself of the benefits derived from the contract;
(2) When the expenses were due to the fault of the agent;
(3) When the agent incurred them with knowledge that an unfavorable result
would ensue, if the principal was not aware thereof;
(4) When it was stipulated that the expenses would be borne by the agent, or that
the latter would be allowed only a certain sum.
INDEMNIFY
Art. 1913. The principal must also indemnify the agent for all the damages which
the execution of the agency may have caused the latter, without fault or
negligence on his part.
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SOLIDARY LIABILITY
Art. 1915. If two or more persons have appointed an agent for a common
transaction or undertaking, they shall be solidarily liable to the agent for all the
consequences of the agency.
COMPENSATION
Art. 1875. Agency is presumed to be for a compensation, unless there is proof to
the contrary.
AGENT’S LIEN
Art. 1914. The agent may retain in pledge the things which are the object of the
agency until the principal effects the reimbursement and pays the indemnity set
forth in the two preceding articles.
Macondray v. Sellner, 33 Phil. 370
FACTS: Macondray & Co. bought a parcel of land from Sellner. The land was
flooded by high tides,and Macondray became dissatisfied with its purchase. It then
requested Sellner, after the final transfer was made, to find another buyer because
the land was unsuited for use as a coal-yard, the purpose for which it had been
purchased. It was expressly understood that Macondray was willing to sell the
land for P17,175 and that Sellner would receive as commission for securing a
purchaser anything over that amount he could get. Sellner found a purchaser,
Antonio Barretto, who was willing to buy the land forP18,892.50. Macondray
executed a formal deed of conveyance which, together with the certificate oftitle,
was delivered to Sellner with the understanding that the latter would consummate
thesale, deliver the title to the buyer and receive the purchase price. Barretto
asked that he be given time to examine the title deed, if he finds it satisfactory, he
will release the check payment. Monday morning - Young (person from
Macondray) formally notified Sellner that the deal would be off if purchase price
was not paid before 5pm of that afternoon. Sellner received the check from
Barretto on Wednesday morning. He immediately turned over the amount of
P17175 to Macondray, but Macondray’s manager refused to accept the check and
filed this action, claiming that the sale had been “cancelled” when the purchase
price was not received on Monday afternoon. There was a letter regarding the
cancellation. Macondray brought an action to recover the sum of P17, 175 by way
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of damages alleged to have beensuffered by them as a result of the sale of a
parcel of land which it is alleged was made by Sellnerafter authority to make the
sale had been revoked.
ISSUE:
Whether Macondray is entitled to damages from Sellner for selling the
land to Barretto?
RULING:
No. The termination of the negotiation fixed by the time given by Macondray will
not deprive Sellner as the broker for his commission. The broker had already
earned the commission agreed upon and could not be deprived by arbitrary action
by the plaintiff company in declining the contract of sale for personal reason.
Danon v. Brim & Co.. 42 Phil. 133
Facts: This action was brought to recover the sum of P60,000, alleged to be the
value of services rendered to the defendant by the plaintiff as a broker. The
plaintiff alleges that in the month of August, 1918, the defendant company,
through its manager, Antonio A.Brimo, employed him to look for a purchaser of its
factory known as "Holland AmericanOil Co.," for the sum of P1,200,000, payable in
cash; that the defendant promised to pay the plaintiff, as compensation for his
services, a commission of five per cent on the said sum of P1,200,000, if the sale
was consummated, or if the plaintiff should find a purchaser ready, able and
willing to buy said factory for the said sum of P1,200,000;that subsequently the
plaintiff found such a purchaser, but that the defendant refused to sell the said
factory without any justifiable motive or reason therefor and without having
previously notified the plaintiff of its desistance or variation in the price and terms
of the sale.To that complaint the defendant interposed a general denial. Honorable
Simplicio delRosario, judge, rendered a judgment in favor of the plaintiff and
against the defendantfor the sum of P60,000, with costs. From that judgment the
defendant appealed to this court.
Issue/Held: 1) WON the plaintiff had performed all that was required of
him under that contract to entitle him to recover the commission agreed
upon.
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HELD:
NO. The proof in this regard is no less unsatisfactory. It seems that immediately
after having an interview with Mr. Brimo, as above stated, the plaintiff went to see
Mr. Mauro Prieto,president of the Santa Ana Oil Mill, a corporation, and offered to
sell to him the defendant’s property at P1,200,000. Mr. Kane, its manager,
inspected the factory and,presumably, made a favorable report to Mr. Prieto. The
latter asked for an appointment with Mr. Brimo to perfect the negotiation. In the
meantime Sellner, the other broker referred to, had found a purchaser for the
same property, who ultimately bought it for P1,300,000. For that reason Mr.
Prieto, the would be purchaser found by the plaintiff,never came to see Mr. Brimo
to perfect the proposed negotiation.Under the proofs in this case, the most that
can be said as to what the plaintiff had accomplished is, that he had found a
person who might have bought the defendant’s factory if the defendant had not
sold it to someone else. The evidence does not showthat the Santa Ana Oil Mill
had definitely decided to buy the property in question at thefixed price of
P1,200,000. The board of directors of said corporation had not resolved
topurchase said property. The plaintiff claims that the reasons why the sale to the
Santa Ana Mill was not consummated was because Mr. Brimo refused to sell to a
Filipino firm and preferred an American buyer.
2) WON the plaintiff is entitled to recover the sum of P60,000, claimed
by him ascompensation for his services.
NO. It is perfectly clear and undisputed that his "services" did not any way
contribute towards bringing about the sale of the factory in question. He was not
"the efficient agent or the procuring cause of the sale. “The broker must be the
efficient agent or the procuring cause of sale. The means employed by him and his
efforts must result in the sale. He must find the purchaser, and the sale must
proceed from his efforts acting as broker. According to Sibbald vs.Bethlehem Iron
Co., “ the duty assumed by the broker is to bring the minds of the buyer and seller
to an agreement for a sale, and the price and terms on which it is to be made, and
until that is done his right to commissions does not accrue.” It follows, as a
necessary deduction from the established rule, that a broker is never entitled to
commissions for unsuccessful efforts. The risk of a failure is wholly his.The reward
comes only with his success. That is the plain contract and contemplation of the
parties. The broker may devote his time and labor, and expend his money with
ever so much of devotion to the interest of his employer, and yet if he fails, if
without effecting an agreement or accomplishing a bargain, he abandons the
effort, or his authority is fairly and in good faith terminated, he gains no right to
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commissions. He loses the labor and effort which was staked upon success. And in
such event it matters not that after his failure, and the termination of his agency,
what he has done proves of use and benefit to the principal. This however must
be taken with one important and necessary limitation. If the efforts of the broker
are rendered a failure by the fault of the employer; if capriciously he changes his
mind after the purchaser, ready and willing, and consenting to the prescribed
terms ,is produced; or if the latter declines to complete the contract because of
some defect of title in the ownership of the seller, some unremoved incumbrance,
some defect which isthe fault of the latter, then the broker does not lose his
commissions. One other principle applicable to such a contract as existed in the
present case needs to be kept in view. Where no time for the continuance of the
contract is fixed by its terms either party is at liberty to terminate it at will, subject
only to the ordinary requirements of good faith. Usually the broker is entitled to a
fair and reasonable opportunity to perform his obligation, subject of course to the
right of the seller to sell independently. But having been granted him, the right of
the principal to terminate his authority is absolute and unrestricted , except only
that he may not do it in bad faith, and as a mere device to escape the payment of
the broker's commissions. Thus, if in the midst of negotiations instituted by the
broker, and which were plainly and evidently approaching success, the seller
should revoke the authority of the broker, with the view of concluding the bargain
without his aid, and avoiding the payment of commission about to be earned, it
might be well said that the due performance his obligation by the broker was
purposely prevented by the principal. But if the latter acts in good faith, not
seeking to escape the payment of commissions, but moved fairly by a view of his
own interest, he has the absolute right before a bargain is made while
negotiations remain unsuccessful, before commissions are earned, to revoke the
broker's authority , and the latter cannot thereafter claim compensation for a sale
made by the principal, even though it be to a customer with whom the broker
unsuccessfully negotiated, and even though, to some extent, the seller might
justly be said to have availed himself of the fruits of the broker's labor.It is clear
from the foregoing authorities that, although the present plaintiff could probably
have effected the sale of the defendant's factory had not the defendant sold it to
someone else, he is not entitled to the commissions agreed upon because hehad
no intervention whatever in, and much sale in question. It must be borne in mind
that no definite period was fixed by the defendant within which the plaintiff might
effect the sale of its factory. Nor was the plaintiff given by the defendant the
exclusive agency of such sale. Therefore, the plaintiff cannot complaint of the
defendant’s conduct in selling the property through another agent before the
plaintiff’s efforts were crowned with success. "One who has employed a broker can
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himself sell the property to a purchaser whom he has procured, without any aid
from the broker."
Rocha v. Prats, 43 Phil 397
Some time in the month of May, 1919, Antonio A. Brimo, the manager of the
defendant company, verbally authorized one Joaquin Mencarini to negotiate the
sale of the property above, Mencarini to receive as his compensation the excess of
the purchase price over and above P150,000. Subsequently, the plaintiff Rocha
agreed to help Mencarini in finding a purchaser and received from Brimo an
authorization similar to that of Mencarini. Both Mencarini and Rocha from time to
time submitted propositions from various prospective purchasers, none of which
were acceptable to the defendant. Finally, on July 30, 1919, Rocha obtained an
offer from Vicente Madrigal to buy the property for P165,000 of which the sum of
P65,000 was to be paid in cash and the balance within a year from the date of the
sale. Before closing the sale Brimo, at Rocha's request, gave the latter the
following power in writing:
"We hereby authorize you to close in our name during this day the sale of
our real estates on Pinpin, Martinez, and David Streets, containing a total area of
1,529 square meters, for the price of one hundred sixty-five thousand pesos
(P165,000) under the following conditions: "Sixty-five thousand pesos should be
paid to us at the time of signing the deed.
"The remaining one hundred thousand pesos should be paid to us within the
period of one year from date with interest at 6 per cent per annum until paid.
Provided that the purchaser shall give banking security for the payment of these
one hundred thousand pesos (P100,000).
"We reserve the right to vacate within six months the premises we are actually
occupying for which we will pay a monthly rent of one thousand pesos (P1,000),
and in the event that they are vacated before the six months stipulated, we will
pay only for the months during which we shall have occupied the premises.
(Sgd.) "PRATS & Co.
"Good until July 31, 1919." Rocha testifies that when the document quoted was
handed to him he protested against the clause "(provided that the purchaser shall
give banking security for the payment of these one hundred thousand pesos)" and
Brimo then told him that if the sale was made to Madrigal he could strike out this
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clause. Brimo denies that he authorized Rocha to waive this condition. The
following day, July 31, Rocha endeavored to close the transaction with Madrigal
who offered to secure the deferred payment on the purchase price with a
mortgage on the property, but Brimo then insisting on a credito bancario as
security and Madrigal declining to agree to this, the sale failed. A few days later
Brimo, through another agent, sold the property to another for P175,000.
Issue: WON Rocha can claim compensation for his services in connection
with the negotiations for the sale to Madrigal?
Held:
No. The decision of the case hinges on questions of fact upon which we do not
feel justified in disturbing the findings of the trial court.There is no doubt that if
Exhibit B, the authorization above quoted, correctly states the terms of the
proposed sale, the plaintiff cannot recover; he never quite succeeded in bringing
the minds of the buyer nd seller to an agreement. In the case of Danon vs.
Antonio A. Brimo
& Co. (42 Phil., 133), which, in some respects, bears close
resemblance to the present case, this court quoted, with approval, the
rule laid down in Sibbald vs. Bethlehem Iron Co. (83 N. Y., 378), that
"In all cases, under all and varying forms of expression, the
fundamental and correct doctrine is, that the duty assumed by the
broker is to bring the minds of the buyer and seller to an agreement
for a sale, and the price and terms on which it is to be made, and until
that is done his right to commission does not accrue."
Inland Realty v. CA, 273 SCRA 70
Facts: Petitoner Inland Realty is a corporation in the real estate business and
brokerages. Gregorio Araneta (respondent) throughits Assistant general manager
J. Armando Eduque, granted Inland Realty authority to sell the total holdings of
Gregorio Araneta Inc. in Architect’s Bldg. Inc. at a first come first serve basis. At
the time, the property was valued at 98%/9,800 shares of stock at P1,500 per
share for 30 days.Stanford Microsystems couterproposed to Inland Realty to buy
the property at 9,800 shares at P1,000 per share. Total ofP9.8M – P4.9M payable
in 5 years at 12% per annum interest until fully paid. Araneta Inc. wrote to Inland
Realty that the price offered by Stanford was too low. Inland’s authroity to sell was
extended 3 times, 30 days each – last extension was up to December 2, 1975. On
July 8,1977, Inland finally sold the shares to Stanford at P13.5M. Inland sent a
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demand letter to Araneta Inc. for the payment of their 5% broker’s commission –
declined by the respondent because respondent claimed that the authority to sell
had longexpired. Petitioners were no longer privy to the consummation of the
sale.Both RTC and CA dismissed Inland’s petition because the authority to sell
expired on January 1, 1976 (30 days from Dec. 2, 1975). Inland contends that as
a broker it was already entitled to the commission by merely introducing the seller
to the prospective buyer who ultimately purchased the shares.
Issue(s):
*W/N Inland can claim the 5% broker’s commission
Held:
NO. Inland Realty is not the efficient procuring cause of the sale. While they had
authority, Inland never exhibited anysubstantial acts that proximately, and
causatively led to the sale. Inland merely submitted Stanford’s name as
prospective buyer. By selling the property after the authority to sell had expired, it
shows that Inland was non-participative in the crucial “events” that contributed to
the consummation of the sale. They did not participate in the negotiations,
drafting of the deed of sale, document processing, finalization of terms and
conditions etc. Petition denied.
Infante v. Cunanan, 93 Phil. 691
Quick facts: Principal terminated agency after referral of a buyer, allegedly
because of change of mind, but subsequently transacted directly with the
proposed buyer
FACTS:
Consejo Infante (owner of the lands) contracted the services of Jose Cunanan
and Juan Mijares, plaintiff herein, to sell the above-mentioned property for a price
of P30,000 subject to the condition that the purchaser would assume the
mortgage existing thereon in the favor of the Rehabilitation Finance Corporation.
She agreed to pay them a commission of 5 per cent on the purchase price plus
whatever overprice they may obtain for the property.
Plaintiffs found one Pio S. Noche who was willing to buy the property under the
terms agreed upon with defendant, but when they introduced him to defendant,
the latter informed them that she was no longer interested in selling the property
and succeeded in making them sign a document stating therein that the written
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authority she had given them was already can-celled. defendant dealt directly with
Pio S. Noche selling to him the property for P31,000.
Upon learning this transaction, plaintiffs demanded from defendant the payment
of their commission, but she refused and so they brought the present action.
Argument of petitioner: authority has already been withdrawn on November 30,
1948 when, by the voluntary act of respondents, they executed a document
stating that said authority shall be considered cancelled and without any effect, so
that when petitioner sold the property to Pio S. Noche on December 20, 1948, she
was already free from her commitment with respondents and, therefore, was not
in duty bound to pay them any commission for the transaction.
Argument of respondents: while they agreed to cancel the written authority
given to them, they did so merely upon the verbal assurance given by petitioner
that, should the property be sold to their own buyer, Pio S. Noche, they would be
given the commission agreed upon.
ISSUE: WON respondents are entitled to the commission originally
agreed upon
HELD: Yes
RATIO: That petitioner had changed her mind even if respondents had found a
buyer who was willing to close the deal, is a matter that would not give rise to a
legal consequence if respondents agree to call off the transaction in deference to
the request of the petitioner. But the situation varies if one of the parties takes
advantage of the benevolence of the other and acts in a manner that would
promote his own selfish interest. This act is unfair as would amount to bad faith.
This act cannot be sanctioned without ac-cording to the party prejudiced the
reward which is due him. Petitioner took advantage of the services rendered by
respondents, but believing that she could evade payment of their commission, she
made use of a ruse by inducing them to sign the deed of cancellation.
3-EXECUTIVE | Ab Initio Group
Prats v. CA, 81 SCRA 360
Facts:
In 1968, Antonio Prats, under the name of “ Philippine Real Estate Exchange”
instituted against Alfonso Doronilla and PNB a case to recover a sum of money and
damages. Doronilla had for sometime tried to sell his 300 ha land and he had
designated several agents for that purpose at one time. He offered the property to
the Social Security System but was unable to consummate the sale. Subsequently
he gave a written authority in writing to Prats to negotiate the sale of the
property. Such authorization was published by Prats in the Manila Times. The
parties agreed that Prats will be entitled to 10% commission and if he will be able
to sell it over its price, the excess shall be credited to the latter plus his
commission. Thereafter, Prats negotiated the land to the SSS. SSS invited
Doronilla for a conference but the latter declined and instead instructed that the
former should deal with Prats directly. Doronilla had received the full payment
from SSS. When Prats demanded from him his professional fees as real estate
broker, Doronilla refused to pay. Doronilla alleged that Prats had no right to
demand the payment not rendered according to their agreement and that the
authority extended to Prats had expired prior to the closing of the sale..
Issue: Whether petitioner was the efficient procuring cause in bringing
about the sale of respondent’s land to the SSS.
Ruling:
The Supreme Court ruled that Prats was not the efficient procuring cause of the
sale. It was not categorical that it was through Prats efforts that meeting with the
SSS official to close the sale took place. The court concluded that the meeting took
place independently because the SSS had manifested disinterest in Prats
intervention. However, in equity, the court noted that Prats had diligently taken
steps to bring back together Doronilla and SSS. Prats efforts somehow were
instrumental in bringing them together again and finally consummating the sale
although such finalization was after the expiration of Prats extended exclusive
authority. Doronilla was ordered to pay Prats for his efforts and assistance in the
transaction
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Uniland Resources v. DBP, 200 SCRA 757
FACTS: Marinduque Mining Corporation got hold of a loan from the DBP and
mortgaged a warehouse lot and an office building lot previously mortgaged by
MMC to Caltex, and the mortgage in favor of DBP was entered on their titles as a
second mortgage. The account of the Marinduque Mining Corp., with the DBP was
later transferred to the Assets Privatization Trust (APT).
Caltex foreclosed the mortgage due to the nonpayment of MMC. APT on
the other hand offered for sale to the public through DBP its right of redemption
on said two lots by public bidding. DBP subsequently retrieved the account from
APT and redeemed said lots from Caltex . A public bidding for the sale of the two
lots was held and the warehouse lot was sold to Charges Realty Corp . The office
building lot was later sold by DBP to a different buyer. After the aforesaid sale,
Uniland Resources sent two letters to DBP asking for the payment of its broker's
fee in instrumenting the sale of it’s the warehouse lot to Charges Realty
Corp. Uniland filed a case to recover from DBP the broker's fee.
The Trial Court ordered DBP to pay the brokers’s fee to the petitioner. On appeal,
the Court of Appeals reversed the judgment of the lower court ..
Issue:
Whether or not the petitioner there is a contract of agency between DBP
and Uniland in the sale of warehouse lot.
Held:
No. There is no contract of agency, express or implied. The petitioner
was never able to secure the required accreditation from respondent
DBP to transact business on behalf of the latter. It was always made
clear to petitioner that only accredited brokers may look for buyers on
behalf of respondent DBP. The contract of Agency is one founded on
mutual consent: the principal agrees to be bound by the acts of the
agent and the latter in turn consents to render service on behalf or in
representation of the principal.
3-EXECUTIVE | Ab Initio Group
Domingo v. Domingo, supra
FACTS: In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo
granted Gregorio Domingo, a real estate broker, the exclusive agency to sell his lot
No. 883 of Piedad Estate with an area of about 88,477 square meters at the rate
of P2.00 per square meter (or for P176,954.00) with a commission of 5% on the
total price, if the property is sold by Vicente or by anyone else during the 30-day
duration of the agency or if the property is sold by Vicente within three months
from the termination of the agency to apurchaser to whom it was submitted by
Gregorio during the continuance of the agency with notice to Vicente.
On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for
a buyer, promising him one-half of the 5% commission.
Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective
buyer.
After several conferences between Gregorio and Oscar de Leon, the latter raised
his offer to P109,000.00 on June 20, 1956 as evidenced by Exhibit "C", to which
Vicente agreed by signing Exhibit "C".
Upon demand of Vicente, Oscar de Leon issued to him a check in the amount of
P1,000.00 as earnest money, after which Vicente advanced to Gregorio the sum of
P300.00. Oscar de Leon confirmed his former offer to pay for the property at
P1.20 per square meter in another letter, Exhibit "D". Subsequently, Vicente asked
for an additional amount of P1,000.00 as earnest money, which Oscar de Leon
promised to deliver to him.
Pursuant to his promise to Gregorio, Oscar gave him as a gift or propina the sum
of One Thousand Pesos (P1,000.00) for succeeding in persuading Vicente to sell
his lot at P1.20 per square meter or a total in round figure of One Hundred Nine
Thousand Pesos (P109,000.00). This gift of One Thousand Pesos (P1,000.00) was
not disclosed by Gregorio to Vicente
When Oscar did not see him after several weeks, Gregorio sensed something fishy.
So, he went to Vicente and read a portion of Exhibit "A" marked habit "A-1" to the
effect that Vicente was still committed to pay him 5% commission, if the sale is
consummated within three months after the expiration of the 30-day period of the
exclusive agency in his favor from the execution of the agency contract on June 2,
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1956 to a purchaser brought by Gregorio to Vicente during the said 30-day
period.
Upon thus learning that Vicente sold his property to the same buyer, Oscar de
Leon and his wife, he demanded in writting payment of his commission on the sale
price of One Hundred Nine Thousand Pesos (P109,000.00), Exhibit "H". He also
conferred with Oscar de Leon, who told him that Vicente went to him and asked
him to eliminate Gregorio in the transaction and that he would sell his property to
him for One Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply to
Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not entitled to the 5%
commission because he sold the property not to Gregorio's buyer, Oscar de Leon,
but to another buyer, Amparo Diaz, wife of Oscar de Leon.
ISSUE: Whether the failure on the part of Gregorio to disclose to Vicente
the payment to him by Oscar de Leon of the amount of One Thousand
Pesos (P1,000.00) as gift or "propina" for having persuaded Vicente to
reduce the purchase price from P2.00 to P1.20 per square meter, so
constitutes fraud as to cause a forfeiture of his commission on the sale
price;
HELD: The duties and liabilities of a broker to his employer are essentially those
which an agent owes to his principal. 1
Consequently, the decisive legal provisions are in found Articles 1891 and 1909 of
the New Civil Code.
Art. 1891. Every agent is bound to render an account of his transactions and to
deliver to the principal whatever he may have received by virtue of the agency,
even though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an account
shall be void.
xxx xxx xxx
Art. 1909. The agent is responsible not only for fraud but also for negligence,
which shall be judged with more less rigor by the courts, according to whether the
agency was or was not for a compensation.
The aforecited provisions demand the utmost good faith, fidelity, honesty, candor
and fairness on the part of the agent, the real estate broker in this case, to his
principal, the vendor. The law imposes upon the agent the absolute obligation to
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make a full disclosure or complete account to his principal of all his transactions
and other material facts relevant to the agency, so much so that the law as
amended does not countenance any stipulation exempting the agent from such an
obligation and considers such an exemption as void. The duty of an agent is
likened to that of a trustee. This is not a technical or arbitrary rule but a rule
founded on the highest and truest principle of morality as well as of the strictest
justice. 2
Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or
personal benefit from the vendee, without revealing the same to his principal, the
vendor, is guilty of a breach of his loyalty to the principal and forfeits his right to
collect the commission from his principal, even if the principal does not suffer any
injury by reason of such breach of fidelity, or that he obtained better results or
that the agency is a gratuitous one, or that usage or custom allows it; because the
rule is to prevent the possibility of any wrong, not to remedy or repair an actual
damage. 3 By taking such profit or bonus or gift or propina from the vendee, the
agent thereby assumes a position wholly inconsistent with that of being an agent
for hisprincipal, who has a right to treat him, insofar as his commission is
concerned, as if no agency had existed. The fact that the principal may have been
benefited by the valuable services of the said agent does not exculpate the agent
who has only himself to blame for such a result by reason of his treachery or
perfidy.
In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a
gift or propina in the amount of One Thousand Pesos (P1,000.00) from the
prospective buyer Oscar de Leon, without the knowledge and consent of his
principal, herein petitioner-appellant Vicente Domingo. His acceptance of said
substantial monetary gift corrupted his duty to serve the interests only of his
principal and undermined his loyalty to his principal, who gave him partial advance
of Three Hundred Pesos (P300.00) on his commission. As a consequence, instead
of exerting his best
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- Contract of agency demands utmost good faith, fidelity, honesty,
candor and fairness on the part of the agent (real estate broker);
agent is obliged to make full disclosure to principal
- Agent who takes a secret profit without telling the principal is
guilty of breach of his loyalty and forfeits his right to collect
commission from the principal
OBLIGATIONS AND LIABILITIES OF PRINCIPALS TO THIRD PARTIES
AGENT ACTING WITHIN SCOPE OF AUTHORITY
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 provisions of this article shall be understood to be without prejudice
to the actions between the principal and agent.
Art. 1910. The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly.
Art. 1917. In the case referred to in the preceding article, if the agent has acted
in good faith, the principal shall be liable in damages to the third person whose
contract must be rejected. If the agent acted in bad faith, he alone shall be
responsible.
AGENT ACTING OUTSIDE SCOPE OF AUTHORITY
Art. 1900. So far as third persons are concerned, an act is deemed to have been
performed within the scope of the agent's authority, if such act is within the terms
of the power of attorney, as written, even if the agent has in fact exceeded the
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limits of his authority according to an understanding between the principal and the
agent.
Art. 1911. Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as though he
had full powers.
Art. 1916. When two persons contract with regard to the same thing, one of
them with the agent and the other with the principal, and the two contracts are
incompatible with each other, that of prior date shall be preferred, without
prejudice to the provisions of Article 1544.
Art. 1917. In the case referred to in the preceding article, if the agent has acted
in good faith, the principal shall be liable in damages to the third person whose
contract must be rejected. If the agent acted in bad faith, he alone shall be
responsible.
FOR CRIMES; FOR TORTS
Gonzalez v. Haberer, 47 Phil. 380
Facts:
The plaintiff spouses executed a deed of sale over a tract of land with the
defendant. It was stipulated in their contract that if the plaintiffs were found by
court to not be the owners of the land, they would return any amount that the
defendant had paid. It was also stipulated that Gomez gave his wife Gonzalez the
“marital license” to execute the deed. However, after making an initial payment of
Php30,000, the defendant found that the land was in the adverse possession of
many others. Thus, he stopped making payments. The plaintiffs then filed an
action to recover the sum of unpaid balance. The defendant claimed that when
they entered into this contract, the plaintiffs made false representations and
mislead him into thinking they had full ownership of the land.
Issue:
WON Gonzalez was free of the liabilities that her husband incurred from
the misrepresentations in the sale of the land
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Held:
NO
Rationale:
As to the plaintiff’s contention that Gonzales cannot be charged by her husband’s
misrepresentation, it is sufficient to say that the latter in negotiating for the sale of
the land acted as an agent and representative of his wife; having accepted the
benefit of the representations of her agent she cannot, of course, escape liability
for them. The latter cannot accept such benefits and at the same time deny the
responsibility for them.
Tuazon v. Orosco, supra
SUMMARY: Vargas, husband of Dolores Orozco, executed a Power of Attorney
in favor of Enrique Grupe, authorizing the latter: (1) to dispose of all his
property, particularly, a house and lot; and (2) to mortgage the house for the
purpose of securing the payment of any amount advanced to Dolores. Grupe and
Orozco obtained a loan from Gonzalo Tuason. The instrument evidencing the
debt was duly recorded in the Registry of Property, and it appears therefrom that
Grupe, as attorney in fact for Vargas, received from Tuason a loan of P2,200 and
delivered the same to the Orozco; and that to secure its payment, he mortgaged
the property of Vargas with Orozco’s consent. But Orozco denies having received
the loan.
DOCTRINE: A debt this incurred by the agent is binding directly upon the
principal, provided the former acted, as in the present case, within the scope of
his authority. (Art. 1727) The fact that the agent has also bound himself to pay
the debt does not relieve from liability the principal for whose benefit the debt
was incurred. The individual liability of the agent constitutes only a further
security in favor of the creditor. The law does not provide that the agent cannot
bind himself personally to the fulfillment of an obligation incurred by him in the
name and on behalf of his principal. (Art. 1725)
FACTS:
In 1888, (principal) Juan Vargas, husband of defendant Dolores Orozco, executed
a Power of Attorney in favor of (agent) Enrique Grupe, authorizing the latter: (1)
to dispose of all his property, in particular, a house and lot situated at 24 Calle
Nueva, Malate; and (2) to mortgage the house for the purpose of securing the
payment of any amount advanced to Dolores.
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In January 1980, Enrique Grupe and Dolores Orozco obtained a loan from plaintiff
Gonzalo Tuason. The instrument evidencing the debt was duly recorded in the
Registry of Property, and it appears therefrom that Enrique Grupe, as attorney in
fact for Vargas, received from Tuason a loan of P2,200 and delivered the same to
the defendant; and that to secure its payment, he mortgaged the property of
Vargas with Orozco’s consent. But Orozco denies having received the loan.
ISSUE + RATIO:
Orozco’s denial cannot overcome the proof to the contrary in the
agreement. Orozco was one of the parties to the January 1980 instrument and
signed it. This implied an admission on her part that the statements relating to her
in the agreement are true. She also personally intervened in the execution of the
mortgage and stated in the deed that the mortgage has been created with her
knowledge and consent. The lien was created precisely on the assumption that she
had received the amount for the purpose of securing its payment. In addition to
this, she wrote a letter to the attorneys of Tuason promising to pay the debt.
Thirteen years have elapsed since she signed the mortgage deed. During all this
time, she never denied having received the money. On the contrary, she promised
to settle. The only explanation is that she actually received the money.
The fact that Orozco received the money from Grupe, her husband’s
agent, and not from Tuason himself does not affect the validity of the mortgage.
Nowhere does it appear in the Power that the money was to be delivered to her by
the creditor himself. The important thing was that she should have received the
money.
Orozco claims that the instrument is evidence of a debt personally incurred
by Grupe for his own benefit, and not incurred for the benefit of Vargas. This
contention cannot be sustained. The agreement was signed by Grupe as attorney
in fact for Vargas. A debt this incurred by the agent is binding directly upon the
principal, provided the former acted, as in the present case, within the scope of his
authority. (Art. 1727) The fact that the agent has also bound himself to pay the
debt does not relieve from liability the principal for whose benefit the debt was
incurred. The individual liability of the agent constitutes only a further security in
favor of the creditor. The law does not provide that the agent cannot bind himself
personally to the fulfillment of an obligation incurred by him in the name and on
behalf of his principal. (Art. 1725)
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The mortgage being valid and duly recorded in the Registry of Property,
directly subjects the property to the fulfillment of the obligation for the security of
which it was created. It is of no importance whether or not Grupe bound himself
personally to pay the debt in question. The right in rem arising from the mortgage
would have justified the creditor in bringing his action directly against the property
encumbered, had he chosen to foreclose the mortgage rather than to sue Grupe.
RULING: Orozco is ordered to pay Tuason.
WEEK 8
DUTIES OF THIRD PARTIES DEALING WITH AGENT
Art. 1902 A third person with whom the agent wishes to contract on behalf of the
principal may require the presentation of the power of attorney, or the instructions
as regards the agency. Private or secret orders and instructions of the principal do
not prejudice third persons who have relied upon the power of attorney or
instructions shown them.
Bell v. Sotelo, 44 Phil. 874
Facts: Plaintiff corporation undertook to sell and deliver equipment for Mr. Sotelo
but no definite dates were fixed for the delivery. The periods were couched in
ambiguous terms such as “within 3 or 4 months”, “in the month of September or
as soon as possible”, and “approximate delivery with 90 days- This is not
guaranteed.” When the goods arrived, Mr. Sotelo refused to receive them and to
pay the prices. Mr. Sotelo then sued for damages because of the delay suffered.
Issue:
Whether Smith Bell incurred delay in the delivery of goods to Sotelo.
Held: No, it did not incur delay. From the record it appears that these contracts
were executed at the time of the world war when there existed connection
with the tanks and Priority Certificate, subject to the United –States Government
requirements," with respect to the motors. At the time of the execution of
the contracts, the parties were not unmindful of the contingency of the United
States Government not allowing the export of the goods, nor of the fact that the
other foreseen circumstances therein stated might prevent it. Considering these
contracts in the light of the civil law, we cannot but conclude that the term which
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the parties attempted to fix is so uncertain that one cannot tell just whether, as a
matter of fact, those articles could be brought to Manila or not. If that is the case,
as we think it is, the obligation must be regarded as conditional. When the delivery
was subject to a condition the fulfillment of which depended not only upon the
effort of the herein plaintiff, but upon the will of third persons who could in no way
be compelled to fulfill .the condition. In cases like this, which are not expressly
provided for, but impliedly covered, by the Civil Code, the obligor will be deemed
to have sufficiently performed his part of the obligation, if he has done all that was
in his power, even if the condition has not been fulfilled in reality. In connection
with this obligation to deliver, occurring in a contract of sale like those in question,
the rule in North America is that when the time of delivery is not fixed in the
contract, time is regarded unessential.
When the contract provides for deliver as soon as possible; the seller is entitled to
a reasonable time, in view of all the circumstances, such as the necessities of
manufacture, or of putting the goods in condition for delivery. The term does not
mean immediately or that the seller must stop all his other work and devote
himself to that particular order. But the seller must nevertheless act with all
reasonable diligence or without unreasonable delay. It has been held that a
requirement that the shipment of goods should be the earliest possible & must be
construed as meaning that the goods should be sent as soon as the seller could
possibly send them, and that it signified rather more than that the goods should
be sent within a reasonable time. The question as to what is a reasonable time for
the delivery of the goods by the seller is to be determined by the circumstances
attending the particular transaction, such as the character of the goods, and the
purpose for which they are intended, the ability of the seller to produce the goods
if they are to be manufactured, the facilities available for transportation, and the
distance the goods must be carried, and the usual course of business in the
particular trade." (35 Cyc., 181-184.) The record shows, as we have stated,
that the plaintiff did all within its power to have the machinery arrive at Manila as
soon as possible, and immediately upon its arrival it notified the purchaser of the
fact and offered to deliver it to him. Taking these circumstances into account, we
hold that the said machinery was brought to Manila by the plaintiff within a
reasonable time. Therefore, the plaintiff has not been guilty of any delay in the
fulfillment of its obligation, and, consequently, it could not have incurred any of
the liabilities mentioned by the intervenor in its counterclaim or set-off.
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Rural Bank of Bombon v. CA, 212 SCRA 25
- In order to bind P on mortgage, it must be made in behalf of P;
otherwise, it will bind agent only
- Agent’s act of signing mortgage deed in his own name bound
himself in his personal capacity as debtor
- Exception in Art. 1883 not applicable
- There is no principle of law by which one can become liable on a
real estate mortgage which he never executed either in person or
by attorney in fact
Sy-Juco v. Sy-Juco, 40 Phil. 634
- Property bought and registered in agent’s own name with P’s
money still P’s property; transaction was within the agency;
question is not in whose favor document of sale was made and
registered but with whose money said property was bought
- Exception in the Civil Code of agent acting in own name with
things belonging to P applicable since money that was used
belonged to P
FACTS: In 1902 the defendant was appointed by the plaintiffs administrator of
their property and acted as such until June 30, 1916, when his authority was
cancelled. The plaintiffs are defendant's father and mother who allege that during
his administration the defendant acquired the property claimed in the complaint in
his capacity as plaintiffs' administrator with their money and for their benefit.
Regarding the launch Malabon, it appears that in July, 1914, the defendant bought
it in his own name from the Pacific Commercial Co., and afterwards registered it at
the Custom House. But this does not necessarily show that the defendant bought
it for himself and with his own money, as he claims. This transaction was within
the agency which he had received from the plaintiffs. The fact that he has acted in
his own name may be only, as we believe it was, a violation of the agency on his
part. As the plaintiffs' counsel truly say, the question is not in whose favor the
document of sale of the launch is executed nor in whose name same was
registered, but with whose money was said launch bought. The plaintiffs'
testimony that it was bought with their money and for them is supported by the
fact that, immediately after its purchase, the launch had to be repaired at their
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expense, although said expense was collected from the defendant. If the launch
was not bought for the plaintiffs and with their money, ft is not explained why
they had to pay for its repairs.
ISSUE: WON the defendant violated the agency on his part
HELD: NO the defendant acted without this representation and bought the
launch in his own name thereby violating the agency. If the result of this
transaction should be that the defendant has acquired for himself the ownership of
the launch, it would be equivalent to sanctioning this violation and accepting its
consequences. But not only must the consequences of the violation of this agency
not be accepted, but the effects of the agency itself must be sought. If the
defendant contracted the obligation to buy the launch for the plaintiffs 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 the plaintiffs the rights he received
from the vendor, and the plaintiffs are entitled to be subrogated in these rights.
National Food Authority v. IAC, 184 SCRA 166
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 sacksof 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
andother charges. Plaintiff wrote again around November 1979, this
timespecifically requesting that payment be made to it and not to Medalla
becauseplaintiff was the owner of the vessel.On November 16, 1979, NFA
informed plaintiff that it could not grant itsrequest because the contract to
transport the rice was entered into by NFAand defendant Medalla who did not
disclose that he was acting as a mereagent of plaintiff. Thereupon on
November 19, 1979, defendant NGA paiddefendant Medalla the sum of
P25,974.90, for freight services.On December 4, 1979, plaintiff wrote defendant
Medalla demanding that heturn 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.
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Held:
Yes, NFA is solidarily liable with defendant Medalla.
Ratio: It is an undisputed fact that Gil Medalla was a commission agent
ofrespondent Superior Shipping Corporation which owned the vessel "MV
SeaRunner" that transported the sacks of rice belonging to petitioner NFA.
Thecontext of the law is clear. Art. 1883, which is the applicable law in the case
atbar provides:
Art. 1883.
If an agent acts in his own name, the principal has noright of action against the
persons with whom the agent hascontracted; neither have such persons against
the principal. In such case the agent is the one directly bound in favor of
theperson with whom he has contracted, as if the transaction werehis own, except
when the contract involves things belongingto the principal. The provision of this
article shall be understood to be withoutprejudice to the actions between the
principal and agent. Consequently, when things belonging to the principal (in this
case, Superior Shipping Corporation) are dealt with, the agent is bound to the
principal although he does not assume the character of such agent and appears
acting inhis own name . In other words, the agent's apparent representation yields
to theprincipal's true representation and that, in reality and in effect, the
contractmust 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
- It was undisputed that Medalla was a commission agent of the
company
- Art. 1883 applicable
- Agent’s apparent representation yields to the principal’s true
representation, therefore, contract considered to have been
entered into between the principal and the 3rd party
Gold Star Mining v. Lim Jimenez, 25 SCRA 597
- When Lincallo (agent) transferred his mining claims to Gold Star,
even without disclosing that Jimena was part owner, he acted as
agent of Jimena with respect to Jimena’ share of the claims
- Art. 1883 applicable
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- While there is no privity of contract between 3rd party (Gold Star)
and principal (Jimena) in this case, the common subject matter
supplies the juridical link
HOW IS AGENCY EXTINGUISHED?
Revocation; agency coupled with an interest
Art 1873. If a person specially informs another or states by public advertisement
that he has given a power of attorney to a third person, the latter thereby
becomes a duly authorized agent, in the former case with respect to the person
who received the special information, and in the latter case with regard to any
person.
The power shall continue to be in full force until the notice is rescinded in the
same manner in which it was given.
Art. 1919. Agency is extinguished:
(1) By its revocation;
(2) By the withdrawal of the agent;
(3) By the death, civil interdiction, insanity or insolvency of the principal or of the
agent;
(4) By the dissolution of the firm or corporation which entrusted or accepted the
agency;
(5) By the accomplishment of the object or purpose of the agency;
(6) By the expiration of the period for which the agency was constituted.
Art. 1920. The principal may revoke the agency at will, and compel the agent to
return the document evidencing the agency. Such revocation may be express or
implied.
Art. 1921. If the agency has been entrusted for the purpose of contracting with
specified persons, its revocation shall not prejudice the latter if they were not
given notice thereof.
Art. 1922. If the agent had general powers, revocation of the agency does not
prejudice third persons who acted in good faith and without knowledge of the
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revocation. Notice of the revocation in a newspaper of general circulation is a
sufficient warning to third persons.
Art. 1923. The appointment of a new agent for the same business or transaction
revokes the previous agency from the day on which notice thereof was given to
the former agent, without prejudice to the provisions of the two preceding articles.
Art. 1924. The agency is revoked if the principal directly manages the business
entrusted to the agent, dealing directly with third persons.
Art. 1925. When two or more principals have granted a power of attorney for a
common transaction, any one of them may revoke the same without the consent
of the others.
Art. 1926. A general power of attorney is revoked by a special onxe granted to
another agent, as regards the special matter involved in the latter.
Art. 1927. An agency cannot be revoked if a bilateral contract depends upon it,
or if it is the means of fulfilling an obligation already contracted, or if a partner is
appointed manager of a partnership in the contract of partnership and his removal
from the management is unjustifiable.
Withdrawal
Art. 1919. Agency is extinguished:
(1) By its revocation;
(2) By the withdrawal of the agent;
(3) By the death, civil interdiction, insanity or insolvency of the principal or of the
agent;
(4) By the dissolution of the firm or corporation which entrusted or accepted the
agency;
(5) By the accomplishment of the object or purpose of the agency;
(6) By the expiration of the period for which the agency was constituted.
Art. 1928. The agent may withdraw from the agency by giving due notice to the
principal. If the latter should suffer any damage by reason of the withdrawal, the
agent must indemnify him therefor, unless the agent should base his withdrawal
upon the impossibility of continuing the performance of the agency without grave
detriment to himself.
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Art. 1929. The agent, even if he should withdraw from the agency for a valid
reason, must continue to act until the principal has had reasonable opportunity to
take the necessary steps to meet the situation.
Valera v. Velasco, 51 Phil 695
FACTS: By virtue of the powers of attorney executed by the plaintiff-appellant,
the defendant-appellee was appointed attorney-in-fact with authority to manage
his property in the Philippines, consisting of the usufruct of a real property. The
liquidation of accounts revealed that the plaintiff-appellant owed the defendant
P1,100, and as misunderstanding arose between them, the defendant-appellee
brought suit against the plaintiff-appellant . The trial court decided in favor of
agent; sheriff levied upon plaintiff-appellant’s right of usufruct, sold it at public
auction and adjudicated it to defendant-appellee in payment of his claim. Plaintiff-
appellant sold his right of redemption to Eduardo Hernandez- Hernandez conveyed
the same right of redemption himself-but then another person Salvador Vallejo,
who had an execution upon a judgment against the plaintiff rendered in another
case, levied upon said right of redemption- right of redemption sold to Vallejo and
was definitely adjudicated to him. Later, he transferred the said right of
redemption to defendant-appellee. The title was consolidated in his name,thus,
the agent got the title to the right of usufruct to the aforementioned property.
ISSUE: WON the agency was terminated
HELD:
YES. Art 1732- Agency is terminated by: a) revocation, b)withdrawal of
agent, c)death, interdiction, bankruptcy, or insolvency of the principal or
of the agent. While Art 1736- An agent may withdraw by giving notice to
principal. If principal suffer any damage, agent must indemnify him
unless the agent’s reason should be the impossibility of continuing to act
as such without serious detriment to himself. The misunderstanding
between the plaintiff and the defendant over the payment of the balance
of P1,000 due the latter more than prove the breach of the juridical
relation between them; for, although the agent has not expressly told
his principal that he renounced the agency, yet neither dignity nor
decorum permits the latter to continue representing a person who has
adopted such an antagonistic attitude towards him. When the agent filed a
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complaint against his principal for recovery of a sum of money arising from the
liquidation of the accounts between them in connection with the agency, principal
could not have understood otherwise than that agent renounced the agency;
because his act was more expressive than words and could not have caused any
doubt. In order to terminate their relations by virtue of the agency the defendant,
as agent, rendered his final account on March 31, 1923 to the plaintiff, as
principal. Briefly, then, the fact that an agent institutes an action against his
principal for the recovery of the balance in his favor resulting from the liquidation
of the accounts between them arising from the agency, and renders and final
account of his operations, is equivalent to an express renunciation of the agency,
and terminates the juridical relation between them. Hence, the said agent's
purchase of the aforesaid principal's right of usufruct at public auction held by
virtue of an execution issued upon the judgment rendered in favor of the former
and against the latter, is valid and legal. Moreover, the defendant-appellee, having
acquired right of redemption from Salvador Vallejo, who had acquired it at public
auction by virtue of a writ of execution issued upon the judgment obtained by the
said Vallejo against the said plaintiff, the latter lost all right to said usufruct.
Neither did the trial court err in not ordering the agent to render a liquidation of
accounts from March 31, 1923, inasmuch as he had acquired the rights of the
plaintiff by purchase at the execution sale, and as purchaser, he was entitled to
receive the rents from the date of the sale until the date of the repurchase,
considering them as part of the redemption price; but not having exercised the
right repurchase during the legal period, and the title of the repurchaser having
become absolute, the latter did not have to account for said rents.
Death; agency coupled with an interest
Art. 1919. Agency is extinguished:
(1) By its revocation;
(2) By the withdrawal of the agent;
(3) By the death, civil interdiction, insanity or insolvency of the principal or of the
agent;
(4) By the dissolution of the firm or corporation which entrusted or accepted the
agency;
(5) By the accomplishment of the object or purpose of the agency;
(6) By the expiration of the period for which the agency was constituted.
Art. 1930. The agency shall remain in full force and effect even after the death of
the principal, if it has been constituted in the common interest of the latter and of
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the agent, or in the interest of a third person who has accepted the stipulation in
his favor.
Art. 1931. Anything done by the agent, without knowledge of the death of the
principal or of any other cause which extinguishes the agency, is valid and shall be
fully effective with respect to third persons who may have contracted with him in
good faith.
Art. 1932. If the agent dies, his heirs must notify the principal thereof, and in the
meantime adopt such measures as the circumstances may demand in the interest
of the latter.
Pasno v. Ravina, 54 Phil 378
FACTS: During Gabina Labitoria’s lifetime mortgaged 3 parcels of land to the PNB
to secure the indebtedness of P1,600. It was stipulated in the mortgage that the
mortgagee “may remove, sell or dispose of the mortgaged property or any
buildings, improvements, or other property in, on or attached to it and belonging
to the mortgagor in accordance with the provisions of Act No. 3135 or take other
legal action that it may deem necessary.” The mortgagor died and a petition was
presented in court for the probate of her last will and testament. During the
pendency of these proceedings, a special administrator was appointed by the
lower court who took possession of the estate of deceased, including the 3 parcels
of land mortgaged to PNB. The estate having failed to comply with the conditions
of the mortgage, PNB, pursuant to the stipulations contained in the same, asked
the sheriff of Tayabas to proceed with the sale of the parcels of land. When the
attorney for the special administrator received notice of the proposed action, he
filed a motion in court in which an order was asked requiring the sheriff to vacate
the attachment over the mortgaged properties and to abstain from selling the
same. The lower court granted the petition in an order of February 14, 1929 and
later denied a motion for reconsideration presented on behalf of the PNB. The
mortgage makes special reference to Act. No. 3135. That Act regulates the sale of
property under special powers inserted in or annexed to real estate mortgages. It
fails to make provision regarding the sale of the mortgaged property which is in
custodia legis. Under the circumstances, it would be logical to suppose that
general provisions of Philippine law would govern this latter contingency. It is a
familiar rule that the statutes in pari materia are to be read together. The
legislative body which enacted Act. No. 3135 must be presumed to have been
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seen acquainted with the provisions of such a well known law as the Code of Civil
Procedure and to have passed Act. No. 3135 with reference thereto.
ISSUE:
Whether the right of sale of the mortgaged property can survive and can
be enforced under special power while the mortgaged property is in
custodia legis?
HELD:
The power of sale given in a mortgaged is a power coupled with an interest which
survives the death of the grantor. One case, that of Carter v.s. Slocomb [4898,
122 N.C. 475] has gone so far as to hold that a sale after the death of the
mortgagor is valid without notice to the heirs of the mortgagor. However, that
may be conceding that the power of sale is not revoked by the death of the
mortgagor.
Ramos v. Caoibes, 94 Phil. 440
- Agent has the obligation to deliver amount y virtue of PoA to his principal
- There was no cession of rights made in favor of the agent in the PoA, and
the contract of agency is presumed to be gratuitous, unless the agent is a
professional agent
- When the agent made use of the PoA, principal was already dead; agency
was terminated upon the death of the principal; therefore, he can’t keep
the proceeds of the claim for himself
- Agent’s act of collecting the claim is not such a service as to require
compensation
Herrera v. Luy Kim Guan, 1 SCRA 406
DOCTRINE:
The death of the principal does not render the act of an agent
unenforceable, where the latter had no knowledge of such
extinguishment.
FACTS:
 Natividad Herrera is a legitimate daughter of Luis Herrera
3-EXECUTIVE | Ab Initio Group
 Luis Herrera owned three (3) parcels of land and before
leaving for China, he executed a Deed of General Power of
Attorney in favor Luy Kim Guan authorizing him to
administer and sell the properties of the latter.
 Luy Kim Guan, in his capacity as an attorney-in-fact for
Luis Herrera sold the lot 1740 to Luy chay
 Luy Chay then executed a deed of sale in favor of one Lino
Bangayan
 Luy Kim Guan, acting again as an attorney-in-fact for Luis
Herrera sold to Nicomedes Salazar ½ of the two lots.
 Luy Kim Guan Nicomedes Salazar executed a deed of
mortgage in favor of Bank of the Philippines Islands.
 Luy Kim Guan and Salazar sold part of the remaining lot to
Carlos Cizantos.
 Salazar then sold his remaining interest to Lino Bangayan
and Luy Kim Guan, both are as co-owners.
 Both Natividad Herrera and Luy Kim Guan admitted that
Luis Herrera is now deceased.
 The appellants contend that the abovementioned
transactions were fraudulent and were executed after the
death of Luis Herrera (principal) when the power of
attorney was no longer operative.

ISSUE: WON The transactions were null and void because they are
executed after the death of the principal?
HELD: No, The transactions are not null and void and of no effect.
Coming now to the contention that these transactions are null and void
and of no effect because they were executed by the attorney-in-fact
after the death of his Principal, suffice it to say that as found by the
lower court, the date of death of Luis Herrera has not been satisfactorily
proven. The only evidence presented by the Plaintiff-appellant in this
respect is a supposed letter received from a certain "Candi", dated at
Amoy in November, 1936, purporting to give information that Luis
Herrera (without mentioning his name) had died in August of that year.
This piece of evidence was properly rejected by the lower court for lack
of identification. the other hand, we have the testimony of the witness
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Chung Lian to the effect that when he was in Amoy the year 1940, Luis
Herrera visited him and had a conversation with him, showing that the
latter was still alive at the time. Since the documents had been executed
the attorney-in-fact one in 1937 and the other in 1939, it is evident, if
we are to believe this testimony, that the documents were executed
during the lifetime of the principal. Be that as it may, even granting
arguendo that Luis Herrera did die in 1936, plaintiffs presented no proof
and there is no indication in the record, that the age Luy Kim Guan was
aware of the death of his prince at the time he sold the property. The
death of the principal does not render the act of an agent unenforceable,
where the latter had no knowledge of such extinguishment the agency.

Rallos v. Felix Go Chan, supra

Dissolution of the firm/corporation

Accomplishment of the object/purpose
Expiration of the period
Civil interdiction, insanity, insolvency

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