Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

L-7912 August 30, 1955

HORTENSIA ZIALCITA-YUSECO assisted by her husband JOAQUIN P. YUSECO, Jr., plaintiffs-appellants, vs. WILLIAM SIMMONS, defendant-appellee. Yuseco, Abdon and Yuseco for appellants. Ross, Selph, Carrascoso and Janda for appellee. BENGZON, Acting C.J.: Action for damages resulting from plaintiff's allegedly illegal separation from the service of the National City Bank of New York. In June, 1952 HortensiaZialcita was employed by the National City Bank of New York, a foreign banking corporation doing business in the Philippines, under a contract of employment, signed by her, including the following clause:
I understand that I am being hired as a single female employee. In the event of my marriage you may terminate this employment in which case I shall be entitled to no other benefits except my salary through the last day on which I worked.

On July 13, 1952 she married her co-plaintiff; and on August 18, 1952 she commenced, in the Manila court of first instance, this suit against William Simmons, the general manager of the National City Bank of New York asserting that said defendant "urged by his distorted notion of a new policy" in the said bank "as manager thereof, forced the herein plaintiff to sign" the above letter of resignation "in implementation of the aforementioned immoral and illegal agreement in the contract of employment." She demanded that said defendant be ordered to pay her damages totalling P15,000. For answer the defendant averred that: (a) plaintiff signed the contract voluntarily, (b) the above condition of employment was valid, and (c) before marriage plaintiff resigned her position; and asserting she had no cause of action against him; he asked for damages. The case was heard; and on March 31, 1953 the Honorable Alejandro Panlilio, Judge, entered judgment absolving the defendant for the reason that the plaintiff had signed the contract voluntarily and clause in question was a valid condition of employment not repugnant to public policy. His Honor furthermore opined that plaintiff had no cause of action "taking into consideration the undeniable fact that said plaintiff was not employed by the defendant William Simmons, but by the National City Bank of New York, of which said defendant happened to be the general manager. If at all, that is, if by reason of the termination of her employment contract with the bank, plaintiff HortensiaZialcita had any cause of action, the action should have been directed, not against the National City Bank of New York." The plaintiff appealed, contending in her brief that the lower court erred in declaring she had no cause to complain against defendant, and in sustaining the validity of the aforesaid condition of her employment. She argues that the defense of

Because she intended to marry soon, and pursuant to the above stipulation, plaintiff filed on July 7, 1952, her written resignationwhich was acceptedeffective August 15, 1952.

failure to state a cause of action was not raised by the defendant in his answer, nor in a motion to dismiss; and under the Rules such defense was waived and was unavailable, when appellee for the first time pleaded it in his memorandum. This argument is without merit, because in the defendant's answer he specifically alleged:
That plaintiff has no cause of action against defendant; that the action instituted by her against defendant (is) unwarranted; . .."

services for the corporation and to accept or require her resignation. (See Guevarra, Phil. Corporation Law pp. 54-55 and Nepomuceno vs. Parlatone 40 Off. Gaz. 119.) In Macias vs. Warner Barnes & Co., 43 Phil., 155 action to enforce a fire policy was filed against the insurer'sagent that had issued a policy in the name of the insurer. Applying the doctrine of the principal's responsibility, the courts dismissed the action. In this view of the litigation, we find it unnecessary to decide the issue extensively discussed in the briefs, whether the employment clause is in restraint of marriage, and/or contravenes public policy. That issue would be a proper subject for debate in a proceeding against the Bank, the true employer of plaintiff. To consider the point now, would be unfair to said Bank, which is not presently before the Court to defend its side of the debate. The judgment absolving defendant is affirmed with costs. Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo, Labrador, Concepcion, and Reyes, J. B. L., JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-2246 January 31, 1951

Now, then, does plaintiff have the right to compel the manager of the National City Bank to pay damages by reason of her separation? She does not rebut the court's reasoning that defendant merely acted as agent of the Bank, and that her remedy, if any, is to sue such Bank. Indeed such reasoning is in line with well-known principles of agency. According to the complaint itself, in requiring her to sign the contract, defendant acted as manager of the Bank, and in requiring her resignation he also acted as manager of the Bank. There is no allegation that he exceeded his power as manager or that his actuation was repudiated by his principal, the Bank. Consequently any claim for damages supposedly resulting from his acts as manager should be directed against his principal, the Bank not against him personally. "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 . . ..""The principal must comply with all the obligations which the agent may have contracted within the scope of his authority." (Arts. 1897 and 1910 New Civil Code.) Of course it is not necessary to cite authorities to conclude that the defendant as manager had authority to contract plaintiff's

JOVITO R. SALONGA, plaintiff-appellee, vs. WARNER, BARNES AND CO., LTD., defendant-appellant.

Perkins, Ponce Enrile, Contreras and Gomez for appellant. Pedro L. Yap for appellee. BAUTISTA ANGELO, J.: This is an appeal from a decision of the Court of First Instance of Manila ordering the defendant, as agent of Westchester Fire Insurance Company of New York, to pay to the plaintiff the sum of P727. 82 with legal interest thereon from the filing of the complaint until paid, and the costs. The case was taken to this court because it involves only questions of law. On August 28, 1946, Westchester Fire Insurance Company of New York entered into a contract with Tina J. Gamboa whereby said company insured one case of rayon yardage which said Tina J. Gamboa shipped from San Francisco, California, on steamer Clovis Victory, to Manila, Philippines and consigned to JovitoSalonga, plaintiff herein. According to the contract of insurance, the insurance company undertook to pay to the sender or her consignee the damages that may be caused to the goods shipped subject to the condition that the liability of the company will be limited to the actual loss which the insured may suffer not to the exceed the sum of (2,000. The ship arrived in Manila on September 10, 1946. On October 7, the shipment was examined by C. B. Nelson and Co., marine surveyors, at the request of the plaintiff, and in their examination the surveyors found a shortage in the shipment in the amount of P1,723,12. On October 9, plaintiff filed a claim for damages in the amount of P1,723.12 against the American President Lines, agents of the ship Clovis Victory, demanding settlement, and when apparently no action was taken on this claim, plaintiff demanded payment thereof from Warner, Barnes and Co., Ltd., as agent of the insurance company in the Philippines, and this agent having refused to pay the claim, on April 17, 1947, plaintiff instituted the present action.

In the meantime, the American President Lines, in a letter dated November 25, 1946, agreed to pay to the plaintiff the amount of P476.17 under its liability in the bill of lading, and when this offer was rejected, the claim was finally settled in the amount of P1,021.25. As a result, the amount claimed in the complaint as the ultimate liability of the defendant under the insurance contract was reduced to P717.82 only. After trial, at which both parties presented their respective evidence, the court rendered judgment as stated in the early part of this decision. The motion for reconsideration filed by the defendant having been denied, the case was appealed to this court. Appellant now assigns the following errors:
I The trial court erred in finding that the loss or damage of the case of rayon yardage (Pilferage, as found by the marine surveyors)is included in the risks insured against as enunciated in the insurance policy. II The trial court erred in holding that defendant, as agent of Westchester Fire Insurance Company of New York, United States of America, is responsible upon the insurance claim subject to the suit. III The trial court erred in denying defendant's motion for new trial and to set aside the decision. (Appellant's assignments of error).

We will begin by discussing the second error assigned by appellant for the reason that if our view on the question raised is in favor of the claim of appellant there would be no need to proceed with the discussion of the other errors assigned, for that would put an end to the controversy. As regards the second assignment of error, counsel claims that the defendant cannot be made responsible to pay the amount in litigation because (1) said defendant has no contractual relation with either the plaintiff or his consignor; (2) the defendant is not the real party in interest against whom the suit should be brought; and (3) a judgment for or against an agent in no way binds the real party in interest. 1. We are of the opinion that the first point is well taken. It is a well known rule that a contractual obligation or liability, or an action ex-contractu, must be founded upon a contract, oral or written, either express or implied. This is axiomatic. If there is no contract, there is no corresponding liability, and no cause of action may arise therefrom. This is what is provided for in article 1257 of the Civil Code. This article provides that contracts are binding upon the parties who make them and their heirs, excepting, with respect to the latter, where the rights and obligations are not transmissible, and when the contract contains a stipulation in favor of a third person, he may demand its fulfillment if he gives notice of his acceptance before it is revoked. This is also the ruling laid down by this court in the case of E. Macias and Co. vs. Warner, Barnes and Co. (43 Phil. 155) wherein, among others, the court said:
x xx x xx x xx

insurance companies and the policies were issued by, and in the name of, the insurance companies, and on the face of the policy itself, the plaintiff knew that the defendant was acting as agent, for, and was representing, the respective insurance companies in the issuance and delivery of the policies. The defendant company did not contract or agree to do anything or to pay the plaintiff any money at any time or on any condition, either as agent or principal. x xx x xx x xx

Every cause of action ex-contractu must be founded upon a contract, oral or written, either express or implied. Warner, Barnes and Co., as principal or agent, did not make any contract, either oral or written, with the plaintiff. The contracts were made between the respective insurance companies and the insured, and were made by the insurance companies, through Warner, Barnes and Co., as their agent. As in the case of a bank draft, it is not the cashier of the bank who makes the contract to pay the money evidenced by the draft, it is the bank, acting through its cashier, that makes the contract. So, in the instant case, it was the insurance companies, acting through Warner, Barnes and Co., as their agent, that made the written contracts with the insured. (E. Macias and Co. vs. Warner, Barnes and Co., 43 Phil., 155, 161, 162.)

. . . There is no contract of any kind, either oral or written, between the plaintiff and Warner, Barnes and Company. Plaintiff's contracts are with the insurance companies, and are in writing, and the premiums were paid to the

Bearing in mind the above rule, we find that the defendant has not taken part, directly or indirectly, in the contract in question. The evidence shows that the defendant did not enter into any contract either with the plaintiff or his consignor Tina J. Gamboa. The contract of marine insurance, Exhibit C, was made and executed only by and between the Westchester Fire

Insurance Company of New York and Tina J. Gamboa. The contract was entered in New York. There is nothing therein which may affect, in favor or adversely, the defendant, the fulfillment of which may be demanded by or against it. That contract is purely bilateral, binding only upon Gamboa and the insurance company. When the lower court, therefore, imposed upon the defendant an obligation which it has never assumed, either expressly or impliedly, or when it extended to the defendant the effects of a contract which was entered into exclusively by and between the Westchester Fire Insurance Company of New York and Tina J. Gamboa, the error it has committed is evident. This is contrary to law. We do not find any material variance between this case and the case of E. Macias and Co. vs. Warner, Barnes and Co., supra, as pointed out by counsel for appellee, in so far as the principle we are considering is concerned. Both cases involve similar facts which call for the application of a similar ruling. In both cases the issue is whether an agent, who acts within the scope of his authority, can assume personal liability for a contract entered into by him in behalf of his principal. And in the Macias case we said that the agent did not assume personal liability because the only party bound was the principal. And in this case this principle acquires added force and effect when we consider the fact that the defendant did not sign the contract as agent of the foreign insurance company as the defendant did in the Macias case. The Macias case, therefore, is on all fours with this case and is decisive of the question under consideration. 2. Counsel next contends that Warner, Barnes and Co., Ltd., is not the real party in interest against whom the suit should be brought. It is claimed that this action should have been filed against its principal, the Westchester Fire Insurance Company of New York. This point is also well taken. Section 2, Rule 3 of the Rules of Court requires that "every action must be

prosecuted in the name of the real party in interest." A corollary proposition to this rule is that an action must be brought against the real party in interest, or against a party which may be bound by the judgment to be rendered therein (Salmon and Pacific Commercial Co. vs. Tan Cueco, 36 Phil., 556). The real party in interest is the party who would be benefited or injured by the judgment, or the "party entitled to the avails of the suit" (1 Sutherland, Court Pleading Practice and Forms, p. 11). And in the case at bar, the defendant issued upon in its capacity as agent of Westchester Fire Insurance Company of New York in spite of the fact that the insurance contract has not been signed by it. As we have said, the defendant did not assume any obligation thereunder either as agent or as a principal. It cannot, therefore, be made liable under said contract, and hence it can be said that this case was filed against one who is not the real party in interest. We agree with counsel for the appellee that the defendant is a settlement and adjustment agent of the foreign insurance company and that as such agent it has the authority to settle all the losses and claims that may arise under the policies that may be issued by or in behalf of said company in accordance with the instructions it may receive from time to time from its principal, but we disagree with counsel in his contention that as such adjustment and settlement agent, the defendant has assumed personal liability under said policies, and, therefore, it can be sued in its own right. An adjustment and settlement agent is no different from any other agent from the point of view of his responsibility, for he also acts in a representative capacity. Whenever he adjusts or settles a claim, he does it in behalf of his principal, and his action is binding not upon himself but upon his principal. And here again, the ordinary rule of agency applies. The following authorities bear this out:
An insurance adjuster is ordinarily a special agent for the person or company for whom he acts, and his authority

is prima facie coextensive with the business intrusted to him. . . . An adjuster does not discharge functions of a quasijudicial nature, but represents his employer, to whom he owes faithful service, and for his acts, in the employer's interest, the employer is responsible so long as the acts are done while the agent is acting within the scope of his employment. (45 C. J. S., 1338-1340.)

It, therefore, clearly appears that the scope and extent of the functions of an adjustment and settlement agent do not include personal liability. His functions are merely to settle and adjusts claims in behalf of his principal if those claims are proven and undisputed, and if the claim is disputed or is disapproved by the principal, like in the instant case, the agent does not assume any personal liability. The recourse of the insured is to press his claim against the principal. 3. This brings us to the consideration of the third point. It is claimed that a judgment, for or against an agent, in no way binds the real party in interest. In our opinion this point is also well taken, for it is but a sequel to the principle we have pointed out above. The reason is obvious. An action is brought for a practical purpose, nay to obtain actual and positive relief. If the party sued upon is not the proper party, any decision that may be rendered against him would be futile, for it cannot be enforced or executed. The effort that may be employed will be wasted. Such would be the result of this case if it will be allowed to proceed against the defendant, for even if a favorable judgment is obtained against it, it cannot be enforced because the real party is not involved. The defendant cannot be made to pay for something it is not responsible. Thus, in the following authorities it was held:
. . . Section 114 of the Code of Civil Procedure requires an action to be brought in the name of the real party in

interest; and a corollary proposition requires that an action shall be brought against the persons or entities which are to be bound by the judgment obtained therein. An action upon a cause of action pertaining to his principal cannot be brought by an attorney-in-fact in his name (Arroyo vs. Granada and Gentero, 18 Phil., 484); nor can an action based upon a right of action belonging to a principal be brought in the name of his representative (Lichauco vs. Limjuco and Gonzalo, 19 Phil., 12). Actions must be brought by the real parties in interest and against the persons who are to be bound by the judgment obtained therein. (Salmon and Pacific Commercial Co. vs. Tan Cueco, 36 Phil., 557-558.) x xx x xx x xx

An action to set aside an instrument of transfer of land should be brought in the name of the real party in interest. An apoderado or attorney in fact is not a real party. He has no interest in the litigation and has absolutely no right to bring the defendant into court or to put him to the expense of a suit, and there is no pro-vision of law permitting action to be brought in such manner. A judgment for or against the apoderadoin no way binds or affects the real party, and a decision in the suit would be utterly futile. It would touch no interest, adjust no question, bind no one, and settle no litigation. Courts should not be required to spend their time solemnly considering and deciding cases where no one could be bound and no interest affected by such deliberation and decision. (Arroyo vs. Granada and Gentero, 18 Phil., 484.)

If the case cannot be filed against the defendant as we have pointed out, what then is the remedy of the plaintiff under the circumstances? Is the case of the plaintiff beyond remedy? We believe that the only way by which the plaintiff can bring the principal into this case or make it come under the courts in this

jurisdiction is to follow the procedure indicated in section 14, Rule 7, of the Rules of Court concerning litigations involving foreign corporations. This rule says that if the defendant is a foreign corporation and it has not designated an agent in the Philippines on whom service may be made in case of litigation, such service may be made on any agent it may have in the Philippines. And in our opinion the Westchester Fire Insurance Company of new York comes within the import of this rule for even if it has not designated an agent as required by law, it has however a settling agent who may serve the purpose. In other words, an action may be brought against said insurance company in the Philippines and the process may be served on the defendant to give our courts the necessary jurisdiction. This is the way we have pointed out in the case of General Corporation of the Philippines and Mayon Investment Co. vs. Union Insurance Society of Canton Ltd. et al., (87 Phil., 313). In view of the foregoing, we are of the opinion and so hold that the lower court erred in holding the defendant responsible for the loss or damage claimed in the complaint. And having arrived at this conclusion, we do not deem it necessary to pass upon the other errors assigned by the appellant. Wherefore, the decision appealed from is hereby reversed. The complaint is hereby dismissed, with costs against the appellee. Moran, C.J., Paras, Feria, Pablo, Bengzon, Padilla, Tuason, Montemayor, Reyes and Jugo, JJ., concur.

EN BANC G.R. No. 16492 March 9, 1922

E. MACIAS & CO., importers and exporters, plaintiffappellant, vs. WARNER, BARNES & CO., in its capacity as agents of "The China Fire Insurance Co.," of "The Yang-Tsze" and of "The State Assurance Co., Ltd.," defendant-appellant. Ramon Sotelo for plaintiff-appellant. Cohn, Fisher & DeWitt for defendant-appellant. STATEMENT The plaintiff is a corporation duly registered and domiciled in Manila. The defendant is a corporation duly licensed to do business in the Philippine Islands, and is the resident agent of insurance companies "The China Fire Insurance Company, Limited, of Hongkong," "The Yang-Tsze Insurance Association Limited, of Shanghai," and "The State Assurance Company, Limited, of Liverpool. The plaintiff is an importer of textures and commercial articles for wholesale. In the ordinary course of business, it applied for, and obtained, the following policies against loss by fire:
Policy No. 4143, issued by The China Fire Insurance Co., Ltd., for ....................................................................... P12,000 Policy No. 4382, issued by The China Fire Insurance Co., Ltd., for .......................................................................... 15,000

Republic of the Philippines SUPREME COURT Manila

Policy No. 326, issued by The Yang-Tsze Insurance Ass'n., Ltd., for ..................................................................... 10,000 Policy No. 796111, issued by The State Assurance Co., Ltd., for ............................................................................ 8,000

Policy No. 4143, of P12,000, recites that Mrs. Rosario Vizcarra, having paid to the China Fire Insurance Company, Limited, P102 for insuring against or damage by fire certain merchandise the description of which follows, "the company agrees with the insured that, if the property above described, or any party thereof, shall be destroyed or damaged by fire between September 16, 1918, and September 16, 1919," etc., "The company will, out of its capital, stock and funds, pay or make good all such loss or damage, not exceeding" the amount of the policy. This policy was later duly assigned to the plaintiff. Policy No. 4382, for P15,000, was issued by the same company to, and in the name of, plaintiff. Policy No. 326, for P10,000, was issued to, and in the name of policy No. 326, for P10,000, was issued to, and in the name of the plaintiff by The Yang-Tsze Insurance Association, Limited, and recites that the premium of P125 was paid by the plaintiff to the association, and that, in the event of loss by fire between certain dates, "the funds and property of the said association shall be subject and liable to pay, reinstate, or make good to the said assured, their heirs, executors, or administrators, such loss or damage as shall be occasioned by fire to the property above-mentioned and hereby insured," not exceeding the amount of the policy.

Policy No. 796111, for P8,000, was issued by The States Assurance Company, Limited, to the plaintiff for a premium of P100, which was paid to the Assurance Company through the defendant, its authorized agent, and recites that "the company agrees with the insured that in the event of loss by fire between certain dates, the company will, out of its capital, stock and funds, pay the amount of such loss or damage," not exceeding the amount of the policy, and it is attested by the defendant, through its "Cashier and Accountant and Manager, Agents, State Assurance Co., Ltd.," authorized agents of the Assurance Company. Policy No. 4143 is attested "on behalf of The China Fire Insurance Company, Limited," by the cashier and accountant and manager of the defendant, as agents of The China Fire Insurance Company, Limited. The same is true as to policy no. 4382. Policy No. 326 recites the payment of a premium of P125 by the plaintiff to The Yang-Tsze Insurance Association, Limited, and that, in the event of loss, "the funds and property of the said association shall be subject and liable to pay, reinstate, or make good to the said assured, their heirs, executors, or administrators, such loss or damage as shall be occasioned by fire or lightning to the property" insured, not exceeding the amount of the policy, and it is attested by the defendant, through its cashier and accountant and manager, as agents of the association "under the authority of a Power of Attorney from The Yang-Tsze Insurance Association, Limited," "to sign, for and on behalf of the said Association, etc." March 25, 1919, and while the policies were in force, a loss occurred in which the insured property was more or less damaged by fire and the use of water resulting from the fire.

The plaintiff made a claim for damages under its policies, but could not agree as to the amount of loss sustained. It sold the insured property in its then damaged condition, and brought this action against Warner, Barnes & Co., in its capacity as agents, to recover the difference between the amount of the policies and the amount realized from the sale of the property, and in the first cause of action, it prayed for judgment for P23,052.99, and in the second cause of action P9,857.15. The numbers and amounts of the policies and the names of the insurance companies are set forth and alleged in the complaint. The answer admits that the defendants is the resident agent of the insurance companies, the issuance of the policies, and that a fire occurred on March 25, 1919, in the building in which the goods covered by the insurance policies were stored, and that to extinguish the fire three packages of goods were damage by water not to exceed P500, and denies generally all other material allegations of the complaint. As a further and separate defense, the defendant pleads certain provisions in the policies, among which was a written notice of loss, and all other insurance and certain detailed information. It is then alleged
That although frequently requested to do so, plaintiff failed and refused to deliver to defendant or to any other person authorized to receive it, any claim in writing specifying the articles or items of property damaged or destroyed and of the alleged amount of the loss or damage caused thereto. That defendant was at all times ready and willing to pay, on behalf of the insurance companies by whom said policies were issued, and to the extent for which each

was proportionately liable, the actual damage to plaintiff's goods covered by the risks insured against, upon compliance within the time limited, with the terms of the clause of the contracts of insurance above set forth.

Defendants prays judgment for costs. Before the trial, counsel for the defendant objected to the introduction of any evidence in the case, and moved "that judgment be entered for the defendant on the pleadings upon the ground that it appears from the averment of the complaint that the plaintiff has had no contractual relations with the defendant, and that the action has not been brought against the real party in interest." The objection and motion was overruled and exception duly taken. After trial the court found that there was due the plaintiff from the three insurance companies p18,493.29 with interest thereon at the rate of 6 per cent per annum, from the date of the commencement of the action, and costs, and rendered the following judgment:
It is, therefore, ordered that judgment be entered against Warner, Barnes & Co., Ltd., in its capacity as agent and representative in the Philippine Islands for The China fire Insurance Company, Ltd., The Yang-Tsze Insurance Association, Ltd., and The State Assurance Co., Ltd., for the payment to the plaintiff, E. Macias & Co., of the sum of P18,493.29, the amount of this judgment to be prorated by Warner, Barnes & Co., among the three insurance companies above-mentioned by it represented, in proportion to the interest insured by each of said three insurance companies, according to the policies issued by them in favor of the plaintiff, and sued upon in this action.

The defendant then filed a motion to set aside the judgment and for a new trial, which was overruled and exception taken. From this judgment the defendant appealed, claiming that "the court erred in overruling defendant's motion for judgment on

the pleadings; that the court erred in giving judgment for the plaintiff; that the court erred in denying defendants motion for a new trial," and specifying other assignments which are not material to this opinion, Plaintiff also appealed.

JOHNS, J.: The material facts are not in dispute it must be conceded that the policies in question were issued by the different insurance companies, through the defendant as their respective agent; that they were issued in consideration of a premium which was paid by the insured to the respective companies for the amount of the policies, as alleged; that the defendant was, and is now, the resident agent in Manila of the companies, and was authorized to solicit and do business for them as such agent; that each company is a foreign corporation. The principal office and place business of the The China Fire Insurance Company is at Hongkong; of The Yang-Tsze Insurance Association is at Shanghai; and of The State Assurance Company is at Liverpool. As such foreign corporations they were duly authorized and licensed to do insurance business in the Philippine Islands, and, to that end and for that purpose, the defendant corporation, Warner, Barnes & Co., was the agent of each company. All of the policies are in writing, and recite that the premium was paid by the insured to the insurance company which issued the policy, and that, in the event of a loss, the insurance company which issued it will pay to the insured the amount of the policy. This is not a case of an undisclosed agent or an undisclosed principal. It is a case of a disclosed agent and a disclosed principal.

The policies on their face shows that the defendant was the agent of the respective companies, and that it was acting as such agent in dealing with the plaintiff. That in the issuance and delivery of the policies, the defendant was doing business in the name of, acting for, and representing, the respective insurance companies. The different policies expressly recite that, in the event of a loss, the respective companies agree to compensate the plaintiff for the amount of the loss. the defendant company did not insure the property of the plaintiff, or in any manner agree to pay the plaintiff the amount of any loss. There is no contract of any kind. either oral or written, between the plaintiff and Warner, Barnes & Co. Plaintiff's contracts are with the insurance companies, and are in writing, and the premiums were paid to the insurance companies, and are in writing, and the premiums were paid to the insurance companies and the policies were issued by, and in the name of, the insurance companies, and on the face of the policy itself, the plaintiff knew that the defendant was acting as agent for, and was representing, the respective insurance companies in the issuance and deliver of the policies. The defendant company did not contract or agree to do anything or to pay the plaintiff any money at any time or on any condition, either as agent or principal. There is a very important distinction between the power and duties of a resident insurance agent of a foreign company and that of an executor, administrator, or receiver. An insurance agent as such is not responsible for, and does not have, any control over the corpus or estate of the corporate property, as does an executor, administrator, or receiver. Subject only to the order of the court, such officers are legal custodians and have actual possession of the corporate property. It is under their control and within their jurisdiction. As stated by counsel for Warner, Barnes & Co., an attorney of record for an insurance company has greater power and

authority to act for, and bind, the company than does a soliciting agent of an insurance company. Yet, no attorney would contend that a personal action would lie against local attorneys who represent a foreign corporation to recover on a contract made by the corporation. On the same principles by which plaintiff seeks to recover from the defendant, an action could be maintained against the cashier of any bank on every foreign draft which he signed for, and on behalf of, the bank. Every cause of action ex contractu must be founded upon a contract, oral or written, either express or implied. Warner, Barnes & Co., as principal or agent, did not make any contract, either or written, with the plaintiff. The contracts were made between the respective insurance companies and the insured, and were made by the insurance companies, through Warner, Barnes & Co., as their agent. As in the case of a bank draft, it is not the cashier of the bank who makes the contract to pay the money evidenced by the draft, it is the bank, acting through its cashier, that makes the contract. So, in the instant case, it was the insurance companies, acting through Warner, Barnes & Co., as their agent, that made the written contracts wit the insured. The trial court attached much importance to the fact that in the further and separate answer, an admission was made "that defendant was at all times ready and will not to pay, on behalf of the insurance companies by whom each was proportionately liable, the actual damage" sustained by the plaintiff covered by the policies upon the terms and conditions therein stated. When analyzed, that is nothing more than a statement that the companies were ready and willing to prorate the amount when the losses were legally ascertained. Again, there is not claim

or pretense that Warner, Barnes & Co. had any authority to act for, and represent the insurance companies in the pending action, or to appear for them or make any admission which would bind them. As a local agent, it could not do that without express authority. That power could only exercised by an executive officer of the company, or a person who was duly authorized to act for, and represent, the company in legal proceedings, and there is no claim or pretense, either express or implied, that the defendant has any such authority. Plaintiff's cause of action, if any, is direct against the insurance companies that issued the policies and agreed to pay the losses. The only defendant in the instant case is "Warner, Barnes & Co., in its capacity as agents of:" the insurance companies. Warner, Barnes & Co. did not make any contract with the plaintiff, and are not liable to the plaintiff on any contract, either as principal or agent. For such reason, plaintiff is not entitled to recover its losses from Warner, Barnes & Co., either as principal or agent. There is no breach of any contract with the plaintiff by Warners, Barnes & Co., either as agent or principal, for the simple reason that Warner, Barnes & Co., as agent or principal, never made any contract, oral or written, with the plaintiff. This defense was promptly raised before the taking of the testimony, and again renewed on the motion to set aside the judgment. Plaintiff's own evidence shows that any cause of action it may have is against the insurance companies which issued the policies. The complaint is dismissed, and the judgment of the lower court is reversed, and one will be entered here in favor of Warner, Barnes & Co., Ltd., against the plaintiff, for costs in both this and the lower court. So ordered.

Araullo, C.J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand and Romualdez, JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 167552 April 23, 2007

Petitioner is engaged in the business of importation and distribution of various European industrial equipment for customers here in the Philippines. It has as one of its customers Impact Systems Sales ("Impact Systems") which is a sole proprietorship owned by respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales manager of Impact Systems and was impleaded in the court a quo in said capacity. From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to ninety-one thousand three hundred thirty-eight (P91,338.00) pesos. Subsequently, respondents sought to buy from petitioner one unit of sludge pump valued at P250,000.00 with respondents making a down payment of fifty thousand pesos (P50,000.00).4 When the sludge pump arrived from the United Kingdom, petitioner refused to deliver the same to respondents without their having fully settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, general manager of petitioner, executed a Deed of Assignment of receivables in favor of petitioner, the pertinent part of which states:
1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS as payment for the purchase of one unit of Selwood Spate 100D Sludge Pump; 2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the ASSIGNEE6 the said receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS which receivables the ASSIGNOR is the lawful recipient;

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner, vs. EDWIN CUIZON and ERWIN CUIZON, Respondents. DECISION CHICO-NAZARIO, J.: Before Us is a petition for review by certiorari assailing the Decision1 of the Court of Appeals dated 10 August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, "Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The assailed Decision and Resolution affirmed the Order3 dated 29 January 2002 rendered by Judge Antonio T. Echavez ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672. The generative facts of the case are as follows:

3.) That the ASSIGNEE does hereby accept this assignment.7

Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge pump as shown by Invoice No. 12034 dated 30 June 1995. 8 Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment, proceeded to collect from Toledo Power Company the amount of P365,135.29 as evidenced by Check Voucher No. 0933 9prepared by said power company and an official receipt dated 15 August 1995 issued by Impact Systems.10Alarmed by this development, petitioner made several demands upon respondents to pay their obligations. As a result, respondents were able to make partial payments to petitioner. On 7 October 1996, petitioners counsel sent respondents a final demand letter wherein it was stated that as of 11 June 1996, respondents total obligations stood at P295,000.00 excluding interests and attorneys fees.11 Because of respondents failure to abide by said final demand letter, petitioner instituted a complaint for sum of money, damages, with application for preliminary attachment against herein respondents before the Regional Trial Court of Cebu City.12 On 8 January 1997, the trial court granted petitioners prayer for the issuance of writ of preliminary attachment. 13 On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted petitioners alle gations with respect to the sale transactions entered into by Impact Systems and petitioner between January and April 1995. 15 He, however, disputed the total amount of Impact Systems indebtedness to petitioner which, according to him, amounted to only P220,000.00.16

By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in interest in this case. According to him, he was acting as mere agent of his principal, which was the Impact Systems, in his transaction with petitioner and the latter was very much aware of this fact. In support of this argument, petitioner points to paragraphs 1.2 and 1.3 of petitioners Complaint stating
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the proprietor of a single proprietorship business known as Impact Systems Sales ("Impact Systems" for brevity), with office located at 46-A del Rosario Street, Cebu City, where he may be served summons and other processes of the Honorable Court. 1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He is the Sales Manager of Impact Systems and is sued in this action in such capacity.17

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for Summary Judgment. The trial court granted petitioners motion to declare respondent ERWIN in default "for his failure to answer within the prescribed period despite the opportunity granted" 18 but it denied petitioners motion for summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of the case on 16 October 2001.19However, the conduct of the pre-trial conference was deferred pending the resolution by the trial court of the special and affirmative defenses raised by respondent EDWIN.20 After the filing of respondent EDWINs Memorandum21 in support of his special and affirmative defenses and petitioners opposition22 thereto, the trial court rendered its assailed Order dated 29 January 2002 dropping respondent EDWIN as a party defendant in this case. According to the trial court

A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant Edwin B. Cuizon acted in behalf of or represented [Impact] Systems Sales; that [Impact] Systems Sale is a single proprietorship entity and the complaint shows that defendant Erwin H. Cuizon is the proprietor; that plaintiff corporation is represented by its general manager Alberto de Jesus in the contract which is dated June 28, 1995. A study of Annex "H" to the complaint reveals that [Impact] Systems Sales which is owned solely by defendant Erwin H. Cuizon, made a down payment of P50,000.00 that Annex "H" is dated June 30, 1995 or two days after the execution of Annex "G", thereby showing that [Impact] Systems Sales ratified the act of Edwin B. Cuizon; the records further show that plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of Edwin B. Cuizon, the agent, when it accepted the down payment of P50,000.00. Plaintiff, therefore, cannot say that it was deceived by defendant Edwin B. Cuizon, since in the instant case the principal has ratified the act of its agent and plaintiff knew about said ratification. Plaintiff could not say that the subject contract was entered into by Edwin B. Cuizon in excess of his powers since [Impact] Systems Sales made a down payment of P50,000.00 two days later. In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as party defendant. 23 Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of Appeals which, however, affirmed the 29 January 2002 Order of the court a quo. The dispositive portion of the now assailed Decision of the Court of Appeals states: WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by the public respondent in his Order dated January 29, 2002, it is hereby AFFIRMED.24

Petitioners motion for reconsideration was denied by the appellate court in its Resolution promulgated on 17 March 2005. Hence, the present petition raising, as sole ground for its allowance, the following: THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD.25 To support its argument, petitioner points to Article 1897 of the New Civil Code which states: 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. Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWINs act of collecting the receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of Assignment signed by EDWIN on behalf of Impact Systems. While said collection did not revoke the agency relations of respondents, petitioner insists that ERWINs action repudiated EDWINs power to sign the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an agent, petitioner claims that he should be made personally liable for the obligations of his principal.26 Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into selling the one unit of sludge pump to Impact Systems and signing the Deed of

Assignment. Petitioner directs the attention of this Court to the fact that respondents are bound not only by their principal and agent relationship but are in fact full-blooded brothers whose successive contravening acts bore the obvious signs of conspiracy to defraud petitioner.27 In his Comment,28 respondent EDWIN again posits the argument that he is not a real party in interest in this case and it was proper for the trial court to have him dropped as a defendant. He insists that he was a mere agent of Impact Systems which is owned by ERWIN and that his status as such is known even to petitioner as it is alleged in the Complaint that he is being sued in his capacity as the sales manager of the said business venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly states that he was acting as a representative of Impact Systems in said transaction. We do not find merit in the petition. In a contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another with the latters consent.29 The underlying principle of the contract of agency is to accomplish results by using the services of others to do a great variety of things like selling, buying, manufacturing, and transporting. 30 Its purpose is to extend the personality of the principal or the party for whom another acts and from whom he or she derives the authority to act.31 It is said that the basis of agency is representation, that is, the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal.32 By this legal fiction, the actual or real absence of the principal is converted into his legal or juridical presence qui facit per aliumfacit per se.33

The elements of the contract 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. 34 In this case, the parties do not dispute the existence of the agency relationship between respondents ERWIN as principal and EDWIN as agent. The only cause of the present dispute is whether respondent EDWIN exceeded his authority when he signed the Deed of Assignment thereby binding himself personally to pay the obligations to petitioner. Petitioner firmly believes that respondent EDWIN acted beyond the authority granted by his principal and he should therefore bear the effect of his deed pursuant to Article 1897 of the New Civil Code. We disagree. Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the party with whom he contracts. The same provision, however, presents two instances when an agent becomes personally liable to a third person. The first is when he expressly binds himself to the obligation and the second is when he exceeds his authority. In the last instance, the agent can be held liable if he does not give the third party sufficient notice of his powers. We hold that respondent EDWIN does not fall within any of the exceptions contained in this provision. The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of Impact Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the grant of broad powers with which to conduct the business of the principal, thus:

The powers of an agent are particularly broad in the case of one acting as a general agent or manager; such a position presupposes a degree of confidence reposed and investiture with liberal powers for the exercise of judgment and discretion in transactions and concerns which are incidental or appurtenant to the business entrusted to his care and management. In the absence of an agreement to the contrary, a managing agent may enter into any contracts that he deems reasonably necessary or requisite for the protection of the interests of his principal entrusted to his management. x x x. 35 Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge pump unless it received, in full, the payment for Impact Systems indebtedness.36 We may very well assume that Impact Systems desperately needed the sludge pump for its business since after it paid the amount of fifty thousand pesos (P50,000.00) as down payment on 3 March 1995, 37 it still persisted in negotiating with petitioner which culminated in the execution of the Deed of Assignment of its receivables from Toledo Power Company on 28 June 1995.38 The significant amount of time spent on the negotiation for the sale of the sludge pump underscores Impact Systems perseverance to get hold of the said equipment. There is, therefore, no doubt in our mind that respondent EDWINs participation in the Deed of Assignment was "reasonably necessary" or was required in order for him to protect the business of his principal. Had he not acted in the way he did, the business of his principal would have been adversely affected and he would have violated his fiduciary relation with his principal. We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents ERWIN, the principal, and EDWIN, the agent. It is well to state here that

Article 1897 of the New Civil Code upon which petitioner anchors its claim against respondent EDWIN "does not hold that in case of excess of authority, both the agent and the principal are liable to the other contracting party."39 To reiterate, the first part of Article 1897 declares that the principal is liable in cases when the agent acted within the bounds of his authority. Under this, the agent is completely absolved of any liability. The second part of the said provision presents the situations when the agent himself becomes liable to a third party when he expressly binds himself or he exceeds the limits of his authority without giving notice of his powers to the third person. However, it must be pointed out that in case of excess of authority by the agent, like what petitioner claims exists here, the law does not say that a third person can recover from both the principal and the agent. 40 As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire any right nor incur any liability arising from the Deed of Assignment, it follows that he is not a real party in interest who should be impleaded in this case. A real party in interest is one who "stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit."41 In this respect, we sustain his exclusion as a defendant in the suit before the court a quo. WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10 August 2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No. 71397, affirming the Order dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu City, is AFFIRMED. Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the continuation of the proceedings against respondent Erwin Cuizon.

SO ORDERED.

The record shows that: On October 24, 1951, Primateria Zurich, through defendant Alexander B. Baylin, entered into an agreement with plaintiff Philippine Products Company, whereby the latter undertook to buy copra in the Philippines for the account of Primateria Zurich, during "a tentative experimental period of one month from date." The contract was renewed by mutual agreement of the parties to cover an extended period up to February 24, 1952, later extended to 1953. During such period, plaintiff caused the shipment of copra to foreign countries, pursuant to instructions from defendant Primateria Zurich, thru Primateria (Phil.) Inc. referred to hereafter as Primateria Philippines acting by defendant Alexander G. Baylin and Jose M. Crame, officers of said corporation. As a result, the total amount due to the plaintiff as of May 30, 1955, was P33,009.71. At the trial, before the Manila court of first instance, it was proven that the amount due from defendant Primateria Zurich, on account of the various shipments of copra, was P31,009.71, because it had paid P2,000.00 of the original claim of plaintiff. There is no dispute about accounting. And there is no question that Alexander G. Baylin and Primateria Philippines acted as the duly authorized agents of Primateria Zurich in the Philippines. As far as the record discloses, Baylin acted indiscriminately in these transactions in the dual capacities of agent of the Zurich firm and executive vice-president of Primateria Philippines, which also acted as agent of Primateria Zurich. It is likewise undisputed that Primateria Zurich had no license to transact business in the Philippines. For failure to file an answer within the reglementary period, defendant Primateria Zurich was declared in default.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-17160 November 29, 1965

PHILIPPINE PRODUCTS COMPANY, plaintiff-appellant, vs. PRIMATERIA SOCIETE ANONYME POUR LE COMMERCE EXTERIEUR: PRIMATERIA (PHILIPPINES) INC., ALEXANDER G. BAYLIN and JOSE M. CRAME, defendantsappellees. Jose A. Javier for plaintiff-appellant. Ibarra and Papa for defendants-appellees. BENGZON, C.J.: This is an action to recover from defendants, the sum of P33,009.71 with interest and attorney's fees of P8,000.00. Defendant PrimateriaSocieteAnonyme Pour Le Commerce Exterieur (hereinafter referred to as Primateria Zurich) is a foreign juridical entity and, at the time of the transactions involved herein, had its main office at Zurich, Switzerland. It was then engaged in "Transactions in international trade with agricultural products, particularly in oils, fats and oil-seeds and related products."

After trial, judgment was rendered by the lower court holding defendant Primateria Zurich liable to the plaintiff for the sums of P31,009.71, with legal interest from the date of the filing of the complaint, and P2,000.00 as and for attorney's fees; and absolving defendants Primateria (Phil.), Inc., Alexander G. Baylin, and Jose M. Crame from any and all liability. Plaintiff appealed from that portion of the judgment dismissing its complaint as regards the three defendants. It is plaintiff's theory that Primateria Zurich is a foreign corporation within the meaning of Sections 68 and 69 of the Corporation Law, and since it has transacted business in the Philippines without the necessary license, as required by said provisions, its agents here are personally liable for contracts made in its behalf. Section 68 of the Corporation Law states: "No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippines shall be permitted to transact business in the Philippines, until after it shall have obtained a license for that purpose from the Securities and Exchange Commission .. ." And under Section 69, "any officer or agent of the corporation or any person transacting business for any foreign corporation not having the license prescribed shall be punished by imprisonment for etc. ... ." The issues which have to be determined, therefore, are the following: 1. Whether defendant Primateria Zurich may be considered a foreign corporation within the meaning of Sections 68 and 69 of the Corporation Law;

2. Assuming said entity to be a foreign corporation, whether it may be considered as having transacted business in the Philippines within the meaning of said sections; and 3. If so, whether its agents may be held personally liable on contracts made in the name of the entity with third persons in the Philippines. The lower court ruled that the Primateria Zurich was not duly proven to be a foreign corporation; nor that asocieteanonyme ("sociedadanomima") is a corporation; and that failing such proof, the societe cannot be deemed to fall within the prescription of Section 68 of the Corporation Law. We agree with the said court's conclusion. In fact, our corporation law recognized the difference between sociedadesanonimas and corporations. At any rate, we do not see how the plaintiff could recover from both the principal (Primateria Zurich) and its agents. It has been given judgment against the principal for the whole amount. It asked for such judgment, and did not appeal from it. It clearly stated that its appeal concerned the other three defendants. But plaintiff alleges that the appellees as agents of Primateria Zurich are liable to it under Art. 1897 of the New Civil Code which reads as follows:
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.

But there is no proof that, as agents, they exceeded the limits of their authority. In fact, the principal Primateria Zurich

who should be the one to raise the point, never raised it, denied its liability on the ground of excess of authority. At any rate, the article does not hold that in cases of excess of authority, both the agent and the principal are liable to the other contracting party. This view of the cause dispenses with the necessity of deciding the other two issues, namely: whether the agent of a foreign corporation doing business, but not licensed here is personally liable for contracts made by him in the name of such corporation.1 Although, the solution should not be difficult, since we already held that such foreign corporation may be sued here (General Corporation vs. Union Ins., 87 Phil. 509). And obviously, liability of the agent is necessarily premised on the inability to sue the principal or non-liability of such principal. In the absence of express legislation, of course. IN VIEW OF THE FOREGOING CONSIDERATIONS, the appealed judgment is affirmed, with costs against appellant. Bautista Angelo, Concepcion, Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur. Barrera, J., took no part.

MANUELA T. VDA. DE SALVATIERRA, petitioner, vs. HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte, Branch II, and SEGUNDINO REFUERZO, respondents. Jimenez, Tantuico, Jr. and Tolete for petitioner. Francisco Astilla for respondent SegundinoRefuerzo. FELIX, J.: This is a petition for certiorari filed by Manuela T. Vda. deSalvatierra seeking to nullify the order of the Court of First Instance of Leyte in Civil Case No. 1912, dated March 21, 1956, relieving SegundinoRefuerzo of liability for the contract entered into between the former and the Philippine Fibers Producers Co., Inc., of which Refuerzo is the president. The facts of the case are as follows: Manuela T. Vda. deSalvatierra appeared to be the owner of a parcel of land located at Maghobas, Poblacion, Burauen, Teyte. On March 7, 1954, said landholder entered into a contract of lease with the Philippine Fibers Producers Co., Inc., allegedly a corporation "duly organized and existing under the laws of the Philippines, domiciled at Burauen, Leyte, Philippines, and with business address therein, represented in this instance by Mr.Segundino Q. Refuerzo, the President". It was provided in said contract, among other things, that the lifetime of the lease would be for a period of 10 years; that the land would be planted to kenaf, ramie or other crops suitable to the soil; that the lessor would be entitled to 30 per cent of the net income accruing from the harvest of any, crop without being responsible for the cost of production thereof; and that after every harvest, the lessee was bound to declare at the earliest possible time the income derived therefrom and to deliver the corresponding share due the lessor.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-11442 May 23, 1958

Apparently, the aforementioned obligations imposed on the alleged corporation were not complied with because on April 5, 1955, Alanuela T. Vda, de Salvatierra filed with the Court of First Instance of Leyte a complaint against the Philippine Fibers Producers Co., Inc., and Segundino Q. Refuerzo, for accounting, rescission and damages (Civil Case No. 1912). She averred that sometime in April, 1954, defendants planted kenaf on 3 hectares of the leased property which crop was, at the time of the commencement of the action, already harvested, processed and sold by defendants; that notwithstanding that fact, defendants refused to render an accounting of the income derived therefrom and to deliver the lessor's share; that the estimated gross income was P4,500, and the deductible expenses amounted to P1,000; that as defendants' refusal to undertake such task was in violation of the terms of the covenant entered into between the plaintiff and defendant corporation, a rescission was but proper. As defendants apparently failed to file their answer to the complaint, of which they were allegedly notified, the Court declared them in default and proceeded to receive plaintiff's evidence. On June 8, 1955, the lower Court rendered judgment granting plaintiff's prayer, and required defendants to render a complete accounting of the harvest of the land subject of the proceeding within 15 days from receipt of the decision and to deliver 30 per cent of the net income realized from the last harvest to plaintiff, with legal interest from the date defendants received payment for said crop. It was further provide that upon defendants' failure to abide by the said requirement, the gross income would be fixed at P4,200 or a net income of P3,200 after deducting the expenses for production, 30 per cent of which or P960 was held to be due the plaintiff pursuant to the aforementioned contract of lease, which was declared rescinded.

No appeal therefrom having been perfected within the reglementary period, the Court, upon motion of plaintiff, issued a writ of execution, in virtue of which the Provincial Sheriff of Leyte caused the attachment of 3 parcels of land registered in the name of SegundinoRefuerzo. No property of the Philippine Fibers Producers Co., Inc., was found available for attachment. On January 31, 1956, defendant SegundinoRefuerzo filed a motion claiming that the decision rendered in said Civil Case No. 1912 was null and void with respect to him, there being no allegation in the complaint pointing to his personal liability and thus prayed that an order be issued limiting such liability to defendant corporation. Over plaintiff's opposition, the Court a quo granted the same and ordered the Provincial Sheriff of Leyte to release all properties belonging to the movant that might have already been attached, after finding that the evidence on record made no mention or referred to any fact which might hold movant personally liable therein. As plaintiff's petition for relief from said order was denied, Manuela T. Vda.deSalvatierra instituted the instant action asserting that the trial Judge in issuing the order complained of, acted with grave abuse of discretion and prayed that same be declared a nullity. From the foregoing narration of facts, it is clear that the order sought to be nullified was issued by tile respondent Judge upon motion of defendant Refuerzo, obviously pursuant to Rule 38 of the Rules of Court. Section 3 of said Rule, however, in providing for the period within which such a motion may be filed, prescribes that:
SEC. 3.WHEN PETITION FILED; CONTENTS AND VERIFICATION. A petition provided for in either of the preceding sections of this rule must be verified, filed within sixty days after the petitioner learns of the judgment, order, or other proceeding to be set aside, and not more than six months after such judgment or order was entered, or such proceeding was taken; and must be

must be accompanied with affidavit showing the fraud, accident, mistake, or excusable negligence relied upon, and the facts constituting the petitioner is good and substantial cause of action or defense, as the case may be, which he may prove if his petition be granted". (Rule 38)

The aforequoted provision treats of 2 periods, i.e., 60 days after petitioner learns of the judgment, and not more than 6 months after the judgment or order was rendered, both of which must be satisfied. As the decision in the case at bar was under date of June 8, 1955, whereas the motion filed by respondent Refuerzo was dated January 31, 1956, or after the lapse of 7 months and 23 days, the filing of the aforementioned motion was clearly made beyond the prescriptive period provided for by the rules. The remedy allowed by Rule 38 to a party adversely affected by a decision or order is certainly an alert of grace or benevolence intended to afford said litigant a penultimate opportunity to protect his interest. Considering the nature of such relief and the purpose behind it, the periods fixed by said rule are non-extendible and never interrupted; nor could it be subjected to any condition or contingency because it is of itself devised to meet a condition or contingency (Palomares vs. Jimenez,* G.R. No. L-4513, January 31, 1952). On this score alone, therefore, the petition for a writ of certiorarifiled herein may be granted. However, taking note of the question presented by the motion for relief involved herein, We deem it wise to delve in and pass upon the merit of the same. Refuerzo, in praying for his exoneration from any liability resulting from the non-fulfillment of the obligation imposed on defendant Philippine Fibers Producers Co., Inc., interposed the defense that the complaint filed with the lower court contained no allegation which would hold him liable personally, for while it was stated therein that he was a signatory to the lease contract, he did so in his capacity as president of the

corporation. And this allegation was found by the Court a quo to be supported by the records. Plaintiff on the other hand tried to refute this averment by contending that her failure to specify defendant's personal liability was due to the fact that all the time she was under the impression that the Philippine Fibers Producers Co., Inc., represented by Refuerzo was a duly registered corporation as appearing in the contract, but a subsequent inquiry from the Securities and Exchange Commission yielded otherwise. While as a general rule a person who has contracted or dealt with an association in such a way as to recognize its existence as a corporate body is estopped from denying the same in an action arising out of such transaction or dealing, (Asia Banking Corporation vs. Standard Products Co., 46 Phil., 114; Compania Agricola de Ultramar vs. Reyes, 4 Phil., 1; Ohta Development Co.; vs. Steamship Pompey, 49 Phil., 117), yet this doctrine may not be held to be applicable where fraud takes a part in the said transaction. In the instant case, on plaintiff's charge that she was unaware of the fact that the Philippine Fibers Producers Co., Inc., had no juridical personality, defendant Refuerzo gave no confirmation or denial and the circumstances surrounding the execution of the contract lead to the inescapable conclusion that plaintiff Manuela T. Vda. deSalvatierra was really made to believe that such corporation was duly organized in accordance with law. There can be no question that a corporation with registered has a juridical personality separate and distinct from its component members or stockholders and officers such that a corporation cannot be held liable for the personal indebtedness of a stockholder even if he should be its president (Walter A. Smith Co. vs. Ford, SC-G.R. No. 42420) and conversely, a stockholder or member cannot be held personally liable for any financial obligation be, the corporation in excess of his unpaid subscription. But this rule is understood to refer merely to registered corporations and

cannot be made applicable to the liability of members of an unincorporated association. The reason behind this doctrine is obvious-since an organization which before the law is nonexistent has no personality and would be incompetent to act and appropriate for itself the powers and attribute of a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed of all the rights and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and comes personally liable for contracts entered into or for other acts performed as such, agent (Fay vs. Noble, 7 Cushing [Mass.] 188. Cited in II Tolentino's Commercial Laws of the Philippines, Fifth Ed., P. 689-690). Considering that defendant Refuerzo, as president of the unregistered corporation Philippine Fibers Producers Co., Inc., was the moving spirit behind the consummation of the lease agreement by acting as its representative, his liability cannot be limited or restricted that imposed upon corporate shareholders. In acting on behalf of a corporation which he knew to be unregistered, he assumed the risk of reaping the consequential damages or resultant rights, if any, arising out of such transaction. Wherefore, the order of the lower Court of March 21, 1956, amending its previous decision on this matter and ordering the Provincial Sheriff of Leyte to release any and all properties of movant therein which might have been attached in the execution of such judgment, is hereby set aside and nullified as if it had never been issued. With costs against respondent SegundinoRefuerzo. It is so ordered.

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., and Endencia, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-19118 January 30, 1965

MARIANO A. ALBERT, plaintiff-appellant, vs. UNIVERSITY PUBLISHING CO., INC., defendant-appellee. Uy&Artiaga and Antonio M. Molina for plaintiff-appellant. Aruego, Mamaril& Associates for defendant-appellees. BENGZON, J.P., J.: No less than three times have the parties here appealed to this Court. In Albert vs. University Publishing Co., Inc., L-9300, April 18, 1958, we found plaintiff entitled to damages (for breach of contract) but reduced the amount from P23,000.00 to P15,000.00. Then in Albert vs. University Publishing Co., Inc., L-15275, October 24, 1960, we held that the judgment for P15,000.00 which had become final and executory, should be executed to

its full amount, since in fixing it, payment already made had been considered. Now we are asked whether the judgment may be executed against Jose M. Aruego, supposed President of University Publishing Co., Inc., as the real defendant. Fifteen years ago, on September 24, 1949, Mariano A. Albert sued University Publishing Co., Inc. Plaintiff alleged inter alia that defendant was a corporation duly organized and existing under the laws of the Philippines; that on July 19, 1948, defendant, through Jose M. Aruego, its President, entered into a contract with plaintifif; that defendant had thereby agreed to pay plaintiff P30,000.00 for the exclusive right to publish his revised Commentaries on the Revised Penal Code and for his share in previous sales of the book's first edition; that defendant had undertaken to pay in eight quarterly installments of P3,750.00 starting July 15, 1948; that per contract failure to pay one installment would render the rest due; and that defendant had failed to pay the second installment. Defendant admitted plaintiff's allegation of defendant's corporate existence; admitted the execution and terms of the contract dated July 19, 1948; but alleged that it was plaintiff who breached their contract by failing to deliver his manuscript. Furthermore, defendant counterclaimed for damages.
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IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the plaintiff and against the defendant the University Publishing Co., Inc., ordering the defendant to pay the administrator Justo R. Albert, the sum of P23,000.00 with legal [rate] of interest from the date of the filing of this complaint until the whole amount shall have been fully paid. The defendant shall also pay the costs. The counterclaim of the defendant is hereby dismissed for lack of evidence.

As aforesaid, we reduced the amount of damages to P15,000.00, to be executed in full. Thereafter, on July 22, 1961, the court a quo ordered issuance of an execution writ against University Publishing Co., Inc. Plaintiff, however, on August 10, 1961, petitioned for a writ of execution against Jose M. Aruego, as the real defendant , stating, "plaintiff's counsel and the Sheriff of Manila discovered that there is no such entity as University Publishing Co., Inc. " Plaintiff annexed to his petition a certification from the securities and Exchange Commission dated July 31, 1961, attesting: "The records of this Commission do not show the registration of UNIVERSITY PUBLISHING CO., INC., either as a corporation or partnership." "University Publishing Co., Inc." countered by filing, through counsel (Jose M. Aruego's own law firm), a "manifestation" stating that "Jose M. Aruego is not a party to this case," and that, therefore, plaintiff's petition should be denied. Parenthetically, it is not hard to decipher why "University Publishing Co., Inc.," through counsel, would not want Jose M. Aruego to be considered a party to the present case: should a separate action be now instituted against Jose M. Aruego, the plaintiff will have to reckon with the statute of limitations. The court a quo denied the petition by order of September 9, 1961, and from this, plaintiff has appealed.

Plaintiff died before trial and Justo R. Albert, his estate's administrator, was substituted for him. The Court of First Instance of Manila, after trial, rendered decision on April 26, 1954, stating in the dispositive portion

The fact of non-registration of University Publishing Co., Inc. in the Securities and Exchange Commission has not been disputed. Defendant would only raise the point that "University Publishing Co., Inc.," and not Jose M. Aruego, is the party defendant; thereby assuming that "University Publishing Co., Inc." is an existing corporation with an independent juridical personality. Precisely, however, on account of the nonregistration it cannot be considered a corporation, not even a corporation de facto (Hall vs. Piccio, 86 Phil. 603). It has therefore no personality separate from Jose M. Aruego; it cannot be sued independently. The corporation-by-estoppel doctrine has not been invoked. At any rate, the same is inapplicable here. Aruego represented a non-existent entity and induced not only the plaintiff but even the court to believe in such representation. He signed the contract as "President" of "University Publishing Co., Inc.," stating that this was "a corporation duly organized and existing under the laws of the Philippines," and obviously misled plaintiff (Mariano A. Albert) into believing the same. One who has induced another to act upon his wilful misrepresentation that a corporation was duly organized and existing under the law, cannot thereafter set up against his victim the principle of corporation by estoppel (Salvatiera vs. Garlitos, 56 O.G. 3069). "University Publishing Co., Inc." purported to come to court, answering the complaint and litigating upon the merits. But as stated, "University Publishing Co., Inc." has no independent personality; it is just a name. Jose M. Aruego was, in reality, the one who answered and litigated, through his own law firm as counsel. He was in fact, if not, in name, the defendant. Even with regard to corporations duly organized and existing under the law, we have in many a case pierced the veil of corporate fiction to administer the ends of justice. * And

in Salvatiera vs. Garlitos, supra, p. 3073, we ruled: "A person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent." Had Jose M. Aruego been named as party defendant instead of, or together with, "University Publishing Co., Inc.," there would be no room for debate as to his personal liability. Since he was not so named, the matters of "day in court" and "due process" have arisen. In this connection, it must be realized that parties to a suit are "persons who have a right to control the proceedings, to make defense, to adduce and cross-examine witnesses, and to appeal from a decision" (67 C.J.S. 887) and Aruego was, in reality, the person who had and exercised these rights. Clearly, then, Aruego had his day in court as the real defendant; and due process of law has been substantially observed. By "due process of law" we mean " "a law which hears before it condemns; which proceeds upon inquiry, and renders judgment only after trial. ... ." (4 Wheaton, U.S. 518, 581.)"; or, as this Court has said, " "Due process of law" contemplates notice and opportunity to be heard before judgment is rendered, affecting one's person or property" (Lopez vs. Director of Lands, 47 Phil. 23, 32)." (Sicat vs. Reyes, L-11023, Dec. 14, 1956.) And it may not be amiss to mention here also that the "due process" clause of the Constitution is designed to secure justice as a living reality; not to sacrifice it by paying undue homage to formality. For substance must prevail over form. It may now be trite, but none the less apt, to quote what long ago we said in Alonso vs. Villamor, 16 Phil. 315, 321-322:
A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of

movement and position, entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the court the facts in issue and then, brushing side as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that Justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. L-109937 March 21, 1994

The evidence is patently clear that Jose M. Aruego, acting as representative of a non-existent principal, was the real party to the contract sued upon; that he was the one who reaped the benefits resulting from it, so much so that partial payments of the consideration were made by him; that he violated its terms, thereby precipitating the suit in question; and that in the litigation he was the real defendant. Perforce, in line with the ends of justice, responsibility under the judgment falls on him. We need hardly state that should there be persons who under the law are liable to Aruego for reimbursement or contribution with respect to the payment he makes under the judgment in question, he may, of course, proceed against them through proper remedial measures. PREMISES CONSIDERED, the order appealed from is hereby set aside and the case remanded ordering the lower court to hold supplementary proceedings for the purpose of carrying the judgment into effect against University Publishing Co., Inc. and/or Jose M. Aruego. So ordered. Bengzon, C.J., Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala, Makalintal and Zaldivar, JJ., concur. Bautista Angelo, J., took no part.

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented by CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION INSURANCE POOL, respondents. Office of the Legal Counsel for petitioner. Reyes, Santayana, Molo&Alegre for DBP Mortgage Redemption Insurance Pool.

QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside the decision of the Court of Appeals in CA-G.R CV No. 26434 and its resolution denying reconsideration thereof. We affirm the decision of the Court of Appeals with modification. I

In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a loan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a mortgage redemption insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool). A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and released on August 11, 1987. From the proceeds of the loan, DBP deducted the amount of P1,476.00 as payment for the MRI premium. On August 15, 1987, Dans accomplished and submitted the "MRI Application for Insurance" and the "Health Statement for DBP MRI Pool." On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit. On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible for MRI coverage, being over the acceptance age limit of 60 years at the time of application. On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI application. The DBP offered to refund the premium of P1,476.00 which the deceased had paid, but Candida Dans refused to accept the same, demanding payment of the face value of the MRI or an amount equivalent to the loan. She, likewise, refused to accept an ex gratia settlement of P30,000.00, which the DBP later offered. On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a complaint with the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for

"Collection of Sum of Money with Damages." Respondent Estate alleged that Dans became insured by the DBP MRI Pool when DBP, with full knowledge of Dans' age at the time of application, required him to apply for MRI, and later collected the insurance premium thereon. Respondent Estate therefore prayed: (1) that the sum of P139,500.00, which it paid under protest for the loan, be reimbursed; (2) that the mortgage debt of the deceased be declared fully paid; and (3) that damages be awarded. The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a cross-claim against the latter. At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by respondent Estate. As a result of these admissions, the trial court narrowed down the issues and, without opposition from the parties, found the case ripe for summary judgment. Consequently, the trial court ordered the parties to submit their respective position papers and documentary evidence, which may serve as basis for the judgment. On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against DBP. The DBP MRI Pool, however, was absolved from liability, after the trial court found no privity of contract between it and the deceased. The trial court declared DBP in estoppel for having led Dans into applying for MRI and actually collecting the premium and the service fee, despite knowledge of his age ineligibility. The dispositive portion of the decision read as follows: WHEREFORE, in view of the foregoing consideration and in the furtherance of justice and equity, the Court finds judgment for the plaintiff and against Defendant DBP, ordering the latter:

1. To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of interest as amortization payment paid under protest; 2. To consider the mortgage loan of P300,000.00 including all interest accumulated or otherwise to have been settled, satisfied or set-off by virtue of the insurance coverage of the late Juan B. Dans; 3. To pay plaintiff the amount of P10,000.00 as attorney's fees; 4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and other expenses, and other relief just and equitable. The Counterclaims of Defendants DBP and DBP MRI POOL are hereby dismissed. The Crossclaim of Defendant DBP is likewise dismissed (Rollo, p. 79) The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate court affirmedintoto the decision of the trial court. The DBP's motion for reconsideration was denied in a resolution dated April 20, 1993. Hence, this recourse. II When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP MRI Pool" (Exh. "5-Bank") with the following declaration: I hereby declare and agree that all the statements and answers contained herein are true, complete and correct to the best of my knowledge and

belief and form part of my application for insurance. It is understood and agreed that no insurance coverage shall be effected unless and until this application is approved and the full premium is paid during my continued good health (Records, p. 40). Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shall be approved by the insurance pool; and (2) when the full premium is paid during the continued good health of the applicant. These two conditions, being joined conjunctively, must concur. Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool, however, did not approve the application of Dans. There is also no showing that it accepted the sum of P1,476.00, which DBP credited to its account with full knowledge that it was payment for Dan's premium. There was, as a result, no perfected contract of insurance; hence, the DBP MRI Pool cannot be held liable on a contract that does not exist. The liability of DBP is another matter. It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI coverage. Instead of allowing Dans to look for his own insurance carrier or some other form of insurance policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When Dan's loan was released on August 11, 1987, DBP already deducted from the proceeds thereof the MRI premium. Four days latter, DBP made Dans fill up and sign his application for MRI, as well as his health statement. The DBP later submitted both the application form and health statement to the DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As service fee, DBP deducted 10 percent of the premium collected by it from Dans.

In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an insurance agent. As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby leading him and his family to believe that they had already fulfilled all the requirements for the MRI and that the issuance of their policy was forthcoming. Apparently, DBP had full knowledge that Dan's application was never going to be approved. The maximum age for MRI acceptance is 60 years as clearly and specifically provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in 1984 by all the insurance companies concerned (Exh. "1-Pool"). Under Article 1987 of the Civil Code of the Philippines, "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." The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age (Exh. "1-Pool"). Knowing all the while that Dans was ineligible for MRI coverage because of his advanced age, DBP exceeded the scope of its authority when it accepted Dan's application for MRI by collecting the insurance premium, and deducting its agent's commission and service fee. The liability of an agent who exceeds the scope of his authority depends upon whether the third person is aware of the limits of the agent's powers. There is no showing that Dans knew of the limitation on DBP's authority to solicit applications for MRI. If the third person dealing with an agent is unaware of the limits of the authority conferred by the principal on the agent and he (third person) has been deceived by the non-disclosure thereof by the agent, then the latter is liable for damages to him (V Tolentino, Commentaries and Jurisprudence on the Civil Code of the

Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The rule that the agent is liable when he acts without authority is founded upon the supposition that there has been some wrong or omission on his part either in misrepresenting, or in affirming, or concealing the authority under which he assumes to act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the agency carries with it the implication that a deception was perpetrated on the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code of the Philippines come into play. Article 19 provides: Every person must, in the exercise of his rights and in the performance of his duties, act with justice give everyone his due and observe honesty and good faith. Article 20 provides: Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same. Article 21 provides: Any person, who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that were it not for DBP's concealment of the limits of its authority, Dans would have secured an MRI from another insurance company, and therefore would have been fully insured by the time he died, is highly

speculative. Considering his advanced age, there is no absolute certainty that Dans could obtain an insurance coverage from another company. It must also be noted that Dans died almost immediately, i.e., on the nineteenth day after applying for the MRI, and on the twenty-third day from the date of release of his loan. One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved (Civil Code of the Philippines, Art. 2199). Damages, to be recoverable, must not only be capable of proof, but must be actually proved with a reasonable degree of certainty (Refractories Corporation v. Intermediate Appellate Court, 176 SCRA 539 [1989]; ChoaTekHee v. Philippine Publishing Co., 34 Phil. 447 [1916]). Speculative damages are too remote to be included in an accurate estimate of damages (Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]). While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof of pecuniary loss is required in the assessment of said kind of damages (Civil Code of Philippines, Art. 2216). The same may be recovered in acts referred to in Article 2219 of the Civil Code. The assessment of moral damages is left to the discretion of the court according to the circumstances of each case (Civil Code of the Philippines, Art. 2216). Considering that DBP had offered to pay P30,000.00 to respondent Estate in ex gratia settlement of its claim and that DBP's non-disclosure of the limits of its authority amounted to a deception to its client, an award of moral damages in the amount of P50,000.00 would be reasonable. The award of attorney's fees is also just and equitable under the circumstances (Civil Code of the Philippines, Article 2208 [11]). WHEREFORE, the decision of the Court of Appeals in CA G.R.CV

No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate of Juan B. Dans the amount of P1,476.00 with legal interest from the date of the filing of the complaint until fully paid; and (2) to PAY said Estate the amount of Fifty Thousand Pesos (P50,000.00) as moral damages and the amount of Ten Thousand Pesos (P10,000.00) as attorney's fees. With costs against petitioner. SO ORDERED. Cruz, Davide, Jr., Bellosillo and Kapunan, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-19001 November 11, 1922

HARRY E. KEELER ELECTRIC CO., INC., plaintiff-appellant, vs. DOMINGO RODRIGUEZ, defendant-appellee. Hartford Beaumont for appellant. Ross and Lawrence and Antonio T. Carrascoso, Jr., for appellee. STATEMENT The plaintiff is a domestic corporation with its principal office in the city of Manila and engaged in the electrical business, and among other things in the sale of what is known as the "Matthews" electric plant, and the defendant is a

resident of Talisay, Occidental Negros, and A. C. Montelibano was a resident of Iloilo. Having this information, Montelibano approached plaintiff at its Manila office, claiming that he was from Iloilo and lived with Governor Yulo; that he could find purchaser for the "Matthews" plant, and was told by the plaintiff that for any plant that he could sell or any customer that he could find he would be paid a commission of 10 per cent for his services, if the sale was consummated. Among other persons.Montelibano interviews the defendant, and, through his efforts, one of the "Matthews" plants was sold by the plaintiff to the defendant, and was shipped from Manila to Iloilo, and later installed on defendant's premises after which, without the knowledge of the plaintiff, the defendant paid the purchase price to Montelibano. As a result, plaintiff commenced this action against the defendant, alleging that about August 18, 1920, it sold and delivered to the defendant the electric plant at the agreed price of P2,513.55 no part of which has been paid, the demands judgment for the amount with interest from October 20, 1920. For answer, the defendant admits the corporation of the plaintiff, and denies all other material allegations of the complaint, and, as an affirmative defense, alleges "that on or about the 18th of August, 1920, the plaintiff sold and delivered to the defendant a certain electric plant and that the defendant paid the plaintiff the value of said electric plant, to wit: P2,513.55." Upon such issues the testimony was taken, and the lower court rendered judgment for the defendant, from which the plaintiff appeals, claiming that the court erred in holding that the payment to A. C. Montelibano would discharge the debt of defendant, and in holding that the bill was given to Montelibano for collection purposes, and that the plaintiff had

held out Montelibano to the defendant as an agent authorized to collect, and in rendering judgment for the defendant, and in not rendering judgment for the plaintiff.

JOHNS, J.: The testimony is conclusive that the defendant paid the amount of plaintiff's claim to Montelibano, and that no part of the money was ever paid to the plaintiff. The defendant, having alleged that the plaintiff sold and delivered the plant to him, and that he paid the plaintiff the purchase price, it devolved upon the defendant to prove the payment to the plaintiff by a preponderance of the evidence. It appears from the testimony of H. E. Keeler that he was president of the plaintiff and that the plant in question was shipped from Manila to Iloilo and consigned to the plaintiff itself, and that at the time of the shipment the plaintiff sent Juan Cenar, one of its employees, with the shipment, for the purpose of installing the plant on defendant's premises. That plaintiff gave Cenar a statement of the account, including some extras and the expenses of the mechanic, making a total of P2,563,95. That Montelibano had no authority from the plaintiff to receive or receipt for money. That in truth and in fact his services were limited and confined to the finding of purchasers for the "Matthews" plant to whom the plaintiff would later make and consummate the sale. That Montelibano was not an electrician, could not install the plant and did not know anything about its mechanism. Cenar, as a witness for the plaintiff, testified that he went with shipment of the plant from Manila to Iloilo, for the purpose of installing, testing it, and to see that everything was satisfactory. That he was there about nine days, and that he

installed the plant, and that it was tested and approved by the defendant. He also says that he personally took with him the statement of account of the plaintiff against the defendant, and that after he was there a few days, the defendant asked to see the statement, and that he gave it to him, and the defendant said, "he was going to keep it." I said that was all right "if you want." "I made no effort at all to collect the amount from him because Mr. Rodriguez told me he was going to pay for the plant here in Manila." That after the plant was installed and approved, he delivered it to the defendant and returned to Manila. The only testimony on the part of the defendant is that of himself in the form of a deposition in which he says that Montelibano sold and delivered the plant to him, and "was the one who ordered the installation of that electrical plant," and he introduced in evidence as part of his deposition a statement and receipt which Montelibano signed to whom he paid the money. When asked why he paid the money to Montelibano, the witness says:
Because he was the one who sold, delivered, and installed the electrical plant, and he presented to me the account, Exhibits A and A-I, and he assured me that he was duly authorized to collect the value of the electrical plant.

221 CalleEchaque, Quiapo, Manila, P.I. MANILA, P.I., August 18, 1920.

The answer alleges and the receipt shows upon its face that the plaintiff sold the plant to the defendant, and that he bought it from the plaintiff. The receipt is signed as follows:
Received payment HARRY E. KEELER ELECTRIC CO. Inc., Recibi (Sgd.) A. C. MONTELIBANO.

There is nothing on the face of this receipt to show that Montelibano was the agent of, or that he was acting for, the plaintiff. It is his own personal receipt and his own personal signature. 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. Neither is there any evidence that the plaintiff ever delivered the statement to Montelibano, or authorized anyone to deliver it to him, and it is very apparent that the statement in question is the one which was delivered by the plaintiff to Cenar, and is the one which Cenar delivered to the defendant at the request of the defendant. The evidence of the defendant that Montelibano was the one who sold him the plant is in direct conflict with his 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 for:
To Passage round trip, 1st Class @ P40.80 a trip ...........................................P81.60.

The receipt offered in evidence is headed:

STATEMENT Folio No. 2494

Mr. DOMINGO RODRIGUEZ, Iloilo, Iloilo, P.I. In account with HARRY E. KEELER ELECTRIC COMPANY, INC.

Plus Labor @ P5.00 per day Machine's transportation ................. 9.85.

included in, and made a part of, the bill which was receipted by Montelibano. There is no evidence that the plaintiff ever delivered any statements to Montelibano, or that he was authorized to receive or receipt for the money, and defendant's own telegram shows that the plaintiff "did not present bill" to defendant. He now claims that at the very time this telegram was sent, he had the receipt of Montelibano for the money upon the identical statement of account which it is admitted the plaintiff did render to the defendant. Article 1162 of the Civil Code provides:

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. If Montelibano installed the plant, as defendant claims, there would not have been any necessity for Cenar to make this trip at the expense of the defendant. After Cenar's return to Manila, the plaintiff wrote a letter to the defendant requesting the payment of its account, in answer to which the defendant on September 24 sent the following telegram:
Electric plant accessories and installation are paid to Montelibano about three weeks Keeler Company did not present bill.

Payment must be made to the persons in whose favor the obligation is constituted, or to another authorized to receive it in his name.

This is in direct conflict with the receipted statement, which the defendant offered in evidence, signed by Montelibano. That shows upon its face that it was an itemized statement of the account of plaintiff with the defendant. Again, it will be noted that the receipt which Montelibano signed is not dated, and it does not show when the money was paid: Speaking of Montelibano, the defendant also testified: "and he assured me that he was duly authorized to collect the value of the electrical plant." This shows upon its face that the question of Montelibano's authority to receive the money must have been discussed between them, and that, in making the payment, defendant relied upon Montelibano's own statements and representation, as to his authority, to receipt for the money. In the final analysis, the plant was sold by the plaintiff to the defendant, and was consigned by the plaintiff to the plaintiff at Iloilo where it was installed by Cenar, acting for, and representing, the plaintiff, whose expense for the trip is

And article 1727 provides:

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.

In the case of Ormachea Tin-Conco vs. Trillana (13 Phil., 194), this court held:
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.

Mechem on Agency, volume I, section 743, says:

In approaching the consideration of the inquiry whether an assumed authority exist in a given case, there are certain fundamental principles which must not be overlooked. Among these are, as has been seen, (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 (5) that every authority must find its ultimate source in some act or omission of the principal. An assumption of authority to act as agent for another of itself challenges inquiry. Like a railroad crossing, it should be in itself a sign of danger and suggest the duty to "stop, look, and listen." It is therefore declared to be a fundamental rule, never to be lost sight of and not easily to be overestimated, that 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. . . . It is, moreover, in any case entirely within the power of the person dealing with the agent to satisfy himself that the agent has the authority he assumes to exercise, or to decline to enter into relations with him. (Melchem on Agency, vol.I, sec. 746.) The person dealing with the agent must also 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, as would suffice to put an ordinarily prudent man upon his guard, 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. (Mechem on Agency, vol.I, sec 752.) And not only must the person dealing with the agent ascertain the existence of the conditions, but he must also, as in other cases, be able to trace the source of his reliance to some word or act of the principal himself if the latter is to be held responsible. As has often been pointed out, the agent alone cannot enlarge or extend his authority by his own acts or statements, nor can he alone remove limitations or waive conditions imposed by his principal. To charge the principal in such a case, the principal's consent or concurrence must be shown. (Mechem on Agency, vol.I, section 757.)

This was a single transaction between the plaintiff and the defendant.
lawph!l.net

Applying the above rules, the testimony is conclusive that the plaintiff never authorized Montelibano to receive or receipt for money in its behalf, and that the defendant had no right to assume by any act or deed of the plaintiff that Montelibano was authorized to receive the money, and that the defendant made the payment at his own risk and on the sole representations of Montelibano that he was authorized to receipt for the money. The judgment of the lower court is reversed, and one will be entered here in favor of the plaintiff and against the defendant for the sum of P2,513.55 with interest at the legal

rate from January 10, 1921, with costs in favor of the appellant. So ordered. Araullo, C. J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand, and Romualdez, JJ., concur.

i.e., until March 27, 1990. The issuance of the said plane ticket was in compliance with a Compromise Agreement entered into between the contending parties in two previous suits, docketed as Civil Case Nos. 3392 and 3451 before the Regional Trial Court in Surigao City. [2] 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. Upon learning that the same PAL plane would make a stop-over in San Francisco, and considering that he would be there on April 2, 1990, petitioner made arrangements with PAL for him to board the flight in San Francisco instead of boarding in Los Angeles. On April 2, 1990, when the petitioner checked in at the PAL counter in San Francisco, he was not allowed to board. The PAL personnel concerned marked the following notation on his ticket: TICKET NOT ACCEPTED DUE EXPIRATION OF VALIDITY. Aggrieved, petitioner Cervantes filed a Complaint for Damages, for breach of contract of carriage docketed as Civil Case No. 3807 before Branch 32 of the Regional Trial Court of Surigao del Norte in Surigao City. But the said complaint was dismissed for lack of merit.[3] On September 20, 1993, petitioner interposed an appeal to the Court of Appeals, which came out with a Decision, on July 25, 1995, upholding the dismissal of the case. On May 22, 1996, petitioner came to this Court via the Petition for Review under consideration.

THIRD DIVISION

[G.R. No. 125138. March 2, 1999]

NICHOLAS Y. CERVANTES, petitioner, vs. COURT OF APPEALS AND THE PHILIPPINE AIR LINES, INC., respondent. DECISION
PURISIMA, J.:

This Petition for Review on certiorari assails the 25 July 1995 decision of the Court of Appeals[1] in CA GR CV No. 41407, entitled Nicholas Y. Cervantes vs. Philippine Air Lines Inc., affirming in toto the judgment of the trial court dismissing petitioners complaint for damages. On March 27, 1989, the private respondent, Philippines Air Lines, Inc. (PAL), issued to the herein petitioner, Nicholas Cervantes (Cervantes), a round trip plane ticket for ManilaHonolulu-Los Angeles-Honolulu-Manila, which ticket expressly provided an expiry of date of one year from issuance,

The issues raised for resolution are: (1) Whether or not the act of the PAL agents in confirming subject ticket extended the period of validity of petitioners ticket; (2) Whether or not the defense of lack of authority was correctly ruled upon; and (3) Whether or not the denial of the award for damages was proper. To rule on the first issue, there is a need to quote the findings below. As a rule, conclusions and findings of fact arrived at by the trial court are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons.[4] The facts of the case as found by the lower court [5] are, as follows:

accommodations to economy class but the replacement tickets still contained the same restriction. On May 7, 1983, Tolentino requested that subject tickets be extended, which request was refused by the petitioner on the ground that the said tickets had already expired. The non-extension of their tickets prompted the Tolentinos to bring a complaint for breach of contract of carriage against the petitioner. In ruling against the award of damages, the Court held that the ticket constitute the contract between the parties. It is axiomatic that when the terms are clear and leave no doubt as to the intention of the contracting parties, contracts are to be interpreted according to their literal meaning. In his effort to evade this inevitable conclusion, petitioner theorized that the confirmation by the PALs agents in Los Angeles and San Francisco changed the compromise agreement between the parties. As aptly ruled by the appellate court:

The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant) provides that it is not valid after March 27, 1990. (Exhibit 1-F). It is also stipulated in paragraph 8 of the Conditions of Contract (Exhibit 1, page 2) as follows:
"8. This ticket is good for carriage for one year from date of issue, except as otherwise provided in this ticket, in carriers tariffs, conditions of carriage, or related regulations. The fare for carriage hereunder is subject to change prior to commencement of carriage. Carrier may refuse transportation if the applicable fare has not been paid.[6] The question on the validity of subject ticket can be resolved in light of the ruling in the case of Lufthansa vs. Court of Appeals[7]. In the said case, the Tolentinos were issued first class tickets on April 3, 1982, which will be valid until April 10,1983. On June 10, 1982, they changed their

xxx on March 23, 1990, he was aware of the risk that his ticket could expire, as it did, before he returned to the Philippines. (pp. 320-321, Original Records)[8]
The question is: Did these two (2) employees, in effect , extend the validity or lifetime of the ticket in question? The answer is in the negative. Both had no authority to do so. Appellant knew this from the very start when he called up the Legal Department of appellee in the Philippines before he left for the United States of America. He had first hand knowledge that the ticket in question would expire on March 27,1990 and that to secure an extension, he would have to file a written request for extension at the PALs office in the Philippines (TSN, Testimony of Nicholas Cervantes, August 2, 1991, pp

20-23). Despite this knowledge, appellant persisted to use the ticket in question.[9] From the aforestated facts, it can be gleaned that the petitioner was fully aware that there was a need to send a letter to the legal counsel of PAL for the extension of the period of validity of his ticket. 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,[10] acted without authority when they confirmed the flights of the petitioner. Under Article 1898[11] of the New Civil Code, the acts of an agent beyond the scope of his authority do not bind the principal, unless the latter ratifies the same expressly or impliedly. Furthermore, when the third person (herein petitioner) 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 principals ratification.[12] Anent the second issue, petit ioners stance that the defense of lack of authority on the part of the PAL employees was deemed waived under Rule 9, Section 2 of the Revised Rules of Court, is unsustainable. Thereunder, failure of a party to put up defenses in their answer or in a motion to dismiss is a waiver thereof. Petitioner stresses that the alleged lack of authority of the PAL employees was neither raised in the answer nor in the motion to dismiss. But records show that the question of

whether there was authority on the part of the PAL employees was acted upon by the trial court when Nicholas Cervantes was presented as a witness and the depositions of the PAL employees, Georgina M. Reyes and Ruth Villanueva, were presented. The admission by Cervantes that he was told by PALs legal counsel that he had to submit a letter requesting for an extension of the validity of subject tickets was tantamount to knowledge on his part that the PAL employees had no authority to extend the validity of subject tickets and only PALs legal counsel was authorized to do so. However, notwithstanding PALs failure to raise the defense of lack of authority of the said PAL agents in its answer or in a motion to dismiss, the omission was cured since the said issue was litigated upon, as shown by the testimony of the petitioner in the course of trial. Rule 10, Section 5 of the 1997 Rules of Civil Procedure provides:

Sec. 5. Amendment to conform or authorize presentation of evidence. - When issues not raised by the pleadings are tried with express or implied consent of the parties, as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure to amend does not affect the result of the trial of these issues. xxx
Thus, when evidence is presented by one party, with the express or implied consent of the adverse party, as to issues not

alleged in the pleadings, judgment may be rendered validly as regards the said issue, which shall be treated as if they have been raised in the pleadings. There is implied consent to the evidence thus presented when the adverse party fails to object thereto.[13] Re: the third issue, an award of damages is improper because petitioner failed to show that PAL acted in bad faith in refusing to allow him to board its plane in San Francisco. In awarding moral damages for breach of contract of carriage, the breach must be wanton and deliberately injurious or the one responsible acted fraudulently or with malice or bad faith.[14] Petitioner knew there was a strong possibility that he could not use the subject ticket, so much so that he bought a back-up ticket to ensure his departure. Should there be a finding of bad faith, we are of the opinion that it should be on the petitioner. What the employees of PAL did was one of simple negligence. No injury resulted on the part of petitioner because he had a back-up ticket should PAL refuse to accommodate him with the use of subject ticket. Neither can the claim for exemplary damages be upheld. Such kind of damages is imposed by way of example or correction for the public good, and the existence of bad faith is established. The wrongful act must be accompanied by bad faith, and an award of damages would be allowed only if the guilty party acted in a wanton, fraudulent, reckless or malevolent manner.[15] Here, there is no showing that PAL acted in such a manner. An award for attorneys fees is also improper. WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals dated July 25, 1995 AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED. Romero, (Chairman), and Gonzaga-Reyes, JJ., concur. Vitug, J., abroad on official business. Panganiban, J., on leave.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-38384 November 3, 1933

CORAZON CH. VELOSO Y RICABLANCA and ROBUSTIANO M. ROSALES, plaintiff-appellee, vs. LA URBANA, Mutual Building and Loan Association, and JOSE MARIA DEL MAR, defendants. LA URBANA, Mutual Building and Loan Association, appellant. Ramirez and Ortigas for appellant. Gullas, Lopez and Tuao and Jose N. Leuterio for appellees. Office of the Solicitor-General Hilado for the Insular Treasurer as amicus curiae.

IMPERIAL, J.: The plaintiffs herein brought this action to annul certain mortgages constituted by Jose Maria del Mar in the name of the plaintiff, Corazon Ch. Veloso in favor of the defendant

corporation, and recover damages amounting to P2,000 from the defendants. La Urbana, one of the defendants herein, appealed from the judgment rendered in this case, the dispositive part of which reads as follows:
For the reasons above stated, the deeds of mortgage executed by Jose del Mar in the name of Corazon Ch. Veloso in favor of La Urbana are declared null and void in so far as they purport to bind the plaintiffs or their property; the sale of the said property to La Urbana by virtue of these mortgages is also hereby declared null and void; and it is further ordered and adjudged that the registration of the said deeds in the office of the register of deeds of Manila be cancelled, and that La Urbana and Jose del Mar pay the costs of this suit. This decision is without prejudice to any right of action which La Urbana may have against Jose Maria del Mar or the Insular Treasurer, or both, under the provisions of sections 99 to 107 of Act No. 496. So ordered.
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to La Previsora Filipina. On February 6, 1929, he cancelled said mortgage and transferred it to the defendant La Urbana which granted him a loan of P10,600. Upon mortgaging the said participations of the plaintiff to the aforesaid defendant, Del Mar delivered to the mortgage creditor the owner's duplicates of the certificates of title whereon the mortgage in question was noted. On November 14 of the same year. Del Mar obtained from the same defendant an additional loan, of P2,875 and executing another mortgage deed which was likewise noted or, the aforesaid duplicates of the certificates of title. Del Mar later violated the conditions of the mortgages whereupon La Urbana foreclosed them and purchased the said properties at public auction for the sum of P10,051.82 which was the total amount of Del Mar's indebtedness at that time. The plaintiffs herein learned of del Mar's fraudulent transactions from the advertisement of the sale thereof, and in addition to this civil action, they instituted criminal proceedings against him resulting in his conviction of the crime of falsification and the imposition upon him of a sentence of two (2) years, four (4) months and one (1) day of prisioncorreccional. In view of the foregoing facts, the court held that pursuant to article 1714 of the Civil Code and under the Torrens Act in force in this jurisdiction, the forged powers of attorney prepared by Del Mar were without force and effects and that the registration of the mortgages constituted by virtue thereof were likewise null and void and without force and effect, and that they could not in any way prejudice the rights of the plaintiff as the registered owners of her participations in the properties in question. The defendant-appellant herein assign various alleged errors in its brief consideration thereof. Inasmuch as Del Mar is not the registered owner of the mortgaged properties and inasmuch as the appellant was fully aware of the fact that it

The plaintiff Corazon Ch. Veloso was the owner of certain undivided portions of the five parcels of land in question together with the improvements thereon, situated in the City of Manila, and described in certificates of title Nos. 5767 and 33360. In the month of May, 1929, the defendant herein Jose Maria del Mar, plaintiff's brother-in-law, forged two powers of attorney purporting to have been executed by the plaintiffs, as husband and wife, conferring upon him ample authority to mortgage the plaintiff's participation in the aforementioned properties described in said certificates of title. These powers of attorney were duly registered in the office of the register of deeds. Acting under these powers of attorney, Del Mar succeeded in mortgaging the plaintiff's participations

was dealing with him on the strength of the alleged powers of attorney purporting to have been conferred upon him by the plaintiff, it was its duty to ascertain the genuineness of said instruments and not the said powers of attorney appeared to have been registered. In view of its failure to proceed in this manner, it acted negligently and should suffer the consequences and damages resulting from such transactions.
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Wherefore, the judgment appealed from is hereby affirmed, with the costs against the appellant. So ordered. Malcolm, Villa-Real, Hull, and Butte, JJ., concur.

Every person dealing with an agent is put upon inquiry, and must discover upon his peril the authority of the agent, and this is specially true where the act of the agent is of an unusual nature. If a person makes no inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. (Deen vs. Pacific Commercial Co., 42 Phil., 738.) 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. (Harry E. Keeler Electric Co. vs. Rodriguez, 44 Phil., 19.)

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 114091 June 29, 1995 BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners, vs. HON. COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

DAVIDE, JR., J.: Petitioners seek the reversal of the decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV No. 35180, 1 entitled "San Miguel Corporation vs. Bacaltos Coal Mines, German A. Bacaltos and Rene R. Savellon," which affirmed the decision of 19 August 1991 of the Regional Trial Court (RTC) of Cebu, Branch 9, in Civil Case No. CEB8187 2 holding petitioners Bacaltos Coal Mines and German A. Bacaltos and their co-defendant Rene R. Savellon jointly and

As has been noted at the beginning, the court reserved to the appellant any right of action it might have against Del Mar and the Insular Treasurer under the provisions of sections 99 to 107 of Act 496. We deem it unnecessary to repeat such reservation in this decision. At all events, the appellant may exercise such right of action without the necessity of such reservation if the facts of the case so warrant.

severally liable to private respondent San Miguel Corporation under a Trip Charter Party. The paramount issue raised is whether Savellon was duly authorized by the petitioners to enter into the Trip Charter Party (Exhibit "A") 3 under and by virtue of an Authorization (Exhibit "C" and Exhibit "1"), 4 dated 1 March 1988, the pertinent portions of which read as follows:
I. GERMAN A. BACALTOS, of legal age, Filipino, widower, and residing at second street, Espina Village, Cebu City, province of Cebu, Philippines, do hereby authorize RENE R. SAVELLON, of legal age, Filipino and residing at 376-R Osmea Blvd., Cebu City, Province of Cebu, Philippines, to use the coal operating contract of BACALTOS COAL MINES of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not by way of limitation, as follows: (1) To acquire purchase orders for and in behalf of BACALTOS COAL MINES; (2) To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON; (3) To collect all receivables due or in arrears from people or companies having dealings under BACALTOS COAL MINES/RENE SAVELLON; (4) To extend to any person or company by substitution the same

extent of authority that is granted to Rene Savellon; (5) In connection with the preceeding paragraphs to execute and sign documents, contracts, and other pertinent papers. Further, I hereby give and grant to RENE SAVELLON full authority to do and perform all and every lawful act requisite or necessary to carry into effect the foregoing stipulations as fully to all intents and purposes as I might or would lawfully do if personally present, with full power of substitution and revocation. The Trip Charter Party was executed on 19 October 1988 "by and between BACALTOS COAL MINES, represented by its Chief Operating Officer, RENE ROSEL SAVELLON" and private respondent San Miguel Corporation (hereinafter SMC), represented by Francisco B. Manzon, Jr., its "SAVP and Director, Plant Operations-Mandaue" Thereunder, Savellon claims that Bacaltos Coal Mines is the owner of the vessel M/V Premship II and that for P650,000.00 to be paid within seven days after the execution of the contract, it "lets, demises" the vessel to charterer SMC "for three round trips to Davao."

As payment of the aforesaid consideration, SMC issued a check (Exhibit "B") 5 payable to "RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES" for which Savellon issued a receipt under the heading of BACALTOS COAL MINES with the address at No 376-R Osmea Blvd., Cebu City (Exhibit "B1"). 6 The vessel was able to make only one trip. Its demands to comply with the contract having been unheeded, SMC filed against the petitioners and Rene Savellon the complaint in

Civil Case No. CEB-8187 for specific performance and damages. In their Answer, 7 the petitioners alleged that Savellon was not their Chief Operating Officer and that the powers granted to him are only those clearly expressed in the Authorization which do not include the power to enter into any contract with SMC. They further claimed that if it is true that SMC entered into a contract with them, it should have issued the check in their favor. They setup counterclaims for moral and exemplary damages and attorney's fees. Savellon did not file his Answer and was declared in default on 17 July 1990. 8
At the pre-trial conference on 1 February 1991, the petitioners and SMC agreed to submit the following issues for resolution: Plaintiff 1. Whether or not defendants are jointly liable to plaintiff for damages on account of breach of contract; 2. Whether or not the defendants acted in good faith in its representations to the plaintiff; 3. Whether or not defendant Bacaltos was duly enriched on the payment made by the plaintiff for the use of the vessel; 4. Whether or not defendant Bacaltos is estopped to deny the authorization given to defendant Savellon; Defendants

1. Whether or not the plaintiff should have first investigated the ownership of vessel M/V PREM [SHIP] II before entering into any contract with defendant Savellon; 2. Whether or not defendant Savellon was authorized to enter into a shipping contract with the [plaintiff] corporation; 3. Whether or not the plaintiff was correct and not mistaken in issuing the checks in payment of the contract in the name of defendant Savellon and not in the name of defendant Bacaltos Coal Mines;
4. Whether or not the plaintiff is liable on defendants' counterclaim. 9

After trial, the lower court rendered the assailed decision in favor of SMC and against the petitioners and Savellon as follows: WHEREFORE, by preponderance of evidence, the Court hereby renders judgment in favor of plaintiff and against defendants, ordering defendants Rene Savellon, Bacaltos Coal Mines and German A. Bacaltos, jointly and severally, to pay to plaintiff: 1. The amount of P433,000.00 by way of reimbursement of the consideration paid by plaintiff, plus 12% interest to start from date of written demand, which is June 14, 1989; 2. The amount of P20,000.00 by way of exemplary damages;

3. The amount of P20,000.00 as attorney's fees and P5,000.00 as Litigation expenses. Plus costs. 10

It ruled that the Authorization given by German Bacaltos to Savellon necessarily included the power to enter into the Trip Charter Party. It did not give credence to the petitioners' claim that the authorization refers only to coal or coal mining and not to shipping because, according to it, "the business of coal mining may also involve the shipping of products" and "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party contract." It further reasoned out that even assuming that the petitioners did not intend to authorize Savellon to enter into the Trip Charter Party, they are still liable because: (a) SMC appears to be an innocent party which has no knowledge of the real intent of the parties to the Authorization and has reason to rely on the written Authorization submitted by Savellon pursuant to Articles 1900 and 1902 of the Civil Code; (b) Savellon issued an official receipt of Bacaltos Coal Mines (Exhibit "B-1") for the consideration of the Trip Charter Party, and the petitioners denial that they caused the printing of such official receipt is "lame" because they submitted only a cash voucher and not their official receipt; (c) the "Notice of Readiness" (Exhibit "A1") is written on a paper with the letterhead "Bacaltos Coal Mines" and the logo therein is the same as that appearing in their voucher; (d) the petitioners were benefited by the payment because the real payee in the check is actually Bacaltos Coal Mines and since in the Authorization they authorized Savellon to collect receivables due or in arrears, the check was then properly delivered to Savellon; and, (e) if indeed Savellon had not been authorized or if indeed he exceeded his authority or if the Trip Charter Party was personal to him and the petitioners have nothing to do with it, then Savellon should have "bother[ed] to answer" the complaint and the petitioners should have filed "a cross-claim" against him.

credentials of Savellon and the ownership of the vessel, (2) issuing the check in the name of Savellon in trust for Bacaltos Coal Mines thereby allowing Savellon to encash the check, and, (3) making full payment of P650,000.00 after the vessel made only one trip and before it completed three trips as required in the Trip Charter Party; (b) holding that under the authority given to him Savellon was authorized to enter into the Trip Charter Party; and, (c) holding German Bacaltos jointly and severally liable with Savellon and Bacaltos Coal Mines. 11
As stated at the beginning, the Court of Appeals affirmed in toto the judgment of the trial court. It held that: (a) the credentials of Savellon is not an issue since the petitioners impliedly admitted the agency while the ownership of the vessel was warranted on the face of the Trip Charter Party; (b) SMC was not negligent when it issued the check in the name of Savellon in trust for Bacaltos Coal Mines since the Authorization clearly provides that collectibles of the petitioners can be coursed through Savellon as the agent; (c) the Authorization includes the power to enter into the Trip Charter Party because the "five prerogatives" enumerated in the former is prefaced by the phrase "but not by way of limitation"; (d) the petitioners' statement that the check should have been issued in the name of Bacaltos Coal Mines is another implicit admission that the Trip Charter Party is part and parcel of the petitioners' business notwithstanding German Bacaltos's contrary interpretation when he testified, and in any event, the construction of obscure words should not favor him since he prepared the Authorization in favor of Savellon; and, (e) German Bacaltos admitted in the Answer that he is the proprietor of Bacaltos Coal Mines and he likewise represented himself to be so in the Authorization itself, hence he should not now be permitted to disavow what he initially stated to be true and to interpose the defense that Bacaltos Coal Mines has a distinct legal personality.

In their appeal to the Court of Appeals in CA-G.R. CV No. 35180, the petitioners asserted that the trial court erred in: (a) not holding that SMC was negligent in (1) not verifying the

Their motion for a reconsideration of the above decision having been denied, the petitioners filed the instant petition wherein they raise the following errors: I. THE RESPONDENT COURT ERRED IN HOLDING THAT RENE SAVELLON WAS AUTHORIZED TO ENTER INTO A TRIP CHARTER PARTY CONTRACT WITH PRIVATE RESPONDENT INSPITE OF ITS FINDING THAT SUCH AUTHORITY CANNOT BE FOUND IN THE FOUR CORNERS OF THE AUTHORIZATION; II. THE RESPONDENT COURT ERRED IN NOT HOLDING THAT BY ISSUING THE CHECK IN THE NAME OF RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES, THE PRIVATE RESPONDENT WAS THE AUTHOR OF ITS OWN DAMAGE; AND
III. THE RESPONDENT COURT ERRED IN HOLDING PETITIONER GERMAN BACALTOS JOINTLY AND SEVERALLY LIABLE WITH RENE SAVELLON AND COPETITIONER BACALTOS COAL MINES IN SPITE OF THE FINDING OF THE COURT A QUO THAT PETITIONER BACALTOS COAL MINES AND PETITIONER BACALTOS ARE TWO DISTINCT

AND SEPARATE LEGAL PERSONALITIES. 12

After due deliberations on the allegations, issues raised, and arguments adduced in the petition, and the comment thereto and reply to the comment, the Court resolved to give due course to the petition.

Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. 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 also the nature and extent of the authority, and in case either is controverted, the burden of proof is upon them to establish it. 13 American jurisprudence 14 summarizes the rule in dealing with an agent as follows:
A third person dealing with a known agent may not act negligently with regard to the extent of the agent's authority or blindly trust the agent's statements in such respect. Rather, he must use reasonable diligence and prudence to ascertain whether the agent is acting and dealing with him within the scope of his powers. The mere opinion of an agent as to the extent of his powers, or his mere assumption of authority without foundation, will not bind the principal; and a third person dealing with a known agent must bear the burden of determining for himself, by the exercise of reasonable diligence and prudence, the existence or nonexistence of the agent's authority to act in the premises. In other words, whether the agency is general or special, the third person is bound to

ascertain not only the fact of agency, but the nature and extent of the authority. The principal, on the other hand, may act on the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent of his authority as well as the existence of his agency. Or, as stated in Harry E. Keller Electric Co. vs. Rodriguez, 15 quoting Mechem on Agency: The person dealing with the agent must also 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, as would suffice to put an ordinarily prudent man upon his guard, the party dealing with him may not shut his eyes to the real estate 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. [emphasis supplied]. In the instant case, since the agency of Savellon is based on a written document, the Authorization of 1 March 1988 (Exhibits "C" and "1"), the extent and scope of his powers must be determined on the basis thereof. The language of the Authorization is clear. It pertinently states as follows: I. GERMAN A. BACALTOS do hereby authorize RENE R. SAVELLON . . . to use the coal operating contract of BACALTOS COAL MINES, of which I am the proprietor, for any legitimate

purpose that it may serve. Namely, but not by way of limitation, as follows . . . [emphasis supplied]. There is only one express power granted to Savellon, viz., to use the coal operating contract for anylegitimate purpose it may serve. The enumerated "five prerogatives" to employ the term used by the Court of Appeals are nothing but the specific prerogatives subsumed under or classified as part of or as examples of the power to use the coal operating contract. The clause " but not by way of limitation" which precedes the enumeration could only refer to or contemplate other prerogatives which must exclusively pertain or relate or be germane to the power to use the coal operating contract. The conclusion then of the Court of Appeals that the Authorization includes the power to enter into the Trip Chapter Party because the "five prerogatives" are prefaced by such clause, is seriously flawed. It fails to note that the broadest scope of Savellon's authority is limited to the use of the coal operating contract and the clause cannot contemplate any other power not included in the enumeration or which are unrelated either to the power to use the coal operating contract or to those already enumerated. In short, while the clause allows some room for flexibility, it can comprehend only additional prerogatives falling within the primary power and within the same class as those enumerated. The trial court, however, went further by hastily making a sweeping conclusion that "a company such as a coal mining company is not prohibited to engage in entering into a Trip Charter Party contract." 16 But what the trial court failed to consider was that there is no evidence at all that Bacaltos Coal Mines as a coal mining company owns and operates vessels, and even if it owned any such vessels, that it was allowed to charter or lease them. The trial court also failed to note that the Authorization is not a general power of attorney. It is a special power of attorney for it refers to a clear mandate specifically authorizing the performance of a

specific power and of express acts subsumed therein. 17 In short, both courts below unreasonably expanded the express terms of or otherwise gave unrestricted meaning to a clause which was precisely intended to prevent unwarranted and unlimited expansion of the powers entrusted to Savellon. The suggestion of the Court of Appeals that there is obscurity in the Authorization which must be construed against German Bacaltos because he prepared the Authorization has no leg to stand on inasmuch as there is no obscurity or ambiguity in the instrument. If any obscurity or ambiguity indeed existed, then there will be more reason to place SMC on guard and for it to exercise due diligence in seeking clarification or enlightenment thereon, for that was part of its duty to discover upon its peril the nature and extent of Savellon's written agency. Unfortunately, it did not. Howsoever viewed, the foregoing conclusions of the Court of Appeals and the trial court are tenuous and farfetched, bringing to unreasonable limits the clear parameters of the powers granted in the Authorization. Furthermore, had SMC exercised due diligence and prudence, it should have known in no time that there is absolutely nothing on the face of the Authorization that confers upon Savellon the authority to enter into any Trip Charter Party. Its conclusion to the contrary is based solely on the second prerogative under the Authorization, to wit: (2) To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON; unmindful that such is but a part of the primary authority to use the coal operating contract which it did not even require Savellon to produce. Its principal witness, Mr.Valdescona, expressly so admitted on crossexamination, thus:

Atty. Zosa (to witness ON CROSS) Q You said that in your office Mr. Rene Savellon presented to you this authorization marked Exhibit "C" and Exhibit "1" for the defendant? A Yes, sir. Q Did you read in the first part[y] of this authorization Mr.Valdescona that Mr. Rene Savellon was authorized as the coal operating contract of Bacaltos Coal Mines? A Yes, sir. Q Did it not occur to you that you should have examined further the authorization of Mr. Rene Savellon, whether or not this coal operating contract allows Mr.Savellon to enter into a trip charter party? A Yes, sir. We discussed about the extent of his authorization and he referred us to the number 2 provision of this authorization which is to engage in trading under the style of Bacaltos Coal Mines/Rene Savellon, which we followed up to the check preparation because it is part of the authority.

Q In other words, you examined this and you found out that Mr.Savellon is authorized to use the coal operating contract of Bacaltos Coal Mines? A Yes, sir. Q You doubted his authority but you found out in paragraph 2 that he is authorized that's why you agreed and entered into that trip charter party? A We did not doubt his authority but we were questioning as to the extent of his operating contract. Q Did you not require Mr.Savellon to produce that coal operating contract of Bacaltos Coal Mines?
A No sir. We did not. 18

Sec. 9.Obligations of Operator in Coal Operating Contract. The operator under a coal operating contract shall undertake, manage and execute the coal operations which shall include: (a) The examination and investigation of lands supposed to contain coal, by detailed surface geologic mapping, core drilling, trenching, test pitting and other appropriate means, for the purpose of probing the presence of coal deposits and the extent thereof; (b) Steps necessary to reach the coal deposit so that it can be mined, including but not limited to shaft sinking and tunneling; and (c) The extraction and utilization of coal deposits. The Government shall oversee the management of the operation contemplated in a coal operating contract and in this connection, shall require the operator to: (a) Provide all the necessary service and technology; (b) Provide the requisite financing; (c) Perform the work obligations and program prescribed in the coal operating contract which shall not be less than those prescribed in this Decree; (d) Operate the area on behalf of the Government in accordance with good coal mining practices using modern methods appropriate for the geological conditions of the area to enable

Since the principal subject of the Authorization is the coal operating contract, SMC should have required its presentation to determine what it is and how it may be used by Savellon. Such a determination is indispensable to an inquiry into the extent or scope of his authority. For this reason, we now deem it necessary to examine the nature of a coal operating contract.

A coal operating contract is governed by P.D. No. 972 (The Coal Development Act of 1976), as amended by P.D. No. 1174. It is one of the authorized ways of active exploration, development, and production of coal resources 19 in a specified contract area. 20 Section 9 of the decree prescribes the obligation of the contractor, thus:

maximum economic production of coal, avoiding hazards to life, health and property, avoiding pollution of air, lands and waters, and pursuant to an efficient and economic program of operation; (e) Furnish the Energy Development Board promptly with all information, data and reports which it may require;. (f) Maintain detailed technical records and account of its expenditures; (g) Conform to regulations regarding, among others, safety demarcation of agreement acreage and work areas, non-interference with the rights of the other petroleum, mineral and natural resources operators; (h) Maintain all necessary equipment in good order and allow access to these as well as to the exploration, development and production sites and operations to inspectors authorized by the Energy Development Board; (i) Allow representatives authorized by the Energy Development Board full access to their accounts, books and records for tax and other fiscal purposes. Section 11 thereof provides for the minimum terms and conditions of a coal operating contract. From the foregoing, it is obvious that a scrutiny of the coal operating contract of Bacaltos Coal Mines would have provided SMC knowledge of the activities which are germane, related, or incident to the power to use it. But it did not even require Savellon to produce the same.

SMC's negligence was further compounded by its failure to verify if Bacaltos Coal Mines owned a vessel. A party desiring to charter a vessel must satisfy itself that the other party is the owner of the vessel or is at least entitled to its possession with power to lease or charter the vessel. In the instant case, SMC made no such attempt. It merely satisfied itself with the claim of Savellon that the vessel it was leasing is owned by Bacaltos Coal Mines and relied on the presentation of the Authorization as well as its test on the sea worthiness of the vessel. Valdescona thus declared on direct examination as follows: A In October, a certain Rene Savellon called our office offering us shipping services. So I told him to give us a formal proposal and also for him to come to our office so that we can go over his proposal and formally discuss his offer. Q Did Mr. Rene Savellongo to your office? A Few days later he came to our office and gave us his proposal verbally offering a vessel for us to use for our cargo. Q Did he mention the owner of that vessel? A Yes, sir. That it is Bacaltos. Q Did he present a document to you?

A Yes, sir. He presented to us the authorization. Q When Mr. Rene Savellon presented to you the authorization what did you do?. A On the strength of that authorization we initially asked him for us to check the vessel to see its sea worthiness, and we assigned our in-house surveyor to check the sea worthiness of the vessel which was on dry dock that time in Danao. Q What was the result of your inspection? A We found out the vessel's sea worthiness to be our cargo carrier. Q After that what did you do? A After that we were discussing the condition of the contract. Q Were you able to execute that contract?
A Yes, sir . 21

A The representation made by Mr. Rene Savellon was that Bacaltos Coal Mines operates the vessel and on the strength of the authorization he showed us we were made to believe that it was Bacaltos Coal Mines that owned it. COURT: (to witness) Q In other words, you just believed Rene Savellon? A Yes, sir. COURT: (to witness) Q You did not check with Bacaltos Coal Mines? A That is the representation he made. Q Did he show you document regarding this M/V Premship II?
A No document shown. 22

He further declared as follows: Q When you entered into a trip charter contract did you check the ownership of M/V Premship?

The Authorization itself does not state that Bacaltos Coal Mines owns any vessel, and since it is clear therefrom that it is not engaged in shipping but in coal mining or in coal business, SMC should have required the presentation of pertinent documentary proof of ownership of the vessel to be chartered. Its in-house surveyor who saw the vessel while drydocked in Danao and thereafter conducted a sea worthiness test could not have failed to ascertain the registered owner of the vessel.

The petitioners themselves declared in open court that they have not leased any vessel for they do not need it in their coal operations 23 thereby implying that they do not even own one.
The Court of Appeals' asseveration that there was no need to verify the ownership of the vessel because such ownership is warranted on the face of the trip charter party begs the question since Savellon's authority to enter into that contract is the very heart of the controversy.

We are not prepared to accept SMC's contention that the petitioners' claim that they are not engaged in shipping and do not own any ship is belied by the fact that they maintained a pre-printed business form known as a "Notice of Readiness" (Exhibit "A-1"). 24 This paper is only a photocopy and, despite its reservation to present the original for purposes of comparison at the next hearing, 25 SMC failed to produce the latter. This "Notice of Readiness" is not, therefore, the best evidence, hence inadmissible under Section 3, Rule 130 of the Rules of Court. It is true that when SMC made a formal offer of its exhibits, the petitioners did not object to the admission of Exhibit "A-1," the "Notice of Readiness," under the best evidence rule but on the ground that Savellon was not authorized to enter into the Trip Charter Party and that the party who signed it, one Elmer Baliquig, is not the petitioners' employee but of Premier Shipping Lines, the owner of the vessel in question. 26 The petitioners raised the issue of inadmissibility under the best evidence rule only belatedly in this petition. But although Exhibit "A-1" remains admissible for not having been timely objected to, it has no probative value as to the ownership of the vessel. There is likewise no proof that the petitioners received the consideration of the Trip Charter Party. The petitioners denied having received it. 27 The evidence for SMC established

beyond doubt that it was Savellon who requested in writing on 19 October 1988 that the check in payment therefor be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON (Exhibit "B-3") and that SMC drew the check in favor of RENE SAVELLON IN TRUST FOR BACALTOS COALMINES (Exhibit "B") and delivered it to Savellon who there upon issued a receipt (Exhibit "B-1"). We agree with the petitioners that SMC committed negligence in drawing the check in the manner aforestated. It even disregarded the request of Savellon that it be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON. Furthermore, assuming that the transaction was permitted in the Authorization, the check should still have been drawn in favor of the principal. SMC then made possible the wrong done. There is an equitable maxim that between two innocent parties, the one who made it possible for the wrong to be done should be the one to bear the resulting loss. 28 For this rule to apply, the condition precedent is that both parties must be innocent. In the present case, however, SMC is guilty of not ascertaining the extent and limits of the authority of Savellon. In not doing so, SMC dealt with Savellon at its own peril.
Having thus found that SMC was the author of its own damage and that the petitioners are, therefore, free from any liability, it has become unnecessary to discuss the issue of whether Bacaltos Coal Mines is a corporation with a personality distinct and separate from German Bacaltos. WHEREFORE, the instant petition is GRANTED and the challenged decision of 30 September 1993 of the Court of Appeals in CA-G.R. CV No. 35180 is hereby REVERSED and SET ASIDE and another judgment is hereby rendered MODIFYING the judgment of the Regional Trial Court of Cebu, Branch 9, in Civil Case No. CEB-8187 by setting aside the declaration of solidary liability, holding defendant RENE R. SAVELLON solely liable for the amounts adjudged, and ordering the dismissal of the case as against herein petitioners.

SO ORDERED. Bellosillo, Quiason, and Kapunan, JJ., concur. Padilla, J., took no part.

The antecedent facts are as follows: Respondent Teresita O. Pedroso is a policyholder of a 20-year endowment life insurance issued by petitioner Filipinas Life Assurance Company (Filipinas Life). Pedroso claims Renato Valle was her insurance agent since 1972 and Valle collected her monthly premiums. In the first week of January 1977, Valle told her that the Filipinas Life Escolta Office was holding a promotional investment program for policyholders. It was offering 8% prepaid interest a month for certain amounts deposited on a monthly basis. Enticed, she initially invested and issued a post-dated check dated January 7, 1977 for P10,000.4 In return, Valle issued Pedroso his personal check for P800 for the 8%5 prepaid interest and a Filipinas Life "Agents Receipt" No. 807838.6 Subsequently, she called the Escolta office and talked to Francisco Alcantara, the administrative assistant, who referred her to the branch manager, Angel Apetrior. Pedroso inquired about the promotional investment and Apetrior confirmed that there was such a promotion. She was even told she could "push through with the check" she issued. From the records, the check, with the endorsement of Alcantara at the back, was deposited in the account of Filipinas Life with the Commercial Bank and Trust Company (CBTC), Escolta Branch. Relying on the representations made by the petitioners duly authorized representatives Apetrior and Alcantara, as well as having known agent Valle for quite some time, Pedroso waited for the maturity of her initial investment. A month after, her investment of P10,000 was returned to her after she made a written request for its refund. The formal written request, dated February 3, 1977, was written on an inter-office memorandum form of Filipinas Life prepared by Alcantara. 7 To collect the amount, Pedroso personally went to the Escolta branch where Alcantara gave her the P10,000 in cash. After a second

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 159489 February 4, 2008

FILIPINAS LIFE ASSURANCE COMPANY (now AYALA LIFE ASSURANCE, INC.), petitioner, vs. CLEMENTE N. PEDROSO, TERESITA O. PEDROSO and JENNIFER N. PALACIO thru her Attorney-in-Fact PONCIANO C. MARQUEZ, respondents. DECISION QUISUMBING, J.: This petition for review on certiorari seeks the reversal of the Decision1 and Resolution,2 dated November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals in CAG.R. CV No. 33568. The appellate court had affirmed the Decision3 dated October 10, 1989 of the Regional Trial Court (RTC) of Manila, Branch 3, finding petitioner as defendant and the co-defendants below jointly and severally liable to the plaintiffs, now herein respondents.

investment, she made 7 to 8 more investments in varying amounts, totaling P37,000 but at a lower rate of 5%8 prepaid interest a month. Upon maturity of Pedrosos subsequent investments, Valle would take back from Pedroso the corresponding yellow-colored agents receipt he issued to the latter. Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life insurance policyholder, about the investment plan. Palacio made a total investment of P49,5509 but at only 5% prepaid interest. However, when Pedroso tried to withdraw her investment, Valle did not want to return some P17,000 worth of it. Palacio also tried to withdraw hers, but Filipinas Life, despite demands, refused to return her money. With the assistance of their lawyer, they went to Filipinas Life Escolta Office to collect their respective investments, and to inquire why they had not seen Valle for quite some time. But their attempts were futile. Hence, respondents filed an action for the recovery of a sum of money. After trial, the RTC, Branch 3, Manila, held Filipinas Life and its co-defendants Valle, Apetrior and Alcantara jointly and solidarily liable to the respondents. On appeal, the Court of Appeals affirmed the trial courts ruling and subsequently denied the motion for reconsideration. Petitioner now comes before us raising a single issue:
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION IN AFFIRMING THE DECISION OF THE LOWER COURT HOLDING FLAC [FILIPINAS LIFE] TO BE JOINTLY AND SEVERALLY LIABLE WITH ITS CO-DEFENDANTS ON THE CLAIM OF RESPONDENTS INSTEAD OF HOLDING ITS

AGENT, RENATO VALLE, SOLELY LIABLE TO THE RESPONDENTS.10

Simply put, did the Court of Appeals err in holding petitioner and its co-defendants jointly and severally liable to the herein respondents? Filipinas Life does not dispute that Valle was its agent, but claims that it was only a life insurance company and was not engaged in the business of collecting investment money. It contends that the investment scheme offered to respondents by Valle, Apetrior and Alcantara was outside the scope of their authority as agents of Filipinas Life such that, it cannot be held liable to the respondents.11 On the other hand, respondents contend that Filipinas Life authorized Valle to solicit investments from them. In fact, Filipinas Lifes official documents and facilities were used in consummating the transactions. These transactions, according to respondents, were confirmed by its officers Apetrior and Alcantara. Respondents assert they exercised all the diligence required of them in ascertaining the authority of petitioners agents; and it is Filipinas Life that failed in its duty to ensure that its agents act within the scope of their authority. Considering the issue raised in the light of the submissions of the parties, we find that the petition lacks merit. The Court of Appeals committed no reversible error nor abused gravely its discretion in rendering the assailed decision and resolution. It appears indisputable that respondents Pedroso and Palacio had invested P47,000 and P49,550, respectively. These were received by Valle and remitted to Filipinas Life, using Filipinas Lifes official receipts, whose authenticity were not disputed. Valles authority to solicit and receive investments was also established by the parties. When respondents sought

confirmation, Alcantara, holding a supervisory position, and Apetrior, the branch manager, confirmed that Valle had authority. While it is true that a person dealing with an agent is put upon inquiry and must discover at his own peril the agents authority, in this case, respondents did exercise due diligence in removing all doubts and in confirming the validity of the representations made by Valle. Filipinas Life, as the principal, is liable for obligations contracted by its agent Valle. 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.12 The general rule is that the principal is responsible for the acts of its agent done within the scope of its authority, and should bear the damage caused to third persons.13 When the agent exceeds his authority, the agent becomes personally liable for the damage. 14 But even when the agent exceeds his authority, the principal is still solidarily liable together with the agent if the principal allowed the agent to act as though the agent had full powers.15 In other words, the acts of an agent beyond the scope of his authority do not bind the principal, unless the principal ratifies them, expressly or impliedly.16 Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without authority.17 Filipinas Life cannot profess ignorance of Valles acts. Even if Valles representations were beyond his authority as a debit/insurance agent, Filipinas Life thru Alcantara and Apetrior expressly and knowingly ratified Valles acts. It cannot even be denied that Filipinas Life benefited from the investments deposited by Valle in the account of Filipinas Life. In our considered view, Filipinas Life had clothed Valle with apparent authority; hence, it is now estopped to deny said authority. Innocent third persons should not be prejudiced if the principal failed to adopt the needed measures to prevent

misrepresentation, much more so if the principal ratified his agents acts beyond the latters authority. The act of the agent is considered that of the principal itself. Qui per aliumfacit per seipsumfacerevidetur. "He who does a thing by an agent is considered as doing it himself."18 WHEREFORE, the petition is DENIED for lack of merit. The Decision and Resolution, dated November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals in CAG.R. CV No. 33568 are AFFIRMED. Costs against the petitioner. SO ORDERED. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION
G.R. No. L-49395 December 26, 1984 GREEN VALLEY POULTRY & ALLIED PRODUCTS, INC., petitioner vs. THE INTERMEDIATE APPELLATE COURT and E.R. SQUIBB & SONS PHILIPPINE CORPORATION,respondents.

ABAD SANTOS, J.: This is a petition to review a decision of the defunct Court of Appeals which affirmed the judgment of the trial court whereby:

... judgment is hereby rendered in favor of the plaintiff [E.R. Squibb & Sons Philippine Corporation], ordering the defendant [Green Valley Poultry & Allied Products, Inc.] to pay the sum of P48,374.74 plus P96.00 with interest at 6% per annum from the filing of this action; plus attorney's fees in the amount of P5,000.00 and to pay the costs. On November 3, 1969, Squibb and Green Valley entered into a letter agreement the text of which reads as follows: E.R. Squibb & Sons Philippine Corporation is pleased to appoint Green Valley Poultry & Allied Products, Inc. as a non-exclusive distributor for Squibb Veterinary Products, as recommended by Dr.Leoncio D. Rebong, Jr. and Dr. J.G. Cruz, Animal Health Division Sales Supervisor. As a distributor, Green Valley Poultry & Allied Products, Inc. wig be entitled to a discount as follows: Feed Store Price (Catalogue) Less 10% Wholesale Price Less 10% Distributor Price There are exceptions to the above price structure. At present, these are: 1. Afsillin Improved 40 lbs. bag

The distributor commission for this product size is 8% off P120.00 2. Narrow Spectrum Injectible Antibiotics These products are subject to price fluctuations. Therefore, they are invoiced at net price per vial. 3. Deals and Special Offers are not subject to the above distributor price structure. A 5% distributor commission is allowed when the distributor furnishes copies for each sale of a complete deal or special offer to a feedstore, drugstore or other type of account. Deals and Special Offers purchased for resale at regular price invoiced at net deal or special offer price. Prices are subject to change without notice. Squibb will endeavor to advise you promptly of any price changes. However, prices in effect at the tune orders are received by Squibb Order Department will apply in all instances. Green Valley Poultry & Allied Products, Inc. win distribute only for the Central Luzon and Northern Luzon including Cagayan Valley areas. We will not allow any transfer or stocks from Central Luzon and Northern Luzon including Cagayan Valley to other parts of Luzon, Visayas or Mindanao which are covered by our other appointed Distributors. In line with this, you will follow strictly our stipulations that the maximum discount you can give to your direct and turnover accounts will not go beyond 10%.

It is understood that Green Valley Poultry and Allied Products, Inc. will accept turn-over orders from Squibb representatives for delivery to customers in your area. If for credit or other valid reasons a turn-over order is not served, the Squibb representative will be notified within 48 hours and hold why the order will not be served. It is understood that Green Valley Poultry & Allied Products, Inc. will put up a bond of P20,000.00 from a mutually acceptable bonding company. Payment for Purchases of Squibb Products will be due 60 days from date of invoice or the nearest business day thereto. No payment win be accepted in the form of post-dated checks. Payment by check must be on current dating. It is mutually agreed that this non-exclusive distribution agreement can be terminated by either Green Valley Poultry & Allied Products, Inc. or Squibb Philippines on 30 days notice. I trust that the above terms and conditions will be met with your approval and that the distributor arrangement will be one of mutual satisfaction. If you are agreeable, please sign the enclosed three (3) extra copies of this letter and return them to this Office at your earliest convenience. Thank you for your interest and support of the products of E.R. Squibb & Sons Philippines Corporation. (Rollo, pp. 12- 13.)

For goods delivered to Green Valley but unpaid, Squibb filed suit to collect. The trial court as aforesaid gave judgment in favor of Squibb which was affirmed by the Court of Appeals. In both the trial court and the Court of Appeals, the parties advanced their respective theories. Green Valley claimed that the contract with Squibb was a mere agency to sell; that it never purchased goods from Squibb; that the goods received were on consignment only with the obligation to turn over the proceeds, less its commission, or to return the goods ff not sold, and since it had sold the goods but had not been able to collect from the purchasers thereof, the action was premature. Upon the other hand, Squibb claimed that the contract was one of sale so that Green Valley was obligated to pay for the goods received upon the expiration of the 60-day credit period. Both courts below upheld the claim of Squibb that the agreement between the parties was a sales contract. We do not have to categorize the contract. Whether viewed as an agency to sell or as a contract of sale, the liability of Green Valley is indubitable. Adopting Green Valley's theory that the contract is an agency to sell, it is liable because it sold on credit without authority from its principal. The Civil Code has a provision exactly in point. It reads: 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.

WHEREFORE, the petition is hereby dismissed; the judgment of the defunct Court of Appeals is affirmed with costs against the petitioner. SO ORDERED. Aquino, Concepcion, Jr., Escolin and Cuevas, JJ., concur. Makasiar (Chairman), reserves his vote.

MAKASIAR, J.:
Petitioner-appellant Vicente M. Domingo, now deceased and represented by his heirs, AntoninaRaymundovda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all surnamed Domingo, sought the reversal of the majority decision dated, March 12, 1969 of the Special Division of Five of the Court of Appeals affirming the judgment of the trial court, which sentenced the said Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50 and the intervenorTeofilo P. Purisima P2,607.50 with interest on both amounts from the date of the filing of the complaint, to pay Gregorio Domingo P1,000.00 as moral and exemplary damages and P500.00 as attorney's fees plus costs. The following facts were found to be established by the majority of the Special Division of Five of the Court of Appeals: 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. The said agency contract was in triplicate, one copy was given to Vicente, while the original and another copy were retained by Gregorio. On June 3, 1956, Gregorio authorized the intervenorTeofilo P. Purisima to look for a buyer, promising him one-half of the 5% commission.

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-30573 October 29, 1971 VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO VDA. DE DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE and JOSELITO, all surnamed DOMINGO, petitioners-appellants, vs. GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P. PURISIMA, intervenor-respondent. TeofiloLeonin for petitioners-appellants. Osorio, Osorio & Osorio for respondent-appellee. Teofilo P. Purisima in his own behalf as intervenor-respondent.

Thereafter, TeofiloPurisima 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 (Exhibit "B"). Vicente directed Gregorio to tell Oscar de Leon to raise his offer. 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. Thereafter, Exhibit "C" was amended to the effect that 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. It was again amended to the effect that Oscar will vacate his house and lot on December 1, 1956, because his wife was on the family way and Vicente could stay in lot No. 883 of Piedad Estate until June 1, 1957, in a document dated June 30, 1956 (the year 1957 therein is a mere typographical error) and marked Exhibit "D". 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 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, 1956 to a purchaser brought by Gregorio to Vicente during the said 30-day period. Vicente grabbed the original of Exhibit "A" and tore it to pieces. Gregorio held his peace, not wanting to antagonize Vicente further, because he had still duplicate of Exhibit "A". From his meeting with Vicente, Gregorio proceeded to the office of the Register of Deeds of Quezon City, where he discovered Exhibit "G' 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 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. The Court of Appeals found from the evidence that Exhibit "A", the exclusive agency contract, is genuine; that Amparo Diaz, the vendee, being the wife of Oscar de Leon the sale by Vicente of his property is practically a sale to Oscar de Leon since husband and wife have common or identical interests; that Gregorio and intervenorTeofiloPurisima were the efficient cause in the consummation of the sale in favor of the spouses Oscar de Leon

and Amparo Diaz; that Oscar de Leon paid Gregorio the sum of One Thousand Pesos (P1,000.00) as "propina" or gift and not as additional earnest money to be given to the plaintiff, because Exhibit "66", Vicente's letter addressed to Oscar de Leon with respect to the additional earnest money, does not appear to have been answered by Oscar de Leon and therefore there is no writing or document supporting Oscar de Leon's testimony that he paid an additional earnest money of One Thousand Pesos (P1,000.00) to Gregorio for delivery to Vicente, unlike the first amount of One Thousand Pesos (P1,000.00) paid by Oscar de Leon to Vicente as earnest money, evidenced by the letter Exhibit "4"; and that Vicente did not even mention such additional earnest money in his two replies Exhibits "I" and "J" to Gregorio's letter of demand of the 5% commission. The three issues in this appeal are (1) 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; (2) whether Vicente or Gregorio should be liable directly to the intervenorTeofiloPurisima for the latter's share in the expected commission of Gregorio by reason of the sale; and (3) whether the award of legal interest, moral and exemplary damages, attorney's fees and costs, was proper. Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurred in by Justice Juan Enriquez did not touch on these issues which were extensively discussed by Justice MagnoGatmaitan in his dissenting opinion. However, Justice Esguerra, in his concurring opinion, affirmed that it does not constitute breach of trust or fraud on the part of the broker and regarded same as merely part of the whole process of bringing about the meeting of the minds of the seller and the purchaser and that the commitment from the prospect buyer that he would give a reward to Gregorio if he could effect better terms for him from the seller, independent of his legitimate commission, is not

fraudulent, because the principal can reject the terms offered by the prospective buyer if he believes that such terms are onerous disadvantageous to him. On the other hand, Justice Gatmaitan, with whom Justice Antonio Cafizares corner held the view that such an act on the part of Gregorio was fraudulent and constituted a breach of trust, which should deprive him of his right to the commission.

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. xxxxxxxxx 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. Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil Code which provides that: Art. 1720. Every agent is bound to give an account of his transaction and to pay to the principal whatever he may have received by virtue

of the agency, even though what he has received is not due to the principal. The modification contained in the first paragraph Article 1891 consists in changing the phrase "to pay" to "to deliver", which latter term is more comprehensive than the former. Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is required to an agent condemning as void any stipulation exempting the agent from the duty and liability imposed on him in paragraph one thereof. Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of the old Spanish Civil Code which reads thus: Art. 1726. The agent is liable not only for fraud, but also for negligence, which shall be judged with more or less severity by the courts, according to whether the agency was gratuitous or for a price or reward.

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. This Court has been consistent in the rigorous application of Article 1720 of the old Spanish Civil Code. Thus, for failure to deliver sums of money paid to him as an insurance agent for the account of his employer as required by said Article 1720, said insurance agent was convicted estafa. 4 An administrator of an estate was likewise under the same Article 1720 for failure to render an account of his administration to the heirs unless the heirs consented thereto or are estopped by having accepted the correctness of his account previously rendered. 5 Because of his responsibility under the aforecited article 1720, an agent is likewise liable for estafa for failure to deliver to his principal the total amount collected by him in behalf of his principal and cannot retain the commission pertaining to him by subtracting the same from his collections. 6 A lawyer is equally liable unnder said Article 1720 if he fails to deliver to his client all the money and property received by him for his client despite his attorney's lien. 7 The duty of a

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 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

commission agent to render a full account his operations to his principal was reiterated in Duhart, etc. vs. Macias. 8
The American jurisprudence on this score is well-nigh unanimous. Where a principal has paid an agent or broker a commission while ignorant of the fact that the latter has been unfaithful, the principal may recover back the commission paid, since an agent or broker who has been unfaithful is not entitled to any compensation. xxxxxxxxx In discussing the right of the principal to recover commissions retained by an unfaithful agent, the court in Little vs. Phipps (1911) 208 Mass. 331, 94 NE 260, 34 LRA (NS) 1046, said: "It is well settled that the agent is bound to exercise the utmost good faith in his dealings with his principal. As Lord Cairns said, this rule "is not a technical or arbitrary rule. It is a rule founded on the highest and truest principles, of morality." Parker vs. McKenna (1874) LR 10,Ch(Eng) 96,118 ... If the agent does not conduct himself with entire fidelity towards his principal, but is guilty of taking a secret profit or commission in regard the matter in which he is employed, he loses his right to compensation on the ground that he has taken a position wholly inconsistent with that of agent for his employer, and which gives his employer, upon discovering it, the right to treat him so far as compensation, at least, is concerned as if no agency had existed. This may operate to give to the principal the benefit of valuable services rendered by the agent, but the agent has only himself to blame for that result."

xxxxxxxxx
The intent with which the agent took a secret profit has been held immaterial where the agent has in fact entered into a relationship inconsistent with his agency, since the law condemns the corrupting tendency of the inconsistent relationship. Little vs. Phipps (1911) 94 NE 260. 9 As a general rule, it is a breach of good faith and loyalty to his principal for an agent, while the agency exists, so to deal with the subject matter thereof, or with information acquired during the course of the agency, as to make a profit out of it for himself in excess of his lawful compensation; and if he does so he may be held as a trustee and may be compelled to account to his principal for all profits, advantages, rights, or privileges acquired by him in such dealings, whether in performance or in violation of his duties, and be required to transfer them to his principal upon being reimbursed for his expenditures for the same, unless the principal has consented to or ratified the transaction knowing that benefit or profit would accrue or had accrued, to the agent, or unless with such knowledge he has allowed the agent so as to change his condition that he cannot be put in status quo. The application of this rule is not affected by the fact that the principal did not suffer any injury by reason of the agent's dealings or that he in fact obtained better results; nor is it affected by the fact that there is a usage or custom to the contrary or that the agency is a gratuitous one. (Emphasis applied.) 10

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.

as part of and constituted the down payment on, the purchase price of herein petitioner-appellant's lot No. 883 of Piedad Estate. Hence, both in law and in fact, it was still Oscar de Leon who was the buyer. As a necessary consequence of such breach of trust, defendantappellee Gregorio Domingo must forfeit his right to the commission and must return the part of the commission he received from his principal. TeofiloPurisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio Domingo his one-half share of whatever amounts Gregorio Domingo received by virtue of the transaction as his sub-agency contract was with Gregorio Domingo alone and not with Vicente Domingo, who was not even aware of such subagency. Since Gregorio Domingo received from Vicente Domingo and Oscar de Leon respectively the amounts of Three Hundred Pesos (P300.00) and One Thousand Pesos (P1,000.00) or a total of One Thousand Three Hundred Pesos (P1,300.00), one-half of the same, which is Six Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo to TeofiloPurisima. Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingo mental anguish and serious anxiety as well as wounded feelings, petitioner-appellant Vicente Domingo should be awarded moral damages in the reasonable amount of One Thousand Pesos (P1,000.00) attorney's fees in the reasonable amount of One Thousand Pesos (P1,000.00), considering that this case has been pending for the last fifteen (15) years from its filing on October 3, 1956. WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court of Appeals and directing defendant-appellee Gregorio Domingo: (1) to pay to the heirs of Vicente Domingo the sum of One Thousand Pesos (P1,000.00) as moral damages and One Thousand Pesos (P1,000.00) as attorney's fees; (2) to pay TeofiloPurisima the sum of Six Hundred Fifty Pesos (P650.00); and (3) to pay the costs.

The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or broker acted only as a middleman with the task of merely bringing together the vendor and vendee, who themselves thereafter will negotiate on the terms and conditions of the transaction. Neither would the rule apply if the agent or broker had informed the principal of the gift or bonus or profit he received from the purchaser and his principal did not object therto. 11 Herein defendant-appellee Gregorio Domingo was not merely a middleman of the petitioner-appellant Vicente Domingo and the buyer Oscar de Leon. He was the broker and agent of said petitioner-appellant only. And therein petitioner-appellant was not aware of the gift of One Thousand Pesos (P1,000.00) received by Gregorio Domingo from the prospective buyer; much less did he consent to his agent's accepting such a gift.
The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar de Leon, does not materially alter the situation; because the transaction, to be valid, must necessarily be with the consent of the husband Oscar de Leon, who is the administrator of their conjugal assets including their house and lot at No. 40 Denver Street, Cubao, Quezon City, which were given

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo and Villamor, JJ., concur.