Agency Homework for February 8, 2013

(1)

Classifications of Agency (Cont.)

a.

Universal, general and special

Article 1878
Art. 1878. Special powers of attorney are necessary in the
following cases:
(1) To make such payments as are not usually
considered as acts of administration;
(2) To effect novations which put an end to
obligations already in existence at the time the
agency was constituted;
(3) To compromise, to submit questions to
arbitration, to renounce the right to appeal from a
judgment, to waive objections to the venue of an
action or to abandon a prescription already
acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the
ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable
consideration;
(6) To make gifts, except customary ones for
charity or those made to employees in the
business managed by the agent;
(7) To loan or borrow money, unless the latter act
be urgent and indispensable for the preservation
of the things which are under administration;
(8) To lease any real property to another person
for more than one year;
(9) To bind the principal to render some service
without compensation;
(10) To bind the principal in a contract of
partnership;
(11) To obligate the principal as a guarantor or
surety;
(12) To create or convey real rights over
immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted
before the agency;
(15) Any other act of strict dominion. (n)

MAGSUMBOL-Dominion Insurance v. CA,

G.R. No. 129919, 6 February 2002
FACTS:
This is an appeal via certiorari from the decision of the
Court of Appeals affirming the decision of the Regional Trial
Court, Branch 44, San Fernando, Pampanga, which ordered
petitioner Dominion Insurance Corporation (Dominion) to pay
Rodolfo
S. Guevarra (Guevarra)
the
sum
of
P156,473.90 representing the total amount advanced
by Guevarra in the payment of the claims of Dominions clients.
The terms of the agreement read:
That we, FIRST
CONTINENTAL
ASSURANCE
COMPANY, INC., a corporation duly organized and
existing under and by virtue of the laws of the
Republic of the Philippines, xxx represented by the
undersigned as Regional Manager, xxx do hereby
appoint
RSG Guevarra Insurance
Services
represented by Mr. Rodolfo Guevarra xxx to be our
Agency Manager in San Fdo., for our place and
stead, to do and perform the following acts and
things:
1. To conduct, sign, manager (sic), carry on
and transact Bonding and Insurance
business as usually pertain to a Agency
Office, or FIRE, MARINE, MOTOR CAR,
PERSONAL
ACCIDENT,
and
BONDING with the right, upon our prior
written consent, to appoint agents and subagents.
2. To accept, underwrite and subscribed (sic)
cover notes or Policies of Insurance and
Bonds for and on our behalf.
3. To demand, sue, for (sic) collect, deposit,
enforce payment, deliver and transfer for
and receive and give effectual receipts and
discharge for all money to which the FIRST
CONTINENTAL ASSURANCE COMPANY,
INC., may hereafter become due, owing
payable or transferable to said Corporation
by reason of or in connection with the abovementioned appointment.
4. To receive notices, summons, and legal
processes for and in behalf of the FIRST
CONTINENTAL ASSURANCE COMPANY,
INC., in connection with actions and all legal
proceedings against the said Corporation.
ISSUES:
The issues raised are: (1) whether respondent Guevarra acted
within his authority as agent for petitioner, and (2) whether
respondent Guevarra is entitled to reimbursement of amounts
he paid out of his personal money in settling the claims of
several insured.
HELD:
The petition is without merit.
By the contract of agency, a person binds himself to
render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter.
The basis for agency is representation. On the part of the
principal, there must be an actual intention to appoint or an
intention naturally inferrable from his words or actions; and on
the part of the agent, there must be an intention to accept the
appointment and act on it, and in the absence of such intent,
there is generally no agency.

A perusal of the Special Power of Attorney would show

that petitioner (represented by third-party defendant Austria)
and respondent Guevarra intended to enter into a principalagent relationship. Despite the word special in the title of the
document, the contents reveal that what was constituted was
actually a general agency.
The agency comprises all the business of the principal,
but, couched in general terms, it is limited only to acts of
administration.
A general power permits the agent to do all acts for which
the law does not require a special power. Thus, the acts
enumerated in or similar to those enumerated in the Special
Power of Attorney do not require a special power of attorney.
Article 1878, Civil Code, enumerates the instances when
a special power of attorney is required. The pertinent portion
that applies to this case provides that:
Article 1878. Special powers of attorney are
necessary in the following cases:
(1) To make such payments as are not
usually considered as acts of administration;
xxx xxx xxx
(15) Any other act of strict dominion.
The payment of claims is not an act of administration. The
settlement of claims is not included among the acts
enumerated in the Special Power of Attorney, neither is it of a
character similar to the acts enumerated therein. A special
power of attorney is required before respondent
Guevarra could settle the insurance claims of the insured.
Respondent Guevarras authority to settle claims is
embodied
in
the
Memorandum
of
Management
Agreement dated February 18, 1987 which enumerates the
scope of respondent Guevarras duties and responsibilities as
agency manager for San Fernando, Pampanga, as follows:
xxx xxx xxx
1. You are hereby given authority to settle and
dispose of all motor car claims in the amount of
P5,000.00 with prior approval of the Regional Office.
2. Full authority is given you on TPPI claims
settlement.
xxx xxx xxx
In
settling
the
claims
mentioned
above,
respondent Guevarras authority is further limited by the written
standard authority to pay, which states that the payment shall
come from respondent Guevarras revolving fund or collection.
The authority to pay is worded as follows:
This is to authorize you to withdraw from your
revolving fund/collection the amount of PESOS
_________________ (P ) representing the payment
on the _________________ claim of assured
_______________ under Policy No. ______ in that
accident of ___________ at ____________.
It is further expected, release papers will be signed
and authorized by the concerned and attached to the
corresponding claim folder after effecting payment of
the claim.
(sgd.) FERNANDO C. AUSTRIA
Regional Manager
The instruction of petitioner as the principal could not be
any clearer. Respondent Guevarra was authorized to pay the
claim of the insured, but the payment shall come from the
revolving fund or collection in his possession.
Having deviated from the instructions of the principal, the
expenses that respondent Guevarra incurred in the settlement
of the claims of the insured may not be reimbursed from
petitioner Dominion. This conclusion is in accord with Article
1918, Civil Code, which states that:
The principal is not liable for the expenses incurred by
the agent in the following cases:

(1) If the agent acted in contravention of the

principals instructions, unless the latter should wish to
avail himself of the benefits derived from the contract;
xxx xxx xxx
However, while the law on agency prohibits
respondent Guevarra from obtaining reimbursement, his right
to recover may still be justified under the general law on
obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
Whoever pays for another may demand from the
debtor what he has paid, except that if he paid without
the knowledge or against the will of the debtor, he can
recover only insofar as the payment has been
beneficial to the debtor.
In this case, when the risk insured against occurred,
petitioners liability as insurer arose. This obligation was
extinguished when respondentGuevarra paid the claims and
obtained Release of Claim Loss and Subrogation Receipts
from the insured who were paid.
Thus, to the extent that the obligation of the petitioner has
been extinguished, respondent Guevarra may demand for
reimbursement from his principal. To rule otherwise would
result in unjust enrichment of petitioner.
The extent to which petitioner was benefited by the
settlement of the insurance claims could best be proven by the
Release of Claim Loss and Subrogation Receipts which were
attached to the original complaint as Annexes C-2, D-1, E-1, F1, G-1, H-1, I-1 and J-l, in the total amount of P116,276.95.
However, the amount of the revolving fund/collection that
was then in the possession of respondent Guevarra as
reflected in the statement of account dated July 11, 1990 would
be deducted from the above amount.
The outstanding balance and the production/remittance
for the period corresponding to the claims was P3,604.84.
Deducting this from P116,276.95, we get P112,672.11. This is
the amount that may be reimbursed to respondent Guevarra.

b.

Durable agency

Art. 1930. The agency shall remain in full

force and effect even after the death of
the principal, if it has been constituted in
the common interest of the latter and of
the agent, or in the interest of a third
person who has accepted the stipulation
in his favor. (n)

c.

Agency couched in general terms v.

agency couched in specific terms

Art. 1877. An agency couched in general terms comprises

only acts of administration, even if the principal should
state that he withholds no power or that the agent may
execute such acts as he may consider appropriate, or
even though the agency should authorize a general and
unlimited management.

Art. 1879. A special power to sell excludes the power to

mortgage; and a special power to mortgage does not
include the power to sell. (n)

(14) To ratify or recognize obligations contracted

before the agency;
(15) Any other act of strict dominion. (n)

Art. 1880. A special power to compromise does not

authorize submission to arbitration.
MANALAYSAY-Veloso v. CA, G.R. No. 102737, 21 August
1996

i. Transactions Covered
Art. 1878. Special powers of attorney are necessary in the
following cases:
(1) To make such payments as are not usually
considered as acts of administration;
(2) To effect novations which put an end to
obligations already in existence at the time the
agency was constituted;
(3) To compromise, to submit questions to
arbitration, to renounce the right to appeal from a
judgment, to waive objections to the venue of an
action or to abandon a prescription already
acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the
ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable
consideration;
(6) To make gifts, except customary ones for
charity or those made to employees in the
business managed by the agent;
(7) To loan or borrow money, unless the latter act
be urgent and indispensable for the preservation
of the things which are under administration;
(8) To lease any real property to another person
for more than one year;
(9) To bind the principal to render some service
without compensation;
(10) To bind the principal in a contract of
partnership;
(11) To obligate the principal as a guarantor or
surety;
(12) To create or convey real rights over
immovable property;
(13) To accept or repudiate an inheritance;

Doctrines:
Documents acknowledged before a notary have the
evidentiary weight with respect to their due execution.
There was no need to execute a separate and special power
of attorney since the general power of attorney had expressly
authorized the agent of attorney in fact the power to sell the
subject property.
The separate power of attorney can be included in the
general power of attorney when the act of transaction for which
the special power is required is specified therein.
Whether the instrument be denominated as general power
of attorney or special power of attorney, what matters is the
extent of the power or powers conferred upon the agent or
attorney-in-fact. If the power is couched in general terms, then
only acts of administration may be deemed granted although
the instrument may be captioned as special power of
attorney; but where the power, for example, to sell or
mortgage, is specified, there can be no doubt that the agent
may execute the act, although the instrument is denominated
as a general power of attorney. (Veloso vs. CA) A notarized
power of attorney, however, carries the evidentiary weight
conferred upon it with respect to its due execution.
Facts: (innocent purchaser for value; wife; general power of
attorney)
- Francisco Veloso is the owner of a parcel of land (177
square meters) located in Tondo, Manila. The land was
covered by a TCT and registered under his name. However,
the TCT was cancelled a new one was issued in the name of
Aglaloma Escaro.
- Veloso claimed that he was the sole owner of the property
and he never authorized anyone to sell the land, not even his
wife. He further alleged that he was in possession of the title
but when his wife, Irma, left for abroad, he found out his copy
was missing. He went to the Register of Deeds to verify and he
found out that his TCT was cancelled and is now under the
name of Escario.
- A general power of attorney and a deed of absolute sale
executed by his wife, Irma as his attorney-in-fact supported the
TCT. However, Veloso denied executing the power of attorney.
He prayed that a temporary restraining order be issued over
the land.
Issues: W/N there was a valid sale of the subject property. Is a
general power of attorney sufficient for the sale of the
petitioners house?
Held/Ratio: YES. The assailed power of attorney was valid
and regular on its face. It was notarized and therefore has
evidentiary weight with regard to its due execution.
Furthermore, if the General Power of Attorney expressly
granted the power to sell the property to the agent/ attorney in
fact, there is no need to execute a separate and special power
of attorney. The special power of attorney can be included in
the general power when it is specified therein the act or
transaction for which the special power is required.While it is
true that it was denominated as a general power of attorney, a
perusal thereof revealed that it stated an authority to sell, to
wit: To buy or sell ---- lands, tenements and hereditaments or

other forms of real property, more specifically TCT No. 49138,

upon such terms and conditions and under such covenants as
my said attorney shall deem fit and proper. Whether the
instrument be denominated as general power of attorney or
special power of attorney, what matters is the extent of the
power or powers contemplated upon the agent or attorney in
fact. If the power is couched in general terms, then such
power cannot go beyond acts of administration. However,
where the power to sell is specific, it not being merely implied,
much less couched in general terms, there can not be any
doubt that the attorney in fact may execute a valid sale. An
instrument may be captioned as special power of attorney but
if the powers granted are couched in general terms without
mentioning any specific power to sell or mortgage or to do
other specific acts of strict dominion, then in that case only acts
of administration may be deemed conferred. Even assuming
that the General Power of Attorney and Deed of Sale is void,
Aglaloma Escaro is still the lawful owner of the property. She is
deemed an innocent purchaser for value because she relied on
the General Power of Attorney presented by Velosos wife,
Irma. There was no reason for Escaro not to believe in Irmas
authority as she is the wife of Veloso and was in possession of
the title of the land. She is a buyer in good faith.

i.

Mortgage

Article 1878(12): Special powers of attorney are necessary

in the following cases:
(12)

To create or convey real rights over immovable

property.

PABALAN-PNB v. Sta. Maria, 29 SCRA 303

PEREZ-Bank of Philippine Islands v. De Coster, 47 Phil. 594

Art 1878 (12) SPA necessary in creating real rights over
immovables
FACTS

Jean M. Poizat acting as the agent of his

wife Gabriela de Coster loaned money from
BPI and made a promissory note in the
amount of P292,000 payable one year after
date with interest of 9 per cent per annum,
payable monthly. To secure the note they
acknowledged and delivered to BPI a
mortgage on certain real property lying and
being situated in the City of Manila.
The Spouses were not able to pay BPI so
the latter prayed for an order of the court to
sell the property described in the real
mortgage or so much thereof as may be
required to pay the amount due the plaintiff
be sold according to law; that out of such
sales plaintiff shall be paid the amount due
and owing it.

Because of this La Orden Dominicos filed a

plea saying that they have a first mortgage
on the property described in paragraph IV of
the complaint for P125,000 with interest at
10 per cent per annum. That the mortgagors
Jean M. Poizat and Gabriela Andrea de
Coster y Roxas have not paid the principal or
the stipulated interest from December 16,
1921, to date, which up to the 30th day of
April, 1924, amounts to P27,925.34. They
prayed that this sum of money be taken into
account when the second mortgage is
foreclosed.

La Orden Dominicos was a religious

corporation duly registered under Philippine
Laws. Apparently the agent husband acting
as attorney in fact loaned this sum of money
from them.

However the plea of the La Orden Dominicos

did not even ask for a judgment of the
foreclosure of its mortgage. Also no copy of
the plea was ever served upon either of the
defendants. The records show that the plea
was only given to the plaintiff bank BPI.

ISSUE:
1) Is the plea of La Orden Dominicos sufficient to grant them
the sum of money after the second mortgage is foreclosed?
2) Did Jean M. Poizat, acting as the agent with a power of
attorney of his wife, have the right to to borrow money for and
on account of his wife and her name?
RULING:
1) No the plea of La Orden Dominicos is not sufficient. , the
judgment in favor of the Dominican Fathers cannot be
sustained. In the first place, the plea above quoted filed on
April 24, 1924, would not be sufficient to sustain a judgment. It
does not even ask for a judgment of the foreclosure of its
mortgage. In the second place, no copy of the plea was ever
served upon either of the defendants, who were the real parties
in interest, and against whom a judgment was rendered for the
full amount of the note and the foreclosure of the mortgage.
Such a proceeding cannot be sustained on any legal principle.
Unless waived, a defendant has a legal right to service of
process, to his day in court and to be heard in his defense.
2) Yes. If the transaction between the Dominican Fathers and
Jean M. Poizat as attorney in fact for his wife was an original
one and the P125,000 was actually loaned at the time the note
and mortgage were executed and the money was in good faith
delivered to the husband as the agent and attorney in fact of
the wife, it would then be a valid exercise of the power given to
the husband, regardless of the question as to what he may
have done with the money.
Paragraph 5 of the power of attorney specifically
authorizes him to borrow money for and on account of his wife
and her name, "and making all these transactions with or
without mortgages, pledges or personal guaranty."

Presently Article 1878(7) of the Civil code also states

that special powers of attorney are also required in loaning or
borrowing money subject to an urgent and indispensable
matter for the preservation of the things under administration.
The judgment of the lower court in favor of La Orden
de Dominicos or PP. Predicadores de la Provincia del
Santisimo Rosario is reversed, without prejudice to its right to
either file an original suit to foreclose its mortgage or to file a
good and sufficient plea as intervenor in the instant suit, setting
forth the facts upon which it relies for a judgment on its note
and the foreclosure of its mortgage, copies of which should be
served upon the defendants.

W/N the respondent was a mortgagee in good faith?

HELD:
-

NO to all issues!

Essential requisites for validity of mortgage (Article

2085 of Civil Code):

TABAG-Mercado v. Allied Banking

Corporation, G.R. No. 171460, 27
July 2007

FACTS:
-

Petitioners are Lilian Mercado, Cynthia Fekaris and

Julian Mercado, Jr represented by Atty In Fact Alfredo
Perez. They are the heirs of Perla Mercado who
owned sevel pieces of land during her lifetime.

Respondent Allied Bank is a banking institution in the

Philippines.

Perla executed a SPA in favor of her husband

allowing him to sell, alienante, mortgage, and deal
otherwise over SPECIFIED pieces of property (the
SPA enumerates, eg: land in Mindoro, Muntinlupa,
cars, etc.)

Husband Julian then obtained a loan from Allied Bank

worth 3M pesos, secured by a REM over a property
registered in the Registry of Deeds in QC. He
obtained another loan worth 5M again secured by
another REM.

The controversy arose when it was stated that the

TCT no. specified in the REM executed by Julian was
NOT INCLUDED in the list of properties in the SPA
executed by the owner, his wife Perla.

It must be noted also that Perla revoked the SPA on

March 10, 1993 through a Revocation of SPA signed
by her.

Julian defaulted and Allied Bank initiated extra-judicial

foreclosure, property in REM was sold at a public
auction.

TC declared the REM over the property as null and

void since Julian did not have the authority. CA
reversed, however, deciding Perla intended to include
the subject property in SPA. Also, since the
revocation of the SPA was not in a public instrument,
it is not binding on third persons.

ISSUES:
W/N there was a valid mortgage constituted over the subject
property?
W/N there was a valid revocation of the SPA?

That they be constituted to secure the

fulfillment of a principal obligation

That the pledgor or mortgagor be the

absolute owner of the thing

That the persons constituting the pledge or

mortgage have the free disposal of their
property, and in the absence thereof, that
they may be legally authorized for the
purpose (THE THIRD REQ IS CRUCIAL IN
THIS CASE)

Under Article 1878, a SPA is necessary where real

rights over immovable property are created or
conveyed. There is no question that Julian was vested
with the power to mortgage pieces of property
identified in the SPA. However, it is clear that the
subject property is NOT included in the list. There was
an EXCLUSIVE enumeration. There was also nothing
in the language of the SPA which we could deduce
the INTENTION of Perla to include the subject
property.

The law is that if the terms of a contract are clear and

leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulation must
control.

Equally relevant is the rule that a power of attorney

must be strictly construed and pursued. The agent
may not go beyond nor deviate from the power of
attorney.

As for the validity of revocation, the SC held it to be

valid because it was EXPRESS and in a PUBLIC
DOCUMENT executed on March 10, 1993. SC stated
that as per Article 1999, the principal may revoke the
agency at will, and compel the agent to return the
document evidencing the agency. Such revocation
may be expressed or implied.

And finally, since the mortgagee is a banking

institution, it is expected to exercise GREATER care
and prudence in its dealings, including those involving
registered lands.

I. Loan/Borrowings

Article 1878(7): Special powers of attorney are necessary in

the following cases:
(7)

To loan or borrow money, unless the latter act be

urgent and indispensable for the preservation of the
things which are under administration.


YAP-Hodges v. Salas, 63 Phil 567
Defendants executed a power of attorney in favor of their
brother-in-law Yulo to enable him to obtain a loan and secure it
with a mortgage on a real property. The power of attorney was
registered in the RD.

Acting under said power of attorney, Yulo obtained a loan of

P28,000 from the plaintiff, binding his principals jointly and
severally, to pay it within 10 years. He signed a promissory and
executed a deed of mortgage.
Defendants failed to pay the amount hence plaintiff filed an
action for the foreclosure of the mortgage.
Issue: WON the terms of the power of attorney are limited.
Ruling: Yes.
The pertinent clauses of the power of attorney from which may
be determined the intention of the principals in authorizing their
agent to obtain a loan, securing it with their real property, were
quoted at the beginning.
The terms thereof are limited; the agent was thereby
authorized only to borrow any amount of money which he
deemed necessary. There is nothing, however, to indicate that
the defendants had likewise authorized him to convert the
money obtained by him to his personal use. With respect to a
power of attorney of special character, it cannot be interpreted
as also authorizing the agent to dispose of the money as he
pleased, particularly when it does not appear that such was the
intention of the principals, and in applying part of the funds to
pay his personal obligations, he exceeded his authority.
The plaintiff contends that the agent's act of employing part of
the loan to pay his personal debts was ratified by the
defendants in their letter to him This court has carefully read
the contents of said document and has found nothing implying
ratification or approval of the agent's act. In it the defendants
confined themselves to stating that they would notify their
agent of the maturity of the obligation contracted by him. They
said nothing about whether or not their agent was authorized to
use the funds obtained by him in the payment of his personal
obligations.
i.

Sell

Article 1878(5): Special powers of attorney are necessary

in the following cases:
(5) To enter into any contract by which the ownership
of an immovable is transmitted or acquired either
gratuitously or for valuable consideration.

BISNAR-Strong v. Gutierrez Rupide, 6 Phil. 680

Facts:

Eleanor Rica Strong (Petitioner) was the owner of 800

shares of the capital stock of the Philippine Sugar
Estates Development Company, Limited, an
anonymous society formed to hold the Dominican friar
lands.
She filed the current action to recover the said shares,
which her agent, Jones, sold to Francisco Gutierrez
Repide (Respondent), claiming:
o That Jones had no power to sell or deliver
her stock in the Philippine Sugar Estates
Development Company, Limited; and
o That its sale, through her agent, was
procured by fraud on the part of Gutierrez
Repide.
It had been provided in the case, that the script was
payable to bearer and had, ever since its issue been
in the possession of Jones, who was acting
gratuitously as agent of Strong, not only under a
written power special in terms to collect money but
also as general agent managing all her business
under a parol employment.

Issue: Whether Jones sale of the shares were valid.

Ruling: No. The court fails to find proof of an effective power
given to Jones to dispose of the stock.

An agency stated in general terms only includes acts

of administration. In order to compromise, alienate,
mortgage, or to execute any other act of strict
ownership an express mandate is required.
o Such mandate may be either oral or written,
may stand by itself or may be included in the
general power, the one vital thing being that
the right to sell shall be express or shall be a
necessary ingredient of the power that is
expressed.

However, the only express commission in evidence to

dispose of this is found in an interview between
Strong and Jones wherein, speaking of her shares,
she told him not to part with them until she got their
face value.

The acts of agents beyond the limitation of their power

are null and third persons deal with them at their peril
and are bound to inquire to the extent of the power of
the agent with whom they contract.
o Where neither the actual power nor the
appearance of it, for which the principal is
responsible exists, a third party is not
protected without such inquiry.
o Gutierrez Repide was not shown to have
made any inquiry as to the extent of Jones
power as an agent.

Gutierrez Repide further urges that the doctrine of

estoppel should be applied, where by a party creating
an appearance of fact which is not true is held bound
by that appearance as against another person who
has acted on the faith of it.
o He claims that negotiations for the stock
started when his own agent, inquired
whether the shares were for sale, to which
Strongs husband referred him to Jones, with
whom he was directed to consult.
o However, while the reference may have
been made with a view to a sale, it was not
inconsistent with the office of Jones as the
general administrator and the adviser of
Strong, to have been a direction to consult
not negotiate.

However, later a rehearing was conducted, wherein

new discovered evidence was presented.
The newly admitted evidence after the decision of this
court, consisting of a power of attorney expressly
authorizing the disposal of property and the receipt of
proceeds of the sale by the agent, justifies the seeting
aside of the original decision

They alleged that the sale was not valid

because Po Ejap was not authorized to
sell the land because the said SPA was
granted BEFORE the sale

And that the SPA not having been

registered is ineffective

Issue:
BOMBALES-Katigbak v. Tai Hung Co., 52 Phil. 622
Was the land validly acquired by Katigbak?

Facts:

Ruling:
Po Tecsi instituted SPA infavor of his brother Po
Ejap authorizing him to perform in his behalf as his
lawful agent to:

Buy, sell, barter,assign or admit

acquittance an instrument or in any other
manner to acquire or convey all sorts of
property, real and personal,usinesses
and industries, credits, rights and actions
belonging to him or might belong to
him.
BUT this
registered

SPA

however

was

not

Yes, SC holds that Katigbak was the absolute

owner of the property and ordered defendants to
pay rent.

The SPA granted by Po Tecsi to Po Ejap refers

not only to the property he had at the time the
power was conferred but also to such as he might
afterwards have during the time it was in force.

Although an SPA that was not recorded in the

registry of deeds prevents the sale made by Po
Ejap it does however bind the principal (Po Tecsi)
to acknowledge the acts done by Po Ejap

Acting on behalf of Po Tecsi and with SPA granted

to him he sold above subject land to KATIGBAK.
Notwithstanding the sale Po Tecsi continued to to
be in possession of the property. Hence he was
charged by monthly rental of P1500.
Po Tecsi died and his son Po Sun Suy was
appointed as administrator of Po Tecsis estate
and he included the land as one of his dads
properties

Meanwhile, Po Ejap assigned his son Po Sun Boo

all his rights and actions against Po Tecsi

And Katigbak eventually sold the property to Po

Sun Boo

Po Sun Boo notified Po Sun Suy that he

had already purchased the land hence he
will deal with him concerning the payment
of the rent

CHING-Bravo-Guerrero v. Bravo,
G.R. No. 152658, 29 July 2005
FACTS: Spouses Mauricio and Simona owned 2 parcels of
land. Simona executed a GPA, appointing Mauricio as his
attorney-in-fact, authorizing him to sell, assign and dispose of
any and all of her property.
Mauricio then mortgaged the lots to PNB and DBP. Thereafter,
Mauricio executed a Deed of Sale with Assumption of Real
Estate Mortgage conveying both properties to his son, Roland
Sr., and his grand children, Ofelia and Elizabeth, both
surnamed Bravo.
Edward, another grandchild of Mauricio and son of Roland Sr.,
together with his wife, filed an action for the judicial partition of
the lots. As the three vendees in the Deed of Sale is not
sharing the rental income of the lots. Edward was contending
that the Deed of Sale was void as it was simulated; hence they
are co-owners of the lots by succession.
ISSUE: W/N the Deed of Sale is void.

And because the rent was still unpaid, Po Sun

Boo filed an action for recovery of said rent
totaling to P45,280

Po Sun Suy filed an intervention praying that the

court should declare that Katigbak was NOT the
owner of the property hence was not entitled of
rent.

HELD: No, even though Art 1878 states that a SPA is needed
for an agent to be able to sell real property of the principal. In
the case at bar, although the document executed by Simona
was a GPA, such document authorized Mauricio to sell the lots.
Therefore, the title of the document is not important, as long as
such document authorizes the agent to sell. (GPA was
considered as SPA) (Deed of Sale was valid)
The SC ruled that:

a.

Petitioner
LILY ELIZABETH BRAVOGUERRERO is entitled to one-third (1/3) of the
Properties;

b.

Petitioner OFELIA BRAVO-QUIESTAS is

entitled to one-third (1/3) of the Properties; and

c.

The remaining one-third (1/3) portion of the

Properties should be divided equally between
the children of ROLAND BRAVO.

However, Roland Jr, incurred expenses in securing the release

of the lots from being mortgaged, therefore, the heirs of Roland
Sr. must reimburse Roland Jr. for these expenses.

ii.

Lease

Article 1878(8): Special powers of attorney are necessary

in the following cases:
(8)

To lease any real property to another person

for more than one year.

FERNANDEZ-Chua v. IAC, 229

SCRA 99
Principal: Defendant Herrera
Agent: Vicenta Reynes
Agent executed 10 year lease contract without SPA, W/N
valid? No. > 1 year lease needs SPA
Facts:
Sometime in 1950, defendant Herminigilda Herrera executed a
Contract of Lease in favor of Tian On (or Sy Tian On) whereby
the former leased to the latter Lots. Nos. 620 and 7549, for a
term of ten (10) years, renewable for another five (5) years.
The contract of lease contains a stipulation giving the lessee
an option to buy the leased property and that the lessor
guarantees to leave the possession of said property to the
lessee for a period of ten (10) years or as long as the lessee
faithfully fulfills the terms and conditions of their contract
In accordance with the said contract of lease, the lessee, Tian
On, erected a residential house on the leased premises.
On February 2, 1954, or within four (4) years from the
execution of the said contract of lease, the lessee, Sy Tian On,
executed a Deed of Absolute Sale of Building in favor of Chua
Bok, the predecessor-in-interest of the plaintiffs herein,
whereby the former sold to the latter the aforesaid residential
house for and in consideration of the sum of P8,000.00
After the expiration of the contract of lease in question the
plaintiffs herein, who are the successors-in-interest of Chua
Bok (who had meanwhile died) continued possession of the
premises
up
to

April 1978, with adjusted rental rate of P1,000.00

readjusted to P2,000.00.

later

On July 26, 1977, defendant Herrera through her attorney-infact, Mrs. Luz Tormis, who was authorized with a special power
of attorney, sold the lots in question to defendants-spouses,
Vicente and Victoria Go.
Thereafter, or on November 18, 1977, plaintiffs filed the instant
case seeking the annulment of the said sale between
Herminigilda Herrera and spouses Vicente and Victoria Go,
alleging that the conveyance was in violation of the plaintiffs'
right of option to buy the leased premises
Petitioners rely on the contract of lease entered into by and
between Chua Bok and Vicenta R. de Reynes, as attorney-infact of respondent Herrera, as well as on the tacit renewal
thereof by respondent Herrera
In declaring the contract of lease void, the Court of Appeals
noted that Vicenta R. de Reynes was not armed with a special
power of attorney to enter into a lease contract for a period of
more than one year.
We agree with the Court of Appeals.
The lease contract the linchpin of petitioners' cause of action,
involves the lease of real property for a period of more than
one year. The contract was entered into by the agent of the
lessor and not the lessor herself. In such a case, the law
requires that the agent be armed with a special power of
attorney to lease the premises.
Article 1878 of the New Civil Code, in pertinent part, provides:
Special Power of Attorney are necessary in
the following cases:
xxx xxx xxx
(8) To lease any real property to another
person for more than one year.
It is true that respondent Herrera allowed petitioners to occupy
the leased premises after the expiration of the lease contract
and
under
Article 1670 of the Civil Code of the Philippines, a tacit renewal
of the lease (tacita reconduccion) is deemed to have taken
place. However, as held in Bernardo M. Dizon v. Ambrosio
Magsaysay, 57 SCRA 250 (1974), a tacit renewal is limited
only to the terms of the contract which are germane to the
lessee's right of continued enjoyment of the property and does
not extend to alien matters, like the option to buy the leased
premises.

iii.

Compromise

Article 1878(3): Special powers of attorney are necessary

in the following cases:

(3)

To compromise, to submit questions to

arbitration, to renounce the right to appeal
from a judgment, to waive objections to the
venue of an action or to abandon a
prescription already acquired.

FORTES-Dungo v. Lopena, 6
SCRA 1007 (29 December 1962)

DOCTRINE: Compromise agreement entered into by the

lawyer without the SPA of client is NOT VOID but merely
UNENFORCEABLE
FACTS:

Lopena and Ramos sold their 3 parcels of land to

Dungo and Gonzales who gave a downpayment and
rest will be paid on installment for the next 6 months

(Weirdly to) The same buyers, Dungo and Gonzales

mortgaged the property they just bought to the same
sellers Lopena and Dungo.
o The
mortgage
agreement
had
an
acceleration clause wherein failure to pay
any installment makes the rest of the
succeeding payments due and demandable

As the buyers and mortgagors Lopena and Ramos

failed to pay the 1st installment, the sellers-mortgagee
filed for an Ex-parte Complaint for Foreclosure

BUT: Before trial the parties, with the exception of

Dungo, entered into a Compromise Agreement which
was approved by the Court
o Compromise Agreement: extended the due
date of the payment due from Dungo and
Gonzales
o Failure to pay on the stated date will lead to
foreclosure and that the buyers waived their
right to a period of redemption
o Dungo (only petitioner in this case) did not
sign the agreement, however,
Gonzales
represented that his signature is good for
him and Dungo
o ALSO,
DUNGOS
COUNSEL,
ATTY.
MANUEL CHAN WAS PRESENT IN THE
PREPARATION OF THE COMPROMISE
AGREEMENT WHO ALSO SIGNED THE
SAID AGREEMENT

Atty. Chan is the same lawyer who

prepared the ANSWER of Dungo to
the Complaint filed by the sellers

BUT AGAIN:
Another Agreement, TRI-PARTY
AGREEMENT, was entered into, where a payor,
Emma Santos, was included who assumed to pay for
the indebtedness of Dungo and Gonzales. This time
all 4 buyers and sellers, including Dungo signed.

HOWEVER, the lower court based on the 1st

Compromise Agreement granted the Foreclosure
action initiated by Ex-Parte by the sellers because the
buyers failed to pay on the date stated in the 1 st
Compromise Agreement

The 3 parcels of land were sold in an auction sale

Dungo is claiming that the first Compromise

Agreement is void ab initio with respect to him as he
did not sign it
WON: The first Compromise Agreement is void with respect
to Dungo.

HELD: The Compromise Agreement is valid as to Dungo too.

Although an SPA is required in order that 1 may compromise
an interest of another, the absence of an SPA makes the
compromise
merely unenforceable and NOT VOID.
Compromises are also govern by the laws on contracts.
ART.
1403.
The
following
contracts
are
unenforceable, unless they are ratified:
(1) Those entered into in the name of another person
by one who has been given no authority or legal
representation, or who has acted beyond his powers;
Dungo RATIFIED the Compromise Agreement by entering into
the subsequent Tri-Party Agreement
Also, Dungo benefited from the first Compromise Agreement
which extended
Dugo's obligation which matured and
became demandable on October 10, 1959. However, the
compromise agreement extended the date of maturity to June
30, 1960.

GUY-Vicente v. Geraldez, G.R. No.

L-32473, 31 July 1973

Vicente v Geraldez (GEN) July 31, 1973

FACTS:
Hi Cement Corporation acquired a Placer Lease Contract from
Banahaw Shale Mining Association. The lease contract
covered two mining claims over 51 ha of land. Included in the
mining claims were the three parcels of land owned by the
petitioners. On several occasions, the Corporation informed the
petitioners, thru its representatives, of the its acquisition of the
placer mining claims.
Corporation requested the petitioners to allow its workers to
enter their lands to explore and develop the claims, with the
promise to pay the petitioners reasonable amounts. However,
the petitioners refused and threatened the workers with bodily
harm.
Hence, the Corporation filed with the CFI of Bulacan a
complaint for injunction and damages against the petitioners.
The trial court directed the issuance of a writ of injunction and
suggested the relocation of the boundaries of the Corporations
claims in relation to the properties of the petitioners. It named a
Commissioner to conduct a survey plan on relocation and to
submit a report to the court. The trial court also directed the
parties to send their representatives to the place of the survey.
The Commissioners report was approved by the trial court.
In a subsequent amendment of the complaint of the
Corporation, it alleged that the petitioners were willing to sell
their properties for P10/sq.m. but when it offered to pay only
P0.90/sq.m., the petitioners stated that they were wiling to go
to trial on the issue of what would be the reasonable price.
The counsels of the parties conferred among themselves on
the possibility of terminating the case by compromise, as the
defendants were willing to sell the properties at reasonable
prices. Hence, the counsels executed a Compromise
Agreement to determine the prices.
The trial court approved the Agreement and enjoined the

parties to comply with the terms and conditions. Pursuant to

the terms, the counsels of both parties submitted the names of
the persons designated by them as their commissioners. The
trial court later appointed the commissioners.
The Commissioners submitted to the court a Consolidated
Report regarding the applicable unit prices.
However, the Corporations counsel, Attorney. Ventura, filed a
manifestation in Court stating that the Board of Directors did
not approve the Compromise Agreement entered into by the
counsels.
Petitioners filed an answer to Attorney. Venturas manifestation
praying that the court ignore and disregard the manifestation. It
alleged that when the Court inquired if the lawyers of the
Corporation were duly authorized to enter into a compromise
agreement, the lawyers answered in the affirmative.
The trial court rendered a decision upholding the Agreement.
The petitioners then filed a motion for execution which the trial
court granted. However, upon an opposition of the Corporation,
the trial court reversed its decision and set aside the motion for
execution. It held that the Agreement was contrary to law
because the lawyers had no special power of attorney as
required by Art. 1878 of the Civil Code.
ISSUE: WON the Compromise Agreement is valid
HELD: NO. Art. 1878 of the Civil Code and Rule 138, Sec. 23
of the Rules of Court specifically require that a special power of
attorney be had when entering into a compromise agreement.
The Compromise Agreement between the parties was signed
only by the parties respective lawyers but it was not disputed
that the lawyers of the Corporation had not submitted to the
Court any written authority from their client to enter into a
compromise.
Also, it has been held that an officer or an agent of the
corporation has no power to compromise or settle a claim by or
against the corporation, except to the extent that such power is
given to him either expressly or by reasonable implication from
circumstance. It is thus necessary to ascertain whether the
Board of Directors of the Corporation had authorized its
lawyers to enter into the Compromise Agreement.
But as presented by evidence, the counsels categorically deny
that they ever represented to the court that they were
authorized to enter into a compromise. Nowhere does it appear
that the Corporations lawyers ever made such a
representation.
Also, contrary to petitioners claims, Attorney. Cardenas, as
administrative manager of the corporation, did not tacitly ratify
the agreement entered into by the parties. He had no authority
to ratify. It has been held that ratification must be by the officer
or governing body having authority to make such contract, and
must be with full knowledge.
Lastly, the counsels of the Corporation have not demonstrated
any act or declaration of the corporation amounting to false
representation or concealment of material facts calculated to
mislead the petitioners. Hence, the doctrine of estoppel cannot
be used against them.
Petition dismissed.

vii. Other acts of strict dominion

Article 1878(12): Special powers of attorney are necessary

in the following cases:
(12)

To create or convey real rights over immovable

property

HAUTEA-Insular Drug Co. v. Philippine National Bank, 58 Phil.

684 (21 October 1936)

FACTS:
The Insular Drug Co., Inc., is a Philippine corporation with
offices in the City of Manila. U.E. Foerster was formerly a
salesman of drug company for the Islands of Panay and
Negros. Foerster also acted as a collector for the company. He
was instructed to take the checks which came to his hands for
the drug company to the Iloilo branch of the Chartered Bank of
India, Australia and China and deposit the amounts to the
credit of the drug company. Instead, Foerster deposited checks
with the Iloilo branch of the Philippine National Bank. The
checks were in that bank placed in the personal account of
Foerster. Some of the checks were drawn against the Bank of
Philippine National Bank. After the indorsement on the checks
was written "Received payment prior indorsement guaranteed
by Philippine National bank, Iloilo Branch, Angel Padilla,
Manager.

As a consequence of the indorsements on checks the amounts

therein stated were subsequently withdrawn by U. E., Foerster
and Carmen E. de Foerster.

Eventually the Manila office of the drug company investigated

the transactions of Foerster. Upon the discovery of anomalies,
Foerster committed suicide. But there is no evidence showing
that the bank knew that Foerster was misappropriating the
funds of his principal. The Insular Drug Company claims that it
never received the face value of 132 checks here in the
question covering a total of P18,285.92.lawphil.net

The bank argues that the drug company was never defrauded
at all. The drug company saw fit to stand on the proposition
that checks drawn in its favor were improperly and illegally
cashed by the bank for Foerster and placed in his personal
account, thus making it possible for Foerster to defraud the
drug company, and the bank did not try to go back of this
proposition. Not only did the bank permit Foerster to indorse
checks and then place them to his personal account, but it

went farther and permitted Foerster's wife and clerk to indorse

the checks.

ISSUES & HELD:

1. WON, the right of an agent to indorse commercial paper
should be inferred lightly?

NO, The right of an agent to indorse commercial paper is a

very responsible power and will not be lightly inferred. A
salesman with authority to collect money belonging to his
principal does not have the implied authority to indorse checks
received in payment. Any person taking checks made payable
to a corporation, which can act only by agent does so at his
peril, and must same by the consequences if the agent who
indorses the same is without authority.

2. WON, the bank should stand the loss occasioned by the

negligence of its agents?

On May 5, 1980, the respondent Philippine National Railways

(PNR) informed a certain Gaudencio Romualdez that it
has accepted the latters offer to buy, on an AS IS, WHERE
IS basis, the PNRs scrap/unserviceable rails located in Del
Carmen and Lubao, Pampanga at P1,300.00 and P2,100.00
per metric ton, respectively, for the total amount
of P96,600.00. After
paying
the
stated
purchase
price, Romualdez addressed a letter to Atty. Cipriano
Dizon, PNRsActing Purchasing Agent. Bearing date May 26,
1980, the letter reads:
Dear Atty. Dizon:
This is to inform you as President of
San Juanico Enterprises, that I have
authorized the bearer, LIZETTE R. WIJANCO
of No. 1606 Aragon St., Sta. Cruz, Manila, to
be my lawful representative in the withdrawal
of the scrap/unserviceable rails awarded to
me.
For this reason, I have given her
the ORIGINAL
COPY of
the AWARD,
dated May 5, 1980 and O.R. No. 8706855
dated May 20, 1980 which will indicate my
waiver of rights, interests and participation in
favor of LIZETTE R. WIJANCO.
Thank you for your cooperation.
SGD.

YES, hen a bank accepts the indorsements on checks made

out to a drug company of a salesman of the drug company and
the indorsements of the salesman's wife and clerk, and credits
the checks to the personal account of the salesman and his
wife, permitting them to make withdrawals, the bank makes
itself responsible to the drug company for the amounts
represented by the checks, unless it is pleaded and proved that
after the money was withdrawn from the bank, it passed to the
drug company which thus suffered no loss.

a.

Oral v. Written

Articles 1869, 1874

Art. 1874. When a sale of a piece of land or any interest

therein is through an agent, the authority of the latter shall
be in writing; otherwise, the sale shall be void. (n)
Art. 1869. Agency may be express, or implied from the
acts of the principal, from his silence or lack of action, or
his failure to repudiate the agency, knowing that another
person is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific
form. (1710a)

KUNG-Angeles v. PNR, 500 SCRA

444 (2006)

The Lizette R. Wijanco mentioned

in
the
letter
was Lizette Wijanco- Angeles, petitioner's now deceased wife.
That very
same
day
May
26,
1980 Lizette requested the PNR to transfer the location of
withdrawal for the reason that the scrap/unserviceable rails
located in Del Carmen and Lubao, Pampanga were not ready
for
hauling. The PNR
granted
said
request
and
allowed Lizette to
withdraw
scrap/unserviceable
rails in Murcia, Capas and San Miguel, Tarlac instead.
However, thePNR subsequently suspended the withdrawal in
view of what it considered as documentary discrepancies
coupled by reported pilferages of over P500,000.00 worth of
PNR scrap properties in Tarlac. Consequently, the spouses
Angeles demanded the refund of the amount of P96,000.00.
ISSUE: Was the letter of Mr. Romualdez a valid form of a
special power of attorney. Thus, was Lizette Angeles merely an
agent, and not entitled to a refund?
RULING: Yes. A power of attorney is only an instrument in
writing by which a person, as principal, appoints another as his
agent and confers upon him the authority to perform certain
specified acts on behalf of the principal. The written
authorization itself is the power of attorney, and this is clearly
indicated by the fact that it has also been called a letter of
attorney. Its primary purpose is not to define the authority of
the agent as between himself and his principal but to evidence
the authority of the agent to third parties with whom the agent
deals. The letter under consideration is sufficient to constitute a
power of attorney. Except as may be required by statute, a
power of attorney is valid although no notary public intervened
in its execution.
A power of attorney must be strictly construed and
pursued. The instrument will be held to grant only those
powers which are specified therein, and the agent may neither
go
beyond
nor
deviate
from
the
power
of

attorney. Contextually, all that Lizette was authorized to do was

to withdraw the unserviceable/scrap railings.

MAGSUMBOL-Cosmic Lumber v.
CA, G.R. No. 114311 29 November
1996

[G.R. No. 114311. November 29, 1996]

COSMIC LUMBER CORPORATION, petitioner, vs. COURT
OF APPEALS and ISIDRO PEREZ, respondents.
FACTS:
COSMIC LUMBER CORPORATION through its General
Manager executed on 28 January 1985 a Special Power of
Attorney appointing Paz G. Villamil-Estrada as attorney-in-fact
xxx to initiate, institute and file any court action for the
ejectment of third persons and/or squatters of the entire
lot 9127 and 443 and covered by TCT Nos. 37648 and
37649, for the said squatters to remove their houses and
vacate the premises in order that the corporation may
take material possession of the entire lot, and for this
purpose, to appear at the pre-trial conference and enter
into any stipulation of facts and/or compromise
agreement so far as it shall protect the rights and interest
of the corporation in the aforementioned lots.
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of
her power of attorney, instituted an action for the ejectment of
private respondent Isidro Perez and recover the possession of
a portion of Lot No. 443 before the Regional Trial Court of
Dagupan, docketed as Civil Case No. D-7750.
On 25 November 1985 Villamil-Estrada entered into a
Compromise Agreement with respondent Perez, the terms of
which follow:
1. That as per relocation sketch plan dated June
5, 1985 prepared by Engineer Rodolfo dela
Cruz the area at present occupied by
defendant wherein his house is located is 333
square meters on the easternmost part of lot
443 and which portion has been occupied by
defendant for several years now;
2. That to buy peace said defendant pays unto
the plaintiff through herein attorney-in-fact the
sum
of P26,640.00
computed
at P80.00/square meter;
3. That plaintiff hereby recognizes ownership
and possession of the defendant by virtue of
this compromise agreement over said portion
of 333 square m. of lot 443 which portion will
be located on the easternmost part as
indicated in the sketch as annex A;
4.
Whatever
expenses
of
subdivision,
registration, and other incidental expenses
shall be shouldered by the defendant.
On 27 November 1985 the Compromise Agreement
was approved by the trial court and judgment was rendered in
accordance therewith.
Although the decision became final and executory it was
not executed within the 5-year period from date of its finality
allegedly due to the failure of petitioner to produce the owners
duplicate copy of Title No. 37649 needed to segregate from Lot
No. 443 the portion sold by the attorney-in-fact, Paz G. VillamilEstrada, to private respondent under the compromise
agreement. Thus on 25 January 1993 respondent filed a

complaint to revive the judgment, docketed as Civil Case No.

D-10459.
Petitioner asserts that it was only when the summons in
Civil Case No. D-10459 for the revival of judgment was served
upon it that it came to know of the compromise agreement
entered into between Paz G. Villamil-Estrada and respondent
Isidro Perez upon which the trial court based its decision of 26
July 1993 in Civil Case No. D-7750. Forthwith, upon learning
of the fraudulent transaction, petitioner sought annulment of
the decision of the trial court.
ISSUES:
WON the compromise agreement is void? WON Attorney-infact Villamil-Estrada possess the authority to sell or was she
armed with a Board Resolution authorizing the sale of its
property?
HELD:
The court agrees with the petitioner.
The authority granted Villamil-Estrada under the special
power of attorney was explicit and exclusionary: for her to
institute any action in court to eject all persons found on Lots
Nos. 9127 and 443 so that petitioner could take material
possession thereof, and for this purpose, to appear at the pretrial and enter into any stipulation of facts and/or compromise
agreement but only insofar as this was protective of the rights
and interests of petitioner in the property. Nowhere in this
authorization was Villamil-Estrada granted expressly or
impliedly any power to sell the subject property nor a portion
thereof. Neither can a conferment of the power to sell be
validly inferred from the specific authority to enter into a
compromise agreement because of the explicit limitation fixed
by the grantor that the compromise entered into shall only
be so far as it shall protect the rights and interest of the
corporation in the aforementioned lots. In the context of the
specific investiture of powers to Villamil-Estrada, alienation by
sale of an immovable certainly cannot be deemed protective of
the right of petitioner to physically possess the same, more so
when the land was being sold for a price of P80.00 per square
meter, very much less than its assessed value of P250.00 per
square meter, and considering further that petitioner never
received the proceeds of the sale.
When the sale of a piece of land or any interest thereon is
through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void. Thus the authority of an agent
to execute a contract for the sale of real estate must be
conferred in writing and must give him specific authority, either
to conduct the general business of the principal or to execute a
binding contract containing terms and conditions which are in
the contract he did execute. A special power of attorney is
necessary to enter into any contract by which the ownership of
an immovable is transmitted or acquired either gratuitously or
for a valuable consideration. The express mandate required by
law to enable an appointee of an agency (couched) in general
terms to sell must be one that expressly mentions a sale or that
includes a sale as a necessary ingredient of the act
mentioned. For the principal to confer the right upon an agent
to sell real estate, a power of attorney must so express the
powers of the agent in clear and unmistakable
language. When there is any reasonable doubt that the
language so used conveys such power, no such construction
shall be given the document.
It is therefore clear that by selling to respondent Perez a
portion of petitioners land through a compromise agreement,
Villamil-Estrada acted without or in obvious authority. The
sale ipso jure is consequently void. So is the compromise
agreement. This being the case, the judgment based thereon
is necessarily void. Antipodal to the opinion expressed by
respondent court in resolving petitioners motion for

reconsideration, the nullity of the settlement between VillamilEstrada and Perez impaired the jurisdiction of the trial court to
render its decision based on the compromise agreement.

MANALAYSAY-Rizalino v. Paraiso
Development, G.R. No. 157493, 5
February 2007

1.

2.
3.

4.

The 8 Petitioners (Rizalino, Ernesto, Leonora, Bibiano,

Librado, Enriqueta, Adolfo, and Jesus) all surnamed
Oesmer, are brothers and sisters, and co-owners of
undivided shares of 2 parcels of agricultural and tenanted
land situated in Cavite.
Both lots are unregistered and originally owned by their
parents. Petitioners acquired the lots as heirs.
Respondent Paraiso Development Corporation is engaged
in the real estate business. One day, one Rogelio Paular
brought along petitioner Ernesto to meet with a certain
Sotero Lee, President of respondent corporation, for the
purpose of brokering the sale of petitioners properties.
A Contract to Sell was drafted. Petitioners Ernesto and
Enriqueta signed the aforesaid Contract to Sell. A check in
the amount of P100,000.00, payable to Ernesto, was given
as option money. Sometime thereafter, Rizalino, Leonora,
Bibiano, Jr., and Librado also signed the said Contract to
Sell. However, 2 of the brothers, Adolfo and Jesus, did not
sign.

5.

In a letter, petitioners informed the respondent of their

intention to rescind the Contract and to return the option
money given by respondent (latter did not respond)

6.

Herein petitioners, filed a Complaint for Declaration of

Nullity or for Annulment of Option Agreement or Contract
to Sell with Damages before RTC.

7.

RTC in favor of the respondent: The assailed Contract to

Sell is valid and binding only to the undivided
proportionate share of the signatory of this document and
recipient of the check, [herein petitioner] co-owner Ernesto
Durumpili Oesmer. The latter is hereby ordered to execute
the Contract of Absolute Sale concerning his 1/8 share
over the subject two parcels of land in favor of herein
[respondent] corporation, and to pay the latter the
attorneys fees in the sum of Ten Thousand (P10,000.00)
Pesos plus costs of suit.

8.

CA declared that the Contract to Sell is valid and binding

with respect to the undivided proportionate shares of the
six signatories of the said document, herein petitioners,
namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr.,
and Leonora (all surnamed Oesmer).

9.

MR of petitioners DENIED. Hence, this Petition for Review

on Certiorari.

ISSUES: WON Contract to Sell is not binding upon petitioner

Ernestos co-owners (herein petitioners Enriqueta, Librado,
Rizalino, Bibiano, Jr., and Leonora) - NO
HELD: The Petition is bereft of merit.

It is true that the signatures of the 5 petitioners (Enriqueta,

Librado, Rizalino, Bibiano, and Leonora) on the Contract
to Sell did not confer authority on petitioner Ernesto as
agent authorized to sell their respective shares in the
questioned properties because of Article 1874 of the Civil
Code, which expressly provides that: Art. 1874. When a
sale of a piece of land or any interest is through an agent,
the authority of the latter shall be in writing; otherwise, sale
shall be void.
The law itself explicitly requires a written authority
before an agent can sell an immovable. The conferment
of such an authority should be in writing, in as clear and
precise terms as possible. It is worth noting that
petitioners signatures are found in the Contract to Sell.
The Contract is absolutely silent on the establishment of
any principal-agent relationship between the five
petitioners and their brother and co-petitioner Ernesto as
to the sale of the subject parcels of land. Thus, the
Contract to Sell, although signed on the margin by the
five petitioners, is not sufficient to confer authority on
petitioner Ernesto to act as their agent in selling their
shares in the properties in question.

However, despite petitioner Ernestos lack of written

authority from the five petitioners to sell their shares
in the subject parcels of land, the supposed Contract
to Sell remains valid and binding upon the latter.

As can be clearly gleaned from the contract itself, it is

not only petitioner Ernesto who signed the said
Contract to Sell; the other five petitioners also
personally affixed their signatures thereon. Therefore,
a written authority is no longer necessary in order to
sell their shares in the subject parcels of land
because, by affixing their signatures on the Contract
to Sell, they were not selling their shares through an
agent but, rather, they were selling the same directly
and in their own right.

In the case, the Contract to Sell was perfected when the

petitioners consented to the sale to the respondent of their
shares in the subject parcels of land by affixing their
signatures on the said contract. Such signatures show
their acceptance of what has been stipulated in the
Contract to Sell and such acceptance was made known to
respondent corporation when the duplicate copy of the
Contract to Sell was returned to the latter bearing
petitioners signatures.

As to petitioner Enriquetas claim that she merely signed

as a witness to the said contract, the contract itself does
not say so. Emphasis should also be given to the fact that
petitioners Ernesto and Enriqueta concurrently signed the
Contract to Sell. With respect to the other petitioners
assertion that they did not understand the consequences
of their action because of their low degree of education
and because the contents were not explained to them, the
same cannot be sustained.

As the Court has held: x x x The rule that one who signs a
contract is presumed to know its contents has been
applied even to contracts of illiterate persons on the
ground that if such persons are unable to read, they are
negligent if they fail to have the contract read to them. If a
person cannot read the instrument, it is as much his duty
to procure some reliable persons to read and explain it to
him, before he signs it, as it would be to read it before he
signed it if he were able to do and his failure to obtain a
reading and explanation of it is such gross negligence as

will estop from avoiding it on the ground that he was

ignorant of its contents."

In addition, the petitioners, being owners of their

respective undivided shares in the subject properties, can
dispose of their shares even without the consent of all the
co-heirs (Article 493) Consequently, even without the
consent of the two co-heirs, Adolfo and Jesus, the
Contract to Sell is still valid and binding with respect
to the 6/8 proportionate shares of the petitioners, as
properly held by the appellate court.

The final arguments of petitioners state that the Contract

to Sell is void altogether considering that respondent itself
did not sign it as to indicate its consent to be bound by its
terms; and the Contract is really a unilateral promise to sell
without consideration distinct from the price, and again,
void. Said arguments must fail. The Contract to Sell is
not void merely because it does not bear the signature
of
the
respondent
corporation.
Respondent
corporations consent to be bound by the terms of the
contract is shown when partial performance by respondent
of its obligation. The sum of P100,000.00 was part of the
purchase price. Although the same was denominated as
"option money," it is actually earnest money or down
payment.

DISPOSITIVE: Petition is DENIED, and the Decision of

CA are AFFIRMED, thus, (a) the Contract to Sell is
DECLARED valid and binding with respect to the
undivided proportionate shares in the subject parcels of
land of the six signatories (petitioners) (b) respondent
is ORDERED to tender payment to petitioners; and (c)
petitioners are further ORDERED to execute in favor of
respondent the Deed of Absolute Sale.

PEREZ-PABALAN-San
Juan
Structural Steel v. CA, 296 SCRA
631
Facts:
San Juan Structural and Steel Fabricators entered into an
agreement with Motorich Sales Corporation through Nenita
Gruenberg, corporate treasurer of Motorich, for the transfer to
the former a parcel of land upon a P100,000 earnest money,
balance to be payable within March 2, 1989. Upon payment of
the earnest money, and on March 1, 1989, San Juan allegedly
asked to be submitted a computation of the balance due to
Motorich. The latter, despite repeated demands, refused to
execute the Deed of Assignment of the land. San Juan
discovered that Motorich entered into a Deed of Absolute Sale
of the land to ACL Development Corporation. Hence, San
Juan
filed
a
complaint
with
the
RTC.
On the other hand, Motorich contends that since Nenita
Gruenberg was only the treasurer of said corporation, and that
its president, Reynaldo Gruenberg, did not sign the agreement
entered into by San Juan and Motorich, the treasurers
signature was inadequate to bind Motorich to the agreement.
Furthermore, Nenita contended that since San Juan was not
able to pay within the stipulated period, no deed of assignment
could be made. The deed was agreed to be executed only
after receipt of the cash payment, and since according to
Nenita, no cash payment was made on the due date, no deed
could
have
been
executed.
RTC dismissed the case holding that Nenita Gruenberg was
not authorized by Motorich to enter into said contract with San
Juan, and that a majority vote of the BoD was necessary to sell

assets of the corporation in accordance with Sec. 40 of the

Corporation Code. CA affirmed this decision. Hence, this
petition with SC.
Issues:
(1) Whether or not there was a valid contract existing
between
San
Juan
and
Motorich.
(2) Whether or not the veil of corporate fiction could be
pierced.
Held:
(1) No. The contract entered into between Nenita and San
Juan cannot bind Motorich, because the latter never authorized
nor ratified such sale. A corporation is a juridical person
separate and distinct from its stockholders or members.
Accordingly, the property of the corporation is not the property
of its stockholders and may not be sold by them without
express authorization from the corporations BoD. This is in
accordance with Sec. 23 of the Corporation Code.
Indubitably, a corporation can only act through its BoD or,
when authorized either by its by laws or by its board resolution,
through its officers or agents in the normal course of business.
The general principles of agency govern the relation between
the corporation and its officers or agents, subject to the AoI, by
laws, or relevant provisions of law. A corporate officer or agent
may represent and bind the corporation in transactions with
3rd persons to the extent that the authority to do so has been
conferred upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the usual
course of the particular business, are incidental to, or may be
implied from, the powers intentionally conferred, powers added
by custom and usage, as usually pertaining to the particular
officer or agent, and such apparent powers as the corporation
has caused persons dealing with the officer or agent to believe
that it has conferred. Furthermore, 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 liable, to ascertain not only the fact of agency but also
the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it.
Unless duly authorized, a treasurer, whose powers are limited,
cannot bind the corporation in a sale of its assets.
In the case at bar, San Juan had the responsibility of
ascertaining the extent of Nenitas authority to represent the
corporation. Selling is obviously foreign to a corporate
treasurers function. Neither was real estate sale shown to be
a normal business activity of Motorich. The primary purpose of
said corporation is marketing, distribution, import and export
relating to a general merchandising business. Unmistakably,
its treasurer is not cloaked with actual or apparent authority to
buy or sell real property, an activity which falls way beyond the
scope
of
her
general
authority.
Acts of corporate officers within the scope of their authority are
binding on the corporation. But when these officers exceed
their authority, their actions cannot bind the corporation, unless
it has ratified such acts or is estopped from disclaiming them.
(2) No. San Juan argues that the veil of corporate fiction
should be pierced because the spouses Reynaldo and Nenita
Gruenberg own 99.96% of the subscribed capital stock, they
needed no authorization from the BoD to enter into the said
contract.
The veil can only be disregarded when it is utilized as a shield
to commit fraud, illegality or inequity, defeat public
convenience, confuse legitimate issues, or serve as a mere
alter ego or business conduit of a person or an instrumentality,
agency or adjunct of another corporation. Hence, the question
of piercing the veil becomes a matter of proof. In the case at
bar, SC found no reason to pierce the veil. San Juan failed to

establish that said corporation was formed for the purpose of

shielding any fraudulent act of its officers and stockholders.

HELD:
NO to both issues.
-

SC agrees with the CA. Renato Gabriel was neither

the owner of the subject property nor a duly
designated agent of the registered owner (his father)
authorized to sell property on his behalf.

There is also no sufficient evidence his father ratified

Renatos act.

As per Article 1874 of the Civil Code, when a sale of a

piece of land or any interest there in is through an
agent, the authority of the latter shall be in wiriting,
otherwise the sale shall be void. In other words,
Renato did not have one of the essential requisites for
a contracts validity which is CAPACITY (as per Article
1318)

Renato could not have been the owner through

succession because his father donate dthe entire lot
to his sister, making it impossible to be passed on to
him.

TABAG-Delos Reyes v. CA, 313

SCRA 632
FACTS:
-

Petioners Claudio Delos Reyes and Lydia Delos

Reyes were buyers in a contract of sale of land, which
is subject of the controversy

Respondent CA and Daluyong Gabriel (later

substituted by his heirs through hereditary
succession) are the owners of the land in question

The land is located in Barrio Magugpo, Tagum, Davao

Del Norte

When Daluyong Gabriel was still alive, he placed his

sister Maria Rita Gabriel Del Ray as administratrix of
the land because he was based in Metro Manila.

As administratrix, Maria Rita executed a Contract of

Lease with the petitioner spouses Delos Reyes (1
year renewable lease).

In 1985, Daluyong sent his son Renato Gabriel to take

over for Maria Rita. The original contract of lease was
novated replaced by a new contract with a 6 year
duration (lessee: the Delos Reyes and lessor: Renato
Gabriel).

In 1987, Lydia Delos Reyes VERBALLY agreed to

buy 300 sq m (including the lot she was leasing) for
90,000 pesos. Payment was received and
acknowledged by Renato Gabriel.

Renatos sister Maria Luisa Gabriel Esteban (also a

respondent in this case), found out that the spouses
Delos Reyes were building a 2 story structure in the
lot.
Daluyong Gabriel then demanded that the
spouses Delos Reyes cease and desist from doing
so. He claimed that his son Renato was never given
the authority to lease or to sell any portion of his land,
he merely wanted Renato to collect rentals.

As a defense, the Delos Reyes claimed that Daluyong

and his wife were aware of the sale and it was done
with their consent and knowledge.

TC ruled in favor of the Delos Reyes, ordering the

Gabriels to execute a deed of conveyance. However,
the CA reversed, ordering the Delos Reyes to
immediately vacate the premises.

ISSUE:
W/N the verbal agreement which petitioners entered into with
private respondents Renatto Gabriel involving the sale of the
300 sq m land registered in Daluyong Gabriels name is a valid
and enforceable contract of sale of real property?
W/N Renato Gabriel as the purported vendor, had legal
capacity to enter into or to give consent to the sale?

YAP-AF Realty v. Dieselman, 373

SCRA 385
Dieselman Corporation owns a parcel of commercial lot in
Pasig. Cruz, Jr., a member of the board of directors of
Dieselman, issued a letter denominated as "Authority To Sell
Real Estate" to Polintan, a real estate broker.
Cruz, Jr. authorized Polintan "to look for a buyer/buyers and
negotiate the sale" of the lot. Cruz, Jr. has no written authority
from Dieselman to sell the lot. Polintan authorized Felicisima to
sell the same lot.
Felicisima then offered for sale the property to AF Realty.
Ranullo, board member and vice-president of AF Realty,
accepted the offer and issued a check in the amount of
P300,000.00 payable to the order of Dieselman. Polintan
received the check and signed an "Acknowledgement Receipt"
Cruz, Sr., president of Dieselman, acknowledged receipt of the
said P300,000.00 as "earnest money" but required AF Realty
to finalize the sale at a higher price. AF Realty replied that it
has paid an initial down payment of P300,000.00 and is willing
to pay the balance.
However, Cruz, Sr. terminated the offer and demanded from
AF Realty the return of the title of the lot earlier delivered by
Polintan. Claiming that there was a perfected contract of sale
between them, AF Realty filed a complaint. Meanwhile,
Dieselman and Midas executed a Deed of Absolute Sale of the
same property.
CA reversed the judgment of the trial court holding that since
Cruz, Jr. was not authorized in writing by Dieselman to sell the
subject property to AF Realty, the sale was not perfected;
Issue: WON AF Realty has better right to the subject lot.
Ruling: No.
From the foregoing scenario, the fact that the board of
directors of Dieselman never authorized, verbally and in
writing, Cruz, Jr. to sell the property in question or to look
for buyers and negotiate the sale of the subject property

is undeniable.

Art. 1892. The agent may appoint a substitute if the

principal has not prohibited him from doing so; but he
shall be responsible for the acts of the substitute:

"While Polintan was actually authorized by Cruz, Jr. to

look for buyers and negotiate the sale of the subject
property, it should be noted that Cruz, Jr. could not confer
on Polintan any authority which he himself did not have.
Nemo dat quod non habet. In the same manner,
Felicisima could not have possessed authority broader in
scope, being a mere extension of Polintans purported
authority, for it is a legal truism in our jurisdiction that a
spring cannot rise higher than its source. Succinctly
stated, the alleged sale of the subject property was
effected through persons who were absolutely without
any authority whatsoever from Dieselman.

(1) When he was not given the power to appoint

one;
(2) When he was given such power, but without
designating the person, and the person appointed
was notoriously incompetent or insolvent.
All acts of the substitute appointed against the prohibition
of the principal shall be void. (1721)

"The argument that Dieselman ratified the contract by

accepting the P300,000.00 as partial payment of the
purchase price of the subject property is equally
untenable. The sale of land through an agent without any
written authority is void.
In the instant case, it is undisputed that respondent Cruz, Jr.
has no written authority from the board of directors of
respondent Dieselman to sell or to negotiate the sale of the lot,
much less to appoint other persons for the same purpose.

Pertinently, Article 1874 of the same Code provides:

ART. 1874.
When a sale of piece of land
or any interest therein is through an agent, the
authority of the latter shall be in writing;
otherwise, the sale shall be void.

(13)

Other rights of agents

i.

Lend to/Borrow Money

Agency

from

the

Article 1890
Art. 1890. If the agent has been
empowered to borrow money, he may
himself be the lender at the current
rate of interest. If he has been
authorized to lend money at interest,
he cannot borrow it without the
consent of the principal. (n)

ii.

Appoint a substitute

Articles 1892 to 1893

Art. 1893. In the cases mentioned in Nos. 1 and 2 of the

preceding article, the principal may furthermore bring an
action against the substitute with respect to the
obligations which the latter has contracted under the
substitution. (1722a)

BISNAR-Baltazar v. Ombudsman, G.R. No. 136433, 6

December 2006
Source: http://www.scribd.com/doc/41988474/Case-No-4Baltazar-v-Ombudsman
FACTS:
Paciencia Regala owns a seven (7)-hectare fishpond located at
Sasmuan, Pampanga. Her Attorney-in-Fact Faustino R.
Mercado leased the fishpond to Eduardo Lapid for a three (3)year period. Lessee Eduardo Lapid in turn sub-leased the
fishpond to Rafael Lopez during the last seven (7) months of
the original lease. Ernesto Salenga was hired by Eduardo
Lapid as fishpond watchman (bante-encargado). In the sublease,
Rafael
Lopez
rehired
respondent
Salenga.
ErnestoSalenga, sent the demand letter to Rafael Lopez and
Lourdes Lapid for unpaid salaries and non-payment of the 10%
share in the harvest. Salenga was prompted to file a Complaint
before the Provincial Agrarian Reform
Adjudication
Board
(PARAB), Region III, San Fernando, Pampanga docketed as
DARAB Case No. 552-P93 entitled Ernesto R. Salenga v.
Rafael L. Lopez and Lourdes L. Lapid for Maintenance of
Peaceful Possession, Collection of Sum of Money and
Supervision of Harvest.
Pending resolution of the agrarian case, the instant case was
instituted by petitioner Antonio Baltazar, an alleged
nephew of Faustino Mercado, through a Complaint-Affidavit
against private
respondents
before the Office of the
Ombudsman which was docketed as OMB-1-94-3425 entitled
Antonio B. Baltazar v. Eulogio Mariano, Jose Jimenez,
Jr.,Toribio Ilao, Jr. and Ernesto Salenga for violation of RA
3019. Petitioner maintains that
respondent Ilao,
Jr. had
no jurisdiction to hear and act on DARAB Case No. 552-P93
filed by respondent Salenga as there was no tenancy relation
between respondent Salenga and Rafael L. Lopez, and thus,
the complaint was dismissible on its face.
ISSUE:

Whether or not the petitioner has legal standing to

pursue the instant petition?

Whether or not the Ombudsman likewise erred in

reversing his own resolution where it was resolved
that accused as Provincial Agrarian Adjudicator has
no jurisdiction over a complaint where there exist no
tenancy relationship?

HELD:
The "real-party-in interest" is "the party who stands to be
benefited or injured by the judgment in the suit or the party
entitled to the avails of the suit. The Complaint-Affidavit filed
before the Office of the Ombudsman, there is no question on
his authority and legal standing. The Ombudsman can act on
anonymous complaints and motu proprio inquire into alleged
improper official acts or omissions from whatever source, e.g.,
a newspaper.
Faustino Mercado, is an agent himself and as such cannot
further delegate his agency to another. An agent cannot
delegate to another the same agency. Re-delegation of the
agency would be detrimental to the principal as the second
agent has no privity of contract with the former. In the instant
case, petitioner has no privity of contract with Paciencia
Regala, owner of the fishpond and principal of Faustino
Mercado.
The facts clearly show that it was not the Ombudsman through
the OSP who allowed respondent Ilao, Jr. to submit his
Counter-Affidavit. It was the Sandiganbayan who granted the
prayed for re-investigation and ordered the OSP to conduct
the re-investigation . The OSP simply followed the graft courts
directive to conduct the re-investigation after the CounterAffidavit of respondent Ilao, Jr. was filed. Indeed, petitioner did
not contest nor question the August 29,1997 Order of the graft
court. Moreover, petitioner did not file any reply-affidavit in the
re-investigation despite notice.
The nature of the case is determined by the settled rule that
jurisdiction over the subject matter is determined by the
allegations of the complaint. The nature of an action is
determined by the material averments in the complaint and the
character of the relief sought not by the defenses asserted in
the answer or motion to dismiss.
Respondent Salengas complaint and its attachment clearly
spells out the jurisdictional allegations that he is an agricultural
tenant in possession of the fishpond and is about to be ejected
from it, clearly, respondent Ilao, Jr. could not be faulted in
assuming jurisdiction as said allegations characterize an
agricultural dispute. Besides, whatever defense asserted in an
answer or motion to dismiss is not to be considered in
resolving the issue on jurisdiction as it cannot be made
dependent upon the allegations of the defendant.
WHEREFORE, the instant petition is DENIED for lack of merit,
and the Order and the October 30, 1998 Memorandum of the
Office of the Special Prosecutor in Criminal Case No. 23661
(OMB-1-94-3425) are hereby AFFIRMED IN TOTO, with costs
against petitioner.

BOMBALES-Serona
November 2002
Facts:

v.

People,

G.R.

No.

130423,

18

In July 1992 Leonida Quilatan delivered pieces

of jewelry to petitioner Virgie Serona to be sold
on commission basis.
o By oral agreement of the parties,
petitioner shall remit payment or return
the pieces of jewelry if not sold to
Quilatan, both within 30 days from
receipt of the items.

But upon petitioners failure to pay on

September 1992, Quilatan then required her to
execute an acknowledgment receipt indicating
their agreement and the total amount due of
P567, 750 signed by petitioner and a witness,
Rufina G. Navarette.

Unknown to Quilatan, petitioner had earlier

entrusted the jewelry to one Marichu Labrador
for the latter to sell on commission basis. And
since she was not able to collect payment from
Labrador, she likewise fail to pay her obligation
to Quilatan.

Subsequently, Quilatan, through counsel, sent a

formal letter of demand to petitioner for failure to
settle her obligation. Quilatan executed a
complaint affidavit against petitioner before the
Office of the Assistant Provincial Prosecutor.

Petitioner pleaded not guilty to the charge upon

arraignment.
o Petitioner admitted that she received
several pieces of jewelry from Quilatan
and that she indeed failed to pay for the
same.
o She claimed that she entrusted the
pieces of jewelry to Marichu Labrador
who failed to pay her thereby causing
her to default in paying Quilatan

Marichu Labrador on the other hand confirmed

that she received pieces of jewelry from
petitioner worth P441,035.00.
o She identified an acknowledgment
receipt and testified that she sold the
jewelry to a person who absconded
without paying her.

RTC rendered a decision finding petitioner guilty

of estafa, which was eventually affirmed by CA

Petitioner argues that the prosecution failed to

establish the elements of estafa for she did not
abused the confidence reposed to her by
Quilatan nor converted or misappropriated the
jewelries.
o And that the giving of the jewelries to a
sub-agent (Labrador) for sale on
commission basis did not violated her
undertaking to Quilatan because it was
under the same terms.
Issue: W/N CA erred in its decision
Ruling:YES, SC finds merit in the petition

Petitioner did not ipso facto commit the crime

of estafa through conversion or misappropriation by
delivering the jewelry to a sub-agent for sale on
commission basis. SC does not agree with the lower
courts conclusion that this fact alone is sufficient
ground for holding that petitioner disposed of the
jewelry as if it were hers, thereby committing
conversion and a clear breach of trust.

It must be pointed out that the law on agency allows

the appointment by an agent of a substitute or subagent in the absence of an express agreement to the
contrary between the agent and the principal
o In the case at bar, the appointment of
Labrador as petitioners sub-agent was not
expressly prohibited by Quilatan, as the
acknowledgment receipt does not contain
any such limitation.
o Neither does it appear that petitioner was
verbally forbidden by Quilatan from passing

on the jewelry to another person before the

acknowledgment receipt was executed or at
any other time.
Thus, it cannot be said that petitioners act of
entrusting the jewelry to Labrador is
characterized by abuse of confidence
because such an act was not proscribed and
is, in fact, legally sanctioned.

iii.

Retain in pledge objects of the

agency

Articles 1912 to 1914

Art. 1912. The principal must advance to the agent, should
the latter so request, the sums necessary for the execution
of the agency.
Should the agent have advanced them, the principal must
reimburse him therefor, even if the business or
undertaking was not successful, provided the agent is free
from all fault.

ii.

Act within scope of authority

Articles 1879 to 1882, 1887

Art. 1879. A special power to sell excludes the power to

mortgage; and a special power to mortgage does not
include the power to sell. (n)
Art. 1880. A special power to compromise does not
authorize submission to arbitration. (1713a)
Art. 1881. The agent must act within the scope of his
authority. He may do such acts as may be conducive to
the accomplishment of the purpose of the agency. (1714a)
Art. 1882. The limits of the agent's authority shall not be
considered exceeded should it have been performed in a
manner more advantageous to the principal than that
specified by him. (1715)
Art. 1887. In the execution of the agency, the agent shall
act in accordance with the instructions of the principal.

iii.

Carry out agency Articles 1884,

1928, 1929

The reimbursement shall include interest on the sums

advanced, from the day on which the advance was made.
(1728)

Art. 1884. The agent is bound by his acceptance to carry

out the agency, and is liable for the damages which,
through his non-performance, the principal may suffer.

Art. 1913. The principal must also indemnify the agent for
all the damages which the execution of the agency may
have caused the latter, without fault or negligence on his
part. (1729)

He must also finish the business already begun on the

death of the principal, should delay entail any danger.
(1718)

Art. 1914. The agent may retain in pledge the things which
are the object of the agency until the principal effects the
reimbursement and pays the indemnity set forth in the two
preceding articles. (1730)

(14)

Obligations of agents

i.

As regards 3rd persons Article

1900

Art. 1900. So far as third persons are concerned, an act is

deemed to have been performed within the scope of the
agent's authority, if such act is within the terms of the
power of attorney, as written, even if the agent has in fact
exceeded the limits of his authority according to an
understanding between the principal and the agent. (n)

Art. 1928. The agent may withdraw from the agency by

giving due notice to the principal. If the latter should suffer
any damage by reason of the withdrawal, the agent must
indemnify him therefor, unless the agent should base his
withdrawal upon the impossibility of continuing the
performance of the agency without grave detriment to
himself. (1736a)
Art. 1929. The agent, even if he should withdraw from the
agency for a valid reason, must continue to act until the
principal has had reasonable opportunity to take the
necessary steps to meet the situation. (1737a)

iv.

Not to carry out agency Article

1888

Art. 1888. An agent shall not carry out an agency if its

execution would manifestly result in loss or damage to the
principal. (n)

v.

Loyalty Articles 1889 to 1890,

1491

Art. 1889. The agent shall be liable for damages if, there
being a conflict between his interests and those of the
principal, he should prefer his own. (n)
Art. 1890. If the agent has been empowered to borrow
money, he may himself be the lender at the current rate of
interest. If he has been authorized to lend money at
interest, he cannot borrow it without the consent of the
principal. (n)

Art. 1909. The agent is responsible not only for

fraud, but also for negligence, which shall be
judged with more or less rigor by the courts,
according to whether the agency was or was not
for a compensation. (1726)

vii.

Account/deliver Article 1891

Art. 1491. The following persons cannot acquire by

purchase, even at a public or judicial auction, either in
person or through the mediation of another:
(1) The guardian, the property of the person or
persons who may be under his guardianship;

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.

(2) Agents, the property whose administration or

sale may have been entrusted to them, unless the
consent of the principal has been given;

Every stipulation exempting the agent from the obligation

to render an account shall be void. (1720a)

(3) Executors and administrators, the property of

the estate under administration;
(4) Public officers and employees, the property of
the State or of any subdivision thereof, or of any
government-owned or controlled corporation, or
institution, the administration of which has been
intrusted to them; this provision shall apply to
judges and government experts who, in any
manner whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks
of superior and inferior courts, and other officers
and employees connected with the administration
of justice, the property and rights in litigation or
levied upon an execution before the court within
whose jurisdiction or territory they exercise their
respective functions; this prohibition includes the
act of acquiring by assignment and shall apply to
lawyers, with respect to the property and rights
which may be the object of any litigation in which
they may take part by virtue of their profession.
(6) Any others specially disqualified by law.
(1459a)

vi.

Diligence Articles 1885, 1887,

1909

Art. 1885. In case a person declines an agency, he

is bound to observe the diligence of a good father
of a family in the custody and preservation of the
goods forwarded to him by the owner until the
latter should appoint an agent or take charge of
the goods. (n)

viii.

Art. 1894. The responsibility of two or more agents, even

though they have been appointed simultaneously, is not
solidary, if solidarity has not been expressly stipulated.
(1723)
Art. 1895. If solidarity has been agreed upon, each of the
agents is responsible for the non-fulfillment of agency,
and for the fault or negligence of his fellows agents,
except in the latter case when the fellow agents acted
beyond the scope of their authority. (n)

ix.

Pay interest Article 1896

Art. 1896. The agent owes interest on the sums he has

applied to his own use from the day on which he did so,
and on those which he still owes after the extinguishment
of the agency. (1724a)

x.

Fraud; negligence Article 1909

Art. 1909. The agent is responsible not only for fraud, but
also for negligence, which shall be judged with more or
less rigor by the courts, according to whether the agency
was or was not for a compensation. (1726)

xi.
Art. 1887. In the execution of the agency, the
agent shall act in accordance with the instructions
of the principal.

Solidary liability Articles 1894 to

1895

Specific
obligations
of
commission agents Articles
1903 to 1908

Art. 1903. The commission agent shall be responsible for

the goods received by him in the terms and conditions and

as described in the consignment, unless upon receiving

them he should make a written statement of the damage
and deterioration suffered by the same. (n)
Art. 1904. The commission agent who handles goods of
the same kind and mark, which belong to different owners,
shall distinguish them by countermarks, and designate the
merchandise respectively belonging to each principal. (n)
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. (n)
Art. 1906. Should the commission agent, with authority of
the principal, sell on credit, he shall so inform the
principal, with a statement of the names of the buyers.
Should he fail to do so, the sale shall be deemed to have
been made for cash insofar as the principal is concerned.
(n)

Art. 1907. Should the commission agent receive on a sale,

in addition to the ordinary commission, another called a
guarantee commission, he shall bear the risk of collection
and shall pay the principal the proceeds of the sale on the
same terms agreed upon with the purchaser. (n)
Art. 1908. The commission agent who does not collect the
credits of his principal at the time when they become due
and demandable shall be liable for damages, unless he
proves that he exercised due diligence for that purpose.
(n)

xii.

Advance Funds Article 1886

Art. 1886. Should there be a stipulation that the agent shall

advance the necessary funds, he shall be bound to do so
except when the principal is insolvent. (n)

xiii.

Art. 1544. If the same thing should have been sold to

different vendees, the ownership shall be transferred to
the person who may have first taken possession thereof in
good faith, if it should be movable property.
Should it be immovable property, the ownership shall
belong to the person acquiring it who in good faith first
recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain
to the person who in good faith was first in the
possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith.
(1473)

CHING-Austria v. CA, 39 SCRA 527

FACTS: On Jan. 30, 1961, Austria gave Abad a pendant with
diamonds to be sold on commission basis or be returned on
demand. Feb. 1, 1961, Abad was robbed while walking home
to her residence in Mandaluyong. This robbery became the
subject of a pending criminal action. As Abad will be unable to
return/sell the pendant, Austria filed a complaint against Abad
and her husband for the value of the pendant plus damages.
ISSUE: W/N the spouses Abad are liable for the lost pendant
to Austria.
HELD: No. The defense of the Spouses Abad of fortuitous
event is tenable as all of the elements are present.
The contention of Austria that Abad committed contributory
negligence, as she went home alone after nightfall in an area
where there is high incidence of crimes, that resulted to the
loss was not admitted by the court. Because in 1961,
criminality in had not by far reached the levels attained during
1971. (date of decision)
Also, it was contended by Austria that conviction of the pending
criminal case is needed for Abads obligation over the pendant
to be extinguished. The court ruled that conviction is not
needed, because only preponderant evidence is needed in
civil cases, and in requiring conviction of the criminal case
would mean that for Abad to extinguish her liability, she would
need proof beyond reasonable doubt.

Double Sales Articles 1916 to

1917, 1544

Art. 1916. When two persons contract with regard to the

same thing, one of them with the agent and the other with
the principal, and the two contracts are incompatible with
each other, that of prior date shall be preferred, without
prejudice to the provisions of Article 1544. (n)

Art. 1917. In the case referred to in the preceding article, if

the agent has acted in good faith, the principal shall be
liable in damages to the third person whose contract must
be rejected. If the agent acted in bad faith, he alone shall
be responsible. (n)

FERNANDEZ-PNB v. Manila Surety, 14 SCRA

776

PNB vs manila surety

The Philippine National Bank had opened a letter of credit and
advanced thereon $120,000.00 to Edgington Oil Refinery for
8,000 tons of hot asphalt. Of this amount, 2,000 tons worth
P279,000.00 were released and delivered to Adams & Taguba
Corporation (known as ATACO) under a trust receipt
guaranteed by Manila Surety & Fidelity Co. up to the amount of
P75,000.00. To pay for the asphalt, ATACO constituted the

Bank its assignee and attorney-in-fact to receive and collect

from the Bureau of Public Works the amount aforesaid out of
funds payable to the assignor under Purchase Order No.
71947. This assignment (Exhibit "A") stipulated that:
The conditions of this assignment are as follows:

exonerated the surety, pursuant to Article 2080 of the Civil

Code:
ART. 2080. The guarantors, even though they be solidary,
are released from their obligation whenever by come act of the
creditor they cannot be subrogated to the rights, mortgages
and preferences of the latter. (Emphasis supplied

1. The same shall remain irrevocable until the said

credit accomodation is fully liquidated.
2. The PHILIPPINE NATIONAL BANK is hereby
appointed as our Attorney-in-Fact for us and in our
name, place and stead, to collect and to receive the
payments to be made by virtue of the aforesaid
Purchase Order, with full power and authority to
execute and deliver on our behalf, receipt for all
payments made to it; to endorse for deposit or
encashment checks, money order and treasury
warrants which said Bank may receive, and to apply
said payments to the settlement of said credit
accommodation.
This power of attorney shall also remain irrevocable
until our total indebtedness to the said Bank have
been fully liquidated. (Exhibit E)
ATACO delivered to the Bureau of Public Works, and the latter
accepted, asphalt to the total value of P431,466.52. Of this
amount the Bank regularly collected, from April 21, 1948 to
November 18, 1948, P106,382.01. Thereafter, for unexplained
reasons, the Bank ceased to collect, until in 1952 its
investigators found that more moneys were payable to ATACO
from the Public Works office, because the latter had allowed
mother creditor to collect funds due to ATACO under the same
purchase order to a total of P311,230.41.
Its demands on the principal debtor and the Surety having
been refused, the Bank sued both in the Court of First Instance
of Manila to recover the balance of P158,563.18 as of February
15, 1950, plus interests and costs.
The bank contends the power of attorney obtained from
ATACO was merely in additional security in its favor, and that it
was the duty of the surety, and not that of the creditor, owed
see to it that the obligor fulfills his obligation, and that the
creditor owed the surety no duty of active diligence to collect
any, sum from the principal debtor
the issue whether the Bank has exercised due diligence in
collecting from the Bureau of Public Works? No
The Court of Appeals did not hold the Bank answerable for
negligence in failing to collect from the principal debtor but for
its neglect in collecting the sums due to the debtor from the
Bureau of Public Works, contrary to its duty as holder of an
exclusive and irrevocable power of attorney to make such
collections, since an agent is required to act with the care of a
good father of a family (Civ. Code, Art. 1887) and becomes
liable for the damages which the principal may suffer through
his non-performance
Even if the assignment with power of attorney from the
principal debtor were considered as mere additional security
still, by allowing the assigned funds to be exhausted without
notifying the surety, the Bank deprived the former of any
possibility of recoursing against that security. The Bank thereby

FORTES-Severino v. Severino, G.R. No. 18058,

16 January 1923
DOCTRINE: Relations of an agent to his principal are fiduciary
and in regard to the property forming the subject matter of the
agency, he is stopped from acquiring or asserting a title
adverse to that of the principal. Consequently, an action in
personam will lie against an agent to compel him to return or
retransfer to his principal or the latters estate the real property
committed to his custody as such agent and also to execute
the necessary documents of conveyance to effect such
transfer.
FACTS:

Melecio Severino had 400 hectares of land in Negros, he

is the alleged father if Fabiola (shes actually playing a very
small role in this case) who is claiming the land in her
favour.

During his father, Melecios lifetime, the land and farm

were managed and worked on by Melecios brother
Guillermo Severino

After death of Melecio, a cadastral survey was conducted

Atty. Hofilena represented Guillermo and claimed that the

latter is in possession of land for 30 years
o Atty claimed that the land was inherited by
Guillermo from his father
o Fabiola, the petitioner was, still a minor then

Administratrix, Felicitas Villanueva, intervened and asked

for the reconveyance of the 400 hectare property to the
Estate of Melecio
o action in personam against an agent to compel
him to return, or retransfer, to the heirs or the
estate of its principal, the property committed to
his custody as such agent
ISSUE: Whether the decree of registration in the cadastral
survey extinguishing this personal right of action.
HELD: Guillermo was ordered to reconvey to property to
the Estate of Melecio.

Guillermo bound by his testimony in an earlier court- case

of Montelibano vs. Severino, wherein he said that:
o 1902 up to the time the testimony was given, in
the year 1913, he had been continuously in
charge and occupation of the land as
the encargado or administrator of Melecio
Severino

The agent estopped from acquiring or asserting a title

adverse to that of the principal

Guillermos position as agent is also that of a trustee as

agency is fiduciary in character
-refrain from which ordinarily excite conflicts between
self-interest and integrity
-making it impossible to profit from yielding to
temptation

favor of said principal

GUY-Green Valley Poultry v. IAC, 133 SCRA 697

(from Syllabus): That when a person appoints two

attorneys-in-fact independently, the consent of the one will not
be required to validate the acts of the other unless that appears
positively to have been the principal's attention

Green Valley Poultry v. IAC & Squibb

FACTS:

1984J. Abad Santos

On March 20, 1924, the CFI of Iloilo City rendered judgment in

favor of Tan Ong Sze Vda. de Tan Toco

Facts:
-Green Valley was appointed as the noexclusive distributor of
verinary products of Squibb in northern Luzon.
-Squibb filed a suit to collect on goods delivered but unpaid.
-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.
-Green Valley was ordered by the CA 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 to Squibb.
Issue:1.WoN it is a contract of sale or a contract to sell.2. WoN
Green Valley is liable to pay the unsold products
Held:
According to the SC: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.

HAUTEA-Municipal Council of Iloilo v. Evangelista, 55 Phil.

290.
DOCTRINES:

An agent of attorney-in-fact empowered to pay the

debts of the principal, and to employ lawyers to defend the
latter's interests, is impliedly empowered to pay the lawyer's
fees for services rendered in the interests of said principal, and
may satisfy them by an assignment of a judgment rendered in

(widow of Tan Toco) to recover the value of a strip of land

belonging to her taken by Municipal Council of Iloilo to widen a
public street. She was able to recover P42,966.40 for its value.
Atty. Jose Evangelista filed a claim in the same case for his
attorneys fees as the administratrix of Jose Ma. Arroyos
intestate estate. With the consent of the widow, 15% of the
amount was granted to him. After the hearing on this claim,
adverse claimants appeared (PNB-claiming that land was
mortgaged to it, Atty. Antero Soriano- claiming the amount
as it had been assigned to him by the widows Attorney-infact and, in turn, he assigning it to Mauricio Cruz & Co.,
Inc.) After hearing all the adverse claims for the amount of the
judgment, the court ordered that the 15% of the amount be
granted to Atty Evangelista as, his own behalf and as counsel
for the administratrix of the deceased Jose Ma .Arroyo and
directed the Municipal Council of Iloilo to file an action of
interpleading against the adverse claimants.
The court declared the deed of assignment of the credit
executed by the widows attorney-in-fact (Tam Buntiong)
in favor of Soriano valid and likewise the assignment of
Soriano to Mauricio Cruz & Co., Inc. during his lifetime. So,
the remaining P30,966.40 (P42,966.40 minus 15% attorneys
fee) is to be paid by the Municipal Council of Iloilo to
Mauricio Cruz & Co. Inc.

Municipal treasurer of Iloilo paid the late Soriano P6,000 as

partial payment of the judgment. Afterwards, another P6,000
was delivered to Evangelista for his attorneys lien. With the
payment of a total of P12,000, remaining P30, 966.40 must go
to Mauricio Cruz & Co. This appeal, then, is confined to the
claim of Mauricio Cruz & Co. as the alleged assignee of the
rights of the late Atty. Soriano by virtue of the said
judgment in payment of his professional fees given to him
by the widow and her coheirs.
ISSUES
1.
W/N the assignment made by Tan Buntiong
(attorney-in-fact of the widow), to Atty. Soriano, of all the
credits, rights and interests belonging to the widow in the
amount of P42,966.40, plus the costs of court against
municipal council of Iloilo, in consideration of the professional
services rendered by Soriano to the widow is valid.
2.
W/N the other attorney-in-facts, Tan Montanos,
consent is required to validate the acts of the other attorney-in-

fact, Tan Butiong, who assigned the amount as payment to

Soriano

HELD/RATIO:
1. YES. An agent of attorney-in-fact empowered to pay the
debts of the principal, and to employ lawyers to defend the
latter's interests, is impliedly empowered to pay the lawyer's
fees for services rendered in the interests of said principal, and
may satisfy them by an assignment of a judgment rendered in
favor of said principal In the present case, the assignment
made by Tan Buntiong, as Attorney-in-fact for the widow, in
favor of Soriano for professional services rendered for other
cases he served the widow and coheirs, was that credit which
she had against the municipality of Iloilo, and such assignment
was equivalent to the payment of the amount of said credit to
Soriano.

2.
That when a person appoints two attorneys-in-fact
independently, the consent of the one will not be required to
validate the acts of the other unless that appears positively to
have been the principal's attention; the very fact that different
letters of attorney were given to each of these two
representatives shows that it was not the principal's intention
that they should act jointly in order to make their acts valid.

MAGSUMBOL-Guinhawa v. People, G.R. No.

162822, 25 August 2005

MANALAYSAY-Board of Liquidators v. Heirs of

Maximo Kalaw, G.R. No. L-18805, 14 August
1967

The National Coconut Corporation was chartered as a

non-profit governmental organization avowedly for the
protection, preservation and development of the coconut
industry in the Philippines. General manager and board
chairman was Maximo M. Kalaw; defendants Juan Bocar
and Casimiro Garcia were members of the Board;
defendant Leonor Moll became director only on December
22, 1947.
NACOCO, after the passage of Republic Act 5, embarked
on copra trading activities. Amongst the scores of
contracts executed by general manager Kalaw are the 9
disputed contracts, for the delivery of copra.
o Republic Act 5] to grant that corporation the express
power "to buy, sell, barter, export, and in any other
manner deal in, coconut, copra, and dessicated
coconut, as well as their by-products, and to act as
agent, broker or commission merchant of the
producers, dealers or merchants"
An unhappy chain of events conspired to deter NACOCO
from fulfilling some contracts entered. Nature supervened.
Four devastating typhoons visited the Philippines. Coconut
trees throughout the country suffered extensive damage.
Copra
production
decreased.
Prices
spiralled.
Warehouses were destroyed. Cash requirements doubled.
Deprivation of export facilities increased the time
necessary to accumulate shiploads of copra. Quick
turnovers became impossible, financing a problem.

When it became clear that the contracts would be

unprofitable, Kalaw submitted them to the board for
approval. It was not until when the membership was
completed. Defendant Moll took her oath on that date. A
meeting was then held. Kalaw made a full disclosure of the
situation, apprised the board of the impending heavy
losses. No action was taken on the contracts.
President Roxas made a statement that the NACOCO
head did his best to avert the losses, emphasized that
government concerns faced the same risks that confronted
private companies, that NACOCO was recouping its
losses, and that Kalaw was to remain in his post. Not long
thereafter, the board met again with Kalaw, Bocar, Garcia
and Moll in attendance. They unanimously approved the
contracts hereinbefore enumerated. NACOCO but partially
performed some contracts.
The buyers threatened damage suits. All the settlements
sum up to P1,343,274.52.
NACOCO, represented by the Board of Liquidators, seeks
to recover the above sum of P1,343,274.52 from general
manager and board chairman Maximo M. Kalaw, and
directors Juan Bocar, Casimiro Garcia and Leonor Moll. It
charges Kalaw with negligence under Article 1902 of the
old Civil Code (now Article 2176, new Civil Code); and
defendant board members, including Kalaw, with bad faith
and/or breach of trust for having approved the contracts
without prior approval of the Board.
The lower court came out with a judgment dismissing the
complaint. Hence, plaintiff appealed direct to this Court.
Plaintiff levelled a major attack on the lower court's holding
that Kalaw justifiedly entered into the controverted
contracts without the prior approval of the corporation's
directorate. Plaintiff leans heavily on NACOCO's corporate
by-laws. Article IV (b), Chapter III thereof, recites, as
amongst the duties of the general manager, the obligation:
"(b) To perform or execute on behalf of the Corporation
upon prior approval of the Board, all contracts necessary
and essential to the proper accomplishment for which the
Corporation was organized.

ISSUE: Whether or not the acts of the respondent as General

Manager without prior approval of the Board are valid
corporate acts.
HELD: YES

Not of de minimis importance in a proper approach to the

problem at hand, is the nature of a general manager's
position in the corporate structure. A rule that has gained
acceptance through the years is that a corporate officer
"intrusted with the general management and control of its
business, has implied authority to make any contract or do
any other act which is necessary or appropriate to the
conduct of the ordinary business of the corporation. As
such officer, "he may, without any special authority from
the Board of Directors perform all acts of an ordinary
nature, which by usage or necessity are incident to his
office, and may bind the corporation by contracts in
matters arising in the usual course of business.

Long before the disputed contracts came into being, Kalaw

contracted by himself alone as general manager for
forward sales of copra. For the fiscal year ending June 30,
1947, Kalaw signed some 60 such contracts for the sale of
copra to divers parties. During that period, from those
copra sales, NACOCO reaped a gross profit of
P3,631,181.48. So pleased was NACOCO's board of
directors that, on December 5, 1946, in Kalaw's absence,
it voted to grant him a special bonus "in recognition of the
signal achievement rendered by him in putting the

Corporation's business on a self-sufficient basis within a

few months after assuming office, despite numerous
handicaps and difficulties."
These previous contract it should be stressed, were
signed by Kalaw without prior authority from the board.
Said contracts were known all along to the board
members. Nothing was said by them. The aforesaid
contracts stand to prove one thing: Obviously, NACOCO
board met the difficulties attendant to forward sales by
leaving the adoption of means to end, to the sound
discretion of NACOCO's general manager Maximo M.
Kalaw.
Settled jurisprudence has it that where similar acts have
been approved by the directors as a matter of general
practice, custom, and policy, the general manager may
bind the company without formal authorization of the board
of directors. In varying language, existence of such
authority is established, by proof of the course of business,
the usage and practices of the company and by the
knowledge which the board of directors has, or must be
presumed to have, of acts and doings of its subordinates
in and about the affairs of the corporation.
In the case at bar, the practice of the corporation has been
to allow its general manager to negotiate and execute
contracts in its copra trading activities for and in
NACOCO's behalf without prior board approval. If the bylaws were to be literally followed, the board should give its
stamp of prior approval on all corporate contracts. But that
board itself, by its acts and through acquiescence,
practically laid aside the by-law requirement of prior
approval.
Under the given circumstances, the Kalaw contracts are
valid corporate acts.
Authorities, great in number, are one in the idea that
"ratification by a corporation of an unauthorized act or
contract by its officers or others relates back to the time of
the act or contract ratified, and is equivalent to original
authority;" and that " [t]he corporation and the other party
to the transaction are in precisely the same position as if
the act or contract had been authorized at the time." The
language of one case is expressive: "The adoption or
ratification of a contract by a corporation is nothing more
or less than the making of an original contract. The theory
of corporate ratification is predicated on the right of a
corporation to contract, and any ratification or adoption
is equivalent to a grant of prior authority." Indeed, our law
pronounces that "[r]atification cleanses the contract from
all its defects from the moment it was constituted." By
corporate confirmation, the contracts executed by Kalaw
are thus purged of whatever vice or defect they may have.

As we have earlier expressed, Kalaw had authority to

execute the contracts without need of prior approval.
Everybody, including Kalaw himself, thought so, and
for a long time. Doubts were first thrown on the way
only when the contracts turned out to be unprofitable
for NACOCO.

Rightfully had it been said that bad faith does not

simply connote bad judgment or negligence; it imports
a dishonest purpose or some moral obliquity and
conscious doing of wrong; it means breach of a
known duty thru some motive or interest or ill will; it
partakes of the nature of fraud.34 Applying this precept
to the given facts herein, we find that there was no
"dishonest purpose," or "some moral obliquity," or
"conscious doing of wrong," or "breach of a known
duty," or "Some motive or interest or ill will" that
"partakes of the nature of fraud."

Obviously, the board thought that to jettison Kalaw's

contracts would contravene basic dictates of fairness.
They did not think of raising their voice in protest
against past contracts which brought in enormous
profits to the corporation. By the same token, fair
dealing disagrees with the idea that similar contracts,
when unprofitable, should not merit the same
treatment. Profit or loss resulting from business
ventures is no justification for turning one's back on
contracts entered into. The directors are not liable.

DISPOSITIVE: Kalaw's good faith, and that of the other

directors, clinch the case for defendants. Viewed in the light of
the entire record, the judgment under review must be, as it is
hereby, affirmed.

PABALAN-San Juan v. CA, G.R. No. 129549, 19

September 1998

PEREZ-Francisco v. GSIS, G.R. No. L-18287, 30

March 1963

TABAG-British Airways v. CA, G.R. No. 121824,

29 January 1998
FACTS:
-

Petitioner: British Airways, an airline

Respondents: CA, GOP Mahtani (passenger) and

Philippine Airlines

Respondent passenger Mahtani wanted to visit

relatives in Bombay, India. He asked a certain Mr.
Gumar to prepare his travel plans. Gumar purchased
a ticket with British Airways. Since there is no direct
flight from Manila to Bombay, Mahtani had to take a
flight from MNL to HK (via PAL) then HK to Bombia
(via BA).

Mahtani checked in his luggage at the PAL counter (2

luggage full of clothes and personal effects).

Mahtani discovered his luggage was lost when he

was already in Bombay. According to BA
representatives, his luggage might have
been
diverted to London. He was asked to accomplish a
Property Irregularity Report.

Eventually, Mahtani filled a complaint for damages

and Attys fees against BA and Mr. Gumar.

BA filed a third party complaint against PAL alleging

that the reason for the non-transfer of luggage was
due to PALs later arrival in HK, allotting no time for
the transfer of the luggage to BAs plane bound for
Bombay.

Trial Court ruled in favor of passenger Mahtani,

ordering BA to may damages, CA affirmed. The third
party complaint was also dismissed

NOTE: Since this a transportation law case, it is important to

note that the law considers Mahtanis flight from MNL to HK via
PAL and HK to Bombay via BA as ONE CONTRACT OF
CARRIAGE between Mahtani and Common Carrier British
Airways. Thus, PAL was merely acting as a subcontractor or
agent of BA (stipulated in the ticket/contract).
NOTE 2: The case also discusses another transpo law doctrine
regarding limiting the liability of airlines if luggage is lost. It
should be 250 francs per kilograms UNLESS passenger
declares a higher value. In this case, even if Mahtani did not
declare a higher value, the Court ordered BA to pay the actual
value of the luggage since BA did not object to the actual value
during testimony.
ISSUE:
W/N British Airways third party compliant against Philippine
Airlines should be dimissed?
HELD:
NO, the third party complaint should not be dismissed!
-

The CA should have been aware of the well-settled

rule that an agent is also responsible for any
negligence in the performance of its function and is
liable for damages which the principal may suffer by
reason of its negligent act. Thus, BA had cause of
action against PAL. (Court mentions jurisprudence for
this: China Air Lines vs CA and Lufthansa German
Airlines vs CA).
BA and PAL are members of the International Air
Transport Association (IATA) where member airlines
are regarded as agents of each other in the issuance
of the tickets and other matters pertaining to their
relationship. Conctractual relationship between PAL
and BA is one of agency BA as principal, PAL as
agent.
Third party complaint must be allowed also to avoid
multiplicity of cases.

YAP-Murao v. People, G.R. No. 141485, 30 June

2005

Facts: Petitioner Murao is the owner of Lorna Murao Industrial

Commercial Enterprises (LMICE), a company engaged in the
business of selling and refilling fire extinguishers.
Murao and complainant Federico entered into a Dealership
Agreement where the latter could obtain fire extinguishers from
LMICE at a 50% discount, provided that he sets up his own
sales force, acquires and issues his own sales invoice, and
posts a bond as security for his credit line.
Failing to comply with the conditions, he was still allowed to act
as a part-time sales agent for LMICE entitled to a percentage
commission from the sales of fire extinguishers.
The amount of private complainant Federicos commission as
sales agent for LMICE was under contention. Private
complainant Federico claimed that he was entitled to a

commission equivalent to 50%, while petitioners maintained

that he should receive only 30% of the net sales.
Federico, on behalf of LMICE, subsequently facilitated a
transaction with the City Government of Puerto Princesa.
Because of the considerable cost, the City Government of
Puerto Princesa requested that the transaction be split into two
purchase orders.
The subject of this Petition is limited to the first purchase order.
The City Government of Puerto Princesa issued a check in the
amount of P300K. Within the same day, petitioner Huertazuela
claimed the said check and deposited it under the current
account of LMICE with PCIBank.
Federico went to see petitioner Huertazuela to demand his
commission. However, the former refused to the latters
commission since the two of them could not agree on the
proper amount. This prompted Federico to file a case for estafa
against the defendants.
RTC convicted the defendants and the decision was affirmed
by the CA.
That Federico, due to his right to commission, already owned
50% of the amount paid by the City Government of Puerto
Princesa to LMICE by virtue of the check, so that the collection
and deposit of the said check by petitioners under the account
of LMICE constituted misappropriation or conversion of private
complainant Federicos commission.
Issue: WON the trial court erred in its decision
Ruling: Yes.
Federicos right to a commission does not make him a joint
owner of the money paid to LMICE by the City Government of
Puerto Princesa, but merely establishes the relation of agent
and principal. It is unequivocal that an agency existed between
LMICE and private complainant Federico.
Although private complainant Federico never had the
opportunity to operate as a dealer for LMICE under the terms
of the Dealership Agreement, he was allowed to act as a sales
agent for LMICE. He can negotiate for and on behalf of LMICE
for the refill and delivery of fire extinguishers, which he, in fact,
did on two occasions.
As a sales agent, private complainant Federico entered into
negotiations with prospective clients for and on behalf of his
principal, LMICE. All profits made and any advantage gained
by an agent in the execution of his agency should belong to the
principal.
When Huertazuela, personally picked up the said check, he
was merely collecting what rightfully belonged to LMICE.
Indeed, the check named LMICE as the lone payee. Private
complainant Federico may claim commission, allegedly
equivalent to 50% of the payment received by LMICE from the
City Government of Puerto Princesa, based on his right to just
compensation under his agency contract with LMICE, but not
as the automatic owner of the 50% portion of the said payment.
The obligation of LMICE to pay private complainant Federico
his commission does not arise from any duty to deliver or
return the money to its supposed owner, but rather from the
duty of a principal to give just compensation to its agent for the
services rendered by the latter.

BISNAR-Metrobank v. CA, G.R. No. 88866, 18 February 1991

Facts:

Eduardo Gomez opened an account with Golden

Savings and Loan Association (Respondent) and,
within 2 years, had deposited 38 treasury warrants
amounting to P1,755,228.37.
The treasury warrants were subsequently indorsed by
Golden Savings cashier, Gloria Castillo (Respondent)
and deposited in its savings account in Metrobank
and Trust Co. (Petitioner), which in turn, sent it for
clearing.
Castillo went to Metrobank several times to ask
whether the warrants had been cleared, to which she
was told to wait.
Meanwhile, Gomez was not allowed to withdraw.
Later however, exasperated over Castillos repeated
inquiries and also as an accommodation for a valued
client, Metrobank finally allowed to withdraw the
proceeds of the warrants. Despite the treasury
warrants not having been cleared yet.
Golden Savings, in turn, allowed Gomez to make
withdrawals.
However, 32 of the warrants had been dishonored
and Metrobank demanded a refund from Golden
Savings, which was rejected.
Metrobank filed a complaint against Golden Savings,
claiming that until such time as Metrobank is actually
paid, its obligation is that of a mere collecting agent
which cannot be held liable for its failure to collect on
the warrants, and further claimed:
o That, acting only as a collecting agent for
Golden Savings, it has the right to charge
bank to the depositors account any amount
previous credited, whether or not such item
is returned.
o That this also applies to checks which are
unpaid due to insufficiency of funds, forgery,
unauthorized overdraft of any other reason.
o That the conditions are in the nature of
contractual stipulations and became binding
on Golden Savings when Castillo, as its
cashier, signed the deposit slips.

Issue: Whether Metrobank should be held liable for the

withdrawals made through the dishonored treasury warrants.
Ruling: Yes. When Metrobank argues that it was only acting as
a collecting agent for Golden Savings, it seems to suggest that
as a mere agent it cannot be liable to the principal This is not
true.

Art. 1909: The agent is responsible not only for fraud,

but also for negligence, which shall be judged with
more or less rigor by the courts, according to whether
the agency was or was not for a compensation.

The negligence of Metrobank has been sufficiently

established.
o It was the clearance given by it that assured
Golden Savings it was already safe to allow
Gomez to withdraw the proceeds of the
treasury warrants he had deposited. It
misled Golden Savings.
There may have been no express clearance, as Metrobank
insists (although this is refuted by Golden Savings) but in any
case that clearance could be implied from its allowing Golden
Savings to withdraw from its account not only once but 3 times
and the total withdrawal was in excess of its original balance
before the treasury warrants was in excess of its original

balance before the treasury warrants were deposited, which

only added to its belief that the warrants had been cleared.

(15)

Liability of Agents to Third Parties

i.

Agent acting within scope of

authority Articles 1883, 1897, 1899

Art. 1883. If an agent acts in his own name, the principal

has no right of action against the persons with whom the
agent has contracted; neither have such persons against
the principal.
In such case the agent is the one directly bound in favor of
the person with whom he has contracted, as if the
transaction were his own, except when the contract
involves things belonging to the principal.
The provisions of this article shall be understood to be
without prejudice to the actions between the principal and
agent.
(1717)

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. (1725)
Art. 1899. If a duly authorized agent acts in accordance
with the orders of the principal, the latter cannot set up the
ignorance of the agent as to circumstances whereof he
himself was, or ought to have been, aware. (n)

ii.

Agent acting outside scope of

authority Articles 1897 to 1898, 1911

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. (1725)

Art. 1898. If the agent contracts in the name of the

principal, exceeding the scope of his authority, and the
principal does not ratify the contract, it shall be void if the
party with whom the agent contracted is aware of the
limits of the powers granted by the principal. In this case,
however, the agent is liable if he undertook to secure the
principal's ratification. (n)

Paz Agudelo y Gonzaga, and on lot No. 878,

owned by Amparo A. Garrucho.

BUT Philippine National Bank, on

July 15, 1922, cancelled the
mortgages

AND Amparo A. Garrucho also sold

lot No. 878 to Paz Agudelo y
Gonzaga
(No other facts stated, went straight to the issue)

Art. 1911. Even when the agent has exceeded his

authority, the principal is solidarily liable with the agent if
the former allowed the latter to act as though he had full
powers. (n)

a.

With notice to third parties

Article 1901

Art. 1901. A third person cannot set up the fact that the
agent has exceeded his powers, if the principal has
ratified, or has signified his willingness to ratify the
agent's acts. (n)

Issue:
o

Ruling:
o

b.

Without notice to third parties

BOMBALES-PNB v. Agudelo, 58 Phil. 665

Facts:
o

Defendant-appellants Paz Agudelo y Gonzaga

(Garruchos
AUNT)
and
Amparo
Garrucho
(Garruchos Sister) both executed an SPA in favor of
her nephew and brother, Mauro A. Garrucho to
enable him to sell, alienate and mortgage in the
manner and form he might deem convenient, all her
real estate situated in the municipalities of Murcia and
Bacolod, Occidental Negros BUT Nothing in the
aforesaid SPA expressly authorized Mauro A.
Garrucho to contract any loan nor to constitute a
mortgage on the properties belonging to the
respective principals, to secure his obligations.
o On December 23, 1920, Mauro A. Garrucho
executed a mortgage in favor of the plaintiff
(PNB) on lot No. 878 owned by Amparo A.
Garrucho for P6,000 loan amount
o Again, On August 24, 1931, Mauro A.
Garrucho executed in favor of PNB another
mortgage this time on lots Nos. 61 and
207owned by Paz Agudelo y Gonzaga for
P16,000 loan amount
The 2 mortgage deeds were executed in Mauro A.
Garrucho's own name and signed by him in his
personal capacity, authorizing the mortgage creditor
(PNB) to take possession of the mortgaged
properties, by means of force if necessary, in case he
failed to comply with any of the conditions stipulated
therein.
o On July 15, 1922, Mauro A. Garrucho,
executed 2 other mortgages in favor of the
plaintiff e on lots Nos. 61 and 207, owned by

Whether or not the powers of attorney issued in favor

of Mauro A. Garrucho by his sister, Amparo A.
Garrucho, and by his aunt, Paz Agudelo y Gonzaga,
respectively, to mortgage their respective real estate,
authorized him to obtain loans secured by
mortgage in the properties in question? NO
W/N the principal is liable for the payment of the loans
obtained by Mauro A. Garrucho from the Philippine
National Bank for the security of which he constituted
a mortgage on the aforesaid real estate belonging to
the principal?NO

As clearly stated on the SPA, Garrucho was not

authorize to obtain loans secured by mortgage in the
properties of defendants. Hence, he exceeded the
scope of the authority vested in him
o Further as provided in A1717
o ART. 1717. When an agent acts in his own
name, the principal shall have no right of
action against the persons with whom the
agent has contracted, or such persons
against the principal.

In such case, the agent is directly

liable to the person with whom he
has
contracted,
as
if
the
transaction were his own. Cases
involving things belonging to the
principal are excepted.
The provisions of this article shall be understood to be
without prejudice to actions between principal and
agent.
o Aside from the phrases "attorney in fact of
his sister, Amparo A. Garrucho, as
evidenced by the power of attorney attached
hereto" and "attorney in fact of Paz Agudelo
y Gonzaga" written after the name of Mauro
A.
o There is nothing in the said
mortgage deeds to show that Mauro
A. Garrucho is attorney in fact of
Amparo A. Garrucho and of Paz
Agudelo y Gonzaga, and that he
obtained the loans mentioned in the
aforesaid mortgage deeds and
constituted said mortgages as
security for the payment of said
loans, for the account and at the
request of said Amparo A. Garrucho
and Paz Agudelo y Gonzaga.
SC held hat when an agent negotiates a loan in his personal
capacity and executes a promissory note under his own
signature, without express authority from his principal, giving
as security therefor real estate belonging to the letter, also in
his own name and not in the name and representation of the
said principal, the obligation do constructed by him is personal
and does not bind his aforesaid principal.

CHING-Philippine Products v. Primateria, 15

SCRA 301

the contract of sale and that Namerco signed the contract on

its own responsibility.

FACTS: Primateria Zurich is a company based in Switzerland

not licensed to engage in business in the Philippines, It
purchased through an agent, Baylin (officer of Primiteria Phils),
copras from Philippine Products. There was a mutual
agreement between the principal and agent. Philippine
Products delivered overseas copras in the amount of Php
33,009.71. On account, it showed that Primiteria Zurich had an
outstanding balance of Php 31,009.71. Primiteria Zurich failed
to answer the complaint of Philippine Products for collection,
therefore being in default.

Here, It is the agent that it sought to be held liable on a

contract of sale which was expreslly repudiated by the principal
because the agent took chances, it exceed its authority, and, in
effect, it acted in its own name.

Trial court held that Primiteria Zurich was liable and absolving
the agents, Primiteria Phils, Baylin, and Crame.

PHILIPPINE
NATIONAL
BANK, plaintiff-appellant,
vs.
WELCH, FAIRCHILD & CO., INC., defendant-appellee.

ISSUE: W/N the agents in the case at bar is liable to Philippine

Products for the purchase of its principal (a foreign corporation
not licensed)
HELD: No, according to Art. 1897, the agent becomes
personally liable to the party with whom he contracts, if he
expressly binds himself or exceeds the limits of his authority
without giving such party sufficient notice of his power. In the
case at bar, there is no proof that the agents exceeded the
authority given by the principal.
Also, Art. 1897 of the NCC does not hold that in case of excess
of authority, both the agent and the principal are liable to the
other contracting party.
The SC stated that, in the absence of express legislation, the
liability of the agent of a foreign corporation doing business, but
not licensed in the Philippines, is premised on the inability to
sure the principal or non-liability thereof.

FERNANDEZ-NPC
v.
Merchandising, 117 SCRA 789

National

NPC vs national merchandising digest

NPC and national merchandising(namerco) , as the
representative of international commodities corp., executed in
manila a contract to purchase by the NPC from new york firm,
tons of sulfur for its power plant in Iligan.
New york supplier was not able to deliver the sulfur because
there was no shipping space. Due to this NPCs plant had a
shut down.
W/N namerco is liable? yes
Namerco is liable for damages, under 1897 CC the agent who
exceeds the limits of his authority without giving the party with
whom he contracts sufficient notice of his powers is personally
liable to such party.
Before the contract of sale was signed Namerco was already
aware that its principal was having difficulties in booking
shipping space. New york firm did not consider itself bound by

FORTES-National Bank v. Welch Fairchild,

44 Phil. 780

DOCTRINE: While it is true that an agent who acts for a

revealed principal in the making of a contract does not become
personally bound to the other party in the sense that an action
can ordinarily be maintained upon such contract directly
against the agent, yet that rule does not control when the agent
cannot intercept and appropriate the thing which the principal is
bound to deliver, and thereby make the performance of the
principal impossible.
The agent in any event must be
precluded from doing any positive act that could prevent
performance on the part of his principal, otherwise the agent
becomes liable also on the contract.
FACTS:

On 18 August 1918, Welch, Fairchild & Co (Welch)

acting as an agent of La Compania Naviera sent a
cablegram from San Francisco, USA to PNB in the
Philippines asking the latter to release a loan of
$125,000 representing the purchase price of a boat
called Benito Juarez
o Welch asked PNB as well to forego the
requirement of submitting the Delivery
Receipt and Insurance Policy of the said
vessel
o Welch made this request as they were
rushing the repairs to the said vessel in order
to prepare it for its journey to Manila

Welch is one of the owners of La Compania Naviera,

the latter is a corporation organized in Manila for the
purpose of engaging in shipping.

In preparation for Benito Juarezs journey to Manila,

Welch took out an insurance policy of $150,000. This
includes the $125,000 cost of the vessel which was
advanced by PNB and the $50,00 cost of repair which
was advanced by Welch.

The vessel capsized in a Pacific Island due to a storm

Welch collected the insurance and appropriated, with

the consent of La Compania, the full amount of
$150,000 to itself as it applied the $50k to the repairs
and the $125k to the other previous loan granted by
Welch to La Compania

PNB is claiming from Welch the $125k due to it as La

Compania became insolvent

Welch is claiming that it is not bound by the

agreement between La Compania and PNB. It further
claimed that it acted exclusively as AGENT of La
Compania in the purchase of the Benito Juarez
hence, no obligation against it was created by the
letter sent on 18 August 1918

ISSUE: WON Welch should turnover the collected proceeds

from the insurance policy to PNB?
HELD: Yes.
Welch indeed acted only as agent in writing and sending the
cablegram on 18 August, however, has intervened in the
making of a contract in the character of agent cannot be
permitted to intercept and appropriate the thing which the
principal is bound to deliver, and thereby make performance by
the principal impossible. The agent in any event must be
precluded from doing any positive act that could prevent
performance on the part of his principal.
Despite the promise held out jointly by principal and agent in
the letters of August 8 and 10, 1918, the two have conspired to
make an application of the proceeds of the insurance entirely
contrary to the tenor of said letters. This cannot be permitted

sustained. The agreement, so far as that amount is concerned,

was signed by Grupe as attorney in fact for Vargas. Pursuant
to instructions contained in the power of attorney the money
was delivered to Varga's wife, the defendant in this case. To
secure the payment of the debt, Varga's property was
mortgaged. His wife likewise took part in the execution of the
mortgage as required in the power of attorney.
A debt thus incurred by the agent is binding directly upon the
principal, provided the former acted, as in the present case,
within the scope of his authority. The fact that the agent has
also bound himself to pay the debt does not relieve from
liability the principal for whose benefit the debt was incurred.
The individual liability of the agent constitutes in the present
case a further security in favor of the creditor and does not
affect or preclude the liability of the principal. In the present
case the latter's liability was further guaranteed by a mortgage
upon his property. The law does not provide that the agent can
not bind himself personally to the fulfillment of an obligation
incurred by him in the name and on behalf of his principal. On
the contrary, it provides that such act on the part of an agent
would be valid.

GUY-Tuazon v. Orosco, 5 Phil. 596

Facts: Juan de Vargas y Amaya, the defendant's
husband, executed a power of attorney to Enrique Grupe,
authorizing him, among other things, to dispose of all his
property, and particularly of a certain house and lot known as
No. 24 Calle Nueva, Malate, Manila. He was also authorized to
mortgage the house for the purpose of securing the payment of
any amount advanced to his wife, Dolores Orozco de Rivero,
who, inasmuch as the property had been acquired with funds
belonging to the conjugal partnership, was a necessary party to
its sale or incumbrance.
On the 21st of January, 1890, Enrique Grupe and Dolores
Orozco de Rivero obtained a loan from plaintiff Tuazon
secured by a mortgage on the property referred to in the power
of attorney. In the caption of the instrument evidencing the debt
it is stated that Grupe and Dolores Orozco appeared as the
parties of the first part and Gonzalo Tuason, the plaintiff, as the
party of the second part; that Grupe acted for himself and also
in behalf of Juan Vargas by virtue of the power granted him by
the latter, and that Dolores Orozco appeared merely for the
purpose of complying with the requirement contained in the
power of attorney. Said instrument was duly recorded in the
Registry of Property,
Tuazon filed an action to recover the debt.
Issue: WON Orozco is liable.
Held: Yes. The appellant claims that the instrument is
evidence of a debt personally incurred by Enrique Grupe for his
own benefit, and not incurred for the benefit of his principal,
Vargas, as alleged in the complaint. As a matter of fact, Grupe,
by the terms of the agreement, bound himself personally to pay
the debt. The appellant's contention however, can not be

HAUTEA-Cervantes v. CA, 304 SCRA 25

FACTS:
(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, i.e., until
March 27, 1990.
On March 23, 1990, four days before the expiry date of subject
ticket, the petitioner used it. Upon his arrival in Los Angeles on
the same day, he immediately booked his Los Angeles-Manila
return ticket with the PAL office, and it was confirmed for the
April 2, 1990 flight.
Upon learning that the same PAL plane would make a stopover 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
Las 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
ISSUES & HELD

1. Whether or not the act of the PAL agents in confirming

subject ticket extended the period of validity of petitioner's
ticket?
NO, 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 1989 of the New Civil Code, the acts 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 principal's ratification.
The admission by Cervantes that he was told by PAL's 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 PAL's
legal counsel was authorized to do so.

2. WON, the denial of award of damages was proper?

YES, 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.

KUNG-DBP v. CA, G.R. No. 109937, 21

March 1994
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. From the proceeds of the loan, DBP deducted the
amount of P1,476.00 as payment for the MRI premium. Dans
accomplished and submitted the MRI Application for
Insurance and the Health Statement for DBP MRI Pool. 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 husbands 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 settlementof P30,000.00, which the DBP later
offered.
Case was filed with RTC for Collection of Sum of Money w/
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. The DBP and the
DBP MRI Pool separately filed their answers, with the former
asserting a cross-claim against the latter. RTC-in favor of
Dans. CA - affirmed RTC.
Issue:
W/N DBP as agent of insurance is authorized as such, and be
liable for the claim of Dans.
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 Dans
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
Dans 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 familyto 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
Dans 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 Dans application for
MRI by collecting the insurance premium, and deducting its
agents 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 agents powers. There is no showing that Dans knew of the
limitation on DBPs 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. 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.
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 attorneys fees. With costs against petitioner.
SO ORDERED.