BUSORG 1 CASES

PARTNERSHIP
1. OA vs.THE COMMISSIONER OF INTERNAL REVENUE
G.R. No. L-19342; May 25, 1972

FACTS: Lorenzo Oa was appointed administrator of the estate of his late wife Julia
Bunales. He submitted the project of partition, which was approved by the Court.
Although the project of partition was approved by the Court, no attempt was made to
divide the properties among the 5 children. Instead, the properties remained under the
management of Lorenzo T. Oa who used said properties in business by leasing or selling
them and investing the income derived therefrom and the proceeds from the sales
thereof in real properties and securities.
In the years 1944 to 1954, the respondent Commissioner of Internal Revenue did treat
petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that he
considered them as having formed an unregistered partnership

ISSUE: Whether or not unregistered partnership was formed

HELD: YES. It is admitted that all the profits from these ventures were divided among
petitioners proportionately in accordance with their respective shares in the inheritance.
From the moment petitioners allowed not only the incomes from their respective shares
of the inheritance but even the inherited properties themselves to be used by Lorenzo T.
Oa as a common fund in undertaking several transactions or in business, with the
intention of deriving profit to be shared by them proportionally, such act was tantamonut
to actually contributing such incomes to a common fund and, in effect, they thereby
formed an unregistered partnership.

2. Gatchalian vs. Collector of Internal Revenue

67 Phil. 666, April 29, 1939

FACTS:
Petitioners purchased, in the ordinary course of business, from one of the duly authorized
agents of the National Charity Sweepstakes Office one ticket for the sum of two pesos
(P2), said ticket was registered in the name of Jose Gatchalian and Company. The ticket
won one of the third-prizes in the amount of P50,000. Gatchalian was required to file the
corresponding income tax return covering the prize won. Respondent made an
assessment against the petitioners requesting the payment to the deputy provincial
treasurer of Pulilan, Bulacan. However, a petitioner, through their counsel, made a
request for exemption but was denied. Petitioner failed to pay the amount due, hence a
warrant of distraint and levy was issued. They paid under protest a part of the tax and
penalties to avoid the effects of the warrant.

ISSUE: Whether or not the petitioners formed a partnership for them to be liable for
income tax.
HELD: Yes. There is no doubt that if the petitioners merely formed a community of
property the latter is exempt from the payment of income tax under the law. But
according to the stipulated facts the petitioners organized a partnership of a civil nature
because each of them put up money to buy a sweepstakes ticket for the sole purpose of
dividing equally the prize which they may win, as they did in fact in the amount of
P50,000 . The partnership was not only formed, but upon the organization thereof and
the winning of the prize, Jose Gatchalian personally appeared in the office of the
Philippine Charity Sweepstakes, in his capacity as co-partner, as such collected the prize,
the office issued the check for P50,000 in favor of Jose Gatchalian and company, and the
said partner. in the same capacity, collected the said check. All these circumstances
repel the idea that the plaintiffs organized and formed a community of property only.

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3. Afisco Insurance Corporation v. Court of Appeals
302 SCRA 1

FACTS: The petitioners are 41 non-life insurance corporations. Upon issuance of All Risk
insurance policies, the petitioners entered into a Quota Share Reinsurance treaty and a
Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft
(Munich), a non-resident foreign corporation. The reinsurance treaties required
petitioners to form a pool. The pool of machinery insurers submitted a financial
statement and filed an Information Return of Organization Exempt from Income Tax for
the year ending in 1975, on the basis of which it was assessed by the Commissioner of
Internal Revenue deficiency corporate taxes in the amount of P1,843,237.60 and
withholding taxes in the amount of P1,768,799.39 and P89,438.68 on dividends paid to
Munich and to the petitioners. These assessments were protested by the petitioners
through its auditors Sycip, Gorres, Velayo and Co. However, the Commissioner of Internal
Revenue denied the protest and ordered the petitioners, assessed as Pool of Machinery
Insurers, to pay deficiency income tax, interest, and withholding tax.

ISSUE: Whether or not the Clearing House, acting as a mere agent and performing
strictly administrative functions was a partnership.
HELD: Yes. Article 1767 of the Civil Code recognizes of a contract of partnership when
two or more persons bind themselves to contribute money, property, or industry to a
common fund with the intention of dividing the profits among themselves. Its requisites
are thus follows:
1. Mutual contribution to a common stock;
2. A joint interest in the profits.
In other words, a partnership id formed when persons contract to devote to a common
purpose either money, property, or labor with the intention of dividing the profits
between themselves. In the case before us, the ceding companies entered into a Pool
Agreement or an association that would handle all the insurance business covered under
their quota-share reinsurance treaty and surplus reinsurance treaty with Munich. The
pool has a common fund, consisting of money and valuables that are deposited in the
name and credit of the pool. This common fund pays for the administration and operation
expenses of the pool. This is unmistakably indicates a partnership.

4. TORRES vs. CA
320 SCRA 428

FACTS: Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a
"joint venture agreement" with Respondent Manuel Torres for the development of a
parcel of land into a subdivision. Pursuant to the contract, they executed a Deed of Sale
covering the said parcel of land in favor of respondent, who then had it registered in his
name. By mortgaging the property, respondent obtained from Equitable Bank a loan of
P40, 000 which, under the Joint Venture Agreement, was to be used for the development
of the subdivision. All three of them also agreed to share the proceeds from the sale of
the subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.
Petitioners alleged that the project failed because of respondents lack of funds or
means and skills. They add that respondent used the loan in furtherance of his own
company, Universal Umbrella Company.

Respondent alleged otherwise, claiming that the subdivision project failed because
petitioners and their relatives had separately caused the annotations of adverse claims
on the title to the land, which eventually scared away prospective buyers.

ISSUE: WON a partnership exists

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HELD: Under their Agreement, petitioners would contribute property to the partnership
in the form of land which was to be developed into a subdivision; while respondent would
give, in addition to his industry, the amount needed for general expenses and other
costs. Furthermore, the income from the said project would be divided according to the
stipulated percentage. Clearly, the contract manifested the intention of the parties to
form a partnership.

It should be stressed that the parties implemented the contract. Thus, petitioners
transferred the title to the land to facilitate its use in the name of the respondent. On the
other hand, respondent caused the subject land to be mortgaged, the proceeds of which
were used for the survey and the subdivision of the land. As noted, he developed the
roads, the curbs and the gutters of the subdivision and entered into a contract to
construct low-cost housing units on the property.
Respondents actions clearly belie petitioners contention that he made no contribution to
the partnership. Under Article 1767 of the Civil Code, a partner may contribute not only
money or property, but also industry.

OBLIGATIONS OF PARTNERS AMONG THEMSELVES

5. Lozana vs Depakakibo
GR No. L-13680
RE: Property contributed

FACTS: Lozana entered into a contract with Depakakibo to operate, maintain, and
distribute electric light and power in Dumangas, Iloilo under a franchise issued to
Buenaflor. They established a partnership, capitalized at P30,000, with contributions at
60% for Lozana and 40% for Depakakibo. However, the franchise in favor of Buenaflor
was cancelled and revoked by the Public Service Commission. A temporary certificate of
Public Service Commission was issued in the name of Decolongon instead. Because of
this, Lozana sold a Buda generator to the grantee. Depakakibo on the other hand, sold
one Crossly Engine to Sps. Harder. Lozana brought an action against defendant alleging
that he is the owner of the Buda generator and 70 wooden posts with connecting wires to
the generator and the different houses supplied by electric current in Dumangas and he
suffered damages as consequence of being wrongfully detained of them. Defendant
answered by saying that generator and equipment was contributed to the partnership
entered by them. In addition, Lozana sold his partnership contribution in violation of the
terms of agreement. CFI declared Lozano owner of the equipment. Depakakibo appealed
to the Supreme Court.

ISSUE: WON the partnership is void and if the disposal of the contribution of the parties
is allowed
HELD: Validity of the Partnership.
Partnership is valid. The fact of furnishing the current to the holder of the franchise alone,
without the previous approval of the Public Service Commission, does not per se make
the contract of partnership null and void from the beginning and render the partnership
entered into by the parties for the purpose also void and non-existent
Disposal of Contributed Property to the Partnership.
Facts show that parties entered into the contract of partnership, Lozana contributing the
amount of P18, 000, and there has not been liquidation prior to the sale of the
contributed properties: Buda Diesel Engine and 70 posts. It necessarily follows that the
Buda diesel engine contributed by the plaintiff had become the property of the
partnership. As properties of the partnership, the same could not be disposed of by the
party contributing the same without the consent or approval of the partnership or of the
other partner.

6. RAMNANI VS COURT OF APPEALS

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RE: Distribution of profits

FACTS: Ishwar Jethmal Ramnani and his wife Sonya had their main business based in
New York. Ishwar received US$150,000.00 from his father-in-law in Switzerland. In 1965,
Ishwar Jethmal Ramnani sent the amount of US $150,000.00 to Choithram in two bank
drafts of US$65,000.00 andUS$85,000.00 for the purpose of investing the same in real
estate in the Philippines.

Subsequently, spouses Ishwar executed a general power of attorney appointing Ishwars

full blood brothers Choithram and Navalrai as attorneys-in-fact, empowering them to
manage and conduct their business concerns in the Philippines. Choithram, as attorney-
in-fact, entered into two agreements for the purchase of two parcels of land located in
Pasig Rizal from Ortigas & Company, Ltd. Partnership (Ortigas Ltd.) with a total area of
approximately 10,048 square meters. Three buildings were constructed thereon and were
leased out by Choithram as attorney-in-fact of spouses Ishwar. Two of these buildings
were later burned.

In 1970 Ishwar asked Choithram to account for the income and expenses relative to
these properties during the period 1967 to1970. Choithram failed and refused to render
such accounting, which prompted Ishwar to revoke the general power of attorney.

Choithram and Ortigas Ltd. were duly notified by notice in writing of such revocation. It
was also registered with the Securities and Exchange Commission and published in The
Manila Times. Nevertheless, Choithram as such attorney-in-fact of Ishwar, transferred all
rights and interests of Ishwar spouses in favor of Nirmla Ramnani, the wife of Choitrams
son, Moti. Ortigas also executed the corresponding deeds of sale in favor of Nirmla and
the TCT issued in her favor. Thus, spouses Ishwar filed a complaint in the Court of First
Instance of Rizal against Choithram and spouses Nirmla and Moti(Choithram et al.) and
Ortigas Ltd. for reconveyance of said properties or payment of its value and damages.

The trial court dismissed the complaint ruling that the lone testimony of Ishwar regarding
the cash remittance is unworthy of faith and credit because the cash remittance
was made before the execution of the general power of attorney. Ishwar also failed to
corroborate this lone testimony and did not exhibit any commercial document as regard
to the alleged remittances. It believed the claim of Choitram that he and Ishwar entered
into a temporary arrangement in order to enable Choithram, then a British citizen, to
purchase the properties in the name of Ishwar who was an American citizen and who was
then qualified to purchase property in the Philippines under the then Parity Amendment.

Upon appeal, the CA reversed the decision and gave credence to Ishwar. It upheld the
validity of Ishwars testimony and gave cognizance to a letter written by Choihtram
imploring Ishwar to renew the power of attorney after it was revoked. It states therein
that Choithram reassures his brother that he is not after his money and that the
revocation is hurting the reputation of Ishwar. Choithram also made no mention of his
claimed temporary arrangement in the letter. The CA ruled that Choithram is also
estopped in pais or by deed from claiming an interest over the properties. Because of
Choitrams admissions from (1) power of attorney, (2) the Agreements and (3) the
Contract of Lease. It furthermore HELD that Choithram's temporary arrangement,
by which he claimed purchasing the two (2) parcels in questioning 1966 and placing
them in the name of Ishwar who is an American citizen circumvents the disqualification
provision of aliens acquiring real properties in the Philippines. Upholding the supposed
"temporary arrangement" with Ishwar would be sanctioning the perpetration of an illegal
act and culpable violation of the Constitution.

During the pendency of the case, Choithram made several attempts to dispose of his
properties by way of donation and also mortgaged the properties under litigation for 3
million USD to a shell partnership with a mere capital of 100 USD.

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ISSUE: Whether or not there was a partnership between the brothers Ishwar and
Choithram.
HELD: Yes. Even without a written agreement, the scenario is clear. Spouses Ishwar
supplied the capital of $150,000 for the business. They entrusted the money to
Choithram to invest in a profitable business venture in the Philippines. For this purpose,
they appointed Choithram as their attorney-in-fact.

Choithram in turn decided to invest in the real estate business. He bought the two (2)
parcels of land in question from Ortigas as attorney-in-fact of Ishwar- Instead of paying
for the lots in cash, he paid in installments and used the balance of the capital entrusted
to him, plus a loan, to build two buildings. Although the buildings were burned later,
Choithram was able to build two other buildings on the property. He rented them out and
collected the rentals. Through the industry and genius of Choithram, Ishwar's property
was developed and improved into what it is nowa valuable asset worth millions of
pesos. As of the last estimate in 1985, while the case was pending before the trial court,
the market value of the properties is no less than P22,304,000.00. 39 It should be worth
much more today.

We have a situation where two brothers engaged in a business venture. One furnished
the capital; the other contributed his industry and talent. Justice and equity dictate that
the two share equally the fruit of their joint investment and efforts. Perhaps this
Solomonic solution may pave the way towards their reconciliation. Both would stand to
gain. No one would end up the loser. After all, blood is thicker than water.

7. EMNACE vs CA

G.R. No. 126334; November 23, 2001

Re: Prescriptive Period

FACTS: Emilio Emnace, Jacinto Divinagracia and Vicente Tabanao formed a partnership
engaged in the fishing industry. In 1986, Jacinto decided to leave the partnership hence
they agreed to dissolve the partnership. At that time, the partnership has an estimated
asset amounting to P30,000,000.00.

HOWEVER, until the death of Vicente Tabanao in 1994, Emnace never rendered an
accounting either to Vicente or his heirs. Emnace reneged on his promise to turn over
Tabanaos share which is 1/3 of the P30M. The heirs of Tabanao then sued Emnace.
Emnace argued, among others, that the heirs are barred by prescription hence they can
no longer demand an accounting. He contends that the partnership was dissolved in
1986 and that was the time when Tabanaos (and his heirs) right to inquire into the
business affairs accrued; that said right has expired in 1990 or 4 years after. So beyond
1990, they can no longer inquire.

ISSUE: Whether or not the heirs of Vicente Tabanao are barred by prescription to
demand an accounting.

HELD: No. Prescription has not run in this case, it has never begun. The three
finalstages of partnership are: a) dissolution, b) winding up, and c) termination. In this
case, Emnace and his partners dissolved their partnership but such did not perfect the

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dissolution because no accounting took place. The partnership, although dissolved,
continues to exist and its legal personality is retained, at which time it completes the
winding up of its affairs, including the partitioning and distribution of the net partnership
assets to the partners. For as long as the partnership exists, any of the partners (or legal
representative in this case the heirs of Tabanao) may demand an accounting of the
partnerships business. Prescription of the said right starts to run only upon the
dissolution of the partnership when the final accounting is done.

When a final accounting is made, it is only then that prescription begins to run. In the
case at bar, no final accounting has been made, and that is precisely what the heirs are
seeking in their action before the trial court, since Emnace has failed or refused to render
an accounting of the partnerships business and assets. Hence, the said action is not
barred by prescription

OBLIGATIONS OF PARTNERS WITH REGARD TO 3RD PERSONS

8. PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME SYCIP,

SALAZAR, FELICIANO, HERNANDEZ & CASTILLO.
July 30, 1979
RE: Rule here has been abandoned in view of Rule 3.02 of Code of Professional
Responsibilty

FACTS: Petitions were filed by the surviving partners of Atty. Alexander Sycip, who died
on May 5, 1975 and by the surviving partners of Atty. Herminio Ozaeta, who died on
February 14, 1976, praying that they be allowed to continue using, in the names of their
firms, the names of partners who had passed away.
Petitioners contend that the continued use of the name of a deceased or former partner
when permissible by local custom, is not unethical but care should be taken that no
imposition or deception is practiced through this use. They also contend that no local
custom prohibits the continued use of a deceased partners name in a professional firms
name; there is no custom or usage in the Philippines, or at least in the Greater Manila
Area, which recognizes that the name of a law firm necessarily identifies the individual
members of the firm.

ISSUE: WON the surviving partners may be allowed by the court to retain the name of
the partners who already passed away in the name of the firm? NO
HELD: In the case of Register of Deeds of Manila vs. China Banking Corporation, the SC
said:
The Court believes that, in view of the personal and confidential nature of the relations
between attorney and client, and the high standards demanded in the canons of
professional ethics, no practice should be allowed which even in a remote degree could
give rise to the possibility of deception. Said attorneys are accordingly advised to drop
the names of the deceased partners from their firm name.
The public relations value of the use of an old firm name can tend to create undue
advantages and disadvantages in the practice of the profession. An able lawyer without
connections will have to make a name for himself starting from scratch. Another able
lawyer, who can join an old firm, can initially ride on that old firms reputation established
by deceased partners.
The court also made the difference from the law firms and business corporations:
A partnership for the practice of law is not a legal entity. It is a mere relationship or
association for a particular purpose. It is not a partnership formed for the purpose of

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carrying on trade or business or of holding property. 11 Thus, it has been stated that
the use of a nom de plume, assumed or trade name in law practice is improper.
We find such proof of the existence of a local custom, and of the elements requisite to
constitute the same, wanting herein. Merely because something is done as a matter of
practice does not mean that Courts can rely on the same for purposes of adjudication as
a juridical custom.
Petition suffers legal and ethical impediment.

9. PNB vs. Lo
RE: Subsidiary or secondary liability of partners

FACTS: In September 1916, Severo Eugenio Lo and Ling, together with Ping, Hun, Lam
and Peng formed a commercial partnership under the name of Tai Sing and Co., with a
capital of P40,000 contributed by said partners. The firm name was registered in the
mercantile registrar in the Province of Iloilo. Ping, in the articles of partnership, was
assigned as the general manager. However, in 1917, he executed a special power of
attorney in favor of Lam to act in his behalf as the manager of the firm. Subsequently,
Lam obtained a loan from PNB the loan was under the firms name. In the same year,
Ping died in China. From 1918 to 1920, the firm, via GM Lam, incurred other loans from
PNB. The loans were not objected by any of the partners. Later, PNB sued the firm for
non-payment. Lo, in his defense, argued that he cannot be liable as a partner because
the partnership, according to him, is void; that it is void because the firms name did not
comply with the requirement of the Code of Commerce that a firm name should contain
the names of all of the partners, of several of them, or only one of them. Lo also argued
that the acts of Lam after the death of Ping is not binding upon the other partners
because the special power of attorney shall have already ceased.

ISSUE: Whether or not Lo is correct in both arguments.

HELD: No. The anomalous adoption of the firm name above noted does not affect the
liability of the general partners to third parties under Article 127 of the Code of
Commerce. The object of the Code of Commerce in requiring a general partnership to
transact business under the name of all its members, of several of them, or of one only,
is to protect the public from imposition and fraud; it is for the protection of the creditors
rather than of the partners themselves. It is unenforceable as between the partners and
at the instance of the violating party, but not in the sense of depriving innocent parties of
their rights who may have dealt with the offenders in ignorance of the latter having
violated the law; and that contracts entered into by a partnership firm defectively
organized are valid when voluntarily executed by the parties, and the only question is
whether or not they complied with the agreement. Therefore, Lo cannot invoke in his
defense the anomaly in the firm name which they themselves adopted. Lo was not able
to prove his second argument. But even assuming arguendo, his second contention does
not deserve merit because (a) Lam, in acting as a GM, is also a partner and his actions
were never objected to by the partners, and (b) it also appeared from the evidence that
Lo, Lam and the other partners authorized some of the loans.
NOTE: Under the New Civil Code, a firm name may or may not include the name of one or
more of the partners (Article 1815).

10. MUNASQUE V. CA
G.R. No. L-39780 November 11, 1985

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Re: Presumption that acting partner has the authority to bind the partnership

DOCTRINES: There is a general presumption that each individual partner is an

authorized agent for the firm and that he has authority to bind the firm in carrying on the
partnership transactions. (Mills vs. Riggle,112 Pan, 617) Cited decision: George Litton v.
Hill and Ceron, et al, (67 Phil. 513, 514)

The presumption is sufficient to permit third persons to hold the firm liable on
transactions entered into by one of members of the firm acting apparently in its behalf
and within the scope of his authority. (Le Roy vs. Johnson, 7 U.S. (Law. ed.), 391.)
--------------------------------
ARTICLE 1824 "All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823."
While the liability of the partners are merely joint in transactions entered into by
the partnership, a third person who transacted with said partnership can hold the
partners solidarily liable for the whole obligation if the case of the third person
falls under Articles 1822 or 1823.

FACTS: Petitioner Elmo Muasque was a partner in the construction business partnership
"Galan and Muasque located in Cebu City. Munasque, as Contractor, entered into a
contract with respondent Tropical through its Cebu Branch Manager Ramon Pons for
remodeling a portion of Tropicals building. Celestino Galan (Galan) was named as a
casual partner in the said contract.

A total amount of P25,000.00 was to be paid under the contract for the entire services of
the Contractor. The balance of the total amount was to be paid in installments to
Munasque.
Munasque indorsed the first check in favor of respondent Galan to enable the latter to
deposit it in the bank and pay for the materials and labor used in the project. He later
alleged that Galan misused the funds. When the second check came and Galan asked the
petitioner to indorse it again, the petitioner refused.

Galan then informed the Cebu branch of Tropical that there was a "misunderstanding"
between him and petitioner which led to respondent Tropical changing the name of the
payee in the second check from Muasque to "Galan and Associates" ( the duly
registered name of the partnership between Galan and petitioner) This enabled Galan to
encash the second check.
Thus, Petitioner filed a complaint for payment of sum of money and damages against the
private respondents Galan and Tropical.

Trial Court: Held Munasque and Galan, jointly and severally liable to the intervenor-
partnership creditors Cebu Southern Hardware Company and Blue Diamond Glass Palace.

Court of Appeals: CA affirmed TC with modification: liability imposed on the credit of

Cebu Southern Hardware and Blue Diamond Glass Palace was changed from "jointly and
severally" to "jointly."

ISSUE: WON a partnership existed between petitioner and respondent Galan

HELD: YES, a partnership exists between petitioner Munasque and respondent Galan.
The liability of partners under the law to third persons for contracts executed in
connection with partnership business is only pro rata under Art. 1816, of the Civil Code.

ARTICLE 1816. All partners, including industrial ones, shall be liable pro rata with
all their property and after all the partnership assets have been exhausted, for the
contracts which may be entered into in the name and for the account of the
partnership, under its signature and by a person authorized to act for the
partnership. However, any partner may enter into a separate obligation to
perform a partnership contract.

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This provision should be construed together with Article 1824 which provides that:
ARTICLE 1824 "All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823."

In short, while the liability of the partners are merely joint in transactions entered into
by the partnership, a third person who transacted with said partnership can hold the
partners solidarily liable for the whole obligation if the case of the third person falls
under Articles 1822 or 1823.

The obligation is solidary, because the law protects him, who in good faith relied upon
the authority of a partner, whether such authority is real or apparent. That is why under
Article 1824 of the Civil Code all partners, whether innocent or guilty, as well as the legal
entity which is the partnership, are solidarily liable.

In the case at bar the respondent Tropical had every reason to believe that a partnership
existed between the petitioner and Galan and no fault or error can be imputed against it
for making payments to "Galan and Associates" and delivering the same to Galan
because as far as it was concerned, Galan was a true partner with real authority to
transact on behalf of the partnership with which it was dealing.

Galan, however acted in bad faith. Muasque should then be reimbursed by Galan for the
payments made by the former representing the liability of their partnership to herein
intervenors.
It is but fair that the consequences of any wrongful act committed by any of the partners
therein should be answered solidarily by all the partners and the partnership as a whole.

Decision appealed from is hereby AFFIRMED with the MODIFICATION that the liability of
petitioner and respondent Galan to intervenors Blue Diamond Glass and Cebu Southern
Hardware is declared to be joint and solidary.

11. SYJUCO v CASTRO

RE: Conveyance

FACTS: Back in November 1964, the Lims, borrowed from petitioner Santiago Syjuco,
Inc., the sum of P800,000.00. The loan was given on the security of a first mortgage on
property registered in the names of said borrowers as owners in common under Transfer
Certificates of Title Numbered 75413 and 75415 of the Registry of Deeds of Manila.
Thereafter additional loans on the same security were obtained by the Lims from Syjuco,
so that as of May 8, 1967, the aggregate of the loans stood at P2,460,000.00, exclusive
of interest, and the security had been augmented by bringing into the mortgage other
property, also registered as owned pro indiviso by the Lims under two titles: TCT Nos.
75416 and 75418 of the Manila Registry.

On November 8, 1967, the Lims failed to pay it despite demands therefore; that Syjuco
consequently caused extra-judicial proceedings for the foreclosure of the mortgage to be
commenced by the Sheriff of Manila; and that the latter scheduled the auction sale of the
mortgaged property on December 27, 1968.

The attempt to foreclose triggered off a legal battle that has dragged on for more than
twenty years now, fought through five (5) cases in the trial courts, two (2) in the Court of
Appeals, and three (3) more in the Supreme Court.

One of the complaints filed by the Lims was filed not in their individual names, but in the
name of a partnership of which they themselves were the only partners: "Heirs of Hugo
Lim." The complaint advocated the theory that the mortgage which they, together with
their mother, had individually constituted (and thereafter amended during the period

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from 1964 to 1967) over lands standing in their names in the Property Registry as owners
pro indiviso, in fact no longer belonged to them at that time, having been earlier deeded
over by them to the partnership, "Heirs of Hugo Lim," more precisely, on March 30, 1959,
hence, said mortgage was void because executed by them without authority from the
partnership.

ISSUE: Whether the mortgage executed by the Lims be attributable to their partnership
HELD: Yes, the mortgage executed by the Lims is attributable to their partnership. The
Supreme Court held that the legal fiction of a separate juridical personality and existence
will not shield it from the conclusion of having such knowledge which naturally and
irresistibly flows from the undenied facts. It would violate all precepts of reason, ordinary
experience and common sense to propose that a partnership, as such, cannot be held
accountable with knowledge of matters commonly known to all the partners or of acts in
which all of the latter, without exception, have taken part, where such matters or acts
affect property claimed as its own by said partnership.

The silence and failure of the partnership to impugn said mortgage within a reasonable
time, let alone a space of more than seventeen years, brought into play the doctrine of
estoppel to preclude any attempt to avoid the mortgage as allegedly unauthorized.

There is no reason to distinguish between the Lims, as individuals, and the partnership
itself, since the former constituted the entire membership of the latter. In other words,
despite the concealment of the existence of the partnership, for all intents and purposes
and consistently with the Lims' own theory, it was that partnership which was the real
party in interest in all the actions; it was actually represented in said actions by all the
individual members thereof, and consequently, those members' acts, declarations and
omissions cannot be deemed to be simply the individual acts of said members, but in
fact and in law, those of the partnership.

12. LIWANAG vs. WORKMEN'S COMPENSATION COMMISSION

RE: Solidary liability of partners for tort

FACTS: Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners (business
partners) of Liwanag Auto Supply. The guard of the said Auto Supply shop has been killed
while in line of duty. The deceased guards widow Ciriaca Vda. de Balderama and minor
children Genara, Carlos and Leogardo, all surnamed Balderama, in due time, filed a claim
for compensation with the Workmen's Compensation Commission. The claim was granted
and appellants Benito Liwanag and Maria Liwanag Reyes were ordered to pay jointly and
severally the amount of P3,494.40 Pesos to the claimants in lump sum. The respondents
appealed to the Supreme Court contending that the commission erred in ordering
appellants to pay jointly and severally the amount awarded. They argue that there is
nothing in the compensation Act which provides that the obligation of an employer
arising from compensable injury or death of an employee should be solidary obligation,
the same should have been specifically provided, and that, in absence of such clear
provision, the responsibility of appellants should not be solidary but merely joint.

ISSUE: Whether or not the obligation of business partners arising from compensable
injury or death of an employee should be solidary.
HELD: The Supreme Court ruled that the law governing the liability of partners is not
applicable to the case at bar wherein a claim for compensation by dependents of an
employee who died in line of duty is involved. And although the Workmen's
Compensation Act does not contain any provision expressly declaring solidary obligation
of business partners, there are other provisions of law from which it could be gathered
that their liability must be solidary. Articles 1711 and 1712 of the new Civil Code provide:

ART. 1711. Owners of enterprises and other employers are obliged to pay compensation
for the death of or injuries to their laborers, workmen, mechanics or other employees,

10
even though the event may have been purely accidental or entirely due to a fortuitous
cause, if the death or personal injury arose out of and in the course of the
employment. . . . .

ART. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter
and the employer shall be solidarily liable for compensation. . . . .
And section 2 of the Workmen's Compensation Act provides that the right to
compensation as provided in this Act shall not be defeated or impaired on the ground
that the death, injury or disease was due to the negligence of a fellow servant or
employee, without prejudice to the right of the employer to proceed against the
negligence party.

The provisions of the new Civil Code above quoted taken together with those of Section 2
of the Workmen's Compensation Act, reasonably indicate that in compensation cases, the
liability of business partners, like appellants, should be solidary; otherwise, the right of
the employee may be defeated. If the responsibility of appellants were to be merely joint
and solidary, and one of them happens to be insolvent, the amount awarded to the
appellees would only be partially satisfied, which is evidently contrary to the intent and
purposes of the Workmen Compensation Act.

DISSOLUTION OF PARTNERSHIP

13. TOCAO V. COURT OF APPEALS

342 SCRA 20 (2000)
RE: Unjustified dissolution

FACTS: Petitioner William T. Bello introduced private respondent Nenita Anay to

petitioner Tocao, who conveyed her desire to enter into a joint venture with her for the
importation and local distribution of kitchen cookwares. Belo acted the capitalist, Tocao
as president and general manager, and Anay as head of the marketing department
(considering her experience and established relationship with West Bend Company,c a
manufacturer of kitchen wares in Wisconsin, U.S.A) and later, vice-president for sales.
The parties agreed further that Anay would be entitled to:

(1) ten percent (10%) of the annual net profits of the business;
(2) overriding commission of six percent (6%) of the overall weekly production;
(3) thirty percent (30%) of the sales she would make; and
(4) two percent (2%) for her demonstration services.

The same was not reduced to writing on the strength of Belos assurances.

Later, Anay was able to secure the distributorship of cookware products from the West
Bend Company. They operated under the name of Geminesse Enterprise, a sole
proprietorship registered in Marjorie Tocaos name. Anay attended distributor/dealer
meetings with West Bend Company with the consent of Tocao.

Due to Anays excellent job performance she was given a plaque of appreciation. Also, in
a memo signed by Belo, Anay was given 37% commission for her personal sales "up Dec
31/87, apart from the 10% share in profits.

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On October 9, 1987, Anay learned that Marjorie Tocao terminated her as vice-president of
Geminesse Enterprise. Anay attempted to contact Belo. She wrote him twice to demand
her overriding commission for the period of January 8, 1988 to February 5, 1988 and the
audit of the company to determine her share in the net profits. Belo did not answer.

Anay still received her five percent (5%) overriding commission up to December 1987.
The following year, 1988, she did not receive the same commission although the
company netted a gross sales of P13,300,360.00.

On April 5, 1988, Nenita A. Anay filed a complaint for sum of money with damages
against Tocao and Belo before the RTC of Makati. She prayed that she be paid (1)
P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988; (2)
P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The
plaintiff also prayed for an audit of the finances of Geminesse Enterprise from the
inception of its business operation until she was illegally dismissed to determine her
ten percent (10%) share in the net profits. She further prayed that she be paid the five
percent (5%) overriding commission on the remaining 150 West Bend cookware sets
before her dismissal.

However, Tocao and Belo asserted that the alleged agreement was not reduced to writing
nor ratified, hence, unenforceable, void, or nonexistent. Also, they denied the existence
of a partnership because, as Anay herself admitted, Geminesse Enterprise was the sole
proprietorship of Marjorie Tocao. Belo also contended that he merely acted as a
guarantor of Tocao and denied contributing capital. Tocao, on the other hand, denied that
they agreed on a ten percent (10%) commission on the net profits.

Both trial court and court of appeals ruled that a business partnership existed and
ordered the defendants to pay.

ISSUE: Whether or not a partnership existed YES

HELD: To be considered a juridical personality, a partnership must fulfill these requisites:

(1) two or more persons bind themselves to contribute money, property or industry to a
common fund; and (2) intention on the part of the partners to divide the profits among
themselves. It may be constituted in any form; a public instrument is necessary only
where immovable property or real rights are contributed thereto. This implies that since a
contract of partnership is consensual, an oral contract of partnership is as good as a
written one.

Private respondent Anay contributed her expertise in the business of distributorship of

cookware to the partnership and hence, under the law, she was the industrial or
managing partner.

Petitioner Belo had an proprietary interest. He presided over meetings regarding matters
affecting the operation of the business. Moreover, his having authorized in writing giving
Anay 37% of the proceeds of her personal sales, could not be interpreted otherwise than
that he had a proprietary interest in the business. This is inconsistent with his claim that
he merely acted as a guarantor. If indeed he was, he should have presented
documentary evidence. Also, Art. 2055 requires that a guaranty must be express and the
Statute of Frauds requires that it must be in writing. Petitioner Tocao was also a capitalist
in the partnership. She claimed that she herself financed the business.

The business venture operated under Geminesse Enterprise did not result in an
employer-employee relationship between petitioners and private respondent. First, Anay
had a voice in the management of the affairs of the cookware distributorship and second,
Tocao admitted that Anay, like her, received only commissions and transportation and
representation allowances and not a fixed salary. If Anay was an employee, it is difficult

12
to believe that they recieve the same income.

Also, the fact that they operated under the name of Geminesse Enterprise, a sole
proprietorship, is of no moment. Said business name was used only for practical reasons -
it was utilized as the common name for petitioner Tocaos various business activities,
which included the distributorship of cookware.

The partnership exists until dissolved under the law. Since the partnership created by
petitioners and private respondent has no fixed term and is therefore a partnership at will
predicated on their mutual desire and consent, it may be dissolved by the will of a
partner.

Petitioners Tocaos unilateral exclusion of private respondent from the partnership is

shown by her memo to the Cubao office plainly stating that private respondent was, as of
October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise. By that
memo, petitioner Tocao effected her own withdrawal from the partnership and considered
herself as having ceased to be associated with the partnership in the carrying on of the
business. Nevertheless, the partnership was not terminated thereby; it continues until
the winding up of the business.

The partnership among petitioners and private respondent is ordered dissolved, and the
parties are ordered to effect the winding up and liquidation of the partnership pursuant to
the pertinent provisions of the Civil Code. Petitioners are ordered to pay Anays 10%
share in the profits, after accounting, 5% overriding commission for the 150 cookware
sets available for disposition since the time private respondent was wrongfully excluded
from the partnership by petitioner, overriding commission on the total production, as well
as moral and exemplary damages, and attorneys fees.

14. LOTA vs. TOLENTINO

G.R. No. L-3518
RE: Duty to liquidate

FACTS: A partnership was entered into by the plaintiff and defendant whereby they
agreed to engage in a general business, divide the profits and share the losses, and that
defendant would be the manager of the said partnership. Plaintiff filed a complaint
alleging that from 1918 until 1928 defendant had rendered an annual accounting, but
has refused to do so from 1929 to 1937. Defendant, in his answer, alleged that he was an
industrial partner, and that he rendered a yearly accounting and liquidation from 1918 to
1932, and that in the latter year, the partnership was dissolved and defendant delivered
all its properties and assets to the plaintiff.

The plaintiff died in 1983 and was substituted by the administrator of his estate. The
following year, the defendant also died during the pendency of the case for accounting
and liquidation. Defendants counsel made a suggestion upon the record that defendant
had already died. The Court gave plaintiff 30 days to amend the complaint by
substituting for the deceased defendant the administrator of his estate or his legal
representative, but the plaintiff failed to do so.

ISSUE: Whether or not, after the death of the defendant, plaintiffs action for accounting
and liquidation of the partnership may be continued against the heirs of the defendant.
HELD: No, the action may not be continued against the heirs of the defendant. The Court
held that it is well settled that when a member of a mercantile partnership dies, the duty
of liquidating its affairs devolves upon the surviving member, or members, of the firm,
not upon the legal representatives of the deceased partner. And the same rule must be

13
equally applicable to a civil partnership clothed with the form of a commercial
association. As held in the case of Lim Ka Yam, upon his death, it therefore became the
duty of his surviving associates to take the proper steps to settle the affairs of the firm,
and any claim against him, or his state, for a sum of money due to the partnership by
reason of any misappropriation of its funds by him, or for damages resulting from his
wrongful acts as a manager, should be prosecuted against his estate in administration in
the manner provided by the Rules of Court. Moreover, when it appears that the
properties are in the possession of the partner, the proper step for the surviving
associates to take would be to make an application to the court having charge of the
administration to require the administrator to surrender such property.

15. YU vs. NLRC

RE: Rights of creditors

FACTS: Benjamin Yu was formerly the Assistant General Manager of the marble
quarrying and export business operated by a registered partnership, Jade Mountain
Products Company Limited. The partnership was originally organized on 28 June 1984
with Bendals as general partners and Chiu Shian Jeng, Chen Ho-Fu and Yu Chang as
limited partners. The partnership business consisted of exploiting a marble deposit in
Bulacan province.

Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as

Assistant General Manager with a monthly salary of P4,000.00. However Yu asserts that
he actually received only half of his stipulated monthly salary, since he had accepted the
promise of the partners that the balance would be paid when the firm shall have secured
additional operating funds from abroad. Benjamin Yu actually managed the operations
and finances of the business.

Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Bendals
sold and transferred their interests in the partnership to Willy Co and to one Emmanuel
Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his interest in the
partnership to Willy Co. Between Mr. Emmanuel Zapanta and himself, Willy Co acquired
the great bulk of the partnership interest. The partnership now constituted solely by Willy
Co and Emmanuel Zapanta continued to use the old firm name of Jade Mountain, though
they moved the firm's main office from Makati to Mandaluyong. A Supplement to the
Memorandum Agreement relating to the operation of the marble quarry was entered into
with the Cruz spouses in February of 1988. The actual operations of the business
enterprise continued as before. All the employees of the partnership continued working
in the business, all, save petitioner Benjamin Yu as it turned out.

On 16 November 1987, having learned of the transfer of the firm's main office from
Makati to Mandaluyong, Benjamin Yu reported to the Mandaluyong office for work and
there met Willy Co for the first time but he was in fact not allowed to work anymore in
the Jade Mountain business enterprise and the unpaid salaries remained unpaid.

On 21 December 1988, Benjamin Yu filed a complaint for illegal dismissal and recovery of
unpaid salaries accruing from November 1984 to October 1988, moral and exemplary
damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the other private
respondents. The partnership and Willy Co denied petitioner's charges, contending in the

14
main that Benjamin Yu was never hired as an employee by the present or new
partnership.
Labor Arbiter De Castro rendered a decision holding that Yu had been illegally dismissed,
decreed his reinstatement and awarded him his claim for unpaid salaries, backwages and
attorney's fees.

On appeal, NLRC reversed the decision of the Labor Arbiter and dismissed Yus complaint
and held that the new partnership had not retained Yu in his original position as Assistant
General Manager, and that there was no law requiring the new partnership to absorb the
employees of the old partnership. Benjamin Yu, therefore, had not been illegally
dismissed by the new partnership which had simply declined to retain him in his former
managerial position or any other position. Hence, this petition.

ISSUE: Whether or not petitioner Yu could nonetheless assert his rights under his
employment contract as against the new partnership.|||
HELD: YES. The Court held that under Article 1840 of the Civil Code , Benjamin Yu is
entitled to enforce his claim for unpaid salaries, as well as other claims relating to his
employment with the previous partnership, against the new Jade Mountain. What is
important for present purposes is that, under the above described situation, not only the
retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which
continued the business of the old, dissolved, one, are liable for the debts of the preceding
partnership. In Singson, et al. v. Isabela Saw Mill, et al, the Court held that under facts
very similar to those in the case at bar, a withdrawing partner remains liable to a third
party creditor of the old partnership. The liability of the new partnership, upon the other
hand, in the set of circumstances obtaining in the case at bar, is established in Article
1840 of the Civil Code. Under Article 1840, creditors of the old Jade Mountain are also
creditors of the new Jade Mountain which continued the business of the old one without
liquidation of the partnership affairs. Indeed, a creditor of the old Jade Mountain, like
petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-
a-vis any claim of any retired or previous partner insofar as such retired partner's interest
in the dissolved partnership is concerned. It is not necessary for the Court to determine
under which one or more of the above six (6) paragraphs, the case at bar would fall, if
only because the facts on record are not detailed with sufficient precision to permit such
determination.

AGENCY
16. ORIENT AIR vs.COURT OF APPEALS and AMERICAN AIR-LINES
INCORPORATED, respondents.
G.R. No. 76931 May 29, 1991
RE: Legal fiction

FACTS: On 15 January 1977, American Airlines, Inc., an air carrier offering passenger and
air cargo transportation in the Philippines, and Orient Air Services and Hotel
Representatives, entered into a General Sales Agency Agreement whereby American
Airlines authorized Orient Air Services to act as its exclusive general sales agent within
the Philippines for the sale of air passenger transportation.

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the
Agreement by failing to promptly remit the net proceeds of sales for the months of

15
January to March 1981 in the amount of US $254,400.40, American Air by itself
undertook the collection of the proceeds of tickets sold originally by Orient Air and
terminated forthwith the Agreement in accordance with Paragraph 13 thereof
(Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit against
Orient Air with the Court of First Instance of Manila, Branch 24, for Accounting with
Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining Order
averring the aforesaid basis for the termination of the Agreement as well as therein
defendant's previous record of failures "to promptly settle past outstanding refunds of
which there were available funds in the possession of the defendant, . . . to the damage
and prejudice of plaintiff."

In its Answer with counterclaim, defendant Orient Air denied the material allegations of
the complaint with respect to plaintiff's entitlement to alleged unremitted amounts,
contending that after application thereof to the commissions due it under the Agreement,
plaintiff in fact still owed Orient Air a balance in unpaid overriding commissions. Further,
the defendant contended that the actions taken by American Air in the course of
terminating the Agreement as well as the termination itself were untenable, Orient Air
claiming that American Air's precipitous conduct had occasioned prejudice to its business
interests.

Finding that the record and the evidence substantiated the allegations of the defendant,
the trial court ruled in its favor and against plaintiff dismissing the complaint and holding
the termination made by the latter as affecting the GSA agreement illegal and improper
and ordered the plaintiff to reinstate defendant as its general sales agent for passenger
tranportation in the Philippines in accordance with said GSA agreement. Plaintiff is
ordered to pay defendant the balance of the overriding commission on total flown
revenue covering the period from March 16, 1977 to December 31, 1980 in the amount
of US$84,821.31 plus the additional amount of US$8,000.00 by way of proper 3%
overriding commission per month commencing from January 1, 1981 until such
reinstatement. Further, plaintiff is directed to pay defendant exemplary damages and
attorney's fees.

On appeal, the Court of Appeals affirmed the findings of the court a quo on their material
points but with some modifications with respect to the monetary awards granted.

The principal issue for resolution by the Court is the extent of Orient Air's right to the 3%
overriding commission. It is the stand of American Air that such commission is based only
on sales of its services actually negotiated or transacted by Orient Air, otherwise referred
to as "ticketed sales."

On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding
commission covers the total revenue of American Air and not merely that derived from
ticketed sales undertaken by Orient Air. The latter, in justification of its submission,
invokes its designation as the exclusive General Sales Agent of American Air, with the
corresponding obligations arising from such agency, such as, the promotion and
solicitation for the services of its principal. In effect, by virtue of such exclusivity, "all
sales of transportation over American Air's services are necessarily by Orient Air."

ISSUES:
(1) WON Orient Air is entitled to an overriding commission based on total flown
revenue.
(2) WON CA erred in ordering reinstatement of Orient Air as an agent.

HELD:
(1) Yes. Orient Air was entitled to an overriding commission based on total flown revenue.
American Air's perception that Orient Air was remiss or in default of its obligations under
the Agreement was, in fact, a situation where the latter acted in accordance with the
Agreementthat of retaining from the sales proceeds its accrued commissions before

16
remitting the balance to American Air. Since the latter was still obligated to Orient Air by
way of such commissions. Orient Air was clearly justified in retaining and refusing to
remit the sums claimed by American Air. The latter's termination of the Agreement was,
therefore, without cause and basis, for which it should be held liable to Orient Air.

(2) Yes. The respondent appellate court erred in affirming the rest of the decision of the
trial court, particularly to the lower court's decision ordering American Air to "reinstate
defendant as its general sales agent for passenger transportation in the Philippines in
accordance with said GSA Agreement."

By affirming this ruling of the trial court, respondent appellate court, in effect, compels
American Air to extend its personality to Orient Air. Such would be violative of the
principles and essence of agency, defined by law as a contract whereby "a person binds
himself to render some service or to do something in representation or on behalf of
another, WITH THE CONSENT OR AUTHORITY OF THE LATTER. In an agent-principal
relationship, the personality of the principal is extended through the facility of the agent.
In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all
acts which the latter would have him do. Such a relationship can only be effected with
the consent of the principal, which must not, in any way, be compelled by law or by any
court.

17. Air France v Court of Appeals

126 SCRA 448
RE: Notice to the agent

FACTS: The Ganas purchased from Air France through Imperial Travels, a duly authorized
agent, 9 open dated tickets for a Manila/Osaka/Tokyo/Manila. The expiry date was May 8,
1970. Jose Gana sought the assistance of Teresita Manucdoc, a secretary of the company
where Jose Gana worked, to procure the extension of the validity of their tickets.
Manucdoc talked with Lee Ella, Manager of the Philippine Travel Bureau. She was told that
they would have to pay fare differentials and that the extension is impossible. The GANAS
scheduled their departure for May 7 and on May 6, Teresita again asked for Lee Ellas
help in the revalidation. She was told that it would only be valid until May 8 and no longer
valid for the rest of the trip after that. However, Ella attached revalidation stickers on the
2 tickets (revalidated by the Philippine Travel Bureau), without informing Air France. The
Ganas departed and but the airlines refused to honor their tickets at the start of the
Osaka/Tokyo leg. The GANAS had to purchase new tickets at re-adjusted rates and arrived
at Manila on different dates. TC-Air France. CA- Ganas. SC-Air France

ISSUES:
1. WON Ella acted beyond his powers as travel agent? YES
2. WON notice to Manucdoc is notice to the Ganas? YES
HELD: The GANAS cannot defend by contending lack of knowledge of those rules since
the evidence bears out that Teresita, who handled travel arrangements for the GANAS,
was duly informed by travel agent Ella of the advice of Reno, the Office Manager of Air
France, that the tickets in question could not be extended beyond the period of their
validity without paying the fare differentials and additional travel taxes brought about by
the increased fare rate and travel taxes. To all legal intents and purposes, Teresita was
the agent of the Ganas and notice to her of the rejection of the request for extension of
the validity of the tickets was notice to Gana as her principal. The circumstances that AIR
FRANCE personnel at the ticket counter in the airport allowed the GANAS to leave is not
tantamount to an implied ratification of travel agent Ella's irregular actuations. The
validating stickers that Ella affixed on his own merely reflect the status of reservations on
the specified flight and could not legally serve to extend the validity of a ticket or revive
an expired one. The conclusion is inevitable that the GANAS brought upon themselves

17
the predicament they were in for having insisted on using tickets that were due to expire
in an effort, perhaps, to beat the deadline and in the thought that by commencing the
trip the day before the expiry date, they could complete the trip even thereafter. It
should be recalled that AIR FRANCE was even unaware of the validating SAS and JAL.
Stickers that Ella had affixed spuriously. Consequently, Japan Air Lines and AIR FRANCE
merely acted within their contractual rights when they dishonored the tickets on the
remaining segments of the trip and when AIR FRANCE demanded payment of the
adjusted fare rates and travel taxes for the Tokyo/Manila flight.

18. Laureano T. Angeles vs. Philippine National Railways (PNR) and Rodolfo
Flores
August 31, 2006 G.R. No. 150128
RE: Agent as assignee

FACTS: Respondent Philippine National Railways (PNR) informed a certain Gaudencio

Romualdez (Romualdez, hereinafter) that it has accepted the latters offer to buy the
PNRs scrap/unserviceable rails located in Del Carmen and Lubao, Pampanga at
P1,300.00 andP2,100.00 per metric ton, respectively, for the total amount of P96,600.00.
Romualdez paid the purchase price and addressed a letter to Atty. Cipriano Dizon, PNRs
Acting Purchasing Agent. The letter authorized LIZETTE R. WIJANCO to be his (Romualdez)
lawful representative in the withdrawal of the scrap/unserviceable rails awarded to him.
Furthermore, the original copy of the award which indicates the waiver of rights, interest
and participation in favor of Lizetter R. Wijanco was also given. The Lizette R. Wijanco
was petitioner's now deceased wife. That very same day, Lizette requested the PNR to
transfer the location of withdrawal for the reason that the scrap/unserviceable rails
located in Del Carmen and Lubao, Pampanga were not ready for hauling. The PNR
granted said request and allowed Lizette to withdraw scrap/unserviceable railsin Murcia,
Capas and San Miguel, Tarlac instead. However, PNR subsequently suspended the
withdrawal in view of what it considered as documentary discrepancies coupled by
reported pilferages of over P500,000.00 worth of PNR scrap properties in Tarlac.
Consequently, the spouses Angeles demanded the refund of the amount of P96,000.00.
The PNR, however, refused to pay, alleging that as per delivery receipt duly signed by
Lizette, 54.658 metric tons of unserviceable rails had already been withdrawn. The
spouses Angeles filed suit against the PNR for specific performance and damages before
the Regional Trial Court. Lizette W. Angeles passed away and was substituted by her
heirs, among whom is her husband, herein petitioner Laureno T. Angeles. The trial court,
on the postulate that the spouses Angeles are not the real parties-in-interest, rendered
judgment dismissing their complaint for lack of cause of action. As held by the court,
Lizette was merely a representative of Romualdez in the withdrawal of scrap or
unserviceable rails awarded to him and not an assignee to the latter's rights with respect
to the award. Petitioner appealed with the Court of Appeals which dismissed the appeal
and affirmed that of the trial court.

ISSUE: Whether or not the CA erred in affirming the trial court's holding that petitioner
and his spouse, as plaintiffs a quo, had no cause of action as they were not the real
parties-in-interest in this case.
HELD: No. The CAs conclusion, affirmatory of that of the trial court, is that Lizette was
not an assignee, but merely an agent whose authority was limited to the withdrawal of
the scrap rails, hence, without personality to sue. Where agency exists, the third party's
(in this case, PNR's) liability on a contract is to the principal and not to the agent and the
relationship of the third party to the principal is the same as that in a contract in which
there is no agent. Normally, the agent has neither rights nor liabilities as against the third
party. He cannot thus sue or be sued on the contract. Since a contract may be violated
only by the parties thereto as against each other, the real party-in-interest, either as

18
plaintiff or defendant in an action upon that contract must, generally, be a contracting
party. The legal situation is, however, different where an agent is constituted as an
assignee. In such a case, the agent may, in his own behalf, sue on a contract made for
his principal, as an assignee of such contract. The rule requiring every action to be
prosecuted in the name of the real party-in-interest recognizes the assignment of rights
of action and also recognizes that when one has a right assigned to him, he is then the
real party-in-interest and may maintain an action upon such claim or right.
WHEREFORE, the petition is DENIED and the assailed decision of the CA is AFFIRMED.
Costs against the petitioner.

19. CORAZON NEVADA vs. ATTY. RODOLFO D. CASUGA

A.C. NO. 7591 (668 SCRA 441)
20 March 2012
RE: Presumption of agency

FACTS: Corazon T. Nevada (petitioner), a principal stockholder of C.T. Nevada & Sons,
Inc. which operates the Mt. Crest Hotel in Baguio City, allowed the use of one of the
Hotels function rooms for the church services of One in Jesus Christ Church. Because
both Nevada and Casuga (respondent) are members of the aforementioned religious
group, the latter was able to gain the trust and confidence of the former.

Nevada alleges that unbeknownst to her, Casuga started to represent himself as the
administrator of the hotel sometime in 2006. In fact, he entered into a contract of
lease with a certain Jung Jong Chul covering an office space in the hotel. He signed the
contract of lease, notarized the document himself and received the amount of Php
90,000 as rental deposit. Petitioner claims that the money was never turned over to her.
Furthermore, several pieces of jewelry with the aggregate amount of Php 300,000 as well
as a gold Rolex watch worth USD 12,000 belonging to Nevada were acquired by Casuga
who was under the obligation to sell the same and remit the proceeds to the former but
no jewelry nor money was returned.

Respondent Casuga, in an affidavit, claims that Nevada informally instituted him as the
administrator of the hotel in a limited capacity and with regard to the jewelry, he stated
that Nevada pawned the same in a pawnshop and later instructed respondents wife to
redeem them using their own money. Thereafter, Nevada asked respondents wife to sell
the valuables and reimburse herself from the proceeds. Respondent, however, was not
able to produce any evidence to support his claims.

ISSUE: Whether or not respondent is guilty of Gross Misconduct.

HELD: Yes, Atty. Rodulfo D. Casuga is liable for Gross Misconduct for violation of Canon
16 of the Code of Professional Responsibility and the Notarial Rules.

The court has defined Gross Misconduct as the transgression of some established or
definite rule of action, more particularly, unlawful behavior or gross negligence, or the
corrupt or persistent violation of the law or disregard of well-known legal rules.

Casuga represented himself as a duly-authorized representative of Nevada when in fact

he was not. Casuga admitted signing the subject contract of lease, but claimed that he
was duly authorized to do so by Nevada. However, Casuga failed to adduce an iota of
evidence to prove that he was indeed so authorized. One who alleges the existence
of an agency relationship must prove such fact. The Court ruled in Yun Kwan Byung
v. Philippine Amusement and Gaming Corporation, "The law makes no presumption
of agency and proving its existence, nature and extent is incumbent upon the
person alleging it."

19
Plainly enough, Casuga is guilty of misrepresentation, when he made it appear that he
was authorized to enter into a contract of lease in behalf of Nevada when, in fact, he was
not. Furthermore, the records reveal that Casuga received the rentals by virtue of the
contract of lease, benefitting from his misrepresentation.

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.

General Rule: Agency is generally not presumed. The relation between principal and
agent must exist as a fact. Thus, it is held that where relation of agency is dependent
upon the acts of the parties, the law makes no presumption of agency, and it is always a
fact to be proved, with burden of proof resting upon the person alleging the agency to
show, not only the fact of its existence, but also its nature and extent.

Exception: The only exceptions to this rule are when agency arises by operation of law or
to prevent unjust enrichment.

20. Litonjua, Jr. vs Eternit Corporation

490 SCRA 204 (2006)
RE: Intention to create agency

FACTS: The Eternit Corporation, a corporation duly organized and registered under
Philippine laws is engaged in the manufacture of roofing materials and pipe products. Its
manufacturing operations were conducted on eight parcels of land located in
Mandaluyong city with a total area of 47,233 square meters. Eteroutremer S.A.
Corporation (ESAC) owned Ninety percent of the shares of stocks of EC, a corporation
organized and registered under the laws of Belgium. Jack Glanville, an Australian citizen,
was the General Manager and President of EC, while Claude Frederick Delsaux was the
Regional Director for Asia of ESAC.

In 1986, the management of ESAC grew concerned about the political situation in the
Philippines and wanted to stop its operations in the country. The Committee for Asia of
ESAC instructed a member of ECs Board of Directors, Michael Adams, to dispose of the
eight parcels of land. Adams then engaged the services of realtor/broker Lauro G.
Marquez so that the properties could be offered for sale to prospective buyers. Marquez
then offered the parcels of land to Eduardo B. Litonjua, Jr. and his brother Anton. The
Litonjuas offered to buy the property for P20,000,000 in cash. Marquez apprised Jack
Glanville and Claude Delsaux of the said offer but no response came from Delsaux.
Glanville telexed Delsaux inquiring on his position on the offer. Delsaux answered stating
that, based on the "Belgian/Swiss decision," the final offer was US$1,000,000.00
and P2,500,000.00 to cover all existing obligations prior to final liquidation. Litonjua
accepted the offer and Marquez thereafter stated that the siblings would confirm full
payment within 90 days after all the dosuments of sale, with the government clearances
have been executed. The Litonjuas deposited US$1,000,000 with the Security Bank and

20
Trust and drafted an Escrow Agreement. Corazon Aquino assumed presidency of the
Philippines resulting in the improvement of the political situation. Glanville called
Marquez and informed him that the sale would no longer push through. The decision to
not sell the properties was made during a board meeting. The Litonjuas thereafter
demanded payment for damages they suffered due to the aborted sale. However, Eternit
Corporation rejected their demand.

ISSUES: Whether or not Glanville, Delsaux and Marquez were authorized by Eternit
Corporation to act as its agents in the sale of their property?
HELD: No. The Court held that, in an agent-principal relationship, the personality of the
principal is extended through the facility of the agent. In so doing, the agent, by legal
fiction, becomes the principal, authorized to perform all acts, which the latter would have
him do. Such relationship can only be effected with the consent of the principal, which
must not in any way, be compelled by law or any court.

A corporation is a juridical person separate and distinct from its members or

stockholders. Personal rights, obligations and transactions of its members or stockholders
do not affect it. It may act only through the board of directors or through its agents or
officers. Furthermore, the property of a corporation may not be sold without authority
from the board of directors. Absent such authorization, the rule is that the declarations of
an individual director, but not in the course or connected with the performance of the
authorized duties of the director, are not binding upon the corporation.

An agency may be impled or expressed from the principals acts, from hi silence or lack
of action or his failure to repudiate the agency. To create or convey real rights over
immovable property, a special power of attorney is needed.

In the case at bar, the Litonjuas failed to produce evidence empowering Marquez,
Glanville and Delsaux as agents of Eternit Corporation to sell the property in its behalf.
They acted in behalf of ESAC and not as agents of Eternit Corporation. An agency by
estoppel requires proof of reliance upon the representations., proof which is absent in
this case. As such the sale was not valid and binding.

21. Victorias Milling Co. vs. CA & Consoliated Sugar Corp

RE: Control

FACTS: St. Therese Merchandising (STM) regularly bought sugar from petitioner Victorias
Milling Co., Inc., (VMC). In the course of their dealings, VMC issued several Shipping
List/Delivery Receipts (SLDRs) to STM as proof of purchases. Among these was SLDR No.
1214M, which gave rise to the instant case. This SLDR No. 1214M covers 25,000 bags of
sugar, each bag containing 50 kg priced at P638.00 per bag as "per sales order VMC
Marketing No. 042." The transaction it covered was a "direct sale."

Later on, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights
in SLDR No. 1214M. CSC wrote VMC that it had been authorized by STM to withdraw the
sugar covered by SLDR No. 1214M. Enclosed in the letter were a copy of SLDR No. 1214M
and a letter of authority from STM authorizing CSC "to withdraw for and in our behalf the
refined sugar covered by SLDR No. 1214M.

CSC surrendered SLDR No. 1214M to VMC's warehouse and was allowed to withdraw
sugar. However, after 2,000 bags had been released, VMC refused to allow further
withdrawals of sugar against SLDR No. 1214M. CSC then sent VMC a letter informing it
that SLDR No. 1214M had been "sold and endorsed" to it but that it had been refused
further withdrawals of sugar from its warehouse. Thus CSC sent VMC a letter demanding
the release of the balance of 23,000 bags.
Thereafter, CSC filed a complaint for specific performance.

21
ISSUE: WON C.S.C. was an agent of S.T.M.
HELD: Petitioner VMC heavily relies upon STM's letter of authority allowing CSC to
withdraw sugar against SLDR No. 1214M to show that the latter was STM's agent. The
pertinent portion of said letter reads: "This is to authorize CSC to withdraw for and in
our behalf the refined sugar covered by (SLDR) No. 1214M in the total quantity of 25, 000
bags." VMCs reliance on such would fail.

The Civil Code defines a contract of agency as follows: "Art. 1868. By the contract of
agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter."

It is clear from Article 1868 that the basis of agency is representation. On the part of the
principal, there must be an actual intention to appoint, or an intention naturally inferable
from his words or actions. On the part of the agent, there must be an intention to accept
the appointment and act on it, and in the absence of such intent, there is generally no
agency.

One factor which most clearly distinguishes agency from other legal concepts is control.
One person - the agent - agrees to act under the control or direction of another - the
principal. Indeed, the very word "agency" has come to connote control by the principal.
The control factor, more than any other, has caused the courts to put contracts between
principal and agent in a separate category.

The CA, in finding that CSC, was not an agent of STM, opined: "This Court has ruled that
where the relation of agency is dependent upon the acts of the parties, the law makes no
presumption of agency, and it is always a fact to be proved, with the burden of proof
resting upon the persons alleging the agency, to show not only the fact of its existence,
but also its nature and extent (Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here, VMC failed
to sufficiently establish the existence of an agency relation between CSC and STM. The
fact alone that STM had authorized withdrawal of sugar by CSC "for and in our (STM's)
behalf" should not be eyed as pointing to the existence of an agency relation ...."
In the instant case, it appears plain to us that private respondent CSC was a buyer of the
SLDFR form, and not an agent of STM. CSC was not subject to STM's control. The
question of whether a contract is one of sale or agency depends on the intention of the
parties as gathered from the whole scope and effect of the language employed. That the
authorization given to CSC contained the phrase "for and in our (STM's) behalf" did not
establish an agency.

Ultimately, what is decisive is the intention of the parties. That no agency was meant to
be established by the CSC and STM is clearly shown by CSC's communication to
petitioner that SLDR No. 1214M had been "sold and endorsed" to it. The use of the words
"sold and endorsed" means that STM and CSC intended a contract of sale, and not an
agency. Hence, no error was committed by the respondent C.A. when it held that CSC
was not STM's agent and that it could independently sue VMC.

22. CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA

QUEAO, respondents.
RE: Agency by estoppel

FACTS: Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand
Pesos (P200,000.00), which Naguiat granted.To secure the loan, Queao executed a Deed
of Real Estate Mortgage dated 11 August 1980 in favor of Naguiat, and surrendered to
the latter the owners duplicates of the titles covering the mortgaged properties.Upon

22
presentment on its maturity date, the Security Bank check was dishonored for
insufficiency of funds.On 16 October 1980, Queao received a letter from Naguiats
lawyer, demanding settlement of the loan. Shortly thereafter, Queao and one Ruby
Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the meeting, Queao told Naguiat that
she did not receive the proceeds of the loan, adding that the checks were retained by
Ruebenfeldt, who purportedly was Naguiats agent.on 11 August 1981, private
respondent Aurora Queao (Queao) filed a complaint before the Pasay City RTC for
cancellation of a Real Estate Mortgage she had entered into with petitioner Celestina
Naguiat (Naguiat). The RTC rendered a decision, declaring the questioned Real Estate
Mortgage void, which Naguiat appealed to the Court of Appeals. After the Court of
Appeals upheld the RTC decision, Naguiat instituted the present petition.

ISSUE: Whether or not there was agency by estoppel

HELD: The Supreme Court held in the affirmative.The existence of an agency
relationship between Naguiat and Ruebenfeldt is supported by ample evidence. As
correctly pointed out by the Court of Appeals, Ruebenfeldt was not a stranger or an
unauthorized person. Naguiat instructed Ruebenfeldt to withhold from Queao the
checks she issued or indorsed to Queao, pending delivery by the latter of additional
collateral. Ruebenfeldt served as agent of Naguiat on the loan application of Queaos
friend, Marilou Farralese, and it was in connection with that transaction that Queao
came to know Naguiat. It was also Ruebenfeldt who accompanied Queao in her meeting
with Naguiat and on that occasion, on her own and without Queao asking for it,
Reubenfeldt actually drew a check for the sum of P220,000.00 payable to Naguiat, to
cover for Queaos alleged liability to Naguiat under the loan agreement.
The Court of Appeals recognized the existence of an agency by estoppel citing Article
1873 of the Civil Code.Apparently, it considered that at the very least, as a consequence
of the interaction between Naguiat and Ruebenfeldt, Queao got the impression that
Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to correct Queaos
impression. In that situation, the rule is clear. One who clothes another with apparent
authority as his agent, and holds him out to the public as such, cannot be permitted to
deny the authority of such person to act as his agent, to the prejudice of innocent third
parties dealing with such person in good faith, and in the honest belief that he is what he
appears to be.The Court of Appeals is correct in invoking the said rule on agency by
estoppel.

More fundamentally, whatever was the true relationship between Naguiat and
Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed to
Queao were never encashed or deposited to her account of Naguiat.

23. COSMIC LUMBER CORP. vs. CA

RE: Sale of real property without authority of agent in writing

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 -
x x x 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

23
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. On 25 November
1985 Villamil-Estrada entered into a Compromise Agreement with respondent Perez,
wherein Villamil-Estrada sold to respondent Perez for P26, 640 computed at P80/sq.
meter the 333 sq. meter portion of lot 443. Villamil-Estrada received the amount paid by
Perez. On 27 November 1985 the Compromise Agreement was approved by the trial
court and I 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. Villamil-Estrada, to private respondent under the compromise agreement.
Thus on 25 January 1993 respondent filed a complaint to revive the judgment.

ISSUE:
1. Whether or not Petitioner the decision of the trial court is void because the a
compromise agreement upon which it was based is void.
2. Whether or not Villamil-Estrada possess the authority to sell.
HELD: Attorney-in-fact Villamil-Estrada did not possess the authority to sell or was she
armed with a Board Resolution authorizing the sale of its property. She was merely
empowered to enter into a compromise agreement in the recovery suit she was
authorized to file against persons squatting on Lot No. 443, such authority being
expressly confined to the ejectment of third persons or squatters of x x x lot x x x (No.)
443 x x x 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 x x x x

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 to 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.[9] 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.[10] 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.[11] 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.[12] 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.[13]
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

24
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 Villamil-Estrada and Perez impaired the jurisdiction of
the trial court to render its decision based on the compromise agreement

It may be argued that petitioner knew of the compromise agreement since the principal
is chargeable with and bound by the knowledge of or notice to his agent received while
the agent was acting as such. But the general rule is intended to protect those who
exercise good faith and not as a shield for unfair dealing. Hence there is a well-
established exception to the general rule as where the conduct and dealings of the agent
are such as to raise a clear presumption that he will not communicate to the principal the
facts in controversy.[21] The logical reason for this exception is that where the agent is
committing a fraud, it would be contrary to common sense to presume or to expect that
he would communicate the facts to the principal. Verily, when an agent is engaged in
the perpetuation of a fraud upon his principal for his own exclusive benefit, he is not
really acting for the principal but is really acting for himself, entirely outside the scope of
his agency.[22] Indeed, the basic tenets of agency rest on the highest considerations of
justice, equity and fair play, and an agent will not be permitted to pervert his authority to
his own personal advantage, and his act in secret hostility to the interests of his principal
transcends the power afforded him.

24. VELOSO v. COURT OF APPEALS.

A 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
RE: GPA

FACTS: Petitioner Francisco Veloso owns a parcel of land in Tondo, Manila with an area of
177m2 and covered by a TCT No. 49138 issued by the Registry of Deeds of Manila. The
title was registered in his name before he married Irma Veloso. Hence, the property did
not belong to their conjugal partnership.

The said title was subsequently cancelled and a new TCT No. 180685 was issued in the
name of Aglaloma B. Escario.
Petitioner Veloso filed an action for annulment of documents, reconveyance of property
with damages and preliminary injunction and/or restraining order.

Petitioner alleged that he was the absolute owner of the subject property and he never
authorized anybody to sell it, and that he was in possession of the title. He found out
that his copy was missing when his wife left for abroad. When he verified with the
Registry of Deeds of Manila, he discovered that his title was already canceled in favor of
defendant Aglaloma Escario. The transfer of property was supported by a GPA and Deed
of Absolute Sale executed by Irma Veloso and defendant Aglaloma Escario. Petitioner
Veloso denied having executed the power of attorney and alleged that his signature was
falsified. He also denied having seen or even known the supposed witnesses in the
execution of the power of attorney, and having met or transacted with the defendant.
Thus, he contended that the sale of the property and the subsequent transfer thereof
were null and void. Petitioner Veloso prayed that a temporary restraining order be issued
to prevent the transfer of the subject property; that the GPA, the Deed of Absolute Sale
and the new TCT No. 180685 be annulled; and the subject property be reconveyed to
him.

Defendant Aglaloma Escario alleged that she was a buyer in good faith and denied any
knowledge of the alleged irregularity. She allegedly relied on the GPA of Irma Veloso

25
which was sufficient in form and substance and was duly notarized. Defendant Escario
prayed for the dismissal of the complaint and the payment to her of damages.
Atty. Julian G. Tubig, witness for the petitioner, denied any participation in the execution
of the GPA and attested that he did not sign thereon, and the same was never entered in
his Notarial Register.

RTC: Defendant Aglaloma Escario was adjudged the lawful owner of the property as she
was deemed an innocent purchaser for value. The assailed GPA was held to be valid and
sufficient for the purpose.
Not satisfied with the decision, petitioner Veloso filed his appeal with the CA. CA affirmed
in toto the findings of the trial court.

ISSUE: W/N there is a need to execute a separate special power of attorney even if the
general power of attorney had expressly authorized the agent the power to sell the
subject property
HELD: The court held that there is no need to execute a separate and special
power of attorney since the general power of attorney had expressly authorized the
agent or attorney-in-fact the power to sell the subject property.
The assailed power of attorney was valid and regular on its face. Having been notarized,
it carries the evidentiary weight conferred upon it with respect to its due execution. 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:

"2. To buy or sell, hire or lease, mortgage or otherwise hypothecate 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."

Thus, there was no need to execute a separate and special power of attorney since the
general power of attorney had expressly authorized the agent or attorney in fact the
power to sell the subject property. 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.

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, there cannot be any doubt that the attorney in fact may execute a valid sale.

The power of attorney presented by petitioners wife, Irma, included the power to sell,
upon which private respondent Aglaloma relied on. Being the wife of the owner and
having with her the title of the property, there was no reason for the private respondent
not to believe, in her authority. Moreover, the power of attorney was notarized and as
such, carried with it the presumption of its due execution. Thus, having had no inkling on
any irregularity and having no participation thereof, private respondent was a buyer
in good faith.
Petition for review is hereby DENIED for lack of merit.

25. OLAGUER v. ONJUCO

G.R. No. 173312; August 26, 2008
RE: SPA included in the GPA

26
FACTS: Lino Olaguer died on October 3, 1957 so Special Proceedings No. 528 for probate
of will was filed in the then Court of First Instance of Albay. Defendant Olivia P. Olaguer
was appointed as administrator pursuant to the will. Later, defendant Eduardo Olaguer
was appointed as co-administrator.

In the order of the probate court dated April 4, 1961, some properties of the estate were
authorized to be sold to pay obligations of the estate.
Relying upon the order, but without prior notice or permission from the Probate Court,
defendants Olivia P. Olaguer and Eduardo Olaguer on November 1, 1965 sold to
Estanislao Olaguer 10 parcels of land. The sale to was approved by the Probate Court on
November 12, 1965.

On July 7, 1966, defendant Olivia P. Olaguer executed a Special Power of Attorney in favor
of defendant Jose A. Olaguer, authorizing the latter to "sell, mortgage, assign, transfer,
endorse and deliver" of 6 properties.
On July 7, 1966, Estanislao Olaguer executed a Special Power of Attorney in favor of Jose
A. Olaguer authorizing the latter to "sell, mortgage, assign, transfer, endorse and deliver"
the 9 properties.

By virtue of this Special Power of Attorney, on March 1, 1967, Jose A. Olaguer as

Attorney-in-Fact of Estanislao Olaguer mortgaged Lots 7589, 7593 and 7396 to defendant
PNB as security for a loan of 10,000 Pesos. The mortgage was foreclosed by the PNB on
June 13, 1973 and the properties mortgage were sold at public auction to PNB. On
December 10, 1990, the PNB transferred the properties to the Republic of the Philippines
pursuant to Exec. Order No. 407 dated June 14, 1990 for agrarian reform purposes.

On October 29, 1966, Estanislao Olaguer executed a General Power of Attorney in favor
of Jose A. Olaguer, authorizing the latter to exercise general control and supervision over
all of his business and properties, and among others, to sell or mortgage any of his
properties.
On December 29, 1966, Estanislao Olaguer sold to Jose A. Olaguer for 15,000 the 10
parcels of land he bought from Olivia P. Olaguer and Eduardo Olaguer.
On March 16, 1968, Estanislao Olaguer sold to Jose A. Olaguer for 1 Peso and other
valuable consideration 2 parcels of land which have a total area of 2.5 hectares.
On June 5, 1968, Estanislao Olaguer sold another 2 lots to Jose A. Olaguer for 1 Peso and
other valuable consideration.
On May 13, 1971, Jose A. Olaguer in his capacity as Attorney in-Fact of Estanislao Olaguer
sold to his son Virgilio Olaguer for 1 Peso and other valuable consideration.
On July 15, 1974, Jose A. Olaguer sold to his son Virgilio Olaguer Lot No. 4521 and Lot No.
4522 for 1,000 Pesos.

On September 16, 1978 Virgilio Olaguer executed a General Power of Attorney in favor of
Jose A. Olaguer authorizing the latter to exercise general control and supervision over all
of his business and properties and among others, to sell or mortgage the same.
Olivia P. Olaguer and Eduardo Olaguer were removed as administrators of the estate and
on February 12, 1980, plaintiff Ma. Linda Olaguer Montayre was appointed administrator
by the Probate Court.

The decedent Lino Olaguer have had three marriages. He was first married to Margarita
Ofemaria who died April 6, 1925. His second wife was Gloria Buenaventura who died on
July 2, 1937. The third wife was the defendant Olivia P. Olaguer.

Jose Olaguer acting upon the general power of attorney sold 8 parcels of land to Emilio
Ongjoco.

On 28 January 1980, the Estate of Lino Olaguer filed an action for the Annulment of Sales
of Real Property and/or Cancellation of Titles in the then Court of First Instance of Albay.
The plaintiffs therein alleged that the sales of the following properties belonging to the

27
Estate of Lino Olaguer to Estanislao Olaguer were absolutely simulated or fictitious, the
plaintiffs likewise prayed that the resulting Transfer Certificates of Title issued to Jose
Olaguer, Virgilio Olaguer, Cipriano Duran and the PNB be annulled.

ISSUE: Whether General Power of Attorney was sufficient to effect the sale of the subject
properties
HELD: Yes, the general power of attorney was sufficient
The Supreme Court held that while the law requires a special power of attorney, the
general power of attorney was sufficient in this case, as Jose A. Olaguer was expressly
empowered to sell any of Virgilio's properties; and to sign, execute, acknowledge and
deliver any agreement therefor. Even if a document is designated as a general power of
attorney, the requirement of a special power of attorney is met if there is a clear
mandate from the principal specifically authorizing the performance of the act. The
special power of attorney can be included in the general power when the act or
transaction for which the special power is required is specified therein.

On its face, the written power of attorney contained the signature of Virgilio Olaguer and
was duly notarized. As such, the same is considered a public document and it has in its
favor the presumption of authenticity and due execution, which can only be contradicted
by clear and convincing evidence.

26. DBP vs CA, et al.

RE: Liability of agent who exceeds the scope of his authority

FACTS: Juan Dans, 76 years old, husband Candida, applied for a loan with DBP and was
advised by the latter to obtain a Mortgage Redemption Insurance (MRI) with the DBP MRI
Pool. A loan of 300k was released and DBP deducted the premium for the MRI from the
loan. Days later, Juan died (cardiac arrest) and DBP informed DBP MRI Pool of his death. It
later notified DBP that Juan is not eligible for MRI coverage being over the acceptance
age limit of 60 years.

DBP informed Candida of the disapproved MRI application and demanded the payment of
the face value of the MRI (amount of the loan) and offered to refund the premium taken.
Candida paid under protest. She then filed a case against DBP and DBP MRI Pool for the
reimbursement of the sum paid contending that DBP MRI Pool already insured Juan when
DBP required him to apply for MRI with full knowledge of Juan's age. RTC ruled in favor of
Candida and absolved DBP MRI Pool for not having a privity of contract with Juan Dans.
CA affirmed.

ISSUE: WON DBP MRI Pool is liable

HELD: NO, under the provisions regarding the MRI coverage, the power to approve MRI
applications is logged with DBP MRI Pool, which in this case, it did not approved. There
was no perfected contract of insurance, hence DBP MRI Pool cannot be held liable. It was
DBP that required Juan to secure MRI coverage, deducted the premium from his loan and
made him fill up his application for MRI. In this case, DBP is considered (1) a lender and
(2) an INSRANCE AGENT.

As an insurance agent, DBP lead Juan to believed that they had already fulfilled the
requirements, even though DBP is totally aware of the age limit for MRI coverage
acceptance. DBP exceeded the scope of it authority when it accepted Juan's application
for MRI by collecting the insurance premium and deducting its agent's commission and
service fee. The liability of an agent who exceeds the scope of his authority depends
upon whether the 3rd person is aware of the limits of the agent's power. There was no

28
showing that Juan knows of the limitation on DBP's authority to solicit application for
MRIs.

27. Nicholas Cervantes v. CA and Philippine Air Lines, Inc.

G.R. 125138. 2 March 1999.
RE: Ratification

FACTS: On 27 March 1989, PAL issued to Cervantes a round trip plane ticket for Manila-
Honolulu-Los Angeles-Honolulu-Manila, which expressly provided an expiry date of one
year from issuance. Said ticket was issued in compliance with a Compromise Agreement
entered into between the contending parties in two previous suits before the RTC in
Surigao City. On 23 March 1990, Cervantes used it. Upon his arrival in Los Angeles on
the same day, he booked his Los Angeles-Manila return ticket with the PAL office, and it
was confirmed for the 2 April 1990 flight. However, upon learning that the same PAL
plane would make a stopover in San Francisco, and considering that he would be there on
2 April 1990, Cervantes made arrangements with PAL for him to board the same flight in
San Francisco instead of boarding in Los Angeles.

When the petitioner checked in at the PAL counter in San Francisco on 2 April 1990, he
was not allowed to board by the PAL personnel due to the expiration of the validity of his
ticket. Cervantes filed a Complaint for Damages for breach of contract of carriage as he
claimed that the act of the PAL agents in confirming his ticket extended its period of
validity. The RTC dismissed the complaint for lack of merit. On appeal, the Court of
Appeals affirmed the dismissal.

ISSUE: Whether or not the act of the PAL agents in confirming the subject ticket
extended the period of validity of petitioners ticket.

HELD: No. The PAL agents did not have authority to do so.
As ruled by the CA, Cervantes knew from the very start that the agents did not have the
authority to extend the validity or lifetime of his ticket as he called the Legal Department
of PAL in the Philippines before he left for the United States. He had first-hand
knowledge that the ticket would expire on 27 March 1990, and that to secure an
extension, he would have to file a written request for extension at PALs office in the
Philippines.

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 acted without authority when they
confirmed the flights of the petitioner.

Under Article 1898 of the New Civil Code, the acts of an agent beyond the scope of his
authority do not bind the principal, unless the latter ratifies the same expressly or
impliedly. Furthermore, when the third person (Cervantes) knows that the agent was
acting beyond his power or authority, the principal cannot be held liable for the acts of
the agent. If the said third person is aware of such limits of authority, he is to blame, and
is not entitled to recover damages from the agent, unless the latter undertook to secure
the principals ratification.
Petition dismissed.

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28. Banate v. PCRB (2010)
RE: Cross collateral stipulation / apparent authority

DOCTRINE: The existence of apparent authority may be ascertained through:

1. The general manner in which the corporation holds out an officer or agent as
having the power to act.
2. The acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, within or beyond the scope of his ordinary powers.
3.
The principals liability, however, is limited only to third persons that have been led
reasonably to believe by the conduct of the principal that such actual authority exists,
although none was given. In other words, apparent authority is determined only by the
acts of the principal and not by the acts of the agent. The present case failed to show the
manner by which PCRB, as supposed principal, has "clothed" or "held out" its branch
manager as having the power to enter into an agreement, as claimed by petitioners.

FACTS: On July 1997, Spouses Rosendo Maglasang and Patrocinia Monilar (Spouses
Maglasang) obtained from PCRB a loan (subject loan) worth P1,070,000.00. The loan was
evidenced by a promissory note payable on January 1998 and secured by a real estate
mortgage over the spouses property (subject properties), including the house
constructed thereon which is also owned by spouses Melgrid and Bonifacio Cortel, the
spouses Maglasangs daughter and son-in-law, respectively. Aside from the
abovementioned loan, the spouses Maglasang obtained two other loans from PCRB,
which were evidenced by separate promissory notes and secured by mortgages on their
other properties.

Sometime in November 1997, the spouses Maglasang asked PCRBs permission to sell
the subject properties. They likewise requested that the subject properties be released
from mortgage since the two other loans were adequately secured by the other
mortgages. Mondigo, PCRB branch manager, verbally agreed to their requested but
required first the full payment of the subject loan. The spouses Maglasang and Cortel
thereafter sold to Banate the subject properties for P1,750,000.00 and such amount was
used to settle the subject loan. Banate was able to secure a title in her name, however,
the title still carried the mortgage lien in favor of PCRB. Banate, along with spouses
Maglasang and Cortel requested from PCRB a deed of release of mortgage but PCRB
refused to comply. PCRB invoked the cross collateral stipulation in the mortgage deed
which states that:

That as security for the payment of the loan or advance in principal sum of one million
seventy thousand pesos only (P1,070,000.00) and such other loans or advances already
obtained, or still to be obtained by the MORTGAGOR(s) as MAKER(s), CO-MAKER(s) or
GUARANTOR(s) from the MORTGAGEE plus interest at the rate of _____ per annum and
penalty and litigation charges payable on the dates mentioned in the corresponding
promissory notes, the MORTGAGOR(s) hereby transfer(s) and convey(s) to MORTGAGEE
by way of first mortgage the parcel(s) of land described hereunder, together with the
improvements now existing for which may hereafter be made thereon, of which
MORTGAGOR(s) represent(s) and warrant(s) that MORTGAGOR(s) is/are the absolute
owner(s) and that the same is/are free from all liens and encumbrances;

PCRB claims that full payment of the 3 loans obtained from the bank must be fulfilled
before the subject properties may be released from mortgage. The settlement of the
subject loan merely constituted partial payment of the total obligation. On the other
hand, petitioners claim that the contract was novated by the subsequent agreement with
Mondigo that upon full payment of the subject loan, subject properties may be released
from mortgage.

ISSUE: WON Mondigos verbal agreement to the petitioners request novated the
mortgage contract.

30
HELD: NO. Section 23 of the Corporation Code states that the powers of all corporations
shall be exercised by the board of directors. In the absence of authority from the board of
directors, no person, not even its officers, can validly bind a corporation. However, the
board of directors may validly delegate some of its functions and powers to its officers,
committees or agents. The authority of a corporate officer or agent in dealing with third
persons may be actual or apparent. Actual authority is either express or implied. The
extent of an agents express authority is to be measured by the power delegated to him
by the corporation, while the extent of his implied authority is measured by his prior acts
which have been ratified or approved, or their benefits accepted by his principal.

The doctrine of apparent authority on the other hand, with special reference to banks,
had long been recognized in this jurisdiction. The existence of apparent authority may be
ascertained through:
1. The general manner in which the corporation holds out an officer or agent as
having the power to act.
2. The acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, within or beyond the scope of his ordinary powers.

The petitioners, in failing to prove that Mondigo had actual authority to novate the
mortgage contract, base their claim on Mondigos apparent authority. The petitioners
claim is misplaced.

Under the doctrine of apparent authority, acts and contracts of the agent, as are within
the apparent scope of the authority conferred on him, although no actual authority to do
such acts or to make such contracts has been conferred, bind the principal. The
principals liability, however, is limited only to third persons that have been led
reasonably to believe by the conduct of the principal that such actual authority exists,
although none was given. In other words, apparent authority is determined only by the
acts of the principal and not by the acts of the agent. The present case failed to show the
manner by which PCRB, as supposed principal, has "clothed" or "held out" its branch
manager as having the power to enter into an agreement, as claimed by petitioners.
Neither was there any allegation, much less proof, that PCRB ratified Mondigos act or is
estopped to make a contrary claim. Being a mere branch manager alone is insufficient to
support the conclusion that Mondigo has been clothed with "apparent authority" to
verbally alter terms of written contracts. Also, it is a settled rule that persons dealing
with an agent are bound at their peril, if they would hold the principal liable, to ascertain
not only the fact of agency but also the nature and extent of the agents authority, and in
case either is controverted, the burden of proof is upon them to establish it.

Being that Mondigo did not have the authority to bind PCRB, then novation cannot take
place. The requisites of novation are: (1) a previous valid obligation; (2) an agreement of
all parties concerned to a new contract; (3) the extinguishment of the old obligation; and
(4) the birth of a valid new obligation. The second requisite is lacking in this case
because the consent of both parties was never obtained.

29. BACALTOS vs. CA and SAN MIGUEL CORPORATION, respondents.

G.R. No. 114091 June 29, 1995
RE: Duty to ascertain limits of authority

FACTS: A Trip Charter Party was executed between BACALTOS COAL MINES, represented
by its Chief Operating Officer, RENE ROSEL SAVELLON" and San Miguel Corporation
(SMC), represented by Francisco B. Manzon, Jr., its Director. Thereunder, Savellon claims
that Bacaltos Coal Mines is the owner of the vessel M/V Premship II and that for
P650,000.00 to be paid within seven days after the execution of the contract, it "lets,
demises" the vessel to charterer SMC "for three round trips to Davao."

31
As payment of the aforesaid consideration, SMC issued a check payable to "RENE
SAVELLON IN TRUST FOR BACALTOS COAL MINES" for which Savellon issued a receipt
under the heading of BACALTOS COAL MINES with the address at No 376-R Osmea Blvd.,
Cebu City.

The vessel was able to make only one trip. Its demands to comply with the contract
having been unheeded, SMC filed against the petitioners and Rene Savellon a complaint
for specific performance and damages. In their Answer, the petitioners alleged that
Savellon was not their Chief Operating Officer and that the powers granted to him are
only those clearly expressed in the Authorization which do not include the power to enter
into any contract with SMC.

ISSUE: Whether petitioners are solidarily liable with Rene Savellon to San Miguel Corp?
HELD: No. Every person dealing with an agent is put upon inquiry and must discover
upon his peril the authority of the agent. If he does not make such inquiry, he is
chargeable with knowledge of the agent's authority, and his ignorance of that authority
will not be any excuse. Persons dealing with an assumed agent, whether the assumed
agency be a general or special one, are bound at their peril, if they would hold the
principal, to ascertain not only the fact of the agency but also the nature and extent of
the authority, and in case either is controverted, the burden of proof is upon them to
establish it.

In the instant case, since the agency of Savellon is based on a written document, the
Authorization provides for the extent and scope of his powers. The language of the
Authorization is clear. It pertinently states as follows:
I. GERMAN A. BACALTOS, of legal age, Filipino, widower, and residing at second street,
Espina Village, Cebu City, province of Cebu, Philippines, do hereby authorize RENE R.
SAVELLON, of legal age, Filipino and residing at 376-R Osmea Blvd., Cebu City, Province
of Cebu, Philippines, to use the coal operating contract of BACALTOS COAL MINES of
which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not
by way of limitation, as follows:
(1) To acquire purchase orders for and in behalf of BACALTOS COAL MINES;
(2) To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON;
(3) To collect all receivables due or in arrears from people or companies having dealings
under BACALTOS COAL MINES/RENE SAVELLON;
(4) To extend to any person or company by substitution the same extent of authority that
is granted to Rene Savellon;
(5) In connection with the preceeding paragraphs to execute and sign documents,
contracts, and other pertinent papers.

The conclusion then of the Court of Appeals that the Authorization includes the power to
enter into the Trip Chapter Party because the "five prerogatives" are prefaced by such
clause, is seriously flawed. It fails to note that the broadest scope of Savellon's authority
is limited to the use of the coal operating contract and the clause cannot contemplate
any other power not included in the enumeration or which are unrelated either to the
power to use the coal operating contract or to those already enumerated. Furthermore,
had SMC exercised due diligence and prudence, it should have known in no time that
there is absolutely nothing on the face of the Authorization that confers upon Savellon
the authority to enter into any Trip Charter Party.

SMC's negligence was further compounded by its failure to verify if Bacaltos Coal Mines
owned a vessel. A party desiring to charter a vessel must satisfy itself that the other
party is the owner of the vessel or is at least entitled to its possession with power to
lease or charter the vessel. In the instant case, SMC made no such attempt. It merely
satisfied itself with the claim of Savellon that the vessel it was leasing is owned by
Bacaltos Coal Mines and relied on the presentation of the Authorization as well as its test
on the sea worthiness of the vessel. it is clear therefrom that petitioners are not engaged

32
in shipping but in coal mining or in coal business, SMC should have required the
presentation of pertinent documentary proof of ownership of the vessel to be chartered.
Having thus found that SMC was the author of its own damage and that the petitioners
are, therefore, free from any liability, the Supreme Court ruled that only RENE SAVELLON
is liable to SMC.

30. LIMKETKAI vs.CA, BANK OF THE PHILIPPINE ISLANDS and NATIONAL BOOK
STORE

G.R. No. 118509 December 1, 1995

RE: Principal bound by the authority of the agent

FACTS: May 14, 1976, Philippine Remnants Co., Inc. constituted BPI as its trustee to
manage, administer, and sell its real estate property a 33,056-square meter lot at Barrio
Bagong Ilog, Pasig.
On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker was given formal
authority by BPI to sell the lot for P1,000.00 per square meter. This arrangement was
concurred in by the owners of the Philippine Remnants. Broker Revilla contacted Alfonso
Lim of petitioner company who agreed to buy the land.

On July 9, 1988, Revilla formally informed BPI that he had procured a buyer, herein
petitioner,
On July 11, 1988, petitioner's officials, Alfonso Lim and Albino Limketkai, went to BPI to
confirm the sale. They were entertained by Vice-President Merlin Albano and Asst. Vice-
President Aromin. The Tparties finally agreed that the lot would be sold at P1,000.00 per
square meter to be paid in cash. Since the authority to sell was on a first come, first
served and non-exclusive basis, it may be mentioned at this juncture that there is no
dispute over petitioner's being the first comer and the buyer to be first served.

Notwithstanding the final agreement to pay P1,000.00 per square meter on a cash basis,
Alfonso Lim asked if it was possible to pay on terms. He wrote BPI through Merlin Albano
embodying the payment initially of 10% and the remaining 90% within a period of 90
days.

Two or three days later, petitioner learned that its offer to pay on terms had been frozen.
Alfonso Lim went to BPI on July 18, 1988 and tendered the full payment of
P33,056,000.00 to Albano. The payment was refused because Albano stated that the
authority to sell that particular piece of property in Pasig had been withdrawn from his
unit. The same check was tendered to BPI Vice-President Nelson Bona who also refused
to receive payment.

An action for specific performance with damages was thereupon filed on August 25, 1988
by petitioner against BPI. In the course of the trial, BPI informed the trial court that it had
sold the property under litigation to NBS on July 14, 1989.

The Regional Trial Court of the National Capital Judicial Region stationed in Pasig rendered
judgement in favor of rendered judgment on favor or petitioner -- Declaring the Deed of
Sale of the property covered by T.C.T. No. 493122 in the name of the Bank of the
Philippine Islands, situated in Barrio Bagong Ilog, Pasig, Metro Manila, in favor of National
Book Store, Inc., null and void.

33
On Appeal Respondents, however, contend that. Vice-Presidents Aromin and Albano had
no authority to bind BPI on this particular transaction. The CA reversed the trial court's
decision and dismissed petitioner's complaint for specific performance and damages

ISSUE: W/N bank officials involved in the transaction authorized by BPI to enter into the
questioned contract.
HELD: Yes, Vice-Presidents Aromin and Albano had the authority to bind BPI in this
particular transaction.
Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He directly supervised
the BPI Real Property Management Unit. He had been in the Real Estate Division since
1985 and was the head supervising officer of real estate matters. Aromin had been with
the BPI Trust Department since 1968 and had been involved in the handling of properties
of beneficial owners since 1975
Exhibit 10 of BPI, the February 15, 1989 letter from Senior Vice-President Edmundo
Barcelon, while purporting to inform Aromin of his poor performance, is an admission of
BPI that Aromin was in charge of Torrens titles, lease contracts, problems of tenants,
insurance policies, installment receivables, management fees, quitclaims, and other
matters involving real estate transactions. His immediate superior, Vice-President Merlin
Albano had been with the Real Estate Division for only one week but he was present and
joined in the discussions with petitioner.

There is nothing to show that Alfonso Lim and Albino Limketkai knew Aromin before the
incident. Revilla brought the brothers directly to Aromin upon entering the BPI premises.
Aromin acted in a perfectly natural manner on the transaction before him with not the
slightest indication that he was acting ultra vires. This shows that BPI held Aromin out to
the public as the officer routinely handling real estate transactions and, as Trust Officer,
entering into contracts to sell trust properties.

Respondents state and the record shows that the authority to buy and sell this particular
trust property was later withdrawn from Trust Officer Aromin and his entire unit. If Aromin
did not have any authority to act as alleged, there was no need to withdraw authority
which he never possessed.
Accordingly a banking corporation is liable to innocent third persons where the
representation is made in the course of its business by an agent acting within the
general scope of his authority

The position and title of Aromin alone, not to mention the testimony and documentary
evidence about his work, leave no doubt that he had full authority to act for BPI in the
questioned transaction. There is no allegation of fraud, nor is there the least indication
that Aromin was acting for his own ultimate benefit. BPI later dismissed Aromin because
it appeared that a top official of the bank was personally interested in the sale of the
Pasig property and did not like Aromin's testimony. Aromin was charged with poor
performance but his dismissal was only sometime after he testified in court. More than
two long years after the disputed transaction, he was still Assistant Vice-President of BPI.
Everything in the record points to the full authority of Aromin to bind the bank, except for
the self-serving memoranda or letters later produced by BPI that Aromin was an
inefficient and undesirable officer and who, in fact, was dismissed after he testified in this
case. Aromin's alleged inefficiency is not proof that he was not fully clothed with
authority to bind BPI.

31. CHINA AIRLINES VS. DANIEL CHIOK

G.R. No 152122, July 30, 2003
RE: Agents gross and reckless negligence amounting to bad faith

34
FACTS: On September 18, 1981, Daniel Chiok Purchased from China Airlines an airplane
ticket covering Manila-Taipei-Hongkong-Manila, which was endorsed later on to Philippine
Airlines.

Thereafter, as Chiok was in his return flight back to manila, he was informed upon his
arrival at the Hong Kong International Airport that all passengers in his flight were booked
at the next date due to some difficulties. To this, he informed the PAL personnel that as
the founding director of the Philippines Polysterine Paper Corporation, that he had to be
back on schedule due to a business option he had to execute on November 25, 1985.

Chiok returned to the airport, where Cathay Pacific stewardess Lok Chan took and
received his ticket and luggage, but however he found that he was not in the list of
passengers, and thus could not be permitted to board the flight. Thereafter finding that
his new luggage was missing and some 14,000 dollars worth of cosmetics as well, he
complained to Carmen, the terminal supervisor.

ISSUE: Whether the China Airlines is liable to Daniel Chiok by virtue of the acts
committed by the employees of PAL to which they endorsed the ticket.
HELD: YES. As held in American Airlines v. Court of Appeals, under a general pool
partnership agreement, the ticket issuing airline is the principal in a contract of carriage,
while the endorsee-airline is the agent.

Thus, with such fact established in the case, it may be conclusively observed that there is
an agency relationship between China Airlines and Philippine Airlines. As such, China
Airlines as principal is bound by the Acts of its agents even if such has caused
unintended damage, provided that Philippine Airlines acted within the scope of its
authority as it did in the case.

As Justice Panganiban opined in this case, a common carrier has a peculiar relationship to
its passengers, and that it is in line with public interest that the ticket-issuing airline acts
as principal, and is thus liable for the acts and omissions of any errant carrier to which it
may have endorsed any part of the trip.

32. KUE CUISONvs.THE COURT OF APPEALS, VALIANT INVESTMENT ASSOCIATES,

G.R. No. 88539 October 26, 1993
RE: Liability of principal for mismanagement of business by his agent

FACTS: Kue Cuison is a sole proprietorship engaged in the purchase and sale of
newsprint, bond paper and scrap. Valiant Investment Associates delivered various kinds
of paper products to a certain Tan. The deliveries were made by Valiant pursuant to
orders allegedly placed by Tiac who was then employed in the Binondo office of
petitioner.

Upon delivery, Tan paid for the merchandise by issuing several checks payable to cash at
the specific request of Tiac. In turn, Tiac issued nine (9) postdated checks to Valiant as
payment for the paper products. Unfortunately, sad checks were later dishonored by the
drawee bank.
Thereafter, Valiant made several demands upon petitioner to pay for the merchandise in
question, claiming that Tiac was duly authorized by petitioner as the manager of his
Binondo office, to enter into the questioned transactions with Valiant and Tan.

Petitioner denied any involvement in the transaction entered into by Tiac and refused to

35
pay Valiant. Left with no recourse, private respondent filed an action against petitioner
for the collection of sum of money representing the price of the merchandise. After due
hearing, the trial court dismissed the complaint against petitioner for lack of merit.

On appeal, however, the decision of the trial court was modified, but was in effect
reversed by the CA. CA ordered petitioner to pay Valiant with the sum plus interest, AF
and costs.

ISSUE: WON Tiac possessed the required authority from petitioner sufficient to hold the
latter liable for the disputed transaction
HELD: YES. As to the merits of the case, it is a well-established rule that one who clothes
another with apparent authority as his agent and holds him out to the public as such
cannot be permitted to deny the authority of such person to act as his agent, to the
prejudice of innocent third parties dealing with such person in good faith and in the
honest belief that he is what he appears to be it matters not whether the representations
are intentional or merely negligent so long as innocent, third persons relied upon such
representations in good faith and for value.

Article 1911 of the Civil Code provides: 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. The above-quoted article is new. It is intended to
protect the rights of innocent persons. In such a situation, both the principal and the
agent may be considered as joint tortfeasors whose liability is joint and solidary.

It is evident from the records that by his own acts and admission, petitioner held out Tiac
to the public as the manager of his store in Binondo. More particularly, petitioner
explicitly introduced to Villanueva, Valiants manager, as his (petitioners) branch
manager as testified to by Villanueva. Secondly, Tan, who has been doing business with
petitioner for quite a while, also testified that she knew Tiac to be the manager of the
Binondo branch. Even petitioner admitted his close relationship with Tiu Huy Tiac when
he said that they are like brothers There was thus no reason for anybody especially
those transacting business with petitioner to even doubt the authority of Tiac as his
manager in the Binondo branch.

Tiac, therefore, by petitioners own representations and manifestations, became an agent

of petitioner by estoppel, an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person relying
thereon (Article 1431, Civil Code of the Philippines). A party cannot be allowed to go back
on his own acts and representations to the prejudice of the other party who, in good
faith, relied upon them. Taken in this light,. petitioner is liable for the transaction entered
into by Tiac on his behalf. Thus, even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the latter to fact as
though he had full powers (Article 1911 Civil Code), as in the case at bar.

Finally, although it may appear that Tiac defrauded his principal (petitioner) in not
turning over the proceeds of the transaction to the latter, such fact cannot in any way
relieve nor exonerate petitioner of his liability to private respondent. For it is an equitable
maxim that as between two innocent parties, the one who made it possible for the wrong
to be done should be the one to bear the resulting loss

33. Vda De Mapa vs. CA

RE: Express trust

36
FACTS: In her will, a testatrix designated her husband as universal and sole heir with the
obligation to deliver the properties in question to certain persons who were referred to as
"beneficiaries". The word "trust" does not appear in the will.

ISSUE: Was there a creation of trust in favor of the parties over the properties adverted
to in the will?
HELD: Yes. The designations, coupled with the other provisions for co-ownership nd joint
administration of the properties and other conditions imposed by the testatrix, clearly
demonstrated her intent that the legal title to the properties should vest in her husband
and the beneficial or equitable interest thereto should repose in said persons in the will.
Technical or particular forms of words or phrases are not essential to the manifestation of
an intention to create a trust. What is important is whether the trustor or the party
manifested an intention to create the kind of relationship which in law is known as trust.

34. Vda. De Retuerto vs. Barz

RE: Constructive trust

FACTS: Petitioners are the heirs of Panfilo Retuerto, while respondents are the heirs of
Pedro Barz who is the sole heir of Juana Perez Barz. Juana Perez Barz was the original
owner of Lot No. 896 having an area of 13,160 square meters. Before her death on April
16, 1929, Juana Perez executed a Deed of Absolute Sale in favor of Panfilo Retuerto over
a parcel of land, identified as Lot No. 896-A, a subdivision of Lot No. 896, with an
approximate area of 2,505 square meters. On July 22, 1940, the Court issued an Order
directing the Land Registration Commission for the issuance of the appropriate Decree in
favor of Panfilo Retuerto over the said parcel of land. However, no such Decree was
issued as directed by the Court because, by December 8, 1941, the Second World War
ensued in the Pacific. However, Panfilo failed to secure the appropriate decree after the
war.

Sometime in 1966, Pedro Barz, as the sole heir of Juana Perez, filed and application, with
the then CFI of Cebu for the confirmation of his title over Lot 896 which included the Lot
sold to Panfilo Retuerto. The Court ruled in his favor declaring him the lawful owner of the
said property, and thus Original Certificate of Title No. 521 was issued. Lot No. 896-A
however was continuously occupied by the petitioners. Thus, a confrontation arose and
as a result respondents filed an action on September 5, 1989 for Quieting of Title,
Damages and Attorneys Fees. In their answer, petitioners claimed that they were the
owners of a portion of the lot which was registered under the name of Pedro Barz and
therefore the issuance of the Original Certificate of Title in Pedro Barzs name did not
vest ownership but rather it merely constituted him as a trustee under a constructive
trust. Petitioners further contend that Pedro Barz misrepresented with the land
registration court that he inherited the whole lot thereby constituting fraud on his part.

Spouses Gesalem averred that they purchased a portion of subdivision Lot 896-B, which
had been sold by Juana Perez Barz to Panfilo Retuerto had been the subject of LRC Case
No. 3 wherein Panfilo Retuerto was declared the lawful owner of the property; that the
inclusion of the subject property in Original Certificate of Title No. 521 issued to and
under the name of Teofilo Barz did not vest ownership over the title in favor of Pedro Barz
but constituted the latter merely as a trustee under a constructive trust with the

37
concomitant obligation to convey the said property to the Defendants Heirs of Panfilo
Retuerto and to the Defendants Spouses, as vendees of the said property; Plaintiffs
action was barred by laches.

RTC declared respondents as the absolute owners; declaring the documents adduced by
herein petitioners unenforceable and ineffective against OCT No. 521; nullifying the deed
of sale between herein petitioners and the spouses Gesalem; and ordering herein
petitioners to vacate the premises of Lots 896-A and 896-B

CA affirmed.

ISSUE: WON despite the indefeasibility of private respondents title, petitioners can still
maintain an action for reconveyance of the said property on the ground of fraud when
Barz misrepresented with the land registration court that he inherited the whole of Lot
896 when in truth and in fact a portion thereof designated as Lot 896-A had already been
disposed of to Panfilo Retuerto; hence, a constructive trust was created over the property
for and in behalf of Panfilo Retuerto and his heirs.

HELD: Both CA and RTC correctly applied the principles of the Torrens system of land
registration to the present case.

Constructive trusts are created in equity to prevent unjust enrichment, arising against
one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to
property which he ought not, in equity and good conscience, to hold. Petitioners failed to
substantiate their allegation that their predecessor-in-interest had acquired any legal
right to the property subject of the present controversy. Nor had they adduced any
evidence to show that the certificate of title of Pedro Barz was obtained through fraud.

Even assuming that Pedro Barz acquired title to the property through mistake or fraud,
petitioners are nonetheless barred from filing their claim of ownership. An action for
reconveyance based on an implied or constructive trust prescribes within ten years from
the time of its creation or upon the alleged fraudulent registration of the property. Since
registration of real property is considered a constructive notice to all persons, then the
ten-year prescriptive period is reckoned from the time of such registering, filing or
entering. Petitioners failed to do so.

In the 1966 decision of the Land Registration Court in LRC No. 529, it was found that
Pedro Barz, private respondents predecessor-in-interest, was the lawful owner of the
subject property as he and his predecessors-in-interest had been in peaceful, continuous
and open possession thereof in the concept of owner since 1915. From 1942 up to the
present, the possession of Pedro Barz over this property had been likewise peaceful,
continuous and in concept of owner as he was religious in the payment of real estate
taxes.

35. Vda. De Gualberto vs. Go

RE: Prescriptive period for action for reconveyance

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FACTS: Petitioners are the heirs of the late Generoso Gualberto, former registered owner
of a parcel of land situated at Redor Street, Barangay Redor, Siniloan, Laguna under
Transfer Certificate of Title (TCT) No. 9203, containing an area of 169.59 square meters,
more or less, and declared for taxation purposes under Tax Declaration No. 4869.

Sometime in 1965, the subject parcel of land was sold by Generoso Gualberto and his
wife, herein petitioner Consuelo Natividad Vda. De Gulaberto (Consuelo, for brevity), to
respondents father Go S. Kiang for P9,000.00, as evidenced by a deed entitled
Kasulatan ng Bilihang Tuluyan[ dated January 15, 1965 (Kasulatan, for brevity), which
deed appears to have been duly notarized by then Municipal Judge Pascual L. Serrano of
the Municipal Court of Siniloan, Laguna and recorded.

On April 1, 1973, petitioner Consuelo executed an Affidavit attesting to the fact that the
aforementioned parcel of land had truly been sold by her and her husband Generoso to
the spouses Go S. Kiang and Rosa Javier Go, as borne by the said Kasulatan. Evidently,
the affidavit was executed for purposes of securing a new tax declaration in the name of
the spouses Go.

In a Forcible Entry case filed by respondents against petitioners before the Court of
Siniloan-Famy, Siniloan, a decision was rendered in favor of respondents.
In the meantime, on June 14, 1978, Original Certificate of Title (OCT) No. 1388 was issued
in the name of respondent Rosa Javier Go, wife of Go S. Kiang.

Such was the state of things when, petitioners filed against respondents their
complaint in this case for Conveyance, Accion Publiciana, and Quieting of Title with
Damages. After due proceedings, the trial court, dismissed petitioners. Petitioners insist
that their action for reconveyance is imprescriptible. Hence, this petition.

ISSUE: WHETHER OR NOT THE RIGHT OF A REGISTERED OWNER TO DEMAND THE

RETURN OF HIS PROPERTY CAN BE LOST BY PRESCRIPTION OR LACHES.
HELD: The assailed decision of the Court of Appeals, which affirmed that of the trial
court, faithfully adhered to the above-stated doctrine. We simply find no cogent reason
to disturb the same, much less to review the factual basis of both courts holding that the
10-year prescriptive period had expired.

An action for reconveyance of real property based on implied or constructive trust is not
barred by the aforementioned 10-year prescriptive period ONLY if the plaintiff is in actual,
continuous and peaceful possession of the property involved. In DBP vs. CA, the Court
explained:

Generally, an action for reconveyance based on an implied or constructive trust, such as

the instant case, prescribes in 10 years from the date of issuance of decree of
registration. EXCEPT, this rule does not apply when the plaintiff is in actual possession of
the land

Basis: The law thereby creates the obligation of the trustee to reconvey the property
and the title thereto in favor of the true owner. Correlating Section 53, paragraph 3 of
Presidential Decree No. 1529 and Article 1456 of the Civil Code with Article 1144 (2) of
the Civil Code, the prescriptive period for the reconveyance of fraudulently registered
real property is ten (10) years reckoned from the date of the issuance of the certificate
of title

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