KEELER ELECTRIC v.

RODRIGUEZ
Nov 11, 1922 | Johns, J. | Obligations of third persons
APPELLANT: Harry Keeler Electric Co. Inc.
APPELLEE: Domingo Rodriguez
SUMMARY: Keeler sold electric plants. Montelibano was going to get a 10% commission for every plant
he sold for Keeler. Montelibano sold a plant to Rodriguez. The plant was installed and delivered by Cenar,
Keeler’s employee. Cenar gave Rodriguez a statement of account but did not collect payment from the
latter. Rodriguez instead paid to Montelibano. Keeler thus filed a complaint against Rodriguez alleging
that the latter has not paid yet. SC ruled in favour of Keeler saying that Rodriguez, in paying Montelibano,
did so at his own risk. SEE DOCTRINE. Applying the above rules, the testimony is conclusive that the
plaintiff never authorized Montelibano to receive or receipt for money in its behalf, and that the
defendant had no right to assume by any act or deed of the plaintiff that Montelibano was authorized to
receive the money, and that the defendant made the payment at his own risk and on the sole
representations of Montelibano that he was authorized to receipt for the money.
DOCTRINE: Persons dealing with an assumed agent, whether the assumed agency be a general or special
one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency
but the nature and extent of the authority, and in case either is controverted, the burden of proof is upon
them to establish it. The person dealing with the agent must also act with ordinary prudence and
reasonable diligence. And not only must the person dealing with the agent ascertain the existence of the
conditions, but he must also, as in other cases, be able to trace the source of his reliance to some word or
act of the principal himself if the latter is to be held responsible
FACTS:
1. Keeler Electric sells “Matthews” electric plant. Montelibano approached Keeler saying that he
could find buyers. He was to be paid a commission of 10% for every consummated sale.
2. Montelibano was able to sell to Rodriguez. The plant was installed on Rodriguez’ premises but
without Keeler’s knowledge, Rodriguez paid to Montelibano.
3. Keeler thus filed a complaint against Rodriguez alleging that the plant was delivered to the latter
without any payment having been made.
4. Cenar’s, an employee of Keeler, testimony: he went with the shipment from Manila to Iloilo to
install and test the plant; he personally took with him Keeler’s statement of account; Rodriguez
asked for the statement so he gave it to Rodriguez; he did not attempt to collect the amount
because he was told by Rodriguez that payment was to be made in Manila
5. Rodriguez: he paid the money to Montelibano since Montelibano was the one who sold,
delivered, and installed the plant; it was also Montelibano who presented a statement of account
assuring him that there was authority to collect for Keeler (basically refuting Cenar)
6. Rodriguez presented as evidence a receipt which Montelibano signed for the account of Keeler
7. TC: decided in favour of Rodriguez
8. Keeler appeals alleging that payment to Montelibano did not discharge Rodriguez from his debt;
the bill was not given to Montelibano to collect; and that it did not hold out Montelibano as its
agent authorized to collect
ISSUE/HOLDING
Whether Montelibano is Keeler’s agent – NO, Keeler never authorized Montelibano to receive or receipt
for money in its behalf; Rodriguez had no right to assume by any act or deed of Keeler that Montelibano
was authorized to receive the money, and that the defendant made the payment at his own risk and on
the sole representations of Montelibano that he was authorized to receipt for the money
RATIO:
Art 1162: Payment must be made to the persons in whose favor the obligation is constituted, or to another
authorized to receive it in his name.
Art 1727: The principal shall be liable as to matters with respect to which the agent has exceeded his
authority only when he ratifies the same expressly or by implication.
1. Rodriguez alleged that Keeler sold and delivered the plant to him and that he has already paid. Thus,
the burden to prove the payment is on him.
2. The repayment of a debt must be made to the person in whose favour the obligation is constituted,
or to another expressly authorized to receive the payment in his name
3. In answering whether an assumed authority exists in a given case, there are certain fundamental
principles. Among these are: (1) that the law indulges in no bare presumptions that an agency exists: it
must be proved or presumed from facts; (2) that the agent cannot establish his own authority, either by
his representations or by assuming to exercise it; (3) that an authority cannot be established by mere
rumor or general reputation; (4)that even a general authority is not an unlimited one; and (5) that every
authority must find its ultimate source in some act or omission of the principal.
4. SEE DOCTRINE.
5. So if the character assumed by the agent is of such a suspicious or unreasonable nature, or if the
authority which he seeks to exercise is of such an unusual or improbable character, as would suffice to
put an ordinarily prudent man upon his guard, the party dealing with him may not shut his eyes to the
real state of the case, but should either refuse to deal with the agent at all, or should ascertain from the
principal the true condition of affairs.
In this case,
6. There is nothing on the face of the receipt that Rodriguez presented as evidence, to show that
Montelibano was the agent of, or that he was acting for, Keeler. It was Montelibano’s personal receipt and
his own signature.
7. Outside of the fact that Montelibano received the money and signed this receipt, there is no evidence
that Montelibano had any authority, real or apparent, to receive or receipt for the money.
8. Rodriguez testified: "and he assured me that he was duly authorized to collect the value of the
electrical plant." This shows upon its face that the question of Montelibano's authority to receive the
money must have been discussed between them, and that, in making the payment, defendant relied upon
Montelibano's own statements and representation, as to his authority, to receipt for the money.
Rodriguez’ claim that it was not Keeler but Montelibano who gave him a statement of account is
refuted
9. There’s no evidence that Keeler ever delivered the statement to Montelibano, or authorized anyone
to deliver it to him.
10. It is very apparent that the statement in question is the one which was delivered by Keeler to Cenar,
who in turn delivered it to Rodriguez at Rodriguez’ request.
It was Cenar and not Montelibano who delivered and installed the plant
11. Rodriguez’ evidence that Montelibano was the one who sold him the plant is in direct conflict with
his own pleadings and the receipt he presented
12. The statement shows travel expenses (roundtrip ticket Mnl-Ilo-Mnl) which would show that it was
Cenar who went to Iloilo to install the plant and returned. If Montelibano, who already resides in Iloilo,
installed the plant, it would have been unnecessary for Cenar to make this trip.
Re Rodriguez’ telegram to Keeler saying that “Keeler did not present the bill”
13. This is in direct conflict with the receipted statement, which the defendant offered in evidence,
signed by Montelibano, that shows upon its face that it was an itemized statement of the account of Keeler
with Rodriguez.
Lower court reversed.
NPC v. National Merchandising (1982) SUPRA

APEX MINING v. SOUTHEAST MINDANAO

June 23, 2006 | Chico-Nazario, J. | Obligations of Third Parties | Ampil
PETITIONER: Apex Mining Co.
RESPONDENTS: Southeast Mindanao Gold Mining Corp., Mines Adjudication Board, Provincial Mining
Regulatory Board (PMRB-Davao), Monkayo Integrated Small Scale Miners Association, Inc., et al.
SUMMARY: The Bureau of Mines and Geo-Sciences (BMG) issued Exploration Permit No. 113 (EP 113) to
Marcopper Mining Corporation (MMC) for the Diwalwal Gold Rush Area in Davao. MMC later assigned EP
113 to its alleged subsidiary, Southeast Asia Gold Mining Corporation (SEM). A Panel of Arbitrators (PA)
constituted by the DENR affirmed the validity of EP 113. The CA upheld the PA decision, ruling that the
transfer of EP 113 by MMC to SEM was valid since the latter was the former’s agent. The SC disagreed on
the ground that SEM did not claim nor submit proof that it was the designated agent of MMC, when it was
incumbent between the two to prove that a contract of agency existed between them.
DOCTRINE:
The existence of the elements of agency is a factual matter that needs to be established or proven by
evidence. The burden of proving that agency is extant in a certain case rests in the party who sets forth
such allegation. This is based on the principle that he who alleges a fact has the burden of proving it. It
must likewise be emphasized that the evidence to prove this fact must be clear, positive and convincing.

FACTS:

1. On November 21, 1983, Camilo Banad and his group filed a Declaration of Location (DOL) for six
mining claims in an area in Mt. Diwata, Davao later known as the Diwalwal Gold Rush Area. On December
12, 1983, Apex Mining Corporation (Apex) entered into operating agreements with Banad and his group.
2. On February 2, 1984, Marcopper Mining Corporation (MMC) filed 16 DOLs or mining claims for areas
adjacent to the area covered by the DOL of Banad and his group. After realizing that the area
encompassed by its mining claims is a forest reserve within the coverage of Proclamation No. 369, MMC
applied for a prospecting permit with the Bureau of Forest Development (BFD).
3. On March 10, 1986, the Bureau of Mines and Geo-Sciences (BMG) issued to MCC Exploration Permit No.
133 (EP 133).
4. Discovering the existence of several mining claims and the proliferation of small-scale miners in the
area covered by EP 133, MMC thus filed on 11 April 1986 before the BMG a Petition for the Cancellation of
the Mining Claims of Apex and Small Scale Mining Permit Nos. (x1)-04 and (x1)-05. MMC alleged that
pursuant to P.D. No. 463, the acquisition of mining rights within a forest reserve is through the
application for a permit to prospect with the BFD and not through registration of a DOL with the BMG.
5. On December 9, 1986, BMG dismissed MMC’s petition on the ground that the area covered by the Apex
mining claims and MMC’s permit to explore was not a forest reservation. However, on April 15, 1987 the
DENR reversed the BMG’s order and declared EP 113 valid and subsisting.
6. On February 16, 1994, MMC assigned EP 113 to Southeast Mindanao Gold Mining Corporation (SEM),
which is alleged to be a 100%-owned subsidiary of MMC. Subsequently, on October 20, 1995 the BMG
accepted and registered SEM’s application for a Mineral Production Sharing Agreement (MPSA) and the
Deed of Assignment over EP 133 executed in SEM’s favor by MMC.
7. Several parties filed before the BMG their adverse claims or oppositions, including the respondents
herein. To address the matter, the DENR constituted a Panel of Arbitrators (PA) which rendered on June
13, 1997 a resolution affirming the validity of EP 113 and dismissing the adverse claims against SEM’s
MPSA application.
8. The adverse claimants appealed to the Mines Adjudication Board (MAB), which brushed aside the
validity of EP 113 as irrelevant and approved the MPSA application.
9. In its assailed Decision dated March 13, 2002, the CA affirmed the PA decision and declared null and
void the MAB decision. The CA, banking on the premise that the SEM is the agent of MMC by virtue of its
assignment of EP 133 in favor of SEM and the purported fact that SEM is a 100% subsidiary of MMC, ruled
that the transfer of EP 133 was valid. It argued that since SEM is an agent of MMC, the assignment of EP
133 did not violate the condition therein prohibiting its transfer except to MMC’s duly designated agent.
Thus, despite the non-renewal of EP 133 on July 6, 1994, the CA deemed it relevant to declare EP 133 as
valid since MMC’s mining rights were validly transferred to SEM prior to its expiration.
ISSUE/HELD:
WON the transfer of Exploration Permit No. 133 in favor of Southeast Mindanao Gold Mining Corp. is valid
– NO
RATIO:
1. EP 113 is subject to, among others, the following condition (Condition No. 6): “That this permit shall be
for the exclusive use and benefit of the permittee or his duly authorized agents and shall be used for
mineral exploration purposes only and for no other purpose.”
2. Condition No. 6 categorically states that the permit shall be for the exclusive use and benefit of MMC or
its duly authorized agents. While it may be true that SEM, the assignee of EP 133, is a 100% subsidiary
corporation of MMC, records are bereft of any evidence showing that the former is the duly authorized
agent of the latter.
3. It is incumbent upon either MMC or SEM to prove that a contract of agency actually exists between
them so as to allow SEM to use and benefit from EP 133 as the agent of MMC. SEM did not claim nor
submit proof that it is the designated agent of MMC to represent the latter in its business dealings or
undertakings. SEM cannot, therefore, be considered as an agent of MMC which can use EP 133 and benefit
from it. Since SEM is not an authorized agent of MMC, it goes without saying that the assignment or
transfer of the permit in favor of SEM is null and void as it directly contravenes the terms and conditions
of the grant of EP 133.
4. Furthermore, the concept of agency is distinct from assignment. In agency, the agent acts not on his
own behalf but on behalf of his principal. While in assignment, there is total transfer or relinquishment of
right by the assignor to the assignee. The deed of assignment clearly stipulates that “the ASSIGNOR
hereby ASSIGNS, TRANSFERS and CONVEYS unto the ASSIGNEE whatever rights or interest the
ASSIGNOR may have in the area… identified as Exploration Permit No. 133…”
5. It is obvious that the assignment by MMC of EP 133 in favor of SEM did not make the latter the former’s
agent. Such assignment involved actual transfer of all rights and obligations MMC had under the permit in
favor of SEM, thus, making SEM the permittee. It is not a mere grant of authority to SEM, but a total
abdication of MMC’s rights over the permit.
6. On a final note, records indicate that on July 6, 1993, EP 133 was extended for 12 months or until July 6,
1994. MMC never renewed its permit prior and after its expiration. Thus, EP 133 expired by non-renewal.
BACALTOS v CA
June 29, 1995 | DAVIDE, JR., J. | Obligations of Third Parties

PETITIONERS: BACALTOS COAL MINES and GERMAN A. BACALTOS

RESPONDENTS: HON. COURT OF APPEALS and SAN MIGUEL CORPORATION

SUMMARY:
German Bacaltos was the owner of Bacaltos Coal Mines, and Savellon was his Chief Operating Officer.
Savellon was authorized "to acquire purchase orders, engage in trading, collect receivables, substitute,
and to execute and sign documents in connection with the other paragraphs" in a Coal Operating
Contract. Savellon later entered into a "Trip Charter Party Agreement" with SMC wherein the former will
provide for 3 round trips to Davao. Only 1 trip was made so SMC filed a suit against both Savellon and
Bacaltos Coal Mines. Bacaltos Coal Mines claimed 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. LC
and CA ruled in favor of SMC but the SC reversed. Savellon had no authority to enter into the Trip Charter
Agreement. 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. SMC was also found
to have been negligent for not exercising due diligence and prudence and for not requiring proof of
ownership of the vessel.

DOCTRINE:
Every person dealing with an agent is put upon inquiry and must discover at his own peril the authority
of such agent.If he does not make such an inquiry, he is chargead with knowledge of the agent"s authority.
Ignorance will not be any excuse.

FACTS:
1. George Bacaltos through an “Authorization” authorized Rene Savellon, to use the coal operating
contract of Bacaltos Coal Mine of which he is the proprietor, “for any legitimate purpose that it
may serve” and particularly: (1) to acquire purchase orders; (2) to engage in trading; (3) to
collect all receivables due or in arrears; (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
preceding paragraphs to execute and sign documents, contracts, and other pertinent papers.
2. In 1988, a Trip Charter Party was executed between Bacaltos Coal Mines which was represented
by Savellon and San Miguel Corporation. The agreement was that for a consideration of Php
650,000, it "lets, demises" the vessel to charterer SMC for three round trips to Davao. However,
the vessel was only able to make one trip, prompting SMC to file an action for specific
performance.
3. 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.
4. LC: ruled in favor of SMC
5. CA: affirmed in toto the judgment of the TC.

ISSUES/HELD
1. Whether Savellon was duly authorized by the petitioners to enter into the Trip Charter
Party — No

RATIO:
1. 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.
2. Since the agency of Savellon is based on a written document, the Authorization of 1 March 1988
the extent and scope of his powers must be determined on the basis thereof. The language of the
Authorization is clear that there is only one express power granted to Savellon which is to use the
 coal operating contract for any legitimate purpose it may serve. The enumerated "five
prerogatives" are nothing but the specific prerogatives subsumed under or classified as part of or
as examples of the power to use the coal operating contract.
3. 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.
4. There is no evidence at all that Bacaltos Coal Mines as a coal mining company owns and operates
vessels, and even if it owned any such vessels, that it was allowed to charter or lease them.
5. The Authorization is not a general power of attorney. It is a special power of attorney for it refers
to a clear mandate specifically authorizing the performance of a specific power and of express
acts subsumed therein. If SMC exercised due diligence and prudence, it should have known that
there is absolutely nothing on the face of the Authorization that confers upon Savellon the
authority to enter into any Trip Charter Party.
 BARRETO v. STA. MARINA
DECEMBER 29, 1913 | TORRES, J. | REVOCATION IN GENERAL | ZEDY
PLAINTIFF-APPELLANT: Antonio M.A. Barretto
DEFENDANT-APPELLEE: Jose Santa Marina
SUMMARY: Barretto was the manager of Sta. Marina’s business. Barretto filed a suit to collect his salary
and compensation for damages from Sta. Marina. Barretto alleged that his contract of services was for
indefinite period, but Sta. Marina revoked his services without just cause. Sta. Marina denied the stipulation
of an indefinite period, and claimed that the dismissal was for just cause. Lower court ordered the payment
of Barretto’s salary, but Barretto appealed to SC to recover damages, insisting that his removal was without
any valid reason. SC ruled that the removal was valid, as Barretto himself voluntarily resigned after
committing a negligent act (see Ratio 1). Moreover, whether or not the contract contained an indefinite
period, the fact that such was a contract of agency justified the authority of Sta. Marina to revoke the
services of Barretto.
DOCTRINE: The contract of agency can subsist only so long as the principal has confidence in his agent,
because from the moment such confidence disappears and although there be a fixed period for the exercise
of the office of agent, the principal has a perfect right to revoke the power that he had conferred upon
the agent owing to the confidence he had in him and which for sound reasons had ceased to exist.

FACTS:

1. Barretto held the position of agent of Sta. Marina for the management of the latter’s business, La Insular
and Cigar Factory.
2. Barretto filed a suit to collect his salary and compensation for damages from Sta. Marina. Barretto alleged
the following: (1) His services were rendered in pursuance of a contract whereby Joaquin Sta. Marina,
defendant Sta. Marina’s predecessor-in-interest, agreed to hire Barretto as long as Barretto should not
show discouragement. Such contract was ratified by defendant Sta. Marina; (2) Sta. Marina, without
justification and in violation of the said contract, arbitrarily removed Barretto from the management of the
business, and; (3) Sta. Marina refused to pay Barretto’s compensation amounting to P137,000 (which
included P37,000 as salary and P100,000 as damages).
3. Sta. Marina denied that the contract stipulated an indefinite period. Moreover, he claimed that the
revocation of Barretto’s services was valid, as the latter himself voluntarily resigned from his position.
4. Lower court judge sentenced Sta. Marina to pay Barretto the salary to which the latter was entitled.
Damages were excluded from payment.
5. Barretto appealed to SC to recover damages, which, he claimed, is based on his removal as agent without
just cause.
ISSUES/HELD:
1. WON Sta. Marina removed Barretto for just cause – YES
2. WON any period or term for the duration of the position of agent and manager was fixed in the contract – NO
(But even if there was a stipulation of indefinite period, the revocation would still be valid.)
RATIO:
Issue One
1. Barretto voluntarily resigned from his position, and he never denied such. This was caused by one
Chinaman Uy Yan, who had bought from the factory products amounting to P97,000 and, without paying
this large debt, disappeared and has not been seen since. Barretto apparently allowed Uy Yan to obtain such
loan, and felt the need to resign for having been “rather more generous with this fellow than I should have
been.”
2. Although Sta. Marina did not immediately reply and tell him what opinion he may have formed and
the decision he had reached in the matter, it is no less true that the silence and lack of reply on the part of
the chief owner of the factory were sufficient indications that the resignation had been virtually accepted
and that if he did not reply immediately it was because he intended to act cautiously.
3. Thus, it cannot be understood that Barretto has any right to demand an indemnity for losses and
damages particularly since he ostensibly and frankly acknowledged that he had been negligent in the
discharge of his duties and that he had overstepped his authority in the management of the factory, with
respect to the Chinaman mentioned.
Issue Two
4. From the context of the instrument just mentioned it can not be concluded that any time whatever
was fixed during which the plaintiff should hold his position of agent. So long as this merely subjective
condition of trust lodged in the agent existed, the time during which the latter might hold his office could
be considered indefinite or undetermined, but as soon as that indispensable condition of a power of
attorney disappeared and the conduct of the agent ceased to inspire confidence, the principal had a right
to revoke the power he had conferred upon his agent, especially when the latter, for good reasons, gave up
the office he was holding.
5. Article 1733 of the Civil Code, applicable to the case at bar, according to the provisions of article 2 of
the Code of Commerce, prescribes: “The principal may, at his will, revoke the power and compel the agent
to return the instrument containing the same in which the authority was given.”
6. Article 279 of the Code of Commerce provides: “The principal may revoke the commission intrusted
to an agent at any stage of the transaction, advising him thereof, but always being liable for the result of the
transactions which took place before the latter was informed of the revocation.”
7. From the above legal provisions it is clearly to be inferred that the contract of agency can subsist only
so long as the principal has confidence in his agent, because, from the moment such confidence disappears
and although there be a fixed period for the exercise of the office of agent, a circumstance that does not
appear in the present case, the principal has a perfect right to revoke the power that he had conferred upon
the agent owing to the confidence he had in him and which for sound reasons had ceased to exist.
8. It would be improper, for the purpose of supplying such defect, to apply to the present case the
provisions of article 1128 of the Civil Code. This article relates to obligations for which no period has been
fixed for their fulfillment, but which, from their nature and circumstances, allow the inference that there
was an intention to grant such period to the debtor, wherefore the courts are authorized to fix the duration
of the same, and the reason why it is inapplicable is that the rights and obligations existing between
Barretto and Santa Marina are absolutely different from those to which it refers, for, according to article
1732 of the Civil Code, agency is terminated: “1. By revocation. 2. By withdrawal of the agent. 3. By death,
interdiction, bankruptcy, or insolvency of the principal or of the agent.”
9. From the mere fact that the principal no longer had confidence in the agent, he is entitled to
withdraw it and to revoke the power he conferred upon the latter, even before the expiration of the period
of the engagement or of the agreement made between them; but, in the present case, once it has been shown
that no period whatever was stipulated during which Barretto should hold the office of agent and manager
of the said factory, it is unquestionable that the defendant, even without good reasons, could lawfully
revoke the power conferred upon the plaintiff.
CMS Logging v. CA (1992) | J. Nocon | Bolinao

SUMMARY: CMS appointed DRACOR to be its sole and exclusive export sales agent. CMS discovered that
DRACOR was using Shinko to sell their logs and earned commission for it. Thus, CMS directly transacted
with Japanese firms without the aid of DRACOR. TC and CA said DRACOR is entitled to the commission with
regard to said firms. SC said No as the principal was directly transacting with the firms resulting to an
implied revocation subject to damages arising from such revocation.
DOCTRINE: The agency is revoked if the principal directly manages the business entrusted to the agent,
dealing directly with third persons.

FACTS:
1. Petitioner CMS is a forest concessionaire engaged in the logging business, while private respondent
DRACOR is engaged in the business of exporting and selling logs and lumber. On August 28, 1957,
CMS and DRACOR entered into a contract of agency whereby the former appointed the latter as its
exclusive export and sales agent for all logs that the former may produce, for a period of five (5)
years and shall receive 5% commission of gross sales of logs.
2. CMS was able to sell through DRACOR a total of 77,264,672 board feet of logs in Japan, from
September 20, 1957 to April 4, 1962. Six months prior the end of their agreement, CMS found out
that DRACOR was using Shingko Trading to sell their logs and earned commission for it.
3. CMS claimed that it was a violation of their agreement since DRACOR already received 5%
commission and is no longer entitled to the additional commission to Shinko.
4. After the discovery, CMS directly transacted with Japanese firms without the aid if DRACOR. CMS
sued DRACOR for the commission Shingko received while DRACOR counterclaimed for the
commission of the sales made by CMS with the Japanese firms.
5. Trial Court dismissed the complaint of CMS and the counterclaim of DRACOR. CA affirmed. It held
that there was reason to believe that Shinko was paid by DRACOR out of its own commission of 5%
as indicated in the letter of its president to the president of CMS.

ISSUE: WoN DRACOR is entitled to the commission in the deals of CMS with Japanese firms

RULING:
1. NO. CMS appointed DRACOR as its agent for the sale of its logs to Japanese firms. Yet, during the
existence of the contract of agency, DRACOR admitted that CMS sold its logs directly to several
Japanese firms. This act constituted an implied revocation of the contract of agency under Article
1924 of the Civil Code.
2. DRACOR is no longer entitled to its commission from the proceeds of such sale and is not entitled
to retain whatever moneys it may have received as its commission for said transactions. Neither
would DRACOR be entitled to collect damages from CMS, since damages are generally not awarded
to the agent for the revocation of the agency, and the case at bar is not one falling under the
exception mentioned, which is to evade the payment of the agent's commission.

FALLO: In fine, We affirm the ruling of the Court of Appeals that there is no evidence to support CMS's
contention that Shinko earned a separate commission of U.S. $1.00 for every 1,000 board feet of logs from
the buyer of CMS's logs. However, We reverse the ruling of the Court of Appeals with regard to DRACOR's
right to retain the amount of P101,536.77 as part of its commission from the sale of logs by CMS, and hold
that DRACOR has no right to its commission. Consequently, DRACOR is hereby ordered to remit to CMS the
amount of P101,536.77.
Sanchez v. Medicard (2005)
SANCHEZ v. MEDICARD
Sept. 2, 2005 | Sandoval-Gutierrez | Direct Management by principal
PETITIONER: Carlos Sanchez
RESPONDENTS: Medicard Philippines, Inc., Dr. Nicanor Montoya, and Carlos Ejercito
SUMMARY: Medicard, through Sanchez as its special corporate agent, entered into a contract with Unilab.
Medicard paid Sanchez his commission. Later, Medicard requested Sanchez to reduce his commission
should the contract be renewed, but he refused. Since Sanchez refused to reduce his commission,
Medicard directly negotiated with Unilab, thus revoking its agency contract with Sanchez. Under the new
contract, Medicard did not give Sanchez any commission. Sanchez filed a complaint for sum of money
against Medicard. The Court held that such revocation is authorized by Art. 1924, CC. Sanchez was not the
agent of the third Health Care Program Contract between Medicard and Unilab. Hence, he is not entitled
to commission.

DOCTRINE:
Art. 1924, CC. The agency is revoked if the principal directly manages the business entrusted to the agent,
dealing directly with third persons.

FACTS:
1. Medicard appointed Sanchez as its special corporate agent. As such agent, Medicard gave him a
commission based on the “cash brought in.”
2. Through Sanchez’s efforts, Medicard was able to enter into a one-year Health Care Program
Contract with Unilab. As a result, Medicard paid Sanchez his commission.
3. Again, through Sanchez’s efforts, the contract was renewed and once more, he received his
commission.
4. Before the expiration of the renewed contract, Medicard, through Sanchez, proposed an increase
in premium, but Unilab rejected this proposal.
5. Medicard then requested Sanchez to reduce his commission should the contract be renewed on
its third year, but he refused.
6. In the meantime, Unilab informed Medicard it was no longer renewing the Health Care Program
contract.
7. In order not to prejudice its personnel, Unilab, through Ejercito, negotiated with Dr. Montoya of
Medicard, in order to find mutually beneficial ways of continuing the Health Care Program.
8. The negotiations resulted in a new contract wherein Unilab shall pay Medicard the
hospitalization expenses actually incurred by each employees, plus a service fee.
9. Under the new scheme, Medicard did not give Sanchez any commission.
10. Sanchez demanded from Medicard payment of his commission plus damages, but the latter
refused to heed his demand.
11. Thus, Sanchez filed a complaint for sum of money against Medicard, Dr. Montoya and Ejercito.

ISSUE/HELD:
W/N the contract of agency has been revoked by Medicard.—YES. Sanchez is not entitled to a
commission.

RATIO:
Since Sanchez refused to reduce his commission, Medicard directly negotiated with Unilab, thus revoking
its agency contract with Sanchez.
 Such revocation is authorized by Art. 1924, CC: The agency is revoked if the principal directly
manages the business entrusted to the agent, dealing directly with third persons.

Sanchez did not render services to Medicard, his principal, to entitle him to a commission.
 He did not exert any effort in order that Unilab and Medicard, after the expiration of the Health
Care Program Contract, can renew it for the third time.
 His refusal to reduce his commission constrained Medicard to negotiate directly with Unilab.
 He was not the agent of the third Health Care Program Contract between Medicard and Unilab.

Petition denied, challenged decision and resolution affirmed in toto.

DEL ROSARIO VS. ABAD

Sept. 30, 1958 | Padilla | When agency cannot be revoked/ Death, civil interdiction, insanity, insolvency of
principal | Bayudan

SUMMARY
Tiburcio del Rosario was issued a homestead patent covering 9 hectares of land in Nueva Ecija. He
constituted a mortgage over the land’s improvements to secure a loan obtained from Primitivo Abad. He
also issued a special power of attorney in favor of Abad, authorizing him to sell and convey the said parcel
of land. Tiburcio died sometime in 1945, and Primitivo sold the land to his son Teodorico in 1947. Hence,
Tiburcio’s heirs filed a complaint for recovery of possession and ownership of the said land. The CFI ruled
that the sale executed by Primitivo was null and void, hence his appeal. The SC ruled that the power of
attorney issued in favor of Primitivo was not valid, nor does it clothe the agency with an irrevocable
character. The mortgage constituted by Tiburcio had nothing to do with the power of attorney.
DOCTRINE
A mere statement in the power of attorney that it is coupled with an interest is not enough. In what does
such interest consist must be stated in the power of attorney.

FACTS
1. Plaintiffs are children and heirs of the late Tiburcio del Rosario, who was previously issued a
homestead patent with an area of 9 ha covering land in Nueva Ecija.
2. Tiburcio loaned P2000 from Primitivo Abad, mortgaging the improvements on the parcel of land
to secure such loan. He then issued an irrevocable SPA in favor of Abad, authorizing him to sell
and convey the parcel of land.
3. Primitivo, acting as attorney-in-fact of Tiburcio, sold the land to his son Teodorico Abad. The
transfer certificate of title was thus issued to Teodorico.
4. Plaintiffs then brought suit against defendants to recover possession and ownership of the said
land. CFI Nueva Ecija ruled the the deed of sale that Primitivo executed in favor of Teodorico was
null and void. Hence, the defendants appealed to the CA, which certified the case to the SC.

ISSUE
W/N the irrevocable power of attorney was valid - NO. Hence, the subsequent sale was also invalid.

RATIO
1. The power of attorney executed by Tiburcio in favor of Primitivo does not create an agency
coupled with an interest nor does it clothe the agency with an irrevocable character. A mere
statement in the power of attorney that it is coupled with an interest is not enough. In what does
such interest consist must be stated in the power of attorney.
2. The fact that Tiburcio, the principal, had mortgaged the improvements of the parcel of land to
Primitivo Abad, the agent, is not such an interest as could render irrevocable the power of
attorney executed by the principal in favor of the agent. In fact no mention of it is made in the
power of attorney. The mortgage on the improvements of the parcel of land has nothing to do
with the power of attorney and may be foreclosed by the mortgagee upon failure of the
mortgagor to comply with his obligation. As the agency was not coupled with an interest, it was
terminated upon the death of Tiburcio, sometime in December 1945, and Primitivo, the agent,
could no longer validly convey the parcel of land to Teodorico on 9 June 1947. The sale, therefore,
to the later was null and void.
3. Granting that the irrevocable power of attorney was lawful and valid it would subject the parcel
of land to an encumbrance. As the homestead patent was issued on 12 December 1936 and the
power of attorney was executed on 24 February 1937, it was in violation of the law that prohibits
the alienation or encumbrance of land acquired by homestead from the date of the approval of
the application and for a term of five years from and after the issuance of the patent or grant.

The judgment appealed from is affirmed, with costs against the appellants.
 COLEONGCO v. CLAPAROLS
March 21, 1964 | REYES, J. | When agency cannot be revoked

PETITIONER: Vicente M. Coleongco

RESPONDENTS: Eduardo L. Claparols

SUMMARY:
Claparols entered into a financing agreement with Coleongco, where he also executed a special power of
attorney (SPA) in favor of Coleongco to represent him and the factory. Subsequently he found out that
Coleongco had been working to sabotage him and revoked the power of attorney. Coleongco contends
that the SPA cannot be revoked since it is one coupled with an interest. The SC ruled that contract was
validly resolved as Coleongco had breached his obligation, and had shown acts of disloyalty towards the
principal. While an SPA with an interest may not be revoked by the principal at his pleasure, it can be
revoked for a just cause, and here the Court found Coleongco guilty of breaching his obligation, as well as
seeking to sabotage Claparols’s factory.

DOCTRINE:
A power of attorney, coupled with interest, is made only irrevocable insofar as the principal may not
recall it at his pleasure. If there be just cause, then such power may be validly revoked. Irrevocability
cannot be used as a shield for acts in bad faith amounting to fraud.

FACTS:
1. Claparols operated a factory that manufactured nails, whose marketing was handled by Kho To.
Losses compelled Claparols to look for someone to finance his imports of nail wires. Kho To
introduced him to his cousin, Coleongco. A Financing contract was perfected where Coleongco
would put up all the needed funds for importation, and in exchange: he would have exclusive
distribution of nails and will take care of marketing; would share control over cash; would have a
representative in management; contracts would be jointly approved by Claparols and Coleongco;
and they would have a 50-50 share in profits and losses.
2. Claparols then issued a special power of attorney (SPA) in favor of Coleongco to represent him and
the factory, and to accept payments. Coleongco eventually became Asst. Manager.
3. Claparols was surprised to receive a writ of execution against him by PNB despite submitting an
amortization plan to pay his loans. He found out that Coleongco had sent derogatory information
about him, that Coleongco had acquired all of Claparol’s interest in the factory, and that Claparols
was not serious in meeting his obligations with PNB such that he then took his machineries
mortgaged to the bank
4. Claparols was able to settle matters, and have the levy lifted. But because of Coleongco’s disloyalty,
he revoked the POA, demanded full accounting of the business, and removed Coleongco as Asst.
Manager. He also found out from machine superintendent Agsam that Coleongco had asked him to
pour acid on the machinery to paralyze the factory, and found letters between Kho To and
Coleongco to reduce Kho’s advances to Claparols P2K to P1K to take advantage of his difficulty and
eventually take over the factory. (I think it is time that we do our plan to take advantage of the
difficulties of Eddie with the banks for our benefit. If we can squeeze him more. I am sure that we
can extend our contract with him before it ends next year, and perhaps on better terms. If we play
well our cards we might yet own his factory)
5. Coleongco filed for breach of contract against Claparols. The court dismissed the action, so
Coleongco appealed.

ISSUE/RATIO:
WON the power of attorney could be revoked by Claparols. – YES
1. Coleongco argued that the SPA was made to protect his interest under the financing agreement,
and was one coupled with an interest that the Claparols had no legal power to revoke. This cannot
be sustained. The financing agreement did not call for any SPA to be executed in his favor; and even
if it did:
a power of attorney can be made irrevocable by contract only in the sense that the principal may not
recall it at his pleasure; but coupled with interest or not, the authority certainly can be revoked for a
just cause, such as when the attorney-in-fact betrays the interest of the principal, as happened in this
case. It is not open to serious doubt that the irrevocability of the power of attorney may not be used to
shield the perpetration of acts in bad faith, breach of confidence, or betrayal of trust, by the agent for
that would amount to holding that a power coupled with an interest authorizes the agent to commit
frauds against the principal.
1. Art. 1172 NCC, expressly provides the contrary in prescribing that responsibility arising from fraud
is demandable in all obligations, and that any waiver of action for future fraud is void. It is also on
this principle that Art. 1800 NCC, declares that the powers of a partner, appointed as manager, in
the articles of co-partnership are irrevocable without just or lawful cause; and an agent with power
coupled with an interest cannot stand on better ground than such a partner in so far as
irrevocability of the power is concerned.
2. Without a doubt, there was bad faith. His behavior showed deliberate acts of sabotage.
a. His letters to the PNB attempting to undermine the credit of the principal and to acquire the factory
of the latter, without the principal's knowledge;
b. Coleongco's letter to his cousin, Kho To, instructing the latter to reduce the usual monthly advances
to Claparols to compel him to extend the contract entitling Coleongco to share in the profits of the nail
factory on better terms, and ultimately "own his factory";
c. Coleongco's attempt to have Agsam pour acid on the machinery;
d. his illegal diversion of the profits of the factory to his own benefit;
e. the surreptitious disposition of the Yates band resaw machine in favor of his cousin's Lumber Yard,
made while Claparols was in Baguio.
1. Caleongco attempted to justify his letter to the PNB, claiming that Claparols' mal-administration of
the business endangered the security for the advances that he had made under the financing
contract. But if that were the case, he would have first protested to Claparols himself, which he
never did. Caleongco also denied the authorship of the letter to Kho as well as the attempt to induce
Agsam to damage the machinery of the factory, but the SC saw no reason to alter the lower court's
conclusion, considering that Kho's letter to Claparols plainly corroborates and dovetails with the
plan outlined in Coleongco's own letter, signed by him, and that the credibility of Coleongco is
affected adversely by his own admission of his having been previously convicted of estafa, a crime
that implies moral turpitude.
2. Caleongco also breached his part of the obligation
a. Obligation: pay ALL NECESSARY FUNDS FOR IMPORTATION
b. He only paid 25%, and made Claparols shoulder the rest through surety agreements
c. Financing Agreement denied Coleongco of any power to bind Claparols without Claparol’s
permission
 He paid balances of importation (note: this is his obligation) out of the advances made by Claparols’
dealers for future sales without Claparols’ permission
 Agreement stated that until all costs had been provided for, Coleongco cannot use profits for his
obligaitons (to pay fees for importation)
 Generally, Claparols had funded the imports himself
1. He never liquidated and paid in full Claparols’ half of the profits, so that by the end of 1956 there
was due to Claparols P38,068.41
2. For 1957 to 1958 Claparols financed the imports of nail wire without the help of appellant, and in
view of the latter's infringement of his obligations, his acts of disloyalty previously discussed, and
his diversions of factory funds (he even bought two motor vehicles with them), no justification for
his insistence in sharing in the factory's profit for those years, nor for the restoration of the revoked
power of attorney.
3. Accountant found that by 1957, Coleongco owed Claparols P81,387.37.
4. No error was, therefore, committed by the trial court in declaring the financing contract properly
resolved by Claparols or in rendering judgment against Coleongco for the said amount of
P81,387.37.
The basic rule of contracts requires parties to act loyally toward each other in the pursuit of the
common end, and appellant clearly violated the rule of good faith prescribed by Art. 1315 NCC.
1. The lower court also allowed Claparols P50K for damages, material, moral, and exemplary, caused
by the appellant Coleongco's acts in maliciously undermining appellee's credit that led the PNB to
secure a writ of execution against Claparols.

DECISION:
Decision appealed from is affirmed. Costs against appellant Vicente Coleongco.
GENEVIEVE LIM v. FLORENCIO SABAN
December 16, 2004 | TINGA, J. | When agency cannot be revoked | RAYMUNDO

SUMMARY: Ybanez authorized Saban to look for a buyer for his lot for P200K and to mark up the price to
include incidental expenses and his commission. Saban sold to Lim for P600K, 400K was paid in cash and
200K to be paid in checks. Ybanez asked Saban to stop payment of the checks to Saban. Ybanez sued
Saban and Lim. Ybanez died during the pendency of the case. RTC dismissed the case but it was reversed
by the CA. CA held that Ybanez’s revocation was invalid because the agency was coupled with an interest.
SC held that Lim liable to Saban but agency was not coupled with an interest since (Doctrine)

DOCTRINE: When an agent’s interest is confined to earning his agreed compensation, the agency is not
one coupled with an interest, since an agent’s interest in obtaining his compensation as such agent is an
ordinary incident of the agency relationship.

FACTS
1. Eduardo Ybanez entered into an Agreement and Authority to Negotiate and Sell with Florencio
Saban (where Ybanez authorized Saban to look for a buyer of his lot for P200K and to mark up
the selling price to include the amounts needed for payment of taxes, transfer of title and other
expenses incident to the sale and his commission for the sale. Through Saban’s efforts, Ybanez
was able to sell the lot to the Genevieve Lim and the spouses Benjamin and Lourdes Lim. The
price of the lot as indicated in the Deed of Absolute Sale is 200K but vendees agreed to purchase
the lot at the price of P600K, inclusive of taxes and other incidental expenses of the sale. After the
sale, Lim remitted to Saban P113K for payment of taxes due on the transaction, P50K as broker’s
commission and 4 postdated checks in the aggregate amount of P236K.
2. Ybanez sent a letter to Lim asking her to cancel all the checks in Saban’s favor and to extend
another partial payment for the lot in Ybanez’s favor.
3. After the checks in his favor were dishonored, Saban filed a Complaint for collection of sum of
money and damages against Ybanez and Lim with the RTC. Saban alleged that Ybanez and Lim
connived to deprive him of his sales commission by withholding payment of the first three
checks. He also claimed that Lim failed to make good the fourth check which was dishonored
because the account against which it was drawn was closed. Ybanez claimed that Saban was not
entitled to any commission because he concealed the actual selling price from him and because
he was not a licensed real estate broker. As for Lim, she stopped payment for the three checks
because Ybanez requested her to pay the purchase price directly to him. She also agreed with
Ybanez that the purchase price of the lot was only P200,000.00.
4. Ybanez died during the pendency of the case before the RTC. Upon motion of his counsel, the trial
court dismissed the case only against him without any objection from the other parties.
5. RTC dismissed, declaring the 4 checks issued by Lim as stale and non-negotiable, and absolved
Lim from any liability.
6. CA reversed and held that Ybanez’s revocation of his contract of agency with Saban was invalid
because the agency was coupled with an interest and Ybanez effected the revocation in bad faith
in order to deprive Saban of his commission and to keep the profits for himself. In issuing the
checks in payment of Saban’s commission, Lim acted as an accommodation party. As such, she is
liable to pay Saban as the holder for value of the checks.
7. MR denied.
8. Lim contends that she paid the balance of the purchase price directly to Ybanez and Saban has no
one but himself to blame for consenting to the dismissal of the case against Ybanez and not
moving for his substitution by his heirs.

ISSUES
1. Whether Saban is entitled to receive his commission from the sale? YES BUT AGENCY NOT
COUPLED WITH INTEREST
2. Assuming that Saban is entitled thereto, whether it is Lim who is liable to pay Saban his sales
commission. YES
RATIO
1. Agency was not revoked, Ybanez requested that Lim make stop payment orders for the checks
only after the consummation of the sale. At that time, Saban had already performed his obligation
as Ybanezs agent.
2. To deprive Saban of his commission subsequent to the sale which was consummated through his
efforts would be a breach of his contract of agency which expressly states that Saban would be
entitled to any excess in the purchase price after deducting the P200k due to Ybanez and the
incidental expenses of the sale.
3. In Macondray & Co. v. Sellner, the Court recognized the right of a broker to his commission for
finding a suitable buyer for the sellers property even though the seller himself consummated the
sale with the buyer.
4. Court does not agree with the appellate court’s pronouncement that Saban’s agency was one
coupled with an interest. An agency is deemed as one coupled with an interest where it is
established for the mutual benefit of the principal and of the agent, or for the interest of the
principal and of third persons, and it cannot be revoked by the principal so long as the interest of
the agent or of a third person subsists. In an agency coupled with an interest, the agents interest
must be in the subject matter of the power conferred and not merely an interest in the exercise of
the power because it entitles him to compensation. When an agent’s interest is confined to
earning his agreed compensation, the agency is not one coupled with an interest, since an agent’s
interest in obtaining his compensation as such agent is an ordinary incident of the agency
relationship.
5. Lim is not a party to the contract. the amount actually paid by Lim was P393K, Ybanez rounded
off the amount to P400,000.00 and waived the difference. Lims act of issuing the four checks
amounting to P236K in Saban’s favor belies her claim that she and her co-vendees did not agree
to purchase the lot at P600,000.00. The only logical conclusion is that Lim changed her mind
about agreeing to purchase the lot at P600,000.00 after talking to Ybanez and ultimately realizing
that Saban’s commission is even more than what Ybanez received as his share of the purchase
price as vendor.
6. (On being an accomodation party) The appellate court erred in ruling that Lim is liable on the
checks because she issued them as an accommodation party. Section 29 of the Negotiable
Instruments Law defines an accommodation party as a person who has signed the negotiable
instrument as maker, drawer, acceptor or indorser, without receiving value therefor, for the
purpose of lending his name to some other person. The accommodation party is liable on the
instrument to a holder for value even though the holder at the time of taking the instrument
knew him or her to be merely an accommodation party. The accommodation party is one who
meets all these three requisites, viz: (1) he signed the instrument as maker, drawer, acceptor, or
indorser; (2) he did not receive value for the signature; and (3) he signed for the purpose of
lending his name to some other person. In the case at bar, while Lim signed as drawer of the
checks she did not satisfy the two other remaining requisites. Lim issued the checks in question
on account of her transaction, along with the other purchasers, with Ybanez which was a sale
and, therefore, a reciprocal contract. Second, there is no indication that Lim issued the checks for
the purpose of enabling Ybanez, or any other person for that matter, to obtain credit or to raise
money, thereby totally debunking the presence of the third requisite of an accommodation party.
 VALENZUELA v. CA
October 19, 1990 | Gutierrez Jr. | When agency cannot be revoked
PETITIONERS: ARTURO P. VALENZUELA and HOSPITALITA N. VALENZUELA
RESPONDENTS: THE HONORABLE COURT OF APPEALS, BIENVENIDO M. ARAGON, ROBERT E.
PARNELL, CARLOS K. CATOLICO and THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,
INC.
SUMMARY: Valenzuela was a general agent of Philamgen, authorized to sell non-life insurance for a
commission. Philamgen offered to have a share of Valenzuela’s commissions from its deal with Delta
Motors, but he refused, so Philamgen withheld his commission and terminated its General Agency
Agreement, citing substantial unpaid accounts. The SC ruled that Philamgen is liable for damages for
terminating the agency because (A) such termination was tainted with bad faith and (B) the agency was
one coupled with an interest.
DOCTRINE: See RATIO #1 and #3
FACTS:
1. Arturo Valenzuela is a General Agent of Philippine American General Insurance Company, Inc.
(Philamgen) since 1965. He was authorized to solicit and sell all kinds of non-life insurance for a
commission.
2. From 1973 to 1975, Valenzuela solicited marine insurance from Delta Motors, Inc. from which he
was entitled to a commission of 32%, but he did not receive his full commission. From 1976 to
1978, premium payments were paid directly to Philamgen.
3. Philamgen wanted a 50-50 share of Valenzuela’s commission but he refused, despite several
sharing proposals.
4. Because of this, Philamgen and its officers committed the following “acts of harassment” which
resulted in the decline of Valenzuela’s business:
a. reversed the commission due him by not crediting in his account the commission earned from
Delta Motors;
b. placed agency transactions on a cash and carry basis;
c. threatened the cancellation of policies issued by his agency; and
d. started to leak out news that Valenzuela has a substantial account with Philamgen.
5. Finally, Philamgen terminated its General Agency Agreement with Valenzuela supposedly due to
Valenzuela having a substantial account with Philamgen.
6. Valenzuela filed a complaint, and the trial court ruled in his favor, ordering his reinstatement and
holding Philamgen liable for damages due to the termination of the General Agency Agreement
primarily due to his refusal to share his commission.
7. From this, Philamgen et al. appealed to the CA which reversed the trial court.
ISSUES/HELD
Is Philamgen liable for damages for terminating the General Agency Agreement? YES
RATIO:
1. Generally, the principal has the right to terminate the agency at will, as long as it is in good faith.
2. IN THIS CASE, however, the termination of the agency is tainted with bad faith. The principal cause
of the termination of Valenzuela as General Agent arose from his refusal to share his Delta
commission.
a. Note that Philamgen had extended sharing proposals for the commission. Later, this was followed
by other pressures (demands to settle accounts, to confer and thresh out differences regarding Valenzuela’s
income and the threat to terminate the agency).
b. Philamgen began to covet Valenzuela’s commissions, which was a significant part of his agency
enterprise which he had built up after 13 years (with gross billings of P2.5 million per annum in premiums).
3. Also, this agency is one "coupled with an interest," and, therefore, should not be freely revocable
at the unilateral will of the principal Philamgen.
. Valenzuela had an interest in the continuation of the agency because of the commissions he should
continue to receive from the insurance business he has solicited and procured.
a. Also, upon the termination of the agency, Philamgen continued to hold Valenzuela personally liable
with the insured for unpaid premiums. Thus, by its own acts showing that Valenzuela had interest in the
continuation of the agency, Philamgen is estopped from insisting that the agency relationship is not coupled
with interest.
b. Furthermore, an exception to the principle that an agency is revocable at will is when the agency
has been given not only for the interest of the principal but for the interest of third persons or for the mutual
interest of the principal and the agent.
 4. Considering these, and the fact that Philamgen has been appropriating for itself all these years the
gross billings and income that it unceremoniously took away from Valenzuela, Philamgen is liable
for damages. A principal can be held liable for damages in cases of unjust termination of agency.
. P75,000.00 per month as compensatory damages from June 1980 until its decision becomes final
and executory.
FALLO
ACCORDINGLY, the petition is GRANTED. The impugned decision of January 29, 1988 and resolution of
April 27, 1988 of respondent court are hereby SET ASIDE. The decision of the trial court dated January 23,
1986 in Civil Case No. 121126 is REINSTATED with the MODIFICATIONS that the amount of FIVE HUNDRED
TWENTY ONE THOUSAND NINE HUNDRED SIXTY-FOUR AND 16/100 PESOS (P521,964.16) representing
the petitioners Delta commission shall earn only legal interests without any adjustments under Article
1250 of the Civil Code and that the contractual relationship between Arturo P. Valenzuela and Philippine
American General Insurance Company shall be deemed terminated upon the satisfaction of the judgment
as modified.
 FEDERICO VALERA vs MIGUEL VELASCO
March 13, 1928 | J. Villareal | Withdrawal
SUMMARY: Velasco, the agent, brought a suit against his principal, Valera, due to a misunderstanding
regarding the liquidation of accounts, which revealed that Valera owed Velasco P1,100. Judgment was
rendered in Velasco’s favor and the sheriff levied upon the Valera’s right of usufruct, sold it at public
auction and adjudicated it to the Velasco in payment of all of his claim. Later Valera sold his right of
redemption to a purchaser, who later on conveyed the same right of redemption, for the sum of P200 to
Valera himself. Another person who had an execution upon a judgment against Valera levied upon said
right of redemption. This person transferred said right of redemption to the defendant Velasco. CFI
dismissed Valera’s complaint on the ground that he has not proven he had a right of action. This is
Valera’s appeal to the CFI Decision.
DOCTRINES:
1. The fact that an agent (A) institutes an action against his principal (P) for the recovery of the
balance in his favor resulting from the liquidation of the accounts between them arising from the agency,
and renders and (sic) final account of his operations, is equivalent to an express renunciation of the agency,
and terminates the juridical relation between them.
2. Although the agent has not expressly told his P that he renounced the agency, yet neither dignity
nor decorum permits the latter to continue representing a person who has adopted such an antagonistic
attitude towards him.

FACTS:
1. By virtue of the powers of attorney executed by Valera (P), Velasco (A) was appointed attorney-in-
fact of Valera with authority to manage his property in the Philippines, consisting of the usufruct of a real
property located of Echague Street, City of Manila.
2. Velasco accepted both powers of attorney, managed plaintiff's property, reported his operations, and
rendered accounts of his administration; he also presented exhibit F to plaintiff, which is the final account
of his administration for said month, wherein it appears that there is a balance of P3,058.33 in favor of the
plaintiff Valera.
3. The liquidation of accounts revealed that the Valera owed Velasco P1,100, and as misunderstanding
arose between them, the Velasco brought suit against the plaintiff (civil case). Judgment was rendered in
Velasco’s favor and after the writ of execution was issued, the sheriff levied upon the plaintiff's right of
usufruct, sold it at public auction and adjudicated it to the defendant in payment of all of his claim.
4. Subsequently, on May 11, 1923, the plaintiff Valera sold his right of redemption to one Eduardo
Hernandez, for the sum of P200. On September 4, 1923, this purchaser conveyed the same right of
redemption, for the sum of P200, to the plaintiff himself.
5. After Valera had recovered his right of redemption, one Salvador Vallejo, who had an execution upon
a judgment against the plaintiff rendered in a civil case against the latter, levied upon said right of
redemption, which was sold by the sheriff at public auction to Salvador Vallejo for P250 and was definitely
adjudicated to him. Later, he transferred said right of redemption to the defendant Velasco. This is how the
title to the right of usufruct to the aforementioned property later came to vest the said defendant.
6. CFI dismissed Valera’s complaint on the ground that he has not proven he had a right of action. This
is Valera’s appeal to the CFI Decision.
ISSUES:
1. Is the express or tacit renunciation of the agent one of the ways of terminating an agency is by
→ YES
2. W/N the institution of a civil action and the execution of the judgment obtained by the agent
against his principal is a renunciation of the powers conferred on the agent → YES
RULES:
1. [Article 1732, Civil Code] Agency is terminated:xxx 2. By the withdrawal of the agent
2. [Art. 1736, Civil Code]. An A may withdraw from the agency by giving notice to the P. Should
the latter suffer any damage through the withdrawal, the agent must indemnify him therefore,
unless the agent's reason for his withdrawal should be the impossibility of continuing to act as
such without serious detriment to himself.
3. [Dela Peña vs Hidalgo] AGENCY; ADMINISTRATION OF PROPERTY; IMPLIED AGENCY. —
When the A and administrator of property informs his P by letter that for reasons of health and
medical treatment he is about to depart from the place where he is executing his trust and wherein
the said property is situated, and abandons the property, turns it over to a third party, renders
accounts of its revenues up to the date on which he ceases to hold his position and transmits to
his P statement which summarizes and embraces all the balances of his accounts since he began
 the administration to the date of the termination of his trust, and, without stating when he may
return to take charge of the administration of the said property, asks his P to execute a power of
attorney in due form in favor of a transmit the same to another person who took charge of the
administration of the said property, it is but reasonable and just to conclude that the said A had
expressly and definitely renounced his agency and that such agency duly terminated, in
accordance with the provisions of article 1732 of the Civil Code, and, although the A in his
aforementioned letter did not use the words "renouncing the agency," yet such words, were
undoubtedly so understood and accepted by the P, because of the lapse of nearly nine years up to
the time of the latter's death, without his having interrogated either the renouncing A,
disapproving what he had done, or the person who substituted the latter.
HELD:
1. (SEE DOCTRINE #2) The misunderstanding between the plaintiff and the defendant over the
payment of the balance of P1,000 due the latter, as a result of the liquidation of the accounts between them
arising from the collections by virtue of the former's usufructuary right, who was the P, made by the latter
as his A, and the fact that the said defendant brought suit against the said P on March 28, 1928 for the
payment of said balance, more than prove the breach of the juridical relation between them
2. (SEE DOCTRNE #1) When the A filed a complaint against his P for recovery of a sum of money
arising from the liquidation of the accounts between them in connection with the agency, Federico Valera
could not have understood otherwise than that Miguel Velasco renounced the agency; because his act was
more expressive than words and could not have caused any doubt. In order to terminate their relations by
virtue of the agency the defendant, as A, rendered his final account on March 31, 1923 to the plaintiff, as P.
3. Velasco, in adopting a hostile attitude towards his P, suing him for the collection of the balance in
his favor, resulting from the liquidation of the agency accounts, ceased ipso facto to be the A of the plaintiff-
appellant, said A's purchase of the aforesaid P's right of usufruct at public auction held by virtue of an
execution issued upon the judgment rendered in favor of the former and against the latter, is valid and legal,
and the lower court did not commit the fourth and fifth assignments of error attributed to it by the plaintiff-
appellant.
4. CONCLUSION: The disagreements between an A & P with respect to the agency, and the filing of a
civil action by the former against the latter for the collection of the balance in favor of the agent, resulting
from a liquidation of the agency accounts, are facts showing a rupture of relations, and the complaint is
equivalent to an express renunciation of the agency, and is more expressive than if the agent had merely
said, "I renounce the agency."
Same is hereby affirmed in all its parts, with costs against the appellant.

OTHER NOTES:
 In Velasco’s appeal, he assigned the following errors (issues):
1. The lower court erred in holding that one of the ways of terminating an agency is by the
express or tacit renunciation of the agent;
2. The lower court erred in holding that the institution of a civil action and the execution of
the judgment obtained by the agent against his principal is but renunciation of the powers
conferred on the agent;
3. The lower erred in holding that, even if the sale by Eduardo Hernandez to the plaintiff
Federico Valera be declared void, such a declaration could not prevail over the rights of the
defendant Miguel Velasco inasmuch as the right redemption was exercised by neither
Eduardo Hernandez nor the plaintiff Federico Valera;
4. The lower court erred in not finding that the defendant Miguel Velasco was, and at present
is, an authorized representative of the plaintiff Federico Valera;
5. The lower court erred in not annulling the sale made by the sheriff at public auction to
defendant Miguel Velasco, Exhibit K;
6. The lower court erred in failing to annul the sale executed by Eduardo Hernandez to the
plaintiff Federico Valera, Exhibit C;
7. The lower court erred in not annulling Exhibit L, that is, the sale at public auction of the
right to repurchase the land in question to Salvador Vallejo;
8. The lower court erred in not declaring Exhibit M null and void, which is the sale by Salvador
Vallejo to defendant Miguel Velasco;
9. The lower court erred in not ordering the defendant Miguel Velasco to liquidate his
accounts as agent of the plaintiff Federico Valera;
10. The lower court erred in not awarding plaintiff the P5,000 damages prayed for.
 ISSUES # 1-2 were discussed in the digest
 In regard to the third assignment of error, it is deemed unnecessary to discuss the validity of the
sale made by Federico Valera to Eduardo Hernandez of his right of redemption in the sale of his
usufructuary right made by the sheriff by virtue of the execution of the judgment in favor of Miguel
Velasco and against the said Federico Valera; and the same thing is true as to the validity of the
resale of the same right of redemption made by Eduardo Hernandez to Federico Valera; inasmuch
as Miguel Velasco's purchase at public auction held by virtue of an execution of Federico Valera's
usufructuary right is valid and legal, and as neither the latter nor Eduardo Hernandez exercised
his right of redemption within the legal period, the purchaser's title became absolute.
 Moreover, Velasco, having acquired Valera's right of redemption from Salvador Vallejo, who had
acquired it at public auction by virtue of a writ of execution issued upon the judgment obtained by
the said Vallejo against the said Valera, the latter lost all right to said usufruct.
 Even supposing that Hernandez had been tricked by Velasco into selling Valera's right of
repurchase to the latter so that Vallejo might levy an execution on it, and even supposing that said
resale was null for lack of consideration, yet, inasmuch as Hernandez did not present a third party
claim when the right was levied upon for the execution of the judgment obtained by Vallejo against
Vallera, nor did he file a complaint to recover said right before the period of redemption expired,
Hernandez, and much less Valera, cannot now contest the validity of said resale, for the reason that
the one-year period of redemption has already elapsed.
 HERRERA v LUY KIM GUAN
31 January 1961 | Barrera, J. | EXTINGUISHMENT OF AGENCY >> Death (CC §1919.3) | Lim
PETITIONERS : Natividad Herrera, assisted by her husband Emigdio Salazar
RESPONDENTS : Luy Kim Guan and Lino Bangayan
SUMMARY :
Luis Herrera executed a GPA in favour of Luy in 1931 before leaving for China where he eventually died
(date not proven in court). Pursuant to said GPA, Luy made several transactions disposing of his
principal’s real properties. Mr Herrera’s daughter Natividad, herein petitioner, now comes before the
Court to question these dispositions, alleging, inter alia, that these were void for having been executed
after the death of her father. Court for respondents for lack of evidence of exact date of Mr Herrera’s
death.

DOCTRINE : Death of the principal does NOT render the act of an agent unenforceable, where the latter
had no knowledge of such extinguishment of the agency.
FACTS :
1. Luis Herrera executed a GPA on 1 December 1931, authorising Mr Luy to administer and sell the former’s
properties.
2. Mr Herrera eventually left for China sometime in 1931 or 1932.
3. While the fact of his death therein is certain, it is contested when he died.
4. Mr Luy proceeded to sell his principal’s lands, some of these as late as 1937 and 1939. One of these
properties eventually were divided between Mr Luy and his co-respondent Mr Bangayan as co-owners.
5. Petitioner Ms Herrera, daughter of Mr Herrera, now questions the validity of these transactions, alleging, inter
alia, these were void for having been executed after the death of her father; thus, the GPA was no longer
operative at the time of these dispositions of land.
ISSUES : WON the sales of Mr Herrera’s lands pursuant to a GPA were valid notwithstanding his death.
YES
RATIO :
1. Date of Mr Herrera was not satisfactorily proven.
a. Petitioner’s evidence :
- supposed letter from one “Candi” which purported to give information that Luis
Herrera (without specifically mentioning his name), had died in 1936
b. Respondent’s evidence (more persuasive) :
- testimony of witness Chung Lian, stating that when he was in Amoy in 1940, Mr
Herrera visited and talked to him
- The assailed transactions being executed in 1937 and 1939 (see Fact#4), the
logical conclusion is that such transactions were executed during Mr Herrera’s
lifetime, and therefore valid.
2. Assuming ex gratia argumenti that Mr Herrera died in 1936 :
a. Neither did petitioner present any proof, nor is it indicated in the record, that Mr Luy was
aware of the death of his principal at the time of the sale of the properties. (author’s note :
principles on burden of proof; ei incumbit probatio qui dicit, non qui negat. Burden lies on he
who alleges, not denies, a fact)
b. Death of the principal does NOT render the act of an agent unenforceable, where the latter
had no knowledge of such extinguishment of the agency.

FALLO : Petitioner’s case dismissed, without prejudice to her right to demand from the agent Mr Luy an
accounting of the proceeds of the agency. No costs
RALLOS v. GO CHAN
January 31, 1978 | Munoz Palma, J. | Death, Civil Interdiction, Insanity, Insolvency of Principal
PLAINTIFF: RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS
RESPONDENT: FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS

SUMMARY: Concepcion and Gerundia were the owners of a lot. Both of them executed a SPA in favor of
their brother Simeon Rallos. The SPA authorized him to sell in the said lot on their behalf. Simeon was
able to sell such lot to Felix Go & Sons a few months after Concepcion’s death. Concepcion’s estate
administrator, Ramon Rallos, sought to have the sale be declared unenforceable and to have the title
reconveyed to the estate.
DOCTRINE: Agency is personal, representative, and derivative. The agent’s authority emanates from the
powers granted to him by his principal; his act is the principal’s act if done within the scope of the
authority. Generally, death of the principal extinguishes agency. However, if the agency is constituted in
the common interest of the principal and agent, or in the interest of a third person who has accepted the
stipulation in his favor, agency may still subsist. Moreover, in a case where an agent acted without the
knowledge of the principal’s death and the third person contracted in good faith, their contract remains
valid.

FACTS:
1. Concepcion and Gerundia Rallos are sisters and registered co-owners of a parcel of land known as
Lot No. 5983 of the Cadastral Survey of Cebu. They executed a SPA in favor of their brother, Simeon
Rallos, authorizing him to sell for and in their behalf the said lot.
2. A few months after Concepcion’s death, Simeon Rallos then sold the undivided shares of his sisters
Concepcion and Gerundia to Felix Go Chan & Sons Realty Corporation for the sum of P10,686.90.
3. Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a complaint
praying for the following:
a. Sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be unenforceable, and
said share be reconveyed to her estate
b. Certificate of 'title issued in the name of Felix Go Chan & Sons Realty Corporation be cancelled and
another title be issued in the names of the corporation and the "Intestate estate of Concepcion Rallos" in
equal undivided and
c. Plaintiff be indemnified by way of attorney's fees and payment of costs of suit.
4. Both Simon and Gerundia died and they were substituted by the administrators of their estates
while the case was pending in the TC.
5. The TC held the following: (a) Declaring the deed of sale null and void insofar as the one-half pro-
indiviso share of Concepcion Rallos in the property in question; (b) Ordering the Register of Deeds of Cebu
City to cancel the TCT and to issue in lieu thereof another in the names of FELIX GO CHAN & SONS REALTY
CORPORATION and the Estate of Concepcion Rallos in the proportion of one-half (1/2) share each pro-
indiviso; (c) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos,
to pay to defendant Felix Co Chan & Sons Realty Corporation P5,343.45, representing the price of one-half
(1/2) share of lot 5983; (d) Dismissing the third-party complaint without prejudice to filing either a
complaint against the regular administrator of the Estate of Gerundia Rallos or a claim in the Intestate-
Estate of Cerundia Rallos, covering the same subject-matter of the third-party complaint, at bar.
6. The CA sustained the sale. Rallos filed a MR, but it was denied by the CA. Hence, this case.
ISSUE: WON the sale of the undivided share of Concepcion Rallos is valid although the agent executed it
after the death of his principal. NO
RATIO:
1. A contract entered into in the name of another by one who has no authority or the legal
representation or who has acted beyond his powers, shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by
the other contracting party.
2. Agency is basically personal representative, and derivative in nature. The authority of the
agent to act emanates from the powers granted to him by his principal; his act is the act of
the principal if done within the scope of the authority. Qui facit per alium facit se. "He who
acts through another acts himself".
3. There are various ways of extinguishing agency, but here we are concerned only with one cause —
death of the principal. Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art. 1709
of the Spanish Civil Code provides: ART. 1919. Agency is extinguished: (3) By the death, civil
interdiction, insanity or insolvency of the principal or of the agent; ...
 4. By reason of the very nature of the relationship between Principal and agent, agency is
extinguished by the death of the principal or the agent. This is the law in this jurisdiction.
5. Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-
mentioned. Article 1930 is not involved because admittedly the SPA executed in favor of Simeon
Rallos was not coupled with an interest.
6. Article 1931 is the applicable law. Under this provision, an act done by the agent after the death
of his principal is valid and effective only under two conditions
1. That the agent acted without knowledge of the death of the principal and
2. That the third person who contracted with the agent himself acted in good faith
7. Good faith here means that the third person was not aware of the death of the principal at the time
he contracted with said agent. Article 1931, being an exception to the general rule, is to be strictly
construed, it is not to be given an interpretation or application beyond the clear import of its terms for
otherwise the courts will be involved in a process of legislation outside of their judicial function.
8. On the basis of the established knowledge of Simon Rallos concerning the death of his
principal Concepcion Rallos, Article 1931 of the Civil Code is inapplicable: (a) In the instant case, it
cannot be questioned that the agent, Simeon Rallos, knew of the death of his principal at the time he sold
the latter's share in Lot No. 5983 to respondent corporation. The knowledge of the death is clearly to be
inferred from the pleadings filed by Simon Rallos before the trial court; (b) On the basis of the established
knowledge concerning the death of principal, Article 1931 of CC is inapplicable. The law expressly requires
for its application lack of knowledge on the part of the agent of the death of his principal; it is not enough
that the third person acted in good faith.
9. The fact that no notice of the death of the principal was registered on the certificate of title of
the property in the Office of the Register of Deeds is not fatal to the cause of the estate of the principal.
10. The Civil Code does not impose a duty on the heirs to notify the agent of the death of the
principal. What the Code provides in Article 1932 is that, if the agent die his heirs must notify the principal
thereof, and in the meantime adopt such measures as the circumstances may demand in the interest of the
latter.
11. Agent Ramon Rallos executed the sale notwithstanding notice of the death of his principal.
Accordingly, the agent's act is unenforceable against the estate of his principal. The case is covered
expressly by a provision of law on agency and cannot be interpreted contrary to its tenor or
paralleled to that of laws on land registration
12. Holding that the good faith of a third person in said with an agent affords the former sufficient
protection, respondent court drew a "parallel" between the instant case and that of an innocent purchaser
for value of a land, stating that if a person purchases a registered land from one who acquired it in bad faith,
the registered owner has no recourse against such innocent purchaser for value but only against the forger.
 DANON v. BRIMO
September 12, 1921 | Johnson, J. | Other cases | Rad Isnani
PETITIONER: Julio Danon
RESPONDENTS: Antonio A. Brimo & Co.
SUMMARY: Danon was contracted by Brimo to sell his property at 1.2M. Another broker, Sellner, was
also contracted. Danon found someone willing to buy but according to him, Brimo did not want to sell
to a Filipino buyer. Therefore, Danon found another potential buyer who wrote a letter offering to buy
the property. However, while Brimo was reading the letter, Sellner arrived and informed the former that
he found a buyer willing to buy at 1.3M. Therefore, the sale in favor of the buyers found by plaintiff never
pushed through. Nonetheless, plaintiff filed a case to recover the 5% commission.

SC: Not entitled to commission. See doctrines.

DOCTRINES:
1. A broker is never entitled to commissions for unsuccessful efforts. The risk of a failure
is wholly his. The reward comes only with his success.
2. One who has employed a broker can himself sell the property to a purchaser whom he
has procured, without any aid from the broker
FACTS:

1. Brimo, in a conversation with the plaintiff, Danon, informed the latter that he (Brimo) desired to
sell his factory, the Holland American Oil Co., for the sum of P1,200,000. He agreed and
promised to pay to the plaintiff a commission of 5% provided the latter could sell said factory
for that amount. No definite period of time was fixed within which the plaintiff should effect the
sale.
2. Another broker, Sellner, was also trying to find a purchaser for the same property and plaintiff
was informed of the fact.
3. Danon went to see Mr. Mauro Prieto, president of the Santa Ana Oil Mill, a corporation, and
offered to sell to him the property at P1,200,000.
4. Mr. Prieto, its president, instructed the manager, Samuel E. Kane, to see Mr. Brimo and
ascertain whether he really wanted to sell said factory, and, if so, to get permission from him to
inspect the premises. Mr. Kane inspected the factory and, presumably, made a favorable report
to Mr. Prieto. The latter asked for an appointment with Mr. Brimo to perfect the negotiation as
they were ready to push through with the purchase.
5. The sale with Santa Ana did not push through.
6. The plaintiff claims that the reasons why the sale to the Santa Ana Mill was not consummated
was because Mr. Brimo refused to sell to a Filipino firm and preferred an American buyer; that
upon learning such attitude of the defendant the plaintiff endeavored to procure another
purchaser and found a Mr. Leas, who delivered to the plaintiff a letter addressed to Mr. Brimo,
offering to buy the factory in question at P1,200,000. The said offer was not accepted by Brimo
because while he was reading the letter of Leas, Sellner came in, drew Brimo into another
room, and then and there closed the deal at P1,300,000.
7. An action to recover the 5% (P60,000) commission, alleged to be the value of services
rendered, was brought by plaintiff.
ISSUE/HELD:
WON plaintiff Danon is entitled to the 5% commission – NO, his "services" did not in any way contribute
towards bringing about the sale of the factory in question. He was not the efficient agent or the procuring
cause of the sale.
RATIO:

The duty assumed by the broker is to bring the minds of the buyer and seller to an agreement for a
sale, and the price and terms on which it is to be made, and until that is done his right to commissions
does not accrue. Although the present plaintiff could probably have effected the sale of the defendant's
factory had not the defendant sold it to someone else, he is not entitled to the commissions agreed
upon because he had no intervention whatever in, and much sale in question.

Also, where no time for the continuance of the contract is fixed by its terms either party is at liberty to
terminate it at will, subject only to the ordinary requirements of good faith. Usually the broker is entitled
to a fair and reasonable opportunity to perform his obligation, subject of course to the right of the seller
to sell independently. But having been granted him, the right of the principal to terminate his authority
is absolute and unrestricted, except only that he may not do it in bad faith, and as a mere device to
escape the payment of the broker's commissions. Thus, if in the midst of negotiations instituted by the
broker, and which were plainly and evidently approaching success, the seller should revoke the
authority of the broker, with the view of concluding the bargain without his aid, and avoiding the payment
of commission about to be earned, it might be well said that the due performance his obligation by the
broker was purposely prevented by the principal. But if the latter acts in good faith, not seeking to
escape the payment of commissions, but moved fairly by a view of his own interest, he has the absolute
right before a bargain is made while negotiations remain unsuccessful, before commissions are earned,
to revoke the broker's authority
 Diolosa v. CA
July 16, 1984 | Relova, J. | Other cases | Otchengco
PETITIONERS: Mariano Diolosa and Alegria Villanueva-Diolosa
RESPONDENTS: CA, Quirino Baterna
SUMMARY: Baterna was hired by the Diolosas as exclusive sales agent for the sale of the lots in the Villa Alegre
Subdivision. Baterna was able to sell various lots in pursuance of this agreement. However, subsequently his
service was terminated through a letter given by the Diolosas, claiming that they needed the undisposed lots for
the use of their family. Baterna, claiming that he had an unrecovable authority to sell the lots, “until all the lots
shall have been disposed of,” filed an action for recovery of unpaid commissions against the Diolosas. Lower
court dismissed the action, but the CA reversed, and hence this petition by the Diolosas before the SC. The Court
ruled for Baterna. It looked at the agreement between the parties (ratio 1), and found that Baterna had the authority
to sell until all the subject property as subdivided is fully disposed of. Hence, the Diolosas became liable for
damages when they terminated the contract before Baterna was able to sell all the lots. Also..
DOCTRINE: There is a valid agency contract in this case. Hence, it may be rescinded only on grounds specified
in Art. 1381 and 1382.

FACTS:
1. Defendant Quirino Baterna is a licensed real estate broker. On June 20, 1968, he was hired as exclusive sales
agent by the petitioners Mariano Diolosa and Alegria Villanueva-Diolosa, for the sale of the lots included in the
Villa Alegre Subdivision.
2. Baterna claimed that he has sold various lots in pursuance of his agreement with the petitioners. However,
on Sept. 27, 1968, his service was terminated through a letter given by the petitioners.
3. Baterna claims that he suffered damage by such rescission, and hence brought an action for recovery of
unpaid commissions against the Diolosas before the Trial Court. TC ruled for the Diolosas and dismissed
Baterna’s claim.
4. CA, however, reversed and ruled in favor of Baterna. Hence this petition by the Diolosas before the SC.
5. Baterna’s arguments:
a. under the terms of the contract, he was given an unrecovable authority to sell all the lots included in
the Subdivision and act as exclusive sales agent until all the lots shall have been disposed of.
b. That the rescission contravened hence contravened the contract.
6. Diolosas‘ arguments:
a. They were within their right to terminate the agency on the ground that they needed the undisposed
lots for the use of the family.
b. Baterna has no right in law for commissions on lots he has not sold.
ISSUES/HELD
WoN the Diolosas could terminate the agency agreement without paying damages to Baterna? No. Their petition
is unmeritorious.
RATIO:
1. Baterna has an irrevocable right to sell or dispose of the lots until all the subject property was disposed of,
and revoking such authority entitled him to damages from the Diolosas.
a. The Court looked at the pertinent part of the contract which stated: That the PARTY OF THE FIRST
PART by virtue of these presents, to enhance the sale of the lots of the above-described subdivision, is engaging
as their EXCLUSIVE SALES AGENT the PARTY OF THE SECOND PART, its successors, heirs and assigns
to dispose of, sell, cede, transfer and convey the above-described property in whatever manner and nature the
PARTY OF THE SECOND PART, with the concurrence of the PARTY OF THE FIRST PART, may deem wise
and proper under the premises, whether it be in cash or installment basis, until all the subject property as
subdivided is fully disposed of. (first part – Diolosas, 2 part – Baterna)
nd

b. The Court then said that under the contract, herein petitioners Diolosas allowed the private
respondent Baterna "to dispose of, sell, cede, transfer and convey ... until out the subject property as
subdivided is fully disposed of." The authority to sell is not extinguished until all the lots have been
disposed of. When, therefore, the petitioners Diolosas revoked the contract with private
respondent in a letter, they became liable to the private respondent for damages for breach of
contract.

2. There is a valid agency contract in this case. Hence, it may be rescinded only on grounds specified
in Art. 1381 and 1382.
 a. In the case at bar, not one of the grounds is present which may be the subject of an action
of rescission, much less can petitioner Diolosas say that the private respondent Baterna violated the terms
of their agreement-such as failure to deliver to them the proceeds of the purchase price of the lots.
 LUSTAN v. CA
January 27, 1997|FRANCISCO, J.| Other cases
PETITIONER: ADORACION LUSTAN
RESPONDENT: COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN, PHILIPPINE
NATIONAL BANK
DOCTRINE: Special Powers of Attorney are a continuing one and absent a valid revocation duly furnished
to the mortgagee, the same continues to have force and effect as against third persons who had no
knowledge of such lack of authority.
As far as third persons are concerned, an act is deemed to have been performed within the scope of the
agent's authority if such is within the terms of the power of attorney as written even if the agent has in fact
exceeded the limits of his authority according to the understanding between the principal and the agent
FACTS:
1. Petitioner Adoracion Lustan leased his property in Iloilo to private respondent Nicolas Parangan
for 10 years. During the period of lease, Parangan was regularly extending loans in small amounts
to petitioner to defray her daily expenses and to finance her daughter's education.
2. Lustan executed a SPA in favor of Parangan to secure an agricultural loan from PNB with the lot as
collateral.
3. A 2 SPA was executed, by virtue of which, Parangan was able to secure 4 additional loans. The last
nd

three loans were without the knowledge of Lustan and all the proceeds were used by Parangan for
his own benefit. All were duly annotated on the certificate of title.
4. Lustan signed a Deed of Pacto de Retro Sale in favor of Parangan which was superseded by the
Deed of Definite Sale which Lustan signed upon Parangan's representation that the same merely
evidences the loans extended by him unto the former.
5. Later, Lustan demanded the return of her certificate of title, but Parangan asserted his rights over
the property which allegedly had become his by virtue of the Deed of Definite Sale. (“sold” for
P75,000)
6. Lustan filed an action for cancellation of liens, quieting of title, recovery of possession and damages
against Parangan and PNB in the RTC.
7. RTC ruled in favour of Lustan.
8. On appeal, the CA reversed. Hence this petition.
ISSUE:
1. WON the Deed of Definite Sale is in reality an equitable mortgage—YES. It is an equitable
mortgage as it was shown beyond doubt that the intention of the parties was one of a loan secured
by petitioner's land
2. WON petitioner's property is liable to PNB for the loans contracted by Parangan by virtue
of the special power of attorney—YES.
RATIO:
As to equitable mortgage:
 evidence is sufficient to warrant a finding that petitioner and Parangan merely intended to
consolidate the former's indebtedness to the latter in a single instrument and to secure the same
with the subject property. Even when a document appears on its face to be a sale, the owner of the
property may prove that the contract is really a loan with mortgage by raising as an issue the fact
that the document does not express the true intent of the parties.
 In this case, parol evidence then becomes competent and admissible to prove that the instrument
was in truth and in fact given merely as a security for the repayment of a loan.
 Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to be an equitable
mortgage in any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other obligation.
That the case clearly falls under this category can be inferred from the circumstances surrounding
the transaction:
 Petitioner had no knowledge that the contract she signed is a deed of sale.
 Petitioner is illiterate and her condition constrained her to merely rely on Parangan's assurance
that the contract only evidences her indebtedness to the latter.
 Respondent did not prove that the contract was duly read and explained to petitioner
As to SPA:
 The Special Power of Attorney clothed Parangan with authority to deal with PNB on Lustan’s behalf
and in the absence of any proof that the bank had knowledge that the last three loans were without
the express authority of petitioner, it cannot be prejudiced thereby.
  As far as third persons are concerned, an act is deemed to have been performed within the scope
of the agent's authority if such is within the terms of the power of attorney as written even if the
agent has in fact exceeded the limits of his authority according to the understanding between the
principal and the agent
o The SPA had provided that loan but also for subsequent commercial, industrial,
agricultural loan or credit accommodation that the attorney-in-fact may obtain and until
the power of attorney is revoked in a public instrument and a copy of which is furnished
to PNB
 Third persons who are not parties to a loan may secure the latter by pledging or mortgaging their
own property. AND So long as valid consent was given, the fact that the loans were solely for
the benefit of Parangan would not invalidate the mortgage with respect to petitioner's
property.
o In consenting thereto, her property shall secure and respond for the performance of the
principal obligation.
 Petitioner argues that the last three mortgages were void for lack of authority, BUT she failed to
consider that said Special Powers of Attorney are a continuing one and absent a valid revocation
duly furnished to the mortgagee, the same continues to have force and effect as against third
persons who had no knowledge of such lack of authority.
o "Art. 1921. If the agency has been entrusted for the purpose of contracting with specified
persons, its revocation shall not prejudice the latter if they were not given notice thereof."
 And 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
RULING: MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND MAY THEREFORE BE
SUBJECTED TO EXECUTION SALE. But petitioner has an unquestionable right to demand proportional
indemnification from Parangan with respect to the sum paid to PNB from the proceeds of the sale of her
property, in case the same is sold to satisfy the unpaid debts.
 DY BUNCIO & COMPANY, INC. v. ONG GUAN CAN, et. al.
October 2, 1934 | Hull, J. | Extinguishment/Other Cases
SUMMARY: Dy Buncio, judgment creditor of Ong Guan Can, levied upon the latter’s properties. Juan Tong
and Pua Giok Eng opposed claiming that they are the owners of the properties by virtue of a deed executed
between them and Ong Jr as agent of Ong. The power of attorney used for the said deed was a limited one
which did not confer right to alienate the said properties. Juan and Pua aver that a general power of attorney
executed previously ‘cured’ such defect. SC held that the new limited power of attorney revoked the first.
Thus, the deed did not validly transfer ownership to Juan and Pua. The properties were properly subject to
attachment and execution in favor of Dy Buncio.
DOCTRINE: The making and accepting of a new power of attorney, whether it enlarges or decreases the
power of the agent under a prior power of attorney, must be held to supplant and revoke the latter when
the two are inconsistent.
FACTS:

- Ong Guan Can, owner of Ong Guan Can & Sons, owned a rice mill and camarin in Dao, Capiz.
- Ong’s judgment creditor, Dy Buncio & Co., levied upon the said rice mill and camarin for satisfaction of the
judgment debt. However, Juan Tong and Pua Giok Eng claim that the said properties cannot be subject of
attachment and execution because they are the owners of said property by virtue of a deed (of sale).
- Juan Tong and Pua Giok Eng allege that the said deed was executed in their favor by Ong Guan Can, Jr. as
agent of Ong Guan Can on July 31, 1931. Details of the deed:
- Ong Guan Can, Jr., as agent of Ong Guan Can, the proprietor of the commercial firm of Ong Guan
Can & Sons, sells the rice-mill and camarin for P13,000
- Ong Guan Can Jr gives as his authority the power of attorney dated the 23d of May, 1928. Copy of
this public instrument is attached to the deed and recorded with the deed in the office of the
Register of Deeds of Capiz
- Receipt of the money acknowledged in the deed was to the agent
- The deed was signed by the agent in his own name and without any words indicating that he was
signing it
for the principal
- CFI of Capiz: Deed invalid, thus property subject to execution.
- Juan and Pua appeal to SC. They claim that the defect in the power of attorney (that it is merely a limited
one which does not give express power to alienate the properties) is ‘cured’ because Ong Guan Can had
previously given Ong Jr a general power of attorney in 1920.
ISSUE/HELD: WON the deed/sale was valid? NO, Ong Jr’s power of attorney not sufficient to effect sale

RATIO:

1. Leaving aside the irregularities of the deed and coming to the power of attorney referred to in the
deed and registered therewith, it is at once seen that it is not a general power of attorney but a limited one
and does not give the express power to alienate the properties in question.
2. Appellants claim that this defect is cured by Exhibit 1, which purports to be a general power of attorney
given to the same agent in 1920 (prior to the limited power of attorney used in the deed). Article 1732 of
the Civil Code is silent over the partial termination of an agency. The making and accepting of a new power
of attorney, whether it enlarges or decreases the power of the agent under a prior power of attorney, must
be held to supplant and revoke the latter when the two are inconsistent. If the new appointment with
limited powers does not revoke the general power of attorney, the execution of the second power of
attorney would be a mere futile gesture.
3. Thus, The title of Ong Guan Can not having been divested by the so-called deed of July 31, 1931, his
properties are subject to attachment and execution.
DISPOSITIVE: Judgment appealed from affirmed. (Attachment and execution of properties by Dy Buncio
valid)
JUAN GARCIA Y PALICIO V. JOSEFA DE MANZANO
February 4, 1919 | MOIR, J. | Other Cases | RAYMUNDO

SUMMARY: Narciso Manzano executed a GPOA in favor of his son, Angel and subsequently,
Narciso’s wife, Josefa. Son executed a contract by which Juan Garcia (the buyer of Narciso’s
share in the steamer) agreed to extend a credit to Narciso and this credit was used by the house
of Manzano. To secure it, a mortgage was given in the same document on three parcels of
land. Narciso died and CFI named Josefa as administratrix and ordered partition. Garcia filed
his action in the CFI to foreclose the mortgage. Defendants allege that Garcia took advantage of
the youth and inexperience of Angel and made him believe that he had authority when he did
not. Court ruled that POA to Angel was not revoked and that Angel had authority to sell the
steamer.

DOCTRINE
1. (Implied) There must be notice to the first agent that his authority has been revoked by a
second POA. Acts which the first agent has done without knowledge of his revocation are
deemed valid.
2. The power does not expressly state that the agent may sell the boat, but a power so full
and complete authoring the sale of real property, must necessarily carry with it the right to
sell a half interest in a small boat

FACTS
1. Narciso Lopez Manzano was a merchant. He gave a general power-of-attorney to his
son, Angel L. Manzano on the 9th of February, 1910, and on the 25th of March a second
general power-of-attorney to his wife, Josefa Samson. He went to Spain in May, 1910,
and died there.
2. Manzano was the owner of a half interest in a small steamer, the San Nicolas, the other
half being owned by Ocejo, Perez & Co., with whom there was a partnership agreement
to run the steamer for a few years. When this period expired Ocejo, Perez &
Co. demanded that Manzano buy or sell. As he did not want to sell at the price offered
and could not buy, Juan Garcia bought the half interest held by Ocejo, Perez & Co.
3. Angel sold the other half of the boat to the Juan, but as he is a Spaniard and could not
register the boat in his name at the Custom House, the boat was registered in the name
of Agustin Garcia, his son, who at that time was a minor. Agustin Garcia shortly
thereafter died, leaving his parents as his heirs at law, and as such heirs plaintiff's wife
was made a party.
4. Angel executed a contract by which Juan agreed to extend a credit to Narciso in the sum
of P12,000, and this credit was used by the house of Manzano. To secure it, a mortgage
was given in the same document on three parcels of land.
5. CFI Named Josefa administratrix of the property of Narciso, and commissioners were
duly appointed, and notice was published, and no claims having been presented against
the estate. CFI ordered the partition.
6. Juan filed his action in the CFI to foreclose the mortgage. Josefa filed a pleading stating
that the estate had already been divided. Plaintiff eventually filed his amended complaint,
making them individually defendants, the minors to be represented by their guardian ad
litem.
7. Defendants stated they knew such a mortgage document set up in the complaint existed,
but as they were not certain that Exhibit A was an exact copy, they denied the document;
they denied its efficacy and legal effect; they denied the jurisdiction of the court to hear
and decide the case, and alleged that the action had prescribed.
8. Defendants also filed a counterclaim against Juan and his wife, alleging that Garcia
taking advantage of the youth and inexperience of Angel falsely and maliciously made
him believe that he had authority under the power-of-attorney from his father to sell the
half interest in the San Nicolas.
9. Trial court held there was not legal mortgage and gave judgment for the plaintiff against
Josefa only, for the amount admitted by her letter to be due and dismissed the claim
 against the other defendants and also dismissed the counterclaim of defendants. The
plaintiffs did not appeal.
10. All of the defendants presented a motion for a new trial, but only the defendant
Josefa excepted to the order of the court denying the motion for new trial.

ISSUE:
1. WON POA to wife revoked the POA given to the son. NO
2. WON Angel’s POA allowed him to sell his father’s share in the boat. YES

RATIO
1. There is no proof in the record that the first agent, knew of the power-of-attorney to his
mother. It was necessary under the law for the defendants, in order to establish their
counterclaim, to prove that the son had notice of the second power-of-attorney. They have
not done so, and it must be considered that Angel was acting under a valid power-of-
attorney from his father which had not been legally revoked on the date of the sale of the
half interest in the steamer to the plaintiff's son, which half interest was legally inherited by
the plaintiffs.
2. The document under which Angel L. Manzano sold the boat reads: ”To enable him to buy
or sell, absolutely or under pacto de retro, any of the rural or urban estates that now own
and may acquire in the future, at such price as he may deem most advantageous, which
he shall collect in cash or by installments and under such conditions as he may consider
proper, and he shall set forth the encumbrances on the properties and their origin. I bind
myself to warrant and defend, in accordance with law, the titles to such properties; and if
the properties alienated by this agreement should be redeemed, he is empowered to
redeem them by paying the price that may have been fixed, and, for this purpose, shall
execute the proper instrument.”
3. The power-of-attorney authorizes the sale of real property, the buying of real property and
mortgaging the same the borrowing of money and in fact is general and complete. The
power does not expressly state that the agent may sell the boat, but a power so full and
complete authoring the sale of real property, must necessarily carry with it the right to sell
a half interest in a small boat. The record further shows the sale was necessary in order to
get money or a credit without which it would be impossible to continue the business which
was being conducted in the name of Narciso L. Manzano and for his benefit.

DISPOSITIVE: That part of the judgement ordering the defendant Josefa Samson de Manzano
to pay the plaintiff P12,752.85 is revoked, and the judgment in so far as it dismisses the
counterclaim of the defendants is affirmed, without any declaration of costs. So ordered.

TORRES, J., dissenting

Although, on the death of the husband, the property of the conjugal partnership was in a mass
and pro indiviso, after the liquidation and partition of this property had been made, the widow, a
member of the dissolved partnership, received her share of the community property, and it would
not be just that, for the collection of one-half of the debt, for which she is liable, the creditor
should be force to subject himself to and observe the proceedings prescribed for the collection of
the amount owing him, from the testate or intestate estate of the deceased debtor.
 Republic V Evangelista
AUGUST 11, 2005 | PUNO | MIKEE
PETITIONERS: REPUBLIC OF THE PHILIPPINES, represented by LT. GEN. JOSE M. CALIMLIM, in
his capacity as former Chief of the Intelligence Service, Armed Forces of the Philippines (ISAFP),
and former Commanding General, Presidential Security Group (PSG), and MAJ. DAVID B.
DICIANO, in his capacity as an Officer of ISAFP and former member of the PSG
RESPONDENTS: HON. VICTORINO EVANGELISTA, in his capacity as Presiding Judge, Regional
Trial Court, Branch 223, Quezon City, and DANTE LEGASPI, represented by his attorney-in-fact,
Paul Gutierrez
SUMMARY: Pursuant to a MOA Calimlim assigned military personnel to guard treasure hunting
site. Legaspi was the owner and he via a SPA, appointing his nephew, private respondent
Gutierrez, as his attorney-in-fact. Gutierrez was given the power to deal with the treasure
hunting activities on Legaspi’s land and to file charges against those who may enter it without
the latter’s authority. Legaspi agreed to give Gutierrez 40% of the treasure that may be found in
the land. In turn Gutierrez hired the services of atty. Adaza because he filed a case against
Calimlim for entering Legaspi’s land. Atty. Adaza was promised as attorney’s fees, 30% of
Legaspi’s share in whatever treasure may be found in the land. Petitioners contend that
Gutierrez no longer had authority to commence action for his authority to act as an agent has
already been revoked as evidenced by a deed of revocation. TC, CA, and SC disagree with this
contention. Court states that while general rule is that agency may be revoked by the principal
at will, an exception to the revocability of a contract of agency is when it is coupled with
interest, i.e., if a bilateral contract depends upon the agency. Court notes that both Gutierrez and
Atty. Adaza had interest in the land for they are entitled to a share on whatever treasure may be
found underneath the said land.
DOCTRINE:
GR: Agency revocable by will of Principal.
EXP: is when it is coupled with interest, i.e., if a bilateral contract depends upon the agency.
FACTS:
1. private respondent Legaspi is the owner of a land located in Bigte, Norzagaray, Bulacan.
2. In November 1999, petitioner Calimlim, representing the Republic of the Philippines,
and as then head of the Intelligence Service of the Armed Forces of the Philippines and
the Presidential Security Group, entered into a MOA with Ciriaco Reyes.
a. The MOA granted Reyes a permit to hunt for treasure in a land in Bigte, Norzagaray,
Bulacan
3. Petitioner Diciano signed the MOA as a witness.
4. Reyes, together with petitioners, started, digging, tunneling and blasting works on the
said land of Legaspi.
5. petitioner Calimlim assigned about 80 military personnel to guard the area and encamp
thereon to intimidate Legaspi and other occupants of the area from going near the
subject land.
6. February 15, 2000, Legaspi executed a special power of attorney (SPA) appointing his
nephew, private respondent Gutierrez, as his attorney-in-fact. Gutierrez was given the
power to deal with the treasure hunting activities on Legaspi’s land and to file charges
against those who may enter it without the latters authority. Legaspi agreed to give
Gutierrez 40% of the treasure that may be found in the land.
7. February 29, 2000, Gutierrez filed a case for damages and injunction against petitioners
for illegally entering Legaspi’s land.
8. He hired the legal services of Atty. Homobono Adaza. Their contract provided:
. that as legal fees, Atty. Adaza shall be entitled to 30% of Legaspis share in whatever
treasure may be found in the land.
a. Gutierrez agreed to pay Atty. Adaza P5,000.00 as appearance fee per court hearing and
defray all expenses for the cost of the litigation
9. RTC issued 72-hour TRO
 10. Petitioners filed a MTD stating:
. there is no real party-in-interest as the SPA of Gutierrez to bring the suit was already
revoked by Legaspi on March 7, 2000, as evidenced by a Deed of Revocation; and,
a. Gutierrez failed to establish that the alleged armed men guarding the area were acting
on orders of petitioners.
11. TC: granted private respondents application for a WPI (ruling SPA still valid).
12. CA: affirmed.
ISSUE: WHETHER THE CONTRACT OF AGENCY BETWEEN LEGASPI AND PRIVATE
RESPONDENT GUTIERREZ HAS BEEN EFFECTIVELY REVOKED BY LEGASPI. –NO
RATIO:
1. A contract of agency is generally revocable as it is a personal contract of representation
based on trust and confidence reposed by the principal on his agent. As the power of the
agent to act depends on the will and license of the principal he represents, the power of
the agent ceases when the will or permission is withdrawn by the principal. Thus,
generally, the agency may be revoked by the principal at will
2. However, an exception to the revocability of a contract of agency is when it is coupled
with interest, i.e., if a bilateral contract depends upon the agency.
a. Reason: because the agency becomes part of another obligation or agreement. It is not
solely the rights of the principal but also that of the agent and third persons which are affected.
3. In the case at bar, the agency granted by Legaspi to Gutierrez is coupled with interest as
a bilateral contract depends on it.
4. It is clear from the records:
. that Gutierrez was given by Legaspi, inter alia, the power to manage the treasure
hunting activities in the subject land; to file any case against anyone who enters the land
without authority from Legaspi; to engage the services of lawyers to carry out the agency;
and, to dig for any treasure within the land and enter into agreements relative thereto.
a. that Gutierrez shall be entitled to 40% of whatever treasure may be found in the
land.
5. Pursuant to this authority and to protect Legaspis land from the alleged illegal entry of
petitioners, agent Gutierrez hired the services of Atty. Adaza to prosecute the case for
damages and injunction against petitioners.
. As payment for legal services, Gutierrez agreed to assign to Atty. Adaza 30% of
Legaspis share in whatever treasure may be recovered in the subject land.
6. It is clear that the treasure that may be found in the land is the subject matter of the
agency; that under the SPA, Gutierrez can enter into contract for the legal services of
Atty. Adaza; and, thus Gutierrez and Atty. Adaza have an interest in the subject matter of
the agency
RULING: the impugned Orders of the trial court in Civil Case No. Q-00-40115, dated March 23 and April 4, 2000,
are AFFIRMED. The presiding judge of the Regional Trial Court of Quezon City to whom Civil Case No. Q-00-
40115 was assigned is directed to proceed with dispatch in hearing the main case for damages. No
pronouncement as to costs.
Bacaling v. Muya (2002)

Pioneer Insurance & Security Corporation v. CA (1989)

SUMMARY: Lim owns Southern Air Lines. He asked for contributions from Bormaheco, Maglana, and the
2 Cervanteses to expand his business by establishing a corporation and using their contributions to
purchase 2 planes from Japan Domestic Airlines and one set of spare parts. The contract with JDA was
secured by a surety agreement executed by Pioneer. Lim and contributors executed an indemnity
agreement in favor of Pioneer for any damage or expense it will incur as a consequence of the surety. No
corporation was ever created. Lim then executes a chattel mortgage on the airplanes to secure the surety
agreement further. When Lim defaulted on his payment, Pioneer paid JDA. Now Pioneer is foreclosing the
airplane and the contributors are claiming to be co-owners. The trial court held Lim liable to Pioneer and
also to the contributors to return the contributions and to pay expenses incurred due to the filing of the
case. Lim claims that a de facto partnership was created, hence, they should all share in the loss/ gain in
the venture in proportion to their contributions. Court held that there was no de facto corporation
created and Lim has to return their contributions. Lim clearly had no intention to create a corporation.
Nor was there an intention on the contributors to form a partnership and share in the gains/losses of the
venture.

DOCTRINE: Where certain persons associate as a corporation to engage in land development for
irrigation purposes, but no stock was ever issued, its capital stock was treated as partnership assets, sold,
and proceeds distributed among them in proportion to the value of property contributed by each.
However, such relation does not necessarily exist. Persons cannot be made to assume relation of partners
when they intend that no partnership shall exist. It shall only be implied to do justice between parties.
Hence, a person who takes no part except to subscribe to stock does not become a partner with other
subscribers so as to be liable in an action for settlement, or make them liable together with the board of
directors for contribution for payment of debts illegally contracted by the latter.

FACTS:
1. Lim is owner-operator of Southern Air Lines (single Proprietor). Japan Domestic Airlines (JDA)
entered into contract with Lim where Lim buys 2 DC-3A Type aircraft and one set of spare parts for
$109k to be paid in installments.
2. Pioneer executes surety bond in favor of JDA and on behalf of Lim to ensure payment of the
balance.Bormaheco, the 2 Cervanteses, and Maglana appear to have contributed funds for the purchase of
the aircraft and spareparts. This was supposed to be their contribution in the new corporation to be
established to expand Lim’s business. They all executed indemnity agreements to hold Pioneer free from
damage as a consequence of the surety agreement.
3. Lim executeD a chattel mortgage over the 2 airplanes to secure the surety agreement, however defaults
on the payments, thus Pioneer files extrajudicial foreclosure. Cervanteses and Maglana claim they co-own
the aircrafts.
4. Pioneer files judicial foreclosure against Lim, Bormaheco, Cervanteses, and Maglana, while Bormaheco,
Cervanteses, and Maglana file cross claim against Lim because they were not privy to the contract of
mortgage and they file counterclaim for being exposed to litigation.
5. Trial court held Lim liable to pioneer but dismissed Pioneer’s complaint against all defendants.
Appellate decision modified it. Plaintiff’s complaint against all defendants was dismissed. This is because
of the finding of the appellate court that there was a reinsurance agreement and Pioneer has already been
paid by the reinsurer. Hence, the claim in this case pertains to the reinsurer, not Pioneer. Pioneer is even
overpaid because after it was paid by the reinsurer, it forclosed the chattel mortgage to cover the balance.
Balance is 3,000+, proceeds of the sale were 37000+, making Pioneer receive 33,000+ in excess.
6. The Appellate Court affirmed the ruling of the trial court saying Lim has to reimburse the amounts
contributed by Bormaheco, the Cervanteses, and Maglana. Lim assails this order because he says that due
to the failure to incorporate, and the 3 having contributed funds already, a de facto partnership was created
and that the partners share in the losses or gains in proportion to their contribution.
ISSUES:
1. WoN Pioneer a cause of action against defendants with respect to so much of its obligations to
JDA as has been paid with reinsurance money? NO
2. WoN a de facto partnership was created NO
RATIO:
Pioneer has no cause of action against defendants.
1. Court: Pioneer is not the real party in interest but merely the reinsurer. Second, when Pioneer
paid JDA as surety, it became subrogated in the rights of JDA. When it restructured the debt of
Lim without the consent of the co-indemnitors, a novation was effected and the co-indemnitors
were released from their obligation. third, since Pioneer is exercising the rights of an unpaid
seller when it stepped into the shoes of JDA, it no longer has the right to claim for the unpaid
balance after choosing to foreclose the property.

No de facto partnership was created, as there was no intent to form a corporation in the case at
bar
1. It is ordinarily held that when persons who attempt, but fail, to form a corporation occupy the
position of partners. Where certain persons associate as a corporation to engage in land
development for irrigation purposes, but no stock was ever issued, its capital stock was treated as
partnership assets, sold, and proceeds distributed among them in proportion to the value of
property contributed by each. (Am Jur)
2. However, such relation does not necessarily exist. Persons cannot be made to assume relation of
partners when they intend that no partnership shall exist. It shall only be implied to do justice
between parties. Hence, a person who takes no part except to subscribe to stock does not become
a partner with other subscribers so as to be liable in an action for settlement, or make them liable
together with the board of directors for contribution for payment of debts illegally contracted by
the latter. (Am Jur)
3. In this case, petitioner Lim denied having received the contributions of Bormaheco, Cervantes, and
Maglana. It appears that he had no intention to form a corporation. As such, no de facto partnership
was created.

RULING:
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of Appeals is
AFFIRMED.
VIUDA DE CHAN v PENG (1928)
Oct 24, 1928 | Ostrand, J. | Extinguishment: other cases
APPELLEE: Leoncia Viuda de Chan aka Lao Liong Naw
APPELLANT: Jose Peng (assignee)
SUMMARY: Leoncia is alleged to be the owner of a grocery store. 3 creditors filed a petition to declare her
insolvent. Leoncia filed a MTD alleging that the case should have been brought against the partnership,
Lao Liong Naw & Co of which she was only a member. The referee however alleged that the partnership,
made up of Leoncia and her relatives, was merely fictitious. The lower court sided with Leoncia and
dismissed the insolvency proceedings but allowed a new petition to be filed against the partnership. SC
reversed this saying that the proceedings should have been allowed to continue. Assuming that the debts
were incurred by the partnership, it was shown that said partnership had no assets to pay the debts and
thus the individual partners must be solidarily liable for its debts. Furthermore, the business was
conducted under the name Leoncia Vda. De Chan which is Leoncia’s name. See doctrine.
DOCTRINE: It can be safely held that a partnership may be adjudged bankrupt in the name of an
ostensible partner, when such name is the name under which the partnership did business.
FACTS:
1. Leoncia Vda. De Chan is alleged to be the owner of a grocery store in Binondo.
2. 3 creditor-firms (San Miguel Brewery, Porta Pueco, and Ruiz & Rementeria Co) filed a petition for
the declaration of insolvency against her. They alleged that Leoncia owes them P26,234.47 and
that such amount was incurred 30 days before they filed the petition.
3. It appears that other creditors have also filed claims amounting to P50,000 against the estate.
4. Despite her being notified, Leoncia did not appear at the hearing. Thus, the court declared her
insolvent and appointed the CFI Clerk, Ricardo Summers, as the referee.
5. The referee, in his report, recommended that various assets be delivered to the assignee, Peng.
6. The lower court approved the report. He also ordered 3 merchants (Ico, Keep and Bona) to show
cause why they should not return alleged merchandise delivered to them by Leoncia in fraud of
her creditors.
7. Leoncia then filed a MTD alleging that the case should have been brought against the partnership
Lao Liong Naw & Co of which she was only a member.
8. The referee, in his 2 report, said that the partnership (made up of Leoncia and her relatives) was
nd

only a fictitious org to deceive the Bureau of Customs and enable the relatives (who were Chinese
citizens) to come to the Philippines as merchants.
9. The lower court dismissed the insolvency proceedings and ordered Peng to return Leoncia’s
property to the Sheriff. He also gave Peng leave to file a new petition against the partnership.
10. Peng appealed saying the lower court erred in disapproving the referee’s 2 report, in dismissing
nd

the proceedings, and in ordering a new petition for insolvency against the fictitious partnership
ISSUES/HOLDING
Whether the lower court erred in disapproving the referee’s 2 report, in dismissing the petition, and in
nd

ordering the filing of a new petition against the partnership –YES

RATIO:
Re approval of the referee’s 2 report:
nd

1. The evidence appearing in the record fully supports the findings of the referee. His report should
have been approved.
Re dismissal of the petition and the filing of a new one against the partnership:
2. Assuming that the debts were incurred by the alleged partnership, it clearly appears from the record
that the partnership had no visible assets and thus, the partners must be solidarily liable for its debts.
3. As Leoncia is one of the partners and admits that she is insolvent anyway, there’s no reason for the
dismissal of the proceedings against her.
4. Furthermore, both the partnership and the separate partners thereof may be joined in the same
action, though the private property of the latter cannot be taken in payment of the partnership debts until
the common property of the concern is exhausted. It seems clear that the alleged partnership here in
question may, if necessary, be included in the case by amendments to the insolvency petition.
5. Also, the evidence clearly shows that the business, alleged to have been that of the partnership, was
carried on under the name "Leoncia Vda. de Chan Diaco" or "La Vda. de G. G. Chan Diaco," both of which
are names of Leoncia. It can be safely held that a partnership may be adjudged bankrupt in the name of an
ostensible partner, when such name is the name under which the partnership did business.
Lower court decision is reversed; referee’s reports are approved.