G.R. No. L-67889 October 10, 1985
PRIMITIVO SIASAT and MARCELINO SIASAT, petitioners,
vs.
INTERMEDIATE APPELLATE COURT and TERESITA NACIANCENO,
respondents.
Payawal, Jimenez & Associates for petitioners.
Nelson A. Loyola for private respondent.
GUTIERREZ, JR., J.:
This is a petition for review of the decision of the Intermediate Appellate Court affirming in
toto the judgment of the Court of First Instance of Manila, Branch XXI, which ordered the
petitioner to pay respondent the thirty percent (30%) commission on 15,666 pieces of
Philippine flags worth P936,960.00, moral damages, attorney's fees and the costs of the suit.
Sometime in 1974, respondent Teresita Nacianceno succeeded in convincing officials of the
then Department of Education and Culture, hereinafter called Department, to purchase
without public bidding, one million pesos worth of national flags for the use of public schools
throughout the country. The respondent was able to expedite the approval of the purchase by
hand-carrying the different indorsements from one office to another, so that by the first week
of September, 1974, all the legal requirements had been complied with, except the release of
the purchase orders. When Nacianceno was informed by the Chief of the Budget Division of
the Department that the purchase orders could not be released unless a formal offer to deliver
the flags in accordance with the required specifications was first submitted for approval, she
contacted the owners of the United Flag Industry on September 17, 1974. The next day, after
the transaction was discussed, the following document (Exhibit A) was drawn up:
Mrs. Tessie Nacianceno,
This is to formalize our agreement for you to represent United
Flag Industry to deal with any entity or organization, private or
government in connection with the marketing of our products-
flags and all its accessories.
For your service, you will be entitled to a commission of thirty
Page 1 of 19
(30%) percent.
Signed
Mr. Primitive Siasat
Owner and Gen. Manager
On October 16, 1974, the first delivery of 7,933 flags was made by the United Flag Industry.
The next day, on October 17, 1974, the respondent's authority to represent the United Flag
Industry was revoked by petitioner Primitivo Siasat.
According to the findings of the courts below, Siasat, after receiving the payment of
P469,980.00 on October 23, 1974 for the first delivery, tendered the amount of P23,900.00
or five percent (5%) of the amount received, to the respondent as payment of her commission.
The latter allegedly protested. She refused to accept the said amount insisting on the 30%
commission agreed upon. The respondent was prevailed upon to accept the same, however,
because of the assurance of the petitioners that they would pay the commission in full after
they delivered the other half of the order. The respondent states that she later on learned that
petitioner Siasat had already received payment for the second delivery of 7,833 flags. When
she confronted the petitioners, they vehemently denied receipt of the payment, at the same
time claiming that the respondent had no participation whatsoever with regard to the second
delivery of flags and that the agency had already been revoked.
The respondent originally filed a complaint with the Complaints and Investigation Office in
Malacañang but when nothing came of the complaint, she filed an action in the Court of First
Instance of Manila to recover the following commissions: 25%, as balance on the first
delivery and 30%, on the second delivery.
The trial court decided in favor of the respondent. The dispositive portion of the decision
reads as follows:
WHEREFORE, judgment is hereby rendered sentencing
Primitivo Siasat to pay to the plaintiff the sum of P281,988.00,
minus the sum P23,900.00, with legal interest from the date of
this decision, and ordering the defendants to pay jointly and
solidarily the sum of P25,000.00 as moral damages, and
P25,000.00 as attorney's fees, also with legal interest from the
date of this decision, and the costs.
The decision was affirmed in toto by the Intermediate Appellate Court. After their motion
for reconsideration was denied, the petitioners went to this Court on a petition for review on
August 6, 1984.
In assailing the appellate court's decision, the petition tenders the following arguments: first,
the authorization making the respondent the petitioner's representative merely states that she
could deal with any entity in connection with the marketing of their products for a
commission of 30%. There was no specific authorization for the sale of 15,666 Philippine
flags to the Department; second, there were two transactions involved evidenced by the
separate purchase orders and separate delivery receipts, Exhibit 6-C for the purchase and
deliver on October 16, 1974, and Exhibits 7 to 7-C, for the purchase and delivery on
November 6, 1974. The revocation of agency effected by the parties with mutual consent on
October 17, 1974, therefore, forecloses the respondent's claim of 30% commission on the
second transaction; and last, there was no basis for the granting of attorney's fees and moral
damages because there was no showing of bad faith on the part of the petitioner. It was
respondent who showed bad faith in denying having received her commission on the first
delivery. The petitioner's counterclaim, therefore, should have been granted.
This petition was initially dismissed for lack of merit in a minute resolution.On a motion for
reconsideration, however,this Court give due course to the petition on November 14, 1984.
After a careful review of the records, we are constrained to sustain with some modifications
the decision of the appellate court.
We find respondent's argument regarding respondent's incapacity to represent them in the
transaction with the Department untenable. There are several kinds of agents. To quote a
commentator on the matter:
An agent may be (1) universal: (2) general, or (3) special. A
universal; agent is one authorized to do all acts for his principal
which can lawfully be delegated to an agent. So far as such a
condition is possible, such an agent may be said to have universal
authority. (Mec. Sec. 58).
A general agent is one authorized to do all acts pertaining to a
business of a certain kind or at a particular place, or all acts
pertaining to a business of a particular class or series. He has
usually authority either expressly conferred in general terms or in
effect made general by the usages, customs or nature of the
business which he is authorized to transact.
An agent, therefore, who is empowered to transact all the
business of his principal of a particular kind or in a particular
place, would, for this reason, be ordinarily deemed a general
agent. (Mec Sec. ,30).
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A special agent is one authorized to do some particular act or to
act upon some particular occasion. lie acts usually in accordance
with specific instructions or under limitations necessarily implied
from the nature of the act to be done. (Mec. Sec. 61) (Padilla,
Civil Law The Civil Code Annotated, Vol. VI, 1969 Edition, p.
204).
One does not have to undertake a close scrutiny of the document embodying the agreement
between the petitioners and the respondent to deduce that the 'latter was instituted as a
general agent. Indeed, it can easily be seen by the way general words were employed in the
agreement that no restrictions were intended as to the manner the agency was to be carried
out or in the place where it was to be executed. The power granted to the respondent was so
broad that it practically covers the negotiations leading to, and the execution of, a contract
of sale of petitioners' merchandise with any entity or organization.
There is no merit in petitioners' allegations that the contract of agency between the parties
was entered into under fraudulent representation because respondent "would not disclose the
agency with which she was supposed to transact and made the petitioner believe that she
would be dealing with The Visayas", and that "the petitioner had known of the transactions
and/or project for the said purchase of the Philippine flags by the Department of Education
and Culture and precisely it was the one being followed up also by the petitioner."
If the circumstances were as claimed by the petitioners, they would have exerted efforts to
protect their interests by limiting the respondent's authority. There was nothing to prevent
the petitioners from stating in the contract of agency that the respondent could represent them
only in the Visayas. Or to state that the Department of Education and Culture and the
Department of National Defense, which alone would need a million pesos worth of flags, are
outside the scope of the agency. As the trial court opined, it is incredible that they could be
so careless after being in the business for fifteen years.
A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised Rules of Court
states that "when the terms of an agreement have been reduced to writing, it is to be
considered as containing all such terms, and, therefore, there can be between the parties and
their successors-in-interest, no evidence of the terms of the agreement other than the contents
of the writing", except in cases specifically mentioned in the same rule. Petitioners have
failed to show that their agreement falls under any of these exceptions. The respondent was
given ample authority to transact with the Department in behalf of the petitioners. Equally
without merit is the petitioners' proposition that the transaction involved two separate
contracts because there were two purchase orders and two deliveries. The petitioners'
evidence is overcome by other pieces of evidence proving that there was only one
transaction.
The indorsement of then Assistant Executive Secretary Roberto Reyes to the Budget
Commission on September 3, 1974 (Exhibit "C") attests to the fact that out of the total budget
of the Department for the fiscal year 1975, "P1,000,000.00 is for the purchase of national
flags." This is also reflected in the Financial and Work Plan Request for Allotment (Exhibit
"F") submitted by Secretary Juan Manuel for fiscal year 1975 which however, divided the
allocation and release of the funds into three, corresponding to the second, third, and fourth
quarters of the said year. Later correspondence between the Department and the Budget
Commission (Exhibits "D" and "E") show that the first allotment of P500.000.00 was
released during the second quarter. However, due to the necessity of furnishing all of the
public schools in the country with the Philippine flag, Secretary Manuel requested for the
immediate release of the programmed allotments intended for the third and fourth quarters.
These circumstances explain why two purchase orders and two deliveries had to be made on
one transaction.
The petitioners' evidence does not necessarily prove that there were two separate
transactions. Exhibit "6" is a general indorsement made by Secretary Manuel for the purchase
of the national flags for public schools. It contains no reference to the number of flags to be
ordered or the amount of funds to be released. Exhibit "7" is a letter request for a "similar
authority" to purchase flags from the United Flag Industry. This was, however, written by
Dr. Narciso Albarracin who was appointed Acting Secretary of the Department after
Secretary Manuel's tenure, and who may not have known the real nature of the transaction.
If the contracts were separate and distinct from one another, the whole or at least a substantial
part of the government's supply procurement process would have been repeated. In this case,
what were issued were mere indorsements for the release of funds and authorization for the
next purchase.
Since only one transaction was involved, we deny the petitioners' contention that respondent
Nacianceno is not entitled to the stipulated commission on the second delivery because of
the revocation of the agency effected after the first delivery. The revocation of agency could
not prevent the respondent from earning her commission because as the trial court opined, it
came too late, the contract of sale having been already perfected and partly executed.
In Macondray & Co. v. Sellner (33 Phil. 370, 377), a case analogous to this one in principle,
this Court held:
We do not mean to question the general doctrine as to the power
of a principal to revoke the authority of his agent at will, in the
absence of a contract fixing the duration of the agency (subject,
however, to some well defined exceptions). Our ruling is that at
the time fixed by the manager of the plaintiff company for the
termination of the negotiations, the defendant real estate agent
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had already earned the commissions agreed upon, and could not
be deprived thereof by the arbitrary action of the plaintiff
company in declining to execute the contract of sale for some
reason personal to itself.
The principal cannot deprive his agent of the commission agreed upon by cancelling the
agency and, thereafter, dealing directly with the buyer. (Infante v. Cunanan, 93 Phil. 691).
The appellate courts citation of its previous ruling in Heimbrod et al. v. Ledesma (C.A. 49
O.G. 1507) is correct:
The appellee is entitled to recovery. No citation is necessary to
show that the general law of contracts the equitable principle of
estoppel. and the expense of another, uphold payment of
compensation for services rendered.
There is merit, however, in the petitioners' contention that the agent's commission on the first
delivery was fully paid. The evidence does not sustain the respondent's claim that the
petitioners paid her only 5% and that their right to collect another 25% commission on the
first delivery must be upheld.
When respondent Nacianceno asked the Malacanang Complaints and Investigation Office to
help her collect her commission, her statement under oath referred exclusively to the 30%
commission on the second delivery. The statement was emphatic that "now" her demand was
for the 30% commission on the (second) release of P469,980.00. The demand letter of the
respondent's lawyer dated November 13, 1984 asked petitioner Siasat only for the 30%
commission due from the second delivery. The fact that the respondent demanded only the
commission on the second delivery without reference to the alleged unpaid balance which
was only slightly less than the amount claimed can only mean that the commission on the
first delivery was already fully paid, Considering the sizeable sum involved, such an
omission is too glaringly remiss to be regarded as an oversight.
Moreover, the respondent's authorization letter (Exhibit "5") bears her signature with the
handwritten words "Fully Paid", inscribed above it.
The respondent contested her signature as a forgery, Handwriting experts from two
government agencies testified on the matter. The reason given by the trial court in ruling for
the respondent is too flimsy to warrant a finding of forgery.
The court stated that in thirteen documents presented as exhibits, the private respondent
signed her name as "Tessie Nacianceno" while in this particular instance, she signed as "T.
Nacianceno."
The stated basis is inadequate to sustain the respondent's allegation of forgery. A variance in
the manner the respondent signed her name can not be considered as conclusive proof that
the questioned signature is a forgery. The mere fact that the respondent signed thirteen
documents using her full name does not rule out the possibility of her having signed the
notation "Fully Paid", with her initial for the given came and the surname written in full.
What she was signing was a mere acknowledgment.
This leaves the expert testimony as the sole basis for the verdict of forgery.
In support of their allegation of full payment as evidenced by the signed authorization letter
(Exhibit "5-A"), the petitioners presented as witness Mr. Francisco Cruz. Jr., a senior
document examiner of the Philippine Constabulary Crime laboratory. In rebuttal, the
respondent presented Mr. Arcadio Ramos, a junior document examiner of the National
Bureau of Investigation.
While the experts testified in a civil case, the principles in criminal cases involving forgery
are applicable. Forgery cannot be presumed. It must be proved.
In Borromeo v. Court of Appeals (131 SCRA 318, 326) we held that:
xxx xxx xxx
... Where the evidence, as here, gives rise to two probabilities,
one consistent with the defendant's innocence and another
indicative of his guilt, that which is favorable to the accused
should be considered. The constitutional presumption of
innocence continues until overthrown by proof of guilt beyond
reasonable doubt, which requires moral certainty which
convinces and satisfies the reason and conscience of those who
are to act upon it. (People v. Clores, et al., 125 SCRA 67; People
v. Bautista, 81 Phil. 78).
We ruled in another case that where the supposed expert's testimony would constitute the
sole ground for conviction and there is equally convincing expert testimony to the contrary,
the constitutional presumption of innocence must prevail. (Lorenzo Ga. Cesar v. Hon.
Sandiganbayan and People of the Philippines, 134 SCRA 105). In the present case, the
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circumstances earlier mentioned taken with the testimony of the PC senior document
examiner lead us to rule against forgery.
We also rule against the respondent's allegation that the petitioners acted in bad faith when
they revoked the agency given to the respondent.
Fraud and bad faith are matters not to be presumed but matters to be alleged with sufficient
facts. To support a judgment for damages, facts which justify the inference of a lack or
absence of good faith must be alleged and proven. (Bacolod-Murcia Milling Co., Inc. vs.
First Farmers Milling Co., Inc., Etc., 103 SCRA 436).
There is no evidence on record from which to conclude that the revocation of the agency was
deliberately effected by the petitioners to avoid payment of the respondent's commission.
What appears before us is only the petitioner's use in court of such a factual allegation as a
defense against the respondent's claim. This alone does not per se make the petitioners guilty
of bad faith for that defense should have been fully litigated.
Moral damages cannot be awarded in the absence of a wrongful act or omission or of fraud
or bad faith. (R & B Surety & Insurance Co., Inc. vs. Intermediate Appellate Court, 129
SCRA 736).
We therefore, rule that the award of P25,000.00 as moral damages is without basis.
The additional award of P25,000.00 damages by way of attorney's fees, was given by the
courts below on the basis of Article 2208, Paragraph 2, of the Civil Code, which provides:
"When the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interests;" attorney's fees may be awarded as
damages. (Pirovano et al. v. De la Rama Steamship Co., 96 Phil. 335).
The underlying circumstances of this case lead us to rule out any award of attorney's fees.
For one thing, the respondent did not come to court with completely clean hands. For another,
the petitioners apparently believed they could legally revoke the agency in the manner they
did and deal directly with education officials handling the purchase of Philippine flags. They
had reason to sincerely believe they did not have to pay a commission for the second delivery
of flags.
We cannot close this case without commenting adversely on the inexplicably strange
procurement policies of the Department of Education and Culture in its purchase of
Philippine flags. There is no reason why a shocking 30% of the taxpayers' money should go
to an agent or facilitator who had no flags to sell and whose only work was to secure and
handcarry the indorsements of education and budget officials. There are only a few
manufacturers of flags in our country with the petitioners claiming to have supplied flags for
our public schools on earlier occasions. If public bidding was deemed unnecessary, the
Department should have negotiated directly with flag manufacturers. Considering the sad
plight of underpaid and overworked classroom teachers whose pitiful salaries and allowances
cannot sometimes be paid on time, a P300,000.00 fee for a P1,000,000.00 purchase of flags
is not only clearly unnecessary but a scandalous waste of public funds as well.
WHEREFORE, the decision of the respondent court is hereby MODIFIED. The petitioners
are ordered to pay the respondent the amount of ONE HUNDRED FOURTY THOUSAND
NINE HUNDRED AND NINETY FOUR PESOS (P140,994.00) as her commission on the
second delivery of flags with legal interest from the date of the trial court's decision. No
pronouncement as to costs.
SO ORDERED.
Dominion Insurance Corporation v CA
GR No. 129919, February 6,2002
Pardo, J
Facts:
Rodolfo Guevarra instituted a civil case for the recovery of a sum of money against
Dominion Insurance. He sought to recover sums he had advanced in his capacity as manager.
Dominion denied any liability to Guevarra.
The pre-trial was always postponed, and during one of the pre-trial conference dominion
failed to arrive therefore the court declared them to be in default. Dominion filed several
Motions to Lift Order of Default but was always denied by the court.
The RTC rendered its decision making Dominion liable to repay Guevarra for the sum
advanced and other damages and fees. Dominion appealed but CA affirmed the decision of
RTC and denied the appeal of Dominion.
Issue: WON Guevarra acted within his authority as agent for Dominion?
Held: No.
Ratio: Even though the contact entered into by Guevarra and Dominion was with the word
“special” the contents of the document was actually a general agency. A general power
permits the agent to do all acts for which the law does not require a special power and the
contents in the document did not require a special power of attorney.
Art 1878 of the civil code provides instances when a special power of attorney is required.:
1.) To make such payment as are not usually considered as acts of administration.
15) any other act of dominion
The payment of claims is not an act of administration which requires a special power of
attorney before Guevarra could settle the insurance claims of the insured.
Also Guevarra was instructed that the payment for the insured must come from the revolving
fund or collection in his possession, Gueverra should not have paid the insured through his
Page 5 of 19
own capacity. Under 1918 of civil code an agent who acted in contravention of the principal’s
instruction the principal will not be liable for the expenses incurred by the agent.
Philippine National Bank v Sta. Maria 29 SCRA 303 Case Digest
Philippine National Bank v. Sta. Maria, 29 SCRA 303
Concept:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and
the same obligation does not imply that each one of the former has a right to demand, or that
each one of the latter is bound to render, entire compliance with the prestation. There is a
solidary liability only when the obligation expressly so states, or when the law or the nature
of the obligation requires solidarity
Facts:
· Special power of the attorney to mortgage real estate is limited to such authority and
does not bind the grantor personally to other obligations contracted by the grantee
· The sugar crop loans were obtained by Maximo from the plaintiff bank under the
power of the attorney, executed in his favor by his brothers and sisters to mortgage a 16-odd
hectare parcel of land, jointly owned by all of them
· Valeriana the sister of Maximo, alone also executed in favor of her brother Maximo a
special power of attorney to borrow money and mortgage any real estate owned by her.
· Maximo applied for two separate crop loans with the PNB, one in the amount of
P15,000 but only P13,216.11 was extended by the PNB and the other for P23,000 but only
P12,427.57 was extended by the PNB
· As security for the two loans, Maximo executed it in his own name in favor of PNB
two chattel mortgages, guaranteed by the surety bonds for the full authorized amounts of
loans executed by the Associated Insurance & Surety Co., Inc.
· Plaintiff Bank filed the case on February 10,1961 against Defendant Maximo Sta.
Maria and his six brothers and sisters and the Associated Insurancs & Suret Co., Inc. for the
collection of unpaid balances of two sugar crop loans
· The Trial Court rendered judgment in favor of the PNB
· Maximo did not appeal but his siblings appealed and contended that they had given
their brother Maximo the authority to borrow money but only to mortgage the real estate
jointly owned by them and that if they are liable, the liability should not go beyond the value
of the property which9 they had authorized to be given as security of the loans obtained by
Maximo. They further contended that they did not benefit whatsoever from the loans.
Issue: W/N the siblings are only liable for the value of the land?
Held:
· Yes, except for Valeriana who issued a separate Special Power of Attorney authorizing
Maximo to borrow money.
· In Bank of P. I. v. De Coster, "where in an instrumentpowers and duties are specified
and defined, that all of such powers and duties are limited andconfined to thosewhich are
specified and defined, and all other powers andduties are excluded.”
· In De Villa vs. Fabricante, where the power of attorneygiven to the husband by the
wife was limited to a grant of authority to mortgage a parcel of land titled in the wife'sname,
the wife may not be held liable for the payment of the mortgage debt contracted by the
husband, as theauthority to mortgage does not carry with it the authorityto contract
obligation.
· Maximo and Valeriana are the only ones liable for the loans and that the other siblings’
liability only correspond to real estate mortgage and the foreclosure and sale of mortgage.
· Maximo’s argument that "a mortgage is simply anaccessory contract, and that to effect
the mortgage, aloan has to be secured" falls, far short of the mark.Maximo had indeed,
secured the loan on his own accountand the defendants-appellants had authorized him
tomortgage their respective undivided shares of the realproperty jointly owned by them as
security for the loan.But that was the extent of their authority land consequentliability, to
have the real property answer for the loan incase of non-payment.
· The outcome might be different if there had been anexpress ratification of the loans
by defendants-appellantsor if it had been shown that they had been benefited bythe crop
loans so as to put them in estoppel.
· Under the Art. 1207, Valeriana is only jointly liable with Maximo
THE BANK OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs. GABRIELA
ANDRES DE COSTER Y ROXAS ET AL, defendants, LA ORDEN DE DOMINICOS or
PP. PREDICADORES DE LA PROVINCIA DEL SANTISIMO ROSARIO, defendants and
appellees; GABRIELA ANDRE DE COSTER Y ROXAS, defendant-appellant BPI v. De
Coster / 47 Phil 594 (March 16, 1925) Johns, J. / kam
SUBJECT MATTER:
Classifications of agency contracts > Mortgage
CASE SUMMARY:
While the wife (Gabriela de Coster) is residing in Paris, France, her husband (Jean Poizat)
executed a promissory note for a loan and a real mortgage on her behalf, making her liable
jointly and severally along with her husband and his firm, by virtue of a power of attorney
that she left with her husband. This note and mortgage are in favor of BPI and the lower
court ruled that the defendants are liable to BPI. Wife returned to the Philippines to question
the validity of the service of the summons (since she has been residing in Paris for 16 years
now), the validity of the promissory note, and the validity of the real mortgage. The lower
court denied the wife’s motion to reopen the case.
The note which binds the wife and upon which the mortgage was executed was found to be
for a preexisting debt of the husband and of his firm. The wife was not a party to this original
debt and the power of attorney does not authorize the husband to make the wife liable as a
surety to the debt of a third person. The note was found by the Court to be void as to the
wife. The mortgage that was given for the sole purpose of securing that note follows the note,
Page 6 of 19
and was found to be void as well, as to the wife. The case was REMANDED to the lower
court for further proceedings.
DOCTRINES
:
oIt is a fundamental rule of construction that where in an instrument, powers and duties are
specified and defined, that all of such powers and duties are limited and confined to those
which are specified and defined, and that all other powers and duties are excluded. (In
relation to the power of attorney of executed by Gabriela)
oThe fact that an agent failed and neglected to perform his duties and to represent the
interests of his principal is not a bar to the principal obtaining legal relief for the negligence
of her agent, provided that the application for such a relief is duly and properly made under
the provisions of section 113 (Code of Civil Procedure).
o(Ako lang nag-infer nito) When the note which a real mortgage is supposed to secure is
found to be VOID as to the principal (meaning the agent had no power to execute the note
on the principal’s behalf), then it follows that the mortgage is also VOID as to the principal
.
FACTS:
Jean M. Poizat and wife Gabriela (with Jean acting as her agent) borrowed
P292,000 from BPI, payable one year after date of borrowing (Dec 29, 1921) with 9 percent
interest per annum.
A promissory note
1 was made for this loan, indicating that the defendants are liable jointly and severally and
that in the event of a suit or action, defendants shall pay an additional P10,000 as attorney’s
fees.
To secure payment thereof:
1. A chattel mortgage was executed by defendants Jean M. Poizat & J.M. Poizat & Co. (a
partnership) on the steamers Roger Poizat and Gabrielle Poizat (these belong to Poizat
Vegetable Oil Mills)
2.Gabriela (w/ consent & permission of husband and her husband acting as her agent
–
IMPT!
) delivered to BPI a mortgage on certain real property in the City of Manila (same property
was subject to a prior mortgage in favor of La Orden de Dominicos hence it is made a party
defendant)
CFI:
The note being long past due and owing, plaintiff brought an action against defendants and
CFI ruled against Gabriela, her husband Jean Poizat, and J.M. Poizat & Co., who are jointly
and severally liable to BPI for P292,000 w/ interest, P10,000 attorney’s fees, and P2,500 for
insurance of steamer Gabrielle Poizat w/ interest on that amount from Feb 9, 1924.
oDefendants have not paid the judgment or any part thereof.
oBPI prayed for the sheriff to possess and sell the steamers and asked the court for the real
property to be sold according to law; the proceeds of both be applied to the sum owed to
BPI.
oThe religious corporation La Orden de Dominicos then appeared in the suit and filed a plea
for the credit (P125,000 principal + P27,954.34 interest) to them against the spouses De
Coster & Poizat be taken into account when the second mortgage is closed.
May 3, 1924 - Upon plaintiff’s motion, Gabriela, Jean Poizat, and J.M. Poizat & Co. were
declared in default for failure to appear or answer.
June 4, 1924
–
W/o giving notice to defendants, the lower court ruled in favor of BPI and La Orden de
Dominicos and ordered the sale of the properties.
JOSE M. KATIGBAK v. TAI HING CO. +
DECISION
52 Phil. 622
[ G.R. No. 29917, December 29, 1928 ]
JOSE M. KATIGBAK, PLAINTIFF AND APPELLEE, VS. TAI HING CO.,
DEFENDANT. PO SUN SUY AND PO CHING, INTERVENORS AND
APPELLANTS.
DECISION
VILLA-REAL J.:
Po Sun Suy and Po Ching appeal to this court from the judgment of the Court of First Instance
of Manila, the dispositive part of which is as follows:
"1. Ordering the defendants Po Sun Suy and Po Ching, as lessees of the realty, to pay the
plaintiff the sum of P28,500, with legal interest from the filing of the complaint.
"2. Ordering the estate of the deceased Po Tecsi to pay the defendants Po Sun Suy and Po
Ching, that they may, in turn, pay the plaintiff upon this judgment the sum which represents
the rents of the property unduly collected from the occupants of said properly by Po Tecsi
while alive and by his administrator Po Sun Suy after his death, and not paid to the plaintiff
either by Po Tecsi, father of the defendant Po Sun Suy, or by the latter, or by defendant Po
Ching. Said sum thus collected, according to the testimony of the defendant Po Sun Suy (p.
Page 7 of 19
147, t. s. n.) is P745, per month, which, for nineteen months, amounts to P14,155. The
balance of the rents, that is, the difference between the sum of P1,500 for which the property
was leased by the plaintiff to the defendants, and P745 which is the sum collected from the
occupants of the property each month by Po Tecsi and by the administrator of his estate must
be for the account of the defendants; and
"3. Ordering the defendants and the intervenor each to pay one-third of the costs of the
action."
In support of their appeal the appellants assign seventeen errors which we shall take up in
the course of this decision.
The following facts have been proven by a preponderance of the evidence:
Gabino Barreto Po Ejap was the owner, with a Torrens title, of the land in litigation, with the
improvements thereon. This realty was subject to a mortgage lien in favor of the Philippine
National Bank, executed on May 5, 1919, to secure the payment of the sum of P60,000 with
7 per centum interest per annum. (Exhibit 9.)
On November 29, 1921, Po Tecsi executed a general power of attorney in favor of his brother
Gabino Barreto Po Ejap, empowering and authorizing him to perform on his behalf and as
his lawful agent, among other acts, the following: "To buy, sell, or barter, assign or admit in
acquittance, or in any other manner to acquire or convey all sorts of property, real and
personal, businesses and industries, credits, rights, and actions belonging to me, for whatever
prices and under the conditions which he may stipulate, paying and receiving payment in
cash or in installments, and to execute the proper instruments with the formalities provided
by the law." (Exhibit A.)
On December 15, 1921, Po Tecsi executed an instrument acknowledging an indebtedness to
his brother Gabino Barreto Po Ejap in the sum of P68,000, the price of the properties which
the latter had sold to him. (Exhibit U-1.)
On March 31, 1923, Gabino Barreto Po Ejap executed a second mortgage on the aforesaid
land with its improvements, in favor of Antonio M. H. Limjenco for the sum of P140,000
and interest at 10 per centum per annum. (Exhibit 9.)
On April 17, 1923, Gabino Barreto Po Ejap, sold the said land with its improvements to his
brother Po Tecsi for the sum of P10,000, subject to the same encumbrances. (Exhibit 9.)
On November 22, 1923, Gabino Barreto Po Ejap, making" use of the power conferred on
him by his brother Po Tecsi, sold absolutely and forever to the herein plaintiff-appellee Jose
M. Katigbak, the aforesaid land with its improvements for the sum of P10,000, mentioning
in the instrument executed to that end only the mortgage lien of P60,000 in favor of the
Philippine National Bank, and without recording either his power of attorney or the sale in
the proper certificate of title. Notwithstanding said sale Po Tecsi remained in possession of
said property.
On October 22, 1924, Po Tecsi leased a part of said land to Uy Chia for a period of five years
from October 1, 1923. The contract drawn up to that end was recorded in the proper
certificate of title. (Exhibits 2 and 9.)
On August 24, 1924, Po Tecsi wrote to his brother Gabino Barreto Po Ejap complaining that
he had been after him so much for the forwarding of the rents of the property and explaining
his precarious financial condition, telling him that he did not collect the rents for himself,
and promising to remit the balance after having paid all expenses of repairs and cleaning up,
together with the vouchers, so he could not blame him for anything. (Exhibits M and M-1.)
In November, 1925, Po Tecsi, answering his brother Gabino Barreto Po Ejap, wrote to the
latter telling him that in the month of October, 1925, he had sent him a draft for the sum of
P2,000, and was therefore surprised that he claimed said rent. In said reply Po Tecsi also told
his brother Gabino Barreto Po Ejap that if he wanted to lease the property in question to
Smith Bell & Co., he should not do so without first consulting him, because if someone
offered him a higher rent he wanted to exercise his right to lease it. (Exhibits N and N-1.)
On February 27, 1925, the mortgage on the land in question in favor of Antonio M. H.
Limjenco for P140,000 was cancelled, the cancellation being recorded on the proper
certificate of title on June 11, 1927. (Exhibits X and 9.)
Po Tecsi died on November 26, 1926.
In December, 1926, Po Sun Suy, Po Tecsi's son, submitted to Gabino Barreto Po Ejap a
liquidation of accounts showing the rents collected on the property up to that month. (Exhibit
P.)
On February 11, 1927, Po Sun Suy was appointed administrator of the estate of his deceased
father, submitting an inventory in which he included the land in discussion as one of the
properties left by his deceased father, and obtaining the transfer of the certificate of title in
his name as said administrator.
On February 14, 1927, Po Sun Yao alias Po Sun Suy, answering a letter from his uncle
Gabino Barreto Po Ejap, told the latter that times were bad, because the price of hemp had
Page 8 of 19
slumped, and the plantations had suffered damages, and begged him to let him pay the rent
later. (Exhibits C and C-1.)
On February 11, 1927, Gabino Barreto Po Ejap executed an instrument in favor of his son
Po Sun Boo, assigning to him all his rights and actions in the credit of P68,000 against Po
Tecsi. (Exhibit U.)
On May 22, 1927, Jose M. Katigbak sold the property in question to Po Sun Boo for the sum
of P10,000. (Exhibit J.)
On May 27, 1927, Po Sun Boo notified Po Sun Suy and Po Ching that he had purchased the
land they occupied and that from that date they were to deal with him concerning the payment
of the rents thereof. (Exhibit I.)
Ever since the property in discussion had been sold by Gabino Barreto Po Ejap to Jose M.
Katigbak, the former had administered it, entering into an oral contract of lease with Po
Tecsi, who occupied it at a monthly rental of Pl,500, payable in advance on the first day of
each month. Later on, when Po Tecsi died, Po Sun Suy, as administrator of the estate of his
father Po Tecsi, continued renting said land on which stood Po Ching's store.
As Po Tecsi had not paid a part of the rent due up to the time of his death, and Po Sun Suy,
his son, the rent due from his father's death until Jose M. Katigbak transferred the ownership
thereof to Po Sun Boo on May 23, 1927, the present action was brought in the Court of First
Instance of Manila for the recovery of said rent which amounts to P45,280, first against the
commercial firm Tai Hing Co., and later against the members of said firm, Po Sun Suy and
Po Ching, by an amendment to the original compdaint.
Po Sun Suy, as the judicial administrator of the estate of his deceased father Po Tecsi, filed
an intervention praying that judgment be rendered against Jose M. Katigbak, the plaintiff,
declaring him not to be the owner of the property described in the second paragraph of the
complaint and, therefore, not entitled to the rents of the property in question.
The first question to be determined in the present appeal is one of procedure, and that is
whether or not the trial court had jurisdiction to try the case on its merits.
The appellants contend that they as intervenors, having raised the question of ownership, the
solution of which is necessary for the determination of the question of rent, the Court of First
Instance of Manila had no jurisdiction to try the case, the properties in question being situated
in the municipality of Tacloban, Province of Leyte.
An action for the recovery of rent ia a personal action, and as such is transitory and may be
instituted in the province where the defendant or the plaintiff resides, at the election of the
plaintiff (sec. 377, Act No. 190; Boga Tan Chiao Boc vs. Sajo Vecina, 11 Phil., 409). With
respect to the collection of rents, then, the Court of First Instance of Manila had jurisdiction
to try the action instituted to that end.
The question of ownership was raised by the intervenors who thereby submitted to the
jurisdiction of the Court of First Instance of Manila and, according to the doctrine laid down
in the case of Manila Railroad Company vs. Attorney-General (20 Phil., 523), a Court of
First Instance having full and unlimited jurisdiction over realty situated in the Philippine
Islands, a Court of First Instance of a province may try a case concerning realty situated in
another province so long as no objection is entered to said court's exercise of its jurisdiction.
The intervenors having submitted to the jurisdiction of the court by filing a third-party claim,
in which they raised the question of ownership of the premises, the rent of which it is sought
to recover, they cannot consistently object to the exercise of said jurisdiction.
Having decided the question Pof the court's jurisdiction with respect to the venue, we shall
pass on to the question of the ownership of the land involved herein.
In the first place, it is contended by the appellants that Gabino Barreto Po Ejap was not
authorized under the power executed by Po Tecsi in his favor to sell said land, for the reason
that said power had been executed before Gabino Barreto Po Ejap sold said land to his
brother Po Tecsi.
We do not think that on this point the pertinent part of the power of attorney we have quoted
above could give rise to any doubt. The power is general and authorizes Gabino Po Ejap to
sell any kind of realty "belonging" (pertenezcan) to the principal. The use of the subjunctive
"pertenezcan" (might belong) and not the indicative "pertenecen" (belong), means that Po
Tecsi meant not only the property he had at the time of the execution of the power, but also
such as he might afterwards have during the time it was in force. (2 Corpus Juris, p. 614.)
The appellants also contend that said power of attorney not having been registered) in the
registry of deeds, the authority granted therein to sell realty registered in accordance with the
Torrens system is ineffective, and the sale of the property in question made by Gabino
Barreto Po Ejap in favor of Jose M. Katigbak by virtue of said power has no more effect than
that of a contract to transfer or sell.
Inasmuch as in accordance with, section 39 of said Act No. 496, "Every applicant receiving
a certificate of title in pursuance of a decree of registration, and every subsequent purchaser
of registered land who takes a certificate of title for value in good faith, shall hold the same
free of all incumbrance except those noted on said certificate," every document which in any
Page 9 of 19
manner affects the registered land is ineffective unless it is recorded in the registry of deeds.
But such inefficacy only refers to third persons who, in good faith, may have acquired some
right to the registered land.
While it is true that a power of attorney not recorded in the registry of deeds is ineffective in
order that an agent or attoraiey-in-fact may validly perform acts in the name of his principal,
and that any act performed by the agent by virtue of said power with respect to the land is
ineffective against a third person who, in good faith, may have acquired a right thereto, it
does, however, bind the principal to acknowledge the acts performed by his attorney-in-fact
regarding saiii property (sec. 50, Act No. 496).
In the present case, while it is true that the non-registration of the power of attorney executed
by Po Tecsi in favor of his brother Gabino Barreto Po Ejap prevents the sale made by the
latter of the litigated land in favor of Jose M. Katigbak from being recorded in the registry
of deeds, it is not ineffective to compel Tecsi to acknowledge said sale.
From the fact that said power and sale were not recorded in the registry of deeds, and from
the omission of any mention in the deed of sale of the mortgage lien in favor of Antonio M.
H. Limjenco, and the lease of a part of said land in favor of Uy Chia, the appellants deduce
that said sale is fraudulent.
The record contains many indications that Po Tecsi was not unaware of said sale. His several
letters complaining of the pressing demands of his brother Gabino Barreto Po Ejap to send
him the rents of the land, his promises to send them to him, and the remittance of the same
were a tacit acknowledgment that he occupied the land in question no longer as an owner but
only as lessee.
The appellants have tried to explain the remittance of said rents to Gabino Barreto Po Ejap
by Po Tecsi, saying that they were in payment of a debt which the latter owed the former for
certain property which said Gabino Barreto Po Ejap had sold to Po Tecsi. But there is nothing
in any of said letters to indicate that said rents were sent on account of said debt.
The appellants deny that there has been any contract of lease between Po Tecsi and Gabino
Barreto Po Ejap of the lands in question, for the reason that there exists no document to
evidence it. The evidence is clear that the rents were payable in advance on the first day of
each month. If this is so, then there is no need of a contract to prove the existence of the
lease.
Upon the death of Po Tecsi on November 26, 1926, his son Po Sun Suy succeeded him in
the possession of the land and was appointed administrator of his! father's estate on February
11, 1927. On February 14, 1927, he wrote to his uncle, Gabino Barreto Po Ejap, in answer
to the latter's letter to send him what he collected of the rents of the house, saying that the unpaid up to the date when said property was sold to Po Sun Boo, as well as the accrued and
price of hemp had suddenly dropped, his motor boat had been grounded, and his abaca unpaid rents from the time the latter acquired it up to the present date, must be presented in
plantations had suffered damages, promising to send the rents later on. the court taking cognizance of the intestate proceeding for the settlement of Po Tecsi's estate.

Po Tecsi occupied the Iand as lessee from November 22, 1923, until his death on November For the foregoing, we are of opinion and so hold: (1) That Jose M. Katigbak was the absolute
26, 1926, having paid up the rents accrued until October 22, 1906, and leaving unpaid the owner of the property in controversy, subject to the encumbrances on the same appearing in
rents due and accrued from that date until his death, at the rate of P1,500 per month. From the registry of deeds; (2) that his claim for the rents of the property in litigation accrued and
the latter date his son Po Sun Suy was appointed administrator of the estate of his father Po unpaid by Po Tecsi before his death must be presented to the committee on claims and
Tecsi, and continued to collect the rents of daid land from the lessees, amounting to P745. appraisal appointed in the intestate proceedings for the settlement of the estate of said Po
Tecsi; (3) that the claim of Jose M. Katigbak for the rents of the said property collected by
It does not clearly appear from what date the land was leased to the defendants Po Sun Suy Po Sun Suy, as administrator of the property of the intestate estate of his father Po Tecsi,
and Po Ching for the sum of P1,500 a month. If Po Tecsi had rented it until his death, then must be presented to the court having cognizance of said intestate proceeding.
the defendants Po Sun Suy and Po Ching could not have rented it until after the death of Po
Tecsi. By virtue whereof, and with the modifications above indicated, the judgment appealed from
is affirmed, without special pronouncement as to costs. So ordered.
The rights of the sub-lessee Uy Chia, whose lease for five years from October 1, 1923, was
duly recorded in the registry of deeds, are valid, for it does not appear that he had any Avanceña, C. J., Johnson, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.
knowledge of the sale of the subleased property in favor of Jose M. Katigbak, which sale, as
we have said, has not been recorded in the registry of deeds and cannot, therefore, affect the
rights of third persons acquired in good faith and duly registered.
DISSENTING
To summarize, then: the sale made on November 22, 1923, by Gabino Barreto Po Ejap, as
attorney-in-fact of Po Tecsi, in favor of Jose M. Katigbak of the land in question is valid;
after said sale, Po Tecsi leased the property sold, from Gabino Barreto Po Ejap, who MALCOLM, J.:
administered it in the name of Jose M. Katigbak, at a rental of P1,500 per month, payable in
advance, leaving unpaid the rents accrued from that date until his death which occurred on Until the rules formally announced in Briones vs. Garcia ([1919], 40 Phil., 68) relating to the
November 26, 1926, having paid the accrued rents up to October 22, 1925; from November approval of bills of exceptions, an authority often followed, shall be reconsidered and set
26, 1926, the defendants Po Sun Suy and Po Ching leased said land for the sum of P1,500 aside, the said rules should be given indiscriminate application to all cases, and this being
per month; on February 11, 1927, Po Sun Suy was appointed administrator of the estate of done in the instant case, the petition presented on behalf of the appellee should be decided
his father Po Tecsi, and filed with the court an inventory of said estate including the land in in favor of the petition, with the result that the appeal should be ordered dismissed.
question; and on May 23, 1927, Jose M. Katigbak sold the same property to Po Sun Boo.
[G.R. No. L-42958. October 21, 1936.]
The claim for rents due and unpaid by Po Tecsi, deceased, and proceedings for the settlement
of whose estate have been instituted, should be presented to the committee on claims and C.N. HODGES, Plaintiff-Appellant, v. CARLOTA SALAS and PAZ SALAS,
appraisal appointed in said intestate proceeding in accordance with the provisions of section Defendants-Appellees.
703 of the Code of Civil Procedure and cannot be collected by an ordinary action.
Jose P. Orozco and Gibbs, McDonough & Ozaeta for Appellant.
As to the rents accrued and unpaid since the death of Po Tecsi, his son Po Sun Suy, as
administrator of his property, having included said property in the inventory of the latter, the Vicente Varela and Conrado V. Sanchez for Appellees.
same is in custodia legis, and hence, the rents collected by said administrator of said property
are also in custodia legis. The claim then of Jose M. Katigbak for the rents accrued and SYLLABUS

Page 10 of 19
1. EVIDENCE; PROBATORY VALUE OF SECONDARY EVIDENCE ADMITTED
WITHOUT OBJECTION. — It is universally accepted that when secondary or incompetent
evidence is presented and accepted without any objection on the part of the other party, the
latter is bound thereby and the court is obliged to grant it the probatory value it deserves.
(City of Manila v. Cabangis, 10 Phil., 151; Bersabal v. Bernal, 13 Phil., 463; Kuenzle &
Streiff v. Jiongco, 22 Phil., 110; U.S. v. Choa Tong, 22 Phil., 562; U.S. v. Ong Shiu, 28 Phil.,
242; De Leon v. Director of Prisons, 31 Phil., 60; U.S. v. Hernandez, 31 Phil., 342; 23 C.J.,
39, section 1783, and the cases therein cited; 10 R.C.L., 1008, paragraph 197, and the cases
therein cited.)
2. MORTGAGES; LOANS; CHARGING COMPOUND INTEREST; APPLICATION OF
THE SAME. — The fact of charging illegal interest, although it exceeds the maximum limit
of interest that may be charged, does not make the loan or the mortgage usurious because the
transactions took place subsequent to the execution of said contracts and the latter do not
appear to be void ab initio (66 C.J., pages 243, 244, section 194). Said interest should be
applied first to the payment of the stipulated and unpaid interest and, later, to that of the
capital. (Aguilar v. Rubiato and Gonzalez Vila, 40 Phil., 570; Go Chioco v. Martinez, 45
Phil., 256; Gui Jong & Co. v. Rivera and Avellar, 45 Phil., 778; Lopez and Javelona v. El
Hogar Filipino, 47 Phil., 249; Sajo v. Gustilo, 48 Phil., 451.)
3. ID.; ID.; CHARGING INTEREST IN ADVANCE. — Section 5 of Act No. 2655, as
amended by section 3 of Act No. 3291, expressly permits a creditor to charge in advance
interest corresponding to not more than one year, whatever the duration of the loan. What is
prohibited is the charging in advance of interest for more than one year. Section 6 reiterates
said rule in exempting a creditor found guilty of usury from the obligation to return the
interest and commissions collected by him in advance, provided said interest and
commissions are not for a period of more than one year and the rate of interest does not
exceed the maximum limit fixed by law.
4. USURY, ACTION FOR; PRESCRIPTION; REQUISITES FOR PRESCRIPTION TO
CONSTITUTE VALID DEFENSE. — In order that prescription may constitute a valid
defense and it may be considered on appeal, it must be specifically pleaded in the answer
and proven with the same degree of certainty with which an essential allegation in a civil
action is established. Otherwise it will not be taken into consideration, much less if it is
alleged for the first time on appeal. (Aldeguer v. Hoskyn, 2 Phil., 500; Domingo v. Osorio,
7 Phil., 405; Marzon v. Udtujan, 20 Phil., 232; Pelaez v. Abreu, 26 Phil., 415; Corporacion
de PP. Agustinos Recoletos v. Crisostomo, 32 Phil., 427; Karagdag v. Barado, 33 Phil., 529.)
5. AGENCY; POWERS OF THE AGENT; LIMITATIONS. — The pertinent clauses of the
power of attorney from which may be determined the intention of the principals in
authorizing their agent to obtain a loan, securing it with their real property, were quoted at
the beginning of the decision. The terms thereof are limited; the agent was thereby authorized
only to borrow any amount of money which he deemed necessary. There is nothing,
Page 11 of 19
however, to indicate that the defendants had likewise authorized him to convert the money
obtained by him to his personal use. With respect to a power of attorney of special character,
it cannot be interpreted as also authorizing the agent to use the money as he pleased,
particularly when it does not appear that such was the intention of the principals, and in
applying part of the funds to pay his personal obligations, he exceeded his authority (art.
1714, Civil Code; Bank of the Philippine Islands v. De Coster, 47 Phil., 594 and 49 Phil.,
574). In cases like the present one, it should be understood that the agent was obliged to turn
over the money to the principals or, at least, place it at their disposal.
DECISION
IMPERIAL, J.:
The action was brought by the plaintiff to foreclose a certain real estate mortgage constituted
by the defendants to secure a loan. The plaintiff appealed from the judgment of the Court of
First Instance of Occidental Negros absolving the defendants from the complaint and stating:
That of the capital of P28,000 referred to in Exhibit A, the defendants were liable only for
the sum of P14,451.71; that the transactions and negotiations specified in Exhibit A as well
as the interest charged are usurious; that the sum of P14,778.77 paid by the defendants to the
plaintiff should be applied to the payment of the capital of P14,451.71; that the plaintiff must
refund the sum of P3,327.06 to the defendants and, lastly, he must pay the costs.
On September 2, 1923, the defendants executed a power of attorney in favor of their brother-
in-law Felix S. Yulo to enable him to obtain a loan and secure it with a mortgage on the real
property described in transfer certificate of title No. 3335. The power of attorney was
registered in the registry of deeds of the Province of Occidental Negros and the pertinent
clauses thereof read as follows:red:chanrobles.com.ph
"That we confer upon our brother-in-law Mr. Felix S. Yulo, married, of age and resident of
the municipality of Bago, Province of Occidental Negros, P.I., as required by law, a special
power of attorney to obtain, in our respective names and representation, a loan in any amount
which our said brother-in-law may deem necessary, being empowered, by virtue of the
authority conferred in this power of attorney, to constitute a mortgage on a parcel of land
absolutely belonging to us, the technical description of which is as
follows:jgc:chanrobles.com.ph
"‘TRANSFER CERTIFICATE OF TITLE NO. 3335
"‘A parcel of land (lot No. 2464 of the Cadastral Survey of Bago) with the improvements
thereon, situated in the municipality of Bago. Bounded on the NE. and NW. by the Lonoy
Sapa and lot No. 2465; on the SE. by the Ilabo Sapa; and on the SW by the Ilabo Sapa, lot Check No. 4597 in the name of Rafael Santos,
No. 2508 and the Sapa Talaptapan. Containing an area of one million nine hundred ninety-
four thousand eight hundred and thirty-four square meters (1,994,834), more or less.’ paid to him to cancel the mortgage constituted

"That we confer and grant to our said brother-in-law Mr. Felix S. Yulo power and authority by the defendants 9,200.00
to perform and execute each and every act necessary to the performance of his trust, which
acts shall be for all purposes as if we had performed or executed them personally, hereby Check No. 4598 delivered to Felix S. Yulo 1,860.00
ratifying and confirming everything that our said brother-in-law Mr. Felix S. Yulo may
execute or cause to be executed."cralaw virtua1aw library _________

Acting under said power of attorney, Felix S. Yulo, on March 27, 1926, obtained a loan of Total 28,000.00
P28,000 from the plaintiff, binding his principals jointly and severally to pay it within ten
(10) years, together with interest thereon at 12 per cent per annum payable annually in =========
advance, to which effect he signed a promissory note for said amount and executed a deed
of mortgage of the real property described in transfer certificate of title No. 3335 and the The defendants failed to pay at maturity the interest stipulated, which would have been paid
improvements thereon consisting in concrete buildings. It was stated in the deed that in case one year in advance. All the sums paid by them on account of accrued interest up to March
the defendants failed to pay the stipulated interest and the taxes on the real property 27, 1934, on which the complaint was filed, together with the corresponding exhibits, are as
mortgaged and if the plaintiff were compelled to bring an action to recover his credit, said follows:chanrob1es virtual 1aw library
defendants would be obliged to pay 10 per cent more on the unpaid capital, as fees for the
plaintiff’s attorneys. The mortgage so constituted was registered in the registry of deeds of Date Amount.
the Province of Occidental Negros and noted on the back of the transfer certificate of title.
Exhibit 1 April 5, 1927 P1,500.00
The sum of P28,000 was not delivered to Felix S. Yulo, but by agreement between him and
the plaintiff, it was employed as follows:chanrob1es virtual 1aw library Exhibit 2 May 2, 1927 500.00

Interest for one year from March 27, 1926, Exhibit 4 August 30, 1927 336.00

to March 26, 1927, collected in Exhibit 7 June 4, 1928 3,360.00

advance by the plaintiff P3,360.00 Exhibit 8 May 15, 1929 67.20

Paid for the mortgage constituted by Exhibit 9 June 19, 1929 67.20

Felix S. Yulo, cancelled on the date of the loan 8,188.29 Exhibit 10 July 25, 1929 33.60

Paid by Felix S. Yulo on account of the purchase Exhibit 11 August 26, 1929 33.60

price of the real property bought by him Exhibit 12 October 7, 1929 392.55

on Ortiz Street 2,000.00 Exhibit 13 October 7, 1929 30.00

Check No. 4590 delivered to Felix S. Yulo 3,391.71 Exhibit 14 November 9, 1929 29.67

Page 12 of 19
Exhibit 15 November 9, 1929 938.95 thereof, but said copy did not show that the original had been duly registered. In paragraph
3 of the complaint, however, it was alleged that the mortgage deed had been noted on the
Exhibit 16 February 8, 1930 61.04 back of transfer certificate of title No. 3335 by the register of deeds of the Province of
Occidental Negros, in accordance with the provisions of the Mortgage Law. This specific
Exhibit 17 February 8, 1930 936.46 allegation is equivalent to a statement that the mortgage deed had been duly registered.

Exhibit 18 No date 498.75 At the trial of the case, the attorney for the plaintiff did not present the mortgage deed
showing the registration thereof in the registry, or the owner’s transfer certificate of title. In
Exhibit 19 February 10, 1931 498.75 their stead the plaintiff testified that the mortgage had been duly registered in the registry of
deeds of Occidental Negros and had been noted on the back of the transfer certificate of title.
Exhibit 20 August 20, 1931 498.75 The oral evidence was admitted without any objection on the part of the attorney for the
defendants. In the appealed decision the court held that the plaintiff had failed to substantiate
Exhibit 21 July 7, 1932 498.75 his foreclosure suit and, not having presented competent evidence, the action arising from
his evidence was merely a personal action for the recovery of a certain sum of money. The
Exhibit 22 July 29, 1932 500.00 plaintiff excepted to this conclusion and assigns it in his brief as the first error of law
committed by the court.
Exhibit 23 September 23, 1932 500.00
Section 284 of the Code of Civil Procedure requires the contents of a writing to be proven
Exhibit 24 December 17, 1932 997.50 by the writing itself, except in cases therein specified. Section 313, No. 6, provides that
official or public documents must be proven by presenting the original or a copy certified by
Exhibit 25 No date 1,000.00 the legal keeper thereof. According to this, the plaintiff was obliged to present the original
or a certified copy of the mortgage deed showing the registration thereof, as well as the
Exhibit 26 January 23, 1934 500.00 owner’s transfer certificate of title. Both would have been the best evidence to prove the
registration of the mortgage and the notation thereof on the back of the title. Had the
________ defendants objected to the oral evidence offered, there is no doubt that it would have been
rejected as incompetent. But it is universally accepted that when secondary or incompetent
Total 14,778.77 evidence is presented and accepted without any objection on the part of the other party, the
latter is bound thereby and the court is obliged to grant it the probatory value it deserves.
======== (City of Manila v. Cabangis, 10 Phil., 151; Bersabal v. Bernal, 13 Phil., 463; Kuenzle &
Streiff v. Jiongco, 22 Phil., 110; U.S. v. Choa Tong, 22 Phil., 562; U.S. v. Ong Shiu, 28 Phil.,
To the foregoing amount must be added the sum of P3,360 deducted by the plaintiff upon 242; De Leon v. Director of Prisons, 31 Phil., 60; U.S. v. Hernandez, 31 Phil., 342; 23 C.J.,
granting the loan, as interest for one year, thereby making the total amount of interest paid 39, section 1783, and the cases therein cited; 10 R.C.L., 1008, paragraph 197, and the cases
by the defendants and received by the plaintiff P18,138.77. therein cited.) .

The foregoing are facts inferred from the evidence and are not controverted by the parties, Inasmuch as the registration of the mortgage and the notation thereof on the back of the
with the exception of the existence of the promissory note, the registration of the mortgage transfer certificate of title have been established by the oral evidence abovestated, the court
deed and the notation thereof on the back of the certificate of title. was without authority to conclude that the action was personal in character and,
consequently, the first assignment of error is well founded.
I. The action brought by the plaintiff was for the foreclosure of a mortgage in accordance
with the provision of sections 254 to 261 of the Code of Civil Procedure. It was not expressly II. The court held that the loan and the mortgage were usurious and illegal for two reasons:
alleged in the complaint that the mortgage deed had been registered in accordance with Act First, because the plaintiff charged compound interest notwithstanding the fact that it had not
No. 496, which was the law applicable in the case of the real property registered under the been stipulated, and second, because the plaintiff charged interest yearly in advance in
Torrens system. A copy of the mortgage deed was attached to the complaint and made a part accordance with the agreement. These conclusions are the subject matter of the plaintiff’s
Page 13 of 19
second assignment of error.
The plaintiff categorically denied having charged compound interest, stating in his brief that
all the interest charged by him should be applied to the interest unpaid by the defendants.
We have examined Exhibits 8 to 17 of the defendants, which are the evidence offered to
establish the fact that compound interest had been charged, and we have, without any
difficulty, arrived at the conclusion that the plaintiff has really charged said unauthorized
and unstipulated interest. If there is any doubt on this fact, it is dispelled by Exhibit 10, in
the handwriting of the plaintiff himself, wherein it appears that the sum of P33.60 was
charged by him on account of interest on unpaid interest. But the fact of charging illegal
interest, although it exceeds the maximum limit of interest that may be charged, does not
make the loan or the mortgage usurious because the transactions took place subsequent to
the execution of said contracts and the latter do not appear to be void ab initio (66 C.J., pages
243, 244, section 194). Said interest should be applied first to the payment of the stipulated
and unpaid interest and, later, to that of the capital. (Aguilar v. Rubiato and Gonzalez Vila,
40 Phil., 570; Go Chioco v. Martinez, 45 Phil., 256; Gui Jong & Co. v. Rivera and Avellar,
45 Phil., 778; Lopez and Javelona v. El Hogar Filipino, 47 Phil., 249; Sajo v. Gustilo, 48
Phil., 451.)
The plaintiff admits having charged in advance the interest corresponding to the first year.
The mortgage deed contains the stipulation that the defendants should pay in advance the
stipulated interest corresponding to each year. The court declared the contract usurious for
this reason, basing its opinion upon some American authorities holding the same point of
view. This court cannot adopt said doctrine in this jurisdiction. Section 5 of Act No. 2655,
as amended by section 3 of Act No. 3291, expressly permits a creditor to charge in advance
interest corresponding to not more than one year, whatever the duration of the loan. What is
prohibited is the charging in advance of interest for more than one year. Section 6 reiterates
said rule in exempting a creditor found guilty of usury from the obligation to return the
interest and commissions collected by him in advance, provided said interest and
commissions are not for a period of more than one year and the rate of interest does not
exceed the maximum limit fixed by law.
This court concludes, therefore, that the second assignment of error is well founded in the
sense that both the loan and the mortgage are not usurious or illegal.
III. In his third assignment of error, the plaintiff contends that the court should have declared
the action for usury interposed by the defendants in their cross-complaint barred by the
statute of limitations, in accordance with the provision of section 6 of Act No. 2655, as
amended by section 4 of Act No. 3291. It is true that according to the evidence more than
two years have already elapsed from the time the defendants paid and the plaintiff received
the usurious interest to the registration of the cross-complaint, but the plaintiff cannot
successfully invoke the defense of prescription because he failed to allege it in his reply to
the cross-complaint. In order that prescription may constitute a valid defense and it may be
Page 14 of 19
considered on appeal, it must be specifically pleaded in the answer and proven with the same
degree of certainty with which an essential allegation in a civil action is established.
Otherwise it will not be taken into consideration, much less if it is alleged for the first time
on appeal. (Aldeguer v. Hoskyn, 2 Phil., 500; Domingo v. Osorio, 7 Phil., 405; Marzon v.
Udtujan, 20 Phil., 232; Pelaez. Abreu, 26 Phil., 415; Corporacion de PP. Agustinos Recoletos
v. Crisostomo, 32 Phil., 427; Karagdag v. Barado, 33 Phil., 529.) .
IV. The defendants proved that their attorney’s fees were contracted at P3,000. The evidence
has not been contradicted. The amount so fixed is not unreasonable or unconscionable. In
the fourth assignment or error, the plaintiff questions that part of the judgment ordering him
to pay said fees. He contends that he is not responsible for the payment thereof because
neither the loan nor the mortgage is usurious. However, this court has already stated that the
plaintiff violated the Usury Law in charging compound interest notwithstanding the fact that
it has not been so stipulated and that adding these sums to the stipulated interest the average
thereof exceeds the maximum rate of interest that may be charged for the loan which has
been the subject matter of the transaction. This violation falls under the precept of section 6
of the Usury Law and the plaintiff is obliged to pay the fees of the attorney for the defendants.
This court holds that the fourth assignment or error is unfounded.
V. In the fifth assignment of error, the plaintiff alleges that the judgment is erroneous for not
having declared that the defendants ratified all the obligations contracted by their attorney in
fact. In the sixth assignment or error he contends that an error was likewise committed in not
declaring that by virtue of the authority conferred by the defendants, agent Yulo was
authorized to borrow money and invest it as he wished, without being obliged to apply it
necessarily for the benefit of his principals. In the seventh assignment of error the plaintiff
alleges that the court erred in fixing the capital, which the defendants are obliged to pay him
by virtue of the power of attorney executed by them, at only P14,451.71. In the eighth and
last assignment of error, he insists that the court should have ordered the defendants to pay
the entire capital owed, with interest thereon in accordance with the mortgage deed, together
with 10 per cent thereof as attorney’s fees, the action having been instituted due to
nonfeasance on the part of the defendants.
These four assignments of error refer to the interpretation and scope of the power of attorney
and to the computation of the capital and the interest to be paid by the defendants and, finally,
to whether or not be paid by the defendants and, finally, to whether or not the latter are
obliged to pay the fees of the attorney for the plaintiff. For this reason, this court passes upon
them jointly.
The pertinent clauses of the power of attorney from which may be determined the intention
of the principals in authorizing their agent to obtain a loan, securing it with their real
property, were quoted at the beginning. The terms thereof are limited; the agent was thereby
authorized only to borrow any amount of money which he deemed necessary. There is
nothing, however, to indicate that the defendants had likewise authorized him to convert the
money obtained by him to him personal use. With respect to a power of attorney of special considered indebted in said concept in the sum of P4,321.79. Adding this sum to the capital
character, it cannot be interpreted as also authorizing the agent to dispose of the money as of P17,811.71, makes a total of P22,133.50, from which the sum of P3,000 constituting the
he pleased, particularly when it does not appear that such was the intention of the principals, fees of the attorney for the defendants must be deducted, defendants must pay to the plaintiff
and in applying part of the funds to pay his personal obligations, he exceeded his authority up to said date.
(art. 1714, Civil Code; Bank of the Philippine Islands v. De Coster, 47 Phil., 594 and 49
Phil., 574). In cases like the present one, it should be understood that the agent was obliged The foregoing disposes of the seventh assignment of error.
to turn over the money to the principals or, at least, place it at their disposal. In the case of
Manila Trading & Supply Co. v. Uy Tiepo (G.R. No. 30339, March 2, 1929, not reported), In the mortgage deed the defendants bound themselves to pay the fees of the attorney for the
referring to a power of attorney to borrow any amount of money in cash and to guarantee the plaintiff in case they failed to comply with the terms thereof or pay the land tax, or the
payment thereof by the mortgage of certain property belonging to the principals, this court plaintiff were to resort to the courts to foreclose the mortgage. Said fees were fixed at 10 per
held that the agent exceeded his authority in guaranteeing his personal account for cent of the capital which the defendants might owe. This penalty, according to what has been
automobile parts by the mortgage, not having been specially authorized to do so. This court stated heretofore, amounts to P1,781,17 which would have to be added to the total amount
then said:jgc:chanrobles.com.ph to be paid to the plaintiff by the defendants. The court, having declared the contracts
usurious, did not order the defendants to pay the penalty and for this reason the plaintiff
"Inasmuch as Jose S. Uy Tiepo, as agent of Daniel Ramos and Emilio Villarosa, was only assigns the omission as the eighth and last assignment of alleged error. Inasmuch as the fees
authorized to ’borrow any amount of cash’, and to guaranty the payment of the sums of agreed upon are neither excessive nor unreasonable, this court finds no good reason to
money so borrowed by the mortgage of the property stated in the power of attorney, he disapprove it, particularly because the defendants were also granted a larger amount in the
exceeded the authority conferred upon him in mortgaging him principal’s property to secure same concept.
the payment of his personal debt for automobile parts, and the guaranties so made are null
and void, the principals in question not being responsible for said obligations."cralaw In view of the conclusions arrived at, the motion for a new trial filed by the attorneys for the
virtua1aw library plaintiff on March 12, 1935, is denied, and the amendments to the complaint proposed by
them in their pleading of March 20 of said year are admitted.
The plaintiff contends that the agent’s act of employing part of the loan to pay his personal
debts was ratified by the defendants in their letter to him dated August 21, 1927 (Exhibit E). For all the foregoing reasons, the appealed judgment is modified and the defendants are
This court has carefully read the contents of said document and has found nothing implying ordered to pay jointly and severally to the plaintiff the sums of P19,133.50 and P1,781.17.
ratification or approval of the agent’s act. In it the defendants confined themselves to stating Within three months they shall make payment of said two sums of money or deposit them
that they would notify their agent of the maturity of the obligation contracted by him. They with the clerk or court, at the disposal of the plaintiff, upon failure to do which the real
said nothing about whether or not their agent was authorized to use the funds obtained by property mortgaged with the improvements thereon shall be sold at public auction and the
him in the payment of his personal obligations. proceeds thereon applied to the payment of the two sums of money above-stated; without
special pronouncement as to the costs of this instance. So ordered.
In view of the foregoing, this court concludes that the fifth and sixth assignments of error are
unfounded. Avanceña, C.J., Villa-Real, Abad Santos, Diaz and Laurel, JJ., concur.

In the seventh assignment of error, the plaintiff insists that the defendants should answer for RESOLUTION UPON MOTION FOR RECONSIDERATION
the entire loan plus the stipulated interest thereon. This court has already stated the manner
in which the agent employed the loan, according to the plaintiff. Of the loan of P28,000, the December 29, 1936 - IMPERIAL, J.:
agent applied the sum of P10,188.29 to the payment of his personal debt to the plaintiff. The
balance of P17,811.71 constitutes the capital which the defendants are obliged to pay by
virtue of the power conferred upon their agent and the mortgage deed. The motion for reconsideration presented by the appellees is based upon three grounds: (1)
That the capital for which they must answer to the appellant should be only P16,422.39, not
In connection with the stipulated interest, it appears that the capital of P17,811.71 bore P17,811.71 as stated in the decision; (2) that the computation of the payments made is
interest at 12 per cent per annum from March 277, 1926, to September 30, 1936, equivalent incorrect, and (3) that the oral evidence relative to the registration of the mortgage is
to P22,460.56. All the interest paid by the defendants to the plaintiff, including that which is
Page 15 of 19
insufficient.
I. It is claimed that as the true capital for which the appellees were held responsible amounts
only to P16,422.39, excluding the sum of P3,360 paid in advance as interest corresponding
to the first year, this latter sum should not be paid in its entirety by the appellees but only
that part thereof in proportion to the capital owed. The contention is without any foundation
because, as was already stated in the decision, the agent was expressly authorized to borrow
and receive the total amount of P28,000. On the other hand, as it was stipulated that the
interest should be paid annually in advance, it is evident and just that the entire sum of P3,360
representing said interest be paid by the appellees who contracted the debt through an agent.
The fact that after the contract had been consummated and the interest for the first year paid,
the agent, exceeding his authority, unduly used part of the funds intrusted to him, does not
relieve the appellees of their obligation to answer for the entire interest for the first year. For
this reason, this court declares that the first ground is unfounded.
II. In the computation of the interest paid by the appellees and of that which they should pay
to the appellant by virtue of the terms of the contract, this court proceeded to determine the
time that elapsed from the date the contract became effective and debited to the appellees the
interest at the rate agreed upon, deducting therefrom what they had paid in said concept,
including the interest paid by them for the first year because the computation commenced
from the date fixed in the contract, which is March 27, 1926. The difference represents the
interest unpaid by the appellees up to September 30, 1936, considered by this court as the
date on which the appellees’ account with the appellant was finally liquidated and closed,
and added to the capital they represent the amount appearing in the decision. This court sees
no error of accounting in this computation.
III. The appellees insist that the oral evidence upon which this court based its opinion in
declaring that the mortgage deed is registered, is insufficient. What has been said in the
decision on this point is so clear and understandable that this court believes itself relieved
from the obligation of reproducing it. There is no merit in the last ground of the motion.
In answering the appellees’ motion for reconsideration, the appellant likewise seeks
reconsideration of the decision, alleging that he is entitled to a larger amount. Without going
into details, because this court deems it unnecessary, it is held that the appellant is not entitled
to ask for reconsideration of the decision of the ground that his petition to that effect has
been filed too late, after the decision in question became final with respect to him.
The appellees’ motion for reconsideration is denied.
Avanceña, C.J., Villa-Real, Abad Santos, Diaz and Laurel, JJ., concur.
Page 16 of 19
G.R. No. L-74811 December 14, 1988
CHUA YEK HONG, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, MARIANO GUNO and DOMINADOR
OLIT, respondents.
Francisco D. Estrada for petitioner.
Purita Hostanosas-Cortes for private respondents.
MELENCIO-HERRERA, J.:
Before us is a Motion for Reconsideration of our Decision dated 30 September 1988
affirming the judgment of the Court of Appeals dismissing the complaint against private
respondents and absolving them from any and all liability arising from the loss of 1000 sacks
of copra shipped by petitioner aboard private respondents' vessel. Private respondents filed
an opposition thereto.
Petitioner argues that this Court failed to consider the Trial Court's finding that the loss of
the vessel with its cargo was due to the fault of the shipowner or to the concurring negligence
of the shipowner and the captain.
The Appellate Court Decision, however, mentions only the ship captain as having been
negligent in the performance of his duties (p. 3, Court of Appeals Decision, p. 15, Rollo).
This is a factual finding binding on this Court. For the exception to the limited liability rule
(Article 587, Code of Commerce) to apply, the loss must be due to the fault of the shipowner,
or to the concurring negligence of the shipowner and the captain. As we held, there is nothing
in the records showing such negligence (p. 6, Decision.)
The invocation by petitioners of Articles 1733 and 1735 of the Civil Code is misplaced. As
was stated in the Decision sought to be reconsidered, while the primary law governing the
instant case is the Civil Code, in all matters not regulated by said Code, the Code of
Commerce and other special laws shall govern. Since the Civil Code contains no provisions
regulating liability of shipowners or agents in the event of total loss or destruction of the
vessel, it is the provisions of the Code of Commerce, particularly Article 587, that governs.
Petitioner further contends that the ruling laid down in Eastern Shipping Lines vs. IAC, et al.
(150 SCRA 464 [1987]) should be made to apply in the instant case. That case, however,
involved foreign maritime trade while the present case involves local
inter-island shipping. The environmental set-up in the two cases, therefore, is not on all fours.
ACCORDINGLY, petitioner's Motion for Reconsideration is hereby DENIED and this
denial is FINAL.
SO ORDERED.
G.R. No. 74811 September 30, 1988
CHUA YEK HONG, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, MARIANO GUNO, and DOMINADOR
OLIT, respondents.
Francisco D. Estrada for petitioner.
Purita Hontanosas-Cortes for private respondents.
MELENCIO-HERRERA, J.:
In this Petition for Review on certiorari petitioner seeks to set aside the Decision of
respondent Appellate Court in AC G.R. No. 01375 entitled "Chua Yek Hong vs. Mariano
Guno, et al.," promulgated on 3 April 1986, reversing the Trial Court and relieving private
respondents (defendants below) of any liability for damages for loss of cargo.
The basic facts are not disputed:
Petitioner is a duly licensed copra dealer based at Puerta Galera, Oriental Mindoro, while
private respondents are the owners of the vessel, "M/V Luzviminda I," a common carrier
engaged in coastwise trade from the different ports of Oriental Mindoro to the Port of Manila.
In October 1977, petitioner loaded 1,000 sacks of copra, valued at P101,227.40, on board
the vessel "M/V Luzviminda I" for shipment from Puerta Galera, Oriental Mindoro, to
Manila. Said cargo, however, did not reach Manila because somewhere between Cape
Santiago and Calatagan, Batangas, the vessel capsized and sank with all its cargo.
Page 17 of 19
On 30 March 1979, petitioner instituted before the then Court of First Instance of Oriental
Mindoro, a Complaint for damages based on breach of contract of carriage against private
respondents (Civil Case No. R-3205).
In their Answer, private respondents averred that even assuming that the alleged cargo was
truly loaded aboard their vessel, their liability had been extinguished by reason of the total
loss of said vessel.
On 17 May 1983, the Trial Court rendered its Decision, the dispositive portion of which
follows:
WHEREFORE, in view of the foregoing considerations, the court believes
and so holds that the preponderance of evidence militates in favor of the
plaintiff and against the defendants by ordering the latter, jointly and
severally, to pay the plaintiff the sum of P101,227.40 representing the
value of the cargo belonging to the plaintiff which was lost while in the
custody of the defendants; P65,550.00 representing miscellaneous
expenses of plaintiff on said lost cargo; attorney's fees in the amount of
P5,000.00, and to pay the costs of suit. (p. 30, Rollo).
On appeal, respondent Appellate Court ruled to the contrary when it applied Article 587 of
the Code of Commerce and the doctrine in Yangco vs. Lasema (73 Phil. 330 [1941]) and
held that private respondents' liability, as ship owners, for the loss of the cargo is merely co-
extensive with their interest in the vessel such that a total loss thereof results in its extinction.
The decretal portion of that Decision 1 reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision
appealed from is hereby REVERSED, and another one entered dismissing
the complaint against defendants-appellants and absolving them from any
and all liabilities arising from the loss of 1,000 sacks of copra belonging
to plaintiff-appellee. Costs against appellee.
(p. 19, Rollo).
Unsuccessful in his Motion for Reconsideration of the aforesaid Decision, petitioner has
availed of the present recourse.
The basic issue for resolution is whether or not respondent Appellate Court erred in applying
the doctrine of limited liability under Article 587 of the Code of Commerce as expounded in
Yangco vs. Laserna, supra.
Article 587 of the Code of Commerce provides:
 Art. 587. The ship agent shall also be civilly liable for the indemnities in
favor of third persons which may arise from the conduct of the captain in
the care of the goods which he loaded on the vessel; but he may exempt
himself therefrom by abandoning the vessel with all the equipments and
the freight it may have earned during the voyage.
The term "ship agent" as used in the foregoing provision is broad enough to include the ship
owner (Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256 [1921]). Pursuant to said provision,
therefore, both the ship owner and ship agent are civilly and directly liable for the indemnities
in favor of third persons, which may arise from the conduct of the captain in the care of
goods transported, as well as for the safety of passengers transported Yangco vs. Laserna,
supra; Manila Steamship Co., Inc. vs. Abdulhaman et al., 100 Phil. 32 [1956]).
However, under the same Article, this direct liability is moderated and limited by the ship
agent's or ship owner's right of abandonment of the vessel and earned freight. This expresses
the universal principle of limited liability under maritime law. The most fundamental effect
of abandonment is the cessation of the responsibility of the ship agent/owner (Switzerland
General Insurance Co., Ltd. vs. Ramirez, L-48264, February 21, 1980, 96 SCRA 297). It has
thus been held that by necessary implication, the ship agent's or ship owner's liability is
confined to that which he is entitled as of right to abandon the vessel with all her equipment
and the freight it may have earned during the voyage," and "to the insurance thereof if any"
(Yangco vs. Lasema, supra). In other words, the ship owner's or agent's liability is merely
co-extensive with his interest in the vessel such that a total loss thereof results in its
extinction. "No vessel, no liability" expresses in a nutshell the limited liability rule. The total
destruction of the vessel extinguishes maritime liens as there is no longer any res to which it
can attach (Govt. Insular Maritime Co. vs. The Insular Maritime, 45 Phil. 805, 807 [1924]).
As this Court held:
If the ship owner or agent may in any way be held civilly liable at all for
injury to or death of passengers arising from the negligence of the captain
in cases of collisions or shipwrecks, his liability is merely co-extensive
with his interest in the vessel such that a total loss thereof results in its
extinction. (Yangco vs. Laserna, et al., supra).
The rationale therefor has been explained as follows:
The real and hypothecary nature of the liability of the ship owner or agent
embodied in the provisions of the Maritime Law, Book III, Code of
Commerce, had its origin in the prevailing conditions of the maritime trade
and sea voyages during the medieval ages, attended by innumerable
Page 18 of 19
hazards and perils. To offset against these adverse conditions and to
encourage ship building and maritime commerce, it was deemed necessary
to confine the liability of the owner or agent arising from the operation of
a ship to the vessel, equipment, and freight, or insurance, if any, so that if
the ship owner or agent abandoned the ship, equipment, and freight, his
liability was extinguished. (Abueg vs. San Diego, 77 Phil. 730 [1946])
—0—
Without the principle of limited liability, a ship owner and investor in
maritime commerce would run the risk of being ruined by the bad faith or
negligence of his captain, and the apprehension of this would be fatal to
the interest of navigation." Yangco vs. Lasema, supra).
—0—
As evidence of this real nature of the maritime law we have (1) the
limitation of the liability of the agents to the actual value of the vessel and
the freight money, and (2) the right to retain the cargo and the embargo
and detention of the vessel even in cases where the ordinary civil law
would not allow more than a personal action against the debtor or person
liable. It will be observed that these rights are correlative, and naturally so,
because if the agent can exempt himself from liability by abandoning the
vessel and freight money, thus avoiding the possibility of risking his whole
fortune in the business, it is also just that his maritime creditor may for any
reason attach the vessel itself to secure his claim without waiting for a
settlement of his rights by a final judgment, even to the prejudice of a third
person. (Phil. Shipping Co. vs. Vergara, 6 Phil. 284 [1906]).
The limited liability rule, however, is not without exceptions, namely: (1) where the injury
or death to a passenger is due either to the fault of the ship owner, or to the concurring
negligence of the ship owner and the captain (Manila Steamship Co., Inc. vs. Abdulhaman
supra); (2) where the vessel is insured; and (3) in workmen's compensation claims Abueg
vs. San Diego, supra). In this case, there is nothing in the records to show that the loss of the
cargo was due to the fault of the private respondent as shipowners, or to their concurrent
negligence with the captain of the vessel.
What about the provisions of the Civil Code on common carriers? Considering the "real and
hypothecary nature" of liability under maritime law, these provisions would not have any
effect on the principle of limited liability for ship owners or ship agents. As was expounded
by this Court:
 In arriving at this conclusion, the fact is not ignored that the illfated, S.S.
Negros, as a vessel engaged in interisland trade, is a common carrier, and
that the relationship between the petitioner and the passengers who died in
the mishap rests on a contract of carriage. But assuming that petitioner is
liable for a breach of contract of carriage, the exclusively 'real and
hypothecary nature of maritime law operates to limit such liability to the
value of the vessel, or to the insurance thereon, if any. In the instant case
it does not appear that the vessel was insured. (Yangco vs. Laserila, et al.,
supra).

Moreover, Article 1766 of the Civil Code provides:

Art. 1766. In all matters not regulated by this Code, the rights and
obligations of common carriers shall be governed by the Code of
Commerce and by special laws.

In other words, the primary law is the Civil Code (Arts. 17321766) and in default thereof,
the Code of Commerce and other special laws are applied. Since the Civil Code contains no
provisions regulating liability of ship owners or agents in the event of total loss or destruction
of the vessel, it is the provisions of the Code of Commerce, more particularly Article 587,
that govern in this case.

In sum, it will have to be held that since the ship agent's or ship owner's liability is merely
co-extensive with his interest in the vessel such that a total loss thereof results in its extinction
(Yangco vs. Laserna, supra), and none of the exceptions to the rule on limited liability being
present, the liability of private respondents for the loss of the cargo of copra must be deemed
to have been extinguished. There is no showing that the vessel was insured in this case.

WHEREFORE, the judgment sought to be reviewed is hereby AFFIRMED. No costs.

SO ORDERED.

Paras, Padilla, Sarmiento and Regalado, JJ., concur.

Footnotes

1 Penned by Presiding Justice Ramon C. Gaviola, Jr. and concurred in by Justices Ma.
Rosario Quetulio-Losa and Leonor Ines Luciano.

Page 19 of 19