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IV.

THE PRINCIPAL

Filipinas Life Assurance Co. (now Ayala Life Assurance, Inc.) v. Clemente Pedrosa,
TeresitaPedrosa and Jennifer Palacio
G.R. No. 159489, February 04, 2008 Quisumbing, J.

FACTS:

Teresita Pedroso is a policyholder of a 20-year endowment life insurance issued


by Filipinas Life Assurance Co. Pedroso claims Renato Valle was her insurance agent
since 1972 and Valle collected her monthly premiums. In the first week of January 1977,
Valle told her that the Filipinas Life Escolta Office was holding a promotional
investment program for policyholders. It was offering 8% prepaid interest a month for
certain amounts deposited on a monthly basis. Enticed, she initially invested and issued
a post-dated check for P10,000. In return, Valle issued Pedroso his personal check for
P800 for the 8% prepaid interest and a Filipinas Life Agent receipt. 

Pedroso called the Escolta office and talked to Francisco Alcantara, the
administrative assistant, who referred her to the branch manager, Angel Apetrior.
Pedroso inquired about the promotional investment and Apetrior confirmed that there
was such a promotion. She was even told she could push through with the check she
issued. From the records, the check, with the endorsement of Alcantara at the back,
was deposited in the account of Filipinas Life with the Commercial Bank and Trust
Company, Escolta Branch. Relying on the representations made by Filipinas Life’s duly
authorized representatives Apetrior and Alcantara, as well as having known agent Valle
for quite some time, Pedroso waited for the maturity of her initial investment. A month
after, her investment of P10,000 was returned to her after she made a written request
for its refund. To collect the amount, Pedroso personally went to the Escolta branch
where Alcantara gave her the P10,000 in cash. After a second investment, she made 7
to 8 more investments in varying amounts, totaling P37,000 but at a lower rate of 5%
prepaid interest a month. Upon maturity of Pedroso’s subsequent investments, Valle
would take back from Pedroso the corresponding agent’s receipt he issued to the latter.

Pedroso told respondent Jennifer Palacio, also a Filipinas Life insurance


policyholder, about the investment plan. Palacio made a total investment of P49,550
but at only 5% prepaid interest. However, when Pedroso tried to withdraw her
investment, Valle did not want to return some P17,000 worth of it. Palacio also tried to
withdraw hers, but Filipinas Life, despite demands, refused to return her money.
ISSUE:
WON Filipinas Life is jointly and severally liable with Apetrior and Alcantara on
the claim of Pedroso and Palacio or WON its agent Renato Valle is solely liable to
Pedroso and Palacio

HELD:
Pedroso and Palacio had invested P47,000 and P49,550, respectively. These
were received by Valle and remitted to Filipinas Life, using Filipinas Life’s official
receipts. Valle’s authority to solicit and receive investments was also established by the
parties. When Pedroso and Palacio sought confirmation, Alcantara, holding a
supervisory position, and Apetrior, the branch manager, confirmed that Valle had
authority. While it is true that a person dealing with an agent is put upon inquiry and
must discover at his own peril the agent’s authority, in this case, Pedroso and Palacio
did exercise due diligence in removing all doubts and in confirming the validity of the
representations made by Valle.

Filipinas Life, as the principal, is liable for obligations contracted by its agent
Valle. By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of
the latter. The general rule is that the principal is responsible for the acts of its agent
done within the scope of its authority, and should bear the damage caused to third
persons. When the agent exceeds his authority, the agent becomes personally liable for
the damage. But even when the agent exceeds his authority, the principal is still
solidarily liable together with the agent if the principal allowed the agent to act as
though the agent had full powers. The acts of an agent beyond the scope of his
authority do not bind the principal, unless the principal ratifies them, expressly or
impliedly. 

Ratification – adoption or confirmation by one person of an act performed on his


behalf by another without authority  Even if Valle’s representations were beyond his
authority as a debit/insurance agent, Filipinas Life thru Alcantara and Apetrior expressly
and knowingly ratified Valle’s acts. Filipinas Life benefited from the investments
deposited by Valle in the account of Filipinas Life.
MANILA MEMORIAL PARK CEMETERY, INC. V. LINSANGAN
G.R. No. 94050
TINGA, November 21. 1991

FACTS

-Florencia Baluyot, an Agency Manager of MMPCI, offered to Atty. Pedro Linsangan a lot at
the Holy Cross Memorial Park owned by MMPCI for P95,000. The lot’s former owner was not
interested on the lot anymore and so agreed to sell the lot after he has been reimbursed. Atty.
Linsangan agreed to the offer, gave Baluyot the reimbursement that would be given to the
former owner and down payment that would be paid to MMPCI, with Baluyot only handing
him handwritten and typewritten receipts (not O.R.).

-However, instead of the old contract with the old owner reformed so that Atty. Linsangan
would become the new owner of the lot, Baluyot offered a new contract covering the same lot.
Atty. Linsangan protested, but Baluyot assured him that that Atty. Linsangan would still be
paying P95,000 instead of the P132,250 price under the new contract. Baluyot even executed a
document confirming the previous arrangement between her and Atty. Linsangan so that even
if the purchase price under the new contract has increased, Atty. Linsangan would still be
paying the old purchase price. Atty. Linsangan signed the new contract with MMPCI and
tendered payment in checks in accordance with the old agreement between him and Baluyot.

-It turns out that MMPCI was not aware of the arrangement between Baluyot and Atty.
Linsangan, and that Baluyot was only authorized under her Agency Management contract to
solicitand remit to MMPCI offers to purchase interment spaces belonging to and sold by
MMPCI. So, even if Atty. Linsangan had complied with the agreed payment, MMPCI cancelled
the new contract for non-payment of arrearages.

-Atty. Linsangan filed complaint for Breach of Contract and Damages against Baluyot and
MMPCI.

LC: Baluyot was an agent of MMPCI; MMPCI was estopped from denying the agency after
having received and encashed the checks issued by Atty. Linsangan and given it by Baluyot.

CA: affirmed LC + Baluyot’s authority was conferred upon her by habit and custom

ISSUES

1. WON Baluyot was an agent of MMPCI


2. WON MMPCI was bound by the contract procured by Atty. Linsangan and solicited by
Baluyot

3. WON MMPCI was estopped from denying liability to Atty. Linsangan

HELD

1. YES

Ratio. By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter. Thus, the elements of agency are (i) consent, express or implied, of the parties to
establish the relationship; (ii) the object is the execution of a juridical act in relation to a third
person; (iii) the agent acts as a representative and not for himself; and (iv) the agent acts within
the scope of his authority.

Reasoning. Baluyot was an agent of MMPCI, having represented the interest of the latter, and
having been allowed by MMPCI to represent it in her dealings with its clients/prospective
buyers.

2. NO

Ratio. The acts of the agent beyond the scope of his authority do not bind the principal unless
the latter ratifies the same. It also bears emphasis that when the third person knows that the
agent was acting beyond his power or authority, the principal cannot be held liable for the acts
of the agent. If the said third person was aware of such limits of authority, he is to blame and is
not entitled to recover damages from the agent, unless the latter undertook to secure the
principal’s ratification.

-on RATIFICATION: Ratification in agency is the adoption or confirmation by one person of an


act performed on his behalf by another without authority. The substance of the doctrine is
confirmation after conduct, amounting to a substitute for a prior authority. Ordinarily, the
principal must have full knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who assumed to act as agent.
Thus, if material facts were suppressed or unknown, there can be no valid ratification and this
regardless of the purpose or lack thereof in concealing such facts and regardless of the parties
between whom the question of ratification may arise. Nevertheless, this principle does not
apply if the principal’s ignorance of the material facts and circumstances was willful, or that the
principal chooses to act in ignorance of the facts. However, in the absence of circumstances
putting a reasonably prudent man on inquiry, ratification cannot be implied as against the
principal who is ignorant of the facts.

Reasoning. Baluyot acted in excess of the authority granted to her by MMPCI. The original
agreement between her and Atty. Linsangan was unknown to MMPCI and thus, MMPCI was
not bound by their agreement. As far as they were concerned, the contract price was P132,250
and not P95, 000. As for the ratification, see estoppel.

3. NO.

Ratio. The essential elements of estoppel are (i) conduct of a party amounting to false
representation or concealment of material facts or at least calculated to convey the impression
that the facts are otherwise than, and inconsistent with, those which the party subsequently
attempts to assert; (ii) intent, or at least expectation, that this conduct shall be acted upon by,
or at least influence, the other party; and (iii) knowledge, actual or constructive, of the real
facts.

-One who claims the benefit of an estoppel on the ground that he has been misled by the
representations of another must not have been misled through his own want of reasonable
care and circumspection.

-Estoppel must be intentional and unequivocal, for when misapplied, it can easily become a
most convenient and effective means of injustice.

Reasoning. There is no indication that MMPCI let the public nor Atty. Linsangan to believe that
Baluyot had the authority to alter the standard contracts of the company. Neither is there any
showing that prior to signing of the new contract, MMPCI had any knowledge of Baluyot’s
commitment to Atty. Linsangan.

-Even assuming that Atty. Linsangan was misled by MMPCI’s actuations, he still cannot invoke
the principle of estoppel, as he was clearly negligent in his dealings with Baluyot, and could
have easily determined, had he only been cautious and prudent, whether said agent was
clothed with the authority to change the terms of the principal’s written contract.
Board of Liquidators v. Heirs of Maximo Kalaw G.R. No. L-18805 August 14, 1967

Ratification through board resolution and acts.

FRANCISCO v. GSIS
G.R. No. L-18287, March 30, 1963

Principle:
ART. 1393. Ratification may be effected expressly or tacitly. It is understood that there
is a tacit ratification if, with knowledge of the reason which renders the contract voidable and
such reason having ceased, the person who has a right to invoke it should execute an act which
necessarily implies an intention to waive his right.

Facts:

On Oct. 10, 1956, Trinidad Francisco, in consideration of a loan extended to it,


mortgaged to GSIS a parcel of land known as VIC-MARI compound. On Jan. 6, 1959 the
mortgage was extrajudicially foreclosed. GSIS acquired ownership of the land.

Vicente Francisco, Trinidad’s father, sent a letter dated Feb. 20, 1959 to GSIS
proposing a redemption of the property. He later received a telegram from the General
Manager Andal saying that GSIS approved redemption. After the redemption had already
concluded and all of the arrearages have been paid.

On Jan. 1960, Trinidad, thinking that she had already redeemed the property suddenly
received letters from the GSIS the General Manager Andal asking for the “proposal for the
payment of her indebtedness”. Francisco’s father protested claiming that he had already
redeemed the property as per the letter he sent GSIS.

Nevertheless, GSIS continued to demand foreclosure. They claimed that the telegram
assenting to the proposal letter of Francisco’s father should be disregarded as it failed to
express the contents of the board resolution due to the error of its minor employees in
couching the correct wording of the telegram. The board resolution approving the letter
contained the condition that Francisco’s father should also pay the expenses in the foreclosure
of the mortgage. The remittances already made by him were not sufficient to cover this.

Trinidad thus instituted the present suit.


The trial court ruled in favor of Trinidad. It found that the letter dated Feb. 20, 1959 had
been unqualifiedly accepted and was binding and the plaintiff need not pay the extra charges
being demanded.

Issue:

Whether or not there was ratification of an act.

Ratio Decidendi:

YES. Notwithstanding the notice, the defendant GSIS pocketed the amount, and kept
silent about the telegram not being in accordance with the true facts, as it now alleges. This
silence, taken together with the unconditional acceptance of three other subsequent
remittances from plaintiff, constitutes in itself a binding ratification of the original agreement
(Civil Code, Art. 1393).

“ART. 1393. Ratification may be effected expressly or tacitly. It is understood that there
is a tacit ratification if, with knowledge of the reason which renders the contract voidable and
such reason having ceased, the person who has a right to invoke it should execute an act which
necessarily implies an intention to waive his right.”

Nowhere else do the circumstances call more insistently for the application of the
equitable maxim that between two innocent parties, the one who made it possible for the
wrong to be done should be the one to bear the resulting loss.

The defendant's assertion that the telegram came from it but that it was incorrectly
worded renders unnecessary to resolve the other point on controversy as to whether the said
telegram constitutes an actionable document.

In this case, the telegram was within Andal’s apparent authority. Assuming that it was
sent by the Board Secretary in his name but without his knowledge, third persons are not duty
bound to disbelieve the acts of a corporation’s officers, especially when it appears regular on its
face.

Furthermore, the Civil Code provides for ratification, wherein a party with knowledge of
the reason which renders the contract voidable and such reason having ceased, the person
who has a right to invoke it executes an act which necessarily implies an intention to waive his
right.
In this case, GSIS ratified its acceptance of Vicente Francisco’s offer when it failed to
refute it in the letter sent by Trinidad Francisco to Mr. Andal which quoted verbatim the
telegram of acceptance. This was in itself notice to the corporation of the terms of the
allegedly unauthorized telegram.

Since a corporation cannot see, or know, anything except through its officers,
knowledge of facts acquired or possessed by an officer or agent of a corporation in the course
of his employment, and in relation to matters within the scope of his authority, is notice to the
corporation, whether he communicates such knowledge or not.

GSIS pocketed the amount and kept silent about the telegram. This silence, taken
together with the unconditional acceptance of three other subsequent remittances from
plaintiff, constitutes in itself a binding ratification of the original agreement.

Ruling:

FOR THE FOREGOING REASONS, the appealed decision is hereby affirmed, with costs
against the defendant Government Service Insurance System, in G.R. No.L-18287.

Woodchild v. Roxas G.R. No. 140667 August 12, 2004

Right of way

RURAL BANK OF MILAOR (CAMARINES SUR), petitioner,


vs.
FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE O. NIÑO, FELICISIMO OCFEMIA,
RENATO OCFEMIA JR, and WINSTON OCFEMIA, respondents.

PANGANIBAN, J.:

G.R. No. 137686 February 8, 2000.

Principle: Estoppel

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with
the agent if the former allowed the latter to act as though he had full powers.

Facts:
Several parcels of land were mortgaged by the respondents during the lifetime of the
respondent’s grandparents to the Rural bank of Milaor as shown by the Deed of Real Estate
Mortgage and the Promissory Note. Spouses FelicisimoOcfemia and Juanita Ocfemia, one of
the respondents, were not able to redeem the mortgaged properties consisting of seven
parcels of land and so the mortgage was foreclosed and thereafter ownership was transferred
to the petitioner bank. Out of the seven parcels of land that were foreclosed, five of them are
in the possession of the respondents because these five parcels of land were sold by the
petitioner bank to the respondents as evidenced by a Deed of Sale. However, the five parcels
of land cannot be transferred in the name of the parents of Merife Nino, one of the
respondents, because there is a need to have the document of sale registered. The Register of
deeds, however, said that the document of sale cannot be registered without the board
resolution of the petitioner bank confirming both the Deed of sale and the authority of the
bank manager, Fe S. Tena, to enter such transaction.

The petitioner bank refused her request for a board resolution and made many alibis.
Respondents initiated the present proceedings so that they could transfer to their names the
subject five parcel of land and subsequently mortgage said lots and to use the loan proceeds
for the medical expenses of their ailing mother.

Issue:

May the Board of Directors of a rural banking corporation be compelled to confirm a deed of
absolute sale of real property owned by the corporation which deed of sale was executed by
the bank manager without prior authority of the board of directors of the rural banking
corporation?

Ruling:

YES. The bank acknowledges, by its own acts or failure to act, the authority of Fe S. Tena to
enter into binding contracts. After the execution of the Deed of Sale, respondents occupied
the properties in dispute and paid the real estate taxes. If the bank management believed that
it had title to the property, it should have taken measured to prevent the infringement and
invasion of title thereto and possession thereof. Likewise, Tena had previously transacted
business on behalf of the bank, and the latter had acknowledged her authority. A bank is liable
to innocent third persons where representation is made in the course of its normal business by
an agent like Manager Tena even though such agent is abusing her authority. Clearly, persons
dealing with her could not be blamed for believing that she was authorized to transact business
for and on behalf of the bank.

The bank is estopped from questioning the authority of the bank to enter into contract of sale.
If a corporation knowingly permits one of its officers or any other agent to act within the scope
of an apparent authority, it holds the agent out to the public as possessing the power to do
those acts; thus, the corporation will, as against anyone who has in good faith dealt with it
through such agent, be estopped from denying the agent’s authority.

Cuison v. CA
GR No. 88539, Oct 26, 1993

Principle:

Agency by Estoppel – one who clothes another with apparent authority as his agent
and holds him out to the public as such cannot be permitted to deny the authority of such
person to act as his agent, to the prejudice of innocent third parties dealing with such person in
good faith and in the honest belief that he is what he appears to be

Facts:

PetitionerCuison is a sole proprietor engaged in the buy and sell of newsprint, bond
paper and scrap. While Respondent Valiant Investment Associates (VIA) is a partnership duly
organized and existing under Philippine laws.

Private respondent delivered various kinds of paper products amounting to 290k, more or less,
to a certain Lilian Tan of LT Trading, pursuant to orders allegedly placed by, Tiu HuyTiac, an
employee of Petitioner Cuison.

Upon the alleged orders of Tiac, VIA delivered the merchandises to Lilian Tan, which she paid
by issuing several checks payable to cash at the specific request of Tiu HuyTiac. The checks
were dishonored when presented to the bank.

VIA demanded payment to petitioner, claiming that Tiac was duly authorized by petitioner to
enter into the transactions with Lilian Tan. Petitioner however, denied any involvement.

VIA filed a collection suit against petitioner which the RTC denied but was subsequently
reversed by the CA.

Issue:

Was Tiu HuyTiac vested with authority to enter into the questioned transactions?
Held:

One who clothes another with apparent authority as his agent and holds him out to the
public as such cannot be permitted to deny the authority of such person to act as his agent, to
the prejudice of innocent third parties dealing with such person in good faith and in the honest
belief that he is what he appears to be.

It is evident from the records that by his own acts and admission, petitioner held out Tiu
HuyTiac to the public as the manager of his store. More particularly, petitioner explicitly
introduced Tiu HuyTiac to Bernardino Villanueva, respondent's manager, as his (petitioner's)
branch manager as testified to by Bernardino Villanueva. Secondly, Lilian Tan, who has been
doing business with petitioner for quite a while, also testified that she knew Tiu HuyTiac to be
the branch manager of the petitioner.

In fact, even petitioner admitted his close relationship with Tiu HuyTiac when he said in open
court that they are "like brothers". There was thus no reason for anybody especially those
transacting business with petitioner to even doubt the authority of Tiu HuyTiac as his manager
in the Sto. Cristo, Binondo branch.

De Castro vs. Court of Appeals


G.R. No. 115838 July 18, 2002
By JEANILYN DICO

Solidarily liable- any one of them can be sued if cannot sue all co-owners

PRINCIPLE: Solidarity does not make a solidary obligor an indispensable party in a suit filed by
the creditor.—Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc.
that—“x xx solidarity does not make a solidary obligor an indispensable party in a suit filed by the
creditor. Article 1216 of the Civil Code says that the creditor ‘may proceed against anyone of the
solidary debtors or some or all of them simultaneously.’ ”

When the law expressly provides for solidarity of the obligation, as in the liability of co-
principals in a contract of agency, each obligor may be compelled to pay the entire obligation. The
agent may recover the whole compensation from any one of the co-principals, as in this case.

A contract of agency which is not contrary to law, public order, public policy, morals or
good custom is a valid contract, and constitutes the law between the parties. The contract of
agency entered into by Constante with Artigo is the law between them and both are bound to
comply with its terms and conditions in good faith.
FACTS: Private respondent Artigo sued petitioners Constante and Amor De Castro to collect
the unpaid balance of his broker’s commission from the De Castros.

The appellants, De Castros, were co-owners of 4 lots in Cubao, Quezon City. The appellee,
Artigo, was authorized by appellants to act as real estate broker in the sale of these properties
for the amount of P23,000,000.00, 5% of which will be given to the agent as commission.
Appellee first found the Times Transit Corporation and 2 lots were sold. In return, he received
P48,893.76 as commission.

However, he felt aggrieved because according to him, his total commission should be
P352,500.00 which is 5% of the agreed price of P7,050,000. Thus, he sued the petitioners in
order to collect the unpaid balance of his broker's commission. Petitioners, on the other hand,
argued that private respondent was selfishly asking more than what he truly deserved as
commission to the prejudice of other agents who were more instrumental in the
consummation of the sale. The trial court ruled in favor of private respondent ordering
Constante and Corazon Amor de Castro jointly and solidarily liable to plaintiff and it was
affirmed in toto by the Court of Appeals.

Hence, this petition. The De Castros argue that Artigo's complaint should have been
dismissed for failure to implead all the co-owners of the two lots. The De Castros claim that
Artigo always knew that the two lots were co-owned by Constante and Corazon with their
other siblings Jose and Carmela whom Constante merely represented. The De Castros contend
that failure to implead such indispensable parties is fatal to the complaint since Artigo, as
agent of all the four co-owners, would be paid with funds co-owned by the four co-owners

It was shown also that Constante Amor De Castro signed the authorization of Artigo as
owner and representative of the co-owners.

ISSUE: Whether or not the complaint merits dismissal for failure to implead other co-owners
as indispensable parties

RATIO DECIDENDI: NO.


The De Castros’ contentions are devoid of legal basis. The CA explained that it is not
necessary to implead the co-owners since the action is exclusively based on a contract of
agency between Artigo and Constante. An indispensable party is one whose interest will be
affected by the court's action in the litigation, and without whom no final determination of the
case can be had. The joinder of indispensable parties is mandatory and courts cannot proceed
without their presence. Whenever it appears to the court in the course of a proceeding that an
indispensable party has not been joined, it is the duty of the court to stop the trial and order
the inclusion of such party.
However, the rule on mandatory joinder of indispensable parties is not applicable to the
instant case.

There is no dispute that Constante appointed Artigo in a handwritten note dated January
24, 1984 to sell the properties of the De Castros for P23 million at a 5 percent commission. The
authority was on a first come, first serve basis. Constante signed the note as owner and as
representative of the other co-owners. Under this note, a contract of agency was clearly
constituted between Constante and Artigo. Whether Constante appointed Artigo as agent, in
Constante's individual or representative capacity, or both, the De Castros cannot seek the
dismissal of the case for failure to implead the other co-owners as indispensable parties.

The De Castros admit that the other co-owners are solidarily liable under the contract of
agency, citing Article 1915 of the Civil Code, which reads:

“Art. 1915. If two or more persons have appointed an agent for a common transaction
or undertaking, they shall be solidarily liable to the agent for all the consequences of the
agency.”

The solidary liability of the four co-owners, however, militates against the De Castros’
theory that the other co-owners should be impleaded as indispensable parties.

When the law expressly provides for solidarity of the obligation, as in the liability of co-
principals in a contract of agency, each obligor may be compelled to pay the entire
obligation.12 The agent may recover the whole compensation from any one of the co-
principals, as in this case.

Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the
solidary debtors. This article reads:

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or
all of them simultaneously. The demand made against one of them shall not be an
obstacle to those which may subsequently be directed against the others, so long as the
debt has not been fully collected.

Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc.13
that—

“x xx solidarity does not make a solidary obligor an indispensable party in a suit filed by
the creditor. Article 1216 of the Civil Code says that the creditor ‘may proceed against
anyone of the solidary debtors or some or all of them simultaneously.’ ” (Emphasis
supplied)
RULING: WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of
Appeals dated May 4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto.

Vicente Sy-juco and CiprianaSy-juco v. Santiago Sy-juco,


G.R.No.L-13471, January 12, 1920.

Doctrine: Whenever an agent enters into a contract under his own name, the principal is not
bound by what the agent does or contracts thereby not being liable. However, the exception to
the general rule is when the thing being deal with belongs to the principal. As a result of this,
the principal assumes all rights and obligations and liabilities that arise from the contract made
by the agent.

Facts: Defendant Santiago Sy-juco is the son of plaintiffs Vicente and CiprianaSy-juco. He was
appointed by his parents, the plaintiffs, as administrator of their property. The plaintiffs
alleged that during Santiago’s administration, he acquired the properties claimed in the
complaint in his capacity as the administrator with the money and benefits of the plaintiffs.
The trial court ordered Santiago to return to the plaintiffs the properties (the launch
Malabon, two cascos, and an automobile). Both parties appealed from this judgment.

Issue: WON the properties bought by Santiago in his own name, as an administrator, belong to
him.

Held: No. The properties belong to the principal except the one casco, casco no.2545. The
Supreme Court found out that it belonged to the plaintiffs but was sold to the defendant by
means of a public instrument and have not adduced sufficient proof of such deceit which would
destroy the presumption of truth which a public document carries. And therefore, it was
lawfully sold to the defendant by the plaintiffs. And as to the rests, Supreme Court affirm the
judgment of the lower court.

a. Regarding the launch Malabon, it appears that defendant bought it and registered it in his
own name. But this does not necessarily show that the defendant bought it for himself and
with his own money. This transaction was within the agency which he had received from the
plaintiffs thereby, acted without representation in the purchase of the said launch, hence, a
violation to the agency. If the result of this transaction should be that the defendant has
acquired for himself the ownership for the launch, it would be equivalent to sanctioning this
violation and accepting its consequences and its effects. By virtue of the agency, the fact that
he bought it in his own name, he is obliged to transfer to the plaintiffs the rights he received
from the vendor, and the plaintiff are entitled to be subrogated in these rights. As provided in
Art.1717 of the Civil Code, “when an agent acts in his own name, the principal shall have no
right of action against the person with whom the agent has contracted, cases involving
things to the principal are excepted. According to this exception, when things belonging to
the principal are dealt with, the agent is bound to the principal although he does not
assume the character of such agent and appears acting in his own name. This means that in
the case of this exception, the agent’s apparent representation yields to the principal’s true
representation and that, in reality and in effect, the contract must be considered as entered
into between the principal and the third person; and consequently, if the obligations belong to
the former, to him alone must also belong the rights arising from the contract.

b. As to the other casco (casco no.2584), it was constructed at the instance and money of the
plaintiffs. And the fact that on the date it was constructed, the defendant have no sufficient
money with which to pay the expense of the construction.

c. As to the automobile, there is sufficient evidence that its prices was paid with plaintiff’s
money. Defendant’s adverse allegation that it was paid with his own money was not supported
by any evidence.

PNB v Agueldo
Principle:

ART. 1709. By the contract of agency, one person binds himself to render some service, or to
do something for the account or at the request of another.

ART. 1717. When an agent acts in his own name, the principal shall have no right of action
against the persons with whom the agent has contracted, or such persons against the
principal.

FACTS

 The defendant-appellant Agudelo executed in favor of her nephew, Garrucho, the


document Exhibit K conferring upon him a special power of attorney to enable him to sell,
alienate and mortgage all her real estate consisting in lots Nos. 61 and 207 of the
cadastral survey of Bacolod, together with the improvement thereon.
 Amparo A. Garrucho executed the document Exhibit H conferring upon her brother
Garrucho a special power of attorney to enable him to sell, alienate, mortgage or
otherwise encumber, all her real estate.
 Nothing in the aforesaid powers of attorney expressly authorized Mauro A. Garrucho to
contract any loan nor to constitute a mortgage on the properties belonging to the
respective principals, to secure his obligations.
 Mauro A. Garrucho executed in the favor of the plaintiff entity, the Philippine National
bank, the document Exhibit G, a mortgage on lot No. 878, described in transfer certificate
of title No. 2415 issued in the name of Amparo A. Garrucho, to secure the payment of
credits, loans, commercial overdrafts, etc., not exceeding P6,000, together with interest
thereon, which he might obtain from the aforesaid plaintiff entity, issuing the
corresponding promissory note to that effect.
 Mauro A. Garrucho maintained a personal current account with the plaintiff bank in the
form of a commercial credit withdrawable through checks.
 Again, Garrucho executed in favor of the plaintiff entity, thePNB, the document Exhibit J
whereby he constituted a mortgage on lots Nos. 61 and 207, described in original
certificates of title Nos. 2216 and 1148, respectively, issued in the name of Paz Agudelo y
Gonzaga, to secure the payment of credits, loans and commercial overdrafts which the
said bank might furnish him to the amount of P16,00, payable on August 24, 1922,
executing the corresponding promissory note to that effect.
 The mortgage deeds Exhibit G and J as well as the corresponding promissory notes for
P6,000 and P16,000, respectively, were executed in Garrucho's own name and signed by
him in his personal capacity, authorizing the mortgage creditor, the PNB, to take
possession of the mortgaged properties, by means of force if necessary, in case he failed
to comply with any of the conditions stipulated therein.
 The manager of PNB requested him to liquidate his account amounting to P15,148.15, at
the same time notifying him that his promissory note for P16,000 giving as security for the
commercial overdraft in question, had fallen due some time since.
 Garrucho, executed in favor of the plaintiff entity the deed Exhibit C, a mortgage on lots
Nos. 61 and 207 of the described in transfer certificates of title Nos. 2216 and 1148,
respectively, issued in the name of Paz Agudelo y Gonzaga, and on lot No. 878 of the
cadastral survey of Murcia, described in transfer certificate of title No. 2415, issued in the
name of Amparo A. Garrucho.
 Garrucho, executed the promissory note, Exhibit B, for P21,000 as a novation of the
former promissory notes for P6,000 and P16,000, respectively.
 In view of the aforesaid consolidated mortgage, Exhibit C, the Philippine National Bank,
cancelled the mortgages constituted on lots Nos. 61, 207 and 878 described in Torrens
titles Nos. 2216, 1148 and 2415, respectively.
 Amparo A. Garrucho sold lot No. 878 described in certificate of title No. 2415, to Agudelo
(Exhibit M).

ISSUE/S

1. Whether or not the powers of attorney issued in favor of Mauro A. Garrucho by his sister,
Amparo A. Garrucho, and by his aunt, Paz Agudelo y Gonzaga, respectively, to mortgage their
respective real estate, authorized him to obtain loans secured by mortgage in the properties in
question. NO
2. Whether or not Agudelo is liable for the payment of the loans obtained by Garrucho from
the PNB for the security of which he constituted a mortgage on the aforesaid real estate
belonging to her.
RULING
Yes ART. 1709. By the contract of agency, one person binds himself to render some service, or
to do something for the account or at the request of another.

ART. 1717. When an agent acts in his own name, the principal shall have no right of action
against the persons with whom the agent has contracted, or such persons against the
principal.

In such case, the agent is directly liable to the person with whom he has contracted, as if the
transaction were his own. Cases involving things belonging to the principal are excepted.

The provisions of this article shall be understood to be without prejudice to actions between
principal and agent.

Aside from the phrases "attorney in fact of his sister, Amparo A. Garrucho, as evidenced by the
power of attorney attached hereto" and "attorney in fact of Agudelo" written after the name of
Garrucho in the mortgage deeds, Exhibits G. and J, respectively, there is nothing in the said
mortgage deeds to show that Garrucho is attorney in fact of Amparo A. Garrucho and of Paz
Agudelo y Gonzaga, and that he obtained the loans mentioned in the aforesaid mortgage
deeds and constituted said mortgages as security for the payment of said loans, for the
account and at the request of said Amparo A. Garrucho and Agudelo. The above-quoted
phrases which simply described his legal personality, did not mean that Garrucho obtained the
said loans and constituted the mortgages in question for the account, and at the request, of his
principals.

From the titles as well as from the signatures therein, Garrucho, appears to have acted in his
personal capacity. In the aforesaid mortgage deeds, Garrucho, in his capacity as mortgage
debtor, appointed the mortgage creditor PNB as his attorney in fact so that it might take
actual and full possession of the mortgaged properties by means of force in case of violation of
any of the conditions stipulated in the respective mortgage contracts. If Garrucho acted in his
capacity as mere attorney in fact of Amparo A. Garrucho and of Paz Agudelo y Gonzaga, he
could not delegate his power, in view of the legal principle of "delegatapotestasdelegare non
potest" (a delegated power cannot be delegated), inasmuch as there is nothing in the records
to show that he has been expressly authorized to do so.

He executed the promissory notes evidencing the aforesaid loans, under his own signature,
without authority from his principal and, therefore, were not binding upon the latter.

Furthermore, the records do not show that the loan obtained by Mauro A. Garrucho, evidenced
by the promissory note, Exhibit B, was for his principal Paz Agudelo y Gonzaga. The special
power of attorney, Exhibit K, does not authorize Mauro A. Garrucho to constitute a mortgage
on the real estate of his principal to secure his personal obligations. Therefore, in doing so by
virtue of the document, Exhibit C, he exceeded the scope if his authority and his principal is not
liable for his acts.

However, Agudelo in an affidavit, gave her consent to the lien on lot No. 878, the ownership of
which was transferred to her by her niece Amparo A. Garrucho. This acknowledgment,
however, does not extend to lots Nos. 207 and 61, described in transfer certificates of title Nos.
1148 and 2216, respectively. Therefore, the only liability of the defendant-appellant Agudelo is
that which arises from the aforesaid acknowledgment, but only with respect to the lien and not
to the principal obligation secured by the mortgage acknowledged by her to have been
constituted on said lot No. 878 of the cadastral survey of Murcia, Occidental Negros. Such
liability is not direct but a subsidiary one.

In view of the foregoing consideration, we are of the opinion and so hold that when an agent
negotiates a loan in his personal capacity and executes a promissory note under his own
signature, without express authority from his principal, giving as security therefor real estate
belonging to the letter, also in his own name and not in the name and representation of the
said principal, the obligation do constructed by him is personal and does not bind his aforesaid
principal.

Case:
Keeler Electric v. Rodriguez G.R. No. 19001 November 11, 1922
Keeler rules

BA FINANCE CORPORATION, petitioner,


vs.
HON. COURT OF APPEALS and TRADERS ROYAL BANK, respondents.
G.R. No. 94566 July 3, 1992

Articles of incorporation

PRINCIPLE:

PERSONS DEALING WITH AN ASSUMED AGENT, BOUND AT THEIR PERIL— It is a


settled rule that persons dealing with an assumed agent, whether the assumed agency be a
general or special one are bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to establish it

FACTS:
1. Renato Gaytano, doing business under the name Gebbs International, applied for and
was granted a loan with respondent Traders Royal Bank in the amount of P60, 000.00.

2. As security for the payment of said loan, the Gaytano spouses executed a deed of
suretyship whereby they agreed to pay jointly and severally to respondent bank the
amount of the loan including interests, penalty and other bank charges.

3. Philip Wong as credit administrator of BA Finance Corporation for and in behalf of the
latter undertook to guarantee the loan of the Gaytano spouses.

4. Partial payments were made on the loan leaving an unpaid balance in the amount of
P85, 807.25. Since the Gaytano spouses’ refusal to pay their obligation, respondent
bank filed with the trial court a complaint for sum of money against the Gaytano
spouses and Petitioner Corporation as alternative defendant.

5. Gaytano spouses did not present evidence for their defence. Petitioner Corporation, on
the other hand, raised the defence of lack of authority of its credit administrator to bind
the corporation.

6. RTC’s judgment is hereby rendered in favor of plaintiff and against defendants/Gaytano


spouses, ordering the latter to jointly and severally pay the plaintiff.

7. CA’s judgment is hereby rendered ordering the defendants Gaytano spouses and
alternative defendant BA Finance Corporation, jointly and severally, to pay the plaintiff
the amount of P85, 807.25 as of September 8, 1987, including interests, penalties and
other back charges thereon, until the full obligation shall have been fully paid.

ISSUE:

Whether or not Wong, the credit administrator authorized to bind petitioner in a


contract of guaranty with third persons.

HELD:

NO. Petitioner contends that the letter guaranty is ultra vires, and therefore
unenforceable; that said letter-guaranty was issued by an employee of petitioner corporation
beyond the scope of his authority since the petitioner itself is not even empowered by its
articles of incorporation and by-laws to issue guaranties. Petitioner also submits that it is not
guilty of estoppel to make it liable under the letter-guaranty because petitioner had no
knowledge or notice of such letter-guaranty; that the allegation of Philip Wong, credit
administrator, that there was an audit was not supported by evidence of any audit report or
record of such transaction in the office files.

It is a settled rule that persons dealing with an assumed agent, whether the assumed agency
be a general or special one are bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to establish it

Hence, the burden is on respondent bank to satisfactorily prove that the credit administrator
with whom they transacted acted within the authority given to him by his principal, petitioner
corporation. The only evidence presented by respondent bank was the testimony of Philip
Wong, credit administrator, who testified that he had authority to issue guarantees as can be
deduced from the wording of the memorandum given to him by Petitioner Corporation on his
lending authority. The said memorandum which allegedly authorized Wong not only to
approve and grant loans but also to enter into contracts of guaranty in behalf of the
corporation.

Although Wong was clearly authorized to approve loans even up to F350, 000.00 without any
security requirement, which is far above the amount subject of the guaranty in the amount of
P60,000.00, nothing in the said memorandum expressly vests on the credit administrator
power to issue guarantees. We cannot agree with respondent’s contention that the phrase
"contingent commitment" set forth in the memorandum means guarantees. It has been held
that a power of attorney or authority of an agent should not be inferred from the use of vague
or general words. Guaranty is not presumed; it must be expressed and cannot be extended
beyond its specified limits.

The representation of one who acts as agent cannot by itself serve as proof of his authority to
act as agent or of the extent of his authority as agent. Wong’s testimony that he had entered
into similar transactions of guaranty in the past for and in behalf of the petitioner, lacks
credence due to his failure to show documents or records of the alleged past transactions. The
actuation of Wong in claiming and testifying that he has the authority is understandable. He
would naturally take steps to save himself from personal liability for damages to respondent
bank considering that he had exceeded his authority.

Anent the conclusion of respondent appellate court that petitioner is estopped from alleging
lack of authority due to its failure to cancel or disallow the guaranty, we find that the said
conclusion has no basis in fact. Respondent bank had not shown any evidence aside from the
testimony of the credit administrator that the disputed transaction of guaranty was in fact
entered into the official records or files of Petitioner Corporation, which will show notice or
knowledge on the latter’s part and its consequent ratification of the said transaction. In the
absence of clear proof, it would be unfair to hold Petitioner Corporation guilty of estoppel in
allowing its credit administrator to act as though the latter had power to guarantee.
NAPOCOR v. NATIONAL MERCHANDISING Corp.

Principle:

The agent who exceeds the limits of his authority without giving the party with whom
he contracts sufficient notice of his powers is personally liable to such party.

Facts:

Plaintiff-appellant National Power Corporation (NPC) and defendant- appellant


National Merchandising Corporation (NAMERCO), the Philippine representative of New York-
based International Commodities Corporation, executed a contract of sale of sulfur with a
stipulation for liquidated damages in case of breach.

Defendant-appellant Domestic Insurance Company executed a performance bond in


favor of NPC to guarantee the seller's obligation. In entering into the contract, Namerco,
however, did not disclose to NPC that Namerco's principal, in a cabled instruction, stated that
the sale was subject to availability of a steamer, and contrary to its principal's instruction,
Namerco agreed that non-availability of a steamer was not a justification for non-payment of
liquidated damages.

The New York supplier was not able to deliver the sulfur due to its inability to secure
shipping space. Consequently, the Government Corporate Counsel rescinded the contract of
sale due to the supplier's non-performance of its obligations, and demanded payment of
liquidated damages from both Namerco and the surety. Thereafter, NPC sued for recovery of
the stipulated liquidated damages. After trial, the Court of First Instance rendered judgment
ordering defendants-appellants to pay solidarity to the NPC reduced liquidated damages with
interest.

ISSUE:

Whether NaMerCo exceeded their authority

HELD:

Yes, NaMerCo exceeded their authority.

The Supreme Court held that before the contract of sale was signed Namerco was
already aware that its principal was having difficulties in booking shipping space.

It is being enforced against the agent because article 1897 implies that the agent who
acts in excess of his authority is personally liable to the party with whom he contracted.
Moreover, the rule is complemented by article 1898 of the Civil Code which provides
that "if the agent contracts in the name of the principal, exceeding the scope of his authority,
and the principal does not ratify the contract, it shall be void if the party with whom the agent
contracted is aware of the limits of the powers granted by the principal".

Namerco never disclosed to the Napocor the cabled or written instructions of its
principal. For that reason and because Namerco exceeded the limits of its authority, it virtually
acted in its own name and not as agent and it is, therefore, bound by the contract of sale
which, however, is not enforceable against its principal.

APEX MINING CO., INC. vs. SOUTHEAST MINDANAO GOLD MINING CORP., G.R. Nos.
152613 & 152628 June 23, 2006

Topic: Concept of Agency

Principle: For a contract of agency to exist, it is essential that the principal consents that
the other party, the agent, shall act on its behalf, and the agent consents so as to act.

-not considered agent but as assignee

Facts:

Marcopper Mining Corporation (MMC) filed mining claims for areas adjacent to the area
covered by the mining claims of Banad and his group.

MMC filed Exploration Permit Application with the Bureau of Mines and Geo-Sciences (BMG),
and the BMG issued to MCC Exploration Permit No. 133 (EP 133). MMC filed a petition for
cancellation of mining claims of Apex and Small Scale Mining permits. BMG dismissed MMC’s
petition on the ground that the area covered by the Apex mining claims and MMC’s permit to
explore was not a forest reservation. It further declared null and void MMC’s EP 133 and
sustained the validity of Apex mining claims over the disputed area.

On appeal, the DENR reversed the decision of BMG and declared MMC’s EP 133 valid and
subsisting.
MMC assigned EP 133 to Southeast Mindanao Gold Mining Corporation (SEM), a domestic
corporation which is alleged to be a 100% -owned subsidiary of MMC.

SME filed an MPSA application under EP 133. BMG accepted and registered SEM’s MPSA
application and the Deed of Assignment over EP 133 executed in its favor by MMC. Apex
questions the validity of MMC’s EP 133 and its subsequent transfer to SME asserting that MMC
failed to comply with the terms and conditions in its exploration permit, thus, MMC and its
successor-in-interest SEM lost their rights in the Diwalwal Gold Rush Area. Apex pointed out
that MMC violated four conditions in its permit.

Similarly, the Mines Adjudication Board (MAB) underscores that SEM did not acquire any right
from MMC by virtue of the transfer of EP 133 because the transfer directly violates the express
condition of the exploration permit stating that "it shall be for the exclusive use and benefit of
the permittee or his duly authorized agents." According to the MAB, the assignment by MMC
of EP 133 in favor of SEM did not make the latter the duly authorized agent of MMC since the
concept of an agent under EP 133 is not equivalent to the concept of assignee.

Issue:

Whether or not the assignment of EP 133 was valid.

Ruling:

No. Condition number 6 of EP 133 categorically states that the permit shall be for the exclusive
use and benefit of MMC or its duly authorized agents. While it may be true that SEM, the
assignee of EP 133, is a 100% subsidiary corporation of MMC, records are bereft of any
evidence showing that the former is the duly authorized agent of the latter. For a contract of
agency to exist, it is essential that the principal consents that the other party, the agent, shall
act on its behalf, and the agent consents so as to act.

It is incumbent upon either MMC or SEM to prove that a contract of agency actually exists
between them so as to allow SEM to use and benefit from EP 133 as the agent of MMC. SEM
did not claim nor submit proof that it is the designated agent of MMC to represent the latter in
its business dealings or undertakings.
SEM cannot, therefore, be considered as an agent of MMC which can use EP 133 and benefit
from it. Since SEM is not an authorized agent of MMC, it goes without saying that the
assignment or transfer of the permit in favor of SEM is null and void as it directly contravenes
the terms and conditions of the grant of EP 133.

Furthermore, the concept of agency is distinct from assignment. In agency, the agent acts not
on his own behalf but on behalf of his principal. While in assignment, there is total transfer or
relinquishment of right by the assignor to the assignee The assignee takes the place of the
assignor and is no longer bound to the latter.

The Court did not lend recognition to the Court of Appeals’ theory that SEM, being a 100%
subsidiary of MMC, is automatically an agent of MMC. A corporation is an artificial being
created by operation of law, having the right of succession and the powers, attributes, and
properties expressly authorized by law or incident to its existence.36 It is an artificial being
invested by law with a personality separate and distinct from those of the persons composing
it as well as from that of any other legal entity to which it may be related. Resultantly, absent
any clear proof to the contrary, SEM is a separate and distinct entity from MMC.

Bacaltos Coal Mines v. CA G.R. No. 114091 June 29, 1995


G.R. No. 114091 June 29, 1995

Principal not liable

Principle:
Whether the agency is general or special, the third person is bound to ascertain not only
the fact of agency, but the nature and extent of the authority. The principal, on the other hand,
may act on the presumption that third persons dealing with his agent will not be negligent in
failing to ascertain the extent of his authority as well as the existence of his agency.

Facts:
In an authorization, petitioner Bacaltos authorized Savellon, to use the coal operating
contract of Bacaltos Coal Mine of which he is the proprietor. For any legitimate purposes that it
may serve and particularly (1) to acquire purchase orders; (2) to engage in trading; (3) to collect
all receivables due or in arrears; (4) to extend to any person or company by substitution the
same extent authority that is granted to Rene Savellon; (5) in connection with the preceding
paragraphs, to execute and sign documents, contracts, and other pertinent papers.

A Charter Trip Party was executed between Bacaltos Coal Mines represented by
Savellon and San Miguel Corporation. The agreement was that for P650,000.00 to be paid in
seven (7) days after the execution of the contract, it “lets, demise” the vessel to charter San
Miguel Corporation for three (3) round trips to Davao. The vessel was able to make for only one
trip prompting San Miguel to file for specific performance.

Petitioner alleged that was not their Chief Operating Officer and that the powers
granted to him are only those clearly expressed in the Authorization which do not include the
power to enter into any contract with San Miguel.

ISSUE: Whether or not Savellon was duly authorized by Bacaltos Coal Mines to enter into a
Trip Charter Party.

HELD
No. The broadest scope of Savellon1s authority is limited to the use of the coal
operating contract and the clause cannot contemplate any other power not included in the
enumeration or which are unrelated either to the power to use the coal operating contract or
to those already enumerated. In short, while the clause allows some room for flexibility , it can
comprehend only additional prerogatives falling within the primary power and within the same
class as those enumerated.
There is no evidence at all that Bacaltos Coal Mines as a coal mining company owns and
operates vessels, and even if it owned any such vessels, that it was allowed to charter or lease
them. Also, the authorization is not a general power of attorney. It is aspecial power of
attorney for it refers to a clear mandate specially authorizing theperformance of a specific
power and of express acts subsumed therein.
Furthermore, had SMC exercised due diligence and prudence, it should have known in
no time that there is absolutely nothing on the face of the Authorization that confers upon
Savellon the authority to enter into any Trip Charter Party. Its conclusion to the contrary is
based solely on the second prerogative under the Authorization, to wit:

(2) To engage in trading under the style of BACALTOS COAL MINES/RENE


SAVELLON;
Having thus found that SMC was the author of its own damage and that the petitioners
are, therefore, free from any liability, it has become unnecessary to discuss the issue of
whether Bacaltos Coal Mines is a corporation with a personality distinct and separate from
German Bacaltos.

WHEREFORE, the instant petition is GRANTED and the challenged decision of 30


September 1993 of the Court of Appeals in CA-G.R. CV No. 35180 is hereby REVERSED and
SET ASIDE and another judgment is hereby rendered MODIFYING the judgment of the
Regional Trial Court of Cebu, Branch 9, in Civil Case No. CEB-8187 by setting aside the
declaration of solidary liability, holding defendant RENE R. SAVELLON solely liable for the
amounts adjudged, and ordering the dismissal of the case as against herein petitioners.

Barreto v. Santa Marina G.R. 8169 December 29, 1913

ADORACION LUSTAN vs. COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD


PARANGAN, PHILIPPINE NATIONAL BANK
G.R. No. 111924 January 27, 1997

Principle: There is no valid revocation and the SPA continues to have force and effect as
against third persons who had no knowledge of such lack of authority.

AdoracionLustan is the registered owner of a lot covered by TCT No. T-561, which she leased
to private respondent Nicolas Parangan for a term of ten (10) years for an annual rent of One
Thousand (P1,000.00) Pesos. During the period of lease, Parangan was regularly extending
loans in small amounts to Lustan.

In1970, Lustan executed a Special Power of Attorney in favor of Parangan to secure an


agricultural loan from private respondent Philippine National Bank (PNB) with the aforesaid lot
as collateral. In 1972, a second Special Power of Attorney was executed by Lustan, by virtue of
which, Parangan was able to secure four (4) additional loans, to wit: the sums of P24,000.00
(1975), P38,000.00 (1976), P38,600.00 (1979) and P25,000.00 (1980), with which the last 3 were
without the knowledge of Lustan and all the proceeds went to Parangan. These encumbrances
were duly annotated on the certificate of title.

In 1973, Lustan signed a Deed of Pacto de Retro Sale in favor of Parangan which was
superseded by the Deed of Definite Sale dated May 4, 1979 which petitioner signed upon
Parangan's representation that the same merely evidences the loans extended by him unto the
former.

For fear that her property might be prejudiced by the continued borrowing of Parangan,
Lustan demanded the return of her certificate of title, which were not complied with by
Parangan. Instead, Parangan asserted his rights over the property which allegedly had
become his by virtue of the aforementioned Deed of Definite Sale.

Under said document, Lustan conveyed the subject property and all the improvements
thereon unto Parangan absolutely for and in consideration of the sum of Seventy Five
Thousand (P75,000.00) Pesos.

Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of
possession and damages against Parangan and PNB in the Regional Trial Court (RTC). The
RTC rendered judgment in favor of Lustan. Upon appeal, the Court of Appeals (CA), reversed
RTC's decision.

Main Issue:

Whether or not the SPA will have force and effect when Lustan argued that the last 3 of the
five loans were without Lustan’s authority and were made by Parangan for his own benefit

Ruling:

The contract of agency between Lustan and Parangan stands. So long as valid consent
(through the SPA) was given, the fact that the loans were solely for the benefit of Parangan
would not invalidate the mortgage with respect to Lustan's property. Lustan owns the lot
mortgaged to PNB on five (5) occasions by virtue of the Special Powers of Attorney executed
by Lustan in favor of Parangan. Article 1873 provides that if a person specially informs another
or states by public advertisement that he has given a power of attorney to a third person, the
latter thereby becomes a duly authorized agent, in the former case with respect to the person
who received the special information, and in the latter case with respect to any person. The
power shall continue to be in full force until the notice is rescinded in the same manner as it
was given.
Lustan’s argument that the last three mortgages were void for lack of authority does not hold
water for she totally failed to consider that said Special Powers of Attorney are a continuing
one. There was no valid revocation which was duly furnished to the PNB, the SPA continues to
have force and effect as against third persons (in this case, PNB) who had no knowledge of
such lack of authority.

Article 1921 of the Civil Code provides that, if the agency has been entrusted for the purpose of
contracting with specified persons, its revocation shall not prejudice the latter if they were not
given notice thereof. The Special Power of Attorney executed by Lustan in favor of Parangan
duly authorized the latter to represent and act on behalf of the Lustan. The SPA clothed
Parangan with authority to deal with PNB on Lustan’s behalf and in the absence of any proof
that the bank had knowledge that the last three loans were without the express authority of
petitioner, it cannot be prejudiced thereby.

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

The Special Power of Attorney particularly provides that the same is good not only for the
principal loan but also for subsequent commercial, industrial, agricultural loan or credit
accommodation that the attorney-in-fact may obtain and until the power of attorney is
revoked in a public instrument and a copy of which is furnished to PNB.

Art 1911 provides that, even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as though he had full
powers. The mortgage directly and immediately subjects the Lustan’s property upon which it
is imposed.

The property of third persons which has been expressly mortgaged to guarantee an obligation
to which the said persons are foreign, is directly and jointly liable for the fulfillment thereof; it
is therefore subject to execution and sale for the purpose of paying the amount of the debt for
which it is liable.

The property shall nevertheless secure and respond for the performance of the principal
obligation.
However, petitioner has an unquestionable right to demand proportional indemnification from
Parangan with respect to the sum paid to PNB from the proceeds of the sale of her property in
case the same is sold to satisfy the unpaid debts.

The RTC decision was reinstated with the following modifications:


1. Declaring the deed of definite sale as an equitable mortgage;
2. Ordering Parangan to return the possession of the subject land unto Lustan upon the
Lustan's payment of the sum of P75,000.00 within ninety (90) days from receipt of this
decision;
3. Declaring the mortgages in favor of PNB as valid and subsisting and may therefore be
subjected to execution sale.
4. Ordering Parangan to pay Lustan the amount of p15,000.00 by way of attorney's fees and to
pay the costs of the suit.

CMS LOGGING, INC., PETITIONER, VS. THE COURT OF APPEALS AND D.R.
AGUINALDOCORPORATION, RESPONDENTS.
G.R. No. L-41420, July 10, 1992

Breach of contract,

Principle:
The principal may revoke a contract of agency at will, and such revocation may be express, or
implied, and may be availed of even if the period fixed in the contract of agency as not yet
expired. As the principal has this absolute right to revoke the agency, the agent can not object
thereto; neither may he claim damages arising from such revocation, unless it is shown that
such was done in order to evade the payment of agent's commission.

Facts:
Petitioner CMS is a forest concessionaire engaged in the logging business, while private
respondent DRACOR is engaged in the business of exporting and selling logs and lumber. CMS
and DRACOR entered into a contract of agency whereby the former appointed the latter as its
exclusive export and sales agent for all logs that the former may produce, for a period of five
(5) years. The pertinent portions of the agreement, which was drawn up by DRACOR, are as
follows:

"1. - SISON [CMS] hereby appoints DRACOR as his sole and exclusive export sales agent with
full authority, subject to the conditions and limitations hereinafter set forth, to sell and export
under a firm sales contract acceptable to SISON, all logs produced by SISON for a period of five
(5) years commencing upon the execution of the agreement and upon the terms and
conditions hereinafter provided and DRACOR hereby accepts such appointment;

x xx

"3. It is expressly agreed that DRACOR shall handle exclusively all negotiations of all export
sales of SISON with the buyers and arrange the procurement and schedules of the vessel or
vessels for the shipment of SISON's logs in accordance with SISON's written requests, but
DRACOR shall not in anyway [sic] be liable or responsible for any delay, default or failure of the
vessel or vessels to comply with the schedules agreed upon;

x xx

"9. It is expressly agreed by the parties hereto that DRACOR shall receive five (5%) per cent
commission of the gross sales of logs of SISON based on F.O.B. invoice value which
commission shall be deducted from the proceeds of any and/or all moneys received by
DRACOR for and in behalf and for the account of SISION;"

By virtue of the aforesaid agreement, CMS was able to sell through DRACOR a total of
77,264,672 board feet of logs in Japan.

About six months prior to the expiration of the agreement, while on a trip to Tokyo, Japan,
CMS's president, Atty. Carlos Moran Sison, and general manager and legal counsel, Atty.
Teodoro R. Dominguez, discovered that DRACOR had used Shinko Trading Co., Ltd. (Shinko
for brevity) as agent, representative or liaison officer in selling CMS's logs in Japan for which
Shinko earned a commission of U.S. $1.00 per 1,000 board feet from the buyer of the logs.
Under this arrangement, Shinko was able to collect a total of U.S. $77,264.67.

CMS claimed that this commission paid to Shinko was in violation of the agreement and that it
(CMS) is entitled to this amount as part of the proceeds of the sale of the logs. CMS contended
that since DRACOR had been paid the 5% commission under the agreement, it is no longer
entitled to the additional commission paid to Shinko as this tantamount to DRACOR receiving
double compensation for the services it rendered.

After this discovery, CMS sold and shipped logs valued at U.S. $739,321.13 or P2,883,351.90,
directly to several firms in Japan without the aid or intervention of DRACOR.

CMS sued DRACOR for the commission received by Shinko and for moral and exemplary
damages, while DRACOR counterclaimed for its commission, amounting to P144,167.59, from
the sales made by CMS of logs to Japanese firms. In its reply, CMS averred as a defense to the
counterclaim that DRACOR had retained the sum of P101.167.59 as part of its commission for
the sales made by CMS. Thus, as its counterclaim to DRACOR's counterclaim, CMS demanded
DRACOR return the amount it unlawfully retained. DRACOR later filed an amended
counterclaim, alleging that the balance of its commission on the sales made by CMS was
P42,630.82, thus impliedly admitting that it retained the amount alleged by CMS.

Issue:
Whether or not DRACOR was entitled to its commission from the sales made by CMS to
Japanese firms.

Held:
The principal may revoke a contract of agency at will, and such revocation may be express, or
implied, and may be availed of even if the period fixed in the contract of agency as not yet
expired. As the principal has this absolute right to revoke the agency, the agent can not object
thereto; neither may he claim damages arising from such revocation, unless it is shown that
such was done in order to evade the payment of agent's commission.

In the case at bar, CMS appointed DRACOR as its agent for the sale of its logs to Japanese
firms. Yet, during the existence of the contract of agency, DRACOR admitted that CMS sold its
logs directly to several Japanese firms. This act constituted an implied revocation of the
contract of agency under Article 1924 of the Civil Code, which provides:

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

In New Manila Lumber Company, Inc. vs. Republic of the Philippines, this Court ruled that the
act of a contractor, who, after executing powers of attorney in favor of another empowering
the latter to collect whatever amounts may be due to him from the Government, and
thereafter demanded and collected from the government the money the collection of which he
entrusted to his attorney-in-fact, constituted revocation of the agency in favor of the attorney-
in-fact.

Since the contract of agency was revoked by CMS when its sold its logs to Japanese firms
without the intervention of DRACOR, the latter is no longer entitled to its commission from
the proceeds of such sale and is not entitled to retain whatever moneys it may have received as
its commission for said transactions. Neither would DRACOR be entitled to collect damages
from CMS, since damages are generally not awarded to the agent for the revocation of the
agency, and the case at bar is not one falling under the exception mentioned, which is to evade
the payment of the agent's commission.

Regarding CMS's contention that the Court of Appeals erred in not finding that DRACOR had
committed acts of fraud and bad faith, We find the same unmeritorious. Like the contention
involving Shinko and the questioned commissions, the findings of the Court of Appeals on the
matter were based on its appreciation of the evidence, and these findings are binding on this
Court.

In fine, We affirm the ruling of the Court of Appeals that there is no evidence to support CMS's
contention that Shinko earned a separate commission of U.S. $1.00 for every 1,000 board feet
of logs from the buyer of CMS's logs. However, We reverse the ruling of the Court of Appeals
with regard to DRACOR's right to retain the amount of P101,536.77 as part of its commission
from the sale of logs by CMS, and hold that DRACOR has no right to its commission.
Consequently, DRACOR is hereby ordered to remit to CMS the amount of P101,536.77.

WHEREFORE, the decision appealed from is hereby MODIFIED as stated in the preceding
paragraph. Costs de officio.
Sanchez vs. Medicard Phil. Inc.

There is breach of contract

FACTS:

Sometime in 1987 Medicard Inc. appointed petitioner Sanchez as its special corporate
agent and they gave him a commission based on the "cash brought in." In 1988, through
petitioner's efforts, Medicard and Unilab executed a Health Care Program Contract. Unilab
paid Medicard P4,148,005.00 representing the premium for one (1) year. Medicard then
handed petitioner 18% of said amount or P746,640.90 representing his commission. Again,
through petitioner's initiative, the agency contract between Medicard and Unilab was renewed
for another year. Prior to the expiration of the renewed contract, Medicard proposed an
increase of the premium which Unilab rejected "for the reason that it was too high,". In a letter
dated October 3, 1990, Unilab confirmed its decision not to renew the health program.
Meanwhile, in order not to prejudice its personnel by the termination of their health insurance,
Unilab negotiated with Dr. Montoya and other officers of Medicard, to discuss new ways in
order to continue the insurance coverage. Under the new scheme, Unilab shall pay Medicard
only the amount corresponding to the actual hospitalization expenses incurred by each
personnel plus 15% service fee. Medicard did not give petitioner any commission under the
new scheme. Aggrieved, Petitioner demanded from Medicard payment of P338,000.00 as his
commission plus damages, but the latter refused to heed his demand.

ISSUE:

Whether or not the contract of agency has been revoked by Medicard, hence, petitioner
is not entitled to a commission.

HELD:

Yes the Contract of Agency has been revoked, thus the petitioner is not entitled to any
commission. It is dictum that in order for an agent to be entitled to a commission, he must be
the procuring cause of the sale, which simply means that the measures employed by him and
the efforts he exerted must result in a sale. Based on the facts, it may be recalled that through
petitioner's efforts, Medicard was able to enter into a Contract with Unilab, two times,
However before the expiration of the renewed contract, Unilab rejected the proposal.
Medicard then requested petitioner to reduce his commission should the contract be renewed
on its third year, but he was obstinate. It is clear that since petitioner refused to reduce his
commission, Medicard directly negotiated with Unilab, thus revoking its agency contract with
petitioner. Such revocation is authorized by Article 1924 of the Civil Code which provides: "The
agency is revoked if the principal directly manages the business entrusted to the agent, dealing
directly with third persons."

Moreover, as found by the lower courts, petitioner did not render services to Medicard,
his principal, to entitle him to a commission. There is no indication from the records that he
exerted any effort in order that Unilab and Medicard, after the expiration of the Health Care
Program Contract, can renew it for the third time. In fact, his refusal to reduce his commission
constrained Medicard to negotiate directly with Unilab. We find no reason in law or in equity to
rule that he is entitled to a commission.

EULOGIO DEL ROSARIO, ET AL. vs. PRIMITIVO ABAD, ET AL.


G.R. No. L-10881, September 30, 1958, En Banc

PRINCIPLE/S:

 A mere statement in the power of attorney that it is coupled with an interest is not
enough to create an agency coupled with an interest. In what does such interest consist
must be stated in the power of attorney.
 As the agency was not coupled with an interest, it was terminated upon the death of
the principal.

FACTS:

Principal ---- Tiburciodel Rosario


Agent ---- Primitivo Abad
Vendee ---- Teodorico Abad, son of Primitivo

In 1936, the Secretary of Agriculture issued a homestead patent over a parcel of land to
Tiburciodel Rosario, and was issued by the Registrar of Deeds OCT No. 4820.

As security of a P 2,000 loan obtained from Primitivo Abad, Tiburciodel Rosario mortgaged the
improvements of the parcel of land in favor of Primitivo Abad. On 24 February 1937, the
mortgagor executed an "irrevocable special power of attorney coupled with interest" in favor
of the Primitivo Abad, authorizing him, among others, to sell and convey the parcel of land.

In December 1945, the mortgagor died leaving the mortgage debt unpaid. On 9 June 1947,
Primitivo Abad, acting as attorney-in-fact of Tiburciodel Rosario, sold the parcel of land to his
son Teodorico Abad. The Registrar of Deeds cancelled OCT No. 4820 in the name of
Tiburciodel Rosario and in lieu thereof issued TCT No. 1882 in favor of the vendee Teodorico
Abad.

On 29 December 1952 the plaintiffs Eulogiodel Rosario, et al. brought suit against the
defendants Primitivo Abad, et al. to recover possession and ownership of the parcel of land.

On 25 October 1954, the lower court rendered judgment declaring the deed of sale executed
by Primitivo Abad in favor of Teodorica Abad null and void, and ordering Teodorico Abad to
reconvey the land in favor of the plaintiffs Eulogiodel Rosario, et al.

The defendants appealed to the Court of Appeals, which certified the case to this Court as no
question of fact is involved.

ISSUE/S:

1. Whether or not a mere statement in the power of attorney that it is coupled with an
interest is not enough to create an agency coupled with an interest; and
2. Assuming the power of attorney is valid, whether the power of attorney is in violation
of the law that prohibits the alienation or encumbrance of land acquired by homestead
within five years from the date of the approval of the application for homestead patent.

RULING:

Section 116 of the Public Land Act (Act No. 2874), under which the homestead was granted
provides:
Lands acquired under the free patent or homestead provisions shall not be subject to
encumbrance or alienation from the date of the approval of the application and for a
term of five years from and after the date of the issuance of the patent or grant, nor
shall they become liable to the satisfaction of any debt contracted prior to the
expiration of said period; but the improvements or crops on the land may be
mortgaged or pledged to qualified persons, associations, or corporations.

The encumbrance or alienation of lands acquired by free patent or homestead in violation of


this section is null and void.

There is no question that the mortgage on the improvements of the parcel of land executed by
Tiburciodel Rosario in favor of Primitivo Abad is valid.

The power of attorney executed by Tiburciodel Rosario in favor of Primitivo Abad providing,
among others, that is coupled with an interest in the subject matter thereof in favor of the said
attorney and are therefore irrevocable does not create an agency coupled with an interest nor
does it clothe the agency with an irrevocable character. A mere statement in the power of
attorney that it is coupled with an interest is not enough. In what does such interest consist
must be stated in the power of attorney. The fact that Tiburciodel Rosario, the principal, had
mortgaged the improvements of the parcel of land to Primitivo Abad, the agent, is not such an
interest as could render irrevocable the power of attorney. In fact no mention of it is made in
the power of attorney. The mortgage on the improvements of the parcel of land has nothing to
do with the power of attorney and may be foreclosed by the mortgagee upon failure of the
mortgagor to comply with his obligation. As the agency was not coupled with an interest, it
was terminated upon the death of Tiburciodel Rosario, the principal, sometime in December
1945, and Primitivo Abad, the agent, could no longer validly convey the parcel of land to
Teodorico Abad on 9 June 1947. The sale, therefore, to the later was null and void.

But granting that the irrevocable power of attorney was lawful and valid it would subject the
parcel of land to an encumbrance. As the homestead patent was issued on 12 December 1936
and the power of attorney was executed on 24 February 1937, it was in violation of the law that
prohibits the alienation or encumbrance of land acquired by homestead from the date of the
approval of the application and for a term of five years from and after the issuance of the
patent or grant.

Vicente Coleongco v. Eduardo Claparols


G.R. No. L-18616. March 31, 1964

PRINCIPLE

A power of attorney although coupled with interest in a partnership can be revoked for
a just cause, such as when the attorney-in-fact betrays the interest of the principal as
happened in the caseat bar.

FACTS

Since 1951, Claparols operated a factory for themanufacture of nails in Talisay,


Occidental Negros, under the style of "Claparols Steel &Nail Plant". The raw material, nail wire,
was imported from foreign sources and the marketing of the nails was handled by another
company owned by a chinaman named Kho To.

Losses compelled Claparols in 1953 to look for someone to finance his imports of nail
wire. At first, Kho Toagreed to do the financing, but later on, the chinaman introduced his
compadre, Coleongco, to the Claparols, recommending the former to be the financier instead
of Kho To. Both parties come to an agreement and thereafter, a contracted was perfected.

Around mid-November of 1956, Claparols was disagreeably surprised by service of an


alias writ of execution to enforce a judgment obtained against him by the Philippine National
Bank, despite the fact that on the preceding September he had submitted an amortization
plan to settle the account. Worried and alarmed, Claparols immediately left for Manila to
confer with the bank authorities. Upon arrival, he learned to his dismay that the execution had
been procured because of derogatory information against him that had reached the bank from
his associate, Coleongco. He further discovered a number of acts of disloyalty committed by
Coleongco.

Thus, Claparols consequently revoked the power of attorney, and informed Coleongco
by registered mail, demanding a full accounting at the same time. Coleongco protested.
Claparols requested external auditors, and the examination showed that Coleongco owed the
Claparols Nail Factory the amount of P87,387.37, as of June 30, 1957. Coleongcofield a suit
against Claparols charging breach of contract asking for accounting plus damages.

The RTC rendered a decision dismissing the action for damages and order him to pay
Claparols P81,387.27 as per audit as adjusted plus damages.

ISSUES

1. Whether the contract of agency between Claparols and Coleongco was one coupled with
interest.
2. Whether a Special Power of Attorney can be revoked by Claparols even if it was not coupled
with interest.

Ruling

1. NO. The financing agreement itself already contained clauses for the protection of
appellant's interest, and did not call for the execution of any power of attorney in favor of
Coleongco.

2. YES. It must not be forgotten that a power of attorney can be made irrevocable by contract
only in the sense that the principal may not recall it at his pleasure; but coupled with interest or
not, the authority certainly can be revoked for a just cause, such as when the attorney- in-fact
betrays the interest of the principal, as happened in this case. It is not open to serious doubt
that the irrevocability of the power of attorney may not be used to shield the perpetration of
acts in bad faith, breach of confidence, or betrayal of trust, by the agent, for that would
amount to holding that a power, coupled with an interest authorizes the agent to commit
frauds against the principal.

Our new Civil Code, in Article 1172, expressly provides the contrary in prescribing that
responsibility arising from fraud is demandable in all obligations, and that any waiver of action
for future fraud is void. It is also on this principle that the Civil Code, in its Article 1800, declares
that the powers of a partner, appointed as manager, in the articles of copartnership are
irrevocable without just or lawful cause; and an agent with power coupled with an interest
cannot stand on better ground than such a partner in so far as irrevocability of the power is
concerned.

Coleongco acted in bad faith towards his principal Claparols is, on the record, unquestionable.
The facts mentioned acts of deliberate sabotage by the agent that fully justified the revocation
of the power of attorney.

No error was, therefore, committed by the trial court in declaring the financing contract
properly resolved by Claparols or in rendering judgment against appellant in favor of appellee
for the said amount of P81,387.37. The basic rule of contracts requires parties to act loyally
toward each other, in the pursuit of the common end, and Coleongco clearly violated the rule
of good faith prescribed by Art. 1315 of the new Civil Code.

Lim v. Saban G.R. No. 163720 December 16, 2004


Not coupled with interest. the

VALENZUELA VS CA
GR NO. 83122; OCTOBER 19,1990
DIGESTED BY: REDEN JALYN V. PARACUELLES

PRINCIPLE:
There is an exception to the principle that an agency is revocable at will and that is
when the agency has been given not only for the interest of the principal but also for the
mutual interest of the principal and the agent. The principal may not defeat the agent's right to
indemnification by a termination of the contract of agency. Also, if a principal violates a
contractual or quasi-contractual duty which he owes his agent, the agent may as a rule bring
an appropriate action for the breach of that duty.

FACTS:
Arturo Valenzuela [Valenzuela] is a general agent of Philippine American General
Insurance Company [Philamgen] since 1965. As such, he was authorized to solicit and sell in
behalf of Philamgen all kinds of non-life insurance, and in consideration of services rendered
was entitled to receive the full agent's commission of 32.5% from Philamgen. From 1973 to
1975, Valenzuela solicited marine insurance from Delta Motors. However, Valenzuela did not
receive his full commission.
In 1977, Philamgen started to become interested in and expressed its intent to share in
the commission due Valenzuela on a 50-50 basis, but he refused. In 1978, Philamgen and its
President [Aragon] insisted on the sharing of the commission with Valenzuela, but he firmly
reiterated his objection to the proposals. Because of the refusal of Valenzuela, Philamgen and
its officers took drastic action. They reversed the commission due him by not crediting in his
account the commission earned from the Delta Motors insurance, placed agency transactions
on a cash and carry basis, threatened the cancellation of policies issued by his agency, and
started to leak out news that Valenzuela has a substantial account with Philamgen. This
resulted in the decline of his business as insurance agent. Philamgen terminated the General
Agency Agreement of Valenzuela in December 1978.
Valenzuela filed a complaint against Philamgen, and the RTC ruled in his favor, as his
termination was found to be unjustified. However, the CA ruled in favor of Philamgen, as CA
ordered Valenzuela to pay Philamgen the amount corresponding to the unpaid and
uncollected premiums.

ISSUE:
Whether or not Philamgen can be held liable for damages due to the termination of the
General Agency Agreement it entered into with Valenzuela.

RULING:
YES. Records show that the agency is one "coupled with an interest," and, therefore,
should not be freely revocable at the unilateral will of the company. The respondents cannot
state that the agency relationship between Valenzuela and Philamgen is not coupled with
interest.
There is an exception to the principle that an agency is revocable at will and that is when the
agency has been given not only for the interest of the principal but also for the mutual interest
of the principal and the agent. The principal may not defeat the agent's right to
indemnification by a termination of the contract of agency. Also, if a principal violates a
contractual or quasi-contractual duty which he owes his agent, the agent may as a rule bring
an appropriate action for the breach of that duty.
Hence, if a principal acts in bad faith and with abuse of right in terminating the agency, then he
is liable in damages. The Civil Code says that "every person must in the exercise of his rights
and in the performance of his duties act with justice, give every one his due, and observe
honesty and good faith: (Art. 19, Civil Code), and every person who, contrary to law, wilfully or
negligently causes damages to another, shall indemnify the latter for the same (Art. 20, Civil
Code).
Philamgen has been appropriating for itself all these years the gross billings and income that it
took away from the petitioners. A principal can be held liable for damages in cases of unjust
termination of agency. This Court ruled that where no time for the continuance of the contract
is fixed by its terms, either party is at liberty to terminate it at will, subject only to the ordinary
requirements of good faith. The right of the principal to terminate his authority is absolute and
unrestricted, except only that he may not do so in bad faith.

The circumstances of the case, however, require that the contractual relationship between the
parties shall be terminated upon the satisfaction of the judgment. No more claims arising from
or as a result of the agency shall be entertained by the courts after that date.

B. Withdrawal--- Article 1928


Case:

VALERA V. VELASCO, G.R. NO. L-28050, MARCH 13, 1928

Principle/s:
The fact that an agent institutes an action against his principal for the recovery of the
balance in his favor resulting from the liquidation of the accounts between them arising from
the agency, and renders and final account of his operations, is equivalent to an express
renunciation of the agency, and terminates the juridical relation between them.

The disagreements between an agent and his principal with respect to the agency, and
the filing of a civil action by the former against the latter for the collection of the balance in
favor of the agent, resulting from a liquidation of the agency accounts, are facts showing a
rupture of relations, and the complaint is equivalent to an express renunciation of the agency,
and is more expressive than if the agent had merely said, "I renounce the agency."

Facts:
Valera (principal) appointed Velasco (agent) as his attorney-in-fact, with authority to
manage the former’s property [usufruct of a real property in Manila – Echauge St., City of
Manila], by virtue of two powers of attorney. Velasco presented the final account of his
administration for March 31, 1923, and it appeared that there is a balance of P3, 000.00 in
Valera’s favor. Also, the liquidation of accounts revealed that Valera owed Velasco P1, 100.00
and as a misunderstanding arose between them, Velasco filed a case against Valera and
judgment was rendered in favor of Velasco.
A writ of execution was issued, and the sheriff levied upon Valera’s right of usufruct,
sold it at public auction. Valera sold his right of redemption for P200.00 to one Eduardo
Hernandez. Hernandez conveyed the same right of redemption back to Valera some months
later. After the Valera recovered his right of redemption, one Salvador Vallejo, who had an
execution upon a judgment against Valera, levied upon said right of redemption, which was
sold by the sheriff at public auction to Vallejo for P250.00 and was adjudicated to him. Later,
Vallejo transferred said right of redemption to Velasco. Hence, the latter had the title to the
right of usufruct to the property.

Issue: Whether or not the agency has been terminated.

Held: Yes, the agency has been terminated.

Article 1732 of the New Civil Code provides that agency is terminated: 1. By revocation;
2. By withdrawal of the agent; 3. By the death, interdiction, bankruptcy, or insolvency of the
principal or the agent.

Article 1736, on the other hand, provides that an agent may withdraw by giving notice
to principal. If principal suffer any damage, agent must indemnify him unless the agent’s
reason should be the impossibility of continuing to act as such without serious detriment to
himself.

The events that transpired between Valera and Velasco more than proved the breach of
the juridical relation between them; for, although the agent has not expressly told his principal
that he renounced the agency, yet neither dignity nor decorum permits the latter to continue
representing a person who has adopted such an antagonistic attitude towards him.

When the agent filed a complaint against his principal for recovery of a sum of money
arising from the liquidation of the accounts between them in connection with the agency,
principal could not have understood otherwise than that agent renounced the agency; because
his act was more expressive than words and could not have caused any doubt. In order to
terminate their relations by virtue of the agency the defendant, as agent, rendered his final
account on March 31, 1923 to the plaintiff, as principal.

Briefly, then, the fact that an agent institutes an action against his principal for the
recovery of the balance in his favor resulting from the liquidation of the accounts between
them arising from the agency, and renders and final account of his operations, is equivalent to
an express renunciation of the agency, and terminates the juridical relation between them.

Further, the conclusion is reached that the disagreements between an agent and his
principal with respect to the agency, and the filing of a civil action by the former against the
latter for the collection of the balance in favor of the agent, resulting from a liquidation of the
agency accounts, are facts showing a rupture of relations, and the complaint is equivalent to an
express renunciation of the agency, and is more expressive than if the agent had merely said, "I
renounce the agency."
C. Death/Civil Interdiction/Insanity/Insolvency of the Principal--- Article 1919
Case:

Rallos v. Felix Go Chan G.R. No. L-24332 January 31, 1978


G.R. No. L-24332, January 31, 1978

PRINCIPLE:"ART. 1919 of the Civil Code - Agency is extinguished:

1. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ..."

FACTS:
On April 21, 1954, a Special Power of Attorney was executed by sisters Concepcion and
Gerundia in favor of their brother Simeon for the sale of a parcel of land co-owned by the two.
On September 12, 1955, 6 months after Conception died, Simeon sold the undivided shares of
his sisters to herein respondent Felix Go Chan & Realty Corp. Petitioner Ramon Rallos,
administrator of the late Concepcion’s estate, prayed that the sale of the undivided share of
the deceased be invalidated and a new certificate be issued in the name of respondent
corporation and Concepcion’s intestate estate, plus damages. CFI ruled in favor of petitioner
and granted the payers but CA reversed the decision. Respondent’s MR was further denied.

ISSUE:
Whether the sale entered into by an agent is valid although executed after death of the
principal.

RULING:
No, the sale is void because Simeon’s authority as an agent of Concepcion was
extinguished upon her death.
Article 1317 provides that no one may contract in the name of another without being
authorized or unless he has, by law, a right to represent him. Article 1919 furthers that the
death of the principal terminates the agency.
The case at bar is also not among the exceptions whereby an agent’s acts bind the
principal even after the latter’s death because of Simeon’s knowledge of Concepcion’s death is
material. Hence, the sale was null and void.

1. Agency Coupled with an Interest


2. Contract between Agent without Knowledge and Third Person in Good Faith---
Article 1931 Rallos v. Felix Go Chan G.R. No. L-24332 January 31, 1978
VII. DISTINGUISHING AGENCY FROM OTHER CONTRACTS

JOCELYN B. DOLES vs. MA. AURA TINA ANGELES


G.R. No. 149353, June 26, 2006
Digested by: Adrian Martin L. Talaboc

Principle:

If an act done by one person in behalf of another is in its essential nature one of agency,
the former is the agent of the latter notwithstanding he or she is not so called.30 The question
is to be determined by the fact that one represents and is acting for another, and if relations
exist which will constitute an agency, it will be an agency whether the parties understood the
exact nature of the relation or not.

Facts:

Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific
Performance with Damages against Jocelyn B. Doles (petitioner). Angeles alleged that Doles
was indebted to the former in the concept of a personal loan by virtue of a Deed of Absolute
Sale of a parcel of land, as well as the improvements there-on. In order to satisfy her personal
loan with Angeles, said property was mortgaged to National Home Mort-gage Finance
Corporation (NHMFC) to secure Doles’ loan that as a condition for the foregoing sale, Angeles
shall assume the undue balance of the mortgage and pay the monthly amortization for the
remainder of the 25 years. The property was at that time being occupied by a tenant paying a
monthly rent of P3,000.00. Upon verification with the NHMFC, Angeles learned that Doles had
incurred arrearages. Upon informing Doles of her arrears, Doles denied that she incurred them
and refused to pay the same. Doles denied that she borrowed money from Angeles, and
averred that she referred her friends to respon-dent whom she knew to be engaged in the
business of lending money in exchange for personal checks through her capitalist Arsenio Pua.
She alleged that her friends, namely, Zenaida Romulo, Theresa Moratin, Julia Inocencio,
Virginia Jacob, and Elizabeth Tomelden, borrowed money from Angeles and issued personal
checks in payment of the loan but the checks bounced for insufficiency of funds. Angeles
became furious and threatened Doles that if the accounts were not settled, a criminal case will
be filed against her. She was forced to execute an "Absolute Deed of Sale" over her property to
avoid criminal prosecution.

Issue:

1. Whether or not Doles and Angeles are agents of their respective principals
2. Whether or not the sale has valid consideration
Ruling:

1. YES. Under Article 1868 of the Civil Code, the basis of agency is representation. Agency
may even be implied from the words and conduct of the parties and the circumstances of the
particular case. Though the fact or extent of authority of the agents may not, as a general rule,
be established from the declarations of the agents alone, if one professes to act as agent for
another, she may be estopped to deny her agency both as against the asserted principal and
the third persons interested in the transaction in which he or she is en-gaged.

In this case, Doles knew that the financier of Angeles is Pua and Angeles knew that the
borrowers are friends of Doles. For an agency to arise, it is not necessary that the principal
personally encounter the third person with whom the agent interacts. The law in fact
contemplates, and to a great degree, impersonal deal-ings where the principal need not
personally know or meet the third person with whom her agent transacts: precisely, the
purpose of agency is to extend the personality of the principal through the facility of the agent.
In the case at bar, both Doles and Angeles have undeniably disclosed to each other that they
are represent-ing someone else, and so both of them are estopped to deny the same. It is
evident from the record that Doles merely refers actual borrowers and then collects and
disburses the amounts of the loan upon which she received a commission; and that Angeles
transacts on behalf of her "principal financier", a certain Arse-nioPua. If their respective
principals do not actually and personally know each other, such ignorance does not affect their
juridical standing as agents, especially since the very purpose of agency is to extend the per-
sonality of the principal through the facility of the agent.

2. NO. In view of the two agency relationships, Doles and Angeles are not privy to the
contract of loan be-tween their principals. Since the sale is predicated on that loan, then the
sale is void for lack of considera-tion.

VICTORIAS MILLING CO., INC v. CA


G.R. No. 117356 June 19, 2000

PRINCIPLE:

Article 1868: By the contract of agency a person binds himself to render some service or
to do something in representation or on behalf of another, with the consent or authority of the
latter.

One factor which most clearly distinguishes agency from other legal concepts is
control; one person (the agent) agrees to act under the control or direction of another (the
principal).
FACTS:

Petitioner Victorias Milling is in to regular dealings with St. Therese Merchandising


(STM) in the latter’s purchase of sugar. Petitioner issues a Shipping List/Delivery Receipts
(SLDRs) as proof of purchase. The subject in this instant case is SLDR No. 1214M whom STM
sold to private respondent Consolidated Sugar Corporation (CSC). CSC wrote petitioner that it
had been authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed in
the letter was a letter of authority from STM authorizing CSC to “withdraw for and in our
behalf the refined sugar covered by SLDR No. 1214.”

ISSUE:

Whether or not there is a contract of agency between STM and CSC.

RULING:

NO. It is clear from Article 1868 that the basis of agency is representation. On the part
of the principal, there must be an actual intention to appoint or an intention naturally inferable
from his words or actions; and on the part of the agent, there must be an intention to accept
the appointment and act on it, and in the absence of such intent, there is generally no agency.
One factor which most clearly distinguishes agency from other legal concepts is control; one
person—the agent—agrees to act under the control or direction of another—the principal.
Indeed, the very word “agency” has come to connote control by the principal. The control
factor, more than any other, has caused the courts to put contracts between principal and
agent in a separate category.

It appears plain to the Court that private respondent CSC was a buyer of the SLDFR
form, and not an agent of STM. Private respondent CSC was not subject to STM’s control. The
question of whether a contract is one of sale or agency depends on the intention of the parties
as gathered from the whole scope and effect of the language employed. That the
authorization given to CSC contained the phrase “for and in our (STM’s) behalf” did not
establish an agency. Ultimately, what is decisive is the intention of the parties. That no agency
was meant to be established by the CSC and STM is clearly shown by CSC’s communication to
petitioner that SLDR No. 1214M had been “sold and endorsed” to it. The use of the words “sold
and endorsed” means that STM and CSC intended a contract of sale, and not an agency.
Hence, on this score, no error was committed by the respondent appellate court when it held
that CSC was not STM’s agent and could independently sue petitioner.
SEVILLA v. CA

FACTS:

Based on the strength of a contract, Tourist World Service Inc. (TWS) leased the
premises belonging to Mrs. SegundinaNoguera for the former’s use as a branch office. Lina
Sevilla bound herself solidarily liable with TWS for the prompt payment of the monthly rentals
thereon. When the branch office was opened, it was run by appellant Sevilla payable to TWS
by any airline for any fare brought in on the efforts of Sevilla, 4% was to go to Sevilla and 3%
was to be withheld by TWS.

TWS appears to have been informed that Sevilla was connected with a rival firm, the Philippine
Travel Bureau, and, since the branch office was anyhow losing, the TWS considered closing
down its office. Two resolutions of the TWS board of directors were passed to abolish the
office of the manager and vice president of the branch office and authorizing the corporate
secretary to receive the properties in the said branch office.

Subsequently, the corporate secretary went to the branch office, and finding the premises
locked and being unable to contact Sevilla, padlocked the premises to protect the interests of
TWS.

When neither Sevilla nor her employees could enter the locked premises, she filed a complaint
against TWS with a prayer for the issuance of a mandatory preliminary injunction.

The trial court dismissed the case holding that TWS, being the true lessee, was within its
prerogative to terminate the lease and padlock the premises. It likewise found that Sevilla was
a mere employee of TWS and as such, was bound by the acts of her employer.

The CA affirmed. Hence this petition.

ISSUES

1. Whether or not there was an employer-employee relationship between TWS and Sevilla?

2. Whether or not the padlocking of the premises by TWS without the knowledge and consent
of Sevilla entitled the latter to the relief of damages prayed for?

HELD

1. NO. It was a principal-agent relationship. In this jurisdiction, there has been no


uniform test to determine the existence of an employer-employee relation. In general, We
have relied on the so called right of control test “where the person for whom the services are
performed reserves a right to control not only the end to be achieved but also the means to be
used in reaching such end.” In addition, the existing economic conditions prevailing between
the parties, like the inclusion of the employee in the payrolls, are also considered in
determining the existence of an employer-employee relationship. • Sevilla was not subject to
control by TWS either as to the result of the enterprise or as to the means used in connection
therewith. • Under the contract of lease, Sevilla bound herself in solidum for the rental
payments; an arrangement that would belie the claims of a master-servant relationship for a
true employee cannot be made to part with his own money in pursuance of his employer’s
business, or otherwise assume liability thereof. • Sevilla was not in the company’s payroll. She
retained 4% in commissions from airline bookings, the remaining 3% going to TWS. Unlike an
employee who usually earns a fixed salary, she earned compensation in fluctuating amounts
depending on her booking successes. • The fact that Sevilla has been designated “branch
manager” does not make her, ergo, TWS’ employee. Employment is determined by the right of
control test and certain economic parameters. Titles are weak indicators.

• When Sevilla agreed to man TWS’ Ermita branch office, she did so pursuant to a contract of
agency. It is the essence of this contract that the agent renders services “in representation or
on behalf of another.” In the case at bar, Sevilla solicited airline fares, but she did so for and on
behalf of her principal, TWS.

2. YES. For its unwarranted revocation of the contact of agency, TWS should be sentenced to
pay damages. • Sevilla had acquired a personal stake in the business itself, and necessarily, in
the equipment pertaining thereto’ • Sevilla was not a stranger to that contract of lease having
been explicitly named therein as third party in charge of rental payments. She could not be
ousted from possession summarily as one would eject an interloper. • Unlike an employee,
who earns a fixed salary, she earned compensation in fluctuating amount depending on her
booking successes. The fact that Sevilla had been designated “branch manager” does not
make her a TWS employee. It appears that Sevilla is a bona fide travel agent herself, and she
acquired an interest in the business entrusted to her. She also had assumed personal obligation
for the operation thereof, holding herself solidary liable for the payment of rentals.

Litonjua v. Litonjua
G.R. Nos. 166299-300 December 13, 2005

Principle:
A partnership exists when two or more persons agree to place their money, effects,
labor, and skill in lawful commerce or business, with the understanding that there shall be a
proportionate sharing of the profits and losses between them. Furthermore, contract
validating inventory requirement under Article 1773 of the Civil Code applies as long as real
property or real rights are initially brought into the partnership. Either parties in the
partnership may contribute immovable properties however the more important consideration
is that real property was contributed, in which case an inventory of the contributed property
duly signed by the parties should be attached to the public instrument, or else there is legally
no partnership to speak of.

Facts:
Aurelio and Eduardo are brothers. In 1973, Aurelio alleged that Eduardo entered into a
contract of partnership with him. Aurelio showed as evidence a letter sent to him by Eduardo
that the latter is allowing Aurelio to manage their family business (if Eduardo is away) and in
exchange thereof he will be giving Aurelio P1 million or 10% equity, whichever is higher. A
memorandum was subsequently made for the said partnership agreement. The memorandum
this time stated that in exchange of Aurelio, who just got married, retaining his share in the
family business (movie theatres, shipping and land development) and some other immovable
properties, he will be given P1 Million or 10% equity in all these businesses and those to be
subsequently acquired by them whichever is greater. In 1992 however, the relationship
between the brothers went sour; Aurelio demanded an accounting and the liquidation of his
share in the partnership, the demand was left unheeded and thus the suit.

Issue: Whether or not there exists a partnership between the brothers?

Ruling:
No, the partnership is void and non-existent. The documentary evidence presented by
Aurelio, i.e. the letter from Eduardo and the Memorandum, did not prove partnership. The
1973 letter from Eduardo on its face, contains typewritten entries, personal in tone, but is
unsigned and undated. As an unsigned document, there can be no quibbling that said letter
does not meet the public instrumentation requirements exacted under Article 1771 (how
partnership is constituted) of the Civil Code.
Moreover, being unsigned and doubtless referring to a partnership involving more than
P3,000.00 in money or property, said letter cannot be presented for notarization, let alone
registered with the Securities and Exchange Commission (SEC), as called for under the Article
1772 (capitalization of a partnership) of the Code. And inasmuch as the inventory requirement
under the succeeding Article 1773 goes into the matter of validity when immovable property is
contributed to the partnership, the next logical point of inquiry turns on the nature of Aurelio’s
contribution, if any, to the supposed partnership. The Memorandum is also not a proof of the
partnership for the same is not a public instrument and again, no inventory was made of the
immovable property and no inventory was attached to the Memorandum. Article 1773 of the
Civil Code requires that if immovable property is contributed to the partnership an inventory
shall be had and attached to the contract.
C. Distinguished from Service Providers
1. Lessor of Services--- Article 1644
Case:
NIELSON & COMPANY vs. LEPANTO CONSOLIDATED
G.R. NO. L-21601
December 17, 1966

Principle:

In both agency and lease of services one of the parties binds himself to render some
service to the other party. Agency, however, is distinguished from lease of work or services in
that the basis of agency is representation, while in the lease of work or services the basis is
employment. The lessor of services does not represent his employer while the agent
represents his principal. There is another obvious distinction between agency and lease of
services. Agency is a preparatory contract, as agency "does not stop with the agency because
the purpose is to enter into other contracts." The most characteristic feature of an agency
relationship is the agent’s power to bring about business relations between his principal and
third persons. "The agent is destined to execute juridical acts (creation, modification or
extinction of relations with third parties). Lease of services contemplate only material (non-
juridical) acts."

Facts:

Plaintiff Nielson entered into an agreement with Respondent Lepanto. Under said
agreement, Nielson had agreed, for a period of five years to explore, develop and operate the
mining properties of Lepanto as well as to render for Lepanto other services specified in the
contract such as to "act as purchasing agent of supplies, equipment and other necessary
purchases provided, that no purchase shall be made without the prior approval of Lepanto.
However, after the World War II ensued, the contract was suspended and Nielson only
managed to resume its operation only after the period of the contract has expired. Lepanto
prohibited Nielson to continue its milling operations. The case therefore was raised to the
Supreme Court and ruled in favour of plaintiff Nielson. Lepanto now via a motion for
reconsideration contends that the management contract in question being one of agency has
the right to terminate the contract at will pursuant to the provision of Article 1733 of the old
Civil Code.

Issue: WON the contract entered between Nielson and Lepanto is a contract of agency.

Held:

No. The contract is one of lease of service. Agency is distinguished from lease of work
or services in that the basis of agency is representation, while in the lease of work or services
the basis is employment. The lessor of services does not represent his employer while the
agent represents his principal. It thus appears that the principal and paramount undertaking of
Nielson under the management contract was the operation and development of the mine and
the operation of the mill. All the other undertakings mentioned in the contract are necessary or
incidental to the principal undertaking — these other undertakings being dependent upon the
work on the development of the mine and the operation of the mill. In the performance of this
principal undertaking Nielson was not in any way executing juridical acts for Lepanto, destined
to create, modify or extinguish business relations between Lepanto and third persons. In other
words, in performing its principal undertaking Nielson was not acting as an agent of Lepanto,
in the sense that the term agent is interpreted under the law of agency, but as one who was
performing material acts for an employer, for a compensation.

2. Independent Contractor--- Article 1713


Case:

Fressel v Mariano Uy Chaco Sons & Co. 34 PHIL 122-126

Facts:

That during the latter part of the year 1913, the defendant entered into a contract with
one E. Merritt, whereby the said Merritt undertook and agreed with the defendant to build for
the defendant a costly edifice in the city of Manila at the corner of Calle Rosario and Plaza de
Padre Moraga. In the contract it was agreed between the parties thereto, that the defendant
at any time, upon certain contingencies, before the completion of said edifice could take
possession of said edifice in the course of construction and of all the materials in and about
said premises acquired by Merritt for the construction of said edifice. That during the months
of August last past, the plaintiffs delivered to Merritt at the said edifice in the course of
construction certain materials of the value of P1,381.21, as per detailed list hereto attached
and marked Exhibit A, which price Merritt had agreed to pay on the 1st day of September,
1914.

That on the 28th day of August, 1914, the defendant under and by virtue of its contract
with Merritt took possession of the incomplete edifice in course of construction together with
all the materials on said premises including the materials delivered by plaintiffs. That neither
Merritt or the defendant has paid for the materials mentioned in Exhibit A, although payment
has been demanded, and that on the 2d day of September, 1914, the plaintiffs demanded of
the defendant the return or permission to enter upon said premises and retake said materials
at the time still unused which was refused by defendant. That in pursuance of the contract
between Merritt and the defendant, Merritt acted as the agent for defendant in the
acquisition of the materials from plaintiffs. The appellants insist that the above quoted
allegations show that Merritt acted as the agent of the defendant in purchasing the materials
in question and that the defendant, by taking over and using such materials, accepted and
ratified the purchase, thereby obligating itself to pay for the same.

Issue: Whether or not Merritt is an agent or an independent contractor?

Ruling: Merit is an independent contractor.

Where one party to a contract was authorized to do work according to his own method
and without being subject to the other party's control, except as to the result of the work, he is
an independent contractor and not an agent.

The allegations in paragraphs 1 to 5, inclusive, above set forth, do not even intimate
that the relation existing between Merritt and the defendant was that of principal and agent,
but, on the contrary, they demonstrate that Merritt was an independent contractor and that
the materials were purchased by him as such contractor without the intervention of the
defendant. The fact that "the defendant entered into a contract with one E. Merritt, whereby
the said Merritt undertook and agreed with the defendant to build for the defendant a costly
edifice" shows that Merritt was authorized to do the work according to his own method and
without being subject to the defendant's control, except as to the result of the work. He could
purchase his materials and supplies from whom he pleased and at such prices as he desired to
pay. Again, the allegations that the "plaintiffs delivered to Merritt . . . certain materials (the
materials in question) of the value of P1,381.21, . . . which price Merritt agreed to pay," shows
that there were no contractual relations whatever between the sellers and the defendant. The
mere fact that Merritt and the defendant had stipulated in their building contract that the
latter could, "upon certain contingencies," take possession of the incomplete building and all
materials on the ground, did not change Merritt from an independent contractor to an agent.
THE SHELL COMPANY vs. FIREMEN'S INSURANCE COMPANY

Principle: The act of the agent or his employees acting within the scope of his authority is
the act of the principal, the breach of the undertaking by the agent is one for
which the principal is answerable.

Facts:

A car was brought to a Shell gasoline station owned by Salvador Sison for washing and
greasing. The car was placed on a hydraulic lifter for greasing. As some parts of the car couldn’t
be reached by the greaseman named de la Fuente, the lifter was lowered. Unfortunately, for
unknown reasons, while the lifter was being lowered, the car swung, it fell from the platform
and suffered damage. Said car was insured against loss or damage by Firemen's Insurance
Company of Newark.

The insurance companies after paying the sum for the damage and charging the
balance to Salvador Sison, in accordance with the terms of the insurance contract, filed this
action for the recovery of the total damage from Shell Company on the ground of negligence.

Issue: Whether or not Shell Company is liable for the negligence of de la Fuente.

Ruling:

Yes. The Court ruled that the act of the agent or his employees acting within the scope
of his authority is the act of the principal, the breach of the undertaking by the agent is one for
which the principal is answerable.

Taking into consideration the fact that the operator, de la Fuente, owed his position to
Shell Company and the latter could remove him or terminate is services at will; that the service
station belonged to the company and were just loaned to the operator and the company took
charge of their repair and maintenance; that an employee of the company supervised the
operator and conducted periodic inspection of the company’s gasoline and service station; that
the price of the products sold by the operator was fixed by the company and not by the
operator; and that the receipt signed by the operator indicated that he was a mere agent.

Supposedly, the company should see to it that the equipments are in good running
order and usable condition, however, the operator failed to make a thorough check up of the
hydraulic lifter by “merely routine” by raising the lifter once or twice. So, Shell Company must
answer for the negligent act of its mechanic which was the cause of the fall of the car from the
hydraulic lifter.

D. Distinguished from Sale--- Article 1458

Case:
ANDRES QUIROGAvsPARSONS HARDWARE CO.,
G.R. No. L-11491 August 23, 1918

Facts:
A contract was entered into by and between the plaintiff and J. Parsons (to whose
rights and obligations the present defendant later subrogated itself). The contract stated the
obligations of both parties which include: Don Andres Quiroga grants the exclusive right to sell
his beds in the Visayan Islands to J. Parsons under the following conditions, Mr. Quiroga shall
furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall
invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make
and allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale;
and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles.
Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in
price which he may plan to make in respect to his beds, and agrees that if on the date when
such alteration takes effect he should have any order pending to be served to Mr. Parsons,
such order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall
not be affected by said alteration if the price thereby be increased, for, in this latter case, Mr.
Quiroga assumed the obligation to invoice the beds at the price at which the order was given.

Of the three causes of action alleged by the plaintiff in his complaint, only two of them
constitute the subject matter of this appeal and both substantially amount to the averment
that the defendant violated the following obligations: not to sell the beds at higher prices than
those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to
keep the beds on public exhibition, and to pay for the advertisement expenses for the same;
and to order the beds by the dozen and in no other manner. In addition, the plaintiff alleged
that the defendant was his agent for the sale of his beds in Iloilo, and that said obligations are
implied in a contract of commercial agency.

Issue:
Whether the defendant, by reason of the contract hereinbefore transcribed, was a
purchaser or an agent of the plaintiff for the sale of his beds.

Ruling:
Parsons Hardware Co. was a purchaser and not an agent of the plaintiff. In order to
classify a contract, due regard must be given to its essential clauses. In the contract in
question, what was essential, as constituting its cause and subject matter, is that the plaintiff
was to furnish the defendant with the beds which the latter might order, at the price
stipulated, and that the defendant was to pay the price in the manner stipulated. These are
precisely the essential features of a contract of purchase and sale. These features exclude the
legal conception of an agency or order to sell whereby the mandatory or agent received the
thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from
the sale of the thing to a third person, and if he does not succeed in selling it, he returns it
AMERICAN RUBBER COMPANY (Now American Rubber Corporation), Petitioner,
v.
THE COLLECTOR OF INTERNAL REVENUE (Now the Commissioner of Internal Revenue)
and the COURT OF TAX APPEALS, Respondents.

PRINCIPLE:
The essence of a contract determines what law should apply to the relation between
the parties and not what the parties prefer to call that relationship. However, only the acts of
the contracting parties, subsequent to and in connection with the execution of the contract,
must be considered for the purpose of interpreting the same.

FACTS:
The American Rubber Company (ARCO) was engaged in producing logs and lumber for
sale. It acquired logs from its forest concession in Basilan City, from the UP Land Grant
operated by Sta. Clara Lumber Co. (SCLCO), and from the latter’s concession also in Basilan.
Lumber pieces produced by ARCO were sold thru contracts executed by SCLCO with buyers in
Manila. SCLCO took care of transportation, handling and other expenses thereof from Basilan
to Manila but was later reimbursed by ARCO. Upon an investigation conducted by the Bureau
of Internal Revenue on ARCO’s business, ARCO was assessed for deficiency sales tax and
surcharge for 1950-1953. The Court of Tax Appeals which was asked to review the assessment,
upheld it (with some modifications as to the amount), upon the theory that SCLCO acted as
agent for ARCO.

In its petition for review before the Supreme Court, ARCO maintained that there was
no agency relationship with SCLCO.

ISSUE: Whether or not SCLCO is an Agent of ARCO.

HELD: YES. As a general rule the essence of a contract determines what law should apply to
the relation between the parties and not what the parties prefer to call that relationship.
However, only the acts of the contracting parties, subsequent to and in connection with the
execution of the contract, must be considered for the purpose of interpreting the same.

However, only the acts of the contracting parties, subsequent to and in connection with the
execution of the contract, must be considered for the purpose of interpreting the same. A
careful review of the voluminous records of the CTA reveals these facts:

(a) that after the delivery of the logs of petitioner at Isabela, Basilan, SCLCO undertook the
transportation of lumber from Isabela, Basilan, to Manila and paid the freight charges but
which expenses were reimbursed by petitioner.
(b) The buyers in turn reimbursed the petitioner for the transportation, handling and other
expenses in the amount of P35.00 per 1,000 bd. ft. which were advanced by the seller.
(c) The bills of lading covering the shipments were either consigned to ARCO or to SCLCO.
Said bills of lading show that the purchase price includes not only the cost but also the
freight, trucking, unloading and other expenses.

These facts disproved the contention of petitioner that after delivery of its logs at Isabela,
Basilan, ownership passed to SCLCO and "there ends their business with the lumber.
Moreover SCLCO after selling petitioner’s lumber collected payment of the same and
remitted the proceeds of the sale to petitioner by depositing said proceeds with petitioner’s
bank. Moreover, respondent court and noted the testimony of Mr. Roque de Leon of ARCO
who stated that it has been the practice of their company to issue sales invoices whenever a
sale was made as per requirement of the law. However, with regard to this particular
transaction between SCLCO and ARCO involving lumber, no sales invoice was issued but
instead tally sheets were prepared. When queried why, Mr. de Leon miserably failed to offer
an explanation except for his usual and trite excuse that "he did not know the reason for such
procedure and that he was a mere subordinate and could not question Dr. Strong’s wishes."
The reason, We believe, why petitioner did not issue sales invoices is the fact that SCLCO
acted only as agent of petitioner as shown by the aforementioned circumstances surrounding
the transactions between the petitioner and SCLCO.

KER VS. LINGAD

G.R. No. L-20871 (April 30, 1971)

PRINCIPLE:
In an agency to sell, the agent receives the goods as the goods of the principal, while in a sale,
the buyer receives the goods as owner.

FACTS:
Melecio R. Domingo, then Commissioner of Internal Revenue assessed Ker & Co. and found
the sum of P20,272.33 as the commercial broker’s percentage tax, surcharge, and compromise
penalty for the period from July 1, 1949 to December 31, 1953. Ker & Co petitioned that the
request be cancelled, but the petitioned was turned down. Kr & Co. then filed a petition for
review with the Court of Tax Appeals. Commissioner Domingo maintained his stand that the
petitioner should be taxed in such amount as a commercial broker. The liability arose from a
contract that Ker & Co. had with the United States Rubber International, where Ker & Co. was
designated as the distributor and United States Rubber International as the company. Ker &
Co., as Distributor, is required to exert every effort to have the shipment of the products in the
maximum quantity and to promote in every way the sale thereof. The prices, discounts, terms
of payment, terms of delivery and other conditions of sale were subject to change in the
discretion of United States Rubber International. All specifications for the goods ordered were
subject to acceptance of United States Rubber International and required to accept such goods
shipped as well as to clear the same through customs and to arrange for delivery in its
warehouse in Cebu City.

ISSUE:
Whether or not the relationship created between Ker & Co. and United States Rubber
International is one of vendor and vendee or broker and principal.

RULING:
The relationship between Ker & Co. is one of brokerage or agency. According to the National
Internal Revenue Code, a commercial broker “includes all persons, other than importers,
manufacturers, producers, or bona fide employees, who, for compensation or profit, sell or
bring about sales or purchases of merchandise for other persons or bring proposed buyers and
sellers together, or negotiate freights or other business for owners of vessels or other means of
transportation, or for the shippers, or consignors or consignees of freight carried by vessels or
other means of transportation. The term includes commission merchants.” In the language of
Justice J. B. L. Reyes, who penned the opinion: “Since the company retained ownership of the
goods, even as it delivered possession unto the dealer for resale to customers, the price and
terms of which were subject to the company’s control, the relationship between the company
and the dealer is one of agency.” The relationship between Ker & Co. and United States Rubber
International was not one of seller and purchaser, if that was the intention, then it would not
have included covenants which in their totality would negate the concept of a firm acquiring as
vendee goods from another. Instead, the stipulations were so worded as to lead to no other
conclusion than that the control by the United States Rubber International over the goods in
question is, in the language of the Constantino opinion, “pervasive”.

GONZALO PUYAT & SONS, INC., petitioner,


vs. ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco), respondent.
G.R. No. L-47538
June 20, 1941

Ponente: Laurel, J.

Principle:
An agent is a party who is legally authorized to act on behalf of another party in
business transactions. This is a business relationship where a principal gives legal authority to
an agent to act on the principal's behalf when dealing with a third party. An agency
relationship is a fiduciary relationship.

FACTS:

Arco Amusement was engaged in the business of operating cinematographs while


Gonzalo Puyat& Sons (GPS) was the exclusive agent in the Philippines for the Starr Piano
Company (SPC). Desiring to equip its cinematograph with sound reproducing devices, Arco
approached GPS, through its president, Gil Puyat, and an employee named Santos. After some
negotiations, it was agreed between the parties that GPS would order sound reproducing
equipment from SPC and that Arco would pay GPS, in addition to the price of the equipment, a
10% commission, plus all expenses such as freight, insurance, etc. When GPS inquired SPC the
price (without discount) of the equipment, the latter quoted such at $1,700.00 FOB Indiana.
Being agreeable to the price, Arco formally authorized the order. The following year, both
parties agreed for another order of sound reproducing equipment on the same terms as the
first at $1,600.00 plus 10% plus all other expenses. 3 years later, Arco discovered that the prices
quoted to them by GPS with regard to their first 2 orders mentioned, were not the net prices
but rather the latter has obtained a discount from SPC thus, equipment is deemed overpriced
and GPS had to reimburse the excess amount.

ISSUE: Is there a contract of agency?

HELD:
No. The contract between the petitioner and the respondent was one of purchase and
sale. The letters, Exhibits 1 and 2, by which the respondent accepted the prices of $1,700.00
and $1,600.00, respectively, for the sound reproducing equipment subject of its contract with
petitioner, are clear in their terms and admit no other interpretation that the respondent in
question at the prices indicated which are fixed and determinate. The respondent admitted in
its complaint with the CFI of Manila that the petitioner agreed to sell to it the first sound
reproducing equipment. To hold the petitioner an agent of the respondent in the purchase of
equipment and machinery from the SPC of Richmond, Indiana, is incompatible with the
admitted fact that the petitioner is the exclusive agent of the same company in the Philippines.
It is out of the ordinary for one to be the agent of both the vendor and the purchaser.

Chua Ngo vs. Universal Trading Co.


GR No. L-2870 September 19, 1950

Principle: The following circumstances indicate that the contract is of sale and not of agency:
1.No commission was paid to the agent;
2.The agreement indicates that if the balance of the total contract price was unpaid,
the merchandise may be resold and deposit forfeited. (a) Resold implies that the
items were sold; (b) Forfeiture of deposit is incompatible with contract of agency
3. After contract execution, the “agent” ordered for the purchase of the same products
at a lower price than the price to be paid by the “principal” to the “agent”. If done in
good faith, the “agent” would have not acted thus.
4. The principal was charged a sales tax.
5. The agent was laying claim for the losses instead of pressing the same for the
principal

Facts:

Chua Ngo ordered 300 boxes of Sunkist Oranges from Universal Trading Co. at $6.3 per
box. The latter in return ordered the said oranges from Gabuardi Company of San Francisco at
$6 per box. Under the contract executed by Chua and Universal, a deposit of 40% of the total
order payable should be paid in advance and the balance is to be settled upon the arrival of
goods. Also, it was provided that in case the balance is unpaid within 48 hours after
notification, Universal has the right to resold the goods.

Meanwhile, the order was accepted by Gabuardi and delivered to Manila thru the vessel
Silverstone, under the terms FOB San Francisco. The goods were marked “UTC Manila” which
means Universal Trading Co., Manila. However, only 120 boxes were successfully delivered to
Chua Ngo. The remaining 180 boxes were lost in transit. Universal filed a claim against the
insurer of the goods.

Plaintiff filed a case to recover the cost of undelivered items but Universal refused to refund
the said amount on the ground that it merely acted as an Agent to Chua to facilitate the
procurement of apples hence, he is not liable.

Issue: Whether the contract entered into by the plaintiff and the defendant is a contract of sale
or a contract of agency

Ruling:

The contract executed was a contract of sale. First, no commission was paid to
Universal. Second, the contract says that "if balance is not paid within 48 hours of notification,
merchandise may be resoldby the Universal and the deposit be forfeited in its favor." "Resold"
implies the goods had been sold to Chua Ngo. Also, forfeiture of the deposit is incompatible
with a contract of agency. Third, oranges were quoted at $6.30 per box, when Universal
Trading bought it from Gabuardi Company at $6 per box. If Universal Trading was agent of
Chua Ngo, it could not properly do that. Inasmuch as good faith is to be presumed, we must
hold that Universal Trading acted thus because it was not acting as agent of Chua Ngo, but
as independent purchaser from Gabuardi Company. Fourth, the defendant charged the
plaintiff for 3 ½ percent sales tax, thereby implying that their transaction was a sale. Fifth, if
the purchase of the oranges had been made on behalf of Chua Ngo, all claims for losses
thereof against the insurance company and against the shipping company should have been
assigned to Chua Ngo. Instead, the defendant has been pressing such claims for itself.

Naturally, whoever was the owner at the time the thing is lost, would bear the loss. It could not
be Chua Ngo because the fruits had not been delivered to him. As between Gabuardi and the
Universal Trading, the delivery was of "F. O. B. Destnation", hence the loss must be borne by
the latter, because under the law, said goods had been delivered to the purchaser at San
Francisco on board the vessel Silversandal in good condition. Thus, Universal should be liable
to Chua Ngo for the cost of the undelivered items.

ALFRED HAHN vs COURT OF APPEALS AND BMW


G.R. No. 113074; January 22, 1997

PRINCIPLE: An agent receives a commission upon the successful conclusion of a sale. On the other
hand, a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is
eventually made.

FACTS:

Alfred Hahn is a Filipino citizen doing business under the name and style “Hahn-
Manila.” On the other hand, private respondent BayerischeMotorenWerkeAktiengesellschaft
(BMW) is a non-resident foreign corporation existing under the laws of the former Federal
Republic of Germany with principal office at Munich, Germany.

On March 7, 1967, petitioner executed in favor of private respondent a “Deed of


Assignment with Special Power of Attorney”. Per the agreement, “the parties continued
business relations as has been usual in the past without a formal contract.”

But on February 16, 1993, in a meeting with a BMW representative and the president of
Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was informed that BMW was
arranging to grant the exclusive dealership of BMW cars and products to CMC, which had
expressed interest in acquiring the same.

On February 24, 1993, petitioner received confirmation of the information from BMW
which, in a letter, expressed dissatisfaction with various aspects of the petitioner’s business,
mentioning among other things, decline in sales, deteriorating services, and inadequate
showroom and warehouse facilities, and petitioner’s alleged failure to comply with the
standards for an exclusive BMW dealer.

Nonetheless, BMW expressed willingness to continue business relations with the


petitioner on the basis of a “standard BMW importer” contract, otherwise, it said, if this was
not acceptable to petitioner, BMW would have no alternative but to terminate petitioner’s
exclusive dealership effective June 30, 1997.

Because of Hahn’s insistence on the former business relations, BMW withdrew on


March 26, 1993 its offer of a “standard importer contract” and terminated the exclusive dealer
relationship effective June 30, 1993.

On April 29, 1993, BMW proposed that Hahn and CMC jointly import and distribute
BMW cars and parts, but Hahn found the proposal unacceptable.

Thus, on May 14, 1993, Hahn filed a complaint for specific performance and damages
against BMW to compel it to continue the exclusive dealership. Later, he filed an amended
complaint to include temporary restraining order and for writs of preliminary, mandatory and
prohibitory injunction to enjoin BMW from terminating his exclusive dealership.

The case was raffled to RTC Branch 104 of Quezon City and the said court issued a
temporary restraining order on June 14, 1993.

A copy of the order, complaint and summons were served through the Department of
Trade and Industry (DTI) and the same was sent to BMW by the DTI through registered mail,
and was received on June 24, 1993.

On June 17, 1993, the hearing on writ of preliminary injunction proceeded ex parte and
on July 13, 1993, the court issued an order granting the writ of preliminary injunction upon
putting up a bond of ₱100,000.00.

On July 1, 1993 BMW moved to dismiss the case on the ground that the court did not
acquire jurisdiction over it through the service of summons at the DTI.

The trial court deferred the resolution of the motion to dismiss until after trial on the
merits for the reason that the grounds advanced by BMW on its motion did not seem
indubitable.
Without seeking for reconsideration, BMW filed a petition for certiorari; thus, this
petition.

ISSUE:

Whether or not Alfred Hahn is the agent or distributor in the Philippines of private
respondent BMW.

RULING:

Yes. Hahn claimed he took orders for BMW cars and transmitted them to BMW. Upon
reception of the orders, BMW fixed the down payment and pricing charges, notified Hahn of
the scheduled production month for the orders, and reconfirmed the orders by signing and
returning to Hahn the acceptance sheets. Payment was made by the buyer directly to BMW.
Title to cars purchased passed directly to the buyer and Hahn never paid for the purchase price
of BMW cars sold in the Philippines. Hahn was credited with a commission equal to 14% of the
purchase price upon the invoicing of the vehicle order by BMW. Upon confirmation in writing
that the vehicles had been registered in the Philippines and serviced by him Hahn received an
additional 3% of the full purchase price. Hahn performed after-sale services, including warranty
services, for which he received reimbursement from BMW. All orders were on invoices and
forms of BMW. These allegations were substantially admitted BMW its petition for certiorari
before the Courts of Appeal.

Contrary to the appellate court’s conclusion, this arrangement shows an agency. An


agent receives a commission upon the successful conclusion of a sale. On the other hand, a
broker earns his pay merely by bringing the buyer and the seller together, even if no sale is
eventually made.

As to the service centers and the showrooms which he said he had put up at his own
expense, Hahn said that he has to follow BMW specification as exclusive dealer of BMW in the
Philippines. According to Hahn, BMW periodically inspected the service centers to see to it that
BMW standards were maintained. Indeed, it would seem from BMW’s letter to Hahn that it
was for Hahn’s alleged failure to maintain BMW standards that BMW was terminating Hahn’s
dealership.

The fact that Hahn invested his own money to put up these service centers and
showrooms does not necessarily prove that he is not necessarily prove that he is not an agent
of BMW. For as already noted, there are facts in the record which suggest that BMW exercise
control over Hahn’s activities as a dealer and made regular inspection of Hahn’s premises to
enforce compliance with BMW standards and specifications.

This court held that these acts constituted doing business in the Philippines. The
arrangement showed that the foreign corporation’s purpose was to penetrate the Philippine
market and establish its presence in the Philippines.

In addition, BMW held out private respondent Hahn as its exclusive distributor in the
Philippines, even as it announced in the Asian region that Hahn was the “official BMW Agent”
in the Philippines.

The Court of Appeals also found that petitioner Alfred Hahn dealt in other products and
not exclusively in BMW products, and, on this basis, ruled that Hahn was not an agent of BMW.
This finding is based entirely on allegations of BMW in its motion to dismiss filed by the trial
court and in its petition for certiorari before the Court of Appeals. But this allegation was
denied by Hahn and therefore the Court of Appeals should not have cited it as if it were the
fact.