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II.

Obligations of the Agent:


A. Fiduciary Relations
Severino vs. Severino, 44 Phil. 343 (1923)
Facts
This is an action brought by the plaintiff as the alleged natural daughter and sole heir of one Melecio Severino,
deceased, to compel the defendant Guillermo Severino to convey to her four parcels of land described in the
complaint, or in default thereof to pay her the sum of P800,000 in damages for wrongfully causing said land to be
registered in his own name. Felicitas Villanueva, in her capacity as administratrix of the estate of Melecio
Severino, has filed a complaint in intervention claiming the same relief as the original plaintiff, except in so far as
she prays that the conveyance be made, or damages paid, to the estate instead of to the plaintiff Fabiola
Severino.
The
defendant
answered
both
complaints
with
a
general
denial.
The evidence shows that Melecio Severino died on the 25th day of May, 1915; that some 428 hectares of the land
were recorded in the Mortgage Law Register in his name in the year 1901 by virtue of possessory information
proceedings instituted on the 9th day of May of that year by his brother Agapito Severino in his behalf; that
during the lifetime of Melecio Severino the land was worked by the defendant, Guillermo Severino,
his brother, as administrator for and on behalf of the said Melecio Severino; that after Melencios
death, the defendant Guillermo Severino continued to occupy the land; that in 1916 a parcel survey
was made of the lands in the municipality of Silay, including the land here in question, and cadastral
proceedings were instituted for the registration of the land titles within the surveyed area; that in
the cadastral proceedings the land here in question was described as four separate lots; that Roque
Hofilea, as lawyer for Guillermo Severino, filed answers in behalf of the latter in said proceedings
claiming the lots mentioned as the property of his client; that no opposition was presented in the
proceedings to the claims of Guillermo Severino and the court therefore decreed the title in his favor,
in pursuance of which decree certificates of title were issued to him in the month of March, 1917.
It may be further observed that at the time of the cadastral proceedings the plaintiff Fabiola Severino was a
minor; that Guillermo Severino did not appear personally in proceedings and did not there testify; that the only
testimony in support of his claim was that of his attorney Hofilea, who swore that he knew the land and that he
also knew that Guillermo Severino inherited the land from his father and that he, by himself, and through his
predecessors
in
interest,
had
possessed
the
land
for
thirty
years.
The defendant argues that the gist of the instant action is the alleged fraud on his part in causing the land in
question to be registered in his name; that the trial court therefore erred in rejecting his offer of evidence to the
effect that the land was owned in common by all the heirs of Ramon Severino and did not belong to Melecio
Severino exclusively; that such evidence, if admitted, would have shown that he did not act with fraudulent intent
in taking title to the land; that the trial court erred in holding him estopped from denying Melecios title; that more
than a year having elapsed since the entry of the final decree adjudicating the land to the defendant, said decree
cannot now be re-opened; that the ordering of the defendant to convey the decreed land to the administratrix is,
for all practical purposes, equivalent to the reopening of the decree of registration; that under section 38 of the
Land Registration Act the defendant has an indefeasible title to the land; and that the question of ownership of
the land being thus judicially settled, the question as to the previous relations between the parties cannot now be
inquired
into.
Upon no point can the defendants contentions be sustained. It may first be observed that this is not an action
under section 38 of the Land Registration Act to reopen or set aside a decree; it is an action in personam
against an agent to compel him to return, or retransfer, to the heirs or the estate of its principal, the
property committed to his custody as such agent, to execute the necessary documents thereof, to
pay
damages.

That the defendant came into the possession of the property here in question as the agent of the deceased
Melecio Severino in the administration of the property, cannot be successfully disputed. His testimony in the case
of Montelibano v. Severino (civil case No. 902 of the Court of First Instance of Occidental Negros and which forms
a part of the evidence in the present case) is, in fact, conclusive in this respect. He there stated under oath that
from the year 1902 up to the time the testimony was given, in the year 1913, he had been continuously in charge
and occupation of the land as the encargado or administrator of Melecio Severino; that he had always known the
land as the property of Melecio Severino; and that the possession of the latter had been peaceful, continuous, and
exclusive. In his answer filed in the same case, the same defendant, through his attorney, disclaimed all personal
interest in the land and averred that it was wholly the property of this brother Melecio .
Neither is it disputed that the possession enjoyed by the defendant at the time of obtaining his decree was of the
same character as that held during the lifetime of his brother, except in so far as shortly before the trial of the
cadastral case the defendant had secured from his brothers and sisters a relinquishment in his favor of such rights
as
they
might
have
in
the
land.
The relations of an agent to his principal are fiduciary and it is an elementary and very old rule that
in regard to property forming the subject-matter of the agency, he is estopped from acquiring or
asserting a title adverse to that of the principal. His position is analogous to that of a trustee and he
cannot consistently, with the principles of good faith, be allowed to create in himself an interest in
opposition to that of his principal or cestui que trust. Upon this ground, and substantially in harmony with
the principles of the Civil Law (see sentence of the supreme court of Spain of May 1, 1900), the English
Chancellors held that in general whatever a trustee does for the advantage of the trust estate inures to the
benefit of the cestui que trust. (Greenlaw v. King, 5 Jur., 18; Ex parte Burnell, 7 Jur., 116; Ex parte Hughes, 6 Ves.,
617; Ex parte James, 8 Ves., 337; Oliver v. Court, 8 price, 127.) The same principle has been consistently adhered
to in so many American cases and is so well established that exhaustive citations of authorities are superfluous
and we shall therefore limit ourselves to quoting a few of the numerous judicial expressions upon the subject. The
principle
is
well
stated
in
the
case
of
Gilber
v.
Hewetson
(79
Minn.,
326):
"A receiver, trustee, attorney, agent, or any other person occupying fiduciary relations respecting property or
persons, is utterly disabled from acquiring for his own benefit the property committed to his custody for
management. This rule is entirely independent of the fact whether any fraud has intervened. No fraud in fact need
be shown, and no excuse will be heard from the trustee. It is to avoid the necessity of any such inquiry that the
rule takes so general a form. The rule stands on the moral obligation to refrain from placing ones self in positions
which ordinarily excite conflicts between self-interest and integrity. It seeks to remove the temptation that might
arise out of such a relation to serve ones self-interest at the expense of ones integrity and duty to another, by
making it impossible to profit by yielding to temptation. It applies universally to all who come within its principle."
library
In the case of Massie v. Watts (6 Cranch, 148), the United States Supreme Court, speaking through Chief Justice
Marshall,
said:
"But Massie, the agent of Oneale, has entered and surveyed a portion of that land for himself and obtained a
patent for it in his own name. According to the clearest and best established principles of equity, the agent who so
acts becomes a trustee for his principal. He cannot hold the land under an entry for himself otherwise than as
trustee
for
his
principal."
library
In the case of Felix v. Patrick (145 U. S., 317), the United States Supreme Court, after examining the authorities,
said:
"The substance of these authorities is that, wherever a person obtains the legal title to land by any artifice or

concealment, or by making use of facilities intended for the benefit of another, a court of equity will impress upon
the land so held by him a trust in favor of the party who is justly entitled to them, and will order the trust
executed by decreeing their conveyance to the party in whose favor the trust was created." (Citing Bank of
Metropolis v. Guttschlick, 14 Pet., 19, 31; Moses v. Murgatroyd, 1 Johns. Ch., 119; Cumberland v. Codrington, 3
Johns. Ch., 229, 261; Neilson v. Blight, 1 Johns. Cas., 205; Weston v. Barker, 12 Johns., 276.)
In the case of Camacho v. Municipality of Baliuag (28 Phil., 466), the plaintiff, Camacho, took title to the land in his
own
name,
while
acting
as
agent
for
the
municipality.
The
court
said:
"There have been a number of cases before this court in which a title to real property was acquired by a person in
his own name, while acting under a fiduciary capacity, and who afterwards sought to take advantage of the
confidence reposed in him by claiming the ownership of the property for himself. This court has invariably held
such evidence competent as between the fiduciary and the cestui que trust.
x

"What judgment ought to be entered in this case? The court below simply absolved the defendant from the
complaint. The defendant municipality does not ask for a cancellation of the deed. On the contrary,
the deed is relied upon to supplement the oral evidence showing that the title to the land is in the
defendant. As we have indicated in Consunji v. Tison, 15 Phil., 81, Uy Aloc v. Cho Jan Ling, 19 Phil., 202, the
proper procedure in such a case, so long as the rights of innocent third persons have not intervened,
is to compel a conveyance to the rightful owner. This ought and can be done under the issues raised
and
the
proof
presented
in
the
case
at
bar."
The

case

of

Sy-Juco

and

Viardo

v.

Sy-Juco

(40

Phil.,

634)

is

also

in

point.

As will be seen from the authorities quoted, an agent is not only estopped from denying hi principals title
to the property, but he is also disable from acquiring interests therein adverse to those of his
principal during the term of the agency. But the defendant argues that his title has become res adjudicata
through the decree of registration and cannot now be disturbed.
This contention may, at first sight, appear to possess some force, but on closer examination it proves untenable.
The decree of registration determined the legal title to the land as of the date of the decree; as to that there is no
question. That, under section 38 of the Land Registration Act, this decree became conclusive after one year from
the date of the entry is not disputed and no one attempts to disturb the decree of the proceedings upon which it
is based; the plaintiff in intervention merely contends that in equity the legal title so acquired inured to the
benefit of the estate of Melecio Severino, the defendants principal and cestui que trust and asks
that this superior equitable right be made effective by compelling the defendant, as the holder of the
legal
title,
to
transfer
it
to
the
estate.
We have already shown that before the issuance of the decree of registration it was the undoubted
duty of the defendant to restore the property committed to his custody to his principal, or to the
latters estate, and that the principal had a right of action in personam to enforce the performance
of this duty and to compel the defendant to execute the necessary conveyance to that effect. The only
question remaining for consideration is, therefore, whether the decree of registration extinguished this personal
right of action.
Torrens titles being based on judicial decrees there is, of course, a strong presumption in favor of their regularity
or validity, and in order to maintain an action such as the present the proof as to the fiduciary relation of the
parties and of the breach of trust must be clear and convincing. Such proof is, as we have seen, not lacking in this
case.

But once the relation and the breach of trust on the part of the fiduciary is thus established, there is
no reason, neither practical nor legal, why he should not be compelled to make such reparation as
may lie within his power for the injury caused by his wrong, and as long as the land stands
registered in the name of the party who is guilty of the breach of trust and no rights of innocent
third parties are adversely affected, there can be no reason why such reparation should not, in the
proper case, take the form of a conveyance or transfer of the title to the cestui que trust. No reasons
of public policy demand that a person guilty of fraud or breach of trust be permitted to use his
certificate of title as a shield against the consequences of his own wrong.

Thomas vs. Pineda, 89 Phil. 312 (1951)


Facts: It appears that in 1931, the plaintiff bought the bar and restaurant known as Silver Dollar Cafe located at
Plaza Santa Cruz, Manila, from one Dell Clark, paying P20,000 for its physical assets and good will. Thereafter he
employed the defendant, Clark's former employee, as a bartender with a salary of P60. In the course of time, the
defendant became successively cashier and manager of the business. The outbreak of war found him holding the
latter position with a monthly compensation of P250.
To prevent the business and its property from falling into enemy hands, the plaintiff being a citizen
of the United States, David Thomas on or about December 28, 1941, made a fictitious sale thereof to
the defendant; and to clothe the sale with a semblance of reality, the bill of sale was antedated
November 29, 1941.
Though this document was said to have been destroyed and no copy thereof was available, the fictitiousness and
lack of consideration of the conveyance was expressly admitted in the answer. Besides this admission, it is agreed
that simultaneously with or soon after the execution of the simulated sale, the plaintiff and the defendant signed
a private or secret document, identified as Exhibit "F", which was kept by the plaintiff. Because of its important
bearing on the case, it is convenient to copy this instrument in full.
PRIVATE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS THAT:
On November 29, 1941, a document which purported to be a deed of sale of the bar and restaurant business
known as the SILVER DOLLAR CAFE entered into by and between David (Dave) Thomas and Hermogenes Pineda
and acknowledged before Julian Lim, a notary public for and in the City of Manila and entered in his notarial
register as Document No. 127, Page No. 27, Book I and Series of 1941, witnessed by the Misses Florence Thomas
and Esther Thomas.
The said document was prepared and executed only for the purpose of avoiding the seizure of the said
establishment if and when the enemy forces entered the City of Manila.
Upon the restoration of peace and order and the absence of the danger abovementioned, the said document
automatically becomes null and void and of no effect, the consideration of Ten Thousand Pesos (P10,000),
Philippine Currency, mentioned therein, being fictitious and not paid to the Vendor.
In witness whereof, we have hereunto set our hands in the City of Manila, Philippines, this 29th day of November,
1941.

(Sgd.)

DAVID

(Sgd.)
THOMAS

H.

PINEDA

Vendor

Vendee

In the presence of:

(Sgd.) ESTHER THOMAS

(Sgd.) FLORENCE THOMAS

Thomas was interred at Santo Tomas during the greater part of the war, and his business was operated by the
defendant exclusively throughout that period in accordance with the aforequoted stipulation. On February 3,
1945, the building was destroyed by fire but the defendant had been able to remove some of its furniture, the
cash register, the piano, the safe, and a considerable quantity of stocks to a place of safety. According to the
defendant, all of these goods were accounted for and turned over to the plaintiff after the City of Manila had been
retaken by the American Forces.
On May 8, 1945, a bar was opened on Calle Bambang, district of Sta. Cruz, under the old name of Silver Dollar
Cafe. Housed in a makeshift structure, which was erected on a lot belonging to the defendant, the Bambang shop
was conducted for about four months, i.e., until September of the same year, when it was transferred to the
original location of the Silver Dollar Cafe at No. 15 Plaza Sta. Cruz.
It is asserted and denied that the plaintiff as well as the defendant took a more or less active part in the
management of the post-liberation business until about the middle of September of the following year, when, it is
also alleged, the plaintiff brought a certified public accountant to the establishment in Sta. Cruz for the purpose of
examining the books of the business and the defendant threatened the plaintiff and his companion with a gun if
they persisted in their purpose. As a result of that incident, the plaintiff forthwith filed the present action, and set
up a separate business under the same trade-name, Silver Dollar Cafe, on Echague Street. The defendant
remained with the Silver Dollar Cafe at Plaza Sta. Cruz, which was burn down on December 15, 1946. In the face
of Exhibit "F" before transcribed, there is no denying that throughout the Japanese military regime the Silver
Dollar Cafe belonged exclusively to the plaintiff and that the defendant had charge of it merely as plaintiff's
employee, trustee, or manager. There is no pretense that the defendant invested in the business within that
period any capital of his own in the form of cash or merchandise.
The controversy lies in nature and scope of the defendant's obligation toward the plaintiff in relation to the
business. It will be noticed that Exhibit "F" is silent on this point. The defendant endeavored to prove that there
was a third, verbal, agreement, the import of which was that he was to operate the business with no liability other
than to turn it over to the plaintiff as the plaintiff would find it after the war.
Little or no weight can be attached to this assertion if by it the defendant means, as he apparently does, that he
was relieved of any duty to make an accounting. Such understanding as the defendant says existed would be at
war with the care and precaution which the plaintiff took to insure his rights in the business and its assets, which
had an inventory value of P60,000, according to the plaintiff. As the property consisted mostly of perishable and
expendable goods to be constantly disposed of and replenished as long as the business lasted, the plaintiff could
not, by any stretch of the imagination, have agreed to be content with what the defendant would deign to give
him when normalcy was restored. For that was what the defendant's version of the alleged verbal agreement
would amount to and what the court below found. As sole manager with full power to do as his fancies dictated,
the defendant could strip the business naked of all its stocks, leaving the plaintiff holding the bag, as it were,
when the defendant's management was terminated. Unless Thomas was willing to give away his property and its
profits, no man in his right senses would have given his manager an outright license such as the defendant claims
to have gotten from his employer. Not only did the plaintiff see to the execution of a counter agreement but he
stated that his elder daughter "had it (Exhibit "F") kept in her possession;" that "there were many efforts by Mr.
Pineda to get hold of this document during the first two weeks of the Japanese occupation," and he was
"surprised;" that he "did not know what was in the future" and he "wanted my children to have something more

than an empty possession." Referring to the defendant's attempts to take Exhibit "F" away from him, Thomas said
that the defendant sent to the hospital where he (plaintiff) was confined, defendant's friend, an attorney by the
name of Swartzcoff of whom he had heard "things", "to recover that document", and he, plaintiff, became more
determined not to part with it; that as Swartzcoff kept on coming, he gave the document to his children to keep
up to the end of the war. This testimony has all the stamps of veracity and vehemence and refutes the
defendant's allegation. The conclusion thus seems clear that the defendant owes the plaintiff an accounting of his
management of the plaintiff's business during the occupation. The exact legal character of the defendant's
relation to the plaintiff matters not a bit. It was enough to show, and it had been shown, that he had been
entrusted with the possession and management of the plaintiff's business and property for the owner's benefit
and had not made an accounting.
Neither did the defendant's sweeping statement at the trial that all the proceeds from the business had been
used to support the plaintiff and his daughters and to entertain or bribe Japanese officers and civilians dispense
with defendant's duty to account. It was a clear error for the court below to declare at this stage of the
proceeding, on the basis of defendant's incomplete and indefinite evidence, that there were no surplus profits,
and to call matters even. Under the pleadings and the evidence the court's inquiry ought to have been confined to
the determination of the plaintiff's right to secure an accounting; and that right having been established, the
appropriate judgment should have been a preliminary or interlocutory one that the defendant do account. The
court was not called upon to decide, and should not have decided, anything beyond that.
Monies and foodstuffs which the defendant said he had supplied the plaintiff and his daughters during the war are
appropriate items to be considered on taking account. Receipts and expenses involving thousands of pesos,
covering a great length of time, and consisting of complicated items are, on their face, so complex and in as to
necessitate being threshed out in an appropriations by the defendants substantiated. By the defendant's
admission, the business made good profits during the war, and there are charges that he amassed a fortune out
of the trusteeship. True or false, those allegations and many others which it was the plaintiff's right to prove, if he
could, should not have been dismissed summarily. Not technicalities but substantial rights, equity, and justice
clearly demanded adherence to the normal course of practice and procedure. The employment of auditors might
be necessary.
On the second cause of action, which relates to the ownership of the Silver Dollar Cafe trade-name, it appears
that the defendant on September 27, 1945, registered the business and its name as his own.
The defendant contends that in 1940, the plaintiff's right to use this trade-name expired and by abandonment or
non-use the plaintiff ceased to have any title thereto. The alleged abandonment or non-use is predicated on the
testimony that the plaintiff expressly allowed the defendant to appropriate the trade-name in dispute.
The parties' actions negative all motions of abandonment by the plaintiff. In the fictitious bill of sale executed on
December 29, 1941, the plaintiff asserted and the defendant acknowledged Thomas' ownership of the business. It
is manifest from Exhibit "C" and "D, samples of the business cards which were printed at the instance of the
defendant himself, that the plaintiff continued to display the name Silver Dollar Cafe after liberation. And when
the plaintiff set up a new saloon on Echague Street after he broke with the defendant, he gave the establishment
the same appellation Silver Dollar Cafe.
The most that can be said in favor of the defendant, which is the view taken by the trial Judge, is that the plaintiff
instructed Pineda to renew the registration of the trade-name and the defendant understood the instruction as
permission to make the registration in his favor. It is to be doubted to whether even honest mistakes were
possible under the circumstance of the case. It is an understatement to say that indications pointed to bad faith in
the registration. The application for registration contained brazen untruths.
The plaintiff non-use of his trade name in 1945, granting that to have been the case, did not work as a forfeiture
of his exclusive right to the name, name which he and the man from whom he bought the business had used for
over forty years without interruption. Under the provision of Commerce Administrative Order No. 1, issued on
January 11, 1946, by the Secretary of Commerce and Agriculture, the rights registrant of business names, the
records of which had been destroyed or lost during the war, were expressly protected. This administrative Order
No. 1-1, dated October 29, 1946, but the amendment referred only to the procedure for authentication of the
documents to be submitted. On the other hand, the amendatory order extended the filing of application for

reconstitution up to as late as December 31, 1946, that is ninety days after plaintiff commenced the present
action.
As legal proposition and in good conscience, the defendants registration of the trade name Silver Dollar
Cafe must be deemed to have been affected for the benefit of its owner of whom he was a mere
trustee or employee. "The relations of an agent to his principal are fiduciary and it is an elementary
and very old rule that in regard to property forming the subject matter of the agency, he is estopped
from acquiring or asserting a title adverse to that of principal. His position is analogous to that of a
trustee and he cannot consistently, with the principles of good faith, be allowed to create in himself
an interest in opposition to that of his principal or cestui que trust. A receiver, trustee, attorney,
agent or any other person occupying fiduciary relations respecting property or persons utterly
disabled from acquiring for his own benefit the property committed to his custody for management.
This rule is entirely independent of the fact whether any fraud has intervened. No fraud in fact need
be shown, and no excuse will be heard from any such inquiry that the rule takes so general form. The
rule stands on the moral obligation to refrain from placing one's self in position which ordinarily
excite conflicts between self-interest at the expense of one's integrity and duty to another, by
making it possible to profit by yielding to temptation". (Barretovs. Tuason, 50 Phil. 888;
Severino vs. Severino, 44 Phil., 343.)
To recapitulate, we find from what we believed is conclusive evidence, both direct and circumstance, that the
plaintiff was the owner of the Silver Dollar Cafe at Plaza Sta. Cruz during the enemy occupation and
is of right entitled to have an accounting of its administration by the defendant. Exhibit "F" does not
state the remuneration the defendant was to be paid for managing the plaintiff's business. The natural
presumption under normal circumstances would be that his prewar compensation was to continue. But conditions
during the occupation being different from what they were before the war, the defendants remuneration may and
should be increased if so warranted by the changed circumstances. This matter should be left for consideration in
the accounting, having in mind the nature and extent of the services rendered, the volumes of business
transacted, the profits obtained and the losses incurred, the personal risk run by the defendant, and other factors
related to the success or failure of the defendant's management.
We have it from the plaintiff that he promised to give the defendant one-half of the net profits of the business
established in Bambang and later at Plaza Sta. Cruz after liberation. This offer was reasonable, even liberal, and
no unforeseen circumstances having supervened to warrants its alteration, the same will not be disturbed and will
serve as basis of liquidation. The other basis of liquidation of the post-war business are that the plaintiff was the
exclusive owner of its stocks and other assets from May 8, 1945, when it was reestablished in Bambang, to
December 15 1946, when the business was levelled to the ground at Plaza Sta. Cruz.
For the reasons hereinbefore stated, the various sums of money aggregating P24,100 and received or taken by
the plaintiff were, and they hereby are declared to be, accounting from the defendants share of said profits if
there be any.
We also find that the trade-name Silver Dollar Cafe belongs to the plaintiff and that the defendant should be and
he is perpetually enjoined from using it or any essential part thereof.
In all other respects, especially in connection with the demand for accounting, this case is remanded to the court
of origin for further proceedings in accordance with law and the tenor of this decision and for a final judgment on
the balance that may be found due from either party.

Palma vs. Cristobal, 77 Phil. 712 (1946)


Facts: In 1909, after registration proceedings under the provisions of Act No. 496, original certificate of title No.
1627 was issued in the names of petitioner and his wife Luisa Cristobal. In 1923, said certificate was cancelled
and substituted by certificate of title No. 20968 by virtue of a decree issued by the Court of First Instance of
Manila in connection with Manila cadastre. It was later substituted by certificate of title No. 26704, also in the

name of petitioner and his wife. After the latter's death in 1922,a new certificate of title was issued in 1923 only in
the name of the name of the petitioner, substituted in 1928 by certificate of title No. 31073.
The Court of Appeals, upon the evidence, concluded with the Court of First Instance of Manila that the parcel of
land in question is a community property held by petitioner in trust for the real owners (the respondent being an
heir of one of them), the registration having been made in accordance with an understanding between the coowners, by reason of the confidence they had in petitioner and his wife. This confidence, close relationship, and
the fact that the co-owners were receiving their shares in the rentals, were the reasons why no step had been
taken to partition the property.
The Court of Appeals explains that it was only after the death of Luisa Cristobal and petitioner had taken a second
wife that trouble on religious matters arose between petitioner and respondent, and it gives credence to the
testimony of Apolonia Reyes and respondent to the effect that Luisa, before her death, called her husband, the
petitioner, and enjoined him to give her co-owners their shares in the parcel of land; but respondent told her then
not to worry about it, for it was more important to them to have her cured of the malady that affected her.
Petitioner answered his wife that she should not worry because he would take care of the matter by giving the coowners their respective shares.
Petitioner assigns as first error of the Court of Appeals the fact that it considered the oral testimony adduced in
behalf of respondent sufficient to rebut the legal presumption that petitioner is the owner of the land in
controversy. .
In Severino vs. Severino (43 Phil., 343), this court declared that "the relations of an agent to his principal
are fiduciary and it is an elementary and very old rule that in regard to property forming the subjectmatter of the agency, he is estopped from acquiring or asserting a title adverse to that of the
principal. His position is analogous to that of a trustee and he cannot consistently, with the
principles of good faith, be allowed to create in himself an interest in opposition to that of his
principal or cestui que trust." Affirming the said doctrine in Barretto vs. Tuason(50 Phil., 888), the Supreme
Court declared that the registration of the property in the name of the trustees in possession thereof,
must be deemed to have been effected for the benefit of the cestui que trust. In Palet vs. Tejedor (55
Phil., 790), it was declared that whether or not there is bad faith or fraud in obtaining a decree with
respect to a registered property, the same does not belong to the person in whose favor it was
issued, and the real owners be entitled to recover the ownership of the property so long as the same
has not been transferred to a third person who has acquired it in good faith and for a valuable
consideration. This right to recover is sanctioned by section 55 of Act No. 496, as amended by Act
No. 3322.
There is no showing why the conclusions of facts of the Court of Appeals should be disturbed, and upon said facts
petitioner's first assignment of errors appears to be untenable in the light of law and of the decision of this court.
Petitioner alleged that the Court of Appeals erred in not holding the respondent estopped from claiming that
petitioner is not the absolute owner of the property in question because, after Luisa Cristobal, petitioner's wife,
died in 1922, instead of moving for the partition of the property, considering specially that petitioner had
promised such a partition at the deathbed of the deceased, respondent appeared as attorney for petitioner and
prayed that a new certificate of title be issued in the name of said petitioner as the sole owner of the property.
Petitioner insisted with energy that respondent himself was a party to the fraud upon the court, as guilty as
petitioner himself, and that estops him from asserting that he is the co-owner of the land involved herein.

There is no merit in petitioner's contention. The fact that respondent has been a party to the deception which
resulted in petitioner's securing in his name the title to a property not belonging to him, is not valid reason for
changing the legal relationship between the latter and its true owners to such an extent as to let them lose their
ownership to a person trying to usurp it.
Whether petitioner and respondent are or are not jointly responsible for any fraud upon a court of justice, cannot
affect the substantial rights of the real owners of the title of a real property.
Respondent is not barred because his appearance as attorney for petitioner was not a misrepresentation which
would induce petitioner to believe that respondent recognized the former as the sole owner of the property in
controversy. The misrepresentation could deceive the court and outsiders, because they were not aware of the
understanding between the co-owners that the property be registered in the name of petitioner. The Court of
Appeals found, and the finding is not now in issue, that petitioner was a party to the understanding and assumed
the role of an instrument to make it effective. Respondent's appearance, as attorney for petitioner in 1923, was a
consequence of the understanding, and petitioner could not legitimately assume that it had the effect of breaking
or reversing said understanding.
Lastly, it is contended by petitioner that, even conceding that the controverted property was owned in common
by several co-owners, yet the Court of Appeals erred in not holding that, as against respondent, petitioner had
acquired absolute ownership of the same through prescription.
Upon the premise that the registration in 1909 in the name of petitioner and his wife, Luisa Cristobal, was in
accordance with an agreement among the co-owners, petitioner advances the theory that when he, upon the
death of his wife in 1922, caused the trust property to be registered in his sole name in 1923, and subsequently
partitioned between himself and his daughter, Ildefonsa Cristobal Ditangco, as heirs of the decedent, "he openly
breached the agreement of 1909 as well as the promise made to his dying wife of giving the co-owners their
respective shares," concluding that "that breach was an assumption of ownership, and could be the basis of title
by prescription."
This theory holds no water because, according to the pronouncement of the Court of Appeals, upon the evidence,
petitioner held the property and secured its registration in his name in a fiduciary capacity, and it is elementary
that a trustee cannot acquire by prescription the ownership of the property entrusted to him. The position of a
trustee is of representative nature. His position is the position of a cestui que trust. It is logical that all benefits
derived by the possession and acts of the agent, as such agent, should accrue to the benefit of his principal.
Petitioner's pretension of building his right to claim ownership by prescription upon his own breach of a trust
cannot be countenanced by any court, being subversive of generally accepted ethical principles.

a person having a duty, created by his undertaking, to act primarily for the benefit of another, the
principal, in matters connected with his undertaking. (Restatement of the Law on Agency, p.45)

B. General Obligations Art. 1884


C. Specific Obligations
i. Art. 1884 to carry out agency;

Art. 1884. The agent is bound by his acceptance to carry out the agency, and is liable for the damages which,
through his non-performance, the principal may suffer.

He must also finish the business already begun on the death of the principal, should delay entail any danger.
(1718)

ii. Art. 1884, 1170, 1909 to answer for damages suffered by principal;

Art. 1884. The agent is bound by his acceptance to carry out the agency, and is liable for the damages which,
through his non-performance, the principal may suffer.

He must also finish the business already begun on the death of the principal, should delay entail any danger.
(1718)

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof, are liable for damages. (1101)
Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged with more or
less rigor by the courts, according to whether the agency was or was not for a compensation. (1726)

iii. Art. 1884, 1919(3); 1930;


ART. 1884. The agent is bound by his acceptance to carry out the agency and is liable for the damages which,
through his non-performance, the principal may suffer.
He must also finish the business already begun on the death of the principal, should delay entail any dan- ger.
(1718)
Obligations, in general, of agent to principal.
Good faith and loyalty to his trust, agents first duty. As has been pointed out (see discussions under Art. 1868.),
the relationship existing between principal and agent is a fiduciary one, demanding conditions of trust and in all
transactions concerning or affecting the subject matter of the agency, it is the duty of the agent to act with the
utmost good faith and loyalty for the furtherance and advancement of the interests of the principal. The duty of
good faith is also called the fiduciary duly which imposes upon the agent the obligation of faithful service. The
duty to be loyal to the principal demands that the agent look out for the best interests of the principal as against
his own or those of the third party.
(2)
It is immaterial in the application of this rule that the agency is one coupled with interest (see Art. 1927.), or
that the compensation given the agency is small or nominal, or that it is a gratuitous agency. (3 C.J.S. 6-7.)
(a) Presumption. An agents acts which tend to violate his fiduciary duty are not only invalid as to the principal,
but are also against public policy. In the absence of proof to the contrary, however, the presumption arises that an
agent has performed his duty in good faith, and the principal, until notice is received of a breach of relational
duties, may rely upon his agents faithfulness. (Ibid., 7.)
(1)

(b) General rule as to loyalty when not applicable. The general rule as to loyalty does not apply to cases where no
relation of trust or confidence exists between the parties, as where the agent is bound merely as an instrument,
more properly as a servant, to perform a service, or where there is no showing of an agency relationship. (Ibid.)
(2) Obedience to principals instruction. An agent must obey all lawful orders and instructions of the principal
within the scope of the agency. If he fails to do so, he becomes liable for any loss the principal incurs even though
he can show that he acted in good faith or exercised reasonableness. Even a gratuitous agent must follow
instructions or become responsible for any loss resulting from failure to do so. But an agent is not liable if he
violates the principals instructions for a good reason. Related to the agents duty to obey instructions is the duty
to keep within the limits of his authority when acting for the principal. An agent must know the extent of his
authority. If he is in doubt, he should ask the principal for clarification.
(3) Exercise of reasonable care. By accepting an employment whose requirements he knows, without stipulating
otherwise, the agent impliedly undertakes that he possesses a degree of skill reasonably or ordinarily competent
for the performance of the service, and that in performing his undertaking, he will exercise reasonable care, skill
and diligence. He does not agree that he will make no mistake whatsoever, or that he will exercise the highest skill
or diligence, but he does agree that he will exercise reasonable skill, and that he will take the usual precautions
(Mechem, Sec. 524, p. 360; see Art. 1909; British Airways vs. Court of Appeals, 285 SCRA 450 [1998].) as a
reasonably careful agent would under similar circumstances. Failure to do so constitutes a breach of his duty.
ILLUSTRATIVE CASES:1. In attempting a settlement of a controversy, a lawyer lost
sight of a statute of limitations which had run against his client.
Facts: Ps wagon suffered from a collision with a traincar operated by T Corporation, the collision being
caused by the negligence of the driver of T. A (lawyer), on taking charge of the case, attempted a
settlement, and the controversy extended until a six (6) months statute of limitations had run against P.
A claimed that he was misled by the conduct of the corporation and he was satisfied that it would pay.
Issue: Is A guilty of negligence?
Held: Yes. The duty of A was not discharged when he communicated the offer of T to P who made no
reply. It was his duty to know the provisions of the law and to apply his knowledge. To lose sight of the
statute was to fail in that degree of care and skill to which the client is entitled. If he had written a
warning to P that the period of limitation was running out and that if P were meditating legal
proceedings he should have given instructions at once, that might have satisfied his (As) obligation to P.
(Fletcher & Sons vs. Lubb Booth & Helliwell, 1 K.B. 275 [1919].)
________ ________ ________
2. Agent, in violation of instruction of principal, delivered a note entrusted to him by principal, to a person who
misappropriated the note.
Facts: P delivered a note to A to get discounted, instructing him not to let the note get out of his reach
without receiving the money. A delivered the note to T, who promised to get it discounted and bring
back the money, but instead misappropriated the note.

Issue: Is A liable for the conversion2 of the note?


Held: Yes. The delivery to T was unauthorized and wrongful because it was contrary to the express
directions of P. It was an unlawful interference with Ps property which resulted in loss and that
interference and disposition constituted a conversion. A had no more right to deliver the note to T to
take away, any more than he had to pay his own debt with it. Morally, there might be a difference, but
in law, both acts would be a conversion, each consisting in exercising an unauthorized dominion over
Ps property. (Laverty vs. Snerthen, 68 N.Y. 522 [1877].)
________ ________ ________
3. Agent violated instructions as to price.Facts: A (broker) sold property of P at a price below Ps
instructions.
Issue: Is A liable for conversion of the property?
Held: No. In this case A did nothing with the property but what he was authorized to do. He had a
right to sell and deliver the property. He disobeyed instructions as to price only and was liable for
misconduct, but not for conversion of the property, a distinction which, in a practical sense, may seem
technical, but it is founded probably upon the distinction between an unauthorized interference with
the property itself and the avails or terms of sale. (Dufresne vs. Hutchinson, 3 Taunt. 117, and Sarjeant vs.
Blunt, 16 Johns. 74, cited in the Laverty case.)
Specific obligations of agent to principal.
They are the following:
(1) To carry out the agency which he has accepted;
(2) To answer for damages which through his performance the principal may suffer (Ibid.);
(3) To finish the business already begun on the death of the principal should delay entail any danger
(Ibid.);
(4) To observe the diligence of a good father of a family in the custody and preservation of the goods
forwarded to him by the owner in case he declines an agency, until an agent is appointed (Art. 1885.);
(5) To advance the necessary funds should there be a stipulation to do so (Art. 1886.);
(6) To act in accordance with the instructions of the principal, and in default thereof, to do all that a
good father of a family would do (Art. 1887.);
(7) Not to carry out the agency if its execution would manifestly result in loss or damage to the
principal (Art. 1888.);
(8) To answer for damages if there being a conflict between his interests and those of the principal, he

should prefer his own (Art. 1889.);


(9) Not to loan to himself if he has been authorized to lend money at interest (Art. 1890.);
(10) To render an account of his transactions and to deliver to the principal whatever he may have
received by virtue of the agency (Art. 1891.);
(11) To distinguish goods by countermarks and designate the merchandise respectively belonging to
each principal, in the case of a commission agent who handles goods of the same kind and mark, which
belong to different owners (Art. 1904.);
(12) To be responsible in certain cases for the acts of the substitute appointed by him (Art. 1892.);
(13) To pay interest on funds he has applied to his own use (Art. 1896.);
(14) To inform the principal, where an authorized sale of credit has been made, of such sale (Art. 1906.);
(15) To bear the risk of collection, should he receive also on a sale, a guarantee commission (Art. 1907.);
(16) To indemnify the principal for damages for his failure to collect the credits of his principal at the
time that they become due (Art. 1908.); and
(17) To be responsible for fraud or negligence. (Art. 1909.)
Obligation to carry out the agency.
A person is free to refuse to be an agent (Art. 1885.) but once he accepts the agency, he is bound to carry
it out in accordance with its terms in good faith (Art. 1159.) and following the instructions, if any, of the
principal. (Art. 1887.) He is normally expected to exercise the degree of care and skill that is reasonable
under the circumstances. By contract, the parties may make the agents duty of diligence in carrying out
the agency either stricter or more linient.
If the agent fulfills his duty, he is not personally liable unless he expressly binds himself. (Art. 1897.)
Obligation to answer for damages.
On the other hand, upon his failure to do so, he is liable for the damage which the principal may suffer.
This rule is an application to agency of the general rule in contracts that any person guilty of fraud,
negligence, or delay in the fulfillment of his obligation, or who in any other manner fails to comply with
the terms thereof, shall be liable for damages. (Art. 1170; see Art. 1909.) Having accepted the agency
when he was free to refuse it, the agent betrays the confidence reposed on him if he does not fulfill the
mandate.
The damages to which the principal is entitled are those which result from the agents nonperformance. As there can be no indemnity when there has been no damage, the principal must prove
his damages and the amount thereof. (11 Manresa 504.)

ILLUSTRATIVE CASE:
Creditor-assignee neglected in its duty to collect the sums due the debtor-assignor from the latters debtors, thereby
allowing such funds to be exhausted by other creditors.
Facts: A (PNB) had opened a letter of credit and advanced thereon $120,000.00 for 8,000 tons of hot
asphalt in favor of P. Of this amount, 2,000 tons worth P280,000.00 were released and delivered to P
under a trust receipt guaranteed by a surety. To pay for the asphalt, P constituted A, its assignee and
attorney- in-fact, to receive and collect from D (Bureau of Public Works) the amount aforesaid out of
funds payable to A. The assignment stipulated that the power of attorney shall remain irrevocable until
Ps total indebtedness to A has been fully liquidated.
A regularly collected from D for about 8 months. Thereafter, for unexplained reasons, A stopped
collecting from D the money falling due in favor of P before the debt was fully collected, thereby
allowing such funds to be taken and exhausted by other creditors.
Issue: Is A answerable for negligence in failing to collect the sums due its debtor (P) from the latters
debtor (D)?
Held: Yes. A is guilty of neglect in collecting from D (not from P, the principal debtor), contrary to its
duty as holder of an exclusive and irrevocable power of attorney to make such collections since an agent
is required to act with the care of a good father of a family (Art. 1887.) and becomes liable for the
damages which the principal may suffer through his non- performance. It must not be forgotten that As
power to collect was expressly made irrevocable, so that D could very well refuse to make payments to P,
the principal debtor himself, and a fortiori, reject any demands by the surety. As negligence exonerated
the surety. (Phil. National Bank vs. Manila Surety & Fidelity Co., Inc., 14 SCRA 776 [1965].)
Obligation to finish business upon principals death.
Although the death of the principal extinguishes the agency (Art. 1919[3].), the agent has an obligation
to conclude the business already begun on the death of the principal. The rule is in accord with the
principles of equity. But the duty exists only should delay entail any danger.
The agency shall also remain in full force even after the death of the principal if it has been constituted
in the common interest of the latter and of the agent, or in the interest of a third person who has
accepted the stipulation in his favor. (Art. 1930.) Where an agent makes use of the power of attorney
after the death of his principal, the agent has the obligation to deliver the amount col- lected by him by
virtue of said power to the administrator of the estate of the principal. (Ramos vs. Cavives, 94 Phil. 440
[1954].)
ART. 1919 Agency is extinguished:
(1) By its revocation;
(2) By the withdrawal of the agent;

(3) By the death, civil interdiction, insanity or insol- of the principal or of the agent;
(4) By the dissolution of the firm or corporation entrusted or accepted the agency;
(5) By the accomplishment of the object or purpose agency;
(6) By the expiration of the period for which the agency was constituted.
Presumption of continuance of agency.
When once shown to have existed, an agency relation will be presumed to have continued, in the
absence of anything to show its termination; and the burden of proving a revocation or other
termination of an agency is on the party asserting it. (3 Am. Jur. 2d 440.)
Modes of extinguishing an agency.
An agency does not last forever. Like most consensual agreements, the relationship usually comes to an
end at some point. Termination can take place because of something done by the parties themselves or
of something beyond their control, i.e., by operation of law. Under the law, agency may be terminated:
(1) by agreement (Nos. 5, 6.); or
(2) by the subsequent acts of the parties which may be either: (a) by the act of both parties or by mutual
consent; or (b) by the unilateral act of one of them (Nos. 1, 2.); or
(3) by operation of law. (Nos. 3, 4.)
Death of the principal or agent.
(1) General rule. By reason of the very nature of the rela- tionship between the principal and agent,
agency is extinguished ipso jure upon the death of either principal or agent.
(a) Although a revocation of a power of attorney to be effective must be communicated by the parties
concerned (see Arts. 1921 and 1922.), yet a revocation by operation of law, such as by death of the
principal is, as a rule, instantaneously effective inasmuch as by legal fiction the agents exercise of
authority is regarded as an execution of the principals continuing will. (2 C.J.S. 1174.)
With death, the principals will ceases or is terminated; the source of authority is extinguished. (Rallos
vs. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 [1978].) Thus, the death of a client divests his
lawyer of authority to represent him as counsel. A dead client has no personality and cannot be
represented by an attorney. (Lavia vs. Court of Appeals, 171 SCRA 691 [1989].)
(b) On the other hand, if the agent dies (see Art. 1932.), he can no longer act for the benefit and
representation of the principal. It is obvious that there can be no principal where there is no agent.
(2) Exceptions. The Civil Code expressly provides for two exceptions to the general rule that the death

of the principal or the agent revokes or terminates ipso jure the agency, to wit:
(a) That the agency is coupled with an interest (Art. 1930.); and
(b) That the act of the agent was executed without knowl- edge of the death of the principal and the
third person who contracted with the agent acted in good faith. (Art. 1931.)
ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if it
has been constituted in the common interest of the latter and of the agent, or in the interest of a
third person who has accepted the stipulation in his favor. (n)
When death of principal does not terminate agency.
Agency is terminated instantly by the death of the principal. (Art. 1919[3].) The reason is obvious. In
agency, being based on representation, there is no one to be represented where the principal is already
dead. However, there are exceptions to this rule. In the following cases, the agency remains in full force
and effect even after the death of the principal:
(1) if the agency has been constituted in the common interest of the principal and the agent (see Art.
1927.); and
(2) if it has been constituted in the interest of a third person who has accepted the stipulation in his
favor.9
EXAMPLES:
(1) A renders services to P who authorizes A to sell the latters land for not less than a certain price and
pay himself out of the proceeds. Before the land is sold, P dies. It is clear that the agency to sell is one
coupled with an interest (see Art. 1927.) and is not extinguished by the death of P.
9Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are not transmis- sible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the value of the property he received
from the decedent.
If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The con- tracting parties must have clearly and
deliberately conferred a favor upon a third person. (1257a)
(2) P borrows from B P5,000.00 payable in one (1) year. Before the due date of the obligation, P sells his
land to A and he authorizes A to pay Ps debt out of the purchase price. B accepts the agency of A.
Here, the right of B to receive payment from A cannot be defeated by the death of P.
ILLUSTRATIVE CASE:

Power of attorney authorizes agent to receive amounts due in- sured under a policy and apply the same to
expenses incurred by the former for hospitalization of the latter.
Facts: Under the life policy issued to P, T was designated as beneficiary in case of Ps death. P had
tuberculosis and was cared for in a hospital at the expense of X county. Pursuant to county statutory
duty, P constituted A, auditor of X county, as attorney-in-fact to receive any amounts due P under the
policy and to apply so much of the sums received on his expense for hospitalization and medical care
as might owe to X county. P died.
Issue: The question is whether the instrument, either as a power of attorney or as an assignment of
benefits, survived the decease of P.
Held: The instrument constitutes a power coupled with an interest and survived Ps death. It operated
as an assignment of a present interest or right of benefit under the insurance policy. A power to create
and then have an interest in the thing created, if not consummated, does not survive the death of the
grantor of the power. On the other hand, a power, coupled with an interest in an accrued right, survives
the death of the grantor of the power. (Chrysler Corporation vs. Blozic, 267 Mech. 479, 255 N.W. 399
[1934].)
- Ramos vs. Caoibes, 94 Phil. 440 [1954] - finish business already begun on the death of the principal
should delay entail any danger.
FACTS: This is an appeal by Consolacion L. Ramos as administratrix of the estate of Concepcion Ramos
from an order issued by the Court of First Instance of Batangas on June 15, 1951.
On August 16, 1948, Concepcion Ramos Dipusoy executed before a notary public two documents which
have been marked as Annex "A" and Annex "B".
Annex "A" is a power of attorney which reads as follows:
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Concepcion Ramos Dipusoy, of legal age, single, Filipino citizen and resident of Balayan,
Batangas, have made, constituted and appointed, and by these presents do make, constitute and
appoint Mr. Benigno A. Caoibes, also of legal age, married, Filipino citizen and at present residing at
1047 Antipolo Street, Sampaloc, Manila, my true and lawful attorney-in-fact, for me and in my name,
place and stead, to collect any amount due me from the Philippine War Damage Commission,
regarding my claim filed for my properties that were lost during the last war in Balayan, Batangas, to
cash checks, warrants and to sign receipts, vouchers, documents which shall be necessary to the said
purpose.
That I am giving and granting unto my said attorney-in-fact Benigno A. Caoibes, full and absolute
power and authority to do and perform all any every act or thing whatsoever to be done necessary in

and about the premises, as fully to all intents and purposes as I might or could myself do if I were
personally present, and hereby confirming and ratifying all that my said attorney-in-fact shall lawfully
do or cause to be done and by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of August, 1948, in the City of
Manila, Philippines.
(Miss) CONCEPCION RAMOS DIPUSOY
Signed in the Presence of:
1. (Sgd.) CONSOLACION L. RAMOS
Witness
2. (Sgd.) SOCORRO L. RAMOS
Witness
Annex B is an affidavit of the following tenor:
REPUBLIC OF THE PHILIPPINES}
CITY OF MANILA

} s.s.

AFFIDAVIT
That I, CONCEPCION RAMOS DIPUSOY, of legal age, single, Filipino citizen, and resident of Balayan,
Batangas, after having been duly sworn to in accordance to law depose and say:
That in case payment of any amount or amounts collected from the Philippine War Damage
Commission, my nephew and at the same time attorney-in-fact, shall give my sister Teopista Vda. de
Basa one-half (), of the corresponding amount and the other half () shall be given to my nephew and
niece Mr. and Mrs. Benigno A. Caoibes.
IN WITNESS WHEREOF, I have hereunto set my hand this 16th day of August, 1948, in the City of
Manila.
(Sgd.) CONCEPCION RAMOS DIPUSOY
Signed in the Presence of:
1. (Sgd.) CONSOLACION L. RAMOS
2. (Sgd.) SOCORRO L. RAMOS
Concepcion Ramos died on August 19, 1948, leaving a will dated January 7, 1927 admitted to probate

on October 4, 1948, in which she ordered that the credits due to her be distributed among the children
of the deceased Antonino Ramos, namely, Consolacion, Ramon, Socorro and Cirila.
One year before she died, Concepcion Ramos filed with the War Damage Commission a claim which
was identified as No. 411773. On August 31, 1948, the Commission issued check No. 348444, in the
amount of P501.62, payable to the deceased Concepcion Ramos. This check was returned to the
Commission and substituted by the latter which check No. 564614, on November 10, 1948, for the same
amount, but payable to Benigno A. Caoibes, who had presented to said entity Annexes "A" and "B",
above mentioned, in order to exchange the first check No. 564614, which he cashed for himself.
Annexes "A" and "B" were presented to the Commission by Caoibes after the death of Concepcion. The
administratrix, Consolacion L. Ramos, the appellant herein, discovered the collection made by Caoibes
when she saw the note "previous payment" which appeared in the account sent to her by the
Commission on October 13, 1950. She filed a motion with the court asking that Caoibes be ordered to
deposit the sum of P501.62 with the clerk of court. Caoibes answered the motion admitting that after
the death of Concepcion, he presented Annexes "A" and "B" to the Commission and received in cash the
sum of P501.62, amount of the second check, above mentioned, but stating that he was willing to
deliver to the clerk the sum of P250.81. He contended that, by virtue of Annex "A", and Annex "B", he
had the right to retain, for himself, half of the sum of P501.62.
The court below issued the following order:
Considering the motion of the administratrix praying that Atty. Benigno A. Caoibes turn over the
amount of P510.62, representing war damage claim, to the office of the Clerk of this Court, and the
answer of Atty. Caoibes to the said motion and this Court having had the opportunity to personally
confer with the parties and Atty. Caoibes being agreeable to turn over the amount of P250.81 to the
Clerk of this Court in final settlement of this matter it is ordered that the said Atty. Caoibes deposit
the said amount to be at the disposal of the administratrix and the other parties in this intestate
proceedings. With this order, the matter before this Court is deemed closed.
SO ORDERED
Batangas, Batangas, June 15, 1951
(Sgd.) E. SORIANO
Judge
On July 3, 1951, the administratrix filed a motion for reconsideration, which was denied by the order of
the court dated July 12, 1951. (In the printed Record on Appeal the date appears to be July 12, 1950, but
it is evidently a mistake and it should be July 12, 1951.)
ISSUE: HOW TO CONSTRUE THE DOCUMENTS (PA + AFFIDAVIT)

HELD: Annex A is only a power of attorney. Caoibes, as agent, had the obligation to deliver the
amount collected by virtue of said power to his principal, Concepcion, or, after her death, to the
administratrix of her estate, Consolacion. There is absolutely no cession of rights made in favor of
Caoibes in Annex "A", and under Article 1711 of the old Civil Code (which was in force at the time of
the transaction), the contract of agency is presumed to be gratuitous, unless the agent is a professional
agent. There is no proof that Caoibes was such. Furthermore, according to Article 1732 of said Code, an
agency is terminated, among other causes, by the death of the principal or of the agent. When Caoibes
made use of the power of attorney, his principal, Concepcion was already dead.
Coming now to Annex "B", the alleged document of donation, it should be noted that it is not a
donation of real but of personal property and is governed by article 632 of the old Civil Code, which
reads as follows:
Donations of personal property may be made verbally or in writing.
Verbal donation requires the simultaneous delivery of the gift. In the absence of this requisite the
donation shall produce no effect, unless made in writing and accepted in the same form.
The alleged donation was made in writing but it has not been accepted in the same form, and
consequently, has no validity. It cannot be considered a donation upon valuable consideration, for no
services nor any valuable consideration had passed from the donees to the donor. The mere fact that
Caoibes collected the claim from the War Damage Commission is not such a service as to require
compensation. Caoibes did not even prepare the claim.
The court below in its order of June 15, 1951, said that it "having had the opportunity to personally
confer with the parties and Attorney Caoibes being agreeable to turn over the amount of P250.81 to the
Clerk of this Court in final settlement of this matter it is ordered that the said Atty. Caoibes deposit
the amount of P250.81 with the Clerk of this Court, the said amount to be at the disposal of the
administratrix and the other parties in these intestate proceedings. With this order, the matter before
the administratrix never consented to the reduction of the claim.
In view of the foregoing, the order appealed from is hereby reversed and Benigno A. Caoibes is
ordered to deposit with the Clerk of Court of Batangas the sum of P501.62 to be at the disposal of
the administratrix in her capacity as such, without pronouncement as to costs. So ordered.
iv. Art. 1885 obligation of person who declines an agency to observe the diligence of a good father of a
family in the custody and preservation of the goods forwarded to him by the owner.
ART. 1885. In case a person declines an agency, he is bound to observe the diligence of a good father
of a family in the custody and preservation of the goods for- warded to him by the owner until the
latter should ap- point an agent. The owner shall as soon as practicable either appoint an agent or
take charge of the goods. (n)

Obligation of person who declines an agency.


In the event a person declines an agency, he is still bound to observe the diligence of a good father of a
family (see Art. 1163.) in the custody and preservation of the goods forwarded to him by the owner.
This rule is based on equity. The owner, however, must act as soon as practicable either (1) by
appointing an agent or (2) by taking charge of the goods.
The obligation of an agent who withdraws from an agency is provided in Article 1929.
v. Art. 1886 obligation to advance necessary funds if stipulated; Art. 1912, 1159; 1918.
ART. 1886. Should there be a stipulation that the agent shall advance the necessary funds, he shall
be bound to do so except when the principal is insolvent. (n)
Obligation to advance necessary funds.
As a rule, the principal must advance to the agent, should the latter so request, the sums necessary for
the execution of the agency. (Art. 1912.) The contract of agency, however, may stipulate that the agent
shall advance the necessary funds. (see Art. 1159.) In such case, the agent is bound to furnish such
funds except when the principal is insolvent. The exception is based on the principals obligation to
reimburse the agent. Incidentally, the insolvency of the principal is a ground for extinguishment of
agency. (Art. 1912[3].)
In certain cases, the principal is not liable for the expenses incurred by the agent. (see Art. 1918.)
ART. 1912. The principal must advance to the agent, should the latter so request, the sums necessary
for the execution of the agency.
Should the agent have advanced them, the principal must reimburse him therefor, even if the
business or undertaking was not successful, provided the agent is free from all fault.
The reimbursement shall include interest on the sums advanced, from the day on which the advance
was made. (1728)
Art. 1159. Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith.
ART. 1918. The principal is not liable for the expens- es incurred by the agent in the following cases:
(1) If the agent acted in contravention of the princi- pals instructions, unless the latter should wish
to avail himself of the benefits derived from the contract;
(2) When the expenses were due to the fault of the agent;
(3) When the agent incurred them with knowledge that an unfavorable result would ensue, if the
principal was not aware thereof;

(4) When it was stipulated that the expenses would be borne by the agent, or that the latter would be
allowed only a certain sum. (n)
vi. Art. 1887 to follow instructions of principal
ART. 1887. In the execution of the agency, the agent shall act in accordance with the instructions of
the prin- cipal.
In default thereof, he shall do all that a good father of a family would do, as required by the nature
of the business. (1719)
Instructions (of principal) defined.
Instructions are private directions which the principal may give the agent in regard to the manner of
performing his duties as such agent but of which a third party is ignorant. They are said to be secret if
the principal intended them not to be made known to such party.
Instructions distinguished from authority.
The distinctions are:
(1) Authority (see Arts. 1881, 1882.), the sum total of the powers committed or permitted to the agent by
the principal, may be limited in scope and such limitations are themselves a part of the authority, but
instructions direct the manner of transacting the authorized business and contemplates only a private
rule of guidance to the agent and are independent and distinct in character;
(2) Authority relates to the subject with which the agent is empowered to deal or the kind of business or
transactions upon which he is empowered to act, while instructions refer to the manner or mode of his
action with respect to matters which in their substance are within the scope of permitted action;
(3) Limitations of authority are operative as against those who have or are charged with knowledge of
them (see Art. 1900.), while instructions limiting the agents authority are without significance as
against those dealing with the agent with neither knowledge nor notice of them; (see Art. 1902.) and
(4) Authority is contemplated to be made known to the third person dealing with the agent, while
instructions are not expected to be made known to those with whom the agent deals. (see 2 C.J.S. 12001202.)
Effect of violation of principals instructions.
(1) Liability of principal to third person. If an act done by an agent is within the apparent scope of the
authority with which he has been clothed, it matters not that it is directly contrary to the instructions of
the principal. The principal will, nevertheless, be liable unless the third person with whom the agent
dealt knew that he was exceeding his authority or violating his instructions. (3 Am. Jur. 2d 628.)
Third persons dealing with an agent do so at their peril and are bound to inquire as to the extent of his

authority but they are not required to investigate the instructions of the principal. In other words, the
principal after clothing an agent with apparent powers, cannot, by means of private communications
with the agent, limit the authority which he allows the agent to assume. (Ibid., 486-487; see Art. 1902.)
The principal will be liable to third persons, under the doctrine of estoppel (see Art. 1911.), for any
unauthorized acts of the agent who exceeds the instructions given to him.
(2) Liability of agent to principal. infra.
EXAMPLES:
(1) P writes to B that A is authorized to buy certain merchandise. P privately instructs A not to buy but
merely to obtain Bs lowest price. In violation of said instruction, A buys the merchandise.
In this case, the sale is binding upon P under the doctrine of estoppel because A has apparent authority
to make the purchase although it is not in accordance with the instruction given.
(2) P employed A to sell Ps horse at the best possible price, with private direction that A may receive
P10,000.00, but no less. A sold the horse as agent of P for only P8,000.00 to T.
In this case, P is bound by the sale. The permission to sell for P10,000.00 and the direction not to sell for
less, are not ordinarily to be communicated to T, although intended to control the action of A, and are
not to be regarded as limitations upon As authority. P trusts A, who has discretion on the matter, and
it would be most mischievous to hold such direction as a condition, upon a compliance with which
depended the validity of the [sale]. (Hatch vs. Taylor, 10 N.H. 538 [1840].) As violation of the
instruction makes him liable to P.
Note: If there is no evidence showing that P gave A authority to sell the horse, P is not bound unless he
is in estoppel. Agency cannot be proved by the mere declaration of the agent that he had been given the
authority.3
Obligation to act in accordance with principals instructions.
(1) Duty to obey reasonable and lawful instructions. It is the fundamental duty of the agent to obey all
the reasonable and lawful instructions given to him by his principal. That the agent shall, for the time
being, put his own will under the direction of another, is one of the primary elements in the relation.
(Mechem, Sec. 1244.) He must follow instructions even if he thinks they are capricious or unwise. He
violates his duty of obedience whenever he disregards or deviates from such instructions. But an agent
need not follow instructions that are outside the scope of the agency relationship agreed upon or that
may subject him to unreasonable risk of injury to himself.
(2) Liability for loss or damage. If the agent exceeds, violates, or fails to act upon such instructions, he
will be liable to the principal for any loss or damage resulting therefrom. Thus, if an agent fails to effect
an insurance as instructed, or sells on credit or for a less price where he has been given instruction to
sell for cash, or for a certain price, or sells to irresponsible persons when instructed to sell only to those
of undoubted solvency, or fails to take security for a loan as instructed, he is liable for the consequent

loss. (see 3 C.J.S. 29-30.)


(3) Duty to act in good faith and with due care. In the absence of specific instructions of the principal, the
agent shall do all that a good father of a family taking care of the business as if it were his own would
do as required by the nature of the business. (Art. 1887, par. 2.) If he acts in good faith and with due
care, the agent is not liable for losses due to errors or mistakes of judgment as regards to matters with
which he is vested with discretionary powers. It will be presumed that the agent acted in good faith
and in accordance with his power as he understood it. (Lian vs. Puno, 31 Phil. 529 [1915].)
EXAMPLE:
P ordered A, his broker, to sell 10,000 shares at a mini- mum price of P1.00 per share. All the
transactions in the mar- ket showed that the said shares were being traded at P1.10 per share.
Now, if A sold the shares at only P1.00 per share, P is entitled to recover the difference of P0.10 for each
of the 10,000 shares. Good faith and ordinary prudence demand that A should sell the shares at the
price most profitable to P.
(4) Exemption from liability for failure of undertaking. The agent has the power (not the right) in many
cases to bind his principal even when he acts beyond his authority. Accordingly, the law imposes upon
him the duty not to exceed the author- ity given him by his principal. However, when an agent, in executing the orders and commissions of his principal, carries out the instructions he has received from
his principal, and does not appear to have exceeded his authority or to have acted with neg- ligence,
deceit, or fraud, he cannot be held responsible for the failure of his principal to accomplish the object of
the agency. (Gutierrez Hermanos vs. Oria Hermanos, 30 Phil. 491 [1915]; G. Puyat & Sons, Inc. vs. Arco
Amusement Company, 72 Phil. 402 [1941].)
Since an agent is required to exercise only ordinary care, skill, and diligence, he is not, in the absence of
an agreement, an insurer of the success of his undertaking, and does not guarantee the principal
against incidental losses. (3 C.J.S. 36.)
EXAMPLE:
Suppose in the preceding example, A was given the discretion to sell the shares if he believes it would
be profitable to P or not to sell them if he believes their price would still go up. A sold the shares at
P1.10 per share. The next day the price rose to P1.30 a share.
In this case, A is not liable to P if he acted in good faith for losses suffered by P due to As error of
judgment.
(5) Right to disobey principals instructions. The agent may disobey the principals instruction where it
calls for the performance of illegal acts, or where he is privileged to do so to protect his security interest
in the subject matter of the agency.
EXAMPLE:

A has lien on Ps goods (see Art. 1914.) in As possession to the extent of all moneys advanced by A to P.
(see Art. 1912.) P directs A to return the goods or sell them on credit.
A is not bound to comply with Ps orders until P has repaid all advances made by A. Unless privileged,
As disobedience subjects him to liability in damages and, if material, justifies P in terminating the
agency. (Babb & Martin, op. cit., p. 142.)
When departure from principals instructions justified.
(1) A departure from instructions may be justified by a sudden emergency. Where some unexpected
emergency or unforeseen event occurs which will admit no delay for communication with the
principal, the agent is justified in adopting the course which seems best to him under the
circumstances. A company foreman may be instructed to call a certain physician in case of accident.
Surely, the foreman is justified in calling another physician if a serious accident occurs and he is unable
to communicate with either the named physician or his principal.
The rule is applicable only where the principal cannot be consulted and where the circumstances
cannot admit delay. (Wyatt & Wyatt, op. cit., p. 276.)
(2) Ambiguous instructions are another instance which may justify an agent in not following instructions.
The agent will not be liable if he chooses reasonably one of two possible interpreta- tions. Customs and
usage may aid in the interpretation of am- biguous instructions but not to the extent of overruling
positive instructions to the contrary. Nor will the agent be justified in fol- lowing ideas of his own
which are not within any interpretation of the instructions. (Ibid.)
Where instructions are ambiguous, the agent is not chargeable with disobedience or its consequences in
case he makes an honest mistake and adopts a construction different from that intended by the
principal. (2 C.J. Sec. 374.) If the instructions are ambiguous, the agent cannot disregard them
altogether. He fulfills his duty, when acting in good faith, he interprets them in a manner that is
reasonable under the circumstances. It is the duty of the principal to couch his instructions in clear
terms.
(3) An agent may not be said to have breached the agency contract by reason of an insubstantial
departure from the principals instructions, which does not affect the result. However, a departure
cannot usually be termed insubstantial in the face of the principals countervailing instruction, for the
principal has a right to determine what he will consider important.
But it has been said that a trivial mistake will not be held a bar to the agents claim for compensation.
Thus, if A is instructed to execute a deed on July 1st but it is mistakenly executed on July 2nd without
damage to principal, it would seem that the principal should not be able to treat the departure so
seriously as to constitute it a breach of the agency contract. (Teller, op. cit., pp. 133-134.)
- People vs. Chowdury, 325 SCRA 572 (2000);
SHORT VERSION:

Facts: Bulu Chowdury was charged with the crime of illegal recruitment in large scale by recruiting
Estrella B. Calleja, Melvin C. Miranda and Aser S. Sasis for employment in Korea. Evidence shows that
accused appellant interviewed private complainant in 1994 at Craftrades office. At that time, he was
an interviewer of Craftrade which was operating under temporary authority given by POEA pending
the renewal of license. He was charged based on the fact that he was not registered with the POEA as
employee of Craftrade and he is not in his personal capacity, licensed to recruit overseas workers. The
complainants also averred that during their applications for employment for abroad, the license of
Craftrade was already expired.
For his defense Chowdury testified that he worked as interviewer at Craftrade from 1990 until 1994. His
primary duty was to interview job applicants for abroad. As a mere employee, he only followed the
instructions given by his superiors, Mr. Emmanuel Geslani, the agency's President and General
Manager, and Mr. UtkalChowdury, the agency's Managing Director.
Issue: Whether or not accused-appellant knowingly and intentionally participated in the commission
of the crime charged.
Held: No, an employee of a company or corporation engaged in illegal recruitment may be held liable
as principal, together with his employer, if it is shown that he actively and consciously participated in
illegal recruitment. In this case, Chowdury merely performed his tasks under the supervision of its
president and managing director. The prosecution failed to show that the accused-appellant is
conscious and has an active participation in the commission of the crime of illegal recruitment.
Moreover, accused-appellant was not aware of Craftrade's failure to register his name with the POEA
and the prosecution failed to prove that he actively engaged in recruitment despite this knowledge. The
obligation to register its personnel with the POEA belongs to the officers of the agency. A mere
employee of the agency cannot be expected to know the legal requirements for its operation. The
accused-appellant carried out his duties as interviewer of Craftrade believing that the agency was duly
licensed by the POEA and he, in turn, was duly authorized by his agency to deal with the applicants in
its behalf. Accused-appellant in fact confined his actions to his job description. He merely interviewed
the applicants and informed them of the requirements for deployment but he never received money
from them. Chowdury did not knowingly and intentionally participated in the commission of illegal
recruitment being merely performing his task and unaware of illegality of recruitment.
LONG VERSION
FACTS: In November 1995, Bulu Chowdury and Josephine Ong were charged before the Regional Trial
Court of Manila with the crime of illegal recruitment in large scale committed as follows:
"That sometime between the period from August 1994 to October 1994 in the City of Manila,
Philippines and within the jurisdiction of this Honorable Court, the above-named accused,
representing themselves to have the capacity to contract, enlist and transport workers for employment

abroad, conspiring, confederating and mutually helping one another, did then and there willfully,
unlawfully and feloniously recruit the herein complainants: Estrella B. Calleja, Melvin C. Miranda and
Aser S. Sasis, individually or as a group for employment in Korea without first obtaining the required
license and/or authority from the Philippine Overseas Employment Administration." [if !supportFootnotes][1][endif]
They were likewise charged with three counts of estafa committed against private complainants. [if

supportFootnotes][2][endif]

The State Prosecutor, however, later dismissed the estafa charges against Chowdury [if !

supportFootnotes][3][endif]

and filed an amended information indicting only Ong for the offense.[if !supportFootnotes][4][endif]

Chowdury was arraigned on April 16, 1996 while Ong remained at large. He pleaded "not guilty" to the
charge of illegal recruitment in large scale.[if !supportFootnotes][5][endif]
Trial ensued.

The prosecution presented four witnesses: private complainants Aser Sasis, Estrella Calleja and Melvin
Miranda, and Labor Employment Officer Abbelyn Caguitla.
Sasis testified that he first met Chowdury in August 1994 when he applied with Craftrade Overseas
Developers (Craftrade) for employment as factory worker in South Korea. Chowdury, a consultant of
Craftrade, conducted the interview. During the interview, Chowdury informed him about the
requirements for employment. He told him to submit his passport, NBI clearance, passport size picture
and medical certificate. He also required him to undergo a seminar. He advised him that placement
would be on a first-come-first-serve basis and urged him to complete the requirements immediately.
Sasis was also charged a processing fee of P25,000.00. Sasis completed all the requirements in
September 1994. He also paid a total amount of P16,000.00 to Craftrade as processing fee. All payments
were received by Ong for which she issued three receipts. [if !supportFootnotes][6][endif] Chowdury then processed
his papers and convinced him to complete his payment.[if !supportFootnotes][7][endif]
Sasis further said that he went to the office of Craftrade three times to follow up his application but he
was always told to return some other day. In one of his visits to Craftrades office, he was informed that
he would no longer be deployed for employment abroad. This prompted him to withdraw his payment
but he could no longer find Chowdury. After two unsuccessful attempts to contact him, he decided to
file with the Philippine Overseas Employment Administration (POEA) a case for illegal recruitment
against Chowdury. Upon verification with the POEA, he learned that Craftrade's license had already
expired and has not been renewed and that Chowdury, in his personal capacity, was not a licensed
recruiter.[if !supportFootnotes][8][endif]
Calleja testified that in June 1994, she applied with Craftrade for employment as factory worker in
South Korea. She was interviewed by Chowdury. During the interview, he asked questions regarding
her marital status, her age and her province. Toward the end of the interview, Chowdury told her that

she would be working in a factory in Korea. He required her to submit her passport, NBI clearance, ID
pictures, medical certificate and birth certificate. He also obliged her to attend a seminar on overseas
employment. After she submitted all the documentary requirements, Chowdury required her to pay
P20,000.00 as placement fee. Calleja made the payment on August 11, 1994 to Ong for which she was
issued a receipt.[if !supportFootnotes][9][endif] Chowdury assured her that she would be able to leave on the first
week of September but it proved to be an empty promise. Calleja was not able to leave despite several
follow-ups. Thus, she went to the POEA where she discovered that Craftrade's license had already
expired. She tried to withdraw her money from Craftrade to no avail. Calleja filed a complaint for
illegal recruitment against Chowdury upon advice of POEA's legal counsel. [if !supportFootnotes][10][endif]
Miranda testified that in September 1994, his cousin accompanied him to the office of Craftrade in
Ermita, Manila and introduced him to Chowdury who presented himself as consultant and interviewer.
Chowdury required him to fill out a bio-data sheet before conducting the interview. Chowdury told
Miranda during the interview that he would send him to Korea for employment as factory worker.
Then he asked him to submit the following documents: passport, passport size picture, NBI clearance
and medical certificate. After he complied with the requirements, he was advised to wait for his visa
and to pay P25,000.00 as processing fee. He paid the amount of P25,000.00 to Ong who issued receipts
therefor.[if !supportFootnotes][11][endif] Craftrade, however, failed to deploy him. Hence, Miranda filed a complaint
with the POEA against Chowdury for illegal recruitment.[if !supportFootnotes][12][endif]

Labor Employment Officer Abbelyn Caguitla of the Licensing Branch of the POEA testified that she
prepared a certification on June 9, 1996 that Chowdury and his co-accused, Ong, were not, in their
personal capacities, licensed recruiters nor were they connected with any licensed agency. She
nonetheless stated that Craftrade was previously licensed to recruit workers for abroad which expired
on December 15, 1993. It applied for renewal of its license but was only granted a temporary license
effective December 16, 1993 until September 11, 1994. From September 11, 1994, the POEA granted
Craftrade another temporary authority to process the expiring visas of overseas workers who have
already been deployed. The POEA suspended Craftrade's temporary license on December 6, 1994. [if !
supportFootnotes][13][endif]

For his defense, Chowdury testified that he worked as interviewer at Craftrade from 1990 until 1994.
His primary duty was to interview job applicants for abroad. As a mere employee, he only followed the
instructions given by his superiors, Mr. Emmanuel Geslani, the agencys President and General
Manager, and Mr. Utkal Chowdury, the agency's Managing Director. Chowdury admitted that he
interviewed private complainants on different dates. Their office secretary handed him their bio-data
and thereafter he led them to his room where he conducted the interviews. During the interviews, he
had with him a form containing the qualifications for the job and he filled out this form based on the
applicant's responses to his questions. He then submitted them to Mr. Utkal Chowdury who in turn

evaluated his findings. He never received money from the applicants. He resigned from Craftrade on
November 12, 1994.[if !supportFootnotes][14][endif]
Another defense witness, Emelita Masangkay who worked at the Accreditation Branch of the POEA
presented a list of the accredited principals of Craftrade Overseas Developers [if !supportFootnotes][15][endif] and a
list of processed workers of Craftrade Overseas Developers from 1988 to 1994. [if !supportFootnotes][16][endif]
The trial court found Chowdury guilty beyond reasonable doubt of the crime of illegal recruitment in
large scale. It sentenced him to life imprisonment and to pay a fine of P100,000.00. It further ordered
him to pay Aser Sasis the amount of P16,000.00, Estrella Calleja, P20,000.00 and Melvin Miranda,
P25,000.00.
Chowdury appealed.
The elements of illegal recruitment in large scale are:
(1) The accused undertook any recruitment activity defined under Article 13 (b) or any prohibited
practice enumerated under Article 34 of the Labor Code;
(2) He did not have the license or authority to lawfully engage in the recruitment and placement of
workers; and
(3) He committed the same against three or more persons, individually or as a group. [if !supportFootnotes][18][endif]

The last paragraph of Section 6 of Republic Act (RA) 8042 [if !supportFootnotes][19][endif] states who shall be held
liable for the offense, thus:
"The persons criminally liable for the above offenses are the principals, accomplices and accessories. In
case of juridical persons, the officers having control, management or direction of their business shall
be liable."
The Revised Penal Code which supplements the law on illegal recruitment [if !supportFootnotes][20][endif] defines
who are the principals, accomplices and accessories. The principals are: (1) those who take a direct part
in the execution of the act; (2) those who directly force or induce others to commit it; and (3) those who
cooperate in the commission of the offense by another act without which it would not have been
accomplished.[if

!supportFootnotes][21][endif]

The accomplices are those persons who may not be considered as

principal as defined in Section 17 of the Revised Penal Code but cooperate in the execution of the
offense by previous or simultaneous act. [if

!supportFootnotes][22][endif]

The accessories are those who, having

knowledge of the commission of the crime, and without having participated therein, either as
principals or accomplices, take part subsequent to its commission in any of the following manner: (1) by
profiting themselves or assisting the offenders to profit by the effects of the crime; (2) by concealing or
destroying the body of the crime, or the effects or instruments thereof, in order to prevent its discovery;

and (3) by harboring, concealing, or assisting in the escape of the principal of the crime, provided the
accessory acts with abuse of his public functions or whenever the author of the crime is guilty of
treason, parricide, murder, or an attempt at the life of the chief executive, or is known to be habitually
guilty of some other crime.[if !supportFootnotes][23][endif]
Citing the second sentence of the last paragraph of Section 6 of RA 8042, accused-appellant contends
that he may not be held liable for the offense as he was merely an employee of Craftrade and he only
performed the tasks assigned to him by his superiors. He argues that the ones who should be held
liable for the offense are the officers having control, management and direction of the agency.
As stated in the first sentence of Section 6 of RA 8042, the persons who may be held liable for illegal
recruitment are the principals, accomplices and accessories. An employee of a company or corporation
engaged in illegal recruitment may be held liable as principal, together with his employer, [if !supportFootnotes]
[24][endif]
[endif]

if it is shown that he actively and consciously participated in illegal recruitment.[if !supportFootnotes][25]

It has been held that the existence of the corporate entity does not shield from prosecution the

corporate agent who knowingly and intentionally causes the corporation to commit a crime. The
corporation obviously acts, and can act, only by and through its human agents, and it is their conduct
which the law must deter. The employee or agent of a corporation engaged in unlawful business
naturally aids and abets in the carrying on of such business and will be prosecuted as principal if, with
knowledge of the business, its purpose and effect, he consciously contributes his efforts to its conduct
and promotion, however slight his contribution may be. [if

!supportFootnotes][26][endif]

The law of agency, as

applied in civil cases, has no application in criminal cases, and no man can escape punishment when he
participates in the commission of a crime upon the ground that he simply acted as an agent of any
party.[if

!supportFootnotes][27][endif]

The culpability of the employee therefore hinges on his knowledge of the

offense and his active participation in its commission. Where it is shown that the employee was merely
acting under the direction of his superiors and was unaware that his acts constituted a crime, he may
not be held criminally liable for an act done for and in behalf of his employer.[if !supportFootnotes][28][endif]
ISSUE: The fundamental issue in this case, therefore, is whether accused-appellant knowingly and
intentionally participated in the commission of the crime charged.
HELD: We find that he did not.
Evidence shows that accused-appellant interviewed private complainants in the months of June,
August and September in 1994 at Craftrade's office. At that time, he was employed as interviewer of
Craftrade which was then operating under a temporary authority given by the POEA pending renewal
of its license.[if

!supportFootnotes][29][endif]

supportFootnotes][30][endif]

The temporary license included the authority to recruit workers. [if

He was convicted based on the fact that he was not registered with the POEA as

employee of Craftrade. Neither was he, in his personal capacity, licensed to recruit overseas workers.
Section 10 Rule II Book II of the Rules and Regulation Governing Overseas Employment (1991) requires
that every change, termination or appointment of officers, representatives and personnel of licensed

agencies be registered with the POEA. Agents or representatives appointed by a licensed recruitment
agency whose appointments are not previously approved by the POEA are considered "non-licensee "
or "non-holder of authority" and therefore not authorized to engage in recruitment activity. [if !supportFootnotes]
[31][endif]

Upon examination of the records, however, we find that the prosecution failed to prove that accusedappellant was aware of Craftrade's failure to register his name with the POEA and that he actively
engaged in recruitment despite this knowledge. The obligation to register its personnel with the POEA
belongs to the officers of the agency.[if

!supportFootnotes][32][endif]

A mere employee of the agency cannot be

expected to know the legal requirements for its operation. The evidence at hand shows that accusedappellant carried out his duties as interviewer of Craftrade believing that the agency was duly licensed
by the POEA and he, in turn, was duly authorized by his agency to deal with the applicants in its
behalf. Accused-appellant in fact confined his actions to his job description. He merely interviewed the
applicants and informed them of the requirements for deployment but he never received money from
them. Their payments were received by the agency's cashier, Josephine Ong. Furthermore, he
performed his tasks under the supervision of its president and managing director. Hence, we hold that
the prosecution failed to prove beyond reasonable doubt accused-appellant's conscious and active
participation in the commission of the crime of illegal recruitment. His conviction, therefore, is without
basis.
This is not to say that private complainants are left with no remedy for the wrong committed against
them. The Department of Justice may still file a complaint against the officers having control,
management or direction of the business of Craftrade Overseas Developers (Craftrade), so long as the
offense has not yet prescribed. Illegal recruitment is a crime of economic sabotage which need to be
curbed by the strong arm of the law. It is important, however, to stress that the government's action
must be directed to the real offenders, those who perpetrate the crime and benefit from it.
vii. Art. 1888 not to carry out agency; Art. 1884, 1887, pars. 2 due diligence.

ART. 1888. An agent shall not carry out an agency if its execution would manifestly result in loss or
damage to the principal. (n)
When agent shall not carry out agency.
The agent, upon acceptance of the agency, is not bound in all cases to carry out the agency (Art. 1884.)
in accordance with the instructions of the principal. (Art. 1887.) Thus, the agent must not carry out the
agency if its execution would manifestly result in loss or damage to the principal.
The reason for Article 1888 is obvious. The duty of the agent who is merely an extension of the
personality of the principal is to render service for the benefit of the principal and not to act to his

detriment. Furthermore, an agent must exercise due diligence in carrying out the agency. (Arts. 1884,
1887, par. 2.)
(without 3rd part) (ram)
(without 4th part) (edward)
xviii. Art. 1909 liability for fraud and negligence.

Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall
be judged with more or less rigor by the courts, according to whether the agency was or
was not for a compensation. (1726)
Liability of agent for fraud and negligence/ intentional wrong.
(1) In the fulfillment of his obligation, the agent is responsible to the principal not only for
fraud (Art. 1171.) committed by him but also for negligence. (Art. 1172.) It is his duly to
notify the principal of all relevant and material facts or any information having a bearing
on the interests of the principal (e.g., a debtor who owes the principal a substantial
amount of money is about to sell his property) as soon as reasonably possible after
learning them. The circumstance that the agency is or is not gratuitous will be considered
by the courts in fixing the liability of the agent for negligence (not fraud). Agency is
presumed to be for compensation. (Art. 1875.)
It has been held that the failure of a sub-agent with whom fi lm has been left for
safekeeping to insure against loss by fi re does not constitute negligence or fraud on its
part when it has received no instruction to that effect from its principal, the insurance of
the film not forming part of the obligation imposed upon it by law. (International Films vs.
Lyric Film Exchange, 63 Phil. 778 [1936].) But the agent is liable when he does not
discharge the agency with due promptness, or according to the instructions of his
principal, or within the limits of his authority, or when he does not make use of the powers
conferred on him. (11 Manresa 541-542.)
(2) Quasi-delict or tort may be committed by act or omission. If it causes damage to
another, there being fault or negligence, the guilty party is liable for the damage done.
(Art. 2176.) Article
1909 speaks of negligence (simple carelessness). The agent, to be sure, is also liable for
torts committed willfully. As a general, rule, the principal is not responsible if the agents
tort was intentional rather than merely negligent. The reason is that an intentional wrong
committed by one employed is more likely motivated by personal reasons than by a desire
to serve or benefit his employer. The principal is solidarily liable if the tort was committed
by the agent while performing his duties in furtherance of the principals business.
- Metropolitan Bank Trust Co. vs. CA, 194 SCRA 169 (1991);

Metropolitan Bank & Trust Company vs Court of Appeals 194 SCRA 169; 1991
Facts: Philippine Fish Marketing Authority drawn and purportedly signed by its General
Manager 38 treasury warrants amounting to P1,755,228.37.
Around January 1979, Eduardo Gomez opened an account with Golden Savings and
deposited said 38 treasury warrants for a period of 2 months. Six of these warrants are
payable to Gomez while 32 of these were subsequently endorsed by Gloria Castillo
(Cashier of Golden Savings) between 25 June 1979 and 16 July 1979 while these were

deposited on Golden Savings savings account in Metrobank. The deposited accounts were
sent for clearing which forwarded to the Bureau of Treasury for special clearing.
For more than 2 weeks after the deposit, Gloria went to Metrobank to ask whether the
warrants had been cleared but was told to wait. Later, Metrobank decided to allow Golden
Savings to withdraw after repeated inquiry. Series of withdrawals was made on July 9, July
13, and July 16 1979.
On 21 July 1979, Metrobank informed Golden Savings that 32 warrants had been
dishonored by the Bureau of Treasury on 19 July 1979. Metrobank demanded Golden
Savings the amount withdrawn but the demand was rejected.
Metrobank sued Golden Savings in the Regional Trial Court which rendered a judgment in
favor of the Golden Savings. Metrobank filed a motion for reconsideration.
On 4 November 1986, the lower Court modified a part of its decision which is still in favor
of Golden Savings. Metrobank filed a petition for review.
Defenses of Metrobank:
1.
That the Golden Savings should have exercised more care in checking the personal
circumstances.
2.
That Metrobank was acting only as a collecting agent for Golden Savings and give it
the right to charge back to the depositors account any amount previously credited
whether or not such item is returned.
Issue: WON (b) Until such time as Metrobank is actually paid, its obligation is that of a
mere collecting agent which cannot be held liable for its failure to collect on the warrants.
Held:
1.
It was Gomez who was entrusting the warrants, not the Golden Savings which was
extending him a loan; moreover, the treasury warrants were subject to clearing which is
pending that the depositor could not withdraw its proceeds yet.
There was no question of Gomezs identity or of the genuineness of his signature as
checked by Golden Savings. It is clear that Golden Savings acted with due care and
diligence and cannot be faulted for the withdrawals it allowed Gomez to make.
2.
in stressing that it was acting only as a collecting agent for Golden Savings,
Metrobank seems to suggest that as a mere agent, it cannot be liable to the principal. This
is not exactly true. On the contrary, Article 1909 of the Civil Code of the Philippines clearly
provides:
Art. 1909. The agent is responsible not only for fraud but also for negligence, which shall
be judged with more less rigor by the courts, according to whether the agency was or was
not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for emphasis, it
was the clearance given by it that assured Golden Savings it was already safe to allow

Gomez to withdraw the proceeds of the treasury warrants he had deposited


Metrobank misled Golden Savings. There may have been no express clearance, as
Metrobank insists (although this is refuted by Golden Savings) but in any case that
clearance could be implied from its allowing Golden Savings to withdraw from its account
not only once or even twice but three times. The total withdrawal was in excess of its
original balance before the treasury warrants were deposited, which only added to its
belief that the treasury warrants had indeed been cleared.
- Austria vs. CA, 39 SCRA 527;

G.R. No. L-29640 June 10, 1971


GUILLERMO AUSTRIA, petitioner, vs. THE COURT OF APPEALS (Second Division),
PACIFICO ABAD and MARIA G. ABAD, respondents.
Facts: In a receipt dated 30 January 1961, Maria G. Abad acknowledged having received
from Guillermo Austria one (1) pendant with diamonds valued at P4,500.00, to be sold on
commission basis or to be returned on demand. On 1 February 1961, however, while
walking home to her residence in Mandaluyong, Rizal, Abad was said to have been
accosted by two men, one of whom hit her on the face, while the other snatched her purse
containing jewelry and cash, and ran away. Among the pieces of jewelry allegedly taken by
the robbers was the consigned pendant. The incident became the subject of a criminal
case filed in the Court of First Instance of Rizal against certain persons (Criminal Case No.
10649, People vs. Rene Garcia, et al.).
As Abad failed to return the jewelry or pay for its value notwithstanding demands, Austria
brought in the Court of First Instance of Manila an action against her and her husband for
recovery of the pendant or of its value, and damages. Answering the allegations of the
complaint, defendants spouses set up the defense that the alleged robbery had
extinguished their obligation.
Issue: whether in a contract of agency (consignment of goods for sale) it is necessary that
there be prior conviction for robbery before the loss of the article shall exempt the
consignee from liability for such loss.
Held: It was held that defendants failed to prove the fact of robbery, or, if indeed it was
committed, that defendant Maria Abad was guilty of negligence when she went home
without any companion, although it was already getting dark and she was carrying a large
amount of cash and valuables on the day in question, and such negligence did not free her
from liability for damages for the loss of the jewelry.
It is recognized in this jurisdiction that to constitute a caso fortuito that would exempt a
person from responsibility, it is necessary that (1) the event must be independent of the
human will (or rather, of the debtor's or obligor's); (2) the occurrence must render it
impossible for the debtor to fulfill the obligation in a normal manner; and that (3) the
obligor must be free of participation in or aggravation of the injury to the creditor. 1 A
fortuitous event, therefore, can be produced by nature, e.g., earthquakes, storms, floods,
etc., or by the act of man, such as war, attack by bandits, robbery, 2 etc., provided that
the event has all the characteristics enumerated above.

It is not here disputed that if respondent Maria Abad were indeed the victim of robbery,
and if it were really true that the pendant, which she was obliged either to sell on
commission or to return to petitioner, were taken during the robbery, then the occurrence
of that fortuitous event would have extinguished her liability. The point at issue in this
proceeding is how the fact of robbery is to be established in order that a person may avail
of the exempting provision of Article 1174 of the new Civil Code, which reads as follows:
ART. 1174. Except in cases expressly specified by law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person
shall be responsible for those events which could not be foreseen, or which, though
foreseen, were inevitable.
It may be noted the reform that the emphasis of the provision is on the events, not on the
agents or factors responsible for them. To avail of the exemption granted in the law, it is
not necessary that the persons responsible for the occurrence should be found or
punished; it would only be sufficient to established that the enforceable event, the robbery
in this case did take place without any concurrent fault on the debtor's part, and this can
be done by preponderant evidence. To require in the present action for recovery the prior
conviction of the culprits in the criminal case, in order to establish the robbery as a fact,
would be to demand proof beyond reasonable doubt to prove a fact in a civil case.
It is undeniable that in order to completely exonerate the debtor for reason of a fortutious
event, such debtor must, in addition to the cams itself, be free of any concurrent or
contributory fault or negligence. 3 This is apparent from Article 1170 of the Civil Code of
the Philippines, providing that:
ART. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable for damages.
It is clear that under the circumstances prevailing at present in the City of Manila and its
suburbs, with their high incidence of crimes against persons and property that renders
travel after nightfall a matter to be sedulously avoided without suitable precaution and
protection, the conduct of respondent Maria G. Abad, in returning alone to her house in the
evening, carrying jewelry of considerable value would be negligent per se and would not
exempt her from responsibility in the case of a robbery. We are not persuaded, however,
that the same rule should obtain ten years previously, in 1961, when the robbery in
question did take place, for at that time criminality had not by far reached the levels
attained in the present day.
- International Films [China] vs. Lyric Film Exchange, 63 Phil. 778.

G.R. No. L-42465

November 19, 1936

INTERNATIONAL FILMS (CHINA), LTD., plaintiff-appellant,


EXCHANGE, INC., defendant-appellee.

vs. THE LYRIC FILM

Facts: Bernard Gabelman was the Philippine agent of the plaintiff company International
Films (China), Ltd. by virtue of a power of attorney executed in his favor on April 5, 1933

(Exhibit 1). On June 2, 1933, the International Films (China), Ltd., through its said agent,
leased the film entitled "Monte Carlo Madness" to the defendant company, the Lyric Film
Exchange, Inc., to be shown in Cavite for two consecutive days, that is, on June 1 and 2,
1933, for 30 per cent of the receipts; in the Cuartel de Espaa for one day, or on June 6,
1933, for P45; in the University Theater for two consecutive days, or on June 8, and 9,
1933, for 30 per cent of the receipts; in Stotsenburg for two consecutive days, or on June
18 and 19, 1933, for 30 per cent of the receipts, and in the Paz Theater for two
consecutive days, or on June 21 and 22, 1933, for 30 per cent of the receipts (Exhibit C).
One of the conditions of the contract was that the defendant company would answer for
the loss of the film in question whatever the cause. On June 23, 1933, following the last
showing of the film in question in the Paz Theater, Vicente Albo, then chief of the film
department of the Lyric Film Exchange, Inc., telephoned said agent of the plaintiff
company informing him that the showing of said film had already finished and asked, at
the same time, where he wished to have the film returned to him. In answer, Bernard
Gabelman informed Albo that he wished to see him personally in the latter's office. At
about 11 o'clock the next morning, Gabelman went to Vicente Albo's office and asked
whether he could deposit the film in question in the vault of the Lyric Film Exchange, Inc.,
as the International Films (China) Ltd. did not yet have a safety vault, as required by the
regulations of the fire department. After the case had been referred to O'Malley, Vicente
Albo's chief, the former answered that the deposit could not be made inasmuch as the film
in question would not be covered by the insurance carried by the Lyric Film Exchange, Inc.
Bernard Gabelman then requested Vicente Albo to permit him to deposit said film in the
vault of the Lyric Film Exchange, Inc., under Gabelman's own responsibility. As there was a
verbal contract between Gabelman and the Lyric Film Exchange Inc., whereby the film
"Monte Carlo Madness" would be shown elsewhere, O'Malley agreed and the film was
deposited in the vault of the defendant company under Bernard Gabelman's responsibility.
About July 27, 1933, Bernard Gabelman severed his connection with the plaintiff company,
being succeeded by Lazarus Joseph. Bernard Gabelman, upon turning over the agency to
the new agent, informed the latter of the deposit of the film "Monte Carlo Madness" in the
vault of the defendant company as well as of the verbal contract entered into between him
and the Lyric Film Exchange, Inc., whereby the latter would act as a subagent of the
plaintiff company, International Films (China) Ltd., with authority to show this film "Monte
Carlo Madness" in any theater where said defendant company, the Lyric Film Exchange,
Inc., might wish to show it after the expiration of the contract Exhibit C. As soon as Lazarus
Joseph had taken possession of the Philippine agency of the International Films (China)
Ltd., he went to the office of the Lyric Film Exchange, Inc., to ask for the return not only of
the film "Monte Carlo Madness" but also of the films "White Devils" and "Congress
Dances". On August 13 and 19, 1933, the Lyric Film Exchange, Inc., returned the films
entitled "Congress Dances" and "White Devils" to Lazarus Joseph, but not the film "Monte
Carlo Madness" because it was to be shown in Cebu on August 29 and 30, 1933. Inasmuch
as the plaintiff would profit by the showing of the film "Monte Carlo Madness", Lazarus
Joseph agreed to said exhibition. It happened, however, that the bodega of the Lyric Film
Exchange, Inc., was burned on August 19, 1933, together with the film "Monte Carlo
Madness" which was not insured.

Issue: whether or not the court a quo erred in allowing the defendant company to amend
its answer after both parties had already rested their respective cases.
Whether or not the defendant company, the Lyric Film Exchange, Inc., is responsible to the
plaintiff, International Films (China) Ltd., for the destruction by fire of the film in question,
entitled "Monte Carlo Madness".
Held: 1. In Torres Viuda de Nery vs. Tomacruz (49 Phil., 913, 915), this court, through
Justice Malcolm, said:
Sections 109 and 110 of the Philippine Code of Civil Procedure, relating to the subjects of
Variance and Amendments in General, should be equitably applied to the end that cases
may be favorably and fairly presented upon their merits, and that equal and exact justice
may be done between the parties. Under code practice, amendments to pleadings are
favored, and should be liberally allowed in furtherance of justice. This liberality, it has
been said, is greatest in the early stages of a lawsuit, decreases as it progresses, and
changes at times to a strictness amounting to a prohibition. The granting of leave to file
amended pleadings is a matter peculiarly within the sound discretion of the trial court. The
discretion will not be disturbed on appeal, except in case of an evident abuse thereof. But
the rule allowing amendments to pleadings is subject to the general but not inflexible
limitation that the cause of action or defense shall not be substantially changed, or that
the theory of the case shall not be altered. (21 R. C. L., pp. 572 et seq.; 3 Kerr's Cyc. Codes
of California, sections 469, 470 and 473; Ramirez vs. Murray [1855], 5 Cal., 222;
Haydenvs. Hayden [1873], 46 Cal., 332; Hackett vs. Bank of California [1881], 57 Cal.,
335; Hancock vs. Board of Education of City of Santa Barbara [1903], 140 Cal., 554;
Dunphy vs. Dunphy [1911], 161 Cal., 87; 38 L. R. A. [N. S.], 818.)lawphi1.net
In the case of Ward vs. Clay (82 Cal., 502, 510), the Supreme Court of said State stated:
The principal purpose of vesting the court with this discretionary power is to enable it "to
mold and direct its proceedings so as to dispose of cases upon their substantial merits,"
when it can be done without injustice to either party, whether the obstruction to such a
disposition of cases be a mistake of fact or a mistake as to the law; although it may be
that the court should require a stronger showing to justify relief from the effect of a
mistake in law than in case of a mistake as to matter of fact. The exercise of the power
conferred by section 473 of the code, however, should appear to have, been "in
furtherance of justice," and the relief, if any, should be granted upon just terms.
Lastly, in the case of Simpson vs. Miller (94 Pac., 253), the said Supreme Court of
California said:
In an action to recover property which had vested in plaintiff's trustee in bankruptcy prior
to the suit, an amendment to the answer, made after both parties had rested, but before
the cause was submitted, pleading plaintiff's bankruptcy in bar to the action, was properly
allowed in the discretion of the court.
Under the above-cited doctrines, it is discretionary in the court which has cognizance of a
case to allow or not the amendment of an answer for the purpose of questioning the
personality of the plaintiff to bring the action, even after the parties had rested their

cases, as it causes no injustice to any of the parties, and this court will not interfere in the
exercise of said discretion unless there is an evident abuse thereof, which does not exist in
this case.
2. The plaintiff company claims that the defendant's failure to return the film "Monte Carlo
Madness" to the former was due to the fact that the period for the delivery thereof, which
expired on June 22, 1933, had been extended in order that it might be shown in Cebu on
August 29 and 30, 1933, in accordance with an understanding had between Lazarus
Joseph, the new agent of the plaintiff company, and the defendant. The defendant
company, on the other hand, claims that when it wanted to return the film "Monte Carlo
Madness" to Bernard Gabelman, the former agent of the plaintiff company, because of the
arrival of the date for the return thereof, under the contract Exhibit C, said agent, not
having a safety vault, requested Vicente Albo, chief of the film department of the
defendant company, to keep said film in the latter's vault under Gabelman's own
responsibility, verbally stipulating at the same time that the defendant company, as
subagent of the International Films (China) Ltd., might show the film in question in its
theaters.
It does not appear sufficiently proven that the understanding had between Lazarus Joseph,
second agent of the plaintiff company, and Vicente Albo, chief of the film department of
the defendant company, was that the defendant company would continue showing said
film under the same contract Exhibit C. The preponderance of evidence shows that the
verbal agreement had between Bernard Gabelman, the former agent of the plaintiff
company, and Vicente Albo, chief of the film department of the defendant company, was
that said film "Monte Carlo Madness" would remain deposited in the safety vault of the
defendant company under the responsibility of said former agent and that the defendant
company, as his subagent, could show it in its theaters, the plaintiff company receiving 5
per cent of the receipts up to a certain amount, and 15 per cent thereof in excess of said
amount.
If, as it has been sufficiently proven in our opinion, the verbal contract had between
Bernard Gabelman, the former agent of the plaintiff company, and Vicente Albo, chief of
the film department of the defendant company, was a sub-agency or a submandate, the
defendant company is not civilly liable for the destruction by fire of the film in question
because as a mere submandatary or subagent, it was not obliged to fulfill more than the
contents of the mandate and to answer for the damages caused to the principal by his
failure to do so (art. 1718, Civil Code). The fact that the film was not insured against fire
does not constitute fraud or negligence on the part of the defendant company, the Lyric
Film Exchange, Inc., because as a subagent, it received no instruction to that effect from
its principal and the insurance of the film does not form a part of the obligation imposed
upon it by law.
As to the question whether or not the defendant company having collected the entire
proceeds of the fire insurance policy of its films deposited in its vault, should pay the part
corresponding to the film in question which was deposited therein, the evidence shows
that the film "Monte Carlo Madness" under consideration was not included in the insurance
of the defendant company's films, as this was one of the reasons why O'Malley at first

refused to receive said film for deposit and he consented thereto only when Bernard
Gabelman, the former agent of the plaintiff company, insisted upon his request, assuming
all responsibility. Furthermore, the defendant company did not collect from the insurance
company an amount greater than that for which its films were insured, notwithstanding
the fact that the film in question was included in the vault, and it would have collected the
same amount even if said film had not been deposited in its safety vault. Inasmuch as the
defendant company, The Lyric Film Exchange, Inc., had not been enriched by the
destruction by fire of the plaintiff company's film, it is not liable to the latter.
D. Liabilities
i. To third persons - Art. 1897; 1902, 1910

Art. 1897. The agent who acts as such is not personally liable to the party with
whom he contracts, unless he expressly binds himself or exceeds the limits of
his authority without giving such party sufficient notice of his powers. (1725)
Duties and liabilities of agent to third persons.
The rule is that the principal is responsible for the acts of the agent done within the scope
of his authority and should bear any damage caused to third persons. (see Art. 1910.) The
agent acquires no rights whatsoever, nor does he incur any liabilities arising from the
contract entered into by him on behalf of his principal.
(1) In general. The duties of an agent to third persons and his corresponding liabilities
must be considered with reference to the character of his act as to whether it is authorized
or unauthorized, and also with reference to the nature of liability which it sought to assert
as being in contract or in tort. The agent is liable to third persons for his torts which result
in an injury to the third person.
(2) Unauthorized assumption of agency. One who unauthorizedly assumes to act for
another is guilty of a wrong, and is liable for the damage to those dealing with him in
reliance on his
assumed authority in that they are deprived of the benefit of the responsibility of the
principal. Indeed, the assumed agent, by his act, impliedly warrants or represents that he
has authority, thereby predicating liability for the damage sustained. This implied warranty
and its accompanying liability is not confined merely to the making of contracts but
extends to all unauthorized acts perpetrated in his assumed agency.
Of course, if no damages have been sustained, no liability for the agents false assumption
of authority exists.
(3) Nature of liability. A purported agent will be held personally liable as principal on a
contract executed without authority if the contract contains apt words to bind him
personally, or if such was the intention of the parties. However, in the absence of an apt
expression or intention, the nature of his liability is the subject of some divergence in
judicial opinion.
(a) In some jurisdictions, in the absence of statute, the purported agent is held liable as
principal on the contract itself, based, it has been said, on the theory that since the
contract was intended to bind someone, it must necessarily bind the purported agent even
if the principal is unaffected.
(b) According to the weight of authority, the purported agent is not liable on the contract
itself, for the reason that there has been no intention to bind the agent and to hold that he
is bound would, in effect, create a new contract for the parties. Under the majority rule,
liability of the purported agent, dependent on the facts of the particular case, is predicated
on a breach of an implied warranty or promise of authority, or in tort for deceit or
misrepresentation. Of course, when governed by statute, the purported agent, according

to its provisions, will be held liable on the contract itself, or for breach of the implied
warranty of authority. (see 3 C.J.S. 115116.) It has been held that one who signed receipt as a witness with the word agent
typed below his signature, but never received the alleged amount or anything on account
of the subject transaction, is not liable. (Caoile vs. Court of Appeals, 226 SCRA 658
[1993].)
(4) Tort cases. Agency is no defense to action against an agent based upon commission
of tort, his liability being neither increased nor decreased by the fact of his agency. If the
tort is committed by the agent within the scope of his authority (see discussion on this
matter under Art. 1910.), both the principal and the agent are liable. It is no defense by
the agent that the benefit obtained by the tort has been turned over to the principal.
(Teller, op. cit., p. 204, citing Boshino vs. Cook, 67 N.J.L. 467.)
(5) Where duty violated owed solely to principal. An agent is liable to third persons for
injury resulting from his misfeasance or malfeasance, meaning by these terms, the breach
of a duty owed to third persons generally independent of the particular duties imposed by
his agency. But an agent is generally not responsible to third persons for injury resulting
from nonfeasance, meaning by that term, the omission of the agent to perform a duty
owed solely to his principal by reason of his agency. (2 C.J.S. 499-500.)
So, if the wrong done by the agent in the performance of his duties devolves upon him
purely from his agency, he is not responsible for the resulting injury to third persons. Thus,
it has been held that an agent is not liable to a third person for failure to give his principal
notice of facts communicated to him by the third person. (Reid vs. Humber, 49 Ga. 207.)
An agent cannot, as such, be subject to any obligations toward third persons other than
those of his principal. Those duties are not imposed upon him by law. He has agreed with
no one except his principal to perform them. In failing to do so, he wrongs no one but the
principal, who alone can hold him responsible. (Delaney vs. Rochereau, 34 La. Ann. 1123,
cited in Teller, p. 205.)
When agent may incur personal liability.
An agent who acts as such within the scope of his authority represents the principal so
that his contract is really the principals.
Hence, the agent is not personally liable to the party with whom he contracts unless he
expressly binds himself or he exceeds the limits of his authority without giving such party
sufficient notice of his powers or by his acts he incurs the liabilities of a principal under the
contract. A suit against an agent cannot, without compelling reasons, be considered a suit
against the principal.
(1) When the agent expressly binds himself
(2) When the agent exceeds his authority
(3) When an agent by his act prevents performance on the part of the principal
(4) When a person acts as an agent without authority or without a principal
(5) A person who purports to act as agent of an incapacitated principal
Art. 1902. A third person with whom the agent wishes to contract on behalf of
the principal may require the presentation of the power of attorney, or the
instructions as regards the agency. Private or secret orders and instructions of
the principal do not prejudice third persons who have relied upon the power of
attorney or instructions shown them. (n)
Presentation of power of attorney or instructions as regards agency.
As a rule, a third person deals with an agent at his peril.
Hence, he is bound to inquire as to the extent of the agents authority, and this is
especially true where the act of the agent is of an unusual nature.

Ignorance of the agents authority is no excuse. So, it is his duty to require the agent to
produce his power of attorney to ascertain the scope of his authority. He may also ask for
the instructions of the principal. (Art. 1887.)
Third person not bound by principals private instructions.
While the third person is chargeable with knowledge of the terms of the power of attorney
as written and the instructions disclosed to him, he is not bound and cannot be affected by
the private or secret orders and instructions of the principal in the same way that he
cannot be prejudiced by any understanding between the principal and the agent. (Art.
1900.) Such secret orders or instructions cannot be invoked as against third parties if the
agent has apparent authority.
Art. 1910. The principal must comply with all the obligations which the agent
may have contracted within the scope of his authority.
Obligations, in general, of principal to agent.
Since an agency is essentially a contractual and consensual relationship between the
principal and the agent, the duties and liabilities of the principal are primarily based upon
the contract and the validity of the contract between them. In addition to his contractual
duties, the principal is under an obligation to deal fairly and in good faith with his agent (3
C.J.S. 63-64.) who owes the same duty to his principal. The agency relationship is a
fiduciary one. The specific obligations of the parties to each other enumerated in the law
are merely specific applications of the general fiduciary obligation.
The primary obligation of the principal to the agent is simply that of complying with the
terms of their employment contract, if one exists. The principal may be justified in refusing
to perform his part of the contract when the agent has already breached the contract.
Specific obligations of principal to agent.
The contract creating the agency normally defines the specific obligations or duties of the
principal to an agent. In the absence of express agreement, the law imposes upon the
principal certain obligations to his agent, among which are the following:
(1) To comply with all the obligations which the agent may have contracted within the
scope of his authority (Arts. 1910, 1881, 1897.) and in the name of the principal (Arts.
1868, 1883.);
(2) To advance to the agent, should the latter so request, the sums necessary for the
execution of the agency (Art. 1912.);
(3) To reimburse the agent for all advances made by him, provided the agent is free from
fault (Ibid.);
(4) To indemnify the agent for all the damages which the execution of the agency may
have caused the latter without fault or negligence on his part (Art. 1913.); and
(5) To pay the agent the compensation agreed upon, or if no compensation was specified,
the reasonable value of the agents services. (Arts. 1875, 1306.)
Liability of principal to third persons.
(1) General rule. It may be stated as a general rule that where the relation of agency
legally exists, the principal will be liable to third persons for all acts committed by the
agent and obligations contracted by him in the principals behalf in the course and within
the actual (express or implied) or apparent scope of his authority, and should bear the
damage caused to third persons. This responsibility is not altered by the fact that the
agent also may be liable, nor by the fact that some of the acts are to the principals
advantage while others are to his disadvantage. The principal becomes liable to the third
party when he ratifies an authorized act of his agent.

(2) Reason for liability. A principal is liable for the acts of his agent within his express
authority because the act of such agent is the act of the principal. Where the agent acts
within the scope of the authority which the principal holds himself out as possessing, or
knowingly permits him to assume, the principal is made responsible, because to permit
him to dispute the authority of the agent in such a case would be to enable him to commit
a fraud upon innocent third parties.
(3) Estoppel to deny. The principal is bound by the act of his agent when he has placed
the agent in such position that persons of ordinary prudence are thereby led to believe
and assume that the agent is possessed of certain authority, and to deal with him in
reliance on such assumption. The rule that the principal is responsible for the acts of his
agent within the apparent scope of his authority applies only where the principal is
responsible for such appearance of authority. (3 C.J.S. 138-142.) A registered owner who
places in the hands of another an executed document of transfer of registered land
effectively represents to a third party that the holder of such document is authorized to
deal with the property. (Blondeau vs. Nano, 61 Phil. 625 [1935]; Domingo vs. Robles, 453
SCRA 812 [2005].)
An agency by estoppel may involve the expansion of the authority given to a designated
agent or create authority in the alleged agent though not actually granted. (see Art. 1911.)
The principal is bound by either the actual (express or implied) or apparent authority of
the agent. Thus, it has been held that if a bank could give the authority to sell to a
licensed broker, there is no reason to doubt the authority to sell of two of the banks vicepresidents (with whom the broker finalized the details of the contract to sell) whose
precise job in the bank was to manage and administer its real estate property. (Limketkai
Sons Milling, Inc. vs. Court of Appeals, 250 SCRA 523 [1995].) A bank is liable to innocent
third persons where representation is made in the course of its normal business by an
agent even though such agent abused his authority. (Rural Bank of Milaor vs. Ocfemia, 325
SCRA 99 [2000].)
(4) Waiver of claim against principal. Since it is the principal who should be answerable
for the obligation arising from the agency, it is obvious that if a third person waives his
claims against the principal, he cannot assert them against the agent.
(Bedia vs. White, 204 SCRA 273 [1991].)
(5) Agency from necessity or by operation of law. An agency from necessity is created,
or the ordinary powers of an agent may be enlarged, when an emergency occurs and an
employee or an agent is unable to get in touch with his employer. The agency from
necessity doctrine has been most frequently applied, although it in no wise so limited, to
accidents. It is generally held that the highest ranking agent or employee on the scene is
authorized to employ physicians or surgeons for immediate medical services in behalf of
the company.
The authority is limited to the necessity and ceases to exist when the emergency has
passed. (Wyatt & Wyatt, p. 237, citing Vandalia vs. Ryan, 110 N.E. 218 [Ind., 1915].)
Liability of third persons to principal.
An agent is the instrumentality of the principal whose primary design is to obtain rights
against third parties. The principals rights are the third parties liabilities.
(1) In contract. A third person is liable to the principal upon contracts entered into by his
agent, in the same manner as though the contract were entered into by the principal
himself.
This proposition results from the representative nature of agency.
The relationship of the third party to the principal is the same as that in a contract in
which there is no agent.
(a) It follows that the third party may not set-off or allege any defense against the agent,
in an action by the principal to enforce the contract other than one which arises out of the
particular contract upon which the action is brought. (see Teller, op. cit., p. 197.)

(b) Since notice by a third party to the agent is notice to the principal, the third party is not
liable for damages for failure of the agent to give notice to his principal. Thus, in a case
where A, who handled travel arrangements of P, was duly informed by B, Ps travel agent,
of the advice of the office manager of T (air carrier) of the rejection of the request for
extension beyond the period of their validity of plane tickets of P without paying the fare
differentials and additional travel taxes brought about by increased fare rate and travel
taxes, the court ruled that, to all legal intents and purposes, A was the agent of P and
notice to her was notice to P. (Air France vs. Court of Appeals, 126 SCRA 448 [1983].)
(2) In tort. The third persons tort liability to the principal, insofar as the agent is
involved in the tort, arises in three main factual situations:
(a) Where the third person damages or injures property or interest of the principal in the
possession of the agent;
(b) Where the third person colludes with the agent to injure or defraud the principal; and
(c) Where the third person induces the agent to violate his contract with the principal to
betray the trust reposed upon him by the principal.
(3) In respect of property received. An agent does not have legal title to property
entrusted to his possession by the principal, but in some cases he possesses a power to
effect a transfer thereof, valid as against the principal. In the absence of a law or the
possession by the agent of apparent authority or circumstances working an estoppel
against the principal, the latter may recover property from the agents transferee.
In respect of negotiable instruments, however, the law protects third parties who are bona
fi de holders thereof or holders in due course. (Teller, op. cit., pp. 197-199.) The principal
cannot recover money and negotiable instruments wrongfully transferred by his agent to
innocent holders for value who have no knowledge or notice of the agents wrongful acts.
Liability of principal for mismanagement of business by his agent.
Under general rules and principles of law, the mismanagement of the business of a party
by his agents does not relieve said party from the responsibility that he had contracted to
third persons. (Commercial Bank & Trust Co. vs. Republic Armored Car Service Corp., 8
SCRA 425 [1963].) Thus, the fact that the agent defrauded the principal in not turning over
the proceeds of the transactions to the latter cannot in any way relieve nor exonerate him
from liability to the third person who relied on his agents authority. It is an equitable
maxim that as between two innocent parties, the one who made it possible for the wrong
to be done should be the one to bear the resulting loss. (Cuison vs. Court of Appeals, 227
SCRA 391 [1993].)
Where the agents acts bind the principal, the latter may seek recourse against the agent.
Liability of principal for tort of agent.
(1) General rule. As a general rule, the principal is civilly liable to third persons for torts
of an agent committed at the principals direction or in the course and within the scope of
the agents employment.
The principal cannot escape liability so long as the tort was committed by the agent while
performing his duties in furtherance of the principals business or at his direction although
outside the scope of his employment or authority. Nor is it a defense in an action for
damages against the principal that the act which caused the tort was unknown to him or
even that it was in disobedience to his instructions.
Whether the tort is committed willfully or negligently has no effect on the extent or degree
of the principals liability.
2) Reason for liability. This rule is based upon the principle that he who does an act
through another does it himself. If the principal has the power of control over an agent, he
should take responsibility for the latters action, and since the agents acts are for the
principals benefit, the principal should also be responsible for the consequences of the
agents improper behavior.

The agent, to be sure, is also liable with the principal and their liability shall be solidary,
i.e., the third person may sue both the principal and the agent or choose whom he will
hold.
(3) Business hazard theory. In the common law, several theories have been offered to
explain the rule. The business hazard theory advances the argument that it is thought
that the hazards of business should be borne by the business directly. It is reasoned that if
the cost then is added to the expense of doing business, it will ultimately be borne by the
consumer of the product; that the consumer should pay the costs which the hazards of the
business have incurred. (Note, 30 Yale L.J. 584, cited in
Teller, p. 167.)
(4) Motivation-deviation test. The bounds of the agents authority are not the limits of
the principals tort liability, but rather the scope of the employment which may or may
not be within the bounds of authority. Scope of employment is much wider than scope of
authority. But an act is not necessarily done within the scope of employment by reason
merely of the fact that it is done during the employment.
An examination of a large number of cases discussing vicarious liability for tort shows that
where two factors are present, such liability is imposed, but that where either of the two
factors is missing, such liability is not imposed.
These factors are:
(a) satisfactory evidence that the employee in doing the act, in the doing of which the tort
was committed, was motivated in part, at least, by a desire to serve his employer; and
(b) satisfactory evidence that the act, in the doing of which the tort was committed, was
not an extreme deviation from the normal conduct of such employee. (see Tiffany on
Agency, 2nd ed., by Powell, pp. 106-107, cited in Teller, pp. 168-169.)
For brevity, the above has been referred to as the motivation deviation test.
- Ace Navigation Co. Inc. v. FGU Insurance Corporation, 674 SCRA 348 (June 25, 2012)
G.R. No. 171591
25 June 2012

ACE NAVIGATION CO., INC., petitioner, vs. FGU INSURANCE CORPORATION and
PIONEER INSURANCE AND SURETY CORPORATION, Respondents.
Facts: On July 19, 1990, Cardia Limited (CARDIA) shipped on board the vessel M/V Pakarti
Tiga at Shanghai Port China, 8,260 metric tons or 165,200 bags of Grey Portland Cement
to be discharged at the Port of Manila and delivered to its consignee, Heindrich Trading
Corp. (HEINDRICH). The subject shipment was insured with respondents, FGU Insurance
Corp. (FGU) and Pioneer Insurance and Surety Corp. (PIONEER), against all risks under
Marine Open Policy No. 062890275 for the amount of P18,048,421.00. 3
The subject vessel is owned by P.T. Pakarti Tata (PAKARTI) which it chartered to Shinwa
Kaiun Kaisha Ltd. (SHINWA). 4 Representing itself as owner of the vessel, SHINWA entered
into a charter party contract with Sky International, Inc. (SKY), an agent of Kee Yeh
Maritime Co. (KEE YEH), 5 which further chartered it to Regency Express Lines S.A.
(REGENCY). Thus, it was REGENCY that directly dealt with consignee HEINDRICH, and
accordingly, issued Clean Bill of Lading No. SM-1. 6
On July 23, 1990, the vessel arrived at the Port of Manila and the shipment was
discharged. However, upon inspection of HEINDRICH and petitioner Ace Navigation Co.,
Inc. (ACENAV), agent of CARDIA, it was found that out of the 165,200 bags of cement,
43,905 bags were in bad order and condition.

Thus, on August 8, 1991, respondents filed a complaint for damages against the following
defendants: "REGENCY EXPRESS LINES, S.A./ UNKNOWN CHARTERER OF THE VESSEL
'PAKARTI TIGA'/ UNKNOWN OWNER and/or DEMIFE (sic) CHARTERER OF THE VESSEL
'PAKARTI TIGA', SKY INTERNATIONAL, INC. and/or ACE NAVIGATION COMPANY, INC."
In their answer with counterclaim and cross-claim, PAKARTI and SHINWA alleged that the
suits against them cannot prosper because they were not named as parties in the bill of
lading. 9
Similarly, ACENAV claimed that, not being privy to the bill of lading, it was not a real partyin-interest from whom the respondents can demand compensation. It further denied being
the local ship agent of the vessel or REGENCY and claimed to be the agent of the shipper,
CARDIA. 10
For its part, SKY denied having acted as agent of the charterer, KEE YEH, which chartered
the vessel from SHINWA, which originally chartered the vessel from PAKARTI. SKY also
averred that it cannot be sued as an agent without impleading its alleged principal, KEE
YEH. 11
Proceedings Before the RTC and the CA
In its November 26, 2001 Decision, 13 the RTC dismissed the complaint. Dissatisfied, the
respondents appealed to the CA which, in its assailed June 22, 2004 Decision, 14 found
PAKARTI, SHINWA, KEE YEH and its agent, SKY, solidarily liable for 70% of the respondents'
claim, with the remaining 30% to be shouldered solidarily by CARDIA and its agent,
ACENAV
With respect to REGENCY, the CA affirmed the findings of the RTC that it did not acquire
jurisdiction over its person for defective service of summons.
PAKARTI's, SHINWA's, SKY's and ACENAV's respective motions for reconsideration were
subsequently denied in the CA's assailed February 17, 2006 Resolution.
Issue: whether or not it may be held liable to the respondents for 30% of their claim.
Held: The Court's Ruling
A bill of lading is defined as "an instrument in writing, signed by a carrier or his agent,
describing the freight so as to identify it, stating the name of the consignor, the terms of
the contract for carriage, and agreeing or directing that the freight to be delivered to the
order or assigns of a specified person at a specified place." 21
It operates both as a receipt and as a contract. As a receipt, it recites the date and place
of shipment, describes the goods as to quantity, weight, dimensions, identification marks
and condition, quality, and value. As a contract, it names the contracting parties, which
include the consignee, fixes the route, destination, and freight rates or charges, and
stipulates the rights and obligations assumed by the parties. 22 As such, it shall only be
binding upon the parties who make them, their assigns and heirs. 23

In this case, the original parties to the bill of lading are: (a) the shipper CARDIA; (b) the
carrier PAKARTI; and (c) the consignee HEINDRICH. However, by virtue of their relationship
with PAKARTI under separate charter arrangements, SHINWA, KEE YEH and its agent SKY
likewise became parties to the bill of lading. In the same vein, ACENAV, as admitted agent
of CARDIA, also became a party to the said contract of carriage.
The respondents, however, maintain 24 that ACENAV is a ship agent and not a mere agent
of CARDIA, as found by both the CA 25 and the RTC. 26
The Court disagrees.
Article 586 of the Code of Commerce provides:
ART. 586. The shipowner and the ship agent shall be civilly liable for the acts of the captain
and for the obligations contracted by the latter to repair, equip, and provision the vessel,
provided the creditor proves that the amount claimed was invested therein.
By ship agent is understood the person entrusted with the provisioning of a vessel, or who
represents her in the port in which she may be found. (Emphasis supplied)
Records show that the obligation of ACENAV was limited to informing the consignee
HEINDRICH of the arrival of the vessel in order for the latter to immediately take
possession of the goods. No evidence was offered to establish that ACENAV had a hand in
the provisioning of the vessel or that it represented the carrier, its charterers, or the vessel
at any time during the unloading of the goods. Clearly, ACENAV's participation was simply
to assume responsibility over the cargo when they were unloaded from the vessel. Hence,
no reversible error was committed by the courts a quo in holding that ACENAV was not a
ship agent within the meaning and context of Article 586 of the Code of Commerce, but a
mere agent of CARDIA, the shipper.
On this score, Article 1868 of the Civil Code states:
ART. 1868. By the contract of agency, a person binds himself to render some service or to
do something in representation or on behalf of another, with the consent or authority of
the latter.
Corollarily, Article 1897 of the same Code provides that an agent is not personally liable to
the party with whom he contracts, unless he expressly binds himself or exceeds the limits
of his authority without giving such party sufficient notice of his powers.
Both exceptions do not obtain in this case. Records are bereft of any showing that ACENAV
exceeded its authority in the discharge of its duties as a mere agent of CARDIA. Neither
was it alleged, much less proved, that ACENAV's limited obligation as agent of the shipper,
CARDIA, was not known to HEINDRICH.
- National Power Corp. vs. National Merchandising Corp., 117 SCRA 789 (1982)
FACTS:
The National Power Corporation and National Merchandising Corporation (Namerco) of 3111
Nagtahan Street, Manila, as the representative of the International Commodities Corporation of 11
Mercer Street, New York City (Exh. C), executed in Manila a contract for the purchase by the NPC

from the New York firm of four thousand long tons of crude sulfur for its Maria Cristina Fertilizer
Plant in Iligan City.
On that same date, a performance bond was executed by the Domestic Insurance Company in
favor of the NPC to guarantee the sellers obligations.
It was stipulated in the contract of sale that the seller would deliver the sulfur at Iligan City
within sixty days from notice of the establishment in its favor of a letter of credit and that failure to
effect delivery would subject the seller and its surety to the payment of liquidated damages at the
rate of two-fifth of one percent of the full contract price for the first thirty days of default and fourfifth of one percent for every day thereafter until complete delivery is made.
The NPC advised John Z. Sycip, the president of Namerco, of the opening of a letter of credit in
favor of International Commodities Corporation. Notice of that letter of credit was, received by
cable by the New York firm.
The New York supplier was not able to deliver the sulfur due to its inability to secure shipping
space. During a certain period, there was a shutdown of the NPCs fertilizer plant because there was
no sulfur. No fertilizer was produced.
The general manager of the NPC advised Namerco and the Domestic Insurance Company that
under Article 9 of the contract of sale "non-availability of bottom or vessel" was not a fortuitous
event that would excuse non-performance and that the NPC would resort to legal remedies to
enforce its rights.
The Government Corporate Counsel in his letter to Sycip rescinded the contract of sale due to
the New York suppliers non-performance of its obligations. The same counsel demanded from
Namerco the payment for liquidated damages. He explained that time was of the essence of the
contract. A similar demand was made upon the surety.
The NPC sued the New York firm, Namerco and the Domestic Insurance Company for the
recovery of the stipulated liquidated damages.
RTC dismissed the case as to the New York firm for lack of jurisdiction because it was not doing
business in the Philippines.
On the other hand, Melvin Wallick sued Namerco for damages in connection with the same
sulfur transaction. The two cases, both filed in the Court of First Instance of Manila, were
consolidated. A joint trial was held. The lower court rendered separate decisions in the two cases on
the same date.
ISSUE: Whether or not NAMERCO acted within the scope of its authority as agent in signing the
contract of sale
HELD: NO
Namerco exceeded its authority. The SC 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
- Phil. Products Co. vs. Primateria Societe Anonyme Pour Le Commerce Exterieur: Primateria (Phil.),
Inc., 15 SCRA 301 (1965)
FACTS:
Defendant Primateria Societe Anonyme Pour Le Commerce Exterieur (Primateria Zurich) was
engaged in "Transactions in international trade with agricultural products, particularly in oils, fats
and oil-seeds and related products." The record shows that: Primateria Zurich, through defendant
Alexander B. Baylin, entered into an agreement with plaintiff Philippine Products Company, whereby
the latter undertook to buy copra in the Philippines for the account of Primateria Zurich, during "a
tentative experimental period of one month from date."

The contract was renewed by mutual agreement. During such period, plaintiff caused the
shipment of copra to foreign countries, pursuant to instructions from defendant Primateria Zurich,
thru Primateria (Phil.) Inc. referred to hereafter as Primateria Philippines acting by defendant
Alexander G. Baylin and Jose M. Crame, officers of said corporation.
As a result, the total amount due to the plaintiff was P33,009.71. This is an action to recover
from defendants, the sum of P33,009.71 with interest and attorney's fees of P8,000.00. CFI
Manila Trial: it was proven that the amount due from defendant Primateria Zurich, on account of the
various shipments of copra, was P31,009.71, because it had paid P2,000.00 of the original claim of
plaintiff. There is no dispute about accounting.
And there is no question that Alexander G. Baylin and Primateria Philippines acted as the duly
authorized agents of Primateria Zurich in the Philippines. As far as the record discloses, Baylin acted
indiscriminately in these transactions in the dual capacities of agent of the Zurich firm and
executive vice-president of Primateria Philippines, which also acted as agent of Primateria Zurich. It
is likewise undisputed that Primateria Zurich had no license to transact business in the Philippines.
For failure to file an answer within the reglementary period, defendant Primateria Zurich was
declared in default.
The lower court ordered defendant Primateria Zurich liable to the plaintiff for the sums of
P31,009.71, with legal interest from the date of the filing of the complaint, and P2,000.00 as and for
attorney's fees; and absolving defendants Primateria (Phil.), Inc., Alexander G. Baylin, and Jose M.
Crame from any and all liability.
Plaintiffs appealed that Primateria Zurich is a foreign corporation within the meaning of
Sections 681 and 69 of the Corporation Law, and since it has transacted business in the Philippines
without the necessary license, as required by said provisions, its agents here are personally liable
for contracts made in its behalf. Plaintiff also alleges that the appellees as agents of Primateria
Zurich are liable to it under Art. 18972 of the New Civil Code.
ISSUE: Whether or not the agents may be held personally liable on contracts made in the name of
the entity with third persons in the Philippines.
HELD: NO
At any rate, the plaintiff could never recover from both the principal (Primateria Zurich) and its
agents. It has been given judgment against the principal for the whole amount. It asked for such
judgment, and did not appeal from it. It clearly stated that its appeal concerned the other three
defendants.
There is no proof that, as agents, they exceeded the limits of their authority. In fact, the
principal Primateria Zurich who should be the one to raise the point, never raised it, denied its
liability on the ground of excess of authority. At any rate, article 1897 does not hold that in cases of
excess of authority, both the agent and the principal are liable to the other contracting party.
This view of the cause dispenses with the necessity of deciding the other issues, namely:
whether the agent of a foreign corporation doing business, but not licensed here is personally liable
for contracts made by him in the name of such corporation.
Although, the solution should not be difficult, since it was already held that such foreign
corporation may be sued here (General Corporation vs. Union Ins., 87 Phil. 509). And obviously,
liability of the agent is necessarily premised on the inability to sue the principal or non-liability of
such principal. In the absence of express legislation, of course.
- Development Bank of the Philippines vs. CA, 231 SCRA 370 (1994)
FACTS:
Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a loan of
P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As the principal
mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a mortgage redemption
insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).
A loan was approved by DBP and subsequently released. From the proceeds of the loan, DBP
deducted an amount as payment for MRI premium. Dans accomplished and submitted the MRI
application for insurance and the Health statement for DBP MRI pool.
the MRI premium of Dans, less the DBP service fee of 10 percent, was credited by DBP to the
savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit.

Dans died of cardiac arrest. The DBP, upon notice, relayed this information to the DBP MRI Pool.
the DBP MRI Pool notified DBP that Dans was not eligible for MRI coverage, being over the
acceptance age limit of 60 years at the time of application.
DBP apprised Candida Dans of the disapproval of her late husband's MRI application. The DBP
offered to refund the premium which the deceased had paid, but Candida Dans refused to accept
the same, demanding payment of the face value of the MRI or an amount equivalent to the loan.
She, likewise, refused to accept an ex gratia settlement which the DBP later offered.
Respondent Estate, through Candida Dans as administratrix, filed a complaint with the Regional
Trial Court, Branch I, Basilan, against DBP and the insurance pool for "Collection of Sum of Money
with Damages." Respondent Estate alleged that Dans became insured by the DBP MRI Pool when
DBP, with full knowledge of Dans' age at the time of application, required him to apply for MRI, and
later collected the insurance premium thereon. Respondent Estate therefore prayed: (1) that the
sum of P139,500.00, which it paid under protest for the loan, be reimbursed; (2) that the mortgage
debt of the deceased be declared fully paid; and (3) that damages be awarded.
The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a crossclaim against the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted
by respondent Estate. As a result of these admissions, the trial court narrowed down the issues and,
without opposition from the parties, found the case ripe for summary judgment. Consequently, the
trial court ordered the parties to submit their respective position papers and documentary
evidence, which may serve as basis for the judgment.
The trial court rendered a decision in favor of respondent Estate and against DBP. The DBP MRI
Pool, however, was absolved from liability, after the trial court found no privity of contract between
it and the deceased. The trial court declared DBP in estoppel for having led Dans into applying for
MRI and actually collecting the premium and the service fee, despite knowledge of his age
ineligibility.
The DBP appealed to the Court of Appeals but the appellate court affirmed in toto the decision
of the trial court. The DBP's motion for reconsideration was likewise denied.
ISSUE:
1 Whether there was a perfected contract of insurance for DBP MRI Pool to be held liable
2 Whether DBP is liable for the entire value of the insurance policy, as it led Dans to believe
that he has fulfilled all the requirements for the MRI and that the issuance of his policy was
forthcoming
HELD: (1) NO
When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP
Pool" with the following declaration: "I hereby declare and agree that all the statements and
answers contained herein are true, complete and correct to the best of my knowledge and belief
and form part of my application for insurance. It is understood and agreed that no insurance
coverage shall be effected unless and until this application is approved and the full premium is paid
during my continued good health." Under the aforementioned provisions, the MRI coverage shall
take effect: (1) when the application shall be approved by the insurance pool; and (2) when the full
premium is paid during the continued good health of the applicant. These two conditions, being
joined conjunctively, must concur. Undisputedly, the power to approve MRI applications is lodged
with the DBP MRI Pool. The pool, however, did not approve the application of Dans. There is also no
showing that it accepted the sum of P1,476.00, which DBP credited to its account with full
knowledge that it was payment for Dan's premium. There was, as a result, no perfected contract of
insurance; hence, the DBP MRI Pool cannot be held liable on a contract that does not exist
(2) It was DBP, as a matter of policy and practice, which required Dans, the borrower, to secure
MRI coverage. Instead of allowing Dans to look for his own insurance carrier or some other form of
insurance policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When Dan's
loan was released on 11 August 1987, DBP already deducted from the proceeds thereof the MRI
premium. Four days latter, DBP made Dans fill up and sign his application for MRI, as well as his
health statement. The DBP later submitted both the application form and health statement to the
DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As service fee, DBP deducted 10% of
the premium collected by it from Dans. In dealing with Dans, DBP was wearing two legal hats: the

first as a lender, and the second as an insurance agent. As an insurance agent, DBP made Dans go
through the motion of applying for said insurance, thereby leading him and his family to believe
that they had already fulfilled all the requirements for the MRI and that the issuance of their policy
was forthcoming. Apparently, DBP had full knowledge that Dan's application was never going to be
approved. The maximum age for MRI acceptance is 60 years as clearly and specifically provided in
Article 1 of the Group Mortgage Redemption Insurance Policy signed in 1984 by all the insurance
companies concerned. The DBP is not authorized to accept applications for MRI when its clients are
more than 60 years of age. Knowing all the while that Dans was ineligible for MRI coverage because
of his advanced age, DBP exceeded the scope of its authority when it accepted Dan's application for
MRI by collecting the insurance premium, and deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the third
person is aware of the limits of the agent's powers. There is no showing that Dans knew of the
limitation on DBP's authority to solicit applications for MRI. If the third person dealing with an agent
is unaware of the limits of the authority conferred by the principal on the agent and he (third
person) has been deceived by the non-disclosure thereof by the agent, then the latter is liable for
damages to him. The DBP's liability, however, cannot be for the entire value of the insurance policy.
To assume that were it not for DBP's concealment of the limits of its authority, Dans would have
secured an MRI from another insurance company, and therefore would have been fully insured by
the time he died, is highly speculative. Considering his advanced age, there is no absolute certainty
that Dans could obtain an insurance coverage from another company. It must also be noted that
Dans died almost immediately, i.e., on the nineteenth day after applying for the MRI, and on the
twenty-third day from the date of release of his loan.
- Macias and Co. vs. Warner, Barnes and Co., 43 Phil. 155.
FACTS:
The plaintiff is a corporation duly registered and domiciled in Manila. The defendant is a
corporation duly licensed to do business in the Philippine Islands, and is the resident agent of
insurance companies "The China Fire Insurance Company, Limited, of Hongkong," "The Yang-Tsze
Insurance Association Limited, of Shanghai," and "The State Assurance Company, Limited, of
Liverpool. The plaintiff is an importer of textures and commercial articles for wholesale.
In the ordinary course of business, it applied for, and obtained, the following policies against loss by
fire:
Policy
No.
4143,
issued
by
The
China
Co., Ltd., for ....................................................................... P12,000

Fire

Insurance

Policy
No.
4382,
issued
by
The
China
Co., Ltd., for .......................................................................... 15,000

Fire

Insurance

Policy
No.
326,
issued
by
The
Yang-Tsze
Ass'n., Ltd., for ..................................................................... 10,000

Insurance

Policy
No.
796111,
issued
by
The
Co., Ltd., for ............................................................................ 8,000

Assurance

State

Policy No. 4143, of P12,000, recites that Mrs. Rosario Vizcarra, having paid to the China Fire
Insurance Company, Limited, P102 for insuring against or damage by fire certain merchandise the
description of which follows, "the company agrees with the insured that, if the property above
described, or any party thereof, shall be destroyed or damaged by fire between September 16,
1918, and September 16, 1919," etc., "The company will, out of its capital, stock and funds, pay or
make good all such loss or damage, not exceeding" the amount of the policy. This policy was later
duly assigned to the plaintiff.
Policy No. 4382, for P15,000, was issued by the same company to, and in the name of, plaintiff.

Policy No. 326, for P10,000, was issued to, and in the name of policy No. 326, for P10,000, was
issued to, and in the name of the plaintiff by The Yang-Tsze Insurance Association, Limited, and
recites that the premium of P125 was paid by the plaintiff to the association, and that, in the event
of loss by fire between certain dates, "the funds and property of the said association shall be
subject and liable to pay, reinstate, or make good to the said assured, their heirs, executors, or
administrators, such loss or damage as shall be occasioned by fire to the property above-mentioned
and hereby insured," not exceeding the amount of the policy.
Policy No. 796111, for P8,000, was issued by The States Assurance Company, Limited, to the
plaintiff for a premium of P100, which was paid to the Assurance Company through the defendant,
its authorized agent, and recites that "the company agrees with the insured that in the event of loss
by fire between certain dates, the company will, out of its capital, stock and funds, pay the amount
of such loss or damage," not exceeding the amount of the policy, and it is attested by the
defendant, through its "Cashier and Accountant and Manager, Agents, State Assurance Co., Ltd.,"
authorized agents of the Assurance Company.
Policy No. 4143 is attested "on behalf of The China Fire Insurance Company, Limited," by the
cashier and accountant and manager of the defendant, as agents of The China Fire Insurance
Company, Limited. The same is true as to policy no. 4382.
Policy No. 326 recites the payment of a premium of P125 by the plaintiff to The Yang-Tsze Insurance
Association, Limited, and that, in the event of loss, "the funds and property of the said association
shall be subject and liable to pay, reinstate, or make good to the said assured, their heirs,
executors, or administrators, such loss or damage as shall be occasioned by fire or lightning to the
property" insured, not exceeding the amount of the policy, and it is attested by the defendant,
through its cashier and accountant and manager, as agents of the association "under the authority
of a Power of Attorney from The Yang-Tsze Insurance Association, Limited," "to sign, for and on
behalf of the said Association, etc."
While the policies were in force, a loss occurred in which the insured property was more or less
damaged by fire and the use of water resulting from the fire.
The plaintiff made a claim for damages under its policies, but could not agree as to the amount of
loss sustained. It sold the insured property in its then damaged condition, and brought this action
against Warner, Barnes & Co., in its capacity as agents, to recover the difference between the
amount of the policies and the amount realized from the sale of the property.
Before the trial, counsel for the defendant objected to the introduction of any evidence in the case,
and moved "that judgment be entered for the defendant on the pleadings upon the ground that it
appears from the averment of the complaint that the plaintiff has had no contractual relations with
the defendant, and that the action has not been brought against the real party in interest." The
objection and motion was overruled and exception duly taken. After trial the court found that there
was due the plaintiff from the three insurance companies.
ISSUE: Whether or not the court erred in giving judgment for the plaintiff and in denying
defendants motion for a new trial.
HELD: The material facts are not in dispute it must be conceded that the policies in question were
issued by the different insurance companies, through the defendant as their respective agent; that
they were issued in consideration of a premium which was paid by the insured to the respective

companies for the amount of the policies, as alleged; that the defendant was, and is now, the
resident agent in Manila of the companies, and was authorized to solicit and do business for them
as such agent; that each company is a foreign corporation. The principal office and place business
of the The China Fire Insurance Company is at Hongkong; of The Yang-Tsze Insurance Association is
at Shanghai; and of The State Assurance Company is at Liverpool. As such foreign corporations they
were duly authorized and licensed to do insurance business in the Philippine Islands, and, to that
end and for that purpose, the defendant corporation, Warner, Barnes & Co., was the agent of each
company.
All of the policies are in writing, and recite that the premium was paid by the insured to the
insurance company which issued the policy, and that, in the event of a loss, the insurance company
which issued it will pay to the insured the amount of the policy.
This is not a case of an undisclosed agent or an undisclosed principal. It is a case of a
disclosed agent and a disclosed principal.
The policies on their face shows that the defendant was the agent of the respective companies, and
that it was acting as such agent in dealing with the plaintiff. That in the issuance and delivery of the
policies, the defendant was doing business in the name of, acting for, and representing, the
respective insurance companies. The different policies expressly recite that, in the event of a loss,
the respective companies agree to compensate the plaintiff for the amount of the loss. The
defendant company did not insure the property of the plaintiff, or in any manner agree to pay the
plaintiff the amount of any loss. There is no contract of any kind. either oral or written, between the
plaintiff and Warner, Barnes & Co. Plaintiff's contracts are with the insurance companies, and are in
writing, and the premiums were paid to the insurance companies, and are in writing, and the
premiums were paid to the insurance companies and the policies were issued by, and in the name
of, the insurance companies, and on the face of the policy itself, the plaintiff knew that the
defendant was acting as agent for, and was representing, the respective insurance companies in
the issuance and deliver of the policies. The defendant company did not contract or agree to do
anything or to pay the plaintiff any money at any time or on any condition, either as agent or
principal.
There is a very important distinction between the power and duties of a resident insurance agent of
a foreign company and that of an executor, administrator, or receiver. An insurance agent as such is
not responsible for, and does not have, any control over the corpus or estate of the corporate
property, as does an executor, administrator, or receiver. Subject only to the order of the court,
such officers are legal custodians and have actual possession of the corporate property. It is under
their control and within their jurisdiction.
As stated by counsel for Warner, Barnes & Co., an attorney of record for an insurance company has
greater power and authority to act for, and bind, the company than does a soliciting agent of an
insurance company. Yet, no attorney would contend that a personal action would lie against local
attorneys who represent a foreign corporation to recover on a contract made by the corporation. On
the same principles by which plaintiff seeks to recover from the defendant, an action could be
maintained against the cashier of any bank on every foreign draft which he signed for, and on
behalf of, the bank.
Every cause of action ex contractu must be founded upon a contract, oral or written,
either express or implied.

Warner, Barnes & Co., as principal or agent, did not make any contract, either or
written, with the plaintiff. The contracts were made between the respective insurance
companies and the insured, and were made by the insurance companies, through
Warner, Barnes & Co., as their agent.
As in the case of a bank draft, it is not the cashier of the bank who makes the contract to pay the
money evidenced by the draft, it is the bank, acting through its cashier that makes the contract. So,
in the instant case, it was the insurance companies, acting through Warner, Barnes & Co., as their
agent, that made the written contracts with the insured.
The trial court attached much importance to the fact that in the further and separate answer, an
admission was made "that defendant was at all times ready and will not to pay, on behalf of the
insurance companies by whom each was proportionately liable, the actual damage" sustained by
the plaintiff covered by the policies upon the terms and conditions therein stated.
When analysed, that is nothing more than a statement that the companies were ready and willing
to prorate the amount when the losses were legally ascertained.
Again, there is not claim or pretense that Warner, Barnes & Co. had any authority to act
for, and represent the insurance companies in the pending action, or to appear for them
or make any admission which would bind them. As a local agent, it could not do that
without express authority. That power could only exercised by an executive officer of
the company, or a person who was duly authorized to act for, and represent, the
company in legal proceedings, and there is no claim or pretense, either express or
implied, that the defendant has any such authority.
Plaintiff's cause of action, if any, is direct against the insurance companies that issued the policies
and agreed to pay the losses.
The only defendant in the instant case is "Warner, Barnes & Co., in its capacity as agents of:" the
insurance companies. Warner, Barnes & Co. did not make any contract with the plaintiff, and are
not liable to the plaintiff on any contract, either as principal or agent. For such reason, plaintiff is
not entitled to recover its losses from Warner, Barnes & Co., either as principal or agent.
There is no breach of any contract with the plaintiff by Warners, Barnes & Co., either as
agent or principal, for the simple reason that Warner, Barnes & Co., as agent or
principal, never made any contract, oral or written, with the plaintiff. This defense was
promptly raised before the taking of the testimony, and again renewed on the motion to
set aside the judgment.
Plaintiff's own evidence shows that any cause of action it may have is against the
insurance companies which issued the policies.
The complaint is dismissed, and the judgment of the lower court is reversed, and one
will be entered here in favor of Warner, Barnes & Co., Ltd., against the plaintiff, for costs
in both this and the lower court.
ii. Joint Agents Art. 1894; 1895
ART. 1894. The responsibility of two or more agents, even though they have been appointed
simultaneously, is not solidary, if solidarity has not been expressly stipulated. (1723)

ART. 1895. If solidarity has been agreed upon, each of the agents is responsible for the non-fulfi
llment of the agency, and for the fault or negligence of his fellow agents, except in the latter case
when the fellow agents acted beyond the scope of their authority. (n)
Necessity of concurrence where there are two or more agents.
In American Law, the term joint agents is used in a restricted sense to mean agents appointed by
one or more principals under such circumstances as to induce the inference that it was the
principals intent that all should act in conjunction in consummating the transaction for which they
were appointed. A distinction is made between a private joint agency and a public joint agency
(created by law, or essentially public in character). In the former, the agency cannot be exercised
except by the concurrence of all the agents while in the latter, it may be exercised by a majority.
(Teller, op. cit., citing Caldwell vs. Harrison, 11 Ala. 755.) Generally, it is presumed in American law
that when a principal employs more than one agent to represent him in the same matter of
business, they are joint agents as used above. Our law does not make the same presumption
except as to the separate liability of the agents. A principal, however, may appoint more than one
agent, each one to act separately in a particular branch of his principals business or in a particular
locality. Such agents are called several agents in American law, and are to act separately and when
more than one agent is appointed with reference to the same business, they are still several agents
if it appears that it was the intention of the principal that they should act separately, and an
execution of the power by one of them is valid and binding on the principal. (2 C.J. Sec. 317.) It is, of
course, advisable that when a principal hires several agents to act for him, that he defi nes their
powers whether they may act only as a unit or whether they may act separately.
Nature of liability of two or more agents to their principal.
(1) In a joint obligation, each debtor is liable only for a proportionate part of the debt. If it is
solidary, each debtor is liable for the entire obligation. (Art. 1216.8) The presumption is that an
obligation is joint. (Arts. 1207, 1208.9) The rule in Article 1894 follows the general principle
respecting solidarity.
(2) If solidarity has been agreed upon, each of the agents becomes solidarily liable: (a) for the nonfulfi llment of the agency even though in this case, the fellow agents acted beyond the scope of
their authority; and
(b) for the fault or negligence of his fellow agents provided the latter acted within the scope of their
authority. (Art. 1895.) The innocent agent has a right later on to recover from the guilty or negligent
agent. (Art. 1217, par. 2.)
(3) An agent who exceeds his powers does not act as such agent, and, therefore, the principal
assumes no liability to third persons. Since this is so, solidary liability cannot be demanded by the
principal.
EXAMPLE:
A and B were appointed by P to manage the latters business. Is A liable to P for damages in the
amount of P10,000.00 caused by the fault or negligence of B? (1) The presumption is that their
responsibility is joint. Hence, A is not liable. But if both A and B were at fault, they shall be liable for
P5,000.00 each. (2) If solidarity has been agreed upon, P may recover P110,000.00 either from A or
B. If A pays P5,000.00, P can still go against A and B for the balance as long as the entire amount
has not been paid. (see Art. 1216.)

Incidentally, joint liability in the common law system is the equivalent of solidary or several
liability in our jurisdiction. (see Art. 1915.)

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