AGENCY NOV 13

1. San Juan Structural and Steel Fabricators, Inc. vs Court of Appeals

296 SCRA 631 – Business Organization – Corporation Law – Piercing the Veil of Corporate
Fiction

In 1989, San Juan Structural and Steel Fabricators, Inc. (San Juan) alleged that it entered into a
contract of sale with Motorich Sales Corporation (Motorich) through the latter’s treasurer, Nenita
Gruenberg. The subject of the sale was a parcel of land owned by Motorich. San Juan advanced
P100k to Nenita as earnest money.

On the day agreed upon on which Nenita was supposed to deliver the title of the land to Motorich,
Nenita did not show up. Nenita and Motorich did not heed the subsequent demand of San Juan to
comply with the contract hence San Juan sued Motorich. Motorich, in its defense, argued that it is
not bound by the acts of its treasurer, Nenita, since her act in contracting with San Juan was not
authorized by the corporate board.

San Juan raised the issue that Nenita was actually the wife of the President of Motorich; that
Nenita and her husband owns 98% of the corporation’s capital stocks; that as such, it is a close
corporation and that makes Nenita and the President as principal stockholders who do not need
any authorization from the corporate board; that in this case, the corporate veil may be properly
pierced.

ISSUE: Whether or not San Juan is correct.

HELD: No. Motorich is right in invoking that it is not bound by the acts of Nenita because her act
in entering into a contract with San Juan was not authorized by the board of directors of Motorich.
Nenita is however ordered to return the P100k.

There is no merit in the contention that the corporate veil should be pierced even though it is true
that Nenita and her husband own 98% of the capital stocks of Motorich. The corporate veil can
only be pierced if the corporate fiction is merely used by the incorporators to shield themselves
against liability for fraud, illegality or inequity committed on third persons. It is incumbent upon
San Juan to prove that Nenita or her husband is merely using Motorich to defraud San Juan. In
this case however, San Juan utterly failed to establish that Motorich was formed, or that it is
operated, for the purpose of shielding any alleged fraudulent or illegal activities of its officers or
stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense
of third persons like San Juan.

2.
GR No. 156262
TITLE: Maria Tuazon, Alejandro Tuazon, Melencio Tuazon, Spouses Anastacio and Mary Buenaventura,
petitioners vs. Heirs of Bartolome Ramos, defendant
NATURE OF ACTION: Petition for Review
PONENTE: Panganiban, J.

FACTS:

 This case arose from failure of the petitioners to pay the respondents predecessor-in-interest (
deceased Bartolome Ramos). The check in issue was indorsed by the petitioner (Tuazon) in favor
of the said predecessor.
 The petitioners Leonilo and Maria (Tuazon) purchased 8,326 cavans of rice from Bartolome
Ramos. Only 4,437 cavans were paid leaving unpaid 3,889 cavans with value of P 1,211,919.00.
In payment, the spouses issued several checks.
 The checks bounced due to insufficiency of funds.
Side of the Petitioner:

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  Denied the purchase of rice from Bartolome and alleged that it was Magdalena Ramos (his wife)
owned and traded the merchandise. They also alleged that Maria Tuazon was merely
Magdalena’s agent.
 They argued that Evangeline Santos (the one who issued the checks) was the buyer of the rice,
and the checks were merely turned over by Maria to Bartolome, without knowing that these were
not funded. They argued that they were mere agents and should not be held answerable.
 They alleged that Santos should be primarily liable to Ramos because she was the one who had
purchased the merchandise from Bartolome as evidenced by the checks that had been drawn in
her name.
 The petitioners also alleged that their personal properties were sold because they were meeting
financial difficulties and they were valued in good faith.

Side of the Defendant:

 The Tuazons already knew that they had no available funds to support the checks, and
anticipated that they will be sued. Thus, they executed fictitious sales of their properties
(residential house and lot and a Toyota)
RTC Ruling:

 In favor of the plaintiffs (Bartolome) and against the defendants (Tuazon), ordering the
defendants to pay the plaintiffs as follows:
o 1,750,050.00 + interest; 50,000.00 attorney’s fees; 20,000.00 moral damages; and pay
the cost of suit.
CA Ruling:

 Appeal is DISMISSED and the decision is AFFIRMED.

ISSUES:

1. WON Maria Tuazon was considered as an agent of Bartolome Ramos

2. Won Evangeline Santos was an indispensable party

HELD:

 No.
The declarations of agents alone are generally insufficient to establish the fact or extent of their
authority. The law makes no presumption of agency; proving its nature and extent is incumbent
upon the person alleging it. The petitioners raise the fact of agency as an affirmative defense, yet
fail to prove its existence.
Their filing a suit against her in their own names negates their claim that they acted as mere
agents in selling the rice obtained from Bartolome Ramos.

 No.
There is no privity of contract between the respondents and Santos. Maria Tuazon indorsed the
questioned checks in favor of the respondent, as indorser, in case the checks were dishonored,
she would pay the corresponding amount. After an instrument is dishonored by nonpayment,
indorsers cease to be merely secondarily liable; they become principal debtors whose liability
becomes identical to that of the original obligor.

DOCTRINE:

 In a contract of agency, one binds oneself to render some service or to do something in

representation or on behalf of another, with the latters consent or authority.
 The following are the elements of agency:
o (1) the parties consent, express or implied, to establish the relationship;
o (2) the object, which is the execution of a juridical act in relation to a third person;
o (3) the representation, by which the one who acts as an agent does so, not for oneself,
but as a representative;
o (4) the limitation that the agent acts within the scope of his or her authority.
 As the basis of agency is representation, there must be, on the part of the principal, an actual
intention to appoint, an intention naturally inferable from the principals words or actions. In the
same manner, there must be an intention on the part of the agent to accept the appointment and
act upon it. Absent such mutual intent, there is generally no agency.

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3.... MANILA MEMORIAL PARK CEMETERY, INC., petitioner, vs. PEDRO L. LINSANGAN,
MANILA MEMORIAL PARK CEMETERY, INC., petitioner, vs. PEDRO L. LINSANGAN, respondent.
G.R. No. 151319 November 22, 2004

FACTS:

Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at the Holy Cross Memorial
Park owned by petitioner (MMPCI). According to Baluyot, a former owner of a memorial lot under
Contract No. 25012 was no longer interested in acquiring the lot and had opted to sell his rights subject to
reimbursement of the amounts he already paid. The contract was for P95,000.00. Baluyot reassured Atty.
Linsangan that once reimbursement is made to the former buyer, the contract would be transferred to
him. Atty. Linsangan agreed and gave Baluyot P35,295.00 representing the amount to be reimbursed to
the original buyer and to complete the down payment to MMPCI. Baluyot issued handwritten and
typewritten receipts for these payments. Baluyot verbally advised Atty. Linsangan that Contract No.
28660 was cancelled for reasons the latter could not explain, and presented to him another proposal for
the purchase of an equivalent property. He refused the new proposal and insisted that Baluyot and
MMPCI honor their undertaking. For the alleged failure of MMPCI and Baluyot to conform to their
agreement, Atty. Linsangan filed a Complaint for Breach of Contract and Damages against the former.
For its part, MMPCI alleged that Contract No. 28660 was cancelled conformably with the terms of the
contract because of non-payment of arrearages. MMPCI stated that Baluyot was not an agent but an
independent contractor, and as such was not authorized to represent MMPCI or to use its name except
as to the extent expressly stated in the Agency Manager Agreement.

ISSUE: Whether or not a contract of agency exists between Baluyot and MMPCI.

RULING: NO. The acts of an agent beyond the scope of his authority do not bind the principal, unless he
ratifies them, expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own
unauthorized acts. Moreover, the principal must have knowledge of the acts he is to ratify. No ratification
can be implied in the instant case. Atty. Linsangan failed to show that MMPCI had knowledge of the
arrangement. As far as MMPCI is concerned, the contract price was P132,250.00, as stated in the Offer
to Purchase signed by Atty. Linsangan and MMPCI's authorized officer. Likewise, this Court does not find
favor in the Court of Appeals' findings that "the authority of defendant Baluyot may not have been
expressly conferred upon her; however, the same may have been derived impliedly by habit or custom
which may have been an accepted practice in their company in a long period of time." A perusal of the
records of the case fails to show any indication that there was such a habit or custom in MMPCI that
allows its agents to enter into agreements for lower prices of its interment spaces, nor to assume a
portion of the purchase price of the interment spaces sold at such lower price. No evidence was ever
presented to this effect.

4.. Nature and Purpose of Agency

AIR FRANCE vs. Court of Appeals, December 29, 1983 G.R. No. L-57339

Facts:

In February, 1970, the late Jose G. Gana and his family, (the GANAS), purchased from AIR FRANCE
through Imperial Travels, Incorporated, a duly authorized travel agent, nine "open-dated" air passage
tickets for the Manila/Osaka/Tokyo/Manila route.

On April 24, 1970, AIR FRANCE exchanged or substituted the aforementioned tickets with other tickets
for the same route. At this time, the GANAS were booked for the Manila/Osaka segment on AIR FRANCE
Flight 184 for May 8, 1970, and for the Tokyo/Manila return trip on AIR FRANCE Flight 187 on May 22,
1970. The aforesaid tickets were valid until May 8, 1971.The GANAS did not depart on 8 May 1970.

Jose Gana sought the assistance of Teresita Manucdoc, a Secretary of the Sta. Clara Lumber Company
where Jose Gana was the Director and Treasurer, for the extension of the validity of their tickets, which
were due to expire on May 8, 1971. Teresita enlisted the help of Lee Ella Manager of the Philippine
Travel Bureau, who used to handle travel arrangements for the personnel of the Sta. Clara Lumber
Company. Ella sent the tickets to Cesar Rillo, Office Manager of AIR FRANCE.

The tickets were returned to Ella who was informed that extension was not possible. Ella then returned
the tickets to Teresita and informed her of the impossibility of extension.

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In the meantime, the GANAS had scheduled their departure on May 7, 1971 or one day before the expiry
date. In the morning of the very day of their scheduled departure on the first leg of their trip, Teresita
requested travel agent Ella to arrange the revalidation of the tickets. Ella gave the same negative answer
and warned her that although the tickets could be used by the GANAS if they left onMay 7, 1971, the
tickets would no longer be valid for the rest of their trip because the tickets would then have expired on
May 8,1971. Teresita replied that it will be up to the GANAS to make the arrangements. Notwithstanding
the warnings, the GANAS departed from Manila in the afternoon of May 7, 1971 on board AIR FRANCE
Flight 184 for Osaka, Japan.

However, for the Osaka/Tokyo flight on May 17, 1971, Japan Airlines refused to honor the tickets
because of their expiration, and the GANAS had to purchase new tickets. They encountered the same
difficulty with respect to their return trip to Manila as AIR FRANCE also refused to honor their tickets.
They were able to return only after pre-payment in Manila, through their relatives, of the readjusted rates.
They finally flew back to Manila on separate Air France Frights.

Issue:

Whether or not Teresita was the agent of the GANAS and notice to of the rejection of the request of the
validity of the tickets was notice to the GANAS, her principals.

Held:

The GANAS cannot defend by contending lack of knowledge of those rules since the evidence bears out
that Teresita, who handled travel arrangements for the GANAS, was duly informed by travel agent Ella of
the advice of Reno, the Office Manager of Air France, that the tickets in question could not be extended
beyond the period of their validity without paying the fare differentials and additional travel taxes brought
about by the increased fare rate and travel taxes.

To all legal intents and purposes, Teresita was the agent of the GANAS and notice to her of the rejection
of the request for extension of the validity of the tickets was notice to the GANAS, her principals.

WHEREFORE, the judgment under review is hereby reversed and set aside, and the Amended
Complaint filed by private respondents hereby dismissed.

5.. Knowledge of agent imputed to the principal

SUNACE INTERNATIONAL MANAGEMENT SERVICES, INC. v. NATIONAL LABOR RELATIONS

COMMISSION et al.

G.R. No. 161757 January 25, 2006

FACTS: Respondent Divina Montehermozo is a domestic helper deployed to Taiwan by Sunace

International Management Services (Sunace) under a 12-month contract. Such employment was made
with the assistance of Taiwanese broker Edmund Wang. After the expiration of the contract,
Montehermozo continued her employment with her Taiwanese employer Hang Rui Xiong for another 2
years.

When Montehermozo returned to the Philippines, she filed a complaint against Sunace, Wang,
and her Taiwanese employer before the National Labor Relations Commission (NLRC). She alleges that
she was underpaid and was jailed for three months in Taiwan. She further alleges that the 2-year
extension of her employment contract was with the consent and knowledge of Sunace. Sunace, on the
other hand, denied all the allegations.

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Ruling of the Labor Arbiter and Court of Appeals: The Labor Arbiter ruled in favor of Montehermozo and
found Sunace liable thereof. The National Labor Relations Commission and Court of Appeals affirmed the
labor arbiter’s decision. Hence, the filing of this appeal.

ISSUE: Whether or not there is theory of imputed knowledge between the principal and the agent

HELD: NO. As agent of its foreign principal, [Sunace] cannot profess ignorance of such an extension as
obviously, the act of its principal extending [Divina’s] employment contract necessarily bound it,it too is a
misapplication, a misapplication of the theory of imputed knowledge.

The theory of imputed knowledge ascribes the knowledge of the agent, Sunace, to the principal, employer
Xiong, not the other way around. The knowledge of the principal-foreign employer cannot, therefore, be
imputed to its agent Sunace.

There being no substantial proof that Sunace knew of and consented to be bound under the 2-year
employment contract extension, it cannot be said to be privy thereto. As such, it and its “owner” cannot
be held solidarily liable for any of Divina’s claims arising from the 2-year employment extension. As the
New Civil Code provides, 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 transmissible by their nature, or
by stipulation or by provision of law.

Furthermore, as Sunace correctly points out, there was an implied revocation of its agency relationship
with its foreign principal when, after the termination of the original employment contract, the foreign
principal directly negotiated with Divina and entered into a new and separate employment contract in
Taiwan. Article 1924 of the New Civil Code provides The agency is revoked if the principal directly
manages the business entrusted to the agent, dealing directly with third persons, thus applies.

6.. Fieldman’s Insurance v. Songco - Disclosure of Material Facts in Insurance

25 SCRA 70

Facts:

> In 1960, Sambat, an agent of Fieldman’s Insurance, induced Songco, a man of scant education to
enter into a common carrier insurance contract with Fieldman.

> During the inducement, a son of Songco butted in and said that they could not accept the type of
insurance offered because theirs was an owner-type jeepney and not a common carrier.

> Sambat answered that it did not matter because the insurance company was not owned by the
government and therefore had nothing to do with rules and regulations of the latter (Fieldman).

> The insurance was executed and approved for a year from Sept. 1960-1961. It was renewed in 1961
for another year.

> In Oct. 1961, the jeepney collided with a car in Bulacan and as a result, Sonco died. The remaining
members of the family claimed the proceeds of the insurance with the company but it refused to pay on
the ground that the vehicle was not a common carrier.

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Issue:

Whether or not the Songcos’ can claim the insurance proceeds despite the fact that the vehicle
concerned was an owner and not a common carrier.

Held:

Yes.

The company is estopped from asserting that the vehicle was not covered. After it had led Federico
Songco to believe that he could qualify under the common carrier liability insurance policy, and to enter
into a contract of insurance paying the premiums due, it could not thereafter be permitted to change its
stand to the detriment of the heirs of the insured. It knew all along that Frederico owned a private
vehicle. Its agent Sambat twice exerted the utmost pressure on the insured, a man of scant education,
and the company did not object to this.

1. 7.. NEW LIFE ENTERPRISES and JULIAN SY, vs. HON. COURT OF APPEALS, EQUITABLE
INSURANCE CORPORATION, RELIANCE SURETY AND INSURANCE CO., INC. and
WESTERN GUARANTY CORPORATION

New Life Enterprises and Sy vs Court of Appeals

GR #94071
31 March 1992

Facts:

Julian Sy and Jose Sy Bang formed a partnership under a business name New Life Enterprises, engaged
in the sale of construction materials. The stocks in trade of the business were insured with Western
Guaranty Corporation, Reliance Surety and Insurance, and Equitable Insurance Corporation for an
aggregate amount of Php 1.55 million.

On 19 October 1982, the building occupied by NLE was gutted with fire. The insurance companies
denied the plaintiff's claim for payment on the ground of breach of policy conditions, specifically, failure to
notify insurers of other insurances already effected or subsequently effected covering the same stocks in
trade.

Petitioners, however, argued that the agents of the insurance companies knew of the existence of the
additional insurance coverage and that they were not informed about the said requirement, as they have
not even read the policies.

Issue:

Whether or not the knowledge of the agent satisfies the requirement of the condition

Held:

The knowledge of such insurance by the insurer's agents, even assuming the acquisition thereof by the
former, is not the "notice" that would estop the insurers from denying the claim.

The theory of imputed knowledge, that is, knowledge of the agent is knowledge of the principal, is not
applicable in this case.
Post Script:

What is the Theory of Imputed Knowledge?

A rule in insurance law that any information material to the transaction, either possessed by the agent at
the time of the transaction or acquired by him before its completion, is deemed to be the knowledge of the

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principal, at least so far as the transaction is concerned, even though in fact the knowledge is not
communicate

8.. Manila Remnant vs. CA

G.R. No. 82978. November 22, 1990
Fernan

FACTS:
 Manila Remnant Co. owns Capital Homes Subdivision with Artemio Valencia as President
 A.U. Valencia and Co., is the authorized agent of Manila Remnant to develop the aforesaid
subdivision with authority to manage the sales thereof, execute contracts to sell to lot buyers and
issue official receipts. Artemio Valencia is also the president of this company.
 Sometime in March 1970, Manila Remnant thru A.U. Valencia, executed contracts to sell with
Ventanilla covering two lots amounting to P66k to paid monthly for 10 years. Ventanilla paid the
downpayment.
 After 10 days, Artemio Valencia sold the same lots without informing Ventanilla to Crisostomo, his
sales agent without any consideration.
 Artemio Valencia then transmitted the fictitious Crisostomo contracts to Manila Remnant while he
kept in his files the contracts to sell in favor of the Ventanillas. All the amounts paid by the
Ventanillas were deposited in Valencia's bank account and this is remitted to Manila Remnant in
favor of Crisostomo. Receipts issued by Manila Remnant in favor of Crisostomo are kept by
Valencia. Ventanilla is not aware of Valencia’s scheme and thus continued paying their monthly
installments.
 Sometime in May 1973, Manila Remnant terminated its collection agreement with AU Valencia
due to discrepancies and irregularities discovered in its collections and remittances. Valencia was
also removed as the President of Manila Remnant.
 The Ventanilla couple unaware of the circumstances happened continued paying their
installments to Valencia. It is only in 1978 they learned the termination of Valencia, thus they went
immediately to Manila Remnant to pay their balance but to their shock they discovered from
Gloria Caballes, an accountant of Manila Remnant, that their names did not appear in the records
of A.U. Valencia and Co. as lot buyers.
 Thus, the Ventanillas commenced an action for specific performance, annulment of deeds and
damages against Manila Remnant, A.U. Valencia and Co. and Carlos Crisostomo.
 Lower court’s rendered judgment in favor of Ventanilla, and in the decision, the court ordered
defendants A.U. Valencia and Co. Inc., Manila Remnant and Carlos Crisostomo jointly and
severally to pay the Ventanillas the amount of P100,000.00 as moral damages, P100,000.00 as
exemplary damages, and P100,000.00 as attorney's fees and in case the transfer of lots cannot
be effected for any legal reason, the defendants should reimburse jointly and severally to the
Ventanillas the total amount of P73,122.35 representing the total amount paid for the two lots plus
legal interest thereon from March 1970 plus damages.
 While petitioner Manila Remnant has not refuted the legality of the award of damages per se, it
believes that it cannot be made jointly and severally liable with its agent A.U. Valencia and Co.
since it was not aware of the illegal acts perpetrated nor did it consent or ratify said acts of its
agent.

ISSUE: Whether or not petitioner Manila Remnant should be held solidarily liable together with A.U.
Valencia and Co. and Carlos Crisostomo for the payment of moral, exemplary damages and attorney's
fees in favor of the Ventanillas

RULING:

Yes. Due to the following:

(1) The unique relationship existing between the principal and the agent at the time of the dual sale
must be underscored. Bear in mind that the president then of both firms was Artemio U. Valencia,
the individual directly responsible for the sale scam. Hence, despite the fact that the double sale
was beyond the power of the agent, Manila Remnant as principal was chargeable with the
knowledge or constructive notice of that fact and not having done anything to correct such an
irregularity was deemed to have ratified the same.

(2) The principle of estoppel, Manila Remnant is deemed to have allowed its agent to act as
though it had plenary powers. Article 1911 of the Civil Code provides:

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

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 Authority by estoppel has arisen in the instant case because by its negligence, the principal,
Manila Remnant, has permitted its agent, A.U. Valencia and Co., to exercise powers not granted
to it.

9.. G.R. No. L-55963 December 1, 1989

SPOUSES JOSE FONTANILLA AND VIRGINIA FONTANILLA, petitioners,

vs.

HONORABLE INOCENCIO D. MALIAMAN and NATIONAL IRRIGATION ADMINISTRATION,

respondents.

G.R. No. L-61045 December 1, 1989

NATIONAL IRRIGATION ADMINISTRATION, appellant,

vs.

SPOUSES JOSE FONTANILLA and VIRGINIA FONTANILLA, appellees.

PARAS, J.:

Facts: In G.R. No. L-55963, the petition for review on certiorari seeks is with respect to the denial of
petitioner's claim for moral and exemplary damages and attorneys fees. In G.R. No. 61045, respondent
National Irrigation Administration seeks the reversal of the aforesaid decision of the lower court.

Ona August 21, 1976 at about 6:30 P.M., a pickup owned and operated by respondent National Irrigation
Administration,then driven officially by Hugo Garcia, its regular driver, bumped a bicycle ridden by
Francisco Fontanilla, son of herein petitioners, and Restituto Deligo, along the Maharlika Highway. As a
result of the impact, Francisco Fontanilla and Restituto Deligo were injured and brought to the San Jose
City Emergency Hospital for treatment. Fontanilla was later transferred to the Cabanatuan Provincial
Hospital where he died.

Garcia was then a regular driver of respondent National Irrigation Administration who, at the time of the
accident, was a licensed professional driver and who qualified for employment as such regular driver of
respondent after having passed the written and oral examinations on traffic rules and maintenance of
vehicles given by National Irrigation Administration authorities.

RTC: directed respondent National Irrigation Administration to pay damages (death benefits) and actual
expenses to petitioners. Pay to the heirs of the deceased P12,000.00 for the death of Francisco
Fontanilla; P3,389.00 which the parents of the deceased had spent for the hospitalization and burial of
the deceased Francisco Fontanilla; and to pay the costs.

Instead of filing the required brief in the aforecited Court of Appeals case, petitioners filed the instant
petition with this Court.

ISSUE: whether or not petitioners may be entitled to an award of moral and exemplary damages and
attorney's fees can very well be answered with the application of Arts. 2176 and 2180 of theNew Civil
Code.

HELD: YES

RULING:

Art. 2176 thus provides:

Whoever by act omission causes damage to another, there being fault or negligence, is obliged to pay for
damage done. Such fault or negligence, if there is no pre-existing cotractual relation between the parties,
is called a quasi-delict and is governed by the provisions of this Chapter

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Paragraphs 5 and 6 of Art. 21 80 read as follows:

Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even the though the former are not engaged in any business or
industry.

The State is responsible in like manner when it acts through a special agent.; but not when the damage
has been caused by the official to whom the task done properly pertains, in which case what is provided
in Art. 2176 shall be applicable.

The liability of the State has two aspects. namely:

1. Its public or governmental aspects where it is liable for the tortious acts of special agents only.

2. Its private or business aspects (as when it engages in private enterprises) where it becomes
liable as an ordinary employer. (p. 961, Civil Code of the Philippines; Annotated, Paras; 1986 Ed. ).

In this jurisdiction, the State assumes a limited liability for the damage caused by the tortious acts or
conduct of its special agent.

Under the aforequoted paragrah 6 of Art. 2180, the State has voluntarily assumed liability for acts done
through special agents. The State's agent, if a public official, must not only be specially commissioned to
do a particular task but that such task must be foreign to said official's usual governmental functions. If
the State's agent is not a public official, and is commissioned to perform non-governmental functions,
then the State assumes the role of an ordinary employer and will be held liable as such for its agent's tort.
Where the government commissions a private individual for a special governmental task, it is acting
through a special agent within the meaning of the provision.

Certain functions and activities, which can be performed only by the government, are more or less
generally agreed to be "governmental" in character, and so the State is immune from tort liability. On the
other hand, a service which might as well be provided by a private corporation, and particularly when it
collects revenues from it, the function is considered a "proprietary" one, as to which there may be liability
for the torts of agents within the scope of their employment.

The National Irrigation Administration is an agency of the government exercising proprietary functions, by
express provision of Rep. Act No. 3601. Section 1 of said Act provides:

Sec. 2. Powers and objectives.-The NIA shall have the following powers and objectives:

(c) To collect from the users of each irrigation system fees as may be necessary to finance the
continuous operation of the system and reimburse within a certain period not less than twenty-five years
cost of construction thereof; and

(d) To do all such other tthings and to transact all such business as are directly or indirectly
necessary, incidental or conducive to the attainment of the above objectives.

NIA is a government corporation with juridical personality and not a mere agency of the government. In
this particular case, the NIA assumes the responsibility of an ordinary employer and as such, it becomes
answerable for damages.

This assumption of liability, however, is predicated upon the existence of negligence on the part of
respondent NIA. The negligence referred to here is the negligence of supervision.

Trial Court found out that "as a result of the impact, Francisco Fontanilla was thrown to a distance 50
meters away from the point of impact while Restituto Deligo was thrown a little bit further away. The
impact took place almost at the edge of the cemented portion of the road." It should be emphasized that
the accident happened along the Maharlika National Road within the city limits of San Jose City, an urban
area. Considering the fact that the victim was thrown 50 meters away from the point of impact, there is a
strong indication that driver Garcia was driving at a high speed. This is confirmed by the fact that the pick-
up suffered substantial and heavy damage as above-described and the fact that the NIA group was then
"in a hurry to reach the campsite as early as possible", as shown by their not stopping to find out what
they bumped as would have been their normal and initial reaction.

Evidently, there was negligence in the supervision of the driver for the reason that they were travelling at
a high speed within the city limits and yet the supervisor of the group, Ely Salonga, failed to caution and

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make the driver observe the proper and allowed speed limit within the city. Under the situation, such
negligence is further aggravated by their desire to reach their destination without even checking whether
or not the vehicle suffered damage from the object it bumped, thus showing imprudence and
reckelessness on the part of both the driver and the supervisor in the group.

Significantly, this Court has ruled that even if the employer can prove the diligence in the selection and
supervision (the latter aspect has not been established herein) of the employee, still if he ratifies the
wrongful acts, or take no step to avert further damage, the employer would still be liable. (Maxion vs.
Manila Railroad Co., 44 Phil. 597).

10.. 204. People vs. Chowdury, 325 SCRA 572, G.R. Nos. 129577-80 February 15, 2000
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 Craftrade’s office, and required them to
submit requirements such as passport, NBI clearance, ID pictures, medical certificate and birth certificate.
Chowdury also required them to pay placements fee for a certain amount. 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.
The trial Court found Chowdury huilty beyond reasonable doubt of the crime of illegal recruitment
in large scale.

Issue: Whether or not accused-appellant knowingly and intentionally participated in the commission of
the crime charged.

Held
No. 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.

The last paragraph of Section 6 of Republic Act (RA) 804219 states who shall be held liable for
the offense, thus: “The persons criminally liable for the ab
ove 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.”
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. 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.
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

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 intentionally participated in the commission of illegal recruitment being merely performing his task and
unaware of illegality of recruitment.

11.. First Philippine International Bank vs Court of Appeals

Civil Law – Contract of Sale – Parties to a Sales Contract

Producers Bank (now called First Philippine International Bank), which has been under conservatorship
since 1984, is the owner of 6 parcels of land. The Bank had an agreement with Demetrio Demetria and
Jose Janolo for the two to purchase the parcels of land for a purchase price of P5.5 million pesos. The
said agreement was made by Demetria and Janolo with the Bank’s manager, Mercurio Rivera. Later
however, the Bank, through its conservator, Leonida Encarnacion, sought the repudiation of the
agreement as it alleged that Rivera was not authorized to enter into such an agreement, hence there was
no valid contract of sale. Subsequently, Demetria and Janolo sued Producers Bank. The regional trial
court ruled in favor of Demetria et al. The Bank filed an appeal with the Court of Appeals.
Meanwhile, Henry Co, who holds 80% shares of stocks with the said Bank, filed a motion for intervention
with the trial court. The trial court denied the motion since the trial has been concluded already and the
case is now pending appeal. Subsequently, Co, assisted by ACCRA law office, filed a separate civil case
against Demetria and Janolo seeking to have the purported contract of sale be declared unenforceable
against the Bank. Demetria et al argued that the second case constitutes forum shopping.
ISSUES:
1. Whether or not there is forum shopping.
2. Whether or not there is a perfected contract of sale.
HELD:

1. Yes. There is forum shopping because there is identity of interest and parties between the first case and
the second case. There is identity of interest because both cases sought to have the agreement, which
involves the same property, be declared unenforceable as against the Bank. There is identity of parties
even though the first case is in the name of the bank as defendant, and the second case is in the name of
Henry Co as plaintiff. There is still forum shopping here because Henry Co essentially represents the
bank. Both cases aim to have the bank escape liability from the agreement it entered into with Demetria
et al. The Supreme Court did not lay down any disciplinary action against the ACCRA lawyers but they
were warned that a repetition will be dealt with more severely.
2. Yes. There is a perfected contract of sale because the bank manager, Rivera, entered into the agreement
with apparent authority. This apparent authority has been duly proved by the evidence presented which
showed that in all the dealings and transactions, Rivera participated actively without the opposition of the
conservator. In fact, in the advertisements and announcements of the bank, Rivera was designated as
the go-to guy in relation to the disposition of the Bank’s assets.

12.. GOZUN vs. MERCADO, G.R. No. 167812 December 19, 2006

FACTS: In the local elections of 1995, respondent vied for the gubernatorial post in Pampanga. Upon
respondent’s request, the petitioner owner of JMG Publishing House was commissioned to print the
campaign materials. Meanwhile, on March 31, 1995, respondent’s sister-in-law, Lilian Soriano (Lilian)
obtained from the petitioner a "cash advance" of P253,000 allegedly for the allowances of poll watchers
who were attending a seminar and for other related expenses. Lilian acknowledged on petitioner’s 1995
diary receipt of the amount.

Petitioner later sent respondent a Statement of Account in the total amount to P2,177, 906
whichP253,000 represents the "cash advance" obtained by Lilian. The respondent’s wife partially
paid P1,000,000 to petitioner who issued a receipt therefor. Despite repeated demands, respondent
failed to settle the balance. Thus the petitioner filed with the Regional Trial Court a complaint against
respondent to collect the remaining amount of P1,177,906 plus "inflationary adjustment" and attorney’s
fees.

In his Answer with the Compulsory Counterclaim, respondent denied having transacted with the
petitioner. He alleged that the various campaign materials delivered to him were donations from his
family, friends and political supporters. On petitioner’s claim that Lilian, on his behalf, obtained from him a
cash advance of P253,000, respondent denied having given her authority to do so and having received
the same. Upon questioning by the trial court, respondent could not, confirm if it was his understanding
that the campaign materials delivered by petitioner were donations from third parties.

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The trial court rendered judgment in favor of petitioner. In reversing the trial court’s decision, the Court of
Appeals held that other than petitioner’s testimony, there was no evidence to support his claim that Lilian
was authorized by respondent to borrow money on his behalf. The Court of Appeals reversed the trial
court’s decision and dismissed the complaint for lack of cause of action.

ISSUE: Whether or not the respondent is liable to the cash advanced by Lilian.

DECISION: 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. Contracts entered
into in the name of another person by one who has been given no authority or legal representation or who
has acted beyond his powers are classified as unauthorized contracts and are declared unenforceable,
unless they are ratified.

Generally, the agency may be oral, unless the law requires a specific form. However, a special power of
attorney is necessary for an agent to, as in this case, borrow money, unless it be urgent and
indispensable for the preservation of the things which are under administration. Since nothing in this case
involves the preservation of things under administration, a determination of whether Soriano had the
special authority to borrow money on behalf of respondent is in order.

Lim Pin v. Liao Tian, et al. held that the requirement of a special power of attorney refers to the nature of
the authorization and not to its form. In Strong v. Gutierrez-Repide (6 Phil. 680). The requirements are
met if there is a clear mandate from the principal specifically authorizing the performance of the act. If the
special authority is not written, then it must be duly established by evidence. But nowhere in the note can
it be inferred that defendant-appellant was connected with the said transaction. Under Article 1317 of the
New Civil Code, a person cannot be bound by contracts he did not authorize to be entered into his behalf.
As a general rule in the law of agency, it must upon its face purport to be made, signed and sealed in the
name of the principal, otherwise, it will bind the agent only.

Lilian signed in the receipt in her name alone, without indicating therein that she was acting for and in
behalf of respondent. She thus bound herself in her personal capacity and not as an agent of respondent
or anyone for that matter.

13.. REPUBLIC OF THE PHILIPPINES, et al. vs. HON. VICTORINO EVANGELISTA, et al.

G.R. No. 156015. August 11, 2005.

Nature: PETITION for review on certiorari

Ponente: PUNO, J.

Facts:

 Private respondent Legaspi is the owner of a land located in Bulacan.

 Petitioner Calimlim (Lt. General), entered into a MOA with one Ciriaco Reyes. The MOA granted
Reyes a permit to hunt for treasure in a land in Bulacan. Reyes, with petitioners, started, digging,
tunneling and blasting works on the said land of Legaspi. It was also alleged that Calimlim
assigned about 80 military personnel to guard the area and intimidate Legaspi and other
occupants of the area from going near the subject land.
 Legaspi executed an SPA appointing his nephew, private respondent Gutierrez, as his attorney-
in-fact. Gutierrez was given the power to deal with the treasure hunting activities on Legaspi’s
land and to file charges against those who may enter it without the latter’s authority. Legaspi
agreed to give Gutierrez 40% of the treasure that may be found in the land.
 Gutierrez filed a case against petitioners for illegally entering Legaspi’s land. He hired the legal
services of Atty. Adaza (as legal fees, Atty. Adaza shall be entitled to 30% of Legaspi’s share in
whatever treasure may be found in the land). Upon the filing of the complaint, a 72-hour TRO was
issued against petitioners. The case was then raffled to the court of Judge Evangelista, who then
granted an extension to the TRO.
 Petitioners filed a Motion to Dismiss contending. One issue that they raised was that there is no
real party-in-interest as the SPA of Gutierrez to bring the suit was already revoked by Legaspi as
evidenced by a Deed of Revocation.
 RTC ruled in favor of the private respondents. CA affirmed the decision.

Issue: Whether the contract of agency between Legaspi and Gutierrez has been effectively revoked by
Legaspi.

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Held: NO. CA decision is Affirmed.

Ratio:

A contract of agency is generally revocable as it is a personal contract of representation based on

trust and confidence reposed by the principal on his agent.

An exception to the revocability of a contract of agency is when it is coupled with interest, i.e., if a
bilateral contract depends upon the agency. The reason for its irrevocability is because the agency
becomes part of another obligation or agreement. It is not solely the rights of the principal but also that of
the agent and third persons which are affected. Hence, the law provides that in such cases, the agency
cannot be revoked at the sole will of the principal.

In the case at bar, we agree with the finding of the trial and appellate courts that the agency
granted by Legaspi to Gutierrez is coupled with interest as a bilateral contract depends on it. It is clear
from the records that Gutierrez was given by Legaspi, inter alia, the power to manage the treasure
hunting activities in the subject land. It was likewise agreed upon that Gutierrez shall be entitled to 40% of
whatever treasure may be found in the land. When an agency is constituted as a clause in a bilateral
contract, that is, when the agency is inserted in another agreement, the agency ceases to be revocable at
the pleasure of the principal as the agency shall now follow the condition of the bilateral agreement.
Consequently, the Deed of Revocation executed by Legaspi has no effect. The authority of Gutierrez to
file and continue with the prosecution of the case at bar is unaffected.

14. Sevilla vs. Court of Appeals

160 SCRA 171

FACTS:

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

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

Subsequently, the corporate secretary went to the branch office, and finding the premises locked
and being unable to contact Sevilla, padlocked the premises to protect the interests of TWS. When
neither Sevilla nor her employees could enter the locked premises, she filed a complaint against TWS
with a prayer for the issuance of a mandatory preliminary injunction.

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

The CA affirmed. Hence this petition.

ISSUE:

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

RULING:

NONE. It was a principal-agent relationship. The records show that petitioner, Sevilla, was not
subject to control by the private respondent TWS.

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 In the first place, under the contract of lease, she had bound herself in solidum for rental
payments, an arrangement that would belie claims of a master-servant relationship. That does not make
her an employee of TWS, since a true employee cannot be made to part with his own money in
pursuance of his employer’s business, or otherwise, assume any liability thereof.

In the second place, when the branch office was opened, the same was run by the appellant
Sevilla payable to TWS by any airline for any fare brought in on the effort of Sevilla. Thus, it cannot be
said that Sevilla was under the control of TWS. Sevilla in pursuing the business, relied on her own
capabilities. It is further admitted that Sevilla was not in the company’s payroll. For her efforts, she
retained 4% in commissions from airline bookings, the remaining 3% going to TWS. Unlike an employee,
who earns a fixed salary, she earned compensation in fluctuating amount depending on her booking
successes. The fact that Sevilla had been designated “branch manager” does not make her a TWS
employee. It appears that Sevilla is a bona fide travel agent herself, and she acquired an interest in the
business entrusted to her. She also had assumed personal obligation for the operation thereof, holding
herself solidary liable for the payment of rentals.

Wherefore, TWS and Canilao are jointly and severally liable to indemnify the petitioner, Sevilla.

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