G.R. No. L-20567 July 30, 1965 1.
1965 1. The same shall remain irrevocable until the On October 4, 1958, the trial court rendered a decision, the
PHILIPPINE NATIONAL BANK, petitioner,
vs.
MANILA SURETY and FIDELITY CO., INC. and
THE COURT OF APPEALS (Second
Division), respondents.
Besa, Galang and Medina for petitioner.
De Santos and Delfino for respondents.
REYES, J.B.L., J.:
The Philippine National Bank petitions for the review
and reversal of the decision rendered by the Court of
Appeals (Second Division), in its case CA-G.R. No.
24232-R, dismissing the Bank's complaint against
respondent Manila Surety & Fidelity Co., Inc., and
modifying the judgment of the Court of First Instance of
Manila in its Civil Case No. 11263.
The material facts of the case, as found by the appellate
Court, are as follows:
The Philippine National Bank had opened a letter of
credit and advanced thereon $120,000.00 to Edgington
Oil Refinery for 8,000 tons of hot asphalt. Of this
amount, 2,000 tons worth P279,000.00 were released
and delivered to Adams & Taguba Corporation (known
as ATACO) under a trust receipt guaranteed by Manila
Surety & Fidelity Co. up to the amount of P75,000.00.
To pay for the asphalt, ATACO constituted the Bank its
assignee and attorney-in-fact to receive and collect from
the Bureau of Public Works the amount aforesaid out of
funds payable to the assignor under Purchase Order No.
71947. This assignment (Exhibit "A") stipulated that:
The conditions of this assignment are as
follows:
1
said credit accomodation is fully liquidated. dispositive portion of which reads:
2. The PHILIPPINE NATIONAL BANK is WHEREFORE, judgment is hereby rendered as follows:
hereby appointed as our Attorney-in-Fact for us
1. Ordering defendants, Adams & Taguba
and in our name, place and stead, to collect and
Corporation and Manila Surety & Fidelity Co., Inc.,
to receive the payments to be made by virtue of
to pay plaintiff, Philippines National Bank, the sum
the aforesaid Purchase Order, with full power
of P174,462.34 as of February 24, 1956, minus the
and authority to execute and deliver on our
amount of P8,000 which defendant, Manila Surety
behalf, receipt for all payments made to it; to
Co., Inc. paid from March, 1956 to October, 1956
endorse for deposit or encashment checks,
with interest at the rate of 5% per annum from
money order and treasury warrants which said
February 25, 1956, until fully paid provided that the
Bank may receive, and to apply said payments
total amount that should be paid by defendant Manila
to the settlement of said credit accommodation.
Surety Co., Inc., on account of this case shall not
This power of attorney shall also remain exceed P75,000.00, and to pay the costs;
irrevocable until our total indebtedness to the
2. Orderinq cross-defendant, Adams & Taguba
said Bank have been fully liquidated. (Exhibit
Corporation, and third-party defendant, Pedro A.
E)
Taguba, jointly and severally, to pay cross and third-
ATACO delivered to the Bureau of Public Works, and party plaintiff, Manila Surety & Fidelity Co., Inc.,
the latter accepted, asphalt to the total value of whatever amount the latter has paid or shall pay
P431,466.52. Of this amount the Bank regularly under this judgment;
collected, from April 21, 1948 to November 18, 1948,
3. Dismissing the complaint insofar as the claim for
P106,382.01. Thereafter, for unexplained reasons, the
17% special tax is concerned; and
Bank ceased to collect, until in 1952 its investigators
found that more moneys were payable to ATACO from 4. Dismissing the counterclaim of defendants Adams
the Public Works office, because the latter had allowed & Taguba Corporation and Manila Surety & Fidelity
mother creditor to collect funds due to ATACO under Co., Inc.
the same purchase order to a total of P311,230.41.
From said decision, only the defendant Surety Company has
Its demands on the principal debtor and the Surety duly perfected its appeal. The Central Bank of the Philippines
having been refused, the Bank sued both in the Court of did not appeal, while defendant ATACO failed to perfect its
First Instance of Manila to recover the balance of appeal.
P158,563.18 as of February 15, 1950, plus interests and
The Bank recoursed to the Court of Appeals, which rendered
costs.
an adverse decision and modified the judgment of the court
of origin as to the surety's liability. Its motions for
reconsideration having proved unavailing, the Bank
appealed to this Court.
The Court of Appeals found the Bank to have been
negligent in having stopped collecting from the Bureau
of Public Works the moneys falling due in favor of the
principal debtor, ATACO, from and after November 18,
1948, before the debt was fully collected, thereby
allowing such funds to be taken and exhausted by other
creditors to the prejudice of the surety, and held that the
Bank's negligence resulted in exoneration of respondent
Manila Surety & Fidelity Company.
This holding is now assailed by the Bank. It contends
the power of attorney obtained from ATACO was
merely in additional security in its favor, and that it was
the duty of the surety, and not that of the creditor, owed
see to it that the obligor fulfills his obligation, and that
the creditor owed the surety no duty of active diligence
to collect any, sum from the principal debtor,
citing Judge Advocate General vs. Court of Appeals,
G.R. No. L-10671, October 23, 1958.
This argument of appellant Bank misses the point. The
Court of Appeals did not hold the Bank answerable for
negligence in failing to collect from the principal
debtor but for its neglect in collecting the sums due to
the debtor from the Bureau of Public Works, 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
(Civ. Code, Art. 1887) and becomes liable for the
damages which the principal may suffer through his
non-performance (Civ. Code, Art. 1884). Certainly, the
Bank could not expect that the Bank would diligently
perform its duty under its power of attorney, but
because they could not have collected from the Bureau
2
even if they had attempted to do so. It must not be
forgotten that the Bank's power to collect was expressly
made irrevocable, so that the Bureau of Public Works
could very well refuse to make payments to the principal
debtor itself, and a fortiori reject any demands by the
surety.
Even if the assignment with power of attorney from the
principal debtor were considered as mere additional
security still, by allowing the assigned funds to be
exhausted without notifying the surety, the Bank
deprived the former of any possibility of recoursing
against that security. The Bank thereby exonerated the
surety, pursuant to Article 2080 of the Civil Code:
ART. 2080. — The guarantors, even though they
be solidary, are released from their obligation
whenever by come act of the creditor they
cannot be subrogated to the rights, mortgages
and preferences of the latter. (Emphasis
supplied.)
The appellant points out to its letter of demand, Exhibit
"K", addressed to the Bureau of Public Works, on May
5, 1949, and its letter to ATACO, Exhibit "G", informing
the debtor that as of its date, October 31, 1949, its
outstanding balance was P156,374.83. Said Exhibit "G"
has no bearing on the issue whether the Bank has
exercised due diligence in collecting from the Bureau of
Public Works, since the letter was addressed to ATACO,
and the funds were to come from elsewhere. As to the
letter of demand on the Public Works office, it does not
appear that any reply thereto was made; nor that the
demand was pressed, nor that the debtor or the surety
were ever apprised that payment was not being made.
The fact remains that because of the Bank's inactivity the
other creditors were enabled to collect P173,870.31,
when the balance due to appellant Bank was only
P158,563.18. The finding of negligence made by the Court of
Appeals is thus not only conclusive on us but fully supported
by the evidence.
Even if the Court of Appeals erred on the second reason it
advanced in support of the decision now under appeal,
because the rules on application of payments, giving
preference to secured obligations are only operative in cases
where there are several distinct debts, and not where there is
only one that is partially secured, the error is of no
importance, since the principal reason based on the Bank's
negligence furnishes adequate support to the decision of the
Court of Appeals that the surety was thereby released.
WHEREFORE, the appealed decision is affirmed, with costs
against appellant Philippine National Bank.
G.R. No. L-8346 March 30, 1915
GUTIERREZ HERMANOS, plaintiff-appellant,
vs.
ORIA HERMANOS & CO., defendant-appellant.
Rafael de la Sierra for plaintiff.
Chicote and Miranda for defendant.
TORRES, J.:
On August 12, 1909, counsel for the mercantile firm of
Gutierrez Hermanos of this city filed a written complaint in
the Court of First Instance of Manila against the commercial
concern of Oria Hermanos & Co. of Laoang, Province of
Samar, alleging therein as a cause of action that between
plaintiff and defendant there have existed commercial
relations which gave rise to the opening of a mutual current
account, at 8 percent interest, under the name of Oria
Hermanos & Co., on the books of the plaintiff Gutierrez
Hermanos; that, on January 11, 1909, plaintiff transmitted to
defendant an abstract of the latter's current account on
December 31, 1908, which showed a balance in
plaintiff's favor of P144,473.78 and which was approved
by defendant, Oria Hermanos & Co., by a letter of
March 9, 1909, which was copied literally in the
complaint; that, on May 25, 1909, plaintiff notified
defendant that the current account existing between
them would be closed at the end of thirty days counting
from that date, at the expiration of which period
defendant should pay any debit balance that might be
owing; that, on June 30 of the same year, Gutierrez
Hermanos transmitted to the defendant, Oria Hermanos
& Co., the statement of the latter's current account up to
that date and, confirming its previous letter to the
defendant of May 25, 1909, called attention to the
necessity of paying the balance, which then amounted to
P147,204.28; that the defendant firm, notwithstanding
the said demands and others subsequently made, and
without having made any objection whatever to the said
statement of account, refused to pay the principal and
interest owing on the said account. Plaintiff's counsel
therefore prayed that Oria Hermanos and Co. be
sentenced to pay the sum of P147,204.28, besides the
interest thereon at the rate of 8 per cent annum from
June 30, 1909, and the costs.
Defendant filed its answer on November 9, 1909, setting
up four cross complaints and six counterclaims against
the plaintiff, Gutierrez Hermanos, and specifically
denied such of the allegations of the complaint as were
not in agreement with its answer. Plaintiff demurred to
certain paragraphs of the answer and as to the others
thereof prayed the court to order defendant to make its
allegations more specific. The court overruled this
demurrer, but granted the petition that defendant should
3
make its allegations more specific in the second, third, sale or sales Gutierrez Hermanos collected large and
and fourth cross complaints and first counterclaim. important sums for commission and brokerage and had
turned in for the goods sold amounts less than what they were
In compliance with the said order, defendant, on May 4,
actually worth in Manila; that defendant, Oria Hermanos &
1910, filed am amended answer in which it specifically
Co., had recently received information that these lots of hemp
admitted paragraphs 1 and 2 of the complaint, and as the
and copra were purchased by the firm of Gutierrez Hermanos
first cross complaint, alleged that, by reason of
for itself, notwithstanding that the latter had stated to its
mercantile relations and the opening of a mutual current
principals, Oria Hermanos & Co., that they had been sold to
account from May 1, 1900, the plaintiff had obligated
third persons; that it collected by reason of such sale,
itself periodically to send to the defendant firm a
commission and brokerage; acts which redound to the fraud,
memorandum or statement of the current account, and
injury, and prejudice of the defendant, Oria Hermanos and
further obligated itself, in case the said mercantile
Co. Therefore the latter prayed that Gutierrez Hermanos be
relations should be finally terminated, to present a
sentenced to render a general and complete account of the
general and complete account, duly supported by
amounts of hemp and copra received by it for sale on
vouchers and other proofs; that plaintiff, Gutierrez
commission from the year 1900 to 1909, setting out the dates
Hermanos, had contended itself by sending to Oria
of the receipt of the said merchandise, dates of the sales,
Hermanos and Co. some memoranda or abstracts of
names of the purchasers, prices stipulated, discounts
account, accepted by defendant as such "abstract of
obtained, and commissions collected by Gutierrez Hermanos,
account," without the latter's having waived its right to
etc.
demand the presentation, as agreed upon, of the vouchers
and other proofs upon the closing of the current account, Defendant alleged as the third cross complaint that, by virtue
a stipulation which Gutierrez Hermanos had failed to of the said commission contract, Gutierrez Hermanos sent to
comply with. Defendant therefore prayed that the the firm of Oria Hermanos & Co., at different times
plaintiff, Gutierrez Hermanos, be sentenced to render according to the latter's request, from May 1, 1900, up to the
and present the said final account, duly accompanied by date of the closing of the current account, 193,310 sacks of
vouchers, in conformity with the agreement made. rice alleged to have been purchased from third persons,
wherefore Oria Hermanos & Co. paid a certain stipulated
In the second cross complaint defendant alleged that, by
percentage as commission or brokerage for the sales; but that
virtue of a commission contract, Oria Hermanos & Co.
now Oria Hermanos & Co. have received information which
had from the 1st of May, 1900, to the 7th of September,
it believes to be true, and so alleges, that the rice so
1909, forwarded 65,119.66 piculs of copra, 70,420 bales
forwarded had not been purchased from third persons, but
of hemp, and 5,175.03 piculs of loose hemp to Gutierrez
belonged to Gutierrez Hermanos who sold it directly to
Hermanos for sale on commission; that the latter firm
defendant, collecting from the latter excessive prices,
informed the defendant that it, the plaintiff, had sold the
advance payments, commission and interest, all to the fraud
said products to third persons for the account of the
and injury of the defendant firm. Oria Hermanos & Co.,
defendant, Oria Hermanos & Co.; that by reason of said
therefore, prayed that Gutierrez Hermanos be sentenced to
render an account, duly supported by vouchers, of all
the lots of rice forwarded to Oria Hermanos, with a
statement of the dates of the orders, amounts, dates of
the purchases, names of purchasers, amounts charged to
Oria Hermanos & Co., etc.
In the fourth cross complaint defendant related that, by
reason of the same commission contract existing
between the two firms, Gutierrez Hermanos had sent to
Oria Hermanos & Co., from the 1st of May, 1900, up to
the closing of the current account, various quantities of
salt, petroleum, tobacco, groceries and beverages, and
had collected a commission for the purchase thereof,
that afterwards Oria Hermanos & Co. learned that the
forwarding firm, the plaintiff, had set larger prices on
the said goods than it had actually paid for them and had
unduly charged such prices, before it had paid them, to
the defendant's account, collecting for itself commission
and interest thereon, to the fraud and prejudice of the
defendant firm. Therefore the latter prayed that
Gutierrez Hermanos be sentenced to render a complete
account, accompanied by vouchers, of the shipments
aforementioned.
In the first counterclaim filed by the defendant, Oria
Hermanos & Co., petition was made that Gutierrez
Hermanos be sentenced to pay it the sum of P13,894.60,
as the amount of an overcharge of 3 per cent in interest
collected from defendant, in a charge of 8 percent
interest per annum on a private debt of P47,649 drawing
5 per cent interest per annum, which latter amount Juan
T. Molleda owed the firm of Gutierrez Hermanos and
payment for which was assumed by Oria Hermanos &
Co. upon its organization into a mercantile firm in May,
1900.
4
In the second counterclaim the defendant firm, Oria
Hermanos & Co. set forth: That, on April 18, 1900, its
predecessor had ordered its consignee in Manila,
Gutierrez Hermanos, to insure against all war risks the
stocks of hemp and merchandise which the said firm
possessed in the pueblo of Laoang, for P35,000, and
likewise those it had in Catubig, for P32,000; that
Gutierrez Hermanos did not comply with the said order,
only insuring the stocks in Laoang for P67,000, leaving
those of Catubig totally unprotected; that when, on May
10, 1900, this latter pueblo was destroyed by fire Oria
Hermanos & Co. lost all its stocks there and could not
collect the insurance of P32,000 on the said property,
which, through the fault, negligence, and omission of
Gutierrez Hermanos had not been insured. This amount
last mentioned, added to the premiums, expenses, and
interest paid by Oria Hermanos & Co. aggregates the
sum of P63,700, payment of which defendant demanded
of plaintiff.
As a third counterclaim it is alleged that, on May 18,
1900, the firm of Gutierrez Hermanos, complying with
orders from Oria Hermanos, & Co., insured against all
war risks, in a certain insurance company of London,
England, whose agent in the Philippine Islands was
Stevenson & Co., the stock of hemp which the defendant
company had in the pueblo of Catarman, Samar, for
3,000 pounds sterling, and paid the premiums thereon at
the rate of 10 per cent per quarter; that, during the first
quarter for which the premiums had been so paid, all the
insured tobacco belonging to Oria Hermanos & Co., in
Catarman, was stolen by the insurgent forces; that then
the underwriter refused to pay the amount of the
insurance on the ground that Gutierrez Hermanos had
made out the said insurance defectively wherefore Oria
Hermanos & Co. ordered its agent Gutierrez Hermanos
to institute proceedings before the courts of these Islands for
the collection of the amount of the said insurance; but that
plaintiff instead brought suit for the purpose before the courts
of England and by its negligence, indolence, and carelessness
had, during a period of eight years, obliged the defendant
firm to incur costly expenditures which, added to the amount
of the insurance premiums paid, attorney's fees, costs,
interest, etc., aggregated P67,000; that for this sum, together
with legal interests thereon, it prayed that it be reimbursed by
Gutierrez Hermanos.
With respect to the fourth counterclaim, the defendant firm
set forth that, under the commission contract and the current
account contract existing between both companies, Gutierrez
Hermanos bound itself to acquire for and forward to Oria
Hermanos & Co. such rice and other effects, including cash,
as defendant might order from plaintiff; but that, since the
beginning of 1904, the firm of Gutierrez Hermanos
maliciously failed to make the consignments of rice and other
effects, under the false pretext that there were no such articles
in the market, thereby preventing the said firm of Oria
Hermanos & Co. from obtaining a profit of not less than
P25,000 and, besides, injuring its fame, credit, and mercantile
reputation in the Island of Samar to the extent of
approximately P50,000. Therefore defendant prayed that
Gutierrez Hermanos be sentenced to pay it the sum of
P75,000 as the amount of such losses and damages
occasioned it.
As the fifth counterclaim defendant alleged that, for a period
of twenty-two months, from the month of May, 1900, it
chartered several of its boats to the American military
government; that the charter parties aggregated a value of
P400,000; that these contracts were executed and the
amounts thereof collected by Messrs. Oria & Fuster,
members of the defendant company, who turned the said
amounts into the current account they had with the firm
of Gutierrez Hermanos; but the plaintiff charged in the
current account, appropriated to itself, and collected
from the funds of Oria Hermanos & Co. which it had in
its possession, 2 1/2 per cent of the amount collected by
reason of the said charter parties for commission and
brokerage, there being no stipulation whatever relative
to the collection of this commission; that Gutierrez
Hermanos, moreover, charged against the said amount
collected by it 8 per cent compound interest; and that
the sum in such wise improperly charged and
appropriated amounted, together with the accumulated
interest, to P15,000, which defendant prayed be returned
to it by Gutierrez Hermanos.
The object of the sixth counterclaim is the recovery of
P31,000, in which amount defendant, Oria Hermanos &
Co., alleged it was injured by Gutierrez Hermanos
having arbitrarily charged in the current account
compound interest at the rate of 8 per cent per semester
from the year 1900 up to the time of the closing of the
said current account, while the agreement made between
both firms upon opening the said account was that the
latter should bear a mutual interest of 8 per cent per
annum only.
On May 14, 1910, counsel for Gutierrez Hermanos filed
a written answer to the foregoing countercomplaints and
counterclaims, and prayed that plaintiff be absolved
therefrom.
On August 1, 1910, this case came up for hearing and
was continued on the following days until on April 24,
1912, the Honorable S. del Rosario, judge, rendering
judgment therein, the dispositive part of which is as
follows: "Messrs. Oria Hermanos & Co. are sentenced
to pay to Messrs. Gutierrez Hermanos the sum of
5
P147,204.28, with interest thereon at the rate of 8 per shall embrace the 153 invoices referred to by the
cent per annum from the 30th of June, 1909, after litigants in this suit (page 324 of the transcript of the
deduction of all the sums that result as balances, in favor stenographic notes, session of November 29, 1910).
of the former, from the accounts that shall be rendered
(d) With regard to the fourth cross complaint,
by the latter, in conformity with the cross complaints and
plaintiff shall render an account, supported by
counterclaims that have been admitted.
vouchers, of all the purchases it made of petroleum
Messrs. Gutierrez Hermanos are sentenced: for Messrs. Oria Hermanos & Co., and in connection
with the invoices held in the latter's possession and
(a) With respect to the first cross complaint, to
referred to on page 391 of the transcript of the
render to Messrs. Oria Hermanos & co.
stenographic notes of the session of November 29,
accounts, supported by vouchers, only of those
1910.
articles in the acquisition of which fraud, deceit,
or error has been proven and to which the (e) In the matter of the second counterclaim, plaintiff
following pronouncements refer. shall return to Messrs. Oria Hermanos & Co. the sum
of P1,812 with interest thereon at the rate of 8 per
(b) As regards the second cross complaint, to
cent per annum from the 5th of May, 1910, to the
return to Messrs. Oria Hermanos & Co., after
date of payment. The interest due shall be
due settlement of the accounts, all the sums
compounded after each semester, reckoning from
collected as internal-revenue tax and referred to
June 1, 1900, and both the principal and the interest
in the invoices of rice, salt, petroleum, lime,
so compounded shall bear the same interest of 8 per
rattan, flour, aniseed spirit, cigarettes, and other
cent per annum.
articles mentioned in their respective places in
the record, unless plaintiff shows in a Messrs. Gutierrez Hermanos are absolved, in the first
satisfactory manner that it did actually pay to the place, from the second cross complaint in so far as
Bureau of Internal Revenue, the contents of concerns the demand therein made for a rendition of
Exhibit 178 notwithstanding, the sums which, accounts in connection with the hemp and copra; and
for the reason aforestated, were debited to in the second place, from the first, third, fourth, fifth,
defendant, in which case the latter may bring an and sixth counterclaims.
action against the said Bureau of Internal
Without special finding as to costs.
Revenue.
The parties, upon their notification of this judgment, duly
(c) With respect to the third cross complaint,
excepted thereto and by written motion prayed for a
plaintiff must render to defendant an account,
reopening of the case and a new trial. These motions were
supported by vouchers, of the shipments of rice
overruled, with exception by the appellants, and the proper
concerned in the invoices examined in which
bills of exceptions having been filed, the same were approved
fraud or error was discovered, and said account
and forwarded to the clerk of this court.
This action was brought to recover the sum of
P147,204.28, the balance of a current account opened on
May 1, 1900, between Gutierrez Hermanos and the
commercial firm of Oria Hermanos & Co., at the rate 8
per cent mutual interest up to June 30, 1909, which sum
was found to be owing by Oria Hermanos & Co. to the
commercial firm of Gutierrez Hermanos.
Other subject matters of the present suit are the
rendition of accounts by Gutierrez Hermanos, as
commission agent, to Oria Hermanos & Co., as
principal, and the collection of various sums demanded
by the latter in the cross complaints and counterclaims
filed, during the trial, by its counsel against the claim
made by Gutierrez Hermanos for the payment of the
amount specified in the preceding paragraph.
To prove the propriety and justice of its complaint,
Gutierrez Hermanos, plaintiff, alleged: That, in
accordance with the agreement made, it sent
semiannually a general account that comprised a
statement of the business transacted during the
preceding six months, to Oria Hermanos & Co. who,
after examining the account with its specification and
vouchers, sometimes approved the same without
comment of any kind, and at others, after some
objections, but that, in the latter cases, upon
explanations being subsequently given by Gutierrez
Hermanos, the defendant firm used at last to accept the
account rendered; that such was the procedure followed
during the nine years approximately that both firms
maintained commercial relations, and that the record
showed that during the said nine years Oria Hermanos
& Co. had given in favor of Gutierrez Hermanos 17
agreements or approvals of account, the last of which,
transcribed in the complaint, is of the following tenor:
6
LAOAG, March 9, 1909. general account, duly verified and supported by vouchers, of
all the shipments of hemp, copra, rice and other effects
Messrs. GUTIERREZ HERMANOS, Manila. specifically mentioned, and to render a final account in
DEAR SIRS: In our possession, your very conformity with the agreement made between both parties
esteemed letter dated December 31 last, from and converting the details mentioned in the said cross
which we have withdrawn the extract of our complaints.
current account with your firm, closed the same Notwithstanding the proof shown in the record of the
day, showing a balance in your favor of certainty and reality of the debt as a balance resulting from
P144,473.78, which extract meets with our
the current account kept between the parties, it is of course
approval.
impossible to determine the net amount, the object of the
We remain, Yours, very respectfully, claim presented by plaintiff, until there shall have first been
ORIA HERMANOS & Co. decided whether there should or not be rendered a general
account, accompanied by vouchers, comprehensive of the
That, on May 25, 1909, the plaintiff firm notified the business transacted in connection with the different
defendant firm that it could not continue to do business commercial articles dealt in, and of the mercantile relations
with the latter and therefore the current account between both firms from May 1, 1900, to June 30, 1909, and
stipulated between both parties would be closed within a also whether Gutierrez Hermanos is indebted to Oria
period of thirty days; plaintiff therefore transmitted to Hermanos & Co. and what is the amount of the debt.
defendant a general detailed account that comprised the
period from January, 1909, to June 30 of the same year, Even upon the supposition that the plaintiff, Gutierrez
with the warning that after that date (May 25, 1909) Hermanos, is obliged to make a general rendition of accounts
defendant would have to pay the debit balance, inasmuch comprehensive of the business transacted between both firms
as, although the said last account had not been approved, within the dates mentioned, it is evident that, until it be
no objection whatever had been made thereto by Oria known whether plaintiff is or is not indebted to Oria
Hermanos & Co. Therefore in the said letter of May 25, Hermanos & Co. and what is the amount owing as disclosed
plaintiff demanded of defendant the payment of the sum by the account rendered, it cannot be decided whether
mentioned of P147,204.28 which the latter had not paid plaintiff is or is not entitled to collect the whole amount
in spite of plaintiff's demands and notwithstanding the claimed in the complaint, for only in view of the result of the
fact that defendant had made no objection whatever to rendition of accounts requested by plaintiff can it be lawfully
the last account rendered. established whether Gutierrez Hermanos is a creditor of Oria
Hermanos & Co. and what amount is owing to it by the latter.
Counsel for defendant, Oria Hermanos & Co., after a All this is referred to in the first error alleged by defendant.
denial of the facts that had not been admitted prayed in
special defense and in four cross complaints that the In case it should be held that the law does not allow the
plaintiff, Gutierrez Hermanos, be compelled to present a rendition of accounts requested by the defendant, Oria
Hermanos & Co., and that this latter is not a creditor of
Gutierrez Hermanos, it is evident of course that plaintiff
would be unquestionably entitled to collect the amount
specified in the complaint, or some other amount duly
proved at trial to be owing it by defendant. It is
therefore incumbent upon us to elucidate hereinafter the
propriety or impropriety of the contentions made by
defendant in its four cross complaints.
Defendant's counsel in his first cross-complaint and
special defense prayed that the plaintiff, Gutierrez
Hermanos, be compelled to render and present a
general, final, complete and verified account, pursuant
to the agreement made between both parties, inasmuch
as plaintiff bound itself to send periodically to defendant
a note or numerical extract of the current account, and in
case the mercantile relations between both firms should
come to an end or be finally closed, Gutierrez Hermanos
bound itself to present a general and complete account,
duly supported by vouchers, and defendant, in accepting
and approving the semiannual accounts rendered by
plaintiff, did not waive its right to demand the general
account agreed upon, at the time of the final closing of
the said current account, the obligation to furnish which
was not complied with by the plaintiff, Gutierrez
Hermanos.
The latter denied in its answer the allegations made by
Oria Hermanos & Co. in its cross-complaint, and set
forth that, in consequence of the mutual current account
opened between the parties from the year 1900, plaintiff
transmitted weekly or fortnightly, according to
circumstances, a specific statement of the transactions
effected, as well as, semiannually, a general account of
the business done during the six months last elapsed,
and that defendant, after an examination of such
semiannual account together with its details and
7
vouchers, and after some objections thereto had been
explained, was accustomed to prove the same. This was
the produre carried on for more than nine years during
which Oria Hermanos & Co. from time to time approved
each one of the 17 account that were presented to it, and
upon Gutierrez Hermanos closing the current account
from January to June, 1909, it also presented to
defendant a general detailed account, which,
nothwithstanding that no objection whatever was made
to it, was not approved. Therefore the complaint was
filed that initiated this litigation.
Had the agreement between the parties been recorded
with all its conditions in some instrument, it would have
appeared whether Gutierrez Hermanos actually bound
itself to present to Oria Hermanos and Co., besides the
semiannual accounts rendered, a general account
comprising all the business undertaken between 1900
and June, 1909, on which latter date it was considered by
Gutierrez Hermanos as terminated. The allegation made
by defendant relative to this point had not been
substantiated by any evidence whatever, and therefore
there is no reason nor legal ground whereby plaintiff
could be compelled to present that general account
requested in the first cross-complaint.
It is, in our opinion, appropriate it insert hereinafter what
the trial court, in the judgment rendered, says with
respect to this matter: "If commission agents be obliged
to render to their principals itemized accounts, supported
by vouchers, of the sums they collect as commission and
of the transactions effected by them in relation with their
principals, as often as the latter may desire, in cases
where there arises some trouble, some difference of
opinion or a conflict of interests, or where the
commission agents close the account, as occurs in the
case at bar because the principals did not pay what they were
owing or because, instead of the debt being diminished, it
was increased, the commission contract would become an
inexhaustible and never ending source of litigation and of
claims without number, a formidable arm for spiteful
principals against which it would be insufficient to oppose an
arsenal of vouchers such as might be treasured by the most
prescient commission agent, because there could be avoided
neither the brother resulting from their necessary
examination, nor the heavy expenses and loss of time that are
the inevitable accompaniment of this class of work."
When an account has been presented or rendered and has
been approved by the party whom it concerns or interests, it
is not proper to revise it, unless it should be proved that in its
approval there was deceit, fraud, or error seriously prejudicial
to the party who gave such approval. Arts. 1265 and 1266,
Civil Code.)
In the decision rendered in the case of Pastor vs. Nicasio, (6
Phil. Rep., 152), the following doctrine was laid down;
When accounts of the agent to the principal are once
approved by the principal, the latter has no right to
ask afterwards for a revision of the same or for a
detailed account of the business, unless he can show
that there was fraud, deceit, error or mistake in the
approval of the accounts — facts not proven in this
case.
The record does not show it to have been duly proven that
upon Oria Hermanos & Co. giving its approval to the 17
accounts presented by Gutierrez Hermanos there was deceit,
fraud, or mistake prejudicial to the former's interests. For the
sole reason that Gutierrez Hermanos, upon closing the
current account with Oria Hermanos & Co. was obliged,
certainly an unwarranted obligation, to render a general
account comprehensive of all the business transacted
between both parties during more than nine years, and
there being no proof of the alleged agreement between
them, it would be improper to hold that the plaintiff is
obliged to render and present a general account in the
sense requested by Oria Hermanos & Co. in its first
cross-complaint.
With respect to the second cross-complaint, relative to
the sale on commission of lots of hemp and copra by
defendants to plaintiff during the period from may,
1900, until the close of the mercantile relations between
both firms, it was alleged that for such sale or sale on
commission Gutierrez Hermanos collected a large and
important commission of many thousands of pesos and
credited defendant in the current account with lesser
prices than those obtained and that defendant received
information that these lots of hemp and copra which
were said to have sold to third persons were afterwards
found to have been purchased by the firm of Gutierrez
Hermanos itself, to the fraud, injury, and prejudice of
the defendant, Oria Hermanos and Co.; wherefore the
latter prayed that plaintiff should present a general and
complete account, duly verified by vouchers and with
the details specified of each and all of the shipments of
hemp and copra forwarded to plaintiff from May, 1900,
to 1909. These facts were denied by plaintiff, and the
court, in view of the evidence adduced by both parties,
held that the record showed absolutely no proof that
plaintiff, Gutierrez Hermanos, had committed any fraud
or error prejudicial to defendant.
In fact it was not proved that Gutierrez Hermanos
credited in the current account a lesser price than that
obtained from the sale on commission of the lots of
hemp and copra sent to it by Oria Hermanos and Co.,
8
for from the documentary evidence consisting of account
transmitted by plaintiff to the commercial firms of
Stevenson and Co. and Warner, Barnes and Co.
(Limited), in collection of the price of hemp and copra
acquired by these houses, it appears that the prices fixed
at sale to the latter are the same and agree with those
specified in the statements transmitted by plaintiff to
defendant, Oria Hermanos and Co., and that the hemp
and copra shipped by the defendant were sold on
commission to third persons — that is, to the aforesaid
commercial firms.
The charge laid against plaintiff, that it did not disclose
the name of the commercial firm or concern from whom
the hemp that it sold had come, does not, although it may
have concealed this fact, constitute a fraudulent act, nor
one originating civil liability, inasmuch as plaintiff
realized on the lots of hemp under the marks of Oria
Hermanos & Co. which they bore from their point of
origin and by which they were known both in Manila
and abroad (Exhibit DD) and not only in the invoices,
but also in the accounts presented by Gutierrez
Hermanos upon its collecting the price of such hemp
sold on commission, there appeared the marks stamped
by Oria Hermanos & Co. on their lots of hemp, and
therefore it cannot be affirmed that Gutierrez Hermanos
superseded Oria Hermanos & Co. as the owner of the
hemp that plaintiff sold on commission and that came
from defendant during the more than nine years in which
the former was a commission agent of the latter.
With respect to the fact of Gutierrez Hermanos not
having disclosed the name of the concern to which the
hemp belonged, in the cases where plaintiff sold it in its As regards the tax of one-third of 1 per cent which, according
own name, plaintiff's procedure cannot be qualified as to accounts presented by Gutierrez Hermanos to Oria
deceitful or fraudulent, inasmuch as article 245 of the Hermanos & Co., plaintiff had paid on the price of the rice,
Code of Commerce authorized it to act as it did, to contract
on its own account without need of disclosing the name of its
principal, in which case Gutierrez Hermanos was liable to the
person or concern with whom it contracted, as if the business
were its own. So, then, the purchaser has no right of action
against the principal, nor the latter against the former,
without prejudice to the actions which lie respectively in
behalf of the principal and the commission agent, pursuant to
the provisions of article 246 of the Civil Code.
With regard to the lots of copra, notwithstanding the
allegations made in this cross-complaint, defendant has not
produced any proof whatever of the facts charged, in face of
plaintiff's denial in its answer. Therefore, in consideration of
the reasons set forth with respect to the lots of hemp, the
judgment of the lower court disallowing defendant's petition
that plaintiff render accounts relative to the sales of hemp and
copra is held to be in accordance with law.
In this part of the judgment of the trial court consideration
was also given to the fact of plaintiff's having debited against
defendant in the account rendered it the payment of the
internal-revenue tax of one-third of 1 per cent.
With respect to the tax paid on the price of the hemp and
copra sold by the plaintiff in the name and for the account of
the defendant, the procedure of the plaintiff is perfectly legal,
in accordance with the provisions of section 139 of the
Internal Revenue Law, in laying upon Oria Hermanos & Co.
the obligation to pay the said tax as the owner of the hemp
and copra sold, and, therefore, the claim made by defendant
against the account drawn up by Gutierrez Hermanos is
unreasonable and unfounded.
salt, kerosene, lime, mats, rattan, flour, anise-seed & Co. the amount shown by said liquidation to be owing. some of which, as has been proved, there appears to
spirits, and cigarettes, inasmuch as the said section of have been charged a larger amount than the cost
As regards the third cross-complaint, wherein it is
the above cited Act obliges the vendors and not the price.
alleged that fraud, deceit, or error was committed or
purchasers of these articles to pay the said tax, it is
incurred by Gutierrez Hermanos in connection with the This court reserves its opinion, unit at such proper time it
undeniable that the firm of Gutierrez Hermanos that had
accounts for the rice forwarded to Oria Hermanos & Co., shall have seen to result, shown by the new accounts to be
acquired the said articles which were forwarded to Oria
a fact denied by plaintiff, the trial judge, in view of the presented by plaintiff, as to whether, in the rice accounts
Hermanos & Co. should neither have paid the tax in
evidence introduced at the hearing of the case, rendered by it to defendant, there was fraud or only error
question, nor should have charged it for payment against
established the following conclusion: susceptible of correction, for plaintiff alleges in turn, as
defendant, since it had already been paid to the
shown in the letter Exhibit ññ, that Oria Hermanos & Co.
Government by the owners of the articles sold to Justice, therefore, demands that Messers.
required plaintiff to increase the price in the invoices of rice,
plaintiff. Gutierrez Hermanos render a new account of the
anise-seed spirit, petroleum, etc., by 25 per cent of the cost of
lots of rice which they shipped to Messrs. Oria
In view of the provisions of law contained in the these articles. Therefore plaintiff shall render an account,
Hermanos & Co., inasmuch as they, as proved in
aforesaid section 139, it is not understood how Gutierrez verified by vouchers, to Oria Hermanos of all the shipments
the verification of some of the lots, committed
Hermanos could have been compelled to pay the said of rice concerned, not only in the invoices examined, but also
the fraud of having collected a commission of 2
tax on the rice, salt, petroleum, lime, mats, rattan, flour, ion those that have not been examined, up to No. 153, which
per cent for the purchase of the rice, as
anise-seed spirit, and cigarettes, nor on the price of the invoices are those mentioned on page 324 of the transcript of
commission agents, in addition to a profit in
beer, on the supposition that plaintiff acquired these the stenographic notes of the session of November 29, 1910.
reference to the said lots, in their capacity of
articles from third persons in this city. In the case of the
merchants, on the price of the rice imported by The approval and agreement given by defendant to the 17
rice imported from abroad, the payment of the tax
them from Saigon. semiannual accounts presented by plaintiff is no impediment
thereon pertains to the importer who sells it to third
to a revision of the same, once it shall have been shown that
persons. If they acted as committed agents, they could
there was fraud, error, or serious in correction prejudicial to
have contented themselves with the 2 per cent
If Gutierrez Hermanos made a mistake, notwithstanding the party who accepted the said accounts. The law which
commission and should not have charged any
the clear phraseology of the said section, said mistake protects him who acts in good faith cannot permit any
extra price. If, as commission agents, it was
should not prejudice defendant who, in July, 1905, had considerable prejudice to be caused to the rights and interests
more advantageous for them to reap the profits
already stated that it did not agree with plaintiff's action of a third party who had neither the occasion nor the
from the rice imported from Saigon, they should
in the matter for, in the letter Exhibit FF, defendant opportunity to acquaint himself with the truth of the facts
neither have charged nor collected the 2 per cent
demanded that plaintiff investigate the case in order to which he had admitted as true in such manner as they were
commission. The commission agent is obliged to
avoid a double payment of the tax. presented to him.
acquire the articles or effects for which he has
For the foregoing reasons the plaintiffs, Gutierrez received an order from his principal in the most Oria Hermanos & Co., upon its accepting and approving the
Hermanos, after liquidation of the sums paid as a tax of advantageous and less onerous conditions for accounts which were presented to it by Gutierrez Hermanos,
one-third of 1 per cent on the price of the rice acquired the latter. Such an obligation, prescribed by as transcripts or copies from the latter's books, did not have
in this city and of the salt, kerosene, lime, mats, flour, article 258 of the Code of Commerce, was not an opportunity to make the required verification of the entries
anise-seed spirit, cigarettes, and beer, referred to in the fulfilled by the procedure observed by plaintiff of rice contained in the said accounts or of the invoices of
second counter-complaint, must pay to Oria Hermanos in the matter of the verified invoices of rice, in this article in all their details, and whenever it has discovered
9
that Gutierrez Hermanos, as commission agent, has
made overcharged or placed extra prices in addition to
the 2 per cent commission, it has a right to demand
reimbursement of the excess in price which it had
erroneously paid as principal. The judgment of the
lower court must, therefore, be affirmed with respect to
the entries of rice made in the 170 invoices referred to in
the accounts presented by plaintiff, by means of a
revision of the accounts presented in connection with
the said article of the Code of Commerce.
With respect to the fourth crosscomplaint relative to
Gutierrez Hermanos having entered in the invoices
transmitted to Oria Hermanos & Co. higher prices than
those paid for the salt, beverages, tobacco, wine, beer,
and groceries, in spite of the allegations made by
plaintiff the record of the proceedings shows no proof of
the truth of the act charged to plaintiff. The fact of not
having recorded in the invoices of the said effects
shipped to defendant the names of the persons who had
acquired them does not constitute proof nor even a
presumption of illegal procedure on the part of
Gutierrez Hermanos. Neither is plaintiff obliged by any
law to state the names of the owners of such articles, nor
does the omission thereof show bad faith on the part of
the commission agents.
As regards the petroleum, it is undeniable that in the
invoices to which the fourth cross-complaint refers
higher prices were given than those it actually cost.
Moreover, Oria Hermanos & Co. is entitled to the
discount obtained by the commission house from the
commercial firm which sold the petroleum.
The trial judge, as grounds for his finding, says the
following: "It is therefore evident that, according to the
proofs submitted, Messrs. Gutierrez Hermanos
10
committed fraud in the purchase and shipments of the
said article, not only because they kept the discount
allowed by the selling firm by which their principals, for
whom they purchased the petroleum should have
profited, and not the commission agents who acted for
them simply in the capacity of agents; but also because
in one of the invoices they charged, besides, a greater
price than they paid to the vendors, and then collected a
commission of 2 per cent on all the invoices. It is the
obligation of commission agents to make the purchases
for their principals on the most advantageous terms. For
this they are paid the rate of commission stipulated. They
have no right to keep the discount allowed by the
vendors on the price of the articles they purchase for
their principals, even less to increase, to their benefit, the
price charged them."
In consideration, then, of evidence introduced relative to
the purchase of the petroleum shipped to defendant,
referred to in the fourth cross-complaint, plaintiff must
render an account, verified by vouchers, of the price of
all the petroleum that it acquired for Oria Hermanos &
Co. and which is covered by the invoices mentioned on
page 391 of the transcript of the stenographic notes taken
of the session of December 28, 1910.
The judgment of the lower court treats of the fact that
Gutierrez Hermanos charged interest on the value of the
articles which it had purchased for Oria Hermanos &
Co., before even having paid the vendors the price of the
articles acquired. Defendant has complaint against this
procedure on the part of plaintiff and qualifies as
improper and illegal the collection of the 8 per cent
interest on the price of the effects forwarded to Oria
Hermanos & Co. from the date of their shipment, when
actual payment of such purchases was made many days
afterwards.
The accounts presented by Gutierrez Hermanos, wherein note
was made of the collection of interest at the rate of 8 per cent
on the price of the effects acquired by plaintiff for Oria
Hermanos & Co. and shipped to defendant for its disposal,
notwithstanding that they were not paid for unit many days
afterwards, were approved and accepted by plaintiff without
any objection thereto whatever and with no protest against
the notation of the interest on the price of the articles
purchased. Therefore, aside from the reasons given by the
lower court in his judgment and relative to this point, it can
not be held that there was either fraud or error in the
procedure observed by Gutierrez Hermanos in charging in its
account the stipulated interest from the date when it acquired
the effects, afterwards shipped to the defendant, Oria
Hermanos & Co., because Gutierrez Hermanos could have
paid cash for the articles purchased. Even though payment
might have been delayed for a few days more it is certain that
Gutierrez Hermanos as commission agent was obliged to pay
the price of the articles acquired and, consequently, said price
began to draw interest chargeable to the consignee who, as
owner of such articles, could dispose of them freely. For
these reasons defendant's claim can not be sustained.
We now take up the fifth special defense, or the first
counterclaim presented by defendant against plaintiff,
wherein it is prayed that the latter be sentenced to pay to the
former the sum of P13,894.60, together with the legal interest
thereon, which sum is the difference between the 5 per cent
which was all Oria Hermanos & Co. should have the sum of
P47,649, the debt contracted by Juan T. Molleda in favor of
Gutierrez Hermanos and transferred to Oria Hermanos and
Co. who assumed its payment instead of Molleda.
The reasons, set forth in the judgment appealed from
and based on documentary evidence, are so clear and
conclusive that they could not be rejected by defendant,
nor invalidated at trial by other evidence in rebuttal.
Consequently, we are constrained to admit them as
decisive of the point in controversy and as duly showing
that the interest stipulated on the amount which was
transferred to Oria Hermanos and Co. is 8 per cent and
not 5 per cent as defendant claims. Therefore the sum of
P13,894.60 claimed cannot be recovered, and it is held
that the finding made by the trial judge in respect to the
first counterclaim filed by defendant is in accord with
the law and the evidence. This finding is based on the
following grounds: "If the firm of Molleda and Oria as
well as that of Oria Hermanos & Co., of which latter
Mr. Tomas Oria is manager, both consented to Messrs.
Gutierrez Hermanos charging in all the extracts of
current account sent to them an interest of 8 per cent on
the sum of P47,649 56; and if they willingly and
constantly acquiesced in the payment of a particular rate
of interest instead of that of 5 per cent, during nine years
without raising any objection whatever, they are not
entitled to obtained restitution for the difference paid of
3 per cent, nor have they any right to consider as
unlawfully collected the 8 per cent interest on the sum
above mentioned. The record shows no proof of the
existence of any of the vices which, according to law,
might invalidate the consent given by defendant to the
collection from it of the interest of 8 per cent, which
must be that stipulated, nor was such a vice alleged by
Oria Hermanos & Co." Moreover, against this finding in
plaintiff's favor no error whatever has been alleged by
defendant.
In the second counterclaim, the sixth special defense,
defendant prays that Gutierrez Hermanos be sentenced
11
to the payment of P63,700, with legal interest thereon
from the date of the presentation of this counterclaim,
and alleged; that the firm of Gutierrez Hermanos,
disregarding the instructions of Molleda and Oria, the
predecessor of Oria Hermanos and Co., merely insured
the stocks of hemp and merchandise which the latter had
in Laoang, for an imaginary value of P67,000, leaving
totally unprotected the stocks of hemp and merchandise
in Catubig, valued at P32,000; that such failure to
comply with said instruction caused Oria Hermanos and
Co., by reason of the fire that occurred in Catubig, to
lose the sum of P63,700, including the premiums.
expenses, and interest paid, and that defendant,
immediately upon discovery of the loss by plaintiff's
fault and negligence, filed claim therefor and protested
against the same.
In answer Gutierrez Hermanos alleged that in the letter
from Oria Hermanos and Co., of the date of April 28,
1900, the latter stated that it recommended to plaintiff
the question of the insurance of the warehouses
in Laoang and of the houses in Catubig, advised that if
the stocks of hemp and merchandise therein were
insured, as defendant believed they were, plaintiff should
endeavor to increase the insurance thereon; and that in
another letter of the same date Don Tomas Oria, after
relating the fact that the insurgents had attacked the
pueblo of Catubig and killed the troops there garrisoned,
stated that he earnestly recommended to Gutierrez the
matter of the insurance in order that it might be made as
soon as possible in the manner explained in the official
letter of the same date.
Gutierrez Hermanos, supposing that Catubig might
already have been burned and destroyed as a result of the
occurrences related by Oria in his letter, judging by the
news published in the newspapers of this city on May 2,
1900, deemed that it would be a useless expense to increase
the insurance of the merchandise held in stock in the said
pueblo under ordinary fire insurance which was that taken
out by the firm of Molleda and Oria, for the reason that the
insurance companies would refuse to pay the amount of the
insurance in case the damage was caused by war, invasion,
riot, military force, etc. As Gutierrez Hermanos then had no
means whereby it might communicates with Molleda and
Oria to request specific instructions from this latter firm in
regard to the insurance ordered, which ordinary and not war
insurance, it had to consult Don Casimiro Oria, a partner of
Oria Hermanos and Co., and this gentleman, with a full
knowledge of the state of affairs in Catubig, advised that no
further attempt be made to increase the ordinary fire
insurance on the goods in Catubig, because it would be a
useless expense and because there were well-founded reasons
for supposing that at that date the pueblo had already been
completely destroyed, together with the buildings and stocks
of merchandise which it was proposed to insure. But after
taking into account the importance of the buildings and the
large stocks of goods stored in Laoang, which pueblo,
according to a letter from Oria to Gutierrez Hermanos, was
also in danger of being attacked by the insurgents, plaintiff
proceeded to insure them against war risks for three months
for P7,000 sterling, a transaction which was communicated
by plaintiff to Molleda and Oria by a letter of May 5, 1900,
and which this latter firm acknowledged without making any
objection whatever to the war insurance placed; that, since
the 2d of June of the same year, neither was any claim or
protest made by the firm of Oria Hermanos, but, on the
contrary, Oria Hermanos and Co. applied to the Government
of the United States claiming an indemnity of P90,000
Philippine currency for the burning of the buildings and
goods in the pueblo of Catubig — a claim still pending
decision by the Government.
The judge of the Court of First Instance, deciding the
question raised in this counterclaim, set forth among
others the following considerations: "If Messrs.
Gutierrez Hermanos had taken steps to insure the stocks
of merchandise in Catubig and had declared to any
officer of the insuring company the truth about the
terrible slaughter which had just taken place, it would
have been impossible to obtain a war insurance on the
said merchandise; and if, instead of declaring the truth,
plaintiff had omitted it, the insurance if obtained could
not have been collected. The insurance company would
have learned of the circumstances which had not been
stated and had been omitted in the application and
would have refused to pay the insurance, as it did in the
case of the Catarman insurance, as will be seen further
on. And if plaintiff had applied to the English courts, as
it did in the case referred to, the result would have been
the same."
Even though Gutierrez Hermanos had increased by
value of the insurance on the hemp and merchandise in
Catubig through means of ordinary fire insurance,
pursuant to the instructions given by Molleda and Oria,
the predecessors of Oria Hermanos & Co. and whose
rights this latter firm represents, the same result would
have followed, inasmuch as in this class of insurance the
insuring company does not assume risks for fires and
damages caused by war, riot, and military force; and as
in the official letter aforementioned plaintiff was not
authorized to increase the insurance through means of a
war insurance policy, it is unquestionable that plaintiff,
in not increasing the ordinary insurance, proceeded in a
prudent and reasonable manner and for the benefit of the
12
defendant by saving the latter from uselessly paying an
important premium for an insurance which it afterwards
could not have collected, Furthermore, the news was
already disseminated in Manila that the pueblo of
Catubig had been completely burned to the ground. Not
only, therefore, would it have been impossible to obtain
the increase of an ordinary insurance, but even a war
insurance, though offering to pay a large and excessive
premium.
In the letter of the date of May 34, 1900, Exhibit 5, page
190 of the file of the record, Gutierrez Hermanos
informed Oria Hermanos and Co. that the insurance firm
refused to pay the amount of the insurance on the
merchandise in Catubig, for the reason that the cases of
fire caused through military force, etc., were excluded
from the policy. So that even though Gutierrez
Hermanos had, in compliance with orders from Oria
Hermanos & Co., increased the amount of the insurance
on the stock of merchandise stored in Catubig, Oria
Hermanos & Co. would not have been benefited thereby,
because the insurance company would have refused to
pay the increase, just as it did not pay the amount of the
original insurance for the reason aforementioned.
Furthermore, as we have already stated, the order to
increase the insurance only refers to ordinary insurance
against fire, and not to extraordinary insurance against
war risks.
With respect to the war insurance placed on the stocks of
goods in Laoang, the trial court could not in accordance
with law hold plaintiff to be liable for the payment of the
sum Oria Hermanos and Co. did not protest nor object in
any wise against the placing of the said war insurance on
the merchandise in Laoang, and also because in the
second counterclaim no petition or demand whatever
was made in connection with this transaction. For these
reasons therefore, Gutierrez Hermanos must be absolved of
the second counterclaim.
We now come to the third counterclaim, the seventh special
defense presented by defendant, wherein petition was made
that the firm of Gutierrez Hermanos be compelled to pay to
Oria Hermanos the sum of P67,000, besides the legal interest
thereon since the filing of this claim, which sum was the
amount of the insurance, premiums paid, fees, costs, interest,
and charges for telegrams, etc., alleged to have been
expended and lost through the inattention, negligence,
improvidence, and carelessness of the plaintiff, Gutierrez
Hermanos, without defendant's being able to collect the
amount of the insurance on the stock of hemp in Catarman,
Samar.
In a letter of May 10, 1900, addressed by Oria Hermanos &
Co. to Gutierrez Hermanos, the former commissioned the
latter to try to insure against war risks some 1,400 piculs of
hemp that Oria Hermanos and Co. had in the pueblo of
Catarman which had been evacuated by the American troops;
and in another letter of the same date Tomas Oria said to
Gutierrez Hermanos that Catarman had been evacuated by
the troops three days after the departure of the
steamer Santander which was unable to load about 3,000
piculs of hemp that his firm had there, and, as he knew that
the said pueblo had not been burned, he wished to have
insurance taken out on the value of about 1,400 piculs of
hemp stored in the Delgado warehouse. Gutierrez Hermanos
had Stevenson and Co., of Manila, cable to the latter's head
office in London for the desired insurance, and as soon as it
was obtained Gutierrez Hermanos wrote to Oria Hermanos &
Co. informing defendant that plaintiff had insured against
war risks 1,400 piculs of hemp deposited in the Delgado
warehouse in Catarman, for three months from the 18th
of May, 1900.
A few days subsequent to the placing of this insurance,
Oria Hermanos & Co. ordered Gutierrez Hermanos to
collect the amount of the insurance, for the reason that
all the stock of hemp in Catarman had been stolen by
the insurgents. The representative of the underwriter
refused, however, to pay the amount of the insurance
because Oria Hermanos and Co. had concealed certain
facts which, had they been known to the underwriter,
would have deterred the company from issuing a policy
for the hemp, and all the steps taken for the purpose of
obtaining the collection of the £3,000 sterling for which
the hemp had been insured, resulted in failure.
Therefore, on petition of the firm of Oria Hermanos &
Co. through the firm of Stevenson and Co., suit was
duly brought before the English courts in London. The
prosecution of this suit was commended to English
attorneys to whom Oria Hermanos & Co. furnished,
through Gutierrez Hermanos, all the documents and data
conducive to a successful issue. Notwithstanding, the
claim of Oria Hermanos & Co. was rejected by the
London courts. No liability attached to Gutierrez
Hermanos for the failure of the suit in London.
The firm of Gutierrez Hermanos merely complied with
the orders of Oria Hermanos & Co. to insure the stock
of hemp in Cataraman, with an insurance company
established in London, through Stevenson and Co. of
Manila, in view of the fact that there was no insurance
company in this city which would issue policies against
war risks. For this purpose, by a letter of October 17,
1905, Exhibit F-2 Oria Hermanos & Co. transmitted to
Gutierrez Hermanos the power of attorney and the letter
for Messrs. Horsley, Kibble and Co. for the purpose of
13
the latter's negotiating with the underwriters for some Co., to bring suit in the English courts, not against Stevenson
honorable settlement of the matter, during the time and Co. of these Islands, but against the insurance company
required for the receipt of all the documents that had of London.
been requested. In another letter of January 25, 1906,
The firm of Gutierrez Hermanos, in executing orders and
Oria Hermanos & Co. stated to Stevenson and Co. that it
charges of Oria Hermanos and Co., became, by virtue of an
took pleasure in replying to the latter's favor of the 19th
implied agency, an agent of the latter and, in the fulfillment
instant, addressed to Mr. Oria; that Delgado's letter to
of the orders of the principal, adjusted its action to the
Oria of the date of October 19, 1901, was forwarded in
instructions of Oria Hermanos & Co. The record does not
the original to London, through Messrs. Gutierrez
show that in so doing it proceeded with negligence or with
Hermanos, to Stevenson and Co., on July 16, 1904; that
deceit. Therefore there is no reason nor legal ground whereby
defendant inclosed a copy of Delgado's declaration
plaintiff should be compelled to pay the sum demanded in the
before the municipal judge of Catarman, transmitted to
third counterclaim for the causes therein stated. (Arts. 1710,
Stevenson and Co. on November 21, 1903; and that the
1719 and 1726 of the Civil Code.) Consequently Gutierrez
two letters to Gutierrez Hermanos, of May 28, 1903, and
Hermanos should be absolved from the third counterclaim
October 2, 1901, as well as the memorandum of the
filed by defendant.
values of the goods, had been transmitted to Gutierrez
Hermanos with a telegraphic order to said firm to deliver In the fourth counterclaim, the eighth special defense,
them to Stevenson and Co. If the amount of the defendant, Oria Hermanos & Co., prays that plaintiff,
insurance could not afterwards be collected, it was not Gutierrez Hermanos, be sentenced to pay P75,000 for losses
through fault of Gutierrez Hermanos, who acted in the and damages, with interest, inasmuch as by reason of a
matter in accordance with instructions from Oria contract executed between both parties, plaintiff bound itself
Hermanos and Co. to acquire for and transmit to defendant rice and other
articles, including coin, which Oria Hermanos & Co. might
So that firm of Gutierrez Hermanos was a mere
request at Laoang, Samar, and so plaintiff did; but since
conductor through which the stock of hemp in Catarman
1904, the fifth year of their mercantile relations, plaintiff
was insured by a firm in London through mediation of
failed repeatedly to comply with its obligation to send the
Messrs. Stevenson and Co., for the firm of Oria
rice and other article requested by defendant, totally
Hermanos and Co. had to grant a power of attorney on
sometimes and at other times partially limiting the shipment
behalf of the said Messrs. Horsley, Kibble and Co. in
of the effects ordered and excusing itself from remitting
order that the latter might represent the former before the
money on the pretext that it could not obtain insurance for the
courts in England. If afterwards the representatives of
shipment of cash; that defendant afterwards discovered that
Oria Hermanos and Co. did not obtain a favorable
there were in this city large stocks of rice and other effects
decision in those courts, the loss of the suit cannot be
which plaintiff [defendant] had requested, and could surely
ascribed to either the fault or the negligence of Gutierrez
have been sold in Laoang and the pueblos of the coast of
Hermanos, inasmuch as this plaintiff merely complied
Samar, as Oria Hermanos & Co. was the only importing firm
with the orders of the defendant, Oria Hermanos and
in that island; and had defendant received from plaintiff
the rice and the other effects the former had requested to
be shipped to it, defendant would have obtained a profit
of not less than P25,000 whereupon it could have
bought large quantities of hemp which would have
brought it great profit. Defendant further alleged that
such failure on the part of plaintiff to comply with the
agreement made caused injury to the reputation and
mercantile credit of Oria Hermanos and Co., in Samar,
and losses and damages of the value of about P50,000,
the total of the losses and damages suffered on both
accounts amounting to a sum of not less than P75, 000;
and that the motive of such procedure on the part of
Gutierrez Hermanos was to injure and destroy
defendant's credit in Laoang and on the entire coast of
Samar, because plaintiff planned to establish there a
business of its own like that of Oria Hermanos and Co.
Plaintiff, Gutierrez Hermanos, specifically denied the
facts alleged by defendant in its counterclaim and set
forth that the evidence introduced relative to such facts
showed that since 1904 plaintiff had been reducing the
shipments of rice, wine, and other effects to such extent
that in 1906 and 1907 cases occurred where the order
shipped was reduced to one-third, and in 1908 also
where the steamer Serantes was sent without any cargo
whatever, for the reason that the debit balance in
defendant's current account amounted, in 1905, to
P321,000 and because Oria Hermanos and Co. did not
send a quantity of hemp and copra sufficient in value to
cover the value of the remittance of money and of the
shipments of the effects requested; that defendant,
instead of sending hemp to plaintiff for the gradual
payment of its debt, sent it to Cebu; that therefore Oria
Hermanos & Co. had no well-founded grounds
whereupon to claim indemnity for losses and damages,
14
especially since, according to the stipulations of the
agreement and as shown by the evidence, the part of the
credit utilized by defendant was to be covered and paid
for with the price of the hemp, copra and other effects
which Oria Hermanos & Co. should have to send to
Gutierrez Hermanos; and that, if the debtor balance of
the current account continued to increase instead of
decreasing, it must be concluded that the procedure of
Gutierrez Hermanos in reducing the amount of the
shipments of the orders was due to the conduct of Oria
Hermanos & Co. who did not endeavor by the shipment
of copra, hemp, and other effects gradually to pay even a
part of the credit opened, notwithstanding that the rights
and obligations established in the contract should have
been mutual.
If defendant, without concerning itself with diminishing
its debtor balance, did no more than order goods for sale
and remit drafts to the paid by Gutierrez Hermanos, not
sending in exchange to plaintiff hemp, copra, and other
effects, plaintiff, Gutierrez Hermanos, in refusing
discretionally to furnish certain effects to defendant and
to pay drafts drawn by the latter, did not violate the
obligations it assumed in the contract.
The fact that the debtor balance accepted by Oria
Hermanos and Co. on March 9, 1909, Exhibit A, was
raised to P144,473.78, is the best proof of the good
conduct observed by plaintiff during the nine years of
mercantile relations between both parties, and is at the
same time the most graphical demonstration that
defendant's contention made in its fourth counterclaim is
not based on any just or legal grounds.
Article 1100, last paragraph of subarticle 2, of the Civil
Code prescribes: "In mutual obligations none of the
persons bound shall incur default if the other does not
fulfill or does not submit to properly fulfill what is incumbent
upon him. From the time one of the persons obligated fulfills
his obligation the default begins for the other party." Article
1124 of the same Code provides as follows: "The right to
rescind the obligations is considered as implied in mutual
ones, in case one of the obligated persons does not comply
with what is incumbent upon him.
The person prejudiced may chose between exacting
the fulfillment of the obligation or its rescission, with
indemnity for damages and payment of interest in
either case. He may also demand the rescission, even
after having requested its fulfillment, should the
latter appear impossible." Under these grounds we
hold that the absolutory finding contained in the
judgment appealed from is in accordance with the
law and the evidence.
In the fifth counterclaim, the ninth special defense,
defendant, Oria Hermanos and CO., prayed that Gutierrez
Hermanos be sentenced to pay the sum of P15,000, together
with the legal interest thereon, inasmuch as plaintiff,
Gutierrez Hermanos, charged in the current account,
collected and appropriated to itself the funds which Oria
Hermanos & Co. had in plaintiff's possession and assessed
against the same compound interest at 8 per cent and 2 ½ per
cent on the net amount of the collection made as charterage
for the steamers Serantes and Laoang, the
launches Comillas and Golondrina, and the cutter Remedios,
as commission for said charterage, when all the steps for the
collection of the same were taken personally by Messrs. Oria
and further, defendant's partners and there was no contracts
whatever between the parties whereby Gutierrez Hermanos
might collect, enter into the current account and appropriate
to itself the said amount as commission through the
collection of the aforesaid charterage.
Plaintiff's counsel merely denied the facts alleged,
which certainly were not proved at the trial. It was, on
the contrary, fully proven that Don Tomas Oria and the
managers of Oria Hermanos & Co. knew, by reason of
the accounts Gutierrez Hermanos had been sending
them, that the plaintiff firm charged the 2 per cent
commission on the amount of the charterages, for it is so
recorded in the letter from Oria addressed to Gutierrez
Hermanos under date of June 12, 1901, in which P690
appears annotated as the amount of plaintiff's 2 per cent
commission for the charterage of the Laoang and
the Serantes, and in other letter from Oria Hermanos
and Co. of October 18, 1900, (Exhibit A-2, page 476 of
the record) wherein demand was made for vouchers and
a memorandum of the collections effected for the
charterage of these steamers, the Laoang, and the
Serates. Furthermore, it appears in this same letter for it
is stead that credit has been given in Gutierrez
Hermanos' account for P272.50, as being the amount
this firm was entitled to receive as 2 per cent
commission on the P15,625 collected by it from the
quartermaster for the charterage of the Serates and for
the transportation of eight passengers on the
steamer Laoang; and it is also therein stated that
Gutierrez Hermanos' account has been credited with the
sum of P24, as the amount of 2 per cent commission on
P1,200 collected for four days' charterage of
the Laoang. These documents show that Gutierrez
Hermanos has taken part in the collection of the said
charterages and, therefore, was entitled to receive the
amount agreed upon as commission for such collection.
Oria's assertion that Gutierrez Hermanos did nothing for
the collection of the P400,000, the amount of the
charterage for the boats of Oria Hermanos and Co.,
Gutierrez Hermanos relative to the collection of the
15
charterages due for the launches Golondrina and Adela, amounts involved, and made neither objection nor protest
and for this purpose he sent the proper vouchers for such whatever against the system or method employed by
collection. Consequently there is neither reason nor legal Gutierrez Hermanos in capitalizing at the end of each year
ground to prevent our holding as proper the finding the interest of the semiannual accounts rendered, nor against
established by the trial court that Oria Hermanos & Co. the interest charged on the capitalized interest, not only in
did, with due knowledge of the matter, approve the defendant's debit, but also by reciprocation in the credit given
amount of the commissions collected by Gutierrez it in the account of the receipts obtained from price of the
Hermanos on the sums it had collected as charterage for hemp, copra and other products shipped to Gutierrez
the defendant's boats, in accordance with the agreement Hermanos. All the foregoing facts appear on page 18 of the
made between the parties, which defendant can not transcript of the stenographic notes taken of the hearing on
repudiate, nor can its regret for the part it took therein July 14, 1914.
avail it for the reimbursement sought in its fifth
The transaction effected by Gutierrez Hermanos in the
counterclaim. The finding of the trial judge in regard to
accounts it presented to defendant, Oria Hermanos & Co., is
the latter is, therefore, in conformity with the law.
confirmed by some twenty letters signed, some of them, by
The object of the sixth counterclaim is to obtain Pria Hermanos and Co., others, the greater part of them, by
reimbursement of the sum of P31,000, the amount of the Tomas Oria, and still others by Mr. Fuster, a partner of the
interest charged and compounded semiannually, instead latter firm. Therefore the semiannual capitalization made by
of annually, at the rate of 8 per cent net interest. Oria plaintiff, Gutierrez Hermanos, was sanctioned and approved
Hermanos & Co. demands this sum from Gutierrez by defendant on the seventeen occasions that it approved the
Hermanos, alleging that there was an agreement between accounts presented by plaintiff, expressive of such
the parties to the effect that a settlement of the interest capitalization of the reciprocal interest stipulated between the
should be made at the end of each year, and also that the contracting parties.
interest due and unpaid should be capitalized annually.
Article 1109 of the Civil Code prescribes as follows: "Interest
The firm of Oria Hermanos & Co., Tomas Oria, one of due shall earn legal interest from the time it is judicially
the partners of the same, and the defendant's bookkeeper, demanded, even if the obligation should have been silent on
a relative of the said Oria and also a partner of the firm, this point.
had been receiving extracts or copies of the semiannual
In commercial transactions the provisions of the
accounts rendered by Gutierrez Hermanos, and, after a
Code of Commerce shall be observed.
careful examination of the same, after offering
objections thereto which sometimes delayed Oria Article 317 of the Code of Commerce provides: "Interest
Hermanos and Co.'s approval thereof for more than six which has fallen due and has not been paid shall not earn
months, after receiving the explanations requested and interest. The contracting parties may, however, capitalized
vouchers demanded of plaintiff, they concluded by the net interest which has not been paid, which, as new
admitting and agreeing to the accounts rendered and the principal, shall earn interest."
Upon the execution of the contract which was the origin
of the mercantile relations between Gutierrez Hermanos
and Oria Hermanos & Co., the stipulation made
between both parties were not sent forth in any
document, they being content with a verbal agreement
in which it was stipulated that the rate of interest of the
reciprocal current account to be kept between them
should be 8 per cent, without determining whether such
interest was to fall due annually, as affirmed by Tomas
Oria, the manager of Oria Hermanos & Co., or
semiannually, as contended by Gutierrez Hermanos.
However, it is certain that in the seventeen accounts
presented by plaintiff to defendant, at the end of each
period of six months from 1900 to December 31, 1908,
embracing nearly nine years, the interest due was
liquidated every six months in the reciprocal current
account between both firms, without opposition or
protest on the part of Oria Hermanos and Co. In the
absence of a written agreement defendant's procedure
raises the presumption that such were the stipulations
verbally made between made between the interested
parties, and the verbal agreement was constantly
maintained and confirmed without protest or objection
whatever on the part of the managers of Oria Hermanos
& Co. If Tomas Oria, changing his opinion, after the
firm of which he is principal member had approved the
said seventeen accounts, believed that he was authorized
to contradict his own acts and to allege another manner
of computing and liquidating the 8 per cent interests
stipulated by stating that it should have been collected
annually, and not semiannually as was done and
approved in the seventeen accounts rendered during a
period of more than nine years, the rectification
afterwards made of an assent and agreement repentance
what he himself did in agreement with defendant, since
16
they were authorized to take such action by article 317 of rattan, flour, anisette, cigarettes, beer, and other
the Code of Commerce. Therefore the ruling of the trial articles, for which plaintiff paid said sums and
judge absolving plaintiff of the sixth counterclaim filed charged them to defendant's account, must pay to
by defendant is in accordance with the law and with the Oria Hermanos & Co. the sum disclosed by the said
evidence as disclosed by the record. liquidation, in conformity with the second cross-
complaint.
For all the reasons hereinabove set forth as grounds for
the findings rendered in respect to the complaint and to (2) That Gutierrez Hermanos shall render to
each one of the cross-complaints and counterclaims defendant an account, supported by vouchers, of the
presented by defendant, the errors assigned to the price, expenses, and all amounts paid for the
judgment appealed from and not admitted in this shipments of rice covered by the invoices examined
decision have been duly refused. during the trial of this case, as well as the 153
invoices mentioned by the parties in the hearing of
Therefore, for the reasons assigned in this decision, we
November 29, 1910.
sentence the commercial firm of Oria Hermanos & Co.
to the payment of the sum of P147,204.28 and of the (3) That plaintiff shall render an account, supported
stipulated interest at the rate of 8 per cent per annum by vouchers, of all the petroleum it acquired for Oria
from June 30, 1909, after deduction of all the sums Hermanos & Co., the invoices of which are
which as balances in favor of defendant may result from mentioned in the transcript of the stenographic notes
the accounts to be rendered by Gutierrez Hermanos, in taken at the hearing of December 28, 1910.
conformity with the finding made, especially in
The judgment appealed from is affirmed in so far as it is in
reference to the second, third, and fourth cross-
accord with this decision and is reversed in so far as it is not,
complaints.
without special finding as to costs.
Gutierrez Hermanos is absolved from the first cross-
G.R. No. 79253 March 1, 1993
complaint, and also from the second, in which latter
UNITED STATES OF AMERICA and MAXINE
defendant prayed for an accounting of the hemp and
BRADFORD, petitioners,
copra business. Plaintiff is likewise absolved from the
vs.
fourth cross-complaint, excepting the part thereof
HON. LUIS R. REYES, as Presiding Judge of Branch 22,
relative to the petroleum, and also from the first, second,
Regional Trial Court of Cavite, and NELIA T.
third, fourth, fifth, and sixth counterclaims filed by
MONTOYA, respondents.
defendant.
Luna, Sison & Manas for petitioners.
Held: (1) That Gutierrez Hermanos, after
Liquidation of the sums paid as a one-third per Evelyn R. Dominguez for private respondent.
cent tax on the price of the rice acquired in this
city, of that of the salt, kerosene, lime, mats,
DAVIDE, JR., J.: privileges, and while she was already at the parking area, presence of the defendant and numerous
Montoya filed on curious onlookers;
This is a petition for certiorari and prohibition under
7 May 1987 a complaint1 with the Regional Trial
Rule 65 of the Rules of Court. Petitioners would have 7. That having found nothing irregular on
Court of her place of residence — Cavite — against
Us annul and set aside, for having been issued with her person and belongings, plaintiff was
Bradford for damages due to the oppressive and
grave abuse of discretion amounting to lack of allowed to leave the premises;
discriminatory acts committed by the latter in
jurisdiction, the Resolution of 17 July 1987 of Branch
excess of her authority as store manager of the 8. That feeling aggrieved, plaintiff checked
22 of the Regional Trial Court (RTC) of Cavite in Civil
NEX JUSMAG. The complaint, docketed as Civil the records and discovered that she was the
Case No. 224-87. The said resolution denied, for lack of
Case No. 224-87 and subsequently raffled off to only one whose person and belonging was
merit, petitioners' motion to dismiss the said case and
Branch 22 at Imus, Cavite, alleges the following, (sic) searched that day contrary to
granted the private respondent's motion for the issuance
material operative facts: defendant's allegation as set forth in par. 5
of a writ of preliminary attachment. Likewise sought to
hereof and as evidenced by the
be set aside is the writ of attachment subsequently xxx xxx xxx
memorandum dated January 30, 1987 made
issued by the RTC on 28 July 1987.
3. That on January 22, 1987, after by other Filipino Jusmag employees, a
The doctrine of state immunity is at the core of this working as the duty ID checker from photocopy of which is hereto attached as
controversy. 7:45 to 11:45 a.m., plaintiff went ANNEX "A" and made integral (sic) part
shopping and left the store at l2:00 noon hereof:
The readings disclose the following material operative
of that day;
facts: 9. That moreover, a check with Navy
4. That on the way to her car while Exchange Security Manager, R.L. Roynon
Private respondent, hereinafter referred to as Montoya,
already outside the store, Mrs. Yong on January 27, 1987 was made and she was
is an American citizen who, at the time material to this
Kennedy, also an ID checker, upon the informed by Mr. Roynon that it is a matter
case, was employed as an identification (I.D.) checker at
instruction of the store manager, Ms. of policy that customers and employees of
the U.S. Navy Exchange (NEX) at the Joint United
Maxine Bradford, approached plaintiff NEX Jusmag are not searched outside the
States Military Assistance Group (JUSMAG)
and informed her that she needed to store unless there is a very strong evidence
headquarters in Quezon City. She is married to one
search her bags; of a wrongdoing;
Edgardo H. Montoya, a Filipino-American serviceman
employed by the U.S. Navy and stationed in San 5. That plaintiff went to defendant, who 10. That plaintiff knows of no circumstances
Francisco, California. Petitioner Maxine Bradford, was then outside the store talking to sufficient to trigger suspicion of a
hereinafter referred to as Bradford, is likewise an some men, to protest the search but she wrongdoing on her part but on the other
American citizen who was the activity exchange was informed by the defendant that the hand, is aware of the propensity of
manager at the said JUSMAG Headquarters. search is to be made on all Jusmag defendant to lay suspicion on Filipinos for
employees that day; theft and/or shoplifting;
As a consequence of an incident which occurred on 22
January 1987 whereby her body and belongings were 6. That the search was thereafter made 11. That plaintiff formally protested the
searched after she had bought some items from the retail on the person, car and bags of the illegal search on February 14, 1987 in a
store of the NEX JUSMAG, where she had purchasing plaintiff by Mrs. Yong Kennedy in the letter addressed to Mr. R.L. Roynon, a
17
 photocopy of which is hereto attached
as ANNEX "B" and made integral (sic)
part hereof; but no action was
undertaken by the said officer;
12. That the illegal search on the
person and belongings of the plaintiff
in front of many people has subjected
the plaintiff to speculations of theft,
shoplifting and such other wrongdoings
and has exposed her to contempt and
ridicule which was caused her undue
embarrassment and indignity;
13. That since the act could not have
been motivated by other (sic) reason
than racial discrimination in our own
land, the act constitute (sic) a blow to
our national pride and dignity which
has caused the plaintiff a feeling of
anger for which she suffers sleepless
nights and wounded feelings;
14. That considering the above,
plaintiff is entitled to be compensated
by way of moral damages in the
amount of P500,000.00;
15. That to serve as a deterrent to those
inclined to follow the oppressive act of
the defendant, exemplary damages in
the amount of P100,000.00 should also
be awarded.2
She then prayed for judgment ordering Bradford to pay
her P500,000.00 as moral damages, P100,000.00 as
exemplary damages and reasonable attorney's fees plus
the costs of the suit.3
18
Summons and a copy of the complaint were served on
Bradford on 13 May 1987. In response thereto, she filed
two (2) motions for extension of time to file her Answer
which were both granted by the trial court. The first was
filed through Atty. Miguel Famularcano, Jr., who asked
for a 20-day extension from 28 May 1987. The second,
filed through the law firm of Luna, Sison and Manas,
sought a 15-day extension from 17 June 1987.4 Thus,
Bradford had up to 1 July 1987 to file her Answer.
Instead of doing so, however, she, together with the
government of the United States of America
(hereinafter referred to as the public petitioner),
filed on 25 June 1987, also through the law firm of
Luna, Sison and Manas, a Motion to
Dismiss5 based on the following grounds:
1) (This) action is in effect a suit against
the United States of America, a foreign
sovereign immune from suit without its
consent for the cause of action pleaded
in the complaint; and
2) Defendant, Maxine Bradford, as
manager of the US Navy Exchange
Branch at JUSMAG, Quezon City, is
immune from suit for act(s) done by her
in the performance of her official
functions under the Philippines-United
States Military Assistance Agreement of
1947 and Military Bases Agreement of
1947, as amended.6
In support of the motion, the petitioners claimed that
JUSMAG, composed of an Army, Navy and Air Group,
had been established under the Philippine-United States
Military Assistance Agreement entered into on 21 March
1947 to implement the United States' program of
rendering military assistance to the Philippines. Its
headquarters in Quezon City is considered a temporary
installation under the provisions of Article XXI of the
Military Bases Agreement of 1947. Thereunder, "it is
mutually agreed that the United States shall have the rights,
power and authority within the bases which are necessary for
the establishment, use and operation and defense thereof or
appropriate for the control thereof." The 1979 amendment of
the Military Bases Agreement made it clear that the United
States shall have "the use of certain facilities and areas within
the bases and shall have effective command and control over
such facilities and over United States personnel, employees,
equipment and material." JUSMAG maintains, at its Quezon
City headquarters, a Navy Exchange referred to as the NEX-
JUSMAG. Checking of purchases at the NEX is a routine
procedure observed at base retail outlets to protect and
safeguard merchandise, cash and equipment pursuant to
paragraphs 2 and 4(b) of NAVRESALEACT SUBIC INST.
5500.1.7 Thus, Bradford's order to have purchases of all
employees checked on 22 January 1987 was made in
the exercise of her duties as Manager of the NEX-
JUSMAG.
They further claimed that the Navy Exchange (NAVEX), an
instrumentality of the U.S. Government, is considered
essential for the performance of governmental functions. Its
mission is to provide a convenient and reliable source, at the
lowest practicable cost, of articles and services required for
the well-being of Navy personnel, and of funds to be used for
the latter's welfare and recreation. Montoya's complaint,
relating as it does to the mission, functions and
responsibilities of a unit of the United States Navy, cannot
then be allowed. To do so would constitute a violation of the
military bases agreement. Moreover, the rights, powers and
authority granted by the Philippine government to the United
States within the U.S. installations would be illusory and
academic unless the latter has effective command and
control over such facilities and over American
personnel, employees, equipment and material. Such
rights, power and authority within the bases can only be
exercised by the United States through the officers and
officials of its armed forces, such as Bradford. Baer
vs. Tizon8 and United States of America vs.
Ruiz9 were invoked to support these claims.
On 6 July 1987, Montoya filed a motion for preliminary
attachment 10 on the ground that Bradford was about
to depart from the country and was in the process
of removing and/or disposing of her properties with
intent to defraud her creditors. On 14 July 1987,
Montoya filed her opposition to the motion to
dismiss 11 alleging therein that the grounds
proffered in the latter are bereft of merit because
(a) Bradford, in ordering the search upon her
person and belongings outside the NEX JUSMAG
store in the presence of onlookers, had committed
an improper, unlawful and highly discriminatory act
against a Filipino employee and had exceeded the
scope of her authority; (b) having exceeded her
authority, Bradford cannot rely on the sovereign
immunity of the public petitioner because her
liability is personal; (c) Philippine courts are vested
with jurisdiction over the case because Bradford is
a civilian employee who had committed the
challenged act outside the U.S. Military Bases;
such act is not one of those exempted from the
jurisdiction of Philippine courts; and (d) Philippine
courts can inquire into the factual circumstances of
the case to determine whether or not Bradford had
acted within or outside the scope of her authority.
19
On 16 July 1987, public petitioner and Bradford filed a Case No. 224-87 "for lack of merit." For the
reply to Montoya's opposition and an opposition to the action was in effect a suit against the United
motion for preliminary attachment. 12 States of America, a foreign sovereign
immune from suit without its consent for the
On 17 July 1987, 13 the trial court 14 resolved both the
cause of action pleaded in the complaint,
motion to dismiss and the motion for preliminary
while its co-petitioner was immune from suit
attachment in this wise:
for act(s) done by her in the performance of
On the motion to dismiss, the grounds her official functions as manager of the US
and arguments interposed for the Navy Exchange Branch at the Headquarters
dismissal of this case are determined to of JUSMAG, under the Philippines-United
be not indubitable. Hence, the motion is States Military Assistance Agreement of
denied for lack of merit. 1947 and Military Bases Agreement of
1947, as amended. 17
The motion for preliminary attachment
is granted in the interest of justice, upon On 5 August 1987, the trial court set Civil Case No. 224-87
the plaintiff's filing of a bond in the sum for pre-trial and trial on 27 August 1987 at 9:30 a.m. 18
of P50,000.00.
On 12 August 1987, this Court resolved to require the
Upon Montoya's filing of the required bond, the trial respondents to comment on the petition. 19
court issued on 28 July 1987 an Order 15 decreeing the
On 19 August 1987, petitioners filed with the trial court a
issuance of a writ of attachment and directing the
Motion
sheriff to serve the writ immediately at the expense
to Suspend Proceedings 20 which the latter denied in its
of the private respondent. The writ of attachment
Order of 21 August 1987. 21
was issued on that same date. 16
In the meantime, however, for failure to file an answer,
Instead of filing a motion to reconsider the last two (2)
Bradford was declared in default in Civil Case No. 224-87
orders, or an answer — insofar as Bradford is concerned
and Montoya was allowed to present her evidence ex-
— both the latter and the public petitioner filed on 6
parte. 22 She thus took the witness stand and presented
August 1987 the instant petition to annul and set aside
Mrs. Nam Thi Moore and Mrs. Miss Yu as her
the above Resolution of 17 July 1987 and the writ of
witnesses.
attachment issued pursuant thereto. As grounds therefor,
they allege that: On 10 September 1987, the trial court rendered its
decision 23 in Civil Case No. 224-87, the dispositive
10. The respondent judge committed a
portion of which reads:
grave abuse of discretion amounting to
lack of jurisdiction in denying the Prescinding from the foregoing, it is hereby
motion to dismiss the complaint in Civil determined that the unreasonable search on
 the plaintiff's person and bag caused
(sic) done recklessly and oppressively
by the defendant, violated, impaired
and undermined the plaintiff's liberty
guaranteed by the Constitution,
entitling her to moral and exemplary
damages against the defendant. The
search has unduly subjected the
plaintiff to intense humiliation and
indignities and had consequently
ridiculed and embarrassed publicly said
plaintiff so gravely and immeasurably.
WHEREFORE, judgment is hereby
rendered for the plaintiff and against
the defendant Maxine Bradford
assessing the latter to pay unto the
former the sums of P300,000.00 for
moral damages, P100,000.00 for
exemplary damages and P50,000.00 for
actual expenses and attorney's fees.
No costs.
SO ORDERED. 24
Bradford received a copy of the decision on 21
September 1987. On that same date, she and the public
petitioner filed with this Court a Petition for Restraining
Order 25 which sought to have the trial court's
decision vacated and to prevent the execution of
the same; it was also prayed that the trial court be
enjoined from continuing with Civil Case No. 224-
87. We noted this pleading in the Resolution of 23
September 1987. 26
In the meantime, since no motion for reconsideration or
appeal had been interposed by Bradford challenging the
20
10 September 1987 Decision which she had received on On 28 November 1988, after the private respondent filed a
21 September 1987, respondent Judge issued on 14 Rejoinder to the Consolidated Reply to the Comments filed
October 1987 an order directing that an entry of final by the petitioners, this Court gave due course to the petition
judgment be made. A copy thereof was received by and required the parties to submit their respective
Bradford on 21 October, 1987. 27 memoranda-Petitioners filed their Memorandum on 8
February
Also on 14 October 1987, Montoya filed her Comment
1989 33 while private respondent filed her Memorandum
with Opposition to the Petition for Restraining
on 14 November
Order. 28Respondent Judge had earlier filed his own
1990. 34
Comment to the petition on 14 September 1987. 29
The kernel issue presented in this case is whether or not the
On 27 October 1987, Montoya filed before the trial court
trial court committed grave abuse of discretion in denying the
a motion for the execution of the Decision of 10
motion to dismiss based on the following grounds: (a) the
September 1987 which petitioners opposed on the
complaint in Civil Case No. 224-87 is in effect a suit against
ground that although this Court had not yet issued in this
the public petitioner, a foreign sovereign immune from suit
case a temporary restraining order, it had nevertheless
which has not given consent to such suit and (b) Bradford is
resolved to require the respondents to comment on the
immune from suit for acts done by her in the performance of
petition. It was further averred that execution thereof
her official functions as manager of the U.S. Navy Exchange
would cause Bradford grave injury; moreover,
of JUSMAG pursuant to the Philippines-United States
enforcement of a writ of execution may lead to
Military Assistance Agreement of 1947 and the Military
regrettable incidents and unnecessarily complicate the
Bases Agreement of 1947, as amended.
situation in view of the public petitioner's position on the
issue of the immunity of its employees. In its Resolution Aside from maintaining the affirmative view, the public
of 11 November 1987, the trial court directed the petitioner and Bradford even go further by asserting that even
issuance of a writ of execution. 30 if the latter's act were ultra vires she would still be immune
from suit for the rule that public officers or employees may
Consequently, the petitioners filed on 4 December 1987,
be sued in their personal capacity for ultra vires and tortious
a Manifestation and Motion reciting the foregoing
acts is "domestic law" and not applicable in International
incidents obtaining before the trial court and praying that
Law. It is claimed that the application of the immunity
their petition for a restraining order be resolved. 31
doctrine does not turn upon the lawlessness of the act or
On 7 December 1987, this Court issued a Temporary omission attributable to the foreign national for if this were
Restraining Order "ENJOINING the respondents and the the case, the concept of immunity would be meaningless as
Provincial Sheriff of Pasig, Metro Manila, from inquiry into the lawlessness or illegality of the act or
enforcing the Decision dated September 10, 1987, and omission would first have to be made before considering the
the Writs of Attachment and Execution issued in Civil question of immunity; in other words, immunity will lie only
Case No. 224-87." 32 if such act or omission is found to be lawful.
On the other hand, Montoya submits that Bradford is
not covered by the protective mantle of the doctrine of
sovereign immunity from suit as the latter is a mere
civilian employee of JUSMAG performing non-
governmental and proprietary functions. And even
assuming arguendo that Bradford is performing
governmental functions, she would still remain outside
the coverage of the doctrine of state immunity since the
act complained of is ultra vires or outside the scope of
her authority. What is being questioned is not the fact of
search alone, but also the manner in which the same was
conducted as well as the fact of discrimination against
Filipino employees. Bradford's authority to order a
search, it is asserted, should have been exercised with
restraint and should have been in accordance with the
guidelines and procedures laid down by the cited
"NAVRESALEACT, Subic Inst." Moreover, ultra vires
acts of a public officer or employee, especially tortious
and criminal acts, are his private acts and may not be
considered as acts of the State. Such officer or employee
alone is answerable for any liability arising therefrom
and may thus be proceeded against in his personal
capacity.
Montoya further argues that both the acts and person of
Bradford are not exempt from the Philippine courts'
jurisdiction because (a) the search was conducted in a
parking lot at Scout Borromeo, Quezon City, outside the
JUSMAG store and, therefore, outside the territorial
control of the U.S. Military Bases in the Philippines; (b)
Bradford does not possess diplomatic immunity under
Article 16(b) of the 1953 Military Assistance
Agreement creating the JUSMAG which provides that
only the Chief of the Military Advisory Group and not
more than six (6) other senior members thereof
designated by him will be accorded diplomatic
21
immunity; 35 and (c) the acts complained of do not she so believed that the latter is an indispensible or
fall under those offenses where the U.S. has been necessary party.
given the right to exercise its jurisdiction (per Article
Since the trial court entertained the motion to dismiss and the
13 of the 1947 Military Bases Agreement, as
subsequent pleadings filed by the public petitioner and
amended by the, Mendez-Blair Notes of 10 August
Bradford, it may be deemed to have allowed the public
1965). 36
petitioner to intervene. Corollarily, because of its voluntary
Finally, Montoya maintains that at the very least, appearance, the public petitioner must be deemed to have
Philippine courts may inquire into the factual submitted itself to the jurisdiction of the trial court.
circumstances of the case to determine whether
Moreover, the said motion does not specify any of the
petitioner Bradford is immune from suit or exempt from
grounds for a motion to dismiss enumerated in Section 1,
Philippine jurisdiction. To rule otherwise would render
Rule 16 of the Rules of Court. It merely recites state
the Philippine courts powerless as they may be easily
immunity on the part of the public petitioner and immunity
divested of their jurisdiction upon the mere invocation of
on the part of Bradford for the reason that the act imputed to
this principle of immunity from suit.
her was done in the performance of her official functions.
A careful review of the records of this case and a The upshot of this contention is actually lack of cause of
judicious scrutiny of the arguments of both parties yield action — a specific ground for dismissal under the aforesaid
nothing but the weakness of the petitioners' stand. While Rule — because assuming arguendo that Montoya's rights
this can be easily demonstrated, We shall first consider had been violated by the public petitioner and Bradford,
some procedural matters. resulting in damage or injury to the former, both would not
be liable therefor, and no action may be maintained thereon,
Despite the fact that public petitioner was not impleaded
because of the principle of state immunity.
as a defendant in Civil Case No. 224-87, it nevertheless
joined Bradford in the motion to dismiss — on the The test of the sufficiency of the facts to constitute a cause of
theory that the suit was in effect against it — without, action is whether or not, admitting the facts alleged in the
however, first having obtained leave of court to complaint, the court could render a valid judgment upon the
intervene therein. This was a procedural lapse, if not a same, in accordance with the prayer in the complaint. 38
downright improper legal tack. Since it was not
A motion to dismiss on the ground of failure to state a cause
impleaded as an original party, the public petitioner
of action hypothetically admits the truth of the allegations in
could, on its own volition, join in the case only by
the complaint.
intervening therein; such intervention, the grant of which
is discretionary upon the court, 37 may be allowed only In deciding a motion to dismiss, a court may grant, deny,
upon a prior motion for leave with notice to all the allow amendments to the pleadings or defer the hearing and
parties in the action. Of course, Montoya could determination of the same if the ground alleged does not
have also impleaded the public petitioner as an appear to be indubitable. 39 In the instant case, while the
additional defendant by amending the complaint if trial court concluded that "the grounds and arguments
interposed for the dismissal" are not "indubitable,"
it denied the motion for lack of merit. What the trial
court should have done was to defer there solution
on the motion instead of denying it for lack of merit.
In any event, whatever may or should have been done,
the public petitioner and Bradford were not expected to
accept the verdict, making their recourse to this Court
via the instant petition inevitable. Thus, whether the trial
court should have deferred resolution on or denied
outright the motion to dismiss for lack of merit is no
longer pertinent or relevant.
The complaint in Civil Case No. 224-87 is for damages
arising from what Montoya describes as an "illegal
search" on her "person and belongings" conducted
outside the JUSMAG premises in front of many people
and upon the orders of Bradford, who has the propensity
for laying suspicion on Filipinos for theft or shoplifting.
It is averred that the said search was directed only
against Montoya.
Howsoever viewed, it is beyond doubt that Montoya's
cause of action is premised on the theory that the acts
complained of were committed by Bradford not only
outside the scope of her authority — or more
specifically, in her private capacity — but also outside
the territory where she exercises such authority, that is,
outside the NEX-JUSMAG — particularly, at the
parking area which has not been shown to form part of
the facility of which she was the manager. By their
motion to dismiss, public petitioner and Bradford are
deemed to have hypothetically admitted the truth of the
allegation in the complaint which support this theory.
22
The doctrine of state immunity and the exceptions
thereto are summarized in Shauf vs. Court of
Appeals, 40 thus:
I. The rule that a state may not be sued
without its consent, now expressed in
Article XVI Section 3, of the 1987
Constitution, is one of the generally
accepted principles of international law
that we have adopted as part of the law
of our land under Article II, Section 2.
This latter provision merely reiterates a
policy earlier embodied in the 1935 and
1973 Constitutions and also intended to
manifest our resolve to abide by the
rules of the international community. 41
While the doctrine appears to prohibit
only suits against the state without its
consent, it is also applicable to
complaints filed against officials of the
state for acts allegedly performed by
them in the discharge of their duties.
The rule is that if the judgment against
such officials will require the state itself
to perform an affirmative act to satisfy
the same, such as the appropriation of
the amount needed to pay the damages
awarded against them, the suit must be
regarded as against the state itself
although it has not been formally
In the case of Baer, etc. vs. Tizon, etc., et al., 46 it was ruled
impleaded. 42 It must be noted,
that:
however, that the rule is not so all-
encompassing as to be applicable under
all circumstances.
It is a different matter where the public
official is made to account in his capacity as
such for acts contrary to law and injurious to
the rights of plaintiff. As was clearly set
forth by Justice Zaldivar in Director of the
Bureau of Telecommunications, et al. vs.
Aligaen, etc., et al. 43 "Inasmuch as the State
authorizes only legal acts by its officers,
unauthorized acts of government officials or
officers are not acts of the State, and an
action against the officials or officers by one
whose rights have been invaded or violated
by such acts, for the protection of his rights,
is not a suit against the State within the rule
of immunity of the State from suit. In the
same tenor, it has been said that an action at
law or suit in equity against a State officer or
the director of a State department on the
ground that, while claiming to act or the
State, he violates or invades the personal and
property rights of the plaintiff, under an
unconstitutional act or under an assumption
of authority which he does not have, is not a
suit against the State within
the constitutional provision that the State
may not be sued without its consent." 44 The
rationale for this ruling is that the doctrinaire
of state immunity cannot be used as an
instrument for perpetrating an injustice. 45
There should be no
misinterpretation of the
scope of the decision
 reached by this Court. application, however, Air Base are no exception to this rule. In the
Petitioner, as the where the suit against case of United States of America, et al. vs.
Commander of the such a functionary had Guinto, etc., et al., ante, 49 we declared:
United States Naval to be instituted because
It bears stressing at this
Base in Olongapo, of his failure to comply
point that the above
does not possess with the duty imposed
observations do not confer
diplomatic immunity. by statute
on the United States of
He may therefore be appropriating public
America Blanket immunity
proceeded against in funds for the benefit of
for all acts done by it or its
his personal capacity, plaintiff or petitioner. .
agents in the Philippines.
or when the action ...
Neither may the other
taken by him cannot
The aforecited authorities are clear on petitioners claim that they
be imputed to the
the matter. They state that the doctrine are also insulated from suit
government which he
of immunity from suit will not apply in this country merely
represents.
and may not be invoked where the because they have acted as
Also, in Animos, et al. vs. Philippine Veterans Affairs public official is being sued in his agents of the United States
Office, et al., 47 we held that: private and personal capacity as an in the discharge of their
ordinary citizen. The cloak of protection official functions.
. . . it is equally well-
afforded the officers and agents of the
settled that where a Since it is apparent from the complaint that Bradford was
government is removed the moment
litigation may have sued in her private or personal capacity for acts allegedly
they are sued in their individual
adverse consequences done beyond the scope and even beyond her place of official
capacity. This situation usually arises
on the public treasury, functions, said complaint is not then vulnerable to a motion
where the public official acts without
whether in the to dismiss based on the grounds relied upon by the petitioners
authority or in excess of the powers
disbursements of because as a consequence of the hypothetical admission of
vested in him. It is a well-settled
funds or loss of the truth of the allegations therein, the case falls within the
principle of law that a public official
property, the public exception to the doctrine of state immunity.
may be liable in his personal private
official proceeded
capacity for whatever damage he may In the recent cases of Williams vs. Rarang 50 and Minucher
against not being
have caused by his act done vs. Court of Appeals, 51 this Court reiterated this
liable in his personal
with malice and in bad faith, or beyond exception. In the former, this Court observed:
capacity, then the
the scope of his authority or
doctrine of non- There is no question, therefore, that the two
jurisdiction. 48
suability may (2) petitioners actively participated in
appropriately be The agents and officials of the United screening the features and articles in the
invoked. It has no States armed forces stationed in Clark POD as part of their official functions.

23
 Under the rule that U.S. officials in the receiving State. He
performance of their official functions shall
are immune from suit, then it should immunity from its civil
follow that petitioners may not be held and
liable for the questioned publication. jurisdiction except in
the case of:
It is to be noted, however, that the
petitioners were sued in their personal xxx xxx
capacities for their alleged tortious acts
in publishing a libelous article.
The question, therefore, arises — are
American naval officers who commit a
crime or tortious act while discharging
official functions still covered by the
principle of state immunity from suit?
Pursuing the question further, does the
grant of rights, power, and authority to
the United States under the RP-US
Bases Treaty cover immunity of its
officers from crimes and torts? Our
answer is No.
In the latter, even on the claim of diplomatic immunity
— which Bradford does not in fact pretend to have in
the instant case as she is not among those granted
diplomatic immunity under Article 16(b) of the 1953
Military Assistance Agreement creating the
JUSMAG 52 — this Court ruled:
Even Article 31 of the Vienna
Convention on Diplomatic Relations
admits of exceptions. It reads:
1. A diplomatic agent
shall enjoy immunity
from the criminal
jurisdiction of the
24
ons (Emph
also enjoy asis
supplied).
administrative
There can be no doubt that on the basis of the allegations in
the complaint, Montoya has a sufficient and viable cause of
action. Bradford's purported non-suability on the ground of
xxx state immunity is then a defense which may be pleaded in the
answer and proven at the trial.
(c) an
action Since Bradford did not file her Answer within the
relatin reglementary period, the trial court correctly declared her in
g to default upon motion of the private respondent. The judgment
any then rendered against her on 10 September 1987 after the ex
profes parte reception of the evidence for the private respondent and
sional before this Court issued the Temporary Restraining Order on
or 7 December 1987 cannot be impugned. The filing of the
comm instant petition and the knowledge thereof by the trial court
ercial did not prevent the latter from proceeding with Civil Case
activit No.
y 224-87. "It is elementary that the mere pendency of a special
exerci civil action for certiorari, commenced in relation to a case
sed by pending before a lower Court, does not interrupt the course of
the the latter when there is no writ of injunction restraining it." 53
diplo
WHEREFORE, the instant petition is DENIED for lack of
matic
merit. The Temporary Restraining Order of 7 December 1987
agent
is hereby LIFTED.
in the
receivi Costs against petitioner Bradford.
ng
SO ORDERED.
State o
utside G.R. No. L-109937 March 21, 1994
his DEVELOPMENT BANK OF THE
officia PHILIPPINES, petitioner,
l vs.
functi COURT OF APPEALS and the ESTATE OF THE LATE
JUAN B. DANS, represented by CANDIDA G.
DANS, and the DBP MORTGAGE REDEMPTION
INSURANCE POOL, respondents.
Office of the Legal Counsel for petitioner.
Reyes, Santayana, Molo & Alegre for DBP Mortgage
Redemption Insurance Pool.
QUIASON, J.:
This is a petition for review on certiorari under Rule 45
of the Revised Rules of Court to reverse and set aside
the decision of the Court of Appeals in CA-G.R CV No.
26434 and its resolution denying reconsideration
thereof.
We affirm the decision of the Court of Appeals with
modification.
I
In May 1987, 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, in the reduced amount of P300,000.00, was
approved by DBP on August 4, 1987 and released on
August 11, 1987. From the proceeds of the loan, DBP
deducted the amount of P1,476.00 as payment for the
MRI premium. On August 15, 1987, Dans accomplished
and submitted the "MRI Application for Insurance" and
the "Health Statement for DBP MRI Pool."
25
On August 20, 1987, the MRI premium of Dans, less the The DBP and the DBP MRI Pool separately filed their
DBP service fee of 10 percent, was credited by DBP to answers, with the former asserting a cross-claim against the
the savings account of the DBP MRI Pool. Accordingly, latter.
the DBP MRI Pool was advised of the credit.
At the pre-trial, DBP and the DBP MRI Pool admitted all the
On September 3, 1987, Dans died of cardiac arrest. The documents and exhibits submitted by respondent Estate. As a
DBP, upon notice, relayed this information to the DBP result of these admissions, the trial court narrowed down the
MRI Pool. On September 23, 1987, the DBP MRI Pool issues and, without opposition from the parties, found the
notified DBP that Dans was not eligible for MRI case ripe for summary judgment. Consequently, the trial
coverage, being over the acceptance age limit of 60 years court ordered the parties to submit their respective position
at the time of application. papers and documentary evidence, which may serve as basis
for the judgment.
On October 21, 1987, DBP apprised Candida Dans of
the disapproval of her late husband's MRI application. On March 10, 1990, the trial court rendered a decision in
The DBP offered to refund the premium of P1,476.00 favor of respondent Estate and against DBP. The DBP MRI
which the deceased had paid, but Candida Dans refused Pool, however, was absolved from liability, after the trial
to accept the same, demanding payment of the face value court found no privity of contract between it and the
of the MRI or an amount equivalent to the loan. She, deceased. The trial court declared DBP in estoppel for having
likewise, refused to accept an ex gratia settlement of led Dans into applying for MRI and actually collecting the
P30,000.00, which the DBP later offered. premium and the service fee, despite knowledge of his age
ineligibility. The dispositive portion of the decision read as
On February 10, 1989, respondent Estate, through
follows:
Candida Dans as administratrix, filed a complaint with
the Regional Trial Court, Branch I, Basilan, against DBP WHEREFORE, in view of the foregoing
and the insurance pool for "Collection of Sum of Money consideration and in the furtherance of
with Damages." Respondent Estate alleged that Dans justice and equity, the Court finds judgment
became insured by the DBP MRI Pool when DBP, with for the plaintiff and against Defendant DBP,
full knowledge of Dans' age at the time of application, ordering the latter:
required him to apply for MRI, and later collected the
1. To return and reimburse plaintiff the
insurance premium thereon. Respondent Estate therefore
amount of P139,500.00 plus legal rate of
prayed: (1) that the sum of P139,500.00, which it paid
interest as amortization payment paid under
under protest for the loan, be reimbursed; (2) that the
protest;
mortgage debt of the deceased be declared fully paid;
and (3) that damages be awarded. 2. To consider the mortgage loan of
P300,000.00 including all interest
accumulated or otherwise to have been
 settled, satisfied or set-off by virtue of
the insurance coverage of the late Juan
B. Dans;
3. To pay plaintiff the amount of
P10,000.00 as attorney's fees;
4. To pay plaintiff in the amount of
P10,000.00 as costs of litigation and
other expenses, and other relief just and
equitable.
The Counterclaims of Defendants DBP
and DBP MRI POOL are hereby
dismissed. The Cross-claim of
Defendant DBP is likewise dismissed
(Rollo, p. 79)
The DBP appealed to the Court of Appeals. In a
decision dated September 7, 1992, the appellate court
affirmed in toto the decision of the trial court. The
DBP's motion for reconsideration was denied in a
resolution dated April 20, 1993.
Hence, this recourse.
II
When Dans applied for MRI, he filled up and personally
signed a "Health Statement for DBP MRI Pool" (Exh.
"5-Bank") 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
26
effected unless and until this application fee, DBP deducted 10 percent of the premium collected by it
is approved and the full premium is paid from Dans.
during my continued good health
In dealing with Dans, DBP was wearing two legal hats: the
(Records, p. 40).
first as a lender, and the second as an insurance agent.
Under the aforementioned provisions, the MRI coverage
As an insurance agent, DBP made Dans go through the
shall take effect: (1) when the application shall be
motion of applying for said insurance, thereby leading him
approved by the insurance pool; and (2) when the full
and his family to believe that they had already fulfilled all the
premium is paid during the continued good health of the
requirements for the MRI and that the issuance of their policy
applicant. These two conditions, being joined
was forthcoming. Apparently, DBP had full knowledge that
conjunctively, must concur.
Dan's application was never going to be approved. The
Undisputably, the power to approve MRI applications is maximum age for MRI acceptance is 60 years as clearly and
lodged with the DBP MRI Pool. The pool, however, did specifically provided in Article 1 of the Group Mortgage
not approve the application of Dans. There is also no Redemption Insurance Policy signed in 1984 by all the
showing that it accepted the sum of P1,476.00, which insurance companies concerned (Exh. "1-Pool").
DBP credited to its account with full knowledge that it
Under Article 1987 of the Civil Code of the Philippines, "the
was payment for Dan's premium. There was, as a result,
agent who acts as such is not personally liable to the party
no perfected contract of insurance; hence, the DBP MRI
with whom he contracts, unless he expressly binds himself or
Pool cannot be held liable on a contract that does not
exceeds the limits of his authority without giving such party
exist.
sufficient notice of his powers."
The liability of DBP is another matter.
The DBP is not authorized to accept applications for MRI
It was DBP, as a matter of policy and practice, that when its clients are more than 60 years of age (Exh. "1-
required Dans, the borrower, to secure MRI coverage. Pool"). Knowing all the while that Dans was ineligible for
Instead of allowing Dans to look for his own insurance MRI coverage because of his advanced age, DBP exceeded
carrier or some other form of insurance policy, DBP the scope of its authority when it accepted Dan's application
compelled him to apply with the DBP MRI Pool for MRI for MRI by collecting the insurance premium, and deducting
coverage. When Dan's loan was released on August 11, its agent's commission and service fee.
1987, DBP already deducted from the proceeds thereof
The liability of an agent who exceeds the scope of his
the MRI premium. Four days latter, DBP made Dans fill
authority depends upon whether the third person is aware of
up and sign his application for MRI, as well as his health
the limits of the agent's powers. There is no showing that
statement. The DBP later submitted both the application
Dans knew of the limitation on DBP's authority to solicit
form and health statement to the DBP MRI Pool at the
applications for MRI.
DBP Main Building, Makati Metro Manila. As service
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 (V Tolentino, Commentaries
and Jurisprudence on the Civil Code of the Philippines,
p. 422 [1992], citing Sentencia [Cuba] of September 25,
1907). The rule that the agent is liable when he acts
without authority is founded upon the supposition that
there has been some wrong or omission on his part
either in misrepresenting, or in affirming, or concealing
the authority under which he assumes to act (Francisco,
V., Agency 307 [1952], citing Hall v. Lauderdale, 46
N.Y. 70, 75). Inasmuch as the non-disclosure of the
limits of the agency carries with it the implication that a
deception was perpetrated on the unsuspecting client,
the provisions of Articles 19, 20 and 21 of the Civil
Code of the Philippines come into play.
Article 19 provides:
Every person must, in the exercise of
his rights and in the performance of his
duties, act with justice give everyone
his due and observe honesty and good
faith.
Article 20 provides:
Every person who, contrary to law,
willfully or negligently causes damage
to another, shall indemnify the latter for
the same.
Article 21 provides:
Any person, who willfully causes loss
or injury to another in a manner that is
27
contrary to morals, good customs or The assessment of moral damages is left to the discretion of
public policy shall compensate the latter the court according to the circumstances of each case (Civil
for the damage. Code of the Philippines, Art. 2216). Considering that DBP
had offered to pay P30,000.00 to respondent Estate in ex
The DBP's liability, however, cannot be for the entire
gratia settlement of its claim and that DBP's non-disclosure
value of the insurance policy. To assume that were it not
of the limits of its authority amounted to a deception to its
for DBP's concealment of the limits of its authority,
client, an award of moral damages in the amount of
Dans would have secured an MRI from another
P50,000.00 would be reasonable.
insurance company, and therefore would have been fully
insured by the time he died, is highly speculative. The award of attorney's fees is also just and equitable under
Considering his advanced age, there is no absolute the circumstances (Civil Code of the Philippines, Article
certainty that Dans could obtain an insurance coverage 2208 [11]).
from another company. It must also be noted that Dans
WHEREFORE, the decision of the Court of Appeals in CA
died almost immediately, i.e., on the nineteenth day after
G.R.-CV
applying for the MRI, and on the twenty-third day from
No. 26434 is MODIFIED and petitioner DBP is ORDERED:
the date of release of his loan.
(1) to REIMBURSE respondent Estate of Juan B. Dans the
One is entitled to an adequate compensation only for amount of P1,476.00 with legal interest from the date of the
such pecuniary loss suffered by him as he has duly filing of the complaint until fully paid; and (2) to PAY said
proved (Civil Code of the Philippines, Art. 2199). Estate the amount of Fifty Thousand Pesos (P50,000.00) as
Damages, to be recoverable, must not only be capable of moral damages and the amount of Ten Thousand Pesos
proof, but must be actually proved with a reasonable (P10,000.00) as attorney's fees. With costs against petitioner.
degree of certainty (Refractories Corporation v.
SO ORDERED.
Intermediate Appellate Court, 176 SCRA 539 [1989];
Choa Tek Hee v. Philippine Publishing Co., 34 Phil. 447 [G.R. Nos. L-33819 and L-33897. October 23, 1982.]
[1916]). Speculative damages are too remote to be NATIONAL POWER CORPORATION, Plaintiff-Appellant, v.
included in an accurate estimate of damages (Sun Life NATIONAL MERCHANDISING CORPORATION and DOMESTIC
INSURANCE COMPANY OF THE PHILIPPINES, Defendants-
Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]). Appellants.
While Dans is not entitled to compensatory damages, he The Solicitor General, for Plaintiff-Appellant.
is entitled to moral damages. No proof of pecuniary loss
Sycip, Salazar, Luna Manalo & Feliciano, for Defendants-Appellants.
is required in the assessment of said kind of damages
SYNOPSIS
(Civil Code of Philippines, Art. 2216). The same may be
Plaintiff-appellant National Power Corporation (NPC) and defendant-
recovered in acts referred to in Article 2219 of the Civil
appellant National Merchandising Corporation (NAMERCO), the
Code. Philippine representative of New York-based International Commodities
Corporation, executed a contract of sale of sulfur with a stipulation for
liquidated damages in case of breach. Defendant-appellant Domestic
Insurance Company executed a performance bond in favor of NPC to
guarantee the seller’s obligation. In entering into the contract,
Namerco, however, did not disclose to NPC that Namerco’s
principal, in a cabled instruction, stated that the sale was subject to
availability of a steamer, and contrary to its principal’s instruction,
Namerco agreed that non-availability of a steamer was not a
justification for non-payment of liquidated damages. The New York
supplier was not able to deliver the sulfur due to its inability to secure
shipping space. Consequently, the Government Corporate Counsel
rescinded the contract of sale due to the supplier’s non-performance
of its obligations, and demanded payment of liquidated damages from
both Namerco and the surety. Thereafter, NPC sued for recovery of
the stipulated liquidated damages. After trial, the Court of First
Instance rendered judgment ordering defendants-appellants to pay
solidarity to the NPC reduced liquidated damages with interest.
The Supreme Court held that Namerco is liable fur damages because
under Article 1897 of the Civil Code the agent who exceeds the limits
of his authority without giving the party with whom he contracts
sufficient notice of his powers is personally liable to such party. The
Court, however, further reduced the solidary liability of defendants-
appellants for liquidated damages.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY;
AN AGENT WHO EXCEEDS THE LIMITS OF HIS AUTHORITY
IS PERSONALLY LIABLE. — Under Article 1897 of the Civil
Code the agent who exceeds the limits of his authority without giving
the party with whom he contracts sufficient notice of his powers is
personally liable to such party.
2. ID.; ID.; ID.; ID.; CASE AT BAR. — In the present case,
Namerco, the agent of a New York-based principal, entered into a
contract of sale with the National Power Corporation without
disclosing to the NPC the limits of its powers and, contrary to its
principal’s prior cabled instructions that the sale should be subject to
availability of a steamer, it agreed that non-availability of a steamer
was not a justification for nonpayment of the liquidated damages.
Namerco. therefore, is liable for damages.
3. ID.; ID.; ID.; THE RULE THAT EVERY PERSON DEALING
WITH AN AGENT IS PUT UPON AN INQUIRY AND MUST
28
DISCOVER UPON HIS PERIL THE AUTHORITY OF THE
AGENT IS NOT APPLICABLE WHERE THE AGENT, NOT THE
PRINCIPAL, IS SOUGHT TO BE HELD LIABLE ON THE
CONTRACT. — The rule that every person dealing with an agent is
put upon inquiry and must discover upon his peril the authority of the
agent would apply only in cases where the principal is sought to be
held liable on the contract entered into by the agent. The said rule is
not applicable in the instant case since it is the agent, not the principal,
that is sought to be held liable on the contract of sale which was
expressly repudiated by the principal because the agent took chances,
it exceeded its authority and, in effect. it acted in its own name.
4. ID.; ID.; ID.; THE CONTRACT ENTERED INTO BY AN
AGENT WHO ACTED BEYOND HIS POWERS IS
UNENFORCEABLE ONLY AS AGAINST THE PRINCIPAL BUT
NOT AGAINST THE AGENT AND ITS SURETY. — Article 1403
of the Civil Code which provides that a contract entered into in the
name of another person by one who has acted beyond his powers is
unenforceable, refers to the unenforceability of the contract against the
principal. In the instant case, the contract containing the stipulation for
liquidated damages is not being enforced against its principal but
against the agent and its surety. It 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.
And that rule is complimented 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 NPC 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, it not enforceable against its principal. If, as
contemplated in Articles 1897 and 1898, Namerco is bound under the
contract of sale, then it follows that it is bound by the stipulation for
liquidated damages in that contract.
5. ID.; ID.; ID.; THE LIABILITY OF AN AGENT WHO EXCEEDS
THE LIMITS OF HIS AUTHORITY IS BASED ON CONTRACT
AND NOT ON TORT OR QUASI-DELICT; CASE AT BAR. —
Defendant’s contention that Namerco’s liability should be based on
tort or quasi-delict, as held in some American cases, like Mendelson v.
Holton, 149 N.E. 38,42 ACR 1307, is not well-taken. As correctly
argued by the NPC, it would be unjust and inequitable for Namerco to
escape liability of the contract after it had deceived the NPC by not
disclosing the limits of its powers and entering into the contract with
stipulations contrary to its principal’s instructions.
6. ID.; ID.; ID.; LIABILITY OF THE SURETY ON THE OBLIGATION
CONTRACTED BY AN AGENT WHO EXCEEDED HIS AUTHORITY
IS NOT AFFECTED THEREBY. — The contention of the defendants that
the Domestic Insurance Company is not liable to the NPC because its bond
was posted, not to Namerco, the agent, but for the New York firm which is
not liable on the contract of sale, cannot be sustained because it was
Namerco that actually solicited the bond from the Domestic Insurance
Company and, Namerco is being held liable under the contract of sale
because it virtually acted in its own name. In the last analysis, the Domestic
Insurance Company acted as surety for Namerco. The rule is that "want of
authority of the person who executes an obligation as the agent or
representative of the principal will not, as a general rule, affect the surety
thereon, especially in the absence of fraud, even though the obligation is not
binding on the principal." (72 C.J.S. 525).
7. CIVIL LAW; DAMAGES; IMPOSITION OF INTEREST THEREON
NOT WARRANTED WHERE THE DISPOSITION OF THE CASE HAS
BEEN DELAYED DUE TO NO FAULT OF DEFENDANTS. — With
respect to the imposition of the legal rate of interest on the damages from
the filing of the complaint in 1957, or a quarter of a century ago,
defendant’s contention that interest should not be collected on the amount
of damages is meritorious. It should be manifestly iniquitous to collect
interest on the damages especially considering that the disposition of this
case has been considerably delayed due to no fault of the defendants
8. ID.; ID.; LIQUIDATED DAMAGES; NO PROOF OF PECUNIARY
LOSS IS REQUIRED FOR RECOVERY THEREOF. — No proof of
pecuniary lost is required for the recovery of liquited damages. The
stipulatian for liquidated damages is intended to obviate controversy on the
amount of damages. There can be no question that the NPC suffered
damages because its production of fertilizer was disrupted or diminished by
reason of the non-delivery of the sulfur. The parties foresaw that it might be
difficult to ascertain the exact amount of damages for non-delivey of the
sulfur. So, they fixed the liquidated damages to be paid as indemnity to the
NPC.
9. ID.; ID.; NOMINAL DAMAGES; NOT A CASE OF. — Nominal
damages are damages in name only or are in fact the same as no damages
(25 C.J.S. 466). It would not be correct to hold in this case that the NPC
suffered damages in name only or that the breach of contract "as merely
technical in character since the NPC suffered damages because its
production of fertilizer "as disrupted or diminished by reason of the
non-delivery of the sulfur.
DECISION
AQUINO, J.:
This case is about the recovery of liquidated damages from a seller’s
agent that allegedly exceeded its authority in negotiating the sale.
Plaintiff National Power Corporation appealed on questions of law
from the decision of the Court of First Instance of Manila dated
October 10, 1966, ordering defendants National Merchandising
Corporation and Domestic Insurance Company of the Philippines to
pay solidarily to the National Power Corporation reduced liquidated
damages in the sum of P72,114.66 plus legal, rate of interest from the
filing of the complaint and the costs (Civil Case No. 33114).
The two defendants appealed from the same decision allegedly
because it is contrary to law and the evidence. As the amount
originally involved is P360,572.80 and defendants’ appeal is tied up
with plaintiff’s appeal on questions of law, defendants’ appeal can be
entertained under Republic Act No. 2613 which amended section 17
of the Judiciary Law.
On October 17, 1956, 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 at a total price of (450,716 (Exh. E).
On that same date, a performance bond in the sum of P90,143.20 was
executed by the Domestic Insurance Company in favor of the NPC to
guarantee the seller’s obligations (Exh. F).
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 for $212,120 and that
failure to effect delivery would subject the seller and its surety to the
29
payment of liquidated damages at the rate of two-fifth of one percent the New York firm for lack of jurisdiction because it was not doing business
of the full contract price for the first thirty days of default and four- in the Philippines (p. 60, Defendants Record on Appeal).
fifth of one percent for every day thereafter until complete delivery is
made (Art. 8, p. 111, Defendants’ Record on Appeal). On the other hand, Melvin Wallick, as the assignee of the New York
corporation and after the latter was dropped as a defendant in Civil Case
In a letter dated November 12, 1956, the NPC advised John Z. Sycip, No. 33114, sued Namerco for damages in connection with the same sulfur
the president of Namerco, of the opening on November 8 of a letter of transaction (Civil Case No. 37019). The two cases, both filed in the Court of
credit for $212,120 in favor of International Commodities Corporation First Instance of Manila, were consolidated. A joint trial was held. The
which would expire on January 31, 1957 (Exh. I). Notice of that letter lower court rendered separate decisions in the two cases on the same date.
of credit was, received by cable by the New York firm on November
15, 1956 (Exh. 80-Wallick). Thus, the deadline for the delivery of the In Civil Case No. 37019, the trial court dismissed Wallick’s action for
sulfur was January 15, 1957. damages against Namerco because the assignment in favor of Wallick was
champertous in character. Wallick appealed to this Court. The appeal was
The New York supplier was not able to deliver the sulfur due to its dismissed because the record on appeal did not disclose that the appeal was
inability to secure shipping space. During the period from January 20 perfected on time (Res. of July 11, 1972 in L-33893).In this Civil Case No.
to 26, 1957 there was a shutdown of the NPC’s fertilizer plant because 33114, although the records on appeal were approved in 1967, inexplicably,
there was no sulfur. No fertilizer was produced (Exh. K). they were elevated to this Court in 1971. That anomaly initially contributed
to the delay in the adjudication of this case.
In a letter dated February 27, 1957, the general manager of the NPC
advised Namerco and the Domestic Insurance Company that under Defendants’ appeal L-33819. — They contend that the delivery of the sulfur
Article 9 of the contract of sale "non-availability of bottom or vessel" was conditioned on the availability of a vessel to carry the shipment and
was not a fortuitous event that would excuse non-performance and that Namerco acted within the scope of its authority as agent in signing the
that the NPC would resort to legal remedies to enforce its rights (Exh. contract of sale.
L and M).
The documentary evidence belies these contentions. The invitation to bid
The Government Corporate Counsel in his letter to Sycip dated May issued by the NPC provides that non-availability of a steamer to transport
8, 1957 rescinded the contract of sale due to the New York supplier’s the sulfur is not a ground for non-payment of the liquidated damages in case
non-performance of its obligations (Exh. G). The same counsel in his of non-performance by the seller.
letter of June 8, 1957 demanded from Namerco the payment of
P360,572.80 as liquidated damages. He explained that time was of the "4. Responsibility for availability of vessel. — The availability of vessel to
essence of the contract. A similar demand was made upon the surety transport the quantity of sulfur within the time specified in item 14 of this
(Exh. H and H-1). specification shall be the responsibility of the bidder. In case of award of
contract, failure to ship on time allegedly due to non-availability of vessels
The liquidated damages were computed on the basis of the 115-day shall not exempt the Contractor from payment of liquidated damages
period between January 15, 1957, the deadline for the delivery of the provided in item 15 of this specification."
cralaw virtua1aw library
sulfur at Iligan City, and May 9, 1957 when Namerco was notified of
the rescission of the contract, or P54,085.92 for the first thirty days "15. Liquidated damages. — . . .
and P306,486.88 for the remaining eighty-five days. Total:
P360,572.80. "Availability of vessel being a responsibility of the Contractor as specified
in item 4 of this specification, the terms ‘unforeseeable causes beyond the
On November 5, 1957, the NPC sued the New York firm, Namerco control and without the fault or negligence of the Contractor’ and ‘force
and the Domestic Insurance Company for the recovery of the majeure’ as used herein shall not be deemed to embrace or include lack or
stipulated liquidated damages (Civil Case No. 33114). nonavailability of bottom or vessel. It is agreed that prior to making his bid,
a bidder shall have made previous arrangements regarding shipments within
The trial court in its order of January 17, 1958 dismissed the case as to the required time. It is clearly understood that in no event shall the
Contractor be exempt from the payment of liquidated damages herein
specified for reason of lack of bottom or vessel. Lack of bottom or
nonavailability of vessel shall, in no case, be considered as a ground
for extension of time. . . . ." cralaw virtua1aw
Namerco’s bid or offer is even more explicit. It provides that it was
"responsible for the availability of bottom or vessel" and that it
"guarantees the availability of bottom or vessel to ship the quantity of
sulfur within the time specified in this bid" (Exh. B, p. 22,
Defendants’ Record on Appeal).
In the contract of sale itself item 15 of the invitation to bid is
reproduced in Article 9 which provides that "it is clearly understood
that in no event shall the seller be entitled to an extension of time or
be exempt from the payment of liquidated damages herein specified
for reason of lack of bottom or vessel" (Exh. E, p. 36, Record on
Appeal).
It is true that the New York corporation in its cable to Namerco dated
August 9, 1956 stated that the sale was subject to availability of a
steamer (Exh. N). However, Namerco did not disclose that cable to
the NPC and, contrary to its principal’s instruction, it agreed that
nonavailability of a steamer was not a justification for nonpayment of
the liquidated damages.
The trial court rightly concluded that Namerco acted beyond the
bounds of its authority because it violated its principal’s cabled
instructions (1) that the delivery of the sulfur should be "C & F
Manila", not "C & F Iligan City" ; (2) that the sale be subject to the
availability of a steamer and (3) that the seller should be allowed to
withdraw right away the full amount of the letter of credit and not
merely eighty percent thereof (pp- 123-124, Record on Appeal).
contracts sufficient notice of his powers is personally liable to such
party.
library The truth is that even before the contract of sale was signed Namerco
was already aware that its principal was having difficulties in booking
shipping space. In a cable dated October 16, 1956, or one day before
the contract of sale was signed, the New York supplier advised
Namerco that the latter should not sign the contract unless it
(Namerco) wished to assume sole responsibility for the shipment
(Exh. T).
Sycip, Namerco’s president, replied in his letter to the seller dated also
October 16, 1956, that he had no choice but to finalize the contract of
sale because the NPC would forfeit Namerco’s bidder’s bond in the
sum of P45,100 posted by the Domestic Insurance Company if the
contract was not formalized (Exh. 14, 14-A and Exh. V).
Three days later, or on October 19, the New York firm cabled
Namerco that the firm did not consider itself bound by the contract of
sale and that Namerco signed the contract on its own responsibility
(Exh. W).
In its letters dated November 8 and 19, 1956, the New York
corporation informed Namerco that since the latter acted contrary to
the former’s cabled instructions, the former disclaimed responsibility
for the contract and that the responsibility for the sale rested on
Namerco (Exh. Y and Y-1).
The letters of the New York firm dated November 26 and December
11, 1956 were even more revealing. It bluntly told Namerco that the
latter was never authorized to enter into the contract and that it acted
contrary to the repeated instructions of the former (Exh. U and Z).
Said the vice-president of the New York firm to Namerco:
chanrobles
principal because the agent took chances, it exceeded its authority, and, in
effect, it acted in its own name.
As observed by Castan Tobeñas, an agent "que haya traspasado los limites
dew mandato, lo que equivale a obrar sin mandato" (4 Derecho Civil
Español, 8th Ed., 1956, p. 520).
As opined by Olivieri, "si el mandante contesta o impugna el negocio
juridico concluido por el mandatario con el tercero, aduciendo el exceso de
los limites impuestos, es justo que el mandatario, que ha tratado con engaño
al tercero, sea responsable personalmente respecto de el des las
consecuencias de tal falta de aceptacion por parte del mandate. Tal
responsabilidad del mandatario se informa en el principio de la falta de
garantia de la existencia del mandato y de la cualidad de mandatario,
garantia impuesta coactivamente por la ley, que quire que aquel que
contrata como mandatario este obligado a garantizar al tercero la efectiva
existencia de los poderes que afirma se halla investido, siempre que el
tercero mismo sea de buena fe. Efecto de tal garantia es el resarcimiento de
los daños causados al tercero como consecuencia de la negativa del
mandante a reconocer lo actuado por el mandatario." (26, part II, Scaveola,
Codigo Civil, 1951, pp. 358-9).
Manresa says that the agent who exceeds the limits of his authority is
personally liable "porque realmente obra sin poderes" and the third person
who contracts with the agent in such a case would be defrauded if he would
not be allowed to sue the agent (11 Codigo Civil, 6th Ed., 1972, p. 725).
The defendants also contend that the trial court erred in holding as
enforceable the stipulation for liquidated damages despite its finding that
the contract was executed by the agent in excess of its authority and is,
therefore, allegedly unenforceable.
In support of that contention, the defendants cite article 1403 of the Civil
vir tual lawlibrary

The defendants argue that it was incumbent upon the NPC to inquire Code which provides that a contract entered into in the name of another
into the extent of the agent’s authority and, for its failure to do so, it "As we have pointed out to you before, you have acted strictly person by one who has acted beyond his powers is unenforceable.
could not claim any liquidated damages which, according to the contrary to our repeated instructions and, however regretfully, you
defendants, were provided for merely to make the seller more diligent have no one but yourselves to blame."
cralaw We hold that defendants’ contention is untenable because article 1403 refers
virtua1aw library

in looking for a steamer to transport the sulfur.
The NPC counter-argues that Namerco should’ have advised the NPC
of the limitations on its authority to negotiate the sale.
We agree with the trial court that Namerco is liable for damages
because under article 1897 of the Civil Code the agent who exceeds
the limits of his authority without giving the party with whom he
to the unenforceability of the contract against the principal. In the instant
The rule relied upon by the defendants-appellants that every person case, the contract containing the stipulation for liquidated damages is not
dealing with an agent is put upon inquiry and must discover upon his being enforced against it principal but against the agent and its surety.
peril the authority of the agent would apply in this case if the principal
is sought to be held liable on the contract entered into by the agent. It is being enforced against the agent because article 1807 implies that the
agent who acts in excess of his authority is personally liable to the party
That is not so in this case. Here, it is the agent that it sought to be held with whom he contracted.
liable on a contract of sale which was expressly repudiated by the

30
And that rule is complemented by article 1898 of the Civil Code v. Holton, 149 N.E. 38, 42 ALR 1307, is not well-taken. As correctly disrupted or diminished by reason of the nondelivery of the sulfur. chanrobles.com.ph : virtual law library

which provides that "if the agent contracts in the name of the argued by the NPC, it would be unjust and inequitable for Namerco to
principal, exceeding the scope of his authority, and the principal does escape liability after it had deceived the NPC. The parties foresaw that it might be difficult to ascertain the exact amount
not ratify the contract, it shall be void if the party with whom the of damages for nondelivery of the sulfur. So, they fixed the liquidated
agent contracted is aware of the limits of the powers granted by the Another contention of the defendants is that the Domestic Insurance damages to be paid as indemnity to the NPC.
principal." Company is not liable to the NPC because its bond was posted, not for
Namerco, the agent, but for the New York firm which is not liable on On the other hand, nominal damages are damages in name only or are in
It is being enforced against the agent because article 1897 implies the contract of sale. fact the same as no damages (25 C.J.S. 466). It would not be correct to hold
that the agent who acts in excess of his authority is personally liable in this case that the NPC suffered damages in name only or that the breach
to the party with whom he contracted. That contention cannot be sustained because it was Namerco that of contract was merely technical in character.
actually solicited the bond from the Domestic Insurance Company
And the rule is complemented by article 1898 of the Civil Code and, as explained already, Namerco is being held liable under the As to the contention that the damages should be computed on the basis of
which provides that "if the agent contracts in the name of the contract of sale because it virtually acted in its own name. It became forty-five days, the period required by a vessel leaving Galveston, Texas to
principal, exceeding the scope of his authority, and the principal does the principal in the performance bond. In the last analysis, the reach Iligan City, that point need not be resolved in view of our conclusion
not ratify the contract, it shall be void if the party with whom the Domestic Insurance Company acted as surety for Namerco. that the liquidated damages should be equivalent to the amount of the
agent contracted is aware of the limits of the powers granted by the bidder’s bond posted by Namerco.
principal." The rule is that "want of authority of the person who executes an
obligation as the agent or representative of the principal will not, as a NPC’s appeal, L-33897. — The trial court reduced the liquidated damages
As priorly discussed, namerco, as agent, exceeded the limits of its general rule, affect the surety’s liability thereon, especially in the to twenty percent of the stipulated amount. the NPC contends the it is
authority in contracting with the NPC in the name of its principal. absence of fraud, even though the obligation is not binding on the entitled to the full amount of liquidated damages in the sum of P360,572.80.
The NPC was unaware of the limitations on the powers granted by principal" (72 C.J.S. 525).
the New York firm to Namerco. chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph In reducing the liquidated damages, the trial court relied on article 2227 of
Defendants’ other contentions are that they should be held liable only the Civil Code which provides that "liquidated damages, whether intended
The New York corporation in its letter of April 26, 1956 said: jgc:chanrobles.com.ph for nominal damages, that interest should not be collected on the as an indemnity or a penalty, shall be equitably reduced if they are
amount of damages and that the damages should be computed on the iniquitous or unconscionable."
"We hereby certify that National Merchandising Corporation . . . are basis of a forty-five day period and not for a period of one hundred
our exclusive representatives in the Philippines for the sale of our fifteen days. Apparently, the trial court regarded as an equitable consideration the
products. persistent efforts of Namerco and its principal to charter a steamer and that
With respect to the imposition of the legal rate of interest on the the failure of the New York firm to secure shipping space was not
"Furthermore, we certify that they are empowered to present our damages from the filing of the complaint in 1957, or a quarter of a attributable to its fault or negligence.
offers in our behalf in accordance with our cabled or written century ago, defendants’ contention is meritorious. It would be
instructions." (Exh. C). manifestly inequitable to collect interest on the damages especially The trial court also took into account the fact that the selling price of the
considering that the disposition of this case has been considerably sulfur was P450,716 and that to award as liquidated damages more than
Namerco never disclosed to the NPC the cabled or written delayed due to no fault of the defendants. eighty percent of the price would not be altogether reasonable.
instructions of its principal. For that reason and because Namerco
exceeded the limits of its authority, it virtually acted in its own name The contention that only nominal damages should be adjudged is The NPC contends that Namerco was an obligor in bad faith and, therefore,
and not as agent and it is, therefore, bound by the contract of sale contrary to the intention of the parties (NPC, Namerco and its surety) it should be responsible for all damages which could be reasonably
which, however, is not enforceable against its principal. because it is clearly provided that liquidated damages are recoverable attributed to its nonperformance of the obligation as provided in article
for delay in the delivery of the sulfur and, with more reason, for 2201 of the Civil Code.
If, as contemplated in articles 1897 and 1898, Namerco is bound nondelivery.
under the contract of sale, then it follows that it is bound by the On the other hand, the defendants argue that Namerco having acted as a
stipulation for liquidated damages in that contract. No proof of pecuniary loss is required for the recovery of liquidated mere agent, was not liable for the liquidated damages stipulated in the
damages. the stipulation for liquidated damages is intended to obviate alleged unenforceable contract of sale; that, as already noted, Namerco’s
Defendants’ contention that Namerco’s liability should be based on controversy on the amount of damages. There can be no question that liability should be based on tort or quasi-delict and not on the contract of
tort or quasi-delict, as held in some American cases, like Mendelsohn the NPC suffered damages because its production of fertilizer was sale; that if Namerco is not liable, then the insurance company, its surety, is

31
likewise not liable; that the NPC is entitled only to nominal damages Private respondent Pepsi-Cola Bottling Company of the complaint alleged, they failed to pay despite oral and written
because it was able to secure the sulfur from another source (58-59
Philippines, Inc. is engaged in the business of demands.1
tsn November 10, 1960) and that the reduced award of stipulated
damages is highly iniquitous, considering that Namerco acted in good manufacturing, making bottling and selling soft drinks
In their defense, petitioners presented four trade provisional
faith and that the NPC did not suffer any actual damages. chanrobles law library : red and beverages to the general public. Petitioner Nora S.
receipts (TPRs) allegedly issued to and received by them
Eugenio was a dealer of the soft drink products of
These contentions have already been resolved in the preceding from private respondent's Route Manager Jovencio Estrada of
discussion. We find no sanction or justification for NPC’s claim that
private respondent corporation. Although she had only
its Malate Warehouse (Division 57), showing payments in
it is entitled to the full payment of the liquidated damages computed one store located at 27 Diamond Street, Emerald Village,
the total sum of P80,500.00 made by Abigail's Store.
by its official. Marikina, Metro Manila, Eugenio had a regular charge
Petitioners contended that had the amounts in the TPRs been
account in both the Quezon City plant (under the name
Ruling on the amount of damages. — A painstaking evaluation of the credited in their favor, they would not be indebted to Pepsi-
equities of the case in the light of the arguments of the parties as "Abigail Minimart" *) as well as in the Muntinlupa plant
Cola. The details of said receipts are as follows:
expounded in their five briefs leads to the conclusion that the (under the name "Nora Store") of respondent
damages due from the defendants should be further reduced to corporation. Her husband and co-petitioner, Alfredo Y. TPR No. Date of Issue Amount
P45,100 which is equivalent to their bidder’s bond or to about ten
percent of the selling price of the sulfur. Eugenio, used to be a route manager of private
500320 600 Fulls returned 5/6/80 P23,520.00
respondent in its Quezon City plant.
500326 600 Fulls returned 5/10/80 23,520.00
WHEREFORE, the lower court’s judgment is modified and
defendants National Merchandising Corporation and Domestic On March 17, 1982, private respondent filed a complaint 500344 600 Fulls returned 5/14/80 23,520.00
Insurance Company of the Philippines are ordered to pay solidarily to for a sum of money against petitioners Nora S. Eugenio 500346 Cash 5/15/80 10,000.00 2
the National Power Corporation the sum of P45,100.00 as liquidated
and Alfredo Y. Eugenio, docketed as Civil Case No. Q-
damages. No costs. —————
34718 of the then Court of First Instance of Quezon
Total P80,560.00
SO ORDERED. City, Branch 9 (now Regional Trial Court, Quezon City,
Branch 97). In its complaint, respondent corporation Further, petitioners maintain that the signature purporting to
G.R. No. 103737 December 15, 1994 alleged that on several occasions in 1979 and 1980, be that of petitioner Nora S. Eugenio in Sales Invoice No.
NORA S. EUGENIO and ALFREDO Y. petitioners purchased and received on credit various 85366 dated May 15, 1980 in the amount of
EUGENIO, petitioners, products from its Quezon City plant. As of December P5,631.00,3 which was included in the computation of
vs. 31, 1980, petitioners allegedly had an outstanding their alleged debt, is a falsification. In sum, petitioners
HON. COURT OF APPEALS and PEPSI-COLA balance of P20,437.40 therein. Likewise, on various argue that if the aforementioned amounts were credited
BOTTLING COMPANY OF THE PHILIPPINES, occasions in 1980, petitioners also purchased and in their favor, it would be respondent corporation which
INC., respondents. received on credit various products from respondent's would be indebted to them in the sum of P3,546.02
Muntinlupa plant and, as of December 31, 1989, representing overpayment.
Public Attorney's Office for petitioners.
petitioners supposedly had an outstanding balance of
After trial on the merits, the court a quo rendered a decision
Romualdo M. Jubay for private respondent. P38,357.20 there. In addition, it was claimed that
on February 17, 1986, ordering petitioners, as defendants
petitioners had an unpaid obligation for the loaned
therein to jointly and severally pay private respondent the
"empties" from the same plant in the amount of
amount of P74,849.00, plus 12% interest per annum until the
REGALADO, J.: P35,856.40 as of July 11, 1980. Altogether, petitioners
principal amount shall have been fully paid, as well as
had an outstanding account of P94,651.00 which, so the
P20,000.00 as attorney's fees.4 On appeal in CA-G.R. CV
32
No. 10623, the Court of Appeals declared said
decision a nullity for failure to comply with the
requirement in Section 14, Article VIII of the 1987
Constitution that decisions of courts should clearly
and distinctly state the facts and the law on which
they are based. The Court of Appeals accordingly
remanded the records of the case to the trial court,
directing it to render another decision in
accordance with the requirements of the
Constitution.5
In compliance with the directive of the Court of
Appeals, the lower court rendered a second decision on
September 29, 1989. In this new decision, petitioners
were this time ordered to pay, jointly and severally, the
reduced amount of P64,188.60, plus legal interest of
6% per annum from the filing of the action until full
payment of the amount adjudged.6 On appeal therefrom,
the Court of Appeals affirmed the judgment of the trial
court in a decision promulgated on September 27,
1991.7 A motion for the reconsideration of said
judgment of respondent court was subsequently denied
in a resolution dated January 23, 1992.8
We agree with petitioners and respondent court that the
crux of the dispute in the case at bar is whether or not
the amounts in the aforementioned trade provisional
receipts should be credited in favor of herein petitioner
spouses.
In a so-called encyclopedic sense, however, our course
of action in this case and the denouement of the
controversy therein takes into account the
jurisprudential rule that in the present recourse we
would normally have restricted ourselves to questions of
law and eschewed questions of fact were it not for our
perception that the lower courts manifestly overlooked
33
certain relevant factual considerations resulting in a
misapprehension thereof. Consequentially, that position The liability of petitioners as to the loaned empties
shall necessarily affect our analysis of the rules on the(Muntinlupa plant, Nora Store) was reduced to P21,686.00
burden of proof and the burden of evidence, and
ultimately, whether the proponent of the corresponding
claim has preponderated or rested on an equipoise or
fallen short of preponderance.
First, the backdrop. It appears that on August 1, 1981,
private respondent through the head of its Legal
Department, Atty. Antonio N. Rosario, sent an inter-
office correspondence to petitioner Alfredo Eugenio
inviting him for an interview/interrogation on August 3,
1981 regarding alleged "non-payment of debts to the
company, inefficiency, and loss of trust and
confidence."9 The interview was reset to August 4,
1981 to enable said petitioner to bring along with
him their union president, Luis Isip. On said date, a
statement of overdue accounts were prepared
showing that petitioners owed respondent
corporation the following amounts:
Muntinlupa Plant
Nora's Store
Trade Account P38,357.20 (as of
12/3/80) 10
Loaned Empties P35,856.40 (as of
7/11/81) 11
Quezon City Plant
Abigail Minimart
Regular Account P20,437.40 (as of
1980) 12
—————
Total P94,651.00
A reconciliation of petitioners' account was then conducted.
after a reevaluation of the value of the loaned
empties. 13Likewise, the amount of P5,631.00 under
Invoice No. 85366, which was a spurious document,
was deducted from their liability in their trade account
with the Muntinlupa plant. 14 Thereafter, Eugenio and
Isip signed the reconciliation sheets reflecting these
items:
Muntinlupa Plant
Nora Store
Trade Account P32,726.20 15
Loaned Empties P21,686.00 16
Quezon City Plant
Abigail Minimart
Trade Account P20,437.2017
——————
Total P74,849.40
After the meeting, private respondent alleged that petitioner
Alfredo Y. Eugenio requested that he be allowed to retire and
the existing accounts be deducted from his retirement pay,
but that he later withdrew his retirement plan. Said petitioner
disputed that allegation and, in fact, he subsequently filed a
complaint for illegal dismissal. The finding of labor arbiter,
later affirmed by the Supreme Court, showed that this
petitioner was indeed illegally dismissed, and that he never
filed an application for retirement. In fact, this Court made a
finding that the retirement papers allegedly filed in the name
of this petitioner were forged.18 This makes two falsified
documents to be foisted against petitioners.
With their aforesaid accounts still unpaid, petitioner Alfredo
Y. Eugenio submitted to Atty. Rosario the aforementioned
four TPRs. Thereafter, Atty. Rosario ordered Daniel
Azurin, assistant personnel manager, to conduct an
investigation to verify this claim of petitioners.
According to Azurin, during the investigation on
December 4, 1981, Estrada allegedly denied that he
issued and signed the aforesaid TPRs.19 He also
presented a supposed affidavit which Estrada allegedly
executed during that investigation to affirm his verbal
statements therein. Surprisingly, however, said
supposed affidavit is inexplicably dated February 5,
1982. 20 At this point, it should be noted that Estrada
never testified thereafter in court and what he is
supposed to have done or said was merely related by
Azurin.
Now, on this point, respondent court disagreed with
herein petitioners that the testimony on the alleged
denial of Jovencio Estrada regarding his signatures on
the disputed TPRs, as well as his affidavit dated
February 5, 1982 21wherein he affirmed his denial, are
hearsay evidence because Estrada was not presented as
a witness to testify and be cross-examined thereon.
Except for the terse statement of respondent court that
since petitioner Alfredo Eugenio was supposedly
present on December 4, 1981, "(t)he testimony of
Jovencio Estrada at the aforementioned investigation
categorically denying that he issued and signed the
disputed TPRs is, therefore, not hearsay," 22 there was
no further explanation on this unusual doctrinal
departure.
The rule is clear and explicit. Under the hearsay
evidence rule, a witness can testify only to those facts
which he knows of his personal knowledge; that is,
which are derived from his own perception, except as
otherwise provided in the Rules.23 In the present case,
34
Estrada failed to appear as a witness at the trial. It was was not afforded opportunity to fully cross-examine the
only Azurin who testified that during the investigation he witness when the testimony was offered, evidence relating to
conducted, Estrada supposedly denied having signed the the testimony given therein is thereafter inadmissible in
TPRs. It is elementary that under the measure on hearsay another proceeding, absent any conduct on the part of the
evidence, Azurin's testimony cannot constitute legal accused amounting to a waiver of his right to cross-
proof as to the truth of Estrada's denial. For that matter, examine.26
it is not admissible in evidence, petitioners' counsel
Thirdly, the stenographer was not even presented to
having seasonably objected at the trial to such testimony
authenticate the stenographic notes submitted to the trial
of Azurin as hearsay. And, even if not objected to and
court. A copy of the stenographic report of the entire
thereby admissible, such hearsay evidence has no
testimony at the former trial must be supported by the oath of
probative value whatsoever. 24
the stenographer that it is a correct transcript of his notes of
It is true that the testimony or deposition of a witness the testimony of the witness as a sine qua non for its
deceased or unable to testify, given in a former case or competency and admissibility in evidence. 27 The supposed
proceeding, judicial or administrative, involving the stenographic notes on which respondent corporation
same parties and subject matter, may be given in relies is unauthenticated and necessarily inadmissible
evidence against the adverse party who had the for the purpose intended.
opportunity to cross-examine him. 25 Private
Lastly, although herein private respondent insinuated that
respondent cannot, however, seek sanctuary in this
Estrada was not presented as a witness because he had
exception to the hearsay evidence rule.
disappeared, no evidence whatsoever was offered to show or
Firstly, the supposed investigation conducted by Azurin even intimate that this was due to any machination or
was neither a judicial trial nor an administrative hearing instigation of petitioners. There is no showing that his
under statutory regulations and safeguards. It was merely absence was procured, or that he was eloigned, through acts
an inter-office interview conducted by a personnel imputable to petitioners. In the case at bar, except for the
officer through an ad hoc arrangement. Secondly, a self-serving statement that Estrada had disappeared, no
perusal of the alleged stenographic notes, plausible explanation was given by respondent corporation.
assuming arguendo that these notes are admissible in Estrada was an employee of private respondent, hence it can
evidence, would show that the "investigation" was more be assumed that it could easily trace or ascertain his
of a free-flowing question and answer type of discussion whereabouts. It had the resources to do so, in
wherein Estrada was asked some questions, after which contradistinction to petitioners who even had to seek the help
Eugenio was likewise asked other questions. Indeed, of the Public Attorney's Office to defend them here. Private
there was no opportunity for Eugenio to object, much respondent could not have been unaware of the importance of
less to cross-examine Estrada. Even in a formal prior Estrada's testimony and the consequent legal necessity for
trial itself, if the opportunity for presenting him in the trial court, through coercive process if
cross-examination did not exist therein or if the accused necessary.
Obviously, neither is the affidavit of Estrada admissible;
it is likewise barred as evidence by the hearsay evidence
rule. 28 This is aside from the fact that, by their nature,
affidavits are generally not prepared by the affiants
themselves but by another who uses his own language in
writing the affiant's statements, which may thus be
either omitted or misunderstood by the one writing
them.29 The dubiety of that affidavit, as earlier
explained, is further underscored by the fact that it was
executed more than two months after the investigation,
presumably for curative purposes as it were.
Now, the authenticity of a handwriting may be proven,
among other means, by its comparison made by the
witness or the court with writings admitted or treated as
genuine by the party against whom the evidence is
offered or proved to be genuine to the satisfaction of the
judge. 30 The alleged affidavit of Estrada states". . . that
the comparison that was made as to the authenticity of
the signature appearing in the TPRs and that of my
signature showed that there was an apparent
dissimilarity between the two signatures, xerox copy of
my 201 File is attached hereto as Annex 'F' of this
affidavit.31 However, a search of the Folder of Exhibits
in this case does not reveal that private respondent ever
submitted any document, not even the aforementioned
201 File, containing a specimen of the signature of
Estrada which the Court can use as a basis for
comparison. Neither was any document containing a
specimen of Estrada's signature presented by private
respondent in the formal offer of its exhibits.32
Respondent court made the further observation that
"Estrada was even asked by Atty. Azurin at said
investigation to sign three times to provide specimens of
his genuine signature."33 There is, however, no showing
35
that he did, but assuming that Estrada signed the acknowledgment by them and with a record of the
stenographic notes, the Court would still be unable to distribution thereof. After every transaction, when a
make the necessary comparison because two signatures collection is made the customer is given by the sales
appear on the right margin of each and every page of the representative a copy of the trade provisional receipt, that is,
stenographic notes, without any indication whatsoever as the triplicate copy or customer's copy, properly filled up to
to which of the signatures is Estrada's. The whole reflect the completed transaction. All unused TPRs, as well
document was marked for identification but the as the collections made, are turned over by the sales
signatures were not. In fact, although formally offered, it representative to the appropriate company officer.35
was merely introduced by the private respondent "in
According to respondent court, "the questioned TPR's are
order to show that Jovencio Estrada had been
merely 'provisional' and were, as printed at the bottom of said
investigated and categorically denied having collected
receipts, to be officially confirmed by plaintiff within fifteen
from Abigail Minimart and denying having signed the
(15) days by delivering the original copy thereof stamped
receipts claimed by Alfredo Eugenio to be his
paid and signed by its cashier to the customer. . . .
payment,"34 and not for the purpose of presenting any
Defendants-appellants (herein petitioners) failed to present
alleged signature of Estrada on the document as a basis
the original copies of the TPRs in question, showing that they
for comparison.
were never confirmed by the plaintiff, nor did they demand
This is a situation that irresistibly arouses judicial from plaintiff the confirmed original copies thereof." 36
curiosity, if not suspicion. Respondent corporation was
We do not agree with the strained implication intended to be
fully aware that its case rested, as it were, on the issue of
adverse to petitioners. The TPRs presented in evidence by
whether the TPRs were authentic and which issue, in
petitioners are disputably presumed as evidentiary of
turn, turned on the genuineness of Estrada's signatures
payments made on account of petitioners. There are
thereon. Yet, aside from cursorily dismissing the non-
presumptions juris tantum in law that private transactions
presentation of Estrada in court by the glib assertion that
have been fair and regular and that the ordinary course of
he could not be found, and necessarily aware that his
business has been followed.37 The role of presumptions in the
alleged denial of his signatures on said TPRs and his
law on evidence is to relieve the party enjoying the same of
affidavit rendered the same vulnerable to the challenge
the evidential burden to prove the proposition that he
that they are hearsay and inadmissible, respondent
contends for, and to shift the burden of evidence to the
corporation did nothing more. In fact, Estrada's
adverse party. Private respondent having failed to rebut the
disappearance has not been explained up to the present.
aforestated presumptions in favor of valid payment by
The next inquiry then would be as to what exactly is the petitioners, these would necessarily continue to stand in their
nature of the TPRs insofar as they are used in the day-to- favor in this case.
day business transactions of the company. These trade
Besides, even assuming arguendo that herein private
provisional receipts are bound and given in booklets to
respondent's cashier never received the amounts reflected in
the company sales representatives, under proper
the TPRs, still private respondent failed to prove that Estrada,
who is its duly authorized agent with respect to
petitioners, did not receive those amounts from the
latter. As correctly explained by petitioners, "in so far as
the private respondent's customers are concerned, for as
long as they pay their obligations to the sales
representative of the private respondent using the latter's
official receipt, said payment extinguishes their
obligations."38 Otherwise, it would unreasonably cast
the burden of supervision over its employees from
respondent corporation to its customers.
The substantive law is that payment shall be made to the
person in whose favor the obligation has been
constituted, or his successor-in-interest or any person
authorized to receive it.39 As far as third persons are
concerned, an act is deemed to have been performed
within the scope of the agent's authority, if such is
within the terms of the power of attorney, as written,
even if the agent has in fact exceeded the limits of his
authority according to an understanding between the
principal and his agent. 40 In fact, Atty. Rosario,
private respondent's own witness, admitted that "it
is the responsibility of the collector to turn over the
collection." 41
Still pursuing its ruling in favor of respondent
corporation, the Court of Appeals makes the following
observation:
. . . Having allegedly returned 600 Fulls
to the plaintiff's representative on May
6, 10, and 14, 1980, appellant-wife's
Abigail Store must have received more
than 1,800 cases of soft drinks from
plaintiff before those dates. Yet the
Statement of Overdue Account
pertaining to Abigail Minimart (Exhs.
36
"D", "D-1" to "D-3") which appellant-
husband and his representative Luis Isip
signed on August 3, 1981 does now
show more than 1,800 cases of soft
drinks were delivered to Abigail
Minimart by plaintiff's Quezon City
Plant (which supposedly issued the
disputed TPRs) in May, 1980 or the
month before."42
We regret the inaccuracy in said theory of respondent
court which was impelled by its sole and limited reliance
on a mere statement of overdue amounts. Unlike a
statement of account which truly reflects the day-to-day
movement of an account, a statement of an overdue
amount is only a summary of the account, simply
reflecting the balance due thereon. A statement of
account, being more specific and detailed in nature,
allows one to readily see and verify if indeed deliveries
were made during a specific period of time, unlike a bare
statement of overdue payments. Respondent court cannot
make its aforequoted categorical deduction unless
supporting documents accompanying the statement of
overdue amounts were submitted to enable easy and
accurate verification of the facts.
A perusal of the statement of overdue accounts shows
that, except for a reference number given for each entry,
no further details were volunteered nor offered. It is
entirely possible that the statement of overdue account
merely reflects the outstanding debt of a particular client,
and not the specific particulars, such as deliveries made,
particularly since the entries therein were surprisingly
entered irrespective of their chronological order.
Obviously, therefore, one can not use the statement of
overdue amounts as conclusive proof of deliveries done
within a particular time frame.
Except for its speculation that petitioner Alfredo Y. Eugenio
could have had easy access to blank forms of the TPRs
because he was a former route manager no evidence
whatsoever was presented by private respondent in support of
that theory. We are accordingly intrigued by such an unkind
assertion of respondent corporation since Azurin himself
admitted that their accounting department could not even
inform them regarding the persons to whom the TPRs were
issued. 43 In addition, it is significant that respondent
corporation did not take proper action if indeed some receipts
were actually lost, such as the publication of the fact of loss
of the receipts, with the corresponding investigation into the
matter.
We, therefore, reject as attenuated the comment of the trial
court that the TPRs, which Eugenio submitted after the
reconciliation meeting, "smacks too much of an
afterthought." 44 The reconciliation meeting was held on
August 4, 1981. Three months later, on November, 1981,
petitioner Alfredo Y. Eugenio submitted the four TPRs. He
explained, and this was not disputed, that at the time the
reconciliation meeting was held, his daughter Nanette, who
was helping his wife manage the store, had eloped and she
had possession of the TPRs. 45 It was only in November,
1981 when petitioners were able to talk to Nanette that they
were able to find and retrieve said TPRs. He added that
during the reconciliation meeting, Atty. Rosario assured him
that any receipt he may submit later will be credited in his
favor, hence he signed the reconciliation documents.
Accordingly, when he presented the TPRs to private
respondent, Atty. Rosario directed Mr. Azurin to verify the
TPRs. Thus, the amount stated in the reconciliation sheet was
not final, as it was still subject to such receipts as may
thereafter be presented by petitioners.
On the other hand, petitioners claimed that the signature
of petitioner Nora S. Eugenio in Sales Invoice No.
85366, in the amount of P5,631.00 is spurious and
should accordingly be deducted from the disputed
amount of P74,849.40. A scrutiny of the reconciliation
sheet shows that said amount had already been deducted
upon the instruction of one Mr. Coloma, Plant
Controller of Pepsi-Cola , Muntinlupa Plant. 46 That
amount is not disputed by respondent corporation and
should no longer be deducted from the total liability of
petitioner in the sum of P74,849.40. Since petitioners
had made a payment of P80,560.00, there was
consequently an overpayment of P5,710.60.
All told, we are constrained to hold that respondent
corporation has dismally failed to comply with the
pertinent rules for the admission of the evidence by
which it sought to prove its contentions. Furthermore,
there are questions left unanswered and begging for
cogent explanations why said respondent did not or
could not comply with the evidentiary rules. Its default
inevitably depletes the weight of its evidence which
cannot just be taken in vacuo, with the result that for
lack of the requisite quantum of evidence, it has not
discharged the burden of preponderant proof necessary
to prevail in this case.
WHEREFORE, the judgment of respondent Court of
Appeals in C.A. G.R. CV No. 26901, affirming that of
the trial court in Civil Case No. Q-34718, is
ANNULLED and SET ASIDE. Private respondent
Pepsi-Cola Bottling Company of the Philippines, Inc. is
hereby ORDERED to pay petitioners Nora and Alfredo
37
Eugenio the amount of P5,710.60 representing
overpayment made to the former.
SO ORDERED.
G.R. No. L-49395 December 26, 1984
GREEN VALLEY POULTRY & ALLIED
PRODUCTS, INC., petitioner
vs.
THE INTERMEDIATE APPELLATE COURT and
E.R. SQUIBB & SONS PHILIPPINE
CORPORATION, respondents.
ABAD SANTOS, J.:
This is a petition to review a decision of the defunct
Court of Appeals which affirmed the judgment of the
trial court whereby:
... judgment is hereby rendered in favor
of the plaintiff [E.R. Squibb & Sons
Philippine Corporation], ordering the
defendant [Green Valley Poultry &
Allied Products, Inc.] to pay the sum of
P48,374.74 plus P96.00 with interest at
6% per annum from the filing of this
action; plus attorney's fees in the
amount of P5,000.00 and to pay the
costs.
On November 3, 1969, Squibb and Green Valley entered
into a letter agreement the text of which reads as follows:
E.R. Squibb & Sons Philippine
Corporation is pleased to appoint Green
Valley Poultry & Allied Products, Inc.
as a non-exclusive distributor for
Squibb Veterinary Products, as
recommended by Dr. Leoncio D. Rebong,
Jr. and Dr. J.G. Cruz, Animal Health
Division Sales Supervisor.
As a distributor, Green Valley Poultry &
Allied Products, Inc. wig be entitled to a
discount as follows:
Feed Store Price (Catalogue)
Less 10%
Wholesale Price
Less 10%
Distributor Price
There are exceptions to the above price
structure. At present, these are:
1. Afsillin Improved — 40 lbs. bag
The distributor commission for this product
size is 8% off P120.00
2. Narrow — Spectrum Injectible Antibiotics
These products are subject to price
fluctuations. Therefore, they are invoiced at
net price per vial.
3. Deals and Special Offers are not subject
to the above distributor price structure. A
5% distributor commission is allowed when
the distributor furnishes copies for each sale
of a complete deal or special offer to a
feedstore, drugstore or other type of account.
 Deals and Special Offers purchased for
resale at regular price invoiced at net
deal or special offer price.
Prices are subject to change without
notice. Squibb will endeavor to advise
you promptly of any price changes.
However, prices in effect at the tune
orders are received by Squibb Order
Department will apply in all instances.
Green Valley Poultry & Allied
Products, Inc. win distribute only for
the Central Luzon and Northern Luzon
including Cagayan Valley areas. We
will not allow any transfer or stocks
from Central Luzon and Northern
Luzon including Cagayan Valley to
other parts of Luzon, Visayas or
Mindanao which are covered by our
other appointed Distributors. In line
with this, you will follow strictly our
stipulations that the maximum discount
you can give to your direct and
turnover accounts will not go beyond
10%.
It is understood that Green Valley
Poultry and Allied Products, Inc. will
accept turn-over orders from Squibb
representatives for delivery to
customers in your area. If for credit or
other valid reasons a turn-over order is
For goods delivered to Green Valley but unpaid, Squibb WHEREFORE, the petition is hereby dismissed; the
not served, the Squibb representative
filed suit to collect. The trial court as aforesaid gave judgment of the defunct Court of Appeals is affirmed with
will be notified within 48 hours and
judgment in favor of Squibb which was affirmed by the costs against the petitioner.
hold why the order will not be served.
Court of Appeals.
38
It is understood that Green Valley In both the trial court and the Court of Appeals, the parties
Poultry & Allied Products, Inc. will put advanced their respective theories.
up a bond of P20,000.00 from a
Green Valley claimed that the contract with Squibb was a
mutually acceptable bonding company.
mere agency to sell; that it never purchased goods from
Payment for Purchases of Squibb Squibb; that the goods received were on consignment only
Products will be due 60 days from date with the obligation to turn over the proceeds, less its
of invoice or the nearest business day commission, or to return the goods ff not sold, and since it
thereto. No payment win be accepted in had sold the goods but had not been able to collect from the
the form of post-dated checks. Payment purchasers thereof, the action was premature.
by check must be on current dating.
Upon the other hand, Squibb claimed that the contract was
It is mutually agreed that this non- one of sale so that Green Valley was obligated to pay for the
exclusive distribution agreement can be goods received upon the expiration of the 60-day credit
terminated by either Green Valley period.
Poultry & Allied Products, Inc. or
Both courts below upheld the claim of Squibb that the
Squibb Philippines on 30 days notice.
agreement between the parties was a sales contract.
I trust that the above terms and
We do not have to categorize the contract. Whether viewed
conditions will be met with your
as an agency to sell or as a contract of sale, the liability of
approval and that the distributor
Green Valley is indubitable. Adopting Green Valley's theory
arrangement will be one of mutual
that the contract is an agency to sell, it is liable because it
satisfaction.
sold on credit without authority from its principal. The Civil
If you are agreeable, please sign the Code has a provision exactly in point. It reads:
enclosed three (3) extra copies of this
Art. 1905. The commission agent cannot,
letter and return them to this Office at
without the express or implied consent of the
your earliest convenience.
principal, sell on credit. Should he do so, the
Thank you for your interest and support principal may demand from him payment in
of the products of E.R. Squibb & Sons cash, but the commission agent shall be
Philippines Corporation. (Rollo, pp. 12- entitled to any interest or benefit, which may
13.) result from such sale.
SO ORDERED.
G.R. No. 108957 June 14, 1993
PRUDENTIAL BANK, petitioner,
vs.
THE COURT OF APPEALS, AURORA
CRUZ, respondents.
Monique Q. Ignacio for petitioner.
Eduardo C. Tutaan for private respondent.
CRUZ, J.:
We deal here with another controversy involving the
integrity of a bank.
The complaint in this case arose when private
respondent Aurora F.
Cruz, * with her sister as co-depositor, invested
P200,000.00 in Central Bank bills with the Prudential
Bank at its branch in Quezon Avenue, Quezon City, on
June 23, 1986. The placement was for 63 days at
13.75% annual interest. For this purpose, the amount of
P196,122.88 was withdrawn from the depositors'
Savings Account No. 2546 and applied to the
investment. The difference of P3,877.07 represented the
pre-paid interest.
The transaction was evidenced by a Confirmation of
Sale1 delivered to Cruz two days later, together with
a Debit Memo2 in the amount withdrawn and
applied to the confirmed sale. These documents
were issued by Susan Quimbo, the employee of
the bank to whom Cruz was referred and who was
apparently in charge of such transactions.3
Upon maturity of the placement on August 25, 1986,
Cruz returned to the bank to "roll-over" or renew her
39
investment. Quimbo, who again attended to her, Lauro J. Jocson said that there appeared to be an
prepared a Credit Memo4 crediting the amount of anomaly
P200,000.00 in Cruz's savings account passbook. and requested Cruz to defer court action as they hoped
She also prepared a Debit Memo for the amount of to settle the matter amicably. 12 Increasingly worried,
P196,122.88 to cover the re-investment of Cruz sent another letter reiterating her demand. 13 This
P200,000.00 minus the prepaid interest of time the reply of the bank was unequivocal and
P3,877.02.5 negative. She was told that her request had to be
denied because she had already withdrawn the amount
This time, Cruz was asked to sign a Withdrawal Slip6 for
she was claiming. 14
P196,122.98, representing the amount to be re-
invested after deduction of the prepaid interest. Cruz's reaction was to file a complaint for breach of contract
Quimbo explained this was a new requirement of against Prudential Bank in the Regional Trial Court of
the bank. Several days later, Cruz received another Quezon City. She demanded the return of her money with
Confirmation of Sale7 and a copy of the Debit interest, plus damages and attorney's fees. In its answer, the
Memo.8 bank denied liability, insisting that Cruz had withdrawn her
investment. The bank also instituted a third-party complaint
On October 27, 1986, Cruz returned to the bank and
against Quimbo, who did not file an answer and was declared
sought to withdraw her P200,000.00. After verification
in default. 15 The bank, however, did not present any
of her records, however, she was informed that the
evidence against her.
investment appeared to have been already withdrawn by
her on August 25, 1986. There was no copy on file of the After trial, Judge Rodolfo A. Ortiz rendered judgment in
Confirmation of Sale and the Debit Memo allegedly favor of the plaintiffs and disposed as follows:
issued to her by Quimbo. Quimbo herself was not
ACCORDINGLY, judgment is hereby
available for questioning as she had not been reporting
rendered ordering the defendant/third-party
for the past week. Shocked by this information, Cruz
plaintiff to pay to the plaintiffs the following
became hysterical and burst into tears. The branch
amounts:
manager, Roman Santos, assured her that he would look
1. P200,000.00, plus interest thereon at the
into the matter.9
rate of 13.75% per annum from October 27,
Every day thereafter, Cruz went to the bank to inquire
1986, until fully paid;
about her request to withdraw her investment. She
received no definite answer, not even to the letter she 2. P30,000.00, as moral damages;
wrote the bank which was received by Santos
3. P20,000.00, as exemplary damages; and
himself. 10 Finally, Cruz sent the bank a demand
letter dated November 12, 1986 for the amount of 4. P25,000.00, as reasonable attorney's fees.
P200,000.00 plus interest. 11 In a reply dated
November 20, 1986, the bank's Vice President
 The counterclaim and the third-party
complaint of the defendant/third-party
plaintiff are dismissed.
With costs against the defendant/third-
party plaintiff.
The decision was affirmed in toto on appeal to the
respondent court.
The judgment of the Court of Appeals 16 is now faulted
in this petition, mainly on the ground that the bank
should not have been found liable for a quasi-
delict when it was sued for breach of contract.
The petition shall fail. The petitioner is quibbling. It
appears to be merely temporizing to delay enforcement
of the liability clearly established against it.
The basic issues are factual. The private respondent
claims she has not yet collected her investment of
P200,000.00 and has submitted in proof of their
contention the Confirmation of Sale and the Debit
Memo issued to her by Quimbo on the official forms of
the bank. The petitioner denies her claim and points to
the Withdrawal Slip, which it says Cruz has not denied
having signed. It also contends that the Confirmation of
Sale and the Debit Memo are fake and should not have
been given credence by the lower courts.
The findings of the trial court on these issues have been
affirmed by the respondent court and we see no reason
to disturb them. The petitioner has not shown that they
have been reached arbitrarily or in disregard of the
evidence of record. On the contrary, we find substantial
basis for the conclusion that the private respondents
signed the Withdrawal Slip only as part of the bank's
new procedure of re-investment. She did not actually
40
receive the amount indicated therein, which she was Indeed, the bank has not explained the remarkable
made to understand was being re-invested in her name. coincidence that the amount indicated in the withdrawal slip
The bank itself so assured her in the Confirmation of is exactly the same amount Cruz was re-investing after
Sale and the Debit Memo later issued to her by Quimbo. deducting therefrom the pre-paid interest.
Especially persuasive are the following observations of The bank has also not, succeeded in impugning the
the trial court: 17 authenticity of the Confirmation of Sale and the Debit Memo
which were made on its official, forms. These are admittedly
What is more, it could not be that
not available to the general public or even its depositors and
plaintiff Aurora F. Cruz withdrew only
are handled only by its personnel. Even assuming that they
the amount of P196,122.98 from their
were not signed by its authorized officials, as it claims, there
savings account, if her only intention
was no obligation on the part of Cruz to verify their authority
was to make such a withdrawal. For, if,
because she had the right to presume it. The documents had
indeed, it was the desire of the plaintiffs
been issued in the office of the bank itself and by its own
to withdraw their money from the
employees with whom she had previously dealt. Such
defendant/third-party plaintiff, they
dealings had not been questioned before, much leas
could have withdrawn an amount in
invalidated. There was absolutely no reason why she should
round figures. Certainly, it is
not have accepted their authority to act on behalf of their
unbelievable that their withdrawal was
employer.
in the irregular amount of P196,122.98
if they really received it. On the It is also worthy of note — and wonder — that although the
contrary, this amount, which is the price bank impleaded Quimbo in a third-party complaint, it did not
of the Central Bank bills rolled over, pursue its suit even when she failed to answer and was
indicates that, as claimed by plaintiff declared in default. The bank did not introduce evidence
Aurora F. Cruz, she did not receive this against her although it could have done so under the rules. No
money, but it was left by her with the less remarkably, it did not call on her to testify on its behalf,
defendant/third-party plaintiff in order considering that under the circumstances claimed by it, she
to buy Central Bank bills placement for would have been the best witness to show that Cruz had
another sixty-three (63) days, for which actually withdrawn her P200,000.00 placement. Instead, the
she signed a withdrawal slip at the bank chose to rely on its other employees whose testimony
instance of third-party defendant Susan was less direct and categorical than the testimony Quimbo
Quimbo who told her that it was a new could have given.
bank requirement for the roll-over of a
We do not find that the Court of Appeals held the bank liable
matured placement which she trustingly
on a quasi-delict. The argument of the petitioner on this issue
believed.
is pallid, to say the least, consisting as it does only of the
observation that the article cited by the respondent court on
the agent's liability falls under the heading in the Civil
Code on quasi-delicts. On the other hand, the
respondent court clearly declared that:
The defendant/third-party plaintiff
being liable for the return of the
P200,000.00 placement of the
plaintiffs, the extent of the liability of
the defendant/third-party plaintiff for
damages resultant thereof, which is
contractual, is for all damages which
may be reasonably attributed to the
non-performance of the obligation, . . .
xxx xxx xxx
Because of the bad faith of the
defendant/third-party plaintiff in
its breach of its contract with the
plaintiffs, the latter are, therefore,
entitled to an award of moral damages .
. . (Emphasis supplied)
There is no question that the petitioner was made liable
for its failure or refusal to deliver to Cruz the amount
she had deposited with it and which she had a right to
withdraw upon its maturity. That investment was
acknowledged by its own employees, who had the
apparent authority to do so and so could legally bind it
by its acts vis-a-vis Cruz. Whatever might have
happened to the investment — whether it was lost or
stolen by whoever — was not the concern of the
depositor. It was the concern of the bank.
As far as Cruz was concerned, she had the right to
withdraw her P200,000.00 placement when it matured
pursuant to the terms of her investment as
acknowledged and reflected in the Confirmation of Sale.
41
The failure of the bank to deliver the amount to her
pursuant to the Confirmation of Sale constituted its
breach of their contract, for which it should be held
liable.
The liability of the principal for the acts of the agent is
not even debatable. Law and jurisprudence are clearly
and absolutely against the petitioner.
Such liability dates back to the Roman Law maxim, Qui
per alium facit per seipsum facere videtur. "He who does
a thing by an agent is considered as doing it himself."
This rule is affirmed by the Civil Code thus:
Art. 1910. The principal must comply
with all the obligations which the agent
may have contracted within the scope of
his authority.
Art. 1911. Even when the agent has
exceeded his authority, the principal is
solidarily liable with the agent if the
former allowed the latter to act as
though he had full powers.
Conformably, we have declared in
countless decisions that the principal is
liable for obligations contracted by the
agent. The agent's apparent
representation yields to the principal's
true representation and the contract is
considered as entered into between the
principal and the third person. 18
A bank is liable for wrongful acts of its
officers done in the interests of the bank
or in the course of dealings of the
officers in their representative capacity
but not for acts outside the scope of their
authority. (9 c.q.s. p. 417) A bank holding
out its officers and agent as worthy of
confidence will not be permitted to profit by
the frauds they may thus be enabled to
perpetrate in the apparent scope of their
employment; nor will it be permitted to shirk
its responsibility for such frauds, even
though no benefit may accrue to the bank
therefrom (10 Am Jur 2d, p. 114).
Accordingly, a banking corporation is liable
to innocent third persons where the
representation is made in the course of its
business by an agent acting within the
general scope of his authority even though,
in the particular case, the agent is secretly
abusing his authority and attempting to
perpetrate a fraud upon his principal or some
other person, for his own ultimate benefit
(McIntosh v. Dakota Trust Co., 52 ND 752,
204 NW 818, 40 ALR 1021.)
Application of these principles in especially necessary
because banks have a fiduciary relationship with the public
and their stability depends on the confidence of the people in
their honesty and efficiency. Such faith will be eroded where
banks do not exercise strict care in the selection and
supervision of its employees, resulting in prejudice to their
depositors.
It would appear from the facts established in the case before
us that the petitioner was less than eager to present Quimbo
at the trial or even to establish her liability although it made
the initial effort — which it did not pursue — to hold her
answerable in the third-party complaint. What ever happened
to her does not appear in the record. Her absence from the
proceedings feeds the suspicion of her possible misdeed,
which the bank seems to have studiously ignored by its
insistence that the missing money had been actually
withdrawn by Cruz. By such insistence, the bank is
absolving not only itself but also, in effect and by
extension, the disappeared Quimbo who apparently has
much to explain.
We agree with the lower courts that the petitioner acted
in bad faith in denying Cruz the obligation she was
claiming against it. It was obvious that an irregularity
had been committed by the bank's personnel, but instead
of repairing the injury to Cruz by immediately restoring
her money to her, it sought to gloss over the anomaly in
its own operations.
Cruz naturally suffered anxious moments and mental
anguish over the loss of the investment. The amount of
P200,000.00 is not small even by present standards. By
unjustly withholding it from her on the unproved
defense that she had already withdrawn it, the bank
violated the trust she had reposed in it and thus
subjected itself to further liability for moral and
exemplary damages.
If a person dealing with a bank does not read the fine
print in the contract, it is because he trusts the bank and
relies on its integrity. The ordinary customer applying
for a loan or even making a deposit (and so himself
extending the loan to the bank) does not bother with the
red tape requirements and the finicky conditions in the
documents he signs. His feeling is that he does not have
to be wary of the bank because it will deal with him
fairly and there is no reason to suspect its motives. This
is an attitude the bank must justify.
42
While this is not to say that bank regulations are appealed decision of the trial court rendered in favor of
meaningless or have no binding effect, they should, petitioner.
however, not be used for covering up the fault of bank
The case involves an action for a sum of money filed by
employees when they blunder or, worse, intentionally
respondent against petitioner anchored on the following
cheat him. The misdeeds of such employees must be
antecedent facts:
readily acknowledged and rectified without delay. The
bank must always act in good faith. The ordinary Petitioner Kue Cuison is a sole proprietorship engaged in the
customer does not feel the need for a lawyer by his side purchase and sale of newsprint, bond paper and scrap, with
every time he deals with a bank because he is certain that places of business at Baesa, Quezon City, and Sto. Cristo,
it is not a predator or a potential adversary. The bank Binondo, Manila. Private respondent Valiant Investment
should show that there is really no reason for any Associates, on the other hand, is a partnership duly organized
apprehension because it truly deserves his faith in it. and existing under the laws of the Philippines with business
address at Kalookan City.
WHEREFORE, the petition is DENIED and the
appealed decision is AFFIRMED, with costs against the From December 4, 1979 to February 15, 1980, private
petitioner. It is so ordered. respondent delivered various kinds of paper products
amounting to P297,487.30 to a certain Lilian Tan of LT
G.R. No. 88539 October 26, 1993
Trading. The deliveries were made by respondent pursuant to
KUE CUISON, doing business under the firm name
orders allegedly placed by Tiu Huy Tiac who was then
and style"KUE CUISON PAPER
employed in the Binondo office of petitioner. It was likewise
SUPPLY," petitioner,
pursuant to Tiac's instructions that the merchandise was
vs.
delivered to Lilian Tan. Upon delivery, Lilian Tan paid for
THE COURT OF APPEALS, VALIANT
the merchandise by issuing several checks payable to cash at
INVESTMENT ASSOCIATES, respondents.
the specific request of Tiu Huy Tiac. In turn, Tiac issued nine
Leighton R. Siazon for petitioner. (9) postdated checks to private respondent as payment for the
paper products. Unfortunately, sad checks were later
Melanio L. Zoreta for private respondent.
dishonored by the drawee bank.
Thereafter, private respondent made several demands upon
BIDIN, J.: petitioner to pay for the merchandise in question, claiming
that Tiu Huy Tiac was duly authorized by petitioner as the
This petition for review assails the decision of the manager of his Binondo office, to enter into the questioned
respondent Court of Appeals ordering petitioner to pay transactions with private respondent and Lilian Tan.
private respondent, among others, the sum of Petitioner denied any involvement in the transaction entered
P297,482.30 with interest. Said decision reversed the into by Tiu Huy Tiac and refused to pay private respondent
the amount corresponding to the selling price of the
subject merchandise.
Left with no recourse, private respondent filed an action
against petitioner for the collection of P297,487.30
representing the price of the merchandise. After due
hearing, the trial court dismissed the complaint against
petitioner for lack of merit. On appeal, however, the
decision of the trial court was modified, but was in
effect reversed by the Court of Appeals, the dispositive
portion of which reads:
WHEREFORE, the decision appealed
from is MODIFIED in that defendant-
appellant Kue Cuison is hereby ordered
to pay plaintiff-appellant Valiant
Investment Associates the sum of
P297,487.30 with 12% interest from
the filing of the complaint until the
amount is fully paid, plus the sum of
7% of the total amount due as
attorney's fees, and to pay the costs. In
all other respects, the decision appealed
from is affirmed. (Rollo, p. 55)
In this petition, petitioner contends that:
THE HONORABLE COURT ERRED
IN FINDING TIU HUY TIAC AGENT
OF DEFENDANT-APPELLANT
CONTRARY TO THE
UNDISPUTED/ESTABLISHED
FACTS AND CIRCUMSTANCES.
THE HONORABLE COURT ERRED
IN FINDING DEFENDANT-
APPELLANT LIABLE FOR AN
43
OBLIGATION UNDISPUTEDLY respondent's manager, as his (petitioner's) branch manager as
BELONGING TO TIU HUY TIAC. testified to by Bernardino Villanueva. Secondly, Lilian Tan,
who has been doing business with petitioner for quite a
THE HONORABLE COURT ERRED IN REVERSING
while, also testified that she knew Tiu Huy Tiac to be the
THE WELL-FOUNDED DECISION OF THE TRIAL
manager of petitioner's Sto. Cristo, Binondo branch. This
COURT, (Rollo, p, 19)
general perception of Tiu Huy Tiac as the manager of
The issue here is really quite simple — whether or not petitioner's Sto. Cristo store is even made manifest by the fact
Tiu Huy Tiac possessed the required authority from that Tiu Huy Tiac is known in the community to be the
petitioner sufficient to hold the latter liable for the "kinakapatid" (godbrother) of petitioner. In fact, even
disputed transaction. petitioner admitted his close relationship with Tiu Huy Tiac
when he said that they are "like brothers" (Rollo, p. 54).
This petition ought to have been denied outright, forin
There was thus no reason for anybody especially those
the final analysis, it raises a factual issue. It is
transacting business with petitioner to even doubt the
elementary that in petitions for review under Rule 45,
authority of Tiu Huy Tiac as his manager in the Sto. Cristo
this Court only passes upon questions of law. An
Binondo branch.
exception thereto occurs where the findings of fact of the
Court of Appeals are at variance with the trial court, in In a futile attempt to discredit Villanueva, petitioner alleges
which case the Court reviews the evidence in order to that the former's testimony is clearly self-serving inasmuch as
arrive at the correct findings based on the records. Villanueva worked for private respondent as its manager.
As to the merits of the case, it is a well-established rule We disagree, The argument that Villanueva's testimony is
that one who clothes another with apparent authority as self-serving and therefore inadmissible on the lame excuse of
his agent and holds him out to the public as such cannot his employment with private respondent utterly misconstrues
be permitted to deny the authority of such person to act the nature of "'self-serving evidence" and the specific ground
as his agent, to the prejudice of innocent third parties for its exclusion. As pointed out by this Court in Co v. Court
dealing with such person in good faith and in the honest of Appeals et, al., (99 SCRA 321 [1980]):
belief that he is what he appears to be (Macke, et al, v.
Self-serving evidence is evidence made by a
Camps, 7 Phil. 553 (1907]; Philippine National Bank. v
party out of court at one time; it does not
Court of Appeals, 94 SCRA 357 [1979]). From the facts
include a party's testimony as a witness in
and the evidence on record, there is no doubt that this
court. It is excluded on the same ground as
rule obtains. The petition must therefore fail.
any hearsay evidence, that is the lack of
It is evident from the records that by his own acts and opportunity for cross-examination by the
admission, petitioner held out Tiu Huy Tiac to the public adverse party, and on the consideration that
as the manager of his store in Sto. Cristo, Binondo, its admission would open the door to fraud
Manila. More particularly, petitioner explicitly and to fabrication of testimony. On theother
introduced Tiu Huy Tiac to Bernardino Villanueva, hand, a party's testimony in court is sworn
 and affords the other party the
opportunity for cross-examination
(emphasis supplied)
Petitioner cites Villanueva's failure, despite his
commitment to do so on cross-examination, to produce
the very first invoice of the transaction between
petitioner and private respondent as another ground to
discredit Villanueva's testimony. Such failure, proves
that Villanueva was not only bluffing when he
pretended that he can produce the invoice, but that
Villanueva was likewise prevaricating when he insisted
that such prior transactions actually took place.
Petitioner is mistaken. In fact, it was petitioner's counsel
himself who withdrew the reservation to have
Villanueva produce the document in court. As aptly
observed by the Court of Appeals in its decision:
. . . However, during the hearing on
March 3, 1981, Villanueva failed to
present the document adverted to
because defendant-appellant's counsel
withdrew his reservation to have the
former (Villanueva) produce the
document or invoice, thus prompting
plaintiff-appellant to rest its case that
same day (t.s.n., pp. 39-40, Sess. of
March 3, 1981). Now, defendant-
appellant assails the credibility of
Villanueva for having allegedly failed
to produce even one single document to
show that plaintiff-appellant have had
transactions before, when in fact said
failure of Villanueva to produce said
document is a direct off-shoot of the
action of defendant-appellant's counsel
44
who withdrew his reservation for the Huy Tiac but I cannot
production of the document or invoice remember the exact year.
and which led plaintiff-appellant to rest
Q So, Mr. Tiu Huy Tiac
its case that very day. (Rollo, p.52)
took over the management,.
In the same manner, petitioner assails the credibility of
A Not that was because
Lilian Tan by alleging that Tan was part of an intricate
every afternoon, I was
plot to defraud him. However, petitioner failed to
there, sir.
substantiate or prove that the subject transaction was
designed to defraud him. Ironically, it was even the Q But in the morning, who
testimony of petitioner's daughter and assistant manager takes charge?
Imelda Kue Cuison which confirmed the credibility of
A Tiu Huy Tiac takes
Tan as a witness. On the witness stand, Imelda testified
charge of management and
that she knew for a fact that prior to the transaction in
if there (sic) orders for
question, Tan regularly transacted business with her
newsprint or bond papers
father (petitioner herein), thereby corroborating Tan's
they are always referred to
testimony to the same effect. As correctly found by the
the compound in Baesa, sir.
respondent court, there was no logical explanation for
(t.s.n., p. 16, Session of
Tan to impute liability upon petitioner. Rather, the
January 20, 1981, CA
testimony of Imelda Kue Cuison only served to add
decision, Rollo, p. 50,
credence to Tan's testimony as regards the transaction,
emphasis supplied).
the liability for which petitioner wishes to be absolved.
Such admission, spontaneous no doubt, and standing alone, is
But of even greater weight than any of these testimonies,
sufficient to negate all the denials made by petitioner
is petitioner's categorical admission on the witness stand
regarding the capacity of Tiu Huy Tiac to enter into the
that Tiu Huy Tiac was the manager of his store in Sto.
transaction in question. Furthermore, consistent with and as
Cristo, Binondo, to wit:
an obvious indication of the fact that Tiu Huy Tiac was the
Court: manager of the Sto. Cristo branch, three (3) months after Tiu
Huy Tiac left petitioner's employ, petitioner even sent,
xxx xxx xxx
communications to its customers notifying them that Tiu Huy
Q And who was Tiac is no longer connected with petitioner's business. Such
managing the store in undertaking spoke unmistakenly of Tiu Huy Tiac's valuable
Sto. Cristo? position as petitioner's manager than any uttered disclaimer.
More than anything else, this act taken together with the
A At first it was Mr.
declaration of petitioner in open court amount to admissions
Ang, then later Mr. Tiu
under Rule 130 Section 22 of the Rules of Court, to wit :
"The act, declaration or omission of a party as to a
relevant fact may be given in evidence against him." For
well-settled is the rule that "a man's acts, conduct, and
declaration, wherever made, if voluntary, are admissible
against him, for the reason that it is fair to presume that
they correspond with the truth, and it is his fault if they
do not. If a man's extrajudicial admissions are
admissible against him, there seems to be no reason why
his admissions made in open court, under oath, should
not be accepted against him." (U.S. vs. Ching Po, 23
Phil. 578, 583 [1912];).
Moreover, petitioner's unexplained delay in disowning
the transactions entered into by Tiu Huy Tiac despite
several attempts made by respondent to collect the
amount from him, proved all the more that petitioner
was aware of the questioned commission was
tantamount to an admission by silence under Rule 130
Section 23 of the Rules of Court, thus: "Any act or
declaration made in the presence of and within the
observation of a party who does or says nothing when
the act or declaration is such as naturally to call for
action or comment if not true, may be given in evidence
against him."
All of these point to the fact that at the time of the
transaction Tiu Huy Tiac was admittedly the manager of
petitioner's store in Sto. Cristo, Binondo. Consequently,
the transaction in question as well as the concomitant
obligation is valid and binding upon petitioner.
By his representations, petitioner is now estopped from
disclaiming liability for the transaction entered by Tiu
Huy Tiac on his behalf. It matters not whether the
representations are intentional or merely negligent so
long as innocent, third persons relied upon such
representations in good faith and for value As held in
45
the case of Manila Remnant Co. Inc. v. Court of Appeals, rendered conclusive upon the person making it, and cannot be
(191 SCRA 622 [1990]): denied or disproved as against the person relying thereon
(Article 1431, Civil Code of the Philippines). A party cannot
More in point, we find that by the
be allowed to go back on his own acts and representations to
principle of estoppel, Manila Remnant
the prejudice of the other party who, in good faith, relied
is deemed to have allowed its agent to
upon them (Philippine National Bank v. Intermediate
act as though it had plenary powers.
Appellate Court, et al., 189 SCRA 680 [1990]).
Article 1911 of the Civil Code provides:
Taken in this light,. petitioner is liable for the transaction
"Even when the agent
entered into by Tiu Huy Tiac on his behalf. Thus, even when
has exceeded his
the agent has exceeded his authority, the principal is
authority, the principal
solidarily liable with the agent if the former allowed the latter
issolidarily liable with
to fact as though he had full powers (Article 1911 Civil
the agent if the former
Code), as in the case at bar.
allowed the latter to act
as though he had full Finally, although it may appear that Tiu Huy Tiac defrauded
powers." (Emphasis his principal (petitioner) in not turning over the proceeds of
supplied). the transaction to the latter, such fact cannot in any way
relieve nor exonerate petitioner of his liability to private
The above-quoted article is new. It is
respondent. For it is an equitable maxim that as between two
intended to protect the rights of
innocent parties, the one who made it possible for the wrong
innocent persons. In such a situation,
to be done should be the one to bear the resulting loss
both the principal and the agent may be
(Francisco vs. Government Service Insurance System, 7
considered as joint tortfeasors whose
SCRA 577 [1963]).
liability is joint and solidary.
Inasmuch as the fundamental issue of the capacity or
Authority by estoppel has arisen in the
incapacity of the purported agent Tiu Huy Tiac, has already
instant case because by its negligence,
been resolved, the Court deems it unnecessary to resolve the
the principal, Manila Remnant, has
other peripheral issues raised by petitioner.
permitted its agent, A.U. Valencia and
Co., to exercise powers not granted to it. WHEREFORE, the instant petition in hereby DENIED for
That the principal might not have had lack of merit. Costs against petitioner.
actual knowledge of theagent's misdeed
SO ORDERED.
is of no moment.
Tiu Huy Tiac, therefore, by petitioner's own
representations and manifestations, became an agent of
petitioner by estoppel, an admission or representation is