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Norman Kelly Herrera Business Organization 1 On November 3, 1990, RSB entered into a compromise with the PCGG and

surrendered 51% of his equity in ETPI. On April 17, 1998, the heirs of FM filed an action to recover the shares, alleging that their predecessor-ininterest, FM, was the real owner of the shares which RSB disposed as his own . The Solicitor General seeks your opinion on the legal options of the Philippine Government. (Herrera, Norman)

The problem does not specify whether or not RSB is the agent of FM. However, let us just assume that FM entered into a contract of agency with a special power of attorney with RSB. Under Article 18781 of the NCC the agent may enter into a compromise agreement with a third person. In the case at bar, RSB entered into a compromise agreement with PCGG surrendering 51% shares of equity in ETPI. The issue to be determined is whether or not he owned the shares, which purports to be his own, he surrendered to PCGG. The Heirs of FM are claiming that their predecessor is the rightful owner of such shares. Assuming that RSB did not in fact own the shares, he would be liable to his principal for exceeding the scope of his authority when he surrendered such shares to PCGG. Art 18882 provides that an agent shall not carry out an agency if its execution would manifestly result in loss or damage to the principal. Obviously, the situation would be prejudicial to the interest of FM since surrendering a substantial amount of shares to a third person would need the authority of the principal and there is no ratification by FM that can be gleaned in the problem. Also Article 1883 provides that if an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal. In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal. The FM is also bound by what the agent contracted, by reason of the compromise agreement, therefore, he can recover directly from PCGG whom his agent contracted with. Clearly, the hiers of FM has an action against RSB for conveying personal property of the former which the latter claimed to be his own. The heirs can go after PCGG since they have inherited the same through succession. Nevertheless, ownership over the shares has to be determined in a proper court proceeding3.

Art. 1878. Special powers of attorney are necessary in the following cases: (3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the venue of an action or to abandon a prescription already acquired; 2 Art. 1888. An agent shall not carry out an agency if its execution would manifestly result in loss or damage to the principal. 3 PCGG vs Sandiganbayan G.R. Nos. 107789 & 147214 April 30, 2003. The PCGG found the stock certificates endorsed in blank does not necessarily make it the owner of the shares represented therein. Their true ownership has to be ascertained in a proper proceeding. Similarly, the ownership of the Nieto shares has yet to be adjudicated. That they allegedly belong to former President Marcos does not make the PCGG, its owner. The PCGG must, in an appropriate proceeding, first establish that they truly belong to the former President and that they were ill-gotten. Pending final judgment over the ownership of these shares, the PCGG may not register and vote the Nieto and the Malacaang shares in its name. If the Sandiganbayan finds, however, that there is evidence of dissipation of these shares, the PCGG may vote the same as conservator thereof.

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