AGENCY - Casis 1

B2013 Digests

Week 6

Topics:
Rights and Obligations of Agent
Obligations
Act within scope of authority
Carry out or not
Act with diligence

Art. 1881. The agent must act within the scope of his authority. He may do such acts as may be
conducive to the accomplishment of the purpose of the agency. (1714a)

Art. 1887. In the execution of the agency, the agent shall act in accordance with the instructions of the
principal.

In default thereof, he shall do all that a good father of a family would do, as required by the nature of
the business. (1719)

Art. 1899. If a duly authorized agent acts in accordance with the orders of the principal, the latter
cannot set up the ignorance of the agent as to circumstances whereof he himself was, or ought to
have been, aware. (n)

Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within the
scope of the agent's authority, if such act 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 the agent. (n)

Art. 1901. A third person cannot set up the fact that the agent has exceeded his powers, if the principal
has ratified, or has signified his willingness to ratify the agent's acts. (n)

Art. 1902. A third person with whom the agent wishes to contract on behalf of the principal may
require the presentation of the power of attorney, or the instructions as regards the agency.
Private or secret orders and instructions of the principal do not prejudice third persons who have
relied upon the power of attorney or instructions shown them. (n)

Board of Liquidators vs. Heirs of M. Kalaw, et al. (Aboy)

The Board of Liquidators, representing The Government of the Philippines, plaintiff and appellant vs. Heirs of
Maximo M. Kalaw, Juan Bocar, Estate of the Deceseased Casimiro Garcia, and Leonor Moll, defendants and
appellees.
Date: 14 August 1967
Ponente: Sanchez, J.

Facts:
National Coconut Corporation (NACOCO) General Manager and Board Chairman Maximo Kalaw, without
prior board approval, executed nine (9) contracts for the delivery of copra. However, NACOCO was not
able to fully cover the copra orders due to four typhoons which visited the country.
Kalaw submitted said contracts to the board for approval, which the latter approved, even when it came
clear that said contracts would be unprofitable.
The buyers threatened to file damage suits against NACOCO. All settlements made reached
Php.1,343,274,52.
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One buyer, Louis Dreyfus & Co. (Overseas) Ltd., indeed sued NACOCO for the undelivered copra but the
suit culminated in an extrajudicial settlement where the corporation paid Louis Dreyfus 70% (more than
Php550,000.00) of the total claims.
Herein petitioner Board of Liquidators (substituted NACOCO which already had undergone liquidation)
now points that the compromise was unreasonable because in a similar case, Dreyfus agreed to
compromise for non-delivery of copra (against one Santiago Syjuco) in a Php300,000.00 claim for only
Php5,000.00. In the same proportion, the compromise with NACOCO should only have been settled for
only Php10,000.00, if at all.
Petitioner now seeks to recover the total settlements made from Kalaw and other members of the board
of directors on the ground of negligence under Old CC Art.1902 (NCC Art.2176) with bad faith and/or
breach of trust for approving the contracts.
(Kalaw died but since action for damages survives even after death, action as against heirs may lie.)
TC: dismissed complaint.
Petitioner: Kalaw, et al. must be held liable for damages for executing the contracts involved without prior
approval of the Board of directors.

Issue: WON Kalaw may be held liable for the contracts he executed without prior approval of the Board of
Directors of NACOCO?

Held: No. Judgment affirmed.

Ratio:
Nature of a general managers position in the corporate structure: a corporate officer intrusted with the
general management and control of its business, has implied authority to make any contract or do any
other act which is necessary or appropriate to the conduct of the ordinary business of the corporation. 1
[H]e may, without any special authority from the Board of Directors, perform all acts of an ordinary
nature, which by usage or necessity are incident to his office, and may bind the corporation by contracts
in matters arising in the usual course of business.2
The nature of copra trading involves the sale for future delivery (forward sales), where speculation is
inherent. And in this score, NACOCO had been conservative as compared to other big copra exporters. The
goods must be sold quickly or else they will lose weight and their value will decrease. Thus, copra
contracts had to be executed on short notice and consequently the calling of a formal meeting of the
Board is of much difficulty.
Years before the questioned contracts above, Kalaw signed some 60 contracts involving different parties
which brought NACOCO huge profits, for which he was given a special bonus. In these agreements, Kalaw
likewise did not obtain prior authority from the Board. The members of the Board knew all along these
contracts but said nothing about those. These all indicate that the NACOCO board addressed the
difficulties natural of forward sales by leaving the adoption of means to end to the sound discretion of its
General Manager Kalaw.
The practice in the corporation wherein no prior authority from the board was secured by the general
manager in entering into agreements can be traced back to at least an instance prior to Kalaws
assumption in office- in a contract for the lease of a space in Soriano Building. Also, the Board of Directors
voted to approve sales of copra and lease contracts, all without its prior consent/authority, during
Kalaws leadership prior and even after the nine contracts involved in this case.
The Board also ratified certain brokerage commissions executed by Kalaw (without prior authorization as
well) as these exceeded the rates earlier approved by the Board.
Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of
general practice, custom, and policy, the general manager may bind the company without formal
authorization of the board of directors.3

1
From Fn.21 of the case: 2 Fletcher Cyclopedia Corporations, p. 607. See: Uy Chuck vs. Kong Li Po, 46 Phil. 608, 614.
2
From Fn.22 of the case: Sparks vs. Despatch Transfer Co., 15 S.W. 417, 419; Pacific Concrete Products Corporation vs.
Dimmick, 289, P. 2d 501, 504; Massachusetts Bonding & Ins. Co. vs. Transamerica Freight Lines, 281 N.W. 584, 588-
589; Sealy Oil Mill & MfgCo. vs. Bishop Mfg. Co., 235 S.W. 850, 852.
3
Fn. 26. Harris vs. H. C. Talton Wholesale Grocery Co., 123 So. 480, 482.
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[E]xistence of such authority is established by proof of the course of business, the usages and practices
of the company and by the knowledge which the board of directors has, or must be presumed to have, of
acts and doings of its subordinates in and about the affairs of the corporation. 4
[A]uthority to act for and bind a corporation may be presumed from acts of recognition in other
instances where the power was in fact exercised.5
[I]n the usual course of business of a corporation, an officer has been allowed in his official capacity to
manage its affairs, his authority to represent the corporation may be implied from the manner in which
lie has been permitted by the directors to manage its business. 6
In this case, it has been established that the practice of the corporation was to allow its general manager
to negotiate and execute contracts as regards copra trading without prior board approval. The Board itself
set aside the requirement in the corporations by-laws of prior approval on all corporate contracts. Thus,
by said Boards acts and through acquiescence it laid aside the prior approval required by the corporate
by-laws. Thus, the contracts entered into by Kalaw were valid corporate acts.
Ratification of the questioned contracts in this case will be a mere formality. Any ratification or adoption
is equivalent to a prior authority. Ratification by a corporation of an unauthorized contract by its officers
relates back to the time the contract was ratified and is equivalent to original authority.
Ratification cleanses the contract from all its defects from the moment it was constituted. 7The
corporate confirmation in this case purged the Kalaw contracts of whatever vice or defect they may have.

Toyota Shaw Inc v. SOSA (Welga)

Ponente: DAVIDE, JR.

FACTS:
Sosa wanted to purchase a Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding a
dealer with an available unit for sale. But upon contacting Toyota Shaw, Inc., he was told that there was an
available unit.
14 June 1989: Sosa and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig where they
met Popong Bernardo, a sales representative of Toyota.
Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his
family, and abalikbayan guest would use it on 18 June 1989 to go to Marinduque, his home province,
where he would celebrate his birthday on the 19th of June. He added that if he does not arrive in his
hometown with the new car, he would become a "laughing stock." Bernardo assured Sosa that a unit
would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed the "Agreements
Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." 8 It was also agreed upon by the parties that
the balance of the purchase price would be paid by credit financing through B.A. Finance, and for this
Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the
application for financing.
15 June 1989: Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They met
Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No. 928, on which Gilbert signed
under the subheading CONFORME.

4
Fn. 27. Van Denburgh vs. Tungsten Reef Mines Co., 67 P. (2d) 360, 361, citing First National Fin, Corp. vs. Five-O
Drilling Co. 289,P844, 845.
5
Fn. 28. McIntosh vs. Dakota Trust Co., 204 N.W. 318, 824.
6
Fn. 29.
7
Fn. 32. Article 1313, old Civil Code; now Article 1396, new Civil Code.
8
AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC.
1. all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG BERNARDO) a week after, upon arrival
of Mr. Sosa from the Province (Marinduque) where the unit will be used on the 19th of June.
2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989.
3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA SHAW, INC. on the 17th of
June at 10 a.m.
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B2013 Digests

17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not be
ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m.,
Sosa and Gilbert met Bernardo at the latter's office. According to Sosa, Bernardo informed them that the
Lite Ace was being readied for delivery. After waiting for about an hour, Bernardo told them that the car
could not be delivered because "nasulot ang unit ng ibang malakas."
Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by B.A.
Finance of the credit financing application of Sosa. Toyota then gave Sosa the option to purchase the unit
by paying the full purchase price in cash but Sosa refused.
After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment
be refunded. Toyota did so on the very same day by issuing a Far East Bank check for the full amount of
P100,000.00.
Sosa filed a complaint against Toyota for damages under Articles 19 and 21 of the Civil Code in the total
amount of P1,230,000.00
Toyotas defense: no sale was entered into between it and Sosa, Bernardo had no authority to sign
agreement for and in its behalf, and that Bernardo signed it in his personal capacity
TC: court rendered a decision in favor of Sosa; valid perfected contract of sale As to Toyota's contention
that Bernardo had no authority to bind it, the trial court held that the extent of Bernardo's authority "was
not made known to plaintiff," for as testified to by Quirante, "they do not volunteer any information as to
the company's sales policy and guidelines because they are internal matters." Moreover, from the
beginning of the transaction up to its consummation when the downpayment was made by the plaintiff,
the defendants had made known to the plaintiff the impression that Popong Bernardo is an authorized
sales executive as it permitted the latter to do acts within the scope of an apparent authority holding him
out to the public as possessing power to do these acts." Bernardo then "was an agent of the defendant
Toyota Shaw, Inc. and hence bound the defendants."
Court of Appeals: affirmed

ISSUE: WON Bernardo was an agent of Toyota with authority to sell the vehicle
HELD: No.
RATIO:

It was not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing
to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears
therein.
Moreover, the agreement shows the absence of a meeting of minds between Toyota and Sosa. For one thing,
Sosa did not even sign it. For another, Sosa was well aware from its title, written in bold letters, viz.,
AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW,
INC.
that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that
he had the authority to sell any Toyota vehicle. He knew that Bernardo was only a sales representative of
Toyota and hence a mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence
and reasonable diligence to know the extent of Bernardo's authority as an
agent in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon inquiry
and must discover upon his peril the authority of the agent.
At the most, the agreement may be considered as part of the initial phase of the generation or negotiation
stage of a contract of sale.

RE DAMAGES:
He should not have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the
full purchase price. It was he who brought embarrassment upon himself by bragging about a thing which
he did not own yet.
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BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners, vs. HON. COURT OF APPEALS
and SAN MIGUEL CORPORATION, respondents (Mickey)

Date: June 29, 1995

Ponente: Davide, Jr., J.
Doctrine: Since the agency was based upon a written authorization, the extent and scope of the agents
powers must be based thereon. If the act in question is not explicitly or necessarily covered within the
authority itself, the agent is not authorized to engage in such act.

Facts:
By virtue of a March 1, 1988 Authorization 9 executed between Bacaltos Coal Mines and Savellon, whereby
German Bacaltos authorized Savellon o use the coal operating contract of Bacaltos Coal Mines, Savellon
entered into a Trip Charter Party with San Miguel Corporation.
According to the Trip Charter Party, Savellon, allegedly as Bacaltos Chief Operating Officer, claimed that
Bacaltos Coal Mines was the owner of the vessel M/V Premship II which it would charter to SMC for 3
round trips to Davao, and for a consideration of P650,000. Since the vessel was only able to make one trip,
SMC filed a complaint for specific performance against Bacaltos Mines and Savellon.
Bacaltos Coal Mines denied that Savellon was its COO, and took the position that Savellons only authority
was explicitly stated in the Authorization. He was not authorized to enter into any contract with SMC, or
any contract for charter. Bacaltos mines even said that ships were not necessary for the coal operating
contract. It also said that payment of the consideration should have been made to it and not to Savellon in
trust for Bacaltos.
TC ruled in favor of SMC, stating that the Authorization given by German Bacaltos to Savellon necessarily
included the power to enter into the Trip Charter Party. It reasoned that "the business of coal mining may
also involve the shipping of products" and "a company such as a coal mining company is not prohibited to
engage in entering into a Trip Charter Party contract." Also, Bacaltos would still be liable even if there was
indeed no requisite intent in the Authorization since: 1. SMC was an innocent party which had no
knowledge of the intent of the parties of the Authorization, and had reason to rely on the Authorization as
per Arts 1900-1902, 2. Saavellon issued an official receipt of Bacaltos for the consideration, 3. the "Notice
of Readiness" is written on a paper with the letterhead "Bacaltos Coal Mines", with its logo, 4. Bacaltos
was benefitted by the payment of the consideration as it was the real payee, and payment to Savellon was
proper since it was authorized to collect receivables.
The CA affirmed the TC in toto, since the Authorization includes the power to enter into the Trip Charter
Party because the "five prerogatives" enumerated in the former is prefaced by the phrase "but not by way
of limitation";

Issue: W/N Savellon was authorized to enter into the Trip Charter Party under the Authorization.

9
I. GERMAN A. BACALTOS, of legal age, Filipino, widower, and residing at second street, Espina Village, Cebu City,
province of Cebu, Philippines, do hereby authorize RENE R. SAVELLON, of legal age, Filipino and residing at 376-R
Osmen a Blvd., Cebu City, Province of Cebu, Philippines, to use the coal operating contract of BACALTOS COAL
MINES of which I am the proprietor, for any legitimate purpose that it may serve. Namely, but not by way of
limitation, as follows:
(1) To acquire purchase orders for and in behalf of BACALTOS COAL MINES;
(2) To engage in trading under the style of BACALTOS COAL MINES/RENE SAVELLON;
(3) To collect all receivables due or in arrears from people or companies having dealings under BACALTOS
COAL MINES/RENE SAVELLON;
(4) To extend to any person or company by substitution the same extent of authority that is granted to Rene
Savellon;
(5) In connection with the preceeding paragraphs to execute and sign documents, contracts, and other
pertinent papers.
Further, I hereby give and grant to RENE SAVELLON full authority to do and perform all and every lawful act requisite
or necessary to carry into effect the foregoing stipulations as fully to all intents and purposes as I might or would
lawfully do if personally present, with full power of substitution and revocation.
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Held: No, he was not authorized.

American jurisprudence: A third person dealing with a known agent may not act negligently with regard
to the extent of the agent's authority or blindly trust the agent's statements in such respect The mere
opinion of an agent as to the extent of his powers, or his mere assumption of authority without
foundation, will not bind the principal; and a third person dealing with a known agent must bear the
burden of determining for himself, by the exercise of reasonable diligence and prudence, the existence or
nonexistence of the agent's authority to act The third person is bound to ascertain not only the fact of
agency, but the nature and extent of the authority.
Since the agency of Savellon is based on a written document, the Authorization, the extent and scope of
his powers must be determined on the basis thereof.
There is only one express power granted to Savellon, viz., to use the coal operating contract for
anylegitimate purpose it may serve. The enumerated "five prerogatives" are nothing but the specific
prerogatives subsumed under or classified as part of or as examples of the power to use the coal
operating contract.
The clause "but not by way of limitation" must exclusively pertain or relate or be germane to the power
to use the coal operating contract.
The CA failed to realize that the broadest scope of Savellon's authority is limited to the use of the coal
operating contract and the clause cannot contemplate any other power not included in the enumeration
or which are unrelated either to the power to use the coal operating contract or to those already
enumerated. In short, while the clause allows some room for flexibility, it can comprehend only additional
prerogatives falling within the primary power and within the same class as those enumerated.
There is no evidence that Bacaltos owned or operated vessels, or even if they did, was allowed to charter
them. The Authorization is not a general power of attorney. It is a special power of attorney.
Had SMC exercised due diligence and prudence, it should have known in no time that there is absolutely
nothing on the face of the Authorization that confers upon Savellon the authority to enter into any Trip
Charter Party. SMC was negligent in this regard. SMC should have required the presentation of pertinent
documentary proof of ownership of the vessel to be chartered.
There is likewise no proof that the petitioners received the consideration of the Trip Charter Party. The
petitioners denied having received it.
Another act of negligence: The evidence for SMC established beyond doubt that it was Savellon who
requested in writing on 19 October 1988 that the check in payment therefor be drawn in favor of
BACALTOS COAL MINES/RENE SAVELLON. But SMC drew the check in favor of RENE SAVELLON IN
TRUST FOR BACALTOS COALMINES and delivered it to Savellon. The check should still have been drawn
in favor of the principal. SMC then made possible the wrong done. There is an equitable maxim that
between two innocent parties, the one who made it possible for the wrong to be done should be the one
to bear the resulting loss.

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

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

Art. 1929. The agent, even if he should withdraw from the agency for a valid reason, must continue to
act until the principal has had reasonable opportunity to take the necessary steps to meet the
situation. (1737a)

Art. 1888. An agent shall not carry out an agency if its execution would manifestly result in loss or
damage to the principal. (n)
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Art. 1885. In case a person declines an agency, he is bound to observe the diligence of a good father of
a family in the custody and preservation of the goods forwarded to him by the owner until the
latter should appoint an agent or take charge of the goods. (n)

Art. 1887. In the execution of the agency, the agent shall act in accordance with the instructions of the
principal.

In default thereof, he shall do all that a good father of a family would do, as required by the nature of
the business. (1719)

Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged
with more or less rigor by the courts, according to whether the agency was or was not for a
compensation. (1726)

PNB vs. Manila Surety & Fidelity Co., Inc., et al. (Aboy)

Philippine National Bank, petitioner, vs. Manila Surety & Fidelity Co., Inc., and The Court of Appeals (Second
Division), respondents.

Date: 30 July 1965

Ponente: Reyes, J.B.L., J.

Facts:
PNB opened a letter of credit for the purchase of 8,000 tons of hot asphalt. 2,000 tons of it,worth
Php279,000.00 were released and delivered to Adams & Taguba Corporation (ATACO) under a trust
receipt guaranteed by Manila Surety up to Php75,000.00.
ATACO constituted PNB as assignee and attorney-in-fact to receive and collect payment from the Bureau
of Public Works (Bureau) for the amount abovementioned, in order to pay for the asphalt it received. The
power of attorney was to be irrevocable until ATACOs indebtedness to PNB as fully liquidated.
ATACO actually delivered to the Bureau more than Php430,000.00 worth of asphalt, out of which PNB
collected only up to Php106,382.01. It later stopped collecting from the Bureau for unexplained reasons.
PNB then found that more money than is payable to it was payable to ATACO from the Bureau because the
latter allowed another creditor (of ATACO) to collect funds for more than Php300,000.00 (more than the
amount ATACO owes to PNB).
PNB demanded the payment of the balance amounting to Php158.563.18 on ATACO and Manila Surety but
both refused, hence it sued them before the CFI of Manila. The said court decided in favor of PNB.
Only Manila Surety perfected its appeal with the CA which rendered a decision adverse to PNB. Hence,
this petition.
PNB: Power of attorney obtained from ATACO is a mere additional security in PNBs favor. It was the
suretys duty to see that ATACO fulfilled its obligation and PNB as creditor owed the surety no duty of
active diligence to collect any sum from the principal debtor ATACO.

Issue: WON PNB was to be answerable for negligence in failing to collect from the Bureau of Public works,
and consequently Manila Surety was to be exonerated from liability as ATACOs guarantor.

Held: Yes. Appealed decision affirmed.

Ratio:
Contrary to PNBs view, the CA did not hold petitioner bank liable for negligence in failing to collect from
the principal debtor ATACO but for its neglect in collecting the sums due to the latter from the Bureau of
Public Works, contrary to its duty as holder of an exclusive and irrevocable power of attorney to collect
said sums. Because of PNBs inactivity, the other creditors were able to collect more than Php170,000.00
when the balance due to it was only Php158,563.18.
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This neglect was contrary to PNBs duty under the power of attorney because an agent is required to act
with the care of a good father of a family (CC Art.1887) and becomes liable for the damages which the
principal may suffer through the agents non-performance (CC Art.1884).
The Manila Surety and ATACO do not only have the right to expect PNB to diligently perform its duty
under the power of attorney but also they could not collect from the Bureau because PNBs power to
collect was expressly made irrevocable. Thus, the Bureau could rightly refuse any collection on the part of
Manila Surety or ATACO as such right was exclusively and irrevocably assigned to PNB as attorney-in-fact.
Even if the assignment made by ATACO was to be held as mere additional security, PNB deprived the
surety of any possibility of recoursing against said security by having the capacity to exhaust the funds
(due from the Bureau) without notifying said surety. PNB thus exonerated the surety pursuant to CC
Art.2080: The guarantors, even though they be solidary, are released from their obligation whenever by
some act of the creditor they can not be subrogated to the rights, mortgages and preferences of the latter.

Metropolitan Bank v. CA (Welga)

Date. February 18, 1991

Ponente: CRUZ, J.

FACTS:
The Metropolitan Bank and Trust Co. is a commercial bank while Golden Savings and Loan Association
was, operating in Calapan, Mindoro, with the other private respondents as its principal officers.
A certain Eduardo Gomez opened an account with Golden Savings and deposited over a period of two
months 38 treasury warrants with a total value of P1,755,228.37. Six of these were directly payable to
Gomez while the others appeared to have been indorsed by their respective payees, followed by Gomez as
second indorser.
On various dates all these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden
Savings and deposited to its Savings Account No. 2498 in the Metrobank branch in Calapan, Mindoro.
They were then sent for clearing by the branch office to the principal office of Metrobank, which
forwarded them to the Bureau of Treasury for special clearing.
More than two weeks after the deposits, Gloria Castillo went to the Calapan branch several times to ask
whether the warrants had been cleared. She was told to wait. Accordingly, Gomez was meanwhile not
allowed to withdraw from his account. Later, however, "exasperated" over Gloria's repeated inquiries and
also as an accommodation for a "valued client," the petitioner says it finally decided to allow Golden
Savings to withdraw from the proceeds of the warrants. Three withdrawals were made for a total of
P968.000.00.
Golden Savings subsequently allowed Gomez to make withdrawals from his own account, eventually
collecting the total amount of P1,167,500.00 from the proceeds of the apparently cleared warrants.
Subsequently, Metrobank informed Golden Savings that 32 of the warrants had been dishonored by the
Bureau of Treasury, and demanded the refund by Golden Savings of the amount it had previously
withdrawn, to make up the deficit in its account. The demand was rejected.
TC: rendered in favor of Golden Savings, but upon motion for reconsideration dismissed the complaint
with costs against the plaintiff
CA: affirmed

ISSUES:
1. WON Metrobank was negligent.
2. WON Metrobank was acting merely as collecting agent of Golden Savings

HELD:
1.
Metrobank was indeed negligent in giving Golden Savings the impression that the treasury warrants had been
cleared and that, consequently, it was safe to allow Gomez to withdraw the proceeds thereof from his account
with it. Without such assurance, Golden Savings would not have allowed the withdrawals; with such
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assurance, there was no reason not to allow the withdrawal. Indeed, Golden Savings might even have incurred
liability for its refusal to return the money that to all appearances belonged to the depositor, who could
therefore withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings deposited them to its
account with Metrobank. Golden Savings had no clearing facilities of its own. It relied on Metrobank to
determine the validity of the warrants through its own services. The proceeds of the warrants were withheld
from Gomez until Metrobank allowed Golden Savings itself to withdraw them from its own deposit. 7 It was
only when Metrobank gave the go-signal that Gomez was finally allowed by Golden Savings to withdraw them
from his own account.
Metrobank exhibited extraordinary carelessness. The amount involved was not trifling more than one and
a half million pesos (and this was 1979). There was no reason why it should not have waited until the treasury
warrants had been cleared; it would not have lost a single centavo by waiting. Yet, despite the lack of such
clearance and notwithstanding that it had not received a single centavo from the proceeds of the treasury
warrants, as it now repeatedly stresses it allowed Golden Savings to withdraw not once, not twice,
but thrice from the uncleared treasury warrants in the total amount of P968,000.00

2.
Metrobank invoked the conditions printed on the dorsal side of the deposit slips through which the treasury
warrants were deposited by Golden Savings with its Calapan branch. The conditions read as follows:
Kindly note that in receiving items on deposit, the bank obligates itself only as the depositor's
collecting agent, assuming no responsibility beyond care in selecting correspondents, and until
such time as actual payment shall have come into possession of this bank, the right is
reserved to charge back to the depositor's account any amount previously credited, whether or
not such item is returned. This also applies to checks drawn on local banks and bankers and
their branches as well as on this bank, which are unpaid due to insufficiency of funds, forgery,
unauthorized overdraft or any other reason.
According to Metrobank, the said conditions clearly show that it was acting only as a collecting agent for
Golden Savings and give it the right to "charge back to the depositor's account any amount previously
credited, whether or not such item is returned. This also applies to checks ". . . which are unpaid due to
insufficiency of funds, forgery, unauthorized overdraft of any other reason." It is claimed that the said
conditions are in the nature of contractual stipulations and became binding on Golden Savings when Gloria
Castillo, as its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions, considering that they have apparently been
imposed by the bank unilaterally, without the consent of the depositor. Even if the deposit slip were
considered a contract, the petitioner could still not validly disclaim responsibility thereunder in the light of
the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings, Metrobank seems to be suggesting
that as a mere agent it cannot be liable to the principal. This is not exactly true. On the contrary, Article 1909
of the Civil Code clearly provides that
Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall
be judged 'with more or less rigor by the courts, according to whether the agency was or was
not for a compensation.
The negligence of Metrobank has been sufficiently established. It was the clearance given by it that assured
Golden Savings it was already safe to allow Gomez to withdraw the proceeds of the treasury warrants he had
deposited Metrobank misled Golden Savings. There may have been no express clearance, as Metrobank insists
(although this is refuted by Golden Savings) but in any case that clearance could be implied from its allowing
Golden Savings to withdraw from its account not only once or even twice but three times. The total withdrawal
was in excess of its original balance before the treasury warrants were deposited, which only added to its
belief that the treasury warrants had indeed been cleared.
The belated notification aggravated the petitioner's earlier negligence in giving express or at least implied
clearance to the treasury warrants and allowing payments therefrom to Golden Savings. But that is not all. On
top of this, the supposed reason for the dishonor, to wit, the forgery of the signatures of the general manager
and the auditor of the drawer corporation, has not been established. A no less important consideration is the
circumstance that the treasury warrants in question are not negotiable instruments. Moreover, and this is of
equal significance, it is indicated that they are payable from a particular fund.
 AGENCY - Casis 10
B2013 Digests

BRITISH AIRWAYS, petitioner, vs. COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE
AIRLINES, respondents (Mickey)

Date: January 29, 1998

Ponente:Romero, J.
Doctrine: An agent is also responsible for any negligence in the performance of its function, and is liable for
damages which the principal may suffer by reason of its negligent act. The contractual relationship
between BA and PAL is one of agency, the former being the principal, since it was the one which issued
the confirmed ticket, and the latter the agent.

Facts:
Gop Mahtani decided to visit his relatives in Bombay, India, and so he arranged for Mr. Gumar to prepare
his travel plans, who in turn purchased a ticket from British Airways. The ticket indicated that Mahtani
would take a PAL flight from Manila to Hong Kong, and then a connecting flight from Hong Kong to
Bombay, since there were no direct flights from Manila to Bombay.
Prior to his departure from Manila, checked in two pieces of luggage allegedly containing P10,000 worth
of personal effects and $5000 worth of gifts to his parents and relatives. However, when he arrived in
Bombay he discovered that his luggage was missing. The BA representatives told him that they might
have been diverted to London.After waiting for one week, BA told him to file a claim by accomplishing the
Property Irregularity Report. Mahtani filed a complaint for damages in the Philippines.
BA maintained that Mahtani did not have a cause of action against it, and then instituted a 3 rd party
complaint against PAL, alleging that the non-transfer of the luggage was due to PAL's late arrival in
Hongkong.PAL, on the other hand, alleges there was adequate time to transfer the luggage to BA facilities
in Hongkong.
TC: BA to pay Mahtani P7000 for the value of the 2 suitcases, $400 as value of content of suitcases plus
other damages. It asserted that this was the maximum Mahtani could get, since he failed to substantiate
the value of his gifts to his relatives, and neither did he declare the value of the contents of his luggage, as
required in the ticket.
CA: affirmed the decision in toto. Like the TC, it dismissed the 3 rd party complaint against PAL, reasoning
that the contract of air transportation was exclusively between Mahtani and BA, and that PAL was merely
acting as a subcontractor or agent of BA. This is in line with par. 4 of the Conditions of Contract in the
ticket which stated that carriage to be performed by several successive carriers is regarded as a single
operation. By such operation, the carrier issuing the passenger's ticket is considered the principal party
and the other carrier merely subcontractors or agent.

Issue: W/N a Principal can file a third party complaint (ie, has a cause of action) against its agent, even
though it is liable a third person. (I did not include the question on evidence ~M.)

Held: Yes it may. The CA was in error in dismissing the third party complaint.
The contract of air transportation was exclusively between Mahtani and BA, the latter merely endorsing
the Manila to Hongkong leg of the former's journey to PAL, as its subcontractor or agent. it is undisputed
that PAL, in transporting Mahtani from Manila to Hongkong acted as the agent of BA.
Also, both BA and PAL are members of the International Air Transport Association (IATA), wherein
member airlines are regarded as agents of each other in the issuance of the tickets and other matters
The Court of Appeals should have been cognizant of the well-settled rule that an agent is also
responsible for any negligence in the performance of its function, and is liable for damages which
the principal may suffer by reason of its negligent act. Hence, the Court of Appeals erred when it
opined that BA, being the principal, had no cause of action against PAL, its agent or sub-contractor.
Since the instant petition was based on breach of contract of carriage, Mahtani can only sue BA alone, and
not PAL, since the latter was not a party to the contract. However, this is not to say that PAL is relieved
from any liability due to any of its negligent acts
 AGENCY - Casis 11
B2013 Digests

China Air Lines, Ltd. v. Court of Appeals: a carrier (PAL), acting as an agent of another carrier, is also
liable for its own negligent acts or omission in the performance of its duties.
It is but logical, fair and equitable to allow BA to sue PAL for indemnification, if it is proven that the
latter's negligence was the proximate cause of Mahtani's unfortunate experience, instead of totally
absolving PAL from any liability.