Bus Org Cases 3rd Exam

8/13/2019 Bus Org Cases 3rd Exam

1/60

AMDG

G.R. No. 95641 September 22, 1994 SANTOS B. AREOLA andLYD A D. AREOLA,petitioners-appellants, vs.!O"RT O#A$$EALS and $R"DENT AL G"ARANTEE AND ASS"RAN!E,

N!.,respondents-appellees.

On June 29, 1985, seven months after the issuance of petitionerSantos Areola's ersonal Accident !nsurance olic" #o. A-2$$15,respondent insurance compan" unilaterall" cancelled the same sincecompan" records revealed that petitioner-insured failed to pa" his

premiums.

On Au%ust &, 1985, respondent insurance compan" offered toreinstate same polic" it had previousl" cancelled and even proposedto e tend its lifetime to (ecem)er 1*, 1985, upon a findin% that thecancellation +as erroneous and that the premiums +ere paid in full)" petitioner-insured )ut +ere not remitted )" eofilo . alapit,respondent insurance compan"'s )ranch mana%er.

hese, in )rief, are the material facts that %ave rise to the action fordama%es due to )reach of contract instituted )" petitioner-insured)efore

ranch /$ 0 , (a%upan it" a%ainst respondent insurance

compan".

here are t+o issues for resolution in this case

314 (id the erroneous act of cancellin% su) ect insurance polic" entitlepetitioner-insured to pa"ment of dama%es6

324 (id the su)se7uent act of reinstatin% the +ron%full" cancelledinsurance polic" )" respondent insurance compan", in an effort torectif" such error, o)literate +hatever lia)ilit" for dama%es it ma"have to )ear, thus a)solvin% it therefrom6

rom the factual findin%s of the trial court, it appears that petitioner-insured, Santos Areola, a la+"er from (a%upan it", )ou%ht, throu%hthe a%uio it" )ranch of rudential uarantee and Assurance, !nc.3hereinafter referred to as rudential4, a personal accident insurancepolic" coverin% the one-"ear period )et+een noon of #ovem)er 28,198/ and noon of #ovem)er 28, 1985. 1 :nder the terms of thestatement of account issued )" respondent insurance compan",petitioner-insured +as supposed to pa" the total amount of

1,;$9.;5 +hich included the premium of 1,/*$.$$, documentar"stamp of 11$.25 and 2< premium ta of 29./$.2 At the lo+er left-hand corner of the statement of account, the follo+in% is le%i)l"printed

his Statement of Account must not )e considered a receipt.Official 0eceipt +ill )e issued to "ou upon pa"ment of this account.

!f pa"ment is made to our representative, demand for a rovisional0eceipt and if our Official 0eceipts is 3sic4 not received )" "ou +ithin * da"s please notif" us.

!f pa"ment is made to our office, demand for an O ! !A=0> >! .

On (ecem)er 1*, 198/, respondent insurance compan" issuedcollector's provisional receipt #o. 9&$$ to petitioner-insured for theamount of 1,;$9.;5 % On the lo+er portion of the receipt the

follo+in% is +ritten in capital letters

#ote his collector's provisional receipt +ill )e confirmed )" official receipt. !f our official receipt is not received )" "ou +i* da"s, please notif" us. 4

On June 29, 1985, respondent insurance compan", throu%h itsa%uio it" mana%er, eofilo . alapit, sent petitioner-insured

>ndorsement

#o. -$$2?85 +hich @cancelled flat@ olic" #o. A -2$$15 non-pa"ment of premium effective as of inception dated.@5 he sameendorsement also credited @a return premium of 1,;$9.;5 plusdocumentar" stamps and premium ta @ to the account of the insu

Shoc ed )" the cancellation of the polic", petitioner-insuredconfronted arlito An%, a%ent of respondent insurance compan",demanded the issuance of an official receipt. An% told petitioner-insured that the cancellation of the polic" +as a mista e )ut he +oupersonall" see to its rectification. Bo+ever, petitioner-insured failereceive an" official receipt from rudential.

Bence, on Jul" 15, 1985, petitioner-insured sent respondent

insurance compan" a letter demandin% that he )e insured under thsame terms and conditions as those contained in olic" #o. A-2$$15 commencin% upon its receipt of his letter, or that the currencommercial rate of increase on the pa"ment he had made underprovisional receipt #o. 9&$$ )e returned +ithin five da"s.6 Areolaalso +arned that should his demands )e unsatisfied, he +ould suefor dama%es.

On Jul" 1*, 1985, he received a letter from production mana%eralapit informin% him that the @partial pa"ment@ of 1,$$$.$$ h

made on the polic" had )een @e hausted pursuant to the provisionof the Short eriod 0ate Scale@ printed at the )ac of the polic".

alapit +arned Areola that should )e fail to pa" the )alance, the

compan"'s lia)ilit" +ould cease to operate.&

!n repl" to the petitioner-insured's letter of Jul" 15, 1985, respondeinsurance compan", throu%h its Assistant Cice- resident ariano Ampil !!!, +rote Areola a letter dated Jul" 25, 1985 statin% that thecompan" +as verif"in% +hether the pa"ment had in fact )een issuetherefor. Ampil emphasiDed that the official receipt should have )issued seven da"s from the issuance of the provisional receipt )ut)ecause no official receipt had )een issued in Areola's name, there +as reason to )elieve that no pa"ment had )een made. Apolo%iDinfor the inconvenience, Ampil e pressed the compan"'s concern )"a%reein% @to hold "ou cover 3sic4 under the terms of the referenpolic" until such time that this matter is cleared.@'

On Au%ust &, 1985, Ampil +rote Areola another letter confirminthe amount of 1,;$9.;5 covered )" provisional receipt #o. 9&$$ +as in fact received )" rudential on (ecem)er 1*, 198/. Bence,Ampil informedAreola that rudential +as @amena)le to e tendin% A- A- -2$$15 up to (ecem)er 1*, 1985 or one "ear from the date +henpa"ment +as received.@ Apolo%iDin% a%ain for the inconveniencaused Areola, Ampil e horted him to indicate his conformit" to tproposal )" si%nin% on the space provided for in the letter.9

he letter +as personall" delivered )" arlito An% to Areola on

Bus Org 1 summer (obligations of principal and modes of extinguishment of agency) 1

8/13/2019 Bus Org Cases 3rd Exam

2/60

AMDG

Au%ust 1&, 19851( )ut unfortunatel", Areola and his +ife, ="dia, asearl" as Au%ust ;, 1985 had filed a complaint for )reach of contract +ith dama%es )efore the lo+er court.

!n its Ans+er, respondent insurance compan" admitted that thecancellation of petitioner-insured's polic" +as due to the failure of

alapit to turn over the premiums collected, for +hich reason noofficial receipt +as issued to him. Bo+ever, it ar%ued that, )"ac no+led%in% the inconvenience caused on petitioner-insured and

after ta in% steps to rectif" its omission )" reinstatin% the cancelledpolic" prior to the fil in% of the complaint, respondent insurancecompan" had complied +ith its o)li%ation under the contract. Bence,it concluded that petitioner-insured no lon%er has a cause of actiona%ainst it. !t insists that it cannot )e held lia)le for dama%es arisin%from )reach of contract, havin% demonstrated full" +ell its fulfillmentof its o)li%ation.

he trial court, on June &$, 198*, rendered a ud%ment in favor ofpetitioner-insured, orderin% respondent insurance compan" to pa"the former the follo+in%

a4 1,*$&.;5 as actual dama%esE)4 2$$,$$$.$$ as moral dama%esE andc4 5$,$$$.$$ as e emplar" dama%esE2. o pa" to the plaintiff, as and for attorne"'s fees the amount of

1$,$$$.$$E and&. o pa" the costs.

!n its decision, the court )elo+ declared that respondent insurancecompan" acted in )ad faith in unilaterall" cancellin% su) ectinsurance polic", havin% done so onl" after seven months from thetime that it had ta en force and effect and despite the fact of fullpa"ment of premiums and other char%es on the issued insurancepolic". ancellation from the date of the polic"'s inception, e plainedthe lo+er court, meant that the protection sou%ht )" petitioner-insured from the ris s insured a%ainst +as never e tended )"respondent insurance compan". Bad the insured met an accident atthe time, the insurance compan" +ould certainl" have disclaimed an"lia)ilit" )ecause technicall", the petitioner could not have )eenconsidered insured. onse7uentl", the trial court held that there +as)reach of contract on the part of respondent insurance compan",entitlin% petitioner-insured to an a+ard of the dama%es pra"ed for.

his rulin% +as challen%ed on appeal )" respondent insurancecompan", den"in% )ad faith on its part in unilaterall" cancellin%su) ect insurance polic".

After consideration of the appeal, the appellate court issued areversal of the decision of the trial court, convinced that the latter haderred in findin% respondent insurance compan" in )ad faith for thecancellation of petitioner-insured's polic". Accordin% to the ourt ofAppeals, respondent insurance compan" +as not motivated )"ne%li%ence, malice or )ad faith in cancellin% su) ect polic". 0ather,the cancellation of the insurance polic" +as )ased on +hat thee istin% records sho+ed, i.e., a)sence of an official receipt issued topetitioner-insured confirmin% pa"ment of premiums. ad faith, saidthe ourt of Appeals, is some motive of self-interest or ill-+illE afurtive desi%n of ulterior purpose, proof of +hich must )e esta)lishedconvincin%l". On the contrar", it further o)served, the follo+in% actsindicate that respondent insurance compan" did not act precipitatel"or +illfull" to inflict a +ron% on petitioner-insured

3a4 the investi%ation conducted )" Alfredo ustamante to verif" ipetitioner-insured had indeed paid the premiumE 3)4 the letter ofAu%ust &, 1985 confirmin% that the premium had )een paid on(ecem)er 1*, 198/E 3c4 the reinstatement of the polic" +ith aproposal to e tend its effective period to (ecem)er 1*, 1985E and 3respondent insurance compan"'s apolo%ies for the @inconvenienccaused upon petitioner-insured. he appellate court added thatrespondent insurance compan" even relieved alapit, its a%uio mana%er, of his o) )" forcin% him to resi%n.

etitioner-insured moved for the reconsideration of the said decisi +hich the ourt of Appeals denied. Bence, this petition for revie+on certiorarianchored on these ar%uments

!

0espondent ourt of Appeals is %uilt" of %rave a)use of discretand committed a serious and reversi)le error in not holdin%0espondent rudential lia)le for the cancellation of the insurancecontract +hich +as admittedl" caused )" the fraudulent acts and)ad faith of its o+n officers.

!!

0espondent ourt of Appeals committed serious and reversi)leerror and a)used its discretion in rulin% that the defenses of %ofaith and honest mista e can co-e ist +ith the admitted frauduleacts and evident )ad faith.

!!!

0espondent ourt of Appeals committed a reversi)le error in notfindin% that even +ithout considerin% the fraudulent acts of its officer in misappropriatin% the premium pa"ment, the act itselfcancellin% the insurance polic" +as done +ith )ad faith and?or%ross ne%li%ence and +anton attitude amountin% to )ad faith,)ecause amon% others, it +as

r. alapit F the person +ho committed the fraud F +ho sentand si%ned the notice of cancellation.

!C

0espondent ourt of Appeals has decided a 7uestion of su)stanccontrar" to la+ and applica)le decision of the Supreme ourt +hen it refused to a+ard dama%es in favor of herein etitioner-Appellants.

!t is petitioner-insured's su)mission that the fraudulent act of alapmana%er of respondent insurance compan"'s )ranch office in a%in misappropriatin% his premium pa"ments is the pro imate causethe cancellation of the insurance polic". etitioner-insured theoriDthat alapit's act of si%nin% and even sendin% the notice ofcancellation himself, not+ithstandin% his personal no+led%e ofpetitioner-insured's full pa"ment of premiums, further reinforces thalle%ation of )ad faith. Such fraudulent act committed )" alapit,ar%ued petitioner-insured, is attri)uta)le to respondent insurancecompan", an artificial corporate )ein% +hich can act onl" throu%hofficers or emplo"ees. alapit's actuation, concludes petitioner-insured, is therefore not separate and distinct from that ofrespondent-insurance compan", contrar" to the vie+ held )" the

Bus Org 1 summer (obligations of principal and modes of extinguishment of agency) 2

8/13/2019 Bus Org Cases 3rd Exam

3/60

AMDG

ourt of Appeals. !t must, therefore, )ear the conse7uences of theerroneous cancellation of su) ect insurance polic" caused )" thenon-remittance )" its o+n emplo"ee of the premiums paid.Su)se7uent reinstatement, accordin% to petitioner-insured, could notpossi)l" a)solve respondent insurance compan" from lia)ilit", there)ein% an o)vious )reach of contract. After all, reasoned outpetitioner-insured, dama%e had alread" )een inflicted on him and noamount of rectification could remed" the same.

0espondent insurance compan", on the other hand, ar%ues that +here reinstatement, the e7uita)le relief sou%ht )" petitioner-insured +as %ranted at an opportune moment, i.e. prior to the filin% of thecomplaint, petitioner-insured is left +ithout a cause of action on +hichto predicate his claim for dama%es. 0einstatement, it furthere plained, effectivel" restored petitioner-insured to all his ri%hts underthe polic". Bence, +hatever cause of action there mi%ht have )eena%ainst it, no lon%er e ists and the conse7uent a+ard of dama%esordered )" the lo+er court in unsustaina)le.

Ge uphold petitioner-insured's su)mission. alapit's fraudulent act ofmisappropriatin% the premiums paid )" petitioner-insured is )e"onddou)t directl" imputa)le to respondent insurance compan". Acorporation, such as respondent insurance compan", acts solel" thruits emplo"ees. he latters' acts are considered as its o+n for +hich itcan )e held to account. 11 he facts are clear as to the relationship)et+een private respondent insurance compan" and alapit. Asadmitted )" private respondent insurance compan" in itsans+er, 12 alapit +as the mana%er of its a%uio )ranch. !t is )e"onddou)t that he represented its interest and acted in its )ehalf. Bis actof receivin% the premiums collected is +ell +ithin the province of hisauthorit". hus, his receipt of said premiums is receipt )" privaterespondent insurance compan" +ho, )" provision of la+, particularl"under Article 191$ of the ivil ode, is )ound )" the acts of its a%ent.

Article 191$ thus reads

alapit's failure to remit the premiums he received cannot constitutea defense for private respondent insurance compan"E no e onerationfrom lia)ilit" could result therefrom. he fact that private respondentinsurance compan" +as itself defrauded due to the anomalies thattoo place in its a%uio )ranch office, such as the non-accrual of saidpremiums to its account, does not free the same from its o)li%ation topetitioner Areola. As held inPrudential Bank v. Court of Appeals 1% citin% the rulin% inMcIntosh v. Dakota Trust Co.:14

A )an is lia)le for +ron%ful acts of its officers done in the interestsof the )an or in the course of dealin%s of the officers in theirrepresentative capacit" )ut not for acts outside the scope of their

authorit". A )an holdin% out its officers and a%ent as +orth" ofconfidence +ill not )e permitted to profit )" the frauds the" ma"thus )e ena)led to perpetrate in the apparent scope of theiremplo"mentE nor +ill it )e permitted to shir its responsi)ilit" forsuch frauds, even thou%h no )enefit ma" accrue to the )antherefrom. Accordin%l", a )an in% corporation is lia)le to innocentthird persons +here the representation is made in the course of its)usiness )" an a%ent actin% +ithin the %eneral scope of hisauthorit" even thou%h, in the particular case, the a%ent is secretl"a)usin% his authorit" and attemptin% to perpetrate a fraud upon hisprincipal or some other person, for his o+n ultimate )enefit.

onse7uentl", respondent insurance compan" is lia)le )" +a" of

dama%es for the fraudulent acts committed )" alapit that %aveoccasion to the erroneous cancellation of su) ect insurance polic"earlier act of reinstatin% the insurance polic" can not o)literate thein ur" inflicted on petitioner-insured. 0espondent compan" shouldreminded that a contract of insurance creates reciprocal o)li%ationfor )oth insurer and insured. 0eciprocal o)li%ations are those +hicharise from the same cause and in +hich each part" is )oth a de)torand a creditor of the other, such that the o)li%ation of one isdependent upon the o)li%ation of the other.15

:nder the circumstances of instant case, the relationship as creditorand de)tor )et+een the parties arose from a common cause i.e., )"reason of their a%reement to enter into a contract of insurance und +hose terms, respondent insurance compan" promised to e tendprotection to petitioner-insured a%ainst the ris insured for aconsideration in the form of premiums to )e paid )" the latter. :ndethe la+ %overnin% reciprocal o)li%ations, particularl" the secondpara%raph of Article 1191,16 the in ured part", petitioner-insured inthis case, is %iven a choice )et+een fulfillment or rescission of theo)li%ation in case one of the o)li%ors, such as respondent insurancompan", fails to compl" +ith +hat is incum)ent upon him. Bo+evesaid article entitles the in ured part" to pa"ment of dama%es,re%ardless of +hether he demands fulfillment or rescission of theo)li%ation. :ntena)le then is reinstatement insurance compan"'sar%ument, namel", that reinstatement )ein% e7uivalent to fulfillmof its o)li%ation, divests petitioner-insured of a ri%htful claim forpa"ment of dama%es. Such a claim finds no support in our la+s ono)li%ations and contracts.

he nature of dama%es to )e a+arded, ho+ever, +ould )e in theform of nominal dama%es1& contrar" to that %ranted )" the court)elo+. Althou%h the erroneous cancellation of the insurance polic"constituted a )reach of contract, private respondent insurancecompan", +ithin a reasona)le time too steps to rectif" the +ron%committed )" reinstatin% the insurance polic" of petitioner. oreovno actual or su)stantial dama%e or in ur" +as inflicted on petitionAreola at the time the insurance polic" +as cancelled. #ominaldama%es are @recovera)le +here a le%al ri%ht is technicall" violand must )e vindicated a%ainst an invasion that has produced noactual present loss of an" ind, or +here there has )een a )reach ofcontract and no su)stantial in ur" or actual dama%es +hatsoeverhave )een or can )e sho+n. 1'

GB>0> O0>, the petition for revie+ on certiorariis here)"0A# >( and the decision of the ourt of Appeals in A- .0. #o.

1;9$2 on a" &1, 199$, 0>C>0S>(. he decision of ranch /$,0 (a%upan it", in ivil ase #o. (-*9*2 rendered on June &$,198* is here)" 0>!#S A >( su) ect to the follo+in% modification3a4 that nominal dama%es amountin% to &$,$$$.$$ )e a+ardedpetitioner in lieu of the dama%es ad udicated )" court a quoE and 3)4that in the satisfaction of the dama%es a+arded therein, respondeninsurance compan" is O0(>0>( to pa" the le%al rate of interestcomputed from date of filin% of complaint until final pa"ment the

Bus Org 1 summer (obligations of principal and modes of extinguishment of agency) 3

8/13/2019 Bus Org Cases 3rd Exam

4/60

AMDG

G.R. No. 94(5( No)ember 21, 1991

SYL* A +. BED A and +ONT *EROS ASSO! ATED$ROD"!ERS $+ LS. Y ELDS, N!.,petitioners,vs.E- LY A. + TE and +OL-AN T. + TE,respondents.

he )asic issue )efore us is the capacit" in +hich petitioner S"lvia B.

edia entered into the su) ect contract +ith private respondent >mil"A. Ghite. oth the trial court and the respondent court held she +asactin% in her o+n personal )ehalf. She faults this findin% as reversi)leerror and insists that she +as merel" actin% as an a%ent.

he case arose +hen edia and Ghite entered into a articipationontract1 readin% in full as follo+s

B> S A > A!0 O >HAS '8$A0 ! ! A !O# O# 0A

A0 ! ! A# 3 O A#I #A >4 > !=I GB! >># >0 0!S>S

!?Ge, the a)ovementioned compan" here)" a%rees to participate in the198$ (allas State air to )e held in (allas, e as on Octo)er &, toOcto)er 19,198$. !?Ge re7uest for a 15 s7uare meter )ooth space +orth

2,25$.$$ :.S. (ollars.

!?Ge further understand that this participation contract shall )e deemednon-cancella)le after pa"ment of the said do+n pa"ment, and that an"intention on our part to cancel the same shall render +hatever amount +ehave paid forfeited in favor of BO# !C>0OS K ASSO !A >(

0O(: >0S B!=! !#> I!>=(S, !# .

O0 B> A OC> O#S!(>0A !O#, !?Ge understand theBO# !C>0OS K ASSO !A >( 0O(: >0S B!=. I!>=(S, !# . shall0eserve said )ooth for our e clusive perusalE Ge also understand that thea)ove cost includes overall e terior )ooth decoration and materials )utdoes not include interior desi%ns +hich +ill )e per our specifications ande penses.

A0 ! ! A# 'S A0 ! ! A !O#A: BO0!L>( S! #A :0> A > >( I

3S (.4 > !=I GB! > 3S (.4 SI=C!A B. >(!A(A > 8?1&?8$ (A > Au%. 1, 198$

On Au%ust 1$, 198;, Ghite and her hus)and filed a complaint in the0e%ional rial ourt of asa" it" for dama%es a%ainst edia andBontiveros K Associated roducers hil. Iields, !nc. for dama%escaused )" their fraudulent violation of their a%reement. She averredthat edia had approached her and persuaded her to participate inthe State of e as air, and that she made a do+n pa"ment of

5$$.$$ to edia on the a%reed displa" space. !n due time, sheenplaned for (allas +ith her merchandise )ut +as disma"ed to learnlater that the defendants had not paid for or re%istered an" displa"space in her name, nor +ere the" authoriDed )" the state fair directorto recruit participants. She said she incurred losses as a result for +hich the defendants should )e held solidaril" lia)le.2

!n their oint ans+er, the defendants denied the plaintiff's alle%ation

that the" had deceived her and e plained that no displa" space +asre%istered in her name as she +as onl" supposed to share the spacleased )" Bontiveros in its name. She +as not allo+ed to displa" he%oods in that space )ecause she had not paid her )alance of

1,*5$.$$, in violation of their contract. edia also made theparticular averment that she did not si%n the articipation ontracher o+n )ehalf )ut as an a%ent of Bontiveros and that she had laterreturned the advance pa"ment of 5$$.$$ to the plaintiff. hedefendants filed their o+n counterclaim and complained of malice the part of the plaintiffs.%

!n the course of the trial, the complaint a%ainst Bontiveros +asdismissed on motion of the plaintiffs.4

!n his decision dated a" 29, 198;, Jud%e ermin artin, Jr. foundedia lia)le for fraud and a+arded the plaintiffs actual and moral

dama%es plus attorne"'s fees and the costs. he court said

!n claimin% to )e a mere a%ent of Bontiveros K Associatedroducers hil. Iields, !nc., defendant S"lvia B. edia evidentl"

attempted to escape lia)ilit" for herself. :nfortunatel" for her, the@ articipation ontract@ is not actuall" in representation or in

name of said corporation. !t is a covenant entered into )" her inher personal capacit", for no one ma" contract in the name ofanother +ithout )ein% authoriDed )" the latter, or unless she has)" la+ a ri%ht to represent her. 3Art. 1&/*, ne+ ivil ode4

Sustainin% the trail court on this point, the respondentcourt 5declared in its decision dated arch &$, 199$

he evidence, on the +hole, sho+s that she definitel" acted on heo+n. She represented herself asauthorized)" the State of e asto solicit and assi%n )ooths at the e as fairE she assured theappellee that she could giveher )ooth. :nder Article 188& of the#e+ ivil ode, if the a%entacts in his o+n name, the principal

has no ri%ht of action a%ainst the persons +ith +hom the a%enthad contracted.

Ge do not share these vie+s.

!t is note+orth" that in her letter to the inister of rade dated(ecem)er 2&,198/, >mil" Ghite )e%an

! am a local e porter +ho +asrecruited ! "ontiveros # Associated Producers Phil. $ields% Inc.to participate in the State

air of (allas, e as +hich +as held last Oct. & to 19,198$. "ontiveros # Associated charged &e '()*+,.,, persquare &eter for displa! ooth of said fair.! have paid an advanceof :S 5$$.$$ as partial pa"ment for the total space of 15 s7uaremeter of +hich is 2,25$.$$ 3 +o housand +o Bundred ift"(ollars4. 6

As the articipation ontract +as si%ned )" edia, the a)ovestatement +as an ac no+led%ment )" Ghite that edia +as onl"actin% for Bontiveros +hen it recruited her as a participant in the

e as State air and char%ed her a partial pa"ment of 5$$.$$. amount +as to )e fortified to Bontiveros in case of cancellation )"her of the a%reement. he fact that the contract +as t"pe+ritten onthe letterhead stationer" of Bontiveros )olsters this conclusion in tha)sence of an" sho+in% that said stationer" had )een ille%all" used

Bus Org 1 summer (obligations of principal and modes of extinguishment of agency) 4

8/13/2019 Bus Org Cases 3rd Exam

5/60

AMDG

)" edia.

Si%nificantl", Bontiveros itself has not repudiated edia's a%enc" as it +ould have if she had reall" not si%ned in its name. !n the ans+er itfiled +ith edia, it did not den" the latter's alle%ation in ara%raph /thereof that she +as onl" actin% as its a%ent +hen she solicitedGhite's participation. !n fact, )" filin% the ans+er ointl" +ith ediathrou%h their common counsel, Bontiverosaffir&ed this alle%ation.

!f the plaintiffs had an" dou)t a)out the capacit" in +hich edia +asactin%, +hat the" should have done +as verif" the matter +ithBontiveros. he" did not. !nstead, the" simpl" accepted edia'srepresentation that she +as an a%ent of Bontiveros and dealt +ithher as such. :nder Article 191$ of the ivil ode, @the principal mustcompl" +ith all the o)li%ations +hich the a%ent ma" have contracted +ithin the scope of his authorit".@ Bence, the private respondentscannot no+ hold edia lia)le for the acts performed )" her for, andimputa)le to, Bontiveros as her principal.

he plaintiffs' position )ecame all the more untena)le +hen the"moved on June 5, 198/, for the dismissal of the complaint a%ainstBontiveros,& leavin% edia as the sole defendant. Bontiveros had

admitted as earl" as +hen it filed its ans+er that edia +as actin% asits a%ent. he effect of the motion +as to leave the plaintiffs +ithout acause of action a%ainst edia for the o)li%ation, if an", of Bontiveros.

Our conclusion is that since it has not )een found that edia +asactin% )e"ond the scope of her authorit" +hen she entered into the

articipation ontract on )ehalf of Bontiveros, it is the latter thatshould )e held ans+era)le for an" o)li%ation arisin% from thata%reement. " movin% to dismiss the complaint a%ainst Bontiveros,the plaintiffs virtuall" disarmed themselves and forfeited +hateverclaims the" mi%ht have proved a%ainst the latter under the contractsi%ned for it )" edia. !t should )e o)vious that havin% +aived theseclaims a%ainst the principal, the" cannot no+ assert them a%ainst the

a%ent.

GB>0> O0>, the appealed decision dated arch &$, 199$, of therespondent court is 0>C>0S>( and a ne+ ud%ment is rendereddismissin% ivil ase #o. 92/;- in the 0e%ional rial ourt of

asa" it".

Bus Org 1 summer (obligations of principal and modes of extinguishment of agency) 5

8/13/2019 Bus Org Cases 3rd Exam

6/60

AMDG

G.R. No. 1('95& /0ne 14, 199% $R"DENT AL BAN , pet t oner,)3. !A, A"RORA !R" , re3pondent3.

Ge deal here +ith another controvers" involvin% the inte%rit" of a)an .

he complaint in this case arose +hen private respondent Aurora .ruD, +ith her sister as co-depositor, invested 2$$,$$$.$$ in

entral an )ills +ith the rudential an at its )ranch in MueDonAvenue, MueDon it", on June 2&, 198;. he placement +as for ;&da"s at 1&.*5< annual interest. or this purpose, the amount of

19;,122.88 +as +ithdra+n from the depositors' Savin%s Account#o. 25/; and applied to the investment. he difference of &,8**.$*represented the pre-paid interest.

he transaction +as evidenced )" a onfirmation of Sale 1 deliveredto ruD t+o da"s later, to%ether +ith a (e)it emo 2 in the amount +ithdra+n and applied to the confirmed sale. hese documents +ereissued )" Susan Muim)o, the emplo"ee of the )an to +hom ruD +as referred and +ho +as apparentl" in char%e of suchtransactions. %

:pon maturit" of the placement on Au%ust 25, 198;, ruD returned tothe )an to @roll-over@ or rene+ her investment. Muim)o, +ho a%ainattended to her, prepared a redit emo 4 creditin% the amount of

2$$,$$$.$$ in ruD's savin%s account pass)oo . She also prepareda (e)it emo for the amount of 19;,122.88 to cover the re-investment of 2$$,$$$.$$ minus the prepaid interest of &,8**.$2. 5

his time, ruD +as as ed to si%n a Githdra+al Slip 6 for19;,122.98, representin% the amount to )e re-invested after

deduction of the prepaid interest. Muim)o e plained this +as a ne+re7uirement of the )an . Several da"s later, ruD received another

onfirmation of Sale & and a cop" of the (e)it emo. '

On Octo)er 2*, 198;, ruD returned to the )an and sou%ht to +ithdra+ her 2$$,$$$.$$. After verification of her records, ho+ever,she +as informed that the investment appeared to have )een alread" +ithdra+n )" her on Au%ust 25, 198;. here +as no cop" on file ofthe onfirmation of Sale and the (e)it emo alle%edl" issued to her)" Muim)o. Muim)o herself +as not availa)le for 7uestionin% as shehad not )een reportin% for the past +ee . Shoc ed )" thisinformation, ruD )ecame h"sterical and )urst into tears. he )ranchmana%er, 0oman Santos, assured her that he +ould loo into thematter. 9

>ver" da" thereafter, ruD +ent to the )an to in7uire a)out herre7uest to +ithdra+ her investment. She received no definite ans+er,not even to the letter she +rote the )an +hich +as received )"Santos himself.1( inall", ruD sent the )an a demand letter dated#ovem)er 12, 198; for the amount of 2$$,$$$.$$ plus interest.11 !na repl" dated #ovem)er 2$, 198;, the )an 's Cice resident =auro J.Jocson said that there appeared to )e an anomal"and re7uested ruD to defer court action as the" hoped to settle thematter amica)l". 12 !ncreasin%l" +orried, ruD sent another letterreiteratin% her demand.1% his time the repl" of the )an +asune7uivocal and ne%ative. She +as told that her re7uest had to )edenied )ecause she had alread" +ithdra+n the amount she +asclaimin%.14

ruD's reaction +as to file a complaint for )reach of contract a%ainrudential an in the 0e%ional rial ourt of MueDon it". She

demanded the return of her mone" +ith interest, plus dama%es andattorne"'s fees. !n its ans+er, the )an denied lia)ilit", insistin% tha

ruD had +ithdra+n her investment. he )an also instituted a thirpart" complaint a%ainst Muim)o, +ho did not file an ans+er and +declared in default.15 he )an , ho+ever, did not present an"evidence a%ainst her.

After trial, Jud%e 0odolfo A. OrtiD rendered ud%ment in favor plaintiffs and disposed as follo+s

A O0(!# =I, ud%ment is here)" rendered orderin% the defendant?thipart" plaintiff to pa" to the plaintiffs the follo+in% amounts1. 2$$,$$$.$$, plus interest thereon at the rate of 1&.*5< per annum froOcto)er 2*, 198;, until full" paidE2. &$,$$$.$$, as moral dama%esE&. 2$,$$$.$$, as e emplar" dama%esE and/. 25,$$$.$$, as reasona)le attorne"'s fees.

he counterclaim and the third-part" complaint of the defendant?third-paplaintiff are dismissed.Gith costs a%ainst the defendant?third-part" plaintiff.

he decision +as affirmedin totoon appeal to the respondent court.

he ud%ment of the ourt of Appeals16 is no+ faulted in this petitiomainl" on the %round that the )an should not have )een found liafor aquasi-delict +hen it +as sued for )reach of contract.

he petition shall fail. he petitioner is 7ui))lin%. !t appears to )emerel" temporiDin% to dela" enforcement of the lia)ilit" clearl"esta)lished a%ainst it.

he )asic issues are factual. he private respondent claims she hasnot "et collected her investment of 2$$,$$$.$$ and has su)mittedproof of their contention the onfirmation of Sale and the (e)it

emo issued to her )" Muim)o on the official forms of the )an . hpetitioner denies her claim and points to the Githdra+al Slip, +hichsa"s ruD has not denied havin% si%ned. !t also contends that the

onfirmation of Sale and the (e)it emo are fa e and should nothave )een %iven credence )" the lo+er courts.

he findin%s of the trial court on these issues have )een affirmed )the respondent court and +e see no reason to distur) them. hepetitioner has not sho+n that the" have )een reached ar)itraril" or indisre%ard of the evidence of record. On the contrar", +e findsu)stantial )asis for the conclusion that the private respondentssi%ned the Githdra+al Slip onl" as part of the )an 's ne+ procedurof re-investment. She did not actuall" receive the amount indicatedtherein, +hich she +as made to understand +as )ein% re-invested inher name. he )an itself so assured her in the onfirmation of Saland the (e)it emo later issued to her )" Muim)o.

>speciall" persuasive are the follo+in% o)servations of the trialcourt 1&

Ghat is more, it could not )e that plaintiff Aurora . ruD +ithdronl" the amount of 19;,122.98 from their savin%s account, if honl" intention +as to ma e such a +ithdra+al. or, if, indeed, it +as the desire of the plaintiffs to +ithdra+ their mone" from thedefendant?third-part" plaintiff, the" could have +ithdra+n an

Bus Org 1 summer (obligations of principal and modes of extinguishment of agency) 6

8/13/2019 Bus Org Cases 3rd Exam

7/60

AMDG

amount in round fi%ures. ertainl", it is un)elieva)le that their +ithdra+al +as in the irre%ular amount of 19;,122.98 if the"reall" received it. On the contrar", this amount, +hich is the priceof the entral an )ills rolled over, indicates that, as claimed )"plaintiff Aurora . ruD, she did not receive this mone", )ut it +asleft )" her +ith the defendant?third-part" plaintiff in order to )u"

entral an )ills placement for another si t"-three 3;&4 da"s, for +hich she si%ned a +ithdra+al slip at the instance of third-part"defendant Susan Muim)o +ho told her that it +as a ne+ )anre7uirement for the roll-over of a matured placement +hich shetrustin%l" )elieved.

!ndeed, the )an has not e plained the remar a)le coincidence thatthe amount indicated in the +ithdra+al slip ise actl! the sameamount ruD +as re-investin% after deductin% therefrom the pre-paidinterest.

he )an has also not, succeeded in impu%nin% the authenticit" ofthe onfirmation of Sale and the (e)it emo +hich +ere made on itsofficial, forms. hese are admittedl" not availa)le to the %eneralpu)lic or even its depositors and are handled onl" )" its personnel.>ven assumin% that the" +ere not si%ned )" its authoriDed officials,as it claims, there +as no o)li%ation on the part of ruD to verif" theirauthorit" )ecause she had the ri%ht to presume it. he documentshad )een issued in the office of the )an itself and )" its o+nemplo"ees +ith +hom she had previousl" dealt. Such dealin%s hadnot )een 7uestioned )efore, much leas invalidated. here +asa)solutel" no reason +h" she should not have accepted theirauthorit" to act on )ehalf of their emplo"er.

!t is also +orth" of note F and +onder F that althou%h the )animpleaded Muim)o in a third-part" complaint, it did not pursue its suiteven +hen she failed to ans+er and +as declared in default. he)an did not introduce evidence a%ainst her althou%h it could havedone so under the rules. #o less remar a)l", it did not call on her totestif" on its )ehalf, considerin% that under the circumstancesclaimed )" it, she +ould have )een the )est +itness to sho+ that

ruD had actuall" +ithdra+n her 2$$,$$$.$$ placement. !nstead,the )an chose to rel" on its other emplo"ees +hose testimon" +asless direct and cate%orical than the testimon" Muim)o could have%iven.

Ge do not find that the ourt of Appeals held the )an lia)le ona quasi-delict . he ar%ument of the petitioner on this issue is pallid, tosa" the least, consistin% as it does onl" of the o)servation that thearticle cited )" the respondent court on the a%ent's lia)ilit" falls underthe headin% in the ivil ode onquasi-delicts. On the other hand, therespondent court clearl" declared that

he defendant?third-part" plaintiff )ein% lia)le forthe return of the 2$$,$$$.$$ placement of theplaintiffs, the e tent of the lia)ilit" of thedefendant?third-part" plaintiff for dama%esresultant thereof,/hich is contractual , is for alldama%es +hich ma" )e reasona)l" attri)uted tothe non-performance of the o)li%ation, . . .

ecause of the )ad faith of the defendant?third-

part" plaintiff in its reach of its contract +ith theplaintiffs, the latter are, therefore, entitled to ana+ard of moral dama%es . . . 3>mphasissupplied4

here is no 7uestion that the petitioner +as made lia)le for its failuor refusal to deliver to ruD the amount she had deposited +ith it a +hich she had a ri%ht to +ithdra+ upon its maturit". hat investme +as ac no+led%ed )" its o+n emplo"ees, +ho had the apparent

authorit" to do so and so could le%all" )ind it )" its actsvis-a-vis ruDGhatever mi%ht have happened to the investment F +hether it +aslost or stolen )" +hoever F +as not the concern of the depositor. !t +as the concern of the )an .

As far as ruD +as concerned, she had the ri%ht to +ithdra+ her2$$,$$$.$$ placement +hen it matured pursuant to the terms of h

investment as ac no+led%ed and reflected in the onfirmation ofSale. he failure of the )an to deliver the amount to her pursuant the onfirmation of Sale constituted its )reach of their contract, fo +hich it should )e held lia)le.

he lia)ilit" of the principal for the acts of the a%ent is not even

de)ata)le. =a+ and urisprudence are clearl" and a)solutel" a%ainsthe petitioner.

Such lia)ilit" dates )ac to the 0oman =a+ ma im,0ui per aliu&facit per seipsu& facere videtur . @Be +ho does a thin% )" an a%enconsidered as doin% it himself.@ his rule is affirmed )" the ivilthus

Art. 191$. he principal must compl" +ith all tho)li%ations +hich the a%ent ma" have contract +ithin the scope of his authorit".

Art. 1911. >ven +hen the a%ent has e ceededhis authorit", the principal is solidaril" lia)le +itthe a%ent if the former allo+ed the latter to act thou%h he had full po+ers.

onforma)l", +e have declared in countlessdecisions that the principal is lia)le for o)li%aticontracted )" the a%ent. he a%ent's apparentrepresentation "ields to the principal's truerepresentation and the contract is considered asentered into )et+een the principal and the thirdperson. 1'

A )an is lia)le for +ron%ful acts of its officersdone in the interests of the )an or in the courseof dealin%s of the officers in their representativcapacit" )ut not for acts outside the scope oftheir authorit". 39 c.7.s. p. /1*4 A )an holdin%out its officers and a%ent as +orth" of confiden +ill not )e permitted to profit )" the frauds the"ma" thus )e ena)led to perpetrate in theapparent scope of their emplo"mentE nor +ill itpermitted to shir its responsi)ilit" for suchfrauds, even thou%h no )enefit ma" accrue to th)an therefrom 31$ Am Jur 2d, p. 11/4.Accordin%l", a )an in% corporation is lia)le to

Bus Org 1 summer (obligations of principal and modes of extinguishment of agency) 7

8/13/2019 Bus Org Cases 3rd Exam

8/60

AMDG

innocent third persons +here the representationis made in the course of its )usiness )" an a%entactin% +ithin the %eneral scope of his authorit"even thou%h, in the particular case, the a%ent issecretl" a)usin% his authorit" and attemptin% toperpetrate a fraud upon his principal or someother person, for his o+n ultimate )enefit3 c!ntosh v. (a ota rust o., 52 #( *52, 2$/#G 818, /$ A=0 1$21.4

Application of these principles in especiall" necessar" )ecause)an s have a fiduciar" relationship +ith the pu)lic and their sta)ilit"depends on the confidence of the people in their honest" andefficienc". Such faith +ill )e eroded +here )an s do not e ercisestrict care in the selection and supervision of its emplo"ees, resultin%in pre udice to their depositors.

!t +ould appear from the facts esta)lished in the case )efore us thatthe petitioner +as less than ea%er to present Muim)o at the trial oreven to esta)lish her lia)ilit" althou%h it made the initial effort F +hich it did not pursue F to hold her ans+era)le in the third-part"complaint. Ghat ever happened to her does not appear in the record.Ber a)sence from the proceedin%s feeds the suspicion of herpossi)le misdeed, +hich the )an seems to have studiousl" i%nored)" its insistence that the missin% mone" had )een actuall" +ithdra+n)" ruD. " such insistence, the )an is a)solvin% not onl" itself )utalso, in effect and )" e tension, the disappeared Muim)o +hoapparentl" has much to e plain.

Ge a%ree +ith the lo+er courts that the petitioner acted in )ad faith inden"in% ruD the o)li%ation she +as claimin% a%ainst it. !t +aso)vious that an irre%ularit" had )een committed )" the )an 'spersonnel, )ut instead of repairin% the in ur" to ruD )" immediatel"restorin% her mone" to her, it sou%ht to %loss over the anomal" in itso+n operations.

ruD naturall" suffered an ious moments and mental an%uish overthe loss of the investment. he amount of 2$$,$$$.$$ is not smalleven )" present standards. " un ustl" +ithholdin% it from her on theunproved defense that she had alread" +ithdra+n it, the )anviolated the trust she had reposed in it and thus su) ected itself tofurther lia)ilit" for moral and e emplar" dama%es.

!f a person dealin% +ith a )an does not read the fine print in thecontract, it is )ecause he trusts the )an and relies on its inte%rit".

he ordinar" customer appl"in% for a loan or even ma in% a deposit3and so himself e tendin% the loan to the )an 4 does not )other +iththe red tape re7uirements and the finic " conditions in the

documents he si%ns. Bis feelin% is that he does not have to )e +ar"of the )an )ecause it +ill deal +ith him fairl" and there is no reasonto suspect its motives. his is an attitude the )an must ustif".

Ghile this is not to sa" that )an re%ulations are meanin%less or haveno )indin% effect, the" should, ho+ever, not )e used for coverin% upthe fault of )an emplo"ees +hen the" )lunder or, +orse,intentionall" cheat him. he misdeeds of such emplo"ees must )ereadil" ac no+led%ed and rectified +ithout dela". he )an mustal+a"s act in %ood faith. he ordinar" customer does not feel theneed for a la+"er )" his side ever" time he deals +ith a )an)ecause he is certain that it is not a predator or a potential adversar".

he )an should sho+ that there is reall" no reason for an"

apprehension )ecause it trul" deserves his faith in it.

GB>0> O0>, the petition is (>#!>( and the appealed decision isA !0 >(, +ith costs a%ainst the petitioner. !t is so ordered.

Bus Org 1 summer (obligations of principal and modes of extinguishment of agency) 8

8/13/2019 Bus Org Cases 3rd Exam

9/60

AMDG

.0. #o. 1158&8 Jul" 18, 2$$2 O#S A# > A O0 (>AS 0O and O0ALO# A O0 (> AS 0O, petitioners, vs.O:0 O A >A=S and 0A# !S O A0 ! O, respondents.

T e !a3e

efore us is a etition for 0evie+ on ertiorari1 see in% to annul the(ecision of the ourt of Appeals2 dated a" /, 199/ in A- .0. C

#o. &*99;, +hich affirmedin toto the decision& of the 0e%ional rialourt of MueDon it", ranch 8$, in ivil ase #o. M-89-2;&1. he

trial court disposed as follo+s

@GB>0> O0>, the ourt finds defendants onstante andoraDon Amor de astro ointl" and solidaril" lia)le to

plaintiff the sum of

a4 &$&,;$;.2/ representin% unpaid commissionE

)4 25,$$$.$$ for and )" +a" of moral dama%esE

c4 /5,$$$.$$ for and )" +a" of attorne"'s feesE

d4 o pa" the cost of this suit.

MueDon it", etro anila, (ecem)er 2$, 1991.@

T e Ante7edent #a7t3

On a" 29, 1989, private respondent rancisco Arti%o 3@Arti%o@ for)revit"4 sued petitioners onstante A. (e astro 3@ onstante@ for)revit"4 and oraDon A. (e astro 3@ oraDon@ for )revit"4 to collectthe unpaid )alance of his )ro er's commission from the (e

astros./ he ourt of Appeals summariDed the facts in this +ise

@ . Appellants5 +ere co-o+ners of four 3/4 lots located at>(SA corner #e+ Ior and (enver Streets in u)ao,MueDon it". !n a letter dated Januar" 2/, 198/ 3> hi)it @A-1, p. 1//, 0ecords4, appellee ; +as authoriDed )" appellantsto act as real estate )ro er in the sale of these propertiesfor the amount of 2&,$$$,$$$.$$, five percent 35videncealiunde is admissi)leconsiderin% that Arti%o is not a part", )ut a mere +itness in the deof sale )et+een the (e astros and imes ransit. he ourt ofAppeals e plained that, @the rule that oral evidence is inadmissi)

Bus Org 1 summer (obligations of principal and modes of extinguishment of agency) 9

8/13/2019 Bus Org Cases 3rd Exam

10/60

AMDG

var" the terms of +ritten instruments is %enerall" applied onl" in suits)et+een parties to the instrument and stran%ers to the contract arenot )ound )" it.@ esides, Arti%o +as not suin% under the deed ofsale, )ut solel" under the contract of a%enc". hus, the ourt ofAppeals upheld the trial court's findin% that the purchase price +as

*.$5 million and not &.; million.

Bence, the instant petition.

T e 330e3Accordin% to petitioners, the ourt of Appeals erred in -

!. #O O0(>0!# B> (!S !SSA= O B>O =A!# O0 A!=:0> O ! =>A(

!#(!S >#SA => A0 !>S-!#-!# >0>S E

!!. #O O0(>0!# B> (!S !SSA= O B>O =A!# O# B> 0O:#( BA A0 ! O'S =A!

BAS >># >H !# :!SB>( I :== AI ># ,GA!C>0, O0 A A#(O# ># E

!!!. O#S!(>0!# !# O > ># >C!(># >E

!C. !C!# 0>(># > O A ># =I >0J:0>(>S ! O#IE

C. SA# !O#!# A# AGA0( O O0A= (A A >SA#( A O0#>I'S >>SE

C!. #O AGA0(!# B> (> AS 0O'S O0A= A#(>H> =A0I (A A >S, A#( A O0#>I'S >>S.

T e !o0rt;3 R08 n

he petition is )ereft of merit.

First Issue: whether the complaint merits dismissal for failure toimplead other co-owners as indispensable parties

he (e astros ar%ue that Arti%o's complaint should have )eendismissed for failure to implead all the co-o+ners of the t+o lots. he(e astros claim that Arti%o al+a"s ne+ that the t+o lots +ere co-o+ned )" onstante and oraDon +ith their other si)lin%s Jose and

armela +hom onstante merel" represented. he (e astroscontend that failure to implead such indispensa)le parties is fatal tothe complaint since Arti%o, as a%ent of all the four co-o+ners, +ould)e paid +ith funds co-o+ned )" the four co-o+ners.

he (e astros' contentions are devoid of le%al )asis.

An indispensa)le part" is one +hose interest +ill )e affected )" thecourt's action in the liti%ation, and +ithout +hom no finaldetermination of the case can )e had.* he oinder of indispensa)leparties is mandator" and courts cannot proceed +ithout theirpresence.8 Ghenever it appears to the court in the course of aproceedin% that an indispensa)le part" has not )een oined, it is thedut" of the court to stop the trial and order the inclusion of suchpart".9

Bo+ever, the rule on mandator" oinder of indispensa)le parties isnot applica)le to the instant case.

here is no dispute that onstante appointed Arti%o in a hand+rittnote dated Januar" 2/, 198/ to sell the properties of the (e astrosfor 2& million at a 5 percent commission. he authorit" +as on afirst come, first serve )asis. he authorit" reads in full

@2/ Jan. 8/

o Ghom !t a" oncern

his is to state that r. rancisco Arti%o is authoriDed aour real estate )ro er in connection +ith the sale of ourpropert" located at >dsa orner #e+ Ior K (enver,

u)ao, MueDon it".

As in% price 2&,$$$,$$$.$$ +ith 5< commission asa%ent's fee.

. . de astroo+ner K representin%co-o+ners

his authorit" is on a first-come

irst serve )asis N A @

onstante si%ned the note as o+ner and as representative of theother co-o+ners. :nder this note, a contract of a%enc" +as clearl"constituted )et+een onstante and Arti%o. Ghether onstanteappointed Arti%o as a%ent, in onstante's individual or representacapacit", or )oth, the (e astros cannot see the dismissal of thecase for failure to implead the other co-o+ners as indispensa)leparties. The De Castros admit that the other co-owners aresolidarily liable under the contract of agency ,1$ citin% Article 19of the ivil ode, +hich reads

Art. 1915. !f t+o or more persons have appointed an a%efor a common transaction or underta in%, the" shall )esolidaril" lia)le to the a%ent for all the conse7uences of ta%enc".

he solidar" lia)ilit" of the four co-o+ners, ho+ever, militates a%athe (e astros' theor" that the other co-o+ners should )e impleadedas indispensa)le parties. A noted commentator e plained Article1915 thus N

@ he rule in this article applies even +hen the appointm +ere made )" the principals in separate acts, provided thathe" are for the same transaction.T e 3o8 dar t< ar:rom t e 7ommon ntere3t o: t e pr n7 pa83, a:rom t e a7t o: 7on3t t0t n t e a en7

8/13/2019 Bus Org Cases 3rd Exam

11/60

AMDG

solidarit" does not disappear )" the mere partition effected)" the principals after the accomplishment of the a%enc".

!f the underta in% is one in +hich several are interested,)ut onl" some create the a%enc", onl" the latter aresolidaril" lia)le, +ithout pre udice to the effectsof negotioru& gestio +ith respect to the others. And if thepo+er %ranted includes various transactions some of +hichare common and others are not, onl" those interested in

each transaction shall )e lia)le for it.@11

Ghen the la+ e pressl" provides for solidarit" of the o)li%ation, as inthe lia)ilit" of co-principals in a contract of a%enc", each o)li%or ma")e compelled to pa" the entire o)li%ation.12 he a%ent ma" recoverthe +hole compensation from an" one of the co-principals, as in thiscase.

!ndeed, Article 121; of the ivil ode provides that a creditor ma"sue any of the solidar" de)tors. his article reads

Art. 121;. he creditor ma" proceed a%ainst an" one of thesolidar" de)tors or some or all of them simultaneousl". he

demand made a%ainst one of them shall not )e an o)stacleto those +hich ma" su)se7uentl" )e directed a%ainst theothers, so lon% as the de)t has not )een full" collected.

hus, the ourt has ruled in4perators Incorporated vs. A&ericanBiscuit Co.% Inc.1& that N

@ solidarity does not make a solidary obligor anindispensable party in a suit filed by the creditor . Article121; of the ivil ode sa"s that the creditor ma" proceeda%ainst an"one of the solidar" de)tors or some or all ofthem simultaneousl"'.@ 3>mphasis supplied4

Second Issue: whether Artigo s claim has been e!tinguished byfull payment" wai#er or abandonment

he (e astros claim that Arti%o +as full" paid on June 1/, 1985,that is, Arti%o +as %iven @his proportionate share and no lon%erentitled to an" )alance.@ Accordin% to them, Arti%o +as ust one ofthe a%ents involved in the sale and entitled to a @proportionate share@in the commission. he" assert that Arti%o did a)solutel" nothin%durin% the second ne%otiation )ut to si%n as a +itness in the deed ofsale. Be did not even prepare the documents for the transaction asan active real estate )ro er usuall" does.

he (e astros' ar%uments are flims".

A contract of a%enc" +hich is not contrar" to la+, pu)lic order, pu)licpolic", morals or %ood custom is a valid contract, and constitutes thela+ )et+een the parties. 1/ he contract of a%enc" entered into )"

onstante +ith Arti%o is the la+ )et+een them and )oth are )ound tocompl" +ith its terms and conditions in %ood faith.

he mere fact that @other a%ents@ intervened in the consummation ofthe sale and +ere paid their respective commissions cannot var" theterms of the contract of a%enc" %rantin% Arti%o a 5 percentcommission )ased on the sellin% price. hese @other a%ents@ turnedout to )e emplo"ees of imes ransit, the )u"er Arti%o introduced to

the (e astros. his prompted the trial court to o)serve

@ he alle%ed second %roup' of a%ents came into thepicture onl" durin% the so-called second ne%otiation' ais amusin% to note that these 3sic4 second %roup, promamon% +hom are Att". (el astillo and s. rudencio,happened to )e emplo"ees of imes ransit, the )u"er ofthe properties. And their efforts +ere limited to convincin

onstante to 'part a+a"' +ith the properties )ecause the

redemption period of the foreclosed properties is aroundthe corner, so to spea . 3tsn. June ;, 19914.

o accept onstante's version of the stor" is to open theflood%ates of fraud and deceit. A seller could al+a"spretend re ection of the offer and +ait for sometime forothers to rene+ it +ho are much +illin% to accept acommission far less than the ori%inal )ro er.Theimmorality in the instant case easily presents itself ifone has to consider that the alleged $second groupare the employees of the buyer" Times Transit and they

ha#e not bettered the offer secured by %r& Artigofor '( million&

!t is to )e noted also that +hile onstante +as tooparticular a)out the unrene+ed real estate )ro er's licenseof r. Arti%o, he did not )other at all to in7uire as to thelicenses of rudencio and astillo. 3tsn, April 11, 1991, p&9-/$4.@15 3>mphasis supplied4

!n an" event, +e find that the 5 percent real estate )ro er'scommission is reasona)le and +ithin the standard practice in the reestate industr" for transactions of this nature.

he (e astros also contend that Arti%o's inaction as +ell as failurto protest estops him from recoverin% more than +hat +as actuall"paid him. he (e astros cite Article 12&5 of the ivil ode +hichreads

Art. 12&5. Ghen the o)li%ee accepts the performance,no+in% its incompleteness and irre%ularit", and +ithou

e pressin% an" protest or o) ection, the o)li%ation isdeemed full" complied +ith.

he (e astros' reliance on Article 12&5 of the ivil ode ismisplaced. Arti%o's acceptance of partial pa"ment of his commissneither amounts to a +aiver of the )alance nor puts him in estoppel

his is the import of Article 12&5 +hich +as e plained in this +ise

@ he +ordaccept , as used in Article 12&5 of the ivilode, means to ta e as satisfactor" or sufficient, or a%re

to an incomplete or irre%ular performance.)ence" themere receipt of a partial payment is not e*ui#alent tothe re*uired acceptance of performance as woulde!tinguish the whole obligation&+ 1; 3>mphasis supplied4

here is thus a clear distinction )et+een acceptance andmere receipt. !n this case, it is evident that Arti%o merel" receivedpartial pa"ment +ithout +aivin% the )alance. hus, there is no

Bus Org 1 summer (obligations of principal and modes of extinguishment of agency) 11

8/13/2019 Bus Org Cases 3rd Exam

12/60

AMDG

estoppel to spea of.

he (e astros further ar%ue that laches should appl" )ecauseArti%o did not file his complaint in court until a" 29, 1989, or almostfour "ears later. Bence, Arti%o's claim for the )alance of hiscommission is )arred )" laches.

=aches means the failure or ne%lect, for an unreasona)le andune plained len%th of time, to do that +hich )" e ercisin% due

dili%ence could or should have )een done earlier. !t is ne%li%ence oromission to assert a ri%ht +ithin a reasona)le time, +arrantin% apresumption that the part" entitled to assert it either has a)andoned itor declined to assert it.1*

Arti%o disputes the claim that he ne%lected to assert his ri%hts. Be +as appointed as a%ent on Januar" 2/, 198/. he t+o lots +erefinall" sold in June 1985. As found )" the trial court, Arti%o demandedin April and Jul" of 1985 the pa"ment of his commission )"

onstante on the )asis of the sellin% price of *.$5 million )ut there +as no response from onstante.18 After it )ecame clear that hisdemands for pa"ment have fallen on deaf ears, Arti%o decided to sueon a" 29, 1989.

Actions upon a +ritten contract, such as a contract of a%enc", must)e )rou%ht +ithin ten "ears from the time the ri%ht of actionaccrues.19 he ri%ht of action accrues from the moment the )reach ofri%ht or dut" occurs. rom this moment, the creditor can institute theaction even as the ten-"ear prescriptive period )e%ins to run.2$

he (e astros admit that Arti%o's claim +as filed +ithin the ten-"earprescriptive period. he (e astros, ho+ever, still maintain thatArti%o's cause of action is )arred )" laches. =aches does not appl")ecause onl" four "ears had lapsed from the time of the sale in June1985. Arti%o made a demand in Jul" 1985 and filed the action in courton a" 29, 1989, +ell +ithin the ten-"ear prescriptive period. his

does not constitute an unreasona)le dela" in assertin% one's ri%ht.he ourt has ruled,+a delay within the prescripti#e period is

sanctioned by law and is not considered to be a delay thatwould bar relief&+ 21 !n e plainin% that laches applies onl" in thea)sence of a statutor" prescriptive period, the ourt has stated -

@=aches is recourse in e7uit".,*uity" howe#er" is applied onlyin the absence" ne#er in contra#ention" of statutory law& Thus"laches" cannot" as a rule" be used to abate a collection suitfiled within the prescripti#e period mandated by the Ci#ilCode&+ 22

learl", the (e astros' defense of laches finds no support in la+,e7uit" or urisprudence.

Third issue: whether the determination of the purchase pricewas made in #iolation of the ules on ,#idence

he (e astros +ant the ourt to re-e amine the pro)ative value ofthe evidence adduced in the trial court to determine +hether theactual sellin% price of the t+o lots +as *.$5 million and not &.;million. he (e astros contend that it is erroneous to )ase the 5percent commission on a purchase price of *.$5 million as ordered)" the trial court and the appellate court. he (e astros insist thatthe purchase price is &.; million as e pressl" stated in the deed of

sale, the due e ecution and authenticit" of +hich +as admitted durithe trial.

he (e astros )elieve that the trial and appellate courts committeda mista e in considerin% incompetent evidence and disre%ardin%)est evidence and parole evidence rules. he" claim that the ourt Appeals erroneousl" affirmedsu silentio the trial court's reliance onthe various correspondences )et+een onstante and imes ransit +hich +ere mere photocopies that do not satisf" the )est evidence

rule. urther, these letters covered onl" the first ne%otiations )et+eonstante and imes ransit +hich failedE hence, these areimmaterial in determinin% the final purchase price.

he (e astros further ar%ue that if there +as an undervaluation,Arti%o +ho si%ned as +itness )enefited therefrom, and )ein% e7ua%uilt", should )e left +here he presentl" stands. he" li e+ise claimthat the ourt of Appeals erred in rel"in% on evidence +hich +ere offered for the purpose considered )" the trial court. Specificall",> hi)its @ @, @ @, @(@ and @>@ +ere not offered to prove purchase price +as *.$5 illion. inall", the" ar%ue that thecourts a quo erred in %ivin% credence to the per ured testimon" oArti%o. he" +ant the entire testimon" of Arti%o re ected as afalsehood )ecause he +as l"in% +hen he claimed at the outset thathe +as a licensed real estate )ro er +hen he +as not.

Ghether the actual purchase price +as *.$5 illion as found )" thetrial court and affirmed )" the ourt of Appeals, or &.; illion asclaimed )" the (e astros, is a 7uestion of fact and not of la+.!nevita)l", this calls for an in7uir" into the facts and evidence onrecord. his +e can not do.

!t is not the function of this ourt to re-e amine the evidencesu)mitted )" the parties, or anal"De or +ei%h the evidencea%ain.2& his ourt is not the proper venue to consider a factual issas it is not a trier of facts. !n petitions for revie+ on certiorari as a

mode of appeal under 0ule /5, a petitioner can onl" raise 7uestionsof la+. Our pronouncement in the case ofCor&ero vs. Court of Appeals2/ )ears reiteration

@At the outset, it is evident from the errors assi%ned that thepetition is anchored on a plea to revie+ the factual conclusionreached )" the respondent court. Such tas ho+ever is foreclosed)" the rule that in petitions for certiorari as a mode of appeal, lithis one, onl" 7uestions of la+ distinctl" set forth ma" )e raised.

hese 7uestions have )een defined as those that do not call foran" e amination of the pro)ative value of the evidence presente)" the parties. 3:niland 0esources vs. (evelopment an of the

hilippines, 2$$ S 0A *51 P1991Q citin% oduco vs. ourt of

appeals, et al., 119 hil. 5&1E BernandeD vs. ourt of AppealsS 0A ;*4. And +hen this court is as ed to %o over the proofpresented )" the parties, and anal"De, assess and +ei%h them toascertain if the trial court and the appellate court +ere correct inaccordin% superior credit to this or that piece of evidence andeventuall", to the totalit" of the evidence of one part" or the othethe court cannot and +ill not do the same. 3>la"da vs. ourt ofAppeals, 199 S 0A &/9 P1991Q4. hus, in the a)sence of an"sho+in% that the findin%s complained of are totall" devoid ofsupport in the record, or that the" are so %larin%l" erroneous asconstitute serious a)use of discretion, such findin%s must stand,for this court is not e pected or re7uired to e amine or contrastoral and documentar" evidence su)mitted )" the parties. 3 orales

Bus Org 1 summer (obligations of principal and modes of extinguishment of agency) 12

8/13/2019 Bus Org Cases 3rd Exam

13/60

AMDG

vs. ourt of Appeals, 19* S 0A &91 P1991Q citin% Santa Ana vs.BernandeD, 18 S 0A 9*& P19;;Q4.@

Ge find no reason to depart from this principle. he trial andappellate courts are in a much )etter position to evaluate properl" theevidence. Bence, +e find no other recourse )ut to affirm their findin%on the actual purchase price.*1/phi*.n2t

Fourth Issue: whether award of moral damages and attorney s

fees is proper

he (e astros claim that Arti%o failed to prove that he is entitled tomoral dama%es and attorne"'s fees. he (e astros, ho+ever, citeno concrete reason e cept to sa" that the" are the ones entitled todama%es since the case +as filed to harass and e tort mone" fromthem.

=a+ and urisprudence support the a+ard of moral dama%es andattorne"'s fees in favor of Arti%o. he a+ard of dama%es andattorne"'s fees is left to the sound discretion of the court, and if suchdiscretion is +ell e ercised, as in this case, it +ill not )e distur)ed onappeal.25 oral dama%es ma" )e a+arded +hen in a )reach of

contract the defendant acted in )ad faith, orin /anton disregard ofhis contractual o ligation.2; On the other hand, attorne"'s fees area+arded in instances +here @the defendant acted in %ross andevident )ad faith in refusin% to satisf" the plaintiff's plainl" valid, ustand demanda)le claim.@2* here is no reason to distur) the trialcourt's findin% that @the defendants' lac of %ood faith and un indtreatment of the plaintiff in refusin% to %ive his due commissiondeserve censure.@ his +arrants the a+ard of 25,$$$.$$ in moraldama%es and /5,$$$.$$ in attorne"'s fees. he amounts are, in ourvie+, fair and reasona)le. Bavin% found a )u"er for the t+o lots,Arti%o had alread" performed his part of the )ar%ain under thecontract of a%enc". he (e astros should have e ercised fairnessand %ood ud%ment in dealin% +ith Arti%o )" fulfillin% their o+n part of

the )ar%ain - pa"in% Arti%o his 5 percent )ro er's commission )asedon the actual purchase price of the t+o lots.

+ERE#ORE, the petition is denied for lac of merit. he (ecisionof the ourt of Appeals dated a" /, 199/ in A- .0. C #o. &*99;is A## R-ED in toto.

Bus Org 1 summer (obligations of principal and modes of extinguishment of agency) 13

8/13/2019 Bus Org Cases 3rd Exam

14/60

AMDG

>G. R. No. 129919. #ebr0ar< 6, 2((2?

DO- N ON NS"RAN!E !OR$ORAT ON, petitioner" #s&!O"RTO# A$$EALS, RODOL#O S. G"E*ARRA, and

#ERNANDO A"STR A,respondents .D E ! S O N

$ARDO,. .@

T e !a3e

his is an appealvia certiorar i P1Q from the decision of the ourtof AppealsP2Q affirmin% the decisionP&Q of the 0e%ional rial ourt,

ranch //, San ernando, ampan%a, +hich ordered petitioner

(ominion !nsurance orporation 3(ominion4 to pa" 0odolfoS. uevarra 3 uevarra4 the sum of 15;,/*&.9$ representin% thetotal amount advanced )" uevarra in the pa"ment of the claims of(ominionRs clients.

T e #a7t3

he facts, as found )" the ourt of Appeals, are as follo+s

On Januar" 25, 1991, plaintiff 0odolfo S. uevarra instituted ivilase #o. 8855 for sum of mone" a%ainst defendant (ominion

!nsurance orporation. laintiff sou%ht to recover thereunder the sumof 15;,/*&.9$ +hich he claimed to have advanced in his capacit"as mana%er of defendant to satisf" certain claims filed )" defendantRsclients.

!n its traverse, defendant denied an" lia)ilit" to plaintiff and asserteda counterclaim for 2/9,;*2.5&, representin% premiums that plaintiffalle%edl" failed to remit.

On Au%ust 8, 1991, defendant filed a third-part" complaint a%ainsternando Austria, +ho, at the time relevant to the case, +as its

0e%ional ana%er for entral =uDon area.

!n due time, third-part" defendant Austria filed his ans+er.

hereafter the pre-trial conference +as set on the follo+in% datesOcto)er 18, 1991, #ovem)er 12, 1991, arch 29, 1991, (ecem)er12, 1991, Januar" 1*, 1992, Januar" 29, 1992, e)ruar" 28, 1992,

arch 1*, 1992 and April ;, 1992, in all of +hich dates no pre-trialconference +as held. he record sho+s that e cept for the settin%son Octo)er 18, 1991, Januar" 1*, 1992 and arch 1*, 1992 +hich +ere cancelled at the instance of defendant, third-part" defendantand plaintiff, respectivel", the rest +ere postponed upon oint re7uestof the parties.

On a" 22, 1992 the case +as a%ain called for pre-trial conferenOnl" plaintiff and counsel +ere present. (espite due notice,defendant and counsel did not appear, althou%h a messen%er,0o" am)oa, su)mitted to the trial court a hand+ritten note sent tohim )" defendantRs counsel +hich instructed him to re7uest forpostponement. laintiffRs counsel o) ected to the desiredpostponement and moved to have defendant declared as in default

his +as %ranted )" the trial court in the follo+in% order

O0(>0

Ghen this case +as called for pre-trial this afternoon onl" plaintifand his counsel Att". 0omeo a%lalan% appeared. Ghen sho+n anote dated a" 21, 1992 addressed to a certain 0o" +ho +asre7uested to as for postponement, Att". a%lalan% vi%orousl"o) ected to an" postponement on the %round that the note is )ut amere scrap of paper and moved that the defendant corporation )edeclared as in default for its failure to appear in court despite duenotice.

indin% the ver)al motion of plaintiffRs counsel to )e meritoriouconsiderin% that the pre-trial conference has )een repeatedl"

postponed on motion of the defendant orporation, the defendant(ominion !nsurance orporation is here)" declared 3as4 in defaultand plaintiff is allo+ed to present his evidence on June 1;, 1992 at9 $$ oRcloc in the mornin%.

he plaintiff and his counsel are notified of this order in open co

SO O0(>0>(.

laintiff presented his evidence on June 1;, 1992. his +as follo+)" a +ritten offer of documentar" e hi)its on Jul" 8 and asupplemental offer of additional e hi)its on Jul" 1&, 1992. hee hi)its +ere admitted in evidence in an order datedJul" 1*, 1992.

On Au%ust *, 1992 defendant corporation filed a T O !O# O O0(>0 O (> A:= .R !t alle%ed therein that the failure of counseto attend the pre-trial conference +as Tdue to an unavoida)lecircumstanceR and that counsel had sent his representative on thatdate to inform the trial court of his ina)ilit" to appear. he otion +vehementl" opposed )" plaintiff.

On Au%ust 25, 1992 the trial court denied defendantRs motion forreasons, amon% others, that it +as neither verified nor supported )an affidavit of merit and that it further failed to alle%e or specif" tfacts constitutin% his meritorious defense.

On Septem)er 28, 1992 defendant moved for reconsideration of taforesaid order. or the first time counsel revealed to the trial courthat the reason for his nonappearance at the pre-trial conference +ahis illness. An Affidavit of erit e ecuted )" its > ecutive Cice-

resident purportin% to e plain its meritorious defense +as attachto the said otion. Just the same, in an Order dated #ovem)er 1&,1992, the trial court denied said otion.

On #ovem)er 18, 1992, the court a 7uo rendered ud%ment asfollo+s

GB>0> O0>, premises considered, ud%ment is here)" rendere

Bus Org 1 summer (obligations of principal and modes of extinguishment of agency) 14

8/13/2019 Bus Org Cases 3rd Exam

15/60

8/13/2019 Bus Org Cases 3rd Exam

16/60

AMDG

1. Iou are here)" %iven authorit" to settle and dispose ofall &otorcar clai&s in the a&ount of P+%,,,.,, /ith prior approval of the5egional 4ffice.

2.3ull authorit!is %iven "ouon TPPI clai&s settle&ent.

UP2/Q

!n settlin% the claims mentioned a)ove,respondent uevarraRs authorit" is further limited )" the +rittenstandard authorit" to pa",P25Q +hich states that the pa"ment shall comefrom respondent uevarraRs revolvin% fund or collection. heauthorit" to pa" is +orded as follo+s

his is to authoriDe "ou to/ithdra/ fro& !our revolvingfund9collectionthe amount of >SOS VVVVVVVVVVVVVVVVVV 34representin% the pa"ment on the VVVVVVVVVVVVVVVVV claim ofassured VVVVVVVVVVVVVVV under olic" #o. VVVVVV in that accidentof VVVVVVVVVVV at VVVVVVVVVVVV.

!t is further e pected, release papers +ill )e si%ned and authoriDed)" the concerned and attached to the correspondin% claim folderafter effectin% pa"ment of the claim.

3s%d.4 >0#A#(O . A:S 0!A

0e%ional ana%erUP2;Q

P>mphasis suppliedQ

he instruction of petitioner as the principal could not )e an"clearer. 0espondent uevarra +as authoriDed to pa" the claim of theinsured, )ut the pa"ment shall come from the revolvin% fund orcollection in his possession.

Bavin% deviated from the instructions of the principal, thee penses that respondent uevarra incurred in the settlement of theclaims of the insured ma" not )e reim)ursed from petitioner(ominion. his conclusion is in accord +ith Article 1918, ivil ode, +hich states that

he principal is not lia)le for the e penses incurred )" the a%ent inthe follo+in% cases

314 !f theagent acted in contravention of the principal sinstructions%unless the latter should +ish to avail himself of the)enefits derived from the contractE

U

Bo+ever, +hile the la+ on a%enc" prohi)itsrespondent uevarra from o)tainin% reim)ursement, his ri%ht torecover ma" still )e ustified under the %eneral la+ on o)li%ations andcontracts.

Article 12&;, second para%raph, ivil ode, provides

Ghoever pa"s for another ma" demand from the de)tor +hat he haspaid, e cept thatif he paid /ithout the kno/ledge or against the /ill

of the de tor% he can recover onl! insofar as the pa!&ent has eeneneficial to the de tor.;

!n this case, +hen the ris insured a%ainst occurred, petitionlia)ilit" as insurer arose. his o)li%ation +as e tin%uished +respondent uevarra paid the claims and o)tained 0elease of laim=oss and Su)ro%ation 0eceipts from the insured +ho +ere paid.

hus, to the e tent that the o)li%ation of the petitioner has )ee tin%uished, respondent uevarra ma" demand for reim)ursemfrom his principal. o rule other+ise +ould result in un ust enrichof petitioner.

he e tent to +hich petitioner +as )enefited )" the settlemenof the insurance claims could )est )e proven )" the 0elease of laim=oss and Su)ro%ation 0eceiptsP2*Q +hich +ere attached to the ori%incomplaint as Anne es -2, (-1, >-1, -1, -1, B-1, !-1 and J-l, in ttotal amount of 11;,2*;.95.

Bo+ever, the amount of the revolvin% fund?collection thatthen in the possession of respondent uevarra as reflected in thstatement of account dated Jul" 11, 199$ +ould )e deducted fromthe a)ove amount.

he outstandin% )alance and the production?remittance forperiod correspondin% to the claims +as &,;$/.8/. (eductin% thfrom 11;,2*;.95, +e %et 112,;*2.11. his is the amount that ma)e reim)ursed to respondent uevarra.

T e #a88o

N * E +EREO#, +e (>#I the etition. Bo+ever, +eO(! I the decision of the ourt of AppealsP28Q and that of th

0e%ional rial ourt, ranch //, San ernando, ampan%a,P29Q in thapetitioner is ordered to pa" respondent uevarra the amount

112,;*2.11 representin% the total amount advanced )" the latter the pa"ment of the claims of petitionerRs clients.

#o costs in this instance.

Bus Org 1 summer (obligations of principal and modes of extinguishment of agency) 16

8/13/2019 Bus Org Cases 3rd Exam

17/60

AMDG

G.R. No. 155541 /an0ar< 2&, 2((4

ESTATE O# T+E LATE /"L ANA D E *DA. DEGABR EL, petitioner,vs.!O-- SS ONER O# NTERNAL RE*EN"E, respondent.

( > ! S ! O #

YNARES SANT AGO,.&@

his petition for revie+ oncertiorari assails the decision of the ourtof Appeals in A- .0. C #o. $91$*, dated Septem)er &$,2$$2,1 +hich reversed the #ovem)er 19, 1995 Order of 0e%ional

rial ourt of anila, ranch HHHC!!!, in Sp. roc. #o. 0-82-;99/,entitled @ estate >state of Juliana (ieD Cda. (e a)riel@. he petition +as filed )" the >state of the =ate Juliana (ieD Cda. (e a)riel,represented )" rudential an as its dul" appointed and 7ualifiedAdministrator.

As correctl" summariDed )" the ourt of Appeals, the relevant factsare as follo+s

(urin% the lifetime of the decedent, Juliana Cda. (ea)riel, her )usiness affairs +ere mana%ed )" thehilippine rust ompan" 3 hiltrust4. he decedent died on

April &, 19*9. +o da"s after her death, hiltrust, throu%hits rust Officer, Att". Antonio . #u"les, filed her !ncome

a 0eturn for 19*8. he return did not indicate that thedecedent had died.

On a" 22, 19*9, hiltrust also filed a verified petition forappointment as Special Administrator +ith the 0e%ional rial ourt of

anila, ranch HHHC!!!, doc eted as Sp. roc. #o. 0-82-;99/. hecourt a 7uo appointed one of the heirs as Special Administrator.

hiltrustRs motion for reconsideration +as denied )" the pro)atecourt.

On Januar" 2;, 1981, the court a 7uo issued an Order relievin% r.(ieD of his appointment, and appointed Antonio =antin to ta e overas Special Administrator. Su)se7uentl", on Jul" &$, 1981, r. =antin +as also relieved of his appointment, and Att". Cicente Onosa +asappointed in his stead.

!n the meantime, the ureau of !nternal 0evenue conducted anadministrative investi%ation on the decedentRs ta lia)ilit" and found a

deficienc" income ta for the "ear 19** in the amount of&18,2&&.9&. hus, on #ovem)er 18, 1982, the !0 sent )"re%istered mail a demand letter and Assessment #otice #o. #A0(-*8-82-$$5$1 addressed to the decedent @c?o hilippine rust

ompan", Sta. ruD, anila@ +hich +as the address stated in her19*8 !ncome a 0eturn. #o response +as made )" hiltrust. he

!0 +as not informed that the decedent had actuall" passed a+a".

!n an Order dated Septem)er 5, 198&, the court a 7uo appointedAntonio Am)rosio as the ommissioner and Auditor a onsultantof the >state of the decedent.

On June 18, 198/, respondent ommissioner of !nternal 0evenueissued +arrants of distraint and lev" to enforce collection of thedecedentRs deficienc" income ta lia)ilit", +hich +ere served uponher heir, rancisco a)riel. On #ovem)er 22, 198/, respondent fileda @ otion for Allo+ance of laim and for an Order of a"ment of

a es@ +ith the court a 7uo. On Januar" *, 1985, r. Am)rosio fila letter of protest +ith the =iti%ation (ivision of the !0, +hich +asnot acted upon )ecause the assessment notice had alle%edl")ecome final, e ecutor" and incontesta)le.

On a" 1;, 1985, petitioner, the >state of the decedent, throu%h rAm)rosio, filed a formal opposition to the !0Rs otion for Allo+of laim )ased on the %round that there +as no proper service of thassessment and that the filin% of the aforesaid claim had alread"prescri)ed. he !0 filed its 0epl", contendin% that service to

hilippine rust ompan" +as sufficient service, and that the filin%the claim a%ainst the >state on #ovem)er 22, 198/ +as +ithin thefive-"ear prescriptive period for assessment and collection of ta eunder Section &18 of the 19** #ational !nternal 0evenue ode3#!0 4.

On #ovem)er 19, 1985, the court a 7uo issued an Order den"in%respondentRs claim a%ainst the >state,2 after findin% that there +as nnotice of its ta assessment on the proper part".&

On Jul" 2, 198;, respondent filed an appeal +ith the ourt ofAppeals, doc eted as A- .0. C #o. $91$*,/ assailin% the Order othe pro)ate court dated #ovem)er 19, 1985. !t +as claimed that

hiltrust, in filin% the decedentRs 19*8 income ta return on Apr19*9, t+o da"s after the ta pa"erRs death, had @constituted itself the administrator of the estate of the deceased at least insofar assaid return is concerned.@5 itin% asilan >state !nc. v. ommissioof !nternal 0evenue,; respondent ar%ued that the le%al re7uiremennotice +ith respect to ta assessments* re7uires merel" that the

ommissioner of !nternal 0evenue release, mail and send the noticof the assessment to the ta pa"er at the address stated in the returnfiled, )ut not that the ta pa"er actuall" receive said assessment +ithin the five-"ear prescriptive period.8 laimin% that hiltrust had)een remiss in not notif"in% respondent of the decedentRs death,respondent therefore ar%ued that the deficienc" ta assessment haalread" )ecome final, e ecutor" and incontesta)le, and thatpetitioner >state +as lia)le therefor.

On Septem)er &$, 2$$2, the ourt of Appeals rendered a decision favor of the respondent. Althou%h ac no+led%in% that the )ond a%enc" )et+een hiltrust and the decedent +as severed upon thelatterRs death, it +as ruled that the administrator of the >state hadfailed in its le%al dut" to inform respondent of the decedentRs deapursuant to Section 1$/ of the #ational !nternal 0evenue ode of19**. onse7uentl", the !0Rs service to hiltrust of the demandletter and #otice of Assessment +as )indin% upon the >state, and,upon the lapse of the statutor" thirt"-da" period to 7uestion thisclaim, the assessment )ecame final, e ecutor" and incontesta)le.

he dispositive portion of said decision reads

GB>0> O0>, findin% merit in the appeal, the appealeddecision is 0>C>0S>( A#( S> AS!(>. Another one isentered orderin% the Administrator of the >state to pa" t

ommissioner of !nternal 0evenue the follo+in%

a. he amount of &18,22&.9&, representin%

Bus Org 1 summer (obligations of principal and modes of extinguishment of agency) 17

8/13/2019 Bus Org Cases 3rd Exam

18/60

AMDG

deficienc" income ta lia)ilit" for the "ear 19*8,plus 2$< interest per annum from #ovem)er 2,1982 up to #ovem)er 2, 1985 and in additionthereto 1$< surchar%e on the )asic ta of

1;9,155.&/ pursuant to Section 513e4324 and 3&4of the a ode as amended )" ( ;9 and1*$5E and

). he costs of the suit.

SO O0(>0>(. 9

Bence, the instant petition, raisin% the follo+in% issues

1. Ghether or not the ourt of Appeals erred in holdin% thatthe service of deficienc" ta assessment a%ainst Juliana(ieD Cda. de a)riel throu%h the hilippine rust ompan" +as a valid service in order to )ind the >stateE

2. Ghether or not the ourt of Appeals erred in holdin% thatthe deficienc" ta assessment and final demand +asalread" final, e ecutor" and incontesta)le.

etitioner >state denies that hiltrust had an" le%al personalit" torepresent the decedent after her death. As such, petitioner ar%uesthat there +as no proper notice of the assessment +hich,therefore, never )ecame final, e ecutor" andincontesta)le.1$ etitioner further contends that respondentRs failureto file its claim a%ainst the >state +ithin the proper period prescri)ed)" the 0ules of ourt is a fatal error, +hich forever )ars its claima%ainst the >state.11

0espondent, on the other hand, claims that )ecause hiltrust filedthe decedentRs income ta return su)se7uent to her death, hiltrust +as the de facto administrator of her >state.12 onse7uentl", +henthe Assessment #otice and demand letter dated #ovem)er 18, 1982 +ere sent to hiltrust, there +as proper service on the>state.1&0espondent further asserts that hiltrust had the le%alo)li%ation to inform petitioner of the decedentRs death, +hichre7uirement is found in Section 1$/ of the #!0 of 19**.1/ Since

hiltrust did not, respondent contends that petitioner >state shouldnot )e allo+ed to profit from this omission.15 0espondent furtherar%ues that hiltrustRs failure to protest the aforementionedassessment +ithin the &$-da" period provided in Section &19-A of the#!0 of 19** meant that the assessment had alread" )ecome final,e ecutor" and incontesta)le.1;

he resolution of this case hin%es on the le%al relationship )et+eenhiltrust and the decedent, and, )" e tension, )et+een hiltrust and

petitioner >state. Su)sumed under this primar" issue is the su)-issueof +hether or not service on hiltrust of the demand letter andAssessment #otice #o. #A0(-*8-82-$$5$1 +as valid service onpetitioner, and the issue of +hether hiltrustRs inaction thereon could)ind petitioner. !f )oth su)-issues are ans+ered in the affirmative,respondentRs contention as to the finalit" of Assessment #otice #o.#A0(-*8-82-$$5$1 must )e ans+ered in the affirmative. his is)ecause Section &19-A of the #!0 of 19** provides a clear &$-da"period +ithin +hich to protest an assessment. ailure to file such aprotest +ithin said period means that the assessment ipso ure)ecomes final and unappeala)le, as a conse7uence of +hich le%al

proceedin%s ma" then )e initiated for collection thereof.

Ge find in favor of the petitioner.

he first point to )e considered is that the relationship )et+een thedecedent and hiltrust +as one of a%enc", +hich is a personalrelationship )et+een a%ent and principal. :nder Article 1919 3&4 othe ivil ode, death of the a%ent or principal automaticall"terminates the a%enc". !n this instance, the death of the decedent o

April &, 19*9 automaticall" severed the le%al relationship )et+eenher and hiltrust, and such could not )e revived )" the mere fact thhiltrust continued to act as her a%ent +hen, on April 5, 19*9, it f

her !ncome a 0eturn for the "ear 19*8.

Since the relationship )et+een hiltrust and the decedent +asautomaticall" severed at the moment of the a pa"erRsdeath, none of hiltrustRs acts or omissions could )ind the estate othe a pa"er. Service on hiltrust of the demand letter andAssessment #otice #o. #A0(-*8-82-$$5$1 +as improperl" done.

!t must )e noted that hiltrust +as never appointed as theadministrator of the >state of the decedent, and, indeed, that the

court a 7uo t+ice re ected hiltrustRs motion to )e thus appointedof #ovem)er 18, 1982, the date of the demand letter andAssessment #otice, the le%al relationship )et+een the decedent and

hiltrust had alread" )een non-e istent for three "ears.

0espondent claims that Section 1$/ of the #ational !nternal 0evenuode of 19** imposed the le%al o)li%ation on hiltrust to inform

respondent of the decedentRs death. he said Section reads

S> . 1$/.

8/13/2019 Bus Org Cases 3rd Exam

19/60

AMDG

hus, as of #ovem)er 18, 1982, the date of the demandletter and Assessment #otice #o. #A0(-*8-82-$$5$1,there +as a)solutel" no le%al o)li%ation on the part of

hiltrust to either 314 respond to the demand letter andassessment notice, 324 inform respondent of the decedentRsdeath, or 3&4 inform petitioner that it had received saiddemand letter and assessment notice. his lac of le%alo)li%ation +as implicitl" reco%niDed )" the ourt ofAppeals, +hich, in fact, rendered its assailed decision on%rounds of @e7uit"@.1*

Since there +as never an" valid notice of this assessment, it couldnot have )ecome final, e ecutor" and incontesta)le, and, for failureto ma e the assessment +ithin the five-"ear period provided inSection &18 of the #ational !nternal 0evenue ode of 19**,respondentRs claim a%ainst the petitioner >state is )arred. SaidSection 18 reads

S> . &18.Period of li&itation upon assess&ent andcollection. N > cept as provided in the succeedin% section,internal revenue ta es shall )e assessed +ithin five "earsafter the return +as filed, and no proceedin% in court +ithout assessment for the collection of such ta es shall )e)e%un after the e piration of such period. or the purposeof this section, a return filed )efore the last da" prescri)ed)" la+ for the filin% thereof shall )e considered as filed onsuch last da" rovided, hat this limitation shall not appl"to cases alread" investi%ated prior to the approval of this

ode.

0espondent ar%ues that an assessment is deemed made for thepurpose of %ivin% effect to such assessment +hen the notice isreleased, mailed or sent to the ta pa"er to effectuate theassessment, and there is no le%al re7uirement that the ta pa"eractuall" receive said notice +ithin the five-"ear period.18 !t must )enoted, ho+ever, that the fore%oin% rule re7uires that the notice )esent to the ta pa"er, and not merel" to a disinterested part".Althou%h there is no specific re7uirement that the ta pa"er shouldreceive the notice +ithin the said period, due process re7uires at thever" least that such notice actuall" )e received. !n ommissioner of!nternal 0evenue v. ascor 0ealt" and (evelopment

orporation,19 +e had occasion to sa"

An assessment contains not onl" a computation of talia)ilities, )ut also a demand for pa"ment +ithin aprescri)ed period. !t also si%nals the time +hen penaltiesand interests )e%in to accrue a%ainst the ta pa"er. oena)le the ta pa"er to determine his remediesthereon, due process re7uires that it must )e served onand received )" the ta pa"er.

!n 0epu)lic v. (e le 0ama, 2$ +e clarified that, +hen an estate isunder administration, notice must )e sent to the administrator of theestate, since it is the said administrator, as representative of theestate, +ho has the le%al o)li%ation to pa" and dischar%e all de)ts ofthe estate and to perform all orders of the court. !n that case, le%alnotice of the as