Agency Part F: Limitations (Art. 1894 - 1898) 1 ` FIRST DIVISION [G.R. No. 5236. January 10, 1910.

.] PEDRO MARTINEZ, plaintiff-appellee, vs. ONG PONG CO and ONG LAY, defendants. ONG PONG CO, appellant. Fernando de la Cantera for appellant. O'Brien & De Witt for appellee. SYLLABUS 1. PARTNERSHIP; LIABILITY OF MANAGING PARTNERS. Where two persons receive from another a sum of money for the establishment of a business, and agree to share with the latter the profits or losses that may result therefrom, the said two persons, as the apparent administrators of the partnership, acted as agents for the capitalist partner under the provisions of article 1695, rule 1, of the Civil Code, and by virtue thereof are bound to fulfill the contract which implies the management of the business. 2. ID.; ID.; CONTRACT OF "MANDATUM." A contract of mandatum requires that agents shall account to the principal for all their transactions and pay him whatever sum they received by virtue thereof. By not accounting for it, or otherwise justifying the investment of the money received and administered, the parties who received it become debtors and are under obligation to make restitution of the money to the person who entrusted it to them. 3.ID.; ID.; ID.; The above obligation is not in solidum, neither by reason of the general rules governing the obligations of two or more persons, nor by the special rule governing contracts of partnership or of mandatum; it is simply a contract in severalty, each person being liable for one half. DECISION ARELLANO, C.J p: On the 12 of December, 1900, the plaintiff herein delivered P1,500 to the defendants who, in a private document, acknowledged that they had received the same with the agreement, as stated by them, "that we are to invest the amount in a store, the profits or losses of which we are to divide with the former, in equal shares." The plaintiff filed a complaint on April 25, 1907, in order to compel the defendants to render him an accounting of the partnership as agreed to, or else to refund him the P1,500 that he had given them for the said purpose. Ong Pong Co alone appeared to answer the complaint; he admitted the fact of the agreement and the delivery to him and to Ong Lay of the P1,500 for the purpose aforesaid, but he alleged that Ong Lay, who was then deceased, was the one who had managed the business, and that nothing had resulted therefrom save the loss of the capital of P1,500, to which loss the plaintiff had agreed. The judge of the Court of First Instance of the city of Manila who tried the case ordered Ong Pong Co to return to the plaintiff one-half of the said capital of P1,500 which, together with Ong Lay, he had received from the plaintiff, to wit, P750, plus P90 as one-half of the profits, calculated at the rate of 12 per cent per annum for the six months that the store was supposed to have been open, both sums in Philippine currency, making a total of P840, with legal interest thereon at the rate of 6 per cent per annum, from the 12th of June, 1901, when the business terminated and on which date he ought to have returned the said amount to the plaintiff, until the full payment thereof with costs. From this judgment Ong Pong Co appealed to this court, and assigned the following errors: 1.For not having taken into consideration the fact that the reason for the closing of the store was the ejectment from the premises occupied by it. 2.For not having considered the fact that there were losses. 3.For holding that there should have been profits. 4.For having applied article 1138 of the Civil Code. 5 and 6.For holding that the capital ought to have yielded profits, and that the latter should be calculated at 12 per cent per annum; and 7.The findings of the judgment. As to the first assignment of error, the fact that the store was closed by virtue of ejectment proceedings is of no importance for the effects of the suit. The whole action is based upon the fact that the defendants received certain capital from the plaintiff for the purpose of organizing a company; they, according to the agreement, were to handle the said money and invest it in a store which was the object of the association; they, in the absence of a special agreement vesting in one sole person the management of the business, were the actual administrators thereof; as such administrators they were the agents of the company and incurred the liabilities peculiar to every agent, among which is that of rendering account to the principal of their transactions, and paying him everything they may have received by virtue of the mandatum. (Arts. 1695 and 1720, Civil Code.) Neither of them has rendered such account nor proven the losses referred to by Ong Pong Co; they are therefore obliged to refund the money that they received for the purpose of establishing the said store the object of the association. This was the principal pronouncement of the judgment. With regard to the second and third assignments of error, this court, like the court below, finds no evidence that the entire capital or any part thereof was lost. It is no evidence of such loss to aver, without proof, that the effects of the store were ejected. Even though this were proven, it could not be inferred therefrom that the ejectment was due to the fact that no rents were paid, and that the rent was not paid on account of the loss of the capital belonging to the enterprise. With regard to the possible profits, the findings of the court below are based on the statements of the defendant Ong Pong Co, to the effect that "there were some profits, but not large ones." This court, however, does not find that the amount thereof has been proven, nor deem it possible to estimate them to be a certain sum, and for a given period of time; hence, it can not admit the estimate, made in the judgment, of 12 per cent per annum for the period of six months. Inasmuch as in this case nothing appears other than the failure to fulfill an obligation on the part of a partner who acted as agent in receiving money for a given purpose, for which he has rendered no accounting, such agent is responsible only for the losses which, by a violation of the provisions of the law, he incurred. This being an obligation to pay in cash, there are no other losses than the legal interest, which interest is not due except from the time of the judicial demand, or, in the present case, from the filing of the complaint. (Arts. 1108 and 1100, Civil Code.) We do not consider that article 1688 is applicable in this case, in so far as it provides "that the partnership is

Agency Part F: Limitations (Art. 1894 - 1898) 2 ` liable to every partner for the amounts he may have disbursed on account of the same and for the proper interest," for the reason that no other money than that contributed as capital is involved. As in the partnership there were two administrators or agents liable for the above-named amount, article 1138 of the Civil Code has been properly applied, and article 1698 might also have been invoked; this latter deals with debts of a partnership where the obligation is not a joint one, as is likewise provided by article 1723 of said code with respect to the liability of two or more agents with respect to the return of the money that they receive from their principal. Therefore, the other errors assigned have not been committed. In view of the foregoing, the judgment appealed from is hereby affirmed, provided, however, that the defendant Ong Pong Co shall only pay the plaintiff the sum of P750 with the legal interest thereon at the rate of 6 per cent per annum from the time of the filing of the complaint, and the costs, without special ruling as to the costs of this instance. So ordered. Torres, Johnson, Carson and Moreland, JJ., concur. --------------------------------------------------------------------------------------------------------------------------------------FIRST DIVISION [G.R. No. 32977. November 17, 1930.] THE MUNICIPAL COUNCIL OF ILOILO, plaintiff-appellee, vs. JOSE EVANGELISTA ET AL., defendants-appellees. TAN ONG SZE VDA. DE TAN TOCO, appellant. Trenas & Laserna for defendant-appellant. Provincial Fiscal Blanco of Iloilo for plaintiff-appellee. Felipe Ysmael for appellee Mauricio Cruz & Co. No appearance for other appellees. SYLLABUS 1.PRINCIPAL AND AGENT; POWER OF AGENT; PAYMENTS OF ATTORNEYS' FEES. An agent or attorney-in-fact empowered to pay the debts of the principal, and to employ attorneys to defend the latter's interests, is impliedly empowered to pay the attorney's fees for services rendered in the interests of said principal, and may satisfy them by an assignment of a judgment rendered in favor of said principal. 2.ID.; APPOINTMENT OF TWO AGENTS. When a person appoints two agents independently, the consent of one will not be required to validate the acts of the other, unless that appears positively to have been the principal's attention. 3.JUDGMENT; ASSIGNMENT OF AMOUNT FOR PROFESSIONAL SERVICES. The assignment of the amount of a judgment made by a person to his attorney, who has not taken any part in the case wherein said judgment was rendered, made in payment of professional services in other cases, does not contravene the prohibition of article 1459, case 5, of the Civil Code. DECISION VILLA-REAL, J p: This is an appeal taken by the defendant Tan Ong Sze Vda. de Tan Toco from the judgment of the Court of First Instance of Iloilo, providing as follows: "Wherefore, judgment is hereby rendered, declaring valid and binding the deed of assignment of the credit executed by Tan Toco's widow, through her attorney-in-fact Tan Buntiong, in favor of the late Antero Soriano; likewise the void. "4.The court below erred in holding that the balance of the credit against the municipality of Iloilo should be adjudicated to the appellant herein, Tan Toco's widow. "5.The lower court erred in denying the motion for a new trial filed by the defendant-appellant." The facts of the case are as follows: On March 20, 1924, the Court of First Instance of Iloilo rendered judgment in civil case No. 3514 thereof, wherein the appellant herein, Tan Ong Sze Vda. de Tan Toco was the plaintiff, and the municipality of Iloilo the defendant, and the former sought to recover of the latter the value of a strip of land belonging to said plaintiff taken by the defendant to widen a public street; the judgment entitled the plaintiff to recover P42,966.40, representing the value of said strip of land, from the defendant (Exhibit A). On appeal to this court (G. R. No. 22617) 1 the judgment was affirmed on November 28, 1924 (Exhibit B). After the case was remanded to the court of origin, and the judgment rendered therein had become final and executory, Attorney Jose Evangelista, in his own behalf and as counsel for the administratrix of Jose Ma. Arroyo's intestate estate, filed a claim in the same case for professional services rendered by him, which the court, acting with the consent of the appellant widow, fixed at 15 per cent of the amount of the judgment (Exhibit 22 Soriano). At the hearing on said claim, the claimants appeared, as did also the Philippine National Bank, which prayed that the amount of the judgment be turned over to it because the land taken over In support of its appeal, the appellant assigns the following alleged errors as committed by the trial court in its decision, to wit: "1.The lower court erred in rejecting as evidence Exhibit 4-A, Tan Toco, and Exhibit 4-B, Tan Toco. "2.The lower court erred in sustaining the validity of the deed of assignment of the credit, Exhibit 2-Cruz, instead of finding that said assignment made by Tan Buntiong to Attorney Antero Soriano was null and void. "3.The lower court erred in upholding the assignment of that credit by Antero Soriano to Mauricio Cruz & Co., Inc., instead of declaring it null and assignment executed by the latter during his lifetime in favor of the defendant Mauricio Cruz & Co., Inc., and the plaintiff is hereby ordered to pay the said Mauricio Cruz & Co., Inc., the balance of P30,966.40; the plaintiff is also ordered to deposit said sum in a local bank within the period of ninety days from the time this judgment shall become final, at the disposal of the aforesaid Mauricio Cruz & Co., Inc., and in case that the plaintiff shall not make such deposit in the manner indicated, said amount shall bear the legal interest of six per cent per annum from the date when the plaintiff shall fail to make the deposit within the period herein set forth, until fully paid. "Without special pronouncement of costs."

Agency Part F: Limitations (Art. 1894 - 1898) 3 ` had been mortgaged to it. Antero Soriano also appeared claiming the amount of the judgment as it had been assigned to him, and by him, in turn, assigned to Mauricio Cruz & Co., Inc. After hearing all the adverse claims on the amount of the judgment, the court ordered that the attorney's lien in the amount of 15 per cent of the judgment, be recorded in favor of Attorney Jose Evangelista, in his own behalf and as counsel for the administratrix of the deceased Jose Ma. Arroyo, and directed the municipality of Iloilo to file an action of interpleading against the adverse claimants, the Philippine National Bank, Antero Soriano, Mauricio Cruz & Co., Jose Evangelista, and Jose Arroyo, as was done, the case being filed in the Court of First Instance of Iloilo as civil case No. 7702. After due hearing, the court rendered the decision quoted from at the beginning. On March 29, 1928, the municipal treasurer of Iloilo, with the approval of the auditor, of the provincial treasurer of Iloilo, and of the Executive Bureau, paid the late Antero Soriano the amount of P6,000 in part payment of the judgment mentioned above, assigned to him by Tan Boon Tiong, acting as attorney-in-fact of the appellant herein, Tan Ong Sze Vda. de Tan Toco. On December 18, 1928, the municipal treasurer of Iloilo deposited with the clerk of the Court of First Instance of Iloilo the amount of P6,000 on account of the judgment rendered in said civil case No. 3514. In pursuance of the resolution of the court below ordering that the attorney's lien in the amount of 15 per cent of the judgment be recorded in favor of Attorney Jose Evangelista, in his own behalf and as counsel for the late Jose Ma. Arroyo, the said clerk of court delivered on the same date to said Attorney Jose Evangelista the said amount of P6,000. At the hearing of the instant case, the codefendants of Attorney Jose Evangelista agreed not to discuss the payment made to the latter by the clerk of the Court of First Instance of Iloilo of the amount of P6,000 mentioned above in consideration of said lawyer's waiver of the remainder of the 15 per cent of said judgment amounting to P444.69. With these two payments of P6,000 each making a total of P12,000, the judgment for P42,966.44 against the municipality of Iloilo was reduced to P30,966.40, which was adjudicated by said court to Mauricio Cruz & Co. This appeal, then, is confined to the claim of Mauricio Cruz & Co. as alleged assignee of the rights of the late Attorney Antero Soriano by virtue of the said judgment in payment of professional services rendered by him to the said widow and her coheirs. The only question to be decided in this appeal is the legality of the assignment made by Tan Boon Tiong, as attorney-in-fact of the appellant Tan Ong Sze Viuda de Tan Toco, to Attorney Antero Soriano, of all the credits, rights and interests belonging to said appellant Tan Ong Sze Viuda de Tan Toco by virtue of the judgment rendered in civil case No. 3514 of the Court of First Instance of Iloilo, entitled Viuda de Tan Toco vs. The Municipal Council of Iloilo, adjudicating to said widow the amount of P42,966.40, plus the costs of court, against said municipal council of Iloilo, in consideration of professional services rendered by said attorney to said widow of Tan Toco and her coheirs, by virtue of the deed Exhibit 2. The appellant contends, in the first place, that said assignment was not made in consideration of professional services by Attorney Antero Soriano, for they had already been satisfied before the execution of said deed of assignment, but in order to facilitate the collection of the amount of said The defendant-appellant also contends that the deed of assignment Exhibit 2-Cruz was drawn up in contravention of the prohibition contained in article 1459, case 5, of the Civil Code, which reads as follows: "ART. 1459.The following persons cannot take by purchase, even at a public or judicial auction, either in person or through the mediation of another: xxx xxx xxx "5.Justices, judges, members of the department of public prosecution, clerks of superior and inferior courts, and other officers of such courts, the property and rights in litigation before the court within whose jurisdiction or territory they perform their respective duties. This prohibition shall include the acquisition of such property by assignment. judgment in favor of the appellant, for the reason that, being Chinese, she had encountered many difficulties in trying to collect. In support of her contention on this point, the appellant alleges that the payments admitted by the court in its judgment, as made by Tan Toco's widow to Attorney Antero Soriano for professional services rendered to her and to her coheirs, amounting to P2,900, must be added to the P700 evidenced by Exhibits 4-A, Tan Toco, and 4-B, Tan Toco, respectively, which exhibits the court below rejected as evidence, on the ground that they were considered as payments made for professional services rendered, not by Antero Soriano personally, but by the firm of Soriano & Arroyo. A glance at these receipts shows that those amounts were received by Attorney Antero Soriano for the firm of Soriano & Arroyo, which is borne out be the stamp on said receipts reading, "Bufete Soriano & Arroyo," and the manner in which said attorney receipted for them, "Soriano & Arroyo, by A. Soriano." Therefore, the appellant's contention that the amounts of P200 and P500 evidenced by said receipts should be considered as payments made to Attorney Antero Soriano for professional services rendered by him personally to the interests of the widow of Tan Toco, is untenable. Besides, if at the time of the assignment to the late Antero Soriano, his professional services to the appellant widow of Tan Toco had already been paid for, no reason can be given why it was necessary to wire him money in payment of professional services on March 14, 1928 (Exhibit 5-G Tan Toco) and December 15, of the same year (Exhibit 5-H Tan Toco) after the deed of assignment, (Exhibit 2-Cruz) dated September 27, 1927, had been executed. In view of the fact that the amounts involved in the cases prosecuted by Attorney Antero Soriano as counsel for Tan Toco's widow, some of which cases have been appealed to this court, run into the hundreds of thousands of pesos, and considering that said attorney had won several of those cases for his clients, the sum of P10,000 to date paid to him for professional services is wholly inadequate, and shows, even if indirectly, that the assignment of the appellant's rights and interests made to the late Antero Soriano and determined in the judgment aforementioned, was made in consideration of the professional services rendered by the latter to the aforesaid widow and her coheirs.

Agency Part F: Limitations (Art. 1894 - 1898) 4 ` "Actions between co-heirs concerning the hereditary property, interests of said principal, and may satisfy them by an assignment of a judgment rendered in favor of said principal; (2) that when a person appoints two attorneys-in-fact independently, the consent of the one will not be required to validate the acts of the other unless that appears positively to have been the principal's intention; and (3) that the assignment of the amount of a judgment made by a person to his attorney, who has not taken any part in the case wherein said judgment was rendered, made in payment of professional services in other cases, does not contravene the prohibition of article 1459, case 5, of the Civil Code. By virtue whereof, and finding no error in the judgment appealed from, the same is affirmed in its entirety, with costs against the appellant. So ordered. Avancea, C. J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns and Romualdez, JJ., concur. --------------------------------------------------------------------------------------------------------------------------------------EN BANC [G.R. No. 35469. March 17, 1932.] E. S. LYONS, plaintiff-appellant, vs. C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser, deceased, defendant-appellee. Harvey & O'Brien, for appellant. DeWitt, Perkins & Brady, for appellee. SYLLABUS 1.PRINCIPAL AND AGENT; RATIFICATION OF ACT OF AGENT; RIGHTS INCIDENT TO OWNERSHIP . Where one of two individuals who had been associated in certain real estate deals, owing a sum of money to his associate, invested it in the shares of a new company promoted by himself, and this action was ratified by the associate, to whom the shares were accordingly issued, no legal or equitable rights, other than those ordinarily incident to ownership, can be deduced from the transaction in favor of the owner thus acquiring such shares. 2.ID.; AGENT'S LIABILITY FOR INTEREST ON MONEY OF HIS CONSTITUENT. Under article 1724 of the Civil Code and article 264 of the Code of Commerce, an agent is liable for interest on funds belonging to his principal (constituent) which have been applied by the agent to unauthorized uses. 3.EQUITY; TRUSTS; FOLLOWING TRUST FUNDS; WHEN CASE GOVERNED BY ORDINARY RULE OF CIVIL LIABILITY. The doctrine developed in the courts of England and the United States relative to the pursuing of trust funds is conversant with rights deducible from the application, by a person in a trust relation with another, of specific property belonging to such other person to some unauthorized purpose. The fact that one of two cowners subjects their joint property to a contingent liability which results in no damage does not create a trust in favor of the other, and the liability thereby incurred must be determined in conformity with the principles of the civil law properly applicable to the case. 4.ID.; ID.; ID.; ID.; CASE AT BAR. Where two individuals had been jointly associated in various real estate deals, one of them, while the other was away, bought a valuable piece of property with a view to the promotion of a suburban development, and as he expected that his absent former associate would come into this deal and contribute some capital to the purchase and development of the property, he subjected a piece of mortgaged property owned by them jointly to a second mortgage, to secure against loss a surety company which had been induced to sign a note with the active promoter to secure a loan necessary to complete the first payment on the property assignments in payment of debts, or to secure the property of such persons, shall be excluded from this rule. "The prohibition contained in this paragraph shall include lawyers and solicitors with respect to any property or rights involved in any litigation in which they may take part by virtue of their profession and office." It does not appear that Attorney Antero Soriano was counsel for the herein appellant in civil case No. 3514 of the Court of First Instance of Iloilo, which she instituted against the municipality of Iloilo, Iloilo, for the recovery of the value of a strip of land expropriated by said municipality for the widening of a certain public street. The only lawyers who appear to have represented her in that case were Arroyo and Evangelista, who filed a claim for their professional fees. When the appellant's credit, right, and interests in that case were assigned by her attorney-in-fact Tan Boon Tiong, to Attorney Antero Soriano in payment of professional services rendered by the latter to the appellant and her coheirs in connection with other cases, that particular case had been decided, and the only thing left to do was to collect the judgment. There was no relation of attorney and client, then, between Antero Soriano and the appellant, in the case where that judgment was rendered; and therefore the assignment of her credit, right and interests to said lawyer did not violate the prohibition cited above. As to whether Tan Boon Tiong, as attorney-in-fact of the appellant, was empowered by his principal to make an assignment of credits, rights, and interests, in payment of debts for professional services rendered by lawyers, in paragraph VI of the power of attorney, Exhibit 5-Cruz, Tan Boon Tiong is authorized to employ and contract for the services of lawyers upon such conditions as he may deem convenient, to take charge of any actions necessary or expedient for the interests of his principal, and to defend suits brought against her. This power necessarily implies the authority to pay for the professional services thus engaged. In the present case, the assignment made by Tan Boon Tiong, as attorney-in-fact for the appellant, in favor of Attorney Antero Soriano for professional services rendered in other cases in the interests of the appellant and her coheirs, was that credit which she had against the municipality of Iloilo, and such assignment was equivalent to the payment of the amount of said credit to Antero Soriano for professional services. With regard to the failure of the other attorney-in-fact of the appellant, Tan Montano, authorized by Exhibit 1 Tan Toco, to consent to the deed of assignment, the latter being also authorized to pay, in the name and behalf of the principal, all her debts and the liens and encumbrances of her property, the very fact that different letters of attorney were given to each of these two representatives shows that it was not the principal's intention that they should act jointly in order to make their acts valid. Furthermore, the appellant was aware of that assignment and she not only did not repudiate it, but she continued employing Attorney Antero Soriano to represent her in court. For the foregoing considerations, the court is of opinion and so holds: (1) That an agent or attorney-in-fact empowered to pay the debts of the principal, and to employ lawyers to defend the latter's interests, is impliedly empowered to pay the lawyer's fees for services rendered in the

Agency Part F: Limitations (Art. 1894 - 1898) 5 ` purchased. After the second individual returned to Manila he consented for this second mortgage (which had been executed under a sufficient power of attorney) to remain upon the property until it was paid off, as was presently done. Held, that the use to which the joint property was thus subjected did not create a trust in favor of the second individual, with the effect of making him a co-partner in the ownership of the property purchased as aforesaid. DECISION STREET, J p: This action was instituted in the Court of First Instance of the City of Manila, by E. S. Lyons against C. W. Rosenstock, as executor of the estate of H. W. Elser, deceased, consequent upon the taking of an appeal by the executor from the allowance of the claim sued upon by the committee on claims in said estate. The purpose of the action is to recover four hundred forty-six and two thirds shares of the stock of J. K. Pickering & Co., Ltd., together with the sum of about P125,000, representing the dividends which accrued on said stock prior to October 21, 1926, with lawful interest. Upon hearing the cause the trial court absolved the defendant executor from the complaint, and the plaintiff appealed. Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the City of Manila where he was engaged during the years with which we are here concerned in buying, selling, and administering real estate. In several ventures which he had made in buying and selling property of this kind the plaintiff, E. S. Lyons, had joined with him, the profits being shared by the two in equal parts. In April, 1919, Lyons, whose regular vocation was that of a missionary, or missionary agent, of the Methodist Episcopal Church, went on leave to the United States and was gone for nearly a year and a half, returning on September 21, 1920. On the eve of his departure Elser made a written statement showing that Lyons was, at that time, half owner with Elser of three particular pieces of real property. Concurrently with this act Lyons executed in favor of Elser a general power of attorney empowering him to manage and dispose of said properties at will and to represent Lyons fully and amply, to the mutual advantage of both. During the absence of Lyons two of the pieces of property above referred to were sold by Elser, leaving in hands a single piece of property located at 616-618 Carriedo Street, in the City of Manila, containing about 282 square meters of land, with the improvements thereon. In the spring of 1920 the attention of Elser was drawn to a piece of land, containing about 1,500,000 square meters, near the City of Manila, and he discerned therein a fine opportunity for the promotion and development of a suburban improvement. This property, which will be herein referred to as the San Juan Estate, was offered by its owners for P570,000. To afford a little time for maturing his plans, Elser purchased an option on this property for P5,000, and when this option was about to expire without his having been able to raise the necessary funds, he paid P15,000 more for an extension of the option, with the understanding in both cases that, in case the option should be exercised, the amounts thus paid should be credited as part of the first payment. The amounts paid for this option and its extension were supplied by Elser entirely from his own funds. In the end he was able from his own means, and with the assistance which he obtained from others, to acquire said estate. The amount required for the first payment was P150,000, and as Elser had available only about P120,000, including the P20,000 advanced upon the option, it was necessary to raise the remainder by obtaining a loan for P50,000. This amount was finally obtained from a Chinese merchant of the city named Uy Siuliong. This loan was secured through Uy Cho Yee, a son of the lender; and in order to get the money it was necessary for Elser not only to give a personal note signed by himself and his two associates in the projected enterprise, but also by the Fidelity & Surety Company. The money thus raised was delivered to Elser by Uy Siuliong on June 24, 1920. With this money and what he already had in bank purchased the San Juan Estate on or about June 28, 1920. For the purpose of the further development of the property a limited partnership had, about this time, been organized by Elser and three associates, under the name of J. K. Pickering & Company; and when the transfer of the property was effected the deed was made directly to this company. As Elser was the principal capitalist in the enterprise he received by far the greater number of the shares issued, his portion amounting in the beginning to 3,290 shares. While these negotiations were coming to a head, Elser contemplated and hoped that Lyons might be induced to come in with him and supply part of the means necessary to carry the enterprise through. In this connection it appears that on May 20, 1920, Elser wrote Lyons a letter, informing him that he had made an offer for a big subdivision and that, if it should be acquired and Lyons would come in, the two would be well fixed. (Exhibit M-5.) On June 3, 1920, eight days before the first option expired, Elser cabled Lyons that he had bought the San Juan Estate and thought it advisable for Lyons to resign (Exhibit M-13), meaning that he should resign his position with the mission board in New York. On the same date he wrote Lyons a letter explaining some details of the purchase, and added "Have advised in my cable that you resign and I hope you can do so immediately and will come and join me on the lines we have so often spoken about. . . .There is plenty of business for us all now and I believe we have started something that will keep us going for some time." In one or more communications prior to this, Elser had sought to impress Lyons with the idea that he should raise all the money he could for the purpose of giving the necessary assistance in future deals in real estate. The enthusiasm of Elser did not communicate itself in any marked degree to Lyons, and found him averse from joining in the purchase of the San Juan Estate. In fact upon this visit of Lyons to the United States a grave doubt had arisen as to whether he would ever return to Manila, and it was only in the summer of 1920 that the board of missions of his church prevailed upon him to return to Manila and resume his position as managing treasurer and one of its trustees. Accordingly, on June 21, 1920, Lyons wrote a letter from New York thanking Elser for his offer to take Lyons into his new project and adding that from the standpoint of making money, he had passed up a good thing. One source of embarrassment which had operated on Lyons to bring him to the resolution to stay out of this venture, was that the board of missions was averse to his engaging in business activities other than those in which the church was concerned; and some of Lyons' missionary associates had apparently been criticizing his independent commercial activities. This fact was dwelt upon in the letter above- mentioned. Upon receipt of this letter Elser was of course informed that it would be out of the question to expect assistance from Lyons in carrying out the San Juan project. No further efforts to this end were therefore made by Elser. When Elser was concluding the transaction for the purchase of the San Juan Estate, his books showed that he was indebted to Lyons to the extent of, possibly, P11,669.72, which had accrued to

Agency Part F: Limitations (Art. 1894 - 1898) 6 ` Lyons from profits and earnings derived from other properties; and when the J. K. Pickering & Company was organized and stock issued, Elser indorsed to Lyons 200 of the shares allocated to himself, as he then believed that Lyons would be one of his associates in the deal. It will be noted that the par value of these 200 shares was more than P8,000 in excess of the amount which Elser in fact owed to Lyons; and when the latter returned to the Philippine Islands, he accepted these shares and sold them for his own benefit. It seems to be supposed in the appellant's brief that the transfer of these shares to Lyons by Elser supplies some sort of basis for the present action, or at least strengthens the considerations involved in a feature of the case to be presently explained. This view is manifestly untenable, since the ratification of the transaction by Lyons and the appropriation by him of the shares which were issued to him leaves no ground whatever for treating the transaction as a source of further equitable rights in Lyons. We should perhaps add that after Lyons' return to the Philippine Islands he acted for a time as one of the members of the board of directors of the J. K. Pickering & Company, his qualification for this office being derived precisely from the ownership of these shares. We now turn to the incident which supplies the main basis of this action. It will be remembered that, when Elser obtained the loan of P50,000 to complete the amount needed for the first payment on the San Juan Estate, the lender, Uy Siuliong, insisted that he should procure the signature of the Fidelity & Surety Co. on the note to be given for said loan. But before signing the note with Elser and his associates, the Fidelity & Surety Co. insisted upon having security for the liability thus assumed by it. To meet this requirement Elser mortgaged to the Fidelity & Surety Co. the equity of redemption in the property owned by himself and Lyons on Carriedo Street. This mortgage was executed on June 30, 1920, at which time Elser expected that Lyons would come in on the purchase of the San Juan Estate. But when he learned from the letter from Lyons of July 21, 1920, that the latter had determined not to come into this deal, Elser began to cast around for means to relieve the Carriedo property of the encumbrance which he had placed upon it. For this purpose, on September 9, 1920, he addressed a letter to the Fidelity & Surety Co., asking it to permit him to substitute a property owned by himself at 644 M. H. del Pilar Street, Manila, and 1,000 shares of the J. K. Pickering & Company, in lieu of the Carriedo property, as security. The Fidelity & Surety Co. agreed to the proposition; and on September 15, 1920, Elser executed in favor of the Fidelity & Surety Co. a new mortgage on the M. H. del Pilar property and delivered the same, with 1,000 shares of J. K. Pickering & Company, to said company. The latter thereupon in turn executed a cancellation of the mortgage on the Carriedo property and delivered it to Elser. But notwithstanding the fact that these documents were executed and delivered, the new mortgage and the release of the old were never registered; and on September 25, 1920, thereafter, Elser returned the cancellation of the mortgage on the Carriedo property and took back from the Fidelity & Surety Co. the new mortgage on the M. H. del Pilar property, together with the 1,000 shares of the J. K. Pickering & Company which he had delivered to it. The explanation of this change of purpose is undoubtedly to be found in the fact that Lyons had arrived in Manila on September 21, 1920, and shortly thereafter, in the course of a conversation with Elser told him to let the Carriedo mortgage remain on the property ("Let the Carriedo mortgage ride"). Mrs. Elser testified to the conversation in which Lyons used the words above quoted, and as that conversation supplies the most reasonable explanation of Elser's recession from his purpose of relieving the Carriedo property, the trial court was, in our opinion, well justified in accepting as a proven fact the consent of Lyons for the mortgage to remain on the Carriedo property. This concession was not only reasonable under the circumstances, in view of the abundant solvency of Elser, but in view of the further fact that Elser had given to Lyons 200 shares of the stock of the J. K. Pickering & Co., having a value of nearly P8,000 in excess of the indebtedness which Elser had owed to Lyons upon statement of account. The trial court found in effect that the excess value of these shares over Elser's actual indebtedness was conceded by Elser to Lyons in consideration of the assistance that had been derived from the mortgage placed upon Lyons' interest in the Carriedo property. Whether the agreement was reached exactly upon this precise line of thought is of little moment, but the relations of the parties had been such that it was to be expected that Elser would be generous; and he could scarcely have failed to take account of the use he had made of the joint property of the two. As the development of the San Juan Estate was a success from the start, Elser paid the note of P50,000 to Uy Siuliong on January 18, 1921, although it was not due until more than five months later. It will thus be seen that the mortgaging of the Carriedo property never resulted in damage to Lyons to the extent of a single cent; and although the court refused to allow the defendant to prove that Elser was solvent at this time in an amount much greater than the entire encumbrance placed upon the property, it is evident that the risk imposed upon Lyons was negligible. It is also plain that no money actually deriving from this mortgage was ever applied to the purchase of the San Juan Estate. What really happened was that Elser merely subjected the property to a contingent liability, and no actual liability ever resulted therefrom. The financing of the purchase of the San Juan Estate, apart from the modest financial participation of his three associates in the San Juan deal, was the work of Elser accomplished entirely upon his own account. The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000 upon the equity of redemption in the Carriedo property, Lyons, as half owner of said property, became, as it were, involuntarily the owner of an undivided interest in the property acquired partly by that money; and it is insisted for him that, in consideration of this fact, he is entitled to the four hundred forty- six and two-thirds shares of J. K. Pickering & Company, with the earnings thereon, as claimed in his complaint. Lyons tells us that he did not know until after Elser's death that the money obtained from Uy Siuliong in the manner already explained had been used to help finance the purchase of the San Juan Estate. He seems to have supposed that the Carriedo property had been mortgaged to aid in putting through another deal, namely, the purchase of a property referred to in the correspondence as the "Ronquillo property"; and in this connection a letter of Elser of the latter part of May, 1920, can be quoted in which he uses this language: "As stated in cablegram I have arranged for P50,000 loan on Carriedo property. Will use part of the money for Ronquillo buy (P60,000) if the owner comes through."

Agency Part F: Limitations (Art. 1894 - 1898) 7 ` Other correspondence shows that Elser had apparently been trying to buy the Ronquillo property, and Lyons leads us to infer the he thought that the money obtained by mortgaging the Carriedo property had been used in the purchase of this property. It doubtless appeared so to him in the retrospect, but certain considerations show that the letter above given. He had already been informed that, although Elser was angling for the Ronquillo property, its price had gone up, thus introducing a doubt as to whether he would get it; and the quotation above given shows that the intended use of the money obtained by mortgaging the Carriedo property was that only part of the P50,000 thus obtained would be used in this way, if the deal went through. Naturally, upon the arrival of Lyons in September, 1920, one of his first inquiries would have been, if he did not know before, what was the status of the proposed trade for the Ronquillo property. Elser's widow and one of his clerks testified that about June 15, 1920, Elser cabled Lyons something to this effect: "I have mortgaged the property on Carriedo Street, secured by my personal note. You are amply protected. I wish you to join me in the San Juan Subdivision. Borrow all money you can." Lyons says that no such cablegram was received by him, and we consider this point of fact of little moment, since the proof shows that Lyons knew that the Carriedo mortgage had been executed, and after his arrival in Manila he consented for the mortgage to remain on the property until it was paid off, as shortly occurred. It may well be that Lyons did not at first clearly understand all the ramifications of the situations, but he knew enough, we think, to apprise him of the material factors in the situation, and we concur in the conclusion of the trial court that Elser did not act in bad faith and was guilty of no fraud. In the purely legal aspect of the case, the position of the appellant is, in our opinion, untenable. If Elser had used any money actually belonging to Lyons in this deal, he would under article 1724 of the Civil Code and article 264 of the Code of Commerce, be obligated to pay interest upon the money so applied to his own use. Under the law prevailing in this jurisdiction a trust does not ordinarily attach with respect to property acquired by a person who uses money belonging to another (Martinez vs. Martinez, 1 Phil., 647; Enriquez vs. Olaguer, 25 Phil., 641). Of course, if an actual relation of partnership had existed in the money used, the case might be different; and much emphasis is laid in the appellant's brief upon the relation of partnership which, it is claimed, existed. But there was clearly no general relation of partnership between the parties; and the most that can be said is that Elser and Lyons had been coparticipants in various transactions in real estate. No objection can be made to the use of the word partnership as a term descriptive of the relation in those particular transactions, but it must be remembered that it was in each case a particular partnership, under article 1678 of the Civil Code. It is clear that Elser, in buying the San Juan Estate, was not acting for any partnership composed into a proposition which would make Lyons a participant in this deal contrary to his express determination. It seems to be supposed that the doctrines of equity worked out in the jurisprudence of England and the United States with reference to trusts supply a basis for this action. The doctrines referred to operate, however, only where money belonging to one person is used by another for the acquisition of property which should belong to both; and it takes but little discernment to see that the situation here involved is not one for the application of that doctrine, for no money belonging to Lyons or any partnership composed of Elser and Lyons was in fact used by Elser in the [G.R. No. 31740. March 11, 1930.] VALENTINA IZAGUIRRE Y NAZABAL, plaintiff-appellee, vs. ENCARNACION C. VIUDA DE GOITIA, ETC., defendant-appellant. Avancea & Lata, for appellant. Ramon Sotelo, for appellees. SYLLABUS 1.PLEADING AND PRACTICE; AMENDMENT OF PLEADINGS. As in the other ordinary actions in which the pleadings may be amended, the amounts claimed in the complaint presented in the instant case before the committee of claims and appraisal, were charged in the complaint which was filed in the court and approved by the same without exception from the other party. There was no change of the nature of the action, because that the plaintiffs had not received the amounts claimed as dividends due on their shares in the partnership styled "Tren de Aguadas." 2.ID.; DEMURRER FOR MISJOINDER; WAIVER. Since the bill of exception does not show that the appellant demurred on the ground of misjoinder of parties, or alleged such misjoinder in her answer, in accordance with section 93 of the Code of Civil Procedure she must be deemed to have waived her right to raise any objection on that ground. 3.ID; ORDER FOR ACCOUNTING. The order of the court enjoining the appellant to render an account of all the amounts collected by her late husband, as representative and attorney-in-fact of the plaintiffs, was made for the purpose of giving her an opportunity of showing, if she could, just what amounts the decedent had received on account of the plaintiff's shares. This showing was proper because the action was to demand the reimbursement of said amounts. 4.ID; LEGAL PROHIBITION TO TESTIFY. The law prohibits a witness directly interested in a claim against the estate of a decedent from testifying upon a matter of fact which took place before the death of the deceased. The underlying principle of this prohibition is to protect the estate from The appellee insists that the trial court committed error in admitting the testimony of Lyons upon matters that passed between him and Elser while the later was still alive. While the admission of this testimony was of questionable propriety, any error made by the trial court on this point was error without injury, and the determination of the question is not necessary to this decision. We therefore pass the point without further discussion. The judgment appealed from will be affirmed, and it is so ordered, with costs against the appellant. Avancea, C.J., Johnson, Malcolm, Villamor, Villa-Real and Imperial, JJ., concur. --------------------------------------------------------------------------------------------------------------------------------------EN BANC [G.R. No. 31739. March 11, 1930.] LEONOR MENDEZONA, plaintiff-appellee, vs. ENCARNACION C. VIUDA DE GOITIA, administratrix of the estate of Benigno Goitia, defendant-appellant. purchase of the San Juan Estate. Of course, if any damage had been caused to Lyons by the placing of the mortgage upon the equity of redemption in the Carriedo property, Elser's estate would be liable for such damage. But it is evident that Lyons was not prejudiced by the act.

Agency Part F: Limitations (Art. 1894 - 1898) 8 ` fictitious claims; but it should not be understood to prohibit the filing of a just claim against the decedent's estate. DECISION VILLAMOR, J p: The plaintiffs, Leonor Mendezona and Valentina Izaguirre y Nazabal, filed separate claims with the committee of claims and appraisal against the intestate estate of Benigno Goitia y Lazaga (Court of First Instance of Manila, civil case No. 30273), the first for the amount of P5,940, and the second, P2,376. By order of the court dated June 16, 1927, these claims were herd by the committee. The claimants presented their evidence, which the committee deemed insufficient and disapproved their claims. Both claimants appealed from the report of the committee, and in accordance with section 776 of the Code of Civil Procedure, filed a new complaint which was later amended with the approval of the court, there being nothing in the bill of exceptions to show that the defendant, or the administratrix of the deceased Benigno Goitia, excepted to the court's order admitting the amendments to the complaints. The defendant answered the amended complaints, pleading in special defense, that not having intervened in any of the transactions of Benigno Goitia y Lazaga as attorney-in-fact of the plaintiffs, and having no knowledge of the supposed management of their rights in the "Tren de Aguadas," and, furthermore, not having seen nor received any money of the plaintiff's from said business, she is not in a position to render an account of any sort to the plaintiffs, either own personal capacity or as judicial administratrix of Benigno Goitia's intestate estate. By agreement of the parties, both cases were tried together, and the trial court rendered but one decision upon them on October 31, 1928, holding it sufficiently proved, "that defendant Encarnacion C. Vda. de Goitia has been duly appointed judicial administratrix of the estate of her deceased husband Benigno Goitia in special proceeding No. 30273 of this court; that Benigno Goitia was the representative and attorney-in-fact of the plaintiffs in the joint-account partnership known as the 'Tren de Aguadas' and located in the City of Manila, of which the plaintiff Leonor Mendezona, widow of Juan Bautista Goitia, owns 180 shares worth P18,00, and the plaintiff Valentina Izaguirre y Nazabal owns 72 shares worth P7,200; that prior to 1915, Benigno Goitia, at that time the manager of the aforesaid copartnership, collected the dividends for the plaintiffs, which he remitted to them every year; that prior to 1915, the usual dividends which Benigno Goitia forwarded to plaintiff Leonor Mendezona each year were P540, and to plaintiff Valentina Izaguirre y Nazabal, P216; that from 1915 until his death in August, 1926, Benigno Goitia failed to remit to them the dividends upon their shares in the 'Tren de Aguadas'; that some time before his death, more particularly, in July, 1926, Benigno Goitia, who was no longer the manger of the said business, received as attorney-in-fact of both plaintiffs, the amount P90 as dividend upon plaintiff Leonor Mendezona's shares, and P36 upon Valentina Izaguirre y Nazabal's stock; that from 1915 to 1926, the 'Tren de Aguadas' paid dividends to the shareholders, one of them, Ramon Salinas, having received the total amount of P1,155 as ordinary and special dividends upon his 15 shares, that calculating the dividends due from 1915 to 1926 upon Leonor Mendezona's 180 shares at P540 per annum, and at P216 yearly upon the 72 shares held by Valentina Izaguirre y Nazabal, counsel for both plaintiffs filed their claims and appraisal of the estate of Benigno Goitia, and, upon their disallowance, appealed from the committee's decision by means of the complaints in these two cases." The trial court likewise deemed it proven that "during the period from 1915 to 1926, Benigno Goitia collected and received certain sums as dividends and profits upon the plaintiffs' stock in the 'Tren de Aguadas' in his capacity as representative and attorney-in-fact for both of them, which he has neither remitted nor accounted for to the said plaintiffs, although it has been proved that said Benigno Goitia was their attorney-in-fact and representative in the 'Tren de Aguadas' up to the time of his death." The court below therefore ordered the defendant, as judicial administratrix of Benigno Goitia's estate to render a judicial account of the intestate estate of the deceased Benigno Goitia, in special proceeding No. 30273 of this court (below), to render an account of the amounts collected by her aforesaid husband Benigno Goitia, as attorney-in-fact and representative of the plaintiffs Leonor Mendezona and Valentina Izaguirre y Nazabal in the copartnership known as the "Tren de Aguadas" from 1915 to July, 1926, within thirty days from the notice of this decision; and that the defendant may see, examine, and make a copy of the books and documents relative to the business of the aforementioned copartnership, in accordance with the provisions of section 664 of the Code of Civil Procedure. Without special pronouncement of costs. On December 15, 1928, at the instance of the plaintiffs, the trial court set the 15th of January, 1929, as the date on which the defendant should present her account of the dividends and profits collected by the decedent, as attorney-in-fact for the plaintiffs, with regard to the "Tren de Aguadas" copartnership, from 1915 to 1926, and the hearing was postponed to the 7th of February, 1929. On February 6, 1929, the defendant, reiterating her exception to the court's decision enjoining her to render accounts, manifested that after a painstaking examination of the books of account of the copartnership "tren de Aguadas," and several attempts to obtain data from Ruperto Santos, the manager and administrator thereof, she has found no more evidence of any amount received by her late husband, Benigno Goitia, than a book of accounts where she came upon an item of P90 for Leonor Mendezona, and another P36 for Valentina Izaguirre. In view of this report and the evidence taken at the hearing, the court rendered a suppletory judgment, upon motion of the plaintiffs dated December 3, 1928; and taking into account chiefly the testimony of Ruperto Santos and Ramon Salinas, it was held that, upon the basis of the dividends received by the witness Salinas on his fifteen shares in the "Tren de Aguadas" from 1915 to 1925, it appears that the dividends distributed for each share was equal to one-fifteenth of P1,087.50, that is P72.50. Thus the dividends upon plaintiff Leonor Mendezona's 180 shares would be P13,050, upon the 72 shares pertaining to Valentina Izaguirre, P5,220; and these sums, added to those collected by the attorney-in-fact Benigno Goitia as part of the 1926 dividends, P90 for Leonor Mendezona, and P36 for Valentina Izaguirre, show that Benigno Goitia thereby received P13,140 in behalf of Leonor Mendezona, and P5,256 in behalf of Valentina Izaguirre. Wherefore, the court ordered the defendant, as judicial administratrix of the estate of the deceased Benigno Goitia, to pay plaintiff Leonor Mendezona the sum of P13,140 with legal interest from the date of the filing of the complaint, and to pay the plaintiff Valentina Izaguirre P5,256

Agency Part F: Limitations (Art. 1894 - 1898) 9 ` likewise with legal interest from the date of the filing of the complaint, and moreover, to pay the costs of both instances. The defendant duly appealed from this judgment to this Supreme Court through the proper bill of exceptions. The fundamental question raised by the appellant in the first assignment of error refers to the court's jurisdiction to admit the amended complaints whereby the plaintiffs claim P13,680 and P5,470, respectively, whereas the claims presented to the committee of claims and appraisal were only for P5,940 and P2,376, respectively. Appellant contends that the plaintiffs have not perfected their appeal in accordance with section 773 of the Code of Civil Procedure in claiming more in their complaints than in the claims filed with the committee of claims and appraisal, by including therein, not only the yearly dividends paid form 1915 to 1925, inclusive, but also the ordinary and extraordinary dividends upon the shares for the years 1915 to 1926, alleged to have been delivered to Benigno Goitia. The fact that the claims filed with the committee were upon the basis of annual dividends, while those filed with the court below were on ordinary and extraordinary dividends, is of no importance, for, after all they refer to the same amounts received by the deceased Benigno Goitia in the name and for the benefits of the plaintiffs. The question to be decided is whether or not in this jurisdiction a greater sum may be claimed before the court than was claimed before the committee. It should be noted that according to the cases cited by the appellant on pages 12 and 13 of her brief, to wit, Patrick vs. Howard, 47 Mich., 40; 10 N. W., 71, 72; Dayton vs. Dakin's Estate, 61 N.W., 349; and Luizzi vs. Brady's Estate, 113 N. W., 73; 12 Detroit Leg., 59, the claims passed upon by the committee cannot be enlarged in the Circuit Court by amendment. But counsel for the appellees draws our attention to the doctrines of the Vermont Supreme Court (Maughan vs. Burns' Estate, 64 Vt., 316, 24 Atlantic, 583), permitting an augmentative amendment to the claim filed with the committee. In the Maughan case, supra, the court stated: "ROWELL, J. This is an appeal from the decision and report of the commissioners of the estate of Michael Burns. Plaintiff presented her claim to the commissioners at $2,789.65. The ad damnum in her declaration filed in the probate court was $3,500. In the county court she recovered $3,813.49. Thereupon she moved for leave to amend her declaration by raising the ad damnum to $4,000, which was granted, and had judgment for the amount of her recovery. The identical claim presented to the commissioners was the claim tried above. The amount of plaintiff's recovery rested on the quantum meruit. The jury found that she merited more than she estimated her claim when she presented it to the commissioners. But such underestimate did not preclude her from recovering more, if the testimony show her entitled to it, as presumably it did, as more was found. The fact of such estimate was evidence against her deserving more, as it was an implied admission was not conclusive upon her, and did not prevent her from recovering more. (Rooney vs. Minor, 56 Vt., 527; Stowe vs. Bishop, 58 Vt., 498; 3 Atl. Rep., 494; Hard vs. Burton, 62 Vt., 314; 20 Atl. Rep., 269.) "It is conceded that in common-law actions the court has power to raise the ad damnum at any time; but it is claimed that as the probate court is not a common-law court, but it is a court of special and limited jurisdiction, and has no power to raise the ad damnum of the declaration filed in the probate court. The country court has, by statute, appellate jurisdiction of matters originally within the jurisdiction of the probate court and in such appeals it sits as a higher court of probate, and its jurisdiction is co-extensive with that of the probate court in the matter appealed, but is expressly extended to matters originally within the jurisdiction of that court. It is an appellate court for the rehearsing and the re-examination of matters not particular questions merely that have been acted upon in the court below. (Adams vs. Adams, 21 Vt., 162.) And these matters embrace even those that rest in discretion. (Holmes vs. Holmes, 26 Vt., 536.) In Francis vs. Lathrope, 2 Tyler, 372, the claimant was allowed, on terms, to file a declaration in the country court, he having omitted to file one in the probate court as required by statute. It was within the jurisdiction of the probate court to have allowed this amendment, and, as the country court had all the jurisdiction of the probate court in this behalf, it also had power to allow the amendment." However this may be, in this jurisdiction there is a rule governing the question raised in this assignment of error, namely, section 776 of the Code of Civil Procedure, as construed in the cases of Zaragoza vs. Estate of De Viademonte (10 Phil., 23); Escuin vs. Escuin (11 Phil., 332); and In re Estate of Santos (18 Phil., 403). This section provides: "Sec. 776.Upon the lodging of such appeal with the clerk, the disputed claim shall stand for trial in the same manner as any other action in the Court of First Instance, the creditor being deemed to be the plaintiff, and the estate the defendant, and pleadings as in other actions shall be filed." Just as in ordinary actions in which the pleadings may be amended, so in the instant case, the original complaint for the same amounts claimed before the committee was altered, increasing the amounts, and the amended complaint was approved by the court and not objected to by the adverse party. The character of the action throughout is the same. The action before the committee rested on the contention that as attorney-in-fact for the plaintiffs with respect to the partnership "Tren de Aguadas," the late Benigno Goitia had received dividends upon their shares which he failed to turn over to them; the appeal to the Court of First Instance is founded on the same contention. When the claim was filed with the committee, counsel for the plaintiffs merely made a calculation of the amounts due, in view of the fact that he had not all the data from the plaintiffs, who live in Spain; but after filing the complaint on appeal with the Court of First Instance, he discovered that his clients were entitled to larger sums, and was therefore compelled to change the amount of the claims.

Agency Part F: Limitations (Art. 1894 - 1898) 10 ` Considering the distance that separated the plaintiffs from their attorney-in-fact, the deceased Benigno Goitia, and that the latter failed to supply them with data from 1915 until his death in 1926, it is natural that they had to resort to calculating the amounts due them from the "Tren de Aguadas." To deny them the right to amen their complaint in accordance with section 776, when they had secured more definite information as to the amounts due them, would be an injustice, especially when it taken into consideration that this action arises from trust relations between the plaintiffs and the late Benigno Goitia as their attorney-in-fact. The first error is therefore overruled. The allegation found in the second assignment of error that the plaintiffs are not in reality interested parties in this case is untenable. It does not appear from the bill of exceptions that the appellant demurred on the ground of misjoinder of parties, or alleged such misjoinder in her answer. In accordance with section 93 of the Code of Civil Procedure, the appellant has waived the right to raise any objection on the ground that the plaintiffs are not the real parties in interest, or that the plaintiffs are not the real parties in interest, or that they are not the owners of the stock in question (Broce vs. Broce, 4 Phil., 611; and Ortiz vs. Aramburo, 8 Phil., 98.) Furthermore it appears from Exhibits D, E, F, and G, that the Late Benigno Goitia recognized that those shares of the "Tren de Aguadas" really belonged to the plaintiffs. And above all, Exhibit K-1, which is a copy of the balance sheet for May and June, 1926, taken from the books of the partnership, clearly shows that Leonor Mendezona owned 180 shares, and Valentina Izaguirre, 72 shares. Therefore the appellant cannot now contend that the plaintiffs are not the real interested parties. In the third assignment of error it is argued that following section 676 of the Code of Civil Procedure, the court below had no power to order the defendant to render an account of dividends supposed to have been received by her deceased husband. We are of opinion that the order of the court enjoining the appellant to render an account of all the amounts collected by her aforesaid husband Benigno Goitia as representative and attorney-in-fact of the plaintiffs, from 1915 until June, 1926, was made for the purpose of giving her an opportunity of showing, if she could, just what amounts alleged to have been received by the deceased attorney-in-fact represented by the appellant, it was quite in order to determine whether such amounts were really received or not. The fourth assignment of error relates to Exhibits A and B, being the appellees' deposition made before the American consul at Bilbao, Spain, in accordance with section 356 of the Code of Civil Procedure. Counsel for the appellant was notified of the taking of these depositions, and he did not suggest any other interrogatory in addition to the questions of the committee. When these depositions were read in court, the defendant objected to their admission, invoking section 383, No. 7, of the Code of Civil Procedure. Her objection referred mainly to the following questions: "1.Did Mr. Benigno Goitia render you an account of your partnership in the "Tren de Aguadas?' Yes, until the year 1914. "2.From the year 1915, did Mr. Benigno Goitia send you any report or money on account of profits upon your shares? He sent me nothing, nor did he answer, my letters. The facts in the case of Maxilom vs. Tabotabo (9 Phil., 390), differ from those in the case at bar. In that case, the plaintiff Maxilom liquidated his accounts with the deceased Tabotabo during his lifetime, with the result that there was a balance in his favor and against Tabotabo of P312.37, Mexican currency. The liquidation was signed by both Maxilom and Tabotabo. In spite of this, some years later, or in 1906, Maxilom filed a claim against the estate of Tabotabo for P1,062.37, Mexican currency, alleging that P750 which included the 1899 liquidation had not really been received, and that therefore instead of P312.37, Mexican currency, that liquidation should have shown a balance of P1,062.37 in favor Maxilom. It is evident that in view of the prohibition of section 383, paragraph 7, of the Code of Civil Procedure, Maxilom could not testify in his own behalf against Tabotabo's estate, so as to alter the balance of the liquidation made by and between himself and the decedent. But in the case before us there has been no such liquidation between the plaintiffs and the deceased Goitia. They testify, denying any such liquidation. to apply to them the rule that "if death has sealed the lips of one of the parties, the law seals those of the other," would be to exclude all possibility of a claim against the testamentary estate. We do not believe that this was the legislator's intention. The plaintiffs-appellees did not testify to a fact which took place before their representative's death, but on the contrary denied that a liquidation had been made or any money remitted on account of their shares in the "Tren de Aguadas" which is the ground of their claim. It was incumbent upon the appellant to prove by proper evidence that the affirmative proposition was true, either by bringing into court the books which attorney-in-fact was in duty bound to keep, or by introducing copies of the drafts kept by the banks which drew them, as was the decedent's usual practice according to Exhibit I, or by other similar evidence. The appellant admits having found a book of accounts kept by the decedent showing an item of P90 for the account of Leonor Mendezona and another of P36 for the account of Valentina Izaguirre, which agrees with the statement of Ruperto Santos, who succeeded Benigno Goitia in the administration of said partnership, to the effect that the deceased plaintiffs as dividends on their "3.Did you ever ask him to send you a statement of your account? Yes, several times by letter, but I never received an answer." The first of these questions tends to show the relationship between the principals and their attorney-in-fact Benigno Goitia up to 1914. Supposing it was error to permit such a question, it would not be reversible error, for that very relationship is proved by Exhibits C to F, and H to I. As to the other two questions, it is to be noted that deponents deny having received from the deceased Benigno Goitia any money on account of profits on their shares, since 1915. We are of the opinion that the claimants' denial that a certain fact occurred before the death of their attorney-in-fact Benigno Goitia does not come within the legal prohibitions (section 383, No. 7, Code of Civil Procedure). The law prohibits a witness directly interested in a claim against the estate of a decedent from testifying upon a matter of fact which took place before the death of the deceased. The underlying principle of this prohibition is to protect the intestate estate from fictitious claims. But this protection should not be treated as an absolute bar or prohibition from the filing of just claims against the decedent's estate.

Agency Part F: Limitations (Art. 1894 - 1898) 11 ` shares for the months of May and June, 1926, or P90 for Leonor Mendezona, and P36 for Valentina Izaguirre, amounts which had not been remitted by the deceased to the plaintiffs. Finally, the appellant complains that the trial court held by mere inference that Benigno Goitia received from the "Tren de Aguadas" the amounts of P13,140 and P5,265 for Mendezona and Izaguirre, respectively, as dividends for the years from 1915 to 1926, inclusive, and in holding again, by mere inference, that Benigno Goitia did not remit said sums to the plaintiffs. It is a well established fact in the record that the plaintiffs had an interest or some shares in the partnership called "Tren de Aguadas," Mendezona holding 180 shares, worth P18,000, and Izaguirre, 72 shares worth P7,200. By the testimony of Ruperto Santos, former secretary of Benigno Goitia and his successor in the administration of that partnership, it appears that the deceased Benigno Goitia had received the dividends due the appellees for the months of May and June, 1926. And according to Exhibit K-1, the dividend for the months of May and June, 1926. And according to Exhibit K-1, the dividend for the months of May and June was P0.50 a share. And witness Ramon Salinas, a practicing attorney and one of the shareholders of the partnership "Tren de Aguadas," testified, from a notebook which he had, that he received from the "Tren de Aguadas" the following ordinary dividends: P45 in 1915; P45 in 1916; P45 in 1917; P45 in 1918; P45 in 1919; P90 in 1920; PP67.50 in 1921, and P45 each for 1922, 1923, 1924, 1925, and 1926. By way of extraordinary dividends, the witness testified that he received P22.50 each year from 1915 to 1918 inclusive; P45 in 1919; P60 in 1920; P37.50 in 1921, 1922, 1923, and 1924; P15 in 1925; and P22.50 in 1926. He further stated that he received P165 in 1918 as his share of the proceeds of the sale of that boat Santolan. Summing up all these amounts, we find that the witness Ramon Salinas, from 1915 to 1925, received a total of P1,087.50. It further appears that Ruperto Santos assured the court that the dividends for the period from 1915 to 1926 have been distributed among the shareholders, and that the late Benigno Goitia received the dividends due on the shares pertaining to Leonor Mendezona and Valentina Izaguirre, deducting them from the total distribution. In view of these data, the court below reached the conclusion, on the basis of the dividends received by partner Ramon Salinas, that the attorney-infact Benigno Goitia received from the plaintiffs appellees, respectively, the amounts of P13,140 and P5,256, including the dividends for 1926, or P90 for Leonor Mendezona, and P36 for Valentina Izaguirre. As to the interest imposed in the judgment appealed from, it is sufficient to cite article 1724 of the Civil Code, which provides that an agent shall be liable for interest upon any sums he may have applied to his own use, from the day on which he did so, and upon those which he still owes, after the expiration of the agency, from the time of his default. The judgment, appealed from being in accordance with the merits of the case, we are of the opinion, and so hold, that the same must be as it is hereby, affirmed, with costs against the appellant. So ordered. Johnson, Malcolm, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur. -------------------------------------------------------------------------------------------------------------------------------------------------------------------SYLLABUS 1.PLEADING AND PRACTICE; PERIOD FOR FILING OF COUNTERCLAIMS. The plaintiff-appellant's contention that the counterclaims presented by the defendant have already prescribed is untenable. The counterclaims in question are based on instruments in writing marked Exhibits 1 to 6. The period of prescription thereof is not six (6) years, as claimed, but ten (10) years, in accordance with the provisions of section 43 (1) of the Code of Civil Procedure. 2.DEBTS AND DEBTORS; PAYMENT OF INTEREST. Neither is the plaintiff entitled to the interest claimed by him upon the alleged sums of money loaned to and collected by the defendant from various persons for his deceased father. In all the aforesaid transactions, the defendant acted in his capacity as attorney-in-fact of his deceased father and, there being no evidence showing that he converted the money entrusted to him to his own use, he is not liable for interest thereon in accordance with the provisions of article 1724 of the Civil Code. DECISION IMPERIAL, J p: The plaintiff herein, in his capacity as judicial administrator of the estate of the deceased Marcelo de Borja, instituted this action in the Court of First Instance of Rizal, to recover from the defendant the sum of P61,376.56 which, according to the amended complaint, the said defendant owed the aforesaid deceased, for certain sums of money loaned to and collected by him from other persons with the obligation to render an accounting thereof to the said deceased. In his amended answer, the defendant interposed various counterclaims for alleged sums of money owed him by the aforesaid deceased. After the trial thereof and the presentation of voluminous evidence therein, the trial court reached the conclusion and held that, from his various causes of action, the plaintiff was entitled to recover the sum of P33,218.86 from the defendant, and that, by way of counterclaim, the said defendant, in turn, was entitled to collect the sum of P39,683 from the plaintiff, and rendered judgment in favor of the defendant in the sum of P6,464.14 with legal interest thereon from the date of the counterclaim, with the costs. Both parties appealed therefrom. The trial court made a very careful analysis of the oral and documentary evidence presented therein, and from the preponderance thereof, inferred the findings of fact stated in its decision. We are convinced that, from the evidence presented, the liquidation made by the trial court is the nearest approach to its findings of fact, and for this reason we do not feel inclined to alter or modify it. The plaintiff-appellant's contention that the counterclaims presented by the defendant have already prescribed, is untenable. The counterclaims in question are based on instruments in writing EN BANC [G.R. No. 38479. November 20, 1933.] QUINTIN DE BORJA, judicial administrator of the intestate estate of the deceased Marcelo de Borja, plaintiff-appellant, vs. FRANCISCO DE BORJA, defendant-appellant. M. H. de Joya and Quintin Paredes, for plaintiff-appellant. Jose de Borja for, defendant-appellant.

Agency Part F: Limitations (Art. 1894 - 1898) 12 ` marked Exhibits 1 to 6. The period of prescription thereof is not six (6) years, as claimed, but ten (10) years, in accordance with the provisions of section 43 (1) of the Code of Civil Procedure. Neither is the plaintiff entitled to the interest claimed by him upon the alleged sums loaned to and collected by the defendant from various persons for his deceased father. In all the aforementioned transactions, the defendant acted in his capacity as attorney-in-fact of his deceased father, and there being no evidence showing that he converted the money entrusted to him to his own use, he is not liable for interest thereon, in accordance with the provisions of article 1724 of the Civil Code. The defendant-appellant's claim to the effect that he is entitled to collect the rents for the use of the earthen jar factory and the buildings thereof, is, likewise, unfounded. The trial court held that all there existed between the parties was a mere gratuitous commodatum and that the most that the deceased bound himself to do was to pay the taxes on the properties in question. There is nothing in the records of the case to justify reversing the judgment rendered therein. The judgment appealed from being, in our opinion, in accordance with the law and sufficiently supported by a preponderance of the evidence presented therein, it is hereby affirmed, without special pronouncement as to the costs of this instance. So ordered. Avancea, C.J., Malcolm, Villa-Real and Hull, JJ., concur. --------------------------------------------------------------------------------------------------------------------------------------EN BANC [G.R. No. L-16492. March 9, 1922.] E. MACIAS & Co., importers and exporters, plaintiff-appellant, vs. Warner, Barnes & Co., in its capacity as agents of "The China Fire Insurance Co.," of "The Yang-Tsze" and of "The State Assurance Co., Ltd.," defendant-appellant. Ramon Sotelo for plaintiff-appellant. Cohn, Fisher & DeWitt for defendant-appellant. SYLLABUS 1. RESIDENT INSURANCE AGENT NOT LIABLE ON POLICY. A resident agent of a foreign insurance company doing business in the Philippine Islands is not liable, as principal or agent, on insurance contracts issued in the name of the company. 2. EVERY "EX CONTRACTU" CAUSE IS FOUNDED ON CONTRACT. Every cause of action ex contractu is founded upon a contract, oral or written, express or implied. In the instant case, the contracts were made by the insurance company, through its agent, and are contracts between the company and the insured. 3. IN THE ABSENCE OF CONTRACT AGENT NOT LIABLE. The defendant in the instant case is "Warner, Barnes & Co., in its capacity as agents of" insurance companies. W. B. & Co. never made any insurance contract, and is not liable, either as principal or agent. 4. NO BREACH OF CONTRACT. There is no breach of contract by W. B. & Co., either as agent or principal, for the very simple reason that W. B. & Co. did not make any contract with plaintiff, either as agent or principal. 5. WHERE NO CONTRACT IS ALLEGED IN COMPLAINT. In the instant case, the want of any contractual relation appears on the face of the complaint, was raised before any testimony was taken, and by a motion for a new trial, and should have been sustained. DECISION STATEMENT The plaintiff is a corporation duly registered and domiciled in Manila. The defendant is a corporation duly licensed to do business in the Philippine Islands, and is the resident agent of insurance companies "The China Fire Insurance Company, Limited, of Hong Kong," "The Yang-Tsze Insurance Company, Limited, of Liverpool." The plaintiff is an importer of textures and commercial articles for wholesale. In the ordinary course of business, it applied for, and obtained, the following policies against loss by fire: Policy No. 4143, issued by the China Fire Insurance Co., Ltd., for P12,000 Policy No. 4382, issued by the China Fire Insurance Co., Ltd., for 15,000 Policy No. 326, issued by the Yang-Tsze Insurance Co., Ltd., for 10,000 Policy No. 796111, issued by the State Assurance Co., Ltd., for 8,000 Policy No. 4143, for P12,000, recites that Mrs. Rosario Vizcarra, having paid to the China Fire Insurance Company, Limited, P102 for insuring against loss or damage by fire certain merchandise the description of which follows, " the company agrees with the insured that, if the property above described, or any part thereof, shall be destroyed or damaged by fire between September 16, 1918, and September 16, 1919," etc., "the company will, pay or make good all such damage, not exceeding" the amount of the policy. This policy was later duly assigned to the plaintiff. Policy No. 4382, for P15,000, was issued by the same company to, and in the name of, the plaintiff. Policy No. 326, for P10,000, was issued to, and in the name of the plaintiff by the Yang-Tsze Insurance Association, Limited, and recites that the premium of P125 was paid by the plaintiff to the association shall be subject and liable to pay, reinstate, or make good to the said assured, their heirs, executors, or administrators, such loss or damage as shall be occasioned by fire to the property above-mentioned and hereby insured," not exceeding the amount of the policy. Policy No. 796111, for P8,000, was issued by the State Assurance Company, Limited, to the plaintiff for a premium of P100, which was paid to the Assurance Company through the defendant, its authorized agent, and recites that "the company agrees with the insured that in the event of loss by fire between certain dates, the company will, out of its capital pay, stocks and funds, pay the amount of such loss or damage," not exceeding the amount of the policy, and it is attested by the defendant, through its "Cashier and Accountant and Manager, Agents, State Assurance Co., Ltd.," authorized agents of the Assurance Company. Policy No. 4143 is attested "on behalf of The China Fire Insurance Company, Limited," by the cashier and accountant and manager of the defendant, as agents of The China Fire Insurance Company, Limited. The same as true as to policy No. 4382. Policy No. 326 recites the payment of a premium of P125 by the plaintiff The Yang-Tsze Insurance Association, Limited, and that, in the event of loss, "the funds and the property of the

Agency Part F: Limitations (Art. 1894 - 1898) 13 ` said association shall be subject and liable to pay, reinstate, or make good to the said assured, their heirs, executors, or administrators, such loss or damage as shall be occasioned by fire or lightning to the property" insured, not exceeding the amount of the policy, and it is attested by the defendant, through its cashier and accountant and manager, as agents of the association "under the authority of a Power of Attorney from The Yang-Tsze Insurance Association, Limited," "to sign, for and on behalf of the said Association, etc." March 25, 1919, and while the policies were in force, a loss occurred in which the insured property was more or less damaged by fire and the use of water resulting from the fire. The plaintiff made a claim for damages under its policies, but could not agree as to the amount of loss sustained. It sold the insured property in its then damaged condition, and brought this action against Warner, Barnes & Co., in its capacity as agents, to recover the difference between the amount of the policies and the amount realized from the sale of the property, and in the cause of action, it prayed for judgment for P23,052.99 and in the second cause of action P9,857.15. The numbers and amounts of the policies and the names of the insurance companies are set forth and alleged in the complaint. The answer admits that the defendant is the resident agent of the insurance companies, the issuance of the policies, and that a fire occurred on March 25, 1919, in the building in which the goods covered by the insurance policies were stored, and that to extinguish the fire three packages of goods were all other material allegations of the complaint. As a further and separate defenses, the defendant pleads certain provisions in the policies, among which was a written notice of loss, and all other insurance and certain detailed information. It is then alleged "That although frequently requested to do so, plaintiff failed and refused to deliver to defendant or to any other person authorized to receive it, any claim in writing specifying the articles or items of property damaged caused thereto. "That defendant was at all times ready and willing to pay, on behalf of the insurance companies by whom said policies were issued, and to the extent for which each was proportionately liable, the actual damage to plaintiff's goods covered by the risks insured against, upon compliance within the time limited, with the terms of the clause of the contracts of insurance above set forth." Defendants prays judgment for costs. Before the trial, counsel for the defendant objected to the introduction of any evidence in the case, and moved "that judgment be entered for the defendant on the pleading upon the ground that it appears from the averments of the complaint that the plaintiff has had no contractual relations with the defendant, and that the action has not been brought against the real party in interest." The objection and motion was overruled and exception duly taken. After trial the court found that there was due the plaintiff from the three insurance companies P18,492.29, with interest thereon at the rate of 6 per cent per annum, from the date of the commencement of the action, and costs, and rendered the following judgment: All of the policies are in writing, and recite that the premium was paid by the insured to the insurance company which issued the policy, and that, in the event of a loss, the insurance company which issued it will pay to the insured the amount of the policy. This is not a case of an undisclosed agent or an undisclosed principal. The policies on their face show that the defendant was the agent of the respective companies, and that it was acting as such agent in dealing with the plaintiff. That in the issuance and delivery of the policies, the defendant was doing business in the name of, acting for, and representing, the respective insurance companies. The different policies expressly recite that, in the event of a loss, the respective companies agree to compensate the plaintiff for the amount of the loss. The defendant company did not insure the property of the plaintiff, or in any manner agree to pay the plaintiff the amount of any loss. There is no contract of any kind, either oral or written, between the plaintiff and Warner, Barnes & Co. Plaintiff's contracts are with the insurance companies, and are in writing, and the premiums were paid to insurance companies and the "It is, therefore, ordered that judgment be entered against Warner, Barnes & Co., Ltd., in its capacity as agent and representative in the Philippine Islands for The China Fire Insurance Company, Ltd., The Yang-Tsze Insurance Association, Ltd., and The State Assurance Co., Ltd., for the payment for the plaintiff, E. Macias & Co., of the sum of P18,493.29, the amount of his judgment to be prorated by Warner, Barnes & Co., among the three insurance companies above-mentioned by it represented, in proportion to the interest insured by each of said three insurance companies, according to the policies issued by them in favor of the plaintiff, and sued upon in this action." The defendant then filed a motion to set aside the judgment and for a new trial, which was overruled and exception taken. From this judgment the defendant appealed, claiming that "the court erred in overruling defendant's motion for judgment on the pleadings; that the court erred in giving judgment for the plaintiff; that the court erred in denying defendant's motion for a new trial," and specifying other assignments which are not material to this opinion. Plaintiff also appealed. JOHNS, J p: The material facts are not in dispute. It must be conceded that the policies in question were issued by the different insurance companies, through the defendant as their respective agent; that they were issued in consideration of a premium which was paid by the insured to the respective companies for the amount of the policies, as alleged; that the defendant was, and is now, the resident agent in Manila of the companies, and was authorized to solicit and do business for them as such agent; that each company is a foreign corporation. The principal office and place of business of The China Fire Insurance Company is at Hong Kong; of The Yang-Tsze Insurance Association is at Shanghai; and of The State Assurance Company is at Liverpool. As such foreign corporations they were duly authorized and licensed to do insurance business in the Philippine Islands, and, to that end and for that purpose, the defendant corporation, Warner, Barnes & Co., was the agent of each company.

Agency Part F: Limitations (Art. 1894 - 1898) 14 ` policies were issued by, and in the name of, the insurance companies, and on the face of the policy itself, the plaintiff knew that the defendant was acting as agent for, and was representing, the respective insurance companies in the issuance and delivery of the policies. The defendant company did not contract or agree to do anything or to pay the plaintiff any money at any time or on any condition, either as agent or principal. There is a very important distinction between the power and the duties of a resident insurance agent of a foreign company and that of an executor, administrator, or receiver. An insurance agent as such is not responsible for, and does not have, any control over the corpus or estate of the corporate property, as does an executor, administrator, or receiver. Subject only to the order of the court, such officers are legal custodians and have actual possession of the corporate property . It is under their control and within their jurisdiction. As stated by counsel for Warner, Barnes & Co., an attorney of record for an insurance company has greater power and authority to act for, and bind, the company than a soliciting agent of an insurance company. Yet, no attorney would contend that a personal action would lie against local attorneys who represent a foreign corporation to recover on a contract made by the corporation. On the same principle by which plaintiff seeks to recover from the defendant, an action could be maintained against the cashier of any bank on every foreign draft which he signed for, and on behalf of, the bank. Every cause of action ex contractu must be founded upon a contract, oral or written, letter express or implied. Warner, Barnes & Co., as principal or agent, did not make any contract, either oral or written, with the plaintiff. The contracts were made between the respective insurance companies, through Warner, Barnes & Co., as their agent. As in the case of a bank draft, it is not the cashier of the bank who makes the contract to pay the money evidenced by the draft, it is the bank, acting through its cashier, that makes the contract. So, in the instant case, it was the insurance companies, acting through Warner, Barnes & Co. as their agent, that made the written contracts with the insured. The trial court attached more importance to the fact that in the further and separate answer, an admission was made "that defendant was at all times ready and willing to pay, on behalf of the insurance companies by whom each was proportionately liable, the actual damage" sustained by the plaintiff covered by the policies upon the terms a conditions therein stated. When analyzed, that is nothing more than a statement that the companies were ready and willing to prorate the amount when the losses were legally ascertained. Again, there is no claim or pretense that Warner, Barnes & Co. had any authority to act for, and represent the, insurance companies in the pending action, or to appear for them or make any admission which would bind them. As a local agent, it could not do that without express authority. That power could only be exercised by an executive officer of the company, or a person, who was duly authorized to act for, and represent, the company in legal proceedings, and there is no claim or pretense, either express or implied, that the defendant had any such authority. Plaintiff's cause of action, if any, is direct against the insurance companies that issued the policies and agreed to pay the losses. JJ., concur. --------------------------------------------------------------------------------------------------------------------------------------EN BANC [G.R. No. 2344. February 10, 1906.] GONZALO TUASON, plaintiff-appellee, vs. DOLORES OROZCO, defendant-appellant. Hartigan, Marple, Rhode & Gutierrez, for appellant. Ledesma, Sumulong & Quintos, for appellee. SYLLABUS 1.LOAN; CREDITORS; AGENCY. Under the provisions of article 1727 of the Civil Code the principal is directly liable to the creditor for the payment of a debt incurred by his agent acting within the scope of his authority. 2.ID.; ID.; ID. Irrespective of such liability on the part of the principal, the agent may bind himself personally to the payment of the debt incurred for the benefit and in behalf of his principal. (Art. 1725 of the Civil Code.) In such a case the liability expressly incurred by the agent does not preclude the personal liability of the principal but constitutes a further security in favor of the creditor. 3.ID.; ID.; ID.; MORTGAGE; ACTION. Where a debt is secured by a mortgage upon property belonging to the principal, duly recorded in the Registry of Property, the creditor may bring his action directly against the mortgaged property, notwithstanding the liability personally incurred by the agent and the fact the agent delivered to the creditor certain shares of stock as security for the liability incurred by himself. A mortgage directly subjects the encumbered property, whoever its possessor may be, to the fulfillment of the obligation for the security of which it was created. (Art. 1876 of the Civil Code and art. 105 of the Mortgage Law.) DECISION MAPA, J p: On November 19, 1888, Juan de Vargas y Amaya, the defendant's husband, executed a power of attorney to Enrique Grupe, authorizing him, among other things, to dispose of all his property, and particularly of a certain house and lot known as No. 24 Calle Nueva, Malate, in the city of Manila, for the price at which it was actually sold. He was also authorized to mortgage the house for the purpose of securing the payment of any amount advanced to his wife. Dolores Orozco de The only defendant in the instant case is "Warner, Barnes & Co., in its capacity as agents of" the insurance companies. Warner, Barnes & Co. did not make any contract with the plaintiff, and are not liable to the plaintiff on any contract, either as principal or agent. For such reason, plaintiff is not entitled to recover its loses from Warner, Barnes & Co., either as principal or agent. There is no breach of any contract, oral or written, with the plaintiff. This defense was promptly raised before the taking of the testimony, and again renewed on the motion to set aside the judgment. Plaintiff's own evidence shows that any cause of action may have is against the insurance companies which issued the policies. The complaint is dismissed, and the judgment of the lower court is reversed, and one will be entered here in favor of Warner, Barnes & Co., Ltd., against the plaintiff, for costs in both this and the lower court. So ordered. Araullo, C. J., Johnson, Street, Malcolm, Avancena, Villamor, Ostrand, and Romualdez,

Agency Part F: Limitations (Art. 1894 - 1898) 15 ` Rivero, who, inasmuch as the property had been acquired with funds belonging to the conjugal partnership, was necessary party to its sale or incumbrance. On the 21st of January, 1890, Enrique Grupe and Dolores Orozco de Rivero obtained a loan from the plaintiff secured by a mortgage on the property referred to in the power of attorney. In the caption of the instrument evidencing the debt it is stated the Grupe and Dolores Orozco appeared as the parties of the first part and Gonzalo Tuason, the plaintiff, as the party of the second part; that Grupe acted for himself and also in behalf of Juan Vargas by virtue of the power granted him by latter, and that Dolores Orozco appeared merely for the purpose of complying with the requirements contained in the power of attorney. In the body of the instrument the following appears: "1.Enrique Grupe acknowledges to have this day received from Gonzalo Tuason as a loan, after deducting therefrom the interest agreed upon, the sum of 3,500 pesos in cash, to his entire satisfaction, which sum he promises to pay within one year from the date hereof. "2.Grupe also declares that of the 3,500 pesos, he has delivered to Dolores Orozco the sum of 2,200 pesos, having retained the remaining 1,300 pesos for use in his business; that notwithstanding this distribution of the amount borrowed, he assumed liability for the whole sum of 3,500 pesos, which he promises to repay in current gold or silver coin, without discount, in this city on the date of the maturity of the loan, he otherwise to be liable for all expenses incurred and damages suffered by his creditor by reason of his failure to comply with any or all of the conditions stipulated herein, and to pay further interest at the rate of 1 per cent per month from the date of default until the debt is fully paid. "3.Grupe pledges as special security for the payment of the debt 13 shares of stock in the "Compaia de los Tranvias de Filipinas,' which shares he has delivered to his creditor duly indorsed so that the latter in case of his insolvency may dispose of the same without any further formalities. "4.To secure the payment of the 2,200 pesos delivered to Dolores Orozco as aforesaid he specially mortgages the house and lot No. 24, Calle Nueva, Malate, in the city of Manila (the same house referred to in the power of attorney executed by Vargas to Grupe). "5.Dolores Orozco states that, in accordance with the requirement contained in the power of attorney executed by Vargas to Grupe, she appears for the purpose of confirming the mortgage created upon the property in question. "6.Gonzalo Tuason does hereby accept all rights and actions accruing to him under this contract." This instrument was duly recorded in the Registry of Property, and it appears therefrom that Enrique Grupe, as attorney in fact for Vargas, received from the plaintiff a loan of 2,200 pesos and delivered the same to the defendant; that to secure its payment he mortgaged the property of his principal with defendant's consent as required in the power of attorney. He also received 1,300 pesos. This amount he borrowed for his own use. The recovery of this sum not being involved in this action, it will not be necessary to refer to it in this decision. The complaint refers only to the 2,200 pesos delivered to the defendant under the terms of the agreement. The defendant denies having received this sum, but her denial can not overcome the proof to the country contained in the agreement. She was one of the parties to that instrument and signed it. This necessarily implies an admission on her part that the statements in the agreement relating to her are true. She executed another act which corroborates the delivery to her of the money in question that is, her personal intervention in the execution of the mortgage and her statement in the deed that the mortgage had been created with her knowledge and consent. The lien was created precisely upon the assumption that she had received that amount and for the purpose of securing its payment. In addition to this the defendant wrote a letter on October 23, 1903, to the attorneys for the plaintiff promising to pay the debt on or before the 5th day of November following. The defendant admits the authenticity of this letter, which is a further evidence of the fact that she had received the amount in question. Thirteen years had elapsed since she signed the mortgage deed. During all this time she never denied having received the money. On the contrary, she promised to settle within a short time. The only explanation that we can find for this is that she actually received the money as set forth in the instrument. The fact that the defendant received the money from her husband's agent and not from the creditor does not affect the validity of the mortgage in view of the conditions contained in the power of attorney under which the mortgage was created. Nowhere does it appear in this power that the money was to be delivered to her by the creditor himself and not through the agent or any other person. The important thing was that she should have received the money. This we think is fully established by the record. This being an action for the recover of the debt referred to, the court below properly admitted the instrument executed January 21, 1890, evidencing the debt. The appellant claims that the instrument is evidence of a debt personally incurred by Enrique Grupe for his own benefit, and not incurred for the benefit of his principal, Vargas, as alleged in the complaint. As a matter of fact, Grupe, by the terms of the agreement, bound himself personally to pay the debt. The appellant's contention, however, can not be sustained. The agreement, so far as that amount is concerned, was signed by Grupe as attorney in fact for Vargas. Pursuant to instructions contained in fact for Vargas. Pursuant to instructions contained in the power of attorney the money was delivered to Varga's wife, the defendant in this case. To secure the payment of the debt, Varga's property was mortgaged. His wife took part in the execution of the mortgage as required in the power of attorney. A debt thus incurred by the agent is binding directly upon the principal, provided the former acted, as in the present case, within the scope of his authority. (Art. 1727 of the Civil Code.) The fact that the agent has also bound himself to pay the debt does not relieve from liability the principal for whose benefit the debt was incurred. The individual liability of the agent constitutes in the present case a further security in favor of the creditor and does not affect or preclude the liability of the principal. In the present case the latter's

Agency Part F: Limitations (Art. 1894 - 1898) 16 ` liability was further guaranteed by a mortgage upon his property. The law does not provide that the agent can not bind himself personally to the fulfillment of an obligation incurred by him in the name and on behalf of his principal. On the contrary, it provides that such act on the part of an agent would be valid. (Art. 1725 of the Civil Code.) The above mortgage being valid and having been duly recorded in the Register of Property, directly subjects the property thus encumbered, whoever its possessor may be, to the fulfillment of the obligation for the security of which it was created. (Art. 1876 of the Civil Code and art. 105 of the Mortgage Law.) This presents another phase of the question. Under the view we have taken of the case it is practically of no importance whether or not Enrique Grupe bound himself personally to pay the debt in question. Be this as it may and assuming that Vargas, though principal in the agency, was not the principal debtor, the right in rem arising from the mortgage would have justified the creditor in bringing his action directly against the property encumbered had he chosen to foreclose the mortgage rather than to sue Grupe, the alleged principal debtor. This would be true irrespective of the personal liability incurred by Grupe. The result would be practically the same even though it were admitted that appellant's contention is correct. The appellant also alleges that Enrique Grupe pledged to the plaintiff thirteen shares of stock in the "Compania de los Tranvias de Filipinas" to secure the payment of the entire debt, and contends that it must be shown what has become of these shares, the value of which might be amply sufficient to pay the debt, before proceeding to foreclose the mortgage. This contention can not be sustained in the face of the law above quoted to the effect that a mortgage directly subjects the property encumbered, whoever its possessor may be, to the fulfillment of the obligation for the security of which it was created. Moreover it was incumbent upon the appellant to show that the debt had been paid with shares. Payment is not presumed but must be proved. It is a defense which the defendant may interpose. It was therefore her duty to show this fact affirmatively. She failed, however, to do so. The appellant's final contention is that in order to render judgment against the mortgaged property it would be necessary that the minor children of Juan de Vargas be made parties defendant in this action, they having an interest in the property. Under article 154 of the Civil Code, which was in force at the time of the death of Vargas, the defendant had the parental authority over her children and consequently the legal representation of their persons and property. (Arts. 155 and 159 of the Civil Code.) It can not be said, therefore, that they were not properly represented at the trial. Furthermore this action was brought against the defendant in her capacity as administratrix of the estate of the deceased Vargas. She did not deny in her answer that she was such administratrix. Vargas having incurred this debt during his marriage, the same should not be paid out of property belonging to the defendant exclusively but from that pertaining to the conjugal partnership. This fact should be borne in mind in case the proceeds of the mortgaged property be not sufficient to pay the debt and interest thereon. The judgment of the court below should be modified in so far as it holds the defendant personally liable for the payment of the debt. The judgment thus modified is affirmed and the defendant is hereby ordered to pay to the plaintiff the sum of 2,200 pesos as principal, together with interest thereon from the 21st day of January, 1891, until the debt shall have been fully discharged. The appellant shall pay the costs of this appeal. After the expiration of ten days let judgment be entered in accordance herewith and let the case be remanded to the court below for execution. So ordered. Arellano, C.J., Johnson, Carson and Willard, JJ., concur. --------------------------------------------------------------------------------------------------------------------------------------EN BANC [G.R. No. L-2246. January 31, 1951.] JOVITO R. SALONGA, plaintiff-appellee, vs. WARNER BARNES & CO., LTD., defendantappellant. Perkins, Ponce Enrile, Contreras & Gomez, for appellant. Pedro L. Yap, for appellee. SYLLABUS 1.PLEADING AND PRACTICE; ACTIONS; ACTIONS FOUNDED UPON CONTRACT; OBLIGATIONS AND CONTRACTS. It is a well known rule that a contractual obligation or liability, or an action excontract, must be founded upon a contract, oral or written, either express or implied. If there is no contract there is no corresponding liability, and no cause of action may arise therefrom. 2.ID.; PARTIES; INSURANCE; PRINCIPAL AND AGENT; CONTRACT OF INSURANCE ENTERED INTO BY PRINCIPAL NOT BINDING UPON AGENT. The contract of marine insurance was made and executed only by and between an insurance company of New York and the consignor. The contract was entered into in New York. According to the contract of insurance, the insurance company undertook to pay to the sender or her consignee the damages that may be caused to the goods shipped. The consignee instituted an action against the agent of the insurance company in the Philippines for the loss or damage to the goods shipped. Held: The defendant has not taken part, directly or indirectly, in the contract in question. The defendant did not enter into any contract either with the plaintiff or his consignor. There is nothing in the contract which may effect the defendant favorably or adversely, the fulfillment of which may be demanded by or against it. That contract is purely bilateral, binding only upon the consignor and the insurance company. 3.ID.; ID.; PARTIES; REAL PARTY IN INTEREST. Section 2, Rule 3 of the Rules of Court requires that "every action must be prosecuted in the name of the real party in interest." A corollary proposition to this rule is that an action must be brought against the real party in interest, or against a party which may be bound by the judgment to be rendered therein. The real party in interest is the party who would be benefit or injured by the judgment, or the party entitled to the avail of the suit. 4.PRINCIPAL AND AGENT; SETTLEMENT AND ADJUSTMENT AGENT; INSURANCE; AUTHORITY OF SETTLEMENT AND ADJUSTMENT AGENT. The agent in the Philippines of an insurance company in New York is a settlement and adjustment agent and as such agent it has the authority to settle all the losses and claims that may arise under the policies that may be issued by or in behalf of said company in accordance with the instructions it may receive from time to time its principal. 5.ID.; ID.; ID.; SETTLEMENT AND ADJUSTMENT AGENT COMPARED WITH OTHER AGENTS. An adjustment and settlement agent is no different from any other agent the point of view of his

Agency Part F: Limitations (Art. 1894 - 1898) 17 ` responsibility. Whenever he adjust or settles a claim, he does it in behalf of his principal, and his action is binding not upon himself but upon his principal. 6.ID.; ID.; ID.; ACTIONS; PARTIES; SCOPE OF THE FUNCTIONS OF ADJUSTMENT AND SETTLEMENT AGENT. The scope and extent of the functions of an adjustment and settlement agent do not include personal liability. His functions are merely to settle and adjust claims in behalf of his principal. If those claims are proved and undisputed, or is disproved by the principal, the agent does not assume any personal liability. The agent cannot be sued in its own right. The recourse of the insured is to press his claim against the principal. 7.ID.; INSURANCE; ACTION; PARTY SUED UPON NOT PROPER PARTY. An action is brought for a practical purpose, may not obtain actual and positive relief. If the party sued upon is the proper party, any decision that may be rendered against him would be futile, for it cannot be enforced or executed. The effort that may be employed will be wasted. Such would be the result of this case if it will be allowed to proceed against the agent, for even if a favorable judgment is obtained against it, it cannot be enforced because the principal which is the real party is not involved. The agent cannot be made to pay something it is not responsible. 8.ID.; CORPORATION; ACTION; SETTLING AGENT; INSURANCE; SERVICE OF PROCESS ON SETTLING AGENT OF FOREIGN CORPORATION. Section 14, Rule 17 of the Rules of Court says that if the defendant is a foreign corporation and it has not designated an agent in the Philippines on whom service may be made on any agent it may have in the Philippines. The Westchester Fire Insurance Company of New York comes within the import of this rule for even if it has not designated an agent as required by law, it has however a settling agent who may serve the purpose. In other words, an action may be brought against said insurance company in the Philippines and the process may be served on the settling agent to give our courts the necessary jurisdiction. DECISION BAUTISTA ANGELO, J p: This is an appeal from a decision of the Court of First Instance of Manila ordering the defendant, as agent of Westchester Fire Insurance Company of New York, to pay to the plaintiff the sum of P727.82 with legal interest thereon from the filing of the complaint until paid, and the costs. The case was taken to this court because it involves only questions of law. On August 28, 1946, Westchester Fire Insurance Company of New York entered into a contract with Tina J. Gamboa whereby said company insured one case of rayon yardage which said Tina J. Gamboa shipped from San Francisco, California, on steamer Clovis Victory, to Manila, Philippines and consigned to Jovito Salonga, plaintiff herein. According to the contract of insurance, the insurance company undertook to pay to the sender or her consignee the damages that may be caused to the goods shipped subject to the condition that the liability of the company will be limited to the actual loss which the insured may suffer not to exceed the sum of P2,000. The ship arrived in Manila on September 10, 1946. On October 7, the shipment was examined by C. B. Nelson and Co., marine surveyors, at the request of the plaintiff, and in their examination the surveyors found a shortage in the shipment in the amount of P1,723.12. On October 9, plaintiff filed a claim for damages in the amount of P1,723.12 against the American President Lines, agents of the ship Clovis Victory, demanding settlement, and when apparently no action was taken on this claim, plaintiff demanded payment thereof from Warner, Barnes & Co., Ltd., as agent of the insurance company in the Philippines, and this agent having refused to pay the claim, on April 17, 1947, plaintiff instituted the present action. In the meantime, the American President Lines, in a letter dated November 25, 1946, agreed to pay to the plaintiff the amount of P476.17 under its liability in the bill of lading, and when this offer was rejected, the claim was finally settled in the amount of P1,021.25. As a result, the amount claimed in the complaint as the ultimate liability of the defendant under the insurance contract was reduced to P717.82 only. After trial, at which both parties presented their respective evidence, the court rendered judgment as stated in the early part of this decision. The motion for reconsideration filed by the defendant having been denied, the case was appealed to this court. Appellant now assigns the following errors: I "The trial court erred in finding that the loss or damage of the case of rayon yardage (Pilferage, as found by the marine surveyors) is included in the risks insured against as enunciated in the insurance policy. II "The trial court erred in holding that defendant, as agent of Westchester Fire Insurance Company of New York, United States of America, is responsible upon the insurance claim subject to the suit. III "The trial court erred in denying defendant's motion for new trial and to set aside the decision." (Appellant's assignments of error). We will begin by discussing the second error assigned by appellant for the reason that if our view on the question raised is in favor of the claim of appellant there would be no need to proceed with the discussion of the other errors assigned, for that would put an end to the controversy. As regards the second assignment of error, counsel claims that the defendant cannot be made responsible to pay the amount in litigation because (1) said defendant has no contractual relation with either the plaintiff or his consignor; (2) the defendant is not the real party in interest against whom the suit should be brought; and (3) a judgment for or against an agent in no way binds the real party in interest. 1.We are of the opinion that the first point is well taken. It is a well known rule that a contractual obligation or liability, or an action ex-contractu, must be founded upon a contract, oral or written, either express or implied. This is axiomatic. If there is no contract, there is no corresponding liability, and no cause of action may arise therefrom. This is what is provided for in article 1257 of the Civil Code. This article provides that contracts are binding only upon the parties who make them and their heirs, excepting, with respect to the latter, where the rights and obligations are not transmissible, and when the contract contains a stipulation in favor of a third person, he may demand its fulfillment if he gives notice of his acceptance before it is revoked. This is also the ruling laid down by this court in the case of E. Macias & Co. vs. Warner, Barnes & Co. (43 Phil. 155) wherein, among others, the court said:

Agency Part F: Limitations (Art. 1894 - 1898) 18 ` ". . . There is no contract of any kind, either oral or written, between the plaintiff and Warner, Barnes & Company. Plaintiff's contracts are with the insurance companies, and are in writing, and the premiums were paid to the insurance companies and the policies were issued by, and in the name of, the insurance companies, and on the face of the policy itself, the plaintiff knew that the defendant was acting as agent, for, and was representing, the respective insurance companies in the issuance and delivery of the policies. The defendant company did not contract or agree to do anything or to pay the plaintiff any money at any time or on any condition, either as agent or principal. xxx xxx xxx "Every cause of action ex-contractu must be founded upon a contract, oral or written, either express or implied. "Warner, Barnes & Co., as principal or agent, did not make any contract, either oral or written, with the plaintiff. The contracts were made between the respective insurance companies and the insured, and were made by the insurance companies, through Warner, Barnes & Co., as their agent. "As in the case of a bank draft, it is not the cashier of the bank who makes the contract to pay the money evidenced by the draft, it is the bank, acting through its cashier, that makes the contract. So, in the instant case, it was the insurance companies, acting through Warner, Barnes & Co., as their agent, that made the written contracts with the insured." (E. Macias & Co. vs. Warner, Barnes & Co., 43 Phil., 155, 161, 162.) Bearing in mind the above rule, we find that the defendant has not taken part, directly or indirectly, in the contract in question. The evidence shows that the defendant did not enter into any contract either with the plaintiff or his consignor Tina J. Gamboa. The contract of marine insurance, Exhibit C, was made and executed only by and between the Westchester Fire Insurance Company of New York and Tina J. Gamboa. The contract was entered into in New York. There is nothing therein which may affect, in favor or adversely, the defendant, the fulfillment of which may be demanded by or against it. That contract is purely bilateral, binding only upon Gamboa and the insurance company. When the lower court, therefore, imposed upon the defendant an obligation which it has never assumed, either expressly or impliedly, or when it extended to the defendant the effects of a contract which was entered into exclusively by and between the Westchester Fire Insurance Company of New York and Tina J. Gamboa, the error it has committed is evident. This is contrary to law. We do not find any material variance between this case and the case of E. Macias & Co. vs. Warner, Barnes & Co., supra, as pointed out by counsel for appellee, in so far as the principle we are considering is concerned. Both cases involve similar facts which call for the application of a similar ruling. In both cases the issue is whether an agent, who acts within the scope of his authority, can assume personal liability for a contract entered into by him in behalf of his principal. And in the Macias case we said that the agent did not assume personal liability because the only party bound was the principal. And in this case this principle acquires added force and effect when we consider the fact that the defendant did not sign the contract as agent of the foreign insurance company as the defendant did in the Macias case. The Macias case, therefore, is on all fours with this case and is decisive of the question under consideration. 2.Counsel next contends that Warner, Barnes and Co., Ltd., is not the real party in interest against whom the suit should be brought. It is claimed that this action should have been filed against its principal, the Westchester Fire Insurance Company of New York. This point is also well taken. Section 2, Rule 3 of the Rules of Court requires that "every action must be prosecuted in the name of the real party in interest." A corollary proposition to this rule is that an action must be brought against the real party in interest, or against a party which may be bound by the judgment to be rendered therein (Salmon & Pacific Commercial Co. vs. Tan Cueco, 36 Phil., 556). The real party in interest is the party who would be benefited or injured by the judgment, or the "party entitled to the avails of the suit" (1 Sutherland, Court Pleading Practice & Forms, p. 11). And in the case at bar, the defendant issued upon in its capacity as agent of Westchester Fire Insurance Company of New York in spite of the fact that the insurance contract has not been signed by it. As we have said, the defendant did not assume any obligation thereunder either as agent or as a principal. It cannot, therefore, be made liable under said contract, and hence it can be said that this case was filed against one who is not the real party in interest. We agree with counsel for the appellee that the defendant is a settlement and adjustment agent of the foreign insurance company and that as such agent it has the authority to settle all the losses and claims that may arise under the policies that may be issued by or in behalf of said company in accordance with the instructions it may receive from time to time from its principal, but we disagree with counsel in his contention that as such adjustment and settlement agent, the defendant has assumed personal liability under said policies, and, therefore, it can be sued in its own right. An adjustment and settlement agent is no different from any other agent from the point of view of his responsibility, for he also acts in a representative capacity. Whenever he adjusts or settles a claim, he does it in behalf of his principal, and his action is binding not upon himself but upon his principal. And here again, the ordinary rule of agency applies. The following authorities bear this out: "An insurance adjuster is ordinarily a special agent for the person or company for whom he acts, and his authority is prima facie coextensive with the business intrusted to him. . . .". "An adjuster does not discharge functions of a quasi-judicial nature, but represents his employer, to whom he owes faithful service, and for his acts, in the employer's interest, the employer is responsible so long as the acts are done while the agent is acting within the scope of his employment." (45 C. J. S., 1338-1340.) It, therefore, clearly appears that the scope and extent of the functions of an adjustment and settlement agent do not include personal liability. His functions are merely to settle and adjusts claims in behalf of his principal if those claims are proven and undisputed, and if the claim is

Agency Part F: Limitations (Art. 1894 - 1898) 19 ` disputed or is disapproved by the principal, like in the instant case, the agent does not assume any personal liability. The recourse of the insured is to press his claim against the principal. 3.This brings us to the consideration of the third point. It is claimed that a judgment, for or against an agent, in no way binds the real party in interest. In our opinion this point is also well taken, for it is but a sequel to the principle we have pointed out above. The reason is obvious. An action is brought for a practical purpose, nay to obtain actual and positive relief. If the party sued upon is not the proper party, any decision that may be rendered against him would be futile, for it cannot be enforced or executed. The effort that may be employed will be wasted. Such would be the result of this case if it will be allowed to proceed against the defendant, for even if a favorable judgment is obtained against it, it cannot be enforced because the real party is not involved. The defendant cannot be made to pay for something it is not responsible. Thus, in the following authorities it was held: ". . . Section 114 of the Code of Civil Procedure requires an action to be brought in the name of the real party in interest; and a corollary proposition requires that an action shall be brought against the persons or entities which are to be bound by the judgment obtained therein. An action upon a cause of action pertaining to his principal cannot be brought by an attorney-in-fact in his name (Arroyo vs. Granada and Gentero, 18 Phil., 484); nor can an action based upon a right of action belonging to a principal be brought in the name of his representative (Lichauco vs. Limjuco and Gonzalo, 19 Phil., 12). Actions must be brought by the real parties in interest and against the persons who are to be bound by the judgment obtained therein." (Salmon & Pacific Commercial Co. vs. Tan Cueco, 36 Phil., 557-558.) xxx xxx xxx "An action to set aside an instrument of transfer of land should be brought in the name of the real party in interest. An apoderado or attorney in fact is not a real party. He has no interest in the litigation and has absolutely no right to bring the defendant into court or to put him to the expense of a suit, and there is no provision of law permitting action to be brought in such manner. A judgment for or against the apoderado in no way binds or affects the real party, and a decision in the suit would be utterly futile. It would touch no interest, adjust no question, bind no one, and settle no litigation. Courts should not be required to spend their time solemnly considering and deciding cases where no one could be bound and no interest affected by such deliberation and decision." (Arroyo vs. Granada and Gentero, 18 Phil., 484.) If the case cannot be filed against the defendant as we have pointed out, what then is the remedy of the plaintiff under the circumstances? Is the case of the plaintiff beyond remedy? We believe that the only way by which the plaintiff can bring the principal into this case or make it come under the courts in this jurisdiction is to follow the procedure indicated in section 14, Rule 7, of the Rules of Court concerning litigations involving foreign corporations. This rule says that if the defendant is a foreign corporation and it has not designated an agent in the Philippines on whom In view of the foregoing, we are of the opinion and so hold that the lower court erred in holding the defendant responsible for the loss or damage claimed in the complaint. And having arrived at this conclusion, we do not deem it necessary to pass upon the other errors assigned by the appellant. Wherefore, the decision appealed from is hereby reversed. The complaint is hereby dismissed, with costs against the appellee. Moran, C.J., Paras, Feria, Pablo, Bengzon, Padilla, Tuason, Montemayor, Reyes and Jugo, JJ., concur. --------------------------------------------------------------------------------------------------------------------------------------THIRD DIVISION [G.R. No. 110668. February 6, 1997.] SMITH, BELL & CO., INC., petitioner, vs. COURT OF APPEALS and JOSEPH BENGZON CHUA, 1 respondents. Relos Law Office for petitioner. Rosalinda L. Santos-Garbo for private respondents. SYLLABUS 1.CIVIL LAW; SPECIAL CONTRACTS; AGENCY; SETTLING AGENT; CAN NOT BE SUED NOR HELD LIABLE WHETHER SINGLY OR SOLIDARILY WITH ITS PRINCIPAL. The doctrine in Salonga vs. Warner Barnes & Co., Ltd. may have been enunciated by this Court in 1951, but the passage of time has not eroded its value or merit. It still applies with equal force and vigor. Private respondent's contention that Salonga does not apply simply because only the agent was sued therein while here both agent and principal were impleaded and found solidarily liable is without merit. Such distinction is immaterial. The agent can not be sued nor held liable whether singly or solidarily with its principal. 2.ID.; ID.; ID.; ID.; NOT A PRIVY TO THE CONTRACT. Every cause of action ex contractu must be founded upon a contract, oral or written, either express or implied. The only "involvement" of petitioner in the subject contract of insurance was having its name stamped at the bottom left portion of the policy as "Claim Agent." Without anything else to back it up, such stamp cannot even be deemed by the remotest interpretation to mean that petitioner participated in the preparation of said contract. Hence, there is no privity of contract, and correspondingly there can be no obligation or liability, and thus no cause of action against petitioner attaches. Under Article 1311 of the Civil Code, contracts are binding only upon the parties (and their assigns and heirs) who execute them. The subject cargo insurance was between the First Insurance Company, Ltd. and the Chin Gact Co., Ltd., both of Taiwan, and was signed in Taipei, Taiwan by the president of the First Insurance Company, service may be made in case of litigation, such service may be made on any agent it may have in the Philippines. And in our opinion the Westchester Fire Insurance Company of New York comes within the import of this rule for even if it has not designated an agent as required by law, it has however a settling agent who may serve the purpose. In other words, an action may be brought against said insurance company in the Philippines and the process may be served on the defendant to give our courts the necessary jurisdiction. This is the way we have pointed out in the case of General Corporation of the Philippines & Mayon Investment Co. vs. Union Insurance Society of Canton Ltd. et al., (87 Phil., 313).

Agency Part F: Limitations (Art. 1894 - 1898) 20 ` Ltd. and the president of the Chin Gact Co., Ltd. There is absolutely nothing in the contract which mentions the personal liability of petitioner. 3.ID.; ID.; ID.; ID.; NOT A REAL PARTY IN INTEREST. Being a mere agent and representative, petitioner is also not the real party-in-interest in this case. An action is brought for a practical purpose, that is, to obtain actual and positive relief. If the party sued is not the proper party, any decision that may be rendered against him would be futile, for the decision cannot be enforced or executed. Section 2, Rule 3 of the Rules of Court identifies who the real parties-in-interest are, thus: "Section 2, Parties in interest. Every action must be prosecuted and defended in the name of the real party in interest. All persons having an interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs. All persons who claim an interest in the controversy or the subject thereof adverse to the plaintiff, or who are necessary to a complete determination or settlement of the questions involved therein shall be joined as defendants." The cause of action of private respondent is based on a contract of insurance which as already shown was not participated in by petitioner. It is not a "person who claim(s) an interest adverse to the plaintiff nor is said respondent necessary to a complete determination or settlement of the questions involved'' in the controversy. Petitioner is improperly impleaded for not being a real-party-interest. It will not benefit or suffer in case the action prospers. 4.ID.; ID.; ID.; ID.; PURPOSE AND ROLE OF A RESIDENT AGENT UNDER THE INSURANCE CODE. The Insurance Code is quite clear as to the purpose and role of a resident agent. Such agent, as a representative of the foreign insurance company, is tasked only to receive legal processes on behalf of its principal and not to answer personally for any insurance claims. 5.ID.; OBLIGATIONS; SOLIDARY OBLIGATION; CANNOT LIGHTLY BE INFERRED; MUST BE POSITIVELY AND CLEARLY EXPRESSED. May then petitioner, in its capacity as resident agent (as found in the case cited by the respondent Court) be held solidarily liable with the foreign insurer? Article 1207 of the Civil Code clearly provides that "(t)here is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." The well-entrenched rule is that solidary obligation cannot lightly be inferred. It must be positively and clearly expressed. The contention that, in the end, it would really be First Insurance Company, Ltd. which would be held liable is specious and cannot be accepted. Such a stance would inflict injustice upon petitioner which would be made to advance the funds to settle the claim without any assurance that it can collect from the principal which disapproved such claim, in the first place. More importantly, such position would have absolutely no legal basis. 6.ID.; RESORT TO EQUITY MISPLACED. Respondent Court also contends that "the interest of justice is better served by holding the settling agent jointly and severally liable with its principal." As no law backs up such pronouncement, the appellate Court is thus resorting to equity. However, equity which has been aptly described as "justice outside legality," is availed of only in the absence of, and never against, statutory law or judicial pronouncements. Upon the other hand, the liability of agents is clearly provided for by our laws and existing jurisprudence. DECISION PANGANIBAN, J p: The Facts The facts are undisputed by the parties, 6 and are narrated by respondent Court, quoting the trial court, as follows: 7 "The undisputed facts of the case have been succintly (sic) summarized by the lower court(,) as follows: '. . . in July 1982, the plaintiffs, doing business under the style of Tic Hin Chiong, Importer, bought and imported to the Philippines from the firm Chin Gact Co., Ltd. of Taipei, Taiwan, 50 metric tons of Dicalcium Phosphate, Feed Grade F-15% valued at US$13,000.00 CIF Manila. These were contained in 1,250 bags and shipped from the Port of Kaohsiung, Taiwan on Board S.S. 'GOLDEN WEALTH' for the Port on (sic) Manila. On July 27, 1982, this shipment was insured by the defendant First Insurance Co. for US$19,500.00 'against all risks' at port of departure under Marine Policy No. 1000M82070033219, with the note 'Claim, if any, payable in U.S. currency at Manila (Exh. '1', 'D' for the plaintiff) and with defendant Smith, Bell, and Co. stamped at the lower left side of the policy as 'Claim Agent.' The cargo arrived at the Port of Manila on September 1, 1982 aboard the above-mentioned carrying vessel and landed at port on September 2, 1982. Thereafter, the entire cargo was discharged to the local arrastre contractor, Metroport Services Inc. with a number of the cargo in apparent bad order condition. On September 27, 1982, the plaintiff secured the services of a cargo surveyor to conduct a survey of the damaged cargo which were (sic) delivered by plaintiff's broker on said date to the plaintiff's premises at 12th Avenue, Grace Park, Caloocan City. The surveyor's report (Exh. 'E') showed that of the 1,250 bags of the imported material, 600 were damaged by tearing at the sides of the container bags and the contents partly empty. Upon weighing, the contents of the damaged bags were found The main issue raised in this case is whether a local claim or settling agent is personally and/or solidarily liable upon a marine insurance policy issued by its disclosed foreign principal. This is a petition for review on certiorari of the Decision of respondent Court 2 promulgated on January 20, 1993 in CA-G.R. CV No. 31812 affirming the decision 3 of the trial court 4 which disposed as follows: 5 "Wherefore, the Court renders judgment condemning the defendants (petitioner and First Insurance Co. Ltd.) jointly and severally to pay the plaintiff (private respondent) the amount of US$7,359.78. plus 24% interest thereon annually until the claim is fully paid, 10% as and for attorney's fees, and the cost."

Agency Part F: Limitations (Art. 1894 - 1898) 21 ` to be 18,546.0 kg short. Accordingly, on October 16 following, the plaintiff filed with Smith, Bell, and Co., Inc. a formal statement of claim (Exh. 'G') with proof of loss and a demand for settlement of the corresponding value of the losses, in the sum of US$7,357.78.00.(sic) After purportedly conveying the claim to its principal, Smith, Bell, and Co., Inc. informed the plaintiff by letter dated February 15, 1983 (Exh. 'G-2') that its principal offered only 50% of the claim or US$3,616.17 as redress, on the alleged ground of discrepancy between the amounts contained in the shipping agent's reply to the claimant of only US$90.48 with that of Metroport's. The offer not being acceptable to the plaintiff, the latter wrote Smith, Bell, & Co. expressing his refusal to the 'redress' offer, contending that the discrepancy was a result of loss from vessel to arrastre to consignees' warehouse which losses were still within the 'all risk' insurance cover. No settlement of the claim having been made, the plaintiff then caused the instant case to be filed. (p. 2, RTC Decision; p. 142, Record).' Denying any liability, defendant-appellant averred in its answer that it is merely a settling or claim agent of defendant insurance company and as such agent, it is not personally liable under the policy in which it has not even taken part of. It then alleged that plaintiffappellee has no cause of action against it. Defendant The First Insurance Co. Ltd. did not file an Answer, hence it was declared in default. After due trial and proceeding, the lower court rendered a decision favorable to plaintiff-appellee. It ruled that plaintiff-appellee has fully established the liability of the insurance firm on the subject insurance contract as the former presented concrete evidence of the amount of losses resulting from the risks insured against which were supported by reliable report and assessment of professional cargo surveyor. As regards defendant-appellant, the lower court held that since it is admittedly a claim agent of the foreign insurance firm doing business in the Philippines justice is better served if said agent is made liable without prejudice to its right of action against its principal, the insurance firm. . . ." The Issue "Whether or not a local settling or claim agent of a disclosed principal a foreign insurance company can be held jointly and severally liable with said principal under the latter's marine cargo insurance policy, given that the agent is not a party to the insurance contract" 8 is the sole issue raised by petitioner. Petitioner rejects liability under the said insurance contract, claiming that: (1) it is merely an agent and thus not personally liable to the party with whom it contracts on behalf of its principal; (2) it had no participation at all in the contract of insurance; and (3) the suit is not brought against the real party-ininterest. 9 On the other hand, respondent Court in ruling against petitioner disposed of the main issue by citing a case it decided in 1987, where petitioner was also a party-litigant. 10 In that case, respondent Court held that petitioner as resident agent of First Insurance Co. Ltd. was "authorized to settle claims against its principal. Its defense that its authority excluded personal liability must be proven satisfactorily. There is a complete dearth of evidence supportive of appellant's non-responsibility as resident agent." The ruling continued with the statement that "the interest of justice is better served by holding the settling or claim agent jointly and severally liable with its principal." 11 Likewise, private respondent disputed the applicability of the cases of E. Macias & Co. vs. Warner, Barnes & Co. 12 and Salonga vs. Warner, Barnes & Co., Ltd. 13 invoked by petitioner in its appeal. According to private respondent, these two cases impleaded only the "insurance agent" and did not include the principal. While both the foreign principal which was declared in default by the trial court and petitioner, as claim agent, were found to be solidarily liable in this case, petitioner still had "recourse" against its foreign principal. Also, being a contract of adhesion, an insurance agreement must be strictly construed against the insurer. 14 The Court's Ruling There are three reasons why we find for petitioner. First Reason: Existing Jurisprudence Petitioner, undisputedly a settling agent acting within the scope of its authority, cannot be held personally and/or solidarily liable for the obligations of its disclosed principal merely because there is allegedly a need for a speedy settlement of the claim of private respondent. In the leading case of Salonga vs. Warner, Barnes & Co., Ltd. this Court ruled in this wise: 15 "We agree with counsel for the appellee that the defendant is a settlement and adjustment agent of the foreign insurance company and that as such agent it has the authority to settle all the losses and claims that may arise under the policies that may be issued by or in behalf of said company in accordance with the instructions it may receive from time to time from its principal, but we disagree with counsel in his contention that as such adjustment and settlement agent, the defendant has assumed personal liability under said policies, and, therefore, it can be sued in its own right. An adjustment and settlement agent is no different from any other agent from the point of view of his responsibilty (sic), for he also acts in a representative capacity. Whenever he adjusts or settles a claim, he does it in behalf of his principal, and his action is binding not

Agency Part F: Limitations (Art. 1894 - 1898) 22 ` upon himself but upon his principal. And here again, the ordinary rule of agency applies. The following authorities bear this out: 'An insurance adjuster is ordinarily a special agent for the person or company for whom he acts, and his authority is prima facie coextensive with the business intrusted to him. . .' 'An adjuster does not discharge functions of a quasi-judicial nature, but represents his employer, to whom he owes faithful service, and for his acts, in the employer's interest, the employer is responsible so long as the acts are done while the agent is acting within the scope of his employment.' (45 C.J.S., 1338-1340.) It, therefore, clearly appears that the scope and extent of the functions of an adjustment and settlement agent do not include personal liability. His functions are merely to settle and adjusts claims in behalf of his principal if those claims are proven and undisputed, and if the claim is disputed or is disapproved by the principal, like in the instant case, the agent does not assume any personal liability. The recourse of the insured is to press his claim against the principal." (Emphasis supplied). The foregoing doctrine may have been enunciated by this Court in 1951, but the passage of time has not eroded its value or merit. It still applies with equal force and vigor. Private respondent's contention that Salonga does not apply simply because only the agent was sued therein while here both agent and principal were impleaded and found solidarily liable is without merit. Such distinction is immaterial. The agent can not be sued nor held liable whether singly or solidarily with its principal. Every cause of action ex contractu must be founded upon a contract, oral or written, either express or implied. 16 The only "involvement" of petitioner in the subject contract of insurance was having its name stamped at the bottom left portion of the policy as "Claim Agent." Without anything else to back it up, such stamp cannot even be deemed by the remotest interpretation to mean that petitioner participated in the preparation of said contract. Hence, there is no privity of contract, and correspondingly there can be no obligation or liability, and thus no cause of action against petitioner attaches. Under Article 1311 17 of the Civil Code, contracts are binding only upon the parties (and their assigns and heirs) who execute them. The subject cargo insurance was between the First Insurance Company, Ltd. and the Chin Gact Co., Ltd., both of Taiwan, and was signed in Taipei, Taiwan by the president of the First Insurance Company, Ltd. and the president of the Chin Gact Co., Ltd. 18 There is absolutely nothing in the contract which mentions the personal liability of petitioner. Second Reason: Absence of Solidary Liability May then petitioner, in its capacity as resident agent (as found in the case cited by the respondent Court 19 be held solidarily liable with the foreign insurer? Article 1207 of the Civil Code clearly provides that "(t)here is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." The well-entrenched rule is that solidary obligation cannot lightly be inferred. It must be positively and clearly expressed. The contention that, in the end, it would really be First Insurance Company, Ltd. which would be held liable is specious and cannot be accepted. Such a stance would inflict injustice upon petitioner which would be made to advance the funds to settle the claim without any assurance that it can collect from the principal which disapproved such claim, in the first place. More importantly, such position would have absolutely no legal basis. The Insurance Code is quite clear as to the purpose and role of a resident agent. Such agent, as a representative of the foreign insurance company, is tasked only to receive legal processes on behalf of its principal and not to answer personally for any insurance claims. We quote: "SEC. 190.The Commissioner must require as a condition precedent to the transaction of insurance business in the Philippines by any foreign insurance company, that such company file in his office a written power of attorney designating some person who shall be a resident of the Philippines as its general agent, on whom any notice provided by law or by any insurance policy, proof of loss, summons and other legal processes may be served in all actions or other legal proceedings against such company, and consenting that service upon such general agent shall be admitted and held as valid as if served upon the foreign company at its home office. Any such foreign company shall, as further condition precedent to the transaction of insurance business in the Philippines, make and file with the Commissioner an agreement or stipulation, executed by the proper authorities of said company in form and substance as follows: 'The (name of company) does hereby stipulate and agree in consideration of the permission granted by the Insurance Commissioner to transact business in the Philippines, that if at any time such company shall leave the Philippines, or cease to transact business therein, or shall be without any agent in the Philippines on whom any notice, proof of loss, summons, or legal process may be served, then in any action or proceeding arising out of any business or transaction which occurred in the Philippines, service of any notice provided by law, or insurance policy, proof of loss, summons, or other legal process may be made upon the Insurance Commissioner shall have the same force and effect as if made upon the company.' Whenever such service of notice, proof of loss, summons, or other legal process shall be made upon the Commissioner he must, within ten days thereafter, transmit by mail, postage paid, a copy of such notice, proof of loss, summons, or other legal process to the company at its home or principal office. The sending of such copy of the Commissioner shall be necessary part of the service of the notice, proof of loss, or other legal process." (Emphasis supplied). Further, we note that in the case cited by respondent Court, petitioner was found to be a resident agent of First Insurance Co. Ltd. In the instant case however, the trial court had to order the service of

Agency Part F: Limitations (Art. 1894 - 1898) 23 ` summons upon First Insurance Co., Ltd. which would not have been necessary if petitioner was its resident agent. Indeed, from our reading of the records of this case, we find no factual and legal bases for the finding of respondent Court that petitioner is the resident agent of First Insurance Co., Ltd. cdt Third Reason: Not Real Party-In-Interest Lastly, being a mere agent and representative, petitioner is also not the real party-in-interest in this case. An action is brought for a practical purpose, that is, to obtain actual and positive relief. If the party sued is not the proper party, any decision that may be rendered against him would be futile, for the decision cannot be enforced or executed. Section 2, Rule 3 of the Rules of Court identifies who the real parties-ininterest are, thus: "Section 2.Parties in interest. Every action must be prosecuted and defended in the name of the real party in interest. All persons having an interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs. All persons who claim an interest in the controversy or the subject thereof adverse to the plaintiff, or who are necessary to a complete determination or settlement of the questions involved therein shall be joined as defendants." The cause of action of private respondent is based on a contract of insurance which as already shown was not participated in by petitioner. It is not a "person who claim(s) an interest adverse to the plaintiff" nor is said respondent "necessary to a complete determination or settlement of the questions involved" in the controversy. Petitioner is improperly impleaded for not being a real-party-interest. It will not benefit or suffer in case the action prospers. 20 Resort to Equity Misplaced Finally, respondent Court also contends that "the interest of justice is better served by holding the settling agent jointly and severally liable with its principal." As no law backs up such pronouncement, the appellate Court is thus resorting to equity. However, equity which has been aptly described as "justice outside legality," is availed of only in the absence of, and never against, statutory law or judicial pronouncements. 21 Upon the other hand, the liability of agents is clearly provided for by our laws and existing jurisprudence. WHEREFORE, in view of the foregoing considerations, the Petition is GRANTED and the Decision appealed from is REVERSED and SET ASIDE. No costs. SO ORDERED. Narvasa, C .J ., Davide, Jr., Melo and Francisco, JJ ., concur. --------------------------------------------------------------------------------------------------------------------------------------EN BANC [G.R. No. L-24711. April 30, 1968.] BENGUET CONSOLIDATED, INC., plaintiff-appellant, vs. BCI EMPLOYEES & WORKERS UNIONPAFLU, PHILIPPINE ASSOCIATION OF FREE LABOR UNIONS, CIPRIANO CID and JUANITO GARCIA, defendants-appellees. Ross, Selph, Salcedo, del Rosario, Bito & Misa for plaintiff- appellant. Cipriano Cid & Associates for defendants-appellants. SYLLABUS 1.LABOR LAW; LABOR UNION; "PRINCIPLE OF SUBSTITUTION", MEANING OF. The principle of substitution, formulated by the National Labor Relations Board, counterpart of our Court of Industrial Relations, means that where there occurs a shift in employees' union allegiance after the execution of a collective bargaining contract with their employer, the employees can change their agent - the labor union, but the collective bargaining contract which is still subsisting, continues to bind the employees up to its expiration date. They may, however, bargain for the shortening of said expiration date. And the only consideration for the "substitutionary" doctrine is the employees' interest in the existing bargaining agreement; the agent's (Union's) interest never enters into the picture. 2.ID.; ID.; ID,; UNDER "SUBSTITUTIONARY DOCTRINE", EMPLOYEES CANNOT RENEGE ON THEIR COLLECTIVE BARGAINING CONTRACT; EXCEPTION. THE "Substitutionary doctrine" provides that the employees cannot revoke the validly executed collective bargaining contract with their employer by the simple expedient of changing their bargaining agent. The new agent must respect the contract. The employees, thru their new bargaining agent, cannot renege on the collective bargaining contract, except to negotiate with management for the shortening thereof. 3.ID.; ID.; ID.; NEW COLLECTIVE BARGAINING AGENT DOES NOT AUTOMATICALLY ASSUME ALL PERSONAL UNDERTAKINGS OF DEPOSED UNION; SUBSTITUTIONARY DOCTRINE, HELD INAPPLICABLE. The "Substitutionary doctrine" cannot be invoked to support the claim that a newly certified collective bargaining agent automatically assumes all personal undertakings, such as the nostrike stipulation in this case, assumed by the deposed union. When the BBWU bound itself and its officers not to strike, it could not bind all the rival unions because the BBWU was the agent only of the employees, not of the other unions which possess distinct personalities. 4.ID.; ID.; ID.; ID.; LIABILITY OF LABOR UNION OR BOARD OR COMMITTEE MEMBERS FOR NONFULFILLMENT OF COLLECTIVE BARGAINING CONTRACT. Under Art. 1704 of the Civil Code, in collective bargaining, the labor union or members of the board or committee signing the contract shall be liable for non-fulfillment thereof. Where the defendants are not signatories to the contract, nor are they participants thereof, there can be no liability on their own. 5.DAMAGES; NO LIABILITY FOR DAMAGES OF LABOR UNION, OFFICERS OR MEMBERS, IN ABSENCE OF CLEAR PROOF; RULE OF VICARIOUS LIABILITY, REPEALED. The rule now is that for a labor union and/or its officers and members to be liable, there must be clear proof of actual participation in, or authorization or ratification of the illegal acts. The rule of "vicarious liability" has since the passage of Republic Act 875 been expressly legislated out. 6.AGENCY; EVERYTHING BINDING ON AGENT DULY AUTHORIZED BINDS PRINCIPAL, NOT VICE-VERSA. Everything that is binding on a duly authorized agent, acting as such, is binding on the principal; not vice-versa, unless there is a mutual agency, or unless the agent expressly binds himself to the party with whom he contracts, Art. 1897, Civil Code. As here, BBWU the previous agent was the one that expressly bound itself to the other party, BENGUET, UNION, the new agent did not assume the undertaking of BBWU. DECISION BENGZON, J.P., J p:

Agency Part F: Limitations (Art. 1894 - 1898) 24 ` The contending parties in this case Benguet Consolidated, Inc., ("BENGUET") on the one hand, and on the other BCI Employees & Workers Union ("UNION") and the Philippine Association of Free Labor Unions ("PAFLU") do not dispute the following factual settings established by the lower court. On June 23, 1959, the Benguet-Balatoc Workers Union ("BBWU"), for and in behalf of all BENGUET employees in its mines and milling establishment located at Balatoc, Antamok and Acupan, Municipality of Itogon, Mt. Province, entered into a Collective Bargaining Contract, Exh. "Z" ("CONTRACT") with BENGUET. Pursuant to its very terms, said CONTRACT became effective for a period of four and a half (41/2) years, or from June 23, 1959 to December 23, 1963. It likewise embodied a No-Strike, No-Lockout clause. 1 About three years later, or on April 6, 1962, a certification election was conducted by the Department of Labor among all the rank and file employees of BENGUET in the same collective bargaining units. UNION obtained more than 50% of the total number of votes, defeating BBWU, and accordingly, the Court of Industrial Relations, on August 18, 1962, certified UNION as the sole and exclusive collective bargaining agent of all BENGUET employees as regards rates of pay, wages, hours of work and such other terms and conditions of employment allowed them by law or contract. Subsequently, separate meetings were conducted on November 22, 23 and 24, 1962 at Antamok, Balatoc and Acupan Mines respectively by UNION. The result thereof was the approval by UNION members of a resolution 2 directing its president to file a notice of strike against BENGUET for: "1.[Refusal] to grant any amount as monthly living allowance for the workers; "2.Violation of Agreements reached in conciliation meetings among which is the taking down of investigation [sic] and statements of employees without the presence of union representative; "3.Refusal to dismiss erring executive after affidavits had been presented, thereby company showing [sic] bias and partiality to company personnel; "4.Discrimination against union members in the enforcement of disciplinary actions." The Notice of Strike 3 was filed on December 28, 1962. Three months later, in the evening of March 2, 1963, UNION members who were BENGUET employees in the mining camps at Acupan, Antamok and Balatoc, went on strike. Regarding the conduct of the strike, the trial court reports: 4 ". . . Picket lines were formed at strategic points within the premises of the plaintiff. The picketers, by means of threats and intimidation, and in some instances by the use of force and violence, prevented passage thru the picket lines by personnel of the plaintiff who were reporting for work. Human blocks were formed on points of entrance to working areas so that even vehicles could not pass thru, while the officers of the plaintiff were not allowed for sometime to leave the 'staff' area. "The strikers forming picket lines bore placards with the letters BBWU-PAFLU written thereon, As a general rule, the picketers were unruly, aggressive and uttered threatening remarks to staff members and non-strikers who desire to pass thru the picket lines. On some occasions, the picketers resorted to violence by pushing back the car wherein staff officers were riding who would like to (2)Are defendants labor unions and their respective presidents liable for the illegal acts committed during the course of the strike and picketing by some union members? xxx xxx xxx On May 2, 1963, the parties agreed to end the raging dispute. Accordingly, BENGUET and UNION executed the AGREEMENT, Exh. 1. PAFLU placed its conformity thereto and said agreement was attested to by the Director of the Bureau of Labor Relations. About a year later or on January 29, 1964, a collective bargaining contract was finally executed between UNION-PAFLU and BENGUET. 5 Meanwhile, as a result, allegedly, of the strike staged by UNION and its members, BENGUET had to incur expenses for the rehabilitation of mine openings, repair of mechanical equipment, cost of pumping water out of the mines, value of explosives, tools and supplies lost and/or destroyed, and other miscellaneous expenses, all amounting to P1,911,363.83. So, BENGUET sued UNION, PAFLU and their respective Presidents to recover said amount in the Court of First Instance of Manila, on the sole premise that said defendants breached their undertaking in the existing CONTRACT not to strike during the effectivity thereof. In answer to BENGUET's complaint, defendants unions and their respective presidents put up the following defenses: (1) they were not bound by the CONTRACT which BBWU, the defeated union, had executed with BENGUET; (2) the strike was due, inter alia, to unfair labor practices of BENGUET; and (3) the strike was lawful and in the exercise of the legitimate rights of UNION-PAFLU under Republic Act 875. Issues having been joined, trial commenced. On February 23, 1965, the trial court rendered judgment dismissing the complaint on the ground that the CONTRACT, particularly the No-Strike clause, did not bind defendants. The latters' counterclaim was likewise denied. Failing to get a reconsideration of said decision, BENGUET interposed the present appeal. The several errors assigned by BENGUET basically ask three questions: (1)Did the Collective Bargaining Contract executed between Benguet and BBWU on June 23, 1959 and effective until December 23, 1963 automatically bind UNION-PAFLU upon its certification, on August 18, 1962, as sole bargaining representative of all BENGUET employees? enter the mine working area. The picketers lifted one side of the vehicle and were in the act of overturning it when they were prevented from doing so by the timely intervention of PC soldiers, who threw tear gas bombs to make the crowd disperse. Many of the picketers were apprehended by the PC soldiers and criminal charges for grave coercion were filed against them before the Court of First Instance of Baguio. Two of the strike leaders and twenty-two picketers, however, were found guilty of light coercion while nineteen other accused were acquitted. "There was a complete stoppage of work during the strike in all the mines. After two weeks had elapsed, repair and maintenance of the water pump was allowed by the strikers and some of the staff members were permitted to enter the mines, who inspected the premises in the company of PC soldiers to ascertain the extent of the damage to the equipment and losses of company property."

Agency Part F: Limitations (Art. 1894 - 1898) 25 ` (3)Are defendants liable to pay the damages claimed by BENGUET? In support of an affirmative answer to the first question, BENGUET first invokes the so-called "Doctrine of Substitution" referred to in General Maritime Stevedore's Union v. South Sea Shipping Lines, L-14689, July 26, 1960. There it was remarked: xxx xxx xxx "We also hold that where the bargaining contract is to run for more than two years, the principle of substitution may well be adopted and enforced by the CIR to the effect that after two years of the life of a bargaining agreement, a certification election may be allowed by the CIR, that if a bargaining agent other than the union or organization that executed the contract, is elected, said new agent would have to respect said contract, but that it may bargain with the management for the shortening of the life of the contract if it considers it too long, or refuse to renew the contract pursuant to an automatic renewal clause." (Emphasis for emphasis) xxx xxx xxx The submission utterly fails to persuade Us. The above-quoted pronouncement was obiter dictum. The only issue in the General Maritime Stevedores' Union case was whether a collective bargaining agreement which had practically run for 5 years constituted a bar to certification proceedings. We held it did not and accordingly directed the court a quo to order certification elections. With that, nothing more was necessary for the disposition of the case. Moreover, the pronouncement adverted to was rather premature. The possible certification of a union different from that which signed the bargaining contract was a mere contingency then since the elections were still to be held. Clearly, the Court was not called upon to rule on the possible effects of such proceedings on the bargaining agreement. 6 But worse, BENGUET's reliance upon the Principle of Substitution is totally misplaced. This principle, formulated by the NLRB 7 as its initial compromise solution to the problem facing it when there occurs a shift in employees' union allegiance after the execution of a bargaining contract with their employer, merely states that even during the effectivity of a collective bargaining agreement executed between employer and employees thru their agent, the employees can change said agent but the contract continues to bind them up to its expiration date. They may bargain however for the shortening of said expiration date. 8 In formulating the "substitutionary" doctrine, the only consideration involved was the employees' interest in the existing bargaining agreement. The agent's interest never entered the picture. In fact, the justification 9 for said doctrine was: ". . . that the majority of the employees, as an entity under the statute, is the true party in interest to the contract, holding rights through the agency of the union representative. Thus, any exclusive interest claimed by the agent is defeasible at the will of the principal . . ." (Emphasis supplied) Stated otherwise, the "substitutionary" doctrine only provides that the employees cannot revoke the validly executed collective bargaining contract with their employer by the simple expedient of changing their bargaining agent. And it is in the light of this that the phrase "said new agent would have to respect said contract" must be understood. It only means that the employees, thru their new bargaining agent, cannot renege on their collective bargaining contract, except of course to negotiate with management for the shortening thereof. The "substitutionary" doctrine, therefore, cannot be invoked to support the contention that a newly certified collective bargaining agent automatically assumes all the personal undertakings like the nostrike stipulation here in the collective bargaining agreement made by the deposed union. When BBWU bound itself and its officers not to strike, it could not have validly bound also all the other rival unions existing in the bargaining units in question. BBWU was the agent of the employees, not of the other unions which possess distinct personalities. To consider UNION contractually bound to the nostrike stipulation would therefore violate the legal maxim that res inter alios acta alios nec prodest nec nocet. 10 Of course, UNION, as the newly certified bargaining agent, could always voluntarily assume all the personal undertakings made by the displaced agent. But as the lower court found, there was no showing at all that, prior to the strike, 11 UNION formally adopted the existing CONTRACT as its own and assumed all the liabilities imposed by the same upon BBWU. BENGUET also alleges that UNION is now in estoppel to claim that it is not contractually bound by the CONTRACT for having filed on September 28, 1962, in Civil Case No. 1150 of the Court of First Instance of Baguio, entitled "Bobok Lumber Jack Ass'n. vs. Benguet Consolidated, Inc. and BCI EMPLOYEES WORKERS Union-PAFLU" 12 a motion praying for the dissolution of the ex parte writ of preliminary injunction issued therein, wherein the following appears: "In that case, the CIR transferred the contractual rights of the BBWU to the defendant union. One of such rights transferred was the right to the modified union-shop-checked off union dues arrangement now under injunction. "The collective bargaining contract mentioned in the plaintiff's complaint did not expire by the mere fact that the defendant union was certified as bargaining agent in place of the BBWU. The Court of Industrial Relations in the case above mentioned made it clear that the collective bargaining contract would be respected unless and until the parties act otherwise. In effect, the defendant union by act of subrogation took the place of the BBWU as the UNION referred to in the contract." (Emphasis supplied) There is no estoppel. UNION did not assert the above statement against BENGUET to force it to rely upon the same to effect the union check- off in its favor. UNION and BENGUET were together as codefendants in said Civil Case No. 1150. Rather, the statement was directed against Bobok Lumber Jack Ass'n., plaintiff therein, to weaken its cause of action. Moreover, BENGUET did not rely upon said statement. What prompted Bobok Lumber Jack Ass'n. to file the complaint for declaratory relief was the fact that ". . . the defendants [UNION and BENGUET] are planning to agree to the continuation of a modified union shop in the three camps mentioned above without giving the employees concerned the opportunity to express their wishes on the matter . . . " BENGUET even went further in its answer filed on October 18, 1962, by asserting that ". . . defendants have already agreed to the continuation of the modified union shop provision in the collective bargaining agreement . . ." 13

Agency Part F: Limitations (Art. 1894 - 1898) 26 ` Neither can we accept BENGUET's contention that the inclusion of said aforequoted motion in the record on appeal filed in said Civil Case No. 1150, now on appeal before Us docketed as case No. L-24729, refutes UNION's allegation that it has subsequently abandoned its stand against Bobok Lumber Jack Ass'n., in said case. The mere appearance of such motion in the record on appeal is but a compliance with the procedural requirement of Rule 41, Sec 6, of the Rules of Court, that all matters necessary for a proper understanding of the issues involved be included in the record on appeal. This therefore cannot be taken as a rebuttal of the UNION's explanation. There is nothing then, in law as well as in fact, to support plaintiff BENGUET's contention that defendants are contractually bound by the CONTRACT. And the stand taken by the trial court all the more becomes unassailable in the light of Art. 1704 of the Civil Code providing that: "In collective bargaining, the labor union or members of the board or committee signing the contract shall be liable for non- fulfillment thereof." (Emphasis supplied) There is no question, defendants were not signatories nor participants in the CONTRACT. Lastly, BENGUET contends, citing Clause II in connection with Clause XVIII of the CONTRACT, that since all the employees, as principals, continue being bound by the no-strike stipulation until the CONTRACT's expiration, UNION, as their agent, must necessarily be bound also pursuant to the Law on Agency. This is untenable. The way We understand it, everything binding on a duly authorized agent; acting as such, is binding on the principal; not vice-versa, unless there is mutual agency, or unless the agent expressly binds himself to the party with whom he contracts. As the Civil Code decrees it: 14 "The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers." (Emphasis supplied) Here, it was the previous agent who expressly bound itself to the other party, BENGUET. UNION, the new agent, did not assume this undertaking of BBWU. In view of all the foregoing, We see no further necessity of delving further into the other less important points raised by BENGUET in connection with the first question. On the second question, it suffices to consider, in answer thereto, that the rule of vicarious liability has, since the passage of Republic Act 875, been express]y legislated out. 15 The standing rule now is that for a labor union and/or its officials and members to be liable, there must be clear proof of actual participation in or authorization or ratification of the illegal acts. 16 While the lower court found that some strikers and picketers resorted to intimidation and actual violence, it also found that defendants presented uncontradicted evidence that before and during the strike, the strike leaders had time and again warned the strikers not to resort to violence but to conduct peaceful picketing only. 17 Assuming that the strikers did not heed these admonitions coming from their leaders, the failure of the union officials to go against the erring union members pursuant to the UNION and PAFLU constitutions and bylaws exposes, at the most, only a flaw or weakness in the defense which, however, cannot be the basis for plaintiff BENGUET to recover. Lastly, paragraph VI of the Answer 18 sufficiently traverses the material allegations in paragraph VI of the Complaint, 19 thus precluding a fatal admission on defendants' part. The purpose behind the rule requiring specific denial is obtained: defendants have set forth the matters relied upon in support of their denial. Paragraph VI of the Answer may not be a model pleading, but it suffices for purposes of the rule. Pleadings should, after all, be liberally construed. 20 Since defendants were not contractually bound by the no-strike clause in the CONTRACT, for the simple reason that they were not parties thereto, they could not be liable for breach of contract to plaintiff. The lower court therefore correctly absolved them from liability. WHEREFORE, the judgment of the lower court appealed from is hereby affirmed. No costs. SO ORDERED. Dizon, Zaldivar, Sanchez, Ruiz Castro, Angeles and Fernando, JJ., concur. --------------------------------------------------------------------------------------------------------------------------------------EN BANC [G.R. No. L-17160. November 29, 1965.] PHILIPPINE PRODUCTS COMPANY, plaintiff-appellant, vs. PRIMATERIA SOCIETE ANONYME POUR LE COMMERCE EXTERIEUR: PRIMATERIA (PHILIPPINES) INC., ALEXANDER G. BAYLIN and JOSE M. CRAME, defendants-appellees. Jose A. Javier for plaintiff-appellant. Ibarra & Papa for defendants-appellees. SYLLABUS 1.CORPORATION; FOREIGN CORPORATIONS; FAILURE TO PROVE THAT CORPORATION IS FOREIGN. An association not duly proven to be a foreign corporation does not fall within the prescription of Section 68 of the Corporation Law. 2.ID.; ID.; SOCIEDADES ANONIMAS DIFFERENT FROM CORPORATIONS. The Corporation Law recognizes the difference between sociedades anonimas and corporations. 3.ID.; ID. WHEN AGENT OF FOREIGN CORPORATION PERSONALLY LIABLE; RIGHT OF CONTRACTING PARTY TO RECOVER FROM BOTH PRINCIPAL AND AGENT. Art. 1897 of the New Civil Code does not hold that in case of excess of authority, both the agent and the principal are liable to the other contracting party. 4.ID.; ID.; BASIS OF LIABILITY OF AGENTS. In the absence of express legislation, the liability of the agent of a foreign corporation doing business, but not licensed in the Philippines, is premised on the inability to sue the principal or non-liability thereof. DECISION BENGZON, C.J p: This is an action to recover from defendants the sum of P33,009.71 with interest and attorney's fees of P8,000.00. Defendant Primateria Societe Anonyme Pour Le Commerce Exterieur (hereinafter referred to as Primateria Zurich), is a foreign juridical entity and, at the time of the transactions involved herein, had its main office at Zurich, Switzerland. It was then engaged in "Transactions in international trade with agricultural products, particularly in oils, fats and oil-seeds and related products. The record shows that: On October 24, 1951, Primateria Zurich, through defendant Alexander G. Baylin, entered into an agreement with plaintiff Philippine Products Company, whereby the latter undertook to buy copra in the

Agency Part F: Limitations (Art. 1894 - 1898) 27 ` Philippines for the account of Primateria Zurich, during "a tentative, experimental period of one month from date". The contract was renewed by mutual agreement of the parties to cover an extended period up to February 24, 1952, later extended to 1953. During such period, plaintiff caused the shipment of copra to foreign countries, pursuant to instructions from defendant Primateria Zurich, thru Primateria (Phil.) Inc., referred to hereafter as Primateria Philippines acting by defendant Alexander G. Baylin and Jose M. Crame, officers of said corporation. As a result, the total amount due to the plaintiff as of May 30, 1955, was P33,009.71. At the trial, before the Manila court of first instance, it was proven that the amount due from defendant Primateria Zurich, on account of the various shipments of copra, was P31,009.71, because it had paid P2,000.00 of the original claim of plaintiff. There is no dispute about accounting. And there is no question that Alexander G. Baylin and Primateria Philippines acted as the duly authorized agents of Primateria Zurich in the Philippines. As far as the record discloses, Baylin acted indiscriminately in these transactions in the dual capacities of agent of the Zurich firm and executive vice-president of Primateria Philippines, which also acted as agent of Primateria Zurich. It is likewise undisputed that Primateria Zurich had no license to transact business in the Philippines. For failure to file an answer within the reglementary period, defendant Primateria Zurich was declared in default. After trial, judgment was rendered by the lower court holding defendant Primateria Zurich liable to the plaintiff for the sums of P31,009.71, with legal interest from the date of the filing of the complaint, and P2,000.00 as and for attorney's fees; and absolving defendants Primateria (Phil.), Inc., Alexander G. Baylin, and Jose M. Crame from any and all liability. Plaintiff appealed from that portion of the judgment dismissing its complaint as regards the three defendants. It is plaintiff's theory that Primateria Zurich is a foreign corporation within the meaning of Sections 68 and 69 of the Corporation Law; and since it has transacted business in the Philippines without the necessary license, as required by said provisions, its agents here are personally liable for contracts made in its behalf. Section 68 of the Corporation Law states: "No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippines shall be permitted to transact business in the Philippines, until after it shall have obtained a license for that purpose from the Securities and Exchange Commission . . .", And under Section 69, "any officer, or agent of the corporation or any person transacting business for any foreign corporation not having the license prescribed shall be punished by imprisonment for etc. . . . ." The issues which have to be determined, therefore, are the following: 1.Whether defendant Primateria Zurich may be considered a foreign corporation within the meaning of Sections 68 and 69 of the Corporation Law; 2.Assuming said entity to be a foreign corporation, whether it may be considered as having transacted business in the Philippines within the meaning of said sections; and 3.If so, whether its agents may be held personally liable on contracts made in the name of the entity with third persons in the Philippines. The lower court ruled that the Primateria Zurich was not duly proven to be a foreign corporation; nor that a societe anonyme ("sociedad anomima") is a corporation; and that failing such proof, the societe cannot be deemed to fall within the proscription of Section 68 of the Corporation Law. We agree with the said court's conclusion. In fact, our corporation law recognized the difference between sociedades anonimas and corporations. At any rate, we do not see how the plaintiff could recover from both the principal (Primateria Zurich) and its agents. It has been given judgment against the principal for the whole amount. It asked for such judgment, and did not appeal from it. It clearly stated that its appeal concerned the other three defendants. But plaintiff alleges that the appellees as agents of Primateria Zurich are liable to it under Art. 1897 of the New Civil Code which reads as follows: "ART. 1897.The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his power." But there is no proof that, as agents, they exceeded the limits of their authority. In fact, the principal Primateria Zurich who should be the one to raise the point, never raised it, never denied its liability on the ground of excess of authority. At any rate, the article does not hold that in case of excess of authority, both the agent and the principal are liable to the other contracting party. This view of the cause dispenses with the necessity of deciding the other two issues, namely: whether the agent of a foreign corporation doing business, but not licensed here is personally liable for contracts made by him in the name of such corporation. 1 Although, the solution should not be difficult, since we already held that such foreign corporation may be sued here (General Corporation vs. Union Ins. 87 Phil. 309). And obviously, liability of the agent is necessarily premised on the inability to sue the principal or non-liability of such principal. In the absence of express legislation, of course. IN VIEW OF THE FOREGOING CONSIDERATIONS, the appealed judgment is affirmed, with costs against appellant. Bautista Angelo, Concepcion, Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur. Barrera, J., took no part. --------------------------------------------------------------------------------------------------------------------------------------FIRST DIVISION [G.R. No. 109937. March 21, 1994.] DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented by CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION INSURANCE POOL, respondents. DECISION QUIASON, J p: This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside the decision of the Court of Appeals in CA-G.R CV No. 26434 and its resolution denying reconsideration thereof. We affirm the decision of the Court of Appeals with modification. I

Agency Part F: Limitations (Art. 1894 - 1898) 28 ` In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a loan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a mortgage redemption insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool). A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and released on August 11, 1987. From the proceeds of the loan, DBP deducted the amount of P1,476.00 as payment for the MRI premium. On August 15, 1987, Dans accomplished and submitted the "MRI Application for Insurance" and the "Health Statement for DBP MRI Pool." On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit. Cdpr On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible for MRI coverage, being over the acceptance age limit of 60 years at the time of application. LibLex On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI application. The DBP offered to refund the premium of P1,476.00 which the deceased had paid, but Candida Dans refused to accept the same, demanding payment of the face value of the MRI or an amount equivalent to the loan. She, likewise, refused to accept anex gratia settlement of P30,000.00, which the DBP later offered. On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a complaint with the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for "Collection of Sum of Money with Damages." Respondent Estate alleged that Dans became insured by the DBP MRI Pool when DBP, with full knowledge of Dans' age at the time of application, required him to apply for MRI, and later collected the insurance premium thereon. Respondent Estate therefore prayed: (1) that the sum of P139,500.00, which it paid under protest for the loan, be reimbursed; (2) that the mortgage debt of the deceased be declared fully paid; and (3) that damages be awarded. LexLib The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a cross-claim against the latter. At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by respondent Estate. As a result of these admissions, the trial court narrowed down the issues and, without opposition from the parties, found the case ripe for summary judgment. Consequently, the trial court ordered the parties to submit their respective position papers and documentary evidence, which may serve as basis for the judgment. cdrep On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against DBP. The DBP MRI Pool, however, was absolved from liability, after the trial court found no privity of contract between it and the deceased. The trial court declared DBP in estoppel for having led Dans into applying for MRI and actually collecting the premium and the service fee, despite knowledge of his age ineligibility. The dispositive portion of the decision read as follows: "WHEREFORE, in view of the foregoing consideration and in the furtherance of justice and equity, the Court finds judgment for the plaintiff and against Defendant DBP, ordering the latter: 1.To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of interest as amortization payment paid under protest; 2.To consider the mortgage loan of P300,000.00 including all interest accumulated or otherwise to have been settled, satisfied or set-off by virtue of the insurance coverage of the late Juan B. Dans; . 3.To pay plaintiff the amount of P10,000.00 as attorney's fees; 4.To pay plaintiff the amount of P10,000.00 as costs of litigation and other expenses, and other relief just and equitable. The Counterclaims of Defendants DBP and DBP-MRI POOL are hereby dismissed. The Cross-claim of defendant DBP is likewise dismissed" (Rollo, p. 79) The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate court affirmed in toto the decision of the trial court. The DBP's motion for reconsideration was denied in a resolution dated April 20, 1993. Hence, this recourse. II When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP Pool" (Exh. "5-Bank") with the following declaration: "I hereby declare and agree that all the statements and answers contained herein are true, complete and correct to the best of my knowledge and belief and form part of my application for insurance. It is understood and agreed that no insurance coverage shall be effected unless and until this application is approved and the full premium is paid during my continued good health" (Records, p. 40). Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shall be approved by the insurance pool; and (2) when the full premium is paid during the continued good health of the applicant. These two conditions, being joined conjunctively, must concur. Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool, however, did not approve the application of Dans. There is also no showing that it accepted the sum of P1,476.00, which DBP credited to its account with full knowledge that it was payment for Dan's premium. There was, as a result, no perfected contract of insurance; hence, the DBP MRI Pool cannot be held liable on a contract that does not exist. The liability of DBP is another matter. prcd It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI coverage. Instead of allowing Dans to look for his own insurance carrier or some other form of insurance policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When Dan's loan was released on August 11, 1987, DBP already deducted from the proceeds thereof the MRI premium. Four days latter, DBP made Dans fill up and sign his application for MRI, as well as his health statement. The DBP later submitted both the application form and health statement to the DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As service fee, DBP deducted 10 percent of the premium collected by it from Dans.

Agency Part F: Limitations (Art. 1894 - 1898) 29 ` In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an insurance agent. As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby leading him and his family to believe that they had already fulfilled all the requirements for the MRI and that the issuance of their policy was forthcoming. Apparently, DBP had full knowledge that Dan's application was never going to be approved. The maximum age for MRI acceptance is 60 years as clearly and specifically provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in 1984 by all the insurance companies concerned (Exh. "1-Pool"). Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers." The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age (Exh. "1-Pool"). Knowing all the while that Dans was ineligible for MRI coverage because of his advanced age, DBP exceeded the scope of its authority when it accepted Dan's application for MRI by collecting the insurance premium, and deducting its agent's commission and service fee. The liability of an agent who exceeds the scope of his authority depends upon whether the third person is aware of the limits of the agent's powers. There is no showing that Dans knew of the limitation on DBP's authority to solicit applications for MRI. LLphil If the third person dealing with an agent is unaware of the limits of the authority conferred by the principal on the agent and he (third person) has been deceived by the non-disclosure thereof by the agent, then the latter is liable for damages to him (V Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The rule that the agent is liable when he acts without authority is founded upon the supposition that there has been some wrong or omission on his part either in misrepresenting, or in affirming, or concealing the authority under which he assumes to act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the agency carries with it the implication that a deception was perpetrated on the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code of the Philippines come into play. Article 19 provides: "Every person must, in the exercise of his rights and in the performance of his duties, act with justice give everyone his due and observe honesty and good faith." LexLib Article 20 provides: "Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same." Article 21 provides: "Any person, who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage." The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that were it not for DBP's concealment of the limits of its authority, Dans would have secured an MRI from another insurance company, and therefore would have been fully insured by the time he died, is highly speculative. Considering his advanced age, there is no absolute certainty that Dans could obtain an insurance coverage from another company. It must also be noted that Dans died almost immediately, i.e., on the nineteenth day after applying for the MRI, and on the twenty-third day from the date of release of his loan. LLphil One is entitles to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved (Civil Code of the Philippines, Art. 2199). Damages, to be recoverable, must not only be capable of proof, but must be actually proved with a reasonable degree of certainty (Refractories Corporation v. Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co., 34 Phil. 447 [1916]). Speculative damages are too remote to be included in an accurate estimate of damages (Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]). While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof of pecuniary loss is required in the assessment of said kind of damages (Civil Code of Philippines, Art. 2216). The same may be recovered in acts referred to in Article 2219 of the Civil Code. The assessment of moral damages is left to the discretion of the court according to the circumstances of each case (Civil Code of the Philippines, Art. 2216). Considering that DBP had offered to pay P30,000.00 to respondent Estate in ex gratia settlement of its claim and that DBP's non-disclosure of the limits of its authority amounted to a deception to its client, an award of moral damages in the amount of P50,000.00 would be reasonable. The award of attorney's fees is also just and equitable under the circumstances (Civil Code of the Philippines, Article 2208 [11]). LLphil WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate of Juan B. Dans the amount of P1,476.00 with legal interest from the date of the filing of the complaint until fully paid; and (2) to PAY said Estate the amount of Fifty Thousand Pesos (P50,000.00) as moral damages and the amount of Ten Thousand Pesos (P10,000.00) as attorney's fees. With costs against petitioner. SO ORDERED. Cruz, Davide, Jr., Bellosillo and Kapunan, JJ ., concur. --------------------------------------------------------------------------------------------------------------------------------------FIRST DIVISION [G.R. No. 105562. September 27, 1993.] LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA ALARCON, DINA LORENA AYO, CELIA CALUMBAG and LUCIA LONTOK, petitioners, vs. HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE COMPANY, LIMITED, respondents. Mariano V. Ampil, Jr. for petitioners. Ramon S. Caguio for private respondent. SYLLABUS 1.COMMERCIAL LAWS; INSURANCE; GROUP INSURANCE; CONSTRUED. Group insurance is a comparatively new form of insurance. In the United States, the first modern group insurance policies appear to have been issued in 1911 by the Equitable Life Assurance Society. GREGG, G.W., Group Life Insurance, 3rd ed., 1960, 5-7. Group insurance is essentially a single insurance contract that provides

Agency Part F: Limitations (Art. 1894 - 1898) 30 ` coverage for many individuals. In its original and most common form, group insurance provides life or health insurance coverage for the employees of one employer. The coverage terms for group insurance are usually stated in a master agreement or policy that is issued by the insurer to a representative of the group or to an administrator of the insurance program, such as an employer. [KEETON, R.E. & WIDISS, A.I., Doctrines, and Commercial Practice 1988 ed., s 2.6 (a).]The employer acts as a functionary in the collection and payment of premiums and in performing related duties. Likewise falling within the ambit of administration of a group policy is the disbursement of insurance payments by the employer to the employees. [Metropolitan Life Insurance Co. Sup. Ct. 1982).] Most policies, such as the one in this case, require an employee to pay a portion of the premium, which the employer deducts from wages while the remainder is paid by the employer. This is known as a contributory plan as compared to a non-contributory plan where the premiums are solely paid by the employer. Although the employer may be the titular or named insured, the insurance is actually related to the life and health of the employee. Indeed, the employee is in the position of a real party to the master policy, and even in a non-contributory plan, the payment by the employer of the entire premium is a part of the total compensation paid for the services of the employee. [KEETON & WIDISS, supra]. Put differently, the labor of the employees is the true source of the benefits, which are a form additional compensation to them. It has been stated that every problem concerning group insurance presented to a court should be approached with the purpose of giving to it every legitimate opportunity of becoming a social agency of real consequence considering that the primary aim is to provide the employer with a means of procuring insurance protection for his employees and their families at the lowest possible cost, and in so doing, the employer creates goodwill with his employees, enables the employees to carry a larger amount of insurance than they could otherwise, and helps to attract and hold a permanent class of employees. [Neider vs. Continental Assurance Co., 35 So. 2d 237 (La Sup. Ct. 1948)]. 2.ID.; ID.; ID.; EMPLOYER AS AN AGENT OF INSURER; CASE AT BAR . In Elfstrom vs. New York Life Insurance Company, 432 p.2D 731 (CAL. SUP. CT. 1967), the California Supreme Court explicitly ruled that in group insurance policies, the employer is the agent of the insurer. Thus: "We are convinced that the employer is the agent of the insurer in performing the duties of administering group insurance policies. It cannot be said that the employer acts entirely for its own benefit or for the benefit of its employees in undertaking administrative functions. While a reduced premium may result if the employer relieves the insurer of these tasks, and this, of course, is advantageous to both the employer and the employees, the insurer also enjoys significant advantages from the arrangement. The reduction in the premium which results from employer-administration permits the insurer to realize a larger volume of sales, and at the same time the insurer's own administrative costs are markedly reduced. . . . The most persuasive rationale for adopting the view that the employer acts as the agent of the insurer, however, is that the employee has no knowledge of or control over the employer's actions in handling the policy or its administration. An agency relationship is based upon consent by one person that another shall act in his behalf and be subject to his control. It is clear from the evidence regarding procedural techniques here that the insurer-employer relationship meets this agency test with regard to the administration of the policy, whereas that between the employer and its employees fails to reflect true agency. The insurer directs the performance of the employer's administrative acts, and if these duties are not undertaken properly the insurer is in a position to exercise more constricted control over the employer's conduct." In Neider vs. Continental Assurance Company, 35 So 2nd 237 (La Sup. Ct. 1948) which was cited in Elfstrom, it was held that: "[t]he employer owes to the employee the duty of good faith and due care in attending to the policy, and that the employer should make clear to the employee anything required of him to keep the policy in effect, and the time that the obligations are due. In its position as administrator of the policy, we feel also that the employer should be considered as the agent of the insurer, and any omission of duty to the employee in its administration should be attributable to the insurer." The ruling in Elfstrom was subsequently reiterated in the cases of Bass vs. John Hancock Mutual Life Insurance Co. 518 P. 2d 1147 (Cal. Sup. Ct. 1974) and Metropolitan Life Insurance Co. vs. State Board of Equalization. 652 P. 2d, (Cal. Sup. Ct. 1982) In the light of the above disquisitions and after a examination of the facts of this case, we hold that PMSI, through its President and General Manager, Capt. Nuval, acted as the agent of Insular Life. The latter is thus bound by the misconduct of its agent. 3.CIVIL LAW; FAMILY CODE; LEGAL GUARDIAN OF THE MINOR CHILD'S PROPERTY; WHEN BOND REQUIRED; CASE AT BAR. It is clear from Art. 225 of the Family Code that regardless of the value of the unemancipated common child's property, the father and mother ipso jure become the legal guardian of the child's property. However, if the market value of the property or the annual income of the child exceeds P50,000,00, a bond has to be posted by the parents concerned to guarantee the performance of the obligations of a general guardian. It must, however, be noted that the second paragraph of Article 225 of the Family Code speaks of the "market value of the property or the annual income of the child," which means, therefore, the aggregate of the child's property or annual income; if this exceeds P50,000.00, a bond is required. There is no evidence that the share of each of the minors in the proceeds of the group policy in question is the minor's only property. Without such evidence, it would not be safe to conclude that, indeed, that is his only property. DECISION DAVIDE, JR., J p: This is an appeal by certiorari to review and set aside the Decision of the public respondent Court of Appeals in CA-G.R. SP No. 22950 1 and its Resolution denying the petitioners' motion for reconsideration. 2 The challenged decision modified the decision of the Insurance Commission in IC Case No. RD-058. 3 The petitioners were the complainants in IC Case No. RD-058, an administrative complaint against private respondent Insular Life Assurance Company, Ltd. (hereinafter Insular Life), which was filed with the Insurance Commission on 20 September 1989. 4 They prayed therein that after due proceedings, Insular Life "be ordered to pay the claimants their insurance claims" and that "proper sanctions/penalties be imposed on" it "for its deliberate, feckless violation of its contractual obligations to the complainants, and of the Insurance Code." 5 Insular Life's motion to dismiss the complaint on the ground that "the claims of complainants are all respectively beyond the jurisdiction of the Insurance Commission as provided in Section 416 of the Insurance Code," 6 having been denied in the Order of 14 November 1989, 7 it filed its answer on 5 December 1989. 8 Thereafter, hearings were conducted on various dates.

Agency Part F: Limitations (Art. 1894 - 1898) 31 ` On 20 June 1990, the Commission rendered its decision 9 in favor of the complainants, the dispositive portion of which reads as follows: "WHEREFORE, this Commission merely orders the respondent company to: a)Pay a fine of FIVE HUNDRED PESOS (P500.00) a day from the receipt of a copy of this Decision until actual payment thereof; b)Pay and settle the claims of DINA AYO and LUCIA LONTOC, for P50,000.00 and P40,000.00, respectively; c)Notify henceforth it should notify individual beneficiaries designated under any Group Policy, in the event of the death of insured(s), where the corresponding claims are filed by the Policyholder; d)Show cause within ten days why its other responsible officers who have handled this case should not be subjected to disciplinary and other administrative sanctions for deliberately releasing to Capt. Nuval the check intended for spouses ALARCON, in the absence of any Special Power of Attorney for that matter and for negligence with respect to the release of the other five checks. SO ORDERED." 10 In holding for the petitioners, the Insurance Commission made the following findings and conclusions: "After taking into consideration the evidences [sic], testimonial and documentary for the complainants and the respondent, the Commission finds that; First: The respondent erred in appreciating that the powers of attorney executed by five (5) of the several beneficiaries convey absolute authority to Capt. Nuval, to demand, receive, receipt and take delivery of insurance proceeds from respondent Insular Life. A cursory reading of the questioned powers of authority would disclosed [sic] that they do not contain in unequivocal and clear terms authority to Capt. Nuval to obtain, receive, receipt from respondent company insurance proceeds arising from the death of the seaman-insured. On the contrary, the said powers of attorney are couched in terms which could easily arouse suspicion of an ordinary man. . . . Second: The testimony of the complainants' rebuttal witness, Mrs. Trinidad Alarcon, who declared in no uncertain terms that neither she nor her husband, executed a special power of attorney in favor of Captain Rosendo Nuval, authorizing him to claim, receive, receipt and take delivery of any insurance proceeds from Insular Life arising out of the death of their insured/seaman son, is not convincingly refuted. Third: Respondent Insular Life did not observe Section 180 of the Insurance Code, when it issued or released two checks in the amount of P150,000.00 for the three minor children (P50,000.00 each) of complainant, Dina Ayo and another check of P40,000.00 for minor beneficiary Marissa Lontok, daughter of another complainant Lucia Lontok, there being no showing of any court authorization presented or the requisite bond posted. Section 180 is quotes [sic] partly as follows: '. . . In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the mother of any minor, who is an insured or a beneficiary under a contract of life, health or accident insurance, may exercise, in behalf of said minor, any right under the policy, without necessity of court authority or the giving of a bond where the interest of the minor in the particular act involved does not exceed twenty thousand pesos . . .'" 11 Insular Life appealed the decision to the public respondent which docketed the case as CA-G.R. SP No. 22950. The appeal urged the appellate court to reverse the decision because the Insurance Commission (a) had no jurisdiction over the case considering that the claims exceeded P100,000.00, (b) erred in holding that the powers of attorney relied upon by Insular Life were insufficient to convey absolute authority to Capt. Nuval to demand, receive and take delivery of the insurance proceeds pertaining to the petitioners, (c) erred in not giving credit to the version of Insular Life that the power of attorney supposed to have been executed in favor of the Alarcons was missing, and (d) erred in holding that Insular Life was liable for violating Section 180 of the Insurance Code for having released to the surviving mothers the insurance proceeds pertaining to the beneficiaries who were still minors despite the failure of the former to obtain a court authorization or to post a bond. On 10 October 1991, the public respondent rendered a decision, 12 the decretal portion of which reads: "WHEREFORE, the decision appealed from is modified by eliminating therefrom the award to Dina Ayo and Lucia Lontok in the amounts of P50,000.00 and P40,000.00, respectively." 13 It found the following facts to have been duly established: "It appears that on 23 September 1983, Prime Marine Services, Inc. (PMSI, for brevity), a crewing/manning outfit, procured Group Policy No. G-004694 from respondent-appellant Insular Life Assurance Co., Ltd. to provide life insurance coverage to its sea-based employees enrolled under the plan. On 17 February 1986, during the effectivity of the policy, six covered employees of the PMSI perished at sea when their vessel, M/V Nemos, a Greek cargo vessel, sunk somewhere in El Jadida, Morocco. They were survived by complainantsappellees, the beneficiaries under the policy. Following the tragic demise of their loved ones, complainants-appellees sought to claim death benefits due them and, for this purpose, they approached the President and General Manager of PMSI, Capt. Roberto Nuval. The latter evinced willingness to assist complainants-appellees to recover Overseas Workers Welfare Administration (OWWA) benefits from the POEA and to work for the increase of their PANDIMAN and other benefits arising from the deaths of their husbands/sons. They were thus made to execute, with the exception of

Agency Part F: Limitations (Art. 1894 - 1898) 32 ` the spouses Alarcon, special powers of attorney authorizing Capt. Nuval to, among others 'follow up, ask, demand, collect and receive' for their benefit indemnities of sums of money due them relative to the sinking of M/V Nemos. By virtue of these written powers of attorney, complainants-appellees were able to receive their respective death benefits. Unknown to them, however, the PMSI, in its capacity as employer and policyholder of the life insurance of its deceased workers, filed with respondent-appellant formal claims for and in behalf of the beneficiaries, through its President, Capt. Nuval. Among the documents submitted by the latter for the processing of the claims were the five special powers of attorney executed by complainants-appellees. On the basis of these and other documents duly submitted, respondent-appellant drew against its account with the Bank of the Philippine Islands on 27 May 1986 six (6) checks, four for P200,000.00 each, one for P50,000.00 and another for P40,000.00, payable to the order of complainants-appellees. These checks were released to the treasurer of PMSI upon instructions of Capt. Nuval over the phone to Mr. Mariano Urbano, Assistant Department Manager for Group Administration Department of respondent-appellant. Capt. Nuval, upon receipt of these checks from the treasurer, who happened to be his son-in-law, endorsed and deposited them in his account with the Commercial Bank of Manila, now Boston Bank. On 3 July 1989, after complainants-appellees learned that they were entitled, as beneficiaries, to life insurance benefits under a group policy with respondentappellant, they sought to recover these benefits from Insular Life but the latter denied their claim on the ground that the liability to complainants-appellees was already extinguished upon delivery to and receipt by PMSI of the six (6) checks issued in their names." 14 On the basis thereof, the public respondent held that the Insurance Commission had jurisdiction over the case on the ground that although some of the claims exceed P100,000.00, the petitioners had asked for administrative sanctions against Insular Life which are within the Commission's jurisdiction to grant; hence, "there was merely a misjoinder of causes of action . . . and, like misjoinder of parties, it is not a ground for the dismissal of the action as it does not affect the other reliefs prayed for." 15 It also rejected Insular Life's claim that the Alarcons had submitted a special power of attorney which they (Insular Life) later misplaced. On the other hand, the public respondent ruled that the powers of attorney, Exhibits "1" to "5," relied upon by Insular Life were sufficient to authorize Capt. Nuval to receive the proceeds of the insurance pertaining to the beneficiaries. It stated: "When the officers of respondent-appellant read these written powers, they must have assumed Capt. Nuval indeed had authority to collect the insurance proceeds in behalf of the beneficiaries who duly affixed their signatures therein. The written power is specific enough to define the authority of the agent to collect any sum of money pertaining to the sinking of the fatal vessel. Respondent-appellant interpreted this power to include the collection of insurance proceeds in behalf of the beneficiaries concerned. We believe this is a reasonable interpretation even by an officer of respondent-appellant unschooled in the law. Had respondent-appellant consulted its legal department it would not have received a contrary view. There is nothing in the law which mandates a specific or special power of attorney to be executed to collect insurance proceeds. Such authority is not included in the enumeration of Art. 1878 of the New Civil Code. Neither do we perceive collection of insurance claims as an act of strict dominion as to require a special power of attorney. Moreover, respondent-appellant had no reason to doubt Capt. Nuval. Not only was he armed with a seemingly genuine authorization, he also appeared to be the proper person to deal with respondent-appellant being the President and General Manager of the PMSI, the policyholder with whom respondentappellant always dealt. The fact that there was a verbal agreement between complainants-appellees and Capt. Nuval limiting the authority of the latter to claiming specified death benefits cannot prejudice the insurance company which relied on the terms of the powers of attorney which on their face do not disclose such limitation. Under the circumstances, it appearing that complainants-appellees have failed to point to a positive provision of law or stipulation in the policy requiring a specific power of attorney to be presented, respondents-appellant's reliance on the written powers was in order and it cannot be penalized for such an act." 16 Insofar as the minor children of Dina Ayo and Lucia Lontok were concerned, it ruled that the requirement in Section 180 of the Insurance Code which provides in part that: "In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the mother, of any minor, who is an insured or a beneficiary under a contract of life, health or accident insurance, may exercise, in behalf of said minor, any right under the policy, without necessity of court authority or the giving of a bond, where the interest of the minor in the particular act involved does not exceed twenty thousand pesos. Such a right may include, but shall not be limited to, obtaining a policy loan, surrendering the policy, receiving the proceeds of the policy, and giving the minor's consent to any transaction on the policy." has been amended by the Family Code 17 which grants the father and mother joint legal guardianship over the property of their unemancipated common child without the necessity of a court appointment; however, when the market value of the property or the annual income of the child exceeds P50,000.00, the parent concerned shall be required to put up a bond in such amount as the court may determine. Hence, this petition for review on certiorari which we gave due course after the private respondent had filed the required comment thereon and the petitioners their reply to the comment.

Agency Part F: Limitations (Art. 1894 - 1898) 33 ` We rule for the petitioners. We have carefully examined the specific powers of attorney, Exhibits "1" to "5," which were executed by petitioners Luz Pineda, Lucia B. Lontok, Dina Ayo, Celia Calumag, and Marilyn Montenegro, respectively, on 14 May 198618 and uniformly granted to Capt. Rosendo Nuval the following powers: "To follow-up, ask, demand, collect and receipt for my benefit indemnities or sum of money due me relative to the sinking of M.V. NEMOS in the vicinity of El Jadida, Casablanca, Morocco on the evening of February 17, 1986; and. To sign receipts, documents, pertinent waivers of indemnities or other writings of whatsoever nature with any and all third persons, concerns and entities, upon terms and conditions acceptable to my said attorney." We agree with the Insurance Commission that the special powers of attorney "do not contain in unequivocal and clear terms authority to Capt. Nuval to obtain, receive, receipt from respondent company insurance proceeds arising from the death of the seaman-insured. On the contrary, the said powers of attorney are couched in terms which could easily arouse suspicion of an ordinary man." 19 The holding of the public respondent to the contrary is principally premised on its opinion that: "[t]here is nothing in the law which mandates a specific or special power of attorney to be executed to collect insurance proceeds. Such authority is not included in the enumeration of art. 1878 of the New Civil Code. Neither do we perceive collection of insurance claims as an act of strict dominion as to require a special power of attorney." If this be so, then they could not have been meant to be a general power of attorney since Exhibits "1" to "5" are special powers of attorney. The execution by the principals of special powers of attorney, which clearly appeared to be in prepared forms and only had to be filled up with their names, residences, dates of execution, dates of acknowledgement and others, excludes any intent to grant a general power of attorney or to constitute a universal agency. Being special powers of attorney, they must be strictly construed. Certainly, it would be highly imprudent to read into the special powers of attorney in question the power to collect and receive the insurance proceeds due the petitioners from Group Policy No. G-004694. Insular Life knew that a power of attorney in favor of Capt. Nuval for the collection and receipt of such proceeds was a deviation from its practice with respect to group policies. Such practice was testified to by Mr. Marciano Urbano, Insular Life's Assistant Manager of the Group Administrative Department, thus: "ATTY. CAGUIOA: Can you explain to us why in this case, the claim was filed by a certain Capt. Noval [sic]? WITNESS: aThe practice of our company in claim pertaining to group insurance, the policyholder is the one who files the claim for the beneficiaries of the deceased. At that time, Capt. Noval [sic] is the President and General Manager of Prime Marine. qWhat is the reason why policyholders are the ones who file the claim and not the designated beneficiaries of the employees of the policyholders? WITNESS: aWe did not pay Prime Marine; we paid the beneficiaries. qWill you now tell the Honorable Commission why you did not pay Prime Marine and instead paid the beneficiaries, the designated beneficiaries? WITNESS: aNo. Sir. ATTY. AMPIL: qWhy? Is this case, the present case different from the cases which you answered that no power of attorney is necessary in claims payments? WITNESS: aGroup insurance is a contract where a group of individuals are covered under one master contract. The individual underwriting characteristics of each individual is not considered in the determination of whether the individual is insurable or not. The contract is between the policyholder and the insurance company. In our case, it is Prime Marine and Insular Life. We do not have contractual obligations with the individual employees; it is between Prime Marine and Insular Life. qAnd so it is part of that concept that all inquiries, follow-up, payment of claims, premium billings, etc. should always be coursed thru the policyholder? aYes, that is our practices. qAnd when you say claim payments should always be coursed thru the policyholder, do you require a power of attorney to be presented by the policyholder or not? aNot necessarily. qIn other words, under a group insurance policy like the one in this case, Insular Life could pay the claims to the policyholder himself even without the presentation of any power of attorney from the designated beneficiaries? xxx xxx xxx aYes because group insurance is normally taken by the employer as an employee-benefit program and as such, the benefit should be awarded by the policyholder to make it appear that the benefit really is given by the employer." 20 On cross-examination, Urbano further elaborated that even payments, among other things, are coursed through the policyholder: "qWhat is the corporate concept of group insurance insofar as Insular Life is concerned?

Agency Part F: Limitations (Art. 1894 - 1898) 34 ` xxx xxx xxx ATTY. AMPIL: I will rephrase the question. qWill you tell the Commission what circumstances led you to pay the designated beneficiaries, the complainants in this case, instead of the policyholder when as you answered a while ago, it is your practice in group insurance that claims payments, etc., are coursed thru the policyholder? WITNESS: aIt is coursed but it is not paid to the policyholder. qAnd so in this case, you gave the checks to the policyholder only coursing them thru said policyholder? aThat is right, sir. qNot directly to the designated beneficiaries? aYes, Sir." 21 This practices is usual in the group insurance business and is consistent with the jurisprudence thereon in the State of California from whose laws our Insurance Code has been mainly patterned which holds that the employer-policyholder is the agent of the insurer. Group insurance is a comparatively new form of insurance. In the United States, the first modern group insurance policies appear to have been issued in 1911 by the Equitable Life Assurance Society. 22 Group insurance is essentially a single insurance contract that provides coverage for many individuals. In its original and most common form, group insurance provides life or health insurance coverage for the employees of one employer. The coverage terms for group insurance are usually stated in a master agreement or policy that is issued by the insurer to a representative of the group or to an administrator of the insurance program, such as an employer. 23 The employer acts as a functionary in the collection and payment of premiums and in performing related duties. Likewise falling within the ambit of administration of a group policy is the disbursement of insurance payments by the employer to the employees. 24 Most policies, such as the one in this case, require an employee to pay a portion of the premium, which the employer deducts from wages while the remainder is paid by the employer. This is known as a contributory plan as compared to a non-contributory plan where the premiums are solely paid by the employer. Although the employer may be the titular or named insured, the insurance is actually related to the life and health of the employee. Indeed, the employee is in the position of a real party to the master policy, and even in a non-contributory plan, the payment by the employer of the entire premium is a part of the total compensation paid for the services of the employee. 25 Put differently, the labor of the employees is the true source of the benefits, which are a form of additional compensation to them. It has been stated that every problem concerning group insurance presented to a court should be approached with the purpose of giving to it every legitimate opportunity of becoming a social agency of real consequence considering that the primary aim is to provide the employer with a means of procuring insurance protection for his employees and their families at the lowest possible cost, and in so doing, the In Neider vs. Continental Assurance Company, 28 which was cited in Elfstrom, it was held that: "[t]he employer owes to the employee the duty of good faith and due care in attending to the policy, and that the employer should make clear to the employee anything required of him to keep the policy in effect, and the time that the obligations are due. In its position as administrator of the policy, we feel also that the employer should be considered as the agent of the insurer, and any omission of duty to the employee in its administration should be attributable to the insurer." The ruling in Elfstrom was subsequently reiterated in the cases of Bass vs. John Hancock Mutual Life Insurance Co. 29 and Metropolitan Life Insurance Co. vs. State Board of Equalization. 30 In the light of the above disquisitions and after a examination of the facts of this case, we hold that PMSI, through its President and General Manager, Capt. Nuval, acted as the agent of Insular Life. The latter is thus bound by the misconduct of its agent. In Elfstrom vs. New York Life Insurance Company, 27 the California Supreme Court explicitly ruled that in group insurance policies, the employer is the agent of the insurer. Thus: "We are convinced that the employer is the agent of the insurer in performing the duties of administering group insurance policies. It cannot be said that the employer acts entirely for its own benefit or for the benefit of its employees in undertaking administrative functions. While a reduced premium may result if the employer relieves the insurer of these tasks, and this, of course, is advantageous to both the employer and the employees, the insurer also enjoys significant advantages from the arrangement. The reduction in the premium which results from employer-administration permits the insurer to realize a larger volume of sales, and at the same time the insurer's own administrative costs are markedly reduced. xxx xxx xxx The most persuasive rationale for adopting the view that the employer acts as the agent of the insurer, however, is that the employee has no knowledge of or control over the employer's actions in handling the policy or its administration. An agency relationship is based upon consent by one person that another shall act in his behalf and be subject to his control. It is clear from the evidence regarding procedural techniques here that the insurer-employer relationship meets this agency test with regard to the administration of the policy, whereas that between the employer and its employees fails to reflect true agency. The insurer directs the performance of the employer's administrative acts, and if these duties are not undertaken properly the insurer is in a position to exercise more constricted control over the employer's conduct." employer creates goodwill with his employees, enables the employees to carry a larger amount of insurance than they could otherwise, and helps to attract and hold a permanent class of employees. 26

Agency Part F: Limitations (Art. 1894 - 1898) 35 ` Insular Life, however, likewise recognized Capt. Nuval as the attorney-in-fact of the petitioners. Unfortunately, through its official, Mr. Urbano, it acted imprudently and negligently in the premises by relying without question on the special power of attorney. In Strong vs. Repide, 31 this Court ruled that it is among the established principles in the civil law of Europe as well as the common law of America that third persons deal with agents at their peril and are bound to inquire as to the extent of the power of the agent with whom they contract. And in Harry E. Keller Electric Co. vs. Rodriguez, 32 this Court, quoting Mechem on Agency, 33 stated that: "The person dealing with an agent must also act with ordinary prudence and reasonable diligence. Obviously, if he knows or has good reason to believe that the agent is exceeding his authority, he cannot claim protection. So if the suggestions of probable limitations be of such a clear and reasonable quality, or if the character assumed by the agent is of such a suspicious or unreasonable nature, or if the authority which he seeks to exercise is of such an unusual or improbable character, as would suffice to put an ordinarily prudent man upon his guard, the party dealing with him may not shut his eyes to the real state of the case, but should either refuse to deal with the agent at all, or should ascertain from the principal the true condition of affairs." (emphasis supplied). Even granting for the sake of argument that the special powers of attorney were in due from, Insular Life was grossly negligent in delivering the checks, drawn in favor of the petitioners, to a party who is not the agent mentioned in the special power of attorney. Nor can we agree with the opinion of the public respondent that since the shares of the minors in the insurance proceeds are less than P50,000.00, then under Article 225 of the Family Code their mothers could receive such shares without need of either court appointment as guardian or the posting of a bond. It is of the view that said Article had repealed the third paragraph of Section 180 of the Insurance Code. 34 The pertinent portion of Article 225 of the Family Code reads as follows: "ART. 225.The father and the mother shall jointly exercise legal guardianship over the property of their unemancipated common child without the necessity of a court appointment. In case of disagreement, the father's decision shall prevail, unless there is judicial order to the contrary. Where the market value of the property or the annual income of the child exceeds P50,000, the parent concerned shall be required to furnish a bond in such amount as the court may determine, but not less than ten per centum (10%) of the value of the property or annual income, to guarantee the performance of the obligations prescribed for general guardians." It is clear from the said Article that regardless of the value of the unemancipated common child's property, the father and mother ipso jure become the legal guardian of the child's property. However, if the market value of the property or the annual income of the child exceeds P50,000,00, a bond has to be posted by the parents concerned to guarantee the performance of the obligations of a general guardian. It must, however, be noted that the second paragraph of Article 225 of the Family Code speaks of the "market value of the property or the annual income of the child," which means, therefore, the aggregate of the child's property or annual income; if this exceeds P50,000.00, a bond is required. There is no evidence that the share of each of the minors in the proceeds of the group policy in question is the minor's only property. Without such evidence, it would not be safe to conclude that, indeed, that is his only property. WHEREFORE, the instant petition is GRANTED. The Decision of 10 October 1991 and the Resolution of 19 May 1992 of the public respondent in CA-G.R. SP No. 22950 are SET ASIDE and the Decision of the Insurance Commission in IC Case No. RD-058 is REINSTATED. Costs against the private respondent. SO ORDERED. Cruz, J ., Bellosillo and Quiason, JJ ., concur. GrioAquino, J ., is on leave. --------------------------------------------------------------------------------------------------------------------------------------FIRST DIVISION [G.R. No. 94566. July 3, 1992.] BA FINANCE CORPORATION, petitioner, vs. HON. COURT OF APPEALS and TRADERS ROYAL BANK, respondents. Agbayani, Leal, Ebarle and Venturanza for petitioner. Rogelio P. Mendoza for respondents. SYLLABUS 1.CIVIL LAW; SPECIAL CONTRACTS; AGENCY; PERSONS DEALING WITH AN ASSUMED AGENT, BOUND AT THEIR PERIL; CASE AT BAR. It is a settled rule that persons dealing with an assumed agent, whether the assumed agency be a general or special one are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19). Hence, the burden is on respondent bank to satisfactorily prove that the credit administrator with whom they transacted acted within the authority given to him by his principal. 2.ID.; ID.; ID.; AUTHORITY OF AN AGENT SHOULD NOT BE INFERRED FROM THE USE OF VAGUE OR GENERAL WORDS. Although Wong was clearly authorized to approve loans even up to P350,000.00 without any security requirement, which is far above the amount subject of the guaranty in the amount of P60,000.00, nothing in the said memorandum expressly vests on the credit administrator power to issue guarantees. We cannot agree with respondent's contention that the phrase "contingent commitment" set forth in the memorandum means guarantees. It has been held that a power of attorney or authority of an agent should not be inferred from the use of vague or general words. 3.ID.; ID.; ID.; REPRESENTATION OF A PERSON WHO ACTS AS AGENT; CANNOT BY ITSELF SERVE AS PROOF OF HIS AUTHORITY TO ACT AS AGENT. The sole allegation of the credit administrator in the absence of any other proof that he is authorized to bind petitioner in a contract of guaranty with third persons should not be given weight. The representation of one who acts as agent cannot by itself serve as proof of his authority to act as agent or of the extent of his authority as agent (Velasco v. La Urbana, 58 Phil. 681). 4.ID.; ID.; ID.; AGENT WHO EXCEEDS HIS AUTHORITY; PERSONALLY LIABLE FOR DAMAGES . Wong's testimony that he had entered into similar transactions of guaranty in the past for and in behalf of the petitioner, lacks credence due to his failure to show documents or records of the alleged past transactions. The actuation of Wong in claiming and testifying that he has the authority is

Agency Part F: Limitations (Art. 1894 - 1898) 36 ` understandable. He would naturally take steps to save himself from personal liability for damages to respondent bank considering that he had exceeded his authority. The rule is clear that an agent who exceeds his authority is personally liable for damages (National Power Corporation v. National Merchandising Corporation, Nos. L-33819 and L-33897, October 23, 1982, 117 SCRA 789). 5.ID.; ID.; GUARANTY; MUST BE EXPRESSED AND CANNOT BE EXTENDED BEYOND ITS SPECIFIED LIMITS. Guaranty is not presumed, it must be expressed and cannot be extended beyond its specified limits (Director v. Sing Juco, 53 Phi. 205). In one case, where it appears that a wife gave her husband power of attorney to loan money, this Court ruled that such fact did not authorize him to make her liable as a surety for the payment of the debt of a third person (Bank of Philippine Islands v. Coster, 47 Phil. 594). DECISION MEDIALDEA, J p: This is a petition for review on certiorari of the decision of the respondent appellate court which reversed the ruling of the trial court dismissing the case against petitioner. The antecedent facts are as follows: On December 17, 1980, Renato Gaytano, doing business under the name Gebbs International, applied for and was granted a loan with respondent Traders Royal Bank in the amount of P60,000.00. As security for the payment of said loan, the Gaytano spouses executed a deed of suretyship whereby they agreed to pay jointly and severally to respondent bank the amount of the loan including interests, penalty and other bank charges. In a letter dated December 5, 1980 addressed to respondent bank, Philip Wong as credit administrator of BA Finance Corporation for and in behalf of the latter, undertook to guarantee the loan of the Gaytano spouses. The letter reads: "This is in reference to the application of Gebbs International for a twenty-five (25) month term loan of 60,000.00 with your Bank. "In this connection, please be advised that we unconditionally guarantee full payment in peso value the said accommodation (sic) upon non-payment by subject up to a maximum amount of P60,000.00. "Hoping this would meet your requirement and expedite the early processing of their application. LLphil "Thank you. Very truly yours, BA FINANCE CORPORATION (signed) PHILIP H. WONG Credit Administrator" (p. 12, Rollo) Partial payments were made on the loan leaving an unpaid balance in the amount of P85,807.25. Since the Gaytano spouses refused to pay their obligation, respondent bank filed with the trial court a complaint for sum of money against the Gaytano spouses and petitioner corporation as alternative defendant. The Gaytano spouses did not present evidence for their defense. Petitioner corporation, on the other hand, raised the defense of lack of authority of its credit administrator to bind the corporation. On December 12, 1988, the trial court rendered a decision the dispositive portion of which states: "IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of plaintiff and against defendants/Gaytano spouses, ordering the latter to jointly and severally pay the plaintiff the following: "1)EIGHTY FIVE THOUSAND EIGHT HUNDRED SEVEN AND 25/100 (P85,807.25), representing the total unpaid balance with accumulated interests, penalties and bank charges as of September 22, 1987, plus interests, penalties and bank charges thereafter until the whole obligation shall have been fully paid. "2)Attorney's fees at the stipulated rate of ten (10%) percent computed from the total obligation; and llcd "3)The costs of suit. "The dismissal of the case against defendant BA Finance Corporation is hereby ordered without pronouncement as to cost. "SO ORDERED." (p. 31, Rollo) Not satisfied with the decision, respondent bank appealed with the Court of Appeals. On March 13, 1990, respondent appellate court rendered judgment modifying the decision of the trial court as follows: "In view of the foregoing, the judgment is hereby rendered ordering the defendants Gaytano spouses and alternative defendant BA Finance Corporation, jointly and severally, to pay the plaintiff the amount of P85,807.25 as of September 8, 1987, including interests, penalties and other back (sic) charges thereon, until the full obligation shall have been fully paid. No pronouncement as to costs. "SO ORDERED." (p. 27, Rollo) Hence this petition was filed with the petitioner assigning the following errors committed by respondent appellate court: "1.THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT PETITIONER IS JOINTLY AND SEVERALLY LIABLE WITH GAYTANO SPOUSES DESPITE ITS FINDINGS THAT THE LETTER GUARANTY (EXH. 'C') IS `INVALID AT ITS INCEPTION'; "2.THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PETITIONER WAS GUILTY OF ESTOPPEL DESPITE THE FACT THAT IT NEVER KNEW OF SUCH ALLEGED LETTER-GUARANTY; "3.THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT RULING THAT SUCH LETTER GUARANTY (EXHIBIT `C`) BEING PATENTLY ULTRA VIRES, IS UNENFORCEABLE; "4.THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING RELIEF ON PETITIONER'S COUNTERCLAIM (p. 10, Rollo)." Since the issues are interrelated, it would be well to discuss them jointly. cdphil

Agency Part F: Limitations (Art. 1894 - 1898) 37 ` Petitioner contends that the letter guaranty is ultra vires, and therefore unenforceable; that said letterguaranty was issued by an employee of petitioner corporation beyond the scope of his authority since the petitioner itself is not even empowered by its articles of incorporation and by-laws to issue guaranties. Petitioner also submits that it is not guilty of estoppel to make it liable under the letterguaranty because petitioner had no knowledge or notice of such letter-guaranty; that the allegation of Philip Wong, credit administrator, that there was an audit was not supported by evidence of any audit report or record of such transaction in the office files. We find the petitioner's contentions meritorious. It is a settled rule that persons dealing with an assumed agent, whether the assumed agency be a general or special one are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19). Hence, the burden is on respondent bank to satisfactorily prove that the credit administrator with whom they transacted acted within the authority given to him by his principal, petitioner corporation. The only evidence presented by respondent bank was the testimony of Philip Wong, credit administrator, who testified that he had authority to issue guarantees as can be deduced from the wording of the memorandum given to him by petitioner corporation on his lending authority. The said memorandum which allegedly authorized Wong not only to approve and grant loans but also to enter into contracts of guaranty in behalf of the corporation, partly reads: To:Philip H. Wong, SAM Credit Administrator. From:Hospicio B. Bayona, Jr., VP and Head of Credit Administration. Re:Lending Authority. I am pleased to delegate to you in your capacity as Credit Administrator the following lending limits: a)P650,000.00Secured Loans b)P550,000.00Supported Loans c)P350,000.00Truck Loans/Contracts/Leases d)P350,000.00Auto Loan Contracts/Leases e)P350,000.00Appliance Loan Contracts f)P350,000.00Unsecured Loans. Total loans and/or credits [combination of (a) thru (f) extended to any one borrower including parents, affiliates and/or subsidiaries, should not exceed P750,000.00. In exercising the limits aforementioned, both direct and contingent commitments to the borrower (s) should be considered. All loans must be within the Company's established lending guideline and policies. xxx xxx xxx LEVELS OF APPROVAL. All transactions in excess of any branch's limit must be recommended to you through the Official Credit Report for approval. If the transaction exceeds your limit, you must concur in application before submitting it to the Vice President, Credit Administration for approval or concurrence. LLjur xxx xxx xxx (pp. 62-63, Rollo) (Emphasis ours) Although Wong was clearly authorized to approve loans even up to P350,000.00 without any security requirement, which is far above the amount subject of the guaranty in the amount of P60,000.00, nothing in the said memorandum expressly vests on the credit administrator power to issue guarantees. We cannot agree with respondent's contention that the phrase "contingent commitment" set forth in the memorandum means guarantees. It has been held that a power of attorney or authority of an agent should not be inferred from the use of vague or general words. Guaranty is not presumed, it must be expressed and cannot be extended beyond its specified limits (Director v. Sing Juco, 53 Phi. 205). In one case, where it appears that a wife gave her husband power of attorney to loan money, this Court ruled that such fact did not authorize him to make her liable as a surety for the payment of the debt of a third person (Bank of Philippine Islands v. Coster, 47 Phil. 594). The sole allegation of the credit administrator in the absence of any other proof that he is authorized to bind petitioner in a contract of guaranty with third persons should not be given weight. The representation of one who acts as agent cannot by itself serve as proof of his authority to act as agent or of the extent of his authority as agent (Velasco v. La Urbana, 58 Phil. 681). Wong's testimony that he had entered into similar transactions of guaranty in the past for and in behalf of the petitioner, lacks credence due to his failure to show documents or records of the alleged past transactions. The actuation of Wong in claiming and testifying that he has the authority is understandable. He would naturally take steps to save himself from personal liability for damages to respondent bank considering that he had exceeded his authority. The rule is clear that an agent who exceeds his authority is personally liable for damages (National Power Corporation v. National Merchandising Corporation, Nos. L-33819 and L33897, October 23, 1982, 117 SCRA 789). Anent the conclusion of respondent appellate court that petitioner is estopped from alleging lack of authority due to its failure to cancel or disallow the guaranty, We find that the said conclusion has no basis in fact. Respondent bank had not shown any evidence aside from the testimony of the credit administrator that the disputed transaction of guaranty was in fact entered into the official records or files of petitioner corporation, which will show notice or knowledge on the latter's part and its consequent ratification of the said transaction. In the absence of clear proof, it would be unfair to hold petitioner corporation guilty of estoppel in allowing its credit administrator to act as though the latter had power to guarantee. ACCORDINGLY, the petition is GRANTED and the assailed decision of the respondent appellate court dated March 13, 1990 is hereby REVERSED and SET ASIDE and another one is rendered dismissing the complaint for sum of money against BA Finance Corporation. SO ORDERED. Cruz, Grio-Aquino and Bellosillo, JJ ., concur. --------------------------------------------------------------------------------------------------------------------------------------FIRST DIVISION [G.R. No. 19689. April 4, 1923.]

Agency Part F: Limitations (Art. 1894 - 1898) 38 ` PHILIPPINE NATIONAL BANK, plaintiff-appellant, vs. WELCH, FAIRCHILD & CO., INC., defendant-appellee. Quintin Paredes for appellant. Ross & Lawrence for appellee. SYLLABUS 1. PRINCIPAL AND AGENT; LIABILITY OF AGENT; APPROPRIATION OF PROPERTY WHICH PRINCIPAL IS OBLIGATED TO DELIVER TO THIRD PARTY. An agent who obligates his principal to deliver specific property to a third party may thereafter, to the prejudice of such third party, appropriate and apply the same property, or its proceeds, to the payment of debts owing by the principal to the agent; and the circumstances that the principal assents to such application of the property does not alter the case. DECISION STREET, J p: By this decision the plaintiff, the Philippine National Bank, seeks to recover of the defendant, Welch, Fairchild & Co., Inc., the sum of $125,000, with interest from May 17, 1918, being part of the proceeds of certain insurance effected in the year 1918 upon a ship called the Benito Juarez and collected by the defendant after said ship had been lost at sea. Upon hearing the cause the trial judge absolved the defendant from the complaint and plaintiff appealed. In the first half of the year 1918, a corporation, know as La Compania Naviera, Inc., was organized in Manila under the laws of the Philippine Islands, for the purpose of engaging in the business of marine shipping. Among its shareholders was Welch, Fairchild & Co., another corporation organized under the laws of these Islands and having its principal place of business in the City of Manila. Of the shares of La Compania Naviera, Welch, Fairchild & Co. subscribed for 325 shares of the par value of P100 each. As La Compania Naviera was an entirely new enterprise in the shipping world, it was necessary for it to acquire a proper complement of vessels and adequate equipment, and as shipping values in those days were high, the company did not have sufficient ready capital to meet all requirements. Its official therefore in May, 1918, applied to the Philippine National Bank for a loan of $125,000, with which to purchase a boat called Benito Juarez, which had been found on the market in the United States. The necessary credit appears to have been extended by the bank in the form of a loan for $125,000, to run for one year from May 17,1918. Nevertheless, owing to delay in the delivery of the vessel, the money was not then delivered and was not actually advanced by the bank until several months later as will presently appear. It appears that Welch, Fairchild & Co. was not numbered among the original promoters of La Compania Naviera, but its interest are to a considerable extent involved in the general shipping conditions in the Islands and it looked with a friendly eye upon the new enterprise. Moreover, the mercantile ramifications of Welch, Fairchild & Co. appear to be extensive; and its friendly offices were freely exerted in behalf of La Compania Naviera, not only through Welch & Co., the correspondent of the defendant in San Francisco, but also through Mr. Geo H. Fairchild, the president of Welch, Fairchild & Co., who left Manila for the United States Mr. Fairchild was kept advised as to certain needs of La Compania Naviera, and he acted for it in important matters requiring attention in the United States. In particular it was through the efforts of himself and of Judge James Ross, as attorney, that the consent of the proper authorities in Washington, D. C., was obtained for the transfer of the Benito Juarez to Philippine registry. In August, 1918, the Benito Juarez was on the California coast, and after the approval of its transfer to Philippine registry had been obtained, steps were taken for the delivery of the vessel to the agents of the purchaser in San Francisco at the price of &125,000, as agreed; and it was understood that the delivery of the purchase money would be made by the Anglo-London and Paris National Bank, in San Francisco, as agent of the Philippine National Bank, contemporaneously with the delivery to it of the bill of sale and the policy of insurance on the vessel. it developed, however, that the vessel needed repairs before it could be dispatched on its voyage to the Orient; and it became impracticable to deliver the bill of sale and insurance policy to the bank in San Francisco at the time the money was needed to effect the transfer. Being advised of this circumstance, and fearing that a hitch might thus occur in the negotiations, Welch, Fairchild & Co., in Manila, addressed a letter on August 8, 1918, to the Philippine National Bank, requesting it to cable its correspondent in San Francisco to release the money and make payment for the vessel upon application by Welch & Co., without requiring the delivery of the bill of sale or policy of insurance, "in which event," the letter continued, "the Compania Naiver will deliver to you here the bill of sale also the insurance policy covering the voyage to Manila." In a letter bearing date of August 10,1918, also addressed to the Philippine National Bank, La Compania Naviera, Inc., confirmed this request and authorized the bank to send the cablegram necessary to give it effect. In response to these communication the Philippine National Bank, on August 14, sent a cablegram to its correspondent in San Francisco authorizing payment of the purchase price of the Benito Juarez, without the production of either bill of sale or insurance policy. Under these circumstances the vessel was delivered and money paid over without the production or delivery of the documents mentioned. After the repair of the Benito Juarez had been accomplished it was insured by Welch & Co. to the value of $150,000 and was dispatched, in November, 1918, on its voyage to the Philippine Islands. On December 3, 1918, the encountered a storm off the Island of Molokai, in the Hawaiian group, and became a total loss. When the insurance was taken out to cover the voyage to Manila, no policy was issued by any insurer; but the insurance was placed by Welch & Co. of San Francisco, upon the instructions of Welch & Co., as agents of the Compania Naviera, and it was taken out in the ordinary course of business to protect the interests of all parties concerned. As would naturally happen in an insurance of this amount, the risk was distributed among several companies, some in remote centers; and it was many months before Welch & Co., of San Francisco, had collected the full amount due from the insurers. However, as the money came to the hands of Welch & Co,, of San Francisco, it was remitted by draft or telegraphic transfer to Welch, Fairchild & Co. in Manila; and in this manner practically the full amount for which the Benito Juarez had been insured was transmitted to Manila by the last days of June, 1919. As was perhaps but natural under the circumstances, the Philippine National Bank appears to have exhibited no concern about its loan of $125,000 to La Compania Naviera, or about the proceeds of the insurance on the Benito Juarez, until after the period of credit had expired, that is

Agency Part F: Limitations (Art. 1894 - 1898) 39 ` to say, after May 17, 1919. A short while after this date, an incident occurred upon which the attorneys for the defendant in this case have placed great emphasis, and it is this: In the latter part of the month aforesaid Welch & Co., having collected $13,000 upon account of the insurance on the Benito Juarez, attempted to remit it by telegraphic transfer to Welch, Fairchild & Co. in Manila, but by some mistake or other, the money was remitted to the Philippine National Bank in New York, and it was not until about a month later that authority was received by the Philippine National Bank in Manila to pay to Welch, Fairchild & Co. the sum of $13,000 upon account of said insurance. When the authority for the transfer of this credit reached the Philippine National Bank, the attention of the bank officials was drawn to the fact that the transfer related to money forming part of the proceeds of the insurance on the Benito Juarez, and they at first determined to intercept the transfer and withhold the credit from Welch, Fairchild & Co., on the ground that the money belonged to the bank. This claim on the part of the bank was of course based on the letter of Welch, Fairchild & Co. dated August 8, 1918, in which the promise had been held out that if the bank would advance the purchase money of the Benito Juarez without requiring the current delivery of the policy of insurance, said policy would be delivered later by La Compania Naviera in Manila. When the determination of the bank's officials to withhold the money was communicated to Welch, Fairchild & Co., a strong protest was made, and its attorney came at once to the bank to interview its president. As a result of this interview the president of the bank receded from his position about the matter, and an order was made that the money should be to the credit of Welch, Fairchild & Co., with the sum of P119.65, as interest on the money during the time it had been withheld. In the course of the interview above alluded to, not only did the attorney of Welch, Fairchild & Co. call the attention of the president of the bank to doubtful propriety of its act in intercepting a remittance of money which had been confided to its agent in San Francisco for transmission to Welch, Fairchild & Co. in Manila, but he also pointed out that Welch, Fairchild & Co. had acted throughout merely in the capacity of agent for La Compania Naviera, and he therefore insisted that Welch, Fairchild & Co. was not legally bound by the promise made by it in the letter of August 8, 1918, to the effect that the policy of insurance would be delivered to the bank in Manila by La Compania Naviera; and this contention was urged with such force that the president of the bank who was not a lawyer acknowledged himself vanquished, and in the end said that he must have been mistaken in his attention and that the attorney was right. Shortly after this incident the bank which had permitted La Compania Naviera to become indebted to it upon adequate security to the extent of nearly a million pesos began to take steps looking to the betterment of its position in relation with said company. To this end, on August 28, 1919, it went through the barren formality of making demand upon La Compania Naviera for the delivery of the insurance policies on the Benito Juarez, but was informed by La Compaia that it had never received any policy of insurance upon the Benito Juarez as the vessel had been insured in San Francisco by Welch, Fairchild & Co. in behalf of La Compania Naviera. A little later the bank caused La Compania Naviera to execute pledges to the bank upon three streamers belonging to said company as security for its indebtedness to the bank. Thereafter matters were permitted to drift until it became apparent that La Compania Naviera was insolvent; and on December 9, 1919, the bank made formal demand upon Welch, Fairchild & Co. for the delivery of the insurance policy for $125,000 on the Benito Juarez, basing its demand on the letter of Welch, Fairchild & Co. of August 8, 1918, already mentioned. As the bank officials already knew that the insurance had been collected many months previously by Welch, Fairchild & Co., it is evident that the making of demand for delivery of a policy for $125,000 was mere formula by which the bank intended to plant contention that the proceeds of the insurance, to the extent of $125,000, belonged to it. To this demand Welch, Fairchild & Co. responded with a negative. Meanwhile, what had become of the proceeds of the insurance upon the Benito Juarez? That money, as we have already seen, came to the hands of Welch, Fairchild & Co. in Manila and has there rested, having been applied by Welch, Fairchild & Co. in part satisfaction of indebtedness incurred by La Compania Naviera to it. This disposition of the insurance money was made by Welch, Fairchild & Co. with the tacit approval of La Compania Naviera, the credits being notified to the latter by the former as the remittance were received in Manila and entered in the accounts of both companies accordingly. To explain the situation which had thus arisen between the two companies, further reference is here necessary to matters that had taken place during the preceding year. As we have already stated, Welch, Fairchild & Co. had assisted La Compania Naviera in effecting the purchase and transfer of the Benito Juarez to Philippine registry. In addition to this, Welch, Fairchild & Co. advanced in San Francisco several thousands of pesos necessary for the repair and equipment of that vessel prior to its departure for the Philippine Islands; and the incurring of these expenses explain why insurance was taken out to the extent of $150,000 instead of $125,000, the latter sum being merely the item cost price. But the friendly offices of Welch, Fairchild & Co. were not limited to the foregoing matters, and said company rendered practically the same service with respect to other vessels which were purchased for La Compania Naviera, with the result that the advances made by Welch, Fairchild & Co., beginning in the autumn of 1918, steadily mounted in the course of succeeding months and in the end ran up into the hundreds of thousands of pesos. One particular incident, most disastrous to the latter company, consisted in the operation by it, during several months in 1919, of the San Pedro, one of the vessels belonging to La Compania Naviera, under contract with the latter company. The result of these expenditures and advances of money by Welch, Fairchild & Co. was that the indebtedness of La Compania Naviera to Welch, Fairchild & Co. mounted steadily during the year 1919, and said indebtedness was by no means liquidated by the application to it of the insurance money from the Benito Juarez. In this connection we note the following debit balances charged on the books of Welch, Fairchild & Co. against the La Compania Naviera as the same appear by monthly statements from November 30, 1918, to September 30, 1918; and it will be remembered that these are the balances appearing after credit had been given for the collections of the insurance money. Said debit balances for the months stated are as follows: Upon November 30, 1918, P3,675.71; upon December 31, 1918, P30,627; upon January 25, 1918, P93,961.49; upon

Agency Part F: Limitations (Art. 1894 - 1898) 40 ` February 27, 1919, P145,130.78; upon March 30, 1919, P146,370.66; upon April 29, 1919, P148,542.25; upon May 30, 1919, P153,060.13; upon June 30, 1919, P139,531.27; upon July 31, 1919, P168,724; upon August 31, 1919, P169,932.41; upon September 30, 1919, P185,651.73. The foregoing statement of facts makes comprehensible the contentions upon which the defense to the present action is based; and these contentions may be stated in the following propositions; First, that, in as much as Welch, Fairchild & Co. acted exclusively in the character of agent for La Compania Naviera in the purchase of the Benito Juarez, no obligation enforcible against it was created by the letter of August 8, 1918, and as a consequence the bank should look exclusively to La Compania Naviera, as principal, for indemnification for any loss resulting from the failure of said company to deliver the insurance policy, or policies, on the Benito Juarez, or the proceeds thereof, to the bank; secondly, that, even supposing that the letter of August 8, 1918, created any obligation that the defendant was bound to respect, nevertheless the bank waived and abandoned any right that it may have had upon the facts stated; and, thirdly and finally, that, by reason of the delay of the bank and its abondonment of its claim against the defendant, in relation with prejudice thereby incurred by the defendant, the bank is estopped to assert any right that it may have had in the premises. We are the opinion that all of these contentions are untenable and that the plaintiff bank has a clear right of action against the defendant, in nowise affected adversely by any of the considerations suggested. Upon the first point, while it is true that an agent who acts for a revealed principal in the making of a contract does not become personally bound to the other party in the sense that an action can ordinarily be maintained upon such contract directly against the agent (art. 1725, Civ. Code), yet that rule clearly does not control this case; for even conceding that the obligation created by the letter of August 8, 1918, was directly binding only on the principal, and that in law the agent may stand apart therefrom, yet it is manifest upon the simplest principles of jurisprudence that one who has intervened in the making of a contract in the character of agent cannot be permitted to intercept and appropriate the thing which the principal is bound to deliver, and thereby make performance by the principal impossible. The agent in any event must be precluded from doing any positive act that could prevent performance on the part of his principal. This much, ordinary good faith towards the other contracting party requires. The situation before us in effect is one where, notwithstanding the promise held out jointly by principal and agent in the letters of August 8 and 10, 1918, the two have conspired to make an application of the proceeds of the insurance entirely contrary to the tenor of said letters. This cannot be permitted. The idea on which we here proceed can perhaps be made more readily apprehensible from another point of view, which is this: By virtue of the promise contained in the letter of August 8, 1918 the bank became the equitable owner of the insurance effected on the Benito Juarez to the extent necessary to indemnify the bank for the money advanced by it, in reliance upon that promise, for the purchase of said vessel; and this right of the bank must be respected by all persons having due notice thereof, and most of all by the defendant which took out the insurance itself in the interest of the parties then concerned, including of course the bank. The defendant therefore cannot now be permitted to ignore the right of the bank and appropriate the insurance to the prejudice of the bank, even though the act be done with the consent of its principal. From intimations contained in the testimony of some of the witnesses presented by the defendant it might be inferred that at some time or another an understanding had been reached between the bank and the defendant company by which it was agreed that the defendant should make advances of money to La Compania Naviera and that it might look to the proceeds of the insurance on the Benito Juarez to reimburse itself for those outlays. No such agreement with the bank or any official of the bank is alleged in the defendant's answer; and as one reads the testimony submitted by the defendant this hearsay suggestion continually flits away, until it becomes apparent that no such agreement was made. That there was some such understanding between the defendant and La Compania Naviera is highly probable, but to that understanding the bank clearly was not a party. As to the argument founded upon the delay of the bank in asserting its right to the insurance money, it is enough to say that mere delay unaccompanied by acts sufficient to create an equitable estoppel does not destroy legal rights, but such delay as occurred here is in part explained by the fact that the loan to La Compania Naviera did not mature till May 17, 1919, and a demand for that date would have seemed premature. Besides, it is to be borne in mind the most of the insurance was not in fact collected until in June of 1919. It is true that in the month of March previous about P50,000 of this insurance had been remitted to Manila for Welch, Fairchild & Co. through the plaintiff bank, and the bank, we assume, took notice of the source of the remittance. However, it is failure then to assert its claim to the money is not a matter of legitimate criticism, since the loan was not then due. After May 17, 1919, the situation was somewhat different; and as we have already seen, the bank was not slow in asserting its right to the remittance that came through the bank in June to Welch, Fairchild & Co., consisting of $13,000 of the proceeds of this insurance. This brings us to consider the legal effect of the incident which culminated on July 28, 1919, when the bank abandoned its previous position with regard to this remittance and passed the money to the credit of the defendant, with interest upon the same during the time payment had been withheld. The most, we think, that can fairly be said about that incident is that the bank president admitted himself to be a convert to the proposition advanced by the attorney for the defendant to the effect that as the defendant had merely acted as agent for La Compania Naviera in the matter, the bank must look exclusively to La Compania Naviera for the fulfillment of the promise about the insurance money. As a statement of legal doctrine that proposition was, as we have already shown, a mistake; but of course it would have been a matter of indifference if La Compania Naviera had remained solvent. One consideration that must have operated on the mind of the president of the bank in releasing this money was that it had been remitted on ordinary course of exchange through the bank to the defendant, which was an entirely responsible party; and even though the bank may have had the power to intercept the remittance, the president may have considered that the commercial integrity of the institution in matters of exchange was perhaps was perhaps worth more than could be gained by an obstinate insistence on its right to this money. There is no evidence whatever that the president of the bank assumed to release the defendant from any obligation which might have been incurred by virtue of the letter of August 8, 1918.

Agency Part F: Limitations (Art. 1894 - 1898) 41 ` It is insisted, however, that the attitude of the bank has been such that the defendant has been misled to its prejudice, in that not only did it give large credit to La Compania Naviera for sums to be recouped from this insurance money but that in reliance upon its right to that money it refrained from taking the steps that it might have taken to save itself from loss; and in this connection it is suggested that but for the incident in July, 1919, when the bank waived its claim to the $13,000 remitted through it to Welch, Fairchild & Co., the defendant would have sought and would have been able to get additional security in the form of mortgages of pledges of one or more vessels belonging to La Compania Naviera. The proof in our opinion shows little or no tangible basis for these contentions; and so far as we can see not one dollar was ever advanced by the defendant to La Compania Naviera upon the faith of any request, promise, or representation of the bank in that extend; and it should be noted that the bank in that behalf extended; and it should be noted that the large losses incurred by the defendant for advances to that concern after July 23, 1919, were mostly incurred in the desperate effort to retrieve its position by operating the San Pedro. The suggestion that, but for the misleading attitude of the bank, the defendant would have been able to obtain additional security losses much of its force when it is considered that upon December 31, 1921, the defendant's books still showed unsecured indebtedness, against La Compania Naviera to the amount of nearly P50,000. The idea that, but for the attitude assumed by the bank, the defendant would have materially bettered it position, is a speculation too remote to affect the issue of this action. In the light of what has been said, it becomes necessary to reverse, as we hereby do reverse, the judgment appealed from; and judgment will entered in favor of the plaintiff to recover of the defendant the sum of P250,000, with lawful interest from May 31, 1921, the date of the filing of the complaint. No special pronouncement will be made as to costs. So ordered. Araullo, C.J., Avancea, Villamor, Ostrand, and Romualdez, JJ., concur. Mr. Justice Johns voted for reversal but he was absent at the time of the promulgation of the decision, and his signature therefore does not appear signed to the opinion of the court. (Sgd.) Manuel Araullo Separate Opinions MALCOLM, J., dissenting: In my opinion judgment should be affirmed, for the reason that no contractual relation ever existed between Welch, Fairchild & Co., Inc., and the Philippine National Bank with respect to the funds in question. --------------------------------------------------------------------------------------------------------------------------------------Chief Justice SYLLABUS 1.PRINCIPAL AND AGENT; UNAUTHORIZED ACTS; VOIDABLE CONTRACT. Where an agent or representative in entering into a contract on behalf of the principal exceeds his authority, the contract is not an absolute nullity, but only voidable at the instance of the party who has been improperly represented. 2.BREACH OF CONTRACT. The defendants, owners of certain sugar centrals, entered into a contract with a number of persons, designated in the contract as "the Planters," for the milling of sugar cane and the construction of an additional mill. Some of the planters failed to perform their obligations under the contract. Held, that the contract was made with the planters as a body, and that, under the circumstances, a breach of the contract by some of them constituted in effect the breach of it by all. 3.ID.; FAILURE OF PERFORMANCE; DAMAGES. The planters having failed to plant the acreage of sugar cane agreed upon in the contract, and the existing milling facilities being sufficient for the handling of the sugar cane actually planted, the defendants were not liable in damages for failing to construct the additional mill within the time fixed by the contract. DECISION OSTRAND, J p: It appears from the evidence that on February 2, 1919, Salvador Serra, Juan J. Vidauzarraga, Felix Vidauzarraga, Dionisio Vidauzarraga, and Lazaro Mota, as parties of the first part, and Severo Alejano, the Estate of Hilario Cordova, Lorenzo Zayco, the Estate of Tomasa Gemora, Rogaciano Albayda, and Josefa Pacheco, as Parties of the second part, entered into a contract in writing whereby the parties of the first part, referred to in the contract as the "Palma and San Isidro Centrals," in consideration of the covenants and agreements of the parties of the second part, referred to in the contract as the "Planters," obligated themselves under paragraphs 1 and 2 of the contract as follows: "PARAGRAPH 1.That on or before the 1st of November, 1919, the Palma Central will construct a mill of a capacity of not less than 500 tons of cane, each twenty-four hours, composed of two mills of three rollers each, and a crushing mill of two rollers. "PAR. 2.That they will construct, maintain, and operate during the term of the contract, free of charge to the Planters, a railroad, propelled by motor or steam, or by both, for the use of the Planters, for the transportation of sugar cane, sugar and fertilizers, which they shall endeavor to run through the cane fields of the Planters or as near them as the position of the lands and plantations shall permit and the amount of cane to be transported shall require, etc." FIRST DIVISION [G.R. No. 23018. December 14, 1925.] LORENZO ZAYCO, plaintiff-appellant, vs. SALVADOR SERRA ET AL., defendants-appellees. Aurelio Montinola and Jose M. Hontiveros for appellant. Hilado & Hilado and Araneta & Zaragoza for appellee Serra. No appearance for the other appellees.

Agency Part F: Limitations (Art. 1894 - 1898) 42 ` Under the heading of "Obligations of the Planters," the contract further provides that: "In consideration of the agreement and covenants with the Palma and San Isidro Centrals, hereinabove mentioned, and of the sum of one peso (P1) paid to each one of the Planters by the Palma and San Isidro Centrals, receipt of which sum is hereby acknowledged, the Planters, individually and separately, for themselves, their heirs, executors, administrators, and assigns, do hereby covenant, stipulate and agree: "1.That each one of them will deliver to the said Palma and San Isidro Centrals, for a period of twenty (20) years, beginning from the date on which they are notified by the master of transportation that they are ready to commence the milling of all the sugar cane, planted by them on their lands, situated in the municipality of Kabankalan, Province of Occidental Negros, P. I., which lands of the parties of the second part are situated in said municipality and are generally designated and described as follows: "1.Haciendas 'Nandong,' 'Pansod,' 'Lupni,' 'Ayucutan,' Lorenzo Zayco, owner. "2.Hacienda 'Gilabangan,' Josefa Pacheco, owner. "3.Hacienda 'Balas-Balas,' Rogaciano Albayda, owner. "4.Rogaciano Albayda, as judicial administrator of the Estate of Doa Tomasa Gemora, Hacienda 'Gilabangan.' "5.Gregorio Cordova on behalf of the Estate of Hilario Cordova, lands 'Hilamonan' and 'Nandong.' "6.Gregorio Cordova on behalf of the Hacienda 'Lapnis' of Severo Alejano. "3.That for a reasonable compensation, they will give and cede upon demand by the Palma and San Isidro Centrals, for a period of thirty (30) years, beginning from the completion of the construction of the railroad line, the necessary right of way for the construction of a telephone system for the Palma and San Isidro Centrals, and in like manner, upon demand, they will also give the necessary right of way for the railroad line for a Period of thirty . . (30) years ... "9.That they shall appoint a committee or agents among those forming the parties of the second part, which committee or agents shall inspect the extension of the sugar plantings, in order to see to it that no less than 2/3 of the area of the lands owned by them are planted and harvested, unless prevented by force majeure, after the first year of this contract, and they shall be cultivated subject to the inspection of said committee or agents, and in all matters affecting those of the parties of the second part, said committee or agents shall represent them in their relations with the parties of the first part, and shall also represent them in all other matters hereinabove specified in the obligations of the Palma and San Isidro Centrals. "10.That they will submit any and all differences which might arise between the parties of the first part and the parties of the second part to the decision of referees, two of whom shall be selected by the first part and two by the second part, who, in case of disagreement, shall select a fifth referee, and they shall respect and abide by the decision of said referees or of three of them, as the case may be. "14.This agreement as well as all the provisions, covenants and stipulations shall constitute a lien on said lands, and shall be binding upon the planter's heirs, administrators, assigns and grantees." The mill referred to in paragraph 1 of the contract was not constructed and the railroad line mentioned in paragraph 2 did not reach the "Nandong" and "Pansod" plantations, belonging to Lorenzo Zayco, until March, 1920, over a year after the contract was entered into, and Zayco therefore brought the present action against all the parties of the first part of the contract, alleging that said parties had not complied with the terms of the contract and that he, by reason thereof, had suffered damages upon various counts in the total amount of P1,016,000, for which he asks judgment against the defendants. He further prays that the contract in question be declared rescinded. The defendants Juan Vidauzarraga and Dionisio Vidauzarraga did not answer the complaint and judgment was rendered against them by default. The defendants Anastasia Echevarria and Felix Vidauzarraga answered by general denial. The defendant Salvador Serra sets up as special defenses that he did not enter into the contract with the plaintiff individually, but that the contract was between all of the defendants on one side and the plaintiff and many others on the other side, and that there, therefore, was a defect in the parties plaintiff in the case; that the parties of the second part in said contract had violated their agreement by not appointing the committee referred to in paragraph 9 of the contract and by failing to plant a sufficient quantity of sugar cane; that ample facilities were at all events furnished the plaintiff Zayco for milling his cane, and that he therefore had suffered no damages. After trial, the court below rendered judgment dismissing the complaint with the costs against the plaintiff. The plaintiff appeals to this court and makes the following assignments of error: "1.The court a quo erred in holding that Exhibit A, the basis of the action brought by the herein plaintiff in this case, is without value as it never existed. "2.The court a quo erred in holding that there is no evidence in the present case constituting estoppel as against the defendants. "3.The court a quo erred in holding that the defendant Salvador Serra was not bound to construct the mill mentioned in Exhibit A capable of crushing 500 tons of sugar cane during each twenty-four hours, for the reason that the planters did not perform their part of the contract since some of them failed to plant the quantity of sugar cane agreed upon.

Agency Part F: Limitations (Art. 1894 - 1898) 43 ` "4.The court a quo erred in holding that the defendant was justified in not constructing the railroad connecting the Palma and San Isidro Centrals with the haciendas belonging to the plaintiff. "5.The court a quo erred in relieving the defendant Salvador Serra from the obligation of paying damages to the plaintiff from January 29, 1920. "6.The court a quo erred in holding that plaintiff's claim for damages was not sufficiently established by the evidence." The first and second assignments of error have reference to the contention of the defendant Serra that the contract in question was null and void because the persons who signed it on behalf of the estates of Tomasa Gemora and Hilario Cordova were not duly authorized to represent said estates. There is some merit in these assignments. It appears that Rogaciano Albayda who represented the Gemora estate was its judicial administrator and Gregorio Cordova who signed the contract on behalf of the Cordova estate was the de facto administrator of that estate. Assuming that these persons exceeded their authority, the contract would nevertheless not be an absolute nullity, but simply voidable at the instance of the parties who had been improperly represented. It follows that under the circumstances of this case, the defendant Serra is hardly in position to assert that the entire contract here in question was null and void ab initio. The third and fourth assignments of error are not well taken. The defendant's contract was not with the plaintiff individually and alone; it was with all of the individuals designated as "the Planters" in a body and consequently a breach of the contract by any one of these individuals would in effect constitute a breach of it by all. The evidence is conclusive that none of the parties who signed the contract as planters lived up to their agreement. By paragraph 9 of the portion of the contract which relates to the obligation of the planters, the latter bound themselves to appoint a committee or agents to supervise the planting of cane and to settle disputes. The functions of the committee were of importance to the orderly fulfillment of the milling contract, but there is no pretense that such a committee was formed or that agents were appointed. The same paragraph also placed upon the planters the obligation, after the first year of the contract, to plant not less than 2/3 of the area of their plantations to sugar cane. The plaintiff planted less than half of his land and the other planters made practically no new plantings. As the proposed increase in cane production must have been the principal inducement for the defendants' undertaking to construct an additional mill, and undoubtedly also one of the reasons for their promise to construct a railroad and operate it during the term of the contract, it would be more than unfair to the defendants to require them to proceed with the construction of the mill in the face of the failure of the planters to make provisions for an adequate supply of cane. When in addition to this it is considered that the weight of the evidence shows that the existing milling facilities were more than sufficient for the grinding of the cane produced by the planters, we are clearly of the opinion than the trial court did not err in holding that through the fault of the planters, the defendants were justified in delaying the construction of the mill. SYLLABUS 1.PRINCIPAL AND AGENT; PERSONAL LIABILITY OF AGENT. When an agent negotiates a loan in his own name and executes a promissory note under his personal signature without express authority from his principal, giving as security therefor real estate belonging to the latter, also in his own name and not in the name and in representation of said principal, the obligation so contracted by him is personal and is not binding upon the aforesaid principal. DECISION VILLA-REAL, J p: The defendant Paz Agudelo y Gonzaga appeals to this court from the judgment rendered by the Court of First Instance of Occidental Negros, the dispositive part of which reads as follows: "Wherefore, judgment is rendered herein absolving the defendant Mauro A. Garrucho from the complaint and ordering the defendant Paz Agudelo y Gonzaga to pay to the plaintiff the sum of P31,091.55, Philippine currency, together with the interest on the balance of P20,774.73 at 8 per cent per annum or P4.55 daily from July 16, 1929, until fully paid, plus the sum of P1,500 as attorney's fees, and the costs of this suit. "It is hereby ordered that in case the above sums adjudged in favor of the defendant by virtue of this judgment are not paid to the Philippine National Bank or deposited in the office of the clerk of this court, for delivery to the plaintiff, within three months from the date of this decision, the provincial sheriff of Occidental Negros shall sell at public auction the mortgaged properties described in annex E of the second amended complaint, and apply the proceeds thereof to the payment of the sums in question. "It is further ordered that in case the proceeds of the mortgaged properties are not sufficient to cover the amount of this judgment, a writ of execution be issued against any other property belonging to the defendant Paz Agudelo y Gonzaga, not otherwise exempt from execution, to cover the balance resulting therefrom." As to the construction of the railroad, the evidence shows that the defendants exercised due diligence and that the delay in its completion was due to circumstances beyond their control. The fifth and sixth assignments of error relate to the plaintiff's claim for damages. In view of what has already been said, it is unnecessary to discuss this question. We may say however that we agree with the trial court that the plaintiff's claim is not sufficiently supported by the evidence. The judgment appealed from is affirmed with the costs against the appellant. So ordered. Avancea, C.J., Street, Malcolm, Johns and Villa-Real, JJ., concur. --------------------------------------------------------------------------------------------------------------------------------------EN BANC[G.R. No. 39037. October 30, 1933.] THE PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. PAZ AGUDELO Y GONZAGA, ET AL., defendants. PAZ AGUDELO Y GONZAGA, appellant. Hilado & Hilado and Norberto Romualdez, for appellant. Roman J. Lacson, for appellee.

Agency Part F: Limitations (Art. 1894 - 1898) 44 ` In support of her appeal, the appellant assigns six alleged errors as committed by the trial court, which we shall discuss in the course of this decision. The following pertinent facts, which have been proven without dispute during the trial, are necessary for the decision of the questions raised in the present appeal to wit: On November 9, 1920, the defendant-appellant Paz Agudelo y Gonzaga executed in favor of her nephew, Mauro A. Garrucho, the document Exhibit K conferring upon him a special power of attorney sufficiently broad in scope to enable him to sell, alienate and mortgage in the manner and form he might deem convenient, all her real estate situated in the municipalities of Murcia and Bacolod, Occidental Negros, consisting in lots Nos. 61 and 207 of the cadastral survey of Bacolod, Occidental Negros, together with the improvement thereon. On December 22, 1920, Amparo A. Garrucho executed the document Exhibit H whereby she conferred upon her brother Mauro A. Garrucho a special power of attorney sufficiently broad in scope to enable him to sell, alienate, mortgage or otherwise encumber, in the manner and form he might deem convenient, all her real estate situated in the municipalities of Murcia and Bago, Occidental Negros. Nothing in the aforesaid powers of attorney expressly authorized Mauro A. Garrucho to contract any loan nor to constitute a mortgage on the properties belonging to the respective principals, to secure his obligations. On December 23, 1920, Mauro A. Garrucho executed in favor of the plaintiff entity, the Philippine National Bank the document Exhibit G, whereby he constituted a mortgage on lot No. 878 of the cadastral survey of Murcia, Occidental Negros, with the improvements thereon, described in transfer certificate of title No. 2415 issued in the name of Amparo A. Garrucho, to secure the payment of credits, loans, commercial overdrafts, etc., not exceeding P6,000, together with interest thereon, which he might obtain from the aforesaid plaintiff entity, issuing the corresponding promissory note to that effect. During certain months of the years 1921 and 1922, Mauro A. Garrucho maintained a personal current account with the plaintiff bank in the form of a commercial credit withdrawable through checks (Exhibits S, 1 and T). On August 24, 1931, the said Mauro A. Garrucho executed in favor of the plaintiff entity, the Philippine National Bank, the document Exhibit J whereby he constituted a mortgage on lots Nos. 61 and 207 of the cadastral survey of Bacolod, together with the buildings and improvements thereon, described in original certificates of title Nos. 2216 and 1148, respectively, issued in the name of Paz Agudelo y Gonzaga, to secure the payment of credits, loans and commercial overdrafts which the said bank might furnish him to the amount of P16,000, payable on August 24, 1922, executing the corresponding promissory note to that effect. The mortgage deeds Exhibits G and J as well as the corresponding promissory notes for P6,000 and P16,000, respectively, were executed in Mauro A. Garrucho's own name and signed by him in his personal capacity, authorizing the mortgage creditor, the Philippine National Bank, to take possession of the mortgaged properties, by means of force if necessary, in case he failed to comply with any of the conditions stipulated therein. On January 4, 1992, the manager of the Iloilo branch of the Philippine National Bank notified Mauro A. Garrucho that his promissory note for 6 P6,000 had fallen due on December 27, 1921, giving him a period of 10 days within which to make payment thereof (Exhibit O). On May 9, 1992, the said manager notified Mauro A. Garrucho that his commercial credit was closed from that date (Exhibit S). Inasmuch as Mauro A. Garrucho had overdrawn his credit with the plaintiff-appellee, the said manager thereof, in a letter dated June 27, 1922 (Exhibit T), requested him to liquidate his account amounting to P15,148.15, at the same time notifying him that his promissory note for P16,000 giving as security for the commercial overdraft in question, had fallen due some time since. On July 15, 1922, Mauro A. Garrucho, executed in favor of the plaintiff entity the deed Exhibit C whereby he constituted a mortgage on lots Nos. 61 and 207 of the cadastral survey of Bacolod, together with the improvements thereon, described in transfer certificates of title Nos. 2216 and 1148, respectively, issued in the name of Paz Agudelo y Gonzaga, and on lot No. 878 of the cadastral survey of Murcia, described in transfer certificate of title No. 2415, issued in the name of Amparo A. Garrucho. In consideration of the credits, loans, and commercial overdrafts amounting to P21,000 which had been granted him, Mauro A. Garrucho, on the said date of July 15, 1922, executed the promissory note, Exhibit B, for P21,000 as a novation of the former promissory notes for P6,000 and P16,000, respectively. In view of the aforesaid consolidated mortgage, Exhibit C, the Philippine National Bank, on the said date of July 15, 1922, cancelled the mortgages constituted on lots Nos. 61, 207 and 878 described in Torrens titles Nos. 2216, 1148 and 2415, respectively. On November 25, 1925, Amparo A. Garrucho sold lot No. 878 described in certificate of title No. 2415, to Paz Agudelo y Gonzaga (Exhibit M). On January 15, 1926, in the City of Manila, Paz Agudelo y Gonzaga signed the affidavit, Exhibit N, which reads as follows: "Know all men by these presents: That I, Paz Agudelo y Gonzaga, single, of age, and resident of the City of Manila, P. I., by these presents do hereby agree and consent to the transfer in my favor of lot No. 878 of the Cadastre of Murcia, Occidental Negros, P. I., by Miss Amparo A. Garrucho, as evidenced by the public instrument dated November 25, 1925, executed before the notary public Mr. Genaro B. Benedicto, and do hereby further agree to the amount of the lien thereon stated in the mortgage deed executed by Miss Amparo A. Garrucho in favor of the Philippine National Bank. "In testimony whereof, I hereunto affix my signature in the City of Manila, P. I., this 15th day of January, 1926. "(Sgd.)PAZ AGUDELO Y GONZAGA." Pursuant to the sale made by Amparo A. Garrucho in favor of Paz Agudelo y Gonzaga, of lot No. 878 of the cadastral survey of Murcia, described in certificate of title No. 2415 issued in the name of said Amparo A. Garrucho, and to the affidavit, Exhibit N, transfer certificate of title No. 5369 was issued in the name of Paz Agudelo y Gonzaga.

Agency Part F: Limitations (Art. 1894 - 1898) 45 ` Without discussing the passing upon whether or not the powers of attorney issued in favor of Mauro A. Garrucho by his sister, Amparo A. Garrucho, and by his aunt, Paz Agudelo y Gonzaga, respectively, to mortgage their respective real estate, authorized him to obtain loans secured by mortgage on the properties in question, we shall consider the question of whether or not Paz Agudelo y Gonzaga is liable for the payment of the loans obtained by Mauro A. Garrucho from the Philippine National Bank for the security of which he constituted a mortgage on the aforesaid real estate belonging to the defendant-appellant Paz Agudelo y Gonzaga. Article 1709 of the Civil Code provides the following: "ART. 1709.By the contract of agency, one person binds himself to render some service, or to do something for the account or at the request of another." And article 1717 of the same Code provides as follows: "ART. 1717.When an agent acts in his own name, the principal shall have no right of action against the persons with whom the agent has contracted, or such persons against the principal. "In such case, the agent is directly liable to the person with whom he has contracted, as if the transaction were his own. Cases involving things belonging to the principal are excepted. "The provisions of this article shall be understood to be without prejudice to actions between principal and agent." Aside from the phrases "attorney in fact of his sister, Amparo A. Garrucho, as evidenced by the power of attorney attached hereto" and "attorney in fact of Paz Agudelo y Gonzaga" written after the name of Mauro A. Garrucho in the mortgage deeds, Exhibits G and J, respectively, there is nothing in the said mortgage deeds to show that Mauro A. Garrucho is attorney in fact of Amparo A. Garrucho and of Paz Agudelo y Gonzaga, and that he obtained the loans mentioned in the aforesaid mortgage deeds and constituted said mortgages as security for the payment of said loans, for the account and at the request of said Amparo A. Garrucho and Paz Agudelo y Gonzaga. The above-quoted phrases which simply described his legal personality, did not mean that Mauro A. Garrucho obtained the said loans and constituted the mortgages in question for the account, and at the request, of his principals. From the titles as well as from the signatures therein, Mauro A. Garrucho, appears to have acted in his personal capacity. In the aforesaid mortgage deeds, Mauro A. Garrucho, in his capacity as mortgage debtor, appointed the mortgage creditor Philippine National Bank as his attorney in fact so that it might take actual and full possession of the mortgaged properties by means of force in case of violation of any of the conditions stipulated in the respective mortgage contracts. If Mauro A. Garrucho acted in his capacity as mere attorney in fact of Amparo A. Garrucho and of Paz Agudelo y Gonzaga, he could not delegate his power, in view of the legal principle of "delegata potestas delegare non potest" (a delegated power cannot be delegated), inasmuch as there is nothing in the records to show that he has been expressly authorized to do so. He executed the promissory notes evidencing the aforesaid loans, under his own signature, without authority from his principals and, therefore, were not binding upon the latter (2 Corpus Juris, pp. 630- 637, par. 280). Neither is there anything to show that he executed the promissory notes in question for the account, and at the request, of his respective principals (8 Corpus Juris, pp. 157-158). Furthermore, it is noted that the mortgage deeds, Exhibits C and J, were cancelled by the documents, Exhibits I and L, on July 15, 1922, and in their stead the mortgage deed, Exhibit C, was executed, in which there is absolutely no mention of Mauro A. Garrucho being attorney in fact of anybody, and which shows that he obtained such credit for himself in his personal capacity and secured the payment thereof by mortgage constituted by him in his personal capacity, although on properties belonging to his principal Paz Agudelo y Gonzaga. Furthermore, the promissory notes executed by Mauro A. Garrucho in favor of the Philippine National Bank, evidencing loans of P6,000 and P16,000 have been novated by the promissory note for P21,000 (Exhibit B) executed by Mauro A. Garrucho, not only without express authority from his principal Paz Agudelo y Gonzaga but also under his own signature. In the case of National Bank vs. Palma Gil (55 Phil., 639), this court laid down the following doctrine: "A promissory note and two mortgages executed by the agent for and on behalf of his principal, in accordance with a power of attorney executed by the principal in favor of the agent, are valid, and as provided by article 1727 of the Civil Code, the principal must fulfill the obligations contracted by the agent; but a mortgage on real property of the principal not made and signed in the name of the principal is not valid as to the principal." It has been intimated, and the trial judge has so stated, that it was the intention of the parties that Mauro G. Garrucho would execute the promissory note, Exhibit B, and the mortgage deed, Exhibit C, in his capacity as attorney in fact of Paz Agudelo y Gonzaga, and that although the terms of the aforesaid documents appear to be contrary to the intention of the parties, such intention should prevail in accordance with article 1281 of the Civil Code. Commenting on article 1281 of the Civil Code, Manresa, in his Commentaries to the Civil Code, says the following: "IV.Intention of the contracting parties: its appreciation. In order that the intention may prevail, it is necessary that the question of interpretation be raised, either because the words used appear to be contrary thereto, or by the existence of overt acts opposed to such words, in which the intention of the contracting parties is made manifest. Furthermore, in order that it may prevail against the terms of the contract, it must be clear or, in other words, besides the fact that such intention should be proven by admissible evidence, the latter must be of such character as to carry in the mind of the judge an unequivocal conviction. This requisite as to the kind of evidence is laid down in the decision relative to the Mortgage Law of September 30, 1891, declaring that article 1281 of the Civil Code gives preference to intention only when it is clear. When the aforesaid circumstance is not present in a document, the only thing left for the register of deeds to do is to suspend the registration thereof, leaving the

Agency Part F: Limitations (Art. 1894 - 1898) 46 ` solution of the problem to the free will of the parties or to the decision of the courts. "However, the evident intention which prevails against the defective wording thereof is not that of one of the parties, but the general intent, which, being so, is to a certain extent equivalent to mutual consent, inasmuch as it was the result desired and intended by the contracting parties" (8 Manresa, 3d edition, pp. 726 and 727.) Furthermore, the records do not show that the loan obtained by Mauro A. Garrucho, evidenced by the promissory note, Exhibit B, was for his principal Paz Agudelo y Gonzaga. The special power of attorney, Exhibit K, does not authorize Mauro A. Garrucho to constitute a mortgage on the real estate of his principal to secure his personal obligations. Therefore, in doing so by virtue of the document, Exhibit C, he exceeded the scope of his authority and his principal is not liable for his acts. (2 Corpus Juris, p. 651; article 1714, Civil Code.) It is further claimed that inasmuch as the properties mortgaged by Mauro A. Garrucho belong to Paz Agudelo y Gonzaga, the latter is responsible for the acts of the former although he acted in his own name, in accordance with the exception contained in article 1717 of the Civil Code. It would be an exception if the agent, acting in his own name in connection with the properties of his principal, does so within the scope of his authority. It is noted that Mauro A. Garrucho was not authorized to execute promissory notes even in the name of his principal Paz Agudelo y Gonzaga, nor to constitute a mortgage on her real properties to secure such promissory notes. The plaintiff Philippine National Bank should know this inasmuch as it is in duty bound to ascertain the extent of the agent's authority before dealing with him. Therefore, Mauro A. Garrucho and not Paz Agudelo y Gonzaga is personally liable for the amount of the promissory note Exhibit B. (2 Corpus Juris, pp. 563-564.) However, Paz Agudelo y Gonzaga is an affidavit dated January 15, 1926 (Exhibit AA), and in a letter dated January 16, 1926 (Exhibit Z), gave her consent to the lien on lot No. 878 of the cadastre of Murcia, Occidental Negros, described in Torrens title No. 5369, the ownership of which was transferred to her by her niece Amparo A. Garrucho. This acknowledgment, however, does not extend to lots Nos. 207 and 61 of the cadastral survey of Bacolod, described in transfer certificates of title Nos. 1148 and 2216, respectively, inasmuch as, although it is true that a mortgage is indivisible as to the contracting parties and as to their successors in interest (article 1860, Civil Code), it is not so with respect to a third person who did not take part in the constitution thereof either personally or through an agent, inasmuch as he can make the acknowledgment thereof in the form and to the extent he may deem convenient, on the ground that he is not in duty bound to acknowledge the said mortgage. Therefore, the only liability of the defendant-appellant Paz Agudelo y Gonzaga is that which arises from the aforesaid acknowledgment, but only with respect to the lien and not to the principal obligation secured by the mortgage acknowledged by her to have been constituted on said lot No. 878 of the cadastral survey of Murcia, Occidental Negros. Such liability is not direct but a subsidiary one. Having reached this conclusion, it is unnecessary to pass upon the other questions of law raised by the defendant-appellant in her brief and upon the law cited therein. In view of the foregoing consideration, we are of the opinion and so hold that when an agent negotiates a loan in his personal capacity and executes a promissory note under his own signature, without express authority from his principal, giving as security therefor real estate belonging to the latter, also in his own name and not in the name and representation of the said principal, the obligation so contracted by him is personal and does not bind his aforesaid principal. Wherefore, it is hereby held that the liability contracted by the aforesaid defendant-appellant Paz Agudelo y Gonzaga is merely subsidiary to that of Mauro A. Garrucho, limited to lot No. 878 of the cadastral survey of Murcia, Occidental Negros, described in Torrens title No. 2415. However, inasmuch as the principal obligor, Mauro A. Garrucho, has been absolved from the complaint and the plaintiff- appellee has not appealed from the judgment absolving him, the law does not afford any remedy whereby Paz Agudelo y Gonzaga may be required to comply with the said subsidiary obligation in view of the legal maxim that the accessory follows the principal. Wherefore, the defendant herein should also be absolved from the complaint which is hereby dismissed, with the costs against the appellee. So orderedAvancea, C.J., Malcolm, Hull and Imperial, JJ., concur. --------------------------------------------------------------------------------------------------------------------------------------SECOND DIVISION [G.R. Nos. L-33819 and L-33897. October 23, 1982.] NATIONAL POWER CORPORATION, plaintiff-appellant, vs. NATIONAL MERCHANDISING CORPORATION and DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES, defendantsappellants. The Solicitor General for plaintiff-appellant. Sycip, Salazar, Luna Manalo & Feliciano for defendants-appellants. SYNOPSIS Plaintiff-appellant National Power Corporation (NPC) and defendant- appellant National Merchandising Corporation (NAMERCO), the Philippine representative of New York-based International Commodities Corporation, executed a contract of sale of sulfur with a stipulation for liquidated damages in case of breach. Defendant-appellant Domestic Insurance Company executed a performance bond in favor of NPC to guarantee the seller's obligation. In entering into the contract, Namerco, however, did not disclose to NPC that Namerco's principal, in a cabled instruction, stated that the sale was subject to availability of a steamer, and contrary to its principal's instruction, Namerco agreed that non-availability of a steamer was not a justification for non-payment of liquidated damages. The New York supplier was not able to deliver the sulfur due to its inability to secure shipping space. Consequently, the Government Corporate Counsel rescinded the contract of sale due to the supplier's non-performance of its obligations, and demanded payment of liquidated damages from both Namerco and the surety. Thereafter, NPC sued for recovery of the stipulated liquidated damages. After trial, the Court of First Instance rendered judgment ordering defendants-appellants to pay solidarity to the NPC reduced liquidated damages with interest. The Supreme Court held that Namerco is liable fur damages because under Article 1897 of the Civil Code the agent who exceeds the limits of his authority without giving the party with whom he contracts sufficient notice of his powers is personally liable to such party. The Court, however, further reduced the solidary liability of defendants-appellants for liquidated damages.

Agency Part F: Limitations (Art. 1894 - 1898) 47 ` SYLLABUS 1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; AN AGENT WHO EXCEEDS THE LIMITS OF HIS AUTHORITY IS PERSONALLY LIABLE. Under Article 1897 of the Civil Code the agent who exceeds the limits of his authority without giving the party with whom he contracts sufficient notice of his powers is personally liable to such party. 2.ID.; ID.; ID.; ID.; CASE AT BAR. In the present case, Namerco, the agent of a New York-based principal, entered into a contract of sale with the National Power Corporation without disclosing to the NPC the limits of its powers and, contrary to its principal's prior cabled instructions that the sale should be subject to availability of a steamer, it agreed that non-availability of a steamer was not a justification for nonpayment of the liquidated damages. Namerco. therefore, is liable for damages. 3.ID.; ID.; ID.; THE RULE THAT EVERY PERSON DEALING WITH AN AGENT IS PUT UPON AN INQUIRY AND MUST DISCOVER UPON HIS PERIL THE AUTHORITY OF THE AGENT IS NOT APPLICABLE WHERE THE AGENT, NOT THE PRINCIPAL, IS SOUGHT TO BE HELD LIABLE ON THE CONTRACT. The rule that every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent would apply only in cases where the principal is sought to be held liable on the contract entered into by the agent. The said rule is not applicable in the instant case since it is the agent, not the principal, that is sought to be held liable on the contract of sale which was expressly repudiated by the principal because the agent took chances, it exceeded its authority and, in effect. it acted in its own name. 4.ID.; ID.; ID.; THE CONTRACT ENTERED INTO BY AN AGENT WHO ACTED BEYOND HIS POWERS IS UNENFORCEABLE ONLY AS AGAINST THE PRINCIPAL BUT NOT AGAINST THE AGENT AND ITS SURETY. Article 1403 of the Civil Code which provides that a contract entered into in the name of another person by one who has acted beyond his powers is unenforceable, refers to the unenforceability of the contract against the principal. In the instant case, the contract containing the stipulation for liquidated damages is not being enforced against its principal but against the agent and its surety. It being enforced against the agent because Article 1897 implies that the agent who acts in excess of his authority is personally liable to the party with whom he contracted. And that rule is complimented by Article 1898 of the Civil Code which provides that "if the agent contracts, in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal." Namerco never disclosed to the NPC the cabled or written instructions of its principal. For that reason and because Namerco exceeded the limits of its authority, it virtually acted in its own name and not as agent and it is, therefore, bound by the contract of sale which, however, it not enforceable against its principal. If, as contemplated in Articles 1897 and 1898, Namerco is bound under the contract of sale, then it follows that it is bound by the stipulation for liquidated damages in that contract. 5.ID.; ID.; ID.; THE LIABILITY OF AN AGENT WHO EXCEEDS THE LIMITS OF HIS AUTHORITY IS BASED ON CONTRACT AND NOT ON TORT OR QUASI-DELICT; CASE AT BAR. Defendant's contention that Namerco's liability should be based on tort or quasi-delict, as held in some American cases, like Mendelson vs. Holton, 149 N.E. 38,42 ACR 1307, is not well-taken. As correctly argued by the NPC, it would be unjust and inequitable for Namerco to escape liability of the contract after it had deceived Plaintiff National Power Corporation appealed on questions of law from the decision of the Court of First Instance of Manila dated October 10, 1966, ordering defendants National Merchandising Corporation and Domestic Insurance Company of the Philippines to pay solidarily to the National Power Corporation reduced liquidated damages in the sum of P72,114.66 plus legal, rate of interest from the filing of the complaint and the costs (Civil Case No. 33114). the NPC by not disclosing the limits of its powers and entering into the contract with stipulations contrary to its principal's instructions. 6.ID.; ID.; ID.; LIABILITY OF THE SURETY ON THE OBLIGATION CONTRACTED BY AN AGENT WHO EXCEEDED HIS AUTHORITY IS NOT AFFECTED THEREBY. The contention of the defendants that the Domestic Insurance Company is not liable to the NPC because its bond was posted, not to Namerco, the agent, but for the New York firm which is not liable on the contract of sale, cannot be sustained because it was Namerco that actually solicited the bond from the Domestic Insurance Company and, Namerco is being held liable under the contract of sale because it virtually acted in its own name. In the last analysis, the Domestic Insurance Company acted as surety for Namerco. The rule is that "want of authority of the person who executes an obligation as the agent or representative of the principal will not, as a general rule, affect the surety thereon, especially in the absence of fraud, even though the obligation is not binding on the principal." (72 C.J.S. 525). 7.CIVIL LAW; DAMAGES; IMPOSITION OF INTEREST THEREON NOT WARRANTED WHERE THE DISPOSITION OF THE CASE HAS BEEN DELAYED DUE TO NO FAULT OF DEFENDANTS . With respect to the imposition of the legal rate of interest on the damages from the filing of the complaint in 1957, or a quarter of a century ago, defendant's contention that interest should not be collected on the amount of damages is meritorious. It should be manifestly iniquitous to collect interest on the damages especially considering that the disposition of this case has been considerably delayed due to no fault of the defendants 8.ID.; ID.; LIQUIDATED DAMAGES; NO PROOF OF PECUNIARY LOSS IS REQUIRED FOR RECOVERY THEREOF. No proof of pecuniary lost is required for the recovery of liquited damages. The stipulatian for liquidated damages is intended to obviate controversy on the amount of damages. There can be no question that the NPC suffered damages because its production of fertilizer was disrupted or diminished by reason of the non-delivery of the sulfur. The parties foresaw that it might be difficult to ascertain the exact amount of damages for non-delivey of the sulfur. So, they fixed the liquidated damages to be paid as indemnity to the NPC. 9.ID.; ID.; NOMINAL DAMAGES; NOT A CASE OF. Nominal damages are damages in name only or are in fact the same as no damages (25 C.J.S. 466). It would not be correct to hold in this case that the NPC suffered damages in name only or that the breach of contract "as merely technical in character since the NPC suffered damages because its production of fertilizer "as disrupted or diminished by reason of the non-delivery of the sulfur. DECISION AQUINO, J p: This case is about the recovery of liquidated damages from a seller's agent that allegedly exceeded its authority in negotiating the sale.

Agency Part F: Limitations (Art. 1894 - 1898) 48 ` The two defendants appealed from the same decision allegedly because it is contrary to law and the evidence. As the amount originally involved is P360,572.80 and defendants' appeal is tied up with plaintiff's appeal on questions of law, defendants' appeal can be entertained under Republic Act No. 2613 which amended section 17 of the Judiciary Law. On October 17, 1956, the National Power Corporation and National Merchandising Corporation (Namerco) of 3111 Nagtahan Street, Manila, as the representative of the International Commodities Corporation of 11 Mercer Street, New York City (Exh. C), executed in Manila a contract for the purchase by the NPC from the New York firm of four thousand long tons of crude sulfur for its Maria Cristina Fertilizer Plant in Iligan City at a total price of (450,716 (Exh. E). On that same date, a performance bond in the sum of P90,143.20 was executed by the Domestic Insurance Company in favor of the NPC to guarantee the seller's obligations (Exh. F). It was stipulated in the contract of sale that the seller would deliver the sulfur at Iligan City within sixty days from notice of the establishment in its favor of a letter of credit for $212,120 and that failure to effect delivery would subject the seller and its surety to the payment of liquidated damages at the rate of two-fifth of one percent of the full contract price for the first thirty days of default and four-fifth of one percent for every day thereafter until complete delivery is made (Art. 8, p. 111, Defendants' Record on Appeal). In a letter dated November 12, 1956, the NPC advised John Z. Sycip, the president of Namerco, of the opening on November 8 of a letter of credit for $212,120 in favor of International Commodities Corporation which would expire on January 31, 1957 (Exh. I). Notice of that letter of credit was, received by cable by the New York firm on November 15, 1956 (Exh. 80-Wallick). Thus, the deadline for the delivery of the sulfur was January 15, 1957. The New York supplier was not able to deliver the sulfur due to its inability to secure shipping space. During the period from January 20 to 26, 1957 there was a shutdown of the NPC's fertilizer plant because there was no sulfur. No fertilizer was produced (Exh. K). In a letter dated February 27, 1957, the general manager of the NPC advised Namerco and the Domestic Insurance Company that under Article 9 of the contract of sale "non-availability of bottom or vessel" was not a fortuitous event that would excuse non-performance and that the NPC would resort to legal remedies to enforce its rights (Exh. L and M). The Government Corporate Counsel in his letter to Sycip dated May 8, 1957 rescinded the contract of sale due to the New York supplier's non-performance of its obligations (Exh. G). The same counsel in his letter of June 8, 1957 demanded from Namerco the payment of P360,572.80 as liquidated damages. He explained that time was of the essence of the contract. A similar demand was made upon the surety (Exh. H and H-1). The liquidated damages were computed on the basis of the 115-day period between January 15, 1957, the deadline for the delivery of the sulfur at Iligan City, and May 9, 1957 when Namerco was notified of the rescission of the contract, or P54,085.92 for the first thirty days and P306,486.88 for the remaining eighty-five days. Total: P360,572.80. On November 5, 1957, the NPC sued the New York firm, Namerco and the Domestic Insurance Company for the recovery of the stipulated liquidated damages (Civil Case No. 33114). The trial court in its order of January 17, 1958 dismissed the case as to the New York firm for lack of jurisdiction because it was not doing business in the Philippines (p. 60, Defendants Record on Appeal). On the other hand, Melvin Wallick, as the assignee of the New York corporation and after the latter was dropped as a defendant in Civil Case No. 33114, sued Namerco for damages in connection with the same sulfur transaction (Civil Case No. 37019). The two cases, both filed in the Court of First Instance of Manila, were consolidated. A joint trial was held. The lower court rendered separate decisions in the two cases on the same date. In Civil Case No. 37019, the trial court dismissed Wallick's action for damages against Namerco because the assignment in favor of Wallick was champertous in character. Wallick appealed to this Court. The appeal was dismissed because the record on appeal did not disclose that the appeal was perfected on time (Res. of July 11, 1972 in L-33893).In this Civil Case No. 33114, although the records on appeal were approved in 1967, inexplicably, they were elevated to this Court in 1971. That anomaly initially contributed to the delay in the adjudication of this case. Defendants' appeal L-33819. They contend that the delivery of the sulfur was conditioned on the availability of a vessel to carry the shipment and that Namerco acted within the scope of its authority as agent in signing the contract of sale. The documentary evidence belies these contentions. The invitation to bid issued by the NPC provides that non-availability of a steamer to transport the sulfur is not a ground for non-payment of the liquidated damages in case of non-performance by the seller. "4.Responsibility for availability of vessel. The availability of vessel to transport the quantity of sulfur within the time specified in item 14 of this specification shall be the responsibility of the bidder. In case of award of contract, failure to ship on time allegedly due to non-availability of vessels shall not exempt the Contractor from payment of liquidated damages provided in item 15 of this specification." "15.Liquidated damages. . . . "Availability of vessel being a responsibility of the Contractor as specified in item 4 of this specification, the terms 'unforeseeable causes beyond the control and without the fault or negligence of the Contractor' and 'force majeure' as used herein shall not be deemed to embrace or include lack or nonavailability of bottom or vessel. It is agreed that prior to making his bid, a bidder shall have made previous arrangements regarding shipments within the required time. It is clearly understood that in no event shall the Contractor be exempt from the payment of liquidated damages herein specified for reason of lack of bottom or vessel. Lack of bottom or nonavailability of vessel shall, in no case, be considered as a ground for extension of time. . . . . " Namerco's bid or offer is even more explicit. It provides that it was "responsible for the availability of bottom or vessel" and that it "guarantees the availability of bottom or vessel to ship the quantity of sulfur within the time specified in this bid" (Exh. B, p. 22, Defendants' Record on Appeal). In the contract of sale itself item 15 of the invitation to bid is reproduced in Article 9 which provides that "it is clearly understood that in no event shall the seller be entitled to an extension of time or be exempt

Agency Part F: Limitations (Art. 1894 - 1898) 49 ` from the payment of liquidated damages herein specified for reason of lack of bottom or vessel" (Exh. E, p. 36, Record on Appeal). It is true that the New York corporation in its cable to Namerco dated August 9, 1956 stated that the sale was subject to availability of a steamer (Exh. N). However, Namerco did not disclose that cable to the NPC and, contrary to its principal's instruction, it agreed that nonavailability of a steamer was not a justification for nonpayment of the liquidated damages. The trial court rightly concluded that Namerco acted beyond the bounds of its authority because it violated its principal's cabled instructions (1) that the delivery of the sulfur should be "C & F Manila", not "C & F Iligan City"; (2) that the sale be subject to the availability of a steamer and (3) that the seller should be allowed to withdraw right away the full amount of the letter of credit and not merely eighty percent thereof (pp- 123-124, Record on Appeal). The defendants argue that it was incumbent upon the NPC to inquire into the extent of the agent's authority and, for its failure to do so, it could not claim any liquidated damages which, according to the defendants, were provided for merely to make the seller more diligent in looking for a steamer to transport the sulfur. The NPC counter-argues that Namerco should' have advised the NPC of the limitations on its authority to negotiate the sale. We agree with the trial court that Namerco is liable for damages because under article 1897 of the Civil Code the agent who exceeds the limits of his authority without giving the party with whom he contracts sufficient notice of his powers is personally liable to such party. The truth is that even before the contract of sale was signed Namerco was already aware that its principal was having difficulties in booking shipping space. In a cable dated October 16, 1956, or one day before the contract of sale was signed, the New York supplier advised Namerco that the latter should not sign the contract unless it (Namerco) wished to assume sole responsibility for the shipment (Exh. T). Sycip, Namerco's president, replied in his letter to the seller dated also October 16, 1956, that he had no choice but to finalize the contract of sale because the NPC would forfeit Namerco's bidder's bond in the sum of P45,100 posted by the Domestic Insurance Company if the contract was not formalized (Exh. 14, 14-A and Exh. V). Three days later, or on October 19, the New York firm cabled Namerco that the firm did not consider itself bound by the contract of sale and that Namerco signed the contract on its own responsibility (Exh. W). In its letters dated November 8 and 19, 1956, the New York corporation informed Namerco that since the latter acted contrary to the former's cabled instructions, the former disclaimed responsibility for the contract and that the responsibility for the sale rested on Namerco (Exh. Y and Y-1). The letters of the New York firm dated November 26 and December 11, 1956 were even more revealing. It bluntly told Namerco that the latter was never authorized to enter into the contract and that it acted contrary to the repeated instructions of the former (Exh. U and Z). Said the vice-president of the New York firm to Namerco: cdphil "As we have pointed out to you before, you have acted strictly contrary to our repeated instructions and, however regretfully, you have no one but yourselves to blame." As opined by Olivieri, "si el mandante contesta o impugna el negocio juridico concluido por el mandatario con el tercero, aduciendo el exceso de los limites impuestos, es justo que el mandatario, que ha tratado con engao al tercero, sea responsable personalmente respecto de el des las consecuencias de tal falta de aceptacion por parte del mandate. Tal responsabilidad del mandatario se informa en el principio de la falta de garantia de la existencia del mandato y de la cualidad de mandatario, garantia impuesta coactivamente por la ley, que quire que aquel que contrata como mandatario este obligado a garantizar al tercero la efectiva existencia de los poderes que afirma se halla investido, siempre que el tercero mismo sea de buena fe. Efecto de tal garantia es el resarcimiento de los daos causados al tercero como consecuencia de la negativa del mandante a reconocer lo actuado por el mandatario." (26, part II, Scaveola, Codigo Civil, 1951, pp. 358-9). Manresa says that the agent who exceeds the limits of his authority is personally liable "porque realmente obra sin poderes" and the third person who contracts with the agent in such a case would be defrauded if he would not be allowed to sue the agent (11 Codigo Civil, 6th Ed., 1972, p. 725). The defendants also contend that the trial court erred in holding as enforceable the stipulation for liquidated damages despite its finding that the contract was executed by the agent in excess of its authority and is, therefore, allegedly unenforceable. In support of that contention, the defendants cite article 1403 of the Civil Code which provides that a contract entered into in the name of another person by one who has acted beyond his powers is unenforceable. We hold that defendants' contention is untenable because article 1403 refers to the unenforceability of the contract against the principal. In the instant case, the contract containing the stipulation for liquidated damages is not being enforced against it principal but against the agent and its surety. It is being enforced against the agent because article 1807 implies that the agent who acts in excess of his authority is personally liable to the party with whom he contracted. And that rule is complemented by article 1898 of the Civil Code which provides that "if the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal". It is being enforced against the agent because article 1897 implies that the agent who acts in excess of his authority is personally liable to the party with whom he contracted. And the rule is complemented by article 1898 of the Civil Code which provides that "if the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal does not The rule relied upon by the defendants-appellants that every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent would apply in this case if the principal is sought to be held liable on the contract entered into by the agent. That is not so in this case. Here, it is the agent that it sought to be held liable on a contract of sale which was expressly repudiated by the principal because the agent took chances, it exceeded its authority, and, in effect, it acted in its own name. As observed by Castan Tobeas, an agent "que haya traspasado los limites dew mandato, lo que equivale a obrar sin mandato" (4 Derecho Civil Espaol, 8th Ed., 1956, p. 520).

Agency Part F: Limitations (Art. 1894 - 1898) 50 ` ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal". As priorly discussed, namerco, as agent, exceeded the limits of its authority in contracting with the NPC in the name of its principal. The NPC was unaware of the limitations on the powers granted by the New York firm to Namerco. LLjur The New York corporation in its letter of April 26, 1956 said: "We hereby certify that National Merchandising Corporation . . . are our exclusive representatives in the Philippines for the sale of our products. "Furthermore, we certify that they are empowered to present our offers in our behalf in accordance with our cabled or written instructions." (Exh. C). Namerco never disclosed to the NPC the cabled or written instructions of its principal. For that reason and because Namerco exceeded the limits of its authority, it virtually acted in its own name and not as agent and it is, therefore, bound by the contract of sale which, however, is not enforceable against its principal. If, as contemplated in articles 1897 and 1898, Namerco is bound under the contract of sale, then it follows that it is bound by the stipulation for liquidated damages in that contract. Defendants' contention that Namerco's liability should be based on tort or quasi-delict, as held in some American cases, like Mendelsohn vs. Holton, 149 N.E. 38, 42 ALR 1307, is not well-taken. As correctly argued by the NPC, it would be unjust and inequitable for Namerco to escape liability after it had deceived the NPC. Another contention of the defendants is that the Domestic Insurance Company is not liable to the NPC because its bond was posted, not for Namerco, the agent, but for the New York firm which is not liable on the contract of sale. That contention cannot be sustained because it was Namerco that actually solicited the bond from the Domestic Insurance Company and, as explained already, Namerco is being held liable under the contract of sale because it virtually acted in its own name. It became the principal in the performance bond. In the last analysis, the Domestic Insurance Company acted as surety for Namerco. The rule is that "want of authority of the person who executes an obligation as the agent or representative of the principal will not, as a general rule, affect the surety's liability thereon, especially in the absence of fraud, even though the obligation is not binding on the principal" (72 C.J.S. 525). Defendants' other contentions are that they should be held liable only for nominal damages, that interest should not be collected on the amount of damages and that the damages should be computed on the basis of a forty-five day period and not for a period of one hundred fifteen days. With respect to the imposition of the legal rate of interest on the damages from the filing of the complaint in 1957, or a quarter of a century ago, defendants' contention is meritorious. It would be manifestly inequitable to collect interest on the damages especially considering that the disposition of this case has been considerably delayed due to no fault of the defendants. The contention that only nominal damages should be adjudged is contrary to the intention of the parties (NPC, Namerco and its surety) because it is clearly provided that liquidated damages are recoverable for delay in the delivery of the sulfur and, with more reason, for nondelivery. No proof of pecuniary loss is required for the recovery of liquidated damages. the stipulation for liquidated damages is intended to obviate controversy on the amount of damages. There can be no question that the NPC suffered damages because its production of fertilizer was disrupted or diminished by reason of the nondelivery of the sulfur. prLL The parties foresaw that it might be difficult to ascertain the exact amount of damages for nondelivery of the sulfur. So, they fixed the liquidated damages to be paid as indemnity to the NPC. On the other hand, nominal damages are damages in name only or are in fact the same as no damages (25 C.J.S. 466). It would not be correct to hold in this case that the NPC suffered damages in name only or that the breach of contract was merely technical in character. As to the contention that the damages should be computed on the basis of forty-five days, the period required by a vessel leaving Galveston, Texas to reach Iligan City, that point need not be resolved in view of our conclusion that the liquidated damages should be equivalent to the amount of the bidder's bond posted by Namerco. NPC's appeal, L-33897. The trial court reduced the liquidated damages to twenty percent of the stipulated amount. the NPC contends the it is entitled to the full amount of liquidated damages in the sum of P360,572.80. In reducing the liquidated damages, the trial court relied on article 2227 of the Civil Code which provides that "liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable". Apparently, the trial court regarded as an equitable consideration the persistent efforts of Namerco and its principal to charter a steamer and that the failure of the New York firm to secure shipping space was not attributable to its fault or negligence. The trial court also took into account the fact that the selling price of the sulfur was P450,716 and that to award as liquidated damages more than eighty percent of the price would not be altogether reasonable. The NPC contends that Namerco was an obligor in bad faith and, therefore, it should be responsible for all damages which could be reasonably attributed to its nonperformance of the obligation as provided in article 2201 of the Civil Code. On the other hand, the defendants argue that Namerco having acted as a mere agent, was not liable for the liquidated damages stipulated in the alleged unenforceable contract of sale; that, as already noted, Namerco's liability should be based on tort or quasi-delict and not on the contract of sale; that if Namerco is not liable, then the insurance company, its surety, is likewise not liable; that the NPC is entitled only to nominal damages because it was able to secure the sulfur from another source (58-59 tsn November 10, 1960) and that the reduced award of stipulated damages is highly iniquitous, considering that Namerco acted in good faith and that the NPC did not suffer any actual damages. LLpr These contentions have already been resolved in the preceding discussion. We find no sanction or justification for NPC's claim that it is entitled to the full payment of the liquidated damages computed by its official. Ruling on the amount of damages. A painstaking evaluation of the equities of the case in the light of the arguments of the parties as expounded in their five briefs leads to the conclusion that the damages due from the defendants should be further reduced to P45,100 which is equivalent to their bidder's bond or to about ten percent of the selling price of the sulfur.

Agency Part F: Limitations (Art. 1894 - 1898) 51 ` 2.CIVIL LAW; AGENCY; LIABILITIES OF PRINCIPAL AND AGENT TO THIRD PERSON. Under Article 1898 WHEREFORE, the lower court's judgment is modified and defendants National Merchandising Corporation and Domestic Insurance Company of the Philippines are ordered to pay solidarily to the National Power Corporation the sum of P45,100.00 as liquidated damages. No costs. SO ORDERED. Makasiar (Chairman), Concepcion Jr., Guerrero, Abad Santos, De Castro, and Escolin, JJ., concur. --------------------------------------------------------------------------------------------------------------------------------------THIRD DIVISION [G.R. No. 125138. March 2, 1999.] NICHOLAS Y. CERVANTES, petitioner, vs. COURT OF APPEALS AND THE PHILIPPINE AIR LINES, INC., respondents. Enrique Y. Tandan for petitioner. Rebanal Hernando & Rebanal Law Offices for private respondent. SYNOPSIS On March 27, 1989, Philippine Air Lines, Inc. (PAL) issued to Nicholas Cervantes a round trip plane ticket for Manila-Honolulu-Los Angeles-Honolulu-Manila, which ticket expressly provided an expiry date of one year from issuance, i.e., until March 27, 1990. On March 23, 1990, the petitioner used it. Upon his arrival in Los Angeles on the same day, he immediately booked his Los Angeles-Manila return ticket with the PAL office, and it was confirmed for the April 2, 1990 flight. However, upon learning that the same PAL plane would make a stop-over in San Francisco, and considering that he would be there on April 2, 1990, petitioner made arrangements with PAL for him to board the flight in San Francisco instead of boarding in Los Angeles. On April 2, 1990, when the petitioner checked in at the PAL counter in San Francisco, he was not allowed to board by the PAL personnel due to the expiration of validity of his ticket. Thus, Cervantes filed a Complaint for Damages for breach of contract of carriage and before the Regional Trial Court, Branch 32, Surigao del Norte. He claimed that the act of the PAL agents in confirming his ticket extended its period of validity. But the trial court dismissed the complaint for lack of merit. On appeal, the Court of Appeals affirmed the dismissal of the complaint. Hence, this petition. CDScaT The Court ruled that since the PAL agents are not privy to the agreement in the issuance of the ticket and the petitioner knew that a written request to the legal counsel of PAL was necessary, he cannot use what the PAL agents did to his advantage. The said agents, according to the Court of Appeals, acted without authority when they confirmed the flights of the petitioner. Under Article 1898 of the New Civil Code, the acts of an agent beyond the scope of his authority do not bind the principal, unless the latter ratifies the same expressly or impliedly. Furthermore, when the third person knows that the agent was acting beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the said third person is aware of such limits of authority, he is to blame, and is not entitled to recover damages from the agent, unless the latter undertook to secure the principal's ratification. The Petition was DENIED. SDIaCT SYLLABUS 1.REMEDIAL LAW; EVIDENCE; CREDIBILITY; FINDINGS OF FACTS OF TRIAL COURT ARE ENTITLED TO GREAT WEIGHT. As a rule, conclusions and findings of fact arrived at by the trial court are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons. IDCcEa of the New Civil Code, the acts of an agent beyond the scope of his authority do not bind the principal, unless the latter ratifies the same expressly or impliedly. Furthermore, when the third person knows that the agent was acting beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the said third person is aware of such limits of authority, he is to blame, and is not entitled to recover damages from the agent, unless the latter undertook to secure the principal's ratification. 3.REMEDIAL LAW; EVIDENCE; ISSUES TAKEN DURING TRIAL ARE ENTITLED TO JUDGMENT. Thus, "when evidence is presented by one party, with the express or implied consent of the adverse party, as to issues not alleged in the pleadings, judgment may be rendered validly as regards the said issue, which shall be treated as if they have been raised in the pleadings. There is implied consent to the evidence thus presented when the adverse party fails to object thereto." 4.ID.; ID.; ID.; CASE AT BAR. Notwithstanding PAL's failure to raise the defense of lack of authority of the said PAL agents in its answer or in a motion to dismiss, the omission was cured since the said issue was litigated upon, as shown by the testimony of the petitioner in the course of trial. TIHCcA 5.CIVIL LAW; DAMAGES; MORAL DAMAGES; NOT PRESENT IN CASE AT BAR . In awarding moral damages for breach of contract of carriage, the breach must be wanton and deliberately injurious or the one responsible acted fraudulently or with malice or bad faith. Petitioner knew there was a strong possibility that he could not use the subject ticket, so much so that he bought a back-up ticket to ensure his departure. Should there be a finding of bad faith, we are of the opinion that it should be on the petitioner. What the employees of PAL did was one of simple negligence. No injury resulted on the part of petitioner because he had a back-up ticket should PAL refuse to accommodate him with the use of subject ticket. 6.ID.; ID.; EXEMPLARY DAMAGES; BAD FAITH IS NECESSARY. Such kind of damages is imposed by way of example or correction for the public good, and the existence of bad faith is established. The wrongful act must be accompanied by bad faith, and an award of damages would be allowed only if the guilty party acted in a wanton, fraudulent, reckless or malevolent manner. HCDAac DECISION PURISIMA, J p: This Petition for Review on certiorari assails the 25 July 1995 decision of the Court of Appeals 1 in CA GR CV No. 41407, entitled "Nicholas Y. Cervantes vs. Philippine Air Lines Inc.", affirming in toto the judgment of the trial court dismissing petitioner's complaint for damages. On March 27, 1989, the private respondent, Philippines Air Lines, Inc. (PAL), issued to the herein petitioner, Nicholas Cervantes (Cervantes), a round trip plane ticket for Manila-Honolulu-Los AngelesHonolulu-Manila, which ticket expressly provided an expiry of date of one year from issuance, i.e., until March 27, 1990. The issuance of the said plane ticket was in compliance with a Compromise Agreement entered into between the contending parties in two previous suits, docketed as Civil Case Nos. 3392 and 3451 before the Regional Trial Court in Surigao City. 2 On March 23, 1990, four days before the expiry date of subject ticket, the petitioner used it. Upon his arrival in Los Angeles on the same day, he immediately booked his Los Angeles-Manila return ticket with the PAL office, and it was confirmed for the April 2, 1990 flight.

Agency Part F: Limitations (Art. 1894 - 1898) 52 ` Upon learning that the same PAL plane would make a stop-over in San Francisco, and considering that he would be there on April 2, 1990, petitioner made arrangements with PAL for him to board the flight in San Francisco instead of boarding in Los Angeles. cdrep On April 2, 1990, when the petitioner checked in at the PAL counter in San Francisco, he was not allowed to board. The PAL personnel concerned marked the following notation on his ticket: "TICKET NOT ACCEPTED DUE EXPIRATION OF VALIDITY." Aggrieved, petitioner Cervantes filed a Complaint for Damages, for breach of contract of carriage docketed as Civil Case No. 3807 before Branch 32 of the Regional Trial Court of Surigao del Norte in Surigao City. But the said complaint was dismissed for lack of merit. 3 On September 20, 1993, petitioner interposed an appeal to the Court of Appeals, which came out with a Decision, on July 25, 1995, upholding the dismissal of the case. On May 22, 1996, petitioner came to this Court via the Petition for Review under consideration. The issues raised for resolution are: (1) Whether or not the act of the PAL agents in confirming subject ticket extended the period of validity of petitioner's ticket; (2) Whether or not the defense of lack of authority was correctly ruled upon; and (3) Whether or not the denial of the award for damages was proper. cdphil To rule on the first issue, there is a need to quote the findings below. As a rule, conclusions and findings of fact arrived at by the trial court are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons. 4 The facts of the case as found by the lower court 5 are, as follows: "The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant) provides that it is not valid after March 27, 1990. (Exhibit 1-F). It is also stipulated in paragraph 8 of the Conditions of Contract (Exhibit 1, page 2) as follows: "8.This ticket is good for carriage for one year from date of issue, except as otherwise provided in this ticket, in carrier's tariffs, conditions of carriage, or related regulations. The fare for carriage hereunder is subject to change prior to commencement of carriage. Carrier may refuse transportation if the applicable fare has not been paid." 6 The question on the validity of subject ticket can be resolved in light of the ruling in the case of Lufthansa vs. Court of Appeals 7 . In the said case, the Tolentinos were issued first class tickets on April 3, 1982, which will be valid until April 10, 1983. On June 10, 1982, they changed their accommodations to economy class but the replacement tickets still contained the same restriction. On May 7, 1983, Tolentino requested that subject tickets be extended, which request was refused by the petitioner on the ground that the said tickets had already expired. The non-extension of their tickets prompted the Tolentinos to bring a complaint for breach of contract of carriage against the petitioner. In ruling against the award of damages, the Court held that the "ticket constitute the contract between the parties. It is axiomatic that when the terms are clear and leave no doubt as to the intention of the contracting parties, contracts are to be interpreted according to their literal meaning." prcd In his effort to evade this inevitable conclusion, petitioner theorized that the confirmation by the PAL's agents in Los Angeles and San Francisco changed the compromise agreement between the parties. As aptly ruled by the appellate court: ". . . on March 23, 1990, he was aware of the risk that his ticket could expire, as it did, before he returned to the Philippines.' (pp. 320-321, Original Records)" 8 "The question is: 'Did these two (2) employees, in effect, extend the validity or lifetime of the ticket in question? The answer is in the negative. Both had no authority to do so. Appellant knew this from the very start when he called up the Legal Department of appellee in the Philippines before he left for the United States of America. He had first hand knowledge that the ticket in question would expire on March 27, 1990 and that to secure an extension, he would have to file a written request for extension at the PAL's office in the Philippines (TSN, Testimony of Nicholas Cervantes, August 2, 1991, pp. 20-23). Despite this knowledge, appellant persisted to use the ticket in question." 9 From the aforestated facts, it can be gleaned that the petitioner was fully aware that there was a need to send a letter to the legal counsel of PAL for the extension of the period of validity of his ticket. Since the PAL agents are not privy to the said Agreement and petitioner knew that a written request to the legal counsel of PAL was necessary, he cannot use what the PAL agents did to his advantage. The said agents, according to the Court of Appeals, 10 acted without authority when they confirmed the flights of the petitioner. Under Article 1898 11 of the New Civil Code, the acts of an agent beyond the scope of his authority do not bind the principal, unless the latter ratifies the same expressly or impliedly. Furthermore, when the third person (herein petitioner) knows that the agent was acting beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the said third person is aware of such limits of authority, he is to blame, and is not entitled to recover damages from the agent, unless the latter undertook to secure the principal's ratification. 12 Anent the second issue, petitioner's stance that the defense of lack of authority on the part of the PAL employees was deemed waived under Rule 9, Section 2 of the Revised Rules of Court, is unsustainable. Thereunder, failure of a party to put up defenses in their answer or in a motion to dismiss is a waiver thereof. llcd Petitioner stresses that the alleged lack of authority of the PAL employees was neither raised in the answer nor in the motion to dismiss. But records show that the question of whether there was authority on the part of the PAL employees was acted upon by the trial court when Nicholas Cervantes was presented as a witness and the depositions of the PAL employees, Georgina M. Reyes and Ruth Villanueva, were presented. The admission by Cervantes that he was told by PAL's legal counsel that he had to submit a letter requesting for an extension of the validity of subject tickets was tantamount to knowledge on his part that the PAL employees had no authority to extend the validity of subject tickets and only PAL's legal counsel was authorized to do so. However, notwithstanding PAL's failure to raise the defense of lack of authority of the said PAL agents in its answer or in a motion to dismiss, the omission was cured since the said issue was litigated upon, as shown by the testimony of the petitioner in the course of trial. Rule 10, Section 5 of the 1997 Rules of Civil Procedure provides: "Sec. 5. Amendment to conform or authorize presentation of evidence. When issues not raised by the pleadings are tried with express or implied consent of the parties, as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the

Agency Part F: Limitations (Art. 1894 - 1898) 53 ` evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure to amend does not affect the result of the trial of these issues. . . . " LLphil Thus, "when evidence is presented by one party, with the express or implied consent of the adverse party, as to issues not alleged in the pleadings, judgment may be rendered validly as regards the said issue, which shall be treated as if they have been raised in the pleadings. There is implied consent to the evidence thus presented when the adverse party fails to object thereto." 13 Re: the third issue, an award of damages is improper because petitioner failed to show that PAL acted in bad faith in refusing to allow him to board its plane in San Francisco. In awarding moral damages for breach of contract of carriage, the breach must be wanton and deliberately injurious or the one responsible acted fraudulently or with malice or bad faith. 14 Petitioner knew there was a strong possibility that he could not use the subject ticket, so much so that he bought a back-up ticket to ensure his departure. Should there be a finding of bad faith, we are of the opinion that it should be on the petitioner. What the employees of PAL did was one of simple negligence. No injury resulted on the part of petitioner because he had a back-up ticket should PAL refuse to accommodate him with the use of subject ticket. Neither can the claim for exemplary damages be upheld. Such kind of damages is imposed by way of example or correction for the public good, and the existence of bad faith is established. The wrongful act must be accompanied by bad faith, and an award of damages would be allowed only if the guilty party acted in a wanton, fraudulent, reckless or malevolent manner. 15 Here, there is no showing that PAL acted in such a manner. An award for attorney's fees is also improper. LLjur WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals dated July 25, 1995 AFFIRMED in toto. No pronouncement as to costs. SO ORDERED. Romero and Gonzaga-Reyes, JJ., concur. Vitug, J.,is abroad on official business. Panganiban, J., is on leave