Philippine National Bank v.

Agudelo y Gonzaga
FACTS: Philippine National Bank (PNB), while the defendant-appellant
is Paz Agudelo y Gonzaga. The case originated from the Court of First
Instance of Occidental Negros, which rendered a judgment absolving
Mauro A. Garrucho from the complaint and ordering Paz Agudelo y
Gonzaga to pay PNB a sum of P31,091.55 plus interest, attorney's fees,
and costs. The court also ordered the sale of mortgaged properties if
the amount was not paid within three months. The case revolves around
loans obtained by Mauro A. Garrucho, who acted as an agent for his
aunt, Paz Agudelo y Gonzaga, and his sister, Amparo A. Garrucho. Mauro
executed promissory notes and mortgages in his personal capacity,
using properties belonging to his principals as security. The lower
court's decision was appealed by Paz Agudelo y Gonzaga, who argued
that she should not be held liable for the loans obtained by Mauro.
Issue :
1. Is Paz Agudelo y Gonzaga liable for the loans obtained by Mauro A.
Garrucho from the Philippine National Bank, secured by mortgages on
her properties?
2. Did Mauro A. Garrucho have the authority to obtain loans and
mortgage properties belonging to his principals?
3. Can the intention of the parties override the explicit terms of the
contract?
Ruling:
The Supreme Court ruled that Paz Agudelo y Gonzaga is not liable for
the loans obtained by Mauro A. Garrucho. The liability contracted by
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. However, since Mauro A. Garrucho was absolved from
the complaint and PNB did not appeal the judgment, Paz Agudelo y
Gonzaga cannot be held liable. The complaint against her was
dismissed, with costs against the appellee, PNB.
Ratio:
The court's decision was based on several legal principles. Firstly,
under Article 1709 of the Civil Code, an agent binds himself to render
some service or do something for the account or at the request of
another. Article 1717 further clarifies that when an agent acts in his
own name, the principal has no right of action against the persons
with whom the agent has contracted, and the agent is directly liable.
The court found that Mauro A. Garrucho acted in his personal capacity,
without express authority from his principals, and thus the
obligations he contracted were personal and did not bind his
principals. The court also noted that the special powers of attorney
given to Mauro did not authorize him to obtain loans or mortgage
properties to secure his obligations. Additionally, the court
emphasized the legal principle "delegata potestas delegare non
potest," meaning a delegated power cannot be delegated, which Mauro
violated by appointing PNB as his attorney in fact. The court also
rejected the argument that the intention of the parties should prevail
over the explicit terms of the contract, citing that the intention
must be clear and unequivocal, which was not the case here. Finally,
the court concluded that the only liability of Paz Agudelo y Gonzaga
was subsidiary and limited to the lien on lot No. 878, and since the
principal obligor was absolved, she could not be held liable.

Philippine Products Company vs. Primateria Societe Anonyme Pour Le

Commerce Exterieur
FACTS :
On October 24, 1951, Primateria Societe Anonyme Pour Le Commerce
Exterieur (Primateria Zurich), a foreign juridical entity based in
Zurich, Switzerland, entered into an agreement with Philippine
Products Company. Under this agreement, the Philippine Products
Company was tasked with buying copra in the Philippines for Primateria
Zurich. This initially “tentative, experimental period” deal lasted
one month but was subsequently extended to February 24, 1952, and then
further extended into 1953. Throughout this period, Philippine
Products Company arranged for the shipment of copra to various foreign
countries as instructed by Primateria Zurich through its local arm,
Primateria (Philippines) Inc. (Primateria Philippines), represented by
Alexander G. Baylin and Jose M. Crame.

As of May 30, 1955, Philippine Products Company was owed P33,009.71 by

Primateria Zurich for these transactions, of which P2,000.00 was later
paid, reducing the outstanding debt to P31,009.71. The funds were due
for copra shipments conducted under the direction of Primateria Zurich
through its agents in the Philippines. Primateria Zurich, however, did
not hold the necessary license to transact business in the
Philippines.

When Primateria Zurich failed to respond within the legally specified

period, it was declared in default, and the Manila court of first
instance ruled in favor of Philippine Products Company. This court
found Primateria Zurich liable for P31,009.71 with legal interest from
the date of filing the complaint and P2,000.00 for attorney’s fees. It
absolved the local agents (Primateria Philippines, Alexander G.
Baylin, and Jose M. Crame) from liability. Philippine Products Company
appealed, seeking to hold these local agents personally liable as
well.
ISSUE :
1. Whether Primateria Zurich qualifies as a foreign corporation under
Sections 68 and 69 of the Corporation Law.
2. If so, whether it has transacted business in the Philippines
without the necessary license.
3. Whether the local agents of such a foreign corporation can be held
personally liable for contracts executed on behalf of their principal
(Primateria Zurich).

RULING :
1. The Supreme Court found that the lower court correctly ruled in not
recognizing Primateria Zurich definitively as a “foreign corporation”
under Sections 68 and 69 of the Corporation Law. The distinction
between a “societe anonyme” and a corporation was significant to the
decision. Therefore, Primateria Zurich did not fall within the purview
If the Corporation Law’s regulations for foreign corporations.
2. The Supreme Court did not find it necessary to rule on whether
Primateria Zurich transacted business in the Philippines without a
license because the key distinction between a “societe anonyme” and a
corporation exempted Primateria Zurich from such classification under
local law.
3. The Court held that the agents of Primateria Zurich were not
personally liable under the New Civil Code, Art. 1897 because there
was no evidence that the agents (Baylin and Crame) exceeded their
authority or committed personal wrongdoing while acting on behalf of
Primateria Zurich. The principal owed the debt and acknowledged the
same without questions arising from agent misconduct.
RATIO :
Primateria Zurich was not classified as a foreign corporation under
Sections 68 and 69 of the Corporation Law, given the legal distinction
between a corporation and a “societe anonyme.” Under Art. 1897 of the
New Civil Code, agents acting within their authority and without
overstepping their bounds do not incur personal liability for their
principal’s obligations.
– **Foreign Corporations**: Defined under Sections 68 and 69 of the
Corporation Law, require a license to transact business in the
Philippines.
– **Agency Law**: According to Art. 1897 of the New Civil Code, agents
are not personally liable in contracts undertaken within their
authority unless otherwise explicitly stipulated.
The case exemplifies the regulatory framework governing foreign
businesses’ operations in the Philippines post-World War II. At its
core, it addresses the responsibilities of representatives of foreign
entities operating without proper licensing, as well as the
implications of specific local corporate laws on international
business relations. This case underscores the importance for foreign
firms in understanding and adhering to local business regulations to
avoid liabilities and legal conflicts. It highlights the evolution of
legal distinctions between different types of business entities and
their impact on liability and agency law.

NPC VS NATIONAL MERCHANDISING

The case involves the National Power Corporation (NPC) and National
Merchandising Corporation (NAMERCO), the latter being the Philippine
representative of the New York-based International Commodities
Corporation. On October 17, 1956, NPC and NAMERCO executed a contract
for the sale of 4,000 long tons of crude sulfur, with a stipulation
for liquidated damages in case of breach. NAMERCO did not disclose to
NPC that its principal had instructed that the sale was subject to the
availability of a steamer. Contrary to these instructions, NAMERCO
agreed that non-availability of a steamer would not justify non-
payment of liquidated damages. The New York supplier failed to deliver
the sulfur due to an inability to secure shipping space. Consequently,
NPC's fertilizer production was disrupted. The Government Corporate
Counsel rescinded the contract and demanded liquidated damages from
NAMERCO and its surety, the Domestic Insurance Company of the
Philippines. NPC sued for recovery of liquidated damages. The Court of
First Instance of Manila ordered the defendants to pay reduced
liquidated damages with interest. Both parties appealed the decision.

Issues:
1. Is NAMERCO liable for liquidated damages under the contract despite
exceeding its authority?
2. Should the stipulation for liquidated damages be enforced against
NAMERCO and its surety?
3. Is NPC entitled to the full amount of liquidated damages stipulated
in the contract?
4. Should interest be imposed on the liquidated damages awarded to NPC
Ruling:
1. Yes, NAMERCO is liable for liquidated damages.
2. Yes, the stipulation for liquidated damages is enforceable against
NAMERCO and its surety.
3. No, NPC is not entitled to the full amount of liquidated damages;
the amount was further reduced to P45,100.
4. No, interest should not be imposed on the liquidated damages due to
the delay in the disposition of the case.
RATIO:
The Supreme Court held that NAMERCO is liable for damages under
Article 1897 of the Civil Code, which states that an agent who exceeds
the limits of his authority without notifying the other party is
personally liable. NAMERCO did not disclose the limitations of its
authority to NPC and agreed to terms contrary to its principal's
instructions, effectively acting in its own name. The contract's
stipulation for liquidated damages was enforceable against NAMERCO and
its surety because the agent acted beyond its authority. The Court
found it inequitable to impose interest on the damages due to the
prolonged delay in the case's resolution, which was not the fault of
the defendants. The Court also determined that NPC suffered actual
damages due to the disruption in fertilizer production, justifying the
award of liquidated damages. However, the amount was reduced to
P45,100, equivalent to the bidder's bond, as the original amount was
deemed iniquitous and unconscionable given the circumstances.
EUGENIO VS CA
FACTS:
Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc
Petitioner Nora S. Eugenio was a dealer of the soft drink products of
private respondent corporation Eugenio had a regular charge account in
both the Quezon City plant (under the name "Abigail Minimart as well
as in the Muntinlupa plant (under the name "Nora Store") of
respondent corporation. private respondent filed a complaint for a sum
of money against petitioners Nora S. Eugenio and Alfredo Y. Eugenio of
the then Court of First Instance of Quezon City. in its complaint,
respondent corporation alleged petitioners purchased and received on
credit various products from its Quezon City plant. petitioners
allegedly had an outstanding balance of P20,437.40 therein petitioners
supposedly had an outstanding balance of P38,357.20 there. In
addition, it was claimed that petitioners had an unpaid obligation for
the loaned "empties" from the same plant in the amount of P35,856.40
as of July 11, 1980.
Altogether, petitioners had an outstanding account of P94,651.00
which, so the complaint alleged, they failed to pay despite oral and
written demands petitioners presented four trade provisional receipts
(TPRs) allegedly issued to and received by them from private
respondent's Route Manager Jovencio Estrada showing payments in the
total sum of P80,500.00 made by Abigail's Store. Petitioners contended
that had the amounts in the TPRs been credited in their favor, they
would not be indebted to Pepsi-Cola. petitioners maintain that the
signature purporting to be that of petitioner Nora S. Eugenio in Sales
Invoice No. 85366 dated May 15, 1980 in the amount of P5,631.00 which
was included in the computation of their alleged debt, is a
falsification. In sum, petitioners argue that if the aforementioned
amounts were credited in their favor, it would be respondent
corporation which would be indebted to them in the sum of P3,546.02
representing overpayment.the court rendered a decision ordering
petitioners, as defendants therein to jointly and severally pay
private respondent the amount of P74,849.00, plus 12% interest per
annum until the principal... amount shall have been fully paid, as
well as P20,000.00 as attorney's fees On appeal in CA the Court of
Appeals declared said decision a nullity for failure to comply with
the requirement in Section 14, Article VIII of the 1987 Constitution
The Court of Appeals accordingly remanded the records of the case to
the trial court, directing it to render another decision in accordance
with the requirements of the Constitution
In compliance with the directive of the Court of Appeals, the lower
court rendered a second decision... n this new decision, petitioners
were this time ordered to pay, jointly and severally, the reduced
amount of P64,188.60, plus legal interest of 6% per annum from the
filing of the action until full payment of the amount adjudged
On appeal therefrom, the Court of Appeals affirmed the judgment of the
trial court in a decision promulgated
It appears that on August 1, 1981, private respondent through the head
of its Legal Department, Atty. Antonio N. Rosario, sent an inter-
office correspondence to petitioner Alfredo Eugenio inviting him for
an interview/interrogation on August 3, 1981 regarding alleged "non-
payment of debts to the company, inefficiency, and loss of trust and
confidence." A reconciliation of petitioners' account was then
conducted. The liability of petitioners as to the loaned empties
(Muntinlupa plant, Nora Store) was reduced to P21,686.00 after a
reevaluation of the value of the loaned empties. After the meeting,
private respondent alleged that petitioner Alfredo Y. Eugenio
requested that he be allowed to retire and the existing accounts be
deducted from his retirement pay, but that he later withdrew his
retirement plan. Said petitioner disputed that allegation and, in
fact, he subsequently filed a complaint for illegal dismissal. With
their aforesaid accounts still unpaid, petitioner Alfredo Y. Eugenio
submitted to Atty. Rosario the aforementioned four TPRs. Thereafter,
Atty. Rosario Azurin, assistant personnel manager, to conduct an
investigation to verify this claim of petitioners.
According to Azurin, during the investigation Estrada allegedly denied
that he issued and signed the aforesaid TPRs. He also presented a
supposed affidavit which Estrada allegedly executed during that...
investigation to affirm his verbal statements therein. Surprisingly,
however, said supposed affidavit is inexplicably dated February 5,
1982
Issues:
WON the amounts in the aforementioned trade provisional receipts
should be credited in favor of herein petitioner spouses.
Ruling:
The next inquiry then would be as to what exactly is the nature of the
TPRs insofar as they are used in the day-to-day business transactions
of the company. These trade provisional receipts are bound and given
in booklets to the company sales representatives, under proper...
acknowledgment by them and with a record of the distribution thereof.
After every transaction, when a collection is made the customer is
given by the sales representative a copy of the trade provisional
receipt, that is, the triplicate copy or customer's copy, properly
filled up... to reflect the completed transaction. All unused TPRs, as
well as the collections made, are turned over by the sales
representative to the appropriate company officer. The TPRs presented
in evidence by petitioners are disputably presumed as evidentiary of
payments made on the account of petitioners Besides, even assuming
arguendo that herein private respondent's cashier never received the
amounts reflected in the TPRs, still private respondent failed to
prove that Estrada, who is its duly authorized agent with respect to
petitioners, did not receive... those amounts from the latter. As
correctly explained by petitioners, "in so far as the private
respondent's customers are concerned, for as long as they pay their
obligations to the sales representative of the private respondent
using the latter's official receipt, said payment extinguishes their
obligations. The substantive law is that payment shall be made to the
person in whose favor the obligation has been constituted, or his
successor-in-interest or any person authorized to receive it.
As far as third persons are concerned, an act is deemed to have been
performed within the scope of the agent's authority, if such is within
the terms of the power of attorney, as written, even if the agent has
in fact exceeded the limits of his authority according to an
understanding between the principal and his... agent. In fact, Atty.
Rosario, private respondent's own witness, admitted that "it is the
responsibility of the collector to turn over the collection.
WHEREFORE, the judgment of respondent Court of Appeals in C.A. G.R. CV
No. 26901, affirming that of the trial court in Civil Case No. Q-
34718, is ANNULLED and SET ASIDE.
CERVANTES VS CA
FACTS:
Philippines Air Lines, Inc. (PAL), issued to the herein petitioner,
Nicholas Cervantes (Cervantes), a round trip plane ticket for Manila-
Honolulu-Los Angeles-Honolulu-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... 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
Upon learning that the same PAL plane would make a stop-over in San
Francisco... petitioner made arrangements with PAL for him to board
the flight in San Francisco instead of boarding in Los Angeles. 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."...
petitioner Cervantes filed a Complaint for Damages, for breach of
contract of carriage... dismissed for lack of merit. petitioner
interposed an appeal to the Court of Appeals upholding the dismissal
of the case. petitioner came to this Court via the Petition for
Review under consideration.
Issues:
Whether or not the act of the PAL agents in confirming subject ticket
extended the period of validity of petitioner's ticket
Whether or not the defense of lack of authority was correctly ruled
upon
Whether or not the denial... of the award for damages was proper.
Ruling:
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 . In
the said case, 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."
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.
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, 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.
Anent the second issue
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.
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.

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. Here, there is no showing that PAL acted
in such a manner. An award for attorney's fees is also improper.
Bank of the Philippine Islands and FGU Insurance Corporation vs.
Yolanda Laingo
FACTS :
This case exemplifies the evolving nature of banking and insurance
integration in the Philippines, particularly how savings accounts
coupled with insurance policies have introduced complex legal and
ethical situations. It depicts the judiciary’s role in balancing
contractual obligations with fairness and equity, especially when
dealing with unaware beneficiaries of insurance contracts.
This case revolves around a dispute concerning an insurance claim
following the demise of Rheozel Laingo, the son of Yolanda Laingo. On
20 July 1999, Rheozel opened a “Platinum 2-in-1 Savings and Insurance”
account with the Bank of the Philippine Islands (BPI), where
depositors were automatically covered by an insurance policy from FGU
Insurance Corporation (now BPI/MS Insurance Corporation), with Yolanda
Laingo named as the beneficiary. Rheozel tragically passed away in a
vehicular accident on 25 September 2000. Following his death, Yolanda,
through her secretary, inquired about his savings account to cover
funeral expenses, leading to a withdrawal of P995,000. It was not
until January 2003 that Rheozel’s family discovered the Personal
Accident Insurance Coverage Certificate, prompting Yolanda Laingo to
file a claim, which FGU denied due to the filing being beyond the
stipulated 90-day period. The case escalated through various legal
stages. Initially dismissed by the Regional Trial Court for being
filed beyond the prescribed 90-day period, Yolanda Laingo appealed the
decision. The Court of Appeals reversed the trial court’s ruling,
leading to this petition for review.
ISSUE : 1. Is Yolanda Laingo, the named beneficiary unaware of the
insurance contract, bound by the three-month claim filing deadline
from the time of the insured’s death?
RULING : The Supreme Court held that the petition lacks merit,
affirming the appellate court’s decision. The Court reasoned that as a
beneficiary unfamiliar with the insurance policy’s existence due to no
fault of her own, Yolanda Laingo could not be expected to comply with
the filing deadline. Since BPI failed to inform Laingo about the
insurance policy tied to her son’s savings account immediately after
his demise, it was deemed negligent. Consequently, BPI and FGU
Insurance are responsible for compensating Laingo for the actual
damages and attorney’s fees, alongside the insurance proceeds with
interest.
RATIO :
This decision reiterates the principle of agency and the duties of an
agent towards the principal and third parties. Specifically, it
emphasizes that agents must act in good faith and with due diligence
to avoid causing harm to the principal or third parties. Furthermore,
it underscores that contractual stipulations must be communicated to
all parties affected, especially in cases where benefits might be
claimed posthumously.
– **Agency**: Represents a relationship where one party (the agent) is
authorized to act on behalf of another (the principal).
– **Fiduciary Duty**: The duty of an agent to act in the best
interests of the principal, including the obligation of good faith and
loyalty.
– **1844 & 1887 of the Civil Code**: These articles cover the basis of
agency obligations, emphasizing the agent’s duty to fulfill the
agency’s goals and to act in accordance with the principal’s
instructions or, in their absence, with the care and diligence of a
good father of a family.