xviii. Art. 1909 liability for fraud and negligence.

Art. 1909. The agent is responsible not only for fraud, but also for negligence, which
shall be judged with more or less rigor by the courts, according to whether the
agency was or was not for a compensation. (1726)
Liability of agent for fraud and negligence/ intentional wrong.
(1) In the fulfillment of his obligation, the agent is responsible to the principal not
only for fraud (Art. 1171.) committed by him but also for negligence. (Art. 1172.) It
is his duly to notify the principal of all relevant and material facts or any information
having a bearing on the interests of the principal (e.g., a debtor who owes the
principal a substantial amount of money is about to sell his property) as soon as
reasonably possible after learning them. The circumstance that the agency is or is
not gratuitous will be considered by the courts in fixing the liability of the agent for
negligence (not fraud). Agency is presumed to be for compensation. (Art. 1875.)
It has been held that the failure of a sub-agent with whom fi lm has been left for
safekeeping to insure against loss by fi re does not constitute negligence or fraud on
its part when it has received no instruction to that effect from its principal, the
insurance of the film not forming part of the obligation imposed upon it by law.
(International Films vs. Lyric Film Exchange, 63 Phil. 778 [1936].) But the agent is
liable when he does not discharge the agency with due promptness, or according to
the instructions of his principal, or within the limits of his authority, or when he does
not make use of the powers conferred on him. (11 Manresa 541-542.)
(2) Quasi-delict or tort may be committed by act or omission. If it causes damage to
another, there being fault or negligence, the guilty party is liable for the damage
done. (Art. 2176.) Article
1909 speaks of negligence (simple carelessness). The agent, to be sure, is also
liable for torts committed willfully. As a general, rule, the principal is not responsible
if the agents tort was intentional rather than merely negligent. The reason is that
an intentional wrong committed by one employed is more likely motivated by
personal reasons than by a desire to serve or benefit his employer. The principal is
solidarily liable if the tort was committed by the agent while performing his duties in
furtherance of the principals business.
- Metropolitan Bank Trust Co. vs. CA, 194 SCRA 169 (1991);

Metropolitan Bank & Trust Company vs Court of Appeals 194 SCRA 169;
1991
Facts: Philippine Fish Marketing Authority drawn and purportedly signed by its
General Manager 38 treasury warrants amounting to P1,755,228.37.
Around January 1979, Eduardo Gomez opened an account with Golden Savings and
deposited said 38 treasury warrants for a period of 2 months. Six of these warrants
are payable to Gomez while 32 of these were subsequently endorsed by Gloria
Castillo (Cashier of Golden Savings) between 25 June 1979 and 16 July 1979 while
these were deposited on Golden Savings savings account in Metrobank. The

deposited accounts were sent for clearing which forwarded to the Bureau of
Treasury for special clearing.
For more than 2 weeks after the deposit, Gloria went to Metrobank to ask whether
the warrants had been cleared but was told to wait. Later, Metrobank decided to
allow Golden Savings to withdraw after repeated inquiry. Series of withdrawals was
made on July 9, July 13, and July 16 1979.
On 21 July 1979, Metrobank informed Golden Savings that 32 warrants had been
dishonored by the Bureau of Treasury on 19 July 1979. Metrobank demanded Golden
Savings the amount withdrawn but the demand was rejected.
Metrobank sued Golden Savings in the Regional Trial Court which rendered a
judgment in favor of the Golden Savings. Metrobank filed a motion for
reconsideration.
On 4 November 1986, the lower Court modified a part of its decision which is still in
favor of Golden Savings. Metrobank filed a petition for review.
Defenses of Metrobank:
1.
That the Golden Savings should have exercised more care in checking the
personal circumstances.
2.
That Metrobank was acting only as a collecting agent for Golden Savings and
give it the right to charge back to the depositors account any amount previously
credited whether or not such item is returned.
Issue: WON (b) Until such time as Metrobank is actually paid, its obligation is that of
a mere collecting agent which cannot be held liable for its failure to collect on the
warrants.
Held:
1.
It was Gomez who was entrusting the warrants, not the Golden Savings which
was extending him a loan; moreover, the treasury warrants were subject to clearing
which is pending that the depositor could not withdraw its proceeds yet.
There was no question of Gomezs identity or of the genuineness of his signature as
checked by Golden Savings. It is clear that Golden Savings acted with due care and
diligence and cannot be faulted for the withdrawals it allowed Gomez to make.
2.
in stressing that it was acting only as a collecting agent for Golden Savings,
Metrobank seems to suggest that as a mere agent, it cannot be liable to the
principal. This is not exactly true. On the contrary, Article 1909 of the Civil Code of
the Philippines clearly provides:

Art. 1909. The agent is responsible not only for fraud but also for negligence, which
shall be judged with more less rigor by the courts, according to whether the agency
was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for
emphasis, it was the clearance given by it that assured Golden Savings it was
already safe to allow Gomez to withdraw the proceeds of the treasury warrants he
had deposited Metrobank misled Golden Savings. There may have been no express
clearance, as Metrobank insists (although this is refuted by Golden Savings) but in
any case that clearance could be implied from its allowing Golden Savings to
withdraw from its account not only once or even twice but three times. The total
withdrawal was in excess of its original balance before the treasury warrants were
deposited, which only added to its belief that the treasury warrants had indeed
been cleared.
- Austria vs. CA, 39 SCRA 527;

G.R. No. L-29640 June 10, 1971

GUILLERMO AUSTRIA, petitioner, vs. THE COURT OF APPEALS (Second
Division), PACIFICO ABAD and MARIA G. ABAD, respondents.
Facts: In a receipt dated 30 January 1961, Maria G. Abad acknowledged having
received from Guillermo Austria one (1) pendant with diamonds valued at
P4,500.00, to be sold on commission basis or to be returned on demand. On 1
February 1961, however, while walking home to her residence in Mandaluyong,
Rizal, Abad was said to have been accosted by two men, one of whom hit her on the
face, while the other snatched her purse containing jewelry and cash, and ran away.
Among the pieces of jewelry allegedly taken by the robbers was the consigned
pendant. The incident became the subject of a criminal case filed in the Court of
First Instance of Rizal against certain persons (Criminal Case No. 10649, People vs.
Rene Garcia, et al.).
As Abad failed to return the jewelry or pay for its value notwithstanding demands,
Austria brought in the Court of First Instance of Manila an action against her and her
husband for recovery of the pendant or of its value, and damages. Answering the
allegations of the complaint, defendants spouses set up the defense that the
alleged robbery had extinguished their obligation.
Issue: whether in a contract of agency (consignment of goods for sale) it is
necessary that there be prior conviction for robbery before the loss of the article
shall exempt the consignee from liability for such loss.
Held: It was held that defendants failed to prove the fact of robbery, or, if indeed it
was committed, that defendant Maria Abad was guilty of negligence when she went
home without any companion, although it was already getting dark and she was

carrying a large amount of cash and valuables on the day in question, and such
negligence did not free her from liability for damages for the loss of the jewelry.
It is recognized in this jurisdiction that to constitute a caso fortuito that would
exempt a person from responsibility, it is necessary that (1) the event must be
independent of the human will (or rather, of the debtor's or obligor's); (2) the
occurrence must render it impossible for the debtor to fulfill the obligation in a
normal manner; and that (3) the obligor must be free of participation in or
aggravation of the injury to the creditor. 1 A fortuitous event, therefore, can be
produced by nature, e.g., earthquakes, storms, floods, etc., or by the act of man,
such as war, attack by bandits, robbery, 2 etc., provided that the event has all the
characteristics enumerated above.
It is not here disputed that if respondent Maria Abad were indeed the victim of
robbery, and if it were really true that the pendant, which she was obliged either to
sell on commission or to return to petitioner, were taken during the robbery, then
the occurrence of that fortuitous event would have extinguished her liability. The
point at issue in this proceeding is how the fact of robbery is to be established in
order that a person may avail of the exempting provision of Article 1174 of the new
Civil Code, which reads as follows:
ART. 1174. Except in cases expressly specified by law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could not
be foreseen, or which, though foreseen, were inevitable.
It may be noted the reform that the emphasis of the provision is on the events, not
on the agents or factors responsible for them. To avail of the exemption granted in
the law, it is not necessary that the persons responsible for the occurrence should
be found or punished; it would only be sufficient to established that the enforceable
event, the robbery in this case did take place without any concurrent fault on the
debtor's part, and this can be done by preponderant evidence. To require in the
present action for recovery the prior conviction of the culprits in the criminal case,
in order to establish the robbery as a fact, would be to demand proof beyond
reasonable doubt to prove a fact in a civil case.
It is undeniable that in order to completely exonerate the debtor for reason of a
fortutious event, such debtor must, in addition to the cams itself, be free of any
concurrent or contributory fault or negligence. 3 This is apparent from Article 1170
of the Civil Code of the Philippines, providing that:
ART. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof,
are liable for damages.

It is clear that under the circumstances prevailing at present in the City of Manila
and its suburbs, with their high incidence of crimes against persons and property
that renders travel after nightfall a matter to be sedulously avoided without suitable
precaution and protection, the conduct of respondent Maria G. Abad, in returning
alone to her house in the evening, carrying jewelry of considerable value would be
negligent per se and would not exempt her from responsibility in the case of a
robbery. We are not persuaded, however, that the same rule should obtain ten years
previously, in 1961, when the robbery in question did take place, for at that time
criminality had not by far reached the levels attained in the present day.
- International Films [China] vs. Lyric Film Exchange, 63 Phil. 778.
D.

Liabilities

i. To third persons - Art. 1897; 1902, 1910

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
powers. (1725)
Duties and liabilities of agent to third persons.
The rule is that the principal is responsible for the acts of the agent done within the
scope of his authority and should bear any damage caused to third persons. (see
Art. 1910.) The agent acquires no rights whatsoever, nor does he incur any liabilities
arising from the contract entered into by him on behalf of his principal.
(1) In general. The duties of an agent to third persons and his corresponding
liabilities must be considered with reference to the character of his act as to
whether it is authorized or unauthorized, and also with reference to the nature of
liability which it sought to assert as being in contract or in tort. The agent is liable to
third persons for his torts which result in an injury to the third person.
(2) Unauthorized assumption of agency. One who unauthorizedly assumes to act
for another is guilty of a wrong, and is liable for the damage to those dealing with
him in reliance on his
assumed authority in that they are deprived of the benefit of the responsibility of
the principal. Indeed, the assumed agent, by his act, impliedly warrants or
represents that he has authority, thereby predicating liability for the damage
sustained. This implied warranty and its accompanying liability is not confined
merely to the making of contracts but extends to all unauthorized acts perpetrated
in his assumed agency.
Of course, if no damages have been sustained, no liability for the agents false
assumption of authority exists.
(3) Nature of liability. A purported agent will be held personally liable as principal
on a contract executed without authority if the contract contains apt words to bind
him personally, or if such was the intention of the parties. However, in the absence
of an apt expression or intention, the nature of his liability is the subject of some
divergence in judicial opinion.
(a) In some jurisdictions, in the absence of statute, the purported agent is held
liable as principal on the contract itself, based, it has been said, on the theory that

since the contract was intended to bind someone, it must necessarily bind the
purported agent even if the principal is unaffected.
(b) According to the weight of authority, the purported agent is not liable on the
contract itself, for the reason that there has been no intention to bind the agent and
to hold that he is bound would, in effect, create a new contract for the parties.
Under the majority rule, liability of the purported agent, dependent on the facts of
the particular case, is predicated on a breach of an implied warranty or promise of
authority, or in tort for deceit or misrepresentation. Of course, when governed by
statute, the purported agent, according to its provisions, will be held liable on the
contract itself, or for breach of the implied warranty of authority. (see 3 C.J.S. 115116.) It has been held that one who signed receipt as a witness with the word
agent typed below his signature, but never received the alleged amount or
anything on account of the subject transaction, is not liable. (Caoile vs. Court of
Appeals, 226 SCRA 658 [1993].)
(4) Tort cases. Agency is no defense to action against an agent based upon
commission of tort, his liability being neither increased nor decreased by the fact of
his agency. If the tort is committed by the agent within the scope of his authority
(see discussion on this matter under Art. 1910.), both the principal and the agent
are liable. It is no defense by the agent that the benefit obtained by the tort has
been turned over to the principal. (Teller, op. cit., p. 204, citing Boshino vs. Cook, 67
N.J.L. 467.)
(5) Where duty violated owed solely to principal. An agent is liable to third
persons for injury resulting from his misfeasance or malfeasance, meaning by these
terms, the breach of a duty owed to third persons generally independent of the
particular duties imposed by his agency. But an agent is generally not responsible to
third persons for injury resulting from nonfeasance, meaning by that term, the
omission of the agent to perform a duty owed solely to his principal by reason of his
agency. (2 C.J.S. 499-500.)
So, if the wrong done by the agent in the performance of his duties devolves upon
him purely from his agency, he is not responsible for the resulting injury to third
persons. Thus, it has been held that an agent is not liable to a third person for
failure to give his principal notice of facts communicated to him by the third person.
(Reid vs. Humber, 49 Ga. 207.) An agent cannot, as such, be subject to any
obligations toward third persons other than those of his principal. Those duties are
not imposed upon him by law. He has agreed with no one except his principal to
perform them. In failing to do so, he wrongs no one but the principal, who alone can
hold him responsible. (Delaney vs. Rochereau, 34 La. Ann. 1123, cited in Teller, p.
205.)
When agent may incur personal liability.
An agent who acts as such within the scope of his authority represents the principal
so that his contract is really the principals.
Hence, the agent is not personally liable to the party with whom he contracts unless
he expressly binds himself or he exceeds the limits of his authority without giving
such party sufficient notice of his powers or by his acts he incurs the liabilities of a
principal under the contract. A suit against an agent cannot, without compelling
reasons, be considered a suit against the principal.
(1) When the agent expressly binds himself
(2) When the agent exceeds his authority
(3) When an agent by his act prevents performance on the part of the principal

(4) When a person acts as an agent without authority or without a principal

(5) A person who purports to act as agent of an incapacitated principal
Art. 1902. A third person with whom the agent wishes to contract on
behalf of the principal may require the presentation of the power of
attorney, or the instructions as regards the agency. Private or secret
orders and instructions of the principal do not prejudice third persons who
have relied upon the power of attorney or instructions shown them. (n)
Presentation of power of attorney or instructions as regards agency.
As a rule, a third person deals with an agent at his peril.
Hence, he is bound to inquire as to the extent of the agents authority, and this is
especially true where the act of the agent is of an unusual nature.
Ignorance of the agents authority is no excuse. So, it is his duty to require the
agent to produce his power of attorney to ascertain the scope of his authority. He
may also ask for the instructions of the principal. (Art. 1887.)
Third person not bound by principals private instructions.
While the third person is chargeable with knowledge of the terms of the power of
attorney as written and the instructions disclosed to him, he is not bound and
cannot be affected by the private or secret orders and instructions of the principal in
the same way that he cannot be prejudiced by any understanding between the
principal and the agent. (Art. 1900.) Such secret orders or instructions cannot be
invoked as against third parties if the agent has apparent authority.
Art. 1910. The principal must comply with all the obligations which the
agent may have contracted within the scope of his authority.
Obligations, in general, of principal to agent.
Since an agency is essentially a contractual and consensual relationship between
the principal and the agent, the duties and liabilities of the principal are primarily
based upon the contract and the validity of the contract between them. In addition
to his contractual duties, the principal is under an obligation to deal fairly and in
good faith with his agent (3 C.J.S. 63-64.) who owes the same duty to his principal.
The agency relationship is a fiduciary one. The specific obligations of the parties to
each other enumerated in the law are merely specific applications of the general
fiduciary obligation.
The primary obligation of the principal to the agent is simply that of complying with
the terms of their employment contract, if one exists. The principal may be justified
in refusing to perform his part of the contract when the agent has already breached
the contract.
Specific obligations of principal to agent.
The contract creating the agency normally defines the specific obligations or duties
of the principal to an agent. In the absence of express agreement, the law imposes
upon the principal certain obligations to his agent, among which are the following:
(1) To comply with all the obligations which the agent may have contracted within
the scope of his authority (Arts. 1910, 1881, 1897.) and in the name of the principal
(Arts. 1868, 1883.);
(2) To advance to the agent, should the latter so request, the sums necessary for
the execution of the agency (Art. 1912.);

(3) To reimburse the agent for all advances made by him, provided the agent is free
from fault (Ibid.);
(4) To indemnify the agent for all the damages which the execution of the agency
may have caused the latter without fault or negligence on his part (Art. 1913.); and
(5) To pay the agent the compensation agreed upon, or if no compensation was
specified, the reasonable value of the agents services. (Arts. 1875, 1306.)
Liability of principal to third persons.
(1) General rule. It may be stated as a general rule that where the relation of
agency legally exists, the principal will be liable to third persons for all acts
committed by the agent and obligations contracted by him in the principals behalf
in the course and within the actual (express or implied) or apparent scope of his
authority, and should bear the damage caused to third persons. This responsibility
is not altered by the fact that the agent also may be liable, nor by the fact that
some of the acts are to the principals advantage while others are to his
disadvantage. The principal becomes liable to the third party when he ratifies an
authorized act of his agent.
(2) Reason for liability. A principal is liable for the acts of his agent within his
express authority because the act of such agent is the act of the principal. Where
the agent acts within the scope of the authority which the principal holds himself
out as possessing, or knowingly permits him to assume, the principal is made
responsible, because to permit him to dispute the authority of the agent in such a
case would be to enable him to commit a fraud upon innocent third parties.
(3) Estoppel to deny. The principal is bound by the act of his agent when he has
placed the agent in such position that persons of ordinary prudence are thereby led
to believe and assume that the agent is possessed of certain authority, and to deal
with him in reliance on such assumption. The rule that the principal is responsible
for the acts of his agent within the apparent scope of his authority applies only
where the principal is responsible for such appearance of authority. (3 C.J.S. 138142.) A registered owner who places in the hands of another an executed document
of transfer of registered land effectively represents to a third party that the holder of
such document is authorized to deal with the property. (Blondeau vs. Nano, 61 Phil.
625 [1935]; Domingo vs. Robles, 453 SCRA 812 [2005].)
An agency by estoppel may involve the expansion of the authority given to a
designated agent or create authority in the alleged agent though not actually
granted. (see Art. 1911.) The principal is bound by either the actual (express or
implied) or apparent authority of the agent. Thus, it has been held that if a bank
could give the authority to sell to a licensed broker, there is no reason to doubt the
authority to sell of two of the banks vice-presidents (with whom the broker finalized
the details of the contract to sell) whose precise job in the bank was to manage and
administer its real estate property. (Limketkai Sons Milling, Inc. vs. Court of Appeals,
250 SCRA 523 [1995].) A bank is liable to innocent third persons where
representation is made in the course of its normal business by an agent even
though such agent abused his authority. (Rural Bank of Milaor vs. Ocfemia, 325
SCRA 99 [2000].)
(4) Waiver of claim against principal. Since it is the principal who should be
answerable for the obligation arising from the agency, it is obvious that if a third
person waives his claims against the principal, he cannot assert them against the
agent.

(Bedia vs. White, 204 SCRA 273 [1991].)

(5) Agency from necessity or by operation of law. An agency from necessity is
created, or the ordinary powers of an agent may be enlarged, when an emergency
occurs and an employee or an agent is unable to get in touch with his employer.
The agency from necessity doctrine has been most frequently applied, although it
in no wise so limited, to accidents. It is generally held that the highest ranking
agent or employee on the scene is authorized to employ physicians or surgeons for
immediate medical services in behalf of the company.
The authority is limited to the necessity and ceases to exist when the emergency
has passed. (Wyatt & Wyatt, p. 237, citing Vandalia vs. Ryan, 110 N.E. 218 [Ind.,
1915].)
Liability of third persons to principal.
An agent is the instrumentality of the principal whose primary design is to obtain
rights against third parties. The principals rights are the third parties liabilities.
(1) In contract. A third person is liable to the principal upon contracts entered into
by his agent, in the same manner as though the contract were entered into by the
principal himself.
This proposition results from the representative nature of agency.
The relationship of the third party to the principal is the same as that in a contract
in which there is no agent.
(a) It follows that the third party may not set-off or allege any defense against the
agent, in an action by the principal to enforce the contract other than one which
arises out of the particular contract upon which the action is brought. (see Teller,
op. cit., p. 197.)
(b) Since notice by a third party to the agent is notice to the principal, the third
party is not liable for damages for failure of the agent to give notice to his principal.
Thus, in a case where A, who handled travel arrangements of P, was duly informed
by B, Ps travel agent, of the advice of the office manager of T (air carrier) of the
rejection of the request for extension beyond the period of their validity of plane
tickets of P without paying the fare differentials and additional travel taxes brought
about by increased fare rate and travel taxes, the court ruled that, to all legal
intents and purposes, A was the agent of P and notice to her was notice to P. (Air
France vs. Court of Appeals, 126 SCRA 448 [1983].)
(2) In tort. The third persons tort liability to the principal, insofar as the agent is
involved in the tort, arises in three main factual situations:
(a) Where the third person damages or injures property or interest of the principal in
the possession of the agent;
(b) Where the third person colludes with the agent to injure or defraud the principal;
and
(c) Where the third person induces the agent to violate his contract with the
principal to betray the trust reposed upon him by the principal.
(3) In respect of property received. An agent does not have legal title to property
entrusted to his possession by the principal, but in some cases he possesses a
power to effect a transfer thereof, valid as against the principal. In the absence of a
law or the possession by the agent of apparent authority or circumstances working
an estoppel against the principal, the latter may recover property from the agents
transferee.
In respect of negotiable instruments, however, the law protects third parties who
are bona fi de holders thereof or holders in due course. (Teller, op. cit., pp. 197-199.)

The principal cannot recover money and negotiable instruments wrongfully

transferred by his agent to innocent holders for value who have no knowledge or
notice of the agents wrongful acts.
Liability of principal for mismanagement of business by his agent.
Under general rules and principles of law, the mismanagement of the business of a
party by his agents does not relieve said party from the responsibility that he had
contracted to third persons. (Commercial Bank & Trust Co. vs. Republic Armored Car
Service Corp., 8 SCRA 425 [1963].) Thus, the fact that the agent defrauded the
principal in not turning over the proceeds of the transactions to the latter cannot in
any way relieve nor exonerate him from liability to the third person who relied on his
agents authority. It is an equitable maxim that as between two innocent parties,
the one who made it possible for the wrong to be done should be the one to bear
the resulting loss. (Cuison vs. Court of Appeals, 227 SCRA 391 [1993].)
Where the agents acts bind the principal, the latter may seek recourse against the
agent.
Liability of principal for tort of agent.
(1) General rule. As a general rule, the principal is civilly liable to third persons for
torts of an agent committed at the principals direction or in the course and within
the scope of the agents employment.
The principal cannot escape liability so long as the tort was committed by the agent
while performing his duties in furtherance of the principals business or at his
direction although outside the scope of his employment or authority. Nor is it a
defense in an action for damages against the principal that the act which caused
the tort was unknown to him or even that it was in disobedience to his instructions.
Whether the tort is committed willfully or negligently has no effect on the extent or
degree of the principals liability.
2) Reason for liability. This rule is based upon the principle that he who does an
act through another does it himself. If the principal has the power of control over an
agent, he should take responsibility for the latters action, and since the agents
acts are for the principals benefit, the principal should also be responsible for the
consequences of the agents improper behavior.
The agent, to be sure, is also liable with the principal and their liability shall be
solidary, i.e., the third person may sue both the principal and the agent or choose
whom he will hold.
(3) Business hazard theory. In the common law, several theories have been
offered to explain the rule. The business hazard theory advances the argument
that it is thought that the hazards of business should be borne by the business
directly. It is reasoned that if the cost then is added to the expense of doing
business, it will ultimately be borne by the consumer of the product; that the
consumer should pay the costs which the hazards of the business have incurred.
(Note, 30 Yale L.J. 584, cited in
Teller, p. 167.)
(4) Motivation-deviation test. The bounds of the agents authority are not the
limits of the principals tort liability, but rather the scope of the employment
which may or may not be within the bounds of authority. Scope of employment is
much wider than scope of authority. But an act is not necessarily done within the
scope of employment by reason merely of the fact that it is done during the
employment.

An examination of a large number of cases discussing vicarious liability for tort

shows that where two factors are present, such liability is imposed, but that where
either of the two factors is missing, such liability is not imposed.
These factors are:
(a) satisfactory evidence that the employee in doing the act, in the doing of which
the tort was committed, was motivated in part, at least, by a desire to serve his
employer; and
(b) satisfactory evidence that the act, in the doing of which the tort was committed,
was not an extreme deviation from the normal conduct of such employee. (see
Tiffany on Agency, 2nd ed., by Powell, pp. 106-107, cited in Teller, pp. 168-169.)
For brevity, the above has been referred to as the motivation deviation test.
- Ace Navigation Co. Inc. v. FGU Insurance Corporation, 674 SCRA 348 (June 25, 2012)
G.R. No. 171591
25 June 2012

ACE NAVIGATION CO., INC., petitioner, vs. FGU INSURANCE CORPORATION

and PIONEER INSURANCE AND SURETY CORPORATION, Respondents.
Facts: On July 19, 1990, Cardia Limited (CARDIA) shipped on board the vessel M/V
Pakarti Tiga at Shanghai Port China, 8,260 metric tons or 165,200 bags of Grey
Portland Cement to be discharged at the Port of Manila and delivered to its
consignee, Heindrich Trading Corp. (HEINDRICH). The subject shipment was insured
with respondents, FGU Insurance Corp. (FGU) and Pioneer Insurance and Surety
Corp. (PIONEER), against all risks under Marine Open Policy No. 062890275 for the
amount of P18,048,421.00. 3
The subject vessel is owned by P.T. Pakarti Tata (PAKARTI) which it chartered to
Shinwa Kaiun Kaisha Ltd. (SHINWA). 4 Representing itself as owner of the vessel,
SHINWA entered into a charter party contract with Sky International, Inc. (SKY), an
agent of Kee Yeh Maritime Co. (KEE YEH), 5 which further chartered it to Regency
Express Lines S.A. (REGENCY). Thus, it was REGENCY that directly dealt with
consignee HEINDRICH, and accordingly, issued Clean Bill of Lading No. SM-1. 6
On July 23, 1990, the vessel arrived at the Port of Manila and the shipment was
discharged. However, upon inspection of HEINDRICH and petitioner Ace Navigation
Co., Inc. (ACENAV), agent of CARDIA, it was found that out of the 165,200 bags of
cement, 43,905 bags were in bad order and condition.
Thus, on August 8, 1991, respondents filed a complaint for damages against the
following defendants: "REGENCY EXPRESS LINES, S.A./ UNKNOWN CHARTERER OF
THE VESSEL 'PAKARTI TIGA'/ UNKNOWN OWNER and/or DEMIFE (sic) CHARTERER OF
THE VESSEL 'PAKARTI TIGA', SKY INTERNATIONAL, INC. and/or ACE NAVIGATION
COMPANY, INC."

In their answer with counterclaim and cross-claim, PAKARTI and SHINWA alleged
that the suits against them cannot prosper because they were not named as parties
in the bill of lading. 9
Similarly, ACENAV claimed that, not being privy to the bill of lading, it was not a real
party-in-interest from whom the respondents can demand compensation. It further
denied being the local ship agent of the vessel or REGENCY and claimed to be the
agent of the shipper, CARDIA. 10
For its part, SKY denied having acted as agent of the charterer, KEE YEH, which
chartered the vessel from SHINWA, which originally chartered the vessel from
PAKARTI. SKY also averred that it cannot be sued as an agent without impleading its
alleged principal, KEE YEH. 11
Proceedings Before the RTC and the CA
In its November 26, 2001 Decision, 13 the RTC dismissed the complaint.
Dissatisfied, the respondents appealed to the CA which, in its assailed June 22, 2004
Decision, 14 found PAKARTI, SHINWA, KEE YEH and its agent, SKY, solidarily liable
for 70% of the respondents' claim, with the remaining 30% to be shouldered
solidarily by CARDIA and its agent, ACENAV
With respect to REGENCY, the CA affirmed the findings of the RTC that it did not
acquire jurisdiction over its person for defective service of summons.
PAKARTI's, SHINWA's, SKY's and ACENAV's respective motions for reconsideration
were subsequently denied in the CA's assailed February 17, 2006 Resolution.
Issue: whether or not it may be held liable to the respondents for 30% of their claim.
Held: The Court's Ruling
A bill of lading is defined as "an instrument in writing, signed by a carrier or his
agent, describing the freight so as to identify it, stating the name of the consignor,
the terms of the contract for carriage, and agreeing or directing that the freight to
be delivered to the order or assigns of a specified person at a specified place." 21
It operates both as a receipt and as a contract. As a receipt, it recites the date and
place of shipment, describes the goods as to quantity, weight, dimensions,
identification marks and condition, quality, and value. As a contract, it names the
contracting parties, which include the consignee, fixes the route, destination, and
freight rates or charges, and stipulates the rights and obligations assumed by the
parties. 22 As such, it shall only be binding upon the parties who make them, their
assigns and heirs. 23
In this case, the original parties to the bill of lading are: (a) the shipper CARDIA; (b)
the carrier PAKARTI; and (c) the consignee HEINDRICH. However, by virtue of their

relationship with PAKARTI under separate charter arrangements, SHINWA, KEE YEH
and its agent SKY likewise became parties to the bill of lading. In the same vein,
ACENAV, as admitted agent of CARDIA, also became a party to the said contract of
carriage.
The respondents, however, maintain 24 that ACENAV is a ship agent and not a mere
agent of CARDIA, as found by both the CA 25 and the RTC. 26
The Court disagrees.
Article 586 of the Code of Commerce provides:
ART. 586. The shipowner and the ship agent shall be civilly liable for the acts of the
captain and for the obligations contracted by the latter to repair, equip, and
provision the vessel, provided the creditor proves that the amount claimed was
invested therein.
By ship agent is understood the person entrusted with the provisioning of a vessel,
or who represents her in the port in which she may be found. (Emphasis supplied)
Records show that the obligation of ACENAV was limited to informing the consignee
HEINDRICH of the arrival of the vessel in order for the latter to immediately take
possession of the goods. No evidence was offered to establish that ACENAV had a
hand in the provisioning of the vessel or that it represented the carrier, its
charterers, or the vessel at any time during the unloading of the goods. Clearly,
ACENAV's participation was simply to assume responsibility over the cargo when
they were unloaded from the vessel. Hence, no reversible error was committed by
the courts a quo in holding that ACENAV was not a ship agent within the meaning
and context of Article 586 of the Code of Commerce, but a mere agent of CARDIA,
the shipper.
On this score, Article 1868 of the Civil Code states:
ART. 1868. By the contract of agency, a person binds himself to render some service
or to do something in representation or on behalf of another, with the consent or
authority of the latter.
Corollarily, Article 1897 of the same Code provides that an agent 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.
Both exceptions do not obtain in this case. Records are bereft of any showing that
ACENAV exceeded its authority in the discharge of its duties as a mere agent of
CARDIA. Neither was it alleged, much less proved, that ACENAV's limited obligation
as agent of the shipper, CARDIA, was not known to HEINDRICH.