Facts

• Petitioner Manila Remnant Co., Inc. (the principal) owned parcels of land in Quezon City which it developed as Capital Homes Subdivision. It entered into a contract with A.U. Valencia and Co., Inc. (the agent) constituting the latter its agent to develop the subdivision and to sell the lots, with authority to execute contracts to sell in Manila Remnant's name.
• The two companies were closely intertwined: Artemio U. Valencia was simultaneously the President of A.U. Valencia and Co. and the President of Manila Remnant, and the two firms held office in the same building, sharing personnel. (One man therefore sat on both sides of the agency — which is why the principal could not later say the fraud was hidden from it.)
• In 1970, respondents Spouses Oscar and Carmen Ventanilla (the third persons/buyers) bought two lots on instalment, executing contracts to sell in Manila Remnant's name through the agent, and paying their monthly instalments to A.U. Valencia and Co., which issued receipts.
• Unknown to the Ventanillas, Valencia resold the same lots to one Carlos Crisostomo, a salesman of his own firm, without any consideration, and thereafter remitted the Ventanillas' payments to Manila Remnant under Crisostomo's name — pocketing the difference and concealing the double sale.
• Manila Remnant later terminated its agency agreement with A.U. Valencia and Co., and the fraud came to light.
• The Ventanillas sued for specific performance.
• Trial court — principal and agent solidarily liable. The trial court ruled in their favour and held Manila Remnant and A.U. Valencia solidarily liable.
• Court of Appeals — affirmed. The Court of Appeals affirmed.

Issue

Ruling

Ratio

• Manila Remnant had expressly authorised A.U. Valencia and Co. to execute contracts to sell in its name.
• The Ventanillas' contracts bore Manila Remnant's name, the receipts were issued in the course of that arrangement, and the payments were collected under it.
• Everything the buyers saw pointed to a duly authorised agent transacting for a disclosed principal.

• Manila Remnant argued that Valencia's scheme was his own fraud, of which it was ignorant and from which it gained nothing.
• The Court held this beside the point.
• Manila Remnant had clothed the agent with the indicia of authority§: it allowed the same man to head both corporations, permitted the two firms to share offices and staff, and let the agent collect payments and issue receipts in the principal's name.
• Where a principal by his own acts or omissions enables an agent to appear authorised, he is estopped as against innocent third persons from denying the authority.
• Manila Remnant's negligence in supervising its agent made the deception possible.

• Because the fraud was committed in the course of and by means of the agency, both principal and agent answer.
• The Court grounded the solidary liability in the principle that as between two innocent parties, the one whose act or omission made the loss possible must bear it.
• The buyers dealt in good faith, paid faithfully for years, and had no means of discovering the double sale.

• The Ventanillas were entitled to the lots and to damages.
• Manila Remnant, having been made to answer, retains its recourse against A.U. Valencia and Co. and Valencia personally.

Doctrine

• Apparent authority. A principal is bound by acts within the authority he has held the agent out as possessing, whether or not that authority was actually conferred, where a third person relies in good faith.
• Solidary liability for the agent's fraud. The principal is solidarily liable for the agent's fraudulent acts done within the course of the agency, notwithstanding the principal's lack of knowledge or benefit.
• Duty to supervise. A principal who permits an interlocking arrangement — common officers, common offices, collections in its own name — assumes the risk that the arrangement will be abused, and cannot shift the loss to a good-faith buyer.