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Spouses Salvador v. Spouses Rabaja

a. Principal's liability for acts of agent within the scope of authority (Art. 1910)
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Title

Spouses Salvador v. Spouses Rabaja

Case Decision Date

G.R. No. 199990 February 4, 2015

Buyers paid instalments on a house and lot to the sellers' attorney-in-fact, who held a special power of attorney the sellers themselves had furnished. When the agent failed to remit, the sellers disowned the payments. The Court held the buyers had validly paid — the sellers must look to their own agent.

Core Doctrine

Payment made to an agent duly armed with a special power of attorney is payment to the principal and extinguishes the debtor's obligation. A principal who holds out an agent by furnishing a special power of attorney bears the loss caused by that agent's failure to remit, since third persons are entitled to rely on the authority the principal has documented.

Case Digest (G.R. No. 199990)

Case DigestWeek 5 - Liability and Obligations of the Principal

Spouses Salvador v. Spouses Rabaja

G.R. No. 199990 · February 4, 2015 · Supreme Court

a. Principal's liability for acts of agent within the scope of authority (Art. 1910)

Petitioner: Spouses Rolando and Herminia SalvadorRespondent: Spouses Rogelio and Elizabeth Rabaja and Rosario Gonzales
Gist

Buyers paid instalments on a house and lot to the sellers' attorney-in-fact, who held a special power of attorney the sellers themselves had furnished. When the agent failed to remit, the sellers disowned the payments. The Court held the buyers had validly paid — the sellers must look to their own agent.

Core Doctrine

Payment made to an agent duly armed with a special power of attorney is payment to the principal and extinguishes the debtor's obligation. A principal who holds out an agent by furnishing a special power of attorney bears the loss caused by that agent's failure to remit, since third persons are entitled to rely on the authority the principal has documented.

Facts

  • Respondents Spouses Rogelio and Elizabeth Rabaja (the third persons/buyers) were lessees of a house and lot in Mandaluyong City owned by petitioners Spouses Rolando and Herminia Salvador (the principals).
  • Respondent Rosario Gonzales (the agent) approached the Rabajas offering the property for sale, presenting a Special Power of Attorney executed by the Salvadors in her favour authorising her to sell the property and to receive payments. (The written authority ran to both selling and collecting — so on the face of the document, paying her was paying the owners.)
  • The Rabajas were shown the SPA and, satisfied, entered into a Contract to Sell for ₱5,000,000 and began paying instalments to Gonzales, who issued receipts for each payment. In all they paid about ₱950,000.
  • Gonzales did not remit the payments to the Salvadors. (The loss therefore fell somewhere between a principal who chose the agent and buyers who checked her written authority before parting with their money.)
  • The Salvadors thereupon repudiated the sale, insisted they had received nothing, and demanded that the Rabajas vacate; ejectment proceedings followed.
  • The Rabajas sued for rescission of the contract to sell and the return of what they had paid.
  • Regional Trial Court — for the Rabajas. The Regional Trial Court ruled for the Rabajas.
  • Court of Appeals — affirmed with modification. The Court of Appeals affirmed with modification.
  • Before the Supreme Court. The Salvadors elevated the case, contending that payments made to Gonzales did not bind them.

Issue

Whether payments made by the buyers to the sellers' attorney-in-fact, on the strength of a special power of attorney§ furnished by the sellers, are valid payments to the sellers§.

Ruling

Yes. The Supreme Court held that the payments to Gonzales were valid payments to the Salvadors. The contract to sell was rescinded and the Salvadors ordered to return the amounts received.

Ratio

1. The Special Power of Attorney Established the Authority
  • Persons dealing with an agent must ascertain not merely the fact of the agency but its nature and extent, and are ordinarily charged with what an examination of the instrument would reveal.
  • The Rabajas did exactly that: Gonzales presented a written SPA, and its terms authorised her both to sell the property and to receive payment for it.
  • Having satisfied their duty of inquiry, they were entitled to rely on it.
2. Article 1910§ — the Principal Is Bound
  • Article 1910§ requires the principal to comply with all the obligations which the agent may have contracted within the scope of his authority.
  • Receiving the purchase price was squarely within the authority the Salvadors had themselves conferred in writing.
  • Payment to an agent so authorised is, in law, payment to the principal, and it extinguishes the buyer's obligation pro tanto — whatever the agent afterwards does with the money.
3. The Loss Falls on the Principal Who Chose the Agent
  • The Salvadors' quarrel is with Gonzales, not with the Rabajas.
  • As between the principal who selected the agent and documented her authority, and the third person who dealt in good faith on the faith of that document, the law places the loss on the principal.
  • He who creates the appearance of authority — here, by executing and allowing the use of an SPA — must bear the consequences of the confidence he induced.
4. The Salvadors' Own Conduct Confirmed the Agency
  • The Court also noted that the Salvadors had not disowned Gonzales at the outset.
  • The SPA was genuine and unrevoked, and the Rabajas had been in possession of the property as lessees of the Salvadors throughout, so the transaction was hardly clandestine.
  • The claim that the sale was unauthorised came only after the agent defaulted.

Doctrine

  • Article 1910§. The principal must comply with the obligations contracted by the agent within the scope of his authority; as to acts beyond it, only if he ratifies.
  • Payment to an authorised agent discharges the debtor. Where the SPA empowers the agent to receive payment, the buyer who pays the agent has paid the seller, and the agent's failure to remit is the seller's risk.
  • Duty of inquiry satisfied by the instrument. A third person who examines a written special power of attorney and transacts within its terms deals in good faith and is protected.

Cited Laws & Provisions

Every statute, rule, and issuance the decision turns on — the text as written, and the work it does in this case.

Civil Code

Article 1910, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title X (Agency), Chapter 3 (Obligations of the Principal)

The principal must comply with all the obligations which the agent may have contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. (1727)

Why it is cited here

The article that makes payment to the agent payment to the principal.

"The principal must comply with all the obligations which the agent may have contracted within the scope of his authority." Receiving payment on the principal's behalf is such an obligation where the agent holds a special power to do it — so the debtor who pays the agent has paid the principal, and his obligation is extinguished at that moment.

What happens to the money afterwards is a matter between principal and agent. The agent's failure to remit is a breach of the agency, not a defect in the payment; the debtor has already performed and cannot be made to perform twice.

The reason is the ordinary allocation of risk that runs through this whole title. The principal chose the agent and furnished the special power of attorney; the buyer merely read it and relied on it. As between the two, the loss caused by the agent's dishonesty belongs to the person who selected him and put the instrument of trust into his hands.

Civil Code

Article 1878, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title X (Agency), Chapter 1 (Nature, Form and Kinds of Agency)

Special powers of attorney are necessary in the following cases:

(1) To make such payments as are not usually considered as acts of administration;

(2) To effect novations which put an end to obligations already in existence at the time the agency was constituted;

(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the venue of an action or to abandon a prescription already acquired;

(4) To waive any obligation gratuitously;

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

(6) To make gifts, except customary ones for charity or those made to employees in the business managed by the agent;

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration;

(8) To lease any real property to another person for more than one year;

(9) To bind the principal to render some service without compensation;

(10) To bind the principal in a contract of partnership;

(11) To obligate the principal as a guarantor or surety;

(12) To create or convey real rights over immovable property;

(13) To accept or repudiate an inheritance;

(14) To ratify or recognize obligations contracted before the agency;

(15) Any other act of strict dominion. (n)

Why it is cited here

The source of the instrument the buyer relied on, and the reason his reliance was reasonable.

Article 1878 requires a special power for the weightier acts — including, by paragraph (5), contracts transmitting ownership of an immovable, and by paragraph (1), payments not usually considered acts of administration. A principal who executes such a document has done the very thing the Code prescribes for conferring these powers.

That cuts both ways, and this case is the second way. The special power exists to protect principals by forcing deliberate authorisation — but once given, it is exactly what third persons are entitled to rely on. A principal cannot furnish the formal instrument the law asks for and then complain that a buyer took it at face value.

Study digest — refer to the full text of the decision for accuracy. https://lawphil.net/judjuris/juri2015/feb2015/gr_199990_2015.html

Cited laws & provisions

Article 1910, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title X (Agency), Chapter 3 (Obligations of the Principal)

The principal must comply with all the obligations which the agent may have contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. (1727)

Why it is cited here

The article that makes payment to the agent payment to the principal.

"The principal must comply with all the obligations which the agent may have contracted within the scope of his authority." Receiving payment on the principal's behalf is such an obligation where the agent holds a special power to do it — so the debtor who pays the agent has paid the principal, and his obligation is extinguished at that moment.

What happens to the money afterwards is a matter between principal and agent. The agent's failure to remit is a breach of the agency, not a defect in the payment; the debtor has already performed and cannot be made to perform twice.

The reason is the ordinary allocation of risk that runs through this whole title. The principal chose the agent and furnished the special power of attorney; the buyer merely read it and relied on it. As between the two, the loss caused by the agent's dishonesty belongs to the person who selected him and put the instrument of trust into his hands.

Full entry below ↓

Article 1878, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title X (Agency), Chapter 1 (Nature, Form and Kinds of Agency)

Special powers of attorney are necessary in the following cases:

(1) To make such payments as are not usually considered as acts of administration;

(2) To effect novations which put an end to obligations already in existence at the time the agency was constituted;

(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the venue of an action or to abandon a prescription already acquired;

(4) To waive any obligation gratuitously;

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

(6) To make gifts, except customary ones for charity or those made to employees in the business managed by the agent;

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration;

(8) To lease any real property to another person for more than one year;

(9) To bind the principal to render some service without compensation;

(10) To bind the principal in a contract of partnership;

(11) To obligate the principal as a guarantor or surety;

(12) To create or convey real rights over immovable property;

(13) To accept or repudiate an inheritance;

(14) To ratify or recognize obligations contracted before the agency;

(15) Any other act of strict dominion. (n)

Why it is cited here

The source of the instrument the buyer relied on, and the reason his reliance was reasonable.

Article 1878 requires a special power for the weightier acts — including, by paragraph (5), contracts transmitting ownership of an immovable, and by paragraph (1), payments not usually considered acts of administration. A principal who executes such a document has done the very thing the Code prescribes for conferring these powers.

That cuts both ways, and this case is the second way. The special power exists to protect principals by forcing deliberate authorisation — but once given, it is exactly what third persons are entitled to rely on. A principal cannot furnish the formal instrument the law asks for and then complain that a buyer took it at face value.

Full entry below ↓