Cuison vs. Court of Appeals

A principal who clothes another with apparent authority as his agent and holds him out to the public as such is estopped from denying that agent's authority to the prejudice of innocent third parties dealing in good faith, and under Article 1911 of the Civil Code, the principal is solidarily liable with the agent even when the latter has exceeded his authority, provided the principal allowed the agent to act as though he had full powers.

Kue Cuison operated a sole proprietorship under the name "Kue Cuison Paper Supply," engaged in the purchase and sale of newsprint, bond paper, and scrap, with places of business at Baesa, Quezon City, and Sto. Cristo, Binondo, Manila. Valiant Investment Associates was a duly organized Philippine partnership with a business address in Kalookan City. Tiu Huy Tiac was employed at petitioner's Binondo office and was widely regarded in the business community as the manager of that branch. Lilian Tan operated LT Trading, a regular customer of petitioner's business.

Kue Cuison operated a sole proprietorship under the firm name "Kue Cuison Paper Supply," engaged in the purchase and sale of newsprint, bond paper, and scrap, with places of business at Baesa, Quezon City, and Sto. Cristo, Binondo, Manila. Valiant Investment Associates was a partnership duly organized under Philippine law with a business address in Kalookan City. Tiu Huy Tiac was employed at petitioner's Binondo office, and Lilian Tan operated LT Trading, a regular customer of petitioner.

From December 4, 1979 to February 15, 1980, private respondent delivered various kinds of paper products amounting to P297,487.30 to Lilian Tan of LT Trading. These deliveries were made pursuant to orders allegedly placed by Tiu Huy Tiac, and it was likewise pursuant to Tiac's instructions that the merchandise was delivered to Lilian Tan. Upon delivery, Lilian Tan paid for the merchandise by issuing several checks payable to cash at the specific request of Tiu Huy Tiac. In turn, Tiac issued nine postdated checks to private respondent as payment for the paper products. These checks were later dishonored by the drawee bank.

Thereafter, private respondent made several demands upon petitioner to pay for the merchandise, claiming that Tiu Huy Tiac was duly authorized by petitioner as the manager of his Binondo office to enter into the questioned transactions. Petitioner denied any involvement in the transactions entered into by Tiu Huy Tiac and refused to pay the amount corresponding to the selling price of the subject merchandise. Private respondent then filed an action for collection of P297,487.30 against petitioner. After due hearing, the trial court dismissed the complaint for lack of merit. On appeal, the Court of Appeals reversed, ordering petitioner to pay the sum of P297,487.30 with 12% interest from the filing of the complaint until fully paid, plus attorney's fees of 7% of the total amount due, and costs.

The Supreme Court found, based on the records, that petitioner had explicitly introduced Tiu Huy Tiac to Bernardino Villanueva, respondent's manager, as his branch manager. Lilian Tan, who had been doing business with petitioner for some time, also testified that she knew Tiu Huy Tiac to be the manager of petitioner's Sto. Cristo, Binondo branch. Petitioner himself admitted on the witness stand that Tiu Huy Tiac took charge of management at the Sto. Cristo store, and three months after Tiu Huy Tiac left petitioner's employ, petitioner sent communications to customers notifying them that Tiu Huy Tiac was no longer connected with the business.

• Authority of Tiu Huy Tiac: Petitioner contended that the Court of Appeals erred in finding Tiu Huy Tiac as agent of petitioner contrary to the undisputed and established facts and circumstances.
• Liability for Tiac's Obligation: Petitioner argued that the Court of Appeals erred in finding petitioner liable for an obligation undisputedly belonging to Tiu Huy Tiac.
• Reversal of Trial Court: Petitioner maintained that the Court of Appeals erred in reversing the well-founded decision of the trial court.
• Credibility of Villanueva: Petitioner alleged that the testimony of Bernardino Villanueva was self-serving because Villanueva worked for private respondent as its manager, and that Villanueva's failure to produce the first invoice of the transaction showed he was bluffing and prevaricating.
• Credibility of Lilian Tan: Petitioner assailed the credibility of Lilian Tan by alleging that she was part of an intricate plot to defraud him.

• Agency by Estoppel: Whether Tiu Huy Tiac possessed the required authority from petitioner sufficient to hold the latter liable for the disputed transaction.
• Nature of the Petition: Whether the petition raises a question of law cognizable under Rule 45, or a factual issue that should be denied outright.

• Agency by Estoppel: Yes. Tiu Huy Tiac possessed apparent authority as petitioner's agent by virtue of petitioner's own representations and conduct, estopping petitioner from disclaiming liability under Articles 1911 and 1431 of the Civil Code.
• Nature of the Petition: While the petition raises a factual issue, the Court reviewed the evidence because the findings of fact of the Court of Appeals were at variance with those of the trial court, an exception to the rule that only questions of law may be raised under Rule 45.

• Agency by Estoppel: It is a well-established rule that one who clothes another with apparent authority as his agent and holds him out to the public as such cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third parties dealing in good faith. The records showed that petitioner, by his own acts and admission, held out Tiu Huy Tiac to the public as the manager of his store in Sto. Cristo, Binondo. Petitioner explicitly introduced Tiu Huy Tiac to Bernardino Villanueva, respondent's manager, as his branch manager. Lilian Tan, a long-time customer, also testified that she knew Tiu Huy Tiac to be the manager of petitioner's Binondo branch. The general perception of Tiu Huy Tiac as manager was reinforced by his being known in the community as petitioner's "kinakapatid" (godbrother), a relationship petitioner himself acknowledged when he said they were "like brothers." Most decisively, petitioner categorically admitted on the witness stand that Tiu Huy Tiac took charge of management at the Sto. Cristo store. Three months after Tiu Huy Tiac left petitioner's employ, petitioner sent communications to customers notifying them that Tiu Huy Tiac was no longer connected with the business — an act that spoke unmistakably of Tiu Huy Tiac's valuable position. These admissions, both judicial and extrajudicial, were admissible under Rule 130, Sections 22 and 23 of the Rules of Court. Petitioner's unexplained delay in disowning the transactions despite several collection attempts by respondent likewise constituted admission by silence. By his representations, petitioner was estopped from disclaiming liability; under Article 1911 of the Civil Code, even when the agent has exceeded his authority, the principal is solidarily liable if the former allowed the latter to act as though he had full powers. The fact that Tiu Huy Tiac may have defrauded petitioner by not turning over the proceeds did not relieve petitioner of liability to the innocent third party, pursuant to the equitable maxim that as between two innocent parties, the one who made it possible for the wrong to be done should bear the resulting loss.
• Nature of the Petition: The petition ought to have been denied outright because it raises a factual issue, and it is elementary that in petitions for review under Rule 45, the Court only passes upon questions of law. However, an exception exists where the findings of fact of the Court of Appeals are at variance with those of the trial court, in which case the Court reviews the evidence to arrive at the correct findings based on the records. Because the Court of Appeals reversed the trial court, the Court proceeded to review the evidence on the merits.

• Agency by Estoppel / Apparent Authority — One who clothes another with apparent authority as his agent and holds him out to the public as such cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third parties dealing in good faith and in the honest belief that he is what he appears to be. The doctrine applies whether the representations are intentional or merely negligent, so long as innocent third persons relied upon them in good faith and for value. The principal is estopped from disclaiming liability for transactions entered into by the agent on the principal's behalf. In this case, petitioner's own acts — introducing Tiu Huy Tiac as branch manager, admitting on the witness stand that Tiac took charge of management, and notifying customers of Tiac's departure — clothed Tiac with apparent authority binding upon petitioner.

• Solidary Liability of Principal Under Article 1911, Civil Code — Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers. This provision is intended to protect the rights of innocent persons. The principal's lack of actual knowledge of the agent's misdeed is of no moment. In this case, petitioner permitted Tiu Huy Tiac to exercise powers not granted to him, rendering petitioner solidarily liable for the transaction.

• Admission by Conduct and Silence (Rule 130, Sections 22 and 23, Rules of Court) — The act, declaration, or omission of a party as to a relevant fact may be given in evidence against him. Any act or declaration made in the presence and within the observation of a party who does or says nothing when the act or declaration naturally calls for action or comment if not true may be given in evidence against him. Petitioner's judicial admission that Tiu Huy Tiac managed the Sto. Cristo store, his notification to customers of Tiac's departure, and his unexplained delay in disowning the transactions all operated as admissions against his interest.

• Equitable Maxim: Loss Falls on the Party Who Enabled the Wrong — 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. Even if Tiu Huy Tiac defrauded petitioner by not turning over the proceeds, petitioner could not be exonerated from liability to the innocent third party because petitioner's own representations made the fraud possible.

• "It is a well-established rule that one who clothes another with apparent authority as his agent and holds him out to the public as such cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third parties dealing with such person in good faith and in the honest belief that he is what he appears to be." — This passage states the controlling doctrine of agency by estoppel that forms the ratio decidendi of the case.

• "Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers." — This is the Court's quotation of Article 1911 of the Civil Code, applied to hold petitioner solidarily liable for Tiu Huy Tiac's transactions.

• "By his representations, petitioner is now estopped from disclaiming liability for the transaction entered by Tiu Huy Tiac on his behalf. It matters not whether the representations are intentional or merely negligent so long as innocent, third persons relied upon such representations in good faith and for value." — This passage defines the scope of estoppel in the agency context, emphasizing that the principal's intent is irrelevant so long as the third party relied in good faith.

• "For 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." — This articulates the equitable principle allocating loss between two innocent parties, applied to deny petitioner any exoneration despite Tiac's possible fraud against petitioner.

• Macke vs. Camps, 7 Phil. 553 (1907) — Cited as foundational authority for the doctrine that one who clothes another with apparent authority as his agent cannot deny that authority to the prejudice of innocent third parties.
• Philippine National Bank vs. Court of Appeals, 94 SCRA 357 (1979) — Cited alongside Macke for the same doctrine of apparent authority and estoppel against the principal.
• Co vs. Court of Appeals, 99 SCRA 321 (1980) — Cited to clarify the nature of self-serving evidence, distinguishing out-of-court statements (excluded as hearsay) from a party's in-court testimony (admissible, sworn, and subject to cross-examination).
• U.S. vs. Ching Po, 23 Phil. 578 (1912) — Cited for the principle that a party's voluntary acts, conduct, and declarations, wherever made, are admissible against him, including admissions made in open court under oath.
• Manila Remnant Co., Inc. vs. Court of Appeals, 191 SCRA 622 (1990) — Cited as directly in point for the principle of agency by estoppel and the application of Article 1911 of the Civil Code, where the principal's negligence in permitting the agent to exercise ungranted powers rendered the principal solidarily liable.
• Philippine National Bank vs. Intermediate Appellate Court, 189 SCRA 680 (1990) — Cited for the rule that a party cannot be allowed to go back on his own acts and representations to the prejudice of another party who relied on them in good faith.
• Francisco vs. Government Service Insurance System, 7 SCRA 577 (1963) — Cited for the equitable maxim that as between two innocent parties, the one who made it possible for the wrong to be done should bear the resulting loss.

• Article 1911, Civil Code of the Philippines — Provides that even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers. Applied to hold petitioner solidarily liable for Tiu Huy Tiac's transactions because petitioner permitted Tiac to act as manager.
• Article 1431, Civil Code of the Philippines — Provides that an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon. Applied to estop petitioner from disclaiming Tiac's authority.
• Rule 130, Section 22, Rules of Court — Provides that the act, declaration, or omission of a party as to a relevant fact may be given in evidence against him. Applied to petitioner's judicial admission of Tiac's managerial role and his notification to customers of Tiac's departure.
• Rule 130, Section 23, Rules of Court — Provides that any act or declaration made in the presence and within the observation of a party who does or says nothing when the act or declaration naturally calls for action or comment if not true may be given in evidence against him. Applied to petitioner's unexplained delay in disowning Tiac's transactions despite repeated collection demands.
• Rule 45, Rules of Court — Governs petitions for review on certiorari, limiting the Supreme Court to questions of law, with an exception where the Court of Appeals' findings of fact are at variance with the trial court's.

Feliciano, Romero, Melo, and Vitug, JJ., concurred.