(China Airlines vs. Chiok, 407 SCRA 432 [2003].)

Airline passenger sued for damages both the ticket-issuing airline and the airline that performed the ac-tual carriage although the breach of the contract of air transportation occurred on the flight of the latter airline.

Facts: Respondent Daniel Chiok purchased from petitioner China Airlines, Ltd. (CAL) airline passenger ticket for air transportation covering Manila-Taipei-Hongkong-Manila. Said ticket was exclusively en-dorseable to Philippine Airlines, Ltd. (PAL). In a complaint for damages against CAL and PAL, Chiok alleged that despite several confirmations of his flight PAL refused to accommodate him in Flight No. 307 for which reason he failed to arrive in Manila on his scheduled date and he lost a business option which he had to execute on said date; that a PAL’s personnel ridiculed and humiliated him in the pres-ence of so many people; and that CAL and PAL are solidarily liable for the damages he suffered includ-ing personal belongings he lost. Affirming the Regional Trial Court, the Court of Appeals ruled that un-der the contract of transportation, CAL, as the ticket-issuing carrier was liable regardless of the fact that PAL was to perform or had performed the actual carriage.

Issue: Is CAL liable for damages? YES

(1) Contract of carriage treated as single operation. — The contract of air transportation was between petitioner and respondent, with the former endorsing to PAL the Hongkong-Manila segment of the journey. Such contract of carriage has always been treated in this jurisdiction as a single operation. This jurisprudence rule is supported by the Warsaw Conven-tion, to which the Philippines is a party, and by the existing practices of the International Air Transport Association (IATA).

(2) PAL acted as carrying agent of CAL. — Under a general pool partnership agreement, the ticket-issuing airline is the principal in a contract of carriage, while the indorsee-airline is the agent.

Members of the IATA are under a general pool partnership agreement wherein they act as agent of each other in the issuance of tickets to contracted passengers to boost ticket sales worldwide and at the same time provide passengers easy access to airlines which are otherwise inaccessible in some parts of the world. Booking and reservation among airline members are allowed even by telephone and it has be-come an accepted practice among them. A member airline which enters into a contract of carriage con-sisting of a series of trips to be performed by different carriers is authorized to receive the fare for the whole trip and through the required process of interline settlement of accounts by way of the IATA clearing house an airline is duly compensated for the segment of the trip serviced. In the instant case, following cited jurisprudence, PAL acted as carrying agent of CAL and CAL cannot evade liability to Chiok even though it may have been only a ticket issuer for the Hongkong-Manila sector.

(3) PAL’s gross and reckless negligence amounted to bad faith. — Due to the nature of their business, airline companies must not merely give cursory instructions to their personnel to be more accommodating towards customers, passengers and the general public; they must require them to be so. In the present case, respondent had repeatedly secured confirmations of his PR 311 flight on November 24, 1981 — initially from CAL and subsequently from the PAL office in Hong Kong. The status of this flight was marked “OK” on a validating sticker placed on his ticket. That

sticker also contained the entry “RMN6V.” Ms Chan explicitly acknowledged that such entry was a computer reference that meant that respondent’s name had been entered in PAL’s computer. Since the status of respondent on Flight PR 311 was “OK,” as a matter of right testified to by PAL’s witness, he should have been automatically transferred to and allowed to board Flight 307 the following day. Clearly resulting from negligence on the part of PAL was its claim that his name was not included in its list of passengers for the November 24, 1981 PR 311 flight and, consequently, in the list of the replace -ment flight PR 307. Since he had secured confirmation of his flight — not only once, but twice — by personally going to the carrier’s offices where he was consistently assured of a seat thereon — PAL’s negligence was so gross and reckless that it amounted to bad faith.

In view of the foregoing, moral and exemplary damages were properly awarded by the lower courts.

(Cuison vs. Court of Appeals, 227 SCRA 391 [1993].)

Debtor raises as defense against liability the fraud of its former officers.

Facts:  Kue Cuison is a sole proprietorship engaged in the purchase and sale of newsprint, bond paper and scrap. Private respondent Valiant Investment Associates, on the other hand, is a partnership duly organ-ized and existing under the laws of the Philippines with business address at Kalookan City.

Valiant Investment Associates delivered various kinds of paper products to a certain Tan. The deliveries were made by Valiant pursuant to orders allegedly placed by Tiac who was then employed in the Binondo office of petitioner (Cuison). Upon delivery, Tan paid for the merchandise by issuing several checks payable to cash at the specific request of Tiac. In turn, Tiac issued nine (9) postdated checks to Valiant as payment for the paper products. Unfortunately, sad checks were later dishonored by the drawee bank.Thereafter, Valiant made several demands upon petitioner to pay for the merchandise in question, claiming that Tiac was duly authorized by petitioner as the manager of his Binondo office, to enter into the questioned transactions with Valiant and Tan. Petitioner denied any involvement in the transaction entered into by Tiac and refused to pay Valiant.Left with no recourse, private respondent filed an action against petitioner for the collection of sum of money representing the price of the merchandise. After due hearing, the trial court dismissed the com-plaint against petitioner for lack of merit. On appeal, however, the decision of the trial court was modi-fied, but was in effect reversed by the CA. CA ordered petitioner to pay Valiant with the sum plus in -terest, AF and costs.

ISSUE: WON Tiac possessed the required authority from petitioner sufficient to hold the latter liable for the disputed transaction

HELD:

YES

As to the merits of the case, it is a well-established rule that one who clothes another with apparent au -thority 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 beIt 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. Article 1911 of the Civil Code provides:“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.”The above-quoted article is new. It is intended to protect the rights of innocent persons. In such a situation, both the principal and the agent may be considered as joint tortfeasors whose liability is joint and solidary.It is evident from the records that by his own acts and admission, petitioner held out Tiac to the public as the manager of his store in Binondo. More particularly, petitioner explicitly introduced to Vil-lanueva, Valiant’s manager, as his (petitioner’s) branch manager as testified to by Villanueva. Secondly, Tan, who has been doing business with petitioner for quite a while, also testified that she knew Tiac to

be the manager of the Binondo branch. Even petitioner admitted his close relationship with Tiu Huy Tiac when he said that they are “like brothers” There was thus no reason for anybody especially those transacting business with petitioner to even doubt the authority of Tiac as his manager in the Binondo branch.

Tiac, therefore, by petitioner’s own representations and manifestations, became an agent of petitioner by estoppel, an admission or representation is rendered conclusive upon the person making it, and can-not be denied or disproved as against the person relying thereon (Article 1431, Civil Code of the Philip-pines). A party cannot be allowed to go back on his own acts and representations to the prejudice of the other party who, in good faith, relied upon them. Taken in this light,. petitioner is liable for the transac -tion entered into by Tiac on his behalf. Thus, even when the agent has exceeded his authority, the prin-cipal is solidarily liable with the agent if the former allowed the latter to fact as though he had full powers (Article 1911 Civil Code), as in the case at bar.Finally, although it may appear that Tiac defrauded his principal (petitioner) in not turning over the pro-ceeds of the transaction to the latter, such fact cannot in any way relieve nor exonerate petitioner of his liability to private respondent. 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.

Dy Peh vs. Collector of Internal Revenue, 28 SCRA 216 [1969]

Agent applied portion of amounts given to him by principal in payment of the latter’s taxes, to tax ob-ligations of other taxpayers.

Facts: DY PEH made payments of his taxes through TAN CHUAN LIONG, his business agent. The originals of the official receipts issued by the City Treasurer of CEBU shows that the full amount of the taxes due from DY PEH had been paid. Investigations disclose, however, that the amounts of the taxes al-legedly paid by him as appearing in the original of every official receipt were bigger than the amounts appearing in the corresponding copies thereof kept in the office of the City Treasurer. As a result,

DY PEH was assessed for the deficiencies. It appeared that TAN CHUAN LIONG applied a portion of the amounts given to him by DY PEH to pay tax obligations of other taxpayers, also TAN CHUAN LIONG’s clients.

Issue:Since the checks issued by DY PEH covered in full the taxes due, should the anomaly in the application of the amounts be held against him?

Held: Yes. When a contract of agency exists, the agent’s acts bind his principal, without prejudice to the latter seeking recourse against the agent in an appropriate civil or criminal action.

AREOLA v. CA and PRUDENTIAL GUARANTEE & ASSURANCE, INC.G. R. No. 95641. September 22, 1994.Romero, J.

Facts:Santos Areola, a lawyer from Dagupan City, bought on November 1984 a Personal Accident

Insurance Policy which covered a period of one year from Prudential Guarantee & Assurance, Inc. through its Baguio City branch. He was to pay a total amount of 1, 609.65 Php for the said insurance policy's premiums as indicated in the statement of account issued to him by Prudential. The same statement contained a legibly printed note that said it shall not be considered as a receipt for an official receipt shall be issued upon payment of the account. Also, that if such payment is made to a representative of Prudential the payee must demand for a provisional receipt.

On December 17, 1984, Areola was issued a provisional receipt for the amount of 1, 609.65 Php. It contained a note which states that an official receipt shall be issued within 7 days and that upon failure to receive such, Prudential should be notified. Areola received no official receipt from Prudential.

On June 29, 1985, Areola received an endorsement from Prudential through Teofilo Malapit, manager of the Baguio City branch, canceling his insurance policy for non-payment of premium. Areola then confronted Carlito Ang, an agent of Prudential, and demanded that he be issued an official receipt. He was still not issued one so on July 15, 1985 he wrote a letter to Prudential demanding that he be insured under the terms and conditions of the insurance he bought or that the current commercial rate of increase on the payment he made be returned to him within 5 days. He also warned that if his demands are not met he would sue for damages.

On July 25, 1985, Assistant Vice-President Mariano M. Ampil III of Prudential wrote to Areola stating that the company was verifying Areola's payment because the absence of an official receipt is a cause to believe that no payment had been made. Subsesquently, on August 3, 1985 another letter was sent to Areola by Ampil confirming the former's payment and informing him that Prudential would be amenable to extending the coverage of his policy to December instead of November. Unfortunately at the time the letter was received, Areola and his wife had already filed a complaint in the RTC of Dagupan City for breach of contract with damages. Prudential later admitted that the cancellation of Areola's policy was because of Malapit's failure to remit the premiums collected.

Issue:Whether or not the erroneous cancellation of Areola's insurance policy due to Malapit's

fraudulent act entitled the former to payment of damages and whether or not the reinstatement of said policy absolves Prudential from its liability for damages.

Held:The Supreme Court held that yes, the erroneous cancellation of Areola's insurance policy

entitled him to payment of damages. Malapit's fraudulent act of misappropriating the premiums collected from Areola is directly imputable to Prudential. As a corporation it acts solely thru its employees and the latter's acts are considered its own for which it can be held to account. Under the first paragraph of Article 1910 of the Civil Code, “The principal must comply with all the obligations which the agent may have contracted within the scope of his authority.” The fact that Prudential was itself defrauded does not free it of its obligation to Areola. In the ruling of the Supreme Court in Prudential Bank v. Court of Appeals it held that; A bank is liable for wrongful acts of its officers done

in the interests of the bank or in the course of dealings of the officers in their representative capacity. A banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit.

Consequently, no, Prudential's subsequent actions did not absolve it from its liability for damages. Prudential should be reminded that a contract of insurance creates reciprocal obligations for both insurer and insured. Reciprocal Obligations are those which arise from the same cause and in which each party is both a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. Under the second paragraph of Article 1191 of the Civil Code governing reciprocal obligations, “The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. Xxx” In the case at hand, Areola is given a choice between fulfillment and rescission due to Prudential's failure to comply with what is incumbent upon it. However, he is still entitled to payment of damages regardless of whether he demands fulfillment or rescission of the obligation. Untenable then is Prudential's claim that its reinstatement of Areola's policy absolves it from liability for damages.

(Ortigas, Jr. vs. Lufthansa German Airlines, 64 SCRA 610 [1975].)

Employee of an airline company committed an error in validating reservation of plaintiff who could only be waitlisted.

Facts: LUFTHANSA GERMAN AIRLINES (an international airline company) was ordered by the lower court to pay damages for the former’s failure to “comply with its obligation to give first class accommodation to FRANCISCO ORTIGAS JR., a (Filipino) passenger holding a first class ticket,” aggravated by the giving of the space instead to a Belgian and the improper conduct of its agents in dealing with him during the occasion of such discriminatory violation of its contract of carriage. LUFTHANSA claimed that the employee of ALITALIA (another international airline company) who validated and confirmed ORTIGAS’ reservation must have made a mistake because he was allegedly informed by LUFTHANSA Rome office that ORTIGAS could only be waitlisted.

Issue: Whether LUFTHANSA bound by the mistake commited by the emolyee of ALITALIA?

Held: Yes. It has been indisputably proven under the so called pool arrangement among different airline companies pursuant to the International Air Transport Association (IATA) agreement of which Alitalia and Lufthansa are signatories, both companies are constituted thereby as agents of each other in the issuing of tickets and other matters pertaining to their relations with those who would need their services. Besides, it appears that when ORITGAS checked in at the airport, a lady employee thereat of LUFTHANSA told him, after making the proper verification, that the reservation was correct.

(Phil. National Bank vs. Bagamaspad and Ferrer, 89 Phil. 365 [1951].)

Principal collected part of a loan made without authority by its agents to unqualified borrowers merely to diminish its loss and the financial responsibility of its agents.

Facts: The evidence showed that in violation of regulations and instructions of the Phil. National Bank, BERNARDO BAGAMASPAD and BIENVENIDO FERRER, its agent and assistant agent, respect-ively, in its Cotabato Agency, released large crop loans to manifestly insolvent and unqualified borrow-ers. Phil. National Bank filed suits against the borrowers which suits resulted in the payment of part of the loans.

Issue: Should the filing of the suits be interpreted and considered as a ratification of the acts of BAGAMASPAD and FERRER?

Held: No. Ordinarily, a principal who collects either judicially or extrajudicially a loan made by an agent without authority thereby ratifies the said act of the agent. In the present case, however, there was no intention on the part of the Phil. National Bank to ratify the acts of BAGASMASPAD and FERRER. It was merely trying to diminish as much as possible the loss to itself and automatically decrease the fi nancial liability of BAGAMASPAD and FERRER who were not in position to pay the large amount for which they were found liable. The act of the Phil. National Bank was really beneficial to BAGAMASPAD and FERRER.

GUTIERREZ HERMANOS vs ORENSE G.R. No. 9188 December 4, 1914

FACTS:

On and before Februaru 14, 1907, Engracio Orense had been the owner of a parcel of land in Guinobatan, Albay.

On February 14, 1907, Jose Duran, a nephew of Orense, sold the property for P1,500 to Gutierrez Hermanos, with Orense’s knowledge and consent, executed before a notary a public instrument. The said public instrument contained a provision giving Duran the right to repurchase it for the same price within a period of four years from the date of the said instrument.

Orense continued occupying the land by virtue of a contract of lease.

After the lapse of four years, Gutierrez asked Orense to deliver the property to the company and to pay rentals for the use of the property.

Orense refused to do so. He claimed that the sale was void because it was done without his authority and that he did not authorize his nephew to enter into such contract.

During trial, Orense was presented as witness of the defense. He states that the sale was done with his knowledge and consent. Because of such testimony, it was ascertained that he did give his nephew, Duran, authority to convey the land. Duran was acquitted of criminal charges and the company deman-ded that Orense execute the proper deed of conveyance of the property.

ISSUE: Whether or not Orense is bound by Duran’s act of selling the former’s property?

HELD: Yes. It was proven during trial that he gave his consent to the sale. Such act of Orense impliedly con-ferred to Duran the power of agency. The principal must therefore fulfill all the obligations contracted by the agent, who acted within the scope of his jurisdiction.

(Central Surety & Insurance Co. vs. C.N. Hodges, 38 SCRA 159 [1971].)

No notice was given to a regular customer of the revocation of a branch manager’s authority to issue surety bonds, the company, furthermore, having honored surety bonds issued after such revocation.

Facts: It is not disputed that CENTRAL SURETY AND INSURANCE CO. (surety company) has not caused to be published any notice of revocation of ROSITA MESA’s authority to issue surety bonds on its be-half, notwithstanding the fact that the powers of ROSITA MESA, as its branch manager in Iloilo City, were of a general nature, for she had exclusive authority, in said place, to represent CENTRAL SURETY AND INS. CO., not with a particular person, but with the public in general, “in all negoti -ations, transactions, and business wherein the company may lawfully transact or engage in subject only to the restrictions specifi ed in their agreement.” When the surety bond in question was executed in fa-vor of HIDGES, CENTRAL SURETY INS. CO. had already withdrawn the authority of ROSITA MESA to issue, inter alia, surety bonds. It appeared that some surety bonds issued by ROSITA MESA in favor of HODGES after her authority had allegedly been curtailed, on March 15, 1952, were honored by CENTRAL SURETY despite the fact that these were not reported to CENTRAL SURETY’s main office at the time of their issuance.

Issue:Is Article 1922 applicable? (ART. 1922. If the agent had general powers, revocation of the agency does not prejudice third persons who acted in good faith and without knowledge of the revocation. Notice of the revocation in a newspaper of general circulation is a sufficient warning to third persons. (n))

Held: Yes. The opening of CENTRAL SURETY’s branch office amounted to a publication of the grant of powers to ROSITA MESA, as manager of said office. Furthermore, by honoring several surety bonds issued in its behalf subsequently to March 15, 1952, CENTRAL SURETY induced the public to be-lieve that ROSITA MESA had authority to issue such bonds. As a consequence, CENTRAL SURETY is now estopped from pleading, particularly against a regular customer thereof, like HODGES, the ab-sence of said authority.

Dy Buncio and Co v Ong Guan Gan

Property was sold under a special power of attorney not giving authority to sell, executed after a gen-eral power was previously granted.

Facts:

ONG GUAN GAN SR. gave a general power of attorney to his son, ONG GUAN GAN JR. About eight (8) years later, OGG SR. executed in favor of OGG JR. a special power of attorney which did not give OGG JR. the express power to alienate the properties of OGG SR.. Thereafter, OGG JR. sold cer-tain properties of OGG SR. to Juan Tong and Pua Giok Eng . DY BUNCIO subsequently obtained at-tachment and execution against the same properties for a judgment debt against OGG SR. Juan Tong and Pua Giok bring this appeal and insist that the deed of the 31st of July, 1931, is valid.

Issue:

Whether Ong Guan Can jr is authorized to sell the rice mill owned by his father? Not authorized.

Held:

Not authorized. The making and accepting of a new power of attorney, whether it enlarges or de-creases the power of the agent under a prior power of attorney, must be held to supplant and revoke the latter when the two are inconsistent. If the new appointment with limited powers did not revoke the general power of attorney, the execution of the second power of attorney would have been a mere futile gesture. The properties in question were subject to attachment and execution, the title of OGG SR. not having been divested by the sale made by OGG JR

(Garcia vs. De Manzano, 39 Phil. 577 [1919].)

Property was sold under a general power of attorney by agent without notice of a second general power of attorney given later to another.

Facts:

Narciso Lopez Manzano was a merchant in Atimonan, Tayabas, who went to Spain in May, 1910, and died there the 8th of September, 1913. He gave a general power-of-attorney to his son, Angel L. Man-zano on the 9th of February, 1910, and on the 25th of March a second general power-of-attorney to his wife, Josefa Samson.

Narciso L. Manzano had various commercial dealings before leaving for Spain.

ANGEL MANZANO, acting under his general power of attorney, sold the halfinterest of NARCISO LOPEZ MANZANO in a steamer. There was no proof that ANGEL MANZANO knew of the power of attorney to JOSEFA SAMSON.

Issue:

Whether the power of attorney to JOSEFA SAMSON revoke that given to ANGEL MANZANO?

Held:

No, and therefore, the sale made by ANGEL MANZANO was valid. In the absence of proof that AN-GEL MANZANO had notice of the second power of attorney, it must be considered that ANGEL MANZANO acted under a valid power of attorney from NARCISO which had not been legally re-voked at the date of the sale.

(Del Rosario vs. Abad and Abad, 104 Phil. 648 [1958].)

Mortgagor authorized mortgagee in a separate instrument termed “irrevocable power of attorney cou-pled with an interest” to sell mortgaged property.

FACTS: 1) On December 1936, the Secretary of Agriculture and Commerce issued under the provisions of the Public Land Act a homestead patent situated in Nueva Ecija to Tiburcio del Rosario. 2) On February 1937, the Registrar of Deeds issued to him an original certificate of title. 3) On February 24, 1937, del Rosario obtained a loan from Primitivo Abad in the sum of P2000 with interest payable on December 3, 1941. Del Rosario executed an “irrevocable special power of attorney coupled with interest” in favor of the mortgagee, authorizing him to sell and convey the parcel of land. 4) Del Rosario died in December 1945 leaving the debt unpaid/ 5) Primitivo Abad, acting as attorney-in-fact of Del rosario sold the parcel of land to his son Teodorico Abad in consideration of the token sum of P1.00 and the payment of the mortgage debt of the late del Rosario. 6) Teodorico took possession of the land, cancelled the original certificate of title and reigistered the land under his name in a transfer certificate of title. 7) The heirs of Del Rosario filed this case to recover the possession and ownership of the parcel of land, damages, etc.8) The lower court ruled for del Rosario.

ISSUES: 1) WON the mortgage executed was valid. YES. 2) WON the power of attorney executed by Del Rosario was coupled with interest that will not termin-ate the agency upon the death of the principal. NO.

HELD:1) The mortgage on the improvements of the parcel of land executed by del Rosario is valid as provided for in the Public Land Act. What is prohibited is the encumbrance or alienation of lands ac-quired by free patent or homestead.

2) The power of attorney executed by del Rosario in favor of Primitivo Abad providing, among others, that “it is coupled with an interest in the subject matter thereof and are therefore irrevocable, and … conferring upon my said attorney full and ample power and authority to do and perform all things reas-onably necessary and proper for the due carrying out of the said powers according to the true tenor and purport of the same” does not create an agency coupled with an interest nor does it clothe the agency with an irrevocable character.

A mere statement like such is not enough. In what does such interest consist must be stated in the power of attorney. The fact that Tiburcio del Rosario, the principal had mortgaged the improvements of the parcel of land to Abad, the agent is not such an interest as could render irrevocable the power of attorney executed by the principal in favor of the agent. As the agency was not coupled with interest, it was terminated upon the death of del Reosario, the principal, sometime in December 1945, and Primit-ivo Abad, the agent could no longer validly convey the parcel of land to Teodorico Abad on June 9, 1947. The sale, therefore was null and void.

RALLOS v FELIX GO CHAN & REALTY COPR.,

Plaintiff: Ramon RallosDefendant: Felix Go Chan & Sons Realty CorporationFacts:

Concepcion and Gerundia Rallos were sisters and registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu covered by Transfer Certificate of Title No. 11116 of the Registry of Cebu.

They executed a special power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell such land for and in their behalf.

After Concepcion died, Simeon Rallos sold the undivided shares of his sisters Concepcion and Gerundia to Felix Go Chan & Sons Realty Corporation for the sum of P10,686.90. New TCTs were issued to the latter.

Petitioner Ramon Rallos, administrator of the Intestate Estate of Concepcion filed a complaint praying (1) that the sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be unenforceable, and said share be reconveyed to her estate; (2) that the Certificate of 'title is-sued in the name of Felix Go Chan & Sons Realty Corporation be cancelled and another title be issued in the names of the corporation and the "Intestate estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by way of attorney's fees and payment of costs of suit.

CFI: [Plaintiff’s Complaint] Sale of land was null and void insofar as the one-half pro-indiviso share of Concepcion Rallos Ordered the issuance of new TCTs to respondent corporation and the estate of Concepcion in

the proportion of ½ share each pro-indiviso and the payment of attorney’s fees and cost of liti-gation

[Respondent filed cross claim against Simon Rallos(*Simon and Gerundia died during pendency of case)]

Juan T. Borromeo, administrator of the Estate of Simeon Rallos was ordered to pay defendant the price of the ½ share of the land (P5,343.45) plus attorney’s fees

[Borromeo filed a third party complaint against Josefina Rallos, special administratrix of the Estate of Gerundia]

Dismissed without prejudice to filing either a complaint against the regular administrator of the Estate of Gerundia Rallos or a claim in the Intestate-Estate of Cerundia Rallos, covering the same subject-matter

CA: CFI Decision reversed, upheld the sale of Concepcion’s share.MR: denied.

Issues:1) WON sale was valid although it was executed after the death of the principal, Concepcion.2) WON sale fell within the exception to the general rule that death extinguishes the authority of

the agent3) WON agent’s knowledge of the principal’s death is a material factor.4) WON petitioner must suffer the consequence of failing to annotate a notice of death in the title

(thus there was good faith on the part of the Respondent vendee)

5) WON good faith on the part of the respondent in this case should be treated parallel to that of an innocent purchaser for a value of a land.

Held/Ratio:

(Court discussed relevant principles first)Relationship of Agency (concept arising from principles under Art 13171 and 14032)- one party, caged the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in transactions with third persons.

-derivative in nature, power emanating from principal-agent’s acts are acts of the principal

Essential Elements:(1) there is consent, express or implied of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agents acts as a representative and not for himself, and (4) the agent acts within the scope of his authority. 

Extinguishmento Generally: among others3, By the death, civil interdiction, insanity or insolvency of the

principal or of the agent- death of the principal effects instantaneous and absolute revocation of the au-thority of the agent

o Exceptions: (Art. 1930) if it has been constituted in the common interest of the latter and of

the agent, or in the interest of a third person who has accepted the stipulation in his favor.

(Art. 1931) agent acted without knowledge of the pricipal’s death and that the third person was in good faith (both these reqs should be present)

IN THE CASE AT BAR:

1) Sale was void. No one may contract in the name of another without being authorized by the latter, or unless he

has by law a right to represent him (Art. 1317 of the Civil Code).  Simon’s authority as agent was extinguished upon Concepcion’s death

2) The sale did not fall under the exceptions to the general rule that death ipso jure extinguishes the authority of the agent

o Art. 1930 inapplicable: SPA in favor of Simon Rallos was not coupled with interest o Art. 1931 inapplicable:

1 no one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. A contract entered into in the name of another by one who has no authority or the legal representation or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. 

2The following contracts are unenforceable, unless they are justified: (1) Those entered into in the name of another person by one who hi - been given no authority or legal representation or who has acted beyond his powers; ...3 See Art. 1919

Simon Rallos knew (as can be inferred from his pleadings) of principal Con-cepcion’s death

For Art 1931 to apply, both requirements must be present:1. that the agent acted without the knowledge of the death of the principal.2. that the 3rd person contracted with the agent himself acted in good faith.

Good faith here means that the 3rd person was not aware of the death of the principal at the time he contracted with the said agent. These two requisites must concur; the absence of one will render the acts of the agent invalid and unenforceable.

3) Yes, agent’s knowledge of principal’s death is material.

Respondent asserts that: there is no provision in the Code which provides that whatever is done by an agent having knowledge of the death of his principal is void even with respect to third persons who may have contracted with him in good faith and without knowledge of the death of the principalCourt says: this contention ignored the ignores the existence of the general rule enunciated in Article 1919 that the death of the principal extinguishes the agency. Article 1931, being an ex-ception to the general rule, is to be strictly construed.

4) NO, the Civil Code does not impose a duty upon the heirs to notify the agent or others of the death of the principal. If revocation was by the act of the principal: a general power which does not specify the

persons to whom represents' on should be made, it is the general opinion that all acts, exe-cuted with third persons who contracted in good faith, Without knowledge of the revoca-tion, are valid.

BUT, if revocation was due to death of the principal: extinguishment, by operation of law, is instantaneous without the need for notification to the parties concerned.

5) No. Laws on agency, the terms of which are clear and unmistakable leaving no room for an in-

terpretation contrary to its tenor, should apply, the law provides that death of the princi-pal ipso jure extinguishes the authority of the agent to sell rendering the sale to a third person in good faith unenforceable unless at the agent had no knowledge of the princi-pal’s death at that time (exception under Art. 1931)

Dispositive: CA Decision reversed, CFI decision affirmed. Sale was null and void.