AGENCY (Art.

1868)
- By the contract of agency
- A person binds himself:
o To render some service; OR
o To do something in representation
- Or on behalf of another
- With the consent or authority of the latter.

Agency may refer to both a contract and the representative relation created.

RALLOS v. FELIX GO CHAN

January 31, 1978
Munoz Palma

FACTS:
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 issued 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: [Plaintiffs Complaint]
o Sale of land was null and void insofar as the one-half pro-indiviso share of Concepcion Rallos
o Ordered the issuance of new TCTs to respondent corporation and the estate of Concepcion in the
proportion of share each pro-indiviso and the payment of attorneys fees and cost of litigation
[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 share of the land (P5,343.45) plus attorneys 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
CFI: Decision reversed, upheld the sale of Concepcions share.
MR: denied.

ISSUES:
1) WON sale was valid although it was executed after the death of the principal, Concepcion. (NO)
2) WON sale fell within the exception to the general rule that death extinguishes the authority of the agent (NO)
3) WON agents knowledge of the principals death is a material factor. (YES)
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) (NO)
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. (NO)

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
-agents 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.

Extinguishment
o 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 authority 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 pricipals 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).
Simons authority as agent was extinguished upon Concolacions 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:
Simon Rallos knew (as can be inferred from his pleadings) of principal Concepcions
death
For Art 1931 to apply, both requirements must be present

3) Yes, agents knowledge of principals 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 principal
SC: 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 exception 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, executed with third persons
who contracted in good faith, Without knowledge of the revocation, are valid.

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
 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 interpretation
contrary to its tenor, should apply, the law provides that death of the principal 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 principals death at that time (exception under Art. 1931)

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

ORIENT AIR SERVICES v. CA and AMERICAN AIRLINES

May 29, 1991
Padilla

FACTS:
January 15 1977: American Airlines and Orient Air Services entered into a General Sales Agency
Agreement, whereby American Airlines authorized Orient Air to act as its exclusive general sales agent
within the PH for the sale of air passenger transportation.
May 11 1981: Alleging that Orient Air had reneged on its obligations under the Agreement by failing to
promptly remit the net proceeds of sales for Jan to Mar 1981, American Air by itself undertook the
collection of the proceeds of tickets sold originally by Orient Air and terminated the Agreement.
May 15 1981: American Air instituted suit against Orient Air.
Orient Airs Answer:
o Denied allegations contending that after the application to the commission due it, American Air
in fact still owed Orient a balance in unpaid overriding commissions.
TC: In favor of ORIENT.
o Termination of agreement was illegal and improper
o Ordered American Airlines to reinstate Orient Air as its general sales agent
CA: Affirmed TC.
AMERICAN: Claims overriding commission should be based only on ticketed sales-to be entitled to the
3% overriding commission, the sale must be made by Orient Air and the sale must be done with the use
of Americans ticket stocks
ORIENT: Contractual stipulation of 3% overriding commission covers the total revenue of American not
merely from the ticketed sales, invoking its designation as the EXCLUSIVE General sales agent of
American.

ISSUE:
(1) As to the extent of Orient Airs right to the 3% overriding commission.
(2) WON the CA erred in ordering the reinstatement of the defendant as its general sales agent for passenger
transportation in the PH in accordance with said GSA agreement. (YES)

HELD + RATIO:

(1) Basis should be TOTAL REVENUE. (In favor of Orient)

It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be
taken into consideration to ascertain the meaning of its provisions.
o The various stipulations in the contract must be read together to give effect to all.
o After a careful examination of the records, the Court finds merit in the contention of Orient Air
that the Agreement, when interpreted in accordance with the foregoing principles, entitles it to
the 3% overriding commission based on total revenue, or as referred to by the parties, "total
flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the
promotion and marketing of American Air's services for air passenger transportation, and the solicitation
of sales therefor.
In return for such efforts and services, Orient Air was to be paid commissions of two (2) kinds:
o first, a sales agency commission, ranging from 7-8% of tariff fares and charges from sales by
Orient Air when made on American Air ticket stock; and
 o second, an overriding commission of 3% of tariff fares and charges for all sales of passenger
transportation over American Air services.
It is immediately observed that the precondition attached to the first type of commission does not obtain
for the second type of commissions.
o The latter type of commissions would accrue for sales of American Air services made not on its
ticket stock but on the ticket stock of other air carriers sold by such carriers or other authorized
ticketing facilities or travel agents.
o To rule otherwise, i.e., to limit the basis of such overriding commissions to sales from American
Air ticket stock would erase any distinction between the two (2) types of commissions and
would lead to the absurd conclusion that the parties had entered into a contract with
meaningless provisions.
o Such an interpretation must at all times be avoided with every effort exerted to harmonize the
entire Agreement.

(2) YES.
By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to
extend its personality to Orient Air.
Compelling American Air to extend its personality to Orient would be violative of the principles and
essence of agency, defined by law as a contract whereby "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.
In an agent-principal relationship, the personality of the principal is extended through the facility of the
agent.
In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the
latter would have him do.
Such a relationship can only be effected with the consent of the principal, which must not, in any way,
be compelled by law or by any court.
The Agreement itself between the parties states that "either party may terminate the Agreement without
cause by giving the other 30 days' notice by letter, telegram or cable."
We, therefore, set aside the portion of the ruling of the respondent appellate court reinstating Orient Air
as general sales agent of American Air.

WILLIAM UY and ROXAS v. CA and NHA

September 9, 1999
Kapunan

FACTS:
William Uy and Rodel Roxas are agents authorized to sell eight parcels of land by the owners thereof.
By virtue of such authority, Uy and Roxas to sell the lands, located in Tuba, Tadiangan, Benguet to NHA
to be utilized and developed as a housing project.
Feb 14 1989: The NHA Board passed Resolution No 1632 approving the acquisition of said lands, with
an area of 31.82 ha, at the cost of P23.87 M, pursuant to which the parties executed a series of Deeds
of Absolute Sale covering the subject lands.
o Of the 8 parcels of land, however, only five were paid for by the NHA because of the report, it
received from the DENR that the remaining area is located at an active landslide area (and
therefore not suitable for development into a housing project).
NHA issued Resolution No 2352 cancelling the sale over the 3 parcels of land.
The NHA subsequently offered (in another Resolution, No. 2394) the amount of P1.225-M to the
landowners as daos perjuicios.
Uy and Roxas filed a complaint for damages against NHA before the RTC.
RTC Declaring the cancellation of the contract JUSTIFIED.
o The TC nevertheless awarded damages to plaintiffs in the sum of P1.225-M.
CA REVERSED the TC decision. Dismissed the complaint.
o Since there wa sufficient justifiable basis in cancelling the sale, it saw no reason for the award
of damages.
o CA also noted that the petitioners Uy & Roxas were mere attorneys-in-fact, and therefore not
the real parties-in-interest in the action before the TC.
 o Especially since the supposed SPA in their favor was never presented as evidence.

ISSUE: WON Uy and Roxas are real parties in interest in the case / Do petitioners possess the right to file a
complaint for damages. (NO)

RATIO:
. . . In paragraph 4 of the complaint, plaintiffs alleged themselves to be "sellers' agents" for the several
owners of the 8 lots subject matter of the case.
Obviously, William Uy and Rodel Roxas in filing this case acted as attorneys-in-fact of the lot owners
who are the real parties in interest but who were omitted to be pleaded as party-plaintiffs in the case.
This omission is fatal.
But! In the SC: Petitioners claim that they lodged the complaint not in behalf of their principals but in
their own name as agents directly damaged by the termination of the contract.
o The damages prayed for were intended not for the benefit of their principals but to indemnify
petitioners for the losses they themselves allegedly incurred as a result of such termination.
o These damages consist mainly of "unearned income" and advances. Petitioners, thus, attempt
to distinguish the case at bar from those involving agents or apoderedos instituting actions in
their own name but in behalf of their principals. Petitioners in this case purportedly brought the
action for damages in their own name and in their own behalf.
We find this contention unmeritorious. (I skipped the rem part, every action must be prosecuted and
defended in the name of the real-party-in-interest [Section 2, Rule 3])
The applicable substantive law in this case is Article 1311 of the Civil Code, which states:
o Contracts take effect only between the parties, their assigns, and heirs, except in case where
the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation, or by provision of law. . . .
o If a contract should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person.
Petitioners are not parties to the contract of sale between their principals and NHA. They are
mere agents of the owners of the land subject of the sale. As agents, they only render some
service or do something in representation or on behalf of their principals. The rendering of such
service did not make them parties to the contracts of sale executed in behalf of the latter. Since
a contract may be violated only by the parties thereto as against each other, the real parties-in-
interest, either as plaintiff or defendant, in an action upon that contract must, generally, either be
parties to said contract.
Neither has there been any allegation, much less proof, that petitioners are the heirs of their principals.
Petitioners, however, have not shown that they are assignees4 of their principals to the subject
contracts. While they alleged that they made advances and that they suffered loss of commissions, they
have not established any agreement granting them "the right to receive payment and out of the
proceeds to reimburse [themselves] for advances and commissions before turning the balance over to
the principal[s]."
Finally, it does not appear that petitioners are beneficiaries of a stipulation pour autrui under the
second paragraph of Article 1311 of the Civil Code. Indeed, there is no stipulation in any of the
Deeds of Absolute Sale "clearly and deliberately" conferring a favor to any third person.
That petitioners did not obtain their commissions or recoup their advances because of the non-
performance of the contract did not entitle them to file the action below against respondent NHA.
Section 372 (2) of the Restatement of the Law on Agency (Second) states:
o An agent does not have such an interest in a contract as to entitle him to maintain an action at
law upon it in his own name merely because he is entitled to a portion of the proceeds as
compensation for making it or because he is liable for its breach.
In Goduco vs. Court of appeals, this Court held that:
o . . . granting that appellant had the authority to sell the property, the same did not make the
buyer liable for the commission she claimed. At most, the owner of the property and the one
who promised to give her a commission should be the one liable to pay the same and to whom
the claim should have been directed. . . .

4 McMicking vs. Banco Espaol-Filipino: . . . recognizes the assignments of rights of action and also recognizes that when one has
a right of action assigned to him he is then the real party in interest and may maintain an action upon such claim or right.
 As petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation pour autrui
under the contracts of sale, they do not, under substantive law, possess the right they seek to
enforce. Therefore, they are not the real parties-in-interest in this case.

RE: rescission of contract/ negation of the cause of the contract (NOT IMPT for 1311)
In this case, the NHA did not rescind the contract (under 1191). Indeed, it did not have the right to do so
for the other parties to the contract, the vendors, did not commit any breach, much less a substantial
breach, of their obligation. Their obligation was merely to deliver the parcels of land to the NHA, an
obligation that they fulfilled. The NHA did not suffer any injury by the performance thereof.
The cancellation, therefore, was not a rescission under Article 1191. Rather, the cancellation was based
on the negation of the cause arising from the realization that the lands, which were the object of the
sale, were not suitable for housing.
Cause is the essential reason which moves the contracting parties to enter into it. In other words, the
cause is the immediate, direct and proximate reason which justifies the creation of an obligation through
the will of the contracting parties. Cause, which is the essential reason for the contract, should be
distinguished from motive, which is the particular reason of a contracting party which does not affect the
other party.
Ordinarily, a party's motives for entering into the contract do not affect the contract. However, when the
motive predetermines the cause, the motive may be regarded as the cause.
In this case, it is clear, and petitioners do not dispute, that NHA would not have entered into the contract
were the lands not suitable for housing. In other words, the quality of the land was an implied condition
for the NHA to enter into the contract. On the part of the NHA, therefore, the motive was the cause for
its being a party to the sale.
Accordingly, we hold that the NHA was justified in canceling the contract. The realization of the mistake
as regards the quality of the land resulted in the negation of the motive/cause thus rendering the
contract inexistent. Article 1318 of the Civil Code states that:
o There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

BH MACKE v. CAMPS
February 27, 1907
Carson

FACTS:
Macke and Handler (partners doing business under the firm name of Macke, Chandler & Company)
allege that:
o During the months of February and March 1905, they sold and delivered to Camps various bills
of goods amounting to P351.50 to his place of business, Washington Caf.
o Camps has only paid the sum of P174 so far, hence, there is still due them an account of
P177.50
o Before instituting this action, they made demand for the payment
o Camps had failed and refused to pay the said balance.
Macke testified that on the order of one Ricardo Flores, who represented himself to be the agent of
Camps, he shipped the said goods to Camp at the Washington Caf.
o Flores later acknowledged the receipt of said goods and made various payments thereon and
made various payments thereon amounting in all to P174
o On demand for payment of balance, Flores informed Macke that he did not have the necessary
funds on hand and that he would have to wait the return of his principal (who was at the
province that time)
Macke and Handler were satisfied as to the credit of the defendant Camps and as to the authority of
Flores to act as his agent who was apparently in charge of the business and claiming to be the business
manager of the defendant.
A written contract (for the hotel with a bar and restaurant business of the defendant) dated May 25,
1904, was introduced in evidence to establish the relationship between Camps and Flores.
o The contract reveals that one Galmes, the former owner of Washington Caf, subrented the
building to Camps for the purpose of carrying on that business.
 o This contract was signed by Camps and the name of Flores appears thereon as a witness, and
also followed by the words managing agent.
Camps did not go on the stand nor call any witnesses, and relies wholly on his contention that the
foregoing facts are not sufficient to establish the fact that he received the goods for which payment is
demanded.

ISSUE: WON Flores was managing the business as agent. (YES)

RATIO:
Evidence is sufficient to sustain a finding that Flores was the agent of the defendant in the management
of the bar of the Washington Cafe with authority to bind the defendant, his principal, for the payment of
the goods mentioned in the complaint.
The contract introduced in evidence sufficiently establishes the fact that the defendant was the owner of
business and of the bar, and the title of "managing agent" attached to the signature of Flores which
appears on that contract, together with the fact that, at the time the purchases in question were made,
Flores was apparently in charge of the business, performing the duties usually entrusted to managing
agent, leave little room for doubt that he was there as authorized agent of the defendant.
One who clothes another apparent authority as his agent, and holds him out to the public as such, can
not 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 following preassumptions or deductions,
which the law expressly directs to be made from particular facts, are deemed conclusive:
"Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led
another to believe a particular thing true, and to act upon such belief, he can not, in any litigation arising
out such declaration, act, or omission, be permitted to falsify it" and unless the contrary appears, the
authority of an agent must be presumed to include all the necessary and usual means of carrying his
agency into effect.
That Flores, as managing agent of the Washington Cafe, had authority to buy such reasonable
quantities of supplies as might from time to time be necessary in carrying on the business of hotel bar
may fairly be presumed from the nature of the business, especially in view of the fact that his principal
appears to have left him in charge during more or less prolonged periods of absence; from an
examination of the items of the account attached to the complaint, we are of opinion that he was acting
within the scope of his authority in ordering these goods are binding on his principal, and in the absence
of evidence to the contrary, furnish satisfactory proof of their delivery as alleged in the complaint.
DISPOSITION: TC affirmed.