BUSINESS ORGANIZATION

LAW ON AGENCY
(Elements of Agency)

2. Orient Air Services vs. CA "either party may terminate the Agreementwithout cause by giving the
other 30 days' notice by letter, telegram or cable." (emphasis supplied)
We, therefore, set aside the portion of the ruling of the respondent
Facts:
appellate court reinstating Orient Air as general sales agent of American
Air.
American Airlines, Inc. is an air carrier offering passenger and air cargo
transportation in the Philippines, and Orient Air Services and Hotel
Representatives entered into a General Sales Agency Agreement whereby
American Air authorized the latter to act as its exclusive general sales
agent within the Philippines for the sale of air passenger transportation.

Alleging that Orient Air had reneged on its obligations under the
Agreement by failing to promptly remit the net proceeds of sales for the
months of January to March 1981 American Air by itself undertook the
collection of the proceeds of tickets sold originally by Orient Air and
terminated forthwith the Agreement. Four (4) days later, or on 15 May
1981, American Air instituted suit against Orient Air with the Court of
First Instance of Manila, Branch 24, for Accounting with Preliminary
Attachment or Garnishment, Mandatory Injunction and Restraining
Order4 averring the aforesaid basis for the termination of the Agreement
as well as therein defendant's previous record of failures "to promptly
settle past outstanding refunds of which there were available funds in the
possession of the defendant, . . . to the damage and prejudice of
plaintiff."5

Orient Air denied the material allegations of the complaint and alleged
that in fact American Air still owed Orient Air a balance in unpaid
overriding commissions. Further it contended that the actions taken by
American Air in the course of terminating the Agreement as well as the
termination itself were untenable, Orient Air claiming that American Air's
precipitous conduct had occasioned prejudice to its business interests.

RTC:

Judgment is hereby rendered in favor of Orient Express and against

American Air dismissing the complaint and holding the termination made
by the latter as affecting the GSA agreement illegal and improper and
order the plaintiff to reinstate defendant as its general sales agent for
passenger tranportation in the Philippines in accordance with said GSA
agreement x x x.

CA: On appeal, the Intermediate Appellate Court, affirmed the findings

of the court a quo on their material points but with some modifications
with respect to the monetary awards granted.

Issue:

W/N the order of reinstatement of Orient express sales agent of American

Air is proper.

Ruling:

No. Respondent appellate court erred in affirming the rest of the decision
of the trial court. We refer particularly to the lower court's decision
ordering American Air to "reinstate defendant as its general sales agent
for passenger transportation in the Philippines in accordance with said
GSA Agreement."

By affirming this ruling of the trial court, respondent appellate court, in

effect, compels American Air to extend its personality to Orient Air. Such
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 .17 (emphasis supplied) 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

1
 BUSINESS ORGANIZATION
LAW ON AGENCY
(Elements of Agency)

3. Bordador vs. Luz
Facts:
Petitioner Bordador was engaged in the business of purchase and
sale of jewelry and respondent Brigida D. Luz was their regular customer.
Narciso Deganos, the brother of Brigida D. Luz, received several pieces of
gold and jewelry from Bordador amounting to P382,816.00. These items
and their prices were indicated in seventeen receipts covering the
same. Eleven of the receipts stated that they were received for a certain
Evelyn Aquino and the remaining six indicated that they were received for
Brigida D. Luz.
Deganos was supposed to sell the items at a profit and thereafter
remit the proceeds and return the unsold items to Bordador. However, he
only remitted the sum of P53,207.00. He neither paid the balance of the
sales proceeds, nor did he return any unsold item to
petitioners. Bordador eventually filed a complaint in the barangay court
where Deganos along with Luz signed a compromise agreement. In that
compromise agreement, Deganos obligated himself to pay petitioners, on
installment basis, the balance of his account plus interest
thereon. However, he failed to comply.
court that Deganos took some gold articles from petitioners and delivered
the same to her.
Bordador insists that Deganos was the agent of Brigida D. Luz as
the latter clothed him with apparent authority as her agent and held him
out to the public as such, hence Brigida can not be permitted to deny said
authority to innocent third parties who dealt with Deganos under such
belief. [13] Petitioners further represent that the CA recognized in its
decision that Deganos was an agent of Brigida.[14]
The evidence does not support the theory of petitioners that
Deganos was an agent of Brigida D. Luz and that the latter should
consequently be held solidarily liable with Deganos in his obligation to
petitioners. While the quoted statement in the findings of fact of the
assailed appellate decision mentioned that Deganos ostensibly acted as an
agent of Brigida, the actual conclusion and ruling of the Court of Appeals
categorically stated that, (Brigida Luz) never authorized her brother
(Deganos) to act for and in her behalf in any transaction with Petitioners
xx x. It is clear, therefore, that even assuming arguendo that Deganos
acted as an agent of Brigida, the latter never authorized him to act on her
behalf with regard to the transactions subject of this case.
The Civil Code provides:

Bordador filed for recovery of a sum of money and damages, with
an application for preliminary attachment against Deganos and Brigida
D. Luz. Four years later they were charged with estafa which case is still
pending.
Bordador claimed that Deganos acted as the agent of Brigida D. Luz
when he received the subject items of jewelry and, because he failed to
pay for the same, Brigida, as principal, and her spouse are solidarily liable
with him therefor.
On the other hand, while Deganos asserted that it was he alone who
was involved in the transaction with the petitioners; that he neither acted
as agent for nor was he authorized to act as an agent by Brigida D. Luz,
notwithstanding the fact that six of the receipts indicated that the items
were received by him for the latter. He further claimed that he never
delivered any of the items he received from Bordador to Brigida.
Brigida, on her part, denied that she had anything to do with the
transactions between petitioners and Deganos. She claimed that she
never authorized Deganos to receive any item of jewelry in her behalf and,
for that matter, neither did she actually receive any of the articles in
question.
RTC:
Art. 1868. By the contract of agency 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.
The basis for agency is representation. Here, there is no showing
that Brigida consented to the acts of Deganos or authorized him to act on
her behalf, much less with respect to the particular transactions
involved. Petitioners attempt to foist liability on respondent spouses
through the supposed agency relation with Deganos is groundless and ill-
advised.
Besides, it was grossly and inexcusably negligent of petitioners to
entrust to Deganos, not once or twice but on at least six occasions as
evidenced by six receipts, several pieces of jewelry of substantial value
without requiring a written authorization from his alleged principal. A
person dealing with an agent is put upon inquiry and must discover upon
his peril the authority of the agent. [16]
The records show that neither an express nor an implied agency
was proven to have existed between Deganos and Brigida D.
Luz. Evidently, petitioners, who were negligent in their transactions with
Deganos, cannot seek relief from the effects of their negligence by
conjuring a supposed agency relation between the two respondents where
no evidence supports such claim.

After trial, the court below found that only Deganos was liable to
petitioners for the amount and damages claimed. Said court was
persuaded that Luz was behind Deganos, but because there was no
memorandum to this effect, the agreement between the parties was
unenforceable under the Statute of Frauds. Absent the required
memorandum or any written document connecting the respondent Luz
spouses with the subject receipts, or authorizing Deganos to act on their
behalf, the alleged agreement between petitioners and Brigida D. Luz was
unenforceable.

CA: Affirmed.

Issue:

W/N there was a contract of agency between Luz and Deganos.

Ruling:

No.

Petitioners argue that the CA in affirming that respondent spouses

are not liable to them, as said conclusion of the trial court is contradicted
by the finding of fact of the appellate court that (Deganos) acted as agent
of his sister (Brigida Luz). [12] In support of this contention, petitioners
quoted several letters sent to them by Brigida D. Luz wherein the latter
acknowledged her obligation to petitioners and requested for more time
to fulfill the same. They likewise aver that Brigida testified in the trial

2
 BUSINESS ORGANIZATION
LAW ON AGENCY
(Elements of Agency)
5. Dominion Insurance Corp vs. CA
Facts:
Plaintiff Rodolfo S. Guevarra filed a Civil Case for sum of money against
defendant Dominion Insurance Corp. (Dominion). Guevarra sought to
recover thereunder the sum of P156,473.90 which he claimed to have
advanced in his capacity as manager of defendant to satisfy certain claims
filed by defendant’s clients.
Dominion denied any liability to Guevarra and asserted a counterclaim
for P249,672.53, representing premiums that plaintiff allegedly failed to
remit.
The pre-trial was always postponed, and during one of the pre-trial
conference dominion failed to arrive therefore the court declared them to
be in default. Dominion filed several Motions to Lift Order of Default but
was always denied by the court.
RTC: The RTC rendered its decision making Dominion liable to repay
Guevarra for the sum advanced and other damages and fees.
CA: Affirmed
Issue:
W/N Guevarra acted within his authority as agent for Dominion
Insurance Corp.
Ruling: No.
By the contract of agency, 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. The basis for agency is representation.
On the part of the principal, there must be an actual intention to appoint
or an intention naturally inferrable from his words or actions; and on the
part of the agent, there must be an intention to accept the appointment
and act on it, and in the absence of such intent, there is generally no
agency.
A perusal of the Special Power of Attorney would show that Dominion
(represented by third-party defendant Austria) and respondent Guevarra
intended to enter into a principal-agent relationship. Despite the word
"special" in the title of the document, the contents reveal that what was
constituted was actually a general agency.
The agency comprises all the business of the principal,20 but, couched in
general terms, it is limited only to acts of administration.21
A general power permits the agent to do all acts for which the law does
not require a special power.22 Thus, the acts enumerated in or similar to
those enumerated in the Special Power of Attorney do not require a
special power of attorney.
Article 1878, Civil Code, enumerates the instances when a special power
of attorney is required. The pertinent portion that applies to this case
provides that:
"Article 1878. Special powers of attorney are necessary in the following
cases:
"(1) To make such payments as are not usually considered as acts of
administration; "x x x xxx xxx
"(15) Any other act of strict dominion."
3
The payment of claims is not an act of administration. The settlement of
claims is not included among the acts enumerated in the Special Power of
Attorney, neither is it of a character similar to the acts enumerated
therein. A special power of attorney is required before respondent
Guevarra could settle the insurance claims of the insured.
Respondent Guevarra’s authority to settle claims is embodied in the
Memorandum of Management Agreement23dated February 18, 1987
which enumerates the scope of respondent Guevarra’s duties and
responsibilities as agency manager for San Fernando, Pampanga, as
follows:
"x x x xxx xxx
"1. You are hereby given authority to settle and dispose of all
motor car claims in the amount of P5,000.00 with prior
approval of the Regional Office.
"2. Full authority is given you on TPPI claims settlement.
"xxx xxx x x x "24
In settling the claims mentioned above, respondent Guevarra’s authority
is further limited by the written standard authority to pay, 25 which states
that the payment shall come from respondent Guevarra’s revolving fund
or collection. The authority to pay is worded as follows:
"This is to authorize you to withdraw from your revolving
fund/collection the amount of PESOS __________________ (P )
representing the payment on the _________________ claim of
assured _______________ under Policy No. ______ in that accident
of ___________ at ____________.
"It is further expected, release papers will be signed and authorized by the
concerned and attached to the corresponding claim folder after effecting
payment of the claim.
"(sgd.) FERNANDO C. AUSTRIA
Regional Manager"26
[Emphasis supplied]
The instruction of petitioner as the principal could not be any
clearer.,Respondent Guevarra was authorized to pay the claim of the
insured, but the payment shall come from the revolving fund or collection
in his possession.
Having deviated from the instructions of the principal, the expenses that
respondent Guevarra incurred in the settlement of the claims of the
insured may not be reimbursed from petitioner Dominion. This
conclusion is in accord with Article 1918, Civil Code, which states that:
"The principal is not liable for the expenses incurred by the agent in the
following cases:
"(1) If the agent acted in contravention of the principal’s
instructions, unless the latter should wish to avail himself of
the benefits derived from the contract; " x x x xxx x
xx"
However, while the law on agency prohibits respondent Guevarra from
obtaining reimbursement, his right to recover may still be justified under
the general law on obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
 BUSINESS ORGANIZATION
LAW ON AGENCY
(Elements of Agency)

"Whoever pays for another may demand from the debtor what he has
paid, except that if he paid without the knowledge or against the will of
the debtor, he can recover only insofar as the payment has been
beneficial to the debtor."

In this case, when the risk insured against occurred, petitioner’s liability
as insurer arose.1âwphi1 This obligation was extinguished when
respondent Guevarra paid the claims and obtained Release of Claim Loss
and Subrogation Receipts from the insured who were paid.

Thus, to the extent that the obligation of the petitioner has been
extinguished, respondent Guevarra may demand for reimbursement from
his principal. To rule otherwise would result in unjust enrichment of
petitioner.

4
 BUSINESS ORGANIZATION
LAW ON AGENCY
(Elements of Agency)
7. Victorias milling co, Inc. vs. CA
Facts:
St. Therese Merchandising (STM) regularly bought sugar from Victorias
Milling Co.,Inc., (VMC). In the course of their dealings, VMC issued
several Shipping List/DeliveryReceipts (SLDRs) to STM as proof of
purchases. Among these was SLDR No. 1214M which covers 25,000 bags
of sugar. STM sold to private respondent Consolidated Sugar Corporation
(CSC) its rights in SLDR No. 1214M.
CSC issued one check dated October 25, 1989 and three checks postdated
November13, 1989 in payment. That same day, CSC wrote petitioner that
it had been authorizedby STM to withdraw the sugar covered by SLDR
No. 1214M. Enclosed in the letter were acopy of SLDR No. 1214M and a
letter of authority from STM authorizing CSC "to withdraw for and in our
behalf the refined sugar covered by SLDR No. 1214M”. SLDR was “sold
and indorsed” to CSC.
However, CSC was only able to withdraw 2,000 of the 25,000 bags of
sugar covered by SLDR No. 1214M.
VMC replied that it could not allow any further withdrawals of sugar
against SLDR No.1214M because STM had already withdrawn all the
sugar covered by the cleared checks. CSC demanded the release of the
23,000 bags. Victorias Milling reiterated that all bags had been fully
withdrawn
CSC sent petitioner a letter demanding the release of the balance of
23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to
the amount of STM's cleared checks had been fully withdrawn and hence,
there would be no more deliveries of the commodity to STM's account.
Petitioner also noted that CSC had represented itself to be STM's agent as
it had withdrawn the 2,000 bags against SLDR No. 1214M "for and in
behalf" of STM.
CSC filed a complaint for specific performance against defendants
Teresita Ng Sy (doing business under the name of St. Therese
Merchandising) and Victorias Milling Corp..
CSC's complaint alleged that STM had fully paid petitioner for the sugar
covered by SLDR No. 1214M. Therefore, the latter had no justification for
refusing delivery of the sugar.
Victorias primary defense a quo was that it was an unpaid seller for the
23,000 bags.8 Since STM had already drawn in full all the sugar
corresponding to the amount of its cleared checks, it could no longer
authorize further delivery of sugar to CSC. Petitioner also contended that
it had no privity of contract with CSC. It explained that SLDRs prescribed
delivery of the sugar to the party specified therein and did not authorize
the transfer of said party's rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually
STM's co-conspirator to defraud it through a misrepresentation that CSC
was an innocent purchaser for value and in good faith.
RTC: Ordered defendant Victorias Milling Company to deliver to the CSC
23,000 bags of refined sugar due under SLDR No. 1214;
CA: Deliver to plaintiff-appellee 23,000 bags of refined sugar under
SLDR No. 1214M;
Issue:
W/N CSC is an agent of STM.
5
Ruling:
No.
(Anent the first issue, we find from the records that petitioner raised this
issue for the first time on appeal. It is settled that an issue which was not
raised during the trial in the court below could not be raised for the first
time on appeal as to do so would be offensive to the basic rules of fair
play, justice, and due process. Nonetheless, the Court of Appeals opted to
address this issue, hence, now a matter for our consideration.)
Petitioner heavily relies upon STM's letter of authority allowing CSC to
withdraw sugar against SLDR No. 1214M to show that the latter was
STM's agent. The pertinent portion of said letter reads:
"This is to authorize Consolidated Sugar Corporation or its representative
to withdraw for and in our behalf (stress supplied) the refined sugar
covered by Shipping List/Delivery Receipt = Refined Sugar (SDR) No.
1214 dated October 16, 1989 in the total quantity of 25, 000 bags."
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency 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."
It is clear from Article 1868 that the basis of agency is representation. On
the part of the principal, there must be an actual intention to appoint or
an intention naturally inferable from his words or actions; and on the part
of the agent, there must be an intention to accept the appointment and
act on it, and in the absence of such intent, there is generally no agency.
One factor which most clearly distinguishes agency from other legal
concepts is control; one person - the agent - agrees to act under the
control or direction of another - the principal. Indeed, the very word
"agency" has come to connote control by the principal.The control factor,
more than any other, has caused the courts to put contracts between
principal and agent in a separate category. The Court of Appeals, in
finding that CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is dependent upon
the acts of the parties, the law makes no presumption of agency, and it is
always a fact to be proved, with the burden of proof resting upon the
persons alleging the agency, to show not only the fact of its existence, but
also its nature and extent (Antonio vs. Enriquez [CA], 51 O.G. 3536].
Here, defendant-appellant failed to sufficiently establish the existence of
an agency relation between plaintiff-appellee and STM. The fact alone
that it (STM) had authorized withdrawal of sugar by plaintiff-appellee
"for and in our (STM's) behalf" should not be eyed as pointing to the
existence of an agency relation ...It should be viewed in the context of all
the circumstances obtaining. Although it would seem STM represented
plaintiff-appellee as being its agent by the use of the phrase "for and in
our (STM's) behalf" the matter was cleared when on 23 January 1990,
plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M
had been "sold and endorsed" to it by STM. Further, plaintiff-appellee has
shown that the 25, 000 bags of sugar covered by the SLDR No. 1214M
were sold and transferred by STM to it ...A conclusion that there was a
valid sale and transfer to plaintiff-appellee may, therefore, be made thus
capacitating plaintiff-appellee to sue in its own name, without need of
joining its imputed principal STM as co-plaintiff."
In the instant case, it appears plain to us that private respondent CSC was
a buyer of the SLDFR form, and not an agent of STM. Private respondent
CSC was not subject to STM's control. The question of whether a contract
is one of sale or agency depends on the intention of the parties as
gathered from the whole scope and effect of the language employed. That
the authorization given to CSC contained the phrase "for and in our
(STM's) behalf" did not establish an agency. Ultimately, what is decisive is
the intention of the parties. That no agency was meant to be established
by the CSC and STM is clearly shown by CSC's communication to
 BUSINESS ORGANIZATION
LAW ON AGENCY
(Elements of Agency)

petitioner that SLDR No. 1214M had been "sold and endorsed" to it. The
use of the words "sold and endorsed" means that STM and CSC intended
a contract of sale, and not an agency. Hence, on this score, no error was
committed by the respondent appellate court when it held that CSC was
not STM's agent and could independently sue petitioner.

On the second issue, proceeding from the theory that the transactions
entered into between petitioner and STM are but serial parts of one
account, petitioner insists that its debt has been offset by its claim for
STM's unpaid purchases, pursuant to Article 1279 of the Civil Code.
However, the trial court found, and the Court of Appeals concurred, that
the purchase of sugar covered by SLDR No. 1214M was a separate and
independent transaction; it was not a serial part of a single transaction or
of one account contrary to petitioner's insistence. Evidence on record
shows, without being rebutted, that petitioner had been paid for the sugar
purchased under SLDR No. 1214M. Petitioner clearly had the obligation
to deliver said commodity to STM or its assignee. Since said sugar had
been fully paid for, petitioner and CSC, as assignee of STM, were not
mutually creditors and debtors of each other. No reversible error could
thereby be imputed to respondent appellate court when, it refused to
apply Article 1279 of the Civil Code to the present case.