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AGENCY, TRUST and PARTNERSHIP

WEEK 1

RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS vs FELIX GO

CHAN & SONS REALTY CORPORATION and COURT OF APPEALS

FACTS:

Concepcion and Gerundia Rallos were sisters and registered co-owners of the parcel
of land in issue. 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 re-conveyed 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.

ISSUE:

Whether or not the sale fell within the exception to the general rule that death extinguishes
the authority of the agent

RULING:

YES. Article 1919 of the Civil Code provides that the death of the principal
extinguishes the agency. That being the general rule, it follows a fortiori that any act of an
agent after the death of his principal is void ab initio unless the same fags under the
exception provided for in the aforementioned Articles 1930 and 1931. Article 1930 is not
involved because admittedly the special power of attorney executed in favor of Simeon
Rallos was not coupled with an interest. Meanwhile, On the basis of the established
knowledge of Simon Rallos concerning the death of his principal Concepcion Rallos, Article
1931 of the Civil Code is also inapplicable. In the instant case, it cannot be questioned that
the agent, Simeon Rallos, knew of the death of his principal at the time he sold the latter's
share in Lot No. 5983 to the respondent corporation. The knowledge of the death is clearly
to be inferred from the pleadings filed by Simon Rallos before the trial court. He knew of the
death of his sister, yet he proceeded with the sale of the lot in the name of both his sisters
Concepcion and Gerundia Rallos without informing the realty corporation of the death of the
former. Accordingly, the agent's act is unenforceable against the estate of his principal and
the sale is likewise void.

ORIENT AIR SERVICES and HOTEL REPRESENTATIVES vs COURT OF APPEALS and

AMERICAN AIR-LINES INCORPORATED

FACTS:

American Airlines, Inc. and Orient Air Services and Hotel Representatives (Orient
Air), entered a General Sales Agency Agreement, whereby the former authorized the latter to
act as its exclusive general sales agent within the Philippines for the sale of air passenger
transportation.
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In the agreement, Orient Air shall remit in United States dollars to American the ticket
stock or exchange orders, less commissions to which Orient Air Services is entitled, not less
frequently than semimonthly. On the other hand, American will pay Orient Air Services
commission on transportation sold by Orient Air Services or its sub-agents. Thereafter,
American alleged 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
in the amount of US $254,400.40, American Air by itself undertook the collection of the
proceeds of tickets sold originally by Orient Air and terminated forthwith the Agreement in
accordance with paragraph 13 which authorize the termination of the thereof in case Orient
Air is unable to transfer to the United States the funds payable by Orient Air Services to
American.

American Air instituted suit against Orient Air with the Court of First Instance of
Manila for Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction
and Restraining Order 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. Orient Air denied the material allegations of the complaint
with respect to plaintiff’s entitlement to alleged unremitted amounts, contending that after
application thereof to the commissions due it under the Agreement; plaintiff in fact still owed
Orient Air a balance in unpaid overriding commissions. Further, the defendant contended
that the actions taken by American Air in the course of terminating the Agreement as well as
the termination itself were untenable. The trial court ruled in its favor which decision was
affirmed with modification by Court of Appeals. It held the termination made by the latter as
affecting the GSA Agreement illegal and improper and ordered the plaintiff to reinstate
defendant as its general sales agent for passenger transportation in the Philippines in
accordance with said GSA Agreement.

ISSUES:

I. Whether or not Orient Air is entitled to an overriding commission based on total flown
revenue

II. Whether or not respondent appellate court erred in affirming the lower court's
decision on ordering American Air to reinstate defendant as its general sales agent
for passenger transportation in the Philippines in accordance with said GSA
Agreement

RULING:

I. YES. The SC concurred with the findings of the respondent appellate court. Orient Air
is duly entitled to an overriding commission based on total flown revenue. American
Air's perception that Orient Air was remiss or in default of its obligations under the
Agreement was, in fact, a situation where the latter acted in accordance with the
Agreement—that of retaining from the sales proceeds its accrued commissions
before remitting the balance to American Air. Since the latter was still obligated to
Orient Air by way of such commissions. Orient Air was clearly justified in retaining
and refusing to remit the sums claimed by American Air. The latter's termination of
the Agreement was, therefore, without cause and basis, for which it should be held
liable to Orient Air.

II. YES. The SC held that respondent appellate court erred in affirming the lower court's
decision on ordering American Air to reinstate defendant as its general sales agent
for passenger transportation in the Philippines. By affirming this ruling of the trial
court, respondent appellate court, in effect, compels American Air to extend its
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personality to Orient Air. Such would violate 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 instituted 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. The SC thereby 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 RODEL ROXAS vs COURT OF APPEALS, HON. ROBERT BALAO and
NATIONAL HOUSING AUTHORITY

FACTS:

Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of
land by the owners thereof. By virtue of such authority, petitioners offered to sell the lands,
located in Tuba, Tadiangan, Benguet to respondent National Housing Authority (NHA) to be
utilized and developed as a housing project. On February 14, 1989, the NHA Board passed
Resolution No. 1632 approving the acquisition of said lands, with an area of 31.8231
hectares, at the cost of P23.867 million, pursuant to which the parties executed a series of
Deeds of Absolute Sale covering the subject lands. Of the eight parcels of land, however,
only five were paid for by the NHA because of the report it received from the Land
Geosciences Bureau of the Department of Environment and Natural Resources (DENR) that
the remaining area is located at an active landslide area and therefore, not suitable for
development into a housing project.

On November 22, 1991, the NHA issued Resolution No. 2352 cancelling the sale
over the three parcels of land. The NHA, through Resolution No. 2394, subsequently offered
the amount of P1.225 million to the landowners as daños perjuicios. On March 9, 1992,
petitioners filed before the Regional Trial Court (RTC) of Quezon City a Complaint for
Damages against NHA and its General Manager Robert Balao. After trial, the RTC rendered
a decision declaring the cancellation of the contract to be justified. The trial court
nevertheless awarded damages to plaintiffs in the sum of P1.255 million, the same amount
initially offered by NHA to petitioners as damages. Upon appeal by petitioners, the Court of
Appeals reversed the decision of the trial court and entered a new one dismissing the
complaint. It held that since there was sufficient justifiable basis in cancelling the sale and
saw no reason" for the award of damages. The Court of Appeals also noted that petitioners
were mere attorneys-in-fact and, therefore, not the real parties-in-interest in the action before
the trial court.

ISSUES:

I. Whether or not petitioners are not parties to the contract of sale between their
principals and NHA
II. Whether or not petitioners are assignees to the rights under the contract of sale

RULING:
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I. NO. 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.

II. NO. Petitioners have not shown that they are assignees 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.

B. H. MACKE and W. H. CHANDLER vs JOSE CAMPS

FACTS:

B.H. Macke testified that on the order of one Ricardo Flores, who represented him to
be agent of the defendant, he shipped the said goods to the defendants at the Washington
Café. Flores later acknowledged the receipt of said goods and made various payments
thereon amounting in all to P174. Upon the demand for payment of balance of the account,
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, the defendant, who was at that time visiting in the
provinces. Flores acknowledged the bill for the goods furnished and the credits being the
amount set out in the complaint. When the goods were ordered, they were ordered on the
credit of the defendant and that they were shipped by the plaintiffs after inquiry which
satisfied the witness as to the credit of the defendant and as to the authority of Flores to act
as his agent. The witness always believed and still believes that Flores was the agent of the
defendant. When he went to the Washington Cafe for the purpose of collecting his bill, he
found Flores, in the absence of the defendant in the provinces, apparently in charge of the
business and claiming to be the business manager of the defendant, said business being
that of a hotel with a bar and restaurant annexed.

A written contract dated May 25, 1904, revealed that one Galmes, the former owner
of the Washington Cafe, sub-rented the building wherein the business was conducted, to the
defendant for a period of one year, for the purpose of carrying on that business, the
defendant obligating himself not to sublet or sub-rent the building or the business without the
consent of the said Galmes. This contract was signed by the defendant and the name of
Ricardo Flores appears thereon as a witness, and attached thereto is an inventory of the
furniture and fittings which also is signed by the defendant with the word sub-lessee below
the name, and at the foot of this inventory the word received followed by the name Ricardo
Flores with the words managing agent immediately following his name. Galmes stated that
he could not tell whether Flores was working for himself or for someone else — that it to say,
whether Flores was managing the business as agent or sub-lessee. Plaintiffs then instituted
an action since defendant had failed and refused to pay the said balance or any part of it up
to the time of the filing of the complaint.
ISSUE:
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Whether or not Flores was the agent of the defendant in the management of the bar of the
Washington Cafe with authority to bind the defendant for the payment of the goods
mentioned in the complaint

RULING:

YES. 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. The SC asserted that one
who clothes another 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.

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.

PRUDENTIAL BANK vs THE COURT OF APPEALS and AURORA CRUZ

FACTS:

The complaint in this case arose when private respondent Aurora F. Cruz, with her
sister as co-depositor, invested P200,000.00 in Central Bank bills with the Prudential Bank.
The placement was for 63 days at 13.75% annual interest. For this purpose, the amount of
P196,122.88 was withdrawn from the depositors' Savings Account No. 2546 and applied to
the investment. The difference of P3,877.07 represented the pre-paid interest. The
transaction was evidenced by a Confirmation of Sale 1 delivered to Cruz two days later,
together with a Debit Memo in the amount withdrawn and applied to the confirmed sale.
These documents were issued by Susan Quimbo, the employee of the bank to whom Cruz
was referred and who was apparently in charge of such transactions.

Upon maturity of the placement, Cruz returned to the bank to renew her investment.
Quimbo, who again attended to her, prepared a Credit Memo 4 crediting the amount of
P200,000.00 in Cruz's savings account passbook. She also prepared a Debit Memo for the
amount of P196,122.88 to cover the re-investment of P200,000.00 minus the prepaid
interest of P3,877.02. This time, Cruz was asked to sign a Withdrawal Slip 6 for P196,122.98,
representing the amount to be re-invested after deduction of the prepaid interest. Quimbo
explained this was a new requirement of the bank. Several days later, Cruz received another
Confirmation of Sale and a copy of the Debit Memo.

Cruz returned to the bank and sought to withdraw her P200,000.00. After verification
of her records, she was informed that the investment appeared to have been already
withdrawn by her. There was no copy on file of the Confirmation of Sale and the Debit Memo
allegedly issued to her by Quimbo. Quimbo herself was not available for questioning as she
had not been reporting for the past week. Every day thereafter, Cruz went to the bank to
inquire about her request to withdraw her investment. She received no definite answer so
she sent thebank a demand letter for the amount of P200,000.00 plus interest. Prudential
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Bank's Vice President Lauro J. Jocson replied that there appeared to be an anomaly and
requested Cruz to defer court action as they hoped to settle the matter amicably.
Increasingly worried, Cruz sent another letter reiterating her demand. This time the reply of
the bank was unequivocal and negative. She was told that her request had to be denied
because she had already withdrawn the amount she was claiming.

Cruz filed a complaint for breach of contract against Prudential Bank in the Regional
Trial Court of Quezon City. She demanded the return of her money with interest, plus
damages and attorney's fees. In its answer, the bank denied liability, insisting that Cruz had
withdrawn her investment. The bank also instituted a third-party complaint against Quimbo,
who did not file an answer and was declared in default. RTC rendered judgment in favor of
the plaintiffs. The decision was affirmed in toto on appeal to the respondent appellate court.

ISSUE: Whether or not Prudential Bank should be held liable for the acts of Susan Quimbo

RULING:

YES. There is no question that the petitioner was made liable for its failure or refusal
to deliver to Cruz the amount she had deposited with it and which she had a right to
withdraw upon its maturity. That investment was acknowledged by its own employees, who
had the apparent authority to do so and so could legally bind it by its acts vis-a-vis Cruz.
Whatever might have happened to the investment — whether it was lost or stolen by
whomever — was not the concern of the depositor. It was the concern of the bank. As far as
Cruz was concerned, she had the right to withdraw her P200,000.00 placement when it
matured pursuant to the terms of her investment as acknowledged and reflected in the
Confirmation of Sale. The liability of the principal Prudential Bank for the acts of its agent
Quimbo is not even debatable. The failure of the bank to deliver the amount to her pursuant
to the Confirmation of Sale constituted its breach of their contract, for which it should be held
liable. The SC declared in countless decisions that the principal is liable for obligations
contracted by the agent. The agent's apparent representation yields to the principal's true
representation and the contract is considered as entered into between the principal and the
third person.

EDUARDO V. LINTONJUA, JR. & ANTONIO K. LITONJUA vs ETERNIT CORPORATION

FACTS:

The Eternit Corporation (EC) manufactures roofing materials and pipe products.
Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer S.A.
Corporation (ESAC), a corporation registered under the laws of Belgium. Glanville was the
General Manager and President of EC, while Delsaux was the Regional Director for Asia of
ESAC. In 1986, because of the political situation in the Philippines the management of
ESAC wanted to stop its operations and to dispose the land in Mandaluyong City. They
engaged the services of realtor/broker Lauro G. Marquez. Marquez thereafter offered the
land to Eduardo B. Litonjua, Jr. for P27,000,000.00. Litonjua counter offered P20,000,000.00
cash. Marquez apprised Glanville & Delsaux of the offer. Delsaux sent a telex stating that,
based on the "Belgian/Swiss decision," the final offer was "US$1,000,000.00 and
P2,500,000.00. The Litonjua brothers deposited US$1,000,000.00 with the Security Bank &
Trust Company, and drafted an Escrow Agreement to expedite the sale.

Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic

of the Philippines, the political situation in the Philippines had improved. Marquez received a
telephone call from Glanville, advising that the sale would no longer proceed. Glanville
followed it up with a Letter confirming that he had been instructed by his principal to inform
Marquez that the decision has been taken at a Board Meeting not to sell the properties on
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which Eternit Corporation is situated. Delsaux himself later sent a letter confirming that the
ESAC Regional Office had decided not to proceed with the sale of the subject land.

The Litonjuas then filed a complaint for specific performance and damages against
Eternit Corp and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig City.
The trial court rendered judgment in favor of defendants and dismissed the complaint. The
CA rendered judgment affirming the decision of the RTC. The Litonjuas filed a motion for
reconsideration, which was also denied by the appellate court.

ISSUE:

Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC to act as
its agents relative to the sale of the properties of respondent EC

RULING:

NO. In the instant case, petitioners failed to adduce in evidence any resolution of the
Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as its
agents, to sell, let alone offer for sale, for and in its behalf, the eight parcels of land owned
by respondent EC including the improvements thereon. The SC ruled that Marquez, who
was a real estate broker, was a special agent within the purview of Article 1874 of the New
Civil Code. Under Section 23 of the Corporation Code, he needed a special authority from
EC’s board of directors to bind such corporation to the sale of its properties. A real estate
broker is one who negotiates the sale of real properties. His business, generally speaking, is
only to find a purchaser who is willing to buy the land upon terms fixed by the owner. He has
no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a
purchaser of real property does not include an authority to sell. Hence, an unauthorized act
of an officer of the corporation is not binding on it unless the latter ratifies the same
expressly or impliedly by its board of directors. Any sale of real property of a corporation by a
person purporting to be an agent thereof but without written authority from the corporation is
null and void.

Delsaux, who was merely the representative of ESAC (the majority stockholder of
EC) had no authority to bind the latter. The CA correctly pointed out that Delsaux was not
even a member of the board of directors of EC. Moreover, the Litonjuas failed to prove that
an agency by estoppel had been created between the parties. An agency by estoppel, which
is similar to the doctrine of apparent authority, requires proof of reliance upon the
representations, and that, in turn, needs proof that the representations predated the action
taken in reliance. Such proof is lacking in this case. In their communications to the
petitioners, Glanville and Delsaux positively and unequivocally declared that they were
acting for and in behalf of respondent ESAC. Neither may respondent EC be deemed to
have ratified the transactions between the petitioners and respondent ESAC, through
Glanville, Delsaux and Marquez. The transactions and the various communications inter se
were never submitted to the Board of Directors of respondent EC for ratification.