Some Case Digests (1868-1869)

Article 1868. Concept and Definition of Agency

01 RALLOS v FELIX GO CHAN & REALTY COPR., Munoz-Palma

RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS vs. FELIX
GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS

Principal: Concepcion Rallos, represented by RAMON RALLOS, Administrator of her

Estate

Agent: Simeon Rallos

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 TCT No.
11118 of the Registry of Cebu. The sisters executed a special power of attorney in favor
of their brother, Simeon Rallos, authorizing him to sell for and in their behalf the
property. However Concepcion Rallos died. Simeon Rallos sold the undivided shares of
his sisters Concepcion and Gerundia in lot 5983 to respondent Corporation for the sum
of P10,686.90. The deed of sale was registered. Ramon Rallos, as administrator of the
Intestate Estate of Concepcion Rallos filed a complaint praying (1) that the sale of the
undivided share of the deceased Concepcion Rallos in lot 5983 be declared
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 shares; and (3) that plaintiff be indemnified by
way of attorney’s fees and payment of costs of suit.. While the case was pending in the
trial court, both Simeon and his sister Gerundia died and they were substituted by the
respective administrators of their estates.

ISSUES:

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1) Whether or not the death of Concepcion Rallos, the principal, terminates the
agency relationship?; 2) If indeed the death of principal revokes such agency, whether
Simeon Rallos, the agent, may bind third person on the sale of property?

HELD: 1) YES. As provided under Art. 1919 of the Civil Code, that death of principal
revokes ipso jure the agency unless falls under exceptions of articles 1930 & 1931.

2) NO. 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
respondent corporation. On the basis of the established knowledge of Simeon Rallos
concerning the death of his principal, Concepcion Rallos, Article 1931 of the Civil Code
is inapplicable. The law expressly requires for its application lack of knowledge on the
part of the agent of the death of his principal; it is not enough that the third person acted
in good faith. The General rule is that an act of agent after death of his principal is void
ab initio unless the same falls under exceptions in Arts. 1930 and 1931 of the Civil Code

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Agency, its concept, essential elements and characteristics.—By the relationship of

agency, one party called the principal authorizes another called the agent to act for and
in his behalf in transactions with third persons. The essential elements of agency are:(l)
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 agent acts as
a representative and not for himself; and (4)

the agent acts within the scope of his authority. Agency is basically personal,
representative, and derivative in nature. The authority of the agent to act emanates from
the powers granted to him by his principal; his act is the act of the principal if done
within the scope of the authority. “He who acts through another acts himself.”

Art. 1930 and Art. 1931 of the Civil Code exceptions to general rule provided in Art.
1919 of the Civil Code, that death of principal revokes ipso jure the agency:

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Under Art. 1931 of the Civil Code, an act done by the agent after the death of his
principal is valid and effective only under two conditions, viz: (1) that the agent acted
without knowledge of the death of the principal, and (2) that the third person who
contracted with the agent himself acted in good faith. Good faith here means that the
third person was not aware of the death of the principal at the time he contracted with
said agent. These two requisites must concur: the absence of one will render the act of
the agent invalid and unenforceable.

The Civil Code does not impose a duty on the heirs of the principal to notify the agent of
the death of said principal. What the Code provides in Article 1932 is that, if the agent
dies, his heirs must notify the principal thereof, and in the meantime adopt such
measures as the circumstances may demand in the interest of the latter. Hence, the fact
that no notice of the death of the principal was registered on the certificate of title of the
property in the Office of the Register of Deeds, is not fatal to the cause of the estate of
the principal.

----

Plaintiff: Ramon Rallos

Defendant: Felix Go Chan & Sons Realty Corporation
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.

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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 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 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 agent
3) 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)

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Relationship of Agency (concept arising from principles under Art 1317 and 1403 )- 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.

• Extinguishment
o Generally: among others , 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 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 Concolacion’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:

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 Simon Rallos knew (as can be inferred from his pleadings) of principal
Concepcion’s death
For Art 1931 to apply, both requirements must be present

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 principal
Court 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 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.
• 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
principal’s death at that time (exception under Art. 1931)

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

02 ORIENT AIR SERVICES & HOTEL REPRESENTATIVES vs. COURT OF

APPEALS and AMERICAN AIRLINES INCORPORATED G.R. No. 76931. May
29, 1991

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Principal: AMERICAN AIRLINES INCORPORATED
Agent: ORIENT AIR SERVICES & HOTEL REPRESENTATIVES

FACTS: The respondent, American Air, is an air carrier offering passenger and air cargo
transportation in the Philippines, and Orient Air & et. al., entered into a General Sales
Agency Agreement (GSA) whereby the former authorized the latter to act as its
exclusive general sales agent within the Philippines for the sale of air passenger
transportation.

-----------------------------------

General Sales Agency Agreement (GSA):

1.Representation of American by Orient Air Services

Orient Air Services will act on American’s behalf as its exclusive General Sales Agent
within the Philippines, including any United States military installation therein which are
not serviced by an Air Carrier Representation Office (ACRO), for the sale of air
passenger transportation. The services to be performed by Orient Air Services shall
include:
(a) soliciting and promoting passenger traffic for the services of American and, if
necessary, employing staff competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of business to be used
exclusively for the transaction of the business of American;
(c) arranging for distribution of American’s timetables, tariffs and promotional
material to sales agents and the general public in the assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents as may be
appointed by Orient Air Services with the prior written consent of American) in the
assigned territory including if required by American the control of remittances and
commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general
public in the assigned territory.

5. Commissions:

(b)Overriding commission

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In addition to the above commission American will pay Orient Air Services an overriding
commission of 3% of the tariff fares and charges for all sales of transportation over
American’s service by Orient Air Service or its sub-agents.
13. Termination

American may terminate the Agreement on two days’ notice in the event Orient Air
Services is unable to transfer to the United States the funds payable by Orient Air
Services to American under this Agreement. Either party may terminate the Agreement
without cause by giving the other 30 days’ notice by letter, telegram or cable.

-------------------------------------

: Respondent (American Air)’s contention: It 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 thereof. American Air instituted suit against Orient Air for Accounting with
Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining Order,
averring the 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.

Petitioner (Orient Air)’s defense: It denied the material allegations of the complaint with
respect to its entitlement to alleged unremitted amounts, contending that after
application thereof to the commissions due it under the Agreement, American Air in fact
still owed Orient Air a balance in unpaid overriding commissions. Further, the 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.

Since Orient Air was allowed to carry only the ticket stocks of American Air, and the
former not having opted to appoint any sub-agents, it is American Air’s contention that
Orient Air can claim entitlement to the disputed overriding commission based only on
ticketed sales.

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Orient Air contends that the contractual stipulation of a 3% overriding commission
covers the total revenue of American Air and not merely that derived from ticketed sales
undertaken by Orient Air. The latter, in justification of its submission, invokes its
designation as the exclusive General Sales Agent of American Air, with the
corresponding obligations arising from such agency, such as, the promotion and
solicitation for the services of its principal. In effect, by virtue of such exclusivity, “all
sales of transportation over American Air’s services are necessarily by Orient Air.

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: 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 second, an overriding commission of
3% of tariff fares and charges for all sales of passenger transportation over American
Air services.

ISSUES:

1) Whether or not the Orient Air Services & et. al., as agent of respondent American
Air, acted within the scope of his authority?; 2) If indeed, there exists an agent-principal
relationship, whether Orient Air be entitled to its claim of 3% overriding commission
based on total revenue?

HELD:

YES. 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.” The court set aside the portion of the ruling
of the respondent appellate court reinstating Orient Air as general sales agent of
American Air.

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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.”

--------------------------------

An agent-principal relationship can only be effected with the consent of the principal,
and must not, in any way be compelled by law or by any court.—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.

03 Eurotech Industrial Technologies, Inc. v. Crizon, et al., G.R. No.

167552, April 23, 2007
Agency

The only issue in Eurotech Industrial Technologies, Inc. v. Crizon, et al., G.R.
No. 167552, April 23, 2007 is whether, sales manager of a sale proprietorship acting
within the scope of his authority is liable with the principal in case the latter breaches his
obligation to another.

In ruling that he is not, the SC

Held: No. An agent who acts as such, is not personally liable to the party with whom he
contracts. (Art. 1897, NCC). As manager, his position is unique in that it presupposes
the grant of broad powers within which to conduct the business of the principal.

Well-settled is the rule that:

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 The powers of an agent are particularly broad in the case of one acting as a
general agent or manager; such a position presupposes a degree of confidence
reposed and investiture with liberal powers for the exercise of judgment and discretion
in transactions and concerns which are incidental or appurtenant to the business
entrusted to his care and management. In the absence of an agreement to the contrary,
a managing agent may enter into any contracts that he deems reasonably necessary or
requisite for the protection of the interests of his principal entrusted to his management.
x x x.. (3 Am Jur. 2d, No. 91, p. 602).

The agent acted within the scope of his authority. Had he not done so, the
business of the principal would have been adversely affected and he would have
violated his fiduciary relation with his principal.

The first part of 1897declares that the principal is liable in cases when the agent
acted within the bounds of his authority. Under this, the agent is completely absolved of
any liability. The second part of the said provision presents the situations when the
agent himself becomes liable to a third party when he expressly binds himself or he
exceeds the limits of his authority without giving notice of his powers to the third person.
However, it must be pointed out that in case of excess of authority by the agent, like
what petitioner claims exists here, the law does not say that a third person can recover
from both the principal and the agent.

Nature of agency.

In a contract of agency, a person binds himself to render some service or to do

something in representation or on behalf of another with the latter’s consent. The
underlying principle of the contract of agency is to accomplish results by using the
services of others – to do a great variety of things like selling, buying, manufacturing,
and transporting. Its purpose is to extend the personality of the principal or the party for
whom another acts and from whom he or she derives the authority to act. It is said that
the basis of agency is representation, that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said acts have the same legal
effect as if they were personally executed by the principal. By this legal fiction, the
actual or real absence of the principal is converted into his legal or juridical presence –
qui facit alium facit per se.

Elements of a contract of agency.

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 The elements of the contract of agency are: (1) 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 agent acts as a representative and not for himself; and
(4) the agent acts within the scope of his authority. (Yu Eng Cho v. Pan American World
Airways, Inc., 385 Phil. 453 (2000)).

Eurotech Industrial Technologies, Inc. v. Edwin Cuizon and Erwin Cuizon

G.R. No. 167552 April 23, 2007
Chico-Nazario, J.

FACTS: Eurotech is engaged in the business of importation and distribution of various

European industrial equipment. It has as one of its customers Impact Systems Sales
which is a sole proprietorship owned by Erwin Cuizon.

Eurotech sold to Impact Systems various products allegedly amounting to

P91,338.00. Cuizons sought to buy from Eurotech 1 unit of sludge pump valued at
P250,000.00 with Cuizons making a down payment of P50,000.00. When the sludge
pump arrived from the United Kingdom, Eurotech refused to deliver the same to
Cuizons without their having fully settled their indebtedness to Eurotech. Thus, Edwin
Cuizon and Alberto de Jesus, general manager of Eurotech, executed a Deed of
Assignment of receivables in favor of Eurotech.

Cuizons, despite the existence of the Deed of Assignment, proceeded to collect

from Toledo Power Company the amount of P365,135.29. Eurotech made several
demands upon Cuizons to pay their obligations. As a result, Cuizons were able to make
partial payments to Eurotech. Cuizons’ total obligations stood at P295,000.00 excluding
interests and attorney’s fees.

Edwin Cuizon alleged that he is not a real party in interest in this case. According
to him, he was acting as mere agent of his principal, which was the Impact Systems, in
his transaction with Eurotech and the latter was very much aware of this fact.
The RTC dropped Edwin Cuizon as party defendant in the case. The Court of
Appeals, affirmed the trial court’s decision. Hence, the appeal.

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ISSUE: Whether or not Edwin exceeded his authority when he signed the Deed of
Assignment thereby binding himself personally to pay the obligations to Eurotech

HELD: No. Edwin did not exced his authority when he signed the Deed of Assignment.
As stated in Art. 1897, The agent who acts as such is not personally liable to the party
with whom he contracts, unless he expressly binds himself or exceeds the limits of his
authority without giving such party sufficient notice of his powers. An agent, who acts as
such, is not personally liable to the party with whom he contracts. There are 2 instances
when an agent becomes personally liable to a third person. The first is when he
expressly binds himself to the obligation and the second is when he exceeds his
authority. In the last instance, the agent can be held liable if he does not give the third
party sufficient notice of his powers. In this case, Edwin does not fall within any of the
exceptions contained in Art. 1897. Edwin Cuizon acted well-within his authority when he
signed the Deed of Assignment. Eurotech refused to deliver the 1 unit of sludge pump
unless it received, in full, the payment for Impact Systems’ indebtedness. Impact
Systems desperately needed the sludge pump for its business since after it paid the
amount of P50,000.00 as downpayment it still persisted in negotiating with Eurotech
which culminated in the execution of the Deed of Assignment of its receivables from
Toledo Power Company. The significant amount of time spent on the negotiation for the
sale of the sludge pump underscores Impact Systems’ perseverance to get hold of the
said equipment. Edwin’s participation in the Deed of Assignment was “reasonably
necessary” or was required in order for him to protect the business of his principal.
Therefore, Edwin Cuizon acted within the scope of his authority and is not personally
liable for the obligations to Eurotech.

04 Bordador v. Luz
G.R. No. 130148 December 15, 1997 J. Regalado
petitioners Jose and Lydia Bordador
respondents Sps. Brigida and Ernesto Luz, Narciso Deganos
summary The Bordadors, who were running a jewelry business, entrusted pieces of
jewelry to Degnos, who was obliged to sell them. Deganos failed to account for them. A
civil and criminal case were filed against him, which prayed that Brigida Luz, who was
puported to be his principal, be held solidarily liable. The Court ruled that Deganos was
not the agent of Luz, as there was no evidence that Luz consented to, or authorized
Deganos to act on her behalf.

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Facts of the case
The Bordador's were in the business of purchase and sale of jewelry, and Brigida Luz
was their regular customer. Deganos, the brother of Luz, received pieces of jewelry
worth P382,816.00, covered by seventeen receipts, eleven of them indicating that they
were received on behalf a certain Evelyn Aquino, and six indicated that they were
receive don behalf of Luz.

Deganos was supposed to sell the items, remit the proceeds, and return the unsold
ones to the Bordadors. However, he was only able to remit P53,207.00, failing to pay
the balance of the sales proceeds and returning any unsold items. The Bordadors filed
a complaint before the barangay court, where Deganos along with the Sps. Luz signed
a compromise agreement promising to pay the unpaid account of P765,463.98.
Deganos, however, failed to comply.

A civil case for the recovery of sum of money was instituted against Deganos and
Brigida Luz in the Malolos RTC. Her husband Ernesto was impleaded as well. Four
years later in 1994, a criminal case for estafa was filed, which was still pending when
this decision was promulgated.

Petitioners claimed that Deganos was acting as the agent of Brigida Luz and because
he failed to pay for the pieces of jewelry, the Sps. Luz, as principals, are solidarily liable.
The respondents countered that only Deganos was liable, that Brigida never authorized
him to receive jewelry on her behalf, neither did she receive the articles in question.

The RTC ruled that there was no agency between Brigida Luz and Deganos. It was
Bordador who indicated that the items were received on behalf of Luz. Even if there was
a contract of agency, there was no memorandum to this effect and was therefore
unenforceable.

CA affirmed the judgment.

issue
Was there a contract of agency between Luz and Deganos? NO.

ratio
Petitioners presented as evidence several letters sent by Luz to the Bordadors to prove
that she recognized her liability but the court had pointed out that such letters were for

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previous obligations and did not include the jewelries involved in the present case. As
for the statement of Brigida Luz that she received pieces of gold jewelry, there was no
proof that the said jewelry were the same items in question.

While it was shown in the findings of fact that Deganos had ostensibly acted as an
agent of Luz, there was no showing that Luz authorized him to act on her behalf
regarding the transaction questioned in this case. The basis for agency is
representation, and there is no showing that Luz consented or authorized Deganos to
act on her behalf.

It was inexcusably negligent of the Bordados to entrust Deganos with several pieces of
jewelry without requiring a written authorization from the supposed principal. A person
dealing with an agent is put upon inquiry and must discover upon his peril the authority
of the agent. There was no express or implied agency between Deganos and Luz.

Petitioners also assail the validity of the CA's ruling, as it will be in conflict with the
criminal case of estafa. This will not be the case as Article 33 of the Civil Code provides
that action for damages arising from fraud may proceed independently of the criminal
case and will need only a preponderance of evidence.

05 REGINA P. DIZON, & et. al. vs. COURT OF APPEALS and OVERLAND
EXPRESS LINES, INC.
G.R. No. 122544 January 28, 1999

The private respondent, Overland Express Lines, Inc., (lessee) entered into a Contract
of Lease with Option to Buy with petitioners (lessors) involving a 1,755.80 square meter
parcel of land situated at corner MacArthur Highway and South “H” Street, Diliman,
Quezon City. The term of the lease was for one (1) year commencing from May 16,
1974 up to May 15, 1975. During this period, private respondent was granted an option
to purchase for the amount of P3,000.00 per square meter. Thereafter, the lease shall
be on a per month basis with a monthly rental of P3,000.00. For failure of private
respondent to pay the increased rental of P8,000.00 per month , petitioners filed an
action for ejectment. The court t rendered judgment ordering private respondent to
vacate the leased premises and to pay the sum of P624,000.00 representing rentals in

15
arrears and/or as damages in the form of reasonable compensation for the use and
occupation of the premises. Private respondent filed an action for Specific Performance
and Fixing of Period for Obligation with prayer for the issuance of a restraining order
pending hearing on the prayer for a writ of preliminary injunction. It sought to compel the
execution of a deed of sale pursuant to the option to purchase and the receipt of the
partial payment, and to fix the period to pay the balance. Then, the trial court denied the
issuance of a writ of preliminary injunction on the ground that the decision of the then
City Court for the ejectment of the private respondent, having been affirmed by the then
Intermediate Appellate Court and the Supreme Court, has become final and executory.
The Court of Appeals went further by stating that in fact, what was entered into was a
“conditional contract of sale” wherein ownership over the leased property shall not pass
to the private respondent until it has fully paid the purchase price. Since private
respondent did not consign to the court the balance of the purchase price and continued
to occupy the subject premises, it had the obligation to pay the amount of P1,700.00 in
monthly rentals until full payment of the purchase price.

ISSUE: Whether or not there exists an agency relationship between petitioners (as co-
owners of the leased premises) and Alice A. Dizon, as petitioners’ alleged agent on the
supposed agency?

HELD:

NO. In an attempt to resurrect the lapsed option, private respondent gave P300,000.00
to petitioners (thru Alice
A. Dizon) on the erroneous presumption that the said amount tendered would constitute
a perfected contract of sale pursuant to the contract of lease with option to buy. There
was no valid consent by the petitioners (as co-owners of the leased premises) on the
supposed sale entered into by Alice A. Dizon, as petitioners’ alleged agent, and private
respondent. The basis for agency is representation and a person dealing with an agent
is put upon inquiry and must discover upon his peril the authority of the agent. As
provided in Article 1868 of the New Civil Code, there was no showing that petitioners
consented to the act of Alice A. Dizon nor authorized her to act on their behalf with
regard to her transaction with private respondent. The most prudent thing private
respondent should have done was to ascertain the extent of the authority of Alice A.
Dizon. Being negligent in this regard, private respondent cannot seek relief on the basis
of a supposed agency.

16
Ruling: The petition is granted.

--------------------------------------------------

Under Article 1475 of the New Civil Code, “the contract of sale is perfected at the
moment there is a meeting of minds upon the thing which is the object of the contract
and upon the price. From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form of contracts.” Thus,
the elements of a contract of sale are consent, object, and price in money or its
equivalent. It bears stressing that the absence of any of these essential elements
negates the existence of a perfected contract of sale. Sale is a consensual contract and
he who alleges it must show its existence by competent proof.

06 VICTORIAS MILLING CO., INC. v. COURT OF APPEALS and

CONSOLIDATED SUGAR CORPORATION (2000, Quisumbing)
PARTIES: Petitioner – Victorias Milling Co., Inc. | Respondents – CA & Consolidated
Sugar Corporation

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/Delivery Receipts (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
November 13, 1989 in payment. That same day, CSC wrote petitioner that it had been
authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed in the
letter were a copy 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.
• CSC was only able to withdraw 2,000 of the 25,000 bags of sugar covered by
SLDR No. 1214M.

17
• 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.

Pre-trial
• CSC filed a complaint for specific performance. Defendants were Teresita Ng Sy
(doing business under the name of St. Therese Merchandising) and Victorias Milling.
CSC did not pursue case against Sy and instead used her as a witness.
• CSC: Fully paid so no reason to refuse delivery
• VMC:
23,000 bags were withdrawn by STM corresponding to the cleared checks
SLDRs, which it had issued, were not documents of title, but mere delivery
receipts issued pursuant to a series of transactions entered into between it and STM.
The SLDRs prescribed delivery of the sugar to the party specified therein and did
not authorize the transfer of said party's rights and interests.

Trial Court
• TC rendered judgment in favor of CSC. VMC was ordered to deliver 23,000 bags
of sugar.
• CSC:
The testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the
purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by her covered
by SLDR No. 1214 as well as the purchase price of P15,950,000.00 for the 25,000 bags
of sugar bought by her covered by SLDR No. 1213 on the same date, October 16, 1989
(date of the two SLDRs) is duly supported by documentary evidence, inclusive of which
are post-dated checks dated October 27, 1989 issued by St. Therese Merchandising in
favor of VMC at the time it purchased the 50,000 bags of sugar covered by SLDR No.
1213 and 1214. Said checks appear to have been honored and duly credited to the
account of VMC as evidenced by an official receipt issued by VMC in favor of STM.
The testimony of Teresita Ng Go is further supported by a computer printout of
VMC, showing the quantity and value of the purchases made by STM, the SLDR no.
issued to cover the purchase, the official receipt no., and the status of payment. It is
clearly indicated in that document that with respect to the sugar covered by SLDR No.
1214, the same has been fully paid as indicated by the word 'cleared' appearing under
the column of 'status of payment.'

18
• VMC:
That the purchase price of the 25,000 bags of sugar purchased by STM covered
by SLDR No. 1214 has not been fully paid is supported only by the testimony of Arnulfo
Caintic.
• TC: The testimony of Arnulfo Caintic is merely a sweeping barren assertion that
the purchase price has not been fully paid and is not corroborated by any positive
evidence.

Court of Appeals
• VMC appealed.
• VMC: Dealings between it and STM were part of a series of transactions
involving only one account or one general contract of sale. Pursuant to this contract,
STM or any of its authorized agents could withdraw bags of sugar only against cleared
checks of STM.
• CSC: SLDR No. 1214M is a separate transaction.
• CA first MODIFIED RTC, VMC to deliver 12,586 bags but on MR modified its
own judgment, VMC to deliver 23,000 bags.
• STM’s and CSC’s specially informing VMC that CSC was authorized by buyer
STM to withdraw sugar against SLDR No. 1214M "for and in our (STM) behalf," CSC’s
withdrawing of 2,000 bags of sugar for STM, and STM's empowering other persons as
its agents to withdraw sugar against the same SLDR No. 1214M, rendered CSC like the
other persons, an agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., and
precluded it from subsequently claiming and proving being an assignee of SLDR No.
1214M and from suing by itself for its enforcement because it was conclusively
presumed to be an agent (Sec. 2, Rule 131, Rules of Court) and estopped from doing
so.

RELEVANT ISSUES:
1. W/N CA erred in not ruling that CSC was an agent of STM and hence, estopped
to sue upon SLDR No. 1214M as an assignee.
(Note: Issue 1st raised on appeal; so 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. BUT since CA ruled
upon it SC must address it)

2. W/N CA erred in applying the law on compensation to the transaction under

SLDR No. 1214M so as to preclude VMC from offsetting its credits on the other SLDRs.

19
3. W/N CA erred in not ruling that the sale of sugar under SLDR No. 1214M was a
conditional sale or a contract to sell and hence freed VMC from further obligations.
HELD/RATIO:
1. NO. CA did not err when it held that CSC was not STM’s agent. CSC could
independently sue VMC.
VMC: 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:
“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 (SLDR) 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."
• From Article 1868 it is clear 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.
• 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.
CSC was a buyer of the SLDFR form, and not an agent of STM.
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

20
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.

2. NO. CA did not err when it refused to apply Article 1279 of NCC.
VMC: Insists that its debt has been offset by its claim for STM's unpaid
purchases, pursuant to Article 1279 NCC.
However, TC and CA found 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 shows that
VMC had been paid for the sugar purchased under SLDR No. 1214M.
VMC clearly had the obligation to deliver said commodity to STM or its assignee.
Since said sugar had been fully paid for, VMC and CSC, as assignee of STM, were not
mutually creditors and debtors of each other.

3. YES. CA erred in ruling that the transaction was a contract to sell. It is a contract
of sale.
VMC: The sale of sugar under SLDR No. 1214M is a conditional sale or a
contract to sell, with title to the sugar still remaining with the vendor. SLDR No. 1214M
contains the following terms and conditions:
"It is understood and agreed that by payment by buyer/trader of refined sugar and/or
receipt of this document by the buyer/trader personally or through a representative, title
to refined sugar is transferred to buyer/trader and delivery to him/it is deemed effected
and completed and buyer/trader assumes full responsibility therefore…”
The terms and conditions clearly show that VMC transferred title to the sugar to
the buyer or his assignee upon payment of the purchase price. Said terms clearly
establish a contract of sale, not a contract to sell. VMC is now estopped from alleging
the contrary.
Having transferred title to the sugar in question, VMC is now obliged to deliver it
to the purchaser or its assignee.
The contract is the law between the contracting parties. Where the terms and
conditions so stipulated are not contrary to law, morals, good customs, public policy or
public order, the contract is valid and must be upheld.

DISPOSITIVE: The instant petition is DENIED for lack of merit. Costs against petitioner.

21
07 Maria Tuazon, Alejandro Tuazon, Melencio Tuazon, Spouses
Anastacio and Mary Buenaventura, petitioners vs. Heirs of Bartolome
Ramos, defendant
GR No. 156262
NATURE OF ACTION: Petition for Review
PONENTE: Panganiban, J.

FACTS:
• This case arose from failure of the petitioners to pay the respondents
predecessor-in-interest ( deceased Bartolome Ramos). The check in issue was
indorsed by the petitioner (Tuazon) in favor of the said predecessor.
• The petitioners Leonilo and Maria (Tuazon) purchased 8,326 cavans of rice from
Bartolome Ramos. Only 4,437 cavans were paid leaving unpaid 3,889 cavans with
value of P 1,211,919.00. In payment, the spouses issued several checks.
• The checks bounced due to insufficiency of funds.
Side of the Petitioner:
• Denied the purchase of rice from Bartolome and alleged that it was Magdalena
Ramos (his wife) owned and traded the merchandise. They also alleged that Maria
Tuazon was merely Magdalena’s agent.
• They argued that Evangeline Santos (the one who issued the checks) was the
buyer of the rice, and the checks were merely turned over by Maria to Bartolome,
without knowing that these were not funded. They argued that they were mere agents
and should not be held answerable.
• They alleged that Santos should be primarily liable to Ramos because she was
the one who had purchased the merchandise from Bartolome as evidenced by the
checks that had been drawn in her name.
• The petitioners also alleged that their personal properties were sold because
they were meeting financial difficulties and they were valued in good faith.

Side of the Defendant:

• The Tuazons already knew that they had no available funds to support the
checks, and anticipated that they will be sued. Thus, they executed fictitious sales of
their properties (residential house and lot and a Toyota)
RTC Ruling:

22
• In favor of the plaintiffs (Bartolome) and against the defendants (Tuazon),
ordering the defendants to pay the plaintiffs as follows:
o 1,750,050.00 + interest; 50,000.00 attorney’s fees; 20,000.00 moral damages;
and pay the cost of suit.
CA Ruling:
• Appeal is DISMISSED and the decision is AFFIRMED.
ISSUES:
1. WON Maria Tuazon was considered as an agent of Bartolome Ramos
2. Won Evangeline Santos was an indispensable party
HELD:
• No.
The declarations of agents alone are generally insufficient to establish the fact or extent
of their authority. The law makes no presumption of agency; proving its nature and
extent is incumbent upon the person alleging it. The petitioners raise the fact of agency
as an affirmative defense, yet fail to prove its existence.
Their filing a suit against her in their own names negates their claim that they acted as
mere agents in selling the rice obtained from Bartolome Ramos.

• No.
There is no privity of contract between the respondents and Santos. Maria Tuazon
indorsed the questioned checks in favor of the respondent, as indorser, in case the
checks were dishonored, she would pay the corresponding amount. After an instrument
is dishonored by nonpayment, indorsers cease to be merely secondarily liable; they
become principal debtors whose liability becomes identical to that of the original obligor.

DOCTRINE:
• In a contract of agency, one binds oneself to render some service or to do
something in representation or on behalf of another, with the latters consent or
authority.
• The following are the elements of agency:
o (1) the parties consent, express or implied, to establish the relationship;
o (2) the object, which is the execution of a juridical act in relation to a third person;
o (3) the representation, by which the one who acts as an agent does so, not for
oneself, but as a representative;
o (4) the limitation that the agent acts within the scope of his or her authority.
• As the basis of agency is representation, there must be, on the part of the
principal, an actual intention to appoint, an intention naturally inferable from the

23
principals words or actions. In the same manner, there must be an intention on the part
of the agent to accept the appointment and act upon it. Absent such mutual intent, there
is generally no agency.

08 PATRIMONIO v. GUTIERREZ G.R. No. 187769 June 4, 2014 NIL,

Incomplete but Delivered Instrument, Holder in Due Course
June 17, 2019

FACTS:

Petitioner, then a professional basketball player and respondent, a well-known sports

columnist, entered into a business venture under the name of Slam Dunk Corporation, a
production related to basketball.

In the course of their business, the petitioner pre-signed several checks to answer for
the expenses of Slam Dunk. Although signed, these checks had no payee’s name, date
or amount. The blank checks were entrusted to Gutierrez with the specific instruction
not to fill them out without previous notification to and approval by the petitioner. Without
the petitioner’s knowledge and consent, Gutierrez secured a loan from Marasigan on
the excuse that the petitioner needed the money for the construction of his house.

Gutierrez delivered to Marasigan one of the blank checks which petitioner pre-signed.

Marasigan deposited the check but it was dishonored for the reason “ACCOUNT
CLOSED.” Marasigan sought recovery from Gutierrez and petitioner to no avail.
Consequently, he filed a criminal case for violation of B.P. 22 against the petitioner.

The petitioner filed before the RTC a Complaint for Declaration of Nullity of Loan and
Recovery of Damages against Gutierrez and co-respondent Marasigan. He completely
denied authorizing the loan or the check’s negotiation, and asserted that he was not
privy to the parties’ loan agreement.

The RTC ruled in favor of Marasigan, and ordered the petitioner to pay Marasigan the
face value of the check with a right to claim reimbursement from Gutierrez.

24
The CA affirmed the RTC ruling.

After the CA denied the subsequent motion for reconsideration, the petitioner filed the
present petition.

ISSUES:

Whether the petitioner can be made liable under the check he signed.
Whether Marasigan is a holder in due course.

RULING:

The petition is impressed with merit.

1.

Liability Under the Instrument

The answer is supplied by the applicable statutory provision found in Section 14 of the
Negotiable Instruments Law (NIL).

This provision applies to an incomplete but delivered instrument. Under this rule, if the
maker or drawer delivers a pre-signed blank paper to another person for the purpose of
converting it into a negotiable instrument, that person is deemed to have prima facie
authority to fill it up. It merely requires that the instrument be in the possession of a
person other than the drawer or maker and from such possession, together with the fact
that the instrument is wanting in a material particular, the law presumes agency to fill up
the blanks.

In order however that one who is not a holder in due course can enforce the instrument
against a party prior to the instrument’s completion, two requisites must exist: (1) that
the blank must be filled strictly in accordance with the authority given; and (2) it must be
filled up within a reasonable time. If it was proven that the instrument had not been filled
up strictly in accordance with the authority given and within a reasonable time, the
maker can set this up as a personal defense and avoid liability. However, if the holder is
a holder in due course, there is a conclusive presumption that authority to fill it up had
been given and that the same was not in excess of authority.

25
In the present case, the petitioner contends that there is no legal basis to hold him liable
both under the contract and loan and under the check because: first, the subject check
was not completely filled out strictly under the authority he has given and second,
Marasigan was not a holder in due course.

2.

Marasigan is Not a Holder in Due Course

The NIL defines a holder in due course, thus:

Sec. 52 — A holder in due course is a holder who has taken the instrument under the
following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it had
been previously dishonored, if such was the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.

In the present case, Marasigan’s knowledge that the petitioner is not a party or a privy
to the contract of loan, and correspondingly had no obligation or liability to him, renders
him dishonest, hence, in bad faith.

As correctly noted by the CA, his inaction and failure to verify, despite knowledge of that
the petitioner was not a party to the loan, may be construed as gross negligence
amounting to bad faith.

09 Yoshizaki v. Joey Training Center, 702 SCRA 631 [2013]

SALLY YOSHIZAKI, Petitioner, vs. JOY TRAINING CENTER OF AURORA, INC.,
Respondent. [G.R. No. 174978]
NATURE OF ACTION:
26
Petition for review on certiorari 1 filed by petitioner Sally Yoshizaki to challenge the
February 14, 2006 Decision2 and the October 3, 2006 Resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 83773.

FACTS:
Spouses Richard and Linda Johnson were members in the Joy Training’s Board of
trustees who sold the real properties, a Wrangler Jeep, and other personal properties to
spouses Yoshio and Sally Yoshizaki. The respondent Joy Training Center of Aurora Inc.
Represented by its acting Chairperson, Reuben Rubio, instituted an action for the
cancellation of sales and damages, averring that the Johnson’s was without the
requisite authority from Joy Training’s Board of Directors. The Regional Trial Court of
Aurora ruled in favour of the spouses Yoshizaki. Where the RTC ruled its decision
based on the fact that Joy Training Center Inc. owned the real properties and its board
of directors authorized the Johnsons’ to dispose/sell those properties. The RTC
recognized that there were only five (5) actual members of the board of trustees, a
majority of the board which validly authorized the said sale. The RTC also rules that the
sale of the personal properties in question was valid due to the fact that those properties
are registered under the Johnsons’ name. The Court of Appeals reversed its ruling with
respect to the sale of real properties, ruling that the resolution is void because it was not
appropriated by a majority of the board of trustees.

ISSUE/S:
Whether or not there was a contract of agency to sell the real properties between Joy
Training and the spouses Johnson.

RULING:
WHEREFORE, premises considered, the assailed Decision dated February 14, 2006
and Resolution dated October 3, 2006 of the Court of Appeals are hereby AFFIRMED
and the petition is hereby DENIED for lack of merit.

RATIO DECIDENDI:
The Supreme Court ruled that there was no contract of agency between Joy Training
and the spouses Richard and Linda Johnson to sell the land with its improvements.
Article 1868 of the New Civil Code defines a contract of agency 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.” It may be express, or
implied from the acts of the principal, from his silence or lack of action, or his failure to

27
repudiate the agency, knowing that another person is acting on his behalf without
authority. The evidence that was presented in this case was not substantial enough to
convince the Supreme Court of the existence of the contract of agency to sell the real
properties.

Jusayan v. Sombilla

Facts:

Wilson Jesena owned land in Lucena, Iloilo

June 1970 - Wilson entered an agreement with Jorge Sombilla wherein Jorge was to
supervise tilling and farming
Aug. 1971 - Wilson sold the land to Jusayan
Jorge and Jusayan verbally agreed that Jorge would retain the land and deliver 110
cavans of palay annually to Jusayan without need for accounting of the cultivation
expenses provided Jorge cover the irrigation fees
1971-1983 - continued the agreement
1975 - Transferred ownership to sons (petitioners)
1984 - Jusayan terminated administration and asked for return of land Jorge did not
return the land, so a case was filed in 1986 in the RTC RTC upheld the contractual
relationship
CA reversed and dismissed the case, declaring it a case of agricultural tenancy and not
within the jurisdiction of the RTC (should be DAR)

Issues:
W.O.N. Relationship is that of agency or agricultural leasehold

Agricultural leasehold

Requisites of Agency:
1. Relationship is established by parties (express or implied);
2. Object is the execution of a juridical act in relation to a third person;
3. Agent acts as representative and not for himself; and
4. Agent acts within scope of his authority Agency is not presumed by law
Verbal agreement between Jorge and Jusayan left all matters of agricultural production
to the sole discretion of Jorge
Delivery of palay and receipts proved that the contract was that of an agricultural lease

28
Elements of agricultural tenancy:
1. The object of the contract or the relationship is an agricultural land that is leased
or rented for the purpose of agricultural production;
2. The size of the landholding is such that it is susceptible of personal cultivation by
a single person with the assistance of the members of his immediate farm household;
3. The tenant-lessee must actually and personally till, cultivate or operate the land,
solely or with the aid of labor from his immediate farm household; and
4. The landlord-lessor who is either the lawful owner or the legal possessor of the
land, leases the same to the tenant-lessee for a price certain or ascertainable either in
an amount of money or produce

Differentiation between leasehold tenancy and a civil law lease:

1. Subject matter of a leasehold tenancy is limited to agricultural land, but a civil
lease may be rural or urban;
1. As to attention and cultivation, the law requires the leasehold tenant to personally
attend to and cultivate the agricultural land; the civil law lessee need not personally
cultivate or work the thing leased;
2. As to purpose, the landholding in leasehold tenancy is devoted to agriculture; in
civil law lease, the purpose may be for any other lawful pursuits; and
3. As to the law that governs, the civil law lease is governed by the Civil Code, but
the leasehold tenancy is governed by special laws.
Evidence showed that Jorge personally cultivated the leased agricultural land Even if he
worked a second job as Agricultural Technician at the Municipal Agricultural office
(since his daughter helped cultivate the land)
RA 3844 provides that once there is agricultural tenancy, the tenant’s right to security of
tenure is recognized and protected

Exceptions:
1. The landholding is declared by the department head upon recommendation of
the National Planning Commission to be suited for residential, commercial, industrial or
some other urban purposes: Provided, That the agricultural lessee shall be entitled to
disturbance compensation equivalent to five times the average of the gross harvests on
his landholding during the last five preceding calendar years;
2. The agricultural lessee failed to substantially comply with any of the terms and
conditions of the contract or any of the provisions of this Code unless his failure is
caused by fortuitous event or force majeure;

29
3. The agricultural lessee planted crops or used the landholding for a purpose other
than what had been previously agreed upon;
4. The agricultural lessee failed to adopt proven farm practices as determined under
paragraph 3 of Section twenty-nine;
5. The land or other substantial permanent improvement thereon is substantially
damaged or destroyed or has unreasonably deteriorated through the fault or negligence
of the agricultural lessee;
6. The agricultural lessee does not pay the lease rental when it falls due: Provided,
That if the non- payment of the rental shall be due to crop failure to the extent of
seventy-five per centum as a result of a fortuitous event, the non-payment shall not be a
ground for dispossession, although the obligation to pay the rental due that particular
crop is not thereby extinguished; or
7. The lessee employed a sub-lessee on his landholding in violation of the terms of
paragraph 2 of Section twenty-seven.
Not falling under any exception, it is an agricultural lease

W.O.N. RTC or DAR has jurisdiction over the case

RTC - the case was filed in 1986 while EO 229 (DAR) was promulgated in 1987

Article 1869. - Kinds of Agency; Form of Agency

01 VICENTE LIM v. CA, GR No. 118347, 1996-10-24

Facts:

Private respondent Liberty Luna is the owner of a piece of land located at the corner of
G. Araneta Avenue and Quezon Avenue in Quezon City.

On September 2, 1988 private respondent sold the land to petitioners Vicente and
Michael Lim for P3,547,600.00.

As prepared by petitioners' broker, Atty. Rustico Zapata of the Zapata Realty Company,
the receipt embodying the agreement[1]... read as follows:
30
 The seller assumes full responsibility to eject the squatters/occupants within a period
of sixty (60) days from the date of receipt of the earnest money; and in case the seller
shall fail in her commitment to eject the squatters/occupants within said period, the
seller shall... refund to the buyer this sum of P200,000.00 [plus another sum of ONE
HUNDRED THOUSAND (P100,000.00) PESOS as liquidated damages];

Private respondent Luna failed to eject the squatters from the land despite her alleged
efforts to do so.

On January 17, 1989, the parties met at the office of Edmundo Kaimo to negotiate a
price increase to facilitate the ejectment of the squatters.

After a few days, private respondent tried to return the earnest money alleging her
failure to eject the squatters.

She claimed that as a result of her failure to remove the squatters from the land, the
contract of sale ceased to exist and she no longer had the obligation... to sell and
deliver her property to petitioners.

The appellate court described the sale in this case as a "contract with a conditional
obligation" whereby the private respondent's obligation to sell and deliver and the
petitioners' obligation to... pay the balance of the purchase price depended on the
fulfillment of the condition that the squatters be removed within 60 days.

Issues:

The first question is whether as a result of private respondent's failure to eject the
squatters from the land, petitioners, as the Court of Appeals ruled, lost the right to
demand that the land be sold to them.

Ruling:

We hold that they did not... and that the appellate court erred in holding otherwise. The
agreement, as quoted, shows a perfected contract of sale.

31
Indeed, the earnest money given is proof of the perfection of the contract. As Art. 1482
of the Civil Code states, "Whenever earnest money is given in a contract of sale, it shall
be considered as part of the price and as proof of the perfection of the contract."

Private respondent Luna contends that as the condition of ejecting the squatters was
not met, she no longer has an obligation to proceed with the sale of her lot.

Private respondent fails to distinguish between a condition imposed... on the perfection

of the contract and a condition imposed on the performance of an obligation.

Failure to comply with the first condition results in the failure of a contract, while failure
to comply with the second condition only gives the other party the option either to...
refuse to proceed with the sale or to waive the condition.

In this case, there is already a perfected contract. The condition was imposed only on
the performance of the obligation.

Hence, petitioners have the right to choose whether to demand the return of
P200,000.00 which they have paid as earnest money or to proceed with... the sale.
They have chosen to proceed with the sale and private respondent cannot refuse to do
so.

Principles:

Private respondent fails to distinguish between a condition imposed... on the perfection

of the contract and a condition imposed on the performance of an obligation. Failure to
comply with the first condition results in the failure of a contract, while failure to comply
with the second condition only gives the other party the option either to... refuse to
proceed with the sale or to waive the condition.

In this case, there is already a perfected contract. The condition was imposed only on
the performance of the obligation. Hence, petitioners have the right to choose whether
to demand the return of P200,000.00 which they have paid as earnest money or to
proceed with... the sale. They have chosen to proceed with the sale and private
respondent cannot refuse to do so.

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02 Equitable PCI v Ku
March 26, 2001
EQUITABLE PCI BANK, formerly EQUITABLE BANKING CORPORATION
vs.
ROSITA KU
KAPUNAN, J.
SUMMARY: Litigation ensued between Rosita Ku and Equitable. When CA ruled in
favor of Rosita, Equitable filed a motion for an extension of 30 days to file its petition for
review as it allegedly received the CA decision on April 25, 2000. However, Rosita
argues that the petition is defective because Bank actually received CA decision on
April 24, 2000 when Joel Rosales, an employee of Bank’s law firm received it from the
Post office and thus Equitable should have filed motion for extension on May 9, 2000
not May 10. Equitable replied that Joel is not an agent of the bank as expressly
mentioned in his affidavit. HELD: Bank filed petition beyond reglementary period. There
was perfection of the agency as Joel Rosales averred in his affidavit that “on occasions
when I receive mail matters for said law office, it is only to help them receive their letters
promptly,” implying that counsel had allowed the practice of Rosales receiving mail in
behalf of the former. There is no showing that counsel had objected to this practice or
took steps to put a stop to it. However, in the interest of justice, the petition was still
given due course.
DOCTRINE:
• PERFECTION FROM SIDE OF PRINCIPAL: An agency may be express but it
may also be implied from the acts of the principal, from his silence, or lack of action, or
his failure to repudiate the agency, knowing that another person is acting on his behalf
without authority.
• PERFECTION FROM SIDE OF AGENT: Likewise, acceptance by the agent may
also be express, although it may also be implied from his acts which carry out the
agency, or from his silence or inaction according to the circumstances (Art. 1870).
FACTS:
• Noddy Dairy Products Inc. incurred a loan from Equitable Banking Corporation
(now Equitable PCI Bank)
• As security, Rosita Ku, treasurer of Noddy, Inc., and Ku GiokHeng, VP/GM of
Noddy Inc. and Rosita’s father, mortgaged a residential house and lot located in La
Vista, QC which is registered in Rosita’s name
• When Noddy, Inc. failed to pay the loan, Equitable foreclosed the property
extrajudicially and was issued a certificate of sale after winning in the foreclosure sale.
33
Rosita failed to redeem the property so the Register of Deeds canceled the TCT in her
name and a new one was issued in Equitable’s name.
• May 10, ‘89: Equitable instituted an action for ejectment before MeTC QC against
Rosita’s father Ku GiokHeng.
o It allowed Ku GiokHeng to remain in the property on the condition that the latter
pay rent. However, Ku GiokHeng’s failed to pay rent thus this action.
• Ku GiokHeng denied that there was any lease agreement over the property.
• MeTC (Dec. 8, ‘94): In favor of Equitable and ordered Ku Giok Heng to vacate
the premises.
o No right for his continued possession of or stay as title had been duly transferred
to Equitable. Buyer in foreclosure sale becomes the absolute owner of the property
purchased if it is not redeemed during the period of 1 year after the registration of the
sale
• Ku GiokHeng did not appeal the decision of the MeTC.
• Dec. 20, ‘94: Instead, he and Rosita Ku, filed an action before RTC QC to nullify
the decision of the MeTC.
• RTC (Sept. 13, ‘99): No merit; Dismissed complaint and ordered the execution of
the MeTC decision.
• Rosita filed in CA a special civil action for certiorari assailing the decision of the
RTC as she was not made a party to the ejectment suit and was, therefore, deprived of
due process.
• CA (Mar. 31, 2000): Agreed with Rosita. Enjoined the eviction of Rosita from the
premises.
• May 10, 2000: Equitable filed in SC a motion for an extension of 30 days from
May 10, 2000 or until June 9, 2000 to file its petition for review of the CA decision as the
Bank has received the CA decision on April 25, 2000.
o April 25, 2000 – Received CA Decision (15 days reglementary period to file
petition for review OR file motion for extension)
o May 10,2000 – Filed motion for extension for 30 days
o June 9, 2000 – w/n 30 days
• SC: Granted the motion for a 30-day extension “counted from the expiration of
the reglementary period” and “conditioned upon the timeliness of the filing of the motion
for extension.”
• June 13, 2000: Equitable Bank filed its petition, contending that there was no
need to name Rosita Ku as a party in the action for ejectment since she was not a
resident of the premises nor was she in possession of the property.

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o FOOTNOTE: The last day to file the petition was on June 9, 2000 but because of
the Court’s 99th Anniversary Celebration, business transactions were suspended on
said date per Memorandum Circular No. 03-2000.
• Rosita argues that the petition is defective because of non-compliance with
reglementary period.
o Bank received CA decision not on April 25, 2000 but on April 24, 2000
o April 24, 2000 - copy “was duly delivered to and received by Joel Rosales
(Authorized Representative)” as evidenced by a Certification issued by the Manila
Central Post Office
o May 10, 2000 – When Equitable filed its motion for extension to file petition for
review, it was 1 day beyond the reglementary period for filing the petition for review OR
motion to extend w/c must be filed on May 9, 2000 - 15 days from the receipt of CA
decision
• Bank’s Reply: Reiterates “its honest representation of having received a copy of
CA decision on April 25, 2000.” Receipt on April 24, 2000 by Joel Rosales, who was not
an agent of its counsel’s law office cannot be considered receipt of the CA Decision by
the Bank (or its counsel).
• Rosales’ Affidavit
o Employee of Unique Industrial & Allied Services, Inc. and assigned with the
Equitable PCI Bank, Mail and Courier Department w/ official duty and responsibility to
receive and pick-up from the Manila Central Post Office the various mails, letters,
correspondence, and other mail matters intended for the bank’s various departments
and offices at Equitable Bank Building
o I am not the constituted agent of “Curato-Divina-Mabilog-Nedo-Magturo-
Pagaduan Law Office” for purposes of receiving their incoming mail matters; neither am
I any such agent of the various other tenants of the said Building. On occasions when I
receive mail matters for said law office, it is only to help them receive their letters
promptly.
o April 24, 2000: Received CA Decision together with other mail matters, and
brought them to the Mail and Courier Department;
o April 25, 2000: After sorting out mail matters, erroneously recorded them on page
422 of logbook as having been received on April 25, 2000
o April 27, 2000: Decision was sent by the Mail and Courier Department to said
Law Office whose receiving clerk opened the letter and stamped on the “Notice of
Judgment” their actual date of receipt: “April 27, 2000”

35
o May 8, 2000: Atty. Roland A. Niedo of said law office inquired as to actual date of
receipt of letter, and informed him that based on logbook, it was received on April 25,
2000.
o Error was caused by an honest mistake.
• Bank also argues such receipt did not constitute notice to its counsel, as required
by Sec. 2 and 10, Rule 13 of ROC. CA decision actually received on April 27, 2000.
o SEC. 2. Filing and service defined. – Filing is the act of presenting the pleading
or other paper of the clerk of court. Service is the act of providing a party with a copy of
the pleading or paper concerned. If any party has appeared by counsel, service upon
him shall be made upon his counsel or one of them, unless service upon the party
himself is ordered by the court. Where one counsel appears for several parties, he shall
only be entitled to one copy of any paper served upon him by the opposite side.
o PLDT vs. NLRC: It was only when the Legal Services Division actually received a
copy of the decision that a proper and valid service may be deemed to have been
made.
o Actual receipt by its counsel was actually on April 27, 2000, not April 25, 2000.
The motion for extension to file the petition for review was even filed 2 days before the
lapse of the 15-day reglementary period
• Assuming the motion for extension was indeed one day late, Bank urges SC to
suspend its rules and admit the petition in the interest of justice.
ISSUES:
1) Whether Joel Rosales can be considered the agent of Bank’s counsel and thus
service to him was considered service to Bank? (YES) [Whether the act of the law firm
in allowing its employee to occasionally receive its mail can be construed to mean an
agency relationship? YES]
2) Whether, in the interest of justice, the rules on reglementary periods can be
suspended in this case? (YES)
3) Whether a person can be evicted by virtue of a decision rendered in an ejectment
case where she was not joined as a party? (YES)
RATIO:
1) Joel Rosales is an agent of Bank’s counsel.
• Although the Affidavit of Joel Rosales states that he is “not the constituted agent
of ‘Curato-Divina-Mabilog-Nedo-Magturo-Pagaduan Law Office”, an agency may be
express but it may also be implied from the acts of the principal, from his silence, or lack
of action, or his failure to repudiate the agency, knowing that another person is acting
on his behalf without authority. (Art. 1869)

36
• Likewise, acceptance by the agent may also be express, although it may also be
implied from his acts which carry out the agency, or from his silence or inaction
according to the circumstances (Art. 1870).
• CASE AT BAR: Joel Rosales averred that “on occasions when I receive mail
matters for said law office, it is only to help them receive their letters promptly,” implying
that counsel had allowed the practice of Rosales receiving mail in behalf of the former.
There is no showing that counsel had objected to this practice or took steps to put a
stop to it.
2) Court gives due course to petition in spite of noncompliance with periods in light of
the merits of the petition.
• The perfection of an appeal within the period fixed by the rules is mandatory and
jurisdictional. But, it is always in the power of this Court to suspend its own rules, or to
except a particular case from its operation, whenever the purposes of justice require it.
Strong compelling reasons such as serving the ends of justice and preventing a grave
miscarriage thereof warrant the suspension of the rules.
• The Court proceeded to enumerate cases where the rules on reglementary
periods were suspended (6 days; 13 days; 1 day; 7 days; 2 days; tardy appeal).
3) Even if Rosita were a resident of the property, she is nevertheless bound by the
judgment of the MeTC in the action for ejectment despite her being a non-party thereto
as the daughter of Ku GiokHeng, the defendant in the action for ejectment.
• Generally, no man shall be affected by any proceeding to which he is a stranger,
and strangers to a case are not bound by judgment rendered by the court. (Matuguina
vs. CA) Nevertheless, a judgment in an ejectment suit is binding not only upon the
defendants in the suit but also against those not made parties thereto, if they are:
o a) trespassers, squatters or agents of the defendant fraudulently occupying the
property to frustrate the judgment;
o b) guests or other occupants of the premises with the permission of the
defendant;
o c) transferees pendente lite;
o d) sub-lessees;
o e) co-lessees; or
o f) members of the family, relatives and other privies of the defendant. (Oro Cam
Enterprises, Inc. vs. CA)
DISPOSITIVE: Petition GIVEN DUE COURSE and GRANTED. CA decision
REVERSED.

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03 DOMINGA CONDE vs. CA
FACTS:
On 7 April 1938, Margarita Conde, Bernardo Conde and Dominga Conde, as
heirs of Santiago Conde, sold with right to repurchase, within 10 years from said date, a
1 hectare parcel of agricultural land situated in Burauen, Leyte to Casimira Pasagui and
Pio Altera for P165. Three years later, Original Certificate of Title No. N-534 covering
the land in question was issued in the name of the Alteras subject to the stipulated right
of repurchase by the Condes. On 28 November 1945, Paciente Cordero, son-in-law of
the Alteras and their representative, signed a document in Bisaya stating that the
Memorandum of Repurchase got lost during World War II despite all diligent searches
being made; that the two parcels of land were inherited by the Condes; that Eusebio
Amarille was authorized by the Condes to repurchase the land; that they received P165
in consideration of the sale; and that the Condes, by virtue of the repurchase, shall
repossess the said parcels of land. Neither the vendees-a-retro, Pio Altera nor Casimira
Pasagui, were signatories to that document. Many years later, the pacto de retro
document was found. In June 1965, Pio Altera sold the disputed lot to Ramon and
Catalina Conde, whose relationship to Dominga does not appear on record.
Consequently, in 1969, Dominga filed with the CFI of Leyte a complaint for quieting of
title and declaration of ownership against all the respondents. The trial court dismissed
the complaint and ordered Dominga to vacate the premises and to deliver the disputed
land to respondents. The Court of Appeals affirmed the decision and ruled that Dominga
failed to validly exercise her right to repurchase because the Memorandum of
Repurchase was not signed by the Alteras but by Paciente, who was not authorized to
sign for the said vendees-a-retro.

ISSUE:
Whether or not there was an implied agency when Cordero signed the
Memorandum of Repurchase.

HELD:

Yes. Although the contending parties were legally wanting in their respective
actuations, for example Dominga did nothing to formalize her repurchase while the
Alteras did nothing to clear their title of the encumbrance therein regarding Dominga’s
right to repurchase, the repurchase by Dominga is supported by her admission that she
had been in possession since 1945, the date of the repurchase, and has been paying
38
land taxes thereon since then. No new agreement was entered into by the parties as
stipulated in the deed of pacto de retro, if the vendors-a-retro failed to exercise their
right of redemption within 10 years. If, as alleged, Dominga did not exert an effort to
procure Pio Altera’s signature after he had recovered from illness, neither did the
Alteras repudiate the deed signed by their son-in-law for 24 years, from which the
Alteras are deemed to have incurred in laches. Thus, an implied agency must have
been held to have been created by their silence or lack of action, or their failure to
repudiate the agency created. (Art. 1869, New Civil Code). Wherefore, Dominga is
declared the owner of the land in question.

04 Spouses Fernando Viloria and Lourdes Viloria vs Continental Airlines,

Inc. September 23, 2012

FACTS:
In 1997, while the spouses Viloria were in the United States, they approached Holiday
Travel, a travel agency working for Continental Airlines, to purchase tickets from
Newark to San Diego. The travel agent, Margaret Mager, advised the couple that they
cannot travel by train because it is fully booked; that they must purchase plane tickets
for Continental Airlines; that if they won’t purchase plane tickets; they’ll never reach their
destination in time. The couple believed Mager’s representations and so they purchased
two plane tickets worth $800.00.

Later however, the spouses found out that the train trip isn’t fully booked and so they
purchased train tickets and went to their destination by train instead. Then they called
up Mager to request for a refund for the plane tickets. Mager referred the couple to
Continental Airlines. As the couple are now in the Philippines, they filed their request
with Continental Airline’s office in Ayala. The spouses Viloria alleged that Mager misled
them into believing that the only way to travel was by plane and so they were fooled into
buying expensive tickets. The spouses

requested for a refund but instead offered by the airline to use the price of the ticket to
purchase another ticket. So mr viloria went to purchase 1 roundtrip ticket for himself
from Manila-Los Angeles which cost $1,867.40. CAI then said that theticket of mrs
viloria was non transferrable and could not be applied to pay for the ticket of mr Viloria.
And so sps Viloria wanted again to refund the ticket price.

39
Continental Airlines refused to refund the amount of the ticket and so the spouses sued
the airline company. In its defense, Continental Airlines claimed that the ticket sold to
them by Mager is non-refundable; that, if any, they are not bound by the
misrepresentations of Mager because there’s no agency existing between Continental
Airlines and Mager.

The trial court ruled in favor of spouses Viloria but the Court of Appeals reversed the
ruling of the RTC.

ISSUE: 1. Agency. Whether or not a contract of agency exists between Continental

Airlines and Mager.
2. Vicarious liability. Assuming that an agency relationship exists between CAI and
Holiday Travel, is CAI bound by the acts of Holiday Travel’s agents and employees
such as Mage
3. Rescission. did CAI act in bad faith or renege its obligation to Spouses Viloria to
apply the value of the subject tickets in the purchase of new ones when it refused to
allow Fernando to use Lourdes’ ticket and in charging a higher price for a round trip
ticket to Los Angeles?

HELD:
1. Yes. All the elements of agency are present, to wit:

there is consent, express or implied of the parties to establish the relationship; the
object is the execution of a juridical act in relation to a third person;

the agent acts as a representative and not for himself, and the agent acts within the
scope of his authority.
The first and second elements are present as Continental Airlines does not deny that it
concluded an agreement with Holiday Travel to which Mager is part of, whereby Holiday
Travel would enter into contracts of carriage with third persons on the airlines’ behalf.
The third element is also present as it is undisputed that Holiday Travel merely acted in
a representative capacity and it is Continental Airlines and not Holiday Travel who is
bound by the contracts of carriage entered into by Holiday Travel on its behalf. The
fourth element is also present considering that Continental Airlines has not made any
allegation that Holiday Travel exceeded the authority that was granted to it.

40
Continental Airlines also never questioned the validity of the transaction between Mager
and the spouses. Continental Airlines is therefore in estoppels. Continental Airlines
cannot be allowed to take an altogether different position and deny that Holiday Travel
is its agent without condoning or giving imprimatur to whatever damage or prejudice that
may result from such denial or retraction to Spouses Viloria, who relied on good faith on
Continental Airlines’ acts in recognition of Holiday Travel’s authority. Estoppel is
primarily based on

the doctrine of good faith and the avoidance of harm that will befall an innocent party
due to its injurious reliance, the failure to apply it in this case would result
in gross travesty of justice.

2. In actions based on quasi-delict, a principal can only be held liable for the tort
committed by its agent’s employees if it has been established by preponderance of
evidence that the principal was also at fault or negligent or that the principal exercise
control and supervision over them.
An examination of this Court’s pronouncements in China Air Lines will reveal that an
airline company is not completely exonerated from any liability for the tort committed by
its agent’s employees. A prior determination of the nature of the passenger’s cause of
action is necessary. If the passenger’s cause of action…..
independent showing that the airline company was at fault or negligent or has
contributed to the negligence or tortuous conduct committed by the employee of its
agent. The mere fact that the employee of the airline company’s agent has committed a
tort is not sufficient to hold the airline company liable. There is no vinculum juris
between the airline company and its agent’s employees and the contractual relationship
between the airline company and its agent does not operate to create a juridical tie
between the airline company and its agent’s employees. Article 2180 of the Civil Code
does not make the principal vicariously liable for the tort committed by its agent’s
employees and the principal-agency relationship per se does not make the principal a
party to such tort; hence, the need to prove the principal’s own fault or negligence.

3. Contracts cannot be rescinded for a slight or casual breach. CAI’s refusal to

accept Lourdes’ ticket for the purchase of a new ticket for Fernando is only a casual
breach.

41
Considering that the subject contracts are not annullable on the ground of vitiated
consent, the next question is: “Do Spouses Viloria have the right to rescind the contract
on the ground of CAI’s supposed breach of its undertaking to issue new tickets upon
surrender of the subject tickets?”

Article 1191, as presently worded, states:

The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfilment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.

Nonetheless, the right to rescind a contract for non-performance of its

stipulations is not absolute. The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such substantial and
fundamental violations as would defeat the very object of the parties in making the
agreement.40 Whether a breach is substantial is largely determined by the attendant
circumstances.41

While CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as payment for
the purchase of a new ticket is unjustified as the non-transferability of the subject tickets
was not clearly stipulated, it cannot, however be considered substantial. The
endorsability of the subject tickets is not an essential part of the underlying contracts
and CAI’s failure to comply is not essential to its fulfillment of its undertaking to issue
new tickets upon Spouses Viloria’s surrender of the
.. price of the round trip ticket between Manila and Los Angeles. CAI was likewise willing
to accept the ticket in Lourdes’ name as full or partial payment as the case may be for
the purchase of any ticket, albeit under her name and for her exclusive use. In other
words, CAI’s willingness to comply with its undertaking under its March 24, 1998 cannot
be doubted, albeit tainted with its erroneous insistence that Lourdes’ ticket is non-
transferable.

42
Art. 1192. In case both parties have committed a breach of the obligation, the liability of
the first infractor shall be equitably tempered by the courts. If it cannot be determined
which of the parties first violated the contract, the same shall be deemed extinguished,
and each shall bear his own damages. (emphasis
supplied)

Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the
purchase of Fernando’s round trip ticket is offset by Spouses Viloria’s liability for their
refusal to pay the amount, which is not covered by the subject tickets.

Moreover, the contract between them remains, hence, CAI is duty bound to issue new
tickets for a destination chosen by Spouses Viloria upon their surrender of the subject
tickets and Spouses Viloria are obliged to pay whatever amount is not covered by the
value of the subject tickets.

43