ORIENT AIR SERVICES vs.

CA
FACTS:
American Airlines and Orient Air Services and Hotel Representatives entered into a General Sales
Agency Agreement whereby American authorized the latter to act as its exclusive general sales
agent within the Philippines for the sale of air passenger transportation (services: solicit and
promote passenger traffic, servicing and supervising agents etc.)
o It was stipulated that neither Orient nor its sub-agents perform services for any other air
carrier similar to those to be performed hereunder for American without the prior written
consent of American
o Remittances- ticket stock or exchange orders LESS commissions
o American will pay Orient sales agency commission and an overriding commission 3% of the
tariff fares and charges for all sales of transportation over Americans service by Orient or its
sub-agents
o In case of default (remittance) American may terminate the agreement; otherwise either
party may terminate without cause by giving 30 days notice
American alleged that Orient failed to promptly remit the net proceeds of sales terminated the
Agreement filed suit for accounting with preliminary attachment or garnishment, mandatory
injunction and restraining order
Orient denied allegations contending that after the application to the commission due it , plaintiff in
fact still owed Orient a balance in unpaid overriding commissions
TC: in favor of Orient termination was illegal and improper- ORDERED PLAINTIFF TO REINSTATE
DEFENDANT AS ITS GENERAL SALES AGENT
CA: affirmed TC with some modifications with respect to the monetary awards
AMERICAN claims overriding commission should be based only on ticketed sales-to be entitled to
the 3% overriding commission, the sale must be made by Orient Air and the sale must be done with
the use of Americans ticket stocks
ORIENT: contractual stipulation of 3% overriding commission covers the total revenue of American
not merely from the ticketed sales, invoking its designation as the EXCLUSIVE General sales agent
of american
ISSUE: extent of Orient Airs right to the 3% overriding commission
HELD: basis should be TOTAL REVENUE (in favor of Orient)
2 commissions; a) sales agency commission; b) overriding commission of 3% of tariff fares and
charges for all sales of passenger transpo over American air services. The latter type of
commissions would accrue for sales of American made not on its ticket stock but on the ticket stock
of other air carriers sold by such carriers or other authorized ticketing facilities or travel agents. To
rule otherwise would erase any distinction between the 2 types of commissions
American air was the party responsible for the preparation of the agreement (contract of adhesion)
Since the American was still obligated to Orient for the said commission, Orient was justified in
refusing to remit the sums demanded. The termination was therefore WITHOUT cause and basis
(AGENCY PART) Appellate court erred in ordering American air to reinstate the defendant as its
general sales agent
o Compelling American to extend its personality to Orient would be violative of the principles
and essence of AGENCY
o AGENCY- 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
o In an agent-principal relationship, the personality of the principal is extended through the
facility of the agent
o 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
RALLOS v FELIX GO CHAN & REALTY COPR., Munoz-Palma
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.

CFI: [Plaintiffs 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 share each pro-indiviso and the payment of attorneys fees and cost of litigation
[Respondent filed cross claim against Simon Rallos(*Simon and Gerundia died during pendency of case)]
Juan T. Borromeo, administrator of the Estate of Simeon Rallos was ordered to pay defendant the
price of the share of the land (P5,343.45) plus attorneys fees
[Borromeo filed a third party complaint against Josefina Rallos, special administratrix of the Estate of
Gerundia]
Dismissed without prejudice to filing either a complaint against the regular administrator of the
Estate of Gerundia Rallos or a claim in the Intestate-Estate of Cerundia Rallos, covering the same
subject-matter
CA: CFI Decision reversed, upheld the sale of Concepcions share.
MR: denied.
Issues:
1) WON sale was valid although it was executed after the death of the principal, Concepcion.
2) WON sale fell within the exception to the general rule that death extinguishes the authority of the
agent
3) WON agents knowledge of the principals death is a material factor.
4) WON petitioner must suffer the consequence of failing to annotate a notice of death in the title
(thus there was good faith on the part of the Respondent vendee)
5) WON good faith on the part of the respondent in this case should be treated parallel to that of an
innocent purchaser for a value of a land.
Held/Ratio:
(Court discussed relevant principles first)
Relationship of Agency (concept arising from principles under Art 1317 1 and 14032)- one party, caged the
principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in
transactions with third persons.
-derivative in nature, power emanating from principal
-agents acts are acts of the principal

Essential Elements:

no one may contract in the name of another without being authorized by the latter, or unless he has by law a right to
represent him. A contract entered into in the name of another by one who has no authority or the legal representation
or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person
on whose behalf it has been executed, before it is revoked by the other contracting party.
2

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

(1)
(2)
(3)
(4)

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 agents acts as a representative and not for himself, and
the agent acts within the scope of his authority.

Extinguishment
o Generally: among others3, By the death, civil interdiction, insanity or insolvency of the
principal or of the agent
- death of the principal effects instantaneous and absolute revocation of the authority
of the agent
o Exceptions:
(Art. 1930) if it has been constituted in the common interest of the latter and of the
agent, or in the interest of a third person who has accepted the stipulation in his
favor.
(Art. 1931) agent acted without knowledge of the pricipals death and that the
third person was in good faith (both these reqs should be present)

IN THE CASE AT BAR:

1) Sale was void.
No one may contract in the name of another without being authorized by the latter, or unless he
has by law a right to represent him (Art. 1317 of the Civil Code).
Simons authority as agent was extinguished upon Concolacions death
2) The sale did not fall under the exceptions to the general rule that death ipso jure extinguishes the
authority of the agent
o Art. 1930 inapplicable: SPA in favor of Simon Rallos was not coupled with interest
o Art. 1931 inapplicable:
Simon Rallos knew (as can be inferred from his pleadings) of principal Concepcions
death
For Art 1931 to apply, both requirements must be present
3) Yes, agents knowledge of principals death is material.
Respondent asserts that: there is no provision in the Code which provides that whatever is done by
an agent having knowledge of the death of his principal is void even with respect to third persons
who may have contracted with him in good faith and without knowledge of the death of the
principal
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 principals death at that
time (exception under Art. 1931)
Dispositive: CA Decision reversed, CFI decision affirmed. Sale was null and void.
3

See Art. 1919

Nielson & Co. Inc. vs. Lepanto Consolidated Mining Co. Case Digest
Nielson & Co. Inc. vs. Lepanto Consolidated Mining Co.
[GR L-21601, 28 December 1968]
Facts: [GR L-21601, 17 December 1966; Zaldivar (J): 6 concur, 2 took no part] An operating agreement
was executed before World War II (on 30 January 1937) between Nielson & Co. Inc. and the Lepanto
Consolidated Mining Co. whereby the former operated and managed the mining properties owned by the
latter for a management fee of P2,500.00 a month and a 10% participation in the net profits resulting from
the operation of the mining properties, for a period of 5 years. In 1940, a dispute arose regarding the
computation of the 10% share of Nielson in the profits. The Board of Directors of Lepanto, realizing that the
mechanics of the contract was unfair to Nielson, authorized its President to enter into an agreement with
Nielson modifying the pertinent provision of the contract effective 1 January 1940 in such a way that
Nielson shall receive (1) 10% of the dividends declared and paid, when and as paid, during the period of
the contract and at the end of each year, (2) 10% of any depletion reserve that may be set up, and (3)
10% of any amount expended during the year out of surplus earnings for capital account. In the latter part
of 1941, the parties agreed to renew the contract for another period of 5 years, but in the meantime, the
Pacific War broke out in December 1941. In January 1942 operation of the mining properties was disrupted
on account of the war. In February 1942, the mill, power plant, supplies on hand, equipment, concentrates
on hand and mines, were destroyed upon orders of the United States Army, to prevent their utilization by
the invading Japanese Army.
The Japanese forces thereafter occupied the mining properties, operated the mines during the continuance
of the war, and who were ousted from the mining properties only in August 1945. After the mining
properties were liberated from the Japanese forces, LEPANTO took possession thereof and embarked in
rebuilding and reconstructing the mines and mill; setting up new organization; clearing the mill site;
repairing the mines; erecting staff quarters and bodegas and repairing existing structures; installing new
machinery and equipment; repairing roads and maintaining the same; salvaging equipment and storing
the same within the bodegas; doing police work necessary to take care of the materials and equipment
recovered; repairing and renewing the water system; and retimbering. The rehabilitation and
reconstruction of the mine and mill was not completed until 1948. On 26 June 1948 the mines resumed
operation under the exclusive management of LEPANTO. Shortly after the mines were liberated from the
Japanese invaders in 1945, a disagreement arose between NIELSON and LEPANTO over the status of the
operating contract which as renewed expired in 1947. Under the terms thereof, the management contract
shall remain in suspense in case fortuitous event or force majeure, such as war or civil commotion,
adversely affects the work of mining and milling. On 6 February 1958, NIELSON brought an action against
LEPANTO before the Court of First Instance of Manila to recover certain sums of money representing
damages allegedly suffered by the former in view of the refusal of the latter to comply with the terms of a
management contract entered into between them on 30 January 1937, including attorney's fees and costs.
LEPANTO in its answer denied the material allegations of the complaint and set up certain special
defenses, among them, prescription and laches, as bars against the institution of the action.
After trial, the court a quo rendered a decision dismissing the complaint with costs. The court stated that it
did not find sufficient evidence to establish LEPANTO's counterclaim and so it likewise dismissed the same.
NIELSON appealed. The Supreme Court reversed the decision of the trial court and enter in lieu thereof
another, ordering Lepanto to pay Nielson (1) 10% share of cash dividends of December, 1941 in the
amount of P17,500.00, with legal interest thereon from the date of the filing of the complaint; (2)
management fee for January, 1942 in the amount of P2,500.00, with legal interest thereon from the date of
the filing of the complaint; (3) management fees for the sixty-month period of extension of the
management contract, amounting to P150,000.00, with legal interest from the date of the filing of the
complaint; (4) 10% share in the cash dividends during the period of extension of the management
contract, amounting to P1,400,000.00, with legal interest thereon from the date of the filing of the
complaint; (5) 10% of the depletion reserve set up during the period of extension, amounting to
P53,928.88, with legal interest thereon from the date of the filing of the complaint; (6) 10% of the
expenses for capital account during the period of extension, amounting to P694,364.76, with legal interest
thereon from the date of the filing of the complaint; (7) to issue and deliver to Nielson and Co. Inc. shares
of stock of Lepanto Consolidated Mining Co. at par value equivalent to the total of Nielson's 10% share in
the stock dividends declared on November 28, 1949 and August 22, 1950, together with all cash and stock
dividends, if any, as may have been declared and issued subsequent to November 28, 1949 and August
22, 1950, as fruits that accrued to said shares; provided that if sufficient shares of stock of Lepanto's are
not available to satisfy this judgment, Lepanto shall pay Nielson an amount in cash equivalent to the

market value of said shares at the time of default, that is, all shares of stock that should have been
delivered to Nielson before the filing of the complaint must be paid at their market value as of the date of
the filing of the complaint; and all shares, if any, that should have been delivered after the filing of the
complaint at the market value of the shares at the time Lepanto disposed of all its available shares, for it is
only then that Lepanto placed itself in condition of not being able to perform its obligation; (8) the sum of
P50,000.00 as attorney's fees; and (9) the costs.
Lepanto seeks the reconsideration of the decision rendered on 17 December 1966.
Issue: Whether the management contract is a contract of agency or a contract of lease of services.
Held: Article 1709 of the Old Civil Code, defining contract of agency, provides that "By the contract of
agency, one person binds himself to render some service or do something for the account or at the request
of another." Article 1544, defining contract of lease of service, provides that "In a lease of work or services,
one of the parties binds himself to make or construct something or to render a service to the other for a
price certain." In both agency and lease of services one of the parties binds himself to render some service
to the other party. Agency, however, is distinguished from lease of work or services in that the basis of
agency is representation, while in the lease of work or services the basis is employment. The lessor of
services does not represent his employer, while the agent represents his principal. Further, agency is a
preparatory contract, as agency "does not stop with the agency because the purpose is to enter into other
contracts." The most characteristic feature of an agency relationship is the agent's power to bring about
business relations between his principal and third persons. "The agent is destined to execute juridical acts
(creation, modification or extinction of relations with third parties). Lease of services contemplate only
material (non-juridical) acts." Herein, the principal and paramount undertaking of Nielson under the
management contract was the operation and development of the mine and the operation of the mill. All
the other undertakings mentioned in the contract are necessary or incidental to the principal undertaking
these other undertakings being dependent upon the work on the development of the mine and the
operation of the mill. In the performance of this principal undertaking Nielson was not in any way
executing juridical acts for Lepanto, destined to create, modify or extinguish business relations between
Lepanto and third persons. In other words, in performing its principal undertaking Nielson was not acting
as an agent of Lepanto, in the sense that the term agent is interpreted under the law of agency, but as one
who was performing material acts for an employer, for a compensation. It is true that the management
contract provides that Nielson would also act as purchasing agent of supplies and enter into contracts
regarding the sale of mineral, but the contract also provides that Nielson could not make any purchase, or
sell the minerals, without the prior approval of Lepanto. It is clear, therefore, that even in these cases
Nielson could not execute juridical acts which would bind Lepanto without first securing the approval of
Lepanto. Nielson, then, was to act only as an intermediary, not as an agent. Further, from the statements
in the annual report for 1936, and from the provision of paragraph XI of the Management contract, that the
employment by Lepanto of Nielson to operate and manage its mines was principally in consideration of the
know-how and technical services that Nielson offered Lepanto. The contract thus entered into pursuant to
the offer made by Nielson and accepted by Lepanto was a "detailed operating contract". It was not a
contract of agency. Nowhere in the record is it shown that Lepanto considered Nielson as its agent and that
Lepanto terminated the management contract because it had lost its trust and confidence in Nielson.
Lim vs. People, 133 SCRA 333 , No. L-34338, November 21, 1984
G.R. No. L-34338 November 21, 1984
Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced "to suffer an
imprisonment of four (4) months and one (1) day as minimum to two (2) years and four (4) months as
maximum, to indemnify the offended party in the amount of P559.50, with subsidize imprisonment in case
of insolvency, and to pay the costs." (p. 14, Rollo)
From this judgment, appeal was taken to the then Court of Appeals which affirmed the decision of the
lower court but modified the penalty imposed by sentencing her "to suffer an indeterminate penalty of one
(1) month and one (1) day of arresto mayor as minimum to one (1) year and one (1) day of prision
correccional as maximum, to indemnify the complainant in the amount of P550.50 without subsidiary
imprisonment, and to pay the costs of suit." (p. 24, Rollo)
The question involved in this case is whether the receipt, Exhibit "A", is a contract of agency to sell or a
contract of sale of the subject tobacco between petitioner and the complainant, Maria de Guzman Vda. de
Ayroso, thereby precluding criminal liability of petitioner for the crime charged.
The findings of facts of the appellate court are as follows:

... The appellant is a businesswoman. On January 10, 1966, the appellant went to the house of Maria
Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of the appellant to sell her
tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the overprice for which she
could sell the tobacco. This agreement was made in the presence of plaintiff's sister, Salud G. Bantug.
Salvador Bantug drew the document, Exh. A, dated January 10, 1966, which reads:
To Whom It May Concern:
This is to certify that I have received from Mrs. Maria de Guzman Vda. de Ayroso. of Gapan, Nueva Ecija, six
hundred fifteen kilos of leaf tobacco to be sold at Pl.30 per kilo. The proceed in the amount of Seven
Hundred Ninety Nine Pesos and 50/100 (P 799.50) will be given to her as soon as it was sold.
This was signed by the appellant and witnessed by the complainant's sister, Salud Bantug, and the latter's
maid, Genoveva Ruiz. The appellant at that time was bringing a jeep, and the tobacco was loaded in the
jeep and brought by the appellant. Of the total value of P799.50, the appellant had paid to Ayroso only
P240.00, and this was paid on three different times. Demands for the payment of the balance of the value
of the tobacco were made upon the appellant by Ayroso, and particularly by her sister, Salud Bantug. Salud
Bantug further testified that she had gone to the house of the appellant several times, but the appellant
often eluded her; and that the "camarin" the appellant was empty. Although the appellant denied that
demands for payment were made upon her, it is a fact that on October 19, 1966, she wrote a letter to
Salud Bantug which reads as follows:
Dear Salud,
Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte pa ang nasisingil kong pera, magintay
ka hanggang dito sa linggo ito at tiak na ako ay magdadala sa iyo. Gosto ko Salud ay makapagbigay man
lang ako ng marami para hindi masiadong kahiyahiya sa iyo. Ngayon kung gosto mo ay kahit konte muna
ay bibigyan kita. Pupunta lang kami ni Mina sa Maynila ngayon. Salud kung talagang kailangan mo ay
bukas ay dadalhan kita ng pera.
Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang mga suki ko ng puesto.
Huwag kang mabahala at tiyak na babayaran kita.
Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).
Ludy
Pursuant to this letter, the appellant sent a money order for P100.00 on October 24, 1967, Exh. 4, and
another for P50.00 on March 8, 1967; and she paid P90.00 on April 18, 1967 as evidenced by the receipt
Exh. 2, dated April 18, 1967, or a total of P240.00. As no further amount was paid, the complainant filed a
complaint against the appellant for estafa. (pp. 14, 15, 16, Rollo)
In this petition for review by certiorari, Lourdes Valerio Lim poses the following questions of law, to wit:
1. Whether or not the Honorable Court of Appeals was legally right in holding that the foregoing document
(Exhibit "A") "fixed a period" and "the obligation was therefore, immediately demandable as soon as the
tobacco was sold" (Decision, p. 6) as against the theory of the petitioner that the obligation does not fix a
period, but from its nature and the circumstances it can be inferred that a period was intended in which
case the only action that can be maintained is a petition to ask the court to fix the duration thereof;
2. Whether or not the Honorable Court of Appeals was legally right in holding that "Art. 1197 of the New
Civil Code does not apply" as against the alternative theory of the petitioner that the fore. going receipt
(Exhibit "A") gives rise to an obligation wherein the duration of the period depends upon the will of the
debtor in which case the only action that can be maintained is a petition to ask the court to fix the duration
of the period; and
3. Whether or not the honorable Court of Appeals was legally right in holding that the foregoing receipt is a
contract of agency to sell as against the theory of the petitioner that it is a contract of sale. (pp. 3-4, Rollo)
It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco should be turned over
to the complainant as soon as the same was sold, or, that the obligation was immediately demandable as
soon as the tobacco was disposed of. Hence, Article 1197 of the New Civil Code, which provides that the
courts may fix the duration of the obligation if it does not fix a period, does not apply.
Anent the argument that petitioner was not an agent because Exhibit "A" does not say that she would be
paid the commission if the goods were sold, the Court of Appeals correctly resolved the matter as follows:
... Aside from the fact that Maria Ayroso testified that the appellant asked her to be her agent in selling
Ayroso's tobacco, the appellant herself admitted that there was an agreement that upon the sale of the
tobacco she would be given something. The appellant is a businesswoman, and it is unbelievable that she
would go to the extent of going to Ayroso's house and take the tobacco with a jeep which she had brought
if she did not intend to make a profit out of the transaction. Certainly, if she was doing a favor to Maria
Ayroso and it was Ayroso who had requested her to sell her tobacco, it would not have been the appellant
who would have gone to the house of Ayroso, but it would have been Ayroso who would have gone to the
house of the appellant and deliver the tobacco to the appellant. (p. 19, Rollo)
The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given to
complainant as soon as it was sold, strongly negates transfer of ownership of the goods to the petitioner.

The agreement (Exhibit "A') constituted her as an agent with the obligation to return the tobacco if the
same was not sold.
ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit. With costs.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, Gutierrez, Jr. and De la Fuente, JJ., concur. .