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G.R. No.

76931 May 29, 1991

ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,


vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.

G.R. No. 76933 May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner,


vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED, respondents.

Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel
Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

PADILLA, J.:

This case is a consolidation of two (2) petitions for review on certiorari of a decision1 of the
Court of Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air
Services and Hotel Representatives, Inc." which affirmed, with modification, the decision2 of the
Regional Trial Court of Manila, Branch IV, which dismissed the complaint and granted therein
defendant's counterclaim for agent's overriding commission and damages.

The antecedent facts are as follows:

On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air
carrier offering passenger and air cargo transportation in the Philippines, and Orient Air Services
and Hotel Representatives (hereinafter referred to as Orient Air), entered into a General Sales
Agency Agreement (hereinafter referred to as the Agreement), whereby the former authorized
the latter to act as its exclusive general sales agent within the Philippines for the sale of air
passenger transportation. Pertinent provisions of the agreement are reproduced, to wit:

WITNESSETH

In consideration of the mutual convenants herein contained, the parties hereto agree as
follows:

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.

In connection with scheduled or non-scheduled air passenger transportation within the


United States, neither Orient Air Services nor its sub-agents will perform services for any
other air carrier similar to those to be performed hereunder for American without the
prior written consent of American. Subject to periodic instructions and continued consent
from American, Orient Air Services may sell air passenger transportation to be performed
within the United States by other scheduled air carriers provided American does not
provide substantially equivalent schedules between the points involved.

xxx xxx xxx

4. Remittances

Orient Air Services shall remit in United States dollars to American the ticket stock or
exchange orders, less commissions to which Orient Air Services is entitled hereunder, not
less frequently than semi-monthly, on the 15th and last days of each month for sales
made during the preceding half month.

All monies collected by Orient Air Services for transportation sold hereunder on
American's ticket stock or on exchange orders, less applicable commissions to which
Orient Air Services is entitled hereunder, are the property of American and shall be held
in trust by Orient Air Services until satisfactorily accounted for to American.

5. Commissions

American will pay Orient Air Services commission on transportation sold hereunder by
Orient Air Services or its sub-agents as follows:
(a) Sales agency commission

American will pay Orient Air Services a sales agency commission for all sales of
transportation by Orient Air Services or its sub-agents over American's services and any
connecting through air transportation, when made on American's ticket stock, equal to the
following percentages of the tariff fares and charges:

(i) For transportation solely between points within the United States and between
such points and Canada: 7% or such other rate(s) as may be prescribed by the Air
Traffic Conference of America.

(ii) For transportation included in a through ticket covering transportation


between points other than those described above: 8% or such other rate(s) as may
be prescribed by the International Air Transport Association.

(b) Overriding commission

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.

xxx xxx xxx

10. Default

If Orient Air Services shall at any time default in observing or performing any of the
provisions of this Agreement or shall become bankrupt or make any assignment for the
benefit of or enter into any agreement or promise with its creditors or go into liquidation,
or suffer any of its goods to be taken in execution, or if it ceases to be in business, this
Agreement may, at the option of American, be terminated forthwith and American may,
without prejudice to any of its rights under this Agreement, take possession of any ticket
forms, exchange orders, traffic material or other property or funds belonging to
American.

11. IATA and ATC Rules

The provisions of this Agreement are subject to any applicable rules or resolutions of the
International Air Transport Association and the Air Traffic Conference of America, and
such rules or resolutions shall control in the event of any conflict with the provisions
hereof.

xxx xxx xxx

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.

xxx xxx x x x3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by
failing to promptly remit the net proceeds of sales for the months of January to March 1981 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 (Termination). Four (4) days later, or on 15 May 1981, American Air
instituted suit against Orient Air with the Court of First Instance of Manila, Branch 24, for
Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining
Order4 averring the aforesaid basis for the termination of the Agreement as well as therein
defendant's previous record of failures "to promptly settle past outstanding refunds of which
there were available funds in the possession of the defendant, . . . to the damage and prejudice of
plaintiff."5

In its Answer6 with counterclaim dated 9 July 1981, defendant Orient Air denied the material
allegations of the complaint with respect to plaintiff's entitlement to alleged unremitted amounts,
contending that after application thereof to the commissions due it under the Agreement, plaintiff
in fact still owed Orient Air a balance in unpaid overriding commissions. Further, the defendant
contended that the actions taken by American Air in the course of terminating the Agreement as
well as the termination itself were untenable, Orient Air claiming that American Air's precipitous
conduct had occasioned prejudice to its business interests.

Finding that the record and the evidence substantiated the allegations of the defendant, the trial
court ruled in its favor, rendering a decision dated 16 July 1984, the dispositive portion of which
reads:

WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of defendant
and against plaintiff dismissing the complaint and holding the termination made by the latter as
affecting the GSA agreement illegal and improper and order the plaintiff to reinstate defendant as its
general sales agent for passenger tranportation in the Philippines in accordance with said GSA
agreement; plaintiff is ordered to pay defendant the balance of the overriding commission on total
flown revenue covering the period from March 16, 1977 to December 31, 1980 in the amount of
US$84,821.31 plus the additional amount of US$8,000.00 by way of proper 3% overriding commission
per month commencing from January 1, 1981 until such reinstatement or said amounts in its Philippine
peso equivalent legally prevailing at the time of payment plus legal interest to commence from the filing
of the counterclaim up to the time of payment. Further, plaintiff is directed to pay defendant the
amount of One Million Five Hundred Thousand (Pl,500,000.00) pesos as and for exemplary damages;
and the amount of Three Hundred Thousand (P300,000.00) pesos as and by way of attorney's fees.

Costs against plaintiff.7


On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated
on 27 January 1986, affirmed the findings of the court a quo on their material points but with
some modifications with respect to the monetary awards granted. The dispositive portion of the
appellate court's decision is as follows:

WHEREFORE, with the following modifications

1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance
of the latter's overriding commission covering the period March 16, 1977 to December
31, 1980, or its Philippine peso equivalent in accordance with the official rate of
exchange legally prevailing on July 10, 1981, the date the counterclaim was filed;

2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding
commission per month starting January 1, 1981 until date of termination, May 9, 1981 or
its Philippine peso equivalent in accordance with the official rate of exchange legally
prevailing on July 10, 1981, the date the counterclaim was filed

3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the
date the answer with counterclaim was filed, until full payment;

4) American is ordered to pay Orient exemplary damages of P200,000.00;

5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.

the rest of the appealed decision is affirmed.

Costs against American.8

American Air moved for reconsideration of the aforementioned decision, assailing the substance
thereof and arguing for its reversal. The appellate court's decision was also the subject of a
Motion for Partial Reconsideration by Orient Air which prayed for the restoration of the trial
court's ruling with respect to the monetary awards. The Court of Appeals, by resolution
promulgated on 17 December 1986, denied American Air's motion and with respect to that of
Orient Air, ruled thus:

Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of
the trial court's award of exemplary damages and attorney's fees, but granted insofar as
the rate of exchange is concerned. The decision of January 27, 1986 is modified in
paragraphs (1) and (2) of the dispositive part so that the payment of the sums mentioned
therein shall be at their Philippine peso equivalent in accordance with the official rate of
exchange legally prevailing on the date of actual payment.9

Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as
petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution10
of this Court dated 25 March 1987 both petitions were consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3%
overriding commission. It is the stand of American Air that such commission is based only on
sales of its services actually negotiated or transacted by Orient Air, otherwise referred to as
"ticketed sales." As basis thereof, primary reliance is placed upon paragraph 5(b) of the
Agreement which, in reiteration, is quoted as follows:

5. Commissions

a) . . .

b) Overriding Commission

In addition to the above commission, American will pay Orient Air Services an
overriding commission of 3% of the tariff fees and charges for all sales of transportation
over American's services by Orient Air Services or its sub-agents. (Emphasis supplied)

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. This is supposed
to be the clear meaning of the underscored portion of the above provision. Thus, 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 American Air's ticket stocks.

On the other hand, 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."11

It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must
be taken into consideration to ascertain the meaning of its provisions.12 The various stipulations
in the contract must be read together to give effect to all.13 After a careful examination of the
records, the Court finds merit in the contention of Orient Air that the Agreement, when
interpreted in accordance with the foregoing principles, entitles it to the 3% overriding
commission based on total revenue, or as referred to by the parties, "total flown revenue."

As the designated exclusive General Sales Agent of American Air, Orient Air was responsible
for the promotion and marketing of American Air's services for air passenger transportation, and
the solicitation of sales therefor. In return for such efforts and services, Orient Air was to be paid
commissions of two (2) kinds: 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. It is immediately observed that the precondition
attached to the first type of commission does not obtain for the second type of commissions. The
latter type of commissions would accrue for sales of American Air services made not on its ticket
stock but on the ticket stock of other air carriers sold by such carriers or other authorized
ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of such overriding
commissions to sales from American Air ticket stock would erase any distinction between the
two (2) types of commissions and would lead to the absurd conclusion that the parties had
entered into a contract with meaningless provisions. Such an interpretation must at all times be
avoided with every effort exerted to harmonize the entire Agreement.

An additional point before finally disposing of this issue. It is clear from the records that
American Air was the party responsible for the preparation of the Agreement. Consequently, any
ambiguity in this "contract of adhesion" is to be taken "contra proferentem", i.e., construed
against the party who caused the ambiguity and could have avoided it by the exercise of a little
more care. Thus, Article 1377 of the Civil Code provides that the interpretation of obscure words
or stipulations in a contract shall not favor the party who caused the obscurity.14 To put it
differently, when several interpretations of a provision are otherwise equally proper, that
interpretation or construction is to be adopted which is most favorable to the party in whose
favor the provision was made and who did not cause the ambiguity.15 We therefore agree with
the respondent appellate court's declaration that:

Any ambiguity in a contract, whose terms are susceptible of different interpretations,


must be read against the party who drafted it.16

We now turn to the propriety of American Air's termination of the Agreement. The respondent
appellate court, on this issue, ruled thus:

It is not denied that Orient withheld remittances but such action finds justification from
paragraph 4 of the Agreement, Exh. F, which provides for remittances to American less
commissions to which Orient is entitled, and from paragraph 5(d) which specifically
allows Orient to retain the full amount of its commissions. Since, as stated ante, Orient is
entitled to the 3% override. American's premise, therefore, for the cancellation of the
Agreement did not exist. . . ."

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

On the matter of damages, the respondent appellate court modified by reduction the trial court's
award of exemplary damages and attorney's fees. This Court sees no error in such modification
and, thus, affirms the same.
It is believed, however, that respondent appellate court erred in affirming the rest of the decision
of the trial court.1wphi1 We refer particularly to the lower court's decision ordering American
Air to "reinstate defendant as its general sales agent for passenger transportation in the
Philippines in accordance with said GSA Agreement."

By affirming this ruling of the trial court, respondent appellate court, in effect, compels
American Air to extend its personality to Orient Air. Such would be violative of the principles
and essence of agency, defined by law as a contract whereby "a person binds himself to render
some service or to do something in representation or on behalf of another, WITH THE
CONSENT OR AUTHORITY OF THE LATTER .17 (emphasis supplied) In an agent-principal
relationship, the personality of the principal is extended through the facility of the agent. In so
doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the
latter would have him do. Such a relationship can only be effected with the consent of the
principal, which must not, in any way, be compelled by law or by any court. The Agreement
itself between the parties states that "either party may terminate the Agreement without cause by
giving the other 30 days' notice by letter, telegram or cable." (emphasis supplied) We, therefore,
set aside the portion of the ruling of the respondent appellate court reinstating Orient Air as
general sales agent of American Air.

WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and
resolution of the respondent Court of Appeals, dated 27 January 1986 and 17 December 1986,
respectively. Costs against petitioner American Air.

SO ORDERED.

G.R. No. L-24332 January 31, 1978

RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS,


petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS,
respondents.

Seno, Mendoza & Associates for petitioner.

Ramon Duterte for private respondent.

MUOZ PALMA, J.:


This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his
principal, Concepcion Rallos, sold the latter's undivided share in a parcel of land
pursuant to a power of attorney which the principal had executed in favor. The
administrator of the estate of the went to court to have the sale declared uneanforceable
and to recover the disposed share. The trial court granted the relief prayed for, but upon
appeal the Court of Appeals uphold the validity of the sale and the complaint.

Hence, this Petition for Review on certiorari.

The following facts are not disputed. Concepcion and Gerundia both surnamed 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. On April 21, 1954, the sisters executed a special power of attorney in
favor of their brother, Simeon Rallos, authorizing him to sell for and in their behalf lot
5983. On March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon
Rallos sold the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to
Felix Go Chan & Sons Realty Corporation for the sum of P10,686.90. The deed of sale
was registered in the Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a
new transfer certificate of Title No. 12989 was issued in the named of the vendee.

On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion
Rallos filed a complaint docketed as Civil Case No. R-4530 of the Court of First
Instance of Cebu, praying (1) that the sale of the undivided share of the deceased
Concepcion Rallos in lot 5983 be d 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.
Named party defendants were Felix Go Chan & Sons Realty Corporation, Simeon
Rallos, and the Register of Deeds of Cebu, but subsequently, the latter was dropped
from the complaint. The complaint was amended twice; defendant Corporation's Answer
contained a crossclaim against its co-defendant, Simon Rallos while the latter filed third-
party complaint against his sister, Gerundia Rallos While the case was pending in the
trial court, both Simon and his sister Gerundia died and they were substituted by the
respective administrators of their estates.

After trial the court a quo rendered judgment with the following dispositive portion:

A. On Plaintiffs Complaint

(1) Declaring the deed of sale, Exh. "C", null and void insofar
as the one-half pro-indiviso share of Concepcion Rallos in
the property in question, Lot 5983 of the Cadastral Survey
of Cebu is concerned;
(2) Ordering the Register of Deeds of Cebu City to cancel
Transfer Certificate of Title No. 12989 covering Lot 5983 and
to issue in lieu thereof another in the names of FELIX GO
CHAN & SONS REALTY CORPORATION and the Estate of
Concepcion Rallos in the proportion of one-half (1/2) share
each pro-indiviso;

(3) Ordering Felix Go Chan & Sons Realty Corporation to


deliver the possession of an undivided one-half (1/2) share
of Lot 5983 to the herein plaintiff;

(4) Sentencing the defendant Juan T. Borromeo,


administrator of the Estate of Simeon Rallos, to pay to
plaintiff in concept of reasonable attorney's fees the sum of
P1,000.00; and

(5) Ordering both defendants to pay the costs jointly and


severally.

B. On GO CHANTS Cross-Claim:

(1) Sentencing the co-defendant Juan T. Borromeo,


administrator of the Estate of Simeon Rallos, to pay to
defendant Felix Co Chan & Sons Realty Corporation the
sum of P5,343.45, representing the price of one-half (1/2)
share of lot 5983;

(2) Ordering co-defendant Juan T. Borromeo, administrator


of the Estate of Simeon Rallos, to pay in concept of
reasonable attorney's fees to Felix Go Chan & Sons Realty
Corporation the sum of P500.00.

C. On Third-Party Complaint of defendant Juan T. Borromeo administrator


of Estate of Simeon Rallos, against Josefina Rallos special administratrix
of the Estate of Gerundia Rallos:

(1) Dismissing the third-party complaint 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 of the third-party complaint, at bar. (pp. 98-100,
Record on Appeal)

Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals
from the foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of
Concepcion Rallos. The appellate tribunal, as adverted to earlier, resolved the appeal
on November 20, 1964 in favor of the appellant corporation sustaining the sale in
question. 1 The appellee administrator, Ramon Rallos, moved for a reconsider of the
decision but the same was denied in a resolution of March 4, 1965. 2

What is the legal effect of an act performed by an agent after the death of his principal?
Applied more particularly to the instant case, We have the query. is the sale of the
undivided share of Concepcion Rallos in lot 5983 valid although it was executed by the
agent after the death of his principal? What is the law in this jurisdiction as to the effect
of the death of the principal on the authority of the agent to act for and in behalf of the
latter? Is the fact of knowledge of the death of the principal a material factor in
determining the legal effect of an act performed after such death?

Before proceedings to the issues, We shall briefly restate certain principles of law
relevant to the matter tinder consideration.

1. It is a basic axiom in civil law embodied in our Civil Code that 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. 3 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.4 Article
1403 (1) of the same Code also provides:

ART. 1403. 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; ...

Out of the above given principles, sprung the creation and acceptance of the
relationship of agency whereby one party, caged the principal (mandante), authorizes
another, called the agent (mandatario), to act for and in his behalf in transactions with
third persons. The essential elements of agency are: (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. 5

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. Qui facit per alium facit se.
"He who acts through another acts himself". 6

2. There are various ways of extinguishing agency, 7 but her We are concerned only
with one cause death of the principal Paragraph 3 of Art. 1919 of the Civil Code
which was taken from Art. 1709 of the Spanish Civil Code provides:
ART. 1919. Agency is extinguished.

xxx xxx xxx

3. By the death, civil interdiction, insanity or insolvency of the principal or


of the agent; ... (Emphasis supplied)

By reason of the very nature of the relationship between Principal and agent, agency is
extinguished by the death of the principal or the agent. This is the law in this
jurisdiction.8

Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale
for the law is found in the juridical basis of agency which is representation Them being
an in. integration of the personality of the principal integration that of the agent it is not
possible for the representation to continue to exist once the death of either is establish.
Pothier agrees with Manresa that by reason of the nature of agency, death is a
necessary cause for its extinction. Laurent says that the juridical tie between the
principal and the agent is severed ipso jure upon the death of either without necessity
for the heirs of the fact to notify the agent of the fact of death of the former. 9

The same rule prevails at common law the death of the principal effects
instantaneous and absolute revocation of the authority of the agent unless the Power be
coupled with an interest. 10 This is the prevalent rule in American Jurisprudence where
it is well-settled that a power without an interest confer. red upon an agent is dissolved
by the principal's death, and any attempted execution of the power afterward is not
binding on the heirs or representatives of the deceased. 11

3. Is the general rule provided for in Article 1919 that the death of the principal or of the
agent extinguishes the agency, subject to any exception, and if so, is the instant case
within that exception? That is the determinative point in issue in this litigation. It is the
contention of respondent corporation which was sustained by respondent court that
notwithstanding the death of the principal Concepcion Rallos the act of the attorney-in-
fact, Simeon Rallos in selling the former's sham in the property is valid and enforceable
inasmuch as the corporation acted in good faith in buying the property in question.

Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule
afore-mentioned.

ART. 1930. The agency shall remain in full force and effect even after the
death of the principal, 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. Anything done by the agent, without knowledge of the death of
the principal or of any other cause which extinguishes the agency, is valid
and shall be fully effective with respect to third persons who may have
contracted with him in good. faith.

Article 1930 is not involved because admittedly the special power of attorney executed
in favor of Simeon Rallos was not coupled with an interest.

Article 1931 is the applicable law. Under this provision, 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.

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. The knowledge of the death is clearly to be inferred from the pleadings filed
by Simon Rallos before the trial court. 12 That Simeon Rallos knew of the death of his
sister Concepcion is also a finding of fact of the court a quo 13 and of respondent
appellate court when the latter stated that Simon Rallos 'must have known of the death
of his sister, and yet he proceeded with the sale of the lot in the name of both his sisters
Concepcion and Gerundia Rallos without informing appellant (the realty corporation) of
the death of the former. 14

On the basis of the established knowledge of Simon Rallos concerning the death of his
principal Concepcion Rallos, Article 1931 of the Civil Code is 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. Thus in
Buason & Reyes v. Panuyas, the Court applying Article 1738 of the old Civil rode now
Art. 1931 of the new Civil Code sustained the validity , of a sale made after the death of
the principal because it was not shown that the agent knew of his principal's demise. 15
To the same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in
the words of Justice Jesus Barrera the Court stated:

... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs
presented no proof and there is no indication in the record, that the agent
Luy Kim Guan was aware of the death of his principal at the time he sold
the property. The death 6f the principal does not render the act of an
agent unenforceable, where the latter had no knowledge of such
extinguishment of the agency. (1 SCRA 406, 412)

4. In sustaining the validity of the sale to respondent consideration the Court of Appeals
reasoned out 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. 16
We cannot see the merits of the foregoing argument as it ignores the existence of the
general rule enunciated in Article 1919 that the death of the principal extinguishes the
agency. That being the general rule it follows a fortiori that any act of an agent after the
death of his principal is void ab initio unless the same fags under the exception provided
for in the aforementioned Articles 1930 and 1931. Article 1931, being an exception to
the general rule, is to be strictly construed, it is not to be given an interpretation or
application beyond the clear import of its terms for otherwise the courts will be involved
in a process of legislation outside of their judicial function.

5. Another argument advanced by respondent court is that the vendee acting in good
faith relied on the power of attorney which was duly registered on the original certificate
of title recorded in the Register of Deeds of the province of Cebu, that no notice of the
death was aver annotated on said certificate of title by the heirs of the principal and
accordingly they must suffer the consequences of such omission. 17

To support such argument reference is made to a portion in Manresa's Commentaries


which We quote:

If the agency has been granted for the purpose of contracting with certain
persons, the revocation must be made known to them. But if the agency is
general iii nature, without reference to particular person with whom the
agent is to contract, it is sufficient that the principal exercise due diligence
to make the revocation of the agency publicity known.

In case of 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. In such case, the principal may
exercise his right against the agent, who, knowing of the revocation,
continued to assume a personality which he no longer had. (Manresa Vol.
11, pp. 561 and 575; pp. 15-16, rollo)

The above discourse however, treats of revocation by an act of the principal as a mode
of terminating an agency which is to be distinguished from revocation by operation of
law such as death of the principal which obtains in this case. On page six of this Opinion
We stressed that by reason of the very nature of the relationship between principal and
agent, agency is extinguished ipso jure upon the death of either principal or agent.
Although a revocation of a power of attorney to be effective must be communicated to
the parties concerned, 18 yet a revocation by operation of law, such as by death of the
principal is, as a rule, instantaneously effective inasmuch as "by legal fiction the agent's
exercise of authority is regarded as an execution of the principal's continuing will. 19
With death, the principal's will ceases or is the of authority is extinguished.

The Civil Code does not impose a duty on the heirs to notify the agent of the death of
the principal What the Code provides in Article 1932 is that, if the agent die 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

6. Holding that the good faith of a third person in said with an agent affords the former
sufficient protection, respondent court drew a "parallel" between the instant case and
that of an innocent purchaser for value of a land, stating that if a person purchases a
registered land from one who acquired it in bad faith even to the extent of foregoing
or falsifying the deed of sale in his favor the registered owner has no recourse
against such innocent purchaser for value but only against the forger. 20

To support the correctness of this respondent corporation, in its brief, cites the case of
Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief:

In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630,
one Vallejo was a co-owner of lands with Agustin Nano. The latter had a
power of attorney supposedly executed by Vallejo Nano in his favor.
Vallejo delivered to Nano his land titles. The power was registered in the
Office of the Register of Deeds. When the lawyer-husband of Angela
Blondeau went to that Office, he found all in order including the power of
attorney. But Vallejo denied having executed the power The lower court
sustained Vallejo and the plaintiff Blondeau appealed. Reversing the
decision of the court a quo, the Supreme Court, quoting the ruling in the
case of Eliason v. Wilborn, 261 U.S. 457, held:

But there is a narrower ground on which the defenses of the


defendant- appellee must be overruled. Agustin Nano had
possession of Jose Vallejo's title papers. Without those title
papers handed over to Nano with the acquiescence of
Vallejo, a fraud could not have been perpetuated. When
Fernando de la Canters, a member of the Philippine Bar and
the husband of Angela Blondeau, the principal plaintiff,
searched the registration record, he found them in due form
including the power of attorney of Vallajo in favor of Nano. If
this had not been so and if thereafter the proper notation of
the encumbrance could not have been made, Angela
Blondeau would not have sent P12,000.00 to the defendant
Vallejo.' An executed transfer of registered lands placed by
the registered owner thereof in the hands of another
operates as a representation to a third party that the holder
of the transfer is authorized to deal with the land.

As between two innocent persons, one of whom must suffer


the consequence of a breach of trust, the one who made it
possible by his act of coincidence bear the loss. (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us because
here We are confronted with one who admittedly was an agent of his sister and who
sold the property of the latter after her death with full knowledge of such death. The
situation is expressly covered by a provision of law on agency the terms of which are
clear and unmistakable leaving no room for an interpretation contrary to its tenor, in the
same manner that the ruling in Blondeau and the cases cited therein found a basis in
Section 55 of the Land Registration Law which in part provides:

xxx xxx xxx

The production of the owner's duplicate certificate whenever any voluntary


instrument is presented for registration shall be conclusive authority from
the registered owner to the register of deeds to enter a new certificate or
to make a memorandum of registration in accordance with such
instruments, and the new certificate or memorandum Shall be binding
upon the registered owner and upon all persons claiming under him in
favor of every purchaser for value and in good faith: Provided however,
That in all cases of registration provided by fraud, the owner may pursue
all his legal and equitable remedies against the parties to such fraud
without prejudice, however, to the right, of any innocent holder for value of
a certificate of title. ... (Act No. 496 as amended)

7. One last point raised by respondent corporation in support of the appealed decision is
an 1842 ruling of the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein
payments made to an agent after the death of the principal were held to be "good", "the
parties being ignorant of the death". Let us take note that the Opinion of Justice Rogers
was premised on the statement that the parties were ignorant of the death of the
principal. We quote from that decision the following:

... Here the precise point is, whether a payment to an agent when the
Parties are ignorant of the death is a good payment. in addition to the
case in Campbell before cited, the same judge Lord Ellenboruogh, has
decided in 5 Esp. 117, the general question that a payment after the death
of principal is not good. Thus, a payment of sailor's wages to a person
having a power of attorney to receive them, has been held void when the
principal was dead at the time of the payment. If, by this case, it is meant
merely to decide the general proposition that by operation of law the death
of the principal is a revocation of the powers of the attorney, no objection
can be taken to it. But if it intended to say that his principle applies where
there was 110 notice of death, or opportunity of twice I must be permitted
to dissent from it.

... That a payment may be good today, or bad tomorrow, from the accident
circumstance of the death of the principal, which he did not know, and
which by no possibility could he know? It would be unjust to the agent and
unjust to the debtor. In the civil law, the acts of the agent, done bona fide
in ignorance of the death of his principal are held valid and binding upon
the heirs of the latter. The same rule holds in the Scottish law, and I
cannot believe the common law is so unreasonable... (39 Am. Dec. 76, 80,
81; emphasis supplied)

To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke,
mention may be made that the above represents the minority view in American
jurisprudence. Thus in Clayton v. Merrett, the Court said.

There are several cases which seem to hold that although, as a general
principle, death revokes an agency and renders null every act of the agent
thereafter performed, yet that where a payment has been made in
ignorance of the death, such payment will be good. The leading case so
holding is that of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am.
76, where, in an elaborate opinion, this view ii broadly announced. It is
referred to, and seems to have been followed, in the case of Dick v. Page,
17 Mo. 234, 57 AmD 267; but in this latter case it appeared that the estate
of the deceased principal had received the benefit of the money paid, and
therefore the representative of the estate might well have been held to be
estopped from suing for it again. . . . These cases, in so far, at least, as
they announce the doctrine under discussion, are exceptional. The
Pennsylvania Case, supra (Cassiday v. McKenzie 4 Watts & S. 282, 39
AmD 76), is believed to stand almost, if not quite, alone in announcing the
principle in its broadest scope. (52, Misc. 353, 357, cited in 2 C.J. 549)

So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that
the opinion, except so far as it related to the particular facts, was a mere dictum,
Baldwin J. said:

The opinion, therefore, of the learned Judge may be regarded more as an


extrajudicial indication of his views on the general subject, than as the
adjudication of the Court upon the point in question. But accordingly all
power weight to this opinion, as the judgment of a of great respectability, it
stands alone among common law authorities and is opposed by an array
too formidable to permit us to following it. (15 Cal. 12,17, cited in 2 C.J.
549)

Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American


jurisprudence, no such conflict exists in our own for the simple reason that our statute,
the Civil Code, expressly provides for two exceptions to the general rule that death of
the principal revokes ipso jure the agency, to wit: (1) that the agency is coupled with an
interest (Art 1930), and (2) that the act of the agent was executed without knowledge of
the death of the principal and the third person who contracted with the agent acted also
in good faith (Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again
We stress the indispensable requirement that the agent acted without knowledge or
notice of the death of the principal In the case before Us the agent Ramon Rallos
executed the sale notwithstanding notice of the death of his principal Accordingly, the
agent's act is unenforceable against the estate of his principal.

IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate
court, and We affirm en toto the judgment rendered by then Hon. Amador E. Gomez of
the Court of First Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with costs
against respondent realty corporation at all instances.

So Ordered.