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 Agreement
—that of retaining from the sales proceeds its accrued commissions before remitting the balance to American Air. Since
the latter was still obligated to Orient Air by way of such commissions. Orient Air was clearly justified in retaining and
refusing to remit the sums claimed by American Air. The latter's termination of the Agreement was, therefore, without
cause and basis, for which it should be held liable to Orient Air.

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.1âwphi1 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.

Melencio-Herrera, and Regalado, JJ., concur.

Paras, J., took no part. Son is a partner in one of the counsel.
Sarmiento, J., is on leave.
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.

MUÑOZ 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.

Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.

G.R. No. 214057, October 19, 2015

FLORENTINA BAUTISTA-SPILLE REPRESENTED BY HER ATTORNEY-IN-FACT, MANUEL B. FLORES, JR., Petitioner, v.

NICORP MANAGEMENT AND DEVELOPMENT CORPORATION, BENJAMIN G. BAUTISTA AND INTERNATIONAL EXCHAN
BANK, Respondents.

DECISION

MENDOZA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the March 19, 2014
Decision1 and the August 18, 2014 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 97682, which reversed
and set Regional Trial Court, Branch aside the May 24, 2010 Decision3 of the Regional Trial Court, Branch 90,
Dasmariñas, Cavite (RTC), in Civil Case No. 0321-04, declaring a contract to sell null and void.

The Facts:

Petitioner Florentina Bautista-Spille (petitioner) is the registered owner of a parcel of land covered by Transfer
Certificate of Title (TCT) No. T-197, located in Imus City, Cavite, with an area of more or less 33,052 square meters
(subject property).

On June 20, 1996, petitioner and her spouse, Harold E. Spille, executed a document denominated as General Power of
Attorney4 in favor of her brother, respondent Benjamin Bautista (Benjamin), authorizing the latter to administer all her
businesses and properties in the Philippines. The said document was notarized before the Consulate General of the
Philippines, New York, United States of America.

On August 13, 2004, Benjamin and NICORP Management and Development Corporation (NICORP) entered into a
contract to sell5 which pertained to the parcel of land covered by TCT No. T-197 for the agreed amount of
P15,000,000.00. In the said contract, NICORP agreed to give a down payment equivalent to 20% of the purchase price
and pay the remaining balance in eight (8) months. It was also agreed that upon receipt of the down payment, the TCT
of the subject property would be deposited with the International Exchange Bank (IE Bank) and placed in escrow. It
would only be released upon full payment of the agreed amount. Furthermore, Benjamin was required to submit a
special power of attorney (SPA) covering the sale transaction, otherwise, the payment of the balance would be
suspended and a penalty of P150,000.00 every month would be imposed.

Pursuant thereto, an Escrow Agreement,6 dated October 13, 2004, was executed designating IE Bank as the Escrow
Agent, obliging the latter to hold and take custody of TCT No. T-197, and to release the said title to NICORP upon full
payment of the subject property.

On October 14, 2004, NICORP issued a check in the amount of P2,250,000.00, representing the down payment of the
subject property.7 Thereafter, the TCT was deposited with IE Bank and placed in escrow.

When petitioner discovered the sale, her lawyer immediately sent demand letters8 to NICORP and Benjamin, both dated
October 27, 2004, and to IE pank, dated October 28, 2004, informing them that she was opposing the sale of the subject
property and that Benjamin was not clothed with authority to enter into a contract to sell and demanding the return of
the owner's copy of the certificate of title to her true and lawful attorney-in-fact, Manujel B. Flores, Jr. (Flores). NICORP,
Benjamin and IE Bank, however, failed and refused to return the title of the subject property.

Consequently, petitioner filed a complaint9 before the RTC against Benjamin, NICORP and IE Bank for declaration of
nullity of the contract to sell, pjunction, recovery of possession and damages with prayer for the issuance of a temporary
restraining order and/or preliminary injunction because NICORP was starting the development of the subject property
into a residential subdivision and was planning to sell the lots to prospective buyers. Petitioner denied receiving the
down payment for the subject property.

The RTC granted the writ of preliminary injunction in its Order,10 dated January 24, 2005, enjoining NICORP and all
persons acting on its behalf from making or introducing improvements, subdividing and selling any subdivided lot of the
subject property.
In its Answer,11 NICORP asked for the dismissal of the case for lack of a cause of action and averred that Benjamin was
empowered to enter into a contract to sell by virtue of the general power of attorney; that the said authority was valid
and subsisting as there was no specific instrument that specifically revoked his authority; that assuming Bautista
exceeded his authority when he executed the contract to sell, the agreement was still valid and enforceable as the
agency was already "coupled with interest" because of the partial payment in the amount of P3,000,000.00; and that the
contract could not just be revoked without NICORP being reimbursed of its down payment and the costs for the initial
development it had incurred in developing the subject property into a residential subdivision.

For its part, IE Bank denied any liability and alleged that petitioner had no cause of action against it. IE Bank asserted
that, at the time of its constitution as an escrow agent, Benjamin possessed the necessary authority from petitioner; that
because the contract to sell remained valid, it was duty-bound to observe its duties and obligations under the Escrow
Agreement; and that in the absence of any order from the court, it was proper for the bank not to comply with
petitioner's demand for the surrender of the certificate of title.12

Benjamin, on the other hand, did not file any responsive pleading. Hence, he was declared in default in the RTC Order,13
dated August 25, 2005.

On May 24, 2010, the RTC rendered its judgment, declaring the contract to sell null and void.14 It explained that the
general power of authority only pertained to acts of administration over petitioner's businesses and properties in the
Philippines and did not include authority to sell the subject property. It pointed out that NICORP was well aware of
Benjamin's lack of authority to sell the subject property as gleaned from the contract to sell which required the latter to
procure the SPA from petitioner and even imposed a penalty of P150,000.00 per month if he would be delayed in
securing the SPA. The dispositive portion of the RTC decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants,
declaring the Contract to Sell, dated October 13, 2004 between the defendant Bautista and NICORP to be null and void,
and the writ of preliminary injunction is now made permanent, and further ordering the defendants NICORP and
International Exchange Bank as follows -

(a)
To return to the plaintiff the peaceful possession of the subject property covered by Transfer Certificate of Title No. T-
197 of the Register of Deeds of the Province of Cavite;
(b)
To return to the plaintiff the Original Owner's Duplicate of Title No. T-197 of the Register of Deeds of the Province of
Cavite;
(c)
To pay to the plaintiff the amount of Php250,000.00 by way of attorney's fees; and
(d)
The Costs of suit.

SO ORDERED.15
Aggrieved, NICORP appealed before the CA.

In the assailed decision, the CA reversed the RTC decision, explaining that the general power of attorney executed by
petitioner in favor of Benjamin authorized the latter not only to perform acts of administration over her properties but
also to perform acts of dominion which included, among others, the power to dispose the subject property.

Petitioner filed a motion for reconsideration, but it was denied in the assailed CA Resolution, dated August 18, 2014.

Hence, this petition anchored on the following

GROUNDS
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR IN HOLDING THAT THE GENERAL POWER OF
ATTORNEY EXECUTED BY PETITIONER AUTHORIZED BENJAMIN BAUTISTA TO ENTER INTO THE CONTRACT TO SELL WITH
RESPONDENT IN CONTRAVENTION OF THE ESTABLISHED PRONOUNCEMENT OF THE SUPREME COURT IN THE CASE OF
LILLIAN N. MERCADO ET AL. VS. ALLIED BANKING CORPORATION (G.R. NO. 171460, 24 JULY 2007.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR IN APPLYING THE CASE OF ESTATE OF LINO OLAGUER
VS. ONGJOCO (G.R. NO. 173312, 26 AUGUST 2008) TO THE INSTANT CASE CONSIDERING THAT THE ESTABLISHED FACTS
HEREIN ARE NOT IN ALL FOURS WITH THE FACTS SURROUNDING THE DECISION IN THE OLAGUER VS. ONGJOCO CASE.
THE HONORABLE COURT OF APPEALS ERRED IN DISREGARDING (I) RESPONDENT'S JUDICIAL ADMISSION AS TO
BENJAMIN BAUTISTA'S LACK OF AUTHORITY TO ENTER INTO A CONTRACT TO SELL THE SUBJECT PROPERTY, AND (II)
RESPONDENT'S KNOWLEDGE OF THE INSUFFICIENCY OF THE GENERAL POWER OF ATTORNEY, INDICATING BAD FAITH
OF THE RESPONDENT.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT ERRED IN DECLARING THE CONTRACT
TO SELL NULL AND VOID.16
Petitioner argues that the general power of attorney did not clothe Benjamin with the authority to enter into a contract
to sell the subject property. She contends that the general power of attorney pertained to the power to buy, sell,
negotiate and contract over the business and personal property but did not specifically authorize the sale of the subject
property.

Petitioner asserts that the CA erred when it disregarded the stipulation made by NICORP during the pre-trial proceedings
as stated in the pre-trial order that Benjamin "acted beyond the scope of his authority when he failed to inform plaintiff
personally as to his dealing or negotiation with NICORP and when he signed the Contract to Sell xxx."17 According to
petitioner, such an admission was an indication that NICORP did not consider the general power of authority as an SPA
which would have authorized Benjamin to enter into the contract to sell.

NICORP counters that the general power of attorney sufficiently conferred authority on Benjamin to enter into the
contract to sell. It asserts that the written authority, while denominated as a general power of attorney, expressly
authorized him to sell the subject property. NICORP insists that it was a buyer in good faith and was never negligent in
ascertaining the extent of his authority to sell the property. It explains that though the general power of attorney
sufficiently clothed Bautista with authority to sell the subject property, it nonetheless required him to submit the SPA in
order to comply with the requirements of the Register of Deeds and the Bureau of Internal Revenue.

The issue for resolution is whether or not Benjamin was authorized to sell the subject property.

The Court's Ruling

The Court finds the petition meritorious.

In petitions for review on certiorari under Rule 45 of the Rules of Civil Procedure, only questions of law may be raised by
the parties and passed upon by this Court. It is not a function of this Court to analyze and weigh the evidence presented
by the parties all over again.18 This rule, however, has several well-recognized exceptions, such as when the factual
findings of the CA and the trial court are conflicting or contradictory.19

The well-established rule is when a sale of a parcel of land or any interest therein is through an agent, the authority of
the latter shall be in writing, otherwise the sale shall be void. Articles 1874 and 1878 of the Civil Code explicitly provide:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void.

Art. 1878. Special powers of attorney are necessary in the following cases:chanRoblesvirtualLawlibrary

(1) x xx

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or
for a valuable consideration;

xxx. [Emphasis Supplied]

From the foregoing, it is clear that an SPA in the conveyance of real rights over immovable property is necessary.20 In
Cosmic Lumber Corporation v. Court of Appeals,21 the Court enunciated,
When the sale of a piece of land or any interest thereon is through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void. Thus, the authority of an agent to execute a contract for the sale of real estate
must be conferred in writing and must give him specific authority, either to conduct the general business of the principal
or to execute a binding contract containing terms and conditions which are in the contract he did execute. A special
power of attorney is necessary to enter into any contract by which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration. The express mandate required by law to enable an
appointee of an agency (couched) in general terms to sell must be one that expressly mentions a sale or that includes a
sale as a necessary ingredient of the act mentioned. For the principal to confer the right upon an agent to sell real
estate, a power of attorney must so express the powers of the agent in clear and unmistakable language. When there is
any reasonable doubt that the language so used conveys such power, no such construction shall be given the
document.22

[Emphases Supplied]
To reiterate, such authority must be conferred in writing and must express the powers of the agent in clear and
unmistakable language in order for the principal to confer the right upon an agent to sell the real property.23 It is a
general rule that a power of attorney must be strictly construed, and courts will not infer or presume broad powers from
deeds which do not sufficiently include property or subject under which the agent is to deal.24 Thus, when the authority
is couched in general terms, without mentioning any specific power to sell or mortgage or to do other specific acts of
strict dominion, then only acts of administration are deemed conferred.25cralawred

In the case at bench, the only evidence adduced by NICORP to prove Benjamin's authority to sell petitioner's property
was the document denominated as General Power of Attorney, dated June 20, 1996. The pertinent portions of the said
document reads:
KNOW ALL MEN BY THESE PRESENTS:chanRoblesvirtualLawlibrary

THAT I/WE FLORENTINA B. SPILLE, of legal age, single/married to HAROLD E. SPILLE and residents of x x x do hereby
appoint, name and constitute BENJAMIN G. BAUTISTA resident(s) of x x x to be my/our true and lawful attorney(s), to
administer and conduct all my/our affairs and for that purpose in my/our name(s) and on my/our behalf, to do and
execute any or all of the following acts, deeds and things to wit:
To exercise administration, general control and supervision over my/our business and property in the Philippines, and to
act as my/our general representative(s) and agent(s) with full authority to buy, sell, negotiate and contract for me/us
and my/our behalf;ChanRoblesVirtualawlibrary

To ask, demand, sue for, recover and receive all sums of money, debts, dues, goods, wares, merchandise, chattels,
effects and thing of whatsoever nature or description, which now or hereafter shall be or become due, owing, payable
or belonging to me/us in or by any right, title, ways or means howsoever, and upon receipt thereof or any part thereof,
to make, sign, execute and deliver such receipts, releases or other discharges;ChanRoblesVirtualawlibrary

xxx26
Doubtless, there was no perfected contract to sell between petitioner and NICORP. Nowhere in the General Power of
Attorney was Benjamin granted, expressly or impliedly, any power to sell the subject property or a portion thereof. The
authority expressed in the General Power of Attorney was couched in very broad terms covering petitioner's businesses
and properties. Time and again, this Court has stressed that the power of administration does not include acts of
disposition, which are acts of strict ownership. As such, an authority to dispose cannot proceed from an authority to
administer, and vice versa, for the two powers may only be exercised by an agent by following the provisions on agency
of the Civil Code.27

In the same vein, NICORP cannot be considered a purchaser in good faith. The well-settled rule is that a person dealing
with an assumed agent is bound to ascertain not only the fact of agency but also the nature and extent of the agent's
authority.28 The law requires a higher degree of prudence from one who buys from a person who is not the registered
owner. He is expected to examine all factual circumstances necessary for him to determine if there are any flaws in the
title of the transferor, or in his capacity to transfer the land.29 In ascertaining good faith, or the lack of it, which is a
question of intention, courts are necessarily controlled by the evidence as to the conduct and outward acts by which
alone the inward motive may, with safety, be determined. Good faith, or want of it, is not a visible, tangible fact that can
be seen or touched, but rather a state or condition of mind which can only be judged by actual or fancied token or
signs.30

Here, the Court agrees with the RTC that NICORP was fully aware that Benjamin was not properly authorized to enter
into any transaction regarding the sale of petitioner's property. In fact, in the contract to sell, NICORP required Benjamin
to secure the SPA from petitioner within ninety (90) days from the execution of the contract and even imposed a
substantial amount of penalty in the amount of P150,000.00 a month in case of non-compliance plus suspension of
payment of the balance of the contract price.

Petitioner's explanation that it obliged Benjamin to secure the SPA in order to comply with the requirements of the
Register of Deeds and the Bureau of Internal Revenue is bereft of merit. NICORP is a real estate company which is
familiar with the intricacies of the realty business. Moreover, there was no evidence that petitioner ratified Benjamin's
act of selling the subject property. On the contrary, immediately after the execution of the contract to sell, petitioner
wrote NICORP, IE Bank and Benjamin to inform them of her opposition to the sale of the subject property and of his lack
of authority to sell it and demand the return of the certificate of title. Clearly, NICORP was negligent in its dealings with
Bautista.

In sum, the Court agrees with the findings and conclusion of the RTC. The consent of petitioner in the contract to sell
was not obtained, hence, not enforceable. Furthermore, because NICORP is considered a builder in bad faith, it has no
right to be refunded the value of whatever improvements it introduced on the subject
property.31chanroblesvirtuallawlibrary

WHEREFORE, the petition is GRANTED. The March 19, 2014 Decision and the August 18, 2014 Resolution of the Court of
Appeals in CA-G.R. CV No. 97682 are REVERSED and SET ASIDE. The May 24, 2010 Decision of the Regional Trial Court,
Branch 90, Dasmariñas, Cavite, is REINSTATED.

SO ORDERED.

Leonardo-De Castro,*Brion,**(Acting Chairperson), Peralta,*** and Leonen, JJ., concur.

Endnotes:
G.R. No. 188288 January 16, 2012

SPOUSES FERNANDO and LOURDES VILORIA, Petitioners,

vs.
CONTINENTAL AIRLINES, INC.,

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the January 30, 2009 Decision1 of the Special
Thirteenth Division of the Court of Appeals (CA) in CA-G.R. CV No. 88586 entitled "Spouses Fernando and Lourdes Viloria
v. Continental Airlines, Inc.," the dispositive portion of which states:

WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03 April 2006, awarding US$800.00 or its peso
equivalent at the time of payment, plus legal rate of interest from 21 July 1997 until fully paid, [₱]100,000.00 as moral
damages, [₱]50,000.00 as exemplary damages, [₱]40,000.00 as attorney’s fees and costs of suit to plaintiffs-appellees is
hereby REVERSED and SET ASIDE.

Defendant-appellant’s counterclaim is DENIED.

Costs against plaintiffs-appellees.

SO ORDERED.2

On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC) rendered a Decision, giving due course to the
complaint for sum of money and damages filed by petitioners Fernando Viloria (Fernando) and Lourdes Viloria (Lourdes),
collectively called Spouses Viloria, against respondent Continental Airlines, Inc. (CAI). As culled from the records, below
are the facts giving rise to such complaint.

On or about July 21, 1997 and while in the United States, Fernando purchased for himself and his wife, Lourdes, two (2)
round trip airline tickets from San Diego, California to Newark, New Jersey on board Continental Airlines. Fernando
purchased the tickets at US$400.00 each from a travel agency called "Holiday Travel" and was attended to by a certain
Margaret Mager (Mager). According to Spouses Viloria, Fernando agreed to buy the said tickets after Mager informed
them that there were no available seats at Amtrak, an intercity passenger train service provider in the United States. Per
the tickets, Spouses Viloria were scheduled to leave for Newark on August 13, 1997 and return to San Diego on August
21, 1997.

Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or August 6, 1997.
Mager informed him that flights to Newark via Continental Airlines were already fully booked and offered the alternative
of a round trip flight via Frontier Air. Since flying with Frontier Air called for a higher fare of US$526.00 per passenger
and would mean traveling by night, Fernando opted to request for a refund. Mager, however, denied his request as the
subject tickets are non-refundable and the only option that Continental Airlines can offer is the re-issuance of new
tickets within one (1) year from the date the subject tickets were issued. Fernando decided to reserve two (2) seats with
Frontier Air.

As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound Station where he saw
an Amtrak station nearby. Fernando made inquiries and was told that there are seats available and he can travel on
Amtrak anytime and any day he pleased. Fernando then purchased two (2) tickets for Washington, D.C.

From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak tickets, telling her that she had
misled them into buying the Continental Airlines tickets by misrepresenting that Amtrak was already fully booked.
Fernando reiterated his demand for a refund but Mager was firm in her position that the subject tickets are non-
refundable.

Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998, demanding a refund and alleging
that Mager had deluded them into purchasing the subject tickets.3
In a letter dated February 24, 1998, Continental Micronesia informed Fernando that his complaint had been referred to
the Customer Refund Services of Continental Airlines at Houston, Texas.4

In a letter dated March 24, 1998, Continental Micronesia denied Fernando’s request for a refund and advised him that
he may take the subject tickets to any Continental ticketing location for the re-issuance of new tickets within two (2)
years from the date they were issued. Continental Micronesia informed Fernando that the subject tickets may be used
as a form of payment for the purchase of another Continental ticket, albeit with a re-issuance fee.5

On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala Avenue, Makati City to have the subject
tickets replaced by a single round trip ticket to Los Angeles, California under his name. Therein, Fernando was informed
that Lourdes’ ticket was non-transferable, thus, cannot be used for the purchase of a ticket in his favor. He was also
informed that a round trip ticket to Los Angeles was US$1,867.40 so he would have to pay what will not be covered by
the value of his San Diego to Newark round trip ticket.

In a letter dated June 21, 1999, Fernando demanded for the refund of the subject tickets as he no longer wished to have
them replaced. In addition to the dubious circumstances under which the subject tickets were issued, Fernando claimed
that CAI’s act of charging him with US$1,867.40 for a round trip ticket to Los Angeles, which other airlines priced at
US$856.00, and refusal to allow him to use Lourdes’ ticket, breached its undertaking under its March 24, 1998 letter.6

On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to refund the money
they used in the purchase of the subject tickets with legal interest from July 21, 1997 and to pay ₱1,000,000.00 as moral
damages, ₱500,000.00 as exemplary damages and ₱250,000.00 as attorney’s fees.7

CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a refund as the subject tickets are non-
refundable; (b) Fernando cannot insist on using the ticket in Lourdes’ name for the purchase of a round trip ticket to Los
Angeles since the same is non-transferable; (c) as Mager is not a CAI employee, CAI is not liable for any of her acts; (d)
CAI, its employees and agents did not act in bad faith as to entitle Spouses Viloria to moral and exemplary damages and
attorney’s fees. CAI also invoked the following clause printed on the subject tickets:

3. To the extent not in conflict with the foregoing carriage and other services performed by each carrier are subject to:
(i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier’s conditions of carriage and related regulations
which are made part hereof (and are available on application at the offices of carrier), except in transportation between
a place in the United States or Canada and any place outside thereof to which tariffs in force in those countries apply.8

According to CAI, one of the conditions attached to their contract of carriage is the non-transferability and non-
refundability of the subject tickets.

The RTC’s Ruling

Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding that Spouses Viloria are entitled to a
refund in view of Mager’s misrepresentation in obtaining their consent in the purchase of the subject tickets.9 The
relevant portion of the April 3, 2006 Decision states:

Continental Airlines agent Ms. Mager was in bad faith when she was less candid and diligent in presenting to plaintiffs
spouses their booking options. Plaintiff Fernando clearly wanted to travel via AMTRAK, but defendant’s agent misled him
into purchasing Continental Airlines tickets instead on the fraudulent misrepresentation that Amtrak was fully booked.
In fact, defendant Airline did not specifically denied (sic) this allegation.

Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into buying Continental Airline tickets on Ms.
Mager’s misleading misrepresentations. Continental Airlines agent Ms. Mager further relied on and exploited plaintiff
Fernando’s need and told him that they must book a flight immediately or risk not being able to travel at all on the
couple’s preferred date. Unfortunately, plaintiffs spouses fell prey to the airline’s and its agent’s unethical tactics for
baiting trusting customers."10

Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAI’s agent, hence, bound by her bad faith
and misrepresentation. As far as the RTC is concerned, there is no issue as to whether Mager was CAI’s agent in view of
CAI’s implied recognition of her status as such in its March 24, 1998 letter.
The act of a travel agent or agency being involved here, the following are the pertinent New Civil Code provisions on
agency:

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.

Art. 1869. Agency may be express, or 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.

Agency may be oral, unless the law requires a specific form.

As its very name implies, a travel agency binds itself to render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter. This court takes judicial notice of the common services
rendered by travel agencies that represent themselves as such, specifically the reservation and booking of local and
foreign tours as well as the issuance of airline tickets for a commission or fee.

The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff spouses on July 21, 1997 were no different
from those offered in any other travel agency. Defendant airline impliedly if not expressly acknowledged its principal-
agent relationship with Ms. Mager by its offer in the letter dated March 24, 1998 – an obvious attempt to assuage
plaintiffs spouses’ hurt feelings.11

Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its undertaking to replace the subject tickets
within two (2) years from their date of issue when it charged Fernando with the amount of US$1,867.40 for a round trip
ticket to Los Angeles and when it refused to allow Fernando to use Lourdes’ ticket. Specifically:

Tickets may be reissued for up to two years from the original date of issue. When defendant airline still charged plaintiffs
spouses US$1,867.40 or more than double the then going rate of US$856.00 for the unused tickets when the same were
presented within two (2) years from date of issue, defendant airline exhibited callous treatment of passengers.12

The Appellate Court’s Ruling

On appeal, the CA reversed the RTC’s April 3, 2006 Decision, holding that CAI cannot be held liable for Mager’s act in the
absence of any proof that a principal-agent relationship existed between CAI and Holiday Travel. According to the CA,
Spouses Viloria, who have the burden of proof to establish the fact of agency, failed to present evidence demonstrating
that Holiday Travel is CAI’s agent. Furthermore, contrary to Spouses Viloria’s claim, the contractual relationship between
Holiday Travel and CAI is not an agency but that of a sale.

Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who was in turn a ticketing agent of Holiday
Travel who was in turn a ticketing agent of Continental Airlines. Proceeding from this premise, they contend that
Continental Airlines should be held liable for the acts of Mager. The trial court held the same view.

We do not agree. By the contract of agency, a person binds him/herself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter. The elements 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 him/herself; and (4) the agent acts within
the scope of his/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 principal’s 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. It is likewise a settled rule that persons dealing with an assumed agent are bound at
their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent
of authority, and in case either is controverted, the burden of proof is upon them to establish it. Agency is never
presumed, neither is it created by the mere use of the word in a trade or business name. We have perused the evidence
and documents so far presented. We find nothing except bare allegations of plaintiffs-appellees that Mager/Holiday
Travel was acting in behalf of Continental Airlines. From all sides of legal prism, the transaction in issue was simply a
contract of sale, wherein Holiday Travel buys airline tickets from Continental Airlines and then, through its employees,
Mager included, sells it at a premium to clients.13
The CA also ruled that refund is not available to Spouses Viloria as the word "non-refundable" was clearly printed on the
face of the subject tickets, which constitute their contract with CAI. Therefore, the grant of their prayer for a refund
would violate the proscription against impairment of contracts.

Finally, the CA held that CAI did not act in bad faith when they charged Spouses Viloria with the higher amount of
US$1,867.40 for a round trip ticket to Los Angeles. According to the CA, there is no compulsion for CAI to charge the
lower amount of US$856.00, which Spouses Viloria claim to be the fee charged by other airlines. The matter of fixing the
prices for its services is CAI’s prerogative, which Spouses Viloria cannot intervene. In particular:

It is within the respective rights of persons owning and/or operating business entities to peg the premium of the services
and items which they provide at a price which they deem fit, no matter how expensive or exhorbitant said price may
seem vis-à-vis those of the competing companies. The Spouses Viloria may not intervene with the business judgment of
Continental Airlines.14

The Petitioners’ Case

In this Petition, this Court is being asked to review the findings and conclusions of the CA, as the latter’s reversal of the
RTC’s April 3, 2006 Decision allegedly lacks factual and legal bases. Spouses Viloria claim that CAI acted in bad faith when
it required them to pay a higher amount for a round trip ticket to Los Angeles considering CAI’s undertaking to re-issue
new tickets to them within the period stated in their March 24, 1998 letter. CAI likewise acted in bad faith when it
disallowed Fernando to use Lourdes’ ticket to purchase a round trip to Los Angeles given that there is nothing in
Lourdes’ ticket indicating that it is non-transferable. As a common carrier, it is CAI’s duty to inform its passengers of the
terms and conditions of their contract and passengers cannot be bound by such terms and conditions which they are not
made aware of. Also, the subject contract of carriage is a contract of adhesion; therefore, any ambiguities should be
construed against CAI. Notably, the petitioners are no longer questioning the validity of the subject contracts and limited
its claim for a refund on CAI’s alleged breach of its undertaking in its March 24, 1998 letter.

The Respondent’s Case

In its Comment, CAI claimed that Spouses Viloria’s allegation of bad faith is negated by its willingness to issue new
tickets to them and to credit the value of the subject tickets against the value of the new ticket Fernando requested. CAI
argued that Spouses Viloria’s sole basis to claim that the price at which CAI was willing to issue the new tickets is
unconscionable is a piece of hearsay evidence – an advertisement appearing on a newspaper stating that airfares from
Manila to Los Angeles or San Francisco cost US$818.00.15 Also, the advertisement pertains to airfares in September
2000 and not to airfares prevailing in June 1999, the time when Fernando asked CAI to apply the value of the subject
tickets for the purchase of a new one.16 CAI likewise argued that it did not undertake to protect Spouses Viloria from
any changes or fluctuations in the prices of airline tickets and its only obligation was to apply the value of the subject
tickets to the purchase of the newly issued tickets.

With respect to Spouses Viloria’s claim that they are not aware of CAI’s restrictions on the subject tickets and that the
terms and conditions that are printed on them are ambiguous, CAI denies any ambiguity and alleged that its
representative informed Fernando that the subject tickets are non-transferable when he applied for the issuance of a
new ticket. On the other hand, the word "non-refundable" clearly appears on the face of the subject tickets.

CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no principal-agency relationship exists
between them. As an independent contractor, Holiday Travel was without capacity to bind CAI.

Issues

To determine the propriety of disturbing the CA’s January 30, 2009 Decision and whether Spouses Viloria have the right
to the reliefs they prayed for, this Court deems it necessary to resolve the following issues:

a. Does a principal-agent relationship exist between CAI and Holiday Travel?

b. 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 Mager?
c. Assuming that CAI is bound by the acts of Holiday Travel’s agents and employees, can the representation of Mager as
to unavailability of seats at Amtrak be considered fraudulent as to vitiate the consent of Spouse Viloria in the purchase
of the subject tickets?

d. Is CAI justified in insisting that the subject tickets are non-transferable and non-refundable?

e. Is CAI justified in pegging a different price for the round trip ticket to Los Angeles requested by Fernando?

f. Alternatively, 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?

This Court’s Ruling

I. A principal-agent relationship exists between CAI and Holiday Travel.

With respect to the first issue, which is a question of fact that would require this Court to review and re-examine the
evidence presented by the parties below, this Court takes exception to the general rule that the CA’s findings of fact are
conclusive upon Us and our jurisdiction is limited to the review of questions of law. It is well-settled to the point of being
axiomatic that this Court is authorized to resolve questions of fact if confronted with contrasting factual findings of the
trial court and appellate court and if the findings of the CA are contradicted by the evidence on record.17

According to the CA, agency is never presumed and that he who alleges that it exists has the burden of proof. Spouses
Viloria, on whose shoulders such burden rests, presented evidence that fell short of indubitably demonstrating the
existence of such agency.

We disagree. The CA failed to consider undisputed facts, discrediting CAI’s denial that Holiday Travel is one of its agents.
Furthermore, in erroneously characterizing the contractual relationship between CAI and Holiday Travel as a contract of
sale, the CA failed to apply the fundamental civil law principles governing agency and differentiating it from sale.

In Rallos v. Felix Go Chan & Sons Realty Corporation,18 this Court explained the nature of an agency and spelled out the
essential elements thereof:

Out of the above given principles, sprung the creation and acceptance of the relationship of agency whereby one party,
called 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
agent acts as a representative and not for himself, and (4) the agent acts within the scope of his authority.1avvphi1

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."19

Contrary to the findings of the CA, all the elements of an agency exist in this case. The first and second elements are
present as CAI does not deny that it concluded an agreement with Holiday Travel, whereby Holiday Travel would enter
into contracts of carriage with third persons on CAI’s behalf. The third element is also present as it is undisputed that
Holiday Travel merely acted in a representative capacity and it is CAI 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 CAI
has not made any allegation that Holiday Travel exceeded the authority that was granted to it. In fact, CAI consistently
maintains the validity of the contracts of carriage that Holiday Travel executed with Spouses Viloria and that Mager was
not guilty of any fraudulent misrepresentation. That CAI admits the authority of Holiday Travel to enter into contracts of
carriage on its behalf is easily discernible from its February 24, 1998 and March 24, 1998 letters, where it impliedly
recognized the validity of the contracts entered into by Holiday Travel with Spouses Viloria. When Fernando informed
CAI that it was Holiday Travel who issued to them the subject tickets, CAI did not deny that Holiday Travel is its
authorized agent.

Prior to Spouses Viloria’s filing of a complaint against it, CAI never refuted that it gave Holiday Travel the power and
authority to conclude contracts of carriage on its behalf. As clearly extant from the records, CAI recognized the validity
of the contracts of carriage that Holiday Travel entered into with Spouses Viloria and considered itself bound with
Spouses Viloria by the terms and conditions thereof; and this constitutes an unequivocal testament to Holiday Travel’s
authority to act as its agent. This Court cannot therefore allow CAI 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 CAI’s 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.20
Estoppel bars CAI from making such denial.

As categorically provided under Article 1869 of the Civil Code, "[a]gency may be express, or 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."

Considering that the fundamental hallmarks of an agency are present, this Court finds it rather peculiar that the CA had
branded the contractual relationship between CAI and Holiday Travel as one of sale. The distinctions between a sale and
an agency are not difficult to discern and this Court, as early as 1970, had already formulated the guidelines that would
aid in differentiating the two (2) contracts. In Commissioner of Internal Revenue v. Constantino,21 this Court
extrapolated that the primordial differentiating consideration between the two (2) contracts is the transfer of ownership
or title over the property subject of the contract. In an agency, the principal retains ownership and control over the
property and the agent merely acts on the principal’s behalf and under his instructions in furtherance of the objectives
for which the agency was established. On the other hand, the contract is clearly a sale if the parties intended that the
delivery of the property will effect a relinquishment of title, control and ownership in such a way that the recipient may
do with the property as he pleases.

Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to
customers, the price and terms of which were subject to the company's control, the relationship between the company
and the dealer is one of agency, tested under the following criterion:

"The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the
establishment of rules by the application of which this difficulty may be solved. The decisions say the transfer of title or
agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the
attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely
as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to
sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has
the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon
sales made. 1 Mechem on Sales, Sec. 43; 1 Mechem on Agency, Sec. 48; Williston on Sales, 1; Tiedeman on Sales, 1."
(Salisbury v. Brooks, 94 SE 117, 118-119)22

As to how the CA have arrived at the conclusion that the contract between CAI and Holiday Travel is a sale is certainly
confounding, considering that CAI is the one bound by the contracts of carriage embodied by the tickets being sold by
Holiday Travel on its behalf. It is undisputed that CAI and not Holiday Travel who is the party to the contracts of carriage
executed by Holiday Travel with third persons who desire to travel via Continental Airlines, and this conclusively
indicates the existence of a principal-agent relationship. That the principal is bound by all the obligations contracted by
the agent within the scope of the authority granted to him is clearly provided under Article 1910 of the Civil Code and
this constitutes the very notion of agency.

II. 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.

Considering that Holiday Travel is CAI’s agent, does it necessarily follow that CAI is liable for the fault or negligence of
Holiday Travel’s employees? Citing China Air Lines, Ltd. v. Court of Appeals, et al.,23 CAI argues that it cannot be held
liable for the actions of the employee of its ticketing agent in the absence of an employer-employee relationship.

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 against the airline company is premised on
culpa aquiliana or quasi-delict for a tort committed by the employee of the airline company’s agent, there must be an
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.

On the other hand, if the passenger’s cause of action for damages against the airline company is based on contractual
breach or culpa contractual, it is not necessary that there be evidence of the airline company’s fault or negligence. As
this Court previously stated in China Air Lines and reiterated in Air France vs. Gillego,24 "in an action based on a breach
of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was
negligent. All that he has to prove is the existence of the contract and the fact of its non-performance by the carrier."

Spouses Viloria’s cause of action on the basis of Mager’s alleged fraudulent misrepresentation is clearly one of tort or
quasi-delict, there being no pre-existing contractual relationship between them. Therefore, it was incumbent upon
Spouses Viloria to prove that CAI was equally at fault.

However, the records are devoid of any evidence by which CAI’s alleged liability can be substantiated. Apart from their
claim that CAI must be held liable for Mager’s supposed fraud because Holiday Travel is CAI’s agent, Spouses Viloria did
not present evidence that CAI was a party or had contributed to Mager’s complained act either by instructing or
authorizing Holiday Travel and Mager to issue the said misrepresentation.

It may seem unjust at first glance that CAI would consider Spouses Viloria bound by the terms and conditions of the
subject contracts, which Mager entered into with them on CAI’s behalf, in order to deny Spouses Viloria’s request for a
refund or Fernando’s use of Lourdes’ ticket for the re-issuance of a new one, and simultaneously claim that they are not
bound by Mager’s supposed misrepresentation for purposes of avoiding Spouses Viloria’s claim for damages and
maintaining the validity of the subject contracts. It may likewise be argued that CAI cannot deny liability as it benefited
from Mager’s acts, which were performed in compliance with Holiday Travel’s obligations as CAI’s agent.

However, a person’s vicarious liability is anchored on his possession of control, whether absolute or limited, on the
tortfeasor. Without such control, there is nothing which could justify extending the liability to a person other than the
one who committed the tort. As this Court explained in Cangco v. Manila Railroad Co.:25

With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is competent for the
legislature to elect — and our Legislature has so elected — to limit such liability to cases in which the person upon whom
such an obligation is imposed is morally culpable or, on the contrary, for reasons of public policy, to extend that liability,
without regard to the lack of moral culpability, so as to include responsibility for the negligence of those persons whose
acts or omissions are imputable, by a legal fiction, to others who are in a position to exercise an absolute or limited
control over them. The legislature which adopted our Civil Code has elected to limit extra-contractual liability — with
certain well-defined exceptions — to cases in which moral culpability can be directly imputed to the persons to be
charged. This moral responsibility may consist in having failed to exercise due care in one's own acts, or in having failed
to exercise due care in the selection and control of one's agent or servants, or in the control of persons who, by reasons
of their status, occupy a position of dependency with respect to the person made liable for their conduct.26 (emphasis
supplied)

It is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over Mager by preponderant
evidence. The existence of control or supervision cannot be presumed and CAI is under no obligation to prove its denial
or nugatory assertion. Citing Belen v. Belen,27 this Court ruled in Jayme v. Apostol,28 that:

In Belen v. Belen, this Court ruled that it was enough for defendant to deny an alleged employment relationship. The
defendant is under no obligation to prove the negative averment. This Court said:

"It is an old and well-settled rule of the courts that the burden of proving the action is upon the plaintiff, and that if he
fails satisfactorily to show the facts upon which he bases his claim, the defendant is under no obligation to prove his
exceptions. This [rule] is in harmony with the provisions of Section 297 of the Code of Civil Procedure holding that each
party must prove his own affirmative allegations, etc."29 (citations omitted)

Therefore, without a modicum of evidence that CAI exercised control over Holiday Travel’s employees or that CAI was
equally at fault, no liability can be imposed on CAI for Mager’s supposed misrepresentation.
III. Even on the assumption that CAI may be held liable for the acts of Mager, still, Spouses Viloria are not entitled to a
refund. Mager’s statement cannot be considered a causal fraud that would justify the annulment of the subject
contracts that would oblige CAI to indemnify Spouses Viloria and return the money they paid for the subject tickets.

Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was
obtained through fraud, the contract is considered voidable and may be annulled within four (4) years from the time of
the discovery of the fraud. Once a contract is annulled, the parties are obliged under Article 1398 of the same Code to
restore to each other the things subject matter of the contract, including their fruits and interest.

On the basis of the foregoing and given the allegation of Spouses Viloria that Fernando’s consent to the subject
contracts was supposedly secured by Mager through fraudulent means, it is plainly apparent that their demand for a
refund is tantamount to seeking for an annulment of the subject contracts on the ground of vitiated consent.

Whether the subject contracts are annullable, this Court is required to determine whether Mager’s alleged
misrepresentation constitutes causal fraud. Similar to the dispute on the existence of an agency, whether fraud attended
the execution of a contract is factual in nature and this Court, as discussed above, may scrutinize the records if the
findings of the CA are contrary to those of the RTC.

Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In
order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente),
inducement to the making of the contract.30 In Samson v. Court of Appeals,31 causal fraud was defined as "a deception
employed by one party prior to or simultaneous to the contract in order to secure the consent of the other."32

Also, fraud must be serious and its existence must be established by clear and convincing evidence. As ruled by this
Court in Sierra v. Hon. Court of Appeals, et al.,33 mere preponderance of evidence is not adequate:

Fraud must also be discounted, for according to the Civil Code:

Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is
induced to enter into a contract which without them, he would not have agreed to.

Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by
both contracting parties.

To quote Tolentino again, the "misrepresentation constituting the fraud must be established by full, clear, and
convincing evidence, and not merely by a preponderance thereof. The deceit must be serious. The fraud is serious when
it is sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot deceive a prudent person
cannot be a ground for nullity. The circumstances of each case should be considered, taking into account the personal
conditions of the victim."34

After meticulously poring over the records, this Court finds that the fraud alleged by Spouses Viloria has not been
satisfactorily established as causal in nature to warrant the annulment of the subject contracts. In fact, Spouses Viloria
failed to prove by clear and convincing evidence that Mager’s statement was fraudulent. Specifically, Spouses Viloria
failed to prove that (a) there were indeed available seats at Amtrak for a trip to New Jersey on August 13, 1997 at the
time they spoke with Mager on July 21, 1997; (b) Mager knew about this; and (c) that she purposely informed them
otherwise.

This Court finds the only proof of Mager’s alleged fraud, which is Fernando’s testimony that an Amtrak had assured him
of the perennial availability of seats at Amtrak, to be wanting. As CAI correctly pointed out and as Fernando admitted, it
was possible that during the intervening period of three (3) weeks from the time Fernando purchased the subject tickets
to the time he talked to said Amtrak employee, other passengers may have cancelled their bookings and reservations
with Amtrak, making it possible for Amtrak to accommodate them. Indeed, the existence of fraud cannot be proved by
mere speculations and conjectures. Fraud is never lightly inferred; it is good faith that is. Under the Rules of Court, it is
presumed that "a person is innocent of crime or wrong" and that "private transactions have been fair and regular."35
Spouses Viloria failed to overcome this presumption.

IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the subject contracts.
Even assuming that Mager’s representation is causal fraud, the subject contracts have been impliedly ratified when
Spouses Viloria decided to exercise their right to use the subject tickets for the purchase of new ones. Under Article
1392 of the Civil Code, "ratification extinguishes the action to annul a voidable contract."

Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:

Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a
right to invoke it should execute an act which necessarily implies an intention to waive his right.

Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or adoption of
the contract; or by acceptance and retention of benefits flowing therefrom.36

Simultaneous with their demand for a refund on the ground of Fernando’s vitiated consent, Spouses Viloria likewise
asked for a refund based on CAI’s supposed bad faith in reneging on its undertaking to replace the subject tickets with a
round trip ticket from Manila to Los Angeles.

In doing so, Spouses Viloria are actually asking for a rescission of the subject contracts based on contractual breach.
Resolution, the action referred to in Article 1191, is based on the defendant’s breach of faith, a violation of the
reciprocity between the parties37 and in Solar Harvest, Inc. v. Davao Corrugated Carton Corporation,38 this Court ruled
that a claim for a reimbursement in view of the other party’s failure to comply with his obligations under the contract is
one for rescission or resolution.

However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two (2) inconsistent
remedies. In resolution, all the elements to make the contract valid are present; in annulment, one of the essential
elements to a formation of a contract, which is consent, is absent. In resolution, the defect is in the consummation stage
of the contract when the parties are in the process of performing their respective obligations; in annulment, the defect
is already present at the time of the negotiation and perfection stages of the contract. Accordingly, by pursuing the
remedy of rescission under Article 1191, the Vilorias had impliedly admitted the validity of the subject contracts,
forfeiting their right to demand their annulment. A party cannot rely on the contract and claim rights or obligations
under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent
positions.39

V. Contracts cannot be rescinded for a slight or casual breach.

CAI cannot insist on the non-transferability of the subject tickets.

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.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.

According to Spouses Viloria, CAI acted in bad faith and breached the subject contracts when it refused to apply the
value of Lourdes’ ticket for Fernando’s purchase of a round trip ticket to Los Angeles and in requiring him to pay an
amount higher than the price fixed by other airline companies.
In its March 24, 1998 letter, CAI stated that "non-refundable tickets may be used as a form of payment toward the
purchase of another Continental ticket for $75.00, per ticket, reissue fee ($50.00, per ticket, for tickets purchased prior
to October 30, 1997)."

Clearly, there is nothing in the above-quoted section of CAI’s letter from which the restriction on the non-transferability
of the subject tickets can be inferred. In fact, the words used by CAI in its letter supports the position of Spouses Viloria,
that each of them can use the ticket under their name for the purchase of new tickets whether for themselves or for
some other person.

Moreover, as CAI admitted, it was only when Fernando had expressed his interest to use the subject tickets for the
purchase of a round trip ticket between Manila and Los Angeles that he was informed that he cannot use the ticket in
Lourdes’ name as payment.

Contrary to CAI’s claim, that the subject tickets are non-transferable cannot be implied from a plain reading of the
provision printed on the subject tickets stating that "[t]o the extent not in conflict with the foregoing carriage and other
services performed by each carrier are subject to: (a) provisions contained in this ticket, x x x (iii) carrier’s conditions of
carriage and related regulations which are made part hereof (and are available on application at the offices of carrier) x x
x." As a common carrier whose business is imbued with public interest, the exercise of extraordinary diligence requires
CAI to inform Spouses Viloria, or all of its passengers for that matter, of all the terms and conditions governing their
contract of carriage. CAI is proscribed from taking advantage of any ambiguity in the contract of carriage to impute
knowledge on its passengers of and demand compliance with a certain condition or undertaking that is not clearly
stipulated. Since the prohibition on transferability is not written on the face of the subject tickets and CAI failed to
inform Spouses Viloria thereof, CAI cannot refuse to apply the value of Lourdes’ ticket as payment for Fernando’s
purchase of a new ticket.

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

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
subject tickets. This Court takes note of CAI’s willingness to perform its principal obligation and this is to apply the price
of the ticket in Fernando’s name to 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.

Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI cannot be solely faulted for the fact that their
agreement failed to consummate and no new ticket was issued to Fernando. Spouses Viloria have no right to insist that
a single round trip ticket between Manila and Los Angeles should be priced at around $856.00 and refuse to pay the
difference between the price of the subject tickets and the amount fixed by CAI. The petitioners failed to allege, much
less prove, that CAI had obliged itself to issue to them tickets for any flight anywhere in the world upon their surrender
of the subject tickets. In its March 24, 1998 letter, it was clearly stated that "[n]on-refundable tickets may be used as a
form of payment toward the purchase of another Continental ticket"42 and there is nothing in it suggesting that CAI had
obliged itself to protect Spouses Viloria from any fluctuation in the prices of tickets or that the surrender of the subject
tickets will be considered as full payment for any ticket that the petitioners intend to buy regardless of actual price and
destination. The CA was correct in holding that it is CAI’s right and exclusive prerogative to fix the prices for its services
and it may not be compelled to observe and maintain the prices of other airline companies.43

The conflict as to the endorsability of the subject tickets is an altogether different matter, which does not preclude CAI
from fixing the price of a round trip ticket between Manila and Los Angeles in an amount it deems proper and which
does not provide Spouses Viloria an excuse not to pay such price, albeit subject to a reduction coming from the value of
the subject tickets. It cannot be denied that Spouses Viloria had the concomitant obligation to pay whatever is not
covered by the value of the subject tickets whether or not the subject tickets are transferable or not.1avvphi1

There is also no showing that Spouses Viloria were discriminated against in bad faith by being charged with a higher
rate. The only evidence the petitioners presented to prove that the price of a round trip ticket between Manila and Los
Angeles at that time was only $856.00 is a newspaper advertisement for another airline company, which is inadmissible
for being "hearsay evidence, twice removed." Newspaper clippings are hearsay if they were offered for the purpose of
proving the truth of the matter alleged. As ruled in Feria v. Court of Appeals,:44

[N]ewspaper articles amount to "hearsay evidence, twice removed" and are therefore not only inadmissible but without
any probative value at all whether objected to or not, unless offered for a purpose other than proving the truth of the
matter asserted. In this case, the news article is admissible only as evidence that such publication does exist with the
tenor of the news therein stated.45 (citations omitted)

The records of this case demonstrate that both parties were equally in default; hence, none of them can seek judicial
redress for the cancellation or resolution of the subject contracts and they are therefore bound to their respective
obligations thereunder. As the 1st sentence of Article 1192 provides:

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.

This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals.46 Thus:

Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings
Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his
obligation to pay his ₱17,000.00 debt within 3 years as stipulated, they are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations,
the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings
Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the
form of penalties and surcharges, for not paying his overdue ₱17,000.00 debt. x x x.47

Another consideration that militates against the propriety of holding CAI liable for moral damages is the absence of a
showing that the latter acted fraudulently and in bad faith. Article 2220 of the Civil Code requires evidence of bad faith
and fraud and moral damages are generally not recoverable in culpa contractual except when bad faith had been
proven.48 The award of exemplary damages is likewise not warranted. Apart from the requirement that the defendant
acted in a wanton, oppressive and malevolent manner, the claimant must prove his entitlement to moral damages.49

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice