RALLOS v FELIX GO CHAN

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

Facts:
This is a case of an attorney-in-fact, Simeon Rallos, who after of the 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 thewent
to court to have the sale declared unenforceable and to recover the disposed share. The trial
court granted the relief prayed for, but upon appeal the Court of Appeals upheld the validity of
the sale and the complaint.
Facts:
Concepcion and Gerundia both surnamed Rallos were sisters and registered co-owners of a
parcel of land. They 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 name
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 that the sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be
declared unenforceable, and said share be reconveyed to her estate, certificate of title be
reissued in their name, and for damages and attorneys fees. 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.
RTC declared the sale of the part of the land that belonged to Concepcion as null and void.
CA upheld the validity of the sale.
Issue/Held:
1. What is the legal effect of an act performed by an agent after the death of his
principal? DEATH EXTINGUISHES AGENCY.
2. 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? YES.
3. Is the sale of the undivided share of Concepcion Rallos in the Lot valid although it
was executed by the agent after the death of his principal? NO.
Ratio:
1. General Rule: Death extinguishes agency.
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

ART. 1919. Agency is extinguished.

xxx xxx xxx
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.
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
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.
2.

Exceptions:

Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule aforementioned. Article 1931 is the one applicable to the case at bar.
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. NOT APPLICABLE
as the special power of attorney executed in favor of Simeon Rallos was not coupled with an
interest.
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.
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.
3.

The sale is invalid as the case does not comply with first requisite.
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. 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.

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.
Other relevant information:
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.
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. The agent acted
fraudulently. When he transacted with vendee, he already knew the certificate of title was in
the name of a dead person and without personality.
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 in 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.
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 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, 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.
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 dies, his heirs
must notify the principal thereof, and in the meantime adopt such measures as the
circumstances may demand in the interest of the latter. Hence, the fact that no notice of
the death of the principal was registered on the certificate of title of the property in the
Office of the Register of Deeds, is not fatal to the cause of the estate of the principal
LEASE OF WORK

Art. 1644. In the lease of work or service, one of the parties binds himself to execute a
piece of work or to render to the other some service for a price certain, but the relation
of principal and agent does not exist between them. (1544a)
Orient Air Services vs CA
197 SCRA 645 May 29, 1991
Padilla,J;
1.

2.

3.

4.

5.

On 15 January 1977, American Airlines, Inc. an air carrier offering passenger and air
cargo transportation in the Philippines, and Orient Air Services and Hotel
Representatives , entered into a General Sales Agency Agreement whereby the
former authorized the latter to act as its exclusive general sales agent within the
Philippines for the sale of air passenger transportation.
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.
Four (4) days later, or on 15 May 1981, American Air instituted suit against Orient Air
with the CFI of Manila, Branch 24, for Accounting with Preliminary Attachment or
Garnishment, Mandatory Injunction and Restraining Order averring the aforesaid
basis for the termination of the Agreement as well as therein defendant's previous
record of failures "to promptly settle past outstanding refunds of which there were
available funds in the possession of the defendant, . . . to the damage and prejudice
of plaintiff."
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.

TC ruled in favor of ORIENT AIR

- dismissing the complaint and holding the termination made by the plaintiff
American Airlines as affecting the GSA agreement illegal and improper and

6.

7.

order the plaintiff American Airlines 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.
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.
Both appealed the decision of the CA

RATIO:
- 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.
-

ISSUE #1 WON American Air can be ordered by the court to "reinstate defendant as its
general sales agent for passenger transportation in the Philippines in accordance with
said GSA Agreement.
HELD: NO

RATIO:
-

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 .
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."

ISSUE#2 WON Orient Air is entitled to the 3% overriding commission. YES and it must be
based on TOTAL REVENUE.
HELD: YES

AMERICAN AIR: 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.
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."

SC: 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. The various stipulations in the contract must be read together to
give effect to all. 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.

RE: contract of adhesion

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.
Bordador vs Luz
1.

Petitioners were engaged in the business of purchase and sale of jewelry and
respondent Brigida D. Luz, also known as Aida D. Luz, was their regular customer.

2.

On several occasions during the period from April 27, 1987 to September 4, 1987,
respondent Narciso Deganos, the brother to Brigida D. Luz, received several pieces
of gold and jewelry from petitioner amounting to P382,816.00. 1 These items and
their prices were indicated in seventeen receipts covering the same. Eleven of the
receipts stated that they were received for a certain Evelyn Aquino, a niece of
Deganos, and the remaining six indicated that they were received for Brigida D. Luz.

3.

Deganos was supposed to sell the items at a profit and thereafter remit the
proceeds and return the unsold items to petitioners.

4.

Deganos remitted only the sum of P53,207.00. He neither paid the balance of the
sales proceeds, nor did he return any unsold item to petitioners.

5.

By January 1990, the total of his unpaid account to petitioners, including interest,
reached the sum of P725,463.98.

6.

Petitioners eventually filed a complaint in the barangay court against Deganos to

recover said amount.

7.

In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case,
appeared as a witness for Deganos and ultimately, she and her husband, together
with Deganos, signed a compromise agreement with petitioners.

8.

In that compromise agreement, Deganos obligated himself to pay petitioners, on

installment basis, the balance of his account plus interest thereon. However, he
failed to comply with his aforestated undertakings.

9.

On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional
Trial Court of Malolos, Bulacan against Deganos and Brigida, D. Luz for recovery of
a sum of money and damages, with an application for preliminary attachment. 4
Ernesto Luz was impleaded therein as the spouse of Brigida.

10. Petitioners claimed that Deganos acted as the agent of Brigida D. Luz when he
received the subject items of jewelry and, because he failed to pay for the same,
Brigida, as principal, and her spouse are solidarily liable with him therefor.
11. Private Respondent: Deganos admitted that he had an unpaid obligation to
petitioners, he claimed that the same was only in the sum of P382,816.00 and not
P725,463.98. He further asserted that it was he alone who was involved in the
transaction with the petitioners; that he neither acted as agent for nor was he
authorized to act as an agent by Brigida D. Luz, notwithstanding the fact that six of
the receipts indicated that the items were received by him for the latter. He further
claimed that he never delivered any of the items he received from petitioners to
Brigida.
12. Trial court below found that only Deganos was liable to petitioners for the amount
and damages claimed. It held that while Brigida D. Luz did have transactions with

petitioners in the past, the items involved were already paid for and all that Brigida
owed petitioners was the sum of P21,483.00 representing interest on the principal
account which she had previously paid for.
13. CA AFFIRMED
ISSUE: whether or not herein respondent spouses are liable to petitioners for the latter's claim
for money and damages in the sum of P725,463.98, plus interests and attorney's fees, despite
the fact that the evidence does not show that they signed any of the subject receipts or
authorized Deganos to received the items of jewelry on their behalf.
HELD: NO.
RATIO:
- The evidence does not support the theory of petitioners that Deganos was an agent of
Brigida D. Luz and that the latter should consequently be held solidarily liable with Deganos in
his obligation to petitioners. While the quoted statement in the findings of fact of the assailed
appellate decision mentioned that Deganos ostensibly acted as an agent of Brigida, the actual
conclusion and ruling of the Court of Appeals categorically stated that, "(Brigida Luz) never
authorized her brother (Deganos) to act for and in her behalf in any transaction with
Petitioners . . . .
-

It is clear, therefore, that even assuming arguendo that Deganos acted as an agent of
Brigida, the latter never authorized him to act on her behalf with regard to the transaction
subject of this case.
- The basis for agency is representation. Here, there is no showing that Brigida consented to
the acts of Deganos or authorized him to act on her behalf, much less with respect to the
particular transactions involved. Petitioners' attempt to foist liability on respondent spouses
through the supposed agency relation with Deganos is groundless and ill-advised.
- Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos, not
once or twice but on at least six occasions as evidenced by six receipts, several pieces of
jewelry of substantial value without requiring a written authorization from his alleged principal.
A person dealing with an agent is put upon inquiry and must discover upon his peril the
authority of the agent.
- The records show that neither an express nor an implied agency was proven to have existed
between Deganos and Brigida D. Luz. Evidently, petitioners, who were negligent in their

transactions with Deganos, cannot seek relief from the effects of their negligence by conjuring
a supposed agency relation between the two respondents where no evidence supports such
claim.
[G.R. No. 117356. June 19, 2000.]
VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and
CONSOLIDATED SUGAR CORPORATION, respondents.
QUISUMBING, J p:
Old Buyer regularly bought sugar from petitioner (SELLER), issuing the latter
Shipping List/Delivery Receipts (SLDRs) as proof of purchase.
October 16, 1989 Subject SLDR was issued, covering 25,000 bags of sugar
containing 50kg and priced at P638.00 per bag. The transaction was a direct sale,
and an additional note in the SLDR said that the delivery was subject for availability
of a stock at the NAWACO warehouse.
October 25, 1989 Old Buyer sold to private respondent (NEW BUYER) its rights
under subject SLDR for P14,750,000.00, the latter issuing a check of the same date
and 3 checks postdated November 13, 1989 for payment. It also informed seller that
the authority to withdraw sugar covered by the SLDR was already transferred to
him, enclosing in the letter a copy of the SLDR and a letter of authority from the old
buyer authorizing the new buyer to withdraw the sugar on their behalf.
October 27, 1989 Old buyer issued 16 checks totaling P31,900,000.00 with the
seller, the latter issuing an Official Receipt for payment of P50,000 bags covering
the SLDR bought and a new SLDR.
However, when the new buyer surrendered the SLDR he bought to the NAWACO
warehouse, he was released only 2,000 bags and NAWACO refused further
withdrawals, saying that the old buyer already withdrew the remaining 23,000 bags.
March 2, 1990 New buyer sent the old buyer a letter demanding the 23,000 bags
withdrawn.
March 9, 1990 Seller reiterated that all sugar corresponding to the subject SLDR
was already withdrawn. Moreover, the authority given by the old buyer mentioned
the new buyer as his agent, withdrawing sugar for and in behalf of him.
April 27, 1990 New buyer filed a complaint for specific performance against old
buyer and seller, praying the delivery of 23,000 bags of sugar plus damages.
P: It was unpaid for the 23,000 bags.
SLDRs were delivery receipts and not documents of title. It did not
authorize the transfer of rights for another party to withdraw sugar
bags.
New buyer did not pay for the SLDR, and the buyers conspired to
defraud seller of his sugar. He then posted a counterclaim for
damages.
February 13, 1991 RTC ruled for new buyer, ordering the delivery of the sugar
bags due under SLDR No. 1214 and payment of damages, attorneys fees and
costs of the suit, saying that:
The subject SLDR have been fully paid, as evidenced by the official receipt
issued when old buyer issued checks to pay the purchases. This evidence

cannot stand against sellers witness bare assertions, and inability to produce
evidence that the check initially issued was dishonored.
CA P: Contends that its dealings with the old and new buyers are part of one
general contract of sale. As an agent of the old buyer, the new buyer can only
withdraw bags of sugar against cleared checks of the old buyer. Since the value of
the cleared checks were only up to the extent of the released sugar, it cannot be
ordered to release more sugar bags because they were still unpaid.
R: The transaction including subject SLDR is separate and independent from
the rest of the purchases. The payment was made in a single statement for
ease of transactions.
February 24, 1994 CA modified RTC judgment, reducing the deliverable bags to
P12,586 (and hence reducing the attorneys fees to 10% of the value of the
undelivered bags). This was subsequently modified to reinstate the RTC judgment
relating to the quantity of deliverable sugar bags, ruling that:
The increase of the deliverable bags was due to the reconsideration of the
evidence, holding that since there was evidence to the withdrawal of only 2,000
bags pursuant to the subject SLDR, the remainder is not yet withdrawn. It
rejected sellers contention that the value of the cleared checks was the
already withdrawn.
Issue:
WON the new buyer is an assignee of the old buyer.
WON the CA erred in not applying the law on compensation to offset credits
between the buyers.
WON the transaction was in the nature of a contract to sell or conditional sale.
WON the CA erred in not applying the clean hands doctrine to prevent new buyer
from seeking relief.
Held:
On the first issue:
This was raised only at the first time on appeal. Because of this, it will not be
normally entertained because it violates the basic rules of fair play, justice and
due process. However, since CA opted to address the issue, SC will now rule
on it.
Contract of agency defined: Art. 1868, NCC
The basis of the contract is representation, which requires, for the
principal, the intent to appoint the agent as his representative (and his
control over it), and for the agent, the intent to accept the appointment and
act on it.
CA Ruling: Law does not presume agency. It is a fact to be proved, the
burden of which is dependent on those who allege it, who must prove its
existence and the nature of extent of the powers granted.
The old buyers letter of authority was heavily relied to show agency between
the buyers.
Despite the language of the letter that has an inkling of agency, the
sale of the SLDR proves that there is no agency between the buyers.

On the second issue:

P: Since the transactions between the buyers are parts of one account, its debt
has been offset by its claim for the old buyers unpaid purchases, according to
Art. 1279 of the Civil Code
SC: The purchase of sugar contained in the subject SLDR is a separate and
independent transaction, with a separate payment. Because of this, seller is
under obligation to deliver it to the buyer or his assignee. No compensation is
possible because buyers are not mutual debtors and creditors of each other.
On the third issue:
P: The sale of sugar is a conditional sale (or a contract to sell), with title to the
sugar still remaining with the vendor.
SC: Judging from the terms and conditions of the SLDR, it is a contract of sale.
It is therefore estopped from alleging the contrary as the contract is the law
between the contracting parties. Because of this, seller is obliged to deliver the
sugar to the buyer or its assignee.
On the fourth issue:
P: Buyers entered into a conspiracy to defraud it of its sugar, evidenced by the
fact that old buyer sold the sugar below its market price; new buyer refused to
pursue the case against old buyers owner; and the authority given by the old
buyer to other person to withdraw against the subject SLDR after she sold her
rights under it to new buyer.
SC: The assertions are fully speculative and bereft of direct proof.
Decision: Petition denied for lack of merit.
Yun Kwan Byung vs PAGCOR
December 11, 2009
1.

2.

3.

4.

PAGCOR is a government-owned and controlled corporation tasked to establish and

operate gambling clubs and casinos as a means to promote tourism and generate
sources of revenue for the government. To achieve these objectives, PAGCOR is
vested with the power to enter into contracts of every kind and for any lawful
purpose that pertains to its business.
Pursuant to this authority, PAGCOR launched its Foreign Highroller Marketing
Program (Program). The Program aims to invite patrons from foreign countries to
play at the dollar pit of designated PAGCOR-operated casinos under specified terms
and conditions and in accordance with industry practice
The Korean-based ABS Corporation was one of the international groups that availed
of the Program. In a letter-agreement dated 25 April 1996 (Junket Agreement), ABS
Corporation agreed to bring in foreign players to play at the five designated gaming
tables of the Casino Filipino Silahis at the Grand Boulevard Hotel in Manila (Casino
Filipino).
Petitioner, a Korean national, alleges that from November 1996 to March 1997, he
came to the Philippines four times to play for high stakes at the Casino Filipino.

5.

6.

7.

Petitioner claims that in the course of the games, he was able to accumulate
gambling chips worth US$2.1 million. Petitioner presented as evidence during the
trial gambling chips with a face value of US$1.1 million. Petitioner contends that
when he presented the gambling chips for encashment with PAGCORs employees
or agents, PAGCOR refused to redeem them
Petitioner brought an action against PAGCOR seeking the redemption of gambling
chips valued at US$2.1 million.
claims that he won the gambling chips at the Casino Filipino, playing
continuously day and night.
- alleges that every time he would come to Manila, PAGCOR would extend to
him amenities deserving of a high roller. A PAGCOR official who meets him at
the airport would bring him to Casino Filipino, a casino managed and operated
by PAGCOR. The card dealers were all PAGCOR employees, the gambling
chips, equipment and furnitures belonged to PAGCOR, and PAGCOR enforced
all the regulations dealing with the operation of foreign exchange gambling pits.
Petitioner states that he was able to redeem his gambling chips with the
cashier during his first few winning trips. But later on, the casino cashier
refused to encash his gambling chips so he had no recourse but to deposit his
gambling chips at the Grand Boulevard Hotels deposit box, every time he
departed from Manila
PAGCOR claims that petitioner, who was brought into the Philippines by ABS
Corporation, is a junket player who played in the dollar pit exclusively leased by ABS
Corporation for its junket players. PAGCOR alleges that it provided ABS Corporation
with distinct junket chips. ABS Corporation distributed these chips to its junket
players. At the end of each playing period, the junket players would surrender the
chips to ABS Corporation. Only ABS Corporation would make an accounting of
these chips to PAGCORs casino treasury.
As additional information for the junket players playing in the gaming room leased to
ABS Corporation, PAGCOR posted a notice written in English and Korean
languages which reads:

9.

TC: dismissed the complaint and counterclaim. ruled that based on PAGCORs
charter PAGCOR has no authority to lease any portion of the gambling tables to a
private party like ABS Corporation.
10. CA affirmed.
Issue#1. WON an implied agency was created
Held: NO. There is no implied agency in this case because PAGCOR did not hold out to
the public as the principal of ABS Corporation. PAGCORs actions did not mislead the
public into believing that an agency can be implied from the arrangement with the junket
operators, nor did it hold out ABS Corporation with any apparent authority to represent it
in any capacity. The Junket Agreement was merely a contract of lease of facilities and
services.
Ratio:
-

8.

NOTICE
This GAMING ROOM is exclusively operated by ABS under arrangement with
PAGCOR, the former is solely accountable for all PLAYING CHIPS wagered on the
tables. Any financial ARRANGEMENT/TRANSACTION between PLAYERS and
ABS shall only be binding upon said PLAYERS and ABS
PAGCOR argues that petitioner is not a PAGCOR player because under PAGCORs
gaming rules, gambling chips cannot be brought outside the casino. The gambling
chips must be converted to cash at the end of every gaming period as they are
inventoried every shift. Under PAGCORs rules, it is impossible for PAGCOR players
to accumulate two million dollars worth of gambling chips and to bring the chips out
of the casino premises

Article 1869 of the Civil Code states that implied agency is derived 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. Implied agency, being an actual agency, is a fact to be proved by
deductions or inferences from other facts
On the other hand, apparent authority is based on estoppel and can arise from
two instances. First, the principal may knowingly permit the agent to hold
himself out as having such authority, and the principal becomes estopped to
claim that the agent does not have such authority. Second, the principal may
clothe the agent with the indicia of authority as to lead a reasonably prudent
person to believe that the agent actually has such authority.
In an agency by estoppel, there is no agency at all, but the one assuming to act
as agent has apparent or ostensible, although not real, authority to represent
another.49
The law makes no presumption of agency and proving its existence, nature
and extent is incumbent upon the person alleging it.Whether or not an agency
has been created is a question to be determined by the fact that one
represents and is acting for another.
- The basis for agency is representation that is, the agent acts for and on
behalf of the principal on matters within the scope of his authority and said acts
have the same legal effect as if they were personally executed by the
principal.59 On the part of the principal, there must be anactual intention to
appoint or an intention naturally inferable from his words or actions, while on
the part of the agent, there must be an intention to accept the appointment and
act on it.60 Absent such mutual intent, there is generally no agency

Issue # 2 Whether the CA erred in using intent of the contracting parties as the test for
creation of agency, when such is not relevant since the instant case involves liability of the
presumed principal in implied agency to a third party
HELD: NO. The Court of Appeals correctly used the intent of the contracting parties in
determining whether an agency by estoppel existed in this case.

Held: NO.
The trial court has declared, and we affirm, that the Junket Agreement is void. A void or
inexistent contract is one which has no force and effect from the very beginning. Hence, it is
as if it has never been entered into and cannot be validated either by the passage of time or
by ratification.64 Article 1409 of the Civil Code provides that contracts expressly prohibited or
declared void by law, such as gambling contracts, "cannot be ratified."

Ratio:
RE: VALIDITY OF AGREEMENT:
-

An agency by estoppel, which is similar to the doctrine of apparent authority

requires proof of reliance upon the representations, and that, in turn, needs
proof that the representations predated the action taken in reliance.
There can be no apparent authority of an agent without acts or conduct on the
part of the principal and such acts or conduct of the principal must have been
known and relied upon in good faith and as a result of the exercise of
reasonable prudence by a third person as claimant, and such must have
produced a change of position to its detriment. 63 Such proof is lacking in this
case.
In the entire duration that petitioner played in Casino Filipino, he was dealing
only with ABS Corporation, and availing of the privileges extended only to
players brought in by ABS Corporation. The facts that he enjoyed special
treatment upon his arrival in Manila and special accommodations in Grand
Boulevard Hotel, and that he was playing in special gaming rooms are all
indications that petitioner cannot claim good faith that he believed he was
dealing with PAGCOR. Petitioner cannot be considered as an innocent third
party and he cannot claim entitlement to equitable relief as well

Issue#3 Whether the CA erred in failing to consider that PAGCOR ratified, or at least
adopted, the acts of the agent, ABS Corporation

- PAGCOR has the sole and exclusive authority to operate a gambling activity. While
PAGCOR is allowed under its charter to enter into operators or management contracts,
PAGCOR is not allowed under the same charter to relinquish or share its franchise. PAGCOR
cannot delegate its power in view of the legal principle of delegata potestas delegare non
potest, inasmuch as there is nothing in the charter to show that it has been expressly
authorized to do so.41
Similarly, in this case, PAGCOR, by taking only a percentage of the earnings of ABS
Corporation from its foreign currency collection, allowed ABS Corporation to operate gaming
tables in the dollar pit. The Junket Agreement is in direct violation of PAGCORs charter and is
therefore void.
Since the Junket Agreement violates PAGCORs charter, gambling between the junket player
and the junket operator under such agreement is illegal and may not be enforced by the
courts. Article 201442 of the Civil Code, which refers to illegal gambling, states that no action
can be maintained by the winner for the collection of what he has won in a game of chance.