Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-30573 October 29, 1971
VICENTE M. DOMINGO, represented by his heirs, ANTONINA
RAYMUNDO VDA. DE DOMINGO, RICARDO, CESAR, AMELIA,
VICENTE JR., SALVADOR, IRENE and JOSELITO, all surnamed
DOMINGO, petitioners-appellants,
vs.
GREGORIO
M.
DOMINGO, respondent-appellee, TEOFILO
P.
PURISIMA, intervenor-respondent.
Teofilo Leonin for petitioners-appellants.
Osorio, Osorio & Osorio for respondent-appellee.
Teofilo P. Purisima in his own behalf as intervenor-respondent.
MAKASIAR, J.:
Petitioner-appellant Vicente M. Domingo, now deceased and
represented by his heirs, Antonina Raymundo vda. de Domingo,
Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all
surnamed Domingo, sought the reversal of the majority decision
dated, March 12, 1969 of the Special Division of Five of the Court of
Appeals affirming the judgment of the trial court, which sentenced
the said Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50
and the intervenor Teofilo P. Purisima P2,607.50 with interest on
both amounts from the date of the filing of the complaint, to pay
Gregorio Domingo P1,000.00 as moral and exemplary damages and
P500.00 as attorney's fees plus costs.
The following facts were found to be established by the majority of the
Special Division of Five of the Court of Appeals:
In a document Exhibit "A" executed on June 2, 1956, Vicente M.
Domingo granted Gregorio Domingo, a real estate broker, the
exclusive agency to sell his lot No. 883 of Piedad Estate with an area
of about 88,477 square meters at the rate of P2.00 per square meter
(or for P176,954.00) with a commission of 5% on the total price, if the
property is sold by Vicente or by anyone else during the 30-day
duration of the agency or if the property is sold by Vicente within
three months from the termination of the agency to apurchaser to
whom it was submitted by Gregorio during the continuance of the
agency with notice to Vicente. The said agency contract was in
triplicate, one copy was given to Vicente, while the original and
another copy were retained by Gregorio.
On June 3, 1956, Gregorio authorized the intervenor Teofilo P.
Purisima to look for a buyer, promising him one-half of the 5%
commission.

Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as

a prospective buyer.
Oscar de Leon submitted a written offer which was very much lower
than the price of P2.00 per square meter (Exhibit "B"). Vicente
directed Gregorio to tell Oscar de Leon to raise his offer. After several
conferences between Gregorio and Oscar de Leon, the latter raised
his offer to P109,000.00 on June 20, 1956 as evidenced by Exhibit
"C", to which Vicente agreed by signing Exhibit "C". Upon demand of
Vicente, Oscar de Leon issued to him a check in the amount of
P1,000.00 as earnest money, after which Vicente advanced to
Gregorio the sum of P300.00. Oscar de Leon confirmed his former
offer to pay for the property at P1.20 per square meter in another
letter, Exhibit "D". Subsequently, Vicente asked for an additional
amount of P1,000.00 as earnest money, which Oscar de Leon
promised to deliver to him. Thereafter, Exhibit "C" was amended to
the effect that Oscar de Leon will vacate on or about September 15,
1956 his house and lot at Denver Street, Quezon City which is part of
the purchase price. It was again amended to the effect that Oscar will
vacate his house and lot on December 1, 1956, because his wife was
on the family way and Vicente could stay in lot No. 883 of Piedad
Estate until June 1, 1957, in a document dated June 30, 1956 (the
year 1957 therein is a mere typographical error) and marked Exhibit
"D". Pursuant to his promise to Gregorio, Oscar gave him as a gift or
propina the sum of One Thousand Pesos (P1,000.00) for succeeding
in persuading Vicente to sell his lot at P1.20 per square meter or a
total in round figure of One Hundred Nine Thousand Pesos
(P109,000.00). This gift of One Thousand Pesos (P1,000.00) was not
disclosed by Gregorio to Vicente. Neither did Oscar pay Vicente the
additional amount of One Thousand Pesos (P1,000.00) by way of
earnest money. In the deed of sale was not executed on August 1,
1956 as stipulated in Exhibit "C" nor on August 15, 1956 as
extended by Vicente, Oscar told Gregorio that he did not receive his
money from his brother in the United States, for which reason he was
giving up the negotiation including the amount of One Thousand
Pesos (P1,000.00) given as earnest money to Vicente and the One
Thousand Pesos (P1,000.00) given to Gregorio aspropina or gift. When
Oscar did not see him after several weeks, Gregorio sensed something
fishy. So, he went to Vicente and read a portion of Exhibit "A" marked
habit "A-1" to the effect that Vicente was still committed to pay him
5% commission, if the sale is consummated within three months
after the expiration of the 30-day period of the exclusive agency in his
favor from the execution of the agency contract on June 2, 1956 to a
purchaser brought by Gregorio to Vicente during the said 30-day
period. Vicente grabbed the original of Exhibit "A" and tore it to
pieces. Gregorio held his peace, not wanting to antagonize Vicente
further, because he had still duplicate of Exhibit "A". From his

meeting with Vicente, Gregorio proceeded to the office of the Register

of Deeds of Quezon City, where he discovered Exhibit "G' deed of sale
executed on September 17, 1956 by Amparo Diaz, wife of Oscar de
Leon, over their house and lot No. 40 Denver Street, Cubao, Quezon
City, in favor Vicente as down payment by Oscar de Leon on the
purchase price of Vicente's lot No. 883 of Piedad Estate. Upon thus
learning that Vicente sold his property to the same buyer, Oscar de
Leon and his wife, he demanded in writting payment of his
commission on the sale price of One Hundred Nine Thousand Pesos
(P109,000.00), Exhibit "H". He also conferred with Oscar de Leon,
who told him that Vicente went to him and asked him to eliminate
Gregorio in the transaction and that he would sell his property to him
for One Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply
to Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not
entitled to the 5% commission because he sold the property not to
Gregorio's buyer, Oscar de Leon, but to another buyer, Amparo Diaz,
wife of Oscar de Leon.
The Court of Appeals found from the evidence that Exhibit "A", the
exclusive agency contract, is genuine; that Amparo Diaz, the vendee,
being the wife of Oscar de Leon the sale by Vicente of his property is
practically a sale to Oscar de Leon since husband and wife have
common or identical interests; that Gregorio and intervenor Teofilo
Purisima were the efficient cause in the consummation of the sale in
favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de
Leon paid Gregorio the sum of One Thousand Pesos (P1,000.00) as
"propina" or gift and not as additional earnest money to be given to
the plaintiff, because Exhibit "66", Vicente's letter addressed to Oscar
de Leon with respect to the additional earnest money, does not
appear to have been answered by Oscar de Leon and therefore there
is no writing or document supporting Oscar de Leon's testimony that
he paid an additional earnest money of One Thousand Pesos
(P1,000.00) to Gregorio for delivery to Vicente, unlike the first
amount of One Thousand Pesos (P1,000.00) paid by Oscar de Leon to
Vicente as earnest money, evidenced by the letter Exhibit "4"; and
that Vicente did not even mention such additional earnest money in
his two replies Exhibits "I" and "J" to Gregorio's letter of demand of
the 5% commission.
The three issues in this appeal are (1) whether the failure on the part
of Gregorio to disclose to Vicente the payment to him by Oscar de
Leon of the amount of One Thousand Pesos (P1,000.00) as gift or
"propina" for having persuaded Vicente to reduce the purchase price
from P2.00 to P1.20 per square meter, so constitutes fraud as to
cause a forfeiture of his commission on the sale price; (2) whether
Vicente or Gregorio should be liable directly to the intervenor Teofilo
Purisima for the latter's share in the expected commission of Gregorio

by reason of the sale; and (3) whether the award of legal interest,
moral and exemplary damages, attorney's fees and costs, was proper.
Unfortunately, the majority opinion penned by Justice Edilberto
Soriano and concurred in by Justice Juan Enriquez did not touch on
these issues which were extensively discussed by Justice Magno
Gatmaitan in his dissenting opinion. However, Justice Esguerra, in
his concurring opinion, affirmed that it does not constitute breach of
trust or fraud on the part of the broker and regarded same as merely
part of the whole process of bringing about the meeting of the minds
of the seller and the purchaser and that the commitment from the
prospect buyer that he would give a reward to Gregorio if he could
effect better terms for him from the seller, independent of his
legitimate commission, is not fraudulent, because the principal can
reject the terms offered by the prospective buyer if he believes that
such terms are onerous disadvantageous to him. On the other hand,
Justice Gatmaitan, with whom Justice Antonio Cafizares corner held
the view that such an act on the part of Gregorio was fraudulent and
constituted a breach of trust, which should deprive him of his right to
the commission.
The duties and liabilities of a broker to his employer are essentially
those which an agent owes to his principal. 1
Consequently, the decisive legal provisions are in found Articles 1891
and 1909 of the New Civil Code.
Art. 1891. Every agent is bound to render an account
of his transactions and to deliver to the principal
whatever he may have received by virtue of the agency,
even though it may not be owing to the principal.
Every stipulation exempting the agent from the
obligation to render an account shall be void.
xxx xxx xxx
Art. 1909. The agent is responsible not only for fraud
but also for negligence, which shall be judged with
more less rigor by the courts, according to whether the
agency was or was not for a compensation.
Article 1891 of the New Civil Code amends Article 17 of the old
Spanish Civil Code which provides that:
Art. 1720. Every agent is bound to give an account of
his transaction and to pay to the principal whatever he
may have received by virtue of the agency, even though
what he has received is not due to the principal.
The modification contained in the first paragraph Article 1891
consists in changing the phrase "to pay" to "to deliver", which latter
term is more comprehensive than the former.
Paragraph 2 of Article 1891 is a new addition designed to stress the
highest loyalty that is required to an agent condemning as void

any stipulation exempting the agent from the duty and liability
imposed on him in paragraph one thereof.
Article 1909 of the New Civil Code is essentially a reinstatement of
Article 1726 of the old Spanish Civil Code which reads thus:
Art. 1726. The agent is liable not only for fraud, but
also for negligence, which shall be judged with more or
less severity by the courts, according to whether the
agency was gratuitous or for a price or reward.
The aforecited provisions demand the utmost good faith, fidelity,
honesty, candor and fairness on the part of the agent, the real estate
broker in this case, to his principal, the vendor. The law imposes
upon the agent the absolute obligation to make a full disclosure or
complete account to his principal of all his transactions and other
material facts relevant to the agency, so much so that the law as
amended does not countenance any stipulation exempting the agent
from such an obligation and considers such an exemption as void.
The duty of an agent is likened to that of a trustee. This is not a
technical or arbitrary rule but a rule founded on the highest and
truest principle of morality as well as of the strictest justice. 2
Hence, an agent who takes a secret profit in the nature of a bonus,
gratuity or personal benefit from the vendee, without revealing the
same to his principal, the vendor, is guilty of a breach of his loyalty to
the principal and forfeits his right to collect the commission from his
principal, even if the principal does not suffer any injury by reason of
such breach of fidelity, or that he obtained better results or that the
agency is a gratuitous one, or that usage or custom allows it; because
the rule is to prevent the possibility of any wrong, not to remedy or
repair an actual damage. 3 By taking such profit or bonus or gift or
propina from the vendee, the agent thereby assumes a position
wholly inconsistent with that of being an agent for hisprincipal, who
has a right to treat him, insofar as his commission is concerned, as if
no agency had existed. The fact that the principal may have been
benefited by the valuable services of the said agent does not
exculpate the agent who has only himself to blame for such a result
by reason of his treachery or perfidy.
This Court has been consistent in the rigorous application of Article
1720 of the old Spanish Civil Code. Thus, for failure to deliver sums
of money paid to him as an insurance agent for the account of his
employer as required by said Article 1720, said insurance agent was
convicted estafa. 4 An administrator of an estate was likewise under
the same Article 1720 for failure to render an account of his
administration to the heirs unless the heirs consented thereto or are
estopped by having accepted the correctness of his account
previously rendered. 5
Because of his responsibility under the aforecited article 1720, an
agent is likewise liable for estafa for failure to deliver to his principal

the total amount collected by him in behalf of his principal and

cannot retain the commission pertaining to him by subtracting the
same from his collections. 6
A lawyer is equally liable unnder said Article 1720 if he fails to deliver
to his client all the money and property received by him for his client
despite his attorney's lien. 7 The duty of a commission agent to render
a full account his operations to his principal was reiterated in Duhart,
etc. vs. Macias. 8
The American jurisprudence on this score is well-nigh unanimous.
Where a principal has paid an agent or broker a
commission while ignorant of the fact that the latter
has been unfaithful, the principal may recover back
the commission paid, since an agent or broker who
has been unfaithful is not entitled to any
compensation.
xxx xxx xxx
In discussing the right of the principal to recover
commissions retained by an unfaithful agent, the
court in Little vs. Phipps (1911) 208 Mass. 331, 94 NE
260, 34 LRA (NS) 1046, said: "It is well settled that the
agent is bound to exercise the utmost good faith in his
dealings with his principal. As Lord Cairns said, this
rule "is not a technical or arbitrary rule. It is a rule
founded on the highest and truest principles, of
morality." Parker vs. McKenna (1874) LR 10,Ch(Eng)
96,118 ... If the agent does not conduct himself with
entire fidelity towards his principal, but is guilty of
taking a secret profit or commission in regard the
matter in which he is employed, he loses his right to
compensation on the ground that he has taken a
position wholly inconsistent with that of agent for his
employer, and which gives his employer, upon
discovering it, the right to treat him so far as
compensation, at least, is concerned as if no agency
had existed. This may operate to give to the principal
the benefit of valuable services rendered by the agent,
but the agent has only himself to blame for that
result."
xxx xxx xxx
The intent with which the agent took a secret profit
has been held immaterial where the agent has in fact
entered into a relationship inconsistent with his
agency, since the law condemns the corrupting
tendency of the inconsistent relationship. Little vs.
Phipps (1911) 94 NE 260. 9

As a general rule, it is a breach of good faith and

loyalty to his principal for an agent, while the agency
exists, so to deal with the subject matter thereof, or
with information acquired during the course of the
agency, as to make a profit out of it for himself in
excess of his lawful compensation; and if he does so he
may be held as a trustee and may be compelled to
account to his principal for all profits, advantages,
rights, or privileges acquired by him in such dealings,
whether in performance or in violation of his duties, and
be required to transfer them to his principal upon being
reimbursed for his expenditures for the same, unless
the principal has consented to or ratified the transaction
knowing that benefit or profit would accrue or had
accrued, to the agent, or unless with such knowledge he
has allowed the agent so as to change his condition that
he cannot be put in status quo. The application of this
rule is not affected by the fact that the principal did not
suffer any injury by reason of the agent's dealings or
that he in fact obtained better results; nor is it affected
by the fact that there is a usage or custom to the
contrary or that the agency is a gratuitous one.
(Emphasis applied.) 10
In the case at bar, defendant-appellee Gregorio Domingo as the
broker, received a gift or propina in the amount of One Thousand
Pesos (P1,000.00) from the prospective buyer Oscar de Leon, without
the knowledge and consent of his principal, herein petitionerappellant Vicente Domingo. His acceptance of said substantial
monetary gift corrupted his duty to serve the interests only of his
principal and undermined his loyalty to his principal, who gave him
partial advance of Three Hundred Pesos (P300.00) on his
commission. As a consequence, instead of exerting his best to
persuade his prospective buyer to purchase the property on the most
advantageous terms desired by his principal, the broker, herein
defendant-appellee Gregorio Domingo, succeeded in persuading his
principal to accept the counter-offer of the prospective buyer to
purchase the property at P1.20 per square meter or One Hundred
Nine Thousand Pesos (P109,000.00) in round figure for the lot of
88,477 square meters, which is very much lower the the price of
P2.00 per square meter or One Hundred Seventy-Six Thousand Nine
Hundred Fifty-Four Pesos (P176,954.00) for said lot originally offered
by his principal.
The duty embodied in Article 1891 of the New Civil Code will not
apply if the agent or broker acted only as a middleman with the task
of merely bringing together the vendor and vendee, who themselves
thereafter will negotiate on the terms and conditions of the

transaction. Neither would the rule apply if the agent or broker had
informed the principal of the gift or bonus or profit he received from
the purchaser and his principal did not object therto. 11 Herein
defendant-appellee Gregorio Domingo was not merely a middleman of
the petitioner-appellant Vicente Domingo and the buyer Oscar de
Leon. He was the broker and agent of said petitioner-appellant only.
And therein petitioner-appellant was not aware of the gift of One
Thousand Pesos (P1,000.00) received by Gregorio Domingo from the
prospective buyer; much less did he consent to his agent's accepting
such a gift.
The fact that the buyer appearing in the deed of sale is Amparo Diaz,
the wife of Oscar de Leon, does not materially alter the situation;
because the transaction, to be valid, must necessarily be with the
consent of the husband Oscar de Leon, who is the administrator of
their conjugal assets including their house and lot at No. 40 Denver
Street, Cubao, Quezon City, which were given as part of and
constituted the down payment on, the purchase price of herein
petitioner-appellant's lot No. 883 of Piedad Estate. Hence, both in law
and in fact, it was still Oscar de Leon who was the buyer.
As a necessary consequence of such breach of trust, defendantappellee Gregorio Domingo must forfeit his right to the commission
and must return the part of the commission he received from his
principal.
Teofilo Purisima, the sub-agent of Gregorio Domingo, can only
recover from Gregorio Domingo his one-half share of whatever
amounts Gregorio Domingo received by virtue of the transaction as
his sub-agency contract was with Gregorio Domingo alone and not
with Vicente Domingo, who was not even aware of such sub-agency.
Since Gregorio Domingo received from Vicente Domingo and Oscar de
Leon respectively the amounts of Three Hundred Pesos (P300.00) and
One Thousand Pesos (P1,000.00) or a total of One Thousand Three
Hundred Pesos (P1,300.00), one-half of the same, which is Six
Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo
to Teofilo Purisima.
Because Gregorio Domingo's clearly unfounded complaint caused
Vicente Domingo mental anguish and serious anxiety as well as
wounded feelings, petitioner-appellant Vicente Domingo should be
awarded moral damages in the reasonable amount of One Thousand
Pesos (P1,000.00) attorney's fees in the reasonable amount of One
Thousand Pesos (P1,000.00), considering that this case has been
pending for the last fifteen (15) years from its filing on October 3,
1956.
WHEREFORE, the judgment is hereby rendered, reversing the
decision of the Court of Appeals and directing defendant-appellee
Gregorio Domingo: (1) to pay to the heirs of Vicente Domingo the sum
of One Thousand Pesos (P1,000.00) as moral damages and One

Thousand Pesos (P1,000.00) as attorney's fees; (2) to pay Teofilo

Purisima the sum of Six Hundred Fifty Pesos (P650.00); and (3) to
pay the costs.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro,
Fernando, Teehankee, Barredo and Villamor, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 167552
April 23, 2007
EUROTECH
INDUSTRIAL
TECHNOLOGIES,
INC., Petitioner,
vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review by certiorari assailing the
Decision1 of the Court of Appeals dated 10 August 2004 and its
Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled,
"Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez."
The assailed Decision and Resolution affirmed the Order3 dated 29
January 2002 rendered by Judge Antonio T. Echavez ordering the
dropping of respondent EDWIN Cuizon (EDWIN) as a party defendant
in Civil Case No. CEB-19672.
The generative facts of the case are as follows:
Petitioner is engaged in the business of importation and distribution
of various European industrial equipment for customers here in the
Philippines. It has as one of its customers Impact Systems Sales
("Impact Systems") which is a sole proprietorship owned by
respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales
manager of Impact Systems and was impleaded in the court a quo in
said capacity.
From January to April 1995, petitioner sold to Impact Systems
various products allegedly amounting to ninety-one thousand three
hundred thirty-eight (P91,338.00) pesos. Subsequently, respondents
sought to buy from petitioner one unit of sludge pump valued
at P250,000.00 with respondents making a down payment of fifty
thousand pesos (P50,000.00).4 When the sludge pump arrived from
the United Kingdom, petitioner refused to deliver the same to
respondents without their having fully settled their indebtedness to
petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto
de Jesus, general manager of petitioner, executed a Deed of
Assignment of receivables in favor of petitioner, the pertinent part of
which states:
1.) That ASSIGNOR5 has an outstanding receivables from Toledo
Power Corporation in the amount of THREE HUNDRED SIXTY FIVE
THOUSAND (P365,000.00) PESOS as payment for the purchase of
one unit of Selwood Spate 100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and
CONVEY unto the ASSIGNEE6 the said receivables from Toledo Power

Corporation in the amount of THREE HUNDRED SIXTY FIVE

THOUSAND (P365,000.00) PESOS which receivables the ASSIGNOR
is the lawful recipient;
3.) That the ASSIGNEE does hereby accept this assignment. 7
Following the execution of the Deed of Assignment, petitioner
delivered to respondents the sludge pump as shown by Invoice No.
12034 dated 30 June 1995. 8
Allegedly unbeknownst to petitioner, respondents, despite the
existence of the Deed of Assignment, proceeded to collect from Toledo
Power Company the amount of P365,135.29 as evidenced by Check
Voucher No. 09339prepared by said power company and an official
receipt dated 15 August 1995 issued by Impact Systems. 10Alarmed
by this development, petitioner made several demands upon
respondents to pay their obligations. As a result, respondents were
able to make partial payments to petitioner. On 7 October 1996,
petitioners counsel sent respondents a final demand letter wherein it
was stated that as of 11 June 1996, respondents total obligations
stood
at P295,000.00
excluding
interests
and
attorneys
fees.11 Because of respondents failure to abide by said final demand
letter, petitioner instituted a complaint for sum of money, damages,
with application for preliminary attachment against herein
respondents before the Regional Trial Court of Cebu City.12
On 8 January 1997, the trial court granted petitioners prayer for the
issuance of writ of preliminary attachment. 13
On 25 June 1997, respondent EDWIN filed his Answer 14 wherein he
admitted petitioners allegations with respect to the sale transactions
entered into by Impact Systems and petitioner between January and
April 1995.15 He, however, disputed the total amount of Impact
Systems indebtedness to petitioner which, according to him,
amounted to only P220,000.00.16
By way of special and affirmative defenses, respondent EDWIN
alleged that he is not a real party in interest in this case. According to
him, he was acting as mere agent of his principal, which was the
Impact Systems, in his transaction with petitioner and the latter was
very much aware of this fact. In support of this argument, petitioner
points to paragraphs 1.2 and 1.3 of petitioners Complaint stating
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of
Cebu City. He is the proprietor of a single proprietorship business
known as Impact Systems Sales ("Impact Systems" for brevity), with
office located at 46-A del Rosario Street, Cebu City, where he may be
served summons and other processes of the Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a
resident of Cebu City. He is the Sales Manager of Impact Systems
and is sued in this action in such capacity. 17
On 26 June 1998, petitioner filed a Motion to Declare Defendant
ERWIN in Default with Motion for Summary Judgment. The trial

court granted petitioners motion to declare respondent ERWIN in

default "for his failure to answer within the prescribed period despite
the opportunity granted"18 but it denied petitioners motion for
summary judgment in its Order of 31 August 2001 and scheduled
the pre-trial of the case on 16 October 2001.19 However, the conduct
of the pre-trial conference was deferred pending the resolution by the
trial court of the special and affirmative defenses raised by
respondent EDWIN.20
After the filing of respondent EDWINs Memorandum21 in support of
his
special
and
affirmative
defenses
and
petitioners
opposition22 thereto, the trial court rendered its assailed Order dated
29 January 2002 dropping respondent EDWIN as a party defendant
in this case. According to the trial court
A study of Annex "G" to the complaint shows that in the Deed of
Assignment, defendant Edwin B. Cuizon acted in behalf of or
represented [Impact] Systems Sales; that [Impact] Systems Sale is a
single proprietorship entity and the complaint shows that defendant
Erwin H. Cuizon is the proprietor; that plaintiff corporation is
represented by its general manager Alberto de Jesus in the contract
which is dated June 28, 1995. A study of Annex "H" to the complaint
reveals that [Impact] Systems Sales which is owned solely by
defendant Erwin H. Cuizon, made a down payment of P50,000.00
that Annex "H" is dated June 30, 1995 or two days after the
execution of Annex "G", thereby showing that [Impact] Systems Sales
ratified the act of Edwin B. Cuizon; the records further show that
plaintiff knew that [Impact] Systems Sales, the principal, ratified the
act of Edwin B. Cuizon, the agent, when it accepted the down
payment of P50,000.00. Plaintiff, therefore, cannot say that it was
deceived by defendant Edwin B. Cuizon, since in the instant case the
principal has ratified the act of its agent and plaintiff knew about
said ratification. Plaintiff could not say that the subject contract was
entered into by Edwin B. Cuizon in excess of his powers since
[Impact] Systems Sales made a down payment of P50,000.00 two
days later.
In view of the Foregoing, the Court directs that defendant Edwin B.
Cuizon be dropped as party defendant.23
Aggrieved by the adverse ruling of the trial court, petitioner brought
the matter to the Court of Appeals which, however, affirmed the 29
January 2002 Order of the court a quo. The dispositive portion of the
now assailed Decision of the Court of Appeals states:
WHEREFORE, finding no viable legal ground to reverse or modify the
conclusions reached by the public respondent in his Order dated
January 29, 2002, it is hereby AFFIRMED.24
Petitioners motion for reconsideration was denied by the appellate
court in its Resolution promulgated on 17 March 2005. Hence, the

present petition raising, as sole ground for its allowance, the

following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR
WHEN IT RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT
OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY
LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE
OF HIS AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION
OF A FRAUD.25
To support its argument, petitioner points to Article 1897 of the New
Civil Code which states:
Art. 1897. The agent who acts as such is not personally liable to the
party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party
sufficient notice of his powers.
Petitioner contends that the Court of Appeals failed to appreciate the
effect of ERWINs act of collecting the receivables from the Toledo
Power Corporation notwithstanding the existence of the Deed of
Assignment signed by EDWIN on behalf of Impact Systems. While
said collection did not revoke the agency relations of respondents,
petitioner insists that ERWINs action repudiated EDWINs power to
sign the Deed of Assignment. As EDWIN did not sufficiently notify it
of the extent of his powers as an agent, petitioner claims that he
should be made personally liable for the obligations of his principal. 26
Petitioner also contends that it fell victim to the fraudulent scheme of
respondents who induced it into selling the one unit of sludge pump
to Impact Systems and signing the Deed of Assignment. Petitioner
directs the attention of this Court to the fact that respondents are
bound not only by their principal and agent relationship but are in
fact full-blooded brothers whose successive contravening acts bore
the obvious signs of conspiracy to defraud petitioner. 27
In his Comment,28 respondent EDWIN again posits the argument that
he is not a real party in interest in this case and it was proper for the
trial court to have him dropped as a defendant. He insists that he
was a mere agent of Impact Systems which is owned by ERWIN and
that his status as such is known even to petitioner as it is alleged in
the Complaint that he is being sued in his capacity as the sales
manager of the said business venture. Likewise, respondent EDWIN
points to the Deed of Assignment which clearly states that he was
acting as a representative of Impact Systems in said transaction.
We do not find merit in the petition.
In a contract of agency, a person binds himself to render some
service or to do something in representation or on behalf of another
with the latters consent.29 The underlying principle of the contract of
agency is to accomplish results by using the services of others to do
a great variety of things like selling, buying, manufacturing, and
transporting.30 Its purpose is to extend the personality of the

principal or the party for whom another acts and from whom he or
she derives the authority to act.31 It is said that the basis of agency is
representation, that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said acts
have the same legal effect as if they were personally executed by the
principal.32 By this legal fiction, the actual or real absence of the
principal is converted into his legal or juridical presence qui facit
per alium facit per se.33
The elements of the contract of agency are: (1) consent, express or
implied, of the parties to establish the relationship; (2) the object is
the execution of a juridical act in relation to a third person; (3) the
agent acts as a representative and not for himself; (4) the agent acts
within the scope of his authority.34
In this case, the parties do not dispute the existence of the agency
relationship between respondents ERWIN as principal and EDWIN as
agent. The only cause of the present dispute is whether respondent
EDWIN exceeded his authority when he signed the Deed of
Assignment thereby binding himself personally to pay the obligations
to petitioner. Petitioner firmly believes that respondent EDWIN acted
beyond the authority granted by his principal and he should
therefore bear the effect of his deed pursuant to Article 1897 of the
New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts
as such, is not personally liable to the party with whom he contracts.
The same provision, however, presents two instances when an agent
becomes personally liable to a third person. The first is when he
expressly binds himself to the obligation and the second is when he
exceeds his authority. In the last instance, the agent can be held
liable if he does not give the third party sufficient notice of his
powers. We hold that respondent EDWIN does not fall within any of
the exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN signed
thereon as the sales manager of Impact Systems. As discussed
elsewhere, the position of manager is unique in that it presupposes
the grant of broad powers with which to conduct the business of the
principal, thus:
The powers of an agent are particularly broad in the case of one
acting as a general agent or manager; such a position presupposes a
degree of confidence reposed and investiture with liberal powers for
the exercise of judgment and discretion in transactions and concerns
which are incidental or appurtenant to the business entrusted to his
care and management. In the absence of an agreement to the
contrary, a managing agent may enter into any contracts that he
deems reasonably necessary or requisite for the protection of the
interests of his principal entrusted to his management. x x x. 35

Applying the foregoing to the present case, we hold that Edwin

Cuizon acted well-within his authority when he signed the Deed of
Assignment. To recall, petitioner refused to deliver the one unit of
sludge pump unless it received, in full, the payment for Impact
Systems indebtedness.36 We may very well assume that Impact
Systems desperately needed the sludge pump for its business since
after it paid the amount of fifty thousand pesos (P50,000.00) as down
payment on 3 March 1995,37 it still persisted in negotiating with
petitioner which culminated in the execution of the Deed of
Assignment of its receivables from Toledo Power Company on 28
June 1995.38 The significant amount of time spent on the negotiation
for the sale of the sludge pump underscores Impact Systems
perseverance to get hold of the said equipment. There is, therefore, no
doubt in our mind that respondent EDWINs participation in the
Deed of Assignment was "reasonably necessary" or was required in
order for him to protect the business of his principal. Had he not
acted in the way he did, the business of his principal would have
been adversely affected and he would have violated his fiduciary
relation with his principal.
We likewise take note of the fact that in this case, petitioner is
seeking to recover both from respondents ERWIN, the principal, and
EDWIN, the agent. It is well to state here that Article 1897 of the New
Civil Code upon which petitioner anchors its claim against
respondent EDWIN "does not hold that in case of excess of authority,
both the agent and the principal are liable to the other contracting
party."39 To reiterate, the first part of Article 1897 declares that the
principal is liable in cases when the agent acted within the bounds of
his authority. Under this, the agent is completely absolved of any
liability. The second part of the said provision presents the situations
when the agent himself becomes liable to a third party when he
expressly binds himself or he exceeds the limits of his authority
without giving notice of his powers to the third person. However, it
must be pointed out that in case of excess of authority by the agent,
like what petitioner claims exists here, the law does not say that a
third person can recover from both the principal and the agent. 40
As we declare that respondent EDWIN acted within his authority as
an agent, who did not acquire any right nor incur any liability arising
from the Deed of Assignment, it follows that he is not a real party in
interest who should be impleaded in this case. A real party in interest
is one who "stands to be benefited or injured by the judgment in the
suit, or the party entitled to the avails of the suit." 41 In this respect,
we sustain his exclusion as a defendant in the suit before the court a
quo.
WHEREFORE, premises considered, the present petition is DENIED
and the Decision dated 10 August 2004 and Resolution dated 17
March 2005 of the Court of Appeals in CA-G.R. SP No. 71397,

affirming the Order dated 29 January 2002 of the Regional Trial

Court, Branch 8, Cebu City, is AFFIRMED.
Let the records of this case be remanded to the Regional Trial Court,
Branch 8, Cebu City, for the continuation of the proceedings against
respondent Erwin Cuizon.
SO ORDERED.

Soriamont is a domestic corporation providing services as a receiving

agent for line load contractor vessels. Patrick Ronas (Ronas) is its
general manager.

THIRD DIVISION
SORIAMONT
STEAMSHIP
AGENCIES, INC., and PATRICK
RONAS,
Petitioners,
- versus SPRINT TRANSPORT SERVICES,
INC., RICARDO CRUZ PAPA, doing
business under the style PAPA
TRANSPORT SERVICES,
Respondents.

G.R. No. 174610

Present:
YNARES-SANTIAGO, J.,
Chairperson,
CARPIO MORALES,*
CHICO-NAZARIO,
VELASCO, JR., and
NACHURA, JJ.
Promulgated:

July 14, 2009

x---------------------------- ----------------------x
DECISION
CHICO-NAZARIO, J.:
Assailed in this Petition for Review on Certiorari, under Rule 45
of the Revised Rules of Court, is the Decision[1] dated 22 June
2006 and Resolution[2] dated 7 September 2006 of the Court of
Appeals in CA-G.R. CV No. 74987. The appellate court affirmed with
modification the Decision[3] dated 22 April 2002 of the Regional Trial
Court (RTC), Branch 46, of Manila, in Civil Case No. 98-89047,
granting the Complaint for Sum of Money of herein respondent Sprint
Transport Services, Inc. (Sprint) after the alleged failure of herein
petitioner Soriamont Steamship Agencies, Inc. (Soriamont) to return
the chassis units it leased from Sprint and pay the accumulated
rentals for the same.
The following are the factual and procedural antecedents:

On the other hand, Sprint is a domestic corporation engaged in

transport services. Its co-respondent Ricardo Cruz Papa (Papa) is
engaged in the trucking business under the business name Papa
Transport Services (PTS).
Sprint filed with the RTC on 2 June 1998 a Complaint[4] for Sum of
Money against Soriamont and Ronas, docketed as Civil Case No. 9889047. Sprint alleged in its Complaint that: (a) on 17 December
1993, it entered into a lease agreement, denominated as Equipment
Lease Agreement (ELA) with Soriamont, wherein the former agreed to
lease a number of chassis units to the latter for the transport of
container vans; (b) with authorization letters dated 19 June
1996 issued by Ronas on behalf of Soriamont, PTS and another
trucker, Rebson Trucking, were able to withdraw on 22 and 25 June
1996, from the container yard of Sprint, two chassis units (subject
equipment),[5] evidenced by Equipment Interchange Receipts No.
14215 and No. 14222; (c) Soriamont and Ronas failed to pay rental
fees for the subject equipment since 15 January 1997; (d) Sprint was
subsequently informed by Ronas, through a letter dated 17 June
1997, of the purported loss of the subject equipment sometime in
June 1997; and (e) despite demands, Soriamont and Ronas failed to
pay the rental fees for the subject equipment, and to replace or
return the same to Sprint.
Sprint, thus, prayed for the RTC to render judgment:
1.
Ordering [Soriamont and Ronas] to pay [Sprint], jointly and
severally, actual damages, in the amount of Five Hundred ThirtySeven Thousand Eight Hundred Pesos (P537,800.00) representing
unpaid rentals and the replacement cost for the lost chassis units.
2.
Ordering [Soriamont and Ronas], jointly and severally, to pay
[Sprint] the amount of Fifty-Three Thousand Five Hundred Four
Pesos and Forty-Two centavos (P53,504.42) as interest and penalties
accrued as of March 31, 1998 and until full satisfaction thereof.
3.
Ordering [Soriamont and Ronas], jointly and severally, to pay
[Sprint] the amount equivalent to twenty-five percent (25%) of the
total amount claimed for and as attorneys fees plus Two Thousand
Pesos (P2,000.00) per court appearance.
4.

Ordering [Soriamont and Ronas] to pay the cost of the suit. [6]

Defendant Patrick Ronas and [herein respondent] Ricardo Cruz Papa

are absolved from liability.[10]
Soriamont and Ronas filed with the RTC their Answer with
Compulsory Counterclaim.[7] Soriamont admitted therein to having a
lease agreement with Sprint, but only for the period 21 October
1993 to 21 January 1994. It denied entering into an ELA with
respondent Sprint on 17 December 1993 as alleged in the
Complaint. Soriamont further argued that it was not a party-ininterest in Civil Case No. 98-89047, since it was PTS and Rebson
Trucking that withdrew the subject equipment from the container
yard of Sprint. Ronas was likewise not a party-in-interest in the case
since his actions, assailed in the Complaint, were executed as part of
his regular functions as an officer of Soriamont.
Consistent with their stance, Soriamont and Ronas filed a ThirdParty Complaint[8] against Papa, who was doing business under the
name PTS. Soriamont and Ronas averred in their Third-Party
Complaint that it was PTS and Rebson Trucking that withdrew the
subject equipments from the container yard of Sprint, and failed to
return the same. Since Papa failed to file an answer to the ThirdParty Complaint, he was declared by the RTC to be in default. [9]
After trial, the RTC rendered its Decision in Civil Case No. 9889047 on 22 April 2002, finding Soriamont liable for the claim of
Sprint, while absolving Ronas and Papa from any liability. According
to the RTC, Soriamont authorized PTS to withdraw the subject
equipment. The dispositive portion of the RTC Decision reads:
WHEREFORE, judgment is hereby rendered in favor of [herein
respondent] Sprint Transport Services, Inc. and against [herein
petitioner] Soriamont Steamship Agencies, Inc., ordering the latter to
pay the former the following:

Three hundred twenty thousand pesos (P320,000) representing

the value of the two chassis units with interest at the legal rate from
the filing of the complaint;

Two hundred seventy thousand one hundred twenty four &

42/100 pesos (P270,124.42) representing unpaid rentals with
interest at the legal rate from the filing of the complaint;

P20,000.00 as attorneys fees.

The rate of interest shall be increased to 12% per annum once this
decision becomes final and executory.

Soriamont filed an appeal of the foregoing RTC Decision to the Court

of Appeals, docketed as CA-G.R. CV No. 74987.
The Court of Appeals, in its Decision dated 22 June 2006,
found the following facts to be borne out by the records: (1) Sprint
and Soriamont entered into an ELA whereby the former leased
chassis units to the latter for the specified daily rates. The ELA
covered the period 21 October 1993 to 21 January 1994, but it
contained an automatic renewal clause; (2) on 22 and 25 June
1996, Soriamont, through PTS and Rebson Trucking, withdrew
Sprint Chassis 2-07 with Plate No. NUP-261 Serial No. ICAZ-165118,
and Sprint Chassis 2-55 with Plate No. NUP-533 Serial MOTZ160080, from the container yard of Sprint; (3) Soriamont authorized
the withdrawal by PTS and Rebson Trucking of the subject
equipment from the container yard of Sprint; and (4) the subject
pieces of equipment were never returned to Sprint. In a letter to
Sprint dated 19 June 1997, Soriamont relayed that it was still trying
to locate the subject equipment, and requested the former to refrain
from releasing more equipment to respondent PTS and Rebson
Trucking.
Hence, the Court of Appeals decreed:
WHEREFORE, the appealed Decision dated April 22, 2002 of
the trial court is affirmed, subject to the modification that the specific
rate of legal interest per annum on both the P320,000.00
representing the value of the two chassis units, and on
the P270,124.42 representing the unpaid rentals, is six percent (6%),
to be increased to twelve percent (12%) from the finality of this
Decision until its full satisfaction.[11]
In a Resolution dated 7 September 2006, the Court of Appeals denied
the Motion for Reconsideration of Soriamont for failing to present any
cogent and substantial matter that would warrant a reversal or
modification of its earlier Decision.
Aggrieved, Soriamont[12] filed the present Petition for Review with the
following assignment of errors:
I.

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS

ERROR IN LIMITING AS SOLE ISSUE FOR RESOLUTION OF
WHETHER OR NOT AN AGENCY RELATIONSHIP EXISTED
BETWEEN PRIVATE RESPONDENT SPRINT TRANSPORT AND
HEREIN PETITIONERS SORIAMONT STEAMSHIP AGENCIES AND
PRIVATE
RESPONDENT
PAPA
TRUCKING
BUT
TOTALLY
DISREGARDING AND FAILING TO RULE ON THE LIABILITY OF
PRIVATE
RESPONDENT
PAPA
TRUCKING
TO
HEREIN
PETITIONERS. THE LIABILITY OF PRIVATE RESPONDENT PAPA
TRUCKING TO HEREIN PETITIONERS SUBJECT OF THE THIRDPARTY COMPLAINT WAS TOTALLY IGNORED;
II.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
ERROR IN HOLDING HEREIN PETITIONERS STEAMSHIP AGENCIES
SOLELY LIABLE. EVIDENCE ON RECORD SHOW THAT IT WAS
PRIVATE RESPONDENT PAPA TRUCKING WHICH WITHDREW THE
SUBJECT CHASSIS. PRIVATE RESPONDENT PAPA TRUCKING WAS
THE LAST IN POSSESSION OF THE SAID SUBJECT CHASSIS AND
IT SHOULD BE HELD SOLELY LIABLE FOR THE LOSS THEREOF;
III.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
ERROR WHEN IT IGNORED A MATERIAL INCONSISTENCY IN THE
TESTIMONY OF PRIVATE RESPONDENT SPRINT TRANSPORTS
WITNESS, MR. ENRICO G. VALENCIA. THE TESTIMONY OF
MR. VALENCIA WAS ERRONEOUSLY MADE THE BASIS FOR
HOLDING HEREIN PETITIONERS LIABLE FOR THE LOSS OF THE
SUBJECT CHASSIS.
We find the Petition to be without merit.
The Court of Appeals and the RTC sustained the contention of Sprint
that PTS was authorized by Soriamont to secure possession of the
subject equipment from Sprint, pursuant to the existing ELA between
Soriamont and Sprint. The authorization issued by Soriamont to PTS
established an agency relationship, with Soriamont as the principal
and PTS as an agent. Resultantly, the actions taken by PTS as
regards the subject equipment were binding on Soriamont, making
the latter liable to Sprint for the unpaid rentals for the use, and
damages for the subsequent loss, of the subject equipment.

Soriamont anchors its defense on its denial that it issued

an authorization to PTS to withdraw the subject equipment from the
container yard of Sprint. Although Soriamont admits that the
authorization letter dated 19 June 1996 was under its letterhead,
said letter was actually meant for and sent to Harman Foods as
shipper. It was then Harman Foods that tasked PTS to withdraw the
subject equipment from Sprint. Soriamont insists that the Court of
Appeals merely presumed that an agency relationship existed
between Soriamont and PTS, since there was nothing in the records
to evidence the same. Meanwhile, there is undisputed evidence that
it was PTS that withdrew and was last in possession of the subject
equipment. Soriamont further calls attention to the testimony of
Enrico Valencia (Valencia), a witness for Sprint, actually supporting
the position of Soriamont that PTS did not present any authorization
from Soriamont when it withdrew the subject equipment from the
container yard of Sprint. Assuming, for the sake of argument that an
agency relationship did exist between Soriamont and PTS, the latter
should not have been exonerated from any liability. The acts of PTS
that resulted in the loss of the subject equipment were beyond the
scope of its authority as supposed agent of Soriamont. Soriamont
never ratified, expressly or impliedly, such acts of PTS.
Soriamont is essentially challenging the sufficiency of the evidence on
which the Court of Appeals based its conclusion that PTS withdrew
the subject equipment from the container yard of Sprint as an agent
of Soriamont. In effect, Soriamont is raising questions of fact, the
resolution of which requires us to re-examine and re-evaluate the
evidence presented by the parties below.
Basic is the rule in this jurisdiction that only questions of law may be
raised in a petition for review under Rule 45 of the Revised Rules of
Court. The jurisdiction of the Supreme Court in cases brought to it
from the Court of Appeals is limited to reviewing errors of law, the
findings of fact of the appellate court being conclusive. We have
emphatically declared that it is not the function of this Court to
analyze or weigh such evidence all over again, its jurisdiction being
limited to reviewing errors of law that may have been committed by
the lower court.[13]
These questions of fact were threshed out and decided by the trial
court, which had the firsthand opportunity to hear the parties
conflicting claims and to carefully weigh their respective sets of
evidence. The findings of the trial court were subsequently affirmed
by the Court of Appeals. Where the factual findings of both the trial
court and the Court of Appeals coincide, the same are binding on this
Court. We stress that, subject to some exceptional instances, only

questions of law not questions of fact may be raised before this

Court in a petition for review under Rule 45 of the Revised Rules of
Court.[14]
Given that Soriamont is precisely asserting in the instant Petition
that the findings of fact of the Court of Appeals are premised on the
absence of evidence and are contradicted by the evidence on
record,[15] we accommodate Soriamont by going over the same
evidence considered by the Court of Appeals and the RTC.
In Republic v. Court of Appeals,[16] we explained that:
In civil cases, the party having the burden of proof must establish his
case by a preponderance of evidence. Stated differently, the general
rule in civil cases is that a party having the burden of proof of an
essential fact must produce a preponderance of evidence thereon (I
Moore on Facts, 4, cited in Vicente J. Francisco, The Revised Rules of
Court in the Philippines, Vol. VII, Part II, p. 542, 1973 Edition). By
preponderance of evidence is meant simply evidence which is of
greater weight, or more convincing than that which is offered in
opposition to it (32 C.J.S., 1051), The term 'preponderance of
evidence' means the weight, credit and value of the aggregate
evidence on either side and is usually considered to be synonymous
with the terms `greater weight of evidence' or 'greater weight, of the
credible evidence.' Preponderance of the evidence is a phrase which,
in the last analysis, means probability of the truth. Preponderance of
the evidence means evidence which is more convincing to the court
as worthy of belief than that which is offered in opposition thereto. x
x x." (20 Am. Jur., 1100-1101)
After a review of the evidence on record, we rule that the
preponderance of evidence indeed supports the existence of an
agency relationship between Soriamont and PTS.
It is true that a person dealing with an agent is not authorized, under
any circumstances, to trust blindly the agents statements as to the
extent of his powers. Such person must not act negligently but must
use reasonable diligence and prudence to ascertain whether the
agent acts within the scope of his authority. The settled rule is that
persons dealing with an assumed agent are bound at their peril; and
if they would hold the principal liable, they must 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 prove
it. Sprint has successfully discharged this burden.

The ELA executed on 17 December 1993 between Sprint, as lessor,

and Soriamont, as lessee, of chassis units, explicitly authorized the
latter to appoint a representative who shall withdraw and return the
leased chassis units to Sprint, to wit:
EQUIPMENT LEASE AGREEMENT
between
SPRINT TRANSPORT SERVICES, INC. (LESSOR)
And
SORIAMONT STEAMSHIP AGENCIES, INC.
(LESSEE)
TERMS and CONDITIONS
xxxx
4.
Equipment Interchange Receipt (EIR) as mentioned herein is
a document accomplished every time a chassis is withdrawn and
returned to a designated depot. The EIR relates the condition of the
chassis at the point of on-hire/off-hire duly acknowledged by the
LESSOR, Property Custodian and the LESSEES authorized
representative.
xxxx
5.
Chassis Withdrawal/Return Slip as mentioned herein is that
document where the LESSEE authorizes his representative to
withdraw/return the chassis on his behalf. Only persons with a
duly accomplished and signed authorization slip shall be entertained
by the LESSOR for purposes of withdrawal/return of the chassis. The
signatory in the Withdrawal/Return Slip has to be the signatory of
the corresponding Lease Agreement or the LESSEEs duly
authorized representative(s).[17] (Emphases ours.)
Soriamont, though, avers that the aforequoted ELA was only for 21
October 1993 to 21 January 1994, and no longer in effect at the time
the subject pieces of equipment were reportedly withdrawn and lost
by PTS. This contention of Soriamont is without merit, given that the
same ELA expressly provides for the automatic renewal thereof in
paragraph 24, which reads:
There shall be an automatic renewal of the contract subject to the
same terms and conditions as stipulated in the original contract
unless terminated by either party in accordance with paragraph no.
23 hereof. However, in this case, termination will take effect
immediately.[18]

And what is this withdrawal authority?

There being no showing that the ELA was terminated by either party,
then it was being automatically renewed in accordance with the
afore-quoted paragraph 24.
It was, therefore, totally regular and in conformity with the ELA that
PTS and Rebson Trucking should appear before Sprint in June 1996
with authorization letters, issued by Soriamont, for the withdrawal of
the subject equipment.[19] On the witness stand, Valencia testified,
as the operations manager of Sprint, as follows:

A.
This is to prove that they are authorizing their representative
to get from us a chassis unit.
Q.

And who is this authorization send to you, Mr. Witness?

A.
Sometime a representative bring to our office the letter or the
authorization or sometime thru fax, Sir.
Q.

In this particular incident, Mr. Witness, how was it sent?

A.

By fax, Sir.

Atty. Porciuncula:
Q.
Mr. Witness, as operation manager, are you aware of any
transactions between Sprint Transport Services, Inc. and the
defendant Soriamont Steamship Agencies, Inc.?

Q.
Is this standard operating procedure of Sprint Transport
Services, Inc.?

A.

Yes, Sir.

Q.

What transactions are these, Mr. Witness?

A.
Yes, Sir, if the trucking could not bring to our office the
original copy of the authorization they have to send us thru fax, but
the original copy of the authorization will be followed.

A.

They got from us chassis, Sir.

Atty. Porciuncula:

Court:
Q.

Who among the two, who withdrew?

Q.
Mr. Witness, I am showing to you two documents of
Soriamont Steamship Agencies, Inc. letter head with the headings
Authorization, are these the same withdrawal authority that you
mentioned awhile ago?

A.
The representative of Soriamont Steamship Agencies, Inc.,
Your Honor.

A.

Atty. Porciuncula:

Atty. Porciuncula:

Q.

And when were these chassis withdrawn, Mr. Witness?

A.

June 1996, Sir.

Your Honor, at this point may we request that these

documents identified by the witness be marked as Exhibits JJ and
KK, Your Honor.

Q.
Will you kindly tell this Honorable Court what do you mean
by withdrawing the chassis units from your container yard?

Yes, Sir.

Court:
Mark them.

Witness:
xxxx
Before they can withdraw the chassis they have to present
withdrawal authority, Sir.
Atty. Porciuncula:

Q.
Way back Mr. Witness, who withdrew the chassis units 2-07
and 2-55?

A.
The representative of Soriamont Steamship Agencies, Inc., the
Papa Trucking, Sir.

Q.
Mr. Witness, could you tell this Honorable Court what an
outgoing Equipment Interchange Receipt means?

Q.
And are these trucking companies authorized to withdraw
these chassis units?

A.
This is a document proving that the representative of
Soriamont Steamship Agencies, Inc. really withdraw (sic) the chassis
units, Sir.

A.

Yes, Sir, it was stated in the withdrawal authority.

xxxx

Atty. Porciuncula:
Atty. Porciuncula:
Q.
Showing you again Mr. Witness, this authorization previously
marked as Exhibits JJ and KK, could you please go over the same
and tell this Honorable Court where states there that the trucking
companies which you mentioned awhile ago authorized to withdraw?

Q.
Going back Mr. Witness, you mentioned awhile ago that your
company issued outgoing Equipment Interchange Receipt?
A.

A.

Yes, Sir.

Yes, Sir, it is stated in this withdrawal authority.

Atty. Porciuncula:
At this juncture, Your Honor, may we request that the Papa
trucking and Rebson trucking identified by the witness be bracketed
and mark as our Exhibits JJ-1 and KK-1, Your Honor.

Q.
Are there incoming Equipment Interchange Receipt Mr.
Witness?
A.
We have not made Incoming Equipment Interchange Receipt
with respect to Soriamont Steamship Agencies, Inc., Sir.
Q.

And why not, Mr. Witness?

A.

Because they have not returned to us the two chassis units. [20]

Court:
Mark them. Are these documents have dates?
Atty. Porciuncula:
Yes, Your Honor, both documents are dated June 19, 1996.
Q.

Mr. Witness, after this what happened next?

A.
After they presented to us the withdrawal authority, we called
up Soriamont Steamship Agencies, Inc. to verify whether the one sent
to us through truck and the one sent to us through fax are one and
the same.
Q.

Then what happened next, Mr. Witness?

A.
Then after the verification whether it is true, then we asked
them to choose the chassis units then my checker would see to it
whether the chassis units are in good condition, then after that we
prepared the outgoing Equipment Interchange Receipt, Sir.

In his candid and straightforward testimony, Valencia was able to

clearly describe the standard operating procedure followed in the
withdrawal by Soriamont or its authorized representative of the
leased chassis units from the container yard of Sprint. In the
transaction involved herein, authorization letters dated 19 June
1996 in favor of PTS and Rebson Trucking were faxed by Sprint to
Soriamont, and were further verified by Sprint through a telephone
call to Soriamont. Valencias testimony established that Sprint
exercised due diligence in its dealings with PTS, as the agent of
Soriamont.
Soriamont cannot rely on the outgoing Equipment Interchange
Receipts as proof that the withdrawal of the subject equipment was
not authorized by it, but by the shipper/consignee, Harman Foods,
which actually designated PTS and Rebson Trucking as
truckers. However, a scrutiny of the Equipment Interchange Receipts
will show that these documents merely identified Harman Foods as
the shipper/consignee, and the location of said shipping line. It
bears to stress that it was Soriamont that had an existing ELA with

Sprint, not Harman Foods, for the lease of the subject

equipment. Moreover, as stated in the ELA, the outgoing Equipment
Interchange Receipts shall be signed, upon the withdrawal of the
leased chassis units, by the lessee, Soriamont, or its authorized
representative. In this case, we can only hold that the driver of PTS
signed the receipts for the subject equipment as the authorized
representative of Soriamont, and no other.
Finally, the letter[21] dated 17 June 1997, sent to Sprint by Ronas, on
behalf of Soriamont, which stated:
As we are currently having a problem with regards to the
whereabouts of the subject trailers, may we request your kind
assistance in refraining from issuing any equipment to the above
trucking companies.
reveals that PTS did have previous authority from Soriamont to
withdraw the leased chassis units from Sprint, hence, necessitating
an express request from Soriamont for Sprint to discontinue
recognizing said authority.
Alternatively, if PTS is found to be its agent, Soriamont argues that
PTS is liable for the loss of the subject equipment, since PTS acted
beyond its authority as agent. Soriamont cites Article 1897 of the
Civil Code, which provides:
Art. 1897. The agent who acts as such is not personally liable to the
party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party
sufficient notice of his powers.
The burden falls upon Soriamont to prove its affirmative allegation
that PTS acted in any manner in excess of its authority as agent,
thus, resulting in the loss of the subject equipment. To recall, the
subject equipment was withdrawn and used by PTS with the
authority of Soriamont. And for PTS to be personally liable, as agent,
it is vital that Soriamont be able to prove that PTS damaged or lost
the said equipment because it acted contrary to or in excess of the
authority granted to it by Soriamont. As the Court of Appeals and
the RTC found, however, Soriamont did not adduce any evidence at
all to prove said allegation. Given the lack of evidence that PTS was
in any way responsible for the loss of the subject equipment, then, it
cannot be held liable to Sprint, or even to Soriamont as its agent. In
the absence of evidence showing that PTS acted contrary to or in

excess of the authority granted to it by its principal, Soriamont, this

Court cannot merely presume PTS liable to Soriamont as its agent.
The only thing proven was that Soriamont, through PTS, withdrew
the two chassis units from Sprint, and that these have never been
returned to Sprint.
Considering our preceding discussion, there is no reason for us to
depart from the general rule that the findings of fact of the Court of
Appeals and the RTC are already conclusive and binding upon us.
Finally, the adjustment by the Court of Appeals with respect to the
applicable rate of legal interest on the P320,000.00, representing the
value of the subject equipment, and on theP270,124.42, representing
the unpaid rentals awarded in favor of Sprint, is proper and with
legal basis. Under Article 2209 of the Civil Code, when an obligation
not constituting a loan or forbearance of money is breached, then an
interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. Clearly, the
monetary judgment in favor of Sprint does not involve a loan or
forbearance of money; hence, the proper imposable rate of interest is
six (6%) percent. Further, as declared in Eastern Shipping Lines, Inc.
v. Court of Appeals,[22] the interim period from the finality of the
judgment awarding a monetary claim until payment thereof is
deemed to be equivalent to a forbearance of credit. Eastern Shipping
Lines, Inc. v. Court of Appeals[23] explained, to wit:
I.
When an obligation, regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under
Title XVIII on Damages of the Civil Code govern in determining the
measure of recoverable damages.
II.
With regard particularly to an award of interest in the concept
of actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows:
1.
When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code.

2.
When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3.
When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.
Consistent with the foregoing jurisprudence, and later on affirmed in
more recent cases,[24] when the judgment awarding a sum of money
becomes final and executory, the rate of legal interest shall be 12%
per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent of a forbearance of
credit. Thus, from the time the judgment becomes final until its full
satisfaction, the applicable rate of legal interest shall be twelve
percent (12%).
WHEREFORE, premises considered, the instant Petition for Review
on Certiorari is hereby DENIED.
The Decision dated 22 June
2006 and Resolution dated 7 September 2006of the Court of Appeals
in CA-G.R. CV No. 74987 are hereby AFFIRMED. Costs against
petitioner Soriamont Steamship Agencies, Inc.

SO ORDERED.

FIRST DIVISION

[G.R. No. 120465. September 9, 1999]

WILLIAM UY and RODEL ROXAS, petitioners, vs. COURT OF
APPEALS, HON. ROBERT BALAO and NATIONAL HOUSING
AUTHORITY, respondents.
DECISION
KAPUNAN, J.:
Petitioners William Uy and Rodel Roxas are agents authorized to sell
eight parcels of land by the owners thereof. By virtue of such
authority, petitioners offered to sell the lands, located in Tuba,
Tadiangan, Benguet to respondent National Housing Authority (NHA)
to be utilized and developed as a housing project.
On February 14, 1989, the NHA Board passed Resolution No. 1632
approving the acquisition of said lands, with an area of 31.8231
hectares, at the cost of P23.867 million, pursuant to which the
parties executed a series of Deeds of Absolute Sale covering the
subject lands. Of the eight parcels of land, however, only five were
paid for by the NHA because of the report[1] it received from the Land
Geosciences Bureau of the Department of Environment and Natural
Resources (DENR) that the remaining area is located at an active
landslide area and therefore, not suitable for development into a
housing project.
On 22 November 1991, the NHA issued Resolution No. 2352
cancelling the sale over the three parcels of land. The NHA, through
Resolution No. 2394, subsequently offered the amount of P1.225
million to the landowners as daos perjuicios.
On 9 March 1992, petitioners filed before the Regional Trial Court
(RTC) of Quezon City a Complaint for Damages against NHA and its
General Manager Robert Balao.
After trial, the RTC rendered a decision declaring the cancellation of
the contract to be justified. The trial court nevertheless awarded
damages to plaintiffs in the sum of P1.255 million, the same amount
initially offered by NHA to petitioners as damages.
Upon appeal by petitioners, the Court of Appeals reversed the
decision of the trial court and entered a new one dismissing the
complaint. It held that since there was sufficient justifiable basis in
cancelling the sale, it saw no reason for the award of damages. The
Court of Appeals also noted that petitioners were mere attorneys-infact and, therefore, not the real parties-in-interest in the action before
the trial court.
xxx In paragraph 4 of the complaint, plaintiffs alleged themselves to
be sellers agents for several owners of the 8 lots subject matter of
the case. Obviously, William Uy and Rodel Roxas in filing this case
acted as attorneys-in-fact of the lot owners who are the real parties in
interest but who were omitted to be pleaded as party-plaintiffs in the
case. This omission is fatal. Where the action is brought by an

attorney-in-fact of a land owner in his name, (as in our present

action) and not in the name of his principal, the action was properly
dismissed (Ferrer vs. Villamor, 60 SCRA 406 [1974]; Marcelo vs. de
Leon, 105 Phil. 1175) because the rule is that every action must be
prosecuted in the name of the real parties-in-interest (Section 2, Rule
3, Rules of Court).
When plaintiffs Uy and Roxas sought payment of damages in their
favor in view of the partial rescission of Resolution No. 1632 and the
Deed of Absolute Sale covering TCT Nos. 10998, 10999 and 11292
(Prayer complaint, page 5, RTC records), it becomes obviously
indispensable that the lot owners be included, mentioned and named
as party-plaintiffs, being the real party-in-interest. Uy and Roxas, as
attorneys-in-fact or apoderados, cannot by themselves lawfully
commence this action, more so, when the supposed special power of
attorney, in their favor, was never presented as an evidence in this
case. Besides, even if herein plaintiffs Uy and Roxas were authorized
by the lot owners to commence this action, the same must still be
filed in the name of the pricipal, (Filipino Industrial
Corporation vs. San Diego, 23 SCRA 706 [1968]). As such
indispensable party, their joinder in the action is mandatory and the
complaint may be dismissed if not so impleaded (NDC vs. CA, 211
SCRA 422 [1992]).[2]
Their motion for reconsideration having been denied, petitioners seek
relief from this Court contending that:
I. COMPLAINT FINDING THE RESPONDENT CA ERRED IN
DECLARING THAT RESPONDENT NHA HAD ANY LEGAL BASIS FOR
RESCINDING THE SALE INVOLVING THE LAST THREE (3) PARCELS
COVERED BY NHA RESOLUTION NO. 1632.
II. GRANTING ARGUENDO THAT THE RESPONDENT NHA HAD
LEGAL BASIS TO RESCIND THE SUBJECT SALE, THE
RESPONDENT CA NONETHELESS ERRED IN DENYING HEREIN
PETITIONERS CLAIM TO DAMAGES, CONTRARY TO THE
PROVISIONS OF ART. 1191 OF THE CIVIL CODE.
III.
THE RESPONDENT CA ERRED IN DISMISSING THE
SUBJECT COMPLAINT FINDING THAT THE PETITIONERS FAILED
TO JOIN AS INDISPENSABLE PARTY PLAINTIFF THE SELLING LOTOWNERS.[3]
We first resolve the issue raised in the third assignment of error.
Petitioners claim that they lodged the complaint not in behalf of their
principles but in their own name as agents directly damaged by the
termination of the contract. The damages prayed for were intended
not for the benefit of their principals but to indemnify petitioners for
the losses they themselves allegedly incurred as a result of such
termination. These damages consist mainly of unearned income
and advances.[4]Petitioners, thus, attempt to distinguish the case at
bar from those involving agents or apoderados instituting actions in

their own name but in behalf of their principals.[5] Petitioners in this

case purportedly brought the action for damages in their own name
and in their own behalf.
We find this contention unmeritorious.
Section 2, Rule 3 of the Rules of Court requires that every action
must be prosecuted and defended in the name of the real party-ininterest. The real party-in-interest is the party who stands to be
benefited or injured by the judgment or the party entitled to the
avails of the suit. Interest, within the meaning of the rule, means
material interest, an interest in the issue and to be affected by the
decree, as distinguished from mere interest in the question involved,
or a mere incidental interest.[6] Cases construing the real party-ininterest provision can be more easily understood if it is borne in mind
that the true meaning of real party-in-interest may be summarized as
follows: An action shall be prosecuted in the name of the party who,
by the substantive law, has the right sought to be enforced. [7]
Do petitioners, under substantive law, possess the right they seek to
enforce? We rule in the negative.
The applicable substantive law in this case is Article 1311 of the Civil
Code, which states:
Contracts take effect only between the parties, their assigns,
and heirs, except in case where the rights and obligations arising
from the contract are not transmissible by their nature, or by
stipulation, or by provision of law. x x x.
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting
parties must have clearly and deliberately conferred a favor upon a
third person. (Underscoring supplied.)
Petitioners are not parties to the contract of sale between their
principals and NHA. They are mere agents of the owners of the land
subject of the sale. As agents, they only render some service or do
something in representation or on behalf of their principals.[8] The
rendering of such service did not make them parties to the contracts
of sale executed in behalf of the latter. Since a contract may be
violated only by the parties thereto as against each other, the real
parties-in-interest, either as plaintiff or defendant, in an action upon
that contract must, generally, either be parties to said contract. [9]
Neither has there been any allegation, much less proof, that
petitioners are the heirs of their principals.
Are petitioners assignees to the rights under the contracts of
sale? In McMicking vs. Banco Espaol-Filipino,[10] we held that the
rule requiring every action to be prosecuted in the name of the real
party-in-interest

x x x recognizes the assignments of rights of action and also

recognizes that when one has a right of action assigned to him he is
then the real party in interest and may maintain an action upon such
claim or right. The purpose of [this rule] is to require the plaintiff to
be the real party in interest, or, in other words, he must be the
person to whom the proceeds of the action shall belong, and to
prevent actions by persons who have no interest in the result of the
same. xxx
Thus, an agent, in his own behalf, may bring an action founded on a
contract made for his principal, as an assignee of such contract. We
find the following declaration in Section 372 (1) of the Restatement of
the Law on Agency (Second):[11]
Section 372. Agent as Owner of Contract Right
(1) Unless otherwise agreed, an agent who has or who acquires an
interest in a contract which he makes on behalf of his principal can,
although not a promisee, maintain such action thereon as might a
transferee having a similar interest.
The Comment on subsection (1) states:
a. Agent a transferee. One who has made a contract on behalf of
another may become an assignee of the contract and bring suit
against the other party to it, as any other transferee. The customs of
business or the course of conduct between the principal and the
agent may indicate that an agent who ordinarily has merely a
security interest is a transferee of the principals rights under the
contract and as such is permitted to bring suit. If the agent has
settled with his principal with the understanding that he is to collect
the claim against the obligor by way of reimbursing himself for his
advances and commissions, the agent is in the position of an
assignee who is the beneficial owner of the chose in action. He has
an irrevocable power to sue in his principals name. x x x. And,
under the statutes which permit the real party in interest to sue, he
can maintain an action in his own name. This power to sue is not
affected by a settlement between the principal and the obligor if the
latter has notice of the agents interest. x x x. Even though the agent
has not settled with his principal, he may, by agreement with the
principal, have a right to receive payment and out of the proceeds to
reimburse himself for advances and commissions before turning the
balance over to the principal. In such a case, although there is no
formal assignment, the agent is in the position of a transferee of the
whole claim for security; he has an irrevocable power to sue in his
principals name and, under statutes which permit the real party in
interest to sue, he can maintain an action in his own name.
Petitioners, however, have not shown that they are assignees of their
principals to the subject contracts. While they alleged that they
made advances and that they suffered loss of commissions, they have
not established any agreement granting them the right to receive

payment and out of the proceeds to reimburse [themselves] for

advances and commissions before turning the balance over to the
principal[s].
Finally, it does not appear that petitioners are beneficiaries of a
stipulation pour autrui under the second paragraph of Article 1311
of the Civil Code. Indeed, there is no stipulation in any of the Deeds
of Absolute Sale clearly and deliberately conferring a favor to any
third person.
That petitioners did not obtain their commissions or recoup their
advances because of the non-performance of the contract did not
entitle them to file the action below against respondent NHA. Section
372 (2) of the Restatement of the Law on Agency (Second) states:
(2) An agent does not have such an interest in a contract as to entitle
him to maintain an action at law upon it in his own name merely
because he is entilted to a portion of the proceeds as compensation
for making it or because he is liable for its breach.
The following Comment on the above subsection is illuminating:
The fact that an agent who makes a contract for his principal will
gain or suffer loss by the performance or nonperformance of the
contract by the principal or by the other party thereto does not entitle
him to maintain an action on his own behalf against the other party
for its breach. An agent entitled to receive a commission from his
principal upon the performance of a contract which he has made on
his principals account does not, from this fact alone, have any claim
against the other party for breach of the contract, either in an action
on the contract or otherwise. An agent who is not a promisee cannot
maintain an action at law against a purchaser merely because he is
entitled to have his compensation or advances paid out of the
purchase price before payment to the principal. x x x.
Thus, in Hopkins vs. Ives,[12] the Supreme Court of Arkansas, citing
Section 372 (2) above, denied the claim of a real estate broker to
recover his alleged commission against the purchaser in an
agreement to purchase property.
In Goduco vs. Court of Appeals,[13] this Court held that:
x x x granting that appellant had the authority to sell the property,
the same did not make the buyer liable for the commission she
claimed. At most, the owner of the property and the one who
promised to give her a commission should be the one liable to pay the
same and to whom the claim should have been directed. xxx
As petitioners are not parties, heirs, assignees, or beneficiaries of a
stipulation pour autrui under the contracts of sale, they do not, under
substantive law, possess the right they seek to enforce. Therefore,
they are not the real parties-in-interest in this case.
Petitioners not being the real parties-in-interest, any decision
rendered herein would be pointless since the same would not bind
the real parties-in-interest.[14]

Nevertheless, to forestall further litigation on the substantive aspects

of this case, we shall proceed to rule on the merits. [15]
Petitioners submit that respondent NHA had no legal basis to
rescind the sale of the subject three parcels of land. The existence
of such legal basis, notwithstanding, petitioners argue that they are
still entitled to an award of damages.
Petitioners confuse the cancellation of the contract by the NHA as a
rescission of the contract under Article 1191 of the Civil Code. The
right of rescission or, more accurately, resolution, of a party to an
obligation under Article 1191 is predicated on a breach of faith by the
other party that violates the reciprocity between them. [16] The power
to rescind, therefore, is given to the injured party. [17] Article 1191
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 fulfillment 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.
In this case, the NHA did not rescind the contract. Indeed, it did not
have the right to do so for the other parties to the contract, the
vendors, did not commit any breach, much less a substantial
breach,[18] of their obligation. Their obligation was merely to deliver
the parcels of land to the NHA, an obligation that they fulfilled. The
NHA did not suffer any injury by the performance thereof.
The cancellation, therefore, was not a rescission under Article
1191. Rather, the cancellation was based on the negation of the
cause arising from the realization that the lands, which were the
object of the sale, were not suitable for housing.
Cause is the essential reason which moves the contracting parties to
enter into it.[19] In other words, the cause is the immediate, direct and
proximate reason which justifies the creation of an obligation through
the will of the contracting parties.[20] Cause, which is the essential
reason for the contract, should be distinguished from motive, which
is the particular reason of a contracting party which does not affect
the other party.[21]
For example, in a contract of sale of a piece of land, such as in this
case, the cause of the vendor (petitioners principals) in entering into
the contract is to obtain the price. For the vendee, NHA, it is the
acquisition of the land.[22] The motive of the NHA, on the other hand,
is to use said lands for housing. This is apparent from the portion of
the Deeds of Absolute Sale[23] stating:
WHEREAS, under the Executive Order No. 90 dated December 17,
1986, the VENDEE is mandated to focus and concentrate its efforts
and resources in providing housing assistance to the lowest thirty

percent (30%) of urban income earners, thru slum upgrading and

development of sites and services projects;
WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended by
Letter of Instruction No. 630, prescribed slum improvement and
upgrading, as well as the development of sites and services as the
principal housing strategy for dealing with slum, squatter and other
blighted communities;
xxx
WHEREAS, the VENDEE, in pursuit of and in compliance with the
above-stated purposes offers to buy and the VENDORS, in a gesture
of their willing to cooperate with the above policy and commitments,
agree to sell the aforesaid property together with all the existing
improvements there or belonging to the VENDORS;
NOW, THEREFORE, for and in consideration of the foregoing
premises and the terms and conditions hereinbelow stipulated, the
VENDORS hereby, sell, transfer, cede and convey unto the VENDEE,
its assigns, or successors-in-interest, a parcel of land located at Bo.
Tadiangan, Tuba, Benguet containing a total area of FIFTY SIX
THOUSAND EIGHT HUNDRED NINETEEN (56,819) SQUARE
METERS, more or less x x x.
Ordinarily, a partys motives for entering into the contract do not
affect the contract. However, when the motive predetermines the
cause, the motive may be regarded as the cause. In Liguez vs. Court
of Appeals,[24] this Court, speaking through Justice J.B.L. Reyes,
held:
xxx It is well to note, however, that Manresa himself (Vol. 8, pp. 641642) while maintaining the distinction and upholding the
inoperativeness of the motives of the parties to determine the validity
of the contract, expressly excepts from the rule those contracts that
are conditioned upon the attainment of the motives of either party.
The same view is held by the Supreme Court of Spain, in its decisions
of February 4, 1941, and December 4, 1946, holding that the motive
may be regarded as causa when it predetermines the purpose of the
contract.
In this case, it is clear, and petitioners do not dispute, that NHA
would not have entered into the contract were the lands not suitable
for housing. In other words, the quality of the land was an implied
condition for the NHA to enter into the contract. On the part of the
NHA, therefore, the motive was the cause for its being a party to the
sale.
Were the lands indeed unsuitable for the housing as NHA claimed?
We deem the findings contained in the report of the Land
Geosciences Bureau dated 15 July 1991 sufficient basis for the
cancellation of the sale, thus:
In Tadiangan, Tuba, the housing site is situated in an area of
moderate topography. There [are] more areas of less sloping ground

apparently habitable. The site is underlain by x x x thick slide

deposits (4-45m) consisting of huge conglomerate boulders (see Photo
No. 2) mix[ed] with silty clay materials. These clay particles when
saturated have some swelling characteristics which is dangerous for
any civil structures especially mass housing development.[25]
Petitioners content that the report was merely preliminary, and not
conclusive, as indicated in its title:
MEMORANDUM
TO:
EDWIN G. DOMINGO
Chief, Lands Geology Division
FROM:
ARISTOTLE A. RILLON
Geologist II
SUBJECT:
Preliminary Assessment of Tadiangan Housing
Project in Tuba, Benguet[26]
Thus, page 2 of the report states in part:
xxx
Actually there is a need to conduct further geottechnical [sic] studies
in the NHA property. Standard Penetration Test (SPT) must be
carried out to give an estimate of the degree of compaction (the
relative density) of the slide deposit and also the bearing capacity of
the soil materials. Another thing to consider is the vulnerability of
the area to landslides and other mass movements due to thick soil
cover. Preventive physical mitigation methods such as surface and
subsurface drainage and regrading of the slope must be done in the
area.[27]
We read the quoted portion, however, to mean only that further tests
are required to determine the degree of compaction, the bearing
capacity of the soil materials, and vulnerability of the area to
landslides, since the tests already conducted were inadequate to
ascertain such geological attributes. It is only in this sense that the
assessment was preliminary.
Accordingly, we hold that the NHA was justified in cancelling the
contract. The realization of the mistake as regards the quality of the
land resulted in the negation of the motive/cause thus rendering the
contract inexistent.[28] Article 1318 of the Civil Code states that:
Art. 1318. There is no contract unless the following requisites
concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (Underscoring
supplied.)
Therefore, assuming that petitioners are parties, assignees or
beneficiaries to the contract of sale, they would not be entitled to any
award of damages.
WHEREFORE, the instant petition is hereby DENIED.
SO ORDERED.

SECOND DIVISION
[G.R. No. 151319. November 22, 2004]
MANILA
MEMORIAL
PARK
CEMETERY,
INC., petitioner,
vs. PEDRO L. LINSANGAN, respondent.
DECISION
TINGA, J.:
For resolution in this case is a classic and interesting texbook
question in the law on agency.
This is a petition for review assailing the Decision[1] of the Court of
Appeals dated 22 June 2001, and its Resolution[2] dated 12 December
2001 in CA G.R. CV No. 49802 entitled Pedro L. Linsangan v. Manila
Memorial Cemetery, Inc. et al., finding Manila Memorial Park
Cemetery, Inc. (MMPCI) jointly and severally liable with Florencia C.
Baluyot to respondent Atty. Pedro L. Linsangan.
The facts of the case are as follows:
Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan
a lot called Garden State at the Holy Cross Memorial Park owned by
petitioner (MMPCI). According to Baluyot, a former owner of a
memorial lot under Contract No. 25012 was no longer interested in
acquiring the lot and had opted to sell his rights subject to
reimbursement of the amounts he already paid. The contract was
for P95,000.00. Baluyot reassured Atty. Linsangan that once
reimbursement is made to the former buyer, the contract would be
transferred
to
him.
Atty.
Linsangan
agreed
and
gave
BaluyotP35,295.00 representing the amount to be reimbursed to the
original buyer and to complete the down payment to
MMPCI.[3] Baluyot issued handwritten and typewritten receipts for
these payments.[4]
Sometime in March 1985, Baluyot informed Atty. Linsangan that he
would be issued Contract No. 28660, a new contract covering the
subject lot in the name of the latter instead of old Contract No.
25012. Atty. Linsangan protested, but Baluyot assured him that he
would still be paying the old price of P95,000.00 with P19,838.00
credited
as
full
down
payment
leaving
a
balance
of
aboutP75,000.00.[5]
Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase
Lot No. A11 (15), Block 83, Garden Estate I denominated as Contract
No. 28660 and the Official Receipt No. 118912 dated 6 April 1985 for
the amount of P19,838.00. Contract No. 28660 has a listed price
of P132,250.00. Atty. Linsangan objected to the new contract price,
as the same was not the amount previously agreed upon. To convince
Atty. Linsangan, Baluyot executed a document [6] confirming that
while the contract price is P132,250.00, Atty. Linsangan would pay
only the original price of P95,000.00.
The document reads in part:

The monthly installment will start April 6, 1985; the amount

of P1,800.00 and the difference will be issued as discounted to
conform to the previous price as previously agreed upon. --P95,000.00
Prepared by:
(Signed)
(MRS.) FLORENCIA C. BALUYOT
Agency Manager
Holy Cross Memorial Park
4/18/85
Dear Atty. Linsangan:
This will confirm our agreement that while the offer to purchase
under Contract No. 28660 states that the total price of P132,250.00
your undertaking is to pay only the total sum of P95,000.00 under
the old price. Further the total sum of P19,838.00 already paid by
you under O.R. # 118912 dated April 6, 1985 has been credited in
the total purchase price thereby leaving a balance of P75,162.00 on a
monthly installment ofP1,800.00 including interests (sic) charges for
a period of five (5) years.
(Signed)
FLORENCIA C. BALUYOT
By virtue of this letter, Atty. Linsangan signed Contract No. 28660
and accepted Official Receipt No. 118912. As requested by Baluyot,
Atty. Linsangan issued twelve (12) postdated checks ofP1,800.00
each in favor of MMPCI. The next year, or on 29 April 1986, Atty.
Linsangan again issued twelve (12) postdated checks in favor of
MMPCI.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that
Contract No. 28660 was cancelled for reasons the latter could not
explain, and presented to him another proposal for the purchase of
an equivalent property. He refused the new proposal and insisted
that Baluyot and MMPCI honor their undertaking.
For the alleged failure of MMPCI and Baluyot to conform to their
agreement, Atty. Linsangan filed a Complaint[7] for Breach of Contract
and Damages against the former.
Baluyot did not present any evidence. For its part, MMPCI alleged
that Contract No. 28660 was cancelled conformably with the terms of
the contract[8] because of non-payment of arrearages.[9]MMPCI stated
that Baluyot was not an agent but an independent contractor, and as
such was not authorized to represent MMPCI or to use its name
except as to the extent expressly stated in the Agency Manager
Agreement.[10] Moreover, MMPCI was not aware of the arrangements
entered into by Atty. Linsangan and Baluyot, as it in fact received a
down payment and monthly installments as indicated in the
contract.[11] Official receipts showing the application of payment were
turned over to Baluyot whom Atty. Linsangan had from the beginning

allowed to receive the same in his behalf. Furthermore, whatever

misimpression that Atty. Linsangan may have had must have been
rectified by the Account Updating Arrangement signed by Atty.
Linsangan which states that he expressly admits that Contract No.
28660 on account of serious delinquencyis now due for
cancellation under its terms and conditions.[12]
The trial court held MMPCI and Baluyot jointly and severally
liable.[13] It found that Baluyot was an agent of MMPCI and that the
latter was estopped from denying this agency, having received and
enchased the checks issued by Atty. Linsangan and given to it by
Baluyot. While MMPCI insisted that Baluyot was authorized to
receive only the down payment, it allowed her to continue to receive
postdated checks from Atty. Linsangan, which it in turn consistently
encashed.[14]
The dispositive portion of the decision reads:
WHEREFORE, judgment by preponderance of evidence is hereby
rendered in favor of plaintiff declaring Contract No. 28660 as valid
and subsisting and ordering defendants to perform their
undertakings thereof which covers burial lot No. A11 (15), Block 83,
Section Garden I, Holy Cross Memorial Park located at Novaliches,
Quezon City. All payments made by plaintiff to defendants should be
credited for his accounts. NO DAMAGES, NO ATTORNEYS FEES but
with costs against the defendants.
The cross claim of defendant Manila Memorial Cemetery Incorporated
as against defendant Baluyot is GRANTED up to the extent of the
costs.
SO ORDERED.[15]
MMPCI appealed the trial courts decision to the Court of
Appeals.[16] It claimed that Atty. Linsangan is bound by the written
contract with MMPCI, the terms of which were clearly set forth
therein and read, understood, and signed by the former. [17] It also
alleged that Atty. Linsangan, a practicing lawyer for over thirteen (13)
years at the time he entered into the contract, is presumed to know
his contractual obligations and is fully aware that he cannot
belatedly and unilaterally change the terms of the contract without
the consent, much less the knowledge of the other contracting party,
which was MMPCI. And in this case, MMPCI did not agree to a
change in the contract and in fact implemented the same pursuant to
its clear terms. In view thereof, because of Atty. Linsangans
delinquency, MMPCI validly cancelled the contract.
MMPCI further alleged that it cannot be held jointly and solidarily
liable with Baluyot as the latter exceeded the terms of her agency,
neither did MMPCI ratify Baluyots acts. It added that it cannot be
charged with making any misrepresentation, nor of having allowed
Baluyot to act as though she had full powers as the written contract
expressly stated the terms and conditions which Atty. Linsangan

accepted and understood. In canceling the contract, MMPCI merely

enforced the terms and conditions imposed therein. [18]
Imputing negligence on the part of Atty. Linsangan, MMPCI claimed
that it was the formers obligation, as a party knowingly dealing with
an alleged agent, to determine the limitations of such agents
authority, particularly when such alleged agents actions were
patently questionable. According to MMPCI, Atty. Linsangan did not
even bother to verify Baluyots authority or ask copies of official
receipts for his payments.[19]
The Court of Appeals affirmed the decision of the trial court. It
upheld the trial courts finding that Baluyot was an agent of MMPCI
at the time the disputed contract was entered into, having
represented MMPCIs interest and acting on its behalf in the dealings
with clients and customers. Hence, MMPCI is considered estopped
when it allowed Baluyot to act and represent MMPCI even beyond her
authority.[20] The appellate court likewise found that the acts of
Baluyot bound MMPCI when the latter allowed the former to act for
and in its behalf and stead. While Baluyots authority may not have
been expressly conferred upon her, the same may have been derived
impliedly by habit or custom, which may have been an accepted
practice in the company for a long period of time. [21] Thus, the Court
of Appeals noted, innocent third persons such as Atty. Linsangan
should not be prejudiced where the principal failed to adopt the
needed measures to prevent misrepresentation. Furthermore, if an
agent misrepresents to a purchaser and the principal accepts the
benefits of such misrepresentation, he cannot at the same time deny
responsibility for such misrepresentation. [22] Finally, the Court of
Appeals declared:
There being absolutely nothing on the record that would show that
the court a quo overlooked, disregarded, or misinterpreted facts of
weight and significance, its factual findings and conclusions must be
given great weight and should not be disturbed by this Court on
appeal.
WHEREFORE, in view of the foregoing, the appeal is hereby DENIED
and the appealed decision in Civil Case No. 88-1253 of the Regional
Trial Court, National Capital Judicial Region, Branch 57 of Makati, is
hereby AFFIRMED in toto.
SO ORDERED.[23]
MMPCI filed its Motion for Reconsideration,[24] but the same was
denied for lack of merit.[25]
In the instant Petition for Review, MMPCI claims that the Court of
Appeals seriously erred in disregarding the plain terms of the written
contract and Atty. Linsangans failure to abide by the terms thereof,
which justified its cancellation. In addition, even assuming that
Baluyot was an agent of MMPCI, she clearly exceeded her authority
and Atty. Linsangan knew or should have known about this

considering his status as a long-practicing lawyer. MMPCI likewise

claims that the Court of Appeals erred in failing to consider that the
facts and the applicable law do not support a judgment against
Baluyot only up to the extent of costs. [26]
Atty. Linsangan argues that he did not violate the terms and
conditions of the contract, and in fact faithfully performed his
contractual obligations and complied with them in good faith for at
least two years.[27] He claims that contrary to MMPCIs position, his
profession as a lawyer is immaterial to the validity of the subject
contract and the case at bar.[28] According to him, MMPCI had
practically admitted in its Petition that Baluyot was its agent, and
thus, the only issue left to be resolved is whether MMPCI allowed
Baluyot to act as though she had full powers to be held solidarily
liable with the latter.[29]
We find for the petitioner MMPCI.
The jurisdiction of the Supreme Court in a petition for review under
Rule 45 of the Rules of Court is limited to reviewing only errors of
law, not fact, unless the factual findings complained of are devoid of
support by the evidence on record or the assailed judgment is based
on misapprehension of facts.[30] In BPI Investment Corporation v. D.G.
Carreon Commercial Corporation,[31] this Court ruled:
There are instances when the findings of fact of the trial court and/or
Court of Appeals may be reviewed by the Supreme Court, such as (1)
when the conclusion is a finding grounded entirely on speculation,
surmises and conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) where there is a grave abuse of
discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when the Court
of Appeals, in making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both appellant and
appellee; (7) when the findings are contrary to those of the trial
court; (8) when the findings of fact are conclusions without citation
of specific evidence on which they are based; (9) when the facts set
forth in the petition as well as in the petitioners main and reply
briefs are not disputed by the respondents; and (10) the findings of
fact of the Court of Appeals are premised on the supposed absence of
evidence and contradicted by the evidence on record. [32]
In the case at bar, the Court of Appeals committed several errors in
the apprehension of the facts of the case, as well as made
conclusions devoid of evidentiary support, hence we review its
findings of fact.
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.[33] Thus, the elements of
agency are (i) consent, express or implied, of the parties to establish
the relationship; (ii) the object is the execution of a juridical act in

relation to a third person; (iii) the agent acts as a representative and

not for himself; and (iv) the agent acts within the scope of his
authority.[34]
In an attempt to prove that Baluyot was not its agent, MMPCI pointed
out that under its Agency Manager Agreement; an agency manager
such as Baluyot is considered an independent contractor and not an
agent.[35] However, in the same contract, Baluyot as agency manager
was authorized to solicit and remit to MMPCI offers to purchase
interment
spaces
belonging
to
and
sold
by
the
latter.[36] Notwithstanding the claim of MMPCI that Baluyot was an
independent contractor, the fact remains that she was authorized to
solicit solely for and in behalf of MMPCI. As properly found both by
the trial court and the Court of Appeals, Baluyot was an agent of
MMPCI, having represented the interest of the latter, and having been
allowed by MMPCI to represent it in her dealings with its
clients/prospective buyers.
Nevertheless, contrary to the findings of the Court of Appeals, MMPCI
cannot be bound by the contract procured by Atty. Linsangan and
solicited by Baluyot.
Baluyot was authorized to solicit and remit to MMPCI offers to
purchase interment spaces obtained on forms provided by MMPCI.
The terms of the offer to purchase, therefore, are contained in such
forms and, when signed by the buyer and an authorized officer of
MMPCI, becomes binding on both parties.
The Offer to Purchase duly signed by Atty. Linsangan, and accepted
and validated by MMPCI showed a total list price of P132,250.00.
Likewise, it was clearly stated therein that Purchaser agrees that he
has read or has had read to him this agreement, that
he understands its terms and conditions, and that there are no
covenants, conditions, warranties or representations other than
those contained herein.[37] By signing the Offer to Purchase, Atty.
Linsangan signified that he understood its contents. That he and
Baluyot had an agreement different from that contained in the Offer
to Purchase is of no moment, and should not affect MMPCI, as it was
obviously made outside Baluyots authority. To repeat, Baluyots
authority was limited only to soliciting purchasers. She had no
authority to alter the terms of the written contract provided by
MMPCI. The document/letter confirming the agreement that Atty.
Linsangan would have to pay the old price was executed by Baluyot
alone. Nowhere is there any indication that the same came from
MMPCI or any of its officers.
It is a settled rule that persons dealing with an 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.[38] The basis for agency is representation and a person

dealing with an agent is put upon inquiry and must discover upon
his peril the authority of the agent.[39] If he does not make such an
inquiry, he is chargeable with knowledge of the agents authority and
his ignorance of that authority will not be any excuse. [40]
As noted by one author, the ignorance of a person dealing with an
agent as to the scope of the latters authority is no excuse to such
person and the fault cannot be thrown upon the principal. [41]A person
dealing with an agent assumes the risk of lack of authority in the
agent. He cannot charge the principal by relying upon the agents
assumption of authority that proves to be unfounded. The principal,
on the other hand, may act on the presumption that third persons
dealing with his agent will not be negligent in failing to ascertain the
extent of his authority as well as the existence of his agency. [42]
In the instant case, it has not been established that Atty. Linsangan
even bothered to inquire whether Baluyot was authorized to agree to
terms contrary to those indicated in the written contract, much less
bind MMPCI by her commitment with respect to such agreements.
Even if Baluyot was Atty. Linsangans friend and known to be an
agent of MMPCI, her declarations and actions alone are not sufficient
to establish the fact or extent of her authority. [43] Atty. Linsangan as a
practicing lawyer for a relatively long period of time when he signed
the contract should have been put on guard when their agreement
was not reflected in the contract. More importantly, Atty. Linsangan
should have been alerted by the fact that Baluyot failed to effect the
transfer of rights earlier promised, and was unable to make good her
written commitment, nor convince MMPCI to assent thereto, as
evidenced by several attempts to induce him to enter into other
contracts for a higher consideration. As properly pointed out by
MMPCI, as a lawyer, a greater degree of caution should be expected of
Atty. Linsangan especially in dealings involving legal documents. He
did not even bother to ask for official receipts of his payments, nor
inquire from MMPCI directly to ascertain the real status of the
contract, blindly relying on the representations of Baluyot. A lawyer
by profession, he knew what he was doing when he signed the
written contract, knew the meaning and value of every word or
phrase used in the contract, and more importantly, knew the legal
effects which said document produced. He is bound to accept
responsibility for his negligence.
The trial and appellate courts found MMPCI liable based on
ratification and estoppel. For the trial court, MMPCIs acts of
accepting and encashing the checks issued by Atty. Linsangan as
well as allowing Baluyot to receive checks drawn in the name of
MMPCI confirm and ratify the contract of agency. On the other hand,
the Court of Appeals faulted MMPCI in failing to adopt measures to
prevent misrepresentation, and declared that in view of MMPCIs

acceptance of the benefits of Baluyots misrepresentation, it can no

longer deny responsibility therefor.
The Court does not agree. Pertinent to this case are the following
provisions of the Civil Code:
Art. 1898. If the agent contracts in the name of the principal,
exceeding the scope of his authority, and the principal does not ratify
the contract, it shall be void if the party with whom the agent
contracted is aware of the limits of the powers granted by the
principal. In this case, however, the agent is liable if he undertook to
secure the principals ratification.
Art. 1910. The principal must comply with all the obligations that
the agent may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the
latter to act as though he had full powers.
Thus, the acts of an agent beyond the scope of his authority do not
bind the principal, unless he ratifies them, expressly or impliedly.
Only the principal can ratify; the agent cannot ratify his own
unauthorized acts. Moreover, the principal must have knowledge of
the acts he is to ratify.[44]
Ratification in agency is the adoption or confirmation by one person
of an act performed on his behalf by another without authority. The
substance of the doctrine is confirmation after conduct, amounting to
a substitute for a prior authority. Ordinarily, the principal must have
full knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who
assumed to act as agent. Thus, if material facts were suppressed or
unknown, there can be no valid ratification and this regardless of the
purpose or lack thereof in concealing such facts and regardless of the
parties between whom the question of ratification may
arise.[45] Nevertheless, this principle does not apply if the principals
ignorance of the material facts and circumstances was willful, or that
the principal chooses to act in ignorance of the facts. [46] However, in
the absence of circumstances putting a reasonably prudent man on
inquiry, ratification cannot be implied as against the principal who is
ignorant of the facts.[47]
No ratification can be implied in the instant case.
A perusal of Baluyots Answer[48] reveals that the real arrangement
between her and Atty. Linsangan was for the latter to pay a monthly
installment of P1,800.00 whereas Baluyot was to shoulder the
counterpart amount of P1,455.00 to meet the P3,255.00 monthly
installments as indicated in the contract. Thus, every time an
installment falls due, payment was to be made through a check from
Atty. Linsangan for P1,800.00 and a cash component of P1,455.00

from Baluyot.[49] However, it appears that while Atty. Linsangan

issued the post-dated checks, Baluyot failed to come up with her part
of the bargain. This was supported by Baluyots statements in her
letter[50] to Mr. Clyde Williams, Jr., Sales Manager of MMPCI, two
days after she received the copy of the Complaint. In the letter, she
admitted that she was remiss in her duties when she consented to
Atty. Linsangans proposal that he will pay the old price while the
difference will be shouldered by her. She likewise admitted that the
contract suffered arrearages because while Atty. Linsangan issued
the agreed checks, she was unable to give her share of P1,455.00 due
to her own financial difficulties. Baluyot even asked for compassion
from MMPCI for the error she committed.
Atty. Linsangan failed to show that MMPCI had knowledge of the
arrangement. As far as MMPCI is concerned, the contract price
was P132,250.00, as stated in the Offer to Purchase signed by Atty.
Linsangan and MMPCIs authorized officer. The down payment
of P19,838.00 given by Atty. Linsangan was in accordance with the
contract as well. Payments of P3,235.00 for at least two installments
were likewise in accord with the contract, albeit made through a
check and partly in cash. In view of Baluyots failure to give her
share in the payment, MMPCI received only P1,800.00 checks, which
were clearly insufficient payment. In fact, Atty. Linsangan would have
incurred arrearages that could have caused the earlier cancellation of
the contract, if not for MMPCIs application of some of the checks to
his account. However, the checks alone were not sufficient to cover
his obligations.
If MMPCI was aware of the arrangement, it would have refused the
latters check payments for being insufficient. It would not have
applied to his account the P1,800.00 checks. Moreover, the fact that
Baluyot had to practically explain to MMPCIs Sales Manager the
details of her arrangement with Atty. Linsangan and admit to
having made an error in entering such arrangement confirm that
MMCPI had no knowledge of the said agreement. It was only when
Baluyot filed her Answer that she claimed that MMCPI was fully
aware of the agreement.
Neither is there estoppel in the instant case. The essential elements
of estoppel are (i) conduct of a party amounting to false
representation or concealment of material facts or at least calculated
to convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to
assert; (ii) intent, or at least expectation, that this conduct shall be
acted upon by, or at least influence, the other party; and (iii)
knowledge, actual or constructive, of the real facts. [51]
While there is no more question as to the agency relationship
between Baluyot and MMPCI, there is no indication that MMPCI let
the public, or specifically, Atty. Linsangan to believe that Baluyot had

the authority to alter the standard contracts of the company. Neither

is there any showing that prior to signing Contract No. 28660,
MMPCI had any knowledge of Baluyots commitment to Atty.
Linsangan. One who claims the benefit of an estoppel on the ground
that he has been misled by the representations of another must not
have been misled through his own want of reasonable care and
circumspection.[52] Even assuming that Atty. Linsangan was misled
by MMPCIs actuations, he still cannot invoke the principle of
estoppel, as he was clearly negligent in his dealings with Baluyot,
and could have easily determined, had he only been cautious and
prudent, whether said agent was clothed with the authority to change
the terms of the principals written contract. Estoppel must be
intentional and unequivocal, for when misapplied, it can easily
become a most convenient and effective means of injustice. [53] In view
of the lack of sufficient proof showing estoppel, we refuse to hold
MMPCI liable on this score.
Likewise, this Court does not find favor in the Court of Appeals
findings that the authority of defendant Baluyot may not have been
expressly conferred upon her; however, the same may have been
derived impliedly by habit or custom which may have been an
accepted practice in their company in a long period of time. A
perusal of the records of the case fails to show any indication that
there was such a habit or custom in MMPCI that allows its agents to
enter into agreements for lower prices of its interment spaces, nor to
assume a portion of the purchase price of the interment spaces sold
at such lower price. No evidence was ever presented to this effect.
As the Court sees it, there are two obligations in the instant case.
One is the Contract No. 28660 between MMPCI and by Atty.
Linsangan for the purchase of an interment space in the formers
cemetery. The other is the agreement between Baluyot and Atty.
Linsangan for the former to shoulder the amount P1,455.00, or the
difference between P95,000.00, the original price, andP132,250.00,
the actual contract price.
To repeat, the acts of the agent beyond the scope of his authority do
not bind the principal unless the latter ratifies the same. It also
bears emphasis that when the third person knows that the agent was
acting beyond his power or authority, the principal cannot be held
liable for the acts of the agent. If the said third person was aware of
such limits of authority, he is to blame and is not entitled to recover
damages from the agent, unless the latter undertook to secure the
principals ratification.[54]
This Court finds that Contract No. 28660 was validly entered into
both by MMPCI and Atty. Linsangan. By affixing his signature in the
contract, Atty. Linsangan assented to the terms and conditions
thereof. When Atty. Linsangan incurred delinquencies in payment,

MMCPI merely enforced its rights under the said contract by

canceling the same.
Being aware of the limits of Baluyots authority, Atty. Linsangan
cannot insist on what he claims to be the terms of Contract No.
28660. The agreement, insofar as the P95,000.00 contract price is
concerned, is void and cannot be enforced as against MMPCI. Neither
can he hold Baluyot liable for damages under the same contract,
since there is no evidence showing that Baluyot undertook to secure
MMPCIs ratification. At best, the agreement between Baluyot and
Atty. Linsangan bound only the two of them. As far as MMPCI is
concerned, it bound itself to sell its interment space to Atty.
Linsangan for P132,250.00 under Contract No. 28660, and had in
fact received several payments in accordance with the same contract.
If the contract was cancelled due to arrearages, Atty. Linsangans
recourse should only be against Baluyot who personally undertook to
pay the difference between the true contract price of P132,250.00
and the original proposed price of P95,000.00. To surmise that
Baluyot was acting on behalf of MMPCI when she promised to
shoulder the said difference would be to conclude that MMPCI
undertook to pay itself the difference, a conclusion that is very
illogical, if not antithetical to its business interests.
However, this does not preclude Atty. Linsangan from instituting a
separate action to recover damages from Baluyot, not as an agent of
MMPCI, but in view of the latters breach of their separate
agreement. To review, Baluyot obligated herself to pay P1,455.00 in
addition to Atty. Linsangans P1,800.00 to complete the monthly
installment payment under the contract, which, by her own
admission, she was unable to do due to personal financial
difficulties.
It is undisputed that Atty. Linsangan issued
the P1,800.00 as agreed upon, and were it not for Baluyots failure to
provide the balance, Contract No. 28660 would not have been
cancelled. Thus, Atty. Linsangan has a cause of action against
Baluyot, which he can pursue in another case.
WHEREFORE, the instant petition is GRANTED. The Decision of the
Court of Appeals dated 22 June 2001 and its Resolution dated 12
December 2001 in CA- G.R. CV No. 49802, as well as theDecision in
Civil Case No. 88-1253 of the Regional Trial Court, Makati City
Branch 57, are hereby REVERSED and SET ASIDE. The Complaint in
Civil Case No. 88-1253 is DISMISSED for lack of cause of action. No
pronouncement as to costs.
SO ORDERED.