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.
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 as propina 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.

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."

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

xxx xxx xxx

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

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

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.

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

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
petitioner-appellant 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 petitionerappellant 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, defendant-appellee 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.
G.R. No. 167552
April 23, 2007
EUROTECH INDUSTRIAL TECHNOLOGIES, INC. vs. EDWIN CUIZON and ERWIN
CUIZON
Before Us is a petition for review by certiorari assailing the Decision 1 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:
5

1.) That ASSIGNOR 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;

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.

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

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
2001.19However, 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:

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.

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

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.

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 1995.38The 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 disagree.

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:

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

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

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

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.

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.
G.R. No. 174610
July 14, 2009
SORIAMONT STEAMSHIP AGENCIES, INC., and PATRICK RONAS vs. SPRINT
TRANSPORT SERVICES, INC., RICARDO CRUZ PAPA, doing business under the
style PAPA TRANSPORT SERVICES
Assailed in this Petition for Review on Certiorari, under Rule 45 of the Revised Rules of
Court, is the Decision1dated 22 June 2006 and Resolution2 dated 7 September 2006 of
the Court of Appeals in CA-G.R. CV No. 74987. The appellate court affirmed with
modification the Decision3 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:
Soriamont is a domestic corporation providing services as a receiving agent for line load
contractor vessels. Patrick Ronas (Ronas) is its general manager.
On the other hand, Sprint is a domestic corporation engaged in transport services. Its corespondent 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. 98-89047. 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),5evidenced 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 Thirty-Seven 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
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-in-interest 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 Third-Party 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 Third-Party Complaint, he was declared by the
RTC to be in default.9
After trial, the RTC rendered its Decision in Civil Case No. 98-89047 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.
Defendant Patrick Ronas and [herein respondent] Ricardo Cruz Papa are absolved from
liability.10
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 MOTZ-160080, 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, Soriamont12 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 THIRD-PARTY 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.

10

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

11

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
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:
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.?

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. Yes, Sir.
A. By fax, Sir.
Q. What transactions are these, Mr. Witness?
Q. Is this standard operating procedure of Sprint Transport Services, Inc.?
A. They got from us chassis, Sir.
Court:

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.

Q. Who among the two, who withdrew?

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

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?

Q. And when were these chassis withdrawn, Mr. Witness?

A. Yes, Sir.
A. June 1996, Sir.
Atty. Porciuncula:
Q. Will you kindly tell this Honorable Court what do you mean by withdrawing the
chassis units from your container yard?

Your Honor, at this point may we request that these documents identified by the
witness be marked as Exhibits JJ and KK, Your Honor.

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

12

Mark them.
xxxx

And what is this withdrawal authority?

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

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

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

Sir.

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

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

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

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

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?

A. This is a document proving that the representative of Soriamont Steamship

Agencies, Inc. really withdraw (sic) the chassis units, Sir.
xxxx
Atty. Porciuncula:

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

Atty. Porciuncula:

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

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.

A. Yes, Sir.

Court:

A. We have not made Incoming Equipment Interchange Receipt with respect to

Soriamont Steamship Agencies, Inc., Sir.

Q. Are there incoming Equipment Interchange Receipt Mr. Witness?

Mark them. Are these documents have dates?

Q. And why not, Mr. Witness?
Atty. Porciuncula:
A. Because they have not returned to us the two chassis units.20
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.

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.

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.

13

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 letter21 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.1avvphi1
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

14

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 theP320,000.00, representing the value of the subject equipment, and on
the P270,124.42, 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 Appeals23 explained, to wit:
I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, 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
2006 of the Court of Appeals in CA-G.R. CV No. 74987 are hereby AFFIRMED. Costs
against petitioner Soriamont Steamship Agencies, Inc. SO ORDERED.
G.R. No. 120465 September 9, 1999
WILLIAM UY and RODEL ROXAS vs. COURT OF APPEALS, HON. ROBERT BALAO
and NATIONAL HOUSING AUTHORITY
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

15

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, subsecguently offered the
amount of P1.225 million to the landowners asdaos 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-in-fact and, therefore,
not the real parties-in-interest in the action before the trial court.
. . . In paragraph 4 of the complaint, plaintiffs alleged themselves
to be "sellers' agents" for the several owners of the 8 lots subject
matter of the case. Obsviously, 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).

FAILED TO JOIN AS INDISPENSABLE PARTY PLAINTIFF THE

SELLING LOT-OWNERS. 3
We first resolve the issue raised in the the third assignment of error.

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-ininterest. 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 principal, (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. 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

16

Petitioners claim that they lodged the complaint not in behalf of their principals 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 apoderedos 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.
Sec. 2, Rule 3 of the Rules of Court requires that every action must be prosecuted and
defended in the name of the real party-in-interest. 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. . . .

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. (Emphasis supplied.)

(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
maintain such action thereon as might a transferee having a
similar interest.
The Comment on subsection (1) states:

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 contract 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.
. . . 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. . . .
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
Sec. 372. Agent as Owner of Contract Right

17

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 principal's name. . . .
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 agent's interest. . . . 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 principal's 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 entitled 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 principal's 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. . . .
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:

18

. . . 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. .
..
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-ininterest. 14
Nevertheless, to forestall further litigation on the substantive aspects of this case, we
shall proceed to rule on me 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. 22The 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 xxx xxx

WHEREAS, the VENDEE, in pursuit of and in compliance with the abovestated 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 . . . .
Ordinarily, a party's 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:
. . . it is well to note, however, that Manresa himself (Vol. 8, pp.
641-642), 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 housing as NHA claimed?

19

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 . . . 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 contend that the report was merely "preliminary," and not conclusive, as
indicated in its title:

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
the "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 canceling 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. 28Article 1318 of the Civil Code
states that:

MEMORANDUM
TO: EDWIN G. DOMINGO

Art. 1318. There is no contract unless the following requisites

concur:

Chief, Lands Geology Division

(1) Consent of the contracting parties;

FROM: ARISTOTLE A. RILLON

(2) Object certain which is the subject matter of the contract;

Geologist II

(3) Cause of the obligation which is established. (Emphasis

supplied.)

SUBJECT: Preliminary Assessment of

Tadiangan Housing Project in Tuba, Benguet

26

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.

Thus, page 2 of the report states in part:

xxx xxx 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

20

G.R. No. 151319

November 22, 2004
MANILA MEMORIAL PARK CEMETERY, INC vs. PEDRO LINSANGAN
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 Decision1 of the Court of Appeals dated 22 June
2001, and its Resolution2dated 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 Baluyot P35,295.00 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 about P75,000.00. 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 document6 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:

21

(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 of P1,800.00 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 of P1,800.00 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.

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

For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty.
Linsangan filed a Complaint7 for Breach of Contract and Damages against the former.

Prepared by:

Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No.
28660 was cancelled conformably with the terms of the contract8 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 ATTORNEY'S 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 court's 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

22

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. Linsangan's
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 Baluyot's 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
former's obligation, as a party knowingly dealing with an alleged agent, to determine the
limitations of such agent's authority, particularly when such alleged agent's actions were
patently questionable. According to MMPCI, Atty. Linsangan did not even bother to verify
Baluyot's 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 court's
finding that Baluyot was an agent of MMPCI at the time the disputed contract was
entered into, having represented MMPCI's 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 Baluyot's 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. Linsangan's 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 longpracticing 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 MMPCI's 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:

23

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.35However, 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 Baluyot's
authority. To repeat, Baluyot's 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
agent's 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 latter's 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 agent's 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

24

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. Linsangan's 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, MMPCI's 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 MMPCI's acceptance of the benefits of Baluyot's 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 principal's 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. 45Nevertheless, this principle
does not apply if the principal's 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 Baluyot's Answer48 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 Baluyot's statements in her letter50 to Mr. Clyde Williams, Jr., Sales

25

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. Linsangan's
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 MMPCI's 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 Baluyot's 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 MMPCI's 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 latter's 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 MMPCI's 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 Baluyot's 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 MMPCI's
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 principal's 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 former's 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, and P132,250.00, 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 principal's 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

26

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 Baluyot's 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 MMPCI's 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.
Linsangan's 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 latter's
breach of their separate agreement. To review, Baluyot obligated herself to pay
P1,455.00 in addition to Atty. Linsangan's 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 Baluyot's 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 the Decision 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.

27