iii. Excess of Authority Art. 1898 vs. Art. 1883, par. 1 and 1881; 1910; 1317, par.

. 2; 1898 vs. 1403

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. (n)

Art. 1883. If an agent acts in his own name, the principal has no right of action against
the persons with whom the agent has contracted; neither have such persons against the
principal.

In such case the agent is the one directly bound in favor of the person with whom he
has contracted, as if the transaction were his own, except when the contract involves
things belonging to the principal.

The provisions of this article shall be understood to be without prejudice to the actions
between the principal and agent. (1717)

Art. 1881. The agent must act within the scope of his authority. He may do such acts as may be
conducive to the accomplishment of the purpose of the agency. (1714a)

Art. 1910. The principal must comply with all the obligations which 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. (1727)

Art. 1317. No one may contract in the name of another without being authorized by the
latter, or unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party. (1259a)

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. (n)

Art. 1403. The following contracts are unenforceable, unless they are ratified:

Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers;

Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a year from
the making thereof;

(b) A special promise to answer for the debt, default, or miscarriage of

another;
(c) An agreement made in consideration of marriage, other than a mutual
promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price
not less than fi ve hundred pesos, unless the buyer accept and receive part of
such goods and chattels, or the evidences, or some of them, of such things in
action or pay at the time some part of the purchase money; but when a sale
is made by auction and entry is made by the auctioneer in his sales book, at
the time of the sale, of the amount and kind of property sold, terms of sale,
price, names of the purchasers and person on whose account the sale is
made, it is a suffi cient memorandum;
(e) An agreement of the leasing for a longer period than one year, or for the
sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.

(1); Ratification vs. Estoppel

- Country Bankers Insurance Corporation v. Keppel Cebu Shipyard, 673 SCRA 427 (June
18, 2012)

Facts: On January 27, 1992, Unimarine Shipping Lines, Inc. (Unimarine), a corporation engaged in
the shipping industry, contracted the services of Keppel Cebu Shipyard, formerly known as Cebu
Shipyard and Engineering Works, Inc. (Cebu Shipyard), for dry docking and ship repair works on its
vessel, the M/V Pacific Fortune.[5]

On February 14, 1992, Cebu Shipyard issued Bill No. 26035 to Unimarine in consideration for its
services, which amounted to P4,486,052.00.[6] Negotiations between Cebu Shipyard and Unimarine
led to the reduction of this amount to P3,850,000.00. The terms of this agreement were embodied
in Cebu Shipyards February 18, 1992 letter to the President/General Manager of Unimarine, Paul
Rodriguez, who signed his conformity to said letter.
In compliance with the agreement, Unimarine, through Paul Rodriguez, secured from Country
Bankers Insurance Corp. (CBIC), through the latters agent, Bethoven Quinain (Quinain), CBIC Surety
Bond No. G (16) 29419[8] (the surety bond) on January 15, 1992 in the amount
of P3,000,000.00. The expiration of this surety bond was extended to January 15, 1993, through
Endorsement No. 33152[9] (the endorsement), which was later on attached to and formed part of
the surety bond. In addition to this, Unimarine, on February 19, 1992, obtained another bond from
Plaridel Surety and Insurance Co. (Plaridel), PSIC Bond No. G (16)-00365 [10] in the amount
of P1,620,000.00.
On February 17, 1992, Unimarine executed a Contract of Undertaking in favor of Cebu Shipyard. It
provides among others We likewise hereby expressly waive whatever right of excussion we may
have under the law and equity.
Because Unimarine failed to remit the first installment when it became due on May 30, 1992, Cebu
Shipyard was constrained to deposit the peso check corresponding to the initial installment
of P2,350,000.00. The check, however, was dishonored by the bank due to insufficient funds.
[12]
Cebu Shipyard faxed a message to Unimarine, informing it of the situation, and reminding it to
settle its account immediately.[13]
On June 24, 1992, Cebu Shipyard again faxed a message [14] to Unimarine, to confirm Paul
Rodriguezs promise that Unimarine will pay in full the P3,850,000.00, in US Dollars on July 1, 1992.
Since Unimarine failed to deliver on the above promise, Cebu Shipyard, on July 2, 1992, through a
faxed letter, asked Unimarine if the payment could be picked up the next day. This was followed by
another faxed message on July 6, 1992, wherein Cebu Shipyard reminded Unimarine of its promise
to pay in full on July 28, 1992. On August 24, 1992, Cebu Shipyard again faxed [15] Unimarine, to
inform it that interest charges will have to be imposed on their outstanding debt, and if it still fails

to pay before August 28, 1992, Cebu Shipyard will have to enforce payment against the sureties
and take legal action.
On November 18, 1992, Cebu Shipyard, through its counsel, sent Unimarine a letter, [16] demanding
payment, within seven days from receipt of the letter, the amount ofP4,859,458.00, (cost + interest
and penalty charges).
Due to Unimarines failure to heed Cebu Shipyards repeated demands, Cebu Shipyard,
through counsel, wrote the sureties CBIC [18] on November 18, 1992, and Plaridel,[19] on
November 19, 1992, to inform them of Unimarines nonpayment, and to ask them to fulfill
their obligations as sureties, and to respond within seven days from receipt of the demand.
However, even the sureties failed to discharge their obligations, and so Cebu Shipyard filed a
Complaint dated January 8, 1993, before the RTC, Branch 18 of Cebu City, against Unimarine, CBIC,
and Plaridel. This was docketed as Civil Case No. CBB-13447.
CBIC, in its Answer,[20] said that Cebu Shipyards complaint states no cause of action. CBIC alleged
that the surety bond was issued by its agent, Quinain, in excess of his authority. CBIC
claimed that Cebu Shipyard should have doubted the authority of Quinain to issue the
surety bond based on the following:
1.
The nature of the bond undertaking (guarantee payment), and the amount
involved.
2.
The surety bond could only be issued in favor of the Department of Public Works
and Highways, as stamped on the upper right portion of the face of the bond. [21] This
stamp was covered by documentary stamps.
3.
The issuance of the surety bond was not reported, and the corresponding
premiums were not remitted to CBIC.[22]
CBIC added that its liability was extinguished when, without its knowledge and consent,
Cebu Shipyard and Unimarine novated their agreement several times.Furthermore, CBIC
stated that Cebu Shipyards claim had already been paid or extinguished when
Unimarine executed an Assignment of Claims [23] of the proceeds of the sale of its vessel
M/V Headline in favor of Cebu Shipyard. CBIC also averred that Cebu Shipyards claim
had already prescribed as the endorsement that extended the surety bonds expiry date,
was not reported to CBIC. Finally, CBIC asseverated that if it were held to be liable, its liability
should be limited to the face value of the bond and not for exemplary damages, attorneys fees, and
costs of litigation.[24]
Subsequently, CBIC filed a Motion to Admit Cross and Third Party Complaint [25] against Unimarine,
as cross defendant; Paul Rodriguez, Albert Hontanosas, and Peter Rodriguez, as signatories to the
Indemnity Agreement they executed in favor of CBIC; and Bethoven Quinain, as the agent who
issued the surety bond and endorsement in excess of his authority, as third party defendants. [26]
CBIC claimed that Paul Rodriguez, Albert severally, to indemnify CBIC for any amount it may sustain
or incur in connection with the issuance of the surety bond and the endorsement. [27] As for Quinain,
CBIC alleged that he exceeded his authority as stated in the Special Power of Attorney, wherein he
was authorized to solicit business and issue surety bonds not exceeding P500,000.00 but only in
favor of the Department of Public Works and Highways, National Power Corporation, and other
government agencies.[28]
On August 23, 1993, third party defendant Hontanosas filed his Answer with Counterclaim, to the
Cross and Third Party Complaint. Hontanosas claimed that he had no financial interest in Unimarine
and was neither a stockholder, director nor an officer of Unimarine. He asseverated that his

relationship to Unimarine was limited to his capacity as a lawyer, being its retained counsel. He
further denied having any participation in the Indemnity Agreement executed in favor of CBIC, and
alleged that his signature therein was forged, as he neither signed it nor appeared before the
Notary Public who acknowledged such undertaking.[29]
Various witnesses were presented by the parties during the course of the trial of the case. Myrna
Obrinaga testified for Cebu Shipyard. She was the Chief Accountant in charge of the custody of the
documents of the company. She corroborated Cebu Shipyards allegations and produced in court the
documents to support Cebu Shipyards claim. She also testified that while it was true that the
proceeds of the sale of Unimarines vessel, M/V Headline, were assigned to Cebu Shipyard, nothing
was turned over to them.[30]
Paul Rodriguez admitted that Unimarine failed to pay Cebu Shipyard for the repairs it did on M/V
Pacific Fortune, despite the extensions granted to Unimarine. He claimed that he signed the
Indemnity Agreement because he trusted Quinain that it was a mere pre-requisite for the issuance
of the surety bond. He added that he did not bother to read the documents and he was not aware of
the consequences of signing an Indemnity Agreement. Paul Rodriguez also alleged to not having
noticed the limitation Valid only in favor of DPWH stamped on the surety bond. [31] However, Paul
Rodriguez did not contradict the fact that Unimarine failed to pay Cebu Shipyard its obligation. [32]
CBIC presented Dakila Rianzares, the Senior Manager of its Bonding Department. Her duties
included the evaluation and approval of all applications for and reviews of bonds issued by their
agents, as authorized under the Special Power of Attorney and General Agency Contract of
CBIC. Rianzares testified that she only learned of the existence of CBIC Surety Bond No. G (16)
29419 when she received the summons for this case. Upon investigation, she found out that the
surety bond was not reported to CBIC by Quinain, the issuing agent, in violation of their General
Agency Contract, which provides that all bonds issued by the agent be reported to CBICs office
within one week from the date of issuance. She further stated that the surety bond issued in favor
of Unimarine was issued beyond Quinains authority. Rianzares added that she was not aware that
an endorsement pertaining to the surety bond was also issued by Quinain. [33]
Hontanosas, and Peter Rodriguez executed an Indemnity Agreement, wherein they bound
themselves, jointly and
The RTC held that CBIC, in its capacity as surety is bound with its principal jointly and severally to
the extent of the surety bond it issued in favor of [Cebu Shipyard] because although the contract of
surety is in essence secondary only to a valid principal obligation, his liability to [the] creditor is
said to be direct, primary[,] and absolute, in other words, he is bound by the principal. [36]
The RTC found CBICs contention that Quinain acted in excess of his authority in issuing the
surety bond untenable. The RTC held that CBIC is bound by the surety bond issued by its
agent who acted within the apparent scope of his authority. The RTC said:
[A]s far as third persons are concerned, an act is deemed to have been performed
within the scope of the agents authority, if such act is within the terms of the
powers of attorney as written, even if the agent has in fact exceeded the limits of
his authority according to an understanding between the principal and the agent.
[38]

All the defendants appealed this Decision to the Court of Appeals.

The Court of Appeals held that it was duly proven that Unimarine was liable to Cebu Shipyard for
the ship repair works it did on the formers M/V Pacific Fortune. The Court of Appeals dismissed
CBICs contention of novation for lack of merit. [43] CBIC was held liable under the surety bond as
there was no novation on the agreement between Unimarine and Cebu Shipyard that would

discharge CBIC from its obligation. The Court of Appeals also did not allow CBIC to disclaim liability
on the ground that Quinain exceeded his authority because third persons had relied upon Quinains
representation, as CBICs agent.[44] Quinain was, however, held solidarily liable with CBIC under
Article 1911 of the Civil Code.[45]
Anent the liability of the signatories to the Indemnity Agreement, the Court of Appeals held Paul
Rodriguez, Peter Rodriguez, and Albert Hontanosas jointly and severally liable thereunder. The Court
of Appeals rejected Hontanosass claim that his signature in the Indemnity Agreement was forged,
as he was not able to prove it.[46]
Unimarine elevated its case to this Court via a petition for review on certiorari, docketed as G.R. No.
166023, which was denied in a Resolution dated January 19, 2005. [50]
Issue
The crux of the controversy lies in CBICs liability on the surety bond Quinain issued to
Unimarine, in favor of Cebu Shipyard.
Discussion
The fact that Quinain was an agent of CBIC was never put in issue. What has always been debated
by the parties is the extent of authority or, at the very least, apparent authority, extended to
Quinain by CBIC to transact insurance business for and in its behalf.
In a contract of agency, a person, the agent, binds himself to represent another, the
principal, with the latters consent or authority. [57] Thus, agency is based on
representation, where the agent acts for and in behalf of the principal on matters within
the scope of the authority conferred upon him. [58] Such acts have the same legal effect
as if they were personally done by the principal. By this legal fiction of representation,
the actual or legal absence of the principal is converted into his legal or juridical
presence.[59]
The RTC applied Articles 1900 and 1911 of the Civil Code in holding CBIC liable for the surety
bond. It held that CBIC could not be allowed to disclaim liability because Quinains actions were
within the terms of the special power of attorney given to him. [60] The Court of Appeals agreed that
CBIC could not be permitted to abandon its obligation especially since third persons had relied on
Quinains representations. It based its decision on Article 1911 of the Civil Code and found CBIC to
have been negligent and less than prudent in conducting its insurance business for its failure to
supervise and monitor the acts of its agents, to regulate the distribution of its insurance forms, and
to devise schemes to prevent fraudulent misrepresentations of its agents. [61]
This Court does not agree. Pertinent to this case are the following provisions of the Civil Code:
Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his
authority, and the principal does not ratify the contract, it shall be void if the party with
whom the agent contracted is aware of the limits of the powers granted by the principal. In
this case, however, the agent is liable if he undertook to secure the principals ratification.
Art. 1900. So far as third persons are concerned, an act is deemed to have been performed
within the scope of the agents authority, if such act is within the terms of the power of
attorney, as written, even if the agent has in fact exceeded the limits of his authority
according to an understanding between the principal and the agent.
Art. 1902. A third person with whom the agent wishes to contract on behalf of the principal
may require the presentation of the power of attorney, or the instructions as regards the

agency. Private or secret orders and instructions of the principal do not prejudice third
persons who have relied upon the power of attorney or instructions shown to them.
Art. 1910. The principal must comply with all the obligations which 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.
Our law mandates an agent to act within the scope of his authority. [62] The scope of an
agents authority is what appears in the written terms of the power of attorney granted
upon him.[63] Under Article 1878(11) of the Civil Code, a special power of attorney is
necessary to obligate the principal as a guarantor or surety.
In the case at bar, CBIC could be held liable even if Quinain exceeded the scope of his authority
only if Quinains act of issuing Surety Bond No. G (16) 29419 is deemed to have been performed
within the written terms of the power of attorney he was granted. [64]
However, contrary to what the RTC held, the Special Power of Attorney accorded to Quinain clearly
states the limits of his authority and particularly provides that in case of surety bonds, it can only
be issued in favor of the Department of Public Works and Highways, the National Power
Corporation, and other government agencies; furthermore, the amount of the surety bond is limited
to P500,000.00, to wit:
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That, COUNTRY BANKERS INSURANCE CORPORATION, a corporation duly organized and
existing under and by virtue of the laws of the Philippines, with head offices at 8 th Floor, G.F.
Antonino Building, T.M. Kalaw Street, Ermita, Manila, now and hereinafter referred to as the
Company hereby appoints BETHOVEN B. QUINAIN with address at x x x to be its General
Agent and Attorney-in-Fact, for and in its place, name and stead, and for its own use and
benefit, to do and perform the following acts and things:
1.
To conduct, manage, carry on and transact insurance business as usually pertains to a
General Agency of Fire, Personal Accident, Bond, Marine, Motor Car (Except Lancer).
2.
To accept, underwrite and subscribe policies of insurance for and in behalf of the
Company under the terms and conditions specified in the General Agency Contract executed
and entered into by and between it and its said Attorney-in-Fact subject to the following
Schedule of Limits:
e.

SCHEDULE OF LIMITS -

BONDS:

xxxx
Surety Bond (in favor of Dept. of Pub. Works and
Highways, Natl. Power Corp. & other. 500,000.00

Government agencies)[65]
CBIC does not anchor its defense on a secret agreement, mutual understanding, or any verbal
instruction to Quinain. CBICs stance is grounded on its contract with Quinain, and the clear, written
terms therein. This Court finds that the terms of the foregoing contract specifically provided for the
extent and scope of Quinains authority, and Quinain has indeed exceeded them.
Under Articles 1898 and 1910, an agents act, even if done beyond the scope of his authority, may
bind the principal if he ratifies them, whether expressly or tacitly. It must be stressed though that
only the principal, and not the agent, can ratify the unauthorized acts, which the principal must
have knowledge of.[66] Expounding on the concept and doctrine of ratification in agency, this Court
said:
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 .
Nevertheless, this principle does not apply if the principals ignorance of the material facts
and circumstances was willful, or that the principal chooses to act in ignorance of the
facts. 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.
[67]
(Emphases supplied.)
Neither Unimarine nor Cebu Shipyard was able to repudiate CBICs testimony that it was unaware of
the existence of Surety Bond No. G (16) 29419 and Endorsement No. 33152. There were no
allegations either that CBIC should have been put on alert with regard to Quinains business
transactions done on its behalf. It is clear, and undisputed therefore, that there can be no
ratification in this case, whether express or implied.
Article 1911, on the other hand, is based on the principle of estoppel, which is necessary for the
protection of third persons. It states that the principal is solidarily liable with the agent even when
the latter has exceeded his authority, if the principal allowed him to act as though he had full
powers. However, for an agency by estoppel to exist, the following must be established:
1.
The principal manifested a representation of the agents authority or knowingly allowed the
agent to assume such authority;
2.
The third person, in good faith, relied upon such representation; and
3.
Relying upon such representation, such third person has changed his position to his detriment.
[68]

In Litonjua, Jr. v. Eternit Corp.,[69] this Court said that [a]n agency by estoppel, which is
similar to the doctrine of apparent authority, requires proof of reliance upon the
representations, and that, in turn, needs proof that the representations predated the
action taken in reliance.[70]
This Court cannot agree with the Court of Appeals pronouncement of negligence on CBICs
part. CBIC not only clearly stated the limits of its agents powers in their contracts, it even stamped
its surety bonds with the restrictions, in order to alert the concerned parties. Moreover, its company
procedures, such as reporting requirements, show that it has designed a system to monitor the
insurance contracts issued by its agents. CBIC cannot be faulted for Quinains deliberate failure to

notify it of his transactions with Unimarine. In fact, CBIC did not even receive the premiums paid by
Unimarine to Quinain.
Furthermore, nowhere in the decisions of the lower courts was it stated that CBIC let the public, or
specifically Unimarine, believe that Quinain had the authority to issue a surety bond in favor of
companies other than the Department of Public Works and Highways, the National Power
Corporation, and other government agencies. Neither was it shown that CBIC knew of the existence
of the surety bond before the endorsement extending the life of the bond, was issued to
Unimarine. For one to successfully claim the benefit of estoppel on the ground that he has been
misled by the representations of another, he must show that he was not misled through his own
want of reasonable care and circumspection.[71]
It is apparent that Unimarine had been negligent or less than prudent in its dealings with
Quinain. In Manila Memorial Park Cemetery, Inc. v. Linsangan,[72] this Court held:
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. 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. If he does not make such an
inquiry, he is chargeable with knowledge of the agents authority and his
ignorance of that authority will not be any excuse.
In the same case, this Court added:
[T]he ignorance of a person dealing with an agent as to the scope of the latters authority is
no excuse to such person and the fault cannot be thrown upon the principal. A person
dealing with an agent assumes the risk of lack of authority in the agent. He cannot charge
the principal by relying upon the agents assumption of authority that proves to be
unfounded. The principal, on the other hand, may act on the presumption that third persons
dealing with his agent will not be negligent in failing to ascertain the extent of his authority
as well as the existence of his agency.[73]
Unimarine undoubtedly failed to establish that it even bothered to inquire if Quinain was authorized
to agree to terms beyond the limits indicated in his special power of attorney. While Paul Rodriguez
stated that he has done business with Quinain more than once, he was not able to show that he
was misled by CBIC as to the extent of authority it granted Quinain. Paul Rodriguez did not even
allege that he asked for documents to prove Quinains authority to contract business for CBIC, such
as their contract of agency and power of attorney. It is also worthy to note that even with the
Indemnity Agreement, Paul Rodriguez signed it on Quinains mere assurance and without truly
understanding the consequences of the terms of the said agreement. Moreover, both Unimarine
and Paul Rodriguez could have inquired directly from CBIC to verify the validity and effectivity of the
surety bond and endorsement; but, instead, they blindly relied on the representations of
Quinain. As this Court held in Litonjua, Jr. v. Eternit Corp.[74]:
A person dealing with a known agent is not authorized, under any circumstances,
blindly to trust 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, 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 prove it. In this case, the petitioners failed to

discharge their burden; hence, petitioners are not entitled to damages from
respondent EC.[75]
In light of the foregoing, this Court is constrained to release CBIC from its liability on Surety
Bond No. G (16) 29419 and Endorsement No. 33152. This Court sees no need to dwell on the
other grounds propounded by CBIC in support of its prayer.

- Manila Memorial Park vs. Linsangan, 443 SCRA 377 [2004]

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 document [6] confirming that while the
contract price is P132,250.00, Atty. Linsangan would pay only the original price of P95,000.00.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled
for reasons the latter could not explain, and presented to him another proposal for the purchase of
an equivalent property. He refused the new proposal and insisted that Baluyot and MMPCI honor
their undertaking.
For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed
a Complaint[7] for Breach of Contract and Damages against the former.
Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660 was
cancelled conformably with the terms of the contract [8] because of non-payment of arrearages.

[9]

MMPCI stated that Baluyot was not an agent but an independent contractor, and as
such was not authorized to represent MMPCI or to use its name except as to the extent
expressly stated in the Agency Manager Agreement.[10] Moreover, MMPCI was not aware of
the arrangements entered into by Atty. Linsangan and Baluyot, as it in fact received a down
payment and monthly installments as indicated in the contract. [11] Official receipts showing the
application of payment were turned over to Baluyot whom Atty. Linsangan had from the beginning
allowed to receive the same in his behalf. Furthermore, whatever misimpression that Atty.
Linsangan may have had must have been rectified by the Account Updating Arrangement signed by
Atty. Linsangan which states that he expressly admits that Contract No. 28660 on account of
serious delinquencyis now due for cancellation under its terms and conditions. [12]
The trial court held MMPCI and Baluyot jointly and severally liable. [13] It found that Baluyot was an
agent of MMPCI and that the latter was estopped from denying this agency, having received and
enchased the checks issued by Atty. Linsangan and given to it by Baluyot. While MMPCI insisted
that Baluyot was authorized to receive only the down payment, it allowed her to continue to receive
postdated checks from Atty. Linsangan, which it in turn consistently encashed. [14]
MMPCI appealed the trial courts decision to the Court of Appeals. [16]
The Court of Appeals affirmed the decision of the trial court
Issue: In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred in
disregarding the plain terms of the written contract and Atty. Linsangans failure to
abide by the terms thereof, which justified its cancellation. In addition, even assuming
that Baluyot was an agent of MMPCI, she clearly exceeded her authority and Atty.
Linsangan knew or should have known about this considering his status as a 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 MMPCIs position, his profession as a lawyer is immaterial to
the validity of the subject contract and the case at bar. [28] According to him, MMPCI had practically
admitted in its Petition that Baluyot was its agent, and thus, the only issue left to be resolved is
whether MMPCI allowed Baluyot to act as though she had full powers to be held solidarily liable with
the latter.[29]
We find for the petitioner MMPCI.
Held: By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of
the latter.[33] Thus, the elements of agency are (i) consent, express or implied, of the
parties to establish the relationship; (ii) the object is the execution of a juridical act in
relation to a third person; (iii) the agent acts as a representative and not for himself;
and (iv) the agent acts within the scope of his authority. [34]

In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency
Manager Agreement; an agency manager such as Baluyot is considered an independent contractor
and not an agent.[35] However, in the same contract, Baluyot as agency manager was authorized to
solicit and remit to MMPCI offers to purchase interment spaces belonging to and sold by the latter.
[36]
Notwithstanding the claim of MMPCI that Baluyot was an independent contractor, the fact
remains that she was authorized to solicit solely for and in behalf of MMPCI. As properly found both
by the trial court and the Court of Appeals, Baluyot was an agent of MMPCI, having represented the
interest of the latter, and having been allowed by MMPCI to represent it in her dealings with its
clients/prospective buyers.
Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by the
contract procured by Atty. Linsangan and solicited by Baluyot.
Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces obtained
on forms provided by MMPCI. The terms of the offer to purchase, therefore, are contained in such
forms and, when signed by the buyer and an authorized officer of MMPCI, becomes binding on both
parties.
The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by MMPCI
showed a total list price of P132,250.00. Likewise, it was clearly stated therein that Purchaser
agrees that he has read or has had read to him this agreement, that he understands its terms
and conditions, and that there are no covenants, conditions, warranties or
representations other than those contained herein.[37] By signing the Offer to Purchase, Atty.
Linsangan signified that he understood its contents. That he and Baluyot had an agreement
different from that contained in the Offer to Purchase is of no moment, and should not affect
MMPCI, as it was obviously made outside Baluyots authority. To repeat, Baluyots authority was
limited only to soliciting purchasers. She had no authority to alter the terms of the written contract
provided by MMPCI. The document/letter confirming the agreement that Atty. Linsangan would have
to pay the old price was executed by Baluyot alone. Nowhere is there any indication that the same
came from MMPCI or any of its officers.
It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of authority,
and in case either is controverted, the burden of proof is upon them to establish it. [38] The basis for
agency is representation and a person dealing with an agent is put upon inquiry and must discover
upon his peril the authority of the agent. [39] If he does not make such an inquiry, he is chargeable
with knowledge of the agents authority and his ignorance of that authority will not be any excuse.
[40]

As noted by one author, the ignorance of a person dealing with an agent as to the scope of the
latters authority is no excuse to such person and the fault cannot be thrown upon the principal.
[41]
A person dealing with an agent assumes the risk of lack of authority in the agent. He cannot
charge the principal by relying upon the agents assumption of authority that proves to be
unfounded. The principal, on the other hand, may act on the presumption that third persons dealing
with his agent will not be negligent in failing to ascertain the extent of his authority as well as the
existence of his agency.[42]

In the instant case, it has not been established that Atty. Linsangan even bothered to inquire
whether Baluyot was authorized to agree to terms contrary to those indicated in the written
contract, much less bind MMPCI by her commitment with respect to such agreements. Even if
Baluyot was Atty. Linsangans friend and known to be an agent of MMPCI, her declarations and
actions alone are not sufficient to establish the fact or extent of her authority. [43] Atty. Linsangan as
a practicing lawyer for a relatively long period of time when he signed the contract should have
been put on guard when their agreement was not reflected in the contract. More importantly, Atty.
Linsangan should have been alerted by the fact that Baluyot failed to effect the transfer of rights
earlier promised, and was unable to make good her written commitment, nor convince MMPCI to
assent thereto, as evidenced by several attempts to induce him to enter into other contracts for a
higher consideration. As properly pointed out by MMPCI, as a lawyer, a greater degree of caution
should be expected of Atty. Linsangan especially in dealings involving legal documents. He did not
even bother to ask for official receipts of his payments, nor inquire from MMPCI directly to ascertain
the real status of the contract, blindly relying on the representations of Baluyot. A lawyer by
profession, he knew what he was doing when he signed the written contract, knew the meaning and
value of every word or phrase used in the contract, and more importantly, knew the legal effects
which said document produced. He is bound to accept responsibility for his negligence.
The trial and appellate courts found MMPCI liable based on ratification and estoppel. For the trial
court, MMPCIs acts of accepting and encashing the checks issued by Atty. Linsangan as well as
allowing Baluyot to receive checks drawn in the name of MMPCI confirm and ratify the contract of
agency. On the other hand, the Court of Appeals faulted MMPCI in failing to adopt measures to
prevent misrepresentation, and declared that in view of MMPCIs acceptance of the benefits of
Baluyots misrepresentation, it can no longer deny responsibility therefor.
The Court does not agree. Pertinent to this case are the following provisions of the Civil Code:
Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority,
and the principal does not ratify the contract, it shall be void if the party with whom the agent
contracted is aware of the limits of the powers granted by the principal. In this case, however, the
agent is liable if he undertook to secure the principals ratification.
Art. 1910. The principal must comply with all the obligations that the agent may have contracted
within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound except
when he ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the
agent if the former allowed the latter to act as though he had full powers.
Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he
ratifies them, expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own
unauthorized acts. Moreover, the principal must have knowledge of the acts he is to ratify. [44]
Ratification in agency is the adoption or confirmation by one person of an act performed
on his behalf by another without authority. The substance of the doctrine is confirmation
after conduct, amounting to a substitute for a prior authority. Ordinarily, the principal

must have full knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who assumed to act as
agent. Thus, if material facts were suppressed or unknown, there can be no valid
ratification and this regardless of the purpose or lack thereof in concealing such facts
and regardless of the parties between whom the question of ratification may arise.
[45]
Nevertheless, this principle does not apply if the principals ignorance of the material
facts and circumstances was willful, or that the principal chooses to act in ignorance of
the facts.[46]However, in the absence of circumstances putting a reasonably prudent man
on inquiry, ratification cannot be implied as against the principal who is ignorant of the
facts.[47]
No ratification can be implied in the instant case.
A perusal of Baluyots Answer[48] reveals that the real arrangement between her and Atty. Linsangan
was for the latter to pay a monthly installment of P1,800.00 whereas Baluyot was to shoulder the
counterpart amount of P1,455.00 to meet the P3,255.00 monthly installments as indicated in the
contract. Thus, every time an installment falls due, payment was to be made through a check from
Atty. Linsangan for P1,800.00 and a cash component of P1,455.00 from Baluyot.[49] However, it
appears that while Atty. Linsangan issued the post-dated checks, Baluyot failed to come up with her
part of the bargain. This was supported by Baluyots statements in her letter [50] to Mr. Clyde
Williams, Jr., Sales Manager of MMPCI, two days after she received the copy of the Complaint. In the
letter, she admitted that she was remiss in her duties when she consented to Atty. Linsangans
proposal that he will pay the old price while the difference will be shouldered by her. She likewise
admitted that the contract suffered arrearages because while Atty. Linsangan issued the agreed
checks, she was unable to give her share of P1,455.00 due to her own financial difficulties. Baluyot
even asked for compassion from MMPCI for the error she committed.
Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as MMPCI is
concerned, the contract price was P132,250.00, as stated in the Offer to Purchase signed by Atty.
Linsangan and MMPCIs authorized officer. The down payment of P19,838.00 given by Atty.
Linsangan was in accordance with the contract as well. Payments of P3,235.00 for at least two
installments were likewise in accord with the contract, albeit made through a check and partly in
cash. In view of Baluyots failure to give her share in the payment, MMPCI received only P1,800.00
checks, which were clearly insufficient payment. In fact, Atty. Linsangan would have incurred
arrearages that could have caused the earlier cancellation of the contract, if not for MMPCIs
application of some of the checks to his account. However, the checks alone were not sufficient to
cover his obligations.
If MMPCI was aware of the arrangement, it would have refused the latters check payments for being
insufficient. It would not have applied to his account the P1,800.00 checks. Moreover, the fact that
Baluyot had to practically explain to MMPCIs Sales Manager the details of her arrangement with
Atty. Linsangan and admit to having made an error in entering such arrangement confirm that
MMCPI had no knowledge of the said agreement. It was only when Baluyot filed her Answer that she
claimed that MMCPI was fully aware of the agreement.
Neither is there estoppel in the instant case. The essential elements of estoppel are (i) conduct of a
party amounting to false representation or concealment of material facts or at least calculated to
convey the impression that the facts are otherwise than, and inconsistent with, those which the

party subsequently attempts to assert; (ii) intent, or at least expectation, that this conduct shall be
acted upon by, or at least influence, the other party; and (iii) knowledge, actual or constructive, of
the real facts.[51]
While there is no more question as to the agency relationship between Baluyot and MMPCI, there is
no indication that MMPCI let the public, or specifically, Atty. Linsangan to believe that Baluyot had
the authority to alter the standard contracts of the company. Neither is there any showing that prior
to signing Contract No. 28660, MMPCI had any knowledge of Baluyots commitment to Atty.
Linsangan. One who claims the benefit of an estoppel on the ground that he has been misled by the
representations of another must not have been misled through his own want of reasonable care and
circumspection.[52] Even assuming that Atty. Linsangan was misled by MMPCIs actuations, he still
cannot invoke the principle of estoppel, as he was clearly negligent in his dealings with Baluyot, and
could have easily determined, had he only been cautious and prudent, whether said agent was
clothed with the authority to change the terms of the principals written contract. Estoppel must be
intentional and unequivocal, for when misapplied, it can easily become a most convenient and
effective means of injustice.[53] In view of the lack of sufficient proof showing estoppel, we refuse to
hold MMPCI liable on this score.
Likewise, this Court does not find favor in the Court of Appeals findings that the authority of
defendant Baluyot may not have been expressly conferred upon her; however, the same may have
been derived impliedly by habit or custom which may have been an accepted practice in their
company in a long period of time. A perusal of the records of the case fails to show any indication
that there was such a habit or custom in MMPCI that allows its agents to enter into agreements for
lower prices of its interment spaces, nor to assume a portion of the purchase price of the interment
spaces sold at such lower price. No evidence was ever presented to this effect.
As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660
between MMPCI and by Atty. Linsangan for the purchase of an interment space in the formers
cemetery. The other is the agreement between Baluyot and Atty. Linsangan for the former to
shoulder the amount P1,455.00, or the difference betweenP95,000.00, 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 principals
ratification.[54]
This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty.
Linsangan. By affixing his signature in the contract, Atty. Linsangan assented to the terms and
conditions thereof. When Atty. Linsangan incurred delinquencies in payment, MMCPI merely
enforced its rights under the said contract by canceling the same.
Being aware of the limits of Baluyots authority, Atty. Linsangan cannot insist on what he claims to
be the terms of Contract No. 28660. The agreement, insofar as theP95,000.00 contract price is
concerned, is void and cannot be enforced as against MMPCI. Neither can he hold Baluyot liable for
damages under the same contract, since there is no evidence showing that Baluyot undertook to

secure MMPCIs ratification. At best, the agreement between Baluyot and Atty. Linsangan bound only
the two of them. As far as MMPCI is concerned, it bound itself to sell its interment space to Atty.
Linsangan for P132,250.00 under Contract No. 28660, and had in fact received several payments in
accordance with the same contract. If the contract was cancelled due to arrearages, Atty.
Linsangans recourse should only be against Baluyot who personally undertook to pay the difference
between the true contract price of P132,250.00 and the original proposed price of P95,000.00. To
surmise that Baluyot was acting on behalf of MMPCI when she promised to shoulder the said
difference would be to conclude that MMPCI undertook to pay itself the difference, a conclusion that
is very illogical, if not antithetical to its business interests.
However, this does not preclude Atty. Linsangan from instituting a separate action to recover
damages from Baluyot, not as an agent of MMPCI, but in view of the latters breach of their separate
agreement. To review, Baluyot obligated herself to pay P1,455.00 in addition to Atty.
Linsangans P1,800.00 to complete the monthly installment payment under the contract, which, by
her own admission, she was unable to do due to personal financial difficulties. It is undisputed that
Atty. Linsangan issued the P1,800.00 as agreed upon, and were it not for Baluyots failure to provide
the balance, Contract No. 28660 would not have been cancelled. Thus, Atty. Linsangan has a cause
of action against Baluyot, which he can pursue in another case.

- Safic Alcan & Cie vs. Imperial Vegetable Oil Co. Inc., 355 SCRA 559
Petitioner Safic Alcan & Cie (hereinafter, Safic) is a French corporation engaged in the international
purchase, sale and trading of coconut oil. It filed with the Regional Trial Court of Manila, Branch
XXV, a complaint dated February 26, 1987 against private respondent Imperial Vegetable Oil Co.,
Inc. (hereinafter, IVO), docketed as Civil Case No. 87-39597. Petitioner Safic alleged that on July 1,
1986 and September 25, 1986, it placed purchase orders with IVO for 2,000 long tons of crude
coconut oil, valued at US$222.50 per ton, covered by Purchase Contract Nos. A601446 and
A601655, respectively, to be delivered within the month of January 1987. Private respondent,
however, failed to deliver the said coconut oil and, instead, offered a wash out settlement, whereby
the coconut oil subject of the purchase contracts were to be sold back to IVO at the prevailing price
in the international market at the time of wash out. Thus, IVO bound itself to pay to Safic the
difference between the said prevailing price and the contract price of the 2,000 long tons of crude
coconut oil, which amounted to US$293,500.00. IVO failed to pay this amount despite repeated oral
and written demands.
Under its second cause of action, Safic alleged that on eight occasions between April 24, 1986 and
October 31, 1986, it placed purchase orders with IVO for a total of 4,750 tons of crude coconut oil,
covered by Purchase Contract Nos. A601297A/B, A601384, A601385, A601391, A601415, A601681,
A601683 and A601770A/B/C/. When IVO failed to honor its obligation under the wash out settlement
narrated above, Safic demanded that IVO make marginal deposits within forty-eight hours on the
eight purchase contracts in amounts equivalent to the difference between the contract price and
the market price of the coconut oil, to compensate it for the damages it suffered when it was forced
to acquire coconut oil at a higher price. IVO failed to make the prescribed marginal deposits on the
eight contracts, in the aggregate amount of US$391,593.62, despite written demand therefor.
The demand for marginal deposits was based on the customs of the trade, as governed by the
provisions of the standard N.I.O.P. Contract and the FOSFA Contract.

Hence, Safic prayed that IVO be ordered to pay the sums of US$293,500.00 and US$391,593.62,
plus attorneys fees and litigation expenses. The complaint also included an application for a writ of
preliminary attachment against the properties of IVO.
Upon Safics posting of the requisite bond, the trial court issued a writ of preliminary
attachment. Subsequently, the trial court ordered that the assets of IVO be placed under
receivership, in order to ensure the preservation of the same.
In its answer, IVO raised the following special affirmative defenses: Safic had no legal capacity to
sue because it was doing business in the Philippines without the requisite license or authority; the
subject contracts were speculative contracts entered into by IVOs then President, Dominador
Monteverde, in contravention of the prohibition by the Board of Directors against engaging in
speculative paper trading, and despite IVOs lack of the necessary license from Central Bank to
engage in such kind of trading activity; and that under Article 2018 of the Civil Code, if a contract
which purports to be for the delivery of goods, securities or shares of stock is entered into with the
intention that the difference between the price stipulated and the exchange or market price at the
time of the pretended delivery shall be paid by the loser to the winner, the transaction is null and
void.
IVO set up counterclaims anchored on harassment, paralyzation of business, financial losses, rumormongering and oppressive action. Later, IVO filed a supplemental counterclaim alleging that it was
unable to operate its business normally because of the arrest of most of its physical assets; that its
suppliers were driven away; and that its major creditors have inundated it with claims for
immediate payment of its debts, and China Banking Corporation had foreclosed its chattel and real
estate mortgages.
During the trial, the lower court found that in 1985, prior to the date of the contracts sued upon, the
parties had entered into and consummated a number of contracts for the sale of crude coconut
oil. In those transactions, Safic placed several orders and IVO faithfully filled up those orders by
shipping out the required crude coconut oil to Safic, totalling 3,500 metric tons. Anent the 1986
contracts being sued upon, the trial court refused to declare the same as gambling transactions, as
defined in Article 2018 of the Civil Code, although they involved some degree of speculation. After
all, the court noted, every business enterprise carries with it a certain measure of speculation or
risk. However, the contracts performed in 1985, on one hand, and the 1986 contracts subject of this
case, on the other hand, differed in that under the 1985 contracts, deliveries were to be made
within two months. This, as alleged by Safic, was the time needed for milling and building up oil
inventory. Meanwhile, the 1986 contracts stipulated that the coconut oil were to be delivered within
period ranging from eight months to eleven to twelve months after the placing of orders. The
coconuts that were supposed to be milled were in all likelihood not yet growing when Dominador
Monteverde sold the crude coconut oil. As such, the 1986 contracts constituted trading in futures or
in mere expectations.
The lower court further held that the subject contracts were ultra vires and were entered into by
Dominador Monteverde without authority from the Board of Directors. It distinguished between the
1985 contracts, where Safic likewise dealt with Dominador Monteverde, who was presumably
authorized to bind IVO, and the 1986 contracts, which were highly speculative in
character. Moreover, the 1985 contracts were covered by letters of credit, while the 1986 contracts
were payable by telegraphic transfers, which were nothing more than mere promises to pay once

the shipments became ready. For these reasons, the lower court held that Safic cannot invoke the
1985 contracts as an implied corporate sanction for the high-risk 1986 contracts, which were
evidently entered into by Monteverde for his personal benefit.
The trial court ruled that Safic failed to substantiate its claim for actual damages. Likewise, it
rejected IVOs counterclaim and supplemental counterclaim.
Both IVO and Safic appealed to the Court of Appeals, jointly docketed as CA-G.R. CV No. 40820.
On September 12, 1996, the Court of Appeals rendered the assailed Decision dismissing the
appeals and affirming the judgment appealed from in toto.[4]
Hence, Safic filed the instant petition for review with this Court.
In fine, Safic insists that the appellate court grievously erred when it did not declare
that IVOs President, Dominador Monteverde, validly entered into the 1986 contracts for
and on behalf of IVO.
We disagree.
Article III, Section 3 [g] of the By-Laws [5] of IVO provides, among others, that
Section 3. Powers and Duties of the President. The President shall be elected by the Board of
Directors from their own number.
He shall have the following duties:
xxxxxxxxx
[g] Have direct and active management of the business and operation of the corporation,
conducting the same according to the orders, resolutions and instruction of the Board of Directors
and according to his own discretion whenever and wherever the same is not expressly limited by
such orders, resolutions and instructions.
It can be clearly seen from the foregoing provision of IVOs By-laws that Monteverde had no blanket
authority to bind IVO to any contract. He must act according to the instructions of the Board of
Directors. Even in instances when he was authorized to act according to his discretion, that
discretion must not conflict with prior Board orders, resolutions and instructions. The evidence
shows that the IVO Board knew nothing of the 1986 contracts [6] and that it did not authorize
Monteverde to enter into speculative contracts. [7] In fact, Monteverde had earlier proposed that the
company engage in such transactions but the IVO Board rejected his proposal. [8] Since the 1986
contracts marked a sharp departure from past IVO transactions, Safic should have obtained from
Monteverde the prior authorization of the IVO Board. Safic can not rely on the doctrine of implied
agency because before the controversial 1986 contracts, IVO did not enter into identical contracts
with Safic. 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. [9] In the case of Bacaltos Coal
Mines v. Court of Appeals,[10] we elucidated the rule on dealing with an agent thus:

Every person dealing with an agent is put upon inquiry and must discover upon his peril the
authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of the
agents authority, and his ignorance of that authority will not be any excuse. Persons dealing with an
assumed agent, whether the assumed agency be a general or special one, are bound at their peril,
if they would hold the principal, to ascertain not only the fact of the agency but also the nature and
extent of the authority, and in case either is controverted, the burden of proof is upon them to
establish it.[11]
The most prudent thing petitioner should have done was to ascertain the extent of the authority of
Dominador Monteverde. Being remiss in this regard, petitioner can not seek relief on the basis of a
supposed agency.
Under Article 1898[12] of the Civil Code, the acts of an agent beyond the scope of his
authority do not bind the principal unless the latter ratifies the same expressly or
impliedly. It also bears emphasizing that when the third person knows that the agent
was acting beyond his power or authority, the principal can not be held liable for the
acts of the agent. If the said third person is aware of such limits of authority, he is to
blame, and is not entitled to recover damages from the agent, unless the latter
undertook to secure the principals ratification. [13]
There was no such ratification in this case. When Monteverde entered into the speculative contracts
with Safic, he did not secure the Boards approval. [14] He also did not submit the contracts to the
Board after their consummation so there was, in fact, no occasion at all for ratification. The
contracts were not reported in IVOs export sales book and turn-out book. [15] Neither were they
reflected in other books and records of the corporation. [16] It must be pointed out that the Board of
Directors, not Monteverde, exercises corporate power. [17] Clearly, Monteverdes speculative contracts
with Safic never bound IVO and Safic can not therefore enforce those contracts against IVO.
To bolster its cause, Safic raises the novel point that the IVO Board of Directors did not set
limitations on the extent of Monteverdes authority to sell coconut oil. It must be borne in mind in
this regard that a question that was never raised in the courts below can not be allowed to be
raised for the first time on appeal without offending basic rules of fair play, justice and due process.
[18]
Such an issue was not brought to the fore either in the trial court or the appellate court, and
would have been disregarded by the latter tribunal for the reasons previously stated. With more
reason, the same does not deserve consideration by this Court.
Be that as it may, Safics belated contention that the IVO Board of Directors did not set limitations
on Monteverdes authority to sell coconut oil is belied by what appears on the record. Rodrigo
Monteverde, who succeeded Dominador Monteverde as IVO President, testified that the IVO Board
had set down the policy of engaging in purely physical trading .
Petitioner next argues that there was actually no difference between the 1985 physical contracts
and the 1986 futures contracts.
The contention is unpersuasive for, as aptly pointed out by the trial court and sustained by the
appellate court

Rejecting IVOs position, SAFIC claims that there is no distinction between the 1985 and 1986
contracts, both of which groups of contracts were signed or authorized by IVOs President,
Dominador Monteverde. The 1986 contracts, SAFIC would bewail, were similarly with their 1985
predecessors, forward sales contracts in which IVO had undertaken to deliver the crude coconut oil
months after such contracts were entered into. The lead time between the closing of the deal and
the delivery of the oil supposedly allowed the seller to accumulate enough copra to mill and to build
up its inventory and so meet its delivery commitment to its foreign buyers. SAFIC concludes that
the 1986 contracts were equally binding, as the 1985 contracts were, on IVO.
Subjecting the evidence on both sides to close scrutiny, the Court has found some remarkable
distinctions between the 1985 and 1986 contracts. x x x
1. The 1985 contracts were performed within an average of two months from the date of the
sale. On the other hand, the 1986 contracts were to be performed within an average of eight and a
half months from the dates of the sale. All the supposed performances fell in 1987. Indeed, the
contract covered by Exhibit J was to be performed 11 to 12 months from the execution of the
contract. These pattern (sic) belies plaintiffs contention that the lead time merely allowed for
milling and building up of oil inventory. It is evident that the 1986 contracts constituted trading in
futures or in mere expectations. In all likelihood, the coconuts that were supposed to be milled for
oil were not yet on their trees when Dominador Monteverde sold the crude oil to SAFIC.
2. The mode of payment agreed on by the parties in their 1985 contracts was uniformly thru the
opening of a letter of credit LC by SAFIC in favor of IVO. Since the buyers letter of credit guarantees
payment to the seller as soon as the latter is able to present the shipping documents covering the
cargo, its opening usually mark[s] the fact that the transaction would be consummated.On the
other hand, seven out of the ten 1986 contracts were to be paid by telegraphic transfer upon
presentation of the shipping documents. Unlike the letter of credit, a mere promise to pay by
telegraphic transfer gives no assurance of [the] buyers compliance with its contracts. This fact
lends an uncertain element in the 1986 contracts.
3. Apart from the above, it is not disputed that with respect to the 1985 contracts, IVO faithfully
complied with Central Bank Circular No. 151 dated April 1, 1963, requiring a coconut oil exporter to
submit a Report of Foreign Sales within twenty-four (24) hours after the closing of the relative sales
contract with a foreign buyer of coconut oil. But with respect to the disputed 1986 contracts, the
parties stipulated during the hearing that none of these contracts were ever reported to the Central
Bank, in violation of its above requirement. (See Stipulation of Facts dated June 13, 1990). The 1986
sales were, therefore suspect.
4. It is not disputed that, unlike the 1985 contacts, the 1986 contracts were never recorded either in
the 1986 accounting books of IVO or in its annual financial statement for 1986, a document that
was prepared prior to the controversy. (Exhibits 6 to 6-0 and 7 to 7-I). Emelita Ortega, formerly an
assistant of Dominador Monteverde, testified that they were strange goings-on about the 1986
contract. They were neither recorded in the books nor reported to the Central Bank. What is more,
in those unreported cases where profits were made, such profits were ordered remitted to unknown
accounts in California, U.S.A., by Dominador Monteverde.
xxxxxxxxx

Evidently, Dominador Monteverde made business for himself, using the name of IVO but concealing
from it his speculative transactions.
Petitioner further contends that both the trial and appellate courts erred in concluding that Safic
was not able to prove its claim for damages. Petitioner first points out that its wash out agreements
with Monteverde where IVO allegedly agreed to pay US$293,500.00 for some of the failed contracts
was proof enough and, second, that it presented purchases of coconut oil it made from others
during the period of IVOs default.
We remain unconvinced. The so-called wash out agreements are clearly ultra vires and not binding
on IVO. Furthermore, such agreements did not prove Safics actual losses in the transactions in
question. The fact is that Safic did not pay for the coconut oil that it supposedly ordered from IVO
through Monteverede. Safic only claims that, since it was ready to pay when IVO was not ready to
deliver, Safic suffered damages to the extent that they had to buy the same commodity from others
at higher prices.
The foregoing claim of petitioner is not, however, substantiated by the evidence and only raises
several questions, to wit: 1.] Did Safic commit to deliver the quantity of oil covered by the 1986
contracts to its own buyers? Who were these buyers? What were the terms of those contracts with
respect to quantity, price and date of delivery? 2.] Did Safic pay damages to its buyers?Where were
the receipts? Did Safic have to procure the equivalent oil from other sources? If so, who were these
sources? Where were their contracts and what were the terms of these contracts as to quantity,
price and date of delivery?
The records disclose that during the course of the proceedings in the trial court, IVO filed an
amended motion[22] for production and inspection of the following documents: a.] contracts of resale
of coconut oil that Safic bought from IVO; b.] the records of the pooling and sales contracts covering
the oil from such pooling, if the coconut oil has been pooled and sold as general oil; c.] the
contracts of the purchase of oil that, according to Safic, it had to resort to in order to fill up alleged
undelivered commitments of IVO; d.] all other contracts, confirmations, invoices, wash out
agreements and other documents of sale related to (a), (b) and (c). This amended motion was
opposed by Safic.[23] The trial court, however, in its September 16, 1988 Order, [24] ruled that:
From the analysis of the parties respective positions, conclusion can easily be drawn therefrom that
there is materiality in the defendants move: firstly, plaintiff seeks to recover damages from the
defendant and these are intimately related to plaintiffs alleged losses which it attributes to the
default of the defendant in its contractual commitments; secondly, the documents are specified in
the amended motion. As such, plaintiff would entertain no confusion as to what, which documents
to locate and produce considering plaintiff to be (without doubt) a reputable going concern in the
management of the affairs which is serviced by competent, industrious, hardworking and diligent
personnel; thirdly, the desired production and inspection of the documents was precipitated by the
testimony of plaintiffs witness (Donald OMeara) who admitted, in open court, that they are
available. If the said witness represented that the documents, as generally described, are available,
reason there would be none for the same witness to say later that they could not be produced, even
after they have been clearly described.
Besides, if the Court may additionally dwell on the issue of damages, the production and inspection
of the desired documents would be of tremendous help in the ultimate resolution thereof.Plaintiff

claims for the award of liquidated or actual damages to the tune of US$391,593.62 which, certainly,
is a huge amount in terms of pesos, and which defendant disputes. As the defendant cannot be
precluded in taking exceptions to the correctness and validity of such claim which plaintiffs witness
(Donald OMeara) testified to, and as, by this nature of the plaintiffs claim for damages, proof
thereof is a must which can be better served, if not amply ascertained by examining the records of
the related sales admitted to be in plaintiffs possession, the amended motion for production and
inspection of the defendant is in order.
The interest of justice will be served best, if there would be a full disclosure by the parties on both
sides of all documents related to the transactions in litigation.
Notwithstanding the foregoing ruling of the trial court, Safic did not produce the required
documents, prompting the court a quo to assume that if produced, the documents would have been
adverse to Safics cause. In its efforts to bolster its claim for damages it purportedly sustained, Safic
suggests a substitute mode of computing its damages by getting the average price it paid for
certain quantities of coconut oil that it allegedly bought in 1987 and deducting this from the
average price of the 1986 contracts. But this mode of computation if flawed because: 1.] it is
conjectural since it rests on average prices not on actual prices multiplied by the actual volume of
coconut oil per contract; and 2.] it is based on the unproven assumption that the 1987 contracts of
purchase provided the coconut oil needed to make up for the failed 1986 contracts. There is also no
evidence that Safic had contracted to supply third parties with coconut oil from the 1986 contracts
and that Safic had to buy such oil from others to meet the requirement.
Along the same vein, it is worthy to note that the quantities of oil covered by its 1987 contracts
with third parties do not match the quantities of oil provided under the 1986 contracts. Had Safic
produced the documents that the trial court required, a substantially correct determination of its
actual damages would have been possible. This, unfortunately, was not the case. Suffice it to state
in this regard that [T]he power of the courts to grant damages and attorneys fees demands factual,
legal and equitable justification; its basis cannot be left to speculation and conjecture. [25]

- National Power, supra; DBP, supra

iv. Effect of Agents Ignorance Art. 1899

Art. 1899. If a duly authorized agent acts in accordance with the orders of the
principal, the latter cannot set up the ignorance of the agent as to circumstances
whereof he himself was, or ought to have been, aware. (n)

v. Acts Performed Within Terms of Written Authority Art. 1900

Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within
the scope of the agent's authority, if such act is within the terms of the power of attorney, as
written, even if the agent has in fact exceeded the limits of his authority according to an
understanding between the principal and the agent. (n)

- Siredy Enterprises, Inc. vs. CA, G.R. No. 129039, Sept. 17, 2002

Private respondent Conrado De Guzman is an architect-contractor doing business under the name
and style of Jigscon Construction. Herein petitioner Siredy Enterprises, Inc. (hereafter Siredy) is the
owner and developer of Ysmael Village, a subdivision in Sta. Cruz, Marilao, Bulacan. [5] The president
of Siredy is Ismael E. Yanga.[6]
As stated in its Articles of Incorporation, [7] the primary corporate purpose of Siredy is to acquire
lands, subdivide and develop them, erect buildings and houses thereon, and sell, lease or otherwise
dispose of said properties to interested buyers.[8]
Sometime before October 1978, Yanga executed an undated Letter of Authority.
On October 15, 1978, Santos entered into a Deed of Agreement [10] with De Guzman. The deed
expressly stated that Santos was representing Siredy Enterprises, Inc. Private respondent was
referred to as contractor while petitioner Siredy was cited as principal.
From October 1978 to April 1990, De Guzman constructed 26 residential units at Ysmael
Village. Thirteen (13) of these were fully paid but the other 13 remained unpaid.The total
contractual price of these 13 unpaid houses is P412,154.93 which was verified and confirmed to be
correct by Santos, per an Accomplishment Billing[11] that the latter signed.
De Guzman tried but failed to collect the unpaid account from petitioner. Thus, he instituted the
action below for specific performance against Siredy, Yanga, and Santos who all denied liability.
During the trial, Santos disappeared and his whereabouts remain unknown.
In its defense, petitioner presented testimonial evidence to the effect that Siredy had no contract
with De Guzman and had not authorized Santos to enter into a contract with anyone for the
construction of housing units at Ysmael Village.
The trial court agreed with petitioner based on the doctrine of privity of contract.
On appeal, De Guzman obtained a favorable judgment from the Court of Appeals
Petitioner Siredy Enterprises, Inc. now comes to us via a petition for review on certiorari [17] under
Rule 45 of the Rules of Court.

We find two main issues presented for resolution: First, whether or not Hermogenes B.
Santos was a duly constituted agent of Siredy, with authority to enter into contracts for the
construction of residential units in Ysmael Village and thus the capacity to bind Siredy to the Deed
of Agreement; and Second, assuming arguendo that Siredy was bound by the acts of Santos,
whether or not under the terms of the Deed of Agreement, Siredy can be held liable for the amount
sought to be collected by private respondent De Guzman.
By the relationship of agency, one party called the principal authorizes another called
the agent to act for and in his behalf in transactions with third persons. The authority of
the agent to act emanates from the powers granted to him by his principal; his act is the
act of the principal if done within the scope of the authority. He who acts through
another acts himself.[19]
Was Santos then an agent of Siredy? Was he acting within the scope of his authority?
Resolution of the first issue necessitates a review of the Letter of Authority executed by Ismael E.
Yanga as president of Siredy in favor of Santos. Within its terms can be found the nature and extent
of the authority granted to Santos which, in turn, determines the extent of Siredys participation in
the Deed of Agreement.
On its face, the instrument executed by Yanga clearly and unequivocally constituted Santos to do
and execute, among other things, the act of negotiating and entering into contract or contracts to
build Housing Units on our subdivision lots in Ysmael Village, Sta. Rosa, Marilao, Bulacan. [20] Nothing
could be more express than the written stipulations contained therein.
It was upon the authority of this document that De Guzman transacted business with Santos that
resulted in the construction contract denominated as the Deed of Agreement.
However, petitioner denies any liability by stating that: (1) the nature of Siredys business did not
involve the construction of housing units since it was merely engaged in the selling of empty lots;
(2) the Letter of Authority is defective, and hence needed reformation; (3) Santos entering into the
Deed of Agreement was invalid because the same was in excess of his authority; and (4) there is
now implied revocation of such Letter of Authority.
Testifying on the nature of the business and the business practices of Siredy, its owner Yanga
testified[21] that Siredy was interested only in the sale of lots. It was up to the buyers, as owners, to
construct their houses in the particular style they prefer. It was allegedly never the practice of the
company to sell lots with houses already erected thereon. On the basis of the foregoing testimony,
petitioner states that despite the letter of authority, it is quite certain that such provision would go
against the nature of the business of Siredy as the same has absolutely no capability of undertaking
such a task as constructing houses.
However, the self-serving contention of petitioner cannot stand against the documentary evidence
clearly showing the companys liability to De Guzman. As we stated in the case of Cuizon vs. Court
of Appeals:[22]
As it is, the mere denial of petitioner cannot outweigh the strength of the documentary evidence
presented by and the positive testimony of private respondents. As a jurist once said, I would

sooner trust the smallest slip of paper for truth than the strongest and most retentive memory ever
bestowed on moral man.[23]
Aside from the Letter of Authority, Siredys Articles of Incorporation, duly approved by the Securities
and Exchange Commission, shows that Siredy may also undertake to erect buildings and houses on
the lots and sell, lease, or otherwise dispose of said properties to interested buyers. [24] Such
Articles, coupled with the Letter of Authority, is sufficient to have given De Guzman reason to
believe that Santos was duly authorized to represent Siredy for the purpose stated in the Deed of
Agreement. Petitioners theory that it merely sold lots is effectively debunked.
Thus, it was error for the trial court to have ignored the Letter of Authority. As correctly held by the
Court of Appeals:
There is absolutely no question that the Letter of Authority (Exhibit B) executed by appellee Yanga
constituted defendant Santos as his and appellee Siredys agent. As agent, he was empoweredinter
alia to enter into a contract to build housing units in the Ysmael Village. This was in furtherance of
appellees business of developing and subdividing lands, erecting houses thereon, and selling them
to the public.
xxx

[25]

We find that a valid agency was created between Siredy and Santos, and the authority
conferred upon the latter includes the power to enter into a construction contract to
build houses such as the Deed of Agreement between Santos and De Guzmans Jigscon
Construction. Hence, the inescapable conclusion is that Siredy is bound by the contract
through the representation of its agent Santos.
The basis of agency is representation, that is, the agent acts for and in behalf of the
principal on matters within the scope of his authority (Art, 1881) and said acts have the
same legal effect as if they were personally done by the principal. By this legal fiction of
representation, the actual or legal absence of the principal is converted into his legal or
juridical presence.[26]
Moreover, even if arguendo Santos mandate was only to sell subdivision lots as Siredy asserts, the
latter is still bound to pay De Guzman. De Guzman is considered a third party to the agency
agreement who had no knowledge of the specific instructions or agreements between Siredy and its
agent. What De Guzman only saw was the written Letter of Authority where Santos appears to be
duly authorized. Article 1900 of the Civil Code provides:
Art. 1900. So far as third persons are concerned, an act is deemed to have been
performed within the scope of the agents authority, if such act is within the terms of
the power of attorney, as written, even if the agent has in fact exceeded the limits of his
authority according to an understanding between the principal and the agent.
The scope of the agents authority is what appears in the written terms of the power of
attorney. While third persons are bound to inquire into the extent or scope of the agents authority,
they are not required to go beyond the terms of the written power of attorney. Third persons cannot
be adversely affected by an understanding between the principal and his agent as to the limits of

the latters authority. In the same way, third persons need not concern themselves with instructions
given by the principal to his agent outside of the written power of attorney.
The essence of agency being the representation of another, it is evident that the
obligations contracted are for and on behalf of the principal. This is what gives rise to
the juridical relation. A consequence of this representation is the liability of the
principal for the acts of his agent performed within the limits of his authority that is
equivalent to the performance by the principal himself who should answer therefor.[27]
Petitioner belatedly asserts, however, that the Letter of Authority was defective as it allegedly failed
to reduce into writing the real intentions of the parties, and insists on its reformation.
Such an argument deserves scant consideration. As found by the Court of Appeals, being a doctor
of medicine and a businessman, Yanga knew the meaning and import of this document and had in
fact admitted having signed it. As aptly observed by the Court of Appeals, there is no evidence
that ante litem, he abrogated the Letter of Authority and withdrew the power conferred on Santos.
Siredys contention that the present case is in effect a revocation of the Letter of Authority also
deserves scant consideration. This is a patently erroneous claim considering that it was, in fact,
private respondent De Guzman who instituted the civil case before the RTC.
With regard to the second issue put forth by petitioner, this Court notes that this issue is being
raised for the first time on appeal. From the trial in the RTC to the appeal before the Court of
Appeals, the alleged violation of the Deed of Agreement by Conrado de Guzman was never put in
issue. Heretofore, the substance of petitioners defense before the courts a quo consisted of its
denial of any liability under the Deed of Agreement.
As we held in the case of Safic Alcan & Cie vs. Imperial Vegetable Oil Co., Inc.:[28]
It must be borne in mind that a question that was never raised in the courts below cannot be
allowed to be raised for the first time on appeal without offending basic rules of fair play, justice
and due process. Such an issue was not brought to the fore either in the trial court or the appellate
court, and would have been disregarded by the latter tribunal for the reasons previously stated.
With more reason, the same does not deserve consideration by this Court. [29]