There was breach of trust done by Gregorio
Teofilo entitles to commission being sub agent
Vicente's arguement that since it is sold to Amparo has no merits & Vicente entitled for damages
G.R. No. L-30573 October 29, 1971
VICENTE M. DOMINGO, represented by his heirs, ANTONINA
RAYMUNDO VDA. DE DOMINGO, RICARDO, CESAR, AMELIA,
VICENTE JR., SALVADOR, IRENE and JOSELITO, all surnamed
DOMINGO, petitioners-appellants,
vs.
GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P.
PURISIMA, intervenor-respondent.
Teofilo Leonin for petitioners-appellants.
Osorio, Osorio & Osorio for respondent-appellee.
Teofilo P. Purisima in his own behalf as intervenor-respondent.
MAKASIAR, J.:
Petitioner-appellant Vicente M. Domingo, now deceased and represented
by his heirs, Antonina Raymundo vda. de Domingo, Ricardo, Cesar,
Amelia, Vicente Jr., Salvacion, Irene and Joselito, all surnamed Domingo,
sought the reversal of the majority decision dated, March 12, 1969 of the
Special Division of Five of the Court of Appeals affirming the judgment of
the trial court, which sentenced the said Vicente M. Domingo to pay
Gregorio M. Domingo P2,307.50 and the intervenor Teofilo P. Purisima
P2,607.50 with interest on both amounts from the date of the filing of the
complaint, to pay Gregorio Domingo P1,000.00 as moral and exemplary
damages and P500.00 as attorney's fees plus costs.
The following facts were found to be established by the majority of the
Special Division of Five of the Court of Appeals:
In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo
granted Gregorio Domingo, a real estate broker, the exclusive agency to
sell his lot No. 883 of Piedad Estate with an area of about 88,477 square
meters at the rate of P2.00 per square meter (or for P176,954.00) with a
commission of 5% on the total price, if the property is sold by Vicente or by
anyone else during the 30-day duration of the agency or if the property is
sold by Vicente within three months from the termination of the agency to
apurchaser to whom it was submitted by Gregorio during the continuance
of the agency with notice to Vicente. The said agency contract was in
triplicate, one copy was given to Vicente, while the original and another
copy were retained by Gregorio.
On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to
look for a buyer, promising him one-half of the 5% commission.
Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a
prospective buyer.
Oscar de Leon submitted a written offer which was very much lower than
the price of P2.00 per square meter (Exhibit "B"). Vicente directed Gregorio
to tell Oscar de Leon to raise his offer. After several conferences between
Gregorio and Oscar de Leon, the latter raised his offer to P109,000.00 on
June 20, 1956 as evidenced by Exhibit "C", to which Vicente agreed by
signing Exhibit "C". Upon demand of Vicente, Oscar de Leon issued to him
a check in the amount of P1,000.00 as earnest money, after which Vicente
advanced to Gregorio the sum of P300.00. Oscar de Leon confirmed his
former offer to pay for the property at P1.20 per square meter in another
letter, Exhibit "D". Subsequently, Vicente asked for an additional amount
of P1,000.00 as earnest money, which Oscar de Leon promised to deliver
to him. Thereafter, Exhibit "C" was amended to the effect that Oscar de
Leon will vacate on or about September 15, 1956 his house and lot at
Denver Street, Quezon City which is part of the purchase price. It was
again amended to the effect that Oscar will vacate his house and lot on
December 1, 1956, because his wife was on the family way and Vicente
could stay in lot No. 883 of Piedad Estate until June 1, 1957, in a document
dated June 30, 1956 (the year 1957 therein is a mere typographical error)
and marked Exhibit "D". Pursuant to his promise to Gregorio, Oscar gave
him as a gift or propina the sum of One Thousand Pesos (P1,000.00) for
succeeding in persuading Vicente to sell his lot at P1.20 per square meter
or a total in round figure of One Hundred Nine Thousand Pesos
(P109,000.00). This gift of One Thousand Pesos (P1,000.00) was not
disclosed by Gregorio to Vicente. Neither did Oscar pay Vicente the
additional amount of One Thousand Pesos (P1,000.00) by way of earnest
money. In the deed of sale was not executed on August 1, 1956 as
stipulated in Exhibit "C" nor on August 15, 1956 as extended by Vicente,
Oscar told Gregorio that he did not receive his money from his brother in
the United States, for which reason he was giving up the negotiation
including the amount of One Thousand Pesos (P1,000.00) given as
earnest money to Vicente and the One Thousand Pesos (P1,000.00) given
to Gregorio 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
Conflict
within three months after the expiration of the 30-day period of the
exclusive agency in his favor from the execution of the agency contract on
June 2, 1956 to a purchaser brought by Gregorio to Vicente during the said
30-day period. Vicente grabbed the original of Exhibit "A" and tore it to
pieces. Gregorio held his peace, not wanting to antagonize Vicente further,
because he had still duplicate of Exhibit "A". From his meeting with Vicente,
Gregorio proceeded to the office of the Register of Deeds of Quezon City,
where he discovered Exhibit "G' deed of sale executed on September 17,
1956 by Amparo Diaz, wife of Oscar de Leon, over their house and lot No.
40 Denver Street, Cubao, Quezon City, in favor Vicente as down payment
by Oscar de Leon on the purchase price of Vicente's lot No. 883 of Piedad
Estate. Upon thus learning that Vicente sold his property to the same
buyer, Oscar de Leon and his wife, he demanded in writting payment of
his commission on the sale price of One Hundred Nine Thousand Pesos
(P109,000.00), Exhibit "H". He also conferred with Oscar de Leon, who told
him that Vicente went to him and asked him to eliminate Gregorio in the
transaction and that he would sell his property to him for One Hundred
Four Thousand Pesos (P104,000.0 In Vicente's reply to Gregorio's letter,
Exhibit "H", Vicente stated that Gregorio is not entitled to the 5%
commission because he sold the property not to Gregorio's buyer, Oscar
de Leon, but to another buyer, Amparo Diaz, wife of Oscar de Leon.
The Court of Appeals found from the evidence that Exhibit "A", the
exclusive agency contract, is genuine; that Amparo Diaz, the vendee,
being the wife of Oscar de Leon the sale by Vicente of his property is
practically a sale to Oscar de Leon since husband and wife have common
or identical interests; that Gregorio and intervenor Teofilo Purisima were
the efficient cause in the consummation of the sale in favor of the spouses
Oscar de Leon and Amparo Diaz; that Oscar de Leon paid Gregorio the
sum of One Thousand Pesos (P1,000.00) as "propina" or gift and not as
additional earnest money to be given to the plaintiff, because Exhibit "66",
Vicente's letter addressed to Oscar de Leon with respect to the additional
earnest money, does not appear to have been answered by Oscar de Leon
and therefore there is no writing or document supporting Oscar de Leon's
testimony that he paid an additional earnest money of One Thousand
Pesos (P1,000.00) to Gregorio for delivery to Vicente, unlike the first
amount of One Thousand Pesos (P1,000.00) paid by Oscar de Leon to
Vicente as earnest money, evidenced by the letter Exhibit "4"; and that
Vicente did not even mention such additional earnest money in his two
replies Exhibits "I" and "J" to Gregorio's letter of demand of the 5%
commission.
The three issues in this appeal are (1) whether the failure on the part of
Gregorio to disclose to Vicente the payment to him by Oscar de Leon of
the amount of One Thousand Pesos (P1,000.00) as gift or "propina" for
having persuaded Vicente to reduce the purchase price from P2.00 to
P1.20 per square meter, so constitutes fraud as to cause a forfeiture of his
commission on the sale price; (2) whether Vicente or Gregorio should be
liable directly to the intervenor Teofilo Purisima for the latter's share in the
expected commission of Gregorio by reason of the sale; and (3) whether
the award of legal interest, moral and exemplary damages, attorney's fees
and costs, was proper.
Unfortunately, the majority opinion penned by Justice Edilberto Soriano
and concurred in by Justice Juan Enriquez did not touch on these issues
which were extensively discussed by Justice Magno Gatmaitan in his
dissenting opinion. However, Justice Esguerra, in his concurring opinion,
affirmed that it does not constitute breach of trust or fraud on the part of
the broker and regarded same as merely part of the whole process of
bringing about the meeting of the minds of the seller and the purchaser
and that the commitment from the prospect buyer that he would give a
reward to Gregorio if he could effect better terms for him from the seller,
independent of his legitimate commission, is not fraudulent, because the
principal can reject the terms offered by the prospective buyer if he
believes that such terms are onerous disadvantageous to him. On the
other hand, Justice Gatmaitan, with whom Justice Antonio Cafizares
corner held the view that such an act on the part of Gregorio was fraudulent
and constituted a breach of trust, which should deprive him of his right to
the commission.
The duties and liabilities of a broker to his employer are essentially those
which an agent owes to his principal. 1
Consequently, the decisive legal provisions are in found Articles 1891 and
1909 of the New Civil Code.
Art. 1891. Every agent is bound to render an account of his
transactions and to deliver to the principal whatever he
may have received by virtue of the agency, even though it
may not be owing to the principal.
Every stipulation exempting the agent from the obligation
to render an account shall be void.
xxx xxx xxx
 Art. 1909. The agent is responsible not only for fraud but
also for negligence, which shall be judged with more less
rigor by the courts, according to whether the agency was
or was not for a compensation.
Article 1891 of the New Civil Code amends Article 17 of the old Spanish
Civil Code which provides that:
Art. 1720. Every agent is bound to give an account of his
transaction and to pay to the principal whatever he may
have received by virtue of the agency, even though what
he has received is not due to the principal.
The modification contained in the first paragraph Article 1891 consists in
changing the phrase "to pay" to "to deliver", which latter term is more
comprehensive than the former.
Paragraph 2 of Article 1891 is a new addition designed to stress the highest
loyalty that is required to an agent — condemning as void any stipulation
exempting the agent from the duty and liability imposed on him in
paragraph one thereof.
Article 1909 of the New Civil Code is essentially a reinstatement of Article
1726 of the old Spanish Civil Code which reads thus:
Art. 1726. The agent is liable not only for fraud, but also for
negligence, which shall be judged with more or less
severity by the courts, according to whether the agency
was gratuitous or for a price or reward.
The aforecited provisions demand the utmost good faith, fidelity, honesty,
candor and fairness on the part of the agent, the real estate broker in this
case, to his principal, the vendor. The law imposes upon the agent the
absolute obligation to make a full disclosure or complete account to his
principal of all his transactions and other material facts relevant to the
agency, so much so that the law as amended does not countenance any
stipulation exempting the agent from such an obligation and considers
such an exemption as void. The duty of an agent is likened to that of a
trustee. This is not a technical or arbitrary rule but a rule founded on the
highest and truest principle of morality as well as of the strictest justice.2
Hence, an agent who takes a secret profit in the nature of a bonus, gratuity
or personal benefit from the vendee, without revealing the same to his
principal, the vendor, is guilty of a breach of his loyalty to the principal and
forfeits his right to collect the commission from his principal, even if the
principal does not suffer any injury by reason of such breach of fidelity, or
that he obtained better results or that the agency is a gratuitous one, or
that usage or custom allows it; because the rule is to prevent the possibility
of any wrong, not to remedy or repair an actual damage.3 By taking such
profit or bonus or gift or propina from the vendee, the agent thereby
assumes a position wholly inconsistent with that of being an agent for
hisprincipal, who has a right to treat him, insofar as his commission is
concerned, as if no agency had existed. The fact that the principal may
have been benefited by the valuable services of the said agent does not
exculpate the agent who has only himself to blame for such a result by
reason of his treachery or perfidy.
This Court has been consistent in the rigorous application of Article 1720
of the old Spanish Civil Code. Thus, for failure to deliver sums of money
paid to him as an insurance agent for the account of his employer as
required by said Article 1720, said insurance agent was convicted
estafa.4 An administrator of an estate was likewise under the same Article
1720 for failure to render an account of his administration to the heirs
unless the heirs consented thereto or are estopped by having accepted the
correctness of his account previously rendered. 5
Because of his responsibility under the aforecited article 1720, an agent is
likewise liable for estafa for failure to deliver to his principal the total amount
collected by him in behalf of his principal and cannot retain the commission
pertaining to him by subtracting the same from his collections.6
A lawyer is equally liable unnder said Article 1720 if he fails to deliver to
his client all the money and property received by him for his client despite
his attorney's lien.7 The duty of a commission agent to render a full account
his operations to his principal was reiterated in Duhart, etc. vs. Macias.8
The American jurisprudence on this score is well-nigh unanimous.
Where a principal has paid an agent or broker a
commission while ignorant of the fact that the latter has
been unfaithful, the principal may recover back the
commission paid, since an agent or broker who has been
unfaithful is not entitled to any compensation.
xxx xxx xxx
In discussing the right of the principal to recover
commissions retained by an unfaithful agent, the court
in Little vs. Phipps (1911) 208 Mass. 331, 94 NE 260, 34
LRA (NS) 1046, said: "It is well settled that the agent is
bound to exercise the utmost good faith in his dealings with
his principal. As Lord Cairns said, this rule "is not a
technical or arbitrary rule. It is a rule founded on the highest
and truest principles, of morality." Parker vs.
McKenna (1874) LR 10,Ch(Eng) 96,118 ... If the agent
does not conduct himself with entire fidelity towards his
principal, but is guilty of taking a secret profit or commission
in regard the matter in which he is employed, he loses his
right to compensation on the ground that he has taken a
position wholly inconsistent with that of agent for his
employer, and which gives his employer, upon discovering
it, the right to treat him so far as compensation, at least, is
concerned as if no agency had existed. This may operate
to give to the principal the benefit of valuable services
rendered by the agent, but the agent has only himself to
blame for that result."
xxx xxx xxx
The intent with which the agent took a secret profit has
been held immaterial where the agent has in fact entered
into a relationship inconsistent with his agency, since the
law condemns the corrupting tendency of the inconsistent
relationship. Little vs. Phipps (1911) 94 NE 260.9
As a general rule, it is a breach of good faith and loyalty to
his principal for an agent, while the agency exists, so to
deal with the subject matter thereof, or with information
acquired during the course of the agency, as to make a
profit out of it for himself in excess of his lawful
compensation; and if he does so he may be held as a
trustee and may be compelled to account to his principal
for all profits, advantages, rights, or privileges acquired by
him in such dealings, whether in performance or in violation
of his duties, and be required to transfer them to his
principal upon being reimbursed for his expenditures for
the same, unless the principal has consented to or ratified
the transaction knowing that benefit or profit would accrue
or had accrued, to the agent, or unless with such
knowledge he has allowed the agent so as to change his
condition that he cannot be put in status quo. The
application of this rule is not affected by the fact that the
principal did not suffer any injury by reason of the agent's
dealings or that he in fact obtained better results; nor is it
affected by the fact that there is a usage or custom to the
contrary or that the agency is a gratuitous one. (Emphasis
applied.) 10
SC DECISION APPLICATION
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.
Result of unfaithfulness to agency 1891 will not apply in the ff
The duty embodied in Article 1891 of the New Civil Code will not apply if
the agent or broker acted only as a middleman with the task of merely
bringing together the vendor and vendee, who themselves thereafter will
negotiate on the terms and conditions of the transaction. Neither would the
rule apply if the agent or broker had informed the principal of the gift or
bonus or profit he received from the purchaser and his principal did not
object therto. 11 Herein defendant-appellee Gregorio Domingo was not
merely a middleman of the petitioner-appellant Vicente Domingo and the
buyer Oscar de Leon. He was the broker and agent of said petitioner-
appellant only. And therein petitioner-appellant was not aware of the gift of
One Thousand Pesos (P1,000.00) received by Gregorio Domingo from the
prospective buyer; much less did he consent to his agent's accepting such
a gift. Situation of Gregorio
Re Vicente's arguement that Amparo is buyer and not Oscar
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 Consequence as to breach of trust
the part of the commission he received from his principal.
Re Teofilo's commission
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.
Re other fees
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.
There was valid appointment of sub agent under Art 1892
G.R. No. 192602
SPOUSES MAY S. VILLALUZ and JOHNNY VILLALUZ, JR., Petitioners
vs.
LAND BANK OF THE PHILIPPINES and the REGISTER OF DEEDS
FOR DAVAO CITY, Respondents
DECISION
JARDELEZA, J.:
The Civil Code sets the default rule that an agent may appoint a substitute
if the principal has not prohibited him from doing so. The issue in this
petition for review on certiorari, 1 which seeks to set aside the
Decision2 dated September 22, 2009 and Resolution3 dated May 26, 2010
of the Court of Appeals (CA) in CA-G.R. CV No. 01307, is whether the
mortgage contract executed by the substitute is valid and binding upon the
principal.
I
Sometime in 1996, Paula Agbisit (Agbisit), mother of petitioner May S.
Villaluz (May), requested the latter to provide her with collateral for a loan.
At the time, Agbisit was the chairperson of Milflores Cooperative and she
needed ₱600,000 to ₱650,000 for the expansion of her backyard cut
flowers business.4 May convinced her husband, Johnny Villaluz
(collectively, the Spouses Villaluz), to allow Agbisit to use their land,
located in Calinan, Davao City and covered by Transfer Certificate of Title
(TCT) No. T-202276, as collateral. 5 On March 25, 1996, the Spouses
Villaluz executed a Special Power of Attorney6 in favor of Agbisit
authorizing her to, among others, "negotiate for the sale mortgage, or other
forms of disposition a parcel of land covered by Transfer Certificate of Title
No. T-202276" and "sign in our behalf all documents relating to the sale,
loan or mortgage, or other disposition of the aforementioned property.
"7 The one-page power of attorney neither specified the conditions under
which the special powers may be exercised nor stated the amounts for
which the subject land may be sold or mortgaged.
On June 19, 1996, Agbisit executed her own Special Power of
Attorney, 8 appointing Milflores Cooperative as attorney-in-fact in obtaining
a loan from and executing a real mortgage in favor of Land Bank of the
Philippines (Land Bank). On June 21, 1996, Milflores Cooperative, in a
representative capacity, executed a Real Estate Mortgage9 in favor of Land
LOAN OBTAINED
Bank in consideration of the ₱3,000,000 loan to be extended by the latter.
On June 24, 1996, Milflores Cooperative also executed a Deed of
Assignment of the Produce/Inventory 10 as additional collateral for the loan.
Land Bank partially released one-third of the total loan amount, or
₱995,500, to Milflores Cooperative on June 25, 1996. On the same day,
Agbisit borrowed the amount of ₱604,750 from Milflores Cooperative. Land
Bank released the remaining loan amount of ₱2,000,500 to Milflores
Cooperative on October 4, 1996. 11
Start of conflict
Unfortunately, Milflorcs Cooperative was unable to pay its obligations to
Land Bank. Thus, Land Bank filed a petition for extra-judicial foreclosure
sale with the Office of the Clerk of Court of Davao City. Sometime in
August, 2003, the Spouses Villaluz learned that an auction sale covering
their land had been set for October 2, 2003. Land Bank won the auction
sale as the sole bidder. 12
RTC ISSUE & ruling
The Spouses Villaluz filed a complaint with the Regional Trial Court (RTC)
of Davao City seeking the annulment of the foreclosure sale. The sole
question presented before the RTC was whether Agbisit could have validly
delegated her authority as attorney-in-fact to Milflores Cooperative. Citing
Article 1892 of the Civil Code, the RTC held that the delegation was valid
since the Special Power of Attorney executed by the Spouses Villaluz had
no specific prohibition against Agbisit appointing a substitute. Accordingly,
the RTC dismissed the complaint. 13
CA DECISION
On appeal, the CA affirmed the RTC Decision. In its Decision14 dated
September 22, 2009, the CA similarly found Article 1892 to be squarely
applicable. According to the CA, the rule is that an agent is allowed to
appoint a sub-agent in the absence of an express agreement to the
contrary and that "a scrutiny of the Special Power of Attorney dated March
25, 1996 executed by appellants in favor of [Agbisit] contained no
prohibition for the latter to appoint a sub-agent." 15 Therefore, Agbisit was
allowed to appoint Milflores Cooperative as her sub-agent.
PRESENT PETITION
After the CA denied their motion for reconsideration, the Spouses Villaluz
filed this petition for review. They argue that the Real Estate Mortgage was
void because there was no loan yet when the mortgage contract was
executed and that the Special Power of Attorney was extinguished when
Milflores Cooperative assigned its produce and inventory to Land Bank as
additional collateral. 16 In response, Land Bank maintains that the CA and
RTC did not err in applying Article 1892, that the Real Estate Mortgage can
only be extinguished after the amount of the secured loan has been paid,
and that the additional collateral was executed because the deed of
Issue re appointment of sub agent
assignment was meant to cover any deficiency in the Real Estate authorized but a specific person is not designated, the agent appoints a
Mortgage. 17 limitations substitute who is notoriously incompetent or insolvent. In these instances,
the principal has a right of action against both the agent and the substitute
II if the latter commits acts prejudicial to the principal.
Articles 1892 and 1893 of the Civil Code provide the rules regarding the
appointment of a substitute by an agent:
Art. 1892. The agent may appoint a substitute if the principal has not
prohibited him from doing so; but he shall be responsible for the acts of the
substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the person,
and the person appointed was notoriously incompetent or insolvent.
All acts of the substitute appointed against the prohibition of the principal
shall be void.
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article,
the principal may furthermore bring an action against the substitute with
respect to the obligations which the latter has contracted under the
substitution.
The law creates a presumption that an agent has the power to appoint a
substitute. The consequence of the presumption is that, upon valid
appointment of a substitute by the agent, there ipso jure arises an agency
relationship between the principal and the substitute, i.e., the substitute
becomes the agent of the principal. As a result, the principal is bound by
the acts of the substitute as if these acts had been performed by the
principal's appointed agent. Concomitantly, the substitute assumes an
agent's obligations to act within the scope of authority, 18 to act in
accordance with the principal's instructions, 19 and to carry out the
agency, 20 among others. In order to make the presumption inoperative and
relieve himself from its effects, it is incumbent upon the principal to prohibit
the agent from appointing a substitute.
Although the law presumes that the agent is authorized to appoint a
substitute, it also imposes an obligation upon the agent to exercise this
power conscientiously. To protect the principal, Article 1892 allocates
responsibility to the agent for the acts of the substitute when the agent was
not expressly authorized by the principal to appoint a substitute; and, if so
The case of Escueta v. Lim21illustrates the prevailing rule. In that case, the
father, through a special power of attorney, appointed his daughter as his
attorney-in-fact for the purpose of selling real properties. The daughter
then appointed a substitute or sub-agent to sell the properties. After the
properties were sold, the father sought to nullify the sale effected by the
subagent on the ground that he did not authorize his daughter to appoint a
subagent. We refused to nullify the sale because it is clear from the special
power of attorney executed by the father that the daughter is not prohibited
from appointing a substitute. Applying Article 1892, we held that the
daughter "merely acted within the limits of the authority given by her father,
but she will have to be 'responsible for the acts of the sub-agent,' among
which is precisely the sale of the subject properties in favor of
respondent."22
SC DECISION RE appointment of sub agent
In the present case, the Special Power of Attorney executed by the
Spouses Villaluz contains no restrictive language indicative of an intention
to prohibit Agbisit from appointing a substitute or sub-agent. Thus, we
agree with the findings of the CA and the RTC that Agbisit's appointment
of Milflores Cooperative was valid.
III
2nd issue raised
Perhaps recognizing the correctness of the CA and the RTC's legal
position, the Spouses Villaluz float a new theory in their petition before us.
They now seek to invalidate the Real Estate Mortgage for want of
consideration. Citing Article 1409(3), which provides that obligations
"whose cause or object did not exist at the time of the transaction" are
void ab initio, the Spouses Villaluz posit that the mortgage was void
because the loan was not yet existent when the mortgage was executed
on June 21, 1996. Since the loan was released only on June 25, 1996, the
mortgage executed four days earlier was without valuable consideration.
Article 1347 provides that "[a]ll things which are not outside the commerce
of men, including future things, may be the object of a contract." Under
Articles 1461 and 1462, things having a potential existence and "future
goods," i.e., those that are yet to be manufactured, raised, or acquired,
may be the objects of contracts of sale. The narrow interpretation
1âwphi1
advocated by the Spouses Villaluz would create a dissonance between

Articles 1347, 1461, and 1462, on the one hand, and Article 1409(3), on
the other. A literal interpretation of the phrase "did not exist at the time of
the transaction" in Article 1409(3) would essentially defeat the clear intent
and purpose of Articles 1347, 1461, and 1462 to allow future things to be
the objects of contracts. To resolve this apparent conflict, Justice J.B.L.
Reyes commented that the phrase "did not exist" should be interpreted as
"could not come into existence" because the object may legally be a future
thing.23 We adopt this interpretation.
One of the basic rules in statutory interpretation is that all parts of a statute
are to be harmonized and reconciled so that effect may be given to each
and every part thereof, and that conflicting intentions in the same statute
are never to be supposed or so regarded.24 Thus, in order to give effect to
Articles 134 7, 1461, and 1462, Article 1409(3) must be interpreted as
referring to contracts whose cause or object is impossible of existing at the
time of the transaction. 25
Application of law RE future goods
The cause of the disputed Real Estate Mortgage is the loan to be obtained
by Milflores Cooperative. This is clear from the terms of the mortgage
document, which expressly provides that it is being executed in
"consideration of certain loans, advances, credit lines, and other credit
facilities or accommodations obtained from [Land Bank by Milflores
Cooperative] x x x in the principal amount of [₱3,000,000]."26 The
consideration is certainly not an impossible one because Land Bank was
capable of granting the ₱3,000,000 loan, as it in fact released one-third of
the loan a couple of days later. Although the validity of the Real Estate
Mortgage is dependent upon the validity of the loan, 27 what is essential is
that the loan contract intended to be secured is actually perfected, 28 not at
the time of the execution of the mortgage contract vis-a-vis the loan
contract. In loan transactions, it is customary for the lender to require the
borrower to execute the security contracts prior to initial drawdown. This is
understandable since a prudent lender would not want to release its funds
without the security agreements in place. On the other hand, the borrower
would not be prejudiced by mere execution of the security contract,
because unless the loan proceeds are delivered, the obligations under the
security contract will not arise.29 In other words, the security contract-in this
case, the Real Estate Mortgage-is conditioned upon the release of the loan
amount. This suspensive condition was satisfied when Land Bank released
the first tranche of the ₱3,000,000 loan to Milflores Cooperative on June
25, 1996, which consequently gave rise to the Spouses Villaluz's
obligations under the Real Estate Mortgage. 1awp++i1
IV
3rd issue raised
The Spouses Villaluz claim that the Special Power of Attorney they issued
was mooted by the execution of the Deed of Assignment of the
Produce/Inventory by Milflores Cooperative in favor of Land Bank. Their
theory is that the additional security on the same loan extinguished the
agency because the Deed of Assignment "served as payment of the loan
of the [Milflores] Cooperative."30
Decision re assignment of deeds
The assignment was for the express purpose of "securing the payment of
the Line/Loan, interest and charges thereon."31 Nowhere in the deed can it
be reasonably deduced that the collaterals assigned by Milflores
Cooperative were intended to substitute the payment of sum of money
under the loan. It was an accessory obligation to secure the principal loan
obligation.
The assignment, being intended to be a mere security rather than a
satisfaction of indebtedness, is not a elation in payment under Article
124532 and did not extinguish the loan obligation. 33 "Dation in payment
extinguishes the obligation to the extent of the value of the thing delivered,
either as agreed upon by the parties or as may be proved, unless the
parties by agreement-express or implied, or by their silence-consider the
thing as equivalent to the obligation, in which case the obligation is totally
extinguished."34 As stated in the second condition of the Deed of
Assignment, the "Assignment shall in no way release the ASSIGNOR from
liability to pay the Line/Loan and other obligations, except only up to the
extent of any amount actually collected and paid to ASSIGNEE by virtue
of or under this Assignment."35 Clearly, the assignment was not intended to
substitute the payment of sums of money. It is the delivery of cash
proceeds, not the execution of the Deed of Assignment, that is considered
as payment. Absent any proof of delivery of such proceeds to Land Bank,
the Spouses Villaluz' s claim of payment is without basis.
No payment by cession
Neither could the assignment have constituted payment by cession under
Article 125536 for the plain and simple reason that there was only one
creditor, Land Bank. Article 1255 contemplates the existence of two or
more creditors and involves the assignment of all the debtor's property. 37
The Spouses Villaluz understandably feel shorthanded because their
property was foreclosed by reason of another person's inability to pay.
However, they were not coerced to grant a special power of attorney in
favor of Agbisit. Nor were they prohibited from prescribing conditions on
how such power may be exercised. Absent such express limitations, the
law recognizes Land Bank's right to rely on the terms of the power of
attorney as written.38 "Courts cannot follow one every step of his life and
extricate him from bad bargains, protect him from unwise investments,
relieve him from one-sided contracts, or annul the effects of [unwise]
acts."39 The remedy afforded by the Civil Code to the Spouses Villaluz is to
proceed against the agent and the substitute in accordance with A1iicles
1892 and 1893.

WHEREFORE, the petition is DENIED. The Decision dated September

22, 2009 and Resolution dated May 26, 2010 of the Court of Appeals in
CA-G.R. CV No. 01307 are AFFIRMED.

SO ORDERED.
Deed of Assignment by Edwin is valid, he did not exceed his authority as an agent.
Law does not give 3rd party the right to recover from principal and agent in Art 1897
G.R. No. 167552 April 23, 2007
EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,
vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review by certiorari assailing the Decision1 of the
Start of conflict
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 (₱91,338.00) pesos. Subsequently, respondents sought to buy from
petitioner one unit of sludge pump valued at ₱250,000.00 with respondents
making a down payment of fifty thousand pesos (₱50,000.00). 4 When the
sludge pump arrived from the United Kingdom, petitioner refused to deliver
the same to respondents without their having fully settled their
indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN
and Alberto de Jesus, general manager of petitioner, executed a Deed of
Assignment of receivables in favor of petitioner, the pertinent part of which
states:
1.) That ASSIGNOR5 has an outstanding receivables from Toledo
Power Corporation in the amount of THREE HUNDRED SIXTY
FIVE THOUSAND (₱365,000.00) 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 (₱365,000.00) PESOS which receivables the
ASSIGNOR is the lawful recipient;
3.) That the ASSIGNEE does hereby accept this assignment. 7
Following the execution of the Deed of Assignment, petitioner delivered to
respondents the sludge pump as shown by Invoice No. 12034 dated 30
June 1995.8
Allegedly unbeknownst to petitioner, respondents, despite the existence of
the Deed of Assignment, proceeded to collect from Toledo Power
Company the amount of ₱365,135.29 as evidenced by Check Voucher No.
09339 prepared by said power company and an official receipt dated 15
August 1995 issued by Impact Systems.10 Alarmed 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, petitioner’s counsel sent respondents a
final demand letter wherein it was stated that as of 11 June 1996,
respondents’ total obligations stood at ₱295,000.00 excluding interests
and attorney’s 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 Rtc action
On 8 January 1997, the trial court granted petitioner’s prayer for the
issuance of writ of preliminary attachment. 13
On 25 June 1997, respondent EDWIN filed his Answer 14 wherein he
admitted petitioner’s 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
₱220,000.00.16
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 petitioner’s Complaint stating –
 1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident
of Cebu City. He is the proprietor of a single proprietorship
business known as Impact Systems Sales ("Impact Systems" for
brevity), with office located at 46-A del Rosario Street, Cebu City,
where he may be served summons and other processes of the
Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a
resident of Cebu City. He is the Sales Manager of Impact Systems
and is sued in this action in such capacity. 17
CA DECISION
On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN
in Default with Motion for Summary Judgment. The trial court granted
petitioner’s motion to declare respondent ERWIN in default "for his failure
to answer within the prescribed period despite the opportunity
granted"18 but it denied petitioner’s motion for summary judgment in its
Order of 31 August 2001 and scheduled the pre-trial of the case on 16
October 2001.19 However, the conduct of the pre-trial conference was
deferred pending the resolution by the trial court of the special and
affirmative defenses raised by respondent EDWIN.20
After the filing of respondent EDWIN’s Memorandum 21 in support of his
special and affirmative defenses and petitioner’s 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 –
RTC DECISION
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 ₱50,000.00 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
₱50,000.00. 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 ₱50,000.00 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
Petitioner’s 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:
ISSUE RAISED IN SC
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR
WHEN IT RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF
IMPACT SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY
LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE
OF HIS AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION
OF A FRAUD.25
To support its argument, petitioner points to Article 1897 of the New Civil
Code which states:
Art. 1897. The agent who acts as such is not personally liable to the party
with whom he contracts, unless he expressly binds himself or exceeds the
limits of his authority without giving such party sufficient notice of his
powers.
Petitioner contends that the Court of Appeals failed to appreciate the effect
of ERWIN’s 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
ERWIN’s action repudiated EDWIN’s 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
Re Edwin's authority to sign the deed
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.
SC DECISION
We do not find merit in the petition.
In a contract of agency, a person binds himself to render some service or
to do something in representation or on behalf of another with the latter’s
consent.29 The underlying principle of the contract of agency is to
accomplish results by using the services of others – to do a great variety
of things like selling, buying, manufacturing, and transporting.30 Its purpose
is to extend the personality of the principal or the party for whom another
acts and from whom he or she derives the authority to act.31 It is said that
the basis of agency is representation, that is, the agent acts for and on
behalf of the principal on matters within the scope of his authority and said
acts have the same legal effect as if they were personally executed by the
principal.32 By this legal fiction, the actual or real absence of the principal
is converted into his legal or juridical presence – qui facit per alium facit
per se.33
The elements of the contract of agency are: (1) consent, express or
implied, of the parties to establish the relationship; (2) the object is the
execution of a juridical act in relation to a third person; (3) the agent acts
as a representative and not for himself; (4) the agent acts within the scope
of his authority.34
In this case, the parties do not dispute the existence of the agency
relationship between respondents ERWIN as principal and EDWIN as
agent. The only cause of the present dispute is whether respondent
EDWIN exceeded his authority when he signed the Deed of Assignment
thereby binding himself personally to pay the obligations to petitioner.
Petitioner firmly believes that respondent EDWIN acted beyond the
authority granted by his principal and he should therefore bear the effect
of his deed pursuant to Article 1897 of the New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as
such, is not personally liable to the party with whom he contracts. The
same provision, however, presents two instances when an agent becomes
personally liable to a third person. The first is when he expressly binds
himself to the obligation and the second is when he exceeds his authority.
In the last instance, the agent can be held liable if he does not give the
third party sufficient notice of his powers. We hold that respondent EDWIN
does not fall within any of the exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN signed
thereon as the sales manager of Impact Systems. As discussed
elsewhere, the position of manager is unique in that it presupposes the
grant of broad powers with which to conduct the business of the principal,
thus:
The powers of an agent are particularly broad in the case of one acting as
a general agent or manager; such a position presupposes a degree of
confidence reposed and investiture with liberal powers for the exercise of
judgment and discretion in transactions and concerns which are incidental
or appurtenant to the business entrusted to his care and management. In
the absence of an agreement to the contrary, a managing agent may enter
into any contracts that he deems reasonably necessary or requisite for the
protection of the interests of his principal entrusted to his management. x
x x.35
Applying the foregoing to the present case, we hold that Edwin Cuizon
acted well-within his authority when he signed the Deed of Assignment. To
recall, petitioner refused to deliver the one unit of sludge pump unless it
received, in full, the payment for Impact Systems’ indebtedness.36 We may
very well assume that Impact Systems desperately needed the sludge
pump for its business since after it paid the amount of fifty thousand pesos
(₱50,000.00) as down payment on 3 March 1995,37 it still persisted in
negotiating with petitioner which culminated in the execution of the Deed
of Assignment of its receivables from Toledo Power Company on 28 June
1995.38 The significant amount of time spent on the negotiation for the sale
 of the sludge pump underscores Impact Systems’ perseverance to get hold
of the said equipment. There is, therefore, no doubt in our mind that
respondent EDWIN’s 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 Edwin's action is just for the
of his principal would have been adversely affected and he would have benefit of business
violated his fiduciary relation with his principal.
Re imposition of liability agaibst edwin and erwin
We likewise take note of the fact that in this case, petitioner is seeking to
recover both from respondents ERWIN, the principal, and EDWIN, the
agent. It is well to state here that Article 1897 of the New Civil Code upon
which petitioner anchors its claim against respondent EDWIN "does not
hold that in case of excess of authority, both the agent and the principal
are liable to the other contracting party."39 To reiterate, the first part of
Article 1897 declares that the principal is liable in cases when the agent
acted within the bounds of his authority. Under this, the agent is completely
absolved of any liability. The second part of the said provision presents the
situations when the agent himself becomes liable to a third party when he
expressly binds himself or he exceeds the limits of his authority without
giving notice of his powers to the third person. However, it must be pointed
out that in case of excess of authority by the agent, like what petitioner
claims exists here, the law does not say that a third person can recover
from both the principal and the agent.40

As we declare that respondent EDWIN acted within his authority as an

agent, who did not acquire any right nor incur any liability arising from the
Deed of Assignment, it follows that he is not a real party in interest who
should be impleaded in this case. A real party in interest is one who "stands
to be benefited or injured by the judgment in the suit, or the party entitled
to the avails of the suit."41 In this respect, we sustain his exclusion as a
defendant in the suit before the court a quo.

WHEREFORE, premises considered, the present petition is DENIED and

the Decision dated 10 August 2004 and Resolution dated 17 March 2005
of the Court of Appeals in CA-G.R. SP No. 71397, affirming the Order
dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu City,
is AFFIRMED.

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

SO ORDERED.
 There was agency in this case
Soriamont and PTS agency
G.R. No. 174610 July 14, 2009 PTS not liable to pay anyone
SORIAMONT STEAMSHIP AGENCIES, INC., and PATRICK
RONAS, Petitioners,
vs.
SPRINT TRANSPORT SERVICES, INC., RICARDO CRUZ PAPA, doing
business under the style PAPA TRANSPORT
SERVICES, Respondents.
DECISION
CHICO-NAZARIO, J.:
Assailed in this Petition for Review on Certiorari, under Rule 45 of the
Revised Rules of Court, is the Decision1 dated 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 co-respondent Ricardo Cruz Papa (Papa) is engaged in the
trucking business under the business name "Papa Transport Services"
(PTS).
SPRINT COMPLAINT
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), 5 evidenced by Equipment Interchange
Receipts No. 14215 and No. 14222; (c) Soriamont and Ronas failed to pay
rental fees for the subject equipment since 15 January 1997; (d) Sprint was
subsequently informed by Ronas, through a letter dated 17 June 1997, of
the purported loss of the subject equipment sometime in June 1997; and
(e) despite demands, Soriamont and Ronas failed to pay the rental fees for
the subject equipment, and to replace or return the same to Sprint.
Sprint, thus, prayed for the RTC to render judgment:
1. Ordering [Soriamont and Ronas] to pay [Sprint], jointly and
severally, actual damages, in the amount of Five Hundred Thirty-
Seven Thousand Eight Hundred Pesos (₱537,800.00)
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 (₱53,504.42) 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 attorney’s fees plus Two Thousand
Pesos (₱2,000.00) per court appearance.
4. Ordering [Soriamont and Ronas] to pay the cost of the suit. 6
SORIAMONT AND RONAS ANSWER
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.
SORIAMONT 3rd party complaint PAPA
Consistent with their stance, Soriamont and Ronas filed a Third-Party
Complaint8 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
RTC DECISION
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 (₱320,000) 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 (₱270,124.42) representing unpaid rentals with interest at
the legal rate from the filing of the complaint;
 ₱20,000.00 as attorney’s 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.
CA DECISION
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 ₱320,000.00 representing the value of the
two chassis units, and on the ₱270,124.42 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 TRANSPORT’S
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.
RE agency of PTS
Soriamont anchors its defense on its denial that it issued an authorization
to PTS to withdraw the subject equipment from the container yard of Sprint.
Although Soriamont admits that the authorization letter dated 19 June 1996
was under its letterhead, said letter was actually meant for and sent to
Harman Foods as shipper. It was then Harman Foods that tasked PTS to
withdraw the subject equipment from Sprint. Soriamont insists that the
Court of Appeals merely presumed that an agency relationship existed
between Soriamont and PTS, since there was nothing in the records to
evidence the same. Meanwhile, there is undisputed evidence that it was
PTS that withdrew and was last in possession of the subject equipment.
Soriamont further calls attention to the testimony of Enrico Valencia
(Valencia), a witness for Sprint, actually supporting the position of
Soriamont that PTS did not present any authorization from Soriamont
when it withdrew the subject equipment from the container yard of Sprint.
Assuming, for the sake of argument that an agency relationship did exist
between Soriamont and PTS, the latter should not have been exonerated
from any liability. The acts of PTS that resulted in the loss of the subject
equipment were beyond the scope of its authority as supposed agent of
Soriamont. Soriamont never ratified, expressly or impliedly, such acts of
PTS.
Soriamont is essentially challenging the sufficiency of the evidence on
which the Court of Appeals based its conclusion that PTS withdrew the
subject equipment from the container yard of Sprint as an agent of
Soriamont. In effect, Soriamont is raising questions of fact, the resolution
of which requires us to re-examine and re-evaluate the evidence presented
by the parties below.
Basic is the rule in this jurisdiction that only questions of law may be raised
in a petition for review under Rule 45 of the Revised Rules of Court. The
jurisdiction of the Supreme Court in cases brought to it from the Court of
Appeals is limited to reviewing errors of law, the findings of fact of the
appellate court being conclusive. We have emphatically declared that it is
not the function of this Court to analyze or weigh such evidence all over
again, its jurisdiction being limited to reviewing errors of law that may have
been committed by the lower court.13
These questions of fact were threshed out and decided by the trial court,
which had the firsthand opportunity to hear the parties’ conflicting claims
and to carefully weigh their respective sets of evidence. The findings of the
trial court were subsequently affirmed by the Court of Appeals. Where the
factual findings of both the trial court and the Court of Appeals coincide,
the same are binding on this Court. We stress that, subject to some
exceptional instances, only questions of law – not questions of fact – may
be raised before this Court in a petition for review under Rule 45 of the
Revised Rules of Court.14
Given that Soriamont is precisely asserting in the instant Petition that the
findings of fact of the Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on record, 15 we
accommodate Soriamont by going over the same evidence considered by
the Court of Appeals and the RTC.
In Republic v. Court of Appeals,16 we explained that:
In civil cases, the party having the burden of proof must establish his case
by a preponderance of evidence. Stated differently, the general rule in civil
cases is that a party having the burden of proof of an essential fact must
produce a preponderance of evidence thereon (I Moore on Facts, 4, cited
 in Vicente J. Francisco, The Revised Rules of Court in the Philippines, Vol.
VII, Part II, p. 542, 1973 Edition). By preponderance of evidence is meant
simply evidence which is of greater weight, or more convincing than that
which is offered in opposition to it (32 C.J.S., 1051), The term
'preponderance of evidence' means the weight, credit and value of the
aggregate evidence on either side and is usually considered to be
synonymous with the terms `greater weight of evidence' or 'greater weight,
of the credible evidence.' Preponderance of the evidence is a phrase
which, in the last analysis, means probability of the truth. Preponderance
of the evidence means evidence which is more convincing to the court as
worthy of belief than that which is offered in opposition thereto. x x x." (20
Am. Jur., 1100-1101)
RE EVIDENCE OF AGENCY
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 agent’s 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:
Representative was PTS
EQUIPMENT LEASE AGREEMENT
between
SPRINT TRANSPORT SERVICES, INC. (LESSOR)
And
SORIAMONT STEAMSHIP AGENCIES, INC.
(LESSEE)
TERMS and CONDITIONS
xxxx
4. Equipment Interchange Receipt (EIR) as mentioned herein is a
document accomplished every time a chassis is withdrawn and returned to
a designated depot. The EIR relates the condition of the chassis at the
point of on-hire/off-hire duly acknowledged by the LESSOR, Property
Custodian and the LESSEE’S 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
LESSEE’s duly authorized representative(s). 17 (Emphases ours.)
Re period of effectivity of ELA
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. Yes, Sir. A. By fax, Sir.

Q. What transactions are these, Mr. Witness?
A. They got from us chassis, Sir.
Court:
Q. Who among the two, who withdrew?
A. The representative of Soriamont Steamship Agencies, Inc.,
Your Honor.
Atty. Porciuncula:
Q. And when were these chassis withdrawn, Mr. Witness?
A. June 1996, Sir.
Q. Will you kindly tell this Honorable Court what do you mean by
withdrawing the chassis units from your container yard?
Witness:
Before they can withdraw the chassis they have to present
withdrawal authority, Sir.
Atty. Porciuncula:
And what is this withdrawal authority?
A. This is to prove that they are authorizing their representative to
get from us a chassis unit.
Q. And who is this authorization send to you, Mr. Witness?
A. Sometime a representative bring to our office the letter or the
authorization or sometime thru fax, Sir.
Q. In this particular incident, Mr. Witness, how was it sent?
Q. Is this standard operating procedure of Sprint Transport
Services, Inc.?
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.
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?
A. Yes, Sir.
Atty. Porciuncula:
Your Honor, at this point may we request that these documents
identified by the witness be marked as Exhibits JJ and KK, Your
Honor.
Court:
Mark them.
xxxx
Q. Way back Mr. Witness, who withdrew the chassis units 2-07 and
2-55?
A. The representative of Soriamont Steamship Agencies, Inc., the
Papa Trucking, Sir.
Q. And are these trucking companies authorized to withdraw these
chassis units?
A. Yes, Sir, it was stated in the withdrawal authority.
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. Yes, Sir, it is stated in this withdrawal authority.
Atty. Porciuncula:
At this juncture, Your Honor, may we request that the Papa trucking
and Rebson trucking identified by the witness be bracketed and
mark as our Exhibits JJ-1 and KK-1, Your Honor.
Court:
Mark them. Are these documents have dates?
Atty. Porciuncula:
Yes, Your Honor, both documents are dated June 19, 1996.
Q. Mr. Witness, after this what happened next?
A. After they presented to us the withdrawal authority, we called up
Soriamont Steamship Agencies, Inc. to verify whether the one sent
to us through truck and the one sent to us through fax are one and
the same.
Q. Then what happened next, Mr. Witness?
A. Then after the verification whether it is true, then we asked them
to choose the chassis units then my checker would see to it
whether the chassis units are in good condition, then after that we
prepared the outgoing Equipment Interchange Receipt, Sir.
Q. Mr. Witness, could you tell this Honorable Court what an
outgoing Equipment Interchange Receipt means?
A. This is a document proving that the representative of Soriamont
Steamship Agencies, Inc. really withdraw (sic) the chassis units,
Sir.
xxxx
Atty. Porciuncula:
Q. Going back Mr. Witness, you mentioned awhile ago that your
company issued outgoing Equipment Interchange Receipt?
A. Yes, Sir.
Q. Are there incoming Equipment Interchange Receipt Mr.
Witness?
A. We have not made Incoming Equipment Interchange Receipt
with respect to Soriamont Steamship Agencies, Inc., Sir.
Q. And why not, Mr. Witness?
A. Because they have not returned to us the two chassis units. 20
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. Valencia’s testimony
established that Sprint exercised due diligence in its dealings with PTS, as
the agent of Soriamont.
Soriamont cannot rely on the outgoing Equipment Interchange Receipts as
proof that the withdrawal of the subject equipment was not authorized by
it, but by the shipper/consignee, Harman Foods, which actually designated
PTS and Rebson Trucking as truckers. However, a scrutiny of the
Equipment Interchange Receipts will show that these documents merely
identified Harman Foods as the shipper/consignee, and the location of said
shipping line. It bears to stress that it was Soriamont that had an existing
ELA with Sprint, not Harman Foods, for the lease of the subject equipment.
Moreover, as stated in the ELA, the outgoing Equipment Interchange
Receipts shall be signed, upon the withdrawal of the leased chassis units,
by the lessee, Soriamont, or its authorized representative. In this case, we
can only hold that the driver of PTS signed the receipts for the subject
equipment as the authorized representative of Soriamont, and no other.
 Finally, the 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:
RE excessive authority done by PTS
Art. 1897. The agent who acts as such is not personally liable to the party
with whom he contracts, unless he expressly binds himself or exceeds the
limits of his authority without giving such party sufficient notice of his
powers.
The burden falls upon Soriamont to prove its affirmative allegation that PTS
acted in any manner in excess of its authority as agent, thus, resulting in
the loss of the subject equipment. To recall, the subject equipment was
withdrawn and used by PTS with the authority of Soriamont. And for PTS
to be personally liable, as agent, it is vital that Soriamont be able to prove
that PTS damaged or lost the said equipment because it acted contrary to
or in excess of the authority granted to it by Soriamont. As the Court of
Appeals and the RTC found, however, Soriamont did not adduce any
evidence at all to prove said allegation. Given the lack of evidence that
PTS was in any way responsible for the loss of the subject equipment,
then, it cannot be held liable to Sprint, or even to Soriamont as its agent.
In the absence of evidence showing that PTS acted contrary to or in excess
of the authority granted to it by its principal, Soriamont, this Court cannot
merely presume PTS liable to Soriamont as its agent. The only thing
proven was that Soriamont, through PTS, withdrew the two chassis units
from Sprint, and that these have never been returned to Sprint.
Considering our preceding discussion, there is no reason for us to depart
from the general rule that the findings of fact of the Court of Appeals and
the RTC are already conclusive and binding upon us.
Finally, the adjustment by the Court of Appeals with respect to the
applicable rate of legal interest on the ₱320,000.00, representing the value
of the subject equipment, and on the ₱270,124.42, 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,
quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining
the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims
or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made
 judicially or extrajudicially (Art. 1169, Civil Code) but when
such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed
to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on
the amount finally adjudged.

3. When the judgment of the court awarding a sum of

money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.

Consistent with the foregoing jurisprudence, and later on affirmed in more

recent cases,24 when the judgment awarding a sum of money becomes
final and executory, the rate of legal interest shall be 12% per annum from
such finality until its satisfaction, this interim period being deemed to be by
then an equivalent of a forbearance of credit. Thus, from the time the
judgment becomes final until its full satisfaction, the applicable rate of legal
interest shall be twelve percent (12%).

WHEREFORE, premises considered, the instant Petition for Review on

Certiorari is hereby DENIED. The Decision dated 22 June 2006 and
Resolution dated 7 September 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.
Baluyot not an agent but an independent contractor of MMPCI, solely liable
The acts of Baluyot was not ratified, he exceeded with his duties and estoppel will not apply

G.R. No. 151319 November 22, 2004 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
MANILA MEMORIAL PARK CEMETERY, INC., petitioner, price of P95,000.00 with P19,838.00 credited as full down payment leaving
vs. a balance of about P75,000.00.5
PEDRO L. LINSANGAN, respondent.
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
DECISION
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.

TINGA, J.: The document reads in part:

For resolution in this case is a classic and interesting texbook question in The monthly installment will start April 6, 1985; the amount of
the law on agency. P1,800.00 and the difference will be issued as discounted to
conform to the previous price as previously agreed upon. ---
This is a petition for review assailing the Decision1 of the Court of Appeals P95,000.00
dated 22 June 2001, and its Resolution2 dated 12 December 2001 in CA
G.R. CV No. 49802 entitled "Pedro L. Linsangan v. Manila Memorial Prepared by:
Cemetery, Inc. et al.," finding Manila Memorial Park Cemetery, Inc.
(MMPCI) jointly and severally liable with Florencia C. Baluyot to (Signed)
respondent Atty. Pedro L. Linsangan.
(MRS.) FLORENCIA C. BALUYOT
The facts of the case are as follows: Agency Manager
Holy Cross Memorial Park
Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a
lot called Garden State at the Holy Cross Memorial Park owned by 4/18/85
petitioner (MMPCI). According to Baluyot, a former owner of a memorial
lot under Contract No. 25012 was no longer interested in acquiring the lot
Dear Atty. Linsangan:
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 This will confirm our agreement that while the offer to purchase
contract would be transferred to him. Atty. Linsangan agreed and gave under Contract No. 28660 states that the total price of P132,250.00
Baluyot P35,295.00 representing the amount to be reimbursed to the your undertaking is to pay only the total sum of P95,000.00 under
original buyer and to complete the down payment to MMPCI. 3 Baluyot the old price. Further the total sum of P19,838.00 already paid by
issued handwritten and typewritten receipts for these payments. 4 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)
Sometime in March 1985, Baluyot informed Atty. Linsangan that he would
charges for a period of five (5) years.
be issued Contract No. 28660, a new contract covering the subject lot in
 (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.
Start of conflict
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
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 delinquency…is now due for cancellation
under its terms and conditions.'''12
RTC DECISION
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 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
CA DECISION
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
ISSUES RAISED IN SC
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 long-practicing
lawyer. MMPCI likewise claims that the Court of Appeals erred in failing to
consider that the facts and the applicable law do not support a judgment
against Baluyot only "up to the extent of costs." 26
Atty. Linsangan argues that he did not violate the terms and conditions of
the contract, and in fact faithfully performed his contractual obligations and
complied with them in good faith for at least two years. 27 He claims that
contrary to 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:
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
Re position of Baluyot with MMCPI
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.
Only authority of 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
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.
Re ratification
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.45 Nevertheless, 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 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.
Re estoppel
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.
Re authority of Baluyot, how given?
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.
CONCLUSION OF SC
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 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.
 Petitioners are not real party in interest, they are not entitled to damages
because the cancelation was for a just cause.
G.R. No. 120465 September 9, 1999 Land was unstable to be for residential Obsviously, William Uy and Rodel Roxas in filing this
case acted as attorneys-in-fact of the lot owners who
WILLIAM UY and RODEL ROXAS, petitioners, are the real parties in interest but who were omitted
vs.
COURT OF APPEALS, HON. ROBERT BALAO and NATIONAL HOUSING to be pleaded as party-plaintiffs in the case. This
AUTHORITY, respondents. 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.
KAPUNAN, J.: Villamor, 60 SCRA 406 [1974]; Marcelo vs. de Leon,
105 Phil. 1175) because the rule is that every action
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of land by the owners must be prosecuted in the name of the real parties-in-
thereof. By virtue of such authority, petitioners offered to sell the lands, located in Tuba, Tadiangan,
Benguet to respondent National Housing Authority (NHA) to be utilized and developed as a housing
interest (Section 2, Rule 3, Rules of Court).
project.
When plaintiffs UY and Roxas sought payment of
On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the acquisition of said damages in their favor in view of the partial rescission
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,
of Resolution No. 1632 and the Deed of Absolute Sale
1
however, only five were paid for by the NHA because of the report it received from the Land
covering TCT Nos. 10998, 10999 and 11292 (Prayer
Geosciences Bureau of the Department of Environment and Natural complaint, page 5, RTC records), it becomes
Resources (DENR) that the remaining area is located at an active landslide obviously indispensable that the lot owners be
area and therefore, not suitable for development into a housing project. included, mentioned and named as party-plaintiffs,
being the real party-in-interest. UY and Roxas, as
attorneys-in-fact or apoderados, cannot by
On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the themselves lawfully commence this action, more so,
sale over the three parcels of land. The NHA, through Resolution No. 2394, when the supposed special power of attorney, in their
subsecguently offered the amount of P1.225 million to the landowners favor, was never presented as an evidence in this
as daños perjuicios. case. Besides, even if herein plaintiffs Uy and Roxas
were authorized by the lot owners to commence this
On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) of action, the same must still be filed in the name of the
Quezon City a Complaint for Damages against NHA and its General Manager principal, (Filipino Industrial Corporation vs. San
Robert Balao. Diego, 23 SCRA 706 [1968]). As such indispensable
RTC DECISION party, their joinder in the action is mandatory and the
After trial, the RTC rendered a decision declaring the cancellation of the complaint may be dismissed if not so impleaded
contract to be justified. The trial court nevertheless awarded damages to (NDC vs. CA, 211 SCRA 422 [1992]). 2
plaintiffs in the sum of P1.255 million, the same amount initially offered by NHA
to petitioners as damages. Their motion for reconsideration having been denied, petitioners seek relief
CA DECISION from this Court contending that:
Upon appeal by petitioners, the Court of Appeals reversed the decision of the Present petition
trial court and entered a new one dismissing the complaint. It held that since I. THE RESPONDENT CA ERRED IN DECLARING
there was "sufficient justifiable basis" in cancelling the sale, "it saw no reason" THAT RESPONDENT NHA HAD ANY LEGAL BASIS
for the award of damages. The Court of Appeals also noted that petitioners FOR RESCINDING THE SALE INVOLVING THE
were mere attorneys-in-fact and, therefore, not the real parties-in-interest in LAST THREE (3) PARCELS COVERED BY NHA
the action before the trial court. RESOLUTION NO. 1632.

. . . In paragraph 4 of the complaint, plaintiffs alleged II. GRANTING ARGUENDO THAT THE
themselves to be "sellers' agents" for the several RESPONDENT NHA HAD LEGAL BASIS TO
owners of the 8 lots subject matter of the case. RESCIND THE SUBJECT SALE, THE
 RESPONDENT CA NONETHELESS ERRED IN
DENYING HEREIN PETITIONERS' CLAIM TO
DAMAGES, CONTRARY TO THE PROVISIONS OF
ART. 1191 OF THE CIVIL CODE.
III. THE RESPONDENT CA ERRED IN DISMISSING
THE SUBJECT COMPLAINT FINDING THAT THE
PETITIONERS FAILED TO JOIN AS
INDISPENSABLE PARTY PLAINTIFF THE SELLING
LOT-OWNERS. 3
We first resolve the issue raised in the the third assignment of error.
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-in-
interest 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.)
SC DECISION
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 Español-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
(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:
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.
SC DECISION
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:
. . . 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. . .
Re being real parties in interest
. for housing.
SC DECISION
As petitioners are not parties, heirs, assignees, or beneficiaries of a
stipulation pour autrui under the contracts of sale, they do not, under
substantive law, possess the right they seek to enforce. Therefore, they are
not the real parties-in-interest in this case.
Petitioners not being the real parties-in-interest, any decision rendered herein
would be pointless since the same would not bind the real parties-in-
interest. 14
Nevertheless, to forestall further litigation on the substantive aspects of this
case, we shall proceed to rule on me merits. 15
Petitioners submit that respondent NHA had no legal basis to "rescind" the
1 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.
SC DECISION
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
Cause is the essential reason which moves the contracting parties to enter into
it. 19 In other words, the cause is the immediate, direct and proximate reason
which justifies the creation of an obligation through the will of the contracting
parties. 20 Cause, which is the essential reason for the contract, should be
distinguished from motive, which is the particular reason of a contracting party
which does not affect the other party. 21
For example, in a contract of sale of a piece of land, such as in this case, the
cause of the vendor (petitioners' principals) in entering into the contract is to
obtain the price. For the vendee, NHA, it is the acquisition of the land. 22 The
motive of the NHA, on the other hand, is to use said lands for housing. This is
apparent from the portion of the Deeds of Absolute Sale 23 stating:
WHEREAS, under the Executive Order No. 90 dated
December 17, 1986, the VENDEE is mandated to focus and
concentrate its efforts and resources in providing housing
assistance to the lowest thirty percent (30%) of urban income
earners, thru slum upgrading and development of sites and
services projects;
WHEREAS, Letters of Instructions Nos. 555 and 557 [as]
amended by Letter of Instruction No. 630, prescribed slum
improvement and upgrading, as well as the development of
sites and services as the principal housing strategy for dealing
with slum, squatter and other blighted communities;
xxx xxx xxx
WHEREAS, the VENDEE, in pursuit of and in compliance with
the above-stated purposes offers to buy and the VENDORS,
in a gesture of their willing to cooperate with the above policy
and commitments, agree to sell the aforesaid property
together with all the existing improvements there or belonging
to the VENDORS;
NOW, THEREFORE, for and in consideration of the foregoing
premises and the terms and conditions hereinbelow
stipulated, the VENDORS hereby, sell, transfer, cede and
convey unto the VENDEE, its assigns, or successors-in-
interest, a parcel of land located at Bo. Tadiangan, Tuba,
 Benguet containing a total area of FIFTY SIX THOUSAND
EIGHT HUNDRED NINETEEN (56,819) SQUARE METERS,
more or less . . . .
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?
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:
MEMORANDUM
TO: EDWIN G. DOMINGO
Chief, Lands Geology Division
FROM: ARISTOTLE A. RILLON
Geologist II
SUBJECT: Preliminary Assessment of
Tadiangan Housing Project in Tuba, Benguet 26
Thus, page 2 of the report states in part:
xxx 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 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. 28 Article
1318 of the Civil Code states that:
 Art. 1318. There is no contract unless the following
requisites concur:

(1) Consent of the contracting parties;

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

contract;

(3) Cause of the obligation which is established.

(Emphasis supplied.)

Therefore, assuming that petitioners are parties, assignees or beneficiaries to

2 the contract of sale, they would not be entitled to any award of damages.

WHEREFORE, the instant petition is hereby DENIED.