No. L-30573.
 October 29, 1971. Teofilo P. Purisima P2,607.50 with interest on both amounts from the date of the
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.
Agency; Obligations of an agent.—–Articles 1891 and 1909 of the Civil Code
demand the utmost good faith, fidelity, honesty, candor and fairness on the part of
the agent to his principal. The agent has an 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.
Same; Failure of agent to make full disclosure makes him guilty of breach of
his loyalty to the principal.—–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
bis principal is guilty of a breach of his loyalty to the latter and forfeits his right to
collect the commission that may be due him, 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.
Same; Duty of fidelity when not applicable.—–The duty embodied in Article
1891 of the Civil Code does 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.
132
132  SUPREME COURT REPORTS ANNOTATED  of P2.00 per square meter (Exhibit "B"). Vicente directed Gregorio to tell Oscar de
Domingo vs. Domingo
PETITION for review by certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
     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
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
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
1
Pesos (P1,000.00) was not disclosed by Gregorio to Vicente. Neither did Oscar pay
Vicente the additional amount of One Thousand Pesos (P1,000.00) by way of earnest
money. In the deed of sale was not executed on August 1, 1956 as stipulated in
Exhibit "C" nor on August 15, 1956 as extended by Vicente, Oscar told Gregorio that
he did not receive his money from his brother in the United States, for which reason
he was giving up the negotiation including the amount of One Thousand Pesos
(P1,000.00) given as earnest money to Vicente and the One Thousand Pesos
(P1,000.00) given to Gregorio aspropina or gift. When Oscar did not see him after
several weeks, Gregorio sensed something fishy. So, he went to Vicente and read a
portion of Exhibit "A" marked habit "A-1" to the effect that Vicente was still
committed to pay him 5% commission, if the sale is consummated within three
months after the expiration of the 30-day period of the exclusive agency in his favor
from the execution of the agency contract on June 2, 1956 to a purchaser brought by
Gregorio to Vicente during the said 30-day period. Vicente grabbed the original of
Exhibit "A" and tore it to pieces. Gregorio held his peace, not wanting to antagonize
Vicente further, because he had still duplicate of Exhibit "A". From his meeting with
Vicente, Gregorio proceeded to the office of the Register of Deeds of Quezon City,
where he discovered Exhibit "G' deed of sale executed on September 17, 1956 by
Amparo Diaz, wife of Oscar de Leon, over their house and lot No. 40 Denver Street,
Cubao, Quezon City, in favor Vicente as down payment by Oscar de Leon on the
purchase price of Vicente's lot No. 883 of Piedad Estate. Upon thus learning that
Vicente sold his property to the same buyer, Oscar de Leon and his wife, he
demanded in writting payment of his commission on the sale price of One Hundred
Nine Thousand Pesos (P109,000.00), Exhibit "H". He also conferred with Oscar de
Leon, who told him that Vicente went to him and asked him to eliminate Gregorio in
the transaction and that he would sell his property to him for One Hundred Four
Thousand Pesos (P104,000.0 In Vicente's reply to Gregorio's letter, Exhibit "H",
Vicente stated that Gregorio is not entitled to the 5% commission because he sold the
property not to Gregorio's buyer, Oscar de Leon, but to another buyer, Amparo Diaz,
wife of Oscar de Leon.  The duties and liabilities of a broker to his employer are essentially those which an
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. 
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
2
 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.  the heirs unless the heirs consented thereto or are estopped by having accepted the
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.  liable for estafa for failure to deliver to his principal the total amount collected by
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
correctness of his account previously rendered.5
Because of his responsibility under the aforecited article 1720, an agent is likewise
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
3
 vs. McKenna (1874) LR 10,Ch(Eng) 96,118 ... If the agent does not
conduct himself with entire fidelity towards his principal, but is
guilty of taking a secret profit or commission in regard the matter
in which he is employed, he loses his right to compensation on the
ground that he has taken a position wholly inconsistent with that of
agent for his employer, and which gives his employer, upon
discovering it, the right to treat him so far as compensation, at
least, is concerned as if no agency had existed. This may operate to
give to the principal the benefit of valuable services rendered by
the agent, but the agent has only himself to blame for that result."
xxx xxx xxx
The intent with which the agent took a secret profit has been held
immaterial where the agent has in fact entered into a relationship
inconsistent with his agency, since the law condemns the
corrupting tendency of the inconsistent relationship. Little vs.
Phipps (1911) 94 NE 260.9
As a general rule, it is a breach of good faith and loyalty to his
principal for an agent, while the agency exists, so to deal with the
subject matter thereof, or with information acquired during the
course of the agency, as to make a profit out of it for himself in
excess of his lawful compensation; and if he does so he may be
held as a trustee and may be compelled to account to his principal
for all profits, advantages, rights, or privileges acquired by him in
such dealings, whether in performance or in violation of his duties,
and be required to transfer them to his principal upon being
reimbursed for his expenditures for the same, unless the principal
has consented to or ratified the transaction knowing that benefit or
profit would accrue or had accrued, to the agent, or unless with
such knowledge he has allowed the agent so as to change his
condition that he cannot be put in status quo. The application of
this rule is not affected by the fact that the principal did not suffer
any injury by reason of the agent's dealings or that he in fact
obtained better results; nor is it affected by the fact that there is a
usage or custom to the contrary or that the agency is a gratuitous
one. (Emphasis applied.) 10
In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a
gift or propina in the amount of One Thousand Pesos (P1,000.00) from the
prospective buyer Oscar de Leon, without the knowledge and consent of his
principal, herein petitioner-appellant Vicente Domingo. His acceptance of said
substantial monetary gift corrupted his duty to serve the interests only of his
principal and undermined his loyalty to his principal, who gave him partial advance
of Three Hundred Pesos (P300.00) on his commission. As a consequence, instead of
exerting his best to persuade his prospective buyer to purchase the property on the
most advantageous terms desired by his principal, the broker, herein defendant-
appellee Gregorio Domingo, succeeded in persuading his principal to accept the
counter-offer of the prospective buyer to purchase the property at P1.20 per square
meter or One Hundred Nine Thousand Pesos (P109,000.00) in round figure for the
lot of 88,477 square meters, which is very much lower the the price of P2.00 per
square meter or One Hundred Seventy-Six Thousand Nine Hundred Fifty-Four Pesos
(P176,954.00) for said lot originally offered by his principal. 
The duty embodied in Article 1891 of the New Civil Code will not apply if the agent
or broker acted only as a middleman with the task of merely bringing together the
vendor and vendee, who themselves thereafter will negotiate on the terms and
conditions of the transaction. Neither would the rule apply if the agent or broker had
informed the principal of the gift or bonus or profit he received from the purchaser
and his principal did not object therto. 11 Herein defendant-appellee Gregorio
Domingo was not merely a middleman of the petitioner-appellant Vicente Domingo
and the buyer Oscar de Leon. He was the broker and agent of said petitioner-
appellant only. And therein petitioner-appellant was not aware of the gift of One
Thousand Pesos (P1,000.00) received by Gregorio Domingo from the prospective
buyer; much less did he consent to his agent's accepting such a gift. 
The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of
Oscar de Leon, does not materially alter the situation; because the transaction, to be
valid, must necessarily be with the consent of the husband Oscar de Leon, who is the
administrator of their conjugal assets including their house and lot at No. 40 Denver
Street, Cubao, Quezon City, which were given as part of and constituted the down
payment on, the purchase price of herein petitioner-appellant's lot No. 883 of Piedad
Estate. Hence, both in law and in fact, it was still Oscar de Leon who was the buyer. 
As a necessary consequence of such breach of trust, defendant-appellee Gregorio
Domingo must forfeit his right to the commission and must return the part of the
commission he received from his principal. 
Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from
Gregorio Domingo his one-half share of whatever amounts Gregorio Domingo
received by virtue of the transaction as his sub-agency contract was with Gregorio
Domingo alone and not with Vicente Domingo, who was not even aware of such
sub-agency. Since Gregorio Domingo received from Vicente Domingo and Oscar de
Leon respectively the amounts of Three Hundred Pesos (P300.00) and One Thousand
Pesos (P1,000.00) or a total of One Thousand Three Hundred Pesos (P1,300.00),
one-half of the same, which is Six Hundred Fifty Pesos (P650.00), should be paid by
Gregorio Domingo to Teofilo Purisima. 
4
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.  Same; Sales; Under Articles 1461 and 1462, things having a potential
WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court
of Appeals and directing defendant-appellee Gregorio Domingo: (1) to pay to the
heirs of Vicente Domingo the sum of One Thousand Pesos (P1,000.00) as moral
damages and One Thousand Pesos (P1,000.00) as attorney's fees; (2) to pay Teofilo
Purisima the sum of Six Hundred Fifty Pesos (P650.00); and (3) to pay the costs.
G.R. No. 192602. January 18, 2017.*
 
SPOUSES MAY S. VILLALUZ and JOHNNY VILLALUZ, JR.,
petitioners, vs. LAND BANK OF THE PHILIPPINES and the REGISTER OF
DEEDS FOR DAVAO CITY, respondents.
Civil Law; Agency; 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.—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, to act
in accordance with the principal’s instructions, and to carry out the agency, 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.
existence and “future goods,” i.e., those that are yet to be manufactured, raised, or
acquired, may be the objects of contracts of sale.—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
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
_______________
*  THIRD DIVISION.
467
VOL. 814, JANUARY 18, 2017 467
Villaluz vs. Land Bank of the Philippines
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. We adopt this interpretation.
Statutory Construction; In order to give effect to Articles 1347, 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.—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.
Thus, in order to give effect to Articles 1347, 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.
Civil Law; Loans; In loan transactions, it is customary for the lender to
require the borrower to execute the security contracts prior to initial drawdown.—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
5
security contract, because unless the loan proceeds are delivered, the obligations
under the security contract will not arise. 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 P3,000,000 loan to Milflores Cooperative on June 25, 1996, which
consequently gave rise to the Spouses Villaluz’s obligations under the Real Estate
Mortgage.
Same; Extinguishment of Obligations; Dation in Payment; 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
 
 
468
468 SUPREME COURT REPORTS ANNOTATED
Villaluz vs. Land Bank of the Philippines
which case the obligation is totally extinguished.—The assignment was for the
express purpose of “securing the payment of the Line/Loan, interest and charges
thereon.” 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 dation in payment under Article 1245 and did
not extinguish the loan obligation. “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.” 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.” 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.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
   Oscar R. Gonzales for petitioners.
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
_______________
1  Rollo, pp. 30-44.
 
 
469
VOL. 814, JANUARY 18, 2017 469
Villaluz vs. Land Bank of the Philippines
which seeks to set aside the Decision 2 dated September 22, 2009 and
Resolution3 dated May 26, 2010 of the Court of Appeals (CA) in C.A.-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 P600,000 to
P650,000 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.
_______________
2  Id., at pp. 10-18. Penned by Associate Justice Leoncia R. Dimagiba, with
Associate Justices Edgardo A. Camello and Edgardo T. Lloren, concurring.
3  Id., at p. 19.
4  Id., at p. 11.
5  Id.
6  Id., at p. 55.
7  Id.
470
6
470 SUPREME COURT REPORTS ANNOTATED
Villaluz vs. Land Bank of the Philippines
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 Mortgage 9in favor of Land Bank in consideration of the
P3,000,000 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 P995,500, to Milflores Cooperative on June 25, 1996. On the same
day, Agbisit borrowed the amount of P604,750 from Milflores Cooperative. Land
Bank released the remaining loan amount of P2,000,500 to Milflores Cooperative on
October 4, 1996.11
Unfortunately, Milflores Cooperative was unable to pay its obligations to Land
Bank. Thus, Land Bank filed a petition for extrajudicial 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
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
_______________
8   Id., at pp. 56-57.
9   Id., at pp. 58-61.
10  Id., at pp. 62-66.
11  Id., at p. 13.
12  Id.
 
 
471
VOL. 814, JANUARY 18, 2017 471
Villaluz vs. Land Bank of the Philippines
appointing a substitute. Accordingly, the RTC dismissed the complaint.13
On appeal, the CA affirmed the RTC Decision. In its Decision 14 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 subagent 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 subagent.” 15 Therefore, Agbisit
was allowed to appoint Milflores Cooperative as her subagent.
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
assignment was meant to cover any deficiency in the Real Estate Mortgage. 17
 
II
 
Articles 1892 and 1893 of the Civil Code provide the rules regarding the
appointment of a substitute by an agent:
_______________
13  Id., at pp. 69-72.
14  Id., at pp. 10-18.
15  Id., at pp. 14-15.
16  Id., at pp. 37-39.
17  Id., at pp. 93-105.
 
 
472
472 SUPREME COURT REPORTS ANNOTATED
Villaluz vs. Land Bank of the Philippines
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
7
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.
_______________
18  Civil Code, Art. 1881.
19  Id., Art. 1887.
20  Id., Art. 1884.
 
473
VOL. 814, JANUARY 18, 2017 473
Villaluz vs. Land Bank of the Philippines
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 authorized but a specific person is not designated, the
agent appoints a substitute who is notoriously incompetent or insolvent. In these
instances, the principal has a right of action against both the agent and the substitute
if the latter commits acts prejudicial to the principal.
The case of Escueta v. Lim21 illustrates 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 subagent 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 subagent,’ among which is precisely
the sale of the subject properties in favor of respondent.”22
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 subagent. Thus, we agree with the findings of the CA
and the RTC that Agbisit’s appointment of Milflores Cooperative was valid.
_______________
21  G.R. No. 137162, January 4, 2007, 512 SCRA 411.
22  Id., at pp. 423-424. (Citation omitted)
 
 
474
474 SUPREME COURT REPORTS ANNOTATED
Villaluz vs. Land Bank of the Philippines
III
 
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 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.
_______________
23  The Lawyers Journal, Vol. XVI, January 31, 1951, p. 50,
Tolentino,Commentaries and Jurisprudence on the Civil Code of the Philippines,
Vol. IV, p. 629 (1991); and Paras, Civil Code of the Philippines Annotated, Vol. IV,
p. 818 (2012).
 
 
475
VOL. 814, JANUARY 18, 2017 475
Villaluz vs. Land Bank of the Philippines
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 1347, 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
8
 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
[P3,000,000].”26 The consideration is certainly not an impossible one because Land
Bank was capable of granting the P3,000,000 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-à-
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
_______________
24  People v. Garcia, 85 Phil. 651, 654-655 (1950).
25  Civil Code, Art. 1348 provides: Impossible things or services cannot be the
object of contracts.
26  Rollo, p. 58.
27  Civil Code, Art. 2086.
28  A loan contract is a real contract, not consensual, and, as such, is perfected
only upon the delivery of the object of the contract. See Naguiat v. Court of Appeals,
G.R. No. 118375, October 3, 2003, 412 SCRA 591, 597.
 
 
476
476 SUPREME COURT REPORTS ANNOTATED
Villaluz vs. Land Bank of the Philippines
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 P3,000,000 loan to Milflores Cooperative on June 25, 1996, which
consequently gave rise to the Spouses Villaluz’s obligations under the Real Estate
Mortgage.
 
IV
 
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
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 dation in payment under Article 1245 32 and did not extinguish
the loan
_______________
29  Id., at p. 599.
30  Rollo, pp. 38-39.
31  Id., at p. 62.
32  Art. 1245. Dation in payment, whereby property is alienated to the creditor
in satisfaction of a debt in money, shall be governed by the law of sales.
 
 
477
VOL. 814, JANUARY 18, 2017 477
Villaluz vs. Land Bank of the Philippines
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.
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
_______________
33  Development Bank of the Philippines v. Court of Appeals, G.R. No. 118342,
January 5, 1998, 284 SCRA 14, 25.
34  Philippine National Bank v. Dee, G.R. No. 182128, February 19, 2014, 717
SCRA 14, 27-28.
9
 35  Rollo, p. 63.
36  Art. 1255. The debtor may cede or assign his property to his creditors in
payment of his debts. This cession, unless there is stipulation to the contrary, shall
only release the debtor from responsibility for the net proceeds of the thing assigned.
The agreements which, on the effect of the cession, are made between the debtor and
his creditors shall be governed by special laws.
37  Yulim International Company Ltd. v. International Exchange Bank (now
Union Bank of the Philippines), G.R. No. 203133, February 18, 2015, 751 SCRA
129, 143. (Citation omitted)
 
478
478 SUPREME COURT REPORTS ANNOTATED
Villaluz vs. Land Bank of the Philippines
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 Articles 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 C.A.-G.R. CV
No. 01307 are AFFIRMED.
SO ORDERED.
Velasco, Jr. (Chairperson), Bersamin, Reyes and Caguioa,** JJ., concur.
Petition denied, judgment and resolution affirmed.
_______________
38  Art. 1900. So far as third persons are concerned, an act is deemed to have
been performed within the scope of the agent’s authority, if such act is within the
terms of the power of attorney, as written, even if the agent has in fact exceeded the
limits of his authority according to an understanding between the principal and the
agent.
39  Vales v. Villa, 35 Phil. 769, 788 (1916).
** Designated as fifth member of the Third Division per Special Order No. 2417
dated January 4, 2017.
 
 
479
VOL. 814, JANUARY 18, 2017 479
Villaluz vs. Land Bank of the Philippines
Notes.—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. (Philippine National Bank vs. Dee, 717 SCRA 14 [2014])
In agency, the agent binds himself to render some service or to do something in
representation or on behalf of the principal, with the consent or authority of the latter.
(Jusayan vs. Sombilla, 746 SCRA 437 [2015])
——o0o——
G.R. No. 167552. April 23, 2007.*
EUROTECH INDUSTRIAL TECHNOLOGIES, INC., petitioner, vs. EDWIN
CUIZON and ERWIN CUIZON, respondents.
Agency; 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.—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. 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. 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. 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. 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.
Same; Elements.—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.
Same; Article 1897 of the Civil Code reinforces the familiar doctrine that an
agent, who acts as such, is not personally liable to the party with whom he contracts;
Exceptions.—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
10
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  a Deed, is not a real property in interest who should be impleaded; A real party in
_______________
* acted within his authority as an agent, who did not acquire any right nor incur any
 THIRD DIVISION.
585
VOL. 521, APRIL 23, 2007  585  “stands to be benefited or injured by the judgment in the suit, or the party entitled to
Eurotech Industrial Technologies, Inc. vs. Cuizon
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.
Same; Managers; The position of manager is unique in that it presupposes the
grant of broad powers with which to conduct the business of the principal.—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.
Same; In case of excess of authority by the agent, the law does not say that a
third person can recover from both the principal and the agent.—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.” 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.
586
586  SUPREME COURT REPORTS ANNOTATED  Kingdom, petitioner refused to deliver the same to respondents without their having
Eurotech Industrial Technologies, Inc. vs. Cuizon
Same; Actions; Parties; Words and Phrases; An agent acting within his
authority as such, who did not acquire any right nor incur any liability arising from
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.—As we declare that respondent EDWIN
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
the avails of the suit.” In this respect, we sustain his exclusion as a defendant in the
suit before the court a quo.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
     Nilo G. Ahat for petitioner.
     Zosa and Quijano Law Offices for respondents.
CHICO-NAZARIO, J.:
Before Us is a petition for review by certiorari assailing the Decision1 of the Court of
Appeals dated 10 August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R.
SP No. 71397 entitled, "Eurotech Industrial Technologies, Inc. v. Hon. Antonio T.
Echavez." The assailed Decision and Resolution affirmed the Order3 dated 29
January 2002 rendered by Judge Antonio T. Echavez ordering the dropping of
respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-
19672.
The generative facts of the case are as follows:
Petitioner is engaged in the business of importation and distribution of various
European industrial equipment for customers here in the Philippines. It has as one of
its customers Impact Systems Sales ("Impact Systems") which is a sole
proprietorship owned by respondent ERWIN Cuizon (ERWIN). Respondent EDWIN
is the sales manager of Impact Systems and was impleaded in the court a quo in said
capacity.
From January to April 1995, petitioner sold to Impact Systems various products
allegedly amounting to ninety-one thousand three hundred thirty-eight (₱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
fully settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent
11
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. 09339prepared by said power
company and an official receipt dated 15 August 1995 issued by Impact
Systems.10Alarmed by this development, petitioner made several demands upon
respondents to pay their obligations. As a result, respondents were able to make
partial payments to petitioner. On 7 October 1996, 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
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 Answer14 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
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 Memorandum21 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 –
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
12
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.  who induced it into selling the one unit of sludge pump to Impact Systems and
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:
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
signing the Deed of Assignment. Petitioner directs the attention of this Court to the
fact that respondents are bound not only by their principal and agent relationship but
are in fact full-blooded brothers whose successive contravening acts bore the obvious
signs of conspiracy to defraud petitioner.27
In his Comment,28 respondent EDWIN again posits the argument that he is not a real
party in interest in this case and it was proper for the trial court to have him dropped
as a defendant. He insists that he was a mere agent of Impact Systems which is
owned by ERWIN and that his status as such is known even to petitioner as it is
alleged in the Complaint that he is being sued in his capacity as the sales manager of
the said business venture. Likewise, respondent EDWIN points to the Deed of
Assignment which clearly states that he was acting as a representative of Impact
Systems in said transaction. 
We do not find merit in the petition.
In a contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another with the 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.
13
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.
when the agent acted within the bounds of his authority. Under this, the agent is
completely absolved of any liability. The second part of the said provision presents
the situations when the agent himself becomes liable to a third party when he
expressly binds himself or he exceeds the limits of his authority without giving
notice of his powers to the third person. However, it must be pointed out that in case
of excess of authority by the agent, like what petitioner claims exists here, the law
does not say that a third person can recover from both the principal and the agent.40

The Deed of Assignment clearly states that respondent EDWIN signed thereon as the As we declare that respondent EDWIN acted within his authority as an agent, who
sales manager of Impact Systems. As discussed elsewhere, the position of manager is did not acquire any right nor incur any liability arising from the Deed of Assignment,
unique in that it presupposes the grant of broad powers with which to conduct the it follows that he is not a real party in interest who should be impleaded in this case.
business of the principal, thus: 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
The powers of an agent are particularly broad in the case of one acting as a general his exclusion as a defendant in the suit before the court a quo.
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 WHEREFORE, premises considered, the present petition is DENIED and the
transactions and concerns which are incidental or appurtenant to the business Decision dated 10 August 2004 and Resolution dated 17 March 2005 of the Court of
entrusted to his care and management. In the absence of an agreement to the Appeals in CA-G.R. SP No. 71397, affirming the Order dated 29 January 2002 of the
contrary, a managing agent may enter into any contracts that he deems reasonably Regional Trial Court, Branch 8, Cebu City, is AFFIRMED. 
necessary or requisite for the protection of the interests of his principal entrusted to
his management. x x x.35 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. 
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 SO ORDERED.
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 of his principal would have been adversely affected and he
would have violated his fiduciary relation with his principal. 

We likewise take note of the fact that in this case, petitioner is seeking to recover
both from respondents ERWIN, the principal, and EDWIN, the agent. It is well to
state here that Article 1897 of the New Civil Code upon which petitioner anchors its
claim against respondent EDWIN "does not hold that in case of excess of authority,
both the agent and the principal are liable to the other contracting party." 39 To
reiterate, the first part of Article 1897 declares that the principal is liable in cases

14

G.R. No. 174610. July 14, 2009.*
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.
Remedial Law; Appeals; Only questions of law may be raised in a petition for
review under Rule 45 of the Revised Rules of Court.—Basic is the rule in this
jurisdiction that only questions of law may
_______________
* THIRD DIVISION.
623
, 623
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.
Same; Same; Where the factual findings of both the trial court and the Court
of Appeals coincide, the same are binding on this Court.—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.
Civil Law; Agency; 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.—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.
Same; Interests; 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.—Consistent with the foregoing jurisprudence, and later on
affirmed in
624
624 SUPREME COURT REPORTS ANNOTATED
more recent cases, 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%).
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
   The facts are stated in the opinion of the Court.
  Del Rosario & Del Rosario for petitioners.
  Arellano Law Firm for respondents.
CHICO-NAZARIO, J.:
Assailed in this Petition for Review on Certiorari, under Rule 45 of the Revised
Rules of Court, is the Decision1dated 22 June 2006 and Resolution2 dated 7
September 2006 of the Court of Appeals in CA-G.R. CV No. 74987. The appellate
court affirmed with modification the Decision 3dated 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:
_______________
1 Penned by Associate Justice Fernanda Lampas-Peralta with Associate Justices
Eliezer R. delos Santos and Myrna Dimaranan-Vidal, concurring; Rollo, pp. 60-75.
2 Rollo, p. 91.
3 Issued by Judge Artemio S. Tipon; Rollo, pp. 130-135.
625
, 625
 
15
 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 filed with the RTC on 2 June 1998 a Complaint 4for 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 (P537,800.00) repre-
_______________
4 Records, pp. 1-6.
5 Sprint Chassis 2-07 with Plate No. NUP-261 Serial No. ICAZ-165118 and
Sprint Chassis 2-55 with Plate No. NUP-533 Serial No. MOTZ-160080.
626
626 SUPREME COURT REPORTS ANNOTATED
senting unpaid rentals and the replacement cost for the lost chassis units.
2. Ordering [Soriamont and Ronas], jointly and severally, to pay [Sprint] the
amount of Fifty-Three Thousand Five Hundred Four Pesos and Forty-Two centavos
(P53,504.42) as interest and penalties accrued as of March 31, 1998 and until full
satisfaction thereof.
3. Ordering [Soriamont and Ronas], jointly and severally, to pay [Sprint] the
amount equivalent to twenty-five percent (25%) of the total amount claimed for and
as attorney’s fees plus Two Thousand Pesos (P2,000.00) per court appearance.
4. Ordering [Soriamont and Ronas] to pay the cost of the suit.”6
Soriamont and Ronas filed with the RTC their Answer with Compulsory
Counterclaim.7 Soriamont admitted therein to having a lease agreement with Sprint,
but only for the period 21 October 1993 to 21 January 1994. It denied entering into
an ELA with respondent Sprint on 17 December 1993 as alleged in the Complaint.
Soriamont further argued that it was not a party-in-interest in Civil Case No. 98-
89047, since it was PTS and Rebson Trucking that withdrew the subject equipment
from the container yard of Sprint. Ronas was likewise not a party-in-interest in the
case since his actions, assailed in the Complaint, were executed as part of his regular
functions as an officer of Soriamont.
Consistent with their stance, Soriamont and Ronas filed a Third-Party
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
_______________
6 Records, p. 5.
7 Id., at pp. 30-34.
8 Id., at pp. 50-53.
627
, 627
Papa failed to file an answer to the Third-Party Complaint, he was declared by the
RTC to be in default.9
After trial, the RTC rendered its Decision in Civil Case No. 98-89047 on 22
April 2002, finding Soriamont liable for the claim of Sprint, while absolving Ronas
and Papa from any liability. According to the RTC, Soriamont authorized PTS to
withdraw the subject equipment. The dispositive portion of the RTC Decision reads:
“WHEREFORE, judgment is hereby rendered in favor of [herein respondent]
Sprint Transport Services, Inc. and against [herein petitioner] Soriamont Steamship
Agencies, Inc., ordering the latter to pay the former the following:
• Three hundred twenty thousand pesos (P320,000) representing the
value of the two chassis units with interest at the legal rate from the
filing of the complaint;
• Two hundred seventy thousand one hundred twenty four & 42/100
pesos (P270,124.42) representing unpaid rentals with interest at the
legal rate from the filing of the complaint;
• P20,000.00 as 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.
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
_______________
9  Order dated 15 January 1999; Records, p. 84.
16
 10 Rollo, p. 134.
628
628 SUPREME COURT REPORTS ANNOTATED
clause; (2) on 22 and 25 June 1996, Soriamont, through PTS and Rebson Trucking,
withdrew Sprint Chassis 2-07 with Plate No. NUP-261 Serial No. ICAZ-165118, and
Sprint Chassis 2-55 with Plate No. NUP-533 Serial MOTZ-160080, from the
container yard of Sprint; (3) Soriamont authorized the withdrawal by PTS and
Rebson Trucking of the subject equipment from the container yard of Sprint; and (4)
the subject pieces of equipment were never returned to Sprint. In a letter to Sprint
dated 19 June 1997, Soriamont relayed that it was still trying to locate the subject
equipment, and requested the former to refrain from releasing more equipment to
respondent PTS and Rebson Trucking.
Hence, the Court of Appeals decreed:
“WHEREFORE, the appealed Decision dated April 22, 2002 of the trial court is
affirmed, subject to the modification that the specific rate of legal interest per annum
on both the P320,000.00 representing the value of the two chassis units, and on the
P270,124.42 representing the unpaid rentals, is six percent (6%), to be increased to
twelve percent (12%) from the finality of this Decision until its full satisfaction.” 11
In a Resolution dated 7 September 2006, the Court of Appeals denied the Motion
for Reconsideration of Soriamont for failing to present any cogent and substantial
matter that would warrant a reversal or modification of its earlier Decision.
Aggrieved, Soriamont12 filed the present Petition for Review with the following
assignment of errors:
I.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR IN
LIMITING AS SOLE ISSUE FOR RESOLUTION OF
_______________
11 Id., at pp. 74-75.
12 Patrick Ronas was named as a petitioner in the title, but he did not actually
join Soriamont in the instant Petition considering that he was already absolved from
any liability by the RTC.
629
, 629
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,
630
630 SUPREME COURT REPORTS ANNOTATED
and damages for the subsequent loss, of the subject equipment.
Soriamont anchors its defense on its denial that it issued an authorization to PTS
to withdraw the subject equipment from the container yard of Sprint. Although
Soriamont admits that the authorization letter dated 19 June 1996 was under its
letterhead, said letter was actually meant for and sent to Harman Foods as shipper. It
was then Harman Foods that tasked PTS to withdraw the subject equipment from
Sprint. Soriamont insists that the Court of Appeals merely presumed that an agency
relationship existed between Soriamont and PTS, since there was nothing in the
records to evidence the same. Meanwhile, there is undisputed evidence that it was
PTS that withdrew and was last in possession of the subject equipment. Soriamont
further calls attention to the testimony of Enrico Valencia (Valencia), a witness for
Sprint, actually supporting the position of Soriamont that PTS did not present any
authorization from Soriamont when it withdrew the subject equipment from the
container yard of Sprint. Assuming, for the sake of argument that an agency
relationship did exist between Soriamont and PTS, the latter should not have been
exonerated from any liability. The acts of PTS that resulted in the loss of the subject
equipment were beyond the scope of its authority as supposed agent of Soriamont.
Soriamont never ratified, expressly or impliedly, such acts of PTS.
Soriamont is essentially challenging the sufficiency of the evidence on which the
Court of Appeals based its conclusion that PTS withdrew the subject equipment from
the container yard of Sprint as an agent of Soriamont. In effect, Soriamont is raising
17
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 lim-
631
, 631
ited 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
_______________
13 Cristobal v. Court of Appeals, 353 Phil. 318, 326; 291 SCRA 122, 128
(1998).
14 National Steel Corporation v. Court of Appeals, 347 Phil. 345, 365-366; 283
SCRA 45, 66-67 (1997).
15 Generally, factual findings of the trial court, affirmed by the Court of
Appeals, are final and conclusive and may not be reviewed on appeal. The
established exceptions are: (1) when the inference made is manifestly mistaken,
absurd or impossible; (2) when there is grave abuse of discretion; (3) when the
findings are grounded entirely on speculations, surmises or conjectures; (4) when the
judgment of the Court of Appeals is based on 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 of fact are
conclusions without citation of specific evidence on which they are based; (8) when
the Court
632
632 SUPREME COURT REPORTS ANNOTATED
over the same evidence considered by the Court of Appeals and the RTC.
In Republic v. Court of Appeals,16 we explained that:
“In civil cases, the party having the burden of proof must establish his case by a
preponderance of evidence. Stated differently, the general rule in civil cases is that a
party having the burden of proof of an essential fact must produce a preponderance
of evidence thereon (I Moore on Facts, 4, cited in Vicente J. Francisco, The Revised
Rules of Court in the Philippines, Vol. VII, Part II, p. 542, 1973 Edition). By
preponderance of evidence is meant simply evidence which is of greater weight, or
more convincing than that which is offered in opposition to it (32 C.J.S., 1051), The
term ‘preponderance of evidence’ means the weight, credit and value of the
aggregate evidence on either side and is usually considered to be synonymous with
the terms ‘greater weight of evidence’ or ‘greater weight, of the credible evidence.’
Preponderance of the evidence is a phrase which, in the last analysis, means
probability of the truth. Preponderance of the evidence means evidence which is
more convincing to the court as worthy of belief than that which is offered in
opposition thereto.
x x x.” (20 Am. Jur., 1100-1101)”
After a review of the evidence on record, we rule that the preponderance of
evidence indeed supports the existence of an agency relationship between Soriamont
and PTS.
It is true that a person dealing with an agent is not authorized, under any
circumstances, to trust blindly the 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 Appeals manifestly overlooked certain relevant facts not disputed by the parties
and which, if properly considered, would justify a different conclusion; and (9) when
the findings of fact of the Court of Appeals are premised on the absence of evidence
and are contradicted by the evidence on record. (Child Learning Center, Inc. v.
Tagorio, G.R. No. 150920, 25 November 2005, 476 SCRA 236, 241-242.)
16 G.R. No. 84966, 21 November 1991, 204 SCRA 160, 168-169.
633
, 633
of his authority. The settled rule is that persons dealing with an assumed agent are
bound at their peril; and if they would hold the principal liable, they must ascertain
not only the fact of agency, but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to prove it. Sprint has
successfully discharged this burden.
The ELA executed on 17 December 1993 between Sprint, as lessor, and
Soriamont, as lessee, of chassis units, explicitly authorized the latter to appoint a
representative who shall withdraw and return the leased chassis units to Sprint, to
wit:
EQUIPMENT LEASE AGREEMENT
between
SPRINT TRANSPORT SERVICES, INC. (LESSOR)
18
 And 17 Records, p. 9.
SORIAMONT STEAMSHIP AGENCIES, INC. 18 Id., at p. 13.
(LESSEE) 19 Id., at pp. 213-214.
TERMS and CONDITIONS 635
xxxx , 635
4. Equipment Interchange Receipt (EIR) as mentioned herein is a  
document accomplished every time a chassis is withdrawn and Court:
returned to a designated depot. The EIR relates the condition of the Q. Who among the two, who withdrew?
chassis at the point of on-hire/off-hire duly acknowledged by the A. The representative of Soriamont Steamship Agencies, Inc., Your Honor.
LESSOR, Property Custodian and the LESSEE’S authorized Atty. Porciuncula:
representative. Q. And when were these chassis withdrawn, Mr. Witness?
xxxx A. June 1996, Sir.
5. Chassis Withdrawal/Return Slip as mentioned herein is that Q. Will you kindly tell this Honorable Court what do you mean by
document where the LESSEE authorizes his representative to withdrawing the chassis units from your container yard?
withdraw/return the chassis on his behalf. Only persons with a duly Witness:
accomplished and signed authorization slip shall be entertained by the   Before they can withdraw the chassis they have to present withdrawal
LESSOR for purposes of withdrawal/return of the chassis. The authority, Sir.
signatory in the Withdrawal/Return Slip has to be the signatory of the Atty. Porciuncula:
corresponding Lease Agreement634   And what is this withdrawal authority?
634 SUPREME COURT REPORTS ANNOTATED A. This is to prove that they are authorizing their representative to get from
or the LESSEE’s duly authorized representative(s).”17 (Emphases ours.) us a chassis unit.
Soriamont, though, avers that the aforequoted ELA was only for 21 October Q. And who is this authorization send to you, Mr. Witness?
1993 to 21 January 1994, and no longer in effect at the time the subject pieces of A. Sometime a representative bring to our office the letter or the
equipment were reportedly withdrawn and lost by PTS. This contention of Soriamont authorization or sometime thru fax, Sir.
is without merit, given that the same ELA expressly provides for the “automatic” Q. In this particular incident, Mr. Witness, how was it sent?
renewal thereof in paragraph 24, which reads: A. By fax, Sir.
“There shall be an automatic renewal of the contract subject to the same terms Q. Is this standard operating procedure of Sprint Transport Services, Inc.?
and conditions as stipulated in the original contract unless terminated by either party A. Yes, Sir, if the trucking could not bring to our office the original copy of
in accordance with paragraph no. 23 hereof. However, in this case, termination will the authorization they have to send us thru fax, but the original copy of
take effect immediately.”18 the authorization will be followed.
There being no showing that the ELA was terminated by either party, then it was Atty. Porciuncula:
being automatically renewed in accordance with the aforequoted paragraph 24. Q. Mr. Witness, I am showing to you two documents of Soriamont
It was, therefore, totally regular and in conformity with the ELA that PTS and Steamship Agencies, Inc. letter head with the headings Authorization,
Rebson Trucking should appear before Sprint in June 1996 with authorization letters, are these the same withdrawal authority that you mentioned awhile
issued by Soriamont, for the withdrawal of the subject equipment. 19 On the witness ago?
stand, Valencia testified, as the operations manager of Sprint, as follows: A. Yes, Sir.636
Atty. Porciuncula: SUPREME COURT REPORTS ANNOTATED
Q. Mr. Witness, as operation manager, are you aware of any transactions  
between Sprint Transport Services, Inc. and the defendant Soriamont Atty. Porciuncula:
Steamship Agencies, Inc.?   Your Honor, at this point may we request that these documents
A. Yes, Sir. identified by the witness be marked as Exhibits “JJ” and “KK”, Your
Q. What transactions are these, Mr. Witness? Honor.
A. They got from us chassis, Sir. Court:
_______________   Mark them.

19
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.637
, 637
 
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. 
_______________
20 TSN, 4 August 2000, pp. 5-16.
638
638 SUPREME COURT REPORTS ANNOTATED
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.
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:
_______________
21 Records, p. 178.
639
, 639
 
20
 “Art. 1897. The agent who acts as such is not personally liable to the party
with whom he contracts, unless he expressly binds himself or exceeds the limits of
his authority without giving such party sufficient notice of his powers.”
The burden falls upon Soriamont to prove its affirmative allegation that PTS
acted in any manner in excess of its authority as agent, thus, resulting in the loss of
the subject equipment. To recall, the subject equipment was withdrawn and used by
PTS with the authority of Soriamont. And for PTS to be personally liable, as agent, it
is vital that Soriamont be able to prove that PTS damaged or lost the said equipment
because it acted contrary to or in excess of the authority granted to it by Soriamont.
As the Court of Appeals and the RTC found, however, Soriamont did not adduce any
evidence at all to prove said allegation. Given the lack of evidence that PTS was in
any way responsible for the loss of the subject equipment, then, it cannot be held
liable to Sprint, or even to Soriamont as its agent. In the absence of evidence
showing that PTS acted contrary to or in excess of the authority granted to it by its
principal, Soriamont, this Court cannot merely presume PTS liable to Soriamont as
its agent. The only thing proven was that Soriamont, through PTS, withdrew the two
chassis units from Sprint, and that these have never been returned to Sprint.
Considering our preceding discussion, there is no reason for us to depart from the
general rule that the findings of fact of the Court of Appeals and the RTC are already
conclusive and binding upon us.
Finally, the adjustment by the Court of Appeals with respect to the applicable
rate of legal interest on the P320,000.00, representing the value of the subject
equipment, and on the P270,124.42, representing the unpaid rentals awarded in favor
of Sprint, is proper and with legal basis. Under Article 2209 of the Civil Code, when
an obligation not constituting a loan or forbearance of money is breached, then an
interest on the amount of damages awarded may be im-
640
640 SUPREME COURT REPORTS ANNOTATED
posed 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 Appeals23explained, 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
_______________
22 Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July
1994, 234 SCRA 78.
23 Id., at pp. 95-96.
641
, 641
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.
21

G.R. No. 151319. November 22, 2004
MANILA MEMORIAL PARK CEMETERY, INC., petitioner, vs. PEDRO L.
LINSANGAN, respondent.
Actions; Appeals; Jurisdiction; 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; Exceptions.—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. In BPI Investment Corporation v. D.G. Carreon
Commercial Corporation, 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.
_______________
*
 SECOND DIVISION.
378
378  SUPREME COURT REPORTS ANNOTATED  should have been put on guard when their agreement was not reflected in the
Manila Memorial Park Cemetery, Inc. vs. Linsangan
Contracts; Agency; Elements; 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.—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. 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.
Same; Same; The basis for agency is representation and a person dealing with
an agent is put upon inquiry and must discover upon his peril the authority of the
agent—if he does not make such an inquiry, he is chargeable with knowledge of the
agent’s authority and his ignorance of that authority will not be any excuse; The
principal 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.—It is a settled rule that persons dealing with an agent are
bound at their peril, if they would hold the principal liable, to ascertain not only the
fact of agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it. The basis for agency is
representation and a person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent. If he does not make such an
inquiry, he is chargeable with knowledge of the agent’s authority and his ignorance
of that authority will not be any excuse. 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. 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.
Same; Same; Attorneys; A greater degree of caution should be expected of
lawyers especially in dealings involving legal docu-
379
VOL. 443, NOVEMBER 22, 2004  379 
Manila Memorial Park Cemetery, Inc. vs. Linsangan
ments.—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. Atty. Linsangan as a
practicing lawyer for a relatively long period of time when he signed the contract
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.
22
 Same; Same; Words and Phrases; The acts of an agent beyond the scope of
his authority do not bind the principal, unless he ratifies them, expressly or
impliedly.—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.
Same; Same; Same; Ratification in agency is the adoption or confirmation by
one person of an act performed on his behalf by another without authority; If
material facts were suppressed or unknown, there can be no valid ratification
regardless of the purpose or lack thereof in concealing such facts and regardless of
the parties between whom the question of ratification may arise, unless the
principal’s ignorance of the material facts and circumstances was willful,
380
380  SUPREME COURT REPORTS ANNOTATED  we refuse to hold MMPCI liable on this score.
Manila Memorial Park Cemetery, Inc. vs. Linsangan
or that the principal chooses to act in ignorance of the facts.—Ratification in
agency is the adoption or confirmation by one person of an act performed on his
behalf by another without authority. The substance of the doctrine is confirmation
after conduct, amounting to a substitute for a prior authority. Ordinarily, the principal
must have full knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who assumed to act as
agent. Thus, if material facts were suppressed or unknown, there can be no valid
ratification and this regardless of the purpose or lack thereof in concealing such facts
and regardless of the parties between whom the question of ratification may arise.
Nevertheless, this principle does not apply if the principal’s ignorance of the material
facts and circumstances was willful, or that the principal chooses to act in ignorance
of the facts. However, in the absence of circumstances putting a reasonably prudent
man on inquiry, ratification cannot be implied as against the principal who is
ignorant of the facts.
Estoppel; Elements.—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.
Same; 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; Estoppel must be intentional and
unequivocal, for when misapplied, it can easily become a most convenient and
effective means of injustice.—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 reason-
381
VOL. 443, NOVEMBER 22, 2004  381 
Manila Memorial Park Cemetery, Inc. vs. Linsangan
able care and circumspection. 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. In view of the lack of sufficient proof showing estoppel,
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
     Mario V. Andres and Alma D. Fernandez-Mallongafor petitioner.
     Gerard M. Linsangan for respondent.
TINGA, J.:
For resolution in this case is a classic and interesting texbook question in the law on
agency.
This is a petition for review assailing the Decision1 of the Court of Appeals 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 Cemetery, Inc. et al.," finding
Manila Memorial Park Cemetery, Inc. (MMPCI) jointly and severally liable with
Florencia C. Baluyot to respondent Atty. Pedro L. Linsangan.
The facts of the case are as follows:
Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called
Garden State at the Holy Cross Memorial Park owned by petitioner (MMPCI).
According to Baluyot, a former owner of a memorial lot under Contract No. 25012
was no longer interested in acquiring the lot and had opted to sell his rights subject to
reimbursement of the amounts he already paid. The contract was for P95,000.00.
Baluyot reassured Atty. Linsangan that once reimbursement is made to the former
buyer, the contract would be transferred to him. Atty. Linsangan agreed and gave
23
Baluyot P35,295.00 representing the amount to be reimbursed to the original buyer
and to complete the down payment to MMPCI.3 Baluyot issued handwritten and
typewritten receipts for these payments.4 
Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued
Contract No. 28660, a new contract covering the subject lot in the name of the latter
instead of old Contract No. 25012. Atty. Linsangan protested, but Baluyot assured
him that he would still be paying the old price of P95,000.00 with P19,838.00
credited as full down payment leaving a balance of about P75,000.00.5 
Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11
(15), Block 83, Garden Estate I denominated as Contract No. 28660 and the Official
Receipt No. 118912 dated 6 April 1985 for the amount of P19,838.00. Contract No.
28660 has a listed price of P132,250.00. Atty. Linsangan objected to the new
contract price, as the same was not the amount previously agreed upon. To convince
Atty. Linsangan, Baluyot executed a document6 confirming that while the contract
price is P132,250.00, Atty. Linsangan would pay only the original price of
P95,000.00.
The document reads in part:
The monthly installment will start April 6, 1985; the amount of P1,800.00
and the difference will be issued as discounted to conform to the previous
price as previously agreed upon. --- P95,000.00
Prepared by:
(Signed)
(MRS.) FLORENCIA C. BALUYOT
Agency Manager
Holy Cross Memorial Park
4/18/85
Dear Atty. Linsangan:
This will confirm our agreement that while the offer to purchase under
Contract No. 28660 states that the total price of P132,250.00 your
undertaking is to pay only the total sum of P95,000.00 under the old price.
Further the total sum of P19,838.00 already paid by you under O.R. #
118912 dated April 6, 1985 has been credited in the total purchase price
thereby leaving a balance of P75,162.00 on a monthly installment of
P1,800.00 including interests (sic) charges for a period of five (5) years.
(Signed)
FLORENCIA C. BALUYOT
By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted
Official Receipt No. 118912. As requested by Baluyot, Atty. Linsangan issued
twelve (12) postdated checks of P1,800.00 each in favor of MMPCI. The next year,
or on 29 April 1986, Atty. Linsangan again issued twelve (12) postdated checks in
favor of MMPCI.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660
was cancelled for reasons the latter could not explain, and presented to him another
proposal for the purchase of an equivalent property. He refused the new proposal and
insisted that Baluyot and MMPCI honor their undertaking.
For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty.
Linsangan filed a Complaint7 for Breach of Contract and Damages against the
former.
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 
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
24
only the down payment, it allowed her to continue to receive postdated checks from
Atty. Linsangan, which it in turn consistently encashed. 14  court's finding that Baluyot was an agent of MMPCI at the time the disputed contract
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  overlooked, disregarded, or misinterpreted facts of weight and significance, its
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  status as a long-practicing lawyer. MMPCI likewise claims that the Court of Appeals
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  position, his profession as a lawyer is immaterial to the validity of the subject
The Court of Appeals affirmed the decision of the trial court. It upheld the trial
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
factual findings and conclusions must be given great weight and should not be
disturbed by this Court on appeal.
WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and
the appealed decision in Civil Case No. 88-1253 of the Regional Trial
Court, National Capital Judicial Region, Branch 57 of Makati, is hereby
AFFIRMED in toto.
SO ORDERED.23 
MMPCI filed its Motion for Reconsideration,24 but the same was denied for lack of
merit.25 
In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously
erred in disregarding the plain terms of the written contract and Atty. Linsangan's
failure to abide by the terms thereof, which justified its cancellation. In addition,
even assuming that Baluyot was an agent of MMPCI, she clearly exceeded her
authority and Atty. Linsangan knew or should have known about this considering his
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
25
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  the trial court and the Court of Appeals, Baluyot was an agent of MMPCI, having
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  Baluyot alone. Nowhere is there any indication that the same came from MMPCI or
In the case at bar, the Court of Appeals committed several errors in the apprehension
of the facts of the case, as well as made conclusions devoid of evidentiary support,
hence we review its findings of fact.
By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of
the latter.33 Thus, the elements of agency are (i) consent, express or implied, of the
parties to establish the relationship; (ii) the object is the execution of a juridical act in
relation to a third person; (iii) the agent acts as a representative and not for himself;
and (iv) the agent acts within the scope of his authority.34 
In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under
its Agency Manager Agreement; an agency manager such as Baluyot is considered
an independent contractor and not an agent.35 However, in the same contract, Baluyot
as agency manager was authorized to solicit and remit to MMPCI offers to purchase
interment spaces belonging to and sold by the latter.36 Notwithstanding the claim of
MMPCI that Baluyot was an independent contractor, the fact remains that she was
authorized to solicit solely for and in behalf of MMPCI. As properly found both by
represented the interest of the latter, and having been allowed by MMPCI to
represent it in her dealings with its clients/prospective buyers.
Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be
bound by the contract procured by Atty. Linsangan and solicited by Baluyot.
Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment
spaces obtained on forms provided by MMPCI. The terms of the offer to purchase,
therefore, are contained in such forms and, when signed by the buyer and an
authorized officer of MMPCI, becomes binding on both parties.
The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated
by MMPCI showed a total list price of P132,250.00. Likewise, it was clearly stated
therein that "Purchaser agrees that he has read or has had read to him this agreement,
that he understands its terms and conditions, and that there are no covenants,
conditions, warranties or representations other than those contained herein."37 By
signing the Offer to Purchase, Atty. Linsangan signified that he understood its
contents. That he and Baluyot had an agreement different from that contained in the
Offer to Purchase is of no moment, and should not affect MMPCI, as it was
obviously made outside Baluyot's authority. To repeat, Baluyot's authority was
limited only to soliciting purchasers. She had no authority to alter the terms of the
written contract provided by MMPCI. The document/letter "confirming" the
agreement that Atty. Linsangan would have to pay the old price was executed by
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
26
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.
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.
27
Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As
far as MMPCI is concerned, the contract price was P132,250.00, as stated in the
Offer to Purchase signed by Atty. Linsangan and MMPCI's authorized officer. The
down payment of P19,838.00 given by Atty. Linsangan was in accordance with the
contract as well. Payments of P3,235.00 for at least two installments were likewise in
accord with the contract, albeit made through a check and partly in cash. In view of
Baluyot's failure to give her share in the payment, MMPCI received only P1,800.00
checks, which were clearly insufficient payment. In fact, Atty. Linsangan would
have incurred arrearages that could have caused the earlier cancellation of the
contract, if not for MMPCI's application of some of the checks to his account.
However, the checks alone were not sufficient to cover his obligations.
If MMPCI was aware of the arrangement, it would have refused the latter's check
payments for being insufficient. It would not have applied to his account the
P1,800.00 checks. Moreover, the fact that Baluyot had to practically explain to
MMPCI's Sales Manager the details of her "arrangement" with Atty. Linsangan and
admit to having made an error in entering such arrangement confirm that MMCPI
had no knowledge of the said agreement. It was only when Baluyot filed her Answer
that she claimed that MMCPI was fully aware of the agreement.
Neither is there estoppel in the instant case. The essential elements of estoppel are (i)
conduct of a party amounting to false representation or concealment of material facts
or at least calculated to convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to assert; (ii) intent, or
at least expectation, that this conduct shall be acted upon by, or at least influence, the
other party; and (iii) knowledge, actual or constructive, of the real facts. 51  delinquencies in payment, MMCPI merely enforced its rights under the said contract
While there is no more question as to the agency relationship between Baluyot and
MMPCI, there is no indication that MMPCI let the public, or specifically, Atty.
Linsangan to believe that Baluyot had the authority to alter the standard contracts of
the company. Neither is there any showing that prior to signing Contract No. 28660,
MMPCI had any knowledge of Baluyot's commitment to Atty. Linsangan. One who
claims the benefit of an estoppel on the ground that he has been misled by the
representations of another must not have been misled through his own want of
reasonable care and circumspection.52 Even assuming that Atty. Linsangan was
misled by MMPCI's actuations, he still cannot invoke the principle of estoppel, as he
was clearly negligent in his dealings with Baluyot, and could have easily determined,
had he only been cautious and prudent, whether said agent was clothed with the
authority to change the terms of the principal's written contract. Estoppel must be
intentional and unequivocal, for when misapplied, it can easily become a most
convenient and effective means of injustice.53 In view of the lack of sufficient proof
showing estoppel, we refuse to hold MMPCI liable on this score.
Likewise, this Court does not find favor in the Court of Appeals' findings that "the
authority of defendant Baluyot may not have been expressly conferred upon her;
however, the same may have been derived impliedly by habit or custom which may
have been an accepted practice in their company in a long period of time." A perusal
of the records of the case fails to show any indication that there was such a habit or
custom in MMPCI that allows its agents to enter into agreements for lower prices of
its interment spaces, nor to assume a portion of the purchase price of the interment
spaces sold at such lower price. No evidence was ever presented to this effect.
As the Court sees it, there are two obligations in the instant case. One is the Contract
No. 28660 between MMPCI and by Atty. Linsangan for the purchase of an interment
space in the former's cemetery. The other is the agreement between Baluyot and
Atty. Linsangan for the former to shoulder the amount P1,455.00, or the difference
between P95,000.00, the original price, and P132,250.00, the actual contract price.
To repeat, the acts of the agent beyond the scope of his authority do not bind the
principal unless the latter ratifies the same. It also bears emphasis that when the third
person knows that the agent was acting beyond his power or authority, the principal
cannot be held liable for the acts of the agent. If the said third person was aware of
such limits of authority, he is to blame and is not entitled to recover damages from
the agent, unless the latter undertook to secure the principal's ratification. 54 
This Court finds that Contract No. 28660 was validly entered into both by MMPCI
and Atty. Linsangan. By affixing his signature in the contract, Atty. Linsangan
assented to the terms and conditions thereof. When Atty. Linsangan incurred
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.
28
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.

G.R. No. 120465. September 9, 1999.*

WILLIAM UY and RODEL ROXAS, petitioners, vs. COURT OF APPEALS,
HON. ROBERT BALAO and NATIONAL HOUSING AUTHORITY,
respondents.
Actions; Parties; Words and Phrases; An action shall be prosecuted in the
name of the party who, by the substantive law, has the right sought to be enforced;
“Real Party-in-Interest,” Explained.—Section 2, Rule 3 of the Rules of Court
requires that every action must be prosecuted and defended in the name of the real
party-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

29
be affected by the decree, as distinguished from mere interest in the question
involved, or a mere incidental interest. 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.
Same; Same; Agency; Sales; An agent of the seller is not a party to the
contract of sale between his principal and the buyer; 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.—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. 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.
_______________
*
 FIRST DIVISION.
70
70  SUPREME COURT REPORTS ANNOTATED  between them.—Petitioners confuse the cancellation of the contract by the NHA as a
Uy vs. Court of Appeals
Same; Same; Same; Assignment; The rule requiring every action to be
prosecuted in the name of the real party-in-interest xxx 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.—Are petitioners assignees to the rights under the contracts of sale?
In McMicking vs. Banco Español-Filipino, we held that the rule requiring every
action to be prosecuted in the name of the real party-in-interest x x x recognizes the
assignments of rights of action and also recognizes that when one has a right of
action assigned to him he is then the real party in interest and may maintain an action
upon such claim or right. The purpose of [this rule] is to require the plaintiff to be the
real party in interest, or, in other words, he must be the person to whom the proceeds
of the action shall belong, and to prevent actions by persons who have no interest in
the result of the same. x x x
Same; Same; Same; Same; An agent, in his own behalf, may bring an action
founded on a contract made for his principal, as an assignee of such contract.—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): Section 372.
Agent as Owner of Contract Right: (1) Unless otherwise agreed, an agent who has or
who acquires an interest in a contract which he makes on behalf of his principal can,
although not a promisee, maintain such action thereon as might a transferee having a
similar interest.
Same; Same; Same; Sales; Stipulations Pour Autrui; Where an agent is not a
beneficiary of a stipulation pour autrui, the fact that he did not obtain his
commissions or recoup his advances because of the non-performance of the contract
does not entitle him to file an action against the buyer.—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 
71
VOL. 314, SEPTEMBER 9, 1999  71 
Uy vs. Court of Appeals
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.
Contracts; Sales; Rescission; The right of rescission or, more accurately,
resolution, of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party that violates the reciprocity
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. The power to rescind, therefore, is given to the injured party.
Same; Same; Same; Cause; Motive; Words and Phrases; Cause is the
essential reason which moves the contracting parties to enter into it—it is the
immediate, direct and proximate reason which justifies the creation of an obligation
through the will of the contracting parties.—The cancellation, therefore, was not a
rescission under Article 1191. Rather, the cancellation was based on the negation of
the cause arising from the realization that the lands, which were the object of the
sale, were not suitable for housing. Cause is the essential reason which moves the
contracting parties to enter into it. 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. 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.
Same; Same; Same; Same; Same; Ordinarily, a party’s motives for entering
into a contract do not affect the contract, but when the motive predetermines the
cause, the motive may be regarded as the cause.—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.
30
Court of Appeals, this Court, speaking through Justice J.B.L. Reyes, held: x x x 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 valid-
72
72  SUPREME COURT REPORTS ANNOTATED 
Uy vs. Court of Appeals
ity 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.
Same; Same; Same; Same; Same; A buyer may justifiably cancel a contract
of sale upon realization of the mistake as regards the quality of the land, resulting in
the negation of the motive/cause thus rendering the contract inexistent.—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.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
     Carmelita Lourdes C. Soriano for petitioners.
     The Government Corporate Counsel for NHA and Robert Balao.
KAPUNAN, J.:
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of
land by the owners thereof. By virtue of such authority, petitioners offered to sell the
lands, located in Tuba, Tadiangan, Benguet to respondent National Housing
Authority (NHA) to be utilized and developed as a housing project.
On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the
acquisition of said lands, with an area of 31.8231 hectares, at the cost of P23.867
million, pursuant to which the parties executed a series of Deeds of Absolute Sale
covering the subject lands. Of the eight parcels of land, however, only five were paid
for by the NHA because of the report 1 it received from the Land Geosciences
Bureau of the Department of Environment and Natural Resources (DENR) that the
remaining area is located at an active landslide area and therefore, not suitable for
development into a housing project.
On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the sale
over the three parcels of land. The NHA, through Resolution No. 2394,
subsecguently offered the amount of P1.225 million to the landowners as daños
perjuicios.
On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) of Quezon
City a Complaint for Damages against NHA and its General Manager Robert Balao.
After trial, the RTC rendered a decision declaring the cancellation of the contract to
be justified. The trial court nevertheless awarded damages to plaintiffs in the sum of
P1.255 million, the same amount initially offered by NHA to petitioners as damages.
Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial
court and entered a new one dismissing the complaint. It held that since there was
"sufficient justifiable basis" in cancelling the sale, "it saw no reason" for the award of
damages. The Court of Appeals also noted that petitioners were mere attorneys-in-
fact and, therefore, not the real parties-in-interest in the action before the trial court.
. . . In paragraph 4 of the complaint, plaintiffs alleged
themselves to be "sellers' agents" for the several owners
of the 8 lots subject matter of the case. Obsviously,
William Uy and Rodel Roxas in filing this case acted as
attorneys-in-fact of the lot owners who are the real parties
in interest but who were omitted to be pleaded as party-
plaintiffs in the case. This omission is fatal. Where the
action is brought by an attorney-in-fact of a land owner in
his name, (as in our present action) and not in the name of
his principal, the action was properly dismissed (Ferrer
vs. Villamor, 60 SCRA 406 [1974]; Marcelo vs. de Leon,
105 Phil. 1175) because the rule is that every action must
be prosecuted in the name of the real parties-in-interest
(Section 2, Rule 3, Rules of Court).
When plaintiffs UY and Roxas sought payment of
damages in their favor in view of the partial rescission of
Resolution No. 1632 and the Deed of Absolute Sale
covering TCT Nos. 10998, 10999 and 11292 (Prayer
complaint, page 5, RTC records), it becomes obviously
indispensable that the lot owners be included, mentioned
and named as party-plaintiffs, being the real party-in-
interest. UY and Roxas, as attorneys-in-fact or
apoderados, cannot by themselves lawfully commence
this action, more so, when the supposed special power of
attorney, in their favor, was never presented as an
evidence in this case. Besides, even if herein plaintiffs Uy
and Roxas were authorized by the lot owners to
31
 commence this action, the same must still be filed in the
name of the principal, (Filipino Industrial Corporation vs.
San Diego, 23 SCRA 706 [1968]). As such indispensable
party, their joinder in the action is mandatory and the
complaint may be dismissed if not so impleaded (NDC vs.
CA, 211 SCRA 422 [1992]). 2
Their motion for reconsideration having been denied, petitioners seek relief from this
Court contending that:
I. THE RESPONDENT CA ERRED IN DECLARING
THAT RESPONDENT NHA HAD ANY LEGAL BASIS
FOR RESCINDING THE SALE INVOLVING THE
LAST THREE (3) PARCELS COVERED BY NHA
RESOLUTION NO. 1632.
II. GRANTING ARGUENDO THAT THE
RESPONDENT NHA HAD LEGAL BASIS TO
RESCIND THE SUBJECT SALE, THE RESPONDENT
CA NONETHELESS ERRED IN DENYING HEREIN
PETITIONERS' CLAIM TO DAMAGES, CONTRARY
TO THE PROVISIONS OF ART. 1191 OF THE CIVIL
CODE.
III. THE RESPONDENT CA ERRED IN DISMISSING
THE SUBJECT COMPLAINT FINDING THAT THE
PETITIONERS 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.)
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.
32
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.
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
33
 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. . . .
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 sale of
the subject three parcels of land. The existence of such legal basis, notwithstanding,
petitioners argue that they are still entitled to an award of damages.
Petitioners confuse the cancellation of the contract by the NHA as a rescission of the
contract under Article 1191 of the Civil Code. The right of rescission or, more
accurately, resolution, of a party to an obligation under Article 1191 is predicated on
a breach of faith by the other party that violates the reciprocity between them. 16 The
power to rescind, therefore, is given to the injured party. 17 Article 1191 states:
The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent
upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
In this case, the NHA did not rescind the contract. Indeed, it did not have the right to
do so for the other parties to the contract, the vendors, did not commit any breach,
much less a substantial breach, 18 of their obligation. Their obligation was merely to
deliver the parcels of land to the NHA, an obligation that they fulfilled. The NHA
did not suffer any injury by the performance thereof.
The cancellation, therefore, was not a rescission under Article 1191. Rather, the
cancellation was based on the negation of the cause arising from the realization that
the lands, which were the object of the sale, were not suitable for housing.
Cause is the essential reason which moves the contracting parties to enter into it. 19 In
other words, the cause is the immediate, direct and proximate reason which justifies
the creation of an obligation through the will of the contracting parties. 20 Cause,
which is the essential reason for the contract, should be distinguished from motive,
which is the particular reason of a contracting party which does not affect the other
party. 21
For example, in a contract of sale of a piece of land, such as in this case, the cause of
the vendor (petitioners' principals) in entering into the contract is to obtain the price.
For the vendee, NHA, it is the acquisition of the land. 22 The motive of the NHA, on
the other hand, is to use said lands for housing. This is apparent from the portion of
the Deeds of Absolute Sale 23 stating:
WHEREAS, under the Executive Order No. 90 dated December
17, 1986, the VENDEE is mandated to focus and concentrate its
efforts and resources in providing housing assistance to the lowest
thirty percent (30%) of urban income earners, thru slum upgrading
and development of sites and services projects;
WHEREAS, Letters of Instructions Nos. 555 and 557 [as]
amended by Letter of Instruction No. 630, prescribed slum
improvement and upgrading, as well as the development of sites
and services as the principal housing strategy for dealing with
slum, squatter and other blighted communities;
34
 x x x           x x x          x x x
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:
x x x           x x x          x x x
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
35
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 the

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

WHEREFORE, the instant petition is hereby DENIED.

SO ORDERED.

36