C.

Effect of Agency: Integration and Extension

1. Authority to Act
Eurotech v. Cuison, G.R. No. 167552, April 23, 2007.

Doles v. Angeles, G.R. No. 149353, June 26, 2006.

2. Agent Not Real Party-in-Interest

Uy and Roxas v. CA, G.R. No. 120465, September 9, 1999.
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

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

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

Sec. 372. Agent as Owner of Contract Right (Restatement of the Law on Agency)
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
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.
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

Angeles v. PNR, G.R. No. 150128, August 31, 2006.

as plaintiffs a quo, had no cause of action as they were not the real parties-in-interest in this case

Where agency exists, the third party's (in this case, PNR's) liability on a contract is to the principal
and not to the agent and the relationship of the third party to the principal is the same as that in a
contract in which there is no agent. Normally, the agent has neither rights nor liabilities as against
the third party. He cannot thus sue or be sued on the contract. Since a contract may be violated only
by the parties thereto as against each other, the real party-in-interest, either as plaintiff or defendant
in an action upon that contract must, generally, be a contracting party.

The legal situation is, however, different where an agent is constituted as an assignee. In such a
case, the agent may, in his own behalf, sue on a contract made for his principal, as an assignee of
such contract. The rule requiring every action to be prosecuted in the name of the real party-in-
interest recognizes the assignment of rights of action and also recognize that when one has a right
assigned to him, he is then the real party-in-interest and may maintain an action upon such claim or
right

Petitioner submits that the second paragraph of the Romualdez letter, stating - "I have given [Lizette]
the original copy of the award x x x which will indicate my waiver of rights, interests and participation
in favor of Lizette R. Wijanco" - clarifies that Lizette was intended to be an assignee, and not a mere
agent.

We are not persuaded. As it were, the petitioner conveniently omitted an important phrase preceding
the paragraph which would have put the whole matter in context. The phrase is "For this reason,"
and the antecedent thereof is his (Romualdez) having appointed Lizette as his representative in the
matter of the withdrawal of the scrap items. In fine, the key phrase clearly conveys the idea that
Lizette was given the original copy of the contract award to enable her to withdraw the rails as
Romualdez’s authorized representative.

Article 1374 of the Civil Code provides that the various stipulations of a contract shall be read and
interpreted together, attributing to the doubtful ones that sense which may result from all of them
taken jointly. In fine, the real intention of the parties is primarily to be determined from the language
used and gathered from the whole instrument. When put into the context of the letter as a whole, it is
abundantly clear that the rights which Romualdez waived or ceded in favor of Lizette were those in
furtherance of the agency relation that he had established for the withdrawal of the rails.

Ong v. CA, G.R. No. 119858, August 31, 2006.

True, petitioner acted on behalf of ARMAGRI. However, it is a well-settled rule that
the law of agency governing civil cases has no application in criminal cases. When a
person participates in the commission of a crime, he cannot escape punishment on the
ground that he simply acted as an agent of another party.26 In the instant case, the Bank
accepted the trust receipts signed by petitioner based on petitioner's representations. It
is the fact of being the signatory to the two trust receipts, and thus a direct participant to
the crime, which makes petitioner a person responsible for the offense.
PNB v. Ritratto, G.R. No. 142616, July 31, 2001.

In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal
relationship involved in this case since the petitioner was not sued because it is the parent company
of PNB-IFL. Rather, the petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in
initiating the foreclosure proceedings. A suit against an agent cannot without compelling reasons be
considered a suit against the principal. Under the Rules of Court, every action must be prosecuted or
defended in the name of the real party-in-interest, unless otherwise authorized by law or these
Rules.18 In mandatory terms, the Rules require that "parties-in-interest without whom no final
determination can be had, an action shall be joined either as plaintiffs or defendants."19 In the case
at bar, the injunction suit is directed only against the agent, not the principal.

3. Notice to Agent is Notice to Principal

Francisco v. GSIS, G.R. No. L-18287.
The inequity of permitting the System to deny its acceptance become more patent when
account is taken of the fact that in remitting the payment of P30,000 advanced by her
father, plaintiff's letter to Mr. Andal quoted verbatim the telegram of acceptance. This
was in itself notice to the corporation of the terms of the allegedly unauthorized
telegram, for as Ballentine says:
Knowledge of facts acquired or possessed by an officer or agent of a corporation in
the course of his employment, and in relation to matters within the scope of his
authority, is notice to the corporation, whether he communicates such knowledge or
not. (Ballentine, Law on Corporations, section 112.)
since a corporation cannot see, or know, anything except through its officers.
Yet, notwithstanding this notice, the defendant System pocketed the amount, and kept
silent about the telegram not being in accordance with the true facts, as it now alleges.
This silence, taken together with the unconditional acceptance of three other subsequent
remittances from plaintiff, constitutes in itself a binding ratification of the original
agreement (Civil Code, Art. 1393).
ART. 1393. Ratification may be effected expressly or tacitly. It is understood that there is
a tacit ratification if, with knowledge of the reason which renders the contract voidable
and such reason having ceased, the person who has a right to invoke it should execute
an act which necessarily implies an intention to waive his right.

Nowhere else do the circumstances call more insistently for the application of the
equitable maxim that between two innocent parties, the one who made it possible for
the wrong to be done should be the one to bear the resulting loss..

Sunace International v. NLRC, G.R. No. 161757, January 25, 2006.

Respecting the Court of Appeals following dictum:
As agent of its foreign principal, [Sunace] cannot profess ignorance of such an extension
as obviously, the act of its principal extending [Divina’s] employment contract
necessarily bound it,22
it too is a misapplication, a misapplication of the theory of imputed knowledge.
The theory of imputed knowledge ascribes the knowledge of the agent, Sunace, to the
principal, employer Xiong, not the other way around.23 The knowledge of the
principal-foreign employer cannot, therefore, be imputed to its agent Sunace.
There being no substantial proof that Sunace knew of and consented to be bound under
the 2-year employment contract extension, it cannot be said to be privy thereto. As such,
it and its "owner" cannot be held solidarily liable for any of Divina’s claims arising from
the 2-year employment extension. As the New Civil Code provides,
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.24
Furthermore, as Sunace correctly points out, there was an implied revocation of its
agency relationship with its foreign principal when, after the termination of the original
employment contract, the foreign principal directly negotiated with Divina and entered
into a new and separate employment contract in Taiwan. Article 1924 of the New Civil
Code reading
The agency is revoked if the principal directly manages the business entrusted to the
agent, dealing directly with third persons.
thus applies.
The theory of imputed knowledge ascribes the knowledge of the agent, Sunace, to the
principal, employer Xiong, not the other way around.23 The knowledge of the
principal-foreign employer cannot, therefore, be imputed to its agent Sunace.

Cosmic Lumber v. CA, G.R. No. 114311, November 29, 1996.

There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where it is
one the effect of which prevents a party from hearing a trial, or real contest, or from
presenting all of his case to the court, or where it operates upon matters, not pertaining
to the judgment itself, but to the manner in which it was procured so that there is not a
fair submission of the controversy. In other words, extrinsic fraud refers to any
fraudulent act of the prevailing party in the litigation which is committed outside of the
trial of the case, whereby the defeated party has been prevented from exhibiting fully
his side of the case by fraud or deception practiced on him by his opponent. 19 Fraud is
extrinsic where the unsuccessful party has been prevented from exhibiting fully his
case, by fraud or deception practiced on him by his opponent, as by keeping him away
from court, a false promise of a compromise; or where the defendant never had
knowledge of the suit, being kept in ignorance by the acts of the plaintiff; or where an
attorney fraudulently or without authority connives at his defeat; these and similar
cases which show that there has never been a real contest in the trial or hearing of the
case are reasons for which a new suit may be sustained to set aside and annul the
former judgment and open the case for a new and fair hearing. 20
It may be argued that petitioner knew of the compromise agreement since the principal
is chargeable with and bound by the knowledge of or notice to his agent received while
the agent was acting as such. But the general rule is intended to protect those who
exercise good faith and not as a shield for unfair dealing. Hence there is a well-
established exception to the general rule as where the conduct and dealings of the agent
are such as to raise a clear presumption that he will not communicate to the principal
the facts in controversy. 21The logical reason for this exception is that where the agent is
committing a fraud, it would be contrary to common sense to presume or to expect that
he would communicate the facts to the principal. Verily, when an agent is engaged in
the perpetration of a fraud upon his principal for his own exclusive benefit, he is not
really acting for the principal but is really acting for himself, entirely outside the scope
of his agency. 22 Indeed, the basic tenets of agency rest on the highest considerations of
justice, equity and fair play, and an agent will not be permitted to pervert his authority
to his own personal advantage, and his act in secret hostility to the interests of his
principal transcends the power afforded him. 23

New Life Enterprises c. CA, G.R. No. 94081, March 31, 1992.
The terms of the contract are clear and unambiguous. The insured is specifically
required to disclose to the insurer any other insurance and its particulars which he may
have effected on the same subject matter. The knowledge of such insurance by the
insurer's agents, even assuming the acquisition thereof by the former, is not the "notice"
that would estop the insurers from denying the claim. Besides, the so-called theory of
imputed knowledge, that is, knowledge of the agent is knowledge of the principal,
aside from being of dubious applicability here has likewise been roundly refuted by
respondent court whose factual findings we find acceptable.
As the insurance policy against fire expressly required that notice should be given by
the insured of other insurance upon the same property, the total absence of such notice
nullifies the policy.

4. Bad Faith of the Agent is Bad Faith of the Principal

Caram v. Laureta, G.R. No. L-28740, February 24, 1981.

The petitioner contends that he cannot be considered to have acted in bad faith because there is no
direct proof showing that Irespe and Aportadera, his alleged agents, had knowledge of the first sale
to Laureta. This contention is also without merit

There is no doubt then that Irespe and Aportadera, acting as agents of Caram, purchased the
property of Mata in bad faith. Applying the principle of agency, Caram as principal, should also be
deemed to have acted in bad faith.

Article 1544 of the New Civil Code provides that:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recordered it in the Registry of Property.
Should there be no inscription, the ownership shag pertain to the person who in good faith was first
in the possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith. (1473)

Since Caram was a registrant in bad faith, the situation is as if there was no registration at all.

Even if Irespe and Aportadera did not have actual knowledge of the first sale, still their actions have
not satisfied the requirement of good faith. Bad faith is not based solely on the fact that a vendee
had knowledge of the defect or lack of title of his vendor. In the case of Leung Yee vs. F. L. Strong
Machinery Co. and Williamson, this Court held: 15

One who purchases real estate with knowledge of a defect or lack of title in his vendor can not claim
that he has acquired title thereto in good faith, as against the true owner of the land or of an interest
therein, and the same rule must be applied to one who has knowledge of facts which should have
put him upon such inquiry and investigation as might be necessary to acquaint him with the defects
in the title of his vendor.

Both the agent and the principal has the knowledge that they are both in bad faith.
If agent acted in bad faith, without the knowledge of the principal, latter is absolved of
liability, and it is presumed that the agent acted outside the scope of his authority.

5. Extinguished by Death
Rallos v. felix Go Chan, G.R. No. L-24332, January 31, 1978.

By reason of the very nature of the relationship between Principal and agent, agency is extinguished by
the death of the principal or the agent. This is the law in this jurisdiction

Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned.

ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if it has
been constituted in the common interest of the latter and of the agent, or in the interest of a third person
who has accepted the stipulation in his favor.

ART. 1931. Anything done by the agent, without knowledge of the death of the principal or of any other
cause which extinguishes the agency, is valid and shall be fully effective with respect to third persons
who may have contracted with him in good. faith.

Article 1931, being an exception to the general rule, is to be strictly construed, it is not to be given an
interpretation or application beyond the clear import of its terms for otherwise the courts will be involved
in a process of legislation outside of their judicial function.

The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What
the Code provides in Article 1932 is that, if the agent die his heirs must notify the principal thereof, and in
the meantime adopt such measures as the circumstances may demand in the interest of the latter. Hence,
the fact that no notice of the death of the principal was registered on the certificate of title of the property
in the Office of the Register of Deeds, is not fatal to the cause of the estate of the principal

Agent Ramon Rallos executed the sale notwithstanding notice of the death of his principal Accordingly,
the agent's act is unenforceable against the estate of his principal