Manila Memorial Park Cemetery, Inc. vs. Linsangan

A principal is not bound by an agent's unauthorized modification of the principal's standard contract terms where the principal had no knowledge of the side agreement, did not ratify it, and the third person dealing with the agent was negligent in failing to ascertain the scope of the agent's authority. The agent's acts beyond the scope of authority bind only the agent, not the principal, absent express or implied ratification or estoppel.

MMPCI is a corporation engaged in the sale of interment spaces at Holy Cross Memorial Park. Florencia Baluyot served as MMPCI's agency manager under an Agency Manager Agreement that authorized her to solicit and remit offers to purchase interment spaces on forms provided by MMPCI, though MMPCI characterized her status as that of an independent contractor. Atty. Pedro L. Linsangan, a practicing lawyer, sought to acquire a memorial lot through Baluyot, who had previously offered him a lot under an earlier contract at a price of ₱95,000.00. The dispute arose from the discrepancy between the price Baluyot personally promised Atty. Linsangan and the higher price stated in the standard MMPCI contract form.

Sometime in 1984, Florencia Baluyot, an agency manager of Manila Memorial Park Cemetery, Inc. (MMPCI), offered Atty. Pedro L. Linsangan a memorial lot called Garden State at Holy Cross Memorial Park. Baluyot explained that a former owner of a lot under Contract No. 25012 was no longer interested and had opted to sell his rights subject to reimbursement of amounts already paid. The contract price was ₱95,000.00. Baluyot assured Atty. Linsangan that once reimbursement was made to the original buyer, the contract would be transferred to him. Atty. Linsangan agreed and gave Baluyot ₱35,295.00, representing the amount to be reimbursed to the original buyer and to complete the down payment to MMPCI. Baluyot issued handwritten and typewritten receipts for these payments.

In March 1985, Baluyot informed Atty. Linsangan that he would instead be issued Contract No. 28660, a new contract covering the subject lot in his name, replacing the old Contract No. 25012. Atty. Linsangan protested, but Baluyot assured him that he would still pay the old price of ₱95,000.00, with ₱19,838.00 credited as full down payment, leaving a balance of approximately ₱75,000.00. On April 8, 1985, Baluyot brought an Offer to Purchase denominated as Contract No. 28660, covering Lot No. A11 (15), Block 83, Garden Estate I, with a listed price of ₱132,250.00, along with Official Receipt No. 118912 dated April 6, 1985 for ₱19,838.00. Atty. Linsangan objected to the new contract price, as it was not the amount previously agreed upon. To convince him, Baluyot executed a document confirming that while the contract price stated ₱132,250.00, Atty. Linsangan would pay only the original price of ₱95,000.00, with monthly installments of ₱1,800.00 and the difference to be discounted to conform to the previously agreed price.

By virtue of this letter, Atty. Linsangan signed Contract No. 28660, accepted Official Receipt No. 118912, and, as requested by Baluyot, issued twelve postdated checks of ₱1,800.00 each in favor of MMPCI. The following year, on April 29, 1986, he again issued twelve postdated checks in favor of MMPCI. On May 25, 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 had been cancelled and presented another proposal for the purchase of an equivalent property. He refused the new proposal and insisted that Baluyot and MMPCI honor their undertaking.

The real arrangement between Baluyot and Atty. Linsangan, as revealed in Baluyot's Answer, was that Atty. Linsangan would pay ₱1,800.00 monthly while Baluyot would shoulder the counterpart amount of ₱1,455.00 to meet the ₱3,255.00 monthly installment indicated in the contract. While Atty. Linsangan issued the postdated checks, Baluyot failed to come up with her share due to personal financial difficulties, as she admitted in a letter to MMPCI's Sales Manager written two days after receiving the complaint. The contract thus suffered arrearages, and MMPCI cancelled it for non-payment. Atty. Linsangan filed a complaint for breach of contract and damages against MMPCI and Baluyot. The trial court found MMPCI and Baluyot jointly and severally liable, crediting the fact that MMPCI had received and encashed Atty. Linsangan's checks and had allowed Baluyot to receive postdated checks on its behalf. The Court of Appeals affirmed this ruling in toto.

• Binding Effect of Written Contract: MMPCI argued that Atty. Linsangan was bound by the written contract he signed, the terms of which were clearly set forth and acknowledged by him, and that the contract was validly cancelled due to his delinquency in payment.
• Excess of Authority: MMPCI maintained that Baluyot exceeded the terms of her agency and that MMPCI never ratified her unauthorized acts, having no knowledge of the side agreement with Atty. Linsangan.
• Negligence of Respondent: MMPCI claimed that Atty. Linsangan, as a practicing lawyer of over thirteen years, was obligated to determine the limitations of Baluyot's authority, particularly when her actions were patently questionable, and that his failure to verify her authority or request official receipts constituted negligence.
• No Joint and Solidary Liability: MMPCI argued that it could not be held jointly and solidarily liable with Baluyot because it did not allow her to act as though she had full powers, the written contract expressly stating the terms and conditions which Atty. Linsangan accepted and understood.

• Good Faith Performance: Atty. Linsangan argued that he did not violate the terms and conditions of the contract and faithfully performed his obligations in good faith for at least two years.
• Immateriality of Profession: He claimed that his profession as a lawyer was immaterial to the validity of the subject contract.
• Admission of Agency: He contended that MMPCI had practically admitted in its petition that Baluyot was its agent, leaving the only issue whether MMPCI allowed Baluyot to act as though she had full powers, thus warranting solidary liability.

• Scope of Agent's Authority: Whether Baluyot's authority as MMPCI's agency manager extended to modifying the terms of MMPCI's standard Offer to Purchase, particularly the contract price.
• Ratification: Whether MMPCI ratified Baluyot's unauthorized agreement with Atty. Linsangan by accepting and encashing the latter's checks.
• Estoppel: Whether MMPCI was estopped from denying liability for Baluyot's representations to Atty. Linsangan.
• Implied Authority by Habit or Custom: Whether Baluyot's authority to alter contract terms could be implied from habit or custom within MMPCI.
• Negligence of Third Person: Whether Atty. Linsangan's negligence in dealing with Baluyot precluded recovery against MMPCI.

• Scope of Agent's Authority: No. Baluyot's authority was limited to soliciting and remitting offers to purchase on forms provided by MMPCI; she had no authority to alter the terms of the written contract, including the contract price.
• Ratification: No. MMPCI had no knowledge of the side agreement between Baluyot and Atty. Linsangan, and ratification requires knowledge of the material facts of the unauthorized act.
• Estoppel: No. MMPCI did not represent to Atty. Linsangan that Baluyot had authority to alter standard contract terms, and Atty. Linsangan was negligent in failing to ascertain the scope of Baluyot's authority.
• Implied Authority by Habit or Custom: No. No evidence was presented to show any habit or custom in MMPCI allowing agents to enter into agreements for lower prices or to assume portions of the purchase price.
• Negligence of Third Person: Yes. Atty. Linsangan's negligence in failing to verify Baluyot's authority precluded him from holding MMPCI liable, as persons dealing with an agent assume the risk of the agent's lack of authority.

• Scope of Agent's Authority: The Agency Manager Agreement expressly authorized Baluyot only to solicit and remit offers to purchase interment spaces on forms provided by MMPCI, which would bind MMPCI only upon execution by a duly authorized officer. The Offer to Purchase signed by Atty. Linsangan clearly stated a total list price of ₱132,250.00 and contained an integration clause providing that there were no covenants, conditions, warranties, or representations other than those contained in the contract. Baluyot's separate letter confirming a lower price of ₱95,000.00 was executed by her alone, with no indication that it came from MMPCI or any of its officers. Her authority did not extend to altering the terms of the written contract, and the side agreement was made outside the scope of her authority.

• Ratification: Under Articles 1898, 1910, and 1911 of the Civil Code, acts of an agent beyond the scope of authority do not bind the principal unless ratified expressly or tacitly. Ratification requires that the principal have full knowledge of all material facts and circumstances relating to the unauthorized act. The records showed that MMPCI was unaware of the arrangement between Baluyot and Atty. Linsangan. Baluyot herself admitted in a letter to MMPCI's Sales Manager that she was remiss in her duties and that the contract suffered arrearages because she failed to provide her share of the payment. Had MMPCI known of the arrangement, it would have refused the insufficient ₱1,800.00 checks. The fact that Baluyot had to explain the details of her arrangement to MMPCI's Sales Manager confirmed MMPCI's lack of knowledge. Without knowledge of the material facts, there could be no valid ratification.

• Estoppel: The essential elements of estoppel are (i) conduct amounting to false representation or concealment of material facts, (ii) intent or expectation that such conduct be acted upon by the other party, and (iii) knowledge, actual or constructive, of the real facts. There was no indication that MMPCI let Atty. Linsangan believe Baluyot had authority to alter standard contracts, nor that MMPCI had knowledge of Baluyot's commitment prior to the signing of Contract No. 28660. Moreover, one who claims the benefit of estoppel must not have been misled through his own want of reasonable care and circumspection. Atty. Linsangan, a practicing lawyer, was negligent in failing to inquire whether Baluyot was authorized to agree to terms contrary to the written contract, in failing to request official receipts, and in failing to verify the contract's status directly with MMPCI. His negligence was fatal to his claim of estoppel.

• Implied Authority by Habit or Custom: The Court of Appeals' finding that Baluyot's authority may have been derived impliedly by habit or custom was unsupported by the records. No evidence was ever presented to show any practice in MMPCI allowing agents to enter into agreements for lower prices or to assume portions of the purchase price. The Court found no basis for implying such authority.

• Negligence of Third Person: It is a settled rule that persons dealing with an agent are bound at their peril to ascertain not only the fact of agency but also the nature and extent of authority. If they do not make such inquiry, they are chargeable with knowledge of the agent's authority, and their ignorance is no excuse. Atty. Linsangan, as a lawyer of relatively long practice, should have been put on guard when the agreement was not reflected in the contract. He should have been alerted by Baluyot's failure to effect the earlier transfer of rights and her inability to make good her written commitment. His blind reliance on Baluyot's representations, without verifying with MMPCI, constituted negligence that barred recovery against the principal. The agreement between Baluyot and Atty. Linsangan bound only the two of them; MMPCI bound itself only to the contract price of ₱132,250.00 as stated in Contract No. 28660.

• Scope of Agent's Authority and Third Person's Duty to Inquire — Persons dealing with an agent are bound at their peril to ascertain not only the fact of agency but also the nature and extent of the agent's authority. If they do not make such inquiry, they are chargeable with knowledge of the agent's authority, and their ignorance will not excuse them. 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 authority. The Court applied this doctrine to hold that Atty. Linsangan's failure to verify whether Baluyot was authorized to alter the contract price barred him from holding MMPCI liable for Baluyot's unauthorized undertaking.

• Ratification in Agency — Ratification is the adoption or confirmation by one person of an act performed on his behalf by another without authority. The principal must have full knowledge at the time of ratification of all material facts and circumstances relating to the unauthorized act. If material facts were suppressed or unknown, there can be no valid ratification. Only the principal can ratify; the agent cannot ratify his own unauthorized acts. The Court found no ratification because MMPCI had no knowledge of the side agreement between Baluyot and Atty. Linsangan.

• Estoppel — 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 those which the party subsequently attempts to assert; (ii) intent, or at least expectation, that this conduct shall be acted upon by the other party; and (iii) knowledge, actual or constructive, of the real facts. A party claiming estoppel must not have been misled through his own want of reasonable care and circumspection. The Court denied estoppel because MMPCI did not represent that Baluyot had authority to alter contract terms, and Atty. Linsangan was negligent in his dealings.

• Principal's Liability for Acts of Agent Beyond Authority — Under Articles 1898, 1910, and 1911 of the Civil Code, the principal is not bound by acts of the agent exceeding authority unless the principal ratifies expressly or tacitly, or allows the agent to act as though he had full powers. Where the third person knows the agent is acting beyond authority, the principal cannot be held liable, and the third person's recourse is against the agent alone.

• "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." — This passage articulates the canonical formulation of the third person's duty to ascertain the scope of an agent's authority, the central ratio decidendi of the case.

• "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." — This passage reinforces the doctrine that the risk of an agent's lack of authority falls on the third person dealing with the agent, not on the principal.

• "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." — This passage defines the doctrine of ratification in agency and its requisite of full knowledge, which the Court found lacking in MMPCI's case.

• "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." — This passage states the principle that a party's own negligence bars the invocation of estoppel, applied to defeat Atty. Linsangan's claim against MMPCI.

• BPI Investment Corporation vs. D.G. Carreon Commercial Corporation, 422 Phil. 367 (2001) — Cited for the enumeration of exceptions to the rule that the Supreme Court in a Rule 45 petition reviews only errors of law, not fact. The Court invoked these exceptions to justify reviewing the Court of Appeals' factual findings, which it found to be based on misapprehension of facts and devoid of evidentiary support.

• Yu Eng Cho vs. Pan American World Airways, Inc., 385 Phil. 453 (2000) — Cited for the doctrine that persons dealing with an agent must ascertain the fact and extent of agency at their peril.

• Safic Alcan & Cie vs. Imperial Vegetable Oil Co., Inc., G.R. No. 126751, 28 March 2001, 355 SCRA 559 — Cited for the principle that the basis of agency is representation and that a person dealing with an agent must discover the agent's authority upon peril, and that a third person aware of the limits of authority is not entitled to recover damages from the principal.

• Lim vs. Queensland Tokyo Commodities, Inc., 424 Phil. 35 (2002) — Cited for the essential elements of estoppel.

• Mijares vs. Court of Appeals, 338 Phil. 274 (1997) — Cited for the principle that a party claiming estoppel must not have been misled through his own want of reasonable care and circumspection.

• Article 1868, Civil Code — Defines the contract of agency as one whereby 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. Applied to confirm that Baluyot was an agent of MMPCI, as she represented MMPCI's interests and acted on its behalf in dealings with clients.

• Article 1898, Civil Code — Provides that if the agent contracts in the name of the principal exceeding the scope of authority, and the principal does not ratify, the contract is void if the other party is aware of the limits of authority. Applied to hold that since Atty. Linsangan knew or should have known the limits of Baluyot's authority, MMPCI was not bound by the unauthorized agreement.

• Article 1910, Civil Code — Provides that the principal must comply with obligations contracted within the scope of authority, but is not bound by obligations wherein the agent exceeded power unless ratified expressly or tacitly. Applied to hold MMPCI liable only for acts within Baluyot's authority (soliciting offers) and not for her unauthorized modification of the contract price.

• Article 1911, Civil Code — Provides that the principal is solidarily liable with the agent even when the latter exceeded authority, if the former allowed the latter to act as though he had full powers. The Court found no evidence that MMPCI allowed Baluyot to act as though she had full powers to alter contract terms, so solidary liability did not attach.

Puno (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concurred.