Siredy Enterprises, Inc. vs. Court of Appeals and Conrado De Guzman

A principal is bound by a contract executed by its agent when the act falls within the terms of the written power of attorney, even if the agent has exceeded the private limits of his authority, because third persons may rely on the written authority under Article 1900 of the Civil Code.

Siredy Enterprises, Inc., a corporation whose Articles of Incorporation authorized it to acquire, subdivide, and develop lands and to erect buildings and houses, owned and developed Ysmael Village in Sta. Cruz, Marilao, Bulacan. Conrado De Guzman was an architect-contractor doing business under the name Jigscon Construction, and Ismael E. Yanga was Siredy’s president. The dispute concerns the legal effect of a Letter of Authority Yanga issued to Hermogenes B. Santos and the construction contract Santos later executed with De Guzman.

Siredy Enterprises, Inc. was the owner and developer of Ysmael Village, a subdivision in Sta. Cruz, Marilao, Bulacan, and its president was Ismael E. Yanga. Its Articles of Incorporation stated that its primary corporate purpose was to acquire lands, subdivide and develop them, erect buildings and houses thereon, and sell, lease, or otherwise dispose of the properties to interested buyers. Conrado De Guzman was an architect-contractor doing business under the name and style of Jigscon Construction. Sometime before October 1978, Yanga executed an undated Letter of Authority authorizing Hermogenes B. Santos to negotiate and enter into contracts to build housing units on Siredy’s subdivision lots in Ysmael Village, with all proceeds from such contracts to be deposited in Yanga’s name, payments of obligations made, and the remainder paid to Santos; Santos was also authorized to sell lots and to represent, intercede, and make agreements for payments in Siredy’s favor, provided actual receipts were made by Yanga. Yanga signed the Letter of Authority for himself and in his capacity as president of Siredy Enterprises, Incorporated.

On October 15, 1978, Santos entered into a Deed of Agreement with De Guzman. The deed expressly stated that Santos was representing Siredy Enterprises, Inc.; De Guzman was referred to as the contractor and Siredy as the principal. The agreement recited that the principal had contracts with different SSS members employed with different domestic entities to build two-bedroom single housing units and four-bedroom duplex housing units at Ysmael Village, which was owned and developed by Siredy and Yanga. The contract price was P45,000 for each two-bedroom single unit and P69,000 for each duplex residence; De Guzman undertook to build eighty single units and eighteen duplex residences for a lump sum of P4,842,000. De Guzman was to supply all construction materials, labor, tools, and equipment, while the principal was to pay all necessary permits and papers and supply water and electrical facilities during construction. Payment was to be made in accordance with SSS releases, but should the SSS fail to pay the principal, the principal remained obligated to pay the contractor for whatever accomplishments the contractor had finished, provided the failure of the SSS to pay was not due to defective work of the contractor. The contractor promised to finish the project at the rate of ten units in thirty days, or a total of three hundred working days, and to start work thirty days after signing. The integral parts of the contract included the plans and specifications, the subdivision plan indicating the lot location of each unit, and the authority of the National Housing Authority.

From October 1978 to April 1990, De Guzman constructed twenty-six residential units at Ysmael Village. Thirteen of these were fully paid, but the other thirteen remained unpaid. The total contractual price of the thirteen unpaid houses was P412,154.93, which Santos verified and confirmed to be correct in an Accomplishment Billing that he signed. De Guzman tried but failed to collect the unpaid account from Siredy. He therefore instituted an action for specific performance against Siredy, Yanga, and Santos, all of whom denied liability. During the trial, Santos disappeared and his whereabouts remained unknown.

Siredy’s defense consisted of testimonial evidence that it had no contract with De Guzman and had not authorized Santos to enter into a contract with anyone for the construction of housing units at Ysmael Village. The trial court found that Siredy and Yanga were neither parties nor signatories to the Deed of Agreement, while the Court of Appeals found that Yanga had signed the Letter of Authority and that Santos had entered into the Deed of Agreement as Siredy’s representative.

• Nature of Siredy’s Business: Petitioner argued that no valid agency could be constituted because Siredy was not involved in the construction business; it merely sold empty lots, and constructing houses was contrary to the nature of its business.
• Defective Letter of Authority and Reformation: Petitioner maintained that the Letter of Authority was defective and did not embody the real intentions of the parties, and thus needed reformation.
• Excess of Authority: Petitioner argued that Santos’ entry into the Deed of Agreement was invalid because it was in excess of his authority.
• Implied Revocation: Petitioner asserted that there was an implied revocation of the Letter of Authority.
• Paragraph 8 of the Deed of Agreement: Petitioner argued that the Court of Appeals erred in failing to consider Paragraph 8 of the Deed of Agreement, which governed payment in accordance with SSS releases and Siredy’s obligation to pay the contractor for completed work if the SSS failed to pay, provided the failure was not due to the contractor’s defective work.
• Violation of the Deed by De Guzman: Petitioner contended that De Guzman was not entitled to his claim because he was the party who violated the contract.

• Agency of Santos: Whether Hermogenes B. Santos was a duly constituted agent of Siredy, with authority to enter into contracts for the construction of residential units in Ysmael Village and thus the capacity to bind Siredy to the Deed of Agreement.
• Liability under the Deed of Agreement: Assuming arguendo that Siredy was bound by the acts of Santos, whether under the terms of the Deed of Agreement Siredy can be held liable for the amount sought to be collected by De Guzman.
• New Issue on Appeal: Whether the alleged violation by De Guzman of the Deed of Agreement may be raised for the first time on appeal.

• Agency of Santos: Yes. The Letter of Authority executed by Yanga expressly authorized Santos to negotiate and enter into contracts to build housing units in Ysmael Village, and Siredy’s Articles of Incorporation likewise allowed it to erect buildings and houses; Siredy is therefore bound by the Deed of Agreement.
• Liability under the Deed of Agreement: Yes. Even assuming Santos’ mandate was limited to selling lots, De Guzman as a third person was entitled to rely on the written Letter of Authority under Article 1900 of the Civil Code, and Siredy is liable for the acts of its agent within the written terms.
• New Issue on Appeal: No. The alleged violation by De Guzman was never raised in the trial court or the Court of Appeals and cannot be raised for the first time on appeal without offending fair play, justice, and due process.

• Agency of Santos: The Court began from the nature of agency: one party, the principal, authorizes another, the agent, to act for and in his behalf in transactions with third persons; the agent’s authority emanates from the powers granted by the principal, and the agent’s act is the principal’s act if done within the scope of authority. The Letter of Authority executed by Yanga as president of Siredy clearly and unequivocally constituted Santos “to do and execute” the act of negotiating and entering into “contract or contracts to build Housing Units on our subdivision lots in Ysmael Village, Sta. Rosa, Marilao, Bulacan.” De Guzman transacted with Santos on the authority of that document, resulting in the Deed of Agreement. Petitioner’s claim that Siredy was merely in the business of selling empty lots was contradicted by its Articles of Incorporation, approved by the Securities and Exchange Commission, which authorized it to erect buildings and houses and to sell, lease, or otherwise dispose of them. The Articles, coupled with the Letter of Authority, gave De Guzman reason to believe Santos was duly authorized. The trial court thus erred in ignoring the Letter of Authority; a valid agency existed, and Santos’s authority included entering into the construction contract. Siredy was bound.

• Liability under the Deed of Agreement: Even if Santos’s mandate was only to sell subdivision lots, Siredy remained liable. De Guzman was a third party to the agency agreement and had no knowledge of the specific instructions or agreements between Siredy and Santos. What he saw was the written Letter of Authority in which Santos appeared duly authorized. Under Article 1900 of the Civil Code, as far as third persons are concerned, an act is deemed within the scope of the agent’s authority if it is within the terms of the power of attorney as written, even if the agent in fact exceeded the limits of his authority according to an understanding between principal and agent. The scope of the agent’s authority is what appears in the written power of attorney; third persons are bound to inquire into the extent or scope of authority but are not required to go beyond the written power, and they cannot be adversely affected by private understandings between principal and agent. Because the essence of agency is representation, obligations contracted by the agent are for and on behalf of the principal, and the principal is liable for acts of the agent within the limits of his authority as if performed by the principal himself. Petitioner’s belated claim that the Letter of Authority was defective and needed reformation deserved scant consideration; Yanga, a doctor and businessman, knew the meaning and import of the document and admitted signing it, and there was no evidence that he abrogated the Letter or withdrew Santos’s power before the case. The claim that the case was in effect a revocation of the Letter was erroneous because De Guzman instituted the civil case.

• New Issue on Appeal: The alleged violation by De Guzman of the Deed of Agreement was raised for the first time on appeal. From the trial in the RTC to the appeal before the Court of Appeals, that issue was never put in issue; petitioner’s defense before the courts a quo consisted of denying any liability under the Deed. The Court applied the rule in Safic Alcan & Cie vs. Imperial Vegetable Oil Co., Inc. that a question never raised in the courts below cannot be allowed to be raised for the first time on appeal without offending basic rules of fair play, justice, and due process. The issue was not brought before the trial court or the appellate court and thus did not deserve consideration by the Supreme Court.

• Agency and representation — Agency is a relationship in which one party, the principal, authorizes another, the agent, to act for and in his behalf in transactions with third persons. The agent’s authority emanates from the powers granted by the principal, and the agent’s act is the principal’s act if done within the scope of that authority; “He who acts through another acts himself.” The Court applied this to hold that Santos was Siredy’s agent under the Letter of Authority and that his execution of the Deed of Agreement bound Siredy.
• Scope of authority as to third persons; written power of attorney — Under Article 1900 of the Civil Code, as far as third persons are concerned, an act is deemed to have been performed within the scope of the agent’s authority if it 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. Third persons are bound to inquire into the extent or scope of the agent’s authority but are not required to go beyond the terms of the written power of attorney, and they cannot be adversely affected by private understandings between principal and agent. The Court applied this rule to hold Siredy liable even assuming Santos’s actual mandate was only to sell lots.
• Liability of principal for acts of agent — The essence of agency is representation; obligations contracted by the agent are for and on behalf of the principal. A consequence is the liability of the principal for the acts of his agent performed within the limits of his authority, equivalent to performance by the principal himself. The Court used this to affirm Siredy’s liability for the unpaid construction costs under the Deed of Agreement.
• Reformation of instruments; burden of proof — A party claiming that a written instrument is defective and does not express the true intention of the parties must establish that ground; the claim deserves scant consideration where the signatory knew the meaning and import of the document, admitted signing it, and there is no evidence of abrogation or withdrawal of authority before litigation. The Court rejected Siredy’s belated reformation argument on this basis.
• Questions raised for the first time on appeal — A question that was never raised in the courts below cannot be allowed to be raised for the first time on appeal without offending basic rules of fair play, justice, and due process. The Court applied this to refuse consideration of petitioner’s claim that De Guzman violated the Deed of Agreement.

• "By the relationship of agency, one party called the principal authorizes another called the agent to act for and in his behalf in transactions with third persons. The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority. “He who acts through another acts himself.”" — This passage states the Court’s foundational definition of agency and the representation principle used to bind Siredy to Santos’s contract.
• "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." — This is the controlling statutory rule that protected De Guzman as a third person relying on the written Letter of Authority.
• "The scope of the agent’s authority is what appears in the written terms of the power of attorney. While third persons are bound to inquire into the extent or scope of the agent’s authority, they are not required to go beyond the terms of the written power of attorney. Third persons cannot be adversely affected by an understanding between the principal and his agent as to the limits of the latter’s authority." — This passage explains why Siredy could not escape liability by invoking private limits on Santos’s authority that did not appear in the written power.
• "It must be borne in mind that a question that was never raised in the courts below cannot be allowed to be raised for the first time on appeal without offending basic rules of fair play, justice and due process." — This passage supports the Court’s refusal to consider petitioner’s late claim that De Guzman violated the Deed of Agreement.

• Rallos vs. Felix Go Chan & Sons Realty Corporation, 81 SCRA 251, 259 (1978) — Cited for the agency principle that “He who acts through another acts himself,” supporting the conclusion that Santos’s acts within authority were Siredy’s acts.
• Cuizon vs. Court of Appeals, 260 SCRA 645, 668-669 (1996) — Cited for the rule that documentary evidence and positive testimony outweigh mere denial; the Court used it to reject Siredy’s self-serving claim that it was not in the construction business.
• Safic Alcan & Cie vs. Imperial Vegetable Oil Co., Inc., 355 SCRA 559 (2001) — Cited for the procedural rule that a question not raised in the courts below cannot be raised for the first time on appeal without violating fair play, justice, and due process; applied to petitioner’s late claim that De Guzman violated the Deed.

• Article 1881, Civil Code — Cited for the basis of agency: the agent acts for and in behalf of the principal on matters within the scope of his authority, and such acts have the same legal effect as if personally done by the principal. The Court used it to explain why Siredy was bound by Santos’s contract.
• Article 1900, Civil Code — Quoted and applied: as far as third persons are concerned, an act is deemed within the scope of the agent’s authority if it is within the terms of the written power of attorney, even if the agent exceeded the limits of his authority under a private understanding with the principal. This protected De Guzman and made Siredy liable.
• Article 1311, Civil Code — Invoked by the trial court in dismissing the case against Siredy and Yanga on the ground that contracts take effect only between the parties, their assigns, and heirs, except as provided by law. The Supreme Court did not adopt that rationale, holding Siredy bound through its agent under the agency rules.
• Rule 45, Rules of Court — The petition was filed as a petition for review on certiorari under Rule 45, the procedural vehicle by which Siredy sought review of the Court of Appeals decision.

Bellosillo (Chairman), Mendoza, Austria-Martinez, and Callejo, Sr., JJ., concur.