Uy vs. Court of Appeals

An agent who is not a party, heir, assignee, or beneficiary of a stipulation pour autrui under a contract is not a real party-in-interest to sue for damages arising from that contract. Furthermore, when a party's motive for entering a contract predetermines the cause, the failure of that motive negates the cause, rendering the contract inexistent and justifying its cancellation, which is distinct from rescission under Article 1191.

Petitioners William Uy and Rodel Roxas, authorized agents of landowners, offered to sell eight parcels of land in Tuba, Benguet to respondent National Housing Authority (NHA) for a housing project. The NHA Board approved the acquisition and the parties executed Deeds of Absolute Sale. The NHA paid for only five parcels after the DENR Land Geosciences Bureau reported the remaining area was an active landslide zone unsuitable for housing. The NHA subsequently cancelled the sale over the three remaining parcels and offered a sum as daños perjuicios.

• Authorization and Sale: Petitioners, as agents authorized to sell eight parcels of land, offered the properties located in Tuba, Benguet to the NHA for a housing project. The NHA Board passed Resolution No. 1632 approving the acquisition of 31.8231 hectares at P23.867 million, pursuant to which the parties executed a series of Deeds of Absolute Sale.
• Geological Report and Cancellation: The DENR Land Geosciences Bureau issued a report stating that a portion of the land was underlain by thick slide deposits and was dangerous for mass housing development. Based on this report, the NHA paid for only five parcels. On November 22, 1991, the NHA issued Resolution No. 2352 cancelling the sale over the remaining three parcels, and subsequently offered P1.225 million as daños perjuicios.
• Action for Damages: Petitioners filed a complaint for damages against NHA, claiming unearned income, opportunity loss, expenses, and moral and exemplary damages. They asserted they filed the action in their own behalf and not on behalf of their principals.

• Petitioner argued that the NHA had no legal basis to rescind the sale involving the last three parcels.
• Petitioner maintained that, assuming the NHA had legal basis to rescind, the Court of Appeals erred in denying their claim for damages pursuant to Article 1191 of the Civil Code.
• Petitioner contended that the Court of Appeals erred in dismissing the complaint based on the failure to join the selling lot-owners as indispensable parties, asserting they lodged the complaint in their own name as agents directly damaged by the termination of the contract, seeking to indemnify themselves for losses such as unearned income and advances.

• Respondent countered that the NHA had sufficient justifiable basis in cancelling the sale due to the geological unsuitability of the land.
• Respondent argued that petitioners were mere attorneys-in-fact and not the real parties-in-interest, because the lot owners—who were omitted as party-plaintiffs—were the indispensable parties entitled to the avails of the suit.

• Procedural Issues: Whether petitioners, as agents of the vendors, are real parties-in-interest to file a complaint for damages arising from the cancellation of the contract of sale.
• Substantive Issues: Whether respondent NHA had legal basis to cancel the sale of the three parcels of land; whether the cancellation constitutes rescission under Article 1191 entitling petitioners to damages.

• Procedural: The Court held that petitioners are not real parties-in-interest. Under Section 2, Rule 3 of the Rules of Court, every action must be prosecuted in the name of the real party-in-interest, defined as the party who, by substantive law, has the right sought to be enforced. Under Article 1311 of the Civil Code, contracts take effect only between parties, assigns, heirs, or beneficiaries of a stipulation pour autrui. Petitioners are not parties to the contract. They are not assignees because they failed to prove an agreement granting them the right to receive payment to reimburse themselves for advances and commissions. Neither are they beneficiaries of a stipulation pour autrui, as the deeds contained no stipulation clearly and deliberately conferring a favor upon them. An agent's entitlement to a commission or liability for breach does not, by itself, confer a sufficient interest to maintain an action against the other contracting party.
• Substantive: The Court held that the NHA was justified in canceling the contract and that the cancellation did not constitute rescission under Article 1191. Rescission under Article 1191 requires a breach of faith by the other party that violates the reciprocity of obligations. Here, the vendors committed no breach; they fulfilled their obligation to deliver the parcels. The cancellation was based on the negation of the cause. While motive is generally distinct from cause, motive may be regarded as cause when it predetermines the purpose of the contract. NHA's motive—acquiring land suitable for housing—predetermined the cause of the contract. The DENR report established that the land was unsuitable for housing, thus negating the cause and rendering the contract inexistent.

• Real Party in Interest — An action must be prosecuted in the name of the party who, by substantive law, has the right sought to be enforced. An agent is not a real party-in-interest to sue on a contract made on behalf of a principal merely because they are entitled to a commission or suffered loss from non-performance, unless they are assignees of the contract rights or beneficiaries of a stipulation pour autrui.
• Motive as Cause — While motive (the particular reason of a contracting party) is distinct from cause (the essential reason which moves the contracting parties to enter into it), when the motive predetermines the purpose of the contract, the motive may be regarded as the cause. The failure of such motive negates the cause, rendering the contract inexistent.

• "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."
• "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."
• "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."

• Ferrer vs. Villamor, 60 SCRA 406 (1974) — Followed. An action brought by an attorney-in-fact in his own name, rather than in the name of the principal, is properly dismissed.
• Filipino Industrial Corporation vs. San Diego, 23 SCRA 706 (1968) — Followed. Even if agents are authorized to commence an action, it must be filed in the name of the principal.
• McMicking vs. Banco Español-Filipino, 13 Phil. 429 (1909) — Followed. Recognizes that when a right of action is assigned, the assignee becomes the real party in interest.
• Goduco vs. Court of Appeals, 10 SCRA 275 (1964) — Followed. Authority to sell property does not make the buyer liable for the agent's commission; the claim should be directed against the owner.
• Liguez vs. Court of Appeals, 102 Phil. 577 (1957) — Followed. Motive may be regarded as causa when it predetermines the purpose of the contract.

• Section 2, Rule 3, Rules of Court — Requires that every action be prosecuted in the name of the real party-in-interest. The Court applied this to dismiss the agents' complaint because they lacked a material interest under substantive law.
• Article 1311, Civil Code — Provides that contracts take effect only between the parties, their assigns, and heirs, unless there is a stipulation pour autrui. The Court applied this to show that agents, not being parties, assigns, heirs, or beneficiaries, cannot sue on the contract.
• Article 1191, Civil Code — Governs the power to rescind reciprocal obligations in case of breach. The Court distinguished the cancellation in this case from rescission under this article, noting that the vendors committed no breach.
• Article 1318, Civil Code — Enumerates the requisites of a contract, including cause. The Court held that the negation of the cause resulted in the inexistent nature of the contract.
• Articles 1350 and 1351, Civil Code — Define cause in onerous contracts and distinguish it from motive. The Court applied these provisions to explain that while motive is distinct from cause, it merges with cause when it predetermines the contract's purpose.

Puno, Pardo, and Ynares-Santiago, JJ.