Agent Not Real Party-in-Interest and Cases
Agent Not Real Party-in-Interest and Cases
Agent Not Real Party-in-Interest and Cases
SUPREME COURT
Manila
FIRST DIVISION
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.1âwphi1.nêt
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).
Their motion for reconsideration having been denied, petitioners seek relief from this
Court contending that:
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.
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. . . .
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.
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.
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
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]."
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 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 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.
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
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 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.1âwphi1.nêt
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;
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.
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:
Petitioners contend that the report was merely "preliminary," and not conclusive, as
indicated in its title:
MEMORANDUM
SUBJECT: Preliminary Assessment of
x x x x x x x x x
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:
SO ORDERED.
FIRST DIVISION
DECISION
KAPUNAN, J.:
On May 25, 1999, respondents filed a complaint for injunction with prayer for
the issuance of a writ of preliminary injunction and/or temporary restraining
order before the Regional Trial Court of Makati. The Executive Judge of the
Regional Trial Court of Makati issued a 72-hour temporary restraining order.
On May 28, 1999, the case was raffled to Branch 147 of the Regional Trial
Court of Makati. The trial judge then set a hearing on June 8, 1999. At the
hearing of the application for preliminary injunction, petitioner was given a
period of seven days to file its written opposition to the application. On June
15, 1999, petitioner filed an opposition to the application for a writ of
preliminary injunction to which the respondents filed a reply. On June 25,
1999, petitioner filed a motion to dismiss on the grounds of failure to state a
cause of action and the absence of any privity between the petitioner and
respondents. On June 30, 1999, the trial court judge issued an Order for the
issuance of a writ of preliminary injunction, which writ was correspondingly
issued on July 14, 1999. On October 4, 1999, the motion to dismiss was denied
by the trial court judge for lack of merit.
1.
2.
GROUNDS
II
The contract questioned is one entered into between respondent and PNB-
IFL, not PNB. In their complaint, respondents admit that petitioner is a mere
attorney-in-fact for the PNB-IFL with full power and authority to, inter alia,
foreclose on the properties mortgaged to secure their loan obligations with
PNB-IFL. In other words, herein petitioner is an agent with limited authority
and specific duties under a special power of attorney incorporated in the real
estate mortgage. It is not privy to the loan contracts entered into by
respondents and PNB-IFL.
The issue of the validity of the loan contracts is a matter between PNB-IFL, the
petitioner's principal and the party to the loan contracts, and the respondents.
Yet, despite the recognition that petitioner is a mere agent, the respondents in
their complaint prayed that the petitioner PNB be ordered to re-compute the
rescheduling of the interest to be paid by them in accordance with the terms
and conditions in the documents evidencing the credit facilities, and crediting
the amount previously paid to PNB by herein respondents. 9 cräläwvirtualibräry
Clearly, petitioner not being a party to the contract has no power to re-
compute the interest rates set forth in the contract. Respondents, therefore do
not have any cause of action against petitioner.
The trial court, however, in its Order dated October 4, 1994, ruled that since
PNB-IFL is a wholly owned subsidiary of defendant Philippine National Bank,
the suit against the defendant PNB is a suit against PNB-IFL. 10 In justifying its
ruling, the trial court, citing the case of Koppel Phil Inc. vs. Yatco, 11 reasoned
that the corporate entity may be disregarded where a corporation is the mere
alter ego, or business conduit of a person or where the corporation is so
organized and controlled and its affairs are so conducted, as to make it merely
an instrumentality, agency, conduit or adjunct of another corporation. 12 cräläwvirtualibräry
We disagree.
(a) The parent corporation owns all or most of the capital stock of the
subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(d) The parent corporation subscribes to all the capital stock of the subsidiary
or otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the
subsidiary.
(g) The subsidiary has substantially no business except with the parent
corporation or no assets except those conveyed to or by the parent
corporation.
(h) In the papers of the parent corporation or in the statements of its officers,
the subsidiary is described as a department or division of the parent
corporation, or its business or financial responsibility is referred to as the
parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(k) The formal legal requirements of the subsidiary are not observed.
In the case at bar only two of the eleven listed indicia occur, namely, the
ownership of most of the capital stock of Lenoir by Southern, and possibly
subscription to the capital stock of Lenoir The complaint must be dismissed.
Similarly, in this jurisdiction, we have held that the doctrine of piercing the
corporate veil is an equitable doctrine developed to address situations where
the separate corporate personality of a corporation is abused or used for
wrongful purposes. The doctrine applies when the corporate fiction is used to
defeat public convenience, justify wrong, protect fraud or defend crime, or
when it is made as a shield to confuse the legitimate issues, or where a
corporation is the mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as
to make it merely an instrumentality, agency, conduit or adjunct of another
corporation. 15
cräläwvirtualibräry
In Concept Builders, Inc. v. NLRC, 16 we have laid the test in determining the
applicability of the doctrine of piercing the veil of corporate fiction, to wit:
1. Control, not mere majority or complete control, but complete domination,
not only of finances but of policy and business practice in respect to the
transaction attacked so that the corporate entity as to this transaction had at
the time no separate mind, will or existence of its own.
2. Such control must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other positive legal duty, or
dishonest and, unjust act in contravention of plaintiff's legal rights; and,
3. The aforesaid control and breach of duty must proximately cause the injury
or unjust loss complained of.
The absence of any one of these elements prevents "piercing the corporate
veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are
concerned with reality and not form, with how the corporation operated and
the individual defendant's relationship to the operation. 17
cräläwvirtualibräry
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner
PNB, there is now showing of the indicative factors that the former
corporation is a mere instrumentality of the latter are present. Neither is there
a demonstration that any of the evils sought to be prevented by the doctrine of
piercing the corporate veil exist. Inescapably, therefore, the doctrine of
piercing the corporate veil based on the alter ego or instrumentality doctrine
finds no application in the case at bar.
(a) That the applicant is entitled to the relief demanded, and the whole or
part of such relief consists in restraining the commission or continuance of
the act or acts complained of, or in requiring the performance of an act or
acts, either for a limited period or perpetually;
All told, respondents do not have a cause of action against the petitioner as the
latter is not privy to the contract the provisions of which private respondents
seek to declare void. Accordingly the case before the Regional Trial Court must
be dismissed and the preliminary injunction issued in connection therewith,
must be lifted.
SO ORDERED.