APT- AGENCY 1
Nature of Agency: Parties to the contract; capacity
FIRST DIVISION
[G.R. No. 120465. September 9, 1999]
WILLIAM UY and RODEL ROXAS, petitioners,
vs. COURT OF APPEALS, HON. ROBERT BALAO and
NATIONAL HOUSING AUTHORITY, respondents.
SYNOPSIS
Petitioners William Uy and Rodel Roxas are agents
authorized to sell eight parcels of land by the owners thereof.
They offered to sell the said parcels of land to respondent
National Housing Authority to be utilized and developed as a
housing project. The NHA Board approved the acquisition of
said lands. However, only five parcels were paid for by the
NHA because of the report it received from the Land
Geosciences Bureau of the Department of Environment and
National Resources (DENR) that the remaining area is located
at an active landslide area and, therefore, not suitable for
development into a housing project. Subsequently, the NHA
cancelled the sale over the three parcels of land but it offered
the amount of P1.225 million to the landowners as daos
perjuicios. On the other hand, 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. Nevertheless, it
awarded damages to plaintiffs in the sum of P1.255 million. On
appeal, the Court of Appeal reversed the decision of the trial
court and entered a new one dismissing the complaint.
Hence, this petition.
The Court ruled that since petitioners are not parties,
heirs, assignees, or beneficiaries of a stipulation pour
autrui under the contracts of sale, they do not, under
substantive law, possess the right they seek to enforce.
Therefore, they are not the real parties-in-interest in this case.
Moreover, 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.
Accordingly, the Court held 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. Assuming
that petitioners are parties, assignees or beneficiaries to the
contract of sale, they would not be entitled to any award of
damages.
Petition is DENIED.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; REAL PARTY-IN-
INTEREST; ELUCIDATED. - Section 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. 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.

2. CIVIL LAW; SPECIAL CONTRACTS; AGENCY; AGENTS
ARE NOT PARTIES TO CONTRACT OF SALE; CASE
AT BAR. - 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. 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.
3. ID.; ID.; ID.; AGENT AS ASSIGNEE MAY BRING ACTION
FOUNDED ON CONTRACT MADE FOR HIS
PRINCIPAL. - 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): Section
372. Agent as Owner of Contract Right (1) Unless
otherwise agreed, 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 as might a transferee having a similar
interest.
4. ID.; ID.; ID.; NOT APPLICABLE IN CASE AT BAR. -
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
APT- AGENCY 2
Nature of Agency: Parties to the contract; capacity
advances and commissions before turning the balance
over to the principal[s].
5. ID.; ID.; ID.; AGENTS ARE NOT BENEFICIARIES OF
STIPULATION POUR AUTRUI; CASE AT BAR. - Finally,
it does not appear that petitioners are beneficiaries of a
stipulation pour autrui under the second paragraph of
Article 1311 of the Civil Code. Indeed, there is no
stipulation in any of the Deeds of Absolute Sale clearly
and deliberately conferring a favor to any third person.
6. ID.; ID.; ID.; GENERALLY, AN AGENT DOES NOT HAVE
INTEREST IN CONTRACT AS TO ENTITLE HIM TO
MAINTAIN AN ACTION AT LAW.- 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.
7. ID.; OBLIGATIONS AND CONTRACTS; RIGHT OF
RESCISSION; PREDICATED ON BREACH OF FAITH
BY OTHER PARTY THAT VIOLATES RECIPROCITY
BETWEEN THEM. - 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. The
power to rescind, therefore, is given to the injured party.
Article 1191 states: The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him. 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.
8. ID.; ID.; ID.; CASE AT BAR NOT EXERCISE OF RIGHT
OF RECISSION. - 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, 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.
9. ID.; ID.; CONTRACTS; CAUSE; ELUCIDATED. - Cause is
the essential reason which moves the contracting parties
to enter into it. 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.
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.
10. ID.; ID.; ID.; ID.; MOTIVE MAY BE REGARDED AS
CAUSE WHEN IT PREDETERMINES PURPOSE OF
CONTRACT. - Ordinarily, a partys 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. In Liguez vs. Court of
Appeals, this Court, speaking through Justice J.B.L.
Reyes, held: x x x It is well to note, however, that Manresa
himself (Vol. 8, pp. 641-642), while maintaining the
APT- AGENCY 3
Nature of Agency: Parties to the contract; capacity
distinction and upholding the inoperativeness of the
motives of the parties to determine the validity of the
contract, expressly excepts from the rule those contracts
that are conditioned upon the attainment of the motives of
their party. The same view is held by the Supreme Court
of Spain, in its decisions of February 4, 1941, and
December 4, 1946, holding that the motive may be
regarded as causa when it predetermines the purpose of
the contract.
11. ID.; ID.; ID.; ID.; QUALITY OF LAND WAS AN IMPLIED
CONDITION FOR NHA TO ENTER INTO CONTRACT;
CASE AT BAR. - 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. Were the lands indeed unsuitable for housing as
NHA claimed? We deemed the findings contained in the
report of the Land Geosciences Bureau dated 15 July
1991 sufficient basis for the cancellation of the sale.
12. ID.; ID.; ID.; NHA WAS JUSTIFIED IN CANCELLING
CONTRACT; CASE AT BAR. - Accordingly, we hold that
the NHA was justified in cancelling the contract. The
realization of the mistake as regards the equality of the
land resulted in the negation of the motive/cause thus
rendering the contract inexistent. Article 1318 of the Civil
Code states that: Art. 1318. There is no contract unless
the following requisites concur: (1) Consent of the
contracting parties; (2) Object certain which is the subject
matter of the contract; (3) Cause of the obligation which is
established. Therefore, assuming that petitioners are
parties, assignees or beneficiaries to the contract of sale,
they would not be entitled to any award of damages.

DECISION
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, subsequently offered the
amount of P1.225 million to the landowners as daos 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.
APT- AGENCY 4
Nature of Agency: Parties to the contract; capacity
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.
xxx In paragraph 4 of the complaint, plaintiffs alleged
themselves to be sellers agents for several owners of the 8
lots subject matter of the case. Obviously, 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).
When plaintiffs Uy and Roxas sought payment of damages in
their favor in view of the partial rescission of Resolution No.
1632 and the Deed of Absolute Sale covering TCT Nos.
10998, 10999 and 11292 (Prayer complaint, page 5, RTC
records), it becomes obviously indispensable that the lot
owners be included, mentioned and named as party-plaintiffs,
being the real party-in-interest. Uy and Roxas, as attorneys-in-
fact or apoderados, cannot by themselves lawfully commence
this action, more so, when the supposed special power of
attorney, in their favor, was never presented as an evidence in
this case. Besides, even if herein plaintiffs Uy and Roxas were
authorized by the lot owners to commence this action, the
same must still be filed in the name of the pricipal, (Filipino
Industrial Corporation vs. San Diego, 23 SCRA 706 [1968]). As

such indispensable party, their joinder in the action is
mandatory and the complaint may be dismissed if not so
impleaded (NDC vs. CA, 211 SCRA 422 [1992]).[2]
Their motion for reconsideration having been denied,
petitioners seek relief from this Court contending that:
I. COMPLAINT FINDING THE RESPONDENT CA ERRED IN
DECLARING THAT RESPONDENT NHA HAD ANY LEGAL
BASIS FOR RESCINDING THE SALE INVOLVING THE LAST
THREE (3) PARCELS COVERED BY NHA RESOLUTION NO.
1632.
II. GRANTING ARGUENDO THAT THE RESPONDENT NHA
HAD LEGAL BASIS TO RESCIND THE SUBJECT SALE, THE
RESPONDENT CA NONETHELESS ERRED IN DENYING
HEREIN PETITIONERS CLAIM TO DAMAGES, CONTRARY
TO THE PROVISIONS OF ART. 1191 OF THE CIVIL CODE.
III. THE RESPONDENT CA ERRED IN DISMISSING THE
SUBJECT COMPLAINT FINDING THAT THE PETITIONERS
FAILED TO JOIN AS INDISPENSABLE PARTY PLAINTIFF
THE SELLING LOT-OWNERS.[3]
We first resolve the issue raised in the third assignment of
error.
Petitioners claim that they lodged the complaint not in
behalf of their principles 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 apoderados instituting actions in their own name but in
APT- AGENCY 5
Nature of Agency: Parties to the contract; capacity
behalf of their principals.[5] Petitioners in this case purportedly
brought the action for damages in their own name and in their
own behalf.
We find this contention unmeritorious.
Section 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. x x x.
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is
not sufficient. The contracting parties must have clearly and

deliberately conferred a favor upon a third
person. (Underscoring supplied.)
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
contracts of sale? In McMicking vs. Banco Espaol-Filipino,
[10]
we held that the rule requiring every action to be prosecuted
in the name of the real party-in-interest
x x x 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. xxx
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]
Section 372. Agent as Owner of Contract Right
APT- AGENCY 6
Nature of Agency: Parties to the contract; capacity
(1) Unless otherwise agreed, 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 as might a transferee having a similar interest.
The Comment on subsection (1) states:
a. Agent a transferee. One who has made a contract on behalf
of another may become an assignee of the contract and bring
suit against the other party to it, as any other transferee. The
customs of business or the course of conduct between the
principal and the agent may indicate that an agent who
ordinarily has merely a security interest is a transferee of the
principals rights under the contract and as such is permitted to
bring suit. If the agent has settled with his principal with the
understanding that he is to collect the claim against the obligor
by way of reimbursing himself for his advances and
commissions, the agent is in the position of an assignee who
is the beneficial owner of the chose in action. He has an
irrevocable power to sue in his principals name. x x x. And,
under the statutes which permit the real party in interest to
sue, he can maintain an action in his own name. This power to
sue is not affected by a settlement between the principal and
the obligor if the latter has notice of the agents interest. x x
x. 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; he has an irrevocable power to sue in
his principals name and, under statutes which permit the real
party in interest to sue, he can maintain an action in his own
name.
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].
Finally, it does not appear that petitioners
are beneficiaries of a stipulation pour autrui under the
second paragraph of Article 1311 of the Civil Code. Indeed,
there is no stipulation in any of the Deeds of Absolute Sale
clearly and deliberately conferring a favor to any third person.
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 following Comment on the above subsection is
illuminating:
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 principals 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
APT- AGENCY 7
Nature of Agency: Parties to the contract; capacity
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. x x x.
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.
In Goduco vs. Court of Appeals,[13] this Court held that:
x x x granting that appellant had the authority to sell the
property, the same did not make the buyer liable for the
commission she claimed. At most, the owner of the property
and the one who promised to give her a commission should be
the one liable to pay the same and to whom the claim should
have been directed. xxx
As petitioners are not parties, heirs, assignees, or
beneficiaries of a stipulation pour autrui under the contracts of
sale, they do not, under substantive law, possess the right they
seek to enforce. Therefore, they are not the real parties-in-
interest in this case.
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]
Nevertheless, to forestall further litigation on the
substantive aspects of this case, we shall proceed to rule on
the merits.[15]
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 power to rescind obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what is
incumbent upon him.
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.
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
APT- AGENCY 8
Nature of Agency: Parties to the contract; capacity
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;
WHEREAS, Letters of Instructions Nos. 555 and 557 [as]
amended by Letter of Instruction No. 630, prescribed slum
improvement and upgrading, as well as the development of
sites and services as the principal housing strategy for dealing
with slum, squatter and other blighted communities;
xxx
WHEREAS, the VENDEE, in pursuit of and in compliance with
the above-stated purposes offers to buy and the VENDORS, in
a gesture of their willing to cooperate with the above policy
and commitments, agree to sell the aforesaid property
together with all the existing improvements there or belonging
to the VENDORS;
NOW, THEREFORE, for and in consideration of the foregoing
premises and the terms and conditions herein below
stipulated, the VENDORS hereby, sell, transfer, cede and
convey unto the VENDEE, its assigns, or successors-in-

interest, a parcel of land located at Bo. Tadiangan, Tuba,
Benguet containing a total area of FIFTY SIX THOUSAND
EIGHT HUNDRED NINETEEN (56,819) SQUARE METERS,
more or less x x x.
Ordinarily, a partys 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. In Liguez vs. Court of Appeals,[24] this Court, speaking
through Justice J.B.L. Reyes, held:
xxx It is well to note, however, that Manresa himself (Vol. 8,
pp. 641-642) while maintaining the distinction and upholding
the inoperativeness of the motives of the parties to determine
the validity of the contract, expressly excepts from the rule
those contracts that are conditioned upon the attainment of the
motives of either party.
The same view is held by the Supreme Court of Spain, in its
decisions of February 4, 1941, and December 4, 1946, holding
that the motive may be regarded as causa when it
predetermines the purpose of the contract.
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.
Were the lands indeed unsuitable for the housing as NHA
claimed?
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:
APT- AGENCY 9
Nature of Agency: Parties to the contract; capacity
In Tadiangan, Tuba, the housing site is situated in an area of
moderate topography. There [are] more areas of less sloping
ground apparently habitable. The site is underlain by x x x
thick slide deposits (4-45m) consisting of huge conglomerate
boulders (see Photo No. 2) mix[ed] with silty clay
materials. These clay particles when saturated have some
swelling characteristics which is dangerous for any civil
structures especially mass housing development.[25]
Petitioners content that the report was merely preliminary,
and not conclusive, as indicated in its title:
MEMORANDUM
TO: EDWIN G. DOMINGO
Chief, Lands Geology Division
FROM: ARISTOTLE A. RILLON
Geologist II
SUBJECT: Preliminary Assessment of Tadiangan Housing
Project in Tuba, Benguet[26]
Thus, page 2 of the report states in part:
xxx
Actually there is a need to conduct further geottechnical [sic]
studies in the NHA property. Standard Penetration Test (SPT)
must be carried out to give an estimate of the degree of
compaction (the relative density) of the slide deposit and also
the bearing capacity of the soil materials. Another thing to
consider is the vulnerability of the area to landslides and other
mass movements due to thick soil cover. Preventive physical

mitigation methods such as surface and subsurface drainage
and regrading of the slope must be done in the area.[27]
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
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
cancelling 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:
Art. 1318. There is no contract unless the following requisites
concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the
contract;
(3) Cause of the obligation which is established. (Underscoring
supplied.)
Therefore, assuming that petitioners are parties,
assignees or beneficiaries to the contract of sale, they would
not be entitled to any award of damages.
WHEREFORE, the instant petition is hereby DENIED.
SO ORDERED.
APT- AGENCY 10
Nature of Agency: Parties to the contract; capacity
FIRST DIVISION
G.R. No. 149353 June 26, 2006
JOCELYN B. DOLES, Petitioner,
vs.
MA. AURA TINA ANGELES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari under Rule
45 of the Rules of Court questioning the Decision1dated April
30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV No.
66985, which reversed the Decision dated July 29, 1998 of the
Regional Trial Court (RTC), Branch 21, City of Manila; and the
CA Resolution2 dated August 6, 2001 which denied petitioners
Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed
with the RTC a complaint for Specific Performance with
Damages against Jocelyn B. Doles (petitioner), docketed as
Civil Case No. 97-82716. Respondent alleged that petitioner
was indebted to the former in the concept of a personal loan
amounting to P405,430.00 representing the principal amount
and interest; that on October 5, 1996, by virtue of a "Deed of
Absolute Sale",3 petitioner, as seller, ceded to respondent, as
buyer, a parcel of land, as well as the improvements thereon,
with an area of 42 square meters, covered by Transfer
Certificate of Title No. 382532,4 and located at a subdivision
project known as Camella Townhomes Sorrente in Bacoor,
Cavite, in order to satisfy her personal loan with respondent;
that this property was mortgaged to National Home Mortgage

Finance Corporation (NHMFC) to secure petitioners loan in
the sum of P337,050.00 with that entity; that as a condition for
the foregoing sale, respondent shall assume the undue
balance of the mortgage and pay the monthly amortization
of P4,748.11 for the remainder of the 25 years which began on
September 3, 1994; that the property was at that time being
occupied by a tenant paying a monthly rent of P3,000.00; that
upon verification with the NHMFC, respondent learned that
petitioner had incurred arrearages amounting to P26,744.09,
inclusive of penalties and interest; that upon informing the
petitioner of her arrears, petitioner denied that she incurred
them and refused to pay the same; that despite repeated
demand, petitioner refused to cooperate with respondent to
execute the necessary documents and other formalities
required by the NHMFC to effect the transfer of the title over
the property; that petitioner collected rent over the property for
the month of January 1997 and refused to remit the proceeds
to respondent; and that respondent suffered damages as a
result and was forced to litigate.
Petitioner, then defendant, while admitting some allegations in
the Complaint, denied that she borrowed money from
respondent, and averred that from June to September 1995,
she referred her friends to respondent whom she knew to be
engaged in the business of lending money in exchange for
personal checks through her capitalist Arsenio Pua. She
alleged that her friends, namely, Zenaida Romulo, Theresa
Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth
Tomelden, borrowed money from respondent and issued
personal checks in payment of the loan; that the checks
bounced for insufficiency of funds; that despite her efforts to
assist respondent to collect from the borrowers, she could no
longer locate them; that, because of this, respondent became
furious and threatened petitioner that if the accounts were not
settled, a criminal case will be filed against her; that she was
forced to issue eight checks amounting to P350,000 to answer
for the bounced checks of the borrowers she referred; that
APT- AGENCY 11
Nature of Agency: Parties to the contract; capacity
prior to the issuance of the checks she informed respondent
that they were not sufficiently funded but the latter nonetheless
deposited the checks and for which reason they were
subsequently dishonored; that respondent then threatened to
initiate a criminal case against her for violation of Batas
Pambansa Blg. 22; that she was forced by respondent to
execute an "Absolute Deed of Sale" over her property in
Bacoor, Cavite, to avoid criminal prosecution; that the said
deed had no valid consideration; that she did not appear
before a notary public; that the Community Tax Certificate
number on the deed was not hers and for which respondent
may be prosecuted for falsification and perjury; and that she
suffered damages and lost rental as a result.
The RTC identified the issues as follows: first, whether the
Deed of Absolute Sale is valid; second; if valid, whether
petitioner is obliged to sign and execute the necessary
documents to effect the transfer of her rights over the property
to the respondent; and third, whether petitioner is liable for
damages.
On July 29, 1998, the RTC rendered a decision the dispositive
portion of which states:
WHEREFORE, premises considered, the Court hereby orders
the dismissal of the complaint for insufficiency of evidence.
With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause or
consideration:5
Plaintiff Angeles admission that the borrowers are the friends
of defendant Doles and further admission that the checks
issued by these borrowers in payment of the loan obligation
negates [sic] the cause or consideration of the contract of sale
executed by and between plaintiff and defendant. Moreover,
the property is not solely owned by defendant as appearing in
Entry No. 9055 of Transfer Certificate of Title No. 382532
(Annex A, Complaint), thus:

"Entry No. 9055. Special Power of Attorney in favor of Jocelyn
Doles covering the share of Teodorico Doles on the parcel of
land described in this certificate of title by virtue of the special
power of attorney to mortgage, executed before the notary
public, etc."
The rule under the Civil Code is that contracts without a cause
or consideration produce no effect whatsoever. (Art. 1352,
Civil Code).
Respondent appealed to the CA. In her appeal brief,
respondent interposed her sole assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE AT
BAR ON THE GROUND OF [sic] THE DEED OF SALE
BETWEEN THE PARTIES HAS NO CONSIDERATION OR
INSUFFICIENCY OF EVIDENCE.6
On April 30, 2001, the CA promulgated its Decision, the
dispositive portion of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is
hereby GRANTED. The Decision of the lower court dated July
29, 1998 is REVERSED and SET ASIDE. A new one is
entered ordering defendant-appellee to execute all necessary
documents to effect transfer of subject property to plaintiff-
appellant with the arrearages of the formers loan with the
NHMFC, at the latters expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in
turn, would "re-lend" the amount borrowed from the
respondent to her friends. Hence, the Deed of Absolute Sale
was supported by a valid consideration, which is the sum of
money petitioner owed respondent amounting to P405,430.00,
representing both principal and interest.
The CA took into account the following circumstances in their
entirety: the supposed friends of petitioner never presented
themselves to respondent and that all transactions were made
by and between petitioner and respondent;7 that the money
borrowed was deposited with the bank account of the
petitioner, while payments made for the loan were deposited
APT- AGENCY 12
Nature of Agency: Parties to the contract; capacity
by the latter to respondents bank account;8 that petitioner
herself admitted in open court that she was "re-lending" the
money loaned from respondent to other individuals for
profit;9 and that the documentary evidence shows that the
actual borrowers, the friends of petitioner, consider her as their
creditor and not the respondent.10
Furthermore, the CA held that the alleged threat or intimidation
by respondent did not vitiate consent, since the same is
considered just or legal if made to enforce ones claim through
competent authority under Article 133511 of the Civil
Code;12 that with respect to the arrearages of petitioner on her
monthly amortization with the NHMFC in the sum
of P26,744.09, the same shall be deemed part of the balance
of petitioners loan with the NHMFC which respondent agreed
to assume; and that the amount of P3,000.00 representing the
rental for January 1997 supposedly collected by petitioner, as
well as the claim for damages and attorneys fees, is denied
for insufficiency of evidence.13
On May 29, 2001, petitioner filed her Motion for
Reconsideration with the CA, arguing that respondent
categorically admitted in open court that she acted only as
agent or representative of Arsenio Pua, the principal financier
and, hence, she had no legal capacity to sue petitioner; and
that the CA failed to consider the fact that petitioners father,
who co-owned the subject property, was not impleaded as a
defendant nor was he indebted to the respondent and, hence,
she cannot be made to sign the documents to effect the
transfer of ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the
motion on the ground that the foregoing matters had already
been passed upon.
On August 13, 2001, petitioner received a copy of the CA
Resolution. On August 28, 2001, petitioner filed the present
Petition and raised the following issues:
I.

WHETHER OR NOT THE PETITIONER CAN BE
CONSIDERED AS A DEBTOR OF THE
RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS NOT
AUTHORIZED BY THE PRINCIPAL TO COLLECT
DEBT IN HIS BEHALF COULD DIRECTLY COLLECT
PAYMENT FROM THE DEBTOR.
III.
WHETHER OR NOT THE CONTRACT OF SALE WAS
EXECUTED FOR A CAUSE.14
Although, as a rule, it is not the business of this Court to
review the findings of fact made by the lower courts,
jurisprudence has recognized several exceptions, at least
three of which are present in the instant case, namely: when
the judgment is based on a misapprehension of facts; when
the findings of facts of the courts a quo are conflicting; and
when the CA manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, could
justify a different conclusion.15 To arrive at a proper judgment,
therefore, the Court finds it necessary to re-examine the
evidence presented by the contending parties during the trial
of the case.
The Petition is meritorious.
The principal issue is whether the Deed of Absolute Sale is
supported by a valid consideration.
1. Petitioner argues that since she is merely the agent or
representative of the alleged debtors, then she is not a party to
the loan; and that the Deed of Sale executed between her and
the respondent in their own names, which was predicated on
that pre-existing debt, is void for lack of consideration.
Indeed, the Deed of Absolute Sale purports to be supported by
a consideration in the form of a price certain in money16 and
that this sum indisputably pertains to the debt in issue. This
Court has consistently held that a contract of sale is null and
void and produces no effect whatsoever where the same is
APT- AGENCY 13
Nature of Agency: Parties to the contract; capacity
without cause or consideration.17 The question that has to be
resolved for the moment is whether this debt can be
considered as a valid cause or consideration for the sale.
To restate, the CA cited four instances in the record to support
its holding that petitioner "re-lends" the amount borrowed from
respondent to her friends: first, the friends of petitioner never
presented themselves to respondent and that all transactions
were made by and between petitioner and
respondent;18 second; the money passed through the bank
accounts of petitioner and respondent;19 third, petitioner
herself admitted that she was "re-lending" the money loaned to
other individuals for profit;20 and fourth, the documentary
evidence shows that the actual borrowers, the friends of
petitioner, consider her as their creditor and not the
respondent.21
On the first, third, and fourth points, the CA cites the testimony
of the petitioner, then defendant, during her cross-
examination:22
Atty. Diza: You also mentioned that you were not the
one indebted to the plaintiff?
witness:Yes, sir.
Atty. Diza: And you mentioned the persons[,] namely,
Elizabeth Tomelden, Teresa Moraquin, Maria Luisa
Inocencio, Zenaida Romulo, they are your friends?
witness: Inocencio and Moraquin are my friends while
[as to] Jacob and Tomelden[,] they were just referred.
Atty. Diza: And you have transact[ed] with the plaintiff?
witness: Yes, sir.
Atty. Diza: What is that transaction?
witness: To refer those persons to Aura and to refer
again to Arsenio Pua, sir.
Atty. Diza: Did the plaintiff personally see the
transactions with your friends?
witness:No, sir.
Atty. Diza: Your friends and the plaintiff did not meet
personally?

witness: Yes, sir.
Atty. Diza: You are intermediaries?
witness: We are both intermediaries. As evidenced by
the checks of the debtors they were deposited to the
name of Arsenio Pua because the money came from
Arsenio Pua.
xxxx
Atty. Diza: Did the plaintiff knew [sic] that you will lend
the money to your friends specifically the one you
mentioned [a] while ago?
witness: Yes, she knows the money will go to those
persons.
Atty. Diza: You are re-lending the money?
witness: Yes, sir.
Atty. Diza: What profit do you have, do you have
commission?
witness: Yes, sir.
Atty. Diza: How much?
witness: Two percent to Tomelden, one percent to
Jacob and then Inocencio and my friends none, sir.
Based on the foregoing, the CA concluded that
petitioner is the real borrower, while the respondent,
the real lender.
But as correctly noted by the RTC, respondent, then
plaintiff, made the following admission during her cross
examination:23
Atty. Villacorta: Who is this Arsenio Pua?
witness: Principal financier, sir.
Atty. Villacorta: So the money came from Arsenio Pua?
witness: Yes, because I am only representing him, sir.
Other portions of the testimony of respondent must
likewise be considered:24
Atty. Villacorta: So it is not actually your money but the
money of Arsenio Pua?
witness: Yes, sir.
Court: It is not your money?
APT- AGENCY 14
Nature of Agency: Parties to the contract; capacity
witness: Yes, Your Honor.
Atty. Villacorta: Is it not a fact Ms. Witness that the
defendant borrowed from you to accommodate
somebody, are you aware of that?
witness:I am aware of that.
Atty. Villacorta: More or less she [accommodated]
several friends of the defendant?
witness:Yes, sir, I am aware of that.
xxxx
Atty. Villacorta: And these friends of the defendant
borrowed money from you with the assurance of the
defendant?
witness: They go direct to Jocelyn because I dont
know them.
xxxx
Atty. Villacorta: And is it not also a fact Madam witness
that everytime that the defendant borrowed money
from you her friends who [are] in need of money issued
check[s] to you? There were checks issued to you?
witness:Yes, there were checks issued.
Atty. Villacorta: By the friends of the defendant, am I
correct?
witness:Yes, sir.
Atty. Villacorta: And because of your assistance, the
friends of the defendant who are in need of money
were able to obtain loan to [sic] Arsenio Pua through
your assistance?
witness: Yes, sir.
Atty. Villacorta: So that occasion lasted for more than a
year?
witness: Yes, sir.
Atty. Villacorta: And some of the checks that were
issued by the friends of the defendant bounced, am I
correct?
witness:Yes, sir.

Atty. Villacorta: And because of that Arsenio Pua got
mad with you?
witness: Yes, sir.
Respondent is estopped to deny that she herself acted as
agent of a certain Arsenio Pua, her disclosed principal. She is
also estopped to deny that petitioner acted as agent for the
alleged debtors, the friends whom she (petitioner) referred.
This Court has affirmed that, under Article 1868 of the Civil
Code, the basis of agency is representation.25 The question of
whether an agency has been created is ordinarily a question
which may be established in the same way as any other fact,
either by direct or circumstantial evidence. The question is
ultimately one of intention.26 Agency may even be implied from
the words and conduct of the parties and the circumstances of
the particular case.27Though the fact or extent of authority of
the agents may not, as a general rule, be established from the
declarations of the agents alone, if one professes to act as
agent for another, she may be estopped to deny her agency
both as against the asserted principal and the third persons
interested in the transaction in which he or she is engaged.28
In this case, petitioner knew that the financier of respondent is
Pua; and respondent knew that the borrowers are friends of
petitioner.
The CA is incorrect when it considered the fact that the
"supposed friends of [petitioner], the actual borrowers, did not
present themselves to [respondent]" as evidence that negates
the agency relationshipit is sufficient that petitioner disclosed
to respondent that the former was acting in behalf of her
principals, her friends whom she referred to respondent. For
an agency to arise, it is not necessary that the principal
personally encounter the third person with whom the agent
interacts. The law in fact contemplates, and to a great degree,
impersonal dealings where the principal need not personally
know or meet the third person with whom her agent transacts:
precisely, the purpose of agency is to extend the personality of
the principal through the facility of the agent.29
APT- AGENCY 15
Nature of Agency: Parties to the contract; capacity
In the case at bar, both petitioner and respondent have
undeniably disclosed to each other that they are representing
someone else, and so both of them are estopped to deny the
same. It is evident from the record that petitioner merely refers
actual borrowers and then collects and disburses the amounts
of the loan upon which she received a commission; and that
respondent transacts on behalf of her "principal financier", a
certain Arsenio Pua. If their respective principals do not
actually and personally know each other, such ignorance does
not affect their juridical standing as agents, especially since
the very purpose of agency is to extend the personality of the
principal through the facility of the agent.
With respect to the admission of petitioner that she is "re-
lending" the money loaned from respondent to other
individuals for profit, it must be stressed that the manner in
which the parties designate the relationship is not controlling. If
an act done by one person in behalf of another is in its
essential nature one of agency, the former is the agent of the
latter notwithstanding he or she is not so called.30 The question
is to be determined by the fact that one represents and is
acting for another, and if relations exist which will constitute an
agency, it will be an agency whether the parties understood
the exact nature of the relation or not.31
That both parties acted as mere agents is shown by the
undisputed fact that the friends of petitioner issued checks in
payment of the loan in the name of Pua. If it is true that
petitioner was "re-lending", then the checks should have been
drawn in her name and not directly paid to Pua.
With respect to the second point, particularly, the finding of the
CA that the disbursements and payments for the loan were
made through the bank accounts of petitioner and respondent,
suffice it to say that in the normal course of commercial
dealings and for reasons of convenience and practical utility it
can be reasonably expected that the facilities of the agent,
such as a bank account, may be employed, and that a sub-

agent be appointed, such as the bank itself, to carry out the
task, especially where there is no stipulation to the contrary.32
In view of the two agency relationships, petitioner and
respondent are not privy to the contract of loan between their
principals. Since the sale is predicated on that loan, then the
sale is void for lack of consideration.
2. A further scrutiny of the record shows, however, that the
sale might have been backed up by another consideration that
is separate and distinct from the debt: respondent averred in
her complaint and testified that the parties had agreed that as
a condition for the conveyance of the property the respondent
shall assume the balance of the mortgage loan which
petitioner allegedly owed to the NHMFC.33 This Court in the
recent past has declared that an assumption of a mortgage
debt may constitute a valid consideration for a sale.34
Although the record shows that petitioner admitted at the time
of trial that she owned the property described in the TCT,35 the
Court must stress that the Transfer Certificate of Title No.
38253236 on its face shows that the owner of the property
which admittedly forms the subject matter of the Deed of
Absolute Sale refers neither to the petitioner nor to her father,
Teodorico Doles, the alleged co-owner. Rather, it states that
the property is registered in the name of "Household
Development Corporation." Although there is an entry to the
effect that the petitioner had been granted a special power of
attorney "covering the shares of Teodorico Doles on the parcel
of land described in this certificate,"37 it cannot be inferred from
this bare notation, nor from any other evidence on the record,
that the petitioner or her father held any direct interest on the
property in question so as to validly constitute a mortgage
thereon38 and, with more reason, to effect the delivery of the
object of the sale at the consummation stage.39 What is worse,
there is a notation that the TCT itself has been "cancelled."40
In view of these anomalies, the Court cannot entertain the
possibility that respondent agreed to assume the balance of
the mortgage loan which petitioner allegedly owed to the
APT- AGENCY 16
Nature of Agency: Parties to the contract; capacity
NHMFC, especially since the record is bereft of any factual
finding that petitioner was, in the first place, endowed with any
ownership rights to validly mortgage and convey the property.
As the complainant who initiated the case, respondent bears
the burden of proving the basis of her complaint. Having failed
to discharge such burden, the Court has no choice but to
declare the sale void for lack of cause. And since the sale is
void, the Court finds it unnecessary to dwell on the issue of
whether duress or intimidation had been foisted upon
petitioner upon the execution of the sale.
Moreover, even assuming the mortgage validly exists, the
Court notes respondents allegation that the mortgage with the
NHMFC was for 25 years which began September 3, 1994.
Respondent filed her Complaint for Specific Performance in
1997. Since the 25 years had not lapsed, the prayer of
respondent to compel petitioner to execute necessary
documents to effect the transfer of title is premature.
WHEREFORE, the petition is granted. The Decision and
Resolution of the Court of Appeals are REVERSED and SET
ASIDE. The complaint of respondent in Civil Case No. 97-
82716 is DISMISSED.
SO ORDERED.