Not a party in interest - A Law Each Day (Keeps Trouble Away)

An action shall be prosecuted in the name of the party who, by the substantive law, has the right sought to be enforced -- the real party in interest who stands to be benefited or injured by the judgment, or the party entitled to the avails of the suit. Are agents real parties in interest in the enforcement of the contracts entered into by their principals? This is the question answered in this case of Rolly and Freddie.

Rolly and Freddie were agents authorized by the owners of sell eight parcels of land with an area of 31.8231 hectares located in the mountain province. By virtue of such authority, they offered to sell the lands to the National Housing Authority to be utilized and developed as a housing project.

Thereafter, the NHA approved the acquisition of said lands 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 it received from the Land Geosciences Bureau of the Department of Environment and Natural Resources that the remaining lands is located at an active landslide area, and therefore, not suitable for development into a housing project.

So the NHA adopted a resolution canceling the sale over the three parcels of land and offered the amount of P1.225 million to the landowners as daños perjuicios.

Now come Freddie and Rolly claiming that as a result of the termination of the three contracts, they incurred damages consisting of unearned income and advances. They alleged that had NHA not cancelled the contracts and paid the price of the three parcels of land they would have made an income of approximately P6.4 million. Freddie and Rolly claimed that they were filing the complaint not in behalf of their principals but in their own name since the damages prayed for were intended not for the benefit of their principals but to indemnify them for losses due to the termination of the contracts. Were they correct?

No. Freddie and Rolly are not parties to the contracts of sale between their principal landowners 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 party in interest either as plaintiff or defendant in an action upon that contract must, generally, either be parties to said contract.

The applicable substantive law in this case is Art. 1311 of the Civil Code which states that "contracts take effect only between the parties, their assignee, and heirs". Rolly and Freddie are not heirs or assignees of their principals either.

That they did not obtain their commission or recoup their advances because of the cancellation of the contract did not entitle them to file the action against the NHA. An agent does not have such interest in the contract as to entitle him to maintain action at law upon 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 (Restatement Law Sec. 372 (2). 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 (Uy et. al. vs. Court of Appeals et. al. G.R. No. 120465 Sept. 19, 1999).

Atty. Sison's e-mail address is: [email protected].