Unauthorized acts

Is the principal liable if its agent acts beyond her authority? This is one of the questions answered in this case of MMPCI, a company engaged in the sale of memorial plots or interment spaces.

To carry out its business, MMPCI hires agency managers. One of those hired was Flora who is specifically authorized to solicit offers to purchase interment spaces and remit to MMPCI payments of the sales made.

Sometime in 1984, Flora offered to Rolly a lawyer the rights to a memorial lot in a place called Garden State the buyer of which was no longer interested in acquiring the lot and had opted to sell it subject to reimbursements of the amounts he already paid. Flora assured Rolly that once reimbursement was made to the buyer, the Contract No. 25012 would be transferred to him for the same contract amount of P95,000. Rolly agreed and gave Flora P35,295 representing the amount to be reimbursed and the completion of the down payment to MMPCI. Flora issued handwritten and typewritten receipts for these payments.

But in March 1985, Flora informed Rolly that he would be issued a new Contract (No. 28660) with a listed price of P132,250 for the said lot instead of the old contract (No. 25012). She assured Rolly however that he would still be paying the old price of P95,000 with P19,838 credited as full down payment leaving a balance of about P75,000. At first Rolly would not sign the new contract, so to convince him Flora executed a document confirming that while the contract price is P132,250 with a monthly installment of P3,255, Rolly would pay only the old price of P95,000 with a monthly installment of P1,800 starting April 6, 1985 and the difference will represent the discount to conform to the old price. By virtue of this document, Rolly signed the Offer to Purchase (Contract 28660) showing the total listed price of P132,250 and clearly providing that "purchaser has read this agreement, that he understands its terms and conditions and that there are no covenants, conditions, warranties or representations other than those contained herein". Then Rolly issued postdated checks of P1,800 to cover installment payments for two years.

But after two years, Flora verbally advised Rolly that Contract No. 28660 was cancelled for reasons she could not explain, and presented to him another proposal for the purchase of an equivalent property. This time Rolly refused and insisted that Flora and MMPCI honor their undertaking. Then he subsequently filed a complaint for breach of contract and damages against Flora and MMPCI. The filing of the complaint triggered a revelation by Flora to MMPCI that she consented to Rolly’s proposal that he will pay the old price while the difference will be shouldered by her and that the contract suffered arrearages because while Rolly issued the agreed checks of P1,800 a month, she was unable to give her share of P1,455 to meet the P3,255 monthly installments as indicated in the contract. Flora’s admission was contained in her answer to Rolly’s complaint. MMPCI on the other hand insisted that the contract No. 28660 was rightfully cancelled for non-payment of arrearages, so the complaint against them states no cause of action.

But the trial court (RTC), and subsequently the Court of Appeals (CA) ruled in favor of Rolly. Both courts said that MMPCI was bound by the acts of its agent Flora and was estopped from denying this agency, having received and encashed checks issued by Rolly and given to it by Flora. Were the RTC and CA correct?

No. Flora’s authority as agent was limited only to soliciting purchasers of interment spaces pursuant to the Offer to Purchase of MMPCI. She has no authority to alter the written contract which showed a total price of P132,250. By signing that Offer to Purchase, Rolly signified that he understands and accepts its contents. The document/letter confirming the agreement that Rolly would have to pay the old price was executed by Flora alone. Nowhere is there any indication that the same came from MMPCI. Persons dealing with an agent are bound by their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of the authority, and in case either is controverted, the burden of proof is upon them to establish it. If he does not make such an inquiry, he is chargeable with knowledge of the agent’s authority and his ignorance of that authority will not be an excuse. In this case, Rolly has not even bothered to inquire whether Flora was authorized to agree to terms contrary to those indicated in the written contract, much less to bind MMPCI by her commitment with respect to such agreements. Rolly should have been put on guard when their agreement was not reflected in the contract.

The acts of an agent beyond the scope of his authority do not bind the principal unless the latter ratifies them expressly or impliedly. No ratification can be implied in this case. MMPCI was not aware of the real arrangement between Flora and Rolly about the latter’s payment of the old price while the difference will be shouldered by Flora. If it was aware of the arrangement, it would have refused the latter’s checks. Moreover Flora’s late admission to MMPCI that she made an error in entering into such arrangement confirms that MMPCI had no knowledge of it at the start (Manila Memorial Park etc. vs. Linsangan, G.R. 151319 November 22, 2004).

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