Obligations and Liabilities of the Principal – Ratified Acts

443 SCRA 377 (2004) – Manila Memorial Park Cemetery, Inc. v. Linsangan
Tinga, J.

Baluyot, presumed to be an agent of petitioner Manila Memorial Park Cemetery, entered into a contract with respondent
Linsangan for the purchase of a lot in one of petitioner’s cemeteries. Although the parties had agreed on a lower
consideration than what was reflected in the contract, respondent nevertheless signed because of a separate document by
Baluyot stating that Linsangan was bound to pay only the price initially agreed upon. When the petitioner cancelled the
contract for nonpayment of arrearages, Linsangan filed a case for breach of contract. The Court held here that Linsangan’s
suit against petitioner cannot prosper because Baluyot acted beyond the authority given by petitioner; thus, petitioner cannot
be bound by Baluyot’s agreement with Linsangan, as it had not ratified such act.

DOCTRINE
Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without
authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority.
Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and circumstances relating
to the unauthorized act of the person who assumed to act as agent. Thus, if material facts were suppressed or unknown,
there can be no valid ratification.

IMPORTANT PEOPLE
Manila Memorial Park Cemetery – petitioner / principal
Atty. Pedro Linsangan – respondent
Florencia Baluyot – agent

FACTS
1. Florencia Baluyot, presumed to be an agent of petitioner Manila Memorial Park Cemetery, Inc. (MMPCI), offered
respondent Atty. Pedro Linsangan a lot at the Holy Cross Memorial Park owned by MMPCI. The lot was previously
owned by a buyer who was no longer interested in the lot and had opted to sell his rights subject to reimbursement of
the amounts he had already paid.
2. The price agreed upon by the parties was P95,000. Atty. Linsangan then paid P35,295 as down payment
(reimbursement to original buyer).
3. Atty. Linsangan was issued a new contract (different from original buyer’s) for the lot, which reflected a price of
P132,250. Atty. Linsangan objected to the new price, but he was convinced to sign the contract because Baluyot
executed a document confirming that while the price indicated in the contract is P132,250 (P3,255 monthly
installment), Atty. Linsangan would pay only the original price of P95,000 (P1,800 monthly installment).
4. Atty. Linsangan thus issued 12 postdated checks of P1,800 each in favor of MMPCI, then another 12 the next year.
5. However, a year later, Baluyot verbally advised Atty. Linsangan that his contract was cancelled for reasons she
cannot explain, and presented another proposal for the purchase of an equivalent property. Linsangan refused and
insisted that Baluyot and MMPCI honor their undertaking. Atty. Linsangan thus filed a complaint for breach of
contract and damages against MMPCI.
6. It was later discovered that the real arrangement between Baluyot and Atty. Linsangan was for the latter to pay a
monthly installment of P1,800 while Baluyot was to shoulder P1,455 to meet the P3,255 monthly installments as
indicated in the contract signed by the parties. (Atty. Linsangan was not aware that this is what Baluyot intended to do.
He relied on the document executed by Baluyot in Fact #3.)
7. MMPCI alleged that the contract was cancelled because of nonpayment of arrearages. It claimed:
 Baluyot was not an agent but an independent contractor, and as such was not authorized to represented MMPCI
except as to the extent expressly stated in their agreement.
 MMPCI was not aware of the arrangements entered into by Linsangan and Baluyot, as it actually received a down
payment and monthly installments as indicated in the contract.
8. RTC: Baluyot was an agent of MMPCI, and the latter is estopped from denying this agency, having received and
encashed the checks issued by Atty. Linsangan given to it by Baluyot.
9. CA: Affirmed RTC. While Baluyot’s acuthority may not have been expressly conferred upon her, the same may have
been derived impliedly by habit or custom, which may have been an accepted practice in the company for a long period
of time.
10. MMPCI thus filed this instant petition for review, claiming that the cancellation of the contract was justified, and that
even assuming that Baluyot was an agent of MMPCI, she had exceeded her authority and it cannot be bound by her
agreement with Atty. Linsangan.

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ISSUES with HOLDING

1. W/N Baluyot was an agent of MMPCI – YES

 MMPCI: Under its Agency Manager Agreement, Baluyot was designated as an agency manager, who is considered
an independent contractor and not an agent.
 Court: But, in the same Agreement, Baluyot as agency manager was authorized to solicit and remit to MMPCI offers
to purchase internment spaces belonging to and sold by the latter. Baluyot was an agent of MMPCI, having
represented the interest of the latter, and having been allowed by MMPCI to represent it in its dealings with its
clients/prospective buyers.

2. W/N MMPCI can be bound by the contract procured by Atty. Linsangan and solicited by Baluyot – NO
 The Offer to Purchase signed by Atty. Linsangan showed a total list price of P132,250. It was clearly stated therein
that “Purchaser agrees that he has read or has had read to him this agreement, that he understands its terms and
conditions, and that there are no covenants, conditions, warranties or representations other than those contained
herein.”
 The agreement between Baluyot and Atty. Linsangan cannot affect MMPCI as it was made outside Baluyot’s
authority, which was limited only to soliciting purchasers. She had no authority to alter the terms of the written
contract provided by MMPCI. The document Baluyot signed promising the agreed upon P95k price was executed
by Baluyot alone.
 It is a settled rule that a person dealing with an agent assumes the risk of lack of authority in the agent. He cannot
charge the principal by relying upon the agent’s assumption of authority that proves to be unfounded. If he does not
the necessary inquiries, he is chargeable with knowledge of the agent’s authority and his ignorance of that authority
will not be an excuse.
o It was not established that Atty. Linsangan even bothered to inquire whether Baluyot was authorized to agree
to terms contrary to those indicated in the written contract.
o As a lawyer for 13 years, a greater degree of caution should be expected of Atty. Linsangan especially in
dealings involving legal documents. He did not even bother to ask for official receipts of his payments, nor
inquire from MMPCI directly to ascertain the real status of the contract.

3. W/N MMPCI ratified the contract entered into by Baluyot – NO

 Relevant provisions: Art. 18981, Art. 19102, and Art. 19113.
 The CA found MMPCI liable based on ratification, holding that in view of MMPCI’s acceptance of the benefits of
Baluyot’s misrepresentation, it can no longer deny responsibility therefor. However, based on the above-cited
provisions, the acts of an agent beyond the scope of his authority do not bind the principal unless he ratifies
them, expressly or impliedly. Moreover, the principal must have knowledge of the acts he is to ratify.
o The principal must have full knowledge at the time of ratification of all the material facts and circumstances
relating to the unauthorized act of the person who assumed to act as agent. If material facts were suppressed
or unknown, there can be no valid ratification.
o In the absence of circumstances putting a reasonably prudent man on inquiry, ratification cannot be implied as
against the principal who is ignorant of the facts.
 No ratification can be implied in this case. MMPCI cannot be said to have known of the separate agreement entered
into by Baluyot with Atty. Linsangan. It was shown that Baluyot wrote a letter to the Sales Manager of MMPCI,
admitting the agreement between her and Atty. Linsangan (Fact #6), and that she had failed on her end of the
obligation because of her own financial difficulties. She even asked for compassion from MMPCI for the error she
committed.
o Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as it was concerned, the
contract price was P132,250.

1Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the
contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal. In this
case, however, the agent is liable if he undertook to secure the principals ratification.
2 Art. 1910. The principal must comply with all the obligations that the agent may have contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly.
3 Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter
to act as though he had full powers.

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4. W/N the petitioner is estopped from denying Baluyot’s authority to enter into the separate agreement with Atty.
Linsangan – NO
 Essential elements of estoppel: (i) Conduct of a party amounting to false representation or concealment of material
facts; (ii) Intent that this conduct shall be acted upon or influence the other party; and, (iii) Knowledge, actual or
constructive, of the real facts.
 There is no indication that MMPCI let Atty. Linsangan believe that Baluyot had the authority to alter the standard
contracts of the company. Neither is there any showing that prior to the signing of the contract, MMPCI had any
knowledge of Baluyot’s commitment to Atty. Linsangan.
 One who claims the benefit of estoppel on the ground that he has been misled by the representations of another
must not have been misled through his own want of care and circumspection. Atty. Linsangan could have easily
determined that Baluyot had no authority to alter the terms of the contract, had he been more cautious and prudent.
 Also, the CA was wrong in holding that Baluyot’s authority may have been implied by habit or custom (Fact #9).
The records of the case fail to show any indication that there was such a custom in MMPCI that allows agents to
enter into agreements for lower prices, nor to assume a portion of the purchase price.

DISPOSITIVE PORTION
WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated 22 June 2001 and its
Resolution dated 12 December 2001 in CA- G.R. CV No. 49802, as well as the Decision in Civil Case No. 88-1253 of the
Regional Trial Court, Makati City Branch 57, are hereby REVERSED and SET ASIDE. The Complaint in Civil Case No. 88-
1253 is DISMISSED for lack of cause of action. No pronouncement as to costs. SO ORDERED.

OTHER NOTES
Baluyot cannot be held liable for damages under the same contract, since there is no evidence showing that Baluyot
undertook to secure MMPCI’s ratification. The agreement between Baluyot and Atty. Linsangan bound only the two of them.
Atty. Linsangan’s recourse should only be against Baluyot who personally undertook to pay the difference between the true
contract price and the original proposed price. Atty. Linsangan may institute a separate action to recover damages from
Baluyot, not as an agent of MMPCI, but in view of the latter’s breach of their separate agreement.

DIGESTER: Alyssa Mateo