The Supreme Court affirmed that a Special Power of Attorney (SPA) granted to manage a lease agreement and protect property rights is irrevocable when coupled with interest. This ruling emphasizes the protection of an agent’s rights and the stability of agreements where the agent has a vested interest, ensuring that such arrangements cannot be unilaterally revoked by the principal. This has practical implications for property management and lease agreements, providing legal certainty to parties who invest significant resources and effort based on a clear contractual delegation.

Protecting Investments: Can a Landowner Revoke Authority Over a Hotel Lease?

This case revolves around a dispute involving Cecilia Yulo Locsin and Puerto Galera Resort Hotel, Inc. (PGRHI), represented by Luisito B. Padilla. The central issue arose from a lease agreement and a subsequent SPA granted by Robustiniano Quinto, Jr. to Padilla. Quinto, the registered owner of a hotel complex, had entered into a lease contract with Padilla, who was authorized to introduce improvements. Later, Quinto and Padilla agreed to lease the hotel complex to Locsin, but after Locsin allegedly damaged the property, Quinto attempted to revoke the SPA he had granted to Padilla, leading to legal action.

The pivotal legal question is whether Quinto could unilaterally revoke the SPA given the improvements Padilla introduced and the Memorandum of Agreement (MOA) between them. The court’s analysis centered on the principle of an agency coupled with interest, a concept rooted in the Civil Code. Article 1868 defines agency as a contract where one person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. Generally, a contract of agency is revocable because it’s based on trust and confidence. However, Article 1927 provides an exception: an agency cannot be revoked if a bilateral contract depends upon it or if it is the means of fulfilling an obligation already contracted.

CIVIL CODE, Article 1927: An agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted.

In this instance, the Supreme Court found that the SPA was indeed coupled with interest because it directly related to the fulfillment of obligations under the MOA between Quinto and Padilla. The MOA outlined their agreement to jointly seek tenants for the hotel complex, share earnings, and protect their respective interests. Padilla had introduced significant improvements to the property and therefore had a vested interest in its management and preservation.

The Court emphasized the interconnectedness of the MOA and the SPA. The SPA empowered Padilla to manage the lease agreement with Locsin, negotiate, sue, and recover damages related to property losses. The Court rejected the argument that the lease agreement was separate from the hotel complex and its improvements, asserting that the lease agreement directly pertained to the hotel complex. The Supreme Court then quoted the ruling in Wheelers Club International, Inc. v. Bonifacio, Jr., a similar case which involved a Lease Development Agreement (LDA). In the Wheelers case, the Court held that BDAI, the developer of the property improvements, had an interest in the property, which meant that JRBDC, represented by the co-owners of the land subject of the case, were not free to revoke the agency at will as it is one coupled with interest.

Wheelers Club International, Inc. v. Bonifacio, Jr., 500 Phil. 497 (2005): As developer of the permanent improvement on the Property, BDAI has an interest in the Property that is the subject matter of the agency, assuming such agency exists. An agency coupled with interest is not revocable at the will of the principal.

The Court found Quinto’s denial of understanding the SPA suspect. Padilla’s allegations were confirmed in a Judicial Affidavit and Quinto was not unlettered. Quinto, as a uniformed officer who served as a military dentist for a substantial period of time and owns a multi-million property, is well-versed in contracts such as the subject MOA and SPA. The revocation attempt appeared doubtful, especially since Quinto initially affirmed Padilla’s authority.

Furthermore, the Court addressed the issue of whether a perfected contract of lease existed between Cecilia and Quinto. It highlighted the three stages of a contract: preparation, perfection, and consummation. In this case, Cecilia manifested her intent to lease the hotel complex, which was accepted by Quinto and Padilla. She deposited a down payment, took possession of the property, and paid monthly rentals. All these actions indicated a perfected contract of lease.

The Court also examined whether Padilla had the right to pursue the case in his personal capacity. The Court explained that “interest means material interest, that is, an interest in issue to be affected by the judgment, while a real party-in-interest is the party who would be benefited or injured by the judgment or the party entitled to the avails of the suit.” Given the improvements Padilla made, he stood to be affected by the judgment. The MOA underscored their agreement to protect their interests, thereby solidifying Padilla’s standing to pursue the case.

Finally, the Court addressed the award of attorney’s fees and litigation expenses. Attorney’s fees are awarded with factual, legal, and equitable justification, but cannot be awarded where no sufficient showing of bad faith in a party’s persistence in a case other than an erroneous conviction of the righteousness of his cause. In this case, the Court determined that Padilla’s suit was not unfounded, and there was no evidence of bad faith. The Supreme Court then cited the ruling in Cabrera v. Baguio when attorney’s fees may not be awarded where no sufficient showing of bad faith in a party’s persistence in a case other than an erroneous conviction of the righteousness of his cause.

Cabrera v. Baguio, G.R. No. 247238, March 4, 2020: Even when a claimant is compelled to litigate with third persons, or to incur expenses to protect his rights, attorney’s fees may not be awarded where no sufficient showing of bad faith in a party’s persistence in a case other than an erroneous conviction of the righteousness of his cause.

Thus, the Supreme Court denied the petition, affirming the Court of Appeals’ decision that Padilla’s SPA was irrevocable due to being coupled with interest. This decision underscores the importance of protecting the rights of agents who have a material interest in the subject matter of their agency, thereby ensuring fairness and stability in contractual relationships.

FAQs

This case reinforces the principle that an agency coupled with interest is not revocable at will. It serves as a reminder of the importance of clearly defining the terms and scope of agency agreements, particularly when significant investments or obligations are involved. This decision provides valuable guidance for parties entering into similar arrangements, promoting stability and fairness in contractual relationships.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: CECILIA YULO LOCSIN SUBSTITUTED BY MR. LEANDRO Y. LOCSIN, vs. PUERTO GALERA RESORT HOTEL, INC., G.R. No. 233678, July 27, 2022