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MANOTOK BROTHERS, INC. VS.

COURT OF APPEALS
CASE NUMBER: G.R. No. 94753
DATE: April 7, 1993.
PONENTE: Campos Jr., J.
FACTS:
The petitioner in this case is the owner of a parcel of land and building which was leased to the City of
Manila and was used by Claro M. Recto High school.
Respondent here, Salvador Saligumba was the agent of the petitioner who negotiated with the city for the
sale of the said property.
Accordingly as such, he was given letters of authority that allowed him to negotiate the property at a price
not less than 425k
He was to get a 5% commission from the said sale
His authority was extended several times, the last one lasting for 180 days from November 16, 1987, also it
was at this time that petitioner allowed the sale to be consummated for the amount of 410k.
However, it was only on April 26, 1968, passed Ordinance No. 6603, appropriating the sum of P410,816.00
for the purchase of the property which private respondent was authorized to sell.
Said ordinance however, was signed by the City Mayor only on May 17, 1968, one hundred eighty three
(183) days after the last letter of authorization.
On January 14, 1969, the parties signed the deed of sale of the subject property. The initial payment of
P200,000.00 having been made, the purchase price was fully satisfied with a second payment on April 8, 1969
by a check in the amount of P210,816.00.
Respondent now asks that the 5% commission be paid to him in the amount of P20,554.50.
But petitioners refused to pay up, arguing that:
(1) Private respondent would be entitled to a commission only if the sale was consummated and the price
paid within the period given in the respective letters of authority;
(2) Private respondent was not the person responsible for the negotiation and consummation of the sale;
instead it was Filomeno E. Huelgas, the PTA president for 1967-1968 of the Claro M. Recto High School.
Petitioner presented as its witnesses Filomeno Huelgas and the petitioner's President, Rufino Manotok.
Huelgas testified to the effect that after being inducted as PTA president in August, 1967 he followed up the
sale from the start with Councilor Magsalin until after it was approved by the Mayor on May 17, 1968
He also said that he came to know Rufino Manotok only in August, 1968, at which meeting the latter told
him that he would be given a "gratification" in the amount of P20,000.00 if the sale was expedited.
Petitioners contention that as a broker, private respondent's job is to bring together the parties to a
transaction.
Accordingly, if the broker does not succeed in bringing the minds of the purchaser and the vendor to an
agreement with respect to the sale, he is not entitled to a commission.
The Court ruled in favor of the respondent, with the CA affirming the RTC decision. Hence the appeal
ISSUE: is the private respondent entitled to the 5% commission? -> Yes
RULING:
Court says: it is to be noted that the ordinance was approved on April 26, 1968 when private respondent's
authorization was still in force.
Moreover, the approval by the City Mayor came only three days after the expiration of private respondent's
authority.
It is also worth emphasizing that from the records, the only party given a written authority by petitioner
to negotiate the sale from July 5, 1966 to May 14, 1968 was private respondent.
When there is a close, proximate and causal connection between the agent's efforts and labor and
the principal's sale of his property, the agent is entitled to a commission.
Private respondent is the efficient procuring cause for without his efforts, the municipality would not have
anything to pass and the Mayor would not have anything to approve.
The SC agrees with respondent Court that the City of Manila ultimately became the purchaser of
petitioner's property mainly through the efforts of private respondent.
Disposition: Decision of the RTC is affirmed.

DOMINGO VS. DOMINGO


CASE NUMBER: GR No. L-30573
DATE: Oct. 29, 1971
PONENTE: Makasiar, J.
FACTS:
Vicente Domingo granted to Gregorio Domingo, a real estate broker, the exclusive agency to sell his Lot
No. 883, Piedad Estate in a document.
thelot has an area of 88,477 sq. m.
According to the document, said lot must be sold for P2 per sq. m.
Accordingly, Gregorio is entitled to 5% commission on the total price if the property is sold by Vicente or by
anyone else during the 30-day duration of the agency or by Vicente within 3 months from the termination of
the agency to a purchaser to whom it was submitted by Gregorio during the effectivity of the agency with
notice to Vicente.
This contract is in triplicate with the original and another copy being retained by Gregorio.
The last copy was given to Vicente. Subsequently, Gregorio authorized Teofilo Purisima to look for a buyer
without notifying Vicente.
Gregorio promised Teofilo of the 5% commission.
Teofilo then introduced Oscar de Leon to Gregorio as a prospective buyer.
Oscar submitted a written offer which was very much lower than the P2 per sq. m. price.
Vicente directed Gregorio to tell Oscar to raise his offer.
After several conferences between the parties, Oscar raised his offer to P1.20 per sq. m. or P109k in total
to which Vicente agreed to said offer.
Upon Vicentes demand, Oscar issued a P1,000 check to him as earnest money.
Vicente, then, advanced P300 to Gregorio.
Subsequently, Vicente asked for an additional P1,000 as earnest money, which Oscar promised to deliver
to Vicente.
The written agreement, Exhibit C, between the parties was amended.
Oscar will vacate on or about September 15, 1956 his house and lot at Denver St., QC, which is part of the
purchase price later on, it was again amended to state that Oscar will vacate his house and lot on Dec.1, 1956
because his wife was pregnant at that time.
Oscar gave Gregorio P1,000 as a gift or propina for succeeding in persuading Vicente to sell his lot at
P1.20 per sq. m.
Gregorio did not disclose said gift or propina to Vicente.
Oscar did not pay Vicente the additional P1,000 Vicente asked from him as earnest money.
The deed of sale was not executed since Oscar gave up on the negotiation when he did not receive his
money from his brother in the US, which he communicated to Gregorio.
Gregorio did not see Oscar for several weeks thus sensing that something fishy might be going on.
He went to Vicentes house where he read a portion of the agreement to the effect that Vicente was still
willing to pay him 5% commission, P5,450.
Gregorio went to the Register of Deeds of QC, where he discovered that a Deed of sale was executed by
Amparo de Leon, Oscars wife, over their house and lot in favor of Vicente. After discovering that Vicente sold
his lot to Oscars wife, Gregorio demanded in writing the payment of his commission.
Gregorio also conferred with Oscar who told him that:
Vicente went to him and asked him to eliminate Gregorio in the transaction and that he would sell his
property to him for P104k.
In his reply, Vicente stated that Gregorio is not entitled to the 5% commission:
Since he sold the property not to Gregorios buyer (Oscar de Leon) but to another buyer (Amparo Diaz) who
is the wife of Oscar de Leon.
CA said: the exclusive agency contract is genuine. The sale of the lot to Amparo de Leon is
practically a sale to Oscar.
ISSUE: Does Gregorios act of accepting the gift or propina from Oscar constitute fraud which would cause the
forfeiture of his 5%commission? -> Yes

RULING:
Gregorio Domingo as the broker received a gift or propina from the prospective buyer Oscar de Leon,
without the knowledge and consent of the principal, Vicente.
His acceptance of said substantial monetary gift corrupted his duty to serve the interests only of his
principal and undermined his loyalty to his principal, who gave him partial advance of P3000 on his
commission.
As a consequence, instead of exerting his best to persuade his prospective buyer to purchase the property
on the most advantageous terms desired by his principal, Gregorio Domingo, succeeded in persuading his
principal to accept the counter-offer of the prospective buyer to purchase the property at P1.20 per sq. m.
The duties and liabilities of a broker to his employer are essentially those which an agent owes to his
principal.
An agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from the
vendee, without revealing the same to his principal, the vendor, is guilty of a breach of his loyalty to
the principal and forfeits his right to collect the commission from his principal, even if the principal does
not suffer any injury by reason of such breach of fidelity, or that he obtained better results or that the agency is
a gratuitous one, or that usage or custom allows it.
This is to prevent the possibility of any wrong not to remedy or repair an actual damage agent thereby
assumes a position wholly inconsistent with that of being an agent for his principal, who has a right to treat
him, insofar as his commission is concerned, as if no agency had existed
The fact that the principal may have been benefited by the valuable services of the said agent does not
exculpate the agent who has only himself to blame for such a result by reason of his treachery or perfidy.
As a necessary consequence of such breach of trust, Gregorio Domingo must forfeit his right to the
commission and must return the part of the commission he received from his principal.
Decisive Provisions Article 1891 and 1909 CC
Article 1891 consists in changing the phrase "to pay" to "to deliver", which latter term is more
comprehensive than the former.
Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is required to an
agent condemning as void any stipulation exempting the agent from the duty and liability imposed on him in
paragraph one thereof.
Article 1909 demands the utmost good faith, fidelity, honesty, candor and fairness on the part of the agent,
the real estate broker in this case, to his principal, the vendor.
The law imposes upon the agent the absolute obligation to make a full disclosure or complete
account to his principal of all his transactions and other material facts relevant to the agency, so much
so that the law as amended does not countenance any stipulation exempting the agent from such an
obligation and considers such an exemption as void.
Situations where the duty mandated by Art 1891 does not apply:
Agent or broker acted only as a middleman with the task of merely bringing together the vendor and
vendee, who themselves thereafter will negotiate on the terms and conditions of the transaction.
Agent or broker had informed the principal of the gift or bonus or profit he received from the purchaser and
his principal did not object
Teofilo Purisimas entitlement to his share in the 5% commission
Teofilo can only recover from Gregorio his share of whatever amounts Gregorio Domingo received by
virtue of the transaction as his sub-agency contract was with Gregorio Domingo alone and not with Vicente
Domingo, who was not even aware of such sub-agency.
Since Gregorio already received a total of P1,300 from Oscar and Vicente, P650 of which should be paid by
Gregorio to Teofilo.
Disposition: CA decision reversed.

RURAL BANK OF MILAOR v. OCFEMIA


G.R. No. 137686; February 8, 2000
Ponente: J. Vitug
FACTS:
The evidence presented by the respondents through the testimony of Marife O. Nio, shows that she is the
daughter of Francisca Ocfemia and the late Renato Ocfemia who died on July 23, 1994. The parents of her
father, Renato Ocfemia, were Juanita Arellano Ocfemia and Felicisimo Ocfemia.
Marife O. Nio knows the five (5) parcels of land which are located in Bombon, Camarines Sur and that they
are the ones possessing them which were originally owned by her grandparents. During the lifetime of her
grandparents, respondents mortgaged the said five (5) parcels of land and two (2) others to the Rural Bank of
Milaor.
The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able to redeem the mortgaged
properties consisting of 7 parcels of land and so the mortgage was foreclosed and thereafter ownership
thereof was transferred to the bank. Out of the 7 parcels that were foreclosed, 5 of them are in the possession
of the respondents because these 5 parcels of land were sold by the bank to the parents of Marife O. Nio as
evidenced by a Deed of Sale executed in January 1988.
The aforementioned 5 parcels of land subject of the deed of sale, have not been, however transferred in the
name of the parents of Merife O. Nio after they were sold to her parents by the bank because according to
the Assessor's Office the five (5) parcels of land, subject of the sale, cannot be transferred in the name of the
buyers as there is a need to have the document of sale registered with the Register of Deeds of Camarines
Sur.
In view of the foregoing, Marife O. Nio went to the Register of Deeds of Camarines Sur with the Deed of Sale
in order to have the same registered. The Register of Deeds, however, informed her that the document of sale
cannot be registered without a board resolution of the Bank. Marife Nio then went to the bank, showed to it
the Deed of Sale, the tax declaration and receipt of tax payments and requested the bank for a board
resolution so that the property can be transferred to the name of Renato Ocfemia the husband of petitioner
Francisca Ocfemia and the father of the other respondents having died already.
Despite several requests, the bank refused her request for a board resolution and made many alibis. She was
told that the bank had a new manager and it had no record of the sale.

ISSUE:
Whether the board of directors of a rural banking corporation be compelled to confirm a deed of absolute sale
of real property which deed of sale was executed by the bank manager without prior authority of the board of
directors of the rural banking corporation

HELD:
Yes, the board of directors can be compelled to confirm a deed of absolute sale even though the bank
manager executed such deed without prior authority from the banking corporation.

The Supreme Court ruled that the bank acknowledged, by its own acts or failure to act, the authority of the
manager to enter into binding contracts. After the execution of the Deed of Sale, respondents occupied the
properties in dispute and paid the real estate taxes due thereon. If the bank management believed that it had
title to the property, it should have taken some measures to prevent the infringement or invasion of its title
thereto and possession thereof.
In this light, the bank is estopped from questioning the authority of the bank manager to enter into the contract
of sale. If a corporation knowingly permits one of its officers or any other agent to act within the scope of an
apparent authority, it holds the agent out to the public as possessing the power to do those acts; thus, the
corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from
denying the agent's authority.
Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it has a clear legal
duty to issue the board resolution sought by respondents. Having authorized her to sell the property, it
behooves the bank to confirm the Deed of Sale so that the buyers may enjoy its full use.

CMS Logging v. CA (1992; Nocon, J.)


Petitioner: CMS Logging, Inc.
Respondent: CA and D.R. Aguinaldo Corp.

Facts:
1

CMS (a forest concessionaire engaged in the logging business) and DRACOR (engaged in the
business of exporting and selling logs and lumber) entered into a contract of agency whereby the
former appointed the latter as its exclusive export and sales agent for all logs that the former may
produce, for a period of five (5) years. By virtue of this agreement, CMS was able to sell 77M board
feet of logs in Japan.
Six months before the expiration of the agreement, CMS president Atty. Sison and its general manager
and legal counsel Atty. Dominguez discovered while on a trip to Japan that DRACOR had used Shinko
Trading Corp. as agent, representative or liaison officer for selling their companys logs and earned a
commission of $1/1,000 board feet, such that it was able to get $77k from the arrangement.
a CMS claimed that this commission paid to Shinko was in violation of the agreement and that it
(CMS) is entitled to this amount as part of the proceeds of the sale of the logs. CMS contended
that since DRACOR had been paid the 5% commission under the agreement, it is no longer
entitled to the additional commission paid to Shinko as this tantamount to DRACOR receiving
double compensation for the services it rendered. (Basically, CMS claims that DRACOR got the
contested amount from the proceeds of the sales over and above the commission they
themselves were to receive under the agreement.)
b After this discovery, CMS sold and shipped logs valued at U.S. $739,321.13 or
P2,883,351.90, 4 directly to several firms in Japan without the aid or intervention of DRACOR.
CMS sued DRACOR for the commission and for moral and exemplary damages.
a DRACORs counterclaim: that it was entitled to a P144k commission from the sales made
directly by CMS.
b CMS reply: in its defense, said that DRACOR retained as part of its commission P101k as part
of its commission from the sale made directly by CMS.
i CMS counterclaim to DRACORS counterclaim: demanded the return of the amount
DRACOR unlawfully retained.
c DRACORs amended counterclaim: alleged that the balance of its commission on the sales
CMS made was P42k (impliedly admitting that it retained the amount alleged in the reply)
TC: Complaint DISMISSED.
a Though there was indeed receipt by Shinko of the $77k, there is no evidence that such amount
was for the sale of CMS logs.
b Counterclaim also dismissed as it was shown that DRACOR had waived its rights to the
balance of its commission in a letter to Atty. Sison.
c CMS appealed.
CA: Dismissal AFFIRMED.
a No evidence supporting CMS claims.
b A letter between DRACOR and Shinko shows that the amount paid to the latter was taken from
the 5% that DRACOR received from CMS.
c Petition for review on certiorari filed before the SC.

Issue:
1
2

WON Shinko received the commission in question.


WON DRACOR is entitled to a commission for the sales made by CMS directly to Japanese firms.

Held/Ratio:
1

NO, it Shinko not receive the commission in question.


a Atty. Dominguez testimony that he heard said news from Shinkos president is hearsay, as well
as the letter of one Mr. Shibata
b The alleged admissions made by DRACORs president and its counsel in other letters cannot
be categorized as admissions because they do not state the facts to be proven in definite,
certain, and unequivocal language. Sample admissions:
i it is obvious that they paid Shinko for certain services which Shinko must have
satisfactorily performed
ii There appears to be no justification for your client's contention that these benefits,
whether they can be considered as commissions paid by Toyo Menka Kaisha to Shinko
Trading, are to be regarded part of the gross sales.
iii our shipment of logs to Toyo Menka Kaisha, Ltd., is only for a net volume of
67,747,732 board feet which should enable Shinko to collect a commission of US
$67,747.73 only (here, the numbers pointed to include logs sold to various firms, and
not just sales allegedly made by Shinko)
c There was no admission by DRACORs alleged silence as to the fact of payment made by Toyo
Menka directly to Shinko because there was in fact a response to this allegation though a letter
from the respondent categorically denying knowledge of any such payment.
d Even if it was shown that Shinko did in fact receive the commissions in question, CMS is not
entitled thereto since these were apparently paid by the buyers to Shinko for arranging the sale.
This is therefore not part of the gross sales of CMS's logs.
2 NO, DRACOR is not entitled to its commission to the subsequent sales.
a Art. 1924 The agency is revoked if the principal directly manages the business entrusted to the
agent, dealing directly with third persons.
b In this case, there was an implied revocation when CMS sold its logs directly to Japanese firms.
Since the contract of agency had been revoked by the time these sales were effected, the
DRACOR is no longer entitled to claim or retain commission in relation to these transactions.
c Neither would DRACOR be entitled to collect damages from CMS, since damages are
generally not awarded to the agent for the revocation of the agency, and the case at bar is not
one falling under the exception mentioned, which is to evade the payment of the agent's
commission.
d Fraud and bad faith were not adequately proven in the LC, and the SC is bound by its finding.
Dispositive: Decision MODIFIED. CA ruling as to the Shinko commission AFFIRMED, but portion as to
DRACORs right to retain subsequent commissions REVERSED.

Valenzuela v CA G.R. No. 83122 October 19, 1990


J. Gutierrez Jr.
Facts:
Petitioner Valenzuela, a General Agent respondent Philamgen, was authorized to solicit and sell all kinds of
non-life insurance. He had a 32.5% commission rate. From 1973 to 1975, Valenzuela solicited marine
insurance from Delta Motors, Inc. in the amount of P4.4 Million from which he was entitled to a commission of
32%. However, Valenzuela did not receive his full commission which amounted to P1.6 Million from the P4.4
Million. Premium payments amounting to P1,946,886.00 were paid directly to Philamgen. Valenzuelas
commission amounted to P632,737.00.
Philamgen wanted to cut Valenzuelas commission to 50% of the amount. He declined.
When Philamgen offered again, Valenzuela firmly reiterated his objection.
Philamgen took drastic action against Valenzuela. They: reversed the commission due him, threatened the
cancellation of policies issued by his agency, and started to leak out news that Valenzuela has a substantial
debt with Philamgen. His agency contract was terminated.
The petitioners sought relief by filing the complaint against the private respondents. The trial court found that
the principal cause of the termination as agent was his refusal to share his Delta commission.
The court considered these acts as harassment and ordered the company to pay for the resulting damage in
the value of the commission. They also ordered the company to pay 350,000 in moral damages.
The company appealed. The CA ordered Valenzuela to pay the entire amount of the commission. Hence, this
appeal by Valenzuela.
Issue:
1. WON the agency contract is coupled with interest on the part of agent Valenzuela.
2. Whether or not Philamgen can be held liable for damages due to the termination of the General Agency
Agreement it entered into with the petitioners.
3. WON Valenzuela should pay the premiums he collected.
Held: Yes. Yes. Petition granted
Ratio:
1. In any event the principal's power to revoke an agency at will is so pervasive, that the Supreme Court has
consistently held that termination may be effected even if the principal acts in bad faith, subject only to the
principal's liability for damages.
The Supreme Court accorded great weight on the trial courts factual findings and found the cause of the
conflict to be Valenzuelas refusal to share the commission. Philamgen told the petitioners of its desire to share
the Delta Commission with them. It stated that should Delta back out from the agreement, the petitioners
would be charged interests through a reduced commission after full payment by Delta.
Philamgen proposed reducing the petitioners' commissions by 50% thus giving them an agent's commission of
16.25%. The company insisted on the reduction scheme. The company pressured the agents to share the
income with the threat to terminate the agency. The petitioners were also told that the Delta commissions
would not be credited to their account. This continued until the agency was terminated.
Records also show that the agency is one "coupled with an interest," and, therefore, should not be freely
revocable at the unilateral will of the company.
The records sustain the finding that the private respondent started to covet a share of the insurance business
that Valenzuela had built up, developed and nurtured. The company appropriated the entire insurance
business of Valenzuela. Worse, despite the termination of the agency, Philamgen continued to hold Valenzuela
jointly and severally liable with the insured for unpaid premiums.

Under these circumstances, it is clear that Valenzuela had an interest in the continuation of the agency when it
was unceremoniously terminated not only because of the commissions he procured, but also Philamgens
stipulation liability against him for unpaid premiums. The respondents cannot state that the agency relationship
between Valenzuela and Philamgen is not coupled with interest.
There is an exception to the principle that an agency is revocable at will and that is when the agency has been
given not only for the interest of the principal but also for the mutual interest of the principal and the agent. The
principal may not defeat the agent's right to indemnification by a termination of the contract of agency. Also, if
a principal violates a contractual or quasi-contractual duty which he owes his agent, the agent may as a rule
bring an appropriate action for the breach of that duty.
2. Hence, if a principal acts in bad faith and with abuse of right in terminating the agency, then he is liable in
damages. The Civil Code says that "every person must in the exercise of his rights and in the performance of
his duties act with justice, give every one his due, and observe honesty and good faith: (Art. 19, Civil Code),
and every person who, contrary to law, wilfully or negligently causes damages to another, shall indemnify the
latter for the same (Art. 20, Civil Code).
3. As to the issue of whether or not the petitioners are liable to Philamgen for the unpaid and uncollected
premiums which the appellate court ordered Valenzuela to pay, the respondent court erred in holding
Valenzuela liable.
Under Section 77 of the Insurance Code, the remedy for the non-payment of premiums is to put an end to and
render the insurance policy not binding.
Philippine Phoenix- non-payment of premium does not merely suspend but puts an end to an insurance
contract since the time of the payment is peculiarly of the essence of the contract.
Section 776 of the insurance Code says that no contract of insurance by an insurance company is valid and
binding unless and until the premium has been paid, notwithstanding any agreement to the contrary
Since the premiums have not been paid, the policies issued have lapsed. The insurance coverage did not go
into effect or did not continue and the obligation of Philamgen as insurer ceased. Philam cant demand from or
sue Valenzuela for the unpaid premiums.
The court held that the CAs giving credence to an audit that showed Valenzuela owing Philamgen
P1,528,698.40 was unwarranted. Valenzuela had no unpaid account with Philamgen. But, facts show that the
beginning balance of Valenzuela's account with Philamgen amounted to P744,159.80. 4 statements of account
were sent to the agent.
It was only after the filing of the complaint that a radically different statement of accounts surfaced in court.
Certainly, Philamgen's own statements made by its own accountants over a long period of time and covering
examinations made on four different occasions must prevail over unconfirmed and unaudited statements
made to support a position made in the course of defending against a lawsuit.
The records of Philamgen itself are the best refutation against figures made as an afterthought in the course of
litigation. Moreover, Valenzuela asked for a meeting where the figures would be reconciled. Philamgen refused
to meet with him and, instead, terminated the agency agreement.
After off-setting the amount, Valenzuela had overpaid Philamgen the amount of P530,040.37 as of November
30, 1978. Philamgen cannot later be heard to complain that it committed a mistake in its computation. The
alleged error may be given credence if committed only once. But as earlier stated, the reconciliation of
accounts was arrived at four (4) times on different occasions where Philamgen was duly represented by its
account executives. On the basis of these admissions and representations, Philamgen cannot later on assume
a different posture and claim that it was mistaken in its representation with respect to the correct beginning
balance as of July 1977 amounting to P744,159.80. The audit report commissioned by Philamgen is unreliable
since its results are admittedly based on an unconfirmed and unaudited beginning balance of P1,758,185.43.
Philamgen has been appropriating for itself all these years the gross billings and income that it took away from
the petitioners. A principal can be held liable for damages in cases of unjust termination of agency. This Court
ruled that where no time for the continuance of the contract is fixed by its terms, either party is at liberty to

terminate it at will, subject only to the ordinary requirements of good faith. The right of the principal to
terminate his authority is absolute and unrestricted, except only that he may not do so in bad faith.
The circumstances of the case, however, require that the contractual relationship between the parties shall be
terminated upon the satisfaction of the judgment. No more claims arising from or as a result of the agency
shall be entertained by the courts after that date.

Philex Mining Corp. v. Commissioner of Internal Revenue


G.R. No. 148187 April 16, 2008 Ynares-Santiago, J.
FACTS:
Philex Mining Corp. entered into an agreement with Baguio Gold Mining Co. for the former to manage and
operate the latters mining claim, known as the Sto. Nino Mine. The parties agreement was denominated as
Power of Attorney which provides inter alia:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make
available to the MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS
(P11,000,000.00), in such amounts as from time to time may be required by the
MANAGERS within the said 3-year period, for use in the MANAGEMENT of the STO.
NINO MINE. The said ELEVEN MILLION PESOS (P11,000,000.00) shall be deemed, for
internal audit purposes, as the owners account in the Sto. Nino PROJECT. Any part of
any income of the PRINCIPAL from the STO. NINO MINE, which is left with the Sto. Nino
PROJECT,shall be added to such owners account.
5. Whenever the MANAGERS shall deem it necessary and convenient in connection
with the MANAGEMENT of the STO. NINO MINE, they may transfer their own funds or
property to the Sto. Nino PROJECT, in accordance with the following arrangements:
(a) The properties shall be appraised and, together with the cash, shall be carried by
the Sto.Nino PROJECT as a special fund to be known as the MANAGERS account.
(b) The total of the MANAGERS account shall not exceed P11,000,000.00, except with
prior approval of the PRINCIPAL; provided, however, that if the compensation of the
MANAGERS as herein provided cannot be paid in cash from the Sto. Nino PROJECT, the
amount not so paid in cash shall be added to the MANAGERS account.
(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino
PROJECT until termination of this Agency.
(d) The MANAGERS account shall not accrue interest. Since it is the desire of the
PRINCIPAL to extend to the MANAGERS the benefit of subsequent appreciation of
property, upon a projected termination of this Agency, the ratio which the MANAGERS
account has to the owners account will be determined, and the corresponding proportion
of the entire assets of the STO. NINO MINE, excluding the claims, shall be transferred to
the MANAGERS, except that such transferred assets shall not include mine development,
roads, buildings, and similar property which will be valueless, or of slight value, to the
MANAGERS. The MANAGERS can, on the other hand, require at their option that
property originally transferred by them to the Sto. Nino PROJECT be re-transferred to
them. Until such assets are transferred to the MANAGERS, this Agency shall remain
subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the
Sto.Nino PROJECT before income tax. It is understood that the MANAGERS shall pay income
tax on their compensation, while the PRINCIPAL shall pay income tax on the net profit of the
Sto. Nino PROJECT after deduction therefrom of the MANAGERS compensation.


Philex Mining made advances of cash and property in accordance with paragraph 5 of the agreement.
However, the mine suffered continuing losses over the years which resulted to Philex Minings withdrawal as
manager of the mine and in the eventual cessation of mine operations.
The parties executed a Compromise with Dation in Payment wherein Baguio Gold admitted an
indebtedness to petitioner in the amount of P179,394,000.00 and agreed to pay the same in three segments
by first assigning Baguio Golds tangible assets to Philex Mining, transferring to the latter Baguio Golds
equitable title in its Philodrill assets and finally settling the remaining liability through properties that Baguio
Gold may acquire in the future.
The parties executed an Amendment to Compromise with Dation in Payment where the parties determined
that Baguio Golds indebtedness to petitioner actually amounted to P259,137,245.00,which sum included
liabilities of Baguio Gold to other creditors that petitioner had assumed as guarantor. These liabilities pertained
to long-term loans amounting to US$11,000,000.00 contracted by Baguio Gold from the Bank of America NT &
SA and Citibank N.A. This time, Baguio Gold undertook to pay petitioner in two segments by first assigning its
tangible assets forP127,838,051.00 and then transferring its equitable title in its Philodrill assets for
P16,302,426.00. The parties then ascertained that Baguio Gold had a remaining outstanding indebtedness to
petitioner in the amount of P114,996,768.00.
Philex Mining wrote off in its 1982 books of account the remaining outstanding indebtedness of Baguio Gold
by charging P112,136,000.00 to allowances and reserves that were set up in 1981 andP2,860,768.00 to the
1982 operations.
In its 1982 annual income tax return, Philex Mining deducted from its gross income the amount of
P112,136,000.00 as loss on settlement of receivables from Baguio Gold against reserves and allowances.
However, the BIR disallowed the amount as deduction for bad debt and assessed petitioner a deficiency
income tax of P62,811,161.39. Philex Mining protested before the BIR arguing that the deduction must be
allowed since all requisites for a bad debt deduction were satisfied, to wit: (a) there was a valid and existing
debt; (b) the debt was ascertained to be worthless; and (c) it was charged off within the taxable year when it
was determined to be worthless. BIR denied petitioners protest. It held that the alleged debt was not
ascertained to be worthless since Baguio Gold remained existing and had not filed a petition for bankruptcy;
and that the deduction did not consist of a valid and subsisting debt considering that, under the management
contract, petitioner was to be paid 50% of the projects net profit.
ISSUE:
WON the parties entered into a contract of agency coupled with an interest which is notrevocable at will
HELD:
No. An examination of the Power of Attorney reveals that a partnership or joint venture was indeed intended
by the parties.
In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal due
to an interest of a third party that depends upon it, or the mutual interest of both principal and agent. In this
case, the non-revocation or non-withdrawal under paragraph 5(c) applies to the advances made by petitioner
who is supposedly the agent and not the principal under the contract. Thus, it cannot be inferred from the
stipulation that the parties relation under the agreement is one of agency coupled with an interest and not a
partnership.
Neither can paragraph 16 of the agreement be taken as an indication that the relationship of the parties was
one of agency and not a partnership. Although the said provision states that this Agency shall be irrevocable

while any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the
MANAGERS account, it does not necessarily follow that the parties entered into an agency contract coupled
with an interest that cannot be withdrawn by Baguio Gold.
The main object of the Power of Attorney was not to confer a power in favor of petitioner to contract with
third persons on behalf of Baguio Gold but to create a business relationship between petitioner and Baguio
Gold, in which the former was to manage and operate the latters mine through the parties mutual contribution
of material resources and industry. The essence of an agency, even one that is coupled with interest, is the
agents ability to represent his principal and bring about business relations between the latter and third
persons.
The strongest indication that petitioner was a partner in the Sto. Nino Mine is the fact that it would receive
50% of the net profits as compensation under paragraph 12 of the agreement. The entirety of the parties
contractual stipulations simply leads to no other conclusion than that petitioners compensation is actually its
share in the income of the joint venture. Article 1769 (4) of the Civil Code explicitly provides that the receipt by
a person of a share in the profits of a business is prima facie evidence that he is a partner in the business.