G.R. No.
76931 May 29, 1991 (a) soliciting and promoting passenger traffic for the services of American and, if
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner, vs.COURT OF
APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
G.R. No. 76933 May 29, 1991
AMERICAN AIRLINES, INCORPORATED, petitioner, vs.COURT OF APPEALS and
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, INCORPORATED,
respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel
Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.
PADILLA, J.:p
This case is a consolidation of two (2) petitions for review on certiorari of a decision 1 of
the Court of Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs.
Orient Air Services and Hotel Representatives, Inc." which affirmed, with modification,
the decision 2 of the Regional Trial Court of Manila, Branch IV, which dismissed the
complaint and granted therein defendant's counterclaim for agent's overriding
commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an
air carrier offering passenger and air cargo transportation in the Philippines, and Orient
Air Services and Hotel Representatives (hereinafter referred to as Orient Air), entered
into a General Sales Agency Agreement (hereinafter referred to as the Agreement),
whereby the former authorized the latter to act as its exclusive general sales agent within
the Philippines for the sale of air passenger transportation. Pertinent provisions of the
agreement are reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto agree as
follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General Sales Agent
within the Philippines, including any United States military installation therein which are
not serviced by an Air Carrier Representation Office (ACRO), for the sale of air
passenger transportation. The services to be performed by Orient Air Services shall
include:
necessary, employing staff competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of business to be used
exclusively for the transaction of the business of American;
(c) arranging for distribution of American's timetables, tariffs and promotional material to
sales agents and the general public in the assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents as may be
appointed by Orient Air Services with the prior written consent of American) in the
assigned territory including if required by American the control of remittances and
commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general public in
the assigned territory.
In connection with scheduled or non-scheduled air passenger transportation within the
United States, neither Orient Air Services nor its sub-agents will perform services for any
other air carrier similar to those to be performed hereunder for American without the prior
written consent of American. Subject to periodic instructions and continued consent from
American, Orient Air Services may sell air passenger transportation to be performed
within the United States by other scheduled air carriers provided American does not
provide substantially equivalent schedules between the points involved.
xxx xxx xxx
4. Remittances
Orient Air Services shall remit in United States dollars to American the ticket stock or
exchange orders, less commissions to which Orient Air Services is entitled hereunder,
not less frequently than semi-monthly, on the 15th and last days of each month for sales
made during the preceding half month.
All monies collected by Orient Air Services for transportation sold hereunder on
American's ticket stock or on exchange orders, less applicable commissions to which
Orient Air Services is entitled hereunder, are the property of American and shall be held
in trust by Orient Air Services until satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation sold hereunder by
Orient Air Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of
transportation by Orient Air Services or its sub-agents over American's services and any
connecting through air transportation, when made on American's ticket stock, equal to
the following percentages of the tariff fares and charges:
(i) For transportation solely between points within the United States and between such
points and Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic
Conference of America.
(ii) For transportation included in a through ticket covering transportation between points
other than those described above: 8% or such other rate(s) as may be prescribed by the
International Air Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air Services an overriding
commission of 3% of the tariff fares and charges for all sales of transportation over
American's service by Orient Air Service or its sub-agents.
xxx xxx xxx
10. Default
If Orient Air Services shall at any time default in observing or performing any of the
provisions of this Agreement or shall become bankrupt or make any assignment for the
benefit of or enter into any agreement or promise with its creditors or go into liquidation,
or suffer any of its goods to be taken in execution, or if it ceases to be in business, this
Agreement may, at the option of American, be terminated forthwith and American may,
without prejudice to any of its rights under this Agreement, take possession of any ticket
forms, exchange orders, traffic material or other property or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or resolutions of the
International Air Transport Association and the Air Traffic Conference of America, and
such rules or resolutions shall control in the event of any conflict with the provisions
hereof.
xxx xxx xxx
13. Termination
American may terminate the Agreement on two days' notice in the event Orient Air
Services is unable to transfer to the United States the funds payable by Orient Air
Services to American under this Agreement. Either party may terminate the Agreement
without cause by giving the other 30 days' notice by letter, telegram or cable.
xxx xxx xxx 3
On 11 May 1981, alleging that Orient Air had reneged on its obligations under the
Agreement by failing to promptly remit the net proceeds of sales for the months of
January to March 1981 in the amount of US $254,400.40, American Air by itself
undertook the collection of the proceeds of tickets sold originally by Orient Air and
terminated forthwith the Agreement in accordance with Paragraph 13 thereof
(Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit against
Orient Air with the Court of First Instance of Manila, Branch 24, for Accounting with
Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining Order 4
averring the aforesaid basis for the termination of the Agreement as well as therein
defendant's previous record of failures "to promptly settle past outstanding refunds of
which there were available funds in the possession of the defendant, . . . to the damage
and prejudice of plaintiff." 5
In its Answer 6 with counterclaim dated 9 July 1981, defendant Orient Air denied the
material allegations of the complaint with respect to plaintiff's entitlement to alleged
unremitted amounts, contending that after application thereof to the commissions due it
under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid overriding
commissions. Further, the defendant contended that the actions taken by American Air in
the course of terminating the Agreement as well as the termination itself were untenable,
Orient Air claiming that American Air's precipitous conduct had occasioned prejudice to
its business interests.
Finding that the record and the evidence substantiated the allegations of the defendant,
the trial court ruled in its favor, rendering a decision dated 16 July 1984, the dispositive
portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in
favor of defendant and against plaintiff dismissing the complaint and holding the
termination made by the latter as affecting the GSA agreement illegal and improper and
order the plaintiff to reinstate defendant as its general sales agent for passenger
tranportation in the Philippines in accordance with said GSA agreement; plaintiff is
ordered to pay defendant the balance of the overriding commission on total flown
revenue covering the period from March 16, 1977 to December 31, 1980 in the amount
of US$84,821.31 plus the additional amount of US$8,000.00 by way of proper 3%
overriding commission per month commencing from January 1, 1981 until such
reinstatement or said amounts in its Philippine peso equivalent legally prevailing at the
time of payment plus legal interest to commence from the filing of the counterclaim up to
the time of payment. Further, plaintiff is directed to pay defendant the amount of One
Million Five Hundred Thousand (Pl,500,000.00) pesos as and for exemplary damages;
and the amount of Three Hundred Thousand (P300,000.00) pesos as and by way of
attorney's fees.
Costs against plaintiff. 7
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision
promulgated on 27 January 1986, affirmed the findings of the court a quo on their
material points but with some modifications with respect to the monetary awards granted.
The dispositive portion of the appellate court's decision is as follows:
WHEREFORE, with the following modifications —
1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance
of the latter's overriding commission covering the period March 16, 1977 to December
31, 1980, or its Philippine peso equivalent in accordance with the official rate of
exchange legally prevailing on July 10, 1981, the date the counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding
commission per month starting January 1, 1981 until date of termination, May 9, 1981 or
its Philippine peso equivalent in accordance with the official rate of exchange legally
prevailing on July 10, 1981, the date the counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the
date the answer with counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American. 8
American Air moved for reconsideration of the aforementioned decision, assailing the
substance thereof and arguing for its reversal. The appellate court's decision was also
the subject of a Motion for Partial Reconsideration by Orient Air which prayed for the
restoration of the trial court's ruling with respect to the monetary awards. The Court of
Appeals, by resolution promulgated on 17 December 1986, denied American Air's motion
and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of
the trial court's award of exemplary damages and attorney's fees, but granted insofar as
the rate of exchange is concerned. The decision of January 27, 1986 is modified in
paragraphs (1) and (2) of the dispositive part so that the payment of the sums mentioned
therein shall be at their Philippine peso equivalent in accordance with the official rate of
exchange legally prevailing on the date of actual payment. 9
Both parties appealed the aforesaid resolution and decision of the respondent court,
Orient Air as petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No.
76933. By resolution 10 of this Court dated 25 March 1987 both petitions were
consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3%
overriding commission. It is the stand of American Air that such commission is based
only on sales of its services actually negotiated or transacted by Orient Air, otherwise
referred to as "ticketed sales." As basis thereof, primary reliance is placed upon
paragraph 5(b) of the Agreement which, in reiteration, is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an overriding
commission of 3% of the tariff fees and charges for all sales of transportation over
American's services by Orient Air Services or its sub-agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the
former not having opted to appoint any sub-agents, it is American Air's contention that
Orient Air can claim entitlement to the disputed overriding commission based only on
ticketed sales. This is supposed to be the clear meaning of the underscored portion of
the above provision. Thus, to be entitled to the 3% overriding commission, the sale must
be made by Orient Air and the sale must be done with the use of American Air's ticket
stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding
commission covers the total revenue of American Air and not merely that derived from
ticketed sales undertaken by Orient Air. The latter, in justification of its submission,
invokes its designation as the exclusive General Sales Agent of American Air, with the
corresponding obligations arising from such agency, such as, the promotion and
solicitation for the services of its principal. In effect, by virtue of such exclusivity, "all sales
of transportation over American Air's services are necessarily by Orient Air." 11
It is a well settled legal principle that in the interpretation of a contract, the entirety thereof
must be taken into consideration to ascertain the meaning of its provisions. 12 The various
stipulations in the contract must be read together to give effect to all. 13 After a careful
examination of the records, the Court finds merit in the contention of Orient Air that the
Agreement, when interpreted in accordance with the foregoing principles, entitles it to the
3% overriding commission based on total revenue, or as referred to by the parties, "total
flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was
responsible for the promotion and marketing of American Air's services for air passenger
transportation, and the solicitation of sales therefor. In return for such efforts and
services, Orient Air was to be paid commissions of two (2) kinds: first, a sales agency
commission, ranging from 7-8% of tariff fares and charges from sales by Orient Air when
made on American Air ticket stock; and second, an overriding commission of 3% of tariff
fares and charges for all sales of passenger transportation over American Air services. It
is immediately observed that the precondition attached to the first type of commission
does not obtain for the second type of commissions. The latter type of commissions
would accrue for sales of American Air services made not on its ticket stock but on the
ticket stock of other air carriers sold by such carriers or other authorized ticketing
facilities or travel agents. To rule otherwise, i.e., to limit the basis of such overriding
commissions to sales from American Air ticket stock would erase any distinction between
the two (2) types of commissions and would lead to the absurd conclusion that the
parties had entered into a contract with meaningless provisions. Such an interpretation
must at all times be avoided with every effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that
American Air was the party responsible for the preparation of the Agreement.
Consequently, any ambiguity in this "contract of adhesion" is to be taken "contra
proferentem", i.e., construed against the party who caused the ambiguity and could have
avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code
provides that the interpretation of obscure words or stipulations in a contract shall not
favor the party who caused theobscurity. 14 To put it differently, when several
interpretations of a provision are otherwise equally proper, that interpretation or
construction is to be adopted which is most favorable to the party in whose favor the
provision was made and who did not cause the ambiguity. 15 We therefore agree with the
respondent appellate court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of different interpretations,
must be read against the party who drafted it. 16
principal, authorized to perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the principal, which must not, in any
way, be compelled by law or by any court. The Agreement itself between the parties
states that "either party may terminate the Agreement without cause by giving the other
30 days' notice by letter, telegram or cable." (emphasis supplied) We, therefore, set aside
the portion of the ruling of the respondent appellate court reinstating Orient Air as general
sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and
resolution of the respondent Court of Appeals, dated 27 January 1986 and 17 December
1986, respectively. Costs against petitioner American Air.
SO ORDERED.

We now turn to the propriety of American Air's termination of the Agreement. The
respondent appellate court, on this issue, ruled thus:

It is not denied that Orient withheld remittances but such action finds justification from
paragraph 4 of the Agreement, Exh. F, which provides for remittances to American less
commissions to which Orient is entitled, and from paragraph 5(d) which specifically
allows Orient to retain the full amount of its commissions. Since, as stated ante, Orient is
entitled to the 3% override. American's premise, therefore, for the cancellation of the
Agreement did not exist. . . ."

We agree with the findings of the respondent appellate court. As earlier established,
Orient Air was entitled to an overriding commission based on total flown revenue.
American Air's perception that Orient Air was remiss or in default of its obligations under
the Agreement was, in fact, a situation where the latter acted in accordance with the
Agreement—that of retaining from the sales proceeds its accrued commissions before
remitting the balance to American Air. Since the latter was still obligated to Orient Air by
way of such commissions. Orient Air was clearly justified in retaining and refusing to
remit the sums claimed by American Air. The latter's termination of the Agreement was,
therefore, without cause and basis, for which it should be held liable to Orient Air.

On the matter of damages, the respondent appellate court modified by reduction the trial
court's award of exemplary damages and attorney's fees. This Court sees no error in
such modification and, thus, affirms the same.

It is believed, however, that respondent appellate court erred in affirming the rest of the
decision of the trial court. We refer particularly to the lower court's decision ordering
American Air to "reinstate defendant as its general sales agent for passenger
transportation in the Philippines in accordance with said GSA Agreement."

By affirming this ruling of the trial court, respondent appellate court, in effect, compels
American Air to extend its personality to Orient Air. Such would be violative of the
principles and essence of agency, defined by law as a contract whereby "a 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 . 17 (emphasis
supplied) In an agent-principal relationship, the personality of the principal is extended
through the facility of the agent. In so doing, the agent, by legal fiction, becomes the
 [G.R. No. 130148.  December 15, 1997]
JOSE BORDADOR and LYDIA BORDADOR, petitioners, vs. BRIGIDA D. LUZ,
ERNESTO M. LUZ and NARCISO DEGANOS, respondents.
DECISION
REGALADO, J.:
In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals
in CA-G.R. CV No. 49175 affirming the adjudication of  the Regional Trial Court of
Malolos, Bulacan which found private respondent Narciso Deganos liable to petitioners
for actual damages, but absolved respondent spouses Brigida D. Luz and Ernesto M.
Luz of liability. Petitioners likewise belabor the subsequent resolution of the Court of
Appeals which denied their motion for reconsideration of its challenged decision.
Petitioners were engaged in the business of purchase and sale of jewelry and
respondent Brigida D. Luz, also known as Aida D. Luz, was their regular customer.  On
several occasions during the period from April 27, 1987 to September 4, 1987,
respondent Narciso Deganos, the brother of Brigida D. Luz, received several pieces of
gold and jewelry from petitioners amounting to P382,816.00. [1] These items and their
prices were indicated in seventeen receipts covering the same.  Eleven of the receipts
stated that they were received for a certain Evelyn Aquino, a niece of Deganos, and the
remaining six indicated that they were received for Brigida D. Luz. [2]
Deganos was supposed to sell the items at a profit and thereafter remit the
proceeds and return the unsold items to petitioners.  Deganos remitted only the sum of
P53,207.00.  He neither paid the balance of the sales proceeds, nor did he return any
unsold item to petitioners.  By January 1990, the total of his unpaid account to
petitioners, including interest, reached the sum of P725,463.98. [3] Petitioners eventually
filed a complaint in the barangay court against Deganos to recover said amount.
In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case,
appeared as a witness for Deganos and ultimately, she and her husband, together with
Deganos, signed a compromise agreement with petitioners.  In that compromise
agreement, Deganos obligated himself to pay petitioners, on installment basis, the
balance of his account plus interest thereon.  However, he failed to comply with his
aforestated undertakings.
On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional
Trial Court of Malolos, Bulacan against Deganos and Brigida D. Luz for recovery of a
sum of money and damages, with an application for preliminary attachment.[4] Ernesto
Luz was impleaded therein as the spouse of Brigida.
Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were
charged with estafa[5] in the Regional Trial Court of Malolos, Bulacan, which was
docketed as Criminal Case No. 785-M-94.  That criminal case appears to be still pending
in said trial court.
During the trial of the civil case, petitioners claimed that Deganos acted as the
agent of Brigida D. Luz when he received the subject items of jewelry and, because he
failed to pay for the same, Brigida, as principal, and her spouse are solidarily liable with
him therefor.
On the other hand, while Deganos admitted that he had an unpaid obligation to
petitioners, he claimed that the same was only in the sum of P382,816.00 and not
P725,463.98.  He further asserted that it was he alone who was involved in the
transaction with the petitioners; that he neither acted as agent for nor was he authorized
to act as an agent by Brigida D. Luz, notwithstanding the fact that six of the receipts
indicated that the items were received by him for the latter.  He further claimed that he
never delivered any of the items he received from petitioners to Brigida.
Brigida, on her part, denied that she had anything to do with the transactions
between petitioners and Deganos.  She claimed that she never authorized Deganos to
receive any item of jewelry in her behalf and, for that matter, neither did she actually
receive any of the articles in question.
After trial, the court below found that only Deganos was liable to petitioners for
the amount and damages claimed.  It held that while Brigida D. Luz did have transactions
with petitioners in the past, the items involved were already paid for and all that Brigida
owed petitioners was the sum of P21,483.00 representing interest on the principal
account which she had previously paid for.[6]
The trial court also found that it was petitioner Lydia Bordador who indicated in
the receipts that the items were received by Deganos for Evelyn Aquino and Brigida D.
Luz. [7] Said court was “persuaded that Brigida D. Luz was behind Deganos,” but
because there was no memorandum to this effect, the agreement between the parties
was unenforceable under the Statute of Frauds. [8] Absent the required memorandum or
any written document connecting the respondent Luz spouses with the subject receipts,
or authorizing Deganos to act on their behalf, the alleged agreement between petitioners
and Brigida D. Luz was unenforceable.
Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal
interest thereon from June 25, 1990, and attorney’s fees.  Brigida D. Luz was ordered to
pay P21,483.00 representing the interest on her own personal loan.  She and her co-
defendant spouse were absolved from any other or further liability. [9]
As stated at the outset, petitioners appealed the judgment of the court a quo to
the Court of Appeals which affirmed said judgment. [10] The motion for reconsideration
filed by petitioners was subsequently dismissed, [11] hence the present recourse to this
Court.
The primary issue in the instant petition is whether or not herein respondent
spouses are liable to petitioners for the latter’s claim for money and damages in the sum
of P725,463.98, plus interests and attorney’s fees, despite the fact that the evidence
does not show that they signed any of the subject receipts or authorized Deganos to
receive the items of jewelry on their behalf.
Petitioners argue that the Court of Appeals erred in adopting the findings of the
court a quo that respondent spouses are not liable to them, as said conclusion of the trial
court is contradicted by the finding of fact of the appellate court that “(Deganos) acted as
agent of his sister (Brigida Luz).” [12] In support of this contention, petitioners quoted
several letters sent to them by Brigida D. Luz wherein the latter acknowledged her
obligation to petitioners and requested for more time to fulfill the same.  They likewise
aver that Brigida testified in the trial court that Deganos took some gold articles from
petitioners and delivered the same to her.
Both the Court of Appeals and the trial court, however, found as a fact that the
aforementioned letters concerned the previous obligations of Brigida to petitioners, and
had nothing to do with the money sought to be recovered in the instant case.  Such
concurrent factual findings are entitled to great weight, hence, petitioners cannot
plausibly claim in this appellate review that the letters were in the nature of
acknowledgments by Brigida that she was the principal of Deganos in the subject
transactions.
On the other hand, with regard to the testimony of Brigida admitting delivery of
the gold to her, there is no showing whatsoever that her statement referred to the items
which are the subject matter of this case.  It cannot, therefore, be validly said that she
admitted her liability regarding the same.
Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter
clothed him with apparent authority as her agent and held him out to the public as such,
hence Brigida can not be permitted to deny said authority to innocent third parties who
dealt with Deganos under such belief. [13] Petitioners further represent that the Court of
Appeals recognized in its decision that Deganos was an agent of Brigida.[14]
The evidence does not support the theory of petitioners that Deganos was an
agent of Brigida D. Luz and that the latter should consequently be held solidarily liable
with Deganos in his obligation to petitioners.  While the quoted statement in the findings
of fact of the assailed appellate decision mentioned that Deganos ostensibly acted as an
agent of Brigida, the actual conclusion and ruling of the Court of Appeals categorically
stated that, “(Brigida Luz) never authorized her brother (Deganos) to act for and in her
behalf in any transaction with Petitioners x  x  x.” [15] It is clear, therefore, that even
assuming arguendo that Deganos acted as an agent of Brigida, the latter never
authorized him to act on her behalf with regard to the transactions subject of this case.
The Civil Code provides:
Art. 1868. By the contract of agency a 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.
The basis for agency is representation.  Here, there is no showing that Brigida
consented to the acts of Deganos or authorized him to act on her behalf, much less with
respect to the particular transactions involved.  Petitioners’ attempt to foist liability on
respondent spouses through the supposed agency relation with Deganos is groundless
and ill-advised.
Besides, it was grossly and inexcusably negligent of petitioners to entrust to
Deganos, not once or twice but on at least six occasions as evidenced by six receipts,
several pieces of jewelry of substantial value without requiring a written authorization
from his alleged principal.  A person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent. [16]
The records show that neither an express nor an implied agency was proven to
have existed between Deganos and Brigida D. Luz.  Evidently, petitioners, who were
negligent in their transactions with Deganos, cannot seek relief from the effects of their
negligence by conjuring a supposed agency relation between the two respondents where
no evidence supports such claim.
Petitioners next allege that the Court of Appeals erred in ignoring the fact that the
decision of the court below, which it affirmed, is “null and void” as it contradicted its ruling
in CA-G.R. SP No. 39445 holding that there is “sufficient evidence/proof” against Brigida
D. Luz and Deganos for estafa in the pending criminal case.  They further aver that said
appellate court erred in ruling against them in this civil action since the same would result
in an inevitable conflict of decisions should the trial court convict the accused in the
criminal case.
By way of backdrop for this argument of petitioners, herein respondents Brigida
D. Luz and Deganos had filed a demurrer to evidence and a motion for reconsideration in
the aforestated criminal case, both of which were denied by the trial court.   They then
filed a petition for certiorari in the Court of Appeals to set aside the denial of their
demurrer and motion for reconsideration but, as just stated, their petition therefor was
dismissed.[17]
Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the
petition in CA-G.R. SP No. 39445 with respect to the criminal case is equivalent to a
finding that there is sufficient evidence in the estafa case against Brigida D. Luz and
Deganos.  Hence, as already stated, petitioners theorize that the decision and resolution
of the Court of Appeals now being impugned in the case at bar would result in a possible
conflict with the prospective decision in the criminal case.  Instead of promulgating the
present decision and resolution under review, so they suggest, the Court of Appeals
should have awaited the decision in the criminal case, so as not to render academic or
preempt the same or, worse, create two conflicting rulings. [18]
Petitioners have apparently lost sight of Article 33 of the Civil Code which
provides that in cases involving alleged fraudulent acts, a civil action for damages,
entirely separate and distinct from the criminal action, may be brought by the injured
party.  Such civil action shall proceed independently of the criminal prosecution and shall
require only a preponderance of evidence.
It is worth noting that this civil case was instituted four years before the criminal
case for estafa was filed, and that although there was a move to consolidate both cases,
the same was denied by the trial court.  Consequently, it was the duty of the two
branches of the Regional Trial Court concerned to independently proceed with the civil
and criminal cases.  It will also be observed that a final judgment rendered in a civil
action absolving the defendant from civil liability is no bar to a criminal action. [19]
It is clear, therefore, that this civil case may proceed independently of the criminal
case [20] especially because while both cases are based on the same facts, the quantum
of proof required for holding the parties liable therein differ.  Thus, it is improvident of
petitioners to claim that the decision and resolution of the Court of Appeals in the present
case would be preemptive of the outcome of the criminal case.  Their fancied fear of
possible conflict between the disposition of this civil case and the outcome of the pending
criminal case is illusory.
 Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction
to issue the denial resolution dated  August 18, 1997, as the same was tainted with
irregularities and badges of fraud perpetrated by its court officers. [21] They charge that
said appellate court, through conspiracy and fraud on the part of its officers, gravely
abused its discretion in issuing that resolution denying their motion for reconsideration.  contracts and not to executed or to partially executed ones.  From there, they move on to
They claim that said resolution was drafted by the ponente, then signed and issued by
the members of the Eleventh Division of said court within one and a half days from the
elevation thereof by the division clerk of court to the office of the ponente.
It is the thesis of petitioners that there was undue haste in issuing the resolution
as the same was made without waiting for the lapse of the ten-day period for
respondents to file their comment and for petitioners to file their reply.  It was allegedly
impossible for the Court of Appeals to resolve the issue in just one and a half days,
especially because its ponente, the late Justice Maximiano C. Asuncion, was then
recuperating from surgery and, that, additionally, “hundreds of more important cases
were pending.” [22]
These lamentable allegation of irregularities in the Court of Appeals and in the
conduct of its officers strikes us as a desperate attempt of petitioners to induce this Court
to give credence to their arguments which, as already found by both the trial and
intermediate appellate courts, are devoid of factual and legal substance.  The regrettably
irresponsible attempt to tarnish the image of the intermediate appellate tribunal and its
judicial officers through ad hominem imputations could well be contumacious, but we are
inclined to let that pass with a strict admonition that petitioners refrain from indulging in
such conduct in litigations.
Lastly, petitioners fault the trial court’s holding that whatever contract of agency
was established between Brigida D. Luz and Narciso Deganos is unenforceable under
the Statute of Frauds as that aspect of this case allegedly is not covered thereby. [29]
They proceed on the premise that the Statute of Frauds applies only to executory
claim that the contract involved in this case was an executed contract as the items had
already been delivered by petitioners to Brigida D. Luz, hence, such delivery resulted in
the execution of the contract and removed the same from the coverage of the Statute of
Frauds.
Petitioners’ claim is speciously unmeritorious.  It should be emphasized that
neither the trial court nor the appellate court categorically stated that there was such a
contractual relation between these two respondents.  The trial court merely said that if
there was such an agency existing between them, the same is unenforceable as the
contract would fall under the Statute of Frauds which requires the presentation of a note
or memorandum thereof in order to be enforceable in court.  That was merely a
preparatory statement of a principle of law.  What was finally proven as a matter of fact is
that there was no such contract between Brigida D. Luz and Narciso Deganos, executed
or partially executed, and no delivery of any of the items subject of this case was ever
made to the former.
WHEREFORE, no error having been committed by the Court of Appeals in
affirming the judgment of the court a quo, its challenged decision and resolution are
hereby AFFIRMED and the instant petition is DENIED, with double costs against
petitioners

On July 9, 1997, the Court of Appeals rendered judgment in this case affirming SO ORDERED.
the trial court’s decision. [23] Petitioners moved for reconsideration and the Court of
Appeals ordered respondents to file a comment.  Respondents filed the same on August Puno, Mendoza, and Martinez, JJ., concur.
5, 1997 [24] and petitioners filed their reply to said comment on August 15, 1997. [25]
The Eleventh Division of said court issued the questioned resolution denying petitioner’s
motion for reconsideration on August 18, 1997.[26]

It is ironic that while some litigants malign the judiciary for being supposedly
slothful in disposing of cases, petitioners are making a show of calling out for justice
because the Court of Appeals issued a resolution disposing of a case sooner than
expected of it.  They would even deny the exercise of discretion by the appellate court to
prioritize its action on cases in line with the procedure it has adopted in disposing thereof
and in declogging its dockets.  It is definitely not for the parties to determine and dictate
when and how a tribunal should act upon those cases since they are not even aware of
the status of the dockets and the internal rules and policies for acting thereon.

The fact that a resolution was issued by said court within a relatively short period
of time after the records of the case were elevated to the office of the ponente cannot, by
itself, be deemed irregular.  There is no showing whatsoever that the resolution was
issued without considering the reply filed by petitioners.  In fact, that brief pleading filed
by petitioners does not exhibit any esoteric or ponderous argument which could not be
analyzed within an hour.  It is a legal presumption, born of wisdom and experience, that
official duty has been regularly performed; [27] that the proceedings of a judicial tribunal
are regular and valid, and that judicial acts and duties have been and will be duly and
properly performed. [28] The burden of proving irregularity in official conduct is on the
part of petitioners and they have utterly failed to do so.  It is thus reprehensible for them
to cast aspersions on a court of law on the bases of conjectures or surmises, especially
since one of the petitioners appears to be a member of the Philippine Bar.
G.R. No. 156262  
x x x             x x x             x x x”[4]
MARIA TUAZON, ALEJANDRO  P. TUAZON, MELECIO P.                  
TUAZON, Spouses ANASTACIO and MARY T. BUENAVENTURA, Petitioners, versus  
HEIRS OF BARTOLOME RAMOS, Respondents.           July 14, 2005  
The Facts
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --- -- -- -- -- x  
            The facts are narrated by the CA as follows:
           
DECISION “[Respondents] alleged that between the period of
  May 2, 1988 and June 5, 1988, spouses Leonilo and Maria
  Tuazon purchased a total of 8,326 cavans of rice from [the
PANGANIBAN, J.: deceased Bartolome] Ramos [predecessor-in-interest of
  respondents].  That of this [quantity,] x x x only 4,437 cavans
  [have been paid for so far], leaving unpaid 3,889 cavans valued
Stripped of nonessentials, the present case involves the collection of a sum of money.   at P1,211,919.00.  In payment therefor, the spouses Tuazon
Specifically, this case arose from the failure of petitioners to pay respondents’ issued x x x [several] Traders Royal Bank checks.
predecessor-in-interest.  This fact was shown by the non-encashment of checks issued  
by a third person, but indorsed by herein Petitioner Maria Tuazon in favor of the said x x x                       x x x                       x x x
predecessor.  Under these circumstances, to enable respondents to collect on the  
indebtedness, the check drawer need not be impleaded in the Complaint.  Thus, the suit [B]ut when these [checks] were encashed, all of the checks
is directed, not against the drawer, but against the debtor who indorsed the checks in bounced due to insufficiency of funds.  [Respondents]
payment of the obligation. advanced that before issuing said checks[,] spouses Tuazon
  already knew that they had no available fund to support the
The Case checks, and they failed to provide for the payment of these
  despite repeated demands made on them.
          Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,  
challenging the July 31, 2002 Decision[2] of the Court of Appeals (CA) in CA-GR CV No.           “[Respondents] averred that because spouses Tuazon
46535.  The decretal portion of the assailed Decision reads: anticipated that they would be sued, they conspired with the
  other  [defendants] to defraud them as creditors by executing x
“WHEREFORE, the appeal is DISMISSED and the x x fictitious sales of their properties.  They executed x x x
appealed decision is AFFIRMED.” simulated sale[s] [of three lots] in favor of the x x x spouses
  Buenaventura x x x[,] as well as their residential lot and the
  house thereon[,] all located at Nueva Ecija, and another
          On the other hand, the affirmed Decision[3] of Branch 34 of the Regional Trial simulated deed of sale dated July 12, 1988 of a Stake Toyota
Court (RTC) of Gapan, Nueva Ecija, disposed as follows: registered with the Land Transportation Office of Cabanatuan
  City on September 7, 1988.  [Co-petitioner] Melecio Tuazon, a
          “WHEREFORE, judgment is hereby rendered in favor of son of spouses Tuazon, registered a fictitious Deed of Sale on
the plaintiffs and against the defendants, ordering the July 19, 1988 x x x over a residential lot located at Nueva Ecija.
defendants spouses Leonilo Tuazon and Maria Tuazon to pay Another simulated sale of a Toyota Willys was executed on
the plaintiffs, as follows: January 25, 1988 in favor of their other son, [co-petitioner]
  Alejandro Tuazon x x x.  As a result of the said sales, the titles
“1. The sum of P1,750,050.00, with of these properties issued in the names of spouses Tuazon
interests from the filing of the second were cancelled and new ones were issued in favor of the
amended complaint; [co-]defendants spouses Buenaventura, Alejandro Tuazon and
  Melecio Tuazon.  Resultantly, by the said ante-dated and
“2. The sum of P50,000.00, as simulated sales and the corresponding transfers there was no
attorney’s fees; more property left registered in the names of spouses Tuazon
  answerable to creditors, to the damage and prejudice of
“3. The sum of P20,000.00, as moral [respondents].
damages  
            “For their part, defendants denied having
“4. And to pay the costs of suit. purchased x x x rice from [Bartolome] Ramos.  They alleged
 that it was Magdalena Ramos, wife of said deceased, who
owned and traded the merchandise and Maria Tuazon was
merely her agent.  They argued that it was Evangeline Santos
who was the buyer of the rice and issued the checks to Maria
Tuazon as payments therefor.  In good faith[,] the checks were
received [by petitioner] from Evangeline Santos and turned
over to Ramos without knowing that these were not funded. 
And it is for this reason that [petitioners] have been insisting on
the inclusion of Evangeline Santos as an indispensable party,
and her non-inclusion was a fatal error.  Refuting that the sale
of several properties were fictitious or simulated, spouses
Tuazon contended that these were sold because they were
then meeting financial difficulties but the disposals were made
for value and in good faith and done before the filing of the
instant suit.  To dispute the contention of plaintiffs that they
were the buyers of the rice, they argued that there was no sales
invoice, official receipts or like evidence to prove this.  They
assert that they were merely agents and should not be held
answerable.”[5]         Factual findings of the trial court, especially when affirmed by the CA, are conclusive on
 
 
          The corresponding civil and criminal cases were filed by respondents against
Spouses Tuazon.  Those cases were later consolidated and amended to include
Spouses Anastacio and Mary Buenaventura, with Alejandro Tuazon and Melecio Tuazon
as additional defendants.  Having passed away before the pretrial, Bartolome Ramos
was substituted by his heirs, herein respondents.  act in relation to a third person; (3) the representation, by which the one who acts as an
 
          Contending that Evangeline Santos was an indispensable party in the case,
petitioners moved to file a third-party complaint against her.  Allegedly, she was primarily
liable to respondents, because she was the one who had purchased the merchandise
from their predecessor, as evidenced by the fact that the checks had been drawn in her
name.  The RTC, however, denied petitioners’ Motion.
          Since the trial court acquitted petitioners in all three of the consolidated criminal
cases, they appealed only its decision finding them civilly liable to respondents.
 
Ruling of the Court of Appeals
          Sustaining the RTC, the CA held that petitioners had failed to prove the existence
of an agency between respondents and Spouses Tuazon.  The appellate court
disbelieved petitioners’ contention that Evangeline Santos should have been impleaded
as an indispensable party.  Inasmuch as all the checks had been indorsed by Maria
Tuazon, who thereby became liable to subsequent holders for the amounts stated in
those checks, there was no need to implead Santos.
 
          Hence, this Petition.[6]
 
Issues
 
          Petitioners raise the following issues for our consideration:
 
          “1. Whether or not the Honorable Court of Appeals erred
in ruling that petitioners are not agents of the respondents.
 
          “2. Whether or not the Honorable Court of Appeals
erred in rendering judgment against the petitioners
despite x x x the failure of the respondents to include in their
action Evangeline Santos, an indispensable party to the suit.”[7]
 
 
The Court’s Ruling
 
          The Petition is unmeritorious.
First Issue:
Agency
 
 
 
          Well-entrenched is the rule that the Supreme Court’s role in a petition under Rule
45 is limited to reviewing errors of law allegedly committed by the Court of Appeals. 
the parties and this Court.[8]  Petitioners have not given us sufficient reasons to deviate
from this rule.
In a contract of agency, one binds oneself to render some service or to do
something in representation or on behalf of another, with the latter’s consent or authority.
[9]  The following are the elements of agency: (1) the parties’ consent, express or
implied, to establish the relationship; (2) the object, which is the execution of a juridical
agent does so, not for oneself, but as a representative; (4) the limitation that the agent
acts within the scope of his or her authority.[10]  As the basis of agency is representation,
there must be, on the part of the principal, an actual intention to appoint, an intention
naturally inferable from the principal’s words or actions.  In the same manner, there must
be an intention on the part of the agent to accept the appointment and act upon it.  
Absent such mutual intent, there is generally no agency.[11]
This Court finds no reversible error in the findings of the courts a quo that
petitioners were the rice buyers themselves; they were not mere agents of respondents
in their rice dealership.  The question of whether a contract is one of sale or of agency
depends on the intention of the parties.[12]
The declarations of agents alone are generally insufficient to establish the
fact or extent of their authority.[13]  The law makes no presumption of agency; proving its
existence, nature and extent is incumbent upon the person alleging it.[14]  In the present
case, petitioners raise the fact of agency as an affirmative defense, yet fail to prove its
existence.
 
The Court notes that petitioners, on their own behalf, sued Evangeline
Santos for collection of the amounts represented by the bounced checks, in a separate
civil case that they sought to be consolidated with the current one.  If, as they claim, they
were mere agents of respondents, petitioners should have brought the suit against
Santos for and on behalf of their alleged principal, in accordance with Section 2 of Rule 3
of the Rules on Civil Procedure.[15]  Their filing a suit against her in their own names
negates their claim that they acted as mere agents in selling the rice obtained from
Bartolome Ramos.
  

Second Issue:
Indispensable Party
 
          Petitioners argue that the lower courts erred in not allowing Evangeline Santos to
be impleaded as an indispensable party.  They insist that respondents’ Complaint against
them is based on the bouncing checks she issued; hence, they point to her as the person
primarily liable for the obligation. 
 
          We hold that respondents’ cause of action is clearly founded on petitioners’ failure
to pay the purchase price of the rice.  The trial court held that Petitioner Maria Tuazon
had indorsed the questioned checks in favor of respondents, in accordance with Sections
31 and 63 of the Negotiable Instruments Law.[16]  That Santos was the drawer of the
checks is thus immaterial to the respondents’ cause of action.
 
          As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the
checks were to be accepted or paid, or both, according to their tenor; and that in case
they were dishonored, she would pay the corresponding amount.[17]  After an instrument
is dishonored by nonpayment, indorsers cease to be merely secondarily liable; they
become principal debtors whose liability becomes identical to that of the original obligor. 
The holder of a negotiable instrument need not even proceed against the maker before
suing the indorser.[18]  Clearly, Evangeline Santos -- as the drawer of the checks  -- is
not an indispensable party in an action against Maria Tuazon, the indorser of the checks.
 
          Indispensable parties are defined as “parties in interest without whom no final
determination can be had.”[19]  The instant case was originally one for the collection of
the purchase price of the rice bought by Maria Tuazon from respondents’ predecessor. 
In this case, it is clear that there is no privity of contract between respondents and
Santos.  Hence, a final determination of the rights and interest of the parties may be
made without any need to implead her.
 
WHEREFORE, the Petition is DENIED and the assailed Decision
AFFIRMED.  Costs against petitioners.
 
          SO ORDERED.
Amon Trading Corp. v. Court of Appeals,
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
 
DECISION
 
 
 
CHICO-NAZARIO, J.:
 
 
This is an appeal by certiorari from the Decision[1] dated 28 November 2002
of the Court of Appeals in CA-G.R. CV No. 60031, reversing the Decision of the Regional
Trial Court of Quezon City, Branch 104, and holding petitioners Amon Trading
Corporation and Juliana Marketing to be solidarily liable with Lines & Spaces Interiors
Center (Lines & Spaces) in refunding private respondent Tri-Realty Development and
Construction Corporation (Tri-Realty) the amount corresponding to the value of
undelivered bags of cement.
 
The undisputed facts:
 
Private respondent Tri-Realty is a developer and contractor with projects in
Bulacan and Quezon City. Sometime in February 1992, private respondent had difficulty
in purchasing cement needed for its projects. Lines & Spaces, represented by Eleanor
Bahia Sanchez, informed private respondent that it could obtain cement to its satisfaction
from petitioners, Amon Trading Corporation and its sister company, Juliana Marketing.
On the strength of such representation, private respondent proceeded to order from
Sanchez Six Thousand Fifty (6,050) bags of cement from petitioner Amon Trading
Corporation, and from Juliana Marketing, Six Thousand (6,000) bags at P98.00/bag.
 
Private respondent, through Mrs. Sanchez of Lines & Spaces, paid in
advance the amount of P592,900.00 through Solidbank Manager’s Check No. 0011565
payable to Amon Trading Corporation, and the amount of P588,000.00 payable to
Juliana Marketing, through Solidbank Manager’s Check No. 0011566. A certain “Weng
Chua” signed the check vouchers for Lines & Spaces while Mrs. Sanchez issued receipts
for the two manager’s checks. Private respondent likewise paid to Lines & Spaces an
advance fee for the 12,050 cement bags at the rate of P7.00/bag, or a total of
P84,350.00, in consideration of the facilitation of the orders and certainty of delivery of
the same to the private respondent. Solidbank Manager’s Check Nos. 0011565 and
0011566 were paid by Sanchez to petitioners.
 
          There were deliveries to private respondent from Amon Trading Corporation and
Juliana Marketing of 3,850 bags and 3,000 bags, respectively, during the period from
April to June 1992. However, the balance of 2,200 bags from Amon Trading Corporation
and 3,000 bags from Juliana Marketing, or a total of 5,200 bags, was not delivered.
Private respondent, thus, sent petitioners written demands but in reply, petitioners stated
that they have already refunded the amount of undelivered bags of cement to Lines and
Spaces per written instructions of Eleanor Sanchez.
 
          Left high and dry, with news reaching it that Eleanor Sanchez had already fled
abroad, private respondent filed this case for sum of money against petitioners and Lines
& Spaces.
Petitioners plead in defense lack of right or cause of action, alleging that
private respondent had no privity of contract with them as it was Lines & Spaces/Tri-
Realty, through Mrs. Sanchez, that ordered or purchased several bags of cement and
paid the price thereof without informing them of any special arrangement nor disclosing
to them that Lines & Spaces and respondent corporation are distinct and separate
entities.  They added that there were purchases or orders made by Lines & Spaces/Tri-
Realty which they were about to deliver, but were cancelled by Mrs. Sanchez and the
consideration of the cancelled purchases or orders was later reimbursed to Lines &
Spaces.  The refund was in the form of a check payable to Lines & Spaces.
Lines & Spaces denied in its Answer that it is represented by Eleanor B.
Sanchez and pleads in defense lack of cause of action and in the alternative, it raised the
defense that it was only an intermediary between the private respondent and petitioners.
[2]  Soon after, though, counsel for Lines & Spaces moved to withdraw from the case for
the reason that its client was beyond contact.
 
On 29 January 1998, the Regional Trial Court of Quezon City, Branch 104,
found Lines & Spaces solely liable to private respondent and absolved petitioners of any
liability.  The dispositive portion of the trial court’s Decision reads:
Wherefore, judgment is hereby rendered
ordering defendant Lines and Spaces Interiors Center as
follows: to pay plaintiff on the complaint the amount of
P47,950.00 as refund of the fee for the undelivered 5,200
bags of cement at the rate of P7.00 per bag; the amount
of P509,600.00 for the refund of the price of the 5,200
undelivered bags of cement at P98.00 per bag; the
amount of P2,000,000.00 for compensatory damages; as
well as the amount of P639,387.50 as attorney’s fees;
and to pay Amon Trading and Juliana Marketing, Inc. on
the crossclaim the sum of P200,000.00 as attorney’s
fees.[3]
 
 
 
Private Respondent Tri-Realty partially appealed from the trial court’s
decision absolving Amon Trading Corporation and Juliana Marketing of any liability to Tri-
Realty.  In the presently assailed Decision, the Court of Appeals reversed the decision of
the trial court and held petitioners Amon Trading Corporation and Juliana Marketing to be
jointly and severally liable with Lines & Spaces for the undelivered bags of cement.  The
Court of Appeals disposed-
 
          WHEREFORE, premises considered, the decision of the
court a quo is hereby REVERSED AND SET ASIDE, and
another one is entered ordering the following:
 
            Defendant-appellee Amon Trading Corporation is held
liable jointly and severally with defendant-appellee Lines and
Spaces Interiors Center in the amount of P215,600.00 for the
refund of the price of 2,200 undelivered bags of cement.
 
             Defendant-appellee Juliana Marketing is held liable
jointly and severally with defendant-appellee Lines and Spaces
Interiors Center in the amount of P294,000.00 for the refund of
the price of 3,000 undelivered bags of cement.
 
            The defendant-appellee Lines and Spaces Interiors
Center is held solely in the amount of P47,950.00 as refund of
the fee for the 5,200 undelivered bags of cement to the plaintiff-
appellant Tri-Realty Development and Construction
Corporation.
 
            The awards of compensatory damages and attorney’s
fees are DELETED.
 
            The cross claim of defendants-appellees Amon Trading
Corporation and Juliana Marketing is DISMISSED for lack of
merit.
 
                        No pronouncement as to costs.[4]
 
 
Pained by the ruling, petitioners elevated the case to this Court via the
present petition for review to challenge the Decision and Resolution of the Court of
Appeals on the following issues:
 
I.                    WHETHER OR NOT THERE WAS A
CONTRACT OF AGENCY BETWEEN LINES AND
SPACES INTERIOR CENTER AND
RESPONDENT;
 
II.         WHETHER OR NOT PETITIONERS AND
RESPONDENT HAS PRIVITY OF CONTRACT.[5]
 
 
At the focus of scrutiny is the issue of whether or not the Court of Appeals
committed reversible error in ruling that petitioners are solidarily liable with Lines &
Spaces.  The key to unlocking this issue is to determine whether or not Lines & Spaces
is the private respondent’s agent and whether or not there is privity of contract between
petitioners and private respondent.
 
We shall consider these issues concurrently as they are interrelated.
Petitioners, in their brief, zealously make a case that there was no contract
of agency between Lines & Spaces and private respondent.[6]  Petitioners strongly
assert that they did not have a hint that Lines & Spaces and Tri-Realty are two different
and distinct entities inasmuch as Eleanor Sanchez whom they have dealt with just
represented herself to be from Lines & Spaces/Tri-Realty when she placed her order for
the delivery of the bags of cement.  Hence, no privity of contract can be said to exist
between petitioners and private respondent.[7]
Private respondent, on the other hand, goes over the top in arguing that
contrary to their claim of innocence, petitioners had knowledge that Lines & Spaces, as
represented by Eleanor Sanchez, was a separate and distinct entity from Tri-Realty.[8] 
Then, too, private respondent stirs up support for its contention that contrary to
petitioners' claim, there was privity of contract between private respondent and
petitioners.[9]
 
Primarily, there was no written contract entered into between petitioners and
private respondent for the delivery of the bags of cement.  As gleaned from the records,
and as private respondent itself admitted in its Complaint, private respondent agreed with
Eleanor Sanchez of Lines & Spaces for the latter to source the cement needs of the
former in consideration of P7.00 per bag of cement.  It is worthy to note that the payment
in manager’s checks was made to Eleanor Sanchez of Lines & Spaces and was not
directly paid to petitioners.  While the manager’s check issued by respondent company
was eventually paid to petitioners for the delivery of the bags of cement, there is
obviously nothing from the face of said manager’s check to hint that private respondent
was the one making the payments.  There was likewise no intimation from Sanchez that
the purchase order placed by her was for private respondent’s benefit.  The meeting of
minds, therefore, was between private respondent and Eleanor Sanchez of Lines &
Spaces.  This contract is distinct and separate from the contract of sale between
petitioners and Eleanor Sanchez who represented herself to be from Lines & Spaces/Tri-
Realty, which, per her representation, was a single account or entity. 
The records bear out, too, Annex “A” showing a check voucher payable to
Amon Trading Corporation for the 6,050 bags of cement received by a certain “Weng
Chua” for Mrs. Eleanor Sanchez of Lines & Spaces, and Annex “B” which is a check
voucher bearing the name of Juliana Marketing as payee, but was received again by said
“Weng Chua.”  Nowhere from the face of the check vouchers is it shown that petitioners
or any of their authorized representatives received the payments from respondent
company.
 
Also on record are the receipts issued by Lines & Spaces, signed by
Eleanor Bahia Sanchez, covering the said manager’s checks. As Engr. Guido Ganhinhin
of respondent Tri-Realty testified, it was Lines & Spaces, not petitioners, which issued to
them a receipt for the two (2) manager’s checks. Thus-
Q:        And what is your proof that Amon and
Juliana were paid of the purchases through manager’s checks?
 
A:        Lines & Spaces who represented Amon
Trading and Juliana Marketing issued us receipts for the two (2)
manager’s checks we paid to Amon Trading and Juliana
Marketing Corporation.
…
Q:        I am showing to you check no. 074 issued
by Lines & Spaces Interiors Center, what relation has this
check to that check you mentioned earlier?
 
A:        Official Receipt No. 074 issued by Lines &
Spaces Interiors Center was for the P592,900.00 we paid to
Amon Trading Corporation for 6,050 bags of cement.
Q:        Now there appears a signature in that
 receipt above the printed words authorized signature, whose
signature is that?
 
A:        The signature of Mrs. Eleanor Bahia
Sanchez, the representative of Lines and Spaces.
 
Q:        Why do you know that that is her
signature?
 
A:        She is quite familiar with me and I saw her
affix her signature upon issuance of the receipt.[10] (Emphasis
supplied.)
 
Without doubt, no vinculum could be said to exist between petitioners and
private respondent.
 
There is likewise nothing meaty about the assertion of private respondent
that inasmuch as the delivery receipts as well as the purchase order were for the account
of Lines & Spaces/Tri-Realty, then petitioners should have been placed on guard that it
was private respondent which is the principal of Sanchez. In China Banking Corp. v.
Members of the Board of Trustees, Home Development Mutual Fund[11] and the later
case of Romulo, Mabanta, Buenaventura, Sayoc and De los Angeles v. Home
Development Mutual Fund,[12] the term “and/or” was held to mean that effect shall be
given to both the conjunctive “and” and the disjunctive “or”; or that one word or the other
may be taken accordingly as one or the other will best effectuate the intended purpose.  A:        Lines & Spaces represented by Eleanor
It was accordingly ordinarily held that in using the term "and/or" the word "and" and the
word "or" are to be used interchangeably.  scarcity of cement experienced in our projects.[14]  (Emphasis
 
By analogy, the words “Lines & Spaces/Tri-Realty” mean that effect shall be
given to both Lines & Spaces and Tri-Realty or that Lines & Spaces and Tri-Realty may
be used interchangeably.  Hence, petitioners were not remiss when they believed
Eleanor Sanchez’s representation that “Lines & Spaces/Tri-Realty” refers to just one
entity.  There was, therefore, no error attributable to petitioners when they refunded the
value of the undelivered bags of cement to Lines & Spaces only.
 
There is likewise a dearth of evidence to show that the case at bar is an
open-and-shut case of agency between private respondent and Lines & Spaces. Neither
Eleanor Sanchez nor Lines & Spaces was an agent for private respondent, but rather a
supplier for the latter’s cement needs.  The Civil Code defines a contract of agency as
follows:
 
Art. 1868.  By the contract of agency a 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.
 
 
 
In a bevy of cases such as the avuncular case of Victorias Milling Co., Inc.
v. Court of Appeals,[13] the Court decreed from Article 1868 that the basis of agency is
representation.
 
. . . On the part of the principal, there must be an
actual intention to appoint or an intention naturally inferable
from his words or actions and on the part of the agent, there
must be an intention to accept the appointment and act on it,
and in the absence of such intent, there is generally no agency.
One factor which most clearly distinguishes agency from other
legal concepts is control; one person - the agent - agrees to act
under the control or direction of another - the principal.  Indeed,
the very word "agency" has come to connote control by the
principal.  The control factor, more than any other, has caused
the courts to put contracts between principal and agent in a
separate category.
Here, the intention of private respondent, as the Executive Officer of
respondent corporation testified on, was merely for Lines & Spaces, through Eleanor
Sanchez, to supply them with the needed bags of cement.
 
Q:        Do you know the defendant Lines &
Spaces in this case?
 
A:        Yes, sir.
 
Q:        How come you know this defendant?
 
Bahia Sanchez offered to supply us cement when there was
supplied)
 
 
We cannot go along the Court of Appeals’ disquisition that Amon Trading
Corporation and Juliana Marketing should have required a special power of attorney form
when they refunded Eleanor B. Sanchez the cost of the undelivered bags of cement.   All
the quibbling about whether Lines & Spaces acted as agent of private respondent is
inane because as illustrated earlier, petitioners took orders from Eleanor Sanchez who,
after all, was the one who paid them the manager’s checks for the purchase of cement.  
Sanchez represented herself to be from Lines & Spaces/Tri-Realty, purportedly a single
entity.  Inasmuch as they have never directly dealt with private respondent and there is
no paper trail on record to guide them that the private respondent, in fact, is the
beneficiary, petitioners had no reason to doubt the request of Eleanor Sanchez later on
to refund the value of the undelivered bags of cement to Lines & Spaces.  Moreover, the
check refund was payable to Lines & Spaces, not to Sanchez, so there was indeed no
cause to suspect the scheme.
 
The fact that the deliveries were made at the construction sites of private
respondent does not by itself raise suspicion that petitioners were delivering for private
respondent.  There was no sufficient showing that petitioners knew that the delivery sites
were that of private respondent and for another thing, the deliveries were made by
petitioners’ men who have no business nosing around their client’s affairs.
 
Parenthetically, Eleanor Sanchez has absconded to the United States of
America and the story of what happened to the check refund may be forever locked with
her.  Lines & Spaces, in its Answer to the Complaint, washed its hands of the apparent
ruse perpetuated by Sanchez, but argues that if at all, it was merely an intermediary
between petitioners and private respondent.  With no other way out, Lines & Spaces was
a no-show at the trial proceedings so that eventually, its counsel had to withdraw his
appearance because of his client’s vanishing act.  Left with an empty bag, so to speak,
private respondent now puts the blame on petitioners.  But this Court finds plausible the
stance of petitioners that they had no inkling of the deception that was forthcoming. 
Indeed, without any contract or any hard evidence to show any privity of contract
between it and petitioners, private respondent’s claim against petitioners lacks legal
foothold.
 
Considering the vagaries of the case, private respondent brought the wrong
upon itself.  As adeptly surmised by the trial court, between petitioners and private
respondent, it is the latter who had made possible the wrong that was perpetuated by
Eleanor Sanchez against it so it must bear its own loss.  It is in this sense that we must
apply the equitable maxim that “as between two innocent parties, the one who made it
possible for the wrong to be done should be the one to bear the resulting loss.”[15] First,
private respondent was the one who had reposed too much trust on Eleanor Sanchez for
the latter to source its cement needs.  Second, it failed to employ safety nets to steer
clear of the rip-off.  For such huge sums of money involved in this case, it is surprising
that a corporation such as private respondent would pay its construction materials in
advance instead of in credit thus opening a window of opportunity for Eleanor Sanchez
or Lines & Spaces to pocket the remaining balance of the amount paid corresponding to
the undelivered materials.  Private respondent likewise paid in advance the commission
of Eleanor Sanchez for the materials that have yet to be delivered so it really had no
means of control over her.  Finally, there is no paper trail linking private respondent to
petitioners thereby leaving the latter clueless that private respondent was their true
client.  Private respondent should have, at the very least, required petitioners to sign the
check vouchers or to issue receipts for the advance payments so that it could have a
hold on petitioners. In this case, it was the representative of Lines & Spaces who signed
the check vouchers.  For its failure to establish any of these deterrent measures, private
respondent incurred the risk of not being able to recoup the value of the materials it had
paid good money for.
 
WHEREFORE, the present petition is hereby GRANTED.  Accordingly, the
Decision and the Resolution dated 28 November 2002 and 10 June 2003, of the Court of
Appeals in CA-G.R CV No. 60031, are hereby REVERSED and SET ASIDE.  The
Decision dated 29 January 1998 of the Regional Trial Court of Quezon City, Branch 104,
in Civil Case Q-92-14235 is hereby REINSTATED.  No costs.
 
          SO ORDERED.
G.R. No. 144805 June 8, 2006
EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners, vs.ETERNIT
CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION),
ETEROUTREMER, S.A. and FAR EAST BANK & TRUST COMPANY, Respondents.
DECISION
CALLEJO, SR., J.:
On appeal via a Petition for Review on Certiorari is the Decision 1 of the Court of Appeals
(CA) in CA-G.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court
(RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the Resolution 2 of the
CA denying the motion for reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly organized and registered under
Philippine laws. Since 1950, it had been engaged in the manufacture of roofing materials
and pipe products. Its manufacturing operations were conducted on eight parcels of land
with a total area of 47,233 square meters. The properties, located in Mandaluyong City,
Metro Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118,
451119, 451120, 451121, 451122, 451124 and 451125 under the name of Far East Bank
& Trust Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were
owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered
under the laws of Belgium.3 Jack Glanville, an Australian citizen, was the General
Manager and President of EC, while Claude Frederick Delsaux was the Regional
Director for Asia of ESAC. Both had their offices in Belgium.
In 1986, the management of ESAC grew concerned about the political situation in the
Philippines and wanted to stop its operations in the country. The Committee for Asia of
ESAC instructed Michael Adams, a member of EC’s Board of Directors, to dispose of the
eight parcels of land. Adams engaged the services of realtor/broker Lauro G. Marquez so
that the properties could be offered for sale to prospective buyers. Glanville later showed
the properties to Marquez.
Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo
B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986,
Marquez declared that he was authorized to sell the properties for P27,000,000.00 and
that the terms of the sale were subject to negotiation. 4
Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo
Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the
property for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings’
offer and relayed the same to Delsaux in Belgium, but the latter did not respond. On
October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his position/
counterproposal to the offer of the Litonjua siblings. It was only on February 12, 1987 that
Delsaux sent a telex to Glanville stating that, based on the "Belgian/Swiss decision," the
final offer was "US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior
to final liquidation."5
Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux.
Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred with Glanville,
and in a Letter dated February 26, 1987, confirmed that the Litonjua siblings had
accepted the counter-proposal of Delsaux. He also stated that the Litonjua siblings would
confirm full payment within 90 days after execution and preparation of all documents of
sale, together with the necessary governmental clearances.6
The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank
& Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the
sale.7
Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale
would be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that
he had met with the buyer, which had given him the impression that "he is prepared to
press for a satisfactory conclusion to the sale." 8 He also emphasized to Delsaux that the
buyers were concerned because they would incur expenses in bank commitment fees as
a consequence of prolonged period of inaction.9
Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of
the Philippines, the political situation in the Philippines had improved. Marquez received
a telephone call from Glanville, advising that the sale would no longer proceed. Glanville
followed it up with a Letter dated May 7, 1987, confirming that he had been instructed by
his principal to inform Marquez that "the decision has been taken at a Board Meeting not
to sell the properties on which Eternit Corporation is situated."10
Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC
Regional Office had decided not to proceed with the sale of the subject land, to wit:
May 22, 1987
Mr. L.G. MarquezL.G. Marquez, Inc.334 Makati Stock Exchange Bldg.6767 Ayala
AvenueMakati, Metro ManilaPhilippines
Dear Sir:
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of
the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and
examined the position as far as the Philippines are (sic) concerned. Considering [the]
new political situation since the departure of MR. MARCOS and a certain stabilization in
the Philippines, the Committee has decided not to stop our operations in Manila. In fact,
production has started again last week, and (sic) to recognize the participation in the
Corporation.
We regret that we could not make a deal with you this time, but in case the policy would
change at a later state, we would consult you again.
 xxx
Yours sincerely,
(Sgd.)C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.)11
When apprised of this development, the Litonjuas, through counsel, wrote EC,
demanding payment for damages they had suffered on account of the aborted sale. EC,
however, rejected their demand.
The Litonjuas then filed a complaint for specific performance and damages against EC
(now the Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company,
and ESAC in the RTC of Pasig City. An amended complaint was filed, in which defendant
EC was substituted by Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V.
Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as additional
defendants on account of their purchase of ESAC shares of stocks and were the
controlling stockholders of EC.
In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not
doing business in the Philippines, it cannot be subject to the jurisdiction of Philippine
courts; the Board and stockholders of EC never approved any resolution to sell subject
properties nor authorized Marquez to sell the same; and the telex dated October 28,
1986 of Jack Glanville was his own personal making which did not bind EC.
On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed
the amended complaint.12 The fallo of the decision reads:
WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources
Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and
binding sale between the plaintiffs and said defendants.
The complaint as against Far East Bank and Trust Company is likewise dismissed for
lack of cause of action.
The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and
Eteroutremer, S.A. is also dismissed for lack of merit. 13
The trial court declared that since the authority of the agents/realtors was not in writing,
the sale is void and not merely unenforceable, and as such, could not have been ratified
by the principal. In any event, such ratification cannot be given any retroactive effect.
Plaintiffs could not assume that defendants had agreed to sell the property without a
clear authorization from the corporation concerned, that is, through resolutions of the
Board of Directors and stockholders. The trial court also pointed out that the supposed
sale involves substantially all the assets of defendant EC which would result in the
eventual total cessation of its operation. 14
The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in
concluding that the real estate broker in the instant case needed a written authority from
appellee corporation and/or that said broker had no such written authority; and (2) the
lower court committed grave error of law in holding that appellee corporation is not legally
bound for specific performance and/or damages in the absence of an enabling resolution
of the board of directors." 15 They averred that Marquez acted merely as a broker or go-
between and not as agent of the corporation; hence, it was not necessary for him to be
empowered as such by any written authority. They further claimed that an agency by
estoppel was created when the corporation clothed Marquez with apparent authority to
negotiate for the sale of the properties. However, since it was a bilateral contract to buy
and sell, it was equivalent to a perfected contract of sale, which the corporation was
obliged to consummate.
In reply, EC alleged that Marquez had no written authority from the Board of Directors to
bind it; neither were Glanville and Delsaux authorized by its board of directors to offer the
property for sale. Since the sale involved substantially all of the corporation’s assets, it
would necessarily need the authority from the stockholders.
On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16 The
Litonjuas filed a motion for reconsideration, which was also denied by the appellate court.
The CA ruled that Marquez, who was a real estate broker, was a special agent within the
purview of Article 1874 of the New Civil Code. Under Section 23 of the Corporation
Code, he needed a special authority from EC’s board of directors to bind such
corporation to the sale of its properties. Delsaux, who was merely the representative of
ESAC (the majority stockholder of EC) had no authority to bind the latter. The CA pointed
out that Delsaux was not even a member of the board of directors of EC. Moreover, the
Litonjuas failed to prove that an agency by estoppel had been created between the
parties.
In the instant petition for review, petitioners aver that
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED
CONTRACT OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT
MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT
BEFORE THE SALE CAN BE PERFECTED.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND
DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT
PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY
RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT
AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING
POWER TO SELL THE SAID PROPERTIES.17
Petitioners maintain that, based on the facts of the case, there was a perfected contract
of sale of the parcels of land and the improvements thereon for "US$1,000,000.00 plus
P2,500,000.00 to cover obligations prior to final liquidation." Petitioners insist that they
had accepted the counter-offer of respondent EC and that before the counter-offer was
withdrawn by respondents, the acceptance was made known to them through real estate
broker Marquez.
Petitioners assert that there was no need for a written authority from the Board of
Directors of EC for Marquez to validly act as broker/middleman/intermediary. As broker,
Marquez was not an ordinary agent because his authority was of a special and limited
character in most respects. His only job as a broker was to look for a buyer and to bring
together the parties to the transaction. He was not authorized to sell the properties or to
make a binding contract to respondent EC; hence, petitioners argue, Article 1874 of the
New Civil Code does not apply.
In any event, petitioners aver, what is important and decisive was that Marquez was able
to communicate both the offer and counter-offer and their acceptance of respondent EC’s
counter-offer, resulting in a perfected contract of sale.
Petitioners posit that the testimonial and documentary evidence on record amply shows
that Glanville, who was the President and General Manager of respondent EC, and
Delsaux, who was the Managing Director for ESAC Asia, had the necessary authority to
sell the subject property or, at least, had been allowed by respondent EC to hold
themselves out in the public as having the power to sell the subject properties.
Petitioners identified such evidence, thus:
1. The testimony of Marquez that he was chosen by Glanville as the then President and
General Manager of Eternit, to sell the properties of said corporation to any interested
party, which authority, as hereinabove discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned
SEVERAL MONTHS, from 1986 to 1987;
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to
the Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the properties as
evidenced by the Petitioners’ ACCEPTANCE of the counter-offer;
5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security
Bank and that an ESCROW agreement was drafted over the subject properties;
6. Glanville’s telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT
ACTION TO BUY AND SELL";
7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact
that Petitioners’ offer was allegedly REJECTED by both Glanville and Delsaux.18
Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer
to petitioners’ offer and thereafter reject such offer unless they were authorized to do so
by respondent EC. Petitioners insist that Delsaux confirmed his authority to sell the
properties in his letter to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of
the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and
examined the position as far as the Philippines are (sic) concerned. Considering the new
political situation since the departure of MR. MARCOS and a certain stabilization in the
Philippines, the Committee has decided not to stop our operations in Manila[.] [I]n fact
production started again last week, and (sic) to reorganize the participation in the
Corporation.
We regret that we could not make a deal with you this time, but in case the policy would
change at a later stage we would consult you again.
In the meantime, I remain
Yours sincerely,
C.F. DELSAUX19
Petitioners further emphasize that they acted in good faith when Glanville and Delsaux
were knowingly permitted by respondent EC to sell the properties within the scope of an
apparent authority. Petitioners insist that respondents held themselves to the public as
possessing power to sell the subject properties.
By way of comment, respondents aver that the issues raised by the petitioners are
factual, hence, are proscribed by Rule 45 of the Rules of Court. On the merits of the
petition, respondents EC (now EMC) and ESAC reiterate their submissions in the CA.
They maintain that Glanville, Delsaux and Marquez had no authority from the
stockholders of respondent EC and its Board of Directors to offer the properties for sale
to the petitioners, or to any other person or entity for that matter. They assert that the
decision and resolution of the CA are in accord with law and the evidence on record, and
should be affirmed in toto.
Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and
Delsaux, conformed to the written authority of Marquez to sell the properties. The
authority of Glanville and Delsaux to bind respondent EC is evidenced by the fact that
Glanville and Delsaux negotiated for the sale of 90% of stocks of respondent EC to
Ruperto Tan on June 1, 1997. Given the significance of their positions and their duties in
respondent EC at the time of the transaction, and the fact that respondent ESAC owns
90% of the shares of stock of respondent EC, a formal resolution of the Board of
Directors would be a mere ceremonial formality. What is important, petitioners maintain,
is that Marquez was able to communicate the offer of respondent EC and the petitioners’
acceptance thereof. There was no time that they acted without the knowledge of
respondents. In fact, respondent EC never repudiated the acts of Glanville, Marquez and
Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of respondents that the issues raised
by petitioner in this case are factual. Whether or not Marquez, Glanville, and Delsaux
were authorized by respondent EC to act as its agents relative to the sale of the
properties of respondent EC, and if so, the boundaries of their authority as agents, is a
question of fact. In the absence of express written terms creating the relationship of an
agency, the existence of an agency is a fact question. 20 Whether an agency by estoppel
was created or whether a person acted within the bounds of his apparent authority, and
whether the principal is estopped to deny the apparent authority of its agent are, likewise,
questions of fact to be resolved on the basis of the evidence on record. 21 The findings of
the trial court on such issues, as affirmed by the CA, are conclusive on the Court, absent
evidence that the trial and appellate courts ignored, misconstrued, or misapplied facts
and circumstances of substance which, if considered, would warrant a modification or
reversal of the outcome of the case.22
It must be stressed that issues of facts may not be raised in the Court under Rule 45 of
the Rules of Court because the Court is not a trier of facts. It is not to re-examine and
assess the evidence on record, whether testimonial and documentary. There are,
however, recognized exceptions where the Court may delve into and resolve factual
issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible;
(3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court
of Appeals, in making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (7) when the findings of the
Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are
conclusions without citation of specific evidence on which they are based; (9) when the
Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion; and (10) when the
findings of fact of the Court of Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.23
We have reviewed the records thoroughly and find that the petitioners failed to establish
that the instant case falls under any of the foregoing exceptions. Indeed, the assailed
decision of the Court of Appeals is supported by the evidence on record and the law.
It was the duty of the petitioners to prove that respondent EC had decided to sell its
properties and that it had empowered Adams, Glanville and Delsaux or Marquez to offer
the properties for sale to prospective buyers and to accept any counter-offer. Petitioners
likewise failed to prove that their counter-offer had been accepted by respondent EC,
through Glanville and Delsaux. It must be stressed that when specific performance is
sought of a contract made with an agent, the agency must be established by clear,
certain and specific proof.24
Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of
the Philippines, provides:
SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code,
the corporate powers of all corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the holders of stocks, or where
there is no stock, from among the members of the corporation, who shall hold office for
one (1) year and until their successors are elected and qualified.
Indeed, a corporation is a juridical person separate and distinct from its members or
stockholders and is not affected by the personal rights,
obligations and transactions of the latter. 25 It may act only through its board of directors
or, when authorized either by its by-laws or by its board resolution, through its officers or
agents in the normal course of business. The general principles of agency govern the
relation between the corporation and its officers or agents, subject to the articles of
incorporation, by-laws, or relevant provisions of law.26
Under Section 36 of the Corporation Code, a corporation may sell or convey its real
properties, subject to the limitations prescribed by law and the Constitution, as follows:
SEC. 36. Corporate powers and capacity. – Every corporation incorporated under this
Code has the power and capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of
other corporations, as the transaction of a lawful business of the corporation may
reasonably and necessarily require, subject to the limitations prescribed by the law and
the Constitution.
The property of a corporation, however, is not the property of the stockholders or
members, and as such, may not be sold without express authority from the board of
directors.27 Physical acts, like the offering of the properties of the corporation for sale, or
the acceptance of a counter-offer of prospective buyers of such properties and the
execution of the deed of sale covering such property, can be performed by the
corporation only by officers or agents duly authorized for the purpose by corporate by-
laws or by specific acts of the board of directors. 28 Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating
to the affairs of the corporation, but not in the course of, or connected with, the
performance of authorized duties of such director, are not binding on the corporation. 29
While a corporation may appoint agents to negotiate for the sale of its real properties, the
final say will have to be with the board of directors through its officers and agents as
authorized by a board resolution or by its by-laws. 30 An unauthorized act of an officer of
the corporation is not binding on it unless the latter ratifies the same expressly or
impliedly by its board of directors. Any sale of real property of a corporation by a person
purporting to be an agent thereof but without written authority from the corporation is null
and void. The declarations of the agent alone are generally insufficient to establish the
fact or extent of his/her authority.31
By the contract of agency, a person binds himself to render some service or to do
something in representation on behalf of another, with the consent or authority of the
latter.32 Consent of both principal and agent is necessary to create an agency. The
principal must intend that the agent shall act for him; the agent must intend to accept the
authority and act on it, and the intention of the parties must find expression either in
words or conduct between them.33
An agency may be expressed or implied from the act of the principal, from his silence or
lack of action, or his failure to repudiate the agency knowing that another person is acting
on his behalf without authority. Acceptance by the agent may be expressed, or implied
from his acts which carry out the agency, or from his silence or inaction according to the
circumstances.34 Agency may be oral unless the law requires a specific form. 35 However,
to create or convey real rights over immovable property, a special power of attorney is
necessary.36 Thus, when a sale of a piece of land or any portion thereof is through an
agent, the authority of the latter shall be in writing, otherwise, the sale shall be void. 37
In this case, the petitioners as plaintiffs below, failed to adduce in evidence any
resolution of the Board of Directors of respondent EC empowering Marquez, Glanville or
Delsaux as its agents, to sell, let alone offer for sale, for and in its behalf, the eight
parcels of land owned by respondent EC including the improvements thereon. The bare
fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of
respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners’ claim that
he had likewise been authorized by respondent EC to sell the parcels of land.
Moreover, the evidence of petitioners shows that Adams and Glanville acted on the
authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through its
Committee for Asia,38 the Board of Directors of respondent ESAC,39 and the
Belgian/Swiss component of the management of respondent ESAC.40 As such, Adams
and Glanville engaged the services of Marquez to offer to sell the properties to
prospective buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he
was authorized to offer for sale the property for P27,000,000.00 and the other terms of
the sale subject to negotiations. When petitioners offered to purchase the property for
P20,000,000.00, through Marquez, the latter relayed petitioners’ offer to Glanville;
Glanville had to send a telex to Delsaux to inquire the position of respondent ESAC to
petitioners’ offer. However, as admitted by petitioners in their Memorandum, Delsaux
was unable to reply immediately to the telex of Glanville because Delsaux had to wait for
confirmation from respondent ESAC.41 When Delsaux finally responded to Glanville on
February 12, 1987, he made it clear that, based on the "Belgian/Swiss decision" the final
offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing
obligations prior to final liquidation. 42 The offer of Delsaux emanated only from the
"Belgian/Swiss decision," and not the entire management or Board of Directors of
respondent ESAC. While it is true that petitioners accepted the counter-offer of
respondent ESAC, respondent EC was not a party to the transaction between them;
hence, EC was not bound by such acceptance.
While Glanville was the President and General Manager of respondent EC, and Adams
and Delsaux were members of its Board of Directors, the three acted for and in behalf of
respondent ESAC, and not as duly authorized agents of respondent EC; a board
resolution evincing the grant of such authority is needed to bind EC to any agreement
regarding the sale of the subject properties. Such board resolution is not a mere formality
but is a condition sine qua non to bind respondent EC. Admittedly, respondent ESAC
owned 90% of the shares of stocks of respondent EC; however, the mere fact that a
corporation owns a majority of the shares of stocks of another, or even all of such shares
of stocks, taken alone, will not justify their being treated as one corporation. 43
It bears stressing that in an agent-principal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the agent, by legal fiction,
becomes the principal, authorized to perform all acts which the latter would have him do.
Such a relationship can only be effected with the consent of the principal, which must
not, in any way, be compelled by law or by any court.44
The petitioners cannot feign ignorance of the absence of any regular and valid authority
of respondent EC empowering Adams, Glanville or Delsaux to offer the properties for
sale and to sell the said properties to the petitioners. A person dealing with a known
agent is not authorized, under any circumstances, blindly to trust the agents; statements
as to the extent of his powers; such person must not act negligently but must use
reasonable diligence and prudence to ascertain whether the agent acts within the scope
of his authority.45 The settled rule is that, persons dealing with an assumed agent are
bound at their peril, and if they would hold the principal liable, to ascertain not only the
fact of agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to prove it. 46 In this case, the petitioners
failed to discharge their burden; hence, petitioners are not entitled to damages from
respondent EC.
It appears that Marquez acted not only as real estate broker for the petitioners but also
as their agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987,
he confirmed, for and in behalf of the petitioners, that the latter had accepted such offer
to sell the land and the improvements thereon. However, we agree with the ruling of the
appellate court that Marquez had no authority to bind respondent EC to sell the subject
properties. A real estate broker is one who negotiates the sale of real properties. His
business, generally speaking, is only to find a purchaser who is willing to buy the land
upon terms fixed by the owner. He has no authority to bind the principal by signing a
contract of sale. Indeed, an authority to find a purchaser of real property does not include
an authority to sell.47
Equally barren of merit is petitioners’ contention that respondent EC is estopped to deny
the existence of a principal-agency relationship between it and Glanville or Delsaux. For
an agency by estoppel to exist, the following must be established: (1) the principal
manifested a representation of the agent’s authority or knowlingly allowed the agent to
assume such authority; (2) the third person, in good faith, relied upon such
representation; (3) relying upon such representation, such third person has changed his
position to his detriment.48 An agency by estoppel, which is similar to the doctrine of
apparent authority, requires proof of reliance upon the representations, and that, in turn,
needs proof that the representations predated the action taken in reliance. 49 Such proof is
lacking in this case. In their communications to the petitioners, Glanville and Delsaux
positively and unequivocally declared that they were acting for and in behalf of
respondent ESAC.

Neither may respondent EC be deemed to have ratified the transactions between the
petitioners and respondent ESAC, through Glanville, Delsaux and Marquez. The
transactions and the various communications inter se were never submitted to the Board
of Directors of respondent EC for ratification.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs
against the petitioners. SO ORDERED.
G.R. No. 149353             June 26, 2006
JOCELYN B. DOLES, Petitioner,vs.MA. AURA TINA ANGELES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court
questioning the Decision1 dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R.
CV No. 66985, which reversed the Decision dated July 29, 1998 of the Regional Trial
Court (RTC), Branch 21, City of Manila; and the CA Resolution 2 dated August 6, 2001
which denied petitioner’s Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for
Specific Performance with Damages against Jocelyn B. Doles (petitioner), docketed as
Civil Case No. 97-82716. Respondent alleged that petitioner was indebted to the former
in the concept of a personal loan amounting to P405,430.00 representing the principal
amount and interest; that on October 5, 1996, by virtue of a "Deed of Absolute Sale", 3
petitioner, as seller, ceded to respondent, as buyer, a parcel of land, as well as the
improvements thereon, with an area of 42 square meters, covered by Transfer Certificate
of Title No. 382532,4 and located at a subdivision project known as Camella Townhomes
Sorrente in Bacoor, Cavite, in order to satisfy her personal loan with respondent; that this
property was mortgaged to National Home Mortgage Finance Corporation (NHMFC) to
secure petitioner’s loan in the sum of P337,050.00 with that entity; that as a condition for
the foregoing sale, respondent shall assume the undue balance of the mortgage and pay
the monthly amortization of P4,748.11 for the remainder of the 25 years which began on
September 3, 1994; that the property was at that time being occupied by a tenant paying
a monthly rent of P3,000.00; that upon verification with the NHMFC, respondent learned
that petitioner had incurred arrearages amounting to P26,744.09, inclusive of penalties
and interest; that upon informing the petitioner of her arrears, petitioner denied that she
incurred them and refused to pay the same; that despite repeated demand, petitioner
refused to cooperate with respondent to execute the necessary documents and other
formalities required by the NHMFC to effect the transfer of the title over the property; that
petitioner collected rent over the property for the month of January 1997 and refused to
remit the proceeds to respondent; and that respondent suffered damages as a result and
was forced to litigate.
Petitioner, then defendant, while admitting some allegations in the Complaint, denied that
she borrowed money from respondent, and averred that from June to September 1995,
she referred her friends to respondent whom she knew to be engaged in the business of
lending money in exchange for personal checks through her capitalist Arsenio Pua. She
alleged that her friends, namely, Zenaida Romulo, Theresa Moratin, Julia Inocencio,
Virginia Jacob, and Elizabeth Tomelden, borrowed money from respondent and issued
personal checks in payment of the loan; that the checks bounced for insufficiency of
funds; that despite her efforts to assist respondent to collect from the borrowers, she
could no longer locate them; that, because of this, respondent became furious and
threatened petitioner that if the accounts were not settled, a criminal case will be filed
against her; that she was forced to issue eight checks amounting to P350,000 to answer
for the bounced checks of the borrowers she referred; that prior to the issuance of the
checks she informed respondent that they were not sufficiently funded but the latter
nonetheless deposited the checks and for which reason they were subsequently
dishonored; that respondent then threatened to initiate a criminal case against her for
violation of Batas Pambansa Blg. 22; that she was forced by respondent to execute an
"Absolute Deed of Sale" over her property in Bacoor, Cavite, to avoid criminal
prosecution; that the said deed had no valid consideration; that she did not appear before
a notary public; that the Community Tax Certificate number on the deed was not hers
and for which respondent may be prosecuted for falsification and perjury; and that she
suffered damages and lost rental as a result.
The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is
valid; second; if valid, whether petitioner is obliged to sign and execute the necessary
documents to effect the transfer of her rights over the property to the respondent; and
third, whether petitioner is liable for damages.
On July 29, 1998, the RTC rendered a decision the dispositive portion of which states:
WHEREFORE, premises considered, the Court hereby orders the dismissal of the
complaint for insufficiency of evidence. With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause or consideration: 5
Plaintiff Angeles’ admission that the borrowers are the friends of defendant Doles and
further admission that the checks issued by these borrowers in payment of the loan
obligation negates [sic] the cause or consideration of the contract of sale executed by
and between plaintiff and defendant. Moreover, the property is not solely owned by
defendant as appearing in Entry No. 9055 of Transfer Certificate of Title No. 382532
(Annex A, Complaint), thus:
"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share
of Teodorico Doles on the parcel of land described in this certificate of title by virtue of
the special power of attorney to mortgage, executed before the notary public, etc."
The rule under the Civil Code is that contracts without a cause or consideration produce
no effect whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief, respondent interposed her sole
assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND
OF [sic] THE DEED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION
OR INSUFFICIENCY OF EVIDENCE.6
On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which
reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The
Decision of the lower court dated July 29, 1998 is REVERSED and SET ASIDE. A new
one is entered ordering defendant-appellee to execute all necessary documents to effect
transfer of subject property to plaintiff-appellant with the arrearages of the former’s loan
with the NHMFC, at the latter’s expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the
amount borrowed from the respondent to her friends. Hence, the Deed of Absolute Sale
was supported by a valid consideration, which is the sum of money petitioner owed
respondent amounting to P405,430.00, representing both principal and interest.
The CA took into account the following circumstances in their entirety: the supposed
friends of petitioner never presented themselves to respondent and that all transactions
were made by and between petitioner and respondent; 7 that the money borrowed was
deposited with the bank account of the petitioner, while payments made for the loan were
deposited by the latter to respondent’s bank account; 8 that petitioner herself admitted in
open court that she was "re-lending" the money loaned from respondent to other
individuals for profit;9 and that the documentary evidence shows that the actual
borrowers, the friends of petitioner, consider her as their creditor and not the
respondent.10
Furthermore, the CA held that the alleged threat or intimidation by respondent did not
vitiate consent, since the same is considered just or legal if made to enforce one’s claim
through competent authority under Article 1335 11 of the Civil Code; 12 that with respect to
the arrearages of petitioner on her monthly amortization with the NHMFC in the sum of
P26,744.09, the same shall be deemed part of the balance of petitioner’s loan with the
NHMFC which respondent agreed to assume; and that the amount of P3,000.00
representing the rental for January 1997 supposedly collected by petitioner, as well as
the claim for damages and attorney’s fees, is denied for insufficiency of evidence. 13
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing
that respondent categorically admitted in open court that she acted only as agent or
representative of Arsenio Pua, the principal financier and, hence, she had no legal
capacity to sue petitioner; and that the CA failed to consider the fact that petitioner’s
father, who co-owned the subject property, was not impleaded as a defendant nor was
he indebted to the respondent and, hence, she cannot be made to sign the documents to
effect the transfer of ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the ground that
the foregoing matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28,
2001, petitioner filed the present Petition and raised the following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF
THE RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL
TO COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM
THE DEBTOR.
III.
WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE.14
Although, as a rule, it is not the business of this Court to review the findings of fact made
by the lower courts, jurisprudence has recognized several exceptions, at least three of
which are present in the instant case, namely: when the judgment is based on a
misapprehension of facts; when the findings of facts of the courts a quo are conflicting;
and when the CA manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, could justify a different conclusion. 15 To arrive at a proper
judgment, therefore, the Court finds it necessary to re-examine the evidence presented
by the contending parties during the trial of the case.
The Petition is meritorious.
The principal issue is whether the Deed of Absolute Sale is supported by a valid
consideration.
1. Petitioner argues that since she is merely the agent or representative of the alleged
debtors, then she is not a party to the loan; and that the Deed of Sale executed between
her and the respondent in their own names, which was predicated on that pre-existing
debt, is void for lack of consideration.
Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the
form of a price certain in money 16 and that this sum indisputably pertains to the debt in
issue. This Court has consistently held that a contract of sale is null and void and
produces no effect whatsoever where the same is without cause or consideration. 17 The
question that has to be resolved for the moment is whether this debt can be considered
as a valid cause or consideration for the sale.
To restate, the CA cited four instances in the record to support its holding that petitioner
"re-lends" the amount borrowed from respondent to her friends: first, the friends of
petitioner never presented themselves to respondent and that all transactions were made
by and between petitioner and respondent; 18 second; the money passed through the
bank accounts of petitioner and respondent;19 third, petitioner herself admitted that she
was "re-lending" the money loaned to other individuals for profit; 20 and fourth, the
documentary evidence shows that the actual borrowers, the friends of petitioner,
consider her as their creditor and not the respondent.21
On the first, third, and fourth points, the CA cites the testimony of the petitioner, then
defendant, during her cross-examination:22
Atty. Diza: q. Your friends and the plaintiff did not meet personally?

q. You also mentioned that you were not the one indebted to the plaintiff? witness:

witness: a. Yes, sir.

a. Yes, sir. Atty. Diza:

Atty. Diza: q. You are intermediaries?

q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, witness:
Maria Luisa Inocencio, Zenaida Romulo, they are your friends?
a. We are both intermediaries. As evidenced by the checks of the debtors they were
witness: deposited to the name of Arsenio Pua because the money came from Arsenio Pua.

a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they were xxxx
just referred.
Atty. Diza:
Atty. Diza:
q. Did the plaintiff knew [sic] that you will lend the money to your friends specifically the
q. And you have transact[ed] with the plaintiff? one you mentioned [a] while ago?

witness: witness:

a. Yes, sir. a. Yes, she knows the money will go to those persons.

Atty. Diza: Atty. Diza:

q. What is that transaction? q. You are re-lending the money?

witness: witness:

a. To refer those persons to Aura and to refer again to Arsenio Pua, sir. a. Yes, sir.

Atty. Diza: Atty. Diza:

q. Did the plaintiff personally see the transactions with your friends? q. What profit do you have, do you have commission?

witness: witness:

a. No, sir. a. Yes, sir.

Atty. Diza: Atty. Diza:

q. How much? a. Yes, Your Honor.

witness: Atty. Villacorta:

a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate
none, sir. somebody, are you aware of that?

Based on the foregoing, the CA concluded that petitioner is the real borrower, while the witness:
respondent, the real lender.
a. I am aware of that.
But as correctly noted by the RTC, respondent, then plaintiff, made the following
admission during her cross examination:23 Atty. Villacorta:

Atty. Villacorta: q. More or less she [accommodated] several friends of the defendant?

q. Who is this Arsenio Pua? witness:

witness: a. Yes, sir, I am aware of that.

a. Principal financier, sir. xxxx

Atty. Villacorta: Atty. Villacorta:

q. So the money came from Arsenio Pua? q. And these friends of the defendant borrowed money from you with the assurance of
the defendant?
witness:
witness:
a. Yes, because I am only representing him, sir.
a. They go direct to Jocelyn because I don’t know them.
Other portions of the testimony of respondent must likewise be considered: 24
xxxx
Atty. Villacorta:
Atty. Villacorta:
q. So it is not actually your money but the money of Arsenio Pua?
q. And is it not also a fact Madam witness that everytime that the defendant borrowed
witness: money from you her friends who [are] in need of money issued check[s] to you? There
were checks issued to you?
a. Yes, sir.
witness:
Court:
a. Yes, there were checks issued.
q. It is not your money?
Atty. Villacorta:
witness:
q. By the friends of the defendant, am I correct?
witness: circumstantial evidence. The question is ultimately one of intention. 26 Agency may even
be implied from the words and conduct of the parties and the circumstances of the
a. Yes, sir. particular case.27 Though the fact or extent of authority of the agents may not, as a
general rule, be established from the declarations of the agents alone, if one professes to
act as agent for another, she may be estopped to deny her agency both as against the
Atty. Villacorta: asserted principal and the third persons interested in the transaction in which he or she is
engaged.28
q. And because of your assistance, the friends of the defendant who are in need of
money were able to obtain loan to [sic] Arsenio Pua through your assistance? In this case, petitioner knew that the financier of respondent is Pua; and respondent
knew that the borrowers are friends of petitioner.
witness:
The CA is incorrect when it considered the fact that the "supposed friends of [petitioner],
a. Yes, sir. the actual borrowers, did not present themselves to [respondent]" as evidence that
negates the agency relationship—it is sufficient that petitioner disclosed to respondent
that the former was acting in behalf of her principals, her friends whom she referred to
Atty. Villacorta: respondent. For an agency to arise, it is not necessary that the principal personally
encounter the third person with whom the agent interacts. The law in fact contemplates,
q. So that occasion lasted for more than a year? and to a great degree, impersonal dealings where the principal need not personally know
or meet the third person with whom her agent transacts: precisely, the purpose of agency
is to extend the personality of the principal through the facility of the agent. 29
witness:

In the case at bar, both petitioner and respondent have undeniably disclosed to each
a. Yes, sir. other that they are representing someone else, and so both of them are estopped to
deny the same. It is evident from the record that petitioner merely refers actual borrowers
Atty. Villacorta: and then collects and disburses the amounts of the loan upon which she received a
commission; and that respondent transacts on behalf of her "principal financier", a certain
q. And some of the checks that were issued by the friends of the defendant bounced, am Arsenio Pua. If their respective principals do not actually and personally know each
I correct? other, such ignorance does not affect their juridical standing as agents, especially since
the very purpose of agency is to extend the personality of the principal through the facility
of the agent.
witness:
With respect to the admission of petitioner that she is "re-lending" the money loaned from
a. Yes, sir. respondent to other individuals for profit, it must be stressed that the manner in which the
parties designate the relationship is not controlling. If an act done by one person in behalf
Atty. Villacorta: of another is in its essential nature one of agency, the former is the agent of the latter
notwithstanding he or she is not so called.30 The question is to be determined by the fact
that one represents and is acting for another, and if relations exist which will constitute an
q. And because of that Arsenio Pua got mad with you? agency, it will be an agency whether the parties understood the exact nature of the
relation or not.31
witness:
That both parties acted as mere agents is shown by the undisputed fact that the friends
a. Yes, sir. of petitioner issued checks in payment of the loan in the name of Pua. If it is true that
petitioner was "re-lending", then the checks should have been drawn in her name and not
directly paid to Pua.
Respondent is estopped to deny that she herself acted as agent of a certain Arsenio
Pua, her disclosed principal. She is also estopped to deny that petitioner acted as agent
for the alleged debtors, the friends whom she (petitioner) referred. With respect to the second point, particularly, the finding of the CA that the
disbursements and payments for the loan were made through the bank accounts of
petitioner and respondent,
This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is
representation.25 The question of whether an agency has been created is ordinarily a
question which may be established in the same way as any other fact, either by direct or suffice it to say that in the normal course of commercial dealings and for reasons of
convenience and practical utility it can be reasonably expected that the facilities of the Appeals are REVERSED and SET ASIDE. The complaint of respondent in Civil Case
agent, such as a bank account, may be employed, and that a sub-agent be appointed, No. 97-82716 is DISMISSED.
such as the bank itself, to carry out the task, especially where there is no stipulation to
the contrary.32 SO ORDERED.

In view of the two agency relationships, petitioner and respondent are not privy to the
contract of loan between their principals. Since the sale is predicated on that loan, then
the sale is void for lack of consideration.

2. A further scrutiny of the record shows, however, that the sale might have been backed
up by another consideration that is separate and distinct from the debt: respondent
averred in her complaint and testified that the parties had agreed that as a condition for
the conveyance of the property the respondent shall assume the balance of the
mortgage loan which petitioner allegedly owed to the NHMFC. 33 This Court in the recent
past has declared that an assumption of a mortgage debt may constitute a valid
consideration for a sale.34

Although the record shows that petitioner admitted at the time of trial that she owned the
property described in the TCT, 35 the Court must stress that the Transfer Certificate of
Title No. 38253236 on its face shows that the owner of the property which admittedly
forms the subject matter of the Deed of Absolute Sale refers neither to the petitioner nor
to her father, Teodorico Doles, the alleged co-owner. Rather, it states that the property is
registered in the name of "Household Development Corporation." Although there is an
entry to the effect that the petitioner had been granted a special power of attorney
"covering the shares of Teodorico Doles on the parcel of land described in this
certificate,"37 it cannot be inferred from this bare notation, nor from any other evidence on
the record, that the petitioner or her father held any direct interest on the property in
question so as to validly constitute a mortgage thereon 38 and, with more reason, to effect
the delivery of the object of the sale at the consummation stage. 39 What is worse, there is
a notation that the TCT itself has been "cancelled."40

In view of these anomalies, the Court cannot entertain the

possibility that respondent agreed to assume the balance of the mortgage loan which
petitioner allegedly owed to the NHMFC, especially since the record is bereft of any
factual finding that petitioner was, in the first place, endowed with any ownership rights to
validly mortgage and convey the property. As the complainant who initiated the case,
respondent bears the burden of proving the basis of her complaint. Having failed to
discharge such burden, the Court has no choice but to declare the sale void for lack of
cause. And since the sale is void, the Court finds it unnecessary to dwell on the issue of
whether duress or intimidation had been foisted upon petitioner upon the execution of the
sale.

Moreover, even assuming the mortgage validly exists, the Court notes respondent’s
allegation that the mortgage with the NHMFC was for 25 years which began September
3, 1994. Respondent filed her Complaint for Specific Performance in 1997. Since the 25
years had not lapsed, the prayer of respondent to compel petitioner to execute necessary
documents to effect the transfer of title is premature.

WHEREFORE, the petition is granted. The Decision and Resolution of the Court of

G.R. No. L-47538             June 20, 1941
GONZALO PUYAT & SONS, INC., petitioner, vs.ARCO AMUSEMENT COMPANY
(formerly known as Teatro Arco), respondent.
Feria & Lao for petitioner.J. W. Ferrier and Daniel Me. Gomez for respondent.
LAUREL, J.:
This is a petition for the issuance of a writ of certiorari to the Court of Appeals for the
purpose of reviewing its Amusement Company (formerly known as Teatro Arco), plaintiff-
appellant, vs. Gonzalo Puyat and Sons. Inc., defendant-appellee."
It appears that the respondent herein brought an action against the herein petitioner in
the Court of First Instance of Manila to secure a reimbursement of certain amounts
allegedly overpaid by it on account of the purchase price of sound reproducing
equipment and machinery ordered by the petitioner from the Starr Piano Company of
Richmond, Indiana, U.S.A. The facts of the case as found by the trial court and confirmed
by the appellate court, which are admitted by the respondent, are as follows:
In the year 1929, the "Teatro Arco", a corporation duly organized under the laws of the
Philippine Islands, with its office in Manila, was engaged in the business of operating
cinematographs. In 1930, its name was changed to Arco Amusement Company. C. S.
Salmon was the president, while A. B. Coulette was the business manager. About the
same time, Gonzalo Puyat & Sons, Inc., another corporation doing business in the
Philippine Islands, with office in Manila, in addition to its other business, was acting as
exclusive agents in the Philippines for the Starr Piano Company of Richmond, Indiana,
U.S. A. It would seem that this last company dealt in cinematographer equipment and
machinery, and the Arco Amusement Company desiring to equipt its cinematograph with
sound reproducing devices, approached Gonzalo Puyat & Sons, Inc., thru its then
president and acting manager, Gil Puyat, and an employee named Santos. After some
negotiations, it was agreed between the parties, that is to say, Salmon and Coulette on
one side, representing the plaintiff, and Gil Puyat on the other, representing the
defendant, that the latter would, on behalf of the plaintiff, order sound reproducing
equipment from the Starr Piano Company and that the plaintiff would pay the defendant,
in addition to the price of the equipment, a 10 per cent commission, plus all expenses,
such as, freight, insurance, banking charges, cables, etc. At the expense of the plaintiff,
the defendant sent a cable, Exhibit "3", to the Starr Piano Company, inquiring about the
equipment desired and making the said company to quote its price without discount. A
reply was received by Gonzalo Puyat & Sons, Inc., with the price, evidently the list price
of $1,700 f.o.b. factory Richmond, Indiana. The defendant did not show the plaintiff the
cable of inquiry nor the reply but merely informed the plaintiff of the price of $1,700.
Being agreeable to this price, the plaintiff, by means of Exhibit "1", which is a letter
signed by C. S. Salmon dated November 19, 1929, formally authorized the order. The
equipment arrived about the end of the year 1929, and upon delivery of the same to the
plaintiff and the presentation of necessary papers, the price of $1.700, plus the 10 per
cent commission agreed upon and plus all the expenses and charges, was duly paid by
the plaintiff to the defendant.
Sometime the following year, and after some negotiations between the same parties,
plaintiff and defendants, another order for sound reproducing equipment was placed by
the plaintiff with the defendant, on the same terms as the first order. This agreement or
order was confirmed by the plaintiff by its letter Exhibit "2", without date, that is to say,
that the plaintiff would pay for the equipment the amount of $1,600, which was supposed
to be the price quoted by the Starr Piano Company, plus 10 per cent commission, plus all
expenses incurred. The equipment under the second order arrived in due time, and the
defendant was duly paid the price of $1,600 with its 10 per cent commission, and $160,
for all expenses and charges. This amount of $160 does not represent actual out-of-
pocket expenses paid by the defendant, but a mere flat charge and rough estimate made
by the defendant equivalent to 10 per cent of the price of $1,600 of the equipment.
About three years later, in connection with a civil case in Vigan, filed by one Fidel Reyes
against the defendant herein Gonzalo Puyat & Sons, Inc., the officials of the Arco
Amusement Company discovered that the price quoted to them by the defendant with
regard to their two orders mentioned was not the net price but rather the list price, and
that the defendants had obtained a discount from the Starr Piano Company. Moreover,
by reading reviews and literature on prices of machinery and cinematograph equipment,
said officials of the plaintiff were convinced that the prices charged them by the
defendant were much too high including the charges for out-of-pocket expense. For
these reasons, they sought to obtain a reduction from the defendant or rather a
reimbursement, and failing in this they brought the present action.
The trial court held that the contract between the petitioner and the respondent was one
of outright purchase and sale, and absolved that petitioner from the complaint. The
appellate court, however, — by a division of four, with one justice dissenting — held that
the relation between petitioner and respondent was that of agent and principal, the
petitioner acting as agent of the respondent in the purchase of the equipment in question,
and sentenced the petitioner to pay the respondent alleged overpayments in the total
sum of $1,335.52 or P2,671.04, together with legal interest thereon from the date of the
filing of the complaint until said amount is fully paid, as well as to pay the costs of the suit
in both instances. The appellate court further argued that even if the contract between
the petitioner and the respondent was one of purchase and sale, the petitioner was guilty
of fraud in concealing the true price and hence would still be liable to reimburse the
respondent for the overpayments made by the latter.
The petitioner now claims that the following errors have been incurred by the appellate
court:
I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, segun hechos,
entre la recurrente y la recurrida existia una relacion implicita de mandataria a mandante
en la transaccion de que se trata, en vez de la de vendedora a compradora como ha
declarado el Juzgado de Primera Instncia de Manila, presidido entonces por el hoy
Magistrado Honorable Marcelino Montemayor.
II. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, suponiendo
que dicha relacion fuerra de vendedora a compradora, la recurrente obtuvo, mediante
dolo, el consentimiento de la recurrida en cuanto al precio de $1,700 y $1,600 de las
maquinarias y equipos en cuestion, y condenar a la recurrente ha obtenido de la Starr
Piano Company of Richmond, Indiana.
We sustain the theory of the trial court that the contract between the petitioner and the
respondent was one of purchase and sale, and not one of agency, for the reasons now to
be stated.
In the first place, the contract is the law between the parties and should include all the
things they are supposed to have been agreed upon. What does not appear on the face
of the contract should be regarded merely as "dealer's" or "trader's talk", which can not
bind either party. (Nolbrook v. Conner, 56 So., 576, 11 Am. Rep., 212; Bank v. Brosscell,
120 III., 161; Bank v. Palmer, 47 III., 92; Hosser v. Copper, 8 Allen, 334; Doles v. Merrill,
173 Mass., 411.) The letters, Exhibits 1 and 2, by which the respondent accepted the
prices of $1,700 and $1,600, respectively, for the sound reproducing equipment subject
of its contract with the petitioner, are clear in their terms and admit no other interpretation
that the respondent in question at the prices indicated which are fixed and determinate.
The respondent admitted in its complaint filed with the Court of First Instance of Manila
that the petitioner agreed to sell to it the first sound reproducing equipment and
machinery. The third paragraph of the respondent's cause of action states:
3. That on or about November 19, 1929, the herein plaintiff (respondent) and defendant
(petitioner) entered into an agreement, under and by virtue of which the herein defendant
was to secure from the United States, and sell and deliver to the herein plaintiff, certain
sound reproducing equipment and machinery, for which the said defendant, under and
by virtue of said agreement, was to receive the actual cost price plus ten per cent (10%),
and was also to be reimbursed for all out of pocket expenses in connection with the
purchase and delivery of such equipment, such as costs of telegrams, freight, and similar
expenses. (Emphasis ours.)
We agree with the trial judge that "whatever unforseen events might have taken place
unfavorable to the defendant (petitioner), such as change in prices, mistake in their
quotation, loss of the goods not covered by insurance or failure of the Starr Piano
Company to properly fill the orders as per specifications, the plaintiff (respondent) might
still legally hold the defendant (petitioner) to the prices fixed of $1,700 and $1,600." This
is incompatible with the pretended relation of agency between the petitioner and the
respondent, because in agency, the agent is exempted from all liability in the discharge
of his commission provided he acts in accordance with the instructions received from his
principal (section 254, Code of Commerce), and the principal must indemnify the agent
for all damages which the latter may incur in carrying out the agency without fault or
imprudence on his part (article 1729, Civil Code).
While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten per cent
(10%) commission, this does not necessarily make the petitioner an agent of the
respondent, as this provision is only an additional price which the respondent bound itself
to pay, and which stipulation is not incompatible with the contract of purchase and sale.
(See Quiroga vs. Parsons Hardware Co., 38 Phil., 501.)
In the second place, to hold the petitioner an agent of the respondent in the purchase of
equipment and machinery from the Starr Piano Company of Richmond, Indiana, is
incompatible with the admitted fact that the petitioner is the exclusive agent of the same
company in the Philippines. It is out of the ordinary for one to be the agent of both the
vendor and the purchaser. The facts and circumstances indicated do not point to
anything but plain ordinary transaction where the respondent enters into a contract of
purchase and sale with the petitioner, the latter as exclusive agent of the Starr Piano
Company in the United States.
It follows that the petitioner as vendor is not bound to reimburse the respondent as
vendee for any difference between the cost price and the sales price which represents
the profit realized by the vendor out of the transaction. This is the very essence of
commerce without which merchants or middleman would not exist.
The respondents contends that it merely agreed to pay the cost price as distinguished
from the list price, plus ten per cent (10%) commission and all out-of-pocket expenses
incurred by the petitioner. The distinction which the respondents seeks to draw between
the cost price and the list price we consider to be spacious. It is to be observed that the
twenty-five per cent (25%) discount granted by the Starr piano Company to the petitioner
is available only to the latter as the former's exclusive agent in the Philippines. The
respondent could not have secured this discount from the Starr Piano Company and
neither was the petitioner willing to waive that discount in favor of the respondent. As a
matter of fact, no reason is advanced by the respondent why the petitioner should waive
the 25 per cent discount granted it by the Starr Piano Company in exchange for the 10
percent commission offered by the respondent. Moreover, the petitioner was not duty
bound to reveal the private arrangement it had with the Starr Piano Company relative to
such discount to its prospective customers, and the respondent was not even aware of
such an arrangement. The respondent, therefore, could not have offered to pay a 10 per
cent commission to the petitioner provided it was given the benefit of the 25 per cent
discount enjoyed by the petitioner. It is well known that local dealers acting as agents of
foreign manufacturers, aside from obtaining a discount from the home office, sometimes
add to the list price when they resell to local purchasers. It was apparently to guard
against an exhorbitant additional price that the respondent sought to limit it to 10 per
cent, and the respondent is estopped from questioning that additional price. If the
respondent later on discovers itself at the short end of a bad bargain, it alone must bear
the blame, and it cannot rescind the contract, much less compel a reimbursement of the
excess price, on that ground alone. The respondent could not secure equipment and
machinery manufactured by the Starr Piano Company except from the petitioner alone; it
willingly paid the price quoted; it received the equipment and machinery as represented;
and that was the end of the matter as far as the respondent was concerned. The fact that
the petitioner obtained more or less profit than the respondent calculated before entering
into the contract or reducing the price agreed upon between the petitioner and the
respondent. Not every concealment is fraud; and short of fraud, it were better that, within
certain limits, business acumen permit of the loosening of the sleeves and of the
sharpening of the intellect of men and women in the business world.
The writ of certiorari should be, as it is hereby, granted. The decision of the appellate
court is accordingly reversed and the petitioner is absolved from the respondent's
complaint in G. R. No. 1023, entitled "Arco Amusement Company (formerly known as
Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat & Sons, Inc., defendants-appellee,"
without pronouncement regarding costs. So ordered.
Avanceña, C.J., Diaz, Moran and Horrilleno, JJ., concur.
 Oranges......................................................... $3.06
per
case 
G.R. No. L-2870             September 19, 1950

CHUA NGO, plaintiff-appellee, vs.UNIVERSAL TRADING CO., INC., defendant- Onions ........................................................... $1.83
appellant. per
case.
Manuel O. Chan and H.B. Arandia for appellant.Arsenio Sy Santos for appellee.

BENGZON, J.:
Chua Ngo delivered, in Manila, to the Universal Trading Company, Inc., a local
corporation, the price 300 boxes of Sunkist oranges to be gotten from the United States.
The latter ordered the said boxes from Gabuardi Company of San Francisco, and in due
course, the goods were shipped from that port to Manila "F. O. B. San Francisco." One
hundred eighty boxes were lost in transit, and were never delivered to Chua Ngo.
This suit by Chua Ngo is to recover the corresponding price he had paid in advance.
Universal Trading Company refused to pay, alleging it merely acted as agent of Chua
Ngo in purchasing the oranges. Chua Ngo maintains he bought the oranges from
Universal Trading Company, and, therefore, is entitled to the return of the price
corresponding to the undelivered fruit.
Deposit of 40% of the contract price plus the above charges to be payable immediately
upon receipt of telegraphic confirmation. Balance payable upon arrival of goods in
Manila. If balance is not paid within 48 hours of notification merchandise may be resold
by Universal Trading Co., Inc. and the deposit forfeited.
NOTE: —
Onions canceled by supplier.(Initialed) R. E. H.
Total amount of order .................................................................................. $3,936
Agreed and accepted:
(Sgd.) CHUA NGO

From a judgment for plaintiff, the defendant appealed. Confirmed and approved:

It appears that on January 14, 1946, the herein litigants signed the document Exhibit 1, (Sgd.) RALPH E. HOLMESSales manager
which reads as follows:
Universal Trading Company, Inc.(See terms of agreement on reverse side.)
UNIVERSAL TRADING COMPANY, INC. Far Eastern Division R-236-238 Ayala Building
Juan Luna, Manila
On the same date, the defendant forwarded and order to Gabuardi Company of San
Francisco, U. S. A., which in part says:
CONTRACT NO. 632 14 January 1946
ORDER NO. 707
Agreement is hereby made between Messrs. Chua Ngo of 753 Folgueras, Manila, and
the Universal Trading Company, Inc., Manila, for order as follows and under the following
terms: TO GABUARDI COMPANY OF CALIFORNIA258 Market Street San Francisco,
California

Quantity Merchandise and description Unit Unit price Amount300 Sunkist oranges,
wrappedGrade No. 1 .................... .......... ................ .................Navel, 220 to Please send for our account, subject to conditions on the back of this order, the following
case ............ Case $6.30 $1,890.00300 Onions, AustralianBrowns, 90 lbs. to case Case merchandise enumerated below:
$6.82 $2,046.00
Shipping instructionsVia San Francisco, California
We are advised by the supplier that the charges to bring these
Terms: F. O. B. San Francisco
goods to Manila are:
Quantity Articles Unit Unit price Total price300 Sunkist oranges wrappedGrade No
1 ............... ............ ..........Navel, 220 to case ...... Case $6.00 $1,800.00.
xxx     xxx     xxx
Approved:
Universal Trading Company, Inc. (Sgd.) RALPH R. HOLMESSales Manager
xxx     xxx     xxx
On January 16 and January 19, 1946, the Universal Trading Co., Inc., wrote Chua Ngo
two letters informing him that the contract for oranges (and onions) had been confirmed
by the supplier — i. e., could be fulfilled — and asking for deposit of 65% of the price and
certain additional charges.
On January 21, 1946, Chua Ngo deposited with the defendant, on
account of the Sunkist oranges, the amount of P3,650, and later
(March 9, 1946), delivered the additional sum of P2,822.43 to
complete the price, as follows:
300 cases of oranges at $9.36..................................
Bank charges ................................................................
Custom charges, etc. ..................................................
Delivery charges ..........................................................
3 ½ percent sales tax ...................................................
Less deposit R. No. 1062 ................
P2,822,43
=========
The 300 cases of oranges ordered by the defendant from Gabuardi Company were
loaded in good condition on board the S/S Silversandal in the port of San Francisco,
together with other oranges (totaling 6,380 cases) for other customers. They were all
marked "UTC Manila" and were consigned to defendant. The Silversandal arrived at the
port of Manila on March 7, 1946. And out of the 6,380 boxes of oranges, 607 cases were
short short landed for causes beyond defendant's control. Consequently, defendant failed
to deliver to Chua Ngo 180 cases of the 300 cases contracted for. The total cost of such
180 cases (received by defendant) is admittedly P3,882.60.
The above are the main facts according to the stipulation of the parties. Uncontradicted
additional evidence was introduced that the mark "UTC Manila" written on all the boxes
means "Universal Trading Company, Manila"; that the defendant paid in its own name to
Gabuardi Company the shipment of oranges, and made claims for the lost oranges to the
steamship company that insured the shipment company and the insurance company that
insured the shipment; and finally, that in the transaction between plaintiff and defendant,
the latter received no commission.
The crucial question is: Did Universal Trading Company merely agree to buy for and on
behalf of Chua Ngo the 300 boxes of oranges, or did it agree to sell — and sold — the
oranges to Chua Ngo? If the first, the judgment m ust be reversed; if the latter, it should
be affirmed.
P6,616.00
In our opinion, the circumstances of record sufficiently indicate a sale. First, no
commission was paid. Second, Exhibit 1 says that "if balance is not paid within 48 hours
196.56 of notification, merchandise may be resold by the Universal Trading Company and the
deposit forfeited." "Resold" implies the goods had been sold to Chua Ngo. And forfeiture
of the deposit is incompatible with a contract of agency. Third, immediately after
executing Exhibit 1 wherein oranges were quoted at $6.30 per box, Universal Trading
270.00 placed an order for purchase of the same with Gabuardi Company at $6 per box. If
Universal Trading Gabuardi Company was agent of Chua Ngo, it could not properly do
that. Inasmuch as good faith is to be presumed, we must hold that Universal Trading
acted thus because it was not acting as agent of Chua Ngo, but as independent
171.00 purchaser from Gabuardi Company. Fourth, the defendant charged the plaintiff the sum
of P218.87 for 3 ½ percent sales tax, thereby implying that their transaction was a sale.
Fifth, if the purchase of the oranges had been made on behalf of Chua Ngo, all claims for
losses thereof against the insurance company and against the shipping company should
    218.00 have been assigned to Chua Ngo. Instead, the defendant has been pressing such claims
for itself.
P6,253.56 In our opinion, the arrangement between the parties was this: Chua Ngo purchased from
Universal Trading Company, 300 boxes of oranges at $6.30 plus. In turn, the latter
purchased from Gabuardi Company at $6 plus, sufficient fruit to comply with its contract
with Chua Ngo.
  3,650.00
Unfortunately, however, part of the orange consignment from San Francisco was lost in
transit. Who is to suffer that loss? Naturally, whoever was the owner of the oranges at
the time of such loss. It could not be Chua Ngo because the fruit had not been delivered
to him. As between Gabuardi and the Universal Trading, inasmuch as the goods had
been sold "F. O. B. San Francisco", the loss must be borne by the latter, because under
the law, said goods had been delivered to the purchaser at San Francisco on board the
vessel Silversandal.1 That is why the Universal has been trying to recover the loss from
both the steamship company and the insurer.

Now, as Chua Ngo has paid for 300 boxes and has received 120 boxes only, the price of
180 boxes undelivered must be paid back to him.

It appears that whereas in the lower court defendant sustained the theory that it acted as
agent of plaintiff, in this Court the additional theory is advanced that it acted as agent of
Gabuardi Company. This obviously has no merit.

As to the contention that defendant incurred no liability because it is admitted that the
oranges were lost due to causes beyond the control of the defendant, and the oranges
were shipped "F. O. B. San Francisco, the answer is that such contention is based on the
assumption — which we reject — that defendant merely acted as agent of plaintiff in the
purchase of the oranges from Gabuardi.

In view of the foregoing, the appealed judgment for plaintiff in the sum of P3,882.60 is
affirmed with costs.

Moran, C.J., Ozaeta, Paras, Pablo, Tuason, Montemayor and Reyes, JJ., concur.

G.R. No. L-7144             May 31, 1955
FAR EASTERN EXPORT & IMPORT CO., petitioner, vs.LIM TECK SUAN, respondent.
Juan Nabong and Crisolito Pascual for petitioner.Jose P. Laurel, Marciano Almario and
Jose T. Lojom for respondent.
MONTEMAYOR, J.:
This is a petition for certiorari to review a decision of the Court of Appeals dated
September 25, 1953, reversing the decision of the Court of First Instance of Manila, and
sentencing the defendant-petitioner Far Eastern Export & Import Co. later referred to as
export company, to pay the plaintiff-respondent Lim Teck Suan later to be referred to as
Suan, the sum of P11,4476.60, with legal interest from the date of the filing of the
complaint and to pay the costs.
As to the facts and the issue in the case we are reproducing the findings of the Court of
Appeals, which findings are binding on this Tribunal in case of similar appeals:
Sometime in November, 1948, Ignacio Delizalde, an agent of the Far Eastern Export &
Import Company, went to the store of Lim Teck Suan situated at 267 San Vicente Street,
Manila, and offered to sell textile, showing samples thereof, and having arrived at an
agreement with Bernardo Lim, the General Manager of Lim Teck Suan, Delizalde
returned on November 17 with the buyer's order, Exhibit A, already prepared which
reads:
FAR EASTERN EXPORT & IMPORT COMPANY
75 Escolta 2nd Floor Brias Roxas Bldg., Manila
Ship to LIM TECK SUAN Date Written 11/17/48475 Nueva St., Manila Your No.Our No.
276
I hereby commission you to procure for me the following merchandise, subject to the
terms and conditions listed below:
======================================================
Quantity Unit Particulars Amount10,000 yds Ashtone Acetate & Rayon-No. 13472Width:
41/42 inches; Weight:Approximately 8 oz. per yd; Ten (10)colors, buyers choice, as per
attachedsamples, equally assorted; at $1.13per yard F.A.S. New York U. S. $11,500.00
Item herein sold are FOB-FAS X C. & FCIF
======================================================
TERMS AND CONDITIONS
Acceptance
This Buyer's Order is subject to confirmation by the exporter. Shipment
Period of Shipment is to be within December. Bank Documents should be for a line of 45
days to allow for presentation and payment against "ON BOARD" bills of lading. Partial
shipments permitted.
Payment
Payment will be by "Confirmed Irrevocable Letter of Credit" to be opened in favor of
Frenkel International Corporation, 52 Broadway, New York, 4, N. Y. for the full amount of
the above cost of merchandise plus (approximately) for export packing: insurance,
freight, documentation, forwarding, etc. which are for the buyers accounts,
IMMEDIATELY upon written Confirmation. Our Guarantee In case shipment is not
affected, seller agrees to reimburse buyer for all banking expenses. Confirmed Accepted
Signed Nov. 17, 1948
Authorized official
Confirmed
Accepted (Sgd.) Illegible Date Nov. 1948 to be signed by our representative upon
confirmation.
In accordance with said Exhibit A, plaintiff established a letter of credit No. 6390 (Exhibit
B) in favor of Frenkel International Corporation through the Hongkong and Shanghai
Bangking Corporation, attached to the agreed statement of facts. On February 11, 1949,
the textile arrived at Manila on board the vessel M. S. Arnold Maersk, covered by bill of
lading No. 125 (Exhibit C), Invoice No. 1684-M (Exhibit D) issued by Frenkel International
Corporation direct to the plaintiff. The plaintiff complained to the defendant of the inferior
quality of the textile received by him and had them examined by Marine Surveyor Del
Pan & Company. Said surveyor took swatches of the textile and had the same analyzed
by the Institute of Science (Exhibit E-1) and submitted a report or survey under date of
April 9, 1949 (Exhibit E). Upon instructions of the defendants plaintiff deposited the
goods with the United Warehouse Corporation (Exhibits H, H-1 to H-6. As per suggestion
of the Far Eastern Export and Import Company contained in its letter dated June 16,
1949, plaintiff withdrew from the United Bonded Warehouse, Port Area, Manila, the
fifteen cases of Ashtone Acetate and Rayon Suiting for the purpose of offering them for
sale which netted P11,907.30. Deducting this amount from the sum of P23,686.96 which
included the amount paid by plaintiff for said textile and the warehouse expenses, a
difference of P11,476.66 is left, representing the net direct loss.
The defense set up is that the Far Eastern Export and Import Company only acted as a
broker in this transaction; that after placing the order the defendants took no further
action and the cargo was taken directly by the buyer Lim Teck Suan, the shipment
having been made to him and all the documents were also handled by him directly
without any intervention on the part of the defendants; that upon receipt of Lim Teck
Suan's complaint the defendants passed it to its principal, Frenkel International
Corporation, for comment, and the latter maintained that the merchandise was up to
standard called for.
The lower court acquitted the defendants from the complaint asking for damages in the
sum of P19,500.00 representing the difference in price between the textile ordered and
those received, plus profits unrealized and the cost of this suit, and dismissed the
counterclaim filed by the defendants without pronouncement as to costs.
As already stated, the Court of Appeals reversed the judgment entered by the Court of
First Instance of Manila, basing its decision of reversal on the case of Jose Velasco, vs.
Universal Trading Co., Inc., 45 Off. Gaz. 4504 where the transaction therein involved was
found by the court to be one of purchase and sale and not of brokerage or agency. We
have carefully examined the Velasco case and we agree with the Court of Appeals that
the facts in that case are very similar to those in the present case. In the case of Velasco,
we have the following statement by the court itself which we reproduced below:
Prior to November 8, 1945 a salesman or agent of the Universal Trading Co., Inc.
informed Jose Velasco, Jr. that his company was in a position to accept and fill in orders
for Panamanian Agewood Bourbon Whisky because there were several thousand cases
of this article ready for shipment to the company by its principal office in America. Acting
upon this offer and representative Velasco went to the Universal Trading Co., Inc., and
after a conversation with the latter's official entered into an agreement couched in the
following terms:
"Agreement is hereby made between Messrs. Jose Velasco, Jr., 340 Echaque, Manila,
and the Universal Trading Company, Manila, for order as follows and under the following
terms:
Quantity Merchandise and Unit Unit AmountPriceDescription100 Panamanian Agewood
BourbonWhisky ..........................Case $17.00 $1,700_______Total amount of
order ........... $1,700
Terms of Agreement:
"1. That the Universal Trading Company agrees to order the above merchandise from
their Los Angeles Office at the price quoted above, C.I.F. Manila, for December
shipment;
"2. That Messrs. Jose Velasco, Jr., 340 Echaque, Manila, obligates myself/themselves to
take the above merchandise when advised of its arrival from the United States and to
pay in cash the full amount of the order in the Philippine Currency at the office of the
Universal Trading Company;
"3. This order may be subject to delay because of uncertain shipping conditions. War risk
insurance, transhipping charges, if any, port charges, and any storage that may be
incurred due to your not taking delivery of the order upon being notified by us that the
order is ready for delivery, and government taxes, are all for your account;
"4. The terms of this agreement will be either of the following:"a. To open up irrevocable
letter of credit for the value of the order with any of the local banks, or thru bills of lading
payable to A. J. Wilson Company, 1263 South North Avenue, Los Angeles, California;"b.
To put up a cash deposit equivalent to 50 % of the order;
"5. Reasonable substitute, whenever possible, will be shipped in lieu of items called for, if
order is not available."
Accordingly, Velasco deposited with the defendant the sum of $1,700 which is 50% of
the price of the whisky pursuant to agreement made, instead of 'to open up irrevocable
letter of credit for the value of the order with any of the local banks, or through bills of
lading payable to A. J. Wilson Company.' On November 6, 1945, the same date that the
contract or agreement, Exhibit A, was signed an invoice under the name of the Universal
Trading Co., Inc. was issued to Velasco for the 100 cases of Panamanian Agewood
Bourbon Whisky for the price of $1,700 which invoice manifested that the article was sold
to Jose Velasco, Jr. On January 15, 1946 another invoice was issued containing besides
the list price of $1,700 or P3,400, a statement of bank charges, customs duties, internal
revenue taxes, etc., giving a total amount of P5,690.10 which after deducting the deposit
of $1,700, gives a balance of P3,990.01.
On January 25, 1946 the Universal Trading Co., Inc. wrote Exhibit 4 to Mr. Velasco
advising him that the S. S. Manoeran had docked and that they would appreciate it if he
would pay the amount of P3,990.10 direct to them. It turned out, however, that after the
ship arrived, what the Universal Trading Co., Inc. tried to deliver to Velasco was not
Panamanian Agewood Bourbon Whisky but Panamanian Agewood Blended Whisky.
Velasco refused to receive the shipment and in turn filed action against the defendant for
the return of his deposit of $ 1,700 with interest. For its defense, defendant contends that
it merely acted as agent for Velasco and could not be held responsible for the
substitution of Blended Whisky for Bourbon Whisky and that furthermore the Blended
Whisky was a reasonable substitute for Bourbon. After due hearing the Court of First
Instance of Manila held that the transaction was purchase and sale and ordered the
defendant to refund to the plaintiff his deposit of P1,700 with legal interest from the date
of the filing of the suit with costs, which decision on appeal was affirmed by this Court.

We notice the following similarities. In the present case, the export company acted as
agent for Frenkel International Corporation, presumably the supplier of the textile sold. In
the Velasco case, the Universal Trading Co., was acting as agent for A. J. Wilson
Company, also the supplier of the whisky sold. In the present case, Suan according to
the first part of the agreement is said merely to be commissioning the Export Company to
procure for him the merchandise in question, just as in the other case, Velasco was
supposed to be ordering the whisky thru the Universal Trading Co. In the present case,
the price of the merchandise bought was paid for by Suan by means of an irrevocable
letter of credit opened in favor of the supplier, Frenkel International Corporation. In the
Velasco case, Velasco was given the choice of either opening a similar irrevocable letter
of credit in favor of the supplier A. J. Wilson Company or making a cash deposit. It is true
that in the Velasco case, upon the arrival of the whisky and because it did not conform to
specifications, Velasco refused to received it; but in the present case although Suan
received the merchandise he immediately protested its poor quality and it was deposited
in the warehouse and later withdrawn and sold for the best price possible, all at the
suggestion of the Export company. The present case is in our opinion a stronger one
than that of Velasco for holding the transaction as one of purchase and sale because as
may be noticed from the agreement (Exhibit "A"), the same speaks of the items
(merchandise) therein involved as sold, and the sale was even confirmed by the Export
company. In both cases, the agents Universal Trading Co. and the export company dealt
directly with the local merchants Velasco and Suan without expressly indicating or
revealing their principals. In both cases there was no privity of contract between the
buyers — Suan and Velasco and the suppliers Frenkel International Corporation and A.
J. Wilson Company, respectively. In both cases no commission or monetary
consideration was paid or agreed to be paid by the buyers to the Export company and
the Universal Trading Co., proof that there was no agency or brokerage, and that the
profit of the latter was undoubtedly the difference between the price listed to the buyers
and the net or special price quoted to the sellers, by the suppliers. As already stated, it
was held in the Velasco case that the transaction therein entered into was one of
purchase and sale, and for the same reasons given there, we agreed with the Court of
Appeals that the transaction entered into here is one of purchase and sale.

As was held by this Tribunal in the case of Gonzalo Puyat & Sons Incorporated vs. Arco
Amusement, 72 Phil., 402, where a foreign company has an agent here selling its goods
and merchandise, that same agent could not very well act as agent for local buyers,
because the interests of his foreign principal and those of the buyer would be in direct
conflict. He could not serve two masters at the same time. In the present case, the
Export company being an agent of the Frenkel International Corporation could not, as it
claims, have acted as an agent or broker for Suan.

Finding no reversible error in the decision appealed from, the same is hereby affirmed,
with costs.

Pablo, Bengzon, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes, J. B. L.,
JJ., concur.

G.R. No. L-10517             June 28, 1957
PEARL ISLAND COMMERCIAL CORPORATION, plaintiff-appellee, vs.LIM TAN TONG
and MANILA SURETY & FIDELITY CO., INC., defendants-appellants.
Diaz and Baizas for appellee.De Santos and Herrera for appellant Manila Surety &
Fidelity Co., Inc.
MONTEMAYOR, J.:
In June, 1951, plaintiff Pearl Island Commercial Corporation, engaged in the manufacture
of floor wax under the name of "Bee Wax", in the City of Manila, entered into a contract,
Exhibit A, with defendant Lim Tan Tong, wherein the latter, designated as sole distributor
of said article in the provinces of Samar, Leyte Cebu Bohol and Negros Oriental and all
the provinces in the island of Mindanao, was going to buy the said floor wax for resale in
the territory above-mentioned. The plaintiff undertook not to appoint any other distributor
within the said territory; to sell to defendant Tong at factory price in Manila, F. O. B.
Manila; that Tong could sell the article in his territory at any price he saw that fit; that
payment for any floor wax purchased shall he delivered to plaintiff within sixty days from
the date of shipment; that (this is important) Tong was to furnish surety bond to cover all
shipments of the floor wax that are damaged or unmerchantable, at its expense; and that
in case of loss due to fortuitous event or force majeure, the plaintiff was to shoulder the
loss, provided the goods were still in transit.
On the same day said contract were executed on June 16, 1951, defendant Manila
Surety & Fidelity Co., Inc., with Tong as principal, filed the surety bond (Exhibit B),
binding itself unto the plaintiff in the sum of P5,000, by reason of the appointment of
Tong as exclusive agent for plaintiff for the Visayas-Mindanao provinces, the bond being
conditioned on the faithful performance of Tong's duties, in accordance with the
agreement. It would appear that for its security, the Surety Company had Ko Su Kuan
and Marciano Du execute in its favor an indemnity agreement that they would indemnify
said surety company in whatever amount it may pay to the plaintiff by reason of the bond
filed by it.
On June 18, 1951, plaintiff shipped 299 cases of Bee Wax, valued at P7,107, to Tong,
duly received by the latter. Tong failed to remit the value within sixty days, and despite
the demand made by plaintiff on him to send that amount, he sent only P770, leaving a
balance of P6,337, which he admits to be still with him, but which he refuses to remit to
the plaintiff, claiming that the latter owed him a larger amount. To enforce payment of the
balance of P6,337, plaintiff filed this present action not only against Tong, but also
against the Surety Company, to recover from the latter the amount of its bond of P5,000.
The Surety Company in its answer filed a cross-claim against Tong, and with the trial
courts permission, filed a third-party complaint against Ko Su Kuan and Marciano Du
who, as already stated, had executed an indemnity agreement in its favor. After trial, the
lower court, presided by Judge Hermogenes Concepcion, rendered judgment, the
dispositive part of which reads as follows:
IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the plaintiff
and against the defendants as follows:
(a) The Court orders the defendants Lim Tan Tong and the Manila Surety & Fidelity Co.,
Inc., to pay jointly and severally the plaintiff Pearl Island Commercial Corporation the
sum of P5,000.00 plus legal interest from the date of the filing of this complaint, until it is
fully paid;
(b) the Court orders the defendant Lim Tan Tong to pay to the plaintiff the sum of
P1,337.00 with legal rate of interest from the date of the filing of this complaint until said
amount is fully paid;
(c) The two defendants shall pay jointly and severally another amount of P500 to the
plaintiff as attorney's fees, plus the costs of this suit;
(d) The Court orders the cross-defendant Lim Tan Tong and the third-party defendants
Ko Su Kuan and Marciano Du to pay jointly and severally to the Manila Surety & Fidelity
Co., Inc., the sum of P5,000 with legal rate of interest from the date of the filing of this
complaint until fully paid, plus P500 as attorney's fees, plus the costs of this suit.
The Surety company is appealing said decision. The appeal originally taken to the Court
of Appeals was later certified to us as involving only questions of law.
Appellant assigns the following errors:
I. The trial court erred in holding that the contract between the Pearl Island Commercial
Corporation and Lim Tan tong was one of agency so that breach thereof would come
within the terms of the surety bond posted by appellant therein.
II. The trial court erred in ordering the defendant-appellant herein to pay attorney's fees
and other charges stated in the judgement.

It is appellant's contention that it cannot be held liable on its bond for the reason that the
latter was filed on the theory that the contract between the plaintiff and Tong was one of
agency as a result of which, said surety Company guaranteed the faithful performance of
tong as agent, but that it turned out that said contract was one of purchase and sale,
shown by the very title of said contract (Exhibit A), namely, "Contract of Purchase and
Sale", and appellant never undertook to guaranty the faithful performance of Tong as a
purchaser. However, a careful examination of the said contract shows that appellant is
only partly right, for the reason that the terms of the said contract, while providing for sale
of Bee Wax from the plaintiff to Tong and purchase of the same by Tong from the
plaintiff, also designates Tong as the sole distributor of the article within a certain
territory. Besides, paragraph 4 of the contract entitled "Security", provides that tong was
to furnish surety bond to cover all shipments made by the plaintiff to him. Furthermore,
appellant must have understood the contract to one, at least partly, of agency because
the bond itself (Exhibit B) says the following:

WHEREAS, the above bounden principal has been appointed as exclusive agent for
Pearl Islands Commercial Corporation of Manila, Philippines, for the Visayas-Mindanao
Provinces; . . .

Under the circumstances, we are afraid that the Surety Company is not now in a position
to deny its liability for the shipment of the 299 cases of Bee Wax duly received by Tong
and his failure to pay its value of P7,107, minus P770 or a balance of P6,337, of course,
up to the limit of P5,000, the amount of the bond. True, the contract (Exhibit A) is not
entirely clear. It is in some respects, even confusing. While it speaks of sale of Bee Wax
to Tong and his responsibility for the payment of the value of every shipment so
purchased, at the same time it appoints him sole distributor within a certain area, the
plaintiff undertaking not to appoint any other agent or distributor within the same area.
Anyway, it seems to have been the sole concern and interest of the plaintiff to be sure
that it was paid the value of all shipments of Bee Wax to Tong and the Surety Company
by its bond, in the final analysis said payment by Tong, either as purchaser or as agent.
Whether the article was purchased by Tong or whether it was consigned to him as agent
to be sold within his area, the fact is that Tong admits said shipment, admits its value,
admits keeping the same (P7,107 minus the P770 he had paid on account), but that he is
retaining it for reasons of his own, namely, that plaintiff allegedly owes him a larger
amount. Moreover, the Surety Company is adequately protected, especially by the
judgment because by its express terms, appellant can recover from Ko Su Kuan and
Marciano Du whatever amounts, including attorney's fees it may pay to plaintiff, and said
two persons evidently have not appealed from the decision.

In view of the foregoing, the decision appealed from is hereby affirmed, with costs.

G.R. No. L-34338 November 21, 1984
LOURDES VALERIO LIM, petitioner, vs.PEOPLE OF THE PHILIPPINES, respondent.
RELOVA, J.:
Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced
"to suffer an imprisonment of four (4) months and one (1) day as minimum to two (2)
years and four (4) months as maximum, to indemnify the offended party in the amount of
P559.50, with subsidize imprisonment in case of insolvency, and to pay the costs." (p.
14, Rollo)
From this judgment, appeal was taken to the then Court of Appeals which affirmed the
decision of the lower court but modified the penalty imposed by sentencing her "to suffer
an indeterminate penalty of one (1) month and one (1) day of arresto mayor as minimum
to one (1) year and one (1) day of prision correccional as maximum, to indemnify the
complainant in the amount of P550.50 without subsidiary imprisonment, and to pay the
costs of suit." (p. 24, Rollo)
The question involved in this case is whether the receipt, Exhibit "A", is a contract of
agency to sell or a contract of sale of the subject tobacco between petitioner and the
complainant, Maria de Guzman Vda. de Ayroso, thereby precluding criminal liability of
petitioner for the crime charged.
The findings of facts of the appellate court are as follows:
... The appellant is a businesswoman. On January 10, 1966, the appellant went to the
house of Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the
proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The
appellant was to receive the overprice for which she could sell the tobacco. This
agreement was made in the presence of plaintiff's sister, Salud G. Bantug. Salvador
Bantug drew the document, Exh. A, dated January 10, 1966, which reads:
To Whom It May Concern:
This is to certify that I have received from Mrs. Maria de Guzman Vda. de Ayroso. of
Gapan, Nueva Ecija, six hundred fifteen kilos of leaf tobacco to be sold at Pl.30 per kilo.
The proceed in the amount of Seven Hundred Ninety Nine Pesos and 50/100 (P 799.50)
will be given to her as soon as it was sold.
This was signed by the appellant and witnessed by the complainant's sister, Salud
Bantug, and the latter's maid, Genoveva Ruiz. The appellant at that time was bringing a
jeep, and the tobacco was loaded in the jeep and brought by the appellant. Of the total
value of P799.50, the appellant had paid to Ayroso only P240.00, and this was paid on
three different times. Demands for the payment of the balance of the value of the tobacco
were made upon the appellant by Ayroso, and particularly by her sister, Salud Bantug.
Salud Bantug further testified that she had gone to the house of the appellant several
times, but the appellant often eluded her; and that the "camarin" the appellant was
empty. Although the appellant denied that demands for payment were made upon her, it
is a fact that on October 19, 1966, she wrote a letter to Salud Bantug which reads as
follows:
Dear Salud,
Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte pa ang nasisingil
kong pera, magintay ka hanggang dito sa linggo ito at tiak na ako ay magdadala sa iyo.
Gosto ko Salud ay makapagbigay man lang ako ng marami para hindi masiadong
kahiyahiya sa iyo. Ngayon kung gosto mo ay kahit konte muna ay bibigyan kita. Pupunta
lang kami ni Mina sa Maynila ngayon. Salud kung talagang kailangan mo ay bukas ay
dadalhan kita ng pera.
Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang mga suki
ko ng puesto. Huwag kang mabahala at tiyak na babayaran kita.
Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).
Ludy
Pursuant to this letter, the appellant sent a money order for P100.00 on October 24,
1967, Exh. 4, and another for P50.00 on March 8, 1967; and she paid P90.00 on April
18, 1967 as evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of P240.00.
As no further amount was paid, the complainant filed a complaint against the appellant
for estafa. (pp. 14, 15, 16, Rollo)
In this petition for review by certiorari, Lourdes Valerio Lim poses the following questions
of law, to wit:

1. Whether or not the Honorable Court of Appeals was legally right in holding that the
foregoing document (Exhibit "A") "fixed a period" and "the obligation was therefore,
immediately demandable as soon as the tobacco was sold" (Decision, p. 6) as against
the theory of the petitioner that the obligation does not fix a period, but from its nature
and the circumstances it can be inferred that a period was intended in which case the
only action that can be maintained is a petition to ask the court to fix the duration thereof;

2. Whether or not the Honorable Court of Appeals was legally right in holding that "Art.
1197 of the New Civil Code does not apply" as against the alternative theory of the
petitioner that the fore. going receipt (Exhibit "A") gives rise to an obligation wherein the
duration of the period depends upon the will of the debtor in which case the only action
that can be maintained is a petition to ask the court to fix the duration of the period; and

3. Whether or not the honorable Court of Appeals was legally right in holding that the
foregoing receipt is a contract of agency to sell as against the theory of the petitioner that
it is a contract of sale. (pp. 3-4, Rollo)

It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco
should be turned over to the complainant as soon as the same was sold, or, that the
obligation was immediately demandable as soon as the tobacco was disposed of. Hence,
Article 1197 of the New Civil Code, which provides that the courts may fix the duration of
the obligation if it does not fix a period, does not apply.

Anent the argument that petitioner was not an agent because Exhibit "A" does not say
that she would be paid the commission if the goods were sold, the Court of Appeals
correctly resolved the matter as follows:

... Aside from the fact that Maria Ayroso testified that the appellant asked her to be her
agent in selling Ayroso's tobacco, the appellant herself admitted that there was an
agreement that upon the sale of the tobacco she would be given something. The
appellant is a businesswoman, and it is unbelievable that she would go to the extent of
going to Ayroso's house and take the tobacco with a jeep which she had brought if she
did not intend to make a profit out of the transaction. Certainly, if she was doing a favor to
Maria Ayroso and it was Ayroso who had requested her to sell her tobacco, it would not
have been the appellant who would have gone to the house of Ayroso, but it would have
been Ayroso who would have gone to the house of the appellant and deliver the tobacco
to the appellant. (p. 19, Rollo)

The fact that appellant received the tobacco to be sold at P1.30 per kilo and the
proceeds to be given to complainant as soon as it was sold, strongly negates transfer of
ownership of the goods to the petitioner. The agreement (Exhibit "A') constituted her as
an agent with the obligation to return the tobacco if the same was not sold.

ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit. With
costs.

SO ORDERED.

VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS
and CONSOLIDATED SUGAR CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the decision of the Court of Appeals dated February 24,
1994, in CA-G.R. CV No. 31717, as well as the respondent court's
resolution of September 30, 1994 modifying said decision. Both decision
and resolution amended the judgment dated February 13, 1991, of the
Regional Trial Court of Makati City, Branch 147, in Civil Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as
follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from
petitioner Victorias Milling Co., Inc., (VMC). In the course of their dealings,
petitioner issued several Shipping List/Delivery Receipts (SLDRs) to STM as
proof of purchases. Among these was SLDR No. 1214M, which gave rise to
the instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000
bags of sugar. Each bag contained 50 kilograms and priced at P638.00 per
bag as "per sales order VMC Marketing No. 042 dated October 16, 1989."[1]
The transaction it covered was a "direct sale."[2] The SLDR also contains an
additional note which reads: "subject for (sic) availability of a (sic) stock at
NAWACO (warehouse)."[3]
On October 25, 1989, STM sold to private respondent Consolidated Sugar
Corporation (CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC
issued one check dated October 25, 1989 and three checks postdated
November 13, 1989 in payment. That same day, CSC wrote petitioner that it
had been authorized by STM to withdraw the sugar covered by SLDR No.
1214M. Enclosed in the letter were a copy of SLDR No. 1214M and a letter
of authority from STM authorizing CSC "to withdraw for and in our behalf the
refined sugar covered by Shipping List/Delivery Receipt-Refined Sugar
(SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,000
bags."[4]
On October 27, 1989, STM issued 16 checks in the total amount of
P31,900,000.00 with petitioner as payee. The latter, in turn, issued Official
Receipt No. 33743 dated October 27, 1989 acknowledging receipt of the
said checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said
checks also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner's
NAWACO warehouse and was allowed to withdraw sugar. However, after
2,000 bags had been released, petitioner refused to allow further
withdrawals of sugar against SLDR No. 1214M. CSC then sent petitioner a
letter dated January 23, 1990 informing it that SLDR No. 1214M had been
"sold and endorsed" to it but that it had been refused further withdrawals of
sugar from petitioner's warehouse despite the fact that only 2,000 bags had
been withdrawn.[5] CSC thus inquired when it would be allowed to withdraw
the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any further
withdrawals of sugar against SLDR No. 1214M because STM had already
dwithdrawn all the sugar covered by the cleared checks.[6]
On March 2, 1990, CSC sent petitioner a letter demanding the release of the
balance of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to the
amount of STM's cleared checks had been fully withdrawn and hence, there
would be no more deliveries of the commodity to STM's account. Petitioner
also noted that CSC had represented itself to be STM's agent as it had
withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of
STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed
as Civil Case No. 90-1118. Defendants were Teresita Ng Sy (doing
business under the name of St. Therese Merchandising) and herein
petitioner. Since the former could not be served with summons, the case
proceeded only against the latter. During the trial, it was discovered that
Teresita Ng Go who testified for CSC was the same Teresita Ng Sy who
could not be reached through summons.[7] CSC, however, did not bother to
pursue its case against her, but instead used her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar
covered by SLDR No. 1214M. Therefore, the latter had no justification for
refusing delivery of the sugar. CSC prayed that petitioner be ordered to
deliver the 23,000 bags covered by SLDR No. 1214M and sought the award
of P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary
damages, P2,200,000.00 as attorney's fees and litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the
23,000 bags.[8] Since STM had already drawn in full all the sugar
corresponding to the amount of its cleared checks, it could no longer
authorize further delivery of sugar to CSC. Petitioner also contended that it
had no privity of contract with CSC.
Petitioner explained that the SLDRs, which it had issued, were not
documents of title, but mere delivery receipts issued pursuant to a series of
transactions entered into between it and STM. The SLDRs prescribed
delivery of the sugar to the party specified therein and did not authorize the
transfer of said party's rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually
STM's co-conspirator to defraud it through a misrepresentation that CSC
was an innocent purchaser for value and in good faith. Petitioner then
prayed that CSC be ordered to pay it the following sums: P10,000,000.00 as
moral damages; P10,000,000.00 as exemplary damages; and
P1,500,000.00 as attorney's fees. Petitioner also prayed that cross-
defendant STM be ordered to pay it P10,000,000.00 in exemplary damages,
and P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the case
on the merits.
As earlier stated, the trial court rendered its judgment favoring private
respondent CSC, as follows:
"WHEREFORE, in view of the foregoing, the Court hereby
renders judgment in favor of the plaintiff and against defendant
Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to deliver to
the plaintiff 23,000 bags of refined sugar due under SLDR No.
1214;
"2) Ordering defendant Victorias Milling Company to pay the
amount of P920,000.00 as unrealized profits, the amount of
P800,000.00 as exemplary damages and the amount of
P1,357,000.00, which is 10% of the acquisition value of the
undelivered bags of refined sugar in the amount of
P13,570,000.00, as attorney's fees, plus the costs.
"SO ORDERED."[9]
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she
had fully paid the purchase price of P15,950,000.00 of the
25,000 bags of sugar bought by her covered by SLDR No.
1214 as well as the purchase price of P15,950,000.00 for the
25,000 bags of sugar bought by her covered by SLDR No.
1213 on the same date, October 16, 1989 (date of the two
SLDRs) is duly supported by Exhibits C to C-15 inclusive which
are post-dated checks dated October 27, 1989 issued by St.
Therese Merchandising in favor of Victorias Milling Company at
the time it purchased the 50,000 bags of sugar covered by
SLDR No. 1213 and 1214. Said checks appear to have been
honored and duly credited to the account of Victorias Milling
Company because on October 27, 1989 Victorias Milling
Company issued official receipt no. 34734 in favor of St.
Therese Merchandising for the amount of P31,900,000.00
(Exhibits B and B-1). The testimony of Teresita Ng Go is further
supported by Exhibit F, which is a computer printout of
defendant Victorias Milling Company showing the quantity and
value of the purchases made by St. Therese Merchandising,
the SLDR no. issued to cover the purchase, the official reciept
no. and the status of payment. It is clear in Exhibit 'F' that with
respect to the sugar covered by SLDR No. 1214 the same has
been fully paid as indicated by the word 'cleared' appearing
under the column of 'status of payment.'
"On the other hand, the claim of defendant Victorias Milling
Company that the purchase price of the 25,000 bags of sugar
purchased by St. Therese Merchandising covered by SLDR No.
1214 has not been fully paid is supported only by the testimony
of Arnulfo Caintic, witness for defendant Victorias Milling
Company. The Court notes that the testimony of Arnulfo Caintic
is merely a sweeping barren assertion that the purchase price
has not been fully paid and is not corroborated by any positive
evidence. There is an insinuation by Arnulfo Caintic in his
testimony that the postdated checks issued by the buyer in
payment of the purchased price were dishonored. However,
said witness failed to present in Court any dishonored check or
any replacement check. Said witness likewise failed to present
any bank record showing that the checks issued by the buyer,
Teresita Ng Go, in payment of the purchase price of the sugar
covered by SLDR No. 1214 were dishonored."[10]
Petitioner appealed the trial court’s decision to the Court of Appeals.
On appeal, petitioner averred that the dealings between it and STM were
part of a series of transactions involving only one account or one general
contract of sale. Pursuant to this contract, STM or any of its authorized
agents could withdraw bags of sugar only against cleared checks of STM.
SLDR No. 21214M was only one of 22 SLDRs issued to STM and since the
latter had already withdrawn its full quota of sugar under the said SLDR,
CSC was already precluded from seeking delivery of the 23,000 bags of
sugar.
Private respondent CSC countered that the sugar purchases involving
SLDR No. 1214M were separate and independent transactions and that the
details of the series of purchases were contained in a single statement with
a consolidated summary of cleared check payments and sugar stock
withdrawals because this a more convenient system than issuing separate
statements for each purchase.
The appellate court considered the following issues: (a) Whether or not the
transaction between petitioner and STM involving SLDR No. 1214M was a
separate, independent, and single transaction; (b) Whether or not CSC had
the capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not
CSC as buyer from STM of the rights to 25,000 bags of sugar covered by
SLDR No. 1214M could compel petitioner to deliver 23,000 bags allegedly
unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its decision modifying
the trial court's judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed
judgment and orders defendant-appellant to:
"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by
SLDR No. 1214M;
" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the
value of the undelivered bags of refined sugar, as attorneys
fees;
"3) Pay the costs of suit.
"SO ORDERED."[11]
Both parties then seasonably filed separate motions for reconsideration.
In its resolution dated September 30, 1994, the appellate court modified its
decision to read:
"WHEREFORE, the Court hereby modifies the assailed
judgment and orders defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar
under SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."[12]
The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.
"Exhibit ‘F' We relied upon in fixing the number of bags of sugar
which remained undelivered as 12,586 cannot be made the
basis for such a finding. The rule is explicit that courts should
consider the evidence only for the purpose for which it was
offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale
for this is to afford the party against whom the evidence is
presented to object thereto if he deems it necessary. Plaintiff-
appellee is, therefore, correct in its argument that Exhibit ‘F'
which was offered to prove that checks in the total amount of
P15,950,000.00 had been cleared. (Formal Offer of Evidence
for Plaintiff, Records p. 58) cannot be used to prove the
proposition that 12,586 bags of sugar remained undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10
October 1990, p. 33] and Marianito L. Santos [TSN, 17 October
1990, pp. 16, 18, and 36]) presented by plaintiff-appellee was
to the effect that it had withdrawn only 2,000 bags of sugar from
SLDR after which it was not allowed to withdraw anymore.
Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80)
show that plaintiff-appellee had sent demand letters to
defendant-appellant asking the latter to allow it to withdraw the
remaining 23,000 bags of sugar from SLDR 1214M. Defendant-
appellant, on the other hand, alleged that sugar delivery to the
STM corresponded only to the value of cleared checks; and
that all sugar corresponded to cleared checks had been
withdrawn. Defendant-appellant did not rebut plaintiff-appellee's
assertions. It did not present evidence to show how many bags
of sugar had been withdrawn against SLDR No. 1214M,
precisely because of its theory that all sales in question were a
series of one single transaction and withdrawal of sugar
depended on the clearing of checks paid therefor.
 "After a second look at the evidence, We see no reason to
overturn the findings of the trial court on this point."[13]
Hence, the instant petition, positing the following errors as grounds for
review:
"1. The Court of Appeals erred in not holding that STM's and
private respondent's specially informing petitioner that
respondent was authorized by buyer STM to withdraw sugar
against SLDR No. 1214M "for and in our (STM) behalf,"
(emphasis in the original) private respondent's withdrawing
2,000 bags of sugar for STM, and STM's empowering other
persons as its agents to withdraw sugar against the same
SLDR No. 1214M, rendered respondent like the other persons,
an agent of STM as held in Rallos v. Felix Go Chan & Realty
Corp., 81 SCRA 252, and precluded it from subsequently
claiming and proving being an assignee of SLDR No. 1214M
and from suing by itself for its enforcement because it was
conclusively presumed to be an agent (Sec. 2, Rule 131, Rules
of Court) and estopped from doing so. (Art. 1431, Civil Code).
" 2. The Court of Appeals erred in manifestly and arbitrarily
ignoring and disregarding certain relevant and undisputed facts
which, had they been considered, would have shown that
petitioner was not liable, except for 69 bags of sugar, and which
would justify review of its conclusion of facts by this Honorable
Court.
availability at the Nawaco warehouse, made the sale
conditional and prevented STM or private respondent from
acquiring title to the sugar; and the non-availability of sugar
freed petitioner from further obligation.
"6. The Court of Appeals erred in not holding that the "clean
hands" doctrine precluded respondent from seeking judicial
reliefs (sic) from petitioner, its only remedy being against its
assignor."[14]
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling
that CSC was an agent of STM and hence, estopped to sue
upon SLDR No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals erred in applying the
law on compensation to the transaction under SLDR No.
1214M so as to preclude petitioner from offsetting its credits on
the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling
that the sale of sugar under SLDR No. 1214M was a
conditional sale or a contract to sell and hence freed petitioner
from further obligations.

(4)....Whether or not the Court of Appeals committed an error of

" 3. The Court of Appeals misapplied the law on compensation law in not applying the "clean hands doctrine" to preclude CSC
under Arts. 1279, 1285 and 1626 of the Civil Code when it ruled from seeking judicial relief.
that compensation applied only to credits from one SLDR or
contract and not to those from two or more distinct contracts
between the same parties; and erred in denying petitioner's The issues will be discussed in seriatim.
right to setoff all its credits arising prior to notice of assignment
from other sales or SLDRs against private respondent's claim
Anent the first issue, we find from the records that petitioner raised this issue
as assignee under SLDR No. 1214M, so as to extinguish or
for the first time on appeal. It is settled that an issue which was not raised
reduce its liability to 69 bags, because the law on
during the trial in the court below could not be raised for the first time on
compensation applies precisely to two or more distinct
appeal as to do so would be offensive to the basic rules of fair play, justice,
contracts between the same parties (emphasis in the original).
and due process.[15] Nonetheless, the Court of Appeals opted to address
this issue, hence, now a matter for our consideration.
"4. The Court of Appeals erred in concluding that the settlement
or liquidation of accounts in Exh. ‘F’ between petitioner and
Petitioner heavily relies upon STM's letter of authority allowing CSC to
STM, respondent's admission of its balance, and STM's
withdraw sugar against SLDR No. 1214M to show that the latter was STM's
acquiescence thereto by silence for almost one year did not
agent. The pertinent portion of said letter reads:
render Exh. `F' an account stated and its balance binding.

"This is to authorize Consolidated Sugar Corporation or its

"5. The Court of Appeals erred in not holding that the conditions
representative to withdraw for and in our behalf (stress
of the assigned SLDR No. 1214, namely, (a) its subject matter
supplied) the refined sugar covered by Shipping List/Delivery
being generic, and (b) the sale of sugar being subject to its
Receipt = Refined Sugar (SDR) No. 1214 dated October 16,
 1989 in the total quantity of 25, 000 bags."[16]
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency a 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."
It is clear from Article 1868 that the basis of agency is representation.[17]
On the part of the principal, there must be an actual intention to appoint[18]
or an intention naturally inferable from his words or actions;[19] and on the
part of the agent, there must be an intention to accept the appointment and
act on it,[20] and in the absence of such intent, there is generally no agency.
[21] One factor which most clearly distinguishes agency from other legal
concepts is control; one person - the agent - agrees to act under the control
or direction of another - the principal. Indeed, the very word "agency" has
come to connote control by the principal.[22] The control factor, more than
any other, has caused the courts to put contracts between principal and
agent in a separate category.[23] The Court of Appeals, in finding that CSC,
was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is
dependent upon the acts of the parties, the law makes no
presumption of agency, and it is always a fact to be proved,
with the burden of proof resting upon the persons alleging the
agency, to show not only the fact of its existence, but also its
nature and extent (Antonio vs. Enriquez [CA], 51 O.G. 3536].
Here, defendant-appellant failed to sufficiently establish the
existence of an agency relation between plaintiff-appellee and
STM. The fact alone that it (STM) had authorized withdrawal of
sugar by plaintiff-appellee "for and in our (STM's) behalf"
should not be eyed as pointing to the existence of an agency
relation ...It should be viewed in the context of all the
circumstances obtaining. Although it would seem STM
represented plaintiff-appellee as being its agent by the use of
the phrase "for and in our (STM's) behalf" the matter was
cleared when on 23 January 1990, plaintiff-appellee informed
defendant-appellant that SLDFR No. 1214M had been "sold
and endorsed" to it by STM (Exhibit I, Records, p. 78). Further,
plaintiff-appellee has shown that the 25, 000 bags of sugar
covered by the SLDR No. 1214M were sold and transferred by
STM to it ...A conclusion that there was a valid sale and
transfer to plaintiff-appellee may, therefore, be made thus
capacitating plaintiff-appellee to sue in its own name, without
need of joining its imputed principal STM as co-plaintiff."[24]
In the instant case, it appears plain to us that private respondent CSC was a
buyer of the SLDFR form, and not an agent of STM. Private respondent
CSC was not subject to STM's control. The question of whether a contract is
one of sale or agency depends on the intention of the parties as gathered
from the whole scope and effect of the language employed.[25] That the
authorization given to CSC contained the phrase "for and in our (STM's)
behalf" did not establish an agency. Ultimately, what is decisive is the
intention of the parties.[26] That no agency was meant to be established by
the CSC and STM is clearly shown by CSC's communication to petitioner
that SLDR No. 1214M had been "sold and endorsed" to it.[27] The use of
the words "sold and endorsed" means that STM and CSC intended a
contract of sale, and not an agency. Hence, on this score, no error was
committed by the respondent appellate court when it held that CSC was not
STM's agent and could independently sue petitioner.
On the second issue, proceeding from the theory that the transactions
entered into between petitioner and STM are but serial parts of one account,
petitioner insists that its debt has been offset by its claim for STM's unpaid
purchases, pursuant to Article 1279 of the Civil Code.[28] However, the trial
court found, and the Court of Appeals concurred, that the purchase of sugar
covered by SLDR No. 1214M was a separate and independent transaction;
it was not a serial part of a single transaction or of one account contrary to
petitioner's insistence. Evidence on record shows, without being rebutted,
that petitioner had been paid for the sugar purchased under SLDR No.
1214M. Petitioner clearly had the obligation to deliver said commodity to
STM or its assignee. Since said sugar had been fully paid for, petitioner and
CSC, as assignee of STM, were not mutually creditors and debtors of each
other. No reversible error could thereby be imputed to respondent appellate
court when, it refused to apply Article 1279 of the Civil Code to the present
case.
Regarding the third issue, petitioner contends that the sale of sugar under
SLDR No. 1214M is a conditional sale or a contract to sell, with title to the
sugar still remaining with the vendor. Noteworthy, SLDR No. 1214M
contains the following terms and conditions:
"It is understood and agreed that by payment by buyer/trader of
refined sugar and/or receipt of this document by the
buyer/trader personally or through a representative, title to
refined sugar is transferred to buyer/trader and delivery to
him/it is deemed effected and completed (stress supplied) and
buyer/trader assumes full responsibility therefore…"[29]
The aforequoted terms and conditions clearly show that petitioner
transferred title to the sugar to the buyer or his assignee upon payment of
the purchase price. Said terms clearly establish a contract of sale, not a
contract to sell. Petitioner is now estopped from alleging the contrary. The
contract is the law between the contracting parties.[30] And where the terms
and conditions so stipulated are not contrary to law, morals, good customs,
public policy or public order, the contract is valid and must be upheld.[31]
Having transferred title to the sugar in question, petitioner is now obliged to
deliver it to the purchaser or its assignee.
As to the fourth issue, petitioner submits that STM and private respondent
 CSC have entered into a conspiracy to defraud it of its sugar. This
conspiracy is allegedly evidenced by: (a) the fact that STM's selling price to
CSC was below its purchasing price; (b) CSC's refusal to pursue its case
against Teresita Ng Go; and (c) the authority given by the latter to other
persons to withdraw sugar against SLDR No. 1214M after she had sold her
rights under said SLDR to CSC. Petitioner prays that the doctrine of "clean
hands" should be applied to preclude CSC from seeking judicial relief.
However, despite careful scrutiny, we find here the records bare of
convincing evidence whatsoever to support the petitioner's allegations of
fraud. We are now constrained to deem this matter purely speculative, bereft
of concrete proof.
WHEREFORE, the instant petition is DENIED for lack of merit. Costs
against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.
G.R. No. L-7089             August 31, 1954
DOMINGO DE LA CRUZ, plaintiff-appellant, vs.NORTHERN THEATRICAL
ENTERPRISES INC., ET AL., defendants-appellees.
Conrado Rubio for appellant.Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for
appellees.
MONTEMAYOR, J.:
The facts in this case based on an agreed statement of facts are simple. In the year 1941
the Northern Theatrical Enterprises Inc., a domestic corporation operated a movie house
in Laoag, Ilocos Norte, and among the persons employed by it was the plaintiff
DOMINGO DE LA CRUZ, hired as a special guard whose duties were to guard the main
entrance of the cine, to maintain peace and order and to report the commission of
disorders within the premises. As such guard he carried a revolver. In the afternoon of
July 4, 1941, one Benjamin Martin wanted to crash the gate or entrance of the movie
house. Infuriated by the refusal of plaintiff De la Cruz to let him in without first providing
himself with a ticket, Martin attacked him with a bolo. De la Cruz defendant himself as
best he could until he was cornered, at which moment to save himself he shot the gate
crasher, resulting in the latter's death.
For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of the
Court of First Instance of Ilocos Norte. After a re-investigation conducted by the
Provincial Fiscal the latter filed a motion to dismiss the complaint, which was granted by
the court in January 1943. On July 8, 1947, De la Cruz was again accused of the same
crime of homicide, in Criminal Case No. 431 of the same Court. After trial, he was finally
acquitted of the charge on January 31, 1948. In both criminal cases De la Cruz employed
a lawyer to defend him. He demanded from his former employer reimbursement of his
expenses but was refused, after which he filed the present action against the movie
corporation and the three members of its board of directors, to recover not only the
amounts he had paid his lawyers but also moral damages said to have been suffered,
due to his worry, his neglect of his interests and his family as well in the supervision of
the cultivation of his land, a total of P15,000. On the basis of the complaint and the
answer filed by defendants wherein they asked for the dismissal of the complaint, as well
as the agreed statement of facts, the Court of First Instance of Ilocos Norte after rejecting
the theory of the plaintiff that he was an agent of the defendants and that as such agent
he was entitled to reimbursement of the expenses incurred by him in connection with the
agency (Arts. 1709-1729 of the old Civil Code), found that plaintiff had no cause of action
and dismissed the complaint without costs. De la Cruz appealed directly to this Tribunal
for the reason that only questions of law are involved in the appeal.
We agree with the trial court that the relationship between the movie corporation and the
plaintiff was not that of principal and agent because the principle of representation was in
no way involved. Plaintiff was not employed to represent the defendant corporation in its
dealings with third parties. He was a mere employee hired to perform a certain specific
duty or task, that of acting as special guard and staying at the main entrance of the
movie house to stop gate crashers and to maintain peace and order within the premises.
The question posed by this appeal is whether an employee or servant who in line of duty
and while in the performance of the task assigned to him, performs an act which
eventually results in his incurring in expenses, caused not directly by his master or
employer or his fellow servants or by reason of his performance of his duty, but rather by
a third party or stranger not in the employ of his employer, may recover said damages
against his employer.
The learned trial court in the last paragraph of its decision dismissing the complaint said
that "after studying many laws or provisions of law to find out what law is applicable to
the facts submitted and admitted by the parties, has found none and it has no other
alternative than to dismiss the complaint." The trial court is right. We confess that we are
not aware of any law or judicial authority that is directly applicable to the present case,
and realizing the importance and far-reaching effect of a ruling on the subject-matter we
have searched, though vainly, for judicial authorities and enlightenment. All the laws and
principles of law we have found, as regards master and servants, or employer and
employee, refer to cases of physical injuries, light or serious, resulting in loss of a
member of the body or of any one of the senses, or permanent physical disability or even
death, suffered in line of duty and in the course of the performance of the duties assigned
to the servant or employee, and these cases are mainly governed by the Employer's
Liability Act and the Workmen's Compensation Act. But a case involving damages
caused to an employee by a stranger or outsider while said employee was in the
performance of his duties, presents a novel question which under present legislation we
are neither able nor prepared to decide in favor of the employee.
In a case like the present or a similar case of say a driver employed by a transportation
company, who while in the course of employment runs over and inflicts physical injuries
on or causes the death of a pedestrian; and such driver is later charged criminally in
court, one can imagine that it would be to the interest of the employer to give legal help
to and defend its employee in order to show that the latter was not guilty of any crime
either deliberately or through negligence, because should the employee be finally held
criminally liable and he is found to be insolvent, the employer would be subsidiarily liable.
That is why, we repeat, it is to the interest of the employer to render legal assistance to
its employee. But we are not prepared to say and to hold that the giving of said legal
assistance to its employees is a legal obligation. While it might yet and possibly be
regarded as a normal obligation, it does not at present count with the sanction of man-
made laws.

If the employer is not legally obliged to give, legal assistance to its employee and provide
him with a lawyer, naturally said employee may not recover the amount he may have
paid a lawyer hired by him.

Viewed from another angle it may be said that the damage suffered by the plaintiff by
reason of the expenses incurred by him in remunerating his lawyer, is not caused by his
act of shooting to death the gate crasher but rather by the filing of the charge of homicide
which made it necessary for him to defend himself with the aid of counsel. Had no
criminal charge been filed against him, there would have been no expenses incurred or
damage suffered. So the damage suffered by plaintiff was caused rather by the improper
filing of the criminal charge, possibly at the instance of the heirs of the deceased gate
crasher and by the State through the Fiscal. We say improper filing, judging by the
results of the court proceedings, namely, acquittal. In other words, the plaintiff was
innocent and blameless. If despite his innocence and despite the absence of any criminal
responsibility on his part he was accused of homicide, then the responsibility for the
improper accusation may be laid at the door of the heirs of the deceased and the State,
and so theoretically, they are the parties that may be held responsible civilly for damages
and if this is so, we fail to see now this responsibility can be transferred to the employer
who in no way intervened, much less initiated the criminal proceedings and whose only
connection or relation to the whole affairs was that he employed plaintiff to perform a
special duty or task, which task or duty was performed lawfully and without negligence.

Still another point of view is that the damages incurred here consisting of the payment of
the lawyer's fee did not flow directly from the performance of his duties but only indirectly
because there was an efficient, intervening cause, namely, the filing of the criminal
charges. In other words, the shooting to death of the deceased by the plaintiff was not
the proximate cause of the damages suffered but may be regarded as only a remote
cause, because from the shooting to the damages suffered there was not that natural
and continuous sequence required to fix civil responsibility.

In view of the foregoing, the judgment of the lower court is affirmed. No costs.

Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes, J.B.L.,
JJ., concur.

[G.R. No. 143978.  December 3, 2002]
MANUEL B. TAN, GREGG M. TECSON and ALEXANDER SALDAÑA, petitioners, vs.
EDUARDO R. GULLAS and NORMA S. GULLAS, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review seeking to set aside the decision[1] of the Court of
Appeals[2] in CA-G.R. CV No. 46539, which reversed and set aside the decision[3] of the
Regional Trial Court of Cebu City, Branch 22 in Civil Case No. CEB-12740.
The records show that private respondents, Spouses Eduardo R. Gullas and
Norma S. Gullas, were the registered owners of a parcel of land in the Municipality of
Minglanilla, Province of Cebu, measuring 104,114 sq. m., with Transfer Certificate of Title
No. 31465.[4] On June 29, 1992, they executed a special power of attorney[5]
authorizing petitioners Manuel B. Tan, a licensed real estate broker,[6] and his
associates Gregg M. Tecson and Alexander Saldaña, to negotiate for the sale of the land
at Five Hundred Fifty Pesos (P550.00) per square meter, at a commission of 3% of the
gross price. The power of attorney was non-exclusive and effective for one month from
June 29, 1992.[7]
On the same date, petitioner Tan contacted Engineer Edsel Ledesma,
construction manager of the Sisters of Mary of Banneaux, Inc. (hereafter, Sisters of
Mary), a religious organization interested in acquiring a property in the Minglanilla area.
In the morning of July 1, 1992, petitioner Tan visited the property with Engineer
Ledesma. Thereafter, the two men accompanied Sisters Michaela Kim and Azucena
Gaviola, representing the Sisters of Mary, to see private respondent Eduardo Gullas in
his office at the University of Visayas. The Sisters, who had already seen and inspected
the land, found the same suitable for their purpose and expressed their desire to buy it.
[8] However, they requested that the selling price be reduced to Five Hundred Thirty
Pesos (P530.00) per square meter instead of Five Hundred Fifty Pesos (P550.00) per
square meter. Private respondent Eduardo Gullas referred the prospective buyers to his
wife.
It was the first time that the buyers came to know that private respondent
Eduardo Gullas was the owner of the property. On July 3, 1992, private respondents
agreed to sell the property to the Sisters of Mary, and subsequently executed a special
power of attorney[9] in favor of Eufemia Cañete, giving her the special authority to sell,
transfer and convey the land at a fixed price of Two Hundred Pesos (P200.00) per
square meter.
On July 17, 1992, attorney-in-fact Eufemia Cañete executed a deed of sale in
favor of the Sisters of Mary for the price of Twenty Million Eight Hundred Twenty Two
Thousand Eight Hundred Pesos (P20,822,800.00), or at the rate of Two Hundred Pesos
(P200.00) per square meter.[10] The buyers subsequently paid the corresponding taxes.
[11] Thereafter, the Register of Deeds of Cebu Province issued TCT No. 75981 in the
name of the Sisters of Mary of Banneaux, Inc.[12]
Earlier, on July 3, 1992, in the afternoon, petitioners went to see private
respondent Eduardo Gullas to claim their commission, but the latter told them that he and
his wife have already agreed to sell the property to the Sisters of Mary. Private
respondents refused to pay the broker’s fee and alleged that another group of agents
was responsible for the sale of land to the Sisters of Mary.
On August 28, 1992, petitioners filed a complaint[13] against the defendants for
recovery of their broker’s fee in the sum of One Million Six Hundred Fifty Five Thousand
Four Hundred Twelve and 60/100 Pesos (P1,655,412.60), as well as moral and
exemplary damages and attorney’s fees. They alleged that they were the efficient
procuring cause in bringing about the sale of the property to the Sisters of Mary, but that
their efforts in consummating the sale were frustrated by the private respondents who, in
evident bad faith, malice and in order to evade payment of broker’s fee, dealt directly with
the buyer whom petitioners introduced to them. They further pointed out that the deed of
sale was undervalued obviously to evade payment of the correct amount of capital gains
tax, documentary stamps and other internal revenue taxes.
In their answer, private respondents countered that, contrary to petitioners’ claim,
they were not the efficient procuring cause in bringing about the consummation of the
sale because another broker, Roberto Pacana, introduced the property to the Sisters of
Mary ahead of the petitioners.[14] Private respondents maintained that when petitioners
introduced the buyers to private respondent Eduardo Gullas, the former were already
decided in buying the property through Pacana, who had been paid his commission.
Private respondent Eduardo Gullas admitted that petitioners were in his office on July 3,
1992, but only to ask for the reimbursement of their cellular phone expenses.
In their reply and answer to counterclaim,[15] petitioners alleged that although the
Sisters of Mary knew that the subject land was for sale through various agents, it was
petitioners who introduced them to the owners thereof.
After trial, the lower court rendered judgment in favor of petitioners, the
dispositive portion of which reads:
WHEREFORE, UPON THE AEGIS OF THE FOREGOING, judgment is hereby rendered
for the plaintiffs and against the defendants.  By virtue hereof, defendants Eduardo and
Norma Gullas are hereby ordered to pay jointly and severally plaintiffs Manuel Tan,
Gregg Tecson and Alexander Saldaña;
1)      The sum of SIX HUNDRED TWENTY FOUR THOUSAND AND SIX HUNDRED
EIGHTY FOUR PESOS (P624,684.00) as broker’s fee with legal interest at the rate of
6% per annum from the date of filing of the complaint; and
2)      The sum of FIFTY THOUSAND PESOS (P50,000.00) as attorney’s fees and costs
of litigation.
For lack of merit, defendants’ counterclaim is hereby DISMISSED.
IT IS SO ORDERED.[16]
Both parties appealed to the Court of Appeals. Private respondents argued that
the lower court committed errors of fact and law in holding that it was petitioners’ efforts
which brought about the sale of the property and disregarding the previous negotiations
between private respondent Norma Gullas and the Sisters of Mary and Pacana. They
further alleged that the lower court had no basis for awarding broker’s fee, attorney’s fees
and the costs of litigation to petitioners.[17]
Petitioners, for their part, assailed the lower court’s basis of the award of broker’s
fee given to them. They contended that their 3% commission for the sale of the property
should be based on the price of P55,180,420.00, or at P530.00 per square meter as
agreed upon and not on the alleged actual selling price of P20,822,800.00 or at P200.00
per square meter, since the actual purchase price was undervalued for taxation
purposes. They also claimed that the lower court erred in not awarding moral and
exemplary damages in spite of its finding of bad faith; and that the amount of P50,000.00
as attorney’s fees awarded to them is insufficient. Finally, petitioners argued that the
legal interest imposed on their claim should have been pegged at 12% per annum
instead of the 6% fixed by the court.[18]
The Court of Appeals reversed and set aside the lower court’s decision and
rendered another judgment dismissing the complaint.[19]
Hence, this appeal.
Petitioners raise following issues for resolution:
I.
THE APPELLATE COURT GROSSLY ERRED IN THEIR FINDING THAT THE
PETITIONERS ARE NOT ENTITLED TO THE BROKERAGE COMMISSION.
II.
IN DISMISSING THE COMPLAINT, THE APPELLATE COURT HAS DEPRIVED THE
PETITIONERS OF MORAL AND EXEMPLARY DAMAGES, ATTORNEYS’ FEES AND
INTEREST IN THE FOREBEARANCE OF MONEY.
The petition is impressed with merit.
The records show that petitioner Manuel B. Tan is a licensed real estate broker,
and petitioners Gregg M. Tecson and Alexander Saldaña are his associates. In Schmid
and Oberly v. RJL Martinez Fishing Corporation,[20] we defined a “broker” as “one who
is engaged, for others, on a commission, negotiating contracts relative to property with
the custody of which he has no concern; the negotiator between other parties, never
acting in his own name but in the name of those who employed him. x x x a broker is one
whose occupation is to bring the parties together, in matters of trade, commerce or
navigation.” (Emphasis supplied)
During the trial, it was established that petitioners, as brokers, were authorized by
private respondents to negotiate for the sale of their land within a period of one month
reckoned from June 29, 1992. The authority given to petitioners was non-exclusive,
which meant that private respondents were not precluded from granting the same
authority to other agents with respect to the sale of the same property. In fact, private
respondent authorized another agent in the person of Mr. Bobby Pacana to sell the same
property. There was nothing illegal or amiss in this arrangement, per se, considering the
non-exclusivity of petitioners’ authority to sell. The problem arose when it eventually
turned out that these agents were entertaining one and the same buyer, the Sisters of
Mary.
As correctly observed by the trial court, the argument of the private respondents
that Pacana was the one entitled to the stipulated 3% commission is untenable,
considering that it was the petitioners who were responsible for the introduction of the
representatives of the Sisters of Mary to private respondent Eduardo Gullas. Private
respondents, however, maintain that they were not aware that their respective agents
were negotiating to sell said property to the same buyer.
Private respondents failed to prove their contention that Pacana began
negotiations with private respondent Norma Gullas way ahead of petitioners. They failed
to present witnesses to substantiate this claim. It is curious that Mrs. Gullas herself was
not presented in court to testify about her dealings with Pacana. Neither was Atty.
Nachura who was supposedly the one actively negotiating on behalf of the Sisters of
Mary, ever presented in court.
Private respondents’ contention that Pacana was the one responsible for the sale
of the land is also unsubstantiated. There was nothing on record which established the
existence of a previous negotiation among Pacana, Mrs. Gullas and the Sisters of Mary.
The only piece of evidence that the private respondents were able to present is an
undated and unnotarized Special Power of Attorney in favor of Pacana. While the lack of
a date and an oath do not necessarily render said Special Power of Attorney invalid, it
should be borne in mind that the contract involves a considerable amount of money.
Hence, it is inconsistent with sound business practice that the authority to sell is
contained in an undated and unnotarized Special Power of Attorney. Petitioners, on the
other hand, were given the written authority to sell by the private respondents.

The trial court’s evaluation of the witnesses is accorded great respect and finality
in the absence of any indication that it overlooked certain facts or circumstances of
weight and influence, which if reconsidered, would alter the result of the case.[21]

Indeed, it is readily apparent that private respondents are trying to evade

payment of the commission which rightfully belong to petitioners as brokers with respect
to the sale. There was no dispute as to the role that petitioners played in the transaction.
At the very least, petitioners set the sale in motion. They were not able to participate in its
consummation only because they were prevented from doing so by the acts of the
private respondents. In the case of Alfred Hahn v. Court of Appeals and Bayerische
Motoren Werke Aktiengesellschaft (BMW)[22] we ruled that, “An agent receives a
commission upon the successful conclusion of a sale.  On the other hand, a broker earns
his pay merely by bringing the buyer and the seller together, even if no sale is eventually
made.” (Underscoring ours). Clearly, therefore, petitioners, as brokers, should be entitled
to the commission whether or not the sale of the property subject matter of the contract
was concluded through their efforts.

Having ruled that petitioners are entitled to the brokers’ commission, we should
now resolve how much commission are petitioners entitled to?

Following the stipulation in the Special Power of Attorney, petitioners are entitled
to 3% commission for the sale of the land in question.  Petitioners maintain that their
commission should be based on the price at which the land was offered for sale, i.e.,
P530.00 per square meter.  However, the actual purchase price for which the land was
sold was only P200.00 per square meter.  Therefore, equity considerations dictate that
petitioners’ commission must be based on this price. To rule otherwise would constitute
unjust enrichment on the part of petitioners as brokers.

In the matter of attorney’s fees and expenses of litigation, we affirm the amount of
P50,000.00 awarded by the trial court to the petitioners.

WHEREFORE, in view of the foregoing, the petition is GRANTED.  The May 29,
2000 decision of the Court of Appeals is REVERSED and SET ASIDE.  The decision of
the Regional Trial Court of Cebu City, Branch 22, in Civil Case No. CEB-12740 ordering
private respondents Eduardo Gullas and Norma S. Gullas to pay jointly and severally
petitioners Manuel B. Tan, Gregg Tecson and Alexander Saldaña the sum of Six
Hundred Twenty-Four Thousand and Six Hundred Eighty-Four Pesos (P624,684.00) as
broker’s fee with legal interest at the rate of 6% per annum from the filing of the
complaint; and the sum of Fifty Thousand Pesos (P50,000.00) as attorney’s fees and
costs of litigation, is REINSTATED.

SO ORDERED.

[G.R. No. 113074.  January 22, 1997]
ALFRED HAHN, petitioner, vs. COURT OF APPEALS and BAYERISCHE MOTOREN
WERKE AKTIENGESELLSCHAFT (BMW), respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision[1] of the Court of Appeals dismissing a
complaint for specific performance which petitioner had filed against private respondent
on the ground that the Regional Trial Court of Quezon City did not acquire jurisdiction
over private respondent, a nonresident foreign corporation, and of the appellate court's
order denying petitioner's motion for reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style
"Hahn-Manila." On the other hand, private respondent Bayerische Motoren Werke
Aktiengesellschaft (BMW) is a nonresident foreign corporation existing under the laws of
the former Federal Republic of Germany, with principal office at Munich, Germany.
On March 7, 1967, petitioner executed in favor of private respondent a "Deed of
Assignment with Special Power of Attorney," which reads in full as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the BMW trademark and
device in the Philippines which ASSIGNOR uses and has been using on the products
manufactured by ASSIGNEE, and for which ASSIGNOR is the authorized exclusive
Dealer of the ASSIGNEE in the Philippines, the same being evidenced by certificate of
registration issued by the Director of Patents on 12 December 1963 and is referred to as
Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said
transfer of the said BMW trademark and device in favor of the ASSIGNEE herein with the
Philippines Patent Office;
NOW THEREFORE, in view of the foregoing and in consideration of the stipulations
hereunder stated, the ASSIGNOR hereby affirms the said assignment and transfer in
favor of the ASSIGNEE under the following terms and conditions:
1. The ASSIGNEE shall take appropriate steps against any user other than ASSIGNOR
or infringer of the BMW trademark in the Philippines, for such purpose, the ASSIGNOR
shall inform the ASSIGNEE immediately of any such use or infringement of the said
trademark which comes to his knowledge and upon such information the ASSIGNOR
shall automatically act as Attorney-In-Fact of the ASSIGNEE for such case, with full
power, authority and responsibility to prosecute unilaterally or in concert with ASSIGNEE,
any such infringer of the subject mark and for purposes hereof the ASSIGNOR is hereby
named and constituted as ASSIGNEE's Attorney-In-Fact, but any such suit without
ASSIGNEE's consent will exclusively be the responsibility and for the account of the
ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue business relations as has
been usual in the past without a formal contract, and for that purpose, the dealership of
ASSIGNOR shall cover the ASSIGNEE's complete production program with the only
limitation that, for the present, in view of ASSIGNEE's limited production, the latter shall
not be able to supply automobiles to ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has been usual
in the past without a formal contract." But on February 16, 1993, in a meeting with a
BMW representative and the president of Columbia Motors Corporation (CMC), Jose
Alvarez, petitioner was informed that BMW was arranging to grant the exclusive
dealership of BMW cars and products to CMC, which had expressed interest in acquiring
the same. On February 24, 1993, petitioner received confirmation of the information from
BMW which, in a letter, expressed dissatisfaction with various aspects of petitioner's
business, mentioning among other things, decline in sales, deteriorating services, and
inadequate showroom and warehouse facilities, and petitioner's alleged failure to comply
with the standards for an exclusive BMW dealer.[2] Nonetheless, BMW expressed
willingness to continue business relations with the petitioner on the basis of a "standard
BMW importer" contract, otherwise, it said, if this was not acceptable to petitioner, BMW
would have no alternative but to terminate petitioner's exclusive dealership effective June
30, 1993.
Petitioner protested, claiming that the termination of his exclusive dealership
would be a breach of the Deed of Assignment.[3] Hahn insisted that as long as the
assignment of its trademark and device subsisted, he remained BMW's exclusive dealer
in the Philippines because the assignment was made in consideration of the exclusive
dealership. In the same letter petitioner explained that the decline in sales was due to
lower prices offered for BMW cars in the United States and the fact that few customers
returned for repairs and servicing because of the durability of BMW parts and the
efficiency of petitioner's service.
Because of Hahn's insistence on the former business relation, BMW withdrew on
March 26, 1993 its offer of a "standard importer contract" and terminated the exclusive
dealer relationship effective June 30, 1993.[4] At a conference of BMW Regional
Importers held on April 26, 1993 in Singapore, Hahn was surprised to find Alvarez among
those invited from the Asian region. On April 29, 1993, BMW proposed that Hahn and
CMC jointly import and distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for
specific performance and damages against BMW to compel it to continue the exclusive
dealership. Later he filed an amended complaint to include an application for temporary
restraining order and for writs of preliminary, mandatory and prohibitory injunction to
enjoin BMW from terminating his exclusive dealership. Hahn's amended complaint
alleged in pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the Philippines with
principal offices at Munich, Germany. It may be served with summons and other court
processes through the Secretary of the Department of Trade and Industry of the
Philippines. . . .
....
5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of
Assignment with Special Power of Attorney covering the trademark and in consideration
thereof, under its first whereas clause, Plaintiff was duly acknowledged as the "exclusive
Dealer of the Assignee in the Philippines" . . . .
....
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the
Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and
without any monetary contribution from defendant BMW, established BMW's goodwill
and market presence in the Philippines. Pursuant thereto, Plaintiff has invested a lot of
money and resources in order to single-handedly compete against other motorcycle and
car companies .... Moreover, Plaintiff has built buildings and other infrastructures such as
service centers and showrooms to maintain and promote the car and products of
defendant BMW.
....
10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff that it was
willing to maintain with Plaintiff a relationship but only "on the basis of a standard BMW
importer contract as adjusted to reflect the particular situation in the Philippines" subject
to certain conditions, otherwise, defendant BMW would terminate Plaintiff's exclusive
dealership and any relationship for cause effective June 30, 1993. . . .
....
15. The actuations of defendant BMW are in breach of the assignment agreement
between itself and plaintiff since the consideration for the assignment of the BMW
trademark is the continuance of the exclusive dealership agreement. It thus, follows that
the exclusive dealership should continue for so long as defendant BMW enjoys the use
and ownership of the trademark assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch 104
of the Quezon City Regional Trial Court, which on June 14, 1993 issued a temporary
restraining order. Summons and copies of the complaint and amended complaint were
thereafter served on the private respondent through the Department of Trade and
Industry, pursuant to Rule 14, § 14 of the Rules of Court. The order, summons and
copies of the complaint and amended complaint were later sent by the DTI to BMW via
registered mail on June 15, 1993[5] and received by the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on the
application for the writ of preliminary injunction proceeded ex parte, with petitioner Hahn
testifying. On June 30, 1993, the trial court issued an order granting the writ of
preliminary injunction upon the filing of a bond of P100,000.00. On July 13, 1993,
following the posting of the required bond, a writ of preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the trial court
did not acquire jurisdiction over it through the service of summons on the Department of
Trade and Industry, because it (BMW) was a foreign corporation and it was not doing
business in the Philippines. It contended that the execution of the Deed of Assignment
was an isolated transaction; that Hahn was not its agent because the latter undertook to
assemble and sell BMW cars and products without the participation of BMW and sold
other products; and that Hahn was an indentor or middleman transacting business in his
own name and for his own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing
business in the Philippines through him as its agent, as shown by the fact that BMW
invoices and order forms were used to document his transactions; that he gave
warranties as exclusive BMW dealer; that BMW officials periodically inspected standards
of service rendered by him; and that he was described in service booklets and
international publications of BMW as a "BMW Importer" or "BMW Trading Company" in
the Philippines.
The trial court[6] deferred resolution of the Motion to dismiss until after trial on the
merits for the reason that the grounds advanced by BMW in its motion did not seem to be
indubitable.
Without seeking reconsideration of the aforementioned order, BMW filed a
petition for certiorari with the Court of Appeals alleging that:
 I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR OTHERWISE
INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE ISSUANCE
OF THE WRIT OF PRELIMINARY INJUNCTION, AND IN PRESCRIBING
THE TERMS FOR THE ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING
RESOLUTION OF THE MOTION TO DISMISS ON THE GROUND OF
LACK OF JURISDICTION, AND THEREBY FAILING TO IMMEDIATELY
DISMISS THE CASE A QUO.
BMW asked for the immediate issuance of a temporary restraining order and, after
hearing, for a writ of preliminary injunction, to enjoin the trial court from proceeding
further in Civil Case No. Q-93-15933. Private respondent pointed out that, unless the trial
court's order was set aside, it would be forced to submit to the jurisdiction of the court by
filing its answer or to accept judgment in default, when the very question was whether the
court had jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing petitioner's complaint.
On December 20, 1993, it rendered judgment finding the trial court guilty of grave abuse
of discretion in deferring resolution of the motion to dismiss. It stated:
Going by the pleadings already filed with the respondent court before it came out with its
questioned order of July 26, 1993, we rule and so hold that petitioner's (BMW) motion to
dismiss could be resolved then and there, and that the respondent judge's deferment of
his action thereon until after trial on the merit constitutes, to our mind, grave abuse of
discretion.
....
. . . [T]here is not much appreciable disagreement as regards the factual matters relating,
to the motion to dismiss. What truly divide (sic) the parties and to which they greatly differ
is the legal conclusions they respectively draw from such facts, (sic) with Hahn
maintaining that on the basis thereof, BMW is doing business in the Philippines while the
latter asserts that it is not.
Then, after stating that any ruling which the trial court might make on the motion
to dismiss would anyway be elevated to it on appeal, the Court of Appeals itself resolved
the motion. It ruled that BMW was not doing business in the country and, therefore,
jurisdiction over it could not be acquired through service of summons on the DTI
pursuant to Rule 14, Section 14. The court upheld private respondent's contention that
Hahn acted in his own name and for his own account and independently of BMW, based
on Alfred Hahn's allegations that he had invested his own money and resources in
establishing BMW's goodwill in the Philippines and on BMW's claim that Hahn sold
products other than those of BMW. It held that petitioner was a mere indentor or broker
and not an agent through whom private respondent BMW transacted business in the
Philippines. Consequently, the Court of Appeals dismissed petitioner's complaint against
BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in
finding that the trial court gravely abused its discretion in deferring action on the motion
to dismiss and (2) in finding that private respondent BMW is not doing business in the
Philippines and, for this reason, dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, § 14 provides:
§14. Service upon foreign corporations. — If the defendant is a foreign corporation, or a
nonresident joint stock company or association, doing business in the Philippines,
service may be made on its resident agent designated in accordance with law for that
purpose, or, if there be no such agent, on the government official designated by law to
that effect, or on any of its officers or agents within the Philippines. (Emphasis added)
What acts are considered "doing business in the Philippines" are enumerated in
§3(d) of the Foreign Investments Act of 1991 (R.A. No. 7042) as follows:[7]
d) the phrase "doing business" shall include soliciting orders, service contracts,
opening offices, whether called "liaison" offices or branches, appointing
representatives or distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods totalling one hundred
eighty (180) days or more; participating in the management, supervision or
control of any domestic business, firm, entity or corporation in the Philippines;
and any other act or acts that imply a continuity of commercial dealings or
arrangements and contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object
of the business organization: Provided, however, That the phrase "doing
business" shall not be deemed to include mere investment as a shareholder
by a foreign entity in domestic corporations duly registered to do business, and/or
the exercise of rights as such investor; nor having, a nominee director or officer
to represent its interests in such corporation; nor appointing a representative
or distributor domiciled in the Philippines which transacts business in its
own name and for its own account. (Emphasis supplied)
Thus, the phrase includes "appointing representatives or distributors in the
Philippines" but not when the representative or distributor "transacts business in its name
and for its own account." In addition, Section 1(f)(1) of the Rules and Regulations
implementing (IRR) the Omnibus Investment Code of 1987 (E.O. No. 226) provided:
(f) "Doing business" shall be any act or combination of acts, enumerated in Article 44 of
the Code. In particular, "doing business" includes:
(1).... A foreign firm which does business through middlemen acting in their own names,
such as indentors, commercial brokers or commission merchants, shall not be deemed
doing business in the Philippines. But such indentors, commercial brokers or commission
merchants shall be the ones deemed to be doing business in the Philippines.
The question is whether petitioner Alfred Hahn is the agent or distributor in the
Philippines of private respondent BMW. If he is, BMW may be considered doing business
in the Philippines and the trial court acquired jurisdiction over it (BMW) by virtue of the
service of summons on the Department of Trade and Industry. Otherwise, if Hahn is not
the agent of BMW but an independent dealer, albeit of BMW cars and products, BMW, a
foreign corporation, is not considered doing business in the Philippines within the
meaning of the Foreign Investments Act of 1991 and the IRR, and the trial court did not
acquire jurisdiction over it (BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own name and
for his own account and not as agent or distributor in the Philippines of BMW on the
ground that "he alone had contacts with individuals or entities interested in acquiring
BMW vehicles. Independence characterizes Hahn's undertakings, for which reason he is
to be considered, under governing statutes, as doing business." (p. 13) In support of this
conclusion, the appellate court cited the following allegations in Hahn's amended
complaint:
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the
Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and
without any monetary contributions from defendant BMW; established BMW's goodwill
and market presence in the Philippines. Pursuant thereto, Plaintiff invested a lot of
money and resources in order to single-handedly compete against other motorcycle and
car companies.... Moreover, Plaintiff has built buildings and other infrastructures such as
service centers and showrooms to maintain and promote the car and products of
defendant BMW.
As the above quoted allegations of the amended complaint show, however, there
is nothing to support the appellate court's finding that Hahn solicited orders alone and for
his own account and without "interference from, let alone direction of, BMW." (p. 13) To
the contrary, Hahn claimed he took orders for BMW cars and transmitted them to BMW.
Upon receipt of the orders, BMW fixed the down payment and pricing charges, notified
Hahn of the scheduled production month for the orders, and reconfirmed the orders by
signing and returning to Hahn the acceptance sheets. Payment was made by the buyer
directly to BMW. Title to cars purchased passed directly to the buyer and Hahn never
paid for the purchase price of BMW cars sold in the Philippines. Hahn was credited with
a commission equal to 14% of the purchase price upon the invoicing of a vehicle order by
BMW. Upon confirmation in writing that the vehicles had been registered in the
Philippines and serviced by him, Hahn received an additional 3% of the full purchase
price. Hahn performed after-sale services, including, warranty services, for which he
received reimbursement from BMW. All orders were on invoices and forms of BMW.[8]
These allegations were substantially admitted by BMW which, in its petition for
certiorari before the Court of Appeals, stated:[9]
9.4. As soon as the vehicles are fully manufactured and full payment of the purchase
prices are made, the vehicles are shipped to the Philippines. (The payments may be
made by the purchasers or third-persons or even by Hahn.) The bills of lading are made
up in the name of the purchasers, but Hahn-Manila is therein indicated as the person to
be notified.
9.5. It is Hahn who picks up the vehicles from the Philippine ports, for purposes of
conducting pre-delivery inspections. Thereafter, he delivers the vehicles to the
purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a commission
of fourteen percent (14%) of the full purchase price thereof, and as soon as he confirms
in writing, that the vehicles have been registered in the Philippines and have been
serviced by him, he will receive an additional three percent (3%) of the full purchase
prices as commission.
Contrary to the appellate court's conclusion, this arrangement shows an agency.
An agent receives a commission upon the successful conclusion of a sale. On the other
hand, a broker earns his pay merely by bringing the buyer and the seller together, even if
no sale is eventually made.
As to the service centers and showrooms which he said he had put up at his own
expense, Hahn said that he had to follow BMW specifications as exclusive dealer of
BMW in the Philippines. According to Hahn, BMW periodically inspected the service
centers to see to it that BMW standards were maintained. Indeed, it would seem from
BMW's letter to Hahn that it was for Hahn's alleged failure to maintain BMW standards
that BMW was terminating Hahn's dealership.
The fact that Hahn invested his own money to put up these service centers and
showrooms does not necessarily prove that he is not an agent of BMW. For as already
noted, there are facts in the record which suggest that BMW exercised control over
Hahn's activities as a dealer and made regular inspections of Hahn's premises to enforce
compliance with BMW standards and specifications.[10] For example, in its letter to Hahn
dated February 23, 1996, BMW stated:
In the last years we have pointed out to you in several discussions and letters
that we have to tackle the Philippine market more professionally and that we are
through your present activities not adequately prepared to cope with the
forthcoming challenges.[11]
In effect, BMW was holding Hahn accountable to it under the 1967 Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court of
Appeals,[12] in which the foreign corporation entered into a "Representative Agreement"
and a "Licensing Agreement" with a domestic corporation, by virtue of which the latter
was appointed "exclusive representative" in the Philippines for a stipulated commission.
Pursuant to these contracts, the domestic corporation sold products exported by the
foreign corporation and put up a service center for the products sold locally. This Court
held that these acts constituted doing business in the Philippines. The arrangement
showed that the foreign corporation's purpose was to penetrate the Philippine market and
establish its presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive distributor in
the Philippines, even as it announced in the Asian region that Hahn was the "official
BMW agent" in the Philippines.[13]
The Court of Appeals also found that petitioner Alfred Hahn dealt in other
products, and not exclusively in BMW products, and, on this basis, ruled that Hahn was
not an agent of BMW. (p. 14) This finding is based entirely on allegations of BMW in its
motion to dismiss filed in the trial court and in its petition for certiorari before the Court of
Appeals.[14] But this allegation was denied by Hahn[15] and therefore the Court of
Appeals should not have cited it as if it were the fact.
Indeed this is not the only factual issue raised, which should have indicated to the
Court of Appeals the necessity of affirming the trial court's order deferring resolution of
BMW's motion to dismiss. Petitioner alleged that whether or not he is considered an
agent of BMW, the fact is that BMW did business in the Philippines because it sold cars
directly to Philippine buyers. [16] This was denied by BMW, which claimed that Hahn was
not its agent and that, while it was true that it had sold cars to Philippine buyers, this was
done without solicitation on its part.[17] is REMANDED to the trial court for further proceedings.

It is not true then that the question whether BMW is doing business could have SO ORDERED.
been resolved simply by considering the parties' pleadings. There are genuine issues of
facts which can only be determined on the basis of evidence duly presented. BMW
cannot short circuit the process on the plea that to compel it to go to trial would be to
deny its right not to submit to the jurisdiction of the trial court which precisely it denies.
Rule 16, §3 authorizes courts to defer the resolution of a motion to dismiss until after the
trial if the ground on which the motion is based does not appear to be indubitable. Here
the record of the case bristles with factual issues and it is not at all clear whether some
allegations correspond to the proof.

Anyway, private respondent need not apprehend that by responding to the

summons it would be waiving its objection to the trial court's jurisdiction. It is now settled
that. for purposes of having summons served on a foreign corporation in accordance with
Rule 14, §14, it is sufficient that it be alleged in the complaint that the foreign corporation
is doing business in the Philippines. The court need not go beyond the allegations of the
complaint in order to determine whether it has jurisdiction.[18] A determination that the
foreign corporation is doing business is only tentative and is made only for the purpose of
enabling the local court to acquire jurisdiction over the foreign corporation through
service of summons pursuant to Rule 14, §14. Such determination does not foreclose a
contrary finding should evidence later show that it is not transacting business in the
country. As this Court has explained:

This is not to say, however, that the petitioner's right to question the jurisdiction of the
court over its person is now to be deemed a foreclosed matter. If it is true, as Signetics
claims, that its only involvement in the Philippines was through a passive investment in
Sigfil, which it even later disposed of, and that TEAM Pacific is not its agent, then it
cannot really be said to be doing business in the Philippines. It is a defense, however,
that requires the contravention of the allegations of the complaint, as well as a full
ventilation, in effect, of the main merits of the case, which should not thus be within the
province of a mere motion to dismiss. So, also, the issue posed by the petitioner as to
whether a foreign corporation which has done business in the country, but which has
ceased to do business at the time of the filing, of a complaint, can still be made to answer
for a cause of action which accrued while it was doing, business, is another matter that
would yet have to await the reception and admission of evidence. Since these points
have seasonably been raised by the petitioner, there should be no real cause for what
may understandably be its apprehension, i.e., that by its participation during the trial on
the merits, it may, absent an invocation of separate or independent reliefs of its own, be
considered to have voluntarily submitted itself to the court's jurisdiction.[19]

Far from committing an abuse of discretion, the trial court properly deferred
resolution of the motion to dismiss and thus avoided prematurely deciding a question
which requires a factual basis, with the same result if it had denied the motion and
conditionally assumed jurisdiction. It is the Court of Appeals which, by ruling that BMW is
not doing business on the basis merely of uncertain allegations in the pleadings,
disposed of the whole case with finality and thereby deprived petitioner of his right to be
heard on his cause of action. Nor was there justification for nullifying the writ of
preliminary injunction issued by the trial court. Although the injunction was issued ex
parte, the fact is that BMW was subsequently heard on its defense by filing a motion to
dismiss.

WHEREFORE, the decision of the Court of Appeals is REVERSED and the case

G.R. No. L-25653 February 28, 1985
COMMISSIONER OF INTERNAL REVENUE, petitioner vs.MANILA MACHINERY &
SUPPLY COMPANY and the COURT OF TAX APPEALS, respondents.
 
PLANA, J.:
Appeal by the Commissioner of Internal Revenue from the decision of the Court of Tax
Appeals in CTA Case No. 1250 ordering the refund to respondent Manila Machinery &
Supply Co. of P 21,620.36 allegedly erroneously paid as commercial broker's percentage
tax.
The following partial stipulation of facts outlines the two different modes of business
operation of private respondent (petitioner in the CTA ):
(1) as sales representative of certain United States manufacturers and/or suppliers,
petitioner's transactions or activities are outlined as follows:
(1) Philippine buyer ascertains from petitioner whether or not a certain machinery or
equipment it desires to buy is available from the U.S. manufacturers or suppliers
represented by the former and, if available, requests for price quotations of desired
machinery or equipment;
(2) If agreeable, Philippine buyer places purchase order either directly with the United
States manufacturer and/or supplier or with petitioner who forwards it to the U.S.
manufacturer;
(3) Upon notification that the purchase order is accepted, the Philippine buyer opens with
a local bank a letter of credit in favor of the United States manufacturer or supplier to
cover payment of the goods ordered;
(4) United States manufacturer or supplier ships the goods to Philippine buyer and
collects from the U.S. correspondent of the local bank where the letter of credit was
opened, payment of the goods;
(5) United States manufacturer or supplier credits the petitioner for commission. (CTA
rec., pp. 70-73.)
(2) as distributor of United States manufacturers and/or suppliers, its (petitioner's)
transactions or activities are outlined as follows:
(1) Philippine buyer ascertains from petitioner whether or not a certain machinery or
equipment which the said buyer desires to purchase is available from the U.S.
manufacturers or suppliers for whom petitioner acts as distributor and, if available,
requests for price quotation of the desired machinery or equipment;
(2) Petitioner furnishes the Philippine buyer with price quotation based on price list f.o.b.
factory which is furnished petitioner and fixed by the United States manufacturer or
supplier;
(3) If agreeable, Philippine buyer places the purchase order with the petitioner;
(4) Upon notice of the acceptance of the purchase order, the buyer opens with a local
bank a letter of credit in favor of the petitioner's agent in San Francisco, California, United
States of America to cover the price of the goods ordered;
(5) Petitioner prepares the purchase instructions in accordance with the purchase order
of the Philippine buyer and forwards the same to its agent in the United States;
(6) The said agent procures the goods from the U.S. manufacturer or supplier;
(7) United States manufacturer or supplier invoices goods for petitioner's agent in San
Francisco, California;
(8) Petitioner's agent prepares sales invoice of the petitioner and ships the goods to the
Philippine buyer. (CTA rec., pp. 70-73.)
It appears that during the tax period in question, respondent taxpayer realized an income
of P 630,635.62 from both its activities as sales representative and as distributor of
American manufacturers/suppliers and paid thereon P 37,837.94 as broker's percentage
tax on the assumption that the income consisted entirely of commissions. Later however
respondent sought a partial refund of P 21,620.36 on the ground that of the total income
of P 630,635.62, P 360,339.35 was not broker's commission but simply overprice or profit
(plus exchange income on overprice) realized from ordinary sales of machineries and
equipment it had purchased from American companies.
After the request for refund had been denied by the Bureau of Internal Revenue, the
taxpayer appealed to the Court of Tax Appeals from which it obtained as aforesaid a
favorable judgment, which is now assailed.
The single issue posed in this petition for review is whether the P 360,339.35 earned by
respondent taxpayer in its capacity "as distributor" of American machineries and
equipment should be considered as commission subject to commercial broker's tax
under the Tax Code or profit from sales which is not subject thereto.
The merit of respondent's stand is clear on the face of the appealed decision -
Petitioner (taxpayer) contends that it is not a commercial broker within the definition
provided in Section 194(t) of the Revenue Code, which reads:
(t) "Commercial broker" includes persons other than importers, manufacturer, producers,
or bona fide employees, who, for compensation or profit, sell or bring about sales for
purchases of merchandise for other persons, or bring proposed buyers and sellers
together, or negotiate freights or other business for owners of vessels, or other means of
transportation, or for the skippers, or consignors or consignees of freight carried by
vessels or other means of transportation. The term includes commission merchants.
One of the purposes of petitioner corporation, as stated in its articles of incorporation, is
"to make and enter into all kinds of contracts, agreements, and obligation with any
persons, corporation or corporations, or other associations for the purchasing, acquiring,
selling, or otherwise disposing of goods, wares, and merchandise of all kinds, either as
principal or agent, upon commission, consignment, or indent orders." (BIR rec., pp. 43-
48.) Petitioner is, therefore, authorized to act either as principal or agent in the
transaction of its business. However, the evidence of record regarding petitioner's
transactions which gave rise to the income in question indicates the status of petitioner
as an independent dealer and not as a commercial broker. Petitioner's contracts with
several U.S. manufacturers indubitably show that it acted as an independent dealer.
Pertinent portions of these contracts read:
Joy Manufacturing Company
l. Subject to the terms and conditions hereinafter set forth, the Company grants to the
Distributor the exclusive right to purchase for resale the following listed articles and
machines. ..., manufactured or sold by the Company within the territory indicated
hereinafter. (Emphasis supplied; Distributor's Contract, CTA rec., p. 78.)
Briggs & Straton Corporation
Distributor' is an individual or firm under agreement with Briggs & Straton Corporation,
whose principal business is the resale of products or commodities at wholesale to
Dealers, etc., ... . Distributor shall not act as the agent for the Company under this
agreement, nor shall Distributor have any right or power hereunder to act for or to bind
the company in any respect or to pledge its credit ... (Emphasis supplied; Distributor
Agreement, CTA rec., p. 83.)
The Jeffrey Manufacturing Company
The purpose of this agreement is to effect through the Representative a wider sales
outlet for the Manufacturer's products. This is to be accomplished by the Representative
purchasing certain products, hereinafter listed, and produced by the Manufacturer, for
resale, and diligently promoting their sale in the Representative's territory. (Emphasis
supplied; Export Representative Agreement, CTA rec., p. 85.)
Toledo Scale Corporation
II. (a) To sell only to the Distributor Toledo Machines for use in the Distributor's territory,
except the following machines. . . .
IV. (d) The responsibility of the Company for merchandise ordered. by the Distributor ...
shall end with its delivery f. o. b. factory, all risks of fire, loss or damage after the
shipment has been delivered f.o.b. factory or while in possession of any transportation
company ... , shall be borne by the Distributor.
V. (h) ... It is expressly the intention of the parties hereto that the Distributor's status is
that of an independent contractor. (Emphasis supplied; Export Distributor's Sales
Agreement, CTA rec., pp. 90-93.)
Respondent cites the agreement of petitioner with the Toledo Scale Corporation (CTA
rec., pp. 90-93.), which authorizes petitioner "to solicit sales of" certain products of the
latter corporation, as an indication of brokerage. But respondent merely quoted that
portion wherein petitioner is authorized to act as agent or representative but did not
mention petitioner's equal authority to act as distributor or independent dealer with
respect to the same corporation.
A perusal of the records of the case at bar equally yields the conclusion that petitioner,
through its agent, M.S. Smith in San Francisco, California, U.S.A. (BIR rec., pp. 49- 50),
was the purchaser and owner of the machineries it sent to the Philippine buyers. This
conclusion is established by the fact that when petitioner received purchase order from
local buyers and there was no stock available, it sent the orders to its agent in California
and required the latter "to purchase from ..." the U.S. manufacturers or suppliers the
items called for in the purchase orders (See BIR rec., pp. 63, 79, 98, 111 & 124.)
Petitioner was in turn paid through the letters of credit opened by the Philippine buyers
with local banks in favor of agent M.S. Smith. (See BIR rec., pp- 59-128.)
The facts (1) that petitioner shouldered the losses resulting from some of the transactions
in questions (See BIR rec., pp. 21-22); (2) that if petitioner had no stock available in the
Philippines, it forwarded the purchase order to its agent in California who procured the
machineries from U.S. manufacturers (BIR rec., Exh. pp. 53-56); and (3) that the U.S.
Manufacturers invoiced the goods to petitioner's agent in California who prepared the
sales invoice and shipped the goods to the Philippine buyers (See CTA rec., Stifacts, pp.
70-73) negate agency.
In effect, the instant petition controverts the factual findings of the court a quo. It is well
settled that in passing upon petitions for review of the decisions of the Court of Tax
Appeals, this Court is generally confined to questions of law. The findings of fact of said
Court are not to be disturbed unless clearly shown to be unsupported by substantial
evidence. (Rules of Court, Rule 44, Section 2. Republic Act 1125, Sections 18-19.)
Substantial evidence has been construed to mean not necessarily preponderant proof as
is required in ordinary civil action, but such kind of "relevant evidence as a reasonable
man might accept as adequate in support of a conclusion." (De Lamera vs. Court of
Agrarian Relations, et al., 17 SCRA 368.) There is no circumstance of record indicating
that the findings of the lower court are not supported by substantial evidence.
WHEREFORE, the appealed decision is affirmed.
SO ORDERED.
G.R. No. L-16893            October 22, 1966
THE COLLECTOR (now COMMISSIONER) OF INTERNAL REVENUE, petitioner, vs.
TAN ENG HONG, respondent.
Office of the Solicitor General for petitioner. Teodoro G. Landas for respondent.
REGALA, J.:
This is an appeal from the decision of the Court of Tax Appeals in C.T.A. Case No. 436
entitled "Tan Eng Hong, Petitioner, vs. Collector of Internal Revenue, Respondent,"
absolving Tan Eng Hong from certain tax liabilities as a commercial broker.
Sometime in 1952, the Philippine Council For United States Aid (PHILCUSA) called a
public bidding for the supply of certain materials which it intended to give as aid to the
Philippines. Tan Eng Hong won the bid so that from 1952 to 1955, inclusive, he made
deliveries to PHILCUSA of the bidded goods for which he received in payment the total
sum of P94,685.71. The Bureau of Internal Revenue determined that the various
transactions under the above bid were carried out by Tan Eng Hong as a commercial
broker and, accordingly, assessed against the sum received, fixed and percentage taxes
and surcharge in the amount of P7,513.94.
Taking issue with the Bureau's ruling that he was acting as a commercial broker in
supplying the goods under the above bid, Tan Eng Hong went to the Court of Tax
Appeals, under C.T.A. Case No. 436, on a petition for review. After due trial and hearing,
the said Court rendered judgment with the following dispositive portion —
WHEREFORE, in view of the foregoing considerations, the decision appealed from is
hereby reversed, and the deficiency assessment for fixed and percentage taxes in the
total sum of P7,513.94 issued by the respondent Collector of Internal Revenue is hereby
cancelled and withdrawn. Without pronouncement as to costs.
The sole and principal predicate of the trial court's decision abovementioned was its
finding that "petitioner Tan Eng Hong was not a broker but the importer of the goods sold
to PHILCUSA." Consequently, the instant appeal refers alone to the correctness or error
of the above finding that Tan Eng Hong was not a commercial broker. The Commissioner
of Internal Revenue urges that he was so.
To resolve the issue, it is necessary to discuss the specific details of the transactions in
dispute. Inasmuch as there is no dispute by the parties herein on the trial court's account
of it, We deem it best to reproduce the said account hereunder:
To start with, PHILCUSA announces that "Sealed bids ... will be received ... and then
publicly opened for furnishing commodities for delivery C & W Manila." (Exh. 7, pp. 44-46
BIR rec.; Exh. H, p. 65 CTA rec.) The petitioner, as a qualified bidder, submits his signed
proposal together with a proposal bond. He "offers and agrees, if this (his) bid be
accepted within 20 calendar days from the date of opening, to furnish any or all of the
items of which prices are quoted, at the price set opposite each item and delivered at the
point(s) specified . . ." Exh. 7, pp. 44-46, BIR rec.; Exh. H, p. 65 CTA rec.) The quotations
of the petitioner is in Philippine currency for the C & F Philippine Port Value. In computing
his bid, the total C & F dollar cost is converted to pesos on the basis of P2.00 to $1.00,
and his profit in pesos which he personally and solely fixes, is then added thereto in
order to arrive at the correct total quotation.
If the bid of the petitioner is accepted by PHILCUSA, he receives a letter of award
wherein he is required to inform PHILCUSA of the (1) Net C & F dollar cost to his
suppliers per item and per each supplier's group; (2) Names and addresses of his
suppliers; and (3) Names of independent inspection firms that will undertake the
inspection prior to the shipment of the goods. Hence, it is only after the petitioner has
been finally awarded the bid contract that PHILCUSA comes to know of the names of the
foreign suppliers of the commodities to be imported and the sole purpose seems to be to
secure and facilitate the dollar payment of the imported goods to said suppliers abroad.
Then, the petitioner is also requested to submit a performance bond and to apply at the
Philippine National Bank for the corresponding letters(s) of credit in favor of his suppliers
abroad. (Exh. Z, p. 32 CTA rec.) However, he is not required to secure an import license
for the goods imported for PHILCUSA.
Accordingly, the petitioner applies for a letter of credit with the Philippine National Bank in
his own name and for his own account and in favor of his suppliers abroad. He pays the
usual bank charges, but is not required to make payment of pesos into the counterpart
fund nor pay the foreign exchange premium as no actual sale of dollars is involved. He is
also exempt from the payment of the following: (1) Foreign exchange tax; (2) sales tax;
(3) customs duties; (4) municipal taxes; (5) arrastre charges; and (6) delivery charges,
except when otherwise provided in the contract. The dollars that are being used in all the
PHILCUSA purchases belong to the United States Mutual Security Administration
(hereinafter referred to as MSA) and are actually paid for by the Philippine Government
by general payments from the special appropriation directly into the counterpart fund.
(Par. 14, Exh. F, pp. 55-56 CTA rec.; also Exh. 8, pp. 19-20 BIR rec.) And most probably
for this reason, the petitioner authorizes the Philippine National Bank to deliver all
documents drawn under this credit to PHILCUSA. (Exh. G, p. 64 CTA rec.)
In carrying out a commercial venture under the aforequoted arrangement, did Tan Eng
Hong act as a commercial broker?
We do not think so.
In the case of Kuenzle & Streiff Inc. vs. The Commissioner of Internal Revenue, G.R. No.
L-17648, October 31, 1964, this Court held that the essential feature of a broker is the
fact that he acts not for himself, but for a third person. As was therein held:
Section 194(t) of the Revenue Code defines a commercial broker in the following
manner:
"(t) "Commercial broker" includes all persons, other than importer, manufacturers,
producers, or bona fide employees, who, for compensation or profit, sell or bring about
sales or purchases of merchandise for other persons, or bring proposed buyers and
sellers together, or negotiate freights or other business for owners of vessels, or other
means of transportation, or for the shoppers, or consignors or consignees of freight
carried by vessels or other means of transportation. The term includes commission
merchants."
There does not seem to be any room for doubt that the petitioner falls within the above
definition. Under the said section, as well as by the rulings handed down in at least two
cases by this Court, the essential feature of a broker is the fact that he acts not for
himself, but, for a third person. (Ker & Co., Ltd. v. Collector of Internal Revenue, 70 Phil.
36; Behn, Meyer & Co., Ltd. v. Nolting and Garcia, 35 Phil. 274). In Behn Meyer case.
We said:
. . . A broker is generally defined as one who is engaged, for others, on a commission,
negotiating contracts relative to property with the custody of which he has no concern;
the negotiator between other parties, never acting in his own name, but in the name of
those who employed him; he is strictly a middleman and for some purposes the agent of
both parties. (Emphasis ours).
It seems obvious from the facts of this case that Tan Eng Hong undertook the importation
of the goods needed by PHILCUSA for himself and not for PHILCUSA. In effecting the
importation of the said goods, he was discharging his own, personal obligation as the
winner in the bidding called by PHILCUSA. He imported the commodities not because
PILCUSA had asked him to but because he had obligated himself to deliver the same to
PHILCUSA when he participated and won in the public bidding called by the said agency.
Tan Eng Hong would have been liable in damages to PHILCUSA if he had failed to
import the said goods so that when he carried out the importation, he was, first and
foremost, serving his own interest and no one else's.
Upon the records of this case, it appears that Tan Eng Hong signed and submitted his
bids or proposals under his name and the corresponding letters of credit were sent to his
business address. The letters of credit, performance bonds, invoices and all other
documents relative to the transactions were in his name. The bid contracts were strictly
between Tan Eng Hong and PHILCUSA just as the former's contracts with his foreign
supplier were strictly between them alone, i.e., Tan Eng Hong and the foreign supplier
only. The foreign supplier and PHILCUSA had no privity of contractual relations
whatsoever to the end that neither of them could have had any claim against each other
for whatever fault or breach Tan Eng Hong might have committed relevant to the
transactions in dispute. It would indeed be quite difficult to sustain any assertion that Tan
Eng Hong was acting for and in behalf of PHILCUSA or his foreign supplier or both.
The broker must be the efficient agent or the procuring cause of the sale. The means
employed by him and his efforts must result in the sale. He must find the purchaser, and
the sale must proceed from his efforts acting as a broker. (Reyes v. Mosqueda, G.R. No.
L-8669, May 25, 1956; 53 O.G. 2158). This condition may not be said to obtain in the
case on hand. Tan Eng Hong did not merely bring PHILCUSA and his foreign supplier to
come to an agreement for the sale of certain commodities. It was he himself who
contracted with his foreign supplier for the purchase of the said goods. If, for one reason
or another PHILCUSA had refused to accept the delivery of the said goods to it by Tan
Eng Hong, the foreign supplier could not have compelled PHILCUSA otherwise.
Similarly, if somehow the foreign supplier had defaulted in the performance of its
obligations to Tan Eng Hong, PHILCUSA could not have had any action or remedy
against the said foreign supplier. All these indicate the distinct and independent
personality of Tan Eng Hong as an importer and not a commercial broker.
WHEREFORE, the decision appealed from is hereby affirmed in full. No pronouncement
on costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez
and Castro, JJ., concur.