petitioners to pay respondents 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 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 is directed, not
against the drawer, but against the debtor who indorsed the
checks in payment of the obligation.

TITLE X AGENCY
CHAPTER 1
Nature, Forms and Kinds of Agency
ARTICLE 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 Case
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. 46535. The decretal portion of the
assailed Decision reads:

JURISPRUDENCE
MARIA TUAZON, ALEJANDRO
P. TUAZON, MELECIO P.
TUAZON, Spouses ANASTACIO and
MARY T. BUENAVENTURA,
Petitioners,

G.R. No. 156262

Present:
Panganiban, J.,
Chairman,
Sandoval-Gutierrez,
Corona,
Carpio-Morales, and
Garcia, JJ

- versus -

HEIRS OF BARTOLOME RAMOS,

Respondents.
2005

Promulgated:
July 14,

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --- -- -- -- -- -- -- x
DECISION
PANGANIBAN, J.:
Stripped of nonessentials, the present case involves the Collection
of a sum of money. Specifically, this case arose from the failure of

WHEREFORE, the
is DISMISSED and
the
is AFFIRMED.

appealed

appeal
decision

On the other hand, the affirmed Decision [3] of Branch 34 of the

Regional Trial Court (RTC) of Gapan, Nueva Ecija, disposed as
follows:
WHEREFORE, judgment is hereby rendered in favor
of the plaintiffs and against the defendants, ordering
the defendants spouses Leonilo Tuazon and Maria
Tuazon to pay the plaintiffs, as follows:
1. The sum of P1,750,050.00, with
interests from the filing of the second
amended complaint;
2.
The
sum
attorneys fees;

of P50,000.00,

as

3. The sum of P20,000.00, as moral

damages
4. And to pay the costs of suit.
x x x x x x x x x[4]

The Facts
The facts are narrated by the CA as follows:
[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 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
at P1,211,919.00. In payment therefor, the spouses
Tuazon issued x x x [several] Traders Royal Bank
checks.
xxxxxxxxx
[B]ut when these [checks] were encashed, all of the
checks bounced due to insufficiency of funds.
[Respondents] advanced that before issuing said
checks[,] spouses Tuazon already knew that they
had no available fund to support the checks,
and they failed to provide for the payment of these
despite repeated demands made on them.
[Respondents] averred that because spouses Tuazon
anticipated that they would be sued, they
conspired with the other [defendants] to
defraud them as creditors by executing x x x
fictitious sales of their properties. They executed
x x x 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 simulated deed of sale
dated July 12, 1988 of a Stake Toyota registered
with the Land Transportation Office of Cabanatuan
City on September 7, 1988. [Co-petitioner] Melecio
Tuazon, a son of spouses Tuazon, registered a
fictitious Deed of Sale on July 19, 1988 x x x over a
residential lot located at Nueva Ecija. Another
simulated sale of a Toyota Willys was executed on
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 of these properties issued in the
names of spouses Tuazon were cancelled and new
ones were issued in favor of the [co-]defendants
spouses Buenaventura, Alejandro Tuazon and
Melecio Tuazon. Resultantly, by the said ante-dated
and simulated sales and the corresponding transfers
there was no more property left registered in the
names of spouses Tuazon answerable to creditors, to
the damage and prejudice of [respondents]. Note:
Petitioners made fictitious sales in order to remove
all the properties registered in the name of spouses
tuazon from them.
For their part, defendants denied having
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]

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.
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 Courts Ruling
The Petition is unmeritorious.
First Issue:
Agency

Well-entrenched is the rule that the Supreme Courts role in a

petition under Rule 45 is limited to reviewing errors of law
allegedly committed by the Court of Appeals. Factual findings of
the trial court, especially when affirmed by the CA, are conclusive
on 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 latters 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 act in relation to a third
person; (3) the representation, by which the one who acts as
an agent does so, not for oneself, but as a representative;
(4) thelimitation 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 principals
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.

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.

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.

[G.R. No. 130148. December 15, 1997]

JOSE

BORDADOR and LYDIA BORDADOR, petitioners,

vs. BRIGIDA D. LUZ, ERNESTO M. LUZ and NARCISO
DEGANOS, respondents.

REGALADO, J.:

DECISION

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-M90 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. 785M-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 attorneys 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 latters
claim for money and damages in the sum of P725,463.98, plus

interests and attorneys 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 xx 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.

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. 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]

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]

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.

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

On July 9, 1997, the Court of Appeals rendered judgment in

this case affirming the trial courts decision. [23] Petitioners moved
for reconsideration and the Court of Appeals ordered respondents
to file a comment. Respondents filed the same on August 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
petitioners
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.
Lastly, petitioners fault the trial courts 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 contracts and not to executed or to partially executed
ones. From there, they move on to 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
SO ORDERED.
G.R. No. 76931

May 29, 1991

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.

(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.

PADILLA, J.:
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
contained, the parties hereto agree as follows:

herein

1. Representation of American by Orient Air Services

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 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:

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.

(a) soliciting and promoting passenger traffic for the

services of American and, if necessary, employing
staff competent and sufficient to do so;

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

x x x3

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

10

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.

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

11

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:

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."

Since Orient Air was allowed to carry only the ticket stocks of
American Air, and the former not having opted to appoint any subagents, 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.

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.

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

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

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 Servicesor its subagents. (Emphasis supplied)

12

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 the obscurity. 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:

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.

Any ambiguity in a contract, whose terms are susceptible of

different interpretations, must be read against the party
who drafted it. 16

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 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.

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 Agreementthat 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.

It is believed, however, that respondent appellate court erred in

affirming the rest of the decision of the trial court.1wphi1We
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."

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.

13

LAUREANO T. ANGELES,

Petitioner,

- versus -

On May 5, 1980, the respondent Philippine National Railways

(PNR)
informed
a
certain
Gaudencio
G.R. No.
150128
Romualdez (Romualdez, hereinafter) that
it
has accepted the
latters offer
to
buy, on
an
AS
IS,
WHERE
IS
Present:
basis, the PNRs scrap/unserviceable rails located in Del Carmen
PUNO, and Lubao, Pampanga at P1,300.00 and P2,100.00 per metric ton,
respectively, for the total amount of P96,600.00. After paying the
SANDOVAL-GUTIERREZ,
stated purchase price, Romualdez addressed a letter to Atty.
CORONA,
Cipriano
AZCUNA,
and Dizon, PNRs Acting Purchasing Agent. Bearing date May
26, 1980, the letter reads:
GARCIA,
Promulgated: Dear Atty. Dizon:

This is to inform you as President of San Juanico

PHILIPPINE NATIONAL RAILWAYS (PNR) AND
Enterprises, that I have authorized the bearer,
August 31, 2006
RODOLFO FLORES,[1]
LIZETTE R. WIJANCO of No. 1606 Aragon St., Sta.
Respondents.
Cruz, Manila, to be my lawful representative in the
x-------------------------------------------------withdrawal of the scrap/unserviceable rails awarded
-x
to me.
DECISION
For this reason, I have given her the ORIGINAL
COPY of the AWARD, dated May 5, 1980 and O.R. No.
GARCIA, J.:
8706855 dated May 20, 1980 which will indicate my
waiver of rights, interests and participation in favor
Under consideration is this petition for review under Rule 45 of
of LIZETTE R. WIJANCO.
the Rules of Court assailing and seeking to set aside the following
issuances of the Court of Appeals (CA) in CA-G.R. CV No. 54062, to
Thank you for your cooperation.
wit:
1.

2.

The facts:

[2]

Decision dated June 4, 2001, affirming

an earlier decision of the Regional Trial Court
(RTC) of Quezon
City, Branch
79, which
dismissed the complaint
for
specific
performance
and
damages thereat
commenced by the petitioner against the
herein respondents; and
Resolution[3] dated September
17,
2001, denying the petitioner's
motion
for
reconsideration.

Very truly yours,

(Sgd.) Gaudencio Romualdez
The Lizette R. Wijanco mentioned
in
the
letter
was Lizette Wijanco- Angeles, petitioner's now deceased wife.
That very same day May 26, 1980 Lizette requested the PNR to
transfer the location of withdrawal for the reason that
the scrap/unserviceable rails located in Del Carmen and Lubao,
Pampanga were not ready for hauling. The PNR granted said
request and allowed Lizette to withdraw scrap/unserviceable
rails in Murcia, Capas and San Miguel, Tarlac instead.
However, the PNR subsequently suspended the withdrawal in view
of what it considered as documentary discrepancies coupled
by reported pilferages of over P500,000.00 worth of PNR scrap
properties in Tarlac.

14

Consequently, the spouses Angeles demanded the refund of the

amount of P96,000.00. The PNR, however, refused to pay, alleging
that as per delivery receipt duly signed byLizette, 54.658 metric
tons of unserviceable rails had already been withdrawn which,
at P2,100.00 per metric ton, were worth P114,781.80, an amount
that exceeds the claim for refund.
On August
10,
1988, the spouses Angeles filed suit against the PNR
and
its
corporate secretary, Rodolfo Flores, among others, for specific
performance and damages before the
Regional Trial Court of Quezon City. In it, they prayed that PNR be
directed to deliver 46 metric tons of scrap/unserviceable rails and
to pay them damages and attorney's fees.
Issues having been joined following the filing by PNR, et al., of
their answer, trial ensued. Meanwhile, Lizette W. Angeles passed
away and was substituted by her heirs, among whom is her
husband, herein petitioner Laureno T. Angeles.
On April 16, 1996, the trial court, on the postulate that the
spouses Angeles are not the real parties-in-interest, rendered
judgment dismissing their complaint for lack of cause of action. As
held by the court, Lizette was merely a representative of
Romualdez in the withdrawal of scrap or unserviceable rails
awarded to him and not an assignee to the latter's rights with
respect to the award.
Aggrieved, the petitioner interposed an appeal with the CA, which,
as stated at the threshold hereof, in its decision of June 4, 2001,
dismissed the appeal and affirmed that of the trial
court. The affirmatory decision was reiterated by the CA in its
resolution of September 17, 2001, denying the petitioners motion
for reconsideration.
Hence, the petitioners present recourse on the submission that
the CA erred in affirming the trial court's holding that petitioner
and his spouse, as plaintiffs a quo, had no cause of action as they
were not the real parties-in-interest in this case.
We DENY the petition.
At the crux of the issue is the matter of how the aforequoted May
26,
1980 letter
of
Romualdez
to Atty. Dizon of

the PNR should be taken: was it meant to designate, or has it the

effect of designating, Lizette W. Angeles as a mere agent or as an
assignee of his (Romualdez's) interest in the scrap rails awarded to
San Juanico Enterprises? The CAs conclusion, affirmatory of that
of the trial court, is that Lizette was not an assignee, but merely
an agent whose authority was limited to the withdrawal of the
scrap rails, hence, without personality to sue.
Where agency exists, the third party's (in this case, PNR's) liability
on a contract is to the principal and not to the agent and the
relationship of the third party to the principal is the same as that
in a contract in which there is no agent. Normally, the agent has
neither rights nor liabilities as against the third party. He
cannot thus sue or be sued on the contract. Since a contract may
be violated only by the parties thereto as against each other, the
real party-in-interest, either as plaintiff or defendant in an action
upon that contract must, generally, be a contracting party.
The legal situation is, however, different where an agent is
constituted as an assignee. In such a case, the agent may, in his
own
behalf,
sue on
a
contract made for his principal, as
an assignee of such contract. The rule requiring every action to be
prosecuted
in
the
name
of
the
real party-ininterest recognizes the assignment of rights of action and also
recognizes that when one has a right assigned to him, he is then
the real party-in-interest and may maintain an action upon such
claim or right.[4]
Upon
scrutiny
of the
subject Romualdez's letter
to Atty. Cipriano Dizon dated May
26,
1980, it is
at
once
apparent that Lizette was to act just as a representative of
Romualdez in the withdrawal of rails, and not an assignee. For
perspective, we reproduce the contents of said letter:
This is to inform you as President of San Juanico
Enterprises, that I have authorized the bearer,
LIZETTE R. WIJANCO x x x to be my lawful
representative in the withdrawal of the
scrap/unserviceable rails awarded to me.
For this reason, I have given her the ORIGINAL
COPY of the AWARD, dated May 5, 1980 and O.R.
No. 8706855 dated May 20, 1980 which will indicate

15

my waiver of rights, interests and participation in

favor of LIZETTE R. WIJANCO. (Emphasis added)
If Lizette was without legal standing to sue and appear in this
case, there is more reason to hold that her petitioner husband,
either as her conjugal partner or her heir, is also without such
standing.
Petitioner makes much of the fact that the terms agent or
attorney-in-fact were not used in the Romualdez letter
aforestated. It bears to stress, however, that the words principal
and agent, are not the only terms used to designate the parties in
an agency relation. The agent may also be called an attorney,
proxy, delegate or, as here, representative.
It cannot be over emphasized that Romualdez's use of the active
verb authorized, instead of assigned, indicated an intent on his
part to keep and retain his interest in the subject matter. Stated a
bit differently, he intended to limit Lizettes role in the scrap
transaction to being the representative of his interest therein.
Petitioner submits that the second paragraph of the Romualdez
letter, stating - I have given [Lizette] the original copy of the
award x x x which will indicate my waiver of rights, interests and
participation in
favor
of
Lizette
R.
Wijanco - clarifies that Lizette was intended to be an assignee, and
not a mere agent.
We
are
not
persuaded.
As
it
were, the petitioner conveniently omitted an important
phrase
preceding
the paragraph
which would
have put the
whole
matter in
context. The
phrase
is For
this
reason, and
the antecedent
thereof
is his
(Romualdez)
having
appointed Lizette as his representative in the matter of the
withdrawal
of
the
scrap
items. In
fine,
the
key
phrase clearly conveys the idea that Lizette was given the original
copy of the contract award to enable her to withdraw the rails
as Romualdezs authorized representative.
Article 1374 of the Civil Code provides that the various
stipulations of a contract shall be read and interpreted together,
attributing to the doubtful ones that sense which may result from
all of them taken jointly. In fine, the real intention of the parties is
primarily to be determined from the language used and gathered

from the whole instrument. When put into the context of the letter
as a whole, it is abundantly clear that the rights which Romualdez
waived or ceded in favor of Lizette were those in furtherance of
the agency relation that he had established for the withdrawal of
the rails.
At any rate, any doubt as to the intent of Romualdez generated by
the way his letter was couched could be clarified by the acts of the
main
players
themselves. Article
1371
of
the
Civil
Code provides that to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be
principally considered. In other words, in case of doubt,
resort may be made to the situation, surroundings, and relations of
the parties.
The fact of agency was, as the trial court aptly observed,
[5]
confirmed in subsequent letters from the Angeles spouses in
which they themselves refer to Lizette as authorized
representative of San Juanico Enterprises. Mention may also be
made
that the
withdrawal
receipt
which
Lizette
had
signed indicated that she was doing so in a representative
capacity. One professing to act as agent for another is estopped to
deny his agency both as against his asserted principal and third
persons interested in the transaction which he engaged in.
Whether or not an agency has been created is a question to be
determined by the fact that one represents and is acting for
another. The appellate court, and before it, the trial court, had
peremptorily determined that Lizette, with respect to the
withdrawal of the scrap in question, was acting for Romualdez.
And with the view we take of this case, there were
substantial pieces
of evidence
adduced
to
support
this
determination. The desired reversal urged by the petitioner
cannot, accordingly, be granted. For, factual findings of the trial
court, adopted and confirmed by the CA, are, as a rule, final and
conclusive and may not be disturbed on appeal.[6] So it must be
here.
Petitioner maintains that the Romualdez letter in question was not
in
the
form
of
a
special
power
of
attorney,
implying that the latter had not intended to merely authorize his
wife,Lizette, to perform an act for him (Romualdez). The
contention is specious. In the absence of statute, no form or
method of execution is required for a valid power of attorney; it

16

may be in any form clearly showing on its face the agents

authority.[7]

AMON TRADING CORPORATION

and JULIANA MARKETING,

A power of attorney is only but an instrument in writing by

which a person, as principal, appoints another as his agent and
confers upon him the authority to perform certain specified acts
on behalf of the principal. The written authorization itself is the
power of attorney, and this is clearly indicated by the fact that it
has also been called a letter of attorney. Its primary purpose is not
to define the authority of the agent as between himself and his
principal but to evidence the authority of the agent to third parties
with whom the agent deals.[8] The letter under consideration is
sufficient to constitute a power of attorney. Except as may be
required by statute, a power of attorney is valid although no
notary public intervened in its execution.[9]

P e t i t i o n e r s,

A power of attorney must be strictly construed and pursued. The

instrument will be held to grant only those powers which are
specified therein, and the agent may neither go beyond nor
deviate
from
the
power
of
attorney. [10] Contextually,
all that Lizette was authorized to do was to withdraw the
unserviceable/scrap railings. Allowing her authority to sue
therefor, especially in her own name, would be to read something
not intended, let alone written in the Romualdez letter.
Finally, the petitioner's claim that Lizette paid the amount
of P96,000.00 to the PNR appears to be a mere afterthought; it
ought to be dismissed outright under the estoppel principle. In
earlier proceedings, petitioner himself admitted in his complaint
that it was Romualdez who paid this amount.
WHEREFORE, the petition is DENIED and the assailed decision
of the CA is AFFIRMED.

G.R. No. 158585

Present:
PUNO,

- versus -

Chairman,
HON. COURT OF APPEALS and TRIREALTY
DEVELOPMENT
AND
CONSTRUCTION CORPORATION,

AUSTRIA-MARTINE

R e s p o n d e n t s.

TINGA, and

CALLEJO, SR.,

CHICO-NAZARIO, J

Promulgated:

December 13, 2005

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Costs against the petitioner.

SO ORDERED.

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)

17

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 Managers Check No. 0011565 payable to Amon
Trading Corporation, and the amount of P588,000.00
payable to Juliana Marketing, through Solidbank Managers
Check No. 0011566. A certain Weng Chua signed the check
vouchers for Lines & Spaces while Mrs. Sanchez issued receipts
for the two managers 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 Managers 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 courts 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

18

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 attorneys fees; and to pay Amon
Trading and Juliana Marketing, Inc. on the
crossclaim the sum of P200,000.00 as attorneys
fees.[3]
Private Respondent Tri-Realty partially appealed from the
trial courts 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-

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 attorneys

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]
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 defendantappellee 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.

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.

II.

WHETHER OR NOT THERE WAS A

CONTRACT OF AGENCY BETWEEN LINES
AND SPACES INTERIOR CENTER AND
RESPONDENT;

WHETHER OR NOT PETITIONERS AND

RESPONDENT HAS PRIVITY OF CONTRACT.
[5]

19

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 respondents 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/TriRealty 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
managers checks was made to Eleanor Sanchez of Lines & Spaces
and was not directly paid to petitioners. While the managers 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 managers 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 respondents 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 managers
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) managers checks. Thus-

Q: And what is your proof that Amon and

Juliana were paid of the purchases through
managers checks?

20

A: Lines & Spaces who represented Amon

Trading and Juliana Marketing issued us receipts for
the two (2) managers 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/TriRealty, 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. It was accordingly ordinarily held that in using the term
"and/or" the word "and" and the word "or" are to be used
interchangeably.

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
Sanchezs 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 latters cement needs. The Civil Code defines a
contract of agency as follows:

21

Q: How come you know this defendant?

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.

A: Lines & Spaces represented by Eleanor

Bahia Sanchez offered to supply us cement when
there was scarcity of cement experienced in our
projects.[14] (Emphasis 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 managers 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 clients affairs.

22

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 clients 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
respondents claim against petitioners lacks legal foothold.

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.
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

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."

23

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,

24

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

25

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

26

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.
G.R. No. L-2870

September 19, 1950

CHUA NGO, plaintiff-appellee,

vs.
UNIVERSAL TRADING CO., INC., defendant-appellant.
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.
From a judgment for plaintiff, the defendant appealed.
It appears that on January 14, 1946, the herein litigants signed the
document Exhibit 1, which reads as follows:
UNIVERSAL TRADING COMPANY, INC.
Far Eastern Division
R-236-238 Ayala Building
Juan Luna, Manila
CONTRACT NO. 632 14 January 1946
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:
Quantity Merchandise and description Unit Unit price
Amount
300 Sunkist oranges, wrapped
Grade No. 1 .................... .......... ................ .................
Navel, 220 to case ............ Case $6.30 $1,890.00
300 Onions, Australian
Browns, 90 lbs. to case Case $6.82 $2,046.00
We are advised by the supplier that the charges to bring
these goods to Manila are:

27

ORDER NO. 707

Oranges...................................
......................

$3.06 per case

Onions .....................................
......................

$1.83 per case.

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:

TO GABUARDI COMPANY OF CALIFORNIA

258 Market Street
San Francisco, California
Please send for our account, subject to conditions on the
back of this order, the following merchandise enumerated
below:
Shipping instructions
Via San Francisco, California
Terms: F. O. B.
San Francisco
Quantity Articles Unit Unit price Total price
300 Sunkist oranges wrapped
Grade No 1 ............... ............ ..........
Navel, 220 to case ...... Case $6.00 $1,800.00.

Onions canceled by supplier.

(Initialed) R. E. H.
Total amount of
order ..................................................................................
$3,936
Agreed and accepted:
(Sgd.) CHUA NGO
Confirmed and approved:
(Sgd.) RALPH E. HOLMES
Sales manager
Universal Trading Company, Inc.
(See terms of agreement on reverse side.)
On the same date, the defendant forwarded and order to Gabuardi
Company of San Francisco, U. S. A., which in part says:

xxx

xxx

xxx

Approved:
Universal Trading Company, Inc.
(Sgd.) RALPH R. HOLMES
Sales 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:

28

300 cases of oranges at

$9.36..................................

P6,616.00

Bank
charges ..................................................
..............

196.56

Custom charges,
etc. ..................................................

270.00

Delivery
charges ..................................................
........

171.00

3 percent sales
tax ...................................................

218.00

P6,253.56

Less deposit R. No.

1062 ................

3,650.00

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 must be reversed; if the latter, it
should be affirmed.
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 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 placed an order for purchase of the same
with Gabuardi Company at $6 per box. If Universal Trading

29

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 purchaser from Gabuardi
Company. Fourth, the defendant charged the plaintiff the sum of
P218.87 for 3 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 have been assigned to Chua Ngo. Instead, the defendant
has been pressing such claims for itself.

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.
G.R. No. L-7144

May 31, 1955

FAR EASTERN EXPORT & IMPORT CO., petitioner,

vs.
LIM TECK SUAN, respondent.

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.

Juan Nabong and Crisolito Pascual for petitioner.

Jose P. Laurel, Marciano Almario and Jose T. Lojom for respondent.

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.

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 defendantpetitioner 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.

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.

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:

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

MONTEMAYOR, J.:

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:

30

FAR EASTERN EXPORT & IMPORT COMPANY

presentation and payment against "ON BOARD" bills of

lading. Partial shipments permitted.

75 Escolta 2nd Floor Brias Roxas Bldg., Manila

Payment
Ship to LIM TECK SUAN Date Written 11/17/48
475 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 Amount
10,000 yds Ashtone Acetate & Rayon-No. 13472
Width: 41/42 inches; Weight:
Approximately 8 oz. per yd; Ten (10)
colors, buyers choice, as per attached
samples, equally assorted; at $1.13
per yard F.A.S. New York U. S. $11,500.00
Item herein sold are FOB-FAS X C. & F
CIF
====================================
==================
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

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

31

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 Merchan
dise and Unit Unit Amount
Price
Description
100 Panamanian Agewood Bourbon
Whisky ..........................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;

32

"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

33

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.
[G.R. No. 117356. June 19, 2000]
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

34

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 withdrawn 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

35

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 C15 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

36

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 courts 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.

37

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

38

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.

"5. The Court of Appeals erred in not holding that

the conditions of the assigned SLDR No. 1214,
namely, (a) its subject matter being generic, and (b)
the sale of sugar being subject to its 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:

" 3. The Court of Appeals misapplied the law on

compensation under Arts. 1279, 1285 and 1626 of
the Civil Code when it ruled 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 right to setoff all its credits
arising prior to notice of assignment from other
sales or SLDRs against private respondent's claim as
assignee under SLDR No. 1214M, so as to
extinguish or reduce its liability to 69 bags, because
the law on compensation applies precisely to two or
more distinct contracts between the same parties
(emphasis in the original).

(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.

"4. The Court of Appeals erred in concluding that

the settlement or liquidation of accounts in Exh. F
between petitioner and STM, respondent's
admission of its balance, and STM's acquiescence
thereto by silence for almost one year did not render
Exh. `F' an account stated and its balance binding.

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

an error of law in not applying the "clean hands
doctrine" to preclude CSC from seeking judicial
relief.

(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.

The issues will be discussed in seriatim.

39

Anent the first issue, we find from the records that

petitioner raised this issue for the first time on appeal. It is
settled that an issue which was not raised during the trial
in the court below could not be raised for the first time on
appeal as to do so would be offensive to the basic rules of
fair play, justice, and due process.[15] Nonetheless, the Court
of Appeals opted to address this issue, hence, now a matter
for our consideration.
Petitioner heavily relies upon STM's letter of authority
allowing CSC to withdraw sugar against SLDR No. 1214M
to show that the latter was STM's agent. The pertinent
portion of said letter reads:
"This is to authorize Consolidated Sugar Corporation
or its representative to withdraw for and in our
behalf (stress supplied) 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."[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 plaintiffappellee 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

40

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

41

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.

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.

WHEREFORE, the instant petition is DENIED for lack of

merit. Costs against petitioner.

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.

SO ORDERED.
G.R. No. L-10517

June 28, 1957

PEARL ISLAND COMMERCIAL CORPORATION, plaintiffappellee,

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

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:

42

(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 VisayasMindanao 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

43

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.

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:

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)

... 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

44

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).
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

45

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.
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

46

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

47

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.

[G.R. No. 143978. December 3, 2002]

MANUEL B. TAN, GREGG M. TECSON and ALEXANDER
SALDAA, 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

48

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
Saldaa, 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 Caete, 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 Caete 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 brokers 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 brokers 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 attorneys 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 brokers 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.

49

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 Saldaa;
1) The sum of SIX HUNDRED TWENTY FOUR THOUSAND AND
SIX HUNDRED EIGHTY FOUR PESOS (P624,684.00) as brokers
fee with legal interest at the rate of 6% per annum from the date
of filing of the complaint; and

Petitioners, for their part, assailed the lower courts basis of

the award of brokers 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 attorneys 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 courts
decision and rendered another judgment dismissing the complaint.
[19]

Hence, this appeal.

Petitioners raise following issues for resolution:
I.

2) The sum of FIFTY THOUSAND PESOS (P50,000.00) as

attorneys 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 brokers fee, attorneys fees and
the costs of litigation to petitioners.[17]

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.

50

The records show that petitioner Manuel B. Tan is a licensed

real estate broker, and petitioners Gregg M. Tecson and Alexander
Saldaa 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 nonexclusive, 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 courts 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,

51

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.

ALFRED HAHN, petitioner, vs. COURT OF APPEALS and

BAYERISCHE
MOTOREN
WERKE
AKTIENGESELLSCHAFT (BMW), respondents.

Having ruled that petitioners are entitled to the brokers

commission, we should now resolve how much commission are
petitioners entitled to?

DECISION
MENDOZA, J.:

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.

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.

In the matter of attorneys fees and expenses of litigation, we

affirm the amount of P50,000.00 awarded by the trial court to the
petitioners.

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.

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 Saldaa the sum of Six Hundred Twenty-Four
Thousand and Six Hundred Eighty-Four Pesos (P624,684.00) as
brokers 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 attorneys fees and costs of litigation, is
REINSTATED.
SO ORDERED.

The following are the facts:

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;

[G.R. No. 113074. January 22, 1997]

52

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-InFact 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

53

terminating his exclusive dealership. Hahn's amended complaint

alleged in pertinent parts:

terminate Plaintiff's exclusive dealership and any relationship for

cause effective June 30, 1993. . . .

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 singlehandedly 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

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

54

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.

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.
....

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-

. . . [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

55

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.

56

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

57

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]
It is not true then that the question whether BMW is doing
business could have 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

58

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 is REMANDED to the trial court for
further proceedings.
SO ORDERED.

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.:

59

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

60

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;

price of the goods

ordered;

(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;

(6) The said agent

procures the goods from
the U.S. 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

(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;

(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

61

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

62

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

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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:

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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, orbona
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

65

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.

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. L8669, 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.

Upon the records of this case, it appears that Tan Eng Hong
signed and submitted his bids or proposals under his name and the

66