Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 103737 December 15, 1994

NORA S. EUGENIO and ALFREDO Y. EUGENIO, petitioners,

vs.
HON. COURT OF APPEALS and PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES,
INC.,respondents.

Public Attorney's Office for petitioners.

Romualdo M. Jubay for private respondent.

REGALADO, J.:

Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc. is engaged in the business
of manufacturing, making bottling and selling soft drinks and beverages to the general public.
Petitioner Nora S. Eugenio was a dealer of the soft drink products of private respondent corporation.
Although she had only one store located at 27 Diamond Street, Emerald Village, Marikina, Metro
Manila, Eugenio had a regular charge account in both the Quezon City plant (under the name
"Abigail Minimart" *) as well as in the Muntinlupa plant (under the name "Nora Store") of respondent
corporation. Her husband and co-petitioner, Alfredo Y. Eugenio, used to be a route manager of
private respondent in its Quezon City plant.

On March 17, 1982, private respondent filed a complaint for a sum of money against petitioners
Nora S. Eugenio and Alfredo Y. Eugenio, docketed as Civil Case No. Q-34718 of the then Court of
First Instance of Quezon City, Branch 9 (now Regional Trial Court, Quezon City, Branch 97). In its
complaint, respondent corporation alleged that on several occasions in 1979 and 1980, petitioners
purchased and received on credit various products from its Quezon City plant. As of December 31,
1980, petitioners allegedly had an outstanding balance of P20,437.40 therein. Likewise, on various
occasions in 1980, petitioners also purchased and received on credit various products from
respondent's Muntinlupa plant and, as of December 31, 1989, petitioners supposedly had an
outstanding balance of P38,357.20 there. In addition, it was claimed that petitioners had an unpaid
obligation for the loaned "empties" from the same plant in the amount of P35,856.40 as of July 11,
1980. Altogether, petitioners had an outstanding account of P94,651.00 which, so the complaint
alleged, they failed to pay despite oral and written demands. 1

In their defense, petitioners presented four trade provisional receipts (TPRs) allegedly issued to and
received by them from private respondent's Route Manager Jovencio Estrada of its Malate
Warehouse (Division 57), showing payments in the total sum of P80,500.00 made by Abigail's Store.
Petitioners contended that had the amounts in the TPRs been credited in their favor, they would not
be indebted to Pepsi-Cola. The details of said receipts are as follows:
 TPR No. Date of Issue Amount

500320 600 Fulls returned 5/6/80 P23,520.00

500326 600 Fulls returned 5/10/80 23,520.00
500344 600 Fulls returned 5/14/80 23,520.00
500346 Cash 5/15/80 10,000.00 2

—————
Total P80,560.00

Further, petitioners maintain that the signature purporting to be that of petitioner Nora S. Eugenio in
Sales Invoice No. 85366 dated May 15, 1980 in the amount of P5,631.00, 3 which was included in the
computation of their alleged debt, is a falsification. In sum, petitioners argue that if the aforementioned
amounts were credited in their favor, it would be respondent corporation which would be indebted to them
in the sum of P3,546.02 representing overpayment.

After trial on the merits, the court a quo rendered a decision on February 17, 1986, ordering
petitioners, as defendants therein to jointly and severally pay private respondent the amount of
P74,849.00, plus 12% interestper annum until the principal amount shall have been fully paid, as
well as P20,000.00 as attorney's fees. 4 On appeal in CA-G.R. CV No. 10623, the Court of Appeals
declared said decision a nullity for failure to comply with the requirement in Section 14, Article VIII of the
1987 Constitution that decisions of courts should clearly and distinctly state the facts and the law on
which they are based. The Court of Appeals accordingly remanded the records of the case to the trial
court, directing it to render another decision in accordance with the requirements of the Constitution. 5

In compliance with the directive of the Court of Appeals, the lower court rendered a second decision
on September 29, 1989. In this new decision, petitioners were this time ordered to pay, jointly and
severally, the reduced amount of P64,188.60, plus legal interest of 6% per annum from the filing of
the action until full payment of the amount adjudged. 6 On appeal therefrom, the Court of Appeals
affirmed the judgment of the trial court in a decision promulgated on September 27, 1991. 7 A motion for
the reconsideration of said judgment of respondent court was subsequently denied in a resolution dated
January 23, 1992. 8

We agree with petitioners and respondent court that the crux of the dispute in the case at bar is
whether or not the amounts in the aforementioned trade provisional receipts should be credited in
favor of herein petitioner spouses.

In a so-called encyclopedic sense, however, our course of action in this case and the denouement of
the controversy therein takes into account the jurisprudential rule that in the present recourse we
would normally have restricted ourselves to questions of law and eschewed questions of fact were it
not for our perception that the lower courts manifestly overlooked certain relevant factual
considerations resulting in a misapprehension thereof. Consequentially, that position shall
necessarily affect our analysis of the rules on the burden of proof and the burden of evidence, and
ultimately, whether the proponent of the corresponding claim has preponderated or rested on an
equipoise or fallen short of preponderance.

First, the backdrop. It appears that on August 1, 1981, private respondent through the head of its
Legal Department, Atty. Antonio N. Rosario, sent an inter-office correspondence to petitioner Alfredo
Eugenio inviting him for an interview/interrogation on August 3, 1981 regarding alleged "non-
payment of debts to the company, inefficiency, and loss of trust and confidence." 9 The interview was
reset to August 4, 1981 to enable said petitioner to bring along with him their union president, Luis Isip.
On said date, a statement of overdue accounts were prepared showing that petitioners owed respondent
corporation the following amounts:
 Muntinlupa Plant
Nora's Store
Trade Account P38,357.20 (as of 12/3/80) 10
11
Loaned Empties P35,856.40 (as of 7/11/81)

Quezon City Plant

Abigail Minimart
Regular Account P20,437.40 (as of 1980) 12
—————
Total P94,651.00

A reconciliation of petitioners' account was then conducted. The liability of petitioners as to the
loaned empties (Muntinlupa plant, Nora Store) was reduced to P21,686.00 after a reevaluation of the
value of the loaned empties.13 Likewise, the amount of P5,631.00 under Invoice No. 85366, which was a
spurious document, was deducted from their liability in their trade account with the Muntinlupa
plant. 14 Thereafter, Eugenio and Isip signed the reconciliation sheets reflecting these items:

Muntinlupa Plant
Nora Store
Trade Account P32,726.20 15
Loaned Empties P21,686.00 16

Quezon City Plant

Abigail Minimart
Trade Account P20,437.20 17
——————
Total P74,849.40

After the meeting, private respondent alleged that petitioner Alfredo Y. Eugenio requested that he be
allowed to retire and the existing accounts be deducted from his retirement pay, but that he later
withdrew his retirement plan. Said petitioner disputed that allegation and, in fact, he subsequently
filed a complaint for illegal dismissal. The finding of labor arbiter, later affirmed by the Supreme
Court, showed that this petitioner was indeed illegally dismissed, and that he never filed an
application for retirement. In fact, this Court made a finding that the retirement papers allegedly filed
in the name of this petitioner were forged. 18 This makes two falsified documents to be foisted against
petitioners.

With their aforesaid accounts still unpaid, petitioner Alfredo Y. Eugenio submitted to Atty. Rosario
the aforementioned four TPRs. Thereafter, Atty. Rosario ordered Daniel Azurin, assistant personnel
manager, to conduct an investigation to verify this claim of petitioners. According to Azurin, during
the investigation on December 4, 1981, Estrada allegedly denied that he issued and signed the
aforesaid TPRs. 19 He also presented a supposed affidavit which Estrada allegedly executed during that
investigation to affirm his verbal statements therein. Surprisingly, however, said supposed affidavit is
inexplicably dated February 5, 1982. 20 At this point, it should be noted that Estrada never testified
thereafter in court and what he is supposed to have done or said was merely related by Azurin.

Now, on this point, respondent court disagreed with herein petitioners that the testimony on the
alleged denial of Jovencio Estrada regarding his signatures on the disputed TPRs, as well as his
affidavit dated February 5, 198221 wherein he affirmed his denial, are hearsay evidence because
Estrada was not presented as a witness to testify and be cross-examined thereon. Except for the terse
statement of respondent court that since petitioner Alfredo Eugenio was supposedly present on
December 4, 1981, "(t)he testimony of Jovencio Estrada at the aforementioned investigation categorically
 22
denying that he issued and signed the disputed TPRs is, therefore, not hearsay," there was no further
explanation on this unusual doctrinal departure.

The rule is clear and explicit. Under the hearsay evidence rule, a witness can testify only to those
facts which he knows of his personal knowledge; that is, which are derived from his own perception,
except as otherwise provided in the Rules. 23 In the present case, Estrada failed to appear as a witness
at the trial. It was only Azurin who testified that during the investigation he conducted, Estrada supposedly
denied having signed the TPRs. It is elementary that under the measure on hearsay evidence, Azurin's
testimony cannot constitute legal proof as to the truth of Estrada's denial. For that matter, it is not
admissible in evidence, petitioners' counsel having seasonably objected at the trial to such testimony of
Azurin as hearsay. And, even if not objected to and thereby admissible, such hearsay evidence has no
probative value whatsoever. 24

It is true that the testimony or deposition of a witness deceased or unable to testify, given in a former
case or proceeding, judicial or administrative, involving the same parties and subject matter, may be
given in evidence against the adverse party who had the opportunity to cross-examine him. 25 Private
respondent cannot, however, seek sanctuary in this exception to the hearsay evidence rule.

Firstly, the supposed investigation conducted by Azurin was neither a judicial trial nor an
administrative hearing under statutory regulations and safeguards. It was merely an inter-office
interview conducted by a personnel officer through an ad hoc arrangement. Secondly, a perusal of
the alleged stenographic notes, assumingarguendo that these notes are admissible in evidence,
would show that the "investigation" was more of a free-flowing question and answer type of
discussion wherein Estrada was asked some questions, after which Eugenio was likewise asked
other questions. Indeed, there was no opportunity for Eugenio to object, much less to cross-examine
Estrada. Even in a formal prior trial itself, if the opportunity for
cross-examination did not exist therein or if the accused was not afforded opportunity to fully cross-
examine the witness when the testimony was offered, evidence relating to the testimony given
therein is thereafter inadmissible in another proceeding, absent any conduct on the part of the
accused amounting to a waiver of his right to cross-examine. 26

Thirdly, the stenographer was not even presented to authenticate the stenographic notes submitted
to the trial court. A copy of the stenographic report of the entire testimony at the former trial must be
supported by the oath of the stenographer that it is a correct transcript of his notes of the testimony
of the witness as a sine qua non for its competency and admissibility in evidence. 27 The supposed
stenographic notes on which respondent corporation relies is unauthenticated and necessarily
inadmissible for the purpose intended.

Lastly, although herein private respondent insinuated that Estrada was not presented as a witness
because he had disappeared, no evidence whatsoever was offered to show or even intimate that
this was due to any machination or instigation of petitioners. There is no showing that his absence
was procured, or that he was eloigned, through acts imputable to petitioners. In the case at bar,
except for the self-serving statement that Estrada had disappeared, no plausible explanation was
given by respondent corporation. Estrada was an employee of private respondent, hence it can be
assumed that it could easily trace or ascertain his whereabouts. It had the resources to do so, in
contradistinction to petitioners who even had to seek the help of the Public Attorney's Office to
defend them here. Private respondent could not have been unaware of the importance of Estrada's
testimony and the consequent legal necessity for presenting him in the trial court, through coercive
process if necessary.

Obviously, neither is the affidavit of Estrada admissible; it is likewise barred as evidence by the
hearsay evidence rule. 28 This is aside from the fact that, by their nature, affidavits are generally not
prepared by the affiants themselves but by another who uses his own language in writing the affiant's
statements, which may thus be either omitted or misunderstood by the one writing them. 29 The dubiety of
that affidavit, as earlier explained, is further underscored by the fact that it was executed more than two
months after the investigation, presumably for curative purposes as it were.

Now, the authenticity of a handwriting may be proven, among other means, by its comparison made
by the witness or the court with writings admitted or treated as genuine by the party against whom
the evidence is offered or proved to be genuine to the satisfaction of the judge. 30 The alleged affidavit
of Estrada states". . . that the comparison that was made as to the authenticity of the signature appearing
in the TPRs and that of my signature showed that there was an apparent dissimilarity between the two
signatures, xerox copy of my 201 File is attached hereto as Annex 'F' of this affidavit. 31 However, a
search of the Folder of Exhibits in this case does not reveal that private respondent ever submitted any
document, not even the aforementioned 201 File, containing a specimen of the signature of Estrada
which the Court can use as a basis for comparison. Neither was any document containing a specimen of
Estrada's signature presented by private respondent in the formal offer of its exhibits. 32

Respondent court made the further observation that "Estrada was even asked by Atty. Azurin at said
investigation to sign three times to provide specimens of his genuine signature." 33 There is, however,
no showing that he did, but assuming that Estrada signed the stenographic notes, the Court would still be
unable to make the necessary comparison because two signatures appear on the right margin of each
and every page of the stenographic notes, without any indication whatsoever as to which of the
signatures is Estrada's. The whole document was marked for identification but the signatures were not. In
fact, although formally offered, it was merely introduced by the private respondent "in order to show that
Jovencio Estrada had been investigated and categorically denied having collected from Abigail Minimart
and denying having signed the receipts claimed by Alfredo Eugenio to be his payment," 34 and not for the
purpose of presenting any alleged signature of Estrada on the document as a basis for comparison.

This is a situation that irresistibly arouses judicial curiosity, if not suspicion. Respondent corporation
was fully aware that its case rested, as it were, on the issue of whether the TPRs were authentic and
which issue, in turn, turned on the genuineness of Estrada's signatures thereon. Yet, aside from
cursorily dismissing the non-presentation of Estrada in court by the glib assertion that he could not
be found, and necessarily aware that his alleged denial of his signatures on said TPRs and his
affidavit rendered the same vulnerable to the challenge that they are hearsay and inadmissible,
respondent corporation did nothing more. In fact, Estrada's disappearance has not been explained
up to the present.

The next inquiry then would be as to what exactly is the nature of the TPRs insofar as they are used
in the day-to-day business transactions of the company. These trade provisional receipts are bound
and given in booklets to the company sales representatives, under proper acknowledgment by them
and with a record of the distribution thereof. After every transaction, when a collection is made the
customer is given by the sales representative a copy of the trade provisional receipt, that is, the
triplicate copy or customer's copy, properly filled up to reflect the completed transaction. All unused
TPRs, as well as the collections made, are turned over by the sales representative to the appropriate
company officer. 35

According to respondent court, "the questioned TPR's are merely 'provisional' and were, as printed
at the bottom of said receipts, to be officially confirmed by plaintiff within fifteen (15) days by
delivering the original copy thereof stamped paid and signed by its cashier to the customer. . . .
Defendants-appellants (herein petitioners) failed to present the original copies of the TPRs in
question, showing that they were never confirmed by the plaintiff, nor did they demand from plaintiff
the confirmed original copies thereof." 36

We do not agree with the strained implication intended to be adverse to petitioners. The TPRs
presented in evidence by petitioners are disputably presumed as evidentiary of payments made on
account of petitioners. There are presumptions juris tantum in law that private transactions have
been fair and regular and that the ordinary course of business has been followed. 37 The role of
presumptions in the law on evidence is to relieve the party enjoying the same of the evidential burden to
prove the proposition that he contends for, and to shift the burden of evidence to the adverse party.
Private respondent having failed to rebut the aforestated presumptions in favor of valid payment by
petitioners, these would necessarily continue to stand in their favor in this case.

Besides, even assuming arguendo that herein private respondent's cashier never received the
amounts reflected in the TPRs, still private respondent failed to prove that Estrada, who is its duly
authorized agent with respect to petitioners, did not receive those amounts from the latter. As
correctly explained by petitioners, "in so far as the private respondent's customers are concerned, for
as long as they pay their obligations to the sales representative of the private respondent using the
latter's official receipt, said payment extinguishes their obligations." 38 Otherwise, it would
unreasonably cast the burden of supervision over its employees from respondent corporation to its
customers.

The substantive law is that payment shall be made to the person in whose favor the obligation has
been constituted, or his successor-in-interest or any person authorized to receive it. 39 As far as third
persons are concerned, an act is deemed to have been performed within the scope of the agent's
authority, if such is within the terms of the power of attorney, as written, even if the agent has in fact
exceeded the limits of his authority according to an understanding between the principal and his
agent. 40 In fact, Atty. Rosario, private respondent's own witness, admitted that "it is the responsibility of
the collector to turn over the collection." 41

Still pursuing its ruling in favor of respondent corporation, the Court of Appeals makes the following
observation:

. . . Having allegedly returned 600 Fulls to the plaintiff's representative on May 6, 10,
and 14, 1980, appellant-wife's Abigail Store must have received more than 1,800
cases of soft drinks from plaintiff before those dates. Yet the Statement of Overdue
Account pertaining to Abigail Minimart (Exhs. "D", "D-1" to "D-3") which appellant-
husband and his representative Luis Isip signed on August 3, 1981 does now show
more than 1,800 cases of soft drinks were delivered to Abigail Minimart by plaintiff's
Quezon City Plant (which supposedly issued the disputed TPRs) in May, 1980 or the
month before."42

We regret the inaccuracy in said theory of respondent court which was impelled by its sole and
limited reliance on a mere statement of overdue amounts. Unlike a statement of account which truly
reflects the day-to-day movement of an account, a statement of an overdue amount is only a
summary of the account, simply reflecting the balance due thereon. A statement of account, being
more specific and detailed in nature, allows one to readily see and verify if indeed deliveries were
made during a specific period of time, unlike a bare statement of overdue payments. Respondent
court cannot make its aforequoted categorical deduction unless supporting documents
accompanying the statement of overdue amounts were submitted to enable easy and accurate
verification of the facts.

A perusal of the statement of overdue accounts shows that, except for a reference number given for
each entry, no further details were volunteered nor offered. It is entirely possible that the statement
of overdue account merely reflects the outstanding debt of a particular client, and not the specific
particulars, such as deliveries made, particularly since the entries therein were surprisingly entered
irrespective of their chronological order. Obviously, therefore, one can not use the statement of
overdue amounts as conclusive proof of deliveries done within a particular time frame.
Except for its speculation that petitioner Alfredo Y. Eugenio could have had easy access to blank
forms of the TPRs because he was a former route manager no evidence whatsoever was presented
by private respondent in support of that theory. We are accordingly intrigued by such an unkind
assertion of respondent corporation since Azurin himself admitted that their accounting department
could not even inform them regarding the persons to whom the TPRs were issued. 43 In addition, it is
significant that respondent corporation did not take proper action if indeed some receipts were actually
lost, such as the publication of the fact of loss of the receipts, with the corresponding investigation into the
matter.

We, therefore, reject as attenuated the comment of the trial court that the TPRs, which Eugenio
submitted after the reconciliation meeting, "smacks too much of an afterthought." 44 The reconciliation
meeting was held on August 4, 1981. Three months later, on November, 1981, petitioner Alfredo Y.
Eugenio submitted the four TPRs. He explained, and this was not disputed, that at the time the
reconciliation meeting was held, his daughter Nanette, who was helping his wife manage the store, had
eloped and she had possession of the TPRs. 45 It was only in November, 1981 when petitioners were able
to talk to Nanette that they were able to find and retrieve said TPRs. He added that during the
reconciliation meeting, Atty. Rosario assured him that any receipt he may submit later will be credited in
his favor, hence he signed the reconciliation documents. Accordingly, when he presented the TPRs to
private respondent, Atty. Rosario directed Mr. Azurin to verify the TPRs. Thus, the amount stated in the
reconciliation sheet was not final, as it was still subject to such receipts as may thereafter be presented
by petitioners.

On the other hand, petitioners claimed that the signature of petitioner Nora S. Eugenio in Sales
Invoice No. 85366, in the amount of P5,631.00 is spurious and should accordingly be deducted from
the disputed amount of P74,849.40. A scrutiny of the reconciliation sheet shows that said amount
had already been deducted upon the instruction of one Mr. Coloma, Plant Controller of Pepsi-Cola ,
Muntinlupa Plant. 46 That amount is not disputed by respondent corporation and should no longer be
deducted from the total liability of petitioner in the sum of P74,849.40. Since petitioners had made a
payment of P80,560.00, there was consequently an overpayment of P5,710.60.

All told, we are constrained to hold that respondent corporation has dismally failed to comply with the
pertinent rules for the admission of the evidence by which it sought to prove its contentions.
Furthermore, there are questions left unanswered and begging for cogent explanations why said
respondent did not or could not comply with the evidentiary rules. Its default inevitably depletes the
weight of its evidence which cannot just be taken in vacuo, with the result that for lack of the
requisite quantum of evidence, it has not discharged the burden of preponderant proof necessary to
prevail in this case.

WHEREFORE, the judgment of respondent Court of Appeals in C.A. G.R. CV No. 26901, affirming
that of the trial court in Civil Case No. Q-34718, is ANNULLED and SET ASIDE. Private respondent
Pepsi-Cola Bottling Company of the Philippines, Inc. is hereby ORDERED to pay petitioners Nora
and Alfredo Eugenio the amount of P5,710.60 representing overpayment made to the former.

SO ORDERED.

Narvasa, C.J. and Puno, J., concur.

Mendoza, J., took no part.

#Footnotes
** Also spelled "Abegail" or Abigael" in some parts of the records of the case.

1 Original Record, 1-3.

2 Exhs. L, L-1, L-2, and L-3 for private respondent; Exhs. 1-4 for petitioners; Folder
of Exhibits, 25-27.

3 Exh. E-6; Ibid., 11

4 Original Record, 251.

5 Rollo, 39; Justice Celso L. Magsino, ponente; Justices Nathanael P. de Paño, Jr.
and Abelardo Dayrit, concurring.

6 Original Record, 269; per Judge Oscar L. Leviste.

7 Rollo, 109; penned by Justice Alicia V. Sempio-Diy, with the concurrence of

Justices Vicente V. Mendoza and Regina G. Ordoñez-Benitez.

8 Rollo, 116.

9 Exh. A, Folder of Exhibits, 1.

10 Exhs. B, B-1; ibid., 3-4.

11 Exhs. C, C-1; ibid., 5-6.

12 Exhs. D, D-1 to D-3; ibid., 7-10.

13 Exh. F-1; ibid., 1-12.

14 Exh. E-6; ibid., 11.

15 Exh. E-2; ibid., 11.

16 Exh. F-1; ibid., 12.

17 Exh. E-1; ibid., 11.

18 TSN, May 6, 1984, 16.

19 Ibid., April 5, 1984, 6; TSN, July 12, 1984, 5-6, 8-9.

20 Ibid., July 12, 1984.

21 Exh. J, Folder of Exhibits, 19.

22 Rollo, 96.

23 Sec. 36, Rule 130, Rules of Court.

24 People vs. Valero, L-45283-84, March 19, 1982, 112 SCRA 661; 3 Jones on
Evidence, 2nd Ed., 745.

25 Sec. 47, Rule 130, Rules of Court.

26 20 Am. Jur., Evidence 586; see also People vs. Ola, L-47147, July 3, 1987, 152
SCRA 1.

27 20 Am. Jur., Evidence 595-597.

28 Paa vs. Chan, L-25945, October 31, 1967, 21 SCRA 753; see also People vs.
Alacar, et. al., 211 SCRA 580.

29 People vs. Brioso, et. al., L-28482, January 30, 1971, 37 SCRA 336.

30 Sec. 22, Rule 132, Rules of Court; see also Underhill's Criminal Evidence, 5th
Ed., Vol. 11, 805-808.

31 Exhibit J, Fn 21.

32 Original Record, 166-168.

33 Rollo, 96.

34 Formal Offer of Exhibits, 3; Original Record, 168.

35 TSN, January 17, 1985, 7-8; TSN, May 10, 1984, 16-18.

36 Rollo, 97.

37 Sec. 3 (p) and (q), Rule 131, Rules of Court.

38 Rollo, p. 14.

39 Art. 1240, Civil Code.

40 Art. 1900, id.

41 TSN, May 10, 1984, 15.

42 Rollo, 97.

43 TSN, January 17, 1985, 9.

44 Original Record, 268.

45 TSN, October 31, 1985, 11.

46 Exhibit E-6, Folder of Exhibits, 11; TSN, May 10, 1984, 13-14.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-49395 December 26, 1984

GREEN VALLEY POULTRY & ALLIED PRODUCTS, INC., petitioner

vs.
THE INTERMEDIATE APPELLATE COURT and E.R. SQUIBB & SONS PHILIPPINE
CORPORATION,respondents.

ABAD SANTOS, J.:

This is a petition to review a decision of the defunct Court of Appeals which affirmed the judgment of
the trial court whereby:

... judgment is hereby rendered in favor of the plaintiff [E.R. Squibb & Sons Philippine
Corporation], ordering the defendant [Green Valley Poultry & Allied Products, Inc.] to
pay the sum of P48,374.74 plus P96.00 with interest at 6% per annum from the filing
of this action; plus attorney's fees in the amount of P5,000.00 and to pay the costs.

On November 3, 1969, Squibb and Green Valley entered into a letter agreement the text of which
reads as follows:

E.R. Squibb & Sons Philippine Corporation is pleased to appoint Green Valley
Poultry & Allied Products, Inc. as a non-exclusive distributor for Squibb Veterinary
Products, as recommended by Dr. Leoncio D. Rebong, Jr. and Dr. J.G. Cruz, Animal
Health Division Sales Supervisor.

As a distributor, Green Valley Poultry & Allied Products, Inc. wig be entitled to a
discount as follows:

Feed Store Price (Catalogue)

Less 10%

Wholesale Price

Less 10%

Distributor Price

There are exceptions to the above price structure. At present, these are:

1. Afsillin Improved — 40 lbs. bag

The distributor commission for this product size is 8% off P120.00

2. Narrow — Spectrum Injectible Antibiotics

These products are subject to price fluctuations. Therefore, they are invoiced at net
price per vial.

3. Deals and Special Offers are not subject to the above distributor price structure. A
5% distributor commission is allowed when the distributor furnishes copies for each
sale of a complete deal or special offer to a feedstore, drugstore or other type of
account.

Deals and Special Offers purchased for resale at regular price invoiced at net deal or
special offer price.

Prices are subject to change without notice. Squibb will endeavor to advise you
promptly of any price changes. However, prices in effect at the tune orders are
received by Squibb Order Department will apply in all instances.

Green Valley Poultry & Allied Products, Inc. win distribute only for the Central Luzon
and Northern Luzon including Cagayan Valley areas. We will not allow any transfer
or stocks from Central Luzon and Northern Luzon including Cagayan Valley to other
parts of Luzon, Visayas or Mindanao which are covered by our other appointed
Distributors. In line with this, you will follow strictly our stipulations that the maximum
discount you can give to your direct and turnover accounts will not go beyond 10%.

It is understood that Green Valley Poultry and Allied Products, Inc. will accept turn-
over orders from Squibb representatives for delivery to customers in your area. If for
credit or other valid reasons a turn-over order is not served, the Squibb
representative will be notified within 48 hours and hold why the order will not be
served.

It is understood that Green Valley Poultry & Allied Products, Inc. will put up a bond of
P20,000.00 from a mutually acceptable bonding company.

Payment for Purchases of Squibb Products will be due 60 days from date of invoice
or the nearest business day thereto. No payment win be accepted in the form of
post-dated checks. Payment by check must be on current dating.

It is mutually agreed that this non-exclusive distribution agreement can be terminated

by either Green Valley Poultry & Allied Products, Inc. or Squibb Philippines on 30
days notice.

I trust that the above terms and conditions will be met with your approval and that the
distributor arrangement will be one of mutual satisfaction.

If you are agreeable, please sign the enclosed three (3) extra copies of this letter and
return them to this Office at your earliest convenience.

Thank you for your interest and support of the products of E.R. Squibb & Sons
Philippines Corporation. (Rollo, pp. 12- 13.)
For goods delivered to Green Valley but unpaid, Squibb filed suit to collect. The trial court as
aforesaid gave judgment in favor of Squibb which was affirmed by the Court of Appeals.

In both the trial court and the Court of Appeals, the parties advanced their respective theories.

Green Valley claimed that the contract with Squibb was a mere agency to sell; that it never
purchased goods from Squibb; that the goods received were on consignment only with the obligation
to turn over the proceeds, less its commission, or to return the goods ff not sold, and since it had
sold the goods but had not been able to collect from the purchasers thereof, the action was
premature.

Upon the other hand, Squibb claimed that the contract was one of sale so that Green Valley was
obligated to pay for the goods received upon the expiration of the 60-day credit period.

Both courts below upheld the claim of Squibb that the agreement between the parties was a sales
contract.

We do not have to categorize the contract. Whether viewed as an agency to sell or as a contract of
sale, the liability of Green Valley is indubitable. Adopting Green Valley's theory that the contract is an
agency to sell, it is liable because it sold on credit without authority from its principal. The Civil Code
has a provision exactly in point. It reads:

Art. 1905. The commission agent cannot, without the express or implied consent of
the principal, sell on credit. Should he do so, the principal may demand from him
payment in cash, but the commission agent shall be entitled to any interest or
benefit, which may result from such sale.

WHEREFORE, the petition is hereby dismissed; the judgment of the defunct Court of Appeals is
affirmed with costs against the petitioner.

SO ORDERED.

Aquino, Concepcion, Jr., Escolin and Cuevas, JJ., concur.

Makasiar (Chairman), reserves his vote.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-30573 October 29, 1971

VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO VDA. DE

DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE and JOSELITO, all
surnamed DOMINGO, petitioners-appellants,
vs.
GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P. PURISIMA, intervenor-respondent.
Teofilo Leonin for petitioners-appellants.

Osorio, Osorio & Osorio for respondent-appellee.

Teofilo P. Purisima in his own behalf as intervenor-respondent.

MAKASIAR, J.:

Petitioner-appellant Vicente M. Domingo, now deceased and represented by his heirs, Antonina
Raymundo vda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all
surnamed Domingo, sought the reversal of the majority decision dated, March 12, 1969 of the
Special Division of Five of the Court of Appeals affirming the judgment of the trial court, which
sentenced the said Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50 and the intervenor
Teofilo P. Purisima P2,607.50 with interest on both amounts from the date of the filing of the
complaint, to pay Gregorio Domingo P1,000.00 as moral and exemplary damages and P500.00 as
attorney's fees plus costs.

The following facts were found to be established by the majority of the Special Division of Five of the
Court of Appeals:

In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo granted Gregorio
Domingo, a real estate broker, the exclusive agency to sell his lot No. 883 of Piedad Estate with an
area of about 88,477 square meters at the rate of P2.00 per square meter (or for P176,954.00) with
a commission of 5% on the total price, if the property is sold by Vicente or by anyone else during the
30-day duration of the agency or if the property is sold by Vicente within three months from the
termination of the agency to apurchaser to whom it was submitted by Gregorio during the
continuance of the agency with notice to Vicente. The said agency contract was in triplicate, one
copy was given to Vicente, while the original and another copy were retained by Gregorio.

On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for a buyer,
promising him one-half of the 5% commission.

Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective buyer.

Oscar de Leon submitted a written offer which was very much lower than the price of P2.00 per
square meter (Exhibit "B"). Vicente directed Gregorio to tell Oscar de Leon to raise his offer. After
several conferences between Gregorio and Oscar de Leon, the latter raised his offer to P109,000.00
on June 20, 1956 as evidenced by Exhibit "C", to which Vicente agreed by signing Exhibit "C". Upon
demand of Vicente, Oscar de Leon issued to him a check in the amount of P1,000.00 as earnest
money, after which Vicente advanced to Gregorio the sum of P300.00. Oscar de Leon confirmed his
former offer to pay for the property at P1.20 per square meter in another letter, Exhibit "D".
Subsequently, Vicente asked for an additional amount of P1,000.00 as earnest money, which Oscar
de Leon promised to deliver to him. Thereafter, Exhibit "C" was amended to the effect that Oscar de
Leon will vacate on or about September 15, 1956 his house and lot at Denver Street, Quezon City
which is part of the purchase price. It was again amended to the effect that Oscar will vacate his
house and lot on December 1, 1956, because his wife was on the family way and Vicente could stay
in lot No. 883 of Piedad Estate until June 1, 1957, in a document dated June 30, 1956 (the year
1957 therein is a mere typographical error) and marked Exhibit "D". Pursuant to his promise to
Gregorio, Oscar gave him as a gift or propina the sum of One Thousand Pesos (P1,000.00) for
succeeding in persuading Vicente to sell his lot at P1.20 per square meter or a total in round figure
of One Hundred Nine Thousand Pesos (P109,000.00). This gift of One Thousand Pesos (P1,000.00)
was not disclosed by Gregorio to Vicente. Neither did Oscar pay Vicente the additional amount of
One Thousand Pesos (P1,000.00) by way of earnest money. In the deed of sale was not executed
on August 1, 1956 as stipulated in Exhibit "C" nor on August 15, 1956 as extended by Vicente,
Oscar told Gregorio that he did not receive his money from his brother in the United States, for which
reason he was giving up the negotiation including the amount of One Thousand Pesos (P1,000.00)
given as earnest money to Vicente and the One Thousand Pesos (P1,000.00) given to Gregorio
as propina or gift. When Oscar did not see him after several weeks, Gregorio sensed something
fishy. So, he went to Vicente and read a portion of Exhibit "A" marked habit "A-1" to the effect that
Vicente was still committed to pay him 5% commission, if the sale is consummated within three
months after the expiration of the 30-day period of the exclusive agency in his favor from the
execution of the agency contract on June 2, 1956 to a purchaser brought by Gregorio to Vicente
during the said 30-day period. Vicente grabbed the original of Exhibit "A" and tore it to pieces.
Gregorio held his peace, not wanting to antagonize Vicente further, because he had still duplicate of
Exhibit "A". From his meeting with Vicente, Gregorio proceeded to the office of the Register of Deeds
of Quezon City, where he discovered Exhibit "G' deed of sale executed on September 17, 1956 by
Amparo Diaz, wife of Oscar de Leon, over their house and lot No. 40 Denver Street, Cubao, Quezon
City, in favor Vicente as down payment by Oscar de Leon on the purchase price of Vicente's lot No.
883 of Piedad Estate. Upon thus learning that Vicente sold his property to the same buyer, Oscar de
Leon and his wife, he demanded in writting payment of his commission on the sale price of One
Hundred Nine Thousand Pesos (P109,000.00), Exhibit "H". He also conferred with Oscar de Leon,
who told him that Vicente went to him and asked him to eliminate Gregorio in the transaction and
that he would sell his property to him for One Hundred Four Thousand Pesos (P104,000.0 In
Vicente's reply to Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not entitled to the 5%
commission because he sold the property not to Gregorio's buyer, Oscar de Leon, but to another
buyer, Amparo Diaz, wife of Oscar de Leon.

The Court of Appeals found from the evidence that Exhibit "A", the exclusive agency contract, is
genuine; that Amparo Diaz, the vendee, being the wife of Oscar de Leon the sale by Vicente of his
property is practically a sale to Oscar de Leon since husband and wife have common or identical
interests; that Gregorio and intervenor Teofilo Purisima were the efficient cause in the
consummation of the sale in favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de
Leon paid Gregorio the sum of One Thousand Pesos (P1,000.00) as "propina" or gift and not as
additional earnest money to be given to the plaintiff, because Exhibit "66", Vicente's letter addressed
to Oscar de Leon with respect to the additional earnest money, does not appear to have been
answered by Oscar de Leon and therefore there is no writing or document supporting Oscar de
Leon's testimony that he paid an additional earnest money of One Thousand Pesos (P1,000.00) to
Gregorio for delivery to Vicente, unlike the first amount of One Thousand Pesos (P1,000.00) paid by
Oscar de Leon to Vicente as earnest money, evidenced by the letter Exhibit "4"; and that Vicente did
not even mention such additional earnest money in his two replies Exhibits "I" and "J" to Gregorio's
letter of demand of the 5% commission.

The three issues in this appeal are (1) whether the failure on the part of Gregorio to disclose to
Vicente the payment to him by Oscar de Leon of the amount of One Thousand Pesos (P1,000.00)
as gift or "propina" for having persuaded Vicente to reduce the purchase price from P2.00 to P1.20
per square meter, so constitutes fraud as to cause a forfeiture of his commission on the sale price;
(2) whether Vicente or Gregorio should be liable directly to the intervenor Teofilo Purisima for the
latter's share in the expected commission of Gregorio by reason of the sale; and (3) whether the
award of legal interest, moral and exemplary damages, attorney's fees and costs, was proper.

Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurred in by Justice
Juan Enriquez did not touch on these issues which were extensively discussed by Justice Magno
Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his concurring opinion, affirmed
that it does not constitute breach of trust or fraud on the part of the broker and regarded same as
merely part of the whole process of bringing about the meeting of the minds of the seller and the
purchaser and that the commitment from the prospect buyer that he would give a reward to Gregorio
if he could effect better terms for him from the seller, independent of his legitimate commission, is
not fraudulent, because the principal can reject the terms offered by the prospective buyer if he
believes that such terms are onerous disadvantageous to him. On the other hand, Justice
Gatmaitan, with whom Justice Antonio Cafizares corner held the view that such an act on the part of
Gregorio was fraudulent and constituted a breach of trust, which should deprive him of his right to
the commission.

The duties and liabilities of a broker to his employer are essentially those which an agent owes to his
principal. 1

Consequently, the decisive legal provisions are in found Articles 1891 and 1909 of the New Civil
Code.

Art. 1891. Every agent is bound to render an account of his transactions and to
deliver to the principal whatever he may have received by virtue of the agency, even
though it may not be owing to the principal.

Every stipulation exempting the agent from the obligation to render an account shall
be void.

xxx xxx xxx

Art. 1909. The agent is responsible not only for fraud but also for negligence, which
shall be judged with more less rigor by the courts, according to whether the agency
was or was not for a compensation.

Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil Code which provides
that:

Art. 1720. Every agent is bound to give an account of his transaction and to pay to
the principal whatever he may have received by virtue of the agency, even though
what he has received is not due to the principal.

The modification contained in the first paragraph Article 1891 consists in changing the phrase "to
pay" to "to deliver", which latter term is more comprehensive than the former.

Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is required
to an agent — condemning as void any stipulation exempting the agent from the duty and liability
imposed on him in paragraph one thereof.

Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of the old Spanish
Civil Code which reads thus:

Art. 1726. The agent is liable not only for fraud, but also for negligence, which shall
be judged with more or less severity by the courts, according to whether the agency
was gratuitous or for a price or reward.
The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and fairness on the
part of the agent, the real estate broker in this case, to his principal, the vendor. The law imposes
upon the agent the absolute obligation to make a full disclosure or complete account to his principal
of all his transactions and other material facts relevant to the agency, so much so that the law as
amended does not countenance any stipulation exempting the agent from such an obligation and
considers such an exemption as void. The duty of an agent is likened to that of a trustee. This is not
a technical or arbitrary rule but a rule founded on the highest and truest principle of morality as well
as of the strictest justice. 2

Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from
the vendee, without revealing the same to his principal, the vendor, is guilty of a breach of his loyalty
to the principal and forfeits his right to collect the commission from his principal, even if the principal
does not suffer any injury by reason of such breach of fidelity, or that he obtained better results or
that the agency is a gratuitous one, or that usage or custom allows it; because the rule is to prevent
the possibility of any wrong, not to remedy or repair an actual damage. 3 By taking such profit or bonus
or gift or propina from the vendee, the agent thereby assumes a position wholly inconsistent with that of
being an agent for hisprincipal, who has a right to treat him, insofar as his commission is concerned, as if
no agency had existed. The fact that the principal may have been benefited by the valuable services of
the said agent does not exculpate the agent who has only himself to blame for such a result by reason of
his treachery or perfidy.

This Court has been consistent in the rigorous application of Article 1720 of the old Spanish Civil
Code. Thus, for failure to deliver sums of money paid to him as an insurance agent for the account
of his employer as required by said Article 1720, said insurance agent was convicted estafa. 4 An
administrator of an estate was likewise under the same Article 1720 for failure to render an account of his
administration to the heirs unless the heirs consented thereto or are estopped by having accepted the
correctness of his account previously rendered. 5

Because of his responsibility under the aforecited article 1720, an agent is likewise liable for estafa
for failure to deliver to his principal the total amount collected by him in behalf of his principal and
cannot retain the commission pertaining to him by subtracting the same from his collections. 6

A lawyer is equally liable unnder said Article 1720 if he fails to deliver to his client all the money and
property received by him for his client despite his attorney's lien. 7 The duty of a commission agent to
render a full account his operations to his principal was reiterated in Duhart, etc. vs. Macias. 8

The American jurisprudence on this score is well-nigh unanimous.

Where a principal has paid an agent or broker a commission while ignorant of the
fact that the latter has been unfaithful, the principal may recover back the
commission paid, since an agent or broker who has been unfaithful is not entitled to
any compensation.

xxx xxx xxx

In discussing the right of the principal to recover commissions retained by an

unfaithful agent, the court in Little vs. Phipps (1911) 208 Mass. 331, 94 NE 260, 34
LRA (NS) 1046, said: "It is well settled that the agent is bound to exercise the utmost
good faith in his dealings with his principal. As Lord Cairns said, this rule "is not a
technical or arbitrary rule. It is a rule founded on the highest and truest principles, of
morality." Parker vs. McKenna (1874) LR 10,Ch(Eng) 96,118 ... If the agent does not
conduct himself with entire fidelity towards his principal, but is guilty of taking a secret
 profit or commission in regard the matter in which he is employed, he loses his right
to compensation on the ground that he has taken a position wholly inconsistent with
that of agent for his employer, and which gives his employer, upon discovering it, the
right to treat him so far as compensation, at least, is concerned as if no agency had
existed. This may operate to give to the principal the benefit of valuable services
rendered by the agent, but the agent has only himself to blame for that result."

xxx xxx xxx

The intent with which the agent took a secret profit has been held immaterial where
the agent has in fact entered into a relationship inconsistent with his agency, since
the law condemns the corrupting tendency of the inconsistent relationship. Little vs.
Phipps (1911) 94 NE 260. 9

As a general rule, it is a breach of good faith and loyalty to his principal for an agent,
while the agency exists, so to deal with the subject matter thereof, or with information
acquired during the course of the agency, as to make a profit out of it for himself in
excess of his lawful compensation; and if he does so he may be held as a trustee and
may be compelled to account to his principal for all profits, advantages, rights, or
privileges acquired by him in such dealings, whether in performance or in violation of his
duties, and be required to transfer them to his principal upon being reimbursed for his
expenditures for the same, unless the principal has consented to or ratified the
transaction knowing that benefit or profit would accrue or had accrued, to the agent, or
unless with such knowledge he has allowed the agent so as to change his condition that
he cannot be put in status quo. The application of this rule is not affected by the fact that
the principal did not suffer any injury by reason of the agent's dealings or that he in fact
obtained better results; nor is it affected by the fact that there is a usage or custom to the
contrary or that the agency is a gratuitous one. (Emphasis applied.) 10

In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a gift or propina in
the amount of One Thousand Pesos (P1,000.00) from the prospective buyer Oscar de Leon, without
the knowledge and consent of his principal, herein petitioner-appellant Vicente Domingo. His
acceptance of said substantial monetary gift corrupted his duty to serve the interests only of his
principal and undermined his loyalty to his principal, who gave him partial advance of Three Hundred
Pesos (P300.00) on his commission. As a consequence, instead of exerting his best to persuade his
prospective buyer to purchase the property on the most advantageous terms desired by his
principal, the broker, herein defendant-appellee Gregorio Domingo, succeeded in persuading his
principal to accept the counter-offer of the prospective buyer to purchase the property at P1.20 per
square meter or One Hundred Nine Thousand Pesos (P109,000.00) in round figure for the lot of
88,477 square meters, which is very much lower the the price of P2.00 per square meter or One
Hundred Seventy-Six Thousand Nine Hundred Fifty-Four Pesos (P176,954.00) for said lot originally
offered by his principal.

The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or broker acted
only as a middleman with the task of merely bringing together the vendor and vendee, who
themselves thereafter will negotiate on the terms and conditions of the transaction. Neither would the
rule apply if the agent or broker had informed the principal of the gift or bonus or profit he received
from the purchaser and his principal did not object therto. 11 Herein defendant-appellee Gregorio
Domingo was not merely a middleman of the petitioner-appellant Vicente Domingo and the buyer Oscar
de Leon. He was the broker and agent of said petitioner-appellant only. And therein petitioner-appellant
was not aware of the gift of One Thousand Pesos (P1,000.00) received by Gregorio Domingo from the
prospective buyer; much less did he consent to his agent's accepting such a gift.
The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar de Leon,
does not materially alter the situation; because the transaction, to be valid, must necessarily be with
the consent of the husband Oscar de Leon, who is the administrator of their conjugal assets
including their house and lot at No. 40 Denver Street, Cubao, Quezon City, which were given as part
of and constituted the down payment on, the purchase price of herein petitioner-appellant's lot No.
883 of Piedad Estate. Hence, both in law and in fact, it was still Oscar de Leon who was the buyer.

As a necessary consequence of such breach of trust, defendant-appellee Gregorio Domingo must

forfeit his right to the commission and must return the part of the commission he received from his
principal.

Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio Domingo his
one-half share of whatever amounts Gregorio Domingo received by virtue of the transaction as his
sub-agency contract was with Gregorio Domingo alone and not with Vicente Domingo, who was not
even aware of such sub-agency. Since Gregorio Domingo received from Vicente Domingo and
Oscar de Leon respectively the amounts of Three Hundred Pesos (P300.00) and One Thousand
Pesos (P1,000.00) or a total of One Thousand Three Hundred Pesos (P1,300.00), one-half of the
same, which is Six Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo to Teofilo
Purisima.

Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingo mental anguish
and serious anxiety as well as wounded feelings, petitioner-appellant Vicente Domingo should be
awarded moral damages in the reasonable amount of One Thousand Pesos (P1,000.00) attorney's
fees in the reasonable amount of One Thousand Pesos (P1,000.00), considering that this case has
been pending for the last fifteen (15) years from its filing on October 3, 1956.

WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court of Appeals and
directing defendant-appellee Gregorio Domingo: (1) to pay to the heirs of Vicente Domingo the sum
of One Thousand Pesos (P1,000.00) as moral damages and One Thousand Pesos (P1,000.00) as
attorney's fees; (2) to pay Teofilo Purisima the sum of Six Hundred Fifty Pesos (P650.00); and (3) to
pay the costs.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo and
Villamor, JJ., concur.

Footnotes

1 12 Am. Jur. 2d 835; 134 ALR 1346; 1 ALR 2d 987; Brown vs. Coates, 67 ALR 2d
943; Haymes vs. Rogers 17 ALR 2d 896; Moore vs. Turner, 32 ALR 2d 713.

2 See also Manresa, Vol. 2, p. 461, 4th ed.

3 12 Am. Jur. 2d Sec. 171, 811-12.

4 U.S. vs. Kiene 7 Phil. 736.

5 Ojinaga vs. Estate of Perez, 9 Phil. 185

6 U.S. vs. Reyes, 36 Phil. 791.

 7 In Re: Bamberger 49 Phil. 962.

8 54 Phil. 513.

9 134 ALR Ann. pp. 1346, 1347-1348; see also 1 ALR 2d, 987.

10 3 CJS 53-54; see also 12 Am. Jur. 2d 835-841, 908-912.

11 12 Am. Jur. 2d, 835-841, 908-912; Raymond vs. Davis, Jan. 3, 1936, 199 NE 321,
102 ALR 1112-1115, 1116-1121.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-12743 August 25, 1917

THE UNITED STATES, plaintiff-appellee,

vs.
DOMINGO REYES, defendant-appellant.

Antonio Bengson for appellant.

Acting Attorney-General for appellee.

MALCOLM, J.:

This is an appeal from a judgment finding Domingo Reyes guilty of estafa and sentencing him to four
months and one day of arresto mayor, to the accessory penalties of the law, and to indemnify R. B.
Blackman in the sum of P118, with subsidiary imprisonment in case of insolvency, and to pay the
costs.

Marked discrepancies in connection with the evidence, particularly that which concerns the figures,
are to be noted. Accepting the findings of the trial court, we can summarize the facts as follows:

R. B. Blackman is a surveyor in the Province of Pangasinan. Domingo Reyes, the accused, also
lives in that province. Blackman employed Reyes to collect certain amounts due from twelve
individuals for Blackman's work in connection with the survey of their lands. The total amount to be
collected by Reyes was P860. He only succeeded in collecting P540. He delivered to Blackman
P368. He retained the balance, or P172. So far as good. The difficult point concerns the exact terms
of the contract. It was merely an oral agreement between Blackman and Reyes. Blackman claims
that he agreed to pay Reyes a commission of 10 per cent. Reyes claims that he was to receive a
commission of 20 per cent. The trial court, in its decision, states that — "R. B. Blackman,
agrimensor, dio al aqui acusado el encargo de cobrar algunas cuentas de honorarios devengados
per mediciones practicadas por el como agrimensor, concediendole un 10 por ciento sobre todas las
cobranzas." (R. B. Blackman, the surveyor, ordered the said accused to collect certain debts due for
surveying and offered a 10 per cent commission on all accounts collected.)

To return to the figures again, it will be noticed that if we accept the statements of Blackman, Reyes
was entitled to 10 per cent of P540 (or P530), or P54, making P172 misappropriated, or, if we deduct
his commission, P118. On the other hand, if we accept the statements of Reyes, then 20 per cent of
the total amount to be collected, P860, is exactly P172, the amount claimed to have been
misappropriated.

There are a number of reasons which impel us to the conclusion that the defendant and appellant is
guilty as charged. In the first place, in view of the discrepancy in the evidence we are not disposed to
set up our judgment as superior to that of the trial court. In the second place, conceding that Reyes
was to receive 20 per cent, this, unless some contrary and express stipulation was included, would
not entitle him in advance to 20 per cent of the amount actually collected. In the third place, the right
to receive a commission of either 10 or 20 per cent did not make to hold out any sum he chose.
(Campbell vs. The State [1878], 35 Ohio St., 70.) In the fourth place, under the oral contract Reyes
was an agent who was bound to pay to the principal all that he had received by virtue of the agency.
(Civil Code, article 1720; U. S. vs. Kiene [1907], 7 Phil. Rep., 736.) And, lastly, since for all practical
purposes, the agency was terminated, the agent was under the obligation to turn over to the
principal the amount collected, minus his commission on that amount. (U. S. vs. Schneer [1907], 7
Phil. Rep., 523.)

All the requisites of estafa as punished by article 535, paragraph 5, of the Penal Code, and as
construed by the commentators, are here present. The assignment of error relative to the
nonproduction by the fiscal of the transcription of the preliminary investigation is not particularly
important as secondary evidence was admitted and the substantial rights of the accused were not
affected.

The judgment of the trial court being in accord with the facts and the law is hereby affirmed with the
costs. So ordered.

Arellano, C.J., Johnson, Carson, Araullo and Street, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-8346 March 30, 1915

GUTIERREZ HERMANOS, plaintiff-appellant,

vs.
ORIA HERMANOS & CO., defendant-appellant.

Rafael de la Sierra for plaintiff.

Chicote and Miranda for defendant.

TORRES, J.:

On August 12, 1909, counsel for the mercantile firm of Gutierrez Hermanos of this city filed a written
complaint in the Court of First Instance of Manila against the commercial concern of Oria Hermanos
& Co. of Laoang, Province of Samar, alleging therein as a cause of action that between plaintiff and
defendant there have existed commercial relations which gave rise to the opening of a mutual
current account, at 8 percent interest, under the name of Oria Hermanos & Co., on the books of the
plaintiff Gutierrez Hermanos; that, on January 11, 1909, plaintiff transmitted to defendant an abstract
of the latter's current account on December 31, 1908, which showed a balance in plaintiff's favor of
P144,473.78 and which was approved by defendant, Oria Hermanos & Co., by a letter of March 9,
1909, which was copied literally in the complaint; that, on May 25, 1909, plaintiff notified defendant
that the current account existing between them would be closed at the end of thirty days counting
from that date, at the expiration of which period defendant should pay any debit balance that might
be owing; that, on June 30 of the same year, Gutierrez Hermanos transmitted to the defendant, Oria
Hermanos & Co., the statement of the latter's current account up to that date and, confirming its
previous letter to the defendant of May 25, 1909, called attention to the necessity of paying the
balance, which then amounted to P147,204.28; that the defendant firm, notwithstanding the said
demands and others subsequently made, and without having made any objection whatever to the
said statement of account, refused to pay the principal and interest owing on the said account.
Plaintiff's counsel therefore prayed that Oria Hermanos and Co. be sentenced to pay the sum of
P147,204.28, besides the interest thereon at the rate of 8 per cent annum from June 30, 1909, and
the costs.

Defendant filed its answer on November 9, 1909, setting up four cross complaints and six
counterclaims against the plaintiff, Gutierrez Hermanos, and specifically denied such of the
allegations of the complaint as were not in agreement with its answer. Plaintiff demurred to certain
paragraphs of the answer and as to the others thereof prayed the court to order defendant to make
its allegations more specific. The court overruled this demurrer, but granted the petition that
defendant should make its allegations more specific in the second, third, and fourth cross complaints
and first counterclaim.

In compliance with the said order, defendant, on May 4, 1910, filed am amended answer in which it
specifically admitted paragraphs 1 and 2 of the complaint, and as the first cross complaint, alleged
that, by reason of mercantile relations and the opening of a mutual current account from May 1,
1900, the plaintiff had obligated itself periodically to send to the defendant firm a memorandum or
statement of the current account, and further obligated itself, in case the said mercantile relations
should be finally terminated, to present a general and complete account, duly supported by vouchers
and other proofs; that plaintiff, Gutierrez Hermanos, had contended itself by sending to Oria
Hermanos and Co. some memoranda or abstracts of account, accepted by defendant as such
"abstract of account," without the latter's having waived its right to demand the presentation, as
agreed upon, of the vouchers and other proofs upon the closing of the current account, a stipulation
which Gutierrez Hermanos had failed to comply with. Defendant therefore prayed that the plaintiff,
Gutierrez Hermanos, be sentenced to render and present the said final account, duly accompanied
by vouchers, in conformity with the agreement made.

In the second cross complaint defendant alleged that, by virtue of a commission contract, Oria
Hermanos & Co. had from the 1st of May, 1900, to the 7th of September, 1909, forwarded 65,119.66
piculs of copra, 70,420 bales of hemp, and 5,175.03 piculs of loose hemp to Gutierrez Hermanos for
sale on commission; that the latter firm informed the defendant that it, the plaintiff, had sold the said
products to third persons for the account of the defendant, Oria Hermanos & Co.; that by reason of
said sale or sales Gutierrez Hermanos collected large and important sums for commission and
brokerage and had turned in for the goods sold amounts less than what they were actually worth in
Manila; that defendant, Oria Hermanos & Co., had recently received information that these lots of
hemp and copra were purchased by the firm of Gutierrez Hermanos for itself, notwithstanding that
the latter had stated to its principals, Oria Hermanos & Co., that they had been sold to third persons;
that it collected by reason of such sale, commission and brokerage; acts which redound to the fraud,
injury, and prejudice of the defendant, Oria Hermanos and Co. Therefore the latter prayed that
Gutierrez Hermanos be sentenced to render a general and complete account of the amounts of
hemp and copra received by it for sale on commission from the year 1900 to 1909, setting out the
dates of the receipt of the said merchandise, dates of the sales, names of the purchasers, prices
stipulated, discounts obtained, and commissions collected by Gutierrez Hermanos, etc.
Defendant alleged as the third cross complaint that, by virtue of the said commission contract,
Gutierrez Hermanos sent to the firm of Oria Hermanos & Co., at different times according to the
latter's request, from May 1, 1900, up to the date of the closing of the current account, 193,310
sacks of rice alleged to have been purchased from third persons, wherefore Oria Hermanos & Co.
paid a certain stipulated percentage as commission or brokerage for the sales; but that now Oria
Hermanos & Co. have received information which it believes to be true, and so alleges, that the rice
so forwarded had not been purchased from third persons, but belonged to Gutierrez Hermanos who
sold it directly to defendant, collecting from the latter excessive prices, advance payments,
commission and interest, all to the fraud and injury of the defendant firm. Oria Hermanos & Co.,
therefore, prayed that Gutierrez Hermanos be sentenced to render an account, duly supported by
vouchers, of all the lots of rice forwarded to Oria Hermanos, with a statement of the dates of the
orders, amounts, dates of the purchases, names of purchasers, amounts charged to Oria Hermanos
& Co., etc.

In the fourth cross complaint defendant related that, by reason of the same commission contract
existing between the two firms, Gutierrez Hermanos had sent to Oria Hermanos & Co., from the 1st
of May, 1900, up to the closing of the current account, various quantities of salt, petroleum, tobacco,
groceries and beverages, and had collected a commission for the purchase thereof, that afterwards
Oria Hermanos & Co. learned that the forwarding firm, the plaintiff, had set larger prices on the said
goods than it had actually paid for them and had unduly charged such prices, before it had paid
them, to the defendant's account, collecting for itself commission and interest thereon, to the fraud
and prejudice of the defendant firm. Therefore the latter prayed that Gutierrez Hermanos be
sentenced to render a complete account, accompanied by vouchers, of the shipments
aforementioned.

In the first counterclaim filed by the defendant, Oria Hermanos & Co., petition was made that
Gutierrez Hermanos be sentenced to pay it the sum of P13,894.60, as the amount of an overcharge
of 3 per cent in interest collected from defendant, in a charge of 8 percent interest per annum on a
private debt of P47,649 drawing 5 per cent interest per annum, which latter amount Juan T. Molleda
owed the firm of Gutierrez Hermanos and payment for which was assumed by Oria Hermanos & Co.
upon its organization into a mercantile firm in May, 1900.

In the second counterclaim the defendant firm, Oria Hermanos & Co. set forth: That, on April 18,
1900, its predecessor had ordered its consignee in Manila, Gutierrez Hermanos, to insure against all
war risks the stocks of hemp and merchandise which the said firm possessed in the pueblo
of Laoang, for P35,000, and likewise those it had in Catubig, for P32,000; that Gutierrez Hermanos
did not comply with the said order, only insuring the stocks in Laoang for P67,000, leaving those of
Catubig totally unprotected; that when, on May 10, 1900, this latter pueblo was destroyed by fire
Oria Hermanos & Co. lost all its stocks there and could not collect the insurance of P32,000 on the
said property, which, through the fault, negligence, and omission of Gutierrez Hermanos had not
been insured. This amount last mentioned, added to the premiums, expenses, and interest paid by
Oria Hermanos & Co. aggregates the sum of P63,700, payment of which defendant demanded of
plaintiff.

As a third counterclaim it is alleged that, on May 18, 1900, the firm of Gutierrez Hermanos,
complying with orders from Oria Hermanos, & Co., insured against all war risks, in a certain
insurance company of London, England, whose agent in the Philippine Islands was Stevenson &
Co., the stock of hemp which the defendant company had in the pueblo of Catarman, Samar, for
3,000 pounds sterling, and paid the premiums thereon at the rate of 10 per cent per quarter; that,
during the first quarter for which the premiums had been so paid, all the insured tobacco belonging
to Oria Hermanos & Co., in Catarman, was stolen by the insurgent forces; that then the underwriter
refused to pay the amount of the insurance on the ground that Gutierrez Hermanos had made out
the said insurance defectively wherefore Oria Hermanos & Co. ordered its agent Gutierrez
Hermanos to institute proceedings before the courts of these Islands for the collection of the amount
of the said insurance; but that plaintiff instead brought suit for the purpose before the courts of
England and by its negligence, indolence, and carelessness had, during a period of eight years,
obliged the defendant firm to incur costly expenditures which, added to the amount of the insurance
premiums paid, attorney's fees, costs, interest, etc., aggregated P67,000; that for this sum, together
with legal interests thereon, it prayed that it be reimbursed by Gutierrez Hermanos.

With respect to the fourth counterclaim, the defendant firm set forth that, under the commission
contract and the current account contract existing between both companies, Gutierrez Hermanos
bound itself to acquire for and forward to Oria Hermanos & Co. such rice and other effects, including
cash, as defendant might order from plaintiff; but that, since the beginning of 1904, the firm of
Gutierrez Hermanos maliciously failed to make the consignments of rice and other effects, under the
false pretext that there were no such articles in the market, thereby preventing the said firm of Oria
Hermanos & Co. from obtaining a profit of not less than P25,000 and, besides, injuring its fame,
credit, and mercantile reputation in the Island of Samar to the extent of approximately P50,000.
Therefore defendant prayed that Gutierrez Hermanos be sentenced to pay it the sum of P75,000 as
the amount of such losses and damages occasioned it.

As the fifth counterclaim defendant alleged that, for a period of twenty-two months, from the month
of May, 1900, it chartered several of its boats to the American military government; that the charter
parties aggregated a value of P400,000; that these contracts were executed and the amounts
thereof collected by Messrs. Oria & Fuster, members of the defendant company, who turned the said
amounts into the current account they had with the firm of Gutierrez Hermanos; but the plaintiff
charged in the current account, appropriated to itself, and collected from the funds of Oria Hermanos
& Co. which it had in its possession, 2 1/2 per cent of the amount collected by reason of the said
charter parties for commission and brokerage, there being no stipulation whatever relative to the
collection of this commission; that Gutierrez Hermanos, moreover, charged against the said amount
collected by it 8 per cent compound interest; and that the sum in such wise improperly charged and
appropriated amounted, together with the accumulated interest, to P15,000, which defendant prayed
be returned to it by Gutierrez Hermanos.

The object of the sixth counterclaim is the recovery of P31,000, in which amount defendant, Oria
Hermanos & Co., alleged it was injured by Gutierrez Hermanos having arbitrarily charged in the
current account compound interest at the rate of 8 per cent per semester from the year 1900 up to
the time of the closing of the said current account, while the agreement made between both firms
upon opening the said account was that the latter should bear a mutual interest of 8 per cent per
annum only.

On May 14, 1910, counsel for Gutierrez Hermanos filed a written answer to the foregoing
countercomplaints and counterclaims, and prayed that plaintiff be absolved therefrom.

On August 1, 1910, this case came up for hearing and was continued on the following days until on
April 24, 1912, the Honorable S. del Rosario, judge, rendering judgment therein, the dispositive part
of which is as follows: "Messrs. Oria Hermanos & Co. are sentenced to pay to Messrs. Gutierrez
Hermanos the sum of P147,204.28, with interest thereon at the rate of 8 per cent per annum from
the 30th of June, 1909, after deduction of all the sums that result as balances, in favor of the former,
from the accounts that shall be rendered by the latter, in conformity with the cross complaints and
counterclaims that have been admitted.

Messrs. Gutierrez Hermanos are sentenced:

 (a) With respect to the first cross complaint, to render to Messrs. Oria Hermanos & co.
accounts, supported by vouchers, only of those articles in the acquisition of which fraud,
deceit, or error has been proven and to which the following pronouncements refer.

(b) As regards the second cross complaint, to return to Messrs. Oria Hermanos & Co., after
due settlement of the accounts, all the sums collected as internal-revenue tax and referred to
in the invoices of rice, salt, petroleum, lime, rattan, flour, aniseed spirit, cigarettes, and other
articles mentioned in their respective places in the record, unless plaintiff shows in a
satisfactory manner that it did actually pay to the Bureau of Internal Revenue, the contents of
Exhibit 178 notwithstanding, the sums which, for the reason aforestated, were debited to
defendant, in which case the latter may bring an action against the said Bureau of Internal
Revenue.

(c) With respect to the third cross complaint, plaintiff must render to defendant an account,
supported by vouchers, of the shipments of rice concerned in the invoices examined in which
fraud or error was discovered, and said account shall embrace the 153 invoices referred to
by the litigants in this suit (page 324 of the transcript of the stenographic notes, session of
November 29, 1910).

(d) With regard to the fourth cross complaint, plaintiff shall render an account, supported by
vouchers, of all the purchases it made of petroleum for Messrs. Oria Hermanos & Co., and in
connection with the invoices held in the latter's possession and referred to on page 391 of
the transcript of the stenographic notes of the session of November 29, 1910.

(e) In the matter of the second counterclaim, plaintiff shall return to Messrs. Oria Hermanos
& Co. the sum of P1,812 with interest thereon at the rate of 8 per cent per annum from the
5th of May, 1910, to the date of payment. The interest due shall be compounded after each
semester, reckoning from June 1, 1900, and both the principal and the interest so
compounded shall bear the same interest of 8 per cent per annum.

Messrs. Gutierrez Hermanos are absolved, in the first place, from the second cross
complaint in so far as concerns the demand therein made for a rendition of accounts in
connection with the hemp and copra; and in the second place, from the first, third, fourth,
fifth, and sixth counterclaims.

Without special finding as to costs.

The parties, upon their notification of this judgment, duly excepted thereto and by written motion
prayed for a reopening of the case and a new trial. These motions were overruled, with exception by
the appellants, and the proper bills of exceptions having been filed, the same were approved and
forwarded to the clerk of this court.

This action was brought to recover the sum of P147,204.28, the balance of a current account
opened on May 1, 1900, between Gutierrez Hermanos and the commercial firm of Oria Hermanos &
Co., at the rate 8 per cent mutual interest up to June 30, 1909, which sum was found to be owing by
Oria Hermanos & Co. to the commercial firm of Gutierrez Hermanos.

Other subject matters of the present suit are the rendition of accounts by Gutierrez Hermanos, as
commission agent, to Oria Hermanos & Co., as principal, and the collection of various sums
demanded by the latter in the cross complaints and counterclaims filed, during the trial, by its
counsel against the claim made by Gutierrez Hermanos for the payment of the amount specified in
the preceding paragraph.
To prove the propriety and justice of its complaint, Gutierrez Hermanos, plaintiff, alleged: That, in
accordance with the agreement made, it sent semiannually a general account that comprised a
statement of the business transacted during the preceding six months, to Oria Hermanos & Co. who,
after examining the account with its specification and vouchers, sometimes approved the same
without comment of any kind, and at others, after some objections, but that, in the latter cases, upon
explanations being subsequently given by Gutierrez Hermanos, the defendant firm used at last to
accept the account rendered; that such was the procedure followed during the nine years
approximately that both firms maintained commercial relations, and that the record showed that
during the said nine years Oria Hermanos & Co. had given in favor of Gutierrez Hermanos 17
agreements or approvals of account, the last of which, transcribed in the complaint, is of the
following tenor:

LAOAG, March 9, 1909.

Messrs. GUTIERREZ HERMANOS, Manila.

DEAR SIRS: In our possession, your very esteemed letter dated December 31 last,
from which we have withdrawn the extract of our current account with your firm,
closed the same day, showing a balance in your favor of P144,473.78, which extract
meets with our approval.

We remain, Yours, very respectfully, ORIA HERMANOS &

Co.

That, on May 25, 1909, the plaintiff firm notified the defendant firm that it could not continue to do
business with the latter and therefore the current account stipulated between both parties would be
closed within a period of thirty days; plaintiff therefore transmitted to defendant a general detailed
account that comprised the period from January, 1909, to June 30 of the same year, with the
warning that after that date (May 25, 1909) defendant would have to pay the debit balance,
inasmuch as, although the said last account had not been approved, no objection whatever had
been made thereto by Oria Hermanos & Co. Therefore in the said letter of May 25, plaintiff
demanded of defendant the payment of the sum mentioned of P147,204.28 which the latter had not
paid in spite of plaintiff's demands and notwithstanding the fact that defendant had made no
objection whatever to the last account rendered.

Counsel for defendant, Oria Hermanos & Co., after a denial of the facts that had not been admitted
prayed in special defense and in four cross complaints that the plaintiff, Gutierrez Hermanos, be
compelled to present a general account, duly verified and supported by vouchers, of all the
shipments of hemp, copra, rice and other effects specifically mentioned, and to render a final
account in conformity with the agreement made between both parties and converting the details
mentioned in the said cross complaints.

Notwithstanding the proof shown in the record of the certainty and reality of the debt as a balance
resulting from the current account kept between the parties, it is of course impossible to determine
the net amount, the object of the claim presented by plaintiff, until there shall have first been decided
whether there should or not be rendered a general account, accompanied by vouchers,
comprehensive of the business transacted in connection with the different commercial articles dealt
in, and of the mercantile relations between both firms from May 1, 1900, to June 30, 1909, and also
whether Gutierrez Hermanos is indebted to Oria Hermanos & Co. and what is the amount of the
debt.
Even upon the supposition that the plaintiff, Gutierrez Hermanos, is obliged to make a general
rendition of accounts comprehensive of the business transacted between both firms within the dates
mentioned, it is evident that, until it be known whether plaintiff is or is not indebted to Oria Hermanos
& Co. and what is the amount owing as disclosed by the account rendered, it cannot be decided
whether plaintiff is or is not entitled to collect the whole amount claimed in the complaint, for only in
view of the result of the rendition of accounts requested by plaintiff can it be lawfully established
whether Gutierrez Hermanos is a creditor of Oria Hermanos & Co. and what amount is owing to it by
the latter. All this is referred to in the first error alleged by defendant.

In case it should be held that the law does not allow the rendition of accounts requested by the
defendant, Oria Hermanos & Co., and that this latter is not a creditor of Gutierrez Hermanos, it is
evident of course that plaintiff would be unquestionably entitled to collect the amount specified in the
complaint, or some other amount duly proved at trial to be owing it by defendant. It is therefore
incumbent upon us to elucidate hereinafter the propriety or impropriety of the contentions made by
defendant in its four cross complaints.

Defendant's counsel in his first cross-complaint and special defense prayed that the plaintiff,
Gutierrez Hermanos, be compelled to render and present a general, final, complete and verified
account, pursuant to the agreement made between both parties, inasmuch as plaintiff bound itself to
send periodically to defendant a note or numerical extract of the current account, and in case the
mercantile relations between both firms should come to an end or be finally closed, Gutierrez
Hermanos bound itself to present a general and complete account, duly supported by vouchers, and
defendant, in accepting and approving the semiannual accounts rendered by plaintiff, did not waive
its right to demand the general account agreed upon, at the time of the final closing of the said
current account, the obligation to furnish which was not complied with by the plaintiff, Gutierrez
Hermanos.

The latter denied in its answer the allegations made by Oria Hermanos & Co. in its cross-complaint,
and set forth that, in consequence of the mutual current account opened between the parties from
the year 1900, plaintiff transmitted weekly or fortnightly, according to circumstances, a specific
statement of the transactions effected, as well as, semiannually, a general account of the business
done during the six months last elapsed, and that defendant, after an examination of such
semiannual account together with its details and vouchers, and after some objections thereto had
been explained, was accustomed to prove the same. This was the produre carried on for more than
nine years during which Oria Hermanos & Co. from time to time approved each one of the 17
account that were presented to it, and upon Gutierrez Hermanos closing the current account from
January to June, 1909, it also presented to defendant a general detailed account, which,
nothwithstanding that no objection whatever was made to it, was not approved. Therefore the
complaint was filed that initiated this litigation.

Had the agreement between the parties been recorded with all its conditions in some instrument, it
would have appeared whether Gutierrez Hermanos actually bound itself to present to Oria
Hermanos and Co., besides the semiannual accounts rendered, a general account comprising all
the business undertaken between 1900 and June, 1909, on which latter date it was considered by
Gutierrez Hermanos as terminated. The allegation made by defendant relative to this point had not
been substantiated by any evidence whatever, and therefore there is no reason nor legal ground
whereby plaintiff could be compelled to present that general account requested in the first cross-
complaint.

It is, in our opinion, appropriate it insert hereinafter what the trial court, in the judgment rendered,
says with respect to this matter: "If commission agents be obliged to render to their principals
itemized accounts, supported by vouchers, of the sums they collect as commission and of the
transactions effected by them in relation with their principals, as often as the latter may desire, in
cases where there arises some trouble, some difference of opinion or a conflict of interests, or where
the commission agents close the account, as occurs in the case at bar because the principals did
not pay what they were owing or because, instead of the debt being diminished, it was increased,
the commission contract would become an inexhaustible and never ending source of litigation and of
claims without number, a formidable arm for spiteful principals against which it would be insufficient
to oppose an arsenal of vouchers such as might be treasured by the most prescient commission
agent, because there could be avoided neither the brother resulting from their necessary
examination, nor the heavy expenses and loss of time that are the inevitable accompaniment of this
class of work."

When an account has been presented or rendered and has been approved by the party whom it
concerns or interests, it is not proper to revise it, unless it should be proved that in its approval there
was deceit, fraud, or error seriously prejudicial to the party who gave such approval. Arts. 1265 and
1266, Civil Code.)

In the decision rendered in the case of Pastor vs. Nicasio, (6 Phil. Rep., 152), the following doctrine
was laid down;

When accounts of the agent to the principal are once approved by the principal, the latter
has no right to ask afterwards for a revision of the same or for a detailed account of the
business, unless he can show that there was fraud, deceit, error or mistake in the approval of
the accounts — facts not proven in this case.

The record does not show it to have been duly proven that upon Oria Hermanos & Co. giving its
approval to the 17 accounts presented by Gutierrez Hermanos there was deceit, fraud, or mistake
prejudicial to the former's interests. For the sole reason that Gutierrez Hermanos, upon closing the
current account with Oria Hermanos & Co. was obliged, certainly an unwarranted obligation, to
render a general account comprehensive of all the business transacted between both parties during
more than nine years, and there being no proof of the alleged agreement between them, it would be
improper to hold that the plaintiff is obliged to render and present a general account in the sense
requested by Oria Hermanos & Co. in its first cross-complaint.

With respect to the second cross-complaint, relative to the sale on commission of lots of hemp and
copra by defendants to plaintiff during the period from may, 1900, until the close of the mercantile
relations between both firms, it was alleged that for such sale or sale on commission Gutierrez
Hermanos collected a large and important commission of many thousands of pesos and credited
defendant in the current account with lesser prices than those obtained and that defendant received
information that these lots of hemp and copra which were said to have sold to third persons were
afterwards found to have been purchased by the firm of Gutierrez Hermanos itself, to the fraud,
injury, and prejudice of the defendant, Oria Hermanos and Co.; wherefore the latter prayed that
plaintiff should present a general and complete account, duly verified by vouchers and with the
details specified of each and all of the shipments of hemp and copra forwarded to plaintiff from May,
1900, to 1909. These facts were denied by plaintiff, and the court, in view of the evidence adduced
by both parties, held that the record showed absolutely no proof that plaintiff, Gutierrez Hermanos,
had committed any fraud or error prejudicial to defendant.

In fact it was not proved that Gutierrez Hermanos credited in the current account a lesser price than
that obtained from the sale on commission of the lots of hemp and copra sent to it by Oria Hermanos
and Co., for from the documentary evidence consisting of account transmitted by plaintiff to the
commercial firms of Stevenson and Co. and Warner, Barnes and Co. (Limited), in collection of the
price of hemp and copra acquired by these houses, it appears that the prices fixed at sale to the
latter are the same and agree with those specified in the statements transmitted by plaintiff to
defendant, Oria Hermanos and Co., and that the hemp and copra shipped by the defendant were
sold on commission to third persons — that is, to the aforesaid commercial firms.

The charge laid against plaintiff, that it did not disclose the name of the commercial firm or concern
from whom the hemp that it sold had come, does not, although it may have concealed this fact,
constitute a fraudulent act, nor one originating civil liability, inasmuch as plaintiff realized on the lots
of hemp under the marks of Oria Hermanos & Co. which they bore from their point of origin and by
which they were known both in Manila and abroad (Exhibit DD) and not only in the invoices, but also
in the accounts presented by Gutierrez Hermanos upon its collecting the price of such hemp sold on
commission, there appeared the marks stamped by Oria Hermanos & Co. on their lots of hemp, and
therefore it cannot be affirmed that Gutierrez Hermanos superseded Oria Hermanos & Co. as the
owner of the hemp that plaintiff sold on commission and that came from defendant during the more
than nine years in which the former was a commission agent of the latter.

With respect to the fact of Gutierrez Hermanos not having disclosed the name of the concern to
which the hemp belonged, in the cases where plaintiff sold it in its own name, plaintiff's procedure
cannot be qualified as deceitful or fraudulent, inasmuch as article 245 of the Code of Commerce
authorized it to act as it did, to contract on its own account without need of disclosing the name of its
principal, in which case Gutierrez Hermanos was liable to the person or concern with whom it
contracted, as if the business were its own. So, then, the purchaser has no right of action against the
principal, nor the latter against the former, without prejudice to the actions which lie respectively in
behalf of the principal and the commission agent, pursuant to the provisions of article 246 of the Civil
Code.

With regard to the lots of copra, notwithstanding the allegations made in this cross-complaint,
defendant has not produced any proof whatever of the facts charged, in face of plaintiff's denial in its
answer. Therefore, in consideration of the reasons set forth with respect to the lots of hemp, the
judgment of the lower court disallowing defendant's petition that plaintiff render accounts relative to
the sales of hemp and copra is held to be in accordance with law.

In this part of the judgment of the trial court consideration was also given to the fact of plaintiff's
having debited against defendant in the account rendered it the payment of the internal-revenue tax
of one-third of 1 per cent.

With respect to the tax paid on the price of the hemp and copra sold by the plaintiff in the name and
for the account of the defendant, the procedure of the plaintiff is perfectly legal, in accordance with
the provisions of section 139 of the Internal Revenue Law, in laying upon Oria Hermanos & Co. the
obligation to pay the said tax as the owner of the hemp and copra sold, and, therefore, the claim
made by defendant against the account drawn up by Gutierrez Hermanos is unreasonable and
unfounded.

As regards the tax of one-third of 1 per cent which, according to accounts presented by Gutierrez
Hermanos to Oria Hermanos & Co., plaintiff had paid on the price of the rice, salt, kerosene, lime,
mats, rattan, flour, anise-seed spirits, and cigarettes, inasmuch as the said section of the above cited
Act obliges the vendors and not the purchasers of these articles to pay the said tax, it is undeniable
that the firm of Gutierrez Hermanos that had acquired the said articles which were forwarded to Oria
Hermanos & Co. should neither have paid the tax in question, nor should have charged it for
payment against defendant, since it had already been paid to the Government by the owners of the
articles sold to plaintiff.
In view of the provisions of law contained in the aforesaid section 139, it is not understood how
Gutierrez Hermanos could have been compelled to pay the said tax on the rice, salt, petroleum,
lime, mats, rattan, flour, anise-seed spirit, and cigarettes, nor on the price of the beer, on the
supposition that plaintiff acquired these articles from third persons in this city. In the case of the rice
imported from abroad, the payment of the tax thereon pertains to the importer who sells it to third
persons.

If Gutierrez Hermanos made a mistake, notwithstanding the clear phraseology of the said section,
said mistake should not prejudice defendant who, in July, 1905, had already stated that it did not
agree with plaintiff's action in the matter for, in the letter Exhibit FF, defendant demanded that
plaintiff investigate the case in order to avoid a double payment of the tax.

For the foregoing reasons the plaintiffs, Gutierrez Hermanos, after liquidation of the sums paid as a
tax of one-third of 1 per cent on the price of the rice acquired in this city and of the salt, kerosene,
lime, mats, flour, anise-seed spirit, cigarettes, and beer, referred to in the second counter-complaint,
must pay to Oria Hermanos & Co. the amount shown by said liquidation to be owing.

As regards the third cross-complaint, wherein it is alleged that fraud, deceit, or error was committed
or incurred by Gutierrez Hermanos in connection with the accounts for the rice forwarded to Oria
Hermanos & Co., a fact denied by plaintiff, the trial judge, in view of the evidence introduced at the
hearing of the case, established the following conclusion:

Justice, therefore, demands that Messers. Gutierrez Hermanos render a new account of the
lots of rice which they shipped to Messrs. Oria Hermanos & Co., inasmuch as they, as
proved in the verification of some of the lots, committed the fraud of having collected a
commission of 2 per cent for the purchase of the rice, as commission agents, in addition to a
profit in reference to the said lots, in their capacity of merchants, on the price of the rice
imported by them from Saigon.

If they acted as committed agents, they could have contented themselves with the 2 per cent
commission and should not have charged any extra price. If, as commission agents, it was
more advantageous for them to reap the profits from the rice imported from Saigon, they
should neither have charged nor collected the 2 per cent commission. The commission agent
is obliged to acquire the articles or effects for which he has received an order from his
principal in the most advantageous and less onerous conditions for the latter. Such an
obligation, prescribed by article 258 of the Code of Commerce, was not fulfilled by the
procedure observed by plaintiff in the matter of the verified invoices of rice, in some of which,
as has been proved, there appears to have been charged a larger amount than the cost
price.

This court reserves its opinion, unit at such proper time it shall have seen to result, shown by the
new accounts to be presented by plaintiff, as to whether, in the rice accounts rendered by it to
defendant, there was fraud or only error susceptible of correction, for plaintiff alleges in turn, as
shown in the letter Exhibit ññ, that Oria Hermanos & Co. required plaintiff to increase the price in the
invoices of rice, anise-seed spirit, petroleum, etc., by 25 per cent of the cost of these articles.
Therefore plaintiff shall render an account, verified by vouchers, to Oria Hermanos of all the
shipments of rice concerned, not only in the invoices examined, but also ion those that have not
been examined, up to No. 153, which invoices are those mentioned on page 324 of the transcript of
the stenographic notes of the session of November 29, 1910.

The approval and agreement given by defendant to the 17 semiannual accounts presented by
plaintiff is no impediment to a revision of the same, once it shall have been shown that there was
fraud, error, or serious in correction prejudicial to the party who accepted the said accounts. The law
which protects him who acts in good faith cannot permit any considerable prejudice to be caused to
the rights and interests of a third party who had neither the occasion nor the opportunity to acquaint
himself with the truth of the facts which he had admitted as true in such manner as they were
presented to him.

Oria Hermanos & Co., upon its accepting and approving the accounts which were presented to it by
Gutierrez Hermanos, as transcripts or copies from the latter's books, did not have an opportunity to
make the required verification of the entries of rice contained in the said accounts or of the invoices
of this article in all their details, and whenever it has discovered that Gutierrez Hermanos, as
commission agent, has made overcharged or placed extra prices in addition to the 2 per cent
commission, it has a right to demand reimbursement of the excess in price which it had erroneously
paid as principal. The judgment of the lower court must, therefore, be affirmed with respect to the
entries of rice made in the 170 invoices referred to in the accounts presented by plaintiff, by means
of a revision of the accounts presented in connection with the said article of the Code of Commerce.

With respect to the fourth crosscomplaint relative to Gutierrez Hermanos having entered in the
invoices transmitted to Oria Hermanos & Co. higher prices than those paid for the salt, beverages,
tobacco, wine, beer, and groceries, in spite of the allegations made by plaintiff the record of the
proceedings shows no proof of the truth of the act charged to plaintiff. The fact of not having
recorded in the invoices of the said effects shipped to defendant the names of the persons who had
acquired them does not constitute proof nor even a presumption of illegal procedure on the part of
Gutierrez Hermanos. Neither is plaintiff obliged by any law to state the names of the owners of such
articles, nor does the omission thereof show bad faith on the part of the commission agents.

As regards the petroleum, it is undeniable that in the invoices to which the fourth cross-complaint
refers higher prices were given than those it actually cost. Moreover, Oria Hermanos & Co. is
entitled to the discount obtained by the commission house from the commercial firm which sold the
petroleum.

The trial judge, as grounds for his finding, says the following: "It is therefore evident that, according
to the proofs submitted, Messrs. Gutierrez Hermanos committed fraud in the purchase and
shipments of the said article, not only because they kept the discount allowed by the selling firm by
which their principals, for whom they purchased the petroleum should have profited, and not the
commission agents who acted for them simply in the capacity of agents; but also because in one of
the invoices they charged, besides, a greater price than they paid to the vendors, and then collected
a commission of 2 per cent on all the invoices. It is the obligation of commission agents to make the
purchases for their principals on the most advantageous terms. For this they are paid the rate of
commission stipulated. They have no right to keep the discount allowed by the vendors on the price
of the articles they purchase for their principals, even less to increase, to their benefit, the price
charged them."

In consideration, then, of evidence introduced relative to the purchase of the petroleum shipped to
defendant, referred to in the fourth cross-complaint, plaintiff must render an account, verified by
vouchers, of the price of all the petroleum that it acquired for Oria Hermanos & Co. and which is
covered by the invoices mentioned on page 391 of the transcript of the stenographic notes taken of
the session of December 28, 1910.

The judgment of the lower court treats of the fact that Gutierrez Hermanos charged interest on the
value of the articles which it had purchased for Oria Hermanos & Co., before even having paid the
vendors the price of the articles acquired. Defendant has complaint against this procedure on the
part of plaintiff and qualifies as improper and illegal the collection of the 8 per cent interest on the
price of the effects forwarded to Oria Hermanos & Co. from the date of their shipment, when actual
payment of such purchases was made many days afterwards.

The accounts presented by Gutierrez Hermanos, wherein note was made of the collection of interest
at the rate of 8 per cent on the price of the effects acquired by plaintiff for Oria Hermanos & Co. and
shipped to defendant for its disposal, notwithstanding that they were not paid for unit many days
afterwards, were approved and accepted by plaintiff without any objection thereto whatever and with
no protest against the notation of the interest on the price of the articles purchased. Therefore, aside
from the reasons given by the lower court in his judgment and relative to this point, it can not be held
that there was either fraud or error in the procedure observed by Gutierrez Hermanos in charging in
its account the stipulated interest from the date when it acquired the effects, afterwards shipped to
the defendant, Oria Hermanos & Co., because Gutierrez Hermanos could have paid cash for the
articles purchased. Even though payment might have been delayed for a few days more it is certain
that Gutierrez Hermanos as commission agent was obliged to pay the price of the articles acquired
and, consequently, said price began to draw interest chargeable to the consignee who, as owner of
such articles, could dispose of them freely. For these reasons defendant's claim can not be
sustained.

We now take up the fifth special defense, or the first counterclaim presented by defendant against
plaintiff, wherein it is prayed that the latter be sentenced to pay to the former the sum of P13,894.60,
together with the legal interest thereon, which sum is the difference between the 5 per cent which
was all Oria Hermanos & Co. should have the sum of P47,649, the debt contracted by Juan T.
Molleda in favor of Gutierrez Hermanos and transferred to Oria Hermanos and Co. who assumed its
payment instead of Molleda.

The reasons, set forth in the judgment appealed from and based on documentary evidence, are so
clear and conclusive that they could not be rejected by defendant, nor invalidated at trial by other
evidence in rebuttal. Consequently, we are constrained to admit them as decisive of the point in
controversy and as duly showing that the interest stipulated on the amount which was transferred to
Oria Hermanos and Co. is 8 per cent and not 5 per cent as defendant claims. Therefore the sum of
P13,894.60 claimed cannot be recovered, and it is held that the finding made by the trial judge in
respect to the first counterclaim filed by defendant is in accord with the law and the evidence. This
finding is based on the following grounds: "If the firm of Molleda and Oria as well as that of Oria
Hermanos & Co., of which latter Mr. Tomas Oria is manager, both consented to Messrs. Gutierrez
Hermanos charging in all the extracts of current account sent to them an interest of 8 per cent on the
sum of P47,649 56; and if they willingly and constantly acquiesced in the payment of a particular rate
of interest instead of that of 5 per cent, during nine years without raising any objection whatever,
they are not entitled to obtained restitution for the difference paid of 3 per cent, nor have they any
right to consider as unlawfully collected the 8 per cent interest on the sum above mentioned. The
record shows no proof of the existence of any of the vices which, according to law, might invalidate
the consent given by defendant to the collection from it of the interest of 8 per cent, which must be
that stipulated, nor was such a vice alleged by Oria Hermanos & Co." Moreover, against this finding
in plaintiff's favor no error whatever has been alleged by defendant.

In the second counterclaim, the sixth special defense, defendant prays that Gutierrez Hermanos be
sentenced to the payment of P63,700, with legal interest thereon from the date of the presentation of
this counterclaim, and alleged; that the firm of Gutierrez Hermanos, disregarding the instructions of
Molleda and Oria, the predecessor of Oria Hermanos and Co., merely insured the stocks of hemp
and merchandise which the latter had in Laoang, for an imaginary value of P67,000, leaving totally
unprotected the stocks of hemp and merchandise in Catubig, valued at P32,000; that such failure to
comply with said instruction caused Oria Hermanos and Co., by reason of the fire that occurred in
Catubig, to lose the sum of P63,700, including the premiums. expenses, and interest paid, and that
defendant, immediately upon discovery of the loss by plaintiff's fault and negligence, filed claim
therefor and protested against the same.

In answer Gutierrez Hermanos alleged that in the letter from Oria Hermanos and Co., of the date of
April 28, 1900, the latter stated that it recommended to plaintiff the question of the insurance of the
warehouses in Laoangand of the houses in Catubig, advised that if the stocks of hemp and
merchandise therein were insured, as defendant believed they were, plaintiff should endeavor to
increase the insurance thereon; and that in another letter of the same date Don Tomas Oria, after
relating the fact that the insurgents had attacked the pueblo of Catubig and killed the troops there
garrisoned, stated that he earnestly recommended to Gutierrez the matter of the insurance in order
that it might be made as soon as possible in the manner explained in the official letter of the same
date.

Gutierrez Hermanos, supposing that Catubig might already have been burned and destroyed as a
result of the occurrences related by Oria in his letter, judging by the news published in the
newspapers of this city on May 2, 1900, deemed that it would be a useless expense to increase the
insurance of the merchandise held in stock in the said pueblo under ordinary fire insurance which
was that taken out by the firm of Molleda and Oria, for the reason that the insurance companies
would refuse to pay the amount of the insurance in case the damage was caused by war, invasion,
riot, military force, etc. As Gutierrez Hermanos then had no means whereby it might communicates
with Molleda and Oria to request specific instructions from this latter firm in regard to the insurance
ordered, which ordinary and not war insurance, it had to consult Don Casimiro Oria, a partner of Oria
Hermanos and Co., and this gentleman, with a full knowledge of the state of affairs in Catubig,
advised that no further attempt be made to increase the ordinary fire insurance on the goods in
Catubig, because it would be a useless expense and because there were well-founded reasons for
supposing that at that date the pueblo had already been completely destroyed, together with the
buildings and stocks of merchandise which it was proposed to insure. But after taking into account
the importance of the buildings and the large stocks of goods stored inLaoang, which pueblo,
according to a letter from Oria to Gutierrez Hermanos, was also in danger of being attacked by the
insurgents, plaintiff proceeded to insure them against war risks for three months for P7,000 sterling,
a transaction which was communicated by plaintiff to Molleda and Oria by a letter of May 5, 1900,
and which this latter firm acknowledged without making any objection whatever to the war insurance
placed; that, since the 2d of June of the same year, neither was any claim or protest made by the
firm of Oria Hermanos, but, on the contrary, Oria Hermanos and Co. applied to the Government of
the United States claiming an indemnity of P90,000 Philippine currency for the burning of the
buildings and goods in the pueblo of Catubig — a claim still pending decision by the Government.

The judge of the Court of First Instance, deciding the question raised in this counterclaim, set forth
among others the following considerations: "If Messrs. Gutierrez Hermanos had taken steps to
insure the stocks of merchandise in Catubig and had declared to any officer of the insuring company
the truth about the terrible slaughter which had just taken place, it would have been impossible to
obtain a war insurance on the said merchandise; and if, instead of declaring the truth, plaintiff had
omitted it, the insurance if obtained could not have been collected. The insurance company would
have learned of the circumstances which had not been stated and had been omitted in the
application and would have refused to pay the insurance, as it did in the case of the Catarman
insurance, as will be seen further on. And if plaintiff had applied to the English courts, as it did in the
case referred to, the result would have been the same."

Even though Gutierrez Hermanos had increased by value of the insurance on the hemp and
merchandise in Catubig through means of ordinary fire insurance, pursuant to the instructions given
by Molleda and Oria, the predecessors of Oria Hermanos & Co. and whose rights this latter firm
represents, the same result would have followed, inasmuch as in this class of insurance the insuring
company does not assume risks for fires and damages caused by war, riot, and military force; and
as in the official letter aforementioned plaintiff was not authorized to increase the insurance through
means of a war insurance policy, it is unquestionable that plaintiff, in not increasing the ordinary
insurance, proceeded in a prudent and reasonable manner and for the benefit of the defendant by
saving the latter from uselessly paying an important premium for an insurance which it afterwards
could not have collected, Furthermore, the news was already disseminated in Manila that the pueblo
of Catubig had been completely burned to the ground. Not only, therefore, would it have been
impossible to obtain the increase of an ordinary insurance, but even a war insurance, though offering
to pay a large and excessive premium.

In the letter of the date of May 34, 1900, Exhibit 5, page 190 of the file of the record, Gutierrez
Hermanos informed Oria Hermanos and Co. that the insurance firm refused to pay the amount of the
insurance on the merchandise in Catubig, for the reason that the cases of fire caused through
military force, etc., were excluded from the policy. So that even though Gutierrez Hermanos had, in
compliance with orders from Oria Hermanos & Co., increased the amount of the insurance on the
stock of merchandise stored in Catubig, Oria Hermanos & Co. would not have been benefited
thereby, because the insurance company would have refused to pay the increase, just as it did not
pay the amount of the original insurance for the reason aforementioned. Furthermore, as we have
already stated, the order to increase the insurance only refers to ordinary insurance against fire, and
not to extraordinary insurance against war risks.

With respect to the war insurance placed on the stocks of goods in Laoang, the trial court could not
in accordance with law hold plaintiff to be liable for the payment of the sum Oria Hermanos and Co.
did not protest nor object in any wise against the placing of the said war insurance on the
merchandise in Laoang, and also because in the second counterclaim no petition or demand
whatever was made in connection with this transaction. For these reasons therefore, Gutierrez
Hermanos must be absolved of the second counterclaim.

We now come to the third counterclaim, the seventh special defense presented by defendant,
wherein petition was made that the firm of Gutierrez Hermanos be compelled to pay to Oria
Hermanos the sum of P67,000, besides the legal interest thereon since the filing of this claim, which
sum was the amount of the insurance, premiums paid, fees, costs, interest, and charges for
telegrams, etc., alleged to have been expended and lost through the inattention, negligence,
improvidence, and carelessness of the plaintiff, Gutierrez Hermanos, without defendant's being able
to collect the amount of the insurance on the stock of hemp in Catarman, Samar.

In a letter of May 10, 1900, addressed by Oria Hermanos & Co. to Gutierrez Hermanos, the former
commissioned the latter to try to insure against war risks some 1,400 piculs of hemp that Oria
Hermanos and Co. had in the pueblo of Catarman which had been evacuated by the American
troops; and in another letter of the same date Tomas Oria said to Gutierrez Hermanos that
Catarman had been evacuated by the troops three days after the departure of the
steamer Santander which was unable to load about 3,000 piculs of hemp that his firm had there,
and, as he knew that the said pueblo had not been burned, he wished to have insurance taken out
on the value of about 1,400 piculs of hemp stored in the Delgado warehouse. Gutierrez Hermanos
had Stevenson and Co., of Manila, cable to the latter's head office in London for the desired
insurance, and as soon as it was obtained Gutierrez Hermanos wrote to Oria Hermanos & Co.
informing defendant that plaintiff had insured against war risks 1,400 piculs of hemp deposited in the
Delgado warehouse in Catarman, for three months from the 18th of May, 1900.

A few days subsequent to the placing of this insurance, Oria Hermanos & Co. ordered Gutierrez
Hermanos to collect the amount of the insurance, for the reason that all the stock of hemp in
Catarman had been stolen by the insurgents. The representative of the underwriter refused,
however, to pay the amount of the insurance because Oria Hermanos and Co. had concealed
certain facts which, had they been known to the underwriter, would have deterred the company from
issuing a policy for the hemp, and all the steps taken for the purpose of obtaining the collection of
the £3,000 sterling for which the hemp had been insured, resulted in failure.

Therefore, on petition of the firm of Oria Hermanos & Co. through the firm of Stevenson and Co., suit
was duly brought before the English courts in London. The prosecution of this suit was commended
to English attorneys to whom Oria Hermanos & Co. furnished, through Gutierrez Hermanos, all the
documents and data conducive to a successful issue. Notwithstanding, the claim of Oria Hermanos
& Co. was rejected by the London courts. No liability attached to Gutierrez Hermanos for the failure
of the suit in London.

The firm of Gutierrez Hermanos merely complied with the orders of Oria Hermanos & Co. to insure
the stock of hemp in Cataraman, with an insurance company established in London, through
Stevenson and Co. of Manila, in view of the fact that there was no insurance company in this city
which would issue policies against war risks. For this purpose, by a letter of October 17, 1905,
Exhibit F-2 Oria Hermanos & Co. transmitted to Gutierrez Hermanos the power of attorney and the
letter for Messrs. Horsley, Kibble and Co. for the purpose of the latter's negotiating with the
underwriters for some honorable settlement of the matter, during the time required for the receipt of
all the documents that had been requested. In another letter of January 25, 1906, Oria Hermanos &
Co. stated to Stevenson and Co. that it took pleasure in replying to the latter's favor of the 19th
instant, addressed to Mr. Oria; that Delgado's letter to Oria of the date of October 19, 1901, was
forwarded in the original to London, through Messrs. Gutierrez Hermanos, to Stevenson and Co., on
July 16, 1904; that defendant inclosed a copy of Delgado's declaration before the municipal judge of
Catarman, transmitted to Stevenson and Co. on November 21, 1903; and that the two letters to
Gutierrez Hermanos, of May 28, 1903, and October 2, 1901, as well as the memorandum of the
values of the goods, had been transmitted to Gutierrez Hermanos with a telegraphic order to said
firm to deliver them to Stevenson and Co. If the amount of the insurance could not afterwards be
collected, it was not through fault of Gutierrez Hermanos, who acted in the matter in accordance with
instructions from Oria Hermanos and Co.

So that firm of Gutierrez Hermanos was a mere conductor through which the stock of hemp in
Catarman was insured by a firm in London through mediation of Messrs. Stevenson and Co., for the
firm of Oria Hermanos and Co. had to grant a power of attorney on behalf of the said Messrs.
Horsley, Kibble and Co. in order that the latter might represent the former before the courts in
England. If afterwards the representatives of Oria Hermanos and Co. did not obtain a favorable
decision in those courts, the loss of the suit cannot be ascribed to either the fault or the negligence
of Gutierrez Hermanos, inasmuch as this plaintiff merely complied with the orders of the defendant,
Oria Hermanos and Co., to bring suit in the English courts, not against Stevenson and Co. of these
Islands, but against the insurance company of London.

The firm of Gutierrez Hermanos, in executing orders and charges of Oria Hermanos and Co.,
became, by virtue of an implied agency, an agent of the latter and, in the fulfillment of the orders of
the principal, adjusted its action to the instructions of Oria Hermanos & Co. The record does not
show that in so doing it proceeded with negligence or with deceit. Therefore there is no reason nor
legal ground whereby plaintiff should be compelled to pay the sum demanded in the third
counterclaim for the causes therein stated. (Arts. 1710, 1719 and 1726 of the Civil Code.)
Consequently Gutierrez Hermanos should be absolved from the third counterclaim filed by
defendant.

In the fourth counterclaim, the eighth special defense, defendant, Oria Hermanos & Co., prays that
plaintiff, Gutierrez Hermanos, be sentenced to pay P75,000 for losses and damages, with interest,
inasmuch as by reason of a contract executed between both parties, plaintiff bound itself to acquire
for and transmit to defendant rice and other articles, including coin, which Oria Hermanos & Co.
might request at Laoang, Samar, and so plaintiff did; but since 1904, the fifth year of their mercantile
relations, plaintiff failed repeatedly to comply with its obligation to send the rice and other article
requested by defendant, totally sometimes and at other times partially limiting the shipment of the
effects ordered and excusing itself from remitting money on the pretext that it could not obtain
insurance for the shipment of cash; that defendant afterwards discovered that there were in this city
large stocks of rice and other effects which plaintiff [defendant] had requested, and could surely
have been sold in Laoang and the pueblos of the coast of Samar, as Oria Hermanos & Co. was the
only importing firm in that island; and had defendant received from plaintiff the rice and the other
effects the former had requested to be shipped to it, defendant would have obtained a profit of not
less than P25,000 whereupon it could have bought large quantities of hemp which would have
brought it great profit. Defendant further alleged that such failure on the part of plaintiff to comply
with the agreement made caused injury to the reputation and mercantile credit of Oria Hermanos
and Co., in Samar, and losses and damages of the value of about P50,000, the total of the losses
and damages suffered on both accounts amounting to a sum of not less than P75, 000; and that the
motive of such procedure on the part of Gutierrez Hermanos was to injure and destroy defendant's
credit in Laoang and on the entire coast of Samar, because plaintiff planned to establish there a
business of its own like that of Oria Hermanos and Co.

Plaintiff, Gutierrez Hermanos, specifically denied the facts alleged by defendant in its counterclaim
and set forth that the evidence introduced relative to such facts showed that since 1904 plaintiff had
been reducing the shipments of rice, wine, and other effects to such extent that in 1906 and 1907
cases occurred where the order shipped was reduced to one-third, and in 1908 also where the
steamer Serantes was sent without any cargo whatever, for the reason that the debit balance in
defendant's current account amounted, in 1905, to P321,000 and because Oria Hermanos and Co.
did not send a quantity of hemp and copra sufficient in value to cover the value of the remittance of
money and of the shipments of the effects requested; that defendant, instead of sending hemp to
plaintiff for the gradual payment of its debt, sent it to Cebu; that therefore Oria Hermanos & Co. had
no well-founded grounds whereupon to claim indemnity for losses and damages, especially since,
according to the stipulations of the agreement and as shown by the evidence, the part of the credit
utilized by defendant was to be covered and paid for with the price of the hemp, copra and other
effects which Oria Hermanos & Co. should have to send to Gutierrez Hermanos; and that, if the
debtor balance of the current account continued to increase instead of decreasing, it must be
concluded that the procedure of Gutierrez Hermanos in reducing the amount of the shipments of the
orders was due to the conduct of Oria Hermanos & Co. who did not endeavor by the shipment of
copra, hemp, and other effects gradually to pay even a part of the credit opened, notwithstanding
that the rights and obligations established in the contract should have been mutual.

If defendant, without concerning itself with diminishing its debtor balance, did no more than order
goods for sale and remit drafts to the paid by Gutierrez Hermanos, not sending in exchange to
plaintiff hemp, copra, and other effects, plaintiff, Gutierrez Hermanos, in refusing discretionally to
furnish certain effects to defendant and to pay drafts drawn by the latter, did not violate the
obligations it assumed in the contract.

The fact that the debtor balance accepted by Oria Hermanos and Co. on March 9, 1909, Exhibit A,
was raised to P144,473.78, is the best proof of the good conduct observed by plaintiff during the
nine years of mercantile relations between both parties, and is at the same time the most graphical
demonstration that defendant's contention made in its fourth counterclaim is not based on any just or
legal grounds.

Article 1100, last paragraph of subarticle 2, of the Civil Code prescribes: "In mutual obligations none
of the persons bound shall incur default if the other does not fulfill or does not submit to properly
fulfill what is incumbent upon him. From the time one of the persons obligated fulfills his obligation
the default begins for the other party." Article 1124 of the same Code provides as follows: "The right
to rescind the obligations is considered as implied in mutual ones, in case one of the obligated
persons does not comply with what is incumbent upon him.

The person prejudiced may chose between exacting the fulfillment of the obligation or its
rescission, with indemnity for damages and payment of interest in either case. He may also
demand the rescission, even after having requested its fulfillment, should the latter appear
impossible." Under these grounds we hold that the absolutory finding contained in the
judgment appealed from is in accordance with the law and the evidence.

In the fifth counterclaim, the ninth special defense, defendant, Oria Hermanos and CO., prayed that
Gutierrez Hermanos be sentenced to pay the sum of P15,000, together with the legal interest
thereon, inasmuch as plaintiff, Gutierrez Hermanos, charged in the current account, collected and
appropriated to itself the funds which Oria Hermanos & Co. had in plaintiff's possession and
assessed against the same compound interest at 8 per cent and 2 ½ per cent on the net amount of
the collection made as charterage for the steamers Serantes and Laoang, the
launches Comillas and Golondrina, and the cutter Remedios, as commission for said charterage,
when all the steps for the collection of the same were taken personally by Messrs. Oria and further,
defendant's partners and there was no contracts whatever between the parties whereby Gutierrez
Hermanos might collect, enter into the current account and appropriate to itself the said amount as
commission through the collection of the aforesaid charterage.

Plaintiff's counsel merely denied the facts alleged, which certainly were not proved at the trial. It was,
on the contrary, fully proven that Don Tomas Oria and the managers of Oria Hermanos & Co. knew,
by reason of the accounts Gutierrez Hermanos had been sending them, that the plaintiff firm
charged the 2 per cent commission on the amount of the charterages, for it is so recorded in the
letter from Oria addressed to Gutierrez Hermanos under date of June 12, 1901, in which P690
appears annotated as the amount of plaintiff's 2 per cent commission for the charterage of
the Laoang and the Serantes, and in other letter from Oria Hermanos and Co. of October 18, 1900,
(Exhibit A-2, page 476 of the record) wherein demand was made for vouchers and a memorandum
of the collections effected for the charterage of these steamers, the Laoang, and the Serates.
Furthermore, it appears in this same letter for it is stead that credit has been given in Gutierrez
Hermanos' account for P272.50, as being the amount this firm was entitled to receive as 2 per cent
commission on the P15,625 collected by it from the quartermaster for the charterage of the Serates
and for the transportation of eight passengers on the steamerLaoang; and it is also therein stated
that Gutierrez Hermanos' account has been credited with the sum of P24, as the amount of 2 per
cent commission on P1,200 collected for four days' charterage of the Laoang. These documents
show that Gutierrez Hermanos has taken part in the collection of the said charterages and,
therefore, was entitled to receive the amount agreed upon as commission for such collection. Oria's
assertion that Gutierrez Hermanos did nothing for the collection of the P400,000, the amount of the
charterage for the boats of Oria Hermanos and Co., Gutierrez Hermanos relative to the collection of
the charterages due for the launchesGolondrina and Adela, and for this purpose he sent the proper
vouchers for such collection. Consequently there is neither reason nor legal ground to prevent our
holding as proper the finding established by the trial court that Oria Hermanos & Co. did, with due
knowledge of the matter, approve the amount of the commissions collected by Gutierrez Hermanos
on the sums it had collected as charterage for the defendant's boats, in accordance with the
agreement made between the parties, which defendant can not repudiate, nor can its regret for the
part it took therein avail it for the reimbursement sought in its fifth counterclaim. The finding of the
trial judge in regard to the latter is, therefore, in conformity with the law.

The object of the sixth counterclaim is to obtain reimbursement of the sum of P31,000, the amount of
the interest charged and compounded semiannually, instead of annually, at the rate of 8 per cent net
interest. Oria Hermanos & Co. demands this sum from Gutierrez Hermanos, alleging that there was
an agreement between the parties to the effect that a settlement of the interest should be made at
the end of each year, and also that the interest due and unpaid should be capitalized annually.

The firm of Oria Hermanos & Co., Tomas Oria, one of the partners of the same, and the defendant's
bookkeeper, a relative of the said Oria and also a partner of the firm, had been receiving extracts or
copies of the semiannual accounts rendered by Gutierrez Hermanos, and, after a careful
examination of the same, after offering objections thereto which sometimes delayed Oria Hermanos
and Co.'s approval thereof for more than six months, after receiving the explanations requested and
vouchers demanded of plaintiff, they concluded by admitting and agreeing to the accounts rendered
and the amounts involved, and made neither objection nor protest whatever against the system or
method employed by Gutierrez Hermanos in capitalizing at the end of each year the interest of the
semiannual accounts rendered, nor against the interest charged on the capitalized interest, not only
in defendant's debit, but also by reciprocation in the credit given it in the account of the receipts
obtained from price of the hemp, copra and other products shipped to Gutierrez Hermanos. All the
foregoing facts appear on page 18 of the transcript of the stenographic notes taken of the hearing on
July 14, 1914.

The transaction effected by Gutierrez Hermanos in the accounts it presented to defendant, Oria
Hermanos & Co., is confirmed by some twenty letters signed, some of them, by Pria Hermanos and
Co., others, the greater part of them, by Tomas Oria, and still others by Mr. Fuster, a partner of the
latter firm. Therefore the semiannual capitalization made by plaintiff, Gutierrez Hermanos, was
sanctioned and approved by defendant on the seventeen occasions that it approved the accounts
presented by plaintiff, expressive of such capitalization of the reciprocal interest stipulated between
the contracting parties.

Article 1109 of the Civil Code prescribes as follows: "Interest due shall earn legal interest from the
time it is judicially demanded, even if the obligation should have been silent on this point.

In commercial transactions the provisions of the Code of Commerce shall be observed.

Article 317 of the Code of Commerce provides: "Interest which has fallen due and has not been paid
shall not earn interest. The contracting parties may, however, capitalized the net interest which has
not been paid, which, as new principal, shall earn interest."

Upon the execution of the contract which was the origin of the mercantile relations between
Gutierrez Hermanos and Oria Hermanos & Co., the stipulation made between both parties were not
sent forth in any document, they being content with a verbal agreement in which it was stipulated
that the rate of interest of the reciprocal current account to be kept between them should be 8 per
cent, without determining whether such interest was to fall due annually, as affirmed by Tomas Oria,
the manager of Oria Hermanos & Co., or semiannually, as contended by Gutierrez Hermanos.
However, it is certain that in the seventeen accounts presented by plaintiff to defendant, at the end
of each period of six months from 1900 to December 31, 1908, embracing nearly nine years, the
interest due was liquidated every six months in the reciprocal current account between both firms,
without opposition or protest on the part of Oria Hermanos and Co. In the absence of a written
agreement defendant's procedure raises the presumption that such were the stipulations verbally
made between made between the interested parties, and the verbal agreement was constantly
maintained and confirmed without protest or objection whatever on the part of the managers of Oria
Hermanos & Co. If Tomas Oria, changing his opinion, after the firm of which he is principal member
had approved the said seventeen accounts, believed that he was authorized to contradict his own
acts and to allege another manner of computing and liquidating the 8 per cent interests stipulated by
stating that it should have been collected annually, and not semiannually as was done and approved
in the seventeen accounts rendered during a period of more than nine years, the rectification
afterwards made of an assent and agreement repentance what he himself did in agreement with
defendant, since they were authorized to take such action by article 317 of the Code of Commerce.
Therefore the ruling of the trial judge absolving plaintiff of the sixth counterclaim filed by defendant is
in accordance with the law and with the evidence as disclosed by the record.

For all the reasons hereinabove set forth as grounds for the findings rendered in respect to the
complaint and to each one of the cross-complaints and counterclaims presented by defendant, the
errors assigned to the judgment appealed from and not admitted in this decision have been duly
refused.

Therefore, for the reasons assigned in this decision, we sentence the commercial firm of Oria
Hermanos & Co. to the payment of the sum of P147,204.28 and of the stipulated interest at the rate
of 8 per cent per annum from June 30, 1909, after deduction of all the sums which as balances in
favor of defendant may result from the accounts to be rendered by Gutierrez Hermanos, in
conformity with the finding made, especially in reference to the second, third, and fourth cross-
complaints.

Gutierrez Hermanos is absolved from the first cross-complaint, and also from the second, in which
latter defendant prayed for an accounting of the hemp and copra business. Plaintiff is likewise
absolved from the fourth cross-complaint, excepting the part thereof relative to the petroleum, and
also from the first, second, third, fourth, fifth, and sixth counterclaims filed by defendant.

Held: (1) That Gutierrez Hermanos, after Liquidation of the sums paid as a one-third per cent
tax on the price of the rice acquired in this city, of that of the salt, kerosene, lime, mats,
rattan, flour, anisette, cigarettes, beer, and other articles, for which plaintiff paid said sums
and charged them to defendant's account, must pay to Oria Hermanos & Co. the sum
disclosed by the said liquidation, in conformity with the second cross-complaint.

(2) That Gutierrez Hermanos shall render to defendant an account, supported by vouchers,
of the price, expenses, and all amounts paid for the shipments of rice covered by the
invoices examined during the trial of this case, as well as the 153 invoices mentioned by the
parties in the hearing of November 29, 1910.

(3) That plaintiff shall render an account, supported by vouchers, of all the petroleum it
acquired for Oria Hermanos & Co., the invoices of which are mentioned in the transcript of
the stenographic notes taken at the hearing of December 28, 1910.

The judgment appealed from is affirmed in so far as it is in accord with this decision and is reversed
in so far as it is not, without special finding as to costs.

Arellano, C.J. and Johnson, J., concur.

Carson and Trent, JJ., concur in the result.

Separate Opinions

MORELAND, J., dissenting:

I do not agree to the return of this case to the court below for the purpose of having the plaintiff
"render accounts."

In the first place, there is no account to render, and the finding of the trial court and this court to the
contrary is clearly erroneous.

In the second place, the parties offered, or had every opportunity to offer, all of their evidence
relative to the sale and delivery of the merchandise described in the complaint and the payment of
the purchase price. It is a plain case of a sale of goods by plaintiff to defendant. If there is evidence
supporting the allegations of the complaint, plaintiff is entitled to a judgment. If not, the defendant
wins. There is no reason for a return of the cause. The parties have already had every opportunity
warranted by law. (Hicks vs. Manila Hotel Co., 28 Phil. Rep., 325; Gov. of Phil., Islands vs. Philippine
Sugar Estates Development Co., Ltd. ante, p. 27.)

In the third place, if this court is correct in its ruling, the judgment appealed from is not final and we
can do nothing but dismiss the appeal.

The judgment of the lower court is in part as follows:

Judgment is, therefore, rendered against Oria Hermanos y Compañia and in favor of
Gutierrez Hermanos for the sum of one hundred and forty-seven thousand two hundred and
four pesos and twenty-eight centavos (P147,204.28), with interest at eight per cent annum
from the 30th of June, 1909, but there must be deducted therefrom the sums which are
found in favor of the said Oria Hermanos y Compañia from the rendition of accounts by said
Gutierrez Hermanos in accordance with the counterclaims and cross complaint which have
heretofore been allowed.

The judgment further says: "(a) With reference to the first counterclaim, to render accounts duly
vouchered to Oria Hermanos y Compañia with reference to those articles as to which fraud or error
has been proved and to which the subsequent pronouncements herein made refer.

(b) With reference to the second counterclaim, to restore to Oria Hermanos y Compañia after
the proper rendering if accounts with reference thereto, all of the sums, etc.

xxx xxx xxx

(d) With reference to the fourth counterclaim, to render vouchered accounts of all the
purchases of petroleum which Oria Hermanos y Compañia have made from the plaintiffs,
etc.

If we take this judgment at its face, then it is clear that is it not final, that something is necessary yet
to be done before the sum due from defendant to plaintiff, if anything, can be determined. Whereas
judgment is not final, we have no authority to take jurisdiction for the purpose of determining the
merits; and the determination of this court in the prevailing opinion of many of the questions which
would have been presented if the judgment was final is without authority. This proposition has been
so frequently held by this court that the contrary doctrine laid down by this case will come as a shock
to both the bench and bar (Code of Civil Procedure, sections 123 and 143; International
Bank vs. Martinez, 220 U.S., 214).

In the case of Montemayor vs. Cunanan (14 Phil. rep., 454), it appeared that "M commenced an
action in the Court of First Instance against C for divorce and also for a division of the marital
property. The court, after hearing the evidence, entered a decree granting to M her divorce and
appointed a commission to make an inventory of the marital property and report to the court for a
division of the same. C duly excepted to the order decreeing the divorce and without waiting for a
division of the marital property presented a bill of exceptions, which was duly allowed. After the bill of
exceptions was received in the Supreme Court M presented a motion asking that the appeal of C be
not allowed upon the ground that the judgment of the lower court was not final." In that case the
court held "that said motion should be granted for the reason that the lower court had only resolved a
part of the question presented to it and that the decree of the lower court did not finally determine the
action or proceeding in said cause; that bills of exceptions should only be allowed upon final
judgments which finally determine the action or proceeding in the lower court." In the opinion the
court said: "We are of the opinion and so hold that it was the purpose of the legislature in enacting
the provisions of sections 123 and 143 of the Code of Procedure in Civil Actions to prohibit appeals
except from decisions of the lower court which finally determine the action or proceeding." The
opinion cites many cases from Supreme Court of the United States and other American courts and
also several decisions of this court. It is entirely in point with the case at bar and should be followed.
No one has offered any explanation why it is not followed and I know of none.

In the case of Toribio vs. Toribio (7 Phil. Rep., 526), the judgment provided that "therefore, the court,
after considering the facts proved and the law applicable thereto, orders that the defendants within
sixty days submit for the consideration of the court an inventory of all of the goods and property of
them deceased Narciso Natalio Lopez, and that they render accounts of administration of the same
in order that the court may make the proper order for the protection of the respective rights of all the
parties interested, reserving final decision of the cause until the proper time."

The opinion, after citing sections 123 and 143 of the Code of Civil Procedure and decisions of the
Supreme Court of the United States, held that the judgment was not final inasmuch as the court
required the rendering of an account by the defendants. Many of the cases cited assert the
proposition that, under laws such as are found in sections 123 and 143 of the Code of Civil
Procedure, an appellate court has no jurisdiction in an appeal taken from a judgment which is not
final. (Guarantee Company vs. Mechanics' Savings Bank etc., 173 U.S., 582.)

In the case of Ron vs. Mojica (8 Phil. Rep., 328), it was held that "in a suit for the partition of
property, brought in accordance with the provisions of the Code of Civil Procedure, the judicial order
or resolution by virtue of which the judge declares who are the parties who have a right to certain
property belonging to several owners is not final, nor does it definitely close the case, and is subject
to exception." (Araullo vs. Araullo, 3 Phil. Rep., 567.)

I am of the opinion that the cases cited fully dispose of the right of the parties to appeal in this case,
as the judgment is not final by virtue of its very terms and the amount thereof cannot possibly be
known, if we accept the decision of the court below and of this court, until the accountings required
have been duly made and the amount fixed which one party owes to the other.

This court, in dealing with the merits of this cause, has definitely settled the liability of the defendant
for many thousands or pesos. Will the judgment of this court as to this sum become final at the end
of the time prescribed by law? If so, what will the situation be if, on the rendering of the accounts
ordered by this decision, it shall be determined that the plaintiff owes to the defendant a sum
sufficient to offset the amount already found to be due from the defendant to the plaintiff by the
judgment of this court? Will the defendant be able to reduce the final judgment in favor of the
plaintiff, rendered by this court, by the amount which is found due on the accounting? Or will it be
obliged to offset the judgment of this court in favor of the plaintiff by the sums found due it on the
accounting in a separate proceeding for that purpose? If there is a judgment in favor of the plaintiff
and against the defendant for P100,000, how can the defendant get the benefit of subsequent
accountings for P100,000 in its favor? This is not like an action of divorce or partition which can be
divided into two parts, each separate and distinct from the other, and the judgment as to one part be,
in a way, independent of the other. This is an action for a sum of money and the several amounts
claimed by the plaintiff and defendant, respectively, must be aggregated and a balance struck before
it can be determined how much one owes the other. The action cannot be divided into parts. it is one
single action; it cannot be determined that the plaintiff is entitled to P100,000 on one cause of action,
and that determination affirmed by this court, and then the cause be sent back for the determination
of how much the plaintiff owes defendant on counterclaims. The determination necessary to be
made in an action for a sum of money is the amount due from defendant to plaintiff. In the very
nature of things, no final judgment can be rendered until the amount due is actually determined and
fixed. No such determination has been made in this case.

For these reasons I dissent. The treatment of this case by the court is without precedent.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-20567 July 30, 1965

PHILIPPINE NATIONAL BANK, petitioner,

vs.
MANILA SURETY and FIDELITY CO., INC. and THE COURT OF APPEALS (Second
Division), respondents.

Besa, Galang and Medina for petitioner.

De Santos and Delfino for respondents.

REYES, J.B.L., J.:

The Philippine National Bank petitions for the review and reversal of the decision rendered by the
Court of Appeals (Second Division), in its case CA-G.R. No. 24232-R, dismissing the Bank's
complaint against respondent Manila Surety & Fidelity Co., Inc., and modifying the judgment of the
Court of First Instance of Manila in its Civil Case No. 11263.

The material facts of the case, as found by the appellate Court, are as follows:

The Philippine National Bank had opened a letter of credit and advanced thereon $120,000.00 to
Edgington Oil Refinery for 8,000 tons of hot asphalt. Of this amount, 2,000 tons worth P279,000.00
were released and delivered to Adams & Taguba Corporation (known as ATACO) under a trust
receipt guaranteed by Manila Surety & Fidelity Co. up to the amount of P75,000.00. To pay for the
asphalt, ATACO constituted the Bank its assignee and attorney-in-fact to receive and collect from
the Bureau of Public Works the amount aforesaid out of funds payable to the assignor under
Purchase Order No. 71947. This assignment (Exhibit "A") stipulated that:

The conditions of this assignment are as follows:

1. The same shall remain irrevocable until the said credit accomodation is fully liquidated.
 2. The PHILIPPINE NATIONAL BANK is hereby appointed as our Attorney-in-Fact for us and
in our name, place and stead, to collect and to receive the payments to be made by virtue of
the aforesaid Purchase Order, with full power and authority to execute and deliver on our
behalf, receipt for all payments made to it; to endorse for deposit or encashment checks,
money order and treasury warrants which said Bank may receive, and to apply said
payments to the settlement of said credit accommodation.

This power of attorney shall also remain irrevocable until our total indebtedness to the said
Bank have been fully liquidated. (Exhibit E)

ATACO delivered to the Bureau of Public Works, and the latter accepted, asphalt to the total value of
P431,466.52. Of this amount the Bank regularly collected, from April 21, 1948 to November 18,
1948, P106,382.01. Thereafter, for unexplained reasons, the Bank ceased to collect, until in 1952 its
investigators found that more moneys were payable to ATACO from the Public Works office,
because the latter had allowed mother creditor to collect funds due to ATACO under the same
purchase order to a total of P311,230.41.

Its demands on the principal debtor and the Surety having been refused, the Bank sued both in the
Court of First Instance of Manila to recover the balance of P158,563.18 as of February 15, 1950,
plus interests and costs.

On October 4, 1958, the trial court rendered a decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered as follows:

1. Ordering defendants, Adams & Taguba Corporation and Manila Surety & Fidelity Co., Inc.,
to pay plaintiff, Philippines National Bank, the sum of P174,462.34 as of February 24, 1956,
minus the amount of P8,000 which defendant, Manila Surety Co., Inc. paid from March, 1956
to October, 1956 with interest at the rate of 5% per annum from February 25, 1956, until fully
paid provided that the total amount that should be paid by defendant Manila Surety Co., Inc.,
on account of this case shall not exceed P75,000.00, and to pay the costs;

2. Orderinq cross-defendant, Adams & Taguba Corporation, and third-party defendant,

Pedro A. Taguba, jointly and severally, to pay cross and third-party plaintiff, Manila Surety &
Fidelity Co., Inc., whatever amount the latter has paid or shall pay under this judgment;

3. Dismissing the complaint insofar as the claim for 17% special tax is concerned; and

4. Dismissing the counterclaim of defendants Adams & Taguba Corporation and Manila
Surety & Fidelity Co., Inc.

From said decision, only the defendant Surety Company has duly perfected its appeal. The Central
Bank of the Philippines did not appeal, while defendant ATACO failed to perfect its appeal.

The Bank recoursed to the Court of Appeals, which rendered an adverse decision and modified the
judgment of the court of origin as to the surety's liability. Its motions for reconsideration having
proved unavailing, the Bank appealed to this Court.

The Court of Appeals found the Bank to have been negligent in having stopped collecting from the
Bureau of Public Works the moneys falling due in favor of the principal debtor, ATACO, from and
after November 18, 1948, before the debt was fully collected, thereby allowing such funds to be
taken and exhausted by other creditors to the prejudice of the surety, and held that the Bank's
negligence resulted in exoneration of respondent Manila Surety & Fidelity Company.

This holding is now assailed by the Bank. It contends the power of attorney obtained from ATACO
was merely in additional security in its favor, and that it was the duty of the surety, and not that of the
creditor, owed see to it that the obligor fulfills his obligation, and that the creditor owed the surety no
duty of active diligence to collect any, sum from the principal debtor, citing Judge Advocate General
vs. Court of Appeals, G.R. No. L-10671, October 23, 1958.

This argument of appellant Bank misses the point. The Court of Appeals did not hold the Bank
answerable for negligence in failing to collect from the principal debtor but for its neglect in collecting
the sums due to the debtor from the Bureau of Public Works, contrary to its duty as holder of an
exclusive and irrevocable power of attorney to make such collections, since an agent is required to
act with the care of a good father of a family (Civ. Code, Art. 1887) and becomes liable for the
damages which the principal may suffer through his non-performance (Civ. Code, Art. 1884).
Certainly, the Bank could not expect that the Bank would diligently perform its duty under its power
of attorney, but because they could not have collected from the Bureau even if they had attempted to
do so. It must not be forgotten that the Bank's power to collect was expressly made irrevocable, so
that the Bureau of Public Works could very well refuse to make payments to the principal debtor
itself, and a fortiori reject any demands by the surety.

Even if the assignment with power of attorney from the principal debtor were considered as mere
additional security still, by allowing the assigned funds to be exhausted without notifying the surety,
the Bank deprived the former of any possibility of recoursing against that security. The Bank thereby
exonerated the surety, pursuant to Article 2080 of the Civil Code:

ART. 2080. — The guarantors, even though they be solidary, are released from their
obligation whenever by come act of the creditor they cannot be subrogated to the rights,
mortgages and preferences of the latter. (Emphasis supplied.)

The appellant points out to its letter of demand, Exhibit "K", addressed to the Bureau of Public
Works, on May 5, 1949, and its letter to ATACO, Exhibit "G", informing the debtor that as of its date,
October 31, 1949, its outstanding balance was P156,374.83. Said Exhibit "G" has no bearing on the
issue whether the Bank has exercised due diligence in collecting from the Bureau of Public Works,
since the letter was addressed to ATACO, and the funds were to come from elsewhere. As to the
letter of demand on the Public Works office, it does not appear that any reply thereto was made; nor
that the demand was pressed, nor that the debtor or the surety were ever apprised that payment
was not being made. The fact remains that because of the Bank's inactivity the other creditors were
enabled to collect P173,870.31, when the balance due to appellant Bank was only P158,563.18. The
finding of negligence made by the Court of Appeals is thus not only conclusive on us but fully
supported by the evidence.

Even if the Court of Appeals erred on the second reason it advanced in support of the decision now
under appeal, because the rules on application of payments, giving preference to secured
obligations are only operative in cases where there are several distinct debts, and not where there is
only one that is partially secured, the error is of no importance, since the principal reason based on
the Bank's negligence furnishes adequate support to the decision of the Court of Appeals that the
surety was thereby released.

WHEREFORE, the appealed decision is affirmed, with costs against appellant Philippine National
Bank.
Bengzon, C.J., Concepcion, Paredes, Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ.,
concur.
Bautista Angelo and Barerra, JJ., took no part.

SECOND DIVISION

[G.R. Nos. L-33819 and L-33897. October 23, 1982.]

NATIONAL POWER CORPORATION, Plaintiff-Appellant, v. NATIONAL MERCHANDISING

CORPORATION and DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES, Defendants-
Appellants.

The Solicitor General, for Plaintiff-Appellant.

Sycip, Salazar, Luna Manalo & Feliciano, for Defendants-Appellants.

SYNOPSIS

Plaintiff-appellant National Power Corporation (NPC) and defendant- appellant National Merchandising
Corporation (NAMERCO), the Philippine representative of New York-based International Commodities
Corporation, executed a contract of sale of sulfur with a stipulation for liquidated damages in case of breach.
Defendant-appellant Domestic Insurance Company executed a performance bond in favor of NPC to
guarantee the seller’s obligation. In entering into the contract, Namerco, however, did not disclose to NPC
that Namerco’s principal, in a cabled instruction, stated that the sale was subject to availability of a steamer,
and contrary to its principal’s instruction, Namerco agreed that non-availability of a steamer was not a
justification for non-payment of liquidated damages. The New York supplier was not able to deliver the
sulfur due to its inability to secure shipping space. Consequently, the Government Corporate Counsel
rescinded the contract of sale due to the supplier’s non-performance of its obligations, and demanded
payment of liquidated damages from both Namerco and the surety. Thereafter, NPC sued for recovery of the
stipulated liquidated damages. After trial, the Court of First Instance rendered judgment ordering
defendants-appellants to pay solidarity to the NPC reduced liquidated damages with interest.

The Supreme Court held that Namerco is liable fur damages because under Article 1897 of the Civil Code the
agent who exceeds the limits of his authority without giving the party with whom he contracts sufficient
notice of his powers is personally liable to such party. The Court, however, further reduced the solidary
liability of defendants-appellants for liquidated damages.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; AN AGENT WHO EXCEEDS THE LIMITS OF HIS
AUTHORITY IS PERSONALLY LIABLE. — Under Article 1897 of the Civil Code the agent who exceeds the
limits of his authority without giving the party with whom he contracts sufficient notice of his powers is
personally liable to such party.

2. ID.; ID.; ID.; ID.; CASE AT BAR. — In the present case, Namerco, the agent of a New York-based
principal, entered into a contract of sale with the National Power Corporation without disclosing to the NPC
the limits of its powers and, contrary to its principal’s prior cabled instructions that the sale should be
subject to availability of a steamer, it agreed that non-availability of a steamer was not a justification for
nonpayment of the liquidated damages. Namerco. therefore, is liable for damages.

3. ID.; ID.; ID.; THE RULE THAT EVERY PERSON DEALING WITH AN AGENT IS PUT UPON AN INQUIRY AND
MUST DISCOVER UPON HIS PERIL THE AUTHORITY OF THE AGENT IS NOT APPLICABLE WHERE THE AGENT,
NOT THE PRINCIPAL, IS SOUGHT TO BE HELD LIABLE ON THE CONTRACT. — The rule that every person
dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent would
apply only in cases where the principal is sought to be held liable on the contract entered into by the agent.
The said rule is not applicable in the instant case since it is the agent, not the principal, that is sought to be
held liable on the contract of sale which was expressly repudiated by the principal because the agent took
chances, it exceeded its authority and, in effect. it acted in its own name.
 4. ID.; ID.; ID.; THE CONTRACT ENTERED INTO BY AN AGENT WHO ACTED BEYOND HIS POWERS IS
UNENFORCEABLE ONLY AS AGAINST THE PRINCIPAL BUT NOT AGAINST THE AGENT AND ITS SURETY. —
Article 1403 of the Civil Code which provides that a contract entered into in the name of another person by
one who has acted beyond his powers is unenforceable, refers to the unenforceability of the contract against
the principal. In the instant case, the contract containing the stipulation for liquidated damages is not being
enforced against its principal but against the agent and its surety. It being enforced against the agent
because Article 1897 implies that the agent who acts in excess of his authority is personally liable to the
party with whom he contracted. And that rule is complimented by Article 1898 of the Civil Code which
provides that "if the agent contracts, in the name of the principal, exceeding the scope of his authority, and
the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is
aware of the limits of the powers granted by the principal." Namerco never disclosed to the NPC the cabled
or written instructions of its principal. For that reason and because Namerco exceeded the limits of its
authority, it virtually acted in its own name and not as agent and it is, therefore, bound by the contract of
sale which, however, it not enforceable against its principal. If, as contemplated in Articles 1897 and 1898,
Namerco is bound under the contract of sale, then it follows that it is bound by the stipulation for liquidated
damages in that contract.

5. ID.; ID.; ID.; THE LIABILITY OF AN AGENT WHO EXCEEDS THE LIMITS OF HIS AUTHORITY IS BASED ON
CONTRACT AND NOT ON TORT OR QUASI-DELICT; CASE AT BAR. — Defendant’s contention that Namerco’s
liability should be based on tort or quasi-delict, as held in some American cases, like Mendelson v. Holton,
149 N.E. 38,42 ACR 1307, is not well-taken. As correctly argued by the NPC, it would be unjust and
inequitable for Namerco to escape liability of the contract after it had deceived the NPC by not disclosing the
limits of its powers and entering into the contract with stipulations contrary to its principal’s instructions.

6. ID.; ID.; ID.; LIABILITY OF THE SURETY ON THE OBLIGATION CONTRACTED BY AN AGENT WHO
EXCEEDED HIS AUTHORITY IS NOT AFFECTED THEREBY. — The contention of the defendants that the
Domestic Insurance Company is not liable to the NPC because its bond was posted, not to Namerco, the
agent, but for the New York firm which is not liable on the contract of sale, cannot be sustained because it
was Namerco that actually solicited the bond from the Domestic Insurance Company and, Namerco is being
held liable under the contract of sale because it virtually acted in its own name. In the last analysis, the
Domestic Insurance Company acted as surety for Namerco. The rule is that "want of authority of the person
who executes an obligation as the agent or representative of the principal will not, as a general rule, affect
the surety thereon, especially in the absence of fraud, even though the obligation is not binding on the
principal." (72 C.J.S. 525).

7. CIVIL LAW; DAMAGES; IMPOSITION OF INTEREST THEREON NOT WARRANTED WHERE THE
DISPOSITION OF THE CASE HAS BEEN DELAYED DUE TO NO FAULT OF DEFENDANTS. — With respect to the
imposition of the legal rate of interest on the damages from the filing of the complaint in 1957, or a quarter
of a century ago, defendant’s contention that interest should not be collected on the amount of damages is
meritorious. It should be manifestly iniquitous to collect interest on the damages especially considering that
the disposition of this case has been considerably delayed due to no fault of the defendants

8. ID.; ID.; LIQUIDATED DAMAGES; NO PROOF OF PECUNIARY LOSS IS REQUIRED FOR RECOVERY
THEREOF. — No proof of pecuniary lost is required for the recovery of liquited damages. The stipulatian for
liquidated damages is intended to obviate controversy on the amount of damages. There can be no question
that the NPC suffered damages because its production of fertilizer was disrupted or diminished by reason of
the non-delivery of the sulfur. The parties foresaw that it might be difficult to ascertain the exact amount of
damages for non-delivey of the sulfur. So, they fixed the liquidated damages to be paid as indemnity to the
NPC.

9. ID.; ID.; NOMINAL DAMAGES; NOT A CASE OF. — Nominal damages are damages in name only or are in
fact the same as no damages (25 C.J.S. 466). It would not be correct to hold in this case that the NPC
suffered damages in name only or that the breach of contract "as merely technical in character since the
NPC suffered damages because its production of fertilizer "as disrupted or diminished by reason of the non-
delivery of the sulfur.

DECISION

AQUINO, J.:
This case is about the recovery of liquidated damages from a seller’s agent that allegedly exceeded its
authority in negotiating the sale.

Plaintiff National Power Corporation appealed on questions of law from the decision of the Court of First
Instance of Manila dated October 10, 1966, ordering defendants National Merchandising Corporation and
Domestic Insurance Company of the Philippines to pay solidarily to the National Power Corporation reduced
liquidated damages in the sum of P72,114.66 plus legal, rate of interest from the filing of the complaint and
the costs (Civil Case No. 33114).

The two defendants appealed from the same decision allegedly because it is contrary to law and the
evidence. As the amount originally involved is P360,572.80 and defendants’ appeal is tied up with plaintiff’s
appeal on questions of law, defendants’ appeal can be entertained under Republic Act No. 2613 which
amended section 17 of the Judiciary Law.

On October 17, 1956, the National Power Corporation and National Merchandising Corporation (Namerco) of
3111 Nagtahan Street, Manila, as the representative of the International Commodities Corporation of 11
Mercer Street, New York City (Exh. C), executed in Manila a contract for the purchase by the NPC from the
New York firm of four thousand long tons of crude sulfur for its Maria Cristina Fertilizer Plant in Iligan City at
a total price of (450,716 (Exh. E).

On that same date, a performance bond in the sum of P90,143.20 was executed by the Domestic Insurance
Company in favor of the NPC to guarantee the seller’s obligations (Exh. F).

It was stipulated in the contract of sale that the seller would deliver the sulfur at Iligan City within sixty days
from notice of the establishment in its favor of a letter of credit for $212,120 and that failure to effect
delivery would subject the seller and its surety to the payment of liquidated damages at the rate of two-fifth
of one percent of the full contract price for the first thirty days of default and four-fifth of one percent for
every day thereafter until complete delivery is made (Art. 8, p. 111, Defendants’ Record on Appeal).

In a letter dated November 12, 1956, the NPC advised John Z. Sycip, the president of Namerco, of the
opening on November 8 of a letter of credit for $212,120 in favor of International Commodities Corporation
which would expire on January 31, 1957 (Exh. I). Notice of that letter of credit was, received by cable by the
New York firm on November 15, 1956 (Exh. 80-Wallick). Thus, the deadline for the delivery of the sulfur was
January 15, 1957.

The New York supplier was not able to deliver the sulfur due to its inability to secure shipping space. During
the period from January 20 to 26, 1957 there was a shutdown of the NPC’s fertilizer plant because there was
no sulfur. No fertilizer was produced (Exh. K).

In a letter dated February 27, 1957, the general manager of the NPC advised Namerco and the Domestic
Insurance Company that under Article 9 of the contract of sale "non-availability of bottom or vessel" was not
a fortuitous event that would excuse non-performance and that the NPC would resort to legal remedies to
enforce its rights (Exh. L and M).

The Government Corporate Counsel in his letter to Sycip dated May 8, 1957 rescinded the contract of sale
due to the New York supplier’s non-performance of its obligations (Exh. G). The same counsel in his letter of
June 8, 1957 demanded from Namerco the payment of P360,572.80 as liquidated damages. He explained
that time was of the essence of the contract. A similar demand was made upon the surety (Exh. H and H-1).

The liquidated damages were computed on the basis of the 115-day period between January 15, 1957, the
deadline for the delivery of the sulfur at Iligan City, and May 9, 1957 when Namerco was notified of the
rescission of the contract, or P54,085.92 for the first thirty days and P306,486.88 for the remaining eighty-
five days. Total: P360,572.80.

On November 5, 1957, the NPC sued the New York firm, Namerco and the Domestic Insurance Company for
the recovery of the stipulated liquidated damages (Civil Case No. 33114).

The trial court in its order of January 17, 1958 dismissed the case as to the New York firm for lack of
jurisdiction because it was not doing business in the Philippines (p. 60, Defendants Record on Appeal).
On the other hand, Melvin Wallick, as the assignee of the New York corporation and after the latter was
dropped as a defendant in Civil Case No. 33114, sued Namerco for damages in connection with the same
sulfur transaction (Civil Case No. 37019). The two cases, both filed in the Court of First Instance of Manila,
were consolidated. A joint trial was held. The lower court rendered separate decisions in the two cases on
the same date.

In Civil Case No. 37019, the trial court dismissed Wallick’s action for damages against Namerco because the
assignment in favor of Wallick was champertous in character. Wallick appealed to this Court. The appeal was
dismissed because the record on appeal did not disclose that the appeal was perfected on time (Res. of July
11, 1972 in L-33893).In this Civil Case No. 33114, although the records on appeal were approved in 1967,
inexplicably, they were elevated to this Court in 1971. That anomaly initially contributed to the delay in the
adjudication of this case.

Defendants’ appeal L-33819. — They contend that the delivery of the sulfur was conditioned on the
availability of a vessel to carry the shipment and that Namerco acted within the scope of its authority as
agent in signing the contract of sale.

The documentary evidence belies these contentions. The invitation to bid issued by the NPC provides that
non-availability of a steamer to transport the sulfur is not a ground for non-payment of the liquidated
damages in case of non-performance by the seller.

"4. Responsibility for availability of vessel. — The availability of vessel to transport the quantity of sulfur
within the time specified in item 14 of this specification shall be the responsibility of the bidder. In case of
award of contract, failure to ship on time allegedly due to non-availability of vessels shall not exempt the
Contractor from payment of liquidated damages provided in item 15 of this specification." cralaw virt ua1aw li bra ry

"15. Liquidated damages. — . . .

"Availability of vessel being a responsibility of the Contractor as specified in item 4 of this specification, the
terms ‘unforeseeable causes beyond the control and without the fault or negligence of the Contractor’ and
‘force majeure’ as used herein shall not be deemed to embrace or include lack or nonavailability of bottom
or vessel. It is agreed that prior to making his bid, a bidder shall have made previous arrangements
regarding shipments within the required time. It is clearly understood that in no event shall the Contractor
be exempt from the payment of liquidated damages herein specified for reason of lack of bottom or vessel.
Lack of bottom or nonavailability of vessel shall, in no case, be considered as a ground for extension of time.
. . . ."
cralaw virt ua1aw lib ra ry

Namerco’s bid or offer is even more explicit. It provides that it was "responsible for the availability of bottom
or vessel" and that it "guarantees the availability of bottom or vessel to ship the quantity of sulfur within the
time specified in this bid" (Exh. B, p. 22, Defendants’ Record on Appeal).

In the contract of sale itself item 15 of the invitation to bid is reproduced in Article 9 which provides that "it
is clearly understood that in no event shall the seller be entitled to an extension of time or be exempt from
the payment of liquidated damages herein specified for reason of lack of bottom or vessel" (Exh. E, p. 36,
Record on Appeal).

It is true that the New York corporation in its cable to Namerco dated August 9, 1956 stated that the sale
was subject to availability of a steamer (Exh. N). However, Namerco did not disclose that cable to the NPC
and, contrary to its principal’s instruction, it agreed that nonavailability of a steamer was not a justification
for nonpayment of the liquidated damages.

The trial court rightly concluded that Namerco acted beyond the bounds of its authority because it violated
its principal’s cabled instructions (1) that the delivery of the sulfur should be "C & F Manila", not "C & F
Iligan City" ; (2) that the sale be subject to the availability of a steamer and (3) that the seller should be
allowed to withdraw right away the full amount of the letter of credit and not merely eighty percent thereof
(pp- 123-124, Record on Appeal).

The defendants argue that it was incumbent upon the NPC to inquire into the extent of the agent’s authority
and, for its failure to do so, it could not claim any liquidated damages which, according to the defendants,
were provided for merely to make the seller more diligent in looking for a steamer to transport the sulfur.

The NPC counter-argues that Namerco should’ have advised the NPC of the limitations on its authority to
negotiate the sale.

We agree with the trial court that Namerco is liable for damages because under article 1897 of the Civil
Code the agent who exceeds the limits of his authority without giving the party with whom he contracts
sufficient notice of his powers is personally liable to such party.

The truth is that even before the contract of sale was signed Namerco was already aware that its principal
was having difficulties in booking shipping space. In a cable dated October 16, 1956, or one day before the
contract of sale was signed, the New York supplier advised Namerco that the latter should not sign the
contract unless it (Namerco) wished to assume sole responsibility for the shipment (Exh. T).

Sycip, Namerco’s president, replied in his letter to the seller dated also October 16, 1956, that he had no
choice but to finalize the contract of sale because the NPC would forfeit Namerco’s bidder’s bond in the sum
of P45,100 posted by the Domestic Insurance Company if the contract was not formalized (Exh. 14, 14-A
and Exh. V).

Three days later, or on October 19, the New York firm cabled Namerco that the firm did not consider itself
bound by the contract of sale and that Namerco signed the contract on its own responsibility (Exh. W).

In its letters dated November 8 and 19, 1956, the New York corporation informed Namerco that since the
latter acted contrary to the former’s cabled instructions, the former disclaimed responsibility for the contract
and that the responsibility for the sale rested on Namerco (Exh. Y and Y-1).

The letters of the New York firm dated November 26 and December 11, 1956 were even more revealing. It
bluntly told Namerco that the latter was never authorized to enter into the contract and that it acted
contrary to the repeated instructions of the former (Exh. U and Z). Said the vice-president of the New York
firm to Namerco: chan robles v irt ual lawl ibra ry

"As we have pointed out to you before, you have acted strictly contrary to our repeated instructions and,
however regretfully, you have no one but yourselves to blame." cralaw virtua1aw li bra ry

The rule relied upon by the defendants-appellants that every person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the agent would apply in this case if the principal is
sought to be held liable on the contract entered into by the agent.

That is not so in this case. Here, it is the agent that it sought to be held liable on a contract of sale which
was expressly repudiated by the principal because the agent took chances, it exceeded its authority, and, in
effect, it acted in its own name.

As observed by Castan Tobeñas, an agent "que haya traspasado los limites dew mandato, lo que equivale a
obrar sin mandato" (4 Derecho Civil Español, 8th Ed., 1956, p. 520).

As opined by Olivieri, "si el mandante contesta o impugna el negocio juridico concluido por el mandatario
con el tercero, aduciendo el exceso de los limites impuestos, es justo que el mandatario, que ha tratado con
engaño al tercero, sea responsable personalmente respecto de el des las consecuencias de tal falta de
aceptacion por parte del mandate. Tal responsabilidad del mandatario se informa en el principio de la falta
de garantia de la existencia del mandato y de la cualidad de mandatario, garantia impuesta coactivamente
por la ley, que quire que aquel que contrata como mandatario este obligado a garantizar al tercero la
efectiva existencia de los poderes que afirma se halla investido, siempre que el tercero mismo sea de buena
fe. Efecto de tal garantia es el resarcimiento de los daños causados al tercero como consecuencia de la
negativa del mandante a reconocer lo actuado por el mandatario." (26, part II, Scaveola, Codigo Civil, 1951,
pp. 358-9).

Manresa says that the agent who exceeds the limits of his authority is personally liable "porque realmente
obra sin poderes" and the third person who contracts with the agent in such a case would be defrauded if he
would not be allowed to sue the agent (11 Codigo Civil, 6th Ed., 1972, p. 725).

The defendants also contend that the trial court erred in holding as enforceable the stipulation for liquidated
damages despite its finding that the contract was executed by the agent in excess of its authority and is,
therefore, allegedly unenforceable.

In support of that contention, the defendants cite article 1403 of the Civil Code which provides that a
contract entered into in the name of another person by one who has acted beyond his powers is
unenforceable.

We hold that defendants’ contention is untenable because article 1403 refers to the unenforceability of the
contract against the principal. In the instant case, the contract containing the stipulation for liquidated
damages is not being enforced against it principal but against the agent and its surety.

It is being enforced against the agent because article 1807 implies that the agent who acts in excess of his
authority is personally liable to the party with whom he contracted.

And that rule is complemented by article 1898 of the Civil Code which provides that "if the agent contracts
in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the
contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers
granted by the principal."

It is being enforced against the agent because article 1897 implies that the agent who acts in excess of his
authority is personally liable to the party with whom he contracted.

And the rule is complemented by article 1898 of the Civil Code which provides that "if the agent contracts in
the name of the principal, exceeding the scope of his authority, and the principal does not ratify the
contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers
granted by the principal."

As priorly discussed, namerco, as agent, exceeded the limits of its authority in contracting with the NPC in
the name of its principal. The NPC was unaware of the limitations on the powers granted by the New York
firm to Namerco. chanrob les vi rtua lawlib rary c han robles. com:cha nrob les.co m.ph

The New York corporation in its letter of April 26, 1956 said: jgc:chan roble s.com. ph

"We hereby certify that National Merchandising Corporation . . . are our exclusive representatives in the
Philippines for the sale of our products.

"Furthermore, we certify that they are empowered to present our offers in our behalf in accordance with our
cabled or written instructions." (Exh. C).

Namerco never disclosed to the NPC the cabled or written instructions of its principal. For that reason and
because Namerco exceeded the limits of its authority, it virtually acted in its own name and not as agent
and it is, therefore, bound by the contract of sale which, however, is not enforceable against its principal.

If, as contemplated in articles 1897 and 1898, Namerco is bound under the contract of sale, then it follows
that it is bound by the stipulation for liquidated damages in that contract.

Defendants’ contention that Namerco’s liability should be based on tort or quasi-delict, as held in some
American cases, like Mendelsohn v. Holton, 149 N.E. 38, 42 ALR 1307, is not well-taken. As correctly argued
by the NPC, it would be unjust and inequitable for Namerco to escape liability after it had deceived the NPC.

Another contention of the defendants is that the Domestic Insurance Company is not liable to the NPC
because its bond was posted, not for Namerco, the agent, but for the New York firm which is not liable on
the contract of sale.

That contention cannot be sustained because it was Namerco that actually solicited the bond from the
Domestic Insurance Company and, as explained already, Namerco is being held liable under the contract of
sale because it virtually acted in its own name. It became the principal in the performance bond. In the last
analysis, the Domestic Insurance Company acted as surety for Namerco.

The rule is that "want of authority of the person who executes an obligation as the agent or representative
of the principal will not, as a general rule, affect the surety’s liability thereon, especially in the absence of
fraud, even though the obligation is not binding on the principal" (72 C.J.S. 525).

Defendants’ other contentions are that they should be held liable only for nominal damages, that interest
should not be collected on the amount of damages and that the damages should be computed on the basis
of a forty-five day period and not for a period of one hundred fifteen days.
With respect to the imposition of the legal rate of interest on the damages from the filing of the complaint in
1957, or a quarter of a century ago, defendants’ contention is meritorious. It would be manifestly
inequitable to collect interest on the damages especially considering that the disposition of this case has
been considerably delayed due to no fault of the defendants.

The contention that only nominal damages should be adjudged is contrary to the intention of the parties
(NPC, Namerco and its surety) because it is clearly provided that liquidated damages are recoverable for
delay in the delivery of the sulfur and, with more reason, for nondelivery.

No proof of pecuniary loss is required for the recovery of liquidated damages. the stipulation for liquidated
damages is intended to obviate controversy on the amount of damages. There can be no question that the
NPC suffered damages because its production of fertilizer was disrupted or diminished by reason of the
nondelivery of the sulfur.
chan rob les.com. ph : virtual l aw libra ry

The parties foresaw that it might be difficult to ascertain the exact amount of damages for nondelivery of
the sulfur. So, they fixed the liquidated damages to be paid as indemnity to the NPC.

On the other hand, nominal damages are damages in name only or are in fact the same as no damages (25
C.J.S. 466). It would not be correct to hold in this case that the NPC suffered damages in name only or that
the breach of contract was merely technical in character.

As to the contention that the damages should be computed on the basis of forty-five days, the period
required by a vessel leaving Galveston, Texas to reach Iligan City, that point need not be resolved in view of
our conclusion that the liquidated damages should be equivalent to the amount of the bidder’s bond posted
by Namerco.

NPC’s appeal, L-33897. — The trial court reduced the liquidated damages to twenty percent of the stipulated
amount. the NPC contends the it is entitled to the full amount of liquidated damages in the sum of
P360,572.80.

In reducing the liquidated damages, the trial court relied on article 2227 of the Civil Code which provides
that "liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they
are iniquitous or unconscionable."

Apparently, the trial court regarded as an equitable consideration the persistent efforts of Namerco and its
principal to charter a steamer and that the failure of the New York firm to secure shipping space was not
attributable to its fault or negligence.

The trial court also took into account the fact that the selling price of the sulfur was P450,716 and that to
award as liquidated damages more than eighty percent of the price would not be altogether reasonable.

The NPC contends that Namerco was an obligor in bad faith and, therefore, it should be responsible for all
damages which could be reasonably attributed to its nonperformance of the obligation as provided in article
2201 of the Civil Code.

On the other hand, the defendants argue that Namerco having acted as a mere agent, was not liable for the
liquidated damages stipulated in the alleged unenforceable contract of sale; that, as already noted,
Namerco’s liability should be based on tort or quasi-delict and not on the contract of sale; that if Namerco is
not liable, then the insurance company, its surety, is likewise not liable; that the NPC is entitled only to
nominal damages because it was able to secure the sulfur from another source (58-59 tsn November 10,
1960) and that the reduced award of stipulated damages is highly iniquitous, considering that Namerco
acted in good faith and that the NPC did not suffer any actual damages. chanrobles law l ibra ry : red

These contentions have already been resolved in the preceding discussion. We find no sanction or
justification for NPC’s claim that it is entitled to the full payment of the liquidated damages computed by its
official.

Ruling on the amount of damages. — A painstaking evaluation of the equities of the case in the light of the
arguments of the parties as expounded in their five briefs leads to the conclusion that the damages due
from the defendants should be further reduced to P45,100 which is equivalent to their bidder’s bond or to
about ten percent of the selling price of the sulfur.
WHEREFORE, the lower court’s judgment is modified and defendants National Merchandising Corporation
and Domestic Insurance Company of the Philippines are ordered to pay solidarily to the National Power
Corporation the sum of P45,100.00 as liquidated damages. No costs.

SO ORDERED.

Makasiar (Chairman), Concepcion Jr., Guerrero, Abad Santos, De Castro, and Escolin, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 108957 June 14, 1993

PRUDENTIAL BANK, petitioner,

vs.
THE COURT OF APPEALS, AURORA CRUZ, respondents.

Monique Q. Ignacio for petitioner.

Eduardo C. Tutaan for private respondent.

CRUZ, J.:

We deal here with another controversy involving the integrity of a bank.

The complaint in this case arose when private respondent Aurora F.

Cruz, * with her sister as co-depositor, invested P200,000.00 in Central Bank bills with the Prudential
Bank at its branch in Quezon Avenue, Quezon City, on June 23, 1986. The placement was for 63
days at 13.75% annual interest. For this purpose, the amount of P196,122.88 was withdrawn from
the depositors' Savings Account No. 2546 and applied to the investment. The difference of
P3,877.07 represented the pre-paid interest.

The transaction was evidenced by a Confirmation of Sale 1 delivered to Cruz two days later, together
with a Debit Memo 2 in the amount withdrawn and applied to the confirmed sale. These documents were
issued by Susan Quimbo, the employee of the bank to whom Cruz was referred and who was apparently
in charge of such transactions. 3

Upon maturity of the placement on August 25, 1986, Cruz returned to the bank to "roll-over" or
renew her investment. Quimbo, who again attended to her, prepared a Credit Memo 4 crediting the
amount of P200,000.00 in Cruz's savings account passbook. She also prepared a Debit Memo for the
amount of P196,122.88 to cover the re-investment of P200,000.00 minus the prepaid interest of
P3,877.02. 5
This time, Cruz was asked to sign a Withdrawal Slip 6 for P196,122.98, representing the amount to be
re-invested after deduction of the prepaid interest. Quimbo explained this was a new requirement of the
bank. Several days later, Cruz received another Confirmation of Sale 7 and a copy of the Debit Memo. 8

On October 27, 1986, Cruz returned to the bank and sought to withdraw her P200,000.00. After
verification of her records, however, she was informed that the investment appeared to have been
already withdrawn by her on August 25, 1986. There was no copy on file of the Confirmation of Sale
and the Debit Memo allegedly issued to her by Quimbo. Quimbo herself was not available for
questioning as she had not been reporting for the past week. Shocked by this information, Cruz
became hysterical and burst into tears. The branch manager, Roman Santos, assured her that he
would look into the matter. 9

Every day thereafter, Cruz went to the bank to inquire about her request to withdraw her investment.
She received no definite answer, not even to the letter she wrote the bank which was received by
Santos himself. 10Finally, Cruz sent the bank a demand letter dated November 12, 1986 for the amount
of P200,000.00 plus interest. 11 In a reply dated November 20, 1986, the bank's Vice President Lauro J.
Jocson said that there appeared to be an anomaly
and requested Cruz to defer court action as they hoped to settle the matter amicably. 12 Increasingly
worried, Cruz sent another letter reiterating her demand. 13 This time the reply of the bank was
unequivocal and negative. She was told that her request had to be denied because she had already
withdrawn the amount she was claiming. 14

Cruz's reaction was to file a complaint for breach of contract against Prudential Bank in the Regional
Trial Court of Quezon City. She demanded the return of her money with interest, plus damages and
attorney's fees. In its answer, the bank denied liability, insisting that Cruz had withdrawn her
investment. The bank also instituted a third-party complaint against Quimbo, who did not file an
answer and was declared in default. 15 The bank, however, did not present any evidence against her.

After trial, Judge Rodolfo A. Ortiz rendered judgment in favor of the plaintiffs and disposed as
follows:

ACCORDINGLY, judgment is hereby rendered ordering the defendant/third-party

plaintiff to pay to the plaintiffs the following amounts:

1. P200,000.00, plus interest thereon at the rate of 13.75% per annum from October
27, 1986, until fully paid;

2. P30,000.00, as moral damages;

3. P20,000.00, as exemplary damages; and

4. P25,000.00, as reasonable attorney's fees.

The counterclaim and the third-party complaint of the defendant/third-party plaintiff

are dismissed.

With costs against the defendant/third-party plaintiff.

The decision was affirmed in toto on appeal to the respondent court.

The judgment of the Court of Appeals 16 is now faulted in this petition, mainly on the ground that the
bank should not have been found liable for a quasi-delict when it was sued for breach of contract.
The petition shall fail. The petitioner is quibbling. It appears to be merely temporizing to delay
enforcement of the liability clearly established against it.

The basic issues are factual. The private respondent claims she has not yet collected her investment
of P200,000.00 and has submitted in proof of their contention the Confirmation of Sale and the Debit
Memo issued to her by Quimbo on the official forms of the bank. The petitioner denies her claim and
points to the Withdrawal Slip, which it says Cruz has not denied having signed. It also contends that
the Confirmation of Sale and the Debit Memo are fake and should not have been given credence by
the lower courts.

The findings of the trial court on these issues have been affirmed by the respondent court and we
see no reason to disturb them. The petitioner has not shown that they have been reached arbitrarily
or in disregard of the evidence of record. On the contrary, we find substantial basis for the
conclusion that the private respondents signed the Withdrawal Slip only as part of the bank's new
procedure of re-investment. She did not actually receive the amount indicated therein, which she
was made to understand was being re-invested in her name. The bank itself so assured her in the
Confirmation of Sale and the Debit Memo later issued to her by Quimbo.

Especially persuasive are the following observations of the trial court: 17

What is more, it could not be that plaintiff Aurora F. Cruz withdrew only the amount of
P196,122.98 from their savings account, if her only intention was to make such a
withdrawal. For, if, indeed, it was the desire of the plaintiffs to withdraw their money
from the defendant/third-party plaintiff, they could have withdrawn an amount in
round figures. Certainly, it is unbelievable that their withdrawal was in the irregular
amount of P196,122.98 if they really received it. On the contrary, this amount, which
is the price of the Central Bank bills rolled over, indicates that, as claimed by plaintiff
Aurora F. Cruz, she did not receive this money, but it was left by her with the
defendant/third-party plaintiff in order to buy Central Bank bills placement for another
sixty-three (63) days, for which she signed a withdrawal slip at the instance of third-
party defendant Susan Quimbo who told her that it was a new bank requirement for
the roll-over of a matured placement which she trustingly believed.

Indeed, the bank has not explained the remarkable coincidence that the amount indicated in the
withdrawal slip isexactly the same amount Cruz was re-investing after deducting therefrom the pre-
paid interest.

The bank has also not, succeeded in impugning the authenticity of the Confirmation of Sale and the
Debit Memo which were made on its official, forms. These are admittedly not available to the general
public or even its depositors and are handled only by its personnel. Even assuming that they were
not signed by its authorized officials, as it claims, there was no obligation on the part of Cruz to verify
their authority because she had the right to presume it. The documents had been issued in the office
of the bank itself and by its own employees with whom she had previously dealt. Such dealings had
not been questioned before, much leas invalidated. There was absolutely no reason why she should
not have accepted their authority to act on behalf of their employer.

It is also worthy of note — and wonder — that although the bank impleaded Quimbo in a third-party
complaint, it did not pursue its suit even when she failed to answer and was declared in default. The
bank did not introduce evidence against her although it could have done so under the rules. No less
remarkably, it did not call on her to testify on its behalf, considering that under the circumstances
claimed by it, she would have been the best witness to show that Cruz had actually withdrawn her
P200,000.00 placement. Instead, the bank chose to rely on its other employees whose testimony
was less direct and categorical than the testimony Quimbo could have given.

We do not find that the Court of Appeals held the bank liable on a quasi-delict. The argument of the
petitioner on this issue is pallid, to say the least, consisting as it does only of the observation that the
article cited by the respondent court on the agent's liability falls under the heading in the Civil Code
on quasi-delicts. On the other hand, the respondent court clearly declared that:

The defendant/third-party plaintiff being liable for the return of the P200,000.00
placement of the plaintiffs, the extent of the liability of the defendant/third-party
plaintiff for damages resultant thereof,which is contractual, is for all damages which
may be reasonably attributed to the non-performance of the obligation, . . .

xxx xxx xxx

Because of the bad faith of the defendant/third-party plaintiff in its breach of its
contract with the plaintiffs, the latter are, therefore, entitled to an award of moral
damages . . . (Emphasis supplied)

There is no question that the petitioner was made liable for its failure or refusal to deliver to Cruz the
amount she had deposited with it and which she had a right to withdraw upon its maturity. That
investment was acknowledged by its own employees, who had the apparent authority to do so and
so could legally bind it by its acts vis-a-visCruz. Whatever might have happened to the investment —
whether it was lost or stolen by whoever — was not the concern of the depositor. It was the concern
of the bank.

As far as Cruz was concerned, she had the right to withdraw her P200,000.00 placement when it
matured pursuant to the terms of her investment as acknowledged and reflected in the Confirmation
of Sale. The failure of the bank to deliver the amount to her pursuant to the Confirmation of Sale
constituted its breach of their contract, for which it should be held liable.

The liability of the principal for the acts of the agent is not even debatable. Law and jurisprudence
are clearly and absolutely against the petitioner.

Such liability dates back to the Roman Law maxim, Qui per alium facit per seipsum facere videtur.
"He who does a thing by an agent is considered as doing it himself." This rule is affirmed by the Civil
Code thus:

Art. 1910. The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority.

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the latter to act as though he had full
powers.

Conformably, we have declared in countless decisions that the principal is liable for
obligations contracted by the agent. The agent's apparent representation yields to
the principal's true representation and the contract is considered as entered into
between the principal and the third person. 18
 A bank is liable for wrongful acts of its officers done in the interests of the bank or in the
course of dealings of the officers in their representative capacity but not for acts outside
the scope of their authority. (9 c.q.s. p. 417) A bank holding out its officers and agent as
worthy of confidence will not be permitted to profit by the frauds they may thus be
enabled to perpetrate in the apparent scope of their employment; nor will it be permitted
to shirk its responsibility for such frauds, even though no benefit may accrue to the bank
therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent
third persons where the representation is made in the course of its business by an agent
acting within the general scope of his authority even though, in the particular case, the
agent is secretly abusing his authority and attempting to perpetrate a fraud upon his
principal or some other person, for his own ultimate benefit (McIntosh v. Dakota Trust
Co., 52 ND 752, 204 NW 818, 40 ALR 1021.)

Application of these principles in especially necessary because banks have a fiduciary relationship
with the public and their stability depends on the confidence of the people in their honesty and
efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and
supervision of its employees, resulting in prejudice to their depositors.

It would appear from the facts established in the case before us that the petitioner was less than
eager to present Quimbo at the trial or even to establish her liability although it made the initial effort
— which it did not pursue — to hold her answerable in the third-party complaint. What ever
happened to her does not appear in the record. Her absence from the proceedings feeds the
suspicion of her possible misdeed, which the bank seems to have studiously ignored by its
insistence that the missing money had been actually withdrawn by Cruz. By such insistence, the
bank is absolving not only itself but also, in effect and by extension, the disappeared Quimbo who
apparently has much to explain.

We agree with the lower courts that the petitioner acted in bad faith in denying Cruz the obligation
she was claiming against it. It was obvious that an irregularity had been committed by the bank's
personnel, but instead of repairing the injury to Cruz by immediately restoring her money to her, it
sought to gloss over the anomaly in its own operations.

Cruz naturally suffered anxious moments and mental anguish over the loss of the investment. The
amount of P200,000.00 is not small even by present standards. By unjustly withholding it from her
on the unproved defense that she had already withdrawn it, the bank violated the trust she had
reposed in it and thus subjected itself to further liability for moral and exemplary damages.

If a person dealing with a bank does not read the fine print in the contract, it is because he trusts the
bank and relies on its integrity. The ordinary customer applying for a loan or even making a deposit
(and so himself extending the loan to the bank) does not bother with the red tape requirements and
the finicky conditions in the documents he signs. His feeling is that he does not have to be wary of
the bank because it will deal with him fairly and there is no reason to suspect its motives. This is an
attitude the bank must justify.

While this is not to say that bank regulations are meaningless or have no binding effect, they should,
however, not be used for covering up the fault of bank employees when they blunder or, worse,
intentionally cheat him. The misdeeds of such employees must be readily acknowledged and
rectified without delay. The bank must always act in good faith. The ordinary customer does not feel
the need for a lawyer by his side every time he deals with a bank because he is certain that it is not
a predator or a potential adversary. The bank should show that there is really no reason for any
apprehension because it truly deserves his faith in it.
WHEREFORE, the petition is DENIED and the appealed decision is AFFIRMED, with costs against
the petitioner. It is so ordered.

Griño-Aquino, Bellosillo and Quiason, JJ., concur.

# Footnotes

* The petitioner is not related to the ponente.

1 Decision of RTC Judge Rodolfo A. Ortiz, p. 3.

2 Decision of RTC Judge Rodolfo A. Ortiz, p. 3.

3 Rollo, p. 28.

4 Decision of RTC Judge Rodolfo A. Ortiz, p. 4.

5 Rollo, p. 29.

6 Rollo, p. 29.

7 Rollo, p. 29.

8 Rollo, p. 29.

9 Rollo, p. 30.

10 Rollo, p. 30.

11 Rollo, p. 30.

12 Rollo, p. 31.

13 Rollo, p. 31.

14 Rollo, p. 31.

15 Rollo, p. 36.

16 Rollo, pp. 39-46.

17 Decision of RTC Judge Rodolfo A. Ortiz, pp. 7-8.

18 National Food Authority vs. Intermediate Appellate Court, 184 SCRA 166.

Republic of the Philippines

SUPREME COURT
Manila
 THIRD DIVISION

G.R. No. 88539 October 26, 1993

KUE CUISON, doing business under the firm name and style"KUE CUISON PAPER
SUPPLY," petitioner,
vs.
THE COURT OF APPEALS, VALIANT INVESTMENT ASSOCIATES, respondents.

Leighton R. Siazon for petitioner.

Melanio L. Zoreta for private respondent.

BIDIN, J.:

This petition for review assails the decision of the respondent Court of Appeals ordering petitioner to
pay private respondent, among others, the sum of P297,482.30 with interest. Said decision reversed
the appealed decision of the trial court rendered in favor of petitioner.

The case involves an action for a sum of money filed by respondent against petitioner anchored on
the following antecedent facts:

Petitioner Kue Cuison is a sole proprietorship engaged in the purchase and sale of newsprint, bond
paper and scrap, with places of business at Baesa, Quezon City, and Sto. Cristo, Binondo, Manila.
Private respondent Valiant Investment Associates, on the other hand, is a partnership duly
organized and existing under the laws of the Philippines with business address at Kalookan City.

From December 4, 1979 to February 15, 1980, private respondent delivered various kinds of paper
products amounting to P297,487.30 to a certain Lilian Tan of LT Trading. The deliveries were made
by respondent pursuant to orders allegedly placed by Tiu Huy Tiac who was then employed in the
Binondo office of petitioner. It was likewise pursuant to Tiac's instructions that the merchandise was
delivered to Lilian Tan. Upon delivery, Lilian Tan paid for the merchandise by issuing several checks
payable to cash at the specific request of Tiu Huy Tiac. In turn, Tiac issued nine (9) postdated
checks to private respondent as payment for the paper products. Unfortunately, sad checks were
later dishonored by the drawee bank.

Thereafter, private respondent made several demands upon petitioner to pay for the merchandise in
question, claiming that Tiu Huy Tiac was duly authorized by petitioner as the manager of his Binondo
office, to enter into the questioned transactions with private respondent and Lilian Tan. Petitioner
denied any involvement in the transaction entered into by Tiu Huy Tiac and refused to pay private
respondent the amount corresponding to the selling price of the subject merchandise.

Left with no recourse, private respondent filed an action against petitioner for the collection of
P297,487.30 representing the price of the merchandise. After due hearing, the trial court dismissed
the complaint against petitioner for lack of merit. On appeal, however, the decision of the trial court
was modified, but was in effect reversed by the Court of Appeals, the dispositive portion of which
reads:
 WHEREFORE, the decision appealed from is MODIFIED in that defendant-appellant
Kue Cuison is hereby ordered to pay plaintiff-appellant Valiant Investment Associates
the sum of P297,487.30 with 12% interest from the filing of the complaint until the
amount is fully paid, plus the sum of 7% of the total amount due as attorney's fees,
and to pay the costs. In all other respects, the decision appealed from is affirmed.
(Rollo, p. 55)

In this petition, petitioner contends that:

THE HONORABLE COURT ERRED IN FINDING TIU HUY TIAC AGENT OF

DEFENDANT-APPELLANT CONTRARY TO THE UNDISPUTED/ESTABLISHED
FACTS AND CIRCUMSTANCES.

THE HONORABLE COURT ERRED IN FINDING DEFENDANT-APPELLANT

LIABLE FOR AN OBLIGATION UNDISPUTEDLY BELONGING TO TIU HUY TIAC.

THE HONORABLE COURT ERRED IN REVERSING THE WELL-FOUNDED DECISION OF THE

TRIAL COURT, (Rollo, p, 19)

The issue here is really quite simple — whether or not Tiu Huy Tiac possessed the required authority
from petitioner sufficient to hold the latter liable for the disputed transaction.

This petition ought to have been denied outright, forin the final analysis, it raises a factual issue. It is
elementary that in petitions for review under Rule 45, this Court only passes upon questions of law.
An exception thereto occurs where the findings of fact of the Court of Appeals are at variance with
the trial court, in which case the Court reviews the evidence in order to arrive at the correct findings
based on the records.

As to the merits of the case, it is a well-established rule that one who clothes another with apparent
authority as his agent and holds him out to the public as such cannot be permitted to deny the
authority of such person to act as his agent, to the prejudice of innocent third parties dealing with
such person in good faith and in the honest belief that he is what he appears to be (Macke, et al, v.
Camps, 7 Phil. 553 (1907]; Philippine National Bank. v Court of Appeals, 94 SCRA 357 [1979]).
From the facts and the evidence on record, there is no doubt that this rule obtains. The petition must
therefore fail.

It is evident from the records that by his own acts and admission, petitioner held out Tiu Huy Tiac to
the public as the manager of his store in Sto. Cristo, Binondo, Manila. More particularly, petitioner
explicitly introduced Tiu Huy Tiac to Bernardino Villanueva, respondent's manager, as his
(petitioner's) branch manager as testified to by Bernardino Villanueva. Secondly, Lilian Tan, who has
been doing business with petitioner for quite a while, also testified that she knew Tiu Huy Tiac to be
the manager of petitioner's Sto. Cristo, Binondo branch. This general perception of Tiu Huy Tiac as
the manager of petitioner's Sto. Cristo store is even made manifest by the fact that Tiu Huy Tiac is
known in the community to be the "kinakapatid" (godbrother) of petitioner. In fact, even petitioner
admitted his close relationship with Tiu Huy Tiac when he said that they are "like brothers" (Rollo, p.
54). There was thus no reason for anybody especially those transacting business with petitioner to
even doubt the authority of Tiu Huy Tiac as his manager in the Sto. Cristo Binondo branch.

In a futile attempt to discredit Villanueva, petitioner alleges that the former's testimony is clearly self-
serving inasmuch as Villanueva worked for private respondent as its manager.
We disagree, The argument that Villanueva's testimony is self-serving and therefore inadmissible on
the lame excuse of his employment with private respondent utterly misconstrues the nature of "'self-
serving evidence" and the specific ground for its exclusion. As pointed out by this Court in Co
v. Court of Appeals et, al., (99 SCRA 321 [1980]):

Self-serving evidence is evidence made by a party out of court at one time; it does
not include a party's testimony as a witness in court. It is excluded on the same
ground as any hearsay evidence, that is the lack of opportunity for cross-examination
by the adverse party, and on the consideration that its admission would open the
door to fraud and to fabrication of testimony. On theother hand, a party's testimony in
court is sworn and affords the other party the opportunity for cross-examination
(emphasis supplied)

Petitioner cites Villanueva's failure, despite his commitment to do so on cross-examination, to

produce the very first invoice of the transaction between petitioner and private respondent as
another ground to discredit Villanueva's testimony. Such failure, proves that Villanueva was not only
bluffing when he pretended that he can produce the invoice, but that Villanueva was likewise
prevaricating when he insisted that such prior transactions actually took place. Petitioner is
mistaken. In fact, it was petitioner's counsel himself who withdrew the reservation to have Villanueva
produce the document in court. As aptly observed by the Court of Appeals in its decision:

. . . However, during the hearing on March 3, 1981, Villanueva failed to present the
document adverted to because defendant-appellant's counsel withdrew his
reservation to have the former (Villanueva) produce the document or invoice, thus
prompting plaintiff-appellant to rest its case that same day (t.s.n., pp. 39-40, Sess. of
March 3, 1981). Now, defendant-appellant assails the credibility of Villanueva for
having allegedly failed to produce even one single document to show that plaintiff-
appellant have had transactions before, when in fact said failure of Villanueva to
produce said document is a direct off-shoot of the action of defendant-appellant's
counsel who withdrew his reservation for the production of the document or invoice
and which led plaintiff-appellant to rest its case that very day. (Rollo, p.52)

In the same manner, petitioner assails the credibility of Lilian Tan by alleging that Tan was part of an
intricate plot to defraud him. However, petitioner failed to substantiate or prove that the subject
transaction was designed to defraud him. Ironically, it was even the testimony of petitioner's
daughter and assistant manager Imelda Kue Cuison which confirmed the credibility of Tan as a
witness. On the witness stand, Imelda testified that she knew for a fact that prior to the transaction in
question, Tan regularly transacted business with her father (petitioner herein), thereby corroborating
Tan's testimony to the same effect. As correctly found by the respondent court, there was no logical
explanation for Tan to impute liability upon petitioner. Rather, the testimony of Imelda Kue Cuison
only served to add credence to Tan's testimony as regards the transaction, the liability for which
petitioner wishes to be absolved.

But of even greater weight than any of these testimonies, is petitioner's categorical admission on the
witness stand that Tiu Huy Tiac was the manager of his store in Sto. Cristo, Binondo, to wit:

Court:

xxx xxx xxx

Q And who was managing the store in Sto. Cristo?

 A At first it was Mr. Ang, then later Mr. Tiu Huy Tiac but I cannot
remember the exact year.

Q So, Mr. Tiu Huy Tiac took over the management,.

A Not that was because every afternoon, I was there, sir.

Q But in the morning, who takes charge?

A Tiu Huy Tiac takes charge of management and if there (sic) orders
for newsprint or bond papers they are always referred to the
compound in Baesa, sir. (t.s.n., p. 16, Session of January 20, 1981,
CA decision, Rollo, p. 50, emphasis supplied).

Such admission, spontaneous no doubt, and standing alone, is sufficient to negate all the denials
made by petitioner regarding the capacity of Tiu Huy Tiac to enter into the transaction in question.
Furthermore, consistent with and as an obvious indication of the fact that Tiu Huy Tiac was the
manager of the Sto. Cristo branch, three (3) months after Tiu Huy Tiac left petitioner's employ,
petitioner even sent, communications to its customers notifying them that Tiu Huy Tiac is no longer
connected with petitioner's business. Such undertaking spoke unmistakenly of Tiu Huy Tiac's
valuable position as petitioner's manager than any uttered disclaimer. More than anything else, this
act taken together with the declaration of petitioner in open court amount to admissions under Rule
130 Section 22 of the Rules of Court, to wit : "The act, declaration or omission of a party as to a
relevant fact may be given in evidence against him." For well-settled is the rule that "a man's acts,
conduct, and declaration, wherever made, if voluntary, are admissible against him, for the reason
that it is fair to presume that they correspond with the truth, and it is his fault if they do not. If a man's
extrajudicial admissions are admissible against him, there seems to be no reason why his
admissions made in open court, under oath, should not be accepted against him." (U.S. vs. Ching
Po, 23 Phil. 578, 583 [1912];).

Moreover, petitioner's unexplained delay in disowning the transactions entered into by Tiu Huy Tiac
despite several attempts made by respondent to collect the amount from him, proved all the more
that petitioner was aware of the questioned commission was tantamount to an admission by silence
under Rule 130 Section 23 of the Rules of Court, thus: "Any act or declaration made in the presence
of and within the observation of a party who does or says nothing when the act or declaration is such
as naturally to call for action or comment if not true, may be given in evidence against him."

All of these point to the fact that at the time of the transaction Tiu Huy Tiac was admittedly the
manager of petitioner's store in Sto. Cristo, Binondo. Consequently, the transaction in question as
well as the concomitant obligation is valid and binding upon petitioner.

By his representations, petitioner is now estopped from disclaiming liability for the transaction
entered by Tiu Huy Tiac on his behalf. It matters not whether the representations are intentional or
merely negligent so long as innocent, third persons relied upon such representations in good faith
and for value As held in the case of Manila Remnant Co. Inc. v. Court of Appeals, (191 SCRA 622
[1990]):

More in point, we find that by the principle of estoppel, Manila Remnant is deemed to
have allowed its agent to act as though it had plenary powers. Article 1911 of the
Civil Code provides:
 "Even when the agent has exceeded his authority, the principal
issolidarily liable with the agent if the former allowed the latter to act
as though he had full powers." (Emphasis supplied).

The above-quoted article is new. It is intended to protect the rights of innocent

persons. In such a situation, both the principal and the agent may be considered as
joint tortfeasors whose liability is joint and solidary.

Authority by estoppel has arisen in the instant case because by its negligence, the
principal, Manila Remnant, has permitted its agent, A.U. Valencia and Co., to
exercise powers not granted to it. That the principal might not have had actual
knowledge of theagent's misdeed is of no moment.

Tiu Huy Tiac, therefore, by petitioner's own representations and manifestations, became an agent of
petitioner by estoppel, an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon (Article 1431,
Civil Code of the Philippines). A party cannot be allowed to go back on his own acts and
representations to the prejudice of the other party who, in good faith, relied upon them (Philippine
National Bank v. Intermediate Appellate Court, et al., 189 SCRA 680 [1990]).

Taken in this light,. petitioner is liable for the transaction entered into by Tiu Huy Tiac on his behalf.
Thus, even when the agent has exceeded his authority, the principal is solidarily liable with the agent
if the former allowed the latter to fact as though he had full powers (Article 1911 Civil Code), as in
the case at bar.

Finally, although it may appear that Tiu Huy Tiac defrauded his principal (petitioner) in not turning
over the proceeds of the transaction to the latter, such fact cannot in any way relieve nor exonerate
petitioner of his liability to private respondent. For it is an 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 (Francisco vs. Government Service Insurance System, 7 SCRA 577 [1963]).

Inasmuch as the fundamental issue of the capacity or incapacity of the purported agent Tiu Huy
Tiac, has already been resolved, the Court deems it unnecessary to resolve the other peripheral
issues raised by petitioner.

WHEREFORE, the instant petition in hereby DENIED for lack of merit. Costs against petitioner.

SO ORDERED.

Feliciano, Romero, Melo and Vitug, JJ., concur.