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.

G.R. No. L-6485 March 17, 1911

GUTIERREZ HERMANOS, Plaintiffs-Appellees, v. ORIA HERMANOS, Defendants-Appellants.

Chicote and Miranda for appellants.

Eduardo Gutierrez Repide for appellees.

MORELAND, J.:. chanrobles virtual law library

This is an appeal from a judgment of the Court of First Instance of the city of Manila, Hon. Simplicio del Rosario
presiding, in favor of the plaintiff and against the defendant for the sum of P12, 218.51, with
costs.chanroblesvirtualawlibrary chanrobles virtual law library
This is an action to recover the sum of P12,218.51, premiums paid by the plaintiff upon insurance policies covering
two vessels belonging to the defendant.chanroblesvirtualawlibrary chanrobles virtual law library

The two commercial houses parties to this action had sustained intimate commercial relations for nine years prior to
the commencement of this action, beginning in the year 1900. During that time, the plaintiff, acting for and on behalf
of the defendant, obtained from an insurance company in Paris, France, insurance on two vessels known
as Serantes and Comillas, owned by the defendant. The insurance was first obtained in the year 1900. The plaintiff
secured the insurance on the two ships aforesaid through the intervention of its agents in Paris, Messrs. Movellan &
Angulo. The plaintiff continued to keep said vessels insured on behalf of the defendant, causing the policies to be
renewed each year for nine years. The insurance premiums were paid by the plaintiff each year up to and including a
portion of the year 1909, the sums so paid being charged by the plaintiff on its books against the defendant in its
current account. In the month of June of that year the plaintiff began an action against the defendant for the recovery
of the amount due upon its current account with the defendant, no reference being made in the complaint in that
action to the sum sued for in the action at bar. What the status of that action is we do not know. Later, and on the
18th of March, 1910, the plaintiff began this action for the recovery of premiums paid during the years 1907, 1908,
and 1909. During these three years one of the vessels in question, the Serantes, was insured in the name of the
plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library

The appellant raises six questions on this appeal, asserting (1) that the vessel Serantes, having been insured in the
name of Gutierrez Hermanos, the defendant is not chargeable with the payment of the insurance premiums, although
it is admitted that it is the owner of the vessel; (2) that having paid the said insurance premiums after the plaintiff
had closed its current account with the defendant, such payments can not be said to have been made on behalf of the
defendant, for the reason that the closing of the account and the commencement of an action thereon severed all
relations of every kind between the parties and the plaintiff had no authority to act thereafter for the defendant; (3)
that at the time of the payment by the plaintiff of the insurance premiums in controversy the insurance company to
which such premiums were paid was owing to the defendant the sum of P8,000 upon a contract of insurance for the
payment of repairs made by the defendant on said vessels, which repairs were covered by said policies of insurance,
and that the plaintiff having paid, without protest or objection of any kind, said premiums while the claim of defendant
for said sum was still pending and unsettled, such act of the plaintiff had precluded the defendant from recovering
said sum from such insurance company; (4) that the plaintiff was not acting as the agent of the defendant in securing
the insurance for which the premiums in controversy were paid; (5) that the plaintiff, having already brought an
action upon its account current in which should appear the premiums in controversy and all of the other premiums
paid prior to the year 1909, the plaintiff can not now maintain a separate action upon the theory that it was acting as
the commission agent of the defendant; and (6) that the premiums in controversy paid by the plaintiff resulted in no
benefit to the defendant.chanroblesvirtualawlibrary chanrobles virtual law library

Relative to the first question, it is undoubted from the proofs that the vessel Serantes was insured in the name of the
plaintiff, while the Comillas was insured in the name of the defendant. It appears, however, from the letters of the
defendant to the plaintiff and by the testimony of Tomas Oria, manager of the defendant company, that the plaintiff in
insuring the Serantes acted merely as the commercial agent of the defendant and under its orders; that all of the
payments made by the plaintiff of insurance premiums prior to the 1st day of June, 1909, were charged to the
defendant in the account current upon the books of the plaintiff; that the plaintiff had charged no commission; and
that all of the damages which had occurred to the vessels prior to that time had been paid by the insurance company
to the defendant, notwithstanding the fact that the Serantes was insured in the name of the plaintiff. Moreover, we
find no terms in the insurance policy which forbid the insurance of the vessel in the name of the plaintiff. Furthermore,
it appears from the correspondence between the defendant and the insurance company, through Movellan & Angulo of
Paris, that, although it was the fact that the vessel Serantes was insured in the name of the plaintiff, instead of the
defendant, a fact known, of course, to the insurance company, the latter, nevertheless, recognized its responsibility to
the defendant upon the policy covering the said ship.chanroblesvirtualawlibrary chanrobles virtual law library

It should be further noted that, in the correspondence passing between the plaintiff and the defendant, it is
continually recognized that the insurance of the vessel Serantes, as well as the Comillas, was made for and on behalf
and in benefit of the defendant. In that correspondence the plaintiff was continually asking defendant for funds with
which to pay the insurance premiums on said vessel, as well as on the Comillas. (Art. 246, Commercial Code and art.
717, Civil Code.)chanrobles virtual law library

Relative to the second question raised by the appellant, namely, that the plaintiff having closed the current account
with the defendant prior to the payment of the insurance premiums which are the subject-matter of this action, it
could not, thereafter, begin a separate action to recover for the payment of said premiums, it appears that the
objection urged in this question is directed rather at a method of procedure than to a question of substantive law.
From this point of view the defendant has some cause for complaint. Under the practice prevailing in the Islands
under the Code of Civil Procedure, the plaintiff should have brought one action instead of two, combining its claim
upon the account current with its claim for the payment of the insurance premiums involved in this suit. The payment
of the insurance premiums in controversy having been made after the commencement of the action upon the account-
current, the plaintiff, instead of beginning a separate action for the recovery of said premiums, would have followed a
better practice if it had amended its complaint in the other action or added thereto a supplementary complaint. It was
not, however, as a matter of law, obliged to do this, but it could have been forced to do so by the defendant if had
taken the proper steps. It is undoubted that it would have been the duty of the trial court, upon proper motion of the
defendant, to consolidate the two actions into one. The defendant, however, not having taken any steps whatever to
accomplish this result, can not be heard to raise that question in the manner in which it seeks to raise
it.chanroblesvirtualawlibrary chanrobles virtual law library

As to the second and fourth questions raised by the appellant, little needs to be said. The whole case as presented,
both by the oral testimony and the exhibits, demonstrates beyond shadow of doubt that the plaintiff was acting as the
agent of the defendant in placing the insurance upon the vessels in question and that such act redounded to its
benefit. The idea presented in argument of counsel for appellant, that all relations were broken off and terminated by
the commencement of the action upon the account current by the plaintiff in March, 1909, and that, therefore, the
plaintiff could do nothing whatever on behalf of the defendant thereafter, wholly loses its force when we observe that,
in reality, the plaintiff did not do anything on behalf of the defendant after that time. What it did and all it did was to
fulfill a contract which it had made with the insurance company prior to the beginning of that action. The plaintiff had
secured the insurance of the two vessels during the years 1907, 1908, and 1909, and had agreed to pay the
insurance company the premiums thereon. The three contracts for those years had been made by the plaintiff and it
had become liable to fulfill the same on its part prior to the commencement of the action on the 30th of March, 1909.
The payment thereafter of the insurance premiums for those three years is no proof that the plaintiff was still
exercising a relation which existed after the commencement of that action, but indicates simply that it was completing
an obligation which it had made when that relation was admittedly in force.chanroblesvirtualawlibrary chanrobles
virtual law library

As to the third question raised by the appellant, involving the proposition that the plaintiff had paid the insurance
premiums at a time when there was pending between the defendant and the insurance company a claim for P8,000 on
account of repairs made to said vessels, and that, therefore, the payment by the plaintiff resulted in an injury rather
than a benefit to the defendant, it need only be said that there is no proof in the record which is sufficient to sustain
the allegation that there was pending a claim between the defendant and the insurance company for any sum which
could in any way be affected by the payment of insurance premiums made by the plaintiff. We can imagine a situation
in which the objections made by the defendant in this regard would be well founded, but there is absolutely nothing in
the record upon which we can found any decision touching that question adverse to the
plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library

For these reasons, we see no other course than to affirm the judgment of the learned trial court, which we hereby do,
without special finding as to costs. So ordered.chanroblesvirtualawlibrary chanrobles virtual law library

Arellano, C.J., Mapa, Carson, and Trent, JJ., concur.

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.

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.

G.R. No. L-109937 March 21, 1994

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented by CANDIDA G. DANS, and the DBP
MORTGAGE REDEMPTION INSURANCE POOL, respondents.

Office of the Legal Counsel for petitioner.

Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption Insurance Pool.

QUIASON, J.:

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside the decision of the Court
of Appeals in CA-G.R CV No. 26434 and its resolution denying reconsideration thereof.

We affirm the decision of the Court of Appeals with modification.

In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a loan of P500,000.00 with the
Development Bank of the Philippines (DBP), Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, was advised by
DBP to obtain a mortgage redemption insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).

A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and released on August 11, 1987. From the
proceeds of the loan, DBP deducted the amount of P1,476.00 as payment for the MRI premium. On August 15, 1987, Dans
accomplished and submitted the "MRI Application for Insurance" and the "Health Statement for DBP MRI Pool."

On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was credited by DBP to the savings account of
the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit.

On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to the DBP MRI Pool. On
September 23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible for MRI coverage, being over the acceptance age limit
of 60 years at the time of application.

On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI application. The DBP offered to refund
the premium of P1,476.00 which the deceased had paid, but Candida Dans refused to accept the same, demanding payment of the
face value of the MRI or an amount equivalent to the loan. She, likewise, refused to accept an ex gratia settlement of P30,000.00,
which the DBP later offered.

On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a complaint with the Regional Trial Court,
Branch I, Basilan, against DBP and the insurance pool for "Collection of Sum of Money with Damages." Respondent Estate alleged that
Dans became insured by the DBP MRI Pool when DBP, with full knowledge of Dans' age at the time of application, required him to
apply for MRI, and later collected the insurance premium thereon. Respondent Estate therefore prayed: (1) that the sum of
P139,500.00, which it paid under protest for the loan, be reimbursed; (2) that the mortgage debt of the deceased be declared fully paid;
and (3) that damages be awarded.

The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a cross-claim against the latter.

At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by respondent Estate. As a result of
these admissions, the trial court narrowed down the issues and, without opposition from the parties, found the case ripe for summary
judgment. Consequently, the trial court ordered the parties to submit their respective position papers and documentary evidence, which
may serve as basis for the judgment.

On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against DBP. The DBP MRI Pool, however,
was absolved from liability, after the trial court found no privity of contract between it and the deceased. The trial court declared DBP in
estoppel for having led Dans into applying for MRI and actually collecting the premium and the service fee, despite knowledge of his
age ineligibility. The dispositive portion of the decision read as follows:

WHEREFORE, in view of the foregoing consideration and in the furtherance of justice and equity, the Court finds
judgment for the plaintiff and against Defendant DBP, ordering the latter:

1. To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of interest as amortization payment
paid under protest;

2. To consider the mortgage loan of P300,000.00 including all interest accumulated or otherwise to have been settled,
satisfied or set-off by virtue of the insurance coverage of the late Juan B. Dans;

3. To pay plaintiff the amount of P10,000.00 as attorney's fees;

4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and other expenses, and other relief just and
equitable.

The Counterclaims of Defendants DBP and DBP MRI POOL are hereby dismissed. The Cross-claim of Defendant
DBP is likewise dismissed (Rollo, p. 79)

The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate court affirmed in toto the decision of
the trial court. The DBP's motion for reconsideration was denied in a resolution dated April 20, 1993.

Hence, this recourse.

II

When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP MRI Pool" (Exh. "5-Bank") with the
following declaration:

I hereby declare and agree that all the statements and answers contained herein are true, complete and correct to
the best of my knowledge and belief and form part of my application for insurance. It is understood and agreed that
no insurance coverage shall be effected unless and until this application is approved and the full premium is paid
during my continued good health (Records, p. 40).

Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shall be approved by the insurance
pool; and (2) when the full premium is paid during the continued good health of the applicant. These two conditions, being joined
conjunctively, must concur.

Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool, however, did not approve the
application of Dans. There is also no showing that it accepted the sum of P1,476.00, which DBP credited to its account with full
knowledge that it was payment for Dan's premium. There was, as a result, no perfected contract of insurance; hence, the DBP MRI
Pool cannot be held liable on a contract that does not exist.

The liability of DBP is another matter.

It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI coverage. Instead of allowing Dans to
look for his own insurance carrier or some other form of insurance policy, DBP compelled him to apply with the DBP MRI Pool for MRI
coverage. When Dan's loan was released on August 11, 1987, DBP already deducted from the proceeds thereof the MRI premium.
Four days latter, DBP made Dans fill up and sign his application for MRI, as well as his health statement. The DBP later submitted both
the application form and health statement to the DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As service fee, DBP
deducted 10 percent of the premium collected by it from Dans.

In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an insurance agent.

As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby leading him and his family to
believe that they had already fulfilled all the requirements for the MRI and that the issuance of their policy was forthcoming. Apparently,
DBP had full knowledge that Dan's application was never going to be approved. The maximum age for MRI acceptance is 60 years as
clearly and specifically provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in 1984 by all the insurance
companies concerned (Exh. "1-Pool").

Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his
powers."

The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age (Exh. "1-Pool"). Knowing all
the while that Dans was ineligible for MRI coverage because of his advanced age, DBP exceeded the scope of its authority when it
accepted Dan's application for MRI by collecting the insurance premium, and deducting its agent's commission and service fee.

The liability of an agent who exceeds the scope of his authority depends upon whether the third person is aware of the limits of the
agent's powers. There is no showing that Dans knew of the limitation on DBP's authority to solicit applications for MRI.

If the third person dealing with an agent is unaware of the limits of the authority conferred by the principal on the agent and he (third
person) has been deceived by the non-disclosure thereof by the agent, then the latter is liable for damages to him (V Tolentino,
Commentaries and Jurisprudence on the Civil Code of the Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907).
The rule that the agent is liable when he acts without authority is founded upon the supposition that there has been some wrong or
omission on his part either in misrepresenting, or in affirming, or concealing the authority under which he assumes to act (Francisco, V.,
Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the agency carries with it
the implication that a deception was perpetrated on the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code of
the Philippines come into play.

Article 19 provides:

Every person must, in the exercise of his rights and in the performance of his duties, act with justice give everyone
his due and observe honesty and good faith.

Article 20 provides:

Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the
same.

Article 21 provides:

Any person, who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or
public policy shall compensate the latter for the damage.

The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that were it not for DBP's concealment of
the limits of its authority, Dans would have secured an MRI from another insurance company, and therefore would have been fully
insured by the time he died, is highly speculative. Considering his advanced age, there is no absolute certainty that Dans could obtain
an insurance coverage from another company. It must also be noted that Dans died almost immediately, i.e., on the nineteenth day
after applying for the MRI, and on the twenty-third day from the date of release of his loan.

One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved (Civil Code of the
Philippines, Art. 2199). Damages, to be recoverable, must not only be capable of proof, but must be actually proved with a reasonable
degree of certainty (Refractories Corporation v. Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine
Publishing Co., 34 Phil. 447 [1916]). Speculative damages are too remote to be included in an accurate estimate of damages (Sun Life
Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).

While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof of pecuniary loss is required in the
assessment of said kind of damages (Civil Code of Philippines, Art. 2216). The same may be recovered in acts referred to in Article
2219 of the Civil Code.
The assessment of moral damages is left to the discretion of the court according to the circumstances of each case (Civil Code of the
Philippines, Art. 2216). Considering that DBP had offered to pay P30,000.00 to respondent Estate in ex gratia settlement of its claim
and that DBP's non-disclosure of the limits of its authority amounted to a deception to its client, an award of moral damages in the
amount of P50,000.00 would be reasonable.

The award of attorney's fees is also just and equitable under the circumstances (Civil Code of the Philippines, Article 2208 [11]).

WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV

No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate of Juan B. Dans the amount of
P1,476.00 with legal interest from the date of the filing of the complaint until fully paid; and (2) to PAY said Estate the amount of Fifty
Thousand Pesos (P50,000.00) as moral damages and the amount of Ten Thousand Pesos (P10,000.00) as attorney's fees. With costs
against petitioner.

SO ORDERED.

[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 sellers obligation. In entering into
the contract, Namerco, however, did not disclose to NPC that Namercos principal, in a cabled instruction, stated that
the sale was subject to availability of a steamer, and contrary to its principals 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 suppliers 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 principals 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. Defendants contention that Namercos 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 principals 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, defendants 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 sellers 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 plaintiffs 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 sellers 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 NPCs 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 suppliers 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 Wallicks 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 virtua1aw library

"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 virtua1aw library

Namercos 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
principals 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
principals 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 agents 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, Namercos 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 Namercos bidders 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 formers 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:chanrobles virtual
lawlibrary

"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 library

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 Tobeas, an agent "que haya traspasado los limites dew mandato, lo que equivale a obrar sin
mandato" (4 Derecho Civil Espaol, 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 engao 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 daos
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.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
The New York corporation in its letter of April 26, 1956 said:jgc:chanrobles.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 Namercos 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 suretys 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.chanrobles.com.ph : virtual law library

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 bidders bond posted by Namerco.

NPCs 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, Namercos 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 library : red

These contentions have already been resolved in the preceding discussion. We find no sanction or justification for
NPCs 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 bidders bond or to about ten percent of the selling
price of the sulfur.

WHEREFORE, the lower courts 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.

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% interest per 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
Loaned Empties P35,856.40 (as of 7/11/81) 11

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, 1982 21 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 denying that he issued and signed the disputed TPRs is, therefore,
not hearsay," 22 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, assuming arguendo 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.

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.