Case Summary (G.R. No. 41420)
Contractual Agreement and Commission Terms
CMS and DRACOR entered into a written agency contract, drafted by DRACOR, which appointed DRACOR as sole and exclusive export sales agent for CMS’s logs. Under the contract, DRACOR was entitled to a five percent (5%) commission on the gross sales of CMS’s logs, based on the Free On Board (F.O.B.) invoice value, deductible from proceeds received on behalf of CMS. DRACOR was authorized to handle all export sales negotiations and arrange shipping, but was expressly exempt from liability for any shipping delays or defaults.
Facts Leading to the Dispute
From 1957 to 1962, CMS sold over 77 million board feet of logs in Japan through DRACOR. About six months before the agency contract expired, CMS officials discovered that DRACOR had engaged Shinko Trading Co., Ltd. (Shinko), an agent in Japan, to sell CMS’s logs, with Shinko allegedly receiving an additional commission of US$1.00 per 1,000 board feet, totaling over US$77,000. CMS claimed this extra commission violated the agency agreement because DRACOR had already been paid its 5% commission, effectively resulting in double compensation. Subsequently, CMS sold logs directly to Japanese buyers without DRACOR’s involvement, prompting DRACOR to counterclaim for commissions on these direct sales.
Proceedings and Trial Court Findings
CMS filed a complaint for recovery of the commission allegedly paid to Shinko and for moral and exemplary damages; DRACOR counterclaimed for unpaid commissions from direct sales. The trial court dismissed CMS’s complaint, ruling that CMS failed to present sufficient proof that Shinko actually received the disputed commission. It also dismissed DRACOR’s counterclaim, noting a letter from DRACOR’s president that indicated waiver of the balance of the commission owed. The court ordered CMS to pay DRACOR’s attorney’s fees and costs.
Court of Appeals Decision
The Court of Appeals affirmed the trial court’s dismissal of CMS’s complaint in a 3-2 decision. It held that CMS failed to present competent evidence that Shinko received the commission from buyers of CMS’s logs. The appellate court accepted DRACOR’s explanation that Shinko’s commission, if any, was paid from DRACOR’s own 5% commission. It relied on a letter from DRACOR’s president outlining that any payment to Japanese agents, including Shinko, would be absorbed within the standard commission rate. The court also found no basis to invalidate DRACOR’s entitlement to commissions arising from direct sales by CMS during the agency contract.
Supreme Court’s Review and Legal Analysis
The Supreme Court, applying the 1987 Philippine Constitution and relevant laws, found CMS’s arguments regarding Shinko’s receipt of commissions unmeritorious, emphasizing the conclusiveness of factual findings by the Court of Appeals that could not be disturbed absent grave abuse of discretion. The Court noted that while Shinko acted as DRACOR’s agent in Japan, CMS failed to offer admissible evidence establishing Shinko’s actual receipt of the disputed commissions. Testimony claiming admissions by Shinko’s representatives was hearsay and thus inadmissible. Letters and memoranda cited by CMS were found insufficient as admissions because they lacked clear, unequivocal language acknowledging commission payments by Shinko.
On the Issue of DRACOR’s Commission from Direct Sales
The Supreme Court reversed the Court of Appeals’ ruling insofar as it upheld DRACOR’s entitlement to commissions from CMS’s direct sales to Japanese buyers during the agency agreement’s term. Citing Article 1924 of the Civil Code, the Court ruled that CMS’s direct dealing with buyers constituted an implied revocation of the agency contract. Under the principle that a principal may revoke an agency contract at will—even before its expiration—and such revocation can be implied by the principal’s direct management of the business, DRACOR had lost the right to commission on these direct sales. Since the revocation was not shown to be made in bad faith or to evade commission payment, DRACOR could not claim damages on this ground.
Fraud and Bad Faith Allegations
The Supreme Court also rejected CMS’s claim of fraud and bad faith against DRACOR, reiterating that such factual findings rest on the appreciation of evidence by the Court of Appeals, which are binding on the Supreme Court barring grave abuse of discretion. The Court found no compelling evidence establishing fraudulent or bad faith conduct by DRACOR.
Final Ruling and Orders
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Case Syllabus (G.R. No. 41420)
Nature of the Case and Procedural History
- This case involves a petition for review on certiorari from the decision dated July 31, 1975, of the Court of Appeals in CA-G.R. No. 47763-R.
- The Court of Appeals had affirmed in toto the decision of the Court of First Instance of Manila, Branch VII, dismissing the complaint of petitioner CMS Logging, Inc. (“CMS”) against private respondent D.R. Aguinaldo Corporation (“DRACOR”).
- The trial court also ordered CMS to pay DRACOR attorney’s fees of P1,000.00 and costs.
- CMS’s complaint sought recovery of commissions allegedly paid to a third party, Shinko Trading Co., Ltd., and monetary damages.
- DRACOR counterclaimed for commissions from direct sales made by CMS during the agency contract.
Parties and Business Relationship
- CMS is engaged in the logging business as a forest concessionaire.
- DRACOR is engaged in exporting and selling logs and lumber.
- On August 28, 1957, CMS appointed DRACOR as its exclusive export and sales agent for all logs produced by CMS for five years.
- The agency agreement was drafted by DRACOR and included provisions on exclusive authority, commission, and limitations of liability.
Key Provisions of the Agency Contract
- DRACOR was appointed as sole and exclusive export sales agent with full authority to sell and export logs under firm sales contracts acceptable to CMS.
- DRACOR was tasked with handling negotiations, arranging vessel schedules upon CMS’s written requests, but not liable for delays or defaults of vessels.
- DRACOR was entitled to a 5% commission on gross sales based on F.O.B. invoice value, this commission to be deducted from proceeds collected by DRACOR on behalf of CMS.
Factual Background – Sale of Logs and Alleged Double Commission
- Between September 20, 1957, and April 4, 1962, CMS sold approximately 77,264,672 board feet of logs in Japan through DRACOR.
- Six months before the contract’s expiry, CMS’s officers, during a Tokyo visit, discovered that DRACOR employed Shinko Trading Co., Ltd. (“Shinko”) as agent or liaison in Japan.
- Shinko reportedly earned a commission of U.S. $1.00 per 1,000 board feet from the buyers, amounting to U.S. $77,264.67.
- CMS claimed this commission paid to Shinko violated the exclusivity and commission terms in the agency agreement and constituted double compensation to DRACOR.
Subsequent Transactions and CMS’s Lawsuit
- After the discovery, CMS sold and shipped logs valued at U.S. $739,321.13 (P2,883,351.90) directly to Japanese firms without DRACOR’s involvement.
- CMS sued DRACOR to recover the commission allegedly received by Shinko and claimed moral and exemplary damages for bad faith.
- DRACOR counterclaimed for commissions amounting to P144,167.59 on the direct sales by CMS, with CMS partly defending by stating DRACOR had already withheld P101,167.59 as its commission.
- DRACOR amended its counterclaim recognizing a balance claim of P42,630.82, implicitly admitting partial retention of commissions.
Trial Court’s Findings and Rulings
- The trial court dismissed CMS’s complaint, finding insufficient evidence that Shinko received the U.S. $77,264.67 commission from the sale of CMS’s logs in Japan.
- The court noted documents (Exhibits “M” and “M-1”) indicating Shinko was able to collect the amount, yet deemed these insufficient proof.
- The counterclaim was also dismissed based on a letter dated February 2, 1963, in which DRACOR waived rights to the balance of its commission.