Case Summary (G.R. No. 41420)
Factual Background
On August 28, 1957 CMS and DRACOR executed an agency agreement appointing DRACOR as CMS’s sole and exclusive export sales agent for five years, granting authority to negotiate export sales and arrange vessel procurement, and providing for a 5% commission on gross F.O.B. invoice value. Between September 20, 1957 and April 4, 1962, DRACOR facilitated sales of 77,264,672 board feet of CMS logs to buyers in Japan. CMS later discovered that DRACOR used Shinko as an agent or liaison in Japan and alleged that Shinko had been paid U.S. $1.00 per 1,000 board feet (totaling U.S. $77,264.67) by the buyers. CMS then sold and shipped logs directly to Japanese firms (transactions valued U.S. $739,321.13 or P2,883,351.90) without DRACOR’s involvement, and sued DRACOR to recover the Shinko commissions and for damages. DRACOR counterclaimed for commissions on the direct sales, asserting a claim of P144,167.59 and later amending its counterclaim to assert a balance of P42,630.82, implicitly admitting retention of a portion of the commission CMS alleged.
Procedural History
The trial court (Court of First Instance, Manila, Branch VII) dismissed CMS’s complaint and also dismissed DRACOR’s counterclaim, finding insufficient competent evidence that Shinko had received the U.S. $77,264.67 commission and concluding DRACOR had waived some claimed commission in a February 2, 1963 letter. CMS appealed; the Court of Appeals, by a 3–2 vote, affirmed the trial court’s dismissal in toto, holding CMS had failed to prove that Shinko collected the commissions and observing evidence suggesting DRACOR might have paid Shinko out of its own 5% commission. CMS then brought a petition for review on certiorari to the Supreme Court.
Issues Presented to the Supreme Court
- Whether there was competent evidence that Shinko received separate commissions from Japanese buyers and, if so, whether CMS was entitled to recover those amounts from DRACOR.
- Whether certain documents and testimonies (including alleged admissions, letters, and memoranda) were admissible or constituted binding admissions against DRACOR.
- Whether DRACOR was entitled to retain commissions on sales that CMS made directly to Japanese buyers during the agency period.
- Whether DRACOR engaged in fraud or bad faith toward CMS.
Supreme Court’s Findings on the Alleged Shinko Commissions (Hearsay and Admissions)
The Supreme Court affirmed the appellate courts’ factual findings that although Shinko functioned as DRACOR’s agent/liaison in Japan, CMS failed to present competent evidence proving Shinko actually received U.S. $77,264.67 as commissions from the buyers. The Court emphasized that key testimonial assertions (e.g., that Shinko’s president admitted receipt of U.S. $1.00 per 1,000 board feet) were hearsay and therefore inadmissible to prove the truth of the matter asserted. Letters and memoranda (including correspondence by Toyo Menka Kaisha’s Mr. K. Shibata and internal memoranda or letters from DRACOR representatives) were likewise deemed hearsay or not unequivocal admissions because they did not state, in definite and unequivocal terms, that Shinko received the commissions specifically arising from sales of CMS logs. The Court applied the rule that an admission must be clear and unequivocal to be competent; ambiguous or qualified statements cannot be construed as admissions of the fact sought to be proved.
On DRACOR’s Silence and the Rule on Admission by Silence
CMS argued that DRACOR’s failure to reply to a February 6, 1963 letter constituted an admission under Rule 130, Sec. 23 (admission by silence). The Supreme Court rejected this argument because DRACOR did, in fact, reply (through a March 5, 1963 letter), denying knowledge of any commission payment by Toyo Menka to Shinko. Thus there was no operative silence constituting an admission. The Court reiterated that the appellate courts’ factual determinations on these evidentiary matters are final and binding absent exceptional circumstances.
Legal Analysis and Ruling on Entitlement to Commission for Direct Sales (Agency Revocation)
The Supreme Court reversed the Court of Appeals’ ruling insofar as it upheld DRACOR’s entitlement to commissions on the direct sales made by CMS to Japanese firms during the agency term. The Court applied Civil Code principles on agency, particularly: (a) the principal may revoke agency at will (Art. 1920), and (b) agency is revoked when the principal directly manages the business entrusted to the agent or deals directly with third persons (Art. 1924). By making direct sales to Japanese buyers during the agency term, CMS effectively exercised an implied revocation of the agency. Under established doctrine, such conduct by the principal revokes the agent’s authority and precludes the agent from claiming commissions on transactions the principal handled directly, unless the agent can show the revocation was effected to evade payment of commissions (an exception not shown here). The Supreme Court applied the New Manila Lumber precedent analogously and held that DRACOR could not claim commissions on the direct sales CMS made without DRACOR’s intervention.
Findings on Fraud, Bad Faith, and Damages
CMS’s contention that DRACOR acted with fraud and bad faith was rejected. The Supreme Court found that the Court of Appeals’ factual conclusions on alleged bad faith or fraudulent conduct were based on evidentiary appraisal and are bi
Case Syllabus (G.R. No. 41420)
Facts of the Case
- Petitioner CMS Logging, Inc. (CMS) is a forest concessionaire engaged in the logging business; private respondent D.R. Aguinaldo Corporation (DRACOR) is engaged in exporting and selling logs and lumber.
- On August 28, 1957, CMS and DRACOR entered into a written contract of agency (the agreement was drawn up by DRACOR).
- Under the contract, DRACOR was appointed CMS's exclusive export and sales agent for all logs CMS might produce for a period of five (5) years commencing upon execution of the agreement.
- Pursuant to that agreement, CMS sold through DRACOR a total of 77,264,672 board feet of logs in Japan, covering sales from September 20, 1957 to April 4, 1962.
- About six months before the expiration of the agency agreement, while in Tokyo, CMS’s president Atty. Carlos Moran Sison and general manager/legal counsel Atty. Teodoro R. Dominguez discovered that DRACOR was using Shinko Trading Co., Ltd. (Shinko) as agent, representative or liaison in selling CMS’s logs in Japan.
- Under the arrangement with Shinko, Shinko purportedly earned a commission of U.S. $1.00 per 1,000 board feet from the buyer of the logs, and under the accounting presented by CMS Shinko was “able to collect” a total of U.S. $77,264.67 (per Exhibits “M” and “M-1”).
- After this discovery, CMS sold and shipped logs directly to several firms in Japan without DRACOR’s aid, producing sales valued at U.S. $739,321.13 or P2,883,351.90 (Exhibit “AA-2”).
- CMS sued DRACOR for (a) the commission allegedly received by Shinko and (b) moral and exemplary damages; DRACOR counterclaimed for its commission amounting to P144,167.59 from the direct sales by CMS to Japanese firms.
- CMS in reply averred that DRACOR had retained P101.167.59 as part of its commission on the sales made by CMS, and as a counter to DRACOR’s counterclaim demanded return of the amount allegedly unlawfully retained.
- DRACOR later filed an amended counterclaim alleging the balance of its commission on CMS’s direct sales was P42,630.82, thus implying retention of the amount alleged by CMS.
Pertinent Contract Provisions (as quoted in the record)
- Clause 1 (appointment and acceptance):
- "SISON [CMS] hereby appoints DRACOR as his sole and exclusive export sales agent with full authority, subject to the conditions and limitations hereinafter set forth, to sell and export under a firm sales contract acceptable to SISON, all logs produced by SISON for a period of five (5) years commencing upon the execution of the agreement and upon the terms and conditions hereinafter provided and DRACOR hereby accepts such appointment;"
- Clause 3 (scope of negotiations and non-liability for vessel delay):
- "It is expressly agreed that DRACOR shall handle exclusively all negotiations of all export sales of SISON with the buyers and arrange the procurement and schedules of the vessel or vessels for the shipment of SISON's logs in accordance with SISON's written requests, but DRACOR shall not in anyway [sic] be liable or responsible for any delay, default or failure of the vessel or vessels to comply with the schedules agreed upon;"
- Clause 9 (commission):
- "It is expressly agreed by the parties hereto that DRACOR shall receive five (5%) per cent commission of the gross sales of logs of SISON based on F.O.B. invoice value which commission shall be deducted from the proceeds of any and/or all moneys received by DRACOR for and in behalf and for the account of SISION;"
Trial Court Proceedings and Findings
- The Court of First Instance of Manila, Branch VII, in Civil Case No. 56355 dismissed CMS’s complaint against DRACOR and ordered CMS to pay DRACOR attorney’s fees of P1,000.00 and costs.
- The trial court found that no competent evidence had been presented to show Shinko actually received the commission of U.S. $77,264.67, though the trial court also stated “Shinko was able to collect the total amount of $77,264.67 US Dollars (Exhs. M and M-1)” — the court nonetheless held CMS failed to prove entitlement to recovery.
- The trial court dismissed DRACOR’s counterclaim because it was shown DRACOR had waived its rights to a balance of its commission in a letter dated February 2, 1963 to Atty. Carlos Moran Sison (Exhibits “N” and “N-1”).
Court of Appeals Decision (CA-G.R. No. 47763-R; July 31, 1975)
- The Court of Appeals affirmed in toto the trial court’s dismissal of CMS’s complaint.
- The appellate decision was rendered by a 3–2 vote. Justice Luis B. Reyes penned the ponencia; Justices Ricardo C. Puno and Francisco Tantuico, Jr. concurred; Justices Roseller T. Lim and Magno S. Gatmaitan dissented. Because of the 2-to-1 vote within the division, two additional members of the Court of Appeals were assigned to sit with the division.
- The Court of Appeals concluded CMS failed to prove by competent evidence that Shinko collected commissions from buyers of Sison’s logs in Japan and therefore CMS could not recover from DRACOR the amount claimed as commissions paid to Shinko.
- The appellate court also reasoned there was “reason to believe that Shinko Trading Co. Ltd., was paid by defendant-appellee out of its own commission of 5%,” citing (a) a letter of DRACOR’s president Daniel R. Aguinaldo to Sison dated February 2, 1963 (Exhibit “N”) and (b) an Agreement between Aguinaldo Development Corporation (ADECOR) and Shinko Trading Co., Ltd. (Exhibit “9”).
- The letter from Daniel R. Aguinaldo to Sison was quoted to show DRACOR’s practice of paying Japanese agents 2½% and adding a similar amount for services rendered in the Philippines, implying Shinko’s commission could have been paid out of DRACOR’s commission.