Case Summary (G.R. No. 117356)
Relevant Dates and Documentary Instruments
Key documents and dates: SLDR No. 1214M dated October 16, 1989 covering 25,000 bags of sugar (50 kg per bag) at P638.00 per bag; STM sold its rights in that SLDR to CSC on October 25, 1989 for P14,750,000.00; STM issued postdated checks to VMC on October 27, 1989 and VMC issued Official Receipt No. 33743 acknowledging receipt of checks for 50,000 bags (SLDRs 1213 and 1214); CSC withdrew 2,000 bags and was thereafter refused further withdrawals by VMC.
Factual Background
VMC regularly sold sugar to STM and issued Shipping List/Delivery Receipts (SLDRs) as proof of purchase. STM purchased under SLDR No. 1214M (25,000 bags). STM sold/endorsed its rights under that SLDR to CSC, which tendered payment by checks and sent VMC a letter of authority and a copy of the SLDR. CSC withdrew 2,000 bags from VMC’s NAWACO warehouse, but VMC refused further delivery claiming that STM had already withdrawn all the sugar corresponding to the value of cleared checks. CSC then demanded delivery of the remaining 23,000 bags and ultimately sued for specific performance.
Trial Court Findings and Judgment
The trial court found for CSC. It credited testimony and documentary exhibits (postdated checks, Official Receipt, and VMC’s computer printout marked Exhibit F) showing STM had paid for the sugar under SLDR No. 1214M and that CSC had been denied delivery despite payment. The trial court ordered VMC to deliver 23,000 bags, awarded unrealized profits and exemplary damages and attorney’s fees.
Court of Appeals Proceedings and Rulings
The Court of Appeals initially modified the trial court judgment to require delivery of 12,586 bags and awarded attorney’s fees equivalent to 10% of the undelivered value; after reconsideration it further modified its decision to order delivery of 23,000 bags and costs of suit. The appellate court explained that Exhibit F could not be used for the narrower purpose of proving a precise number of undelivered bags because evidence must be used only for the purpose for which it was offered; nonetheless, testimonial and other documentary evidence supported CSC’s assertion that only 2,000 bags had been withdrawn and the remaining 23,000 were still due.
Issues Presented to the Supreme Court
Petitioner raised several grounds for review: (1) CSC was STM’s agent, and therefore conclusively presumed to be such and estopped from suing as assignee; (2) the Court of Appeals ignored facts that would reduce VMC’s liability to 69 bags by allowing setoff/compensation for STM’s other unpaid purchases; (3) application of compensation (setoff) rules under Arts. 1279, 1285 and 1626 should have allowed VMC to offset credits from other SLDRs; (4) Exhibit F and account settlement evidence constituted an account stated binding on CSC; (5) SLDR No. 1214M was conditional (subject to availability at NAWACO) so title did not pass and VMC was excused; and (6) the clean hands doctrine should bar CSC due to alleged conspiracy/fraud with STM.
Procedural Threshold: Raising New Issues on Appeal
The Supreme Court observed that some issues (notably agency) were first raised on appeal. While issues not raised at trial are generally not allowed on appeal for fairness and due process reasons, the Court of Appeals nevertheless addressed the agency issue and the Supreme Court proceeded to review it on the merits.
Agency Analysis and Holding
The Court applied the Civil Code definition of agency (Art. 1868) and the established elements: manifestation of the principal’s intent to appoint, the agent’s acceptance, and the principal’s control over the agent’s actions. The Supreme Court held CSC was not STM’s agent. The decisive factor was the parties’ intention: STM’s letter and CSC’s communications characterizing the transaction as a sale and endorsement demonstrated that STM intended to sell and transfer rights under the SLDR to CSC, not to appoint CSC as its agent subject to STM’s control. The mere phrase “for and in our behalf” in STM’s letter did not, in context, establish the control element or the requisite agency relationship. Accordingly CSC could sue in its own name as assignee.
Compensation (Setoff) Analysis and Holding
Petitioner argued for compensation under Article 1279 (setoff) based on other SLDR transactions between STM and VMC. The Court examined whether the obligation for SLDR No. 1214M and VMC’s claim for STM’s unpaid purchases were mutual principal obligations between the same parties such that compensation would apply. The Court accepted the trial and appellate findings that the purchase covered by SLDR No. 1214M was a separate, independent transaction, supported by uncontested evidence that VMC had been paid for that SLDR’s sugar. Because the parties were not mutual principal creditors and debtors with respect to that specific transaction, and the debt under SLDR No. 1214M was not subject to a valid setoff claim, the Court correctly refused to apply Art. 1279 to extinguish or materially reduce VMC’s liability to CSC.
Conditional Sale / Contract to Sell Analysis and Holding
VMC contended SLDR No. 1214M created only a conditional sale or contract to sell because the SLDR contained a notation about availability at the NAWACO warehouse. The Court examined the SLDR’s express terms and conditions which stated that by payment and receipt of the document, “title to refined sugar is transferred to buyer/trader and delivery to him/it is deemed effected and completed” and that the buyer assumes responsibility. Those stipulations manifested an intention to transfer title upon payment, thereby establishing a sale, not a mere contract to sell. Having prescribed terms that effect transfer of title, VMC was estopped from asserting the sale was conditional in a manner that would excuse non-delivery.
Alleged Conspiracy and Clean Hands Doctrine
VMC asserted a conspiracy between STM and CSC to defraud VMC, arguing that the clean hands doctrine should bar CSC’s relief. Th
Case Syllabus (G.R. No. 117356)
Procedural Posture and Relief Sought
- Petition for review on certiorari under Rule 45 of the Rules of Court assailing: (a) the Court of Appeals decision dated February 24, 1994 in CA-G.R. CV No. 31717; and (b) the Court of Appeals resolution dated September 30, 1994 modifying that decision.
- Both Court of Appeals rulings modified the Regional Trial Court of Makati City, Branch 147, judgment of February 13, 1991 in Civil Case No. 90-118.
- Petitioner Victorias Milling Co., Inc. (VMC) seeks reversal of the appellate rulings and reliefs it requested below (including damages and attorneys’ fees against Consolidated Sugar Corporation (CSC) and cross-defendant St. Therese Merchandising (STM)).
- Private respondent CSC sought specific performance (delivery of sugar) and damages, attorney’s fees and litigation expenses.
Facts as Found by Trial and Appellate Courts
- VMC regularly sold sugar to St. Therese Merchandising (STM) and issued Shipping List/Delivery Receipts (SLDRs) as proof of purchases.
- SLDR No. 1214M dated October 16, 1989 covered 25,000 bags of sugar, each bag 50 kilograms, priced at P638.00 per bag as “per sales order VMC Marketing No. 042 dated October 16, 1989.”
- SLDR No. 1214M contained the additional note: “subject for (sic) availability of a (sic) stock at NAWACO (warehouse).”
- On October 25, 1989, STM sold to CSC its rights in SLDR No. 1214M for P14,750,000.00. CSC issued one check dated October 25, 1989 and three postdated checks dated November 13, 1989 in payment.
- On the same date, CSC wrote VMC that STM had authorized CSC to withdraw the sugar covered by SLDR No. 1214M and enclosed a copy of SLDR No. 1214M and a letter of authority from STM authorizing CSC “to withdraw for and in our behalf the refined sugar covered by Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,000 bags.”
- On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with VMC as payee; VMC issued Official Receipt No. 33743 dated October 27, 1989 acknowledging receipt of said checks in payment of 50,000 bags (covering SLDR Nos. 1213 and 1214).
- CSC surrendered SLDR No. 1214M to VMC’s NAWACO warehouse and was allowed to withdraw sugar; after 2,000 bags had been released, VMC refused further withdrawals against SLDR No. 1214M.
- On January 23, 1990 CSC informed VMC that SLDR No. 1214M had been “sold and endorsed” to it and complained that it had been refused further withdrawals despite only 2,000 bags having been withdrawn.
- On January 31, 1990 VMC replied that it could not allow further withdrawals against SLDR No. 1214M because STM had already withdrawn all sugar corresponding to the cleared checks.
- CSC demanded release of the remaining 23,000 bags in March 1990; VMC reiterated its position that all sugar corresponding to cleared checks had been fully withdrawn and noted CSC had represented itself as STM’s agent when it withdrew 2,000 bags “for and in behalf” of STM.
- CSC filed a complaint for specific performance (Civil Case No. 90-1118) on April 27, 1990 against STM and VMC; the case proceeded only against VMC because STM could not be served. During trial, the same person (Teresita Ng Go / Teresita Ng Sy) testified for CSC though she had been alleged unserved.
- Testimony and documentary exhibits (postdated checks, official receipt, and computer printout Exhibit F) were presented by CSC indicating payment for the sugar under SLDR No. 1214M.
Documentary Evidence and Key Exhibits
- SLDR No. 1214M (dated October 16, 1989) covering 25,000 bags and containing the phrase regarding NAWACO stock availability.
- Letter of authority from STM authorizing CSC “to withdraw for and in our behalf” the sugar covered by SLDR No. 1214M.
- Postdated checks (Exhibits C to C-15) dated October 27, 1989 issued by STM in favor of VMC; total P31,900,000.00.
- Official Receipt No. 33743 (or 34734 in trial court findings—documented as issued October 27, 1989) acknowledging receipt of P31,900,000.00 by VMC.
- Exhibit F: a computer printout of VMC showing quantity, value of purchases made by STM, SLDR numbers, official receipt numbers and status of payment (showing “cleared” for SLDR No. 1214).
- Letters and demand correspondence between CSC and VMC (Exhibits I and K) documenting demands for withdrawal and notices of sale/endorsement.
Trial Court Ruling and Findings
- Trial court rendered judgment in favor of plaintiff CSC and against defendant VMC ordering:
- Delivery of 23,000 bags of refined sugar due under SLDR No. 1214;
- Payment of P920,000.00 as unrealized profits;
- Payment of P800,000.00 as exemplary damages;
- Payment of P1,357,000.00 (10% of acquisition value P13,570,000.00) as attorney’s fees, plus costs.
- Trial court observations emphasized:
- Testimony of Teresita Ng Go that she had fully paid P15,950,000.00 for the 25,000 bags under SLDR No. 1214 (and similar for SLDR No. 1213) was supported by postdated checks and Official Receipt showing payment and Exhibit F indicating “cleared” status for SLDR No. 1214.
- VMC’s witness Arnulfo Caintic’s testimony that checks were dishonored was considered a “sweeping barren assertion” unsupported by documentary proof (no dishonored checks or bank records produced).
Court of Appeals Proceedings and Decisions
- Court of Appeals initially considered three principal issues: whether SLDR No. 1214M transaction was separate and independent; whether CSC had the capacity to sue on SLDR No. 1214M; and whether CSC as assignee could compel delivery of allegedly unwithdrawn 23,000 bags.
- February 24, 1994 Court of Appeals decision modified trial court judgment ordering VMC to:
- Deliver 12,586 bags of sugar covered by SLDR No. 1214M;
- Pay P792,918.00 (10% of value of undelivered bags) as attorney’s fees;
- Pay costs of suit.
- Both parties filed motions for reconsideration.
- September 30,