PHILIPPINE AIR LINES, INC., Petitioner, vs. ANTONIO BALANGUIT, ET AL.

, (PUBLIC UTILITIES EMPLOYEES ASSOCIATION [FEATI CHAPTER] and

THE COURT OF INDUSTRIAL RELATIONS,Respondents.

D E C I S I O N
MONTEMAYOR, J.:
This is a petition for certiorari filed by Philippine Air Lines, Inc. (later referred to as the PAL) against Antonio Balanguit, et al., (Public Utilities
Employees Association [FEATI Chapter] later referred to as the EMPLOYEES and the Court of Industrial Relations (CIR) to review the order of
the latter dated December 10, 1954, directing the PAL to pay the money value of whatever vacation and sick leave might have accrued to the
employees listed in the petition of Balanguit, et al., from August 1, 1946 up to June 15, 1947. For the facts of the case, we adopt and
reproduce the STATEMENT OF FACTS made by Petitioner in its petition which the employees in their answer admit to be substantially correct.
1. Sometime before May 21, 1947, the Philippine Air Lines, Inc. (hereinafter referred to as PAL for brevity) purchased and acquired a majority
of the shares of the Far Eastern Air Transport, Inc. (hereinafter referred to as FEATI, also for brevity). Those two airlines were, previous to the
said purchases, then competing in various air routes through the Philippines, with the result that both companies were losing and it became
necessary to maintain only one airline. The purchase gave rise to the problem of what to do with the FEATI employees. After some negotiations
between the representatives of the FEATI Employees Association and the PAL, the parties finally reached an agreement on May 21, 1947,
whereby the PAL agreed to absorb some 70 per cent of the FEATI employees, and the said employees agreed to work for PAL under the same
terms and conditions as they worked for the FEATI until such time as they come to a definite understanding. The pertinent portion of the
aforesaid Agreement reads as follows:chanroblesvirtuallawlibrary
1. That the PAL will absorb all the employees and laborers that could possibly be absorbed by them belonging to the Public Utilities Employees
Association FEATI Chapter, and that these employees and laborers are to work with the PAL in accordance with the provisions of the Collective
Bargaining Agreement entered into between the previous Management of FEATI and the representatives of the Public Utilities Employees
Association FEATI Chapter, dated August 1, 1946, until such time as the said Association and the PAL Employees organization come to a definite
understanding. A certified copy of the said Agreement is hereto attached and made a part hereof an Annex A of this petition.
2. The Collective Bargaining Agreement with the FEATI referred to in the above employment agreement of May 21, 1947 of the Public Utilities
Employees Association with the PAL was their Industrial Agreement of August 1, 1946, the pertinent portion of which granted the said
employees certain privileges, among which were:chanroblesvirtuallawlibrary
IV. Vacation and Sick Leave. The employees will be entitled to twelve (12) days vacation leave and twelve (12) days sick leave with pay
every year, which may be cumulative.
A certified copy of the said Industrial Agreement is hereto attached and made a part hereof as Annex B.
3. On July 9, 1947, the PAL reached a definite understanding with the Public Utilities Employees Association aforesaid whereby they entered
into an agreement cancelling the agreements of May 21, 1947 and August 1, 1946, and declaring them void and of no further force and effect.
It also provided for the laying off of all the FEATI employees as of June 15, 1947 and the payment to them of one and a half months separation
pay which amounted, roughly to P150,000.00.
A certified copy of said Agreement is hereto attached and made a part hereof as Annex C.
4. On November 11, 1952, almost six years from the time they were laid off, the Public Utilities Employees Association aforesaid filed a
petition with the Court of Industrial Relations praying that the PAL be ordered to pay them the twelve (12) days vacation leave and twelve (12)
days sick leave with pay, from August 1, 1946, which had already accrued at the time they were laid off on June 15, 1947.
5. The PAL, in its Answer to the Employees petition, denied liability, alleging that it was not a party to the Agreement of August 1, 1946. The
said employees were absorbed by the PAL only on May 21, 1947 and were laid off on June 15, 1947.
6. On December 10, 1954, the Court of Industrial Relations, through Associate Judge V. Jimenez Yanson, issued an Order requiring the PAL to
pay the said employees the money value of whatever vacation and sick leave might have accrued to the said employees from August 1, 1946 to
June 15, 1947.
According to the PAL the amount involved, namely, the money equivalent of the vacation and sick leave which it is directed to pay by the CIR is
roughly about P100,000.00. The question to determine is whether or not the PAL is legally liable for the payment of this amount. It is
unfortunate that the final agreement of July 9, 1946, between the PAL and FEATI on one side and the Employees on the other, failed to make
any mention whatsoever about the money equivalent of this vacation and sick leave, whether it was payable or not and if payable, by whom.
There is no question that this leave was earned by the employees from the FEATI for the services rendered to it by them from August 1, 1946
(the date of the industrial agreement between them and the FEATI, when they were accorded this right to twelve (12) days vacation leave and
twelve (12) days sick leave for every year of service) up to May 21, 1947, when they ceased to render said service to the FEATI. For those
employees who were absorbed and continued to render service to the PAL from May 21, 1947 to June 15, 1947 (a period of less than one
month), when they were all laid-off, they may be said to have earned the corresponding leave from the PAL. Did the PAL assume this obligation
of the FEATI to pay the equivalent of this leave which the employees earned from the FEATI ? Nothing is said in the agreement of July 9, 1947.
The employees claim and also the CIR, though indirectly, that when the PAL bought out the FEATI the former assumed all the rights and
obligations of the latter. This is too sweeping a statement. In some cases, when one company buys out another and continues the business of
the latter company, the buyer may be said to assume the obligations of the company bought out when said obligations are not of considerable
amount or value, specially when incurred in the ordinary course of trade, and when the business of the latter company is continued. However,
when said obligation is of extraordinary value, as in this case, amounting to about P100,000, and the FEATI was bought out not to continue its
business but to stop its operation in order to eliminate competition, as shown by the fact that all the employees of the FEATI were laid-off, we
cannot say that the vendee assumed all the obligations of the rival airline.
What the employees should have done at the time of the, negotiation among the PAL, the FEATI and themselves preparatory to the execution
of the agreement of July 9, 1947, was to raise the question as to who would pay them the equivalent of the vacation and sick leave already
earned by them under the FEATI. Had they insisted on its payment, the FEATI could perhaps have been made to pay unless, of course, the PAL
agreed to assume the obligation. When they (employees) failed to raise that question or have it embodied in the agreement, said failure may
be regarded as a waiver of their right. And when they received a separation pay equivalent to one and one half months and then kept quiet
about their vacation and sick leave for a period of more than five years, there is every reason to believe that there was actually such
renunciation and waiver. It would be no surprise if this separation pay was understood and agreed upon by all parties to include the equivalent
of leave already earned by the employees. It may be recalled that the separation pay was not only for one month but it was for one month and
a half, exceeding the mesada provided for in the Code of Commerce (still in force in 1947) by half a month. It is highly possible that the extra
half month pay was to take care of the vacation and sick leave, especially when we consider the fact that at the time of separation on June 15,
1947, the employees had, for purposes of earning the leave, not yet completed one year service (from August 1, 1946 to June 15, 1947).
Anyway, even assuming for a moment that the employees were entitled to the payment of said leave, they were guilty of laches. It would be
unfair now to demand this payment from the PAL after more than five years when the papers and the records of the service of said employees
from August 1, 1946 to May or June, 1947, may no longer exist; chan roblesvirtualawlibrarywhen the FEATI has long ceased operations and has
long ceased to exist and when its officials who were in a position to determine which employees because of their faithful, efficient and
continuous service were entitled to leave and for how many days, may no longer be available.
The purpose of vacation is to afford to a laborer a chance to get a much-needed rest to replenish his worn out energies and acquire a new
vitality to enable him to efficiently perform his duties, and not merely to give him additional salary or bounty. This privilege must be demanded
in its opportune time and if he allows the years to go by in silence, he waives it. It becomes a mere concession or act of grace of the employer.
( Sun-Ripe Coconut Products, Inc. vs. National Labor Union, 97 Phil., 691; chan roblesvirtualawlibrary51 O.G. 5133.)
In view of the foregoing, the petition for certiorari is granted, and the order of the CIR of December 10, 1954, and the resolution of the CIR in
banc of December 29, 1954, are set aside, and the complaint of the employees (Association) against the PAL in Case No. 89-V(2) is hereby
dismissed, with costs.

G.R. No. 19892 September 6, 1923
TECK SEING AND CO., LTD., petitioner-appellee.
SANTIAGO JO CHUNG, ET AL., partners, vs. PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants.
MALCOLM, J.:
Following the presentation of an application to be adjudged an insolvent by the "Sociedad Mercantil, Teck Seing & Co., Ltd.," the creditors, the
Pacific Commercial Company, Piol & Company, Riu Hermanos, and W. H. Anderson & Company, filed a motion in which the Court was prayed
to enter an order: "(A) Declaring the individual partners as described in paragraph 5 parties to this proceeding; (B) to require each of said
partners to file an inventory of his property in the manner required by section 51 of Act No. 1956; and (C) that each of said partners be
adjudicated insolvent debtors in this proceeding." The trial judge first granted the motion, but, subsequently, on opposition being renewed,
denied it. It is from this last order that an appeal was taken in accordance with section 82 of the Insolvency Law.
There has been laid before us for consideration and decision a question of some importance and of some intricacy. The issue in the case relates
to a determination of the nature of the mercantile establishment which operated under the name of Teck Seing & co., Ltd., and this issue
requires us to look into, and analyze, the document constituting Teck Seing & Co., Ltd. It reads:
ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA
Sepan todos por la presente:
Que nosotros, Santiago Jo Chung Cang, mayor de edad comerciante, vecino y residente del municipio de Tabogon Provincia de Cebu,
Islas Filipinas, Go Tayco, mayor de edad, comerciante, vecino y residente del municipio de Cebu Provincia de Cebu, Islas Filipinas,
Yap Gueco, mayor de edad, comerciante, vecino y residente del municipio y Provincia de Cebu, Islas Filipinas, Lim Yogsing, mayor de
edad comerciante, vecino y residente del municipio de Cebu, Provincia de Cebu, Islas Filipinas, y Jo Ybec, mayor de edad,
comerciante, vecino y residente del municipio de Jagna, Provincia de Bohol, Islas Filipinas, hacemos constar por la presente, que
constituimos y formamos una sociedad mercantil limitada, bajo las leyes vigentes en las Islas Filipinas y para ser registrada de
acuerdo con los reglamentos vigentes del Codigo de Comercio en Filipinas.
Que la razon social se denominara "Teck Seing & Co., Ltd." y tendra su domicilio principal en la Calle Magallanes No. 94, de la Ciudad
de Cebu, Provincia de Cebu, Islas Filipinas.
Que el capital social sera de treinta mil pesos (P30,000) moneda legal de las Islas Filipinas, dividido en cinco acciones de a P6,000
como sigue:
Santiago Jo Chung Cang . . . . . . . . . . . . . P6,000.00
Go Tayco . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00
Yap Gueco . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00
Jo Ybec . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00
Lim Yogsing . . . . . . . . . . . . . . . . . . . . . . . 6,000.00
Total . . . . . . . . . . . . . . . . . . . . . . 30,000.00
Que la duracion de la sociedad sera la de seis aos, a contar de la fecha de esta escritura, pudiendo prorrogarse este tiempo a
discrecion unanime de todos los accionistas.
El objeto de la sociedad sera la compra y venta de mercaderias en general.
El administrador o administradores de la sociedad podran, previa conformidad de los accionistas, establecer cuantas sucursales o
establecimientos considere necesarios para facilitar sus negocios y el mayor desarrollo del comercio a que se dedica la sociedad,
verificando todas las operaciones que crean convenientes para el fomento de su capital.
Las ganancias o perdidas que resultaren durante cada ao comercial, se distribuiran proporcionalmente entre los accionistas, de
acuerdo con el capital aportado por cada uno de los mismos.
Las ganancias que resultaren en cada ao comercial, si resultaren algunas ganancias, no podran ser retiradas pors los accionistas
hasta dentro del termino de tres aos a contar de la fecha del primer balance anual del negocio, quedadno por tanto estas ganancias
en reserva, para ampliar el capital aportado opor los accionistas y ampliar por tanto la esfera de accion emprendida por la misma
sociedad. Al pasar o expirar el termino de tres aos, cada accionista podra retirar o depositar en poder de la sociedad, las ganancias
que le debiera corresponder durante dicho termino de tres aos.
Que los accionistas no podran extraer ni disponer en ningun tiempo cualesquiera cantidad o cantidades de la sociedad, que haya
sido aportado por los mismos, para atender sus gastos particulares ni aun pagando redito alguno sobre la cantidad que intenen
disponer o extraer de dicha sociedad.
El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr. Vicente Jocson Jo, la administracion de la Compaia, quienes podran
usar indistintamente la firma social, quedando por consiguiente autorizados amobs para hacer en nombre de ella toda calse de
operaciones, negocios y especulaciones mercantiles, practicando judicial y extra-judicialment cuantos actos se requieran para el bien
de la sociedad, nombrar procuradores o abogados para reclamaciones y cobro de creditos y proponer ante los tribunales las
demandas, convenios, transacciones y excepciones procdentes. En caso de ausencia, enfermedad o cualquier otro impedimento del
accionista administrador Sr. Lim Yogsing, este podra conferir poder general o especial al accionista que crea conveniente para que
en union del administrador auxiliar Sr. Vicente Jocson Jo, pudieran ambos administrar convenientemente los negocios de la
sociedad. Que los administradores podran tener los empleados necesarios para el mejor que debieran percibir dichos empleados
por servicios rendidos a la sociedad.
Que ambos administradores podran disponer de mil discientos pesos (P1,200) moneda filipina, anualmente, para sus gastos
particulares, siendo dicha cantidad de P1,200 la que corresponde a cada uno de dichos administradores, como emolumentos o
salarios que se les asigna a cas uno, por sus trabajos en la administracion de la sociedad. Entendiendose, que, los accionistas podran
disponer cada fin de aola gratificacion quese concedera a cada administrador, si los negocios del ao fueran boyantes y justifiquen
la concesion de una gratificacion especial, aparte del salario aqui dispuesto y especificado.
Que pasado el termino de seis aos, y es de la conveniencia de los accionistas la continuacion del negocio de esta sociedad, dicho
termino sera prorrogado por igual numero de aos, sin necesidas del otorgamiento de ulteriores escrituras, quedando la presente
en vigor hasta el termino dispuesto por todos los accionistas.
Que las diferencias que pudieran suscitarse entre los accionistas, bien sea por razon de lo estipulado en esta en ella comprendidos,
se procurara arreglar entre los mismos amistosa y extrajudicialmente, y si no se consiguiere un arreglo de este modo, dichos
accionistas nombraran un arbitro, cuya resolucion estan todos obligados y por la presente se comprometen y se obligan a acatarla
en todas sus partes, renunciando ulteriores recursos.
En cuyos terminos dejamos formalizada esta escritura de sociedad mercantillimitada, y prometemos cumplirla fiel y estrictamente
segun los pactos que hemos establecido.
En testimonio de todo lo cual, firmamos en la Ciudad de Cebu, Provincia de Cebu, Islas Filipinas, hoy 31 de octubre de mil
novecientos diez y nueve.
(Fdos.) "LIM YOGSING
"Jo YBec por Ho Seng Sian
"SANTIAGO JO CHUNG CANG
"GO TAYCO
"YAP GUECO
Firnando en presencia de:
(Fdos.) "ATILANO LEYSON
"JULIO DIAZ
"ESTADOS UNIDOS DE AMERCA
"ISLAS FILIPINAS
"PROVINCIA DE CEBU
En el Municipio de Cebu, de la Provincia antes mencionada, I.F., hoy 31 de octubre de 1919, A.D., ante mi, Notario Publico que
subscribe, comprecieron personalmente Santiago Jo Chung Cang, Go Tayco, Yap Gueco, Lim Yogsing y Jo Ybec, representado este
ultimo por Ho Seng Sian, segun autorizacion hecha en telegrama de fecha 27 de septiembre de 1919 que se me ha presentado en
este mismo acto, de quienes doy fe de que les conozco por ser las mismas personas que otorgaron el preinserto documento,
ratificando ant emi su contenido y manifestando ser el mismo un acto de su libre y voluntario otorgamiento. El Sr. Santiago Jo Chung
Cang me exhibio su cedula personal expedida en Cebu, Cebu, I.F. el dia 19 de septiembre de 1919 bajo el No. H77742, Go Tayco
tambien me exhibio la suya expedida en Cebu, Cebu, I.F., el dia 9 de octubre de 1919 bajo el No. G2042490, Yap Gueco tambien me
exhibio la suya expedida en Cebu, Cebu, I.F. el dia 20 de enero de 1919 bajo el No. F1452296, Lim Yogsing tambien me exhibio la
suya expedida en Cebu, Cebu, I.F., el dia 26 de febrero de 1919 bajo el No. F1455662, y Ho Seng Sian representante de Jo Ybec, me
exhibio su cedula personal expedida en Cebu, Cebu, I.f. el dia 4 de febrero de 1919 bajo el No. F1453733.
Ante mi,
(Fdo.) "F.V.ARIAS
"Notario Publico
"Hasta el 1. de enero de 1920
"Asiento No. 157
Pagina No. 95 de mi
Registro Notarial
Serie 1919
Libro 2.
Presentado a las diez y cuarenta y tres minutos de la maana de hoy, segun el asiento No. 125, pagina 9 del Tomo 1. del Libro
Diario. Cebu, 11 de febrero de 1920.
(Fdo.) "QUIRICO ABETO
[SELLO] "Registrador Mercantil Ex-Officio"
Inscrito el documento que preced al folio 84 hoja No. 188, inscripcion 1.a del Tomo 3. del Libro Registro de Sociedades Mercantiles.
Cebu, 11 de febrero de 1920. Honorarios treinta pesos con cincuenta centavos. Art. 197, Ley No. 2711, Codigo Administrativo.
(Fdo.) "QUIRICO ABETO
[SELLO] "Registrador Mercantil Ex-Officio"
Proceeding by process of elimination, it is self-evident that Teck Seing & Co., Ltd., is not a corporation. Neither is it contended by any one that
Teck Seing & Co., Ltd., is accidental partnership denominated cuenta en participacion(joint account association).
Counsel for the petitioner and appellee described his client in once place in his opposition to the motion of the creditors as "una verdadera
sociedad anonima" (a true sociedad anonima). The provisions of the Code of Commerce relating to sociedades anonimas were, however,
repealed by section 191 of the Corporation Law (Act No. 1459), with the exceptions the sociedades anonimas lawfully organized at the time of
the passage of the Corporation Law were recognized, which is not our case.
The document providing for the partnership contract purported to form "una sociedad mercantil limitada," and counsel for the petitioner's first
contention was that Teck Seing & Co., Ltd., was not "una sociedad regular colectiva, ni siquiera comanditaria, sino una sociedad mercantil
limitada." Let us see if the partnership contract created a "sociedad en comandita," or, as it is known in English, and will hereafter be spoken of,
"a limited partnership."
To establish a limited partnership there must be, at least, one general partner and the name of the least one of the general partners must
appear in the firm name. (Code of Commerce, arts. 122 [2], 146, 148.) But neither of these requirements have been fulfilled. The general rule is,
that those who seek to avail themselves of the protection of laws permitting the creation of limited partnerships must show a substantially full
compliance with such laws. A limited partnership that has not complied with the law of its creation is not considered a limited partnership at all,
but a general partnership in which all the members are liable. (Mechem, Elements of Partnership, p. 412; Gilmore, Partnership, pp. 499, 595; 20
R C. L. 1064.)
The contention of the creditors and appellants is that the partnership contract established a general partnership.
Article 125 of the Code of Commerce provides that the articles of general copartnership must estate the names, surnames, and domiciles of the
partners; the firm name; the names, and surnames of the partners to whom the management of the firm and the use of its signature is
instrusted; the capital which each partner contributes in cash, credits, or property, stating the value given the latter or the basis on which their
appraisement is to be made; the duration of the copartnership; and the amounts which, in a proper case, are to be given to each managing
partner annually for his private expenses, while the succeeding article of the Code provides that the general copartnership must transact
business under the name of all its members, of several of them, or of one only. Turning to the document before us, it will be noted that all of
the requirements of the Code have been met, with the sole exception of that relating to the composition of the firm name. We leave
consideration of this phase of the case for later discussion.
The remaining possibility is the revised contention of counsel for the petitioners to the effect that Teck Seing & Co., Ltd., is "una sociedad
mercantil "de facto" solamente" (only a de facto commercial association), and that the decision of the Supreme court in the case of Hung-Man-
Yoc vs. Kieng-Chiong-Seng [1906], 6 Phil., 498), is controlling. It was this argument which convinced the trial judge, who gave effect to his
understanding of the case last cited and which here must be given serious attention.
The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, discloses that the firm Kieng-Chiong-Seng was not organized by means of any
public document; that the partnership had not been recorded in the mercantile registry; and that Kieng-Chiong-Seng was not proven to be the
firm name, but rather the designation of the partnership. The conclusion then was, that the partnership in question was merely de facto and
that, therefore, giving effect to the provisions of article 120 of the Code of Commerce, the right of action was against the persons in charge of
the management of the association.
Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, side by side with the facts before us, a marked difference is at once
disclosed. In the cited case, the organization of the partnership was not evidenced by any public document; here, it is by a public document. In
the cited case, the partnership naturally could not present a public instrument for record in the mercantile registry; here, the contract of
partnership has been duly registered. But the two cases are similar in that the firm name failed to include the name of any of the partners.
We come then to the ultimate question, which is, whether we should follow the decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, or
whether we should differentiate the two cases, holding Teck Seing & Co., Ltd., a general copartnership, notwithstanding the failure of the firm
name to include the name of one of the partners. Let us now notice this decisive point in the case.
Article 119 of the Code of Commerce requires every commercial association before beginning its business to state its article, agreements, and
conditions in a public instrument, which shall be presented for record in the mercantile registry. Article 120, next following, provides that the
persons in charge of the management of the association who violate the provisions of the foregoing article shall be responsible in solidum to
the persons not members of the association with whom they may have transacted business in the name of the association. Applied to the facts
before us, it would seem that Teck Seing & Co., Ltd. has fulfilled the provisions of article 119. Moreover, to permit the creditors only to look to
the person in charge of the management of the association, the partner Lim Yogsing, would not prove very helpful to them.
What is said in article 126 of the Code of Commerce relating to the general copartnership transacting business under the name of all its
members or of several of them or of one only, is wisely included in our commercial law. It would appear, however, that this provision was
inserted more for the protection of the creditors than of the partners themselves. A distinction could well be drawn between the right of the
alleged partnership to institute action when failing to live up to the provisions of the law, or even the rights of the partners as among
themselves, and the right of a third person to hold responsible a general copartnership which merely lacks a legal firm name in order to make it
a partnership de jure.
The civil law and the common law alike seem to point to a difference between the rights of the partners who have failed to comply with the law
and the rights of third persons who have dealt with the partnership.
The supreme court of Spain has repeatedly held that notwithstanding the obligation of the members to register the articles of association in the
commercial registry, agreements containing all the essential requisites are valid as between the contracting parties, whatever the form
adopted, and that, while the failure to register in the commercial registry necessarily precludes the members from enforcing rights acquired by
them against third persons, such failure cannot prejudice the rights of third persons. (See decisions of December 6, 1887, January 25, 1888,
November 10, 1890, and January 26, 1900.) The same reasoning would be applicable to the less formal requisite pertaining to the firm name.
The common law is to the same effect. The State of Michigan had a statute prohibiting the transaction of business under an assumed name or
any other than the real name of the individual conducting the same, unless such person shall file with the county clerk a certificate setting forth
the name under which the business is to be conducted and the real name of each of the partners, with their residences and post-office
addresses, and making a violation thereof a misdemeanor. The supreme Court of Michigan said:
The one object of the act is manifestly to protect the public against imposition and fraud, prohibiting persons from concealing their
identity by doing business under an assumed name, making it unlawful to use other than their real names in transacting business
without a public record of who they are, available for use in courts, and to punish those who violate the prohibition. The object of
this act is not limited to facilitating the collection of debts, or the protection of those giving credit to persons doing business under
an assumed name. It is not unilateral in its application. It applies to debtor and creditor, contractor and contractee, alike. Parties
doing business with those acting under an assumed name, whether they buy or sell, have a right, under the law, to know who they
are, and who to hold responsible, in case the question of damages for failure to perform or breach of warranty should arise.
The general rule is well settled that, where statutes enacted to protect the public against fraud or imposition, or to safeguard the
public health or morals, contain a prohibition and impose a penalty, all contracts in violation thereof are void. . . .
As this act involves purely business transactions, and affects only money interests, we think it should be construed as rendering
contracts made in violation of it unlawful and unforceable at the instance of the offending party only, but not as designed to take
away the rights of innocent parties who may have dealt with the offenders in ignorance of their having violated the statute. (Cashin
vs. Pliter [1912], 168 Mich., 386; Ann. Cas. [1913-C, 697.)
The early decision of our Supreme Court in the case of Prautch Scholes & Co. vs. Hernandez [1903], 1 Phil., 705), contains the following
pertinent observations:
Another case may be supposed. A partnership is organized for commercial purposes. It fails to comply with the requirements of
article 119. A creditor sues the partnership for a debt contracted by it, claiming to hold the partners severally. They answer that their
failure to comply with the Code of Commerce makes them a civil partnership and that they are in accordance with article 1698 of the
Civil Code only liable jointly. To allow such liberty of action would be to permit the parties by a violation of the Code to escape a
liability which the law has seen fit to impose upon persons who organized commercial partnership; "Because it would be contrary to
all legal principles that the nonperformance of a duty should redound to the benefit of the person in default either intentional or
unintentional." (Mercantile Law, Eixala, fourth ed., p. 145.)" (See also Lichauco vs. Lichauco [1916], 33 Phil., 350, 360.)
Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes the following comment after articles 121 and 126 of the Code:
From the decisions cited in this and in the previous comments, the following is deduced: 1st. Defects in the organization cannot
affect relations with third persons. 2d. Members who contract with other persons before the association is lawfully organized are
liable to these persons. 3d. The intention to form an association is necessary, so that if the intention of mutual participation in the
profits and losses in a particular business is proved, and there are no articles of association, there is no association. 4th. An
association, the articles of which have not been registered, is valid in favor of third persons. 5th. The private pact or agreement to
form a commercial association is governed not by the commercial law but by the civil law. 6th. Secret stipulationsexpressed in a
public instrument, but not inserted in the articles of association, do not affect third persons, but are binding on the parties
themselves. 7th. An agreement made in a public instrument, other than the articles of association, by means of which one of the
partners guarantees to another certain profits or secures him from losses, is valid between them, without affecting the association.
8th. Contracts entered into by commercial associations defectively organized are valid when they are voluntarily executed by the
parties, if the only controversy relates to whether or not they complied with the agreement.
xxx xxx xxx
The name of the collective merchant is called firm name. By this name, the new being is distinguished from others, its sphere of
action fixed, and the juridical personality better determined, without constituting an exclusive character of the general partnership
to such an extent as to serve the purpose of giving a definition of said kind of a mercantile partnership, as is the case in our Code.
Having in mind that these partnerships are prevailingly of a personal character, article 126 says that they must transact business
under the name of all its members, of some of them, or of one only, the words "and company" to be added in the latter two cases.
It is rendered impossible for the general partnership to adopt a firm name appropriate to its commercial object; the law wants to
link, and does link, the solidary and unlimited responsibility of the members of this partnership with the formation of its name, and
imposes a limitation upon personal liberty in its selection, not only by prescribing the requisites, but also by prohibiting persons not
members of the company from including their names in its firm name under penalty of civil solidary responsibility.
Of course, the form required by the Code for the adoption of the firm name does not prevent the addition thereto of any other title
connected with the commercial purpose of the association. The reader may see our commentaries on the mercantile registry about
the business names and firm names of associations, but it is proper to establish here that, while the business name may be alienated
by any of the means admitted by the law, it seems impossible to separate the firm names of general partnerships from the juridical
entity for the creation of which it was formed. (Vol. 2, pp. 197, 213.)
On the question of whether the fact that the firm name "Teck Seing & Co., Ltd." does not contain the name of all or any of the partners as
prescribed by the Code of Commerce prevents the creation of a general partnership, Professor Jose A. Espiritu, as amicus curi, states:
My opinion is that such a fact alone cannot and will not be a sufficient cause of preventing the formation of a general partnership,
especially if the other requisites are present and the requisite regarding registration of the articles of association in the Commercial
Registry has been complied with, as in the present case. I do not believe that the adoption of a wrong name is a material fact to be
taken into consideration in this case; first, because the mere fact that a person uses a name not his own does not prevent him from
being bound in a contract or an obligation he voluntarily entered into; second, because such a requirement of the law is merely a
formal and not necessarily an essential one to the existence of the partnership, and as long as the name adopted sufficiently identity
the firm or partnership intended to use it, the acts and contracts done and entered into under such a name bind the firm to third
persons; and third, because the failure of the partners herein to adopt the correct name prescribed by law cannot shield them from
their personal liabilities, as neither law nor equity will permit them to utilize their own mistake in order to put the blame on third
persons, and much less, on the firm creditors in order to avoid their personal possibility.
The legal intention deducible from the acts of the parties controls in determining the existence of a partnership. If they intend to do a thing
which in law constitutes a partnership, they are partners, although their purpose was to avoid the creation of such relation. Here, the intention
of the persons making up Teck Seing & co., Ltd. was to establish a partnership which they erroneously denominated a limited partnership. If this
was their purpose, all subterfuges resorted to in order to evade liability for possible losses, while assuming their enjoyment of the advantages
to be derived from the relation, must be disregarded. The partners who have disguised their identity under a designation distinct from that of
any of the members of the firm should be penalized, and not the creditors who presumably have dealt with the partnership in good faith.
Articles 127 and 237 of the Code of Commerce make all the members of the general copartnership liable personally and in solidum with all their
property for the results of the transactions made in the name and for the account of the partnership. Section 51 of the Insolvency Law, likewise,
makes all the property of the partnership and also all the separate property of each of the partners liable. In other words, if a firm be insolvent,
but one or more partners thereof are solvent, the creditors may proceed both against the firm and against the solvent partner or partners, first
exhausting the assets of the firm before seizing the property of the partners. (Brandenburg of Bankcruptcy, sec. 108; De los Reyes vs. Lukban
and Borja [1916], 35 Phil., 757; Involuntary Insolvency of Campos Rueda & Co. vs. Pacific Commercial Co. [1922], 44 Phil., 916).
We reach the conclusion that the contract of partnership found in the document hereinbefore quoted established a general partnership or, to
be more exact, a partnership as this word is used in the Insolvency Law.
Wherefore, the order appealed from is reversed, and the record shall be returned to the court of origin for further proceedings pursuant to the
motion presented by the creditors, in conformity with the provisions of the Insolvency Law. Without special findings as to the costs in this
instance, it is ordered.
G.R. No. 76931 May 29, 1991
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
G.R. No. 76933 May 29, 1991
AMERICAN AIRLINES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, INCORPORATED,respondents.
PADILLA, J.:p
This case is a consolidation of two (2) petitions for review on certiorari of a decision
1
of the Court of Appeals in CA-G.R. No. CV-04294, entitled
"American Airlines, Inc. vs. Orient Air Services and Hotel Representatives, Inc." which affirmed, with modification, the decision
2
of the Regional
Trial Court of Manila, Branch IV, which dismissed the complaint and granted therein defendant's counterclaim for agent's overriding
commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier offering passenger and air cargo
transportation in the Philippines, and Orient Air Services and Hotel Representatives (hereinafter referred to as Orient Air), entered into a
General Sales Agency Agreement (hereinafter referred to as the Agreement), whereby the former authorized the latter to act as its exclusive
general sales agent within the Philippines for the sale of air passenger transportation. Pertinent provisions of the agreement are reproduced, to
wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the Philippines, including any
United States military installation therein which are not serviced by an Air Carrier Representation Office (ACRO), for the
sale of air passenger transportation. The services to be performed by Orient Air Services shall include:
(a) soliciting and promoting passenger traffic for the services of American and, if necessary,
employing staff competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of business to be used exclusively for the
transaction of the business of American;
(c) arranging for distribution of American's timetables, tariffs and promotional material to sales
agents and the general public in the assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents as may be appointed by
Orient Air Services with the prior written consent of American) in the assigned territory including if
required by American the control of remittances and commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general public in the
assigned territory.
In connection with scheduled or non-scheduled air passenger transportation within the United States, neither Orient Air
Services nor its sub-agents will perform services for any other air carrier similar to those to be performed hereunder for
American without the prior written consent of American. Subject to periodic instructions and continued consent from
American, Orient Air Services may sell air passenger transportation to be performed within the United States by other
scheduled air carriers provided American does not provide substantially equivalent schedules between the points
involved.
xxx xxx xxx
4. Remittances
Orient Air Services shall remit in United States dollars to American the ticket stock or exchange orders, less commissions
to which Orient Air Services is entitled hereunder, not less frequently than semi-monthly, on the 15th and last days of
each month for sales made during the preceding half month.
All monies collected by Orient Air Services for transportation sold hereunder on American's ticket stock or on exchange
orders, less applicable commissions to which Orient Air Services is entitled hereunder, are the property of American and
shall be held in trust by Orient Air Services until satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation sold hereunder by Orient Air Services or its sub-
agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of transportation by Orient Air Services or its
sub-agents over American's services and any connecting through air transportation, when made on American's ticket
stock, equal to the following percentages of the tariff fares and charges:
(i) For transportation solely between points within the United States and between such points and
Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic Conference of America.
(ii) For transportation included in a through ticket covering transportation between points other
than those described above: 8% or such other rate(s) as may be prescribed by the International Air
Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air Services an overriding commission of 3% of the tariff
fares and charges for all sales of transportation over American's service by Orient Air Service or its sub-agents.
xxx xxx xxx
10. Default
If Orient Air Services shall at any time default in observing or performing any of the provisions of this Agreement or shall
become bankrupt or make any assignment for the benefit of or enter into any agreement or promise with its creditors or
go into liquidation, or suffer any of its goods to be taken in execution, or if it ceases to be in business, this Agreement
may, at the option of American, be terminated forthwith and American may, without prejudice to any of its rights under
this Agreement, take possession of any ticket forms, exchange orders, traffic material or other property or funds
belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or resolutions of the International Air Transport
Association and the Air Traffic Conference of America, and such rules or resolutions shall control in the event of any
conflict with the provisions hereof.
xxx xxx xxx
13. Termination
American may terminate the Agreement on two days' notice in the event Orient Air Services is unable to transfer to the
United States the funds payable by Orient Air Services to American under this Agreement. Either party may terminate the
Agreement without cause by giving the other 30 days' notice by letter, telegram or cable.
xxx xxx xxx
3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing to promptly remit the net proceeds of
sales for the months of January to March 1981 in the amount of US $254,400.40, American Air by itself undertook the collection of the
proceeds of tickets sold originally by Orient Air and terminated forthwith the Agreement in accordance with Paragraph 13 thereof
(Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit against Orient Air with the Court of First Instance of Manila,
Branch 24, for Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining Order
4
averring the aforesaid
basis for the termination of the Agreement as well as therein defendant's previous record of failures "to promptly settle past outstanding
refunds of which there were available funds in the possession of the defendant, . . . to the damage and prejudice of plaintiff."
5

In its Answer
6
with counterclaim dated 9 July 1981, defendant Orient Air denied the material allegations of the complaint with respect to
plaintiff's entitlement to alleged unremitted amounts, contending that after application thereof to the commissions due it under the
Agreement, plaintiff in fact still owed Orient Air a balance in unpaid overriding commissions. Further, the defendant contended that the actions
taken by American Air in the course of terminating the Agreement as well as the termination itself were untenable, Orient Air claiming that
American Air's precipitous conduct had occasioned prejudice to its business interests.
Finding that the record and the evidence substantiated the allegations of the defendant, the trial court ruled in its favor, rendering a decision
dated 16 July 1984, the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of defendant and against
plaintiff dismissing the complaint and holding the termination made by the latter as affecting the GSA agreement illegal
and improper and order the plaintiff to reinstate defendant as its general sales agent for passenger tranportation in the
Philippines in accordance with said GSA agreement; plaintiff is ordered to pay defendant the balance of the overriding
commission on total flown revenue covering the period from March 16, 1977 to December 31, 1980 in the amount of
US$84,821.31 plus the additional amount of US$8,000.00 by way of proper 3% overriding commission per month
commencing from January 1, 1981 until such reinstatement or said amounts in its Philippine peso equivalent legally
prevailing at the time of payment plus legal interest to commence from the filing of the counterclaim up to the time of
payment. Further, plaintiff is directed to pay defendant the amount of One Million Five Hundred Thousand
(Pl,500,000.00) pesos as and for exemplary damages; and the amount of Three Hundred Thousand (P300,000.00) pesos
as and by way of attorney's fees.
Costs against plaintiff.
7

On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27 January 1986, affirmed the findings of the
court a quo on their material points but with some modifications with respect to the monetary awards granted. The dispositive portion of the
appellate court's decision is as follows:
WHEREFORE, with the following modifications
1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of the latter's overriding
commission covering the period March 16, 1977 to December 31, 1980, or its Philippine peso equivalent in accordance
with the official rate of exchange legally prevailing on July 10, 1981, the date the counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding commission per month starting
January 1, 1981 until date of termination, May 9, 1981 or its Philippine peso equivalent in accordance with the official rate
of exchange legally prevailing on July 10, 1981, the date the counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the answer with counterclaim
was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.
8

American Air moved for reconsideration of the aforementioned decision, assailing the substance thereof and arguing for its reversal. The
appellate court's decision was also the subject of a Motion for Partial Reconsideration by Orient Air which prayed for the restoration of the trial
court's ruling with respect to the monetary awards. The Court of Appeals, by resolution promulgated on 17 December 1986, denied American
Air's motion and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the trial court's award of
exemplary damages and attorney's fees, but granted insofar as the rate of exchange is concerned. The decision of January
27, 1986 is modified in paragraphs (1) and (2) of the dispositive part so that the payment of the sums mentioned therein
shall be at their Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on the date of
actual payment.
9

Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as petitioner in G.R. No. 76931 and American
Air as petitioner in G.R. No. 76933. By resolution
10
of this Court dated 25 March 1987 both petitions were consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding commission. It is the stand of American Air
that such commission is based only on sales of its services actually negotiated or transacted by Orient Air, otherwise referred to as "ticketed
sales." As basis thereof, primary reliance is placed upon paragraph 5(b) of the Agreement which, in reiteration, is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an overriding commission of 3% of the tariff
fees and charges for all sales of transportation over American's services by Orient Air Services or its sub-agents. (Emphasis
supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having opted to appoint any sub-agents, it is
American Air's contention that Orient Air can claim entitlement to the disputed overriding commission based only on ticketed sales. This is
supposed to be the clear meaning of the underscored portion of the above provision. Thus, to be entitled to the 3% overriding commission, the
sale must be made by Orient Air and the sale must be done with the use of American Air's ticket stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission covers the total revenue of American Air
and not merely that derived from ticketed sales undertaken by Orient Air. The latter, in justification of its submission, invokes its designation as
the exclusive General Sales Agent of American Air, with the corresponding obligations arising from such agency, such as, the promotion and
solicitation for the services of its principal. In effect, by virtue of such exclusivity, "all sales of transportation over American Air's services are
necessarily by Orient Air."
11

It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be taken into consideration to ascertain the
meaning of its provisions.
12
The various stipulations in the contract must be read together to give effect to all.
13
After a careful examination of
the records, the Court finds merit in the contention of Orient Air that the Agreement, when interpreted in accordance with the foregoing
principles, entitles it to the 3% overriding commission based on total revenue, or as referred to by the parties, "total flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the promotion and marketing of American Air's
services for air passenger transportation, and the solicitation of sales therefor. In return for such efforts and services, Orient Air was to be paid
commissions of two (2) kinds: first, a sales agency commission, ranging from 7-8% of tariff fares and charges from sales by Orient Air when
made on American Air ticket stock; and second, an overriding commission of 3% of tariff fares and charges for all sales of passenger
transportation over American Air services. It is immediately observed that the precondition attached to the first type of commission does not
obtain for the second type of commissions. The latter type of commissions would accrue for sales of American Air services made not on its
ticket stock but on the ticket stock of other air carriers sold by such carriers or other authorized ticketing facilities or travel agents. To rule
otherwise, i.e., to limit the basis of such overriding commissions to sales from American Air ticket stock would erase any distinction between
the two (2) types of commissions and would lead to the absurd conclusion that the parties had entered into a contract with meaningless
provisions. Such an interpretation must at all times be avoided with every effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that American Air was the party responsible for the
preparation of the Agreement. Consequently, any ambiguity in this "contract of adhesion" is to be taken "contra proferentem", i.e., construed
against the party who caused the ambiguity and could have avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code
provides that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity.
14
To put it differently, when several interpretations of a provision are otherwise equally proper, that interpretation or construction is
to be adopted which is most favorable to the party in whose favor the provision was made and who did not cause the ambiguity.
15
We
therefore agree with the respondent appellate court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be read against the party who
drafted it.
16

We now turn to the propriety of American Air's termination of the Agreement. The respondent appellate court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification from paragraph 4 of the Agreement,
Exh. F, which provides for remittances to American less commissions to which Orient is entitled, and from paragraph 5(d)
which specifically allows Orient to retain the full amount of its commissions. Since, as stated ante, Orient is entitled to the
3% override. American's premise, therefore, for the cancellation of the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier established, Orient Air was entitled to an overriding commission based
on total flown revenue. American Air's perception that Orient Air was remiss or in default of its obligations under the Agreement was, in fact, a
situation where the latter acted in accordance with the Agreementthat of retaining from the sales proceeds its accrued commissions before
remitting the balance to American Air. Since the latter was still obligated to Orient Air by way of such commissions. Orient Air was clearly
justified in retaining and refusing to remit the sums claimed by American Air. The latter's termination of the Agreement was, therefore, without
cause and basis, for which it should be held liable to Orient Air.
On the matter of damages, the respondent appellate court modified by reduction the trial court's award of exemplary damages and attorney's
fees. This Court sees no error in such modification and, thus, affirms the same.
It is believed, however, that respondent appellate court erred in affirming the rest of the decision of the trial court. We refer particularly to the
lower court's decision ordering American Air to "reinstate defendant as its general sales agent for passenger transportation in the Philippines in
accordance with said GSA Agreement."
By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to extend its personality to Orient Air.
Such would be violative of the principles and essence of agency, defined by law as a contract whereby "a person binds himself to render some
service or to do something in representation or on behalf of another, WITH THE CONSENT OR AUTHORITY OF THE LATTER .
17
(emphasis
supplied) In an agent-principal relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent,
by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a relationship can only be
effected with the consent of the principal, which must not, in any way, be compelled by law or by any court. The Agreement itself between the
parties states that "either party may terminate the Agreement without cause by giving the other 30 days' notice by letter, telegram or cable."
(emphasis supplied) We, therefore, set aside the portion of the ruling of the respondent appellate court reinstating Orient Air as general sales
agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution of the respondent Court of Appeals, dated 27
January 1986 and 17 December 1986, respectively. Costs against petitioner American Air.
SO ORDERED.
SECOND DIVISION
[G.R. No. 117356. June 19, 2000]
VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION, respondents.
D E C I S I O N
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision of the Court of Appeals
dated February 24, 1994, in CA-G.R. CV No. 31717, as well as the respondent court's resolution of September 30, 1994 modifying
said decision. Both decision and resolution amended the judgment dated February 13, 1991, of the Regional Trial Court of Makati
City, Branch 147, in Civil Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling Co., Inc., (VMC). In the course of
their dealings, petitioner issued several Shipping List/Delivery Receipts (SLDRs) to STM as proof of purchases. Among these was SLDR
No. 1214M, which gave rise to the instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag
contained 50 kilograms and priced at P638.00 per bag as "per sales order VMC Marketing No. 042 dated October 16, 1989."
[1]
The
transaction it covered was a "direct sale."
[2]
The SLDR also contains an additional note which reads: "subject for (sic) availability of a
(sic) stock at NAWACO (warehouse)."
[3]

On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights in SLDR No. 1214M for P
14,750,000.00. CSC issued one check dated October 25, 1989 and three checks postdated November 13, 1989 in payment. That
same day, CSC wrote petitioner that it had been authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed in
the letter were 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."
[4]

On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner as payee. The latter, in turn,
issued Official Receipt No. 33743 dated October 27, 1989 acknowledging receipt of the said checks in payment of 50,000 bags. Aside
from SLDR No. 1214M, said checks also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse and was allowed to withdraw sugar.
However, after 2,000 bags had been released, petitioner refused to allow further withdrawals of sugar against SLDR No. 1214M. CSC
then sent petitioner a letter dated January 23, 1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it
had been refused further withdrawals of sugar from petitioner's warehouse despite the fact that only 2,000 bags had been
withdrawn.
[5]
CSC thus inquired when it would be allowed to withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any further withdrawals of sugar against SLDR No. 1214M because
STM had already dwithdrawn all the sugar covered by the cleared checks.
[6]

On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's cleared checks had been fully
withdrawn and hence, there would be no more deliveries of the commodity to STM's account. Petitioner also noted that CSC had
represented itself to be STM's agent as it had withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 90-1118. Defendants were Teresita Ng
Sy (doing business under the name of St. Therese Merchandising) and herein petitioner. Since the former could not be served with
summons, the case proceeded only against the latter. During the trial, it was discovered that Teresita Ng Go who testified for CSC
was the same Teresita Ng Sy who could not be reached through summons.
[7]
CSC, however, did not bother to pursue its case against
her, but instead used her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No. 1214M. Therefore, the latter had no
justification for refusing delivery of the sugar. CSC prayed that petitioner be ordered to deliver the 23,000 bags covered by SLDR No.
1214M and sought the award of P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as
attorney's fees and litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags.
[8]
Since STM had already drawn in full all the
sugar corresponding to the amount of its cleared checks, it could no longer authorize further delivery of sugar to CSC. Petitioner also
contended that it had no privity of contract with CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere delivery receipts issued pursuant to
a series of transactions entered into between it and STM. The SLDRs prescribed delivery of the sugar to the party specified therein
and did not authorize the transfer of said party's rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-conspirator to defraud it through a
misrepresentation that CSC was an innocent purchaser for value and in good faith. Petitioner then prayed that CSC be ordered to
pay it the following sums: P10,000,000.00 as moral damages; P10,000,000.00 as exemplary damages; and P1,500,000.00 as
attorney's fees. Petitioner also prayed that cross-defendant STM be ordered to pay it P10,000,000.00 in exemplary damages, and
P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the case on the merits.
As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows:
"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against defendant
Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags of refined sugar due under SLDR
No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as unrealized profits, the amount of
P800,000.00 as exemplary damages and the amount of P1,357,000.00, which is 10% of the acquisition value of the
undelivered bags of refined sugar in the amount of P13,570,000.00, as attorney's fees, plus the costs.
"SO ORDERED."
[9]

It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the purchase price of P15,950,000.00 of the
25,000 bags of sugar bought by her covered by SLDR No. 1214 as well as the purchase price of P15,950,000.00 for the
25,000 bags of sugar bought by her covered by SLDR No. 1213 on the same date, October 16, 1989 (date of the two
SLDRs) is duly supported by Exhibits C to C-15 inclusive which are post-dated checks dated October 27, 1989 issued by St.
Therese Merchandising in favor of Victorias Milling Company at the time it purchased the 50,000 bags of sugar covered
by SLDR No. 1213 and 1214. Said checks appear to have been honored and duly credited to the account of Victorias
Milling Company because on October 27, 1989 Victorias Milling Company issued official receipt no. 34734 in favor of St.
Therese Merchandising for the amount of P31,900,000.00 (Exhibits B and B-1). The testimony of Teresita Ng Go is further
supported by Exhibit F, which is a computer printout of defendant Victorias Milling Company showing the quantity and
value of the purchases made by St. Therese Merchandising, the SLDR no. issued to cover the purchase, the official reciept
no. and the status of payment. It is clear in Exhibit 'F' that with respect to the sugar covered by SLDR No. 1214 the same
has been fully paid as indicated by the word 'cleared' appearing under the column of 'status of payment.'
"On the other hand, the claim of defendant Victorias Milling Company that the purchase price of the 25,000 bags of sugar
purchased by St. Therese Merchandising covered by SLDR No. 1214 has not been fully paid is supported only by the
testimony of Arnulfo Caintic, witness for defendant Victorias Milling Company. The Court notes that the testimony of
Arnulfo Caintic is merely a sweeping barren assertion that the purchase price has not been fully paid and is not
corroborated by any positive evidence. There is an insinuation by Arnulfo Caintic in his testimony that the postdated
checks issued by the buyer in payment of the purchased price were dishonored. However, said witness failed to present
in Court any dishonored check or any replacement check. Said witness likewise failed to present any bank record showing
that the checks issued by the buyer, Teresita Ng Go, in payment of the purchase price of the sugar covered by SLDR No.
1214 were dishonored."
[10]

Petitioner appealed the trial courts decision to the Court of Appeals.
On appeal, petitioner averred that the dealings between it and STM were part of a series of transactions involving only one account
or one general contract of sale. Pursuant to this contract, STM or any of its authorized agents could withdraw bags of sugar only
against cleared checks of STM. SLDR No. 21214M was only one of 22 SLDRs issued to STM and since the latter had already
withdrawn its full quota of sugar under the said SLDR, CSC was already precluded from seeking delivery of the 23,000 bags of sugar.
Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were separate and independent transactions
and that the details of the series of purchases were contained in a single statement with a consolidated summary of cleared check
payments and sugar stock withdrawals because this a more convenient system than issuing separate statements for each purchase.
The appellate court considered the following issues: (a) Whether or not the transaction between petitioner and STM involving SLDR
No. 1214M was a separate, independent, and single transaction; (b) Whether or not CSC had the capacity to sue on its own on SLDR
No. 1214M; and (c) Whether or not CSC as buyer from STM of the rights to 25,000 bags of sugar covered by SLDR No. 1214M could
compel petitioner to deliver 23,000 bags allegedly unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders defendant-appellant to:
"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M;
" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered bags of refined sugar, as attorneys
fees;
"3) Pay the costs of suit.
"SO ORDERED."
[11]

Both parties then seasonably filed separate motions for reconsideration.
In its resolution dated September 30, 1994, the appellate court modified its decision to read:
"WHEREFORE, the Court hereby modifies the assailed judgment and orders defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."
[12]

The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.
"Exhibit F' We relied upon in fixing the number of bags of sugar which remained undelivered as 12,586 cannot be made
the basis for such a finding. The rule is explicit that courts should consider the evidence only for the purpose for which it
was offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for this is to afford the party against whom the
evidence is presented to object thereto if he deems it necessary. Plaintiff-appellee is, therefore, correct in its argument
that Exhibit F' which was offered to prove that checks in the total amount of P15,950,000.00 had been cleared. (Formal
Offer of Evidence for Plaintiff, Records p. 58) cannot be used to prove the proposition that 12,586 bags of sugar remained
undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and Marianito L. Santos [TSN, 17 October
1990, pp. 16, 18, and 36]) presented by plaintiff-appellee was to the effect that it had withdrawn only 2,000 bags of sugar
from SLDR after which it was not allowed to withdraw anymore. Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id.,
p. 80) show that plaintiff-appellee had sent demand letters to defendant-appellant asking the latter to allow it to
withdraw the remaining 23,000 bags of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged that
sugar delivery to the STM corresponded only to the value of cleared checks; and that all sugar corresponded to cleared
checks had been withdrawn. Defendant-appellant did not rebut plaintiff-appellee's assertions. It did not present evidence
to show how many bags of sugar had been withdrawn against SLDR No. 1214M, precisely because of its theory that all
sales in question were a series of one single transaction and withdrawal of sugar depended on the clearing of checks paid
therefor.
"After a second look at the evidence, We see no reason to overturn the findings of the trial court on this point."
[13]

Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM's and private respondent's specially informing petitioner that
respondent was authorized by buyer STM to withdraw sugar against SLDR No. 1214M "for and in our (STM) behalf,"
(emphasis in the original) private respondent's withdrawing 2,000 bags of sugar for STM, and STM's empowering other
persons as its agents to withdraw sugar against the same SLDR No. 1214M, rendered respondent like the other persons,
an agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81 SCRA 252, and precluded it from subsequently
claiming and proving being an assignee of SLDR No. 1214M and from suing by itself for its enforcement because it was
conclusively presumed to be an agent (Sec. 2, Rule 131, Rules of Court) and estopped from doing so. (Art. 1431, Civil
Code).
" 2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding certain relevant and undisputed
facts which, had they been considered, would have shown that petitioner was not liable, except for 69 bags of sugar, and
which would justify review of its conclusion of facts by this Honorable Court.
" 3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285 and 1626 of the Civil Code when it
ruled that compensation applied only to credits from one SLDR or contract and not to those from two or more distinct
contracts between the same parties; and erred in denying petitioner's right to setoff all its credits arising prior to notice
of assignment from other sales or SLDRs against private respondent's claim as assignee under SLDR No. 1214M, so as to
extinguish or reduce its liability to 69 bags, because the law on compensation applies precisely to two or more distinct
contracts between the same parties (emphasis in the original).
"4. The Court of Appeals erred in concluding that the settlement or liquidation of accounts in Exh. F between petitioner
and STM, respondent's admission of its balance, and STM's acquiescence thereto by silence for almost one year did not
render Exh. `F' an account stated and its balance binding.
"5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No. 1214, namely, (a) its subject
matter being generic, and (b) the sale of sugar being subject to its availability at the Nawaco warehouse, made the sale
conditional and prevented STM or private respondent from acquiring title to the sugar; and the non-availability of sugar
freed petitioner from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded respondent from seeking judicial
reliefs (sic) from petitioner, its only remedy being against its assignor."
[14]

Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM and hence, estopped to sue
upon SLDR No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals erred in applying the law on compensation to the transaction under SLDR No.
1214M so as to preclude petitioner from offsetting its credits on the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar under SLDR No. 1214M was a
conditional sale or a contract to sell and hence freed petitioner from further obligations.
(4)....Whether or not the Court of Appeals committed an error of law in not applying the "clean hands doctrine" to
preclude CSC from seeking judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this issue for the first time on appeal. It is settled that an issue
which was not raised during the trial in the court below could not be raised for the first time on appeal as to do so would be
offensive to the basic rules of fair play, justice, and due process.
[15]
Nonetheless, the Court of Appeals opted to address this issue,
hence, now a matter for our consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against SLDR No. 1214M to show that the
latter was STM's agent. The pertinent portion of said letter reads:
"This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our behalf (stress
supplied) 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."
[16]

The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation
or on behalf of another, with the consent or authority of the latter."
It is clear from Article 1868 that the basis of agency is representation.
[17]
On the part of the principal, there must be an actual
intention to appoint
[18]
or an intention naturally inferable from his words or actions;
[19]
and on the part of the agent, there must be
an intention to accept the appointment and act on it,
[20]
and in the absence of such intent, there is generally no agency.
[21]
One factor
which most clearly distinguishes agency from other legal concepts is control; one person - the agent - agrees to act under the control
or direction of another - the principal. Indeed, the very word "agency" has come to connote control by the principal.
[22]
The control
factor, more than any other, has caused the courts to put contracts between principal and agent in a separate category.
[23]
The Court
of Appeals, in finding that CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is dependent upon the acts of the parties, the law makes no
presumption of agency, and it is always a fact to be proved, with the burden of proof resting upon the persons alleging
the agency, to show not only the fact of its existence, but also its nature and extent (Antonio vs. Enriquez [CA], 51 O.G.
3536]. Here, defendant-appellant failed to sufficiently establish the existence of an agency relation between plaintiff-
appellee and STM. The fact alone that it (STM) had authorized withdrawal of sugar by plaintiff-appellee "for and in our
(STM's) behalf" should not be eyed as pointing to the existence of an agency relation ...It should be viewed in the context
of all the circumstances obtaining. Although it would seem STM represented plaintiff-appellee as being its agent by the
use of the phrase "for and in our (STM's) behalf" the matter was cleared when on 23 January 1990, plaintiff-appellee
informed defendant-appellant that SLDFR No. 1214M had been "sold and endorsed" to it by STM (Exhibit I, Records, p.
78). Further, plaintiff-appellee has shown that the 25, 000 bags of sugar covered by the SLDR No. 1214M were sold and
transferred by STM to it ...A conclusion that there was a valid sale and transfer to plaintiff-appellee may, therefore, be
made thus capacitating plaintiff-appellee to sue in its own name, without need of joining its imputed principal STM as co-
plaintiff."
[24]

In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR form, and not an agent of STM.
Private respondent CSC was not subject to STM's control. The question of whether a contract is one of sale or agency depends on
the intention of the parties as gathered from the whole scope and effect of the language employed.
[25]
That the authorization given
to CSC contained the phrase "for and in our (STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention
of the parties.
[26]
That no agency was meant to be established by the CSC and STM is clearly shown by CSC's communication to
petitioner that SLDR No. 1214M had been "sold and endorsed" to it.
[27]
The use of the words "sold and endorsed" means that STM
and CSC intended a contract of sale, and not an agency. Hence, on this score, no error was committed by the respondent appellate
court when it held that CSC was not STM's agent and could independently sue petitioner.
On the second issue, proceeding from the theory that the transactions entered into between petitioner and STM are but serial parts
of one account, petitioner insists that its debt has been offset by its claim for STM's unpaid purchases, pursuant to Article 1279 of
the Civil Code.
[28]
However, the trial court found, and the Court of Appeals concurred, that the purchase of sugar covered by SLDR
No. 1214M was a separate and independent transaction; it was not a serial part of a single transaction or of one account contrary to
petitioner's insistence. Evidence on record shows, without being rebutted, that petitioner had been paid for the sugar purchased
under SLDR No. 1214M. Petitioner clearly had the obligation to deliver said commodity to STM or its assignee. Since said sugar had
been fully paid for, petitioner and CSC, as assignee of STM, were not mutually creditors and debtors of each other. No reversible
error could thereby be imputed to respondent appellate court when, it refused to apply Article 1279 of the Civil Code to the present
case.
Regarding the third issue, petitioner contends that the sale of sugar under SLDR No. 1214M is a conditional sale or a contract to sell,
with title to the sugar still remaining with the vendor. Noteworthy, SLDR No. 1214M contains the following terms and conditions:
"It is understood and agreed that by payment by buyer/trader of refined sugar and/or receipt of this document by the
buyer/trader personally or through a representative, title to refined sugar is transferred to buyer/trader and delivery to
him/it is deemed effected and completed (stress supplied) and buyer/trader assumes full responsibility therefore"
[29]

The aforequoted terms and conditions clearly show that petitioner transferred title to the sugar to the buyer or his assignee upon
payment of the purchase price. Said terms clearly establish a contract of sale, not a contract to sell. Petitioner is now estopped from
alleging the contrary. The contract is the law between the contracting parties.
[30]
And where the terms and conditions so stipulated
are not contrary to law, morals, good customs, public policy or public order, the contract is valid and must be upheld.
[31]
Having
transferred title to the sugar in question, petitioner is now obliged to deliver it to the purchaser or its assignee.
As to the fourth issue, petitioner submits that STM and private respondent CSC have entered into a conspiracy to defraud it of its
sugar. This conspiracy is allegedly evidenced by: (a) the fact that STM's selling price to CSC was below its purchasing price; (b) CSC's
refusal to pursue its case against Teresita Ng Go; and (c) the authority given by the latter to other persons to withdraw sugar against
SLDR No. 1214M after she had sold her rights under said SLDR to CSC. Petitioner prays that the doctrine of "clean hands" should be
applied to preclude CSC from seeking judicial relief. However, despite careful scrutiny, we find here the records bare of convincing
evidence whatsoever to support the petitioner's allegations of fraud. We are now constrained to deem this matter purely
speculative, bereft of concrete proof.
WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.