G.R. No.

L-11491 August 23, 1918

ANDRES QUIROGA, plaintiff-appellant,
vs.
PARSONS HARDWARE CO., defendant-appellee.
On January 24, 1911, in this city of manila, a contract in the
following tenor was entered into by and between the plaintiff, as
party of the first part, and J. Parsons (to whose rights and
obligations the present defendant later subrogated itself), as
party of the second part:
CONTRACT EXECUTED BY AND BETWEEN
ANDRES QUIROGA AND J. PARSONS, BOTH
MERCHANTS ESTABLISHED IN MANILA, FOR THE
EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE
VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive
right to sell his beds in the Visayan Islands to J. Parsons
under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to
Mr. Parsons for the latter's establishment in Iloilo, and
shall invoice them at the same price he has fixed for
sales, in Manila, and, in the invoices, shall make and
allowance of a discount of 25 per cent of the invoiced
prices, as commission on the sale; and Mr. Parsons shall
order the beds by the dozen, whether of the same or of
different styles.
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the
beds received, within a period of sixty days from the
date of their shipment.
(C) The expenses for transportation and shipment shall
be borne by M. Quiroga, and the freight, insurance,
and cost of unloading from the vessel at the point
where the beds are received, shall be paid by Mr.
Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should
request its payment, said payment when made shall be
considered as a prompt payment, and as such a
deduction of 2 per cent shall be made from the
amount of the invoice.
The same discount shall be made on the amount of
any invoice which Mr. Parsons may deem convenient
to pay in cash.
(E) Mr. Quiroga binds himself to give notice at least
fifteen days before hand of any alteration in price
which he may plan to make in respect to his beds, and
agrees that if on the date when such alteration takes
effect he should have any order pending to be served
to Mr. Parsons, such order shall enjoy the advantage of
the alteration if the price thereby be lowered, but shall
not be affected by said alteration if the price thereby
be increased, for, in this latter case, Mr. Quiroga
assumed the obligation to invoice the beds at the price
at which the order was given.
(F) Mr. Parsons binds himself not to sell any other kind
except the "Quiroga" beds.
ART. 2. In compensation for the expenses of
advertisement which, for the benefit of both
contracting parties, Mr. Parsons may find himself
obliged to make, Mr. Quiroga assumes the obligation
to offer and give the preference to Mr. Parsons in case
anyone should apply for the exclusive agency for any
island not comprised with the Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his
agency for the sale of "Quiroga" beds in all the towns of
the Archipelago where there are no exclusive agents,
and shall immediately report such action to Mr.
Quiroga for his approval.
ART. 4. This contract is made for an unlimited period,
and may be terminated by either of the contracting
parties on a previous notice of ninety days to the other
party.
Of the three causes of action alleged by the plaintiff in his
complaint, only two of them constitute the subject matter of this
appeal and both substantially amount to the averment that the
defendant violated the following obligations: not to sell the beds
at higher prices than those of the invoices; to have an open
establishment in Iloilo; itself to conduct the agency; to keep the
beds on public exhibition, and to pay for the advertisement
expenses for the same; and to order the beds by the dozen and
in no other manner. As may be seen, with the exception of the
obligation on the part of the defendant to order the beds by the
dozen and in no other manner, none of the obligations imputed
to the defendant in the two causes of action are expressly set
forth in the contract. But the plaintiff alleged that the defendant
was his agent for the sale of his beds in Iloilo, and that said
obligations are implied in a contract of commercial agency. The
whole question, therefore, reduced itself to a determination as
to whether the defendant, by reason of the contract
hereinbefore transcribed, was a purchaser or an agent of the
plaintiff for the sale of his beds.
In order to classify a contract, due regard must be given to its
essential clauses. In the contract in question, what was essential,
as constituting its cause and subject matter, is that the plaintiff
was to furnish the defendant with the beds which the latter
might order, at the price stipulated, and that the defendant was
to pay the price in the manner stipulated. The price agreed
upon was the one determined by the plaintiff for the sale of
these beds in Manila, with a discount of from 20 to 25 per cent,
according to their class. Payment was to be made at the end of
sixty days, or before, at the plaintiff's request, or in cash, if the
defendant so preferred, and in these last two cases an
additional discount was to be allowed for prompt payment.
These are precisely the essential features of a contract of
purchase and sale. There was the obligation on the part of the
plaintiff to supply the beds, and, on the part of the defendant, to
pay their price. These features exclude the legal conception of
an agency or order to sell whereby the mandatory or agent
received the thing to sell it, and does not pay its price, but
delivers to the principal the price he obtains from the sale of the
thing to a third person, and if he does not succeed in selling it, he
returns it. By virtue of the contract between the plaintiff and the
defendant, the latter, on receiving the beds, was necessarily
obliged to pay their price within the term fixed, without any other
consideration and regardless as to whether he had or had not
sold the beds.
It would be enough to hold, as we do, that the contract by and
between the defendant and the plaintiff is one of purchase and
sale, in order to show that it was not one made on the basis of a
commission on sales, as the plaintiff claims it was, for these
contracts are incompatible with each other. But, besides,
examining the clauses of this contract, none of them is found
that substantially supports the plaintiff's contention. Not a single
one of these clauses necessarily conveys the idea of an agency.
The words commission on sales used in clause (A) of article 1
mean nothing else, as stated in the contract itself, than a mere
discount on the invoice price. The word agency, also used in
articles 2 and 3, only expresses that the defendant was the only
one that could sell the plaintiff's beds in the Visayan Islands. With
regard to the remaining clauses, the least that can be said is
that they are not incompatible with the contract of purchase
and sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a
former vice-president of the defendant corporation and who
established and managed the latter's business in Iloilo. It appears
that this witness, prior to the time of his testimony, had serious
trouble with the defendant, had maintained a civil suit against it,
and had even accused one of its partners, Guillermo Parsons, of
falsification. He testified that it was he who drafted the contract
Exhibit A, and, when questioned as to what was his purpose in
contracting with the plaintiff, replied that it was to be an agent
for his beds and to collect a commission on sales. However,
according to the defendant's evidence, it was Mariano Lopez
Santos, a director of the corporation, who prepared Exhibit A.
But, even supposing that Ernesto Vidal has stated the truth, his
statement as to what was his idea in contracting with the plaintiff
is of no importance, inasmuch as the agreements contained in
Exhibit A which he claims to have drafted, constitute, as we
have said, a contract of purchase and sale, and not one of
commercial agency. This only means that Ernesto Vidal was
mistaken in his classification of the contract. But it must be
understood that a contract is what the law defines it to be, and
not what it is called by the contracting parties.
The plaintiff also endeavored to prove that the defendant had
returned beds that it could not sell; that, without previous notice,
it forwarded to the defendant the beds that it wanted; and that
the defendant received its commission for the beds sold by the
plaintiff directly to persons in Iloilo. But all this, at the most only
shows that, on the part of both of them, there was mutual
tolerance in the performance of the contract in disregard of its
terms; and it gives no right to have the contract considered, not
as the parties stipulated it, but as they performed it. Only the
acts of the contracting parties, subsequent to, and in
connection with, the execution of the contract, must be
considered for the purpose of interpreting the contract, when
such interpretation is necessary, but not when, as in the instant
case, its essential agreements are clearly set forth and plainly
show that the contract belongs to a certain kind and not to
another. Furthermore, the return made was of certain brass
beds, and was not effected in exchange for the price paid for
them, but was for other beds of another kind; and for the letter
Exhibit L-1, requested the plaintiff's prior consent with respect to
said beds, which shows that it was not considered that the
defendant had a right, by virtue of the contract, to make this
return. As regards the shipment of beds without previous notice,
it is insinuated in the record that these brass beds were precisely
the ones so shipped, and that, for this very reason, the plaintiff
agreed to their return. And with respect to the so-called
commissions, we have said that they merely constituted a
discount on the invoice price, and the reason for applying this
benefit to the beds sold directly by the plaintiff to persons in Iloilo
was because, as the defendant obligated itself in the contract
to incur the expenses of advertisement of the plaintiff's beds,
such sales were to be considered as a result of that
advertisement.
In respect to the defendant's obligation to order by the dozen,
the only one expressly imposed by the contract, the effect of its
breach would only entitle the plaintiff to disregard the orders
which the defendant might place under other conditions; but if
the plaintiff consents to fill them, he waives his right and cannot
complain for having acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by
and between the plaintiff and the defendant was one of
purchase and sale, and that the obligations the breach of which
is alleged as a cause of action are not imposed upon the
defendant, either by agreement or by law.
The judgment appealed from is affirmed, with costs against the
appellant. So ordered.

G.R. No. L-47538 June 20, 1941
GONZALO PUYAT & SONS, INC., petitioner,
vs.
ARCO AMUSEMENT COMPANY (formerly known as Teatro
Arco), respondent.
This is a petition for the issuance of a writ of certiorari to the Court
of Appeals for the purpose of reviewing its Amusement
Company (formerly known as Teatro Arco), plaintiff-appellant,
vs. Gonzalo Puyat and Sons. Inc., defendant-appellee."
It appears that the respondent herein brought an action against
the herein petitioner in the Court of First Instance of Manila to
secure a reimbursement of certain amounts allegedly overpaid
by it on account of the purchase price of sound reproducing
equipment and machinery ordered by the petitioner from the
Starr Piano Company of Richmond, Indiana, U.S.A. The facts of
the case as found by the trial court and confirmed by the
appellate court, which are admitted by the respondent, are as
follows:
In the year 1929, the "Teatro Arco", a corporation duly
organized under the laws of the Philippine Islands, with
its office in Manila, was engaged in the business of
operating cinematographs. In 1930, its name was
changed to Arco Amusement Company. C. S. Salmon
was the president, while A. B. Coulette was the business
manager. About the same time, Gonzalo Puyat & Sons,
Inc., another corporation doing business in the
Philippine Islands, with office in Manila, in addition to its
other business, was acting as exclusive agents in the
Philippines for the Starr Piano Company of Richmond,
Indiana, U.S. A. It would seem that this last company
dealt in cinematographer equipment and machinery,
and the Arco Amusement Company desiring to equipt
its cinematograph with sound reproducing devices,
approached Gonzalo Puyat & Sons, Inc., thru its then
president and acting manager, Gil Puyat, and an
employee named Santos. After some negotiations, it
was agreed between the parties, that is to say, Salmon
and Coulette on one side, representing the plaintiff,
and Gil Puyat on the other, representing the
defendant, that the latter would, on behalf of the
plaintiff, order sound reproducing equipment from the
Starr Piano Company and that the plaintiff would pay
the defendant, in addition to the price of the
equipment, a 10 per cent commission, plus all
expenses, such as, freight, insurance, banking charges,
cables, etc. At the expense of the plaintiff, the
defendant sent a cable, Exhibit "3", to the Starr Piano
Company, inquiring about the equipment desired and
making the said company to quote its price without
discount. A reply was received by Gonzalo Puyat &
Sons, Inc., with the price, evidently the list price of
$1,700 f.o.b. factory Richmond, Indiana. The defendant
did not show the plaintiff the cable of inquiry nor the
reply but merely informed the plaintiff of the price of
$1,700. Being agreeable to this price, the plaintiff, by
means of Exhibit "1", which is a letter signed by C. S.
Salmon dated November 19, 1929, formally authorized
the order. The equipment arrived about the end of the
year 1929, and upon delivery of the same to the
plaintiff and the presentation of necessary papers, the
price of $1.700, plus the 10 per cent commission agreed
upon and plus all the expenses and charges, was duly
paid by the plaintiff to the defendant.
Sometime the following year, and after some
negotiations between the same parties, plaintiff and
defendants, another order for sound reproducing
equipment was placed by the plaintiff with the
defendant, on the same terms as the first order. This
agreement or order was confirmed by the plaintiff by its
letter Exhibit "2", without date, that is to say, that the
plaintiff would pay for the equipment the amount of
$1,600, which was supposed to be the price quoted by
the Starr Piano Company, plus 10 per cent commission,
plus all expenses incurred. The equipment under the
second order arrived in due time, and the defendant
was duly paid the price of $1,600 with its 10 per cent
commission, and $160, for all expenses and charges.
This amount of $160 does not represent actual out-of-
pocket expenses paid by the defendant, but a mere
flat charge and rough estimate made by the
defendant equivalent to 10 per cent of the price of
$1,600 of the equipment.
About three years later, in connection with a civil case
in Vigan, filed by one Fidel Reyes against the
defendant herein Gonzalo Puyat & Sons, Inc., the
officials of the Arco Amusement Company discovered
that the price quoted to them by the defendant with
regard to their two orders mentioned was not the net
price but rather the list price, and that the defendants
had obtained a discount from the Starr Piano
Company. Moreover, by reading reviews and literature
on prices of machinery and cinematograph
equipment, said officials of the plaintiff were convinced
that the prices charged them by the defendant were
much too high including the charges for out-of-pocket
expense. For these reasons, they sought to obtain a
reduction from the defendant or rather a
reimbursement, and failing in this they brought the
present action.
The trial court held that the contract between the petitioner and
the respondent was one of outright purchase and sale, and
absolved that petitioner from the complaint. The appellate
court, however, by a division of four, with one justice
dissenting held that the relation between petitioner and
respondent was that of agent and principal, the petitioner
acting as agent of the respondent in the purchase of the
equipment in question, and sentenced the petitioner to pay the
respondent alleged overpayments in the total sum of $1,335.52
or P2,671.04, together with legal interest thereon from the date of
the filing of the complaint until said amount is fully paid, as well
as to pay the costs of the suit in both instances. The appellate
court further argued that even if the contract between the
petitioner and the respondent was one of purchase and sale,
the petitioner was guilty of fraud in concealing the true price
and hence would still be liable to reimburse the respondent for
the overpayments made by the latter.
The petitioner now claims that the following errors have been
incurred by the appellate court:
I. El Tribunal de Apelaciones incurrio en error de
derecho al declarar que, segun hechos, entre la
recurrente y la recurrida existia una relacion implicita
de mandataria a mandante en la transaccion de que
se trata, en vez de la de vendedora a compradora
como ha declarado el Juzgado de Primera Instncia de
Manila, presidido entonces por el hoy Magistrado
Honorable Marcelino Montemayor.
II. El Tribunal de Apelaciones incurrio en error de
derecho al declarar que, suponiendo que dicha
relacion fuerra de vendedora a compradora, la
recurrente obtuvo, mediante dolo, el consentimiento
de la recurrida en cuanto al precio de $1,700 y $1,600
de las maquinarias y equipos en cuestion, y condenar
a la recurrente ha obtenido de la Starr Piano Company
of Richmond, Indiana.
We sustain the theory of the trial court that the contract
between the petitioner and the respondent was one of
purchase and sale, and not one of agency, for the reasons now
to be stated.
In the first place, the contract is the law between the parties and
should include all the things they are supposed to have been
agreed upon. What does not appear on the face of the
contract should be regarded merely as "dealer's" or "trader's
talk", which can not bind either party. (Nolbrook v. Conner, 56
So., 576, 11 Am. Rep., 212; Bank v. Brosscell, 120 III., 161; Bank v.
Palmer, 47 III., 92; Hosser v. Copper, 8 Allen, 334; Doles v. Merrill,
173 Mass., 411.) The letters, Exhibits 1 and 2, by which the
respondent accepted the prices of $1,700 and $1,600,
respectively, for the sound reproducing equipment subject of its
contract with the petitioner, are clear in their terms and admit no
other interpretation that the respondent in question at the prices
indicated which are fixed and determinate. The respondent
admitted in its complaint filed with the Court of First Instance of
Manila that the petitioner agreed to sell to it the first sound
reproducing equipment and machinery. The third paragraph of
the respondent's cause of action states:
3. That on or about November 19, 1929, the herein
plaintiff (respondent) and defendant (petitioner)
entered into an agreement, under and by virtue of
which the herein defendant was to secure from the
United States, and sell and deliver to the herein plaintiff,
certain sound reproducing equipment and machinery,
for which the said defendant, under and by virtue of
said agreement, was to receive the actual cost price
plus ten per cent (10%), and was also to be reimbursed
for all out of pocket expenses in connection with the
purchase and delivery of such equipment, such as
costs of telegrams, freight, and similar expenses.
(Emphasis ours.)
We agree with the trial judge that "whatever unforseen events
might have taken place unfavorable to the defendant
(petitioner), such as change in prices, mistake in their quotation,
loss of the goods not covered by insurance or failure of the Starr
Piano Company to properly fill the orders as per specifications,
the plaintiff (respondent) might still legally hold the defendant
(petitioner) to the prices fixed of $1,700 and $1,600." This is
incompatible with the pretended relation of agency between
the petitioner and the respondent, because in agency, the
agent is exempted from all liability in the discharge of his
commission provided he acts in accordance with the instructions
received from his principal (section 254, Code of Commerce),
and the principal must indemnify the agent for all damages
which the latter may incur in carrying out the agency without
fault or imprudence on his part (article 1729, Civil Code).
While the latters, Exhibits 1 and 2, state that the petitioner was to
receive ten per cent (10%) commission, this does not necessarily
make the petitioner an agent of the respondent, as this provision
is only an additional price which the respondent bound itself to
pay, and which stipulation is not incompatible with the contract
of purchase and sale. (See Quiroga vs. Parsons Hardware Co., 38
Phil., 501.)
In the second place, to hold the petitioner an agent of the
respondent in the purchase of equipment and machinery from
the Starr Piano Company of Richmond, Indiana, is incompatible
with the admitted fact that the petitioner is the exclusive agent
of the same company in the Philippines. It is out of the ordinary
for one to be the agent of both the vendor and the purchaser.
The facts and circumstances indicated do not point to anything
but plain ordinary transaction where the respondent enters into
a contract of purchase and sale with the petitioner, the latter as
exclusive agent of the Starr Piano Company in the United States.
It follows that the petitioner as vendor is not bound to reimburse
the respondent as vendee for any difference between the cost
price and the sales price which represents the profit realized by
the vendor out of the transaction. This is the very essence of
commerce without which merchants or middleman would not
exist.
The respondents contends that it merely agreed to pay the cost
price as distinguished from the list price, plus ten per cent (10%)
commission and all out-of-pocket expenses incurred by the
petitioner. The distinction which the respondents seeks to draw
between the cost price and the list price we consider to be
spacious. It is to be observed that the twenty-five per cent (25%)
discount granted by the Starr piano Company to the petitioner is
available only to the latter as the former's exclusive agent in the
Philippines. The respondent could not have secured this discount
from the Starr Piano Company and neither was the petitioner
willing to waive that discount in favor of the respondent. As a
matter of fact, no reason is advanced by the respondent why
the petitioner should waive the 25 per cent discount granted it
by the Starr Piano Company in exchange for the 10 percent
commission offered by the respondent. Moreover, the petitioner
was not duty bound to reveal the private arrangement it had
with the Starr Piano Company relative to such discount to its
prospective customers, and the respondent was not even aware
of such an arrangement. The respondent, therefore, could not
have offered to pay a 10 per cent commission to the petitioner
provided it was given the benefit of the 25 per cent discount
enjoyed by the petitioner. It is well known that local dealers
acting as agents of foreign manufacturers, aside from obtaining
a discount from the home office, sometimes add to the list price
when they resell to local purchasers. It was apparently to guard
against an exhorbitant additional price that the respondent
sought to limit it to 10 per cent, and the respondent is estopped
from questioning that additional price. If the respondent later on
discovers itself at the short end of a bad bargain, it alone must
bear the blame, and it cannot rescind the contract, much less
compel a reimbursement of the excess price, on that ground
alone. The respondent could not secure equipment and
machinery manufactured by the Starr Piano Company except
from the petitioner alone; it willingly paid the price quoted; it
received the equipment and machinery as represented; and
that was the end of the matter as far as the respondent was
concerned. The fact that the petitioner obtained more or less
profit than the respondent calculated before entering into the
contract or reducing the price agreed upon between the
petitioner and the respondent. Not every concealment is fraud;
and short of fraud, it were better that, within certain limits,
business acumen permit of the loosening of the sleeves and of
the sharpening of the intellect of men and women in the
business world.
The writ of certiorari should be, as it is hereby, granted. The
decision of the appellate court is accordingly reversed and the
petitioner is absolved from the respondent's complaint in G. R.
No. 1023, entitled "Arco Amusement Company (formerly known
as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat & Sons,
Inc., defendants-appellee," without pronouncement regarding
costs. So ordered.

G.R. No. L-20871 April 30, 1971
KER & CO., LTD., petitioner,
vs.
JOSE B. LINGAD, as Acting Commissioner of Internal
Revenue, respondent.
Petitioner Ker & Co., Ltd. would have us reverse a decision of the
Court of Tax Appeals, holding it liable as a commercial broker
under Section 194 (t) of the National Internal Revenue Code. Its
plea, notwithstanding the vigorous effort of its counsel, is not
sufficiently persuasive. An obstacle, well-nigh insuperable stands
in the way. The decision under review conforms to and is in
accordance with the controlling doctrine announced in the
recent case of Commissioner of Internal Revenue v.
Constantino.
1
The decisive test, as therein set forth, is the
retention of the ownership of the goods delivered to the
possession of the dealer, like herein petitioner, for resale to
customers, the price and terms remaining subject to the control
of the firm consigning such goods. The facts, as found by
respondent Court, to which we defer, unmistakably indicate that
such a situation does exist. The juridical consequences must
inevitably follow. We affirm.
It was shown that petitioner was assessed by the then
Commissioner of Internal Revenue Melecio R. Domingo the sum
of P20,272.33 as the commercial broker's percentage tax,
surcharge, and compromise penalty for the period from July 1,
1949 to December 31, 1953. There was a request on the part of
petitioner for the cancellation of such assessment, which request
was turned down. As a result, it filed a petition for review with the
Court of Tax Appeals. In its answer, the then Commissioner
Domingo maintained his stand that petitioner should be taxed in
such amount as a commercial broker. In the decision now under
review, promulgated on October 19, 1962, the Court of Tax
Appeals held petitioner taxable except as to the compromise
penalty of P500.00, the amount due from it being fixed at
P19,772.33.
Such liability arose from a contract of petitioner with the United
States Rubber International, the former being referred to as the
Distributor and the latter specifically designated as the
Company. The contract was to apply to transactions between
the former and petitioner, as Distributor, from July 1, 1948 to
continue in force until terminated by either party giving to the
other sixty days' notice.
2
The shipments would cover products
"for consumption in Cebu, Bohol, Leyte, Samar, Jolo, Negros
Oriental, and Mindanao except [the] province of Davao",
petitioner, as Distributor, being precluded from disposing such
products elsewhere than in the above places unless written
consent would first be obtained from the Company.
3
Petitioner,
as Distributor, is required to exert every effort to have the
shipment of the products in the maximum quantity and to
promote in every way the sale thereof.
4
The prices, discounts,
terms of payment, terms of delivery and other conditions of sale
were subject to change in the discretion of the Company.
5

Then came this crucial stipulation: "The Company shall from time
to time consign to the Distributor and the Distributor will receive,
accept and/or hold upon consignment the products specified
under the terms of this agreement in such quantities as in the
judgment of the Company may be necessary for the successful
solicitation and maintenance of business in the territory, and the
Distributor agrees that responsibility for the final sole of all goods
delivered shall rest with him. All goods on consignment shall
remain the property of the Company until sold by the Distributor
to the purchaser or purchasers, but all sales made by the
Distributor shall be in his name, in which the sale price of all
goods sold less the discount given to the Distributor by the
Company in accordance with the provision of paragraph 13 of
this agreement, whether or not such sale price shall have been
collected by the Distributor from the purchaser or purchasers,
shall immediately be paid and remitted by the Distributor to the
Company. It is further agreed that this agreement does not
constitute Distributor the agent or legal representative 4 of the
Company for any purpose whatsoever. Distributor is not granted
any right or authority to assume or to create any obligation or
responsibility, express or implied, in behalf of or in the name of
the Company, or to bind the Company in any manner or thing
whatsoever."
6

All specifications for the goods ordered were subject to
acceptance by the Company with petitioner, as Distributor,
required to accept such goods shipped as well as to clear the
same through customs and to arrange for delivery in its
warehouse in Cebu City. Moreover, orders are to be filled in
whole or in part from the stocks carried by the Company's
neighboring branches, subsidiaries or other sources of
Company's brands.
7
Shipments were to be invoiced at prices to
be agreed upon, with the customs duties being paid by
petitioner, as Distributor, for account of the
Company.
8
Moreover, all resale prices, lists, discounts and
general terms and conditions of local resale were to be subject
to the approval of the Company and to change from time to
time in its discretion.
9
The dealer, as Distributor, is allowed a
discount of ten percent on the net amount of sales of
merchandise made under such agreement.
10
On a date to be
determined by the Company, the petitioner, as Distributor, was
required to report to it data showing in detail all sales during the
month immediately preceding, specifying therein the quantities,
sizes and types together with such information as may be
required for accounting purposes, with the Company rendering
an invoice on sales as described to be dated as of the date of
inventory and sales report. As Distributor, petitioner had to make
payment on such invoice or invoices on due date with the
Company being privileged at its option to terminate and cancel
the agreement forthwith upon the failure to comply with this
obligation.
11
The Company, at its own expense, was to keep the
consigned stock fully insured against loss or damage by fire or as
a result of fire, the policy of such insurance to be payable to it in
the event of loss. Petitioner, as Distributor, assumed full
responsibility with reference to the stock and its safety at all
times; and upon request of the Company at any time, it was to
render inventory of the existing stock which could be subject to
change.
12
There was furthermore this equally tell-tale covenant:
"Upon the termination or any cancellation of this agreement all
goods held on consignment shall be held by the Distributor for
the account of the Company, without expense to the
Company, until such time as provision can be made by the
Company for disposition."
13

The issue with the Court of Tax Appeals, as with us now, is
whether the relationship thus created is one of vendor and
vendee or of broker and principal. Not that there would have
been the slightest doubt were it not for the categorical denial in
the contract that petitioner was not constituted as "the agent or
legal representative of the Company for any purpose
whatsoever." It would be, however, to impart to such an express
disclaimer a meaning it should not possess to ignore what is
manifestly the role assigned to petitioner considering the
instrument as a whole. That would be to lose sight altogether of
what has been agreed upon. The Court of Tax Appeals was not
misled in the language of the decision now on appeal: "That the
petitioner Ker & Co., Ltd. is, by contractual stipulation, an agent
of U.S. Rubber International is borne out by the facts that
petitioner can dispose of the products of the Company only to
certain persons or entities and within stipulated limits, unless
excepted by the contract or by the Rubber Company (Par. 2);
that it merely receives, accepts and/or holds upon consignment
the products, which remain properties of the latter company
(Par. 8); that every effort shall be made by petitioner to promote
in every way the sale of the products (Par. 3); that sales made by
petitioner are subject to approval by the company (Par. 12); that
on dates determined by the rubber company, petitioner shall
render a detailed report showing sales during the month (Par.
14); that the rubber company shall invoice the sales as of the
dates of inventory and sales report (Par. 14); that the rubber
company agrees to keep the consigned goods fully insured
under insurance policies payable to it in case of loss (Par. 15);
that upon request of the rubber company at any time, petitioner
shall render an inventory of the existing stock which may be
checked by an authorized representative of the former (Par. 15);
and that upon termination or cancellation of the Agreement, all
goods held on consignment shall be held by petitioner for the
account of the rubber company until their disposition is provided
for by the latter (Par. 19). All these circumstances are
irreconcilably antagonistic to the idea of an independent
merchant."
14
Hence its conclusion: "However, upon analysis of
the contract, as a whole, together with the actual conduct of
the parties in respect thereto, we have arrived at the conclusion
that the relationship between them is one of brokerage or
agency."
15
We find ourselves in agreement, notwithstanding the
able brief filed on behalf of petitioner by its counsel. As noted at
the outset, we cannot heed petitioner's plea for reversal.
1. According to the National Internal Revenue Code, a
commercial broker "includes all persons, other than importers,
manufacturers, producers, or bona fide employees, who, for
compensation or profit, sell or bring about sales or purchases of
merchandise for other persons or bring proposed buyers and
sellers together, or negotiate freights or other business for owners
of vessels or other means of transportation, or for the shippers, or
consignors or consignees of freight carried by vessels or other
means of transportation. The term includes commission
merchants."
16
The controlling decision as to the test to be
followed as to who falls within the above definition of a
commercial broker is that of Commissioner of Internal Revenue v.
Constantino.
17
In the language of Justice J. B. L. Reyes, who
penned the opinion: "Since the company retained ownership of
the goods, even as it delivered possession unto the dealer for
resale to customers, the price and terms of which were subject
to the company's control, the relationship between the
company and the dealer is one of agency, ... ."
18
An excerpt
from Salisbury v. Brooks
19
cited in support of such a view follows: "
'The difficulty in distinguishing between contracts of sale and the
creation of an agency to sell has led to the establishment of
rules by the application of which this difficulty may be solved.
The decisions say the transfer of title or agreement to transfer it
for a price paid or promised is the essence of sale. If such transfer
puts the transferee in the attitude or position of an owner and
makes him liable to the transferor as a debtor for the agreed
price, and not merely as an agent who must account for the
proceeds of a resale, the transaction is a sale; while the essence
of an agency to sell is the delivery to an agent, not as his
property, but as the property of the principal, who remains the
owner and has the right to control sales, fix the price, and terms,
demand and receive the proceeds less the agent's commission
upon sales made.' "
20
The opinion relied on the work of Mechem
on Sales as well as Mechem on Agency. Williston and Tiedman
both of whom wrote treatises on Sales, were likewise referred to.
Equally relevant is this portion of the Salisbury opinion: "It is
difficult to understand or appreciate the necessity or presence
of these mutual requirements and obligations on any theory
other than that of a contract of agency. Salisbury was to furnish
the mill and put the timber owned by him into a marketable
condition in the form of lumber; Brooks was to furnish the funds
necessary for that purpose, sell the manufactured product, and
account therefor to Salisbury upon the specific terms of the
agreement, less the compensation fixed by the parties in lieu of
interest on the money advanced and for services as agent.
These requirements and stipulations are in tent with any other
conception of the contract. If it constitutes an agreement to sell,
they are meaningless. But they cannot be ignored. They were
placed there for some purpose, doubtless as the result of definite
antecedent negotiations therefore, consummated by the final
written expression of the agreement."
21
Hence the Constantino
opinion could categorically affirm that the mere disclaimer in a
contract that an entity like petitioner is not "the agent or legal
representative for any purpose whatsoever" does not suffice to
yield the conclusion that it is an independent merchant if the
control over the goods for resale of the goods consigned is
pervasive in character. The Court of Tax Appeals decision now
under review pays fealty to such an applicable doctrine.
2. No merit therefore attaches to the first error imputed by
petitioner to the Court of Tax Appeals. Neither did such Court fail
to appreciate in its true significance the act and conduct
pursued in the implementation of the contract by both the
United States Rubber International and petitioner, as was
contended in the second assignment of error. Petitioner ought to
have been aware that there was no need for such an inquiry.
The terms of the contract, as noted, speak quite clearly. There is
lacking that degree of ambiguity sufficient to give rise to serious
doubt as to what was contemplated by the parties. A reading
thereof discloses that the relationship arising therefrom was not
one of seller and purchaser. If it were thus intended, then it
would not have included covenants which in their totality would
negate the concept of a firm acquiring as vendee goods from
another. Instead, the stipulations were so worded as to lead to
no other conclusion than that the control by the United States
Rubber International over the goods in question is, in the
language of the Constantino opinion, "pervasive". The insistence
on a relationship opposed to that apparent from the language
employed might even yield the impression that such a mode of
construction was resorted to in order that the applicability of a
taxing statute might be rendered nugatory. Certainly, such a
result is to be avoided.
Nor is it to be lost sight of that on a matter left to the discretion of
the Court of Tax Appeals which has developed an expertise in
view of its function being limited solely to the interpretation of
revenue laws, this Court is not prepared to substitute its own
judgment unless a grave abuse of discretion is manifest. It would
be to frustrate the objective for which administrative tribunals
are created if the judiciary, absent such a showing, is to ignore
their appraisal on a matter that forms the staple of their
specialized competence. While it is to be admitted that counsel
for petitioner did scrutinize with care the decision under review
with a view to exposing what was considered its flaws, it cannot
be said that there was such a failure to apply what the law
commands as to call for its reversal. Instead, what cannot be
denied is that the Court of Tax Appeals reached a result to
which the Court in the recent Constantino decision gave the
imprimatur of its approval.
WHEREFORE, the Court of Tax Appeals decision of October 19,
1962 is affirmed. With costs against petitioner.

G.R. No. L-46658 May 13, 1991
PHILIPPINE NATIONAL BANK, petitioner,
vs.
HON. GREGORIO G. PINEDA, in his capacity as Presiding Judge
of the Court of First Instance of Rizal, Branch XXI and TAYABAS
CEMENT COMPANY, INC., respondents.
In this petition for certiorari, petitioner Philippine National Bank
(PNB) seeks to annul and set aside the orders dated March 4,
1977 and May 31, 1977 rendered in Civil Case No. 24422
1
of the
Court of First Instance of Rizal, Branch XXI, respectively granting
private respondent Tayabas Cement Company, Inc.'s
application for a writ of preliminary injunction to enjoin the
foreclosure sale of certain properties in Quezon City and Negros
Occidental and denying petitioner's motion for reconsideration
thereof.
In 1963, Ignacio Arroyo, married to Lourdes Tuason Arroyo (the
Arroyo Spouses), obtained a loan of P580,000.00 from petitioner
bank to purchase 60% of the subscribed capital stock, and
thereby acquire the controlling interest of private respondent
Tayabas Cement Company, Inc. (TCC).
2
As security for said
loan, the spouses Arroyo executed a real estate mortgage over
a parcel of land covered by Transfer Certificate of Title No. 55323
of the Register of Deeds of Quezon City known as the La Vista
property.
Thereafter, TCC filed with petitioner bank an application and
agreement for the establishment of an eight (8) year deferred
letter of credit (L/C) for $7,000,000.00 in favor of Toyo Menka
Kaisha, Ltd. of Tokyo, Japan, to cover the importation of a
cement plant machinery and equipment.
Upon approval of said application and opening of an L/C by
PNB in favor of Toyo Menka Kaisha, Ltd. for the account of TCC,
the Arroyo spouses executed the following documents to secure
this loan accommodation: Surety Agreement dated August 5,
1964
3
and Covenant dated August 6, 1964.
4

The imported cement plant machinery and equipment arrived
from Japan and were released to TCC under a trust receipt
agreement. Subsequently, Toyo Menka Kaisha, Ltd. made the
corresponding drawings against the L/C as scheduled. TCC,
however, failed to remit and/or pay the corresponding amount
covered by the drawings. Thus, on May 19, 1968, pursuant to the
trust receipt agreement, PNB notified TCC of its intention to
repossess, as it later did, the imported machinery and equipment
for failure of TCC to settle its obligations under the L/C.
5

In the meantime, the personal accounts of the spouses Arroyo,
which included another loan of P160,000.00 secured by a real
estate mortgage over parcels of agricultural land known as
Hacienda Bacon located in Isabela, Negros Occidental, had
likewise become due. The spouses Arroyo having failed to satisfy
their obligations with PNB, the latter decided to foreclose the
real estate mortgages executed by the spouses Arroyo in its
favor.
On July 18, 1975, PNB filed with the City Sheriff of Quezon City a
petition for extra-judicial foreclosure under Act 3138, as
amended by Act 4118 and under Presidential Decree No. 385 of
the real estate mortgage over the properties known as the La
Vista property covered by TCT No. 55323.
6
PNB likewise filed a
similar petition with the City Sheriff of Bacolod, Negros
Occidental with respect to the mortgaged properties located at
Isabela, Negros Occidental and covered by OCT No. RT 1615.
The foreclosure sale of the La Vista property was scheduled on
August 11, 1975. At the auction sale, PNB was the highest bidder
with a bid price of P1,000,001.00. However, when said property
was about to be awarded to PNB, the representative of the
mortgagor-spouses objected and demanded from the PNB the
difference between the bid price of P1,000,001.00 and the
indebtedness of P499,060.25 of the Arroyo spouses on their
personal account. It was the contention of the spouses Arroyo's
representative that the foreclosure proceedings referred only to
the personal account of the mortgagor spouses without
reference to the account of TCC.
To remedy the situation, PNB filed a supplemental petition on
August 13, 1975 requesting the Sheriff's Office to proceed with
the sale of the subject real properties to satisfy not only the
amount of P499,060.25 owed by the spouses Arroyos on their
personal account but also the amount of P35,019,901.49
exclusive of interest, commission charges and other expenses
owed by said spouses as sureties of TCC.
7
Said petition was
opposed by the spouses Arroyo and the other bidder, Jose L.
Araneta.
On September 12, 1975, Acting Clerk of Court and Ex-Officio
Sheriff Diana L. Dungca issued a resolution finding that the
questions raised by the parties required the reception and
evaluation of evidence, hence, proper for adjudication by the
courts of law. Since said questions were prejudicial to the holding
of the foreclosure sale, she ruled that her "Office, therefore,
cannot properly proceed with the foreclosure sale unless and
until there be a court ruling on the aforementioned issues."
8

Thus, in May, 1976, PNB filed with the Court of First Instance of
Quezon City, Branch V a petition for mandamus
9
against said
Diana Dungca in her capacity as City Sheriff of Quezon City to
compel her to proceed with the foreclosure sale of the
mortgaged properties covered by TCT No. 55323 in order to
satisfy both the personal obligation of the spouses Arroyo as well
as their liabilities as sureties of TCC.
10

On September 6, 1976, the petition was granted and Dungca
was directed to proceed with the foreclosure sale of the
mortgaged properties covered by TCT No. 55323 pursuant to Act
No. 3135 and to issue the corresponding Sheriff's Certificate of
Sale.
11

Before the decision could attain finality, TCC filed on September
14, 1976 before the Court of First Instance of Rizal, Pasig, Branch
XXI a
complaint
12
against PNB, Dungca, and the Provincial Sheriff of
Negros Occidental and Ex-Officio Sheriff of Bacolod City
seeking, inter alia, the issuance of a writ of preliminary injunction
to restrain the foreclosure of the mortgages over the La Vista
property and Hacienda Bacon as well as a declaration that its
obligation with PNB had been fully paid by reason of the latter's
repossession of the imported machinery and equipment.
13

On October 5, 1976, the CFI, thru respondent Judge Gregorio
Pineda, issued a restraining order
14
and on March 4, 1977,
granted a writ of preliminary injunction.
15
PNB's motion for
reconsideration was denied, hence this petition.
Petitioner PNB advances four grounds for the setting aside of the
writ of preliminary injunction, namely: a) that it contravenes P.D.
No. 385 which prohibits the issuance of a restraining order
against a government financial institution in any action taken by
such institution in compliance with the mandatory foreclosure
provided in Section 1 thereof; b) that the writ countermands a
final decision of a co-equal and coordinate court; c) that the
writ seeks to prohibit the performance of acts beyond the court's
territorial jurisdiction; and, d) private respondent TCC has not
shown any clear legal right or necessity to the relief of
preliminary injunction.
Private respondent TCC counters with the argument that P.D.
No. 385 does not apply to the case at bar, firstly because no
foreclosure proceedings have been instituted against it by PNB
and secondly, because its account under the L/C has been fully
satisfied with the repossession of the imported machinery and
equipment by PNB.
The resolution of the instant controversy lies primarily on the
question of whether or not TCC's liability has been extinguished
by the repossession of PNB of the imported cement plant
machinery and equipment.
We rule for the petitioner PNB. It must be remembered that PNB
took possession of the imported cement plant machinery and
equipment pursuant to the trust receipt agreement executed by
and between PNB and TCC giving the former the unqualified
right to the possession and disposal of all property shipped under
the Letter of Credit until such time as all the liabilities and
obligations under said letter had been discharged.
16
In the case
of Vintola vs. Insular Bank of Asia and America
17
wherein the
same argument was advanced by the Vintolas as entrustees of
imported seashells under a trust receipt transaction, we said:
Further, the VINTOLAS take the position that
their obligation to IBAA has been extinguished
inasmuch as, through no fault of their own,
they were unable to dispose of the seashells,
and that they have relinquished possession
thereof to the IBAA, as owner of the goods, by
depositing them with the Court.
The foregoing submission overlooks the nature
and mercantile usage of the transaction
involved. A letter of credit-trust receipt
arrangement is endowed with its own
distinctive features and characteristics. Under
that set-up, a bank extends a loan covered
by the Letter of Credit, with the trust receipt as
a security for the loan. In other words, the
transaction involves a loan feature
represented by the letter of credit, and a
security feature which is in the covering trust
receipt.
xxx xxx xxx
A trust receipt, therefore, is a security
agreement, pursuant to which a bank
acquires a "security interest" in the goods. It
secures an indebtedness and there can be no
such thing as security interest that secures no
obligation. As defined in our laws:
(h) "Security interest" means
a property interest in
goods, documents or
instruments to secure
performance of some
obligations of the entrustee
or of some third persons to
the entruster and includes
title, whether or not
expressed to be absolute,
whenever such title is in
substance taken or
retained for security only.
xxx xxx xxx
Contrary to the allegation of the VINTOLAS,
IBAA did not become the real owner of the
goods. It was merely the holder of a security
title for the advances it had made to the
VINTOLAS. The goods the VINTOLAS had
purchased through IBAA financing remain
their own property and they hold it at their
own risk. The trust receipt arrangement did not
convert the IBAA into an investor; the latter
remained a lender and creditor.
xxx xxx xxx
Since the IBAA is not the factual owner of the
goods, the VINTOLAS cannot justifiably claim
that because they have surrendered the
goods to IBAA and subsequently deposited
them in the custody of the court, they are
absolutely relieved of their obligation to pay
their loan because of their inability to dispose
of the goods. The fact that they were unable
to sell the seashells in question does not affect
IBAA's right to recover the advances it had
made under the Letter of Credit.
PNB's possession of the subject machinery and equipment being
precisely as a form of security for the advances given to TCC
under the Letter of Credit, said possession by itself cannot be
considered payment of the loan secured thereby. Payment
would legally result only after PNB had foreclosed on said
securities, sold the same and applied the proceeds thereof to
TCC's loan obligation. Mere possession does not amount to
foreclosure for foreclosure denotes the procedure adopted by
the mortgagee to terminate the rights of the mortgagor on the
property and includes the sale itself.
18

Neither can said repossession amount to dacion en pago.
Dation in payment takes place when property is alienated to the
creditor in satisfaction of a debt in money and the same is
governed by sales.
19
Dation in payment is the delivery and
transmission of ownership of a thing by the debtor to the creditor
as an accepted equivalent of the performance of the
obligation.
20
As aforesaid, the repossession of the machinery
and equipment in question was merely to secure the payment of
TCC's loan obligation and not for the purpose of transferring
ownership thereof to PNB in satisfaction of said loan. Thus,
no dacion en pago was ever accomplished.
Proceeding from this finding, PNB has the right to foreclose the
mortgages executed by the spouses Arroyo as sureties of TCC. A
surety is considered in law as being the same party as the debtor
in relation to whatever is adjudged touching the obligation of
the latter, and their liabilities are interwoven as to be
inseparable.
21
As sureties, the Arroyo spouses are primarily liable
as original promissors and are bound immediately to pay the
creditor the amount outstanding.
22

Under Presidential Decree No. 385 which took effect on January
31, 1974, government financial institutions like herein petitioner
PNB are required to foreclose on the collaterals and/or securities
for any loan, credit or accommodation whenever the
arrearages on such account amount to at least twenty percent
(20%) of the total outstanding obligations, including interests and
charges, as appearing in the books of account of the financial
institution concerned.
23
It is further provided therein that "no
restraining order, temporary or permanent injunction shall be
issued by the court against any government financial institution
in any action taken by such institution in compliance with the
mandatory foreclosure provided in Section 1 hereof, whether
such restraining order, temporary or permanent injunction is
sought by the borrower(s) or any third party or parties . . ."
24

It is not disputed that the foreclosure proceedings instituted by
PNB against the Arroyo spouses were in compliance with the
mandate of P.D. 385. This being the case, the respondent judge
acted in excess of his jurisdiction in issuing the injunction
specifically proscribed under said decree.
Another reason for striking down the writ of preliminary injunction
complained of is that it interfered with the order of a co-equal
and coordinate court. Since Branch V of the CFI of Rizal had
already acquired jurisdiction over the question of foreclosure of
mortgage over the La Vista property and rendered judgment in
relation thereto, then it retained jurisdiction to the exclusion of all
other coordinate courts over its judgment, including all incidents
relative to the control and conduct of its ministerial officers,
namely the sheriff thereof.
25
The foreclosure sale having been
ordered by Branch V of the CFI of Rizal, TCC should not have
filed injunction proceedings with Branch XXI of the same CFI, but
instead should have first sought relief by proper motion and
application from the former court which had exclusive
jurisdiction over the foreclosure proceeding.
26

This doctrine of non-interference is premised on the principle that
a judgment of a court of competent jurisdiction may not be
opened, modified or vacated by any court of concurrent
jurisdiction.
27

Furthermore, we find the issuance of the preliminary injunction
directed against the Provincial Sheriff of Negros Occidental and
ex-officio Sheriff of Bacolod City a jurisdictional faux pas as the
Courts of First Instance, now Regional Trial Courts, can only
enforce their writs of injunction within their respective designated
territories.
28

WHEREFORE, the instant petition is hereby granted. The assailed
orders are hereby set aside. Costs against private respondent.
G.R. No. 107898 December 19, 1995
MANUEL LIM and ROSITA LIM, petitioners,
vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
MANUEL LIM and ROSITA LIM, spouses, were charged before the
Regional Trial Court of Malabon with estafa on three (3) counts
under Art. 315, par. 2 (d), of The Revised Penal Code, docketed
as Crim. Cases Nos. 1696-MN to 1698-MN. The Informations
substantially alleged that Manuel and Rosita, conspiring
together, purchased goods from Linton Commercial Company,
Inc. (LINTON), and with deceit issued seven Consolidated Bank
and Trust Company (SOLIDBANK) checks simultaneously with the
delivery as payment therefor. When presented to the drawee
bank for payment the checks were dishonored as payment on
the checks had been stopped and/or for insufficiency of funds
to cover the amounts. Despite repeated notice and demand
the Lim spouses failed and refused to pay the checks or the
value of the goods.
On the basis of the same checks, Manuel and Rosita Lim were
also charged with seven (7) counts of violation of B.P. Blg. 22,
otherwise known as the Bouncing Checks Law, docketed as
Crim. Cases Nos. 1699-MN to 1705-MN. In substance, the
Informations alleged that the Lims issued the checks with
knowledge that they did not have sufficient funds or credit with
the drawee bank for payment in full of such checks upon
presentment. When presented for payment within ninety (90)
days from date thereof the checks were dishonored by the
drawee bank for insufficiency of funds. Despite receipt of notices
of such dishonor the Lims failed to pay the amounts of the
checks or to make arrangements for full payment within five (5)
banking days.
Manuel Lim and Rosita Lim are the president and treasurer,
respectively, of Rigi Bilt Industries, Inc. (RIGI). RIGI had been
transacting business with LINTON for years, the latter supplying
the former with steel plates, steel bars, flat bars and purlin sticks
which it uses in the fabrication, installation and building of steel
structures. As officers of RIGI the Lim spouses were allowed 30, 60
and sometimes even up to 90 days credit.
On 27 May 1983 the Lims ordered 100 pieces of mild steel plates
worth P51,815.00 from LINTON which were delivered on the same
day at their place of business at 666 7th Avenue, 8th Street,
Kalookan City. To pay LINTON for the delivery the Lims issued
SOLIDBANK Check No. 027700 postdated 3 September 1983 in
the amount of P51,800.00.
1

On 30 May 1983 the Lims ordered another 65 pieces of mild steel
plates worth P63,455.00 from LINTON which were delivered at
their place of business on the same day. They issued as payment
SOLIDBANK Check No. 027699 in the amount of P63,455.00
postdated 20 August 1983.
2

The Lim spouses also ordered 2,600 "Z" purlins worth P241,800.00
which were delivered to them on various dates, to wit: 15 and 22
April 1983; 11, 14, 20, 23, 25, 28 and 30 May 1983; and, 2 and 9
June 1983. To pay for the deliveries, they issued seven
SOLIDBANK checks, five of which were
Check No. Date of Issue Amount
027683 16 July 1983
P27,900.00
3

027684 23 July 1983
P27,900.00
4

027719 6 Aug. 1983
P32,550.00
5

027720 13 Aug. 1983
P27,900.00
6

027721 27 Aug. 1983
P37,200.00
7

William Yu Bin, Vice President and Sales Manager of LINTON,
testified that when those seven (7) checks were deposited with
the Rizal Commercial Banking Corporation they were dishonored
for "insufficiency of funds" with the additional notation "payment
stopped" stamped thereon. Despite demand Manuel and Rosita
refused to make good the checks or pay the value of the
deliveries.
Salvador Alfonso, signature verifier of SOLIDBANK, Grace Park
Branch, Kalookan City, where the Lim spouses maintained an
account, testified on the following transactions with respect to
the seven (7) checks:
CHECK NO. DATE PRESENTED REASON FOR
DISHONOR
027683 22 July 1983 Payment Stopped (PS)
8

027684 23 July 1983 PS and Drawn Against
Insufficient Fund (DAIF)
9

027699 24 Aug. 1983 PS and DAIF
10

027700 5 Sept. 1983 PS and DAIF
11

027719 9 Aug. 1983 DAIF
12

027720 16 Aug. 1983 PS and DAIF
13

027721 30 Aug. 1983 PS and DAIF
14

Manuel Lim admitted having issued the seven (7) checks in
question to pay for deliveries made by LINTON but denied that
his company's account had insufficient funds to cover the
amounts of the checks. He presented the bank ledger showing a
balance of P65,752.75. Also, he claimed that he ordered
SOLIDBANK to stop payment because the supplies delivered by
LINTON were not in accordance with the specifications in the
purchase orders.
Rosita Lim was not presented to testify because her statements
would only be corroborative.
On the basis of the evidence thus presented the trial court held
both accused guilty of estafa and violation of B.P. Blg. 22 in its
decision dated 25 January 1989. In Crim. Case No. 1696-MN they
were sentenced to an indeterminate penalty of six (6) years and
one (1) day of prision mayor as minimum to twelve (12) years
and one (1) day of reclusion temporal as maximum plus one (1)
year for each additional P10,000.00 with all the accessory
penalties provided for by law, and to pay the costs. They were
also ordered to indemnify LINTON in the amount of P241,800.00.
Similarly sentences were imposed in Crim. Cases Nos. 1697-MN
and 1698-MN except as to the indemnities awarded, which were
P63,455.00 and P51,800.00, respectively.
In Crim. Case No. 1699-MN the trial court sentenced both
accused to a straight penalty of one (1) year imprisonment with
all the accessory penalties provided for by law and to pay the
costs. In addition, they were ordered to indemnify LINTON in the
amount of P27,900.00. Again, similar sentences were imposed in
Crim. Cases Nos. 1700-MN to 1705-MN except for the indemnities
awarded, which were P32,550.00, P27,900.00, P27,900.00,
P63,455.00, P51,800.00 and P37,200.00 respectively.
15

On appeal, the accused assailed the decision as they imputed
error to the trial court as follows: (a) the regional Trial Court of
malabon had no jurisdiction over the cases because the
offenses charged ere committed outside its territory; (b) they
could not be held liable for estafa because the seven (7) checks
were issued by them several weeks after the deliveries of the
goods; and, (c) neither could they be held liable for violating
B.P. Blg. 22 as they ordered payment of the checks to be
stopped because the goods delivered were not those specified
by them, besides they had sufficient funds to pay the checks.
In the decision of 18 September 1992
16
respondent Court of
Appeals acquitted accused-appellants of estafa on the ground
that indeed the checks were not made in payment of an
obligation contracted at the time of their issuance. However it
affirmed the finding of the trial court that they were guilty of
having violated B.P. Blg. 22.
17
On 6 November 1992 their motion
for reconsideration was denied.
18

In the case at bench petitioners maintain that the prosecution
failed to prove that any of the essential elements of the crime
punishable under B.P. Blg. 22 was committed within the
jurisdiction of the Regional Trial Court of Malabon. They claim
that what was proved was that all the elements of the offense
were committed in Kalookan City. The checks were issued at
their place of business, received by a collector of LINTON, and
dishonored by the drawee bank, all in Kalookan City.
Furthermore, no evidence whatsoever supports the proposition
that they knew that their checks were insufficiently funded. In
fact, some of the checks were funded at the time of
presentment but dishonored nonetheless upon their instruction to
the bank to stop payment. In fine, considering that the checks
were all issued, delivered, and dishonored in Kalookan City, the
trial court of Malabon exceeded its jurisdiction when it tried the
case and rendered judgment thereon.
The petition has no merit. Section 1, par. 1, of B.P. Blg. 22 punishes
"[a]ny person who makes or draws and issues any check to
apply on account or for value, knowing at the time of issue that
he does not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its presentment,
which check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit or would have been dishonored
for the same reason had not the drawer, without any valid
reason, ordered the bank to stop payment . . ." The gravamen of
the offense is knowingly issuing a worthless check.
19
Thus, a
fundamental element is knowledge on the part of the drawer of
the insufficiency of his funds in
20
or credit with the drawee bank
for the payment of such check in full upon presentment. Another
essential element is subsequent dishonor of the check by the
drawee bank for insufficiency of funds or credit or would have
been dishonored for the same reason had not the drawer,
without any valid reason, ordered the bank to stop payment.
21

It is settled that venue in criminal cases is a vital ingredient of
jurisdiction.
22
Section 14, par. (a), Rule 110, of the Revised Rules
of Court, which has been carried over in Sec. 15, par. (a), Rule
110 of the 1985 Rules on Criminal Procedure, specifically
provides:
Sec. 14. Place where action is to be instituted.
(a) In all criminal prosecutions the action
shall be instituted and tried in the court of the
municipality or province wherein the offense
was committed or anyone of the essential
ingredients thereof took place.
If all the acts material and essential to the crime and requisite of
its consummation occurred in one municipality or territory, the
court therein has the sole jurisdiction to try the case.
23
There are
certain crimes in which some acts material and essential to the
crimes and requisite to their consummation occur in one
municipality or territory and some in another, in which event, the
court of either has jurisdiction to try the cases, it being
understood that the first court taking cognizance of the case
excludes the other.
24
These are the so-called transitory or
continuing crimes under which violation of B.P. Blg. 22 is
categorized. In other words, a person charged with a transitory
crime may be validly tried in any municipality or territory where
the offense was in part committed.
25

In determining proper venue in these cases, the following acts
material and essential to each crime and requisite to its
consummation must be considered: (a) the seven (7) checks
were issued to LINTON at its place of business in Balut, Navotas;
b) they were delivered to LINTON at the same place; (c) they
were dishonored in Kalookan City; and, (d) petitioners had
knowledge of the insufficiency of their funds in SOLIDBANK at the
time the checks were issued. Since there is no dispute that the
checks were dishonored in Kalookan City, it is no longer
necessary to discuss where the checks were dishonored.
Under Sec. 191 of the Negotiable Instruments Law the term "issue"
means the first delivery of the instrument complete in form to a
person who takes it as a holder. On the other hand, the term
"holder" refers to the payee or indorsee of a bill or note who is in
possession of it or the bearer thereof. In People v. Yabut
26
this
Court explained
. . . The place where the bills were written,
signed, or dated does not necessarily fix or
determine the place where they were
executed. What is of decisive importance is
the delivery thereof. The delivery of the
instrument is the final act essential to
its consummation as an obligation. An
undelivered bill or note is inoperative. Until
delivery, the contract is revocable. And the
issuance as well as the delivery of the check
must be to a person who takes it as a holder,
which means "(t)he payee or indorsee of a bill
or note, who is in possession of it, or the bearer
thereof." Delivery of the check signifies transfer
of possession, whether actual or constructive,
from one person to another with intent
to transfer titlethereto . . .
Although LINTON sent a collector who received the checks from
petitioners at their place of business in Kalookan City, they were
actually issued and delivered to LINTON at its place of business in
Balut, Navotas. The receipt of the checks by the collector of
LINTON is not the issuance and delivery to the payee in
contemplation of law. The collector was not the person who
could take the checks as a holder, i.e., as a payee or indorsee
thereof, with the intent to transfer title thereto. Neither could the
collector be deemed an agent of LINTON with respect to the
checks because he was a mere employee. As this Court further
explained in People v. Yabut
27

Modesto Yambao's receipt of the bad checks
from Cecilia Que Yabut or Geminiano Yabut,
Jr., in Caloocan City cannot, contrary to the
holding of the respondent Judges, be licitly
taken as delivery of the checks to the
complainant Alicia P. Andan at Caloocan
City to fix the venue there. He did not take
delivery of the checks as holder, i.e., as
"payee" or "indorsee." And there appears to
be no contract of agency between Yambao
and Andan so as to bind the latter for the acts
of the former. Alicia P. Andan declared in that
sworn testimony before the investigating fiscal
that Yambao is but her "messenger" or "part-
time employee." There was no special
fiduciary relationship that permeated their
dealings. For a contract of agency to exist,
the consent of both parties is essential. The
principal consents that the other party, the
agent, shall act on his behalf, and the agent
consents so as to act. It must exist as a fact.
The law makes no presumption thereof. The
person alleging it has the burden of proof to
show, not only the fact of its existence, but
also its nature and extent . . .
Section 2 of B.P. Blg. 22 establishes a prima facie evidence of
knowledge of insufficient funds as follows
The making, drawing and issuance of a check
payment of which is refused by the bank
because of insufficient funds in or credit with
such bank, when presented within ninety (90)
days from the date of the check, shall
be prima facie evidence of knowledge of
such insufficiency of funds or credit unless
such maker or drawer pays the holder thereof
the amount due thereon, or makes
arrangement for payment in full by the
drawee of such check within five (5) banking
days after receiving notice that such check
has not been paid by the drawee.
The prima facie evidence has not been overcome by petitioners
in the cases before us because they did not pay LINTON the
amounts due on the checks; neither did they make
arrangements for payment in full by the drawee bank within five
(5) banking days after receiving notices that the checks had not
been paid by the drawee bank. InPeople v. Grospe
28
citing
People v. Manzanilla
29
we held that ". . . knowledge on the part
of the maker or drawer of the check of the insufficiency of his
funds is by itself a continuing eventuality, whether the accused
be within one territory or another."
Consequently, venue or jurisdiction lies either in the Regional Trial
Court of Kalookan City or Malabon. Moreover, we ruled in the
same Grospe and Manzanilla cases as reiterated in Lim
v. Rodrigo
30
that venue or jurisdiction is determined by the
allegations in the Information. The Informations in the cases
under consideration allege that the offenses were committed in
the Municipality of Navotas which is controlling and sufficient to
vest jurisdiction upon the Regional Trial Court of Malabon.
31

We therefore sustain likewise the conviction of petitioners by the
Regional Trial Court of Malabon for violation of B.P. Blg. 22 thus
Accused-appellants claim that they ordered payment of
the checks to be stopped because the goods delivered
were not those specified by them. They maintain that they
had sufficient funds to cover the amount of the checks. The
records of the bank, however, reveal otherwise. The two
letters (Exhs. 21 and 22) dated July 23, and August 10, 1983
which they claim they sent to Linton Commercial,
complaining against the quality of the goods delivered by
the latter, did not refer to the delivery of mild steel plates
(6mm x 4 x 8) and "Z" purlins (16 x 7 x 2-1/2 mts) for which the
checks in question were issued. Rather, the letters referred
to B.1. Lally columns (Sch. #20), which were the subject of
other purchase orders.
It is true, as accused-appellants point out, that in a case
brought by them against the complainant in the Regional
Trial Court of Kalookan City (Civil Case No. C-10921) the
complainant was held liable for actual damages because
of the delivery of goods of inferior quality (Exh. 23). But the
supplies involved in that case were those of B.I. pipes, while
the purchases made by accused-appellants, for which they
issued the checks in question, were purchases of mild steel
plates and "Z" purlins.
Indeed, the only question here is whether accused-
appellants maintained funds sufficient to cover the amounts
of their checks at the time of issuance and presentment of
such checks. Section 3 of B.P. Blg. 22 provides that
"notwithstanding receipt of an order to stop payment, the
drawee bank shall state in the notice of dishonor that there
were no sufficient funds in or credit with such bank for the
payment in full of the check, if such be the fact."
The purpose of this provision is precisely to preclude the
maker or drawer of a worthless check from ordering the
payment of the check to be stopped as a pretext for the
lack of sufficient funds to cover the check.
In the case at bar, the notice of dishonor issued by the
drawee bank, indicates not only that payment of the check
was stopped but also that the reason for such order was
that the maker or drawer did not have sufficient funds with
which to cover the checks. . . . Moreover, the bank ledger
of accused-appellants' account in Consolidated Bank
shows that at the time the checks were presented for
encashment, the balance of accused-appellants' account
was inadequate to cover the amounts of the checks.
32
. . .
WHEREFORE, the decision of the Court of Appeals dated 18
September 1992 affirming the conviction of petitioners Manuel
Lim and Rosita Lim
In CA-G.R. CR No. 07277 (RTC Crim. Case No.
1699-MN); CA-G.R. CR No. 07278 (RTC Crim.
Case No. 1700-MN); CA-G.R. CR No. 07279
(RTC Crim. Case No. 1701-MN); CA-G.R. CR
No. 07280 (RTC Crim. Case No. 1702-MN); CA-
G.R. CR No. 07281 (RTC Crim. Case No. 1703-
MN); CA-G.R. CA No. 07282 (RTC Crim. Case
No. 1704-MN); and CA-G.R. CR No. 07283 (RTC
Crim Case No. 1705-MN), the Court finds the
accused-appellants
MANUEL LIM and ROSITA LIM guilty beyond
reasonable doubt of violation of Batas
Pambansa Bilang 22 and are hereby
sentenced to suffer a STRAIGHT PENALTY OF
ONE (1) YEAR IMPRISONMENT in each case,
together with all the accessory penalties
provided by law, and to pay the costs.
In CA-G.R. CR No. 07277 (RTC Crim. Case No.
1699-MN), both accused-appellants are
hereby ordered to indemnify the offended
party in the sum of P27,900.00.
In CA-G.R. CR No. 07278 (RTC Crim. Case No.
1700-MN) both accused-appellants are
hereby ordered to indemnify the offended
party in the sum of P32,550.00.
In CA-G.R. CR No. 07278 (RTC Crim. Case No.
1701-MN) both accused-appellants are
hereby ordered to indemnify the offended
party in the sum of P27,900.00.
In CA-G.R. CR No. 07280 (RTC Crim. Case No.
1702-MN) both accused-appellants are
hereby ordered to indemnify the offended
party in the sum of P27,900.00.
In CA-G.R. CR No. 07281 (RTC Crim. Case No.
1703-MN) both accused are hereby ordered
to indemnify the offended party in the sum of
P63,455.00.
In CA-G.R CR No. 07282 (RTC Crim. Case No.
1704-MN) both accused-appellants are
hereby ordered to indemnify the offended
party in the sum of P51,800.00, and
In CA-G.R. CR No. 07283 (RTC Crim. Case No.
1705-MN) both accused-appellants are
hereby ordered to indemnify the offended
party in the sum of P37,200.00
33

as well as its resolution of 6 November 1992 denying
reconsideration thereof, is AFFIRMED. Costs against
petitioners.
SO ORDERED.
CANVASS