CMS Logging, Inc. vs. Court of Appeals

An agency is revoked by operation of law when the principal directly manages the business entrusted to the agent by dealing directly with third persons. Such revocation extinguishes the agent's right to compensation for transactions the principal undertakes independently, absent proof the principal acted to evade commission payments.

CMS Logging, Inc. (CMS), a forest concessionaire, appointed D.R. Aguinaldo Corporation (DRACOR) as its exclusive export and sales agent for all logs it produced for a five-year period, with DRACOR to receive a 5% commission. During the agency, CMS discovered that DRACOR used a Japanese firm, Shinko Trading Co., Ltd., as a sub-agent, for which Shinko received a separate commission of U.S. $1.00 per 1,000 board feet from the Japanese buyers. CMS contended this constituted double compensation for DRACOR and sued to recover the amount. Subsequently, CMS sold and shipped logs directly to Japanese firms without DRACOR's intervention.

• Parties and Contract: CMS Logging, Inc. (principal) and D.R. Aguinaldo Corporation (agent) entered into a five-year exclusive agency contract for the export and sale of CMS's logs. DRACOR was to receive a 5% commission on gross sales.
• The Shinko Commission: CMS's officers discovered in Japan that DRACOR used Shinko Trading as a sub-agent. Shinko received a commission of U.S. $1.00 per 1,000 board feet from the Japanese buyers (e.g., Toyo Menka Kaisha, Ltd.), totaling U.S. $77,264.67. CMS claimed this was a violation of their agreement and amounted to double compensation for DRACOR.
• Direct Sales by CMS: After this discovery, CMS sold logs directly to several Japanese firms, valued at U.S. $739,321.13, without DRACOR's intervention.
• Lower Court Proceedings: The trial court dismissed CMS's complaint for failure to prove Shinko received the commission. It also dismissed DRACOR's counterclaim for commission on the direct sales, finding DRACOR had waived its right in a letter. Only CMS appealed to the Court of Appeals.
• Appellate Court Finding: The Court of Appeals affirmed the dismissal of the complaint, agreeing that CMS failed to prove by competent evidence that Shinko collected the commissions. It also reversed the trial court on the counterclaim, finding DRACOR was entitled to its 5% commission on CMS's direct sales.

• Admissibility of Testimony: Petitioner CMS argued that the testimony of its general manager, Atty. Dominguez, regarding Shinko's admission that it collected commissions, was admissible against DRACOR because Shinko was DRACOR's agent.
• Admission by Silence: CMS contended that DRACOR's failure to reply to a letter from CMS's president (dated February 6, 1962) alleging the Shinko commission constituted an admission by silence under the Rules of Court.
• Admission in Memorandum: CMS maintained that a memorandum from DRACOR's chief legal counsel (Exhibit "K") contained an admission that Shinko collected the commission.
• Right to Commission on Direct Sales: CMS argued that DRACOR was not entitled to its 5% commission on the logs CMS sold directly to Japanese buyers, as those sales were made without DRACOR's intervention.
• Fraud and Bad Faith: CMS alleged that DRACOR was guilty of fraud and bad faith in its dealings.

• Lack of Competent Evidence: Respondent DRACOR countered that CMS presented no competent evidence to prove Shinko actually received the alleged commissions from the buyers.
• Hearsay Nature of Evidence: DRACOR argued that the testimony about Shinko's admission and the letter from a buyer's representative were hearsay and inadmissible.
• Entitlement to Commission: DRACOR argued that it was entitled to its 5% commission on all sales, including those made directly by CMS, as the exclusive agent under the contract.
• No Fraud or Bad Faith: DRACOR denied any fraudulent acts or bad faith.

• Hearsay and Proof: Whether the testimony and documentary evidence presented by CMS to prove that Shinko Trading received commissions from the Japanese buyers were admissible and sufficient.
• Implied Admission: Whether DRACOR's failure to reply to the letter of February 6, 1962, constituted an admission that Shinko received the commissions.
• Revocation of Agency and Commission: Whether CMS's direct sales to Japanese buyers revoked the agency contract and whether DRACOR was still entitled to its commission on those sales.

• Hearsay and Proof: The evidence was insufficient. The testimony about Shinko's out-of-court admission was hearsay, as Shinko's officers were not presented for cross-examination. Similarly, the letter from the buyer's representative was hearsay. The other documents cited (memoranda, letters) did not constitute clear, categorical admissions that Shinko received the commissions from the sale of CMS's logs.
• Implied Admission: No admission by silence occurred. The evidence showed DRACOR did reply to CMS's letter through its manager, F.A. Novenario, who stated DRACOR had no knowledge of any payment from the buyer to Shinko.
• Revocation of Agency and Commission: The direct sales by CMS constituted an implied revocation of the agency. Pursuant to Article 1924 of the Civil Code, an agency is revoked if the principal directly deals with third persons. Since CMS sold logs directly to Japanese firms, the agency was revoked by operation of law. As a general rule, the agent is not entitled to damages for such revocation, and the exception (revocation to evade commission) did not apply. Therefore, DRACOR had no right to retain or claim commissions from those direct sales.

• Revocation of Agency by Operation of Law (Article 1924, Civil Code) — An agency is deemed revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons. This revocation is implied and occurs by force of law, regardless of any stipulated agency period. The agent's right to compensation for transactions the principal undertakes independently is extinguished, unless the principal's act was motivated by a desire to evade the payment of the agent's commission.

• "The principal may revoke a contract of agency at will, and such revocation may be express, or implied, and may be availed of even if the period fixed in the contract of agency has not yet expired." — Reiterates the principal's absolute right to revoke an agency.
• "Since the contract of agency was revoked by CMS when it sold its logs to Japanese firms without the intervention of DRACOR, the latter is no longer entitled to its commission from the proceeds of such sale..." — Applies Article 1924 to the facts, linking direct dealing to revocation and loss of commission.

• New Manila Lumber Company, Inc. vs. Republic of the Philippines, 107 Phil. 824 (1960) — Cited as controlling precedent where a principal's act of directly collecting payments entrusted to an agent was held to constitute revocation of the agency.
• Barretto vs. Santa Marina, 26 Phil. 440 — Cited for the principle that a principal may revoke an agency even before the expiration of the stipulated period.
• Infante vs. Cunanan, 93 Phil. 691 — Cited for the exception that damages may be awarded to an agent if the revocation was made to evade payment of the commission.

• Article 1924, Civil Code of the Philippines — Provides that the agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons. This was the controlling legal basis for the ruling on revocation.
• Article 1920, Civil Code of the Philippines — Cited for the general rule that the principal may revoke the agency at will.
• Section 23, Rule 130, Rules of Court — Invoked by petitioner regarding admission by silence; the Court found it inapplicable as a reply was made.

Chief Justice Narvasa, Justice Padilla, and Justice Regalado concurred.

N/A. The decision was unanimous on the issues presented in the petition. The internal voting within the Court of Appeals (3-2) is noted in the footnotes but is not part of the Supreme Court's ruling.