Teofila del Rosario de Costa and Bernardo Costa vs. La Badenia

Where a corporation entrusts its general agent with broad authority over a selling agency and recognizes the claimant as an agent or subagent operating under that agent's supervision, the corporation is bound by the general agent's settlement of accounts and cannot repudiate it absent proof that the agent exceeded his authority.

La Badenia, a corporation engaged in the manufacture and sale of tobacco products, maintained its head office in Manila. In 1911, as a new concern, it inaugurated an extensive selling campaign to introduce its products to the retail trade. Celestino Aragon, its general agent for Albay, Sorsogon, and other provinces in the southern end of Luzon, established a central distributing agency or depot at Legaspi. Teofila del Rosario de Costa was nominally in charge of that agency, while her husband, Bernardino Costa, appears to have been its actual manager.

Teofila del Rosario de Costa and her husband, Bernardino Costa, resided in Legaspi, Albay. La Badenia was a corporation engaged in the manufacture and sale of tobacco products, with its head office in Manila. In 1911, La Badenia, then a new concern, inaugurated an extensive selling campaign to introduce its products to the retail trade. Celestino Aragon, its general agent for Albay, Sorsogon, and other provinces in the southern end of Luzon, established a central distributing agency or depot at Legaspi, with Teofila nominally in charge, though Bernardino appears to have been the actual manager. The business relations between the plaintiffs and La Badenia extended from February 1, 1911, to March 24, 1912, and during that time no settlement of their accounts was ever had. When Aragon came to Legaspi in 1911, he established his headquarters there, resided with the plaintiffs, and used the lower part of their house as a store room or depository for large quantities of cigarettes and cigars. He employed solicitors and paid their salaries, paid the internal revenue fees incident to the business in Legaspi, and paid the rent of the building in which he lived with the plaintiffs and which he used as the general headquarters for the agency. Business amounting to more than P24,000 (wholesale) was done by the Legaspi agency during the period from February 1, 1911, to March 24, 1912.

All goods sent to Legaspi were charged by the Manila head office against Aragon, while on the books kept by Aragon those goods were charged against the plaintiffs; as goods were withdrawn by Aragon himself, he credited the amount of the withdrawals to the plaintiffs' account. The Legaspi business was a distributing agency actively in charge of the plaintiffs but under the close supervision of the general agent. Goods were withdrawn from the Legaspi depository from time to time by Aragon for shipment to other points, and goods were likewise withdrawn by the plaintiffs and shipped to neighboring towns without any intervention by Aragon. All accounts incident to the business were carried on Aragon's books; the plaintiffs do not appear to have kept a separate set of books. The account as carried on Aragon's books was between Teofila del Rosario de Costa and La Badenia. On March 24, 1912, Aragon had a settlement with the plaintiffs and acknowledged over his signature that the books showed a balance in favor of the plaintiffs amounting to P1,795.25. Both Aragon and Teofila confirmed it as a true statement of the account. La Badenia refused to pay the balance, claiming that the plaintiffs had been improperly allowed a credit of P1,850.68 representing unpaid accounts due the Legaspi business for cigars and cigarettes sold by it. If those uncollected claims were charged to La Badenia, a balance remained in favor of the plaintiffs amounting to P1,795.25; if charged to the plaintiffs, a balance remained in favor of La Badenia amounting to P55.43.

La Badenia contended that the plaintiffs were simply merchants who purchased goods at fixed wholesale prices and sold them on their own account, and that they were never employed as agents. The plaintiffs contended that they were agents of La Badenia, that they received commissions on sales made by the agency, and that they were authorized to extend a reasonable credit under the supervision of the general agent. The precise terms of the arrangement made by Aragon with the plaintiffs were not clear from the record, but it was not denied that Aragon was acting as La Badenia's general agent and that he was invested with authority to inaugurate and carry out a selling campaign to interest the sale of La Badenia's products in his assigned territory. The record did not show what limitations, if any, were placed upon his powers to act for the corporation. The general conduct of the selling campaign entrusted to him was approved and commended by the head office, and, judging from the amount of sales, the business appears to have been very prosperous for the corporation. The head office in Manila was fully informed of the plaintiffs' relations with the general agent in extending the sales of its products. The plaintiffs made direct remittances to the head office, which were credited to the account of the Legaspi agency, and acknowledgment was made directly to the plaintiffs. Neither the head office nor Aragon made any distinction between the business done by Aragon and that done by the plaintiffs. The purchases, sales, and remittances made by the plaintiffs were not considered those of an independent business concern but rather a part of the work of the Legaspi agency under the control and supervision of Aragon. La Badenia carried the Legaspi account in the name of Aragon and carried no account with the plaintiffs.

The assistant manager of La Badenia wrote to Bernardino Costa on October 9, 1911, acknowledging receipt of two letters enclosing two drafts—No. 528 c/ Ang Siliong for P200 and No. 1240 c/ Smith, Bell & Co. for P980, totaling P1,180—and stating that the sum had been credited on the account current of Celestino Aragon; the letter also acknowledged receipt of a bill of lading for eight packages. In a letter dated September 19, 1911, the assistant manager acknowledged receipt of Bernardino's letter and stated that, by the steamer Cebu, La Badenia was sending three boxes of small cigars for "the agency in your charge." Several other letters from La Badenia were offered in evidence, but these two were sufficient to show that La Badenia was fully aware of the plaintiffs' connection with the Legaspi agency, recognized them as agents of the company, and did not consider them independent merchants buying solely on their own account, but rather subagents working under Aragon's supervision. Aragon likewise did not consider the plaintiffs independent merchants operating on their own account, but agents cooperating with him under his supervision. His books credited the plaintiffs for advertising expenses, the free distribution of cigars and cigarettes for advertising purposes, freight and carriage charges on shipments to neighboring towns, and similar items, which would not likely have been allowed if the plaintiffs had been conducting the business solely on their own account. Aragon extended credit to certain purchasers and knew that the plaintiffs were also extending credit to some purchasers. He approved the very items now questioned when, as general agent, he signed the statement of account showing a balance of P1,795.25 in favor of the plaintiffs. He thereby admitted that he, at least, considered those outstanding claims properly chargeable against La Badenia, and unless the plaintiffs had been specifically authorized by him to extend credit, it seemed certain that he would never have approved the balance in their favor.

The trial court was of the opinion that the specific goods sold to the delinquent debtors whose unpaid accounts formed the basis of the litigation had already been paid for by the plaintiffs, and that this was conclusive evidence that the plaintiffs were not acting as agents of La Badenia; it further viewed the suit as an attempt to recover back money already paid for goods purchased and sold by the plaintiffs. The plan under which the business was conducted was as follows: a shipment of cigars and cigarettes was made from Manila and charged against Aragon's account; the goods were deposited in the Legaspi store room and, in the account carried by Aragon, charged against the plaintiffs. Withdrawals were made from the Legaspi stock by Aragon and the plaintiffs, and credit was given to the plaintiffs for the amount of Aragon's withdrawals. Both Aragon and the plaintiffs drew on the Legaspi stock for advertising purposes, and the plaintiffs were credited with the value of the goods so withdrawn. The stock on hand was replenished from time to time by new shipments from Manila. The plaintiffs made remittances to Manila which were credited to the account of the Legaspi agency, and that account included not only goods sold and withdrawn from stock by the plaintiffs but also goods withdrawn by Aragon. The remittances were therefore not payments for any particular shipments but simply payments on account covering goods sold by Aragon as well as those sold by the plaintiffs. Under this method, a balance for or against the plaintiffs might well remain at any time, and such a balance would not be determined solely by the value of goods withdrawn by the plaintiffs and their remittances, but by the total value of the Legaspi agency stock charged against the plaintiffs and the amounts allowed them as credits. La Badenia also contended that the goods were charged to the plaintiffs at wholesale prices and that the plaintiffs were to have as profits any amounts received over and above the wholesale cost price, which it urged indicated independent merchants. The record showed that in many instances the plaintiffs were allowed commissions on sales made by them, though whether these were in addition to other profits did not appear.

• Agency Relationship: Plaintiffs-appellants contended that they were the agents of La Badenia, not independent merchants, and that they operated the Legaspi agency under the supervision of general agent Aragon.
• Commissions and Credit Authority: Plaintiffs maintained that they received commissions on sales made by the agency and were authorized to extend a reasonable credit under the supervision of the general agent.
• Recovery of Confirmed Balance: Plaintiffs brought the action to recover P1,795.25, the balance alleged to be due Teofila del Rosario de Costa as agent for services rendered and expenses incurred in the sale of La Badenia's products.
• Binding Effect of Settlement: Plaintiffs relied on the March 24, 1912 settlement confirmed by Aragon, which showed the balance in their favor, and on Aragon's approval of the unpaid accounts as properly chargeable to La Badenia.

• Independent Merchants: La Badenia denied the claim and contended that the plaintiffs were simply merchants who purchased goods at fixed wholesale prices and sold them on their own account, and were never employed as agents.
• Improper Credit and Counterclaim: La Badenia asserted that the plaintiffs had been improperly allowed a credit of P1,850.68 representing unpaid accounts due the Legaspi business for cigars and cigarettes sold by it, and set up a counterclaim for P55.43.
• Wholesale Pricing and Profits: La Badenia argued that charging goods to the plaintiffs at wholesale prices, with the plaintiffs to have as profits any amounts received over the wholesale cost price, indicated that they were independent merchants doing business on their own account.
• Unreasonable Balance: La Badenia contended that it was unreasonable for the plaintiffs to have so large a balance in their favor and that they were seeking to saddle the corporation with unpaid accounts.

• Agency Relationship: Whether plaintiffs were agents or subagents of La Badenia operating under Aragon's supervision, rather than independent merchants purchasing and selling on their own account.
• Authority to Extend Credit: Whether Aragon, as general agent, authorized plaintiffs to extend credit on behalf of La Badenia, making the unpaid accounts chargeable to the corporation.
• Binding Effect of Settlement: Whether La Badenia was bound by Aragon's settlement and confirmation of a P1,795.25 balance in favor of plaintiffs.
• Effect of Prior Payment: Whether the plaintiffs' payment for the specific goods sold to delinquent debtors conclusively established that they were not agents.
• Recovery of Balance: Whether plaintiffs were entitled to recover P1,795.25 with legal interest from August 5, 1914, and costs.

• Agency Relationship: Yes. The plaintiffs were agents or subagents of La Badenia operating under Aragon's supervision; the corporation recognized them as such and carried no account with them as independent merchants.
• Authority to Extend Credit: Yes. Aragon's broad powers as selling agent, his knowledge of plaintiffs' extensions of credit, and his approval of the account established that plaintiffs were authorized to extend credit on behalf of the agency.
• Binding Effect of Settlement: Yes. La Badenia, having entrusted the Legaspi business to Aragon and being aware of plaintiffs' role, could not repudiate the account confirmed by him absent proof that he exceeded his authority.
• Effect of Prior Payment: No. The method of charging goods and making remittances showed that payments were on account covering both Aragon's and plaintiffs' transactions; prior payment did not conclusively prove plaintiffs were independent merchants.
• Recovery of Balance: Yes. Plaintiffs were entitled to P1,795.25 with legal interest from August 5, 1914, until paid, and costs in both instances.

• Agency Relationship: Aragon was La Badenia's general agent with authority to inaugurate and carry out a selling campaign; no limitations on his powers appeared. The head office approved and commended his conduct, was fully informed of plaintiffs' relations with him, received plaintiffs' direct remittances credited to the Legaspi agency, and acknowledged them directly to plaintiffs. Neither Aragon nor the head office distinguished between business done by Aragon and by plaintiffs. La Badenia carried the Legaspi account in Aragon's name and no account with plaintiffs, which negated the claim that plaintiffs were independent merchants. The assistant manager's letters acknowledged drafts credited to Aragon's account and referred to "the agency in your charge," recognizing plaintiffs as agents or subagents. Aragon's books credited plaintiffs for advertising, free distribution, freight, and similar items, which would not likely have been allowed to independent merchants. Thus plaintiffs were agents operating under Aragon's supervision.

• Authority to Extend Credit: Aragon extended credit to purchasers and knew plaintiffs did likewise. He approved the very items questioned when he signed the statement showing P1,795.25 in plaintiffs' favor. That approval admitted the outstanding claims were properly chargeable to La Badenia. Unless plaintiffs had been specifically authorized by Aragon to extend credit, he would not have approved the balance. His powers as selling agent were broad, and no evidence showed he acted beyond them. The authorization to extend credit on behalf of the agency was therefore established.

• Binding Effect of Settlement: La Badenia carried no account with plaintiffs; the only reliable source of the account was Aragon's books. Having entrusted the entire management of the Legaspi business to Aragon, La Badenia could not repudiate the account he confirmed unless it showed he acted beyond the scope of his authority. No such evidence existed. The corporation was therefore bound by Aragon's settlement.

• Effect of Prior Payment: The trial court treated plaintiffs' payment for the specific goods sold to delinquent debtors as conclusive proof of non-agency. But under the business plan, shipments from Manila were charged against Aragon and then against plaintiffs; withdrawals by Aragon were credited to plaintiffs; advertising withdrawals were credited; and plaintiffs' remittances to Manila were credited to the Legaspi agency account covering goods sold by both Aragon and plaintiffs. Remittances were payments on account, not payments for particular shipments. A balance in plaintiffs' favor could therefore remain without indicating overpayment or independent business. The wholesale-price-and-profit arrangement did not necessarily make plaintiffs independent merchants, especially since the record showed they were allowed commissions on many sales.

• Recovery of Balance: Because plaintiffs were agents, Aragon was authorized to allow credit, and he confirmed the settlement showing P1,795.25 in plaintiffs' favor, plaintiffs were entitled to recover that balance. Legal interest ran from August 5, 1914, the date the complaint was filed, until payment, and plaintiffs were entitled to costs in both instances.

• Principal bound by general agent's acts within scope of authority — A corporation is bound by the acts and settlements of its general agent within the apparent scope of authority conferred on him; it cannot repudiate them unless it proves the agent exceeded that authority. In this case, La Badenia entrusted the Legaspi business to Aragon, placed no limitations on his powers, and knew of the plaintiffs' role, so it was bound by his confirmation of the P1,795.25 balance.

• Agency distinguished from independent merchant — A person operating a distributing agency under the control and supervision of a corporation's general agent, with the corporation's knowledge and recognition, is an agent or subagent rather than an independent merchant. Factors include the principal's carrying of the account in the general agent's name, the absence of any account with the claimant, direct remittances credited to the agency, acknowledgment of "the agency in your charge," credits for business expenses, and payment of commissions.

• Authority of general selling agent to extend credit — A general agent with broad authority to conduct a selling campaign may authorize subagents to extend reasonable credit on behalf of the principal. The agent's approval of an account containing unpaid claims, absent evidence that he exceeded his authority, binds the principal.

• Settlement of accounts by agent — Where the principal has entrusted the management of a business to its agent and has no direct account with the claimant, the agent's confirmed settlement is the reliable statement of the account and binds the principal absent proof of excess authority.

• Payments on account in a running agency account — Remittances credited to a running agency account are payments on account, not necessarily payment for specific shipments; a balance may remain in favor of the subagent without proving overpayment or independent merchant status.

• "The fact that the defendant corporation carried the Legaspi account in the name of the general agent, Aragon, and carried no account with the plaintiffs, would seem to negative the contention that plaintiffs were simply merchants purchasing their goods in Manila at wholesale and selling them locally on their own account." — This passage supports the agency finding by treating the corporation's own bookkeeping as inconsistent with independent-merchant status.

• "The defendant carried no account whatever with the plaintiffs, and having intrusted the entire management of the Legaspi business to Aragon, it can not now come into court and repudiate the account confirmed by him, unless it can show that he acted beyond the scope of his authority in making the arrangement he did with the plaintiffs." — This states the ratio on the binding effect of a general agent's settlement.

• "Upon a careful examination of the whole record we are satisfied that plaintiffs were not conducting an independent business but were the agents of the defendant corporation operating under the supervision of the general agent, Aragon." — This is the Court's ultimate factual and legal conclusion on the agency relationship.

• "For the reasons set out we are of the opinion, and so hold, that plaintiffs are entitled to the reversal of the judgment appealed from and to a judgment against La Badenia, the defendant corporation, for the sum of P1,795.25, with legal interest thereon from August 5, 1914, the date of filing the complaint, until paid, and under their costs in both instances." — This is the dispositive holding and the relief granted.

Arellano, C.J., Torres, Johnson, Moreland, and Trent, JJ., concurred.