AMON TRADING CORPORATION AND JULIANA MARKETING, PETITIONERS, VS. HON. COURT OF APPEALS AND TRI-REALTY DEVELOPMENT AND CONSTRUCTION CORPORATION, RESPONDENTS,

Amon Trading versus Tri-Realty

The Case

This is a petition for review brought by Amon Trading Corporation and its sister company Juliana Marketing against Tri-Realty Development and Construction Corporation, arising from a complaint for sum of money. Tri-Realty, a developer and contractor, had paid in advance for thousands of bags of cement that were never delivered, and it sought to recover the value of those undelivered bags from the suppliers. The case matters because it tests two foundational ideas in our civil law: the nature of a contract of agency, which rests on representation, and the requirement of privity of contract as the source of a party's right to recover. It also gives us a memorable equitable rule on how loss is allocated between two innocent parties.

Procedural History

Tri-Realty filed a complaint for sum of money before the Regional Trial Court of Quezon City, Branch 104, against Amon Trading, Juliana Marketing, and Lines and Spaces Interiors Center. After trial, the Regional Trial Court rendered judgment on 29 January 1998, finding Lines and Spaces solely liable to Tri-Realty and absolving Amon Trading and Juliana Marketing of any liability. Tri-Realty partially appealed the decision, specifically the portion absolving the two suppliers. The Court of Appeals, in a decision dated 28 November 2002, reversed the trial court. It held Amon Trading and Juliana Marketing solidarily liable with Lines and Spaces for the value of the undelivered bags of cement, and it deleted the awards of compensatory damages and attorney's fees. Amon Trading and Juliana Marketing then elevated the case to the Supreme Court by petition for review, challenging the decision and the subsequent resolution of the Court of Appeals.

Facts

Sometime in February 1992, Tri-Realty was having difficulty buying cement for its projects in Bulacan and Quezon City. Eleanor Bahia Sanchez, representing Lines and Spaces Interiors Center, told Tri-Realty that she could obtain cement from Amon Trading and its sister company, Juliana Marketing. On the strength of that representation, Tri-Realty ordered six thousand fifty bags of cement from Amon Trading and six thousand bags from Juliana Marketing, at ninety-eight pesos per bag.

Tri-Realty paid in advance through two Solidbank manager's checks, one for five hundred ninety-two thousand nine hundred pesos payable to Amon Trading, and another for five hundred eighty-eight thousand pesos payable to Juliana Marketing. The check vouchers were signed by a certain Weng Chua for Lines and Spaces, and Sanchez issued the receipts. Tri-Realty also paid Lines and Spaces an advance fee of seven pesos per bag, or eighty-four thousand three hundred fifty pesos in all, for facilitating the orders and assuring delivery. Sanchez then delivered the two manager's checks to the petitioners.

From April to June 1992, Amon Trading delivered three thousand eight hundred fifty bags and Juliana Marketing delivered three thousand bags. The balance of two thousand two hundred bags from Amon Trading and three thousand bags from Juliana Marketing, or five thousand two hundred bags in total, was never delivered. When Tri-Realty demanded, the petitioners replied that they had already refunded the value of the undelivered bags to Lines and Spaces upon the written instruction of Eleanor Sanchez. Sanchez then fled abroad, and Tri-Realty filed suit.

Issues

• Whether or not there was a contract of agency between Lines and Spaces Interiors Center and Tri-Realty.
• Whether or not there was privity of contract between the petitioners and Tri-Realty.
• Whether or not the Court of Appeals committed reversible error in holding the petitioners solidarily liable with Lines and Spaces for the undelivered bags of cement.

Applicable Provisions

Article 1868 of the Civil Code defines the contract of agency:

Article 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.

The Court uses this definition to show that the essence of agency is representation, and that absent an intention to appoint and an intention to accept, there is no agency at all.

Ruling

On the first issue, the Court held that there was no contract of agency between Tri-Realty and Lines and Spaces. The basis of agency is representation, and the Court found that Tri-Realty's intention was merely for Lines and Spaces, through Eleanor Sanchez, to supply it with the needed bags of cement. Lines and Spaces was a supplier, not an agent. The Court stressed that the meeting of minds was between Tri-Realty and Eleanor Sanchez of Lines and Spaces, and that this contract was distinct and separate from the contract of sale between the petitioners and Sanchez, who represented herself as coming from Lines and Spaces and Tri-Realty as though it were a single account.

On the second issue, the Court held that there was no privity of contract between the petitioners and Tri-Realty. No written contract existed between them. The payments were made to Sanchez, and nothing on the face of the manager's checks showed that Tri-Realty was the one paying. The receipts for the checks were issued by Lines and Spaces, signed by Sanchez, not by the petitioners. The Court also addressed the use of the term "and/or" and the designation "Lines and Spaces/Tri-Realty," holding that these meant the two names could be used interchangeably, so the petitioners were not remiss in believing Sanchez's representation that it was one entity. There was thus no error when they refunded the value of the undelivered bags to Lines and Spaces alone.

On the third issue, the Court held that the Court of Appeals erred in holding the petitioners solidarily liable. Since there was neither agency nor privity, Tri-Realty's claim against the petitioners had no legal foothold. The Court applied the equitable maxim that as between two innocent parties, the one who made it possible for the wrong to be done should bear the resulting loss. Tri-Realty reposed too much trust in Sanchez, paid in advance for materials not yet delivered, paid her commission in advance, and failed to require the petitioners to sign the check vouchers or issue receipts. For those failures, Tri-Realty bore the risk of its own loss.

Doctrine

First, the contract of agency is founded on representation. Under Article 1868, there must be, on the part of the principal, an actual intention to appoint or an intention naturally inferable from words or actions, and on the part of the agent, an intention to accept the appointment and act on it. Absent such intent, there is generally no agency. A person who merely supplies goods on order is a supplier, not an agent.

Second, privity of contract is the source of a party's right to recover. Where one has not dealt directly with another and no paper trail links them, no vinculum juris, no legal bond, arises between them, and a claim for refund cannot stand.

Third, the equitable maxim that as between two innocent parties, the one who made it possible for the wrong to be done should bear the resulting loss governs the allocation of loss where a third person perpetrates a deception.

Disposition

The petition was granted. The decision and resolution of the Court of Appeals were reversed and set aside, and the decision of the Regional Trial Court of Quezon City, Branch 104, absolving Amon Trading and Juliana Marketing and holding Lines and Spaces solely liable, was reinstated, with no pronouncement as to costs.

Remember This

Memorize this line: agency rests on representation, and without privity of contract there is no legal bond upon which to anchor a claim for refund. Examiners use this case to test the elements of agency under Article 1868 and the equitable rule that between two innocent parties, the one who made the wrong possible bears the loss.