'n #oles v.

Angeles , 492 )C*A 60, +2006-, the Court held /

THE LAW AND PRACTICE ON PHILIPPINE AGENCY LAW

June 24, 2009 NATURE, FORM AND KINDS OF AGENCY I. DEFINITION AND OBJECTIVE OF AGENCY 1. Defini i!n "n# O$%e& i'e !f A(en&) Article 1868 of the Civil Code defines the contract of agency as one whereby a !erson binds hi"self to render so"e service or to do so"ething in re!resentation or on behalf of another, with the consent or authority of the latter#$ %1& 'n Eurotech Industrial Technologies, Inc. v. Cuizon , (21 )C*A (84 +200,-, the )u!re"e Court held that .he underlying !rinci!le of the contract of agency is to acco"!lish results by using the services of others / to do a great variety of things li0e selling, buying, "anufacturing, and trans!orting# 'ts !ur!ose is to e1tend the !ersonality of the !rinci!al or the !arty for who" another acts and fro" who" he or she derives the authority to act#$ +at !# (92'n Orient Air Service & Hotel Representatives v. Court of Appeals , 19, )C*A 64( +1991-, the Court held that the !ur!ose of every contract of agency is the ability, by legal fiction, to e1tend the !ersonality of the !rinci!al through the facility of the agent2 but the sa"e can only be effected with the consent of the !rinci!al# 'n iton!ua, "r. v. Eternit Corp., 490 )C*A 204 +2006-, the Court held that 't bears stressing that in an agent3!rinci!al relationshi!, the !ersonality of the !rinci!al is e1tended through the facility of the agent# 'n so doing, the agent, by legal fiction, beco"es the !rinci!al, authori4ed to !erfor" all acts which the latter would have hi" do# )uch a relationshi! can only be effected with the consent of the !rinci!al, which "ust not, in any way, be co"!elled by law or by any court#$%2& +at !# 225-

.he CA is incorrect when it considered the fact that the su!!osed friends of %!etitioners&, the actual borrowers, did not !resent the"selves to %res!ondent&$ as evidence that negates the agency relationshi!6it is sufficient that !etitioner disclosed to res!ondent that the for"er was acting in behalf of her !rinci!als, her friends who" she referred to res!ondent# 7or an agency to arise, it is not necessary that the !rinci!al !ersonally encounter the third !erson with who" the agent interacts# .he law in fact conte"!lates, and to a great degree, i"!ersonal dealings where the !rinci!al need not !ersonally 0now or "eet the third !erson with who" her agent transacts2 !recisely, the !ur!ose of agency is to e1tend the !ersonality of the !rinci!al through the facility of the agent# +at !# 6228ately, in $hile% &ining Corp. v. Co''issioner of Internal Revenue , ((1 )C*A 428 +2008-, the Court reiterated the !rinci!le that the essence of an agency, even one that is cou!led with interest, is the agent9s ability to re!resent his !rinci!al and bring about business relati0ns between the latter and third !ersons# :hen an agency relationshi! is established, and the agent acts for the !rinci!al, he is insofar as the world is concerned essentially the !rinci!al acting in the !articular contract or transaction on hand# Conse;uently, the acts of the agent on behalf of the !rinci!al within the sco!e of the authority have the sa"e legal effect and conse;uence as though the !rinci!al had been the one so acting in the given situation# Rallos v. (eli% )o Chan & Sons Realt* Corp., 81 )C*A 2(1 +19,8-2 Eurotech Industrial Technologies, Inc. v. Cuizon, (21 )C*A (84 +200,-# )o"e of the legal conse;uences that flow fro" the re!resentation$ in the contract of agency are that 6 doctrine of

< =otice to the agent is notice to the !rinci!al# Air (rance v. Court of Appeals , 126 )C*A 448 +1985-# < >nowledge of the agent !ertains to the !rinci!al < :hen an agent !urchases the !ro!erty in bad faith, the !rinci!al is dee"ed to be a !urchaser in bad faith# Cara', "r. v. aureta , 105 )C*A , +1981-#

Agency Reviewer

< A suit against an agent in his !ersonal ca!acity cannot, without co"!elling reasons, be considered a suit against the !rinci!al# $hilippine +ational ,anv. Ritratto )roups, Inc., 562 )C*A 216 +2001-# *. P"+ ie, ! " C!n +"& !f A(en&) .he !arties to a contract of agency are? < the @*'=C'@A8 / the !erson re!resented < the AAB=. / the !erson who acts for and in re!resentation of another .he other ter"s used for the !osition of agent are attorney3in3fact$, !ro1y$, delegate$, or re!resentative$# Although Article 1868 of the Civil Code defines agency in ter"s of being a contract, it should also be considered that u!on the !erfection of the contract of agency, it creates between the !rinci!al and an agent an on3going legal relationshi! which i"!oses !ersonal obligations on both !arties# .his is in consonance with the !rogressive nature$ of every contract of agency# ". C"-"&i ) !f .e P"+ ie, .he !rinci!al "ust have ca!acity to contract +Arts# 152, and 1529-, and "ay either be a natural or Curidical !erson +Art# 1919%4&-# .here is legal literature that holds that since the agent assu"es no !ersonal liability, she does not have to !ossess full ca!acity to act insofar as third !ersons are concerned#%5& )ince a contract of agency is first and fore"ost a contract in itself, the !arties +both !rinci!al and agent- "ust have legal ca!acities to validly enter into an agency# Dowever, if one of the !arties has no legal ca!acity to contract, then the contract of agency is not void, but "erely voidable, which "eans that it is valid until annulled# .hus, a voidable agency will !roduce legal conse;uences, when it is !ursued to enter into Curidical relations with third !arties# 'f the !rinci!al is the one who has no legal ca!acity to contract, and his agent enters into a contractual relationshi! in the !rinci!al9s na"e with a third !arty, the resulting contract is voidable and subCect to annul"ent# En the other hand, if the !rinci!al has legal ca!acity, and it is the agent that has no legal ca!acity to contract, the

underlying agency relationshi! is voidable2 and when the inca!acitated agent enters into a contract with a third !arty, the resulting contract would be valid, not voidable, for the agent9s inca!acity is irrelevant, the contract having been entered into, for and in behalf of the !rinci!al, who has full legal ca!acity# .he foregoing discussions su!!ort the fact that as a general !ro!osition the lac0 of legal ca!acity of the agent does not affect the constitution of the agency relationshi!# And yet, it is clear under Article 1919+5- of the Civil Code that if during the ter" of the agency, the !rinci!al or agent is !laced under civil interdiction, or beco"es insane or insolvent, the agency is i!so Cure e1tinguished# 't is therefore only logical to conclude that if the loss of legal ca!acity of the agent e1tinguishes the agency, then necessarily any of those cause that have the effect of re"oving legal ca!acity on either or both the !rinci!al and agent at the ti"e of !erfection would not bring about a contract of agency# Ebviously, there see"s to be an incongruence when it co"es to !rinci!les involving the legal ca!acities of the !arties to a contract of agency# .he reason for that is that the !rinci!les actually occu!y two different legal levels# :hen it co"es to creating and e1tinguishing the contractual relationshi! of !rinci!al and agent, the !rovisions of law ta0e into consideration !urely intra"ural "atters !ertaining to the !arties thereto under the !rinci!le of relativity# )ince agency is essentially a !ersonal relationshi! based on the !ur!ose of re!resentation, then when either the !rinci!al or agent dies or beco"es legally inca!acitated, then the agency relation should i!so Cure cease# Fut a contract of agency is "erely a !re!aratory contract, where the "ain !ur!ose is to effect through the agent contracts and other Curidical relationshi!s of the !rinci!al with third !arties# .he !ublic !olicy is that third !arties who act in good faith with an agent have a right to e1!ect that their contracts would be valid and binding on the !rinci!al# .herefore, even when by legal cause an agency relationshi! has ter"inated, say with the insanity of the !rinci!al, if the agent and a third !arty enter into contract unaware of the situation, then the various !rovisions on the 8aw on Agency would affir" the validity of the contract# Gore on this !oint will be covered under the section on the essential characteristics of agency# /. E0e1en , !f .e C!n +"& !f A(en&) 8i0e any other contract, agency is constituted of the essential ele"ents of +aconsent2 +b- obCect or subCect "atter2 and +c- cause or consideration#

Agency Reviewer

'n Rallos v. (eli% )o Chan & Sons Realt* Corp #, 81 )C*A 2(1 +19,8-, the Court held that the following are the essential ele"ents of the contract of agency? +a- Consent, e1!ress or i"!lied, of the !arties to establish the relationshi!2 +b- EbCect, which is the e1ecution of a Curidical act in relation to third !arties2 +c- Agent acts as a re!resentative and not for hi"self2 and +d- Agent acts within the sco!e of his authority#%4& .he ele"ent not included in the *allos enu"eration is the cause or consideration of every contract of agency# Hnder Article 18,( of the Civil Code, every agency is !resu"ed to be for co"!ensation, unless there is !roof to the contrary# 'n other words, it is clear that there can be a valid agency contract which is su!!orted by consideration of liberality on the !art of the agent2 that although agency contracts are !ri"arily onerous, they "ay also be constituted as gratuitous contracts# .he value that Article 18,( of the Civil Code brings into the 8aw on Agency is that the !resu"!tion is that every agency contract entered into is for valuable consideration6that the agency serves for the benefit of the !rinci!al e1!ecting to be co"!ensated for his efforts# 't is the !arty who avers that the agency was gratuitous6that the agent agreed to serve gratuitously# .he last two ele"ents included in the *allos enu"eration should not be understood to be essential ele"ents for the !erfection and validity of the contract of agency, for indeed they are "atters that do not go into !erfection, but rather into the !erfor"ance stage of the agency relationshi!# .he non3 e1istence of the two !ur!orted essential ele"ents + i.e#, that the agent acted for herself andIor the agent acted beyond the sco!e of her authority-, does not affect the validity of the e1isting agency relationshi!, but rather the legality of the contracts entered into by the agent on behalf of the !rinci!al# .hus, under Article 1885 of the Civil Code, 'f an agent acts in his own na"e, the !rinci!al has no right of actions against the !erson with who" the agent has contracted2 neither have such !ersons against the !rinci!al#$ Hnder Article 1898 of the Civil Code, 'f the agent contracts in the na"e of the !rinci!al, e1ceeding the sco!e of his authority, and the !rinci!al does not ratify the contract, it shall be void$ as to the !rinci!al#

". C!n,en .he essential ele"ent of consent is "anifest fro" the !rinci!le that =o !erson "ay be re!resented by another without his will2 and that no !erson can be co"!elled against his will to re!resent another#$ .hus, the )u!re"e Court held in iton!ua, "r. v. Eternit Corp. , 490 )C*A 204 +2006-, held that consent of both the !rinci!al and the agent is necessary to create an agency? .he !rinci!al "ust intend that the agent shall act for hi"2 the agent "ust intend to acce!t the authority and act on it, and the intention of the !arties "ust find e1!ression either in words or conduct between the"# 'n the sa"e "anner, #o'inion Insurance Corp. v. Court of Appeals , 5,6 )C*A 259 +2002-, held that since the basis for agency is re!resentation, then there "ust be, on the !art of the !rinci!al, an actual intention to a!!oint or an intention naturally inferable fro" his words or actions2 on the !art of the agent, there "ust be an intention to acce!t the a!!oint"ent and act on it2 and in the absence of such intent, there is generally no agency# @erha!s the only e1ce!tion to this rule is agency by esto!!el,$ but even then it is by the se!arate acts of the !ur!orted !rinci!al and !ur!orted agent, by which they are brought into the relationshi! insofar as third !arties acting in good faith are concerned# Gore discussions on the essential ele"ent of consent shall ta0e !lace in the section on essential characteristic of consensuality of contracts of agency# $. O$%e& !+ S2$%e& M" e+ .he obCect of every contract of agency is service, which !articularly is the legal underta0ing of the agent to enter into Curidical acts with third !ersons on behalf of the !rinci!al# 'te"s +b-, +c- and +d- in the enu"erated ele"ents of *allos can actually be su""ari4ed into the obCect of every contract of agency to be that of service, i#e#, the underta0ing +obligation- of the agent to enter into a Curidical act with third !arties on behalf of the !rinci!al and within the sco!e of his authority# &. C!n,i#e+" i!n .he cause or consideration in agency is the co"!ensation or co""ission

Agency Reviewer

that the !rinci!al agreed or co""itted to be !aid to the agent for the latter9s services# Hnder Article 18,( of the Civil Code, agency is !resu"ed to be for co"!ensation, unless there is !roof to the contrary# 'n other words, liberality "ay be the !ro!er cause or consideration for an agency contract only when it is so e1!ressly agreed u!on# Hnless otherwise sti!ulated, therefore, every agent is entitled to re"uneration or co"!ensation for the services !erfor"ed under the contract of agency# .he old decision in Aguna v. arena, (, @hil 650 +1952-, did not reflect the general rule of agency3is3for3co"!ensation reflected subse;uently in Article 18,( of the Civil Code# 'n Aguna, although the agent had rendered service to the !rinci!al covering collection of rentals fro" the various tenants of the !rinci!al, and in s!ite of the agree"ent that !rinci!al would !ay for the agent9s service, nevertheless, the !rinci!al allowed the agent to occu!y one of his !arcels of land and to build his house thereon# .he Court held that the service rendered by the agent was dee"ed to be gratuitous, a!art fro" the occu!ation of so"e of the house of the deceased by the !laintiff and his fa"ily, for if it were true that the agent and the deceased !rinci!al had an understanding to the effect that the agent was to receive co"!ensation aside fro" the use and occu!ation of the houses of the deceased, it cannot be e1!lained how the agent could have rendered services as he did for eight years without receiving and clai"ing any co"!ensation fro" the deceased#$ +at !# 652- 'f Aguna were decided under the =ew Civil Code, then under Article 18,(, which "andates that every contract of agency is dee"ed to be for co"!ensation, then the result would have been ;uite the o!!osite# #. En i 0e1en !f A(en Se+'i&e ! C!11i,,i!n An&.!+e# !n .e Ren#e+in( !f

!ri"ordial basis for which the co"!ensation is given, then the !roof that services have been rendered should entitle the agent to the co"!ensation agreed u!on# En the other hand, if the nature of the service to be co"!ensated is understood by the results to be achieved, e.g., that a !articular contract with a third !arty is entered into in behalf of the !rinci!al, then "ere rendering of service without achieve"ent of the results agreed u!on to be achieved would not entitle the agent to the co"!ensation agreed u!on# .hus, in Inland Realt* v. Court of Appeals , 2,5 )C*A ,0 +199,-, the Court held that 6 Although the ulti"ate buyer was introduced by the agent to the !rinci!al during the ter" of the agency, nevertheless, the la!se of the !eriod of "ore than one +1- year and five +(- "onths between the e1!iration of !etitioners9 authority to sell and the consu""ation of the sale, cannot authori4e co"!elling the !rinci!al to !ay the sti!ulated bro0er9s fee, since the agent was not longer entitled thereto# .he Court ta0es into strong consideration that utter lac0 of evidence of the agent showing any further involve"ent in the negotiations between !rinci!al and buyer during that !eriod and in the subse;uent !rocessing of the docu"ents !ertinent to said sale# +at !# ,9'n contrast, in &anoto- ,ros. Inc. v. Court of Appeals , 221 )C*A 224 +1995-, the Court held that although the sale of the obCect of the agency to sell was !erfected three days after the e1!iration of the agency !eriod, the agent was still be entitled to receive the co""ission sti!ulated based on the doctrine held in $rats v. Court of Appeals, 81 )C*A 560 +19,8-, that when the agent was the efficient !rocuring cause in bringing about the sale that the agent was entitled to co"!ensation# 'n essence, the Court ruled that when there is a close, !ro1i"ate and causal connection between the agent9s efforts and labor and the !rinci!al9s sale of his !ro!erty, the agent is entitled to a co""ission# .he "atter !ertaining to entitle"ent to co""ission will be discussed in greater details in the section that distinguishes a contract of agency fro" that of a bro0er9s contract# 3. E,,en i"0 C."+"& e+i, i&, !f A(en&)

.he co"!ensation that the !rinci!al agrees to !ay to the agent is !art of the ter"s of the contract of agency u!on which their "inds "eet# .herefore, the e1tent and "anner by which the agent would be entitled to receive co"!ensation or co""ission is based on the ter"s of the contract# )o"eti"es, the ter"s are not that clear, and decisions have had to deal with the issue of when an agent has "erited the right to receive the co"!ensation either sti!ulated or i"!lied fro" the ter"s of the contract# .he doctrine that "ay be derived fro" the various decisions on the "atter are anchored on the nature of the contract of agency as a s!ecies of contracts of services in general# :hen the rendering of service alone, and not the results, is the

Agency Reviewer

". N!1in" e "n# P+in&i-"0 =ot only is the contract of agency s!ecifically na"ed as such under the Civil Code, it is a !rinci!al contract because it can stand on its own without need of another contract to validate it# .he real value of the contract of agency being a no"inate and !rinci!al$ contract is that it has been so set a!art by law and !rovided with its own set of rules and legal conse;uences, that any other arrange"ent that essentially falls within its ter"s shall be considered as an agency arrange"ent and shall be governed by the 8aw on Agency, notwithstanding any intention of the !arties to the contrary# After all, a contract is what the law says it is, and not what the !arties call it# 'n #oles v. Angeles, 492 )C*A 60, +2006-, it was held that if an act done by one !erson in behalf of another is in its essential nature one of agency, the for"er is the agent of the latter notwithstanding he or she is not so called6it will be an agency whether the !arties understood the e1act nature of the relation or not# $. C!n,en,2"0 .he contract of agency is !erfected by "ere consent# Hnder Article 1869, an agency "ay be e1!ressed or i"!lied fro" the act of the !rinci!al, fro" his silence or lac0 of action, or failure to re!udiate the agency2 agency "ay be oral, unless the law re;uires a s!ecific for"#%(& Hnder Article 18,0 of the Civil Code, acce!tance by the agent "ay also be e1!ress, or i"!lied fro" his acts which carry out the agency, of fro" his silence or inaction according to the circu"stances# &. Uni0" e+"0 "n# P+i1"+i0) One+!2, Erdinarily, an agency is onerous in nature, where the agency e1!ects co"!ensation for his services in the for" of co""issions# Dowever, Article 18,( recogni4es that an agency "ay be su!!orted by !ure liberality, and thus would be gratuitous, but the burden of !roof would be to show that the agency was constituted gratuitously# :hen it is gratuitous, the contract of agency is unilateral contract because it

only creates an obligation on the !art of the agent# Fut even when it is su!!orted by a valuable consideration + i.e., co"!ensated or onerous agency-, it would still be characteri4ed as a unilateral contract, because it is only the fulfill"ent of the !ri"ary obligations of the agent to render so"e service u!on which the subordinate obligation of the !rinci!al to !ay the co"!ensation agreed u!on arises# :hen an agent acce!ts the agency !osition without co"!ensation, he assu"es the sa"e res!onsibility to carry out the agency and therefore incurs the sa"e liability when he fails to fulfill his obligations to the !rinci!al# 't is therefore rather strange that Article 1909 of the Civil Code !rovides that .he agent is res!onsible not only for fraud, but also for negligence, which shall be Cudged with "ore or less rigor by the courts, according to whether the agency was or was not for a co"!ensation#$ #. P+e-"+" !+) "n# Re-+e,en " i'e .here is no doubt that agency is a s!ecies of the broad grou!ing of what we call the service contracts$, which includes e"!loy"ent contract, "anage"ent contract and contract3for3a !iece of wor0# .here are also s!ecial service contracts which include the rendering of !rofessional service +e.g., doctors and lawyers-, and consultancy wor0# Fut it is the characteristic of re!resentation$ that is the "ost distinguishing "ar0 of agency when co"!ared with other service contracts, in that the "ain !ur!ose is to allow the agent to enter into contracts with third !arties on behalf of, and which would bind on, the !rinci!al# A contract of agency does not e1ist for its own !ur!ose2 it is a !re!aratory contract entered into for other !ur!oses that deal with the !ublic# .his characteristic of an agency is reflected in various !rovisions in the 8aw on Agency and in case3law, that see0 to !rotect the validity and enforceability of contracts entered into !ursuant to the agency arrange"ent, even when to do so would contravene strict agency !rinci!les# 'n another way of !utting it, an agency contract is "erely a tool allowed to be resorted to achieve a greater obCective to enter into Curidical relations on behalf of the !rinci!al2 considerations that !ertain "erely to the tool certainly cannot outweigh considerations that !ertain to the "ain obCects of the agency# 'n A'on Trading Corp. v. Court of Appeals , 4,, )C*A ((2 +200(-, the Court decreed that 'n a bevy of cases as the avuncular case of .ictorias &illing

Agency Reviewer

Co., Inc. v. Court Appeals , %555 )C*A 665 +2000-&, the Court decreed fro" Article 1868 that the basis of agency is re!resentation,$ +at !# (60-, and that conse;uently one of the strongest feature of a true contract of agency is that of control$ 6 that the agent is under the control and instruction of the !rinci!al# .hus, in .ictorias &illing Co., Inc. v. Court of Appeals , 555 )C*A 665 +2000-, it was ruled 6 't is clear fro" Article 1868 that the basis of agency is re!resentation#%6& En the !art of the !rinci!al, there "ust be an actual intention to a!!oint or an intention naturally inferable fro" his words or actions2 and on the !art of the agent, there "ust be an intention to acce!t the a!!oint"ent and act on it, and in the absence of such intent, there is generally no agency# Ene factor which "ost clearly distinguishes agency fro" other legal conce!ts is control2 one !erson 6 the agent 6 agrees to act under the control or direction of another 6 the !rinci!al# 'ndeed, the very word agency$ has co"e to connote control by the !rinci!al#%,& .he control factor, "ore than any other, has caused the courts to !ut contracts between !rinci!al and agent in a se!arate category# # # # 111 'n the instant case, it a!!ears !lain to us that !rivate res!ondent C)C was a buyer of the )8J7* for", and not an agent of ).G# @rivate res!ondent C)C was not subCect to ).G9s control# .he ;uestion of whether a contract is one of sale or agency de!ends on the intention of the !arties as gathered fro" the whole sco!e and effect of the language e"!loyed# .hat the authori4ation given to C)C contained the !hrase for and in our +).G9s- behalf$ did not establish an agency# Hlti"ately, what is decisive is the intention of the !arties# .hat no agency was "eant to be established by the C)C and ).G is clearly shown by C)C9s co""unication to !etitioner that )8J* =o# 1214G had been sold and endorsed$ to it# .he use of the words sold and endorsed$ "eans that ).G and C)C intended a contract of sale, and not an agency# +at !!# 6,636,,'n #oles v. Angeles, 492 )C*A 60, +2006-, it was held that for an agency to arise, it is not necessary that the !rinci!al !ersonally encounter the third !erson with who" the agent interacts / !recisely, the !ur!ose of agency is to e1tend the !ersonality of the !rinci!al through the facility of the agent# 'n Eurotech Industrial Technologies, Inc. v. Cuizon , (21 )C*A (84 +200,-,

the Court held 6 't is said that the basis of agency is re!resentation, that is, the agent acts for and on behalf of the !rinci!al on "atters within the sco!e of his authority and said acts have the sa"e legal effect as if they were !ersonally e1ecuted by the !rinci!al# Fy this legal fiction, the actual or real absence of the !rinci!al is converted into his legal or Curidical !resence / ;ui facit !er aliu" facit !er se# +at !# (95Barlier, in Rallos v. (eli% )o Chan & Sons Realt* Corp #, 81 )C*A 2(1 +19,8-, the Court held that Agency is basically !ersonal, re!resentative, and derivative in nature# .he authority of the agent to act e"anates fro" the !owers granted to hi" by his !rinci!al2 his act is the act of the !rinci!al if done within the sco!e of the authority# Kui facit !er aliu" facit !er se# LDe who acts through another acts hi"self#9$ +at !# 2(9415 P+in&i-0e, F0!6in( f+!1 A(en&) C."+"& e+i, i&, !f 7P+e-"+ " !+) "n# Re-+e,en " i'e8 .he following !rinci!les flow fro" the a!!lication of the essential characteristics of an agency being !re!aratory and re!resentative$ contract, thus? +a- .he contract entered into with third !ersons !ertains to the !rinci!al and not to the agent2 the agent is a stranger to said contract although he !hysically was the one who entered into it in a re!resentative ca!acity2 < the agent has neither rights or obligations fro" the resulting contract2 < the agent has no legal standing to sue u!on said contract +b- .he liabilities incurred shall !ertain to the !rinci!al and not the agent2 +c- Aenerally, all acts that the !rinci!al can do in !erson, he "ay do through an agent, e1ce!t those which under !ublic !olicy are strictly !ersonal to the !erson of the !rinci!al# +d- .he agent who acts as such is not !ersonality liable to the !arty with who" he contracts, unless he e1!ressly binds hi"self or e1ceeds the li"its of his authority without giving such !arty sufficient notice of his !owers# +Art#

Agency Reviewer

189,+e- =otice to the agent should always be construed as notice binding on the !rinci!al, even when in fact the !rinci!al never beca"e aware thereof# Air 7rance v# Court of A!!eals, 126 )C*A 448 +1985+f- >nowledge of the agent is e;uivalent to 0nowledge of the !rinci!al# E9CEPT WHERE? +1- Agent9s interests are adverse to those of the !rinci!al2 +2- Agent9s duty is not to disclose the infor"ation, as where he is infor"ed by way of confidential infor"ation2 and +5- .he !erson clai"ing the benefit of the rule colludes with the agent to defraud the !rinci!al +Je 8eon M Je 8eon, at !# 56,,citing .B88B*, at !#1(0.hus, in Eurotech Industrial Technologies, Inc. v. Cuizon , (21 )C*A (84 +200,-, the Court held 6 Article 189, reinforces the fa"iliar doctrine that an agent, who acts as such, is not !ersonally liable to the !arty with who" he contracts# .he sa"e !rovision, however, !resents two instances when an agent beco"es !ersonally liable to a third !erson# .he first is when he e1!ressly binds hi"self to the obligation and the second is when he e1ceeds his authority# 'n the last instance, the agent can be held liable if he does not give the third !arty sufficient notice of his !owers# +at !# (95'n $hilpotts v. $hil. &fg. Co., 40 @hil 4,1 +1919-, the Court held that the right of ins!ection given to a stoc0holder under the law can be e1ercised either by hi"self or by any !ro!er re!resentative or attorney in fact, and either with or without the attendance of the stoc0holder# .his is in confor"ity with the general rule that what a "an "ay do in !erson he "ay do through another# e. De+i'" i'e, Fi#2&i"+) "n# Re'!&"$0e A contract of agency creates a legal relationshi! of re!resentation by the agent on behalf of the !rinci!al, where the !owers of the agent are essentially derived fro" the !rinci!al, and conse;uently, it is fiduciary in

nature# Ene of the legal conse;uences of the fiduciary nature of the contract of agency is that it is essentially revocable? neither the !rinci!al nor the agent can be legally "ade to re"ain in the relationshi! when they choose to have it ter"inated# Severino v. Severino, 44 @hil# 545 +1925-, held that the relations of an agent to his !rinci!al are fiduciary in character because they are based on trust and confidence, which "ust flow fro" the essential nature a contract of agency that "a0es the agent the re!resentative of the !rinci!al# Conse;uently? +a- As regards !ro!erty for"ing the subCect "atter of the agency, the agent is esto!!ed fro" asserting or ac;uiring a title adverse to that of the !rinci!al# +Art# 145(-2 +b- 'n a conflict3of3interest situation, the agent cannot choose a course that favors herself to the detri"ent of the !rinci!al2 she "ust choose to the best advantage of the !rinci!al# Tho'as v. $ineda, 89 @hil# 512 +19(1-2 $al'a v. Cristo/al, ,, @hil# ,12 +1946-2 and +c- .he agent cannot !urchase for herself the !ro!erty of the !rinci!al which has been given to her "anage"ent for sale or dis!osition +Art# 1491%2&-2 Un0e,,? +i- .here is and e1!ress consent on the !art of the !rinci!al + Cui v. Cui, 100 @hil# 915 +19(,-2 or +ii- 'f the agent !urchases after the agency is ter"inated + .alera v. .elasco, (1 @hil# 69( +1928-# 'n Repu/lic v. Evangelista, 466 )C*A (44 +200(-, the Court held that generally, the agency "ay be revo0ed by the !rinci!al at will, since it is a !ersonal contract of re!resentation based on trust and confidence re!osed by the !rinci!al on his agent# As the !ower of the agent to act de!ends on the will and license of the !rinci!al he re!resents, the !ower of the agent ceases when the will or !er"ission is withdrawn by the !rinci!al# 'n Orient Air Services v. Court of Appeals, 19, )C*A 64( +1991-, it was held that the decision of the lower court ordering the !rinci!al airline co"!any to reinstate defendant as its general sales agent for !assenger trans!ortation

Agency Reviewer

in the @hili!!ines in accordance with said A)A Agree"ent,$ was unlawful since courts have no authority to co"!el the !rinci!al to reinstate a contract of agency it has ter"inated with the agent? )uch would be violative of the !rinci!les and essence of agency, defined by law as a contract whereby a !erson binds hi"self to render so"e service or to do so"ething in re!resentation or on behalf of another, :'.D .DB CE=)B=. E* AH.DE*'.N E7 .DB 8A..B*#$ 'n an agent3!rinci!al relationshi!, the !ersonality of the !rinci!al is e1tended through the facility of the agent# 'n so doing, the agent, by legal fiction, beco"es the !rinci!al, authori4ed to !erfor" all acts which the latter would have hi" do# )uch a relationshi! can only be effected with the consent of the !rinci!al, which "ust not, in any way, be co"!elled by law or by any court# .he Agree"ent itself between the !arties states that either !arty "ay ter"inate the Agree"ent without cause by giving the other 50 days notice by letter, telegra" or cable# %8& +at !# 6(6:. Di, in(2i,.e# f+!1 Si1i0"+ C!n +"& , ". F+!1 .e E1-0!)1en C!n +"& Hnli0e agency relationshi! which is essentially contractual in nature, an e"!loy"ent contract under Article 1,00 of the Civil Code is .he relationshi! between ca!ital and labor %which& are not "erely contractual# .hey are so i"!ressed with !ublic interest that labor contracts "ust yield to the co""on good# .herefore, such contracts are subCect to the s!ecial laws on labor unions, collective bargaining, stri0es and loc0outs, closed sho!, wages, wor0ing conditions, hours of labor and si"ilar subCects#$ Gore s!ecifically, the !ur!ose of an e"!loyer3e"!loyee relationshi! is for the e"!loyee to render service for the direct benefit of the e"!loyer or of the business of the e"!loyer2 while agency relationshi! is entered into to enter into Curidical relationshi! on behalf of the !rinci!al with third !arties# .here is, therefore, no re!resentation in a contract of e"!loy"ent# 'n #ela Cruz v. +orthern Theatrical Enterprises, 9( @hil ,59 +19(4-, the Court held that the relationshi! between the cor!oration which owns and o!erates a theatre, and the individual it hires as a security guard to "aintain the !eace and order at the entrance of the theatre is not that of !rinci!al and agent, because the !rinci!le of re!resentation was in no way involved# .he security guard was not e"!loyed to re!resent the defendant cor!oration in its

dealings with third !arties2 he was a "ere e"!loyee hired to !erfor" a certain s!ecific duty or tas0, that of acting as s!ecial guard and staying at the "ain entrance of the "ovie house to sto! gate crashers and to "aintain !eace and order within the !re"ises# $. F+!1 .e C!n +"& f!+ " Pie&e;!f;W!+< Hnder Article 1,15 of the Civil Code, Fy the contract for a !iece of wor0 the contractor binds hi"self to e1ecute a !iece of wor0 for the e"!loyer, in consideration of a certain !rice or co"!ensation# .he contractor "ay either e"!loy only his labor or s0ill, or also furnish the "aterial#$ Hnder a contract for a !iece of wor0, the contractor is not an agent of the !rinci!al$ + i.e., the client-, and the contractor has no authority to re!resent the !rinci!al in entering into Curidical acts with third !arties# .he essence of every contract3 for3a3!iece3of3wor0 is that the services rendered "ust give rise to the "anufacture or !roduction of the obCect agreed u!on# 'n (ressel v. &ariano 0* Chaco Sons & Co. , 54 @hil# 122 +191(-, it was held that where the contract entered into is one where the individual undertoo0 and agreed to build for the other !arty a costly edifice, the underlying contract is one for a contract for a !iece of wor0, and not a !rinci!al and agency relation# Conse;uently, the contract is authori4ed to do the wor0 according to his own "ethod and without being subCect to the client9s control, e1ce!t as to the result of the wor02 he could !urchase his "aterials and su!!lies fro" who" he !leased and at such !rices as he desired to !ay# And the "ere fact that it was sti!ulated in the contract that the client could ta0e !ossession of the wor0 site u!on the ha!!ening of s!ecified contingencies did not "a0e the relation into that of an agency# Conse;uently, when the client did ta0e over the unfinished wor0s, he did not assu"e any direct liability to the su!!liers of the contractor# &. F+!1 .e M"n"(e1en A(+ee1en 'n +ielson & Co., Inc. v. epanto Consolidated &ining Co., 26 )C*A (40, (463(4, +1968-, the Court held that in both agency and lease of services, one of the !arties binds hi"self to render so"e service to the other !arty# Agency, however, is distinguished fro" lease of wor0 or services in that the basis of agency is re!resentation, while in the lease of wor0 or services the basis is e"!loy"ent# .he lessor of services does not re!resent his e"!loyer, while the agent re!resents his !rinci!al# 1 1 1 # .here is another obvious

Agency Reviewer

distinction between agency and lease of services# Agency is a !re!aratory contract, as agency does not sto! with the agency because the !ur!ose is to enter into other contracts#$ .he "ost characteristic feature of an agency relationshi! is the agent9s !ower to bring about business relations between his !rinci!al and third !ersons# .he agent is destine to e1ecute Curidical acts +creation, "odification or e1tinction of relations with third !arties-# 8ease of services conte"!late only "aterial +non3Curidical- acts#%9&$ .he Court also held in +ielson & Co. that where the !rinci!al and !ara"ount underta0ing of the "anager$ under a Ganage"ent Contract was the o!eration and develo!"ent of the "ine and the o!eration of the "ill, and all other underta0ings "entioned in the contract are necessary or incidental to the !rinci!al underta0ing6these other underta0ings being de!endent u!on the wor0 on the develo!"ent of the "ine and the o!eration of the "ill# 'n the !erfor"ance of this !rinci!al underta0ing the "anager was not in any way e1ecuting Curidical acts for the !rinci!al, destined to create, "odify or e1tinguish business relations between the !rinci!al and third !erson# 'n other words, in !erfor"ing its !rinci!al underta0ing the "anager was not acting as an agent of the !rinci!al, in the sense that the ter" agent is inter!reted under the law of agency, but as one who was !erfor"ing "aterial acts for an e"!loyer, for co"!ensation# Conse;uently, the "anage"ent contract not being an agency cannot be revo0ed at will and was binding to its full contracted !eriod# 'n Shell Co. v. (ire'en1s Insurance of +e2ar- , 100 @hil# ,(, +19(,-, in ruling that the o!erator was an agent of the )hell co"!any, the Court too0 into consideration the following facts? +a- that the o!erator owed his !osition to the co"!any and the latter could re"ove hi" or ter"inate his services at will2 +b- that the service station belonged to the co"!any and bore its tradena"e and the o!erator sold only the !roducts of the co"!any2 that the e;ui!"ent used by the o!erator belonged to the co"!any and were Cust loaned to the o!erator and the co"!any too0 charge of their re!air and "aintenance2 +cthat an e"!loyee of the co"!any su!ervised the o!erator and conducted !eriodic ins!ection of the co"!any9s gasoline and service station2 and +dthat the !rice of the !roducts sold by the o!erator was fi1ed by the co"!any and not by the o!erator# #. F+!1 .e C!n +"& !f S"0e Hnder Article 1466 of the Civil Code, 'n construing a contract containing

!rovisions characteristic of both the contract of sale and of the contract of agency to sell, the essential clauses of the whole instru"ent shall be considered#$ Juris!rudence has indicated what the essential clauses$ that should indicate whether it is one of sale or agency to sellI!urchase, refers to sti!ulations in the contract which !laces obligations on the !art of the !ur!orted agent$ having to do with what should be a seller9 obligation to transfer ownershi! and deliver !ossession of the subCect "atter, or the buyer9s obligation on the !ay"ent of the !rice# 'n 3uiroga v. $arsons, 58 @hil# (01 +1918-, although the !arties designated the arrange"ent as an agency agree"ent, the Court found the arrange"ent to be one of sale since the essential clause !rovided that @ay"ent was to be "ade at the end of si1ty days, or before, at the %!rinci!al9s& re;uest, or in cash, if the %agent& so !referred, and in these last two cases an additional discount was to be allowed for !ro"!t !ay"ent#$ .hese conditions to the Court were !recisely the essential features of a contract of !urchase and sale$ because there was the obligation on the !art of the !ur!orted !rinci!al to su!!ly the beds, and, on the !art of the !ur!orted agent, to !ay their !rice, thus? .hese features e1clude the legal conce!tion of an agency or order to sell whereby the "andatory or agent received the thing to sell it, and does not !ay its !rice, but delivers to the !rinci!al the !rice he obtains fro" the sale of the thing to a third !erson, and if he does not succeed in selling it, he returns it# Fy virtue of the contract between the !laintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to !ay their !rice within the ter" fi1ed, without any other consideration and regardless as to whether he had or had not sold the beds# +at !# (0(As a conse;uence, the revocation$ sought to be "ade by the !rinci!al on the !ur!orted agency arrange"ent was denied by the Court, the relationshi! being one of sale, and the !ower to rescind is available only when the !ur!orted !rinci!al is able to show substantial breach on the !art of the !ur!orted agent# 3uiroga further ruled that when the ter"s of the agree"ent co"!els the !ur!orted agent to !ay for the !roducts received fro" the !ur!orted !rinci!al within the sti!ulated !eriod, even when there has been no sale thereof to the !ublic, the underlying relationshi! is not one of contract of agency to sell, but one of actual sale# A true agent does not assu"e !ersonal res!onsibility for

Agency Reviewer

the !ay"ent of the !rice of the obCect of the agency2 his obligation is "erely to turn3over to the !rinci!al the !roceeds of the sale once he receives the" fro" the buyer# Conse;uently, since the underlying agree"ent is not an agency agree"ent, it cannot be revo0ed e1ce!t for cause# 'n )onzalo $u*at & Sons, Inc. v. Arco A'use'ent Co'pan* , ,2 @hil# 402 +1941-, which covered a !ur!orted agency contract to !urchase, the Court loo0ed into the !rovisions of their contract, and found that the letters between the !arties clearly sti!ulated for fi1ed !rices on the e;ui!"ent ordered, which ad"itted no other inter!retation than that the %!rinci!al& agreed to !urchase fro" the %agent& the e;ui!"ent in ;uestion at the !rices indicated which are fi1ed and deter"inate#$ +at !# 40,-# .he Court held that whatever unforeseen events "ight have ta0en !lace unfavorable to the %agent&, such as change in !rices, "ista0e in their ;uotation, loss of the goods not covered by insurance or failure of the )tarr @iano Co"!any to !ro!erly fill the orders as !er s!ecifications, the %!rinci!al& "ight still legally hold the %agent& to the !rices fi1ed#$ +at !# 40,-# 't was ruled that the true relationshi! between the !arties was in effect a contract of sale# Conse;uently, the de"and by the !ur!orted !rinci!al of all discounts and benefits obtained by the !ur!orted agent fro" the A"erican su!!liers under the theory that all benefits received by the agent under the transactions were to be accounted for the benefit of the !rinci!al, was denied by the Court# )onzalo $u*at also ruled that when under the ter"s of the agree"ent, the !ur!orted agent beco"es res!onsible for any changes in the ac;uisition cost of the obCect he has been authori4ed to !urchase fro" a su!!lier in the Hnited )tates, the underlying agree"ent is not an contract of agency to buy, since an agent does not bear any ris0 relating to the subCect "atter or the !rice# Feing truly a contract of sale, any !rofits reali4ed by the !ur!orted agent fro" discounts received fro" the A"erican su!!lier, !ertain to it with no obligation to account for it, "uch less to turn it over, to the !ur!orted !rinci!al# Reiterated in (ar Eastern E%port & I'port Co., v. i' Tech Suan , 9, @hil# 1,1 +19((-# 'n Chua +go v. 0niversal Trading Co., Inc#, 8, @hil# 551 +19(0-, where a local i"!orting co"!any was contracted to !urchase fro" the Hnited )tates several bo1es of oranges, "ost of which were lost in transit, the !urchaser sought to recover the advance !urchased !rice !aid, which were refused by the local i"!orting co"!any on the ground that it "erely i"!orted the oranges as agent of the !urchaser for which it could not be held liable for

their loss in transit# .he Court, in reviewing the ter"s and conditions of the agree"ent between the !arties, held that the arrange"ent was a sale rather than a contract of agency to !urchase on the following grounds? +a- no co""ission was !aid by the !urchaser to the local i"!orting co"!any2 +bthe local i"!orting co"!any was given the o!tion to resell$ the oranges if the balance of the !urchase !rice was not !aid within 48 hours fro" notification, which clearly i"!lies that the local i"!orting co"!any did in fact sell$ the oranges to the !urchaser2 +c- the local i"!orting co"!any !laced order for the oranges a lower the !rice agreed u!on with the !urchaser which it could not !ro!erly do$ if indeed it were "erely acting as an agent2 +d- the local i"!orting co"!any charged the !urchaser with a sales ta1, showing that the arrange"ent was indeed a sale2 and +e- when the losses occurred, the local i"!orting co"!any "ade clai"s against the insurance co"!any in its own na"e, indicating that he i"!orted the oranges as his own !roducts, and not "erely as agent of the local !urchaser# 'n $earl Island Co''ercial Corp. v. i' Tan Tong , 101 @hil# ,89 +19(,-, the )u!re"e Court was unsure of its footing when it tried to characteri4e a contract of sale + Contract of @urchase and )ale$- between the "anufacturer of wa1 and its a!!ointed distributor in the Oisayan area, as still being within a contract of agency in that while !roviding for sale of Fee :a1 fro" the !laintiff to .ong and !urchase of the sa"e by .ong fro" the !laintiff, also designates .ong as the sole distributor of the article within a certain territory#$ +at !# ,92.he reasoning in $earl Island is wrong, of course, since as early as in3uiroga v. $arson, the Court had already ruled that a!!ointing one as agent$ or distributor$, when in fact such a!!ointee assu"es the res!onsibilities of a buyer of the goods, does not "a0e the relationshi! one of agency, but that of sale# @erha!s the best way to understand the ruling in$earl Island was that the suit was not between the buyer and seller, but by the seller against the surety of the buyer who had secured the shi!"ent of the wa1 to the buyer, and the true characteri4ation of the contract between the buyer and seller was not the essential criteria by which to fi1 the liability of the surety, thus 6 .rue, the contract +B1hibit A- is not entirely clear# 't is in so"e res!ects, even confusing# :hile it s!ea0s of sale of Fee :a1 to .ong and his res!onsibility for the !ay"ent of the value of every shi!"ent so !urchased, at the sa"e ti"e it a!!oints hi" sole distributor within a certain area, the !laintiff

Agency Reviewer

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underta0ing is not to a!!oint any other agent or distributor within the sa"e area# Anyway, it see"s to have been the sole concern and interest of the !laintiff to be sure that it was !aid the value of all shi!"ents of Fee :a1 to .ong and the )urety Co"!any by its bond, guaranteed in the final analysis said !ay"ent by .ong, either as !urchaser or as agent# # # # +at !# ,95'n 4er & Co., td. v. ingad, 58 )C*A (24 +19,1-, covering a contract of distributorshi!, it was s!ecifically sti!ulated in the contract that all goods on consign"ent shall re"ain the !ro!erty of the Co"!any until sold by the Jistributor to the !urchaser or !urchasers, but all sales "ade by the Jistributor shall be in his na"e2$ and that the Co"!any at its own e1!ense, was to 0ee! the consigned stoc0 fully insured against loss or da"age by fire or as a result of fire, the !olicy of such insurance to be !ayable to it in the event of loss#$ 't was further sti!ulated that the contract does not constitute the Jistributor the agent or legal re!resentative of the Co"!any for any !ur!ose whatsoever# Jistributor is not granted any right or authority to assu"e or to create any obligation or res!onsibility, e1!ress or i"!lied in behalf of or in the na"e of the Co"!any, or to bind the Co"!any in any "anner or thing whatsoever#$ 'n s!ite of such sti!ulations, the Court did find the relationshi! to be one of agency, because it did not transfer ownershi! of the "erchandise to the !ur!orted distributor, even though it was su!!osed to enter into sales agree"ents in the @hili!!ines in its own na"e, thus? .he transfer of title or agree"ent to transfer it for a !rice !aid or !ro"ised is the essence of sale# 'f such transfer !uts the transferee in the attitude or !osition of an owner and "a0es hi" liable to the transferor as a debtor for the agreed !rice, and not "erely as an agent who "ust account for the !roceeds of a resale, the transaction is a sale2 while the essence of an agency to sell is the delivery to an agent, not as his !ro!erty, but as the !ro!erty of the !rinci!al, who re"ains the owner and has the right to control the sale, fi1 the !rice, and ter"s, de"and and receive the !roceeds less the agent9s co""ission u!on sales "ade# +at !# (50'n .ictoria &illing Co., Inc. v. Court of Appeals, 555 )C*A 665 +2000-, the Court held that an authori4ation given to the buyer of goods to obtain the" fro" the bailee for and in behalf$ of the bailor3seller does not necessarily establish an agency, since the intention of the !arties was for the buyer to ta0e !ossession and ownershi! over the goods with the decisive language in the authori4ation being sold and endorsed#$

'n i' v. Court of Appeals, 2(4 )C*A 1,0 +1996-, it was held that as a general rule, an agency to sell on co""ission basis does not belong to any of the contracts covered by Articles 15(, and 15(8 of the Civil Code re;uiring the" to be in a !articular for", and not one enu"erated under the )tatutes of 7rauds in Article 1405# Dence, unli0e a sale contract which "ust co"!ly with the )tatute of 7rauds for enforceability, a contract of agency to sell is valid and enforceable in whatever for" it "ay be entered into# .he old decision in +ational Rice and Corn Corp. v. Court of Appeals , 91 )C*A 45, +19,9-, !resents an interesting situation where it is !ossible for a !arty to enter into an arrange"ent, where a !ortion thereof is as agent, and the other !ortion would be as buyer, and still be able to distinguish and set a!art to the two transactions to deter"ine the rights and liabilities of the !arties# 'n +ational Rice a for"al contract was entered into between the =ational *ice M Corn Cor!# +=A*'C- and the Javao Gerchandising Cor!# +JAGB*CE-, where they agreed that JAGB*CE would act as an agent of =A*'C in e1!orting the ;uantity and 0ind of corn and rice$ "entioned in the contract +B1hibit A$-, as well as in i"!orting the collateral goods that will be i"!orted thru barter on a bac0 to bac0 letter of credit or no3dollar re"ittance basis2$ and with JAGB*CE agreeing to buy the afore"entioned collateral goods#$ Although the corn grains were duly e1!orted, the Aovern"ent had issued rules banning the barter of goods fro" abroad# =A*'C then brought suit against JAGB*CE see0ing recovery of the !rice of the e1!orted grains# .he Court ruled that insofar as the e1!orting of the grains was concerned, JAGB*CE acted "erely as agent of =A*'C for which it cannot be held !ersonally liable for the shortfall considering that it had acted within the sco!e of its authority# .he Court had agreed that indeed the other half of the agree"ent whereby JAGB*CE bound itself as the !urchaser of the collateral goods to be i"!orted fro" the !roceeds of the sale of the corn and rice,$ was a valid and binding contract of sale, but for which JAGB*CE could not be "ade to !ay the !urchase !rice, because =A*'C itself was no longer in a !osition to i"!ort any of such goods into the country, by reason of force "aCeure, thus 6 't is clear that if after JAGB*CE had s!ent big su"s incident to carrying out the !ur!ose of the contract, the i"!ortation of the re"aining collateral goods worth about H)P480,000#00 could not be effected due to sus!ension by the govern"ent under a new ad"inistration of barter transactions, the =A*'C

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+now *ice and Corn Ad"inistration- ought to "a0e the necessary re!resentations with the govern"ent to enable JAGB*CE to i"!ort the said re"aining collateral goods# .he contract, B1hibit A$, has reci!rocal sti!ulations which "ust be given force and effect# +at !# 449Although it is clear fro" the decision that JAGB*CE had assu"ed also the !osition of being a buyer of goods fro" =A*'C, the Court in +ational Ricewas able to segregate his role as "erely an agent of =A*'C insofar as the e1!ort of the grains was concerned, and a!!ly the doctrine that an agent does not assu"e any !ersonal obligation with res!ect to the subCect "atter of the agency nor of the !roceeds thereof, his obligation being "erely to turn3 over the !roceeds to the !rinci!al whenever he receives the"# +ational Rice also de"onstrate the !rogressive nature$ of every contract of agency, in that it !resents a !liable legal relationshi! which "ay be ado!ted into other relationshi!s, such a contract of sale, to be able to achieve co""ercial ends# e. F+!1 B+!<e+ A bro0er is best defined in Sch'id and O/erl*, Inc. v. R" &artine4, 166 )C*A 495 +1988-, where the Court held that a bro0er is one who is engaged, for others, on a co""ission, negotiating contracts relative to !ro!erty with the custody of which he has no concern2 the negotiator between other !arties, never acting in his own na"e but in the na"e of those who e"!loyed hi"# # # # a bro0er is one whose occu!ation is to bring the !arties together, in "atters of trade, co""erce or navigation#$ +at !# (01- 'n other words, the services of a bro0er is to find third !arties who "ay be interested in entering into contracts with other !arties over !articular "atter, and "ay include negotiating in behalf of both !arties the !erfection of a contract, but that the actual !erfection "ust still be done by the !arties re!resented# A bro0er essentially is not an e1tension of the !ersons of the !arties he is negotiating for# 'n Re*es v. Rural ,an- of San &iguel, 424 )C*A 15( +2004-, the Court held that unli0e an agent who "ust act in the na"e of the !rinci!al, a bro0er is one who is engaged for others on a co""ission to negotiate between other !arties, never acting in his own na"e but in the na"e of those who e"!loyed hi"# 'n $acific Co''ercial Co. v. 5atco, 65 @hil# 598 +1956-, the Court ruled that a bro0er has no relation with the thing he has been retained to buy or to sell2

he is "erely an inter"ediary between the !urchaser and the vendor# De ac;uires neither the custody nor the !ossession of the thing he sells2 his only office is to bring together the !arties to the transaction# 't "ust be noted though that a bro0er "ay at the sa"e ti"e be an agent# :hen he acts in his behalf in dealing with the !ublic, even when he handles things !ertaining to the !rinci!al, he is a "ere bro0er# En the other hand, if he is duly authori4ed to act in the na"e of the !rinci!al, there is no doubt that the bro0er is also an agent# .hus, in A/acus Securities Corp. v. A'pil , 485 )C*A 51( +2006-, it was held that since in that case the bro0erage relationshi! was necessary a contract for the e"!loy"ent of an agent, !rinci!les of contract law also govern the bro0er3!rinci!al relationshi!# 'n the sa"e "anner, in #o'ingo v. #o'ingo, 42 )C*A 151 +19,1-, the Court held that the duties and liabilities of a bro0er to his e"!loyer are essentially those which an agent owes to his !rinci!al# 'n such a situation, the decisive legal !rovisions to deter"ine whether a bro0er has violated his duty or obligation& are found in Articles 1891 and 1909 of the =ew Civil Code, whereby every agent is bound to render an account of his transactions and to deliver to the !rinci!al whatever he "ay have received by virtue of the agency, even though it "ay not be owning to the !rinci!al2 and that an agent is res!onsible not only for fraud, but also for negligence#%10& En the other hand, the Court also held in #o'ingo that .he duty e"bodied in Article 1891 of the =ew Civil Code will not a!!ly if the agent or bro0er acted only as a "iddle"an with the tas0 of "erely bringing together the vendor and vendee, who the"selves thereafter will negotiate on the ter"s and conditions of the transaction#$ +at !# 140415 B+!<e+ H", N! A2 .!+i ) T! En e+ in ! C!n +"& in .e N"1e !f .e P+in&i-"0 'n iton!ua, "r. v. Eternit Corp. , 490 )C*A 204 +2006-, it was held that a real estate bro0er is one who negotiates the sale of real !ro!erties2 his business, generally s!ea0ing, is only to find a !urchaser who is willing to buy the land u!on ter"s fi1ed by the owner# De has no authority to bind the !rinci!al by signing a contract of sale# 'ndeed, an authority to find a !urchaser of real !ro!erty does not include an authority to sell# .hus, when the seller hi"self closes the sale with the !urchaser located by the bro0er, the seller is bound to !ay the co""ission he has contracted with the bro0er for "erely finding the buyer#

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't "ust be noted that the ruling in iton!ua, "r. does not !rovide for a strict rule on co"!ensability of a bro0er, but li0e any other contract, its !erfection is subCect to the ter"s and conditions that have been agreed u!on# .he essence of the ruling in iton!ua, "r. is that the "ain service for which the bro0er was contracted for is to find$ a !ros!ective buyer, then if the seller on his own closes the deal with the buyer found by the bro0er, the latter has earned his finder9s$ fee# En the other hand, it is !ossible that the ter"s of the bro0er9s contract is that it is not enough for the bro0er to find the !ros!ective buyer, but that his services "ust include efforts to negotiate$, i.e., convince hi" to enter into a contract with the client, then it is not enough that the bro0er found the !ros!ective buyer, but he "ust s!end efforts at negotiating with the said !erson that leads hi" to enter into a contract with the client, otherwise "ere finding would not entitle the bro0er to the fee9s agreed u!on# 4*5 B+!<e+ I, N! Le("00) In&"-"&i " e# ! P2+&.",e P+!-e+ ) !f .e P+in&i-"0 'n Araneta, Inc. v. #el $aterno, 91 @hil# ,86 +19(2-, it was held that the !rohibition in Article 1491+2- of the Civil Code which renders an agent legally inca!able of buying the !ro!erties of his !rinci!al connotes the idea of trust and confidence2 and so where the relationshi! does not involve considerations of good faith and integrity the !rohibition should not and does not a!!ly# .o co"e under the !rohibition, the agent "ust be in a fiduciary relation with his !rinci!al#$ .he Court held that a bro0er does not co"e within the "eaning of Article 1492, because he is nothing "ore than a go3between or "iddle"an between the defendant and the !urchaser, bringing the" together to "a0e the contract the"selves# .here is no confidence to be betrayed, since a bro0er is not authori4ed to "a0e a binding contract for the !ur!orted !rinci!al2 he is not sell the !ro!erty, but only to loo0 for a buyer and the owner is to "a0e the sale2 he was not to fi1 the !rice of the sale because the !rice had to be already fi1ed in his co""ission2 he is not to "a0e the ter"s of !ay"ent because these, too, would be clearly s!ecified in his co""ission# 'n fine, a bro0er is left no !ower or discretion whatsoever, which he could abuse to his advantage and to the owner9s !reCudice# 4/5 B+!<e+=, En i 0e1en ! C!11i,,i!n

'n ;uite a nu"ber of decisions, the )u!re"e Court has held that the deter"ination of whether one is an agent or a bro0er constitutes a critical factor of whether he would be entitled to the co""ission sti!ulated in the contract# .hus, in Tan v. )ullas, 595 )C*A 554 +2002-, ;uoting fro" )ch"id & O/erl*, Inc. v. R" &artinez (ishing Corp., 166 )C*A 495 +1988-, it defined a bro0er$ as one who is engaged, for others, on a co""ission, negotiating contracts relative to !ro!erty with the custody of which he has no concern2 the negotiator between other !arties, never acting in his own na"e but in the na"e of those who e"!loyed hi"# 1 1 1 a bro0er is one whose occu!ation is to bring the !arties together, in "atters of trade, co""erce or navigation#$ +at !# 559- .he Court then held that An agent receives a co""ission u!on the successful conclusion of a sale# En the other hand, a bro0er earns his !ay "erely by bringing the buyer and the seller together, even if no sale is eventually "ade#$ # # # Clearly, therefore, !etitioners, as bro0ers, should be entitled to the co""ission whether or not the sale of the !ro!erty subCect "atter of the contract was concluded through their efforts#$ +at !# 541Also, in Hahn v. Court of Appeals, 266 )C*A (5, +199,-, the Court held that Contrary to the a!!ellate court9s conclusion, this arrange"ent shows an agency# An agent receives a co""ission u!on the successful conclusion of a sale# En the other hand, a bro0er earns his !ay "erely by bringing the buyer and the seller together, even if no sale is eventually "ade#$ +at !# (49't "ust be noted that the entitle"ent of a bro0er or an agent to the co""ission de!ends really on the wordings of the contract between the", and not really whether one is a bro0er$ or agent$# 'n $hil. Health6Care $roviders 7&a%icare8 v. Estrada , (42 )C*A 616 +2008-, the Court held that the ter" !rocuring cause$ in describing a bro0er9s activity, refers to a cause originating a series of events which, without brea0 in their continuity, result in the acco"!lish"ent of the !ri"e obCective of the e"!loy"ent of the bro0er6!roducing a !urchaser ready, willing and able to buy on the owner9s ter"s# .o be regarded as the !rocuring cause$ of a sale as to be entitled to a co""ission, a bro0er9s efforts "ust have been the foundation on which the negotiations resulting in a sale began# Again, this ruling is correct only if it is clear that the agree"ent on the services of the bro0er, for which he would be entitled to his fees, is not "erely of finding the !ros!ective buyer#$

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Fut truly, since both a bro0erage arrange"ent and an agency agree"ent are inherently contractual relations, the entitle"ent of a bro0er or agent to the co"!ensation or co""ission sti!ulated would have to de!end u!on the contractual clause covering the sa"e# 'n other words, it "ay well be sti!ulated in a true bro0erage arrange"ent that the bro0er would be entitled to a co""ission only when a sale is eventually "ade# 'n the sa"e "anner, the agency contract "ay well sti!ulate that the agent shall be entitled to earn co""ission by "erely bringing the buyer and the seller together, even when the actual sale of the !erson referred to by the agent ha!!ens long after the agency relationshi! has ter"inated# .o illustrate, in )uarde% v. + RC, 191 )C*A 48, +1990-, the Court held that when the ter"s of the agency arrange"ent is to the effect that entitle"ent to the co""ission was contingent on the !urchase by a custo"er of a fire truc0, the i"!licit condition being that the agent would earn the co""ission if he was instru"ental in bringing the sale about# )ince the agent had nothing to do with the sale of the fire truc0, and is not therefore entitled to any co""ission at all# Although Sch'id & O/erl*, Inc# is now credited with laying down the definition of a bro0er, the decision shows that it ;uoted fro" the early decision of ,ehn, &e*er and Co., td. v. +olting and )arcia , 5( @hil# 2,4 +1916-, where the Court held / A bro0er is generally defined as one who is engaged, for others, on a co""ission, negotiating contracts relative to !ro!erty with the custody of which he has no concern2 the negotiation between other !arties, never acting in his own na"e but in the na"e of those who e"!loyed hi"2 he is strictly a "iddle"an and for so"e !ur!ose the agent of both !arties# +19 Cyc#, 1862 Denderson vs# .he )tate, (0 'nd#, 2542 Flac09s 8aw Jictionary#- A bro0er is one whose occu!ation it is to bring !arties together to bargain, or to bargain for the", in "atters of trade, co""erce or navigation# +Geche" on Agency, sec# 152 :harton on Agency, sec# 69(-# Judge )torey, in his wor0 on Agency, defines a bro0er as an agent e"!loyed to "a0e bargains and contracts between other !ersons, in "atters of trade, co""erce or navigation, for co"!ensation co""only called bro0erage# +)torey on Agency, sec# 28- +at !# 2,93280=ote therefore that bro0er$ is considered a co""ercial ter" for a !erson engaged as a "iddle"an to bring !arties together in "atters !ertaining to

trade, co""erce or navigation# 'f the !erson has not been given the !ower to enter into the contract or co""erce in behalf of the !arties, then he is a bro0er$ in the sense that his Cob "ainly is to bring !arties together to bargain,$ and even then he "ay not be entitled to his co""ission if the bargaining between the !arties does not result in a contract being !erfected# Fut in this sense, the bro0er does not assu"e the role of an agent because he has no !ower to enter into a contract in behalf of any of the !arties2 he also assu"es no fiduciary obligations to either or both !arties, since they are e1!ected to use their own Cudg"ent in deciding to bind or not to bind the"selves to a contract# En the other hand, if the !erson has been given the !ower to enter into a contract or co""erce on behalf of any, or even for both the !arties, he is truly an agent# 'n which case, he assu"es fiduciary obligations to the !erson who is therefore legally his !rinci!al# 'n such case, he is entitled to a co""ission if his efforts + i.e., the services he rendered- where the efficient cause for the eventual !erfection and consu""ation of the contract that was the obCect for a!!ointing hi" bro0erIagent#

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