AGENCY DIGEST

EUROTECH INDUSTRIAL TECHNOLOGIES, INC. v. CUIZON

G.R. No. 167552; April 23, 2007
Ponente: J. Chico-Nazario
FACTS:
From January to April 1995, petitioner sold to Impact Systems
various products allegedly amounting to P91,338.00 pesos.
Subsequently, respondents sought to buy from petitioner one unit of
sludge pump valued at P250,000.00 with respondents making a
down payment of P50,000.00. When the sludge pump arrived from
the United Kingdom, petitioner refused to deliver the same to
respondents without their having fully settled their indebtedness to
petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de
Jesus, general manager of petitioner, executed a Deed of
Assignment of receivables in favor of petitioner. Impact systems is
owed by ERWIN Cuizon.
Despite the existence of the Deed of Assignment, respondents
proceeded to collect from Toledo Power Company the amount of
P365,135.29. Alarmed by this development, petitioner made several
demands upon respondents to pay their obligations. As a result,
respondents were able to make partial payments to petitioner. On 7
October 1996, petitioner's counsel sent respondents a final demand
letter wherein it was stated that as of 11 June 1996, respondents'
total obligations stood at P295,000.00 excluding interests and
attorney's fees. Because of respondents' failure to abide by said
final demand letter, petitioner instituted a complaint for sum of
money, damages, with application for preliminary attachment
against herein respondents
By way of special and affirmative defenses, respondent EDWIN
alleged that he is not a real party in interest in this case. According
to him, he was acting as mere agent of his principal, which was the
Impact Systems, in his transaction with petitioner and the latter was
very much aware of this fact.
ISSUE:
Whether the act of Edwin in signing the Deed of Assignment binds
his principal Impact Systems

HELD:
Yes, the act of Edwin in signing the Deed of Assignment binds
Impact Systems
The Supreme Court held that in a contract of agency, a person
binds himself to render some service or to do something in
representation or on behalf of another with the latter's consent. Its
purpose is to extend the personality of the principal or the party for
whom another acts and from whom he or she derives the authority
to act. It is said that the basis of agency is representation, that is,
the agent acts for and on behalf of the principal on matters within
the scope of his authority and said acts have the same legal effect
as if they were personally executed by the principal.
In this case at hand, the parties do not dispute the existence of the
agency relationship between respondents ERWIN as principal and
EDWIN as agent.
ORIENT AIR SERVCES AND HOTEL REPRESENTATIVES V CA
FACTS:
American Airlines, inc, an air carrier offering passenger and air cargo
transportation in the Phils, and Orient Air Services and Hotel
Representatives entered into a General Sales Agency Agreement
whereby the former authorized the latter to act as its exclusive
general sales agent within the Phils for the sale of air passenger
transportation
Some of the pertinent provisions are:
Orient Air Services shall perform these services:
a. solicit and promote passenger traffic for the services of American
and if necessary, employ staff competen and sufficient to do so
b. provide and maintain a suitable area in its place of business to be
used exclusively for the transaction of the business of American
c. arrange for distribution of Americans timetables, tariffs and
promotional material to sales agents nad the general public in the
assigned territory

d. service and supervise sales agents in the assigned territory

including if required by American the control of remittances and
commissions retained
e. hold out a passenger reservation facility to sales agents and
general public in the assigned territory

paid commissions of 2 kinds: first, a sales agency commission,

ranging from 7 to 8% of tariff fares and charges from sales by Orient
Air when made on American Air ticket stock; and second, an
overriding commission of 3% of tariff fares and charges for all sales
of passenger transportation over American Air services.

Alleging that Orient Air had reneged on its obligations under the
Agreement by failing to remit the net proceeds of sale in the amount
of US $ 254,400, American Air by itself undertook the collection of
the proceeds of tickets sold originally by Orient Air and terminated
forthwith the Agreement

The second type of commissions would accrue for sales of American

Air services made not on its ticket stocket but on the ticket stock of
other air carriers sold by such carriers or other authorized ticketing
facilities or travel agents.

American Air instituted suit against Orient Air for Accounting with
Preliminary Attachment or Garnishment, Mandatory Injunction and
Restraining Order averring the basis for the termination of the
Agreement as well as Orient Airs previous record of failures to
promptly settle past outstanding refunds of which there were
available funds in the possession of the Orient Air to the damage
and prejudice of American Air
TC ruled in favor of Orient Air to which the Intermediate Appelalate
Court (now CA) affirmed TCs decision with modifications with
respect to monetary awards granted.
ISSUE: W/N Orient Air is entitled to the 3% overriding commission
RULING: Yes
It is a well settled principle that in the interpretation of a contract,
the entirety thereof must be taken into consideration to ascertain
the meaning of its provisions. The various stipulations in the
contract must be read together to give effect to all
The Agreement, when interpreted in accordance with the foregoing
principles, entitles
Orient Air to the 3% overriding commission
based on total revenue or as referred to by the parties, total flown
revenues.
As the designated General Sales Agent of American Air, Orient Air
was responsible for the promotion and marketing of American Airs
services for air passenger transportation and the solicitation of sales
therefor. In return for such efforts and services, Orient Air was to be

In addition, it is clear from the records that American Air was the
party responsible for the preparation of the Agreement.
Consequently, any ambiguity in this contract of adhesion is to be
taken contra proferentem construed against the party who cause
the ambiguity and could have avoided it by the exercise of a little
more care.
LITONJUA, JR. v. ETERNIT CORP. G.R. No. 144805June 8, 2006
Quick Summary:EC engaged the services of Marquez to dispose its
eight parcels of land (sites used to manufacture their roofing
materials and pipe products) in 1986 when it decided to stop
operations due to the political instability of the country. Marquez was
able to find a buyer, the Litonjua brothers, who accepted the
counteroffer price offered to them by Delsaux, head of ESAC which
owns 90% of EC and conferred to Marquez by Glanville, President
and General Manager of EC.
Litonjua deposited US$1,000,000.00 with the Security Bank & Trust
Company, Ermita Branch, and drafted an Escrow Agreement to
expedite the sale.EC backed out of the sale compelling Litonjua to
file for specific performance and damages. SC ruled that there was
no valid sale as the officers (Glanville and Delsaux) acted on behalf
of ESAC and not on behalf of EC, which owns the properties. EC
never ratified their agreement with any board resolution.
EC did not knowingly allow its officers to assume such authority. No
board resolution designating them as agent. Litonjua cannot invoke
good faith and doctrine of apparent authority. He should have
exercised due diligence in checking for the authorization papers of
Marquez, Glanville and Delsaux.

Agency by estoppel (Requisites):

1.

Principal manifested a representation of the agents authority /

knowingly allowed agent to assume such authority

2.

Third person in Good Faith relied upon such representation

3.

rd

person has changed its position to its detriment.

Facts:
Eternit Corporation (EC) is a corporation engaged in the manufacture
of roofing materials and pipe products in the Philippines. Its
manufacturing operations were conducted on eight parcels of land
with a total area of 47,233 square meters.In 1986, the management
of ESAC grew concerned about the political situation in the
Philippines and wanted to stop its operations in the country. Michael
Adams, a member of ECs Board of Directors engaged the services of
realtor/broker Lauro G. Marquez so that the eight parcels of land
could be offered for sale to prospective buyers.
Marquez offered the parcels of land and the improvements to
Eduardo B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter
dated September 12, 1986, Marquez declared that he was
authorized to sell the properties for P27,000,000.00 and could
negotiate the terms of the sale. Litonjua, along with brother, offered
to buy the property for P20,000,000.00 cash. Marquez apprised
Glanville (President and General Manager of EC) of the Litonjua
siblings offer and relayed the same to Delsaux (Head of ESAC,
which owns 90% of EC) in Belgium, but the latter did not respond.
On February 12, 1987 that Delsaux sent a telex to Glanville stating
that, based on the "Belgian/Swiss decision," the final offer was
"US$1,000,000.00 and P2,500,000.00 to cover all existing
obligations prior to final liquidation." Litonjua accepted the counterproposal of Glanville which was conferred to them in a letter. Within
90 days as provided in their agreement, the Litonjua brothers
deposited the amount of US$1,000,000.00 with the Security Bank &
Trust Company, Ermita Branch, and drafted an Escrow Agreement to
expedite the sale.
EC backed out of the sale. They wanted to continue operations in the

Philippines since by then, in 1987, Marcos had left and the political
situation had already improved. Delsaux himself later sent a letter
dated May 22, 1987, confirming that the ESAC Regional Office had
decided not to proceed with the sale of the subject land. Litonjua
filed for specific performance and damages.
RTC ruled that EC was not liable for damages since there was no
valid and binding sale between the plaintiffs and said defendants.
Since the authority of the agents/realtors was not in writing, the sale
is void and not merely unenforceable, and as such, could not have
been ratified by the principal. In any event, such ratification cannot
be given any retroactive effect. Plaintiffs could not assume that
defendants had agreed to sell the property without a clear
authorization from the corporation concerned, that is, through
resolutions of the Board of Directors and stockholders.
Issues:
Whether or not Marquez, Glanville, and Delsaux were authorized by
respondent EC to act as its agents relative to the sale of the
properties of EC and could represent the company in a contract of
sale of real property of EC.
Whether an agency by estoppel was created or whether a person
acted within the bounds of his apparent authority, and whether the
principal is estopped to deny the apparent authority of its agent are,
likewise, questions of fact to be resolved on the basis of the
evidence on record
Held: No.

While Glanville was the President and General Manager of

respondent EC, and Adams and Delsaux were members of its Board
of Directors, the three acted for and in behalf of respondent ESAC,
and not as duly authorized agents of respondent EC; a board
resolution evincing the grant of such authority is needed to
bind EC to any agreement regarding the sale of the subject
properties. Such board resolution is not a mere formality but is a
condition sine qua non to bind respondent EC. The mere fact that a
corporation owns a majority of the shares of stocks of another
(respondent ESAC owned 90% of the shares of stocks of respondent
EC), or even all of such shares of stocks, taken alone, will not justify
their being treated as one corporation.

Under Section 36 of the Corporation Code, a corporation may sell or

convey its real properties, subject to the limitations prescribed by
law and the Constitution, as follows:

In an agent-principal relationship, the personality of the

principal is extended through the facility of the agent. In so
doing, the agent, by legal fiction, becomes the principal,
authorized to perform all acts which the latter would have
him do. Such a relationship can only be effected with the
consent of the principal, which must not, in any way, be
compelled by law or by any court.

The property of a corporation, however, is not the property of the

stockholders or members, and as such, may not be sold without
express authority from the board of directors. Physical acts, like
the offering of the properties of the corporation for sale, or
the acceptance of a counter-offer of prospective buyers of
such properties and the execution of the deed of sale
covering such property, can be performed by the corporation
only by officers or agents duly authorized for the purpose by
corporate by-laws or by specific acts of the board of
directors. Absent such valid delegation/authorization, the
rules is that the declarations of an individual director
relating to the affairs of the corporation, but not in the
course of, or connected with, the performance of authorized
duties of such director, are not binding on the corporation.

It was the duty of the petitioners to prove that respondent EC had

decided to sell its properties and that it had empowered Adams,
Glanville and Delsaux or Marquez to offer the properties for sale to
prospective buyers and to accept any counter-offer.

Petitioners likewise failed to prove that their counter-offer had been

accepted by respondent EC, through Glanville and Delsaux.
When specific performance is sought of a contract made with an
agent, the agency must be established by clear, certain and specific
proof.
A corporation is a juridical person separate and distinct from its
members or stockholders and is not affected by the personal rights,
obligations and transactions of the latter. It may act only through its
board of directors or, when authorized either by its by-laws or by its
board resolution, through its officers or agents in the normal course
of business. The general principles of agency govern the relation
between the corporation and its officers or agents, subject to the
articles of incorporation, by-laws, or relevant provisions of law.

SEC. 36. Corporate powers and capacity. Every corporation

incorporated under this Code has the power and capacity:xxxx7. To
purchase, receive, take or grant, hold, convey, sell, lease, pledge,
mortgage and otherwise deal with such real and personal property,
including securities and bonds of other corporations, as the
transaction of a lawful business of the corporation may reasonably
and necessarily require, subject to the limitations prescribed by the
law and the Constitution.

While a corporation may appoint agents to negotiate for the

sale of its real properties, the final say will have to be with
the board of directors through its officers and agents as
authorized by a board resolution or by its by-laws. An
unauthorized act of an officer of the corporation is not binding on it
unless the latter ratifies the same expressly or impliedly by its board
of directors. Any sale of real property of a corporation by a
person purporting to be an agent thereof but
without written authority from the corporation is null and
void. The declarations of the agent alone are generally insufficient
to establish the fact or extent of his/her authority.
By the contract of agency, a person binds himself to render some
service or to do something in representation on behalf of another,

with the consent or authority of the latter. Consent of both

principal and agent is necessary to create an agency. The
principal must intend that the agent shall act for him; the
agent must intend to accept the authority and act on it, and
the intention of the parties must find expression either in
words or conduct between them.
An agency may be expressed or implied from the act of the
principal, from his silence or lack of action, or his failure to repudiate
the agency knowing that another person is acting on his behalf
without authority. Acceptance by the agent may be expressed, or
implied from his acts which carry out the agency, or from his silence
or inaction according to the circumstances. Agency may be oral
unless the law requires a specific form. However, to create or
convey real rights over immovable property, a special power
of attorney is necessary. Thus, when a sale of a piece of land
or any portion thereof is through an agent, the authority of
the latter shall be in writing, otherwise, the sale shall be
void.
JOCELYN B. DOLES, Petitioner,
vs.
MA. AURA TINA ANGELES, Respondent.
AUSTRIA-MARTINEZ, J.:
Facts: Respondent alleged that petitioner was indebted to the former
in the concept of a personal loan amounting to P405,430.00
representing the principal amount and interest; that on October 5,
1996, by virtue of a "Deed of Absolute Sale", 3petitioner, as seller,
ceded to respondent, as buyer, a parcel of land, as well as the
improvements thereon, with an area of 42 square meters, in order to
satisfy her personal loan with respondent.
Petitioner, denied that she borrowed money from respondent, and
averred that from June to September 1995, she referred her friends
to respondent whom she knew to be engaged in the business of
lending money in exchange for personal checks through her
capitalist Arsenio Pua. She alleged that her friends, borrowed money
from respondent and issued personal checks in payment of the loan;
that the checks bounced for insufficiency of funds; that despite her
efforts to assist respondent to collect from the borrowers, she could
no longer locate them; that she was forced to issue eight checks

amounting to P350,000 to answer for the bounced checks of the

borrowers she referred; that prior to the issuance of the checks she
informed respondent that they were not sufficiently funded but the
latter nonetheless deposited the checks and for which reason they
were subsequently dishonored, that she was forced by respondent to
execute an "Absolute Deed of Sale" over her property in Bacoor,
Cavite, to avoid criminal prosecution.
RTC: Plaintiff Angeles admission that the borrowers are the friends
of defendant Doles and further admission that the checks issued by
these borrowers in payment of the loan obligation negates the cause
or consideration of the contract of sale executed by and between
plaintiff and defendant.
CA Reversed: The CA concluded that petitioner was the borrower
and, in turn, would "re-lend" the amount borrowed from the
respondent to her friends. Hence, the Deed of Absolute Sale was
supported by a valid consideration, which is the sum of money
petitioner owed respondent amounting to P405,430.00, representing
both principal and interest.
Petitioner filed her Motion for Reconsideration, arguing that
respondent categorically admitted in open court that she acted only
as agent or representative of Arsenio Pua, the principal financier
and, hence, she had no legal capacity to sue petitioner. Hence this
petition.
Issues:
Whether or not the petitioner can be considered as a debtor of the
respondent.
Whether or not an agent who was not authorized by the principal to
collect debt in his behalf could directly collect payment from the
debtor.
Held: No. No.
Ratio: Petitioner knew that the financier of respondent is Pua; and
respondent knew that the borrowers are friends of petitioner. This
Court has affirmed that, under Article 1868 of the Civil Code, the
basis of agency is representation. In the case at bar, both petitioner
and respondent have undeniably disclosed to each other that they
are representing someone else, and so both of them are estopped to
deny the same. And since plaintiff, being an agent, was not
authorized by the principal to collect the debt in his behalf, and
respondent was acting only as an agent with regards to the debtors,
the sale of the respondent's property having been predicated on the
loan is void for lack of consideration.
PNB V. RITRATTO G.R. NO. 142616 362 SCRA 216

Facts:
PNB-IFL, a subsidiary company of PNB extended credit to Ritratto
and secured by the real estate mortgages on four parcels of land.
Since there was default, PNB-IFL thru PNB, foreclosed the property
and were subject to public auction. Ritratto Group filed a complaint
for injunction. PNB filed a motion to dismiss on the grounds of failure
to state a cause of action and the absence of any privity between
respondents and petitioner.
Issue:
Is PNB privy to the loan contracts entered into by respondent & PNBIFL being that PNB-IFL is owned by PNB?
Held:
No. The contract questioned is one entered into between Ritratto
and PNB-IFL. PNB was admittedly an agent of the latter who acted as
an agent with limited authority and specific duties under a special
power of attorney incorporated in the real estate mortgage.
The mere fact that a corporation owns all of the stocks of another
corporation, taken alone is not sufficient to justify their being treated
as one entity. If used to perform legitimate functions, a subsidiarys
separate existence may be respected, and the liability of the parent
corporation as well as the subsidiary will be confined to those arising
in their respective business. The courts may, in the exercise of
judicial discretion, step in to prevent the abuses of separate entity
privilege and pierce the veil of corporate entity.
RALLOS v FELIX GO CHAN G.R. No. L-24332January 31, 1978
Facts:This is a case of an attorney-in-fact, Simeon Rallos, who after
of the death of his principal, Concepcion Rallos, sold the latter's
undivided share in a parcel of land pursuant to a power of attorney
which the principal had executed in favor. The administrator of the
estate of the went to court to have the sale declared unenforceable
and to recover the disposed share. The trial court granted the relief
prayed for, but upon appeal the Court of Appeals upheld the validity
of the sale and the complaint.SC ruled for the plaintiff and held the
sale as void. The general rule is
Facts:
Concepcion and Gerundia both surnamed Rallos were sisters and
registered co-owners of a parcel of land. They executed a special
power of attorney in favor of their brother, Simeon Rallos,

authorizing him to sell for and in their behalf lot 5983. On March 3,
1955, Concepcion Rallos died. On September 12, 1955, Simeon
Rallos sold the undivided shares of his sisters Concepcion and
Gerundia in lot 5983 to Felix Go Chan & Sons Realty Corporation for
the
sum of P10,686.90. The deed of sale was registered in the Registry
of Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer
certificate of Title No. 12989 was issued in the name of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate
Estate of Concepcion Rallos filed a complaint docketed as Civil Case
No. R-4530 of the Court of First Instance of Cebu, praying that the
sale of the undivided share of the deceased Concepcion Rallos in lot
5983 be declared unenforceable, and said share be reconveyed to
her estate, certificate of title be reissued in their name, and for
damages and attorneys fees. Named party defendants were Felix
Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register
of Deeds of Cebu, but subsequently, the latter was dropped from the
complaint.RTC declared the sale of the 12 part of the land that
belonged to Concepcion as null and void. CA upheld the validity of
the sale.
Issue/Held:
What is the legal effect of an act performed by an agent after the
death of his principal? DEATH EXTINGUISHES AGENCY.
Is the fact of knowledge of the death of the principal a material
factor in determining the legal effect of an act performed after such
death? YES.
Is the sale of the undivided share of Concepcion Rallos in the Lot
valid although it was executed by the agent after the death of his
principal? NO.
Ratio:1. General Rule: Death extinguishes agency.
Agency is basically personal representative, and derivative in
nature. The authority of the agent to act emanates from the powers
granted to him by his principal; his act is the act of the principal if
done within the scope of the authority. Qui facit per alium facit se.

"He who acts through another acts himself".

ART. 1919. Agency is extinguished. xxx xxx xxx

Good faith here means that the third person was not aware of the
death of the principal at the time he contracted with said agent.
These two requisites must concur the absence of one will
render the act of the agent invalid and unenforceable.

By the death, civil interdiction, insanity or insolvency of the principal

or of the agent; ... (Emphasis supplied)

3. The sale is invalid as the case does not comply with first requisite.

By reason of the very nature of the relationship between Principal

and agent, agency is extinguished by the death of the principal or
the agent.

Simeon Rallos, knew of the death of his principal at the time he sold
the latter's share in Lot No. 5983 to respondent corporation. Yet he
proceeded with the sale of the lot in the name of both his sisters
Concepcion and Gerundia Rallos without informing appellant (the
realty corporation) of the death of the former.

Manresa: commenting on Art. 1709 of the Spanish Civil Code

explains that the rationale for the law is found in the juridical basis
of agency which is representation, them being an integration of the
personality of the principal
integration that of the agent it is not possible for the representation
to continue to exist once the death of either is establish.
2. Exceptions:Articles 1930 and 1931 of the Civil Code provide the
exceptions to the general rule
afore-mentioned. Article 1931 is the one applicable to the case
at bar.
ART. 1930. The agency shall remain in full force and effect even after
the death of the principal, if it has been constituted in the common
interest of the latter and of the agent, or in the interest of a third
person who has accepted the stipulation in his favor. NOT
APPLICABLE as the special power of attorney executed in favor of
Simeon Rallos was not coupled with an interest.
ART. 1931. Anything done by the agent, without knowledge of the
death of the principal or of any other cause which extinguishes the
agency, is valid and shall be fully effective with respect to third
persons who may have contracted with him in good faith.
Under this provision, an act done by the agent after the death of his
principal is valid and effective only under two conditions, viz: (1)
that the agent acted without knowledge of the death of the
principal and (2) that the third person who contracted with
the agent himself acted in good faith.

On the basis of the established knowledge of Simon Rallos

concerning the death of his principal Concepcion Rallos, Article 1931
of the Civil Code is inapplicable. The law expressly requires for its
application lack of knowledge on the part of the agent of the death
of his principal; it is not enough that the third person acted in good
faith.
Other relevant information:
Article 1931, being an exception to the general rule, is to be
strictly construed, it is not to be given an interpretation or
application beyond the clear import of its terms for otherwise the
courts will be involved in a process of legislation outside of their
judicial function.
Vendee acting in good faith relied on the power of attorney which
was duly registered on the original certificate of title recorded in the
Register of Deeds of the province of Cebu, that no notice of the
death was aver annotated on said certificate of title by the heirs of
the principal and accordingly they must suffer the consequences of
such omission. The agent acted fraudulently. When he transacted
with vendee, he already knew the certificate of title was in the name
of a dead person and without personality.
If the agency has been granted for the purpose of contracting with
certain persons, the revocation must be made known to them. But if
the agency is general in nature, without reference to particular
person with whom the agent is to contract, it is sufficient that the
principal exercise due diligence to make the revocation of the

agency publicity known.

In case of a general power which does not specify the persons to
whom represents' on should be made, it is the general opinion that
all acts, executed with third persons who contracted in good faith,
Without knowledge of the revocation, are valid. In such case, the
principal may exercise his right against the agent, who, knowing of
the revocation, continued to assume a personality which he no
longer had.
The above discourse however, treats of revocation by an act of the
principal as a mode of terminating an agency which is to be
distinguished from revocation by operation of law such as death of
the principal which obtains in this case. On page six of this Opinion
By reason of the very nature of the relationship between
principal and agent, agency is extinguished ipso jure upon
the death of either principal or agent. Although a revocation
of a power of attorney to be effective must be communicated
to the parties concerned, yet a revocation by operation of
law, such as by death of the principal is, as a rule,
instantaneously effective inasmuch as "by legal fiction the
agent's exercise of authority is regarded as an execution of
the principal's continuing will.
The Civil Code does not impose a duty on the heirs to notify
the agent of the death of the principal What the Code
provides in Article 1932 is that, if the agent dies, his heirs
must notify the principal thereof, and in the meantime adopt
such measures as the circumstances may demand in the
interest of the latter. Hence, the fact that no notice of the
death of the principal was registered on the certificate of
title of the property in the Office of the Register of Deeds, is
not fatal to the cause of the estate of the principal
LEASE OF WORKArt. 1644. In the lease of work or service,
one of the parties binds himself to execute a piece of work
or to render to the other some service for a price certain,
but the relation of principal and agent does not exist
between them. (1544a)
DOMINION INSURANCE CORPORATION vs. COURT OF
APPEALS, RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA

FACTS:
Rodolfo Guevarra (Guevarra) filed a civil case for sum of money
against Dominion Insurance Corp. (Dominion) for the amount
advanced by Guevarra in his capacity as manager of defendant to
satisfy certain claims filed by defendants client.
The pre-trial was always postponed, and during one of the pre-trial
conference dominion failed to arrive therefore the court declared
them to be in default. Dominion filed several Motions to Lift Order of
Default but was always denied by the court. The RTC rendered its
decision making Dominion liable to repay Guevarra for the sum
advanced and other damages and fees. Dominion appealed but CA
affirmed the decision of RTC and denied the appeal of Dominion.
ISSUE:
(a) W/N Guevarra acted within his authority as agent of petitioner.
(b) W/N Guevarra must be reimbursed for the amount advanced.
HELD:
(a) NO. Even though the contact entered into by Guevarra and
Dominion was with the word special the contents of the document
was actually a general agency. A general power permits the agent to
do all acts for which the law does not require a special power and
the contents in the document did not require a special power of
attorney.
Art 1878 of the civil code provides instances when a special power of
attorney is required.:
1) To make such payment as are not usually considered as acts of
administration.
15) any other act of dominion
The payment of claims is not an act of administration which requires
a special power of attorney before Guevarra could settle the
insurance claims of the insured.
Also Guevarra was instructed that the payment for the insured must
come from the revolving fund or collection in his possession,
Gueverra should not have paid the insured through his own capacity.
Under 1918 of civil code an agent who acted in contravention of the
principals instruction the principal will not be liable for the expenses
incurred by the agent.

(b) YES. Even if the law on agency prohibits Gueverra from obtaining
reimbursement his right to recover may be justified under the article
1236 of the civil code. Thus Guevarra must be reimbursed but only
to the extent that Dominion has benefited without interest or
demand for damages.
. AGUNA V. LARENA
FACTS:
This action is brought to recover the sum of P29,600 on two causes
against the administrator of the estate of the deceased Mariano
Larena
Upon his first cause of action, plaintiff claims the sum of P9,600, the
alleged value of services rendered by him to said deceased as his
agent in charge of the deceaseds houses situated in Manila
Under the second cause of action, plaintiff alleges that one of the
buildings belonging to the deceased and described in his complaint
was built by him with the consent of the deceased, and for that
reason he is entitled to recover the sum disbursed by him in its
construction, amounting to P20,000
Evidence shows that plaintiff rendered services to the deceased,
consisting in the collection of the rents due from the tenants
occupying the deceaseds houses in Manila and attending to the
repair of said houses when necessary. He also took such steps as
were necessary to enforce the payment of rents and all that was
required to protect the interests of the deceased in connection with
said houses
Evidence also shows that at the time he rendered his services, he
did not receive any compensation, however it is a fact that during
said period, plaintiff occupied a house belonging to the deceased
without paying any rent at all
Upon the first cause of action, the trial court held that the
compensation for services of plaintiff was the gratuitous use and
occupation of some of the houses of the deceased by the plaintiff
and his family
As to the second cause, the court held that the plaintiff did not have
any source of income that could produce him such a large sum of

money as that invested in the construction of the house; and the

fact that the deceased had more than the necessary amount to build
the house
ISSUE: W/N there was a contract of agency between plaintiff and
respondent entitling the former compensation for services rendered
in favor of the latter
RULING: NO
Plaintiff insists that, as his services as agent of the deceased M
Larena having been rendered, an obligaton to compensate them
must necessarily arise.
The trial court held that the compensation for the services of the
plaintiff was the gratuitous use and occupation of some of the
houses of said deceased by plaintiff and his family
If it were true that the plaintiff and the deceased had an
understanding to the effect that plaintiff was to receive
compensation aside from the use and occupation of the houses of
the deceased, it cannot be explained how the plaintiff could have
rendered services as he did for 8 years without receiving and
claiming any compensation from the deceased.
Amon Trading Corp. and Juliana Marketing v. CA and TriRealty Development and Construction Corp.
G.R. No. 158585 December 13, 2005
Chico-Nazario, J.
FACTS:
Tri-Realty is a developer and contractor with projects in Bulacan and
Quezon City. Sometime in February 1992, Tri-Realty had difficulty
in purchasing cement needed for its projects. Lines & Spaces
Interior Center, represented by Eleanor Bahia Sanchez, informed
Tri-Realty that it could obtain cement to its satisfaction from Amon
Trading Corporation and its sister company, Juliana Marketing. On
the strength of such representation, Tri-Realty proceeded to order
from Sanchez 6,050 bags of cement from Amon Trading
Corporation, and from Juliana Marketing, 6,000 bags at
P98.00/bag.
Tri-Realty, through Mrs. Sanchez of Lines & Spaces, paid in advance
the amount of the cement. Tri-Realty likewise paid to Lines &
Spaces an advance fee for the 12,050 cement bags at the rate of

P7.00/bag, or a total of P84,350.00, in consideration of the

facilitation of the orders and certainty of delivery.
The balance of 2,200 bags from Amon Trading Corporation and
3,000 bags from Juliana Marketing, or a total of 5,200 bags, was
not delivered. Tri-Realty, thus, sent Amon Trading and Juliana
Marketing written demands but in reply, they stated that they
have already refunded the amount of undelivered bags of cement
to Lines & Spaces per written instructions of Sanchez.
ISSUES:
(1) WON there was a contract of agency between Lines & Spaces
and Tri-Realty; (2) WON Amon Trading and Juliana Marketing and TriRealty has privity of contract
HELD:
(1 & 2) No
There was no written contract entered into between Amon Trading
and Juliana Marketing and Tri-Realty for the delivery of the bags of
cement. Tri-Realty agreed with Sanchez of Lines & Spaces for the
latter to source the cement needs of the former in consideration of
P7.00 per bag of cement. It is worthy to note that the payment in
managers checks was made to Sanchez and was not directly paid
to Amon Trading and Juliana Marketing. While the managers check
issued by Tri-Realty was eventually paid to Amon Trading and
Juliana Marketing for the delivery of the bags of cement, there is
obviously nothing from the face of said managers check to hint
that Tri-Realty was the one making the payments. There was
likewise no intimation from Sanchez that the purchase order
placed by her was for Tri-Realtys benefit. The meeting of minds,
therefore, was between Tri-Realty and Sanchez. This contract is
distinct and separate from the contract of sale between Amon
Trading and Juliana Marketing and Sanchez who represented
herself to be from Lines & Spaces/Tri-Realty, which, per her
representation, was a single account or entity.
Neither Sanchez nor Lines & Spaces was an agent for Tri-Realty, but
rather a supplier for the latters cement needs.
Art. 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.
On the part of the principal, there must be an actual intention to
appoint or an intention naturally inferable from his words or
actions and on the part of the agent, there must be an intention to

accept the appointment and act on it, and in the absence of such
intent, there is generally no agency. One factor which most clearly
distinguishes agency from other legal concepts is control; one
person - the agent - agrees to act under the control or direction of
another - the principal. Indeed, the very word agency has come
to connote control by the principal. The control factor, more than
any other, has caused the courts to put contracts between
principal and agent in a separate category.
The intention of Tri-Realty was merely for Lines & Spaces, through
Eleanor Sanchez, to supply them with the needed bags of cement.
Inasmuch as Amon Trading and Juliana Marketing have never
directly dealt with Tri-Realty and there is no paper trail on record to
guide them that the Tri-Realty, in fact, is the beneficiary, Amon
Trading and Juliana Marketing had no reason to doubt the request
of Sanchez later on to refund the value of the undelivered bags of
cement to Lines & Spaces. Moreover, the check refund was
payable to Lines & Spaces, not to Sanchez, so there was indeed no
cause to suspect the scheme.
Tri-Realty was negligent. It was the one who had reposed too much
trust on Sanchez for the latter to source its cement needs. Second,
it failed to employ safety nets to steer clear of the rip-off. For such
huge sums of money involved in this case, it is surprising that a
corporation such as Tri-Realty would pay its construction materials
in advance instead of in credit thus opening a window of
opportunity for Sanchez or Lines & Spaces to pocket the remaining
balance of the amount paid corresponding to the undelivered
materials. Tri-Realty likewise paid in advance the commission of
Sanchez for the materials that have yet to be delivered so it really
had no means of control over her. Finally, there is no paper trail
linking Tri-Realty to Amon Trading and Juliana Marketing thereby
leaving the latter clueless that Tri-Realty was their true client. TriRealty should have, at the very least, required Amon Trading and
Juliana Marketing to sign the check vouchers or to issue receipts
for the advance payments so that it could have a hold on Amon
Trading and Juliana Marketing. In this case, it was the
representative of Lines & Spaces who signed the check vouchers.
VICTORIAS MILLING CO. vs. COURT OF APPEALS
FACTS:
St. Therese Merchandising (STM) regularly bought sugar from
Victorias Milling Co (VMC). In the course of their dealings, VMC

issued several Shipping List/Delivery Receipts (SLDRs) to STM as

proof of purchases. Among these was SLDR No. 1214M. SLDR No.
1214M, dated October 16, 1989, covers 25,000 bags of sugar. Each
bag contained 50 kg and priced at P638.00 per bag. The transaction
covered was a direct sale.
On October 25, 1989, STM sold to private respondent
Consolidated Sugar Corporation (CSC) its rights in the same SLDR for
P14,750,000.00. CSC issued checks in payment. That same day, CSC
wrote petitioner that it had been authorized by STM to withdraw the
sugar covered by the said SLDR. Enclosed in the letter were a copy
of SLDR No. 1214M and a letter of authority from STM authorizing
CSC to withdraw for and in our behalf the refined sugar covered
by the SLDR On Oct. 27, 1989, STM issued checks to VMC as
payment for 50,000 bags, covering SLDR No. 1214M. CSC
surrendered the SLDR No. 1214M and to VMCs NAWACO Warehouse
and was allowed to withdraw sugar. But only 2,000 bags had been
released because VMC refused to release the other 23,000 bags.
Therefore, CSC informed VMC that SLDR No. 1214M had
been sold and endorsed to it. But VMC replied that it could not
allow any further withdrawals of sugar against SLDR No. 1214M
because STM had already withdrawn all the sugar covered by the
cleared checks. VMC also claimed that CSC was only representing
itself as STMs agent as it had withdrawn the 2,000 bags against
SLDR No. 1214M for and in behalf of STM. Hence, CSC filed a
complaint for specific performance against Teresita Ng Sy (doing
business under STM's name) and VMC. However, the suit against Sy
was discontinued because later became a witness. RTC ruled in favor
of CSC and ordered VMC to deliver the 23,000 bags left. CA
concurred. Hence this appeal.
ISSUES:
W/N CA erred in not ruling that CSC was an agent of STM and hence,
estopped to sue upon SLDR No. 1214M as assignee.
HELD:
NO. CSC was not an agent of STM. VMC heavily relies on STMs letter
of authority that said CSC is authorized to withdraw sugar for and in
our behalf. It is clear from Art. 1868 that the: basis of agency is
representation. On the part of the principal, there must be
an actual intention to appoint or an intention naturally
inferable from his words or actions, and on the part of the

agent, there must be an intention to accept the appointment

and act on it, and in the absence of such intent, there is
generally NO agency. One factor, which most clearly distinguishes
agency from other legal concepts, is control; one person the
agent agrees to act under the control or direction of another the
principal. Indeed, the very word agency has come to connote
control by the principal. The control factor, more than any other, has
caused the courts to put contracts between principal and agent in a
separate category. Where the relation of agency is dependent upon
the acts of the parties, the law makes no presumption of agency and
it is always a fact to be proved, with the burden of proof resting
upon the persons alleging the agency, to show not only the fact of
its existence but also its nature and extent. It appears that CSC was
a buyer and not an agent of STM. CSC was not subject to STMs
control. The terms for and in our behalf should not be eyed as
pointing to the existence of an agency relation. Whether or not a
contract is one of sale or agency depends on the intention of
the parties as gathered from the whole scope and effect of
the language employed. Ultimately, what is decisive is the
intention of the parties. (In fact, CSC even informed VMC that the
SLDR was sold and endorsed to it.)
Agency distinguished from sale.
In an agency to sell, the agent, in dealing with the thing received, is
bound to act according to the instructions of his principal, while in a
sale, the buyer can deal with the thing as he pleases, being the
owner. The elementary notion of sale is the transfer of title to a thing
from one to another, while the essence of agency involves the idea
of an appointment of one to act for another. Agency is a relationship
which often results in a sale, but the sale is a subsequent step in the
transaction. (Teller, op. cit., p. 26; see Commissioner of Internal
Revenue vs. Manila Machinery & Supply Co., 135 SCRA 8 [1985].) An
authorization given to another containing the phrase for and in our
behalf does not necessarily establish an agency, as ultimately what
is decisive is the intention of the parties. Thus, the use of the words
sold and endorsed may mean that the parties intended a contract
of sale, and not a contract of agency.
.W.G. PHILPOTTS v. PHILIPPINE MANUFACTURING COMPANY
and F.N. BERRYPartners right to a formal account as to partnership
affairs
CASE: Petitioner Philpotts, a stockholder of respondent Philippine

Manufacturing Company, wishes to examine the records and

transactions of said company, in person or by some authorized
agent or attorney. Respondent company refuses, hence, petitioner
instituted this case to compel the company to allow him to exercise
his right to inspect the company records as provided in the
Corporation Law. The Court granted Philpotts petition. The right of
inspection given to a stockholder found in the Corporation Law can
be exercised either by himself or by any proper representative or
attorney-in-fact, and either with or without the presence of the
stockholder himself. This decision is in line with the rule that what a
man may do in person, he may do through another.
FACTS:
7.

Petitioner, W.G. Philpotts, a stockholder in respondent

Philippine Manufacturing Company, seeks to obtain a writ of
mandamus to company respondents to permit him, in person or by
some authorized agent or attorney, to inspect and examine the
records of the business transacted by said company since 1 January
1918.

8.

F.N. Berry, the secretary of the company, was made corespondent since he is customarily charged with the custody of all
documents, correspondence and records of a corporation, and he is
presumably the person against whom the personal orders of the
court would be made effective in case this writ should be granted.
(This case has few facts.)

9.

Petitioner hinges his argument on certain provisions of the

Corporation Code; the pertinent one is: The record of all business
transactions of the corporation and the minutes of any meeting shall
be open to the inspection of any director, member or stockholder of
the corporation at reasonable hours. ISSUE: W/N the right to
inspect the records can be exercised by a proper agent or attorney

HELD & RATIO:

YES, the right of inspection given to a stockholder found in the
Corporation Law can be exercised either by himself or by any proper
representative or attorney-in-fact, and either with or without the
presence of the stockholder himself.

The Court ruled that this decision is in keeping with the general rule
that what a man may do in person, he may do through another.
In several American cases, it was held that the right of inspection
must be construed liberally, and that said right maybe exercised
through any other properly authorized person.
This right is limited by the procedures of the corporation itself. For
example, if the company is engaged in manufacturing, and it has
found a special formula of some kind, of course, it would be
counterproductive if anyone can examine such formula at any given
time. Right of inspection must be exercised in such a way that the
secrets of the company will be kept from the public.
In this case, there is nothing to indicate that petitioner would want
to discover anything which the corporation deems a secret.
FINAL VERDICT: The writ of mandamus shall issue as prayed,
unless within 5 days from notification thereof the respondents
answer to the merits.
Severino v. Severino, 44 Phil. 343 (1923), held that the relations of
an agent to his principal are fiduciary in character because they are
based on trust and confidence, which must flow from the essential
nature a contract of agency that makes the agent the representative
of the principal. Consequently:
(a) As regards property forming the subject matter of the agency,
the agent is estopped from asserting or acquiring a title adverse to
that of the principal. (Art. 1435);
(b) In a conflict-of-interest situation, the agent cannot choose a
course that favors herself to the detriment of the principal; she must
choose to the best advantage of the principal. Thomas v. Pineda, 89
Phil. 312 (1951); Palma v. Cristobal, 77 Phil. 712 (1946); and
(c) The agent cannot purchase for herself the property of the
principal which has been given to her management for sale or
disposition (Art. 1491[2]);
Unless:(i) There is and express consent on the part of the principal
(Cui v. Cui, 100 Phil. 913 (1957);

or
(ii) If the agent purchases after the agency is terminated (Valera v.
Velasco, 51 Phil. 695 (1928).
In Republic v. Evangelista, 466 SCRA 544 (2005), the Court held
that generally, the agency may be revoked by the principal at will,
since it is a personal contract of representation based on trust and
confidence reposed by the principal on his agent. As the power of
the agent to act depends on the will and license of the principal he
represents, the power of the agent ceases when the will or
permission is withdrawn by the principal.

In the afternoon of July 4, 1941, one Benjamin Martin wanted

to crash the gate or entrance of the movie house.
Martin was mad due to Dela Cruz refusal to let him in
without first providing a ticker so Martin attacked him with a bolo.
Dela Cruz defended himself until he was cornered, he was able to
save himself when he shot the gate crasher, resulting in the latters
death.
Dela Cruz was charged with homicide. After a reinvestigation, the fiscal filed a motion to dismiss the complaint. Later
on, he was again accused of homicide. After trial, he was finally
acquitted of the charge.

DELA CRUZ v. NORTHERN THEATRICAL ENTERPRISES, INC., ET

AL.

In both criminal cases De la Cruz employed a lawyer to

defend him. He demanded from his former employer

CASE:

reimbursement of his expenses but was refused, after which he filed

the present action against the movie corporation and the three
members of its board of directors, to recover not only the amounts
he had paid his lawyers but also moral damages said to have been
suffered, due to his worry, his neglect of his interests and his family
as well in the supervision of the cultivation of his land, a total of
P15,000.

Northern Theatrical Enterprises operated a movie house where Dela

Cruz worked as a guard. One day, a gate crasher attacked Dela Cruz
as he refused to let him in, and he shot him in defending himself. He
was charged with homicide but was later acquitted. He sought for
reimbursement of the expenses he incurred such as fees for
employing a lawyer, arguing that he was an agent of the defendants
while he performed his duties as an employee. The Court held that
there was no agency between the parties. Dela Cruz was not
employed to represent the corporation in dealing with third parties.
There is also no law applicable to this case of employer- employee
being an agency. Defendants have no legal obligation to reimburse
the expenses Dela Cruz incurred.
FACTS:
10.

In 1941, the Northern Theatrical Enterprises Inc., a domestic

corporation operated a movie house in Laoag, Ilocos Norte.

11.

Plaintiff Domingo Dela Cruz is one of the persons employed

by it and works as a special guard whose job is to guard the main
entrance of the cinema, to maintain peace and order and to report
the commission of disorders within the premises. As such, he carried
a revolver.

Dela Cruz argues that he was an agent of the defendants and as

such, he was entitled to reimbursement of the expenses incurred by
him in connection with the agency.
ISSUES:
2. Whether or not an agency exists between Dela Cruz and his
former employers (slash-movie corporation).
(Whether an employee or servant who in line of duty and while in
the performance of the task assigned to him, performs an act which
eventually results in his incurring in expenses, caused not directly
by his master or employer or his fellow servants or by reason of his
performance of his duty, but rather by a third party or stranger not
in the employ of his employer, may recover said damages against
his employer)

HELD & RATIO:

[
[

6. NO, the relationship between the movie corporation and Dela Cruz
was not that of principal and agent because the principle of
representation was in no way involved.
7.

Dela Cruz was not employed to represent the corporation in

its dealings with third parties. He was a mere employee hired to
perform a certain specific duty or task.

8.

There is no law or judicial authority that is directly applicable

to the present case (master-servant / employer-employee)

9.

In a case of a driver employed by a transportation company,

who while in the course of employment runs over and inflicts
physical injuries on or causes the death of a pedestrian; and such
driver is later charged criminally in court, one can imagine that it
would be to the interest of the employer to give legal help to and
defend its employee in order to show that the latter was not guilty
of any crime either deliberately or through negligence, because
should the employee be finally held criminally liable and he is found
to be insolvent, the employer would be subsidiarily liable. However,
there is no legal obligation.

If the employer is not legally obliged to give legal assistance

to its employee and provide him with a lawyer, naturally said
employee may not recover the amount he may have paid a lawyer
hired by him.

Also, the shooting to death of the deceased by the plaintiff

was not the proximate cause of the damages suffered but may be
regarded as only a remote cause, because from the shooting to the
damages suffered there was not that natural and continuous
sequence required to fix civil responsibility. FINAL VERDICT:
Judgment in favor of defendants
N
[
[
[
[

Nielson & Co. Inc. vs. Lepanto Consolidated Mining Co.

Case Digest
Nielson & Co. Inc. vs. Lepanto Consolidated Mining Co.
[GR L-21601, 28 December 1968]

[
[

Facts: [GR L-21601, 17 December 1966; Zaldivar (J): 6

concur, 2 took no part] An operating agreement was
executed before World War II (on 30 January 1937) between
Nielson & Co. Inc. and the Lepanto Consolidated Mining Co.
whereby the former operated and managed the mining
properties owned by the latter for a management fee of
P2,500.00 a month and a 10% participation in the net profits
resulting from the operation of the mining properties, for a
period of 5 years. In 1940, a dispute arose regarding the
computation of the 10% share of Nielson in the profits. The
Board of Directors of Lepanto, realizing that the mechanics of
the contract was unfair to Nielson, authorized its President to
enter into an agreement with Nielson modifying the pertinent
provision of the contract effective 1 January 1940 in such a
way that Nielson shall receive (1) 10% of the dividends
declared and paid, when and as paid, during the period of the
contract and at the end of each year, (2) 10% of any
depletion reserve that may be set up, and (3) 10% of any
amount expended during the year out of surplus earnings for
capital account. In the latter part of 1941, the parties agreed
to renew the contract for another period of 5 years, but in the
meantime, the Pacific War broke out in December 1941. In
January 1942 operation of the mining properties was
disrupted on account of the war. In February 1942, the mill,
power plant, supplies on hand, equipment, concentrates on
hand and mines, were destroyed upon orders of the United
States Army, to prevent their utilization by the invading
Japanese Army.
The Japanese forces thereafter occupied the mining
properties, operated the mines during the continuance of the
war, and who were ousted from the mining properties only in
August 1945. After the mining properties were liberated from
the Japanese forces, LEPANTO took possession thereof and
embarked in rebuilding and reconstructing the mines and
mill; setting up new organization; clearing the mill site;
repairing the mines; erecting staff quarters and bodegas and
repairing existing structures; installing new machinery and
equipment; repairing roads and maintaining the same;
salvaging equipment and storing the same within the
bodegas; doing police work necessary to take care of the
materials and equipment recovered; repairing and renewing

[
[

the water system; and retimbering. The rehabilitation and

reconstruction of the mine and mill was not completed until
1948. On 26 June 1948 the mines resumed operation under
the exclusive management of LEPANTO. Shortly after the
mines were liberated from the Japanese invaders in 1945, a
disagreement arose between NIELSON and LEPANTO over the
status of the operating contract which as renewed expired in
1947. Under the terms thereof, the management contract
shall remain in suspense in case fortuitous event or force
majeure, such as war or civil commotion, adversely affects
the work of mining and milling. On 6 February 1958, NIELSON
brought an action against LEPANTO before the Court of First
Instance of Manila to recover certain sums of money
representing damages allegedly suffered by the former in
view of the refusal of the latter to comply with the terms of a
management contract entered into between them on 30
January 1937, including attorney's fees and costs. LEPANTO
in its answer denied the material allegations of the complaint
and set up certain special defenses, among them,
prescription and laches, as bars against the institution of the
action.
After trial, the court a quo rendered a decision dismissing the
complaint with costs. The court stated that it did not find
sufficient evidence to establish LEPANTO's counterclaim and
so it likewise dismissed the same. NIELSON appealed. The
Supreme Court reversed the decision of the trial court and
enter in lieu thereof another, ordering Lepanto to pay Nielson
(1) 10% share of cash dividends of December, 1941 in the
amount of P17,500.00, with legal interest thereon from the
date of the filing of the complaint; (2) management fee for
January, 1942 in the amount of P2,500.00, with legal interest
thereon from the date of the filing of the complaint; (3)
management fees for the sixty-month period of extension of
the management contract, amounting to P150,000.00, with
legal interest from the date of the filing of the complaint; (4)
10% share in the cash dividends during the period of
extension of the management contract, amounting to
P1,400,000.00, with legal interest thereon from the date of
the filing of the complaint; (5) 10% of the depletion reserve
set up during the period of extension, amounting to
P53,928.88, with legal interest thereon from the date of the
filing of the complaint; (6) 10% of the expenses for capital

account during the period of extension, amounting to

P694,364.76, with legal interest thereon from the date of the
filing of the complaint; (7) to issue and deliver to Nielson and
Co. Inc. shares of stock of Lepanto Consolidated Mining Co. at
par value equivalent to the total of Nielson's 10% share in the
stock dividends declared on November 28, 1949 and August
22, 1950, together with all cash and stock dividends, if any,
as may have been declared and issued subsequent to
November 28, 1949 and August 22, 1950, as fruits that
accrued to said shares; provided that if sufficient shares of
stock of Lepanto's are not available to satisfy this judgment,
Lepanto shall pay Nielson an amount in cash equivalent to
the market value of said shares at the time of default, that is,
all shares of stock that should have been delivered to Nielson
before the filing of the complaint must be paid at their
market value as of the date of the filing of the complaint; and
all shares, if any, that should have been delivered after the
filing of the complaint at the market value of the shares at
the time Lepanto disposed of all its available shares, for it is
only then that Lepanto placed itself in condition of not being
able to perform its obligation; (8) the sum of P50,000.00 as
attorney's fees; and (9) the costs.
[
[
[
[
[
[

Lepanto seeks the reconsideration of the decision rendered

on 17 December 1966.
Issue: Whether the management contract is a contract of
agency or a contract of lease of services.
Held: Article 1709 of the Old Civil Code, defining contract of
agency, provides that "By the contract of agency, one person
binds himself to render some service or do something for the
account or at the request of another." Article 1544, defining
contract of lease of service, provides that "In a lease of work
or services, one of the parties binds himself to make or
construct something or to render a service to the other for a
price certain." In both agency and lease of services one of
the parties binds himself to render some service to the other
party. Agency, however, is distinguished from lease of work
or services in that the basis of agency is representation, while
in the lease of work or services the basis is employment. The
lessor of services does not represent his employer, while the
agent represents his principal. Further, agency is a

preparatory contract, as agency "does not stop with the

agency because the purpose is to enter into other contracts."
The most characteristic feature of an agency relationship is
the agent's power to bring about business relations between
his principal and third persons. "The agent is destined to
execute juridical acts (creation, modification or extinction of
relations with third parties). Lease of services contemplate
only material (non-juridical) acts." Herein, the principal and
paramount undertaking of Nielson under the management
contract was the operation and development of the mine and
the operation of the mill. All the other undertakings
mentioned in the contract are necessary or incidental to the
principal undertaking these other undertakings being
dependent upon the work on the development of the mine
and the operation of the mill. In the performance of this
principal undertaking Nielson was not in any way executing
juridical acts for Lepanto, destined to create, modify or
extinguish business relations between Lepanto and third
persons. In other words, in performing its principal
undertaking Nielson was not acting as an agent of Lepanto, in
the sense that the term agent is interpreted under the law of
agency, but as one who was performing material acts for an
employer, for a compensation. It is true that the
management contract provides that Nielson would also act as
purchasing agent of supplies and enter into contracts
regarding the sale of mineral, but the contract also provides
that Nielson could not make any purchase, or sell the
minerals, without the prior approval of Lepanto. It is clear,
therefore, that even in these cases Nielson could not execute
juridical acts which would bind Lepanto without first securing
the approval of Lepanto. Nielson, then, was to act only as an
intermediary, not as an agent. Further, from the statements
in the annual report for 1936, and from the provision of
paragraph XI of the Management contract, that the
employment by Lepanto of Nielson to operate and manage
its mines was principally in consideration of the know-how
and technical services that Nielson offered Lepanto. The
contract thus entered into pursuant to the offer made by
Nielson and accepted by Lepanto was a "detailed operating
contract". It was not a contract of agency. Nowhere in the
record is it shown that Lepanto considered Nielson as its
agent and that Lepanto terminated the management contract
because it had lost its trust and confidence in Nielson.

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Shell Co. of the Philippines vs. Firemans Insurance

Co.
100 SCRA 757 (1957)
Padilla, J.
Facts:
A Plymouth car owned by Salvador R. Sison was brought on
Sept. 3, 1947 to the Shell Gasoline Service Station at
Marques de Comillas and Isaac Peral Streets in Manila for
washing, greasing and spraying for the amount of Php8.00.
The car was placed on the hydraulic lifter up to about 6 feet
high for washing. After washing, it was greased but one part
of the car cannot be reached by the greaseman, Alfonso M.
Adriano, so the lifter was loosened to lower it a few feet.
Unfortunately, while the lifter was being lowered, the car was
swinging and it fell. The case was reported to the Manila
Adjustor Company, the adjustor for the Firemens Insurance
Company and the Commercial Casualty Insurance Company,
the insurers of the car. The damaged car was repaired and
restored to running condition for Php1651.38 and delivered to
Sison, who assigned his rights to recover damages to the
Insurers.
Porfirio de la Fuente, the operator of the gasoline station
denied negligence in the operation of the lifter and
contended that the accidental fall was caused by unforeseen
event. The insurers and the car owner brought an action
against Shell Company and de la Fuente to recover the
sum of the repair. The CA held Shell liable as it was the
principal of de la Fuente and the latter being its agent.
Issue:
Is there a principal-agent relationship between Shell and de
la Fuente making Shell liable?
Held:
Yes. Taking into consideration that the operator owed his
position to the company and that the latter could remove him
from his services at will, that the service station belonged to
the company and bore its tradename and the operator only
sold its products; that the equipment used belonged to the
company and were just loaned to the operator and the
company took charge of the repair and maintenance; that an
employee of the company supervised the operator and
conducted periodic inspection of the gasoline and service
station; that the price of the products sold was fixed by the

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company; and that the receipts signed by the operator

indicated that he was a mere agent, the finding that the
operator was an agent of the company and not an
independent contractor must stand. The nature of the
contract is not determined by the name given by the parties
but the intention behind it.
As the act of the agent or his employees acting within the
scope of his authority is the act of the principal, the breach of
the undertaking by the agent is one for which the principal is
answerable. Shell is therefore liable.
2.QUIROGA v. PARSONS
Contract of SALE, not of Agency.
Ayson Dagdag Dela Cruz De Mesa Kalaw Ledesma Lim Millan
Miranda Molaer Pacamarra Rivera Rubinos Santos So Chan
Sorongon Tamondong Torcuator Velena Yogue
CASE:
Quiroga and Parsons entered into a contract for the exclusive
sale of Quiroga beds in Visayas. Parsons violated some of the
terms and conditions such as(1) not to sell the beds at higher
prices,
(2) pay for the advertisement expenses, and(3) to order beds
by the dozen.Quiroga alleged that Parsons was his agent and
that the obligations are implied in a commercial agency
contract.Issue: W/N Parsons entered into a contract of
AGENCY instead of a contract of SALEHeld: No. It was a
contract of SALE not of agency.Quiroga supplied the beds,
which Parsons had the obligation to pay the purchase price.
These are essential features of a contract of purchase and
sale. None of the clauses conveys the idea of an agency
where an agent received the thing to sell it and does not pay
the price but delivers to the principal the price he obtains
from the sale to a third person, and if he does not sell it, he
returns it.The word agency used in the contract only
expresses that Parsons was the only one who could sell the
petitioners beds in the Visayan Islands. A contract is what
the law defines it to be and not what the parties call it.
FACTS:Quiroga and Parsons entered into a contract for the
exclusive sale of Quiroga beds in Visayas. They agreed on the
following terms:
o a) Quiroga shall furnish the beds and shall give a 25%

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discount on the invoiced prices as commission sales and

Parsons shall order by the dozen;
o b) Payment shall be made within 60 days from date of
shipment;
o c) Transportation and shipment expenses shall be borne by
Quiroga while freight, insurance, and cost of unloading by
Parsons;
o d) If before an invoice falls due, Quiroga should request
payment, payment made shall be prompt

payment and a deduction of 2% shall be given;

same discount if payment is in cash;o e) Notice from Quiroga shall
be given at least 15
days before any change in price;o f) Parsons binds himself not to sell
any other kind of
bed; ando g) Contract is for an unlimited period
Parsons violated some of the conditions not to sell the beds at
higher prices, pay for the advertisement expenses, and to order
beds by the dozen.
Quiroga alleged that Parsons was his agent and that the obligations
are implied in a commercial agency contract.
ISSUES:1. Whether or not Parsons entered into a contract of AGENCY
instead of a contract of SALE.
HELD & RATIO:1. NO, It was a contract of SALE not of agency.
In order to classify a contract, due regard must be given to
the essential clauses.
In this case, there was an obligation on Quirogas part to
supply beds while an obligations on Parsons part to pay the price.
These are essential features of a contract of purchase and sale.
None of the clauses conveys the idea of an agency where an

agent received the thing to sell it and does not pay the price but
delivers to the principal the price he obtains from the sale to a third
person, and if he does not sell it, he returns it.
19.

The word agency used in the contract only expresses that

Parsons was the only one who could sell the petitioners beds in the
Visayan Islands. A contract is what the law defines it to be and not
what the parties call it. FINAL VERDICT: The judgment appealed is
AFFIRMED, with costs against the appellant.
GONZALO PUYAT & SONS, INC., petitioner,
AMUSEMENT COMPANY (Teatro Arco), respondent.

vs

ARCO

FACTS
Arco brought an action against the Gonzalo Puyat and Sons in
the CFI of Manila to secure a reimbursement of certain amounts
allegedly overpaid by it on account of the purchase price of sound
reproducing equipment and machinery ordered by the petitioner
from the Starr Piano Company of Richmond, Indiana, U.S.A.
In the year 1929, the "Teatro Arco" ( Arco Amusement) was
engaged in the business of operating cinematographs. C. S. Salmon
was the president, while A. B. Coulette was the business manager.
Gonzalo Puyat & Sons, Inc. was acting as exclusive agents in the
Philippines for the Starr Piano Company of Richmond, Indiana, U.S.
A. It would seem that this last company dealt in cinematographer
equipment and machinery, and the Arco Amusement Company
desiring to equipped its cinematograph with sound reproducing
devices, approached Gonzalo Puyat & Sons, Inc., thru its then
president and acting manager, Gil Puyat, and an employee named
Santos.
It was agreed between the parties that Gonzalo Puyat and Sons,
on behalf of Arco, would order sound reproducing equipment from
the Starr Piano Company and that the plaintiff would pay the
defendant, in addition to the price of the equipment, a 10 %
commission, plus all expenses, such as, freight, insurance, banking
charges, cables, etc.
At the expense of the plaintiff, the Gonzalo Puyat and Sons sent

a cable to the Starr Piano Company, inquiring about the equipment

desired and making the said company to quote its price without
discount. A reply was received by Gonzalo Puyat & Sons, Inc., with
the price, evidently the list price of $1,700 f.o.b. factory Richmond,
Indiana.
The defendant did not show the plaintiff the cable of inquiry nor
the reply but merely informed the plaintiff of the price of $1,700.
Being agreeable to this price, the plaintiff, by a letter, formally
authorized the order. The equipment arrived about the end of the
year 1929, and upon delivery of the same to the plaintiff and the
presentation of necessary papers, the price of $1.700, plus the 10
per cent commission agreed upon and plus all the expenses and
charges, was duly paid by the plaintiff to the defendant.
A year after, another order for sound reproducing equipment
was placed by the plaintiff with the defendant, on the same terms as
the first order. This agreement or order was confirmed by the
plaintiff by its letter Exhibit "2", without date, that is to say, that the
plaintiff would pay for the equipment the amount of $1,600, which
was supposed to be the price quoted by the Starr Piano Company,
plus 10 per cent commission, plus all expenses incurred.
About 3 years later, in connection with a civil case in Vigan, filed by
one Fidel Reyes against the defendant herein Gonzalo Puyat & Sons,
Inc., the officials of the Arco Amusement Company discovered that
the price quoted to them by the defendant with regard to their two
orders mentioned was not the net price but rather the list price, and
that the defendants had obtained a discount from the Starr Piano
Company. Moreover, by reading reviews and literature on prices of
machinery and cinematograph equipment, said officials of the
plaintiff were convinced that the prices charged them by the
defendant were much too high including the charges for out-ofpocket expense.
For these reasons, they sought to obtain a reduction from the
defendant or rather a reimbursement, and failing in this they
brought the present action. TC: The contract between was one of
outright purchase and sale, and absolved that petitioner from the
complaint. CA: The relation between petitioner and respondent was
that of agent and principal, the petitioner acting as agent of the

respondent in the purchase of the equipment in question, and

sentenced the petitioner to pay the respondent alleged
overpayments ($1,335.52 or P2,671.04), together with legal interest
The appellate court further argued that even if the contract between
the petitioner and the respondent was one of purchase and sale, the
petitioner was guilty of fraud in concealing the true price and hence
would still be liable to reimburse the respondent for the
overpayments made by the latter. ISSUE: WON the contract was
one of purchase and sale HELD: YES
10.

11.

12.

The contract is the law between the parties and should include all
the things they are supposed to have been agreed upon. What does
not appear on the face of the contract should be regarded merely as
"dealer's" or "trader's talk", which cannot bind either party.
The letters by which the respondent accepted the prices of $1,700
and $1,600, respectively, for the sound reproducing equipment
subject of its contract with the petitioner, are clear in their terms
and admit no other interpretation that the respondent in question at
the prices indicated which are fixed and determinate. The
respondent admitted in its complaint filed with the CFI of Manila that
the petitioner agreed to sell to it the first sound reproducing
equipment and machinery.
"whatever unforseen events might have taken place unfavorable to
the defendant (petitioner), such as change in prices, mistake in their
quotation, loss of the goods not
covered by insurance or failure of the Starr Piano Company to
properly fill the orders as per specifications, the plaintiff
(respondent) might still legally hold the defendant (petitioner) to the
prices fixed of $1,700 and $1,600." This is incompatible with the
pretended relation of agency between the petitioner and the
respondent, because in agency, the agent is exempted from all
liability in the discharge of his commission provided he acts in
accordance with the instructions received from his principal (section
254, Code of Commerce), and the principal must indemnify the
agent for all damages which the latter may incur in carrying out the
agency without fault or imprudence on his part (article 1729, Civil
Code).
While the letters state that the petitioner was to receive 10%

commission, this does not necessarily make the petitioner an agent

of the respondent, as this provision is only an additional price which
the respondent bound itself to pay, and which stipulation is not
incompatible with the contract of purchase and sale.
To hold the petitioner an agent of the respondent in the
purchase of equipment and machinery from the Starr Piano
Company of Richmond, Indiana, is incompatible with the admitted
fact that the petitioner is the exclusive agent of the same company
in the Philippines. It is out of the ordinary for one to be the
agent of both the vendor and the purchaser.
It follows that the petitioner as vendor is not bound to reimburse
the respondent as vendee for any difference between the cost price
and the sales price which represents the profit realized by the
vendor out of the transaction. This is the very essence of commerce
without which merchants or middleman would not exist.
The respondents contends that it merely agreed to pay the cost
price as distinguished from the list price, plus 10% commission and
all out-of-pocket expenses incurred by the petitioner. The distinction
which the respondents seeks to draw between the cost price and the
list price we consider to be spacious. It is to be observed that the
25% discount granted by the Starr piano Company to the petitioner
is available only to the latter as the former's exclusive agent in the
Philippines.
No reason is advanced by the respondent why the petitioner
should waive the 25 % discount granted it by the Starr Piano
Company in exchange for the 10 percent commission offered by the
respondent. The petitioner was not duty bound to reveal the private
arrangement it had with the Starr Piano Company relative to such
discount to its prospective customers, and the respondent was not
even aware of such an arrangement.
The respondent, therefore, could not have offered to pay a 10
per cent commission to the petitioner provided it was given the
benefit of the 25 per cent discount enjoyed by the petitioner. It is
well known that local dealers acting as agents of foreign
manufacturers, aside from obtaining a discount from the home
office, sometimes add to the list price when they resell to local
purchasers.

It was apparently to guard against an exhorbitant additional

price that the respondent sought to limit it to 10 per cent, and the
respondent is estopped from questioning that
additional price. If the respondent later on discovers itself at the
short end of a bad bargain, it alone must bear the blame, and it
cannot rescind the contract, much less compel a reimbursement of
the excess price, on that ground alone. The respondent could not
secure equipment and machinery manufactured by the Starr Piano
Company except from the petitioner alone; it willingly paid the price
quoted; it received the equipment and machinery as represented;
and that was the end of the matter as far as the respondent was
concerned. The fact that the petitioner obtained more or less profit
than the respondent calculated before entering into the contract or
reducing the price agreed upon between the petitioner and the
respondent. Not every concealment is fraud; and short of fraud, it
were better that, within certain limits, business acumen permit of
the loosening of the sleeves and of the sharpening of the intellect of
men and women in the business world.

The shipments would cover products for consumption in Cebu,

Bohol, Leyte Samar, Jolo, Negros Oriental and Mindanao except
province of Davao, Ker as distributor being precluded from disposing
such products elsewhere than in the above places unless written
consent would first be obtained from the company
Ker as distributor is required to exert every effort to have the
shipment of the products in the maximum quantity and to promote
in every way the sale sale thereof.
Crucial stipulation: The company shall from time to time consign to
Ker and Ker will receive, accept and/hold upon consignment the
products specified under the terms of this agreement in such
quantities as in the judgment of company may be necessary
It is further agreed that this agreement does not constitute Ker the
agent or legal representative of the company for any purpose
whatsoever

. KER AND CO, LTD V. LINGAD

ISSUE:
W/N the relationship thus created is one of vendor and vendee
(contract of sale) or of broker and principal (contract of agency)

FACTS:
Ker and Co, Ltd. was assessed by then Commissioner of Internal
Revenue Domingo the sum of P 20,272.33 as the commercial
brokers percentage tax, surcharge and compromise penalty.

RULING:
Broker and principal- contract of agency

There was a request on the part of Ker for the cancellation of such
assessment which request was turned down
As a result, it filed a petition for review with Court of Tax Appeals
CTA: Ker taxable except as to the compromise penalty of P500, the
amount due from it being fixed at P19,772.33
Such liability arose from a contract of Ker with the United States
Rubber International. The former being referred to as the distributor
and the latter specifically designated as the company
The contract was to apply to transactions between the former and
Ker, as distributor from July 1, 1948 to continue in force until
terminated by either party giving to the other 60 days notice

By taking the contractual stipulations as a whole and not just the

disclaimer, it would seem that the contract between them is a
contract of agency
The CTA, in considering such stipulations provided in the contract,
concluded that all these circumstances are irreconcilably
antagonistic to the idea of an independent merchant
CTA: upon analysis of the whole, together with actual conduct of the
parties thereto, that the relationship between them is one of
brokerage or agency
National Internal Revenue Code: defined Commercial broker as all
persons, other than importer, manufacturers, producers or bona fide
employees who, for compensation or profit, sell or bring about sales
or purchase of merchandise for other persons or bring proposed

buyers and sellers together and also includes commission merchants

such as Ker in this case

The mere disclaimer in a contract that an entity like Ker is not the
agent or legal representative for any purpose whatsoever does not
suffice to yield the conclusion that it is an independent merchant if
the control over the goods for resale of goods consigned is pervasive
in character
Thus, SC rejected Kers petition to reverse decision of CTA

Victoria Milling Co., Inc. v. CA and Consolidated Sugar

Corporation
G.R. No. 117356 June 19, 2000
Quisumbing, J.

FACTS:
St. Therese Merchandising regularly bought sugar from Victorias
Milling Co., Inc. In the course of their dealings, Victorias Milling
issued several Shipping List/Delivery Receipts (SLDRs) to St.
Therese Merchandising as proof of purchases. Among these was
SLDR No. 1214M which covers 25,000 bags of sugar. Each bag
contained 50 kilograms and priced at P638.00 per bag. The
transaction it covered was a direct sale.
On October 25, 1989, St. Therese Merchandising sold to
Consolidated Sugar Corp. its rights in SLDR No. 1214M for
P14,750,000.00. Consolidated Sugar Corp. issued checks in
payment. That same day, Consolidated Sugar Corp. wrote Victorias
Milling that it had been authorized by St. Therese Merchandising to
withdraw the sugar covered by SLDR No. 1214M.
Consolidated Sugar Corp. surrendered SLDR No. 1214M to Victorias
Millings NAWACO warehouse and was allowed to withdraw sugar.
However, after 2,000 bags had been released, Victorias Milling
refused to allow further withdrawals of sugar against SLDR No.
1214M because, according to it, St. Therese Merchandising had
already withdrawn all the sugar covered by the cleared checks.
ISSUE: WON the contract was one of agency or sale
HELD: Sale.

Victorias Milling heavily relies upon St. Therese Merchandisings

letter of authority allowing Consolidated Sugar Corp. to withdraw
sugar against SLDR No. 1214M to show that the latter was St.
Therese Merchandisings agent. The pertinent portion of said letter
reads: This is to authorize Consolidated Sugar Corporation or its
representative to withdraw for and in our behalf (stress supplied) the
refined sugar covered by Shipping List/Delivery Receipt = Refined
Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity
of 25, 000 bags.
Art. 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 basis of agency is representation. On the part of the principal,
there must be an actual intention to appoint or an intention naturally
inferable from his words or actions; and on the part of the agent,
there must be an intention to accept the appointment and act on it,
and in the absence of such intent, there is generally no agency. One
factor which most clearly distinguishes agency from other legal
concepts is control; one person - the agent - agrees to act under the
control or direction of another - the principal.
Victorias Milling failed to sufficiently establish the existence of an
agency relation between Consolidated Sugar Corp. and St. Therese
Merchandising. The fact alone that it (St. Therese Merchandising)
had authorized withdrawal of sugar by Consolidated Sugar Corp. for
and in our (St. Therese Merchandisings) behalf should not be eyed
as pointing to the existence of an agency relation. Further,
Consolidated Sugar Corp. has shown that the 25,000 bags of sugar
covered by the SLDR No. 1214M were sold and transferred by St.
Therese Merchandising to it. A conclusion that there was a valid sale
and transfer to Consolidated Sugar Corp. may, therefore, be made
thus capacitating Consolidated Sugar Corp. to sue in its own name,
without need of joining its imputed principal St. Therese
Merchandising as co-plaintiff.
Consolidated Sugar Corp. was a buyer of the SLDFR form, and not an
agent of STM. Consolidated Sugar Corp. was not subject to St.
Therese Merchandisings control. That no agency was meant to be
established by the Consolidated Sugar Corp. and STM is clearly
shown by Consolidated Sugar Corp.s communication to petitioner
that SLDR No. 1214M had been sold and endorsed to it.27 The use
of the words sold and endorsed means that St. Therese
Merchandising and Consolidated Sugar Corp. intended a contract of
sale, and not an agency.

In Lim v. Court of Appeals, 254 SCRA 170 (1996), the Court

noted that there are some provisions of law which require certain
formalities for particular contract: the first is when the form is
required for the validity of the contract; the second is when it is
required to make the contract effective as against third parties such
as those mentioned in Article 1357 and 1358 of the Civil Code; and
the third is when the form is required for the purpose of proving the
existence of the contract, such as those provide in the Statute of
Frauds in Article 1403. Since a contract of agency to sell pieces of
jewelry on commission does not fall into any of the three categories,
it was considered valid and enforceable in whatever form it may
have been entered into.
Schmid and Oberly, Inc. v. RJL Martinez Fishing Corp.
G.R. No. 75198
October 18, 1988
Facts:
There was a misapprehension of facts in the RTC and CA, so SC
reopened the facts again. (SC facts na ni).
RJL Martinez Fishing Corp (RJL Martinez) is engaged in deep-sea
fishing, and in the course of its business needed electrical
generators for the operation of its business.It then negotiated with
Schmid & Oberly (Schmid) who is engaged in the business of selling
electric generators of different brands. The two parties had two
different transactions. The first transaction resulted in the sale of 3
Nagata generators which came from Schmids stockroom. Schmid
invoiced the said sale.
The second transaction involves 12 Nagata generators which give
rise to the controversy. As RJL Martinez was canvassing for
generators, Schmid gave the former a quotation for 12 Nagata
generators. The parties agreed that the mode of payment would be
through an irrevocable letter of credit in favor of Nagata, Co. (the
manufacturer of the generators).
Accordingly, on November 20,1975, SCHMID transmitted to NAGATA
CO. an order for the twelve (12) generators to be shipped directly to
RJL MARTINEZ. NAGATA CO. thereafter sent RJL MARTINEZ the bill of
lading and its own invoice and, in accordance with the order,
shipped the generators directly to RJL MARTINEZ. The invoice states

that "one (1) case of 'NAGATA' AC Generators" consisting of twelve

sets wasbought by order and for account risk of Messrs. RJL
Martinez Fishing Corporation.
For its efforts, SCHMID received from NAGATA CO. a commission of
$1,752.00 for the sale of the twelve generators to RJL MARTINEZ.
All fifteen (15) generators subject of the two transactions burned out
after continuous use. RJL MARTINEZ informed SCHMID about this
development. In turn, SCHMID brought the matter to the attention of
NAGATA CO. In July 1976, NAGATA CO. sent two technical
representatives who made an ocular inspection and conducted tests
on some of the burned out generators, which by then had been
delivered to the premises of SCHMID. It was found out that the
description of the generators (in the quotation and invoice) was 5
KVA, but the generators turned out to be actually only 4 KVA.
SCHMID replaced the three (3) generators subject of the first sale
with generators of a different brand. As for the 12 others, Nagata,
Co. only repaired 3, while the remaining 9 remained unrepaired. As a
result, RJL Martinez sued Schmid.
In its defense, Schmid refuses liability on the account that it was not
the seller for the 12 generators.
Both the trial court and the Court of Appeals upheld the contention
of RJL MARTINEZ that SCHMID was the vendor in the second
transaction and was liable under its warranty. Accordingly, the courts
a quo rendered judgment in favor of RJL MARTINEZ. Hence, the
instant recourse to this Court.
Issue: WON the second transaction between RJL Martinez and
Schmid was a sale, or Schmid was merely an indent (broker/
intermediary) of RJL Martinez and Nagata, Co.
Held: SCHMID was merely an indentor, not a vendor in the
second transaction.
Nature of Sale
At the outset, it must be understood that a contract is what the law
defines it to be, considering its essential elements, and not what it is
caged by the contracting parties.
It has been said that the essence of the contract of sale is transfer of
title or agreement to transfer it for a price paid or promised. If such
transfer puts the transferee in the attitude or position of an owner
and makes him liable to the transferor as a debtor for the agreed
price, and not merely as an agent who must account for the
proceeds of a resale, the transaction is, a sale.
Therefore, an indentor is a middlemen in the same class as
commercial brokers and commission merchants. To get an Idea of

what an indentor is, a look at the definition of those in his class may
prove helpful.
A broker is generally defined as one who is engaged, for
others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; the
negotiator between other parties, never acting in his own
name but in the name of those who employed him; he is
strictly a middleman and for some purpose the agent of both
parties.
A broker is one whose occupation it is to bring parties together to
bargain, or to bargain for them, in matters of trade, commerce or
navigation.
Judge Storey, in his work on Agency, defines a broker as an agent
employed to make bargains and contracts between other persons, in
matters of trade, commerce or navigation, for compensation
commonly called brokerage.
Commission Merchant:
A commission merchant is one engaged in the purchase or sale for
another of personal property which, for this purpose, is placed in his
possession and at his disposal. He maintains a relation not only with
his principal and the purchasers or vendors, but also with the
property which is subject matter of the transaction.
Thus, the chief feature of a commercial broker and a commercial
merchant is that in effecting a sale, they are merely intermediaries
or middle-men, and act in a certain sense as the agent of both
parties to the transaction.
In the case at bar:
The evidences show that RJL Martinez admitted that Schmid was
merely an indent for the purchase of the 12 generators. The
evidence also show that RJL MARTINEZ paid directly NAGATA CO, for
the generators, and that the latter company itself invoiced the sale,
and shipped the generators directly to the former. The only
participation of SCHMID was to act as an intermediary or middleman

between NAGATA CO. and RJL MARTINEZ, by procuring an order from

RJL MARTINEZ and forwarding the same to NAGATA CO. for which the
company received a commission from NAGATA CO.
The above transaction is significantly different from the first
transaction wherein SCHMID delivered the goods from its own stock
(which it had itself imported from NAGATA CO.), issued its own
invoice, and collected payment directly from the purchaser.
RJL Martinez still insists that Schmid was a seller, and not a mere
broker because when the latter was informed of the defects, it acted
immediately, provided tools, labor, and equipment to resolve the
matter. The SC however said that: no indentor will just fold its hands
when a client complains about the goods it has bought upon the
indentor's mediation. In its desire to promote the product of the
seller and to retain the goodwill of the buyer, a prudent indentor
desirous of maintaining his business would have to act considerably
towards his clients. Note that in contrast to its act of replacing the
three (3) generators subject of the first transaction, SCHMID did not
replace any of the twelve (12) generators, but merely rendered
assistance to both RJL TINES and NAGATA CO. so that the latter could
repair the defective generators.
A broker is best defined in Schmid and Oberly, Inc. v. RJL Martinez,
166 SCRA 493 (1988), where the Court held that a broker is one
who is engaged, for others, on a commission, negotiating contracts
relative to property with the custody of which he has no concern; the
negotiator between other parties, never acting in his own name but
in the name of those who employed him. . . . a broker is one whose
occupation is to bring the parties together, in matters of trade,
commerce or navigation. (at p. 501) In other words, the services of
a broker is to find third parties who may be interested in entering
into contracts with other parties over particular matter, and may
include negotiating in behalf of both parties the perfection of a
contract, but that the actual perfection must still be done by the
parties represented. A broker essentially is not an extension of the
persons of the parties he is negotiating for.
PACIFIC COMMERCIAL V. YATCO
Keywords: sugar, commission merchant, broker, tax
Facts:

Pacific Commercial engaged in business as a merchant and sold for

Victoria Milling Co. refined sugar for the total value of P1,126,135.96
and received a commission of P29,534.29. Such transactions were
made in either of two ways:
1. Ex-ship: Pacific looks for buyers of the sugar, receives the bill
of lading, and hands over the bill of lading to the buyer and
collects the price. The buyer collects the sugar from the point
of delivery. In this case, Pacific acts as a broker for Victoria
and the buyer.
2. Ex-warehouse: Sugar is deposited first in Pacifics warehouse
before delivery to the potential buyer is done. Here, Pacific
acts as a commission merchant.

property, which, for this purpose, is placed in his possession and at

his disposal. The relationship of the merchant is not only with the
principal, but also to the property that is the subject matter of the
transaction. The receipt and depositing in the warehouse of Pacific
attests to this relationship. After taking the sugar until it is sold,
Pacific had the sugar in its possession and at its own risk.

Victoria Milling paid P16,994.90 to the Collector of Internal Revenue

as merchant sales tax in its capacity as manufacturer and owner of
the sugar sold. Notwithstanding such payment, Pacific was also
made to pay the same tax. Pacific then went to the CFI to address
the issue on double taxation. The CFI decided that defendant (I
assume Yatco is the CIR) return the taxes paid under the first type of
transaction (ex-ship) ONLY, but the taxes imposed on Pacific for the
transactions ex-warehouse were valid.

The appealed decision was affirmed.

Issue:
Was there double taxation in:
(1) transactions ex-warehouse (subsequently, was that a
transaction involving a commission merchant)?
(2) transactions ex-ship (subsequently, was that a transaction
involving a broker)?

Petitioner - Abacus Securities Corporation ("Abacus') is engaged in

business as a broker and dealer of securities of listed companies at
the Philippine Stock Exchange Center.Sometime in April 1997,
Respondent Ruben Ampil (1) opened a cash account with Abacus for
his transactions in securities;[10] (2) Ampils purchases were
consistently unpaid from April 10 to 30, 1997;[11] (3) Ampil failed to
pay in full, or even just his deficiency,[12] for the transactions on
April 10 and 11, 1997;[13] (4) despite Ampils failure to cover his
initial deficiency, Abacus subsequently purchased and sold securities
for Ampils account on April 25 and 29;[14] (5) Abacus did not cancel
or liquidate a substantial amount of respondents stock transactions
until May 6, 1997.

Ruling:
There was only double taxation as to the transactions exship. The majority relied heavily on the doctrine in Gil Hermanos v.
Hord where there is no double taxation after a merchant sold for
commission Gil Hermanoss abaca and both merchant and Hermano
were taxed. This is because what was being taxed for the merchant
was the occupation or the industry, not the property sold itself, the
property was just the basis on how much tax the transaction should
cost. The Court found a parallelism to the facts of the case and
applied the case squarely on the transactions ex-warehouse.
There is no doubt in their mind that transactions ex-warehouse had
Pacific acting as commission merchants. A commission merchant
is one engaged in the purchase or sale for another of personal

However, there should be no tax over the transaction if it was done

ex-ship. This was because Pacific was merely acting as a broker. A
broker, unlike a commission merchant, has no relation to the thing
he sells or buys. He is merely an intermediary between the buyer
and the seller and never acquires possession over the property.

ABACUS SECURITIES CORPORATION versus RUBEN U. AMPIL

docketed as G.R. No. 160016 promulgated last February 27, 2006.
The decision was penned by then Chief Justice Artemio V.
Panganiban.
The Facts:

Issue: Agent or Broker?

Held: Broker
In securities trading, the brokers are essentially the counterparties
to the stock transactions at the Exchange.[35] Since the principals of
the broker are generally undisclosed, the broker is personally liable
for the contracts thus made.[36] Hence, petitioner had to advance

the payments for respondents trades. Brokers have a right to be

reimbursed for sums advanced by them with the express or implied
authorization of the principal,[37] in this case, respondent
Abacus Securities Corp. v. Ampil, 483 SCRA 315 (2006), it was held
that since in that case the brokerage relationship was necessary a
contract for the employment of an agent, principles of contract law
also govern the broker-principal relationship.
MANUEL B. TAN, GREGG M. TECSON and ALEXANDER
SALDAA, petitioners, vs. EDUARDO R. GULLAS and NORMA S.
GULLAS, respondents.
G.R. No. 143978
December 3, 2002
Facts: Respondents, were the registered owners of a parcel
of land, they executed a special power of attorney authorizing
petitioners Tan, a licensed real estate broker, and his associates
Tecson and Saldaa, to negotiate for the sale of the land, at a
commission of 3% of the gross price. Tan contacted the Sisters of
Mary of Banneaux, Inc. (hereafter, Sisters of Mary), a religious
organization interested in acquiring a property. The Sisters, who had
already seen and inspected the land, found the same suitable for
their purpose and expressed their desire to buy it. However, they
requested that the selling price be reduced. Respondents agreed to
sell the property to the Sisters of Mary. Petitioners went to see
respondents who refused to pay the brokers fee and alleged that
another group of agents was responsible for the sale of land to the
Sisters of Mary. Petitioners filed a complaint against the defendants
for recovery of their brokers fee. They alleged that they were the
efficient procuring cause in bringing about the sale of the, but that
their efforts in consummating the sale were frustrated by the
respondents who, in evident bad faith, malice and in order to evade
payment of brokers fee, dealt directly with the buyer whom
petitioners introduced to them.
Issues: (1) Whether or not the petitioners are entitled to the
brokerage commission.
(2) An agent distinguished from a broker.
Rulings: (1) The records show that petitioner Tan is a
licensed real estate broker, and other petitioners his associates.

"Broker" as "one who is engaged, for others, on a commission,

negotiating contracts relative to property with the custody of which
he has no concern; the negotiator between other parties, never
acting in his own name but in the name of those who employed him.
x x x a broker is one whose occupation is to bring the parties
together, in matters of trade, commerce or navigation." The
petitioners were responsible for the introduction of the
representatives of the Sisters of Mary to respondent.
(2) There was no dispute as to the role that petitioners
played in the transaction. "An agent receives a commission upon the
successful conclusion of a sale. On the other hand, a broker earns
his pay merely by bringing the buyer and the seller together, even if
no sale is eventually made." Clearly, therefore, petitioners, as
brokers, should be entitled to the commission whether or not the
sale of the property subject matter of the contract was concluded
through their efforts.

PHILHEALTH VS ESTRADA
FACTS:
Philippine Health-Care Providers, Inc. (Maxicare) formally
appointed Estrada as its General Agent evidenced by a letteragreement dated February 16, 1991 granting him a commission
equivalent to:
1
15 to 18% from individual, family, group
accounts
2
2.5 to 10% on tailored fit plans
3
10%
on
standard
plans
of
commissionable amount on corporate accounts
Maxicare had a "franchising system" in dealing with its
agents whereby an agent had to first secure permission from to list a
prospective company as client
MERALCO account was included as corporate accounts
applied by Estrada
Estrada submitted proposals and made representations to
the officers of MERALCO regarding the MAXICARE Plan but MERALCO
directly negotiated with MAXICARE from December 1, 1991 to
November 30, 1992 and was renewed twice for a term of 3 years

26.

27.
28.

each

March 24, 1992: Estrada through counsel demanded his

commission for the MERALCO account and 9 other accounts but it
was denied by MAXICARE because he was not given a go signal to
intervene in the negotiations for the terms and conditions
RTC: Maxicare liable for breach of contract and ordered it to
pay Estrada actual damages in the amount equivalent to 10% of
P20,169,335 representing her commission for Meralco
CA: Affirms in toto
ISSUE: W/N Estrada should be paid his commission for the Maxicare
Plans subscribed by Meralco
HELD: YES. petition is DENIED

13.

14.

15.

16.

17.

18.

Both courts were one in the conclusion that Maxicare

successfully landed the Meralco account for the sale of healthcare
plans only by virtue of Estradas involvement and participation in the
negotiations
Maxicares contention that Estrada may only claim
commissions from membership dues which she has collected and
remitted to Maxicare as expressly provided for in the letteragreement does not convince us. It is readily apparent that Maxicare
is attempting to evade payment of the commission which rightfully
belongs to Estrada as the broker who brought the parties together.
The only reason Estrada was not able to participate in the
collection and remittance of premium dues to Maxicare was because
she was prevented from doing so by the acts of Maxicare, its
officers, and employees.
Agent vs. Broker:
1
agent receives a commission upon the
successful conclusion of a sale
2
broker
1
earns his pay merely by bringing
the buyer and the seller together, even if no
sale is eventually made
"procuring cause" in describing a brokers activity
1
cause originating a series of events
which, without break in their continuity, result in the
accomplishment
2
efforts must have been the foundation
on which the negotiations resulting in a sale began
Even a cursory reading of the Complaint and all the pleadings

filed thereafter before the RTC, CA, and this Court, readily show that
Estrada does not concede, at any point, that her negotiations with
Meralco failed -Counsel's contention is wrong
Estrada is entitled to 10% of the total amount of
premiums paid by Meralco to Maxicare as of May 1996
(including succeeding renewals)
In Phil. Health-Care Providers (Maxicare) v. Estrada, 542 SCRA 616
(2008), the Court held that the term procuring cause in describing
a brokers activity, refers to a cause originating a series of events
which, without break in their continuity, result in the
accomplishment of the prime objective of the employment of the
brokerproducing a purchaser ready, willing and able to buy on the
owners terms. To be regarded as the procuring cause of a sale as
to be entitled to a commission, a brokers efforts must 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 agreement on
the services of the broker, for which he would be entitled to his fees,
is not merely of finding the prospective buyer.
But truly, since both a brokerage arrangement and an agency
agreement are inherently contractual relations, the entitlement of a
broker or agent to the compensation or commission stipulated would
have to depend upon the contractual clause covering the same. In
other words, it may well be stipulated in a true brokerage
arrangement that the broker would be entitled to a commission only
when a sale is eventually made. In the same manner, the agency
contract may well stipulate that the agent shall be entitled to earn
commission by
merely bringing the buyer and the seller together, even when the
actual sale of the person referred to by the agent happens long after
the agency relationship has terminated.
7.Hahn v. CA
G.R. No. 113074; January 22, 1997

CASE:
Hahn is doing business under the name and style Hahn-Manila.

Hahn executed in favor of BMW a Deed of Assignment with Special

Power of Attorney covering the trademark and in consideration
thereof, under its first whereas clause, Hahn was duly acknowledged
as the "Exclusive Dealer of the Assignee in the Philippines.
However, Hahn was informed that BMW was arranging to grant the
exclusive dealership of BMW cars and products to CMC, which had
expressed interest in acquiring the same. BMW terminated its
exclusive relationship with Hahn. Hahn later filed a complaint for
specific performance and damages against BMW to compel it to
continue the exclusive dealership.
The relevant issue in this case is whether or not Hahn is the agent or
distributor in the Philippines of private respondent BMW. SC ruled
that Hahn is an agent of BMW in the Philippines. SC stated
that the arrangement of BMW and Hahn shows an agency.
An agent receives a commission upon the successful
conclusion of a sale. On the other hand, a broker earns his
pay merely by bringing the buyer and the seller together,
even if no sale is eventually made. (refer to the ratio #2 for full
discussion) Since, it was established that Hahn is an agent of BMW
then the trial court acquired jurisdiction over BMW despite it being a
foreign corporation (see ratio#1).

29.

and products to CMC, which had expressed interest in acquiring the

same.
Nonetheless, BMW expressed willingness to continue
business relations with the petitioner on the basis of a "standard
BMW importer" contract, otherwise, it said, if this was not
acceptable to petitioner, BMW would have no alternative but to
terminate petitioner's exclusive dealership effective June 30, 1993.
Hahn protested, claiming that the termination of his
exclusive dealership would be a breach of the Deed of Assignment.
Hahn insisted that as long as the assignment of its trademark and
device subsisted, he remained BMW's exclusive dealer in the
Philippines because the assignment was made in consideration of
the exclusive dealership.
Because of Hahn's insistence on the former business
relation, BMW withdrew on March 26, 1993 its offer of a "standard
importer contract" and terminated the exclusive dealer relationship
effective June 30, 1993.

FACTS:

Hahn filed a complaint for specific performance and

damages against BMW to compel it to continue the exclusive
dealership.

PARTIES:Alfred Hahn is a Filipino citizen doing business under the

name and style "Hahn-Manila."o Private respondent Bayerische
Motoren Werke

ISSUE: 2. Whether or not Hahn is the agent or distributor in the

Philippines of private respondent BMW. Yes, Hahn is an agent of
BMW in the Philippines.

Aktiengesellschaft (BMW) is a nonresident foreign corporation

existing under the laws of the former Federal Republic of Germany,
with principal office at Munich, Germany.

Hahn is an agent of BMW in the Philippines.

Hahn executed in favor of BMW a Deed of Assignment with Special

Power of Attorney covering the trademark and in consideration
thereof, under its first whereas clause, Hahn was duly acknowledged
as the "Exclusive Dealer of the Assignee in the Philippines.

o BMW was doing business in the Philippines through him as its

agent, as shown by the fact that BMW invoices and order forms were
used to document his transactions;

Per the agreement, parties "continued business relations as

has been usual in the past without a formal contract." But, in a
meeting with a BMW representative and the president of Columbia
Motors Corporation (CMC), Jose Alvarez, Hahn was informed that
BMW was arranging to grant the exclusive dealership of BMW cars

(Hahn) PETITIONERS CONTENTIONS:

o that he gave warranties as exclusive BMW dealer; ando that BMW

officials periodically inspected standards of service rendered by him;
and that he was described in service booklets and international
publications of BMW as a "BMW Importer" or "BMW Trading
Company" in the

Philippines.
(BMW) RESPONDENTS CONTENTIONS:
o the execution of the Deed of Assignment was an isolated
transaction;
o that Hahn was not its agent because the latter undertook to
assemble and sell BMW cars and products without the participation
of BMW and sold other products; and
o that Hahn was an indentor or middleman transacting business in
his own name and for his own account.
the Court held that Contrary to the appellate courts conclusion,
this arrangement shows an agency. An agent receives a commission
upon the successful conclusion of a sale. On the other hand, a
broker earns his pay merely by bringing the buyer and the seller
together, even if no sale is eventually made. (at p. 549)
It must be noted that the entitlement of a broker or an agent to the
commission depends really on the wordings of the contract between
them, and not really whether one is a broker or agent.
in Guardex v. NLRC, 191 SCRA 487 (1990), the Court held that when
the terms of the agency arrangement is to the effect that
entitlement to the commission was contingent on the purchase by a
customer of a fire truck, the implicit condition being that the agent
would earn the commission if he was instrumental in bringing the
sale about. Since the agent had nothing to do with the sale of the
fire truck, and is not therefore entitled to any commission at all.
GUARDEX ENTERPRISES V NLRC
FACTS:
Escandor-engaged, under the name and style of Guardex Enterprises
in (a) manufacture and sale of fire-fighting equipment such as fire
extinguishers, fire hose cabinets and related products, and (b)
occasionally, the building or fabrication of fire trucks
Junbee Orbeta- a freelance salesman

Orbeta somehow learned that Escandor had offered to fabricate a

fire truck for Rubberworld )Phil) inc thus he wrote Escandor inquiring
about the amount of commission for the sale of a fire truck.
Escandor replied saying that it was P15,000 per unit
4 days later, Orbeta offered to look after Escandors pending
proposal to sell a fire truck to Rubberworld, ans asked for P250 as
representation expenses to which Escandor agreed and gave him
the money
When Escandor didnt get any word from Orbeta after 3 days, she
herself inquired in writing from Rubberworld about her offer of sale
of a fire truck. She then sent a revised price quotation some ten
days laeter.
in the meantime, Orbeta sold to other individuals some of
Escanodors fire extinguishers, receiving traveling expenses in
connection therewith as well as the corresponding commissions and
after that he then dropped out of sight.
About 7 months afterwards, Escandor herself finally concluded a
contract with Rubberworld for the latters purchase of a fire truck
Orbeta suddenly reappeared an asked for his commission for the
sale of the fire truck to Rubberworld to which Escandor refused,
saying that he had had nothing to do with the offer, negotiation and
consummation of the sale
Orbeta then filed a complaint against Escandor with the Ministry of
Labor which ruled in his favor. It was affirmed by the National Labor
Relations Commission on appeal taken by Escandor
ISSUE:
W/N Orbeta is an agent of Guardex Enterprises thus entitled to sales
commission
RULING: No
The claim that she gave verbal authority to Orbeta to offer to a fire
truck to Rubberworld was belied from the fact that months prior to
Orbetas approaching Escandor, the latter already had made a
written offer of a fire truck to Rubberworld. All that she consented to

was for Orbeta to follow up that pending offer. It seems fairly

evident that the representation allowance of P250 was meant to
cover the expenses for the follow up offered by Orbeta-an
ambiguous fact which does not of itself suggest the creation of an
agency and is not at all inconsistent with the theory of its absence in
this case.
Even if Orbeta is considered to have been Escandors agent for the
time he was supposed to follow up the offer to sell, such agency

would have been deemed revoked upon the resumption of direct

negotiations between Escandor and Rubberworld, Orbeta having in
the meantime abandoned all efforts (if indeed any were exerted) to
secure the deal in Escandors behalf.
No jurisdiction for Labor Arbiter or NLRC in dealing with this case
since jurisiction vested in tehm by the Labor Code extends generally
speaking only to cases arising from employer-employee relationship.