THE LAW AND PRACTICE ON PHILIPPINE AGENCY LAW

The CA is incorrect when it considered the fact that the supposed friends of
[petitioners], the actual borrowers, did not present themselves to [respondent] as

NATURE, FORM AND KINDS OF AGENCY

evidence that negates the agency relationshipit is sufficient that petitioner disclosed
to respondent that the former was acting in behalf of her principals, her friends whom

I. DEFINITION AND OBJECTIVE OF AGENCY

she referred to respondent. For an agency to arise, it is not necessary that the principal
personally encounter the third person with whom the agent interacts. The law in fact

1. Definition and Objective of Agency

contemplates, and to a great degree, impersonal dealings where the principal need not
personally know or meet the third person with whom her agent transacts; precisely, the

Article 1868 of the Civil Code defines the contract of agency as one whereby a person binds

purpose of agency is to extend the personality of the principal through the facility of

himself to render some service or to do something in representation or on behalf of another,

the agent. (at p. 622)

with the consent or authority of the latter. [1]

Lately, in Philex Mining Corp. v. Commissioner of Internal Revenue, 551 SCRA 428
In Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007), the Supreme

(2008), the Court reiterated the principle that the essence of an agency, even one that is

Court held that The underlying principle of the contract of agency is to accomplish results by

coupled with interest, is the agents ability to represent his principal and bring about business

using the services of others to do a great variety of things like selling, buying,

relati0ns between the latter and third persons.

manufacturing, and transporting. 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. (at p. 592)

When an agency relationship is established, and the agent acts for the principal, he is insofar
as the world is concerned essentially the principal acting in the particular contract or

In Orient Air Service & Hotel Representatives v. Court of Appeals, 197 SCRA 645 (1991),

transaction on hand. Consequently, the acts of the agent on behalf of the principal within the

the Court held that the purpose of every contract of agency is the ability, by legal fiction, to

scope of the authority have the same legal effect and consequence as though the principal

extend the personality of the principal through the facility of the agent; but the same can only

had been the one so acting in the given situation. Rallos v. Felix Go Chan & Sons Realty

be effected with the consent of the principal.

Corp., 81 SCRA 251 (1978); Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584

In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), the Court held that It bears stressing

(2007).

that in an agent-principal relationship, the personality of the principal is extended through the

Some of the legal consequences that flow from the doctrine of representation in the contract

facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized

of agency are that

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

Notice to the agent is notice to the principal. Air France v. Court of Appeals , 126 SCRA

by any court.[2] (at p. 223)

448 (1983).

In Doles v. Angeles , 492 SCRA 607 (2006), the Court held

Knowledge of the agent pertains to the principal

 When an agent purchases the property in bad faith, the principal is deemed to be a

Thus, a voidable agency will produce legal consequences, when it is pursued to enter into

purchaser in bad faith. Caram, Jr. v. Laureta , 103 SCRA 7 (1981).

juridical relations with third parties. If the principal is the one who has no legal capacity to
contract, and his agent enters into a contractual relationship in the principals name with a

A suit against an agent in his personal capacity cannot, without compelling reasons, be

third party, the resulting contract is voidable and subject to annulment. On the other hand, if

considered a suit against the principal. Philippine National Bank v. Ritratto Groups, Inc., 362

the principal has legal capacity, and it is the agent that has no legal capacity to contract, the

SCRA 216 (2001).

underlying agency relationship is voidable; and when the incapacitated agent enters into a

2. Parties to a Contract of Agency

The parties to a contract of agency are:
the PRINCIPAL the person represented
the AGENT the person who acts for and in representation of another

contract with a third party, the resulting contract would be valid, not voidable, for the agents
incapacity is irrelevant, the contract having been entered into, for and in behalf of the principal,
who has full legal capacity.
The foregoing discussions support the fact that as a general proposition the lack of legal
capacity of the agent does not affect the constitution of the agency relationship. And yet, it is
clear under Article 1919(3) of the Civil Code that if during the term of the agency, the principal

The other terms used for the position of agent are attorney-in-fact, proxy, delegate, or

or agent is placed under civil interdiction, or becomes insane or insolvent, the agency is ipso

representative.

jure extinguished. It is therefore only logical to conclude that if the loss of legal capacity of the

Although Article 1868 of the Civil Code defines agency in terms of being a contract, it should
also be considered that upon the perfection of the contract of agency, it creates between the
principal and an agent an on-going legal relationship which imposes personal obligations on
both parties. This is in consonance with the progressive nature of every contract of agency.
a. Capacity of the Parties
The principal must have capacity to contract (Arts. 1327 and 1329), and may either be a
natural or juridical person (Art. 1919[4]).

agent extinguishes the agency, then necessarily any of those cause that have the effect of
removing legal capacity on either or both the principal and agent at the time of perfection
would not bring about a contract of agency.
Obviously, there seems to be an incongruence when it comes to principles involving the legal
capacities of the parties to a contract of agency. The reason for that is that the principles
actually occupy two different legal levels. When it comes to creating and extinguishing the
contractual relationship of principal and agent, the provisions of law take into consideration
purely intramural matters pertaining to the parties thereto under the principle of relativity.
Since agency is essentially a personal relationship based on the purpose of representation,

There is legal literature that holds that since the agent assumes no personal liability, she does

then when either the principal or agent dies or becomes legally incapacitated, then the agency

not have to possess full capacity to act insofar as third persons are concerned.[3] Since a

relation should ipso jure cease. But a contract of agency is merely a preparatory contract,

contract of agency is first and foremost a contract in itself, the parties (both principal and

where the main purpose is to effect through the agent contracts and other juridical

agent) must have legal capacities to validly enter into an agency. However, if one of the

relationships of the principal with third parties. The public policy is that third parties who act in

parties has no legal capacity to contract, then the contract of agency is not void, but merely

good faith with an agent have a right to expect that their contracts would be valid and binding

voidable, which means that it is valid until annulled.

on the principal. Therefore, even when by legal cause an agency relationship has terminated,
say with the insanity of the principal, if the agent and a third party enter into contract unaware

of the situation, then the various provisions on the Law on Agency would affirm the validity of

validity of the existing agency relationship, but rather the legality of the contracts entered into

the contract. More on this point will be covered under the section on the essential

by the agent on behalf of the principal.

characteristics of agency.
Thus, under Article 1883 of the Civil Code, If an agent acts in his own name, the principal has
3. Elements of the Contract of Agency

no right of actions against the person with whom the agent has contracted; neither have such
persons against the principal. Under Article 1898 of the Civil Code, If the agent contracts in

Like any other contract, agency is constituted of the essential elements of (a) consent; (b)

the name of the principal, exceeding the scope of his authority, and the principal does not

object or subject matter; and (c) cause or consideration.

ratify the contract, it shall be void as to the principal.

In Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978), the Court held that

a. Consent

the following are the essential elements of the contract of agency:

(a) Consent, express or implied, of the parties to establish the relationship;
(b) Object, which is the execution of a juridical act in relation to third parties;
(c) Agent acts as a representative and not for himself; and
(d) Agent acts within the scope of his authority.[4]
The element not included in the Rallos enumeration is the cause or consideration of every
contract of agency. Under Article 1875 of the Civil Code, every agency is presumed to be for
compensation, unless there is proof to the contrary. In other words, it is clear that there can be
a valid agency contract which is supported by consideration of liberality on the part of the
agent; that although agency contracts are primarily onerous, they may also be constituted as

The essential element of consent is manifest from the principle that No person may be
represented by another without his will; and that no person can be compelled against his will
to represent another.
Thus, the Supreme Court held in Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), held
that consent of both the principal and the 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.

gratuitous contracts. The value that Article 1875 of the Civil Code brings into the Law on

In the same manner, Dominion Insurance Corp. v. Court of Appeals, 376 SCRA 239 (2002),

Agency is that the presumption is that every agency contract entered into is for valuable

held that since the basis for agency is representation, then there must be, on the part of the

considerationthat the agency serves for the benefit of the principal expecting to be

principal, an actual intention to appoint or an intention naturally inferable from his words or

compensated for his efforts. It is the party who avers that the agency was gratuitousthat the

actions; on the part of the agent, there must be an intention to accept the appointment and act

agent agreed to serve gratuitously.

on it; and in the absence of such intent, there is generally no agency.

The last two elements included in the Rallos enumeration should not be understood to be

Perhaps the only exception to this rule is agency by estoppel, but even then it is by the

essential elements for the perfection and validity of the contract of agency, for indeed they are

separate acts of the purported principal and purported agent, by which they are brought into

matters that do not go into perfection, but rather into the performance stage of the agency

the relationship insofar as third parties acting in good faith are concerned. More discussions

relationship. The non-existence of the two purported essential elements (i.e., that the agent

on the essential element of consent shall take place in the section on essential characteristic

acted for herself and/or the agent acted beyond the scope of her authority), does not affect the

of consensuality of contracts of agency.

b. Object or Subject Matter

Code, then under Article 1875, which mandates that every contract of agency is deemed to be
for compensation, then the result would have been quite the opposite.

The object of every contract of agency is service, which particularly is the legal undertaking of
the agent to enter into juridical acts with third persons on behalf of the principal.

d. Entitlement of Agent to Commission Anchored on the Rendering of Service

Items (b), (c) and (d) in the enumerated elements of Rallos can actually be summarized into

The compensation that the principal agrees to pay to the agent is part of the terms of the

the object of every contract of agency to be that of service, i.e., the undertaking (obligation) of

contract of agency upon which their minds meet. Therefore, the extent and manner by which

the agent to enter into a juridical act with third parties on behalf of the principal and within the

the agent would be entitled to receive compensation or commission is based on the terms of

scope of his authority.

the contract.

c. Consideration

Sometimes, the terms are not that clear, and decisions have had to deal with the issue of
when an agent has merited the right to receive the compensation either stipulated or implied

The cause or consideration in agency is the compensation or commission that the principal

from the terms of the contract. The doctrine that may be derived from the various decisions on

agreed or committed to be paid to the agent for the latters services. Under Article 1875 of the

the matter are anchored on the nature of the contract of agency as a species of contracts of

Civil Code, agency is presumed to be for compensation, unless there is proof to the contrary.

services in general. When the rendering of service alone, and not the results, is the primordial

In other words, liberality may be the proper cause or consideration for an agency contract only

basis for which the compensation is given, then the proof that services have been rendered

when it is so expressly agreed upon. Unless otherwise stipulated, therefore, every agent is

should entitle the agent to the compensation agreed upon. On the other hand, if the nature of

entitled to remuneration or compensation for the services performed under the contract of

the service to be compensated is understood by the results to be achieved,e.g., that a

agency.

particular contract with a third party is entered into in behalf of the principal, then mere

The old decision in Aguna v. Larena, 57 Phil 630 (1932), did not reflect the general rule of
agency-is-for-compensation reflected subsequently in Article 1875 of the Civil Code. In Aguna,
although the agent had rendered service to the principal covering collection of rentals from the

rendering of service without achievement of the results agreed upon to be achieved would not
entitle the agent to the compensation agreed upon.
Thus, in Inland Realty v. Court of Appeals, 273 SCRA 70 (1997), the Court held that

various tenants of the principal, and in spite of the agreement that principal would pay for the
agents service, nevertheless, the principal allowed the agent to occupy one of his parcels of

Although the ultimate buyer was introduced by the agent to the principal during the

land and to build his house thereon. The Court held that the service rendered by the agent

term of the agency, nevertheless, the lapse of the period of more than one (1) year and

was deemed to be gratuitous, apart from the occupation of some of the house of the

five (5) months between the expiration of petitioners authority to sell and the

deceased by the plaintiff and his family, for if it were true that the agent and the deceased

consummation of the sale, cannot authorize compelling the principal to pay the

principal had an understanding to the effect that the agent was to receive compensation aside

stipulated brokers fee, since the agent was not longer entitled thereto.

from the use and occupation of the houses of the deceased, it cannot be explained how the
agent could have rendered services as he did for eight years without receiving and claiming

The Court takes into strong consideration that utter lack of evidence of the agent

any compensation from the deceased. (at p. 632) If Aguna were decided under the New Civil

showing any further involvement in the negotiations between principal and buyer

during that period and in the subsequent processing of the documents pertinent to

notwithstanding he or she is not so calledit will be an agency whether the parties

said sale. (at p. 79)

understood the exact nature of the relation or not.

In contrast, in Manotok Bros. Inc. v. Court of Appeals, 221 SCRA 224 (1993), the Court held

b. Consensual

that although the sale of the object of the agency to sell was perfected three days after the
expiration of the agency period, the agent was still be entitled to receive the commission

The contract of agency is perfected by mere consent. Under Article 1869, an agency may be

stipulated based on the doctrine held in Prats v. Court of Appeals, 81 SCRA 360 (1978), that

expressed or implied from the act of the principal, from his silence or lack of action, or failure

when the agent was the efficient procuring cause in bringing about the sale that the agent was

to repudiate the agency; agency may be oral, unless the law requires a specific form.[5]

entitled to compensation. In essence, the Court ruled that when there is a close, proximate
and causal connection between the agents efforts and labor and the principals sale of his
property, the agent is entitled to a commission.
The matter pertaining to entitlement to commission will be discussed in greater details in the
section that distinguishes a contract of agency from that of a brokers contract.
4. Essential Characteristics of Agency
a. Nominate and Principal

Under Article 1870 of the Civil Code, acceptance by the agent may also be express, or implied
from his acts which carry out the agency, of from his silence or inaction according to the
circumstances.
c. Unilateral and Primarily Onerous
Ordinarily, an agency is onerous in nature, where the agency expects compensation for his
services in the form of commissions. However, Article 1875 recognizes that an agency may be
supported by pure liberality, and thus would be gratuitous, but the burden of proof would be to
show that the agency was constituted gratuitously.

Not only is the contract of agency specifically named as such under the Civil Code, it is a
principal contract because it can stand on its own without need of another contract to validate

When it is gratuitous, the contract of agency is unilateral contract because it only creates an

it.

obligation on the part of the agent. But even when it is supported by a valuable consideration
(i.e., compensated or onerous agency), it would still be characterized as a unilateral contract,

The real value of the contract of agency being a nominate and principal contract is that it has

because it is only the fulfillment of the primary obligations of the agent to render some service

been so set apart by law and provided with its own set of rules and legal consequences, that

upon which the subordinate obligation of the principal to pay the compensation agreed upon

any other arrangement that essentially falls within its terms shall be considered as an agency

arises.

arrangement and shall be governed by the Law on Agency, notwithstanding any intention of
the parties to the contrary. After all, a contract is what the law says it is, and not what the

When an agent accepts the agency position without compensation, he assumes the same

parties call it.

responsibility to carry out the agency and therefore incurs the same liability when he fails to
fulfill his obligations to the principal. It is therefore rather strange that Article 1909 of the Civil

In Doles v. Angeles, 492 SCRA 607 (2006), it was held that if an act done by one person in

Code provides that The agent is responsible not only for fraud, but also for negligence, which

behalf of another is in its essential nature one of agency, the former is the agent of the latter

shall be judged with more or less rigor by the courts, according to whether the agency was or
was not for a compensation.

d. Preparatory and Representative

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

There is no doubt that agency is a species of the broad grouping of what we call the service

come to connote control by the principal.[7] The control factor, more than any other,

contracts, which includes employment contract, management contract and contract-for-a

has caused the courts to put contracts between principal and agent in a separate

piece of work. There are also special service contracts which include the rendering of

category. . . .

professional service (e.g., doctors and lawyers), and consultancy work. But it is the
characteristic of representation that is the most distinguishing mark of agency when

xxx

compared with other service contracts, in that the main purpose is to allow the agent to enter
into contracts with third parties on behalf of, and which would bind on, the principal.

In the instant case, it appears plain to us that private respondent CSC was a buyer of
the SLDFR form, and not an agent of STM. Private respondent CSC was not subject to

A contract of agency does not exist for its own purpose; it is a preparatory contract entered

STMs control. The question of whether a contract is one of sale or agency depends on

into for other purposes that deal with the public. This characteristic of an agency is reflected in

the intention of the parties as gathered from the whole scope and effect of the language

various provisions in the Law on Agency and in case-law, that seek to protect the validity and

employed. That the authorization given to CSC contained the phrase for and in our

enforceability of contracts entered into pursuant to the agency arrangement, even when to do

(STMs) behalf did not establish an agency. Ultimately, what is decisive is the intention

so would contravene strict agency principles. In another way of putting it, an agency contract

of the parties. That no agency was meant to be established by the CSC and STM is

is merely a tool allowed to be resorted to achieve a greater objective to enter into juridical

clearly shown by CSCs communication to petitioner that SLDR No. 1214M had been

relations on behalf of the principal; considerations that pertain merely to the tool certainly

sold and endorsed to it. The use of the words sold and endorsed means that STM

cannot outweigh considerations that pertain to the main objects of the agency.

and CSC intended a contract of sale, and not an agency. (at pp. 676-677)

In Amon Trading Corp. v. Court of Appeals, 477 SCRA 552 (2005), the Court decreed that In

In Doles v. Angeles, 492 SCRA 607 (2006), it was held that for an agency to arise, it is not

a bevy of cases as the avuncular case of Victorias Milling Co., Inc. v. Court Appeals, [333

necessary that the principal personally encounter the third person with whom the agent

SCRA 663 (2000)], the Court decreed from Article 1868 that the basis of agency is

interacts precisely, the purpose of agency is to extend the personality of the principal

representation, (at p. 560), and that consequently one of the strongest feature of a true

through the facility of the agent.

contract of agency is that of control that the agent is under the control and instruction of
the principal. Thus, in Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663 (2000),

In Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007), the Court held

it was ruled

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

It is clear from Article 1868 that the basis of agency is representation.[6] On the part of

the same legal effect as if they were personally executed by the principal. By this legal

the principal, there must be an actual intention to appoint or an intention naturally

fiction, the actual or real absence of the principal is converted into his legal or juridical

inferable from his words or actions; and on the part of the agent, there must be an

presence qui facit per alium facit per se. (at p. 593)

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

Earlier, in Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978), the Court held

(f) Knowledge of the agent is equivalent to knowledge of the principal.

that 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 per se. He who
acts through another acts himself. (at p. 259)
(1) Principles

Flowing from Agency

Characteristics

of Prepartatory

and

Representative
The following principles flow from the application of the essential characteristics of an agency
being preparatory and representative contract, thus:
(a) The contract entered into with third persons pertains to the principal and not to the agent;
the agent is a stranger to said contract although he physically was the one who entered into it
in a representative capacity;
the agent has neither rights or obligations from the resulting contract;
the agent has no legal standing to sue upon said contract

EXCEPT WHERE:
(1) Agents interests are adverse to those of the principal;
(2) Agents duty is not to disclose the information, as where he is informed by way of
confidential information; and
(3) The person claiming the benefit of the rule colludes with the agent to defraud the principal
(De Leon & De Leon, at p. 367,citing TELLER, at p.150)
Thus, in Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007), the Court
held
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not
personally liable to the party with whom he contracts. The same provision, however,
presents two instances when an agent becomes personally liable to a third person. The
first is when he expressly binds himself to the obligation and the second is when he
exceeds his authority. In the last instance, the agent can be held liable if he does not

(b) The liabilities incurred shall pertain to the principal and not the agent;

give the third party sufficient notice of his powers. (at p. 593)

(c) Generally, all acts that the principal can do in person, he may do through an agent, except

In Philpotts v. Phil. Mfg. Co., 40 Phil 471 (1919), the Court held that the right of inspection

those which under public policy are strictly personal to the person of the principal.

given to a stockholder under the law can be exercised either by himself or by any proper
representative or attorney in fact, and either with or without the attendance of the stockholder.

(d) The agent who acts as such is not personality liable to the party with whom he contracts,

This is in conformity with the general rule that what a man may do in person he may do

unless he expressly binds himself or exceeds the limits of his authority without giving such

through another.

party sufficient notice of his powers. (Art. 1897)

e. Derivative, Fiduciary and Revocable
(e) Notice to the agent should always be construed as notice binding on the principal, even
when in fact the principal never became aware thereof. Air France v. Court of Appeals, 126

A contract of agency creates a legal relationship of representation by the agent on behalf of

SCRA 448 (1983)

the principal, where the powers of the agent are essentially derived from the principal, and
consequently, it is fiduciary in nature. One of the legal consequences of the fiduciary nature of

the contract of agency is that it is essentially revocable: neither the principal nor the agent can

In Orient Air Services v. Court of Appeals, 197 SCRA 645 (1991), it was held that the decision

be legally made to remain in the relationship when they choose to have it terminated.

of the lower court ordering the principal airline company to reinstate defendant as its general
sales agent for passenger transportation in the Philippines in accordance with said GSA

Severino v. Severino, 44 Phil. 343 (1923), held that the relations of an agent to his principal

Agreement, was unlawful since courts have no authority to compel the principal to reinstate a

are fiduciary in character because they are based on trust and confidence, which must flow

contract of agency it has terminated with the agent:

from the essential nature a contract of agency that makes the agent the representative of the
principal. Consequently:

Such would be violative of the principles and essence of agency, defined by law as a
contract whereby a person binds himself to render some service or to do something in

(a) As regards property forming the subject matter of the agency, the agent is estopped from

representation or on behalf of another, WITH THE CONSENT OR AUTHORITY OF THE

asserting or acquiring a title adverse to that of the principal. (Art. 1435);

LATTER. In an agent-principal relationship, the personality of the principal is extended

(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.

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 Agreement itself between the parties
states that either party may terminate the Agreement without cause by giving the other
30 days notice by letter, telegram or cable.[8] (at p. 656)
5. Distinguished from Similar Contracts
a. From the Employment Contract
Unlike agency relationship which is essentially contractual in nature, an employment contract
under Article 1700 of the Civil Code is The relationship between capital and labor [which] are
not merely contractual. They are so impressed with public interest that labor contracts must
yield to the common good. Therefore, such contracts are subject to the special laws on labor
unions, collective bargaining, strikes and lockouts, closed shop, wages, working conditions,
hours of labor and similar subjects. More specifically, the purpose of an employer-employee
relationship is for the employee to render service for the direct benefit of the employer or of
the business of the employer; while agency relationship is entered into to enter into juridical
relationship on behalf of the principal with third parties. There is, therefore, no representation
in a contract of employment.

In Dela Cruz v. Northern Theatrical Enterprises, 95 Phil 739 (1954), the Court held that the

In Nielson & Co., Inc. v. Lepanto Consolidated Mining Co., 26 SCRA 540, 546-547 (1968), the

relationship between the corporation which owns and operates a theatre, and the individual it

Court held that in both agency and lease of services, one of the parties binds himself to render

hires as a security guard to maintain the peace and order at the entrance of the theatre is not

some service to the other party. Agency, however, is distinguished from lease of work or

that of principal and agent, because the principle of representation was in no way involved.

services in that the basis of agency is representation, while in the lease of work or services

The security guard was not employed to represent the defendant corporation in its dealings

the basis is employment. The lessor of services does not represent his employer, while the

with third parties; he was a mere employee hired to perform a certain specific duty or task,

agent represents his principal. x x x . There is another obvious distinction between agency

that of acting as special guard and staying at the main entrance of the movie house to stop

and lease of services. Agency is a preparatory contract, as agency does not stop with the

gate crashers and to maintain peace and order within the premises.

agency because the purpose is to enter into other contracts. The most characteristic feature
of an agency relationship is the agents power to bring about business relations between his

b. From the Contract for a Piece-of-Work

Under Article 1713 of the Civil Code, By the contract for a piece of work the contractor binds
himself to execute a piece of work for the employer, in consideration of a certain price or

principal and third persons. The agent is destine to execute juridical acts (creation,
modification or extinction of relations with third parties). Lease of services contemplate only
material (non-juridical) acts.[9]

compensation. The contractor may either employ only his labor or skill, or also furnish the

The Court also held in Nielson & Co. that where the principal and paramount undertaking of

material. Under a contract for a piece of work, the contractor is not an agent of the principal

the manager under a Management Contract was the operation and development of the mine

(i.e., the client), and the contractor has no authority to represent the principal in entering into

and the operation of the mill, and all other undertakings mentioned in the contract are

juridical acts with third parties. The essence of every contract-for-a-piece-of-work is that the

necessary or incidental to the principal undertakingthese other undertakings being

services rendered must give rise to the manufacture or production of the object agreed upon.

dependent upon the work on the development of the mine and the operation of the mill. In the

In Fressel v. Mariano Uy Chaco Sons & Co., 34 Phil. 122 (1915), it was held that where the
contract entered into is one where the individual undertook and agreed to build for the other
party a costly edifice, the underlying contract is one for a contract for a piece of work, and not
a principal and agency relation. Consequently, the contract is authorized to do the work
according to his own method and without being subject to the clients control, except as to the
result of the work; he could purchase his materials and supplies from whom he pleased and at
such prices as he desired to pay. And the mere fact that it was stipulated in the contract that

performance of this principal undertaking the manager was not in any way executing juridical
acts for the principal, destined to create, modify or extinguish business relations between the
principal and third person. In other words, in performing its principal undertaking the manager
was not acting as an agent of the principal, 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
compensation. Consequently, the management contract not being an agency cannot be
revoked at will and was binding to its full contracted period.

the client could take possession of the work site upon the happening of specified

In Shell Co. v. Firemens Insurance of Newark, 100 Phil. 757 (1957), in ruling that the operator

contingencies did not make the relation into that of an agency. Consequently, when the client

was an agent of the Shell company, the Court took into consideration the following facts: (a)

did take over the unfinished works, he did not assume any direct liability to the suppliers of the

that the operator owed his position to the company and the latter could remove him or

contractor.

terminate his services at will; (b) that the service station belonged to the company and bore its

c. From the Management Agreement

tradename and the operator sold only the products of the company; that the equipment used
by the operator belonged to the company and were just loaned to the operator and the

company took charge of their repair and maintenance; (c) that an employee of the company

As a consequence, the revocation sought to be made by the principal on the purported

supervised the operator and conducted periodic inspection of the companys gasoline and

agency arrangement was denied by the Court, the relationship being one of sale, and the

service station; and (d) that the price of the products sold by the operator was fixed by the

power to rescind is available only when the purported principal is able to show substantial

company and not by the operator.

breach on the part of the purported agent.

d. From the Contract of Sale

Quiroga further ruled that when the terms of the agreement compels the purported agent to
pay for the products received from the purported principal within the stipulated period, even

Under Article 1466 of the Civil Code, In construing a contract containing provisions

when there has been no sale thereof to the public, the underlying relationship is not one of

characteristic of both the contract of sale and of the contract of agency to sell, the essential

contract of agency to sell, but one of actual sale. A true agent does not assume personal

clauses of the whole instrument shall be considered. Jurisprudence has indicated what the

responsibility for the payment of the price of the object of the agency; his obligation is merely

essential clauses that should indicate whether it is one of sale or agency to sell/purchase,

to turn-over to the principal the proceeds of the sale once he receives them from the buyer.

refers to stipulations in the contract which places obligations on the part of the purported

Consequently, since the underlying agreement is not an agency agreement, it cannot be

agent having to do with what should be a seller obligation to transfer ownership and deliver

revoked except for cause.

possession of the subject matter, or the buyers obligation on the payment of the price.
In Gonzalo Puyat & Sons, Inc. v. Arco Amusement Company, 72 Phil. 402 (1941), which
In Quiroga v. Parsons, 38 Phil. 501 (1918), although the parties designated the arrangement

covered a purported agency contract to purchase, the Court looked into the provisions of their

as an agency agreement, the Court found the arrangement to be one of sale since the

contract, and found that the letters between the parties clearly stipulated for fixed prices on

essential clause provided that Payment was to be made at the end of sixty days, or before, at

the equipment ordered, which admitted no other interpretation than that the [principal] agreed

the [principals] request, or in cash, if the [agent] so preferred, and in these last two cases an

to purchase from the [agent] the equipment in question at the prices indicated which are fixed

additional discount was to be allowed for prompt payment. These conditions to the Court

and determinate. (at p. 407). The Court held that whatever unforeseen events might have

were precisely the essential features of a contract of purchase and sale because there was

taken place unfavorable to the [agent], such as change in prices, mistake in their quotation,

the obligation on the part of the purported principal to supply the beds, and, on the part of the

loss of the goods not covered by insurance or failure of the Starr Piano Company to properly

purported agent, to pay their price, thus:

fill the orders as per specifications, the [principal] might still legally hold the [agent] to the

These features exclude the legal conception of an agency or order to sell whereby the
mandatory or agent received the thing to sell it, and does not pay its price, but delivers
to the principal the price he obtains from the sale of the thing to a third person, and if
he does not succeed in selling it, he returns it. By virtue of the contract between the
plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to

prices fixed. (at p. 407). It was ruled that the true relationship between the parties was in
effect a contract of sale. Consequently, the demand by the purported principal of all discounts
and benefits obtained by the purported agent from the American suppliers under the theory
that all benefits received by the agent under the transactions were to be accounted for the
benefit of the principal, was denied by the Court.

pay their price within the term fixed, without any other consideration and regardless as

Gonzalo Puyat also ruled that when under the terms of the agreement, the purported agent

to whether he had or had not sold the beds. (at p. 505)

becomes responsible for any changes in the acquisition cost of the object he has been
authorized to purchase from a supplier in the United States, the underlying agreement is not

an contract of agency to buy, since an agent does not bear any risk relating to the subject

The reasoning in Pearl Island is wrong, of course, since as early as inQuiroga v. Parson, the

matter or the price. Being truly a contract of sale, any profits realized by the purported agent

Court had already ruled that appointing one as agent or distributor, when in fact such

from discounts received from the American supplier, pertain to it with no obligation to account

appointee assumes the responsibilities of a buyer of the goods, does not make the

for it, much less to turn it over, to the purported principal. Reiterated in Far Eastern Export &

relationship one of agency, but that of sale. Perhaps the best way to understand the ruling

Import Co., v. Lim Tech Suan, 97 Phil. 171 (1955).

in Pearl Island was that the suit was not between the buyer and seller, but by the seller
against the surety of the buyer who had secured the shipment of the wax to the buyer, and the

In Chua Ngo v. Universal Trading Co., Inc., 87 Phil. 331 (1950), where a local importing

true characterization of the contract between the buyer and seller was not the essential criteria

company was contracted to purchase from the United States several boxes of oranges, most

by which to fix the liability of the surety, thus

of which were lost in transit, the purchaser sought to recover the advance purchased price
paid, which were refused by the local importing company on the ground that it merely

True, the contract (Exhibit A) is not entirely clear. It is in some respects, even

imported the oranges as agent of the purchaser for which it could not be held liable for their

confusing. While it speaks of sale of Bee Wax to Tong and his responsibility for the

loss in transit. The Court, in reviewing the terms and conditions of the agreement between the

payment of the value of every shipment so purchased, at the same time it appoints him

parties, held that the arrangement was a sale rather than a contract of agency to purchase on

sole distributor within a certain area, the plaintiff undertaking is not to appoint any

the following grounds: (a) no commission was paid by the purchaser to the local importing

other agent or distributor within the same area. Anyway, it seems to have been the sole

company; (b) the local importing company was given the option to resell the oranges if the

concern and interest of the plaintiff to be sure that it was paid the value of all

balance of the purchase price was not paid within 48 hours from notification, which clearly

shipments of Bee Wax to Tong and the Surety Company by its bond, guaranteed in the

implies that the local importing company did in fact sell the oranges to the purchaser; (c) the

final analysis said payment by Tong, either as purchaser or as agent. . . . (at p. 793)

local importing company placed order for the oranges a lower the price agreed upon with the
purchaser which it could not properly do if indeed it were merely acting as an agent; (d) the

In Ker & Co., Ltd. v. Lingad, 38 SCRA 524 (1971), covering a contract of distributorship, it was

local importing company charged the purchaser with a sales tax, showing that the

specifically stipulated in the contract that all goods on consignment shall remain the property

arrangement was indeed a sale; and (e) when the losses occurred, the local importing

of the Company until sold by the Distributor to the purchaser or purchasers, but all sales made

company made claims against the insurance company in its own name, indicating that he

by the Distributor shall be in his name; and that the Company at its own expense, was to

imported the oranges as his own products, and not merely as agent of the local purchaser.

keep the consigned stock fully insured against loss or damage by fire or as a result of fire, the
policy of such insurance to be payable to it in the event of loss. It was further stipulated that

In Pearl Island Commercial Corp. v. Lim Tan Tong, 101 Phil. 789 (1957), the Supreme Court

the contract does not constitute the Distributor the agent or legal representative of the

was unsure of its footing when it tried to characterize a contract of sale (Contract of Purchase

Company for any purpose whatsoever. Distributor is not granted any right or authority to

and Sale) between the manufacturer of wax and its appointed distributor in the Visayan area,

assume or to create any obligation or responsibility, express or implied in behalf of or in the

as still being within a contract of agency in that while providing for sale of Bee Wax from the

name of the Company, or to bind the Company in any manner or thing whatsoever. In spite of

plaintiff to Tong and purchase of the same by Tong from the plaintiff, also designates Tong as

such stipulations, the Court did find the relationship to be one of agency, because it did not

the sole distributor of the article within a certain territory. (at p. 792)

transfer ownership of the merchandise to the purported distributor, even though it was
supposed to enter into sales agreements in the Philippines in its own name, thus:

The transfer of title or agreement to transfer it for a price paid or promised is the

will be imported thru barter on a back to back letter of credit or no-dollar remittance basis;

essence of sale. If such transfer puts the transferee in the attitude or position of an

and with DAMERCO agreeing to buy the aforementioned collateral goods. Although the corn

owner and makes him liable to the transferor as a debtor for the agreed price, and not

grains were duly exported, the Government had issued rules banning the barter of goods from

merely as an agent who must account for the proceeds of a resale, the transaction is a

abroad. NARIC then brought suit against DAMERCO seeking recovery of the price of the

sale; while the essence of an agency to sell is the delivery to an agent, not as his

exported grains. The Court ruled that insofar as the exporting of the grains was concerned,

property, but as the property of the principal, who remains the owner and has the right

DAMERCO acted merely as agent of NARIC for which it cannot be held personally liable for

to control the sale, fix the price, and terms, demand and receive the proceeds less the

the shortfall considering that it had acted within the scope of its authority. The Court had

agents commission upon sales made. (at p. 530)

agreed that indeed the other half of the agreement whereby DAMERCO bound itself as the
purchaser of the collateral goods to be imported from the proceeds of the sale of the corn and

In Victoria Milling Co., Inc. v. Court of Appeals, 333 SCRA 663 (2000), the Court held that an

rice, was a valid and binding contract of sale, but for which DAMERCO could not be made to

authorization given to the buyer of goods to obtain them from the bailee for and in behalf of

pay the purchase price, because NARIC itself was no longer in a position to import any of

the bailor-seller does not necessarily establish an agency, since the intention of the parties

such goods into the country, by reason of force majeure, thus

was for the buyer to take possession and ownership over the goods with the decisive
language in the authorization being sold and endorsed.

It is clear that if after DAMERCO had spent big sums incident to carrying out the
purpose of the contract, the importation of the remaining collateral goods worth about

In Lim v. Court of Appeals, 254 SCRA 170 (1996), it was held that as a general rule, an

US$480,000.00 could not be effected due to suspension by the government under a

agency to sell on commission basis does not belong to any of the contracts covered by

new administration of barter transactions, the NARIC (now Rice and Corn

Articles 1357 and 1358 of the Civil Code requiring them to be in a particular form, and not one

Administration) ought to make the necessary representations with the government to

enumerated under the Statutes of Frauds in Article 1403. Hence, unlike a sale contract which

enable DAMERCO to import the said remaining collateral goods. The contract, Exhibit

must comply with the Statute of Frauds for enforceability, a contract of agency to sell is valid

A, has reciprocal stipulations which must be given force and effect. (at p. 449)

and enforceable in whatever form it may be entered into.

Although it is clear from the decision that DAMERCO had assumed also the position of being
The old decision in National Rice and Corn Corp. v. Court of Appeals, 91 SCRA 437 (1979),

a buyer of goods from NARIC, the Court in National Ricewas able to segregate his role as

presents an interesting situation where it is possible for a party to enter into an arrangement,

merely an agent of NARIC insofar as the export of the grains was concerned, and apply the

where a portion thereof is as agent, and the other portion would be as buyer, and still be able

doctrine that an agent does not assume any personal obligation with respect to the subject

to distinguish and set apart to the two transactions to determine the rights and liabilities of the

matter of the agency nor of the proceeds thereof, his obligation being merely to turn-over the

parties.

proceeds to the principal whenever he receives them. National Rice also demonstrate the

In National Rice a formal contract was entered into between the National Rice & Corn Corp.
(NARIC) and the Davao Merchandising Corp. (DAMERCO), where they agreed that
DAMERCO would act as an agent of NARIC in exporting the quantity and kind of corn and
rice mentioned in the contract (Exhibit A), as well as in importing the collateral goods that

progressive nature of every contract of agency, in that it presents a pliable legal relationship
which may be adopted into other relationships, such a contract of sale, to be able to achieve
commercial ends.
e. From Broker

A broker is best defined in Schmid and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988),

has violated his duty or obligation] are found in Articles 1891 and 1909 of the New Civil Code,

where the Court held that a broker is one who is engaged, for others, on a commission,

whereby every agent is bound to render an account of his transactions and to deliver to the

negotiating contracts relative to property with the custody of which he has no concern; the

principal whatever he may have received by virtue of the agency, even though it may not be

negotiator between other parties, never acting in his own name but in the name of those who

owning to the principal; and that an agent is responsible not only for fraud, but also for

employed him. . . . a broker is one whose occupation is to bring the parties together, in

negligence.[10] On the other hand, the Court also held in Domingo that The duty embodied in

matters of trade, commerce or navigation. (at p. 501) In other words, the services of a broker

Article 1891 of the New Civil Code will not apply if the agent or broker acted only as a

is to find third parties who may be interested in entering into contracts with other parties over

middleman with the task of merely bringing together the vendor and vendee, who themselves

particular matter, and may include negotiating in behalf of both parties the perfection of a

thereafter will negotiate on the terms and conditions of the transaction. (at p. 140)

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.

(1) Broker Has No Authority To Enter into Contract in the Name of the Principal

In Reyes v. Rural Bank of San Miguel, 424 SCRA 135 (2004), the Court held that unlike an

In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), it was held that a real estate broker is

agent who must act in the name of the principal, a broker is one who is engaged for others on

one who negotiates the sale of real properties; his business, generally speaking, is only to find

a commission to negotiate between other parties, never acting in his own name but in the

a purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority

name of those who employed him.

to bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of
real property does not include an authority to sell. Thus, when the seller himself closes the

In Pacific Commercial Co. v. Yatco, 63 Phil. 398 (1936), the Court ruled that a broker has no

sale with the purchaser located by the broker, the seller is bound to pay the commission he

relation with the thing he has been retained to buy or to sell; he is merely an intermediary

has contracted with the broker for merely finding the buyer.

between the purchaser and the vendor. He acquires neither the custody nor the possession of
the thing he sells; his only office is to bring together the parties to the transaction.

It must be noted that the ruling in Litonjua, Jr. does not provide for a strict rule on
compensability of a broker, but like any other contract, its perfection is subject to the terms

It must be noted though that a broker may at the same time be an agent. When he acts in his

and conditions that have been agreed upon. The essence of the ruling in Litonjua, Jr. is that

behalf in dealing with the public, even when he handles things pertaining to the principal, he is

the main service for which the broker was contracted for is to find a prospective buyer, then if

a mere broker. On the other hand, if he is duly authorized to act in the name of the principal,

the seller on his own closes the deal with the buyer found by the broker, the latter has earned

there is no doubt that the broker is also an agent. Thus, in Abacus Securities Corp. v. Ampil,

his finders fee.

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

On the other hand, it is possible that the terms of the brokers contract is that it is not enough

the broker-principal relationship.

for the broker to find the prospective buyer, but that his services must include efforts to
negotiate, i.e., convince him to enter into a contract with the client, then it is not enough that

In the same manner, in Domingo v. Domingo, 42 SCRA 131 (1971), the Court held that the

the broker found the prospective buyer, but he must spend efforts at negotiating with the said

duties and liabilities of a broker to his employer are essentially those which an agent owes to

person that leads him to enter into a contract with the client, otherwise mere finding would not

his principal. In such a situation, the decisive legal provisions to determine whether a broker

entitle the broker to the fees agreed upon.

(2) Broker Is Not Legally Incapacitated to Purchase Property of the Principal

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

In Araneta, Inc. v. Del Paterno, 91 Phil. 786 (1952), it was held that the prohibition in Article

entitled to the commission whether or not the sale of the property subject matter of the

1491(2) of the Civil Code which renders an agent legally incapable of buying the properties of

contract was concluded through their efforts. (at p. 341)

his principal connotes the idea of trust and confidence; and so where the relationship does
not involve considerations of good faith and integrity the prohibition should not and does not

Also, in Hahn v. Court of Appeals, 266 SCRA 537 (1997), the Court held that Contrary to the

apply. To come under the prohibition, the agent must be in a fiduciary relation with his

appellate courts conclusion, this arrangement shows an agency. An agent receives a

principal.

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.

The Court held that a broker does not come within the meaning of Article 1492, because he is

(at p. 549)

nothing more than a go-between or middleman between the defendant and the purchaser,
bringing them together to make the contract themselves. There is no confidence to be

It must be noted that the entitlement of a broker or an agent to the commission depends really

betrayed, since a broker is not authorized to make a binding contract for the purported

on the wordings of the contract between them, and not really whether one is a broker or

principal; he is not sell the property, but only to look for a buyer and the owner is to make the

agent.

sale; he was not to fix the price of the sale because the price had to be already fixed in his
commission; he is not to make the terms of payment because these, too, would be clearly

In Phil. Health-Care Providers (Maxicare) v. Estrada, 542 SCRA 616 (2008), the Court held

specified in his commission. In fine, a broker is left no power or discretion whatsoever, which

that the term procuring cause in describing a brokers activity, refers to a cause originating a

he could abuse to his advantage and to the owners prejudice.

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

(3) Brokers Entitlement to Commission

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

In quite a number of decisions, the Supreme Court has held that the determination of whether

negotiations resulting in a sale began. Again, this ruling is correct only if it is clear that the

one is an agent or a broker constitutes a critical factor of whether he would be entitled to the

agreement on the services of the broker, for which he would be entitled to his fees, is not

commission stipulated in the contract.

merely of finding the prospective buyer.

Thus, in Tan v. Gullas, 393 SCRA 334 (2002), quoting from Schmid & Oberly, Inc. v. RJL

But truly, since both a brokerage arrangement and an agency agreement are inherently

Martinez Fishing Corp., 166 SCRA 493 (1988), it defined a broker as one who is engaged,

contractual relations, the entitlement of a broker or agent to the compensation or commission

for others, on a commission, negotiating contracts relative to property with the custody of

stipulated would have to depend upon the contractual clause covering the same. In other

which he has no concern; the negotiator between other parties, never acting in his own name

words, it may well be stipulated in a true brokerage arrangement that the broker would be

but in the name of those who employed him. x x x a broker is one whose occupation is to

entitled to a commission only when a sale is eventually made. In the same manner, the

bring the parties together, in matters of trade, commerce or navigation. (at p. 339) The Court

agency contract may well stipulate that the agent shall be entitled to earn commission by

then held that An agent receives a commission upon the successful conclusion of a sale. On

merely bringing the buyer and the seller together, even when the actual sale of the person

assume the role of an agent because he has no power to enter into a contract in behalf of any

referred to by the agent happens long after the agency relationship has terminated.

of the parties; he also assumes no fiduciary obligations to either or both parties, since they are
expected to use their own judgment in deciding to bind or not to bind themselves to a contract.

To illustrate, 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 other hand, if the person has been given the power to enter into a contract or

on the purchase by a customer of a fire truck, the implicit condition being that the agent would

commerce on behalf of any, or even for both the parties, he is truly an agent. In which case,

earn the commission if he was instrumental in bringing the sale about. Since the agent had

he assumes fiduciary obligations to the person who is therefore legally his principal. In such

nothing to do with the sale of the fire truck, and is not therefore entitled to any commission at

case, he is entitled to a commission if his efforts (i.e., the services he rendered) where the

all.

efficient cause for the eventual perfection and consummation of the contract that was the
object for appointing him broker/agent.

Although Schmid & Oberly, Inc. is now credited with laying down the definition of a broker, the
decision shows that it quoted from the early decision of Behn, Meyer and Co., Ltd. v. Nolting

oOo

and Garcia , 35 Phil. 274 (1916), where the Court held

________________________________________
A broker is generally defined as one who is engaged, for others, on a commission,

[1]See Chemphil Export v. Court of Appeals, 251 SCRA 217 (1995);Shoppers Paradise

negotiating contracts relative to property with the custody of which he has no concern;

Realty v. Roque, 419 SCRA 93 (2004); Dominion Insurance Corp. v. Court of Appeals, 426

the negotiation between other parties, never acting in his own name but in the name of

SCRA 620, 626 (2002); Republic v. Evangelista, 466 SCRA 544 (2005); Litonjua, Jr. v. Eternit

those who employed him; he is strictly a middleman and for some purpose the agent of

Corp., 490 SCRA 204 (2006); Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA

both parties. (19 Cyc., 186; Henderson vs. The State, 50 Ind., 234; Blacks Law

584 (2007).

Dictionary.) 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. (Mechem on

[2]Citing Orient Air Services and Hotel Representatives v. Court of Appeals, 274 Phil. 927, 939

Agency, sec. 13; Wharton on Agency, sec. 695). Judge Storey, in his work on Agency,

(1991).

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. (Storey on Agency, sec. 28) (at p. 279-280)
Note therefore that broker is considered a commercial term for a person engaged as a
middleman to bring parties together in matters pertaining to trade, commerce or navigation. If
the person has not been given the power to enter into the contract or commerce in behalf of
the parties, then he is a broker in the sense that his job mainly is to bring parties together to
bargain, and even then he may not be entitled to his commission if the bargaining between
the parties does not result in a contract being perfected. But in this sense, the broker does not

[3]DE LEON AND DE LEON, COMMENT AND CASES ON PARTNERSHIP AGENCY AND
TRUSTS, 2005 ed., at p. 356; hereinafter referred to as DE LEONS.
[4]Reiterated in Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007).
[5]See also Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).
[6]Citing Bordador v. Luz, 283 SCRA 374, 382 (1997).
[7]ROSCOE T. STEFFEN, AGENCY-PARTNERSHIP IN A NUSTSHELL (1977) 30-31.

[8]Reiterated in Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).

relationship had been established, to which receipt of the court process by said employee was
legally deemed to be service to the law firm.

[9]Quoting from REYES AND PUNO, AN OUTLINE OF PHILIPPINE CIVIL LAW, Vol. V, p.
277.

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

[10]Citing 12 Am. Jur. 2d 835; 134 ALR 1346; 1 ALR 2d 987; Brown vs. Coates, 67 ALR 2d

form is required for the validity of the contract; the second is when it is required to make the

943; Haymes vs. Rogers, 17 ALR 2d 896; Moore vs. Turner, 32 ALR 2d 713.

contract effective as against third parties such as those mentioned in Article 1357 and 1358 of

End of Footnotes
II. FORM REQUIRED FOR CONTRACTS OF AGENCY

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.

2. Forms Required of Agency

a. How Agency May Be Constituted
Article 1869 of the Civil Code emphasizes the consensual nature of the contract of agency, as
it provides that Agency may be express, or implied from the acts 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. Agency may be oral, unless the law requires a specific
form. This principle is reiterated under Article 1870, which provides that Acceptance by the
agent may also be express, or implied from his acts which carry out the agency, or from his
silence or inaction according to the circumstances.
Equitable PCI-Bank v. Ku, 355 SCRA 309 (2001), held that an agency may be express but it
may also be implied from the acts 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. Likewise, acceptance by the agent may also be express, although it may also be
implied from his acts which carry out the agency, or from his silence or inaction according to
the circumstances. Thus, when a law firm allowed the employee of its client to occasionally

(1) From the Side of the Principal

On the side of the principal, Article 1869 of the Civil Code provides that an agency is impliedly
constituted (i.e., principal has given his consent to the agency arrangement) from his acts
formally adopting it, or from his silence or inaction, or particularly from his failure to repudiate
the agency knowing someone is acting in his name. Certainly, the ideal form by which the
principal is deemed to have entered into a contract of agency is when he issues a written
power of attorney to the person designated as agent.
(2) From the Side of the Agent
On the side of the agent, Article 1870 of the Civil Code provides that his acceptance of the
agency (i.e., agent has given his consent to the agency arrangement) may be expressed, or
implied from his acts which carry out the agency, or from his silence or inaction according to
the circumstances.
(3) Various Instances of Perfection of the Contract of Agency

receive its mail, and not having formally objected to the receipt by said employee of a court

Under Article 1871 of the Civil Code, which describes the most ideal form of perfection of the

process, or taken any steps to put a stop to it, it was construed to mean that an agency

contract of agency, when the constitution of the agency is made with both principal and agent

being physically present at the time of perfection of the contract of agency (i.e., Between

Under Article 1873 of the Civil Code, when the principal informs another person that he has

persons who are present), the acceptance of the agency may be implied if the principal

given a power of attorney to a third person (the agent), the latter thereby becomes a duly

delivers his power of attorney to the agent and the latter receives it without objection.

authorized agent with respect to the person who received the special information. The clear
implication is that even when in fact there has been no meeting of the minds between the

On the other hand, under Article 1872 of the Civil Code, when the constitution of the agency is

purported principal and agent (i.e., there is strictly speaking no contract of agency), there is

made with the principal and agent not being physically present in one place (i.e., Between

deemed to have arisen one with respect to the third party who has been so informed by the

persons who are absent), then there can be no implied acceptance of the agency from the

principal.

silence or inaction of the agent, except in two instances:

On the other hand, when the principal states by public advertisement that he has given a
(a) When the principal transmit his power of attorney to the agent (i.e., it is in writing?), who

power of attorney to a particular individual (the agent), the latter thereby becomes a duly

receives it without any objection; or

authorized agent with regard to any person. And it is specifically provided in said article that

(b) When the principal entrusts to the agent by letter or telegram a power of attorney with
respect to the business in which he is habitually engaged as an agent, and he did not reply to
the letter or telegram.
The languages used in Articles 1871 and 1872 indicate that the power of attorney must
constitute a written instruments, because in both cases the articles refer to situations where
the principal delivers his power of attorney to the agent, and when the principal transmits his
power of attorney to the agent, which requires that it must be in writing, which today would
include texting and electronic mail, which are considered to be equivalent to a written
instrument under the Electronic Commerce Law. Consequently, when the other provisions of

[t]he power [of the agent] shall continue to be in full force until the notice is rescinded in the
same manner in which it was given.
Thus, under Article 1921 of the Civil Code, if the agency has been entrusted for the purpose of
contracting with specific persons (referred to as special agency), the revocation of the
agency shall not prejudice the latter if they were not given notice thereof. Under Article 1922, if
the agent had been granted general powers (referred to as general agency), the revocation
of the agency will not prejudice third persons who acted in good faith and without knowledge
of the revocation; however, notice of the revocation in a newspaper of general circulation
constitutes sufficient notice to bind third persons.

the Law on Agency refer to general power of attorney and special power of attorney, does

In Rallos v. Yangco, 20 Phil 269 (1911), the Court held that a long-standing client, acting in

the law mean that they conform to the rudimentary requirement that they be in writing?

good faith and without knowledge, having sent goods to sell on commission to the former

(4) From the Side of Third Parties/Public

The previous rules on when a contract of agency is deemed constituted (i.e., perfected) are
taken from the intramural point of view: as between the parties to the contract of agency.
However, a contract of agency is merely a preparatory contract, and is meant to achieve goals
beyond its own being; consequently, the Law on Agency contained in the Civil Code provides
for additional rule that addresses most essentially the targets of every contract of agency: the
third parties intended to be contracted with by the agent in behalf of the principal.

agent of the defendant, could recover from the defendant, when no previous notice of the
termination of agency was given said client. The Court emphasized that having advertised the
fact that Collantes was his agent and having given special notice to the plaintiff of that fact,
and having given them a special invitation to deal with such agent, it was the duty of the
defendant on the termination of the relationship of principal and agent to give due and timely
notice thereof to the plaintiffs. Failing to do so, the defendant was held responsible to them for
whatever goods may have been in good faith and without negligence sent to the agent without
knowledge, actual or constructive, of the termination of such relationship.

In Conde v. Court of Appeals, 119 SCRA 245 (1982), the Court held that when the right of

In Bordador v. Luz, 283 SCRA 374 (1997), the Court held that

redemption by sellers-a-retro is exercised by their son-in-law who was given no express

authority to do so, and the buyer-a-retro accepted the exercise and done nothing for the next

The basis for agency is representation. Here, there is no showing that Brigida consented to

ten years to clear their title of the annotated right of repurchase on their title, and possession

the acts of Deganos or authorized him to act on her behalf, much less with respect to the

had been given to the sellers-a-retro during the same period, then an implied agency must be

particular transactions involved. Petitioners attempt to foist liability on respondent spouses

held to have been created from their silence or lack of action, or their failure to repudiate the

through the supposed agency relation with Deganos is groundless and ill-advised. Besides, it

agency.

was grossly and inexcusably negligent of petitioners to entrust to Deganos, not once or twice
but on at least six occasions as evidenced by six receipts, several pieces of jewelry of

(5) Agency Not Presumed to Exist

substantial value without requiring a written authorization from his alleged principal. A person
dealing with an agent is put upon inquiry and must discover upon his peril the authority of the

Although an agency contract is consensual in nature and generally requires no formality, the

agent. (at p. 382)

Court has stressed that an agency arrangement is never presumed. Lopez v. Tan Tioco, 8
Phil. 693 (1907). In other words, the declaration of one that he is an agent of another is never

In Dizon v. Court of Appeals, 302 SCRA 288 (1999), the Court held that a co-owner does not

to be accepted at face value, except in those cases where an agency arises by express

become an agent of the other co-owners, and therefore, any exercise of an option to buy a

provision of law. Compania Maritima v. Limson, 141 SCRA 407 (1986).

piece of land transacted with one co-owner does not bind the other co-owners of the land. The
basis for agency is representation and a person dealing with an agent is put upon inquiry and

In People v. Yabut, 76 SCRA 624 (1977), it was held that although the perfection of a contract

must discover upon his peril the authority of the agent. Since there was no showing that the

of agency may take an implied form, the existence of an agency relationship is never

other co-owners consented to the act of one co-owner nor authorized her to act on their behalf

presumed. The relationship of principal and agent cannot be inferred from mere family

with regard to her transaction with purported buyer. The most prudent thing the purported

relationship; for the relation to exist, there must be consent by both parties. The law makes no

buyer should have done was to ascertain the extent of the authority said co-owner; being

presumption of agency; it must exist as a fact. This principle was reiterated in Reiterated in

negligent in this regard, the purported buyer cannot seek relief on the basis of a supposed

Lim v. Court of Appeals, 251 SCRA 408 (1995).

agency.

In Harry E. Keeler Elec . Co. v. Rodriguez, 44 Phil. 19 (1922), the Court ruled that a third

On the other hand, under Article 1873 of the Civil Code provides that the declaration of a

person must act with ordinary prudence and reasonable diligence to ascertain whether the

person that he has appointed another as his agent is deem to have constituted the person

agent is acting and dealing with him within the scope of his powers. Obviously, if he knows or

alluded to as an agent (even when the latter is unaware), insofar as the person to whom such

has good reason to believe that the agent is exceeding his authority, he cannot claim

declaration has been made. What is clear therefore is that third parties must never take the

protection. So, if the character assumed by the agent is of such a suspicious or unreasonable

words or representation of the purported agent at face value; they are mandated to apprise

nature, or if the authority which he seeks is of such an unusual or improbable character, as

themselves of the commission and extent of powers of the purported agent. On the other

would suffice to put an ordinarily prudent man upon his guard, the party dealing with him may

hand, third parties (to the contract of agency) can take the word, declaration and

not shut his eyes to the real state of the case but should withal refuse to deal with the agent at

representation of the purported principal with respect to the appointment of, and extent of

all, or should ascertain from the principal the true condition of affairs.

powers, of the purported agent. The principle is self-evident from the nature of agency as a

relation of representation that an agent acts as though he were the principal and therefore

reasonable quantities of supplies as might from time to time be necessary in carrying on the

if the principal himself says so, then it is taken at face value as a contractual commitment.

business of hotel bar.

b. Agency by Estoppel

In Naguiat v. Court of Appeals, 412 SCRA 592 (2003), the Court applied the provisions of
Article 1873 of the Civil Code to rule that if by the interaction between a purported principal

Under Article 1873 of the Civil Code, if a person specially informs another or states by public

and a purported agent in the presence of a third person, the latter was given the impression of

advertisement that he has given a power of attorney to a third person, the latter thereby

the existence of a principal-agency relation, and the purported principal did nothing to correct

becomes a duly authorized agent, even if previously there was never a meeting of minds

the third persons impression, an agency by estoppel is deemed to have been constituted,

between them.

and the rule is clear: one who clothes another with apparent authority as his agent, and holds

Under Article 1911 of the Civil Code, even when the agent has exceeded his authority (i.e., he
acts without authority from the principal), the principal shall be solidarily with the agent if he
allowed the agent to act as though he had full powers.
In Macke v. Camps, 7 Phil 553 (1907), where the owner of a hotel/cafe business allowed a
person to use the title managing agent and during his prolonged absences allowed such

him out to the public as such, cannot be permitted to deny the authority of such person to act
as his agent, to the prejudice of innocent third parties dealing with such person in good faith,
and in the honest belief that he is what he appears to be. (at p. 599)
In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), the Court held that for an agency by
estoppel to exist, the following must be established:

person to take charge of the business, performing the duties usually entrusted to managing

(a) the principal manifested a representation of the agents authority or knowingly allowed the

agent, then such owner is bound by the act of such person. The Court held that

agent to assume such authority;

One who clothes another apparent authority as his agent, and holds him out to the public as

(b) the third person, in good faith, relied upon such representation;

such, can not be permitted to deny the authority of such person to act as his agent, to the
prejudice of innocent third parties dealing with such person in good faith and in the following

(c) relying upon such representation, such third person has changed his position to his

pre-assumptions or deductions, which the law expressly directs to be made from particular

detriment. An agency by estoppel, which is similar to the doctrine of apparent authority,

facts, are deemed conclusive. (at p. 555)

requires proof of reliance upon the representations, and that, in turn, needs proof that the
representations predated the action taken in reliance.

The hotel owner was deemed bound by the contracts entered into by said managing agent
that are within the scope of authority pertinent to such position, including the purchasing such

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