THE LAW AND PRACTICE ON PHILIPPINE AGENCY LAW
Capacity of the Parties
NATURE, FORM AND KINDS OF AGENCY
I. DEFINITION AND OBJECTIVE OF AGENCY
1. Definition and Objective of Agency
Article 1868 of the Civil Code defines the contract of agency as one whereby 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. [1]
In Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007), the
Supreme Court held that The underlying principle of the contract of agency is to
accomplish results by using the services of others to do a great variety of things like
selling, buying, 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)
In Orient Air Service & Hotel Representatives v. Court of Appeals, 197 SCRA 645
(1991), the Court held that the purpose of every contract of agency is the ability, by
legal fiction, to extend the personality of the principal through the facility of the agent;
but the same can only be effected with the consent of the principal.
In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), the Court held that It bears
stressing that 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.[2] (at p. 223)
In Doles v. Angeles , 492 SCRA 607 (2006), the Court held
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
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
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 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 purpose of agency is to extend the personality of the principal through
the facility of the agent. (at p. 622)
Lately, in Philex Mining Corp. v. Commissioner of Internal Revenue, 551 SCRA 428
(2008), the Court reiterated the principle that the essence of an agency, even one that
is coupled with interest, is the agents ability to represent his principal and bring about
business relati0ns between the latter and third persons.
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 transaction on hand. Consequently, the acts of the agent on behalf of the
principal within the scope of the authority have the same legal effect and consequence
as though the principal had been the one so acting in the given situation. Rallos v.
Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978); Eurotech Industrial
Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007).
Some of the legal consequences that flow from the doctrine of representation in the
contract of agency are that
Notice to the agent is notice to the principal. Air France v. Court of Appeals , 126
SCRA 448 (1983).
Knowledge of the agent pertains to the principal
When an agent purchases the property in bad faith, the principal is deemed to be a
purchaser in bad faith. Caram, Jr. v. Laureta , 103 SCRA 7 (1981).
A suit against an agent in his personal capacity cannot, without compelling reasons,
be considered a suit against the principal. Philippine National Bank v. Ritratto Groups,
Inc., 362 SCRA 216 (2001).
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
The other terms used for the position of agent are attorney-in-fact, proxy,
delegate, or representative.
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.
The principal must have capacity to contract (Arts. 1327 and 1329), and may either be
a natural or juridical person (Art. 1919[4]).
There is legal literature that holds that since the agent assumes no personal liability,
she does not have to possess full capacity to act insofar as third persons are
concerned.[3] Since a contract of agency is first and foremost a contract in itself, the
parties (both principal and agent) must have legal capacities to validly enter into an
agency. However, if one of the parties has no legal capacity to contract, then the
contract of agency is not void, but merely voidable, which means that it is valid until
annulled.
Thus, a voidable agency will produce legal consequences, when it is pursued to enter
into 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 third party, the resulting contract is voidable and subject to
annulment. On the other hand, if the principal has legal capacity, and it is the agent
that has no legal capacity to contract, the underlying agency relationship is voidable;
and when the incapacitated agent enters into a 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 or agent is placed under civil interdiction, or becomes insane or
insolvent, the agency is ipso jure extinguished. It is therefore only logical to conclude
that if the loss of legal capacity of the 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, then when either the principal or agent dies or becomes
legally incapacitated, then the agency relation should ipso jure cease. But a contract of
agency is merely a preparatory contract, where the main purpose is to effect through
the agent contracts and other juridical relationships of the principal with third parties.
The public policy is that third parties who act in good faith with an agent have a right to
expect that their contracts would be valid and binding 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 the
contract. More on this point will be covered under the section on the essential
characteristics of agency.
3. Elements of the Contract of Agency
Like any other contract, agency is constituted of the essential elements of (a) consent;
(b) object or subject matter; and (c) cause or consideration.
In Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978), the Court held
that 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 gratuitous contracts. The value that Article
1875 of the Civil Code brings into the Law on Agency is that the presumption is that
every agency contract entered into is for valuable considerationthat the agency
serves for the benefit of the principal expecting to be compensated for his efforts. It is
the party who avers that the agency was gratuitousthat the agent agreed to serve
gratuitously.
The last two elements included in the Rallos enumeration should not be understood to
be essential elements for the perfection and validity of the contract of agency, for
indeed they are matters that do not go into perfection, but rather into the performance
stage of the agency relationship. The non-existence of the two purported essential
elements (i.e., that the agent acted for herself and/or the agent acted beyond the
scope of her authority), does not affect the validity of the existing agency relationship,
but rather the legality of the contracts entered into by the agent on behalf of the
principal.
Thus, under Article 1883 of the Civil Code, If an agent acts in his own name, the
principal has 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 the name of the principal, exceeding the scope of
his authority, and the principal does not ratify the contract, it shall be void as to the
principal.
a. Consent
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.
In the same manner, Dominion Insurance Corp. v. Court of Appeals, 376 SCRA 239
(2002), held that since the basis for agency is representation, then there must be, on
the part of the principal, an actual intention to appoint or an intention naturally inferable
from his words or actions; 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.
Perhaps the only exception to this rule is agency by estoppel, but even then it is by
the separate acts of the purported principal and purported agent, by which they are
brought into the relationship insofar as third parties acting in good faith are concerned.
More discussions on the essential element of consent shall take place in the section
on essential characteristic of consensuality of contracts of agency.
b. Object or Subject Matter
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.
Items (b), (c) and (d) in the enumerated elements of Rallos can actually be
summarized into the object of every contract of agency to be that of service, i.e., the
undertaking (obligation) of the agent to enter into a juridical act with third parties on
behalf of the principal and within the scope of his authority.
c. Consideration
The cause or consideration in agency is the compensation or commission that the
principal agreed or committed to be paid to the agent for the latters services. Under
Article 1875 of the Civil Code, agency is presumed to be for compensation, unless
there is proof to the contrary. In other words, liberality may be the proper cause or
consideration for an agency contract only when it is so expressly agreed upon. Unless
otherwise stipulated, therefore, every agent is entitled to remuneration or
compensation for the services performed under the contract of agency.
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 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 land and to build his house thereon.
The Court held that the service rendered by the agent was deemed to be gratuitous,
apart from the occupation of some of the house of the deceased by the plaintiff and his
family, for if it were true that the agent and the deceased principal had an
understanding to the effect that the agent was to receive compensation aside 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 any compensation from the deceased. (at p. 632) If Aguna were decided
under the New Civil 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.
d. Entitlement of Agent to Commission Anchored on the Rendering of Service
The compensation that the principal agrees to pay to the agent is part of the terms of
the contract of agency upon which their minds meet. Therefore, the extent and manner
by which the agent would be entitled to receive compensation or commission is based
on the terms of the contract.
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 from the terms of the contract. The doctrine that may be derived from the
various decisions on the matter are anchored on the nature of the contract of agency
as a species of contracts of services in general. When the rendering of service alone,
and not the results, is the primordial basis for which the compensation is given, then
the proof that services have been rendered should entitle the agent to the
compensation agreed upon. On the other hand, if the nature of the service to be
compensated is understood by the results to be achieved, e.g., that a particular
contract with a third party is entered into in behalf of the principal, then mere 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
Although the ultimate buyer was introduced by the agent to the principal during the
term of the agency, nevertheless, the lapse of the period of more than one (1) year
and five (5) months between the expiration of petitioners authority to sell and the
consummation of the sale, cannot authorize compelling the principal to pay the
stipulated brokers fee, since the agent was not longer entitled thereto.
The Court takes into strong consideration that utter lack of evidence of the agent
showing any further involvement in the negotiations between principal and buyer
during that period and in the subsequent processing of the documents pertinent to said
sale. (at p. 79)
In contrast, in Manotok Bros. Inc. v. Court of Appeals, 221 SCRA 224 (1993), the
Court held 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 stipulated based on the doctrine held in Prats v. Court of
Appeals, 81 SCRA 360 (1978), that when the agent was the efficient procuring cause
in bringing about the sale that the agent was 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
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 it.
The real value of the contract of agency being a nominate and principal contract is
that it has been so set apart by law and provided with its own set of rules and legal
consequences, that any other arrangement that essentially falls within its terms shall
be considered as an agency 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 parties call it.
In Doles v. Angeles, 492 SCRA 607 (2006), it was held that if an act done by one
person in behalf of another is in its essential nature one of agency, the former is the
agent of the latter notwithstanding he or she is not so calledit will be an agency
whether the parties understood the exact nature of the relation or not.
b. Consensual
The contract of agency is perfected by mere consent. Under Article 1869, an agency
may be expressed or implied from the act of the principal, from his silence or lack of
action, or failure to repudiate the agency; agency may be oral, unless the law requires
a specific form.[5]
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.
When it is gratuitous, the contract of agency is unilateral contract because it only
creates an 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, because it is only the fulfillment of the primary
obligations of the agent to render some service upon which the subordinate obligation
of the principal to pay the compensation agreed upon arises.
When an agent accepts the agency position without compensation, he assumes the
same 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 Code provides that The agent is responsible not only for
fraud, but also for negligence, which 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
There is no doubt that agency is a species of the broad grouping of what we call the
service contracts, which includes employment contract, management contract and
contract-for-a piece of work. There are also special service contracts which include the
rendering of 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 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.
A contract of agency does not exist for its own purpose; it is a preparatory contract
entered into for other purposes that deal with the public. This characteristic of an
agency is reflected in various provisions in the Law on Agency and in case-law, that
seek to protect the validity and enforceability of contracts entered into pursuant to the
agency arrangement, even when to do so would contravene strict agency principles. In
another way of putting it, an agency contract is merely a tool allowed to be resorted to
achieve a greater objective to enter into juridical relations on behalf of the principal;
considerations that pertain merely to the tool certainly cannot outweigh considerations
that pertain to the main objects of the agency.
In Amon Trading Corp. v. Court of Appeals, 477 SCRA 552 (2005), the Court decreed
that In a bevy of cases as the avuncular case of Victorias Milling Co., Inc. v. Court
Appeals, [333 SCRA 663 (2000)], the Court decreed from Article 1868 that the basis of
agency is representation, (at p. 560), and that consequently one of the strongest
feature of a true 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), it was ruled
It is clear from Article 1868 that the basis of agency is representation.[6] 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 In Philpotts v. Phil. Mfg. Co., 40 Phil 471 (1919), the Court held that the right of
come to connote control by the principal.[7] The control factor, more than any other,
has caused the courts to put contracts between principal and agent in a separate
category. . . .
xxx
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
STMs control. The question of whether 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. That the authorization given to CSC contained the phrase for
and in our (STMs) behalf did not establish an agency. Ultimately, what is decisive is
the intention of the parties. That no agency was meant to be established by the CSC
and STM is clearly shown by CSCs communication to petitioner that SLDR No. 1214M
had been sold and endorsed to it. The use of the words sold and endorsed means
that STM and CSC intended a contract of sale, and not an agency. (at pp. 676-677)
In Doles v. Angeles, 492 SCRA 607 (2006), it was held that for an agency to arise, it is
not necessary that the principal personally encounter the third person with whom the
agent interacts precisely, the purpose of agency is to extend the personality of the
principal through the facility of the agent.
In Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007), the Court
held
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. By this legal
fiction, the actual or real absence of the principal is converted into his legal or juridical
presence qui facit per alium facit per se. (at p. 593)
Earlier, in Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978), the
Court held 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
(b) The liabilities incurred shall pertain to the principal and not the agent;
(c) Generally, all acts that the principal can do in person, he may do through an agent,
except those which under public policy are strictly personal to the person of the
principal.
(d) The agent who acts as such is not personality liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority
without giving such party sufficient notice of his powers. (Art. 1897)
(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 SCRA 448 (1983)
(f) Knowledge of the agent is equivalent to knowledge of the principal.
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 give the third party sufficient notice of his powers. (at p. 593)
inspection 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. This is in conformity with the general rule that what a
man may do in person he may do through another.
e. Derivative, Fiduciary and Revocable
A contract of agency creates a legal relationship of representation by the agent on
behalf of 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 be legally made to remain in the relationship when they
choose to have it terminated.
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 Orient Air Services v. Court of Appeals, 197 SCRA 645 (1991), it was held that the
decision 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 Agreement, was unlawful since courts have no authority to
compel the principal to reinstate a contract of agency it has terminated with the agent:
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
representation or on behalf of another, WITH THE CONSENT OR AUTHORITY OF
THE LATTER. 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 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 relationship between the corporation which owns and operates a theatre, and the
individual it hires as a security guard to maintain the peace and order at the entrance
of the theatre is not that of principal and agent, because the principle of representation
was in no way involved. The security guard was not employed to represent the
defendant corporation in its dealings with third parties; he was a mere employee hired
to perform a certain specific duty or task, that of acting as special guard and staying at
the main entrance of the movie house to stop gate crashers and to maintain peace
and order within the premises.
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 compensation. The contractor may either employ only his labor or skill, or also
furnish the material. Under a contract for a piece of work, the contractor is not an
agent of the principal (i.e., the client), and the contractor has no authority to
represent the principal in entering into juridical acts with third parties. The essence of
every contract-for-a-piece-of-work is that the services rendered must give rise to the
manufacture or production of the object agreed upon.
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 the client could take possession of
the work site upon the happening of specified contingencies did not make the relation
into that of an agency. Consequently, when the client did take over the unfinished
works, he did not assume any direct liability to the suppliers of the contractor.
c. From the Management Agreement
In Nielson & Co., Inc. v. Lepanto Consolidated Mining Co., 26 SCRA 540, 546-547
(1968), the Court held that 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. x x x . There is another obvious distinction between agency and lease of
services. 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 agents power to bring about business relations
between his 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]
The Court also held in Nielson & Co. that where the principal and paramount
undertaking of the manager under a Management Contract was the operation and
development of the mine and the operation of the mill, and all 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 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.
In Shell Co. v. Firemens Insurance of Newark, 100 Phil. 757 (1957), in ruling that the
operator was an agent of the Shell company, the Court took into consideration the
following facts: (a) that the operator owed his position to the company and the latter
could remove him or terminate his services at will; (b) that the service station belonged
to the company and bore its 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 supervised the operator and
conducted periodic inspection of the companys gasoline and service station; and (d)
that the price of the products sold by the operator was fixed by the company and not
by the operator.
d. From the Contract of Sale
Under Article 1466 of the Civil Code, In construing a contract containing provisions
characteristic of both the contract of sale and of the contract of agency to sell, the
essential clauses of the whole instrument shall be considered. Jurisprudence has
indicated what the essential clauses that should indicate whether it is one of sale or
agency to sell/purchase, refers to stipulations in the contract which places obligations
on the part of the purported agent having to do with what should be a seller
obligation to transfer ownership and deliver possession of the subject matter, or the
buyers obligation on the payment of the price.
In Quiroga v. Parsons, 38 Phil. 501 (1918), although the parties designated the
arrangement as an agency agreement, the Court found the arrangement to be one of
sale since the essential clause provided that Payment was to be made at the end of
sixty days, or before, at the [principals] request, or in cash, if the [agent] so preferred,
and in these last two cases an additional discount was to be allowed for prompt
payment. These conditions to the Court were precisely the essential features of a
contract of purchase and sale because there was the obligation on the part of the
purported principal to supply the beds, and, on the part of the purported agent, to pay
their price, thus:
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
pay their price within the term fixed, without any other consideration and regardless as
to whether he had or had not sold the beds. (at p. 505)
As a consequence, the revocation sought to be made by the principal on the
purported agency arrangement was denied by the Court, the relationship being one of
sale, and the power to rescind is available only when the purported principal is able to
show substantial breach on the part of the purported agent.
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 when there has been no sale thereof to the public, the underlying
relationship is not one of contract of agency to sell, but one of actual sale. A true agent
does not assume personal responsibility for the payment of the price of the object of
the agency; his obligation is merely to turn-over to the principal the proceeds of the
sale once he receives them from the buyer. Consequently, since the underlying
agreement is not an agency agreement, it cannot be revoked except for cause.
In Gonzalo Puyat & Sons, Inc. v. Arco Amusement Company, 72 Phil. 402 (1941),
which covered a purported agency contract to purchase, the Court looked into the
provisions of their contract, and found that the letters between the parties clearly
stipulated for fixed prices on the equipment ordered, which admitted no other
interpretation than that the [principal] agreed to purchase from the [agent] the
equipment in question at the prices indicated which are fixed and determinate. (at p.
407). The Court held that whatever unforeseen events might have taken place
unfavorable to the [agent], 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 [principal] might still legally hold the [agent] to
the 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.
Gonzalo Puyat also ruled that when under the terms of the agreement, the purported
agent 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 matter or the price. Being truly a contract of sale, any profits
realized by the purported agent from discounts received from the American supplier,
pertain to it with no obligation to account for it, much less to turn it over, to the
purported principal. Reiterated in Far Eastern Export & Import Co., v. Lim Tech Suan,
97 Phil. 171 (1955).
In Chua Ngo v. Universal Trading Co., Inc., 87 Phil. 331 (1950), where a local
importing company was contracted to purchase from the United States several boxes
of oranges, most 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 imported the oranges as agent of the purchaser for which it
could not be held liable for their loss in transit. The Court, in reviewing the terms and
conditions of the agreement between the parties, held that the arrangement was a sale
rather than a contract of agency to purchase on the following grounds: (a) no
commission was paid by the purchaser to the local importing company; (b) the local
importing company was given the option to resell the oranges if the balance of the
purchase price was not paid within 48 hours from notification, which clearly implies that
the local importing company did in fact sell the oranges to the purchaser; (c) the 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 local importing company charged the purchaser with a sales tax,
showing that the arrangement was indeed a sale; and (e) when the losses occurred,
the local importing company made claims against the insurance company in its own
name, indicating that he imported the oranges as his own products, and not merely as
agent of the local purchaser.
In Pearl Island Commercial Corp. v. Lim Tan Tong, 101 Phil. 789 (1957), the Supreme
Court was unsure of its footing when it tried to characterize a contract of sale
(Contract of Purchase and Sale) between the manufacturer of wax and its appointed
distributor in the Visayan area, as still being within a contract of agency in that while
providing for sale of Bee Wax from the plaintiff to Tong and purchase of the same by
Tong from the plaintiff, also designates Tong as the sole distributor of the article within
a certain territory. (at p. 792)
The reasoning in Pearl Island is wrong, of course, since as early as in Quiroga v.
Parson, the Court had already ruled that appointing one as agent or distributor,
when in fact such appointee assumes the responsibilities of a buyer of the goods,
does not make the relationship one of agency, but that of sale. Perhaps the best way
to understand the ruling 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 true characterization of the contract between
the buyer and seller was not the essential criteria by which to fix the liability of the
surety, thus
True, the contract (Exhibit A) is not entirely clear. It is in some respects, even
confusing. While it speaks of sale of Bee Wax to Tong and his responsibility for the
payment of the value of every shipment so purchased, at the same time it appoints
him sole distributor within a certain area, the plaintiff undertaking is not to appoint any
other agent or distributor within the same area. Anyway, it seems to have been the
sole concern and interest of the plaintiff to be sure that it was paid the value of all
shipments of Bee Wax to Tong and the Surety Company by its bond, guaranteed in
the final analysis said payment by Tong, either as purchaser or as agent. . . . (at p.
793)
In Ker & Co., Ltd. v. Lingad, 38 SCRA 524 (1971), covering a contract of
distributorship, it was specifically stipulated in the contract that all goods on
consignment shall remain the property of the Company until sold by the Distributor to
the purchaser or purchasers, but all sales made by the Distributor shall be in his
name; and that the Company at its own expense, was to 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 the
contract does not constitute the Distributor the agent or legal representative of the
Company for any purpose whatsoever. Distributor is not granted any right or authority
to assume or to create any obligation or responsibility, express or implied in behalf of
or in the name of the Company, or to bind the Company in any manner or thing
whatsoever. In spite of such stipulations, the Court did find the relationship to be one
of agency, because it did not 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
essence of sale. 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; while the essence of an agency to sell is the delivery to an agent, not as his
property, but as the property of the principal, who remains the owner and has the right
to control the sale, fix the price, and terms, demand and receive the proceeds less the
agents commission upon sales made. (at p. 530)
In Victoria Milling Co., Inc. v. Court of Appeals, 333 SCRA 663 (2000), the Court held
that an authorization given to the buyer of goods to obtain them from the bailee for
and in behalf of the bailor-seller does not necessarily establish an agency, since the
intention of the parties was for the buyer to take possession and ownership over the
goods with the decisive language in the authorization being sold and endorsed.
In Lim v. Court of Appeals, 254 SCRA 170 (1996), it was held that as a general rule,
an agency to sell on commission basis does not belong to any of the contracts
covered by Articles 1357 and 1358 of the Civil Code requiring them to be in a
particular form, and not one enumerated under the Statutes of Frauds in Article 1403.
Hence, unlike a sale contract which must comply with the Statute of Frauds for
enforceability, a contract of agency to sell is valid and enforceable in whatever form it
may be entered into.
The old decision in National Rice and Corn Corp. v. Court of Appeals, 91 SCRA 437
(1979), presents an interesting situation where it is possible for a party to enter into an
arrangement, where a portion thereof is as agent, and the other portion would be as
buyer, and still be able to distinguish and set apart to the two transactions to determine
the rights and liabilities of the parties.
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 will be imported thru barter on a back to back letter of credit or
no-dollar remittance basis; and with DAMERCO agreeing to buy the aforementioned
collateral goods. Although the corn grains were duly exported, the Government had
issued rules banning the barter of goods from abroad. NARIC then brought suit
against DAMERCO seeking recovery of the price of the exported grains. The Court
ruled that insofar as the exporting of the grains was concerned, DAMERCO acted
merely as agent of NARIC for which it cannot be held personally liable for the shortfall
considering that it had acted within the scope of its authority. The Court had 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 rice, was a valid and binding contract of sale, but for which DAMERCO could
not be made to pay the purchase price, because NARIC itself was no longer in a
position to import any of such goods into the country, by reason of force majeure, thus
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
US$480,000.00 could not be effected due to suspension by the government under a
new administration of barter transactions, the NARIC (now Rice and Corn
Administration) ought to make the necessary representations with the government to
enable DAMERCO to import the said remaining collateral goods. The contract, Exhibit
A, has reciprocal stipulations which must be given force and effect. (at p. 449)
Although it is clear from the decision that DAMERCO had assumed also the position of
being a buyer of goods from NARIC, the Court in National Rice was able to segregate
his role as merely an agent of NARIC insofar as the export of the grains was
concerned, and apply the doctrine that an agent does not assume any personal
obligation with respect to the subject matter of the agency nor of the proceeds thereof,
his obligation being merely to turn-over the proceeds to the principal whenever he
receives them. National Rice also demonstrate the 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), 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.
In Reyes v. Rural Bank of San Miguel, 424 SCRA 135 (2004), the Court held that
unlike an agent who must act in the name of the principal, a broker is one who is
engaged for others on a commission to negotiate between other parties, never acting
in his own name but in the name of those who employed him.
In Pacific Commercial Co. v. Yatco, 63 Phil. 398 (1936), the Court ruled that a broker
has no relation with the thing he has been retained to buy or to sell; he is merely an
intermediary 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 though that a broker may at the same time be an agent. When he
acts in his behalf in dealing with the public, even when he handles things pertaining to
the principal, he is a mere broker. On the other hand, if he is duly authorized to act in
the name of the principal, there is no doubt that the broker is also an agent. Thus,
in 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.
In the same manner, in Domingo v. Domingo, 42 SCRA 131 (1971), the Court held
that the duties and liabilities of a broker to his employer are essentially those which an
agent owes to his principal. In such a situation, the decisive legal provisions to
determine whether a broker has violated his duty or obligation] are found in Articles
1891 and 1909 of the New Civil Code, whereby every agent is bound to render an
account of his transactions and to deliver to the principal whatever he may have
received by virtue of the agency, even though it may not be owning to the principal;
and that an agent is responsible not only for fraud, but also for negligence.[10] On the
other hand, the Court also held in Domingo that The duty embodied in Article 1891 of
the New Civil Code will not apply if the agent or broker acted only as a middleman with
the task of merely bringing together the vendor and vendee, who themselves
thereafter will negotiate on the terms and conditions of the transaction. (at p. 140)
(1) Broker Has No Authority To Enter into Contract in the Name of the Principal
In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), it was held that a real estate
broker is one who negotiates the sale of real properties; his business, generally
speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by
the owner. He has no authority 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 sale with the purchaser located by the
broker, the seller is bound to pay the commission he has contracted with the broker for
merely finding the buyer.
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 and conditions that have been agreed upon. The essence of the ruling
in Litonjua, Jr. is that the main service for which the broker was contracted for is to
find a prospective buyer, then if the seller on his own closes the deal with the buyer
found by the broker, the latter has earned his finders fee.
On the other hand, it is possible that the terms of the brokers contract is that it is not
enough 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 the broker found the prospective buyer, but he must spend efforts at
negotiating with the said person that leads him to enter into a contract with the client,
otherwise mere finding would not entitle the broker to the fees agreed upon.
(2) Broker Is Not Legally Incapacitated to Purchase Property of the Principal
In Araneta, Inc. v. Del Paterno, 91 Phil. 786 (1952), it was held that the prohibition in
Article 1491(2) of the Civil Code which renders an agent legally incapable of buying
the properties of 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 apply. To come under the prohibition, the agent
must be in a fiduciary relation with his principal.
The Court held that a broker does not come within the meaning of Article 1492,
because he is 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 betrayed, since a broker is not authorized to make a binding
contract for the purported principal; he is not sell the property, but only to look for a
buyer and the owner is to make the 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 specified in his commission. In
fine, a broker is left no power or discretion whatsoever, which he could abuse to his
advantage and to the owners prejudice.
(3) Brokers Entitlement to Commission
In quite a number of decisions, the Supreme Court has held that the determination of
whether one is an agent or a broker constitutes a critical factor of whether he would be
entitled to the commission stipulated in the contract.
Thus, in Tan v. Gullas, 393 SCRA 334 (2002), quoting from Schmid & Oberly, Inc. v.
RJL Martinez Fishing Corp., 166 SCRA 493 (1988), it defined a 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. (at p. 339) The Court then held that 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. (at p. 341)
Also, in Hahn v. Court of Appeals, 266 SCRA 537 (1997), 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 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.
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 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.
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 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,
negotiating contracts relative to property with the custody of which he has no concern;
the negotiation 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. (19 Cyc., 186; Henderson vs. The State, 50 Ind., 234; Blacks Law
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
Agency, sec. 13; Wharton on Agency, sec. 695). 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. (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 assume the role of an agent because
he has no power to enter into a contract in behalf of any 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.
On the other hand, if the person has been given the power to enter into a contract or
commerce on behalf of any, or even for both the parties, he is truly an agent. In which
case, he assumes fiduciary obligations to the person who is therefore legally his
principal. In such case, he is entitled to a commission if his efforts (i.e., the services he
rendered) where the efficient cause for the eventual perfection and consummation of
the contract that was the object for appointing him broker/agent.
oOo
________________________________________
[1]See Chemphil Export v. Court of Appeals, 251 SCRA 217 (1995); Shoppers
Paradise Realty v. Roque, 419 SCRA 93 (2004); Dominion Insurance Corp. v. Court of
Appeals, 426 SCRA 620, 626 (2002); Republic v. Evangelista, 466 SCRA 544
(2005); Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006); Eurotech Industrial
Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007).
[2]Citing Orient Air Services and Hotel Representatives v. Court of Appeals, 274 Phil.
927, 939 (1991).
[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).
[9]Quoting from REYES AND PUNO, AN OUTLINE OF PHILIPPINE CIVIL LAW, Vol.
V, p. 277.
[10]Citing 12 Am. Jur. 2d 835; 134 ALR 1346; 1 ALR 2d 987; Brown vs. Coates, 67
ALR 2d 943; Haymes vs. Rogers, 17 ALR 2d 896; Moore vs. Turner, 32 ALR 2d 713.
End of Footnotes
II. FORM REQUIRED FOR CONTRACTS OF AGENCY
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 receive its mail, and not having formally objected
to the receipt by said employee of a court process, or taken any steps to put a stop to
it, it was construed to mean that an agency relationship had been established, to
which receipt of the court process by said employee was legally deemed to be service
to the law firm.
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.
(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
Under Article 1871 of the Civil Code, which describes the most ideal form of perfection
of the 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 persons who are present), the acceptance of the agency may
be implied if the principal delivers his power of attorney to the agent and the latter
receives it without objection.
On the other hand, under Article 1872 of the Civil Code, when the constitution of the
agency is made with the principal and agent not being physically present in one place
(i.e., Between persons who are absent), then there can be no implied acceptance of
the agency from the silence or inaction of the agent, except in two instances:
(a) When the principal transmit his power of attorney to the agent (i.e., it is in writing?),
who receives it without any objection; or
(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 requiring a written authorization from his alleged principal. A person dealing with an
considered to be equivalent to a written instrument under the Electronic Commerce agent is put upon inquiry and must discover upon his peril the authority of the agent.
Law. Consequently, when the other provisions of the Law on Agency refer to general (at p. 382)
power of attorney and special power of attorney, does the law mean that they
conform to the rudimentary requirement that they be in writing?
In Dizon v. Court of Appeals, 302 SCRA 288 (1999), the Court held that a co-owner
does not become an agent of the other co-owners, and therefore, any exercise of an
(4) From the Side of Third Parties/Public option to buy a 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 must discover upon his peril the authority of the
The previous rules on when a contract of agency is deemed constituted
agent. Since there was no showing that the other co-owners consented to the act of
(i.e., perfected) are taken from the intramural point of view: as between the parties to
one co-owner nor authorized her to act on their behalf with regard to her transaction
the contract of agency. However, a contract of agency is merely a preparatory
with purported buyer. The most prudent thing the purported buyer should have done
contract, and is meant to achieve goals beyond its own being; consequently, the Law
was to ascertain the extent of the authority said co-owner; being negligent in this
on Agency contained in the Civil Code provides for additional rule that addresses most
regard, the purported buyer cannot seek relief on the basis of a supposed agency.
essentially the targets of every contract of agency: the third parties intended to be
contracted with by the agent in behalf of the principal.
On the other hand, under Article 1873 of the Civil Code provides that the declaration of
a person that he has appointed another as his agent is deem to have constituted the
Under Article 1873 of the Civil Code, when the principal informs another person that he
person alluded to as an agent (even when the latter is unaware), insofar as the person
has given a power of attorney to a third person (the agent), the latter thereby becomes
to whom such declaration has been made. What is clear therefore is that third parties
a duly authorized agent with respect to the person who received the special
must never take the words or representation of the purported agent at face value; they
information. The clear implication is that even when in fact there has been no meeting
are mandated to apprise themselves of the commission and extent of powers of the
of the minds between the purported principal and agent (i.e., there is strictly speaking
purported agent. On the other hand, third parties (to the contract of agency) can take
no contract of agency), there is deemed to have arisen one with respect to the third
the word, declaration and representation of the purported principal with respect to the
party who has been so informed by the principal.
appointment of, and extent of powers, of the purported agent. The principle is self-
evident from the nature of agency as a relation of representation that an agent acts
On the other hand, when the principal states by public advertisement that he has given as though he were the principal and therefore if the principal himself says so, then it
a power of attorney to a particular individual (the agent), the latter thereby becomes a is taken at face value as a contractual commitment.
duly authorized agent with regard to any person. And it is specifically provided in said
article that [t]he power [of the agent] shall continue to be in full force until the notice is
b. Agency by Estoppel
rescinded in the same manner in which it was given.

Under Article 1873 of the Civil Code, if a person specially informs another or states by
Thus, under Article 1921 of the Civil Code, if the agency has been entrusted for the
public advertisement that he has given a power of attorney to a third person, the latter
purpose of contracting with specific persons (referred to as special agency), the
thereby becomes a duly authorized agent, even if previously there was never a
revocation of the agency shall not prejudice the latter if they were not given notice
meeting of minds between them.
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 Under Article 1911 of the Civil Code, even when the agent has exceeded his authority
revocation in a newspaper of general circulation constitutes sufficient notice to bind (i.e., he acts without authority from the principal), the principal shall be solidarily with
third persons. the agent if he allowed the agent to act as though he had full powers.

In Rallos v. Yangco, 20 Phil 269 (1911), the Court held that a long-standing client,
acting in good faith and without knowledge, having sent goods to sell on commission
to the former 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 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 person to take charge of the business, performing the duties usually
entrusted to managing agent, then such owner is bound by the act of such person.
The Court held that
One who clothes another apparent authority as his agent, and holds him out to the
public as 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 pre-assumptions or deductions, which the law expressly directs to
be made from particular facts, are deemed conclusive. (at p. 555)

In Conde v. Court of Appeals, 119 SCRA 245 (1982), the Court held that when the
The hotel owner was deemed bound by the contracts entered into by said managing
right of redemption by sellers-a-retro is exercised by their son-in-law who was given no
agent that are within the scope of authority pertinent to such position, including the
express authority to do so, and the buyer-a-retro accepted the exercise and done
purchasing such reasonable quantities of supplies as might from time to time be
nothing for the next ten years to clear their title of the annotated right of repurchase on
necessary in carrying on the business of hotel bar.
their title, and possession had been given to the sellers-a-retro during the same
period, then an implied agency must be held to have been created from their silence
or lack of action, or their failure to repudiate the agency. 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 and a purported agent in the presence of a third person, the latter was given
(5) Agency Not Presumed to Exist
the impression of the existence of a principal-agency relation, and the purported
principal did nothing to correct the third persons impression, an agency by estoppel is
Although an agency contract is consensual in nature and generally requires no deemed to have been constituted, and the rule is clear: one who clothes another with
formality, the Court has stressed that an agency arrangement is never apparent authority as his agent, and holds him out to the public as such, cannot be
presumed. Lopez v. Tan Tioco, 8 Phil. 693 (1907). In other words, the declaration of permitted to deny the authority of such person to act as his agent, to the prejudice of
one that he is an agent of another is never to be accepted at face value, except in innocent third parties dealing with such person in good faith, and in the honest belief
those cases where an agency arises by express provision of law. Compania Maritima that he is what he appears to be. (at p. 599)
v. Limson, 141 SCRA 407 (1986).
In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), the Court held that for an
In People v. Yabut, 76 SCRA 624 (1977), it was held that although the perfection of a agency by estoppel to exist, the following must be established:
contract of agency may take an implied form, the existence of an agency relationship
is never presumed. The relationship of principal and agent cannot be inferred from
(a) the principal manifested a representation of the agents authority or knowingly
mere family relationship; for the relation to exist, there must be consent by both
allowed the agent to assume such authority;
parties. The law makes no presumption of agency; it must exist as a fact. This principle
was reiterated in Reiterated in Lim v. Court of Appeals, 251 SCRA 408 (1995).
(b) the third person, in good faith, relied upon such representation;
In Harry E. Keeler Elec . Co. v. Rodriguez, 44 Phil. 19 (1922), the Court ruled that a
third person must act with ordinary prudence and reasonable diligence to ascertain (c) relying upon such representation, such third person has changed his position to his
whether the agent is acting and dealing with him within the scope of his powers. detriment. An agency by estoppel, which is similar to the doctrine of apparent
Obviously, if he knows or has good reason to believe that the agent is exceeding his authority, requires proof of reliance upon the representations, and that, in turn, needs
authority, he cannot claim protection. So, if the character assumed by the agent is of proof that the representations predated the action taken in reliance.
such a suspicious or unreasonable nature, or if the authority which he seeks is of such
an unusual or improbable character, as would suffice to put an ordinarily prudent man
upon his guard, the party dealing with him may not shut his eyes to the real state of
the case but should withal refuse to deal with the agent at all, or should ascertain from
the principal the true condition of affairs.

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

The basis for agency is representation. Here, there is no showing that Brigida
consented to the acts of Deganos or authorized him to act on her behalf, much less
with respect to the particular transactions involved. Petitioners attempt to foist liability
on respondent spouses through the supposed agency relation with Deganos is
groundless and ill-advised. Besides, it 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 substantial value without