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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)

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)

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).

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)

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

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


Court held

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).

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

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:
1

the PRINCIPAL the person represented

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.

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.

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.

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]).
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.

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

The foregoing discussions support the fact that as a


2

are the essential elements of the contract of agency:

a. Consent

(a) Consent, express or implied, of the parties to


establish the relationship;

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.

(b) Object, which is the execution of a juridical act


in relation to third parties;

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.

(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 gratuitous
that the agent agreed to serve gratuitously.

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.

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.

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.

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.

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
3

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.

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.

The old decision in Aguna v. Larena, 57 Phil 630


(1932), did not reflect the general rule of agency-isfor-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.

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)

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.

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

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
4

and causal connection between the agents efforts


and labor and the principals sale of his property, the
agent is entitled to a commission.

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.

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.

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.

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.

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.

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.

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.

d. Preparatory and Representative

4. Essential Characteristics of Agency


a. Nominate and Principal

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.

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]

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,

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
5

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.

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 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

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.

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 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. . . .

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)

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

(1) Principles Flowing from Agency


Characteristics of Prepartatory and
Representative
The following principles flow from the application
6

of the essential characteristics of an agency being


preparatory and representative contract, thus:

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)

(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

In Philpotts v. Phil. Mfg. Co., 40 Phil 471 (1919),


the Court held that the right of 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.

(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.

e. Derivative, Fiduciary and Revocable

(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)

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.

(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.

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:

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

(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);

(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)

(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

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
7

(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]);

terminate the Agreement without cause


by giving the other 30 days notice by
letter, telegram or cable.[8] (at p. 656)

Unless:

5. Distinguished from Similar Contracts

(i) There is and express consent on the part of the


principal (Cui v. Cui, 100 Phil. 913 (1957); or

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.

(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:

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.

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

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
8

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.

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 undertakingthese 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 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.

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.

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]

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
9

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.

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 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:

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.

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)

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 &

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
10

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

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

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.

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

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
11

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:

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

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.

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)

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
12

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.

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)

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.

(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 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 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

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
13

commission he has contracted with the broker for


merely finding the buyer.

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.

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.

(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)

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.

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)

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

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
14

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.

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)

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.

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.

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

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.

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
15

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