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Dean CLVs Notes on Agency August 2010
1 NATURE AND OBJECTIVE, AND KINDS OF THE CONTRACTS OF AGENCY
page 2
2 FORMAL REQUIREMENTS FOR CONTRACT OF AGENCY page 68
3 AUTHORITY & POWER, DUTIES & OBLIGATIONS OF THE AGENT
page 134
4 OBLIGATIONS OF THE PRINCIPAL page 190
5 EXTINGUISHMENT OF AGENCY page 210
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1 NATURE AND OBJECTIVE, AND KINDS OF THE CONTRACTS OF AGENCY
[Updated: 24 August 2010]
I NATURE & OBJECTIVE, AND KINDS OF CONTRACTS OF
AGENCY
1. Definition and Objectives of Agency
Art. 1317. No one may contract in the name of
another without being authorized by the latter, or unless he
has by law a right to represent him.
Art. 1403. The following contracts are unenforceable,
unless they are ratified:
(1) Those entered into in the name of another person
by one who has been given no authority or legal
representation, or who has acted beyond his powers;
x x x.
Art. 1868. By the contract of agency a person binds
himself to render some service or to do something in
representation or on behalf of another, with the consent or
authority of the latter. (1709a)
o
The general rule embodied in Article 1317 of the Civil Code of
the Philippines is that No one may contract in the name of another
without being authorized by the latter, or unless he has by law a
right to represent him; and that the consequence of one entering
into a contract in behalf of another person without the latters
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consent or authority, is to render the contract unenforceable,
as mandated under Article 1403(1) of the Code.
In Philpotts v. Philippine Manufacturing Co., 40 Phil. 471
(1919), the Supreme Court expressed the counter-part principle
that, as a general rule, what a person may do personally, he may do
through another. Consequently, 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. The statutory definition of the contract of agency is given
from the viewpoint of the agent who binds himself to enter into
juridical acts in the name of the principal, and thereby emphasizes
the characteristic of the contract that is unilateral.
The legal framework which necessitates the need on certain
occasions for the formal establishment of the agency relationship
has been aptly discussed by the Supreme Court in Rallos v. Felix Go
Chan & Sons Realty Corp., 81 SCRA 251 (1978), where it
held:
1. It is a basic axiom in civil law embodied in our Civil Code
that no one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to
represent him. A contract entered into in the name of another by
one who has no authority or legal representation, or who has acted
beyond his powers, shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other contracting party . .
.
Out of the above given principles, sprung the creation and
acceptance of the relationship of agency whereby one party, called
the principal (mandante), authorizes another, call the agent
(mandatario), to act for and in his behalf in transactions with
third persons. . . . (at pp. 258-259;emphasis supplied.)
When an agency relationship is established, and the agent acts
in the name of the principal, the agent 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
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behalf of the principal within the scope of the authority have
the same legal effects and consequences as though the principal had
been the one so acting in the given situation. This principle is
referred to as the doctrine of representation.
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 that 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. (at p. 223.)
In Doles v. Angeles , 492 SCRA 607 (2006), in response to the
legal argument that there could not have been an agency
relationship because the principal never confirmed personally to
the third parties the establishment of the agency, 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.)
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In Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA
584 (2007), the 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, Philex Mining Corp. v. Commissioner of Internal Revenue,
551 SCRA 428 (2008), 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
relations between the latter and third persons.
2. Parties to a Contract of Agency
The parties to a contract of agency are:
the Principal the person represented (mandante)
the Agent the person who acts for and in representation of
another (mandatario)
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 as creating
between the principal and an agent an on-going legal relationship
which imposes personal obligations on both parties. This is in
consonance with the personal nature of every contract of agency.
Thus, Rallos held that out of the principle that no one may
contract in the name of another without being authorized by the
latter, sprung the creation and acceptance of the relationship of
agency whereby one party, called the principal (mandante ),
authorizes another, called the agent (mandatario), to act for and
in his behalf in transactions with third persons. (at p. 259.)
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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 orconsideration.
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.
(Reiterated Yu Eng Cho v. Pan American World Airways, Inc., 328
SCRA 717 [2000]; Manila Memorial Park Cemetery, Inc. v. Linsangan,
443 SCRA 377 [2004]; Eurotech Industrial Technologies, Inc. v.
Cuizon, 521 SCRA 584 [2007].)
The element not included in the Rallos enumeration is the cause
orconsideration of every contract 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 enforceability of the contracts entered into by the
agent on behalf of the principal.
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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.
The last two elements added by Rallos, which are based on
specific provisions of law, are meant to emphasize that the
relationship of agency is set-up essentially to comply with the
basic axiom in civil law embodied in our Civil Code that no one may
contract in the name of another without being authorized by the
latter, . . . A contract entered into in the name of another by one
who has no authority or legal representation . . . shall be
unenforceable, unless it is ratified, expressly or implied, by the
person on whose behalf it has been executed. (at p. 258.)
a. The Element of CONSENT
The essential element of consent is manifest from the principle
embodied in Article 1317 of the Civil Code that No person may be
represented by another without his will; and that no person can be
compelled against his will to represent another.
In Bordador v. Luz, 283 SCRA 374 (1997), in determining whether
the purported principal (Brigida) can be held liable solidarily
with her alleged agent (Deganos) for failure of the latter to
return jewelries received allegedly on behalf of the purported
principal (Brigida), the Supreme 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. (at p. 382.) In addition, the Court held:
Besides, it was grossly and inexcusably negligent of petitioners
to entrust to Deganos, not once or twice but on at least six
occasions
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as evidenced by six receipts, several pieces of jewelry of
substantial value without requiring a written authorization from
his alleged principal [Brigida]. A person dealing with an agent is
put upon inquiry and must discover upon his peril the authority of
the agent. (at p. 382.)
In Dizon v. Court of Appeals, 302 SCRA 288 (1999), the Court
held that just because several persons are constituted as co-owners
of the same property does not make them agents to one another. In
effect, the Court held that a co-owner does not become an agent of
the other co-owners, and that any exercise of an option to buy a
piece of land transacted with one co-owner does not bind the other
co-owners of the land.
In Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663
(2000), the Court held:
It is clear from Article 1868 that the basis of agency is
representation. On the part of the principal, there must be an
actual intention to appoint or an intention naturally inferable
from his owrds 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. (at p.
675.)
In Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), the
Court held that consent (i.e., the meeting of minds) 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.
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Perhaps the only exception to this rule is the principle of
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 essentialcharacteristic of
consensuality of contracts of agency.
(1) Capacity of the Parties
For the validity of a contract of agency, it is required that
the principal must have capacity to contract (Arts. 1327 and 1329),
and principal 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, the agent does not have to possess
full capacity to act insofar as third persons are concerned. (De
Leon and De Leon, Comment and Cases on Partnership Agency and
Trusts, 2005 ed., at p. 356; hereinafter referred to as De
Leons.)
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 by reason of vitiation in
consent, which means that it is valid until annulled.
Thus, a voidable contract of 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.
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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 incongruity 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, as well as on the final chapter on
extinguishment of agency.
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b. The Element of 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.
Therefore, the obligation created by the perfection of the contract
of agency is essentially an unilateral personal obligation to do.
More specifically, Rallos ruled that the object of every contract
of agency is the execution of a juridical act in relation to a
third person. (at p. 259.)
Items (b), (c) and (d) in the enumerated elements of Rallos can
actually be summarized into the object or objective 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. The Element of CONSIDERATION or COMMISSION
Art. 1875. Agency is presumed to be for a
compensation, unless there is proof to the contrary. (n)
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, 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
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efforts. It is the party who avers that the agency was
gratuitousthat the agent agreed to serve gratuitouslywho has the
burden of proving such arrangement.
The old decision in Aguna v. Larena, 57 Phil 630 (1932), did not
reflect the principle that generally agency is for compensation,
which is now embodied 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, the result would have been quite the
opposite.
Recently, in De Castro v. Court of Appeals, 384 SCRA 607 (2002),
the Supreme Court upheld the obligatory force of a compensation
clause agreed upon in a contract of agency, thus
A contract of agency which is not contrary to law, public order,
public policy, morals or good custom is a valid contract, and
constitutes the law between the parties. The contract of agency
entered into by Constate with Artigo is the law between them and
both are bound to comply with its terms and conditions in good
faith.
The mere fact that other agents intervened in the consummation
of the sale and were paid their respective commissions could
not
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vary the terms of the contract of agency with granting Artigo a
5 percent commission based on the selling price. (at pp.
616-617.)
The foregoing discussions emphasize that as a commercial
contract, agency exhibits one of the three characteristics common
to all commercial contracts, which is that of being customary.
Ordinarily in Civil Law, the question of compensation must be an
integral part of the meeting of the minds of the parties to a
contract of service; and that parties to a civil contract cannot be
held liable for compensation to which they never expressly or
impliedly agreed to.
In the realm of commercial contracts, customary rule or practice
imputes that parties enter into commercial transactions or
relationship for profit or for remuneration. Thus, in agency, the
fact that such relationship has been established puts into
application customary law that says that it is presumed that both
parties knew that the services of the agent were for compensation.
It is no even critical that the amount and nature of the
compensation has not been previously agreed upon (as would have
been critical for obligatory force to come into play for civil or
private contracts of service), since the courts are empowered to
apply customars to determine what compensation the agent is
entitled tothat which the market customarily pays for the services
rendered by the agent.
(1) 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 have met.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 of the contract of agency on the agents
entitlement to compensation are not 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
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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 to be based on 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 would not
entitle the agent to the compensation agreed upon.
In Inland Realty v. Court of Appeals, 273 SCRA 70 (1997),
although the ultimate buyer was introduced formally by the broker
to the principal, nonetheless the Court held that
. . . Petitioners did not succeed in outrightly selling said
shares under the predetermined terms and conditions set out by
Araneta, Inc., e.g., that the price per share is P1,500.00. they
admit that they could not dissuade Standford from haggling for the
price of P1,000.00 per share with the balance of 50% of the total
purchase price payable in five years at 12% per annum. . . 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 to Standford, to be a significant index of
petitioners non-participation in the really critical events leading
to the consummation of said sale., i.e., the negotiations to
convince Standford to sell at Araneta, Inc.s asking price, the
finalization of the terms and conditions of the sale, the drafting
of the deed of sale, the processing of pertinent documents, and the
delivery of the shares of stock to Standford . . . Petitioners were
not the efficient procuring cause in bringing about the sale . . .
and are, therefore, not entitled to the stipulated brokers
commission. . . (at pp. 77-78.)
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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 then 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. It ought to be noted though
that even under the Prats doctrine, the ultimate objective of
actual sale being effected, must be present for the agent or broker
to earned his commission.
The matter pertaining to entitlement to commission will be
discussed in greater details in the section below that
distinguishes a contract of agency from that of a brokers
contract.
4. Essential Characteristics of Agency
Aside from being a nominate, principal and consensual contract,
Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251
(1978), characterized a contract of agency as being personal,
representative, and derivative in nature. (at p. 259.)
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
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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 called it will be an agency
whether the parties understood the exact nature of the relation or
not.
b. Consensual
Art. 1869. 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. (1710a)
Art. 1870. 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. (n).
o
The contract of agency is perfected by mere consent, and is
therefore aconsensual contract. Under Article 1869 of the Civil
Code, an agency may be express 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. See also Litonjua, Jr. v. Eternit Corp., 490 SCRA
204 (2006).
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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.
In other words, the contract of agency is essentially a
consensual contract, and that as a general rule no form or
solemnity is required in order to make it valid, binding and
enforceable.
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 undoubtedly a
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
shall incur 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.
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d. Personal, Representative and Derivative
Art. 1897. The agent who acts as such is not
personally 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. (1725)
o
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, contract-for-a piece of work, and a
brokerage arrangement. 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 be binding on, the principal.
Rallos holds that the personal, representative and derivative
nature of the contract of agency springs from the basic fact that
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 alim facit
per se. He who acts through another acts himself. (at p. 259.)
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
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It is clear from Article 1868 that the basis of agency is
representation. On the part of the principal, there must be an
actual intention to appoint or an intention naturally inferable
from his words or actions; and on the part of the agent, there must
be an intention to accept the appointment and act on it, and in the
absence of such intent, there is generally no agency. One factor
which most clearly distinguishes agency from other legal concepts
is control; one person the agent agrees to act under the control or
direction of another the principal. Indeed, the very word agency
has come to connote control by the principal. The control factor,
more than any other, has caused the courts to put contracts between
principal and agent in a separate category. . . .
x x x
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; emphasis
supplied.)
Doles v. Angeles, 492 SCRA 607 (2006), 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
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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.)
Recently, in Manila Memorial Park Cemetery, Inc. v. Linsangan,
443 SCRA 377 (2004), the Court reiterated the principle that
whatever the parties name the contractual relationship, when it has
the essential elements of a contract of agency, then it would be
governed by the Law on Agency, thus
In an attempt to prove that Baluyot was not its agent, MMPCI
pointed out that under its Agency Manager Agreement, an agency
manager such as Baluyot is considered an independent contractor and
not an agent. However, in the same contract, Baluyot as agency
manager was authorized to solicity and remit to MMPCI offers to
purchase interment spaces belong to and sold by the latter.
Notwithdtanding the claim of MMPCI that Baluyot was an independent
contractor, the fact remains that she was authorized to solicit
solely for and in behalf of MMPCI. As proper found both by the
trial court and the Court of Appeals, Baluyot was an agent of
MMPCI, having represented the interest of the latter, and having
been allowed by MMPCI to represent it in her dealings with its
clients/prospective buyers. (at p. 390.)
(1) Principles Flowing from Agency Characteristics of
Personal, Representative and Derivative
The following principles flow from the application of the
essential characteristics of an agency being personal,
representative and derivative 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;
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21
The liabilities incurred shall pertain to the principal and not
the agent;
o
The agent has neither rights or obligations from the resulting
contract;
The agent has no legal standing to sue upon said contract;
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, Civil Code; Eurotech
Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007);
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);
(b) 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.
(c) 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).
(d) 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).
(e) Knowledge of the agent is equivalent to knowledge of the
principal.
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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.)
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.
e. 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 essentiallyfiduciary in nature. One of the
legal consequences
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23
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 himself to the detriment of the principal; he
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.
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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. (at p.
656.)
f. Preparatory and Progressive
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 in a particular manner: for the agent to enter into
juridical acts with the public in the name of the principal . 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
strictly agency principles.
In another way of putting it, an agency contract is merely a
tool ormedium resorted to achieve a greater objective of being able
to enter into juridical relations on behalf of the principal;
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25
considerations that pertain merely to the tool or medium
certainly cannot outweigh considerations that pertain to the main
objects of the agency. Since under the Rallos ruling the object [of
every relationship of agency] is the execution of a juridical act
in relation to a third person, (at p. 259), then considerations
that seek to protect the interests of third parties dealing in good
faith with an agent must, in case of conflict, prevail over
principles pertaining to the intramural relationship between the
principal and his agent.
5. Kinds of Agency
a. Based on the Business or Transactions Covered
Under Article 1876 of the Civil Code, an agency is termed to be
a general agency when it encompasses all of the business of the
principal. As demonstrated in the discussions hereunder, the better
term for such an agency would be a universal agency, for the term
general agency is one that is addressed to the general public, and
not just a particular person or group of persons which whom the
agent is to transact. (Besides, the term universal agency is more
consistent with a similar coverage of universal partnership under
the Law on Partnerships.)
On the other hand, Article 1876 of the Civil Code defines a
special agency as one which covers only one or more specific
transactions. The better term for such an agency is particular
agency; for indeed, the term special agency has been used in
decisions of the Supreme Court to refer to one which is addressed
to a particular person or group of persons with whom the agent is
to transact. (Again, the use of the term particular agency is more
consistent with a similar coverage of particular partnership under
the Law on Partnerships.)
In Siasat v. Intermediate Appellate Court, 139 SCRA 238 (1985),
the Court held that a power of attorney which provides that This is
to formalize our agreement for you to represent United Flag
Industry to deal with any entity or organization, private or
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26
government, in connection with the marketing of our
productsflags and all its accessories. For your services, you will
be entitled to a commission of 30%, was construed to authorize the
agent to enter into contract of sale over the products covered and
for which he would be entitled to receive commissions stipulated.
Siasat distinguished three types of agency, namely universal,
general, and special, in the following manner:
An agent may be (1) universal; (2) general, or (3) special. A
universal agent is one authorized to do all acts for his principal
which can lawfully be delegated to an agent. So far as such a
condition is possible, such an agent may be said to have universal
authority. . .
A general agent is one authorized to do all acts pertaining to a
business of a certain kind or at a particular place, or all acts
pertaining to a business of a particular class or series. He has
usually authority either expressly conferred in general terms or in
effect made general by the usages, customs or nature of the
business which he is authorized to transact.
An agent, therefore, who is empowered to transact all the
business of his principal of a particular kind or in a particular
place, would for this reason, be ordinarily deemed a general agent.
. .
A special agent is one authorized to do some particular act or
to act upon some particular occasion. He acts usually in accordance
with specific instructions or under limitations necessarily implied
from the nature of the act to be done. . . (at p. 245, quoting from
Padilla, Civil Law, the Civil Code Annotated, Vol. VI, 1969
Edition, p. 204.)
According to Siasat the express authority given to the agent
should be that it was a general agency and the transactions entered
into in behalf of the principal which pursued the sale of the
principals products, were valid and binding and justified the
agents right to receive the commission promised her, thus
One does not have to undertake a close scrutiny of the document
embodying the agreement between the petitioners and the
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27
respondent to deduce the latter was instituted as a general
agent. Indeed, it can easily be seen by the way general words were
employed in the agreement that no restrictions were intended as to
the manner the agency was to be carried out or in the place where
it was to be executed. The power granted to the respondent was so
broad that it practically covers the negotiations leading to, and
the execution of, a contract of sale of petitioners merchandise
with any entity or organization. (at p. 245.)
A good illustration of the principle pertaining to a special or
particular agency would be the decision in Insular Drug v. PNB, 58
Phil. 684 (1933), where the Court held that the only power given to
an agent is to indorse commercial paper (checks), then such power
is a very responsible power and will not be lightly inferred, and
consequently a salesman with authority to collect money belonging
to his principal does not have the implied authority to indorse
checks received in payment; and that any person taking checks made
payable to a corporation which can act only by agents does so at
his peril, and must abide by the consequence if the agent who
indorses the same is without authority.
The classifications under Article 1876 are more academic than
practical, since outside of guardianship proceedings, hardly
anybody in the modern world empowers an agent to cover every
business aspect owned by the principal. Beside, as shown by the
discussions hereunder on general power of attorney, and special
power of attorney, such a classification is not really useful
because a general or universal agency can by law only cover general
powers of attorney covering merely acts of administration; and
cannot, without express or detailed description, cover special
powers of attorney, covering particular acts of strict ownership.
Therefore, a general agency is better achieved by other contractual
forms such as a contract of employment, or a universal
partnership.
b. Whether or Not It Covers Litigation Matters
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Although not specifically treated in the Civil Code, we should
distinguish between a type of agency called attorney-at-law, from
that of attorney-in-fact.
We can begin the discussion with the ruling in J-Phil Marine,
Inc. v. NLRC, 561 SCRA 675 (2008), where the Court held that the
relation of attorney and client is in many respects one of agency,
and that the general rules of agency apply to such relation. This
is not necessarily a straight forward proposition, for indeed both
a regular agency-principal and attorney-client relationship are
both fiduciary in character, and yet fiduciary character under the
agency-principal relationship is based on the doctrine of
representation for purpose of entering into juridical acts that
bind the principal, while that in an attorney-client relationship
is based on the need to rely upon the competence and integrity of
the lawyer in the disposition of certain matters relating to law
that have a direct effect on the property, liberty or life of the
client.
An attorney-at-law, necessarily means the appointment of an
agent to represent the principal on legal matters, particularly on
matters pertaining to litigation or court matters. But not every
attorney-client relationship is a contract of agency where the
essential objective is representation, such as when an attorney is
retained to draw-up legal documents. But when it comes to
litigation, the retaining of an attorney is truly in representation
of the client-principal before the court, such that the acts of the
attorney for and in behalf of the client, that notice to the
attorney, and service of judicial process to the attorney, is
equivalent to service to the client principal. Under existing rules
and jurisprudence, such an agent would be practicing law and would
have to be a licensed lawyer. The relationship is one that is
fiduciary and professional in character, and is governed by
separate rules, including the legal professional code and the rules
promulgated by the Supreme Court covering the practice of law.
Consequently, the term attorney-in-fact is intended to describe
all agents appointed by a principal to act on juridical relations
that have nothing to do with legal matters and do not constitute
a
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practice of law on the part of the agent. This is the
classification that covers the contract of agency governed by the
Civil Code.
It should be noted, however, that even in the case of an
attorney-at-law representing a client in a court case, there are
certain powers which are not inherent in the position of an
attorney-at-law to legally bind the client, such as the power to
compromise, to arbitrate, etc. Whether an attorney-at-law has power
to bind the client principal in such matters are governed by the
rules of the Civil Code on special agency or special powers of
attorney.
c. Whether It Covers Acts of Administration or Acts of
Ownership
It is in the realm of attorney-in-fact that we would more
appropriately use the classifications of general power of attorney
and special power of attorney to describe the authority and power
of the agent.
Simply stated, a general power of attorney covers only acts of
administration, or expressed in commercial terms, it only covers
power to pursue the ordinary or regular course of business. On the
other hand, aspecial power of attorney covers acts of dominion or
strict ownership, or represents a situation that is described as
extraordinary conditions or those pursued not in the ordinary
course of business. Thus, whether a power of attorney is general or
special, really depends on the nature of the business to which it
is directed at. To illustrate, although on their own the power to
sell, is considered acts of strict ownership, nevertheless, when
they pertain to the ordinary pursuit of the business to which the
agent has been designated to manage, say a merchandising store, the
sale of the goods in the ordinary course of business would be part
of the general power of attorney given to him to administer and
manage the store, and such sales contracts are mere in the ordinary
pursuit of the business.
Thus, under Article 1877 of the Civil Code provides that An
agency couched in general terms comprises only acts of
administration, even if the principal should state that he
withholds no power or that
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30
the agent may execute such acts as he may consider appropriate,
or even though the agency should authorize a general and unlimited
management.
The general rule is that unless so expressly stated, when an
agency is constituted (i.e., when a person is designated as an
agent), it only covers the powers to execute acts of administration
in relation to the business, venture or transaction referred to in
the commission. In other words, whenever it is clear that an agent
has been duly designated or appointed by the principal, in the
absence of limiting conditions or provision, then such agent is
deemed to have full powers to pursue any act in the name of the
principal which are in the ordinary course of business.
In Macke vs. Camps, 7 Phill. 553 (1907), the Court held
It seems easy to answer that acts of administration are those
which do not imply the authority to alienate for the exercise of
which an express power is necessary. Yet what are acts of
administration will always be a question of fact, rather than of
law, because there can be no doubt that sound management will
sometimes require the performance of an act of ownership. (12
Manresa 468) But, unless the contrary appears, the authority of an
agent is presumed to include all the necessary and usual means to
carry out the agency into effect. (at p. 555.)
Distinction between general power of attorney and special power
of attorney shall be covered in the succeeding chapter on the Power
and Authority, Duties and Obligations, of the Agent.
Parenthetically, it has been held in Teodoro v. Metropolitan
Bank and Trust Co., 575 SCRA 82 (2008), that a special power of
attorney executed in a foreign country is generally not admissible
in evidence as a public documents in our local courts.
6. Agency Distinguished from Similar Contracts
a. From an Employment Contract
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Unlike an 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 element of representation in a contract of employment, the
employee does not have the power to enter into juridical relations
on behalf of the employer .
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 was 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
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32
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. Although the designation of the subject matter to be
manufactured or produced is agreed upon by the parties in a
contract-for-a-piece-of-work, there is no element of control since
the contractor cannot be dictated upon by the client on how to go
about accomplishing the objective of the contract.
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 (1968), the Court held that in both agency and lease of
services (i.e., management contract), 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.
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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 destined to execute
juridical acts (creation, modification or extinction of relations
with third parties). Lease of services contemplate only material
(non-juridical) acts. (at pp. 546-547; quoting from Reyes and Puno,
An Outline of Philippine Civil Law, Vol. V, p. 277.)
Nielson & Co. also held 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 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
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34
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
Art. 1466. 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. (n)
o
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:
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35
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
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36
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
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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) Such reasoning in Pearl Island is
not sound, 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
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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 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,
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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.
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.
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
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40
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 Ricewas 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 a Contract of Brokerage
In the early decision in Behn, Meyer and Co., Ltd. v. Nolting
and Garcia, 35 Phil. 274 (1916), the Supreme Court defined broker
to mean as follows
. . . A broker is generally defined as one who is engaged, for
others, on a commission, negotiating contracts relative to property
with the custody of which he has no concern; the negotiator between
other parties, never acting in his own name, but in the name of
those who employed him; he is strictly a middleman and for some
purpose the
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41
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.)
Behn, Meyer and Co., was a tax case where the Court needed to
define the coverage of the term broker to determine the liability
of a commercial enterprise for taxes and licenses as a broker. The
commercial enterprise itself was engaged in the business . . . of
buying and selling copra, hemp, and other native products of the
Islands, and in such business the aforesaid plaintiff advanced
money for the future delivery of copra and hemp, and took as
security for the future delivery of such copra and hemp so
contracted for a mortgage on the land upon which said copra or hemp
was produced, and charging a discount on the future deliveries of
said copra or hemp, which was in compensation for the money so
advanced. (at p. 277.) Based on the definition of a broker (quoted
above), the Court held that A real-estate broker negotiates the
purchase or sale of real property. He may also procure loans on
mortgaged security, collect rents, and attend to the letting and
leasing of houses and lands. (Bouviers Law Dictionary.) A broker
acts for another. In the present case the plaintiff was acting for
itself. Whatever was done with reference to the taking of the
mortgages in question was done as an incident of its own business.
By the contract of brokerage a person binds himself to render some
service or to do something in bhelaf of or at the request of
another person (Art. 1209, Civil Code.) (at p. 280.)
Note therefore that the term broker is considered to be a
commercial term for a person or entity 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
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42
broker in the sense that his job mainly is to bring parties
together to bargain, and 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, a broker may also be appointed with powers to
enter into juridical acts on behalf of the principal, in which
case, he is truly an agent. Thus, Behn, Meyer & Co. cites also
the definition of an agent under Article 1209 of the Civil Code in
order to define a broker.
In Pacific Commercial Co. v. Yatco, 68 Phil. 398 (1939), which
was also a tax case, presented a more specific discussion of
distinguishing between a specific type agency, which is that of a
commission agent or then known as commission merchant from that of
commercial broker, as one who does not execute juridical acts in
behalf of the principal. In that decision, Pacific Commercial
Company looked for purchasers of the sugar products of Victorias
Milling, and once the corresponding purchase order is obtained from
them, the same is sent to the office of Victorias Milling Co., in
Manila, which, in turn, endorsed the order to its office in Negros,
with instructions to ship the sugar thus ordered to Manila, Cebu or
Iloilo, as the case may be. At times, the purchase is made for the
delivery of the sugar ex-wareho0use of plaintiff [Pacific] and at
other times for delivery ex-ship. In all cases, the bill of lading
is sent to the plaintiff [Pacific]. If the sugar was to be
delivered ex-ship, all that the plaintiff did was to hand over the
bill of lading to the purchaser and collect the price. If it was
for delivery ex-warehouse, the sugar is first deposited in the
warehouse of the plaintiff before delivery tothe purchaser. (at p.
400.)
On the issue of whether Pacific Commercial Company acted as a
commissioner merchant as to the guar devliered ex-warehouse the
Court held:
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The question of whether the appellant [Pacific], in connection
with the sugar delivered ex-warehouse and thereafter sold to the
purchasers, acted as a commission merchant, present no doubt. A
commission merchant is one engaged in the purchase or sale for
another of personal property which, for this purpose, is placed in
his possession and at his disposal. He maintains a relation not
only with his principal and the purchasers or vendors, but also
with the property which is the subject matter of the transaction.
In the present case, the sugar was shipped by Victorias Milling
Co., and pupon arrival at the port of destination, the plaintiff
received and transferred it for deposit in its warehouses until the
purchaser called for it. The deposit of the sugar in the warehouses
of the plaintiff was made upon its own account and at its own risk
until it was sold and taken by the purchaser. There is, therefore,
no doubt that the plaintiff, after taking the sugar on board until
it was sold, had it in its possession and at its own risk,
circumstances determinative of its statuts as a commissioner
merchand in connection with the sale of sugar under these
conditions. (at pp. 401-402.)
The notion of a commission merchant is still maintained in the
New Civil Code in Articles 1902 to 1909 on the duties and
responsibilities of a commission agent.
On the issue of whether Pacific Commercial Company acted as a
commercial broker as to the sugar delivered ex-ship, the Court
held:
There is also no dobut on the question of whether the plaintiff
merely acted as a commercial broker as to the sale of the sugar
delivered to the purchaser ex-ship. The broker, unlike the
commission merchant, has no relation with the thing he sells or
buy. He is merely an intermediary between the purchaser and the
vendor. He acquires neither the possession nor the custody of the
things sold. His only office is to bring together the parties to
the transaction. These circumstances are prsent in connection with
the plaintiffs sale of the sugar which was delivery to the
purchaser ex-ship. The sugar sold under these conditions was
shipped by the plaintiff at its expense and risk ex-ship by the
purchaser. The plaintiff never had possession of the sugar at any
time. The
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44
circumstance that the bill of lading was sent to the plaintiff
does not alter its character of being merely a broker, or
constitute possession by it of the sugar shipped, inasmuch as the
same was sent to it for the sole purpose of turning it over to the
purchaser for the collection of the price. The sugar did not come
to its possession in any sense. (at p. 402.)
Because of the recognition of the occupation of a commission
merchant (i.e., commission agent), since Pacific Commercial
Company, the Court had began to recognize that unless otherwise so
indicated the termbroker is meant to cover a commercial broker
acting not as an agent, but merely a middleman, who bears 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.
In Reyes v. Mosqueda, 99 Phil. 241 (1956), the Court held that
when a person has been engaged to negotiate with the owner of a
parcel of land only the lowest purchase price that could be
bargained for and in turn the owner set a final price and engaged
the same person to find a buyer who would buy at such a price, such
engagement was only as a broker, then in order to earn her
commission, it was not sufficient for her to find a prospective
buyer but to find onw who will actually buy the property on the
terms and conditions imposed by the owner. (at p. 245.)
The all-encompassive defintion of broker (which may include that
of a commission agent) in Bhen, Meyer & Co. was reiterated
under the new Civil Code in Schmid and Oberly, Inc. v. RJL
Martinez, 166 SCRA 493 (1988), 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. . . . a broker is one whose occupation is
to bring the parties together, in matters of trade, commerce or
navigation. (at p. 501.) It should be noted, however, that Schmid
& Oberly, Inc.involved the issue of whether the breach of the
implied
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45
warranties of the seller in a contract of sale under an indent
arrangement, which includes a recovery of the purchase price, could
be pursued against the agent who effected the sale on behalf of the
foreign principal-seller. It should therefore be clear that legally
whether the intermediary was acting as a commission merchant/agent
or a pure commercial broker, the general principal is neither of
them would be liable personally for the breach of warranty of the
principal-seller. A commission agent who acts in the name of the
principal and within the scope of his authority is protected by the
principle in Agency Law that he does not therefore become
personally liable for the contracts he entered into in the name of
the principal. A commercial broker, who merely intermediates
between the seller and the buyer and for whom he has not executed
any juridical act, is a complete stanger to the resulting contract
of sale and certainly cannot be held liable thereon for lack of
privity. After quoting from both Behn, Meyer & Co. and Pacific
Commercial Co., the Court held that
Thus, the chief features of a commercial broker and a commercial
merchant is that in effecting a sale, they are merely
intermediaries or middle