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THE LAW AND PRACTICE ON PHILIPPINE

AGENCY LAWNATURE, 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 bindshimself to render some service or to do something in representation or on behalf of another, withthe consent or authority of the latter. [1]

InEurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007), the Supreme Courtheld that The underlying principle of the contract of agency is to accomplish results by using

the services of othersto do a great variety of things like selling, buying, manufacturing, andtransporting. Its purpose is to extend the personality of the principal or the party for whomanother acts and from whom he or she derives the authority to act. (at p. 592)

In Orient Air Service & Hotel Representatives v. Court of Appeals, 197 SCRA 645 (1991), theCourt held that the purpose of every contract of agency is the ability, by legal fiction, to extendthe personality of the principal through the facility of the agent; but the same can only beeffected with the consent of the principal.

InLitonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), the Court held that It bears stressingthat in an agent-principal relationship, the personality of the principal is extended through thefacility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized toperform all acts which the latter would have him do. Such a relationship can only be effectedwith the consent of the principal, which must not, in any way, be compelled by law or by anycourt.[2] (at p. 223)

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

The CA is incorrect when it considered the fact that the supposed friends of [petitioners], the

actual borrowers, did not present themselves to [respondent] as evidence that negates theagency relationshipit is sufficient that petitioner disclosed to respondent that the former wasacting in behalf of her principals, her friends whom she referred to respondent. For an agency toarise, it is not necessary that the principal personally encounter the third person with whom theagent interacts. The law in fact contemplates, and to a great degree, impersonal dealings wherethe 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 facilityof the agent. (at p. 622)
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Lately, inPhilex Mining Corp. v. Commissioner of Internal Revenue, 551 SCRA 428 (2008), theCourt reiterated the principle that the essence of an agency, even one that is coupled withinterest, is the agents ability to represent his principal and bring about business relati0nsbetween the latter and third persons.

When an agency relationship is established, and the agent acts for the principal, he is insofar asthe world is concerned essentially the principal acting in the particular contract or transaction onhand. Consequently, the acts of the agent on behalf of the principal within the scope of theauthority have the same legal effect and consequence as though the principal had been the one soacting in the given situation.Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251(1978);Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007).

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

agency are that

Notice to the agent is notice to the principal.Air France v. Court of Appeals, 126 SCRA 448

(1983).

Knowledge of the agent pertains to the principal

When an agent purchases the property in bad faith, the principal is deemed to be a purchaser inbad faith. Caram, Jr. v. Laureta, 103 SCRA 7 (1981).

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

considered a suit against the principal. Philippine National Bank v. Ritratto Groups, Inc., 362SCRA 216 (2001).

2. Parties to a Contract of Agency

The parties to a contract of agency are:

the PRINCIPAL the person represented

the AGENT the person who acts for and in representation of another

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

Although Article 1868 of the Civil Code defines agency in terms of being a contract, it shouldalso be considered that upon the perfection of the contract of agency, it creates between theprincipal and an agent an on-going legal relationship which imposes personal obligations on bothparties. This is in consonance with the progressive nature of every contract of agency.

a. Capacity of the Parties


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The principal must have capacity to contract (Arts. 1327 and 1329), and may either be a naturalor juridical person (Art. 1919[4]).

There is legal literature that holds that since the agent assumes no personal liability, she does nothave 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 havelegal capacities to validly enter into an agency. However, if one of the parties has no legalcapacity to contract, then the contract of agency is not void, but merely voidable, which meansthat it is valid until annulled.

Thus, a voidable agency will produce legal consequences, when it is pursued to enter intojuridical relations with third parties. If the principal is the one who has no legal capacity tocontract, 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 theprincipal has legal capacity, and it is the agent that has no legal capacity to contract, theunderlying 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 agentsincapacity is irrelevant, the contract having been entered into, for and in behalf of the principal,who has full legal capacity.

The foregoing discussions support the fact that as a general proposition the lack of legal capacityof the agent does not affect the constitution of the agency relationship. And yet, it is clear underArticle 1919(3) of the Civil Code that if during the term of the agency, the principal or agent isplaced under civil interdiction, or becomes insane or insolvent, the agency is ipso jureextinguished. It is therefore only logical to conclude that if the loss of legal capacity of the agentextinguishes the agency, then necessarily any of those cause that have the effect of removinglegal capacity on either or both the principal and agent at the time of perfection would not bring

about a contract of agency.

Obviously, there seems to be an incongruence when it comes to principles involving the legalcapacities of the parties to a contract of agency. The reason for that is that the principles actuallyoccupy two different legal levels. When it comes to creating and extinguishing the contractualrelationship of principal and agent, the provisions of law take into consideration purelyintramural matters pertaining to the parties thereto under the principle of relativity. Since agencyis essentially a personal relationship based on the purpose of representation, then when either theprincipal or agent dies or becomes legally incapacitated, then the agency relation should ipso jurecease. But a contract of agency is merely a preparatory contract, where the main purpose is toeffect through the agent contracts and other juridical relationships of the principal with thirdparties. The public policy is that third parties who act in good faith with an agent have a right toexpect that their contracts would be valid and binding on the principal. Therefore, even when bylegal cause an agency relationship has terminated, say with the insanity of the principal, if theagent and a third party enter into contract unaware of the situation, then the various provisions onthe Law on Agency would affirm the validity of the contract. More on this point will be coveredunder the section on the essential characteristics of agency.

3. Elements of the Contract of Agency


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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), heldthat 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 thepart of the agent, there must be an intention to accept the appointment and act on it; and in theabsence 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 separateacts of the purported principal and purported agent, by which they are brought into therelationship insofar as third parties acting in good faith are concerned. More discussions on theessential element of consent shall take place in the section on essential characteristic ofconsensuality of contracts of agency.

b. Object or Subject Matter

The object of every contract of agency is service, which particularly is the legal undertaking ofthe 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 theobject of every contract of agency to be that of service, i.e., the undertaking (obligation) of theagent to enter into a juridical act with third parties on behalf of the principal and within the scopeof his authority.

c. Consideration

The cause or consideration in agency is the compensation or commission that the principalagreed or committed to be paid to the agent for the latters services. Under Article 1875 of theCivil Code, agency is presumed to be for compensation, unless there is proof to the contrary. Inother words, liberality may be the proper cause or consideration for an agency contract onlywhen it is so expressly agreed upon. Unless otherwise stipulated, therefore, every agent isentitled to remuneration or compensation for the services performed under the contract ofagency.

The old decision inAguna v. Larena, 57 Phil 630 (1932), did not reflect the general rule ofagency-is-for-compensation reflected subsequently in Article 1875 of the Civil Code. InAguna,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 theagents service, nevertheless, the principal allowed the agent to occupy one of his parcels of landand to build his house thereon. The Court held that the service rendered by the agent was deemedto be gratuitous, apart from the occupation of some of the house of the deceased by the plaintiffand his family, for if it were true that the agent and the deceased principal had an understandingto the effect that the agent was to receive compensation aside from the use and occupation of thehouses of the deceased, it cannot be explained how the agent could have rendered services as hedid for eight years without receiving and claiming any compensation from the deceased. (at p.


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632) IfAgunawere decided under the New Civil Code, then under Article 1875, which mandatesthat every contract of agency is deemed to be for compensation, then the result would have beenquite the opposite.

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

The compensation that the principal agrees to pay to the agent is part of the terms of the contractof agency upon which their minds meet. Therefore, the extent and manner by which the agentwould be entitled to receive compensation or commission is based on the terms of the contract.

Sometimes, the terms are not that clear, and decisions have had to deal with the issue of when anagent has merited the right to receive the compensation either stipulated or implied from theterms of the contract. The doctrine that may be derived from the various decisions on the matterare anchored on the nature of the contract of agency as a species of contracts of services ingeneral. When the rendering of service alone, and not the results, is the primordial basis forwhich 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 becompensated is understood by the results to be achieved, e.g., that a particular contract with athird party is entered into in behalf of the principal, then mere rendering of service withoutachievement of the results agreed upon to be achieved would not entitle the agent to thecompensation agreed upon.

Thus, inInland 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 theagency, nevertheless, the lapse of the period of more than one (1) year and five (5) monthsbetween 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 agentwas notlonger entitled thereto.

The Court takes into strong consideration that utter lack of evidence of the agent showing anyfurther involvement in the negotiations between principal and buyer during that period and in thesubsequent processing of the documents pertinent to said sale. (at p. 79)

In contrast, inManotok Bros. Inc. v. Court of Appeals, 221 SCRA 224 (1993), the Court heldthat although the sale of the object of the agency to sell was perfected three days after theexpiration of the agency period, the agent was still be entitled to receive the commissionstipulated based on the doctrine held inPrats v. Court of Appeals, 81 SCRA 360 (1978), thatwhen the agent was the efficient procuring cause in bringing about the sale that the agent wasentitled to compensation. In essence, the Court ruled that when there is a close, proximate andcausal connection between the agents efforts and labor and the principals sale of his property,the agent is entitled to a commission.

The matter pertaining to entitlement to commission will be discussed in greater details in thesection that distinguishes a contract of agency from that of a brokers contract.


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4. Essential Characteristics of Agency

a. Nominate and Principal

Not only is the contract of agency specifically named as such under the Civil Code, it is a

principal contract because it can stand on its own without need of another contract to validate it.

The real value of the contract of agency being a nominate and principal contract is that it hasbeen so set apart by law and provided with its own set of rules and legal consequences, that anyother arrangement that essentially falls within its terms shall be considered as an agencyarrangement and shall be governed by the Law on Agency, notwithstanding any intention of theparties to the contrary. After all, a contract is what the law says it is, and not what the parties callit.

InDoles v. Angeles, 492 SCRA 607 (2006), it was held that if an act done by one person inbehalf 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 understoodthe exact nature of the relation or not.

b. Consensual

The contract of agency is perfected by mere consent. Under Article 1869, an agency may beexpressed or implied from the act of the principal, from his silence or lack of action, or failure torepudiate the agency; agency may be oral, unless the law requires a specific form.[5]

Under Article 1870 of the Civil Code, acceptance by the agent may also be express, or impliedfrom 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 hisservices in the form of commissions. However, Article 1875 recognizes that an agency may besupported by pure liberality, and thus would be gratuitous, but the burden of proof would be toshow that the agency was constituted gratuitously.

When it is gratuitous, the contract of agency is unilateral contract because it only creates anobligation 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 serviceupon which the subordinate obligation of the principal to pay the compensation agreed uponarises.

When an agent accepts the agency position without compensation, he assumes the sameresponsibility to carry out the agency and therefore incurs the same liability when he fails tofulfill his obligations to the principal. It is therefore rather strange that Article 1909 of the Civil


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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 orwas not for a compensation.

d. Preparatory and Representative

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

contracts, which includes employment contract, management contract and contract-for-a pieceof work. There are also special service contracts which include the rendering of professionalservice (e.g.,doctors and lawyers), and consultancy work. But it is the characteristic ofrepresentation 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 thirdparties on behalf of, and which would bind on, the principal.

A contract of agency does not exist for its own purpose; it is a preparatory contract entered intofor 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 andenforceability of contracts entered into pursuant to the agency arrangement, even when to do sowould contravene strict agency principles. In another way of putting it, an agency contract ismerely a tool allowed to be resorted to achieve a greater objective to enter into juridical relationson behalf of the principal; considerations that pertain merely to the tool certainly cannotoutweigh considerations that pertain to the main objects of the agency.

InAmon Trading Corp. v. Court of Appeals, 477 SCRA 552 (2005), the Court decreed that In abevy of cases as the avuncular case of Victorias Milling Co., Inc. v. Court Appeals, [333 SCRA663 (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, inVictoriasMilling Co., Inc. v. Court of Appeals, 333 SCRA 663 (2000), it was ruled

It is clear from Article 1868 that the basis of agency is representation.[6] On the part of theprincipal, there must be an actual intention to appoint or an intention naturally inferable from hiswords or actions; and on the part of the agent, there must be an intention to accept theappointment and act on it, and in the absence of such intent, there is generally no agency. Onefactor which most clearly distinguishes agency from other legal concepts is control; one personthe agentagrees to act under the control or direction of anotherthe principal. Indeed,the very word agency hascome 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 aseparate category. . . .

x x x

In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFRform, and not an agent of STM. Private respondent CSC was not subject to STMs control. Thequestion of whether a contract is one of sale or agency depends on the intention of the parties asgathered from the whole scope and effect of the language employed. That the authorization given


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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 beestablished by the CSC and STM is clearly shown by CSCs communication to petitioner thatSLDR 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)

InDoles v. Angeles, 492 SCRA 607 (2006), it was held that for an agency to arise, it is notnecessary that the principal personally encounter the third person with whom the agent interactsprecisely, the purpose of agency is to extend the personality of the principal through the facilityof the agent.

InEurotech 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 theprincipal on matters within the scope of his authority and said acts have the same legal effect asif 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 presencequi facit per alium facit per se.(at p. 593)

Earlier, inRallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978), the Court heldthat Agency is basically personal, representative, and derivative in nature. The authority of theagent to act emanates from the powers granted to him by his principal; his act is the act of theprincipal if done within the scope of the authority. Qui facit per alium facit per se. He who actsthrough another acts himself. (at p. 259)

(1) Principles Flowing from Agency Characteristics of Prepartatory and Representative

The following principles flow from the application of the essential characteristics of an agencybeing preparatory and representative contract, thus:

(a) The contract entered into with third persons pertains to the principal and not to the agent; theagent is a stranger to said contract although he physically was the one who entered into it in arepresentative capacity;

the agent has neither rights or obligations from the resulting contract;

the agent has no legal standing to sue upon said contract

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

(c) Generally, all acts that the principal can do in person, he may do through an agent, exceptthose which under public policy are strictly personal to the person of the principal.

(d) The agent who acts as such is not personality liable to the party with whom he contracts,unless he expressly binds himself or exceeds the limits of his authority without giving such partysufficient notice of his powers. (Art. 1897)


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(e) Notice to the agent should always be construed as notice binding on the principal, even whenin fact the principal never became aware thereof. Air France v. Court of Appeals, 126 SCRA 448(1983)

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

EXCEPT WHERE:

(1) Agents interests are adverse to those of the principal;

(2) Agents duty is not to disclose the information, as where he is informed by way ofconfidential 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, inEurotech 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 personallyliable to the party with whom he contracts. The same provision, however, presents two instanceswhen an agent becomes personally liable to a third person. The first is when he expressly bindshimself to the obligation and the second is when he exceeds his authority. In the last instance, theagent can be held liable if he does not give the third party sufficient notice of his powers. (at p.593)

InPhilpotts 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 properrepresentative 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 throughanother.

e. Derivative, Fiduciary and Revocable

A contract of agency creates a legal relationship of representation by the agent on behalf of theprincipal, where the powers of the agent are essentially derived from the principal, andconsequently, it is fiduciary in nature. One of the legal consequences of the fiduciary nature ofthe 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 arefiduciary in character because they are based on trust and confidence, which must flow from theessential nature a contract of agency that makes the agent the representative of the principal.Consequently:


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(a) As regards property forming the subject matter of the agency, the agent is estopped fromasserting or acquiring a title adverse to that of the principal. (Art. 1435);

(b) In a conflict-of-interest situation, the agent cannot choose a course that favors herself to thedetriment of the principal; she must choose to the best advantage of the principal. Thomas v.

Pineda, 89 Phil. 312 (1951);Palma v. Cristobal, 77 Phil. 712 (1946); and

(c) The agent cannot purchase for herself the property of the principal which has been given toher 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).

InRepublic v. Evangelista, 466 SCRA 544 (2005), the Court held that generally, the agency maybe revoked by the principal at will, since it is a personal contract of representation based on trustand confidence reposed by the principal on his agent. As the power of the agent to act dependson the will and license of the principal he represents, the power of the agent ceases when the willor permission is withdrawn by the principal.

In Orient Air Services v. Court of Appeals, 197 SCRA 645 (1991), it was held that the decisionof 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 GSAAgreement, 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 contractwhereby 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 ofthe agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to performall acts which the latter would have him do. Such a relationship can only be effected with theconsent of the principal, which must not, in any way, be compelled by law or by any court. TheAgreement itself between the parties states that either party may terminate the Agreementwithout cause by giving the other 30 days notice by letter, telegram or cable.[8] (at p. 656)

5. Distinguished from Similar Contracts

a. From the Employment Contract

Unlike agency relationship which is essentially contractual in nature, an employment contractunder Article 1700 of the Civil Code is The relationship between capital and labor [which] arenot merely contractual. They are so impressed with public interest that labor contracts must yieldto the common good. Therefore, such contracts are subject to the special laws on labor unions,


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collective bargaining, strikes and lockouts, closed shop, wages, working conditions, hours oflabor and similar subjects. More specifically, the purpose of an employer-employee relationshipis for the employee to render service for the direct benefit of the employer or of the business ofthe employer; while agency relationship is entered into to enter into juridical relationship onbehalf of the principal with third parties. There is, therefore, no representation in a contract of

employment.

InDela Cruz v. Northern Theatrical Enterprises, 95 Phil 739 (1954), the Court held that therelationship between the corporation which owns and operates a theatre, and the individual ithires as a security guard to maintain the peace and order at the entrance of the theatre is not thatof principal and agent, because the principle of representation was in no way involved. Thesecurity guard was not employed to represent the defendant corporation in its dealings with thirdparties; he was a mere employee hired to perform a certain specific duty or task, that of acting asspecial guard and staying at the main entrance of the movie house to stop gate crashers and tomaintain peace and order within the premises.

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

Under Article 1713 of the Civil Code, By the contractfor a piece of work the contractor bindshimself to execute a piece of work for the employer, in consideration of a certain price orcompensation. The contractor may either employ only his labor or skill, or also furnish thematerial. Under a contract for a piece of work, the contractor is not an agent of the principal(i.e.,the client), and the contractor has no authority to represent the principal in entering intojuridical acts with third parties. The essence of every contract-for-a-piece-of-work is that theservices rendered must give rise to the manufacture or production of the object agreed upon.

InFressel 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 otherparty a costly edifice, the underlying contract is one for a contract for a piece of work, and not aprincipal and agency relation. Consequently, the contract is authorized to do the work accordingto his own method and without being subject to the clients control, except as to the result of thework; he could purchase his materials and supplies from whom he pleased and at such prices ashe desired to pay. And the mere fact that it was stipulated in the contract that the client couldtake possession of the work site upon the happening of specified contingencies did not make therelation 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

InNielson & Co., Inc. v. Lepanto Consolidated Mining Co.,26 SCRA 540, 546-547 (1968), theCourt held that in both agency and lease of services, one of the parties binds himself to rendersome service to the other party. Agency, however, is distinguished from lease of work or servicesin that the basis of agency is representation, while in the lease of work or services the basis isemployment. The lessor of services does not represent his employer, while the agent representshis 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


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is to enter into other contracts. The most characteristic feature of an agency relationship is theagents 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 withthird parties). Lease of services contemplate only material (non-juridical) acts.[9]

The Court also held inNielson & Co.that where the principal and paramount undertaking of themanager under a Management Contract was the operation and development of the mine andthe operation of the mill, and all other undertakings mentioned in the contract are necessary orincidental to the principal undertakingthese other undertakings being dependent upon the workon the development of the mine and the operation of the mill. In the performance of this principalundertaking the manager was not in any way executing juridical acts for the principal, destined tocreate, modify or extinguish business relations between the principal and third person. In otherwords, in performing its principal undertaking the manager was not acting as an agent of theprincipal, in the sense that the term agent is interpreted under the law of agency, but as one whowas performing material acts for an employer, for compensation. Consequently, the managementcontract 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 operatorwas an agent of the Shell company, the Court took into consideration the following facts: (a) thatthe operator owed his position to the company and the latter could remove him or terminate hisservices at will; (b) that the service station belonged to the company and bore its tradename andthe operator sold only the products of the company; that the equipment used by the operatorbelonged to the company and were just loaned to the operator and the company took charge oftheir repair and maintenance; (c) that an employee of the company supervised the operator andconducted periodic inspection of the companys gasoline and service station; and (d) that theprice of the products sold by the operator was fixed by the company and not by the operator.

d. From the Contract of Sale

Under Article 1466 of the Civil Code, In construing a contract containing provisionscharacteristic of both the contract of sale and of the contract of agency to sell, the essentialclauses 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 agenthaving to do with what should be a seller obligation to transfer ownership and deliverpossession 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 asan agency agreement, the Court found the arrangement to be one of sale since the essentialclause 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 anadditional discount was to be allowed for prompt payment. These conditions to the Court wereprecisely 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 thepurported agent, to pay their price, thus:


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These features exclude the legal conception of an agency or order to sell whereby the mandatoryor agent received the thing to sell it, and does not pay its price, but delivers to the principal theprice he obtains from the sale of the thing to a third person, and if he does not succeed in sellingit, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, onreceiving 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 torescind is available only when the purported principal is able to show substantial breach on thepart of the purported agent.

Quirogafurther ruled that when the terms of the agreement compels the purported agent to payfor the products received from the purported principal within the stipulated period, even whenthere has been no sale thereof to the public, the underlying relationship is not one of contract ofagency 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 theprincipal the proceeds of the sale once he receives them from the buyer. Consequently, since theunderlying 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 covereda 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 equipmentordered, 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 unfavorableto 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 perspecifications, 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 bythe purported agent from the American suppliers under the theory that all benefits received bythe agent under the transactions were to be accounted for the benefit of the principal, was deniedby the Court.

Gonzalo Puyatalso ruled that when under the terms of the agreement, the purported agentbecomes responsible for any changes in the acquisition cost of the object he has been authorizedto purchase from a supplier in the United States, the underlying agreement is not an contract ofagency 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 receivedfrom the American supplier, pertain to it with no obligation to account for it, much less to turn itover, to the purported principal.Reiterated in Far Eastern Export & Import Co., v. Lim TechSuan, 97 Phil. 171 (1955).

In Chua Ngo v. Universal Trading Co., Inc., 87 Phil. 331 (1950), where a local importingcompany was contracted to purchase from the United States several boxes of oranges, most of


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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 theoranges as agent of the purchaser for which it could not be held liable for their loss in transit. TheCourt, in reviewing the terms and conditions of the agreement between the parties, held that thearrangement 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 localimporting company was given the option to resell the oranges if the balance of the purchaseprice was not paid within 48 hours from notification, which clearly implies that the localimporting 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 itcould 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 theinsurance company in its own name, indicating that he imported the oranges as his own products,and not merely as agent of the local purchaser.

InPearl Island Commercial Corp. v. Lim Tan Tong, 101 Phil. 789 (1957), the Supreme Courtwas unsure of its footing when it tried to characterize a contract of sale (Contract of Purchaseand Sale) between the manufacturer of wax and its appointed distributor in the Visayan area, asstill being within a contract of agency in that while providing for sale of Bee Wax from theplaintiff to Tong and purchase of the same by Tong from the plaintiff, also designates Tong asthe sole distributor of the article within a certain territory. (at p. 792)

The reasoning inPearl Island is wrong, of course, since as early as in Quiroga v. Parson, theCourt 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 relationshipone of agency, but that of sale. Perhaps the best way to understand the ruling inPearl Islandwasthat the suit was not between the buyer and seller, but by the seller against the surety of the buyerwho had secured the shipment of the wax to the buyer, and the true characterization of thecontract between the buyer and seller was not the essential criteria by which to fix the liability ofthe surety, thus

True, the contract (Exhibit A) is not entirely clear. It is in some respects, even confusing. Whileit speaks of sale of Bee Wax to Tong and his responsibility for the payment of the value of everyshipment so purchased, at the same time it appoints him sole distributor within a certain area, theplaintiff 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 waspaid 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)

InKer & Co., Ltd. v. Lingad, 38 SCRA 524 (1971), covering a contract of distributorship, it wasspecifically stipulated in the contract that all goods on consignment shall remain the property ofthe Company until sold by the Distributor to the purchaser or purchasers, but all sales made bythe Distributor shall be in his name; and that the Company at its own expense,was to keep theconsigned stock fully insured against loss or damage by fire or as a result of fire, the policy of


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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 anypurpose whatsoever. Distributor is not granted any right or authority to assume or to create anyobligation or responsibility, express or implied in behalf of or in the name of the Company, or tobind 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 themerchandise to the purported distributor, even though it was supposed to enter into salesagreements 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 tothe transferor as a debtor for the agreed price, and not merely as an agent who must account forthe proceeds of a resale, the transaction is a sale; while the essence of an agency to sell is thedelivery to an agent, not as his property, but as the property of the principal, who remains theowner and has the right to control the sale, fix the price, and terms, demand and receive theproceeds 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 anauthorization given to the buyer of goods to obtain them from the bailee for and in behalf ofthe bailor-seller does not necessarily establish an agency, since the intention of the parties wasfor the buyer to take possession and ownership over the goods with the decisive language in theauthorization being sold and endorsed.

InLim v. Court of Appeals, 254 SCRA 170 (1996), it was held that as a general rule, an agencyto sell on commission basis does not belong to any of the contracts covered by Articles 1357 and1358 of the Civil Code requiring them to be in a particular form, and not one enumerated underthe 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 inwhatever form it may be entered into.

The old decision inNational 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 todistinguish and set apart to the two transactions to determine the rights and liabilities of theparties.

InNational Ricea formal contract was entered into between the National Rice & Corn Corp.(NARIC) and the Davao Merchandising Corp. (DAMERCO), where they agreed thatDAMERCO would act as an agent of NARIC in exporting the quantity and kind of corn andrice 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; andwith DAMERCO agreeing to buy the aforementioned collateral goods. Although the corngrains were duly exported, the Government had issued rules banning the barter of goods fromabroad. NARIC then brought suit against DAMERCO seeking recovery of the price of theexported 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


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the shortfall considering that it had acted within the scope of its authority. The Court had agreedthat indeed the other half of the agreement whereby DAMERCO bound itself as the purchaserof the collateral goods to be imported from the proceeds of the sale of the corn and rice, was avalid and binding contract of sale, but for which DAMERCO could not be made to pay thepurchase price, because NARIC itself was no longer in a position to import any of such goods

into the country, by reason of force majeure, thus

It is clear that if after DAMERCO had spent big sums incident to carrying out the purpose of thecontract, the importation of the remaining collateral goods worth about US$480,000.00 could notbe effected due to suspension by the government under a new administration of bartertransactions, the NARIC (now Rice and Corn Administration) ought to make the necessaryrepresentations with the government to enable DAMERCO to import the said remainingcollateral goods. The contract, Exhibit A, has reciprocal stipulations which must be given forceand 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 inNational Ricewas able to segregate his role as merelyan agent of NARIC insofar as the export of the grains was concerned, and apply the doctrine thatan agent does not assume any personal obligation with respect to the subject matter of the agencynor of the proceeds thereof, his obligation being merely to turn-over the proceeds to the principalwhenever he receives them.National Ricealso demonstrate the progressivenature of everycontract of agency, in that it presents a pliable legal relationship which may be adopted into otherrelationships, such a contract of sale, to be able to achieve commercial ends.

e. From Broker

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

where the Court held that a broker is one who is engaged, for others, on a commission,negotiating contracts relative to property with the custody of which he has no concern; thenegotiator between other parties, never acting in his own name but in the name of those whoemployed him. . . . a broker is one whose occupation is to bring the parties together, in matters oftrade, commerce or navigation. (at p. 501) In other words, the services of a broker is to findthird parties who may be interested in entering into contracts with other parties over particularmatter, and may include negotiating in behalf of both parties the perfection of a contract, but thatthe actual perfection must still be done by the parties represented. A broker essentially is not anextension of the persons of the parties he is negotiating for.

InReyes v. Rural Bank of San Miguel, 424 SCRA 135 (2004), the Court held that unlike an agentwho must act in the name of the principal, a broker is one who is engaged for others on acommission to negotiate between other parties, never acting in his own name but in the name ofthose who employed him.

InPacific Commercial Co. v. Yatco, 63 Phil. 398 (1936), the Court ruled that a broker has norelation with the thing he has been retained to buy or to sell; he is merely an intermediarybetween the purchaser and the vendor. He acquires neither the custody nor the possession of thething he sells; his only office is to bring together the parties to the transaction.


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It must be noted though that a broker may at the same time be an agent. When he acts in hisbehalf in dealing with the public, even when he handles things pertaining to the principal, he is amere broker. On the other hand, if he is duly authorized to act in the name of the principal, thereis no doubt that the broker is also an agent. Thus, inAbacus Securities Corp. v. Ampil, 483SCRA 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, inDomingo v. Domingo, 42 SCRA 131 (1971), the Court held that theduties and liabilities of a broker to his employer are essentially those which an agent owes to hisprincipal. In such a situation, the decisive legal provisions to determine whether a broker hasviolated 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 theprincipal whatever he may have received by virtue of the agency, even though it may not beowning to the principal; and that an agent is responsible not only for fraud, but also fornegligence.[10] On the other hand, the Court also held inDomingo that The duty embodied in

Article 1891 of the New Civil Code will not apply if the agent or broker acted only as amiddleman with the task of merely bringing together the vendor and vendee, who themselvesthereafter will negotiate on the terms and conditions of the transaction. (at p. 140)

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

InLitonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), it was held that a real estate broker isone who negotiates the sale of real properties; his business, generally speaking, is only to find apurchaser who is willing to buy the land upon terms fixed by the owner. He has no authority tobind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of realproperty does not include an authority to sell. Thus, when the seller himself closes the sale with

the purchaser located by the broker, the seller is bound to pay the commission he has contractedwith the broker for merely finding the buyer.

It must be noted that the ruling inLitonjua, Jr.does not provide for a strict rule oncompensability of a broker, but like any other contract, its perfection is subject to the terms andconditions that have been agreed upon. The essence of the ruling inLitonjua, Jr.is that the mainservice 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 findersfee.

On the other hand, it is possible that the terms of the brokers contract is that it is not enough forthe 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 brokerfound the prospective buyer, but he must spend efforts at negotiating with the said person thatleads him to enter into a contract with the client, otherwise mere finding would not entitle thebroker to the fees agreed upon.

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


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InAraneta, Inc. v. Del Paterno, 91 Phil. 786 (1952), it was held that the prohibition in Article1491(2) of the Civil Code which renders an agent legally incapable of buying the properties ofhis principal connotes the idea of trust and confidence; and so where the relationship does notinvolve considerations of good faith and integrity the prohibition should not and does not apply.To come under the prohibition, the agent must be in a fiduciary relation with his principal.

The Court held that a broker does not come within the meaning of Article 1492, because he isnothing 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 notsell the property, but only to look for a buyer and the owner is to make the sale; he was not to fixthe price of the sale because the price had to be already fixed in his commission; he is not tomake the terms of payment because these, too, would be clearly specified in his commission. Infine, a broker is left no power or discretion whatsoever, which he could abuse to his advantageand to the owners prejudice.

(3) Brokers Entitlement to Commission

In quite a number of decisions, the Supreme Court has held that the determination of whetherone is an agent or a broker constitutes a critical factor of whether he would be entitled to thecommission stipulated in the contract.

Thus, in Tan v. Gullas, 393 SCRA 334 (2002), quoting from Schmid & Oberly, Inc. v. RJLMartinez 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 whichhe has no concern; the negotiator between other parties, never acting in his own name but in thename 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 Anagent receives a commission upon the successful conclusion of a sale. On the other hand, abroker earns his pay merely by bringing the buyer and the seller together, even if no sale iseventually 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 concludedthrough their efforts. (at p. 341)

Also, inHahn v. Court of Appeals, 266 SCRA 537 (1997), the Court held that Contrary to theappellate 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 bybringing the buyer and the seller together, even if no sale is eventually made. (at p. 549)

It must be noted that the entitlement of a broker or an agent to the commission depends really onthe wordings of the contract between them, and not really whether one is a broker or agent.

InPhil. Health-Care Providers (Maxicare) v. Estrada, 542 SCRA 616 (2008), the Court heldthat the term procuring cause in describing a brokers activity, refers to a cause originating aseries of events which, without break in their continuity, result in the accomplishment of theprime objective of the employment of the brokerproducing a purchaser ready, willing and able


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to buy on the owners terms. To be regarded as the procuring cause of a sale as to be entitled toa 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 theservices of the broker, for which he would be entitled to his fees, is not merely of finding the

prospective buyer.

But truly, since both a brokerage arrangement and an agency agreement are inherentlycontractual relations, the entitlement of a broker or agent to the compensation or commissionstipulated 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 acommission only when a sale is eventually made. In the same manner, the agency contract maywell stipulate that the agent shall be entitled to earn commission by merely bringing the buyerand the seller together, even when the actual sale of the person referred to by the agent happenslong after the agency relationship has terminated.

To illustrate, in Guardex v. NLRC, 191 SCRA 487 (1990), the Court held that when the terms of

the agency arrangement is to the effect that entitlement to the commission was contingent on thepurchase by a customer of a fire truck, the implicit condition being that the agent would earn thecommission if he was instrumental in bringing the sale about. Since the agent had nothing to dowith 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, thedecision shows that it quoted from the early decision of Behn, Meyer and Co., Ltd. v. Nolting andGarcia, 35 Phil. 274 (1916), where the Court held

A broker is generally defined as one who is engaged, for others, on a commission, negotiatingcontracts relative to property with the custody of which he has no concern; the negotiation

between other parties, never acting in his own name but in the name of those who employed him;he is strictly a middleman and for some purpose the agent of both parties. (19 Cyc., 186;Henderson vs. The State, 50 Ind., 234; Blacks Law Dictionary.) A broker is one whose

occupation it is to bring parties together to bargain, or to bargain for them, in matters of trade,commerce or navigation. (Mechem on Agency, sec. 13; Wharton on Agency, sec. 695). JudgeStorey, in his work on Agency, defines a broker as an agent employed to make bargains andcontracts between other persons, in matters of trade, commerce or navigation, for compensationcommonly called brokerage. (Storey on Agency, sec. 28) (at p. 279-280)

Note therefore that broker is considered a commercial term for a person engaged as a

middleman to bring parties together in matters pertaining to trade, commerce or navigation. If theperson has not been given the power to enter into the contract or commerce in behalf of theparties, 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 assumethe role of an agent because he has no power to enter into a contract in behalf of any of theparties; he also assumes no fiduciary obligations to either or both parties, since they are expectedto use their own judgment in deciding to bind or not to bind themselves to a contract.


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On the other hand, if the person has been given the power to enter into a contract or commerceon behalf of any, or even for both the parties, he is truly an agent. In which case, he assumesfiduciary obligations to the person who is therefore legally his principal. In such case, he isentitled to a commission if his efforts (i.e.,the services he rendered) where the efficient cause forthe eventual perfection and consummation of the contract that was the object for appointing him

broker/agent.

oOo

________________________________________[1]See Chemphil Export v. Court of Appeals, 251 SCRA 217 (1995); Shoppers Paradise Realtyv. Roque, 419 SCRA 93 (2004);Dominion Insurance Corp. v. Court of Appeals, 426 SCRA 620,626 (2002);Republic v. Evangelista, 466 SCRA 544 (2005);Litonjua, Jr. v. Eternit Corp., 490SCRA 204 (2006);Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007).

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

(1991).

[3]DE LEON AND DE LEON, COMMENT AND CASES ON PARTNERSHIP AGENCYAND TRUSTS, 2005 ed., at p. 356; hereinafter referred to as DE LEONS.

[4]Reiterated in Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007).

[5]See also Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).

[6]Citing Bordador v. Luz, 283 SCRA 374, 382 (1997).

[7]ROSCOE T. STEFFEN, AGENCY-PARTNERSHIP IN A NUSTSHELL (1977) 30-31.

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

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

[10]Citing12 Am. Jur. 2d 835; 134 ALR 1346; 1 ALR 2d 987;Brown vs. Coates, 67 ALR 2d943;Haymes vs. Rogers,17 ALR 2d 896;Moore vs. Turner, 32 ALR 2d 713.

- End of Footnotes -

II. FORM REQUIRED FOR CONTRACTS OF AGENCY

2. Forms Required of Agency

a. How Agency May Be Constituted
http://deanclvonagency.weblog.com/2008/8/II-FORM-REQUIRED-FOR-CONTRACTS-OF-AGENCY.htmlhttp://deanclvonagency.weblog.com/2008/8/II-FORM-REQUIRED-FOR-CONTRACTS-OF-AGENCY.htmlhttp://deanclvonagency.weblog.com/2008/8/II-FORM-REQUIRED-FOR-CONTRACTS-OF-AGENCY.html


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Article 1869 of the Civil Code emphasizes the consensual nature of the contract of agency, as itprovides that Agency may be express, or implied from the acts of the principal, from his silence

or lack of action, or his failure to repudiate the agency, knowing that another person is acting onhis behalf without authority. Agency may be oral, unless the law requires a specific form. This

principle is reiterated under Article 1870, which provides that Acceptance by the agent may

also be express, or implied from his acts which carry out the agency, or from his silence orinaction according to the circumstances.

Equitable PCI-Bank v. Ku, 355 SCRA 309 (2001), held that an agency may be express but it mayalso be implied from the acts of the principal, from his silence, or lack of action or his failure torepudiate the agency knowing that another person is acting on his behalf without authority.Likewise, acceptance by the agent may also be express, although it may also be implied from hisacts which carry out the agency, or from his silence or inaction according to the circumstances.Thus, when a law firm allowed the employee of its client to occasionally receive its mail, and nothaving formally objected to the receipt by said employee of a court process, or taken any steps toput a stop to it, it was construed to mean that an agency relationship had been established, to

which receipt of the court process by said employee was legally deemed to be service to the lawfirm.

InLim v. Court of Appeals, 254 SCRA 170 (1996), the Court noted that there are someprovisions of law which require certain formalities for particular contract: the first is when theform is required for the validity of the contract; the second is when it is required to make thecontract effective as against third parties such as those mentioned in Article 1357 and 1358 of theCivil Code; and the third is when the form is required for the purpose of proving the existence ofthe contract, such as those provide in the Statute of Frauds in Article 1403. Since a contract ofagency to sell pieces of jewelry on commission does not fall into any of the three categories, itwas considered valid and enforceable in whatever form it may have been entered into.

(1) From the Side of the Pri ncipal

On the side of the principal, Article 1869 of the Civil Code provides that an agency is impliedlyconstituted (i.e.,principal has given his consent to the agency arrangement) from his actsformally adopting it, or from his silence or inaction, or particularly from his failure to repudiatethe agency knowing someone is acting in his name. Certainly, the ideal form by which theprincipal is deemed to have entered into a contract of agency is when he issues a written powerof attorney to the person designated as agent.

(2) From the Side of the Agent

On the side of the agent, Article 1870 of the Civil Code provides that his acceptance of theagency (i.e.,agent has given his consent to the agency arrangement) may be expressed, orimplied from his acts which carry out the agency, or from his silence or inaction according to thecircumstances.

(3) Various Instances of Perfection of the Contract of Agency


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Under Article 1871 of the Civil Code, which describes the most ideal form of perfection of thecontract of agency, when the constitution of the agency is made with both principal and agentbeing physically present at the time of perfection of the contract of agency (i.e., Betweenpersons who are present), the acceptance of the agency may be implied if the principal delivers

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

On the other hand, under Article 1872 of the Civil Code, when the constitution of the agency ismade with the principal and agent not being physically present in one place (i.e., Betweenpersons who are absent), then there can be no implied acceptance of the agency from thesilence or inaction of the agent, except in two instances:

(a) When the principal transmithis power of attorney to the agent (i.e., it is in writing?), whoreceives it without any objection; or

(b) When the principal entrusts to the agent by letter or telegram a power of attorney with respectto the business in which he is habitually engaged as an agent,and he did not reply to the letter or

telegram.

The languages used in Articles 1871 and 1872 indicate that the power of attorney mustconstitute a written instruments, because in both cases the articles refer to situations where the

principal delivers his power of attorney to the agent, and when the principal transmits hispower of attorney to the agent, which requires that it must be in writing, which today wouldinclude texting and electronic mail, which are considered to be equivalent to a written instrumentunder the Electronic Commerce Law. Consequently, when the other provisions of the Law onAgency refer to general power of attorney and special power of attorney, does the lawmeanthat they conform to the rudimentary requirement that they be in writing?

(4) From the Side of Thi rd Parti es/Public

The previous rules on when a contract of agency is deemed constituted (i.e.,perfected) are takenfrom the intramural point of view: as between the parties to the contract of agency. However, acontract of agency is merely a preparatory contract, and is meant to achieve goals beyond its ownbeing; consequently, the Law on Agency contained in the Civil Code provides for additional

rule that addresses most essentially the targets of every contract of agency: the third partiesintended to be contracted with by the agent in behalf of the principal.

Under Article 1873 of the Civil Code, when the principal informs another person that he hasgiven a power of attorney to a third person (the agent), the latter thereby becomes a dulyauthorized agent with respect to the person who received the special information. The clearimplication is that even when in fact there has been no meeting of the minds between thepurported principal and agent (i.e., there is strictly speaking no contract of agency), there isdeemed to have arisen one with respect to the third party who has been so informed by theprincipal.

On the other hand, when the principal states by public advertisement that he has given a power ofattorney to a particular individual (the agent), the latter thereby becomes a duly authorized agent


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with regard to any person. And it is specifically provided in said article that [t]he power [of the

agent] shall continue to be in full force until the notice is rescinded in the same manner in whichit was given.

Thus, under Article 1921 of the Civil Code, if the agency has been entrusted for the purpose of

contracting with specific persons (referred to as special agency), the revocation of the agencyshall not prejudice the latter if they were not given notice thereof. Under Article 1922, if theagent had been granted general powers (referred to as general agency), the revocation of the

agency will not prejudice third persons who acted in good faith and without knowledge of therevocation; however, notice of the revocation in a newspaper of general circulation constitutessufficient notice to bind third persons.

InRallos v. Yangco, 20 Phil 269 (1911), the Court held that a long-standing client, acting in goodfaith and without knowledge, having sent goods to sell on commission to the former agent of thedefendant, could recover from the defendant, when no previous notice of the termination ofagency was given said client. The Court emphasized that having advertised the fact that

Collantes was his agent and having given special notice to the plaintiff of that fact, and havinggiven them a special invitation to deal with such agent, it was the duty of the defendant on thetermination of the relationship of principal and agent to give due and timely notice thereof to theplaintiffs. Failing to do so, the defendant was held responsible to them for whatever goods mayhave been in good faith and without negligence sent to the agent without knowledge, actual orconstructive, of the termination of such relationship.

In Conde v. Court of Appeals, 119 SCRA 245 (1982), the Court held that when the right ofredemption by sellers-a-retro is exercised by their son-in-law who was given no expressauthority to do so, and the buyer-a-retro accepted the exercise and done nothing for the next tenyears to clear their title of the annotated right of repurchase on their title, and possession had

been given to the sellers-a-retro during the same period, then an implied agency must be held tohave been created from their silence or lack of action, or their failure to repudiate the agency.

(5) Agency Not Presumed to Exist

Although an agency contract is consensual in nature and generally requires no formality, theCourt has stressed that an agency arrangement is never presumed.Lopez v. Tan Tioco, 8 Phil.693 (1907). In other words, the declaration of one that he is an agent of another is never to beaccepted at face value, except in those cases where an agency arises by express provision of law.Compania Maritima v. Limson, 141 SCRA 407 (1986).

InPeople v. Yabut,76 SCRA 624 (1977), it was held that although the perfection of a contract ofagency may take an implied form, the existence of an agency relationship is never presumed.The relationship of principal and agent cannot be inferred from mere family relationship; for therelation to exist, there must be consent by both parties. The law makes no presumption ofagency; it must exist as a fact. This principle was reiterated inReiterated in Lim v. Court ofAppeals, 251 SCRA 408 (1995).


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InHarry E. Keeler Elec . Co. v. Rodriguez, 44 Phil. 19 (1922), the Court ruled that a third personmust act with ordinary prudence and reasonable diligence to ascertain whether the agent is actingand dealing with him within the scope of his powers. Obviously, if he knows or has good reasonto believe that the agent is exceeding his authority, he cannot claim protection. So, if thecharacter assumed by the agent is of such a suspicious or unreasonable nature, or if the authority

which he seeks is of such an unusual or improbable character, as would suffice to put anordinarily prudent man upon his guard, the party dealing with him may not shut his eyes to thereal state of the case but should withal refuse to deal with the agent at all, or should ascertainfrom the principal the true condition of affairs.

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

The basis for agency is representation. Here, there is no showing that Brigida consented to theacts of Deganos or authorized him to act on her behalf, much less with respect to the particulartransactions involved. Petitioners attempt to foist liability on respondent spouses through the

supposed agency relation with Deganos is groundless and ill-advised. Besides, it was grossly and

inexcusably negligent of petitioners to entrust to Deganos, not once or twice but on at least sixoccasions as evidenced by six receipts, several pieces of jewelry of substantial value withoutrequiring a written authorization from his alleged principal. A person dealing with an agent is putupon inquiry and must discover upon his peril the authority of the agent. (at p. 382)

InDizon v. Court of Appeals, 302 SCRA 288 (1999), the Court held that a co-owner does notbecome an agent of the other co-owners, and therefore, any exercise of an option to buy a pieceof land transacted with one co-owner does not bind the other co-owners of the land. The basis foragency is representation and a person dealing with an agent is put upon inquiry and mustdiscover upon his peril the authority of the agent. Since there was no showing that the other co-owners consented to the act of one co-owner nor authorized her to act on their behalf with regard

to her transaction with purported buyer. The most prudent thing the purported buyer should havedone was to ascertain the extent of the authority said co-owner; being negligent in this regard,the purported buyer cannot seek relief on the basis of a supposed agency.

On the other hand, under Article 1873 of the Civil Code provides that the declaration of a personthat he has appointed another as his agent is deem to have constituted the person alluded to as anagent (even when the latter is unaware), insofar as the person to whom such declaration has beenmade. What is clear therefore is that third parties must never take the words or representation ofthe purported agent at face value; they are mandated to apprise themselves of the commissionand extent of powers of the purported agent. On the other hand, third parties (to the contract ofagency) can take the word, declaration and representation of the purported principal with respectto the appointment of, and extent of powers, of the purported agent. The principle is self-evidentfrom the nature of agency as a relation of representationthat an agent acts as though he werethe principaland therefore if the principal himself says so, then it is taken at face value as acontractual commitment.

b. Agency by Estoppel


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Under Article 1873 of the Civil Code, if a person specially informs another or states by publicadvertisement that he has given a power of attorney to a third person, the latter thereby becomesa duly authorized agent, even if previously there was never a meeting of minds between them.

Under Article 1911 of the Civil Code, even when the agent has exceeded his authority (i.e.,he

acts without authority from the principal), the principal shall be solidarily with the agent if heallowed the agent to act as though he had full powers.

InMacke v. Camps, 7 Phil 553 (1907), where the owner of a hotel/cafe business allowed aperson to use the title managing agent and during his prolonged absences allowed such person

to take charge of the business, performing the duties usually entrusted to managing agent, thensuch owner is bound by the act of such person. The Court held that

One who clothes another apparent authority as his agent, and holds him out to the public assuch, can not be permitted to deny the authority of such person to act as his agent, to theprejudice of innocent third parties dealing with such person in good faith and in the following

pre-assumptions or deductions, which the law expressly directs to be made from particular facts,are deemed conclusive. (at p. 555)

The hotel owner was deemed bound by the contracts entered into by said managing agent that arewithin the scope of authority pertinent to such position, including the purchasing such reasonablequantities of supplies as might from time to time be necessary in carrying on the business ofhotel bar.

InNaguiat v. Court of Appeals, 412 SCRA 592 (2003), the Court applied the provisions ofArticle 1873 of the Civil Code to rule that if by the interaction between a purported principal anda purported agent in the presence of a third person, the latter was given the impression of the

existence of a principal-agency relation, and the purported principal did nothing to correct thethird persons impression, an agency by estoppel is deemed to have been constituted, and therule is clear: one who clothes another with apparent authority as his agent, and holds him out tothe public as such, cannot be permitted to deny the authority of such person to act as his agent, tothe prejudice of innocent third parties dealing with such person in good faith, and in the honestbelief that he is what he appears to be. (at p. 599)

InLitonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006), the Court held that for an agency byestoppel to exist, the following must be established:

(a) the principal manifested a representation of the agents authority or knowingly allowed theagent to assume such authority;

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

(c) relying upon such representation, such third person has changed his position to his detriment.An agency by estoppel, which is similar to the doctrine of apparent authority, requires proof ofreliance upon the representations, and that, in turn, needs proof that the representations predatedthe action taken in reliance.


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Dean c Villanueva

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