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1) EUROTECH INDUSTRIAL TECHNOLOGIES, INC. v.

CUIZON
G.R. No. 167552; April 23, 2007
Definition of Agency
FACTS: From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to P91,338.00 pesos.
Subsequently, respondents sought to buy from petitioner one unit of sludge pump valued at P250,000.00 with respondents making a
down payment of P50,000.00. When the sludge pump arrived from the United Kingdom, petitioner refused to deliver the same to
respondents without their having fully settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto
de Jesus, general manager of petitioner, executed a Deed of Assignment of receivables in favor of petitioner. Impact systems is owned
by ERWIN Cuizon.
Despite the existence of the Deed of Assignment, respondents proceeded to collect from Toledo Power Company the amount of
P365,135.29. Alarmed by this development, petitioner made several demands upon respondents to pay their obligations. As a result,
respondents were able to make partial payments to petitioner. On 7 October 1996, petitioner's counsel sent respondents a final demand
letter wherein it was stated that as of 11 June 1996, respondents' total obligations stood at P295,000.00 excluding interests and
attorney's fees. Because of respondents' failure to abide by said final demand letter, petitioner instituted a complaint for sum of
money, damages, with application for preliminary attachment against herein respondents.
By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in interest in this case. According to
him, he was acting as mere agent of his principal, which was the Impact Systems, in his transaction with petitioner and the latter was
very much aware of this fact.
Trial court directs that defendant Edwin B. Cuizon be dropped as party defendant. Petitioner brought the matter to the Court of
Appeals which, however, affirmed the order of the court a quo. Hence, this petition.
ISSUES:

1) WON the act of Edwin in signing the Deed of Assignment binds his principal Impact Systems.
2) WON Edwin exceeded his authority when he signed the Deed of Assignment thereby binding himself personally to pay
the obligations to petitioner.
HELD:

1)

Yes, the act of Edwin in signing the Deed of Assignment binds Impact Systems. The Supreme Court held that in a
contract of agency, a person binds himself to render some service or to do something in representation or on
behalf of another with the latter's consent. 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. 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.

The elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the
object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for
himself; (4) the agent acts within the scope of his authority.
In this case at hand, the parties do not dispute the existence of the agency relationship between respondents ERWIN as principal
and EDWIN as agent.

2) No.

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. We hold that respondent EDWIN does not fall within any of the exceptions contained in this provision.

The powers of an agent are particularly broad in the case of one acting as a general agent or manager; such a position presupposes
a degree of confidence reposed and investiture with liberal powers for the exercise of judgment and discretion in transactions and
concerns which are incidental or appurtenant to the business entrusted to his care and management. In the absence of an
agreement to the contrary, a managing agent may enter into any contracts that he deems reasonably necessary or requisite for the
protection of the interests of his principal entrusted to his management.
Applying the foregoing to the present case, we hold that EDWIN Cuizon acted well-within his authority when he signed the Deed
of Assignment.

2) Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978)
G.R. No. L-24332

January 31, 1978

Elements of the Contract of Agency; Death of the Principal


FACTS: Sisters Concepcion and Gerundia Rallos were registered co-owners of a parcel of land and who executed a special power of
attorney in favor of their brother, Simeon Rallos, authorizing him to sell for and in their behalf the said parcel of land. Concepcion
Rallos died. Subsequently, Simeon Rallos sold the undivided shares of his sisters Concepcion and Gerundia to Felix Go Chan & Sons
Realty Corporation. The deed of sale was registered in the Registry of Deeds of Cebu and a new transfer certificate of title was issued
in the name of the vendee.
Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a complaint with the Court of First Instance of Cebu,
praying (1) that the sale of the undivided share of the deceased Concepcion Rallos be unenforceable, and said share be reconveyed to
her estate; (2) that the certificate of title issued in the name of Felix Go Chan & Sons Realty Corporation be cancelled and another title
be issued in the names of the corporation and the "Intestate estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be
indemnified by way of attorney's fees and payment of costs of suit.
The trial court granted the relief prayed for, but upon appeal the Court of Appeals uphold the validity of the sale and the complaint.
Hence, this Petition for Review on certiorari.
ISSUE: WON the sale of the undivided share of Concepcion Rallos in a parcel of land was valid although it was executed by the
agent after the death of his principal.
HELD: The Court ruled that the sale was null and void insofar as the one-half pro-indiviso share of Concepcion Rallos in the
property in question. 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 the 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, caged the
principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in transactions with third persons.
The essential elements of agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2) the
object is the execution of a juridical act in relation to a third person; (3) the agents acts as a representative and not for himself,
and (4) the agent acts within the scope of his authority. Agency is basically personal representative, and derivative in nature. The
authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within
the scope of the authority.
There are various ways of extinguishing agency, but here we are concerned only with one cause death of the principal under
Paragraph 3 of Art. 1919 of the Civil Code. Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule as
provided for in Art. 1919:
ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if it has been constituted in
the common interest of the latter and of the agent, or in the interest of a third person who has accepted the stipulation in his
favor.
ART. 1931. Anything done by the agent, without knowledge of the death of the principal or of any other cause which
extinguishes the agency, is valid and shall be fully effective with respect to third persons who may have contracted with him
in good faith.
Article 1930 is not involved because admittedly the special power of attorney executed in favor of Simeon Rallos was not coupled
with an interest. Under Article 1931, an act done by the agent after the death of his principal is valid and effective only under two
conditions, viz: (1) that the agent acted without knowledge of the death of the principal and (2) that the third person who
contracted with the agent himself acted in good faith. Good faith here means that the third person was not aware of the death of the
principal at the time he contracted with said agent. These two requisites must concur the absence of one will render the act of the agent
invalid and unenforceable. In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his
principal at the time he sold the latter's share to respondent corporation. On the basis of the established knowledge of Simon Rallos
concerning the death of his principal Concepcion Rallos, Article 1931 of the Civil Code is inapplicable.
IN VIEW OF ALL THE FOREGOING, we set aside the decision of respondent appellate court, and we affirm en toto the judgment
rendered by then Hon. Amador E. Gomez of the Court of First Instance of Cebu, with costs against respondent realty corporation at all
instances.

3) Inland Realty v. Court of Appeals, 273 SCRA 70 (1997)


G.R. No. 76969
June 9, 1997
Entitlement of Agent to Commission
FACTS: Plaintiff Inland Realty Investment Service, Inc. is a corporation engaged in, among others, the real estate business and
brokerages, duly licensed by the Bureau of Domestic Trade. Inland Realty planned their sales campaign, sending proposal letters to
prospective buyers. Defendant corporation, Gregorio Araneta, Inc., thru its co-defendant Assistant General Manager J. Armando
Eduque, granted to plaintiff a 30-day authority to sell its 9,800 shares of stock in Architects' Bldg., Inc.
One such prospective buyer to whom a proposal letter was sent to was Stanford Microsystems, Inc. that counter-proposed to buy 9,800
shares offered at P1,000 per share or for a total of P9.8 million, P4.9 million payable in five years at 12% per annum interest until fully
paid. Upon plaintiffs' receipt of the said counter-proposal, it immediately [sic] wrote defendant a letter to register Stanford
Microsystems, Inc. as one of its prospective buyers. Defendant Araneta, Inc., thru its Assistant General Manager J. Armando Eduque,
replied that the price offered by Stanford was too low and suggested that plaintiffs see if the price and terms of payment can be
improved upon by Stanford. Other prospective buyers were submitted to defendants.
The authority to sell given to plaintiffs by defendants was extended several times: the first being on October 2, 1975, for 30 days from
said date, the second on October 28, 1975 for 30 days from said date and on December 2, 1975 for 30 days from said date. On July 8,
1977, plaintiffs finally sold the 9,800 shares of stock in Architects' Bldg., Inc. to Stanford Microsystems, Inc. for P13.5 million. On
September 6, 1977, plaintiffs demanded formally from defendants, through a letter of demand, for payment of their 5% broker's
commission at P13.5 million or a total amount of P675,000, which was declined by defendants on the ground that the claim has no
factual or legal basis.
Ascribing merit to private respondents' defense that, after their authority to sell expired thirty (30) days from December 2, 1975, or on
January 1, 1976, petitioners abandoned the sales transaction and were no longer privy to the consummation and documentation
thereof, the trial court dismissed petitioners' complaint for collection of unpaid broker's commission. Petitioners appealed, but the
Court of Appeals was unswayed in the face of evidence of the expiration of petitioners' agency contract and authority to sell. Hence,
this petition.
ISSUE: WON the petitioners are automatically entitled to brokers commission merely upon securing for and introducing a buyer to
the seller regardless their agency contract and authority to sell had expired.
HELD: The Court affirmed the lower courts dismissal of petitioners' claim for unpaid brokerage commission. It is understandable,
though, why petitioners have resorted to a campaign for an automatic and blanket entitlement to brokerage commission upon doing
nothing but submitting to private respondent Araneta, Inc., the name of Stanford as prospective buyer of the latter's shares in
Architects'. Of course petitioners would advocate as such because precisely petitioners did nothing but submit Stanford's name as
prospective buyer. 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. They admit that they could not dissuade Stanford from haggling for the price of
P1,000 per share with the balance of 50% of the total purchase price payable in five (5) years at 12% interest per annum. From
September 16, 1975 to January 1, 1976, when petitioners' authority to sell was subsisting, if at all, petitioners had nothing to show that
they actively served their principal's interests, pursued to sell the shares in accordance with their principal's terms and conditions, and
performed substantial acts that proximately and causatively led to the consummation of the sale to Stanford of Araneta, Inc.'s 9,800
shares in Architects'.
The Court of Appeals cannot be faulted for emphasizing the lapse 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 Stanford, to be a significant index of petitioners' nonparticipation in the really critical events leading to the consummation of said sale, i.e., the negotiations to convince Stanford 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 Stanford. Certainly, when 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, is viewed in the
context of the utter lack of evidence of petitioners' involvement in the negotiations between Araneta, Inc. and Stanford during that
period and in the subsequent processing of the documents pertinent to said sale, it becomes undeniable that the respondent Court of
Appeals did not at all err in affirming the trial court's dismissal of petitioners' claim for unpaid brokerage commission.
4) Doles v. Angeles, 492 SCRA 607 (2006)
G.R. No. 149353
June 26, 2006
Agency is a Preparatory Contract
FACTS: In 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific Performance with Damages
against Jocelyn B. Doles (petitioner) alleging that petitioner was indebted to the former in the concept of a personal loan amounting to
P405,430.00 representing the principal amount and interest. Petitioner, then respondent, while admitting some allegations in the
Complaint, denied that she borrowed money from respondent, and averred that from June to September 1995, she referred her friends

to respondent whom she knew to be engaged in the business of lending money in exchange for personal checks through her capitalist
Arsenio Pua. She alleged that her friends borrowed money from respondent and issued personal checks in payment of the loan but the
checks bounced. In order to collect money, the respondent then threatened to initiate a criminal case against her for violation of Batas
Pambansa Blg. 22; that she was forced by respondent to execute an "Absolute Deed of Sale" over her property in Bacoor, Cavite, to
avoid criminal prosecution, that the sale was void for lack of consideration. Further, petitioner contended that since the respondent is
also an agent, she does not have the capacity to sue her. It is an admitted fact by both petitioner and defendant, based on their
testimonies, that respondent knew that the money will be used by the friends of the petitioner; that the respondent was merely
representing Arsenio Pua; and that before the supposed friends of the petitioner defaulted in payment, each issued their personal
checks in the name of Arsenio Pua for the payment of their debt.
ISSUE: Whether or not petitioner and respondent were acting on their personal capacity or as mere agents.
RULING: NO. In view of the two agency relationships, petitioner and respondent are not privy to the contract of loan between their
principals. Since the sale is predicated on that loan, then the sale is void for lack of consideration.
Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of a price certain in money and that this
sum indisputably pertains to the debt in issue. This Court has consistently held that a contract of sale is null and void and produces no
effect whatsoever where the same is without cause or consideration. The question that has to be resolved for the moment is whether
this debt can be considered as a valid cause or consideration for the sale.
To restate, the CA cited four instances in the record to support its holding that petitioner "re-lends" the amount borrowed from
respondent to her friends: first, the friends of petitioner never presented themselves to respondent and that all transactions were made
by and between petitioner and respondent; second; the money passed through the bank accounts of petitioner and respondent; third,
petitioner herself admitted that she was "re-lending" the money loaned to other individuals for profit; and fourth, the documentary
evidence shows that the actual borrowers, the friends of petitioner, consider her as their creditor and not the respondent. On the first,
third, and fourth points, the CA cites the testimony of the petitioner, then defendant, during her cross-examination:
Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua, her disclosed principal. She is also estopped to
deny that petitioner acted as agent for the alleged debtors, the friends whom she (petitioner) referred.
This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is representation. The question of whether an
agency has been created is ordinarily a question which may be established in the same way as any other fact, either by direct or
circumstantial evidence. The question is ultimately one of intention. Agency may even be implied from the words and conduct of the
parties and the circumstances of the particular case. Though the fact or extent of authority of the agents may not, as a general rule, be
established from the declarations of the agents alone, if one professes to act as agent for another, she may be estopped to deny her
agency both as against the asserted principal and the third persons interested in the transaction in which he or she is engaged.
In this case, petitioner knew that the financier of respondent is Pua; and respondent knew that the borrowers are friends of petitioner.
The CA is incorrect when it considered the fact that the "supposed friends of [petitioner], the actual borrowers, did not present
themselves to [respondent]" as evidence that negates the agency relationship it 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.
In the case at bar, both petitioner and respondent have undeniably disclosed to each other that they are representing someone else, and
so both of them are estopped to deny the same. It is evident from the record that petitioner merely refers actual borrowers and then
collects and disburses the amounts of the loan upon which she received a commission; and that respondent transacts on behalf of her
"principal financier", a certain Arsenio Pua. If their respective principals do not actually and personally know each other, such
ignorance does not affect their juridical standing as agents, especially since the very purpose of agency is to extend the personality of
the principal through the facility of the agent.
With respect to the admission of petitioner that she is "re-lending" the money loaned from respondent to other individuals for profit, it
must be stressed that the manner in which the parties designate the relationship is not controlling. 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.
The question is to be determined by the fact that one represents and is acting for another, and if relations exist which will constitute an
agency, it will be an agency whether the parties understood the exact nature of the relation or not.
That both parties acted as mere agents is shown by the undisputed fact that the friends of petitioner issued checks in payment of the
loan in the name of Pua. If it is true that petitioner was "re-lending", then the checks should have been drawn in her name and not
directly paid to Pua. With respect to the second point, particularly, the finding of the CA that the disbursements and payments for the
loan were made through the bank accounts of petitioner and respondent, suffice it to say that in the normal course of commercial
dealings and for reasons of convenience and practical utility it can be reasonably expected that the facilities of the agent, such as a
bank account, may be employed, and that a sub-agent be appointed, such as the bank itself, to carry out the task, especially where

there is no stipulation to the contrary.


5) Shell Co. v. Firemens Insurance of Newark, 100 Phil. 757 (1957)
G.R. No. L-8169
January 29, 1957
Agency differentiated from Management Agreement
FACTS: In the afternoon of September 3, 1947, an automobile belonging to the plaintiff Salvador Sison was brought by his son,
Perlito Sison, to the gasoline and service station at the corner of Marques de Comillas and Isaac Peral Streets, City of Manila,
Philippines, owned by the defendant The Shell Company of the Philippine Islands, Limited, but operated by the defendant Porfirio de
la Fuente, for the purpose of having said car washed and greased for a consideration of P8.00. Said car was insured against loss or
damage by Firemen's Insurance Company of Newark, New Jersey, and Commercial Casualty Insurance Company jointly for the sum
of P10,000.
The job of washing and greasing was undertaken by defendant Porfirio de la Fuente through his two employees, Alfonso M. Adriano,
as greaseman and one surnamed de los Reyes, a helper and washer. To perform the job, the car was carefully and centrally placed on
the platform of the lifter in the gasoline and service station aforementioned before raising up said platform to a height of about 5 feet
and then the servicing job was started. After more than one hour of washing and greasing, the job was about to be completed except
for an ungreased portion underneath the vehicle which could not be reached by the greasemen. So, the lifter was lowered a little by
Alfonso M. Adriano and while doing so, the car for unknown reason accidentally fell and suffered damage to the value of P1, 651.38.
The insurance companies after paying the sum of P1,651.38 for the damage and charging the balance of P100.00 to Salvador Sison in
accordance with the terms of the insurance contract, have filed this action together with said Salvador Sison for the recovery of the
total amount of the damage from the defendants on the ground of negligence. The defendant Porfirio de la Fuente denied negligence
in the operation of the lifter in his separate answer and contended further that the accidental fall of the car was caused by unforseen
event.
The Court of Appeals reversed the decision of the Court of First Instance of Manila and sentenced the defendants-appellees to pay,
jointly and severally. In arriving at its conclusion, the Court of Appeals found that the operator, de la Fuente, was an agent of the
company, The Shell Company, and not an independent contractor.
ISSUE: WON de la Fuente is a mere agent of defendant company, The Shell Company.
HELD: Yes. De la Fuente was the operator of the station "by grace" of the Defendant Company which could and did remove him as
it pleased; that all the equipment needed to operate the station was owned by the Defendant Company which took charge of their
proper care and maintenance, despite the fact that they were loaned to him; that the Defendant company did not leave the fixing of
price for gasoline to De la Fuente; on the other hand, the Defendant company had complete control thereof; and that Tiongson, the
sales representative of the Defendant Company, had supervision over De la Fuente in the operation of the station, and in the sale of
Defendant Company's products exclusively at the said Station. For this purpose, De la Fuente was placed in possession of the gasoline
and service station under consideration, and was provided with all the equipment needed to operate it, by the said Company, such as
the tools and articles, which the hydraulic lifter (hoist) and accessories, from which Sison's automobile fell on the date in question.
These equipment were delivered to De la Fuente on a so-called loan basis. The Shell Company took charge of its care and
maintenance and rendered to the public or its customers at that station for the proper functioning of the equipment.
Taking into consideration the fact that the operator owed his position to the company and the latter could remove him or terminate his
services at will; 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; that an employee of the company supervised the operator and conducted periodic
inspection of the company's gasoline and service station; that the price of the products sold by the operator was fixed by the company
and not by the operator; and that the receipt signed by the operator indicated that he was a mere agent, the finding of the Court of
Appeals that the operator was an agent of the company and not an independent contractor should not be disturbed.
As the act of the agent or his employees acting within the scope of his authority is the act of the principal, the breach of the
undertaking by the agent is one for which the principal is answerable. Moreover, the company undertook to "answer and see to it that
the equipment are in good running order and usable condition;" and the Court of Appeals found that the Company's mechanic failed to
make a thorough check up of the hydraulic lifter and the check up made by its mechanic was "merely routine" by raising "the lifter
once or twice and after observing that the operator was satisfactory, he (the mechanic) left the place." The latter was negligent and the
company must answer for the negligent act of its mechanic which was the cause of the fall of the car from the hydraulic lifter.
The judgment under review is affirmed, with costs against the petitioner.
6) Quiroga v. Parsons, 38 Phil. 501 (1918)
G.R. No. L-11491
August 23, 1918

Agency differentiated from Sale


Doctrine: Contract of Agency to Sell vs Contract of Sale
FACTS: On Jan 24, 1911, plaintiff and the respondent entered into a contract making the latter an agent of the former. The contract
stipulates that Don Andres Quiroga, here in petitioner, grants exclusive rights to sell his beds in the Visayan region to J. Parsons. The
contract only stipulates that J.Parsons should pay Quiroga within 6 months upon the delivery of beds. Quiroga files a case against
Parsons for allegedly violating the following stipulations: not to sell the beds at higher prices than those of the invoices; to have an
open establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement
expenses for the same; and to order the beds by the dozen and in no other manner. With the exception of the obligation on the part of
the defendant to order the beds by the dozen and in no other manner, none of the obligations imputed to the defendant in the two
causes of action are expressly set forth in the contract. But the plaintiff alleged that the defendant was his agent for the sale of his beds
in Iloilo, and that said obligations are implied in a contract of commercial agency. The whole question, therefore, reduced itself to a
determination as to whether the defendant, by reason of the contract hereinbefore transcribed, was a purchaser or an agent of the
plaintiff for the sale of his beds.
ISSUE: Whether the contract is a contract of agency or of sale.
HELD: The Supreme Court held that the contract by and between the plaintiff and the defendant was one of purchase and sale, and
that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by
law.

1. Essential clauses given due regard to classify a contract; Contract of purchase and sale
In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, the clauses,
constituting its cause and subject matter, are precisely the essential features of a contract of purchase and sale. There was the
obligation on the part of Quiroga to supply the beds, and, on the part of Parson, to pay their price. 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,
here turns it. By virtue of the contract between Quiroga and Parson, 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.

2. Commission on sale merely a discount, other clauses are not incompatible with contract of purchase and sale
The contract by and between the defendant and the plaintiff is one of purchase and sale. Besides the clause made in the basis of a
commission on sales, none of the other clauses of the contract is found to substantially support Quirogas contention. None of
these conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else than a
mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only
one that could sell Quirogas beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that
they are not incompatible with the contract of purchase and sale.

3. Classification of a contract defined by law, and not one called by the parties
The agreements contained in the document that has been drafted, constitute a contract of purchase and sale, and not one of
commercial agency. In the classification of the contract, it must be understood that a contract is what the law defines it to be, and
not what it is called by the contracting parties.

4. Acts subsequent to contract suppletory, not considered when essential agreements are set forth in the contract
The acts of the parties merely show that, on the part of each of them, there was mutual tolerance in the performance of the
contract in disregard of its terms; and it gives no right to have the contract considered, not as the parties stipulated it, but as they
performed it. Only the acts of the contracting parties, subsequent to, and in connection with, the execution of the contract, must be
considered for the purpose interpreting the contract, when such interpretation is necessary, but not when, as in the instant case, its
essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another.

5. Effect of breach, and effect of subsequent consent to such breach


In respect to the defendants obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its

breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditions; but if the
plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant was one of purchase and
sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by
agreement or by law.
Schmid and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988)
agency differentiated from broker

Schmid and Oberly, Inc. v. RJL Martinez Fishing Corp.


G.R. No. 75198
October 18, 1988
Facts:
There was a misapprehension of facts in the RTC and CA, so SC reopened
the facts again. (SC facts na ni).
RJL Martinez Fishing Corp (RJL Martinez) is engaged in deep-sea fishing,
and in the course of its business needed electrical generators for the
operation of its business.It then negotiated with Schmid & Oberly
(Schmid) who is engaged in the business of selling electric generators of
different brands. The two parties had two different transactions. The first
transaction resulted in the sale of 3 Nagata generators which came from
Schmids stockroom. Schmid invoiced the said sale.
The second transaction involves 12 Nagata generators which give rise to
the controversy. As RJL Martinez was canvassing for generators, Schmid
gave the former a quotation for 12 Nagata generators. The parties agreed
that the mode of payment would be through an irrevocable letter of credit
in favor of Nagata, Co. (the manufacturer of the generators).
Accordingly, on November 20,1975, SCHMID transmitted to NAGATA
CO. an order for the twelve (12) generators to be shipped directly to RJL
MARTINEZ. NAGATA CO. thereafter sent RJL MARTINEZ the bill of
lading and its own invoice and, in accordance with the order, shipped the
generators directly to RJL MARTINEZ. The invoice states that "one (1)
case of 'NAGATA' AC Generators" consisting of twelve sets wasbought
by order and for account risk of Messrs. RJL Martinez Fishing
Corporation.
For its efforts, SCHMID received from NAGATA CO. a commission of
$1,752.00 for the sale of the twelve generators to RJL MARTINEZ.
All fifteen (15) generators subject of the two transactions burned out after
continuous use. RJL MARTINEZ informed SCHMID about this
development. In turn, SCHMID brought the matter to the attention of

NAGATA CO. In July 1976, NAGATA CO. sent two technical


representatives who made an ocular inspection and conducted tests on
some of the burned out generators, which by then had been delivered to
the premises of SCHMID. It was found out that the description of the
generators (in the quotation and invoice) was 5 KVA, but the generators
turned out to be actually only 4 KVA.
SCHMID replaced the three (3) generators subject of the first sale with
generators of a different brand. As for the 12 others, Nagata, Co. only
repaired 3, while the remaining 9 remained unrepaired. As a result, RJL
Martinez sued Schmid.
In its defense, Schmid refuses liability on the account that it was not the
seller for the 12 generators.
Both the trial court and the Court of Appeals upheld the contention of RJL
MARTINEZ that SCHMID was the vendor in the second transaction and
was liable under its warranty. Accordingly, the courts a quo rendered
judgment in favor of RJL MARTINEZ. Hence, the instant recourse to this
Court.
Issue: WON the second transaction between RJL Martinez and Schmid
was a sale, or Schmid was merely an indent (broker/ intermediary) of RJL
Martinez and Nagata, Co.
Held: SCHMID was merely an indentor, not a vendor in the second
transaction.
Nature of Sale
At the outset, it must be understood that a contract is what the law defines
it to be, considering its essential elements, and not what it is caged by the
contracting parties.
It has been said that the essence of the contract of sale is transfer of title or
agreement to transfer it for a price paid or promised. 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.
What is an Indentor:
On the other hand, there is no statutory definition of "indent" in this jurisdiction. However, the Rules and Regulations to
Implement Presidential Decree No. 1789 (the Omnibus Investments Code) lumps "indentors" together with "commercial
brokers" and "commission merchants" in this manner:
... A foreign firm which does business through the middlemen acting in their own names, such as
indentors, commercial brokers or commission merchants, shall not be deemed doing business in the
Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed
to be doing business in the Philippines.
Therefore, an indentor is a middlemen in the same class as commercial brokers and commission merchants. To get an Idea
of what an indentor is, a look at the definition of those in his class may prove helpful.
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 agent of both parties.

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.
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.
Commission Merchant:
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 subject matter of the transaction.
Thus, the chief feature of a commercial broker and a commercial merchant is that in effecting a sale, they are merely
intermediaries or middle-men, and act in a certain sense as the agent of both parties to the transaction.
Indent Relationships
Webster defines an indent as "a purchase order for goods especially when sent from a foreign country. It would appear that
there are three parties to an indent transaction, namely, the buyer, the indentor, and the supplier who is usually a nonresident manufacturer residing in the country where the goods are to be bought. An indentor may therefore be best
described as one who, for compensation, acts as a middleman in bringing about a purchase and sale of goods between a
foreign supplier and a local purchaser.
In the case at bar:
The evidences show that RJL Martinez admitted that Schmid was merely an indent for the purchase of the 12 generators.
The evidence also show that RJL MARTINEZ paid directly NAGATA CO, for the generators, and that the latter company
itself invoiced the sale, and shipped the generators directly to the former. The only participation of SCHMID was to act as
an intermediary or middleman between NAGATA CO. and RJL MARTINEZ, by procuring an order from RJL
MARTINEZ and forwarding the same to NAGATA CO. for which the company received a commission from NAGATA
CO.

The above transaction is significantly different from the first transaction


wherein SCHMID delivered the goods from its own stock (which it had
itself imported from NAGATA CO.), issued its own invoice, and collected
payment directly from the purchaser.
RJL Martinez still insists that Schmid was a seller, and not a mere broker
because when the latter was informed of the defects, it acted immediately,
provided tools, labor, and equipment to resolve the matter. The SC
however said that: no indentor will just fold its hands when a client
complains about the goods it has bought upon the indentor's mediation. In
its desire to promote the product of the seller and to retain the goodwill of
the buyer, a prudent indentor desirous of maintaining his business would
have to act considerably towards his clients. Note that in contrast to its act
of replacing the three (3) generators subject of the first transaction,
SCHMID did not replace any of the twelve (12) generators, but merely
rendered assistance to both RJL TINES and NAGATA CO. so that the
latter could repair the defective generators.
Liability for Warranty
However, even as SCHMID was merely an indentor, there was nothing to
prevent it from voluntarily warranting that twelve (12) generators subject
of the second transaction are free from any hidden defects. In other words,
SCHMID may be held answerable for some other contractual obligation, if
indeed it had so bound itself. As stated above, an indentor is to some
extent an agent of both the vendor and the vendee. As such agent,
therefore, he may expressly obligate himself to undertake the obligations
of his principal.

In this case however, there was no express agreement between the parties
that Schmid warrants in anyway the condition of the generators, hence the
court did not make the latter liable for any warranty.
SCHMID & OBERLY, INC. vs. RJL MARTINEZ
G.R. No. 75198 October 18, 1988
Facts:
RJL Martinez Fishing Corporation is engaged in deep-sea fishing. In the course of its business, it needed
electrical generators for the operation of its business. Schmid and Oberly sells electrical generators with the
brand of Nagata, a Japanese product. D. Nagata Co. Ltd. of Japan was Schmids supplier. Schmid advertised
the 12 Nagata generators for sale and RJL purchased 12 brand new generators. Through an irrevocable line of
credit, Nagata shipped to the Schmid the generators and RJL paid the amount of the purchase price. (First sale =
3 generators; Second sale = 12 generators).
Later, the generators were found to be factory defective. RJL informed the Schmid that it shall return the 12
generators. 3 were returned. Schmid replaced the 3 generators subject of the first sale with generators of a
different brand. As to the second sale, 3 were shipped to Japan and the remaining 9 were not replaced.
RJL sued the defendant on the warranty, asking for rescission of the contract and that Schmid be ordered to
accept the generators and be ordered to pay back the purchase money as well as be liable for damages. Schmid
opposes such liability averring that it was merely the indentor in the sale between Nagata Co., the exporter and
RJL Martinez, the importer. As mere indentor, it avers that is not liable for the sellers implied warranty against
hidden defects, Schmid not having personally assumed any such warranty.
Issue:
1) WON the second transaction between the parties was a sale or an indent transaction? INDENT
TRANSACTION
2) Even is Schmid is merely an indentor, may it still be liable for the warranty? YES, under its contractual
obligations it may be liable. But in this case, Schmid did not warrant the products.
Held:
An indentor is a middlemen in the same class as commercial brokers and commission merchants. 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 agent of both
parties. There are 3 parties to an indent transaction, (1) buyer, (2) indentor, and (3) supplier who is usually a
non-resident manufacturer residing in the country where the goods are to be bought. The chief feature of a
commercial broker and a commercial merchant is that in effecting a sale, they are merely intermediaries or
middle-men, and act in a certain sense as the agent of both parties to the transaction.
RJL MARTINEZ admitted that the generators were purchased through indent order. RJL admitted in its
demand letter previously sent to SCHMID that 12 of 15 generators were purchased through your company, by
indent order and three (3) by direct purchase. The evidence also show that RJL MARTINEZ paid directly
NAGATA CO, for the generators, and that the latter company itself invoiced the sale and shipped the generators
directly to the former. The only participation of Schmid was to act as an intermediary or middleman between
Nagata and RJL, by procuring an order from RJL and forwarding the same to Nagata for which the company
received a commission from Nagata.
Sale vs. Indent Transaction:
The essence of the contract of sale is transfer of title or agreement to transfer it for a price paid or promised. 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.
3 evidences pointing to fact that Schmid is merely an indentor:
a. the Quotation and the General Conditions of Sale on the dorsal side thereof do not necessarily lead to the
conclusion that NAGATA CO., was the real seller of the 12 generators.
b. When RJL complained to SCHMID, it immediately asked RJL to send the defective generators to its shop to
determine what was wrong. SCHMID informed NAGATA about the complaint of RJL. After the generators
were found to have factory defects, SCHMID facilitated the shipment of three (3) generators to Japan and, after
their repair, back to the Philippines.
c. the letter from NAGATA CO. to SCHMID regarding the repair of the generators indicated that the latter was
within the purview of a seller.

2)
Even as SCHMID was merely an indentor, there was nothing to prevent it from voluntarily warranting that
twelve (12) generators subject of the second transaction are free from any hidden defects. In other words,
SCHMID may be held answerable for some other contractual obligation, if indeed it had so bound itself. As
stated above, an indentor is to some extent an agent of both the vendor and the vendee. As such agent, therefore,
he may expressly obligate himself to undertake the obligations of his principal.
Notably, nowhere in the Quotation is it stated therein that SCHMID did bind itself to answer for the defects of
the things sold. Balagtas testified initially that the warranty was in the receipts covering the sale. Nowhere is it
stated in the invoice that SCHMID warranted the generators against defects. He again changed his mind and
asserted that the warranty was given verbally. Hence, RJL has failed to prove that SCHMID had given a
warranty on the 12 generators subject of the second transaction.
10) KER & CO., LTD. vs. LINGAD
G.R. No. L-20871 April 30, 1971
FACTS: CIR assessed the sum of P20,272.33 as the commercial brokers percentage tax, surcharge, and
compromise penalty against Ker & Co. There was a request on the part of petitioner for the cancellation of such
assessment, which request was turned down. As a result, it filed a petition for review with the Court of Tax
Appeals. CTA ruled that that Ker & Co is liable as a commercial broker under Section 194 (t) of the National
Internal Revenue Code.
Ker & Co signed a contract with the United States Rubber International, the former being referred to as the
Distributor and the latter specifically designated as the Company. The shipments would cover products for
consumption in Cebu, Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the] province of
Davao. Ker & Co, as Distributor, was precluded from disposing such products elsewhere than in the above
places unless written consent would first be obtained from the Company. It was required to exert every effort to
have the shipment of the products in the maximum quantity and to promote in every way the sale thereof. The
prices, discounts, terms of payment, terms of delivery and other conditions of sale were subject to change in the
discretion of the Company.
ISSUE: WON the relationship Ker & Co and US Rubber was that of a vendor-vendee or principal-broker?
PRINCIPAL- BROKER, hence liable under Section 194 (t) of the NIRC.
HELD: The relationship between them is one of brokerage or agency. That the petitioner Ker & Co., Ltd. is, by
contractual stipulation, an agent of U.S. Rubber International is borne out by the facts that:
1. petitioner can dispose of the products of the Company only to certain persons or entities and
within stipulated limits, unless excepted by the contract or by the Rubber Company;
2. it merely receives, accepts and/or holds upon consignment the products, which remain
properties of the latter company
3. every effort shall be made by petitioner to promote in every way the sale of the products (Par.
3); that sales made by petitioner are subject to approval by the company
4. on dates determined by the rubber company, petitioner shall render a detailed report showing
sales during the month
5. the rubber company shall invoice the sales as of the dates of inventory and sales report (Par.
14); that the rubber company agrees to keep the consigned goods fully insured under
insurance policies payable to it in case of loss
6. upon request of the rubber company at any time, petitioner shall render an inventory of the
existing stock which may be checked by an authorized representative of the former
7. upon termination or cancellation of the Agreement, all goods held on consignment shall be
held by petitioner for the account of the rubber company until their disposition is provided
for by the latter.
CONTROLLING TEST (cited CIR vs. Constantino):
Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to
customers, the price and terms of which were subject to the companys control, the relationship between the
company and the dealer is one of agency.
Sale vs. Agency
a. In sale, the essence is the transfer of title or agreement to transfer it for a price paid or promised. In agency,
the essence is the delivery to an agent.
b. In sale, the 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. In agency, the transfer does not make the property as the agents own, but that of

principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive
the proceeds less the agents commission upon sales made.
Besides, the control by the United States Rubber International over the goods in question is pervasive.

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