Sanchez vs. Medicard Philippines, Inc.

An agent is entitled to a commission only upon the successful conclusion of a sale, and must be the procuring cause thereof; where the principal directly manages the business entrusted to the agent by dealing directly with third persons, the agency is revoked under Article 1924 of the Civil Code, and the agent who exerted no effort toward the new transaction is not entitled to a commission.

Petitioner Carlos Sanchez was appointed by respondent Medicard Philippines, Inc. (Medicard) as its special corporate agent sometime in 1987, receiving commissions based on the "cash brought in." The relationship between the parties was governed by the law on agency under the Civil Code, particularly the provisions on revocation of agency and the agent's entitlement to commissions. The dispute arose in the context of a health care program contract between Medicard and United Laboratories Group of Companies (Unilab), which was initially secured through Sanchez's efforts.

Sometime in 1987, Medicard Philippines, Inc. (Medicard) appointed Carlos Sanchez as its special corporate agent, giving him a commission based on the "cash brought in." In September 1988, through Sanchez's efforts, Medicard and United Laboratories Group of Companies (Unilab) executed a Health Care Program Contract, under which Unilab agreed to pay Medicard a fixed monthly premium for the health insurance of its personnel. Unilab paid Medicard ₱4,148,005.00 representing the premium for one year, and Medicard handed Sanchez 18% of that amount, or ₱746,640.90, as his commission.

Again through Sanchez's initiative, the agency contract between Medicard and Unilab was renewed for another year, from October 1, 1989 to September 30, 1990, with the premium increased from ₱4,148,005.00 to ₱7,456,896.00. Medicard paid Sanchez ₱1,342,241.00 as his commission for this renewal. Prior to the expiration of the renewed contract, Medicard proposed to Unilab, through Sanchez, an increase of the premium for the next year. Unilab rejected the proposal "for the reason that it was too high," prompting Dr. Nicanor Montoya, Medicard's president and general manager, to request Sanchez to reduce his commission, but Sanchez refused.

In a letter dated October 3, 1990, Unilab, through Carlos Ejercito, confirmed its decision not to renew the health program contract with Medicard. Meanwhile, in order not to prejudice its personnel by the termination of their health insurance, Unilab, through Ejercito, negotiated with Dr. Montoya and other officers of Medicard to discuss ways to continue the insurance coverage of those personnel. Under the new scheme, Unilab would pay Medicard only the amount corresponding to the actual hospitalization expenses incurred by each personnel plus a 15% service fee for using Medicard facilities, which amount would not be less than ₱780,000.00. Medicard did not give Sanchez any commission under this new scheme.

In a letter dated March 15, 1991, Sanchez demanded from Medicard payment of ₱338,000.00 as his commission plus damages, but Medicard refused to heed his demand. Sanchez then filed a complaint for sum of money with the Regional Trial Court (RTC), Branch 66, Makati City, against Medicard, Dr. Nicanor Montoya, and Carlos Ejercito. The RTC dismissed the complaint and the respondents' counterclaim. On appeal, the Court of Appeals affirmed the trial court's decision, holding that there was no proof that the execution of the new contract under the "cost plus" system was a strategy to deprive Sanchez of his commission, that Medicard did not commit any fraudulent act in revoking its agency contract with Sanchez, and that where the contract is ineffectual, the agent is not entitled to a commission.

N/A — The decision does not recount the specific legal arguments raised by the petitioner beyond his demand for commission and the filing of the petition for review on certiorari.

N/A — The decision does not recount the specific legal arguments raised by the respondents beyond their refusal to pay the commission and the dismissal of the complaint.

• Revocation of Agency and Entitlement to Commission: Whether the Court of Appeals erred in holding that the contract of agency has been revoked by Medicard, hence, petitioner is not entitled to a commission.

• Revocation of Agency and Entitlement to Commission: No. The agency was validly revoked under Article 1924 of the Civil Code when Medicard directly managed the business entrusted to Sanchez by dealing directly with Unilab. Sanchez was not the procuring cause of the new contract and thus was not entitled to a commission.

• Revocation of Agency and Entitlement to Commission: The Court applied the dictum that for an agent to be entitled to a commission, he must be the procuring cause of the sale, meaning the measures he employed and the efforts he exerted must result in a sale. An agent receives his commission only upon the successful conclusion of a sale; conversely, where his efforts are unsuccessful, or there was no effort on his part, he is not entitled to a commission. The Court noted the exception in Prats vs. Court of Appeals, where an agent who is not the efficient procuring cause is nonetheless entitled to a commission if he took diligent steps to bring the parties back together such that a sale was finalized, and in Manotok Brothers vs. Court of Appeals, where the agent was entitled to a commission as the efficient procuring cause notwithstanding that the sale took place after his authority had lapsed. In this case, the Court found that since Sanchez refused to reduce his commission, Medicard directly negotiated with Unilab, thus revoking its agency contract with Sanchez. This revocation is authorized by Article 1924 of the Civil Code, which provides that the agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons. The Court further found that Sanchez did not render services to Medicard to entitle him to a commission, as there was no indication from the records that he exerted any effort to have Unilab and Medicard renew the Health Care Program Contract for the third time. His refusal to reduce his commission constrained Medicard to negotiate directly with Unilab. The Court found no reason in law or in equity to rule that he was entitled to a commission, as he was not the agent or the "procuring cause" of the third Health Care Program Contract.

• Procuring Cause Doctrine — For an agent to be entitled to a commission, he must be the procuring cause of the sale, meaning the measures employed by him and the efforts he exerted must result in a sale. The Court applied this doctrine to deny Sanchez's claim, finding that he exerted no effort toward the new "cost plus" contract between Medicard and Unilab, and thus was not its procuring cause.

• Revocation of Agency by Principal's Direct Management (Article 1924, Civil Code) — The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons. The Court applied this provision to hold that Medicard's direct negotiation with Unilab, after Sanchez refused to reduce his commission, validly revoked the agency contract.

• Equitable Exception to the Procuring Cause Doctrine — For purposes of equity, an agent who is not the efficient procuring cause is nonetheless entitled to a commission where the agent, notwithstanding the expiration of his authority, took diligent steps to bring back together the parties, such that a sale was finalized and consummated between them. The Court distinguished this exception, finding that Sanchez took no such diligent steps.

• "It is dictum that in order for an agent to be entitled to a commission, he must be the procuring cause of the sale, which simply means that the measures employed by him and the efforts he exerted must result in a sale." — This passage states the fundamental rule governing an agent's entitlement to a commission and serves as the basis for the Court's denial of Sanchez's claim.

• "It is clear that since petitioner refused to reduce his commission, Medicard directly negotiated with Unilab, thus revoking its agency contract with petitioner. We hold that such revocation is authorized by Article 1924 of the Civil Code which provides: 'Art. 1924. The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons.'" — This passage articulates the Court's application of Article 1924 to the facts, establishing the validity of the revocation of the agency.

• "We find no reason in law or in equity to rule that he is entitled to a commission. Obviously, he was not the agent or the 'procuring cause' of the third Health Care Program Contract between Medicard and Unilab." — This passage states the Court's conclusion that Sanchez failed to meet the procuring cause requirement and is therefore not entitled to a commission.

• Prats vs. Court of Appeals, G.R. No. 39822, January 31, 1978, 81 SCRA 360 — Cited as the source of the equitable exception to the procuring cause doctrine, where an agent who is not the efficient procuring cause is nonetheless entitled to a commission if he took diligent steps to bring the parties back together. The Court distinguished this case from the present facts.

• Manotok Brothers vs. Court of Appeals, G.R. No. 94753, April 7, 1993, 221 SCRA 224 — Cited as applying the Prats ruling, holding that an agent is entitled to a commission as the efficient procuring cause notwithstanding that the sale took place after his authority had lapsed. The Court distinguished this case from the present facts.

• Damon vs. Antonio A. Brimo & Co., 42 Phil. 134, 139 (1921) — Cited as the source of the dictum that the agent must be the procuring cause of the sale to be entitled to a commission.

• Ramos vs. Court of Appeals, G.R. No. 25463, April 4, 1975, 63 SCRA 331 — Cited in support of the procuring cause doctrine.

• Hanh vs. Court of Appeals, G.R. No. 113074, January 22, 1997, 266 SCRA 537, 549 — Cited for the proposition that an agent receives his commission only upon the successful conclusion of a sale.

• Article 1924, Civil Code — Provides that the agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons. The Court applied this provision to hold that Medicard's direct negotiation with Unilab validly revoked the agency contract with Sanchez.

• Panganiban, J. (Chairman)
• Corona, J.
• Carpio Morales, J.
• Garcia, J.

N/A — No dissenting opinions are noted in the provided text.