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Vicente M. Domingo v. Gregorio Domingo and Teofilo P. Purisima (1971) Makasiar, J. Facts:

Vicente granted Gregorio (a real estate broker) the exclusive agency to sell his lot for P176k (P2 per sq mtr, about 88k sq mtrs). There will be 5% commission if the property is sold by Vicente or anyone else during the 30-day duration of the agency or if sold by Vicente within 3 months from termination of the agency, with notice to Vicente. On day, Gregorio authorized Purisima to look for a buyer. Gregorio promised Purisima of the 5% commission. Purisima introduces de Leon to Gregorio as a prospective buyer. De Leon offered a price much lower than the P2 per sq mtr. After several mtgs, de Leon increased his offer to a total of P109k (P1.2 per sq mtr). o De Leon paid P1k as earnest money. Later, Gregorio asked for an additional P1k earnest money. o Vicente gave Gregorio an advance of P300. De Leon then gave P1k to Gregorio as a gift or propina for being able to persuade Vicente to sell at P1.2 per sq mtr. This gift was not disclosed by Gregorio to Vicente. Neither did de Leon pay the P1k additional. De Leon told Gregorio that he did not receive money from his brother in the USA. Bec of this, he said that he was giving up the negotiation including the P1k given as earnest money, and the P1k gift. When Oscar did not see him after several weeks, Gregorio sensed something fishy. o He went to Vicente and read a portion of their agreement (exhibit A) that Vicente was still committed to pay 5% commission, if the sale is consummated within three months after the expiration of the 30-day period. Vicente grabbed the original of Exhibit A and tore it to pieces. Gregorio held his peace, not wanting to antagonize Vicente further, because he had still duplicate of Exhibit A. From his meeting with Vicente, Gregorio proceeded to the office of the Register of Deeds where he discovered that Vicente sold his property to the same buyer, de Leon and his wife. He demanded his commission on the sale price of P109k. o He also talked to de Leon, who told him that Vicente went to him and asked him to eliminate Gregorio and that he would sell his property for P104k. In Vicente's reply to Gregorio's demand letter, Vicente said that Gregorio is not entitled to the commission because he sold it not to Gregorio's buyer, de Leon, but to another, Amparo Diaz, the wife of de Leon. CA found that Exhibit A (the exclusive agency contract) is genuine and that the sale to Amparo was practically a sale to de Leon.

Issues/Held: 1. Whether the failure of Gregorio to disclose the gift or "propina" constitutes fraud as to cause a forfeiture of his commission - YES 2. Whether Vicente or Gregorio should be liable directly to the Purisima for the Purisimas share in the expected commission (1/2 of the 5%) Gregorio liable to pay Purisima of whatever amount Gregorio received. Vicente not liable to him since Vicente was not even aware of the sub-agency. Ratio: The duties and liabilities of a broker to his employer are essentially those which an agent owes to his principal. The decisive legal provisions are: NCC 1891 and 1909 Art. 1891. Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owing to the principal. Every stipulation exempting the agent from the obligation to render an account shall be void. xxx Art. 1909. The agent is responsible not only for fraud but also for negligence, which shall be judged with more less rigor by the courts, according to whether the agency was or was not for a compensation. NCC 1891 amends Art 1720 (old Spanish Civil Code) which provides that: Art. 1720. Every agent is bound to give an account of his transaction and to pay to the principal whatever he may have received by virtue of the agency, even though what he has received is not due to the principal. The modification in the first par consists in changing the phrase "to pay" to "to deliver". To deliver is more comprehensive than to pay. NCC 1891 par 2 of Article 1891 is an addition to stress the highest loyalty that is required to an agent condemning as void any stipulation exempting the agent from the duty and liability imposed on him in par 1. NCC 1909 is essentially a reinstatement of old Spanish CC Art 1726: Art. 1726. The agent is liable not only for fraud, but also for negligence, which shall be judged with more or less severity by the courts, according to whether the agency was gratuitous or for a price or reward. The provisions demand the utmost good faith, fidelity, honesty, candor and fairness on the part of the agent (the real estate broker in this case) to his principal (the vendor). The law imposes upon the agent the absolute obligation to make a full disclosure to his principal of all his transactions relevant to the agency. Any stipulation exempting the agent from this obligation is void. An agent who takes a secret profit without revealing this to his principal is guilty of a breach of loyalty and forfeits his right to collect the commission, even if the principal does not suffer any injury. (because the rule is to prevent the possibility of any wrong, not to remedy or repair an actual damage) By taking such profit or bonus or gift or propina from the vendee, the agent assumes a position inconsistent with that of being an agent for his principal. American jurisprudence: where a principal has paid an agent a commission while ignorant of the fact that the agent has been unfaithful, the principal may recover back the commission

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Little vs. Phipps: the agent is bound to exercise the utmost good faith in his dealings with his principal. This rule "is not technical or arbitrary. It is founded on the highest and truest principles of morality In this case: instead of exerting his best to persuade his buyer to purchase the property on the most advantageous terms for his principal, the broker, succeeded in persuading his principal to accept a lower price. There are still exemptions. The duty in NCC 1891 will not apply if: o The agent acted only as a middleman (merely brought together the buyer and seller) who themselves will negotiate. o The agent informed the principal of the gift. As a necessary consequence of the breach of trust, Gregorio must forfeit his right to the commission.

The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of de Leon, does not materially alter the situation Because for the transaction to be valid, there must be consent of the husband Hence, both in law and in fact, it was still Oscar de Leon who was the buyer. Purisima can only recover from Gregorio his 1/2 of whatever amount Gregorio received and not with Vicente, who was not even aware of such subagency. Gregorio received from Vicente P300 and de Leon P1k. of this (P650) should be paid by Gregorio to Purisima. CA reversed.