Facts
- Petitioner CMS Logging, Inc. was engaged in the logging business.
- It entered into an exclusive agency agreement with respondent D.R. Aguinaldo Corporation (DRACOR) (the agent), under which DRACOR was constituted CMS' exclusive export and sales agent for its logs, principally to buyers in Japan (the third persons), for a commission of 5% of the gross sales — CMS itself being the principal.
- In the course of the arrangement, CMS discovered that DRACOR had been receiving an additional undisclosed commission — a further amount from the Japanese buyers (through a related entity, Shinko Trading Co.) on the very same shipments — over and above the 5% it was collecting from CMS.
- This was never disclosed to, nor consented to by, CMS. (The agent was therefore being paid by both sides of the same shipments, without the principal's knowledge — the classic breach of the agent's duty of loyalty.)
- Upon learning of it, CMS began selling its logs directly to the Japanese buyers, bypassing DRACOR entirely.
- CMS then sued DRACOR to recover the secret commissions.
- DRACOR counterclaimed for its 5% commission on the logs CMS had sold directly, arguing that the exclusive agency remained in force.
- Trial court and Court of Appeals — substantially against CMS. The trial court and the Court of Appeals ruled substantially against CMS on the secret-commission claim and in DRACOR's favour on the counterclaim.
Issue
- Whether DRACOR must account to CMS for the additional commissions it received from the buyers.
- Whether DRACOR is entitled to its 5% commission on the logs CMS sold directly to the Japanese buyers.
Ruling
- Yes — an agent must account for any secret profit derived from the agency.
- No. The agency was impliedly revoked when CMS began dealing directly with the buyers, and no commission is due on those direct sales.
Ratio
1. The Agent's Fiduciary Duty Bars Secret Profits
- Agency is a fiduciary relation.
- The agent must act for the principal's benefit alone and may not, without full disclosure and consent, derive any profit or advantage from the transaction beyond his stipulated compensation.
- Article 1891 obliges the agent to account for all he receives by virtue of the agency, even what is not owing to the principal.
- DRACOR's arrangement to collect an additional commission from the very buyers with whom it was negotiating on CMS' behalf placed it in a position of conflict and was concealed from its principal.
- It must therefore turn over the secret commissions.
2. Article 1924 — Implied Revocation
- Article 1924 provides:
The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons.
- CMS did exactly that.
- Having discovered the betrayal, it took over the marketing of its own logs and transacted directly with the Japanese buyers.
- From that moment the agency was revoked by operation of law — no formal notice or express act of revocation was required, the principal's conduct itself being the revocation.
3. No Commission on the Principal's Own Sales
- It follows that DRACOR cannot claim commissions on shipments CMS negotiated and concluded by itself.
- Commission is the price of the agent's service; where the agency has been revoked and the agent rendered no service in the transaction, no commission is earned.
- To hold otherwise would let the agent profit from a relationship its own misconduct destroyed.
4. The Exclusivity Clause Does Not Survive Revocation
- That the agreement was styled "exclusive" did not make it irrevocable.
- Exclusivity governs the parties' obligations while the agency subsists.
- It does not convert a revocable agency into a perpetual entitlement to commissions.
Doctrine
- Article 1924 — revocation by direct management. An agency is impliedly revoked when the principal himself manages the business entrusted to the agent and deals directly with third persons. No formal revocation is needed; the conduct is the revocation.
- No commission after revocation. The agent earns nothing on transactions the principal concludes himself once the agency has been revoked.
- Fiduciary duty and secret profits. An agent may not derive an undisclosed benefit from the agency. Under Article 1891 he must account for and deliver everything received by virtue of it, and any stipulation exempting him from that duty is void.
- Exclusivity ≠ irrevocability. An "exclusive" agency is still revocable unless coupled with an interest.