In Murao v. People, the Supreme Court clarified that a sales agent’s right to commission does not automatically grant them ownership of the funds received by the principal. This ruling underscores that failure to pay a commission, while a breach of contract, does not constitute estafa (swindling) under Article 315(1)(b) of the Revised Penal Code unless there is a fiduciary relationship and misappropriation of funds. The Court emphasized that the lawful owner of the proceeds is the principal, and collecting those proceeds does not equate to converting property belonging to another, even if a commission is due.

Fire Extinguishers and Unpaid Commissions: Can a Sales Agent Claim Estafa?

This case arose from a dispute between Pablito Murao, owner of Lorna Murao Industrial Commercial Enterprises (LMICE), and Chito Federico, a sales agent. Federico facilitated a deal with the City Government of Puerto Princesa for refilling fire extinguishers. After LMICE received payment, a disagreement over Federico’s commission (whether it was 50% of gross sales or 30% of net sales) led to Murao’s refusal to pay. Federico then filed an estafa complaint, alleging that Murao and his branch manager, Nelio Huertazuela, misappropriated his commission.

The Regional Trial Court (RTC) found Murao and Huertazuela guilty of estafa, stating that they had a civil obligation to deliver Federico’s commission. The Court of Appeals affirmed this decision but modified the sentence, deleting the award for attorney’s fees. However, the Supreme Court reversed these rulings, emphasizing that two essential elements of estafa were missing: a fiduciary relationship regarding the specific funds and misappropriation of those funds.

The Supreme Court highlighted that Federico, as a sales agent, operated under an agency agreement with LMICE, defined under Article 1868 of the Civil Code as a contract where “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.” While Federico negotiated sales, the business belonged to LMICE, and payments made by clients pertained to LMICE. The Court stated:

his right to a commission does not make private complainant Federico a joint owner of the money paid to LMICE by the City Government of Puerto Princesa, but merely establishes the relation of agent and principal.

The Court stressed that collecting payment on behalf of LMICE did not mean the petitioners received the money in trust or under an obligation to return it to Federico. LMICE, as the lawful owner of the payment, had the right to collect it. Therefore, no fiduciary relationship existed that would support a charge of estafa. A fiduciary relationship is critical because it establishes a duty of trust and confidence, where one party is obligated to act in the best interest of the other. Without this element, the act of not paying the commission does not automatically translate into criminal misappropriation.

The Supreme Court distinguished this case from Manahan, Jr. v. Court of Appeals, where a lessee failed to return a dump truck, which constituted estafa. The Court clarified that “the phrase ‘or any other obligation involving the duty to make delivery of, or to return the same’ refers to contracts of bailment, such as, contract of lease of personal property, contract of deposit, and commodatum, wherein juridical possession of the thing was transferred to the lessee, depositary or borrower, and wherein the latter is obligated to return the same thing.” This highlights that the obligation to deliver or return must involve a transfer of juridical possession, which was absent in the agency agreement between LMICE and Federico.

Furthermore, the Court clarified the definitions of “convert” and “misappropriate,” stating that these terms imply using another’s property as one’s own. Since the proceeds from the check belonged to LMICE, the petitioners did not convert or misappropriate them. As the Supreme Court noted:

Since the money was already with its owner, LMICE, it could not be said that the same had been converted or misappropriated for one could not very well fraudulently appropriate to himself money that is his own.

While acknowledging that the refusal to pay the commission caused prejudice to Federico, the Court emphasized that this did not constitute estafa. The lack of essential elements absolved the petitioners of criminal liability. However, the Court recognized the existence of civil liability for the unpaid commission, arising from the violation of the agency contract. The court clarified it was precluded from making a determination and an award of the civil liability for the reason that the said civil liability of petitioners to pay private complainant Federico his commission arises from a violation of the agency contract and not from a criminal act.

FAQs

What was the key issue in this case?	The key issue was whether the failure to pay a sales agent’s commission constitutes estafa (swindling) under Philippine law. The Court examined whether the essential elements of estafa, particularly a fiduciary relationship and misappropriation, were present.
What is a fiduciary relationship?	A fiduciary relationship is a relationship of trust and confidence where one party is obligated to act in the best interest of the other. In the context of estafa, it means the accused received money or property with a duty to deliver or return it to the complainant.
What does it mean to misappropriate funds?	To misappropriate funds means to use someone else’s property as if it were one’s own or to devote it to a purpose different from what was agreed upon. This includes disposing of another’s property without the right to do so.
What is an agency agreement?	An agency agreement is a contract where one person (the agent) binds themselves to render some service or do something on behalf of another (the principal), with the latter’s consent. This relationship is defined under Article 1868 of the Civil Code.
Was there an agency agreement in this case?	Yes, the Supreme Court found that a valid agency agreement existed between LMICE and Chito Federico. Federico acted as a sales agent for LMICE, negotiating sales and facilitating transactions.
Why were the petitioners acquitted of estafa?	The petitioners were acquitted because the Supreme Court found that the essential elements of estafa were missing. Specifically, there was no fiduciary relationship regarding the specific funds in question, and the funds were not misappropriated since they belonged to LMICE.
Did the sales agent have any recourse?	Yes, the sales agent, Chito Federico, had recourse through a civil action for breach of contract. The Supreme Court acknowledged that LMICE had a civil liability to pay Federico his commission, even though it did not constitute estafa.
What was the significance of the Manahan case in the Supreme Court’s decision?	The Supreme Court distinguished the Manahan case to clarify that the obligation to deliver or return property, as an element of estafa, applies to contracts involving a transfer of juridical possession. The agency agreement in this case did not involve such a transfer.

The Supreme Court’s decision in Murao v. People provides clarity on the boundaries between contractual obligations and criminal liability in agency agreements. It reinforces that a mere failure to pay commissions does not automatically constitute estafa. This decision underscores the importance of establishing clear contractual terms and pursuing civil remedies for breaches of contract, rather than resorting to criminal charges without the necessary elements of the crime.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: PABLITO MURAO AND NELIO HUERTAZUELA, PETITIONERS, VS. PEOPLE OF THE PHILIPPINES, RESPONDENT., G.R. No. 141485, June 30, 2005