How do I tell whether my contract is a real sale or only an agency to sell?

The rule: read the whole instrument

Article 1466 of the Civil Code applies when a written contract contains provisions that look like a sale in some places and like an agency to sell in others. In that situation, the rule is that the essential clauses of the whole instrument shall be considered. You cannot resolve the question by picking one clause, reading the title, or relying on what one party calls it. The entire document must be read to determine which contract actually describes the parties' real agreement. A contract labeled 'Deed of Sale' that actually preserves the original owner's right to the price and allows return of unsold goods may still be an agency arrangement, whatever its title says.

What distinguishes a sale from an agency to sell

In a true sale, ownership of the goods or property transfers to the buyer upon delivery or upon the agreed point of transfer. The buyer bears the risk of loss and is obligated to pay the price regardless of whether the buyer can resell. In an agency to sell, the agent receives the goods to sell on behalf of the owner. Title does not pass to the agent; the agent earns a commission or remittance, and any unsold goods may be returned. The critical question is: at the moment the goods or property are handed over, does ownership pass, or does the original owner remain the owner while another person handles the sale?

Clauses that lean toward sale

Clauses suggesting a true sale include: the buyer bears the risk of loss after delivery; no right of return for unsold goods; the price is fixed and the 'buyer' keeps any amount above the agreed price; and no obligation to account to the original owner for the proceeds of resale. When the person who received the goods is free to resell at any price, pocket the difference, and has no obligation to return unsold inventory, those terms point toward a sale.

Clauses that lean toward agency

Clauses suggesting an agency to sell include: unsold goods may be returned; the 'buyer' must remit proceeds to the original owner; the 'buyer' receives only a commission or fixed mark-up; and the original owner retains risk of loss on unsold items. If the arrangement allows the person holding the goods to simply hand them back without paying anything, and only requires payment for what was actually sold, those features align with agency rather than sale. The question is always who ultimately bears the commercial risk.

Cases citing this provision

These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.

• Lorenzo Willy, substituted by his heirs, namely: Felicidad D. Willy, Betty Willy Cadangen, Tony, G.R. No. 207051, December 1, 2021 — read the decision on LawPhil →

Related provisions

• Civil Code, Article 1466 — Sale vs. Agency to Sell