Short answer. The Civil Code does not answer that question — your agreement does. What the Code settles is only that a broker is presumed to be working for pay unless the contrary is proved. Whether the fee was earned before the sale collapsed depends on what the engagement says.
What the law says
Agency is presumed to be for a compensation, unless there is proof to the contrary.
Civil Code, Article 1875 — Agency Presumed for Compensation. Read the full provision →
What the statute actually settles
Article 1875 is short and often over-read: agency is presumed to be for a compensation, unless there is proof to the contrary. It answers one question only — whether the broker is entitled to be paid at all where nothing was agreed on the point. The presumption runs in his favour, and it is the seller who must prove the arrangement was gratuitous. What the article does not do is fix the amount, fix when the fee is earned, or say anything about a transaction that later collapses. Reading a rule about entitlement in principle as a rule about entitlement in your situation is the most common mistake here.
The engagement is the operative document
So the argument is won or lost in the brokerage agreement or listing authority. Read it for the events it ties payment to: is the fee earned on introducing a ready and willing buyer, on the signing of a contract to sell, on the transfer of title, or on the seller actually receiving the price? Look also for exclusivity, for a stated period and what happens to deals concluded after it ends, and for any clause dealing with a buyer who defaults. Where the document ties payment to completion, a sale that never completes usually produces no fee, however much work was done.
Why the sale collapsed usually matters
Not every failed sale is the same failure. A buyer who cannot raise financing, a title defect that emerges in due diligence, and a seller who simply changes his mind or sells to someone else behind the broker's back are three different situations, and the last is the one in which a broker's claim is strongest. If the seller's own act or bad faith is what defeated the transaction the broker had produced, that goes to the heart of whether the fee should be treated as earned. Keep the record of who did what and when — the timeline is the evidence.
What to preserve on either side
Keep the signed engagement, the introductions in writing with dates, the offers and counter-offers, and the correspondence in which the deal broke down. Brokers should record the moment a buyer was first introduced, because a later transaction with the same buyer is where most disputes start. Sellers should put in writing any withdrawal of the authority and the reason. If the agreement is silent on when the fee is earned, that gap is the whole dispute, and it is worth having a lawyer read the document before either side sends a demand that hardens a position you cannot support.
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.
- Araceli J. Cabrera, et al. vs. Angela G. Francisco, et al, G.R. No. 172293, August 28, 2013 — read the decision on LawPhil →
- Pablito Murao, et al. vs. People of the Philippines, G.R. No. 141485, June 30, 2005 — read the decision on LawPhil →