You are on page 1of 20

Finals Reviewer AGENCY 2nd Sem; 2003

Essential Elements of Agency:


Chapter 1. Nature, Form and Kinds of 1.) Consent, express or implied;
2.) Object of the contract is the execution of a
Agency juridical act in relation to 3rd persons;
3.) The agent acts as a representative and not for
himself;
Art. 1868. By the contract of agency a person 4.) The agent acts within the scope of his authority.
binds himself to render some service or to do
something in representation or on behalf of Acts that cannot be done through an agent:
another, with the consent or authority of the 1.) Personal acts: if personal performance is reqd by
latter. law or public policy or agreement;
2.) Criminal or illegal acts: attempt to delegate
Agency: A relationship which implies a power in an another authority to do an act which, if done by
agent to contract with a 3rd person on behalf of a the principal would be illegal, is void.
principal.
Nature of Relation between Principal and Agent:
Kind of Contract: It is a preparatory contract. It is a Fiduciary, based on trust and confidence.
contract entered not for its own end but to be able to
enter into other contracts. Agency v. Lease of Work or Service
Agency Lease of Work/Service
Characteristics:
Basis is representation. Basis is employment
1.) Consensual: perfected by mere consent;
Agent exercises Lessor only performs
2.) Nominate: it has its own name;
discretionary powers. ministerial functions.
3.) Principal: does not depend on another contract
3 persons are involved: Only 2 persons involved:
for its existence and validity;
principal, agent & 3rd lessor and lessee
4.) Preparatory: entered into as a means to an end;
person.
5.) Unilateral/Bilateral:
Commercial or business Matters of mere manual or
a.) Unilateral: if contract is gratuitous, it
transactions. mechanical execution.
creates obligations for only one of the
parties, i.e. agent.
b.) Bilateral: if for compensation, it gives Agency v. Guardianship
rise to reciprocal rights and obligs. Agency Guardianship
Agent represents a Guardian represents an
Basis: Representation. capacitated person. incapacitated person.
The acts of the agent on behalf of the principal within Agent appointed by Guardian appointed by
the scope of his authority produce the same legal and principal and can be court and stands in loco
binding effects as if the principal personally did them. removed by him. parentis.
Agent subject to directions Guardian not subject to
Distinguishing Features: of principal. directions of ward but
1.) Representative character; and must act for his benefit.
2.) Derivative authority. Agent can make principal Guardian has no power to
personally liable. impose personal liability on
Purpose: To extend the personality of the principal his ward.
through the facility of the agent.
Agency to Sell v. Sale
Parties: Agency to sell Sale
1.) Principal; and Agent receives the goods Buyer receives the goods
2.) Agent. as the goods of the as owner.
principal.
Who can be principal? Agent delivers proceeds of Buyer pays the price.
The principal may be a natural person or a juridical the sale.
person. He must be capacitated. The rule is if a person Agent can return object in Generally, buyer cannot
is capacitated to act for himself or in his own right, he case he is unable to sell to return the object sold.
can act through an agent. a 3rd person.
Agent in dealing with the Buyer can deal with the
Must the agent have capacity? thing received is bound to thing as he pleases, being
Insofar as 3rd persons are concerned, it is enough act accdg to the the owner.
that the principal is capacitated; but insofar as his instructions of his principal
obligations to his principal are concerned, the agent
must be able to bind himself.

Helen C. Arevalo 1 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
Agent v. Independent Contractor Art. 1870. Acceptance by the agent may also be
Agent Independent Contractor express, or implied from his acts which carry out
Represents the principal. Employed by employer. the agency, or from his silence or inaction
Acts under the control and Acts according to his own according to the circumstances.
instructions of the principal method.
Principal liable for torts Employer not liable for Form of Acceptance by Agent:
committed by agent w/in torts committed by Acceptance may be express or implied; express when
scope of authority. independent contractor. it is oral or written; implied when it can be inferred from
the acts of the agent which carry out the agency, or
Art. 1869. Agency must be express, or implied from his silence or inaction accdg to the circumstances.
from the acts of the principal, from his silence or
lack of action, or his failure to repudiate the Art. 1871. Between persons who are present,
agency, knowing that another person is acting on the acceptance of the agency may also be implied
his behalf without authority. if the principal delivers his power of attorney to
Agency may be oral, unless the law requires a the agent and the latter receives it without any
specific form. objection.

Classifications of Agency: as to… Between 2 persons who are present, when it acceptance
1.) Manner of Creation: deemed implied?
a.) Express: actually authorized, either When the agent receives a power of atty from the
orally or in writing. principal himself personally without objection.
b.) Implied: implied from acts of principal,
from his silence or lack of action or his Is this presumption conclusive?
failure to repudiate the agency knowing NO, it can be rebutted by contrary proof.
that another person is acting on his
behalf w/o authority. Power of attorney: An instrument in writing by which
2.) Character: one person, as principal, appoints another as his agent
a.) Gratuitous: agent receives no and confers upon him the authority to perform certain
compensation for his services. specified acts or kinds of acts on behalf of the principal.
b.) Onerous: agent does receive Its primary purpose is to evidence the authority of the
compensation. agent to 3rd parties w/ whom the agent deals.
3.) Extent of business covered:
a.) General: comprises all the business of Construction
the principal. A power of atty is strictly construed and strictly
b.) Special: comprises one or more specific pursued. The instrument will be held to grant only those
transactions. powers which are specified, and the agent may neither
4.) Authority conferred: go beyond nor deviate from the power of atty. The only
a.) Couched in general terms: deemed to exception is when strict construction will destroy the
comprise only acts of administration. very purpose of the power.
b.) Couched in specific terms: authorizes
only the performance of a specific act/s. Meaning of “present”
5.) Nature and effects: Not limited to face-to-face encounters. 2 persons
a.) Representative: agent acts in name and conversing on the phone are also considered as both
representation of principal. “present”.
b.) Simple/Commission: agent acts in his
own name but for the account of the Art. 1872. Between persons who are absent,
principal. the acceptance of the agency cannot be implied
from the silence of the agent, except:
Can agency be presumed? 1.) When the principal transmits his power
Generally NO because the relationship between the of attorney to the agent, who receives it
principal and agent must exist as a fact. The only without any objection;
exceptions to this rule are when agency arises by 2.) When the principal entrusts to him by
operation of law or agency is presumed to prevent letter or telegram a power of attorney
unjust enrichment. with respect to the business in which he
is habitually engaged as an agent, and he
Form: Generally, NO formal requirements. Agent’s did not reply to the letter or telegram.
authority may be oral or written, it may be in public or
private writings. The only exception is when the law 2 Ways of Giving Notice of Agency
requires a specific form (e.g. sale of real property or any 1.) By special information; or
interest therein by an agent.) 2.) By public advertisement.

Helen C. Arevalo 2 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
Effects: its agents. But it may be estopped through
1.) Special information: the person appointed as affirmative acts of its officers acting within the
agent is considered such with respect to the scope of their authority.
person to whom it was given.
2.) Public advertisement: Agent is considered such Art. 1874. When a sale of a piece of land or any
with regard to any person. interest therein is through an agent, the authority
of the latter shall be in writing; otherwise, the sale
Revocation – An agency is revoked in the same manner shall be void.
as it was given.
General rule: Special information needs special A letter is sufficient [Jimenez v. Rabot].
information of revocation.
Except: if you can prove that the 3rd person read the Art. 1875. Agency is presumed to be for a
notice in the newspaper. compensation, unless there is proof to the
contrary.
Art. 1873. If a person specially informs another
or states by public advertisement that he has Broker: One who in behalf of others, and for
given a power of attorney to a third person, the compensation or fee, negotiate contracts relative to
latter thereby becomes a duly authorized agent, in property. He is the negotiator between the parties,
the former case with respect to the person who never acting in his own name, but in the name of those
received the special information, and in the latter who employ him. He is strictly a middleman and for
case with regard to any person. some purposes, the agent of both parties.
The power shall continue to be in full force until
the notice is rescinded in the same manner in When is a broker entitled to compensation?
which it was given. A broker is entitled to commission whenever he rings
to his principal a party who is able and willing to take
Agency by Estoppel: There is really no agency at all, but the property, and enter into a valid contract upon the
the alleged agent seemed to have apparent or terms named by the principal, although the particulars
ostensible, although no real authority to represent may be arranged and the matter negotiated and
another. completed between the principal and the purchaser
1.) Estoppel of Agent – One professing to act as directly. A broker is never entitled to commission for
agent for another may be estopped to deny his unsuccessful efforts.
agency both as against his asserted principal
and the 3rd persons interested in the transaction Does the law allow double agency?
in which he is engaged. Such agency is disapproved by law for being against
2.) Estoppel of Principal – public policy and sound morality. The exception is where
a.) As to Agent – One who knows that the agent acted with full knowledge and free consent of
another is acting as his agent and fails the principals.
to repudiate his acts, or accept the
benefits of them, will be estopped to In case the agent assumes a double agency, what is his
deny the agency as against such other. right to compensation?
b.) As to sub-agent – To estop the principal 1.) If with knowledge of both principals – recovery
from denying his liability to a 3rd person, can be had from both.
he must have known or be charged with 2.) If without knowledge of both – agent can
knowledge of the fact of the recover from neither.
transmission and the terms of the 3.) If with knowledge of only one – as to the
agreement between the agent and sub- principal who knew of that fact and as to the
agent. agent, they are in pari delicto and the courts
c.) As to 3rd persons – One who knows that shall leave them as they were, the contract
another is acting as his agent or between them being void as against public polisy
permitted another to appear as his and good morals.
agent, to the injury of 3rd persons who
have dealt with the apparent agent as Art. 1876. An agency is either general or
such in good faith and in the exercise of special.
reasonable prudence, is estopped to The former comprises all the business of the
deny the agency. principal. The latter, one or more specific
3.) Estoppel of 3rd Persons – A 3rd person, having transactions.
dealt with one as an agent may be estopped to
deny the agency as against the principal, agent Classification of Agents:
or 3rd persons in interest. 1.) Universal agent: One employed to do all acts
4.) Estoppel of the govt – The govt is neither that the principal may personally do, and which
estopped by the mistake or error on the part of

Helen C. Arevalo 3 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
the principal can lawfully delegate to another the Art. 1877. An agency couched in general terms
power of doing. comprises only acts of administration, even if the
2.) General agent: One employed to transact all the principal should state that he withholds no power
business of his principal, or all business of a or that the agent may execute such acts as he may
particular kind or in a particular place, or in consider appropriate, or even though the agency
other words, to do all acts connected with a should authorize a general or unlimited
particular trade, business, or employment. management.
3.) Special/Particular agent: One authorized to act
in one or more specific transactions, or to do Examples of acts of mere administration:
one or more specific acts, or to act upon a 1.) To sue for collection of debts;
particular occasion. e.g.: 2.) To employ workers or servants and employees
a.) Atty at law: One whose business is to needed for the conduct of business;
represent clients in legal proceedings. 3.) To engage counsel to preserve the ownership
b.) Auctioneer: One whose business is to and possession of the principal’s property;
sell property for others to the highest 4.) To lease real property to another person for 1
bidder at a public sale. year or less, provided the lease is not
c.) Broker: One whose business is to act as registered;
intermediary between 2 other parties. 5.) To make customary gifts for charity or to
d.) Factor: One whose business is to receive employees in the business managed by the
and sell goods for a commission, being agent
entrusted with the possession of the 6.) To borrow money if it be urgent and
goods involved in the transaction. indispensable for the preservation of the things
under administration.
Attorney-in-fact: One who is given authority by his
principal to do a particular act not of a legal character. How are contracts of agency construed?
In strict legal sense: An agent having a special authority Contracts of agency as well as general powers of
created by deed. attorney must be interpreted in accordance with the
language used by the parties. The real intention of the
General Agent v. Special Agent [SNETI] parties is primarily determined from the language used
As to… General agent Special agent and gathered from the whole instrument. In case of
Scope of All acts connected Only one or more doubt, resort must be had to the situation, surroundings
authority w/ the business in specific acts in and relations of the parties. The intention of the parties
which he is pursuance of must be sustained rather than defeated. So if the
engaged. particular contract be open to 2 constructions, one of which would
instructions or w/ uphold the intention while the other would overthrow it,
restrictions the former is to be chosen.
necessarily implied
from the act to be MEMORIZE THIS: [PNC-WIGLLS-PG-CARS]
done. Art. 1878. Special powers of attorney are
Nature of Series a Single transaction necessary in the following cases:
service transactions or a series of 1.) To make such payments as are not
authorized involving a transactions not usually considered as acts of
continuity of involving continuity administration;
service. of service. 2.) To effect novations which put an end to
Extent to By an act within Cannot in a manner obligations already in existence at the
which agent the scope of his beyond or outside time the agency was constituted;
may bind authority although the specific acts w/c 3.) To compromise, to submit questions to
principal it may be contrary he is authorized to arbitration, to renounce the right to
to his special perform. appeal from a judgment, to waive
instructions. objections to the venue of an action or to
Termination Apparent authority Termination abandon a prescription already acquired;
of authority does not terminate effective as to 3rd 4.) To waive any obligation gratuitously;
by mere revocation party unless agency 5.) To enter into any contract by which the
of authority w/o was for purpose of ownership of an immovable is
notice to 3rd contracting w/ that transmitted or acquired either
parties. 3rd party. gratuitously or for a valuable
Construction Merely advisory. Strictly construed. consideration;
of Limits the authority 6.) To make gifts, except customary ones for
instructions of agent. charity or those made to employees in
of principal the business managed by the agent;

Helen C. Arevalo 4 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
7.) To loan or borrow money, unless the 5.) Fix the terms of the sale unless there be set
latter act be urgent and indispensable for conditions stipulated by the principal;
the preservation of the things which are 6.) Sell only for cash;
under administration; 7.) Receive the price unless he was authorized only
8.) To lease any real property to another to solicit orders.
person for more than one year;
9.) To bind the principal to render some The ff are not included in a Power to Mortgage
service without compensation; The power to:
10.) To bind the principal in a contract of 1.) Sell;
partnership; 2.) Execute a 2nd mortgage;
11.) To obligate the principal as a guarantor 3.) Mortgage for the agent’s personal benefit or for
or surety; the benefit of any 3rd person, unless the contrary
12.) To create or convey real rights over has been clearly indicated.
immovable property;
13.) To accept or repudiate an inheritance; Does the principal have the power to revoke a contract
14.) To ratify or recognize obligations giving an agent exclusive authority to sell?
contracted before the agency; YES. But he may not have the right to use such
15.) Any other act of strict dominion. power if he has agreed not to exercise such power
during a certain period. In case he fails to comply with
Scope of General Authority to Purchase this obligation-not-to-do, he will be liable for damages.
Where an agent’s power to purchase is general and
unrestricted, he has implied authority to do whatever is Art. 1880. A special power to compromise does
usual and necessary in the exercise of such power. He not authorize submission to arbitration.
may:
1.) Determine the usual and necessary details of the Rationale:
contract, A principal may authorize his agent to compromise
2.) agree upon the price, because of absolute confidence in the latter’s judgment
3.) modify or rescind the contract of purchase, and discretion to protect the former’s rights and obtain
4.) accept delivery for his principal, for him the best bargain in the transaction. If the
5.) give directions for the delivery of the property transaction would be left in the hands of an arbitrator,
purchased, and said arbitrator may not enjoy the trust of the principal.
6.) may borrow money to pay for the care and
preservation of the property purchased. What happens if the agent is specifically authorized to
But he has no special power to submit to arbitration?
1.) Settle a contest between the principal and a 3rd Then the arbitration award binds the principal,
person regarding the ownership of goods provided, of course, that the agent acted within the
purchased, or scope of his authority.
2.) Agree to an account stated, or
3.) Do anything not usual or necessary to the Art. 1881. The agent must act within the scope
exercise of such authority. of his authority. He may do such acts as may be
conducive to the accomplishment of the purpose of
Scope of Special Authority to Purchase the agency.
Where the agency is a special one, or is restricted to
purchases upon certain terms and conditions, the agent Authority: The power of the agent to affect the legal
has no authority to relations of the principal by acts done in accordance with
1.) Purchase upon different terms and conditions the principal’s manifestation of consent to him. The
from those authorized, or authority of the agent is the very essence – sine qua
2.) Modify or rescind a contract of purchase made non – of the principal and agent relationship. This
by the principal. authority, unless it is otherwise agreed, includes only
the authority to act for the benefit of the principal, and
Art. 1879. A special power to sell excludes the the source of the authority is the principal and never the
power to mortgage; and a special power to agent.
mortgage does not include the power to sell.
Kinds of Authority:
The ff are included in a Power to Sell: 1.) Actual: when it is actually granted, and it may
The power to: be express or implied. It results from what the
1.) Find a purchaser or to sell directly; principal indicates to the agent.
2.) Deliver the property; 2.) Express: when it is directly conferred by words.
3.) Make the usual representation and warranty; 3.) Implied: when it is incidental to the transaction
4.) Execute the necessary transfer documents; or reasonably necessary to accomplish the
purpose of the agency, and therefore, the

Helen C. Arevalo 5 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
principal is deemed to have actually intended with whom the agent contracted; neither have
the agent to possess. such persons against the principal.
4.) Apparent or Ostensible: when it is conferred by In such case the agent is the one directly bound
words, conduct or even by the silence of the in favor of the person with whom he has
principal which causes a 3rd person reasonably to contracted, as if the transaction were his own,
believe that a particular person, who may or except when the contract involves things
may not be the principal’s agent, has actual belonging to the principal.
authority to act for the principal. Ostensible The provisions of this article shall be
authority is another name for authority by understood to be without prejudice to the actions
estoppel. between the principal and agent.
5.) General: when it refers to all the business of the
principal. Kinds of Principals:
6.) Special: when it is limited only to one or more 1.) Disclosed: if at the time of the transaction
specific transactions. contracted by the agent, the other party thereto
7.) By necessity or by operation of law: when it is has known that the agent is acting for a principal
demanded by virtue of the existence of an and has known the principal’s identity.
emergency; it terminates when the emergency 2.) Partially disclosed: if the other party knows or
has passed. has reason to know that the agent is or may be
acting for a principal but is unaware of the
Requisites for Principal to be Bound by Act of Agent: principal’s identity. The partially disclosed
1.) The agent must act in behalf of the principal; principal may enforce against the 3rd person the
2.) The agent must act within the scope of his contract of the agent like any disclosed principal.
authority. Similarly, the 3rd person has a right of action
against the principal.
When is a principal not bound by the act of his agent? 3.) Undisclosed: if the party has no notice of the
When the agent acts without or beyond the scope of fact that the agent is acting as such for a
his authority; or when the agent acts within the scope of principal.
his authority but in his own name except when the
transaction involves things belonging to the principal. General Rule in 1883: If the agent is authorized to act
on behalf of the principal but instead acts in his own
Authority? Whose behalf? Status of K name, the agent is the one directly liable to the person
With authority Principal’s Valid with whom he had contracted as if the transaction were
With authority Own Depends. [1883] his own.
Without Principal’s Unenforceable
Without Own Valid Exception: If the contract involves something belonging
to the principal.
Who to sue?
In case the agent acts in the name of the principal Remedy of the Principal if this situation arises:
and within his scope of authority, you must name the He can demand from the agent damages for his
principal as the defendant. failure to comply with the agency.

Note: The authority to look for buyers does not carry Remedy of the 3rd person with whom the agent
with it the authority to sell. contracted in case the oblig is not complied with:
If the case falls under the general rule, he can sue
Art. 1882. The limits of the agent’s authority the agent. But when the contract involves things
shall not be considered exceeded should it have belonging to the principal, he can sue the principal. But
been performed in a manner more advantageous if it cannot be determined w/o litigation who is liable, he
to the principal than that specified by him. can sue both.

What happens if the agent exceeds his authority but he


performs the agency in a manner more advantageous to
the principal? Chapter 2. Obligations of the Agent
It will e as if he did not exceed the limits of his
authority since he must do such acts as may be
conducive to the accomplishment of the purpose of the Art. 1884. The agent is bound by his acceptance
agency. to carry out the agency and is liable for the
damages which, through his non-performance, the
Test: Would the principal enter into this transaction? principal may suffer.

Art. 1883. If an agent acts in his own name, the


principal has no right of action against the persons

Helen C. Arevalo 6 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
He must also finish the business already begun Art. 1886. Should there be a stipulation that the
on the death of the principal, should delay entail agent shall advance the necessary funds, he shall
any danger. be bound to do so except when the principal is
insolvent.
General Obligations of an Agent to his Principal:
1.) To act with the utmost good faith and loyalty for In a contract of agency, may the parties stipulate that
the furtherance and advancement of the the agent shall advance the necessary funds? YES.
interests of the principal.
2.) To obey the principal’s instructions. What is the oblig then of the agent?
3.) To exercise reasonable care. He is bound to furnish such funds.
Except: When the principal is insolvent. This exception is
Specific Obligations: based on the principal’s obligation to reimburse the
1.) To carry out the agency he has accepted. agent.
2.) To answer for damages which through his non-
performance the principal may suffer. Art. 1887. In the execution of the agency, the
3.) To finish the business already begun on the agent shall act in accordance with the instructions
death of the principal should delay entail danger. of the principal.
4.) To observe the diligence of a good father or a In default thereof, he shall do all that a good
family in the custody and preservation of the father of a family would do, as required by the
goods forwarded to him by the owner in case he nature of the business.
declines an agency, until an agent is appointed.
5.) To advance the necessary funds should there be Instructions: Private directions which the principal may
a stipulation to do so. give the agent in regard to the manner of performing his
6.) To act in accordance with the instructions of the duties as such agent.
principal, and in default thereof, to do all that a
good father of a family would do. Authority v. Instructions
7.) Not to carry out the agency if its execution Authority Instructions
would manifestly result in loss or damage to the Sum total of powers Direct the manner of
principal. committed or permitted to transacting the authorized
8.) To answer for damages if there be a conflict the agent by the principal. business and contemplates
between his interests and those of the principal, only a private rule of
he should prefer his own. guidance to the agent.
9.) Not to loan to himself if he has been authorized Relates to the subject with Refers to the manner or
to lend money at interest. which the agent is mode of his action with
10.) Not to render an account of his transactions empowered to deal or the respect to matters which in
and to deliver to the principal whatever he may kinds of business or their substance are within
have received by virtue of the agency. transactions upon which he the scope of permitted
11.) To be responsible in certain cases for the act of is powered to act. action.
the substitute appointed by him. Limitations of authority are Without significance as
12.) To pay interest on funds he has applied to his operative as against those against those dealing with
own use. who have or are charged the agent with neither
with knowledge of them. knowledge nor notice of
Art. 1885. In case a person declines an agency, them.
he is bound to observe the diligence of a good Contemplated to be made Not expected to be made
father of a family in the custody and preservation known to the 3rd person known to those w/ whom
of the goods forwarded to him by the owner until dealing w/ the agent. the agent deals.
the latter should appoint an agent. The owner Instructions pertain to the principal and agent
shall as soon as practicable either appoint an Authority pertain to the agent and 3rd persons.
agent or take charge of the goods.
Exceptions to the rule that the agent must not depart
What is the rule if a person declines agency? from the instructions of the principal: [SAI]
In the event a person declines an agency, he is A departure may be justified by:
bound to observe the diligence of a good father of a 1.) A sudden emergency;
family in the custody and preservation of the goods 2.) If the instructions are ambiguous; or
forwarded to him by the owner. 3.) If the departure is so insubstantial that it does
not affect the result and the principal suffers no
Duty of Owner in case an Agency is Declined: damage thereby.
He must act as soon as possible by appointing an
agent or by taking charge of the goods. When the Agent has a right to disobey the principal’s
instructions:

Helen C. Arevalo 7 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
1.) When the instruction calls for the performance of Every stipulation exempting the agent from the
illegal acts; or obligation to render an account shall be void.
2.) Where he is privileged to do so to protect his
security/interest in the subject matter of the Rationale: Contrary to public policy as it would
agency. encourage fraud. It is in the nature of a waiver of an
action for future fraud w/c is void.
Art. 1888. An agent shall not carry out an
agency if its execution would manifestly result in If the agent fails to deliver and instead converts or
loss or damage to the principal. appropriates for his own use the money or property
belonging to his principal, with what can he be charged?
Rationale: The duty of the agent who is merely an ESTAFA.
extension of the personality of the principal is to render
service for the benefit of the principal and not to act to Art. 1892. The agent may appoint a substitute if
his detriment. Furthermore, the agent must exercise due the principal has not prohibited him from doing so;
diligence in carrying out the agency. but he shall be responsible for the acts of the
substitute:
Art. 1889. The agent shall be liable for damages 1.) When he was not given the power to
if, its execution would manifestly result in loss or appoint one;
damage to the principal. 2.) When he was given such power, but
without designating the person, and the
Note: This provision applies to both onerous and person appointed was notoriously
gratuitous transactions. The law does not distinguish so incompetent or insolvent.
neither should we. All acts of the substitute appointed against the
prohibition of the principal shall be void.
Rationale: An agent occupies a fiduciary position and
therefore is bound to exercise loyalty, obedience, and Sub-agent: A person to whom the agent delegates, as
diligence with respect to the interest of the principal. his agent, the performance of an act for the principal
which the agent has been empowered to perform
If the agent follows the principal’s instructions yet his through his representative.
acts still result in damage to 3rd persons, who is liable?
General rule: The agent is NOT liable. Relation among the principal, agent and sub-agent
Except: if before acting that way, it is obvious that In reality, the sub-agent is a stranger to the principal
the act will result to damage, then the agent is liable. who originally gave life to the agency. But if the agent is
authorized to appoint a sub-agent, the relation of
Art. 1890. If the agent has been empowered to principal and agent exists between the principal and the
borrow money, he may himself be the lender at sub-agent. That is, the sub-agent may be the agent of
the current rate of interest. If he has been the principal if he is in actual control of the business and
authorized to lend money at interest, he cannot the principal knows of his appointment or knows that his
borrow it without the consent of the principal. appointment is necessary. Consequently, any act done
by the sub-agent in behalf of the principal is deemed an
Rationale: The agent can lend money to the principal act of the principal; so neither agent nor sub-agent may
using the agent’s own funds at the current rate of be held personally liable as long as they act within the
interest and NOT at a higher interest rate because the scope of their authority.
agent is supposed to act for the principal’s benefit.
If the agent is authorized to lend the principal’s When can an agent appoint a sub-agent?
money, with interest, to 3rd persons, the agent can’t be So long as there’s no prohibition. However, he shall
the borrower without the consent of the principal be responsible for all the sub-agent’s acts.
because the agent may not be a good borrower or he
may be insolvent or he may not be a good risk. There is 4 Instances where a Sub-agent is appointed and the
a danger here that the interest of the principal would be Effects of each:
jeopardized. Instance Effect
This would also seem to be the case if the agent is No prohibition Agent responsible for all
authorized to lend money w/o interest because of the the acts of sub-agent.
same reason. Prohibition Sub-agent’s acts are VOID
as to the principal.
Art. 1891. Every agent is bound to render an Authority to appoint but Agent liable for acts of
account of his transactions and to deliver to the not designated by principal sub-agent if the sub-agent
principal whatever he may have received by virtue is notoriously incompetent
of the agency, even though it may not be owing to or insolvent.
the principal. Authority to appoint and Agent is released from any
designated by principal liability from the acts of

Helen C. Arevalo 8 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003

the sub-agent. Reason for general rule: Because an agent who acts as
such within the scope of his authority represents the
principal so that his contract is really the principal’s.
Art. 1893. In the cases mentioned in Nos. 1 and
2 of the preceding article, the principal may Exceptions:
furthermore bring an action against the substitute 1.) When the agent binds himself; or
with respect to the obligations which the latter 2.) When he exceeds the limits of his authority
has contracted under the substitution. without giving the third party sufficient notice of
his powers.
When can the principal sue the substitute?
Under the premises given in the previous provision, Reasons for exceptions:
the principal can sue both the agent and the substitute. 1.) When the agent expressly binds himself, he
thereby obligates himself personally and by his
Art. 1894. The responsibility of two or more own act.
agents, even though they have been appointed 2.) When the agent exceeds his authority, he really
simultaneously, is not solidary, if solidarity has not acts without authority and therefore, the
been expressly stipulated. contract is unenforceable against the principal.
The agent becomes personally liable because y
If solidarity is not stipulated, what is the liability to 2 or his wrong or omission, he deprives the 3rd party
more agents? JOINT. with whom he contracts of any remedy against
Each is liable only for proportionate part of debt. the principal.

Art. 1895. If solidarity has been agreed upon, Art. 1898. If the agent contracts in the name of
each of the agents is responsible for the non- the principal, exceeding the scope of his authority,
fulfillment of the agency, and for the fault or and the principal does not ratify the contract, it
negligence of his fellow agents, except in the shall be void if the party with whom the agent
latter case when the fellow agents acted beyond contracted is aware of the limits of the powers
the scope of their authority. granted by the principal. In this case, however,
the agent is liable if he undertook to secure the
What happens if solidarity has been agreed upon? principal’s ratification.
Then each of the agents becomes solidarily liable for:
1.) The non-fulfillment of the agency; or Art. 1899. If a duly authorized agent acts in
2.) The fault or negligence of the fellow agent accordance with the orders of the principal, the
provided the latter acted within the scope of his latter cannot set up the ignorance of the agent as
authority. to circumstances whereof he himself was, or ought
But the innocent agent has a right later on to recover to have been aware.
from the guilty or negligent agent.
This article refers to the liability of the principal
What happens if the fellow agent acted beyond the towards 3rd persons.
scope of his authority?
Then the innocent agent cannot be liable at all to the What happens if the principal appoints an agent who is
principal even if solidarity had been agreed upon. ignorant?
Then the fault is the principal’s alone. Equity
Art. 1896. The agent owes interest on the sums demands that the principal should be bound by the acts
he has applied to his own use from the day on of the agent if the latter acts within the scope of his
which he did so, and on those which he still owes authority and in accordance with the instructions of the
after the extinguishment of the agency. former.

Art. 1897. The agent who acts as such is not Art. 1900. So far as third persons are
personally liable to the party with whom he concerned, an act is deemed to have been
contracts, unless he expressly binds himself or performed within the scope of the agent’s
exceeds the limits of his authority without giving authority, is such act is within the terms of the
such party sufficient notice of his powers. power of attorney, as written, even if the agent
has in fact exceeded the limits of his authority
Principal Agent 3rd Party (wrong party to complain if according to an understanding between the
the principal doesn’t complain principal and the agent.
of the agent’s acts)
Requisite for article to apply:
General rule: “an agent who acts as such is not Authority to agent must be in writing.
personally liable to the party with whom he contracts.”
“Scope of agent’s authority” includes:

Helen C. Arevalo 9 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
Not only the actual authorization conferred upon the i.) Vary the terms of an express
agent by the principal, but also that which has authorization;
apparently or impliedly been delegated to him. ii.) Dispense with a legal requirement
enacted for the principal’s benefit;
To hold the principal liable, a 3rd person dealing with an iii.) Change a rule of law or dispense
agent must: with a formality required by law;
Discover upon his peril not only the fact of agency iv.) Vary an essential quality of the
but the nature and extent of authority of the agent. He agency relationship.
is put on inquiry. He must also act with ordinary b.) General rule: principal must have notice
prudence and reasonable diligence. of the alleged custom, before the agent’s
acts, in accordance therewith, may bind
Fundamental principles when inquiring whether authority the principal. Exceptions:
exists: i.) Where the principal and the agent
1.) The law indulges in no bare presumptions that reside in the same community, the
an agency exists, it must be proved and usage is definite and well-known,
presumed from facts; and the agent has no notice that he
2.) The agent cannot establish his own authority, is to act to the contrary;
either by his representations or by assuming to ii.) Where the agent is authorized to
exercise it; deal in a particular place or in a
3.) An authority cannot be established by mere particular market exchange.
rumor or general reputation; 4.) By necessity – the existence of an emergency or
4.) A general authority is not an unlimited one; and other unusual conditions may operate to invest
5.) Every authority must find its ultimate source in in an agent authority to meet the emergency,
some act or omission of the principal. provided:
a.) Emergency really exists;
In case the fact of agency or the extent of the authority b.) Agent is unable to
of the agent is controverted, the burden of proof is on: communicate w/ the principal;
The 3rd person to establish the fact of agency or the c.) Agent’s enlarged authority is
extent of authority of the agent. exercised for the principal’s
protection; and
Does the 3rd person have to inquire further if the power d.) The means adopted are
of attorney is written? reasonable under the
No. He is not required to inquire further than the circumstances.
terms of the written power of attorney. 5.) By certain doctrines –
a.) Apparent authority
If there is a secret mutual understanding between the b.) Liability by estoppel;
principal and the agent, and such is not expressed in the c.) Ratification.
written power of attorney, does the 3rd person have to 6.) By the ejusdem generis rule – such that where
inquire? in an instrument of any kind, an enumeration of
No. As far as he is concerned, an act of the agent specific matters is followed by a general phrase
within the terms of the power of attorney as written, is is held to be limited in scope by the specific
within the scope of the agent’s apparent authority matters.
notwithstanding that the agent may have exceeded the
limits of his actual authority according to a secret Responsibility of principal when agent acts w/ improper
understanding between him and the principal. In such a motives:
case, the principal is estopped from claiming that the General rule: Motive of agent in entering into a K w/
agent exceeded his authority. a 3rd person is immaterial.
Exceptions:
Ways by which the agent’s authority may be broadened 1.) Where the 3rd person knew that the agent was
or restricted: [I’m-UNDEr] acting for his benefit, in w/c case, the principal
1.) By implication – agent’s authority extends not is not liable to the 3rd person; and
only to express requests, but also to those acts 2.) Where the owner is seeking recovery of personal
and transactions incidental thereto. It embraces property of w/c he has been unlawfully deprived.
all the necessary and appropriate means to
accomplish the desired end. Principal’s responsibility for an agent’s
2.) By usage and custom – misrepresentation:
a.) An agent’s authority may not be 1.) Within the scope of the agent’s authority –
enlarged through usage and custom in Principal is subject to liability for lass caused to
the following cases: Where it is sought another by the 3rd persons reliance upon a
to… deceitful representation of an agent in the
course of his employment if:

Helen C. Arevalo 10 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
a.) Representation is authorized;
b.) Within the implied authority of the agent Art. 1903. The commission agent shall be
to make for the principal; or responsible for the goods received by him in the
c.) Apparently authorized. terms and conditions and as described in the
2.) Beyond the scope of the agent’s authority – consignment, unless upon receiving them he
General rule: Principal is not bound. should make a written statement of the damage
Exception: when the principal takes advantage and deterioration suffered by the same.
of a K made under the false misrepresentation of
his agent. Commission agent: One whose business is to receive
3.) For the agent’s own benefit – Principal is liable and sell goods for a commission and who is entrusted by
(motive of agent immaterial). the principal with the possession of goods to be sold,
and usually selling in his own name.
Art. 1901. A third person cannot set up the fact
that the agent has exceeded his powers, if the Ordinary agent v. Commission agent:
principal has ratified, or has signified his Ordinary agent Commission agent
willingness to ratify the agent’s acts. Acts for and behalf of his May act in his own name
principal. or in that of his principal.
Effect of ratification by the principal: Need not have possession Must be in possession.
Ratification of a contract gives it the same effect as if of the goods of his
the principal had originally authorized it. principal.

Who must ratify the contract? Commission agent v. broker:


Only the principal. But there must be knowledge on Commission agent Broker
the part of the principal of the things he is going to Has a relation to principal, No relation w/ the thing
ratify. buyers or sellers, and the w/c he purchases or sells.
property itself. Merely a go-between.
When can the 3rd person repudiate the contract?
Before actual ratification by the principal, or before Liability of commission agent as to goods received:
the principal has signified his willingness to ratify the If the commission agent received goods consigned to
agent’s acts. him, he is responsible for any damage or deterioration
suffered by the same in the terms and conditions and as
Effect of the principal receiving the benefits of the described in the consignment.
transaction:
He is deemed to have ratified it. A principal may not Presumption established in this article:
accept the benefits of a transaction and at the same Damage in the merchandise were suffered while in
time repudiate its burdens. the possession and custody of the agent.

Art. 1902. A third person with whom the agent What the commission agent must do to avoid liability:
wishes to contract on behalf of the principal may Make a written statement of the damage and
require the presentation of the power of attorney, deterioration if the goods received by him do not agree
or the instructions as regards the agency. Private w/ the description in the consignment.
or secret orders and instructions of the principal
do not prejudice third persons who have relied Agent v. Depositary:
upon the power of attorney or instructions shown Agent Depositary
them.
Cannot commingle goods Can commingle goods of
of the same kind. the same kind.
Duty of a 3rd person who deals w/ an agent:
3rd person deals w/ an agent at his peril. He is bound
Art. 1904. The commission agent who handles
to inquire as to the extent of the agent’s authority, and
goods of the same kind and mark, which belong to
this is especially true where the act of the agent is of an
different owners, shall distinguish them by
unusual nature. Ignorance of the agent’s authority is no
countermarks, and designate the merchandise
excuse. It is his duty to require the agent to produce his
respectively belonging to each principal.
power of attorney to ascertain the scope of his authority.
He may also ask for the instructions of the principal.
Purpose of this provision:
rd Prevent any possible confusion or deception.
Do secret orders or private instructions prejudice 3
persons?
Art. 1904 gives the general rule. Exceptions:
No, he cannot be prejudiced by any secret
1.) By custom;
understanding between the principal and the agent.
2.) Collecting banks.
Such secret orders cannot be invoked as against 3rd
parties if the agent had apparent authority.

Helen C. Arevalo 11 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
Art. 1905. The commission agent cannot, On the contrary, the principal may sue the buyers in his
without the express or implied consent of the own name. In such a case, the agent amounts to no
principal, sell on credit. Should he do so, the more than a guaranty. Liability is a contingent pecuniary
principal may demand from him payment in cash, liability.
but the commission agent shall be entitled to any
interest or benefit, which may result from such Can the agent with a guarantee commission put up the
sale. defense of insolvency of the debtor?
No. an agent receiving a guarantee commission
Rule given in this article: cannot put up the defense that the debtor-3rd person
Commission agent can sell on credit only with the possesses no property since this is precisely the risk the
express or implied consent of the principal. commission agent assumes.

Right of the principal in case the commission agent sold Art. 1908. The commission agent who does not
goods on credit without authority: [CR] collect the credits of his principal at the time when
2 alternatives: they become due and demandable shall be liable
1.) He may require payment in cash, in w/c case, for damages, unless he proves that he exercised
any interest or benefit from the sale on credit due diligence for that purpose.
shall belong to the agent since the principal
cannot be allowed to enrich himself at the Obligation of the commission agent under this article:
agent’s expense; or The commission agent who has made an authorized
2.) He may ratify the sale on credit, in w/c case it sale on credit must collect the credits due the principal
will have all the risks and advantages to him. at the time they become due and demandable. If he fails
to do so, he shall be liable for damages unless he can
Art. 1906. Should the commission agent, with show that the credit could not be collected
authority of the principal, sell on credit, he shall so notwithstanding the exercise of due diligence on his
inform the principal, with a statement of the part. In such a case, the principal’s remedy is to proceed
names of the buyers. Should he fail to do so, the against the debtor.
sale shall be deemed to have been made for cash
insofar as the principal is concerned. Does this article apply to a case where there is a
guarantee commission?
Obligation of the commission agent where a sale on No, because the agent already assumed the risks of
credit was authorized: collection by accepting the guarantee commission.
An authorized sale on credit shall be deemed to have
been on a cash basis insofar as the principal is Art. 1909. The agent is responsible not only for
concerned if the agent fails to inform the principal of fraud, but also for negligence, which shall be
such sale on credit with a statement of the names of the judged with more or less rigor by the courts,
buyers. according to whether the agency was or was not
for a compensation.
Reason for this article: Prevent the agent from stating
that the same was on credit when in fact it was made Is the agent liable for fraud? Yes, in all cases.
for cash.
For negligence? Yes, but this shall be adjudged with
Art. 1907. Should the commission agent receive rigor by the courts.
on a sale, in addition to the ordinary commission,
another called a guarantee commission, he shall Why does the court have to take into consideration
bear the risk of collection and shall pay the whether the agency was gratuitous or for compensation?
principal the proceeds of the sale on the same In order to fix the liability of the agent for negligence
terms agreed upon with the purchaser. only (not fraud).

Guarantee commission: One where, in consideration of


an increased commission, the commission agent
guarantees to the principal the payment of debts arising
Chapter 3. Obligations of the Principal
through his agency.

Purpose of guarantee commission: To compensate the


Art. 1910. The principal must comply with all
agent for the risks he will have to bear in the collection
the obligations which the agent may have
of the credit due to the principal.
contracted within the scope of his authority.
As for any obligation wherein the agent has
Nature of liability of guarantee commission agent:
exceeded his power, the principal is not bound
Liable to principal if the buyer fails to pay or is
except when he ratifies it expressly or tacitly.
incapable of paying. But he is not primarily the debtor.

Helen C. Arevalo 12 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
ratification is subsequent but it is equivalent to prior
Where can the specific obligations and duties of the authority.
principal to the agent be found?
Usually in the contract creating the agency. Conditions to ratification: [ICK-PEC]
1.) Intent to ratify;
Principal obligations of the principal to the agent in the 2.) Principal must have capacity & power to ratify;
absence of such agreement: 3.) He must have had knowledge of material facts;
1.) To comply with all the obligations which the 4.) The act must be done in behalf of the principal;
agent may have contracted in his name and 5.) Principal must ratify acts in its entirety;
within the scope of his authority; 6.) The act must be capable of ratification.
2.) To advance should the agent so request sums
necessary for the execution of the agency; Effects of ratification with respect to the agent:
3.) To reimburse the agent for all advances made 1.) Relieves the agent from liability to the 3rd party
by him provided the agent is free from fault; to the unauthorized transaction; and
4.) To indemnify the agent for all the damages 2.) To his principal for acting without authority; and
which the execution of the agency may have 3.) He may recover compensation due for
caused the latter without fault or negligence on performing the act which has been ratified.
his part; and
5.) To pay the agent the compensation agreed upon Effects of ratification with respect to the principal:
or the reasonable value of the latter’s services. 1.) He assumes responsibility for the unauthorized
act, as fully as if the agent had acted under
Liability of the principle to 3rd persons: original authority; but
Where the relation of agency legally exists, the 2.) He is not liable for acts outside the authority
principal will be liable to 3rd persons for all acts approved by his ratification.
committed by the agent in his behalf in the course and
within the actual or apparent scope of his authority, and Effects of ratification with respect to 3rd persons:
this is not altered y the fact that the agent may also be 1.) 3rd person is bound by ratification to the same
liable, nor by the fact that some of the acts are to the extent as he would have been bound if the
principal’s advantage while others are to his ratified act had been authorized in the 1st
disadvantage. instance; and
2.) He cannot raise the question of the agent’s
Liability of the principal for mismanagement of the authority to do the ratified act.
business by the agent:
Mismanagement of the business of the principal by Must ratification be communicated to the agent or to the
the agent does not relieve said principal from the 3rd party?
responsibility that he had contracted to 3rd persons. But No. To be effective, ratification need not be
where the agent’s acts bind the principal, the latter may communicated or made known to the agent or the 3rd
seek recourse against the agent. party. The act or conduct of the principal rather than his
communication is the key. But before ratification, the 3rd
Liability of principal for a tort committed by the agent: party is free to revoke the unauthorized contract.
The principal is civilly liable to 3rd persons for torts of
an agent committed at the principal’s direction or I the Art. 1911. Even when the agent has exceeded
course and within the scope of the agent’s employment. his authority, the principal is solidarily liable with
The principal cannot escape liability whether the tort is the agent if the former allowed the latter to act as
committed willfully or negligently so long as the tort is though he had full powers.
committed by the agent while performing his duties in
furtherance of the principal’s business. Nor is it a Estoppel: precludes a person from denying or asserting
defense that the act which caused the tort was unknown anything contrary to that which has been established as
to him or even that it was in disobedience to his the truth by his own deed or representation, either
instructions. express or implied.

Meaning of ratification in 2nd paragraph: Ratification v. Estoppel


Ratification is the adoption or affirmance by a person Ratification Estoppel
of a prior act which did not bind him, but which was Rests on intention Rests on prejudice
done or professed to be done on his account, thus giving Affects the entire Affects only relevant parts
effect to the act as if originally authorized. The doctrine transaction from the of the transaction.
applies to the ratification of the act of an agent in excess beginning
of his authority of the act of one who purports to be an Substance is confirmation Substance is the principal’s
agent but who is really not. It may be implied from the of a unauthorized act or inducement to another to
acceptance of benefits by the principal under a contract conduct after it has been act to his prejudice.
entered in his name. The authority created by done.

Helen C. Arevalo 13 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
In case the agent sells the goods for more than his
Apparent authority v. Authority by estoppel claim, is he entitled to the excess? No.
Apparent authority Authority by estoppel
That which though not Arises in cases where the What is the nature of the agent’s right of lien?
actually granted, the principal, by his Specific or particular. It is not general in the sense
principal knowingly negligence, permits his that it gives the agent a right to retain the goods for
permits the agent to agent to exercise powers claims disconnected with the agency.
exercise or holds him out not granted to him, even
as possessing. though the principal may Art. 1915. If two or more persons have
have no notice or appointed an agent for a common transaction or
knowledge of the conduct undertaking, they shall be solidarily liable to the
of the agent. agent for all the consequences of the agency.

Basis of article 1911: Requisites for application of this article: [2C2]


Principle of estoppel. Necessary for the protection of 1.) There are 2 or more principals;
innocent 3rd persons. Instance when solidarity is 2.) The principals have all concurred in the
imposed by law. appointment of the same agent;
3.) The agent is appointed for a common
Art. 1912. The principal must advance to the transaction or undertaking.
agent, should the latter so request, the sums
necessary for the execution of the agency. Why is solidarity the rule?
Should the agent have advanced them, the Because of the common transaction. Thus, even if
principal must reimburse him therefor, even if the the agent was appointed separately, the rule should
business or undertaking was not successful, apply in the interest of justice.
provided the agent is free from all fault.
The reimbursement shall include interest on the Art. 1916. When two persons contract with
sums advanced, from the day on which the regard to the same thing, one of them with the
advance was made. agent and the other with the principal, and the
two contracts are incompatible with each other,
Should the principal reimburse the agent for advances that of prior date shall be preferred, without
made by the latter even if the agency was unsuccessful? prejudice to the provisions of Article 1544.
It depends. Yes, if the agent is free from fault. No, if
the agent was with fault. May 2 persons contract with regard to the same thing,
one with the agent and the other with the principal?
Is a broker always entitled to a commission? Yes.
A broker is entitled to a commission if the sale is
effected, but not if there is no perfected transaction. If this situation arises, which of the contracts will be
preferred?
Art. 1913. The principal must also indemnify the If the contracts are compatible, they will both be
agent for all the damages which the executive of given effect. If they are incompatible, then the contract
the agency may have caused the latter, without of prior date shall be preferred.
fault or negligence on his part.
Art. 1544: If the same thing should have been sold to
Basis for the above rule: Equity. Since the principal different vendees, the ownership shall be transferred to
receives the benefits of the agency, and has a right to the person who may have 1st taken possession thereof
demand damages from the agent should the latter not in good faith if it should e movable property. Should it
perform the agency, he should answer for the damages be immovable property, the ownership shall belong to
resulting from the execution thereof without fault or the person acquiring it who in good faith 1st recorded it
negligence on the part of the agent. in the Registry of Property. Should there be no
inscription, the ownership shall pertain to the person
Art. 1914. The agent may retain in pledge the who in good faith was 1st in possession; and in the
tings which are the object of the agency until the absence thereof, to the person who presents the oldest
principal effects the reimbursement and pays the title, provided there is good faith.
indemnity set forth in the two preceding articles.
Art. 1917. In the case referred to in the
What happens when the principal fails to reimburse or preceding article, if the agent has acted in good
indemnify the agent for expenses set forth in arts. 1912 faith, the principal shall be liable in damages to
and 1913? the third person whose contract must be rejected.
The agent has the right to retain in pledge the things If the agent acted in bad faith, he alone shall be
which are the object of the agency. responsible.

Helen C. Arevalo 14 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
Is the principal always liable for damages caused by a 2.) By the withdrawal of the agent;
3rd person or is it the agent who is liable? 3.) By the death, civil interdiction, insanity or
Whether the principal or the agent will be the one insolvency of the principal or of the agent;
liable for damages to the 3rd person who has been 4.) By the dissolution of the firm or corporation
prejudiced depends on whether the agent acted in bad which entrusted or accepted the agency;
faith or not. If the agent acted in good faith and within 5.) By the accomplishment of the object or
the scope of his authority, the principal incurs liability. If purpose of the agency;
the agent acted in bad faith, he alone shall be 6.) By the expiration of the period for which
responsible to such person. the agency was constituted.

What is the extent of liability covered under this article? Meaning of Presumption of continuance of agency:
Damages. When once shown to have existed, an agency
relation will be presumed to have continued in the
What is good faith referred to in this article? absence of anything to show its termination.
Good faith here means that the agent had no
knowledge that the principal is dealing with a 3rd person. Who has the burden of proving the
revocation/termination of agency?
Note: If the contract is one of sale, article 1544 governs The burden of proving a revocation or other
and not arts. 1916 and 1917. termination of agency is on the party asserting it.

Art. 1918. The principal is not liable for the Note: Even if the reason for extinguishing the agency is
expenses incurred by the agent in the following not true, the agent can’t insist on reinstatement. The
cases: [F*CKS] agent can only demand damages.
1.) If the agent acted in contravention of the
principal’s instructions, unless the latter Modes of extinguishing an agency, generally: [ASO]
should wish to avail himself of the benefits 1.) Agreement;
derived from the contract; 2.) Subsequent acts of the parties which may be
2.) When the expenses were due to the fault of either:
the agent; a.) By the act of both parties or by mutual
3.) When the agent incurred them with consent;
knowledge that an unfavorable result would b.) By the unilateral act of one of them.
ensue, if the principal was not aware thereof; 3.) By operation of law.
4.) When it was stipulated that the expenses
would be borne by the agent, or that the latter Modes of extinguishment, specifically: [WR-DEAD]
would be allowed only a certain sum. 1.) Withdrawal of the agent;
2.) Revocation;
Instances wherein the principal is not liable for expenses 3.) Death, civil interdiction, insanity or insolvency of
incurred by the agent? the principal or of the agent;
In the instances enumerated under this article. 4.) Expiration of the period for which the agency
was constituted;
Reasons why the principal is not liable for the agent’s 5.) Accomplishment of the object or purpose of the
expenses: Under… agency; and
1.) To punish the agent, but when the principal has 6.) Dissolution of the firm/corp which entrusted or
availed of the benefits, he is deemed to have accepted the agency;
impliedly ratified the agent’s acts.
2.) “Kasi, kasalanan niya, eh.” Necessary characteristics of the parties for the
3.) The agent is guilty of bad faith and lack of continuance of the agency: [PCS]
diligence; 1.) Present;
4.) An express stipulation which is not contrary to 2.) Capacitated;
law, morals, good customs, public order or 3.) Solvent.
public policy is binding between the parties.
Why is presence necessary?
Because the general rule in art 1919 is that death of
any of the parties extinguishes agency. However in the
case where you have several principals and/or several
Chapter 4. Modes of Extinguishment of
agents, whether the death of one principal or of one
Agency agent terminates the agency would depend on the
intention of the parties. Generally the death of one of
several principals does not revoke the agent’s authority
Art. 1919. Agency is extinguished: [WR-DEAD] nor does the death of one of several agents put an end
1.) By its revocation; to the agency. The intention of the parties controls.

Helen C. Arevalo 15 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
In the absence of any agreement by the parties to
Why is capacity necessary? the contrary, the loss or destruction of the subject
For instance, in the case of civil interdiction, it matter of the agency terminates the agent’s authority to
deprives the offender during the period of his sentence deal with reference to it.
of the right to manage his property and dispose of such
property by any act or any conveyance inter vivos. A Exceptions:
person under civil interdiction hence, cannot validly give 1.) If it is possible to substitute other material for
consent. Same is true for insane people. that which was destroyed without substantial
detriment to either party, or
Why is solvency necessary? 2.) If the destroyed subject matter was not in fact
As by an act of insolvency, the principal loses control essential to the contract; and
of the subject matter of the agency, the authority of the 3.) A partial loss or destruction.
agent to act for his principal ceases by operation of law
upon an adjudication of the principal’s insolvency. On Are the modes of extinguishments of agency exclusive?
the other hand, the insolvency of the agent will No. Art. 1919 gives only those causes of extinction
ordinarily put an end to the agency, at least if it is in any which are particular to agency. But the list is not
way connected with the agent’s business which has exclusive. The general rule actually is, an agency may
caused his failure. be extinguished by the modes of extinguishments of
obligations in general whenever they are applicable, like
General rule as to death of the principal or agent: loss of the thing and novation (see art. 1231).
By reason of the very nature of the relationship
between the principal and the agent (which is fiduciary – Does war extinguish agency?
argh!), agency is distinguished ipso jure upon the death During the existence of war, a contract of agency is
of the principal. inoperative if the agent or the principal is an enemy
alien. But since it is generally conceded that war
Exceptions: suspends all commercial intercourse between the
1.) If the agency is coupled with an interest; residents of 2 belligerent states, the general rule is that
2.) If the act of the agent was executed without the agency is terminated, as a matter of law, upon the
knowledge of the death of the principal and the break of war.
3rd person who contracted w/ the agent acted in
good faith. Does legal impossibility terminate agency?
Implied in every contract is the understanding that it
Why does dissolution of a firm or corp extinguish the shall be capable of being carried out legally at the time
agency? called for by the contract. An agency then terminates if
Dissolution of a corp extinguishes its juridical a change in the law makes the purpose of the agency
existence. unlawful.

What happens when the object or the purpose of the What happens if the principal’s authority terminates?
agency is accomplished? A position which flows from a trust relationship
As between the parties, the principal and the agent, whether directly or indirectly, terminates as a matter of
the fulfillment of the purpose for which the agency was law with the destruction of the trust. Consequently, a
created ipso facto terminates the agency. sub-agent’s authority terminates with the termination of
the principal’s authority.
What happens when the term for which the agency was
supposed to continue expires? In case of loss of the subject matter, does the principal
When an agency is created for a fixed period, the incur any liability?
expiration of such period ends the agency, even though It depends. If the loss was brought about by the
the purpose for which the agency was created has not principal as in the case where the principal sells the
been accomplished. subject matter to another party notwithstanding that an
agency had been constituted in reference to it, then he
What happens if no time is specified? may be liable for damages for his wrongful terminating
The agency terminates at the end of a reasonable act. But if the subject matter is lost without the fault of
period of time. the principal, no liability is assumed by him.

Can the period be implied? Yes, from… Will a change of conditions affect the agency?
1.) The terms of the agreement; General rule: When there is a basic change in the
2.) Purpose of the agency; and circumstances surrounding the transaction not
3.) The circumstances of the parties. contemplated by the parties which would reasonably
lead the agent to believe that the principal would not
What happens if the subject matter of the agency is lost desire him to act, authority of agent is terminated.
or destroyed? Exceptions:

Helen C. Arevalo 16 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
1.) If the original circumstances are restored within be forced to retain another as his agent against
a reasonable period of time, the agent’s his will.
authority may be revived.
2.) Where the agent has reasonable doubts as to In case a principal does revoke an agency, is there any
whether the principal would desire him to act, way by which the agent can hold him liable for
his authority will not be terminated if he acts damages? Yes. For instance,
reasonably. (But when in doubt, agent could 1.) If the agency was constituted for a fixed period,
contract principal for instructions if possible). the principal shall be liable in damages
3.) Where the principal and agent are in close daily occasioned by the wrongful discharge of the
contact, the agent’s authority to act will not agent before the expiration of the period fixed.
terminate upon a change of circumstances if the 2.) If the agent can prove that the principal acted in
agent knows the principal is aware of the change bad faith by revoking the agency in order to
and does not give him new instructions. avoid payment of commission about to be
earned, the principal can be held liable for
Confidential information damages.
It is difficult to determine whether information is
confidential or not, because while the relation of Reason for requiring agent to return the document
principal and agent is confidential, not all knowledge evidencing the agency: To prevent the agent from
acquired by the agent is of a confidential nature. Some making use of the power of attorney and thus avoid
clearly is of so general a nature that equity ought not liability to 3rd persons who may subsequently deal with
attempt to restrict its subsequent use. the agent on the faith of the instrument.
Usually, what a court does is to determine 2 things:
1.) Whether the knowledge or information is indeed Kinds of Revocation:
confidential, and 1.) Express; or
2.) Whether its subsequent use ought to be 2.) Implied, e.g.:
prevented. a.) When the principal appoints a new agent
for the same business or transaction, or
Principle behind enjoining an agent from using b.) When the principal directly manages the
confidential information: business entrusted to the agent.
There is in the contract of service subsisting between
the principal and the agent an implied contract on the Is notice of revocation to the agent necessary? Yes.
part of the agent that he will not, after the service is A revocation without notice to the agent will not render
terminated, use information which he has gained while invalid an act done in pursuance of the authority.
the service has been subsisting to the detriment of his
former employer. Is express notice of revocation to the agent necessary?
As between the principal and the agent, express
Art. 1920. The principal may revoke the agency notice to the agent that the agency is revoked is not
at will, and compel the agent to return the always necessary. If the party to be notified actually
document evidencing the agency. Such revocation knows, or has reason to know, facts indicating that his
may be express or implied. authority has been terminated or suspended, there is
sufficient notice.
May an agency be terminated by a subsequent act of the
principal? Yes, when he does so, it’s called revocation. Is notice of revocation to 3rd persons necessary? Yes.

May an agency be terminated by a subsequent act of the What kind of notice should you give 3rd persons?
agent? Yes, it’s called withdrawal or renunciation. 1.) As to former customers, actual notice must e
given to them because they always assume the
Does it matter if the agency is gratuitous or with continuance of the agency relationship.
compensation when we speak of revocation by the 2.) As to other persons, notice by publication is
principal? No, art 1920 makes no distinction. enough.

Reasons: May the agent renounce the agency at will?


1.) Since the authority of the agent emanates from Yes, but subject to the contractual obligations owing
the principal, if the principal wishes to terminate the principal.
the agency the law must enable him to do so.
2.) Confidence being the cardinal basis of the Reason: The essence of the principal-agent relationship
relation, it stands to reason that it should cease is the consent and willingness of the agent to act for the
when such confidence disappears. principal. The law cannot compel the parties to continue
3.) The principal-agent relationship is consensual an agency if they do not want to do so. (The principal
and personal in nature. No one can nor should cannot even sue for affirmative specific performance
because that would lead to involuntary servitude!)

Helen C. Arevalo 17 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003

to 3rd person informed of know, as long as there is


Form of renunciation: the appointment. publication in a newspaper
It is not always necessary for the agent to renounce of general circulation.
the agency expressly. He can do so impliedly, as for
example… General rule: Special information needs special
1.) Where he has conducted himself in a manner information of revocation.
incompatible with his duties as agent; or
2.) When he abandons the object of his agency and Except: If you can prove that the 3rd person read the
acts for himself in committing a fraud upon his notice in the newspaper.
principal; or
3.) When he files a complaint against the principal Art. 1923. The appointment of a new agent for
and adopts an antagonistic attitude towards him. the same business or transaction revokes the
previous agency from the day on which notice
Does a violation of the instructions of the principal thereof was given to the former agent, without
amount to a renunciation? prejudice to the provisions of the two preceding
No. Mere fact that agent violates his instructions does articles.
not amount to renunciation, and although he may thus
render himself liable to the principal, he does not cease What does this article mean?
to become an agent. 1.) There is implied revocation of the previous
agency when the principal appoints a new agent
Art. 1921. If the agency has been entrusted for for the same business or transaction if there is
the purpose of contracting with specified persons, incompatibility. But the revocation does not
its revocation shall not prejudice the latter if they become effective as between the principal and
were not given notice thereof. the agent unless it is in some way
communicated to the latter. Again, the rights of
What is the effect of revocation in relation to 3rd persons 3rd persons who acted in good faith and without
if the agent was authorized to contract with specified knowledge of the revocation will not be
persons? prejudiced thereby.
If the agency is created for the purpose of 2.) There is no implied revocation where the
contracting with specified persons, its revocation will not appointment of another agent is not
prejudice such 3rd persons until notice thereof is given incompatible with the continuation of like
them. The reason for this is obvious. Since 3rd persons authority in the 1st agent, or if the 1st agent is
have been made to believe by the principal that the not given notice of the appointment of the new
agent is authorized to deal with them, they have a right agent.
to presume that the representation continues to exist in
the absence of notification by the principal. But of Art. 1924. The agency is revoked if the principal
course, notice is not required if the 3rd persons already directly manages the business entrusted to the
know of the revocation. agent, dealing directly with third persons.

Art. 1922. If the agent had general powers, What does the above article provide?
revocation of the agency does not prejudice third It provides for another case of implied revocation.
persons who acted in good faith and without
knowledge of the revocation. Notice of the Effect of direct management of the business by the
revocation in a newspaper of general circulation is principal himself:
a sufficient warning to third persons. Generally, it revokes the agency because there would
no longer be any basis for the representation previously
Effect of revocation in relation to 3rd persons if the agent conferred.
was authorized to contract with the public in general: Exception: when the only desire of the principal in
In case the agent has general powers, innocent 3rd doing so is for him and the agent to manage the
parties dealing with the agent will not e prejudiced by business together.
the revocation before they had knowledge thereof. In
this case, however, the fact that the revocation was Art. 1925. When two or more principals have
advertised in a newspaper of general circulation would granted a power of attorney for a common
be sufficient to 3rd persons for publication constitutes transaction, any one of them may revoke the same
notice upon everybody and this is true whether or not without the consent of the others.
such 3rd persons have read the newspaper concerned.
Rationale: Since the appointment of an agent by 2 or
Notice required in art. 1921 v. that in art. 1922: more principals for a common transaction or undertaking
Art. 1921 Art. 1922 makes them solidarily liable to the agent for all
Must be personal. May be personal. consequences of the agency, then each one of the
Revocation must be known Even if 3rd person doesn’t principals should be granted the right to revoke the

Helen C. Arevalo 18 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
power of attorney even without the consent of the to deal with the thing in order to make the
others. Remember that in a solidary obligation, the act assignment, pledge or lien effectual.
of one is the act of all.
If the contract of agency stipulates that such will be
Art. 1926. A general power of attorney is irrevocable, is such terminology controlling in all cases?
revoked by a special one granted to another agent, No. Whether an interest will make an agency
as regards the special matter involved in the irrevocable exists in a particular case is to be
latter. determined from the entire agreement between the
parties and from the facts and circumstances. The
How many agents are involved in this article? terminology is not controlling. Even if an agency is made
2, one to whom a general power is previously in terms irrevocable, the fact will not prevent its
granted. Another to whom a special power is given. revocation by the principal when the agency is not in
(Note that this can also apply if a special power is fact coupled with an interest.
subsequently given to the same agent.)
If an agency is coupled with an interest, does this mean
Effect of the issuance of a special power as regards the that the principal can never ever revoke it?
general power: No. You can still revoke in extreme situations, e.g.:
The general power is impliedly revoked as to matters 1.) Irrevocability can never be used as a shield for
covered by the special power because a special power the perpetration of acts in ad faith, breach of
naturally prevails over a general power. confidence or betrayal of trust. The law will
never permit the agent to commit frauds against
Art. 1927. An agency cannot be revoked if a the principal.
bilateral contract depends upon it, or if it is the 2.) When the interest is already terminated.
means of fulfilling an obligation already
contracted, or if a partner is appointed manager of Why is it said that agencies coupled with interest are not
a partnership in the contract of partnership and true agents?
his removal from the management is unjustifiable. Because persons with proprietary interests in the
subject matter of their agency are not true agents at all.
General rule: Principal may revoke an agency at will One of the hallmarks of the agency relation is the
since the essence of agency is the agent’s duty of control of the principal over the acts of the agent and
obedience to the principal. over the subject matter of the agency. An agency
coupled with an interest removes that control.
Exceptions: [BF=Partner]
1.) When a bilateral contract depends on the Art. 1928. The agent may withdraw from the
agency; agency by giving due notice to the principal. If the
2.) When the agency is the means of fulfilling an latter suffer any damage by reason of the
obligation already contracted; withdrawal, the agent must indemnify him
3.) When a partner is appointed as manager of a therefor, unless the agent should base his
partnership in the contract of partnership and withdrawal upon the impossibility of continuing
his removal from the management is the performance of the agency without grave
unjustifiable. detriment to himself.

Can an agency, coupled with an interest, be terminated Does the agent have a right to renounce or withdraw
by the sole will of the principal? No. from the agency at any time?
Yes. Even without the consent of the principal. But, in
Requisite for agency to be irrevocable for being coupled the latter case, he may be subject to liability for breach
with a interest: of contract or for tort.
Interest of the agent must be in the subject matter of
the power conferred and not merely an interest in the Basis: Constitutional prohibition against involuntary
exercise of the power. servitude.

Instances of an agency coupled with an interest: Obligation of agent if he withdraws from agency without
1.) When the agent has parted with value or just cause:
incurred liability at the principal’s request, and 1.) Notify principal (even if w/ just cause); and
he is looking to the exercise of the power as the 2.) Indemnify the principal should the latter suffer
means of reimbursement or indemnity. any damage by reason of such withdrawal.
2.) When the interest in the thing concerning which
the power is to be exercised arises from an Reason for indemnity: To answer for losses and
assignment, pledge or lien created by the damages occasioned by the non-fulfillment of his
principal with the agent being given the power obligation as agent.

Helen C. Arevalo 19 Section II-D


Finals Reviewer AGENCY 2nd Sem; 2003
Is the agent liable for indemnity if the withdrawal was same way that revocation of the agency does not
for just cause? No. Agent cannot be held liable if the prejudice 3rd persons who have dealt with the agent in
agent withdraws for a valid reason as when: good faith without notice of revocation, such 3rd persons
1.) The withdrawal is based on the impossibility of are also protected where it is not shown that the agent
continuing the agency without grave detriment had knowledge of the termination of the agency because
to himself; or of the death of the principal or any other like cause
2.) Fortuitous event. which extinguishes the agency.

What happens when the agent sues the principal? Does this article only require the agent to be in good
Equivalent to withdrawal of the agent. faith? No, both agent and 3rd person must be.

Art. 1929. The agent, even if he should Art. 1932. If the agent dies, his heirs must
withdraw from the agency for a valid reason, must notify the principal thereof, and in the meantime
continue to act until the principal has had adopt such measures as the circumstances may
reasonable opportunity to take the necessary demand in the interest of the latter.
steps to meet the situation.
In case of death of agent, what must the heirs do?
Obligation of agent after withdrawal: 1.) Notify the principal to enable the latter
Even when withdrawal is for a valid reason, he must reasonable opportunity to take such steps as
continue to act until the principal has had reasonable may be necessary to meet the situation; and
opportunity to take the necessary steps like the 2.) Adopt such measures as the circumstances may
appointment of a new agent to remedy the situation demand in the interest of the principal.
caused by the withdrawal. This is to prevent damage or
prejudice to the principal. Can the heirs continue the agency?
General rule: No, since an agency calls for personal
Art. 1930. The agency shall remain in full force services on the part of the agent.
and effect even after the death of the principal, if Exceptions:
it has been constituted in the common interest of 1.) Agency by operation of law, or a presumed or
the latter and of the agent, or in the interest of a tacit agency;
third person who has accepted the stipulation in 2.) Agency is coupled with an interest in the subject
his favor. matter of the agency.

If the agent dies, his heirs should tell the principal.


However, if the principal dies, the principal’s heirs have GOOD LUCK! ☺
no obligation to tell the agent.
This is for that small syndicate of people who name
General rule: Agency is terminated instantly by the
themselves after a labor case!
death of the principal.
I basically just typed up the reviewer minus the cases and
Rationale: Agency, being based on representation, there problems. I don’t think the problems are all that important,
is no one to e represented where the principal is already they’re Atty. Quimson problems not Enrile’s. Our case outline
dead. differs from theirs a bit too. Besides, we’re all set with case
digests na, we just have to find them!
Exceptions:
Thanx to that other group of people who name themselves
1.) If the agency has been constituted in the
after “an imaginary perfect place”. Sorry, I plagiarized your
common interest of the principal and the agent; reviewer guys, but I wouldn’t have had to if you didn’t stamp
and your huge seal right smack center of every page!
2.) If the agency has been constituted in the
interest of a 3rd person who has accepted the
stipulation in his favor.

Art. 1931. Anything done by the agent, without


knowledge of the death of the principal or of any
other cause which extinguishes the agency, is
valid and shall be fully effective with respect to
third persons who may have contracted with him
in good faith.

What does this article provide?


It provides that the death of the principal or any
other like cause, extinguishes the agency. But in the

Helen C. Arevalo 20 Section II-D