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LAW ON AGENCY

Introduction
Formerly, a distinction was made between
commercial agency and civil agency. The
commercial agency was governed by the
Code of Commerce and the Civil Agency
was governed by the Spanish Civil Code.
With the enactment of Republic Act No.
386, otherwise known as the New Civil
Code od the Philippines, the distinction
was removed, for the provisions of the
Code of Commerce on Agency were
repealed. Presently, the law that governs
agency is the New Civil Code particularly
Articles 1868 to 1932 inclusive.

GENERAL PROVISIONS
Define Agency (MANDATO):
Agency is a contract whereby a
person binds to render some service or
to do something in representation or on
behalf of another, with the consent or
authority of the latter. (Art. 1868)

GENERAL PROVISIONS
Observations: Definition is very broad
and therefore defective. As worded,
the definition includes relationship of
master and servant of employer and
employee of lessor and independent
contractor.
The servant, the employee and the
independent contractor all render
some work or service in
representation or on behalf of
another.

GENERAL PROVISIONS
NOTE: What the agent really does for
the principal is a JURIDICAL ACT, and
not merely a material one.
In other words, while an agent may
exercise discretionary powers, the
lessees of service ordinarily performs
only ministerial functions.

GENERAL PROVISIONS
Justice JBL Reyes: The true essence
of the definition, it is submitted lies
in that the agent enter or is
designed to enter judicial relations,
with or without representation of the
principal.

GENERAL PROVISIONS
Agency is also a representation relation.
Representation constitutes its basic. By
this legal fiction of representation, the
actual absence of the principal is
transferred into legal fiction of
representation, the actual absence of
the principal is transferred into legal
or judicial presence.

GENERAL PROVISIONS
Importance:
It enables a man to increase the range
of his individual and corporate activity
by enabling him to be constructively
present in many places and to carry on
diverse at the same time.

GENERAL PROVISIONS
Purpose and Nature of Agency:
The purpose is to extend the
personality of the principal.
It enables the activity of man
which is naturally limited in its
exercise by impositions of his
physiological conditions to be
extended, permitting him to
perform diverse juridical acts at
the same time in different places.

GENERAL PROVISIONS
Basis of Agency
is
REPRESENTATION.

GENERAL PROVISIONS
Nature:
The relation is fiduciary in character
since it is based on trust and
confidence. Hence the agent is
estopped from asserting or acquiring
a title to the subject matter of the
agency adverse to that or the
principal.

GENERAL
PROVISIONS
Parties to a Contract of Agency:
Principal (Mandante) one whom
the agent represent and from
whom he derives his authority, he
is the person represented; and
Agent (Mandatario) one who acts
for and represents another; he is
the person acting in a
representative capacity.

GENERAL
PROVISIONS
Who may be a principal?
Any person who is legally competent to
act for himself may act through an
agent. This is based on the general
principle that whatever a person may
do personally, he may do through
another. This is not absolute though,
because there are certain acts which
are as such of personal nature and
they cannot be delegated or that the
law prohibits it.

GENERAL
PROVISIONS
Some of these acts which cannot
be performed by an agent are:
Voting in national or local elections,
executing a will, the making of
affidavit, right to be represented
in marriage and attending a board
of directors meeting (Sec. 25 of
the Corp. Code)

GENERAL
PROVISIONS
Who may act as agent?
It also follows that if a person is
legally competent to enter into any
contract, he can also enter into a
contract for and on behalf of
another. It is generally held that
the agent need not be absolutely
legally capacitated to qualify as an
agent.

GENERAL
PROVISIONS
Ordinary intelligence is sufficient
qualification. Thus a minor may
be appointed as an agent, for
when he acts, provided, he keeps
himself within the scope of his
authority, the act is not
considered as his but his principal.
Of course an idiot, insane person
or a very young child cannot act
as an agent.

GENERAL
PROVISIONS
Example:
P appointed A, a minor, to sell his car
for Php 50,000. A not knowing that
he is not capacitated sold the car
following the orders of P to C. for Php
50,000. P later on cannot annul the
sale by claiming that the agent was
incapacitated, a circumstance whereof
he himself was, or ought to have been
aware. See (Article 1899)

Principal or essential elements


of contract of Agency:
1.There is consent, expressed
or implied;
2. The object is the execution
of juridical act in relation to
a third person;

3. The agent acts as a


representative and not for himself;
4. The agent acts within the scope
of his authority

GENERAL PROVISIONS
5.vAgent discloses his principal or
acts in behalf of the principal
6. Cause is for compensation as a
general rule

GENERAL
PROVISIONS
CHARACTERISTIC AS A
CONTRACT;

Nominate
Consensual
Preparatory
Informal
Personal
Representative
Derivative

GENERAL
PROVISIONS
How is agency created?
a.By appointment - usually made by
giving a person a power of attorney
b.By ratification created when a
person adopts or confirms an act
performed by another in his behalf
without prior authority.

GENERAL
PROVISIONS
c. By estoppel created when a person
willfully, negligently or by his silence
leads another to believe that a certain
person is his agent when no agency
relationship exists. Hence principal is
precluded from denying the existence
of agency
d. By necessity arises when the
emergency makes it necessary for one
to act for another with receiving any
authority from the latter.

GENERAL PROVISIONS
Article 1869
Different Kinds or Classification of
Agency:
As to form:
Oral valid unless the law
requires specific form

GENERAL PROVISIONS
Written
a. Those that require a SPA under
Article 1878 otherwise the act
performed cannot be enforced
against the principal if not in a
special power of attorney
b. When the sale is of a piece of
land or an interest therein made
through agent, the authority of the
agent must be in writing, otherwise
the sale is void. (Art. 1874).

GENERAL PROVISIONS
As to the manner of creation:
Express- one where the agent has
been actually authorized by the
principal either orally or in writing;
Implied one, which implied from
the
a) acts of the principal,
b) from his silence or
c) lack of action, or
d) his failure to repudiate the
agency.

GENERAL PROVISIONS
As to cause:
Onerous or compensated one
where the agent receives
compensation for his services.
Agency is presumed to be for
compensation. (art. 1875)
Gratuitous one where the agent
receives no compensation.

GENERAL PROVISIONS
As to extent of business covered:
General one which comprises all
business of the principal (art.
1876); or
Special one which comprises one
or specific transactions;

GENERAL PROVISIONS
As to authority conferred:
Couched in general terms one
which is created in general terms
and is deemed comprise only acts
of administration (art. 1877)
Couched in specific terms one
authorizing only one performance
of a specific act or acts (art.
1878)

GENERAL PROVISIONS
As to its nature and Effects:
Ostensible or representative
one where the agent acts in the
name and representation of the
principal (art. 1878)
Simple or commission one
where the agent acts for the
account of the principal but in
his own name;

GENERAL
PROVISIONS
Distinguish Agency from Loan:
In loan, a borrower is given money
(a) for purpose of his own, in
agency, to advance principals
business and he must generally
return it whether or not his
business is successful.

GENERAL
PROVISIONS
Distinguish Agency form lease of
service:
The basis of lease of service is
employment and the lessor (like a
servant ordinarily performs only
ministerial (not discretionary
powers) functions.

GENERAL
PROVISIONS
Distinguish Agency from contract
for a piece of work:
The independent contractor
exercise his employment
independently and not in
representation of the employer.

GENERAL
PROVISIONS
Distinguish Agency from
partnership:
A partner acts not only for his
co-partners and the partnership
but also as a principal for himself
(in agency, agent acts only for
his principal).

GENERAL PROVISIONS
Distinguish Agency from negotiorum
gestio:
Negotiorum gestio is a quasicontract; the getio acts authority
and knowledge of the owner of the
property or business although
according to his presumed (not
express) will by exercising all the
diligence of a good father of a
family. (art. 2145. In both
however, there is representation.

GENERAL
PROVISIONS
Distinguish Agency from sale;
In sale (as distinguished from
agency to sell, the buyer receives
the goods as owner, pays the price
(the agent deliver the proceeds of
the sale to the principal), can deal
with the thing as he pleases being
the owner (the agent, according to
the instructions of the principal)
and as a general rule, cannot return
the object sold.

GENERAL
PROVISIONS

Distinguish agency from brokerage:


A broker is merely an intermediary
between the purchaser and the
vendor whose only office is to bring
together the parties to the
transaction and has nor relation to
the thing he buys or sell, while a
(commission) agent maintains a
relation not only his principal and
the purchaser or vendor but also
with the property the subject
matter of the transaction which is
placed and at disposal in accordance
with his authority.

GENERAL
PROVISIONS
Articles 1870 to 1872
Acceptance is either
Express orally or in writing
Implied a) from agents acts
which carry out the agency or
b) from his silence or inaction
according to the circumstances

GENERAL
PROVISIONS
Cases of Implied acceptance
When is there implied acceptance
of an agency by an agent?
As between person present If the
principal (personally) delivers his
power or attorney to the agent and
the latter receives it without any
objection. (art 1871)

GENERAL
PROVISIONS
As between persons absent
When the principal transmits the
power of attorney to the agent, who
receives it without any objection;
When the principal entrust to him
by letter or telegram a power of
attorney with respect to the
business in which he is habitually
engaged as an agent, and he did not
reply to the letter or telegram
(Art. 1872)

GENERAL
PROVISIONS
Art. 1873.If a person specially
informs another or states by public
advertisement that he has given a
power of attorney to a third
person, the latter thereby becomes
a duly authorized agent, in the
former case with respect to the
person who received the special
information, and in the latter case
with regard to any person.

GENERAL
PROVISIONS
Informing other people of the
existence are in two ways:
a)Special information
b)Public advertisement.
c)According to Justice JBL Reyes to
forestall fraud, the following
paragraph must be added to Article
1873, But revocation made in any
manner shall be effective against all
persons having actual knowledge
thereof.

GENERAL
PROVISIONS
The power shall continue to be in
full force until the notice is
rescinded in the same manner in
which it was given.

GENERAL
PROVISIONS
Meaning of Power of Attorney

A written authorization to an agent


to perform specific acts in behalf of
his principal which acts, when
performed, shall have binding effect
on the principal.

GENERAL
PROVISIONS

Distinguished implied agency from agency


by estoppel.

In implied agency, there is an actual


agency. The principal alone is liable. In
an agency by estoppel, the authority of
the agent is not real but apparent. If
the principal causes the estoppel, he is
liable to any third person who relied on
the misrepresentation. If the estoppel
is cause by the agent, then only agent
is liable (Art. 1911).

GENERAL
PROVISIONS
As between the principal and the
agent:
In implied agency, the agent is

true agent, with rights and duties


of an agent. In an agency by
estoppel (caused for instance by
estoppel on the part of the agent),
the agent is not a true agent;
hence he has no rights as such.

GENERAL
PROVISIONS
As to third persons:
If the estoppel is caused by the
principal, he is liable, but only if
the third person relied on
misrepresentation in an implied
agency, the principal is always
liable.

GENERAL
PROVISIONS
If the estoppel is caused by the
agent, it is only agent who is
liable, never the alleged principal;
in an implied agency, the agency
is never personally liable.

GENERAL
PROVISIONS
Art. 1874.When a sale of a piece of
land or any interest therein is
through an agent, the authority of
the latter shall be in writing;
otherwise, the sale shall be void.

GENERAL
PROVISIONS
Art. 1875.Agency is presumed to
be for a compensation, unless there
is proof to the contrary. (n)
Art. 1876.An agency is either
general or special.
The former comprises all the
business of the principal. The
latter, one or more specific
transactions.

GENERAL
PROVISIONS
Art. 1877.An agency couched in
general terms comprises only acts
of administration, even if the
principal should state that he
withholds no power or that the
agent may execute such acts as he
may consider appropriate, or even
though the agency should authorize
a general and unlimited
management.

GENERAL
PROVISIONS
Legal effect of an agency couched in
general terms:
Such an agency comprises only acts of
administration, (a) even if the principal
should state that the he withholds no
power, or (b) that the agent may execute
such acts as he may consider appropriate
(c) even though the agency should
authorize a general and unlimited
management. (art. 1877)

GENERAL
PROVISIONS
Examples of Acts of Mere
Administration
To sue for the collection of debts.
To employ workers or servant and
employees needed for the conduct
of a business.

GENERAL
PROVISIONS
To engage counsel to preserve the
ownership and possession of the
principals property.
To lease real property to another
for one year or less provided the
lease is not registered . (see Art.
1878 No. 8 by implication)

GENERAL
PROVISIONS
To make customary gifts for
charity or to employees in business
managed by the agent (see Art.
1878, No. 6)
To borrow money if it urgent and
indispensable for the preservation
of the thing under administration
(see Art. 1878, No.7)

When Special Power of Attorney are


needed
According to Justice JBL Reyes, the
acts referred to in Article 1878 can
be reduced to three (3):
a.Acts of strict dominion or ownership
(as distinguished from acts of mere
administration
b.Gratuitous contract
c.Contracts where personal trust or
confidence is of the essence of the
agreement

GENERAL
PROVISIONS
Art. 1878.Special powers of
attorney are necessary in the
following cases:
(1) To make such payments as are not
usually considered as acts of
administration;
(2) To effect novations which put an
end to obligations already in existence
at the time the agency was
constituted;

GENERAL
PROVISIONS
(3) To compromise, to submit
questions to arbitration, to renounce
the right to appeal from a judgment,
to waive objections to the venue of an
action or to abandon a prescription
already acquired;
(4) To waive any obligation
gratuitously;

GENERAL
PROVISIONS
(5) To enter into any contract by
which the ownership of an immovable is
transmitted or acquired either
gratuitously or for a valuable
consideration;

GENERAL
PROVISIONS
(6) To make gifts, except customary
ones for charity or those made to
employees in the business managed
by the agent;
(7) To loan or borrow money, unless
the latter act be urgent and
indispensable for the preservation of
the things which are under
administration;

GENERAL
PROVISIONS
(8) To lease any real property to
another person for more than one
year;
(9) To bind the principal to
render some service without
compensation;

GENERAL
PROVISIONS
(10) To bind the principal in a
contract of partnership;
(11) To obligate the principal as a
guarantor or surety;

GENERAL
PROVISIONS
(12) To create or convey real
rights over immovable property;
(13) To accept or repudiate an
inheritance;

GENERAL
PROVISIONS
(14) To ratify or recognize
obligations contracted before the
agency;
(15) Any other act of strict
dominion.

GENERAL
PROVISIONS
Reasons:
1.Art. 1878 pars. 1, 2,3 & 9
Acts of strict dominion
2.Pars. 4, 5, 6 gratuitous contracts
3.Pars. 7,8, 11, 12, 13 & 14 Based on trust or confidence is the
essence of the agreement

GENERAL PROVISIONS
A special power to sell excludes the to
mortgage; and a special power to
mortgage does not include the power
to sell. (Art. 1879).

GENERAL
PROVISIONS
Power to sell carries with it the power to
find a purchaser or to sell directly; power to
deliver the property, power to make the
usual representation and warranty; power to
execute the necessary documents; power to
fix the terms of the sale, including the
time, place, mode of delivery, price of the
goods, and the mode of payment unless
there be a set conditions stipulated by the
principal; and power to sell only for CASH
and power to receive the price unless he was
authorized to only solicit orders.

GENERAL
PROVISIONS
The power to sell does not carry with it
the power to barter or to exchange to
mortgage or to pledge.
The power to mortgage does not include
the power to sell; or to execute a
second mortgage; to mortgage for the
agents personal benefit of any third
person, unless the contrary has been
clearly indicated.

GENERAL
PROVISIONS

A special power to compromise does


not authorize submission to
arbitration. (art. 1880) Hence an
agent authorized to compromise can
do anything, which the principal
himself can do to effect a settlement
unless there is contrary legal
provision.

GENERAL
PROVISIONS
Meaning of Compromise- It is a contract
whereby the parties, by entering
reciprocal concessions, avoid a litigation
or put an end to one already
commenced. (Art. 2042, CC)
Arbitration means parties submitted
their controversies to one or more
arbitrators for decision.

GENERAL
PROVISIONS
Art. 1881.Art. 1881. The agent must
act within the scope of his authority.
He may do such acts as may be
conducive to the accomplishment of the
purpose of the agency.

Authority?

Whose
behalf?

Status of
Contract

With
Principals
authority

Valid

With
Own
authority

Depends.
[1883]

Without

Principals

Unenforceable

Without

Own

Valid

GENERAL
PROVISIONS
Art. 1882.Art. 1882. The limits of the
agents authority shall not be
considered exceeded should it have
been performed in a manner more
advantageous to the principal than that
specified by him.

GENERAL PROVISIONS
Requisites in order the agent can
bind the principal:
The agent must act within the scope
of his authority, and
The agent act in behalf of the
principal (see Art. 1881, 1882)

GENERAL PROVISIONS
Cases wherein the principal may still
be bound by the acts of an agent
who exceeded his authority:
Where the principals act have
contributed to deceive a third
person in good faith (see Art. 1911
Where the limitations upon the
power created by him could not
have been known by the third
person (see Art. 1900)

GENERAL PROVISIONS
Where the principal has placed
in the hands of the agent
instruments signed by him in
blank; and
Where the principal has
ratified the acts of the agent.
(Art. 1901)

GENERAL PROVISIONS
The agent is one directly
liable to the person with
whom he had contracted
as if the transaction were
his own. Therefore, the
principal and such person
have no right of action
against each other.

GENERAL PROVISIONS
The exception is:

The principal is bound


when the contract involves
things belonging to him;
the principal may sue the
agent for breach of
contract. (Art. 1883).

GENERAL PROVISIONS
This article speaks of a case
where the agent was
authorized, but instead of
acting in behalf of the
principal, he acts in his own
behalf. Thus, Art. 1883
does not apply if the agent
was unauthorized or he acts
in excess of his
AUTHORITY.

GENERAL PROVISIONS
Example of General Rule
Jose asked Pedro to borrow money
from Juan. Pedro did not disclose
to Juan that he was borrowing
money in Joses behalf, that is,
Pedro borrowed in his own name.
Can Juan ask Jose to pay the
debt>
No.. Only Pedro has the duty
to pay JUAN

Example: A principal told his agent to


sell his (the principals ) car for him
(the principal). The agent sold It to
a third party. The agent acted in
his own name. Can the third party
sue the principal in case the car
has hidden defects?
Ans.: Yes, in this case, although the
agent acted in his own name, still
the sale involved a property
belonging to the principal. Here we
apply the exception stated in the
second paragraph of Art. 1883. As
a matter of fact the sale is
COMPLETELY VALID.

OBLIGATIONS OF THE AGENT


General Obligations of an Agent to
his Principal:
1.) To act with the utmost good
faith and loyalty for the
furtherance and advancement of
the interests of the principal.
2.) To obey the principals
instructions.
3.) To exercise reasonable care.

Specific obligations of the agent

To carry out the agency in


accordance with its items;
otherwise, he shall be liable for
damages. (Art. 1884) Reason: He
betrays the confidence reposed on
him by the principal.
An agent who does not carry out
the agency is liable for damages.
On the other hand, if he fulfills
his duty, he is not personally liable
unless he is so bound himself.

To finish the business already begun


on the death of the principal should
delay entail any danger. Reason: In
such case, the agency is still deemed
in full force.
general rule, the death of the
principal extinguishes the agency,
however as an exception agent is
obliged to finish the business already
begun if delay should entail danger.
(ART. 1884 PAR .2)

Duty to exercise diligence of a good


father of the family in the custody and
preservation of goods forwarded to him
if he declines the agency.
a person is of course free to refuse to
be an agent; however Art. 1885 demands
the rule of equity.
Duty if the owner:
The owner must also act as soon as
possible by:
a. Appointing an agent
b. By taking charge of the goods

* To advance the necessary funds if such is


the stipulation except when the principal
is insolvent (Art. 1886)
Example:
Angel is Pedros agent. Both agreed
that angel would advance the necessary
funds, but later Pedro became insolvent.
Is Angel still bound to furnish such
necessary funds?
Ans.: No more, in view of the principal
insolvency.
In fact insolvency of the principal is a ground
of the extinguishment of agency.

Under Article 1912 paragraphs 2 & 3


Should the agent have advanced
them, the principal must reimburse
him therefore, even if the business
or undertaking was not successful,
provided the agent is free from all
fault.
The reimbursement shall include
interest on the sums advanced, from
the day on which the advance was
made.

Specific obligation of the agent


* To act in accordance with the
instruction of the principal
and in the absence therefore,
to do all that a good father
of the family would do, as
required by the nature of the
business (art. 1887).

Authority vs. Instructions


a) In
authority,
the
principal
affects
only
third persons, because if
the act is done outside
the scope of the agent's
authority, the principal is
not bound. Instructions
concern only the principal
and agent.

a) Third
person
must
therefore verify or
investigate
the
authority.
In instructions, third
persons do not have to
investigate or verify
instructions.

Instructions:
Private
directions which the
principal may give
the agent in regard
to the manner of
performing his duties
as such agent

Authority v. Instructions
Authority
Instructions
Sum total of powers
Direct the manner of
committed or permitted to transacting the authorized
the agent by the principal. business and contemplates
only a private rule of
guidance to the agent.
Relates to the subject with Refers to the manner or
which the agent is
mode of his action with
empowered to deal or the respect to matters which in
kinds of business or
their substance are within
transactions upon which he the scope of permitted
is powered to act.
action.
Limitations of authority are Without significance as
operative as against those against those dealing with
who have or are charged
the agent with neither
with knowledge of them.
knowledge nor notice of

Instructions pertain to the principal and agent


Authority pertain to the agent and 3rd persons.
Exceptions to the rule that the agent must not depart from the
instructions of the principal: [SAI]
A departure may be justified by:
1.) A sudden emergency;
2.) If the instructions are ambiguous; or
3.) If the departure is so insubstantial that it does not affect
the result and the principal suffers no damage thereby.
When the Agent has a right to disobey the principals
instructions:
1.) When the instruction calls for the performance of illegal
acts; or
2.) Where he is privileged to do so to protect his
security/interest in the subject matter of the agency.

Note:
If a person makes an
inquiry, he is chargeable with
knowledge
of
the
agent's
authority, and his ignorance of
the authority will not be any
excuse.
The acts of an agent beyond his
limited powers are invalid except
on the following qualifications
which would bind the principal:

a. Where the principals acts have


contributed to deceive a third
person in good faith;
b. Where the limitations upon the
power created by the principal
could not have been known by a
third person; and
c. Where the principal has placed
in the hands of the Agent
instruments signed by him in
blank.

If an agent carrying out the


orders of the principal
carried out the instruction
he has received from said
principal, he cannot be
held responsible for the
failure of his principal to
accomplish the object of
the agency unless the said
agent exceeded his
authority or has acted
with negligence, deceit or
fraud.

It is the duty of the principal,


if he desires an authority
executed in a particular
manner to make his terms
so clear and unambiguous
that they cannot reasonably
misconstrued.

If he does this, it is the agents


duty to the principal to execute
the authority strictly, and
faithfully; and third persons
who know of the limitations or
who from the circumstances of
the case ought to have known
of them can claim no rights
against the principal based upon
their violation.

Not to carry out the agency if its


execution would manifestly result in loss
or damage to the principal (art. 1888)
Reason: The duty of the agent is to
render service for the benefit and not
to the determined of the principal.(Art.
1888)
Agent should exercise due diligence.
He must presumably act for the benefit
and not to the detriment of the
principal.

Manifestly means
that the execution
would
damage
the
principal.

Example:
P instructed his agent to charted
a boat from Japan to Manila
and to load the principals
goods
with
the
specific
instructions to sail from Japan
to Manila on February 16,
2008 and to thereafter sell
the goods upon arrival in
Manila.

The weather report on the date of the


scheduled departure showed that a
strong typhoon was directly going to
cross the path of the boat.
Considering the circumstances, it
would be safe to sail only after one
week. In the meantime, the prices
of the goods at Manila went down
by 50%. P thus felt short of the
profits he expected to realize.
Would A would be liable to P?

Answer:
No, A would not be
liable to P because had A
carried out the agency, it
would have resulted in loss or
damage to his principal.

There being a conflict, not to


prefer his own interest to
those of the principal (e.g.
buying goods of the principal or
selling his own goods to the
principal without informing the
principal); otherwise, he shall
be liable for damages. (Art.
1889)

Reason: Agency is a fiduciary


relation:
This rule applies whether
agency is onerous or gratuitous.

Basis of the rule: he underlying


principle basis of the rule
prohibiting an agent from
engaging in self-dealing is to
shut
the
door
against
temptation on his part and to
ensure that he places the
rights and welfare of his
principal above his own in
performing his agency.

Not to borrow money


from the principal who
was authorize him to lend
although
at
interest,
without
his
consent.
(Art. 1890)

Reason: the agent may prove


to be a bad debtor. But if
the agent has been authorize
to borrow money he may
himself be the lender at the
current rate. Reason: There
is no danger of the principal
suffering any damage.

Take
note:
The
borrowing of the money
must
be
for
the
benefit of the principal
and not for the agents
personal benefit.

Under Art. 1491, agents cannot


acquire property by purchase, even
at a public or judicial auction,
either in person or thru mediation
of another, the property whose
administration or sale may have
been entrusted to them, unless the
consent of the principal has been
given.

The defect of the contract


shall be voidable. Reason is
breach
of
trust
and
confidence

* To render an account of his


transactions
and
deliver
to
principal whatever he may have
received by virtue of the agency
though it may not be owing to the
principal (Art. 1891):

Duty of the Agent to account is


mandatory.
Hence
in
an
overpriced received by the
agent for goods he was sell at a
certain price, he is duty bound
to make an account. This applies
even in cases in cases that the
money not be owing to the
principal but arose from the
transaction
involving
the
contract of agency.

Stipulation exempting from the


duty to account is VOID, being
contrary to public policy as it
would be conducive to fraud.

There is no co-ownership over


funds despite agent has right
to commission. Co-ownership
is not established as the
relationship of the principal
and the agent is based on
trust and confidence and not
co-ownership.

Some Doctrines on the duty to account:


- Whoever administers anothers affairs
must render an account because of the
representative relation and because of the
fiduciary position.
If an agent refuses to account when it
is his duty to do so, the principal may at
once terminate the agency and sue for
the balance due. If the principal dies,
the agency is extinguished, BUT the
duty to account subsists, and can be
demanded by the principals heirs or
legal representatives.

The principal, or his legal


representative, has the right to pass
upon the correctness of the accounting.
Corollary to his right to demand an
accounting, a principal has the right to
make reasonable inspection of the books
of account and memoranda, including the
original entries.
An agent, as a consequence of his duty
to account, cannot dispute his principals
title to the property in his possession.

-To be responsible in certain cases for the acts


of the substitute appointed by the agent.
(Art. 1892)
What is a sub-agent- it is the person to whom
the agent delegates as his agent, the
performance of an act for the principal which
the agent has been empowered to perform
through his representative.
The rule is unless prohibited by the principal, the
agent may appoint a sub-agent or substitute.

CASES WHEN THE AGENT IS


RESPONSIBLE FOR THE ACTS
OF THE SUBSTITUTE
APPOINTED BY HIM:
When he was not given the

power to appoint one he cannot


be allowed to enrich himself at
the agents expenses.
When he was given such power,
but without designating the
person, and the person appointed
was notoriously incomplete of
insolvent; and
When he was prohibited from
appointing a substitute. (see Art.
1892)

Specific obligation of
the agent
Art, 1893 provides in pars. 1 and 2 of
the Article 1892, the principal may
bring an action against the substitute
with respect to the obligations which
the latter has contracted under the
substitution.
The right of action against the
substitute is an exception to the rule
on the principle of relativity

Specific obligation of the agent


Examples:

a. A is P s agent. In their contract of


agency, nothing was mentioned as to
whether or not A could appoint a
substitute. A appointed S as his
substitute. Is the appointment of the
substitute valid?
Answer: Yes but A shall be
responsible for the acts of the
substitute. ( 1st par. Art. 1892)

b. In the problem (a) suppose the


substitute violated the instructions of P,
whom can P hold liable?
Answer: P can hold A liable (Art. 1892)
and P can also hold S liable ( Art.
1893)

c. A is Ps agent. A asked P for


permission to appoint a substitute,
but A did not mention who the
substitute would be. P agreed. Now
the substitute violated Ps instructions
as well as As instructions causing
damage to P. Can P hold A liable for
the substitutes actuations, in case for
example, the substitute becomes
insolvent?

Answer: It depends. If the


substitute appointed by A was at the time
of appointment notoriously incompetent or
insolvent, then P can hold A liable,
subsidiary or even primarily. If the
substitute at the time of appointment is
neither notoriously incompetent or
insolvent, then P cannot hold A liable
either primarily or subsidiarily ( Art. 1892
par. 2)

(d) A is P s agent. A prohibited by P


to appoint a substitute, nevertheless
appointed S as substituted. S sold
goods belonging to P to B who was a
purchaser in good faith.
Ans. |The sale is completely null
and void. The law says that all acts
of the substitute appointed against
the prohibition of the principal shall
be void. (Art. 1892)

Article 1893 provides THAT OTHER


THAN THE AGENT THE PRINCIPAL
CAN ALSO SUE THE SUBSTITUTE
WITH RESPECT TO THE
OBLIGATION WHICH THE
SUBSTITUTE HAS CONTRACTED
UNDER THE SUBSTITUTION.
This is one of the exception to Article
1311 (Principle of Relativity)
respecting to privity of contracts.

Under Art. 1894, The liability of two


or more agents, even if they have
been appointed simultaneously is
JOINT and not solidary, unless the
latter is stipulated.

If solidarity has been agreed upon,


each of the agents is responsible for
the non-fulfillment of the agency, and
of the fault or negligence of his fellow
agents, except in the latter case when
the fellow agents acted beyond the
scope of their authority.

Example: P appointed A and B as


agents. Solidarity between agents
was agreed upon. Thru Bs fault,
the agency was not fulfilled. Can
P sue A for damages?
Ans; Yes, if B acted within the
scope of his authority, A being
solidary agent can be made
responsible for the entire
damages, without prejudice to his
right later on to recover from the
erring agent.

Example where one acts beyond the


scopre of his authority: Two
solidary agents were appointed to
sell the Cadillac car of the
principal. Unfortunately one of
them sold the Porche automobile.
Here the innocent agent cannot be
liable at all to the principal, even
if solidarity had been agreed upon.

Agent is liable for interest


a. from the day he applied to his own use
money intended for the agency and;
b. Those which owes the principal sums
intended for the agency after the
expiration of the agency.
Interpretation will however show that there is
no liability for the agent's own use unless
of course at the expiration of the agency,
the agent still owes the principal certain
sums ( 2nd par. Art. 1896)

If agent advances expenses for the agency


as stipulated under Article 1912
paragraphs 2 & 3, the following are the
consequences:
Should the agent have advanced them, the
principal must reimburse him therefore,
even if the business or undertaking was not
successful, provided the agent is free from
all fault.
The reimbursement shall include interest
on the sums advanced, from the day on
which the advance was made.

General rule : No personal


liability for agent with whom
he contracts as an agent
represents the principal. In
case of acting by the agent in
excess of authority, the
principal cannot be bound
unless he ratifies the act.

The agent is bound to the party


with whom he contracts:
a) When he expressly binds
himself.
b) When he exceeds the
limits of his authority without
giving such party sufficient
notice of his powers. (Art.
1897) Reason: The contract
being unenforceable the third
person is deprived of any remedy
against the principal.

The scope of agents Authority as


far as third persons are concerned,
if such acts is within the terms of
the power of attorney, as written,
even if the agent has in fact
exceeded the limits of his authority
according to an understanding
between the principal and the agent
(Art. 1800).

If the agent contracts in the name


of the principal, exceeding the
scope of his authority and this is
known to the third person, the
contract he enters with said third
person is VOID unless principal
ratifies the same. The contract is
however valid as between them if
the agent undertook to secure the
principals ratification.
( Art. 1898)

EFFECT OF AGENTS IGNORANCE

Article 1899 provides that if the


agent acts in accordance with the
orders of the principal, the latter
cannot set up the ignorance of
the agent as to circumstances
whereof he himself was or ought
to have been aware. This is
based on equity, for after all the
agent had complied his duty. It is
the principals fault for appointing
an ignorant agent.

EFFECT OF AGENTS IGNORANCE


Notice that under this article, it is
not enough for the agent to act
within the scope of his authority,
it is also imperative for such
agent to have complied with the
orders and instructions of the
principal.

As far as third persons are


concerned, an act is deemed to
have been performed within the
scope of the agents authority
if such act is within the terms
of the power of attorney, as
written, even if the agent
exceeded the limits of his
authority according to an
understanding between the
principal and the agent (Art.
1900)

This is designed to protect the


interest of third person. Notice
that for this article to apply,
the authority must be in writing.
If not, it is the duty of the
third person to inquire not only
as to the existence of the
agency but also to the nature
and extent of authority of the
agent.

Lack of authority of the agent is


not a defense if the agent ratified
the act of the agent who exceeded
his authority. (Art. 1901)
Ratification in effect grants
authority to the agent.
Ratification may be in the future.

Third person may require


presentation of the power of
attorney or instructions as regards
to the agency. Private or secret
orders and instructions of the
principal is not binding to the third
person who relied upon he power of
attorney shown to them. (Art.
1902)

COMMISSION AGENCY
Who is commission agent?
A commission agent (or factor is one
whose business is to receive and to
sell goods for commission and who is
entrusted by the principal with the
possession of goods to be sold. He may
act in his own name of in that of the
principal.

COMMISSION AGENCY
Commission agent vs. Broker
1. Commission agent is one engaged in the
purchase and sale of personal
property for a principal.
a) Goods are placed in his possession
and at his disposal.
b) He has relation not only with his
principal and the buyer/sellers, but
also with the property constituting
the object of the sale.
c) He may act in his own name or in the
name of his principal
d) Subject matter refers only to
persona property.

COMMISSION AGENCY
Broker acts as a middleman or
intermediary who, in behalf of others,
and for a commission or fee,
negotiates contracts or transactions
relative to a real or personal property.
a) He does not have the possession or
custody of the property.
b) He has no relation with the real or
personal property he buys or sells.
c) He merely acts as a go between or
intermediary between seller and the
buyer and cannot close the contract in
his own name.
d) Subject matter refers to either real
or personal property.

COMMISSION

AGENCY

A commission agent is not authorized to


sell in credit if not so expressly
authorized (Art. 1905). He also has
the duty to place countermarks to
goods he handles with different
owners. (Art. 1904). This is a
specific obligation of an agent

COMMISSION AGENCY

What rights are given to the principal


where a sale on credit is made
without authority?

Require payment in cash, in which


case, any interest or benefit from
the sale shall belong to the agent
since the principal or
Ratify the sale on credit in which
case it will have all the risks and
advantages to him. (Art. 1905)

COMMISSION AGENCY
It is the duty of the commission agent
who sells in credit to inform the
principal with the statement of the
names of the buyer. Should he fails
to do so, the sale is deemed to have
been made for cash insofar as the
principal is concerned.
(Art.
1906)
Guarantee commission (Del Credere
Commission) is given in return for the
risks the agent will have to bear in
the collection of the credit. An
agent who receives a guarantee
commission is called Del credere
agent.

COMMISSION AGENCY
The guarantee commission is given in the
risks the agent will have to bear in the
collection of credits.
If an agent receives a guarantee
commission and the third person does
not pay, the agent will have to pay the
principal just the same. If the agent
receives a guarantee commission, he
cannot the put up the defense that the
debtor possesses no property.

COMMISSION AGENCY

Commission agent who does not


collect the credits of the
principal at the time when they
become due and demandable
shall be liable for damages
unless he proves that he
exercised due diligence for that
purpose. This applies if agent
does not get a guarantee
commission.

Liability of Agent
Agent is liable for fraud and/or
negligence. This shall be
determined by the courts and
shall apply whether agency was
or was not for a compensation.
As to the degree of liability,
the courts may refer to the
fact whether or not the agency
is for compensation. (Art. 1900.

SUMMARY OF THE OBLIGATIONS OF


THE AGENT

1. To carry out the agency upon his


acceptance. ( Art. 1884)
2. To finish the business already begun on
the death of the principal (art. 1884)
3. To exercise due diligence in the
custody and preservation of the goods
still in his possession if he refuses to
accept the agency (Art 1885)
4. To advance necessary funds if there is
such stipulation (Art. 1886)

5. To perform the agency in accordance


with instructions of the principal. (Art.
1887)
6. Not carry out the agency if execution
would result to loss or damage to the
principal. (Art. 1888)
7. To place the interest of the principal
over and above his personal interest in
the execution of agency (Art. 1889)
8. To lend the principal his own money if
empowered to borrow money; not to
borrow, directly or indirectly principals
money without latters consent. (Art.
1890)

9. To render an accounting of his


transactions even nothing is owing to the
principal and to return to principal
whatever he received by virtue of the
agency (art. 1891)
10. To appoint a substitute if there is
no prohibition.
a) liability of agent if not given the
power to appoint a substitute.
b) liability of agent if authorized but
appoints an agent notoriously
incompetent or insolvent.

c. effect of appointment of a substitute


against the prohibition of the principal.
(Art. 1892)
d. liability of the substitute ( Art.
1893)
11. Extent of liability of two or more agents
appointed by principal

a. Jointly liable only, unless solidarity


is agreed upon by agents. (Art. 1894)
b. Liability of solidary agents in case of
non-performance or negligence. (Art. 1895)
12. To pay interest on agency funds he
personally used, or nay debts he owes the
principal after termination of the agency.
( Art. 1896)

13. Personally liable to third persons if


a. he expressly binds himself to be
liable.
b. he exceeds his authority without
giving third party notice of his power.
(Art. 1897)

14. Personally liable to third persons if


a. agent acts in principals name but in
excess of his authority and third
person does not know about it
otherwise contract is void if third
person is aware of the limits of the
agent.
b. Undertakes to secure principals
ratification and fails to do so. (Art.
1898)

15. Agent not liable to third persons if


a. he acts strictly according to principals
order or instructions. (Art. 1899)

b. Third person transacted with agent


according to written authority or
instructions of principal. (Art. 1900)
16. Agent will not be liable to third persons if
the principal ratifies or is willing to ratify
the acts of agent in excess of his
authority. (Art. 1901)

17. Private or secret orders of principal to


agent will not be binding on third persons
who relied on the power of attorney or
written instructions. (Art. 1902)
18.Commission agent must submit a statement
of the condition of goods received on
consignment.
a) Distinction between commission agent and
broker. (Art. 1903)
b) Commission agent must put distinguishing
marks on goods of the same quality, kind
and mark received from different principals
(Art. 1904)

c. Commission agent must sell in cash unless


authorized to sell in credit (Art. 1905)
d. Commission agent must report of his credit
sales if authorized to sell in credit (Art.
1906)
e. Liability of commission agent if he receives
additional commission.
-Distinction between ordinary commission and
del credere commission (Art. 1907)
- Liability of commission agent if he fails to
collect credit on due dates (Art. 1908)

19. Agent is liable for fraud or


negligence in the performance of the
agencu. (Art. 1909)

OBLIGATIONS OF THE
PRINCIPAL

Specific Obligations of the Principal


1. To comply with all the obligations
which the agent may have contracted
within the scope of his authority (art.
1910, 1881) and in the name of the
principal (art. 1868, 1883)

Specific Obligations of the Principal


As a rule, the principal is honoredbound to comply with all the
obligations and commitments made by
his agent if the agent:
a. acted with the power of attorney
or authority
b. acted within the scope of his
authority
c. disclosed his principal.

Specific Obligations of the Principal


If the circumstances are present, agent
is considered a representative or
extension of the personality of the
principal and his acts will be the acts
of the principal.

Specific Obligations of the Principal


Other Instances when principal is bound
by the acts of the agent:
a. When the contract, although the
agent exceeded his authority
advantageous to the principal (Art.
1882)
b. If the object of the contract
executed in the name of the agent
belongs to the principal (Art. 1883)

Specific Obligations of the Principal


c. When the principal accepts or derives
benefits from the contract executed
by the agent. (Art. 1883)

Specific Obligations of the Principal


c. When the agent acts beyond the
scope of his authority and the
principal ratifies the same (Art.
1910)

Where can the specific


obligations and duties of the
principal to the agent be
found?
Usually in the
contract creating the agency.

Principal obligations of the principal to


the agent in the absence of such
agreement:
1.) To comply with all the obligations
which the agent may have contracted in
his name and within the scope of his
authority;
2.) To advance should the agent so
request sums necessary for the
execution of the agency;
3.) To reimburse the agent for all
advances made by him provided the
agent is free from fault;

4.) To indemnify the agent for all


the damages which the execution
of the agency may have caused the
latter without fault or negligence
on his part; and
5.) To pay the agent the
compensation agreed upon or the
reasonable value of the latters
services.

Liability of the principle to 3rd persons:


Where the relation of agency legally
exists, the principal will be liable to 3rd
persons for all acts committed by the
agent in his behalf in the course and
within the actual or apparent scope of his
authority, and this is not altered y the
fact that the agent may also be liable, nor
by the fact that some of the acts are to
the principals advantage while others are
to his disadvantage.

Liability of the principal for


mismanagement of the business by the
agent:
Mismanagement of the business of
the principal by the agent does not relieve
said principal from the responsibility that
he had contracted to 3rd persons. But
where the agents acts bind the principal,
the latter may seek recourse against the
agent.

Liability of principal for a tort


committed by the agent:
The
principal is civilly liable to 3rd persons
for torts of an agent committed at the
principals direction or I the course
and within the scope of the agents
employment. The principal cannot
escape liability whether the tort is
committed willfully or negligently so
long as the tort is committed by the
agent while performing his duties in
furtherance of the principals business.
Nor is it a defense that the act which
caused the tort was unknown to him or
even that it was in disobedience to his
instructions.

Meaning of ratification in 2nd


paragraph: Ratification is the
adoption or affirmance by a
person of a prior act which did not
bind him, but which was done or
professed to be done on his
account, thus giving effect to the
act as if originally authorized.

The doctrine applies to the


ratification of the act of an agent in
excess of his authority of the act
of one who purports to be an agent
but who is really not. It may be
implied from the acceptance of
benefits by the principal under a
contract entered in his name. The
authority created by
ratification is subsequent but it is
equivalent to prior authority.

Conditions to ratification: [ICK-PEC]


1.) Intent to ratify;
2.) Principal must have capacity &
power to ratify;
3.) He must have had knowledge of
material facts;
4.) The act must be done in behalf of
the principal;
5.) Principal must ratify acts in its
entirety;
6.) The act must be capable of
ratification.

Effects of ratification with respect


to the agent:
1.) Relieves the agent from liability
to the 3rd party to the unauthorized
transaction; and
2.) To his principal for acting
without authority; and
3.) He may recover compensation
due for performing the act which
has been ratified

Effects of ratification with respect


to the agent:
1.) Relieves the agent from liability
to the 3rd party to the unauthorized
transaction; and
2.) To his principal for acting
without authority; and
3.) He may recover compensation
due for performing the act which
has been ratified.

Effects of ratification with respect


to the principal:
1.) He assumes responsibility for the
unauthorized act, as fully as if the
agent had acted under original
authority; but
2.) He is not liable for acts outside
the authority approved by his
ratification.

Effects of ratification with respect


to 3rd persons:
1.) 3rd person is bound by
ratification to the same extent as
he would have been bound if the
ratified act had been authorized in
the 1st instance; and
2.) He cannot raise the question of
the agents authority to do the
ratified act.

Must ratification be communicated


to the agent or to the 3rd party?
No. To be effective,
ratification need not be
communicated or made known to the
agent or the 3rd party. The act or
conduct of the principal rather than
his communication is the key. But
before ratification, the 3rd party is
free to revoke the unauthorized
contract.

Specific Obligations of the Principal


c. If the principal allowed the agent to
act as though he had full powers, he
becomes solidarily liable with the
agent (Art. 1911)

Estoppel: precludes a person from denying


or asserting anything contrary to that
which has been established as the truth
by his own deed or representation, either
express or implied.
Basis of article 1911:
Principle of estoppel. Necessary for
the protection of innocent 3rd persons.
Instance when solidarity is imposed by
law.

Specific Obligations of the Principal


Apparent Authority vs. Authority by estoppel
a. Apparent authority is that which though
not actually granted, the principal knowingly
permits the agent to exercise or hold him
out as possessing.
b. Authority by estoppel arises in those cases
where the principal by his culpable
negligence permits him, even though the
principal may have no notice or knowledge
of the conduct of the agent.

Specific Obligations of the Principal


3. To advance to the agent, should the latter
so request, the sums necessary to the
execution of the agency (Art. 1912)

Specific Obligations of the


Principal
Reimbursement by the principal of agent
expenses.
Normally it is the obligation of the
principal to advance the funds necessary
o carry out the agency and if upon the
request of the agent, principal refuses
or fails to so the agent is exempted
from liability due to non- performance.
Exception Art. 1886. stipulation that
agent advances said expenses.

Specific Obligations of the Principal


If the agent advances the money to
carry out the agency, he is entitled
to:
1. Reimbursement from the principal of
whether or not the undertaking was
successful, provided the agent is free
from faults.
2. Plus interest on the total advanced by
the agent computed from the day the
advances were made up to the day of
actual reimbursement.

Specific Obligations of the Principal


4. To indemnify the agent for all the
damages which the execution of the
agency may have caused the latter
without fault or negligence on his part.
(Art. 1911)
Basis for the above rule: Equity. Since the
principal receives the benefits of the
agency, and has a right to demand damages
from the agent should the latter not
perform the agency, he should answer for
the damages resulting from the execution
thereof without fault or negligence on the
part of the agent

Specific Obligations of the Principal


A provision that is based on fairness.
Liability is limited only to that which the
execution of the agency has caused the
agent.
Example: P authorizes A to sell his land in
Tagum. If A uses his own vehicle to go
to Tagum to carry out the agency, and it
breaks down due to bad roads, the
principal must reimburse him for the
repair of As car.

Specific Obligations of the Principal


5. Agent has right to retain the principal things
which are the object of agency in the form
of legal pledge if principal is unable to
reimburse him for expenses advanced or
indemnify for damages incurred. (Art.
1914)

Specific Obligations of the Principal


What happens when the principal fails
to reimburse or indemnify the agent for
expenses set forth in arts. 1912 and
1913?
The agent has the right to retain
in pledge the things which are the
object of the agency.

Specific Obligations of the Principal


In case the agent sells the goods for
more than his claim, is he entitled to
the excess? No.
What is the nature of the agents
right of lien?
Specific or particular.
It is not general in the sense that it gives
the agent a right to retain the goods for
claims disconnected with the agency

Specific Obligations of the Principal


Legal pledge is different from
ordinary pledge. (See Article
2121 & 2122) It worthy to note
that in legal pledge in case of sale
in public auction, the agent has no
right to retain the excess proceed
of the sales. Agent merely
recovers the total amount due to
him and must return the balance
to the principal.

Art. 2121. Pledges created by


operation of law, such as those
referred to in Articles 546, 1731, and
1994, are governed by the foregoing
articles on the possession, care and
sale of the thing as well as on the
termination of the pledge. However,
after payment of the debt and
expenses, the remainder of the price
of the sale shall be delivered to the
obligor.

Art. 2122. A thing under a pledge by


operation of law may be sold only
after demand of the amount for
which the thing is retained. The
public auction shall take place within
one month after such demand. If,
without just grounds, the creditor
does not cause the public sale to be
held within such period, the debtor
may require the return of the thing.

Specific Obligations of the Principal


6. Appointment of an agent done jointly
by principals for a common
transaction or undertaking, liability of
the principals shall be SOLIDARY.
(art. 1915) correlate with Arts. 1894
and 1895

Art. 1915. If two or more persons have appointed


an agent for a common transaction or undertaking,
they shall be solidarily liable to the agent for all
the consequences of the agency.
Requisites for application of this article: [2C2]
1.) There are 2 or more principals;
2.) The principals have all concurred in the
appointment of the same agent;
3.) The agent is appointed for a common
transaction or undertaking.
Why is solidarity the rule?
Because of the common transaction. Thus,
even if the agent was appointed separately, the
rule should apply in the interest of justice.

Specific Obligations of the Principal


7. Rules in case two persons contract
with regards to the same thing.
One of them with the agent and
the other with the principal.
If the two contract are compatible
to each other, both shall be
enforced;
If they are incompatible with each
other, that of prior date shall be
preferred subject to the provisions
of Art. 1544 (Art. 1916)

May 2 persons contract with regard


to the same thing, one with the
agent and the other with the
principal?
Yes.

If this situation arises, which of


the contracts will be preferred?
If the contracts are
compatible, they will both be
given effect. If they are
incompatible, then the contract of
prior date shall be preferred.

Art. 1544: If the same thing should


have been sold to different vendees,
the ownership shall be transferred to
the person who may have 1st taken
possession thereof in good faith if it
should be movable property. Should it
be immovable property, the ownership
shall belong to the person acquiring it
who in good faith 1st recorded it in the
Registry of Property. Should there be
no inscription, the ownership shall
pertain to the person who in good faith
was 1st in possession; and in the
absence thereof, to the person who
presents the oldest title, provided
there is good faith.

Specific Obligations of the Principal

If the agent acted in good


faith, the principal shall be
liable to the third person
whose agent contract must be
rejected; and
If the agent acted in bad
faith, he alone shall be
responsible. (Art. 1917)

Art. 1917. In the case referred to


in the preceding article, if the agent
has acted in good faith, the principal
shall be liable in damages to the
third person whose contract must be
rejected. If the agent acted in bad
faith, he alone shall be responsible.

Is the principal always liable for damages


caused by a 3rd person or is it the agent
who is liable?
Whether the principal or the agent will be
the one liable for damages to the 3rd
person who has been prejudiced depends
on whether the agent acted in bad faith
or not. If the agent acted in good faith
and within the scope of his authority, the
principal incurs liability. If the agent
acted in bad faith, he alone shall be
responsible to such person.

What is the extent of liability covered


under this article?
Damages.
What is good faith referred to in this
article? Good faith here means that
the agent had no knowledge that the
principal is dealing with a 3rd person.
Note: If the contract is one of sale,
article 1544 governs and not arts. 1916
and 1917.

Art. 1918. The principal is not liable for the


expenses incurred by the agent in the following
cases:
1.) If the agent acted in contravention of the
principals instructions, unless the latter should
wish to avail himself of the benefits derived
from the contract;
2.) When the expenses were due to the fault
of the agent;
3.) When the agent incurred them with
knowledge that an unfavorable result would
ensue, if the principal was not aware thereof;
4.) When it was stipulated that the expenses
would be borne by the agent, or that the latter
would be allowed only a certain sum.

Instances wherein the principal is not liable for expenses


incurred by the agent?
In the instances enumerated under this article.
Reasons why the principal is not liable for the agents
expenses: Under
1.) To punish the agent, but when the principal has availed
of the benefits, he is deemed to have impliedly ratified
the agents acts.
2.) Kasi, kasalanan niya, eh. It is the fault of the agent
3.) The agent is guilty of bad faith and lack of diligence;
4.) An express stipulation which is not contrary to law,
morals, good customs, public order or public policy is
binding between the parties.

Specific Obligations of the Principal


9. To pay the agent the compensation
agreed upon, or if no compensation
was specified the reasonable value
of the agents services. (Art.
1875)

SUMMARY OF THE SPECIFIC


OBLIGATIONS OF THE PRINCIPAL

To comply with all the obligations


which the agent may have contracted
within the scope of his authority
(art. 1910, 1881) and in the name of
the principal (art. 1868, 1883)

SUMMARY OF THE SPECIFIC OBLIGATIONS


OF THE PRINCIPAL

Principal is liable if he ratifies the


contract made by agent in excess of
authority ( Art. 1910)

SUMMARY OF THE SPECIFIC


OBLIGATIONS OF THE PRINCIPAL
Principal is solidarily liable with the
agent if allowed agent to act as I he
had full powers ( Art 1911)

SUMMARY OF THE SPECIFIC


OBLIGATIONS OF THE PRINCIPAL

To advance to the agent, should the


latter so request, the sums necessary
to the execution of the agency (Art.
1912)

SUMMARY OF THE SPECIFIC OBLIGATIONS


OF THE PRINCIPAL

To advance to the agent, should the


latter so request, the sums necessary
to the execution of the agency (Art.
1912)

SUMMARY OF THE SPECIFIC


OBLIGATIONS OF THE PRINCIPAL

To reimbursement the agent for all


advance made by him provided the
agent is free from fault. (Art. 1912)

SUMMARY OF THE SPECIFIC


OBLIGATIONS OF THE PRINCIPAL

To indemnify the agent for all the


damages which the execution of the
agency may have caused the latter
without fault or negligence on his part.
(Art. 1913);

SUMMARY OF THE SPECIFIC


OBLIGATIONS OF THE PRINCIPAL

Agent has right to legal pledge in case


failure or refusal of principal to
reimburse advances made or pay the
damages incurred by agent in the
execution of the contract of agency
(Art 1914

SUMMARY OF THE SPECIFIC


OBLIGATIONS OF THE PRINCIPAL

Solidary liability if Two principals


appointing an agent for common
transaction (Art. 1915);

Rules on Double sale (Art. 1916 subject


to Article 1544 on the law on sale;

SUMMARY OF THE SPECIFIC


OBLIGATIONS OF THE PRINCIPAL

Principal liable for damages incurred


by the buyer of the agent in case
contract is rejected Principal is not
liable if it is in contravention of his
authority, or agent acted in bad faith
and when there is agreement that
agent will bear the expenses.

SUMMARY OF THE SPECIFIC OBLIGATIONS OF


THE PRINCIPAL

To pay the agent the


compensation agreed upon,
or if no compensation was
specified the reasonable
value of the agents
services. (Art. 1875)

EXTINGUISHMENT OF AGENCY
By its revocation;
By the withdrawal of the agent;
Death, civil interdiction, insanity or
insolvency of the principal or of the agent

EXTINGUISHMENT OF AGENCY
By dissolution of the firm or corporation
which entrusted or accepted the agency
By the accomplishment of the object or
purpose of the agency; and
By the expiration of the period for which
the agency was constituted. (art. 1919)

EXTINGUISHMENT OF AGENCY
Keyword: EDWARD
E Expiration
D Death, etc.
W- Withdrawal
A Accomplishment of the agency
R- Revocation
D- Dissolution

EXTINGUISHMENT OF AGENCY
Modes of extinguishing an agency,
generally: [ASO]
1.) Agreement;
2.) Subsequent acts of the parties
which may be either:
a.) By the act of both parties or by
mutual consent;
b.) By the unilateral act of one of
them.
3.) By operation of law.

EXTINGUISHMENT OF AGENCY
Other causes:
Termination by mutual consent,
novation, loss of the subject matter
of the agency, transfer or sale of the
object of agency, change of law which
makes agency illegal, war, fortuitous
event or impossibility or difficulty of
performance and other modes of
extinguishment of obligation.

EXTINGUISHMENT OF AGENCY
Revocation- applies to the principal. The act
of recalling back the authroity as agency is
based on trust and confidence in his agent.
The moment this ceases, principal can
revoke the agency.

EXTINGUISHMENT OF AGENCY
Withdrawal in the agent (RENUNCIATION) In the same manner the agent cannot be
compel to act as an agent and as such he
can withdraw from the agency.
Renunciation of his duty as an agent is
equivalent to withdrawal

EXTINGUISHMENT OF AGENCY
Death, Civil Interdiction, Insanity or
Insolvency of Either the Principal or the
Agent.
Reason: Agency is personal in nature. Thus
if either of the contracting parties dies,
contract of agency is extinguished.

EXTINGUISHMENT OF AGENCY
Death Ordinarily death of the principal
terminates agency, even if a period had
been stipulated and such period has not yet
ended. However, under Art. 1931,
anything done by the agent, without
knowledge of the death of the principal or
any other cause which extinguishes the
agency is VALID and shall be fully effective
with respect to third persons who may
contracted with him in good faith.

EXTINGUISHMENT OF AGENCY
Dissolution of the firm or corporation
(whether it be the principal or agent) ends
the agency.
Dissolution of the Firm or Corporation- this
will cause the termination or break up of a
legal relationship. This is similar to death
of a natural person.

EXTINGUISHMENT OF AGENCY
Accomplishment of the object or
purpose of the agency.
Expiration of the Period of Agency
unless otherwise renewed.

EXTINGUISHMENT OF AGENCY
Modes of extinguishment, specifically:
[WR-DEAD]
1.) Withdrawal of the agent;
2.) Revocation;
3.) Death, civil interdiction, insanity or
insolvency of the principal or of the
agent;
4.) Expiration of the period for which
the agency was constituted;
5.) Accomplishment of the object or
purpose of the agency; and
6.) Dissolution of the firm/corp which
entrusted or accepted the agency;

EXTINGUISHMENT OF AGENCY
Art. 1920. The principal may revoke the
agency at will, and compel the agent
to return the document evidencing
the agency. Such revocation may be
express or implied.
How revocation by principal is made:
a) Express may be oral or written
b) Implied from the acts of the
principal.
\

EXTINGUISHMENT OF AGENCY
Revocation by Principal or Agency
Agency is generally revocable at the will
of the principal because the trust and
confidence may have been lost.
Revocation at will is proper:
-Even if the agency is onerous
-Even if the period fixed has not yet
expired.

EXTINGUISHMENT OF AGENCY
When agency cannot be revoked at the
Principals will:
A)When it is coupled with interest
( interest possessed by the agent not in
the proceeds arising from the exercise
of the power but interest in the subject
matter of the power.

EXTINGUISHMENT OF AGENCY
B) In the case mentioned under Article
1927
1. when a bilateral depends on the
agency;
2. When the agency is the means of
fulfilling an obligation already
contracted;
3. In the case of a partner appointed
manager in the contract of partnership
and his removal from the management is
unjustifiable.

EXTINGUISHMENT OF AGENCY
C) When there has been a waiver by the
principal (however, the irrevocability of the
power of attorney cannot affect one who is not
party thereto, it being obligatory on the
principal who created the agency).
D) When the principal is obliged not to revoke.
(here the principal cn still revoke but he can be
liable for damages for breach of contract.
e) When revocation is done in bad faith. (here
principal can still revoke but innocent third
parties should not be prejudiced; moreover the
innocent agent can be entitled to damages from
him.

EXTINGUISHMENT OF AGENCY
When revocation is proper, agent
cannot generally recover damages.
Reason is simple principal is merely
exercising a right.
Kinds of revocation
Express
Implied
a) appointment of new agent for the
same business
b) Principal directly manages the
business entrusted to the agent.

EXTINGUISHMENT OF AGENCY
Art. 1921. If the agency has been
entrusted for the purpose of contracting
with specified persons, its revocation shall
not prejudice the latter if they were not
given notice thereof.
Agency for contracting with specified
persons:
- So that innocent third parties may not
be prejudiced, the principal who fails to
give the notification can be held liable for
damages.

EXTINGUISHMENT OF AGENCY

No notice is required for persons who


already know of the revocation for then
the purpose of the notification shall
have already been served.

EXTINGUISHMENT OF AGENCY
Art. 1922. If the agent had general
powers, revocation of the agency does not
prejudice third persons who acted in good
faith and without knowledge of the
revocation. Notice of the revocation in a
newspaper of general circulation is a
sufficient warning to third persons.
In this article as distinguished from the
preceding article, the third persons have
not been specified. Note the
effect of revocation in a
newspaper of general circulation.

EXTINGUISHMENT OF AGENCY
Impliedly Revoked when:
Art. 1923. The appointment of a new
agent for the same business or
transaction revokes the previous agency
from the day on which notice thereof
was given to the former agent, without
prejudice to the provisions of the two
preceding articles.
Appointment of a new agent revokes
the first agency only in case of
incompatibility.

EXTINGUISHMENT OF AGENCY
A special power revokes a general one.
If the first agent is not notified of
the appointment of the second agent,
it is understood that the first
agency still exists.

EXTINGUISHMENT OF AGENCY

Art. 1924. The agency is


revoked if the principal
directly manages the business
entrusted to the agent,
dealing directly with third
persons.

EXTINGUISHMENT OF AGENCY
Effect if the principal directly manages
the business
The rule applies only in case of
incompatibility, because it may be
that the only desire of the principal
is for him and the agent to manage
the business together. In case of
true inconsistency, the agency is
revoked, for there woild no longer be
any basis therefor.

EXTINGUISHMENT OF AGENCY
Art. 1926. A general power of attorney is
revoked by a special one granted to
another agent, as regards the special
matter involved in the latter.

Rule when Special Power is granted to


another agent. It may create
partial revocation as to the special
matter involved only.
a. In this case two agents are
involved.
b. A specific right naturally prevails
over a general one.

EXTINGUISHMENT OF AGENCY
Art. 1925. When two or more principals
have granted a power of attorney for a
common transaction, any one of them may
revoke the same without the consent of the
others.
The power to revoke here is a consequence
of solidary liability of co-principals.

EXTINGUISHMENT OF AGENCY
Cases when agency is irrevocable:
The principal may generally revoke an
agency at will. (Art. 1920).

In the following cases, he has no


right to revoke the agency without
incurring liability for damages:
If the agency is coupled with
interest, i.e. the agent possesses an
interest in the subject matter of the
power conferred and not merely in
the compensation arising from the
exercise of the power (e.g. where
the principal pledges his property to
the agent as security for his debt
and gives the agent the power to
dispose of it should be in default).

EXTINGUISHMENT OF AGENCY

Under Art. 1927:

If a bilateral contract depends on the


agency (e.g. where it is stipulated that
the ownership of the factory sold would
be transferred to the buyer only after
payment of the balance of the purchase
price and that the seller (principal)
would appoint the agent to manage the
factory and that any profit would be
used to pay off the balance. Both
seller and buyer are benefitted from
the appointment of the agent.

EXTINGUISHMENT OF AGENCY
If the agency is means of
fulfilling an obligation already
contracted (e.g. agency in favor
of creditor to collect sums due
debtor- principal)

EXTINGUISHMENT OF AGENCY
Example:
Sonia is indebted to Concepcion for
the purchase of diamond
heaadband. But Sonia in the
meantime has no money. So she
appoints Concepcion as her agent to
collect from Maria some money which
Maria owes her (Sonia), which
money in turn will be applied to the
purchase price of the headband. It
is clear that Sonia cannot revoke the
agency here, unless she first pays
Concepcion.

EXTINGUISHMENT OF AGENCY

If a partner is appointed
manager of a contract of
partnership, his appointment
being revocable only upon just
and lawful cause and upon the
vote of the partners
representing the controlling
interest. (see Art. 1927 in
relation to Art. 1800, Law on
Partnership)

EXTINGUISHMENT OF AGENCY

When there has been


waiver by the principal
(however, the
irrevocability of a power
of attorney cannot affect
one who is not party
thereto, it being
obligatory only on the
principal who created the
agency.

EXTINGUISHMENT OF AGENCY

When the principal is obliged not to


revoke. ( here the principal can still
revoke but he can held liable for
damages, for breach of contract).
When the revocation is done is bad
faith. (Here, the principal can still
revoke but innocent third parties should
not be prejudiced; moreover the
innocent agent can be entitled to
damages from him.

EXTINGUISHMENT OF AGENCY
Art. 1928. The agent may withdraw
from the agency by giving due notice
to the principal. If the latter should
suffer any damage by reason of the
withdrawal, the agent must
indemnify him therefor, unless the
agent should base his withdrawal
upon the impossibility of continuing
the performance of the agency
without grave detriment to himself.
(1736a)

EXTINGUISHMENT OF AGENCY
Art. 1929. The agent, even if he
should withdraw from the agency
for a valid reason, must continue
to act until the principal has had
reasonable opportunity to take the
necessary steps to meet the
situation.

EXTINGUISHMENT OF AGENCY
Just as a principal may revoke under Article
1920, so also my agent withdraw under
Article 1928
Withdrawal of the Agent is another mode of
extinguishment of agency.
He shall no be liable if:
1) He gives prior notice to the principal of his
intention to withdraw and
2) His withdrawal is for a valid and justifiable
cause.
Nevertheless, he can still withdraw if he insists
and if the withdrawal is for unjustifiable
cause, agent is liable for damages.

EXTINGUISHMENT OF AGENCY
Some valid reasons for withdrawal
a) Poor health
b) Where there is conflict of interest
between the principal and agent
c) Where there is incompatible interest
between two, as when the principal or
the agent files action against each
other.

EXTINGUISHMENT OF AGENCY

Under Art. 1929, although the


agent withdraws from the
agency for a valid reason,
he is still obliged to act until
the principal had reasonable
opportunity to take
necessary steps to meet the
situation.

EXTINGUISHMENT OF AGENCY
Art. 1930. The agency shall remain in
full force and effect even after the
death of the principal, if it has been
constituted in the common interest
of the latter and of the agent, or in
the interest of a third person who
has accepted the stipulation in his
favor.
General Rule: Death of either the
principal or agent extinguishes the
contract agency.

EXTINGUISHMENT OF AGENCY

Agency is not terminated immediately


by death in the following cases:
If the agency is necessary to finish
the business already begun on the
death of principal where delay should
entail any danger. (1884):

EXTINGUISHMENT OF AGENCY
If it has been constituted in
the common interest of the
principal and the agent (art.
1930)
Zenaida borrows from Jose and as
a secuirty entrusts to Jose a
ring which Jose can sell in case
Zenaida fails to pay the debt at
the time of maturity. Even if
Zenaida dies, the agency of
Jose would still remain.

EXTINGUISHMENT OF AGENCY
If it has constituted in the
interest of the third person who
has accepted the stipulation in
favor (Art. 1311) STIPULATION
POUR AUTRUI
Melady sells his land to Bravo and
appoints Bravo his agent in paying
the purchase price what Melady
owes Arellano, a third person.
Here even when Melady dies, the
agency of Bravo continues to exist.

EXTINGUISHMENT OF AGENCY
In the given examples are in
accordance with the well-settled
rule that if the authority is one
that is coupled with interest, it is
not revocable by death, act or
condition of the principal unless
there is some agreement to the
contrary between the parties.

EXTINGUISHMENT OF AGENCY
A power has not been held to be
coupled with an interest where the
interest arises out of commission
or out of the proceeds of a
transaction as where the agents
interest is merely his right to
receive by way of compensation,
certain percentage of the
proceeds.

EXTINGUISHMENT OF AGENCY
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.

EXTINGUISHMENT OF AGENCY
Effect of Agents act without knowledge
of the principals death- Anything
consummated between third person
and the third person even after the
death of the principal is considered
valid and effective if:
a. Agent acted in good faith and
without knowledge of his principals
death and or of any cause which
extinguishes the agency; and
b. The third person likewise acted in
good faith and without knowledge of
the principals death. (Art. 1931)

Art. 1932. If the agent dies,


his heirs must notify the
principal thereof, and in the
meantime adopt such measures
as the circumstances may
demand in the interest of the
latter.

Obligations of the agents heirs upon


death of the agent.
Death of the agent also extinguishes the
agency, but his heirs assume the
following obligation:
a. Immediately notify the principal of the
agents death.
b. Exercise the proper diligence of a good
father of a family in the protection of
the object of agency while in their
possession;
c. If unable to do so, consign the object
of the agency with the court.

EXTINGUISHMENT OF AGENCY
d. In the meantime, adopt such
measures as the circumstances
may demand in the interest of
the principal.
f. Continue the agency temporarily
until the principal can make such
1. Appoint a new agent, or
2. Arrange for return of the
object to him immediately.

EXTINGUISHMENT OF AGENCY

g. If the agency is coupled


with interest, the heirs may
exercise such power as may
be necessary to protect the
interest of the deceased
agent. ( Transmissibility of
rights may be invoked under
Art. 1178)

DOCTRINE OF AGENCY BY
NECESSITY

Strictly speaking, an agency can


never be created by necessity. What
is meant by the phrase agency by
necessity is however this: That by
virtue of the existence of an
emergency the authority of an agent
is correspondingly enlarged in order to
cope with the exigencies or the
necessities of the moment.

Five conditions laid down by the Supreme


Court for Authority of Agency by
Necessity:
The real existence of an emergency;
Inability of the agent to communicate with
the principal;
The exercise of the additional authority
for the principals own protection;
Adoption of fairly reasonable means,
premises duly considered;
The ceasing of the authority the moment
the emergency no longer demands the same.

Example:
If a bus conductor is seriously
hurt, the driver is authorized to
engage the services of the physician,
in the companys name, sot that the
conductor may survive. This is really
for the best interest of all
concerned.