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AGENCY MIDTERMS REVIEWER

Art. 1868. By the contract of agency a person binds himself [Correlate to 1919{3)] That if during the term of the agency, the
to render some service or to do something in principal OR agent is placed under civil interdiction, death,
representation or on behalf of another, with the consent or insanity, insolvency, the agency is ipso jure extinguished
authority of the latter. [Correlate with: 1317, 1403(1)]

CONTRACT OF AGENCY: it is a legal fiction of representation II. SUBJECT MATTER OR OBJECT


whereby one person binds himself to render some service or to
do something in representation or on behalf of another with the The object of every contract of agency is service, which
authority of the latter. particularly is the legal undertaking of the agent to enter into
The PURPOSE of which is the ability, by legal fiction, juridical acts with third persons on behalf of the principal. The
to extend the personality of the principal through the object of every contract of agency is the execution of a juridical
facility of an agent act in relation to a third person.
a) May cover all acts pertaining to a business of the
Defective? Because it does not draw the distinction between principal (general agency) or one or more specific
lease of services and agency without representation. What the transactions (special agency)
agent really does for the principal is a JURIDICAL ACT, and not b) The extent of the agents authority to act, whether
merely a material one. In other words, while an agent may general or special agency, depends on how the
exercise discretionary powers, the lessee of services ordinarily agency is couched
performs only ministerial functions.
III. CAUSE OR CONSIDERATION
Parties to a Contract of Agency
Principal the person represented Art. 1875. Agency is presumed to be for a compensation,
Agent the person who acts for & in representation of unless there is proof to the contrary.
another
The cause or consideration in agency is the
IMPORTANCE OF AGENCY: enables a man to increase the compensation or commission that the principal agreed or
range of his individual and corporate activity by enabling him to committed to pay the agent for the latters service. Although
be constructively present in many places and to carry on diverse agency contracts are primarily onerous, they may also be
activities at the same time. constituted as gratuitous.

CHARACTERISTICS OF AGENCY (PF-BORN-CP) The agent may not be deprived of his right to
a. Preparatory compensation by an unjustified revocation of the agency.
b. Fiduciary
c. Bilateral (but may be unilateral) Brokers is one who in behalf of others, and for a commission
d. Onerous (generally) or fee, negotiates contracts relative to property (with the custody
e. Representative relation of which he has no concern). He is the negotiator between
f. Nominate parties, never acting in his own name, but in the name of
g. Consensual those who employ him; he is strictly a middleman, and for some
h. Principal purposes, the agent of both parties.
if the broker does not succeed in bringing the mind of
ELEMENTS OF THE CONTRACT OF AGENCY the purchaser and the vendor to an agreement, he is
I. Consent, express or implied, of the parties to establish not entitled to a commission
the relationship not entitled to recover his expenses during the
II. Object, which is the execution of a juridical act in negotiations for the sale, such expenses having been
relation to third parties incurred at his own risk
III. Cause, which may be onerous or gratuitous but
presumed for compensation
IV. Agent acts as a representative and not for himself Art. 1869. Agency may be express, or implied from the acts
V. Agent acts within the scope of his authority of the principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another
person is acting on his behalf without authority. Agency
I. CONSENT may be oral, unless the law requires a specific form.

Manifest from the principle embodied in Article 1317 of the Art. 1870. Acceptance by the agent may also be express, or
NCC that no person may be represented by another without his implied from his acts which carry out the agency, or from
will; and the no person can be compelled against his will to his silence or inaction according to the circumstances.
represent another. In Litonjua, Jr. vs. Eternit Corp., the Court
held that consent of both the principal and the agent is
necessary to create and agency KINDS OF AGENCY
1. As to manner of creation/constitution
Capacity of the Parties in an Agency Arrangement a. Express
Principal must have capacity to contract, and principal may b. Implied from
either be a natural or juridical person. Since the relationship of i. Acts of the principal
agency is first and foremost a contract in itself, the parties (both ii. Principals silence
principal and agent) must have legal capacities to validly enter iii. Principals lack of action
into an agency iv. Principals failure to repudiate the
agency
IF ONE OF THE PARTIES HAS NO CAPACITY: the
contract of agency is not void, but merely voidable by 2. As to its character
reason of vitiation of consent a. Gratuitous
IF PRINCIPAL HAS NO CAPACITY: the resulting b. Compensated or onerous
contract is voidable and subject to annulment
IF AGENT HAS NO CAPACITY: the agency relationship 3. As to extent of business covered
is voidable; but when the incapacitated agent enters into a. General comprises all business
a contract with a third party, the resulting contract would b. Special comprises one or more specific
be valid, not voidable, for the agents incapacity is transactions
irrelevant

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4. As to authority conferred agent), the latter thereby becomes a duly authorized agent as to
a. Couched in in general terms one which is any person.
created in general terms and is deemed to
comprise only acts of administration A. Estoppel of Agent one professing to act as an agent
b. Couched in specific terms may be estopped to deny agency both against the
asserted principal and third persons
5. As to its nature and effects
a. Ostensible/representative agent acts in the B. Estoppel of Principal
name and in representation of the principal i. As to agent if he knows that another is acting
b. Simple/commission agent acts in his own as his agent and fails to repudiate his acts or
name but for account of the principal accepts the benefits of them [Art. 1911]
ii. As to sub-agent to stop him, he must
6. As to form have known or be charged with knowledge
a. Oral (generally, this is sufficient) of the fact of transaction and terms of
b. Written
agreement between the agent and sub-
Agency Distinguished from Other Relations: One factor agent
which most clearly distinguishes agency from other legal
concepts is control and JURIDICAL ACTS Agency by Estoppel Distinguished from Implied Agency

As between the principal and the agent:


In an implied agency, the agent is a true agent, with
PERFECTION FROM SIDE OF THE PRINCIPAL 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
On the side of the principal, Article 1869 of the NCC provides not a true agent; hence he has no rights as such.
that an agency is constituted (i.e., principal has given his
consent to the agency arrangement) from his acts formally As to third persons:
adopting it, or from his silence or inaction, or particularly from If the estoppel is caused by the principal, he is liable,
his failure to repudiate agency knowing someone is acting on but only if the third person acted on the misrepresentation; in an
his behalf. implied agency, the principal is always liable.
Ideal Form: when he issues a written power of
attorney If the estoppel is caused by the agent, it is only the
agent who is liable, never the alleged principal; in an implied
PERFECTION FROM SIDE OF THE AGENT agency, the agent is never personally liable.

On the side of the agent, Article 1870 of the NCC provides that AGENCY BY ESTOPPEL IMPLIED AGENCY
his acceptance of the agency (i.e., agent has given his consent Existence of Actual Agency
to the agency arrangement) may be expressed, or implied from There is no agency at all, but
his acts which carry out the agency, or from his silence or the one assuming to act as
inaction according to the circumstances an agent has apparent or There is actual agency. The
ostensible, although not real, Principal alone is liable
authority to represent
KINDS OF IMPLIED AGENCY another
1. Between persons who are present (Art. 1871): when Reliance by Third Parties
the constitution of the agency is made with both the
Reliance is necessary Reliance is not necessary
principal and agency being physically present at the
Nature or Authority
time of perfection of the contract of agency
Apparent agent has no one
a. Principal delivers his power of attorney to the
agent of the rights of an agent.
b. Agent receives it without any objection Except where the conduct of Agent has actual authority to
the principal made the agent act on behalf of the principal
2. Between persons who are absent (Art. 1872): when reasonably believe to intend
the constitution of agency is made with would-be him as agent in the matter
principal and would-be agent not being physically Proof
present in one place, then there can be NO implied Should be restricted to cases To be proved from
acceptance of the agency from the silence or inaction where authority is not real deductions or inferences
of the agent EXCEPT IN TWO INSTANCES: but apparent from other facts
a. When the principal transmits his power of
attorney to the agent who receives it without Power shall continue in full force until the notice is rescinded in
any objection the same manner in which it was given.
b. When the principal entrusts to the agent by
letter or telegram a power of attorney with
respect to the business in which he is Art. 1876. An agency is either general or special. The former
habitually engaged as an agent and he did comprises all the business of the principal. The latter, one
not reply to the letter or more specific transactions.

RULE ON AGENCY BY ESTOPPEL Art. 1877. An agency couched in general terms comprises
only acts of administration, even if the principal should
Under Article 1873 of the NCC, when the principal state that he withholds no power or that the agent may
specially informs another person that he has given a power of execute such acts as he may consider appropriate, or even
attorney to a third person (the agent), the latter thereby though the agency should authorize a general and
becomes a duly authorized agent with respect to the person unlimited management.
who received the special information.
Even when in fact there has been no meeting of the As long as the agency relationship exists, then in the
minds between the purported principal and agent, there absence of the grant of special power of attorney to the agent,
is DEEMED to have arisen one with respect to third he is deemed to have been extended only a general power of
party who has been so informed attorney and his powers cover only acts of administration.

When the principal states by public advertisement that he Acts of Administration EVEN IF the Principal:
has given a power of attorney to a particular individual (the a. States that he withholds no power from agent

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b. States that the agent may execute acts he In the case of the purchase of piece of land, the SPA does not
considers appropriate render the purchase void when the agency is not in writing. In
c. Authorizes general and unlimited management all other immovable (other than land or any interest therein),
the fact that the SPA to sell or to purchase is not in writing
A general agency may be: would not render the sale/purchase to be void, only
Couched in general terms unenforceable.
Couched in specific terms Art. 1879. A special power to sell excludes the power to
mortgage, and a special power to mortgage does not
A special agency may be: include the power to sell.
Couched in general terms
Couched in specific terms Power to SELL
The power to sell carries with it the:
The term acts of administration has the same commercial and i. power to find a purchaser or to sell directly;
legal significance as to acts in the ordinary course of business ii. power to deliver the property;
which is a commercial test of what can be expected to confront iii. power to make the usual representation and warranty;
the owner of the business. iv. power to execute the necessary transfer documents
v. power to fi x the terms of the sale
vi. power to sell only for CASH
Test to Determine Ordinary Course of Business vii. power to receive the price, unless he was authorized only
By the nature of the business itself that has been placed under to solicit orders
the administration of the agent:
1. If the act/transaction is a matter that from the nature of Power to MORTGAGE
the business is expected to occur and action is The power to mortgage does not include the power:
expected without changing the course of business i. to sell (Art. 1879);
mere ACT OF ADMINISTRATION ii. or to execute a second mortgage
2. If the act/transaction is of a nature as something that is iii. to mortgage for the agents personal benefit or for the
not expected to happen or decided upon day-to-day benefit of any third person, unless contrary has been
affairsACT OF STRICT DOMINION clearly indicated

ILLUSTRATION: GENERAL RULE ON AGENTS POWER & AUTHORITY

Conchita made Sonia her agent in this manner: I make you my I. DUTY OF OBEDIENCE
agent for all my properties. I withhold no power from you. You II. DUTY OF DILIGENCE
may execute such acts as you may consider appropriate. You III. DUTY OF LOYALTY
are hereby given general and unlimited management.
Art. 1881. The agent must act within the scope of his authority.
a. May Sonia compromise in behalf of Conchita? No. He may do such acts as may be conducive to the
b. May Sonia accept or repudiate an inheritance? No. accomplishment of the purpose of the agency.
c. May Sonia sell or mortgage Conchitas land? No
Art. 1882. The limits of the agents authority shall not be
considered exceeded should it have been performed in a
SPECIAL POWERS OF ATTORNEY [1878, 1879, 1880] manner more advantageous to the principal than that specified
An instrument in writing by which one person, as by him.
principal, appoints another as his agent and confers upon him
the authority to perform certain specified acts or kinds of acts on Art. 1887. In the execution of the agency, the agent shall act in
behalf of the principal. accordance with the instructions of the principal. In default
Article 1878 does not state that the special authority be thereof, he shall do all that a good father of a family would do,
in writing. However, should the law require that such SPA be in as required by the nature of the business.
writing in order for the resulting contract to be valid and
enforceable, such requirement becomes absolute and Art. 1888. An agent shall not carry out an agency if its execution
indispensable. would manifestly result in loss or damages to the principal.

When Special Powers of Attorney Are Needed Art. 1889. The agent shall be liable for damages if, there being
1. acts of strict dominion or ownership a conflict between his interests and those of the principal he
2. gratuitous contracts should prefer his own.
3. contracts where personal trust or confidence is of the
essence of the agreement Art. 1899. If a duly authorized agent acts in accordance with the
orders of the principal, the latter cannot set up the ignorance of
Payment of insurance claims was an act of strict dominion the agent as to circumstances whereof he himself was, or ought
and cannot be deemed with the powers of administration to have been, aware.

Does Article 1878(5) cover both sale and purchase of an Fundamental Principles of Agency
Immovable? The issue distinguishes between special power 1. The agent must act within the scope of his authority.
to sell or dispose an immovable, from a special power to 2. The agent must act in behalf of his principal.
purchase of acquire an immovable
Four Instances
Article 1874 covers specifically the sale of a piece of land or a. The agent acts with authority & in behalf of the principal
any interests therein to be in writing, and does not cover the [1897]
purchase of a piece of land or any interest therein, In the b. The agent acts with authority but in behalf of himself [1883]
sale of piece of land, 1874, it is required that the special c. The agent acts without authority but in behalf of a
power of attorney has to be in writing for the sale to be valid; principal.
d. The agent acts without authority and in his own behalf (not
Article 1875(5) clearly covers any contract by which the a principal)
ownership of an immovable is transmitted or acquired, and
covers therefore both an agency to sell or dispose and an
agency to purchase or acquire immovable on behalf of the AGENT ACTS IN HIS OWN NAME: if an agent acts in his own
principal. name, the principal has no right of action against the persons
with whom the agent has contracted; neither such persons have
a right of action against the principal

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Exception: when property involved in the contract
belongs to the principal
CONTRACTS ENTERED BY AGENT WITHIN SCOPE OF
In Aivad vs. Filma Mercantile, SC ruled that where merchandise AUTHORITY
is purchased from an agent with an undisclosed principal and
without knowledge on the part of the purchaser that vendor is General Rule: Agent is NOT personally liable to third parties
merely an agent, purchaser takes title and principal cannot file
against him for recovery; proceed action to agent. Article 1897 of the NCC provides that, the agent who
acts as such is not personally liable to the party with whom
DUTY OF LOYALTY he contracts which is supplemented by Article 1910 which
provides:
Art. 1889. The agent shall be liable for damages if, there
being a conflict between his interests and those of the Art. 1910. The principal must comply with all the
principal he should prefer his own. obligations which the agent may have contracted
within the scope of his authority.
When an agent violates his duty of loyalty, as where
there is a conflict of interest situation he prefers his own interest Under the principle of relativity, a person acting as a mere
to the detriment of the principal, Article 1889 does not declare representative of another acquires no rights whatsoever, nor
the contract/transaction he entered to be void. But merely does he incur any liabilities arising therefrom.
makes the agent liable for the damages suffered by the
principal. Exception: When the Agent expressly makes himself
personally liable
Correlate this to: Article 1891 which provides that the agent is
bound to render an account of his transactions and to deliver to An agent can be held personally liable on contract
the principal whatever he may have received by virtue of the entered into in the name of principal and within the scope of
agency. authority, when such agent expressly binds himself. The
The principal therefore has the right to demand to personal liability of agent arises from voluntary contractual
agent to turnover to the proceeds. Failure to return commitment. As such, unless otherwise stipulated, the liability
the funds, agent may be held liable for estafa. with the principal is MERELY JOINT, and not solidary.

When Agent Empowered to Borrow or Lend Money Exception: When Agent is guilty of Fraud or Negligence
a) If empowered to borrow money, he may be the lender
at current interest When an agent, though acting within the scope of his
b) If empower to lend money, he cannot borrow without authority, acts with fraud or negligence, it affects two levels of
principals consent legal relationships:
a. That between the principal and the agent
What happens when the agent violates his obligations under b. And insofar as third parties are concerned, when
Article 1890? they have entered into a contract with the agent in
the name of principal
In case where agent was the lender to the principal and
charged interest higher than the current rate, the difference [1909] it should be noted that provisions of Article 1909 should
would have to be returned to the principal not be read to conclude that agent is personally liable on a
contract entered into in the name of principal tainted with fraud
If the agent borrows for himself (without consent) the or negligence. Article 1909 presumes that fraudulent acts of
principals money which the principal authorized to lend out, agent were in pursuit of business of the principal. Hence, BOTH
he would not only be liable for the current interest that the the principal and agent are tortfeasors, liable solidarily insofar
principal would have earned, but he will also be liable for as third person is concerned.
damages Remedy of Principal: sue the agent for damages
sustained by his acts

RULES ON FUNDS
CONTRACTS ENTERED BY AGENT WITHOUT SCOPE OF
A. Obligation to Advance Funds AUTHORITY

Art. 1886. Should there be a stipulation that the agent shall Art. 1898. If the agent contracts in the name of the principal,
advance the necessary funds, he shall be bound to do so exceeding the scope of his authority, and the principal does not
except when the principal is insolvent. ratify the contract, it shall be void if the party with whom the
agent contracted is aware of the limits of the powers granted by
No common-law duty on part of the agent to advance his the principal. In this case, however, the agent is liable if he
own funds in behalf of the principal since agent is not undertook to secure the principals ratification.
personally liable. The only time that agent is legally
bound to advance is when such obligation has been General Rule: Principal is NOT liable; Agent may be liable
expressly agreed upon in the creation of contract of
agency. Even if agent agreed, he may still refuse if a. The contract entered into in the name of PRN shall be
principal is insolvent. void as to PRN and the third party if such third party
with whom the agent contracted was aware of the
B. Liability of Agent for Interest limits of the powers granted by the PRN
b. In such case, the agent would be liable personally to
Art. 1896. The agent owes interest on the sums he has applied such third party if he undertook to secure the
to his own use from the day on which he did so, and on those principals ratification
which he still owes after the extinguishment of the agency c. If agent did not undertake such, he cannot become
liable on the contract since the third party has no one
Agent would owe interest to the principal on the following items: to blame but himself

a. On sums that agent applied to his own use from the COMMISSION AGENT
time he used them
A commission agent is one whose business is to receive and
b. On sums owing the principal which remain outstanding sell goods for a commission, and who is entrusted by the
at the time of extinguishment of the agency, with interest principal with the possession of the goods to be sold, and
to run from the time such extinguishment usually selling in his own name.

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A Accomplishment
Specific Obligations of a Commission Agent R Revocation
1. Take custody of the goods [1903] D Dissolution
2. Countermark and designate merchandise [1904]
3. Cannot sell on credit (not cash) without Principals
OTHER CAUSES: Termination by mutual consent, novation,
authorization [1905] Example
loss of subject matter of the agency, outbreak of war if
inconsistent with the agency.
A was Ps commission agent who was asked to sell Ps car on
cash. A sold it on credit. What are Ps rights?
Death
ANSWER: P may demand from A payment in cash. On the
Ordinarily, the death of the principal terminates the agency, even
other hand, A shall be entitled to any interest or benefit which
if a period had been stipulated and such period has not yet
may result from such a sale on credit.
ended.
4. Inform the principal of every pre-authorized sale on
However, under Art. 1931, anything done by the agent, without
credit with the statement of the names of buyers [1906]
knowledge of the death of the principal or of any other cause
5. Shall bear the risk of collection under del credere
which extinguishes the agency, is VALID and shall be fully
commission set-up [1907]
effective with respect to third persons who may have contracted
with him in good faith.
The guarantee commission, also called a del credere
commission. An agent who receives a guarantee commission is
Exceptions
called a del credere agent. The guarantee commission is given
a. if it has been constituted in the common interest of the
in return for the risks the agent will have to bear in the collection
latter and of the agent
of credits.
b. if it has been constituted in the interest of a third
person
6. Collect credits of the principal [1908]
c. anything done by the agent, without knowledge of the
7. Responsibility to return the goods unsold
death of the principal or of any other cause which
extinguishes the agency, is valid and shall be fully
effective
OBLIGATIONS OF THE PRINCIPAL
Example of COMMON interest:
Art. 1910. The principal must comply with all the Zenaida borrows from Jose, and as security entrusts to
obligations which the agent may have contracted within the Jose a ring, which Jose can sell in case Zenaida fails to pay the
scope of his authority. debt at the time of maturity. Even if Zenaida dies, the agency of
Jose would still remain.
Provides that the principal must comply with all the
obligations which the agent may have contracted within the Example of Interest of a THIRD PERSON:
scope. Any dishonesty, misrepresentations, and negligence Melady sells his land to Bravo and appoints Bravo his
shall be borne by the principal and he should bear the damage agent in paying with the purchase price what Melady owes
caused to third persons. Arellano, a third person. Here even when Melady dies, the
agency of Bravo continues to exist.
Principal is BOUND by acts done outside scope Revocation by Principal or Agency
Agency is generally revocable at the will of the principal
Art. 1910. x x x As for any obligation wherein the agent has because the trust and confidence may have been lost.
exceeded his power, the principal is not bound except when he Revocation at will is proper
ratifies it expressly or tacitly. a) even if the agency is onerous;
b) even if the period fixed has not yet expired.
Art. 1911. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed When Agency Cannot Be Revoked at the Principals Will
the latter to act as though he had full powers.
1. When it is coupled with an interest
Reason for the law: The principal may be said to be in 2. In the cases mentioned under Art. 1927
estoppel and therefore innocent third persons should not be a. when a bilateral contract depends on the agency
prejudiced. b. when the agency is the means of fulfilling an
obligation already contracted
c. in the case of a partner appointed manager in the
Art. 1918. The principal is not liable for the expenses contract of partnership and his removal from the
incurred by the agent in the following cases: management is unjustifiable
3. When there has been a waiver by the principal
1) If the agent acted in contravention of the principals 4. When the principal is obliged not to revoke
instructions, unless the latter should wish to avail 5. When the revocation is done in bad faith, but innocent
himself of the benefits derived from the contract; third parties should not be prejudiced
2) When the expenses were due to the fault of the agent; IMPLIED REVOCATION
3) When the agent incurred them with knowledge that an Art. 1923. The appointment of a new agent for the same
unfavorable result would ensue, if the principal was not business or transaction revokes the previous agency from the
aware thereof; day on which notice thereof was given to the former agent,
without prejudice to the provisions of the two preceding articles
4) When it was stipulated that the expenses would be
borne by the agent, or that the latter would be allowed Only in cases of incompatibility
only a certain sum. If the first agent is not notified of the appointment of the
second agent, it is understood that the first agency still
exists
MODES OF EXTINGUISHMENT OF AGENCY
Art. 1924. The agency is revoked if the principal directly
manages the business entrusted to the agent, dealing directly
E Expiration
with third persons
D Death, etc.
W Withdrawal

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

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