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Agency Bar Questions and Answers

(1975 – 2016)

A lawyer was given an authority by means of a Special Power of Attorney by his client to sell a parcel of
land for the amount of P3 Million. Since the client owed the lawyer Pl Million in attorney's fees in a prior
case he handled, the client agreed that if the property is sold, the lawyer was entitled to get 5% agent's
fee plus Pl Million as payment for his unpaid attorney's fees. The client, however, subsequently found a
buyer of his own who was willing to buy the property for a higher amount. Can the client unilaterally
rescind the authority he gave in favor of his lawyer? Why or why not? (2015 BAR)

Answer:

NO, the agency in the case presented is one which is coupled with an interest. As a rule, agency is revocable at
will except if it was established for the common benefit of the agent and the principal. In this case, the interest of
the lawyer is not merely limited to his commission for the sale of the property but extends to his right to collect his
unpaid professional fees. Hence, it is not revocable at will (Art.1927).

Joe Miguel, a well-known treasure hunter in Mindanao, executed a Special Power of Attorney (SPA)
appointing his nephew, John Paul, as his attorney-in-fact. John Paul was given the power to deal with
treasure-hunting activities on Joe Miguel’s land and to file charges against those who may enter it
without the latter’s authority. Joe Miguel agreed to give John Paul forty percent (40%) of the treasure that
may be found on the land. Thereafter, John Paul filed a case for damages and injunction against Lilo for
illegally entering Joe Miguel’s land. Subsequently, he hired the legal services of Atty. Audrey agreeing to
give the latter thirty percent (30%) of Joe Miguel’s share in whatever treasure that may be found in the
land. Dissatisfied however with the strategies implemented by John Paul, Joe Miguel unilaterally revoked
the SPA granted to John Paul. Is the revocation proper? (2014 BAR)

Answer:

NO, the revocation was not proper. As a rule, a contract of agency may be revoked by the principal at will.
However, an agency ceases to be revocable at will if it is coupled with an interest or if it is a means of fulfilling an
obligation already contracted (Art. 1927). In the case at bar, the agency may be deemed an agency coupled with
an interest not only because of the fact that John Paul expects to receive 40% of whatever treasure may be found
but also because he also contracted the services of a lawyer pursuant to his mandate under the contract of
agency and he therefore stands to be liable to the lawyer whose services he has contracted. (Sevilla v. Tourist
World Service, G.R. No. L-41182-3 April 16, 1988)

Fe, Esperanza, and Caridad inherited from their parents a 500 sq. m. lot which they leased to Maria for
three (3) years. One year after, Fe, claiming to have the authority to represent her siblings Esperanza and
Caridad, offered to sell the leased property to Maria which the latter accepted. The sale was not reduced
into writing, but Maria started to make partial payments to Fe, which the latter received and
acknowledged. After giving the full payment, Maria demanded for the execution of a deed of absolute sale
which Esperanza and Caridad refused to do. Worst, Maria learned that the siblings sold the same property
to Manuel. This compelled Maria to file a complaint for the annulment of the sale with specific
performance and damages.

If you are the judge, how will you decide the case? (2014 BAR)

Answer:

I will dismiss the case for annulment of the sale and specific performance filed by Maria with respect to the shares
pertaining to Esperanza and Caridad. Since the object of the sale is a co-owned property, a co-owner may sell his
undivided share or interest in the property owned in common but the sale will be subject to the result of the
partition among the co-owners. In a co-ownership there is no mutual agency except as provided under Art. 487.
Thus, Fe cannot sell the shares of Esperanza and Caridad without a special power of attorney from them and the
sale with respect to the shares of the latter without their written authority is void under Art.1874. Hence, the sale
of the property to Manuel is not valid with respect to the shares of Esperanza and Caridad. Maria can only assail
the portion pertaining to Fe as the same has been validly sold to her by Fe.

X was the owner of an unregistered parcel of land in Cabanatuan City. As she was abroad, she advised
her sister Y via overseas call to sell the land and sign a contract of sale on her behalf.

Y thus sold the land to B1 on March 31, 2001 and executed a deed of absolute sale on behalf of X. B1 fully
paid the purchase price.
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B2, unaware of the sale of the land to B1, signified to Y his interest to buy it but asked Y for her authority
from X. Without informing X that she had sold the land to B1, Y sought X for a written authority to sell.

X e-mailed Y an authority to sell the land. Y thereafter sold the land on May 1, 2001 to B2 on monthly
installment basis for two years, the first installment to be paid at the end of May 2001. Who between B1
and B2 has a better right over the land? Explain. (5%) (2010 Bar Question)

SUGGESTED ANSWER:

B-2 has a better title. This is not a case of double sale since the first sale was void. The law provides that 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 (Article 1874,New Civil Code). The property was sold by Y to B1 without any
written authority from the owner X. Hence, the sale to B1 was void.

ALTERNATIVE ANSWER:

Under the facts, B-1 has a better right to the land. Given the fact that the Deed of Sale in favor of B-1 and B- 2 are
not inscribed in the Registry of Deeds, the case is governed by Article 1544 of the New Civil Code which provides
that in case of double sales of an immovable property, the ownership shall pertain to the person who in good faith
was first in possession and in the absence thereof to the person who presents the oldest title, provided there is
good faith.

In a case, the Supreme Court has held that in a sale of real estate the execution of a notarial document of sale is
tantamount to delivery of the possession of the property sold. Ownership of the land therefore pertains to the lmt
buyer. It may also be mentioned that under Act 3344 no instruments or deed establishing, transmitting,
acknowledging, modifying, or extinguishing right to real property not registered under Act 496 shall be valid
between the parties. Thus, the Deed of Sale of B-2 has no binding effect on B-1.

As an agent, AL was given a guarantee commission, in addition to his regularcommission, after he sold
20 units of refrigerators to a customer, HT Hotel. The customer, however, failed to pay for the units sold.
AL’s principal, DRB1, demanded from AL payment for the customer’s accountability. AL objected, on the
ground that his job was only to sell and not to collect payment for units bought by the customer.

Is AL’s objection valid? Can DRBI collect from him or not? Reason. (5%) (2004 Bar Question)

SUGGESTED ANSWER:

No, AL’s objection is not valid and DRBI can collect from AL. Since AL accepted a guarantee commission, in
addition to his regular commission, he agreed to bear the risk of collection and to pay the principal the proceeds
of the sale on the same terms agreed upon with the purchaser (Article 1907, Civil Code)

CX executed a special power of attorney authorizing DY to secure a loan from any bank and to mortgage
his property covered by the owner’s certificate of title. In securing a loan from Mbank, DY did not specify
that he was acting for CX in the transaction with said bank.

Is CX liable for the bank loan? Why or why not? Justify your answer. (5%) (2004 Bar Question)

SUGGESTED ANSWER:

CX is liable for the bank loan, because he authorized the mortgage on his property to secure the loan contracted
by DY. If DY later defaults and fails to pay the loan, CX is liable to pay. However, his liability is limited to the
extent of the value of the said property.

ALTERNATIVE ANSWER:

CX is not personally liable to the bank loan because it was contracted by DY in his personal capacity. Only the
property of CX is liable. Hence, while CX has authorized the mortgage on his property to secure the loan of DY,
the bank cannot sue CX to collect the loan in case DY defaults thereon. The bank can only foreclose the property
of CX. And if the proceeds of the foreclosure are not sufficient to pay the loan in full, the bank cannot run after CX
for the deficiency.

ALTERNATIVE ANSWER:

While as a general rule the principal is not liable for the contract entered into by his agent in case the agent acted
in his own name without disclosing his principal, such rule does not apply if the contract involves a thing belonging

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to the principal. In such case, the principal is liable under Article 1SS3 of the Civil Code. The contract is deemed
made on his behalf (Syjuco v. Syjuco 40 Phil. 634 [1920]).

ALTERNATIVE ANSWER:

CX would not be liable for the bank loan. CX’s property would also not be liable on the mortgage. Since DY did
not specify that he was acting for CX in the transaction with the bank, DY in effect acted in his own name. In the
case of Rural Bank of Bombon v. CA, 212 SCRA, (1992), the Supreme Court, under the same facts, ruled that “in
order to bind the principal by a mortgage on real property executed by an agent, it must upon its face purport to
be made, signed and sealed in the name of the principal, otherwise, it will bind the agent only. It is not enough
merely that the agent was in fact authorized to make the mortgage, if he has not acted in the name of the
principal. Neither is it ordinarily sufficient that in the mortgage the agent describes himself as acting by virtue of a
power of attorney, if in fact the agent has acted in his own name and has set his own hand and seal to the
mortgage. There is no principle of law by which a person can become liable on a real estate mortgage which she
never executed in person or by attorney in fact.”

Jo-Ann asked her close friend, Aissa, to buy some groceries for her in the supermarket. Was there a
nominate contract entered into between Jo-Ann and Aissa? In. the affirmative, what was it? Explain. (2003
Bar Question)

SUGGESTED ANSWER:

Yes, there was a nominate contract. On the assumption that Aissa accepted the request of her close friend Jo-
Ann to buy some groceries for her in the supermarket, what they entered into was the nominate contract of
Agency. Article 1868 of the New Civil code provides that by the contract of agency a person binds himself to
render some service or to do something in representation or on behalf of another, with the consent or authority of
the latter.

ALTERNATIVE ANSWER:

Yes, they entered into a nominate contract of lease of service in the absence of a relation of principal and agent
between them (Article 1644, New Civil Code).

Richard sold a large parcel of land in Cebu to Leo for P100 million payable in annual installments over a
period of ten years, but title will remain with Richard until the purchase price is fully paid. To enable Leo
to pay the price, Richard gave him a power-of-attorney authorizing him to subdivide the land, sell the
individual lots, and deliver the proceeds to Richard, to be applied to the purchase price. Five years later,
Richard revoked the power of attorney and took over the sale of the subdivision lots himself. Is the
revocation valid or not? Why? (5%) (2001 Bar Question)

SUGGESTED ANSWER:

The revocation is not valid. The power of attorney given to the buyer is irrevocable because it is coupled with an
interest: the agency is the means of fulfilling the obligation of the buyer to pay the price of the land (Article 1927,
CC). In other words, a bilateral contract (contract to buy and sell the land) is dependent on the agency.

A foreign manufacturer of computers and a Philippine distributor entered into a contract whereby the
distributor agreed to order 1,000 units of the manufacturer’s computers every month and to resell them In
the Philippines at the manufacturer’s suggested prices plus 10%. All unsold units at the end of the year
shall be bought back by the manufacturer at the same price they were ordered. The manufacturer shall
hold the distributor free and harmless from any claim for defects in the units. Is the agreement one for
sale or agency? (5%) (2000 Bar Question)

SUGGESTED ANSWER:

The contract is one of agency not sale. The notion of sale is negated by the following indicia; (1) the price is fixed
by the manufacturer with the 10% mark-up constituting the commission; (2) the manufacturer reacquires the
unsold units at exactly the same price; and (3) warranty for the units was borne by the manufacturer. The
foregoing Indicia negate sale because they indicate that ownership over the units was never intended to transfer
to the distributor.

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X appoints Y as his agent to sell his products in Cebu City. Can Y appoint a subagent and if he does, what
are the effects of such appointment? (5%) (1999 Bar Question)

SUGGESTED ANSWER:

Yes, the agent may appoint a substitute or subagent if the principal has not prohibited him from doing so, but he
shall be responsible for the acts of the substitute:

a. when he was not given the power to appoint one;

b. when he was given such power, but without designating the person, and the person appointed was
notoriously incompetent or insolvent.

Stating briefly the thesis to support your answer to each of the following cases, will the death - x x x

(c) of an agent end an agency? (1997 Bar Question)

SUGGESTED ANSWER:

Yes. The death of an agent extinguishes the agency, by express provision of par. 3, Art 1919 of the Civil Code.

Prime Realty Corporation appointed Nestor the exclusive agent in the sale of lots of its newly developed
subdivision. Prime Realty told Nestor that he could not collect or receive payments from the buyers.
Nestor was able to sell ten lots to Jesus and to collect the downpayments for said lots. He did not turn
over the collections to Prime Realty. Who shall bear the loss for Nestor's defalcation, Prime Realty or
Jesus? (1994 Bar Question)

SUGGESTED ANSWER:

a) The general rule is that a person dealing with an agent must inquire into the authority of that agent. In the
present case, if Jesus did not inquire into that authority, he is liable for the loss due to Nestor’s defalcation unless
Article 1900, Civil Code governs, in which case the developer corporation bears the loss.

Art. 1900 Civil Code provides: “So far as third persons are concerned, an act is deemed to have been performed
within the scope of the agent’s authority, if such act 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.

However, if Jesus made due inquiry and he was not Informed by the principal Prime Realty of the limits of
Nestor’s authority. Prime Realty shall bear the loss.

b) Considering that Prime Realty Corporation only “told" Nestor that he could not receive or collect payments, it
appears that the limitation does not appear in his written authority or power of attorney. In this case, insofar as
Jesus, who is a third person, is concerned, Nestor’s acts of collecting payments is deemed to have been
performed within the scope of his authority (Article 1900, Civil Code). Hence, the principal is liable.

However, if Jesus was aware of the limitation of Nestor's power as an agent, and Prime Realty Corporation does
not ratify the sale contract, then Jesus shall be liable (Article 1988, Civil Code).

A as principal appointed B is his agent granting him general and unlimited management over A's
properties, stating that A withholds no power from B and that the agent may execute such acts as he may
consider appropriate.

Accordingly, B leased A's parcel of land in Manila to C for four (4) years at P60.000.00 per year, payable
annually in advance.

B leased another parcel of land of A in Caloocan City to D without a fixed term at P3,000.00 per month
payable monthly.

B sold to E a third parcel of land belonging to A located in Quezon City for three (3) times the price that
was listed in the inventory by A to B.

All those contracts were executed by B while A was confined due to illness in the Makati Medical Center.

Rule on the validity and binding effect of each of the above contracts upon A the principal. Explain your
answers. (1992 Bar Question)

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SUGGESTED ANSWER:

The agency couched in general terms comprised only acts of administration (Art. 1877, Civil Code). The lease
contract on the Manila parcel is not valid, not enforceable and not binding upon A. For B to lease the property to
C, for more than one (1) year, A must provide B with a special power of attorney (Art. 1878, Civil Code).

The lease of the Caloocan City property to D is valid and binding upon A. Since the lease is without a fixed term, it
is understood to be from month to month, since the rental is payable monthly (Art. 1687, Civil Code).

The sale of the Quezon City parcel to E is not valid and not binding upon A. B needed a special power of attorney
to validly sell the land (Arts. 1877 and 1878. Civil Code). The sale of the land at a very good price does not cure
the defect of the contract arising from lack of authority.

a. x x x

b. In 1950, A executed a power of attorney authorizing B to sell a parcel of lancl consisting of more than
14 hectares. A died in 1954. In 1956, his four childen sold more than 12 hectares of the land to C. In 1957,
B sold. 8 hectares of the same land to D. It appears that C did not register the sale executed by the
children. D, who was not aware of the previous sale, registered the sale executed by B, whose authority to
sell was annotated at the back of the Original Certificate of Title.

1. What was the effect of the death of A upon B’s authority to sell the land?

2. Assuming that B still had the authority to sell the land—who has a better right over the said land, C or
D? (1988 Bar Question)

SUGGESTED ANSWER:

1. While the death of the principal in 1954 ended the authority of the agent to sell the land, it has not been shown
that he was aware of his principal s demise. Hence, the act of such agent is valid and shall be fully effective with
respect to third persons which may have contracted with him in good faith in conformity with Art. 1931 of the Civil
Code. (Buason vs. Panuyas, 105 Phil. 795, Herrera vs. Luy, 110 Phil. 1020.)

2. As the case at bar is a case of double sale of registered land he who recorded the sale in good faith has a
better right in conformity with Art. 1544 of the Civil Code. Since D was not aware of the previous sale, he had to
rely on the face of the certificate of title of the registered owner. Hence, he now has a better right to the land.
(Buason vs. Panuyas, supra.)

ALTERNATIVE ANSWERS:

(1) The agency is terminated upon the death of either the principal or agent. Exceptionally, a transaction entered
into by the agent with a third person where both had acted in good faith is valid. Article 1930 of the Civil Code
provides that:

“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.”

and Article 1931 provides that:

“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.”

"A", an official of a mining company, was appointed by the company as its buying agent for the
acquisition of mining rights in a designated area for operation by the company. "A" proceeded to enter
into contracts with the claim owners. Claim owner "B", an illiterate, was helped by "A" in locating and
perfecting his rights and for which "A", by contract, obtained a participation in the royalty paid by the
company to the claim owner.

a) The mining company goes to you for advice as to whether it is entitled to the royalty obtained by "A"
from "B". What would your advice be and why?

b) May "B", the claim owner, question the royalty obtained by "A"? On what grounds? Explain. (1981 Bar
Question)

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Answer

(a) I would advice the mining company to withhold the payment of the part of the royalty corresponding to "A".
This is so because of the explicit mandate of the Civil Code. According to the law: Every agent is bound to render
an account of his transactions and to deliver to the principal whatever he may have received by virtue of the
agency, even though it may not be owing to the principal. It is crystal dear that the act of "A", agent of the mining
company, falls squarely within the purview or coverage of this rule.

(Note: The above answer is based on Art. 1891 of the Civil Code.)

(b) "B", the claim owner, may question the royalty obtained by "A" on the ground that it is "not owing to the
principal." It must be observed that the obligation of the agent to deliver to his principal anything which he has
received by virtue of the agency is followed by the phrase "even though it may not be owing to the principal" This
means that the action for recovery by "B" on the ground of undue payment would be directed against the mining
company and not against the agent.

(a) "AA" had an option to purchase a vessel. He entered into a contract with "BB" wherein he assigned
his option to "BB" under the condition that "BB" would appoint him as agent of the vessel for five years.
"BB" purchased the vessel and appointed "AA" as agent in accordance with the contract. After three
years of operation "BB" revoked the appointment of "AA" as agent for loss of confidence. "AA" sued
"BB" for damages.

Would you hold "BB" liable for damages? (1980 Bar Question)

Answer

(a) "BB" should be held for damages. True, according to the Civil Code, the principal may revoke the agency at
will. But there are exceptions. These exceptions are sometimes denominated as agency coupled with an interest.
One of them is when the agency is the means of fulfilling an obligation already contracted. It is obvious that the
agency is the means of fulfilling an obligation already contracted in favor of "AA". "BB" has clearly breached his
contract or undertaking by revoking the agency before the expiration of the term or period of five years.

DT borrowed P50,000.00 from a bank and to secure the payment thereof, signed a Deed of Real Estate
Mortgage in favor of the bank in the usual printed form wherein it is provided among others that "for the
purpose of extra-judicial foreclosure, the mortgagor hereby appoints the mortgagee his attorney-in-fact to
sell the property mortgaged under Act 3135, as amended, to sign all documents and perform any act
requisite and necessary to accomplish said purpose." Upon failure of DT to pay the loan, the bank
foreclosed and bought the property at the foreclosure sale. During the one year period of redemption DT
died and the property was not redeemed despite the lapse of one year. The bank, despite its actual
knowledge, of DT's death, consolidated its title by executing the affidavit of consolidation and Deed of
Sale of the land in its favor as empowered in the Deed of Real Estate Mortgage. After the bank had
consolidated its title the heirs of DT asked the bank to allow them to redeem the property by paying only
the P50,000.00 plus accrued interest and expense of foreclosure, contending that the sale in favor of the
bank was invalid due to the prior death of DT which therefore revoked the power of attorney inserted in
the Deed of Mortgage but the bank demanded payment of P200,000.00, the then fair market value of the
property. Can the bank be compelled to accept the tender of redemption by the heirs of DT? Why? (1979
Bar Question)

Answer

The bank cannot be compelled to accept the tender of redemption by the heirs of DT. True, agency is
extinguished by the death of the principal, but there are two well-known exceptions. The first exception is where
the agency is coupled with an interest and the second is where the agent, unaware of the death of his principal,
enters into a contract in behalf of his principal with a third person who is also unaware of the death of the principal
(Arts. 1930, 1931, Civil Code) The instant case falls squarely within the purview of agency coupled with an
interest. According to the Civil Code, 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. Hence, despite the death of DT, the power granted by him to
the bank to sell the property mortgaged and to sign all documents and perform any act requisite and necessary to
accomplish the extra-judicial foreclosure in case he is unable to pay the loan is still of full force and effect. The
foreclosure, therefore, and the consolidation by the bank of its title over the mortgaged property are perfectly
valid.

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A authorized B to sell her property for P20,000 subject to the condition that the purchaser would assume
the mortgage existing in favor of Plaridel Bank and agreed to pay B a commission of six per cent (6%) on
the purchase price plus whatever over price he may obtain for the property. B found a buyer C who was
willing to buy the property under the terms stipulated by A. When B introduce C to A, A told B that she
was no longer interested in selling the property and a document was signed canceling the written
authority to sell with the agreement of B. One (1) month later, A sold the same property directly to C for
P22,000, A refused to pay B his commission, contending that when the property was sold to C the
authority to sell of B was already cancelled. B sued to collect his commission. Is B entitled to his agent's
commission? Give reasons for your answer. (1978 Bar Question)

Answer

B is entitled to his agent's commission. C, the buyer of B, was willing to buy the property under the terms
stipulated by A. Despite this, A told B that she was no longer interested in selling the property. As a result, B's
authority was cancelled. And yet, all of a sudden, one month later, A sold the property directly to C for P22,000. It
is clear that there was bad faith on the part of A. This act of bad faith cannot serve as a basis for him to evade
payment of the commission of B.

A borrowed from B the sum of P3,000.00. Three days after A in a letter authorized the Philippine National
Bank to pay his debt to B out of whatever crop loan might be granted to him by said Bank. On the same
day, the Bank agreed but the Bank paid B only P2,000.00. On the date of the maturity, B sued the Bank
and A for the remaining P 1,000.00. Is the Bank liable to B? Explain. (1975 Bar Question)

Answer

No, the Bank is not liable to B. The letter of A to PNB is merely an authority given to PNB to pay B. PNB,
therefore, is merely an agent of A, and an agent cannot be personally liable as long as be acts within the scope of
his authority.

Moreover, the Bank did not assume the obligation to pay A's indebtedness to B, either as co-principal, surety or
guarantor. (Hodges v. Rey, 111 Phil. 219)

Multiple Choice Questions

X, who was abroad, phoned his brother, Y, authorizing him to sell X’s parcel of land in Pasay. X sent the
title to Y by courier service. Acting for his brother, Y executed a notarized deed of absolute sale of the
land to Z after receiving payment. What is the status of the sale? (2011 BAR)

(A) Valid, since a notarized deed of absolute sale covered the transaction and full payment was made.

(B) Void, since X should have authorized agent Y in writing to sell the land.

(C) Valid, since Y was truly his brother X’s agent and entrusted with the title needed to effect the sale.

(D) Valid, since the buyer could file an action to compel X to execute a deed of sale.

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