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AGENCY MIDTERM REVIEWER (ATTY.

COCHINGYAN)
3. Elements of a Contract of Agency (C.O.R.S)
Nature and Object of Agency 1. Consent, express or implied, of the parties.
1. Definition 2. Object, the execution of a juridical act in relation to
• Contract of Agency: a contract whereby a person binds third parties.
himself to render some service or to do something in 3. Agent acts as a Representative and not for himself.
representation or on behalf of another with the consent 4. Agent acts withing Scope of his authority.
or authority of the latter. (Art. 1868)
• No presumption of agency, proving the nature and
CODAL Break down of extent of the authority is incumbent upon the person
Characteristics (memory aid) alleging it.
By contract of agency - Nominate, Principal o Agency is a question of fact.
a person binds himself - Unilateral
to render some service - Primarily Onerous, A. Consent
or to do something Preparatory • Principal: actual/implied intention to appoint.
in representation or on - Representative, Personal, • Agent: actual/implied intention to accept.
behalf of another Fiduciary B. Object or Subject Matter: Execution of Juridical
with the consent or - Consensual, Revocable Acts in Behalf of Principal
authority of the latter • The execution of Juridical acts in behalf of
the principal must NOT be compelled by
law or any court.
2. Roots and Objecttives C. Consideration
1. Purpose: The ability, by legal fiction, to extend the • Agency is presumed to be for compensation,
personality of the principal through the facility of the unless there is proof to the contrary. (Art.
agent. 1875)
i. What a man may do in person he may do  This means that such presumption
through another. may be rebutted by competent
2. Art. 1307: No one may enter into a contract in the evidence. [Only prima facie]
name of another without being authorized or unless  The intention can be inferred from
he has a right in law to make such representation. the principal’s manifestations.
3. Art. 1403[1]: Contracts entered into in the name of • OLD CIVIL CODE: Agency is presumed to
another without authority are unenforceable unless be gratuitous.
ratified.
4. Essential Characteristics of Agency (NP. UP. C. PR. PFR.)

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a) Nominate and Principal • Representative: obligations are contracted
• If the act done by one person is in its essential for and in behalf of another. (qui facit per
nature one of agency, then it doesn’t matter if alium facit per se: he who acts through
the “name” of the contract is NOT that of another acts himself)
agency because it will still be treated as an • Consequences:
agency. o Principal is liable if agent acts within
• Nominate – own name/chapter/title in the the scope of his authority.
Civil Code o If agent buys property in bad faith,
• Principal – can stand on its own principal is a buyer in bad faith.
• It will be an agency w/n the parties o Notice to the agent is notice to the
understood it as an agency. What is principal (even if the principal NEVER
controlling is the essence of the actions. became aware of the notice)
b) Unilateral and Primarily Onerous o Third person must discover upon his
• Unilateral – only one party makes a promise peril the authority of the agent.
or undertakes performance • Control
• Onerous – presumed to be for compensation o The agent agrees to be under the
c) Consensual control/direction of the principal.
• Principal (appointment): Express or • It can be said that the actual absence of the
Implied, from his actions, silence, lack of principal is converted into his legal or
action, failure to repudiate the agency. juridical presence.
• Agent (acceptance): Express or Implied, o The acts of the agent (within the scope
from his acts, silence or inaction. of authority), by legal fiction, become
• The basis for agency is representation. It is the acts of the principal.
incumbent upon the person dealing with an o Hence, these acts are generally
agent to discover upon his peril the authority binding upon the principal.
of the agent. • When agent may be held liable
• Example: A co-owner does not necessarily o Expressly binds himself
become the agent of the other co-owners with o Exceeds his authority and does not
respect to the sale of a co-owned land. give the third party sufficient notice of
Meaning that the sale of a co-owner of land of his authority/powers.
the whole land will not bind the other co- e) Personal, Fiduciary, and Revocable
owners absent any authorization from the • Fiduciary: similar to a trust relationship.
other co-owners. o Agent is precluded from asserting a
d) Preparatory and Representative (and Derivative) title adverse to that of the principal.

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o Cestui que trust – Consistent with the over the agent with to ensure duties and
principles of good faith, he ccannot be respect to the matters responsibilities are
allowed to create in himself an interest relevant to the undertaken. (Remember
in opposition to that of his principal. agency only. Control Coch’s example:
(relate to conflict of interest later) and direction is employee’s being
o Art. 1491 [2] – regarding the property merely incidental for monitored regarding
forming the subject matter of the representation attendance, tasks etc.)
agency, agent cannot acquire or buy Representation By legal fiction, the Cannot represent
such from the principal (unless there is agent becomes the employer.
consent) principal in so far as Principal/Employer’s
• Death (principal or agent): agency is the former acted responsibility is only
extinguished. within his authority vicarious (respondeat
• Revocable: Generally, the principal can or the latter ratifies it. superior)
revoke the authority of the agent at will.

5. Distinguished from other similar contracts b) Contract for a Piece-of-Work


a) Employment Contract
• Principle of Representation: Not present in AGENCY INDEPENDENT
a security guard – company employment. In CONTRACT/PIECE-
contrast with Agency whereing OF-WORK
representation serves as its basis. Main Purpose For Representation Fulfillment of specific
• Single Person performing SAME task as (must undertake duty or result or product
BOTH employee and agent: Devoid of ANY purpose of agency in
jurisprudential support or precedent. representation of the
principal)
AGENCY EMPLOYMENT Element of Principal exercises Generally the
CONTRACT Control control and direction principal/employer does
Main Purpose For Representation Fulfillment of duties and over the agent with not have control over
(must undertake responsibilities in respect to the matters the contractor except
purpose of agency in accordance with job relevant to the agency only with regard to the
representation of the description only. Control and RESULT or
principal) direction is merely PRODUCT. (Free to do
Element of Principal exercises Employer exercises incidental for anything as long as the
Control control and direction control over employees representation task or product is

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accomplished) purchaser ready to buy the object on the
Representation By legal fiction, the No representation terms of the seller). Important: broker’s
agent becomes the efforts must be the foundation where the
principal in so far as negotiations resulting in the sale BEGAN.
the former acted • Difference: A real estate broker, for example,
within his authority or only has to find a purchaser BUT he cannot
the latter ratifies it. bind the principal by signing a contract of
sale. The authority to find a purchaser does
c) Broker not include the authority to sell.
• Broker: duty is only to find a purchaser.
Such broker becomes entitled to the usual AGENCY BROKERAGE
commissions whenever he brings a party who Main Purpose For Representation (must Task is to only find
is able and willing to take the property and undertake purpose of a purchaser; to
enter into a valid contract. (The nitty gritty agency in representation bring the buyer and
details may still be negotiated by the of the principal) seller together; the
principal and the buyer without participation “procuring cause”
from the broker. The JOB of the broker is of the sale
simply to bring them together.) Element of Through the principal, Broker has no
• Broker: earns pay merely by bringing the Control over agent/commission-agent relation with the
buyer and seller together, even if no sale is the Subject is one engaged in the subject property or
eventually made. Property purchase or sale for the principal
• Agent: receives his commission upon the another of a property
successful conclusion of the sale. which for this purpose is
• Duties and liability (Broker): essentially the placed upon his
same with that of an agent (This means that possession and at his
principles of contract law also govern broker- disposal. (agent has a
principal relationships). Therefore, a broker relation with the
has to render an account of whatever he may principal and the subject
have received by virtue of the relationship. property)
• Procuring Cause: refers to a cause Representation By legal fiction, the Broker cannot
originating a series of events which, without agent becomes the represent the
break in their continuity, result in the principal in so far as the principal.
accomplishment of the prime objective of the former acted within his [Exceptional
employment of the broker (to produce a authority or the latter situation: see

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ratifies it. Domingo v • Primordial difference: Transfer of
Domingo] Ownership in Sale, NOT applicable in
Broker has no Agency.
relation with the
principal and that AGENCY TO SALE
its task is only to SELL
negotiate between Mode of Transfer Delivery only Delivery of the goods
the parties (Principal delivers to the buyer and
goods, agent transfer of ownership
• Indentor – one who, for compensation, acts as receives them)
a middleman in bringing about the purchase Mode of Agent cannot Buyer appropriates the
and sale of goods between a foreign supplier Appropriation appropriate. thing for himself since
and a local purchaser. Proceeds of the sale he is the owner
• In Tan v Gullas broker earns his money or his must be delivered
pay merely by bringing the buyer and seller to the principal, but
together. Compare with Medrano v CA agent is entitled to
wherein broker must be the procuring cause his commission.
which would result into the consummation of Restitution For If agent is unable to Generally, buyer
the sale. Non-Sale or sell, he may return cannot return since he
d) Sale Otherwise the thing to the is the owner.
• Agency: There is no personal responsibility principal
and duty to actually buy the products unlike Control of the Agents is bound Owner may do
in sale. thing according to the anything he pleases.
• A real agent’s obligation is merely to turn instructions of the
over the proceeds of the sale to the principal principal
once he receives them from the buyer. A true
agent bears NO risk relating to the subject e) Other Contracts
matter or the price.
• If the contract entails that the pruported AGENCY LOAN/MUTUUM
“agent” is going to bear the risk of the change Advances in General rule: The creditor lends (or
in price of the products such “agent” is NOT Money Principal must advances) money or
bound to render account to his principal advance money upon fungible things to the
because such relationship is not one of agency request of the agent. debtor.
but rather that of sale. Agent does not incur

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debt here since AGENCY BAILMENT/COMMO
principal is not DATUM
lending the agent Use of the ENTRUSTED ENTRUSTED
money thing PROPERTY PROPERTY
[If otherwise
stipulated or when Agent must take care of
necessary for the the thing delivered to Bailee is entitled to the
business, agent may him by the principal enjoyment and use of the
advance.] according to the thing. Bailee still needs
latter’s instructions or to exercise due care.
Capacity to In agency, agent may Creditor, upon in default thereof,
Borrow/Lend lend money to the assessment of credit agent must exercise
principal. But agent worthiness if necessary, diligence of a good
cannot borrow from may lend to a debtor. father.
the principal without
the latter’s consent. Control Principal exercises Bailor does not exercise
control over the agent control over bailee.
Agent may collect Creditor may demand with regard to the
loans on behalf of the payment from debtor if thing.
principal. loan is due Liability Principal is liable for Bailor is not liable for
the actions of the agent the actions and liabilities
Agent needs a written Debtor borrow money withing the scope of of the bailee.
S.P.A. to loan to or from a third person on authority.
borrow from a third his own.
person UNLESS the AGENCY GUARDIANSHIP
latter act is urgent and Authority The authority of the Authority of the
indispensible for the agent is derived from guardian is not derived
preservation of the the principal. from the ward. It may be
things which are conferred by law or by
under the agent’s appointment.
administration Control Principal exercises Guardian exercises
Relationship Trust Relationship Debtor-Creditor control over the agent control and supervision
(Fiduciary) relationship with regard to the over the ward pursuant
things under his to the authority

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administration or the conferred upon the repudiate the
purpose of the agency. former. agency with
Creation of Consensual Guardianship may KNOWLEDGE
the consituted even without that another is
relationship mutual consent or even acting on his
with the incapacity of behalf without
the ward (e.g. minority, authority
insanity, etc.)
b) From the side of the Agent.
FORMS AND KINDS OF AGENCY • Express or Implied acceptance.
• When present (1870): If given a letter with
1. How Agency May Be Constituted. power of attorney then it is received WITHOUT
• For express agency objection.
o General Rule: No specific form is required to • When absent (1871): no implication unless (1)
constitute agency power of attorney is transmitted and received
o Certain formalities may be required. without any objection or (2) it is entrusted a
i. Form is required for the validity of a contract power of attorney in a letter/telegram and there
ii. Form is required to make it effective against was no reply to the letter or telegram.
third parties. • Special information: having specially informed
iii. Form is required for the purpose of proving another, principal must give due and timely
the existence of the contract. notice to the agent, for the latter to be bound to
• For implied agency that specific person.
o Constituted by acts, silence, lack of action, failure • Public Advertisement: having publicly
to repudiate the agency (1869). advertised the agency, the principal must give due
a) From the side of the Principal and timely notice to the agent for the latter to be
• Example: If the principal acquiesced in the acts of bound with regard to any person.
the agent and even received and appropriated to • In both cases: Power shall be in full force until
his own use the benefits result in from the acts of notice of rescission. Rescission should be in the
the agent, then there is an implied agency. same manner given

Express Implied Express Implied


- Stipulation - Silence - Stipulation - Silence
- Consent freely - Lack of action - Consent freely - Inaction depending on
given - Failure to given the circumstances

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persons. If the agent had general powers,
Between Persons Present: revocation of the agency does not prejudice third
If given a letter with power of persons who acted in good faith and without
attorney then it is received knowledge. NOTICE OF REVOCATION in a
WITHOUT objection NEWSPAPER OF GENERAL CIRCULATION
Between Persons Absent: is a sufficient warning to third persons.
• Doctrine of apparent authority: One who
GENERAL RULE: Implied clothes another apparent authority as his agent
agency is not presumed. and holds him out to the public as such, cannot
be permitted to deny the authority of such person
Exception: to the prejudice of innocent third parties dealing
(1) power of attorney is with such person in good faith.
transmitted and received 2. Kinds of Agency
without any objection or a) Based on Business or Transactions Encompassed.
(2) it is entrusted a power of • General/Universal Agency
attorney in a letter/telegram o One authorized to do all acts for his
and there was no reply to the principal which can lawfully be delegated
letter or telegram. to an agent. (Universal)
o One authorized to do all acts pertaining to
a business of a certain kind or at a
c) From the side of Third Parties/Public particular place, or all acts pertaining to a
• Third Parties: when specially informed. If the business of a particular class or series.
agency has been entrusted for the purposes of (General)
contracting with SPECIFIED PERSONS, its • Special/Particular Agency
revocation shall not prejudice third persons if o One authorized to do some particular act
they are not given notice thereof. or to act upon some particular occasion;
• Public: when the appointment of the agent is by he acts usually in accordance with
public advertisement. (1873). specific instructions or under
• If there is an agency for the purpose of limitations necessarily implied from the
contracting with third persons, the revocation of nature of the act to be done. (Special)
the agency will not affect/prejudice such third o Example: A salesman with authority to
party IF no notice was given. (Art. 1921) collect money for his principal does not
• Notice by way of publication in a newspaper of have the implied authority to indorse
general circulation is sufficient warning to 3rd checks received in payment. In this case,

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the special agency is ONLY for the the Power of Attorney a clear mandate as
collection of money. to the authority of the agent, then that
clear mandate will control not the mere
b) Whether it Covers Legal Matters title given in the document.
• Attorney-at-Law o PoAs are strictly construed, real intention
o Lawyer. is important.
• Attorney-in-Fact o The special power can be included in the
o Does not have to be a lawyer. general power when it is specified
• Also note: the principal can enter into therein the act/transaction for which the
compromise agreements and that the lawyer special power is required.
cannot impugn such agreement because doing so o Example: An agent given the general
will be an act done in excess of his/her control and management of a business is
authority. deemed to have the power to employ as
c) Whether it Covers Acts of Administration or Acts of necessary in the conduct of the business.
Dominion: “Powers of Attorney” (No need for SPA)
• Definition: Instrument in writing by which one o RULES ON CONSTRUCTION –
person, as principal, appoints another as his agent STRICT INTERPRETATION: Power
and confers upon him the authority to perform of attorney must be strictly construed and
certain acts on his behalf. pursued to grant only those powers
• Forms of PoAs specified and agent may neither go
o General or Special beyond nor deviate from the power of
• General Power of Attorney attorney.
o An agency couched in general terms  EXCEPTION TO STRICT
comprises only of acts of administration. INTERPRETATION: Strict
(This does not include acts of strict construction is not applicable if
ownership such as disposition or such would result to the
encumbrance). destruction of the very purpose for
o Permits the agent to do all acts for which which the power is constituted.
the law does not require a special power o Art 1878 (Instances which REQUIRE a
(see below for enumeration). SPA)
• Special Power of Attorney 1. Payments not considered as acts of
o The title is not really important, it is the administration
specific words in the power of attorney 2. To effect Novations which puts an
which is controlling. If there appears in end to obligations already in

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existence at the TIME the agency and is conducted
WAS CONSTITUTED. with the
3. Compromise, Submit questions in supervision of the
arbitration, Renounce right to court. Hence, if the
appeal, waive objections to venue compromise is
of action, abandon prescription treated with the
already acquired force akin to a
a. Power to compromise judicial decision,
DOES NOT include power then principal
to enter into arbitration. might be bound
(1880) thereby and cannot
b. Compromise – the power interposed
of parties, by making unenforceability.
reciprocal concessions, to 4. Waive any obligation gratuitously
avoif a litigation or put an (condonation or remission)
end to one. 5. Transfer or Acquisition
c. Arbitration – the power of (gratuitously or for valuable
parties to submit their consideration) of immovables by
controversis to one or more way of contract.
arbitrators/arbiters for a. 1874: sale of a piece of
decision. land or any interest therein
d. Cosmic Lumber v CA – must be in writing. If not,
Compromise agreement then the sale is void.
entered into by the agent i. This rule is to
without SPA from the protect the interest
principal IS NULL AND of the owner from
VOID. unauthorized acts
i. Reason: It is not of the agent.
only unenforceable ii. Only the sale is
because a void, not
compromise necessarily the
agreement usually agency.
substitutes a b. PoA need not be a public
judicial decision instrument, all that is

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necessary in this case is for a. This is not merely an act of
the instrument to be in administration but rather
writing. an act of strict ownership.
c. Agents cannot buy 9. Bind principal to render service
property of principal w/out compensation.
unless authorized 10. Bind principal in a contract of
(1491[2]) partnership
6. To make Gifts 11. Bind principal as guarantor or
7. Loan/Borrow money (unless surety
urgent+indispensable for a. An authority to execute
preservation of things under contracts (lease, sale,
administration.) assignment) relating to the
a. Power to sell excludes the principal’s property in
power to mortgage and relation to the management
vice-versa. of the business will not be
b. If the authority is to secure interpreted as also giving
loans by way of mortgage the power to bind the
and what was entered into principal as guarantor or
was a sale with a right to surety WHEN it is
repurchase, it could fall unconnected with the
w/in the scope of authority conduct of the business.
because such sale can be 12. To create or convey real rights
considered as an equitable (immovables)
mortgage. 13. Accept/Repudiate inheritance
i. This does not 14. Ratify/Recognize obligations
include authority to contracted before agency.
RESCIND or 15. Any OTHER act of STRICT
MODIFY terms of dominion.
the sale. a. Example: Sale or purchase
c. Note: Says here only of PERSONAL
“MONEY”, how about PROPERTY except if
fungible things? (see merely incidental to
mutuum) administration.
8. Lease real property >1 year.

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b. Anything “real” and • Example: A finance company executes a chattel
“existing” can fall under mortgage with a debtor. The said mortgage contains a
acts of dominion. provision which says that in case of accident/loss, it
• Express PoA excludes Power of shall make a proper claim against the insurance
Administration (GPA) company. Because of that provision, there exists an
d) [moved to (c) under discussion of SPAs] agency relationship wherein the agent (finance
e) Notarized Power of Attorney company) undertakes to carry out the agency to the
a. Carries with it evidentiary weight which is direction of the principal (the debtor/borrower). If the
conferred upon it with respect to its due agent refuses to make a claim according to the
execution. repeated demands of the borrower-principal , then
b. It is a prima facie evidence of its due execution. they have breached their duty and will assume the
i. A buyer could rely on such power of damages suffered by the borrower-principal. They
attorney and be considered as an innocent will no longer be able to collect on the remaining
purchaser. amount on the mortgage loan.
ii. Being prima facie, it is therefore • Negligence in the performance of functions: Agent
rebuttable. is liable for damages.
2. Obligation of Agent Who Declines/Withdraws Agency (Art.
POWER AND OBLIGATIONS OF THE AGENT 1885)
• If agent declines but goods are forwarded to him
1. General Obligation of Agent Who Accepts Agency (Art. [presupposes a no-agency situation]
1884) i. Observe diligence of a good father of a family
• Upon acceptance of appointment, agent is bound to (ordinary diligence)
carry on agency to its completion and for the • If agent WITHDRAWS (as compared to declining
benefit of principal. the agency)
• Otherwise, agent will be liable for damages i. He must continue to act until the principal
which may be suffered by the principal through takes the necessary steps to meet the situation
his non-performance. (Art. 1929)
• In the event of DEATH of Principal. Agent MUST 3. General Rule on Exercise of Power
finish the business already begun should delay entail a. Agent Must Act “Within the Scope of His Authority”
any danger. (Art. 1881)
• The burden is on the person who seeks to make an • Performance within the scope of his authority means
agent liable. It is his burden to show that losses and that according to the terms of the authority, the
damage caused were occasioned by agent acts no further than what is granted to him.
fault/negligence of the agent.

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• Perform acts conducive to the accomplishment of the • Unenforceable unless ratified… those entered into
agency purpose (2nd sentence Art. 1881) the name of another person by one who has been
• For the act to be binding on the principal, such act given no authority or legal representation, or who has
must be within the scope of its authority. The agent is acted beyond his powers… (Art. 1403[1])
granted the right to affect legal relations of his • If the agent contracts in the name of the principal,
principal by the performance of acts effectuated in exceeding the scope of his authority, and the
accordance with the principal’s manifestation and principal does not ratify the contract, it shall be void
consnet.” if the party with whom the agent contracted is aware
b. Agent Must Follow the Directions of the Principal of the limits of the powers granted by the principal.
• In default thereof (lack of directions), he must In this case, however, the agent is liable if he
exercise ordinary diligence as required by the nature undertook (promised) to secure the principal’s
of the business. (Art. 1887) ratification. (Art. 1898)
c. Authority of Agent NOT Deemed Exceeded IF o If the 3rd person knows that the agent was
Performed in a Manner Advantageous to Principal acting beyond the scope of its authority, the
(Art. 1882) principal cannot be held liable for the acts
• This is consistent with another article which says of the agent.
Agent should not act if it would manifestly result o Illustration: An agent exceeds his authority in
in loss or damage to principal (Art. 1888). a compromise agreement entered on behalf of
• In the first (Art. 1882), it means that even if the act is the principal by inserting a penalty clause (the
NOT directed by the principal, IF such act redounds insertion of this clause meant that he
to the benefit / is advantageous to the principal, the exceeded his authority). The clause is NOT
authority of the agent is NOT deemed exceeded. void but MERELY VOIDABLE (capable of
• In the second (Art. 1888), it means that even if the being ratified).
act is within the scope it should not be done IF it is • Illustration: An administrator enters into a contract
manifestly obvious that such act would RESULT outside the scope of his authority. The contract is
in LOSS/DAMAGE to principal. not an absolute nullity. It is simply unenforceable
d. Effects of Non-Ratified Acts Done by Agent in Excess at the instance of the parties who had been
of His Authority: Unenforceable, Not Void. (Art. 1317, improperly represented. Only those parties CAN
1403 and 1898) assert the nullity [unenforceability] of said
• …A contract entered into in the name of another by contracts.
one who has no authority or legal representation, or • These contracts are called unauthorized contracts
who has acted beyond his powers, shall be and are unenforceable, UNLESS they are ratified.
unenforceable, unless it is ratified.. (Art. 1317)

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VOID INSTANCES: the contract entered by the agent in his own
name.
1. Sale of a piece of land or any interest therein by the o Exception: when the contract involves things
agent without written authority, the sale is void (1874) belonging to the principal.
2. Agent acts beyond the limits of his authority, and the • … the agent is the one directly bound in favor of
principal does not ratify, the same shall be void if the the person with whom he has contracted as if the
party with whom the agent has contracted is aware about transaction were his own, except when the contract
the agent’s limits. (1898) involves things belonging to the principal (Art.
3. Any stipulation exempting the agent from the 1883[2]).
obligation to render accounts (1891) o Mortgage on real property of the principal not
4. All of the acts of the substitute appointed against the made and signed in the name of the principal
prohibition of the principal shall be void (1892). (If is not valid as to the principal.
principal’s perspective then void, if third person then o Illustration: The president of a corporation
unenforceable. Please refer to syllabus heading) signs a bill/exchange but fails to disclose his
5. Compromise agreements entered into by the agent principal. He becomes liable even when he
without authority from the principal. (1878 [3]) did the act expressly as an agent. The NIL
Cosmic Lumber v CA: says that any agent who signs in a
“This being the case, a judgment based on a compromise representative capacity MUST disclose his
entered into by an attorney without specific authority from principal or else, such agent will incur
the client is void.” personal liability.
o Exception: When contract involves things
e. Consequences When Agent Acts in His Own Name belonging to the principal.
• If agent acts in his own name, the principal has no o Illustration: A gives B money to buy a boat.
right of action against the persons with whom the B buys a boat but does so in his name. B has
agent has contracted; neither have such persons breached his fiduciary obligation and is
against the principal (Art. 1883[1]). obliged to transfer the same to the plaintiffs,
o Illustration: An agent has a special power of or the plaintiffs have a right to be subrogated.
attorney to mortgage the property of the The exception applies in this case because
principal. Nevertheless, he executed the real the MONEY belongs to the principal.
estate mortgage in his own name. According o Illustration: A is a co-owner of a mining
to Art. 1883[1], such act is not valid and claim with B. A sells the WHOLE of the
binding on the principal. claim to C. C knew that the sale included the
o This provision would mean that the principal one-half share of the other co-owner. In this
would have no standing to sue by reason of transaction, we can consider A to be acting as

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2. This duty does not distinguish between gratuitous or
an agent of B. By reason of Art. 1883 B may for compensation agency.
sue C because the transaction involved
things belonging to B. 3. Agent is prohibited from buying property entrusted to
• These are without prejudice to actions between him for administration OR sale without principal’s
Principal and Agent. (Art. 1883[3]). consent. (Art. 1491[2])
4. Specific Obligation Rules for Agents • Agent cannot represent himself and his principal
a) No obligation to advance funds (Art. 1886) in a single transaction wherein the liability of the
• Generally it is the obligation of the Principal to agent for a debt to the principal is shifted to
advance funds. another person.
• Except when there is an express stipulation. • Illustration #1: The director of a company, D, is
• Exception to the exception: When the principal is the main negotiator with the Gov’t for the sale of
insolvent. (This means that even if there is an express a piece of land. D knows that the stocks of the
stipulation, if the principal is insolvent, there will be company will rise if there is a completed sale of
no obligation to advance funds.) In this case, the land. D now has the fiduciary duty to the
insolvency extinguishes the agency stockholders to inform them of such knowledge
• Principal will pay interest on advances made by (In effect, he is their agent). If D goes on to BUY
Agent from the day the said advances were made. the shares of other stockholders prior to the
b) Shall carry out agency in accordance with the completion of the sale, D is, in effect, committing
instructions of the principal. (Art. 1887) fraud and is liable to the stockholders.
• If the agent followed the instructions of the principal, • Illustration #2: If an employee X knows that his
the latter cannot set up the agent’s ignorance or principal B is negotiating with the owner O of
circumstance which principal was/ought to have some land, and then he surreptitiously buys the
been aware of. (Art. 1899) said land in the name of his wife, X commits an
• Agents, although they act in representation of the act of disloyalty and he becomes liable for the
principal, are not guarantors for the success of the damages caused.
business enterprise they are asked to manage. e) Rule if agent is Empowered to Borrow/Lend money
c) Obligation to not carry out the agency if execution would (Art. 1890)
manifestly result in loss/damage to Principal. (Art. 1. If empowered to borrow money, he MAY be the
1888) lender at current interest.
d) Duty of Loyalty: Obligation in a Conflict of Interest 2. If empowered to lend money at interest, he
Situation CANNOT borrow without principal’s consent.
1. Agent is liable to principal if, in case there is a choice f) Obligation to render account (Art. 1891)
between the principal’s interest or the interest of the 1. Agent MUST render account to principal.
agent, the agent chose his own interest. (Art. 1889)

AGENCY | BLOCK B 2016 (TANTOCO | GALANG) 15


• Illustration: X is the agent of F who has died. During
• Exception: When principal accepted the the course of the agency, X made certain transactions
correctness of the accounting (even if such in the name of F. The successor-in-interest S now
accounting was actually wrong). Notice that claims that such collections/transactions by X were
in this case, there was still accounting, BUT it entered for the personal use of X and as such, S as
was inccorect/insufficient accounting. Agents successor of F is entitle to the interest. SC rules here
STILL HAVE TO RENDER that there must be evidence showing that he
ACCOUNTING. Any stipulation exempting converted the money entrusted to him to his own
the agent to render account is VOID. use. The burden of proof is on S because he is
2. Deliver to Principal whatever is received by virtue of claiming that X misappropriated the money.
Agency.
• Everything is included even those NOT due h) Duty of Diligence: Agent liable for Fraud and
to the principal because legally speaking, it Negligence. (Art 1884 and 1909)
is the principal who receives them • What shall aggravate or mitigate liability arising out
(remember that agents act in representation of of negligence is W/N agency was for compensation
their principals so it is them who are or was gratuitous.
theoretically receiving those things). • Illustration (Fraud): Agent X induces his Principal P
• Possession of agent of the money/property of to sell to him the property Y at a price less than
the principal is termed juridical possession. what he has already contracted to sell it for. In
3. Obligation arises and becomes demandable at such a situation, X is liable for the difference (the
agency’s end. amount he sold it for subtracted by the amount which
4. Stipulation exempting agent from obligation to he bought it from the principal). Such conduct
render an accounting is void. amounts to fraud which will entitle the principal to
• If the principal accepts the accounting of the annul the contract.
agent, he is estopped from asking for a re- • Illustration (Negligence): A collecting bank CB was
accounting unless he can show that there negligent in stamping ‘all prior indorsements
was fraud, deceit, error or mistake in the guaranteed’ without doing the necessary checks on
approval of the accounts. the indorsements. CB is therefore liable to the
g) Liability of Agent for Interest (Art. 1896) collecting bank for such negligence. The agent (CB)
• Liable on sums he applied to his own use (from the is not only responsible for fraud BUT also for
time he used them) negligence.
• Liable on sums owing the principal (from the 5. When Agent Appoints a Substitute
extinguishment of the Agency) a) General Rule: Agent must act by himself, but may
appoint a substitute (WHEN not prohibited)

AGENCY | BLOCK B 2016 (TANTOCO | GALANG) 16


• Illustration #2: The SPA in favor of Agent X
• Old Civil Code Rule: Opposite to the present rule, a contained an express prohibition from appointing a
delegated power cannot be further delegated. sub-agent. Nevertheless the agent appointed a sub-
• If he was not prohibited to appoint a substitute BUT agent who thereafter executes a deed of sale in the
it also was NOT expressly conferred as one of his name of the principal. By Art. 1317[2] such sale is
powers, the agent shall be responsible for the acts NOT VOID but rather unenforceable unless ratified.
of the sub-agent. (Art. 1892[1])
• If he was given the power to appoint a substitute d) Rights of Principal Againt Substitute
without designating the person, the principal • When the agent is not given the power to appoint one
becomes bound to the acts of the sub-agent provided or when he was given such power but without
that such actions were within the scope of its designating the person and the person appointed was
authority. notoriously incompetent or insolvent, the principal
• If he was given the power to appoint a substitute may bring an action against the substitute with
without designating the person BUT the one respect to the obligations which the latter has
appointed was notoriously incompetent or contracted under the substitution.
insolvent, the agent becomes liable for the acts of the 6. Rule on Liability When Two or More Agents Appointed
sub-agent. (Art. 1892[2]) by Same Principal
b) Effects when Agent Appoints a Substitute (See Above a) Responsibiility of Two or More Agents Not solidary
Discussion) (Art. 1894)
• A subagent cannot be held at a greater liability than • Exception: When expressly stipulated.
the main agent. • When two different persons are given letters of
c) All acts of substitute appointed against principal’s attorney covering the same powers, the consent of
prohibition are void as against the principal. one is not necessary in order to make the actions of
• Appointment of a subagent allowed in the absence of the other agent to be valid. This is the general rule
an express agreement to the contrary. unless it was expressly intended by the principal
• Illustration #1: Agent X was charged with estafa for that the agents ACT JOINTLY.
allegedly misappropriating jewelry because X b) Where Two or More Agents Agree to be Solidarily
delivered it to sub-agent Y under the same terms and Bound (Art. 1895)
conditions as X received it from owner O. There was • This must be by express stipulation
no prohibition for the appointment of a sub-agent. • Each is responsible for (1) the non-fulfillment of the
Therefore, the delivery of the jewelry to a sub-agent agency and (2) for the fault or negligence of his
in the absence of an express prohibition does NOT fellower agent/s.
amount to conversion or misappropriation. X is not o Exception to (2): when the fellow agents
liable for estafa although he is civilly liable for the acted beyond the scope of their authority.
amount of the jewelry lost.

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• Principal is bound when (1) the representation is
7. Rule on Liability to Third Parties: Agent not Bound to authorized; (2) the act is within the authority of the
Third Party (Art. 1897) agent; (3) it is apparently authorized, regardless of
• Unless he (1) expressly binds himself or (2) exceeds whether the agent was authorized by him or not.
the limits of his authority without giving such party
sufficient notice of his powers. b) 2 Exceptions to (a)
• Example: A resident agent, as a representative of a 1. Expressly bound himself
foreign company is tasked only to receive legal • Note: If there is a previous agent (of a union) who
processes on behalf of its principal and not to bound himself personally liable on the contracts
answer personally for any insurance claims. such agent entered into while working for the
a) Principal is the ONE Bound. union, the new agent is NOT deemed bound by
• As long as the agent is acting within the scope of his the assumption undertaken by the original agent.
authority, he does not become bound to the third 2. He exceeds his authority without giving notice of
party because he is acting in representation of his limited powers
principal and, in essence, it is the principal who is • A third party cannot generally sue on the contract
binding himself to the actions and contracts entered seeking both the principal and the agent to be
into by the agent. liable thereon, for by suing the principal on the
• Illustration #1: Buyer B buys a certain product from contract, the agent is deemed not to be personally
Seller S. S informs B that part of the purchase price liable.
should be paid directly to one of the creditors of S, C. • Illustration: Agent A is given the power to
When B gives part of that purchase price to C, B approve loans amounting up to P350k.
does NOT become subrogated in the rights of C. B Subsequently, A enters into an agreement
was merely acting as an agent in the payment of the wherein it bound the principal as a guarantor. The
money due to C. total money involved in the said agreement was
• Illustration #2: Agent A was authorized to sell land. P65k. A acted in excess of his authority because
A enters into a contract with Buyer B. For some the power to loan DOES NOT include the
reason, B no longer wants to buy the property. A, as power to enter into a contract of guaranty.
agent, cannot claim damages in the form of • In cases where the agent exceeed the limits of his
unrealized commissions against B because contracts authority, the law does not say that a third person
may only be violated by the parties thereto and the can recover from both principal and agent. (See
real parties-in-interest in such cases are the parties to the first bullet point under this number).
the contract. The agent is NOT a party to such 3. When agent acts with Fraud or Negligence. (also, it
contract, therefore, he can claim no damages. must be beyond the scope of the agent’s authority)

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o Mere representation/declaration is not
• Illustration: Bank B extended a loan to Borrower enough.
C. B required C to get a mortgage-redemption-
insurance for the loan. B then deducted the • The person dealing with the agent assumes the
premiums pertaining thereto from the loan risk of lack of authority of the agent.
proceeds. In this situation B is acting both as o The principal may act on the presumption
lender and agent of the insurer. B also that third persons dealing with his agent
knew/ought to have known that C was not will not be negligent in ascertaining the
qualified for the MRI because C was over the age extent of the authrority of the agent.
limit for such MRI. B exceeded the limits of his • The third person should exercise reasonable
authority. B is liable to C (in his capacity as degree of diligence and prudence in ascertaining
agent). the scope of authority of the agent.
c) Agent is criminally Liable for crime committed even e) Third Person cannot set-up facts of agent’s exceeding
in the pursuit of agency. authority where principal ratified or signified willingness
• Law of agency has no application in criminal to ratify agent’s acts. (Art. 1901)
cases. • Principal should be the one to question agent’s
d) Agent’s written power of attorney, insofar as concerns lack or excess of authority.
Third persons, governs questions whether agent acted • Presentation of power of attorney (MUST) be
within scope of authority even if it exceeds authority required by third party (Art. 1902)
according to understanding between Principal and • Private or secret orders of principal do not
Agent (Art. 1900) prejudice third persons who relied upon agent’s
• Illustration: Wife W gave her Husband H the power of attorney or principal’s instruction. (Art.
authority to loan and borrow money and for that 1902)
purpose to mortgage her property to secure such 8. Obligations of Commission Agents
loan. H did get a loan and gave a mortgage on a) Commission agent responsible for goods received
W’s property to secure the loan. The proceeds of according to terms and conditions and as described in
the loan was paid to H. This transaction is consignment. (Art. 1903)
binding on W regardless of what H will do with • Exception: Unless the agent, upon receiving
the money he obtained from the loan. them, should make a written statement of the
• The burden is on the third party to ascertain the damage and deterioration suffered by the same.
authority of the agent. b) Obligation in handling various goods for different
o Ascertain not only the fact of agency owners (Art. 1904)
BUT also the nature and extent of such • Distinguish them by counter-marks (if goods are
agency. of the same kind and mark) AND designate the

AGENCY | BLOCK B 2016 (TANTOCO | GALANG) 19


merchandise respectively belonging to each SUMMARY OF OBLIGATIONS OF THE AGENT TO
principal. THE PRINCIPAL
o Purpose: To prevent conflict of interest
among owners 1. To carry out the agency which he has accepted
• Distinguished from Art. 1976 (Contract of 2. To answer for damages which through his
Deposit) – Depositary may co-mingle grain or nonperformance the principal may suffer
other articles of similar nature and quality. 3. To finish the business already begun on the death
c) He cannot sell on credit without the principal’s consent should delay entail any danger
(Art. 1905) 4. To observe diligence of a good father of a famiily in
• If done without consent, such sale amounts to a the custody and preservation of the goods forwarded
cash sale as to the principal. This means that to him by the owner in case he declines an agency,
even though the actual sale was on credit, the until an agent is appointed
principal can demand the payment in cash from 5. To continue to act as such until the principal takes the
the agent. necessary steps to meet the situation, if the agent
d) When with principal’s authority to sell on credit. (Art. withdraws from the agency.
1906) 6. To advance the necessary funds should there be a
• He shall inform the principal, with a statement stipulation to do so
of the names of the buyers. 7. To act in accordance with the instructions of the
• Failure to do so would mean that the sale shall be principal and in default thereof, to do all that a good
deemed to have been made for cash insofar as the father of a family would do.
principal is concerned. (Same effect as (c)). 8. Not to carry out the agency if its execution would
e) Effect when agent receives a guaranty or del credere manifestly result in the loss or damage to the
commission (Art. 1907) principal.
• The guaranty commission is in addition to the 9. To answer for damages if there being a conflict
ordinary commission. In such a case, the agent between his interests and those of the principal, he
shall bear the risk of collection and shall pay should prefer his own.
the principal on the SAME TERMS agreed 10. Not to loan himself if he has been authorized to lend
upon with the purchaser. money at interest.
f) Liability for failure to collect principal’s credit when due 11. To render an account of his transactions and to deliver
(Art. 1908) to the principal whatever he may have received by
• Agent is liable for damages unless he proved that virture of their agency
he exercised due diligence for that purpose 12. To distinguish goods by countermarks and designate
the merchnsise respectively belonging to each
principal, in the case of a commission agaent, who

AGENCY | BLOCK B 2016 (TANTOCO | GALANG) 20


• Illustration: Agent A was authorized by his
handles goods of the same kind and mark, which principal P to enter into contracts according to
belong to different owners the forms provided by the principal. All the
13. To be responsible in certain cases (prohibited by the terms/conditions necessary are in those forms. A
principal or subagent is notoriously incompetent or enters into a contract with X BUT instead of
insolvent) for the acts of the substitute appointed by following the forms they entered into an
him. agreement different from that of the content of
14. To pay interest on funds he has applied to his own use the form provided by the principal. In this case, A
15. To inform the principal where an authorize sale of is liable because he exceeded his authority.
credit has been made of such sale
16. To bear the risk of collection, should he receive malso c) Exception for (b)
on a sale, a guarantee commission. 1. Ratification, express or implied (Art. 1910)
17. To indemnify the principal for damages for his failure • Subsequent acts of the principal is taken into
to collect the credits of his principal at the time that consideration. The principal is not allowed to
they become due (except when he execised due reap the benefits of misrepresentation of its agent
dilgence for that purpose) AND at the same time deny its responsibility.
18. To be responsible for fraud or negligence. • Illustration: Bank B give authority to its officer O
to give loans to applicants. O goes against the
instructions, rules and regulations of B. O is
therefore liable as agent and the filing of
Obligations of the Principal complaints by B to recover money against the
borrower IS NOT RATIFICATION with
1. Binding effect on principal of contracts made by agents respect to O.
a) When done within agent’s scope of authority: Principal • Generally, mismanagement of the business by its
Bound (Art. 1897) agent does not relieve the principal from
• Principals in an agency relationship are solely obligations contracted with third persons. The
obliged to observe the solemnity of the agent is NOT a guarantor of the success of a
transaction entered into by the agent on their business.
behalf, absent any proof that the latter acted • Knowledge of the agent is knowledge of the
beyond its authority. Also, the principal assumes principal. The principal cannot claim
the risks that may arise from the transaction. innocence/lack of knowledge when the agent was
b) When done outside of agent’s scope of authority: aware of the situation. The agent is responsible
Principal NOT Bound (Art. 1910) for informing his principal.

AGENCY | BLOCK B 2016 (TANTOCO | GALANG) 21


• Equitable Maxim: That between two innocent 3. He must ratify the acts in its
parties, the one who made it possible for the entirety
wrong to be committed should be the one to bear 4. The act must be capable of
the resulting loss. ratification (not void)
• If the agent was negligent, BUT still acted within 5. The act must be done in
the scope of its authority, then the principal is behalf of the principal.
STILL bound. Of course, this is without prejudice
to the actions that the principal might bring up
against the agent.
• Ratification: the adoption or confirmation by one 2. Where agent acts in excess of authority, where
person of an act performed on his behalf by principal allowed agent to act as though agent had
another without authority. Substance of this act is full powers – Solidarily Liable. (Art. 1911)
confirmation AFTER conduct. The principal a) Exception to the rule that obligations are
must have FULL KNOWLEDGE at the time of presumed to be joint.
ratification of ALL the material facts and b) Doctrine of apparent authority.
circumstances. • Principal’s manifestation of the existence of
o If material facts were suppressed or agency
unknown, NO RATIFICATION. • Third person’s reliance on the conduct of
o If the principal’s ignorance to the material the principal/agent.
facts are willful or chooses to act in • W/N the principal has by his voluntary act
ignorance of the facts, then this principle placed the agent in such a situation that a
does NOT apply. person of ordinary prudence is justified in
• Even when the agent exceeds his authority, the presuming that such agent has authority to
principal is still solidarily liable together with the perform the particular act in question.
agent if the principal allowed the agent to act as • This doctrine is determined ONLY by the
though the agent had full powers. acts of the principal and not by the acts of
the agent.
Conditions for a 1. The principal must have the c) Agency by Estoppel
valid ratificiation capacity and power to ratify • Illustration #1: A is the agent of R a real
2. The principal must have had estate company. A acted unlawfully and
knowledge or has reason to outside the scope of his authority in selling
know of material or the same lots twice. The principal accepted
essential facts about the without protest the proceeds of the sale of
transaction

AGENCY | BLOCK B 2016 (TANTOCO | GALANG) 22


the agent. When it learned of the misdeeds, or knowledge of the conduct
it took NO ACTION to protect the rights of of the agent
the buyers and failed to prevent further wrong Not founded on negligence of The rule of estoppel has its
from being committed. R even failed to the principal but in the basis in the negligence of the
advertise the revocation of A’s authority. R conscious permission of acts principal in failing to properly
and A are therefore, solidarily liable. beyond the powers granted supervise the affairs of the
• To claim benefit of estoppel, one must show agent, allowinf him to exercise
that he was not misled through his own want powers not granted to him, and
of reasonable care and circumspection. so justifies others in believing
• Agency by estoppel requires the proof of he possesses the requisite
reliance upon the representation, and that, in authority
turn, needs proof that the representations Presence of reliance by third Can apply only in those cases
predated the action taken in reliance. parties is unnecessary to invoke in which third party acted to
• Agency by estoppel similar to doctrine of apparent authority. his detriment in reliance upon
apparent authority. the appearance of authority the
1. Principal manifested a representation of principal has held the agent
the agent’s authority OR knowingly out as having
allowed the agent to assume such
authority. Agency by estoppel and Implied Agency Distinguished
2. Third person, in good faith, relied upon
such representation
3. Relying upon such representation, such Implied agency AGENCY BY ESTOPPEL
third person has changed his position to There is an actual agency, as There is no agency at all
his detriment. much as if it were created by (either express or implied), but
express words. The principal the one assuming to act as
Difference of Apparent Authority and Agency by estoppel alone is liable. agent has apparent or
ostensile, although not real,
authority to represent
APPARENT AUTHORITY AGENCY BY ESTOPPEL Principal is liable for the acts by If estoppel caused by
Authority not actually granted The principal, by his culpable the implied agent within scope principal, he is liable to any
but principal knowingly negligence, permits his agent of authority. third person who relied on the
permists the agent to exercise or to exercise powers not granted misrepresentation. If estoppel
holds him out as possessing to him, even though the is caused by the agent, then
such principal may have no notice only agent is liable

AGENCY | BLOCK B 2016 (TANTOCO | GALANG) 23


• Agent has right to reimbursement for expenses
Reliance by an innocent third Agency by estoppel can be advanced including interest from the day it was
person is not necessary for invoked only by third person advanced.
implied agency. who acted in good faith and
relied on the conduct of the • Compare to the situation where agent consents and is
principal in holding agent out bound to advance sums as stipulated (Art. 1886)
as being authorized • Where principal not liable to agent for expenses
An agent by implied The principal, by his culpable incurred (Art. 1918)
appointment is a real agent with negligence, permits his agent 1. If the agent acted in contravention of the
all the rights and liabilities of to exercise powers not granted principal’s instructions, unless the latter should
one. He has actual authority to to him, even though the wish to avail himself of the benefits derived from
act on behalf of the principal. principal may have no notice the contract;
or knowledge of the conduct 2. Expenses were due to the fault of the agent;
of the agent 3. 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
2. Obligations of the Principal be borne by the agent, or that the latter would be
a) Obligation to pay agent’s compensation (Art. 1875) allowed only a certain sum.
• When there is a close, proximate and causes • Exception: under general law on obligations and
connection between the agent’s efforts and labor and contracts (Art. 1236), payment by a third party of
the principal’s sale of his property, the agent is the obligation of the debtor, allows recovery
entitled to compensation. (PROCURING CAUSE) “only insofar as the payment has been beneficial
• Illustration: A is the agent of B who wanted to sell to the debtor. To rule otherwise would amount to
Land L. A brings buyer X to B for negotiation. A’s unjust enrichment
contract as agent of B expired without any sale c) Obligation to indemnify agent for damages (Art. 1913)
coming to fruition. 8 years after the expiration of • Compare to the liability for damages for non-
the agency, B was able to sell the land to X. A now performance of agency (Art. 1884)
claims compensation, is he entitled to it? NO. The o If the agent is liable to damages caused by
long time between the expiration of the agency and him to the principal (Art. 1884) then it right
the consummation of the sale means that the agent and just that the principal be liable to
was no longer the procuring cause. damages caused to the agent in the course of
b) Obligation to advance sums requested for execution of the execution of the agency provided that
agency. (Art. 1912) such agent act without fault or negligence
(Art. 1913).

AGENCY | BLOCK B 2016 (TANTOCO | GALANG) 24


b. Immovable property – person acquiring it in
d) Right to retain object of agency in pledge for advances good faith who first recorded it in th Registry
and damages (Art. 1914) of Property
• This right exists until the principal effects the
reimbursement and pays the indemnity set forth in i. No incription – ownership shall pertain to
1912 and 1913. the person who in good faith was first in
• Agent is also bound to deliver everything he possession; in the absence thereof, to the
received even if not due the principal (Art. 1891) person who presents the oldest title,
• Thing pledged may be sold only after demand of provided there is good faith.
amount due – Public auction will take place 1 month 5. Liability of Principal and agent to third persons whose
after such demand. Debtor may demand the return of contract must be rejected pursuant to Art. 1916 (Art. 1917)
the things NOT sold within this period. (Art. 2122) a) If agent in Good Faith – Principal LIABLE
o The non-happening of the auction will give b) If agent in Bad Faith – Agent alone LIABLE
rise to the right of the debtor to the return of 6. Liability of principal to third persons for acts of agent’s
the things not sold. employees
3. Obligation of two or more principals to agent appointed for • There is no vinculum juris between the agent’s employee
common transactions – SOLIDARY (Art. 1915) and the principal and the contractual relationship
a) Obligation of the principals are solidary because they between the principal and agent DOES NOT operate
have common interest. to creat a juridical tie between the principal and the
• In this case, the agent may recover from any one of agent’s employees.
the principals, the obligation being solidary in nature.
b) Compare with two or more agents with one principal – Extinguishment of Agency
Agent’s obligation is not solidary unless expressly
stipulated. 1. How and when agency extinguished (Art. 1919)
c) Right of each principal to revoke authority of common a) By principal’s revocation of agency
agent (Art. 1925) b) By agent’s withdrawal from agency
• Anyone of the principal may revoke the authority of c) By death, civil interdiction, insanity, or insolvency of
the agent even without consent from the other the principal OR agent.
principals. d) By the dissolution of the Juridical Entity which entrusted
4. Rights of persons who contracted for same thing, one with or accepted the agency.
the principal and the other with the agent. (Art. 1916) e) By the accomplishment of the object or purpose of the
a) That of prior date is PREFERRED. agency.
b) In double-sale situations, follow Art. 1544 f) By the expiration of the period for which the agency
a. Movable property – person who first takes was constituted.
possession

AGENCY | BLOCK B 2016 (TANTOCO | GALANG) 25


• If such actions was clothed with bad faith (e.g. trying
2. Express Revocation: The principal may revoke agency “at to avoid having to pay the agent’s commission) then
will” such action cannot be sanctioned and the principal is
a) In which case, principal may compel agent to return the still liable to pay the agent whatever it is that is due
document evidencing the agency (Art. 1920) him.
• The right of the principal to revoke the agency is only
subject to the requirement of good faith. • The revocation of a SPA although in a private writing
b) Right of either two or more principals to revoke is valid and binding between the parties.
a. Obligation of several principals to common agent • Principal may revoke, express or impliedly, a
is solidary (Art. 1915) contract of agency at will, and may be availed of
b. Any of the Principals can revoke authority of even if the period fixed in the contract of agency has
their common agent without the consent of the not yet expired. Agent may not claim damages from
others. (Art. 1925) such revocation unless it can be shown that such acts
3. Implied revocation were undertaken in order to avoid having to pay
a) Appointment of new agent for same business/transaction agent’s commission.
(Art. 1923) c) General power of attorney is revoked by a special one
a. Impliedly revoked as to the agents ONLY. granted to another agent as regards the special matter
b. As to third persons, notice to them is necessary involved in the latter (Art. 1926)
(Art. 1922) • A SPA giving the son the authority to sell the
• Notice of the revocation in a newspaper of principal’s properties is deemed revoked by a
general circulation is a sufficient warning to subsequent GPA that does not give such power to the
third persons. son. Any sale effected thereafter by the son in the
• The fact that a second attorney enters an name of the father would be void.
appearance on behalf of a litigant does not • A principal may dismiss his employee/agent for (1)
authorize a presumption that the authority fraud, (2) breach of trust, or (3) engaging in any
of the first attorney has been withdrawn. commercial transaction for their own account
• When the agent does not know that his without the express knowledge and permission of
authority has been revoked, any transaction the principal.
entered into prior to such knowledge is valid • Courts are without authority to reinstate an agency
and binding. arrangement that has been revoked or terminated by
b) When principal directly manages the business entrusted the principal. (Agency cannot be compelled by law or
to agent. (Art. 1924) by any court).
• Agency is revoked. 4. Cases of Irrevocable Agencies (Art. 1927)
a) When a bilateral contract depends upon it.

AGENCY | BLOCK B 2016 (TANTOCO | GALANG) 26


• The reason for irrevocability is because the agency mutual interest of the principal and agent.
becomes part of another obligation. The rights of Therefore, it cannot simple be revoked at the sole will
third persons are also affected. In this case, the law of the principal.
provides that agency cannot be revoked at the sole • Also, an agency coupled with interest may be
will of the principal. revoked on the ground of fraud committed by the
• The ONLY exception where the agency shall remain agent. In this case, it is actually an act of rescisison
in full force and effect even after the death of the and must be clearly proven.
principal is when it has been constituted in the c) Unjustified removal of managing partner – Revocation
common interest of the latter and of the agent or in needs the vote of controlling partners (Art. 1800)
the interest of a third person who has accepted the • The irrevocability of the agency may not be used to
stipulation in his favor. shield the perpetration of acts in bad faith, breach
b) When it is the means of fulfilling an obligation already of confidence, betrayal of trust, etc.
contracted. 5. Effects of revocation on third parties
• When the agency is created for the mutual interest of a) When it affects dealing with specified third parties (Art.
the agent and the principal, such agency cannot be 1921)
revoked at will. 1. Referes to an agency created by principal to deal with
• Illustration: Agent A acquired interest in the business specified third persons
entrusted to her. She even assumed certain personal 2. For revocation to prejudice them, notice is needed
obligations (e.g. payment of rent). She continued to 3. Compared to the effect of special notice or public
operate the business using her own name, after such advertisement re: Appointment and Revocation of
operations were already stopped by the principal. Her agent. (Art. 1873)
interest is obviously not limited just to the • In Art. 1873 what it talks about is the
commissions but one that extends to the very appointment. If you want to bind a specified
subject matter of the power of management person, one needs to specially inform (give
delegated to her. It is an agency that cannot be notice to) such person. If you want to bind
revoked at will. everyone else, stating the appointment in a public
• Illustration #2: Agent A is an insurance agent. Given advertisement is sufficient.
the extreme difficulty of getting people to buy • In Art. 1921 what is talks about is revocation. In
insurance policies, if A incurred liability in reliance this case, in order for the specified person(third
on the continuance of the agency and such agency party) to be bound, he/she needs to be given
was terminated (at the will of the principal), A is notice thereof. In Art. 1922 it says that notice of
exposed to personal loss and liability. This revocation in a newspaper of general circulation
relationship cannot be considered to be one without is a sufficient warning to third persons.

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b) Revocation of agent’s general powers effective against his administration to. A then rendered accounts to P
third persons (Art 1922) and gives P all the documents that pertain to his
• Refers to agency created to deal with general public administration. Such acts are sufficient
• Revocation will not prejudice third persons who deal manifestations on the part of A in withdrawing from
with the agent in good faith and without knowledge the agency of P.
of revocation. d) Agent’s obligation to act even after withdrawing from
• However notice of revocation in a newspaper of agency (Art. 1929)
general circulation is sufficient warning. • He must continue to act until the principal has had
• A revocation of a SPA to mortgage a parcel of land reasonable opportunity to take the necessary steps to
embodied in a private writing, is valid and binding meet the situation. (even if the agent is withdrawing
between the parties. for a valid reason)
o Such requirement of Art. 1358 being only for • In comparison with when the agent declines the
convenience and to make the contract agency (Art. 1885)
effective against third persons. o In withdrawal from the agency, the agent is
• If an agency has been entrusted for the purpose of already in the management of a certain
contracting with specified persons, its revocation business/property while when the agent
shall not prejudice the latter if they were not given declines an agency, he has not yet undertaken
notice thereof. the management/administration of a certain
• Those who enter into a contract with an agent whose business/property.
powers had been revoked, if they are in good faith o In withdrawal, one must continue to act (as
will be protected in their contract. admin/manager) to preserve the business.
6. Right of agent to Withdraw (Resign) from agency (Art. o In declining an agency, the only duty is to
1928) observe ordinary diligence in the custody
a) By giving due notice to principal and preservation of the goods forwarded to
b) Agent to indemnify principal should he suffer any him by the owner until the latter should
damage by reason of such withdrawal appoint an agent or shall take charge of the
c) Unless withdrawal is due to impossibility of continuing goods.
agency without grave detriment to agent. 7. Death of the principal extinguishes the agency (Art. 1919[3],
• Illustration: Agent A wants to withdraw from an 1931)
agency contract with Principal P because A’s son is • Illustration: A is the attorney of P. P subsequently dies
gravely ill. Subsequently, A sends a letter to P stating of natural causes. P’s death divests his lawyer of
the reason for his withdrawal. A also informed P of authority to represent him as counsel. Why? Because a
when he will leave, whom he left the property under dead person has NO personality and cannot be

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2. Adopt measures as circumstances demand in
represented. (Note that there are some exceptions to the principal’s interest.
general rule: see below)
a) When the agency continues despite death of principal • If principal dies, there is no provision in law which
(Art. 1930) requiresoblgiates his heirs to notify the agent.
1. If it was constituted for the common interest of the • In the death of an agent, his rights and obligations
principal and agent; form the contract of agency are not transmissible to
2. In favor of a third person who accepted situation in his heirs.
his favor.
• Illustration: A is the agent of P. A loaned money to P
and was given the power to sell the mortgaged
property is P is not able to pay. P died. After some
time, A moved to foreclose/sell the property. P’s
heirs contested that the agency was already
extinguished upon the death of the principal. Are
they correct? NO. This falls under (1) of the
exception as stated above. Such agency was
constituted in the common interest of the principal
(he was able to borrow money) and the agent (had the
power to sell upon default and also earn interest upon
the principal amount). In this case, P’s death did not
extinguish the agency.
b) Effects of acts done by agent without knowledge of
principal’s death (Art. 1931)
• Acts are valid PROVIDED:
o Agent does not know of the death or other
cause of extinguishment of agency AND;
o Third person dealing with agent MUST also
be in good faith, meaning not aware of death
or other cause of extinguishment of agency.
• Evidence must be adduced that the agent or the
buyers were unaware of the death of the principal.
8. Death of the agent extinguishes the agency
a) Obligation of agent’s heirs in case of death (Art. 1932)
1. Notify principal

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