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Agency KAMM | 2018

AGENCY, TRUST & PARTNERSHIP


CASE: Principal asked Agent if he knows someone who wants to buy a car.
AGENCY There was no response from A. However, Agent begins to look for buyers.
-a person rendering service to another person AGENT found one and transacts the same using his name as the seller. Will
P be bound by such sale?
E.g. SPA & Regular Authorizations Answer: It depends. Consider the actuations of the parties such as an
implied authorization where Principal did not object or if there is a
TRUST subsequent ratification. However, Agent must always act within its scope
-a person is in possession of a property of another person of authority and instructions of the Principal.

1. Equitable Title - Paper only Note: CONTROL is an important aspect of a contract of agency.
2. Legal Title - Really owns the property
CHARACTERISTICS OF AGENCY
E.g. TRUST FUND (ni Jeric)
-The parents will set a fund that can only be opened by the child on a 1. Nominate – the contract is perfected through mere consent of
certain age the parties
-The fund is administered or handles by another person 2. Principal – because it can stand on its own
-The trustee can use the property but for the benefit of the 3. Consensual – both parties must agree, whether implied or
beneficiary, such as when the trustee makes revenue or fruits, such express
shall be owned by the beneficiary 4. Unilateral & Primarily Onerous – because the bulk of the
obligation falls under the agent
Q: What is Implied Trust? 5. Bilateral – because the principal will pay the expense made by
A: Transactions made to appear that you are the owner but in reality it is the agent
another person’s 6. Fiduciary – it is based on trust and confidence
7. Revocable – anyone can revoke the contract
PARTNERSHIP
-putting up a business but not capable of putting up a corporation CONSEQUENCES
-when one cannot do it on his own
-a person looks for other people who can contribute capital and/or Agent is still considered as a Stranger
services
Q: A was authorized to sell the property of Principal to T on an installment
basis. However, T defaulted. Is A authorized to file a suit?
A: No. Because he is only authorized to sell. Once the purpose of the
AGENCY contract of agency is fulfilled, the contract ceases.

DEFINITION NOTE:
Article 1868  There must be another contract to authorize A to file a suit
By the contract of agency a person binds himself to render some service or to do against T. In case A wants to appeal in behalf of P, there would
something in representation or on behalf of another, with the consent or be another authorization for A to appeal in behalf of P.
authority of the latter.  General Authorizations allows only acts of administration and
NOT acts of Dominion (such as to file a suit and/or sell a land)
There is a person who binds himself to act in behalf of another person.
Art. 1877. An agency couched in general terms comprises only acts of administration,
He will only act for and in behalf of the principal as long there is the even if the principal should state that he withholds no power or that the agent may
consent or authority of the principal execute such acts as he may consider appropriate, or even though the agency should
authorize a general and unlimited management.

Employer-Employee- not an agency, one of the important characteristics Art. 1880. A special power to compromise does not authorize submission to
of an agency is control. An agent acts without the control of the Principal arbitration.

There is also a juridical act involved in an agency General Rule:


Knowledge of the Agent is considered knowledge of the Principal
Art 1317: A person is prohibited from entering a contract in the name of another Exceptions:
person without the authority of another person--- effect of the contract: unenforceable (1) If the Agent’s interest is adverse to those of the principal
contract (2) Where the Agent’s duty is not to disclose the information
because the information is confidential (E.g. defraud)
Effect of contract of agency: An agent is given the power to contract with
3rd persons in behalf of the partner. MEMBERS OF THE BOARD
-members of the board cannot be represented by a proxy/agent because
Employee, Independent Contractor, Service --- Does not bind the of the nature and characteristics of their acts
Employer, Servant ---No agency to talk about -the acts of the board may greatly affect and risk the company

DOCTRINE OF REPRESENTATION CRIMINAL ACTS are illegal or void in a contract of Agency. Thus, both the
-the act of the agent within the scope of authority shall have the same legal Agent and Principal will be liable.
effect and consequences as if the principal is the one performing it
THOSE WHO ARE NOT ALLOWED TO FORM A CONTRACT OF
Q: Is it important to expressly say “I authorize you”? AGENCY
A: It depends.

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Agency KAMM | 2018

Art. 1888. An agent shall not carry out an agency if its execution would manifestly
Article 1491 result in loss or damage to the principal. (n)
The following persons cannot acquire by purchase, even at a public or judicial auction,
either in person or through the mediation of another: Art. 1889. The agent shall be liable for damages if, there being a conflict between his
interests and those of the principal, he should prefer his own. (n)
(1) The guardian, the property of the person or persons who may be under his
guardianship; Art. 1890. If the agent has been empowered to borrow money, he may himself be the
(2) Agents, the property whose administration or sale may have been lender at the current rate of interest. If he has been authorized to lend money at interest,
entrusted to them, unless the consent of the principal has been given; he cannot borrow it without the consent of the principal. (n)
(3) Executors and administrators, the property of the estate under
administration; Art. 1891. Every agent is bound to render an account of his transactions and to deliver
(4) Public officers and employees, the property of the State or of any to the principal whatever he may have received by virtue of the agency, even though it
subdivision thereof, or of any government-owned or controlled may not be owing to the principal.
corporation, or institution, the administration of which has been intrusted
to them; this provision shall apply to judges and government experts who, Every stipulation exempting the agent from the obligation to render an account shall
in any manner whatsoever, take part in the sale; be void. (1720a)
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior
courts, and other officers and employees connected with the Art. 1892. The agent may appoint a substitute if the principal has not prohibited him
administration of justice, the property and rights in litigation or levied from doing so; but he shall be responsible for the acts of the substitute:
upon an execution before the court within whose jurisdiction or territory
they exercise their respective functions; this prohibition includes the act of (1) When he was not given the power to appoint one;
acquiring by assignment and shall apply to lawyers, with respect to the
property and rights which may be the object of any litigation in which they (2) When he was given such power, but without designating the person, and the person
may take part by virtue of their profession. appointed was notoriously incompetent or insolvent.
(6) Any others specially disqualified by law.
All acts of the substitute appointed against the prohibition of the principal shall be void.
ELEMENTS (1721)

Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal
I. Two (2) Essential elements: may furthermore bring an action against the substitute with respect to the obligations
(1) Consent which the latter has contracted under the substitution. (1722a)
(2) Object
*Compensation is presumed Art. 1894. The responsibility of two or more agents, even though they have been
appointed simultaneously, is not solidary, if solidarity has not been expressly stipulated.
II. Additional Elements (1723)
(3) The Agent must act as a representative
Art. 1895. If solidarity has been agreed upon, each of the agents is responsible for the
(4) The Agent must act within the scope of its authority
non-fulfillment of agency, and for the fault or negligence of his fellows agents, except in
*Otherwise, it will be voidable the latter case when the fellow agents acted beyond the scope of their authority. (n)

NOTE: Article 1883-1898 Art. 1896. The agent owes interest on the sums he has applied to his own use from the
day on which he did so, and on those which he still owes after the extinguishment of the
Art. 1883. If an agent acts in his own name, the principal has no right of action against agency. (1724a)
the persons with whom the agent has contracted; neither have such persons against
the principal. Art. 1897. The agent who acts as such is not personally liable to the party with whom
he contracts, unless he expressly binds himself or exceeds the limits of his authority
In such case the agent is the one directly bound in favor of the person with whom he has without giving such party sufficient notice of his powers. (1725)
contracted, as if the transaction were his own, except when the contract involves things
belonging to the principal. Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his
authority, and the principal does not ratify the contract, it shall be void if the party with
The provisions of this article shall be understood to be without prejudice to the actions whom the agent contracted is aware of the limits of the powers granted by the
between the principal and agent. (1717) principal. In this case, however, the agent is liable if he undertook to secure the
principal's ratification. (n)
Art. 1884. The agent is bound by his acceptance to carry out the agency, and is liable
for the damages which, through his non-performance, the principal may suffer. NOTE: There must always be AUTHORIZATION & ACCEPTANCE
He must also finish the business already begun on the death of the principal, should
delay entail any danger. (1718)
CAPACITY
Art. 1885. In case a person declines an agency, he is bound to observe the diligence of a
good father of a family in the custody and preservation of the goods forwarded to him Q: Is it necessary that both Partners (Agent & Principal) are both
by the owner until the latter should appoint an agent or take charge of the goods. (n) capacitated?
A: Only the Principal must possess the capacity to contract.
Art. 1886. Should there be a stipulation that the agent shall advance the necessary
funds, he shall be bound to do so except when the principal is insolvent. (n) ★ QUIZ!
General Rule: Capacity of the Agent does not affect the Contract of
Art. 1887. In the execution of the agency, the agent shall act in accordance with the
Agency.
instructions of the principal.
Q: What about the contract between the Agent and the third person?
In default thereof, he shall do all that a good father of a family would do, as required by A: Merely VOIDABLE.
the nature of the business. (1719) Q: What about the contract between the third person to the next?
A: VALID

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Agency KAMM | 2018

1. General -agency comprises all the business of the


General Rule: Both Agent + Principal must be capacitated in order that principal
the contract of agency be valid 2. Special -agency comprises one or more specific
transactions
1st contract: Principal + Agent D. As to authority conferred
2nd contract: Agent + 3rd person 1. Couched in general terms -agency is created in general
terms and is deemed to comprise only acts in the name
What are the effects when: and representation of the principal
2. Simple or Commission -agent acts in his own name but
Q: Either or both is/are incapacitated? for the account of the principal
A: Contract of Agency is merely VOIDABLE
Art. 1869. Agency may be express, or implied from the acts of the principal, from his
Q: If A is incapacitated, Principal is capacitated silence or lack of action, or his failure to repudiate the agency, knowing that another
A: The 2nd contract is VALID since the A is merely a representative person is acting on his behalf without authority.

Q: If Principal is incapacitated and A is capacitated Agency may be oral, unless the law requires a specific form.
A: The contract is merely VOIDABLE
Art. 1870. Acceptance by the agent may also be express, or implied from his acts which
 When the minor attains the age of capacity, the fault ceases carry out the agency, or from his silence or inaction according to the circumstances.

Q: If both are incapacitated Article 1871 Between persons who are present, the acceptance of the agency may also
A: The contract is VOID be implied if the principal delivers his power of attorney to the agent and the latter
receives it without any objection
MODES OF EXTINGUISHMENT OF AGENCY
Article 1872. Between persons who are absent, the acceptance of the agency cannot
be implied from the silence of the agent, except:
Article 1919
(1) When the principal transmits his power of attorney to the agent, who receives
Agency is extinguished: it without any objection;
(1) By its revocation; (2) When the principal entrusts to him by letter or telegram a power of attorney
(2) By the withdrawal of the agent; with respect to the business in which he is habitually engaged as an agent, and he
(3) By the death, civil interdiction, insanity or insolvency of the principal or of did not reply to the letter or telegram.
the agent;
(4) By the dissolution of the firm or corporation which entrusted or accepted
the agency; When they are absent
(5) By the accomplishment of the object or purpose of the agency;
(6) By the expiration of the period for which the agency was constituted. General Rule: Absent – No implied consent
(1732a) Exceptions:
1. Without objection and
If during the course of the contract, one or both of them becomes 2. When an SPA was sent by letter/telegram
incapacitated, the contract is EXTINGUISHED/VOID.
Case: Principal emailed to his Real Estate Broker an authorization to take
However, if the 2nd contract is made before the incapacity, the 2nd contract care of his properties in the Philippines. The REB received the letter
is still VALID. however, there is no response from the REB. Hence, Principal can consider
that as implied consent.
If the 2nd contract is made during the incapacity of either A or P, Principal
can directly transact with the 3rd person. Q: However, if his property was not taken care of. Can the Principal sue his
friend, the REB?
Article 1875. A: No, because there was no acceptance from REB. Thus, it is not safe to
Agency is presumed to be for a compensation, unless there is proof to the contrary. assure acceptance.

CLASSIFICATIONS OF AGENCY IMPLIED

A. As to manner of creation AGENCY BY ESTOPPEL (Article 1873 & 1911)


1. Express -agent has been actually authorized by the
principal, either orally or in writing Article 1873
2. Implied -agency is implied from the acts of the principal, If a person specially informs another or states by public advertisement that he has given
from his silence or lack of action or his failure to repudiate a power of attorney to a third person, the latter thereby becomes a duly authorized
the agency knowing that another person is acting on his agent, in the former case with respect to the person who received the special
information, and in the latter case with regard to any person.
behalf without authority, or from the acts of the agent
The power shall continue to be in full force until the notice is rescinded in the same
which carry out the agency, or from his silence or inaction manner in which it was given.
according to the circumstances
B. As to character General Rule: Principal gives authority to A and when the latter receives
1. Gratuitous -agent receives no compensation for his such, there is already a contract of agency.
services
2. Onerous -agent receives compensation for his services
C. As to extent of business of the principal

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An agency is either general or special

SIASAT v. 139 SCRA 238


SPECIAL or PARTICULAR
There is another classification aside from General and Particular. There is the
Universal classification which encompasses all, which the Principal not only
-particular acts
authorizes business transactions but personal transactions as well. It authorizes -you limit the acts of the Agent to a specific purpose
everything pertaining to the business transactions.
Q: Can a Special Act be encompassed to a general one?
CASE: When the Principal goes to the 3rd person and told him that A has A: No.
the possession of his car. However, A was not directly informed about the
contract of agency. The agent can still directly deal with the 3rd person and General Rule: In a contract of agency, the Prinicpal only authorizes
the contract is valid. general acts of administration. (E.g basically look after the land)

Q: What if the Principal decides not to sell his car anymore, who should he Thus, to authorize the agent for acts of dominion, an SPA is needed.
inform?
A: The 3rd person. GENERAL vs. SPECIFIC

Q: Why not the agent? Art. 1876. An agency is either general or special.
A: Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the latter to act as though he had full powers. The former comprises all the business of the principal. The latter, one or more specific
This kind of conversation will make it appear that the Agent is fully transactions
authorized to make any transaction in representation of the personality of
the Principal: General: Lahat pwede mong gawin however, it is strictly construe acts of
A: “Yes I am the agent” “For your car” administration
P: “Okay bahala ka na” Specific: Yun lang pwede mong gawin.
-Acts of Dominion
-Extra Ordinary
283 SCRA 374 -Very Specific.
-The Obligation of 3rd Parties is to ASK the authorization from the Agent because
you are dealing with risks.
-The minimum requirement is due diligence. He must demand WRITTEN OBLIGATIONS of 3rd PERSONS
AUTHORITY from the Principal because it might turn out that the agent may
not be authorized because if the contract o VOID you cannot run after the Q: How do you tell if there is good faith on the part of the 3rd person?
Principal. A: If they rely on a Power of Attorney & entered into a contract.
-Therefore, you should protect yourself.
Q: What if wala? Like Oral Contract?
A: Look personally for the Principal if you can and ask if there is an
However, this can still be questioned because even if it is couched in authority from him.
general terms, it is understood that the agent is ONLY authorized to do
acts of administrations and not acts of dominion. What is a Power of Attorney?
-an instrument in writing by which the Principal appoints another as its

ELEMENTS NAGIAT v. CA 421 SCRA 592


One who clothes another with apparent authority as his agent, and holds him out
1. Manifest representation of authority/knowingly allowed.. to the public as such, cannot be permitted to deny the authority of such person to
act as his agent, to the prejudice of innocent third parties dealing with such person
2. Third person is in good faith and relied on the representation
in good faith, and in the honest belief that he is what he appears to be.
3. Relying on the representation
Agent and conforms upon him acts on his behalf
If it is the agent who professed, he is estopped from denying against the -it is the “Paper” that executes
Principal and the 3rd person. Therefore, he can be liable against the
Principal and the 3rd person. Q: How should it be construed?
A: STRICTLY. Kung anong nakasulat sa contract, the agent cannot go
If the Agent presents to the whole world that he is the agent and later on beyond. Again, if general, construe it as if only Acts of Administrations are
the principal stated that he authorized the agent but not to sell, and still allowed.
the 3rd person buys, the Principal can prove that A acted outside his
authority. Article 1878
Special powers of attorney are necessary in the following cases:
However, if the Principal is the one acting that A is his agent and receives
benefit, he is estopped from denying such. Therefore, he is liable for the (1) To make such payments as are not usually considered as acts of
contract. administration;
(2) To effect novations which put an end to obligations already in existence at the
time the agency was constituted;
The 3rd person should always manifest good faith.
(3) To compromise, to submit questions to arbitration, to renounce the right to
appeal from a judgment, to waive objections to the venue of an action or to
ANOTHER CLASSIFICATION abandon a prescription already acquired;
(4) To waive any obligation gratuitously;
Article 1876

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Agency KAMM | 2018

(5) To enter into any contract by which the ownership of an immovable is


transmitted or acquired either gratuitously or for a valuable consideration; -in order to allow an Agent to transact when you novate the old one,
(6) To make gifts, except customary ones for charity or those made to employees create an SPA
in the business managed by the agent;
(7) To loan or borrow money, unless the latter act be urgent and indispensable
for the preservation of the things which are under administration;
Article 1878(3)
(8) To lease any real property to another person for more than one year; To compromise, to submit questions to arbitration, to renounce the right to
(9) To bind the principal to render some service without compensation; appeal from a judgment, to waive objections to the venue of an action or to
(10) To bind the principal in a contract of partnership; abandon a prescription already acquired
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property; -if you want to compromise, arbitrate, etc... you need an SPA
(13) To accept or repudiate an inheritance; -it includes confession of judgment
(14) To ratify or recognize obligations contracted before the agency;
(15) Any other act of strict dominion. (n) Article 1878(4)
-specific transactions that must be encompassed by an SPA To waive any obligation gratuitously
-the SPA clearly specifies one’s act
De Leon: For these specific acts, you must enumerate such acts or
Q: Should it be NOTARIZED? what particular acts you want your agent to do
A: NO, because it is a contract between the Principal and the Agent.
Therefore, as to both of them, the contract is VALID. VillanuevA: if you are authorized to compromise, you don’t need to
write/put the power to renounce, appeal, or waive because it is already
VELOSO v. CA 260 SCRA 593 IMPLIED
Documents acknowledged before a notary public have the evidentiary weight
with respect to their due execution. The questioned power of attorney and deed However, the problem is, when you only authorize an “compromise”
of sale, were notarized and therefore, presumed to be valid and duly executed. and the action taken was different, you cannot take actions different
from what is authorized to you

Q: It the SPA necessarily in WRITING? Q: Why is it prohibited to waive an obligation?


A: No. A: Because the 3rd person will no longer pay the obligation, thus it
will prejudice the Principal.
Home Insurance Co. v. USA 21 SCRA 863
The SPA need not be in Writing. However, it must be established by sufficient Case: Loan of 100k. Principal said that he allows A to collect from X.
evidence. However, when X said “Pwede bang kwits na lang?”, the agent agreed.
The court said that the Agent is now allowed to do this because it is
beyond its scope of authority. Hence, an SPA is required.
Note: However, a purchase of land should always be in an SPA!
Q: What if the Agent still condones?
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, A: Then the Principal can run after the Agent.
the authority of the latter shall be in writing; otherwise, the sale shall be void.
Q: Even if there is no SPA, can he waive because there is still
There must only be 14 enumerations on Article 1878 because the 15th is consideration?
“others”. Among the 15 enumerations, walang “personal property”. Case: Loan 100k. “Pwedeng 50 ka na lang?”
A: The Agent cannot waive such, it would be the same as waiving the
The PURPOSE is to safeguard yourself, pwede kang mag execute ng SPA. whole obligation.

Article 1878(1) Q: Is there an exception?


To make such payments as are not usually considered as acts of administration A: Yes, if the power is within the scope of authority given to him.
-An SPA is needed when the act is not in the ordinary course of (E.g. Usual course of business)
business.
Article 1878(5)
CASE: If the business is Buy & Sell of cars. Under A1878, an SPA is To convey or acquire immovable (other than land)
needed if there should be a purchase of land for the business. (a) Acquisition/Purchase
(b) Transfer/Sale
Q: Is there a need for Real Estate Broker to secure an SPA?
A: No, because it is part of the ordinary course of business. So, in a
While 1878 says sale and purchase, specifically, 1874 prohibits
food business, you need an SPA. Because selling of land is not part of
“SALE” only.
the ordinary course of business.

Article 1878 (Unenforceable)


Article 1878(2)
To effect novations which put an end to obligations already in existence at the It is only unenforceable because a piece of land is more valuable
time the agency was constituted
-extinguishment of the obligation by creation of a new one/contract

Novation -is the act of: replacing an obligation to perform with


another obligation; or, adding an obligation to perform; or,
replacing a party to an agreement with a new party

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EXCEPTION: Ordinary Course of Business Case: P authorizes A to lend 100k with 10% interest rate. However,

NOTE: On a Sale of Land , Article 1874 will always apply PAHUD v. Court of Appeals
CONTRACT OF EXCLUSIVE AGENCY The authority to sell where the authority is given verbally is VALID despite the
A contract authorizing only one agent to act or sell for that Principal. provisions under Article 1874.
It is the only one who is authorized to look for buyers for this person. General Rule: The authority of an agent to execute a contract of sale of real estate
must be conferred in writing and must give him specific authority, either to
conduct the general business of the principal or to execute a binding contract
A contract of Exclusive Agency is IRREVOCABLE. Thus, if the containing terms and conditions which are in the contract he did execute. A
contract provides that the agency is for a period of one year, such special power of attorney is necessary to enter into any contract by which the
contract is irrevocable for such period. ownership of an immovable is transmitted or acquired either gratuitously or for
a valuable consideration. The express mandate required by law to enable an
Q: Is the Principal precluded to look for buyers on his own? appointee of an agency in general terms to sell must be one that expressly
A: No. The purpose is to represent or to help the Principal. Thus, the mentions a sale or that includes a sale as a necessary ingredient of the act
Principal can still do the acts for himself. “Hindi porket may contract mentioned. For the principal to confer the right upon an agent to sell real estate, a
power of attorney must so express the powers of the agent in clear and
ka, hindi mo na kayang gumalaw para sa sarili mo” *awe*
unmistakable language.

Q: The Principal authorized the Agent to sell. A sold to X. However, P A agreed with X to lower the interest rate down to 5%. The contract
sold to Y (a different person), the following day. Who owns the will be unenforceable and the Principal has the right to demand for
property? the deficiency from A.
A: It depends. The person who first to possess (personal) or to
register (real). Because the Principal will always be bound to the acts Q: Can A become the borrower himself?
of the Agent. Therefore, in this case, if the property is a real property, A: No, unless there is a consent from the Principal, in other words, if
and X first registers it, X owns the property. the Principal allows A to be the borrower.

Art. 1916. When two persons contract with regard to the same thing, one of Q: If A is authorized to borrow 100k with 5% interest rate. Can he
them with the agent and the other with the principal, and the two contracts are become the lender? And what if he enforced a higher interest rate of
incompatible with each other, that of prior date shall be preferred, without
10%?
prejudice to the provisions of Article 1544.
A: The contract is unenforceable.
Art. 1917. In the case referred to in the preceding article, if the agent has acted Q: What happens to the interest?
in good faith, the principal shall be liable in damages to the third person whose A: The interest rate will only be 5%, because that is the authorized
contract must be rejected. If the agent acted in bad faith, he alone shall be interest rate.
responsible.
Therefore:
Q: Is it valid if the written authorization is through (a) If A is authorized to Lend: He can borrow with consent.
EMAIL/ELECTRONIC/DIGITAL? (b) If A is authorized to Borrow: (i) A can be liable for damages in
A: Yes. “Because 19-kups pa ang Civil Code” –Judge Cualing, 2018 some cases and (ii) A can become the lender at the legal rate or
at the authorized interest rate.
Article 1878(6)
To make gifts Article 1878(8)
To lease realty for more than one (1) year
An SPA is necessary because the Principal has its own free will to give
something gratuitously Q: What is a year?
A: Civil Code: 365 Days.
EXCEPTION: Customarily for Charity. However, you cannot just
choose anything to give. It must be the customary item or property. Q: What if the lease is for a personal property?
A: It depends. Acts of Admin if it is in the Ordinary Course of business.
Q: What if there is no SPA? Otherwise, an SPA is needed under Article 1878(15)
A: The act is unenforceable, governed by the Law on Donation not
under the laws on the Contract of Agency. Article 1878(9)
To bind the principal to render service gratuitously
Article 1878(7)
To loan or borrow money Q: If there is no SPA, and X asked the agent to contract a service for
the Principal for 1 million (with compensation). Can the Principal be
Q: Why does it become an act of Dominion? bound by the act of the agent?
A: Because if the agent is authorized to lend, it will deprive the A: No, you still need an SPA. Because, if P cannot perform such
Principal of possible income (e.g. low interest) and if the agent is obligation, he will be prejudiced.
authorized to borrow, the Principal will bound by an obligation and
a liability.
Article 1878(10)
Q: What if the agent still lends? To bind the principal in a contract of partnership
A: The act is unenforceable.
Because you bind or donate money, property and skills for the
business for the intent to distribute profits. Moreover, there has to be

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a FIDUCIARY RELATIONSHIP to enter into a contract of partnership.


In such case, you will bind yourself with a person you may not Apparent or Ostensible – when it is conferred by words, conduct or even
TRUST. by silence of the principal which causes a third person reasonably to
believe that a particular person, who may or may not be the principal’s
Therefore, the Principal can continue or remove himself from such. agent has actual authority to act for the principal. Another name for
authority by estoppels
Caveat: The next few kwas might be sketchy, gamin syak ag recit awan pay old
testament. Apay ngay apo?! General – when it refers to all business of the principal

Article 1878(11) Special – when it is limited only to one or more specific transactions
To obligate the Principal as Guarantor or Surety
Emergency or authority by necessity or by operation of law - an
Because the power to create a contract of suretyship or guaranty authority which is demanded by necessity or by virtue of the existence of
cannot be inferred, it must be expressed. Thus, the need of an SPA. an emergency or unexpected situation that requires prompt action by the
agent and the principal cannot be reached in sufficient time for advice or
Q: Otherwise, what is the effect without an SPA? instruction.
A: It is unenforceable.
Case: A principal directed an agent to keep the Principal’s property inside
Article 1878(12) the building and to not bring it out. Then, nagkasunog. However, there is
To create or convey real rights over immovable property belonging to no way for the agent to contact the principal on what to do with the
his principal without special power property. This is an emergency case where the Agent without contacting
the Principal may bring out the property, as opposed to the instructions
This is different with Article 1878(5). Because Article 1878(12) talks given to him.
about real rights such as mortgage/usufruct/etc. Thus, if there is a
contract of loan, there is a need for another contract. Otherwise, it will defeat the very purpose of the instructions given to the
Agent.
Article 1878(13)
To accept or repudiate an inheritance SUMMARY OF THE EFFECTS OF THE ACTS OF THE AGENT BASED
FROM THE FUNDAMENTAL PRINCIPLES: (I just kopya datuy nga kwa
Because you cannot presume or assume that the Principal will from the Old Testament)
accept the inheritance. Hence, a need for an SPA.
1. If the agent acts with authority and in behalf of the principal,
Article 1878(14) therefore the acts are valid and the principal is bound and the agent
To ratify obligations contracted before the agency is not personally liable UNLESS he binds himself to be solidarily liable
with the principal.
Because there might be defects in the previous contracts which
would prejudice the Principal and/or the Agent if it will If he acts within the scope of his authority and in representation of
subsequently bind them. Thus, without an SPA, such contracts will his principal, therefore if there are liabilities arising from
be unenforceable. transactions entered by an agent the principal will be the one who
will be solely liable and the agent will not have responsibility UNLESS
Article 1878(15) he binds himself.
Any other act of strict dominion
2. if the agent acts within the authority but in behalf of himself or for
AUTHORITY himself

The right of the agent to bind the principal to legal relations through the For example he was favoring himself or he favors his interest over
performance of acts pursuant to the acts consented by the Principal that of the principal or he will act or transact the business in his favor
or interest; the transaction will benefit him not the principal
The right of an agent to effect the legal relations of the principal by the
performance of acts in accordance with the principal’s manifestation of Effect under article 1883 the acts or contracts entered into are
consent to him. generally not binding on the principal therefore the agent and the
third persons are the only parties liable in the transaction except if
This is when an authorization is given to an agent; this is the start of the the thing belongs to the principal
legal relations between the principal and agent where agent must
perform acts in accordance to the will of the principal. 3. If the agent acts without authority but in behalf of the principal or for
the benefit of the principal
Kinds of Authority:
While the acts are unenforceable, it may be ratified by the principal
Express – when it is directly conferred by words, either orally or in therefore; once it was ratified it will already be binding on the
writing principal.

Implied – when it is incidental to the transaction or reasonably necessary


to accomplish the main purpose of the agency

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4. If the agent is acting outside or without authority and in his own A: No, because the authority given is instructed.
behalf, but the act here is valid whether or not the subject matter Q: What if the Agent still sold the car in installment basis. Will the Principal
belongs to the principal be bound by such transaction?
A: It depends. If the 3rd person is in Good Faith then the Principal is bound,
Provided however that at the time of the delivery of the goods that otherwise, if he knows that there is a “special” instruction.
was the subject of the transaction, the agent can transfer legally the
ownership of the thing however, since it is to the prejudice of the Q: What is considered acting within the scope of authority?
principal, the principal can still run after the agent for damages. A: All REASONABLE and LAWFUL acts even if it is capricious or unwise.
Because the Agent is not allowed to think.
What happens if the agent does not have possession of the goods at
the time of delivery therefore, he will not only be liable to the Q: What if the Agent invests in a Stock Market, even if the interest is better,
principal but also to the third persons for damages that will be on the principle that is it of the advantage of the Principal, however he is
incurred. not authorized to do so. What shall be the effect?
A: A’s acts will be considered acting beyond its authority.
MAIN OBLIGATIONS OF THE AGENT
ACTS OF DILIGENCE
1. Refusal
On the part of the Agent: Take care of the Property for a There can be departure from the instructions of the Principal if there is
reasonable time already (1) loss, (2) emergency, (3) something you cannot call, (4)
On the part of the Principal: To look for another agent or to get ambiguous instructions, (5) or such unsubstantial departure from the
the property from the Agent himself. Otherwise, the Agent shall instructions will not have any effect on the results (if wala namang
deposit the property to the courts. magbabago sa resulta)

2. Accept DUTY OF LOYALTY


a. Diligence - once an agent accepts the appointment he is
obliged to comply with the duty of diligence and care Q: How do you show Loyalty?
b. Loyalty - The contract of agency is FIDUCIARY in A: In case there is conflict with the interest of the Agent and Principal. You
character therefore; there must be trust and confidence must put the interest of the Principal first.
not only on the side of the agent but also in the side of the
principal. Otherwise, he will be liable for damages and the transaction with the 3rd
person is VALID.

Article 1881 Case: The Principal instructed the Agent to sell his property in cash.
The agent must act within the scope of his authority. He may do such acts as may However, the Agent sold it on installment and the interest shall accrue to
be conducive to the accomplishment of the purpose of the agency. the Agent.
Q: Can the Principal run after the interest?
Article 1882 A: Yes, if there is no notification. Including damages because, there is
The limits of the agent's authority shall not be considered exceeded should it have breach of duty of Loyalty.
been performed in a manner more advantageous to the principal than that
specified by him.
These are called “SECRET PROFITS”. Secret Profits are given freely and
directly to the Agent by the Vendee, as a form of price or bonus.
The Agent must remember that all of his doing must be for the
General Rule: The Agent has the duty to give the Profit to the Principal.
benefit of the Principal
Exceptions:
1. When the Agent notifies in advance and the Principal did not
Article 1888
An agent shall not carry out an agency if its execution would manifestly result in
object.
loss or damage to the principal. 2. When the Agent acts as the middleman/broker. Because the
Principal only states that the Agent shall look for buyers and the
Article 1887 Principal transacts.
In the execution of the agency, the agent shall act in accordance with the 3. When the Agent has an interest or lien on the transaction. That
instructions of the principal. sometimes when the Agent may use his money (which he is not
supposed to do), he can say that the extra profit is a Lien.
In default thereof, he shall do all that a good father of a family would
do, as required by the nature of the business. CLAW BACK DOCTRINE

INSTRUCTIONS The Doctrine came from the “Corporation Law or Code” that is applied to
Instructions are private directions which the principal may give the the Law on Agency.
agent in regard to the manner of performing his duties as such agent but
of which a third party is ignorant. They are said to be secret if the principal If the Agent acts behind the Principal and gets to fulfill the transaction, the
intended them not to be made known to such party. Principal has the right to demand return the property from the Agent.

Case: Principal instructed (not through an SPA) his agent to sell a car.
Another instruction was to make it a “rush” sale.
Q: Can the Agent sell in installments?

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Article 1883 SINGCUCO SUNG YANG


If an agent acts in his own name, the principal has no right of action against the The Agent was transacting to buy a property for the Principal. Later on, he finds
persons with whom the agent has contracted; neither have such persons against one but said to his wife “Ikaw na lang bumili sa property”. The Principal came to
the principal. know that his Agent went behind his back. Thus, the Principal was able demand
from the Agent to give the transaction to him instead because the interest of the
In such case the agent is the one directly bound in favor of the person with whom Agent was put first.
he has contracted, as if the transaction were his own, except when the contract If however, the Agent who puts his interest first had suffer some loss, the Duty of
involves things belonging to the principal. Loyalty shall not be followed. (e.g. The agent was sick and he cannot do the
instructions immediately)
The provisions of this article shall be understood to be without prejudice to the
actions between the principal and agent. Article 1884
The agent is bound by his acceptance to carry out the agency, and is liable for the
Q: How do you determine if the Agent is acting with Loyalty? damages which, through his non-performance, the principal may suffer.
A: The Agent must act within the scope of its authority. Otherwise, the
transactions will be unenforceable, subject to Ratification. But if he says He must also finish the business already begun on the death of the principal,
that he doesn’t want to continue, the 3rd person and the Principal cannot should delay entail any danger.
run from each other.
Q: In what instances that the Agent can continue despite of the death
Article 1491, 1890 and 1878 provides for the manifestations of the of the Principal?
performance of the duty of Loyalty. A: If it should entail any danger.

Article 1491. The following persons cannot acquire by purchase, even at a public or Case: The agent binds himself in a transaction concerning the
judicial auction, either in person or through the mediation of another: construction of the building with a 3rd person. Despite the death of
(1) The guardian, the property of the person or persons who may be under his the Principal, the transaction can continue. Because for example, the
guardianship; construction of a building if discontinued, it entails a danger.
(2) Agents, the property whose administration or sale may have been entrusted
to them, unless the consent of the principal has been given; Article 1886
Should there be a stipulation that the agent shall advance the necessary funds, he
(3) Executors and administrators, the property of the estate under
shall be bound to do so except when the principal is insolvent.
administration;

(4) Public officers and employees, the property of the State or of any subdivision Q: Can an Agent use his own funds?
thereof, or of any government-owned or controlled corporation, or institution, A: Will only come in when there is an agreement at the start of the
the administration of which has been intrusted to them; this provision shall apply Contract of Agency.
to judges and government experts who, in any manner whatsoever, take part in
the sale; Rule: The Agent is not obliged to bring out money. All expenses must
come from the Principal because the Agent must protect his own
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, interest.
and other officers and employees connected with the administration of justice,
the property and rights in litigation or levied upon an execution before the court
within whose jurisdiction or territory they exercise their respective functions; this If the Agent is paid by the borrower and he hasn’t returned the
prohibition includes the act of acquiring by assignment and shall apply to money to the Principal, subsequently he used it, the money will start
lawyers, with respect to the property and rights which may be the object of any to earn some interest. The Agent has the Duty to Return the Money
litigation in which they may take part by virtue of their profession. to the Principal. Otherwise, he is liable to pay any interest and
damage that it may incur.
(6) Any others specially disqualified by law.
SUBSTITUTE AGENCY
Article 1890. If the agent has been empowered to borrow money, he may himself be
the lender at the current rate of interest. If he has been authorized to lend money at
Article 1892
interest, he cannot borrow it without the consent of the principal.
The agent may appoint a substitute if the principal has not prohibited him from
doing so; but he shall be responsible for the acts of the substitute:
Article 1891
Every agent is bound to render an account of his transactions and to deliver to (1) When he was not given the power to appoint one;
the principal whatever he may have received by virtue of the agency, even though
it may not be owing to the principal. (2) When he was given such power, but without designating the person,
and the person appointed was notoriously incompetent or insolvent.
Obligation to render an account.
All acts of the substitute appointed against the prohibition of the principal shall
Not only with the respect to the profits, but all kinds of transactions. be void.
Everything must be known to the principal.
Article 1893
General Rule: Kasi lahat ng kita (profits), it belongs to the Principal.
In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal may
Any profits derived from the transaction, the benefits will be given to
furthermore bring an action against the substitute with respect to the obligations
the Principal. which the latter has contracted under the substitution.
Exception: Allowed Secret Profits. However, if the Principal does not
allow secret profits, hindi talaga pwede. Q: Can an Agent appoint a sub-agent?

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A: Yes, if there is no specific prohibition under the contract of Agency.


Q: How about Negligence on the part of the Agent?
Hence, if the Principal only says ‘I authorize you’, the Agent may appoint a A: It depends.
Sub-Agent. If it is Grave Negligence, the Agent is always liable.
If it is Simple Negligence, it depends if the contract is gratuitous or
Q: Is it automatic that the all the acts of the Sub-Agent will be for the onerous.
Principal? If gratuitious, the liability is mitigated.
A: Yes, if it is within the scope of its authority given by the Principal. If onerous, it depends on the amount of damages incurred.
However, if he acted within the scope of its authority, the Agent
Rule: may be excused from liability.
1. If there is an express agreement to appoint a “specific” agent,
the effect is that all the transactions by that agent are VALID. MULTIPLE AGENCY
2. If there is no specific authorization or designation, the
transactions are VALID as long as it is within its scope of Where the Principal appoints two or more agents.
authority and as long as it is for the benefit of the Principal.
General Rule: The liability of the Agent is joint in nature. Hence, the agent,
However, if the Sub-agent is notoriously incompetent, the Agent in case of any liability or damages, will only be liable proportionately.
will be primarily liable of the transaction or the Subagent will
be primarily liable and the Agent as subsidiary liable. Example: If P appoints A, B & C as his agents. Thereafter, squatters
entered the property. What is the liability of A, B & C in case P run
Thus, if the Agent is authorized to appoint, he must see to it that after A, B & C? All of them will be liable proportionately.
the Subagent is also competent.
Exception: If there is a specific provision of solidary liability.
3. If there is no prohibition and in the event that the Subagent acts
outside the scope of its authority: General Rule: For Solidary/Joint Liability the agents need not to get the
a. The Principal will be bound if he is benefitted through consent of other agents.
Ratification Exception: If the Principal already specifies that the act of one is the act of
b. However, if the Subagent had some violations, the all.
Principal can hold both the Subagent and the Agent liable
c. Lastly, if the Subagent did not violate anything but there Article 1895. If solidarity has been agreed upon, each of the agents is responsible for
are some problem with the transaction, the Agent will be the non-fulfillment of agency, and for the fault or negligence of his fellows agents, except
liable and the 3rd person can ran after the Agent only (not in the latter case when the fellow agents acted beyond the scope of their authority.
the Subagent because there was no violation on his part)
General Rule: No Stipulation = Joint. Thus, if there is a stipulation for
The Subagent will be considered as a Stranger as between Solidary Liability, the non-fulfillment or the fault or negligence of one will
the Principal and the Agent. make the other agent/s liable.
Exception: If that faulty agent acted outside the scope of their authority.
Therefore, in any case, the Agent will always be liable.
Art. 1915. If two or more persons have appointed an agent for a common transaction
or undertaking, they shall be solidarily liable to the agent for all the consequences of the
4. When there was already a prohibition that the Agent cannot agency.
appoint
COMMISSION AGENT
If the Agent still appoints despite the prohibition, the Agent will
be liable to the Principal and will be personally liable to the 3rd Regular Agent v. Commission Agent
person.
Regular = Need not take possession of the goods.
Moreover, the contract with the 3rd person will be considered Commission = Possession of the goods has the obligation to take custody
VOID.
Regular = Makes it appear that the Principal is the seller.
Q: In all four (4) instances, what if the Agent dies? Will the transactions be Commission = He makes it appear that he (the commission agent) sells
terminated? these products.
A: Yes, except when the Subagent’s authority comes directly from the
Principal, the death of the Agent does not terminate the transaction. OBLIGATIONS OF THE COMMISSION AGENT

NEGLIGENCE/FRAUD 1. To take custody of the Goods owned by the Principal


-when a commission agent receives the goods assigned to him
Art. 1909. The agent is responsible not only for fraud, but also for negligence, which
he is responsible for damage or deterioration suffered by the
shall be judged with more or less rigor by the courts, according to whether the agency
was or was not for a compensation.
same as described in the consignment.

Q: Is there an instance when the Agent will not be liable for Fraud? The commission agent must check if the actual goods received
A: No, the Agent will always be liable for Fraud, because he puts his and the one described in the consignment are the same.
interest first over the interest of the Principal.

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If he received damaged goods during his possession, he will be If A does not give the names to P, it is presumed that the sale is
liable for damages that will be caused to these products. on cash.

To avoid liability, the commission agent should make a written As far the buyer is concerned, he shall only pay when the credit
statement of the damage or deterioration if the goods received becomes due and demandable.
by him do not agree with the description in the consignment.
5. To collect credits of the principal
Art. 1903. The commission agent shall be responsible for the goods
received by him in the terms and conditions and as described in the Art. 1908. The commission agent who does not collect the credits of his
consignment, unless upon receiving them he should make a written principal at the time when they become due and demandable shall be
statement of the damage and deterioration suffered by the same. liable for damages, unless he proves that he exercised due diligence for that
purpose.
2. Not to comingle similar goods belonging to different
principals. A commission agent who has made an authorized sale on credit
must collect the credits due the principal at the time they
Art. 1904. The commission agent who handles goods of the same kind and become due and demandable.
mark, which belong to different owners, shall distinguish them by
countermarks, and designate the merchandise respectively belonging to If he fails to do so, he shall be liable for damages unless he can
each principal.
show that the credit could not be collected notwithstanding the
exercise of due diligence on his part.
He must not comingle the property of the principal and his
property
6. He shall bear the risk of collection under del credence
commission set up
3. Cannot sell on credit without the authorization of the
Principal
GUARANTEE COMMISSIONS
Art. 1905. The commission agent cannot, without the express or implied
(del credence commission)
consent of the principal, sell on credit. Should he do so, the principal may
demand from him payment in cash, but the commission agent shall be Article 1907. Should the commission agent receive on a sale, in addition to the
entitled to any interest or benefit, which may result from such sale. ordinary commission, another called a guarantee commission, he shall bear the risk of
collection and shall pay the principal the proceeds of the sale on the same terms agreed
A commission agent can sell on credit only with the express or upon with the purchaser.
implied consent of the principal. If such sale is made without
authority, the principal is given two alternatives: Difference of 1907 & 1908
a. He may require payment in cash, in which case, any The difference is on its collection.
interest or benefit from the sale on credit shall belong to
the agent since the principal cannot be allowed to enrich In del credence, if there is a 10% commission and he sold the goods, there
himself at the agent’s expense; or e.g the Commission is an addition commission, for example 10%, thus, the total commission
agent (CA) may sell the cellphone of the Principal for shall be 20%. BUT there is a RISK, because he already guarantees the
P15K, P18K on credit the P3K shall be given to the CA payment. So, when the 3rd person did not pay, the Principal can run after
b. He may ratify the sale on credit but he will have all the the Agent.
risks and advantages to him.
In commission agent, the Principal can only run after the Damages.
Q: What if the Commission Agent still sells on Credit?
A: The Principal may demand from him the payment in cash, Q: What if the Principal went directly to the 3rd person?
but the Commission Agent shall be entitled to any interest or A: The del credence becomes a Guarantor of the 3rd person.
benefit.
Take note of the Application of Article 1900 and 1902 in which the 3rd
CASE: If the Principal ratifies/honor the credit, the benefits and person must always be in Good Faith and the requirement of a Power of
risks will transfer to the Principal. But he must honor the terms Attorney.
of the Sale. Thus, if the 3rd person becomes insolvent, then the
Art. 1900. So far as third persons are concerned, an act is deemed to have been
Principal bears the risk.
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
4. To inform the principal of all pre-authorized sale on credit authority according to an understanding between the principal and the agent.

Art. 1906. Should the commission agent, with authority of the principal, Art. 1902. A third person with whom the agent wishes to contract on behalf of the
sell on credit, he shall so inform the principal, with a statement of the names principal may require the presentation of the power of attorney, or the instructions as
of the buyers. Should he fail to do so, the sale shall be deemed to have been regards the agency. Private or secret orders and instructions of the principal do not
made for cash insofar as the principal is concerned. prejudice third persons who have relied upon the power of attorney or instructions
shown them.
The Commission Agent shall only sell on cash basis, if he sells
on credit, he must inform the P by giving all the names of the OBLIGATIONS OF THE PRINCIPAL
buyer.
Art. 1910. The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority.

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The reimbursement shall include interest on the sums advanced, from the day on which
As for any obligation wherein the agent has exceeded his power, the principal is not the advance was made.
bound except when he ratifies it expressly or tacitly.
However, take also into account Article 1918 when the Principal is not
Main Obligation is to be bound by the contract of Agency. liable for the expenses.
Specific Obligation is to comply with all the obligations which the agent
acted within the scope of its authority unless there is RATIFICATION. Article 1918. The principal is not liable for the expenses incurred by the agent in the
following cases:
WHAT IS RATIFICATION?
Ratification is the adoption or affirmance by a person of a prior act which PEREZ v. PNB
The argument that foreclosure by the Bank under its power of sale is barred upon
did not bind him, but which was done or professed to be done on his
death of the debtor, because agency is extinguished by the death of the principal,
account thus giving effect to the acts as if originally authorized. under Article 1732 of the Civil Code of 1889 and Article 1919 of the Civil Code of
the Philippines, neglects to take into account that the power to foreclose is not an
REQUISITES: ordinary agency that contemplates exclusively the representation of the principal
1) The principal must have the capacity and power to ratify; by the agent but is primarily an authority conferred upon the mortgagee for the
2) He must have a knowledge or had reason to know of material or latter's own protection. It is, in fact, an ancillary stipulation supported by the same
essential facts about the transaction; causa or consideration for the mortgage and forms an essential and inseparable
3) He must ratify the acts in its entirety; part of that bilateral agreement. As can be seen in the preceding quotations from
Pasno vs. Ravina, 54 Phil. 382, both the majority and the dissenting opinions
 He cannot just choose and change his mind
conceded that the power to foreclose extrajudicially survived the death of the
4) He act must be capable of ratification; and mortgagor, even under the law prior to the Civil Code of the Philippines now in
 Only valid acts can be ratified, thus void acts like tortious acts force.
cannot be ratified
5) The act must be done in behalf of the principal. (1) If the agent acted in contravention of the principal's instructions, unless the
 Thus, if A is acting for himself, such act cannot be ratified. latter should wish to avail himself of the benefits derived from the contract;
(2) When the expenses were due to the fault of the agent;
(3) When the agent incurred them with knowledge that an unfavorable result
AGENCY BY ESTOPPEL would ensue, if the principal was not aware thereof;
(4) When it was stipulated that the expenses would be borne by the agent, or that
How is it created? the latter would be allowed only a certain sum.

Article 1873. If a person specially informs another or states by public advertisement Q: What and how to indemnify the Agent for all the damages?
that he has given a power of attorney to a third person, the latter thereby becomes a A: Article 1913.
duly authorized agent, in the former case with respect to the person who received the
special information, and in the latter case with regard to any person.
Art. 1913. The principal must also indemnify the agent for all the damages which the
execution of the agency may have caused the latter, without fault or negligence on his
The power shall continue to be in full force until the notice is rescinded in the same
part.
manner in which it was given.
Q: If the Principal can no longer pay the Agent, what shall the Agent do?
Article 1875 talks about the Presumption of the existence of a
A: The Agent can have a lien on the property or goods. He can go to court
Compensation for a Reasonable Value?
for Public Auction.
Article 1875. Agency is presumed to be for a compensation, unless there is proof to the
Art. 1914. The agent may retain in pledge the things which are the object of the agency
contrary.
until the principal effects the reimbursement and pays the indemnity set forth in the two
preceding articles.
Q: What is Reasonable Value or what is the basis?
A: Performance of the Obligation in the presumption of completion of
If there are Multiple Principals and only one agent, the Principals’
duty.
Liability is Solidary. Provided that there is only one transaction that the
Agent and Multiple Principals has executed.
Q: When can he advance the Agent’s money?
A: When there is a stipulation that the Agent may use the money. Thus, if
MODE OF EXTINGUISHMENT
there is no stipulation, the Principal must always give the money.
However, if naubusan siya, apply Article 1912, which shall include interest. Article 1919 [EDWARD]. Agency is extinguished:
(1) By its Revocation;
Article 1912. The principal must advance to the agent, should the latter so request, the (2) By the Withdrawal of the agent;
sums necessary for the execution of the agency. (3) By the Death, civil interdiction, insanity or insolvency of the principal or of
the agent;
Should the agent have advanced them, the principal must reimburse him therefor, even (4) By the Dissolution of the firm or corporation which entrusted or accepted
if the business or undertaking was not successful, provided the agent is free from all the agency;
fault. (5) By the Accomplishment of the object or purpose of the agency;
(6) By the Expiration of the period for which the agency was constituted.

DEATH

Q: What is the effect of the Death (either the Agent or the Principal) in a
contract of Agency?
A: Extinguishment of the Contract of Agency. (Article 1919)

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Exception: If the Principal will consider the Agents as a group.


1. Death of the Principal Q: Even if the Liability is Solidary?
A: Yes, since that is the essence of a Solidary Liability.
Article 1930. The agency shall remain in full force and effect even after the death
of the principal, if it has been constituted in the common interest of the latter and Of course, if all died, automatically it will extinguish the contract of Agency.
of the agent, or in the interest of a third person who has accepted the stipulation If one or some Agents only, the contract may continue because there are
in his favor.
still some Agents who can perform the Obligation.
Exemptions:
Q: Why even on Solidary Liability?
a. If the agency has been constituted in the common interest of
A: Because despite the solidary liability, for all acts of the Agent, everybody
both Agent and Principal
will be liable, even for unaccomplished obligation and even for the fault of
b. If the Agency has been constituted in the interest of a 3rd person
one.
who has accepted the stipulation in his favor
Exception: If one of the Agents acted outside its scope of authority.
Take Note: INTEREST must be on the subject matter of the transaction PASNO v. RAVINA (1930)
entered with the 3rd person. The power of sale given in a mortgage is a power coupled with an interest which
survives the death of the grantor.
Effect of KNOWLEDGE OF THE DEATH of the Principal The main obligation to mortgage includes sale of the property.
Article 1931. Anything done by the agent, without knowledge of the death of the Thus, may interest pa rin sila sa sale.
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.
However, under the NCC, Art. 1879 states that a special power to sell excludes the
Q: Will the Principal be bound by the transaction entered into by the Agent power to mortgage; and a special power to mortgage does not include the power to
even after his death? sell.
A: Depends on when the Agent attains the knowledge. Thus, the material
fact is if the 3rd person and the Agent is in Good Faith. WITHDRAWAL of the Agent

Art. 1928. The agent may withdraw from the agency by giving due notice to the
2. Death of the Agent
principal. If the latter should suffer any damage by reason of the withdrawal, the agent
must indemnify him therefor, unless the agent should base his withdrawal upon the
NOTIFICATION TO THE LEGAL HEIRS by the AGENT impossibility of continuing the performance of the agency without grave detriment to
Article 1932. If the agent dies, his heirs must notify the principal thereof, and in the himself.
meantime adopt such measures as the circumstances may demand in the interest of the
latter. Art. 1929. The agent, even if he should withdraw from the agency for a valid reason,
must continue to act until the principal has had reasonable opportunity to take the
Q: When the Agent dies, can the Heirs continue the contract of Agency? necessary steps to meet the situation.
A: Yes, to protect the interest of the Agent.
Art. 1930. The agency shall remain in full force and effect even after the death of the
OBLIGATION OF THE HEIRS 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.
1. To notify the Principal about the Death of the Agent
2. To take possession of the Property for safeguarding diliegently Withdrawal must be for valid reason. Otherwise, it will be tantamount to
(Good Father of a Family) breach of contract and the Agent may be liable to the Principal.
3. If the Heirs are not capable of taking possession or in
safeguarding the property, they should surrender the Property Valid or Reasonable Ground speaks of (1) necessity of the revocation and
to the Court after taking possession due (2) notice.

Q: Is the surrender immediately or automatically? Unreasonable Ground speaks of situations when such withdrawal will
A: No. prejudice the Principal. Thus, the Agent will be liable.

The Heir shall take care of the property only until the Principal finds Q: If it is for Valid Ground/s, can the Principal run after the Agent?
another Agent or the Principal will take possession of the Property. A: No, EXCEPT if the Principal will incur damages because of the
Otherwise, surrender the property it to the Court. withdrawal.

CIVIL INTERDICTION, INSANITY, INSOLVENCY of either the Agent or General Rule: The Agent may withdraw ANYTIME because the contract of
Principal agency is a personal obligation. You cannot impose something to someone
if he already refused.
Q: Why does it extinguish the Contract of Agency? Exception: If such withdrawal will prejudice the Principal.
A: With respect to the Principal, there’s no one to represent. With repect
to the Agent, it will extinguish the contract if the incapacity emerged Thus, the OBLIGATIONS of the Agent to validly withdraw are:
during the course of the contract of Agency. 1. To notify the Principal of his intent to withdraw; and
2. To take care of the property until the Principal finds another
Q: What about the Death, Civil Interdiction, Insanity and Insolvency of one Agent or until the Principal takes possession. Otherwise, bring
or more agents in case there is Multiple Agents? the property to Court (Article 1929).
General Rule: It will extinguish the Contract of Agency.
REVOCATION of the Principal

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CONTRACT OF EXCLUSIVE AGENCY


Art. 1920. The principal may revoke the agency at will, and compel the agent to return
the document evidencing the agency. Such revocation may be express or implied. CHARACTER: Irrevocable

Revocation can be (1) implied or (2) express. Q: When the Principal finds other clients, can the Agent run after the
Principal?
How is Express Revocation made? A: Yes, because of the nature of the contract, there would be a breach of
1. When the Principal directly notifies the Agent that he no longer contract.
wants to continue;
2. By publication; and What are irrevocable agencies (Article 1927)?
3. When the Principal notifies the 3rd person (Estoppel) 1. If a bilateral contract depends upon it;
2. If it is the means of fulfilling an obligation already contracted; or
Art. 1921. If the agency has been entrusted for the purpose of contracting with specified
3. If a partner is appointed manager of a partnership in the
persons, its revocation shall not prejudice the latter if they were not given notice thereof.
contract of partnership and his removal from the management
Art. 1922. If the agent had general powers, revocation of the agency does not prejudice is unjustifiable.
third persons who acted in good faith and without knowledge of the revocation. Notice
of the revocation in a newspaper of general circulation is a sufficient warning to third However, this is NOT an Exclusive List. These are the only instances when
persons. the Principal is made liable.

Q: What happens if there are two or more Principals and one revokes the Art. 1927. An agency cannot be revoked if a bilateral contract depends upon it, or if
contract? it is the means of fulfilling an obligation already contracted, or if a partner is
A: Article 1925. appointed manager of a partnership in the contract of partnership and his removal
from the management is unjustifiable.
Art. 1925. When two or more principals have granted a power of attorney for a
common transaction, any one of them may revoke the same without the consent of the
others. Take Note: Obligations of the Agent to keep information under the
contract, confidential or not, is another manifestation of the Duty of
How is implied revocation done? Loyalty
1. When the Principal himself takes the responsibility to act on the
obligation which he delegated to his Agent;
2. When the Principal issues a General Power of Attorney and
issues a Special Power of Attorney to another (new) Agent; and
3. When the Principal assigns another (new) Agent to act on such.

Q: Can the Principal revoke ANYTIME?


A: YES, because of the fiduciary nature of the agency.
Q: Will the Principal be liable for breach of contract and damages?
A: No, EXCEPT when the revocation is wrongful.
Q: When is it considered wrongful?
A: When such revocation is done in bad faith, if it is an irrevocable
contract or if the revocation is done before the expiration of the period
under the contract.

IMPLIED REVOCATION by Appointment of a new agent


Art. 1923. The appointment of a new agent for the same business or transaction
revokes the previous agency from the day on which notice thereof was given to the
former agent, without prejudice to the provisions of the two preceding articles.

There is implied revocation if the obligations of both the old and new
agents are so incompatible. Such that the appointment of the new agent
will supercede/overpower the old agent.

Q: What if the old Agent insist or ayaw niya?


A: “Wala na siyang magagawa pa”

IMPLIED REVOCATION when the Principal directly manages the the


business
Art. 1924. The agency is revoked if the principal directly manages the business
entrusted to the agent, dealing directly with third persons.

IMPLIED REVOCATION when an SPA is issued over a GPA


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

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VILLALUZ v. LBP (2) When he was given such power, but without designating the
person, and the person appointed was notoriously incompetent or
In 1996, Villaluz owned a backyard business in Davao with orchids and insolvent.
waling-waling. He needed 600-650k so he used the Property for
Collateral.
VILORIA v. CONTINENTAL AIRLINES
Villaliz granted an SPA to Agbisit to:
1. Negotiate for sale, mortgage and other forms of disposition; and Fernando Viloria bought 2 round trip tickets on board Continental Airlines
2. Sign documents or other papers. for $400 each from a travel agency called “Holiday Travel” and was
attended to by Margaret Mager.
There are no other conditions.
Mager told them that there were no available seats at Amtrak, a passenger
Abisit executed another SPA to Milflores Cooperative for the purpose of train, hence the airline tickets.
obtaining a loan from Land Bank of the Philippines, herein respondent.
Fernando requested Mager to reschedule their flights to an earlier date.
Milflores executed a REM in favor of LBP for 3M. The proceeds of 900k But Mager told them that flights were already fully booked and offer an
was given to Agbisit. alternative via Frontier Air for a higher rate of $500+ each. Since it was
more expensive, Fernando asked for a refund instead.
However, Milflores failed to pay for the loan, Thus, BLP foreclosed the
property of Villaluz. Mager, however denied because she claimed that the tickets were non-
refundable and she can only offer rebooking within 1 year.
Villaluz came to know that their property are being foreclosed and the
auction sale was won by BLP. Having second thoughts, Fernando himself went to a train station and saw
Amtrak. He inquired for available seats and he was told that there are
Hence, Villaluz filed a case before the RTC. plenty of available seats and he can travel any time. He booked.

RTC: Yes, the delegation is valid because the SPA executed to Milflores has Fernando confronted Mager, telling her that she misled them in buying the
no prohibition on a Subagency. tickets by misrepsentation. Mager insisted that it was non-refundable.
CA: I concur.
Hence, a case was filed.
ISSUE:
The RTC decided that they are entitled to a refund in view of Mager’s
Can Agbisit contract another agency to Milflores? misrepresentation.

RULING: Citing Article 1868 and 1869, it held that Mager is Continental’s Agent,
hence it is bound by her misrepresentation.
Supreme Court mentioned Article 1892 and 1893 of the Civil Code.
The CA revered the ruling and ruled that there was no Principal-Agent
Art. 1892. The agent may appoint a substitute if the principal has not prohibited relationship and a Contract of Sale exists instead.
him from doing so; but he shall be responsible for the acts of the substitute:
SUPREME COURT:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the person, and the
person appointed was notoriously incompetent or insolvent. A principal-agent relationship exists between Continental and Holiday
Travel.
All acts of the substitute appointed against the prohibition of the principal shall
be void. Accordingly, all the Elements of Agency exist.

Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the The essential elements of agency are:
principal may furthermore bring an action against the substitute with respect to
(1) There is consent, express or implied of the parties to
the obligations which the latter has contracted under the substitution.
establish the relationship;
(2) The object is the execution of a juridical act in
There is a presumption that an Agent can appoint a substitute agent. The
relation to a third person;
Subagent assumes the obligation of the Agency.
(3) The agent acts as a representative and not for
himself, and
In order to make that presumption inoperative, it is encumbent for the
(4) The agent acts within the scope of his authority.
Principal to prohibit the Agent to appoint a Subagent.

The first and second elements are present as Continental does not deny
The Agent has also the responsibility for the subagent and the subagent
that it concluded an agreement with Holiday Travel, whereby Holiday
must not be notoriously incompetent.
Travel would enter into contracts of carriage with third persons on
Continental’s behalf.
Thus, the only time that the Agent will be solely responsible for the
substitute/subagent are:
The third element is also present as it is undisputed that Holiday Travel
(1) When he was not given the power to appoint one;
merely acted in a representative capacity and it is Continental and not

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Holiday Travel who is bound by the contracts of carriage entered into by


Holiday Travel on its behalf. RTC applied Article 1900 and 1911 that CIV could be allowed to disclaim.
As well as Ca stated that it cannot be permitted to deny liability specially
The fourth element is also present considering that Continental has not to 3rd persons relying on Quinain.
made any allegation that Holiday Travel exceeded the authority that was
granted to it. Supreme Court however stated that Agents must act within its scope of
authority.
In fact, Continental consistently maintains the validity of the contracts of
carriage that Holiday Travel executed with Spouses Viloria and that Mager Article 1878(11) states that:
was not guilty of any fraudulent misrepresentation. Special powers of attorney are necessary in the following cases:
(11) To obligate the principal as a guarantor or surety;
That Continental admits the authority of Holiday Travel to enter into
contracts of carriage on its behalf is easily discernible from its February CBIC would be liable as long as it can be seen that Quinain was only acting
24, 1998 and March 24, 1998 letters, where it impliedly recognized the within its scope of authority as stated in the SPA, or if CBIC ratifies the
validity of the contracts entered into by Holiday Travel with Spouses same.
Viloria.
However, in the case at bar, under the SPA, CBIC specifically limits the acts
When Fernando informed Continental that it was Holiday Travel who of Quinain to only transact with DPWH and similar agencies, and only to
issued to them the subject tickets, Continental did not deny that Holiday the extent of P500k.
Travel is its authorized agent.
Moreover, CBIC did not ratify because CBIC did not know anything about
Thus, CA also erred that it is a contract of sale. the issuance of the bond.

Lastly, 3rd persons must prove that he relied on the authority and
COUNTRY BANKERS v. KEPPEL CEBU SHIPYARD & UNIMARINE representation of the Agent, and its reason for its acts.

In 1992, Unimarine contracted Keppel Cebu for dry docking and ship Unimarine, the 3rd person in this case, failed to prove such, this should’ve
repair works on its vessel, the M/V Pacific Fortune for ₱4,486,052.00 in been its obligation.
installment basis. It went down to ₱3,850,000.00 after negotiations.
Here, the President of Unimarine did not even ask the authority of Quinain
Unimarine, through its President, secured from Country Bankers (CBIC), or he could have asked the CBIC for Quinain’s authority.
through its Agent Quinain, a surety bond for ₱3,000,000.00.

Unimarine obtained another surety bond from Plaridel for ₱1,620,000.00.

Unimarine failed to pay to Cebu Shipyard on its 1st installment month.


Thus, Cebu Shipyard demanded to CBIC because they are the surety of
Unimarine. However, they denied the demand.

Before the RTC, CBIC answered that there was no cause of action because
the surety bond issued by its Agent, Quinain, was issued outside of its
scope of authority and that Quinain was only authorized to issue 500k to
DPWH.

CICB contends that Cebu Ship should have doubted the authority of
Quinain and that on the face of the bond it happened that the Quinain was
only authorized to issue bonds to DPWH. However, authorization was
covered by Documentary Stamp Tax.

Moreover, it contends that its obligation is extinguished when Cebu Ship


novated the contract.

The RTC and CA both granted the petition because Quinain acted in its
apparent scope of authority to issue a surety bond.

CA only modified Quinain’s liability that he should be solidarily liable with


CBIC.

RULING

The Supreme Court reversed everything. It ruled in favor of CBIC.

The Court explained the principle of Extent of Authority.

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