CIVIL LAW BAR EXAM ANSWERS:

AGENCY
Agency (2003)

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

SUGGESTED ANSWER:

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

ALTERNATIVE ANSWER:

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

Agency vs. Sale (2000)

A foreign manufacturer of computers and a Philippine distributor entered into a

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

SUGGESTED ANSWER:

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

Agency; coupled with an interest (2001)

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

SUGGESTED ANSWER:

The revocation is not valid. The power of attorney given to

the buyer is irrevocable because it is coupled with an interest: the agency is the
means of fulfilling the obligation of the buyer to pay the price of the land (Article 1927,
CC). In other words, a bilateral contract (contract to buy and sell the land) is dependent
on the agency.

Agency; Guarantee Commission (2004)

As an agent, AL was given a guarantee commission, in addition to his regular

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

Is AL’s objection valid? Can DRBI collect from him or not? Reason.

SUGGESTED ANSWER:

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

Agency; Real Estate Mortgage (2004)

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

Is CX liable for the bank loan? Why or why not? Justify your answer.

SUGGESTED ANSWER:

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

ALTERNATIVE ANSWER:

CX is not personally liable to the bank loan because it was contracted by DY in his per
sonal capacity. Only the property of CX is liable. Hence, while CX has authorized the
mortgage on his property to secure the loan of DY, the bank cannot sue CX to collect the
loan in case DY defaults thereon. The bank can only foreclose the property of CX.

And if the proceeds of the foreclosure are not sufficient to pay the loan in full, the bank
cannot run after CX for the deficiency.

ALTERNATIVE ANSWER:

While as a general rule the principal is not liable for the contract entered into by his
agent in case the agent acted in his own name without disclosing his principal, such rule
does not apply if the contract involves a thing belonging to
the principal. In such case, the principal is liable under Article 1883 of the
Civil Code. The contract is deemed made on his behalf (Sy-juco v. Sy-
juco, 40 Phil. 634 [1920]).

ALTERNATIVE ANSWER:

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

Appointment of Sub-Agent (1999)

X appoints Y as his agent to sell his products in Cebu City. Can Y appoint a sub-
agent and if he does, what are the effects of such appointment?

SUGGESTED ANSWER:

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

General Agency vs. Special Agency (1992)

A as principal appointed B as his agent granting him general and unlimited

management over A’s properties, stating that A withholds no power from B and that the
agent may execute such acts as he may consider appropriate.

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

B leased another parcel of land of A in Caloocan City to D without a fixed term at

P3,000.00 per month payable monthly.

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

All those contracts were executed by B while A was confined due to illness in the
Makati Medical Center. Rule on the validity and binding effect of each of the above
contracts upon A the principal. Explain your answers.

SUGGESTED ANSWER:

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

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

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

Powers of the Agent (1994)

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

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

Art. 1900 Civil Code provides: “So far as third persons are concerned, an act is deemed
to have been performed within the scope of the agent’s authority, if such act is within the
terms of the power of attorney, as written, even if the agent has in fact exceeded the
limits of his authority according to an understanding between the principal and the
agent.

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

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

However, if Jesus was aware of the limitation of Nestor’s power as an agent, and Prime
Realty Corporation does not ratify the sale contract, then Jesus shall be liable
(Article 1898. Civil Code).

Termination; Effect of Death of Agent (1997)

Stating briefly the thesis to support your answer to each of the following cases, will the
death – (c) of an agent end an agency?

SUGGESTED ANSWER:

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