RJTS

Agency Bar Questions (1975-2016)

1. 2003 Agency

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? If the affirmative, what
was it? Explain. 5%

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).

2. 2004 Real Estate Mortgage

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

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

Suggested Answer:

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

Alternative Answer:

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

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


Alternative Answer:

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

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".

3. 2000 Agency v. Sale

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

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

Is the agreement one for sale or agency? (5%)

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.

4. 1999 Appointment of sub-agent

(a) 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? (5%)

Suggested Answer:

a. 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.

5. 2004 Authority to sell does not include authority to collect

RJTS

B. 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. (5%)

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)

6. 1978 Commission

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

Is B entitled to his agent's commission? Give reasons for your answer.

Suggested Answer:

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

(NOTE: The above answer is based on Infante vs. Cunanan, 49 Off. Gaz. 3320.)

7. 2001 Coupled with an interest

Richard sold a large parcel of land in Cebu to Leo for P100 million payable in annual
installments over a period of ten years, but title will remain with Richard until the purchase price
is fully paid. To enable Leo to pay the price, Richard gave him a power-of-attorney authorizing
him to subdivide the land, sell the Individual lots, and deliver the proceeds to Richard, to be
applied to the purchase price. Five years later, Richard revoked the power of attorney and took
over the sale of the subdivision lots himself.

Is the revocation valid or not? Why? (5%)

RJTS

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.

8. 1980 Coupled with an interest

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

Would you hold "BB" liable for damages?

Suggested Answer:

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

(NOTE: The above answer is based upon Arts. 1927, 1930, Civil Code.)

9. 1979 Coupled with an interest

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

Can the bank be compelled to accept the tender of redemption by the heirs of DT? Why?

Suggested Answer:
RJTS

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

10. 1992 General v. Special Agency

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

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

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

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

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

Rule on the validity and binding effect of each of the above contracts upon A the principal.
Explain your answers,

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.
RJTS

11. 1975 Liability of an agent

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

Is the Bank liable to B? Explain.

Suggested Answer:

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

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

12. 1981 Liability of an agent to render an account

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

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

b) May "B", the claim owner, question the royalty obtained by "A"? On what grounds?
Explain,

Suggested Answer:

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

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

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

(Note: The above answer is based on Art. 1891 of the Civil Code and on Manresa's opinion —
RJTS

Vol. 11, p. 512,}

13. 1994 Powers of the agent

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).

14. 1988 Termination; death of principal; souble sales

b. In 1950, A executed a power of attorney authorizing B to sell a parcel of land consisting

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

(1) What was the effect of the death of A upon B's authority to sell the land?

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

Suggested Answer:
RJTS

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

(2) D has better right since he registered first in good faith.

Alternative Answer to: No, 13 (b):

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

"The agency shall remain in full force and effect even after the death of the principal,
if it has been constituted in the common interest of the latter and of the agent, or in
the interest of a third person who has accepted the stipulation in his favor.'* and
Article 1931 provides that;

"Anything done by the agent, without knowledge of the death of the principal or of
any other cause which extinguishes the agency, is valid and shall be fully effective
with respect to third persons who may have contracted with him in good faith,"

15. 1997 Termination; effect of death of agent

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

Suggested Answer:

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

16. 2010 Sale of a Real Property through an Agent

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

Y thus sold the land to B1 on March 31, 2001 and executed a deed of absolute sale on behalf of
X. B1 fully paid the purchase price.

B2, unaware of the sale of the land to B1, signified to Y his interest to buy it but asked Y for her
authority from X. Without informing X that she had sold the land to B1, Y sought X for a written
authority to sell.

X e-mailed Y an authority to sell the land. Y thereafter sold the land on May 1, 2001 to B2 on
monthly installment basis for two years, the first installment to be paid at the end of May 2001.

Who between B1 and B2 has a better right over the land? Explain. (5%)

Suggested Answer:
RJTS

B-2 has a better title. This is not a case of double sale. Since the first sale was void. The law
provides that when a sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void (Art 1874, NCC). The
property was sold by Y to B1 wihtout any written authority from the owner X. Hence, the sale to
B1 was void.

Alternative Answer:

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

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

17. 2014

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

If you are the judge, how will you decide the case? (4%)

Suggested Answer:

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

18. 2014

Joe Miguel, a well-known treasure hunter in Mindanao, executed a Special Power of Attorney
(SPA) appointing his nephew, John Paul, as his attorney-infact. John Paul was given the power
RJTS

to deal with treasure-hunting activities on Joe Miguel’s land and to file charges against those
who may enter it without the latter’s authority. Joe Miguel agreed to give John Paul forty percent
(40%) of the treasure that may be found on the land.

Thereafter, John Paul filed a case for damages and injunction against Lilo for illegally entering
Joe Miguel’s land. Subsequently, he hired the legal services of Atty. Audrey agreeing to give the
latter thirty percent (30%) of Joe Miguel’s share in whatever treasure that may be found in the
land.

Dissatified however with the strategies implemented by John Paul, Joe Miguel unilaterally
revoked the SPA granted to John Paul.

Is the revocation proper? (4%)

Suggested Answer:

No, the revocation was not proper. As a rule, a contract of agency may be revoked by the
principal at will. However, an agency ceases to be revocable at will if it is coupled with an
interest or if it is a means of fulfilling an obligation already contracted. (Article 1922). In the case
at bar, the agency may be deemed an agency coupled with an interest not only because of the
fact that John Paul expects to receive 40% of whatever treasure may be found but also because
he also contracted the services of a lawyer pursuant to his mandate under the contract of
agency and he therefore stands to be liable to the lawyer whose services he has contracted.
(Sevilla v. Tourist World Service, G.R. No. L-41182-3 April 16, 1988)

19. 2015

Donna pledged a set of diamond ring and earrings to Jane for P200,000.00 She was made to
sign an agreement that if she cannot pay her debt within six months, Jane could immediately
appropriate the jewelry for herself. After six months, Donna failed to pay. Jane then displayed
the earrings and ring set in her jewelry shop located in a mall. A buyer, Juana, bought the
jewelry set for P300,000.00.

a) Was the agreement which Donna signed with Jane valid? Explain with legal
basis. (2%)
b) Can Donna redeem the jewelry set from Juana by paying the amount she
owed Jane to Juana? Explain with legal basis. (2%)
c) Give an example of a pledge created by operation of law. (2%)

Suggested Answer:

a. appropriate the jewelry upon default of Donna is considered pactum commissorium

and it is considered void by law. ( Article 2088)

b. No, Donna cannot redeem it from Juana because the pledge contract is between
her and Jane. Juana is not a party to the pledge contract. (Article 1311, Civil Code)
c. One example of a pledge created by operation of law is the right of the depositary to
retain the thing deposited until the depositor shall have paid him whatever may be
due to the depositary by reason of the deposit. (1994) Another is the right of the
agent to retain the thing which is the object of the agency until the principal
RJTS

reimburses him the expenses incurred in the execution of the agency. (Article 1914,
Civil Code)

20. 2015
A lawyer was given an authority by means of a Special Power of Attorney by his client to sell a
parcel of land for the amount of P3 Million. Since the client owed the lawyer Pl Million in
attorney's fees in a prior case he handled, the client agreed that if the property is sold, the
lawyer was entitled to get 5% agent's fee plus Pl Million as payment for his unpaid attorney's
fees. The client, however, subsequently found a buyer of his own who was willing to buy the
property for a higher amount.

Can the client unilaterally the rescind authority he gave in favor of his lawyer? Why or why not?
(4%)

Suggested Answer:

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