BAR Q & A (AGENCY)

1. AGENCY COUPLED WITH INTEREST: ART. 1927

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, i. e., 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.

2. GUARANTEE COMMISSION AGENT: ART. 1907

2. 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)

3. AGENCY COUCHED IN GENERAL TERMS: ART. 1887

Alex as principal, appointed Bert as his agent granting him general and unlimited
management over Alex’s properties, stating that Alex withholds no power from
Bert and that the agent may execute such acts that he may consider appropriate.
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Bert proceeded to do the following while Alex was confined at a hospital for
illness:

a. Bert leased Alex’s parcel of land in Manila to Charlie for four (4) years
at P60,000.00 per year, payable annually in advance.

b. Bert leased another parcel of land of Alex in Caloocan City to Dante

without a fixed tern at P3,000.00 a month payable monthly.

c. Bert sold to Ernie a third parcel of land belonging to Alex located in

Quezon City for three times the price that was listed in the inventory by
Alex to Bert.

State whether the above contracts are valid and binding upon Alex, the principal.
Explain your answers.

ANSWER:

The agency couched in general terms comprises only acts of administration (Art.
1887). Thus,

a. The lease contract on the Manila parcel is not valid, binding nor
enforceable against Alex. For Bert to lease the property to Charlie, for
more than one year, he must have a special power of attorney (Art.
1878).

b. The lease on the Caloocan property to Dante is valid and binding upon
Alex. Since the lease is without a fixed term, it is understood to be from
month to month, since it is payable monthly.

c. The sale of the Q.C. lot to Ernie is neither valid nor binding on Alex. A
special power of attorney is required in order to validly sell land. (Art.
1874)

3. AGENCY BY ESTOPPEL: ART. 1911

Ferdie allowed Gary to call himself the managing agent of his restaurant, and
during Ferdie’s prolonged absences, permitted Gary to manage his business,
including the purchasing of reasonable quantities of supplies for the restaurant as
might be necessary in carrying the restaurant business.

Is Ferdie and/or his restaurant liable for the payment of the supplies bought by
Gary. Explain your answer.
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ANSWER:

Yes, Ferdie is liable for the supplies bought by Gary. Through his actions, Ferdie
clothed Gary with apparent authority as his agent, and held him out as such to
the public. Ferdie cannot be permitted to deny the authority of Gary as his agent,
to the prejudice of the suppliers of goods to his restaurant, who dealt with Gary in
good faith, and in the honest belief that Gary is what he appears to be.

4. AGENCY WITH UNDISCLOSED PRINCIPAL: ART. 1883

Carlos executed a Special Power of Attorney authorizing Eduardo to obtain a

loan from any bank and to mortgage his property as security for the loan.
Eduardo obtained a loan from the Rural Bank of Tarlac signing his name as the
borrower, with the loan secured by the property of Carlos. Eduardo also signed
the real estate mortgage as mortgagor and not as attorney-in-fact of Carlos.

If Eduardo defaults on the loan, may the bank foreclose on the mortgage?
Justify your answer.

ANSWER:

The Bank may not foreclose on the mortgage because the property of Carlos is
hot liable for the debt.. Since Eduardo did not specify that he was acting for
Carlos in the transaction with the bank, Eduardo in effect acted in his 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”.
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5. UNAUTHORIZED CONTRACTS: ART. 1898, 1900

4.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 nor 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:

Considering that Prime Realty Corporation only “told” Nestor that he could not
receive nor collect payments, it appears that the limitation does not appear in his
written authority or power of attorney. In this case, Jesus, is not required to go
beyond the terms of the written authority and Nestor’s acts of collecting
payments is deemed to have been performed within the scope of his authority.

Art. 1900 of the 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.

Hence, Prime Realty, the principal is liable.

6. POWER OF AGENT TO APPOINT A SUB-AGENT: ART. 1892. 1893

5.X appoints Y as his agent to sell his products in Cebu City. Can Y appoint a su
b-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.
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7. AGENCY COUPLED WITH INTEREST: ART. 1927

Joe Miguel, a well-known treasure hunter in Mindanao, executed a Special

Power of Attorney (SPA) appointing his nephew, John Paul, as his attorney-in-
fact. John Paul was given the power to deal with treasure-hunting activities on
Joe Miguel’s land and to file charges against those who may enter it without the
latter’s authority. Joe Miguel agreed to give John Paul forty percent (40%) of the
treasure that may be found on the land. Thereafter, John Paul filed a case for
damages and injunction against Lilo for illegally entering Joe Miguel’s land.
Subsequently, he hired the legal services of Atty. Audrey agreeing to give the
latter thirty percent (30%) of Joe Miguel’s share in whatever treasure that may be
found in the land.

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

Is the revocation proper? (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 1927).

In the case at bar, the agency may be deemed an agency coupled with an
interest not only because of the fact that John Paul expects to receive 40% of
whatever treasure may be found but also because he also contracted the
services of a lawyer pursuant to his mandate under the contract of agency and
he therefore stands to be liable to the lawyer whose services he has contracted.
(Sevilla v. Tourist World Service, G.R. No. L41182-3 April 16, 1988)