AGENCY

Q: 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? (2000
BAR)

A: 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.

Q: 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. (2003 BAR)

A: Yes, there was a nominate contract. On the assumption that Aissa accepted the
request of her close friend Jo-Ann to buy some groceries for her in the
supermarket, what they entered into was the nominate contract of Agency. Art.
1898 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.
Q: 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. (1992 BAR)

A: The agency couched in general terms comprised only acts of administration (Art.
1877). 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). 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). 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). The sale of the land at a very good price does not cure the
defect of the contract arising from lack of authority.

Q: 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. (2004 BAR)

A: 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.
11; Agency
2003 No V
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. 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).
11; Agency
2004 No. IV
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%)
11; Agency; agency vs
sale 2000 No XVIII
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.
11; Agency; appointment of sub-
agent 1999 No XV.
(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%)
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.
11; Agency; authority to sell does not include authority to collect
2004 No. VI
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%)
11; Agency; commission
1978 No. VII-b
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.
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.)
11; Agency; coupled with an
interest 2001 No XV
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%)
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.
11; Agency; coupled with an
interest 1980 No. VIII
(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?
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.)
11; Agency; coupled with an
interest 1979 No. XVI
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?
Answer
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.
11; Agency; general vs special
agency 1992 No 8:
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,
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
11; Agency; liability of an
agent 1975 No. XIV
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.
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)
11; Agency; liability of an agent to render an
account 1981 No. 15
"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,
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 — Vol. 11, p. 512,}
11; Agency; powers of the
agent 1994 No. 18:
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?
Alternative 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).
11; Agency; termination; death or principal: double
sales 1988 No. 13:
(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?
Answer:
(b) (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):
(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,"
11; Agency; termination; effect of death of
agent 1997 No. 17:
Stating briefly the thesis to support your answer to each of the following cases, will
the death - (c) of an agent end an agency?
 Answer:
(c) Yes. The death of an agent extinguishes the agency, by express
provision of par. 3, Art 1919 of the Civil Code.

Agency; Sale of a Real Property through an Agent (2010)

No.XVI. 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:

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.