AGENCY Notes * Nos.

4 and 5 included in the Rallos enumeration should not be understood to be essential

elements for the perfection and validity of the contract of agency, for indeed they are matters that
Article 1868 do not go into perfection, but rather into the performance stage of the agency relationship. The
By the contract of agency a person binds himself to render some service or to do something in non-existence of the two purported essential elements (i.e., that the agent acted for herself and/or the
representation or on behalf of another, with the consent or authority of the latter. agent acted beyond the scope of her authority), does not affect the validity of the existing agency
relationship, but rather the legality of the contracts entered into by the agent on behalf of the principal.
- Article defines contract of agency
- Agency – a fiduciary relationship which implies a power in an agent to contract with a third Characteristics of a contract of agency
person on behalf of a principal 1. Consensual – based on agreement of parties, perfected by mere consent
a) Has the power to effect the principal’s contractual relations with third persons 2. Principal – can stand by itself w/out need of another contract
b) Relates to commercial or business transactions; may also arise in non-business 3. Nominate – has its own name
situations 4. Unilateral – if gratuitous because it creates obligations for only one party
c) Governing law: New Civil Code 4.5 Bilateral – if for compensation; it gives rise to reciprocal rights and obligations
- The nature of an agency is a contract and should be defined from the viewpoint of a contract. 5. Preparatory – agency is entered into as a means to an end (creation of other transactions or
- The State is responsible in like manner when it acts through a special agent. contracts)
a) Except when the damage has been caused by the official to whom the task done 6. Fiduciary – based on trust and confidence
properly pertains – Art. 2180 par. 6 of NCC is applicable) 7. Representative relation
Essential Elements of an Agency 8. Generally onerous

1. There is consent, express or implied, of the parties to establish relationship of agency Parties in an Agency
2. The object is the execution of a juridical act in relation to third persons 1. Principal – party represented by the agent; agent derives his authority from the principal
3. Agency must be for consideration 2. Agent – party who represents the principal. He stands for another
4. The agent acts as a representative and not for himself 3. Sub-agent – he is the agent of the agent, parties may stipulate prohibition of a sub-agent.
5. The agents acts within the scope of his authority
6. Parties must be competent to acts as principal and agent Nature, basis and purpose of agency

* Nos. 1-3 is elements for perfection of contract of agency in relation to Art. 1318 1. Nature
a) Manifestation of consent
* In Rallos, the element of consideration in every contract of agency was not included. Under Article
 Principal must intend that the agent shall act for him
1875 of the Civil Code, every agency is presumed to be for compensation, unless there is proof to the
 Agent must intend to accept the authority and act on it
contrary. In other words, it is clear that there can be a valid agency contract which is supported by
 Such intention may be found in words or conduct
consideration of liberality on the part of the agent; that although agency contracts are primarily
b) Agent, by legal fiction, becomes principal
onerous, they may also be constituted as gratuitous contracts. The value that Article 1875 of the Civil
o Agent becomes authorized to perform all acts which the latter would have him do
Code brings into the Law on Agency is that the presumption is that every agency contract entered
into is for valuable consideration—that the agency serves for the benefit of the principal expecting to o This relationship can only be effected with consent or authority of the principal
be compensated for his efforts. It is the party who avers that the agency was gratuitous—that the agent c) Presence/absence of contract or consideration
agreed to serve gratuitously. o Relationship may be created by operation of law
o A person who acts for a principal may do so gratuitously
 o In governmental functions, local government or municipal corporations acts as
agents of the sovereign state
Agency vs Partnership
2. Basis – representation; agent renders some service or does something “in representation or on
behalf of another Agency Partnership
a) Personal contract of representation Agent acts for the principal Partner acts for himself, for the firm, and for his
a) Agency is a personal contract of representation based on trust and confidence co-partners
reposed by the principal on his agent A branch of law on agency
b) It is generally revocable (Article 1920,1927)
b) Acts of agents, by legal fiction, acts of principal
o Acts of the agent on behalf of the principal within the scope of his authority produce Agency vs Lease
same legal and binding effect as if they were personally done by the principal
Agency Lease of Property
o Actual or real absence of the principal is converted to his legal or juridical presence
Agent is under the control of the principal Lessee is not under the control of lessor
3. Purpose Agent binds the principal Lessee does not bind the lessor
a) Extend the personality of the principal thru facility of the agent to render some service or Subject of contract may be things other than Subject of contract is only property
do something property
o Legally extended by permitting him to be constructively present in many different
places and to perform diverse juridical acts, carry on many activities thru another
o Business enterprises are organized as corporations which only act through agents Agency vs Lease of Services

Creation of agency relationship Agency Lease of Services

Agent represents the principals from whom he Worker does not represent his employer
- No formalities required for its creation derives his power or authority
- A person may express consent to the agency by – Agent exercises discretionary powers Worker does ministerial functions as instructed
a) contract (oral or writing) (Article 1868) by the lessee an accordance with desired result
b) conduct (Art. 1869) of work
c) ratification (Art. 1910) Terminable at the will of the parties or either of Terminated only at the will of both parties
d) presumption or operation of law (i.e partners in a partnership) one
Three (3) Parties involved: principal, agent, Two (2) parties involved: Worker/Lessor and
Capacity of the Principal and Agent third person Employer/Lessee

- Suffices that principal is capacitated to enter into the contract

- Agent assumes no personal liability in the transaction, unless they act beyond their scope of Agency vs Negotiorum Gestio
authority
Agency Negotiorum Gestio
- Agent is at least required to be competent to perform acts on behalf of principal.
There is meeting of minds b/w parties No meeting of minds
Agent is under control of principal Officious manager acts accdg. to his sound
discretion
Created by agreement of the parties Created by law so that no one is enriched at
expense of another
 i. Agency couched in general terms – comprises only acts of administration
ii. Agency couched in specific terms – comprises acts of dominion or ownership and which
Agency vs Trust needs a special power of attorney to bind the principal
Agency Trust (d) As to Manner of Appointment
Arises from contract May be generated by: contract or not, by law i. Direct – principal has appointed the agent directly
Agent holds no title over the property Trustee may hold title to the property ii. Indirect – appointment is through another person (i.e Article 381)
May be revoked anytime Terminated upon the accomplishment of the * Art. 381 (for reference)
purpose for which it was formed or established When a person disappears from his domicile, his whereabouts being unknown, and
May not involve property Involves control of property without leaving an agent to administer his property, the judge, at the instance of an
interested party, a relative, or a friend, may appoint a person to represent him in all that
may be necessary.
Article 1869
Form required in a contract of Agency
Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or
his failure to repudiate the agency, knowing that another person is acting on his behalf without - May be in writing or verbal
authority. - If in writing, may be private or public

Agency may be oral, unless the law requires a specific form. “For and in our behalf”

Classes of Agency under this Article - Does not necessarily establish an agency if the intention of the parties show otherwise

(a) Express – agent is actually clothed by principal with authority Article 1870
 Oral or verbal
Acceptance by the agent may also be express or implied from his acts which carry out the agency, or
 In writing
from his silence or inaction according to the circumstances.
(b) Implied – agency created is deduced from
 Acts or conduct of the principal Acceptance
 Silence or lack of action
 Failure to repudiate the agency - If a person decides to accept the agency, acceptance may be express or implied.
- In the above cases, principal knows that a person is acting on his own behalf w/out express - It may be implied from:
authority a) Acts of the agent which carry out the agency
b) His silence or inaction
Other Kinds of Agencies - When implied acceptance is from silence, two situations:
a) Persons are present (Art. 1871)
(a) As to Nature
b) Persons are absent (Art. 1872)
i. Conventional – created by agreement of the parties
ii. Legal – formed by operation of law (i.e partners in a partnership) Article 1871
(b) As to Extent of Transaction Covered
i. General – comprises all transactions of the principal Between persons who are present, the acceptance of the agency may also be implied if the principal
ii. Special – comprises one or more specific transactions delivers his power of attorney to the agent and the latter receives it without any objection.
(c) As to Management
Power of Attorney delivered by principal to agent personally delivered. There is
transmission by messenger or
- Definition: Instrument in writing; one person appoints another as his agent and confers by letter or telephone
authority to perform certain specified acts or kinds of acts in behalf of the principal
- Purpose: Evidence the authority of the agent to third parties with whom the agent deals
a) Person holding a power of attorney is shown and designated as an attorney in fact as Acceptance of Agency is Not Compulsory
distinguished from an attorney at law
- If agent refuses or declines appointment, he must react immediately
- It does not need to be notarized in order to be valid
- Agent’s immediate reaction is necessary so that his silence may not be interpreted as
Implied Agency b/w Persons who are Personally Present acceptance

- Principal delivers his power of attorney to the agent and the latter receives it without objection
- Agent received the appointment w/out comment, neither is there any objection
- Silence of the person appointed as an agent under Art. 1871, there is an implied agency b/w
persons who are present
Article 1872
Article 1873
If a person specially informs another or states by public advertisement that he has given a power of
attorney to a third person, the latter thereby becomes a 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.

Between persons who are absent, the acceptance of the agency cannot be implied from the silence of The power shall continue to be in full force until the notice is rescinded in the same manner in which it
the agent, except: was given.

(1) When the principal transmits his power of attorney to the agent, who receives it without any
objection;
(2) When the principal entrusts to him by letter or telegram a power of attorney with respect to the
business in which he is habitually engaged as an agent, and he did not reply to the letter or telegram.
Effects of Special Information
- If a person specifically informs another person that he has given power of attorney to a third
person and the recipient contracted with the third person. Latter becomes an agent of the
informant who now becomes liable as a principal.

- Said article applies only when persons involved are both absent Effect of Public Advertisement
- Article provides two (2) exceptions where silence means acceptance:
- A person by public advertisement states that he has given a power of attorney to a third person
1. Principal transmits the written power of attorney to the agent. Agent receives
and another person relying on the advertisement in good faith contracted with third persons.
authority but proffered no objection
Latter becomes the agent of the advertiser who in turn becomes the principal
2. Principal, through letter or telegram, entrusts a power of attorney to the “agent”
empowering him to transact business on which he is habitually engaged as an agent, Manner of Termination of Rescission of Agency
but did not reply to said letter or telegram.
- If Agency is created under Art. 1873, it shall continue to exist and be effective until notice
Article 1871 vs Article 1872 had been rescinded in the same manner in which it was given.
Basis Article 1871 Article 1872 Implied Agency vs. Agency by Estoppel
Condition of Creation When created, both principal When created, both principal
and agent are present and agent are absent Implied Agency Agency by Estoppel
Manner of Delivery Power of attorney is personally Power of attorney not There is actual agency. He has rights and duties No actual agency. Has no rights and duties as an
 as an agent agent (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following
Principal is liable alone, not the agent If caused by the principal, he alone is cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or
responsible memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
If caused by the agent, he alone is responsible therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
(Note: third person must have acted in good contents:
faith)
xxx

 Agency By Estoppel (e) An agreement of the leasing for a longer period than one year, or for the sale of real property or
o Where the conduct of the principal causes the third party reasonably and in good of an interest therein;
faith to believe that the agent has authority to act on behalf of the principal and
the agent is acting within the scope of that authority, the principal may not invoke
against the third party the lack of authority of the agent. Article 1875
Article 1874 Agency is presumed to be for a compensation, unless there is proof to the contrary.
When a sale of a piece of land or any interest therein is through an agent, the authority of the latter - Under new law, agency is presumed to be for compensation; but presumption is rebuttable
shall be in writing; otherwise, the sale shall be void. - When service rendered is undertaken to be gratuitous, the law does not raise an implied
promise to pay
- Article applies only to the sale of a piece of land or any interest therein
- An agent is entitled to compensation only after he has completely or substantially
Sale is Effected by: completed his obligation as an agent
- Right of broker to commission arises from conclusion of transaction
(a) Owner himself  By stipulation, compensation may be contingent or dependent upon realization of
(b) Through an agent of the owner profit for the principal
 In absence of specific agreement, the agent is entitled to receive compensation on
quantum meruit basis
Article 1874 vs 1403(2) par. (e)  *quantum meruit - a reasonable sum of money to be paid for services
rendered or work done when the amount due is not stipulated in a legally
Article 1874 Article 1403(2) par. (e) enforceable contract.
If sale of a piece of land is thru agent and not in If sale or interest therein is not made in writing,
 Transaction need not only be perfected but also consummated to justify broker’s or
writing, sale is void. contract is unenforceable
agent’s commission
Contract is not subject to ratification Contract is subject to ratification  An unsuccessful broker is not entitled to commission
 For broker to succeed in a suit for his commission, he must show that he
had been able to find a buyer, ready, willing and able to buy at the price
* Art. 1403(2) par. (e) (for reference) dictated by the principal
 Preparation of Documents is part of functions of a broker
The following contracts are unenforceable, unless they are ratified:

xxx
- If Agent’s labor had set in motion the intervention of the third party that produced the sale, The contracting parties may establish such stipulations, clauses, terms and conditions as
there is close proximate and reasonable causal connection between the agent’s efforts and they may deem convenient provided they are not contrary to law, morals, good customs,
labor and the principal’s sale of his property; in which case he must be paid. public order, or public policy.
- Receipt of Commission does not necessarily mean one is an Agent
- Agent Or Broker cannot be deprived of agreed commission by the principal by the latter, - Agent’s Commission is generally paid by party represented by the agent.
dealing directly with the buyer  By agreement, it can be paid by both or either party
 Cancellation of the written authority she had originally given the agents, believing  In absence of agreement, it is owner of the property sold who must pay agent’s
that she could evade payment of their commission. Afterwards, sold the property to commission
the buyer found by the agents.
 Principal’s act is unfair as would amount to bad faith, and cannot be - Broker vs Agent
sanctioned without according to the agents the rewards which is due them Broker Agent
- Agency cannot be revoked after the agent consummated the transaction Negotiator b/w the parties; does not act in his Acting in the name of his principal and equipped
 To deprive agent of his commission subsequent to the sale which was consummated own name w/ power of attorney signed by latter
thru his efforts would be a breach of his contract of agency Agent of both parties Represents only one party as a rule
- Double Agency
 Agent acting simultaneously for both the seller and the buyer is exercising double
agency Article 1876
 Agent is not entitled to compensation An agency is either general or special.
 Double agency is improper; UNLESS:
 Agent is acting w/ full knowledge and consent of principal parties The former comprises all the business of the principal. The latter, one or more specific transactions.
 His task is merely bringing the parties together to an agreement
- General Agency
- When no time is fixed for continuance of contract in its terms, either party is at liberty to
terminate it at will, subject only to the ordinary requirements of good faith  All business of the principal is covered
 Right of principal to terminate his authority is absolute and unrestricted, except  General agent is usually authorized to do all acts connected with the business or
that he may not do it in bad faith and as a mere device to escape payment of employment in which he is engaged
agent’s or broker’s commission  He has authority expressly conferred in general terms or in effect made general by
 Fraud and bad faith are to be alleged with sufficient facts. the usages, customs or nature of the business which he is authorized to transact
- Exclusive Sales Agency  Agent is empowered to transact all the business of his principal of a particular kind
 Seller may grant the agent exclusive sales agency indefinitely or within a limited or in a particular place
period - Special Agency
 They may agree that should property be sold by seller to a third person or a person  Only one or more specific transactions are covered in the authority of the agent
submitted by the agent even without further aid of the agent, latter is entitled to a  An agent is authorized to do only one or more specific acts in pursuance of particular
commission; authorized under Art. 1306. instructions with restrictions necessarily implied from the act to be done
- Universal Agency
*Art. 1306 (for reference)  Agent is authorized to do all acts for his principal which can lawfully be delegated to
an agent; agent has universal authority
Article 1877
An agency couched in general terms comprises only acts of administration, even if the principal
should state that he withholds no power or that the agent may execute such acts as he may consider
appropriate, or even though the agency should authorize a general and unlimited management.
- Agency Couched In General Terms
 Covers only act of administration
 Permits the agent to do all acts for which the law does not require a specific power
 Article 1878 enumerates transactions where specific power is needed to
bind the principal
 Even if principal stated in the special power of authority that he withholds no power
to the agent or that the latter may execute such acts as he may consider
appropriate, or that he is given general and unlimited management, only acts of
administration are authorized to be done.
 EXCEPTION:
 With respect to the power of a managing partner in a
partnership, he may perform acts affecting ownership if the same
are necessary to promote or accomplish a declared object of the
partnership
 Otherwise, he is not allowed, though he is a managing partner
Article 1878
Special powers of attorney are necessary in the following cases:
(1) To make such payments as are not usually considered as acts of administration;
(2) To effect novations which put an end to obligations already in existence at the time the agency was
constituted;
(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 abandon a prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired
either gratuitously or for a valuable consideration;
(6) To make gifts, except customary ones for charity or those made to employees 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;
(8) To lease any real property to another person for more than one year;
(9) To bind the principal to render some service without compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the agency;
(15) Any other act of strict dominion.
Notes:
- A power of attorney is valid although no notary public intervened in its execution
- Article 1878 does not state that the special authority be in writing. Be that as it may, the same
must be duly established by evidence other than self-serving assertion of the party claiming
that such authority was verbally given to him.
- A notarized power of attorney, however, carries evidentiary wait conferred up on it with
respect to its due execution
- A power of attorney must express the powers of the agent in clear and unmistakable language.
When there is any reasonable doubt that the language so use conveys such power, no such
construction shall be given to the document
Special Power of Attorney
- Authority granted by the principal to the agent where the act for which it is drawn is expressly
mentioned
General Power of Attorney
- Authority granted to the agent to do all acts of a particular character
* Special Power can be included in a general power – either by:
 Giving authority for all acts of a particular character or;
 Specifying therein the act or transaction for which a special power is needed
Principle Followed in Article 1878
- Express power is necessary to perform any act of strict ownership
- General power permits the agent to do all acts for which the law does not require a special
power.
- Present article enumerates acts which require a special power
Fifteen Acts Necessitating Special Power of Attorney for Validity and Reasons thereof
1. To make such payments as are not usually considered as acts of administration
 Payment - Is the delivery of money or the performance in any other manner of an
obligation. It is an act of ownership because it involves the convenience of
ownership of money or property
 Transmission of ownership by payment is an act of ownership, not an act of
administration
 Payments made in the ordinary course of management are merely acts of
administration and are thus included in agency couched in general terms
2. To effect novations which put an end to obligations already in existence at the time the
agency was constituted
 Subsisting obligations of a principal arising from the agency cannot be modified
w/out a special power executed by principal in favor of agent
 Under Article 1291, obligations may be modified by:
 Changing their object or principal conditions
 Substituting the person of the debtor
 Subrogating a third person in the rights of the creditor
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 abandon a prescription already acquired
o Compromise – contract whereby parties, to avoid litigation or terminate a pending one, make
reciprocal concessions.
o Arbitration – parties submit their controversies to one or more arbitrators for decision
o Confession of judgment - stands on the same footing as compromise of causes; so a council
may not confess judgment except with the knowledge and at the instance of the client.
o A judgment based on a compromise entered into by an attorney without specific authority
from the client is null and void.
 Such judgment may be impugned and its execution restrained in any proceeding by
the party against whom it is supposed to be enforced.
o Although the law expressly requires a special power of attorney in order that one may
compromise an interest of another, it is neither accurate nor correct to conclude that its
absence renders the compromise agreement void.
 In such a case of compromise is merely unenforceable
o To compromise and to submit to arbitration are in effect acts of alienation
o A special power to compromise does not authorize submission to arbitration
o An agent cannot waive:
 Right to appeal from a judgment
 Objections venue of an action
 Prescription already acquired by the principal
4. To waive any obligation gratuitously
o Agent cannot waive such credit gratuitously; that will constitute remission or condonation
o Express condonation shall comply with the forms of donation (Article 1270 last par.)
* Art. 1270 last par. (for reference)
xxx
One and the other kind shall be subject to the rules which govern inofficious donations.
Express condonation shall, furthermore, comply with the forms of donation.
o Such waiver is an act of ownership
o A waiver may not be inferred when the terms thereof do not explicitly and clearly prove an
intent to abandon the right
5. To enter into any contract by which the ownership of an immovable is transmitted or acquired
either gratuitously or for a valuable consideration
o Conveyance of an immovable, for valuable consideration or gratuitously is an act of
ownership not an act of administration
6. To make gifts, except customary ones for charity or those made to employees in the business
managed by the agent
o Gifts are donations
 o Donation – an act of liberality whereby a person disposes of a thing or right in favor of
another who accepts it
o It is a gratuitous conveyance of property; an act of ownership
o EXCEPTION:
o Gifts which are customary for charity or given to employees 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
o In a loan of money, the borrower is bound to pay to the creditor an equal amount the same
kind and quality
o Agent may abuse act of loaning money or funds of principal; a special power of attorney is
necessary to control this act; it is an act of ownership
o If the agent loans money w/out special power of attorney, the loan will not be binding to
the principal
o Same principle applies in borrowing money
o Rule is that agent cannot borrow money w/out special power except when funds are necessary
or indispensable for the preservation of the property being administered by agent.
o A special power of attorney to mortgage does not include power to contract loan for the
principal
8. To lease any real property to another person for more than one year
o In the lease of things, the lessor gives to the lessee the enjoyment or use of a thing for a price
certain, and for a period, which may be definite or indefinite
o Special power of attorney is important because a lease of more than one (1) year creates a
real right.
* Real rights (also known as jus in re or jus in rem) are those enforceable against the
whole world.
o To bind the principal, agent must be possessed with special power
o If lease is not more than 1 year, it is only an act of administration
o Principal is lessor
o The requirement of special power of attorney extends to renewal or extension of lease of real
property to another
9. To bind the principal to render some service w/out compensation
o If agent does so w/out special power of attorney, it is tantamount to involuntary servitude
against the principal
10. To bind the principal in a contract of partnership
o An agent cannot bind the principal in a contract of partnership w/out special power for that
will mean binding his principal to contribute money, property or industry to the
partnership
o This is an act of ownership
11. To obligate the principal as a guarantor or surety
o Guaranty – guarantor binds himself to the creditor to fulfill the obligation of the principal
debtor in case latter should fail to do so (Art. 2047) It is an act of ownership.
o Suretyship - surety binds himself solidarily with the principal debtor; creditor can make surety
primarily liable for debt of principal debtor. It is an act of strict ownership.
o A contract of guaranty is unenforceable unless it is made in writing
12. To create or convey real rights over immovable property
o Agent cannot create real rights (i.e usufruct. Mortgage etc) over immovable property of his
principal w/out special power of attorney
o This is an act of strict ownership
o As a general rule, every person dealing with registered land may safely rely on the correctness
of the certificate of title without the need of inquiring further in the absence of suspicious
facts and circumstances to induce a reasonably prudent man to investigate the title of the
vendor.
o This protection is not extended to purchaser who is not dealing with the registered
owner of the property. The law requires that the higher degree of prudence be
exercised by the purchaser. If he made no inquiry, his ignorance of the agent’s
authority will not be excused
13. To accept or repudiate an inheritance
o An hereditary heir (not inchoate) has right to accept or repudiate his inheritance.
o Both acts are acts of strict ownership
14. To ratify or recognize obligations connected before the agency
 o Agent cannot ratify or recognize obligations for the principal which were contracted before
the agency
o This is an act of ownership.
15. Any other act of strict dominion
o All acts of strict dominion not mentioned in the previous numbers enumerated are mere acts
of administration, thus not included in said article and can be executed w/out special power of
attorney
Article 1879
A special power to sell excludes the power to mortgage; and a special power to mortgage does not
include the power to sell.
- Both power to sell and power to mortgage require special power of attorney to bind the
principal
- The power to sell does not confer upon agent power to mortgage
- If agent executes mortgage on property of principal w/out his express authority, agent is
personally liable for consequences
Article 1880
A special power to compromise does not authorize submission to arbitration.
- While principal may have trust and confidence in judgment of his agent, he may not have the
same trust and confidence on the designated arbitrators
- EXCEPTION:
 If equipped w/ special power of attorney to arbitrate, arbitral award binds the
principal provided the agent acted within the scope of his authority
 If principal designated arbitrators, agent has no authority to submit the matter to
other arbitrators
- Coverage of Special Power to Compromise
 Special power of attorney required to authorize agent to compromise (Article 1878,
par. 3)
 General Rule: Agent authorized to compromise can do anything which principal
may do to effect a settlement of a certain controversy or matter
 However, if there is contrary legal provision, latter will be the exception as
in the instant article where submission to arbitration is expressly taken out
of the agent’s authority to compromise
 Reason: Agent may have trust and confidence of principal but not the
designated arbitrators
- Submission to Arbitration
 There must be special power of attorney
 Agent can bind principal to arbitral awards as long as agent acted within
scope of his authority
 If principal has designated arbitrators, agent cannot submit matter in
controversy to other arbitrators
Article 1881
The agent must act within the scope of his authority. He may do such acts as may be conducive to the
accomplishment of the purpose of the agency.
- “Within the Scope of Authority”
 Power of the agent to act within the scope of his assignment on behalf of his
principal with binding effect on the latter
- Kinds of Authority
 Actual — When it is actually granted, and it may be expressed or implied.
 Express – specifically defined (writing or oral)
 Implied – its performance is deemed included in an express power or is necessary to
the accomplishment of the purpose of the agency
 Apparent or ostensible — When it is conferred by words, conduct or even by the
silence of the principal which causes a third person to reasonably to believe that a
particular person, who may or may not be the principla’s agent, has actual authority
to act for the principal.
 General — when it refers to the business of the principal.
 Special — when it is limited only do one or more specific transactions
 Emergency or authority by necessity or by operation of law — when it is demanded
by necessity or by virtue of the existence of an emergency, or unexpected situation
that requires prompt action by the agent, and the principal cannot be reached in
sufficient time for advice or instruction.
- Authority vs Power
 Authority is the cause; power is the effect
 Authority springs from principal and is delegated to agent
  Agent is then empowered to perform the act authorized by principal
- Attorney-In-Fact
 Agency reduced into writing; may be a special power of attorney or general power of
attorney
 Not necessarily a lawyer
 Attorney-at-law are agents but their agency is a special one and of limited character
 Notice to attorney = notice to client but not vice-versa
 Judicial notice sent to client represented by counsel is not notice in law
- Two (2) Basic Principles in Agency
1. Agent must act within the scope of his authority
2. Agent must act in behalf of his principal and not on his own behalf
 If agent, acting on behalf of principal, acted in bad faith in purchasing
property = principal also acted in bad faith
- Possible Irregularities in Agency
1. Agent has authority but acts on behalf of himself
 Agent can have recourse only against third person and vice versa
 Principal and third person, no recourse against each other unless thing
subject of the transaction belongs to principal (Art. 1883, 2nd par.)
2. Supposed agent has no authority but acts on behalf of another
 Transaction is unauthorized and unenforceable
 Only supposed agent is bound
 Unless “principal” ratifies the representation of supposed agent
 Ratification will excuse “agent” from responsibility, now shifted
to “principal”
3. Supposed agent has no authority and acts on his own name
 In sale transaction, the same is valid if “agent” can transfer ownership of the
thing at the time of delivery and “agent” is the only one bound
- Agency by Necessity
 If there is an emergency to meet, authority of the agent is expanded to cover the
exigencies of the moment
 Requisites of Agency by Necessity
 Emergency actually exists
 Agent cannot timely communicate with the principal
 Exercise of the additional authority is for principal’s own protection
 Adoption of reasonable means to cope with situation
 Stoppage of the authority from moment emergency ceases
- Apparent or Ostensible Authority
 This specific type of authority is another name for authority by estoppel or a species
of a doctrine of estoppel. It is also an implied authority but only in the sense that it is
not expressly conferred.
 The apparent authority of an agent can only arise by the acts or conduct of the
principal giving rise to an appearance of authority and making the principal
responsible for certain agent’s action that were not really authorized at all
 For apparent authority, an agent has authority if it appeared reasonable from the
point of view of a third party, while in the case of implied authority, the concern is in
what appeared reasonable to the agent. Apparent authority is the term used where no
express or implied authority is present.
 The principal’s liability is limited only to third persons who, in good faith, believe
that actual authority exists. It does not apply if the principal did not commit any act
or conduct which a third party relied upon in good faith
- Special Prohibited Acts of Agency
 Agent is prohibited from buying, property entrusted to him by principal for sale or
administration w/out consent of principal (Art. 1491, par. 2)
 Agent cannot be lessee of said property (Art. 1646)
 Agent cannot be mortgagee of principal’s property
- Liability of the Principal for Acts of the Agent Beyond his Authority or Power
 General Rule: The principal is not bound by the act of the agent beyond his limited
powers. In other words, other persons dealing with an agent do so at their risk and
are bound to inquire as to the scope of the agent’s powers
 Exceptions (Where Principal is held liable)
 Where are the principal’s acts have contributed to deceive a third person in
good faith
 Where the limitations upon the power created by him could not have been
known to the person
 Where the principal has placed in the hands of the agent instruments signed
by him in blank
 When the principal has ratified the act of the agent
- Liability of the Agent for Acts Beyond his Authority or Power
 The agent to exceed his powers is personally liable either to the principal or to third
party in the absence of ratification by the principal
 If the principal is liable to the third party on the ground apparent authority,
the agent’s liability is to the principal
 If the principal is not liable to the third person because the facts are such no
apparent authority is present, then the agent’s liability is to the third party
  If the agent personally assumes responsibility for the particular transaction,
if the principal defaults he, in effect, also becomes obligated as co-principal
Article 1882
The limits of the agent's authority shall not be considered exceeded should it have been performed in a
manner more advantageous to the principal than that specified by him.
- Although agent did not follow limits of his authority, if his performance of the agency proved
more advantageous to principal, performance is considered authorized.
 This is the rule of evident equity
- An administrator of a land cannot sell the land at a better price, unless he has a special
power of attorney. (Art. 1878 par.5)
- This article presupposes sufficient authority to fulfill the agency
Article 1883
If an agent acts in his own name, the principal has no right of action against the persons with whom
the agent has contracted; neither have such persons against the principal.
In such case the agent is the one directly bound in favor of the person with whom he has contracted, as
if the transaction were his own, except when the contract involves things belonging to the principal.
The provisions of this article shall be understood to be without prejudice to the actions between the
principal and agent.
- Disclosed Principal
 One who at the time of the transaction contracted by the agent, the other party
dealing with the agent has known that the agent is acting for a principal whose
identity is revealed
 The third party should look to the principal alone for liability or performance under
the contract entered by the agent. Similarly, the principal can successfully sue the
third-party of the contact
- Partially Disclosed Principal
 If the other party knows or has the reason to know that the agent is or may be acting
for a principal but is unaware of the principal’s identity.
 Here, the agency is disclosed but the principal is undisclosed.
 The partially disclosed principal may enforce against the third person the contract of
the agent like any disclosed principal. Similarly, the third person has a right of action
against the principal
 The liability of the third party and the principal is the same as in the case of a
disclosed principal, except that the agent is also liable to the third party, unless they
agree otherwise
 The reason for the agent’s liability is that the third party necessarily relied on the
agent’s credit and not that of the principal whose identity is unrevealed
- Undisclosed Principal
 One whom the other party dealing with the agent has no notice of the fact that said
agent is acting for a principal
- Agent is personally liable under this Article because:
 When the agents acts in his own name, he is not acting on behalf of principal
 Resulting contract is b/w him and third person
 Agent is personally and directly bound by the contract
 Principal has no cause of action w/ third person and vice versa
- This article applies when agent is given an authority by principal. However, agent, instead
of disclosing his principal, acted on his own name in dealing w/ third persons
- EXCEPTION TO THE ABOVE RULES:
 When the contract involves things belonging to the principal (Art. 1883 par. 2)
 Exception is present to protect third persons against possible collusions b/w agent
and principal
- Agents who made the contract in their own names, may sue or be sued by the third person,
there being no action for or against the undisclosed principal
- When Principal is disclosed, Action must be filed by or against him
- The remedy of the third person in case authority of agent is Doubtful is the inclusion of said
agent as party defendant. This is a suit against alternative defendants.
- If agent is an Assignee of the Contract, he may in his own behalf bring an action founded
on a contract made for his principal
- Remedy of an Undisclosed Principal
o Where merchandise is purchased from an agent with undisclosed principal and
without knowledge on the part of the purchaser that the vendor is merely an agents.
o Purchaser takes title to the merchandise and the principal cannot maintain an action
against him for the recovery of the merchandise or for damages but can only proceed
against the agent
o Undisclosed principal cannot sue the third person on a contract concluded by the
agent in his own name.
o Recourse is against the agent himself
OBLIGATIONS OF THE AGENT 16. To indemnify the principal for damages for his failure to collect the credits of the principal at
the time they become due and demandable; and 
Specific Obligations of an Agent
17. To be responsible for fraud or negligence
1. To carry out the agency which he has accepted; 

2. To answer for damages which through his performance to principal may suffer; 

3. To finish the business already begun on the death of the principal should delay entail any
danger;  Article 1884

4. To observe the diligence of a good father of a family in the custody and preservation of the The agent is bound by his acceptance to carry out the agency, and is liable for the damages which,
good forwarded to him by the owner in case he declines an agency, until an agent is through his non-performance, the principal may suffer.
appointed;
He must also finish the business already begun on the death of the principal, should delay entail any
5. To advance the necessary funds should there be a stipulation to do so;  danger.

6. To act in accordance with the instructions of the principal, and in default thereof, to do all that Presumption
a good father of a family would do; 
- In the absence of proof to the contrary, the presumption arises that an agent has performed his
7. Not to carry out the agency if it’s execution would manifestly result in loss or damage to the duty in good faith, and the principal, until notice is received of a breach of relational duties,
principal;  may rely upon the agent’s faithfulness

8. To answer for damages if there being a conflict between his interest and those of the principal, Acceptance of Agency and its Effects
he shall prefer his own;
- A person is free to refuse the agency, if he refuses, he cannot be compelled to act as an agent
9. Not to loan to himself if he has been authorized to lend money at interest; - Once agent is accepted, the agent must comply with his duties
 He has obligated himself to carry out the agency having made himself an obligor of
10.  To render an account of his transactions and to delivered to the principal whatever he may
the principal.
have received by virtue of the agency; 
 If principal (as obligee) suffered damages and losses by reason of non-
11. To distinguish the goods by countermarks and to designate the merchandise respectively fulfillment of the agency, agent is liable
belonging to each principal, in the case of a commission agent who handles goods of the same  An agent must obey all lawful orders and instructions of the principal
kind and mark, which belongs to different owners;  within the scope of the agency.
 If he fails to do so, he becomes liable for any loss the principal incurs even
12. To be responsible in certain cases for the act of the substitute appointed by him;  though he can show that he acted in good faith or exercised reasonableness.
Even a gratuitous agent must follow instructions or become responsible for
13. To pay interest on funds he has applied to his own use; 
any loss resulting from failure to do so
14. To inform the principal, where an authorized sale of credit has been made, of such sale  But an agent is not liable if he violates the instructions of the
principal for a good reason
15. To bear the risk of collection, should he receive also on a sale, guarantee commission;   Article 1170 applies
* Art. 1170 (for reference)
 Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable for damages.
 If agent complied with his prestation, he is not personally liable unless he has
voluntarily bound himself
Death of the Principal Before The Accomplishment of The Agency
Stipulations That Agent Advances Necessary Funds
- Parties are allowed to agree that the expenses be advanced by the agent
- Such advances are subject to reimbursement
- Agent, however is not bound to provide funds if principal is insolvent
 Agent may not be reimbursed
- Insolvency of the principal is a ground for extinguishment of agency

- If delay in the execution of the agency will entail any danger to the subject of the agency or to
the principal
 Law directs agent to finish the transaction or business already begun on the death of
the principal
 This is the exception to general rule to death as one of causes of extinguishing
agency contract under Article 1919, No. 3
 Where the agent makes use of the power of attorney after the death of his principal,
the agent has the obligation to deliver the amount collected by him by virtue of the
said power to the administrator of the estate of the principal
Article 1885
Article 1887
In the execution of the agency, the agent shall act in accordance with the instructions of the principal.
In default thereof, he shall do all that a good father of a family would do, as required by the nature of
the business.
Instructions - Constitute the means or the orders for carrying out of the power granted to the agent
- Instructions form part of the agency but binding only b/w principal and agents
- Acting in accordance with instructions of the principal vs. Acting within scope of agent’s
authority

In case a person declines an agency, he is bound to observe the diligence of a good father of a family Instructions of the principal Within scope of agent’s authority
in the custody and preservation of the goods forwarded to him by the owner until the latter should Details of the execution of the agency General parameters or extent of agency
appoint an agent or take charge of the goods.

Mutual Obligations of the Parties Instructions vs Authority

INSTRUCTIONS
- If owner has appointed a person to be his agent and has forwarded goods to the latter whom direct the manner of transacting the authorized
he expected to accept the agency but did not business and contemplates only a private rule of
 “Agent” is required to observe ordinary diligence in the custody and preservation of guidance to the agent and are the independent
the goods until the owner has appointed an agent to take care of them and distinct in character
 Failure to do so by “agent” will render him liable for damages manner or mode of his action with respect to
- Owner has corresponding duty to appoint an agent, as soon as practicable or to take charge of matters which in their substance are within the
scope of permitted actions
the goods himself.
instructions limiting the agent’s authority are
 Unnecessary delay will exempt “agent” from liability in case of damages
without significance as against those dealing
Article 1886 with the agent with neither knowledge or notice
of them
Should there be a stipulation that the agent shall advance the necessary funds, he shall be bound to do not expected to be made known to those with
so except when the principal is insolvent. whom the agent deals.
AUTHORITY
 sum total of the powers committed or permitted
to the agent by the principal, maybe limited in
scope in such limitations are themselves a part
of the authority
relates to the subject with which the agent is
empowered to deal or the kind of business or
transaction upon which he is empowered to act
Limitations of authority are operative as against
those who have or are charged with the
knowledge of them
contemplated to be made known to the third
person dealing with the agent
 a. However, a departure cannot usually be termed ‘substantial’ in the face of the
principal’s countervailing instruction, for your principal has a right to determine
Disregard of Violation of Instructions what he will consider important.
- Agent did not carry out instructions or deviated b. But it has been said that a trivial mistake will not be held a bar to the agents clean for
 Agent is liable to third persons who dealt with him in good faith compensation.
- An agent need not follow the instructions that are outside the scope of the agency relationship Absence of Instructions
agreed-upon or that may subject him to unreasonable risk of loss, damage or injury to himself
- If the agent acts in good faith and with due care, the agent is not liable for losses due to errors - In the absence of instructions, agent shall exercise the diligence of a good father of a family
or mistakes of judgment as regards to matters with which he is vested with discretionary member of the family as required by the nature of the business or transaction
powers. It will be presumed that the agent acted in good faith and in accordance with his
powers as he understood it
Article 1888
- Accordingly, the law imposes upon him duty not to exceed the authority giving him by his
principal. However, when an agent, in executing the orders and commissions of his principal, An agent shall not carry out an agency if its execution would manifestly result in loss or damage to the
carries out the instructions he has received from his principal, and does not appear to have principal.
exceeded his authority or to have acted with negligence, deceit, or fraud, he cannot be held
liable for the failure of his principal to accomplish the object of the agency When Agency Should not Be Carried Out
 Since an agent is required to exercise only ordinary care, skill, intelligent, he is not,
- Services are for the benefit and not for the prejudice of the principal
in the absence of an agreement, an insurer of the success of his undertaking, and does
- Article directs the agent not to proceed with the agency if by doing so, loss or damage would
not guarantee the principal against incidental losses
be suffered by the principal
- The agent may disobey the principal’s instruction where it calls for the performance of illegal
- If there are no circumstances which appear to cause or generate negative consequences to the
acts, or when he is privilege to do so to protect his security interest in the subject matter of the
principal, agent is exempt from liability
agency

Where Departure from Principal's Instructions Are Justified

Article 1889
1. Where there is a sudden emergency
The agent shall be liable for damages if, there being a conflict between his interests and those of the
a. This rule is applicable only way to principal cannot be consulted and where the
principal, he should prefer his own.
circumstances cannot admit delay
2. When there is an ambiguous instructions Existence of Conflict of Interests
a. The agent will not be liable if he chooses reasonably one or two possible
interpretations. - Agent should choose protection of the interest of the principal against his own interest,
b. Where instructions are ambiguous, the agent is not chargeable with disobedience or otherwise, he will liable for damages caused to his principal
its consequences in case he makes an honest mistake and adopts a construction - Agent shall not compete with his principal concerning subject matter of agency
different from that intended by the principal - Agent cannot represent both himself and his principal in a transaction involving shifting to
3. When there is only a substantial departure from the principal’s instruction, which does not another person of the agent’s liability for a debt to the principal
affect the result - Agent authorized to sell or lease a property of the principal has not right to substitute his own
property
 Neither can he buy or lease the property for himself
 - As the law does not distinguish, the rule is the same whether the agency is onerous or - Exception: When principal gives his consent, verbal or writing
gratuitous
- The principal, however, may waive the benefit of the rule so far as he is concerned, if he does
so with full knowledge of the facts; but in the absence of such waiver, the rule is absolute. Article 1891

Where the Agent’s Interests are Superior 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.
- Where the agent’s interests are superior, such as where he has a security interest in goods of
the principal in his possession, he may protect this interest even if in doing so he disobeys the Every stipulation exempting the agent from the obligation to render an account shall be void.
principal’s orders or injures his interest. Duty to Render An Account
- An agent, to be sure, is not required to expose himself to great physical risks not within the
contemplation of the parties, or to perform services when he is ill. - Article directs every agent to render an account of his transactions and to deliver all proceeds
- On the other hand, if the conflict results from his breach of duty owed to the principal, the of the agency
agent cannot pay for his own interest - Full transparency is required because agent holds a fiduciary position
- This includes gifts from third party in connection with the agency
Remedy When Agent Wishes To Prefer His Own Interest - It is immaterial whether such money or property is the result of the performance or violation
- He must timely renounce the agency, provided his renunciation is not for the purpose of of agent’s duty, if it be the fruit of agency.
personally profiting from the transaction - If his duty be strictly performed, the resulting profit accrues to the principal as the legitimate
consequence of the relation; if profit accrues from his violation of duty when executing the
 With this, he can evade damages
agency, that likewise belongs to the principal, not only because the principal has to assume
responsibility of the transaction, but also because the agent cannot be permitted to derive
Article 1890 advantage from his own default.

If the agent has been empowered to borrow money, he may himself be the lender at the current rate of Criminal Liability of an Agent Who Refuses To Account
interest. If he has been authorized to lend money at interest, he cannot borrow it without the consent of
- An agent who refuses to tun over funds demanded of him by his principal is guilty of estafa.
the principal.
Accounting To Be Rendered Must Be True
Authority to Borrow Money
- If Agent submits an unfaithful account, principal has right to pass upon correctness thereof
- Agent is empowered to borrow money, he is allowed to be the lender
 Principal can show inaccuracy of the account
 Interest: cannot be higher than current rate of interest (12%)
- Principal will suffer no prejudice even if agent finds a third person as lender because principal No Co-Ownership is Created Even If the Commission of Agent is Not Settled
just the same will be liable to pay interest at the current rate or probably more
- Although agent is entitled to receive a commission, that fact itself would not make him a co-
Authority to Lend Money owner of the money which has been collected.
- Their relationship as principal and agent subsists
- An agent authorized to lend money of the principal is prohibited from being borrower himself
- Reason: to protect the principal Stipulation Exempting Agent From the Duty To Render An account is Void
 Agent may not be a good payer
 Conflict of interests may arise - Such stipulation is void for being contrary to public policy under Article 1306
  To rule otherwise will encourage fraud 5. When lawyer exercises his lien over the funds, documents and papers of his client he may
 It is akin to waiver of a future fraud that is void under Article 1171 retain the same until his lawful fees and disbursements have been paid

* Art. 1171 (for reference) Article 1892

 Responsibility arising from fraud is demandable in all obligations. Any waiver of an The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall
action for future fraud is void.  be responsible for the acts of the substitute:

Situations where Article 1891 is Not Applicable (1) When he was not given the power to appoint one;

1. In solutio indebiti (2) When he was given such power, but without designating the person, and the person appointed was
 Solutio indebiti applies when payment was made on the erroneous belief of facts or notoriously incompetent or insolvent.
law that such payment is due.
All acts of the substitute appointed against the prohibition of the principal shall be void.
2. If agent or broker acted only as middleman with the task of merely bringing together the
vendor and vendee - Sub-agent - A person employed or appointed by an agent as his agent, to assist him in the
3. If agent or broker had informed the principal of the gift or bonus or profit he received from performance of an act for the principle which the agent has been empowered to perform
purchaser and his principal did not object - General rule is agent may appoint a substitute or sub-agent
4. When right of lien exists in favor of the agent (Articles 1912. 1913-1914) - However, if principal prohibits agent from doing so, agent cannot legally appoint one
* Article 1912 (for reference) - If agent appointed a substitute despite the prohibition, all acts of such agent shall be void
The principal must advance to the agent, should the latter so request, the sums necessary for and the principal shall not be bound by his acts
the execution of the agency. - An agent may not delegate to a sub agent where to work entrusted to him by the principal to
carry out require special knowledge, skills, or competence unless he has been authorized to do
Should the agent have advanced them, the principal must reimburse him therefor, even if the so by the principal.
business or undertaking was not successful, provided the agent is free from all fault. - This right of action against the substitute is an exception to the general rule that the contracts
are binding only between the contracting parties, their assigns and heirs
The reimbursement shall include interest on the sums advanced, from the day on which the
advance was made. Consequence of Lack of Prohibition

- Agent may appoint a substitute and acts of such substitute shall bind principal
* Article 1913 (for reference) - Agent will be liable for acts of substitute alone if:
The principal must also indemnify the agent for all the damages which the execution of the
 He was not given the power to appoint one (principal prohibited him from doing so)
agency may have caused the latter, without fault or negligence on his part.
 He was given power to appoint one expressly or impliedly but without designating
the person
* Article 1914 (for reference)
 The one appointed by the agent is notoriously incompetent or insolvent
The agent may retain in pledge the things which are the object of the agency until the
 Incompetence or insolvency is well known or obvious in the
principal effects the reimbursement and pays the indemnity set forth in the two preceding
community
articles.
Criminal Liability of Agent For the Acts of Misappropriation Of the Sub-Agent

- General rule: agent is not liable for conversion or misappropriation by the sub-agent
  Unless: Agent personally benefitted from the transaction or connived or conspired
with the sub-agent for its misappropriation
 Or agent violated instructions of his principal who imposed an express
prohibition to dispose of the chattel thru sub-agent
Effects of Substitution
A. When substitution is prohibited
- All acts of the substitute shall be void
B. When substitution is authorized
- The principal may proceed against both the agent and the substitute for damages he may
have suffered.
- But if the substitute is the person designated by the principal, the consequence is the
absolute exemption of the agent
C. When substitution is not authorized, but not prohibited
- If the agent appoints a substitute when he was not given the power to appoint one, the
law recognizes the validity of the substitution if the same is beneficial to the principal
because the agency has thus been executed in fulfillment of its object
- Article 1892 creates a presumption that an agent has the authority to appoint a substitute
if the principal has not prohibited him from doing so. As a result, the substitute
appointed becomes the agent of the principal.
Article 1893
In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal may furthermore bring
an action against the substitute with respect to the obligations which the latter has contracted under
the substitution.
Principal May Sue Both Agent and Substitute
- In cases mentioned in No. 1 and 2 of Article 1892 the principal has a right of action not
only against the agent but also against his sub-agent or substitute
- This is an exception to the rule under Article 1311 that contracts shall be binding only
b/w the contracting parties, their assigns, heirs
Effect of Authorized Substitution
- If authorized substitution is carried out, agent is released from his obligation which he
has assumed
 His responsibility is limited to his act of appointment
- Principal can direct his action only against the substitute
Article 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.
Responsibility of Two or More Agents is Joint
- When two or more agents are appointed to carry out business by the same principal,
each agent is responsible only for his individual acts
- Agent’s responsibility only becomes solidary when solidarity has been agreed upon in
the contract of agency
- When two agents are appointed independently, consent of one will not be required to
validate the acts of the other, unless that appears to positively have been the principal’s
intention
Solidarity of Liability of Principal
- If two or more persons have appointed an agent for a common transaction or
undertaking, they shall be solidarily liable to agent for all consequences of the agency.
(Article 1915).
* Art. 1915 (for reference)
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 agency.
Article 1895
If solidarity has been agreed upon, each of the agents is responsible for the non-fulfillment of agency,
and for the fault or negligence of his fellows agents, except in the latter case when the fellow agents
acted beyond the scope of their authority.
Presumption
In a joint obligation, each debtor is liable only to a proportionate part of the debt. If it is solidarity,
each debtor is liable for the entire obligation. The presumption is that an obligation is joint
Consequences of Solidarity
 - When solidarity has been agreed upon, each agent is responsible for:
 Non-fulfillment of the agency
 Fault or negligence of the co-agents
 unless latter exceeded their authority, innocent agent is not liable and has
a right later on to recover from the guilty or negligent agent
Article 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 agency.
Civil and Criminal Liability of Agent Who Applied To His Own Use, Funds Of The Principal
a) He is liable for payment of interest from the day of conversion and from the extinguishment
of the agency for sums he still owes to the principal
b) He is criminally liable for estafa under Article 315, par. 1 (b) of the RPC
* Art. 315 par. 1 (b) (for reference)
1. With unfaithfulness or abuse of confidence, namely:
xxx
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any
other personal property received by the offender in trust or on commission, or for
administration, or under any other obligation involving the duty to make delivery of or to
return the same, even though such obligation be totally or partially guaranteed by a bond; or
by denying having received such money, goods, or other property.
c) If he is a lawyer, he is liable administratively
Demand Is Not Necessary To Place The Agent in Default
- Agent under Article 1891 is under obligation to deliver to the principal whatever he
may have received by virtue of the agency. No demand is necessary.
Article 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 without giving such party sufficient notice
of his powers.
Applicability
- Applies only if the agent acts within the scope of his authority. He is not liable to the
third person with whom he is dealing with.
- The principal is bound to comply with the obligations contracted by the agent (Article
1910).
* Art. 1910 (for reference)
The principal must comply with all the obligations which the agent may have contracted
within the scope of his authority.
- Actions of third persons are directed against the principal
Nature of Liability
A purported agent will be held personally liable on a contract executed without authority if the contract
contains apt words to bind him personally or if such was the intention of the parties.
When Agent Become Personally Liable
1) (Even when he acts within the scope of his authority) When he expressly binds himself to the
contract entered into (Article 1897).
2) If he also contracts in his own name, except when the contract involves things belonging to
the principal
3) When agent exceeds the limits of his authority unless he has given the third person sufficient
notice about the extent of his power.
 If the third person, nonetheless proceeds with the transaction, the responsibility
lies on him in case there arises some deficiency in the transaction
4) When agent contracts in the name of the principal but exceeds his authority and the principal
does not ratify his act
In the ff. Articles, Agent is PERSONALLY LIABLE for his acts:
1) Article 1883
- if an agent acts in his own name, principal has no right of action against persons with
whom agent has contracted; neither such persons towards the principal
- Agent is the one directly bound in favor of the person with whom he contracted, except
when contract involves things belonging to the principal
2) Article 1897
- Agent is not personally liable unless he expressly binds himself or exceeds the limits of
his authority w/out giving such party sufficient notice of his powers
3) Article 1898
 - If the agent contracts in the name of the principal, exceeding the scope of his authority, Tort Cases
and the principal does not ratify his contract
Agency is no defense to action against an agent based upon commission of tort, his liability being
 Contract shall be void if the party with whom agent contracted is aware of the
neither increased nor decreased by the fact of this agency. If the tort is committed by the agent within
limits of power granted by the principal
the scope of his authority, both the principal and the agent are liable. It is no defense by the agent that
 Agent is liable if he undertook to secure the principal’s ratification
the benefit of the tort has been turned over to the principal.
4) Article 1910
- Principal must comply with all obligations which the agent may have contracted within Third Parties Liable to the Agent
the scope of his authority
- Wherein agent exceeded his power, principal is not bound except when he ratifies it There are a few instances in which a third party subjects himself to liability at the hands of an agent.
expressly or tacitly The four main instances are the following:
5) When an agent by his act prevents performance on the part of the principal, he can be held
1. Where the agent contract in his own name for an undisclosed principal, in which case the
liable to third persons.
agent may sue the third party to enforce the contract
6) When the agent purports to act as an agent of an incapacitated principal unless the third party
was aware of the incapacity at the time of the making of the contract 2. Where the agent processes of beneficial interest in the subject matter of the agency. A factor
or a commission agent selling under a del credere commission would illustrate such an agent,
Liability of Principal Not Extinguished By Agent’s Assumption of Liability
as would also an auctioneer by virtue of his lien
- Fact that agent has also bound himself to pay the debt does not relieve from liability the
3. Where the agent pays money of his principal to a third party by mistake or under a contract
principal for whose benefit the debt was incurred
which proves subsequently to be illegal, the agent being ignorant with respect to its illegal
- The law does not provide that the agent cannot bind himself personally to the fulfillment
nature
of an obligation incurred by him in the name and on behalf of his principal
4. When the third party commits a tort against an agent. 
Basis of Liability When Agent Exceeds His Authority
a. We have seen that an agent may not utilize his agency as a defense to an action based
- Rule: Agent is liable when he acts w/out authority is founded upon supposition that
on a tort committed by him. The converse is also true: an agent may sue for a tort
there has been some wrong or omission on his part either in misrepresenting, or in
committed against him, even though the alleged tortious act is also a wrong against
affirming, or concealing the authority under which he assumes to act
the principal
- Whenever an agent exceeds his authority, he really is acting w/out authority
 Contract is rendered unenforceable as against principal unless he ratifies the Article 1898
same
 Agent is personally liable because of his wrong or omission, he deprives the third If the agent contracts in the name of the principal, exceeding the scope of his authority, and the
person with whom he contracts of any remedy against the principal. principal does not ratify the contract, it shall be void if the party with whom the agent contracted is
- However, if agent has sufficient notice of his powers to third persons dealing with aware of the limits of the powers granted by the principal. In this case, however, the agent is liable if
him and such persons nevertheless contract with agent, neither principal nor agent is he undertook to secure the principal's ratification.
bound Reason Why Agent Acting Excess of His Authority is Personally Liable
 As to principal, contract is unauthorized
 As to agent, he acted in good faith in disclosing to third person, limits of his - When agent acts in excess of his authority, principal is not bound in so far as the excess
powers is concerned
 - Unfair if principal is bound to a contract he did not authorize
- Third person, who in good faith contracted with agent, may sue the latter.
Status of Contracts Entered Into By An Agent In Excess of His Authority
1) If third person knew of the limits of the powers granted to the agent, contract is void between
the agent and the third person, and unenforceable against the principal.
 Note: said contract may still be ratified by principal if he wishes to
2) If third person is not aware of the limits of the powers of the agent, contract is unenforceable
and may be ratified before it is revoked by third person
 If it is not ratified by principal, agent is liable to the third person
Effect of Ratification
- If principal does not ratify contract, only agent is bound
- If agent promised to undertake to secure the principal’s ratification and failed in his
promise, he alone is responsible to third party relying to him in good faith.
Liability of Agent Exceeding His Authority
- This depends on whether the third person is aware of the limits of the agent’s powers
- If third person is aware, the agent is not liable
Article 1899
If a duly authorized agent acts in accordance with the orders of the principal, the latter cannot set up
the ignorance of the agent as to circumstances whereof he himself was, or ought to have been, aware.  the agent is acting in dealing with him within the scope of his powers. Obviously,
Applicability
- This article applies only if following requisites are present:
1) Agent who is duly authorized acts on behalf of the principal
2) Agent follows the orders or instruction of the principal
- If the agent is ignorant of some problems like hidden defects which matters are known
or ought to be known to the principal, latter is bound by the contracts entered into on his
behalf by the agent
- If principal appoints an ignorant person as his agent, that is his negligence for which he
has to suffer.
Article 1900
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.
Scope of Agent’s Authority
Scope of agent’s authority - Includes not only the actual authorization for conferred upon the agent by
principal, but also that which has apparently or impolitely been delegated to him.
Acts Deemed Performed Within the Scope of Agent’s Authority
- Act is within the scope of agent’s authority when act is performed within the terms of
the power of attorney as written
- Basis of such acts is the written statements in the contract of agency
- It does not matter if agent exceeded his authority under unwritten arrangements
 It is still considered within the scope of his authority because third persons are not
bound by the unknown internal arrangement b/w him and principal
When the Authority is Not in Writing
- Every person dealing with an assumed agent is put upon an inquiry and must discover
up on his peril, if he would hold the principal liable, not only the fact of the agency but
the nature and extent of authority of the agent.
 He must act with ordinary prudence and reasonable diligence to ascertain whether
if he knows or has a good reason to believe that the agent is exceeding his
authority, he cannot claim protection.
 If the character assumed by the agent is of such a suspicious or unreasonable
nature, or is the authority which he seeks is such an unusual or improbable
character, as would suffice to put an ordinary prudent man upon his guard , the
party dealing with him may not shut his eyes to the real state of the case but should
withal refusal to deal with the agent at all, or should ascertain from the principal
the true condition of affairs
 The mere representation or declaration of one that he is authorized to act on behalf
of another cannot itself serve as proof of his authority to act as agent or of the
extent of his authority as agent
 A person dealing with an agent is not authorized, under any circumstances, to trust
blindly the agent’s statement as to the extent of his powers.
  The mere opinion of an agent of the extent of his powers will not bind the
principal who may act on the presumption the third person dealing with his agent
will not being negligent to ascertain the extent of his authority as well as the
existence of the agency
 In case the fact of agency or extent of the authority of the agent is controverted, the
burden of proof is up on the third person to establish it. In the absence of proof, he
cannot seek relief on the basis of a supposed agency. The law makes no
presumption with respect to an agent’s authority.
When the Authority is in Writing
If the authority of the agent is in writing, such a person is not required to inquire further than
the terms of the written power of attorney. As far as he is concerned, an act of the agent is within
the terms of the power of attorney as written is within the scope of the agents authority, although the
agent has in fact exceeded the limit of his actual authority according to the secret understanding
between him and the principal
Methods of Broadening and Restricting Agent’s Authority
Principal may assume rights and incurred liabilities in respect of his agent’s acts or transactions other
than those for which express authorization has been given and an agent’s authority may be enlarged or
restricted in a number of ways:
1. By implication
a. This means that the agent’s authority extends not only to the express requests,
but also to those acts and transactions incidental thereto. Embraces all the
necessary and appropriate means to accomplish the desired end
2. By usage of custom
a. Agents authorization may not, however, be in large through usage in custom in
the following four classes of cases:
1. Where it is so to vary the terms of an express authorization, as where is
the agent appointed to sell for cash only, seeks to allege a custom to sell
for credit
2. Where it is sought thereby to dispense with a legal requirement enacted
for the principles benefit
3. Where it is said is thereby to change a rule of law or to dispense with a
formality required by law
4. Where it is sought to vary an essential quality of the agency
relationship
b. The general rule requires that the principal must have notice of all of the alleged
customs before the agent asked, in accordance therewith, may bind the principal.
But in two main types of cases, principal is deemed to have notice of a given
usage, even though he did not in fact have such a notice:
1. Where is the principal and the agent reside in the same community, the
usage is definite and well-known, and the agent has no notice that he is
to act to the contrary end
2. Where the agent is authorized to deal in a particular place or any
particular market or exchange
3. By necessity
4. By certain doctrine
a. Apparent authority
b. Liability of estoppel
c. Ratification
5. By the rule ejusdem generis
a. The term is a method of stating the rule that where, in an instrument of any kind,
an enumeration of specific matters is followed by a general phrase, the general
phrase is held to be limited in scope by the specific matters
Responsibility of Principal Where Agent Acted with Improper Motives
General Rule: Motive of agent is immaterial
Exceptions:
1) Where the third person knew that the agent was acting for his private benefit, the principal
is not liable to the third person.
2) Where the owner is seeking recovery of personal property of which he has been
unlawfully deprived.
a. where an agent entrusted with a diamond ring for sale to a named party, had in
fact a preconceived design to steal it and convert the proceeds, and did in fact
pledge it for his own debt, the principal is entitled to recover the ring
Article 1901
A third person cannot set up the fact that the agent has exceeded his powers, if the principal has
ratified, or has signified his willingness to ratify the agent's acts.
Effects of Ratification And Expression of Will to Ratify
 - After principal’s ratification of contract entered into by agent or after principal has
signified his willingness to ratify the contract:
 Third person cannot disaffirm the contract by claiming that the agent exceeded
his authority.
- Before principal makes a ratification or expression of willingness to ratify, third person
may revoke the act of the agent.
 Article 1317 of the Civil Code
* Art. 1317 (for reference)
No one may contract in the name of another without being authorized by the latter, or
unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it
is ratified, expressly or impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other contracting party.
- Ratification may be express or implied
 Ratification is retroactive in effect
 Only principal may ratify, not the agent
- Present article provides that they may require the agent to present or show them the
agent’s power of attorney or instructions whether private or not as regards the agency
Effects Of Private Or Secret Instructions Upon Third Persons
- Third person is not bound by the private or secret orders and instructions of the
principal.
- He cannot be prejudiced by any understanding b/w principal and agent
Article 1903
The commission agent shall be responsible for the goods received by him in the terms and conditions
and as described in the consignment, unless upon receiving them he should make a written statement
of the damage and deterioration suffered by the same.
Commission Agent (Factor)
- A person whose business is to receive and sell goods entrusted to him by the principal
for a commission and is usually selling in his own name
- He is in possession of the goods and he can sell in his own name or that of the principal
Responsibility of Commission Agent (Factor)

- Commission agent who received goods consigned to him for sale is responsible for any
Article 1902 deterioration or damage suffered by the same “in the terms and conditions as described
in the consignment” (physical condition of goods)
A third person with whom the agent wishes to contract on behalf of the principal may require the - To avoid responsibility, he should make a written statement of the deterioration or
presentation of the power of attorney, or the instructions as regards the agency. Private or secret damage if the goods received by him do not match with the description made in the
orders and instructions of the principal do not prejudice third persons who have relied upon the power consignment
of attorney or instructions shown them. - If there is damage or deterioration, rebuttable presumption is that same was
caused while in custody of agent and the same commission agent is at fault
Inquiries on the Extent Of the Agent’s Power Of Attorney
Agent vs Broker
- Article presupposes that power of attorney is in writing
- A third person dealing with an agent is dealing with the latter at his own risk, he is AGENT BROKER
chargeable with knowledge of the agent’s authority and his ignorance will not be an May do acts of administration or ownership for Maintains no relation with the thing which he
excuse properties or rights of his principal purchases or sells
- Third persons must discover upon their peril the authority of the agent Acts for and/or in behalf of the principal Merely a go-between or an intermediary b/w
- But while third persons are bound to inquire into the extent or scope of agent’s seller and buyer
authority, they are not required to go beyond the written power of attorney Receives a commission upon successful Receives pay merely by bringing buyer and
conclusion of a sale seller together, even if no sale is successful

Article 1904
The commission agent who handles goods of the same kind and mark, which belong to different
owners, shall distinguish them by countermarks, and designate the merchandise respectively belonging
to each principal.
Goods of Same Kind and Mark Belonging to Different Owners
- Commission agent must provide identifying marks on the goods belonging to different
owners so that segregation will be easy
 He must not commingle goods that would cause confusion
 Where he violates the duty by mingling the property with his own, he becomes a
debtor of the principal and liable to him for any losses suffered as a result of the
mingling
- Exception: if the goods are mixed:
 By will of the owners
 By chance
 By will of one owner but in good faith
- Each co-owner acquires a right in the goods in proportion to the part belonging to him
Warehouse Receipt Law (Act No. 2137, Sec. 23)
Fungible goods may be commingled if warehouseman authorized. — If authorized by agreement or
by custom, a warehouseman may mingle fungible goods with other goods of the same kind and
grade.  In such case, the various depositors of the mingled goods shall own the entire mass in common
and each depositor shall be entitled to such portion thereof as the amount deposited by him bears to
the whole.
Article 1905
The commission agent cannot, without the express or implied 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 entitled to any interest or benefit, which may result from such sale.
Commission Agent Cannot Sell on Credit and Effects of such Sale
- Without express or implied consent of principal, a commission agent cannot sell on
credit
 If he does sell, principal has the right to demand from him payment in cash
 Any interest or benefit in such sale shall pertain to the commission agent; to
compensate him for his efforts and industry
Remedies of the Principal
If such sale is made without authority, the principal is given two alternatives:
1) He may require payment in cash, in which case, any interest or benefit from the sale on credit
should belong to the agent since the principal cannot be allowed to enrich himself at the
agent’s expense
2) He may ratify the sale on credit in which case it will have all the risks and advantages to him
Article 1906
Should the commission agent, with authority of the principal, sell on credit, he shall so inform the
principal, with a statement of the names of the buyers. Should he fail to do so, the sale shall be deemed
to have been made for cash insofar as the principal is concerned.
When Commission Agent is Authorized to Sell On Credit
- Law imposes an obligation on commission when he is authorized under this article, to
submit a written statement to the principal indicating the name of the buyer or buyers
 Failure to give statement of such, there is irreversible presumption that sale was
made in cash and principal may demand payment in cash
- Reasons for Article 1906:
 Protect the principal
 Prevents the commission agent from pretending that the sale was on credit basis
when in truth it is for cash
 Discourage commission agent from misusing the proceeds of the sale or from
delaying the delivery thereof to the principal
- The principal may also choose to ratify the sale on credit with all its resulting benefits
and risks
Article 1907
Should the commission agent receive on a sale, in addition to the 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 upon with the purchaser.
Guarantee Commission (Del Credere Commission)
- Different from ordinary commission
- Agent is called del credere agent
- Guarantee commission is commission paid to the commission agent in addition to the
ordinary commission agreed upon
- There is increase in the total commission if the business succeeds
- When there is this commission, agent becomes guarantor in the payment of the purchase
price (cash or installment basis)
Purpose of Guarantee Commission
- Compensate the agent for the inconvenience and risks he has to undergo in the
collection of the purchase price payable to the principal
Liability of the Del Credere Agent
- Liability is contingent
 To make good in the event that the buyer fails to pay the sum due. It does not
extend to other obligations of the contract such as damages for failure of the buyer
to accept and pay for the goods.
- Article 1907 applies to both cash and credit sales
- Agent is given additional commission because he assumes risk of collection for the
principal
- Liability is limited to payment of the purchase price only
- IF buyer fails to pay, he shall pay the principal
 HE has no right to benefit of excussion (Articles 2058-2059)
 Art. 2058.
The guarantor cannot be compelled to pay the creditor unless the latter has
exhausted all the property of the debtor, and has resorted to all the legal remedies
against the debtor.
 Art. 2059.
The excussion shall not take place:
(1) If the guarantor has expressly renounced it;
(2) If he has bound himself solidarily with the debtor;
(3) In case of insolvency of the debtor;
(4) When he has absconded, or cannot be sued within the Philippines unless he
has left a manager or representative;
(5) If it may be presumed that an execution on the property of the principal debtor
would not result in the satisfaction of the obligation.
Who May Sue the Buyer Who Failed to Pay
- Either principal or the del credere agent; anyone of them is a real party-in-interest
- Suit of one will bar the subsequent suit of the other
- If filed at the same time, suit of the principal should be preferred
Article 1908
The commission agent who does not collect the credits of his principal at the time when they become
due and demandable shall be liable for damages, unless he proves that he exercised due diligence for
that purpose.
Duty of Commission Agent
- Collect the credits of his principal when they become due and demandable
 Failure in this duty will make him liable to the principal for damages if the latter
suffered any prejudice
- Exception: Agent incurs no liability if he had exercised due diligence in the collection
of the credits
- Exception to the Exception: He would still liable for the non-payment of credits on time
if he assumed the risks of collection by receiving a guarantee or del credere commission.
Article 1909
The agent is responsible not only for fraud, but also for negligence, which shall be judged with more
or less rigor by the courts, according to whether the agency was or was not for a compensation.
Responsibility of Agent for Fraud and Negligence
- In the fulfillment of agent’s obligations, he may incur fraud under Article 1171 and
negligence under Article 1172
Article 1171
Responsibility arising from fraud is demandable in all obligations. Any waiver of an action
for future fraud is void.
Article 1172
 Responsibility arising from negligence in the performance of every kind of obligation is also
demandable, but such liability may be regulated by the courts, according to the
circumstances.  4.
- In determining the extent of liability of the agent
 Question: whether or not the contract of agency is for compensation or gratuitous
 If it is for compensation, the liability will be more
Agent Liable for Negligence
- When agent is guilty of recklessness, agent is liable for damages
- Failure to exercise prudence resulting in deprivation of higher income for the principal
makes agent liable
- Without fraud or negligence on the part of the agent, he incurs no liability
Acts of Dishonesty And Treachery Make The Agent Liable For Damages
- An agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit
from the vendee, without revealing the same to his principal is guilty for breach of
fidelity, or that he obtained better results or that agency is a gratuitous one, or that usage
or custom allows it
- Rule is to prevent the possibility of any wrong, not to remedy or repair an actual damage
Bank Liable For Its Negligence In Collecting Sums Due to the Debtor
- Rule is that an agent is required to act with the care of a good father of a family and
becomes liable for the damages which the principal may suffer by reason of the agent’s
non-performance
- Bank is answerable for negligence in failing to collect the sums due its debtor from the
latter’s own debtor
CHAPTER 3
OBLIGATIONS OF THE PRINCIPAL
Specific Obligations of the Principal
1. To comply with all the obligations which the agent may have contracted within the scope of
his authority and in the name of the principal
2. To advance to the agent, should latter so request, the sums is necessary for the execution of
the agency
3. To reimburse the agent for all advances made by him, provided the agent is free from all fault
Indemnify the agent for all the damages which the execution of the agency may have caused
the latter without fault or negligence on his part
5. To pay the agent compensation agreed upon, or if no compensation was specified, the
reasonable value of the agent’s services
Article 1910
The principal must comply with all the obligations which the agent may have contracted within the
scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound except
when he ratifies it expressly or tacitly.
- Principles Under the Article is already embodied in Articles 1883, 1897, 1898
Principal Bound By Agent’s Acts Done Within The Scope of the Latter’s Authority
- Whatever has been done or executed by the agent within the scope of his authority is
binding upon the principal
- Principal must comply with all the obligations arising from the authorized acts of the
agent
- Principal is not bound by the acts of the agent if the latter acted w/out or has exceeded
his authority
 Exception: Principal may be bound if he expressly or impliedly ratifies the
contract
 Ratification cleanses the contract from all its defects; it is retroactive in effect
When An Act is Considered Within the Scope Of Agent’s Authority
- So far as third persons, 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
Effect of Mismanagement of Business By Agent
- Mismanagement of business by agent does not excuse or relieve the principal from his
liability to third persons; even if principal itself was defrauded by the acts of his agent
 - A settling agent acting within the scope of his authority, cannot be held personally/ 7. If principal claims that his agent had no authority to execute said promissory notes,
solidarily liable for the obligations of its disclosed principal merely because there is authenticity of said documents should have been specifically denied under oath on
allegedly a need for speedy settlement of the claim defendant’s answers in the lower court
 Being a mere agent and representative, he is not a real party-in-interest in this
In Tort
claim/case
The third person’s tort liability to the principal, insofar as the agent is involved in the tort, arises in
Acceptance of Benefits Is Ratification
three main factual situations:
- An attorney-in-fact authorized to borrow money from the banks only, cannot do so from
1. Where the third person damages or injuries property or interest of the principal in the position
private persons
of the agent
 If money borrowed from said persons has been used for the benefit of the
principal, latter must answer for it 2. Where third person colludes with the agent to injure or defraud the principal
Ratification, Confirmation and Acknowledgement of Principal 3. Where the third person induces the agent to violate his contract with the principal to betray
the trust reposed upon him by the principal
- The three connote the same concept
Article 1911
Modes of Ratification
Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the
1. Express – affirmance or approval of the act is done expressly in writing or orally
former allowed the latter to act as though he had full powers.
2. Implied – affirmance or approval is deduced from the performance of acts or continuance of
acts already begun or complying with the obligations imposed Effects When Agent Has Exceeded His Authority
Power to Ratify - Principal is not bound by the exceeded acts of the agent
- Contract is considered “unenforceable” as long as not ratified by principal
- A prerogative of the principal
- But principal becomes bound if knowing the acts of the agent as beyond his powers,
- Principal must be knowledgeable of the things he is going to ratify
he allowed the agent to as if he had full powers
Examples of Ratification by Principal:  Principal and agent liable solidarily
 They are guilty of quasi-delict where liability of 2 or more tortfeasors are solidary
1. Approval by the principal of the accounts submitted by the agent constitutes ratification Article 2194
2. Receipt of premiums and demand for additional security is a confirmation of execution of the The responsibility of two or more persons who are liable for quasi-delict is
bond solidary.
3. Acceptance of benefits brought up by the act of the agent
4. Silence of principal on acts of the agent Apparent Authority
5. Failure to repudiate acts of the agent within a reasonable time, after being aware of the
unauthorized acts - Is that which although not actually granted, principal knowingly permits the agent to
6. Ratification by the grantor, or estoppel consisting in benefiting from the loan must be exercise, or holds him out as possessing.
expressly shown and proven during trial - In effect, for clothing the agent with apparent (additional) authority, estoppel operates
for principal for there is implied admission or representation by him that agent is clothed
with full authority
 - A condition for apparent authority to set in is that such authority should have existed - Principal is answerable also to indemnify agent for damages suffered by the latter in the
before the act in controversy; otherwise, person cannot be said to have relied upon such course of the fulfillment of the execution of the agency so long as the agent is not at
“apparent authority” in dealing with the assumed agent fault
- Solidary liability – (1) when law provides. (2) When there is stipulation, (3) when - Such indemnity presupposes that a contract of agency exists between two parties
nature of contract requires so - Illustrative Example:
 When defendant filed a bond at the instance of the sheriff, the defendant was
APPARENT AUTHORITY AGENCY BY ESTOPPEL converted into an agent/ The trial court ordered him to pay P360 by reason of the
Which although not actually granted, principal Arises in those cases where principal by his attachment, the amount constitutes damages which the principal should indemnify
knowingly permits the agent to exercise, or hold culpable negligence permits his agent to
him
him out as possessing full authority exercise powers not granted to him, even though
principal has no notice or knowledge of the Article 1914
conduct of the agent
The agent may retain in pledge the things which are the object of the agency until the principal effects
the reimbursement and pays the indemnity set forth in the two preceding articles.
Article 1912
Agent’s Right of Lien
The principal must advance to the agent, should the latter so request, the sums necessary for the
execution of the agency. - Agent has a right to retain in pledge the objects of the agency until the principal shall
have reimbursed him for the advances he made with interest as well as the amount of
Should the agent have advanced them, the principal must reimburse him therefor, even if the business indemnity for losses and damages he suffered while fulfilling the agency
or undertaking was not successful, provided the agent is free from all fault.
Requisite For the Exercise of Lien
The reimbursement shall include interest on the sums advanced, from the day on which the advance
was made. - That the things subject of the agency are still in his possession, custody or control
- He must have the possession thereof lawfully and clearly in his capacity as an agent of
Fund Necessary For Execution of Agency the principal.
- Situations will arise where it will require immediate spending of money Article 1915
- In such cases, principal must advance needed sums to the agent
- If principal failed to make the advances needed and agent used his own funds, he must If two or more persons have appointed an agent for a common transaction or undertaking, they shall
be reimbursed even if business did not succeed be solidarily liable to the agent for all the consequences of the agency.
- Agent must not, however, commit any of the acts mentioned in Article 1918
- Solidary Liability of Principals - Solidarity is the rule under this Article because of the
Article 1913 common transaction. Thus, even if the agent have been appointed separately
- For as long as appointment is for the performance of a common transaction or
The principal must also indemnify the agent for all the damages which the execution of the agency may undertaking
have caused the latter, without fault or negligence on his part.
Article 1916
Indemnity for Damages
When two persons contract with regard to the same thing, one of them with the agent and the other
with the principal, and the two contracts are incompatible with each other, that of prior date shall be
preferred, without prejudice to the provisions of Article 1544.
Rules When Principal And Agent Separately Contracted for the Sale of Same Property
1) Prior date shall prevail
2) If rule on double sale under Article 1544 is applicable, said article applies
a. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if
it should be movable property. (registration for immovable property)
sa 1916 eto sabi niya sa ownership:
1. the first person to register the sale in good faith (immovable)
2. the first possessor in good faith (movable)
3. the buyer who in good faith presents the oldest title (no inscription)
Article 1917
In the case referred to in the preceding article, if the agent has acted in good faith, the principal shall
be liable in damages to the third person whose contract must be rejected. If the agent acted in bad
faith, he alone shall be responsible.
(2) When the expenses were due to the fault of the agent;
(3) When the agent incurred them with knowledge that an unfavorable result 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 the latter would be
allowed only a certain sum.
General Rule: principal is liable for expenses incurred by the agent in the execution of the agency
Exceptions contained in Article 1918 and Reasons:
(1) Penalize agent for disobeying instructions of principal
 If principal will receive the benefits derived from the contract, there is ratification
and principal is still bound to pay for expenses
(2) Agent’s own fault that he incurred expense, he should bear the expenses
(3) To punish the agent in accordance with Article 1888
 However if principal is aware of such resulting effect and did not stop the agent,
agent is excused from liability
(4) It is expressly stipulated
 It is not unlawful also from them to agree that the agent shall be liable only up to a
certain or lesser sum

Liability Of Principal For Damages When Agent Acted in Good Faith

- If agent acted in good faith, his transaction to the third person shall prevail, and if there CHAPTER 4
be damages caused to James, principal shall be liable MODES OF EXTINGUISHMENT OF AGENCY
- If agent is in bad faith, he shall be liable for the resulting consequences
Article 1919
When Agent Acts in Bad Faith
Agency is extinguished:
- When agent purchases property in bad faith, principal is also deemed in bad faith
(1) By its revocation;
Article 1918
(2) By the withdrawal of the agent;
The principal is not liable for the expenses incurred by the agent in the following cases:
(3) By the death, civil interdiction, insanity or insolvency of the principal or of the agent;
(1) If the agent acted in contravention of the principal’s instructions, unless the latter should wish to
avail himself of the benefits derived from the contract; (4) By the dissolution of the firm or corporation which entrusted or accepted the agency;
(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.
How Agency is extinguished
1) By acts of parties (Nos. 1-2)
2) By operation of law (Nos. 3-6)
Bases of the Modes of Extinguishment
1) Revocation
- Principal is allowed to terminate agency when he loses trust and confidence in the agent
- His unilateral act of revocation is sufficient to extinguish
2) Withdrawal of Agent
- Agent may withdraw from agency by giving due notice to the principal
- However he must continue to act until the principal has had reasonable opportunity to
take necessary measures to meet the situation
- Filing of complaint of agent against principal of a sum of money arising from
liquidation of accounts in connection to the agency is a renunciation of the agency
3) Death
- Death of principal or agent terminates the relation even if agency is for a definite period
which has not lapsed
- There being an integration of the personality of the principal into that of the agent, it is
not possible for the representation to exist once death of either is established
- Exceptions to the Rule:
 Article 1930
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
necessary steps to meet the situation.
 Article 1931
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.
 Article 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.
He must also finish the business already begun on the death of the principal,
should delay entail any danger.
- Attorney-in-Fact Who Continues the Management of the property of deceased Principal
becomes a negotiorum gestor
4) Civil Interdiction, insanity, and insolvency
- These are restrictions or limitations on capacity to act under Articles 38 or 39 of the
NCC.
- Persons suffering from these restrictions or limitations are no longer capacitated to act
as principal or agent
5) Dissolution of the firm or corporation
- Agent appointed is a corporation or firm (partnership) which has juridical personality,
once dissolved, can no longer function as a principal or an agent except for winding up
corporate affairs or partnership affairs
6) Accomplishment of the object or purpose of the agency
- After accomplishment of such purpose, there is no more basis for its further existence
7) Expiration for the period for which it was constituted
- Where agency is created for a specific period of time and period has expired, it’s
automatically terminated
Article 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.
General Rule: Principal may revoke the agency at will
- Revocation is prerogative of the principal even if
 Agency is onerous or;
 Even when period fixed for its performance has not lapsed
Exceptions:
(a) When agency is “coupled with an interest”; interest as to the subject matter of the power
(b) When revocation of agency is done in bad faith; innocent agent is entitled to what is due him
 (c) Under Article 1972
a. When a bilateral contract depends on the agency
b. When agency is the means of fulfilling an obligation already contracted
c. In case of a partner appointed manager in the contract of partnership and his removal
from management is unjustifiable
(d) Where there is waiver made by principal of his right to revoke (this is not applicable
anymore)

Kinds of Revocation

(a) Express – principal clearly and directly makes a cancellation of the authority of the agent
either in writing or oral
(b) Implied – it is not directly made but deducible from conducts
a. When a new agent is appointed for the same business or transaction; in this case,
however, there must be:
i. Incompatibility
ii. Notice to the first agent
b. When principal himself manages the business entrusted to the agent by dealing
directly to the third person

Article 1921

If the agency has been entrusted for the purpose of contracting with specified persons, its revocation
shall not prejudice the latter if they were not given notice thereof.

Agency For Purpose of Contracting With Specified Third Persons

- Revocation of this kind of agency shall not prejudice specified persons who were not
timely notified of the act of revocation
- They must be given opportunity to meet the situation so that they may be able to protect
their rights and interests