LAW ON AGENCY

ARTICLE 1868 – 1909

CIVIL CODE OF THE PHILIPPINES

By Group I
Aniversario, Blessy; Camim, Hamimah; Figuracion, Karen;
Lias, Hannah; Martin, Josieline; and Pitlo, Louie
ARTICLE 1868 - 1874

Aniversario, Blessy
 ARTICLE 1868

• Parties to the Contract:

 Principal
 Agent

• Essential Elements of Agency:

 Consent, express or implied, of the parties to establish the relationship;

 The object is the execution of a juridical act in relation to a third person;

 The agent acts as a representative and not for himself; and

 The agent acts within the scope of his authority

• Relationship of third party with principal and agent

Contract between third party and principal

Situation the same in which there is no agent

• Acts that may be/not delegated to agents

Personal Acts

Criminal acts or acts not allowed by law

• Nature of Relations between principal and agent

Relations fiduciary in character

Agent estopped from asserting interest adverse to his
principal
Agent must not act as an adverse party
Agent must not act for an adverse party
Agent must not use or disclose secret information
Agent must give notice of material facts
• Agency distinguished from:
Loan
Lease of Service
Independent contract
Partnership
Negotiorium gestio
Brokerage
Sale
Bailment
Guardianship
Trust
Judicial Administration
 ARTICLE 1869

 Agency may be express or implied

 Generally, no specific form for agency

 Presumption of agency

 Authority of attorney to appear on behalf of his client

ARTICLE 1870

 Acceptance by the agent

ARTICLE 1871

 Acceptance between persons present

ARTICLE 1872

 Acceptance between persons absent

 ARTICLE 1873

 Communication of existence of agency

 Manner of revocation of agency

 Estoppel to deny agency

 ARTICLE 1874

• Sale of land through agent

Authority of an agent to sell must be in writing

 ILLUSTRATIVE CASES

• Maria Tuazon VS Heirs of Bartolome Ramos (G.R. No. 156262 July 14, 2005)

 In a contract of agency, one binds oneself to render some service or to do something in representation or on behalf
of another, with the latter’s consent or authority. The following are the elements of agency: (1) the parties’ consent,
express or implied, to establish the relationship; (2) the object, which is the execution of a juridical act in relation to
a third person; (3) the representation, by which the one who acts as an agent does so, not for oneself, but as a
representative; (4) the limitation that the agent acts within the scope of his or her authority.
• Angeles VS Phil. National Railways (G.R. No. 150128 August 31, 2006)

 A power of attorney is only but an instrument in writing by which a person, as principal, appoints another as his
agent and confers upon him the authority to perform certain specified acts on behalf of the principal. The written
authorization itself is the power of attorney, and this is clearly indicated by the fact that it has also been called a
"letter of attorney." Its primary purpose is not to define the authority of the agent as between himself and his
principal but to evidence the authority of the agent to third parties with whom the agent deals.
ARTICLE 1875 - 1883

Lias, Hannah Jean

 ART 1875. AGENCY IS PRESUMED TO BE WITH
COMPENSATION, UNLESS THERE IS PROOF TO THE
CONTRARY.

• The prima facie presumption that the agency is for compensation may be contradicted by contrary evidence.

Necessity of compensation
•It is not necessary for the agent to receive compensation, if he agrees to act as agent without compensation he
is a gratuitous agent.
 LIABILITY OF PRINCIPAL TO PAY
COMPENSATION

• Must pay the amount agreed upon, or reasonable value of the agent’s services if
no compensation was specified.

• A broker is never entitled to commission for unsuccessful efforts.

• If commission is payable to the agent, it is the owner and not the buyer who
must pay
RIGHTS OF AGENT TO COMPENSATION IN CASE OF
DOUBLE AGENCY

• With knowledge of both principals

• Without knowledge of both principals

• With knowledge of one principal

 LIM VS. SABAN, GR NO. 163720

In the height of injustice to permit the principal to terminate the contract of agency to the prejudice of
the broker when he had already reaped the benefits of the broker’s efforts.
 TICONG VS MALIM, GR NO. 220785

• Procuring case” – is the cause originating a series of events which, without

break in their continuity, result in accomplishment of prime object of the
employment of the broker—produce a purchaser who is ready, willing, and
able to buy real estate on the owner’s terms. The broker’s efforts must be the
foundation on which the negotiations resulting in a sale are begun.
 ART 1876

• An agency is either general or special

• •General - comprises all the business of the principal
• •Special - one or more specific transactions

Agents classified
1. Universal -One authorized to do al acts that the principal may personally do, and w/c he can lawfully delegate to
another the power of doing

2. General -One authorized to transact all the business of his principal to do all act connected to trade, business,
employment

3. Special or Particular -One authorized to act in one or more specific transactions to act upon a particular occasion
• a. Attorney at law
• b. Auctioneer
• c. Broker
• d. Factor
• e. Cashier in bank
 ART 1877

• Agency couched in general terms may be general agency or special agency

• Agency couched in general terms grants only acts of administration even if the principal would state:
1.He withholds no power from the exercise of the agent
2.Agent may execute acts appropriate to carry out the agency
3.Authorizes a general or unlimited management
 ART 1878

• SPECIAL POWER OF ATTORNEY

• a.Payment (1232)
• b.Novation
• c.Compromise (2028) (arbitration 2042) and the three waivers
• d.Waive obligation gratuitously
• e.Sale of immovable
• f.Make gifts, other than customary ones (or gifts to employees)
• g.Loan
• h.Lease more than a year
• i.Gratuitous service
• j.Contract of Partnership
• k.Obligation principal as guarantor or surety
• l.Create or convey real rights over immovable propertywithout special power
• m.Accept or repudiate an inheritance
• n.Ratify obligations contracted before the agency
• o.Strict Dominion
 GOZUN VS. MERCADO GR NO.167812

• A special power of attorney is necessary for an agent to, as in this case, borrow money, unless it be urgent and
indispensable for the preservation of the things which are under administration
 V-GENT, INC. V. MORNING STAR
TRAVEL AND TOURS, INC. G.R. NO.
186305
• An agent’s authority to file suit cannot be inferred from his authority to collect be presumed or receive
payments.
 ARTS 1879, 1880, 1881 AND 1882

• 1879- Vice versa rule on mortgage and sale through agent

•  
• 1880 - exclusion of arbitration from power to compromise
•
• 1881- definition of authority of agent
•  
• 1882 - acts beneficial even if beyond instruction to the principal
 BUCTON VS RURAL BANK OF EL
SALVADOR GR NO. 179625

• The mere fact that the agent was authorized to mortgage the property is
not sufficient to bind the principal, unless the deed was executed and
signed by the agent for and on behalf of his principal.
• Authority of the agent
• – power of the agent to affect the legal relations of the principal by acts done
in accordance with the
• principal’s manifestation of consent to him
•  
• Distinguish Authority from Power
• Authority - Source i.e. Authority from Principal to sell
• Power – Effect i.e. Authority from principal gives the agent the power to sell.
• Kinds or Types of Authority
• Actual – Actually granted (express or implied)
• Express – conferred by words (1869)
• Implied – incidental to the transaction or reasonable necessary to accomplish the purpose of the
agency
• Apparent or ostensible – conferred by conduct or even by silence (another name for authority
by estoppel)[also an implied form]
• General – covers all business of the principal
• Special – particular transaction
• By necessity – demanded by virtue of the existence of an emergency
•When may Principal be Bound by Acts of Agent:
•Standard Requisites:
•a. Agent acts within the scope of authority.
•b. He acted on behalf of the principal
•2. Ratification by principal
•3. Acts more advantageous to principal

•When Principal Bound by Acts of Agent beyond his Powers:

•The acts of the principal contributed to deceive third persons in good faith
•Limitations upon the power created by him could not have been known by the third person
•Principal placed to the agent instruments signed by P in blank
•Ratified the acts
 ART. 1883

• Kinds of Principal:
• 1. Disclosed principal
• 2. Partially disclosed
• 3. Undisclosed

• AGENCY WITH UNDISCLOSED PRINCIPAL; Effects

• 1. Agent directly responsible
• a. Agent authorized to act on behalf of the principal
• b. Acts in agent’s own name
ARTICLE 1884 - 1888

Martin, Josieline
 OBLIGATIONS OF AN AGENT :

OBLIGATIONS OF AN AGENT :

Art. 1884. The Agent is bound by his acceptance to:

A.Carry out the agency;
B.Liable for damages suffered by the principal which is brought about by the agent’s non-
performance;
C.Finish the business already started on the death of the principal in case delay poses as a threat to
the principal.
Note: Acceptance depends upon the discretion of the prospective agent. He may accept or refuse
the agency. If he refuses, he cannot be compelled to act as an agent of somebody. However, once
he accepts the contract of agency, he must comply with the duties as he has made himself an
obligor of the principal.
 ART. 1884-THE AGENT IS BOUND BY
HIS ACCEPTANCE TO:

• Note: On Agents’ Liability. The general rule is that an agent cannot be held liable for damages as
long as he performs his duties as an agent of the principal. However, (exception) he can be held
liable for damages despite performing his duties as agent of the principal if he binds himself to be
liable for such.

• Note: On Death of Principal. The general rule is that the principal’s death automatically extinguishes
the contract of agency. However, (exception) if the non-execution of a duty which the agent has
started prior to the principal’s death may cause danger to the subject of the agency or the principal,
the law directs the agent to finish such.
B.OBLIGATIONS OF AN AGENT WHO REFUSES THE AGENCY:

• Articles 1884 and 1887 of the Civil Code state:

• Art. 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.
• Art. 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.
• in the case of BPI VS
• The provision is clear that an agent is bound to carry out the agency. The relationship existing between
principal and agent is a fiduciary one, demanding conditions of trust and confidence. It is the duty of the
agent to act in good faith for the advancement of the interests of the principal. In this case, BPI had the
obligation to carry out the agency by informing the beneficiary, who appeared before BPI to withdraw funds
of the insured who was BPI's depositor, not only of the existence of the insurance contract but also the
accompanying terms and conditions of the insurance policy in order for the beneficiary to be able to properly
and timely claim the benefit.
• When is an agent deemed to have performed with the Scope of His (Agent’s) Authority?
• It is deemed so when the act is performed within the terms of the power of attorney as written.
• The provision is clear that an agent is bound to carry out the agency. The
relationship existing between principal and agent is a fiduciary one, demanding
conditions of trust and confidence. It is the duty of the agent to act in good faith
for the advancement of the interests of the principal. In this case, BPI had the
obligation to carry out the agency by informing the beneficiary, who appeared
before BPI to withdraw funds of the insured who was BPI's depositor, not only of
the existence of the insurance contract but also the accompanying terms and
conditions of the insurance policy in order for the beneficiary to be able to
properly and timely claim the benefit.

• When is an agent deemed to have performed with the Scope of His (Agent’s)
Authority?

• It is deemed so when the act is performed within the terms of the power of
attorney as written.
Basis for Determination of Scope of Authority:

A.Written statement of the contract of agency.

B.Written provisions of the contract of agency.

Note: It is the written provisions that shall be the basis for the determination and NOT THE
UNWRITTEN arrangement between the principal and the agent.

And When an agent disregards the instructions given to him by the principal, he exceeds his authority.
In which case, he is liable to third persons who dealt with him in good faith.
2 . A RT. 18 8 7 . IN TH E EX E C U TI O N O F T H E A G E N C Y, TH E A G EN T
S H A LL A C T IN A C C O R D A N C E WI TH TH E I N S T R U C TI O N S O F TH E
PR I N C IPA L. IN D E FA U LT T H ER EO F, H E SH A LL D O A LL T H AT A G O O D
FA RT H ER A FA M I LY WO U LD D O , A S R E Q U I R ED BY TH E N AT U R E O F
BU SH IN ES S . ( 1 7 1 9 ) I N S T R U C TI O N S ( O F PR I N C I PA L)
D E FIN E D .

I N S TR U C T IO N S A R E P R I VATE D I R EC TI O N S W H I C H TH E P R I N C I PA L
M AY- G IV E TH E A G EN T I N R E G A R D TO T H E M A N N E R O F
PE R F O R M IN G H I S D U TI E S - A S SU C H A G EN T BU T O F W H I C H A T H I R D
PA RT Y I S IG N O R A N T. TH EY A R E SA I D - TO BE S EC R ET I F TH E
PR I N C IPA L IN TEN D ED TH EM N O T TO BE M A D E K N O W N TO S U C H
PA RT Y.
 SPECIFIC OBLIGATIONS OF AGENT
TO PRINCIPAL

• Art. 1885. In case a person declines an agency, he is bound to:

• Observe the diligence of a good father of a family in the custody and preservation
of the goods forwarded to him by the owner until the latter should appoint an
agent.
• The owner shall, as soon as possible:
• A.Either appoint an agent; or
• B.Take charge of the goods.
• If the person who refused the contract of agency, but has custody of the goods,
refuses to take care of said goods will be liable for damages to the principal.
• If the owner of the goods causes unnecessary delay in either appointing an agent or taking charge of the
goods himself, the person who declined the agency, but has custody of the goods will be exempt from any
responsibility in cases of damages of said goods.

• The distinctions are

• (1) Authority (see Arts. 1881, 1882.), the sum total of the powers committed or permitted to the agent by the
principal,may be limited in scope and such limitations are themselves a part of the authority, but instructions
direct the manner of transacting the authorized business and contemplates only Art. 1887 OBLIGATIONS OF
THE AGENT, AGENCY private rule of guidance to the agent and are independent and distinct in character;
Art. 1886. Should there be a stipulation that the agent shall
advance the necessary funds, he shall be bound to do so, except
when the principal is insolvent.
Note: Art. 1886 presupposes a situation where, sometimes, the
principal does not have the funds to maintain or sustain the agency,
but IS NOT INSOLVENT. Under this article, the agent and the
principal are allowed to agree that the expenses be advanced by the
agent if he has the financial capability. These cash advances are
subject to reimbursement.
However, IF THE PRINCIPAL IS INSOLVENT, the agent is not
bound to provide the funds because he may not be paid or
reimbursed by the principal who does not have the capacity to pay
• Art. 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 the a good father of a family would do, as required by
the nature of the business.
• Note: Instructions. Instructions are the means or orders for carrying out the powers and
duties granted to the agent. The principal’s instructions to the agent form part of the
agency but are binding only between the principal and the agent.
• Acting in accordance with the instructions of the principal means that the agent is to carry
out the details of the execution of the agency. For example, The principal directs his agent
not to accept checks as payment, except when these are manager’s check.
• Acting within the scope of the agent’s authority means that the agent is to carry out his
duties only within the extent granted to him. For example, if an agent is authorized to sell
a parcel of land located in a particular place, an agent can only sell such parcel of land
located in that particular place only and no other.
• When is an agent deemed to have performed with the Scope of His (Agent’s) Authority? It is
deemed so when the act is performed within the terms of the power of attorney as written.
• Basis for Determination of Scope of Authority:
• A.Written statement of the contract of agency.
• B.Written provisions of the contract of agency.
• Note: It is the written provisions that shall be the basis for the determination and NOT THE
UNWRITTEN arrangement between the principal and the agent.
• Note: When an agent disregards the instructions given to him by the principal, he exceeds his
authority. In which case, he is liable to third persons who dealt with him in good faith.
• Authority relates to the subject with which the agent isempowered to deal or the kind of business or
transactions uponwhich he is empowered to act, while instructions refer to themanner or mode of his action
with respect to matters which intheir substance are within the scope of permitted action;

• Limitations of authority are operative as against thosewho have or are charged with knowledge of them (see
Art. 1900.),while instructions limiting the agent’s authority are withoutsignificance as against those dealing
with the agent with neitherknowledge nor notice of them; (see Art. 1902.) and

• Authority is contemplated to be made known to thethird person dealing with the agent, while instructions are
notexpected to be made known to those with whom the agent deals.
E. PROHIBITIONS IN CARRYING OUT THE AGENCY:

Art. 1888. An agent shall not carry out an agency if its execution would manifestly result in loss or damage to
the principal.
Note: Rationale behind Art. 1888. In carrying out the agency damage or loss is effected, negating the agent’s
purpose which is to carry out a service for the principal’s benefit.

THANK YOU!
ARTICLE 1889 - 1895

Camim, Hamimah
 OBLIGATION OF AN AGENT NOT TO PREFER HIS
OWN INTERESTS (ART. 1889)

• The agent shall be liable for damages if, its execution would manifestly result in
loss or damage to the principal.
• To answer for damages if there being a conflict between his interest and those of
the principal, he should prefer his own.
• The agent must render service for the benefit of the principal and not to act to his
detriment.
• An agent is bound to exercise loyalty, obedience, and diligence with respect to the
interest of the principal.
 OBLIGATION OF AN AGENT NOT TO
LOAN TO HIMSELF (ART. 1890)

• The agent can lend money to the principal using the agent’s own funds at the current rate of interest and NOT
at a higher interest rate.

• If the agent is authorized to lend the principal’s money, with interest, to third persons, the agent can’t be the
borrower without the consent of the principal.
 OBLIGATION OF AN AGENT TO RENDER
ACCOUNTS (ART. 1891 )

• All profits made and advantage gained by the agent in the execution of the agency belong to the
principal.
• Contrary to public policy as it would encourage fraud. It is in the nature of a waiver of an action for future
fraud which is void.
• If the agent fails to deliver and instead converts or appropriates for his own use the money or property
belonging to his principal, he can be charged with ESTAFA.
 DOMINGO V. DOMINGO
G.R. NO. L-30573; OCTOBER 29, 1971

Ratio: The agent has an absolute duty to make a full

disclosure or accounting to his principal of all transactions and
material facts that may have some relevance with the agency.
 DUMAGUIN V. REYNOLDS
G.R. NO. L-3572, SEPTEMBER 30, 1952

Ratio: All profits made and advantage gained by the agent in

the execution of the agency belong to the principal. And it
matters not whether such profit or advantage be the result of
the performance or of the violation of the duty of the agent if it
be the fruit of the agency.
 WHEN OBLIGATION TO ACCOUNT
NOT APPLICABLE

a. In cases of solutio indebiti;

b. Where a right of lien exists in favor of the agent, the rule is not also
applicable;
i. The agent may, under Art. 1914, retain in pledge the things which are
the object of the agency until the principal effects the reimbursement and
pays the indemnity provided in Arts. 1912 and 1913.
ii. A lawyer shall have a lien upon the funds, documents and papers of
his client and may retain the same until his lawful fees and disbursements
have been paid.
c. Neither would the rule apply if the agent or broker had informed the principal of the gift or bonus or profit he
received from the purchaser and his principal did not object thereto.

d. The duty embodied in the provision will not apply if the agent or broker acted only as a middleman with the
task of merely bringing together the vendor and the vendee, who themselves thereafter will negotiate on the
terms and conditions of the transaction (Domingo v. Domingo, G.R. No. L-30573, October 29, 1971).
Report Distinguished from Accounting
a.Report imports a statement of collections.
b.Accounting means settling of account of
administration or agency, which includes
payment.
 POWER OF AGENT TO
APPOINT A SUB-AGENT (ART. 1892)

Sub-agent. A person employed or appointed by an agent as his agent, to assist

him in the performance of an act for the principal, which the agent has been
empowered to perform.
• An agent may appoint a sub-agent. The agent in this situation is a principal with
respect to the substitute.

Exceptions:

1. When prohibited by the principal;

2. When the work entrusted to the agent to carry out requires special knowledge,
skill or competence.
 POWER OF AGENT TO
APPOINT A SUB-AGENT OR SUBSTITUTE
(ART. 1892 - 1893)

• An agent may not delegate to a sub-agent where the work entrusted to him by the principal.
• The law allows such substitution for reasons of convenience and practical utility.
• Under the premises given in the previous provision, the principal can sue both the agent and the substitute.
 EFECTS OF SUBSTITUTION

1. Substitution expressly prohibited:

• All acts of the substitute shall be void
• Agent is personally liable for the acts of the substitute, as though the contracts of
the substitute, as though the contracts of the substitute were his own; and
• Principal would have no cause of action against the substitute.

2. Substitution authorized:
• The substitute was designated by the agent – it has the effect of releasing the agent
from his responsibility unless the person appointed is notoriously incompetent or
insolvent.
• The substitute was designated by the principal – absolute exemption of the agent.
3. Substitution not authorized, but not prohibited:
• If the substitution has occasioned damage to the principal, the agent shall be
primarily responsible for the acts of the substitute (Serona v. CA, G.R. No.
130423, November 18, 2002).
 LIABILITY OF JOINT AGENTS TO THEIR PRINCIPAL
(ART. 1894 - 1895)

Joint Agents. Agents appointed by one or more principals under such circumstances as to induce the inference
that it was the principal’s intent that all should act in conjunction in consummating the transaction for which
they were appointed.
Their responsibility is joint; except if solidarity has been expressly stipulated.

If solidarity has been agreed upon, each agent is responsible for the:

1. Non-fulfillment of the agency; and

2. Fault or negligence of his fellow agents, unless the fellow agents acted
beyond the scope of their authority.
ARTICLE 1896 - 1902

Figuracion, Karen
A RT. 1 8 9 6 . T H E AG E N T OW E S I N T E R E ST O N T H E S U M S H E H AS A P P L I E D TO
H IS OW N U S E F RO M T H E DAY O N W H I C H H E DI D S O, A ND O N T H O S E W H I C H
H E ST I L L OW E S A F T E R T H E E X T I NG U I S H M E N T O F T H E AGE NC Y. ( 1 7 2 4 A )

Two Distinct Cases:

1. Sums belonging to the principal which the agent applied to his own use;
2. Sums which the agent still owes the principal after the expiration of the
agency.

An Agent is liable for interest by way of compensation or indemnity (not

to be confused with interest of for delay) which shall be computed from the
day on which he did so.
 A RT. 1 8 9 7 . T H E A G E N T W H O
L I A B L E T O T H E PA RT Y W I T H
E X P R E S S LY B I N D S H I M S E L F
AU T H O R I T Y W I T H O U T G I V I N G
HIS POWERS.
A C T S A S S U C H I S N O T P E R S O N A L LY
WHOM HE CONTRACTS, UNLESS HE
O R EXC EE DS T HE L I M I TS OF HI S
S U C H PA RT Y S U F F I C I E N T N O T I C E O F

• Generally, the duties of agents to third persons must be considered with reference to the character of his act:
• Authorized or Unauthorized; and
• Nature of Liability
• In Contract or In Tort

When Agent May Incur Personal Liability:

• When the agent expressly binds himself; and
• When the agent exceeds his authority.
 ART. 1897

• Third Party’s Liability To Agent

- Where the agent contracts in his own name for an undisclosed principal
(Art. 1883);
- Where the agent possesses a beneficial interest in the subject matter of the
agency;
- Where the agent pays money of his principal to third party by mistake or
under a contract which prove subsequently to be illegal, the agent ignorant with
respect to its illegal nature; and
- Where the third party commits a tort against the agent.
 A RT. 1 8 9 8 . I F T H E A G E N T C O N T R A C T S I N T H E N A M E O F T H E P R I N C I PA L , E X C E E D I N G T H E
S C O P E O F H I S AU T H O R I T Y, A N D T H E P R I N C I PA L D O E S N O T R AT I F Y T H E C O N T R A C T, I T S H A L L
B E VO I D I F T H E PA RT Y W I T H W H O M T H E A G E N T C O N T R A C T E D I S AWA R E O F T H E L I M I T S O F
T H E P O W E R S G R A N T E D B Y T H E P R I N C I PA L . I N T H I S C A S E , H O W E V E R , T H E A G E N T I S L I A B L E
I F H E U N D E RT O O K T O S E C U R E T H E P R I N C I PA L’ S R AT I F I C AT I O N .

When an Agent not Personally Liable When an Agent Personally Liable

If an agent acted in the name of the principal and GR: Agent acted in excess of his authority, even if he
within the scope of his authority. contracts in the name of the principal

*The effect of the representation is to bind the XPN: There is a subsequent ratification by the
principal as though he personally entered into the principal.
contract.
 Safic Alcan & Cie vs. Imperial Vegetable Oil C0., Inc.
G.R. No. 126751, March 28, 2001

The acts of the agent beyond the scope of his authority do not bind the principal unless the latter ratifies the same
expressly or impliedly. It also bears emphasizing that when the third person knows the agents was acting beyond
his power or authority, the principal cannot be held liable for the acts of the agent. If the said third person is aware
of such limits of authority, he is to blame, and is not entitled to recover damages from the agent, unless the latter
undertook to secure the principal’s ratification.
 A RT. 1 8 9 9 . I F A D U LY A U T H O R I Z E D A G E N T A C T S I N A C C O R DA N C E
W I T H T H E O R D E R S O F T H E P R I N C I PA L , T H E L AT T E R C A N N O T S E T
U P T H E I G N O R A N C E O F T H E A G E N T A S T O C I R C U M S TA N C E S
W H E R E O F H E H I M S E L F WA S , O R O U G H T T O H AV E B E E N , AWA R E . ( N )

If the principal appoints an agent who is ignorant, the fault is in his alone.
Equity demands that the principal should be bound by the acts of his agents.
If agent followed instructions, principal cannot set up agent’s ignorance or
circumstance which principal was, or ought to have been, aware of.
A RT. 1 9 0 0 . S O FA R A S T H I R D P E R S O N S A R E C O N C E R N E D , A N A C T I S D E E M E D T O H AV E
B E E N P E R F O R M E D W I T H I N T H E S C O P E O F T H E A G E N T ' S A U T H O R I T Y, I F S U C H A C T I S
W I T H I N T H E T E R M S O F T H E P O W E R O F AT T O R N E Y, A S W R I T T E N , E V E N I F T H E A G E N T
H A S I N FA C T E X C E E D E D T H E L I M I T S O F H I S A U T H O R I T Y A C C O R D I N G T O A N
U N D E R S TA N D I N G B E T W E E N T H E P R I N C I PA L A N D T H E A G E N T. ( N )

Scope of agent’s authority includes not only the actual authorization conferred upon the agent by his principal,
but also that which has apparently or impliedly been delegated to him (Angerosa v. The White Company,
210 N.Y.S 2014 [1936]).

(1) Where Authority Not In Writing

Safic Alcan & Cie vs. Imperial Vegetable Oil C0., Inc.
G.R. No. 126751, March 28, 2001
The authority or extent of authority of an agent cannot be established by his own representations
out of court but upon the basis of the manifestations of the principal himself. In case the fact of
agency or the extent of the authority of the agent is controverted, the burden of proof is upon the
third person to establish it. In the absence of proof, the third person cannot seek relief on the basis
of a supposed agency. The law makes no presumption with respect to an agent’s authority.
 ART. 1900

(2) Where Authority In Writing

Example: Husband, with authority to mortgage from wife, mortgaged her property to
secure the husband’s pre-existing debt.
Facts:
Wife (W) gave husband (H) a written power of attorney to “loan and borrow money and to mortgage
her property.” H signed W’s name to a promissory note which would make her liable for the payment
of the pre-existing debt of H or that of his firm, for which W was not previously liable, mortgaging her
property to secure said debt.
Issue: Is the mortgage binding upon W?

Held: No. H acted outside the scope of his authority. The powers and duties of H as agent of W are
confined and limited to those which are specified and defined his written power of attorney, which
limitation is a notice to, and is binding upon, the person dealing with such agent.
(BPI vs. De Coster, 47 Phil. 594 [1925].)
 ART. 1900

Methods of Broadening and Restricting Agent’s Authority

(1) By Implication
(2) By Usage and Custom
(3) By Necessity – existence of emergency or other unusual conditions
a. Emergency really exists;
b. The agent is unable to communicate with the principal;
c. The agent’s enlarged authority is exercised for the principal’s protection; and
d. The means adopted are reasonable under the circumstances.

(4) By Certain Doctrines

a. Apparent Authority (Art. 1911)
b. Liability by Estoppel (Art. 1873)
c. Ratification (Art. 1910)

(5) By the Rule of Ejusdem Generis, “of the same kind or species”
- Operates to restrict the agent’s authority. A method for 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.
 A RT. 1 9 0 1 . A T H I R D P E R S O N C A N N O T S E T U P T H E FA C T T H AT
T H E A G E N T H A S E X C E E D E D H I S P O W E R S , I F T H E P R I N C I PA L
H A S R AT I F I E D , O R H A S S I G N I F I E D H I S W I L L I N G N E S S T O
R AT I F Y T H E A G E N T ’ S A C T S .

Ratification by the Principal

It is fundamental in the law of agency that only the principal and not the agent
can stamp the imprimatur of ratification.
a) There must be knowledge on the part of the principal of the things he is
going to ratify.
b) Before ratification by the principal or expression of willingness on his part
to ratify, the third person may repudiate the act of the agent.
A RT. 1 9 0 2 . A T H I R D P E R S O N W I T H W H O M T H E A G E N T W I S H E S T O C O N T R A C T O N
B E H A L F O F T H E P R I N C I PA L M AY R E Q U I R E T H E P R E S E N TAT I O N O F T H E P O W E R O F
AT T O R N E Y, O R T H E I N S T R U C T I O N S A S R E G A R D S T H E A G E N C Y. P R I VAT E O R
S E C R E T O R D E R S A N D I N S T R U C T I O N S O F T H E P R I N C I PA L D O N O T P R E J U D I C E
T H I R D P E R S O N S W H O H AV E R E L I E D U P O N T H E P O W E R O F AT T O R N E Y O R
INSTRUCTIONS SHOWN THEM

A. Presentation of Power of Attorney or Instructions as regards agency

B. Third Persons Not Bound by Principal’s Private Instructions
ARTICLE 1903 - 1909

Pitlo, Louie B.
 ART. 1903 - FACTOR OR COMMISSION
AGENT

• One whose business is to receive and sell goods for a commission (also called
factorage)
• Entrusted by the principal with the possession of goods to be sold
• Usually selling in his own name
• May act in his own name or in that of the principal
 LIABILITY OF COMMISSION AGENT
AS TO GOODS RECEIVED

• Responsible for any damage or deterioration suffered by the same

• “in the terms and conditions and as described in the consignment” - refers to
quantity, quality, and physical conditions of the goods
• To avoid liability, the commission agent should make a written statement of the
damage or deterioration if the goods received by him do not agree with the
description in the consignment
 ART. 1904 – OBLIGATION OF COMMISSION AGENT
HANDLING GOODS OF SAME KIND AND MARK

• He may not comingle goods without authority

• He may not comingle goods of his own to that of the consigned without
authority
• Ordinarily, the agent must hold the property only in the name of the principal
Exceptions
1. By custom
2. Some agents such as collecting banks are allowed to mingle funds of their
principal (depositor) with their own and the property of other principals
 MONTELIBANO VS. BACOLOD MURCIA
MILLING CO., 95 PHIL. 407 (1954)

Facts:
The sugar of A and B were stored in one single mass without separation or identification in a
warehouse. A made withdrawals of sugar without express statement as to whose sugar was being
withdrawn.
Issue:
Is there legal basis for B’s contention that as the taking of the sugar was without his consent, and
that of A with A’s consent, all that remained is B’s?
Held:
No. As the mass of sugar in the warehouse was owned in common, and it is not possible to
determined whose sugar was withdrawn and whose was not, the mass remaining must pertain to the
original owners in the proportion of the original amounts owned by each of them.
 RIGHT OF THE PRINCIPAL WHERE SALE ON
CREDIT MADE WITHOUT AUTHORITY (ART. 1905)

A commission agent can sell on credit only with the express or implied consent of
the principal. If made without the authority of the principal, the latter may:
• Require payment in cash
• May ratify the sale on credit
 OBLIGATION OF COMMISSION AGENT
WHERE SALE ON CREDIT AUTHORIZED

• 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 in cash
 GUARANTEE COMMISSION (DEL
CREDERE)

• One where, in consideration of an increased commission, the factor or

commission agent guarantees to the principal the payment of debts arising from
his agency
• The purpose is to compensate the agent for the risks he will have to bear in the
collection of the credit due the principal.
• Art. 1907 applies to both sale on cash and credit.
• Liability is a contingent pecuniary liability
 OBLIGATION OF COMMISSION AGENT TO
COLLECT CREDITS OF PRINCIPAL (ART. 1908)

• Must collect credits due the principal at the time they become due and
demandable
• If he fails to do so, he will be liable for damages unless the credit could not be
collected despite exercise of due diligence on his part
• Does not apply to a guarantee commission
 LIABILITY OF AGENT FOR FRAUD
AND NEGLIGENCE (ART. 1909)

• The agent is liable when (1) he does not discharge the agency with due
promptness, or (2) according to the instructions of his principal, or (3) within
the limits of his authority, or (4) when he does not make use of the powers
conferred upon him.
• Damage or loss due to negligence may be considered by courts in determining
liability if such is gratuitous as the agency is always presumed to be onerous
• Agent is also liable for torts committed willfully
• Principal is solidarily liable if the tort was committed by the agent while
performing his performing his duties in furtherance of the principal’s business
ILLUSTRATIVE
CASES
 MERSELMAN VS. WICKER
(30 S.E. [2D] 317 [TENN.])

RATIO:

An agent who gratuitously assumes the agency obligation and neglects to carry it
out is generally not liable for his non-feasance. But where the agent knows or
should know that the principal, in reliance upon his promise to do the given act,
will refrain from doing the act himself, liability for nonfeasance attaches.
 TAN TIONG TECK VS. SEC
(69 PHIL. 425 [1945])

RATIO:

An agent who failed to exercise the prudence and tact of a good father of a family
which the law required of him will be liable for the loss or damage to the
principal.