Finals Reviewer AGENCY 2nd Sem; 2003

Essential Elements of Agency:

Chapter 1. Nature, Form and Kinds of 1.) Consent, express or implied;
2.) Object of the contract is the execution of a
Agency juridical act in relation to 3rd persons;
3.) The agent acts as a representative and not for
himself;
Art. 1868. By the contract of agency a person 4.) The agent acts within the scope of his authority.
binds himself to render some service or to do
something in representation or on behalf of Acts that cannot be done through an agent:
another, with the consent or authority of the 1.) Personal acts: if personal performance is reqd by
latter. law or public policy or agreement;
2.) Criminal or illegal acts: attempt to delegate
Agency: A relationship which implies a power in an another authority to do an act which, if done by
agent to contract with a 3rd person on behalf of a the principal would be illegal, is void.
principal.
Nature of Relation between Principal and Agent:
Kind of Contract: It is a preparatory contract. It is a Fiduciary, based on trust and confidence.
contract entered not for its own end but to be able to
enter into other contracts. Agency v. Lease of Work or Service
Agency Lease of Work/Service
Characteristics:
Basis is representation. Basis is employment
1.) Consensual: perfected by mere consent;
Agent exercises Lessor only performs
2.) Nominate: it has its own name;
discretionary powers. ministerial functions.
3.) Principal: does not depend on another contract
3 persons are involved: Only 2 persons involved:
for its existence and validity;
principal, agent & 3rd lessor and lessee
4.) Preparatory: entered into as a means to an end;
person.
5.) Unilateral/Bilateral:
Commercial or business Matters of mere manual or
a.) Unilateral: if contract is gratuitous, it
transactions. mechanical execution.
creates obligations for only one of the
parties, i.e. agent.
b.) Bilateral: if for compensation, it gives Agency v. Guardianship
rise to reciprocal rights and obligs. Agency Guardianship
Agent represents a Guardian represents an
Basis: Representation. capacitated person. incapacitated person.
The acts of the agent on behalf of the principal within Agent appointed by Guardian appointed by
the scope of his authority produce the same legal and principal and can be court and stands in loco
binding effects as if the principal personally did them. removed by him. parentis.
Agent subject to directions Guardian not subject to
Distinguishing Features: of principal. directions of ward but
1.) Representative character; and must act for his benefit.
2.) Derivative authority. Agent can make principal Guardian has no power to
personally liable. impose personal liability on
Purpose: To extend the personality of the principal his ward.
through the facility of the agent.
Agency to Sell v. Sale
Parties: Agency to sell Sale
1.) Principal; and Agent receives the goods Buyer receives the goods
2.) Agent. as the goods of the as owner.
principal.
Who can be principal? Agent delivers proceeds of Buyer pays the price.
The principal may be a natural person or a juridical the sale.
person. He must be capacitated. The rule is if a person Agent can return object in Generally, buyer cannot
is capacitated to act for himself or in his own right, he case he is unable to sell to return the object sold.
can act through an agent. a 3rd person.
Agent in dealing with the Buyer can deal with the
Must the agent have capacity? thing received is bound to thing as he pleases, being
Insofar as 3rd persons are concerned, it is enough act accdg to the the owner.
that the principal is capacitated; but insofar as his instructions of his principal
obligations to his principal are concerned, the agent
must be able to bind himself.

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Finals Reviewer AGENCY
Agent v. Independent Contractor
Agent Independent Contractor
Represents the principal. Employed by employer.
Acts under the control and Acts according to his own
instructions of the principal method.
Principal liable for torts Employer not liable for
committed by agent w/in torts committed by
scope of authority. independent contractor.
Art. 1869. Agency must 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 authority.
Agency may be oral, unless the law requires a
specific form.
Classifications of Agency: as to…
1.) Manner of Creation:
a.) Express: actually authorized, either
orally or in writing.
b.) Implied: implied from acts of principal,
from his silence or lack of action or his
failure to repudiate the agency knowing
that another person is acting on his
behalf w/o authority.
2.) Character:
a.) Gratuitous: agent receives no
compensation for his services.
b.) Onerous: agent does receive
compensation.
3.) Extent of business covered:
a.) General: comprises all the business of
the principal.
b.) Special: comprises one or more specific
transactions.
4.) Authority conferred:
a.) Couched in general terms: deemed to
comprise only acts of administration.
b.) Couched in specific terms: authorizes
only the performance of a specific act/s.
5.) Nature and effects:
a.) Representative: agent acts in name and
representation of principal.
b.) Simple/Commission: agent acts in his
own name but for the account of the
principal.
Can agency be presumed?
Generally NO because the relationship between the
principal and agent must exist as a fact. The only
exceptions to this rule are when agency arises by
operation of law or agency is presumed to prevent
unjust enrichment.
Form: Generally, NO formal requirements. Agent’s
authority may be oral or written, it may be in public or
private writings. The only exception is when the law
requires a specific form (e.g. sale of real property or any
interest therein by an agent.)
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2nd Sem; 2003
Art. 1870. Acceptance by the agent may also be
express, or implied from his acts which carry out
the agency, or from his silence or inaction
according to the circumstances.
Form of Acceptance by Agent:
Acceptance may be express or implied; express when
it is oral or written; implied when it can be inferred from
the acts of the agent which carry out the agency, or
from his silence or inaction accdg to the circumstances.
Art. 1871. Between persons who are present,
the acceptance of the agency may also be implied
if the principal delivers his power of attorney to
the agent and the latter receives it without any
objection.
Between 2 persons who are present, when it acceptance
deemed implied?
When the agent receives a power of atty from the
principal himself personally without objection.
Is this presumption conclusive?
NO, it can be rebutted by contrary proof.
Power of attorney: An instrument in writing by which
one person, as principal, appoints another as his agent
and confers upon him the authority to perform certain
specified acts or kinds of acts on behalf of the principal.
Its primary purpose is to evidence the authority of the
agent to 3rd parties w/ whom the agent deals.
Construction
A power of atty is strictly construed and strictly
pursued. The instrument will be held to grant only those
powers which are specified, and the agent may neither
go beyond nor deviate from the power of atty. The only
exception is when strict construction will destroy the
very purpose of the power.
Meaning of “present”
Not limited to face-to-face encounters. 2 persons
conversing on the phone are also considered as both
“present”.
Art. 1872. Between persons who are absent,
the acceptance of the agency cannot be implied
from the silence of the agent, except:
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.
2 Ways of Giving Notice of Agency
1.) By special information; or
2.) By public advertisement.
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Effects:
1.) Special information: the person appointed as
agent is considered such with respect to the
person to whom it was given.
2.) Public advertisement: Agent is considered such
with regard to any person.
Revocation – An agency is revoked in the same manner
as it was given.
General rule: Special information needs special
information of revocation.
Except: if you can prove that the 3rd person read the
notice in the newspaper.
Art. 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.
The power shall continue to be in full force until
the notice is rescinded in the same manner in
which it was given.
Agency by Estoppel: There is really no agency at all, but
the alleged agent seemed to have apparent or
ostensible, although no real authority to represent
another.
1.) Estoppel of Agent – One professing to act as
agent for another may be estopped to deny his
agency both as against his asserted principal
and the 3rd persons interested in the transaction
in which he is engaged.
2.) Estoppel of Principal –
a.) As to Agent – One who knows that
another is acting as his agent and fails
to repudiate his acts, or accept the
benefits of them, will be estopped to
deny the agency as against such other.
b.) As to sub-agent – To estop the principal
from denying his liability to a 3rd person,
he must have known or be charged with
knowledge of the fact of the
transmission and the terms of the
agreement between the agent and sub-
agent.
c.) As to 3rd persons – One who knows that
another is acting as his agent or
permitted another to appear as his
agent, to the injury of 3rd persons who
have dealt with the apparent agent as
such in good faith and in the exercise of
reasonable prudence, is estopped to
deny the agency.
3.) Estoppel of 3rd Persons – A 3rd person, having
dealt with one as an agent may be estopped to
deny the agency as against the principal, agent
or 3rd persons in interest.
4.) Estoppel of the govt – The govt is neither
estopped by the mistake or error on the part of
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2nd Sem; 2003
its agents. But it may be estopped through
affirmative acts of its officers acting within the
scope of their authority.
Art. 1874. When a sale of a piece of land or any
interest therein is through an agent, the authority
of the latter shall be in writing; otherwise, the sale
shall be void.
A letter is sufficient [Jimenez v. Rabot].
Art. 1875. Agency is presumed to be for a
compensation, unless there is proof to the
contrary.
Broker: One who in behalf of others, and for
compensation or fee, negotiate contracts relative to
property. He is the negotiator between the parties,
never acting in his own name, but in the name of those
who employ him. He is strictly a middleman and for
some purposes, the agent of both parties.
When is a broker entitled to compensation?
A broker is entitled to commission whenever he rings
to his principal a party who is able and willing to take
the property, and enter into a valid contract upon the
terms named by the principal, although the particulars
may be arranged and the matter negotiated and
completed between the principal and the purchaser
directly. A broker is never entitled to commission for
unsuccessful efforts.
Does the law allow double agency?
Such agency is disapproved by law for being against
public policy and sound morality. The exception is where
the agent acted with full knowledge and free consent of
the principals.
In case the agent assumes a double agency, what is his
right to compensation?
1.) If with knowledge of both principals – recovery
can be had from both.
2.) If without knowledge of both – agent can
recover from neither.
3.) If with knowledge of only one – as to the
principal who knew of that fact and as to the
agent, they are in pari delicto and the courts
shall leave them as they were, the contract
between them being void as against public polisy
and good morals.
Art. 1876. An agency is either general or
special.
The former comprises all the business of the
principal. The latter, one or more specific
transactions.
Classification of Agents:
1.) Universal agent: One employed to do all acts
that the principal may personally do, and which
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the principal can lawfully delegate to another the Art. 1877. An agency couched in general terms
power of doing. comprises only acts of administration, even if the
2.) General agent: One employed to transact all the principal should state that he withholds no power
business of his principal, or all business of a or that the agent may execute such acts as he may
particular kind or in a particular place, or in consider appropriate, or even though the agency
other words, to do all acts connected with a should authorize a general or unlimited
particular trade, business, or employment. management.
3.) Special/Particular agent: One authorized to act
in one or more specific transactions, or to do Examples of acts of mere administration:
one or more specific acts, or to act upon a 1.) To sue for collection of debts;
particular occasion. e.g.: 2.) To employ workers or servants and employees
a.) Atty at law: One whose business is to needed for the conduct of business;
represent clients in legal proceedings. 3.) To engage counsel to preserve the ownership
b.) Auctioneer: One whose business is to and possession of the principal’s property;
sell property for others to the highest 4.) To lease real property to another person for 1
bidder at a public sale. year or less, provided the lease is not
c.) Broker: One whose business is to act as registered;
intermediary between 2 other parties. 5.) To make customary gifts for charity or to
d.) Factor: One whose business is to receive employees in the business managed by the
and sell goods for a commission, being agent
entrusted with the possession of the 6.) To borrow money if it be urgent and
goods involved in the transaction. indispensable for the preservation of the things
under administration.
Attorney-in-fact: One who is given authority by his
principal to do a particular act not of a legal character. How are contracts of agency construed?
In strict legal sense: An agent having a special authority Contracts of agency as well as general powers of
created by deed. attorney must be interpreted in accordance with the
language used by the parties. The real intention of the
General Agent v. Special Agent [SNETI] parties is primarily determined from the language used
As to… General agent Special agent and gathered from the whole instrument. In case of
Scope of All acts connected Only one or more doubt, resort must be had to the situation, surroundings
authority w/ the business in specific acts in and relations of the parties. The intention of the parties
which he is pursuance of must be sustained rather than defeated. So if the
engaged. particular contract be open to 2 constructions, one of which would
instructions or w/ uphold the intention while the other would overthrow it,
restrictions the former is to be chosen.
necessarily implied
from the act to be MEMORIZE THIS: [PNC-WIGLLS-PG-CARS]
done. Art. 1878. Special powers of attorney are
Nature of Series a Single transaction necessary in the following cases:
service transactions or a series of 1.) To make such payments as are not
authorized involving a transactions not usually considered as acts of
continuity of involving continuity administration;
service. of service. 2.) To effect novations which put an end to
Extent to By an act within Cannot in a manner obligations already in existence at the
which agent the scope of his beyond or outside time the agency was constituted;
may bind authority although the specific acts w/c 3.) To compromise, to submit questions to
principal it may be contrary he is authorized to arbitration, to renounce the right to
to his special perform. appeal from a judgment, to waive
instructions. objections to the venue of an action or to
Termination Apparent authority Termination abandon a prescription already acquired;
of authority does not terminate effective as to 3rd 4.) To waive any obligation gratuitously;
by mere revocation party unless agency 5.) To enter into any contract by which the
of authority w/o was for purpose of ownership of an immovable is
notice to 3rd contracting w/ that transmitted or acquired either
parties. 3rd party. gratuitously or for a valuable
Construction Merely advisory. Strictly construed. consideration;
of Limits the authority 6.) To make gifts, except customary ones for
instructions of agent. charity or those made to employees in
of principal the business managed by the agent;

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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.
Scope of General Authority to Purchase
Where an agent’s power to purchase is general and
unrestricted, he has implied authority to do whatever is
usual and necessary in the exercise of such power. He
may:
1.) Determine the usual and necessary details of the
contract,
2.) agree upon the price,
3.) modify or rescind the contract of purchase,
4.) accept delivery for his principal,
5.) give directions for the delivery of the property
purchased, and
6.) may borrow money to pay for the care and
preservation of the property purchased.
But he has no special power to
1.) Settle a contest between the principal and a 3rd
person regarding the ownership of goods
purchased, or
2.) Agree to an account stated, or
3.) Do anything not usual or necessary to the
exercise of such authority.
Scope of Special Authority to Purchase
Where the agency is a special one, or is restricted to
purchases upon certain terms and conditions, the agent
has no authority to
1.) Purchase upon different terms and conditions
from those authorized, or
2.) Modify or rescind a contract of purchase made
by the principal.
Art. 1879. A special power to sell excludes the
power to mortgage; and a special power to
mortgage does not include the power to sell.
The ff are included in a Power to Sell:
The power to:
1.) Find a purchaser or to sell directly;
2.) Deliver the property;
3.) Make the usual representation and warranty;
4.) Execute the necessary transfer documents;
Helen C. Arevalo
2nd Sem; 2003
5.) Fix the terms of the sale unless there be set
conditions stipulated by the principal;
6.) Sell only for cash;
7.) Receive the price unless he was authorized only
to solicit orders.
The ff are not included in a Power to Mortgage
The power to:
1.) Sell;
2.) Execute a 2nd mortgage;
3.) Mortgage for the agent’s personal benefit or for
the benefit of any 3rd person, unless the contrary
has been clearly indicated.
Does the principal have the power to revoke a contract
giving an agent exclusive authority to sell?
YES. But he may not have the right to use such
power if he has agreed not to exercise such power
during a certain period. In case he fails to comply with
this obligation-not-to-do, he will be liable for damages.
Art. 1880. A special power to compromise does
not authorize submission to arbitration.
Rationale:
A principal may authorize his agent to compromise
because of absolute confidence in the latter’s judgment
and discretion to protect the former’s rights and obtain
for him the best bargain in the transaction. If the
transaction would be left in the hands of an arbitrator,
said arbitrator may not enjoy the trust of the principal.
What happens if the agent is specifically authorized to
submit to arbitration?
Then the arbitration award binds the principal,
provided, of course, that the agent acted within the
scope of his authority.
Art. 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.
Authority: The 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. The
authority of the agent is the very essence – sine qua
non – of the principal and agent relationship. This
authority, unless it is otherwise agreed, includes only
the authority to act for the benefit of the principal, and
the source of the authority is the principal and never the
agent.
Kinds of Authority:
1.) Actual: when it is actually granted, and it may
be express or implied. It results from what the
principal indicates to the agent.
2.) Express: when it is directly conferred by words.
3.) Implied: when it is incidental to the transaction
or reasonably necessary to accomplish the
purpose of the agency, and therefore, the
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principal is deemed to have actually intended
the agent to possess.
4.) Apparent or Ostensible: when it is conferred by
words, conduct or even by the silence of the
principal which causes a 3rd person reasonably to
believe that a particular person, who may or
may not be the principal’s agent, has actual
authority to act for the principal. Ostensible
authority is another name for authority by
estoppel.
5.) General: when it refers to all the business of the
principal.
6.) Special: when it is limited only to one or more
specific transactions.
7.) By necessity or by operation of law: when it is
demanded by virtue of the existence of an
emergency; it terminates when the emergency
has passed.
Requisites for Principal to be Bound by Act of Agent:
1.) The agent must act in behalf of the principal;
2.) The agent must act within the scope of his
authority.
When is a principal not bound by the act of his agent?
When the agent acts without or beyond the scope of
his authority; or when the agent acts within the scope of
his authority but in his own name except when the
transaction involves things belonging to the principal.
Authority? Whose behalf? Status of K
With authority Principal’s Valid
With authority Own Depends. [1883]
Without Principal’s Unenforceable
Without Own Valid
Who to sue?
In case the agent acts in the name of the principal
and within his scope of authority, you must name the
principal as the defendant.
Note: The authority to look for buyers does not carry
with it the authority to sell.
Art. 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.
What happens if the agent exceeds his authority but he
performs the agency in a manner more advantageous to
the principal?
It will e as if he did not exceed the limits of his
authority since he must do such acts as may be
conducive to the accomplishment of the purpose of the
agency.
Test: Would the principal enter into this transaction?
Art. 1883. If an agent acts in his own name, the
principal has no right of action against the persons
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AGENCY 2nd Sem; 2003
with whom the agent 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.
Kinds of Principals:
1.) Disclosed: if at the time of the transaction
contracted by the agent, the other party thereto
has known that the agent is acting for a principal
and has known the principal’s identity.
2.) Partially disclosed: if the other party knows or
has reason to know that the agent is or may be
acting for a principal but is unaware of the
principal’s identity. The partially disclosed
principal may enforce against the 3rd person the
contract of the agent like any disclosed principal.
Similarly, the 3rd person has a right of action
against the principal.
3.) Undisclosed: if the party has no notice of the
fact that the agent is acting as such for a
principal.
General Rule in 1883: If the agent is authorized to act
on behalf of the principal but instead acts in his own
name, the agent is the one directly liable to the person
with whom he had contracted as if the transaction were
his own.
Exception: If the contract involves something belonging
to the principal.
Remedy of the Principal if this situation arises:
He can demand from the agent damages for his
failure to comply with the agency.
Remedy of the 3rd person with whom the agent
contracted in case the oblig is not complied with:
If the case falls under the general rule, he can sue
the agent. But when the contract involves things
belonging to the principal, he can sue the principal. But
if it cannot be determined w/o litigation who is liable, he
can sue both.
Chapter 2. Obligations of the Agent
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.
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He must also finish the business already begun Art. 1886. Should there be a stipulation that the
on the death of the principal, should delay entail agent shall advance the necessary funds, he shall
any danger. be bound to do so except when the principal is
insolvent.
General Obligations of an Agent to his Principal:
1.) To act with the utmost good faith and loyalty for In a contract of agency, may the parties stipulate that
the furtherance and advancement of the the agent shall advance the necessary funds? YES.
interests of the principal.
2.) To obey the principal’s instructions. What is the oblig then of the agent?
3.) To exercise reasonable care. He is bound to furnish such funds.
Except: When the principal is insolvent. This exception is
Specific Obligations: based on the principal’s obligation to reimburse the
1.) To carry out the agency he has accepted. agent.
2.) To answer for damages which through his non-
performance the principal may suffer. Art. 1887. In the execution of the agency, the
3.) To finish the business already begun on the agent shall act in accordance with the instructions
death of the principal should delay entail danger. of the principal.
4.) To observe the diligence of a good father or a In default thereof, he shall do all that a good
family in the custody and preservation of the father of a family would do, as required by the
goods forwarded to him by the owner in case he nature of the business.
declines an agency, until an agent is appointed.
5.) To advance the necessary funds should there be Instructions: Private directions which the principal may
a stipulation to do so. give the agent in regard to the manner of performing his
6.) To act in accordance with the instructions of the duties as such agent.
principal, and in default thereof, to do all that a
good father of a family would do. Authority v. Instructions
7.) Not to carry out the agency if its execution Authority Instructions
would manifestly result in loss or damage to the Sum total of powers Direct the manner of
principal. committed or permitted to transacting the authorized
8.) To answer for damages if there be a conflict the agent by the principal. business and contemplates
between his interests and those of the principal, only a private rule of
he should prefer his own. guidance to the agent.
9.) Not to loan to himself if he has been authorized Relates to the subject with Refers to the manner or
to lend money at interest. which the agent is mode of his action with
10.) Not to render an account of his transactions empowered to deal or the respect to matters which in
and to deliver to the principal whatever he may kinds of business or their substance are within
have received by virtue of the agency. transactions upon which he the scope of permitted
11.) To be responsible in certain cases for the act of is powered to act. action.
the substitute appointed by him. Limitations of authority are Without significance as
12.) To pay interest on funds he has applied to his operative as against those against those dealing with
own use. who have or are charged the agent with neither
with knowledge of them. knowledge nor notice of
Art. 1885. In case a person declines an agency, them.
he is bound to observe the diligence of a good Contemplated to be made Not expected to be made
father of a family in the custody and preservation known to the 3rd person known to those w/ whom
of the goods forwarded to him by the owner until dealing w/ the agent. the agent deals.
the latter should appoint an agent. The owner Instructions pertain to the principal and agent
shall as soon as practicable either appoint an Authority pertain to the agent and 3rd persons.
agent or take charge of the goods.
Exceptions to the rule that the agent must not depart
What is the rule if a person declines agency? from the instructions of the principal: [SAI]
In the event a person declines an agency, he is A departure may be justified by:
bound to observe the diligence of a good father of a 1.) A sudden emergency;
family in the custody and preservation of the goods 2.) If the instructions are ambiguous; or
forwarded to him by the owner. 3.) If the departure is so insubstantial that it does
not affect the result and the principal suffers no
Duty of Owner in case an Agency is Declined: damage thereby.
He must act as soon as possible by appointing an
agent or by taking charge of the goods. When the Agent has a right to disobey the principal’s
instructions:

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1.) When the instruction calls for the performance of
illegal acts; or
2.) Where he is privileged to do so to protect his
security/interest in the subject matter of 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.
Rationale: The duty of the agent who is merely an
extension of the personality of the principal is to render
service for the benefit of the principal and not to act to
his detriment. Furthermore, the agent must exercise due
diligence in carrying out the agency.
Art. 1889. The agent shall be liable for damages
if, its execution would manifestly result in loss or
damage to the principal.
Note: This provision applies to both onerous and
gratuitous transactions. The law does not distinguish so
neither should we.
Rationale: An agent occupies a fiduciary position and
therefore is bound to exercise loyalty, obedience, and
diligence with respect to the interest of the principal.
If the agent follows the principal’s instructions yet his
acts still result in damage to 3rd persons, who is liable?
General rule: The agent is NOT liable.
Except: if before acting that way, it is obvious that
the act will result to damage, then the agent is liable.
Art. 1890. If the agent has been empowered to
borrow money, he may himself be the lender at
the current rate of interest. If he has been
authorized to lend money at interest, he cannot
borrow it without the consent of the principal.
Rationale: 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 because the
agent is supposed to act for the principal’s benefit.
If the agent is authorized to lend the principal’s
money, with interest, to 3rd persons, the agent can’t be
the borrower without the consent of the principal
because the agent may not be a good borrower or he
may be insolvent or he may not be a good risk. There is
a danger here that the interest of the principal would be
jeopardized.
This would also seem to be the case if the agent is
authorized to lend money w/o interest because of the
same reason.
Art. 1891. 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.
Helen C. Arevalo
AGENCY 2nd Sem; 2003
Every stipulation exempting the agent from the
obligation to render an account shall be void.
Rationale: Contrary to public policy as it would
encourage fraud. It is in the nature of a waiver of an
action for future fraud w/c 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, with what can he be charged?
ESTAFA.
Art. 1892. The agent may appoint a substitute if
the principal has not prohibited him from doing so;
but he shall be responsible for the acts of the
substitute:
1.) When he was not given the power to
appoint one;
2.) When he was given such power, but
without designating the person, and the
person appointed was notoriously
incompetent or insolvent.
All acts of the substitute appointed against the
prohibition of the principal shall be void.
Sub-agent: A person to whom the agent delegates, as
his agent, the performance of an act for the principal
which the agent has been empowered to perform
through his representative.
Relation among the principal, agent and sub-agent
In reality, the sub-agent is a stranger to the principal
who originally gave life to the agency. But if the agent is
authorized to appoint a sub-agent, the relation of
principal and agent exists between the principal and the
sub-agent. That is, the sub-agent may be the agent of
the principal if he is in actual control of the business and
the principal knows of his appointment or knows that his
appointment is necessary. Consequently, any act done
by the sub-agent in behalf of the principal is deemed an
act of the principal; so neither agent nor sub-agent may
be held personally liable as long as they act within the
scope of their authority.
When can an agent appoint a sub-agent?
So long as there’s no prohibition. However, he shall
be responsible for all the sub-agent’s acts.
4 Instances where a Sub-agent is appointed and the
Effects of each:
Instance Effect
No prohibition Agent responsible for all
the acts of sub-agent.
Prohibition Sub-agent’s acts are VOID
as to the principal.
Authority to appoint but Agent liable for acts of
not designated by principal sub-agent if the sub-agent
is notoriously incompetent
or insolvent.
Authority to appoint and Agent is released from any
designated by principal liability from the acts of
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Finals Reviewer
the sub-agent.
Art. 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.
When can the principal sue the substitute?
Under the premises given in the previous provision,
the principal can sue both the agent and the substitute.
Art. 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.
If solidarity is not stipulated, what is the liability to 2 or
more agents? JOINT.
Each is liable only for proportionate part of debt.
Art. 1895. If solidarity has been agreed upon,
each of the agents is responsible for the non-
fulfillment of the agency, and for the fault or
negligence of his fellow agents, except in the
latter case when the fellow agents acted beyond
the scope of their authority.
What happens if solidarity has been agreed upon?
Then each of the agents becomes solidarily liable for:
1.) The non-fulfillment of the agency; or
2.) The fault or negligence of the fellow agent
provided the latter acted within the scope of his
authority.
But the innocent agent has a right later on to recover
from the guilty or negligent agent.
What happens if the fellow agent acted beyond the
scope of his authority?
Then the innocent agent cannot be liable at all to the
principal even if solidarity had been agreed upon.
Art. 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.
Art. 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.
Principal Agent 3rd Party (wrong party to complain if
the principal doesn’t complain
of the agent’s acts)
General rule: “an agent who acts as such is not
personally liable to the party with whom he contracts.”
Helen C. Arevalo
AGENCY 2nd Sem; 2003
Reason for general rule: Because an agent who acts as
such within the scope of his authority represents the
principal so that his contract is really the principal’s.
Exceptions:
1.) When the agent binds himself; or
2.) When he exceeds the limits of his authority
without giving the third party sufficient notice of
his powers.
Reasons for exceptions:
1.) When the agent expressly binds himself, he
thereby obligates himself personally and by his
own act.
2.) When the agent exceeds his authority, he really
acts without authority and therefore, the
contract is unenforceable against the principal.
The agent becomes personally liable because y
his wrong or omission, he deprives the 3rd party
with whom he contracts of any remedy against
the principal.
Art. 1898. If the agent contracts in the name of
the principal, exceeding the scope of his authority,
and the principal does not ratify the contract, it
shall be void if the party with whom the agent
contracted is aware of the limits of the powers
granted by the principal. In this case, however,
the agent is liable if he undertook to secure the
principal’s ratification.
Art. 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.
This article refers to the liability of the principal
towards 3rd persons.
What happens if the principal appoints an agent who is
ignorant?
Then the fault is the principal’s alone. Equity
demands that the principal should be bound by the acts
of the agent if the latter acts within the scope of his
authority and in accordance with the instructions of the
former.
Art. 1900. So far as third persons are
concerned, an act is deemed to have been
performed within the scope of the agent’s
authority, is 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.
Requisite for article to apply:
Authority to agent must be in writing.
“Scope of agent’s authority” includes:
9 Section II-D
Finals Reviewer AGENCY 2nd Sem; 2003
Not only the actual authorization conferred upon the i.) Vary the terms of an express
agent by the principal, but also that which has authorization;
apparently or impliedly been delegated to him. ii.) Dispense with a legal requirement
enacted for the principal’s benefit;
To hold the principal liable, a 3rd person dealing with an iii.) Change a rule of law or dispense
agent must: with a formality required by law;
Discover upon his peril not only the fact of agency iv.) Vary an essential quality of the
but the nature and extent of authority of the agent. He agency relationship.
is put on inquiry. He must also act with ordinary b.) General rule: principal must have notice
prudence and reasonable diligence. of the alleged custom, before the agent’s
acts, in accordance therewith, may bind
Fundamental principles when inquiring whether authority the principal. Exceptions:
exists: i.) Where the principal and the agent
1.) The law indulges in no bare presumptions that reside in the same community, the
an agency exists, it must be proved and usage is definite and well-known,
presumed from facts; and the agent has no notice that he
2.) The agent cannot establish his own authority, is to act to the contrary;
either by his representations or by assuming to ii.) Where the agent is authorized to
exercise it; deal in a particular place or in a
3.) An authority cannot be established by mere particular market exchange.
rumor or general reputation; 4.) By necessity – the existence of an emergency or
4.) A general authority is not an unlimited one; and other unusual conditions may operate to invest
5.) Every authority must find its ultimate source in in an agent authority to meet the emergency,
some act or omission of the principal. provided:
a.) Emergency really exists;
In case the fact of agency or the extent of the authority b.) Agent is unable to
of the agent is controverted, the burden of proof is on: communicate w/ the principal;
The 3rd person to establish the fact of agency or the c.) Agent’s enlarged authority is
extent of authority of the agent. exercised for the principal’s
protection; and
Does the 3rd person have to inquire further if the power d.) The means adopted are
of attorney is written? reasonable under the
No. He is not required to inquire further than the circumstances.
terms of the written power of attorney. 5.) By certain doctrines –
a.) Apparent authority
If there is a secret mutual understanding between the b.) Liability by estoppel;
principal and the agent, and such is not expressed in the c.) Ratification.
written power of attorney, does the 3rd person have to 6.) By the ejusdem generis rule – such that where
inquire? in an instrument of any kind, an enumeration of
No. As far as he is concerned, an act of the agent specific matters is followed by a general phrase
within the terms of the power of attorney as written, is is held to be limited in scope by the specific
within the scope of the agent’s apparent authority matters.
notwithstanding that the agent may have exceeded the
limits of his actual authority according to a secret Responsibility of principal when agent acts w/ improper
understanding between him and the principal. In such a motives:
case, the principal is estopped from claiming that the General rule: Motive of agent in entering into a K w/
agent exceeded his authority. a 3rd person is immaterial.
Exceptions:
Ways by which the agent’s authority may be broadened 1.) Where the 3rd person knew that the agent was
or restricted: [I’m-UNDEr] acting for his benefit, in w/c case, the principal
1.) By implication – agent’s authority extends not is not liable to the 3rd person; and
only to express requests, but also to those acts 2.) Where the owner is seeking recovery of personal
and transactions incidental thereto. It embraces property of w/c he has been unlawfully deprived.
all the necessary and appropriate means to
accomplish the desired end. Principal’s responsibility for an agent’s
2.) By usage and custom – misrepresentation:
a.) An agent’s authority may not be 1.) Within the scope of the agent’s authority –
enlarged through usage and custom in Principal is subject to liability for lass caused to
the following cases: Where it is sought another by the 3rd persons reliance upon a
to… deceitful representation of an agent in the
course of his employment if:

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Finals Reviewer
a.) Representation is authorized;
b.) Within the implied authority of the agent
to make for the principal; or
c.) Apparently authorized.
2.) Beyond the scope of the agent’s authority –
General rule: Principal is not bound.
Exception: when the principal takes advantage
of a K made under the false misrepresentation of
his agent.
3.) For the agent’s own benefit – Principal is liable
(motive of agent immaterial).
Art. 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.
Effect of ratification by the principal:
Ratification of a contract gives it the same effect as if
the principal had originally authorized it.
Who must ratify the contract?
Only the principal. But there must be knowledge on
the part of the principal of the things he is going to
ratify.
When can the 3rd person repudiate the contract?
Before actual ratification by the principal, or before
the principal has signified his willingness to ratify the
agent’s acts.
Effect of the principal receiving the benefits of the
transaction:
He is deemed to have ratified it. A principal may not
accept the benefits of a transaction and at the same
time repudiate its burdens.
Art. 1902. A third person with whom the agent
wishes to contract on behalf of the principal may
require the presentation of the power of attorney,
or the instructions as regards the agency. Private
or secret orders and instructions of the principal
do not prejudice third persons who have relied
upon the power of attorney or instructions shown
them.
Duty of a 3rd person who deals w/ an agent:
3rd person deals w/ an agent at his peril. He is bound
to inquire as to the extent of the agent’s authority, and
this is especially true where the act of the agent is of an
unusual nature. Ignorance of the agent’s authority is no
excuse. It is his duty to require the agent to produce his
power of attorney to ascertain the scope of his authority.
He may also ask for the instructions of the principal.
rd
Do secret orders or private instructions prejudice 3
persons?
No, he cannot be prejudiced by any secret
understanding between the principal and the agent.
Such secret orders cannot be invoked as against 3rd
parties if the agent had apparent authority.
Helen C. Arevalo
AGENCY 2nd Sem; 2003
Art. 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: One whose business is to receive
and sell goods for a commission and who is entrusted by
the principal with the possession of goods to be sold,
and usually selling in his own name.
Ordinary agent v. Commission agent:
Ordinary agent Commission agent
Acts for and behalf of his May act in his own name
principal. or in that of his principal.
Need not have possession Must be in possession.
of the goods of his
principal.
Commission agent v. broker:
Commission agent Broker
Has a relation to principal, No relation w/ the thing
buyers or sellers, and the w/c he purchases or sells.
property itself. Merely a go-between.
Liability of commission agent as to goods received:
If the commission agent received goods consigned to
him, he is responsible for any damage or deterioration
suffered by the same in the terms and conditions and as
described in the consignment.
Presumption established in this article:
Damage in the merchandise were suffered while in
the possession and custody of the agent.
What the commission agent must do to avoid liability:
Make a written statement of the damage and
deterioration if the goods received by him do not agree
w/ the description in the consignment.
Agent v. Depositary:
Agent Depositary
Cannot commingle goods Can commingle goods of
of the same kind. the same kind.
Art. 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.
Purpose of this provision:
Prevent any possible confusion or deception.
Art. 1904 gives the general rule. Exceptions:
1.) By custom;
2.) Collecting banks.
11 Section II-D
Finals Reviewer
Art. 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.
Rule given in this article:
Commission agent can sell on credit only with the
express or implied consent of the principal.
Right of the principal in case the commission agent sold
goods on credit without authority: [CR]
2 alternatives:
1.) He may require payment in cash, in w/c case,
any interest or benefit from the sale on credit
shall belong to the agent since the principal
cannot be allowed to enrich himself at the
agent’s expense; or
2.) He may ratify the sale on credit, in w/c case it
will have all the risks and advantages to him.
Art. 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.
Obligation of the commission agent where a sale on
credit was authorized:
An authorized sale on credit shall be deemed to have
been on a cash basis insofar as the principal is
concerned if the agent fails to inform the principal of
such sale on credit with a statement of the names of the
buyers.
Reason for this article: Prevent the agent from stating
that the same was on credit when in fact it was made
for cash.
Art. 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: One where, in consideration of
an increased commission, the commission agent
guarantees to the principal the payment of debts arising
through his agency.
Purpose of guarantee commission: To compensate the
agent for the risks he will have to bear in the collection
of the credit due to the principal.
Nature of liability of guarantee commission agent:
Liable to principal if the buyer fails to pay or is
incapable of paying. But he is not primarily the debtor.
Helen C. Arevalo
AGENCY 2nd Sem; 2003
On the contrary, the principal may sue the buyers in his
own name. In such a case, the agent amounts to no
more than a guaranty. Liability is a contingent pecuniary
liability.
Can the agent with a guarantee commission put up the
defense of insolvency of the debtor?
No. an agent receiving a guarantee commission
cannot put up the defense that the debtor-3rd person
possesses no property since this is precisely the risk the
commission agent assumes.
Art. 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.
Obligation of the commission agent under this article:
The commission agent who has made an authorized
sale on credit must collect the credits due the principal
at the time they become due and demandable. If he fails
to do so, he shall be liable for damages unless he can
show that the credit could not be collected
notwithstanding the exercise of due diligence on his
part. In such a case, the principal’s remedy is to proceed
against the debtor.
Does this article apply to a case where there is a
guarantee commission?
No, because the agent already assumed the risks of
collection by accepting the guarantee commission.
Art. 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.
Is the agent liable for fraud? Yes, in all cases.
For negligence? Yes, but this shall be adjudged with
rigor by the courts.
Why does the court have to take into consideration
whether the agency was gratuitous or for compensation?
In order to fix the liability of the agent for negligence
only (not fraud).
Chapter 3. Obligations of the Principal
Art. 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.
12 Section II-D
Finals Reviewer AGENCY
Where can the specific obligations and duties of the
principal to the agent be found?
Usually in the contract creating the agency.
Principal obligations of the principal to the agent in the
absence of such agreement:
1.) To comply with all the obligations which the
agent may have contracted in his name and
within the scope of his authority;
2.) To advance should the agent so request sums
necessary for the execution of the agency;
3.) To reimburse the agent for all advances made
by him provided the agent is free from fault;
4.) To 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; and
5.) To pay the agent the compensation agreed upon
or the reasonable value of the latter’s services.
Liability of the principle to 3rd persons:
Where the relation of agency legally exists, the
principal will be liable to 3rd persons for all acts
committed by the agent in his behalf in the course and
within the actual or apparent scope of his authority, and
this is not altered y the fact that the agent may also be
liable, nor by the fact that some of the acts are to the
principal’s advantage while others are to his
disadvantage.
Liability of the principal for mismanagement of the
business by the agent:
Mismanagement of the business of the principal by
the agent does not relieve said principal from the
responsibility that he had contracted to 3rd persons. But
where the agent’s acts bind the principal, the latter may
seek recourse against the agent.
Liability of principal for a tort committed by the agent:
The principal is civilly liable to 3rd persons for torts of
an agent committed at the principal’s direction or I the
course and within the scope of the agent’s employment.
The principal cannot escape liability whether the tort is
committed willfully or negligently so long as the tort is
committed by the agent while performing his duties in
furtherance of the principal’s business. Nor is it a
defense that the act which caused the tort was unknown
to him or even that it was in disobedience to his
instructions.
Meaning of ratification in 2nd paragraph:
Ratification is the adoption or affirmance by a person
of a prior act which did not bind him, but which was
done or professed to be done on his account, thus giving
effect to the act as if originally authorized. The doctrine
applies to the ratification of the act of an agent in excess
of his authority of the act of one who purports to be an
agent but who is really not. It may be implied from the
acceptance of benefits by the principal under a contract
entered in his name. The authority created by
Helen C. Arevalo 13
2nd Sem; 2003
ratification is subsequent but it is equivalent to prior
authority.
Conditions to ratification: [ICK-PEC]
1.) Intent to ratify;
2.) Principal must have capacity & power to ratify;
3.) He must have had knowledge of material facts;
4.) The act must be done in behalf of the principal;
5.) Principal must ratify acts in its entirety;
6.) The act must be capable of ratification.
Effects of ratification with respect to the agent:
1.) Relieves the agent from liability to the 3rd party
to the unauthorized transaction; and
2.) To his principal for acting without authority; and
3.) He may recover compensation due for
performing the act which has been ratified.
Effects of ratification with respect to the principal:
1.) He assumes responsibility for the unauthorized
act, as fully as if the agent had acted under
original authority; but
2.) He is not liable for acts outside the authority
approved by his ratification.
Effects of ratification with respect to 3rd persons:
1.) 3rd person is bound by ratification to the same
extent as he would have been bound if the
ratified act had been authorized in the 1st
instance; and
2.) He cannot raise the question of the agent’s
authority to do the ratified act.
Must ratification be communicated to the agent or to the
3rd party?
No. To be effective, ratification need not be
communicated or made known to the agent or the 3rd
party. The act or conduct of the principal rather than his
communication is the key. But before ratification, the 3rd
party is free to revoke the unauthorized contract.
Art. 1911. Even when the agent has exceeded
his authority, the principal is solidarily liable with
the agent if the former allowed the latter to act as
though he had full powers.
Estoppel: precludes a person from denying or asserting
anything contrary to that which has been established as
the truth by his own deed or representation, either
express or implied.
Ratification v. Estoppel
Ratification Estoppel
Rests on intention Rests on prejudice
Affects the entire Affects only relevant parts
transaction from the of the transaction.
beginning
Substance is confirmation Substance is the principal’s
of a unauthorized act or inducement to another to
conduct after it has been act to his prejudice.
done.
Section II-D
Finals Reviewer
Apparent authority v. Authority by estoppel
Apparent authority
That which though not
actually granted, the
principal knowingly
permits the agent to
exercise or holds him out
as possessing.
AGENCY
Authority by estoppel
Arises in cases where the
principal, by his
negligence, permits his
agent to exercise powers
not granted to him, even
though the principal may
have no notice or
knowledge of the conduct
of the agent.
2nd Sem; 2003
In case the agent sells the goods for more than his
claim, is he entitled to the excess? No.
What is the nature of the agent’s right of lien?
Specific or particular. It is not general in the sense
that it gives the agent a right to retain the goods for
claims disconnected with the agency.
Art. 1915. 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.

Basis of article 1911: Requisites for application of this article: [2C2]

Principle of estoppel. Necessary for the protection of
innocent 3rd persons. Instance when solidarity is
imposed by law.
Art. 1912. The principal must advance to the
agent, should the latter so request, the sums
necessary for the execution of the agency.
Should the agent have advanced them, the
principal must reimburse him therefor, even if the
business or undertaking was not successful,
provided the agent is free from all fault.
The reimbursement shall include interest on the
sums advanced, from the day on which the
advance was made.
Should the principal reimburse the agent for advances
made by the latter even if the agency was unsuccessful?
It depends. Yes, if the agent is free from fault. No, if
the agent was with fault.
Is a broker always entitled to a commission?
A broker is entitled to a commission if the sale is
effected, but not if there is no perfected transaction.
Art. 1913. The principal must also indemnify the
agent for all the damages which the executive of
the agency may have caused the latter, without
fault or negligence on his part.
Basis for the above rule: Equity. Since the principal
receives the benefits of the agency, and has a right to
demand damages from the agent should the latter not
perform the agency, he should answer for the damages
resulting from the execution thereof without fault or
negligence on the part of the agent.
Art. 1914. The agent may retain in pledge the
tings which are the object of the agency until the
principal effects the reimbursement and pays the
indemnity set forth in the two preceding articles.
What happens when the principal fails to reimburse or
indemnify the agent for expenses set forth in arts. 1912
and 1913?
The agent has the right to retain in pledge the things
which are the object of the agency.
1.) There are 2 or more principals;
2.) The principals have all concurred in the
appointment of the same agent;
3.) The agent is appointed for a common
transaction or undertaking.
Why is solidarity the rule?
Because of the common transaction. Thus, even if
the agent was appointed separately, the rule should
apply in the interest of justice.
Art. 1916. 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.
May 2 persons contract with regard to the same thing,
one with the agent and the other with the principal?
Yes.
If this situation arises, which of the contracts will be
preferred?
If the contracts are compatible, they will both be
given effect. If they are incompatible, then the contract
of prior date shall be preferred.
Art. 1544: If the same thing should have been sold to
different vendees, the ownership shall be transferred to
the person who may have 1st taken possession thereof
in good faith if it should e movable property. Should it
be immovable property, the ownership shall belong to
the person acquiring it who in good faith 1st recorded it
in the Registry of Property. Should there be no
inscription, the ownership shall pertain to the person
who in good faith was 1st in possession; and in the
absence thereof, to the person who presents the oldest
title, provided there is good faith.
Art. 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.

Helen C. Arevalo 14 Section II-D

Finals Reviewer AGENCY
Is the principal always liable for damages caused by a
3rd person or is it the agent who is liable?
Whether the principal or the agent will be the one
liable for damages to the 3rd person who has been
prejudiced depends on whether the agent acted in bad
faith or not. If the agent acted in good faith and within
the scope of his authority, the principal incurs liability. If
the agent acted in bad faith, he alone shall be
responsible to such person.
What is the extent of liability covered under this article?
Damages.
What is good faith referred to in this article?
Good faith here means that the agent had no
knowledge that the principal is dealing with a 3rd person.
Note: If the contract is one of sale, article 1544 governs
and not arts. 1916 and 1917.
Art. 1918. The principal is not liable for the
expenses incurred by the agent in the following
cases: [F*CKS]
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;
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.
Instances wherein the principal is not liable for expenses
incurred by the agent?
In the instances enumerated under this article.
Reasons why the principal is not liable for the agent’s
expenses: Under…
1.) To punish the agent, but when the principal has
availed of the benefits, he is deemed to have
impliedly ratified the agent’s acts.
2.) “Kasi, kasalanan niya, eh.”
3.) The agent is guilty of bad faith and lack of
diligence;
4.) An express stipulation which is not contrary to
law, morals, good customs, public order or
public policy is binding between the parties.
Chapter 4. Modes of Extinguishment of
Agency
Art. 1919. Agency is extinguished: [WR-DEAD]
1.) By its revocation;
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2nd Sem; 2003
2.) By the withdrawal of the agent;
3.) By the death, civil interdiction, insanity or
insolvency of the principal or of the agent;
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.
Meaning of Presumption of continuance of agency:
When once shown to have existed, an agency
relation will be presumed to have continued in the
absence of anything to show its termination.
Who has the burden of proving the
revocation/termination of agency?
The burden of proving a revocation or other
termination of agency is on the party asserting it.
Note: Even if the reason for extinguishing the agency is
not true, the agent can’t insist on reinstatement. The
agent can only demand damages.
Modes of extinguishing an agency, generally: [ASO]
1.) Agreement;
2.) Subsequent acts of the parties which may be
either:
a.) By the act of both parties or by mutual
consent;
b.) By the unilateral act of one of them.
3.) By operation of law.
Modes of extinguishment, specifically: [WR-DEAD]
1.) Withdrawal of the agent;
2.) Revocation;
3.) Death, civil interdiction, insanity or insolvency of
the principal or of the agent;
4.) Expiration of the period for which the agency
was constituted;
5.) Accomplishment of the object or purpose of the
agency; and
6.) Dissolution of the firm/corp which entrusted or
accepted the agency;
Necessary characteristics of the parties for the
continuance of the agency: [PCS]
1.) Present;
2.) Capacitated;
3.) Solvent.
Why is presence necessary?
Because the general rule in art 1919 is that death of
any of the parties extinguishes agency. However in the
case where you have several principals and/or several
agents, whether the death of one principal or of one
agent terminates the agency would depend on the
intention of the parties. Generally the death of one of
several principals does not revoke the agent’s authority
nor does the death of one of several agents put an end
to the agency. The intention of the parties controls.
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Why is capacity necessary?
For instance, in the case of civil interdiction, it
deprives the offender during the period of his sentence
of the right to manage his property and dispose of such
property by any act or any conveyance inter vivos. A
person under civil interdiction hence, cannot validly give
consent. Same is true for insane people.
Why is solvency necessary?
As by an act of insolvency, the principal loses control
of the subject matter of the agency, the authority of the
agent to act for his principal ceases by operation of law
upon an adjudication of the principal’s insolvency. On
the other hand, the insolvency of the agent will
ordinarily put an end to the agency, at least if it is in any
way connected with the agent’s business which has
caused his failure.
General rule as to death of the principal or agent:
By reason of the very nature of the relationship
between the principal and the agent (which is fiduciary –
argh!), agency is distinguished ipso jure upon the death
of the principal.
Exceptions:
1.) If the agency is coupled with an interest;
2.) If the act of the agent was executed without the
knowledge of the death of the principal and the
3rd person who contracted w/ the agent acted in
good faith.
Why does dissolution of a firm or corp extinguish the
agency?
Dissolution of a corp extinguishes its juridical
existence.
What happens when the object or the purpose of the
agency is accomplished?
As between the parties, the principal and the agent,
the fulfillment of the purpose for which the agency was
created ipso facto terminates the agency.
What happens when the term for which the agency was
supposed to continue expires?
When an agency is created for a fixed period, the
expiration of such period ends the agency, even though
the purpose for which the agency was created has not
been accomplished.
What happens if no time is specified?
The agency terminates at the end of a reasonable
period of time.
Can the period be implied? Yes, from…
1.) The terms of the agreement;
2.) Purpose of the agency; and
3.) The circumstances of the parties.
What happens if the subject matter of the agency is lost
or destroyed?
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In the absence of any agreement by the parties to
the contrary, the loss or destruction of the subject
matter of the agency terminates the agent’s authority to
deal with reference to it.
Exceptions:
1.) If it is possible to substitute other material for
that which was destroyed without substantial
detriment to either party, or
2.) If the destroyed subject matter was not in fact
essential to the contract; and
3.) A partial loss or destruction.
Are the modes of extinguishments of agency exclusive?
No. Art. 1919 gives only those causes of extinction
which are particular to agency. But the list is not
exclusive. The general rule actually is, an agency may
be extinguished by the modes of extinguishments of
obligations in general whenever they are applicable, like
loss of the thing and novation (see art. 1231).
Does war extinguish agency?
During the existence of war, a contract of agency is
inoperative if the agent or the principal is an enemy
alien. But since it is generally conceded that war
suspends all commercial intercourse between the
residents of 2 belligerent states, the general rule is that
agency is terminated, as a matter of law, upon the
break of war.
Does legal impossibility terminate agency?
Implied in every contract is the understanding that it
shall be capable of being carried out legally at the time
called for by the contract. An agency then terminates if
a change in the law makes the purpose of the agency
unlawful.
What happens if the principal’s authority terminates?
A position which flows from a trust relationship
whether directly or indirectly, terminates as a matter of
law with the destruction of the trust. Consequently, a
sub-agent’s authority terminates with the termination of
the principal’s authority.
In case of loss of the subject matter, does the principal
incur any liability?
It depends. If the loss was brought about by the
principal as in the case where the principal sells the
subject matter to another party notwithstanding that an
agency had been constituted in reference to it, then he
may be liable for damages for his wrongful terminating
act. But if the subject matter is lost without the fault of
the principal, no liability is assumed by him.
Will a change of conditions affect the agency?
General rule: When there is a basic change in the
circumstances surrounding the transaction not
contemplated by the parties which would reasonably
lead the agent to believe that the principal would not
desire him to act, authority of agent is terminated.
Exceptions:
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1.) If the original circumstances are restored within
a reasonable period of time, the agent’s
authority may be revived.
2.) Where the agent has reasonable doubts as to
whether the principal would desire him to act,
his authority will not be terminated if he acts
reasonably. (But when in doubt, agent could
contract principal for instructions if possible).
3.) Where the principal and agent are in close daily
contact, the agent’s authority to act will not
terminate upon a change of circumstances if the
agent knows the principal is aware of the change
and does not give him new instructions.
Confidential information
It is difficult to determine whether information is
confidential or not, because while the relation of
principal and agent is confidential, not all knowledge
acquired by the agent is of a confidential nature. Some
clearly is of so general a nature that equity ought not
attempt to restrict its subsequent use.
Usually, what a court does is to determine 2 things:
1.) Whether the knowledge or information is indeed
confidential, and
2.) Whether its subsequent use ought to be
prevented.
Principle behind enjoining an agent from using
confidential information:
There is in the contract of service subsisting between
the principal and the agent an implied contract on the
part of the agent that he will not, after the service is
terminated, use information which he has gained while
the service has been subsisting to the detriment of his
former employer.
Art. 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.
May an agency be terminated by a subsequent act of the
principal? Yes, when he does so, it’s called revocation.
May an agency be terminated by a subsequent act of the
agent? Yes, it’s called withdrawal or renunciation.
Does it matter if the agency is gratuitous or with
compensation when we speak of revocation by the
principal? No, art 1920 makes no distinction.
Reasons:
1.) Since the authority of the agent emanates from
the principal, if the principal wishes to terminate
the agency the law must enable him to do so.
2.) Confidence being the cardinal basis of the
relation, it stands to reason that it should cease
when such confidence disappears.
3.) The principal-agent relationship is consensual
and personal in nature. No one can nor should
Helen C. Arevalo 17
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be forced to retain another as his agent against
his will.
In case a principal does revoke an agency, is there any
way by which the agent can hold him liable for
damages? Yes. For instance,
1.) If the agency was constituted for a fixed period,
the principal shall be liable in damages
occasioned by the wrongful discharge of the
agent before the expiration of the period fixed.
2.) If the agent can prove that the principal acted in
bad faith by revoking the agency in order to
avoid payment of commission about to be
earned, the principal can be held liable for
damages.
Reason for requiring agent to return the document
evidencing the agency: To prevent the agent from
making use of the power of attorney and thus avoid
liability to 3rd persons who may subsequently deal with
the agent on the faith of the instrument.
Kinds of Revocation:
1.) Express; or
2.) Implied, e.g.:
a.) When the principal appoints a new agent
for the same business or transaction, or
b.) When the principal directly manages the
business entrusted to the agent.
Is notice of revocation to the agent necessary? Yes.
A revocation without notice to the agent will not render
invalid an act done in pursuance of the authority.
Is express notice of revocation to the agent necessary?
As between the principal and the agent, express
notice to the agent that the agency is revoked is not
always necessary. If the party to be notified actually
knows, or has reason to know, facts indicating that his
authority has been terminated or suspended, there is
sufficient notice.
Is notice of revocation to 3rd persons necessary? Yes.
What kind of notice should you give 3rd persons?
1.) As to former customers, actual notice must e
given to them because they always assume the
continuance of the agency relationship.
2.) As to other persons, notice by publication is
enough.
May the agent renounce the agency at will?
Yes, but subject to the contractual obligations owing
the principal.
Reason: The essence of the principal-agent relationship
is the consent and willingness of the agent to act for the
principal. The law cannot compel the parties to continue
an agency if they do not want to do so. (The principal
cannot even sue for affirmative specific performance
because that would lead to involuntary servitude!)
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Form of renunciation:
It is not always necessary for the agent to renounce
the agency expressly. He can do so impliedly, as for
example…
1.) Where he has conducted himself in a manner
incompatible with his duties as agent; or
2.) When he abandons the object of his agency and
acts for himself in committing a fraud upon his
principal; or
3.) When he files a complaint against the principal
and adopts an antagonistic attitude towards him.
Does a violation of the instructions of the principal
amount to a renunciation?
No. Mere fact that agent violates his instructions does
not amount to renunciation, and although he may thus
render himself liable to the principal, he does not cease
to become an agent.
Art. 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.
What is the effect of revocation in relation to 3rd persons
if the agent was authorized to contract with specified
persons?
If the agency is created for the purpose of
contracting with specified persons, its revocation will not
prejudice such 3rd persons until notice thereof is given
them. The reason for this is obvious. Since 3rd persons
have been made to believe by the principal that the
agent is authorized to deal with them, they have a right
to presume that the representation continues to exist in
the absence of notification by the principal. But of
course, notice is not required if the 3rd persons already
know of the revocation.
Art. 1922. If the agent had general powers,
revocation of the agency does not prejudice third
persons who acted in good faith and without
knowledge of the revocation. Notice of the
revocation in a newspaper of general circulation is
a sufficient warning to third persons.
Effect of revocation in relation to 3rd persons if the agent
was authorized to contract with the public in general:
In case the agent has general powers, innocent 3rd
parties dealing with the agent will not e prejudiced by
the revocation before they had knowledge thereof. In
this case, however, the fact that the revocation was
advertised in a newspaper of general circulation would
be sufficient to 3rd persons for publication constitutes
notice upon everybody and this is true whether or not
such 3rd persons have read the newspaper concerned.
Notice required in art. 1921 v. that in art. 1922:
Art. 1921 Art. 1922
Must be personal. May be personal.
Revocation must be known Even if 3rd person doesn’t
Helen C. Arevalo 18
2nd Sem; 2003
to 3rd person informed of know, as long as there is
the appointment. publication in a newspaper
of general circulation.
General rule: Special information needs special
information of revocation.
Except: If you can prove that the 3rd person read the
notice in the newspaper.
Art. 1923. The appointment of a new agent for
the same business or transaction revokes the
previous agency from the day on which notice
thereof was given to the former agent, without
prejudice to the provisions of the two preceding
articles.
What does this article mean?
1.) There is implied revocation of the previous
agency when the principal appoints a new agent
for the same business or transaction if there is
incompatibility. But the revocation does not
become effective as between the principal and
the agent unless it is in some way
communicated to the latter. Again, the rights of
3rd persons who acted in good faith and without
knowledge of the revocation will not be
prejudiced thereby.
2.) There is no implied revocation where the
appointment of another agent is not
incompatible with the continuation of like
authority in the 1st agent, or if the 1st agent is
not given notice of the appointment of the new
agent.
Art. 1924. The agency is revoked if the principal
directly manages the business entrusted to the
agent, dealing directly with third persons.
What does the above article provide?
It provides for another case of implied revocation.
Effect of direct management of the business by the
principal himself:
Generally, it revokes the agency because there would
no longer be any basis for the representation previously
conferred.
Exception: when the only desire of the principal in
doing so is for him and the agent to manage the
business together.
Art. 1925. When two or more principals have
granted a power of attorney for a common
transaction, any one of them may revoke the same
without the consent of the others.
Rationale: Since the appointment of an agent by 2 or
more principals for a common transaction or undertaking
makes them solidarily liable to the agent for all
consequences of the agency, then each one of the
principals should be granted the right to revoke the
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power of attorney even without the consent of the
others. Remember that in a solidary obligation, the act
of one is the act of all.
Art. 1926. A general power of attorney is
revoked by a special one granted to another agent,
as regards the special matter involved in the
latter.
How many agents are involved in this article?
2, one to whom a general power is previously
granted. Another to whom a special power is given.
(Note that this can also apply if a special power is
subsequently given to the same agent.)
Effect of the issuance of a special power as regards the
general power:
The general power is impliedly revoked as to matters
covered by the special power because a special power
naturally prevails over a general power.
Art. 1927. An agency cannot be revoked if a
bilateral contract depends upon it, or if it is the
means of fulfilling an obligation already
contracted, or if a partner is appointed manager of
a partnership in the contract of partnership and
his removal from the management is unjustifiable.
General rule: Principal may revoke an agency at will
since the essence of agency is the agent’s duty of
obedience to the principal.
Exceptions: [BF=Partner]
1.) When a bilateral contract depends on the
agency;
2.) When the agency is the means of fulfilling an
obligation already contracted;
3.) When a partner is appointed as manager of a
partnership in the contract of partnership and
his removal from the management is
unjustifiable.
Can an agency, coupled with an interest, be terminated
by the sole will of the principal? No.
Requisite for agency to be irrevocable for being coupled
with a interest:
Interest of the agent must be in the subject matter of
the power conferred and not merely an interest in the
exercise of the power.
Instances of an agency coupled with an interest:
1.) When the agent has parted with value or
incurred liability at the principal’s request, and
he is looking to the exercise of the power as the
means of reimbursement or indemnity.
2.) When the interest in the thing concerning which
the power is to be exercised arises from an
assignment, pledge or lien created by the
principal with the agent being given the power
Helen C. Arevalo 19
2nd Sem; 2003
to deal with the thing in order to make the
assignment, pledge or lien effectual.
If the contract of agency stipulates that such will be
irrevocable, is such terminology controlling in all cases?
No. Whether an interest will make an agency
irrevocable exists in a particular case is to be
determined from the entire agreement between the
parties and from the facts and circumstances. The
terminology is not controlling. Even if an agency is made
in terms irrevocable, the fact will not prevent its
revocation by the principal when the agency is not in
fact coupled with an interest.
If an agency is coupled with an interest, does this mean
that the principal can never ever revoke it?
No. You can still revoke in extreme situations, e.g.:
1.) Irrevocability can never be used as a shield for
the perpetration of acts in ad faith, breach of
confidence or betrayal of trust. The law will
never permit the agent to commit frauds against
the principal.
2.) When the interest is already terminated.
Why is it said that agencies coupled with interest are not
true agents?
Because persons with proprietary interests in the
subject matter of their agency are not true agents at all.
One of the hallmarks of the agency relation is the
control of the principal over the acts of the agent and
over the subject matter of the agency. An agency
coupled with an interest removes that control.
Art. 1928. The agent may withdraw from the
agency by giving due notice to the principal. If the
latter suffer any damage by reason of the
withdrawal, the agent must indemnify him
therefor, unless the agent should base his
withdrawal upon the impossibility of continuing
the performance of the agency without grave
detriment to himself.
Does the agent have a right to renounce or withdraw
from the agency at any time?
Yes. Even without the consent of the principal. But, in
the latter case, he may be subject to liability for breach
of contract or for tort.
Basis: Constitutional prohibition against involuntary
servitude.
Obligation of agent if he withdraws from agency without
just cause:
1.) Notify principal (even if w/ just cause); and
2.) Indemnify the principal should the latter suffer
any damage by reason of such withdrawal.
Reason for indemnity: To answer for losses and
damages occasioned by the non-fulfillment of his
obligation as agent.
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Is the agent liable for indemnity if the withdrawal was
for just cause? No. Agent cannot be held liable if the
agent withdraws for a valid reason as when:
1.) The withdrawal is based on the impossibility of
continuing the agency without grave detriment
to himself; or
2.) Fortuitous event.
What happens when the agent sues the principal?
Equivalent to withdrawal of the agent.
Art. 1929. 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.
Obligation of agent after withdrawal:
Even when withdrawal is for a valid reason, he must
continue to act until the principal has had reasonable
opportunity to take the necessary steps like the
appointment of a new agent to remedy the situation
caused by the withdrawal. This is to prevent damage or
prejudice to the principal.
Art. 1930. 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.
If the agent dies, his heirs should tell the principal.
However, if the principal dies, the principal’s heirs have
no obligation to tell the agent.
General rule: Agency is terminated instantly by the
death of the principal.
Rationale: Agency, being based on representation, there
is no one to e represented where the principal is already
dead.
Exceptions:
1.) If the agency has been constituted in the
common interest of the principal and the agent;
and
2.) If the agency has been constituted in the
interest of a 3rd person who has accepted the
stipulation in his favor.
Art. 1931. Anything done by the agent, without
knowledge of the death of the principal or of any
other cause which extinguishes the agency, is
valid and shall be fully effective with respect to
third persons who may have contracted with him
in good faith.
What does this article provide?
It provides that the death of the principal or any
other like cause, extinguishes the agency. But in the
Helen C. Arevalo 20
2nd Sem; 2003
same way that revocation of the agency does not
prejudice 3rd persons who have dealt with the agent in
good faith without notice of revocation, such 3rd persons
are also protected where it is not shown that the agent
had knowledge of the termination of the agency because
of the death of the principal or any other like cause
which extinguishes the agency.
Does this article only require the agent to be in good
faith? No, both agent and 3rd person must be.
Art. 1932. If the agent dies, his heirs must
notify the principal thereof, and in the meantime
adopt such measures as the circumstances may
demand in the interest of the latter.
In case of death of agent, what must the heirs do?
1.) Notify the principal to enable the latter
reasonable opportunity to take such steps as
may be necessary to meet the situation; and
2.) Adopt such measures as the circumstances may
demand in the interest of the principal.
Can the heirs continue the agency?
General rule: No, since an agency calls for personal
services on the part of the agent.
Exceptions:
1.) Agency by operation of law, or a presumed or
tacit agency;
2.) Agency is coupled with an interest in the subject
matter of the agency.
GOOD LUCK! ☺
This is for that small syndicate of people who name
themselves after a labor case!
I basically just typed up the reviewer minus the cases and
problems. I don’t think the problems are all that important,
they’re Atty. Quimson problems not Enrile’s. Our case outline
differs from theirs a bit too. Besides, we’re all set with case
digests na, we just have to find them!
Thanx to that other group of people who name themselves
after “an imaginary perfect place”. Sorry, I plagiarized your
reviewer guys, but I wouldn’t have had to if you didn’t stamp
your huge seal right smack center of every page!
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