AGENCY, TRUST, AND

PARTNERSHIP

WWW
October 1, 2016

Third party whose contract is rejected (in case of double sale)

If the agent acted in good faith, the principal will be held liable to
the losing party (party whose contract is rejected). However, if the
agent acted in bad faith, he alone shall be held liable to the
(losing) third person.
Obligation of the principal to defray expenses
What are the obligations of the principal insofar as expenses are
concerned?
1) Advance to the agent, should the latter so request, the
sums necessary for the execution of the agency
2) Reimburse the agent thereof, should the latter have
advanced them
- Includes interest on the sums advanced, from the
day on which the advance was made
3) Indemnify the agent for all damages caused by the
execution of the agency, without the agents fault or
negligence
4) Pay the agent compensation
If the principal refuses to advance and the agent does not have
the money, what happens?
He cannot carry out his obligation as an agent. However,
he cannot be held liable for damages because one of the
causes when an agent cannot be held liable is if the nonperformance was due to the fault of the principal. It was
the latters fault that the former was not able to carry out his
obligation. The agent is now free even if the principal did
not make the advancement.
Reimbursement and Indemnification
If the principal does not reimburse or indemnify, the agent can
retain in pledge the thing which is the subject matter of the
agency.

Caballero Daileg Gocuan Honoridez Lim Pungos Vergara

Things which are the object of the agency may be retained by the
agent in pledge if the principal does not reimburse for advances or
pay indemnity for damages sustained by the agent.
However, the proceeds of the sale cannot be retained by the
agent because he has a duty to account for everything received
by virtue of the agency. The obligation to render an accounting
includes the obligation to deliver everything to the principal. He
can only retain the goods or items which are the object or subject
matter of the agency, but not the proceeds.
[As to whether he has the right of retention for unpaid
compensation, it was not answered by sir; but the law only
mentions reimbursement for advances and indemnity for
damages]
Instances when the agent is not entitled to reimbursement from the
principal
1) If the agent acted in contravention of the principals
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 he be allowed only a certain sum
5) When the expenses incurred by the agent are excessive
(not in codal provision)

AGENCY, TRUST, AND

PARTNERSHIP

WWW
October 1, 2016

Modes of extinguishment of agency

1) Revocation by the principal
This refers to revocation made by the principal as
when he no longer has trust and confidence to the
agent.
The principal can revoke the agency at will. There
may or may not be any grounds. This is pursuant to
the agency being one of utmost trust and
confidence
EXCEPT:
a) If a bilateral contract depends upon it
b) If it is the means of fulfilling an obligation
already contracted
c) If a partner is appointed manager of a
partnership in the contract of partnership
and his removal from the management is
unjustifiable

If the contract of agency was made with a

stipulation in favor of a third person, stipulation pour
autrui.
For example, in a contract of sale, there was a
stipulation that the proceeds thereof would be for
the benefit of another person, not a party to the
contract.
Civil interdiction
Civil interdiction deprives the offender during the
period of his sentence of the right to manage his
property by any act or any conveyance inter vivos.
A person under civil interdiction cannot validly give
consent.
Insolvency
Because by insolvency, one has no more properties
of his own. He can no longer enter into a contract.

2) Withdrawal by the agent

4) Dissolution of the firm or corporation which entrusted or

accepted the agency.

3) Death, civil interdiction, insanity or insolvency of the

principal or of the agent

5) Accomplishment of the object or purpose of the agency

Death
Either the principal or the agent
Even if they are to be represented by their
administrators or executors, there is a fiduciary
relationship in a contract of agency. It is impressed
with trust and confidence between the agent and
principal.
However, there could be instances when even if either
party is dead, still the transaction can be consummated, in
what way?

Caballero Daileg Gocuan Honoridez Lim Pungos Vergara

6) Expiration of the period for which the agency was

constituted.
Arrival of the period
When expressly stipulated in the contract of agency
that such agency is limited by such period, it's
arrival, by operation of law, will extinguish the
agency.