Art. 1899.
Where it is sought thereby to dispense with a legal requirement enacted
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.
Notes:
It is enough that the agent acts within the scope of his authority and in
accordance with the instructions of the principal. If the principal appoints
an agent who is ignorant, the fault is his alone. Equity demands that the
principal should be bound by the acts of his agent.
Art. 1900.
So far as third persons are concerned, an act is deemed to have been performed
within the scope of the agents authority, if such act is within the terms of the
power of attorney, as written, even if the agent has in fact exceeded the limits
of his authority according to an understanding between the principal and the agent.
Notes:
Every person dealing with an assumed agent is put upon an inquiry and
must discover upon his peril, if he would hold the principal liable, not only
of the fact of the agency but the nature and extent of authority of the agent.
If he does not make such inquiry, he is chargeable with knowledge of the
agents authority, and his ignorance of that authority will not be an excuse.
If the authority of the agent is in writing such person is not required
to inquire further than the terms of the written power of attorney.
Methods of broadening and restricting agents authority:
1. By Implication The agents authority extends not only to the express
requests, but also to those acts and transactions incidental thereto. It
embraces all the necessary and appropriate means to accomplish the
desired end.
2. By Usage and Custom They may enlarge, as well as restrict, the scope
of the agents authority.
Cases where usage and custom do not enlarge agents
authorization:
a. Where it is sought to vary the terms of an express authorization.
b.
for the principals benefit.
c. Where it is sought thereby to change a rule of law or to dispense with
a formality required by law.
d. Where it is sought to vary an essential quality of the agency relationship.
General Rule: The principal must have notice of the alleged custom before
the agents acts, in accordance therewith, may bind the principal.
Exceptions: A principal is deemed to have notice of a given usage, even
though he did not in fact have such notice:
a. Where the principal and the agent reside in the same
community, the usage is definite and well-known, and the agent
has no notice that he is to act to the contrary and
b. Where the agent is authorized to deal in a particular place or in
a particular market or exchange.
3. By necessity Actually, an agency can never be created by necessity;
what is created is additional authority in an agent appointed and authorized
before the emergency arose.
Emergency or other unusual conditions may operate to invest in an agent
authority to meet the emergency, provided:
a. Emergency really exists;
b. Agent is unable to communicate with the principal;
c. Agents enlarged authority is exercised for the principals protection;
d. Means adopted are reasonable under the circumstances.
4. By Certain Doctrines
a. Doctrine of Apparent Authority
b. Doctrine of Liability by Estoppel
c. Doctrine of Ratification
5. By the Rule of Ejusdem Generis states that where, in an instrument
of any kind, an enumeration of specific matters is followed by a
general phrase, the general phrase is held to be limited in scope by
the specific matters.
General Rule The motive of the agent in entering into a contract with a third
person is immaterial.
Exceptions:
1. Where the third person knew that the agent was acting for his private
benefit. In other words, the principal is not liable to the third person.
2. Where the owner is seeking recovery of personal property of which he has
been unlawfully deprived.
A principal is subject to liability for loss caused to another by the others reliance
upon a deceitful representation of an agent in the course of his employment if:
a. The representation is authorized; or
b. Within the implied authority of the agent to make for the principal; or
c. Apparently authorized, whether the agent was authorized by him or not to
make the representation.
The principal is not bound by the misrepresentation of his agent committed
beyond the scope of his authority.
Art. 1901.
A third person cannot set up the fact that the agent has exceeded his powers, if the
principal has ratified, or signified his willingness to ratify the agents acts.
Notes:
The ratification shall have retroactive effect. It relates back to the time
of the act or contract ratified and is equivalent to original authority.
Only the principal and not the agent can stamp the imprimatur of
ratification.
A principal may not accept the benefits of a transaction and
repudiate its burdens.
Art. 1902.
A third person with whom the agent wishes to contract on behalf of the principal
may (1) require the presentation of the power of attorney, or (2) 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 to them.
Notes:
While the third person is chargeable with knowledge of the terms of the
power of attorney as written and the instructions disclosed to him, he is not
bound and cannot be affected by the private or secret orders and
instructions of the principal in the same way that he cannot be prejudiced
by any understanding between the principal and the agent.
Art. 1903. Commission Agent.
The commission agent shall be responsible for the goods received by him in
the (1) terms and conditions and (2) as described in the consignment,
unless upon receiving them he should make a written statement of the damage
and deterioration suffered by the same.
Factor/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 the goods
to be sold, and usually selling in his own name. He may act in his own name or in
that of the principal.
As distinguished from ordinary agent:
Ordinary agent need not have possession of the goods of his principal.
Commission agent must be in possession.
Art. 1904. Goods of the same kind and mark belonging to different
owners.
The commission agent who handles goods of the same kind and mark, which belong
to different owners, shall (1) distinguish them by countermarks, and (2)
designate the merchandise respectively belonging to each principal.
Purpose: To prevent any possible confusion or deception. The commission agent
may not comingle the goods without authority.
Art. 1905. Sale on Credit, Unauthorized.
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 the
payment in cash, but the commission agent shall be entitled to any interest or
benefit, which may result from such sale.
The Principal is given 2 alternatives:
1. He may require payment in cash, in which 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 agents expense; or
 2. He may ratify the sale on credit in which case it will have all the risks and
advantages to him.
Art. 1906. Sale on Credit, Authorized.
Should the commission agent, with authority of the principal, sell on credit, he shall
(1) so inform the principal, (2) 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.
Art. 1907. Guarantee Commission.
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 factor or commission agent guarantees to the principal the payment
of debts arising thru his agency.
Del Credere Agent an agent who guarantees payment of the customers account
in consideration of the higher commission.
The liability of the del credere agent is a contingent pecuniary liability to make
good in the event the buyer fails to pay the sum due.
Art. 1908. Debts Due and Demandable.
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.
Where the agent is not liable, the remedy of the principal is to proceed against
the debtor.
This article does not apply to a case where there is a guarantee commission.
Art. 1909.
The agent is responsible (1) not only for fraud, but also for (2) 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.
OBLIGATIONS OF THE PRINCIPAL
The contract of agency entered into by the principal and the agent is the law
between them and both are bound to comply with its terms and conditions in
good faith.
Since the contract of agency is one of representation and bounded by fiduciary
duties on the part of the agent, then the principal has the power to evolve the
relationship beyond the written terms of the instrument, and the agent under
his fiduciary duty of obedience, must comply with such new instructions of the
principal (agency is a preparatory contract).
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.
Reason: The act of such agent is the act of the principal.
Art. 1911. Agency by estoppel/Doctrine of apparent authority
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.
Art. 1897. The agent who acts as such is not personally liable to the party with
whom he contracts, unless (1) he expressly binds himself or (2) exceeds the limits
of his authority without giving such party sufficient notice of his powers.
Knowledge of the agent is chargeable as knowledge of the principal. Notice by
a third party to the agent is notice to the principal, the third party not being
liable for damages for failure of the agent to give notice to his principal.
Ratification 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 acts as if originally authorized.
Note: A principal cannot ratify the unauthorized act of another person unless
(1) that person purported to act as agent for, and (2) in the name of the
principal, and not in his own behalf.
 Doctrine of representation All contracts and transactions entered into by
the agent on behalf of the principal within the scope of his authority are binding
on the principal as though he himself had entered into them directly.
Motivation-deviation test The bounds of the agents authority are not the
limits of the principals tort liability, but rather the scope of the employment
which may or may not be within the bounds of the authority.
Requires two factors:
(a) Satisfactory evidence that the employee in doing the act, in the doing of
which the tort was committed, was motivated in part, at least, by a desire
to serve his employer; and
(b) Satisfactory evidence that the act, in the doing of which the tort was
committed, was not an extreme deviation from the normal conduct
of such employee.
A debt incurred by the agent is binding directly upon the principal, provided the
former acted within the scope of his authority. The fact that the agent has also
bound himself to pay the debt does not relieve from liability the principal for
whose benefit the debt was incurred. (Tuason v Orozco)
When a contract of agency exists, the agents acts bind his principal, without
prejudice to the latter seeking recourse against the agent in an appropriate civil
or criminal action. (Dy Peh v Collector of Internal Revenue)
The fact that the agent defrauded the principal x x x cannot in any way relieve
or exonerate such principal from liability to third persons who relied on his
agents authority. It is an equitable maxim that as between two innocent
parties, the one who made it possible for the wrong to be done should
be the one to bear the resulting loss. (Cuison v CA)
Since it is the principal who should be answerable for the obligation arising from
the agency, it is obvious that if a third person waives his claims against
the principal, he cannot assert them against the agent. (Bedia v White)
Since the basis of agency is representation, the question of whether an agency
has been created may be established either by direct or circumstantial evidence.
Though that fact or extent of authority of the agents may not, as a general rule,
be established from the declarations of the agents alone, if one professes to act
as agent for another, she may be estopped to deny her agency both as against
the asserted principal and the third persons he transacted with. (Doles v
Angeles)
Instances when the principal can be held personally liable for his agents
deceitful acts exercised on third parties:
(1) If the representation is authorized;
(2) If it is within the implied authority of the agent to make for the principal;
(3) If it is apparently authorized, regardless of whether the agent was
authorized by him or not to make the representation
General rule: The principal is liable to injured third parties for the torts
committed by the agent at the principals direction or in the course of and
within the scope of the agents authority.
Reason: Based on the principle that he who does an act through
another does it himself. If the principal has the power of control over an
agent, he should take responsibility for the latters action, and since the
agents acts are for the principals benefit, the principal should also be
responsible for the consequences of the agents improper behavior.
Since the act of negligence was that of the agent, he also becomes civilly
liable (solidary with the principal) to the injured parties. (see Art. 1909)
Estoppel A bar which 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.
OBLIGATIONS OF THE PRINCIPAL TO THE AGENT
1) To pay agents compensation
The obligation to pay the agent shall be in accordance with the terms agreed
upon when the agency was constituted. Otherwise:
a) The principal shall pay the agents commission only on the legal basis that
the agent has complied with his obligations with the principal; and
b) The principal shall be liable to the agent for the reasonable value of the
agents services.
Art. 1875. Agency is presumed to be for a compensation, unless there is proof
to the contrary.
2) To advance sums requested for execution of the agency
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.
 In the absence of stipulation that the agent shall advance the necessary funds
(Art. 1886), the principal must advance to the agent upon his request the sums
necessary for the execution of the agency. If the principal fails to comply with
his obligations, the agent will not be liable for the damage which, through his
non-performance, the principal may suffer (Art. 1884).
a) When principal is not liable to reimburse agent for his expenses
Art. 1918. The principal is not liable for the expenses incurred by the agent
in the following cases:
(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 (implied ratification);
(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.
3) To indemnify agent for the damages sustained
Art. 1913. The principal must also 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.
The liability of the principal for damages is limited only to that which the
execution of the agency has caused the agent. Thus, no promise to
indemnify will be implied for losses or damages caused by the
independent and unexpected wrongful acts of third persons for which
the principal is in no way responsible.
a) Right of agent to retain object of agency in pledge for advances
and damages (legal pledge/pledge created by operation of law)
Art. 1914. The agent may retain in pledge the things which are the
object of the agency until the principal effects the reimbursement and
pays the indemnity set forth in the two preceding articles.
To entitle the agent to a lien, the funds or property against which it is
asserted must be (1) in his actual or constructive possession, and he
must have (2) acquired that possession lawfully and (3) in his capacity
as agent.
OBLIGATION OF TWO OR MORE PRINCIPALS TO AGENT APPOINTED FOR
COMMON TRANSACTIONS
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.
Requisites for solidary liability:
(1) There are two 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.
When the law expressly provides for solidarity of the obligation, as in the liability
of co-principals in a contract of agency, each obligor may be compelled to pay
the entire obligation. The agent may recover the whole compensation
from any one of the co-principals. (De Castro v CA)
Basis: the common interest of the principals
Where principals are members of a non-profit association, they are liable
personally only under two circumstances:
(1) Where the member assented to the particular act or transaction in respect
of which personal liability is sought to be fastened;
(2) Where the member assented by his conduct.
Rights of persons when faced with conflicting contracts
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.
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in the 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.
MODES OF EXTINGUISHMENT OF AGENCY
Art. 1919. Agency is extinguished:
(1) By its revocation;
(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.
When once shown to have existed, an agency relation will be presumed to have
continued, in the absence of anything to show its termination; and the burden
of proving a revocation or other termination of an agency is on the party
asserting it.
Agency requires the presence, capacity, and solvency of both the principal and
agent. Consequently, the death, civil interdiction, insanity, or insolvency of
either party terminates the agency.
By reason of the very nature of the relationship between the principal and agent,
agency is extinguished ipso jure upon the death of either principal or agent.
Exceptions:
(1) That the agency is coupled with an interest (Art. 1930); and
(2) That the act of the agent was executed without knowledge of the death of
the principal and the third person who contracted with the agent acted in
good faith (Art. 1931).
The power of sale in a deed of mortgage is not revoked by the death of the
principal (mortgagor) as it is primarily an authority conferred upon the
mortgagee for the latters own protection.
Dissolution of a firm or corporation which entrusted (as principal) or accepted
(as agent) the agency, extinguishes its juridical existence as far as the right to
go on doing ordinary business is concerned, except for the purpose of winding
up its affairs.
As between the parties, principal and agent, the fulfillment of the purpose for
which the agency is created ipso facto terminates the agency, even though
expressed to be irrevocable.
Where an agency, by the terms of the original agreement, is created for a fixed
period or is to end at a certain time, the expiration of such period or the arrival
of that time, results in the termination of the relationship, even though the
purpose for which the agency was created has not been accomplished.
- If no time is specified, it terminates at the end of a reasonable period of
time. Either party can terminate the relationship at will by giving notice.
The list in Art. 1919 is not exclusive. An agency may also be extinguished:
(1) By the modes of extinguishment of obligations like loss of the thing and
novation;
(2) During the existence of a state of way, a contract of agency is inoperative
if the agent or the principal is an enemy alien;
(3) If a change in the law makes the purpose of the agency unlawful;
(4) If the principal and agent have originally agreed that the agency, or some
particular aspect of it, will continue until a specified event occurs, the
happening of the event (resolutory condition) terminates the agency.
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.
An agency may be terminated by the subsequent acts of the parties. When done
by the principal, it is called revocation and when done by the agent, it is
usually spoken of as withdrawal or renunciation. Wrongful termination
can subject the terminating party to a suit for damages.
Subject to exceptions in Art. 1927, the principal may revoke the agency at will.
This is true even though there was an agreement previous to the revocation
that the agency should continue longer or a statement in the agreement that
the agency cannot be terminated.
Principal is liable for damages for breach of contract where the termination
is wrongful, in those cases wherein not having the legal right to do so, he should
discharge the agent.

Ex. Wrongful discharge of the agent before the expiration of the period
fixed. However, where the principal has the absolute right to revoke the
agency, even if the period fixed in the contract of agency has not yet
expired, the agent cannot object thereto; neither may he claim damages for
such revocation, unless it is shown that such was done in order to evade
the payment of the agents commission.
If the authority of the agent is in writing, the principal can compel the agent to
return the document evidencing the agency.
Purpose: To prevent the agent from making use of the power of attorney and
thus avoid liability to third persons who may subsequently deal with the agent
on the faith of the instrument.
Notice of revocation
To agent: Express notice 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 is suspended, there is sufficient notice.
To third persons: Actual notice must be brought home to former customers, while
notice by publication is sufficient as to other persons.
Renunciation of agency by agent
The agent has the power to renounce the agency relationship, subject only to
the contractual obligations owing to the principal. Thus, if there is no contract
existing between the parties or if the contract is for no fixed or definite period
of time, it is terminable by the agent at will.
It is not always necessary for the agent to renounce the agency expressly, as
for example, where he has conducted himself in a manner clearly incompatible
with his duties as 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.
Art. 1922. If the agent had general powers, revocation of the agency does
not prejudice third persons who acted (1) in good faith and (20 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 third persons
(1) Agent authorized to contract with specified persons: The revocation of the
agency will not prejudice such third persons until notice thereof is given them.
However, notice is not required if the third persons already know of the
revocation.
Reason: Since the third 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.
(2) Agent authorized to contract with public in general: In case the agent has
general powers, innocent third persons dealing with the agent will not be
prejudiced by the revocation before they had knowledge thereof. However, the
fact that the revocation was advertised in a newspaper of general circulation
would be sufficient warning to third persons.
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.
There is implied revocation of the previous agency when the principal
appoints a new agent for the same business or transaction provided there is
incompatibility. The revocation becomes effective when it is in some way
communicated to the agent. The rights of third persons who acted in good faith
and without knowledge of the revocation will not be prejudiced thereby.
Art. 1924. The agency is revoked if the principal directly manages the
business entrusted to the agent, dealing directly with third persons.
Reason: There would no longer be any basis for the representation previously
conferred.
This is another case of implied revocation. However, if the purpose of the
principal in dealing directly with the purchaser and himself effecting the sale is
to avoid payment of his agents commission, the implied revocation is deemed
in bad faith and cannot be sanctioned without according to the agent the
commission which is due him.