Atty.

Uribe Lecture Notes: Agency Page 1 of 13

Definition of agency

Bar Q: A asked her close friend, B, to buy some groceries for her in the supermarket. Was there a
nominate contract entered into between A and B?

A: If B agreed to the request of A, then an agency relationship would have been created. A nominate
contract known as agency would have been created.

Alt. A: By way of an alternative answer, I can agree with the alternative answer given by the UP Law
Center that a lease of service may have been created between A and B so long as there had been no principal-
agent relationship existing between A and B. Although from the facts this is not a lease of service because they
are best friends, there is a possibility.

If you’ve been a proxy in a baptismal or wedding ceremony and you actually accepted the request of
the real godparent, does it mean that there is an actual agency relationship created between you and the
requesting godparent? Or if you’ve accepted the request of a politician for you to deliver his speech in a
gathering, does that result in an agency relationship?

In both instances, the answer is no. It may appear under the definition of agency under Art. 18681 that
there is such an agency relationship because as defined by a contract of agency, a person binds himself to render
some service or to do something in representation of on behalf of another with the consent or authority of
another. This definition has been criticized by some authors, one of them Justice J. B. L. Reyes who opined that
the contract of agency under Art. 1868 does not contemplate social and political representation. But in order
that there can be a contract of agency under the new Civil Code, the purpose of the agency must be the
execution of a juridical act. When an agent binds himself to execute a juridical act for the principal, he creates,
modifies, or extinguishes a legal relationship between the principal and a third person. For instance, if an agent
purchases was authorized to buy, the act creates a legal relationship of buyer and seller between the principal
and the third person. On the other hand, if the agent was authorized to pay an indebtedness of the principal to
certain person and he pays, the result of the act is the extinguishment of an existing legal relationship, that of
debtor and creditor between the principal and the third person.

Q: If a contract is entitled “agency”, does it mean that an agency relationship exists between the parties
to the contract?

A: Not necessarily. It is not what the parties deem such contract to be but what the law considers such
contract to be. The law determines the nature of a contract depending on the stipulations of the parties.

Q: If the word “agency” appears in the stipulations of a contract, is that contract one of agency?

A: Again, not necessarily. In the case of Quiroga vs. Parsons, the word agency appeared about three
times in the contract but the word “Agency” does not pertain to a contract of agency; rather, it pertains to
another concept of such word. You must have heard the word “Agency” in another concept like in the case of
instrumentalities like a travel agency, security agency, or government agency but there is not agency
relationship created as defined in the Civil Code. It may also pertain to the exclusive right to sell in a particular
territory, like when one is considered an exclusive agent to sell a particular product in a certain province. There
is no agency relationship created between the parties.

Characteristics of a contract of agency

In distinguishing a contract of agency from other contracts, you have to consider the characteristics of
a contract of agency as a contract and as a legal relationship. First, as a contract, you go by the usual

1
Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of
another, with the consent or authority of the latter.
Atty. Uribe Lecture Notes: Agency Page 2 of 13

characteristics. This is not a real contract, nor is it a formal one. Hence, you can conclude that this is a
consensual contract as it is perfected by mere meeting of that minds as to the object and the consideration of the
contract. It is a principal contract when it is a preparatory contract. This is a distinct feature of agency similar to
partnership. They are preparatory contracts that can stand on their own. Even if the agent did not enter into
another contract and he did not perform his obligation, it doesn’t mean that the contract of agency is void. In
fact, the agent can be held liable under such contract. In problems pertaining to agency, you should always
consider the fact that there normally would be two contracts involved and you have to deal with the requisites of
both contracts involved in order to arrive at the correct conclusion. The first contract will be the that entered
between the principal and the agent and the second would be that entered into by the agent and a third person.

Is this contract similar to sale as to cause in that this is essentially an onerous one? No, but this is
presumed to be one for compensation. It may actually be gratuitous. This is different from partnerships which
are essentially onerous. A partner will always have to consider something.

Of course, this is a nominate contract and a commutative contract.

In distinguishing an agency relationship from other legal relationships, you have to go into the features,
like its creation. Then you would know that this is different from legal relationships created by operation of law,
since it is created by agreement of the parties. A feature of agency which is peculiar is representation. If there is
no representation in a contract, then one cannot be considered an agent. In the case of Nielson & Co, Inc. vs.
Lepanto Consolidated Mining Co., when Lepanto claimed that the contract between the parties is a contract of
agency, the Court concluded otherwise because Nielson had no power of representation to bind Lepanto with
third persons because even if Nielson had the power to purchase items, it still needed the approval of the board
of directors of Lepanto. Hence there was no right of representation.

A feature which would make agency a relationship similar to partnership is that it is one of trust and
confidence, that there are fiduciary obligations of the agency in as there are fiduciary relations of a partner.

Another very important feature of agency is the manner of termination. This is unusual in that, as a
rule, it can be terminated at will by either party. If the termination is made by the principal, it can be by
revocation. If it is made by the agent, it is by withdrawal.

One other feature of agency discussed in the case of Fressel vs. Mariano Uy Chaco Sons & Co. is the
extent of the control of one party over another. In agency, the principal has almost full control of the agent. He
can give specific instructions to the agent as to how the obligation is to be performed, the manner of the
obligation, when it is to be performed, with whom, where it is to be performed, among others. But as in that
case, when the control of one party over another pertains only over the result, it cannot be considered an agency.
It however may be considered a contract for a piece of work.

Another important feature goes into the effect of the delivery of the thing. If there is transfer of
ownership upon delivery of the thing from one party to the other, the contract is not a contract of agency. In a
contract of agency, the delivery only transfers the possession of the thing from the principal to the agent,
ownership retained by the owner. In fact in an agency to sell, if the agent was not able to sell the thing
delivered, he has the right to return the goods to the seller. In actual case where there was a stipulation that there
would be no transfer of ownership despite delivery of the goods and ownership of the first party will only be
terminated upon sale to a third person, despite another stipulation saying there is no agency relationship
between the parties the Court held that actually, there was a principal-agent relation that existed.

Finally, while agency and partnership are very similar in that both are business organizations, both are
based on trust and confidence, normally there may be representation, and others, a very important distinction
between the two is that in partnership there is a juridical personality created separate and distinct from that of
the parties where in agency, despite the perfection of the contract, no such juridical personality is created.
Atty. Uribe Lecture Notes: Agency Page 3 of 13

Kinds of agency

Some authors classify the kinds of agency into three, namely:

(1) Actual agency;

(2) Apparent or ostensible agency; and
(3) Agency by estoppel.

Agency by Estoppel

In the case of Macke vs. Camps, Flores appeared to have full control over a restaurant owned by
Camps. In the administration of the restaurant, he bought certain items from Macke. But a portion of the amount
was not paid by Flores so Macke went after the owner of the restaurant. The only defense raised by Camps was
that Flores was not his agent. Take note that It is very difficult to prove actual agency since it is merely an
agreement between to persons. If it were a verbal agreement, how would you be able to prove it? So what
Macke did was to claim that the owner of the restaurant can be held liable by estoppel since he clothed Flores
with authority to buy those items necessary for the administration of the restaurant. Macke was also able to
prove other things such as in the lease agreement over the building where the restaurant was located, Flores
signed as Camps’s agent. The court held Camps liable under the principle of estoppel.

Apparent or Ostensible Agency

A letter was sent by B to X informing X that A has his authority to enter into contracts with X,
specifically to obtain goods from X such as copra or abaca, which goods shall be sold by A, a portion of the
proceeds being deductible as commission and the remaining to be delivered to X. After a certain period, the
goods obtained by A remained unpaid. X demanded payment from B, claiming that A was the latter’s agent.
The defense of B was that from that certain period, he had already revoked the authority of the agent and he is
therefore no longer bound by the acts of A in his representation to third persons. Is B’s claim tenable? The
answer is no. Under Art. 18732, so far as third persons are concerned, the notice of agency will remain to have
full force and effect until it is rescinded in the same manner that it was given. Since B wrote X informing him of
the appointment of A as his agent, he must notify X of the revocation in writing. This is the case of Rallos vs.
Yangco.

What if B was able to prove that he caused the publication of a notice of the fact of revocation in the
Manila Bulletin, would the answer be different? No, for the same reasons. However, despite the phraseology of
Art. 1873, what if X had actual knowledge of the fact of revocation even if he did not receive a letter? If a third
person had actual knowledge of such fact then it would be bad faith on his part to continue transacting with the
said agent and in that case, he should not be allowed to recover. In apparent or ostensible agency, as far as third
persons are concerned, they would have the right to believe that the agent has the authority until they would
receive a notice in the same manner that they received the notice of the authority of the agent.

In apparent or ostensible agency and agency by estoppel, is there really an actually agency? It does not
matter. The principal can be held liable under the principle of estoppel precisely because it would be very hard
to prove the existence of actual agency. It is possible that the principal had not really revoked the agency and
only claimed to do so just to avoid the liability the third persons. Actually, as to the letter, it may easily be ante-
dated. If only to protect third persons, Art. 1873 was included in the law on agency.

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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.
Atty. Uribe Lecture Notes: Agency Page 4 of 13

Actual Agency

The law classifies actual agency according to its characteristics. As to manner of creation, express and
implied. There is no problem with express agency because in this kind, the consent of both parties was
expressly given. The problem would really pertain to implied agency. On the part of the principal, a good case
here is the case of Dela Pena vs. Hidalgo. Dela Pena appointed Hidalgo to administer his properties in the
Philippines as he was about to leave the country. After a while, Hidalgo had to leave the Philippines to go to
Spain for health reasons so he appointed another person to administer Dela Pena’s properties. He wrote a letter
to Dela Pena informing him of the appointment. Dela Pena received the letter but did nothing. When Dela Pena
died, his heirs filed an action against Hidalgo for accounting and damages for period after the appointment of
the second agent. Who was then the agent during the said period and would Hidalgo be liable for the
appointment of another administrator? The Supreme Court ruled that from the silence, inaction or failure to
repudiate the acts of the substitute on the part of the principal, he was deemed to have impliedly consented to
the appoint of the new administrator and hence, he was deemed to have impliedly consented to the appointment
of another person as the new agent. Therefore an implied agency was created under Art. 18713.

Is this rule applicable to the agent? If a person was asked to administer a property of another or to sell
the property of another and he does nothing, may his silence or inaction be deemed to be an acceptance on his
part so as to produce an implied agency? Not necessarily. Under the law, you have to make a distinction to
determine the scenario under which the said appointment was made. The law would say “when the two parties
are present” and “when the two parties are absent”. Where both parties are present, for instance, in a conference
room and one of the parties authorizes the other to sell his property but the other person stared at the speaker
and he said nothing. By his silence, can he be deemed to have accepted the agency? The answer is no. But if A
requested B delivery a special power of B, authorizing him to sell his land and B said nothing, may he been
deemed to have accepted the agency? The answer is yes. By his silence under the circumstances described, he is
deemed to have implied consented to the agency.

If the two persons are in different places and on person called up the other and made him his agent to
sell a parcel of land and the supposed agent said nothing, may the latter be considered to have impliedly
accepted the agency? No. But this time, a special power of attorney was sent by A to B through DHL. B
received it but did nothing. By his inaction or silence, can A be deemed to have accepted the agency? Not
necessarily. This time it will depend on the nature of the business of B. Under the facts, under the special power
of attorney he was authorized to sell the parcel of land of A. If B was in the business of piggery or poultry, such
has nothing to do with selling a parcel of land. He will not be considered to have impliedly accepted the
contract of agency. However if B was a real estate broker, then by his silence would he be deemed to have
impliedly consented to the agency.

Compensation

When would it be relevant to distinguish whether agency is gratuitous or onerous?

Under 1875, agency is presumed to be for a compensation. Thus, in case the principal claims that the
agent agreed to render service without compensation, the burden of proof lies with the principal to prove that it
was gratuitous.

There is another relevance to this distinction. For instance, due to the negligence of the agent, the
principal suffered damage in the amount of P100,000. It was proven that the agency was proven to be a
gratuitous agency. May the agent be held liable? Yes. Even if the agency were gratuitous, if due to his
negligence the agent caused damage to the principal, he may be held liable. However, since the agency is
gratuitous in character, the court may mitigate the liability of the agent. Under Art. 1909, if the agency was

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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.
Atty. Uribe Lecture Notes: Agency Page 5 of 13

gratuitous, the liability of the agent for causing damage to the principal through negligence, bad faith, or fraud
committed against the principal may be mitigated by the courts.

Acts of the agent

Now to acts of the agent pertaining to administration or strict dominion. Under Art. 18774, if the
agency is couched in general terms, it would only comprise acts of administration even if the principal
withholds no power to the agent or even if it is stated that the agent may execute any act if deemed appropriate.

Essential elements

Just like any other contract, the contract of agency has three essential elements: the consent of the
contracting parties, the object of the contract which is the execution of a juridical act, and finally the cause, as
far as the principal is concerned is the service to be rendered by the agent, and for the agent the compensation to
be paid or liberality, in gratuitous contracts.

Cause

If you’ve read the case of Rallos vs. Felix Gochan, the Supreme Court enumerated the essential
elements of a contract of agency. The first, the consent of the contracting parties. The second, the execution of
juridical act. The third is that the agent should act within the scope of his authority. And the fourth is that the
agent should act in representation of the principal. These are allegedly the essential elements. As some authors
would discuss in your books, with due respect to the ponente of this case, there seems to be an error in the
enumeration. First, there was nothing mention about a cause or consideration. A contract would never be valid
without a cause or consideration. It can be liberality. If only for that, the enumeration is defective. But more
than that, that the agent must act within the scope of his authority and that the agent must act in representation
are not essential elements of a contract of agency. They are actually obligations of the agents, which means
there had already been a perfected contract of agency. No obligation will arise if the contract was void or if
there was yet no valid contract. Essential elements are only those necessary for the validity of the contract. If
the contract is valid, only then would the obligations arise. If the agent acted outside the scope of his authority,
does not mean that the contract of agency is void? Of course not, he can even be held liable. If he acted not in
representation of the principal, does this mean there is no agency anymore? Of course there is still an agency, as
there will be consequences if the agency did not act in representation of the principal.

One author may claim that there are three parties to a contract of agency. That is totally wrong. There
are only two parties to a contract of agency. However, in problems again involving agency, there would
normally be or there could be three persons involved. The third person is the person with whom the agent
transacted. But this is no longer part of the contract of agency. The agency is the contract entered into by the
principal and the agent. When the agent enters into a contract, this may be any other contract and the third
person is a party to this second contract. Again, the parties would be the principal and the agent. They may be
called by other names but they are still the principal and the agent.

Consent

Q: What if the principal authorized and agent, A, who was then only 16 years old, to sell a house and
lot, giving him a special power of attorney? The agent sold the house and lot to X. Thereafter, X filed an action
to annul the sale on the ground that A was a minor at the time of the sale. May this action prosper?

A: On two grounds, it will not prosper. In that contract between A and X, while A is considered as the
seller, he is only acting in behalf of the principal, the real party to the contract. The other reason is that, only the
incapacitated person has the right to have the contract annulled. The party to the contract who is otherwise not

4
Art. 1877. An agency couched in general terms comprises only acts of administration, even if the principal should state that he withholds
no power or that the agent may execute such acts as he may consider appropriate, or even though the agency should authorize a general and
unlimited management.
Atty. Uribe Lecture Notes: Agency Page 6 of 13

incapacitated has no right to institute an action for annulment. Either ground would be a fine ground to have the
case dismissed.

Object

As to the object of a contract of agency, is it correct to say that any act which a person can lawfully do,
he can delegate to an agent? No. There are acts which are considered purely personal acts which he may not
delegate to an agent, such as the execution of an affidavit or a will. The right vote, may this be delegated to
another person? It depends. Voting in local or national elections cannot be validly delegated. But in
corporations, may the right to vote be validly delegated? Yes, in stockholders meetings. But obviously, what the
person himself cannot lawfully do, he cannot delegate to anyone. If alien cannot buy a parcel of land in the
Philippines, he cannot delegate such act to another person. That will still be a void sale.

Formalities

Under the 2nd par. of 1869, agency may be oral. However, if the effect of the verbal agreement between
the principal and the agent, will be on the contract entered into between the agent and the third person. If the
contract of sale entered by the agent with a third person is not in writing, the sale itself is void, under Art.
18745. But if for example, the agent was authorized to sell a car and his authority was not put into writing,
would the sale be valid and enforceable against the principal? No, it will be unenforceable under the last
paragraph of Art. 1878 which provides that any other act of strict dominion will require a special power of
attorney. So Art. 18786 enumerates cases, acts or contracts where the law requires the authority of the agent to
be in writing, particularly a special power of attorney; otherwise, contracts entered into by that agent would be
unenforceable as against the principal.

To illustrate: The agent was authorized to administer rice land. In the administration of the rice land, he
had to buy fertilizer. He paid the seller of the fertilizer without a special power of attorney. Would the payment
be valid and binding as against the principal? The answer is yes because such act of the agent will only be
considered as an act of administration. However, let’s say he sold the palay and used to proceeds to pay the
indebtedness of his principal with a certain bank without a special power of attorney. Would the payment be
valid and binding as against the principal? No, it would not because that would fall under the first paragraph of
1878. To make such payments which are not acts of administration would require a special power of attorney.

Another example: The agent of B enters into a contract of lease with X for a period of 3 years without a
special power of attorney. Will this contract of lease be valid and binding as against the principal? It would

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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.
6
Art. 1878. Special powers of attorney are necessary in the following cases:
(1) To make such payments as are not usually considered as acts of administration;
(2) To effect novations which put an end to obligations already in existence at the time the agency was constituted;
(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the venue of
an action or to abandon a prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable
consideration;
(6) To make gifts, except customary ones for charity or those made to employees in the business managed by the agent;
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under
administration;
(8) To lease any real property to another person for more than one year;
(9) To bind the principal to render some service without compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the agency;
(15) Any other act of strict dominion.
Atty. Uribe Lecture Notes: Agency Page 7 of 13

depend on the object of the lease. If this is merely a lease of car for 3 years, it will be valid and binding against
the principal, even without a special power of attorney. However, if this were an immovable, it would only be
unenforceable is the principal were the lessor, under 1878.
Suppose based on the aforementioned facts, this time the agent had a special power of attorney. May it
be possible that the lease contract would be nevertheless be unenforceable? Yes, if the lease is not in writing,
under the Statue of Frauds. A lease over an immovable for more than one year must be in writing in order to be
enforceable.

The claim that a power of attorney may be oral would be wrong. It must be in writing. In fact, the
provisions on agency would consider a power of attorney as a written instrument. For instance, Art. 1871
pertains to the delivery of a power of attorney. Art. 18727 pertains to the transmission of a power of attorney.
Art. 19008, power of attorney as written. Art. 19029, presentation of a power of attorney. Obviously, you cannot
do that if it is merely a verbal authorization. By its nature, it is in writing. The only question which actually
reached the Supreme Court is would a special power of attorney be valid and binding against the principal if it
was not in a public instrument? Yes. Even if the power of attorney is only in a private instrument, it will still be
valid and binding. In fact in one case, Jimenez vs. Rabot, Jimenez was the owner of certain parcels of land in
Pangasinan. He sent a letter to his sister asking the latter to sell one of his properties. His sister did sell one of
the properties to Rabot but unfortunately, she did not remit to him the proceeds of the sale. He then later filed an
action against Rabot, the purchaser, one the ground being that the letter was not a sufficient special power of
attorney. The Supreme Court decided in favor of Rabot, holding that in such case, a simple letter suffices.

Rights and obligations of the agent

The primary obligation of an agent is to carry out the agency. If he fails to do so, he may be held liable.
Should he still carry out the agency after the death of the principal? As a rule, he should no longer do so, as
there is no one to be represented. In fact, under Art. 191910, the agency is extinguished by the death of the
principal. However, in cases where delay would entail danger or involves a project which was already begun
and should be finished, he should continue to carry out the agency.

If he did not carry out the agency on purpose, would there be an instance where he may not be held
liable? Yes, if carrying out the agency would manifestly result in loss or damage to the principal. For instance,
if the agent was authorized to purchase a specific vehicle from a specific person and, upon attempting to
purchase said vehicle, the agency was informed by the seller of a defect in the vehicle. Without informing the
principal, the agent nevertheless purchased the vehicle. If damage was caused to the principal by reason of such
defect, can the agent disclaim liability by stating that he merely carried out the agency? No, the agent should not
carry out the agency if it would cause loss or damage to the principal.

In carrying out the agency, there are two obligations of the agent which you should always remember

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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.
8
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, 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.
9
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.
10
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.
Atty. Uribe Lecture Notes: Agency Page 8 of 13

(1) To act within the scope of his authority; and

(2) To act on behalf of the principal.

To know whether an agent is acting within the scope of his authority, such can be gleaned from his
power of attorney. Take for instance a case wherein the agent sold the land of his principal, believing that he
was authorized to do so. Note that his power of attorney empowered him to buy and sell, among other acts, for
the administration of the property. If the agent acted outside the scope of his authority, would good faith on the
part of the agent validate his act and bind the principal? No, the agent’s belief in good faith that he has the
authority is very much different from actually having the authority.

As a rule, you can be guided by the power of attorney. Art. 188111 provides that the agent may do acts
as maybe conducive to the accomplishment of the agency. This particular provision was in fact cited in the case
of Macke vs. Camps.

Another provision which may guide you in determining whether or not the agent acted within his
authority is Art. 188212. A good example of this would be when the principal authorized the agent to sell his car
for a P300,000. If the agent sold the car for P400,000, may the principal say that the agent acted outside the
scope of his authority? Technically, yes, but then in reality, why would he do that? Moreover, 1882 provides
that the limits of an agent’s authority should not be considered exceeded should the agency have been
performed in a manner more advantageous to the principal than that specified by him. This transaction should
be distinguished from an agency to sell, say, 100 kilos of mangoes at P30 per killo. If the agent sells the
mangoes at P50 per kilo and he gets to sell only 60 kilos, the agent is liable for violating the instructions of the
principal, reducing the competitiveness of the products thereby causing damage to the latter.

Another is Art. 187913 which provides that the power of an agent to sell excludes the power to
mortgage. So even if the power of authority of an agent gives him the power to sell, he would still require
another power of attorney providing for the power to mortgage in order to be able to enter in mortgage
agreements over the subject property. In the same way, a special power to compromise does not include the
power to enter into arbitration.

If the principal authorized the agent borrow money, can the agent, without the authority of the
principal, be the lender himself? Yes, as long as the interest rate is the market rate. What if the principal
authorized the agent to lend the money of the principal, may the agent himself be the borrower without the
consent of the principal? No.

The decisions of the Supreme Court will guide us in determining the extent of the authority of the
agent. In the case of Insular Travel vs. PNB, the agent here was authorized to collect sums of money, including
text, from clients of Insular Travel. Instead of delivering the checks, the agent encashed them. Does the
authority to collect the checks include the power to endorse or in-cash them? The Court said no, and faulted
PNB for crediting the amounts of the check to the agent’s account despite the checks being payable to Insular
Travel.

In the obligation to act for and behalf of the principal, if the agent acted for himself and did not disclose
his principal, would the third person have a cause of action against the principal? The answer is no. Would the
principal have a cause of action against the third person? The answer would be no also. But there is an
exception to this rule: if the object of the contract entered into between the agent and the third person belongs to
the principal, the law grants a cause of action to the third person against the principal and vice-versa. This is
possible because of the possible collusion between the principal and the agent, to the prejudice of the third
person.

11
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.
12
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.
13
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.
Atty. Uribe Lecture Notes: Agency Page 9 of 13

A authorized B to borrow a sum of money from a bank and to mortgage a specific parcel of land to
secure the loan. But what B did was to borrow a sum of money for himself without disclosing his principal. B
defaulted. Can the bank go after the principal for the payment of the loan? The answer of course is no. The
contract is one between only the agent and the bank. Under the facts, the agent acted for himself, he being the
borrower. If the agent acted in behalf of the principal and disclosed his principal, the third person and the
principal will be bound by such contract. However, is it possible for the agent to be bound by the contract as
well? Yes, if he expressly binds himself to that contract. In the nature of such contracts, particularly an agency
to sell, the third person deals with the agent and knows only who the agent is. Hence, it is but normal for the
parties to agree that the agent be bound personally as a seller as well in order to consummate the sale. The agent
may also be held liable on the contract if he acted negligently or in bad faith, as provided for in Art. 1909.

Aside from those two scenarios, the agent may also be liable if he acted outside the scope of his
authority. However, he may not be held liable under the following circumstances: (1) if the principal ratified the
acts of the agent; (2) even if the principal did not ratify, if the third person was already notified that the agent
had exceed his authority or he was actually aware of such fact, in which case the contract between the agent and
the third person would be void under Art. 189814.

The other obligations of the agent are:

(1) He must render an account of his transactions.

(2) He must deliver to the principal whatever he may receive by virtue of the agency, even if not
owing the principal. Any stipulation to the contrary is void.

Obligation to Deliver

In Domingo vs. Domingo, the agent was authorized to sell a property of the principal. During
negotiations with a prospective buyer, the agent received P1,000 from the said buyer but he did not deliver the
sum received to the principal nor did he disclose such fact to the latter. The principal, to accommodate the
buyer’s desire for a lower price, colluded with the said buyer to make it appear to the agent as though the sale
would not push through. The buyer agreed and the principal, on such premise, terminated the agency. The agent
later found out that the subject property was sold to the wife of the prospective buyer. May the agent validly
demand for his commission? No. By failing to comply with the obligation to deliver whatever he received
pursuant to the agency, even those not owing to the principal, the agent committed a breach of his fiduciary
obligation. Hence, he is not entitled to the commission. Even if the amount given was meager, the duty disclose
such fact is important because the amount given by the buyer was intended to convince the agent to persuade
his principal to reduce the price, an end inconsistent with the interest of the principal.

This obligation is so serious that if the agent fails to comply, he may be imprisoned. In U.S. vs. Reyes,
the agent was authorized to collect a sum of money. The agent was able to collect more or less 4/5 of the
amount. The agent, claiming that he was entitled to a commission of 20% of the total sum to be collected,
deducted the amount from the sum collected. The principal contested the claim, alleging that the amount of the
commission was actually only 10% and demanded that the agent remit the other 10% taken. A criminal
complaint for estafa was filed by the principal. The Court said that regardless of the actually amount of the
commission, the agent is not entitled to retain the amount representing the commission. Even assuming that the
actual commission agreed upon is 20%, the agent is entitled to only 20% of the sum actually collected. The
agent was found guilty and convicted.

Obligation to render accounting

14
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.
Atty. Uribe Lecture Notes: Agency Page 10 of 13

If the principal authorized the agent to sell his car for at least P300,000. Before the agent could sell the
car, the principal instructed him to sell the car to an individual from the IBP, Quezon City chapter. The agent
thereafter sold the car in Manila to a person unknown to the principal, for the same amount. Can the principal
recover the car from the buyer And if not, is there any other remedy available to the principal? As to the first
question, it depends. If the buyer had no knowledge of the instruction of the principal, then he has all the right
to retain the car and the sale would be valid and binding against the principal. As provided in Art. 1900, third
persons only have to rely on the special power of attorney as written. They have no obligation to inquire into
special instructions of the principal not so mentioned in the special power of attorney. The remedy of the
principal in this case would be to sue the agent for damages for his failure to follow his instructions. On the
other hand, if the third party knew that the agent exceeded his authority, then he would have no right to retain
the car as the contract between them is void pursuant to Art. 1898. Note, however that this contract is subject to
ratification by the principal.

Is it possible that the agent be held liable as to the third person even if the third person was aware of the
fact that the agent was already acting outside his authority? Yes, if the agent promised to obtain the ratification
of the principal and he failed to do so.

Appointment of a substitute

A sub-agent is very much different from a substitute. By appointing a substitute, the agent will be
dissociating himself from the agency, the substitute being appointed to take over his functions. An agent who
appoints a sub-agent, on the other hand, continues to be an agent.

The appointment of a substitute is governed by Art. 189215. Can the principal hold the agent liable if,
after the latter appointed a substitute, losses were suffered by the principal? The first thing to consider is
whether or not the agent was prohibited from appointing a substitute. If he was prohibited, he will definitely be
liable. In fact under the law, all acts of the substitute appointed despite the prohibition shall be void.

If there was no such prohibition, he may be responsible under certain circumstances. If he was not
prohibited but neither was he given the power to appoint a substitute, he may be liable for the loss if the
substitute acted with gross negligence or bad faith. If the agent was given the power to appoint a substitute, it
would depend if the substitute was designated by the principal. If the substitute as designated by the principal
and after the substitution the principal suffers loss, the agent will not be liable.

However, this is subject to the provision on agency that the agent shall not carry out the agency if the
principal would suffer damage or loss on account thereof. Hence, if the agent knew that the substitute was
notoriously incompetent and, despite knowledge of this fact, made such appointment, he may be held liable. If
the person to be appointed as a substitute was not was not designated, the agent may be held liable if the
substitute turned out to be notoriously incompetent or insolvent. This is provided for under Art. 1892.

Multiple agents

If the principal appointed two or more agents, what would be the nature of their liability? The rule on
joint or solidary liability in obligations applies to agency as well. However, even if they bound themselves to be
liable solidarily and the principal incurs damage due to the act of one of the agents, it is still possible that they
may not be held liable solidarily if the erring agent acted outside the scope of his authority.

Commission agent

15
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.
Atty. Uribe Lecture Notes: Agency Page 11 of 13

The most common kind of agent is the commission agent, an agent authorized to sell and be given a
commission after the sale is consummated. If the agent sold the item on credit without the consent of the
principal, can the agent be compelled to pay the principal if the latter demands payment? Yes, he can be
compelled to deliver the proceeds as if the object of the sale was sold on a cash basis. Hence, the agent will be
obliged to deliver the price, less his commission. If, in addition to the aforementioned facts, the agent was able
to sell the object on credit at a price higher than the price specified by the principal and the agent is later able to
collect the entire proceeds, may the principal demand for the balance of the actual price and the specified price?
The answer is no. Under the law, if the agent sold the thing on credit without the consent of the principal, he is
entitled to any profit he may derive from the sale.

If the agent was instructed to sell several objects and he was only able to sell one of them, can he be
held liable for the price of all of them? Normally he would, for failure to comply with the instructions of the
principal. However, the agent may prove that he exercised the diligence required or, in the absence of such
requirement, the diligence of a good father of the family in complying with the instructions of the principal. The
agent is not the insurer of the success of the business of the principal.

A bar exam question: The agent was authorized to sell 20 units of refrigerators. In addition to his
commission, he received a guarantee commission. However, the buyer failed to pay. The principal demanded
from the agent the money he was supposed to remit to the principal as a guarantee commission agent. The
defense of the agent was that his obligation was only to sell to refrigerators, not to collect the price. Is the
contention of the agent correct? No. The agent is a guarantee commission agent or a del credere agent. As such,
he bears the risk of collection.

Rights and obligations of the principal

If the agent’s primary obligation is to carry out the agency, the principal’s primary obligation is to
comply with the obligations which the agent may have contracted, within the scope of his authority and in
representation of the principal.

While generally the principal is not bound by the acts of the agent outside the scope of his authority,
the principal may still be bound if:

(1) He ratified the act of the agent;

(2) Even if he did not ratify the act, he contributed in leading a third person into believing that the
agent was acting within the scope of his authority (estoppel, the principal and the agent will be
solidarily liable); and
(3) When the third person could not have known the limitations of the power of the agent, such as
when the limitations were not indicated in the special power of attorney.

The principal is also obliged to advance the sums required to carry out the agency. But may the agent
assume this obligation? Yes, if there was an express stipulation to that effect. However, if the principal is
insolvent, then the agent may not be obliged to advance the sum required.

As a rule, the principal is obliged to reimburse the expense incurred by the agent while in the
performance of his obligation. However, under Art. 1918 the principal will not be liable to do so if:

(1) The agent was acting in contravention of the instructions of the principal, unless the principal
would avail of the benefits of such act.
(2) The expenses were incurred when the agent was at fault.
(3) They agent incurred them with the knowledge that an unfavorable result would ensue, if the
principal was not aware thereof.
(4) There was a stipulation that all expense would be borne by the agent, or that he be allowed only a
certain sum.
Atty. Uribe Lecture Notes: Agency Page 12 of 13

If two or more principals appointed an agent for a single transaction and expenses were incurred by the
agent, under the law the principals are liable solidarily16.
If the agent was authorized to lease a specific property and he in fact entered into such contract with A,
and the principal entered into a lease contract with B over the same property, which contract will be recognized
by law? The answer would depend which contract was entered into first. However, priority in time does not
apply to sale. If a car was sold by the agent to A, and the principal sold the same car to B, the basis of the
answer will not longer be priority in time but on Art. 1544 on double sales. What if the injured party filed an
action for damages against both the agent and the principal? Generally, it is only the principal who will be
liable, but the agent may also be held liable if he acted in bad faith.

Extinguishment of agency

Extinguishment of agency is governed by 1919. The modes of extinguishment of obligations may also
apply to extinguishment of the agency.

Generally, the death of the principal will extinguish the agency. However, if the agency was instituted
the for the benefit of both parties or for the benefit of a third person who accepted the benefit, under Art. 1930
17the agency shall be deemed to have full force and effect even after such principal’s demise.

Modified Bar Q: B authorized A authorized A to sell a parcel of land. Before A could sell the land, B
died. After B’s death, his heirs sold the parcel of land to X. A year after, A sold the same parcel of land to Y.
Who between the X and Y has a better right over the land?

A: There are circumstances to consider. If there was no special power of attorney on the part of A to
sell the land, then undoubtedly X would have a better right. If there was a special power of attorney, the answer
will now depend on whether or not A had knowledge of the death of be, or whether or not Y was in a buyer in
good faith. If A had knowledge of the death of B or Y was in bad faith, then X would have a better right. Under
Art. 1931, acts of the agent after death of the principal will only be considered valid if he had no knowledge of
the death of the principal and if the third person was in good faith. What if A had no knowledge of the death of
B and Y was in good faith? This time, it will be resolved by going into Art. 1544.

In the case of Rallos vs. Felix Go Chan, the agent here was authorized to sell a parcel of land co-
owned by two sisters. He sold the parcel only after the death of one of the sisters. The administrator of the estate
of the dead sister filed an action to recover the property sold. What is the effect of the death of one of the sisters,
a principal to the sale? The sale of the portion owned by the surviving sister is a valid sale. But as far as the
portion owned by the deceased sister is concerned, under Art. 1919, the authority to the agent was terminated
upon the death of the principal. Art. 1930 and Art. 193118 will not apply since the agent had knowledge of the
death of the principal.

The principal can revoke the agency at will, at any time even if there was a period stipulated because a
contract of agency is based on trust and confidence.19 But this right must be exercised in good faith.

If the agency was instituted as a means of fulfilling an obligation previously contracted, it may not be
validly revoked until such obligation is extinguished. There may be instances where in bilateral contracts
depend upon the contract of agency, such as in the case of Coleongco vs. Claparols. Here Coleongco advanced
money needed by Claparols for his factory on the condition that the former would be constituted as an agent for
some aspects of the latter’s business. But take note that for an agent to claim that the agency is coupled with

16
Art. 1915
17
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.
18
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.
19
Baretto vs. Santa Maria
Atty. Uribe Lecture Notes: Agency Page 13 of 13

interest and cannot be revoked by the principal until the interest of the agent ceases to exist, the following
requisites must concur:

(1) The interest must be something other than the usual compensation of an agent or his commission;
and
(2) It must be stated in the power of attorney.

Nevertheless, an agency coupled with interest may be validly revoked even during the existence of the interest
for just cause.